STOCK WATCH

Metal scrips have been rising again turning analysts bullish once again towards this sector at least for the short term. In such a scenario, investors can look at Shah Alloys (Code No: 513436) (Rs.207.50). It came out with pretty encouraging numbers for June’05 qtr. While its sales grew by just 15% to Rs.258 cr., its NP jumped 42% to Rs.10 cr. due to lower interest cost. The company is the second largest stainless steel manufacturer and has ambitious expansion plans for future growth. Although it is not the preferred choice among institutional investors, still with an expected EPS of Rs.55 for FY06, its share price has the potential to cross Rs.250 in the near future.

Rama Paper (Code No: 500357) (Rs.42.50) which has recently come out of BIFR on restructuring intiatives is doing extremely well. It is into newsprint, writing & printing paper and duplex board for industrial use. It posted excellent results for June’05 qtr whereby its Sales increased by 15% to Rs.17.35 cr. but its NP jumped 140% to Rs.1.80 cr. on higher OPM. Company is taking all possible steps to repay its high debt and turn debt free for which it is raising around Rs.8.75 cr. through preferential allotment of 25 lakh shares @ Rs.35 each. It can post around EPS of Rs.9 for FY06 even on the diluted equity of Rs.7.50 cr. Scrip can rise by 50% in short to medium term.

Sugar scrips are buzzing on the bourses in anticipation of the bright future ahead. Purely on fundamentals Ponni Sugar (Erode) Ltd. (NSE Listed) (Rs.47.15), a south based sugar producer that enjoys export house status, seems a good bet. For FY05, while its sales increased by 11% to Rs.89 cr. the NP zoomed 140% to Rs.6 cr. posting an EPS of around Rs.7.50 on which it declared 10% dividend. The company is restructuring its debt portfolio replacing its high cost debt with lower interest bearing loans. Besides, it has huge inventory equivalent to around 5 months sales. For FY06, it may report an EPS of Rs.9. Buy at declines as the scrip can cross Rs.60 in a year.

Branded PCs have started to grow at a fast pace as people now prefer branded PCs over assembled computers. Zenith Computers Ltd. (Code No: 517164) (Rs.33.95), one of the largest manufacturer & seller of complete range of PCs, servers, LAN, WAN, Unix product etc is available reasonably cheap. For future growth, the company is focusing on its laptop business and is concentrating to increase exports to the Middle East. For FY06, it can earn a NP of Rs.6 cr. on Sales of Rs.320 cr. resulting in an EPS of Rs.4 on current equity of Rs.15.50 cr. In spite of strong fundamentals and huge growth potential, it enjoys a market cap of only Rs.50 cr. It’s a strong buy as the share price can rise 50% in 9~12 months.

Winsome Textiles (Code No: 514470) (Rs.27.60) belonging to the well-known Winsome group is engaged in the manufacture of a variety of 100% cotton yarn used for weaving and knitting. For the June’05 qtr., it posted encouraging results. Sales remained flat at Rs.31.30 cr. but NP zoomed 150% to Rs.1.10 cr. due to lower interest cost and better operating efficiency. The company has a very small equity of Rs.5.90 cr. but has huge debt of around Rs.75 cr. on which it pays around Rs.8 cr. as interest. In spite of this and coupled with the high depreciation of around Rs.5 cr., the company is expected to report a bottomline of Rs.4 cr. on a topline of Rs.145 cr. leading to an EPS of Rs.7 for FY06. With the benefit of corporate debt restructing and higher margins, it can easily post an EPS of Rs.10~12 for FY07. With a book value of Rs.46 and FY07 EPS discounting of just 2 times, this scrip can be a multibagger in the long run.

With crude oil trading almost near USD 70 per barrel, India Glycols (Code No: 500201) (Rs.173), the only producer of MEG through the molasses route, will definitely benefit as the price of molasses has not risen the way crude oil has. As polymer prices are rising, MEG (which is the basic raw material for polymer) prices have also started to move up. Apart from this, the company has recently completed its expansion and is all set to report a NP of Rs.100 cr. i.e. EPS of Rs.35 on Sales of Rs.725 cr. for FY06. Against this, it has a market cap of only Rs.450 cr. and is trading at a PE of less than 5x. Its share price can cross Rs.250 in the near future. A strong buy.

Jhunjhunwala Vanaspati - Rs.40.50

Incorporated in 1989, Jhunjhunwala Vanaspati Ltd (JVL) is primarily engaged in the production of refined oil & vanaspati ghee. It markets and sells its products under the brand name ‘Jhoola’ which is a leading brand in UP and eastern India with about 40% market share. Its vanaspati ghee and refined oil is basically consumed by the medium and lower income group and in the rural areas. The company uses modern technology for refining oil as the traditional method of chemical refining leads to high process losses in comparison to the physical refinery

JVL’s has a state-of-the-art integrated plant with an installed capacity of 350 TPD. In fact, it is the single largest unit manufacturing vanaspati ghee in India. The company has continuously gone in for technological upgradation over the last few years and has obtained ISO 9001- 2000 certification for its quality system. JVL has also tied up with the UK-based Oriental Commodities to produce herbal Ayurvedic capsules of various popular vegetables, fruits and herbs by preserving them in their purest form to maintain the original colour, flavour, taste and potency of product. It has also ventured into the manufacture of HDPE containers and tin containers. Apart from all these developments JVL is expected to perform better thanks to the incentives to the sector, which includes abolition of excise duty combined with a possible offer to import vegetable oils at concessional rate for production of Vanaspati.

