Mawana Sugars - Rs.121.00

Incorporated in 2002 Mawana Sugars Ltd (MSL) belonging to the high profile DCM Group, was formed by acquiring the sugar business of SIEL Ltd under the scheme of arrangement sanctioned by the Hon’ble High Court of Delhi. As per scheme, SIEL shareholders were allotted MSL shares in 3:4 ratios. Post restructuring, the company also came out with 1:4 right issue at par. Today, MSL is a one of the leading sugar manufacturers of North India and is the largest branded sugar maker in the market. In fact, the DCM Group was first to enter the branded sugar market with its brand ‘Mawana’ way back in 1994. Besides, institutional sales account for about 22% of its revenues with major customers such as Coca-Cola, Pepsi, Dabur, Nestle, Perfetti etc.

Currently, the company has two sugar factories with facilities at Titawi having an installed capacity of 11000 TCD and another unit at Mawana with an installed capacity of 6000 TCD with a total installed capacity of 17,000 TCD. These plants are located in the sugar cane rich areas of Western Uttar Pradesh. In anticipation of buoyancy in the sugar sector and margin improvement driven by higher prices realization, MSL has chalked out an aggressive expansion plan with a capex of Rs.535 cr. in the next 2 years. It is already in the process of setting up a new 5,000 TCD sugar mill near Meerut, the first phase of which would be over by November 2005. It also plans to put up another new 5,000 TCD capacity sugar unit in western UP by 2006. MSL is also modernizing and expanding its existing unit under which its Mawana unit capacity will be increased by 2500 TCD and Titawi capacity will be increased to 12,000 TCD. The company also intends to set up a 30 MW co-generation plant and an ethanol distillery that would produce 120-kilo litre per day. With these expansions, MSL's total cane crushing capacity will be increased to 31,000 TCD and capex will be funded through internal accruals, sale of unproductive assets, debt and partly by equity.

With sugar prices hitting a 10 year high in international markets, the prospects of the domestic sugar industry appear to be healthy and MSL having one of lowest EV per tonne in the industry is expected to see much better times ahead. Favourable govt. policies, debt restructuring, import of raw sugar, export to Pakistan, decreasing inventory levels, rising byproduct prices, the emerging ethanol story etc. will all lead to a healthy topline and bottomline growth for sugar companies. For FY05 ending Sept 2005, MSL is expected to report a turnover of Rs.550 cr. and NP of Rs.55 cr. i.e. EPS of Rs.14 on equity of Rs.39.50 cr. For FY06, it can post Sales of Rs.675 cr. and NP of more than Rs.75 cr. which mean EPS of Rs.19. Long term investors are recommended to buy only at declines with a price target of Rs.180 an appreciation of 50% in 12 months.

Lahoti Overseas - Rs.14.00

Incorporated in 1995, Lahoti Overseas Limited (Lahoti) is an ISO 9001:2000 certified company, mainly engaged in export trading of cotton yarn from India's leading spinning mills. Starting from open ended yarns, Lahoti's product range covers a wide variety of cotton yarns including carded and combed ring spun yams of coarse and fine counts, ply yarns, special yarns and also grey fabrics. Lahoti’s major exports are to South Korea, China, Japan, Hong Kong, Malaysia, Indonesia and Vietnam. It has successfully started exports to USA, Europe and South American countries and has also added new markets in the post quota scenario.
The removal of quota regime has created enormous opportunities, especially for the Indian textile industry as India has advantage of good quality & cheap raw material, skilled labour and modern technology as well. Taking clue from this emerging trend, Lahoti has drawn an ambitious growth plan to enter the growing markets of made-ups and home textiles, is putting up a weaving project for the manufacture of wide width grey fabrics to start the expansion drive estimated to cost around Rs.37 cr. and targeted to be completed by the end of this financial year. It plans forward and backward integration to set up a composite unit to manufacture and market a range of made-ups and home textiles in future.
The Union Budget has given importance to the Textile industry and has provided various fiscal incentives and other measures to boost the textile industry. The continuance of the TUF Scheme and the added subsidies for textile processing are some of the positive developments. For FY05, its sales witnessed degrowth of 18% to 148 cr. and NP also declined 20% to 2.40 cr. as the company paid Keyman insurance premium to the tune of Rs.1.63 cr. It declared 25% dividend on an EPS of around Rs.5. Considering all factors, Lahoti can end FY06 with Sales of Rs.200 cr. and NP of 5 cr., which means an EPS of Rs.2 on its current equity of Rs.5 cr. on the FV of Rs.2 per share. Long term investors can buy the scrip at current levels with a price target of Rs.20 (40% appreciation) in 12~15 months.

