STOCK WATCH

Modern Steel (Code No: 513303) (Rs.86) manufacturer of alloy steel and special steel seem a good bet at current levels. Its products are in good demand due to increased requirement from the automotive sector and the engineering industry. Under modernization, the company has already installed electro magnetic stirrers (EMS) and a vacuum degassing plant in its steel melting shop. It is also expanding its melting capacity and in-house rolling capacity from 50,000 to 84,0000 MTPA at an estimated capital outlay of Rs.35 cr. Due to debt restructuring and its tiny equity capital, its EPS can post a substantial rise in coming years.

Due to its aggressive promoters and proper planning, Monnet Ispat (Code No: 513446) (Rs.161.25) has finally emerged as a leading integrated producer with its own coal mine, iron ore mine, captive power plant, sponge iron unit and steel plant. Recently it announced its plan of acquiring a manganese ore mine in Africa and also contemplates on setting up a ferro-manganse unit, as power is very cheap there. Moreover, it is implementing an Rs.630 cr. expansion in Raigarh which will increase its sponge iron capacity to 8,00,000 tonnes from 3,00,000 tonnes, steel capacity is to be enhanced by 4,00,000 tonnes from the present capacity of 3,00,000 tonnes. It is also setting up a 250 MW power plant. It’s a solid buy for the long term.

Crude Oil prices have cooled off substantially from their recent highs and their chance of crossing even 80 USD seem remote. This will help keep raw material costs under control for Laffans Petro (Code No: 524522) (Rs.24.10), which is engaged in manufacturing of ethylene oxide derivatives such as Ethoxylates, Glycol Ethers, Acetates, Triethonal-Amine and Brake fluids. Due to higher demand and better price realisation for its products, Laffans is expected to perform better in coming quarters. For FY05 ending 30th Sept 2005, it can report sales of Rs.140 cr. and NP of Rs.3.80 cr. registering an EPS of around Rs.5. With an expected EPS of Rs.6 for FY06 and book value of Rs.38, the scrip appears very cheap and can give handsome returns if held for the long term.

Eldeco Housing & Industries Ltd (Code No: 523329) (Rs.87.80), the flagship company of the Eldeco Group is trading very cheap at 4 PE. It’s among the very few listed companies engaged in civil construction and housing. Due to easy availability of housing loans, this two decades old company is witnessing enormous growth. It is fully booked for the next 4 years with various residential projects amounting to whopping Rs.450 cr. spread across Lucknow, Kanpur & Delhi. For FY05, its topline grew by 25% but its bottomline more than tripled to Rs.5.50 cr. leading to an EPS of Rs.28 on its very tiny equity of Rs.1.97 cr. The company is likely to make some positive announcements like preferential allotment, merger with another group company etc soon, which could push up the share price. It’s a financially strong group and the scrip can be a multibagger in the long run. It’s a risk free buy at current levels.

Although most cement companies are richly valued on the bourses, Mangalam Cement (Code No: 502157) (Rs.65.50) is somehow ignored by investors and analysts alike. It’s a BK Birla Group company with more than 1 MMT installed capacity. Due to various restructuring initiatives, the company is expected to post an EPS of Rs.8.50 and Rs.11 for FY06 and FY07 respectively on its current equity of Rs.28.20 cr. Share price is bound to cross Rs.100 sooner than later and long term targets are much higher. A safe bet in such a risky market. With cement prices expected to remain high due to strong demand and no major capacity coming up in the near future, cement companies will report much better numbers in coming quarters which could change the perception to this scrip over the next 6 months.

Sujana Universal (Code No: 517224) (Rs.25.15) primarily deals in all types of bearings; light engineering items, auto components, castings and domestic appliances. Lately it also commissioned the facilities for the manufacture of telecom and transmission towers. Apart from Schneider Electric selecting it for developing precision engineering components, Sujana has successfully developed Precision Grinding Components required for Tecumseh Inc, USA. Recently, Sujana has entered into a contract manufacturing agreement with Bajaj Electricals under which it will be manufacturing ceiling and ventilator fans for the Bajaj brand for which it is ramping up its production capacity to 1 million fans per year. Couple of months back, the company completed a GDR issue of USD 16 mn., which can be converted into equity shares @ Rs.35.25. With expected EPS of Rs.6 and BV of Rs.25 on its diluted equity of Rs.50 cr., the scrip is trading reasonably cheap and can appreciate 50% in a year.

