Vardhman Industries - Rs.38.00

Vardhman Industries Ltd (VIL) is promoted and managed by Kapil Jain. Initially, VIL produced only steel ingots but in 1992 it set up a small galvanizing plant for steel pipes. Today, this Delhi based company is a reputed manufacturer and exporter of steel ingots, galvanized plain & galvanized corrugated sheets and coils. It also produces cold rolled coils and other flat products. Apart from metals, VIL has diversified into manufacturing Vanaspati Ghee and Refined oil.

VIL is also putting up a colour coating plant of 41250 MTA capacity at Rajpura in District Patiala in Punjab at a total estimated cost of Rs.15 cr. This plant will be operational by early 2006. It is also setting up a 10 MW power plant in Jharkhand and also its Steel Melting Shop (SMS) to manufacture about 68000 MT of billets at the same site. Both are expected to commence operations by November 2005.

VIL is concentrating more on exports by exploring new markets in Dubai, China, West Africa, Sierra Leone, Afghanistan, Myanmar, Maldives, Canada etc. It has made a major dent in the export market despite stiff competition and intends to take its exports beyond Rs.100 cr. With the increase in production, its diversified product mix, expected economies of scale and highly responsive market conditions, VIL can close FY06 with sales of around Rs.275 cr. and NP of Rs.6.50 cr. This means an EPS of Rs.8 on its current equity of Rs.7.94 cr. Investors are recommended to buy this scrip at declines with an expectation of 50% return in 12~15 months.

Aarti Drugs - Rs.154.00

Aarti Drugs Ltd (ADL), has emerged as a fully integrated research-driven company developing processes for active pharma ingredients (API) and intermediates and is a leading manufacturer of bulk drugs in some popular therapeutic groups and speciality chemicals. It has a strong presence in the anti-diarrhoea, anti-inflammatory therapeutic groups with products such as Tinidazole, Metronidazole, Nimesulide, Rofecoxib and is the largest producer of Benzene based basic and intermediate chemicals in India. It also manufactures vitamins, anti-asthama, anti-HIV, anti-arthritis, anti-fungal, antibiotics, ACE inhibitors, anti-osteoporosis, anti-diabetic, anti-cholinergic, sedatives and anti-depressant drugs. ADL commands a leadership position with over 70 per cent market share for more than 15 principal products including secnidazole, ornidazole, metronidazole etc. It is the sole supplier of Tinidazole to Pfizer Inc worldwide and commands 85 per cent market share in the world. Its customer list include companies like Ranbaxy, Dr Reddy’s Labs, Nicholas Piramal, Zydus Cadila, Cipla, GSK Pharma, Pfizer, Merck, J B Chemicals etc. It also exports to more than 80 countires and international giants like Abbott, Aventis Pharma,Bayer, Clariant, Glaxo SmithKline, Pfizer, Merck, Wyeth, Searle to name a few.

Its manufacturing facilities at Tarapur, Sarigam and Turbhe with state-of-the-art R & D Center at Turbhe, is recognized by the Department of Science and Industrial Research, Government of India. Its manufacturing facilities have been audited and approved by MNCs such as Pfizer, Rhone Poluenc, Merck and several other overseas buyers. It has identified few products for USDMF filing and intends to file at least 6 to 8 drug master file (DMF) during the current year. With already 30 molecules in its basket, ADL is planning to commercialize another 10 molecules the in current year to cash in on the opportunity presented by the patent expiry of many blockbuster molecules in the near future.

Fundamentally as well as financially, the company is strong with huge potential for growth. For FY05, it reported a turnover of Rs.242 cr. with 11% growth and NP of Rs.14 cr., an increase of 16% compared to last year. It maintained its dividend of 30% and reserves stood at Rs.65 cr. leading to a book value of Rs.65. For FY06, the company is expected to clock a turnover of Rs.315 cr. and NP of Rs.24 cr. This works to an EPS of Rs.21 on its current equity of Rs.11.70 cr. and EPS of Rs.16 on its fully diluted equity of Rs.15 cr. Investors are strongly recommended to buy at current levels with a price target of Rs.225 (50% appreciation) in 12~15 months. Long-term investors can expect much higher returns if held for 24~36 months.

