STOCK WATCH

Jindal Polyfilms (120.00), a leading player in flexible packaging, basically makes polyester films (BOPET), polypropylene films (BOPP), metallised films and coated films with in house ability to produce polyester chips (93800 TPA) for captive consumption. It is the only company in India to offer PVDC coated BOPP and Pet films having a capacity of 4500 TPA to manufacture PVDC, Acrylic and LTS coated films. On the back of robust demand company has been regularly increasing its production capacity and has recently installed two new wide width metallizers taking the total capacity of metallizers to 40,000 TPA. Shortly, it is slated to begin operation of two new BOPP Lines which will double the capacity to 180000 TPA. For future growth, company is contemplating a capex of Rs 500 cr to install one new line each for BOPP & BOPET of 40,000 TPA and 25,000 TPA respectively along with metallizers and coating film line. Although this expansion will be operational in a phased manner in next 2-3 year, but post completion company will boast of having BOPP capacity of 220,000 TPA and BOPET capacity of 111,000 TPA. With petroleum being the basic raw material, company is going to be immensely benefited from the drastic fall in crude oil price. Even on the conservative basis it is estimated to report a PAT of Rs 85 cr on sales of Rs 1350 cr. This translates into EPS of Rs 30 on equity of Rs 28.10 cr. Although company hasn’t actually begin the buy back, but it has approved the buyback of 25% capital at a price not exceeding Rs 350 per share. Buy at declines.

Belonging to RPG group, Phillips Carbon (40.00) is the undisputed leader with a capacity to produce 270,000 MTPA of carbon black which is almost 47% of the total installed capacity of carbon black in India. Out of the total export of this powdery substance from India, 70% is made by company alone and in the domestic market it has an overall share of more than 40%. Recently, in order to generate extra revenue from sale of power, company has put up a huge 30 MW power generation plant which went on stream from Sept 2008. For future growth company is looking to expand its installed capacity by whopping 140,000 tonne thru Greenfield as well Brownfield expansion along with adding another 32 MW of captive power generation facility. In short, post all expansion by March 2010, its carbon black production capacity will stand augmented to 410,000 MTPA and power generation capacity to 80.50 MW. Going forward company is expected to see some margin pressure due to fall in the carbon black prices, although part of it will be compensated by fall in carbon black feedstock prices. Looking at H1FY09 figures and forex loss, company may clock a turnover of Rs 1100 cr and PAT of Rs 45 cr for FY09 i.e. EPS of Rs 16 on equity of Rs 28.25 cr. It may declare 25% dividend for FY09 which gives a yield of more than 5% at CMP. Interestingly, couple of months back warrant holders opted for conversion of 30 lac warrants @ Rs 149 per share and since then scrip has fallen drastically. A good bet at current levels.

Panama Petrochem (70.00) manufactures specialty petroleum products for diverse user industries like printing, textiles, rubber, pharmaceuticals, cosmetics, power and other industrial oil. The product portfolio of the company consists of transformer oil, liquid paraffin, petroleum jelly, cable jelly, ink oil, rubber process oil and antistatic coning oil. It manufactures more than 80 product variants with major supplies to corporate’s like BPCL, Micro Inks, Alok Industries, Merck, Bayer Cropscience, JBF, Usha Martin, Cipla, government ordinance factories to name a few. Recently, company has developed a new product called mining oil for mining industry which is in its testing stage and is expected to be launched in the market soon. To maintain its growth momentum, company is in the midst of huge expansion whereby it more than doubling its production capacity to 159,000 MT from 69,000 MT currently. But most importantly the drastic fall in the crude oil prices is a big positive for the company as base oil forms the major part of input cost. Considering the encouraging performance for first two quarters, company may end FY09 with net sales of Rs 350~375 cr and PAT of Rs 15 cr i.e. EPS of Rs 32 on current equity of Rs 4.80 cr. With a dividend yield of more than 5%, book value of Rs 121 and PE multiple of merely 2x times, it’s one of the safe bet in current market sentiment.

International Combustion (135.00) is among the very few engineering companies which have been recording consistent and healthy growth in the last five years but still remains to be poorly discounted by the market players. Even for FY08 it registered 20% and 40% growth in sales and net profit respectively thereby posting an EPS of Rs 49. Currently its available at EV/EBIDTA of merely 2x times which is extremely cheap by any standard for this debt free and dividend paying engineering company. It is engaged in manufacturing of heavy engineering equipment, geared motors and gear boxes, vibrating screens and feeders, bulk material handling equipment, rubber/polyurethane screen decks and liners, Raymond grinding mills, air classifiers and flash drying system etc. Hence it makes sophisticated plant and machinery for core sector industries such as mining, steel, cement, petrochemical, construction, sugar, power, textile, paper, rubber, pharma, chemicals etc. Recently it reported satisfactory nos for the Sept’08 quarter and is poised to end FY09 with sales of Rs 110 cr and NP of Rs 12 cr i.e. EPS of Rs 50 on tiny equity of Rs 2.40 cr. Due to small equity, it also has an impressive ROCE of 40% and ROE of 25%. More importantly it has huge reserve of nearly Rs 45 cr which leads to a book value of Rs 192, making it a perfect bonus candidate. It’s a risk free bet which can give handsome return in the long run