Aarti Industries - Rs.90.00

Aarti Industries Ltd (AIL) was originally incorporated in 1984 as Aarti Organics Ltd and was later merged with Salvigor Laboratories in 1997 to form AIL. Today it has acquired world-class expertise in the development and manufacture of basic bulk chemicals, dyes & intermediates, agrochemicals & intermediates, rubber chemicals, surfactant intermediates and speciality chemicals. AIL is among the largest producers of Benzene based basic and intermediate chemicals in India. The company derives economies of scale from its large installed capacities for nitro and chloro-benzene derivatives and makes a wide range of value-added downstream products. Under its inorganic acid division, it manufactures sulphuric acid and its derivatives. Its exports to more than 65 countries including USA, UK, Germany, Spain, Italy, Switzerland, Belgium, Japan, Korea, China, Russia, etc. It also has representatives in USA and a subsidiary company in UK to provide better services to its overseas customers

AIL has manufacturing plants at Vapi, Sarigam & Jhagadia in Gujarat and at Tarapur & Dombivli in Maharashtra. Almost all its plants are WHO GMP approved. Recognizing the importance of research, the company has established three full-fledged DSIR (Dept. of Scientific & Industrial Research)-Government of India recognized R & D centres, which carry innovative products and process development work. It is also setting up a new plant at Tarapur and a Customised Synthesis plant at Vapi to manufacture speciality chemicals & APIs for which USFDA approvals would be obtained by FY06. With the implementation of the product patent require in India, custom synthesis has become one of the big growth areas. It is also looking at marketing tie-ups with multinational generic companies. Besides AIL commissioned its sulphuric acid expansion project and a 6 MW captive power generation plant last fiscal and is expanding its nitro-chloro-benzene facilities. Recently, it has approved to merge its subsidiaries Avinash Drugs and Aarti Healthcare which is engaged in manufacturing of Active pharma ingredients in niche segments Viz: Anti – Hypertensive, Anti –Asthamatic, Anti-Cancer, Anti- Inflammatory / Anti- Allergic, Anti- Diabetic, Anti- Depressants, Anti- Thalassaemic.

Going by its dividend track record and bonus announcements, AIL appears to be an investor-friendly company. It has just completed its second bonus issue of 2:1(two shares for one share held), taking the equity base to Rs.36.39 cr. For the nine months ending 31st Dec’04, it reported a topline growth of 32% to Rs.507 cr. and the NP increased by 22% to Rs.37 cr. However its OPM decreased to 14% from 16% due to higher input costs and crude oil still remains a concern. Yet, it can post a turnover of Rs.660 cr. with NP of Rs.48 cr. This will work out to an EPS of Rs.13, which discounts the current market price by 7 times. Considering the company’s future plans & growth prospects investors can expect 50% return in 15 months from the scrip.

Medi Caps - Rs.48.00

Medi Caps Ltd (MCL) was incorporated on 6th August 1983 as a Private Limited Company and was converted into public limited on 3rd March 1986. Since inception, it has focused on the production of finest gelatin capsules in various sizes, which are widely used in the packaging of drugs, vitamins, antibiotics and cosmetics. Today, is the second largest manufacturer of hard gelatin capsules with an annual capacity of 3.5 billion capsules with clients like Wockhardt, Glaxo, SmithKline Beecham, Nicholas Piramal, Pfizer, Cadila, IPCA Labs, Lupin, Cipla, etc. Moreover, it has been exclusively manufacturing Halal Gel Capsules for the South East Asian Market.

MCL is an ISO-9001-2002 certified company with an ultra modern manufacturing facility and in-house R&D division employing over 300 people. Its high-tech automatic capsule manufacturing machines, sophisticated quality control laboratory and well-documented systems as required under a good manufacturing practices have helped it to achieve near zero defect capsules. Last year, MCL started manufacturing of sticky free capsules and liquid fill capsules, which have a great, demand and bring in good orders together with better margins. It is planning to launch new variants in the coming year and increase its export turnover. It is been done basically by better utilisation of manufacturing capacity, continuous modernisation & automation and substantial increase in realisation. Apart from being a well known name in pharma packaging.

