Orissa Sponge - Rs.55.50

Incorporated in April'79, Orissa Sponge Iron Ltd (OSIL) was promoted in the joint sector by the Industrial Promotion & Investment Corporation of Orissa and Torsteel Research Foundation and its associates. It manufactures sponge iron through the direct reduction route by using non-coking coal as a reducing agent. Sponge Iron is the basic raw material used for steel making and steel manufacturers of late are trying to replace iron ore with sponge iron to reduce their dependency on imported coking coal, which is very good for sponge iron manufacturers like OSIL. The company also has a project consultancy division which provides technical consultancy and project engineering services to sponge iron plants. Lloyds Metals & Engineers, Usha Martin Industries etc. have already adopted the OSIL technology whereas other leading steel producers like the Bokaro Steel Plant of SAIL has shown a keen interest to adopt it.

OSIL has a current installed capacity of 1,00,000 TPA of Sponge Iron and 1,00,000 TPA of Steel billets. It has installed a 10 MW power plant utilizing the waste heat from the sponge iron plant. It is upgrading technologies to allow 100 per cent sponge melting as well as permit the use of iron ore fines generated during mining for sponge iron making. The company intends to install an additional kiln with a capacity of 1,50,000 TPA of Sponge Iron and also to set up a Steel Billet Plant at Bamra in District Sambalpur in Orissa with an installed capacity of 3,00,000 TPA. The company is also setting up a 9 MW power plant using waste heat of the kiln, which will not only make it almost self sufficient in the power requirement of the Steel Billet Plant but also reduce its power cost. The Central Government has also approved the grant of iron ore mining lease to OSIL.

OSIL has reported impressive numbers for the six months ending Sept 2004 with Net Sales up by 30 per cent at Rs64 cr. while NP jumped 124 per cent to Rs5.60 cr. posting an half yearly EPS of around Rs5. Its OPM also improved 550 basis points to 26 per cent compared to last year. Taking into effect the expansion and higher price realization, it could clock a turnover of Rs150 cr. and NP of Rs13 cr. for FY05 This works out to an expected EPS of Rs11 on its current equity of Rs11.90 cr. and it may declare 20~25 per cent dividend, which makes it a good dividend yield at the current price. In the current market sentiment, this scrip can easily give 50 per cent return in 6 months and can double in a year’s time.

STOCK WATCH

In the paper sector, Tamilnadu Newsprint Ltd. (Code No.531426) (Rs.64.50) (TNPL) is the best bet for the long term. It has ambitious expansion plans to increase its copier paper production to 3500 tonnes a month from 2500 tonnes. Its in-house pulp production is set to increase from 500 TPD to 800 TPD and its annual production of paper will increase to 2,45,000 MT from 2,30,000 MT. The higher production coupled with better price realizations will lead to higher profitability, which will drive its share price beyond the century mark in the next 12 months

Navabharat Ferro Alloys (Code No.513023) (Rs.345.95) seems to bottomed out and is ready for a sharp rally. The company has good expansion plans and is the best bet in the current market situation. For FY05, it will sure to register an EPS of more than Rs100 and the scrip can anytime to shoot to Rs500.

Most of the chlor alkali scrips like Gujarat Alkalies, DCW etc. have shot up due to the hike in caustic soda prices. Bihar Caustic (Code No.500057) (Rs.54.60) with an installed capacity to produce 51048 TPA of Caustic Soda, 39600 TPA of Liquid Chlorine and 29040 TPA of Hydrochloric Acid has still not performed as per market expectation and can rally sharply in coming days. For FY05, it is expect to post an EPS Rs11. A strong buy.

In spite of strong fundamentals and all positive news coming in, the India Glycol (Code No.500201) (Rs.133.95) share has not rallied at all and is trading in a very narrow range. But a sharp break out is expected shortly. Be patient and accumulate it at every sharp dip. It is bound to cross the Rs200 mark.

