Hanil Era Textiles - Rs30.00

Incorporated in October 1991, Hanil Era Textiles Ltd (HETL) is jointly promoted by New Era Fabrics Ltd and South Korea's Hanil Synthetics Ltd. It manufactures and exports acrylic, cotton, viscose and blended yarns in varying textures, blends and counts and is one of the largest exporters of acrylic yarn from India. It exports its products to 21 countries including China and was awarded the highest export award by The Synthetic Rayon & Textile Export Promotion Council last year. To cash in on the post quota boom, the company has ventured a forward integration into weaving, processing & home textiles.

Its manufacturing plant at Patalganga in Raigad district of Maharashtra is a100% EOU with an installed capacity of 79,980 spindles and 504 rotors and a Dyeing plant. Under a modernisation-cum-expansion plan of Rs50 cr., the company plans to install 72 looms by mid 2006 and increase it to 120 looms later. It wants to expand its product line to include grey fabrics, processing and home furnishings. Going forward, it intends to produce terry towels as well. The modernisation will cost Rs15 cr. while expansion will account for Rs35 cr. This investment will be funded by term loans and Rs15 cr. and the balance will be from internal accruals. The company has also diversified into the manufacture of ethanol at a cost of Rs10 cr. seeing the strong demand & lucrative margin in the business. It also set up a 16MW power plant at its plant and generates revenue by selling the surplus power.HETL is regularly receiving good orders and has a healthy order book position.

Being an EOU, it’s a zero tax paying company and will remain so for the next five years. Its board has approved buy back upto 10 per cent of its equity, which may trigger a share price rise when executed. For Q3FY05, its sales increased by 22 per cent at Rs37.20 cr. but the NP was quite flat at Rs7.10 cr. Considering the growth opportunities, it could post a topline of Rs125 cr. with NP of Rs24 cr. This will yield an EPS of Rs6 on its equity of Rs41 cr. Investors are advised to buy at dips with a price target of Rs50 in the next 15 months. However, the company may be discounted poorly due to promoter concerns by the market.

Indian Petrochemicals Ltd- Rs.176.50

Established in 1969, Indian Petrochemicals Ltd. (IPCL) is the second largest player in the petrochemicals industry manufacturing polymers, synthetic fibre, fibre intermediates, solvents, surfactants, industrial chemicals, catalysts and adsorbents. It is the largest integrated PVC player, the largest Polyethylene (PE) producer and the second largest MEG producer in India with the largest ethylene capacity. Till June 2002, it was a government undertaking when Reliance took 46 per cent stake and took over its management. Since then, the company has vastly improved and become financially stronger.

The company has three petrochemical complexes, a naphtha based complex at Vadodara and gas based complexes at Nagothane near Mumbai and at Dahej on the Narmada estuary in the Bay of Khambhat. The company also owns a catalyst manufacturing facility at Rabale, Navi Mumbai. With better management and the strong uptrend in the petrochemical cycle, all its plants are operating above 100 per cent capacity utilization. Of late, it is in talks with potential domestic/RLNG suppliers to replace expensive imported propane with cheaper domestic gas. It is also planning some minor de-bottlenecking of its PVC and MEG capacities. It also has a capex plan of Rs1000 cr. to build a new mono ethylene glycol (MEG) plant at its Gandhat complex in Dahej in the coming 24~30 months.

Due to the current feud among the Ambani brothers, the IPCL stock is poorly discounted by the market and is the best time to accumulate the scrip for the long term. The company is doing very well and with the petrochemical cycle expected to remain firm over the next 18 months, IPCL is one of the best bets. For the nine months ending 31 Dec.’ 04, its sales grew marginally by 2 per cent to Rs5556 cr. but the NP jumped 160 per cent to Rs450 cr. due to better efficiency and lower interest cost. IPCL could post a topline of Rs7600 cr. and NP of Rs600 cr. leading to an EPS of Rs24 on its equity capital of Rs249 cr. It’s a strong buy at current levels with a price target of Rs280 in a year’s time. The downside risk is very limited from hereon considering that the Government divested its stake at Rs170 through an IPO in 2004 while the Ambanis acquired the majority stake at double the price.

STOCK WATCH

Power sector is expected to be a major beneficiary of the forthcoming budget and GIPCL can be accumulated pre-budget for handsome gains. The company is in the process of doubling the capacity of its Surat Lignite Power plant (SLPP) to 500 MW from 250 MW at a capex of Rs1000 cr. The Government of Gujarat will divest its stake sooner or later, which makes it a strong takeover target and a strong upside re-rating going forward. With an expected EPS of Rs11/12, this scrip is trades cheap and is a case of a strong buy.

Paper prices are expected to rise in coming months creating a buzz in paper stocks. Star Paper, a Duncan Goenka group company, is trading relatively cheap compared to its peers. It is expected to post an EPS of Rs13 for FY05 and its share price has the potential to double in a year’s time. Grab it before it’s too late.

Sathavana Ispat has ambitious long term growth plans and is increasing the capacity of its pig iron plant to 2,10,000 TPA from 1,20,000 TPA. Last year, it had set up non recovery type Coke Oven facility with a capacity of 150,000 TPA which will reduce its input costs to a greater extent. With an expected EPS of Rs12, its share price can cross Rs80 in the medium term and Rs120 in the longer term.

India Glycols, belonging to the Bhartia family of Jubilant Organosys, is the only producer of mono etylene glycol (MEG) using the organic route of molasses and had recently expanded its capacity from 225 MT/day to 350 MT/day. Its product is in high demand and the company is expected to perform well over the next 2 years. For FY05, it is expected to post an EPS of Rs28. It is a screaming buy at every dip as the scrip is expected to touch Rs250 in the medium term. Hold it patiently.

Being in T2T segment, Lincoln Pharma has been avoided by investors and the scrip is lying low. But this is the best time to accumulate it with a longer term perspective. The company is reportedly doing well and has given greater thrust to Research & Development in formulations. It is also getting its ‘Namsafe’ product patented. Its share price can easily rise 50 per cent from the current level once it exits from T2T. Long term investors are advised to buy and hold for at least 1 year.

Every analyst is bullish on the future prospects of infrastructure companies as the budget may be quite favourable to them. One such company missed out by FIIs and mutual funds is Petron Engineering. It has very healthy order book position and is expected to receive some more big orders. With an expected EPS of Rs12, the scrip is trading cheap and can rise sharply in future. Buy with a medium term target of Rs150.

Share prices of caustic soda manufacturing companies are expected to rise sooner or later as the product prices have risen smartly over the last few days. Bihar Caustic, an Aditya Birla group company, which has an installed capacity of 51,000 TPA of caustic soda is planning to increase its capacity by 50 per cent and is also converting its existing mercury technology to energy efficient and environment friendly membrane technology. The share is trading at less than 5 PE leaving ample scope to rise by 50 per cent in the medium term.