MCL has a huge potential market since India is looked upon as a global hub for formulations and hard gelatin manufacturing business. Financially, it is strong as it is debt-free with huge reserves of Rs.18 cr. and liquid investments of Rs.11 cr. on a very small equity base of Rs.3.40 cr. Though it may report flat numbers, the future is indeed promising. It will end FY05 quite flat with turnover of Rs.23 cr. and NP of Rs.3.75 cr. For FY06, it can report Sales of Rs.28 cr. and NP of Rs.5 cr. This works out to an EPS of Rs.12 and Rs.16 respectively. With an expected dividend of 20%, the yield works out to more than 4% at CMP. Its share price can easily appreciate by 50% in one year and has the potential to double in 18-24 months.

STOCK WATCH

While TISCO and other mid-cap steel scrips corrected sharply last week, Ashirwad Steel (Code: 526847) (Rs.36.45), a sponge iron manufacturer, was busy hitting upper circuits continuously. This means that knowledgeable persons are accumulating the scrip before the March’05 figures are announced. It’s trading very cheap at a PE of 2 on an expected EPS of around Rs15 for FY05. Its share price can even double from the current levels if the numbers are good. Aggressive investors can take an exposure in this company for handsome gains.

Indo Asian Fuse Gear (Code: 517318) (Rs.89.00) manufactures electrical safety devices such as miniature circuit breakers, residual current circuit breakers, HRC fuses, transformers, switchgears, wires & wiring accessories, industrial plugs & sockets, contactor relays, distribution boards etc. Its operating margins are better than that of Havells. It will end FY05 with an EPS of more than Rs12 and is expected to return to the dividend by 20% dividend for FY05. Dometic funds are bound to take exposure in this growing company and SBI MF has initiated the process by taking a small exposure recently. Besides it has come out of T2T segment, which may trigger the scrip in the short term. Medium term investors can expect a price of Rs150 in 12 months.

In a few months, Gujarat NRE Coke’s (Code: 512579) (Rs.126.50) second plant of 3,24,000 TPA will be fully operational. It is setting up its third plant at Karnataka for 4,00,000 TPA, which will take the company’s total capacity to 1.08 million TPA and 1.48 million TPA for the whole group. Due to the rising price of coking coal, which is the basic raw material, the company is importing Chinese technology to help reduce its input cost. Last month, it raised USD 55 million through FCCB. For FY05, it can report sales of Rs450 cr. and NP of Rs.135 cr. i.e. an EPS of Rs14 on the expanded equity of Rs94.32 cr. after the bonus issue. Considering its expansion plans and strategic tie-up with BHP Billiton, its share price can easily cross Rs200 in the medium term.

Orissa Sponge (Code: 504864) (Rs.57.70) is expected to end FY05 with net sales of Rs138 cr. and NP of Rs11 cr. Although its margin is a bit under pressure since the last 2~3 quarters, it will improve in future due to capacity expansion and the setting up of a power plant. It has ambitious long-term expansion plans to double its capacity of sponge iron as well as steel billets. For FY05 and FY06, it can report an EPS of Rs9 and Rs13 respectively. A good long term bet.

Investors are advised to accumulate Reliance Industries Ltd. (Code: 500325) (Rs.557.15) at every sharp decline. With rising crude oil prices, its refining margins will also increase. It has also increased its product prices due to rising input cost. Besides, it has very strong support at Rs540 and the management will not let it fall much as they have bought back shares worth Rs150 cr. only against the approved for Rs2999 cr. The risk-reward ratio is in favour of bulls and its share price can cross Rs650 soon.

Lot of speculation is going around in the Tech sector and analysts expect better future guidance from biggies like Infosys, Wipro etc. The Tech sector is expected to out- perform in coming months and one can buy Aftek Infosys (Code: 530707) (Rs79.00) at current level as its still available at a single digit PE. Although promoters hold only 14% stake (26% with Deutsche Bank Trust Company Americas as Depository) but it is a FII favourite who hold 13% stake and recently Goldman Sach acquired more than 3% stake at Rs80.

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.