Ahmednagar Forgings - 168.00

Ahmednagar Forgings Ltd (AFL) was originally promoted by U.V. Patel, an expert in forgings in 1997 but was taken over by Amtek Auto Ltd and made its subsidiary in 2002. Since then, AFL has consolidated its position and diversified into a variety of heavy and medium forgings for all major automotive segments like two-wheelers, passenger cars, LCVs, Medium & Heavy Commercial Vehicles and for other forged parts in locomotives, stationary engines and earth-moving equipment. Currently, it caters to the automotive sector, defence and railways with its large product range which includes forgings, gears, crankshafts, front and rear wheel axles, transmission components, steering parts and high tensile fasteners.

The company has large manufacturing capacities with four state-of-the-art plants equipped with a wide variety of forging equipment such as power presses, connecting rods, upsetters and hydraulic presses etc. The company has also installed and commissioned two more press facilities at the company's plant at Kuruli. The company's manufacturing facilities are QS-9000 and ISO-9002 certified for their quality systems, which are at par with global standards. Under the leadership of the dynamic Amtek group, AFL’s products are well accepted not only in the domestic market but also obtained some very lucrative export supply contracts from USA, Italy, U.K. and Germany. The company is tier-1 vendor and OEM supplier to Telco, Hyundai, Piaggio, Hindustan Motors, M & M, Bajaj Auto, Eicher, LML, Honda Scooters, Kinetic Engineering, General Motors, General Electric (USA), Rockwell International (USA), Fairfield International (USA), Precision Components (UK), Harvin Engineering (UK) and several other major customers in India and abroad.

Due to heavy demand in the auto sector and the increased exports on account of outsourcing by auto MNC, AFL is working at higher capacity utilization and has long term plans to increase its capacity. With every quarter, AFL is improving its topline, bottomline and OPM also. For the six months ending 31st Dec 2004, its net sales grew by 25% to Rs.99 cr. and NP was Rs.10.25 cr. up 63%. OPM improved substantially to 19% compared to 12% last year. It is also expected to return to the dividend list after a gap of 7 yrs. For the full year FY05, it is estimated the company will report a bottomline of Rs.19 cr. on topline of Rs.210 cr. posting an EPS of Rs.24 on its current equity of Rs.8 cr. To fund its expansion plan, the company may make some preferential allotment in future which will trigger the scrip to dizzy heights. Investors are advised to accumulate this scrip at every fall for handsome gain in future.

Shipping Corporation of India 163.00

The Shipping Corporation of India (SCI) was established by the amalgamation of Eastern Shipping Corporation and Western Shipping Corporation on 2nd October 1961. Starting out as a marginal liner shipping company with just 19 vessels, SCI has today metamorphosed into a giant shipping conglomerate with about 40% of the Indian tonnage and operates in practically all areas of the shipping business. Operating a young and diversified fleet of 89 vessels this ‘Mini Ratna’ PSU has presence in almost every major sea route in the world and is rated amongst the world’s top 15 leagues. Today its vast fleet of apporx 5.0 million DWT consists of 29 crude oil tankers, 23 bulk carriers, 12 product tankers, 3 chemical, 2 LPG/ammonia carriers, 2 LNG carriers and other liner/passenger vessels. SCI is now focusing more on the energy sector and plans to become a major player in LNG transportation.

Although the Baltic Freight Index has come down from its high 6200 in Dec 2004 it is still hovering around 4700 level and is expected to rise from here on due to increasing international trade. Tanker freight rates are also expected to spurt due to the rising demand for crude oil and other petroleum products. With freight rates expected to remain robust over the next 3~5 years, SCI has chalked out a massive expansion plan of acquiring 18 new vessels at an investment of Rs.6,500 cr. which will be funded by internal accrual and debt. The new acquisitions include 2 very large crude carriers (VLCC), 6 handy size bulk carriers, 6 product tankers, 2 container ships and 2 Aframax tankers. Of these one VLCC will be delivered in August 05. It also plans to extend its international mainline container services by teaming up with a foreign company for container terminal operations and also bid for the fourth container terminal at Jawaharlal Nehru Port Trust.

Fundamentally and financially it is a very strong cash rich company that earns more interest earning is more than its interest outgo. It paid a special dividend of Rs.17 for FY04 and declared Rs.4 interim for FY05. With the implementation of the tonnage tax, it will save around Rs.85 cr., which will boost its EPS by Rs.3. For the nine months ending 31st Dec 2004, its total revenue increased by 25% to Rs.2688 cr. and NP jumped 120% to Rs.810 cr. Its OPM & NPM stood at 35% and 33% respectively compared to 30% & 18% last year. The Company may declare another 40% as final dividend taking total dividend to payout 80% for FY05. For the full year it is expected to clock a total revenue of Rs.3500 cr. and NP of 1025 cr. posting an EPS of Rs.36 and CEPS of Rs.46. The floating stock is very low as 80% is held by the government and 13% is held by FIIs and institutions and 4.5% with the general public. In future the government is expected to bring down its stake to 75% through an IPO, which will improve liquidity to some extent. Investors are adviced to buy at current levels with a price target of Rs.240 in the coming 8-12 months.

