Subros Ltd - Rs.118.50

Subros Ltd, incorporated as Subros Pvt Ltd in Feb.'85, was promoted by Ramesh Suri, Lalit Suri and Jayant Nanda. Today, the company is the market leader in automotive air-conditioning systems, parts and components. In fact, it is the only integrated player in India with capability to manufacture Compressors, Condensors Evaporators, Hoses, Tube liquids and other connecting elements. It has collaboration with Denso Corporation and Suzuki Motor Company of Japan with each of them holding 13 per cent equity stake. It supplies mainly to Maruti & Tata, which constitute around 90 per cent of its sales. Besides it also supplies to Bajaj Tempo, Hindustan Motors and Reva. It is also in advanced stage of finalizing supplies to Mahindra & Mahindra and Hyundai Motors, which will boost its topline substantially going forward. It has also signed a MoU with Allied Signal Environment Catalysts (ASEC) of USA for a joint venture to produce catalysts to be used in catalytic convertors in vehicles using unleaded petrol.

To meet the growing demand, the company has recently expanded its capacity to 4,50,000 units per annum and is gradually working on increase it to 10,00,000 units in the next 2 years. The company's core strength lies in its R&D and the latest technology it derives from its technical collaborator, Denso Corp. of Japan. In addition to providing technical advice with regard to the design, manufacturing and production problems, Denso Corp also trains the technical personnel of Subros. The company now manufactures its own condensor and compressor and has set up facilities for squeeze die-casting and the manufacture of multi flow condensor. It has already set up state-of-the-art Product Design, Development and Evaluation facilities, which consist of virtual proto-typing and virtual analysis using high-end computer software and use of facilities such as Wind Tunnel and Calorimeter for product evaluation. The Company has successfully implemented SAP R/3 system for Enterprises Resource Planning (ERP), which will lead to improved controls and efficiency in business operations. The company is now concentrating on its core competencies, leveraging its brand and spreading its reach by increasing its customer and product portfolio to meet future challenges.

On the fundamental side too it is strong with sales increasing 42 per cent to of Rs.492 cr. and NP jumping 100 per cent to Rs.14 cr. in FY04 leading to an EPS of Rs.24 and CEPS of Rs.55 on an equity of Rs.6 cr. Recently, the company issued 1:1 bonus and thereby doubled its equity to Rs.12 cr. In Q1FY05 sales increased 31 per cent to Rs.152 cr. and NP jumped 50 per cent to Rs.4.60 cr. posting an EPS of Rs.4 maintaining its growth story. Moreover, various user industry players like Maruti Udyog, Tata Motors, Mahindra & Mahindra, etc have lined-up expansion of production capacity to meet the rising demand. Besides, many new players are planning to set-up car manufacturing units in India Hence, given its status as the market leader, the encouraging demand scenario, improving operating efficiencies and the rising economies of scale it is estimated that the company will register a turnover of Rs.590 cr. and NP of Rs.20 cr. This means that the share price is available less than 7 PE against an expected EPS of Rs.17 on expanded equity of Rs.12 cr. The share price could rise by 50 per cent in the next 12 months.

Sathavahana Ispat - Rs.52.00

Sathavahana Ispat Ltd (SIL), promoted by Mr A S Rao in 1989 is one of the leading manufacturers of foundry grade pig iron using Mini blast Furnace technology, with its plants located in Ananthapur District in Andhra Pradesh. Pig Iron is the basic raw material for most of the engineering products, foundry, construction industry & also used in automobiles manufacturing. Recently company upgraded its technology by replacing TATA - KORF technology with CHINA - SHOUGANG technology, the full impact of which will be seen in current year. The pig-iron industry is witnessing a dream run on account of both better price realizations and a volume outbreak. The run has been fueled by a strong demand flowing from the castings and forgings industry, infrastructure companies, and mini steel plants that are running full stream on account of the domestic demand and the demand flowing from China.

SIL is currently operating at more than 100% capacity utilization with improved profitability despite sharp rise in iron ore and coke prices.Currently, the company has an installed capacity of 120,000 TPA and predominantly caters to the foundries, textile and agriculture machinery manufacturers and the construction industry in the South apart from its presence in the West and the North. Importantly, to mitigate the impact of the sharp rise in coke prices and a step towards backward integration, it has recently set-up a non-recovery type Coke Oven facility with conventional technology with a capacity of 150,000 TPA, which commenced operations from 1st March 2004. It has also installed a 8.4 MW power plant for captive consumption to meet its growing power requirement Moreover, its modernisation and expansion plan is near completion, which will take the installed capacity to 210,000 TPA. This will boost the bottom-line for second half of FY05. For future growth and to become an integrated player, the company is planning to set up a greenfield project for the manufacture of metallurgical coke with a capacity of 300,000 TPA coupled with a captive 30 MW co-generation power plant at an estimated cost of Rs 170 cr. in Karnataka. This plant is estimated to start operation by the last quarter of FY06.

