Bhushan Steel - Rs.132.00

Starting in 1989 with a turnover of 50 cr, today Bhushan steel a 2500 cr company has emerged as a third largest producer of cold-rolled products manufacturing wide range of value added products like Wide CR, Galvanised and colour coated Sheets, High Tensile Steel Strapping , Hardened & Tempered Strips and Precision Tubes. It enjoys a dominant position in high margin automobile & white good sector and is the single largest supplier to them with 60% market share. Company has been recognised by Ford and Honda Motors as their Global Resource Centre for their worldwide operation which is a big achievement in itself. Its technical collaboration with Sumitomo Metal Industries Japan, one of the largest global steel producers has been extended for another six years. Management understands the importance of technology and all its plants are upgraded & equipped with latest machines supplied by global leaders like Hitachi, Ebner, Fimi, MAN B&W, Clecim etc and enjoys ISO 9002 & QS 9000 certification. No wonder its clientele consist of reputed and eminent corporates like Tata Motors, M&M, Maruti Udyog, Bajaj Auto, LG, Samsung, Godrej, Videocon, BHEL, L&T, Whirlpool, Ford, IFB, Daewoo, Electrolux, Carrier etc.

Companys manufacturing plant is spread across Shahidabad with a capacity of 5,00,00 TPA and at Khopoli with a capacity of 4,00,000 TPA. Infact its state-of-the-art Khopoli plant started full operation only in Jan 2004. This plant will operate as a single point source for almost all value added products and will help the company to strengthen its grip on the Western & Southern market. To continue its growth path and also in order to become self reliant and have control over its raw material, the company has proposed to set up an integrated steel project of 3200 cr capex with a capacity of 12,00,000 (1.20 mn) TPA of Hot rolled coil & 3,00,000 TPA of long products and power plant of 110 MW in the state of Orissa. The project will be set up in modular format where part facilities would be set up during implementation and start generating cash accruals. Company has already identified land in Dist. Dhenkanal in the state of Orissa and has also signed MOU with Government of Orissa for allocation of Iron ore and coal mines. Though it’s a long term plan but with this Bhushan Steel will become a fully integrated company from iron ore to finished steel products.

Fundamentally & financially also company is strong and doing well. For the half-year ended September 2004, it posted an increase in net profit of 100% to Rs 68 crore on a net sales growth of 82% to Rs 1187 crore. Exports posted a jump of 184% to Rs 341 crore enjoying 27% share of gross sales. For FY05 it is targeting an export of 800 cr to 40 countries of which export to China will be 25%. With the high growth witnessed in the automobile, white goods and construction sector, and companys thrust on export and improving efficiency we expect it to register an sales of 2450 cr and NP of 140 cr So with an expected EPS of 35 Rs and CEPS of 75 Rs its trading very cheap at current price. Notably it has huge reserve of 550 cr on current equity of 40.50 cr leading to a book value of 145 Rs. Though equity dilution is there on its cards to fund the Orissa project but we done expect it to happen in this fiscal. Hence investors are advised to buy at current price for 50% appreciation i.e. price target of 200 Rs in next 12 months.

Jindal Stainless Steel - Rs.83.00

Jindal Stainless Steel Ltd. (JSSL), is a Rs. 2600 cr. turnover company is the flagship company of the Jindal Organization. It is the largest integrated manufacturer of quality Stainless Steel in India that caters
to more than 40 per cent of the total demand for Stainless Steel in the country and ranks amongst the top 10 producers globally. Products ranging from Stainless Steel Hot Rolled / Cold Rolled Coils, Plates & Flats, to Slabs and Blooms are produced keeping both national as well as international standards in mind. The main reason for the success of JSSL is the fact that everything from melting, casting to hot rolling and cold rolling is done in-house. Recently, the company acquired Maspion Stainless Steel of Indonesia, which is a Cold Rolling Mill with a capacity of 50,000 TPA, for $ 30 mn and is planning to double its capacity by the end of this fiscal. The company also wants to acquire the Salem Steel Plant of SAIL and is waiting for the government’s clearance on it.

The company has an integrated stainless plant at Hisar in Haryana and a Ferro Chrome unit at Vizag. It also has an offshore facility in Ohio under the name of Massillon Stainless Inc. with a cold rolling capacity of 50,000 tonnes. The Hisar plant has capacity of 5,00,000 TPA with integrated operations from melting to continuous casting of billets and blooms to hot rolling and cold rolling. An exclusive complex for manufacturing stainless steel for razor and surgical blades has been created. A coin blanking line has also been installed while its Vizag Ferro Alloys plant has an installed capacity of 40,000 TPA of high carbon Ferro Chrome. The company is upgrading its Hisar plant and has a mega expansion plan with a capex of Rs.450 cr. in a phased manner till 2007. By 2005, the company is increasing its steel melting capacity from 5,00,000 to 6,00,000 TPA, Steckel Mill form 4,00,000 to 5,00,000 TPA and by 2007 its Cold Roll capacity will be increased from 90,00 to 2,50,000 TPA. its ambitious greenfield project at Duburi in the State of Orissa is under implementation. Phase-I of the project is expected to be completed by the end of FY06. It will be backward integrated plant with capacity of 1,50,000 TPA of Ferro Chrome, 30,000 TPA of Ferro Manganese, 60,000 TPA of Silico Manganese and a Coke Oven battery unit with a capacity of 3,00,000 TPA. It is also setting up a 40 MW power plant for its own consumption. In Phase 2, the company is planning to set up a stainless steel melting unit with capacity of 8,00,000 TPA and 120 MW power plant with an capex of Rs.1000 cr.

