Birla Power Solution - Rs.39.00

Incorporated in 1984, Birla Power Solutions Ltd (BPSL) belongs to the Yash Birla group and is better known by its earlier name, Birla Yamaha Ltd. After the termination of its Joint Venture Agreement with Yamaha Motor Co. Ltd of Japan a few years ago, it adopted the present name. Today, it is the largest provider of power solutions and manufactures generators, pumpsets, inverters, UPS, batteries, sprayers and multi-purpose engines. In fact, BPSL was the first company to manufacture portable generators in India and roll out self-start gensets in the country and the first to introduce emission compliant generators. Being a market leader with a network of more than 850 dealers, it produces a wide range of generators catering to power requirements from 500W to 5.5KW and has good expertise in manufacturing 2 stroke and 4 stroke engines. BPSL’s manufacturing unit is big and modern located in Dehradun with a capacity to produce 75,000 Gensets and 25,000 multi purpose engines.

Due to stiff competition from China and stringent noise/air pollution norms, the company’s topline and bottomline was under pressure since the past few quarters. But now the management has turned aggressive and has taken a lot of initiatives to make it a profitable company again. Witnessing a decrease in sales of gensets, the company is now concentrating more on other products like electrical appliances, inverters, pumpsets and multipurpose engines etc. It has chalked out plans to launch products like tillers, lawn mowers and rain-guns under the fast-growing multiple-application engines division. The company is also looking to outsourcing the production of inverters and launching a range of electronic stabilisers and inverter-batteries. It also plans to increase its range of pumpsets and sprayers in the lower power range. The management is putting more thrust on exports because of which generators as well as multi purpose engines are gaining increasing acceptance in the African sub-continent, Middle East and Far East countries. Besides, BPSL has recently launched its first co-branded LPG-fuel generator through HPCL's 2,000 dealerships across the country and is looking at extending the LPG-fuel option to its entire gensets portfolio.

Currently, its fundamentals are not that strong given the high debt and rising inventories but the future prospects look good and the company can turn around strongly in the coming quarters. For the six months ending 31st March 2005, its net sales grew by 40% to Rs.39 cr. but the NP dropped to Rs.0.20 cr. compared to Rs.2 cr. in the previous corresponding period due to higher interest cost and lower ‘other income’. But considering the company’s aggressive future plans, it could to report Sales of Rs.90~95 cr. and NP of Rs.6 cr. for FY05 ending Sept’2005. This would result into an EPS of Rs.6 on its current equity of Rs.10.50 cr. For FY06, it can report an EPS of Rs.8. Hence only long term investors should buy this scrip with a price target of Rs.60 i.e. appreciation of 50% in 15~18 months.

STOCK WATCH

Like SIEL Ltd, Bihar Caustic there is another scrip, which is trading cheap from the caustic soda sector, is Standard Industries (Code No: 530017) (Rs.25.85). Basically, it is a turnaround story thanks higher price realisation, better operating efficiency and lower interest burden. Sharing its optimistic outlook with investors, it even declared 12.5% interim dividend on its share of Rs.5 face value for FY05. For the six months ending 31 March 2005, its top-line grew by 18% to Rs.98.50 cr. whereas its NP stood at Rs.19 cr. against a net loss of 3 cr. in the corresponding previous period. It is expected to end FY05 with an EPS of more than Rs.6, which may rise to Rs.8 in FY06. A strong buy.

Its been observed that scrips with very low floating stock shoot up fast once they catch market attention. One such scrip is Ravalgaon Sugar (Code No: 507300) (Rs.3800). Engaged in the production of sugar and confectionery with brands like ‘Pan Pasand’, ‘Mango Mood’, ‘Coffee Break’ etc. the company has a very small equity of Rs.0.34 cr. With a face value of Rs.50 per share and promoter holding at 49%, the floating stock is little above 30,000 shares. At CMP, market cap of this Rs.65 cr. company comes to only Rs.26 cr. For FY05, its net sales increased 12% to Rs.66 cr. but its NP jumped 295% to Rs.3.80 cr. registering an EPS of Rs.560 and Cash EPS of Rs.925. With normal rains and better prospects of the Sugar industry its share price can easily go beyond Rs.5500. Besides, it is a strong bonus candidate as it has huge reserves of Rs.20 cr. leading to a book value of more than Rs.3000. On bonus announcement its share price can even double from hereon.

