Modern Steel Ltd - Rs.90.00

Promoted by Amarjit Goyal, Modern Steel Ltd (MSL) was originally incorporated as a Private Limited Company in 1973 and was then converted into a public limited company in 1974. Today, it’s a well known manufacturer of special and alloy steels and caters to the needs of a wide spectrum of users that include Automobiles, Tractors, Engineering, Defence, Railways and allied industries. It produces a wide range of Steel Grades, Carbon Constructional Steel, Alloy Steels, Free Cuttings, Tools and Spring Steel. In addition it produces Billets, Rounds, RCS, Flats and Special Profiles. With its large range of products MSL caters to OE customers which include Ashok Leyland, Escorts, Eicher Motors, Punjab Tractors, HMT, MICO, Lucas-TVS, Sundaram Fastners and their ancillories.

MSL’s manufacturing facility is located at Punjab with an installed capacity of 1,00,000 TPA. The plant is equipped with 25 tonne Arc Furnace, with secondary refining and continuous casting facilities, modern rolling mills and a captive oxygen plant. To cash on the uptrend in the steel cycle, MSL has initiated a modernization & expansion plan with an estimated capital outlay of Rs.32 cr. in its Steel Melting Shop and Rolling Mills. It intends to enhance the steel melting shop capacity by 50,000 TPA and Rolling Mill capacity will be increased by 36000 TPA. The project is expected to be completed by March 2006. To fund this expansion, it will raise money through private placement of equity by preferential allotment. In line with the company's policy for continual improvement, MSL has achieved TS 16949 certification from DNV, Netherlands, last year. Besides due to improved performance, MSL came out of the preview of Sick Industrial Companies (Special Provisions) Act., 1985 in FY04 itself.

Due to better management, constant modernization and higher price realization, MSL improved its operating efficiency quarter by quarter. It reported an OPM of 11% for FY05 compared to 7% for FY04. For FY05, its turnover increased 37% to Rs.270 cr. and NP jumped 170% to Rs.16.50 cr. in spite of higher tax provision of around Rs.10 cr. and declared 20% dividend. EPS works out to Rs.34.50 for FY05 on its current equity of Rs.4.80 cr. Considering that the steel demand will remain robust in coming quarters, MSL may report an EPS of Rs.40 on current equity for FY06. This works out to Rs.24 if we consider the diluted equity as Rs.8 cr. Investors are recommended to buy this scrip with a price target of Rs.150 in 15~18 months.eners and their ancillary units.

Chemfab Alkalies - Rs.176.00

Incorporated on 16th June 1983, Chemfab Alkalis Ltd (CAL) was promoted by Titanium Equipment and Anode Manufacturing Co. Ltd., (TEAM) to produce caustic soda. Today, this ISO 14001 certified company is the leading player engaged in the manufacture of Caustic Soda lye, Liquid Chlorine Hyd rogen Gas, Hydrochloric Acid, Sodium Hypochlorite / Bleach Liquor, Barium Sulphate etc. Notably, CAL is the first in the country to introduce Pollution-free Membrane Cell Technology, which became the trendsetter in the Chlor-Alkali Industry. Moreover, it is also the first company to manufacture Barium Sulphate from solid waste and also holds a patent for the manufacture of the same.

CAL’s manufacturing plant is located just 500m from the seashore at Kalapet in Pondicherry, which offers great potential for desalination. In fact the company intends to put up a desalination plant of 1 MGD capacity, which will meet its total water requirement and will enable it to sell water to potential customers since the entire East-coast has huge deficit of ground water. Importantly, due to backward integration the company is self-sufficient on the salt front and its entire requirement of salt is met from its own salt fields resulting in significant savings. On the power front, CAL has its own 110KV sub-station and receives uninterrupted power supply from Pondicherry Electricity Department. Knowing the future potential of Biotechnology, CAL has recently undertaken a conscious decision to meet the technological challenges and commercial demands of the future by creating a separate Life Science Division for pursuing effective product portfolios on Nutrition and Wellness. It has also identified Bio-separation, Nano-Membranes and Bio-remediation to decimate industrial and environmental pollution.

Due to the increasing demand from the user industry like paper, aluminium, detergents, pharma, PVC etc. caustic soda prices are rising constantly and are expected to remain high due to limited supply. Being a strong player in southern market, CAL is witnessing the best of times. For FY05, its net sales increased by 14% but its NP almost tripled to Rs.9 cr. due to higher price realisation and saving in interest costs leading to an EPS of Rs.26 on a small equity of Rs.3.50 cr. The company declared 100% dividend, which means a dividend payout ratio of 40%. For FY06, it may report an EPS of Rs.30 and can declare Rs.12 dividend giving a dividend yield of 7%. Investors are advised to accumulate this scrip at sharp declines with a price target of Rs.250 in 15 months.

