Ahmednagar Forgings - 168.00

Ahmednagar Forgings Ltd (AFL) was originally promoted by U.V. Patel, an expert in forgings in 1997 but was taken over by Amtek Auto Ltd and made its subsidiary in 2002. Since then, AFL has consolidated its position and diversified into a variety of heavy and medium forgings for all major automotive segments like two-wheelers, passenger cars, LCVs, Medium & Heavy Commercial Vehicles and for other forged parts in locomotives, stationary engines and earth-moving equipment. Currently, it caters to the automotive sector, defence and railways with its large product range which includes forgings, gears, crankshafts, front and rear wheel axles, transmission components, steering parts and high tensile fasteners.

The company has large manufacturing capacities with four state-of-the-art plants equipped with a wide variety of forging equipment such as power presses, connecting rods, upsetters and hydraulic presses etc. The company has also installed and commissioned two more press facilities at the company's plant at Kuruli. The company's manufacturing facilities are QS-9000 and ISO-9002 certified for their quality systems, which are at par with global standards. Under the leadership of the dynamic Amtek group, AFL’s products are well accepted not only in the domestic market but also obtained some very lucrative export supply contracts from USA, Italy, U.K. and Germany. The company is tier-1 vendor and OEM supplier to Telco, Hyundai, Piaggio, Hindustan Motors, M & M, Bajaj Auto, Eicher, LML, Honda Scooters, Kinetic Engineering, General Motors, General Electric (USA), Rockwell International (USA), Fairfield International (USA), Precision Components (UK), Harvin Engineering (UK) and several other major customers in India and abroad.

Due to heavy demand in the auto sector and the increased exports on account of outsourcing by auto MNC, AFL is working at higher capacity utilization and has long term plans to increase its capacity. With every quarter, AFL is improving its topline, bottomline and OPM also. For the six months ending 31st Dec 2004, its net sales grew by 25% to Rs.99 cr. and NP was Rs.10.25 cr. up 63%. OPM improved substantially to 19% compared to 12% last year. It is also expected to return to the dividend list after a gap of 7 yrs. For the full year FY05, it is estimated the company will report a bottomline of Rs.19 cr. on topline of Rs.210 cr. posting an EPS of Rs.24 on its current equity of Rs.8 cr. To fund its expansion plan, the company may make some preferential allotment in future which will trigger the scrip to dizzy heights. Investors are advised to accumulate this scrip at every fall for handsome gain in future.

Shipping Corporation of India 163.00

The Shipping Corporation of India (SCI) was established by the amalgamation of Eastern Shipping Corporation and Western Shipping Corporation on 2nd October 1961. Starting out as a marginal liner shipping company with just 19 vessels, SCI has today metamorphosed into a giant shipping conglomerate with about 40% of the Indian tonnage and operates in practically all areas of the shipping business. Operating a young and diversified fleet of 89 vessels this ‘Mini Ratna’ PSU has presence in almost every major sea route in the world and is rated amongst the world’s top 15 leagues. Today its vast fleet of apporx 5.0 million DWT consists of 29 crude oil tankers, 23 bulk carriers, 12 product tankers, 3 chemical, 2 LPG/ammonia carriers, 2 LNG carriers and other liner/passenger vessels. SCI is now focusing more on the energy sector and plans to become a major player in LNG transportation.

Although the Baltic Freight Index has come down from its high 6200 in Dec 2004 it is still hovering around 4700 level and is expected to rise from here on due to increasing international trade. Tanker freight rates are also expected to spurt due to the rising demand for crude oil and other petroleum products. With freight rates expected to remain robust over the next 3~5 years, SCI has chalked out a massive expansion plan of acquiring 18 new vessels at an investment of Rs.6,500 cr. which will be funded by internal accrual and debt. The new acquisitions include 2 very large crude carriers (VLCC), 6 handy size bulk carriers, 6 product tankers, 2 container ships and 2 Aframax tankers. Of these one VLCC will be delivered in August 05. It also plans to extend its international mainline container services by teaming up with a foreign company for container terminal operations and also bid for the fourth container terminal at Jawaharlal Nehru Port Trust.