Jupiter Bioscience- Rs.143.00

Established in 1985, Jupiter Bioscience Limited (JBL) is among the few pharma companies in the world with core competence in peptide chemistry, organic chemistry, chiral chemistry and biotechnology. In fact, JBL was the first company in Asia to introduce and commercialise molecules based on peptide chemistry. It has three specialised product lines viz. Peptide reagents and protected amino acids, Drug intermediates & Speciality Chemicals as well as fine chemicals. JBL has two manufacturing facilities - one at Bidar in Karnataka and the other at Cheriyal in Medak District in Andhra Pradesh, which is a 100% EOU. JBL is very strong not only in research & development but also in process development with its focus on advanced organic and peptide chemistries. It has constantly introduced new peptide reagents, coupling reagents and protected amino acids in the market.

With the successful launch of peptide precursors, the main raw materials for generic peptide drugs, JBL is now globally positioned to manufacture key raw materials for peptide pharmaceuticals in lab scale quantities, pilot scale quantities and commercial quantities. It has developed expertise in peptide precursors in Diagnostics, Vaccines and Peptide Antibiotics apart from concentrating on research of new peptide molecules. JBL is also moving up the value chain to commercialise and introduce generic peptide drugs such as Oxytocin, Vasopressin, Desmopressin, Leuprolide, Lisinopril and Calcitonin in the domestic and international markets. Its thrust has been on Multi-process capabilities of Pharmaceutical intermediates and API's. Lately, it renewed its interest in Speciality Drug Intermediates for treatment of cardiovascular diseases, AIDS and Cancer. To increase it global presence, JBL is aggressively participating in exhibitions, fairs and trade shows all over the world. Moreover, it is presently working on suitable entry strategies into the US and European markets through appropriate alliances. Notably, JBL has following 3 subsidiaries:

Jupiter Bioscience – India which specializes in Manufacturing Drug Intermediates, Specialty Chemicals, Peptide Reagents and Protected Amino Acids.

Sven Genetech – India which specializes in small volume side chain Protected Amino Acids, Peptides, Beta Amino Acids and Unusual Amino Acids. It has established in-house facilities for microbiology and biochemistry to carry out development and scaling up of enzymes and protein purification.

Jupiter Bioscience – USA which offers Custom Peptides from USA and is in process of establishing a facility in USA for offering Clinical and Generic Peptide Bulk Actives.

The year 2005 is a major eventful year wherein patents for a majority of the drugs in the world will expire and open up a huge market for pharmaceutical companies worldwide. JBL is growing steadily year after year with FY05 Sales increasing 7% to Rs.70.50 cr. and the NP growth of 21% to 18.50 cr. For future growth plans, JBL is planning to raise capital through ADR/GDR/FCCB and is also making preferential allotment of 27.50 lakh shares to promoters. Considering these factors, JBL is expected to report Sales of Rs.80 cr. and NP Rs.21 cr. which can lead to on an EPS of Rs.18 on its expanded equity of Rs.11.60 cr. Only aggressive investors are recommended to buy this scrip with a price target of Rs.220 in 6~9 months.

Flex Foods - Rs.27.50

Incorporated in 1990, Flex Foods Ltd (FFL) is part of the well-known Flex Group. It is in the business of agro based value added food products catering to international markets mainly in Europe, USA, Canada and Middle East. Today, the company is one of the major producers of Freeze-dried & Frozen products in the country. It offers a wide range of Vacuum Freeze Dried, Air-Dried, Frozen and IQF (Individually Quick Frozen) product range of mushrooms, herbs, spices and fruits / vegetables, meeting strict quality & hygiene standards. Canned button mushrooms in various shapes and sizes is also manufactured and sold under the brand name ‘Chef’s Choice’. Recently, the company introduced a new range of frozen and freeze dried culinary herbs for the export market.

