GSFC - Rs.140.50

Incorporated in 1962 Gujarat State Fertilisers & Chemicals Ltd. (GSFC) was promoted by the Government of Gujarat to manufacture fertilizers and heavy chemicals. Today, it is the largest producer of caprolactum and also has one of the largest capacities in diammonium phosphate. Currently GSFC manufactures chemicals, fertilisers, petrochemicals and other allied products such as urea, caprolactuam, ammonium sulphate, diammonium phosphate, ammonia, sulphuric acid, argon gas, etc. apart from producing nylon-chips and melamine. Recently, GSFC commercialized biotechnology by offering high quality tissue culture plants of banana and papaya to the farmers in Gujarat, Maharashtra and MP. It has also entered into marketing of bio-pesticides in order to propagate organic farming.

GSFC’s manufacturing facilities are dispersed over four units at Fertilizernagar (Baroda), Sikka (Jamnagar), Kosamba (Surat), and Nandesari (Baroda). It has a strong sales supporting network comprising 300 warehouses across the country connected through well-planned routes to reach the interiors and a strong marketing network of 140 Farm Information Centre-cum-Depots, where products & information are made available to farmers by more than 200 experienced agro-professionals. Currently, GSFC has an installed capacity to produce 70,000 MTPA of caprolactum, 3,64,000 MTA of urea and 6,54,000 MTA of diammonium phosphate and 15,000 MTA of melamine. Importantly, GSFC has made supply contracts with Gujarat State Petroleum Corporation (GSPC) and Gujarat Gas Company (GGCL) for natural gas and with GAIL for Liquefied Natural Gas (LNG). This gradual shift from naphtha as a feedstock to natural gas will lead to better operating efficiency and lower cost of production.

GSFC has made significant investments in other State government promoted companies like GNFC, GACL, GIPCL and other unlisted companies like GSPC etc. These value of these investments works out to be more than Rs.50~60 per GSFC share at current market price (CMP). But the real value will be much higher if these companies are actually divested. GSFC itself is one of the 12 State candidates in the disinvestment list. For FY05, its turnover grew by 25% to Rs.2606 cr. and profit before tax jumped 500% to Rs.252 cr. due to better operating margin and lower interest cost. NP stood at Rs.138 cr. due to higher deferred tax provisions leading to an EPS of Rs.17. With greater emphasis on the agriculture sector in the Union Budget, increased availability of credit to the farming community and with good industrial growth, GSFC can report Sales of around Rs.2750 cr. and NP of Rs.200 cr. leading to an EPS of Rs.25 for FY06. Investors are strongly recommended to buy this scrip at current levels with a price target of Rs.200 (40% return) in 9~12 months.

CCS Infotech- Rs.18.50

Incorporated in 1997, CCS Infotech Ltd (CCS) specializes in providing cutting edge information technology solutions in computers hardware, networking solutions and software development. Today, CCS has established itself as one of the premier companies in India engaged in the manufacturing, marketing and export of Desktop Computers, Laptop Computers, peripherals and other accessories. It sells its products under the brand name of ‘CCS’ and provides cost effective and high performance computer networking solutions to build Local Area Network, Wide Area Network and Wireless LAN to access the Internet and share data and resources between computers for Small & Medium enterprises (SME) business customers. It also provides Internet connection using ISDN, lease lines and Wireless Internet Connectivity (Broadband) using VSAT & RF Point to Point Communications. Its software division provides services for system design, software development, system integration and implementation, support and education, website development, hosting & maintainance etc. Some of the company's prestigious clients are BSNL (Tamilnadu, Kerala, Andhra Pradesh, Karnataka), Central Excise Department, Central Telegraph Office (Chennai), CPWD (Chennai), Customs Department, Income Tax Department, Indian Institute of Technology, Videsh Sanchar Nigam Ltd (VSNL), Cine Films & Arts, Consulate of Japan, Anna University (Chennai), etc.

CCS is a Microsoft certified partner and also an Intel premier provider. It is also the business partner for well known international brands like IBM,HP, etc. In India, CCS operates through 12 branches and 50 channel partners and plans to appoint 50 more channel partners in South & West India. It has national presence through its offices at Chennai, Coimbatore, Vellore, Madurai, Salem, Pondichery, Thiruvananthapuram, Mumbai, Bangalore, Secunderabad and global presence by its operations at its overseas office in Singapore to cater to international customers. It has tied-up with ‘VIVEKS’ - a chain of consumers durable showrooms for selling CCS brand of computers. The company also plans to set up a nationwide franchisee network to sell its CCS brand of Desktop PCs, high end Server solutions etc and also intends to set up an office in Mauritius.

