Fenoplast Ltd - Rs.14.50

Fenoplast Ltd (FPL) was originally incorporated a private limited company in 1975 by Sarvasri H. Kishan, and K. Seshagiri Rao and was later converted to public ltd company in 1994. FPL started its operation in 1976 by setting up PVC leather cloth unit using direct coating technology with an installed capacity of 30 lakh sq. mtrs. per annum. Encouraged by the success of first unit, FPL put up second unit using transfer-coating technology with a capacity of another 30 lakh sq. mtrs. Witnessing the strong growth potential, FPL diversified into manufacture of PVC calender films by acquiring and adopting for the first time in India the fully automatic and advanced technology, known as C7 Calenderette.

Today, FPL is engaged in manufacture of PVC leather cloth and PVC films. PVC leather cloth is extensively used for domestic upholstery, automobile upholstery, ladies bags, soft luggage, footwear industry, garment lining, belts, etc. Whereas rigid PVC Film is used for blister packaging meant primarily for the pharmaceutical industry and soft PVC films are used for automotive interiors, electrical insulation, stationery and other applications. FPL’s main strength includes two transfer coating lines with coating heads imported from Stork of Holland and RCM of Italy for manufacturing coated PVC leather xloth and also one calender line imported from Battenfield Extrusiontechnik GmbH of Germany, for manufacturing PVC Films. It has unmatched capability to manufacture more than 950 shades of leather cloth and can also consistently reproduce shades matching the shades of the earlier lots when repetitive orders are placed. Nearly 30% of the production is being exported to over 28 countries including UK, USA, Germany, France, Holland, South Africa and Singapore and it has a huge reputed domestic clientele.

Due to strong demand, FPL is currently working at 96% capacity utlization at its PVC leather cloth plants and at 85% capacity utilization for PVC film plants. For FY05, its Sales grew by 24% to Rs.86 cr. and NP increased 500% to Rs.0.12 cr. As both automobile and pharmaceutical industries are doing well, demand for PVC leather cloth and PVC films are showing healthy signs and the company is in a position to increase the capacity of its PVC leather cloth at short notice. Considering all these factors, FPL is expected to report sales of around Rs.100 cr. and NP of Rs.1.50 cr. leading to an EPS of more than Rs.3 on small equity of Rs.4.60 cr. Having a book value of Rs.27 and a current market cap of merely Rs.7 cr., its share price has the potential to double in 12~15 months.

Gujarat Carbon & Industries - Rs.12.50

Gujarat Carbon & Industries Ltd. (GCIL) was originally incorporated in 1974 as Gujarat Carbon Ltd to manufacture carbon black. Gujarat Industrial Investment Corporation Ltd and Phillips Carbon Black Ltd promoted it jointly. In 1989, it changed its name to Consolidated Petrotech Industries Ltd., which was later changed to GCIL in 1994. Today, it is a Duncan Goenka Group with promoters holding more than 67% stake. Currently, GCIL is engaged in the manufacture of a chemical called Methyl Ethyl Ketone (MEK) and Secondary Butyl Alcohol which has applications in various industries like refineries, paints, packaging, pharmaceuticals and other allied user industries.

Interestingly, in India there are only two companies producing MEK and GCIL is one of them having an installed capacity of around 3000 MT. Earlier, the company was in the red to higher cost of feedstock and capacity under-utlization. But in the last fiscal, it discovered an alternate and significantly cheaper source for supply of its main raw material, which helped it turnaround. Now its plant is operating at more than 100% capacity utlization and is in a position to capture business opportunities with stable production. It is implementing the capacity enhancement programme by adding balancing equipment. As there are only 2 manufacturers, GCIL faces competition only from a number of small traders who import MEK.

Although MEK prices have cooled off from their recent high, GCIL is expected to do reasonably well in the current year. For FY05, it dramatically turnedaround with Sales registering more than 100% growth at Rs.22.60 cr. and NP stood at Rs.4.20 cr. against a net loss of Rs.1.90 cr. last year. It reported an OPM of 23% mainly due to higher price realisation and better capacity utlisation. Inspite of strong June’05 numbers declared, it may not continue to report the same OPM this year due to softening of MEK prices and cheaper imports on account of lower import duty. Still for FY06, it is expected to clock a turnover of around Rs.30 cr. and NP of Rs.3.75 cr. which works out to an EPS of Rs.3 on its current equity of Rs.12.40 cr. Investors are strongly recommended to buy at current levels with a price target of Rs.30 (i.e. 150% return) in 9~12 months.

