Usha Martin Ltd - Rs78.50

Usha Martin Ltd (UML), the erstwhile Usha Beltron Ltd (UBL), the flagship company of the Kolkata based Jhawar group, was promoted in 1986 by Usha Martin Industries Ltd (UMIL) together with Bihar State Electronics Development Corporation in collaboration with AEG Cable of West Germany. UMIL was merged with UBL in 1997 and later the name of UBL was changed to UML in May 2003. As on today, UML is a fully integrated steel manufacturer right from iron ore, coal, power, pig iron to specialised steel, billets, wire rods & wire ropes. It is the second largest steel wire rope maker in the world producing special wire ropes for cranes, elevators, mining, structures, etc and steel cords for conveyor belts. It also manufactures jelly filled telephone cables, which contribute marginally to its total turnover. UML’s manufacturing facilities are located in Ranchi, Jamshedpur, Agra, Bangalore and also in Dubai, UK & Thailand through its subsidiaries. Its steel manufacturing facility at Jamshedpur is one of the largest amongst secondary steel manufacturers of special steel long products in the country.

Few months back, UML commissioned its backward integration project to manufacture 1,00,000 TPA DRI (Direct Reduced Iron) sponge iron plant and also installed a 10MW captive power plant utilizing the waste heat gases for power generation. It has also firmed up plans to expand its steel-making capacity from 2,20,000 TPA to 4,00,000 TPA. Importantly, UML has been allotted a coal block by the Ministry of Coal which has reserves of more than 30 million tonnes. Besides, the company is also pursuing iron ore mining activities. Due to sluggish cable industry, it has modified its cable plant in Ranchi to manufacture value added products such as bright bars, speciality wires and conveyor belt cords. It has bagged huge orders from OTIS for supplying and servicing elevator ropes in Western Europe and Asia except China and Korea for a period of three years. The company has also received a breakthrough in supplying high performance mining ropes to a customer in USA to whom it has been supplying medium-level mining ropes. In a most recent development, UML has acquired JCT's Steel Division manufacturing steel wire ropes and wire products at Hoshiarpur in Punjab for consideration of about Rs21 cr.

As a part of restructuring, it has swapped debt of Rs190 cr. and has brought down the interest cost from 13.5 to 8 per cent. IFC and DEG (Germany) have also extended 10 year loans till FY2013 of USD 21 million and Euro 10 million @ Libor + 2.75 per cent. Given the uptrend in the steel sector, UML posted impressive figures for six months ending 30 Sept. 2004. Its topline grew by 60 per cent to Rs568 cr and NP was up 123 per cent to Rs16.80 cr. Its equity capital is Rs.18.5 cr. and with reserves of Rs.410 cr., the book value of the share works out to Rs.116 on its face value of Rs.5. Since its backward integrated project was commissioned in the latter half only, it could close FY05 with total sales of Rs1100 cr. and NP of Rs40 cr. This works out to an EPS of around Rs11. Investors are advised to buy the scrip on sharp correction with a price target of 110 in the next 12 months.

Ambika Cotton Mills- 156.00

Promoted by P K Ganeshwar, M Rathanasamy and P V Chandran, Ambika Cotton Mills (ACML), was incorporated as Ambika Cotton Mills Private Ltd in 1988 and subsequently converted into a public limited company in 1994. It manufactures high quality contamination free cotton yarn used in hosiery and majority of its production is exported. It has established its name both in the international market and domestic market for its consistency and quality. Lately, it has diversified into manufacturing Compact Spinning Yarn, a premium yarn and the value of such yarn increases when made out of specialty cottons like PIMA (Cotton sourced from USA), GIZA (Cotton sourced from Egypt) and Australian Cotton, which goes into manufacturing premium branded shirts and T-shirts. Being in this lucrative niche market with such value added products, the company enjoys the highest profit per spindle in the whole country. It exports directly to Taiwan, China, Hong Kong, Turkey, Korea, Singapore, Egypt, Israel and through merchant exports to Peru, Germany, Italy etc.

Of its production capacity of 42,000 spindles, 11,000 spindles are of compact yarn and its present capacity utilization is 100 per cent. Recently, it set up Wind Energy Systems for captive power generation which has reduced its power cost substantially. 70 per cent of its power requirements are met by Wind Energy and the balance 30 per cent by the Tamil Nadu Electricity Board (TNEB). To cater to the increasing demand of its products with the removal of quota, the company is expanding capacity by another 21,000 spindles for manufacture of compact yarn (Elite Twist). The first phase involves setting up of 14,000 spindles including a 6.6 MW wind energy systems for 100 per cent captive consumption at cost of Rs67 cr. to be met by a term loan of Rs.50 cr. under the TUF Scheme and the balance Rs17 cr. through internal accruals and the project is expected to be operational by July 2005. After completion of the above first phase, the second phase involves addition of another 7,000 spindles of compact yarn to the total productive line taking its total capacity to 63,000 spindles of which 32,000 spindles will be of compact yarn.