Aggressive investors can accumulate Kirloskar Ferrous (Code No: 500245) (Rs.33.25) due to various developments taking place in the company. First, the company has reduced its interest burden considerably by paying off its high cost debt. Secondly, the management is planning to reduce its equity by 50% by writing off accumulated losses, which is a positive sign. Besides, the recent cool off in iron ore and coke prices will reduce its raw material cost as the company manufactures pig iron and ferrous castings. It reported decent numbers for March 2005 and is expected to post an EPS of Rs.7 on its current equity of Rs.72 cr.

Bilpower (Code No: 531590) (Rs.70.95) is a pioneer in manufacturing Transformer, laminations and stampings and ready to assemble cores for Distribution Transformers and trading of CRGO, CRNGO and Transformers accessories. Due to the government’s thrust on the power sector, the company is growing at a scorching pace. For FY05, its turnover increased by 62% to Rs.67 cr. and NP increased by 162% to Rs.4.50 cr. registering an EPS of Rs.7.5 on its current equity of Rs.6 cr. Recently, the company withdrew the proposal of preferential allotment which could have diluted its equity. For FY06, it can post an EPS of Rs.11/12. A good medium term buys in the power ancillary sector.

Construction and Infrastructure scrips are hitting dizzy heighs due to their strong future prospects. But Eldeco Housing & Industries Ltd (Code No :523329) (Rs.105.70), the flagship company of Eldeco group, is trading very cheap at 4 PE. It is among the very few listed companies engaged in civil construction and housing. Due to easy availability of housing loan, this 2 decades old company is witnessing enormous growth. Its fully booked for the next 4 yrs having various residential projects in hand amounting to whopping Rs.450 cr. spread across Lucknow, Kanpur & Delhi. For FY05, its topline grew by 25% but its bottomline has more than tripled to Rs.5.50 cr. leading to an EPS of Rs.28 on a very tiny equity of Rs.1.97 cr. Although in FY06, it will not register the same OPM, still with increase in sales, it can report better profit in absolute terms. Its share price can double or even shoot up like D S Kulkarni or Madhucon Project once it catches investors fancy since the floating stock is very low as 60% is held by the promoters.

Of late some action can be seen building up in Vardhman Inds. (Code No: 513534) (Rs.29.75). But it is not from the Vardhman Group but a 20 year old company run by Kapil Jain having interest in steel and vanaspati. To cash on the metal boom, the company is putting up a Power Plant of 10MW capacity along with a Steel Melting Shop (SMS) with a capacity to manufacture about 68,000 MTA of billets in the state of Jharkhand at a total estimated cost of Rs.29 cr. For the nine months ending 31 Dec 2004, its sales grew marginally to Rs.172 cr. whereas its NP increased by 20% to Rs.4.40 cr. It can report an EPS of Rs.7 for FY05 and Rs.9 FY06 respectively.

Electrotherm India - Rs.99.00

(Code No: 526608) In 1986, Electrotherm India Ltd (EIL) was promoted by technocrat Mukesh Bhandari to manufacture crucial induction furnaces for the Steel Industry. Since then, it has become a trusted name in the foundry and steel industry providing unmatched technological leadership. EIL caters to Ferrous & Non-Ferrous foundries and the metal melting industry by manufacturing Medium Frequency Induction Melting Furnaces, Metal Refining Converter, Induction Ladle Refining Furnace, Induction Heating/Hardening Equipments, Submerged Arc Furnace and a host of allied products. It has the distinction of manufacturing 3 tonnes to 20 tonnes Medium Frequency Induction Melting Furnaces for the first time in the country. The company is renowned for providing sophisticated technologies and offers customised metallurgical turnkey solutions irrespective of its nature, size and geographical boundaries. Apart from being a leading player in domestic market only next to ABB, EIL has exported its products to Ethiopia, Ghana, Greece, Kenya, Mauritius, Myanmar, Sri Lanka, South Africa, Tanzania, Zimbabwe, Middle East and East African countries. As of today, EIL has over 800 installations.

