STOCK WATCH

Of late, steel scrips are coming back into action and Uttam Galva Steels (Code No: 513216) (Rs.55.55) may see a smart rally in coming days. The company has huge expansion plans whereby it plans to double its cold rolled and galvanized steel production capacity to 10,00,000 MTA and 7,50,000 MTA respectively by 2006. To fund this expansion, the company raised USD 30 million through FCCB route, which were recently listed on Singapore Stock Exchange and can be converted into equity shares @ Rs.65. For FY06, the company can report an EPS of Rs.10 even on its fully diluted equity of around Rs.100 cr. FY07 will see exponential growth due to the impact of this expansion. A very good long term bet.

Apart from Canfin Home in the housing finance sector, investors can also look at GIC Housing Finance (Code No: 511676) (Rs.49.85). With the government relaxing the entry norms for 100% Foreign Direct Investment (FDI) through the automatic route in construction & development for mega housing projects, this sector is expected to witness phenomenal growth in coming years. Moreover, the govt. has also allowed indigenous housing finance companies to raise resources through external commercial borrowings (ECB) by way of FCCB. Due to the rising standard of living and increased tax benefits on housing loans as per Finance Bill 2005, GIC Housing is bound to do well and may report an EPS of Rs.9~10 for FY06.

SAIL and Tinplate Co. of India Ltd (Code No: 504966) (Rs.74.60) are the only indigenous producers of tinplate in the country with TCIL enjoying 35% of the market share. It has already increased its capacity to 1,45,000 MTA and is further expanding to 1,70,000 by 2006 on an investment of Rs.42 cr. With debt restructuring, it has brought down its debt-equity ratio to nearly 1:1 from 2:1 last year. On the export front, the company is targeting specific end users in niche markets of SE Asia, West Asia, other neighbouring countries and even Europe. It is also establishing a 'Solution Centre' with scrolling, printing and lacquering facilities to provide value added forms of tinplate. With an expected EPS of Rs.14, the scrip is available quite cheap in the current market

In the sugar sector, Ponni Sugar (Code No: 532460) (Rs.48.20) a South based small sugar company, looks good for investment with a long-term perspective. For FY05, while its sales increased by 11% to Rs.89 cr., its NP zoomed by 140% to Rs.6 cr. registering an EPS of more than Rs.7 and it declared a maiden dividend of 10%. The company is aggressively liquidating and restructuring its high cost long-term debts and has successfully brought down the interest cost to 9% form 15% earlier. Due to better monsoons this season and sufficient sugarcane availability coupled with higher sugar prices, the company is expected to report Sales of Rs.120 cr. and NP of Rs.7.50 i.e. EPS of Rs.9 on its current equity of 8.20 cr.

To cater to the increasing demand of sponge iron, Tata Sponge (Code No: 513010) (Rs.182.70) is undertaking expansion by installing 3rd kiln of 1,50,000 tonne taking its total capacity to 3,90,000 TPA. Recently, the company has further approved an investment of Rs.300 cr. for installation of the 4th kiln of 1,50,000 tonne capacity and a captive power generation facility of 18.50 MW. Gradually, the company intends to take the total installed capacity to 8,40,000 tonnes and power generation capacity to 60 MW. It is also planning for forward integration to produce steel upto 2 million TPA in a phased manner. With an expected EPS of Rs.35 and promising future ahead its share price can easily cross Rs.250 in the near future. Besides, its possible merger with Tata Steel in the future cannot be ruled out.

Paper prices are rising and so are the share prices of paper companies. But South India Paper Mills (Code No: 516108) (Rs.73.80), a Rs.100 cr. company, has still not caught the market fancy and is available relatively cheap compared to its peers. For FY05, its sales grew by 30% to Rs.91 cr. and NP increased by 35% to 4.35 cr. resulting to an EPS of Rs.6 on current equity of 7.50 cr. It gave 20% dividend, which means dividend yield of approx 4% at CMP. Its an investor-friendly company, which gave 1:1 bonus last year and with promoter holding of about 66%. For FY06, it can report an EPS of Rs.9-10 and its share price can appreciate by 50% in 12 months.

Mawana Sugars - Rs.121.00

Incorporated in 2002 Mawana Sugars Ltd (MSL) belonging to the high profile DCM Group, was formed by acquiring the sugar business of SIEL Ltd under the scheme of arrangement sanctioned by the Hon’ble High Court of Delhi. As per scheme, SIEL shareholders were allotted MSL shares in 3:4 ratios. Post restructuring, the company also came out with 1:4 right issue at par. Today, MSL is a one of the leading sugar manufacturers of North India and is the largest branded sugar maker in the market. In fact, the DCM Group was first to enter the branded sugar market with its brand ‘Mawana’ way back in 1994. Besides, institutional sales account for about 22% of its revenues with major customers such as Coca-Cola, Pepsi, Dabur, Nestle, Perfetti etc.

