Rolta (India) Ltd - Rs.80.80

Established in 1982, Rolta (India) Ltd. (Rolta) was promoted by and chaired by Shri K. K. Singh, a technocrat and businessman with over two decades of experience in business. From being a mere data processing centre Rolta is today an Indian multinational IT company well equipped to provide knowledge-based Software/IT, Engineering and Mapping solutions & services to customers across the world. Rolta has been consistently ranked as India's no.1 CAD/CAM/GIS solutions provider and is considered amongst the world's top AM/FM/GIS & Photogrammetry services providers. It has emerged as the leading provider of Plant Design Automation Solutions in India with over 80% market share and a preferred partner for providing Plant Engineering Design services globally to international giants like The Dow Chemical Company of USA and others - a relationship that only a few select companies enjoy worldwide. The company also offers value added solutions and services for Enterprise Application Integration (EAI) that includes integrating & web-enabled Engineering & Business applications, Smart Cards, e-Security and Data-Warehousing/Mining.

Rolta has strong business partnerships with international technology leaders like Intergraph, Z/I Imaging, PTC, IBM, Microsoft, Oracle among others and boasts of world wide presence with over 3000 professionals and state-of-art infrastructure including global connectivity and software development centers in India & USA. It has subsidiaries in USA, Canada, UK, Germany, Netherlands, Saudi Arabia, Middle East and a network of over 15 full-fledged offices in India. The company’s clients include Saudi Telecom, British Telecom, National Grid, Telus, Bechtel, Aramco, Philips Medical, HSBC Master Card, Bear Stearns & Co, Defence Ministry, ONGC, ICICI, L&T, EIL, BHEL, BSNL, Tata Chemicals etc.

The company has also established a Joint Venture with Stone & Webster Inc. of USA, one of the world's foremost engineering companies for addressing large projects in power, petrochemicals, refineries etc. It is one of the top-three Premier Global Service Partners of Computer Associates Worldwide for IT services in Enterprise Management, Security and Software Development & Testing. Ranked by Forbes Global amongst the 200 Best Companies in the world with Sales upto US $ 1 billion for three years in a row in 2001, 2002 & 2003, Rolta is one of the only 18 such companies worldwide. Deloitte & Touche has recently ranked the company amongst the 500 fastest growing technology companies in the Asia-Pacific region. Recently, it demonstrated its high level of competence in information security management with its e-Solutions Strategic Business Group awarded the BS7799 accreditation- the ultimate benchmark for information security. The Software Development Division of Rolta has been assessed at SEI CMM Level 5 for software development and testing by KPMG.

Moreover, the company is on a expansion spree and is building two new facilities in Mumbai. It is adding around 400 professional per month and plans to take its employee strength to over 10,000 form current 3,500 in 2~3 years. Rolta is also looking to acquire small overseas companies in niche areas and could consider making an ADR/GDR issue to raise funds for acquisition. For six months ending Dec 2004 it posted impressive numbers with total revenue increasing 50% to 155 cr. and NP was 51 cr. up 65%. It has huge reserves of 450 cr. on current equity of Rs.63 cr. and debt equity ratio stands at 0.47. Though there are concerns with respect to management quality, accounting policies, tax evasion etc Rolta can perform well going forward and end FY05 with NP of Rs.95 cr. on turonver of Rs.330 cr. which works out to an EPS of Rs.15. Investors are advised to buy at current levels and can expect 50% appreciation in 15 months time.

SAIL - Rs.64.00

Incorporated on 24th January 1973, Steel Authority of India Limited (SAIL) is the country’s largest steel maker with a market share of over 25 per cent in the domestic market. Ranked amongst the top ten public sector undertakings in India and by virtue of its ‘Navratna’ status, it enjoys significant operational and financial autonomy. It is a fully integrated iron and steel maker producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence sectors and for sale in export markets. It manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised plain and corrugated sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels.