Fundamentally, it’s a turnaround story as the company posted a NP of Rs.2 cr. in FY05 compared to a Net loss of Rs.3.90 cr. in FY04. Due to the earlier losses, the company’s general reserve has marginally turned positive in FY05 itself. So its BV is approx Rs.10. For June’05 qtr Sales tripled to Rs.11 cr. whereas NP jumped 380% to Rs.1.05 cr. registering a quarterly EPS of Rs.1.10 on its current equity of Rs.9.16 cr. Looking at the company’s recent orders and its June numbers, it seems that the management has turned aggressive and may end FY06 with sales of Rs.50 cr. and NP of Rs.4 cr., which means an EPS of Rs.4. Being in a competitive industry and a turnaround story, only aggressive investors are recommended to but at current level with expectation of 50% return in 9~12 months.

STOCK WATCH

Of late, steel scrips are coming back into action and Uttam Galva Steels (Code No: 513216) (Rs.55.55) may see a smart rally in coming days. The company has huge expansion plans whereby it plans to double its cold rolled and galvanized steel production capacity to 10,00,000 MTA and 7,50,000 MTA respectively by 2006. To fund this expansion, the company raised USD 30 million through FCCB route, which were recently listed on Singapore Stock Exchange and can be converted into equity shares @ Rs.65. For FY06, the company can report an EPS of Rs.10 even on its fully diluted equity of around Rs.100 cr. FY07 will see exponential growth due to the impact of this expansion. A very good long term bet.

Apart from Canfin Home in the housing finance sector, investors can also look at GIC Housing Finance (Code No: 511676) (Rs.49.85). With the government relaxing the entry norms for 100% Foreign Direct Investment (FDI) through the automatic route in construction & development for mega housing projects, this sector is expected to witness phenomenal growth in coming years. Moreover, the govt. has also allowed indigenous housing finance companies to raise resources through external commercial borrowings (ECB) by way of FCCB. Due to the rising standard of living and increased tax benefits on housing loans as per Finance Bill 2005, GIC Housing is bound to do well and may report an EPS of Rs.9~10 for FY06.

SAIL and Tinplate Co. of India Ltd (Code No: 504966) (Rs.74.60) are the only indigenous producers of tinplate in the country with TCIL enjoying 35% of the market share. It has already increased its capacity to 1,45,000 MTA and is further expanding to 1,70,000 by 2006 on an investment of Rs.42 cr. With debt restructuring, it has brought down its debt-equity ratio to nearly 1:1 from 2:1 last year. On the export front, the company is targeting specific end users in niche markets of SE Asia, West Asia, other neighbouring countries and even Europe. It is also establishing a 'Solution Centre' with scrolling, printing and lacquering facilities to provide value added forms of tinplate. With an expected EPS of Rs.14, the scrip is available quite cheap in the current market

In the sugar sector, Ponni Sugar (Code No: 532460) (Rs.48.20) a South based small sugar company, looks good for investment with a long-term perspective. For FY05, while its sales increased by 11% to Rs.89 cr., its NP zoomed by 140% to Rs.6 cr. registering an EPS of more than Rs.7 and it declared a maiden dividend of 10%. The company is aggressively liquidating and restructuring its high cost long-term debts and has successfully brought down the interest cost to 9% form 15% earlier. Due to better monsoons this season and sufficient sugarcane availability coupled with higher sugar prices, the company is expected to report Sales of Rs.120 cr. and NP of Rs.7.50 i.e. EPS of Rs.9 on its current equity of 8.20 cr.

To cater to the increasing demand of sponge iron, Tata Sponge (Code No: 513010) (Rs.182.70) is undertaking expansion by installing 3rd kiln of 1,50,000 tonne taking its total capacity to 3,90,000 TPA. Recently, the company has further approved an investment of Rs.300 cr. for installation of the 4th kiln of 1,50,000 tonne capacity and a captive power generation facility of 18.50 MW. Gradually, the company intends to take the total installed capacity to 8,40,000 tonnes and power generation capacity to 60 MW. It is also planning for forward integration to produce steel upto 2 million TPA in a phased manner. With an expected EPS of Rs.35 and promising future ahead its share price can easily cross Rs.250 in the near future. Besides, its possible merger with Tata Steel in the future cannot be ruled out.

Paper prices are rising and so are the share prices of paper companies. But South India Paper Mills (Code No: 516108) (Rs.73.80), a Rs.100 cr. company, has still not caught the market fancy and is available relatively cheap compared to its peers. For FY05, its sales grew by 30% to Rs.91 cr. and NP increased by 35% to 4.35 cr. resulting to an EPS of Rs.6 on current equity of 7.50 cr. It gave 20% dividend, which means dividend yield of approx 4% at CMP. Its an investor-friendly company, which gave 1:1 bonus last year and with promoter holding of about 66%. For FY06, it can report an EPS of Rs.9-10 and its share price can appreciate by 50% in 12 months.

