National Steel & Agro Industries - Rs.27.00

National Steel and Agro Industries Limited (NSAIL), formerly known as National Steel Industries Limited, was set in January 1985 with the objective of manufacturing Galvanized Plain Steel Coils, Galvanized Plain Steel Sheets and Galvanized Corrugated Steel Sheets. It was set up in technical collaboration with three global majors: CMI of Belgium, Phoenix of Belgium and Stain Hourte of France. It manufactures ultra thin gauge GP and GC sheets for use in roofing, defence, construction, automobile and white goods sector under the brand name `Appu'. In 1992, NSAIL integrated backward by setting Cold Rolling (CR) Mill and starting a 25 MW Power Plant adjacent to its existing steel complex in order to meet the rising demand for power. NSAIL belongs to the renowned Ruchi group promoted by the Shahra family.

Its manufacturing plant is located at Sejwaya, in Dhar district of Madhya Pradesh with an installed capacity of 1,40,000 TPA for GP & GC coils/sheets and 1,20,000 TPA for CR coils as on 31 March 2004. Due to the increasing demand and higher price realization, the company is undergoing expansion to enhance the galvanized steel capacity to 2,00,000 TPA and CR steel capacity will double to 2,40,000 TPA at the end of this financial year itself. The company also plans to set up a most modern state-of-the-art colour coating line which will produce a sophisticated and an unlimited range of coloured steel with high corrosion resistance and excellent aesthetics for use in a variety of industries such as buildings, hotels and the automotive sector.

With strong international demand and better margins, NSAIL is putting more thrust on exports and is currently exporting to South East Asia, African countries, Middle East, USA, China and to other neighbouring countries. FY05 ~ 06 will be the best year for NSAIL as it will see the full impact of expansion and higher price realisation. The company’s share price is poorly discounted by the market due to its very low OPM of 3 ~ 4% and NPM of 1 ~ 2%. Though the government has increased the excise duty on steel back to 16% from 12% plus and raw material cost continues to rise, the company’s margin are set to improve due to economies of scale and other value additions. The company is also expected to declare 5% dividend for FY05. It has huge reserves of more than Rs100 cr. on equity of Rs32 cr. which leads to book value of around Rs41. Considering all the factors, it is expected to close FY05 with a turnover of Rs1425 cr. and NP of Rs16.50 cr. reporting an EPS of Rs5 which can increase to Rs8 in FY06. Investors can buy this share as it has the potential to appreciate by 50 per cent i.e. target of Rs40 in one year.

JBF Industries - Rs44.00

Incorporated in 1982 as a private limited company with two small texturising units at Silvassa, JBF Industries changed its corporate status to a public ltd. company in 1986. And with constant capacity expansion, it emerged as one of the largest independent texturising units by 1996. Later in order to be self-sufficient in the supply of key raw materials, it undertook two major backward integration projects to manufacture polyester Partially Oriented Yarn [POY] in the year 1995 and Polyester Chips in the year 1998. Today, it is one of the largest integrated players in the texturised yarn business and is also one of the top 5 players in POY with a strong and influential brand. Globally, the demand for synthetic and blended textile products has increased and the demand for polyester is on the rise in the domestic markets too because of its bright colour, low maintenance cost and being cheaper than cotton. With the removal of quota, JBF is witnessing sharp increase in demand for its yarn and is getting good orders. Further, the FM has proposed to reduce the excise duty on polyester filament yarn form 24% to 16%.

The company has its plants located at Silvassa and Valsad district of Gujarat, which are the hubs of the texturising business. Its installed capacity of polyester chips is 1, 20,000 TPA, POY is 60,000 TPA and Texturised Yarn is 3200 TPA. All the units are working at 100% capacity and almost 50% of its polyester chip production is consumed captively. Interestingly, its polyester chip plant has the system of using either PTA or DMT as the raw material and has the flexibility of using both on different production lines. This helps the company in selecting the raw material according to cost and availability. Striving further after reaching the core of the texturising business, JBF diversified into the production of Bottle Grade Chips with an initial capacity of 10,800 TPA. To cater to the increasing demand of Polyester Chips, JBF has a capex plan of Rs170 cr. for setting up a new grass root plant of 600 TPD, which is expected to be operational by the second half of this calendar year. Also in keeping with its constant thrust on growth, JBF has set up a unit in Sri Lanka with an installed capacity of 4000 TPA for local supply as well as exports.

