Hanil Era Textiles - Rs30.00

Incorporated in October 1991, Hanil Era Textiles Ltd (HETL) is jointly promoted by New Era Fabrics Ltd and South Korea's Hanil Synthetics Ltd. It manufactures and exports acrylic, cotton, viscose and blended yarns in varying textures, blends and counts and is one of the largest exporters of acrylic yarn from India. It exports its products to 21 countries including China and was awarded the highest export award by The Synthetic Rayon & Textile Export Promotion Council last year. To cash in on the post quota boom, the company has ventured a forward integration into weaving, processing & home textiles.

Its manufacturing plant at Patalganga in Raigad district of Maharashtra is a100% EOU with an installed capacity of 79,980 spindles and 504 rotors and a Dyeing plant. Under a modernisation-cum-expansion plan of Rs50 cr., the company plans to install 72 looms by mid 2006 and increase it to 120 looms later. It wants to expand its product line to include grey fabrics, processing and home furnishings. Going forward, it intends to produce terry towels as well. The modernisation will cost Rs15 cr. while expansion will account for Rs35 cr. This investment will be funded by term loans and Rs15 cr. and the balance will be from internal accruals. The company has also diversified into the manufacture of ethanol at a cost of Rs10 cr. seeing the strong demand & lucrative margin in the business. It also set up a 16MW power plant at its plant and generates revenue by selling the surplus power.HETL is regularly receiving good orders and has a healthy order book position.

Being an EOU, it’s a zero tax paying company and will remain so for the next five years. Its board has approved buy back upto 10 per cent of its equity, which may trigger a share price rise when executed. For Q3FY05, its sales increased by 22 per cent at Rs37.20 cr. but the NP was quite flat at Rs7.10 cr. Considering the growth opportunities, it could post a topline of Rs125 cr. with NP of Rs24 cr. This will yield an EPS of Rs6 on its equity of Rs41 cr. Investors are advised to buy at dips with a price target of Rs50 in the next 15 months. However, the company may be discounted poorly due to promoter concerns by the market.

Indian Petrochemicals Ltd- Rs.176.50

Established in 1969, Indian Petrochemicals Ltd. (IPCL) is the second largest player in the petrochemicals industry manufacturing polymers, synthetic fibre, fibre intermediates, solvents, surfactants, industrial chemicals, catalysts and adsorbents. It is the largest integrated PVC player, the largest Polyethylene (PE) producer and the second largest MEG producer in India with the largest ethylene capacity. Till June 2002, it was a government undertaking when Reliance took 46 per cent stake and took over its management. Since then, the company has vastly improved and become financially stronger.

The company has three petrochemical complexes, a naphtha based complex at Vadodara and gas based complexes at Nagothane near Mumbai and at Dahej on the Narmada estuary in the Bay of Khambhat. The company also owns a catalyst manufacturing facility at Rabale, Navi Mumbai. With better management and the strong uptrend in the petrochemical cycle, all its plants are operating above 100 per cent capacity utilization. Of late, it is in talks with potential domestic/RLNG suppliers to replace expensive imported propane with cheaper domestic gas. It is also planning some minor de-bottlenecking of its PVC and MEG capacities. It also has a capex plan of Rs1000 cr. to build a new mono ethylene glycol (MEG) plant at its Gandhat complex in Dahej in the coming 24~30 months.

Due to the current feud among the Ambani brothers, the IPCL stock is poorly discounted by the market and is the best time to accumulate the scrip for the long term. The company is doing very well and with the petrochemical cycle expected to remain firm over the next 18 months, IPCL is one of the best bets. For the nine months ending 31 Dec.’ 04, its sales grew marginally by 2 per cent to Rs5556 cr. but the NP jumped 160 per cent to Rs450 cr. due to better efficiency and lower interest cost. IPCL could post a topline of Rs7600 cr. and NP of Rs600 cr. leading to an EPS of Rs24 on its equity capital of Rs249 cr. It’s a strong buy at current levels with a price target of Rs280 in a year’s time. The downside risk is very limited from hereon considering that the Government divested its stake at Rs170 through an IPO in 2004 while the Ambanis acquired the majority stake at double the price.

