Deccan Cements - Rs.52.00

Incorporated in July79, Deccan Cements is an Andhra Pradesh based mini-cement manufacturer with its captive power generation. It is one of the very few mini-cement plants that is operating profitably in the country. Mini-cement plants enjoy lower excise duty on the cement produced and sold compared to the larger plants. It is an established player in its chosen markets and has been able to realize relatively higher prices than other mini cement plants.

Currently, the company has the capacity to produce 3,00,000 TPA of cement and 5,00,000 TPA of slag cement. The cost of production of slag cement is considerably lower than the cost of producing ordinary Portland cement. Due to various initiatives of the government and the industry blended cement like slag cement is fetching almost the same rate as Portland cement and is well accepted in the market. In FY04, slag cement accounted for 56 per cent of its sales but contributed substantially to the company's profit.Since cement production is highly power intensive, the captive power plant have been very handy for the company to reduce power costs considerably and stay afloat in difficult times. Due to poor flow of water' however, the hydel power is almost non-operational. But if it operates it has the potential to increase the company's cement production substantially and enhance the profitability of the power segment. In short the company can scale up its revenues and profitability even with the existing infrastructure.

In the South, cement prices depend mainly on demand from government agencies. In future, the demand-supply gap will further reduce due to the government's thrust on infrastructure and housing. Currently, though cement prices have again dipped to Rs.130 from the peak of Rs.150 due to lower demand still its higher than last year's price of Rs.90-100 per bag. The medium to long term industry prospects look bright and this is evident by the promoters increasing their stake regularly. In the June'04 quarter too, also they increased their stake by 5 per cent taking their total stake to 53 per cent.

In FY04, sales increased 31 per cent to Rs.116 cr. and NP jumped more than 4 times to Rs.5.95 cr. leading to an EPS of Rs.9. In Q1FY05, sale was up 16 per cent to Rs.32.40 cr. but NP rose only 7 per cent due to the increase in tax provision. The company has a small equity of Rs.7 cr. with huge reserves of Rs.50 cr. and book value of Rs.82. It's a regular dividend paying company it paid 20 per cent dividend in FY04. With cement prices expected to rise again in future, the company is estimated to clock sales of Rs.140 cr. and NP of Rs.9 cr., which will translate into an EPS of Rs.13. So at current market price (CMP) it is trading at less than 4 PE leaving ample scope for further appreciation. Scrip can be accumulated for long term to get 100 per cent return in 15-18 months.

Shah Alloys - Rs.88.00

Incorporated in 1990, Shah Alloys was originally started to manufacture alloy steel castings, carbon and manganese steel castings, ingots and billets. Later, Mr. Rajendra Shah, the promoter, diversified into stainless steel production in 1994 and his systematic expansion and time-bound execution made Shah Alloys the second largest stainless steel manufacturer in the country next to Jindal Stainless Steel. Today, its steel plant has an Induction Furnace, Ladle Refining Furnace and Rolling Mill and manufactures Stainless steel products including hot rolled plates, sheets, coils, slabs, rounds, flats, bars, billets, beams, bright bars, angles and wire rods.

The present installed capacity of the company is 2,60,000 TPA. It is a major slab supplier to the SAIL a unit at Salem. Approximately 50 per cent of the company's turnover comes from exports, which is mainly to China, Italy and Germany. The restoration of DEPB benefits and the government’s decision to continue with it, is a positive for the company. Since 1999, the company has been growing at a compound annual growth rate CAGR of 25 per cent and the management is confident to maintain the double-digit growth in future.
The company is now working towards becoming an integrated stainless steel producer for which it has ambitious plans of setting up a backward integration project at Gandhidham for producing sponge iron, ferro alloys and power through its subsidiary. The first phase of the Rs.205 cr. expansion is expected to start commercial production this fiscal with capacity of 1,80,000 TPA of Sponge Iron, 30,000 TPA of Ferro Alloys and 40 MW captive power plant (25 MW lignite based & 15 MW gas based). Apart from meeting its own raw material demand for sponge iron and ferro-alloys at a cheaper rate, this plant will substantially cuts its power cost to Rs. 1.50/Kwh from the current cost of around Rs 3.50/Kwh.

Along with this backward integration, its forward integration project of Rs.35 cr. is also under progress to manufacture high value added cold rolled products like - CR stainless sheets, coil etc. This 10,000 TPA plant will convert special steel HR coil manufactured in-house into CR SS sheets/coils to broad base its marketing thrust. Further, the company intends to develop various industrial grade products also. This plant is estimated to become operational from Dec 2004.