STOCK WATCH

Aarti Industries (Code: 524208) (Rs91.00) has world-class expertise in the development and manufacturing of basic bulk chemicals, dyes & pigment intermediates, agrochemicals along with their intermediates, rubber chemicals, surfactant intermediates and speciality chemicals. It is amongst the largest producers of Benzene based basic and intermediate chemicals in India. For FY05, is it is expected to report an EPS of Rs13. A good medium term bet.

Andhra Sugar (NSE Listed) (Rs116.00) is a fully integrated manufacturer of Chlor Alkali & Sugar. Both its products are witnessing higher demand and better price realization and to cash in on the prospective demand supply gap in sugar, it is increasing its capacity to 12,500 TCD from current 9,000 TCD. For full year FY05, it is expected to post an EPS of more than Rs14 and Rs18~20 for FY06. Accumulate it at every sharp dip.

Medi Caps Ltd (Code: 523144) (Rs48.00) is the market leader in the production of gelatine capsules, which are widely used to package drugs, vitamins, antibiotics and cosmetics. It supplies to all major pharma companies like Wockhardt, Glaxo, Lupin, IPCA, Nicholas, Pfizer, Cadila etc. It has huge reserves of Rs18 cr. and investments of Rs11 cr. on a small equity of Rs3.20 cr. and is expected to post an EPS of Rs12 for FY05. A strong buy at CMP.

While most construction & infrastructure scrips are discounted 12~15 times of their FY06 earnings, Valecha Enginering (Code: 532389) (Rs136.00) is still trading reasonably cheap. It has a very small equity of Rs4.50 cr. and has planned 1: 5 right issue in future. With huge orders worth Rs450 cr. in hand, it is likely to end FY05 with an EPS of Rs17 which can shoot up to Rs24 in FY06. Its share price can easily cross Rs200 mark in the next 6 months. An excellent pick.

To cater to the increasing international demand for polyester, Indo Rama Synthetics (Code: 500207) (Rs65.00) is doubling its polyester staple fiber (PSF) and partially oriented yarn (POY) capacity from 3,00,000 TPA to 6,00,000 TPA at its Butibori plant. It has already arranged the term loan from a German bank and other Indian institutions. For FY05 and FY06, it may report an EPS Rs7 and Rs10 respectively.

SRF Ltd (Code: 503806) (82.00), the largest manufacturer of Nylon Tyre cord fabrics, refrigeration gases and belting fabric has ambitious expansion and modernisation plans for industrial synthetic fabrics business at an investment of Rs285 cr. Besides, it has forayed into pharma chemicals business to leverage its expertise in chemicals by focussing on fluorine, chlorine and bromine segment of intermediate drugs. For FY05, it is expected to post an EPS of more than Rs8 and Rs12 for FY06. Investors can expect decent returns in the medium to long term.

Jupiter Bioscience Ltd - Rs126.00

Jupiter Bioscience Limited (JBL) was promoted as a Private Limited Company in 1985 by a visionary scientist, the Late K. S. Sharma who expired last year, and was converted into a Public Limited Company in 1992. Initially, it was into manufacturing of bulk drugs & chemicals but is today among the few companies in the world with its core competence in peptide chemistry, organic chemistry, chiral chemistry and biotechnology. In fact, JBL was the first company in Asia to introduce and commercialise molecules based on peptide chemistry. The company has no competitors in Asia and faces competition only from European and American companies. Its customers include major global players like Dupont, PPG (USA), Bachem and Sigma Aldrich and leading trading houses like Siber Hegner, Schwieizer Hall (Switzerland) etc. apart from marketing agents like Eurolabs and other Institutions and universities. It also supplies products to MNCs like Pfizer, Eli Lilly, Abbot Laboratories and the Monsanto Group.

JBL has two manufacturing facilities - one at Bidar in Karnataka and the other at Cheriyal in Medak District in Andhra Pradesh which is a 100% EOU. It has three specialised product lines viz. Peptide reagents and protected amino acids, Drug intermediates & Speciality Chemicals as well as fine chemicals. New generation medicines, diagnostics and vaccines are based on Peptide Chemistry with major focus on different branches of Medicine like Neurology, Cardiology, Immunology, Oncology (Cancer related), HIV /AIDS, Autoimmune diseases etc. JBL has successfully launched peptide precursors, the essential raw material for these generic peptide drugs.. With various drugs expected to go off patent, Jupiter Bio can grow by leaps and bound in the years to come.

