Mangalam Cement - Rs.74.00

Incorporated in 1976, Mangalam Cement Ltd (MCL) is a part of the B.K. Birla Group and is engaged in the manufacture of ordinary portland cement, pozzolana portland cement and clinker. It has two units namely Managalam Cement and Neer Shree Cement, both at Morak in Rajasthan with installed capacities of 0.4 million TPA and 0.7 million TPA respectively. It manufactures cement through the dry process using vertical raw mills & sells under the brand names ‘Mangalam’ and ‘Birla Uttam’. To meet its raw material requirement, the company has leased limestone-bearing land adjacent to its plant, which has reserves for the next 50 yrs. The company operates in the northern region with a key presence in the markets of Rajasthan, Western UP, Gujarat and Delhi. Incidentally, the North is the fastest growing region and the cement price realisation is also higher in this zone compared to other parts of India.

Financially, MCL went through tough times earlier and reported losses for many years. In 2000, its networth was completely eroded and it became a sick unit. In May 2002, it came under the purview of BIFR and restructured itself. Recently, it met its financial obligations with a one-time settlement and received a waiver from institutions on the interest and principal to be repaid to become a debt free company. It also received sales tax liability write-back, which helped it improve its financial health. Finally, it turned around in FY04. Now the company is working smoothly at more than 130% capacity utilization and is expected to perform much better in coming quarters In fact, to save on the power costs, the company is setting up a captive thermal power plant with a 17.5 MW capacity expected to become operational by mid 2006.

With government’s thrust on infrastructure, construction of highways, sea ports, airports etc and the ongoing housing boom will lead to greater demand for cement and increase in cement prices is likely. But the biggest trigger for MCL will be its takeover by some multinational or bigger cement company. Earlier Grasim, Mexican cement major Cemex, Lafarge, Italicement and some Thailand based companies had shown interest in acquiring the company. Even if the takeover/merger doesn’t happen, MCL is fundamentally quite strong and can report Net Sales of Rs.315 cr. and NP of Rs.20 cr. for the year ending 30th Sept 2005. This works out to an EPS of Rs.7 on its current equity of Rs.28.20 cr. Considering its higher operating efficiency in FY06, it is estimated to report a turnover of Rs.360 cr. and bottomline of Rs.28 cr. leading to an EPS of Rs.10. Investors can buy at CMP with a price target of Rs.120 (60% appreciation) in 12~15 months.

Indian Sucrose - Rs.28.00

Incorporated in 1990, Indian Sucrose Ltd (ISL) was originally promoted jointly by Punjab Aro Industries Corporation and Mukerian Papers Ltd. Later, Mukerian Papers Ltd and its nominee companies including Malwa Cotton Spinning Mills Ltd. and Punjab Woolcombers Ltd. took over the control of the company. ISL belongs to the Oswal Woolen Mills Group and was earlier known as Oswal Sugars Limited. In 1992, it set up a plant in Punjab to manufacture white crystal sugar with an installed capacity of 2500 TCD. The plant also had certain additional facilities like co-generation of power to the extent of 6.6 MW.

Till now, the Indian sugar industry was ailing due to excess supply, lower price realisation, higher input cost, much govt. intervention etc. But over the past few years, things have improved a lot for the industry. Sugar prices are hitting new highs, demand supply mismatch has narrowed down and the sector as a whole is expected to be de-controlled in future. The price of sugar by-products prices is also rising. To take the advantage of this boom, ISL has increased its capacity from 2500 TCD to 3500 TCD and has also acquired Ranger Breweries Ltd., which owns a distillerv unit at Mehatpur H.P and produces 4 well-known brands of Rum namely Champion, Old Flame, Black Jack & Gold Flame. ISL is also planning for a forward integration by setting up a plant for manufacturing Ethyl Alcohol from molasses.

For FY05, its net sales increased by 50% to Rs.68 cr. whereas the NP zoomed to Rs.10.45 cr. compared to Rs.1.20 cr. last year. Its OPM improved substantially 27% compared to 10% in FY04. This works out to an EPS of Rs.7 on its current equity of Rs.15.40 cr. Its book value as on 31st March 2005 stood enhanced to Rs.13 from Rs.6. Assuming sugar prices to remain high in future, ISL can register sales of Rs.80 cr. and NP of Rs.12 cr. leading to an EPS of Rs.8 for FY06, and can be expected to return to the dividend list. These figures exclude the recently acquired Rum business and its consolidated numbers will be much higher. Yet, its current market cap is around Rs.40 cr. Hence investors are recommended to buy at current levels with a price target of Rs.50 (80% appreciation) in 12 months time.

