Gujarat Carbon & Industries - Rs.12.50

Gujarat Carbon & Industries Ltd. (GCIL) was originally incorporated in 1974 as Gujarat Carbon Ltd to manufacture carbon black. Gujarat Industrial Investment Corporation Ltd and Phillips Carbon Black Ltd promoted it jointly. In 1989, it changed its name to Consolidated Petrotech Industries Ltd., which was later changed to GCIL in 1994. Today, it is a Duncan Goenka Group with promoters holding more than 67% stake. Currently, GCIL is engaged in the manufacture of a chemical called Methyl Ethyl Ketone (MEK) and Secondary Butyl Alcohol which has applications in various industries like refineries, paints, packaging, pharmaceuticals and other allied user industries.

Interestingly, in India there are only two companies producing MEK and GCIL is one of them having an installed capacity of around 3000 MT. Earlier, the company was in the red to higher cost of feedstock and capacity under-utlization. But in the last fiscal, it discovered an alternate and significantly cheaper source for supply of its main raw material, which helped it turnaround. Now its plant is operating at more than 100% capacity utlization and is in a position to capture business opportunities with stable production. It is implementing the capacity enhancement programme by adding balancing equipment. As there are only 2 manufacturers, GCIL faces competition only from a number of small traders who import MEK.

Although MEK prices have cooled off from their recent high, GCIL is expected to do reasonably well in the current year. For FY05, it dramatically turnedaround with Sales registering more than 100% growth at Rs.22.60 cr. and NP stood at Rs.4.20 cr. against a net loss of Rs.1.90 cr. last year. It reported an OPM of 23% mainly due to higher price realisation and better capacity utlisation. Inspite of strong June’05 numbers declared, it may not continue to report the same OPM this year due to softening of MEK prices and cheaper imports on account of lower import duty. Still for FY06, it is expected to clock a turnover of around Rs.30 cr. and NP of Rs.3.75 cr. which works out to an EPS of Rs.3 on its current equity of Rs.12.40 cr. Investors are strongly recommended to buy at current levels with a price target of Rs.30 (i.e. 150% return) in 9~12 months.

MUHURAT PICKS

Winsome Textiles (Code No:514470) (Rs.21) All textile companies are busy expanding capacities to cash in on the opportunities thrown open by the removal of quota system, which in turn will to lead to higher demand and consumption of yarns. Winsome Textiles, a leading manufacturer and exporter of 100% cotton yarn will grow substantially in future due to its ongoing expansion and modernisation plans. Since it is a capital-intensive industry, the company has huge debt but very tiny equity on which it is paying uninterrupted dividend for the past 10 years. With sales of above Rs.125 cr., its current market cap is merely Rs.12 cr. This scrip can be a multibagger as the share price has the potential to rise 4~5 times in 2 years or so.

Sanjivani Paranteral (Code No: 531569) (Rs.50.55) Like BPO, contract manufacturing is gaining importance rapidly with most of the big pharma companies finding it better and economical. Sanjivani Parenteral is basically a contract manufacturing company specialising in injectibles for the institutional and hospital segments and its key clientele include Ranbaxy, Zydus Cadila, Alkem, Macleods, IPCA Labs, Intas, Glenmark, Medley and Shreyas Life Sciences among others. Its manufacturing facility which is WHO GMP certified is located at Taloja in Maharashtra and it can manufacture high grade antibiotics and life saving injectibles used in various pre and post operative infections. This company is poised for rapid growth in future and can be a multibagger if held for more than 2 years.

Indo Asian Fusegear (India) Ltd. (Code No:532658) (Rs.110) This company is among the top three players in the domestic compact fluorescent lamp (CFL) market besides being 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, contactors relay, distribution boards etc. It has entered into a strategic alliance with Lovato Electric of Italy to market a wide range of industrial electrical products in India. For future growth, the company has entered into a joint venture with Nordex Lighting Spa of Italy to manufacture specialized outdoor lighting equipment at its Haridwar plant in Uttranchal. Recently, it announced to provide technological support and manufacture energy saving lighting products and electrical protection devices for servicing the fast growing Saudi and Middle East markets. With such ambitious growth plans, its share price can double by next Diwali.

Aarti Drugs (Code No: 524348) (Rs.110) The future outlook of the pharma industry is very promising as a number of drugs are expected to go off-patent in the near future Indian pharma companies are very well -prepared for this and Aarti Drugs 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. With 30 molecules already in its basket, the company is planning to commercialize another 10 molecules and intends to file at least 6 to 8 drug master files (DMF) in the near future. Few months back, it raised UDS12.75 million through the FCCB route to be converted into equity @ Rs.170 per share. This scrip also has the potential to double in 15~18 months.

Monnet Ispat (Code No: 513446) (Rs.154) Very few are aware that Monnet Ispat is actually positioning itself as more as a mining and power player rather than a steel player in the long run. The strategy of the company is to lay more thrust on exploiting the values in mining and power division and to create an optimal value addition in sponge iron and steel. Having met its complete requirements of coal from captive mines, Monnet is actively working on the acquisition of iron ore mines. Recently, it also announced its plan of acquiring a manganese ore mine in Africa. After setting up its Raipur plant, the company has ambitious expansion plans for Raigarh including setting up a steel plant and ferro alloys project, increasing its sponge iron capacity by 5,00,000 TPA, putting up an 250 MW power plant etc. Earlier this year, the company raised around USD60 million through FCCB route to be converted into equity @ Rs.237 per share. After becoming a fully integrated player, Monnet may attract better valuation and its share price can double in 18 months or so.