STOCK WATCH

Power sector is expected to be a major beneficiary of the forthcoming budget and GIPCL can be accumulated pre-budget for handsome gains. The company is in the process of doubling the capacity of its Surat Lignite Power plant (SLPP) to 500 MW from 250 MW at a capex of Rs1000 cr. The Government of Gujarat will divest its stake sooner or later, which makes it a strong takeover target and a strong upside re-rating going forward. With an expected EPS of Rs11/12, this scrip is trades cheap and is a case of a strong buy.

Paper prices are expected to rise in coming months creating a buzz in paper stocks. Star Paper, a Duncan Goenka group company, is trading relatively cheap compared to its peers. It is expected to post an EPS of Rs13 for FY05 and its share price has the potential to double in a year’s time. Grab it before it’s too late.

Sathavana Ispat has ambitious long term growth plans and is increasing the capacity of its pig iron plant to 2,10,000 TPA from 1,20,000 TPA. Last year, it had set up non recovery type Coke Oven facility with a capacity of 150,000 TPA which will reduce its input costs to a greater extent. With an expected EPS of Rs12, its share price can cross Rs80 in the medium term and Rs120 in the longer term.

India Glycols, belonging to the Bhartia family of Jubilant Organosys, is the only producer of mono etylene glycol (MEG) using the organic route of molasses and had recently expanded its capacity from 225 MT/day to 350 MT/day. Its product is in high demand and the company is expected to perform well over the next 2 years. For FY05, it is expected to post an EPS of Rs28. It is a screaming buy at every dip as the scrip is expected to touch Rs250 in the medium term. Hold it patiently.

Being in T2T segment, Lincoln Pharma has been avoided by investors and the scrip is lying low. But this is the best time to accumulate it with a longer term perspective. The company is reportedly doing well and has given greater thrust to Research & Development in formulations. It is also getting its ‘Namsafe’ product patented. Its share price can easily rise 50 per cent from the current level once it exits from T2T. Long term investors are advised to buy and hold for at least 1 year.

Every analyst is bullish on the future prospects of infrastructure companies as the budget may be quite favourable to them. One such company missed out by FIIs and mutual funds is Petron Engineering. It has very healthy order book position and is expected to receive some more big orders. With an expected EPS of Rs12, the scrip is trading cheap and can rise sharply in future. Buy with a medium term target of Rs150.

Share prices of caustic soda manufacturing companies are expected to rise sooner or later as the product prices have risen smartly over the last few days. Bihar Caustic, an Aditya Birla group company, which has an installed capacity of 51,000 TPA of caustic soda is planning to increase its capacity by 50 per cent and is also converting its existing mercury technology to energy efficient and environment friendly membrane technology. The share is trading at less than 5 PE leaving ample scope to rise by 50 per cent in the medium term.

Bongaigaon Refineries Rs.89.30

Bongaigaon Refinery & Petrochemicals Limited (BRPL) was incorporated in 1974 as Government of India Undertaking. In 2001, it became a subsidiary of Indian Oil after the disinvestment by the Govt. of India. With an investment of about Rs.890 cr. in Refineries & Petrochemicals plants, BRPL has the unique distinction of being the first indigenous grass root Refinery in the country integrated with a Petrochemical complex at one location. Being in the north eastern region, BRPL enjoys special excise duty concession of 50 per cent from the government Petroleum products from the Refinery includes conventional fuels like LPG, petrol, MS, Naphtha, ATF, SKO, HSD, LDO, LVFO, LSHS, etc. Apart form petro products it also produces petrochemical like ylene, Dimethyl Terephthalate (DMT), Orthoxylene, Paraxylene, Ceenine and Polyester Staple Fibre (PSF).

BRPL has two crude distillation units (CDU) in Bongaigaon in Assam with a total crude processing capacity of 2,35,000 MTPA. The major products of this unit are Reduced Crude Oil, LPG, Straight run Naptha, Reformer feed naptha, Raw kerosene & Diesel oil. Reduced Crude oil is then converted into Fuel Gas, LPG, Naptha, gas oils, Fuel oil and Raw petroleum coke under its two delayed coke unit (DCU) each having capacity of 5,00,000 MTPA. Its Coke calcination unit is designed to convert 75,000 MTPA of Raw petroleum coke available from DCU into 52,500 MTPA Calcined petroleum coke. It also has a Kerosene treating unit with a capacity of 2,37,500 MTPA which can process raw kerosene from CDU to produce Superior kerosene oil and Aviation turbine fuel. Moreover its Xylenes plant can produce 29,000 MTPA of Para-ylene,6,000 MTPA of Ortho-ylene and 10,000 MTPA of Ceenine. BRPL also has a Dimethyl Terephthalate plant which can produce 45,000 MTPA of DMT. Recently, the company has suspended its production of DMT and PSF units due to lower market demand and unremunerative sales realisation.

