Nagarjuna Agrichem Ltd - Rs.114.00

(Code No: 524709) Established in 1994, Nagarjuna Agrichem Ltd (NACL) belongs to the reputed Nagarjuna Group of Hyderabad. Producing technical grade Monocrotophos since inception, NACL has grown substantially and manufactures a comprehensive range of pesticide technicals, formulations and custom manufactured fine chemicals of international quality standards and specifications. Today, the company has an impressive range of over 40 formulations of Insecticides, Fungicides & Herbicides to supplement its crop protection and speciality agronutrients business. NACL is among the few companies in India exporting technical grade pesticides and formulations to as many as 15 countries including Argentina, Australia, Greece, Italy, Japan, Oman, Portugal, Saudi Arabia, South Africa, Spain, etc. It has one of the largest dealer networks spread across India with sales and marketing offices in addition to extensive warehousing and Logistics infrastructure to handle operations in 19 States. In fact, it is the largest seller of High Performance Speciality Fertilizers in India, which are sourced through an exclusive tie-up with HAIFA Chemicals, Israel.

NACL operates one of the most modern and comprehensive Technical Agrochemical manufacturing plants situated in Srikakulam district of Andhra Pradesh. This unit is among the few to have integrated multi-line facilities capable of producing a variety of pesticide formulations such as liquids, wettable powders and granules simultaneously in a single location. This unit has the formulation technology to produce dry flowables and water based emulsions. The R&D / Process Development Department of NACL is the second largest of any Indian Agrochemical Company in terms of size and scope of operation. Currently research is being carried out to develop Bio-pesticides and Fermentation metabolites. Interestingly NACL also does Toll manufacturing of Agrochemicals and Intermediates for MNCs and Indian Pesticide majors who wish to outsource a part of their product requirements. In addition to the above, it also custom synthesises several Fine Chemicals for reputed customers.

Given the higher GDP growth, the government’s thrust on agriculture and better monsoons will lead to increased usage of crop protection products and increase in sales for NACL. For the nine months ending 31 Dec. 2004, its net sales was up 40% to Rs.227 cr. and profit after tax has more than doubled to Rs.22 cr. Due to its improved performance the company is expected to declare 15% final dividend taking the total to 30% dividend compared to 12% in FY04. For FY05, it may report a turnover of Rs.280 cr. and NP of Rs.26 cr. leading to an EPS of Rs.18. For FY06, it can report an EPS of Rs.22 in anticipation of better monsoons and higher export realization. Investors can accumulate this scrip at declines with a price target of Rs.180 over the next 15~18 months.

DCM Shriram Industries - Rs.78.00

DCM Shriram Industries Ltd. (DSIL) was formed in 1990 on the restructuring of the erstwhile DCM Ltd. It is the flagship company of the DCM Shriram Industrial Group based predominantly in North India with a portfolio of products comprising Sugar, Alcohol, organic and inorganic chemicals, drug intermediates, Rayon Tyrecord & Shipping Containers. Incidentally, all their divisions are performing well due to the growing economy and their future seems even brighter.

DSIL’s sugar, chemical & alcohol plants are located in Daurala, UP, whereas its industrial Rayon and Nylon plant is situated at Kota, Rajasthan. It has a most modern sugar factory with 8000 TCD capacity and is the largest manufacturer of high purity. Double Refined Sugar in the country besides producing sugar cubes, sugar sachets, packaged premium sugar etc. DSIL’s distillery unit is amongst the largest in the country with a capacity of 45,000 KL of bulk alcohol and a million cases of potable liqour and country liquor. Its Anhydrous Alcohol plant of 9000 KL, which produces and supplies ethanol to oil companies for mixing with petrol is based on the latest state of the art Membrane Technology and is the first plant of its kind in India established by a Japnese MNC. DSIL’s industrial fibre plant is also one of the biggest manufacturers of Rayon Tyre Cord, Nylon Tyre Cord and Nylon Fabrics with capacity of 14,800 MT.