Mawana Sugars - Rs.121.00

Incorporated in 2002 Mawana Sugars Ltd (MSL) belonging to the high profile DCM Group, was formed by acquiring the sugar business of SIEL Ltd under the scheme of arrangement sanctioned by the Hon’ble High Court of Delhi. As per scheme, SIEL shareholders were allotted MSL shares in 3:4 ratios. Post restructuring, the company also came out with 1:4 right issue at par. Today, MSL is a one of the leading sugar manufacturers of North India and is the largest branded sugar maker in the market. In fact, the DCM Group was first to enter the branded sugar market with its brand ‘Mawana’ way back in 1994. Besides, institutional sales account for about 22% of its revenues with major customers such as Coca-Cola, Pepsi, Dabur, Nestle, Perfetti etc.

Currently, the company has two sugar factories with facilities at Titawi having an installed capacity of 11000 TCD and another unit at Mawana with an installed capacity of 6000 TCD with a total installed capacity of 17,000 TCD. These plants are located in the sugar cane rich areas of Western Uttar Pradesh. In anticipation of buoyancy in the sugar sector and margin improvement driven by higher prices realization, MSL has chalked out an aggressive expansion plan with a capex of Rs.535 cr. in the next 2 years. It is already in the process of setting up a new 5,000 TCD sugar mill near Meerut, the first phase of which would be over by November 2005. It also plans to put up another new 5,000 TCD capacity sugar unit in western UP by 2006. MSL is also modernizing and expanding its existing unit under which its Mawana unit capacity will be increased by 2500 TCD and Titawi capacity will be increased to 12,000 TCD. The company also intends to set up a 30 MW co-generation plant and an ethanol distillery that would produce 120-kilo litre per day. With these expansions, MSL's total cane crushing capacity will be increased to 31,000 TCD and capex will be funded through internal accruals, sale of unproductive assets, debt and partly by equity.

With sugar prices hitting a 10 year high in international markets, the prospects of the domestic sugar industry appear to be healthy and MSL having one of lowest EV per tonne in the industry is expected to see much better times ahead. Favourable govt. policies, debt restructuring, import of raw sugar, export to Pakistan, decreasing inventory levels, rising byproduct prices, the emerging ethanol story etc. will all lead to a healthy topline and bottomline growth for sugar companies. For FY05 ending Sept 2005, MSL is expected to report a turnover of Rs.550 cr. and NP of Rs.55 cr. i.e. EPS of Rs.14 on equity of Rs.39.50 cr. For FY06, it can post Sales of Rs.675 cr. and NP of more than Rs.75 cr. which mean EPS of Rs.19. Long term investors are recommended to buy only at declines with a price target of Rs.180 an appreciation of 50% in 12 months.

Lahoti Overseas - Rs.14.00

Incorporated in 1995, Lahoti Overseas Limited (Lahoti) is an ISO 9001:2000 certified company, mainly engaged in export trading of cotton yarn from India's leading spinning mills. Starting from open ended yarns, Lahoti's product range covers a wide variety of cotton yarns including carded and combed ring spun yams of coarse and fine counts, ply yarns, special yarns and also grey fabrics. Lahoti’s major exports are to South Korea, China, Japan, Hong Kong, Malaysia, Indonesia and Vietnam. It has successfully started exports to USA, Europe and South American countries and has also added new markets in the post quota scenario.
The removal of quota regime has created enormous opportunities, especially for the Indian textile industry as India has advantage of good quality & cheap raw material, skilled labour and modern technology as well. Taking clue from this emerging trend, Lahoti has drawn an ambitious growth plan to enter the growing markets of made-ups and home textiles, is putting up a weaving project for the manufacture of wide width grey fabrics to start the expansion drive estimated to cost around Rs.37 cr. and targeted to be completed by the end of this financial year. It plans forward and backward integration to set up a composite unit to manufacture and market a range of made-ups and home textiles in future.
The Union Budget has given importance to the Textile industry and has provided various fiscal incentives and other measures to boost the textile industry. The continuance of the TUF Scheme and the added subsidies for textile processing are some of the positive developments. For FY05, its sales witnessed degrowth of 18% to 148 cr. and NP also declined 20% to 2.40 cr. as the company paid Keyman insurance premium to the tune of Rs.1.63 cr. It declared 25% dividend on an EPS of around Rs.5. Considering all factors, Lahoti can end FY06 with Sales of Rs.200 cr. and NP of 5 cr., which means an EPS of Rs.2 on its current equity of Rs.5 cr. on the FV of Rs.2 per share. Long term investors can buy the scrip at current levels with a price target of Rs.20 (40% appreciation) in 12~15 months.