Winsome Textiles - Rs.25.75

Incorporated in 1980, Winsome Textile Industries Ltd (WTIL) is a part of the well diversified Winsome Group, which has a strong foothold in textiles through its group companies like Winsome Spinners, Winsome Yarns, Winsome Spectrum, Winsome Knitwear etc. WTIL manufactures 100% raw cotton white yarn in the count range of NE 10s to NE 40s both carded and combed, single and folded. It also produces the finest quality melange yarn in 100 per cent cotton as well as cotton blends with viscose, polyester, acrylic, linen, modal, wool and silk which are used to make high value woven garments. Today, Winsome is the largest producer of melange yarn in India. It exports to more than 20 countries in the Far East, Europe, USA etc. and nearly 50% of its total turnover is accounted by exports.

WTIL’s spinning unit is located at Baddi in Himachal Pradesh with a capacity of 25,000 spindles while the group can boast of an installed capacity of more than 1,00,000 spindles with 9,500 kg per day yarn/fibre dyeing unit. It is an ISO9001-2000 certified company alongwith ISO14001 Environmental Management System Certificate issued by the Bureau of Indian Standards. Last year in March 2004, WTIL completed a modernization project leading to an increase in its combing capacity, replacement of 11 Ring Frames and other equipments without any cost overrun and as per TUFS guidelines. For future growth the company is implementing Rs.10.50 cr. capex plan to add 5 combers to convert part production of carded cotton yarn to combed yarn, which offer higher contributions. Also, some balancing machines are being planned for the Dyeing House to increase production. Notably, this whole exercise will be financed by debt and internal accrual without any equity dilution. The group is also planning to foray into manufacture & export of knitwear garments in a big way.

For FY05, its sales grew by 15% to Rs.128 cr. whereas its PBT was Rs.58 lakh compared to Rs.7 lakh last year. It managed these figures in spite of the fact that the company’s first half of FY05 was affected due to higher cotton prices and low yarn prices. However the current first qtr. numbers are quite encouraging. Although sales revenue flat at Rs.31 cr. the NP spurted 150% to Rs.1.08 cr. leading to an EPS of Rs.1.80 for the June’05 qtr. Given its small equity of just Rs.5.9 cr. and reserves of Rs.21.4 cr., the book value of the share works out to Rs.46. The value of its gross block as on 31st March 2005 stood at whopping Rs.119 cr. It also has investments whose current market value is more than Rs.10 cr. In spite of such strong fundamentals, the company’s current market cap is merely Rs.15~16 cr. For FY06, it is expected to report Sales of Rs.150 cr. and NP of Rs.4 cr. i.e. an EPS of around Rs.7. Investors are strongly recommended to buy this scrip with a price target of Rs.50 (i.e. 100% appreciation) in 9~12 months.

STOCK WATCH

Petron Engineering (Code No: 530381) (Rs.254.50) came out with its much-awaited June’05 numbers. Though its turnover increased by 17% to Rs.67.20 cr. but its NP doubled to Rs.4 cr. in spite of higher tax provision of Rs.2 cr. Its OPM for this qtr stood at 13% compared to 8% last year. It has a very healthy order position of more than Rs.350 cr. and institutional investors have started to take an interest in this company. In future, Petron Engg. is expected to come out with preferential allotment at a healthy premium to the current market price. With an expected EPS of around Rs.18, the scrip is trading reasonably cheap compared to its peers making it a best buy in the infrastructure sector.

Due to removal of quota system under WTO, textile companies are expected to witness a phenomenal growth for which reason Kallam Spinning (Code No: 530201) (Rs.31.70), a South based cotton yarn manufacturer is undergoing expansion. By its Rs.18 cr. capex plan it will increase the spinning capacity from 22,608 to 33,648 spindles by March 2006. The whole expansion will be financed by debt and internal accruals without any equity dilution. For FY06, the company is estimated to report sales of Rs.40 cr. and NP of around Rs.5 cr. i.e. an EPS of Rs.7 and may even declare more than Re.1 as dividend. For FY07, it will report much better numbers due to expansion. A good long term bet.