SAIL has the second largest mining outfit in the country after Coal India Limited. The merger of its subsidiary Indian Iron & Steel Company Limited (IISCO) with itself will further strengthen its raw material base. The company recently entered into an agreement with GAIL for supply of natural gas / R-LNG to its various plants in 2006-07, which will make it the first steel producer in India to opt for use of natural gas as an alternative source of coking coal To cater to the rising demand for steel, SAIL has chalked out a capex plan under which it will increase production from its plants to a level of about 20 MMT by 2012 against the current level of 13 MT. In Phase-I i.e. by 2006-07, it plans to invest Rs4300 cr. and around Rs20,000 cr. will be invested in Phase-II as per its corpoate plan 2012. This whole expansion will be funded by internal accrual and through debt.

Due to higher price realisation and strong demand both from domestic as well as international markets, the company is posting record profits and has already wiped out its accumulated losses and returned to the dividend list declaring 15% interim dividend for FY05. With every passing quarter, it kept improving its OPM. For the Dec.’04 qtr., it posted an impressive OPM of 40% compared to 20% last year. For the nine months period ending 31 Dec 2004, its sales increased by 30% to Rs19744 cr. But its NP zoomed 180% to Rs4140 cr. in spite of the huge tax provision of Rs1600 cr. In anticipation that the steel industry will continue to see robust demand for at least two more years, SAIL can report a turnover of Rs27750 cr. and NP of Rs5400 cr. leading to an EPS of Rs13 for FY05. It may declare further 10% as final dividend for FY05. Investors are advised to buy at the current price with an expectation of 50% appreciation in the next 12 months.

STOCK WATCH

Sanjivani Parenterals Ltd (Rs.50.80), a small contract manufacturing company specialising in injectibles for the institutional and hospital segment. Its key clientele include Ranbaxy, Zydus Cadila, Alkem, Macleods, Ipca, Intas, Glenmark, Medley and Shreya Lifesciences among others. It is planning to launch half dozen of new injectibles and has filed dossiers for Capreomycin, an anti-TB drug. For FY05, it may report an EPS of Rs.6, which is expected to double in FY06. A strong buy at the current level.

Ador Fontech (Rs.63.80), an associate of Ador Welding, offers products and solutions for reclamation welding and recycling of vital machinery components. Its product basket includes filler wires, welding equipment/accessories, wire feeders, wear plates and cladded pipes. For FY05, it may declare 30% dividend, which offers a good dividend yield at CMP. For FY05 & FY06, it can report an EPS of Rs6 and Rs.9 respectively. Its share price can rise by 50% in the coming 12 months.

Aarti Drugs (Rs.144.35) is a fully integrated research-driven company developing processes for active pharma ingredients (APIs) & intermediates and provides turnkey solutions to the pharmaceutical industry. Its products are exported to more than 65 countries worldwide. It also manufactures vitamins, anti-asthma, anti-HIV, anti-arthritis, anti-fungal, antibiotics, ACE inhibitors, anti-osteoporosis, anti-diabetic, anti-cholinergic, sedatives and anti-depressant drugs at its manufacturing facilities situated at Tarapur and Sarigam. For FY05, it can report an EPS of Rs14 and Rs18 in FY06. A strong buy in the growing pharma sector.

BDH Industries (Rs.16.10) is a small but emerging player in the bulk drug and formulations business industry. It is recognised as one of India's leading manufacturers of therapeutic formulations covering wide range of pharmaceuticals. It exports a wide range of bulk drugs and formulations to leading organizations in more than 60 countries including Belgium, Chile, Costa Rica, Denmark, Dominican Republic, Germany, Kenya, Malaysia, Mauritius, Netherlands, Singapore, Sri Lanka, West Indies, etc. It is currently concentrating on anti-cancer injectibles and tablets, which will drive its future growth. With an expected EPS of more than Rs3 for FY06 and a current book value of Rs26, its share price can easily double in the next 15 months.

Raj Rayon (Rs.35.25) is exclusively engaged in manufacturing of Polyester Texturised Yarn (PTY) and has three factories at Silvassa with a capacity to produce 25500 MTA of PTY. It is going for backward integration to produce 60000 MTA of partially oriented yarn (POY), which is the key raw material. For FY05, it may report an EPS of Rs.7. With the company planning a public issue in future, its share price can rise smartly in the short term. At the same time, it is not recommended for the long term since its equity will get diluted sharply after the public issue.

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.