Bodal Chemicals Ltd - 57.00 Rs

Bodal Chemicals Ltd (BCL), erstwhile known as Dintex Dyechem Ltd was originally promoted by Mr. Sevantilal Shah in 1986 to manufacture dyes and dye intermediates. In 2004-05, due to unfavorable market condition and consecutive losses, it was decided to merge a profit making company namely Bodal Chemicals Pvt Ltd (BCPL) with itself. BCPL, led by Mr. Suresh and Ramesh Patel was also engaged in the same line of business, hence BCL was created due to scheme of amalgamation. Consequently the management and control of the company vested with Patel family and today BCL is one of the largest manufacturers of dyes like direct dyes, reactive dyes acid dyes and also dye intermediates such as Vinyl Sulphone, DASA, FC Acid, Gamma Acid, 6 Nitro, Acetanilide etc. These products find application mainly in textile, leather and paper industry. Notably, BCL is a govt recognized star export house and nearly half of its production is exported to over 25 countries including USA, UK, Germany, Spain, Turkey, Taiwan, Korea, Greece, Egypt, Portugal, Hong Kong, Italy etc.

Presently, BCL has seven manufacturing plants with 4 units in Ahmedabad and one each in Ankleshwar, Panoli & Baroda. Out of these, company has recently commenced production at its new Baroda plant thereby taking its total installed capacity to 29435 MTPA. It is further contemplating another project at Baroda itself for a 12000 MTPA dyes manufacturing unit with an investment of Rs. 25 crore and intends to complete the project, once finalized, during April-June 2008. Company has also decided to merge Milestone Organics Ltd (MOL) a Baroda based company engaged in manufacture of dyes only, having installed capacity of 900 MTPA. Although, MOL is a loss making unit but BCL management is confident of turning it around due to various synergies and better operation. For this takeover, BCL will be allotting 68000 equity shares of the company to the shareholders of MOL under the swap ratio of 100:1. In future, company wants to get backward integrated by establishing new production facilities for Sulphuric Acid, Beta Naphthol & H.Acid with additional capacity of Vinyl Sulphone.

Interestingly, in order to fund the future expansion and acquisition plan, BCL is coming out with a right issue @ 20 Rs per share which is as good as mini bonus considering its CMP of 57/- Rs. The record date is yet to be finalized and as per the terms of issue a shareholder is entitled to get 1 equity shares @ 20 Rs and 1 detachable warrant for two shares held in the company. The detachable warrants can be converted into equity share during July 2008 @ 20 Rs per share. So once the record date is announced, the share price will shoot up sharply. For FY07, its sales increased by 70% to 254 cr but NP shot up 350% to 11.20 cr posting an EPS of 11 Rs on equity of 10.40 cr. Considering its performance for the June qtr and lower tax provisioning, it may end FY08 with sales of 325 cr and PAT of 13.50 cr i.e. EPS of 13 Rs on current equity. These figures are excluding MOL nos. To conclude only aggressive investors can buy this scrip at current levels being a high risk high return stock. However huge equity dilution and merger with loss making company is a cause of concern.

ABC Bearings Ltd - 100.00 Rs

Founded in 1961, ABC Bearings Ltd (ABL) is one of the oldest bearing companies engaged in manufacturing of taper roller bearing, cylindrical roller bearing and spherical roller bearing. Infact it is India’s largest producer of taper roller bearing and third largest for cylindrical roller bearing after FAG and NRB. Roller bearings basically find application in light, medium & heavy commercial vehicle, multi utility vehicles, tractors, cars, two wheelers, three wheelers etc. In short the whole automotive sector is the main consumer of roller bearings. Hence company’s clientele includes auto majors like Tata Motors, M&M, Ashok Leyland, Eicher Motors, Swaraj Mazda etc. Ironically, ABL is the single source supplier for transmission bearings for Toyota group of companies for exports. As bearings are precision products requiring sophisticated machinery, intensive technology & skill requirements, ABL entered into a technical collaboration in 1998 with NSK of Japan, which is one of the world’s largest bearing manufacturers. Today, ABL boast of following SAP ERP system and having ISO 14001:2004, QS 9000, TS 16949 certification.

After closing down its Lonavala plant in 2005, ABL has consolidated its manufacturing operation at its new Bharuch plant in Gujarat. The plant is having NC / CNC grinding lines from world renowned manufacturers like BWF- Germany, Famir – Italy, IZUMI-Japan and is equipped with “in process & post process gauging”, logarithmic crowning units which ensures consistent quality and high productivity. ABL is even backward integrated thru its associate company called ‘MIPCO Seamless Rings Ltd’ which produces the forging for most of the bearings manufactured by the company. Currently company has a total installed capacity of 6.5 million bearings per annum which will be soon enhanced to 8.00 million thru the ongoing expansion plan. Due to stiff competition and in order to reduce its dependence on OEM’s, company is planning to increase its business from the replacement market as well. It has a strong distribution and service network of nine warehouses, 168 dealers, 1000 retailers and four regional offices. Although negligible still company directly exports to countries like USA, USA, Canada, Dubai, Italy, Singapore, Bangladesh, Srilanka, Indonesia etc.

