Aarti Drugs - Rs.154.00

Aarti Drugs Ltd (ADL), has emerged as a fully integrated research-driven company developing processes for active pharma ingredients (API) and intermediates and is a leading manufacturer of bulk drugs in some popular therapeutic groups and speciality chemicals. It has a strong presence in the anti-diarrhoea, anti-inflammatory therapeutic groups with products such as Tinidazole, Metronidazole, Nimesulide, Rofecoxib and is the largest producer of Benzene based basic and intermediate chemicals in India. It also manufactures vitamins, anti-asthama, anti-HIV, anti-arthritis, anti-fungal, antibiotics, ACE inhibitors, anti-osteoporosis, anti-diabetic, anti-cholinergic, sedatives and anti-depressant drugs. ADL commands a leadership position with over 70 per cent market share for more than 15 principal products including secnidazole, ornidazole, metronidazole etc. It is the sole supplier of Tinidazole to Pfizer Inc worldwide and commands 85 per cent market share in the world. Its customer list include companies like Ranbaxy, Dr Reddy’s Labs, Nicholas Piramal, Zydus Cadila, Cipla, GSK Pharma, Pfizer, Merck, J B Chemicals etc. It also exports to more than 80 countires and international giants like Abbott, Aventis Pharma,Bayer, Clariant, Glaxo SmithKline, Pfizer, Merck, Wyeth, Searle to name a few.

Its manufacturing facilities at Tarapur, Sarigam and Turbhe with state-of-the-art R & D Center at Turbhe, is recognized by the Department of Science and Industrial Research, Government of India. Its manufacturing facilities have been audited and approved by MNCs such as Pfizer, Rhone Poluenc, Merck and several other overseas buyers. It has identified few products for USDMF filing and intends to file at least 6 to 8 drug master file (DMF) during the current year. With already 30 molecules in its basket, ADL is planning to commercialize another 10 molecules the in current year to cash in on the opportunity presented by the patent expiry of many blockbuster molecules in the near future.

Fundamentally as well as financially, the company is strong with huge potential for growth. For FY05, it reported a turnover of Rs.242 cr. with 11% growth and NP of Rs.14 cr., an increase of 16% compared to last year. It maintained its dividend of 30% and reserves stood at Rs.65 cr. leading to a book value of Rs.65. For FY06, the company is expected to clock a turnover of Rs.315 cr. and NP of Rs.24 cr. This works to an EPS of Rs.21 on its current equity of Rs.11.70 cr. and EPS of Rs.16 on its fully diluted equity of Rs.15 cr. Investors are strongly recommended to buy at current levels with a price target of Rs.225 (50% appreciation) in 12~15 months. Long-term investors can expect much higher returns if held for 24~36 months.

STOCK WATCH

MP Glychem Ltd. (Code: 519383) (Rs.38.65), belonging to the well-known Ruchi Group is in the business of solvent extraction, edible oils, soya foods, vanaspati and dairy products. It is a regular profit making company with strong fundamentals. For FY05, it reported a topline of Rs.1077 cr. and a bottomline of Rs.12 cr. and is expected to declare around 12% dividend in coming weeks. With an expected EPS of Rs.7, a book value of nearly Rs.45 and a market cap of only Rs.84 cr., it is available reasonably cheap in such a high market. Besides, a merger with Ruchi Soya cannot be ruled out, which will lead to an upward re-rating of the scrip.

Mahindra Ugine Steel Co. Ltd. (Code: 504823) (Rs.126.85) belonging to the Mahindra & Mahindra Group is a well-known manufacturer of alloy steel in the country. It also has a Stampings Division to manufacture pressed sheet metal components and assemblies To cater to the increasing demand, the company is raising its production capacity from 1,10,000 to 1,50,000 TPA by early 2006 and further to 2,40,000 TPA by 2008. For FY06, it may report sales of Rs.650 cr. and NP of Rs.55 cr., which means an EPS of Rs.18. The scrip has attracted the interest of institutional investors and may rise by 50% in the coming 6 months.