STOCK WATCH

MP Glychem Ltd. (Code: 519383) (Rs.38.65), belonging to the well-known Ruchi Group is in the business of solvent extraction, edible oils, soya foods, vanaspati and dairy products. It is a regular profit making company with strong fundamentals. For FY05, it reported a topline of Rs.1077 cr. and a bottomline of Rs.12 cr. and is expected to declare around 12% dividend in coming weeks. With an expected EPS of Rs.7, a book value of nearly Rs.45 and a market cap of only Rs.84 cr., it is available reasonably cheap in such a high market. Besides, a merger with Ruchi Soya cannot be ruled out, which will lead to an upward re-rating of the scrip.

Mahindra Ugine Steel Co. Ltd. (Code: 504823) (Rs.126.85) belonging to the Mahindra & Mahindra Group is a well-known manufacturer of alloy steel in the country. It also has a Stampings Division to manufacture pressed sheet metal components and assemblies To cater to the increasing demand, the company is raising its production capacity from 1,10,000 to 1,50,000 TPA by early 2006 and further to 2,40,000 TPA by 2008. For FY06, it may report sales of Rs.650 cr. and NP of Rs.55 cr., which means an EPS of Rs.18. The scrip has attracted the interest of institutional investors and may rise by 50% in the coming 6 months.

In spite of the huge volatility in steel prices, National Steel & Agro Ltd. (Code: 513179) (Rs.29.35) has posted consistent and steady profit margin last year. Although the company has high debt and is not declaring any dividend, its still estimated to report an EPS of Rs.6 for FY06 and has huge reserves of Rs.115 cr. i.e. a BV of Rs.46. Due to the rising demand, the company is regularly modernising and expanding its production capacity. It also has one of the most modern state-of-the-art colour coating line. In spite of the bright future ahead, the company’s current market cap is only Rs.100 cr. against its expected topline of around Rs.1650 cr. and bottomline of 19.50 cr. Its share price is bound to hit Rs.50 in the near future.

In view of the growing demand for petrochemicals in the international market, IPCL (Code: 500105) (Rs.191) is undergoing a Rs.500 cr. expansion, wherein it plans to increase the Vadodara cracker capacity by 12,000 TPA, expansion of its Benzene capacity by 14,000 TPD and expansion of its PVC plant to 3,15,000 TPA from 2,45,000 TPA with corresponding increase in the capacity of its Vinyl Chloride Monomer plant. Part expansion has already been carried out and is likely to be completed by mid 2006. For FY06, IPCL may report sales of Rs.9500 cr. and NP of Rs.625 cr. on a conservative basis. Non-availability and price increase of natural gas, rising crude oil prices and its merger with Reliance Industries are some concerns. Yet the scrip has the potential to appreciate 50% in 9~12 months in this bull market.

Another steel scrip that investors can watch out for is Modern Steel (Code: 513303) (Rs.115.30). It makes steel alloys and special steels apart form producing Billets, Rounds, RCS, Flats and Special Profiles. The company has initiated a modernization & expansion plan at an estimated capital outlay of Rs.32 cr. The capacity of its Steel Melting Shop will be enhanced by 50000 MTA while the Rolling Mill capacity will be enhanced by 36000 MTA. For FY06, it can register Sales of Rs.325 cr. and post a NP of Rs.13.50 cr., which means an EPS of Rs.28 on its tiny equity of Rs.4.80 cr. A good short to medium term bet.

Of late, housing finance companies are buzzing on the bourses on various rumours and their promising future. Interestingly in such a high market, Canfin Homes (Code: 511196) (Rs.50.85) is available at less than 5 PE and with a dividend yield of around 5%. It has huge reserves of about Rs.130 cr. on its equity of Rs.20.50 cr. leading to a book value of Rs.74. For FY06, it may report total revenue of Rs.135 cr. and NP of Rs.20 cr. Once the selling by its promoters like Canara Bank, HDFC Bank and UTI is fully absorbed, the share will shoot up sharply. Investors can expect a price target of Rs.75 in 9-12 months.