Fundamentally the company is strong with Sales increasing by 37 per cent to Rs.946 cr. and NP jumping 71 per cent to Rs.33 cr. in FY04. On a tiny capital of Rs.8.9 cr., the company has huge reserves of Rs.103 cr. leading to a book value of Rs.125. The Q1FY05 numbers were quite flat with Sales of 224 cr. and NP of Rs.7 cr. due to low exports on account of withdrawal of DEPB benefits by the government. With increasing global demand, robust SS prices and the company's thrust on export with backward integration, it is estimated that the company will achieve a NP of Rs.38 cr. on a turnover of Rs.1100 cr. for FY05. This works out to an impressive EPS of Rs.43. At current market price the share is trading at a PE of just 2. Investors can buy with hopes of 50 per cent appreciation in 12 months time.

STOCK WATCH

This South based Ferro Alloy company, Indsil Electrosmelts (Code No.522165) (Rs.44.20) has again posted excellent results for its first quarter ending 30th Sept 2004. Net sales had increased by 50 per cent to Rs.19 cr. and it earned NP of Rs.3.30 cr. against a loss of Rs.1.45 cr. in the corresponding quarter. With an OPM of 30 per cent, NPM of 17 per cent and an expected EPS of Rs.12 it is trading cheap and could be accumulated for the long term

Maintaining its profit margin, Finolex Industries (Code No.500940) (Rs.63.45) has doubled its NP to Rs.28 cr. as sales increased by 20 per cent to Rs.234 cr. The scrip is poised to cross the century mark this year. Accumulate it every dip

Man Industries (Code No.513269) (Rs.91.90) is expected to report excellent numbers for the next 2 quarters. Also its new plant at Anjar is expected to begin its operations in Dec 2004. For FY05, it will report an EPS of Rs.22 Investors could buy at the current price for handsome returns in 12 months time

Due to the booming Indian economy, the special thrust on infrastructure and the huge expansion plans by various companies every sector, Ador Welding (Code No.517041) (Rs.57.70) company is reportedly having the best time. For Sept qtr, Sales was up 23 per cent to Rs.48 cr. whereas profit jumped 800 per cent to Rs.3 cr. For FY05, the company is expected to register an EPS of around Rs.10 and declare 30 per cent dividend. Scrip can appreciate 50 per cent in 12 months time

Marketmen are waiting the results of Navabharat Ferro Alloys (Code No.513023) (Rs.374.60) which is scheduled for 25th Oct. For the June quarter its OPM zoomed up to 43 per cent. If it maintains this margin, scrip will shoot up to Rs.500 in no time

Though some broking firms are bullish on Stride Arcolab (Code No.532531) (Rs.174.55) and project a price target of Rs.250, investors are advised to stay away from this mid-cap pharma scrip and wait for its Sept number. Fundamentally it’s overpriced, and its June quarter was good only due to reverse Deferred Tax provision!

Amforge Industries (Code No.513117) (Rs.88.50) will post fantastic growth numbers on 28th Oct compared to its low base last year. FIIs are quite bullish on this company and the share price is tipped to cross Rs.120 before this year end.

One Pharma analyst is bullish on Surya Pharma (Code No.532516) (Rs.55.15) and expects the company to post an EPS of Rs.10 for FY05. The company is setting up a composite facility with a capital outlay of about Rs.60 cr. for the manufacture of Sterile Bulk Drugs, formulations, captive power plant and multipurpose bulk drug manufacturing facility at Banur (Punjab). The company has also added a Tablet section in addition to the existing capsulation section.

In the textile sector, one can have a look a Banswara Syntex (Code No.503722) (Rs.35.10) which is expected to register an EPS of Rs.12 and CEPS of Rs.25. It has good reserves of Rs.37 cr. on small equity of Rs.6.9 cr. leading to a book value of Rs.64. For FY05, it may declare dividend of 15 per cent. A good long-term bet.

Gujarat NRE Coke - Rs.89.00

Last year we recommended this scrip at 22.50 and since then it has given huge return along with bonus and dividend. Keeping its future growth in mind we still find it reasonably cheap and recommend it for medium term. Gujarat NRE Coke Ltd (GNCL) was incorporated in the 1986, by Mr. G.L. Jagatramka and his son, Mr. A.K. Jagatramka for producing Low Ash Metallurgical Coke (LAMC). LAMC is a variety of coke with an ash content of around 12%. It is the vital ingredient that fires the blast furnaces of the Nation as the corest of its core selects burn bearing materials to produce steel. It is used both for its high calorific value and its environment friendly nature and heat furnaces for a variety of other industries like soda ash plant, steel industry, zinc smelters, foundries & Ferro Alloys. Today GNCL has emerged as the largest producer of LAMC in India.

