Sambandam Spinning - Rs.126.00

Established in early seventies, Sambandam Spinning Mills Ltd (SSML) is engaged in the manufacture and sale of cotton yarn. It produces finer and high-count cotton yarns, which are used in making garments and madeups meant for export. Normally, such yarn trades at a premium with higher profit margin compared to the normal coarse cotton yarn. Although the company has been exporting directly/indirectly to Italy, Japan, Spain etc but is currently concentrating on the domestic market due to the higher demand and better price realization. With the removal of quota and cotton prices remaining stable, the future prospects of SSML appear very promising.

SSML has two spinning mills in Salem and one mill in Coimbatore with a total installed spinning capacity of around 55,000 spindles. Since it is an old mill, there is constant technological upgradation by replacing the older spindles. Also, it plans expand its capacity to 1,00,000 spindles by increasing capacity by 20% each year over the next 5 years. In addition, it has finalized outsourcing contracts with 3rd party spinning units to produce yarn on an exclusive basis. To ensure quality and cater to the increasing demand, SSML has set up an in-house R&D centre with state-of-the-art machines for all sorts of testing to produce a better product. Besides a windmill, it has also set up 10 wind energy converters at Tirunelveli district, which has led to a substantial reduction in its power cost. For future growth, the company has planned forward integration and intends to get into the production of knitted garment.

Ironically since the last 10 years, the company has not diluted its equity but preferred to avail of loans under the governments TUF scheme at subsidised interest rate for modernisation and expansion. Though the interest rate is low at 5 ~ 6%, SSML’s debt today stands at a huge Rs.61 cr. against its equity of Rs.4.30 cr. and sales of Rs.90 cr. Still, the company is fundamentally strong and has good dividend payout track record. For FY05 its sales increased by 7% to Rs.90 cr. whereas its NP jumped 65% to Rs.5.50 cr. inspite of higher tax provision of Rs.4.90 cr. and declared Rs.5 dividend (50%). Since the real effect of the quota-free regime will be visible in the current year, SSML can report a topline of Rs.110 cr. and NP of Rs.10 cr. leading to an EPS of Rs.23~24. Investors are advised to accumulate this scrip at declines with a price target of Rs.200 i.e.60% appreciation in 15 months time.

STOCK WATCH

Varun Shipping (Code No: 500465)(Rs.40.80) continues to post encouraging numbers beating all analyst estimates. For the quarter ending 30 June 2005, it total revenues grew by nearly 50% to Rs.117 cr. and bottomline increased by 270% to Rs.26.80 cr. leading to a quarterly EPS of Rs.2.40. Importantly, its OPM was at a record high of 55% compared to 43% which is the average for the whole FY05. Scrip has the potential to give 50% return in a year or so. Keep accumulating at declines.

The effect of higher caustic prices can be clearly seen in Chemfab Alkali (Code No: 506894) (Rs.217.40) latest results. The company came out with stunning numbers for the June quarter whereas its sales spurted by 42% only to Rs.23.20 cr., the NP zoomed 260% to Rs.6 cr. posting an EPS of Rs.17.50 for the June quarter. Consider this in the light that its full FY05 NP stands at Rs.9 cr. It also declared 25% interim dividend and proposes a stock split of 2:1. For FY06, it can post an EPS of more than Rs.45. Grab it before it shoots up!

Due to the increase in business travellers and the booming tourism, city hotels all over India are witnessing not only higher occupancy rate but also higher room rates. Hence Sayaji Hotels Ltd. (Code No: 523710) (Rs.35.55), which operates hotels in Boroda and Indore, is reporting better numbers with every passing qtr. Its OPM has shown a substantial increase from 15% last June to around 40% currently. To cash on this opportunity, the company has ambitious expansion plans of opening hotels in other cities as well. For FY06, it may report an EPS of Rs.6. A very good buy at current levels.

Haldyn Glass Gujarat (Code No: 515147) (Rs.53) leading manufacturer of clear glass containers. Recently, it came out with stunning numbers for March 2005 quarter. It reported an operating profit of Rs.5 cr. on Sales of Rs.14.20 cr., which means an OPM of 35%, which is quite good. Moreover for the first time, the company has declared dividend. For the full year FY05 its turnover increased by nearly 25% to Rs.50 cr. but its NP jumped 300% to Rs.4.80 cr. registering an EPS of Rs.9. For FY06, it can easily report an EPS of Rs.12. A strong buy.

Share price of Can Fin Homes Ltd (Code No: 511196) (Rs.46) was not moving up since its promoters like Canara Bank, HDFC and UTI were selling their stake in the open market. They have reduced their total stake from 60% last year to the current 46%. But it is a good company with significant presence in South India and pays consitent dividend as well. For FY05, its total revenue was flat at Rs.127 cr. and the NP grew marginally to Rs.21 cr. posting an EPS of Rs.10 on its current equity of Rs.20.50 cr. and paid Rs.2.50 as dividend for FY05. Besides, it has a book value of Rs.74. Recently; it has diversified into non-housing finance as well. This scrip is bound to get re-rated sooner or later and investors can expect 50% return in 15 months or so.