FFL can boast of world class manufacturing facilities with state-of-the-art technology, good management practices (GMP) & quality systems. The processing infrastructure includes the most modern plant & equipment from leading technology providers i.e. M/s Niroa’s, Denmark; M/s Non, Holland; M/s Binder, Germany & Eurotex, UK along with others from leading Indian companies. The plant can process upto 20000 MTA of fruits & vegetables per annum in the form of freeze dried, frozen, IQF, air-dried and canned products. The facilities have been certified for Kosher and HACCP standards. In order to achieve the right quality of finished products, most of the input materials including mushroom, herbs and other fruits & vegetables are grown under the supervision of in-house experts making it a fully integrated producer. Besides, a captive mushroom cultivation unit with an annual capacity of 2000 MTA is fully equipped with international quality monitoring techniques and best storage facilities to ensure that the fresh & hygienic inputs are always available to the processing units. Due to the rising demand for frozen food products in international markets, the company has recently expanded and set up a Air dried (Dehydrated) and Frozen (Individually Quick Frozen) facilities for mushrooms, herbs, fruits & vegetables at its existing site at Dehradun at an estimated cost of Rs.28.50 cr.

The Indian mushroom industry is geared for considerable growth in production over the next few years as the export demand escalates. The Middle East, Africa, East European countries etc. are still growing markets for Indian mushrooms and are yet to be tapped. For FY05, company’s net Sales remained flat at Rs.25 cr. but its NP jumped 42% to Rs.8 cr. due to lower tax provision. For FY06 it can report Sales of Rs.30 cr. and NP of Rs.7.50 cr. which means an EPS of Rs.6 on its current equity of Rs.12.44 cr. Investors can accumulate this scrip at declines with a price target of Rs.50 (80% appreciation) in 12~15 months.

STOCK WATCH

Kilburn Engineering (Code No: 522101) (Rs.53.55) operates in areas of process design, engineering, manufacture installation and commissioning of turnkey plants and systems catering to petrochemicals, chemical fertilizers, refineries, oil & gas and food processing. To improve its working capital requirement, the company is coming out with 1:1 Rights issue at Rs.25 i.e. 50% discount to its CMP. For FY05 ending 30 Sept 2005, it is expected to report sales of Rs.45 cr. and NP of Rs.6.50 cr. For FY07, it can post NP of Rs.8 cr. on Sales of Rs.70 cr., which means an EPS of Rs.6 on its diluted equity of Rs.13.50 cr. Its share price has the potential to rise 50% and can trade above Rs.60 on ex-right basis. A strong buy as the downside is minimal from current levels

The ongoing panic in the mid cap sector has given a good opportunity to accumulate hotel scrips at reasonable valuations. Sayaji Hotels (Code No: 523710) (Rs.46.35) which touched a high of Rs.73 and has fallen below Rs.50 is one such stock. To cater to the increasing demand for quality rooms, Sayaji is expanding regularly and had constructed and commissioned 44 rooms with state-of-the-art Quorom Lounge at Indore last year. Interestingly, its ratio of food & beverages sales to room sales is 1.6 times as against industry norm of 0.7 times. The company further plans to add 77 rooms and 3 restaurants for which HUDCO has already agreed to finance. With a room base of over 200, Sayaji is expected to attract major national and international conferences and may clock a turnover of Rs.35 cr. and NP of Rs.6 cr. with an EPS of Rs.8 in FY06. A solid buy for the long-term.

In Textiles, investors can safely accumulate Seasons Textile (Code No: 514264) (Rs.17.50) as it has corrected substantially from its recent high of Rs.30 to the current Rs.18 levels. The company is engaged in the manufacture of furnishing fabrics on the latest automatic shuttleless loom and nearly 40% is exported. Last year on modernisation, it added new capacity of 2,40,000 mtrs in Noida plant whose full impact will be visible in the current fiscal. For the full year FY06, it may report an diluted EPS of Rs.4. Besides, the scrip has a strong support at Rs.15 as the company made preferential allotment of 15 lakh shares at Rs.15. With a book value of Rs.25 it’s a steal!

