Gujarat NRE Coke - Rs.89.00

Last year we recommended this scrip at 22.50 and since then it has given huge return along with bonus and dividend. Keeping its future growth in mind we still find it reasonably cheap and recommend it for medium term. Gujarat NRE Coke Ltd (GNCL) was incorporated in the 1986, by Mr. G.L. Jagatramka and his son, Mr. A.K. Jagatramka for producing Low Ash Metallurgical Coke (LAMC). LAMC is a variety of coke with an ash content of around 12%. It is the vital ingredient that fires the blast furnaces of the Nation as the corest of its core selects burn bearing materials to produce steel. It is used both for its high calorific value and its environment friendly nature and heat furnaces for a variety of other industries like soda ash plant, steel industry, zinc smelters, foundries & Ferro Alloys. Today GNCL has emerged as the largest producer of LAMC in India.

In March 2003 to consolidate its business Gujarat NRE Power Limited (78,000 TPA) and Aparna Projects Private Limited (1,17,000 TPA) were merged with GNCL. Companys manufacturing unit is located at Dharampur, Jamnagar in Gujarat with current production capacity of 3,58,000 TPA. Recently company has also set up second plant at Bhachau, Kandla consisting of 9 chimney for manufacture of 3,24,000 TPA of LAMC. Few chimney has already started the commercial production and the entire plant is expected to be operational by December 2004 in phases which will take the total capacity to 6.82,000 TPA. The Company expects to get a production of 1,50,000 ton from the new plant by March 2005. Due to the huge global demand and short supply, coke price have shot up 300~400 per centcompared to last year. To take the maximum benefit of this uptrend GNCL group company has set up one more plant at Karnataka in joint venture with Kalyani Steels Ltd with annual capacity of 324000 MT which is expected to be operational by March 2005. With this plant GNCL will cross the landmard production capacity of 1million TPA. For future company group has also plans to set up additional 4,00,000 TPA in Dharwar Karnataka. On the raw material side also company has tied up with its entire requirement of coking coal requirement for its coke plant at Jamnagar and the new unit being set up near Kandla Port for the year 2004-05 with Australian and South African Coal Mining Companies. Sitting on huge cash company is thinking for forward integration & is planning to acquire a pig iron production unit with a capacity 1,50,000 TPA, promoted by the Goa-based Dempo group.

The effect of coke price and expansion is clearly visible in last 2 qtrs with NP jumping 6~7 times. Company is expected to end this year Sept 2004 with sales of 310 cr and NP of 95 cr which means an EPS of 23 Rs. For FY05 with its full capacity going operational, company is expected to register sales of 580 cr and earn NP of 150 cr leading to an EPS of 36 on current equity. So at CMP this scrip is trading at a PE of less than 4 for FY04 earning and at 2 for FY05 earning. Investors can expect handsome return over a period of time.

Uttam Galva Steel - Rs.27.00

Incorporated in 1985, Uttam Galva Steels Limited (UGSL) is involved in the production of Cold Rolled Coils & Sheets (CRCS) and Galvanized coils & sheets (GCS). CRCS finds a very wide variety of applications, ranging from engineering automobiles, containers, general household items like shelves, cupboards and other steel furniture. GCS are use in roofing, side sheeting, ducting and other engineering applications. More than 70 per cent of its products are currently exported to over 103 countries with USA, Europe, China, Canada, Middle East, South East Asia and African countries as its focus areas. In the Indian market, the company is an established player for supply of CRC to most manufacturers of automobiles, white goods, general engineering, drums and barrels. It is also a large supplier of galvanized plain sheets as well as corrugated sheets to the construction industry and its Swan brand is well-known in the Western parts of rural India.With a modest beginning in 1988 with a Wet-Flux Galvanizing line in technical collaboration with M/s John Lysaght of B.H.P. Australia, UGSL has three modern galvanizing lines with a total capacity of 3,50,000 TPA today, the company has its own cold rolling facility with a capacity of 500,000 TPA. Balance of CR are converted to value-added grades in CRCs, cut to length sheets and also sold as Full Hard CR in overseas markets.

The company has also chalked out a Rs.250 cr. expansion plan for increasing the Cold Roll capacity by 4,00,000 TPA, expanding the Galvanising Line with a capacity of 3,50,000 TPA and to set up a most modern state- of-art pre-Painting line with a capacity of 60,000 MT. The Cold Rolling plant / Pre-painting line is expected to start commercial production by early 2005 and the galvanising plant is estimated to become operational from mid 2005. The promoters are also bringing in Rs.15 cr. by way of preferential allotment and diluting the equity by around Rs.10.40 cr.