STOCK WATCH

CCS Infotech (Code No: 532405)(Rs.18.55) is an Information Technology Solutions provider with expertise in Hardware Solutions, Software Development and Networking Services. Apart from being a Microsoft certified partner, this ISO 9001-2000 company also has Intel certification for servers workstations, Home PCs and laptops. It is operating through 12 branches, 50 channel partners and one overseas office in Singapore. Of late, the company has bagged some good overseas and domestic orders. For FY05, it reported sales of Rs.32 cr. with NP of Rs.2 cr. whereas for June’05 qtr., its sales tripled to Rs.11 cr. and NP stood at Rs.1.05 cr. reporting an EPS of Rs.1.1 on its current equity of Rs.9.16 cr. With an expected EPS of Rs.4 and current market cap of only Rs.18 cr., the share price can double in 6~9 months. Only aggressive investors should buy.

Navabharat Ferro Alloys (Code No: 513023) (Rs.77) is a undergoing a 200 cr. expansion whereby it plans to add another furnace with a capacity of 50,000 TPA. It is also setting up a 32 MW power plant in AP and 15 MW power plants in Orissa. In its sugar division, it has recently expanded its cane crushing capacity from 2500 to 3600 TCD and now intends to raise it to 4500 TCD first and further to 5000 TCD over the next two seasons. The co-genration capacity will also be increased to 9 from 5 MW. The company has already received the part payment under insurance claim and will get the final payment soon. Share price is expected to hit Rs.100 in a month or so and then to cross Rs.120 in the next 3~6 months.

Although the Sensex has hit an all time high above 8000, still well-managed companies like GNFC (Code No: 500670) (Rs.98.30) are available at 5~6 times their FY06 earnings. GNFC 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. Its also has the world's largest single stream fuel oil based Ammonia-urea plant. It reported excellent numbers for June’05 qtr. Sales increased by 18% to Rs.314 cr. whereas NP almost tripled to Rs.61 cr. For FY06, it can report an EPS Rs.18~20 on its current equity of Rs.146.50 cr. With a dividend yield of nearly 5%, it’s a good buy with short to medium term perspective.

Being in the T2T category, Aarti Drugs (Code No: 524348) (Rs.151) has not seen much action although the market has hit a new high. It’s a professionally run company with a strong strong presence in the anti-diarrhoea, anti-inflammatory therapeutic groups with products such as Tinidazole, Metronidazole, Nimesulide & Rofecoxib. It is expected to report strong numbers in coming quarters due to the sharp rise in the prices of its two major products viz Ciprofloxacin and Metronidazole. It has also bagged a huge export order of Rs.200 cr. for anti-fouling agent. Some months back it raised Rs.55 cr. through the FCCB route, which will be converted into equity shares at Rs.170 per share. With an expected EPS of Rs.16 even on its diluted equity, its share price is set to cross Rs.200 sooner than later. A strong buy.

In such a high market where everyone is short of ideas, Gujarat Carbon (Code No: 506457) (Rs.26.35), a Duncan Goenka group company has still not caught the analyst’s attention and its trading reasonably cheap. It manufactures Methyl Ethyl Ketone and Secondary Butyl Alcohol, which is used by oil refineries. Basically it’s a turnaround story as the company has successfully sourced an alternate raw material, which is cheaper and easily available. For FY06, it can report Sales of Rs.30 cr. and NP of Rs.6.50 cr., which means an EPS of more than Rs.5 on its current equity of Rs.12.40 cr. Scrip has the potential to touch Rs.50 once it comes out of T2T.

Although share price of Videocon Appliances (Code No: 500945) (Rs.36.30) has appreciated smartly in last few weeks still it is going cheap considering its fundamentals. Interestingly, all Videocon group companies are discounted richly on the bourses except Videocon Appliances, which is available at price to earning multiple of 5x. Due to huge reserves, its book value is around Rs.80 but its trading at more than 50% discount to book value. Against FY05 expected sales of Rs.1100 cr. and NP of Rs.26.50 cr., its market cap is merely Rs.120 cr. A strong re-rating upto Rs.75 can be expected and long term investors are advised to keep accumulating this scrip at declines.