Dhampur Sugar - Rs.44.50

The Dhampur Sugar Mills set up in 1933 is one of the largest sugar manufacturing group in India having 5 sugar mills in India and one in Nepal with total installed capacity of 32,000 tonnes of cane crushed per day (TCD). Its units are located in Dhampur (Capacity 12,000 TCD), Rauzagaon (5000 TCD), Asmoli (5000 TCD), Kashipur (5000 TCD), and Mansurpur (5000 TCD). Its Chemical Division has a modern continuous fermentation and distillation plant using molasses as the feedstock to produce Alcohol (6,000 Metric TPA,) Acetic Anhydride (13,000 Metric TPA), and Oxalic Acid (15 TPD). For further value addition, a 30 TPD Ethyl Acetate plant has been added to the range of downstream chemicals. It has recently established a 300 TPA Nicotinamide and INH plant in Lucknow. These products are drug intermediates offering high value addition. More importantly, all the 5 plants of Dhampur have Cosgeneration by bagasse based power plants with a combined capacity in excess of 83 MW, out of which approx 41 MW is being evacuated to the UP Grid. In addition, pilot plants have been established to supply Ethanol to Indian Oil. The company has also completed a turnkey expansion cum modernisation of the milling tandem and boiling house of a sugar mill in the Caribbean and recently it has tied up with a sugar company in Jamaica to provide technical consultancy services to improve the working of five sugar factories owned by the Government of Jamaica.

Domestic Sugar prices have been rising since the beginning of 2004 due to decline in sugar production because of drought and other leading to sharp reduction in inventory levels. Prices are expected rise further in the coming Diwali/festive season and are expected to remain high going forward. Due to the scanty rainfall, the future performance of some south based sugar companies can be affected but Dhampur, based in UP, wont be affected much as the main area for growing cane in Eastern UP are river fed, the Amroha- Bijnor belt is irrigated by the Upper Ganges Canal and the Roorkee Canal runs right upto Moradabad. Some days back to overcome the supply shortage, the government gave freedom to sugar companies to import raw sugar and sell in domestic market but with an obligation to the export same quantity of finished sugar in the next 2 years, which is again positive to some extent.

Due to firm sugar prices, the company has performed exceedingly well in the last 2 Quarters. For June 2004, though sales was marginally down to Rs.116.50 cr. the NP jumped 5 times to Rs.10.50 cr. from Rs.2.10 cr. For full year ending September 2004 the company is expected to make sales of Rs.500 cr. and NP of Rs.35 cr. leading to an EPS of Rs.10 and going forward for FY05 company can earn NP of Rs.50 cr. registering an EPS of Rs.15 So at current market price (CMP) this scrip is trading at 6 PE multiple for FY04 earning and 4 PE multiple for FY05 estimated earning. Investors can expect 50 per cent appreciation in the next 6~8 months.

India Glycols - Rs.134.00

Earlier in Aug 2003, Money Times recommended this scrip at Rs.61 under 'Best Bets'. It is now being recommended again at double the price in view of the company having expanded capacities and is poised to exploit new opportunities emerging in polyester films and fibres. Belonging to the Delhi based Bhartia family, promoters of Jubilant Organosys (formerly Vam Organics) group, India Glycols Ltd. (IGL) is engaged in the manufacture of mono ethylene glycol (MEG), di ethylene glycol (DEG) and tri ethylene glycol (TEG) at Kashipur in Uttaranchal through the molasses route in technical collaboration with Scientific Design Company of USA. IGL also manufacture Ethoxylates and other performance chemicals, Glycol Ether and Guar Gum Powder. MEG is the basic feedstock for the production of Polyester.

With the textile quota phasing out in Dec 2004, the demand for polyester is expected to increase substantially. The demand for PET and PE films is witnessing higher growth at 20 per cent and MEG is in huge demand, which is expected to strengthen in 2005. The price of MEG is constantly on the rise and is currently ruling high at Rs. 52 per kg. This is due to the high crude oil prices since traditionally ethylene needed for the manufacture of MEG is derived from crude oil. But IGL, the only producer using the organic route of molasses - a byproduct of sugar refining, is therefore at an advantage. Although the price of molasses has also gone up due to lower sugar production, it is relatively better placed than those using the inorganic route.

