Raipur Alloys - Rs.80.00

Incorporated in 1973, Raipur Alloys and Steel Limited (RASL) is an integrated steel producer engaged in iron ore mining and producing sponge iron, mild steel ingots and rolled products. It had set up its first plant in 1975 with a 18,000 MTPA ingot making capacity and today operates in ISO 9001:2000 plant with a 2,10,000 MTPA sponge iron and 1,00,000 MTPA steel ingots manufacturing capacity. RASL is marketing TMT bars under its registered trademark 'Hytech' which has fetched an excellent response from large corporates due to its quality. It has also obtained a patent for its special design steel bar, which is valid for an initial period of 10 years. The company is looking forward to enter the international market and export directly in a big way. Last year, the company acquired an iron ore mine of approx 81 hectares in Rajnandgaon district in Chattisgarh, where mining of iron ore has already begun. Further development is going on to increase production, which will meet its entire captive requirement by FY07. RASL has also acquired coal mining rights over a 360 hectares stretch with estimated reserves of 100 million tonnes of coal in Chhattisgarh.

Given the buoyant demand, technological advancements, abundant availability of quality iron ore, skilled manpower and the required grade of coal have thrown open vast opportunities for the Indian steel sector and RASL is taking steps to take full advantage of the emerging opportunities. It is adding one more sponge iron kiln to increase the capacity from 2,10,000 to 3,60,000 TPA and expanding its steel making capacity from 1,00,000 to 2,40,000 TPA, which is expected to be completed by March 2006. To further strengthen and consolidate its position, the company also proposes to merge M/s. Chhattisgarh Electricity Company Ltd. (CECL) and Raipur Gases Pvt. Ltd. (RGPL) with itself. CECL, a group company, is a leading manufacturer and exporter of ferro-manganese and silico-manganese besides power generation. RGPL was supplying oxygen to the EAF steel plant of the company, as an auxiliary unit.

Considering its expansion plan and backward integration by acquiring the iron ore and coal mines, the long term prospects appear very promising and healthy. Its profit margin is all set to rise in coming years and this is another Monnet Ispat in the making. Inspite of a huge expansion plan, the company declared hefty dividend of Rs.3 and the promoters hold around 74% stake, which means that the management is quite investor friendly and believes in companies growth. For FY06, it may declare Rs.5 dividend, which works out to a dividend yield of more than 6%. Although the first quarters numbers were not that encouraging, for FY06 we expect it to clock a turnover of Rs.325 cr. and NP of Rs.26 cr. i.e. an EPS of Rs.20 on its current equity of Rs.13 cr. Investors are strongly recommended to buy at current levels with a price target of Rs.160 or 100% appreciation in 12 months. Long term investors will get much better returns if held for 24~30 months.

Sayaji Hotels - Rs.39.00

Established in 1982, Sayaji Hotels Ltd. (Sayaji) currently manages two 3 star hotel properties, one each in Baroda and Indore. The Indore hotel, which started seven years back is situated at a very strategic location and enjoys a dominant position in the city due to its central location, club facilities and wedding packages. The hotel has around 230 well maintained rooms with 8 restaurants and 10 banquet halls. Incidentally, there is no direct competition to the hotel and it enjoys more than 70% market share. The company’s Vadodara property is twenty years old and has 73 rooms with 3 restaurants and 5 banquet halls. The ratio of overall food & beverage sales to room sales is 1.6 times as against the industry norm of 0.7.

The Hotel industry has seen a sharp revival over the last one year and given the current economic scenario, it is poised to grow further. Sayaji is no exception and enjoys best ever occupancy rates of over 75% as well as average room rate for both its properties. In FY05, Sayaji constructed and commissioned 44 rooms at Indore and also opened its state-of-the-art ‘Quorum’ longue. Riding high on the hotel boom, Sayji is expanding aggressively and its proposal for availing project construction finance from HUDCO for completing 77 additional rooms and 3 restaurants at Indore has been accepted. For future growth, Sayaji is planning to buy an existing property in Pune and also build a 5 star hotel in Bangalore with 360 rooms. It is also setting up a multi cuisine restaurant by the name ‘Kabab Ville’ whose first branch will be opened in Mumbai soon and then it will gradually open a chain of restaurants in India.

Thus Sayaji Hotels has outlined major expansion plans not only in the form of room additions but also in the form of new hotel properties and restaurants. The company virtually has no tax liability due to previous accumulated losses and subsidy from Department of Tourism (DOT), which is expected to continue for at least the next two years. To fund its expansion the company is planning to raise Rs.75 cr. through preferential allotment, which will dilute its equity substantially. So only long-term investors are recommended to buy this scrip. Its Sept.’05 numbers were quite encouraging. For FY06, it can post sales of Rs.40 cr. and NP of more than Rs.7 cr. At its current equity of Rs.7.86 cr., EPS comes to Rs.9 which may get diluted to Rs.3.5 ~ 4. A pure long term bet which can give 100% return in 18~24 months.