In spite of the huge volatility in steel prices, National Steel & Agro Ltd. (Code: 513179) (Rs.29.35) has posted consistent and steady profit margin last year. Although the company has high debt and is not declaring any dividend, its still estimated to report an EPS of Rs.6 for FY06 and has huge reserves of Rs.115 cr. i.e. a BV of Rs.46. Due to the rising demand, the company is regularly modernising and expanding its production capacity. It also has one of the most modern state-of-the-art colour coating line. In spite of the bright future ahead, the company’s current market cap is only Rs.100 cr. against its expected topline of around Rs.1650 cr. and bottomline of 19.50 cr. Its share price is bound to hit Rs.50 in the near future.

In view of the growing demand for petrochemicals in the international market, IPCL (Code: 500105) (Rs.191) is undergoing a Rs.500 cr. expansion, wherein it plans to increase the Vadodara cracker capacity by 12,000 TPA, expansion of its Benzene capacity by 14,000 TPD and expansion of its PVC plant to 3,15,000 TPA from 2,45,000 TPA with corresponding increase in the capacity of its Vinyl Chloride Monomer plant. Part expansion has already been carried out and is likely to be completed by mid 2006. For FY06, IPCL may report sales of Rs.9500 cr. and NP of Rs.625 cr. on a conservative basis. Non-availability and price increase of natural gas, rising crude oil prices and its merger with Reliance Industries are some concerns. Yet the scrip has the potential to appreciate 50% in 9~12 months in this bull market.

Another steel scrip that investors can watch out for is Modern Steel (Code: 513303) (Rs.115.30). It makes steel alloys and special steels apart form producing Billets, Rounds, RCS, Flats and Special Profiles. The company has initiated a modernization & expansion plan at an estimated capital outlay of Rs.32 cr. The capacity of its Steel Melting Shop will be enhanced by 50000 MTA while the Rolling Mill capacity will be enhanced by 36000 MTA. For FY06, it can register Sales of Rs.325 cr. and post a NP of Rs.13.50 cr., which means an EPS of Rs.28 on its tiny equity of Rs.4.80 cr. A good short to medium term bet.

Of late, housing finance companies are buzzing on the bourses on various rumours and their promising future. Interestingly in such a high market, Canfin Homes (Code: 511196) (Rs.50.85) is available at less than 5 PE and with a dividend yield of around 5%. It has huge reserves of about Rs.130 cr. on its equity of Rs.20.50 cr. leading to a book value of Rs.74. For FY06, it may report total revenue of Rs.135 cr. and NP of Rs.20 cr. Once the selling by its promoters like Canara Bank, HDFC Bank and UTI is fully absorbed, the share will shoot up sharply. Investors can expect a price target of Rs.75 in 9-12 months.

Haldyn Glass - Rs.75.00

Incorporated in 1991, Haldyn Glass Gujarat Ltd (HGGL), an associate of Haldyn Glass Ltd, is primalarily engaged in the manufacture of glass bottles & glass containers. It manufactures three types of glass namely clear glass, amber and vials. Clear glass is basically used by liquor, cosmetic, soft drinks and the beverage industries whereas pharmaceutical, chemical, food & beverages and liqour companies use amber glass. Vials are used to package injectibles, eye drops, eardrops and other life saving drugs by the pharma sector. As HGGL is one of the largest players, it has a huge clientele including bigges like Mc Dowells, Shaw Wallace, Glaxo, Cipla, Pfizer, Bajaj Sevashram, Camlin, Reckitt & Colman, Cadila, Ranbaxy, Novartis, Wyeth etc. Apart from this, it exports its products to various countries like UAE, Bahrain, Saudi Arabia, Sri Lanka, New Zealand and Singapore among others.