STOCK WATCH

Hazoor Media (Code No: 532467) (Rs.10.35) has entered into a joint venture project with Omkar Petrochemicals Limited to jointly set up project with an installed capacity of 30K litres per day for manufacturing Ethanol an Energy Fuel. It has also made its foray into the power sector to set up 10 MW co-generation power project for generation and distribution of grid quality power from biomass resources using steam turbine technology. Besides, it has huge real estate of 90,000 sq. mtrs. Being a zero debt company with a book value of Rs.19, its share price can easily rise 50% from the current level. At the same time, equity dilution cannot be ruled out in future.

Electrotherm India (Code No: 526608) (Rs.85.85) manufactures induction melting furnaces, induction heating & hardening equipment, single electrode DC arc furnaces, secondary metallurgical equipments etc for the steel industry and is a major player in the domestic and export markets. It is setting up a 70,000 TPA cast iron manufacturing facility in the Kutch District of Gujarat, which will boost its topline significantly. In future, the company also intends to go for backward and forward integration to become an integrated player. For FY05, it may report an EPS of Rs.20. Investors can accumulate it at declines for the long term as there is the possibility of equity dilution in the near future. The scrip is now available in demat mode.

GMM Pfaudler (Code No:505255) (Rs.357) is the largest domestic manufacturer of Glass lined reactors and its products line includes Wiped Film Evaporators, Agitated Nutche Filters and High efficiency Mixing Systems. It has chalked out aggressive plans to tap the growing market of pharmaceutical equipment in the post-patent regime by introducing products that are compliant with international standards. In FY05, its OPM has improved substantially to 15% from 8% last year. It reported an EPs of Rs.25, which may shoot up to Rs.35 in FY06 and its share price can cross Rs.500 in the medium term

Bhagyanagar Metals (Code No: 512296) (Rs.26) intends to restructure its businesses Telecom, Metals, Investments and Infrastructure. It may continue as a Metals & Investment Company and demerge the company's telecom business to Bhagyanagar Telecom Limited, Infrastructure business to Bhagyanagar Infrastructure Limited. This will lead to a re-rating of the scrip in future, as each company will concentrate on its core strength. For FY05, it reported an EPS of Rs.8.5 (FV of Rs.2) as other income constitutes 40% of its bottomline.

Hind Rectifiers (Code No: 504036) (Rs.328.40) produces electrostatic precipitators, transformers, reactors, mobile submarine battery chargers, constant current regulators for the Defence sector and rectifier systems, pulse power supply systems, regulators, power diodes, thyristors, auxiliary converters & inverters, and trackside DC substation equipment for others. The company has a healthy order book position and is expected to perform far better in FY06. It may report an EPS of Rs.33 and Rs.42 for FY05 and FY06 respectively. With a very small equity of Rs.1 cr. and reserves of around Rs.8 cr., there is possibility of a bonus issue in the near future. A strong buy.

Recently Alchemist Ltd (Code No: 526707) (Rs.108.35) bought 60 per cent stake in Valiant Healthcare Limited, a Delhi based pharma company for Rs.4.5 cr. as a part of its growth strategy to focus on Healthcare and Agri business. Alchemist is setting up a R&D Centre to offer drug development support services (DDSS) to global pharmaceutical companies and is also planning to focus on Clinical Research Operations through its presence in hospital, clinical and pathological lab segment. For FY05 ending 30th June 2005, it may report an EPS of Rs.25 on its current equity of Rs.5.50 cr. Scrip has the potential to cross Rs.150 in the next 3 months.

Dhanuka Pesticides - Rs.104.00

Incorporated in 1985 and promoted by the Dhanuka Group, Dhanuka Pesticides Ltd (DPL) is engaged in the manufacture of various technical-grade pesticides, which include insecticides and weedicides and has emerged as one of the top pesticides formulators and marketing organisation in India. The Dhanuka Group is a well established manufacturer / formulator of a wide range of popular pesticides; in ECS, Granules, Wettables & Dust Formulations of Insecticides, Fungicides, Weedicides, PGR, Growth Stimulant and Wetting Agents. Whereas DPL’s product profile includes Methomyl 12.5; L, Ethofenprox 10%; Validamycin 3%; L, Kasugamycin 3%; L, Cypermethrin 10%; EC, Cypermethrin 25%; Fenvalerate 20%; Cartap hydrochloride 50%; Methomyl 40%; and Cartap hydrochloride 4% G.