Currently, the company has two sugar factories with facilities at Titawi having an installed capacity of 11000 TCD and another unit at Mawana with an installed capacity of 6000 TCD with a total installed capacity of 17,000 TCD. These plants are located in the sugar cane rich areas of Western Uttar Pradesh. In anticipation of buoyancy in the sugar sector and margin improvement driven by higher prices realization, MSL has chalked out an aggressive expansion plan with a capex of Rs.535 cr. in the next 2 years. It is already in the process of setting up a new 5,000 TCD sugar mill near Meerut, the first phase of which would be over by November 2005. It also plans to put up another new 5,000 TCD capacity sugar unit in western UP by 2006. MSL is also modernizing and expanding its existing unit under which its Mawana unit capacity will be increased by 2500 TCD and Titawi capacity will be increased to 12,000 TCD. The company also intends to set up a 30 MW co-generation plant and an ethanol distillery that would produce 120-kilo litre per day. With these expansions, MSL's total cane crushing capacity will be increased to 31,000 TCD and capex will be funded through internal accruals, sale of unproductive assets, debt and partly by equity.

With sugar prices hitting a 10 year high in international markets, the prospects of the domestic sugar industry appear to be healthy and MSL having one of lowest EV per tonne in the industry is expected to see much better times ahead. Favourable govt. policies, debt restructuring, import of raw sugar, export to Pakistan, decreasing inventory levels, rising byproduct prices, the emerging ethanol story etc. will all lead to a healthy topline and bottomline growth for sugar companies. For FY05 ending Sept 2005, MSL is expected to report a turnover of Rs.550 cr. and NP of Rs.55 cr. i.e. EPS of Rs.14 on equity of Rs.39.50 cr. For FY06, it can post Sales of Rs.675 cr. and NP of more than Rs.75 cr. which mean EPS of Rs.19. Long term investors are recommended to buy only at declines with a price target of Rs.180 an appreciation of 50% in 12 months.

Lahoti Overseas - Rs.14.00

Incorporated in 1995, Lahoti Overseas Limited (Lahoti) is an ISO 9001:2000 certified company, mainly engaged in export trading of cotton yarn from India's leading spinning mills. Starting from open ended yarns, Lahoti's product range covers a wide variety of cotton yarns including carded and combed ring spun yams of coarse and fine counts, ply yarns, special yarns and also grey fabrics. Lahoti’s major exports are to South Korea, China, Japan, Hong Kong, Malaysia, Indonesia and Vietnam. It has successfully started exports to USA, Europe and South American countries and has also added new markets in the post quota scenario.
The removal of quota regime has created enormous opportunities, especially for the Indian textile industry as India has advantage of good quality & cheap raw material, skilled labour and modern technology as well. Taking clue from this emerging trend, Lahoti has drawn an ambitious growth plan to enter the growing markets of made-ups and home textiles, is putting up a weaving project for the manufacture of wide width grey fabrics to start the expansion drive estimated to cost around Rs.37 cr. and targeted to be completed by the end of this financial year. It plans forward and backward integration to set up a composite unit to manufacture and market a range of made-ups and home textiles in future.
The Union Budget has given importance to the Textile industry and has provided various fiscal incentives and other measures to boost the textile industry. The continuance of the TUF Scheme and the added subsidies for textile processing are some of the positive developments. For FY05, its sales witnessed degrowth of 18% to 148 cr. and NP also declined 20% to 2.40 cr. as the company paid Keyman insurance premium to the tune of Rs.1.63 cr. It declared 25% dividend on an EPS of around Rs.5. Considering all factors, Lahoti can end FY06 with Sales of Rs.200 cr. and NP of 5 cr., which means an EPS of Rs.2 on its current equity of Rs.5 cr. on the FV of Rs.2 per share. Long term investors can buy the scrip at current levels with a price target of Rs.20 (40% appreciation) in 12~15 months.

STOCK WATCH

CCS Infotech (Code No: 532405)(Rs.18.55) is an Information Technology Solutions provider with expertise in Hardware Solutions, Software Development and Networking Services. Apart from being a Microsoft certified partner, this ISO 9001-2000 company also has Intel certification for servers workstations, Home PCs and laptops. It is operating through 12 branches, 50 channel partners and one overseas office in Singapore. Of late, the company has bagged some good overseas and domestic orders. For FY05, it reported sales of Rs.32 cr. with NP of Rs.2 cr. whereas for June’05 qtr., its sales tripled to Rs.11 cr. and NP stood at Rs.1.05 cr. reporting an EPS of Rs.1.1 on its current equity of Rs.9.16 cr. With an expected EPS of Rs.4 and current market cap of only Rs.18 cr., the share price can double in 6~9 months. Only aggressive investors should buy.