EIL's full-fledged state-of-the-art manufacturing and testing facilities are spread over an expansive area of 70,000 sq.mtrs at Palodia on the outskirts of Ahmedabad. It has a well equipped machine / assembly shop fitted with the latest CNC machines and a host of special purpose machines for better precision in machining and overall quality of its products. Besides, the company can boast of having the largest group of Metallurgical Engineers compared to any Metallurgical equipment manufacturer in India. Its R&D department’s pursuit for newer and better solutions has led to the development of sophisticated, rugged, efficient, cost-effective and user friendly equipment for the metallurgical industry for which EIL was conferred 21 prestigious national awards. For better service, the company has a widespread Sales & Service network with more than 30 offices in India alongwith offices at Australia, Bangladesh, Brazil, Russia etc.

The rising demand of steel worldwide has led to capacity expansion by all the major steel producers, which augurs very well for EIL and has eventually led to a strong order book position. Apart from this, to cash on the steel boom, EIL has recently set up a cast iron manufacturing facility in the Kutch District of Gujarat with an installed capacity of 70,000 TPA. This unit started commercial production a couple of months back only and will add substantially to the company’s topline and bottomline in coming quarters. In the near future, the company intends to set up a cast iron pipe manufacturing facility and by mid 2006 plans to set up a sponge iron plant.

For the nine months ending 31st Dec 2004, its Net Sales tripled to Rs.103.50 cr. and NP zoomed to Rs.7 cr. compared to 0.32 cr. last year. For the full year FY05, it can report NP of Rs.10 cr., which works out to an EPS of Rs.21 on its current equity of Rs.4.80 cr. For future growth and to meet its huge expansion plans, it may raise money by issuing equity shares and through debt, which will give returns over a period of time. Hence, long-term investors are recommended to buy this scrip with expectation of 100% return in 18~24 months.

Narmada Chematur - Rs.39.00

(Code No: 524650) Narmada Chematur Petrochemicals Ltd. (NCPL) is an Indo-Swedish Joint Venture Company of Gujarat Narmada Vally Fertilizers Company Limited (GNFC), Chematur Engineering AB of Sweden and IBI Chematur, Mumbai. This company was basically formed to put up India's largest Single Stream Aniline Plant and India's first plant to manufacture Toluene-Di-Isocyanate (TDI). Today, besides Aniline and Toluene Di-Isocyanate, NCPL also manufactures Nitrobenzene, Liquid Nitrogen, Meta Tolune Diamine (MTD) and Ortho Toluene Diamine(OTD). In fact, NCPL is the only TDI manufacturer in the whole of South, East and Middle Asia and hence enjoys a near monopoly status in Asia. Lloyds Register Quality Assurance (LRQA) accredits the company with ISO 9001: 2000, ISO 14001: 1996 & OHSAS 18001: 1999 certifications.

NCPL’s aniline plant went on stream in early 1995 and is the country’s only plant based on Liquid Phase Hydrogenation, a technology imported from Du Pont, USA. Currently, NCPL has an installed capacity to manufacture 25,000 TPA of Aniline, which is basically used in textile dyes and pigments, pharmaceuticals, rubber chemicals etc. Its TDI plant started production in 1998 and has an installed capacity of 10,000 TPA. TDI is used as the basic raw material to make Flexi Polyurethane foam, which in turn is used for automobiles seats, mattresses, lining and padding, packaging, industrial gaskets etc. Besides, the company can produce 27,000 TPA of nitrobenzene which is used in the manufacture of pesticides, dyes and intermediaries etc.

