STOCK WATCH

Some months back Sesa Goa (Code No: 500295) (Rs.745) had been granted a Prospecting Lease in Jharkhand, which gives it the right to explore for iron, ore in that State as well. Though iron ore prices have cooled off from their recent high, they are still expected to remain high due to the strong demand from China and the domestic steel industry. Its June’05 qtr. numbers were quite impressive as Sales increased 90% to Rs.464 cr. and NP spurted 132% to Rs.158 cr. posting an EPS of Rs.40 for the qtr. Ironically, its OPM improved to 49% compared to 40% last year. For the full year FY06, it may report an EPS of more than Rs.135.

Agro Dutch Inds. (Code No: 519281) (Rs.65.20), the largest mushroom producer in India has ambitious expansion plans. It plans to increase its capacity from 37,000 to 50,000 tonnes of mushrooms at an investment of Rs.25 cr. Besides, it also intends to set up a Rs.40 cr. facility to manufacture cans in Chennai. Most importantly, USA has reduced the anti dumping duty on mushrooms to 0.62% from 30% earlier, which will have significant impact on the company’s bottomline as it is the largest exporter to USA. With such positive developments coupled with 1:1 right issue at Rs.30, its share price is bound to cross Rs.100 mark soon. Investors are recommended to hold on to it patiently.

For quite long time GIPCL (Code No: 517300) (Rs.76.80) is underperforming the broader index and has consolidated at current levels. Due to reduction in tariff rate and the huge contribution by other income to the bottomline, marketmen are not that bullish on this scrip. But in such a high market, this scrip becomes a safe bet as it downside is very limited but the upside potential is good in the long run. For the June’05 qtr., its topline reported a fall of 23% to Rs.188 cr. but its NP increased by 23% to Rs.42 cr. due to lower interest cost and higher ‘other income’ posting an EPS of Rs.3.85 for the qtr. For FY06, it can register an EPS of Rs.12 and the share has the potential to cross the Rs.100 mark.

In spite of such a sharp run up in its share price, long-term investor will still gain handsomely from Sanjivani Paranteral (Code No: 531569) (Rs.90.50), even from current levels. It declared quite impressive numbers for June’05 qtr. Sales jumped 425% to Rs.12.65 cr. whereas NP stood at Rs.2.40 cr. compared to Rs.0.05 cr. last year. This works out to an quarterly EPS of around Rs.5 on its current equity of Rs.4.85 cr. Growing at such a fast pace, Sanjivani can end FY06 with Net Sales of Rs.45 cr. and NP of Rs.7 cr. with an EPS of Rs.14 and its share price can gradually rise upto Rs.150 in 6~9 months

Long-term investors are strongly recommended to buy Mumbai based Valecha Engg. (Code No: 532389) (Rs.168) as this is the only construction company which has still not caught of the market and its share price is underperforming for quite some time now. This is in spite of the fact that it has more than Rs.450 cr. orders in hand. Thus its future is very promising. For June’05 qtr., its revenue declined by 14% to Rs.36 cr. whereas its NP remained flat at Rs.2.20 cr. due to better operating efficiency. For FY06, it can report more than Rs.200 cr. turnover and EPS of Rs.18. It is one of the promoters of Jyoti Structures Ltd. holding around 11 lakh shares in it. Moreover, the board has already approved 1:5 rights issue, which may be priced at Rs.110.

Bilpower Ltd. (Code No: 531590) (Rs.99.30), a leading manufacturer of Transformers, Laminations, Stampings, Cores etc. came out with terrific numbers for the June’05 qtr. Its sales have trebled to Rs.24 cr. and NP zoomed to Rs.2.50 cr. compared to Rs.0.25 cr. in the same quarter last year. Hence, it has posted an EPS of Rs.5 for the qtr on its small equity of Rs.5 cr. Its OPM stood healthy at 11% against 5% in last June’04. Although there is the risk of equity dilution in future, still it is a good bet for the long term and can report an EPS of Rs.14~15 for FY06. Buy at declines.

GE Shipping - Rs.155.00

Incorporated in 1948, Great Eastern Shipping Co. Ltd (GES), is India's largest private sector shipping company. GES has two main business divisions: Shipping and Offshore oil field services. The shipping division is involved in transportation of crude oil, petroleum products, gas and dry bulk commodities. The offshore oil field service division offers services to oil companies in carrying out offshore exploration and production activities by providing a gamut of assets viz. exploratory drilling rigs, offshore support vessels, tugs, and construction barges. The shipping division operates under two main businesses: dry bulk carriers and tankers. A sizeable part of the tankers enjoy approvals from oil giants like Shell, BP, Exxon, Mobil, Chevrontexaco, Totalfinaelf and BHP to name a few

GES is predominantly focused in the crude and product transportation segment with largely 'Aframax' type tanker mix. Currently, the company’s fleet size stands at 75 vessels – 44 ships aggregating 3.22 million DWT and 31 offshore vessels. Its 31 offshore fleet comprises of 17 offshore supply vessels, 2 exploratory rigs, 1 construction barge and 11 harbour tugs. The company had also contracted three modern Handymax dry bulk ships, which are expected to be delivered during this quarter. Apart from these, its new building orderbook stands at 12 vessels – 5 MR product Tankers and 7 Offshore Supply Vessels. Notably, the company has booked forward revenue of Rs.705 cr. for FY06. Of these, the Crude Tanker segment has share of Rs.222 cr., Product Tanker segment has share of Rs.387 cr. and the Dry Bulk Carrier segment has contributed Rs.96 cr. Besides, as a part of horizontal integration, the company is seriously looking at container shipping, which is currently the monopoly of SCI. Interestingly, as on 31st March 2005, the company’s Net Asset Value stands at Rs.282 per share.

In FY05, GES was a beneficiary of the buoyancy in global freight rates and the strong growth in trade ofcommodities and crude. But the same pace may not continue in FY06 as the freight rates have softened. For FY05 its total revenue increased 50% to Rs.2050 cr. and NP jumped more than 70% to Rs.810 cr. thereby reporting an EPS of Rs.42.50 on an equity of Rs.190 cr. Against this, for FY06 first qtr GES has already posted impressive numbers with Sales at Rs.576 cr. and NP of Rs.353 cr. including Rs.194 cr. as profit on sale of vessels. Considering all these aspects, it is estimated to end FY06 with topline of Rs.2300 cr. and NP of Rs.600 cr. (excluding OI), which means an EPS of Rs.32. If we include extraordinary items as well, then EPS may be well over Rs.45. Investors are strongly recommended to buy this share with a price target of Rs.250 (nearly 60% return) in 12~15 months.

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.