Of late, shipping scrips have reacted negatively on news of the fall in freight rates. This gives a good opportunity of buy SCI (Code No.523598) (Rs.175.65). Its future prospects still remain very promising and the company has many triggers going forward. Its share price has the potential to cross Rs250 in the next 12 months

Karnataka Bank (Code No.590002) (Rs.203.30) still seems cheap at Rs200 considering 2:1 rights offer is priced at Rs20 per share. Post rights, the bank is expected to post an EPS of more than Rs12 on the expanded equity. At CMP, the acquisition cost works out to Rs80. This means it is still trading at 6 PE whereas other private banks have run up a lot recently.

Surana Telecom - Rs.72.00

Originally incorporated as Surana Petroproducts Pvt Ltd in August 1989, Surana Telecom Ltd. (STL) became a public limited company in July 1993. Promoted by G M Surana, G P Surana, Narendra Surana and Devendra Surana. The company is engaged in the manufacture of heat-shrinkable cable jointing kits, Jelly Filled Telecommunication Cables (JFTC), wire connectors, end caps, modular connectors and HDPE pipes catering to the telecommunication sector. STL is also one of the foremost producers of Optic Fiber Cable (OFC) in the country for which it has technical collaboration with Rosendahl, a 100 per cent subsidiary of Alcatel.

Due to the difficult times faced by the cable industry, STL recently diversified into the high growth business of assembling of CDMA (code division multiple access) based telecom terminals. It ventured into this lucrative market of assembling and trading of CDMA handsets with an understanding with LG Electronics Inc & Huawei Technologies Co. Ltd. to supply the CDMA and Fixed Wireless Terminals to BSNL, MTNL, Reliance Infocomm and Tata Teleservices. It is now looking at into Internet Protocol TAX (Telephone Exchange) that is equipment that supports the Internet and converts the existing networks to support IP. The company has also applied for a Qualcomm product license and plans to manufacture some of the CDMA products. Of late, the company has moved into the Handheld segment also and offers CDMA colour display handheld terminals to MTNL. It is also setting up facilities to manufacture switch mode power supply based battery chargers which can increase the talk time drastically The Company is also entering into various products in the Broad Band Digital Loop Carrier (DLC) and shall be in the front end technology partner in the various requirements of BSNL & MTNL. Moreover, its JFTC & OFC division will continue to perform well given the plans for expansion of broadband connectivity especially by BSNL only a few days back, it bagged a Rs.30 cr. order for it cable division.

It turned around in both the quarters of FY05 due to strategic shift towards wireless telecom products from cable manufacturing. For the six months ending Sept 2004 its Net sales jumped 8 times to Rs.70 cr. and NP quadrupled to Rs.5.30 cr. compared to last year. This works out to an half yearly EPS of Rs.5 on its current equity of Rs.11.30 cr. taking into account the management’s aggressive style and growth prospects, STL could close FY05 with turnover of Rs.160 cr. and NP of Rs.14 cr. registering an annualised EPS of Rs.12 Hence it is trading cheap at 6 PE only. Investors are advised to buy into the stock and expecting 50 per cent return in 8-12 months.

Indo Asian Fusegear - Rs.93.00

Indo Asian Fusegear Ltd., incorporated in 1984 as a private limited company and converted into public limited in 1991, manufactures a wide range of high quality electrical control & protection products. They include electrical safety devices such as miniature circuit breakers, residual current circuit breakers, HRC fuses, transformers, switchgears wires & wiring accessories, industrial plugs & sockets, contractors relay, distribution boards etc. It has also diversified into the high-tech energy-efficient lighting field manufacturing the ‘Ecolite’ brand of compact fluorescent lamps and light fittings. The company has technical & commercial collaborations with some leading German & Italian manufacturers. The boom in power, housing, hotels, malls, commercial complexes and the construction industry in general translates into increased demand for electrical distribution & safety equipment. Since India is increasingly recognised as a low cost international quality manufacturing base, outsourcing represents an attractive opportunityfor the company. Accordingly, it has entered into an agreement with UK / Europe based companies for export of power distribution equipment like distribution boards, MCBs, RCDs etc., which are used in the construction sector. It has also contracted to export circuit protection equipment