Due to better management, availability of raw material, strong demand and higher price realisation for all its products, NCPL is witnessing the best of times. It reported record high profits for FY05. To take advantage of this uptrend, NCPL is working towards increasing the capacity of its Aniline Plant to 40,000 TPA and the TDI Plant to 20,000 TPA on top priority. For FY05, its Sales increased by 50% to Rs.382 cr. whereas its NP almost tripled to Rs.31 cr. leading to an EPS of Rs.5 on its current equity of Rs.61 cr. For FY06, it can report NP of Rs.45 cr., which means an EPS of Rs.8. Though the scrip is in T2T segment investors are advised to accumulate this stock at declines with a price target of Rs.60 for 50% appreciation in the next 12 months.

STOCK WATCH

Deccan Cement (Code No: 502137) (Rs.67.65) is a small cement company based in South India. It is expected to come out with good numbers on 24th June and may declare 25% dividend. For the first 3 quarters, it has already reported 50% higher profit of Rs.6 cr. inspite of huge tax provision of Rs.2 cr. For the full year, it may report an EPS of Rs.12. Besides it has huge reserves of around Rs.55 cr. on its small equity of Rs.7 cr. leading to a book value of above Rs.90. Recently, it has caught the attention of few HNIs and the share price is expected to run beyond Rs.100. A strong buy.

Investors who fancy turnaround scrips can take a look at Gujarat Carbon Industries (Code No: 506457) (Rs.21.01). Though it has seen a fast run up from Rs.2 to Rs.20 but it still looks good. Since the last 2 quarters, it’s reporting fantastic numbers and has shown a sharp turnaround. The company is into manufacturing of Methyl Ethyl Ketone and Secondary Butyl Alcohol. For FY05, its sales doubled to Rs.23 cr. and NP stood at Rs.4.20 cr. compared to loss of Rs.1.90 cr. last year. It reported an EPS of Rs.3.25 on its current equity of Rs.12.40 cr. For FY06, it can report an EPS of Rs.7 and hence becomes a good bet for the long term.

Gradually action is building up in National Oxygen (Code No: 507813) (Rs.69) as 30th June comes closer. Huge buying may take place in anticipation of fantastic numbers and a good dividend of 35%. The company may report an EPS of Rs.13~14 for FY05 and is currently trading cheap at 5 PE. Since the liquidity is very poor for Bombay Oxygen, this company becomes the best choice in this sector. Its share price has the potential to rise 50% in the next 3 months.

Competent Automobiles (Code No: 531041) (Rs.43) is recommended for investors who trust the Maruti growth story. The company is a leading dealer for Maruti cars. It has 5 big showrooms and 3 workshops in Delhi. It has one showroom in Himachal Pradesh also and is planning to open one workshop soon. This Rs.500 cr. company has small equity of Rs.6 cr. and reserves of more than Rs.25 cr. leading to a book value of Rs.55 for its share. Though the company works on a narrow margin, it is a dividend paying company and the promoters hold 69% of the stake. For FY05, it reported an EPS of Rs.6, which can rise to 7.5 for FY06. Scrip can rise 50% in 12 months.

GNFC (Code No: 500670) (Rs.87.65) once again came out with wonderful figures for FY05 though dividend payout was a bit lower than expected. For FY05, its total revenue increased 26% to Rs.1822 cr. where its bottomline doubled to Rs.224 cr. due to better operating efficiency and lower interest cost. This works out to an EPS of Rs.15 on its current equity of Rs.146.50 cr. Though there are concerns over the recent gas price hike, this scrip can still be accumulated at declines as it can give 25~30% return in a year if the monsoons are good.

In auto ancillary sector, Amara Raja Batteries (Code No: 500008) (Rs.126.60) is still available reasonably cheap. It is gradually increasing its market share and achieved a recent breakthrough on being selected as an exclusive supplier for the Maruti Swift. The company manufactures batteries for cars, tractors, LCV, HCV, three wheelers, home inverter etc. They have an ongoing agreement as original equipment supplier with Maruti, Tata Motors, M&M, Ashok Leyland and is exclusive supplier to Daimer Chrysler, Ford and Swaraj Mazda. In future, the company is expected to witness exponential growth and can report an EPS of Rs.15 for FY06. Scrip can cross Rs.200 easily in the next 12 months. Keep accumulating at sharp declines.