Natco Pharma - Rs.140.00

Incorporated in 1981, Natco Pharma was promoted by Mr. V.C.Nannapaneni as a private limited company to manufacture and market pharmaceutical producs. Today it has emerged as a complete pharmaceutical company with all critical facets necessary for effective value delivery viz., research & development, active pharma ingredient (API), finished dosage production, regulatory submission, marketing & sales. It manufactures a comprehensive range of branded and generic dosage forms, bulk actives and intermediates for both Indian as well as international markets. Its products come in various forms such as timed release capsules, tablets, inhalers, dry syrups, dispersible syrups and suspensions, ointments, gels, injectables, infusions, sterile preparations and large and small volume parenterals. NATCO’s branded products and generic versions of antibiotics, anti-malarial, amoebicides, analgesics, anti-pyretic, peripheral vasodilators, anti-anginal, anti-hypertensives, anti-asthmatic, tranquilizers, anti-depressants, oncologicals, anti-emetics, anti-anemic, nutritional supplements, biotechnology based drug forms and health products of natural origins, which are well accepted in the market.

In addition to research and manufacture of pharmaceuticals, it is also one of the largest contract manufacturers of bulk actives and intermediates for leading Indian and multinational companies like Ranbaxy, Dr. Reddys, Wyeth, Parke Davis, Sun Pharma, Smithkline Beecham, Novartis etc. It is also into contract research for process research and custom synthesis and also conducts clinical trials. To attain a significant position in the oncology segment, NATCO regularly introduces high value niche drugs for treatment of ovary cancer, prostrate cancer, multiple myelomia, leukemia, lung cancer etc., which have become leaders in their respective field. It has another 25~30 products of similar calibre in the pipeline, which will be introduced in FY06. Its 4 manufacturing plants are world class with ultra modern equipments and complying with international standards including USFDA, UKMFA etc. With focus on molecular modeling for New Chemical Entities, Phyto Chemistry, Plant Chemistry, New Drug Delivery Technologies, NATCO's Research Centre is in the forefront of the company's strategy to emerge as a research driven organization. Recently, the company was granted European patent for its invention of soft gel capsules with an innovative drug delivery system. More such developments are likely in future.

Last year, the company successfully raised funds to the extent of USD13.50 million through a fully convertible bond (FCCB) issue for meeting the capital expenditure and expenses connected with the filing of Drug Master Files (DMFs) and Abbreviated New Drug Applications (ANDAs). For the nine months ending 31 Dec. 2004, its net sales grew by 25% to Rs123 cr. and NP increased by 30% to Rs16.5 cr. With several drugs going off patent in coming years and the company’s thrust to become a global player, it may end this fiscal with sales of Rs170 cr. and NP of Rs23 cr., which may increase to Rs240 cr. and Rs35 cr. respectively for FY06. This works out to a forward EPS of Rs10 for FY05 and Rs15 for FY06 on its current equity of Rs23.40 cr. Investors are advised to buy at CMP with a long term perspective expecting 50% appreciation in the coming 12 months. Its share price can even double after 2 years.

Panama Petrochem - Rs.56.00

Panama Petrochem Ltd (PPL) was incorporated in the year 1982 as a private limited company by the Rayani family, which has over three decades trading experience in petrochemicals. PPL manufactures and exports a a wide variety of petroleum based speciality products. They include ink & resin oil, mineral oil, transformer oil, petroleum jellies, liquid paraffin, white oil, turbine oil, loom oil, wax, grease etc. The company sells its product under the name of 'Panama' and exports its products to USA, UK ,UAE, SaudiArabia, Australlia, SriLanka, Egypt, Tanzania, Syria, Italy, Turkey, Nigeria & some other African Countries. It is also the sole distributor of lubricants for foodstuff, paper, textile, and automotive industries manufactured by Lubcon of Germany.