STOCK WATCH

Some months back Sesa Goa (Code No: 500295) (Rs.745) had been granted a Prospecting Lease in Jharkhand, which gives it the right to explore for iron, ore in that State as well. Though iron ore prices have cooled off from their recent high, they are still expected to remain high due to the strong demand from China and the domestic steel industry. Its June’05 qtr. numbers were quite impressive as Sales increased 90% to Rs.464 cr. and NP spurted 132% to Rs.158 cr. posting an EPS of Rs.40 for the qtr. Ironically, its OPM improved to 49% compared to 40% last year. For the full year FY06, it may report an EPS of more than Rs.135.

Agro Dutch Inds. (Code No: 519281) (Rs.65.20), the largest mushroom producer in India has ambitious expansion plans. It plans to increase its capacity from 37,000 to 50,000 tonnes of mushrooms at an investment of Rs.25 cr. Besides, it also intends to set up a Rs.40 cr. facility to manufacture cans in Chennai. Most importantly, USA has reduced the anti dumping duty on mushrooms to 0.62% from 30% earlier, which will have significant impact on the company’s bottomline as it is the largest exporter to USA. With such positive developments coupled with 1:1 right issue at Rs.30, its share price is bound to cross Rs.100 mark soon. Investors are recommended to hold on to it patiently.

For quite long time GIPCL (Code No: 517300) (Rs.76.80) is underperforming the broader index and has consolidated at current levels. Due to reduction in tariff rate and the huge contribution by other income to the bottomline, marketmen are not that bullish on this scrip. But in such a high market, this scrip becomes a safe bet as it downside is very limited but the upside potential is good in the long run. For the June’05 qtr., its topline reported a fall of 23% to Rs.188 cr. but its NP increased by 23% to Rs.42 cr. due to lower interest cost and higher ‘other income’ posting an EPS of Rs.3.85 for the qtr. For FY06, it can register an EPS of Rs.12 and the share has the potential to cross the Rs.100 mark.

In spite of such a sharp run up in its share price, long-term investor will still gain handsomely from Sanjivani Paranteral (Code No: 531569) (Rs.90.50), even from current levels. It declared quite impressive numbers for June’05 qtr. Sales jumped 425% to Rs.12.65 cr. whereas NP stood at Rs.2.40 cr. compared to Rs.0.05 cr. last year. This works out to an quarterly EPS of around Rs.5 on its current equity of Rs.4.85 cr. Growing at such a fast pace, Sanjivani can end FY06 with Net Sales of Rs.45 cr. and NP of Rs.7 cr. with an EPS of Rs.14 and its share price can gradually rise upto Rs.150 in 6~9 months

Long-term investors are strongly recommended to buy Mumbai based Valecha Engg. (Code No: 532389) (Rs.168) as this is the only construction company which has still not caught of the market and its share price is underperforming for quite some time now. This is in spite of the fact that it has more than Rs.450 cr. orders in hand. Thus its future is very promising. For June’05 qtr., its revenue declined by 14% to Rs.36 cr. whereas its NP remained flat at Rs.2.20 cr. due to better operating efficiency. For FY06, it can report more than Rs.200 cr. turnover and EPS of Rs.18. It is one of the promoters of Jyoti Structures Ltd. holding around 11 lakh shares in it. Moreover, the board has already approved 1:5 rights issue, which may be priced at Rs.110.

Bilpower Ltd. (Code No: 531590) (Rs.99.30), a leading manufacturer of Transformers, Laminations, Stampings, Cores etc. came out with terrific numbers for the June’05 qtr. Its sales have trebled to Rs.24 cr. and NP zoomed to Rs.2.50 cr. compared to Rs.0.25 cr. in the same quarter last year. Hence, it has posted an EPS of Rs.5 for the qtr on its small equity of Rs.5 cr. Its OPM stood healthy at 11% against 5% in last June’04. Although there is the risk of equity dilution in future, still it is a good bet for the long term and can report an EPS of Rs.14~15 for FY06. Buy at declines.