Due to the increasing demand and shortage of MEG, the company has decided to expand its capacity from 225 MT/day to 350 MT/day from December 2004. This expansion will have an inbuilt provision to produce 425 MT/day without any major capital expenditure and IGL is de-bottlenecking the existing MEG plant by installing an additional reactor along with allied balancing equipment by the use of better catalysts. This should be operational by Q3FY05. It has also planned capital expenditure of around Rs 150 cr. over the next two years, which would largely be funded through internal accruals. It is also planning to produce liquid oxygen, liquid nitrogen, and argon gas by March 2005. It has also undertaken a scheme to produce RAB (concentrated sugarcane juice) and to produce ethanol required for MEG plant. The setting up of a distillery in Eastern UP and herbal farming in Uttaranchal are the other diversifications it is working on. It is also merging its loss making subsidiary, CDS International, with itself to avail of tax benefits.

For FY04, sales were up 34 per cent at Rs.422.60 cr. with 58 per cent higher NP of Rs. 57.20 cr. registering an EPS of Rs. 20.50. Q1FY05 posted a substantial rise on y-o-y basis due to the capacity expansions carried out in June 2003. Sales increased 71 per cent to Rs.138.50 cr. and NP was up 165 per cent at Rs.20.30 cr. despite the sharp increase in tax provision. Considering the increasing MEG prices and the planned capacity expansion, sales of Rs.550 cr. with NP of Rs.80 cr. resulting in an EPS of Rs.29 are envisaged in FY05. Its current share price of Rs.126 discounts FY05 earning by only 4.3 times and the scrip could rise by 50 per cent in 6 months and 100 per cent in 18 months form the current level.

STOCK WATCH

With crude oil prices crossing $50 per barrel and the government ruling out any petrol price hike, oil-refining companies will be the worst hit. This will also cap any further upside in GAIL & ONGC

Subros is still trading at Rs.124 ex-bonus. With an expected EPS of more than Rs.15 on the expanded equity, it will cross Rs.200 going forward. A good auto ancillary bet.

One Analyst is very bullish on future prospects of Sesa Goa and is tipped to touch the four-digit mark in 2005. With China importing heavily again, iron ore prices have shot up once again and are expected to remain high going forward.

Though Numeric Power has appreciated in this rally, it is still trading cheap on an expected EPS of Rs.30. It has huge reserves of Rs.48 cr. on its small equity of Rs.5 cr. making it a bonus candidate too. One broking firm is very active on the counter and accumulating it quietly.

A reputed big investor is bullish on VST Tillers and has already accumulated this scrip, which may hit a century in 2005. A good medium term bet.

With cement prices ruling high in the South compared to last year, Deccan Cements will post good September Quarter numbers. Scrip can be accumulated before the results.

Sponge Iron manufactures are having ball of a time. Orissa Sponge can be bought at dips for handsome returns.

Gujarat Alkalies plans a Rs.200 cr. expansion for Caustic Soda and Hydrogen Peroxide at its Dahej plant. Although it diluted its equity by the recent rights issue, it may still post an EPS of around Rs.8. Also, being on the divestment list of the Gujarat Government will give good returns if held for long.

The government is thinking to withdraw DEPB on steel exports once again. But Bhushan Steel being a domestic player will not be affected much. It is tipped to cross Rs.180 after the Sept. Quarter results are declared.

Punters are betting on GTL. This scrip is expected to rise sharply in coming days. One can buy it for quick bucks

Kanoria Chemicals has still not caught market fancy. With Rs.180 cr. expansion plan, huge reserves leading to an book value of Rs.90, cash earning of more than Rs.22 and with an expected EPS of Rs.13-15, this scrip is available cheap at Rs.70.

Order books of saw pipe manufacturers are soaring continuously with Welspun Gujarat recently bagging Rs.500cr. overseas order. This scrip can be bought at the current price for 50 per cent appreciation in 6 months time.

Madhucon Project - Rs.209.00

Incorporated in Mar.'90 as Madhu Continental Constructions Pvt Ltd, this 14yr old Hyderabad based company is engaged in a diverse range of construction business and turnkey activities like building construction, deep excavation, heavy rock cuttings, high railway embankments, major canals and earthen dams, dykes and tunnels. It was promoted by N Seethaiah and N Krishnaiah and all the clients of the company are Central or State governments, public sector undertakings and other government or semi-government bodies. The company has successfully completed the widening of 57.21 km. National Highway 5 (NH5) project in the Tada-Nellore Section ahead of schedule. It has also completed NH-76 project in Rajasthan between Chittorgarh-Mangalwar five months ahead of schedule. The strengthening of the road having 4-lane dual carriage in the Tuni-Anakapally section on NH-5 in Andhra Pradesh is progressing well. The rehabilitation, upgrading, 4 laning project of 52 km of the Tambaram-Tindivanam Section of NH-45 in Tamilnadu is also progressing as per schedule. The construction of the Ahirkheda Tunnel of the Indira Sagar Project and the construction of a dam in Shivpuri, Madhya Pradesh, is planned to be completed during 2004-2005.

