STOCK WATCH

Kallam Spinning (Code No: 530201) (Rs.30.55) has once again announced fantastic results for the Sept.’05 quarter. Its Sales grew by 12% to around Rs.8 cr. whereas its NP stood at Rs.1.22 cr. compared to Net loss of Rs.7 lakh last year. Its OPM improved substantially from 13% to 31% this quarter and the company even declared a maiden dividend of 7%. For future growth, it is constructing an export-oriented spinning mill with a production capacity of 14,500 spindles in Guntur at an outlay of Rs.22 cr. For FY06, it can report an EPS of Rs.7 and more than Rs.10 for FY07 and its share price can easily appreciate by 50% in 6~12 months.

Due to their strong performance, sugar scrips are getting back in to action with renewed interest from institutional investors. Ponni Sugars Erode Ltd (Code No: 532460) (Rs.39.50), a small South based sugar company also reported excellent numbers, which went unnoticed by retail investors. Sales increased by 40% to Rs.29 cr. and NP spurted 160% to Rs.2.10 cr. posting an EPS of Rs.2.60 for the quarter. Its second half will be much better and for the whole of FY06, it can report an EPS of Rs.9 on its current equity of Rs.8.20 cr. With a forward PE of 4x and dividend yield of more than 3%, this scrip appears to be a good value buy for the medium to long term.

After hitting a recent high of Rs.78, Bhuruka Gas (Code No: 509728) (Rs.47.80) has corrected sharply by more than 50% in the recent carnage. This is inspite of the fact that its fundamentals are improving with every passing quarter. For the Sept.’05 quarter also its NP grew by whopping 200% to Rs.2.40 cr. due to better operating efficiency whereas its revenues were flat at Rs.11 cr. Moreover, its promoters have increased their stake this quarter to 79% from 64% by way of preferential allotment to themselves. For full FY06, it can clock a turnover of Rs.50 cr. and NP of Rs.9~10 cr. which works out to an EPS of Rs.7 on its expanded equity of Rs.3.52 cr. For the short-term, this scrip can give 20~25% return in 6 months or so.

Eldeco Housing & Industries Ltd (Code No: 523329) (Rs.114.10), which is engaged in civil construction and housing has declared encouraging results for the Sept.’05 quarter. Its total revenue grew 22% to Rs.8.30 cr. but its NP multiplied 5 times to Rs.1.10 cr. due to higher operating margins. This leads to a quarterly EPS of Rs.5.50 on its tiny equity of Rs.1.97 cr. Considering its order in hand and the work in progress position, the company is estimated to report a topline of Rs.55 cr. and bottomline of Rs.4 cr. i.e. EPS of Rs.20 for FY06. In spite of such strong fundamentals and part of a growth sector, its current market cap is only Rs.22 cr. and is discounted merely 5 times against its forward earning. It’s a good value buy, as the scrip has corrected sharply from its recent high of Rs.178.

Tinplate Co. of India (Code No: 504966) (Rs.72.05) which is undergoing capacity expansion to 1,70,000 MT by 2006, recently came out with very impressive numbers for the Sept.’05 quarter. Its Sales increased by 50% to Rs.82 cr. and NP jumped 170% to Rs.11 cr. in spite of the lower other income and higher tax provision. For FY06, it can report a Net Sales of around Rs.350 cr. and NP of Rs.40 cr., which works out to an EPS of Rs.14 on its current equity of Rs.28.90 cr. Its share price is bound to cross Rs.100 sooner than later

In the recent onslaught where most of the mid caps corrected sharply, GSFC (Code No: 500690) (Rs.148.15) stood firm and is currently trading near its 52-Week high of around Rs.160. It is the largest producer of caprolactum and has one of the largest capacities of Diammonium Phosphate. Besides, it also manufactures chemicals, fertilisers, petrochemicals and other allied products. For Sept.’05 quarter, it reported a decent set of numbers with Sales remaining flat at Rs.612 cr. but NP registering an impressive growth of 70% to Rs.58 cr. due to lower interest cost and better price realization. For the full FY06, it can post an EPS of Rs.26. Its only a matter to time for the scrip to cross the Rs.200 mark.

Seasons Textiles - Rs.14.00

Incorporated in 1986, Seasons Textiles Ltd (STL) is one of the leading manufacturers and exporters of home furnishing and fabrics based in North India. Shri Nanak Singh, Shri Inderjeet Singh Wadhwa and Smt. Neelam Wadhwa who were earlier running a partnership business in the name and style of M/s Singh Fabrics with an installed capacity of 40,000 metres per annum promoted STL. Subsequently, they kept on expanding and took the installed capacity to above 10,00,000 metres per annum. Today it is one of the reputed home furnishing and fabric suppliers to big retail chains in USA & Europe for Bed, Bath and Beyond Linen N Things etc.

