Madhucon Project - Rs.209.00

Incorporated in Mar.'90 as Madhu Continental Constructions Pvt Ltd, this 14yr old Hyderabad based company is engaged in a diverse range of construction business and turnkey activities like building construction, deep excavation, heavy rock cuttings, high railway embankments, major canals and earthen dams, dykes and tunnels. It was promoted by N Seethaiah and N Krishnaiah and all the clients of the company are Central or State governments, public sector undertakings and other government or semi-government bodies. The company has successfully completed the widening of 57.21 km. National Highway 5 (NH5) project in the Tada-Nellore Section ahead of schedule. It has also completed NH-76 project in Rajasthan between Chittorgarh-Mangalwar five months ahead of schedule. The strengthening of the road having 4-lane dual carriage in the Tuni-Anakapally section on NH-5 in Andhra Pradesh is progressing well. The rehabilitation, upgrading, 4 laning project of 52 km of the Tambaram-Tindivanam Section of NH-45 in Tamilnadu is also progressing as per schedule. The construction of the Ahirkheda Tunnel of the Indira Sagar Project and the construction of a dam in Shivpuri, Madhya Pradesh, is planned to be completed during 2004-2005.

Recently, the Government of Maharashtra has issued a Letter of Intent for construction of a dam across the Penuganga River costing Rs.110 cr. The company has received an order for construction of MP State Highway corridor project costing Rs.62 cr. and is short-listed in a build-operate-transfer (BOT) National Highway project costing Rs.250 cr. floated by the National Highways Authority of India. Currently, Madhucon has an order book of Rs.500 cr., which it plans to complete in less than 15 months. It specialises in roads and huge contracts are in the pipeline since 85 per cent of the 7300 km road length that comes under the North South-East West corridor road projects are still to be contracted. It has also pre-qualified in bidding for projects worth Rs.7,000 cr.

For FY04, sales increased 30 per cent to Rs. 301.40 cr. but NP was almost flat at Rs. 19.40 cr. registering an EPS of Rs.38. For Q1FY05, sales and NP were marginally down to Rs.94 cr. and Rs.5.90 cr. respectively. Based on the works under execution, orders in hand, delivery schedules committed to and the tenders it is participating in, the company could register total revenue of Rs.360 cr. with NP of Rs.25 cr. resulting in an EPS of Rs.50. Given its small equity of Rs.5.07 cr. and huge reserves of Rs.67.30 cr., it is a strong bonus candidate as well. Although the stock has run up very fast recently, still at CMP of Rs.209 it quotes at a PE of just 4 signifying its strong upward potential. It could give 50 per cent appreciation in 12 months time and real long-term investors can expect much higher returns. Buy and add on declines.

Monnet Ispat - Rs.137.00

Back in 1990, Monnet Ispat (MIL) was incorporated by Sandeep Jajodia to manufacture sponge iron with a plant capacity of 1,00,000 tonnes of sponge iron per annum at Village Kurd in the state of Madhya Pradesh. Since then, the company has grown by leaps and bound to become a significant player in the sponge iron industry heavy the second largest capacity backed by captive resources of coal and power. Sponge iron is a substitute for melted steel scrap through the secondary route using the induction electric arc furnace (EAF).

Monnet Ispat recently completed the expansion of its sponge iron capacity by 70,000 MTA to 3,00,000 MTA and its steel capacity by 2,50,000 to 3,00,000 MTA. It is also merging Monnet Power Ltd. (MPL) with itself, which will be very positive going forward as it issues 1 share of MIL for 10 shares of MPL. Monnet Power has also expanded its power generation capacity by 37MW based on coal and coal rejects to 45 MW and ferro alloys capacity to 36000 form 12000 MTA. With the increasing demand for sponge iron due to the huge expansion by various steel giants all over worldwide, MIL is implementing further sponge iron capacity expansion of 4,40,000 TPA, which will take its total capacity to 7,40,000 TPA. The project is estimated to be completed in 15 months at a cost of Rs. 230 cr., of which Rs 155 cr. will be funded through debts (Citicorp:43 cr., promoters:24 cr., internal accruals:13 cr.) and the remaining Rs 80 cr. will be by way of equity. It is planning to increase its coal production to 1.5 MTA from its captive mine at Raigad in Chhattisgarh which has coal reserve of 126 MT. Importantly, MIL is working on the acquisition of some iron ore mines in Chhattisgarh & Jharkhand, which is at a fairly advanced stage. With all these plans materialising, it will become a fully integrated player with its 'raw material to finished product' strategy materialising to weed out external margins and capture the entire product value-chain right from power, coal and iron ore to sponge iron to finished steel.

For Q1FY05, MIL posted 250 per cent jump in net profit at Rs 17.43 cr. while Sales increased 105 per cent to Rs.99.03 cr.. It recorded higher profit and turnover despite the fact that its 1,00,000 MTA capacity of sponge iron was not in production during the first quarter due to repairs and replacement of equipment. Considering its future prospects post merger, it is estimated that MIL will post a combined sales of Rs.630 cr. with NP of Rs.90 cr., which will result in an EPS of Rs.30 on its expanded equity of Rs. 30.50 cr. and diluted EPS of Rs.28 if the promoters apply for 20,00,000 shares. At Rs.137, the share is quoting at a P/E ratio of just 5 and could touch Rs.220 within 12 to15 months.