Fundamentally and financially it is a very strong cash rich company that earns more interest earning is more than its interest outgo. It paid a special dividend of Rs.17 for FY04 and declared Rs.4 interim for FY05. With the implementation of the tonnage tax, it will save around Rs.85 cr., which will boost its EPS by Rs.3. For the nine months ending 31st Dec 2004, its total revenue increased by 25% to Rs.2688 cr. and NP jumped 120% to Rs.810 cr. Its OPM & NPM stood at 35% and 33% respectively compared to 30% & 18% last year. The Company may declare another 40% as final dividend taking total dividend to payout 80% for FY05. For the full year it is expected to clock a total revenue of Rs.3500 cr. and NP of 1025 cr. posting an EPS of Rs.36 and CEPS of Rs.46. The floating stock is very low as 80% is held by the government and 13% is held by FIIs and institutions and 4.5% with the general public. In future the government is expected to bring down its stake to 75% through an IPO, which will improve liquidity to some extent. Investors are adviced to buy at current levels with a price target of Rs.240 in the coming 8-12 months.

STOCK WATCH

Aarti Industries (Code: 524208) (Rs91.00) has world-class expertise in the development and manufacturing of basic bulk chemicals, dyes & pigment intermediates, agrochemicals along with their intermediates, rubber chemicals, surfactant intermediates and speciality chemicals. It is amongst the largest producers of Benzene based basic and intermediate chemicals in India. For FY05, is it is expected to report an EPS of Rs13. A good medium term bet.

Andhra Sugar (NSE Listed) (Rs116.00) is a fully integrated manufacturer of Chlor Alkali & Sugar. Both its products are witnessing higher demand and better price realization and to cash in on the prospective demand supply gap in sugar, it is increasing its capacity to 12,500 TCD from current 9,000 TCD. For full year FY05, it is expected to post an EPS of more than Rs14 and Rs18~20 for FY06. Accumulate it at every sharp dip.

Medi Caps Ltd (Code: 523144) (Rs48.00) is the market leader in the production of gelatine capsules, which are widely used to package drugs, vitamins, antibiotics and cosmetics. It supplies to all major pharma companies like Wockhardt, Glaxo, Lupin, IPCA, Nicholas, Pfizer, Cadila etc. It has huge reserves of Rs18 cr. and investments of Rs11 cr. on a small equity of Rs3.20 cr. and is expected to post an EPS of Rs12 for FY05. A strong buy at CMP.

While most construction & infrastructure scrips are discounted 12~15 times of their FY06 earnings, Valecha Enginering (Code: 532389) (Rs136.00) is still trading reasonably cheap. It has a very small equity of Rs4.50 cr. and has planned 1: 5 right issue in future. With huge orders worth Rs450 cr. in hand, it is likely to end FY05 with an EPS of Rs17 which can shoot up to Rs24 in FY06. Its share price can easily cross Rs200 mark in the next 6 months. An excellent pick.

To cater to the increasing international demand for polyester, Indo Rama Synthetics (Code: 500207) (Rs65.00) is doubling its polyester staple fiber (PSF) and partially oriented yarn (POY) capacity from 3,00,000 TPA to 6,00,000 TPA at its Butibori plant. It has already arranged the term loan from a German bank and other Indian institutions. For FY05 and FY06, it may report an EPS Rs7 and Rs10 respectively.

SRF Ltd (Code: 503806) (82.00), the largest manufacturer of Nylon Tyre cord fabrics, refrigeration gases and belting fabric has ambitious expansion and modernisation plans for industrial synthetic fabrics business at an investment of Rs285 cr. Besides, it has forayed into pharma chemicals business to leverage its expertise in chemicals by focussing on fluorine, chlorine and bromine segment of intermediate drugs. For FY05, it is expected to post an EPS of more than Rs8 and Rs12 for FY06. Investors can expect decent returns in the medium to long term.