The impact of the high pig iron prices and benefit of the coke plant is clearly visible in the last two consecutive quarters with operating profit margins improving from 20 per cent in FY03 to 53 per cent in Q4FY04 and 50 per cent in Q1FY05. Although sales was down 17 per cent to Rs 29 cr., the NP increased by 140 per cent to Rs. 9 cr. With the thrust given by the government to infrastructure, the growing demand from the forging industry, the construction sector and with the company's initiative in modernising, expansion and backward integration, the company is expected to earn a Net Profit of around Rs 45 cr. on a turnover of Rs.180 cr. in FY05. This would mean an EPS of Rs. 17 on its equity of Rs. 26.30 cr. It is also likely to declare 25 per cent dividend for FY05. Hence, at the current price, it's trading quite cheap at a PE of less than 3 with an expected dividend yield of 5 per cent. Its share price can easily double in 12 months time and long term investors can expect much higher returns in the next 2~3 years.

STOCK WATCH

Surat Electricty (Code No.501736) (Rs.223.50) the Torrent Group power company, has still not caught market fancy. Promoters have increased their stake this year and are planning to rename it as 'Torrent Power SEC Ltd'. Its Q1FY05 was excellent and for the full year it's expected to register an EPS of more than Rs. 40. Interestingly, the Gujarat Government holds more than 6 per cent equity, which it may divest in future. A good long term bet.

Ahmednagar Forgings, (Code No.513335) (Rs.101.35) an Amtek group company has come out with excellent numbers. Operating margins have improved substantially and NP increased by 65 per cent to Rs. 5 cr. in spite of tax provisioning of more than Rs.2 cr. Company is expected to return to the dividend list in FY05. A must buy.

As per one fundamental analyst, Nagarjuna Construction (Code No.500294) (Rs.334.50) appears fully valued. He suggests to switch to Madhucon Projects (Code No.531497) (Rs.284.05) or Petron Engineering (Code No.530381) (Rs.72.00).Eastern Silks' (Code No.590022) (Rs.173.10) Q2FY05 numbers have beaten all analysts' expectations. Sales increased by around 40 per cent to Rs. 91 cr. and NP jumped 70 per cent to around Rs.9 cr. in spite of tax provisioning of Rs.1.20 cr. Operating margin also improved from 12.5 to 16 per cent. It has caught the market attention and a bull operator puts a price tag of Rs.250.

The boom in caustic soda prices is clearly visible in Gujarat Alkalies (Code No.530001) (Rs.82.25) Q2FY05 numbers. Although Net Sales increased by 10 per cent only, Net Profit has more than doubled to Rs. 36 cr. posting an EPS of Rs. 5. And this is in spite of higher tax provisioning of Rs. 23 cr. (for full year FY04 it was Rs. 25 cr). Its OPM also improved substantially to 34 per cent. Due to reduction in interest outgo and good expansion plans, this scrip is bound to cross Rs. 100 soon.

In spite of fall in sales and profit, one pharma analyst is mildly bullish on Krebs Biochem (Code No.524518) (Rs.191.50) due to its dividend yield and being a likely takeover candidate. He expects the company to post a minimum EPS of Rs. 25 for FY05.

Tata Sponge (Code No.513010) (Rs.142.85) results were below market expectations but still it is expected to perform well in future. It should be taken as an opportunity to accumulate more.
Bharat Gears (Code No.505688) (Rs.46.85) seems to have bottomed out at Rs. 46 and should be bought for long term. For FY05, it is expected to report an EPS of Rs. 8.

Although Savita Chemicals' (Code No.524667) (Rs.140) margin is under pressure, still its NP rose 5 per cent to Rs. 6.75 cr. and Sales increased by 35 per cent to Rs. 125 cr. For FY05, it should report a minimum EPS of Rs.30. At CMP it can be accumulated for long term. Once crude oil prices cools down, its operating margins will improve and its share price will shoot up. Also, it's quite ripe for a bonus.

Elder Pharma (Code No.) (Rs.146.85) did not participate in the recent pharma rally. Its Q2FY05 numbers are in line with expectations. Its future is very promising and the share price is tipped to cross Rs. 250 in the medium term.