Rama Papers Ltd - Rs.37.00

Incorporated in 1985, Rama Paper Mills Ltd (RPML) manufactures three different products for different segments viz. newsprint for the newspaper industry and publishers, writing and printing paper for government as well as for printing of text books and note books and duplex board for industrial purpose used in packaging of articles. Apart from supplying to Government agencies, RPML has a very wide client base such as Hindustan Times, Jan Satta, Indian Express, Amar Ujjala, Daink Jagran, Gujarat Samachar, Dainik Bhaskar etc. Other clientele include Wimco, Godfrey Philips, Metal Box, Janakpur Cigarette Factory of Nepal, etc.

RPML’s manufacturing facility is spread across 12 acres of land at Kiratpur in Dist. Bijnor in Uttar Pradesh with 3 units having a total installed capacity of 39,500 TPA. To fulfill the rising demand, the company is going for capacity expansion by adding 18,000 TPA of production facilities for high value paper and intends to set up a 6 MW captive power plant. Apart from this, RPML is also planning to foray into the business of power generation and deal in sugar and other allied products, which can be conveniently combined with its existing line of business. A few months back, RPML was been deregistered from the purview of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and is no longer a sick unit now.

To fund its expansion plans, RPML recently issued 25-lakh share warrants on preferential basis to be converted into shares @ Rs.35 per share. In future, it may come out with more such allotments or right issues for which the company has increased its authorized share capital from Rs.12 cr. to Rs.22 cr. although its current paid-up equity stands at Rs.7.50 cr. only. On the other hand, the company is aggressively reducing its debt and wants to become debt free by next year. For FY05, its Net Sales grew by 15% to Rs.70 cr. where as its NP zoomed by 170% to Rs.4.50 cr. registering an EPS of Rs.9 on its equity of Rs.5.08 cr. Considering the robust demand and higher paper prices, RPML is expected to improve its performance in FY06 coupled with higher capacity utilization and likely to report Net Sales of Rs.85 cr. and NP of Rs.6 cr. This works out to an EPS of Rs.8 on its current equity of Rs.7.50 cr. Investors are strongly recommended to buy this share with a price target of Rs.50 (40% appreciation) in 12 months.

STOCK WATCH

Vishal Export (Code No: 532618) (Rs.20.80) has come out with quite decent numbers for June quarter. Its total revenue grew by 50% to Rs.870 cr. whereas its NP jumped 70% to Rs.12 cr. and it posted an EPS of Rs.1 for the qtr on its equity of Rs.12 cr. and face value of Re.1 per share. Recently, it announced 2:1 bonus along with 40% dividend. Company is in an aggressive expansion mode. Apart from setting up 100 MW wind farm, it is also expected to come out with ADR/GDR issue in the near future. At current P/E discounting of 5, the scrip appears to be reasonably cheap and can appreciate handsomely in the long term.

Gujarat Carbon (Code No: 506457) (Rs.30.85), manufacturer of Methyl Ethyl Ketone and Secondary Butyl Alcohol has again posted fantastic numbers for the June’05 qtr. Net sales has tripled to Rs.6.60 cr. and NP stood at Rs.2 cr. against Net loss of Rs.0.50 cr. last year posting an EPS of Rs.1.60 for the qtr. For FY06, it can report an EPS of Rs.6. Promoters hold around 83% stake, which few people are aware of and domestic institutions hold around 6%. Aggressive investors can buy at CMP although it has around Rs.10 cr. of unpaid accumulated interest waiting to be waived off.

Srinivasa Hatcheries (Code No: 526893) (Rs.75.50), a relatively lesser-known company posted excellent numbers for the June’05 qtr. Net Sales has increased by 35% to Rs.17 cr. and NP spurted by 245% to Rs.1.80 cr. registering an EPS of Rs.3.70. For FY05, it earned a NP of Rs.4.20 cr. on total revenue of Rs.60.50 cr. and declared 25% dividend. For FY06, it can report more than Rs.12 as EPS. It’s a well managed company with promoters holding 75% stake. Investors can buy it at declines for decent return in 12~15 months.

Some people are very happy to see Essar Shipping (Code No: 500630) (Rs.38.05) numbers and are buying it blindly. But investors are advised to stay away from this company. On the face of it June’05 number seems stunning but in reality it’s not. Company has included Rs.68.50 cr. profit (on sale of fleet) in the sales figure. So the topline and bottom line figure is not that rosy if we exclude this item. Besides, its equity has been diluted this qtr by issue of Rs.1.25 cr. shares on conversion of FCCB @ Rs.16~17. Hence please study the figures in detail and don’t invest just based on June numbers alone.

