Tata Metaliks - Rs.150.00

Incorporated in 1990 and promoted by TISCO, Tata Metaliks manufactures foundry grade pig iron through the mini blast furnace route. Its products are used mainly by foundries for manufacturing automobile castings, industrial castings, pipes and others. The company has an agreement with Tata Korf Engineering Services for technical know-how and consultancy and the company has been following the Tata Business Excellence Model (TBEM) since 1999. Due to its cost competitiveness and other initiatives, it is the lowest cost producer of Foundry Grade pig iron. The company has started producing customized pig iron as per the technical requirements of users along with value added specialized products like high silicon pig iron etc., which have a good export market. Pig Iron prices are still ruling very high and will remain firm as the domestic demand is set to grow on the back of rising demand from auto ancillary and engineering sectors.

The company is putting up a new 1,00,000 TPA blast furnace at Kharagpur, which will take its total capacity to 2,63,000 TPA and is expected to become operational this month. Also, to minimize the adverse impact of the steep hike in the price of imported LAM Coal and Coke, the company has made arrangements for domestic conversion of imported Coal and blending the same with indigenous Coke. It has also decided to install its own non-recovery type of Cokery of 60,000 TPA inside the plant to meet 25 per cent of its total requirement and is examining opportunities to acquire some cokeries. Interestingly, it has applied for mining rights in the neighbouring iron ore rich belt. It is also planning to apply for a coking-coal block. For future growth, it even wants to go in for downstream integration with castings, special steels etc. To gear-up export revenue, the Business Development Group of the Company has taken initiatives to spread its foot print especially in South- East Asia, South-Korea & Japan and in other niche markets like Egypt and Dubai.

Due to capacity expansion and higher price realisation in the first half, its net sales more than doubled to Rs137 cr. whereas its NP jumped 270 per cent to Rs36 cr. in spite of very high tax provision. Its OPM improved substantially to 43 per cent from 25 per cent last year. And since its new unit is expect to start this month, it will post impressive numbers in the second half also. The company is almost debt free with no Long Term or Short Term borrowing. To share its growth story, it may declare Rs6~7 per share as dividend for FY05. Considering all these factors, the company should report a NP of Rs70 cr. on turnover of Rs310 cr. registering an EPS of Rs28. Investors are advised to buy on dips or in sharp corrections only with a long term perspective. This scrip has the potential to double in 18 months time.

Alphageo (India) Ltd - Rs.60.00

Incorporated in 1987, Alphageo is the first private sector company to enter the field of seismic data acquisition. It is the pioneer seismic contractor engaged in the business of seismic data acquisition, processing and interpretation. It also undertakes seismic surveys and offers a whole range of services for oil exploration & drilling like evaluation, reservoir and production services. It has been acquiring seismic data contracts for Oil India Ltd (OIL) and Directorate General of Hydrocarbons (DGH). Armed with technical know-how from Alphageo of USA, it has acquired equipments to map 2-D and 3-D seismic data, of which the latter is a versatile technique and a precise geo-physical tool to understand the earth's crust in geologically complex areas.

Looking at the opportunities unfolding in the oil & gas exploration and prospecting business, the company is making all efforts to train its personnel and introduce state-of-the-art equipment to meet the growing demand. Seismic surveys are undertaken to identify and study the migration paths, geometry and size of the ‘trap formation’, which enable the explorers to locate the existence of a hydrocarbon structure and decide on drilling an exploratory well or not. The company also has a tie-up with Alphageo, USA, for human resource development (HRD) for conducting advanced geo-seismic surveys in difficult terrains.

The Government of India's continued emphasis on increasing oil and gas production and the farming out of oil fields to private oil companies in the 4th round of National Exploration & Licensing Policy (NELP) has contributed to intense activity in the area of oil exploration. Also, the policy of oil majors to concentrate on their core activity of production and contracting out other related services like seismic surveys implies huge growth opportunities for the company. Moreover, the market for three dimensional seismic surveys is growing and is expected to register an exponential growth in the coming few years. In short, the company has bright future prospects and will grow at a good pace in months to come.

