Hariyana Ship Breakers - Rs.26.00

Established in 1981, Hariyana Ship Breakers Ltd (HSBL) is the flagship company of Hariyana Group, which has diversified interest in Ship-breaking activities, Sponge iron, Steel, Power, Dealing in properties, Stock & shares investment and Housing construction. Inducto Steel, Hariyana Ship Demolition Pvt. Ltd, Hariyana International, Bapa Real Estate etc are some of its group companies. HSBL is an ISO certified company by BVQI. It is among the few ship-breaking companies to have been listed on the BSE. It had come out with a public issue of Rs.2.80 cr. at a premium of Rs.10 in 1995.

HSBL carries out its ship-breaking activities at Alang in Gujarat, which is the main port for the ship-breaking activities not only in India but also in the world. Interestingly, it has imported one of the largest ships ‘Pacific Blue’ of 57000 tonnes ever imported into India for breaking. The company also has trading activities of import/export of iron & steel goods. Due to wide fluctuations in the prices of old ships in the international market, HSBL is exercising caution and has not purchased any new ship this fiscal. But it is expected that the market for old ships will stabilize in the near future and it will be able to carry on the activities accordingly. To compensate for this delay, the company has set-up a sponge iron, power & concast plant at Hassan with an installed capacity of 1,00,000 TPA. This division of the company was put up under the name of ‘Hariyana Steel & Power’. It has already completed the installation on the first kiln of the sponge iron plant and started the commercial production in March 2005. The second kiln is in an advanced stage of installation and is expected to go into stream by June 2006. HSBL is also implementing a power plant using flue gas from the sponge iron plant.

Meanwhile, the company has undertaken trading of various ferrous and non-ferrous metal as well as shares, which has helped to maintain the bottomline. For FY06, it is expected to register total revenue of Rs.110 cr. and NP of more than Rs.32 cr. This works out to an EPS of Rs.6 on its current equity of Rs.5 cr. It may declare 10% dividend, which means a dividend yield of 4% at its current market price (CMP). With the Steel & Power division expected to contribute substantially to the revenue in coming years, it may post an EPS of more than Rs.8 for FY07. Having a market cap of only Rs.13 cr. and 52W H/L of 42/19 and a forward discounting of only 3x, this scrip seems a good bet. Yet, only aggressive investors are recommended to buy as currently it’s more of a trading and metal company rather than ship-breaking one.

Nikhil Adhesives - Rs.22.00

Nikhil Adhesives Ltd (NAL) was originally incorporated in 1986 as Hans Marketing & Services Pvt., Ltd, primarily to market adhesives manufactured by M/s Nikhil Industries under the brand name “FORMISOL”. Subsequently with a view to achieve backward integration, it became a partner in M/s Nikhil Industries. In 1992, Nikhil Industries was converted into a public ltd company and changed its name to NAL. Later in 2003, it acquired the emulsion business of M/s Mafatlal Dyes & Chemicals Ltd with well-established brands like ‘Mahacol’ which has the distinction of being the first adhesive brand launched in the country. Today, NAL is engaged in manufacturing as well as marketing and export of variety of polymer emulsions used as adhesives for furniture, packaging and label / lamination industry and as a binder for the textiles and paints industry, etc. It also trades in various chemicals such as vinyl acetate monomer (VAM), butyl acetate monomer, polyvinyl alcohol, cyclohexanone, cyclohexane etc.

NAL’s manufacturing facility is located at Dahanu, Maharashtra with an installed capacity of 7500 MTPA. It has regional offices at Chennai, Ahmedabad, Delhi, Kolkata with warehouses and has more than 100 distributors spread all over India with lower presence in South India. It sell its products in two market segments viz. Industrial products and Consumer products. The industrial emulsions include adhesives for packaging such as BOPP tape, sticker/label and lamination application, binders for manufacture of paints, textiles, etc. In the retail segment of branded consumer and bazaar products, the company's products include wood adhesives, construction and paint chemicals, sealants, etc. which are used by carpenters, civil contractors, painters, plumbers, households, students, etc. It has reputed brands like Formisol, Emditex, Mahacol, Emdility etc. The greatest strength of NAL is the decade long distribution tie-ups for critical raw materials like VAM etc with world’s renowned names like Petronas-Malaysia and Diren-Taiwan. It is also the sole distributor of Marubeni Chemicals for various monomers. Almost all major adhesive manufacturers such as Pidilite, Jubilant Organosys, Vision Organics etc. source their critical raw materials from the company only.

