Ind Swift Ltd - Rs.61.00

Ind-Swift Ltd (ISL) started up its activity in development, manufacturing and marketing of prescription and non-prescription pharmaceuticals in 1984. Since then, it has emerged as a research driven, forward looking pharmaceutical company with world-class expertise in finished dosage form medicines. ISL is one of the fastest growing Pharma companies and ranked among the most promising pharmaceutical groups in India by both IMS and ORG-Marg. It’s into manufacturing of broad range of solid, liquid, semi-liquid forms, capsules, tablets, dry/liquid injectables (small & large volume), eye/ear drops, oral solutions, creams/gels etc. ISL is gradually becoming a leading player in select therapeutic categories like Gynaecology, Cardiology, Diabetology and Paediatrics. ISL also manufactures a wide range of products under anti-allergic, anti-fungal, anti ulcer, antibiotic, antispamodic, mineral & vitamins, antihypertensive, speciality herbals etc.

The company’s manufacturing procedures are laid down as per US FDA/WHO GMP guidelines & complies with ISO certification. It has an unique R&D centre having facilities for bio-equivalence studies, clinical trials for Ist, IInd and IIIrd phase and toxicological studies. The R&D team is presently working on a number of products at various stages of development in the high growth areas of cardiology, diabetology, neurology, anti-asthmatic, anti-cancer and anti-alcoholic segments, which are planned for launch in the current year. Recently, the company has successfully launched a wonder molecule for the first time in Asia named `Nitazoxanide' under the brand name `Netazox' for the treatment of diarrhoea. The company has been granted two process patents by the Indian Patent Office. ISL has launched a new marketing division under the name 'Resurgence' for Anesthesiology, Oncology and Surgery Segment. Last year, the company received its first US patent for the NDDS of a macrolide antibiotic `Clarie-SR' a formulation completely developed in-house. The company has also filed another patent for NDDS formulations based on an anti-histamine drug. ISL is also in line to offer a very synergistic opportunity for partnership with MNCs for contract research & manufacturing world-class products that involve substantially reduced R&D costs as compared to their current expenditure. ISL’s future business model envisages achieving leadership in the niche value-added specialized domestic pharmaceuticals market and building a strong de-risked international business around its core strengths by leveraging its manufacturing capability of NCEs, CRO for Global markets, APIs and Formulations with Distinctive sales & marketing infrastructure, and R&D through alliances and In-Licenses and Acquisitions.

Fundamentally as well as financially, the company is very strong and holds around 45 lakh shares of Ind Swift Labs. On its very small equity of Rs.7.30 cr., the company has around Rs.90 cr. in reserves and Rs.90 cr. in investments as per current market valuations. For FY05, its Net Sales increased by 16% to Rs.247 cr. and NP jumped 120% to Rs.28 cr. (including extraordinary income) reporting an EPS of Rs.8 on face value of Rs.2 per share. Going forward, we expect the company’s margins to improve and it can post a NP of Rs.33 cr. on total sales of Rs.300 cr. This works out to an EPS of Rs.9 on its current equity. Investors are advised to buy at current levels with a price target of Rs.100 in 15~18 months.

Ador Fontech - Rs.83.00

Ador Fontech, an associate company of Ador Welding and belonging to well known Ador Group formerly Advani Oerlikon was incorporated in August 1974 as Cosmics Fontech but subsequently changed its name to Ador Fontech. In 1992, it acquired Fist India (P) Ltd and Kostech India Pvt Ltd, which were later merged with the company as a division. Today, Ador Fontech is a leading organisation dedicated to reclamation, welding and thermal coating solutions. The company focuses on maintenance welding, which is a niche segment requiring specialised skills and offers products and solutions for reclamation welding and recycling of vital machinery components. The company’s product basket includes filler wires, welding equipment / accessories, wire feeders, wear plates and cladded pipes. Apart from manufacturing these products, Ador Fontech also acts as a value-added reseller for Alloy Steel International of Australia, Berco of Germany, CEA of Italy, Cepro of Holland, Degussa of Germany, Euromate of Holland, Gasflux of USA, Protector of Australia and Sulzer Metco of USA for their products in India. It also offers a high temperature process for maintenance products from Aremco of USA.

Ador Fontech supplies products and services to almost all core sectors and several engineering industries. The focus of its activities is to provide metal joining, reclamation welding and surfacing solutions. Its major customer base includes mining industries, steel and other metallurgical complexes, power plants, railways, road transport workshops, ship building & repairs, sugar mills, cement plants, fertilizer & chemical plants, oil drilling and refining sectors, defence units and numerous engineering industries. Almost all its customers have optimistic growth plans today. Higher productivity in welding processes such as semiautomatic and automatic welding systems are increasingly in demand, which augurs well for the company. The other opportunities are in the field of high productivity welding and cutting systems, welding fume extraction systems, specialised surfacing and hard-facing alloys and deposition equipment.

