Tata Metaliks - Rs.150.00

Incorporated in 1990 and promoted by TISCO, Tata Metaliks manufactures foundry grade pig iron through the mini blast furnace route. Its products are used mainly by foundries for manufacturing automobile castings, industrial castings, pipes and others. The company has an agreement with Tata Korf Engineering Services for technical know-how and consultancy and the company has been following the Tata Business Excellence Model (TBEM) since 1999. Due to its cost competitiveness and other initiatives, it is the lowest cost producer of Foundry Grade pig iron. The company has started producing customized pig iron as per the technical requirements of users along with value added specialized products like high silicon pig iron etc., which have a good export market. Pig Iron prices are still ruling very high and will remain firm as the domestic demand is set to grow on the back of rising demand from auto ancillary and engineering sectors.

The company is putting up a new 1,00,000 TPA blast furnace at Kharagpur, which will take its total capacity to 2,63,000 TPA and is expected to become operational this month. Also, to minimize the adverse impact of the steep hike in the price of imported LAM Coal and Coke, the company has made arrangements for domestic conversion of imported Coal and blending the same with indigenous Coke. It has also decided to install its own non-recovery type of Cokery of 60,000 TPA inside the plant to meet 25 per cent of its total requirement and is examining opportunities to acquire some cokeries. Interestingly, it has applied for mining rights in the neighbouring iron ore rich belt. It is also planning to apply for a coking-coal block. For future growth, it even wants to go in for downstream integration with castings, special steels etc. To gear-up export revenue, the Business Development Group of the Company has taken initiatives to spread its foot print especially in South- East Asia, South-Korea & Japan and in other niche markets like Egypt and Dubai.

Due to capacity expansion and higher price realisation in the first half, its net sales more than doubled to Rs137 cr. whereas its NP jumped 270 per cent to Rs36 cr. in spite of very high tax provision. Its OPM improved substantially to 43 per cent from 25 per cent last year. And since its new unit is expect to start this month, it will post impressive numbers in the second half also. The company is almost debt free with no Long Term or Short Term borrowing. To share its growth story, it may declare Rs6~7 per share as dividend for FY05. Considering all these factors, the company should report a NP of Rs70 cr. on turnover of Rs310 cr. registering an EPS of Rs28. Investors are advised to buy on dips or in sharp corrections only with a long term perspective. This scrip has the potential to double in 18 months time.

Alphageo (India) Ltd - Rs.60.00

Incorporated in 1987, Alphageo is the first private sector company to enter the field of seismic data acquisition. It is the pioneer seismic contractor engaged in the business of seismic data acquisition, processing and interpretation. It also undertakes seismic surveys and offers a whole range of services for oil exploration & drilling like evaluation, reservoir and production services. It has been acquiring seismic data contracts for Oil India Ltd (OIL) and Directorate General of Hydrocarbons (DGH). Armed with technical know-how from Alphageo of USA, it has acquired equipments to map 2-D and 3-D seismic data, of which the latter is a versatile technique and a precise geo-physical tool to understand the earth's crust in geologically complex areas.

Looking at the opportunities unfolding in the oil & gas exploration and prospecting business, the company is making all efforts to train its personnel and introduce state-of-the-art equipment to meet the growing demand. Seismic surveys are undertaken to identify and study the migration paths, geometry and size of the ‘trap formation’, which enable the explorers to locate the existence of a hydrocarbon structure and decide on drilling an exploratory well or not. The company also has a tie-up with Alphageo, USA, for human resource development (HRD) for conducting advanced geo-seismic surveys in difficult terrains.

The Government of India's continued emphasis on increasing oil and gas production and the farming out of oil fields to private oil companies in the 4th round of National Exploration & Licensing Policy (NELP) has contributed to intense activity in the area of oil exploration. Also, the policy of oil majors to concentrate on their core activity of production and contracting out other related services like seismic surveys implies huge growth opportunities for the company. Moreover, the market for three dimensional seismic surveys is growing and is expected to register an exponential growth in the coming few years. In short, the company has bright future prospects and will grow at a good pace in months to come.

During H1FY05, its sales increased by 70 per cent to Rs11.10 cr. whereas profit doubled to Rs2.34 cr. recording an EPS of around Rs5. The best part is that the company has a very small equity of Rs4.95 cr. and any increase in profit leads to a handsome rise in EPS. The company is also expected to declare a dividend for FY05. Although Alphageo expects to face competition from MNCs going forward, India's aggressive policy to increase oil production given the upward spiral in crude oil prices, the company can register sales of Rs24 cr. and NP of around Rs5 cr. for FY05 which may further increase to Rs40 cr. of sales and NP of Rs7.5 cr. in FY06. The stock is currently discounted at 6 times its projected FY05 earning and 4 times the expected FY06 earning. It is a strong buy which can give 50 per cent returns in 12 months time and double in 24 months from the current level.