It has five modern and state-of-the-art manufacturing units located in northern India and has a wide distribution network spread all over India. Its clientele include leading industrial houses like NTPC, Reliance, IOC, Tata Honeywell, HLL, Bajaj Auto, Ashok Leyland etc. To cater to the increasing demand, the company is expanding its Himachal Pradesh unit. It has good capex plans and will invest Rs15~20 cr. over the next 2 yrs for expanding capacities of the existing plants. The company also plans to manufacture and market remote reading meters to meet the emerging opportunities. To consolidate operations and increase its market share in Europe, the company has approved a reverse merger with its group company Indo Kopp Ltd., which is a debt free and profitable company.

Due to its various initiatives, its operating margin has doubled to 17 per cent in FY05 compared to 8.50 per cent last year. Net Sales grew by 87 per cent to Rs55.75 cr. and NP zoomed to Rs5.70 cr. from Rs0.30 cr. last year. Considering the orders pouring in and the export growth potential, it can clock a turnover of Rs135 cr. and earn NP of Rs14 cr. for FY05 recording an EPS of Rs14. Although in the T2T segment, the scrip has appreciated smartly in the last few days but is still trading reasonably cheap at PE of 6~7. It can give 50 per cent returns in next 12 months even from the current level. Long term investors can expect more since the company could register an EPS of more than Rs20 for FY06.

STOCK WATCH

In Banking, Dena Bank (Code No: 532121) (Rs.31.65) still looks good from the long term perspective. With the object to increase its Capital Adequacy Ratio to 12 per cent, it is coming out with an IPO early next year, which will be highly oversubscribed at the upper band of Rs27. It has a high NPA level of 8 per cent, which the management is trying to reduce drastically. At the same time, it enjoys the distinction of having the highest productivity per employee among PSU banks. As per RBI guidelines, the bank has shifted securities from AFS to HTM category, which will give some support to treasury income. For FY05, the bank may surprise the market with an EPS of Rs8. At Rs31 it is the best buy as it can give handsome returns to investors.

Natco Pharma (Code No: 524816) (Rs.138.15) has recently launched Curcumin 500 mg. capsules, which act as an essential food supplement especially for cancer patients. Curcumin is found to be effective in the treatment of multiple myeloma, tumours and other cancers. Few weeks back, it launched an anti-tumour capsule for the palliative treatment of metastatic / progressive carcinoma of the prostate. Earlier, it had also released Cantret capsules for the treatment of recurrent / persistent ovarian cancer. The company is now planning for a foothold in the international market as well. For FY05, it may report an EPS of Rs12. A good bet in the pharma sector

Uttam Galva (Code No:513216) (Rs.37.40) has an ambitious Rs350 cr. expansion plan for increasing the cold rolled capacity by 4,00,000 TPA, expanding its galvanising line with a capacity of 3,50,000 TPA and to set up a most modern state- of-art pre-painting line with a capacity of 60,000 MT. For the current first half, its sales was up 79 per cent to Rs1030 cr. and NP was Rs39 cr. For the full year FY05, it can easily report an EPS of Rs12. The best buy in the steel sector at current levels.

Orissa Sponge (Code No:504846) (Rs.47.80) has massive expansion plans and is increasing its sponge iron and steel billet capacity to 2,50,000 TPA each and has also obtained government approval for its iron ore mining lease. Due to the scarcity of scrap iron and the huge demand sponge iron, prices are expected to remain firm. For the current full year, it is expected to report an EPS of Rs10. Its share price can rise 50 per cent from current levels once the scrip catches market fancy.

Aggressive investors can have a look at B&A Plantation (Code No: 508136) (Rs.39) in the Tea sector as it is reportedly doing well. For the current first six months, its total revenue increased by 17 per cent to Rs27.50 cr. and NP spurted 175 per cent to Rs3.05 cr. posting an half yearly EPS of Rs10 on an equity of Rs3.10 cr. For the full year, it may post an EPS of Rs12. Its share price can rise smartly in future.