Manali Petrochemicals (Code No: 500268) (Rs.22.90) is planning financial restructuring under which its accumulated losses of Rs.35 cr. will be set off completely by 25% reduction in the paid up value of its share capital to the extent of Rs.28 cr. together with an amount of Rs.7 cr. out of the Share Premium Account. Although numbers of shares and EPS figures will not change, this will lead to a re-rating of its share price due to a healthier balance sheet. For FY06, it can report Sales of Rs.350 cr. and NP of Rs.40 cr. Share price target of Rs.30 can be expected in 6~9 months.

Sugar is not the currently flavour giving good opportunity to accumulate strong sugar stocks. Upper Ganges (Code No: 530505) (Rs.259.35), a KK Birla group company, which has a cane crushing capacity of 12500 TCD, seems a good bet at CMP. Company has finalised the merger of the sugar division of New India Sugar Mills with a capacity of 17,500 TCD with its subsidiary Saran Trading Company Ltd. Besides, it has approved the expansion of the its distillery at Sehor from its existing capacity of 55 to 100 KLPD. To fund this expansion, the company will come out with a right issue in the near future, which will trigger the scrip to new highs.

Market players due average numbers in the last two qtrs, in general, are ignoring the Pharma sector. Still, its future prospects are very promising and it’s a good defensive sector in the current market. Aarti Drugs (Code No: 524348) (Rs.132.90) is one such pharma company, which is ignored by investors and dumped by punters because of being in T2T category. For the June qtr, Sales decreased 8% to Rs.61 cr. but NP jumped 32% to Rs.4.10 cr. due to better operating margins and lower interest cost. For FY06, it may post sales of Rs.300 cr. and NP of around Rs.22 cr. Accumulate at current levels as the scrip seems to have bottomed out with a price target of Rs.200 in 6~9 months.

In the current small cap carnage, aggressive investors can buy DHP India (Code No: 531306) (Rs.20.90) at current levels. This Kolkata based company manufactures domestic pressure regulators for LPG cylinders, hosepipes and their parts. Due to declining demand in the domestic market, the company is exploring the export market, which is much bigger. It is also setting up a new factory at Howrah in West Bengal and which is expected to start operations this fiscal itself. It will double the current manufacturing capacity. For FY05 its Sales & NP increased by 55% to Rs.6 cr. and Rs.1.2 cr. respectively registering an EPS of Rs.4. It even declared Rs.1 dividend for FY05. Share price can rise 50% in 6 months or so.

Navabharat Ferro Alloys (Code: 513023) Rs.71

Established in 1975, Nava Bharat Ferro Alloys Ltd (NBFAL) is a diversified company engaged in the manufacture of Ferro Alloys like Ferro chrome, Silico manganese, Ferro manganese which are major raw materials for Iron & Steel companies. Today, it is among the largest fully integrated manufacturer of Ferro alloys with captive power plants. The company exports its products to leading foreign companies in USA, Korea, Japan, Indonesia, Italy, Turkey, Spain etc. Its clientele includes reputed biggies like TISCO, SAIL, Essar Steel, Jindal Vijaynagar etc. in the domestic market and POSCO, NUCOR, NIPPON, SUMITOMO etc. in the international markets. Besides generation of power, NBFAL also manufactures sugar and its by-products.