Recently, the company has approved the merger its subsidiary, Daurala Organics Ltd with itself under a swap ratio of 1:10. i.e. 1 share of DSIL against 10 shares of Daurala Organics. This is very good for DSIL as this subsidiary is a downstream diversification project of Daurala Sugar to manufacture high technology, high-value drug intermediates. Besides, the management is taking various initiatives to restructure its high debt and bring down the interest cost, which will boost its bottomline substantially. With its sugar, alcohol and industrial fibre segment growing rapidly, we expect it to end FY05 with Net Sales of Rs.530 cr. and NP of Rs.27 cr. posting an EPS of Rs.20 on its current equity of 13.73 cr. Post merger figures for FY05 may be Rs.630 cr. of Net Sales and Rs.30 cr. of Net Profit, which will lead to an EPS of Rs.19 on the merged equity of Rs.16 cr. Since it is quoting at a PE of just 4, which is reasonably cheap, the share price can easily appreciate 50% in 12 months time. Investors are strongly advised to buy at current levels with a target of Rs.120 in 12~15 months.

STOCK WATCH

Venus Remedies Ltd (Code: 526953) Rs81.65: is a Chandigarh based pharmaceutical company engaged in manufacture of Super Specialty formulations in Oncology & Cephalosporin segments. Within 4 months, it has filed 4 patent applications to the Indian patent office and another 10 are in the pipeline. The company is very aggressive in launching innovative, new generation, high-end, specialty products in the anti-cancers and Cephalosporin segments. It has successfully launched 10 new formulations in these segments during 2004-05 and is planning nearly a dozen launches during this fiscal. It has ambitious growth plans for which it is setting up an USFDA accredited manufacturing facility at Baddi. It appears to be a multibagger in the long run.

Recently, the second plant of Pitti Lamination (Code: 513519) Rs71.85 has gone on stream with commercial production taking the total capacity to 10,000 MTA. With a healthy order book position and expectation of large export orders the company is planning to further enhance the capacity by another 10,000 MTA. For FY06 it can report an EPS of Rs15. A strong buy for the medium to long term.

Kilburn Engineering (Code: 522101) Rs.48.25 operates in areas of process design, engineering, manufacture installation and commissioning of turnkey plants and systems catering to industries such as petrochemicals, chemical fertilisers, refineries, oil and gas and food processing. It came out with very impressive numbers for 31 March 2005 quarter. Its revenue grew by 21% to Rs14.50 cr. and reported a NP of Rs2.07 cr. against a loss of Rs8.30 cr. last year. For FY05 ending 30 Sept. 2005, it can report an EPS of Rs12. It is expected to clear its accumulated loss in 2 years time. Moreover, it’s planning to relocate its factory in Bhandup and sell the land.. Its share price can easily double in 15 months.

Those who believe in the Steel story should buy KIC Metaliks (Code: 513693) Rs75.05. It has set up 1,44,000 TPA captive coke oven plant, which commenced production last month. Secondly, it’s also setting up a hot stove and a 4 MW captive power plant. With these developments, its input cost will come down substantially. It now plans to put 1,50,000 TPA steel billet plant and 1,00,00 TPA sponge iron plant besides increasing its pig iron capacity to 1,50,000 tonnes. To fund this expansion, the company is obtaining term loans and may raise capital from the capital market, which will dilute its equity. But still it is expected to post an EPS of Rs.11 and Rs.18 for FY05 & FY06 respectively. Buy at every decline.

Bihar Caustic (Code: 500057) Rs.53.65 enjoys the highest operating margins among it peers -even better than Gujarat Alkalies and Chemfab Alkali. Recently, it came out of the T2T segment on the BSE and is expected to declare 20% dividend along with its March numbers on 26th April 2005. Whether it provides for any extraordinary expense this quarter is to be watched carefully. Otherwise, it is expected to post an EPS of Rs11 for FY05. Grab it fast as the scrip may shoot up sharply once the numbers are out!

Sathavana Ispat Ltd (Code: 526093) Rs.42.90 has increased its pig iron capacity from 1,20,000 to 2,10,000 tonnes in Dec.’04 only and has set up 8.4 MW co-generation power plant, which will impact its March numbers to a certain extent. Secondly, its coke oven facility of 1,50,000 TPA is working at full capacity. Moreover, the company has already arranged for the term loan for its greenfield project for the manufacture of 3,00,000 MTPA of Metallurgical Coke with co-generation of power of 30MW. With an expected EPS of Rs11 and an ambitious growth plan without any equity dilution, its share price can double in 12 months. Buy and hold it with patience.

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.