MUSCO Ltd - Rs.103.50

Incoporated in 1962, Mahindra Ugine Steel Co. Ltd. (MUSCO) belonging to the Mahindra & Mahindra Group is one of the well-known manufacturers of alloy steel in the country. It has around 100 customers, mainly manufacturers of forgings & bearings and engineering firms. The company's product profile consists of alloys, tool and die steel, engineering alloys, plastic mould steel, ball bearing steel, aircraft quality steel, offshore oil field steel, ferritic/ austenitic/martensitic/duplex/precipitation hardening stainless steel, case carburising steel, boron steel and automotive valve steel. The company also has a stampings division to manufacture pressed sheet metal components and assemblies. It is the only steel company to have achieved ISO 9002 accreditation for all its operations. MUSCO has an impressive list of clients including BHEL, Siemens, NTPC, SKF Bearings, Cummins, Ingersoll Rand, Bharat Forge, M&M, Fairfield Inc. (USA), Comprador Inoxidable (USA), PT Perkasa (Indonesia), S.I.Studs (UAE), Precision Forgings (Saudi Arabia) and Indian Railways to name a few.

Its steel plant has a capacity of 1,10,000 TPA and a workforce of more than 800 employees is located at Khopoli on the Mumbai-Pune highway about 100 kms from Mumbai. The stampings division is at Kanhe, Tal. Maval, Dist. Pune, has a capacity of 18,000 MTA. Due to the uptrend in the user industry, MUSCO is witnessing strong demand for its products, and has chalked out Rs.100 cr. expansion plan to enhance its installed capacity to 2,40,000 TPA by 2008 in a phased manner. It has already spent Rs.30 cr. in FY05 and plans to take the capacity to 1,50,000 TPA by end of fiscal FY06. MUSCO is also concentrating to export directly, which will improve margins further and some European and American buyers have shown interest in sourcing alloy steel from the company.

Fundamentally as well as financially MUSCO has become much stronger with better cash flows and better operating efficiency. It even declared 30% dividend for FY05. For the full year ending 31st March 2005 it posted very impressive number. Its topline grew by almost 50% to Rs.522 cr. whereas bottomline shot up to Rs.48 cr. compared to Rs.6 cr. last year. Its OPM improved substantially to 16% from 7.5% last year. Which means it reported an EPS of Rs.15.50 on equity of Rs.30.93 cr. Considering the expansion and slightly better margins in FY06, MUSCO to report NP of Rs.70 cr. on total sales of Rs.675 cr. registering an EPS of Rs.23 on the current equity. Investors are strongly advised to buy this scrip for 50% return in 12 months.

GNFC - Rs.71.50

Gujarat Narmada Valley and Fertilizer Co (GNFC) was promoted by the Government of Gujarat and Gujarat State Fertilisers Corporation in 1976 to manufacture chemical fertilisers, particularly ammonia, urea and petrochemicals. Since then, it has emerged as one of the largest players in fertilizer & chemicals producing various products in technical collaboration with leading MNCs from around the world. It’s also getting a foothold to become a significant player in the IT infrastructure and infotech solutions provider.

GNFC can boast of having the world's largest single stream fuel oil based Ammonia-urea plant. Besides, it is India's largest producer of Formic Acid, Acetic Acid and Methanol. It’s also India's only producer of Glacial Acetic Acid through the cutting-edge Methanol route using British Petroleum Technology. In short, GNFC is the most efficient and well-managed company working at more than 100% capacity utilization. Due to the untrend and strong growth in consuming sectors like Textiles, Paper, Insecticides, Pesticides, Food processing etc. the demand for GNFC’s products will continue to grow at a respectable rate. GNFC is also planning to shift to natural gas as the feed-stock so as to rationalize the cost structure and enjoy the benefit of the new fertilizer policy. Moreover, the company also has long term plans to double its methanol and acetic acid production capacity so as to become a globally competitive player.

