Andhra Sugars Ltd. - Rs.125.50

Andhra Sugars (ASL) promoted by Dr. Mullapudi Harischandra Prasad is one of the oldest companies of Andhra Pradesh (AP) having been set up in 1947. It is engaged in the production of Sugar, Organic and Inorganic Chemicals, Edible and Non-Edible Vegetable Oils and Non- Conventional Power Generation. Caustic Soda and Sugar are its major businesses contributing more than 80% of its total turnover. It has also been selected by Indian Space Research Organsiation (ISRO) to supply Monomethylhydrazine (MMH), Unsymmetrical dimethylhydrazine (UDMH), Liquid Hydrogen and Hydroxyl Terminated Polybutadiene (HTPB) as rocket fuels. Interestingly, it is amongst the few companies which has never faced a labour strike or unrest over 5 decades of its existence.

ASL is a fully integrated manufacturer of Sugar & Chlor Alkali products with two sugar units at Tanuku with 5,000 TCD and another at Taduvai with 2,500 TCD in West Godavari. It recently acquired West Godavari Sugar Mills (WGSM) at Bhimadole with 1,600 TCD. To cash in on the prospective demand supply gap, the company is increasing its capacity at Tadauvai to 5000 TCD and at Bhimadole to 2500 TCD taking its total crushing capacity to 12,500 TCD, which will go up further to 15,000 TCD in 2006. It operates a 30klpd distillery at Tanuku and has a combined process technology for production of Acetic Acid, Acetic Anhydride and Ethyl Acetate. It has also installed a 250 MW power plant at its Taduvai plant. Excess power is transmitted to APTRANSCO in exchange for power to be supplied to the company’s caustic soda plants. Bagasse, a by-product of sugar, is being used for co-generation of electricity .

ASL has its Chlor-Alkali operations in Kovvur (140 TPD) and Saggonda (200 TPD) both in West Godavari which uses the latest membrane cell technology to manufacture Chlor-Alkali products like Caustic Soda, Chlorine, Caustic Potash, Sulphuric Acid, Hydrochloric Acid, Chlorosulphonic Acid and Potassium Carbonate. Being one of the lowest cost producers and having the most efficient Caustic Soda plants, the company’s products are witnessing a huge demand from the user industries because of which ASL is expanding its capacity at Saggonda to 350 TPD at a cost of Rs 100 cr. and to 400 TPD in 2006. Additionally, the Sulphuric Acid capacity is being raised to 300 TPD to meet the increased demand of Godavari Fertilisers. Hydrogen and Chlorine bye-products at its caustic soda plants are used to produce Hydrochloric Acid and Chlorosulphonic Acid. ASL has its own salt pans in close proximity to its caustic soda plant thereby reducing transportation time and costs.

Being the promoter of Andhra Petrochemicals, ASL owns 25 per cent of its equity, which it plans to divest in future at an attractive price. It is an investor friendly company, which pays handsome dividends regularly. For the quarter ending 31st Dec.2004, it posted impressive numbers as Net Sales increased 19% to Rs115 cr. and NP jumped 56% to Rs11.50 cr. registering a quarterly EPS of Rs4.20 on a paid-up capital of Rs27.11 cr. With the sugar & caustic soda demand expected to remain robust, ASL can post Net Sales of Rs470 cr. and NP of Rs40 cr. leading to an EPS of Rs15~18 in FY05 on a consolidated basis. For FY06, it may post an EPS of Rs22 due to expansion and other market factors. Investors are advised to accumulate this scrip at every decline and keep it for 15 months with a price target of Rs220.

Lakshmi Precision Screws - Rs.60.00

Founded in 1972, Lakshmi Precision Screws (LPS) Ltd. is the second largest manufacturer and exporter of fasteners. It is the undisputed leader in certain specialized products like Durock Bolts, Wheel/hub bolts, Flange bolts, Connecting rod bolts, gear shafts, axles, studs etc. It produces a wide range of cold forged high tensile fasteners of over 6,000 varieties. These products are engineered as per respective international standards under ISO, ANSI / ASME, BS, JIS, DIN, etc. It is a single window for all fastening solutions for a wide range of industries like automobiles, tractors, earthmoving equipments, general industrial machinery, aviation, etc. LPS has a reputed large clientele like Tata Motors, Maruti, Bajaj Auto, Hero Honda, M&M, Godrej & Boyce, Voltas, BHEL, Greaves Cotton etc. and global giants like Volvo, Bosch, John Deere, Cummins, Textron, Visteon, F. Reyher to name a few. LPS has become the first Company of its kind in India to get TS16949:2002 certification.