During H1FY05, its sales increased by 70 per cent to Rs11.10 cr. whereas profit doubled to Rs2.34 cr. recording an EPS of around Rs5. The best part is that the company has a very small equity of Rs4.95 cr. and any increase in profit leads to a handsome rise in EPS. The company is also expected to declare a dividend for FY05. Although Alphageo expects to face competition from MNCs going forward, India's aggressive policy to increase oil production given the upward spiral in crude oil prices, the company can register sales of Rs24 cr. and NP of around Rs5 cr. for FY05 which may further increase to Rs40 cr. of sales and NP of Rs7.5 cr. in FY06. The stock is currently discounted at 6 times its projected FY05 earning and 4 times the expected FY06 earning. It is a strong buy which can give 50 per cent returns in 12 months time and double in 24 months from the current level.

STOCK WATCH

Of late, the infrastructure sector has become the market favourite and Valecha Engineering (Code No.532389) (Rs.114) still trading reasonably cheap compared to its peers and considering its future growth prospects. For the six months ending 30th Sept. 2004, its revenues have increased 47 per cent to Rs70 cr. and NP was up 44 per cent to Rs4 cr. For the full year 2004-05, it can report an EPS of Rs 18~20 as it has a strong order book of more than Rs225 cr.

Because of the differences among the Ambani brothers, IPCL (Code No.500105) (Rs.186.40) has been beaten down badly and offers a good opportunity to buy for the long term. For the first half year, the company reported a Net Sales of Rs3629 cr., up 35 per cent whereas NP zoomed 181 per cent to Rs261 cr. in spite of a very high tax provision of Rs171 cr. The petrochemicals cycle is in an uptrend and it expected to report an EPS of around Rs22. Appreciation of Rs 60~75 is possible in the next 3 months.

JB Chemicals & Pharmaceuticals (Code No.506943) (Rs.371.40) is discounted cheap compared to its peers, who have clocked an aggressive growth rate. But now with the company entering the high growth biotech sector, launching new drugs and putting more thrust on exports and R&D it has joined the high growth league. It is a good dividend paying company which reported sales of Rs175 cr. (up 19%) and NP of Rs32.25 cr. (up 14%) during the first half ending 30th Sept. 2004. For the current full year, it can report an EPS of Rs36~38. Applying a reasonable PE multiple of 12, the stock should trade above Rs450. Accumulate at every dip and sharp correction for the long term.

Aarti Industries (Code No.524208) (Rs. 233.60) is a scrip that has the potential to give handsome returns in the medium to long term. In the first half its sales grew 27 per cent to Rs319 cr. and NP increased by 13 per cent to Rs22.30 cr. For the full year FY05, it can report an EPS of Rs34. At the current market price (CMP) it’s trading at a PE of 7 leaving ample scope for an upmove in future.

Balaji Amines (Code No.530999) (Rs.173) is one of the lowest cost producer of Methyl Amines in the world. It is into manufacturing of Speciality Chemicals, which find application in Pharmaceuticals, Textiles, Agrochemicals, Paints and Dyestuff. For the full year FY05, it is expected to report an EPS of Rs25. Buy at declines for long term gain of 40~50 per cent in 15 months.

Ceekay Diakin(Code No.505923) (Rs.40) is reportedly doing well. This auto ancillary posted impressive numbers for the first half of the current year. Sales were up 27 per cent to Rs39.50 cr. whereas NP shot up to Rs1.22 cr. from Rs0.10 cr. last year. For FY05, it is expected to report an EPS of more than Rs7. Buy it and forget it for the next 15 months.

Inspite of declaring a bonus, Orient Abrasives (Code No.504879) (Rs.186) did not appreciate much and is discounted poorly by the market. Its future looks very promising and the company has posted excellent numbers for the current first half ending 30th Sept. 2004. Its Sales increased 33 per cent to Rs80.50 cr. whereas NP jumped 52 per cent to R 9.30 cr. For the full year FY05, it could report an EPS of Rs32 on its expanded equity of Rs6 cr. and 40-50 per cent appreciation in its share price can be expected over the next 6 months.