Mukand Ltd - Rs.84.00

Established in 1937, Mukand Ltd (ML) is one of the largest manufacturers of specialty Carbon/Alloy steel and Stainless Steel. Its Stainless Steel Division caters to the demand from fasteners, industrial components, surgical instruments, weaving wires, industrial springs, heat resistant chains, wire mesh, cutlery, kitchen utensils, etc. Alloy Steel is used in transmission parts, engine components, steering components, high tensile fasteners, fuel injection pumps, bearings and springs. The Specialty Alloy Steel made by the company is mainly supplied to auto ancillary and engineering industry. It supplies to almost all the players in the auto sector like Tata Motors, M&M, Maruti, Bajaj Auto, Hero Honda, Sundaram Fasteners, Lakshmi Precision Screws, SKF India, Hi-Tech Gears, Sona Koyo, MICO, Rane (Madras), etc in the auto component sector. Although it derives major revenue from the Steel Division, it also operates in other two segment namely Machinery Building & Road Construction. In the heavy machinery segment the company builds EOT cranes, gantry cranes, bulk material handling system, process equipment for steel, cement, aluminium, copper and power plants. Mukand is among the largest suppliers of high capacity EOT cranes in India boasting of an impressive client list comprising NTPC, NHPC, ISRO, DRDO, SAIL, BHEL, NALCO, Tata Group, Jindal Group, L&T, Hindalco, Vedanta Group, Essar Group, etc. For road development, the company has entered into a tie-up with one of the largest highway construction companies in Russia-Centrodorstroy. Recently, it completed 168km two-lane highway construction project which is a part of a cumulative 600 km four lane highway project being undertaken at NH-2 in UP worth Rs.700 cr.

Mukand’s manufacturing facility is spread across Kalwe in Maharashtra and Hospet in Karnataka (this facility is shared with Kalyani Steels Ltd. having 42% share) The Kalwe plant manufactures stainless steel and has a capacity of 150,000 MTA. The value added facilities at Kalwe enables the company to manufacture highly customized specialty steel and stainless steel products like wire rods, bars, rounds, bright bars and wires. Its machinery building plant is also located adjacent to its steel plant. Whereas its Hospet plant manufactures more than 400 varieties of alloy steel products in the form of bars, wires, wire rods and bright bars. Mukand also has leased an iron ore mine for captive consumption. The company is in the process of bidding for a third mine and extending the lease of the present mines. To cash in on the boom, the company is expanding its Hospet capacity from 1,60,000 to 2,90,000 MTA in phases by FY08. It also has plans to enhance its finishing facilities, rolling facilities and fabrication/assembling facility at Kalwe. The total capex envisaged over the next two years is around Rs.250 cr. for specialty steel and Rs.30 cr. for heavy machinery division, which would be met from internally generated funds.

Mukand is undergoing a major financial restructuring to improve its balance sheet and bring down its to Rs.980 cr. end by FY06 and to Rs.790 cr. by FY07 (i.e. 1:1 debt/equity ratio). It is also replacing high cost debt with low cost debt and intends to bring down the average cost of debt to below 8%. As the interest cost is almost 6 ¬ 7% of its revenue, debt restructuring will boost the bottomline in FY07 coupled with stable operating margins. For FY06, Mukand is estimated to report turnover of Rs.1650 cr. and NP of Rs.78 cr. i.e. EPs of Rs.11 on its current equity of Rs.73.13 cr. For FY07, NP may shoot up to Rs.130 cr. i.e. EPS of Rs.18 due to saving in interest cost and the booming economy. So, only long-term investors are recommended to buy this scrip at CMP with a price target of Rs.150 (50% return) in 15 months.

Canfin Homes - Rs.52.00

Canara bank promoted Can Fin Homes Ltd. (CFHL) in 1987 in association with reputed financial bodies like HDFC and UTI. It is the first and the biggest bank sponsored housing finance company (HFC) in the country and is one of the leading players in the housing finance sector. It is also one among the four HFCs selected by NHB in its first phase of securitization programme and enjoys 5 Star rating from NHB for the purpose of refinance. The business operations of the company are being carried out through its 40 branches and 4 representative Offices in major cities/towns and 30 Out-reach Centres.

In order to expand its business activities, CFHL has recently diversified by launching three non-housing products viz., premises loan for practicing professionals to set up their offices etc. under the brand name 'VENTURE', mortgage loan scheme under the brand name 'NETWORTH' and loan against rent receivables with the brand name 'N-CASH', which are expected to make a significant contribution in increasing the volume of business. Besides, it is also organizing and participating in various property exhibitions and fairs and has entered into special tie-up arrangements with corporates and others and extended special festival offers as a part of different promotional measures to reach the consumers from different segments of the economy. It has also tied-up with Aviva Life Insurance Company (I) Pvt. Ltd., a leading Life Insurance Company in the private sector to provide free insurance to its client along with housing finance. Adopting the direct selling agency (DSA) model, CFHL is strengthening its marketing efforts and has appointed 12 DSAs to tap the Bangalore and Mumbai markets.