STOCK WATCH

Of late, the infrastructure sector has become the market favourite and Valecha Engineering (Code No.532389) (Rs.114) still trading reasonably cheap compared to its peers and considering its future growth prospects. For the six months ending 30th Sept. 2004, its revenues have increased 47 per cent to Rs70 cr. and NP was up 44 per cent to Rs4 cr. For the full year 2004-05, it can report an EPS of Rs 18~20 as it has a strong order book of more than Rs225 cr.

Because of the differences among the Ambani brothers, IPCL (Code No.500105) (Rs.186.40) has been beaten down badly and offers a good opportunity to buy for the long term. For the first half year, the company reported a Net Sales of Rs3629 cr., up 35 per cent whereas NP zoomed 181 per cent to Rs261 cr. in spite of a very high tax provision of Rs171 cr. The petrochemicals cycle is in an uptrend and it expected to report an EPS of around Rs22. Appreciation of Rs 60~75 is possible in the next 3 months.

JB Chemicals & Pharmaceuticals (Code No.506943) (Rs.371.40) is discounted cheap compared to its peers, who have clocked an aggressive growth rate. But now with the company entering the high growth biotech sector, launching new drugs and putting more thrust on exports and R&D it has joined the high growth league. It is a good dividend paying company which reported sales of Rs175 cr. (up 19%) and NP of Rs32.25 cr. (up 14%) during the first half ending 30th Sept. 2004. For the current full year, it can report an EPS of Rs36~38. Applying a reasonable PE multiple of 12, the stock should trade above Rs450. Accumulate at every dip and sharp correction for the long term.

Aarti Industries (Code No.524208) (Rs. 233.60) is a scrip that has the potential to give handsome returns in the medium to long term. In the first half its sales grew 27 per cent to Rs319 cr. and NP increased by 13 per cent to Rs22.30 cr. For the full year FY05, it can report an EPS of Rs34. At the current market price (CMP) it’s trading at a PE of 7 leaving ample scope for an upmove in future.

Balaji Amines (Code No.530999) (Rs.173) is one of the lowest cost producer of Methyl Amines in the world. It is into manufacturing of Speciality Chemicals, which find application in Pharmaceuticals, Textiles, Agrochemicals, Paints and Dyestuff. For the full year FY05, it is expected to report an EPS of Rs25. Buy at declines for long term gain of 40~50 per cent in 15 months.

Ceekay Diakin(Code No.505923) (Rs.40) is reportedly doing well. This auto ancillary posted impressive numbers for the first half of the current year. Sales were up 27 per cent to Rs39.50 cr. whereas NP shot up to Rs1.22 cr. from Rs0.10 cr. last year. For FY05, it is expected to report an EPS of more than Rs7. Buy it and forget it for the next 15 months.

Inspite of declaring a bonus, Orient Abrasives (Code No.504879) (Rs.186) did not appreciate much and is discounted poorly by the market. Its future looks very promising and the company has posted excellent numbers for the current first half ending 30th Sept. 2004. Its Sales increased 33 per cent to Rs80.50 cr. whereas NP jumped 52 per cent to R 9.30 cr. For the full year FY05, it could report an EPS of Rs32 on its expanded equity of Rs6 cr. and 40-50 per cent appreciation in its share price can be expected over the next 6 months.

Bhushan Steel - Rs.132.00

Starting in 1989 with a turnover of 50 cr, today Bhushan steel a 2500 cr company has emerged as a third largest producer of cold-rolled products manufacturing wide range of value added products like Wide CR, Galvanised and colour coated Sheets, High Tensile Steel Strapping , Hardened & Tempered Strips and Precision Tubes. It enjoys a dominant position in high margin automobile & white good sector and is the single largest supplier to them with 60% market share. Company has been recognised by Ford and Honda Motors as their Global Resource Centre for their worldwide operation which is a big achievement in itself. Its technical collaboration with Sumitomo Metal Industries Japan, one of the largest global steel producers has been extended for another six years. Management understands the importance of technology and all its plants are upgraded & equipped with latest machines supplied by global leaders like Hitachi, Ebner, Fimi, MAN B&W, Clecim etc and enjoys ISO 9002 & QS 9000 certification. No wonder its clientele consist of reputed and eminent corporates like Tata Motors, M&M, Maruti Udyog, Bajaj Auto, LG, Samsung, Godrej, Videocon, BHEL, L&T, Whirlpool, Ford, IFB, Daewoo, Electrolux, Carrier etc.