KIC Metallics(Code No:513693) (Rs.75) is into manufactures Pig iron, castings and slag cement. Recently, it set up a 1,44,000 TPA captive coke oven plant and is putting up a hot stove and 4 MW captive power plant. With all these developments, its input cost will come down substantially. Further, it plans to put 1,50,000 TPA steel billet plant and 1,00,00 TPA sponge iron plant besides increasing its pig iron capacity to 1,50,000 tonnes. Its June’05 qtr numbers were not so good as the MBF plant was shut down for nearly a month for relining. For FY06, it can report Sales of Rs.180 cr. and NP of Rs.10 cr. To fund its expansion the company is taking term loans and may raise capital from the market, which will dilute its equity. Yet, it’s a good bet at current levels and can give 30~50% return in a year.

Although there are talks of further fall in steel prices in the international market, SAIL (Code No: 500113) (Rs.57.50) is a reasonably good bet in this sector. Interestingly, this market leader which used to report heavy losses till a few years back is virtually debt free company today. It has chalked out huge expansion plans with a capex of Rs.35,000 cr. to maintain its leadership position for another 10 years. For FY05 its Sales jumped 33% Rs.29234 cr. and NP increased by 170% to Rs.6816 cr. registering an EPS of whopping Rs.17 and on which the company declared 33% dividend. For FY06, it can report an EPS of Rs.12~13 and may declare 25% dividend which works out to a dividend yield of more than 4%. Besides, the scrip has the potential to appreciate 50% in 9~12 months.

Haldyn Glass Gujarat Ltd.(Code No:515147) (Rs.67.85) is manufactures glass bottles/glass containers which are supplied to the beverages, beer, liquor, soft drinks and processed food industries. Last year, it successfully installed a captive power plant which has reduced the cost of production substantially. Recently, the company obtained the ISO 9001:2000 Standard Certification and is currently implementing the Enterprise Resource Planning (ERP) System to support its core process. For FY06 it can clock a turnover of Rs.60 cr. and NP of Rs.7.50 cr. which can lead to an EPS of Rs.14 on its current equity of Rs.5.40 cr. Investors can buy at CMP with a price target of Rs.120 in 9~12 months.

Shrachi Securities - Rs.47.00

Incorporated in 1989, Shrachi Securities Ltd (SSL) is the flagship financial services company of the Shrachi Group, which has diversified interest in Real Estate, Engineering, IT, Hospital, Packaging, Alcohol etc. SSL offers a wide range of financial products and services from financing passenger cars and light commercial vehicles to heavy commercial vehicles and construction equipment. Earlier, the company was known as Shrachi Infrastructure Finance and only recently acquired its current name. Today, SSL has emerged among the 10 biggest commercial vehicle financing companies in India. The company operates through 57 branches covering 12 major states and has a consortium of 12 banks led by Bank of Baroda.

SSL does not just finance in its own right; it finances commercial vehicles and construction equipment jointly with Citicorp and HDFC Bank leveraging their brand equity. Interestingly today SSL is the largest alliance member for HDFC and second largest for Citicorp on a national basis. Its main income is earned in the form of origination fees and collection charges (linked to collection efficiency) since interest spreads are typically low with yields on these assets relatively low compared to SSL’s own cost of funds. The fee based earning nature of this business is a positive as it partially insulates SSL from the yield volatility prevalent in commercial vehicle financing market. In short, it’s a professionally well-managed company with NPA level of around 1.50% only against the industry average of more than 5%. SSL also has a 100% subsidiary, Shrachi Auto Pvt. Ltd., which has the dealership of Ashok Leyland vehicles in Jharkhand and Bajaj Tempo in Ranchi, the capital of Jharkhand

For FY05, SSL’s disbursement grew to Rs.540 cr. against Rs.303 cr. in FY04 registering growth of 79%. Its capital adequacy stood at above 20% compared to the minimum 12% required by RBI. Its total income grew by 30% to Rs.25.40 cr. whereas its NP zoomed 140% to Rs.7.20 cr. posting an EPS of Rs.8.50 on its current equity of Rs.8.50 cr. and it declared a dividend of 15% for FY05. Due to the increasing importance of infrastructure financing, the company has proposes to expand its infrastructure funding operations for which it is planning to raise capital through preferential allotment and other means like FFCB, ADR etc, which will dilute its equity substantially in future. For FY06, the company may report a total revenue of Rs.35 cr. and NP of Rs.8.50 cr. Aggressive investors can accumulate this scrip with a price target of Rs.75 (65% return) in 12~15 months.