Recently, the Government of Maharashtra has issued a Letter of Intent for construction of a dam across the Penuganga River costing Rs.110 cr. The company has received an order for construction of MP State Highway corridor project costing Rs.62 cr. and is short-listed in a build-operate-transfer (BOT) National Highway project costing Rs.250 cr. floated by the National Highways Authority of India. Currently, Madhucon has an order book of Rs.500 cr., which it plans to complete in less than 15 months. It specialises in roads and huge contracts are in the pipeline since 85 per cent of the 7300 km road length that comes under the North South-East West corridor road projects are still to be contracted. It has also pre-qualified in bidding for projects worth Rs.7,000 cr.

For FY04, sales increased 30 per cent to Rs. 301.40 cr. but NP was almost flat at Rs. 19.40 cr. registering an EPS of Rs.38. For Q1FY05, sales and NP were marginally down to Rs.94 cr. and Rs.5.90 cr. respectively. Based on the works under execution, orders in hand, delivery schedules committed to and the tenders it is participating in, the company could register total revenue of Rs.360 cr. with NP of Rs.25 cr. resulting in an EPS of Rs.50. Given its small equity of Rs.5.07 cr. and huge reserves of Rs.67.30 cr., it is a strong bonus candidate as well. Although the stock has run up very fast recently, still at CMP of Rs.209 it quotes at a PE of just 4 signifying its strong upward potential. It could give 50 per cent appreciation in 12 months time and real long-term investors can expect much higher returns. Buy and add on declines.

Monnet Ispat - Rs.137.00

Back in 1990, Monnet Ispat (MIL) was incorporated by Sandeep Jajodia to manufacture sponge iron with a plant capacity of 1,00,000 tonnes of sponge iron per annum at Village Kurd in the state of Madhya Pradesh. Since then, the company has grown by leaps and bound to become a significant player in the sponge iron industry heavy the second largest capacity backed by captive resources of coal and power. Sponge iron is a substitute for melted steel scrap through the secondary route using the induction electric arc furnace (EAF).

Monnet Ispat recently completed the expansion of its sponge iron capacity by 70,000 MTA to 3,00,000 MTA and its steel capacity by 2,50,000 to 3,00,000 MTA. It is also merging Monnet Power Ltd. (MPL) with itself, which will be very positive going forward as it issues 1 share of MIL for 10 shares of MPL. Monnet Power has also expanded its power generation capacity by 37MW based on coal and coal rejects to 45 MW and ferro alloys capacity to 36000 form 12000 MTA. With the increasing demand for sponge iron due to the huge expansion by various steel giants all over worldwide, MIL is implementing further sponge iron capacity expansion of 4,40,000 TPA, which will take its total capacity to 7,40,000 TPA. The project is estimated to be completed in 15 months at a cost of Rs. 230 cr., of which Rs 155 cr. will be funded through debts (Citicorp:43 cr., promoters:24 cr., internal accruals:13 cr.) and the remaining Rs 80 cr. will be by way of equity. It is planning to increase its coal production to 1.5 MTA from its captive mine at Raigad in Chhattisgarh which has coal reserve of 126 MT. Importantly, MIL is working on the acquisition of some iron ore mines in Chhattisgarh & Jharkhand, which is at a fairly advanced stage. With all these plans materialising, it will become a fully integrated player with its 'raw material to finished product' strategy materialising to weed out external margins and capture the entire product value-chain right from power, coal and iron ore to sponge iron to finished steel.

For Q1FY05, MIL posted 250 per cent jump in net profit at Rs 17.43 cr. while Sales increased 105 per cent to Rs.99.03 cr.. It recorded higher profit and turnover despite the fact that its 1,00,000 MTA capacity of sponge iron was not in production during the first quarter due to repairs and replacement of equipment. Considering its future prospects post merger, it is estimated that MIL will post a combined sales of Rs.630 cr. with NP of Rs.90 cr., which will result in an EPS of Rs.30 on its expanded equity of Rs. 30.50 cr. and diluted EPS of Rs.28 if the promoters apply for 20,00,000 shares. At Rs.137, the share is quoting at a P/E ratio of just 5 and could touch Rs.220 within 12 to15 months.