Navabharat Ferro Alloys - Rs.334.00

Navabharat Ferro Alloys Ltd (NFAL) commenced business in 1975 with the manufacture of ferro silicon in a single furnace at Paloncha in Khammam district of Andhra Pradesh. Today, it is one of the largest fully integrated manufacturers of ferro alloys with captive power plants. Its clientele includes reputed biggies like TISCO, SAIL, Essar Steel, Jindal Vijaynagar etc. in the domestic market and POSCO, NUCOR, NIPPON, SUMITOMO etc. in the international markets. It has diversified into other product lines like the manufacture of sugar and its by-products and the generation of power. Ferro Alloys contribute to 60 per cent of its turnover whereas 20 per cent is from sugar and the balance 20 per cent comes from its power division. Due to the huge demand for steel worldwide, its products are in great demand with better price realisation for chromium & manganese based alloys. Sugar prices are already spiralling in fear of a demand - supply gap boosting its bottomline.

NFAL’s manufacturing is spread across 2 states of South India. Its Paloncha plant at Andhra Pradesh has the capacity to manufacture 75,000 MTA of ferro alloys with a captive power plant of 50 MW whereas its second plant is in Dhenkanal in Orissa with 75,000 MTA capacity with a 30 MW thermal power plant. The company has a 3000 TCD sugar plant with a 6 million litres per annum distillery and co-generation power plant of 5 MW at Samalkot in Andhra Pradesh. To cash in on the current boom, the company has an aggressive expansion plan to set up new smelter of 50,000 TPA capacity in AP and is de-bottlenecking its Orissa plant adding another 25,000 TPA thereby taking its total smelting capacity to 2,25,000 TPA. It is also expanding its sugar crushing capacity to 4000 TCD and increase the co-generation power capacity from 5MW to 9 MW. It will also increase the capacity of its power plant in Orissa from 50 MW to 82 MW to cater to its own expansion.

Fundamentally and financially, the company is quite strong with an investor friendly management. For the six months ending 30 Sept. 2004, its sales increased 46 per cent to Rs293 cr. but its NP jumped 250 per cent to Rs 76 cr. Due to better price realization, its OPM doubled from 18 to 37 per cent during this period. For FY05, NBFAL is expected to declare a dividend of Rs12 –15, which gives a good yield at CMP. Though there was a recent fire in its Orissa plant, it can clock a turnover of Rs600 cr. with NP of Rs135 cr. resulting in an EPS of Rs102 on its small equity of Rs13.37 cr. considering its expansion plans and bright future prospects. Although private placement or preferential allotment of equity to raise funds for expansion may dilute its equity, the long term prospects of NBFAL are excellent and its share price can double in 18~24 months.

IndsilElectrosmelts - Rs.49.25

Founded by Mr SN Varadarajan in 1990, Indsil Electrosmelts Ltd. (IEL) is a small southern company manufacturing ferro alloys. Ferro alloys are amalgamations of iron with other minerals like silicon, manganese and chrome and are used to impart specific end-use properties to steel. Earlier, the company used to produce High Carbon Silico Manganese (High C Si-Mn), a generic grade ferro alloy but later shifted to a special ferro alloy called Low Carbon Silico Manganese (Low C Si-Mn). This ferro alloy delivers value to the downstream industry in terms of much lower requirement of power in the production of SS200 grade of stainless steel. It is one of the three companies in the world that produces this ferro alloy.

Its plant at Palakkad in Kerala and has the capacity to produce 15,000 TPA of ferro alloys. As power constitutes the main cost in the manufacture of ferro alloys, the company has set up a 21MW hydroelectric power plant at Rajakkad in the Idukky district of Kerala. The hydel power makes immense commercial sense considering that Kerala is the recipient of the Rain God's bounty with both the South West (or summer) and North East (or winter) monsoon being active and above average in relation to the rest of the country. Moreover, the location of this power plant is such that it is be fed by a 49 million cubic ft. dam of the Kerala State Electricity Board (KSEB) even during the dry season. For future growth, the company has set up Indsil Energy and Electrochemicals Ltd to acquire a closed ferro alloy unit at Raipur in Chhatisgarh and execute an expansion to increase its smelter capacity. It is also setting up a coal-based power plant which will supply the excess power to Pallakad unit at substantially lower rates.