For FY04, Net Sales was up 44 per cent to Rs.1162 cr. and NP has more than doubled to Rs.24 cr. Due to expansion and better price realisation, Q1FY05 sales increased by 68 per cent to Rs.528 cr. and NP was Rs.21 cr. in comparison to Rs.1.50 cr. in Q1FY04. Moreover, the company will save on interest cost this fiscal due to debt restructuring, which has brought down the average interest rate from 14 per cent to 7 per cent on Term Debts of Rs.295 cr. Keeping in mind the buoyancy in the steel sector and the company's expansion plans with major thrust on exports, it is estimated that the company will report Sales over Rs.2400 cr. and NP of Rs.110 cr. This would result in an EPS of Rs.14 on the expanded equity of Rs.79.96 cr. Investors can hope for 100 per cent appreciation in 12 months.

STOCK WATCH

Although a new entrant in the BPO segment, Visual Soft (Code No.: 532214) (Rs.153.90) has ambitious plans to expand its BPO activity going forward. For FY05, it is expected to post an EPS of Rs.18, which makes it one of the cheapest scrips in this sector.

FY05 will be the best year for SCI (Code No.: 523598) (Rs.160.90) as it is expected to post record sales & profit. Thanks to robust freight rates and the introduction of tonnage tax, its EPS can touch Rs. 40. With the company expected to declare an interim dividend on 30th October 2004, this is the best time to pick up this scrip

Murudeshwar Ceramics (Code No.: 515037) (Rs.35.10) enjoys the highest OPM in its segment. It has Rs.147 cr. in reserves on equity of Rs.15 cr. Despite of competition from China, it is expected to post an EPS of Rs.10 for FY05. Scrip can appreciate 50 per cent in next 6 months.

Surya Roshini (Code No.: 500336) (Rs.25.60) is the second largest manufacturer of lighting products and has one of the largest steel tube manufacturing plants. It exports to more than 50 countries. The company also plans to expand its manufacturing capacity for lighting products and set up a new plant for steel tubes particularly for exports. For FY05, the company is expected to post an EPS of Rs.5. With a book value of Rs. 50 and dividend yield of 5 per cent, this scrip can be accumulated for the medium term.

Both the Sponge Iron and Steel Billet divisions of Orissa Sponge (Code No.: 504864) (Rs.40.00) are doing well. For Q1FY05, its NP doubled to Rs. 3 cr. and OPM improved to 28 per cent. For FY05, the company may post an EPS between Rs. 8-10. Scrip has the potential to double from here in 12 months time.

ONGC’s plan of buying back its share from Indian Oil (Code No.: 530965) (Rs.439.55) is fundamentally very positive news as it will reduce its capital and enhance its EPS on liquidation of these shares. If it works out, marketmen expect the share to cross Rs.1000 mark.
Sugar companies are expected to post excellent Q2 numbers. Once the result is out from any one company, the whole sector will see a fresh round of rally.

As expected, Samtel Color (Code No.: 500372) (Rs.77.30) September quarter was excellent. Sales increased around 20 per cent to Rs. 260 cr. whereas NP jumped 5 times to Rs. 14.68 cr. For FY05, it will register an EPS of Rs.12. Its share price of Rs. 100 seems imminent.
Both the Cement and Tyre divisions of Kesoram Industries (Code No.: 502937) (Rs.104.45) are faring very well. Fund managers are very bullish and are accumulating the scrip with a target of Rs.150

An analyst is bullish on Usha Martin Ltd. (Code No.: 517146) (Rs.62.90) even at current levels. Recently, it completed the installation of DRI and 10 MW captive power plant. It is also learnt that some high net worth individuals (HNIs) are accumulating it for long term.

Kilburn Chemical: (Code No.524699) (Rs.29.25) manufactures Titatinum Oxide, which is considered as precious as crude because it is in short supply. Kilburn had restructured its business by debottlenecking and adding balancing equipment to get more production. Consequently, its quarterly result for June’04 quarter shows a 100 per cent increase in net profit over the previous quarter. The company is in a position to report an EPS of Rs.8.50 this year and Rs.12 next year. It is dividend paying company and at Rs.24. It is a value pick keeping the future scope in mind.

Classic Diamonds (Code No.: 523200) (Rs.99.45) has ambitious plan to capture the domestic market by opening more than 50 retail shops called ‘Classic Jewels’. It has huge reserves of Rs.125 cr. on a small equity of Rs.7 cr. making to a book value of Rs.189. For FY05, the company is expected to post an EPS of RS. 38. Of late, the gems and jewellery sector has caught market attention and this companys seems a good investment bet.