Notably, few months back company has formed a 25% joint venture with NSK Ltd., Japan to set up a new plant in Chennai for manufacturing of bearings mainly for Japanese and other transplant customers. For future growth, ABL also intends to enter the railway bearing segment and supply wheel bearings for freight wagons. For FY07, it registered 20% rise in sales to 182 cr whereas net profit increased by 30% to 20 cr posting an EPS of 17 Rs on equity of 11.55 cr against which it gave 40% dividend. This is after providing extraordinary expense of 4.30 cr towards VRS, else in actual sense the NP stands at 24 cr i.e. EPS of 21 Rs. However, due to slowdown in auto sector company’s sales declined by 25% to 36 cr whereas profit dropped by 40% to 3.10 cr for the first quarter of FY08. Hence the share price tumbled sharply from 150 Rs to current levels of around 100 Rs. Still for FY08 it is expected to report sales of 175 cr and PAT of 16.50 cr (after VRS provisioning). This translates into EPS of 14 Rs on current equity. Notably, there won’t be any VRS provisioning from FY09. At current market cap of around 120 cr it’s a pure value buy. Moreover as per unconfirmed reports, ABL is having a surplus land of around 18 acres in Lonavala which can fetch around 5~10 crore. Only long term investors are recommended to buy at current levels as share price can double in 15~18 months.

STOCK WATCH

Tera software (75.00) is one of the leading e-governance solution providers, undertaking data entry/scanning works for digitization of information maintained under Right to Information Act. It also undertakes short-term projects like issue of photo ID cards, ration cards and election commission cards. In consortium with Electronics Corporation of India Ltd, company has bagged huge e-governance order, taking its total order book position to around 250 crore to be executed in next five years. For the June qtr its revenue increased by 50% to 15 cr whereas net profit shot up 70% to 3.25 cr. Notably, company derives 100% of its revenues from the domestic markets, hence it is totally unaffected by the recent rupee appreciation against US dollar. For FY08 it is estimated to report total revenue of 80 cr and PAT of 15 cr i.e. EPS of 12 Rs on equity of 12.50 cr. Moreover company also has few acres of surplus land in Hyderabad, which it plans to either sell or enter into JV with infrastructure company. Share price has the potential to cross 100 Rs in 6 months or so.

Ansal Buildwell (76.00), flagship company of the high profile Ansal Group is well known for developing shopping complex, malls, residential township, row houses, sky scrappers, corporate offices etc. Currently, it has various residential and commercial projects going on at Gurgaon and Amritsar. Notably, it has good land bank in Amritsar, Jaipur, Panipat, Faridabad and Jhansi. Recently it has acquired around 35 acres of land at Kochi for development of plots, villas and town houses. In near future company is planning to construct multi storeyed group housing society in Faridabad. Incidentally, it is also engaged in couple of hi-tech engineering projects. For the June qtr its topline grew by 30% to 28 cr but its PAT shot up 70% to 1.80 cr. Accordingly for full year it is expected to clock a turnover of 150 cr and profit of 10 cr. This translates into EPS of 14 Rs on current equity of 7.40 cr. Being available at 52 week low; this is one of the safest scrip and is bound to cross 100 mark in 6 months.

El forge (60.00) manufactures carbon, alloy and stainless steel forged components which are mainly used to manufacture engine parts, transmission parts, steering and suspension parts, break assembly parts, chassis parts, drive line and electrical parts. To move up the value chain, company is gradually shifting its product mix to machined components which have comparatively higher margins than forged products. Hence, it has recently put up a machine shop facility at Chromepet, especially for MICO. Moreover it is also setting up a world class manufacturing facility at Sriperambadur near Chennai which is expected to start commercial production shortly and will enhance the capacity to 23200 MTPA from 18200 MTPA. To fund this expansion company raised around 15 cr last year thru pref allotment of 12.15 lakh shares @ 120 Rs per share. Against this, today it is available at massive 50% discount. It reported decent nos for the June quarter and is expected to end FY08 with consolidated sales of 185 cr and profit of 10.50 cr which works out to an EPS of 12 Rs on diluted equity of 8.80 cr. Ironically, the scrip is trading at its 52 week low giving good margin of safety and can give 50% return in 9~12 months.

Orient Paper & Industries (430.00), flagship company of the renowned CK Birla Group is a diversified company having interest in papers, cement and electric fans with cement being the major profit centre. To cater the increasing cement demand, company is implementing aggressive expansion plan which will enhance its cement capacity from 2.4 million to 3.4 million TPA in the current year and subsequently to 5 million by 2008-09. Besides, it is putting up a 50 MW captive power plant for increased capacity. On the back of robust demand, company is augmenting its paper as well as electric fan manufacturing capacity also. For the June’07 qtr it recorded 13% rise in sales to 293 cr but NP jumped up by 75% to 44.50 cr posting an EPS of 30 Rs for the qtr. With the cement division doing exceptionally well, it may clock a turnover of 1250 cr and PAT of 165 cr for FY08. This leads to an EPS of 86 Rs on expanded equity of 19.29 cr. Interestingly; company is having huge surplus land in Orissa which is estimated to fetch approx 150 cr, if sold. Share price can easily appreciate 25~30% in 12 months.

Uni Abex Alloys (110.00) is engaged in manufacturing centrifugual-casting alloy thereby catering to core sector industries like petroleum, petrochemical, fertilizer, iron & steel, manufacturers of decanters, valves, heat-treatment plants, galvanizing plants and engineering industries. For the June qtr it recorded 60% growth in sales to 13.90 cr whereas its profit increased by only 20% to 0.95 cr due to lower other income. However on the positive side, company has been reporting very healthy margins from the last two quarter despite the sharp appreciation in rupee. Offlate company has been putting more thrust on exports due to higher margins and is expected to derive nearly 50% of revenue from it. On the back of 100% capacity utilization and higher operating margin it is expected to report a topline of 70 cr and bottomline of 5.50 cr. This works out to an EPS of 28 Rs on tiny equity of 1.98 cr. At a reasonable discounting by 5x times share price has the potentail to cross 150 Rs. Accumulate at declines.