DPL's production facilities are located in Gurgaon district of Haryana, It has a technical tie-up with Du Pont of USA for the formulations of pesticides using as methomyl raw material. Apart from this it has entered into a series of technical tie-up agreements with a number of Japanese multinationals like Takeda Chemicals Industries Ltd for Cartap Hydrochloride and Validamycin, Mitsui Chemicals Inc for Etofenprox, Hokko Chemicals Ind. Co. Ltd. for Kasugamycin etc. Last year, DPL launched a new insecticide under the brand name ‘DHAWA’ (Indoxacarb 14.5% SC) which got a huge response from the cotton dominant Indian market. It is an eco-friendly and safe molecule with widespread application to control the insects in cotton especially for American bollworm, a major cotton insect. The company is also launching a new, safe and eco-friendly herbicide under the brand name 'QURIN' (Chlorimuron Ethyl 25% WP), in a marketing tie-up with E.I.Du-Pont India. The Dhanuka group has a huge network of distributors, preferred dealers and retailers (over 8000) supported by its branch offices in almost every state. Moreover for the future growth DPL, it is strengthening in house R & D for process improvement and new molecules, obtain safer and eco-friendly products through tie-ups, extend and implement the cause of right and judicious use of pesticides and consequently sustained growth of the group. Besides, an export remains a huge potential market.

India primarily being an agriculture country, the government has put special thrust on agricultural development for higher GDP growth. And with the Meteorological Department predicting good monsoon this season also, it will be a bumper year for DPL. With an increasing trend in the use of pesticides and other crop protection methods by Indian farmers, DPL has a very bright future ahead. For the nine months ending 31st Dec 2004, its Net Sales jumped around 120% to Rs.49 cr. and NP tripled to Rs.3 cr. For the full year, it is expected to report an EPS of Rs.20, which may shoot up to Rs.24 in FY06. Long term investors can accumulate this scrip at sharp declines on expectation of 100% returns in 15~18 months.

Kilburn Engineering - Rs.64.00

Incorporated in 1987, Kilburn Engineering Ltd. (KIL) is an associate company of Williamson Magor Ltd., which is one of the 20 large industrial groups operating in India. The company specialises in process design, engineering, manufacture, installation and commissioning of turnkey plants/systems for petrochemicals, chemicals, fertilizers, refineries, oil & gas, food processing, etc. It is also engaged in designing, manufacturing, marketing, field erection and commissioning of industrial drying system, oil field and air handling equipment. KIL is well-known in the field of industrial drying, its core strength being ‘Heat and Mass Transfer Systems’. Besides, it has expertise in chemical engineering and chemical treatment process and also deals in fabrication equipments like heat exchangers, evaporators, reactors etc.

KIL has a modern and well-equipped workshop equipped with machining, fabrication, testing and allied facilities and has a technical collaboration with Nara Machinery Co of Japan and Carrier Vibrating Equipment of USA. It has been awarded ISO-9001: 2000 Quality System Certification by M/S. Det Norske Veritas (DNV) of the Netherlands and has been accredited by the RVA. The company exports equipments to over 25 countries worldwide including Japan, Italy, USA, France, China, Taiwan and Malaysia etc. In the domestic market GAIL, HLL, IPCL, Gujarat Alkalies, GNFC, L&T, DCM Shriram, Nirma, HPCL are among its reputed clients. This year, it started supplying new Phase V Tea Dryer to Kenya Tea Development Authority. KIL has also designed and developed equipment for the rice mill industry to diversify its product range. It has also successfully negotiated to export Paddle dryers to M/s. Komline Sanderson, USA. Few months back, it supplied dryers to Ivory Coast in Africa for processing of desiccated coconut. It is also focusing on the food processing industry, which has a huge growth potential. KIL is putting more thrust on exports and intends to take it to 40% of total sales from the current 25%. In short, it has a very healthy order book position, which includes repeat orders from world-class companies.

Under the rehabilitation scheme sanctioned by the BIFR, KIL has got various fiscal reliefs, benefits and concessions from the lenders/bankers due to which it turned around last fiscal ending Sept 04. In February 2004, it sold off a property in Baroda for a one-time settlement with financial institutions and paid off Rs.16 cr. It has brought down its debt from Rs.87 cr. to Rs.24 cr. and expects to wipe out all its carry forward losses by 2006~07. Recently, the company issued Right shares to raise funds for its working capital requirement. In future, it may also re-locate its Mumbai factory in Bhandup, and sell this prime property and improve its operating efficiency using the funds generated. For the six months ending March 2005, its turnover has more than doubled to Rs.25 cr. and NP stood at Rs.3.75 cr. compared to Net Loss of Rs.5.70 cr. For full FY05, it may report sales of Rs.55 cr. and NP of Rs.8 cr. resulting in an EPS of Rs.12 on it current equity of Rs.6.75 cr. Diluted EPS on its expanded equity may amount to Rs.8. For FY06, it can post an EPS of Rs.14 on the expanded equity. For investors, it is a very good bet from the engineering sector and they can expect a price target of Rs.150 in 15 months.