All casutic soda manufacturers have come out with excellent numbers and Standard Inds. (Code No: 530017) (Rs.29.15) is no exception. For the June’05 qtr, its Sales has increased by nearly 50% to Rs.59 cr. whereas its NP stood at Rs.17 cr. against a Net loss of Rs.11 cr. last year. It registered an EPS of Rs.2.70 on an equity of Rs.32.16 cr. on the face value of Rs.5 per share. For FY06, it may report an EPS of Rs.8 making it a value buy for the long term. But at the same time, falling caustic soda prices and low promoter holding is a concern to watch out for.

MSK Projects (Code No: 532553) (Rs.68) is engaged in infrastructure development projects, particularly road sector projects on a build-operate-transfer (BOT) basis. Currently, it has number of projects in hand amounting to nearly Rs.250 cr. for which it is raising money to fund these projects. Recently, it raised around Rs.17.50 cr. through preferential allotment of 25 lakh shares @ Rs.70 and may raise more money in future in a similar manner. For FY06, the company may report an EPS of Rs.8~10 even on its diluted equity, which makes it a good buy in the construction sector. Investors are recommended to buy at the current price as share price can hit a century in the short to medium term.

Bhagyanagar Metals - Rs.25.00

Bhagyanagar Metals Ltd (BML), a part of the Surana Group of Hyderabad was incorporated in 1985, with the object of carrying on business in Ferrous and Non-ferrous metals. It commenced its business by acquiring a Copper Rod Unit (India Extrusion) in 1985. Since then, it has ventured into manufacture of a range of copper products such as – Copper Coils, Strips, Sheets, Flat pipes, conductors, apart from Jelly filled Cables, Polyethylene Compound and Auto annealing components like field coils which goes into auto ignition. In short, its 70% revenue comes from telecom products and rest 30% comes from its copper division. MTNL, BSNL, Lucas TVS, BHEL, Crompton Greaves and Sahney Paris are some of its major clients.

With the advent of technology from wireline to wireless, BML has diversified into the cellular field and offers CDMA products like handheld and Fixed Wireless Phones. It has entered into memorandum of understanding with LG Electronics to supply wireless handsets. Moreover BML has also diversified into real estate & infrastructure development like setting up of IT Parks, housing projects etc. Recently, it won the bid to acquire 3 acres of HMT Ltd land at Jalahalli in Bangalore close to the airport and NTC's 4.5-acre land of Jyothi Weaving Mills at Patipukur in Kolkata for Rs.10 cr. and Rs.13 cr. respectively. Apart from these 2 projects, BML intends to develop the groups own land of 12 acres located at Uppal in Hyderabad into a one million square feet infrastructure project for IT companies. To summarise, BML plans to invest around Rs.150 cr. for these projects which shows how aggressively the company is betting on real estate development.

More importantly, BML has proposed to restructure the company’s business in order to give adequate focus to the Telecom, Metals, Investment & Infrastructure business. It intends to demerge some of its present activities into two new companies. This demerger process will lead to a re-rating of the stock unlocking its actual valuation. Financially & fundamentally, the company is quite strong. For FY05, it net Sales increased by 65% to Rs.158 cr. whereas its NP jumped 186% to Rs.27 cr. (including OI of Rs.10 cr.) leading to an EPS of Rs.8.50 on its equity of Rs.6.30 cr. and FV of Rs.2 per share. It declared 25% dividend as well for FY05. BML has huge reserves of Rs.77 cr., which leads to BV of Rs.27. For FY06, it can report an Net Sales of Rs.190 cr. and NP of Rs.20 cr. i.e. EPS of Rs.5 on diluted equity of around Rs.8 cr. Investors are recommended to buy this scrip with a price target of Rs.40 i.e. 50% appreciation in 12 months.

Supreme Petrochem - Rs.37.00

Supreme Petrochem Ltd (SPL) was promoted in 1989 by Supreme Industries and R Raheja Investments in technical collaboration with ABB Lumus Crest, USA, to manufacture polystyrene (PS). Today it produces the entire spectrum of PS like high impact PS, general purpose PS, speciality PS, compounded PS, toughened PS etc under its brand name ‘SUPREME’. PS is used in consumer electronics comprising audio & video cassettes, refrigerators, packaging materials automotive parts in household articles, novelties, stationery, toys, ball pens, toothbrushes and sanitary ware. SPL is the leader in the polystyrene business with over 60 per cent market share and the largest exporter to over 45 countries.