HGGL’s manufacturing plant is located at village Gavasad, Dist. Baroda in Gujarat and is equipped with an automatic batch house, feedback temperature control system for fore hearths, high speed IS (Individual Section) machines, a well- equipped design department and a mould workshop. It also has full-fledged in-house design facilities, which churn out over 500 different shapes and sizes of glass containers. HGGL is likely to revive the setting up of its captive power plant project, which was put on hold sometime back. Though the glass bottle industry is facing stiff competition form usage of PET bottles and aluminium cans, still glass finds use because of its unique properties like re-usability, natural & environmental friendly, high chemical resistance, pressure resistant etc.

Since the user industries like pharma, liquor, cosmetics & food/beverages are growing at a healthy pace, HGGL is expected to maintain a reasonable growth rate. For FY05, the company reported excellent numbers. Its topline grew by 23% but its bottomline quadrupled to Rs.4.80 cr. due to better operating margins. Ironically, its OPM doubled to 27% compared to 14% in FY04 and it even declared a maiden dividend of 15 per cent. Continuing the trend, HGGL posted equally impressive numbers for the June’05 qtr and may end FY06 with Sales of Rs.60 cr. and NP of Rs.7.5 cr. registering an EPS of Rs.14 on its equity of Rs.5.40 cr. In the current bull run, this scrip has the potential to cross Rs.100 in 6~9 months.

Zenith Computers - Rs.33.00

Incorporated in 1980, Zenith Computers Ltd (ZCL) is second largest manufacturer and seller of a complete range of personal computers, laptops, accessories and peripherals. It also provides focused services on networking systems integration, which includes consulting solution, design, integration, migration, outsourcing and maintenance services. ZCL has strong distribution and sales network with more than 25 branches, 425 dealers and 125 showrooms along with widespread service centres across India. Its range of desktop PCs are manufactured in an ISO–9001/14001 certified plant adhering to international stringent quality standards that meet the CE, FCC and Energy Star certifications apart from being Intel Validated and Microsoft certified. It has an installed base of more than 1 million computer systems in India and has reputed clientele including corporates from banking, telecom, IT, educational institutions and even PSU companies.

Buoyed by the cutthroat competition in the PC segment and witnessing the great inclination among people to buy laptops, ZCL has decided to focus on the laptop business for future growth. It has, therefore, launched a series of laptops, from starters to high-end users. ‘The Executive Laptop’ and ‘Director Laptop’ have been a huge success in the market. Having created a niche in the education and laptop PC market in India, ZCL is now heavily betting on exports. Exporting its products to SAARC countries like Nepal, Bangladesh, Sri Lanka etc., ZCL has already emerged as a big player in the PC Hardware industry in the South Asian sub-continent and is now its concentrating to establish its presence in the Middle East countries like Saudi Arabia, Iran, Iraq, Oman, UAE, Bahrain, Qatar & Yemen. The company is also keen to encash the extremely great potential in South Africa for which it has tied-up with the ICS Group to form ‘Zenith Africa (Pty) Ltd.’

To capture the growing home entertainment and Internet market the company has acquired a presence in gaming computers in association with Singapore's Creative Technology Ltd. ZCL is actively focusing on Internet applications with special emphasis on Internet banking products and is aggressively looking at marketing Banc724, its Total Banking Automation (TBA) solution aimed at co-operative banks. For future growth, it is also considering acquisitions of software companies abroad. Since notebooks comprise 40% of the total computer market all over the world, while in India it just amounts to 3% there is a huge growth opportunity for the company.

For FY05 its Net sales increased by modest 8% to Rs.282 cr. but its NP jumped 50% toRs.4.70 cr. and it declared 10% dividend. The company has healthy reserves of around Rs.35 cr. leading at a BV of Rs.32. Notably, the computer hardware industry continues to get Government support both at the Central and State levels to exempt computers from excise duty and efforts are still on to effectively reduce the price of computers so that a large section of population are able to own a computer for their personal use. Considering all these factors, ZCL can end FY06 with a turnover of Rs.320 cr. and NP of Rs.6.50 cr. resulting in an EPS of Rs.4 on its current equity of 15.50 cr. With a current market cap of merely Rs.50 cr. and FY06 earning discounted by only 8 times, ZCL is trading reasonably cheap and can appreciate 50% easily in the next 9~12 months. Investors are strongly recommended to buy this emerging mid-cap.