Navabharat Ferro Alloys (Code No: 513023) (Rs.77) is a undergoing a 200 cr. expansion whereby it plans to add another furnace with a capacity of 50,000 TPA. It is also setting up a 32 MW power plant in AP and 15 MW power plants in Orissa. In its sugar division, it has recently expanded its cane crushing capacity from 2500 to 3600 TCD and now intends to raise it to 4500 TCD first and further to 5000 TCD over the next two seasons. The co-genration capacity will also be increased to 9 from 5 MW. The company has already received the part payment under insurance claim and will get the final payment soon. Share price is expected to hit Rs.100 in a month or so and then to cross Rs.120 in the next 3~6 months.

Although the Sensex has hit an all time high above 8000, still well-managed companies like GNFC (Code No: 500670) (Rs.98.30) are available at 5~6 times their FY06 earnings. GNFC is India‘s largest producer of Formic Acid, Acetic Acid and Methanol. It’s also India's only producer of Glacial Acetic Acid through the cutting-edge Methanol route using British Petroleum Technology. Its also has the world's largest single stream fuel oil based Ammonia-urea plant. It reported excellent numbers for June’05 qtr. Sales increased by 18% to Rs.314 cr. whereas NP almost tripled to Rs.61 cr. For FY06, it can report an EPS Rs.18~20 on its current equity of Rs.146.50 cr. With a dividend yield of nearly 5%, it’s a good buy with short to medium term perspective.

Being in the T2T category, Aarti Drugs (Code No: 524348) (Rs.151) has not seen much action although the market has hit a new high. It’s a professionally run company with a strong strong presence in the anti-diarrhoea, anti-inflammatory therapeutic groups with products such as Tinidazole, Metronidazole, Nimesulide & Rofecoxib. It is expected to report strong numbers in coming quarters due to the sharp rise in the prices of its two major products viz Ciprofloxacin and Metronidazole. It has also bagged a huge export order of Rs.200 cr. for anti-fouling agent. Some months back it raised Rs.55 cr. through the FCCB route, which will be converted into equity shares at Rs.170 per share. With an expected EPS of Rs.16 even on its diluted equity, its share price is set to cross Rs.200 sooner than later. A strong buy.

In such a high market where everyone is short of ideas, Gujarat Carbon (Code No: 506457) (Rs.26.35), a Duncan Goenka group company has still not caught the analyst’s attention and its trading reasonably cheap. It manufactures Methyl Ethyl Ketone and Secondary Butyl Alcohol, which is used by oil refineries. Basically it’s a turnaround story as the company has successfully sourced an alternate raw material, which is cheaper and easily available. For FY06, it can report Sales of Rs.30 cr. and NP of Rs.6.50 cr., which means an EPS of more than Rs.5 on its current equity of Rs.12.40 cr. Scrip has the potential to touch Rs.50 once it comes out of T2T.

Although share price of Videocon Appliances (Code No: 500945) (Rs.36.30) has appreciated smartly in last few weeks still it is going cheap considering its fundamentals. Interestingly, all Videocon group companies are discounted richly on the bourses except Videocon Appliances, which is available at price to earning multiple of 5x. Due to huge reserves, its book value is around Rs.80 but its trading at more than 50% discount to book value. Against FY05 expected sales of Rs.1100 cr. and NP of Rs.26.50 cr., its market cap is merely Rs.120 cr. A strong re-rating upto Rs.75 can be expected and long term investors are advised to keep accumulating this scrip at declines.

Vardhman Industries - Rs.38.00

Vardhman Industries Ltd (VIL) is promoted and managed by Kapil Jain. Initially, VIL produced only steel ingots but in 1992 it set up a small galvanizing plant for steel pipes. Today, this Delhi based company is a reputed manufacturer and exporter of steel ingots, galvanized plain & galvanized corrugated sheets and coils. It also produces cold rolled coils and other flat products. Apart from metals, VIL has diversified into manufacturing Vanaspati Ghee and Refined oil.

VIL is also putting up a colour coating plant of 41250 MTA capacity at Rajpura in District Patiala in Punjab at a total estimated cost of Rs.15 cr. This plant will be operational by early 2006. It is also setting up a 10 MW power plant in Jharkhand and also its Steel Melting Shop (SMS) to manufacture about 68000 MT of billets at the same site. Both are expected to commence operations by November 2005.

VIL is concentrating more on exports by exploring new markets in Dubai, China, West Africa, Sierra Leone, Afghanistan, Myanmar, Maldives, Canada etc. It has made a major dent in the export market despite stiff competition and intends to take its exports beyond Rs.100 cr. With the increase in production, its diversified product mix, expected economies of scale and highly responsive market conditions, VIL can close FY06 with sales of around Rs.275 cr. and NP of Rs.6.50 cr. This means an EPS of Rs.8 on its current equity of Rs.7.94 cr. Investors are recommended to buy this scrip at declines with an expectation of 50% return in 12~15 months.