Fundamentally as well as financially, the company is quite strong. It’s a debt free and cash rich company having huge liquid investments, equivalent to almost Rs.127 per share. On its small equity of Rs.6.83 cr., it has reserves of around Rs.28 cr., which leads to a book value of Rs.61 as on 31st March 2005. For FY05, it earned NP of Rs.5.80 cr. posting an EPS of Rs.8.50 on total sales of Rs.486 cr. Again, the company has posted encouraging result for the June’05 qtr with Sales of Rs.146 cr. and NP of Rs.1.75 cr. Considering all these factors, JVL is expected to end FY06 with turnover of Rs.600 cr. and NP of Rs.6.50 cr. which means an EPS of Rs.9.50. Investors are strongly recommended to buy this scrip with a price target of Rs.60 (50% appreciation) in the next 9~12 months.

Bhuruka Gas - Rs.43.00

Bhuruka Gas Ltd (BGL), was originally incorporated as Karnataka Oxygen Ltd. in 1974 by Shri S.N. Agarwal through Transport Corporation of India Ltd.and Karnataka State Industrial Investment & Development Corporation Ltd. Since then, it has become one of the largest manufacturers of high quality industrial gases in South India producing a wide range of industrial gases like Oxygen & Nitrogen in liquid and gaseous form, Argon, Hydrogen, Dissolved Acetylene, Mixture Gases and Calibration Gases. In fact, BGL is the largest independent producer of argon in India. Due to the growing Indian economy and the strong uptrend in industrial growth, BGL’s products are in huge demand. With no new capacities coming up in the near future, BGL is expected to perform much better in coming quarters.

BGL’s plant is located at Bangalore and is equipped with imported machinery from Germany. This plant is capable of producing 19,00,000 cubic metres per month each of liquid oxygen and liquid nitrogen and 65,000 cubic metres per month of argon. Importantly, BGL supplies the complete range of industrial gases and has established good rapport with its customers for the quality of its products and services. Apart from the gas supply, it undertakes turnkey projects for high pressure gas pipelines with cylinder handling manifolds. It also undertakes up cryogenic pressure vessel installations, liquid bottling pumps supply and maintenance. Of late, company has been laying more emphasis on the manufacture of value added products like high purity, speciality and calibration gases.

Earlier till FY03, the company was not performing well and had huge carry forward losses and was declared sick. However, after various restructuring initiatives and BIFR orders it turned around in FY05. According to the terms of the BIFR order, the paid-up equity share capital of BGL has been reduced from Rs.8.72 cr. to Rs.2.18 cr. by reduction in the face value of its equity shares of Rs.10 each to Rs.2.50 per equity share. Today, it is no longer a sick unit and the BIFR has deregistered it from the purview of The Sick Companies Act. For FY05, BGL reported a topline of Rs.43 cr. and a bottomline of Rs.7.70 cr. including extraordinary items. Since industrial gas is consumed across the industry and most industrial sectors are undergoing expansion, BGL can post a topline of Rs.50~55 cr. and bottomline of around Rs.8~9 cr. and thereby post an EPS of Rs.9~10 for FY06. Investors are strongly recommended to buy the share at current levels expecting 50% return in 9~12 months.

STOCK WATCH

Of late, metal scrips are coming back in action and Stelco Strips (Code No: 513530) (Rs.25.55) can rise sharply to hit a new high. It is engaged in the manufacture of cold-rolled close-annealed (CRCA) steel strips of mild steel, medium and high-carbon steel. Recently it came out with very encouraging numbers for the June’05 qtr. Its Net Sales & NP grew by 50% to Rs.31.50 cr. and 0.94 cr. respectively. For full FY06, it can report an EPS of Rs.7 on its small equity of Rs.6.90 cr. Share price can rise by 50% in 12 months. A good medium term buy in the metal sector.

Mahalaxmi Seamless (Code No: 513460) (Rs.41) is among the largest manufacturers of cold drawn seamless pipes and tubes in India. Since the future prospects of the pipe industry are quite good, investment in this company is quite promising. Its FY05 numbers were quite encouraging with Sales up 60% to Rs.28 cr. and NP increased by 140% to Rs.2.05 cr. For FY06, it is expected to post a topline of Rs.35 cr. and NP of Rs.3.5 cr., which means an EPS of Rs.7 on the current equity of Rs.5.30 cr. Buy at declines only as the scrip has seen a smart run up.