Thus thee future of IEL indeed looks promising. For the first quarter ending 30 Sept. 2004, its total revenue increased by 50 per cent to Rs19.20 cr. as it earned a NP of Rs3.30 cr. against a Net loss of Rs1.45 cr. last year. Taking into account the savings in power cost from its hydel power plant, it can report Net Sales of Rs75 cr. and NP of Rs11.50 cr. for FY05. This would result in an EPS of Rs12 on its equity of Rs9.45 cr. Investors are advised to accumulate this share at sharp declines for a price target of Rs70 in the next 12 months.

STOCK WATCH

*Amara Raja Batteries (Code No: 500008) (Rs.106.25) is the exclusive OE supplier to Ford, Daimler Chrysler and Swaraj Mazda besides supplying to Ashok Leyland, Fiat, General Motors, Hindustan Motors, Honda, Mahindra & Mahindra and Telco. A few months back it bagged an order of 1, 00,000 batteries from Maruti which is 10 per cent of its total capacity of 10 lakh batteries. For the six months ending 30 Sept. 2004, its Net sales increased 22 per cent to 94 cr. whereas its NP jumped 300 per cent to Rs6.80 cr. For FY05, it is expected to report an EPS of Rs12 and its share price has the potential to rise 50 per cent in the next 6 months.Of late, tea prices are shooting up and so are the share prices of tea companies.

* Williamson Tea Assam (Code no: 508238) (Rs. 152.55) among them appears promising. It has 17 tea gardens in Assam spanning over 9159 hectares with a production capacity of around 20.24 million kgs. It is reportedly doing well and is expected to end FY05 with an EPS of Rs18. Aggressive investors could accumulate this scrip at sharp declines for a price target of Rs200 shortly.

*Indo Asian Fusegear(Code no: 517318) (Rs.: 83.65) manufactures a wide range of high quality electrical control & 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. The company is reportedly attracting good orders and is expected to post and EPS of Rs14 for FY05. A strong buy at every dip. Once it comes out of the T2T segment, the share price can cross Rs120.

*Ester Industries (Code no: 500136) (Rs. 23.75) has not participated in the bull run since long. It is one of the lowest cost producers of PET chips. For future growth, it is setting up a highly automated 24 KT polyester film unit in Oman in the Gulf. For FY05, is expected to post an EPS of Rs4.5 and its share price can rally smartly in the next 6 months.

*GAIL (India) (Code no: 532155) (Rs.234.70) is India’s largest natural gas distribution company operating a gas pipeline network of over 4600 kms. across India. It is the only player with a national pipeline network, the backbone of which is the Hazira-Bijapur-Jagdishpur (HBJ) pipeline connecting western and northern India. Further, the company has almost completed the construction of the DVP (Dahej-Vijaipur) pipeline. For FY05, it is expected to register sales of around Rs13,000 cr. and a NP of Rs1800 cr., which would result in an EPS of Rs21. A safe long term bet.

*Shah Alloys(Code no: 513436) (Rs.126.50), the second largest stainless steel producer in the country, is setting up a backward integration project at Gandhidham for producing sponge iron, ferro alloys and power. For the six months ending 30 Sept. 2004, its sales was up 13 per cent at Rs477 cr. but NP increased 22 per cent to Rs15.30 cr. posting a half-yearly EPS of Rs17. For FY05, it could report an EPS of Rs38. A strong buy.

*Paper prices are still ruling firm and are expected to rise further due to strong international demand. The Star Paper (Code no:516022) (Rs.:52.15) scrip has consolidated since the last few weeks and the downward fall is limited. For FY05, it is expected to report impressive numbers and can post an EPS of Rs12. A very good bet for the long term.

*Varun Shipping (Code no: 500465) (Rs.:32.15) has posted fantastic numbers for first half of FY05 and is expected to repeat its performance in the current second half as well. Recently, it acquired its seventh LPG carrier and could post an EPS of Rs6 on its expanded equity post rights issue for FY05. Accumulate it at dips for long term gains.

