Modern Steel Ltd - Rs.90.00

Promoted by Amarjit Goyal, Modern Steel Ltd (MSL) was originally incorporated as a Private Limited Company in 1973 and was then converted into a public limited company in 1974. Today, it’s a well known manufacturer of special and alloy steels and caters to the needs of a wide spectrum of users that include Automobiles, Tractors, Engineering, Defence, Railways and allied industries. It produces a wide range of Steel Grades, Carbon Constructional Steel, Alloy Steels, Free Cuttings, Tools and Spring Steel. In addition it produces Billets, Rounds, RCS, Flats and Special Profiles. With its large range of products MSL caters to OE customers which include Ashok Leyland, Escorts, Eicher Motors, Punjab Tractors, HMT, MICO, Lucas-TVS, Sundaram Fastners and their ancillories.

MSL’s manufacturing facility is located at Punjab with an installed capacity of 1,00,000 TPA. The plant is equipped with 25 tonne Arc Furnace, with secondary refining and continuous casting facilities, modern rolling mills and a captive oxygen plant. To cash on the uptrend in the steel cycle, MSL has initiated a modernization & expansion plan with an estimated capital outlay of Rs.32 cr. in its Steel Melting Shop and Rolling Mills. It intends to enhance the steel melting shop capacity by 50,000 TPA and Rolling Mill capacity will be increased by 36000 TPA. The project is expected to be completed by March 2006. To fund this expansion, it will raise money through private placement of equity by preferential allotment. In line with the company's policy for continual improvement, MSL has achieved TS 16949 certification from DNV, Netherlands, last year. Besides due to improved performance, MSL came out of the preview of Sick Industrial Companies (Special Provisions) Act., 1985 in FY04 itself.

Due to better management, constant modernization and higher price realization, MSL improved its operating efficiency quarter by quarter. It reported an OPM of 11% for FY05 compared to 7% for FY04. For FY05, its turnover increased 37% to Rs.270 cr. and NP jumped 170% to Rs.16.50 cr. in spite of higher tax provision of around Rs.10 cr. and declared 20% dividend. EPS works out to Rs.34.50 for FY05 on its current equity of Rs.4.80 cr. Considering that the steel demand will remain robust in coming quarters, MSL may report an EPS of Rs.40 on current equity for FY06. This works out to Rs.24 if we consider the diluted equity as Rs.8 cr. Investors are recommended to buy this scrip with a price target of Rs.150 in 15~18 months.eners and their ancillary units.

Chemfab Alkalies - Rs.176.00

Incorporated on 16th June 1983, Chemfab Alkalis Ltd (CAL) was promoted by Titanium Equipment and Anode Manufacturing Co. Ltd., (TEAM) to produce caustic soda. Today, this ISO 14001 certified company is the leading player engaged in the manufacture of Caustic Soda lye, Liquid Chlorine Hyd rogen Gas, Hydrochloric Acid, Sodium Hypochlorite / Bleach Liquor, Barium Sulphate etc. Notably, CAL is the first in the country to introduce Pollution-free Membrane Cell Technology, which became the trendsetter in the Chlor-Alkali Industry. Moreover, it is also the first company to manufacture Barium Sulphate from solid waste and also holds a patent for the manufacture of the same.

CAL’s manufacturing plant is located just 500m from the seashore at Kalapet in Pondicherry, which offers great potential for desalination. In fact the company intends to put up a desalination plant of 1 MGD capacity, which will meet its total water requirement and will enable it to sell water to potential customers since the entire East-coast has huge deficit of ground water. Importantly, due to backward integration the company is self-sufficient on the salt front and its entire requirement of salt is met from its own salt fields resulting in significant savings. On the power front, CAL has its own 110KV sub-station and receives uninterrupted power supply from Pondicherry Electricity Department. Knowing the future potential of Biotechnology, CAL has recently undertaken a conscious decision to meet the technological challenges and commercial demands of the future by creating a separate Life Science Division for pursuing effective product portfolios on Nutrition and Wellness. It has also identified Bio-separation, Nano-Membranes and Bio-remediation to decimate industrial and environmental pollution.