With the implementation of VAT, it is now on a level playing field with its competitors located in tax-exempted areas. For FY06, NAL is estimated to clock a turnover of over Rs.50 cr. with NP of around Rs.1 cr., which translates into an EPS of Rs.3 on its small equity of Rs.3.09 cr., and it may declare 10% dividend. For FY07, the company is expected to report an EPS of Rs.4. Since it’s in a low margin business, it is poorly discounted by market and has a market cap of only Rs.7 cr. currently. With a 52W H/L of Rs.50/15 and a dividend yield of around 5%, it’s a risk-free buy at the current levels and can give 30% returns in 6~9 months. Although NAL is expected to perform well in future, the rising crude oil prices and imported emulsions remains a threat for the company.

STOCK WATCH

Bhuruka Gas (Code No: 509728) (Rs.38) is the largest independent producer of Argon gas in India and South India’s largest producer of industrial gases. It produces all commercial gases like Argon, Hydrogen, Nitrogen, Oxygen etc. and various types of mixed gases and wide range of calibration gases. It also produces medical oxygen and supplies to government organizations like HAL, ISRO, WIDIA, TAGUTEC etc in the interest of defence activities. It is also planning to merge Calibration Gas India Pvt. Ltd with itself in the near future. For FY06, it may report sales of Rs.45 cr. and NP of Rs.8 cr. i.e. an EPS of Rs.6 on its tiny equity of Rs.3.52 cr. with a FV of Rs.2.50 per share. With a 52W high of Rs.77, the scrip has bottomed out and can give 25~30% return in a year’s time.

International Conveyors (Code No: 509709) (Rs.118) is the leading manufacture of solid woven PVC conveyor belting for use in underground as well as above the ground for material handling in collieries. It is also well known exporter of Fire-resistant & Anti-static conveyor beltings from India. Besides in the last, fiscal it set up a 0.60 MW Wind Energy Converter Turbine (Wind Mill) project in Chitradurga District of Karnataka at a cost of Rs.3.01 cr., which has already started producing electricity. Interestingly, from the last 2 qtrs. its OPM has improved substantially which has boosted its bottomline. Considering the same track record, it may end this fiscal with topline of Rs.35 cr. and NP of Rs.3.25 cr. For FY07, its NP can shoot upto Rs.4 cr. On its very tiny equity of Rs.2.40 cr., the EPS works out to Rs.14 and Rs.17 respectively. With promoters holding 72% and low floating stock, the scrip may move from C2C once it catches market fancy.

All sugar scrips are consolidating currently and may witness another round of rally past March numbers. Simbhaoli Sugars Ltd. (Code No: 507446) (Rs.138) is undergoing huge expansion, whereby its installed capacity will be enhanced to more than 20,000 TCD by end of this calendar year. It is also setting up a co-gen facility of about 26 MW and 24 MW at both its plant. To part finance its expansion it has recently raised Rs.145 cr. through the FCCB route which will be converted into equity @ 170 per share. It has already entered into agreement with UP Power Corp to sell around 19 MW of power. Moreover it also signed an agreement with M/s Cargill International SA for the export of white sugar upto 25,000 MT by April 2006. To conclude, it’s a solid medium to long-term bet.

Pacific Cotspin (Code No: 531118) (Rs.10) an ISO 9001-2000 certified company and 100% EOU. This Govt. Recognized Star Export House is engaged in manufacturing of 100% cotton combed and carded, waxed yarn. Company is a significant player in the coarser and medium segment i.e. in 20’s to 60’s count of the world cotton yarn market. Presently, it has an installed capacity of 30,000 spindles but is expanding it by 25,000 spindles at an estimated project cost of Rs.80 cr. To fund its expansion, it made a preferential allotment of 58 lakh shares to the promoters @ Rs.17 and is now coming out with right issue in the ratio of 1:2 @ Rs.11~13 per share. Despite such huge equity dilution to Rs.39 cr., it may report an EPS of around Rs.2 for FY07 and more than Rs.3 for FY08. A good long-term story.

Jaihind Project Ltd (Code No: 531339) (Rs.25) is a 40 year old engineering and construction company serving the oil & gas, steel, water supply and power industries with cross country pipelines being its prime area of operation. It has already laid 2500 km of cross-country pipelines and 1500 km of plant piping ranging from 4.6 to 56 in diameter. It also offers services for water system, gas distribution, and corrosion protection and has also executed various other engineering and turnkey projects. Company has rich experience of executing numbers of big projects successfully for GAIL, ONGC, L&T, Essar Oil, BPCL, IPCL, Engineers India and for various water bodies of Gujarat and Rajsasthan. In spite of expected turnover of Rs.75 cr. and NP of Rs.2 cr. (i.e. EPS of Rs.4) its current market cap is only Rs.14 cr. Presently, it has healthy orders in hand of more than Rs.30 cr. A strong buy.