MUHURAT PICKS

Winsome Textiles (Code No:514470) (Rs.21) All textile companies are busy expanding capacities to cash in on the opportunities thrown open by the removal of quota system, which in turn will to lead to higher demand and consumption of yarns. Winsome Textiles, a leading manufacturer and exporter of 100% cotton yarn will grow substantially in future due to its ongoing expansion and modernisation plans. Since it is a capital-intensive industry, the company has huge debt but very tiny equity on which it is paying uninterrupted dividend for the past 10 years. With sales of above Rs.125 cr., its current market cap is merely Rs.12 cr. This scrip can be a multibagger as the share price has the potential to rise 4~5 times in 2 years or so.

Sanjivani Paranteral (Code No: 531569) (Rs.50.55) Like BPO, contract manufacturing is gaining importance rapidly with most of the big pharma companies finding it better and economical. Sanjivani Parenteral is basically a contract manufacturing company specialising in injectibles for the institutional and hospital segments and its key clientele include Ranbaxy, Zydus Cadila, Alkem, Macleods, IPCA Labs, Intas, Glenmark, Medley and Shreyas Life Sciences among others. Its manufacturing facility which is WHO GMP certified is located at Taloja in Maharashtra and it can manufacture high grade antibiotics and life saving injectibles used in various pre and post operative infections. This company is poised for rapid growth in future and can be a multibagger if held for more than 2 years.

Indo Asian Fusegear (India) Ltd. (Code No:532658) (Rs.110) This company is among the top three players in the domestic compact fluorescent lamp (CFL) market besides being a leading manufacturer of electrical safety devices such as miniature circuit breakers, residual current circuit breakers, HRC fuses, transformers, switchgears wires & wiring accessories, industrial plugs & sockets, contactors relay, distribution boards etc. It has entered into a strategic alliance with Lovato Electric of Italy to market a wide range of industrial electrical products in India. For future growth, the company has entered into a joint venture with Nordex Lighting Spa of Italy to manufacture specialized outdoor lighting equipment at its Haridwar plant in Uttranchal. Recently, it announced to provide technological support and manufacture energy saving lighting products and electrical protection devices for servicing the fast growing Saudi and Middle East markets. With such ambitious growth plans, its share price can double by next Diwali.

Aarti Drugs (Code No: 524348) (Rs.110) The future outlook of the pharma industry is very promising as a number of drugs are expected to go off-patent in the near future Indian pharma companies are very well -prepared for this and Aarti Drugs 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. With 30 molecules already in its basket, the company is planning to commercialize another 10 molecules and intends to file at least 6 to 8 drug master files (DMF) in the near future. Few months back, it raised UDS12.75 million through the FCCB route to be converted into equity @ Rs.170 per share. This scrip also has the potential to double in 15~18 months.

Monnet Ispat (Code No: 513446) (Rs.154) Very few are aware that Monnet Ispat is actually positioning itself as more as a mining and power player rather than a steel player in the long run. The strategy of the company is to lay more thrust on exploiting the values in mining and power division and to create an optimal value addition in sponge iron and steel. Having met its complete requirements of coal from captive mines, Monnet is actively working on the acquisition of iron ore mines. Recently, it also announced its plan of acquiring a manganese ore mine in Africa. After setting up its Raipur plant, the company has ambitious expansion plans for Raigarh including setting up a steel plant and ferro alloys project, increasing its sponge iron capacity by 5,00,000 TPA, putting up an 250 MW power plant etc. Earlier this year, the company raised around USD60 million through FCCB route to be converted into equity @ Rs.237 per share. After becoming a fully integrated player, Monnet may attract better valuation and its share price can double in 18 months or so.

Simbhaoli Sugar (Code No: 507446) (Rs.74) Sugar companies are extremely happy with the government’s bold but industry friendly decision to allow import of raw sugar, specially at a time when sugar prices are ruling high in the domestic market. Now they are waiting for the government to approve ethanol blending with petrol, which will be done sooner than later. Simbhaoli Sugar, one of the largest integrated sugar manufacturers, which recently completed its right issue, is aggressively expanding capacities. Besides increasing the capacity of the Simbhaoli unit to 9500 TCD and Chilwara unit to 8000 TCD, it is setting up a new sugar plant with 4500 TCD capacity at Ghaziabad. Apart from setting up a new 60 KLPD ethanol plant at Chilwara, the company is expanding its ethanol capacity by 30 KLPD and distillery capacity to 120 KLPD at Simbhaoli unit. It also intends to setup a co-gen facility of about 26 MW and 24 MW at both its plant. Share price can triple if held for more than 2 yrs.