Pacific Cotspin (Code No: 531118) (Rs.15.43) is a leading producer of superior cotton yarn in eastern India. It’s planning to increase its capacity by over 50% from around 26000 spindles to 40000 spindles. Notably, the company is raising about Rs.10 cr. by way of preferential allotment of 58 lakh shares to promoters @ Rs.17.25 per share. Its June numbers were quite impressive with sales rising 50% to Rs.36 cr. and NP stood at Rs.1.50 cr. compared to Rs.0.10 cr. last year. For the full year, it may report an EPS of Rs.2.5 on its diluted equity of Rs.27.90 cr. A few days back the company has also approved to merge Salem Vanijya, an unlisted company, with itself.

Purely on fundamentals, Konark Synthetic (Code No: 514128) (Rs.52.15) looks extremely cheap and can double from the current level. It’s a relatively smaller player in the texturised yarn business with a topline of around Rs.20 cr. It has a very tiny equity capital of Rs.1.33 cr. and promoters hold around 49% stake. It came out with excellent result for June’05 qtr. Its Sales grew by 50% to Rs.5.65 cr. whereas its NP zoomed to 52 lakh compared to 2 lakh last year. For FY06, it may report an EPS of Rs.14, which means its trading at a forward PE of 3x. Grab it before its too late.

One textile scrip that came out with stunning numbers for the June’05 qtr was Gupta Synthetics (Code No: 514116) (Rs.150.50). It is engaged in texturising, twisting and dyeing of yarn, weaving of fabrics and is also one of the largest manufacturer and processors of man-made fabrics specially sarees and dress materials. Sales have more than tripled to Rs.36 cr. and NP jumped nearly 900% to Rs.1.25 cr. reporting an EPS of Rs.16 for the qtr. It has a very tiny equity of Rs.1.60 cr. in which the promoters hold 54% stake. With an expected EPS of around Rs.40~45 and such low floating stock this scrip can easily double in a matter of few weeks. Catch it if you can.

Although FY05 was not that good for Mayur Uniquoters (Code No: 522249) (Rs.28.00), the current fiscal can turnout to be a good year. The company is engaged in the manufacture of PU/PVC Synthetic leather. It is expected to report higher margins this fiscal due to better operating efficiency and good price realisation. It came out with pretty decent results for the June’05 qtr. Its turnover grew by 22% to Rs.13 cr. but its bottomline increased by 65% to Rs.0.61 cr. It can report an EPS of more than Rs.5 on its current equity of Rs.5 cr. Accumulate on declines.

Mangalam Cement - Rs.74.00

Incorporated in 1976, Mangalam Cement Ltd (MCL) is a part of the B.K. Birla Group and is engaged in the manufacture of ordinary portland cement, pozzolana portland cement and clinker. It has two units namely Managalam Cement and Neer Shree Cement, both at Morak in Rajasthan with installed capacities of 0.4 million TPA and 0.7 million TPA respectively. It manufactures cement through the dry process using vertical raw mills & sells under the brand names ‘Mangalam’ and ‘Birla Uttam’. To meet its raw material requirement, the company has leased limestone-bearing land adjacent to its plant, which has reserves for the next 50 yrs. The company operates in the northern region with a key presence in the markets of Rajasthan, Western UP, Gujarat and Delhi. Incidentally, the North is the fastest growing region and the cement price realisation is also higher in this zone compared to other parts of India.

Financially, MCL went through tough times earlier and reported losses for many years. In 2000, its networth was completely eroded and it became a sick unit. In May 2002, it came under the purview of BIFR and restructured itself. Recently, it met its financial obligations with a one-time settlement and received a waiver from institutions on the interest and principal to be repaid to become a debt free company. It also received sales tax liability write-back, which helped it improve its financial health. Finally, it turned around in FY04. Now the company is working smoothly at more than 130% capacity utilization and is expected to perform much better in coming quarters In fact, to save on the power costs, the company is setting up a captive thermal power plant with a 17.5 MW capacity expected to become operational by mid 2006.

With government’s thrust on infrastructure, construction of highways, sea ports, airports etc and the ongoing housing boom will lead to greater demand for cement and increase in cement prices is likely. But the biggest trigger for MCL will be its takeover by some multinational or bigger cement company. Earlier Grasim, Mexican cement major Cemex, Lafarge, Italicement and some Thailand based companies had shown interest in acquiring the company. Even if the takeover/merger doesn’t happen, MCL is fundamentally quite strong and can report Net Sales of Rs.315 cr. and NP of Rs.20 cr. for the year ending 30th Sept 2005. This works out to an EPS of Rs.7 on its current equity of Rs.28.20 cr. Considering its higher operating efficiency in FY06, it is estimated to report a turnover of Rs.360 cr. and bottomline of Rs.28 cr. leading to an EPS of Rs.10. Investors can buy at CMP with a price target of Rs.120 (60% appreciation) in 12~15 months.