Its manufacturing is spread across two states. Its Paloncha plant at Andhra Pradesh has the capacity to manufacture 75,000 MTA of ferro alloys with a captive power plant of 50 MW whereas its second plant is in Orissa with 75,000 MTA capacity with a 30 MW thermal power plant. The company has a 3500 TCD sugar plant with a 6 million litres per annum distillery and co-generation power plant of 5 MW at Samalkot in Andhra Pradesh. To cater to the rising demand, NBFAL has recently set up a new furnace in Andhra Pradesh, catering to the production of Manganese Alloys with a capacity of 50,000 MTA, which is expected to start commercial operations in a couple of months. With this expansion, NBFAL’s total smelting capacity will be enhanced to 2,00,000 MTA. Besides it is planning to set up an Rs.80-crore power plant with 32 MW capacity in AP and 15 MW plant in Orissa for captive consumption. Having expanded its cane-crushing capacity from 2,500 to 3,500 TCD recently, the company is now weighing options to raise the capacity to 4,500 TCD first and further to 5,000 TCD over the ensuing two seasons. The co-generation capacity would also be increased to 9 MW from 5 MW at a cost of Rs.20 cr. NBFAL is also looking forward to opportunities in the area of importing raw sugar and refining it, which would enable the company to use its idle capacities for another 3/4 months.

NBFAL has been a dividend paying company since 1972, which signifies the company’s investor-friendly outlook. For FY05, while Sales grew marginally by 7% to Rs.422 cr. the NP almost doubled to Rs.106 cr. inspite of the fact that production was affected due to severe fire accident at its Orissa plant in late Nov 2004, for which the company has partly received the insurance claim and the balance will come soon. Only in May 2005, the plant resumed its operation and is currently running at full capacity. For FY06, NBFAL is expected to report a topline of Rs.525 cr. and bottomline of Rs.120 cr. leading to an EPS of Rs.18 on its small equity of Rs.13.40 cr. with a FV of Rs.2 per share. Investors are strongly recommended to buy at current levels with a price target of Rs.120 (i.e. 70% appreciation) in 9~12 months.

First Leasing Company of India - Rs.46.50

Incorporated in 1973, First Leasing Company of Indian Ltd (FLCIL) was promoted by Mr. Farouk Irani as the First Leasing Company of India. In fact, FLCIL introduced leasing to India three decades ago. Subsequently, it commenced Hire Purchase in 1986 and diversified into consumer finance in 1988. The company was appointed as financial consultant to the financial wing of the Indian Railways and is the chairperson of the Association of Leasing & Financial Services companies over the last 7 years and has been invited number of times to address the World Leasing Conference at Washington, Sydney, San Francisco, Istanbul, Mexico, Dublin and Hong Kong. FLCIL holds the respectable Triple 'A' credit rating from Fitch, a wholly owned International Credit Rating Agency and from CARE in India.

FLCIL is primarily engaged in financial activities viz. Lease Financing, Hire Purchase Financing and Loans. It has various products in its account like Lease, short term leases, Long term leases, operating leases, sale and leaseback, Hire Purchase, Consumer Credit, Inter Corporate Deposits, Fixed Deposit etc. Today, leasing has become an essential part of the Indian Financial System. From consumer finance to pharmaceuticals, heavy industry to telecommunications, railways to electricity boards, leasing constitutes an important source of funds for almost every sector of the economy. The company has broken new ground in offering a software lease product to the IT Industry, working closely with a major software Leasing Company in the US. It has also begun to negotiate Real Estate leases in the key metro cities and is all set to tap the most promising prospect of Aircraft Leasing. FLCIL is also engaged in Wind Power Generation but to a limited extent.

The company has complied with all applicable regulations as per RBI’s directives to NBFCs. Its capital adequacy ratio stood at 24.11% as at 31st March 2005 as against the minimum requirement of 12%. It can boast of maintaining a very low NPA of around 1%. Notably it is one of the few companies in India that has an uninterrupted dividend record for the last 30 years and was the first finance company to issue bonus shares in 1983 in the ratio of 1:3. For FY05 its revenue witnessed a degrowth of 7% to Rs.110 cr. whereas NP increased by 12% to Rs.24 cr. due to lower depreciation provision. For FY06, it is expected to grow marginally and may report a NP of Rs.25 cr., which means an EPS of Rs.11. With a Book Value of Rs.75 and dividend yield of 5%, this becomes a safe bet in the current scenario. Investors are recommended to accumulate this scrip at current levels with a price target of Rs.75 (i.e. 60% returns) in 12~15 months.

