Omax Auto - Rs 100.00

Omax Auto is a leading manufacturer of sheet metal and tubular metal components catering to the automotive sector. The company's product portfolio includes body frames, sprockets, electroplated tubular components, gear shafts, rocker arm shafts and piston rods. It is also one of the largest producer of sprockets in the country with a capacity to produce over 8 lakh units per month.. It has integrated facilities including a press shop, welding shop, paint shop and tool room for design and development of automotive components. Its domestic clients include all major two wheeler and passenger car manufacturers like Hero Honda, Maruti, TVS etc. and international clients like Tennneco, Delphi Automotives, Atlantis Global Service, Cummins Inc. to mention a few.

Visualising the huge outsourcing opportunity in coming years, the company will now concentrate on exports, which give better margins as well. To tap this growth story, Omax is incurring a capex of Rs.80 cr. over the next 12~18 months. This will be partly invested in the existing units entailing a capital outlay of Rs.20 cr. while the balance Rs.60 cr. is being spent on its Bangalore unit and the new unit at Gurgaon. Incidentally, both the Bangalore and Gurgaon units have commenced commercial production from Oct.2004. It is also setting up a export-oriented captive unit in Gurgaon to supply machine components for Tenneco an US automotive major. Moreover, it is in talks with 2/3 companies for acquisitions outside India and most likely in Europe. To fund its expansion, the company is raising money through a rights issue, preferential allotment and issue of convertible warrants which will dilute its equity going forward by Rs23.50 cr. from its current equity of Rs20.31 cr. It has bagged huge export orders specially from Delphi Automotives & Tenneco and is sitting on good orders in hand to be executed in next 2~3 yrs.

Considering the huge outsourcing opportunity ahead along with the healthy domestic market, the growth prospects for Omax Auto in the long-term picture appear excellent and it may report an sales of Rs600 cr. and NP of Rs22 cr. for FY05. This works out to an EPS of Rs11 on its current equity of Rs20.31 cr. But for FY06, it can post an EPS of more than Rs16. Hence investors are advised to accumulate it at sharp declines with a long term perspective of more than 2 years to get handsome returns

Eastern Silks - Rs175.00

Incorporated in 1946, Eastern Silks is the flagship company of Kolkatta based Eastern Group and is a leading manufacturer and exporter of silk goods. It exports high end value added products like Silk Fabrics & Made-ups, Silk yarn, scarves, Belts & other accessories. It also exports premium fashion fabrics and knitted garments. The company is recognized as a ‘Golden Star’ Trading House by the Government of India. It exports 40 per cent of its total production to the US and about 54 per cent to Europe and the CIS countries. It has won various prestigious awards from The Silk Promotion Council, the Central Silk Board etc.

The company has two weaving and processing plants in Karnataka and a twisting plant at the Falta export processing zone in West Bengal with a total production capacity of about 300 tonnes of silk fabric. It also has a modern processing unit in Noida near Delhi and another unit for leather products in Calcutta. Recently, the company has set up Rs60 cr. state-of-the-art silk fabric weaving unit at Anekal near Bangalore. It plans to add hi-tech Printing & Embroidery unit as well. Going forward, it intends to invest Rs100 cr. for further expansion and upgradation of existing facilities. Moreover, it has formed a joint venture with Chinese companies in Honkong to put up a silk yarn spinning unit in the Quanshi province in Central China. The entire 100 tonnes production of this venture will be consumed by Eastern Silks for its weaving operations in India thereby ensuring itself of good quality, economical & regular supply of raw material. As a move towards consolidation, the company has approved the Scheme of Amalgamation of Eastern Jingying Ltd. and Sstella Silk Ltd. with itself.

Currently, the company is concentrating to increase its exports and has bagged good export orders through exhibitions and creating new clients in Europe. For the six months ending 30th Sept. 2004 its sales increased by 21 per cent to Rs156 cr. and NP jumped 41 per cent to Rs12.85 cr. It has huge reserves on its small equity of Rs7.15 cr. and the book value of the share stands around Rs150. Given its expansion, it can register a turnover of Rs330 cr. and NP of Rs25 cr. posting an EPS of Rs35 for FY05. At CMP, the scrip is discounts this earning only 5 times and is available reasonably cheap. Investors are advised to accumulate it at every dip with a price target of Rs280 i.e. 65 per cent appreciation over the next 12~15 months.

STOCK WATCH

Sirpur Paper Mills (Code No:502455) (Rs.99.55) has decided on a massive expansion-cum-mill development at its existing 800 acres site at Sirpur-Kagaznagar in Adilabad district of Andhra Pradesh at an estimated cost of Rs294 cr. Paper prices are ruling high due to strong demand and Sirpur is expected to post an EPS of Rs25 for FY05. It is a safe bet.

The Tea sector is buzzing even in a falling market on expectations of an increase in tea price in the dometic market. A lesser know tea company, B & A Plantation (Code No: 508136) (Rs.43.00), is doing well. For the six months ending 30 Sept. 2004 it has already posted a NP of Rs3.05 cr. on its small equity of Rs3.10 cr. registering a half yearly EPS of Rs10. For the full year FY05, it can report an EPS of Rs12. A strong buy with a medium to long term perspective.

Kilburn Chemicals (Code No: 524699) (Rs.34.25) manufacturer of Titanium Oxide came out with good December numbers. Sales were up 47 per cent at Rs16.30 cr. and NP increased by 18 per cent to Rs1.51 cr. For FY05, the company is expected to post an EPS of Rs7. Currently, the stock trades at 5x PE and investors are advised to buy at sharp declines for handsome gain in the long run.

Orissa Sponge (Code No: 504864) (Rs.43.05) is an emerging player in the sponge iron industry. It has ambitious growth plans and will grow at much faster face in coming years. It’s a multibagger for long term investors. For the six months ending 30 Sept.’04, it posted a NP of Rs5.60 cr. on an equity of Rs.11.8 cr. Its OPM improved substantially form last year and is quite decent around 25~28 per cent. For FY05, it can report and EPS of Rs11 and is a screaming buy.

Most marketmen have written off shipping shares due to a decline in freight rates. But we still recommend it considering its promising future prospects. And SCI (Code No:523598)(Rs.149.00) with amazing fundamentals is the best bet in this sector. This scrip may surprise the market by its FY05 numbers and may report an EPS of more than Rs40. This scrip has the potential to double from the current levels in the next 12 months. Investors should hold on to it patiently.

To cater to the increasing demand of sponge iron, Monnet Ispat Ltd (Code No: 513446) (Rs.156.10) is implementing Rs230 cr. capacity expansion of 4,40,000 TPA, which will take its total capacity to 7,40,000 TPA. It is working on the acquisition of some iron ore mines in Chhattisgarh & Jharkhand, which is at a fairly advanced stage. In coming years, it will become a fully integrated player from raw material to finished product. For FY05, it can report an EPS of more than Rs35 and its share price can appreciate by 50 per cent over the next 12 months.

Deepak Fertilizers (Code No: 500645) (Rs.50.70) one of the largest producers of methanol is still discounted poorly compared to its fundamentals and future prospects. It’s a well managed & investor friendly company with good future growth plans. For FY05, it will report an EPS of around Rs8 and its share price has the potential to cross Rs100 in the future. Patient investors should buy it for long term to get handsome returns.

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.