Performance - 2004 Recommendation

Performance update as on November 2007

Sr.	Date	Scrip Name	Recco	High		Return
			Price	Price		in %
	Appreciated more than 5x times
1	6-Dec-04	Alphageo	60	805		1242%
2	27-Dec-04	Orissa Sponge	56	748		1236%
3	27-Sep-04	Madhucon Proj *	41	438		968%
4	29-Nov-04	Bhushan Steel	132	1161		780%
5	25-Oct-04	Deccan Cement	50	387		674%
6	18-Oct-04	Guj Nre Coke *	22	137		523%
7	4-Oct-04	Dhampur Sugar	46	272		491%
	Appreciated 2x to 5x times
8	22-Nov-04	Petron Engineering	89	442		397%
9	25-Oct-04	Shah Alloys * $	44	210		377%
10	20-Sep-04	Man Ind	83	332		300%
11	20-Dec-04	Indo Asian	93	320		244%
12	27-Sep-04	Monnet Ispat	134	460		243%
13	13-Dec-04	Valecha Engineering	121	410		239%
14	4-Oct-04	India Glycols	135	446		230%
15	11-Oct-04	Shivalik Bimetal * $	13	42		223%
16	18-Oct-04	Uttam Glava	27	75		178%
17	29-Nov-04	Jindal Stainless	83	224		170%
18	27-Dec-04	Aarvee Denim	67	166		148%
19	1-Nov-04	Subros	119	285		139%
20	22-Nov-04	Bharat Seats	75	177		136%
21	22-Nov-04	Bharat Gear	52	119		129%
22	8-Nov-04	Finolex Ind (Uflex)	64	129		102%
23	11-Oct-04	Kabra Extrusion	65	131		102%
	Appreciated 50% to 100%
24	13-Dec-04	Bihar Caustic	51	87		71%
	Appreciated 25% to 50%
25	6-Dec-04	Tata Metalics	150	221		47%
26	20-Dec-04	Surana Telecom *	36	49		36%
	Appreciated below 25%
27	1-Nov-04	Sathavana Ispat	52	57		10%

* ---> Recco price adjusted for Split

$ ---> Recco price adjusted for Bonus

# ---> Recco price adjusted for Rights

@ ---> Demerger / Merger Adjustment

Disclaimer: These are not the actual profit figures booked by any investor but an compilation to indicate the potential/quality of recommendations.

Ador Welding - Rs.84.00

Ador Welding, formerly Advani Oerlikon, is a leader in the welding consumables and equipment industry catering to industries like steel, power, oil & gas, auto and infrastructure and is one of the largest exporters of welding equipments. It caters to two segments - welding and project engineering & equipment. It has presence in both electrodes and coated wires apart from welding equipment. Welding (consumables and equipment) accounts for 95 per cent of its sales. It offers automatic and manual welding equipment and products but only 20 per cent of the welding in India is automatic leaving ample scope for growth in this value-added segment.

The Government’s thrust to augment infrastructure has also translated into good order booking for the company’s customers, which in turn means more opportunities for its Welding Products. Another major area of growth comes from the Middle East. Major expansions, new plants and upgradations of existing plants in the Middle East are being announced regularly. Customisation of expertise at Ador to provide products over and above their normal requirements has enabled it to get large volume orders from select overseas customers. Hence, Ador is focusing on the export market with its value-added products to shore up revenues.

Ador has constantly strived to increase competitiveness by lowering operating costs, expanding the Sales Distribution reach of its products, benchmarking and improving on the best-of-class products and reducing wastages. The company has been continuously upgrading its IT infrastructure for reducing transaction costs and improving interactions with customers through instant accessibility. Few months back, Ador established a new manufacturing plant for Welding Consumables (Welding Electrodes) at Silvassa, a designated backward area in the Union Territory of Dadra and Nagar Haveli, with a capacity of 2500 MT per annum on a single shift basis.

On the financial front the company has a strong debt-free balance sheet. It has an impressive dividend payout ratio of more than 40 per cent of profit and in FY05 we expect it to declare 30 per cent dividend. For the fiscal ending 31st March 2005, the company could register sales and net profit of Rs. 185 cr and Rs 13.50 cr respectively. On an equity of Rs 13.60 crore and face value of Rs 10 per share, EPS works out to Rs 10. A strong buy with a price target of Rs.120 in the next 8~12 months.