Currently, BRPL is processing crude available from the oil fields of ONGC and OIL located in the North-East India Ravva crude oil from the Krishna-Godavari basin off the coast of Andhra Pradesh. Its working almost at 100 per cent capacity utilisation and gross refining margin is at record high of USD 9.30. For future growth, the company is implementing modernisation and other efficiency improvement schemes under a capex plan of Rs800~1000 cr. to become a vibrant petroleum company of national prominence. Though some analysts expect it to be merged with IOC, chances of it areess as BRPL will then lose the 50 per cent excise benefit concession.

Fundamentally, it is a strong and investor-friendly company having paid a healthy dividend of 77 per cent for FY04. For the quarter ending Dec 2004 it posted impressive numbers. Sales grew by 60 per cent to Rs1174 cr. and NP increased by 40 per cent to Rs134 cr. Its March’05 quarter numbers will be much better compared to March 2004 since the company has already made higher provision for under recovery of CST. With the continuation of strong refining margins, a healthy balance-sheet and the guiding hand of the parent Indian Oil, we expect it to end FY05 with Sales of Rs4300 cr. and NP of Rs550 cr. This works out to an EPS of Rs28 on its current equity of Rs199.82 cr. Hence the scrip is trading very cheap at 3 PE in spite of a good dividend yield. Investors are advised to buy at the current market price and hold it patiently for 12 months to see a price target of Rs150.

Videocon International Ltd. Rs.67.15

Incorporated in 1985, Videocon International Ltd (VIL), the flagship company of the Videocon Group, is India's largest manufacturer of Consumer Electronics & home appliances. It manufactures, markets & exports a wide variety of televisions, audio systems, VCD/DVD players, air conditioners and other electronic components. VIL can boast of having a product for every segment of society from economy to value added hi-tech products. Fired by a passion for innovation, VIL has kept pace with the changing face of technology constantly upgrading its manufacturing facilities to incorporate advanced technology and high standards of quality into its product range, right across the spectrum.

Videocon’s USP lies in introducing innovative products and having state-of-the-art ultra modern manufacturing plants spread across all over India and also in Russia, Bahrain & Italy. At its modern plant at Chitegaon and Aurangabad, the company has undertaken complete backward integration to manufacture all critical and important components of its products, such as Electronic Tuners, FBTs, ATDMs and Deflection Yokes thereby reducing costs, ensuring quality control and becoming vertically integrated. Its subsidiary Videocon Narmada Glass has the distinction of having set up India's first plant with 1.7 million units capacity for the manufacture of Glass Shells for Color Television Picture Tubes, in technical collaboration with Techneglas Inc., USA world leader in Glass Shell Technology. It also enjoys the credit of bringing international brands like Toshiba, Sansui, Akai & recently Hyundai to India. The company has also set up 25 branches across the globe to give a fillip to its international operations. Recently, it acquired Thomson's colour picture tube plant located in Anagni, Italy which has capacity to produce 3 million units per annum. With all this consolidation, the Videocon group is looking at reaching international sales of $1 billion in three years.

VIL derives almost half of its profit from its glass shell business due to which it enjoys the highest operating margin of 16 per cent compared to its peers. Fundamentally, its a very strong company with a book value above Rs180 due to huge reserves and posted an EPS of Rs25 for the year ending Sept 2004. Its first quarter ending 31 December 2004 is also quite impressive with net sales growing 18 per cent to Rs1165 cr. and the NP increased 26 per cent to Rs55 cr. leading to a quarterly EPS of Rs7.75 on current equity of Rs71.10 cr. FIIs and MFs are also active in this scrip with 4 per cent and 2.65 per cent stakes respectively. With the rural demand picking up coupled with the increased spending by urbanites and the huge potential in the export market, we expect VIL to clock a turnover of Rs4250 cr. and NP of Rs200 cr. for FY05 which would mean an EPS of Rs28. Thus the scrip is trading extremely cheap (below 3 PE of FY05 EPS) and investors are advised to buy with a price target of Rs110 in 12 months time. At the same time, investors should remain cautious as the promoters don’t enjoy a good reputation in the capital market and some analysts even doubt the group’s financial numbers as the dividend payout ratio is very poor.