Companys manufacturing plant is spread across Shahidabad with a capacity of 5,00,00 TPA and at Khopoli with a capacity of 4,00,000 TPA. Infact its state-of-the-art Khopoli plant started full operation only in Jan 2004. This plant will operate as a single point source for almost all value added products and will help the company to strengthen its grip on the Western & Southern market. To continue its growth path and also in order to become self reliant and have control over its raw material, the company has proposed to set up an integrated steel project of 3200 cr capex with a capacity of 12,00,000 (1.20 mn) TPA of Hot rolled coil & 3,00,000 TPA of long products and power plant of 110 MW in the state of Orissa. The project will be set up in modular format where part facilities would be set up during implementation and start generating cash accruals. Company has already identified land in Dist. Dhenkanal in the state of Orissa and has also signed MOU with Government of Orissa for allocation of Iron ore and coal mines. Though it’s a long term plan but with this Bhushan Steel will become a fully integrated company from iron ore to finished steel products.

Fundamentally & financially also company is strong and doing well. For the half-year ended September 2004, it posted an increase in net profit of 100% to Rs 68 crore on a net sales growth of 82% to Rs 1187 crore. Exports posted a jump of 184% to Rs 341 crore enjoying 27% share of gross sales. For FY05 it is targeting an export of 800 cr to 40 countries of which export to China will be 25%. With the high growth witnessed in the automobile, white goods and construction sector, and companys thrust on export and improving efficiency we expect it to register an sales of 2450 cr and NP of 140 cr So with an expected EPS of 35 Rs and CEPS of 75 Rs its trading very cheap at current price. Notably it has huge reserve of 550 cr on current equity of 40.50 cr leading to a book value of 145 Rs. Though equity dilution is there on its cards to fund the Orissa project but we done expect it to happen in this fiscal. Hence investors are advised to buy at current price for 50% appreciation i.e. price target of 200 Rs in next 12 months.

Jindal Stainless Steel - Rs.83.00

Jindal Stainless Steel Ltd. (JSSL), is a Rs. 2600 cr. turnover company is the flagship company of the Jindal Organization. It is the largest integrated manufacturer of quality Stainless Steel in India that caters
to more than 40 per cent of the total demand for Stainless Steel in the country and ranks amongst the top 10 producers globally. Products ranging from Stainless Steel Hot Rolled / Cold Rolled Coils, Plates & Flats, to Slabs and Blooms are produced keeping both national as well as international standards in mind. The main reason for the success of JSSL is the fact that everything from melting, casting to hot rolling and cold rolling is done in-house. Recently, the company acquired Maspion Stainless Steel of Indonesia, which is a Cold Rolling Mill with a capacity of 50,000 TPA, for $ 30 mn and is planning to double its capacity by the end of this fiscal. The company also wants to acquire the Salem Steel Plant of SAIL and is waiting for the government’s clearance on it.

The company has an integrated stainless plant at Hisar in Haryana and a Ferro Chrome unit at Vizag. It also has an offshore facility in Ohio under the name of Massillon Stainless Inc. with a cold rolling capacity of 50,000 tonnes. The Hisar plant has capacity of 5,00,000 TPA with integrated operations from melting to continuous casting of billets and blooms to hot rolling and cold rolling. An exclusive complex for manufacturing stainless steel for razor and surgical blades has been created. A coin blanking line has also been installed while its Vizag Ferro Alloys plant has an installed capacity of 40,000 TPA of high carbon Ferro Chrome. The company is upgrading its Hisar plant and has a mega expansion plan with a capex of Rs.450 cr. in a phased manner till 2007. By 2005, the company is increasing its steel melting capacity from 5,00,000 to 6,00,000 TPA, Steckel Mill form 4,00,000 to 5,00,000 TPA and by 2007 its Cold Roll capacity will be increased from 90,00 to 2,50,000 TPA. its ambitious greenfield project at Duburi in the State of Orissa is under implementation. Phase-I of the project is expected to be completed by the end of FY06. It will be backward integrated plant with capacity of 1,50,000 TPA of Ferro Chrome, 30,000 TPA of Ferro Manganese, 60,000 TPA of Silico Manganese and a Coke Oven battery unit with a capacity of 3,00,000 TPA. It is also setting up a 40 MW power plant for its own consumption. In Phase 2, the company is planning to set up a stainless steel melting unit with capacity of 8,00,000 TPA and 120 MW power plant with an capex of Rs.1000 cr.

For the half year ending Sept 2004, its net sales jumped 30 percent to Rs.1376 cr. whereas NP reported a modest gain of 7 per cent to Rs.91 cr. due to higher interest, depreciation and deferred tax provisioning. The company has a strong balance sheet with Rs.537 cr. of reserves on its small equity of Rs.20 cr. Its RONW is 40 per cent and ROCE is 27 per cent with OPM of 17 per cent. Looking at the company’s expansion plans, thrust on exports and higher stainless steel prices, it is estimated that the company will report Net Sales of Rs.2850 cr. and NP of around Rs.190 cr. leading to an EPS of Rs.19 on its current equity of Rs.20 cr. But equity dilution is expected going forward which may reduce the EPS to around Rs.15-16 on the diluted equity of Rs.25 cr. It is a relatively safe bet at the current price with an upside potential of 50 per cent in the next 15 months.