Fundamentally also the company is quite strong and has a handsome dividend payout ratio of more than 50%. Recently, it came out with very impressive numbers for the March’05 quarter. Its topline grew by 43% to Rs.17.50 cr. and NP increased by 60% to Rs.1.44 cr. excluding extraordinary items. For FY05, it sales was Rs.55 cr. up 35% and NP stood at Rs.2.80 cr. excluding extraordinary adjustment leading to an EPS of Rs.8 on a very small equity of Rs.3.50 cr. Due to the industrial uptrend and the expansion drive undertaken by leading companies in all sectors, Ador Fontech may close FY06 with a revenue of Rs.65 cr. and NP of Rs.3.5 cr. leading to an EPS of Rs.10 and the company may declare 50% dividend for FY06. Investors can buy the scrip at declines with a price target of Rs.120 in 12~15 months.

STOCK WATCH

Indsil Electrosmelts (Code No: 522165) (Rs.60.45) was beaten down since there was a marginal decline in its topline in Q4FY05. But still, the company reported a good bottomline and its operating margins remain healthy above 30%. For the nine months ending 31st March 2005, its net sales increased 20% to Rs.59 cr. and NP stood at Rs.10cr. compared to Rs.0.60 cr. last year. For FY05, it may report an EPS of Rs.14. A strong buy.

Sah Petroleum (Code No: 532543) (Rs.25.80), which came out with public issue at Rs.35, is quoting almost at its all time low. It produces specialty industrial lubricants, rubber processing oils and automotive lubes under the 'Ipol' brand name. Due to the rise in crude oil prices its margins are under pressure. Still, the company is expected to end FY05 with an EPS of Rs.3.5. It is also planning to double its existing capacity to 80,000 kilolitres by April 2006 and may close FY06 with an EPS of Rs.5. The share has the potential to cross Rs.40 in next 12~15 months.

In construction and infrastructure, MSK Project (Code No: 532553) (Rs.65.35) is looking good and is still available reasonably cheap. For FY05, its total revenue grew by marginal 7% to Rs.78 cr. but its NP jumped 65% to Rs.5 cr. posting an EPS of Rs.4. Currently, the company has a healthy order-in-hand position of more than Rs.230 cr. and is expected to post an EPS of Rs.7~8 for FY06. Share price can hit a century in the next 12~15 months.

Over the last few months, MTNL (Code No: 500108) (Rs.115.50) has beaten the big pvt cellular operators in garnering new subscribers both in Delhi and in Mumbai. And things are changing at a much faster pace in MTNL as it is aggressively marketing its products and turning more professional. It has huge reserves of Rs.10,000 cr. and a Gross Block of Rs.13,500 cr. on its current equity of Rs.630 cr. But its market cap is still at Rs.7500 cr. With such a huge infrastructure, strong financials and the management becoming serious, MTNL can grow faster than the industry average. Merger or no merger, MTNL looks good and can be accumulated, as the downfall is limited from current levels.

Lahoti Overseas (Code No: 531842) (Rs.49.50) a leading player in the export of cotton yarn is trading reasonably cheap and can be bought at the current levels. The company is planning to foray into weaving to manufacture and export fabrics as well. It’s a good dividend paying company. For FY05, it may report an EPS of Rs.9 that can rise to Rs.12 in FY06. Its share price can rise 50% in 12 months

Tata Sponge (Code No: 513010) (Rs.177.45) has once again come out with impressive numbers for March’05 quarter. Its sales grew by 40% to Rs.65 cr. and NP was up 60% to Rs.16 cr. For FY05, it reported an EPS of Rs.40 and declared 70% dividend. The company is expanding its installed capacity from 2,40,000 TPA to 3,90,000 TPA and may report an EPS of Rs.45 for FY06. Its downside is very limited from hereon where as on the upside, it can easily cross Rs.250 marks.

Simbhaoli Sugar Mills - Rs.81.00

Simbhaoli Sugar Mills Ltd (SSML) was incorporated as a Private Limited Company in 1936 and became a Public Limited Company in 1989. It is one of the oldest and largest integrated sugar manufacturers in North India and produces alcohol and ethanol downstream. Last year, it converted its entire manufacturing capacity at Simbhaoli Sugar Division into a sugar refinery. It basically produces refined sugar and various specialized sugars like pharma grade sugar, confectionery sugar, coffee sugar, sugar cubes, table sugar etc. It has also entered into the branded market under the brand name `TRUST' and has its own 1 kg and 5 kg packs. SSML is the preferred vendor to institutional customers like Coca Cola, Jayco, Pepsi and sweetmeat makers such as Haldiram, Nathu, Bikanerwala etc as it supplies low sulphur content sugar which is perceived to be of superior quality and commands a premium.