For the half year ending Sept 2004, its net sales jumped 30 percent to Rs.1376 cr. whereas NP reported a modest gain of 7 per cent to Rs.91 cr. due to higher interest, depreciation and deferred tax provisioning. The company has a strong balance sheet with Rs.537 cr. of reserves on its small equity of Rs.20 cr. Its RONW is 40 per cent and ROCE is 27 per cent with OPM of 17 per cent. Looking at the company’s expansion plans, thrust on exports and higher stainless steel prices, it is estimated that the company will report Net Sales of Rs.2850 cr. and NP of around Rs.190 cr. leading to an EPS of Rs.19 on its current equity of Rs.20 cr. But equity dilution is expected going forward which may reduce the EPS to around Rs.15-16 on the diluted equity of Rs.25 cr. It is a relatively safe bet at the current price with an upside potential of 50 per cent in the next 15 months.

STOCK WATCH

Videocon International (Code No.511389) (Rs.207.60) is discounted poorly by the market due to concerns about the promoters and their investor-unfriendly attitude. Inspite of being in a highly competitive market the company enjoys a dominant position and is expected to perform well due to the increasing rural demand for its products and thrust on exports. Its glass business is performing well and contributes nearly 50 per cent to its profit. For the full year ending 30th Sept 2004 its sales was up 11 per cent to Rs.3990 cr. and NP increased by 69 per cent to Rs.177.50 cr. registering an EPS of Rs.25. The company has massive reserves of Rs.1390 cr. on an equity of Rs.71.20 cr. Aggressive investors can buy for medium term with a target of Rs.90.

As expected Star Paper Mills (Code No.516022) (Rs.51.15) is getting re-rated sharp rally is likely in coming days even from the current level. For half year ending 30th Sept 2004 its NP jumped 71 per cent to Rs.10.30 cr. due to higher price realization and better efficiency. For the full year FY05 it could report an EPS of Rs.12. The scrip has the potential to hit Rs.75 in the next 6 months. Buy at dips

Sunflag Iron & Steel (Code No.500404) (Rs.13.64) is hitting a new high on the bourses. This integrated specialty steel producer from the SunFlag group is doing well due to current steel boom. For Sept 2004 quarter, its Net Sales grew 43 per cent to Rs.182 cr.and its NP stood at Rs.10 cr. against loss in last year. Its OPM improved by 500 basis points to above 13 per cent from 8.5 per cent last year due to higher price realisation. For the full year ending 31st March'05 it can report an EPS of Rs.2.5. The scrip is expected to cross 20 going forward. Buy only at dips and sharp correction.

One more sugar sector scrip has caught market attention and it is KCP Sugars (Rs.157.05). Being in the South, it has additional advantages like decent rainfall and absence of state advised price on sugar cane in AP etc. Secondly it has a huge carry forward stocks and enjoys a good market share in the eastern region too. For the first half its sales zoomed 84 per cent to Rs.134 cr. and it posted a NP of Rs.19.85 cr. against Rs.1.03 cr. last year. For FY05, it is expected to register an EPS of more than Rs.30 Investors can accumulate it for handsome gains with medium to long-term perspective.

If you believe in the telecom growth story, here is one good scrip which can appreciate handsomely going forward. Surana Telecom (Code No.517530) (Rs.63) has big plans for wireless telecom products and wants to create assembly line for CDMA terminals. Its also looking at the possibility of foraying into Internet Protocol TAX. For the first half it reported impressive result with Net Sales of Rs.70 cr. up 680 per cent and NP of Rs.5.30 cr. up 300 per cent. For the full year FY05, it may even report an EPS of Rs.12 and the scrip is expected to shoot up substantially if everything goes as per the plan. FIIs / Domestic funds are not active in this scrip as 71 per cent holding is with the promoters and 20 per cent with the public.

Purely on fundamentals VBC ferro Alloys (Code No.513005) (Rs.122) looks quite cheap and the share price may run up sharply in the current bull run. Promoter holding (36 per cent) and the management quality however, remains a concern. It declared excellent results for the Sept quarter as well. Now if we see for six months Sales grew by 26 per cent to Rsd72 cr. and NP increased 22 per cent to Rs.6.30 posting an EPS of Rs.16. Surprisingly, the company has very huge reserves of Rs.124 cr. on a very small equity of 4.05 cr. For full year, it should report an EPS of more than Rs.30 and the scrip has the potential to rise 25-30 per cent from hereon.