PPL’s plants are located at Ankleshwar, Mumbai and Daman. The Daman unit manufactures Antistatic Coning Oils, Petroleum jelly (Cable Filled Compounds) & Specialty Lubricants and Oils with a capacity of 36,000 MT and went operational in Dec 2003. Its total installed capacity stands at 51,000 MTA. The company has received ISO 9001:2000 certification for its manufacturing processes. It manufactures the products as per International Environmental & Safety Norms and its Petroleum and White Mineral Oils are as per BP/USP FDA norms for specific users. It has developed a good export market by participating in international trade shows and is expected to bag some orders from various malls in USA for supply of its indigenously developed non-smoky and environment friendly lamp oil, which is in demand in USA.
Apart from the petrochemical industry, PPL also caters to the Printing Ink, Agarbatti, Perfumery, Rubber, Pharmaceutical, Cosmetics, Texturizing, Engineering, Machinery Manufacturing and Chemical sectors. Its products are also used by various Power Generation utilities and Atomic Research Centres. Such a large & diversified end user base and exports help it de-risk its overall business model. But rising crude oil prices is still a big concern for it as it is a key raw material.

PPL is planning to issue 5, 00,000 shares on a preferential basis to promoters at Rs58 per share, which is at a marginal premium to the current market price (CMP). As on 31st Dec. 2004, the promoters were holding 32% stake, which will increase to 40% post allotment. It’s a investor friendly company with a dividend payout ratio of more than 30%. For FY05, it could declare 25% dividend which works out to around 5% dividend yield. For the nine months ended 31 Dec. 2004, its topline grew by 35% to Rs52 cr. but the bottomline tripled to Rs2.45 cr. For FY05, it may post sales of Rs75 cr. with and NP of Rs3.40 cr. leading to an EPS of Rs9 on its current equity of Rs3.76 cr. For FY06, it could report an EPS of Rs11~12 depending on crude oil prices. Investors should buy this share only at sharp declines or a major correction with a price target of Rs75 in next 12~15 months.

STOCK WATCH

Rama Paper Mills Ltd (Rs.22.35) a relatively small company from the paper segment is reportedly faring well. It is into newsprint, writing/printing paper & duplex board for industrial purpose. Due to restructuring initiatives and the uptrend in the paper industry, it has turned around and has come out of the BIFR. For the nine months ending 31st Dec 2004, it has posted a NP of Rs.3.70 cr. on Net sales of Rs.52 cr. For FY05, it can report an EPS of Rs.10 which can shoot up to Rs.14 in FY06. A strong buy

Carnation Industries (Rs.41.85) is into manufacturing of grey iron and ductile iron castings. Its product is witnessing huge demand from auto components manufacturers and the international demand too is picking up especially for casting of pipe fittings required for water line, sewage and gases. For FY05, it is expected to report an EPS of Rs.8.5 Buy on sharp declines.

The Indian share market is booming and analysts forecast much higher targets for the Sensex in coming years. In such a scenario once can consider investing in Tata Investment Corporation (Rs.315), a listed investment company of the Tata group. Its investment portfolio is more than Rs.1200 cr. and around 65% is invested in equity. If we take its market value into consideration then this company is worth more than Rs.600. Fundamentally also it is expected to post an EPS of more than Rs.50. Moreover, it pays handsome dividends as well. Accumulate it at every dip.

Purely on fundamental basis, Alchemist Ltd (Rs.93.00) looks reasonably cheap and has the potential to rise 35-40% in the coming 12 months. It was earlier known as Toubro Info & Industries and has diversified interests in agri business, IT, pharma and steel. For the six months ending 31st Dec 2004, its sales grew by 47% to Rs.83 cr. but the NP was marginally down to Rs.6.60 cr. resulting in a half yearly EPS Rs.12.50. It’s a dividend paying company with huge reserves and a book value at Rs.126.

Sponge iron is expected to witness huge demand in coming quarters boosting the prospects of Monnet Ispat (Rs.203.55) which is still trading reasonably cheap. It is aggressively increasing its capacity and has ambitious plans to become a fully integrated player. For FY05, it may report an EPS of more than Rs.35 which can increase to Rs.45 in FY06. Accumulate it at declines with a price target of Rs.280 in the next 12 month.

GNFC is India largest producer of Formic Acid, Acetic Acid and Methanol. Further, it is the only manufacturer in the country to deploy the Methanol route for manufacturing Glaciel Acetic Acid. It has long term expansion plans to double its capacity to become globally competitive. For FY05, it is expected to post an EPS of Rs.12 and at CMP, the dividend yield works out to around 5%. A good bet.

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.