Incidentally, GNFC has maintained an uninterrupted record of rewarding shareholders by dividends for the last 20 years. For FY05 also, it is expected to declare atleast 35% dividend by Sept 2005, which means an dividend yield of 5% at CMP. For the nine months ending 31st Dec 2004, its total revenue was up 18% to Rs.1282 cr. but its NP increased by 60% to Rs.131 cr. due to better operating margins and lower interest cost. For the full year, it may report Sales of Rs.1850 cr. and NP of Rs.175 cr. leading to an EPS of around Rs.12 Of late, fertlizer scrips have caught market fancy and if the monsoon is good this fiscal, then the share prices of these companies can shoot up substantially. For FY06, it can report an EPS of Rs.14 on its current equity. Investors are recommended to buy at current levels with a price target of Rs.100 in 12~15 months

STOCK WATCH

Syncom Formulation (Code No: 524470) (Rs.86.00) has once again come out with flying colours for FY05. Its net Sales grew by 55% to Rs.17.40 cr. and NP increased 40% to Rs.2.30 cr. inspite of higher tax provisioning of Rs.2.30 cr. The company is planning an aggressive entry into the branded herbal market of South Africa and Europe. Its also plans to increase its product offering to 500 products from the current 250 products in ethical, generics, OTC and herbal range in the next 2~3 yrs. For FY06, the company may report an EPS of Rs.18 on its current equity of Rs.5.30 cr. Its share price has the potential to double in 12 months.

Pacific Cotspin (Code No: 531118) (Rs.9.40), a relatively lesser known company, is a Rs.120 cr. Kolkata based, 100% EOU engaged in the manufature of cotton yarn. Due to the growing demand and better prospects of cotton yarn it has turned around this year and reported fantastic figures for the March’05 quarter. Net Sales have increased by around 20% to Rs.40 cr. whereas its NP has zoomed 700% to Rs.3.51 due to better operating efficiency. For FY06 it can report an EPS of Rs.5. Aggressive investors can accumulate this scrip for handsome gains in the long run.

Inspite of impressive numbers, the Bihar Caustic (Code No: 500057) (Rs.54.40), scrip was hammered on news of a breakdown in its power plant and the low dividend announcement. This company is, however very strong and will continue to report better number in the future as well. Scrip has a strong support at Rs.50~52 level and once the market sentiment improves it can easily cross the Rs.80 mark. For FY06, it is expected to post an EPS of Rs.15.

The March’05 numbers of Navabharat Ferro Alloys (Code No: 513023) (Rs.371.00) are expected to be better as the operations of its new (4th Furnace) of 27.6 MVA at Paloncha on February 17, 2005. There are also market rumours that the company is likely to reward investors with handsomely with a good dividend or bonus or a stock split. It is expected to end FY05 with an EPS of around Rs.100 and the scrip is currently trading at a less than 4 PE multiple.

Spanco Telesystem (Code No: 508976) (Rs.75.05), is a growing player in the BPO segment, which came out with right cum public issue at Rs.25 last year, has reported superb numbers for March 2005. Both its topline and bottomline doubled to Rs.42.50 cr. and Rs.4.20 cr. respectively compared to last year. The company is expanding its business and is aggressively setting up new call centres. For FY06, it can report an EPS of more than Rs.10 and the share price can double in a year’s time

Following the footsteps of Ador Welding, Ador Fontech (Code No: 530431) (Rs.67.00), its associate company has posted quite robust numbers for March 2005 numbers. Due to the ongoing infrastructure boom, Ador Fontech’s total revenue grew 55% to Rs.17.50 cr. and NP increased by 60% to 1.44 cr. excluding extraordinary items. This means an EPS of Rs.4 Q4FY05. Besides, the company has declared 35% dividend (including 5% silver jubliee dividend) which gives and dividend yield of more than 5% at CMP. For FY06, it can post an EPS of Rs.12 on its current equity of Rs.3.50 cr. and the share price can cross Rs.100 in next 6 months

Post restructuring and reduction in its debts, Mangalam Cement (Code No: 502157) (Rs.72.50) has started to post decent numbers from March’05 quarter. Its net sales increased by 12% to Rs.82 cr. and NP has doubled to Rs.6 cr. excluding other income. For FY05 ending Sept 2005, it can report Sales of Rs.300 cr. and NP of Rs.24 cr. leading to an EPS of Rs.8.50. For FY06, it can report much better numbers and can post an EPS of Rs.12~14. A strong buy.