SSML operates two mills in Uttar Pradesh at Simbhaoli and Chilwara with a crushing capacity of 7500 TCD and 3800 TCD respectively employing over 1300 people. SSML also has a distillery capacity of 75 KLPD and ethanol production capacity of 30 KLPD. At the Simbhaoli unit, SSML produces refined sugar through the DRPIE process, which is a unique feature in the sugar industry as opposed to the conventional double sulphitation process. The company is now expanding the crushing capacity of its Simbhaoli unit to 9,500 TCD, so that in addition to the 7500 tonnes of refined sugar, 2000 tonnes of raw sugar is produced every day. This will enable the unit to run its refinery for 240 days in a year processing in-house and imported raw sugar for an extended period of 100 days. SSML is also expanding the Chilwaria plant capacity to 6,000 TCD and increasing co-generation of 8 MW/hour to 17 MW/hour and establishing raw sugar processing facility for the off-season. It is also increasing the distillery capacity to 90 KL/day from 75 KL/day. The entire cost of expansion is Rs.50 cr., which will be funded through a rights issue. With this expansion, its total installed capacity will stand increased to 15,500 TCD from the current 11,300 TCD. But with its innovative `model' of extending the running period by using surplus stored baggase to process raw sugar in the off-season, SSML will double its production capacity from the existing 1.8 lakh tonnes to about 3.4 lakh tonnes of sugar, which includes processing of one lakh tonnes of imported raw sugar. Besides, this will also help in the sale of additional power from its co-generation unit to the State grid.

SSML is planning to come up with a rights issue in the ratio of 1:1 at around Rs.60~65 per share. Moreover, SSML has already provided for cane price arrears upto 2003~04 and is also going in for a corporate debt restructuring which will reduce its interest burden and make the balance sheet much stronger. The sugar industry has witnessed a dynamic change from a surplus to near deficit situation due to which sugar prices are estimated to remain firm. In short, all conditions are favourable to SSML and we expect it to report a total turnover of Rs.475 cr. and earn NP of around Rs.38 cr. This works out to an EPS of Rs.17 on its expanded equity of Rs.22 cr. Investors are advised to buy this scrip at sharp declines with a price target of Rs.120 in 12~15 months.

Ashirwad Steel - Rs.36.00

Ashirwad Steels & Industries Limited (ASIL) was incorporated in 1986 as Ashirwad Mercantiles Ltd. but subsequently the name was changed to Ashirwad Steels & Industries Ltd. in 1993. Today, this Rs.75 cr. company is engaged in the production of sponge iron. Besides this, the company also has a LPG storage facility. Since the last 15~18 months demand for steel has increased substantially in the domestic as well as international markets. Hence the demand for sponge iron, the basic raw material, has also spurted leading to sharp price hikes as well. ASIL is having the best of times as it enjoys double benefit-one of expansion and the other of higher price realization although the rising input costs are now becoming a concern for the company.

ASIL is headquatered in Calcutta and its manufactuing plants are located in Jamshedpur in Jharkhand and Nalgonda in Andhra Pradesh. Earlier, it had only one plant of 36,000 MTA in Jamshedpur but within a short span it tripled capacity by setting another plant in Nalgonda with 30,000 MTA in the first phase in October 2003 and another 30,000 MTA in the second phase in August 2004. Currently, it has a total installed capacity of 96,000 MTA. In FY04, it produced around 45,000 MTA of sponge iron which is expected to cross 80,000 MT in FY05 and 96,000 with optimum production in FY06.

Its LPG Bottling Plant at Uluberia, Howrah, is given under lease to M/s SHV Energy North East Ltd and is generating lease rent as other income.With the government’s thrust on infrastructure and the overall industrial uptrend, demand for steel and thereby for sponge iron is expected to remain robust in FY06 as well. But at the same time, little cool off in sponge iron prices cant be ruled out. Although ASIL’s December quarter was not that great but still it’s expected to end FY05 with impressive figures. For FY05, ASIL is expected to report Net Sales of Rs.75 cr. and NP of Rs.6 cr. leading to an EPS of Rs.15. As on March 2005, its book value may stand increased to Rs.33 from Rs.23 last year. The company may declare 5~10% dividend but chances are bleak. Investors are advised to buy after its March numbers are declared and only if the company maintains the operating profit margin. Its share price has the potential to touch Rs.60 in 12~15 months. ASIL has already demated its shares with CSDL and NSDL. Considering its small equity capital and improved performance, its low P/E coupled with the bright prospects of the sponge iron industry; the shares of ASIL can be bought for long-term gain.