STOCK WATCH

Indian Sucrose Ltd. (Code No: 500319) (Rs.24) earlier known as Oswal Sugars Ltd, is a small sugar company with a capacity to crush 3500 tonnes of sugarcane per day. Few months back, it acquired M/s Ranger Breweries Ltd from the Modi Group and now owns its distillery at Mehatpur in H.P. Given the uptrend in sugar prices, better operating efficiency and various govt. benefits, this company has sharply turned around in FY05. Its Net Sales grew by 50% to Rs.68 cr. whereas its NP jumped 800% to Rs.10.50 cr. recording an EPS of Rs.7 on its current equity of Rs.15.50 cr. Even if the company maintains its current profit margin, it can report an EPS Rs.5~6 for FY06 and its share price can rise 50% in the next 6 months. A good buy

Recently, all hotel scrips have been re-rated sharply, thanks to the higher occupancy rate and growth in tourism. In such a scenario, Blue Coast Hotel (Code No: 531495) (Rs.69), the owner of Park Hyatt Goa Resort & Spa, is worthy of investment. The company is doing well and has reported a sharp turnaround. For the six months ending 31st March 2005, its total revenue increased by almost 50% to Rs.39 cr. which is marginally higher than the full last year revenue and it reported a NP of Rs.4.40 cr. compared to the net loss of Rs.0.50 cr. last year. For FY05, it may report an EPS of Rs.12 on its small equity of Rs.6.55 cr. Only aggressive investors are advised to accumulate it on sharp declines, as there is a risk of equity dilution in the near future.

Aggressive Investors can consider taking some exposure in Steel Exchange (Code No: 590037) (Rs.24.40) due to the strong uptrend in the steel sycle. This 6-year-old company has reported a substantial increase in bottomline. For FY05, its topline increased by 33% to 343 cr. but its NP zoomed to Rs.8.30 cr. compare to Rs.0.74 cr. last year. It reported an EPS of Rs.6 on its current equity of Rs.14.20 cr. Its OPM improved substantially to above 4% from below 1% in FY04. Its 52-week high/low is Rs.35/13. It book value stands at Rs.16 but promoters hold only 21% stake.

KCP Sugars & Industries (NSE Listed) (Rs.194.75) is a leading sugar producer in the South and has posted an excellent performance for FY05. Sharing the success of the company, the management has announced a total dividend of 100% for FY05 compared to just 25% last year. It doubled its OPM to 25% form 12% in FY04, which is much higher compared to its peers. Its net sales grew by 40% to Rs.310 cr. but its NP doubled to Rs.41 cr. reporting an EPS of Rs.36. And that too after a huge tax provision of Rs.24 cr. Else, its EPS before tax comes to Rs.58. With such a good dividend yield and the bright future prospects of the sugar industry, this scrip is among the best buys from the sector.

Uttam Galva Steel Ltd (Code No: 513216) (Rs.44) is a well-managed and professionally run company. It has huge expansion plans whereby it plans to double its cold rolled and galvanized steel production capacity to 10,00,000 and 7,50,000 tonnes respectively by 2006. It ended FY05 with fantastic figures. Sales increased by 80% to Rs.2094 cr. and NP zoomed 300% to Rs.95 cr. registering an EPS of Rs.12. Though some analysts have concerns regarding its dividend policy and tax provisioning method, it still remains a good buy at current levels. Its share price can double from hereon in the next 12 months.

Telecommunications & Power sector is on expansion spree, which indirectly benefits cable manufacturers. Delton Cable Ltd. (Code No: 504240) (Rs.54.90), a lesser-known Delhi based cable company, which manufacturers almost all types of cables is witnessing a sharp turnaround and is expected to perform even better in coming quarters. It reported excellent numbers for March’05 quarter. Sales jumped 90% to Rs.20 cr. whereas NP stood at Rs.0.75 cr. compared to a net loss of Rs.0.14 cr. It has a very tiny equity of Rs.2.90 cr. with the promoter holding of 73%. For FY05, it registered an EPS of Rs.3.5, which can shoot up to Rs.8 in FY06. Buy at declines as the share price can rise by 50% returns in 6~9 months.

Genus Overseas Electronics - Rs.97.00

Established in 1995, Genus Overseas Electronics Ltd (GOEL) is a leading manufacturer Electronic Energy Meters, Hybrid Microcircuits, Printed Circuit Boards and other electronic products. The speciality of GOEL is thick film hybrid micro circuits (HMCs) and Surface Mounted Assemblies (SMAs) with the latest technology from Germany to cater to the requirements of Telecommunication, Defence, Automobile, Informatics, Medical Electronics and Instrumentation sectors. The strength of the company lies in its strong Design & Development team, which was instrumental in development of Low end ASIC based Electricity Meters to High end Programmable Multi-functional Intelligent Single Phase & Three Phase Meters with in-built advanced security and anti-tamper features. The company is exporting its products to developed nations like USA, U.K., Germany, USA, Italy, Korea, Malaysia, Bangkok etc. Recently, it opened a full-fledged office in USA through which it targets deeper penetration of its products in the US and European markets.

GOEL has an integrated state-of-the-art manufacturing facility in Jaipur, which produces Hybrid Microcircuits and PCB Assemblies up to 4.50 million square inches and 30 million square inches respectively. It also produces more than 2.4 million Single Phase and Three Phase Electronic Electricity Meters annually. Interestingly, the company has ISO-9001, EMC, IECQ, C-DOT, CACT and ISI certifications and its products meet MIL STD 833D, JSS 51400 and BS 9450 standards. Recently, GOEL has diversified its revenue stream by entering into other electronic products and solutions such as inverters/UPS, set-top box, tariff meters and energy audit system. Moreover, the company has added Digital Taximeter, Pre-Payment Meter, AMR enabled Meters etc. in its product portfolio. Mandatory use of electronic meters under new rules and the huge replacement demand from state electricity boards (SEBs) is expected to accelerate the demand significantly over the next 3-4 years. Currently it has orders of more than Rs.100 cr. in hand.

Fundamentally, the company is quite strong and growing at an enormous pace. For FY05, its sales increased by 65% to Rs.132 cr. while its NP jumped 121% to Rs.7.9 cr. leading to an EPS of Rs.8 on its current equity of Rs.10.20 cr. Its OPM remains stable at 12%, which is quite a positive sign. Considering its future growth prospects, it can report Sales of Rs.190 cr. and NP of Rs.15 cr. for FY06. This works out to an EPS of Rs.12 on the diluted equity of Rs.13 cr. As the share price has seen a smart rally, investors are recommended to accumulate gradually at sharp dips for the long term. The share price can double in 15~18 months.

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.