The company has also formed a wholly owned subsidiary, Sven Genetech Ltd. for R & D with a state-of-the-art research lab in line with International GLP standards and equipped with modern instrumentation. It is looking towards moving up the value chain to commercialise and introduce generic peptide drugs such as Oxytocin, Vasopressin, Desmopressin, Leuprolide, Lisinopril and Calcitonin in the domestic and international markets. It has already launched various finished formulations in the domestic market. It is very strong not only in basic R&D but also in Process Development, which is the current global trend for every corporate and Research entity in the Pharmaceutical and Biotech fields.

To increase it global presence, JBL is agressively participating in exhibitions, fairs and trade shows all over the world. It has even promoted Jupiter Bioscience Inc. in USA to enhance its presence in peptides and peptide based drugs business in the global market and to set up manufacturing facilities for peptide based bulk actives. Recently, it entered into a general cooperation agreement with a Clariant Pharmaceutical Fine Chemicals of Germany to leverage the strengths of both companies in view of the interest shown by the global pharmaceutical industry for peptide based products

Fundamentally, the company is strong with higher operating margins compared to its peers and has huge reserves of more than Rs85 cr. on its small equity of Rs9 cr. Moreover it has invested Rs.25.06 cr. in its subsidiary Sven Genetech Ltd. Its debt equity ratio is also low at 0.53. For the nine months ended 31 Dec. 2004, its net sales grew by 9% to Rs50 cr. and NP by 10% to Rs13 cr. For full year FY05, it is expected to post Sales of Rs70 cr. and NP of Rs18 cr. i.e. EPS of Rs20. In FY06, its sales can cross Rs100 cr. and EPS may touch Rs.28. Its consolidated numbers will be much better. Considering the huge growth potential and the current valuation this scrip, JBL can be a multi-bagger in the long run. It is a screaming buy at CMP and investors should not be surprised if it touches Rs500 if held for 2~3 years.

Rajratan Global Wires - Rs109.00

Belonging to the Chordia Family of Indore, Rajratan Global Wires was originally promoted in technical and equity collaboration with Gustav Wolf of Sweden in 1991 and was known as Rajratan Gustav Wolf Ltd. Later in 2003, the Indian promoters bought out the Swedish stake and changed the company’s name to Rajratan Global Wires Ltd. Today, it is the second largest tyre bead wire & pre-stressed concrete wire manufacturing company in India. Tyre bead wire is a carbon bronze-coated wire used in tyres. Its main function is to hold the tyre on the rim and to resist the action of the inflated pressure, which constantly tries to force it off the rim. In India, there are only 3 manufacturers of tyre bead wires of which Rajaratan enjoys around 30% market share and aims to increase it to become the market leader. It supplies to almost all tyre manufactures like MRF, Ceat, JK, Goodyear, Apollo, Falcon, TVS etc. in India and to Bridgestone, Dunlop, HWA Fong, Kerman Tyres etc. internationally. Rajratan is the first wire manufacturing company in the country to achieve ISO/TS 16949:2002 certification from TUV Rheinlend, Germany

Its plant is located at Pithampur, 30 kms from Indore, with an installed capacity of 20,000 MTA of Tyre Bead Wire and 10,000 MTA of P.C. wire. Due to boom in the auto sector, the demand for tyres is very high both from OEM manufacturers and the replacement market, which leads to higher demand for tyre bead wire. Moreover, given the expansion plans of most of tyre companies domestically and internationally, the demand for tyre bead wire will be even more in the future. The company has already received approvals for supplies from major global manufacturers such as Bridgestone, Goodyear and Michelin. To meet this increasing demand, the company has capex plans of Rs40 cr. to increase manufacturing capacity to 30,000 MTA by the end of 2005. With all these initiatives, the company intends to enhance its export share to 50% in the next 3 yrs. from the current 6%.

To fund its capex, the company has approved an issue of about 6, 00,000 shares to Ashok Dalmia at Rs102 on a preferential basis. For the nine months ending 31 Dec. 2004, its Net Sales increased by 40% to Rs63 cr. and NP jumped 80% to Rs4.80 cr. recording an EPS of Rs13. Considering its order book position and the thrust on exports, Rajratan can post Sales of Rs90 cr. and NP of Rs6.80 cr., which works out to an EPS of Rs16. For FY06. It may post an EPS of more than Rs.20 on its diluted equity. Investors are advised to buy at current levels with a price target of Rs180 in 15 months.