Sunflag Iron & Steel - Rs13.00

Sunflag Iron & Steel Company Ltd. (SISCL) was incorporated on 12th September, 1984 as a Public Limited Company in Maharashtra for setting up a composite steel plant for the manufacture of Mild and Alloy Steel Rolled Products. SISCL belongs to the Sunflag Group having diversified interests from making artificial leather, synthetic fibres, spinning, weaving, manufacturing of sophisticated garments to agriculture and agro based industries. The Sunflag group was founded by Shri Satyadev Bhardwaj in Kenya in 1937 and has its operations spread over 6 countries spanning 3 continents. SISCL caters to the demands of various core sector industries like Automobiles, Railways, Defence, Agriculture, Engineering Industry etc.

SISCL has set-up sophisticated Special Steel manufacturing technologies in collaboration with Krupp Industrietechnik GmbH, Mannesmann Demag Huttentechnik, MDS Mannesmann Demag Sack GmbH and Hamburg Consulting and Steel Engineering GmbH of West Germany. It has set up a state-of-art integrated plant at Bhandara district, near Nagpur, in Maharashtra with capacity to produce 2,00,000 TPA of high quality special steel using iron ore and non coking coal as basic inputs. The product mix covers a wide range such as Carbon Special Steel, Alloy Steel, Free Cutting Steel, Ball Bearing Steel and Spring Steel. In backward integration, it has a Direct Reduction plant which can produce 1,50,000 TPA of sponge iron for captive consumption in the Steel Melting Shop. Additionally, the fluid gases help generate 15 MW of electricity. Due to the rising international demand for steel, SISCL is putting more thrust on exports to the Far East, Middle East and other Asian countries. Currently, its plant is operating at more than 120 per cent capacity, which is a big achievement in itself.

Due to the ongoing boom in the steel industry, SISCL posted excellent results for all the three quarters of FY05. Last week, it came out with its third quarter numbers ending 31Dec. 2004. It posted 171 per cent growth in Sales at Rs206 cr. and NP stood at above Rs10 cr. compared to Rs0.50 cr. in the last corresponding quarter. Notably, it registered an impressive OPM of 18 per cent for this quarter. With the steel prices rising continuously in international markets and expected to remain high, the company can clock a turnover of Rs820 cr. with NP of Rs38~40 cr. in FY05. This would work out an EPS of Rs2.5 on its current equity of Rs162.20 cr. Thus the stock is trading at 5 times FY05 expected earnings, which is reasonably cheap and has the potential to appreciate by 50 per cent in the next 12 months.

Indian Acrylics - Rs14.00

Indian Acrylics Ltd (IAL) was incorporated as a public limited company in February 1986. It was originally formed as a joint sector project by Mr. R K Garg along with Punjab State Industrial Development Corporation Limited (PSIDC). Today, it is the largest manufacturer of Acrylic Staple Fibre (ASF) in the country with 35 per cent of the total domestic capacity. It enjoys the credit of introducing micro-deniers for the first time in India. The company has technical collaborations with world renowned M/s E T Du Pont de Nemours & Co. Acrylic fibre is one of the fastest growing fibres because of its outdoor performance appeal with characteristics like quick drying time, softness, excellent colour fastness, luxurious touch & drape, warmth in thermal construction, easy care, resistance to weathering, stain and wrinkle resistance etc. Since the last few months, ASF prices have risen smartly in international markets due to short supply on account of closure of some manufacturing plants in USA & Europe and the rising demand from China.