SPL owns and operates a state-of-the art PS facility with an installed capacity of 2,72,000 TPA at Raigad District in Maharashtra. The facility also includes a world-class colouring and compounding facility with an installed capacity of 17,000 TPA. It is expanding its PS capacity to 3,00,000 TPA in stages and has commenced the implementation of 60,000 TPA, which is expected to be completed by mid-2006. To strengthen its competitive position further, it is also working on its minor port project in district Raigad, Maharastra to handle the import of its raw materials.

Due to the uptrend in the petrochemical cycle, a strong demand and better price realization, SPL is witnessing the best of times and is all set to report record high Sales and NP figure in its history. It posted quite impressive numbers for the three quarters of FY05. For the full year ending 30 June 2005, it may post Net Sales of Rs.1350 cr. and NP of Rs.65 cr. This works out to an EPS of Rs.6.50 on its current equity of Rs.97.50 cr. It has already declared 12% dividend. Though input cost is a concern due to the rising crude oil price, but still it can report an EPS of more than Rs.8 for FY06. Investors are advised to buy SPL at declines, as the share price can appreciate by 50% in 12 months.

STOCK WATCH

Belonging to Bajaj Group, Hercules Hoists (Code No: 505720) (Rs.967.65) is engaged in the manufacture of material handling equipment. It has a diverse product range encompassing Chain Pulley Blocks, Electric Hoists, Cranes, etc. that fulfill the storage, retrieval and material handling needs of companies around the world. It recently ventured into the new business of renewable energy/windmill/Projects/ in Maharashtra, which became operational in March 2005. The company has a very tiny equity of Rs.0.80 cr. and huge reserves of Rs.22 cr. leading to an BV of Rs.286. Looking to its share capital, 1:1 bonus is round the corner. For FY06 it can earn NP of 8 cr. on turnover of Rs.70 cr., which means an EPS of around Rs.100. Share can appreciate 50% in 12 months.

Even when the Sensex is at its all time high of around 7400, one can get scrips like Star Paper (Code No: 516022) (Rs.66.65) quoting at a forward PE of 4x. Although earlier there were concerns of rising input costs, but due to regular increase in paper prices, this sector is doing extremely well. Company is undergoing expansion in a phased manner and is taking various initiatives to achieve high operational efficiency. For FY06 it is expected to report Sales of around Rs.220 cr. and NP of Rs.23 cr. leading to an EPS of Rs.15. Its share price can double from the current level Murudeshwar Ceramics was in a similar situation a few months back.

Few broking firms rate the Metal sector as value buy and are busy accumulating leading metal scrips before they come out with their June numbers. Once the sentiment turns positive for this sector, small metal scrips will shoot up sharply. Aggressive investors can buy Ashirwad Steel (Code No: 526847) (Rs.31) at CMP. Since the company has still not announced its March numbers and doesn’t pay dividend, the scrip is poorly discounted and avoided by marketmen. But for the past 3 quarters it has already posted an EPS of Rs.11.50. Sponge iron prices have cooled off a bit from their recent high but still their demand is expected to be robust due to huge expansion plan undertaken by all the major steel manufactures. It may report an EPS of Rs.13 for FY05 and Rs.12 for FY06. Share price can double in 12~15 months.

Share price of Syncom Formulation (Code No: 524470) (Rs.95.50) is expected to rally sharply after its results are out on 25th July. It has already posted quite impressive numbers for FY05 when Sales jumped 20% to Rs.54 cr. but its NP zoomed by 135% to Rs.7 cr. registering an EPS of Rs.13 on its equity of Rs.5.34 cr. The company is planning an aggressive entry into the branded herbal market of South Africa and Europe. It’s also increasing its product offering upto 500 products from the current 250 products in ethical, generics, OTC and herbal range in the next 2~3 yrs. For FY06, the company can post an EPS of more than Rs.15. Accumulate at sharp dips.

Recently there has been lot of talk about benefit to ethanol manufacturers as the ethanol price being fixed around Rs.19 or so. In such a scenario one can have a look at Hazoor Media (Code No: 532467) (Rs.14). It has entered into a joint venture project with ‘Omkar Petrochemicals Limited’ to produce 30K litres per day of Ethanol. Moreover, it has also made its foray into the power sector to set up 10 MW co-generation power project for generation and distribution of grid quality power from biomass resources using steam turbine technology. Besides, it has huge real estate of 1,28,000 Sq mtr worth Rs.28 cr. against its current market cap of Rs.11 cr. With an expected EPS of Rs.5 and BV of Rs.20, the share price can appreciate 50% in 6 months.