After witnessing a smart run up, Sanjivani Parental (Code No: 531569) (Rs.87.15) is consolidating currently. Investors can buy even at current levels as the share price is expected to hit a century soon. Lot of positive developments are taking place in the company and it is expected to make some positive announcement in the near future. Sanjivani’s own drug Cobaz and Trenaxa are doing well in the domestic market. Besides it has a healthy order in hand for contract manufacturing. Though the promoter stake is low, it is expected to report an EPS of more than Rs.12 for FY06. Grab it before it shoots up.

Sujana Universal Industries - Rs.25.75

Sujana Universal Industries Ltd (SUIL) was originally incorporated as Sujana Domestic Appliances Ltd in 1986 to manufacture fans, washing machines and other consumer durables. Subsequently the name was chnaged to Sujana Industries Ltd and last year it acquired the current name. SUIL is the flagship company of the Hyderabad based Sujana Group. It is engaged in the business of domestic appliances, bearings, castings and international trade.

Under the domestic appliance division, its ‘Padmini’ ceiling fan and 'Zephyre' designer fan are among the largest selling celing fans in South India, which are also exported to over 15 countries. Apart from manufacture for sales, the company also undertakes job work by producing for others. Under its bearing division, SUIL manufactures high quality ball bearings and taper roller bearings with the latest technology on imported machines. With the resultant rise in demand and higer price realisation, the company has increased its production capacity to 10 million bearings per annum and intends to increase it further through internal accruals. Its Castings Division has two induction furnaces with an installed capacity of 26,000 TPA. This division is doing extremenly well and manufactures 2,500 MT of Alloy Cast Iron, 600 MT of Mechanite Castings and 1,500 MT of Ductile Castings. It also produces special cast iron for use by Sujana Metal Products Limited, another group company.

To encash on the growing economy, the management has turned aggressive about future growth and has taken a several positive initiatives. The promoters have infused fresh capital of around Rs.3.5 cr. and the company is now planning to come out with a GDR/FCCB issue of USD 20 million in the near future. It is trying hard to restructure its high cost debt and reduce the interest cost burden, which will boost its bottomline substantially. A few months back, the company has successfully commissioned facilities for the manufacture of telecom and transmission towers with an installed capacity of 1,000 tonnes per month. Recently, SUIL has got the approval from Andhra Pradesh State Road Transport Corporation as suppliers for taper roller bearings and ball bearings. Importantly, the company has also been approved by the Tecumseh Inc. of USA, the world leader compressors for Air Conditioning & Refrigeration by supplying it specially developed precision ground components. Last month, Schneider Electric, an international giant in the field of industrial automation and switchgear, has selected the company for developing precision engineering components.

Although, the company is not very strong financially but considering the various developments and future growth prospects, it is a good bet for the long term. For FY05 ending 30th June 2005, it may register a turnover of Rs.900 cr. and bottomline of Rs.9 cr. leading to an EPS of Rs.4.50 on current equity of 20 cr. This NP figure is arrived after providing for Rs.37 cr. as interest, which is calculated at 14% p.a. In case its GDR is approved, the interest rate may come down to 8%, which will result in saving of Rs.15~18 cr. per annum. Hence only long term and patient investors should buy this scrip with a price target of Rs.50 in 12~15 months.

Bilpower Ltd - Rs.72.00

Bilpower was established in 1989 in the name and style of Brahm Ispat Ltd. but subsequently changed its name to Bilpower to highlight its business and products comprising all types of Transformers & Electrical Laminations, Stampings and Cores. It is a major player in the electrical laminations market, which forms the core of the transformer industry. Besides it produces the largest range of transformer cores in India. Bilpower supplies its product to almost all parts of the country and enjoys the highest brand preference for superior quality and performance. Currently, the company has a huge & reputed clientele spread across 27 sates and 100 cities, which makes it the undisputed leader in the domestic market.

The Company’s strength lies in its excellent infrastructure, network and remarkable after sales service. Its manufacturing plants are equipped with the latest state-of-the-art technology and communications system backed with efficient planning. The company procures the CRGO Steel Sheets and Coils from leading manufacturers of the world and converts the same into laminations and stampings, which are the main raw materials for transformers. The company has even mastered core manufacturing, which is a very complex process and requires technical expertise and production skills. Moreover, Bilpower is concentrating more on exports and looks forward to international tie-ups to manufacture high-end CRGO stampings, laminations and Ready-to-Use Core for international players in Europe. Due to the huge demand from the power sector, the company is expanding its capacity by nearly 50% and putting up an insulated conductor unit, which would be operational in 2006.

With the government’s thrust on power and power reforms, Bilpower is expected to perform much better in coming quarters. For FY05, it reported impressive numbers. Its total sales grew by 62% to Rs.67.50 cr. whereas its NP spurted by 163% to Rs.4.50 cr. resulting in an EPS of Rs.7.5 and the company declared 10% dividend compared to 5% last year. In expectation of the phenomenal demand from the power sector and the company’s expansion plans it could earn a NP of Rs.7 cr. on a turnover of Rs.90 cr. leading to an EPS of Rs.12 on its current equity of Rs.6 cr. Investors are recommended to accumulate at every decline with a price target of Rs.100 in 12 months.

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.