STOCK WATCH

Due to the panic selling, some good companies have also hit new lows. REI Agro (Code No: 532106) (Rs.110) is one such company. The company which raised capital through FCCB and GDR issue at 160/180 per share is today trading at around Rs.100 only. It has already declared Rs.2 dividend till now and is further expected to declare 10% for FY06. It may end FY06 with net sales of around Rs.1000 cr. and net profit of Rs.70 cr. despite making huge deferred tax provision of more than Rs.20 cr. The EPS would work out to Rs.16 on its current equity of Rs.42.70 cr. Moreover, the company has announced a split the face value of its share to Rs.2 each which will trigger a share price rise in the near future. With its 52-week high as Rs.220 and FII holding at 24%, it’s a great buy at current levels with a negligible downside risk.

Currently, the metal sector is under tremendous selling pressure providing a good opportunity to accumulate scrips like Modern Steels (Code No: 513303) (Rs.73) at rock bottom prices. Due to the sharp fall in steel prices in FY06, the company has reported lower sales and net profit than compared to FY05. Sales were down 10% to Rs.242 cr. and net profit declined by 30% to Rs.11.50 cr. Still, this works out to an EPS of Rs.24 on its very small equity of 4.79 cr. In spite of lower profits and aggressive expansion, the company maintained the dividend at 20% for FY06. It has huge reserves of around Rs.30 cr., which translates into book value of around Rs.70. On a conservative basis, the company is expected to clock a turnover of Rs.300 cr. with a net profit of Rs.14 cr. i.e. EPS of Rs.29 for FY07 and may declare Rs.3 as dividend. This scrip is available at a P/E multiple of less than 3 times and a dividend yield of more than 4%. A value buy.

In commodities, the sugar sector is as well as written off leading to a tumble down by many sugar scrips to mouth-watering levels! DCM Shriram Industries (Code No: 523369 ) (Rs.117) is one such stock. It has one of the most modern sugar factories at Daurala in U.P apart from a huge alcohol plant of 45,000 kilo litres capacity. The company has recently increased its cane crushing capacity to 10,000 TCD from 8000 TCD and is further set to increase it to 12000 TCD along with the modernisation of the sugar plant and power house. For FY06, it may register sales of Rs.725 cr. and net profit of Rs.34 cr., which leads to an EPS of Rs.22 on its equity of Rs.15.30 cr. This may shoot upto Rs.900 cr. of sales and Rs.45 cr. of net profit i.e. EPS of Rs.29 for FY07. Hence the scrip is currently discounted at less than 4 times its forward earning. Belonging to the well known DCM group, the company is trading fairly cheap at a market cap of Rs.165 cr. only!

Couple of days back South India Paper Mills (Code No: 516108) (Rs.58) came out with a decent set of numbers. Sales and net profit registered 15% growth to Rs.25.50 cr. and Rs.1.30 cr. respectively for the March’06 quarter On a full year basis, sales grew by 5% to Rs.95 cr. but net profit jumped 62% to Rs.7 cr. leading to an EPS of Rs.9 on its equity of Rs.7.50 cr. It declared 25% dividend which gives a yield of 5% on CMP. For FY07, it is estimated to clock an EPS of Rs.11-12 and may declare Rs.3 dividend. As paper prices expected to remain firm and raw material costs under control, the future prospects of this industry are quite stable. Being an investor friendly management, the scrip has the potential to rise 50% in 6~9 months.

While most engineering scrips are trading at exhorbitant valuations, ITL Industries (Code No: 522183) (Rs.35) is available at a throwaway price. Although it is a very small company, it is still the pioneer in high speed sawing technology offering 60 different models of bandsaw machines ranging from 100 mm to 1500 mm cutting capacity with manual, semi-automatic, automatic and fourth generation CNC machines. It ended FY06 with sales of Rs.21 cr. and net profit Rs.1.35 cr. posting an EPS of Rs.4 on its small equity of Rs.3.25 cr. Considering its strong order book position, the company is estimated to clock a turnover of Rs.28 cr. and net profit of Rs.1.80 cr. i.e. an EPS of Rs.6 for FY07. With a dividend expectation of around 15% for FY06, this is another company with a good dividend yield of around 5%. A good bet for the medium to long- term.