STOCK WATCH

With every passing day, construction/infrastructure scrips continue to rise on the back of their galloping order book positions. The share price of Petron Engg. (Code No: 530381)(Rs.208.65) has also risen smartly in the past but is still relatively cheap compared to its peers. It has a huge Rs.500 cr. of projects in hand on its small equity of just Rs.7.50 cr. For FY06, it is expected to report a turnover of around Rs.400 cr. and NP of more than Rs.12 cr., which means an EPS of Rs.16. Apart from good fundamentals, the company is also expected to make some favourable announcement like preferential allotment, merger with some bigger company etc. A good bet for the short to medium term

Historically, cement prices remain low during the monsoon due to lower demand. But this time it was different. Cement prices have remained firm and are now expected to rise from September 2005. Mangalam Cement (Code No: 502157) (Rs.89.55), a B K Birla group company, is a good turnaround story in this sector. It has more than 1 MMT installed capacity but is available at a market cap of less than Rs.250 cr. Due to various restructing initiatives, the company is expected to post an EPS of Rs.8.50 and Rs.11 for FY06 and FY07 respectively. Share price can shoot upto Rs.120 in 6 months or so. A solid buy.

After relisting with a bang at Rs.174, Indoasian Fusegear India Ltd (Code No: 532658) (Rs.146.10), the new merged entity has corrected down sharply due to market sentiment and profit booking by weaker hands. The company in undergoing a Rs.55 cr. expansion whereby it will double the production capacity of circuit production devices and will raise its compact fluorescent lamps (CFL) capacity to 10 million units. It is also foraying into the manufacture of energy meters with a initial capacity of 5 million units besides planning acquisition of manufacturing facilities for wires and cables. For FY06 it can report Sales of Rs.220 cr. and NP of Rs.25 cr. leading to an EPS of Rs.22 and diluted EPS of Rs.18. For FY07, company is estimated to double its sales to Rs.450 cr. A strong buy for the medium to long term

Indian pharma companies are expected to grow substantially on the back of huge export potential, for which reason all pharma companies are setting up internationally approved plants. Hence downstream companies like Medi Caps (Code No: 523144) (Rs.60.30) can report a good topline growth in future. The company is the market leader in the production of gelatine capsules, which are widely used to package drugs, vitamins, antibiotics and cosmetics. Apart from having strong fundamentals, it’s a cash rich company with investments of more than Rs.11 cr. For FY06, it may register sales of Rs.23 cr. and NP of Rs.3.50 cr. leading to an EPS of Rs.11 on its small equity of Rs.3.12 cr. Moreover, it may be taken over by some big pharma company.

Of late sugar scrips have corrected sharply from their recent highs on account of profit booking. Investors can accumulate Mawana Sugars (Code No: 532512) (Rs.111.70) for medium to long term gains. It is one of the leading sugar manufacturers in North India with an installed capacity of 17,500 TCD. Due to the better prospects for sugar sector, the company is planning a huge Rs.500 cr. expansion in the next 2 yrs whereby it plans to nearly double its capacity to 31,000 TCD and also set up 30 MW co-generation plant. It will also set up new distillery to produce 120 Kilolitres per day of ethanol. For FY06, it can report NP of Rs.55 cr. i.e. an EPS of Rs.14 in its topline of Rs.650 cr.

Nectar Life Sciences (Code No: 532649) (Rs.269.95), which came out with an IPO at Rs.240 in June 2005, has still not appreciated much inspite of its strong fundamentals and bullish sentiment. It operates in oral and sterile forms of cephalosporin and semi synthetic penicillin bulk drugs. The company is expanding its cephalosporin facility and is going in for forward integration by setting up a formulations unit at Baddi. It currently exports its products to China, Korea, Hong Kong, South East Asian countries like Singapore and Thailand apart from European countries like Netherlands, Italy and Spain. On a consolidated basis, the company can report an EPS of Rs.25 for FY06. A safe bet.