In March 2003 to consolidate its business Gujarat NRE Power Limited (78,000 TPA) and Aparna Projects Private Limited (1,17,000 TPA) were merged with GNCL. Companys manufacturing unit is located at Dharampur, Jamnagar in Gujarat with current production capacity of 3,58,000 TPA. Recently company has also set up second plant at Bhachau, Kandla consisting of 9 chimney for manufacture of 3,24,000 TPA of LAMC. Few chimney has already started the commercial production and the entire plant is expected to be operational by December 2004 in phases which will take the total capacity to 6.82,000 TPA. The Company expects to get a production of 1,50,000 ton from the new plant by March 2005. Due to the huge global demand and short supply, coke price have shot up 300~400 per centcompared to last year. To take the maximum benefit of this uptrend GNCL group company has set up one more plant at Karnataka in joint venture with Kalyani Steels Ltd with annual capacity of 324000 MT which is expected to be operational by March 2005. With this plant GNCL will cross the landmard production capacity of 1million TPA. For future company group has also plans to set up additional 4,00,000 TPA in Dharwar Karnataka. On the raw material side also company has tied up with its entire requirement of coking coal requirement for its coke plant at Jamnagar and the new unit being set up near Kandla Port for the year 2004-05 with Australian and South African Coal Mining Companies. Sitting on huge cash company is thinking for forward integration & is planning to acquire a pig iron production unit with a capacity 1,50,000 TPA, promoted by the Goa-based Dempo group.

The effect of coke price and expansion is clearly visible in last 2 qtrs with NP jumping 6~7 times. Company is expected to end this year Sept 2004 with sales of 310 cr and NP of 95 cr which means an EPS of 23 Rs. For FY05 with its full capacity going operational, company is expected to register sales of 580 cr and earn NP of 150 cr leading to an EPS of 36 on current equity. So at CMP this scrip is trading at a PE of less than 4 for FY04 earning and at 2 for FY05 earning. Investors can expect handsome return over a period of time.

Uttam Galva Steel - Rs.27.00

Incorporated in 1985, Uttam Galva Steels Limited (UGSL) is involved in the production of Cold Rolled Coils & Sheets (CRCS) and Galvanized coils & sheets (GCS). CRCS finds a very wide variety of applications, ranging from engineering automobiles, containers, general household items like shelves, cupboards and other steel furniture. GCS are use in roofing, side sheeting, ducting and other engineering applications. More than 70 per cent of its products are currently exported to over 103 countries with USA, Europe, China, Canada, Middle East, South East Asia and African countries as its focus areas. In the Indian market, the company is an established player for supply of CRC to most manufacturers of automobiles, white goods, general engineering, drums and barrels. It is also a large supplier of galvanized plain sheets as well as corrugated sheets to the construction industry and its Swan brand is well-known in the Western parts of rural India.With a modest beginning in 1988 with a Wet-Flux Galvanizing line in technical collaboration with M/s John Lysaght of B.H.P. Australia, UGSL has three modern galvanizing lines with a total capacity of 3,50,000 TPA today, the company has its own cold rolling facility with a capacity of 500,000 TPA. Balance of CR are converted to value-added grades in CRCs, cut to length sheets and also sold as Full Hard CR in overseas markets.

The company has also chalked out a Rs.250 cr. expansion plan for increasing the Cold Roll capacity by 4,00,000 TPA, expanding the Galvanising Line with a capacity of 3,50,000 TPA and to set up a most modern state- of-art pre-Painting line with a capacity of 60,000 MT. The Cold Rolling plant / Pre-painting line is expected to start commercial production by early 2005 and the galvanising plant is estimated to become operational from mid 2005. The promoters are also bringing in Rs.15 cr. by way of preferential allotment and diluting the equity by around Rs.10.40 cr.

For FY04, Net Sales was up 44 per cent to Rs.1162 cr. and NP has more than doubled to Rs.24 cr. Due to expansion and better price realisation, Q1FY05 sales increased by 68 per cent to Rs.528 cr. and NP was Rs.21 cr. in comparison to Rs.1.50 cr. in Q1FY04. Moreover, the company will save on interest cost this fiscal due to debt restructuring, which has brought down the average interest rate from 14 per cent to 7 per cent on Term Debts of Rs.295 cr. Keeping in mind the buoyancy in the steel sector and the company's expansion plans with major thrust on exports, it is estimated that the company will report Sales over Rs.2400 cr. and NP of Rs.110 cr. This would result in an EPS of Rs.14 on the expanded equity of Rs.79.96 cr. Investors can hope for 100 per cent appreciation in 12 months.