JBF enjoys locational advantage in terms of proximity to the upstream PFY spinners and downstream powerloom industry, which translates into savings in packaging and transportation costs. Although margins are slightly under pressure due to rising raw material costs, it will be compensated by increase in volumes. For the nine months ended 31Dec 2004, its Net Sales grew substantially by 47% to Rs542 cr. but NP decreased by 35% to Rs16.50 cr. due to higher tax provision and slight decrease in operating margin. At CMP it is quoting at 25% discount to its book value of Rs58 and dividend yield works out to around 5%. For FY05, it is expected to post a top line of Rs750 cr. and a bottom line of Rs23.50 cr. This works out to an EPS of Rs7.50 on its current equity of Rs31 cr. For FY06, it may report an EPS of Rs12. Investors are advised to buy for long term as the share price can double in 18~24 months.

STOCK WATCH

Biotech sector was not a major beneficiary of the Budget. Hence Jupiter Bioscience share was beaten down substantially. But it’s a unique company with a blend of biotechnology and peptide chemistry. The new generation medicines, diagnostics and vaccines are based on Peptide Chemistry with a major focus on different branches of medicines like Neurology, Cardiology, Immunology, Oncology (Cancer related), HIV /AIDS, Autoimmune diseases. Due to lack of awareness and media shy promoters, it is discounted poorly at a mere PE of 6. But it will surely be re-rated sooner or later. Buy it and forget it for 2 years.

In this Budget, the government has increased the duty on molasses which may put some pressure on India Glycols, margnis. But at the same time, crude oil prices are touching new highs which will lead to a hike in MEG prices in near future. Moreover, company has recently expanded capacities which will have its full impact in coming quarters. Overall, it will continue to report better numbers and can end FY05 with an EPS of more than Rs.30 and the scrip may touch Rs.225 Buy at every decline

Precision Wires manufactures different varieties of Copper Winding Wires for different applications and with variety of insulation enamels like Polyester, Modified Polyester, Polyesterimide, Polyamide Imide, Dual coated in various combinations for specific uses, Polyurethane, Selfsolderable, Self bonding and PVA. It specialises in the production of hermetic grade as well as self solderable wires for air conditioning/refrigeration/auto-electrical and telecommunications industry. For FY05 it is expected to post an EPS of Rs.13 With a dividend yeild of around 5% at CMP this scrip has the potential to cross Rs.100 in the next 6 months.

Modern Steel has initiated a modernization & expansion plan at an estimated capital outlay of Rs.32 cr. in its Steel Melting Shop & Rolling Mills. The Steel Melting Shop capacity will be enhanced by 50000 MTA and the Rolling Mill capacity will be enhanced by 36000 MTA. With an expected EPS of Rs.25 this scrip is trading reasonably cheap. Company is also expected to declare dividend for FY05. A good buy in the steel sector.

Hind Rectifiers is involved in developing, designing, manufacturing and marketing Power Semiconductor, Power Electronic Equipments and Railway Transportation Equipments. It caters to various industries like cement, steel, telecommunications, railways, defence, power, chemical, electronics etc. It has a reputed clientele including BHEL, BEML, HLL, BSNL, Indian Air Force, Tisco, ACC, NTPC etc. Due to the infrastructure boom, the company has a healthy order a book position and is expected to post an EPS of around Rs.30 for FY05, which can shoot up to Rs.45 in FY06. A strong long term bet.

Of late, a lot of companies in the financial sector like Srei International, Magma Leasing, Cholamandalam, Geojit, etc are buzzing. In the same sector one can also look at First Leasing, an 30 year old reputed Chennai based company. Its is fundamentally sound and regular dividend paying company. At CMP, the dividend yield works out to around 6% and is quoting at half of its book value of Rs.70 With an expected EPS of Rs.11 the scrip has the potential to cross Rs.50 in one year.

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.