STOCK WATCH

Modern Steel (Code No: 513303) (Rs.86) manufacturer of alloy steel and special steel seem a good bet at current levels. Its products are in good demand due to increased requirement from the automotive sector and the engineering industry. Under modernization, the company has already installed electro magnetic stirrers (EMS) and a vacuum degassing plant in its steel melting shop. It is also expanding its melting capacity and in-house rolling capacity from 50,000 to 84,0000 MTPA at an estimated capital outlay of Rs.35 cr. Due to debt restructuring and its tiny equity capital, its EPS can post a substantial rise in coming years.

Due to its aggressive promoters and proper planning, Monnet Ispat (Code No: 513446) (Rs.161.25) has finally emerged as a leading integrated producer with its own coal mine, iron ore mine, captive power plant, sponge iron unit and steel plant. Recently it announced its plan of acquiring a manganese ore mine in Africa and also contemplates on setting up a ferro-manganse unit, as power is very cheap there. Moreover, it is implementing an Rs.630 cr. expansion in Raigarh which will increase its sponge iron capacity to 8,00,000 tonnes from 3,00,000 tonnes, steel capacity is to be enhanced by 4,00,000 tonnes from the present capacity of 3,00,000 tonnes. It is also setting up a 250 MW power plant. It’s a solid buy for the long term.

Crude Oil prices have cooled off substantially from their recent highs and their chance of crossing even 80 USD seem remote. This will help keep raw material costs under control for Laffans Petro (Code No: 524522) (Rs.24.10), which is engaged in manufacturing of ethylene oxide derivatives such as Ethoxylates, Glycol Ethers, Acetates, Triethonal-Amine and Brake fluids. Due to higher demand and better price realisation for its products, Laffans is expected to perform better in coming quarters. For FY05 ending 30th Sept 2005, it can report sales of Rs.140 cr. and NP of Rs.3.80 cr. registering an EPS of around Rs.5. With an expected EPS of Rs.6 for FY06 and book value of Rs.38, the scrip appears very cheap and can give handsome returns if held for the long term.

Eldeco Housing & Industries Ltd (Code No: 523329) (Rs.87.80), the flagship company of the Eldeco Group is trading very cheap at 4 PE. It’s among the very few listed companies engaged in civil construction and housing. Due to easy availability of housing loans, this two decades old company is witnessing enormous growth. It is fully booked for the next 4 years with various residential projects amounting to whopping Rs.450 cr. spread across Lucknow, Kanpur & Delhi. For FY05, its topline grew by 25% but its bottomline more than tripled to Rs.5.50 cr. leading to an EPS of Rs.28 on its very tiny equity of Rs.1.97 cr. The company is likely to make some positive announcements like preferential allotment, merger with another group company etc soon, which could push up the share price. It’s a financially strong group and the scrip can be a multibagger in the long run. It’s a risk free buy at current levels.

Although most cement companies are richly valued on the bourses, Mangalam Cement (Code No: 502157) (Rs.65.50) is somehow ignored by investors and analysts alike. It’s a BK Birla Group company with more than 1 MMT installed capacity. Due to various restructuring initiatives, the company is expected to post an EPS of Rs.8.50 and Rs.11 for FY06 and FY07 respectively on its current equity of Rs.28.20 cr. Share price is bound to cross Rs.100 sooner than later and long term targets are much higher. A safe bet in such a risky market. With cement prices expected to remain high due to strong demand and no major capacity coming up in the near future, cement companies will report much better numbers in coming quarters which could change the perception to this scrip over the next 6 months.

Sujana Universal (Code No: 517224) (Rs.25.15) primarily deals in all types of bearings; light engineering items, auto components, castings and domestic appliances. Lately it also commissioned the facilities for the manufacture of telecom and transmission towers. Apart from Schneider Electric selecting it for developing precision engineering components, Sujana has successfully developed Precision Grinding Components required for Tecumseh Inc, USA. Recently, Sujana has entered into a contract manufacturing agreement with Bajaj Electricals under which it will be manufacturing ceiling and ventilator fans for the Bajaj brand for which it is ramping up its production capacity to 1 million fans per year. Couple of months back, the company completed a GDR issue of USD 16 mn., which can be converted into equity shares @ Rs.35.25. With expected EPS of Rs.6 and BV of Rs.25 on its diluted equity of Rs.50 cr., the scrip is trading reasonably cheap and can appreciate 50% in a year.