STL’s manufacturing plant is located at Noida and is well equipped with the latest automatic shuttleless loom. To capitalise upon the growth opportunities arising out of the dismantling of the textile quota regime, STL implemented a project for installation of an additional capacity of 2,40,000 metres a year under the replacement cum modernization plan with the financial assistance of IDBI. Currently, the company is concentrating more on exports and intends to take it higher from the current level of 40% of sales. To capture the new markets, STL regularly participates in international fairs and exhibitions to showcase its design and trends matching capabilities to the international market. Moreover, it continuously works towards product development through designing, mix and match of colours and different kinds of yarns. It is in the process of further increasing its installed capacity and modernizing the plant which proves that it is fully geared up to meet the post quota regime challenges in coming years. For future growth, it has ambitious plan to set up a Rs.40 cr. home furnishings unit to be located on a 4 acre piece of land at Manesar, Near Gurgaon. Besides, its group company Seasons Furnishing is well poised to become a big player in the retail sector.

For FY05, STL reported flat numbers with Sales at Rs.28.50 cr. and NP of Rs.0.75 cr. due to production capacity constraints. But for FY06, it is estimated to post a much better performance due to higher capacity utilization and better operating efficiency. Incidentally, STL has a small equity of Rs.5.09 cr. and reserves of 7.50 cr. leads to a book value of Rs.25 of its share. Recently, to fund its expansion, the company made some preferential allotment of 15 lakh warrants @ Rs.15, which will dilute the equity to Rs.6.60 cr. on conversion. Although it’s recent, Sept.2005 numbers were not that great. Still, going by the half yearly numbers, STL is expected to report Sales of around Rs.35 cr. and NP of Rs.2 cr. for FY06. This will work out to an EPS of Rs.4 and diluted EPS of Rs.3. Its long-term prospects are much brighter and investors are strongly recommended to buy at current levels as the scrip can double in 12 months or so.

Mahalaxmi Seamless - Rs.33.50

Incorporated in 1991, Mahalaxmi Seamless Ltd (MSL) is primarily engaged in the manufacture and supply of seamless straight and U bend tubes made of carbon and low alloy steel. More than a decade old, this company is today among the largest manufacturers of cold drawn seamless pipes and tubes in India. Ranging from over 6 mm to 100 mm in outer diameter and 0.9 mm to 6.0 mm in wall thickness, the product range at Mahalaxmi Seamless encompasses straight pipes and tubes upto 28 metres as also U-Tubes. MSL’s products meet the demands of India's bludgeoning bulk process industries i.e. petroleum, chemicals, fertilisers, thermal power plants besides the oil processing, sugar mills and automobile industries. Typical applications of its tubes include boilers, heat exchangers and condensors besides pneumatics and instrumentation.

MSL’s manufacturing plant is located at Nagothane in Raigarh District of Maharashtra. Just 110 km from Mumbai on the Mumbai-Goa highway, the plant has good road connections to all important ports and destinations and has an installed capacity of about 10,200 TPA. As MSL caters to a large range of industries and applications, it needs to meet a variety of international standards since many plants are established under foreign technical collaboration. Hence all its products are manufactured according to international standards of ASTM, BS, BIS, DIN and SAE etc. Besides, the company has a rigorous quality assurance programme. Notably, MSL’s products are approved and regularly inspected by leading agencies including Lloyds, Bureau Veritas, Engineers (India) Ltd (EIL), DNV, Toyo Engineering and UHDE. Moreover the Indian Boiler Regulation (IBR) Board has awarded this company with the title of ‘Well-known Tube and Pipe Maker’.

For future growth, the company is concentrating on import substitutes of cold drawn seamless pipes & tubes by making specific sizes, which has assured its presence in the market and helped reducing imports. Few months back, the company developed 3-Dimensional tubes, which is an import subsitute and plays a crucial role for 12 mtrs. and above long pipes. The company has also taken successful trials of square and rectangular tubes. Moreover, it has established a new phosphate coating exclusively for Alloy Steel, which in turn reduces the number of draws and thereby the cost of production.

For FY05, MSL registered a sales growth of 60% to Rs.28 cr. and NP increased by 140% to Rs.2.05 cr. resulting in an EPS of around Rs.4 on its equity of Rs.5.29 cr. It reported decent numbers for June qtr as well and is expected to post impressive numbers for Sept’05 qtr on the eve of a fall in steel prices. The future outlook for the company is very promising as demand is expected to rise substantially from the user industry due to strong industrial growth. For FY06, the company is estimated to clock a turnover of Rs.35 cr. and NP of Rs.3.50 cr. which works out to an EPS of Rs.7. As the share price has corrected sharply after hitting a high of Rs.69, investors are strongly recommended to buy at current levels. The scrip has the potential to double in 12~15 months.

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.