STOCK WATCH

Indian Sucrose (Code No: 500319)(Rs.30.95) is a great turnaround story, which has still not caught the market fancy, and is available cheap compared to its peers. It’s a small sugar mill with a capacity of 3500 TCD. For FY06, it can report Net Sales of Rs.90 cr. and NP of Rs.11~12 cr. leading to an EPS of Rs.7~8 on its current equity of Rs.15.50 cr. besides it has also acquired a distillery with 4 well known brands of Rum. Scrip has the potential to double in 12 months. A strong buy.

At a time when the overall Sensex is discounted by 16~18 times, shipping companies are available at a PE of 4~5. A sharp re-rating is overdue and the current best bet in this sector is G E Shipping (Code No: 500620) (Rs.198.65). Its demerger is already finalised and shareholders will get 4 shares of GE Shipping and 1 share of Great Offshore Ltd for every 5 shares currently held. This will unlock shareholder value substantially as the market richly discounts the offshore business. This is the safest bet in the current market scenario and 25~30% returns can easily be expected in the next 6 months. A great buy.

One great pick in the current mid-cap crisis is Sanjivani Parenteral (Code No: 531569) (Rs.65.50). Scrip has corrected 35% from its recent high of Rs.104. Its one of the fastest growing companies in contract manufacturing of pharmaceuticals and constantly reporting impressive numbers since last the 3/4 qtrs. For FY06, it can report Net Sales of Rs.45 cr. and NP of Rs.7 cr. i.e. an EPS of Rs.14. Share price has the potential to double in 9~12 months. Just grab it.

Winsome Textiles (Code No: 514470) (Rs.26.30) is a professionally managed company engaged in the manufacture of 100% cotton yarn for weaving as well as knitting. To cater to the increasing demand, the company has chalked out Rs.10.50 cr. capex plan under which it intends to add 5 combers to convert part production of carded cotton yarn to combed yarn which has better margins. Also some balancing equipment is planned for the dyeing house to increase production. This expansion will be funded by debt and internal accruals without any equity dilution. For FY06, it can report Sales of Rs.150 cr. and NP of Rs.4 cr., which means and EPS of Rs.7 on its small equity of Rs.5.90 cr. Its share price can easily double by mid FY06 and it can be a multibagger if held for 3 years or more.

Strong scrips like Indo Asian Fuse Gear India Ltd (Code No: 532658) (Rs.113.60) has also taken a beating in this correction with its share price falling nearly 35% to Rs.118 from the recent high of Rs.174. It’s a leading manufacturer of electrical safety devices such as miniature circuit breakers, residual current circuit breakers, HRC fuses, transformers, switchgears wires & wiring accessories, industrial plugs & sockets, contactor relays, distribution boards etc. The company is among the top three players in the domestic compact fluorescent lamps market and sells its product under the brand name ‘Ecolite’. Recently, it announced its foray into specialised outdoor lighting equipment manufacturing for future growth. It has formed a joint venture with Nordex Lighting Spa of Italy and is setting up a state-of-the-art plant in the tax free zone of Uttaranchal at Haridwar. For FY06, it can report total Sales of Rs.200 cr. and NP of Rs.25 cr. leading to an EPS of Rs.18 on its fully diluted equity of Rs.14.30 cr. Scrip can easily cross Rs.200 in 12 months. A solid buy.

Another good scrip, which has corrected sharply, is Hazoor Media (Code No: 532467) (Rs.12.25), which has tumbled 35% from recent high of Rs.20.50 as Parle Biseleri sold its stake in it. The company is into production of media content in diversified software categories viz. entertainment, film and film based programmes, sitcoms, news and current affairs, game shows and caters to the demand of media companies in the international market. HMPL also provides infrastructure services like shooting locations, floors, studios, post production processing facilities, filming equipment and qualified trained manpower to the film & entertainment industry. Apart from these it has various triggers like huge property, upcoming ethanol project, power generation etc. Scrip has the strength to touch Rs.25 in 12~15 months. Aggressive investors can take exposure at current levels.