LPS has two manufacturing units spread across 1,00,000 sq. metres in Rohtak, Haryana. Currently, its installed capacity stands at 14,500 MT but is working at a 75 per cent capacity utilization, which is being enhanced since the automobile industry, which contributes about 60 per cent of the total fastener demand, has been in an aggressive growth mode. In fact, LPS is expanding installed capacity by 7,500 MT taking it to 22,000 MT over the next three years with a total capex of Rs30 cr. It also intends to grow inorganically and is eyeing acquisitions in India and abroad for supplying to major OEMs worldwide. It finds exports a huge opportunity and is seriously concentrating on American & Europe markets. It has entered into synergistic cold forged auto components such as axles, engine components, shafts, piston pins etc., which have the potential to overtake fasteners sales since their market size is much larger. LPS has a 49:51 JV with the Switzerland based Bossard AG for select applications in electrical and electronics and also has an agreement with Textron of USA for marketing their TORX brand of proprietary products, which provide solutions to fastener assembly problems. LPS also is the sole distributor of Recoil tool kits of Alcoa of USA, which ensures better performance of fasteners.

The fastener industry is on a strong growth path due to the increasing demand from the auto sector, industrial segment, replacement market and exports. Of its total sales, 40% is to domestic OEMs, 25% in replacement markets and 35% in exports. Going forward, the company plans to improve on its profit margins through cost reduction and higher productivity. For the quarter ending 31st Dec 2004, its Sales grew by 35% to Rs38 cr. and NP more than doubled to Rs1.50 cr. resulting in a quarterly EPS of Rs2.50. Although input cost is increasing, LPS will improve its margin due to better product mix and may end FY05 with a total turnover of Rs140 cr. and NP of little more than Rs5 cr. This works out to an EPS of around Rs8.50 on its small equity of Rs6.02 cr. Thus this auto ancillary stock is trading quite cheap at 7 PE with a book value of around Rs60. In FY06, it is expected to perform much better and may report an EPS of Rs12 and its share price can double in 15 months. A perfect long term bet.

STOCK WATCH

Ministry of Oil and Petroleum is expected to exempt ONGC from sharing the subsidy burden on Kerosene & LPG in FY06. Moreover, due to the severe winter and higher demand crude oil price is once again rising and is trading above 51 $. ONGC may report an EPS of more than Rs85 for FY05 and the share price can cross Rs1000 mark easily in coming weeks.

In the pharma sector, one can look at Syncom Formulation for long term growth prospects. For the quarter ending 31st Dec. 2004, its total revenue grew by 23% to Rs14.60 cr. and NP jumped more than 160% to Rs.2 cr. yielding an EPS of Rs4 on its small equity of Rs5 cr. Although other income contributed substantially to its bottom-line, it may still report an EPS of Rs13 for FY05. Its share price has the potential to double in a year’s time. Keep a track.

Although freight rates have softened, they are expected to remain high compared to last year due to strong international trades. Recently, GE Shipping has taken delivery of a 1988 built 96,551 DWT Aframax Crude Carrier and has contracted to acquire a second hand 1997 built 45342 DWT Handymax Bulk Carrier to be delivered in April-May 2005. For FY05, it may report an EPS of more than Rs35 and its share price could cross Rs250 in the next 6 months.

JBF Industries has established itself as an industry leader in the Texturising business and is one of the top 5 players in the POY Industry. In view of the increased requirements of Polyester Chips within the industry, JBF embarked on setting up a new grass root plant of 600 Tonnes Per Day (TPD) for the production of Polyester Chips. The Budget, too, may favour the synthetic fibre industry with some positive news. With an expected EPS of Rs8 for FY05 and Rs12 in FY06, this scrip is available very cheap and should be bought with a 18~24 months perspective to more than double your money.

Nagarjuna Agrichem has several products in its crop protection portfolio comprising four insecticides, two fungicides and one herbicide and operates one of the most modern agrochemical plants situated in Srikakulam district in Andhra Pradesh. Moreover, it is exploring options to manufacture products for MNCs. For FY05, it is expected to post an EPS of Rs20. Its share price can rise sharply post budget.

Though the Deccan Cement share has been an underperformer for quite long, it is fairly undervalued and will be re-rated sooner or later. It has the capacity to produce 3,00,000 TPA of cement and 5,00,000 TPA of slag cement. With an estimated EPS of Rs12 and book value of around Rs85, this share can easily cross the century mark. With the government’s thrust on infrastructure and the rising demand, cement prices are expected to rise further. Hold it patiently for handsome rewards.

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.