Simbhaoli Sugar (Code No: 507446) (Rs.74) Sugar companies are extremely happy with the government’s bold but industry friendly decision to allow import of raw sugar, specially at a time when sugar prices are ruling high in the domestic market. Now they are waiting for the government to approve ethanol blending with petrol, which will be done sooner than later. Simbhaoli Sugar, one of the largest integrated sugar manufacturers, which recently completed its right issue, is aggressively expanding capacities. Besides increasing the capacity of the Simbhaoli unit to 9500 TCD and Chilwara unit to 8000 TCD, it is setting up a new sugar plant with 4500 TCD capacity at Ghaziabad. Apart from setting up a new 60 KLPD ethanol plant at Chilwara, the company is expanding its ethanol capacity by 30 KLPD and distillery capacity to 120 KLPD at Simbhaoli unit. It also intends to setup a co-gen facility of about 26 MW and 24 MW at both its plant. Share price can triple if held for more than 2 yrs.

Raipur Alloys - Rs.80.00

Incorporated in 1973, Raipur Alloys and Steel Limited (RASL) is an integrated steel producer engaged in iron ore mining and producing sponge iron, mild steel ingots and rolled products. It had set up its first plant in 1975 with a 18,000 MTPA ingot making capacity and today operates in ISO 9001:2000 plant with a 2,10,000 MTPA sponge iron and 1,00,000 MTPA steel ingots manufacturing capacity. RASL is marketing TMT bars under its registered trademark 'Hytech' which has fetched an excellent response from large corporates due to its quality. It has also obtained a patent for its special design steel bar, which is valid for an initial period of 10 years. The company is looking forward to enter the international market and export directly in a big way. Last year, the company acquired an iron ore mine of approx 81 hectares in Rajnandgaon district in Chattisgarh, where mining of iron ore has already begun. Further development is going on to increase production, which will meet its entire captive requirement by FY07. RASL has also acquired coal mining rights over a 360 hectares stretch with estimated reserves of 100 million tonnes of coal in Chhattisgarh.

Given the buoyant demand, technological advancements, abundant availability of quality iron ore, skilled manpower and the required grade of coal have thrown open vast opportunities for the Indian steel sector and RASL is taking steps to take full advantage of the emerging opportunities. It is adding one more sponge iron kiln to increase the capacity from 2,10,000 to 3,60,000 TPA and expanding its steel making capacity from 1,00,000 to 2,40,000 TPA, which is expected to be completed by March 2006. To further strengthen and consolidate its position, the company also proposes to merge M/s. Chhattisgarh Electricity Company Ltd. (CECL) and Raipur Gases Pvt. Ltd. (RGPL) with itself. CECL, a group company, is a leading manufacturer and exporter of ferro-manganese and silico-manganese besides power generation. RGPL was supplying oxygen to the EAF steel plant of the company, as an auxiliary unit.

Considering its expansion plan and backward integration by acquiring the iron ore and coal mines, the long term prospects appear very promising and healthy. Its profit margin is all set to rise in coming years and this is another Monnet Ispat in the making. Inspite of a huge expansion plan, the company declared hefty dividend of Rs.3 and the promoters hold around 74% stake, which means that the management is quite investor friendly and believes in companies growth. For FY06, it may declare Rs.5 dividend, which works out to a dividend yield of more than 6%. Although the first quarters numbers were not that encouraging, for FY06 we expect it to clock a turnover of Rs.325 cr. and NP of Rs.26 cr. i.e. an EPS of Rs.20 on its current equity of Rs.13 cr. Investors are strongly recommended to buy at current levels with a price target of Rs.160 or 100% appreciation in 12 months. Long term investors will get much better returns if held for 24~30 months.

Sayaji Hotels - Rs.39.00

Established in 1982, Sayaji Hotels Ltd. (Sayaji) currently manages two 3 star hotel properties, one each in Baroda and Indore. The Indore hotel, which started seven years back is situated at a very strategic location and enjoys a dominant position in the city due to its central location, club facilities and wedding packages. The hotel has around 230 well maintained rooms with 8 restaurants and 10 banquet halls. Incidentally, there is no direct competition to the hotel and it enjoys more than 70% market share. The company’s Vadodara property is twenty years old and has 73 rooms with 3 restaurants and 5 banquet halls. The ratio of overall food & beverage sales to room sales is 1.6 times as against the industry norm of 0.7.

The Hotel industry has seen a sharp revival over the last one year and given the current economic scenario, it is poised to grow further. Sayaji is no exception and enjoys best ever occupancy rates of over 75% as well as average room rate for both its properties. In FY05, Sayaji constructed and commissioned 44 rooms at Indore and also opened its state-of-the-art ‘Quorum’ longue. Riding high on the hotel boom, Sayji is expanding aggressively and its proposal for availing project construction finance from HUDCO for completing 77 additional rooms and 3 restaurants at Indore has been accepted. For future growth, Sayaji is planning to buy an existing property in Pune and also build a 5 star hotel in Bangalore with 360 rooms. It is also setting up a multi cuisine restaurant by the name ‘Kabab Ville’ whose first branch will be opened in Mumbai soon and then it will gradually open a chain of restaurants in India.

Thus Sayaji Hotels has outlined major expansion plans not only in the form of room additions but also in the form of new hotel properties and restaurants. The company virtually has no tax liability due to previous accumulated losses and subsidy from Department of Tourism (DOT), which is expected to continue for at least the next two years. To fund its expansion the company is planning to raise Rs.75 cr. through preferential allotment, which will dilute its equity substantially. So only long-term investors are recommended to buy this scrip. Its Sept.’05 numbers were quite encouraging. For FY06, it can post sales of Rs.40 cr. and NP of more than Rs.7 cr. At its current equity of Rs.7.86 cr., EPS comes to Rs.9 which may get diluted to Rs.3.5 ~ 4. A pure long term bet which can give 100% return in 18~24 months.

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.