Due to the increasing demand from the user industry like paper, aluminium, detergents, pharma, PVC etc. caustic soda prices are rising constantly and are expected to remain high due to limited supply. Being a strong player in southern market, CAL is witnessing the best of times. For FY05, its net sales increased by 14% but its NP almost tripled to Rs.9 cr. due to higher price realisation and saving in interest costs leading to an EPS of Rs.26 on a small equity of Rs.3.50 cr. The company declared 100% dividend, which means a dividend payout ratio of 40%. For FY06, it may report an EPS of Rs.30 and can declare Rs.12 dividend giving a dividend yield of 7%. Investors are advised to accumulate this scrip at sharp declines with a price target of Rs.250 in 15 months.

STOCK WATCH

Hazoor Media (Code No: 532467) (Rs.10.35) has entered into a joint venture project with Omkar Petrochemicals Limited to jointly set up project with an installed capacity of 30K litres per day for manufacturing Ethanol an Energy Fuel. It has also made its foray into the power sector to set up 10 MW co-generation power project for generation and distribution of grid quality power from biomass resources using steam turbine technology. Besides, it has huge real estate of 90,000 sq. mtrs. Being a zero debt company with a book value of Rs.19, its share price can easily rise 50% from the current level. At the same time, equity dilution cannot be ruled out in future.

Electrotherm India (Code No: 526608) (Rs.85.85) manufactures induction melting furnaces, induction heating & hardening equipment, single electrode DC arc furnaces, secondary metallurgical equipments etc for the steel industry and is a major player in the domestic and export markets. It is setting up a 70,000 TPA cast iron manufacturing facility in the Kutch District of Gujarat, which will boost its topline significantly. In future, the company also intends to go for backward and forward integration to become an integrated player. For FY05, it may report an EPS of Rs.20. Investors can accumulate it at declines for the long term as there is the possibility of equity dilution in the near future. The scrip is now available in demat mode.

GMM Pfaudler (Code No:505255) (Rs.357) is the largest domestic manufacturer of Glass lined reactors and its products line includes Wiped Film Evaporators, Agitated Nutche Filters and High efficiency Mixing Systems. It has chalked out aggressive plans to tap the growing market of pharmaceutical equipment in the post-patent regime by introducing products that are compliant with international standards. In FY05, its OPM has improved substantially to 15% from 8% last year. It reported an EPs of Rs.25, which may shoot up to Rs.35 in FY06 and its share price can cross Rs.500 in the medium term

Bhagyanagar Metals (Code No: 512296) (Rs.26) intends to restructure its businesses Telecom, Metals, Investments and Infrastructure. It may continue as a Metals & Investment Company and demerge the company's telecom business to Bhagyanagar Telecom Limited, Infrastructure business to Bhagyanagar Infrastructure Limited. This will lead to a re-rating of the scrip in future, as each company will concentrate on its core strength. For FY05, it reported an EPS of Rs.8.5 (FV of Rs.2) as other income constitutes 40% of its bottomline.

Hind Rectifiers (Code No: 504036) (Rs.328.40) produces electrostatic precipitators, transformers, reactors, mobile submarine battery chargers, constant current regulators for the Defence sector and rectifier systems, pulse power supply systems, regulators, power diodes, thyristors, auxiliary converters & inverters, and trackside DC substation equipment for others. The company has a healthy order book position and is expected to perform far better in FY06. It may report an EPS of Rs.33 and Rs.42 for FY05 and FY06 respectively. With a very small equity of Rs.1 cr. and reserves of around Rs.8 cr., there is possibility of a bonus issue in the near future. A strong buy.

Recently Alchemist Ltd (Code No: 526707) (Rs.108.35) bought 60 per cent stake in Valiant Healthcare Limited, a Delhi based pharma company for Rs.4.5 cr. as a part of its growth strategy to focus on Healthcare and Agri business. Alchemist is setting up a R&D Centre to offer drug development support services (DDSS) to global pharmaceutical companies and is also planning to focus on Clinical Research Operations through its presence in hospital, clinical and pathological lab segment. For FY05 ending 30th June 2005, it may report an EPS of Rs.25 on its current equity of Rs.5.50 cr. Scrip has the potential to cross Rs.150 in the next 3 months.