The company’s manufacturing plant is located in Sangrur district of Punjab with a capacity to produce 38,500 TPA of ASF. To reduce the operating cost, the company is de-bottlenecking to increase its capacity to 42,000 TPA, which is expected to be completed by this fiscal. The company is also planning on backward integration with the production of methyl acrylate, the raw material that along with acrylonitrile (main raw material) goes into the production of ASF. It plans to produce semi-dull fibres and other newly developed fibres to mitigate the seasonal effects on demand. It has installed Tow to top converters to produce ready to use Acrylic Tops and is setting up value added projects like Spinning and a Dye House. It has also embarked upon technology exports to Acrylic Fibre plants abroad. Its R&D team is continuously experimenting on developing new uses of acrylic fibres such as Mink blankets, Socks, Upholstery, Sarees, Dress material, T- shirts, Soft toys, Plush & Fur fabrics, blending with velvet and silk etc. However, the company is totally dependent on imported raw materials, mainly Acrylonitrile, which is highly price sensitive to international crude oil prices

Financially, IAL is a turnaround case. For the six months ending Sept. 2004, its Sales increased by 29 per cent to Rs144.50 cr. and it posted an NP of Rs25.40 cr. against a loss of Rs8.50 cr. last year. Its OPM stood at 28.50 per cent compared to 6.25 per cent in the corresponding period last year. To cash in on the rising demand, the company is giving a special thrust to develop exports to China, Taiwan, Iran, Syria, etc. Recently, it approved preferential allotment of around 13 lakh shares to promoters and their associates at the rate of Rs 13 per share. Considering all these factors and IAL’s initiatives to reduce costs, it can post sales of Rs300 cr. with NP of Rs45 cr., which works out to a diluted EPS of Rs3.5. The scrip is recommended for investment with expectations of 50 per cent returns i.e. a price target of Rs20 in 15 months time.

STOCK WATCH

As stated in earlier issues, Indsil Electrosmelts posted impressive Q3 numbers ending Dec 2004. Its Net Sales went up by 35 per cent to Rs19.60 cr. and NP stood at Rs4.03 cr. compared to Rs2 lakh last year resulting in quarterly EPS of Rs4.25. For the nine months period of FYO5, it has already registered an EPS of Rs8 and its share price has the potential to cross Rs80 gradually.
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Although IPCL’s total revenue was down 30 per cent to Rs1964 cr., its NP was up 133 per cent to Rs189 cr. due to lower interest cost and better margins. Its OPM for current quarter was up at 22 per cent compared to 13 per cent last year. For the nine months period ending 31 December 2004, it has already posted an EPS of more than Rs18 and for full year it can post more than Rs24. Accumulate it at every dip irrespective of the dispute between the Ambani brothers.

Mahindra Ugine has once again come out with good numbers and its margins are improving quarter after quarter. For the 3rd quarter ending 31Dec. 2004, its Net Sales grew 40 per cent to Rs132 cr. and NP increased by 6 times to Rs13.80 cr. yielding a quarterly EPS of Rs4.5. It is expected to clock an EPS of Rs15 for FY05 and its share price can cross Rs120 in the next 6 months.
A few weeks back, Gujarat NRE Coke declared 1:1 bonus and 15 per cent dividend. It has continued to post excellent numbers and maintained its margin in the December quarter as well. Its topline grew by 88 per cent whereas the bottomline multiplied 5 times to Rs30 cr. resulting in an EPS of over Rs 6 on its current equity of Rs47.16 cr. Marketmen expect it to trade at Rs120 ex-bonus. Grab it cum bonus before its too late.

In spite of strong fundamentals and a bright future ahead, Jindal Stainless is trading quite cheap. It came out with good numbers for December quarter and declared 60 per cent dividend. Its sales increased by 44 per cent to Rs847 cr. and NP was up 40 per cent to Rs66.40 cr. For the full year FY05, it can report an EPS of more than Rs20. Trading at 4~5 PE level, this scrip offers ample scope of appreciation with limited downward risk.

Uttam Galva has again declared splendid numbers. Sales doubled to Rs525 cr. and NP multiplied 8 times to Rs25 cr. resulting in a quarterly EPS of more than Rs3. It has ambitious expansion plans and its OPM is expected to improve going forward. For FY05, it can register an EPS of around Rs12. It’s a screaming buy at current PE of 3 and has the potential to double in the next 12 months.

Hanil Era has chalked out a Rs50 cr. modernisation cum expansion plan and is installing weaving unit at its facilities in Patalganga with 72 looms initially and will add another 50 by the next fiscal and intends to venture into terry towels also. For FY05, it is expected to post an EPS of Rs4. It’s a long term call.