Importantly, CFHL has followed prudent provisioning policy to maintain low NPA levels which currently stand at commendable 1.6%. Moreover, its capital adequacy ratio as on March’05 was 18.92% against the minimum stipulated requirement of 12%. For FY05, it reported flat numbers with a topline growth at Rs.127 cr. and bottomline of Rs.21 cr. posting an EPS of Rs.10 and dividend of Rs.2.50. Due to the tax concessions provided to HFCs and to individual borrowers on the interest paid on such loans and on the repayment of the principal amount, more and more individuals are seeking to acquire a home on loan from HFC. Consequently, the demand for housing loans is increasing. For FY06, CFHL is expected to report total revenue of Rs.140 cr. and NP of Rs.23 cr. i.e. an EPS of Rs.11 on its current equity of Rs.20.50 cr. Surprisingly in such an overheated market, this scrip is still available with a dividend yield of 5% and that too at phenomenal discount of 35% to it book value of Rs.75 Long term investors are recommend to buy it at the CMP with a price target of Rs.80 (50% appreciation) in 12~15 months.

STOCK WATCH

Indian Sucrose (Code No: 500319) (Rs.56) which recently acquired a Punjab based sugar company having a capacity of 2500 TCD, came out with satisfactory numbers for the Dec’05 qtr. Its Sales grew by 60% to Rs.27 cr. but PBT remaining flat at Rs.4.32 cr. Due to higher tax provision its NP was 14% lower at Rs.3.60 cr. which works out to an EPS of Rs.2.30 for the qtr. For FY06, it may report an EPS of Rs.7~8 EPS but for FY07 it can report bumper profits as it will get the dual benefit of capacity expansion as well as higher sugar prices. It can even report an EPS of Rs.15 for FY07. Moreover from this season it has expanded its crushing capacity from 3500 to 5000 TCD. Scrip has the potential to double in 15 months.

Long-term investors can take this opportunity to accumulate Tinplate (Code No: 504966) (Rs.82) as it has corrected sharply post its Dec.’05 qtr. numbers. Though there was some pressure on margin in this qtr., still it reported higher profit in absolute terms due to increase in sales volume. Its sales and NP have both increased by whopping 80% to Rs.108 cr. and Rs.8.30 cr. respectively. This works out to a quarterly EPS of Rs.3 on its current equity of Rs.28.91 cr. For the full year, it is expected to report an EPS of Rs.14 and with the company undergoing a massive expansion, it’s a good long-term bet.

Winsome Textiles (Code No: 514470) (Rs.28) is one of the cheapest textile scrips available on the bourses. It has once again reported excellent numbers for the Dec.’05 qtr. Its Sales grew by 26% to Rs.36 cr. and NP stood at Rs.0.95 cr. against a net loss of Rs.0.33 cr. last year. With lower cotton prices and higher demand for yarn, the future looks very promising for the company and it can report a topline of Rs.135 cr. and bottomline of Rs.3.50 cr. for FY06. This works out to an EPS of Rs.6 on its tiny equity of Rs.5.90 cr. Its book value is Rs.46 and the current market cap is only Rs.15 cr. The only negative factor is high debt as it debt equity ratio is almost 2.80. Still it’s a 2~3 bagger in the long run.

Shasun Chemicals (Code No: 524552) (Rs.97) is one of the world’s largest producer of Ibuprofen with exports to more than 150 countries. It is setting up a commercial facility for creation of significant biotechnology capabilities & capacities especially in the area of protein processing solutions and has already set up a pilot scale fermentation unit. It’s also transforming itself into a CRAMS centric business model. For the Dec.’05 qtr., its total revenue grew by 30% to Rs.99 cr. whereas NP jumped 43% to Rs.12.90 cr. i.e. EPS of nearly Rs.3 for the qtr. Several other positive developments will make the company attract much better valuation in future. Recently, it has also acquired the custom synthesis business of the Rhodia group of France. Scrip has the potential to appreciate 50% in 12 months and may even double in 18 months. Institutional Investors are also quite active in the counter.

GM Breweries (Code No: 507488) (Rs.67), which is the largest manufacturer of country liquor in Maharashtra has announced its Dec.’05 qtr. numbers. Interestingly, with every passing qtr. the company is improving its operating profit margin. Its Sales tripled to Rs.41 cr., while the NP zoomed to Rs.3.04 cr. against Rs.18 lakh last year. Maintaining the same growth for FY06, it may clock a turnover of Rs.150 cr. and NP of Rs.8 cr., which will lead to an EPS of Rs.9 on its current equity of Rs.9.36 cr. In spite of being a Rs.150 cr. company, its current market cap is merely Rs.60 cr. which leaves ample scope for appreciation in future. The scrip is bound to cross Rs.100 sooner or later.