For the six months ending 30 Sept. 2004, its total revenue grew 2 per cent to Rs42 cr. but due to cost reduction. Its NP jumped 78 per cent to Rs5.40 cr. in spite of higher depreciation. For the full year FY05, the company could register sales of Rs95 cr. with net profit Rs12.50 cr. respectively. On its current equity of Rs5 cr., the EPS works out to Rs25 Its CEPS is expected to touch Rs40. The Company has huge reserves and its book value stands at Rs110 as on 31st March 2004. Though the dividend payout is low, the management may reward shareholders with a liberal bonus in the future. For FY 2005-06, its sales and NP will see a substantial jump due to expansion plan. It may even report an EPS of more than Rs40 for FY06. Considering all this, the scrip is trading cheap at 6 PE providing a good opportunity for long term investors to buy. The scrip has the potential to double in 2 years.

STOCK WATCH

Shreyas Shipping, a leader in the container feeder segment, has recently purchased MV Orient Victory a 569 TEU second hand container vessel which will be delivered to the company by the end of January 2005. It has posted excellent results for Q3FY05. Total revenue was up 30 per cent to Rs.26 cr. and NP including extraordinary item jumped 170 per cent to Rs.16.45 cr. yielding an quarterly EPS of Rs.8.30. Excluding extraordinary item (ie reversal of deferred tax due to tonnage tax system) also, the EPS works out to 3.80 Rs. A good long term bet.

Bhagyanagar Metals which is now concentrating in assembling and trading of CDMA handsets to take advantage of the cellular revolution in the country came out with a good set of numbers for December’ 04 quarter. Net Sales doubled to Rs.35 cr. and profit after tax stood at Rs.7.85 cr. compared to Rs.62 lakh last year resulting in an EPS of Rs.12.50 on its current equity of Rs.6.30 cr. The company plans to venture into the manufacture of copper pipes and foils for solar heaters. For FY05, it can report an EPS of around Rs.40. Although the promoters are reducing their stake, investors can take some exposure for a handsome gain in long term.

Due to higher demand and better price realisation of caustic soda, Gujarat Alkalies has reported fantastic figures for the December 2004 quarter. Its Net sales are up 23 per cent to Rs.306 cr. and NP multiplied 3 times to Rs.49.50 cr. inspite of tax provision of Rs.43.75 cr. Its OPM also improved substantially for this quarter and stood at 40 per cent. For future growth, it has planned expansion in its Caustic Soda and Hydrogen Peroxide manufacturing facility at its Dahej plant at a cost of Rs.200 cr.Fundamentally, a strong company which can post an EPS of Rs.18 for FY05.

Metalman Industries is a manufacture of galvanized tubes consisting of Black & Galvanized Steel Pipes used in irrigation, tube wells, water conveyance, structurals, etc. conforming to ISI specifications. Due to the government’s thrust on agriculture, the company is facing good times and is expected to perform well in the future. For the first six months of the current year, its sales increased by 50 per cent to Rs.134 cr. and NP rose by 55 per cent to Rs.5.35 cr. For the full year, it is expected to post an EPS of Rs.10. Since it is a small cap and illiquid scrip, aggressive investors are advised to accumulate it.

Though the market has appreciated smartly and is trading above Sensex 6300 level, Reliance Industries is still trading quite cheap at Rs.520 level, thanks to the feud among the Ambani brothers. Due to the uptrend in the petrochemical cycle and higher refining margin, the company posted wonderful result sinceQ3FY05. Its topline increased by impressive 42 per cent to Rs.17768 cr. and bottomline grew by 52 per cent to Rs.2091 cr. The company is buying back its shares agressively form the market and may report an EPS of more than Rs.50 for FY05.The scrip has the potential to hitRs.750 in the next 15 months.

KIC Metallics is into manufacturing of Pig iron, castings and slag cement. It is in the process of setting up a steel billet manufacturing unit with a capacity of 150,000 TPA and is expanding the pig iron production capacity from current 120,000 TPA to 1,50,000 TPA. For Q3FY05, it posted splendid numbers with net sales rising 170 per cent to Rs.68.20 cr. and NP increased by 150 per cent to Rs.2.50 cr. On its current equity of Rs.3.70 cr. it works out to an quarterly EPS of Rs.7. For the full year, it may register an EPS of Rs.16. Recently; it approved preferential allotment of 6.35 lakh shares at Rs.80. A strong buy.