STOCK WATCH

Interestingly, when most mid-cap stocks have corrected 30~50% in the recent carnage, Dhanuka Pesticides (Code No: 507717) (Rs.112.75) is holding strong and is trading near its 52 week high of Rs.117. The company came out with quite good numbers for the Sept’05 quarter. Its Sales remained flat at Rs.27 cr. but the NP jumped 70% to Rs.2 cr. due to better operating efficiency. With a dividend yield of more than 4% and expected EPS of Rs.18 for FY06 this share is a value buy at the current level.

Recently, GIC Housing Finance (Code No: 511676) (Rs.45.80) has once again come out with stunning numbers for Sept’05 quarter. Its gross revenue increased by 25% to Rs.39 cr. whereas its NP doubled to Rs.8.10 cr. registering an EPS of Rs.3 for the qtr. Due to the rising standard of living in B group cities as well as the increased tax benefit on housing loans as per finance bill 2005, this sector is estimated to grow substantially in future. For FY06, it can report total revenue to Rs.150 cr. and NP of Rs.30 cr. i.e. an EPS of Rs.11 on its current equity of Rs.27 cr. Although it may dilute its equity in the near future, with a dividend yield of around 4% it’s a good long-term bet.

In India there are only 2 manufacturers of Titanium Dioxide and Kilburn Chemicals (Code No: 524699) (Rs.52) is one of them. This scrip has also corrected sharply to the current level from its recent high of Rs.74 inspite of strong Sept’05 numbers. Sales increased by 15% to Rs.14 cr. whereas its NP nearly tripled to Rs.2.30 cr. due to lower interest cost and low provision for tax. Its 6 month NP is almost equal to the last full years profit. Besides, this Sept the company commisioned a 1.25 MW wind turbine generator. For FY06, it can post sales of Rs.65 cr. and NP of Rs.6.25 cr. which leads to an EPS of Rs.8.50. The dividend yield works to 4%. A solid bet for medium to long-term.

Due to cut throat competition in consumer durables and electronic items, the market doesn’t give rich valuation to this industry. Moreover, due to its promoter’s reputation Videocon Appliances (Code No: 500945) (Rs.26.35) is one of the cheapest scrip available in today’s market. It ended FY05 quite well with very impressive numbers for Sept’05 qtr. Sales grew marginally to Rs.290 cr. but the NP increased by whopping 82% due to lower interest cost and depreciation. For full FY05 ending 30th Sept 2005, it reported an EPS of Rs.9.50 on its small equity of Rs.33 cr. With a book value of Rs.80 and market cap of merely Rs.80 cr., this company is available for a song and is bound to get re-rated sooner than later.

Everyone knows that if the Indian economy is to grow, it has to make its infrastructure much stronger. Considering this fact, the construction and engineering sector is poised for a big leap in coming years. As such, Petron Engineering (Code No: 530381) (Rs.199.40) seems to be reasonably a good bet at the current level. For Sept’05 qtr its turnover remained flat at Rs.70 cr. but its PBT was a fantastic of 66% at Rs.4.30 cr. due to better operating margins. After higher tax provisioning of Rs.1.25 cr. its NP stood at Rs.3 cr. leading to an EPS of Rs.4. For FY06, it can report an EPS of Rs.18~20. After correcting 30% from its recent high of Rs.280, this scrip is trading fairly cheap even if we discount its future equity dilution.

Fertilizer and petrochemicals sector is doing well and GNFC (Code No: 500670) (Rs.90.20) is no exception. Its only because of its bright future prospects that the scrip hasn’t corrected sharply in this onslaught. It has once again come out with excellent numbers for Sept’05 qtr. Sales increased by 16% to Rs.560 cr. whereas its NP jumped 40% to Rs.72 cr. due to higher price realisation and better operating efficiency. For FY06, it may report a topline of Rs.2100 cr. and bottomline of Rs.260~280 cr., which works out to an EPS of Rs.18~20 on its equity of Rs.146.50 cr. With an estimated book value of Rs.75 and dividend yield of more than 4% it’s a value buy for the medium term.

Fenoplast Ltd - Rs.14.50

Fenoplast Ltd (FPL) was originally incorporated a private limited company in 1975 by Sarvasri H. Kishan, and K. Seshagiri Rao and was later converted to public ltd company in 1994. FPL started its operation in 1976 by setting up PVC leather cloth unit using direct coating technology with an installed capacity of 30 lakh sq. mtrs. per annum. Encouraged by the success of first unit, FPL put up second unit using transfer-coating technology with a capacity of another 30 lakh sq. mtrs. Witnessing the strong growth potential, FPL diversified into manufacture of PVC calender films by acquiring and adopting for the first time in India the fully automatic and advanced technology, known as C7 Calenderette.

Today, FPL is engaged in manufacture of PVC leather cloth and PVC films. PVC leather cloth is extensively used for domestic upholstery, automobile upholstery, ladies bags, soft luggage, footwear industry, garment lining, belts, etc. Whereas rigid PVC Film is used for blister packaging meant primarily for the pharmaceutical industry and soft PVC films are used for automotive interiors, electrical insulation, stationery and other applications. FPL’s main strength includes two transfer coating lines with coating heads imported from Stork of Holland and RCM of Italy for manufacturing coated PVC leather xloth and also one calender line imported from Battenfield Extrusiontechnik GmbH of Germany, for manufacturing PVC Films. It has unmatched capability to manufacture more than 950 shades of leather cloth and can also consistently reproduce shades matching the shades of the earlier lots when repetitive orders are placed. Nearly 30% of the production is being exported to over 28 countries including UK, USA, Germany, France, Holland, South Africa and Singapore and it has a huge reputed domestic clientele.

Due to strong demand, FPL is currently working at 96% capacity utlization at its PVC leather cloth plants and at 85% capacity utilization for PVC film plants. For FY05, its Sales grew by 24% to Rs.86 cr. and NP increased 500% to Rs.0.12 cr. As both automobile and pharmaceutical industries are doing well, demand for PVC leather cloth and PVC films are showing healthy signs and the company is in a position to increase the capacity of its PVC leather cloth at short notice. Considering all these factors, FPL is expected to report sales of around Rs.100 cr. and NP of Rs.1.50 cr. leading to an EPS of more than Rs.3 on small equity of Rs.4.60 cr. Having a book value of Rs.27 and a current market cap of merely Rs.7 cr., its share price has the potential to double in 12~15 months.

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.