Surana Telecom - Rs.72.00

Originally incorporated as Surana Petroproducts Pvt Ltd in August 1989, Surana Telecom Ltd. (STL) became a public limited company in July 1993. Promoted by G M Surana, G P Surana, Narendra Surana and Devendra Surana. The company is engaged in the manufacture of heat-shrinkable cable jointing kits, Jelly Filled Telecommunication Cables (JFTC), wire connectors, end caps, modular connectors and HDPE pipes catering to the telecommunication sector. STL is also one of the foremost producers of Optic Fiber Cable (OFC) in the country for which it has technical collaboration with Rosendahl, a 100 per cent subsidiary of Alcatel.

Due to the difficult times faced by the cable industry, STL recently diversified into the high growth business of assembling of CDMA (code division multiple access) based telecom terminals. It ventured into this lucrative market of assembling and trading of CDMA handsets with an understanding with LG Electronics Inc & Huawei Technologies Co. Ltd. to supply the CDMA and Fixed Wireless Terminals to BSNL, MTNL, Reliance Infocomm and Tata Teleservices. It is now looking at into Internet Protocol TAX (Telephone Exchange) that is equipment that supports the Internet and converts the existing networks to support IP. The company has also applied for a Qualcomm product license and plans to manufacture some of the CDMA products. Of late, the company has moved into the Handheld segment also and offers CDMA colour display handheld terminals to MTNL. It is also setting up facilities to manufacture switch mode power supply based battery chargers which can increase the talk time drastically The Company is also entering into various products in the Broad Band Digital Loop Carrier (DLC) and shall be in the front end technology partner in the various requirements of BSNL & MTNL. Moreover, its JFTC & OFC division will continue to perform well given the plans for expansion of broadband connectivity especially by BSNL only a few days back, it bagged a Rs.30 cr. order for it cable division.

It turned around in both the quarters of FY05 due to strategic shift towards wireless telecom products from cable manufacturing. For the six months ending Sept 2004 its Net sales jumped 8 times to Rs.70 cr. and NP quadrupled to Rs.5.30 cr. compared to last year. This works out to an half yearly EPS of Rs.5 on its current equity of Rs.11.30 cr. taking into account the management’s aggressive style and growth prospects, STL could close FY05 with turnover of Rs.160 cr. and NP of Rs.14 cr. registering an annualised EPS of Rs.12 Hence it is trading cheap at 6 PE only. Investors are advised to buy into the stock and expecting 50 per cent return in 8-12 months.

Indo Asian Fusegear - Rs.93.00

Indo Asian Fusegear Ltd., incorporated in 1984 as a private limited company and converted into public limited in 1991, manufactures a wide range of high quality electrical control & protection products. They include electrical safety devices such as miniature circuit breakers, residual current circuit breakers, HRC fuses, transformers, switchgears wires & wiring accessories, industrial plugs & sockets, contractors relay, distribution boards etc. It has also diversified into the high-tech energy-efficient lighting field manufacturing the ‘Ecolite’ brand of compact fluorescent lamps and light fittings. The company has technical & commercial collaborations with some leading German & Italian manufacturers. The boom in power, housing, hotels, malls, commercial complexes and the construction industry in general translates into increased demand for electrical distribution & safety equipment. Since India is increasingly recognised as a low cost international quality manufacturing base, outsourcing represents an attractive opportunityfor the company. Accordingly, it has entered into an agreement with UK / Europe based companies for export of power distribution equipment like distribution boards, MCBs, RCDs etc., which are used in the construction sector. It has also contracted to export circuit protection equipment

It has five modern and state-of-the-art manufacturing units located in northern India and has a wide distribution network spread all over India. Its clientele include leading industrial houses like NTPC, Reliance, IOC, Tata Honeywell, HLL, Bajaj Auto, Ashok Leyland etc. To cater to the increasing demand, the company is expanding its Himachal Pradesh unit. It has good capex plans and will invest Rs15~20 cr. over the next 2 yrs for expanding capacities of the existing plants. The company also plans to manufacture and market remote reading meters to meet the emerging opportunities. To consolidate operations and increase its market share in Europe, the company has approved a reverse merger with its group company Indo Kopp Ltd., which is a debt free and profitable company.

Due to its various initiatives, its operating margin has doubled to 17 per cent in FY05 compared to 8.50 per cent last year. Net Sales grew by 87 per cent to Rs55.75 cr. and NP zoomed to Rs5.70 cr. from Rs0.30 cr. last year. Considering the orders pouring in and the export growth potential, it can clock a turnover of Rs135 cr. and earn NP of Rs14 cr. for FY05 recording an EPS of Rs14. Although in the T2T segment, the scrip has appreciated smartly in the last few days but is still trading reasonably cheap at PE of 6~7. It can give 50 per cent returns in next 12 months even from the current level. Long term investors can expect more since the company could register an EPS of more than Rs20 for FY06.

STOCK WATCH

In Banking, Dena Bank (Code No: 532121) (Rs.31.65) still looks good from the long term perspective. With the object to increase its Capital Adequacy Ratio to 12 per cent, it is coming out with an IPO early next year, which will be highly oversubscribed at the upper band of Rs27. It has a high NPA level of 8 per cent, which the management is trying to reduce drastically. At the same time, it enjoys the distinction of having the highest productivity per employee among PSU banks. As per RBI guidelines, the bank has shifted securities from AFS to HTM category, which will give some support to treasury income. For FY05, the bank may surprise the market with an EPS of Rs8. At Rs31 it is the best buy as it can give handsome returns to investors.

Natco Pharma (Code No: 524816) (Rs.138.15) has recently launched Curcumin 500 mg. capsules, which act as an essential food supplement especially for cancer patients. Curcumin is found to be effective in the treatment of multiple myeloma, tumours and other cancers. Few weeks back, it launched an anti-tumour capsule for the palliative treatment of metastatic / progressive carcinoma of the prostate. Earlier, it had also released Cantret capsules for the treatment of recurrent / persistent ovarian cancer. The company is now planning for a foothold in the international market as well. For FY05, it may report an EPS of Rs12. A good bet in the pharma sector

Uttam Galva (Code No:513216) (Rs.37.40) has an ambitious Rs350 cr. expansion plan for increasing the cold rolled capacity by 4,00,000 TPA, expanding its galvanising line with a capacity of 3,50,000 TPA and to set up a most modern state- of-art pre-painting line with a capacity of 60,000 MT. For the current first half, its sales was up 79 per cent to Rs1030 cr. and NP was Rs39 cr. For the full year FY05, it can easily report an EPS of Rs12. The best buy in the steel sector at current levels.

Orissa Sponge (Code No:504846) (Rs.47.80) has massive expansion plans and is increasing its sponge iron and steel billet capacity to 2,50,000 TPA each and has also obtained government approval for its iron ore mining lease. Due to the scarcity of scrap iron and the huge demand sponge iron, prices are expected to remain firm. For the current full year, it is expected to report an EPS of Rs10. Its share price can rise 50 per cent from current levels once the scrip catches market fancy.

Aggressive investors can have a look at B&A Plantation (Code No: 508136) (Rs.39) in the Tea sector as it is reportedly doing well. For the current first six months, its total revenue increased by 17 per cent to Rs27.50 cr. and NP spurted 175 per cent to Rs3.05 cr. posting an half yearly EPS of Rs10 on an equity of Rs3.10 cr. For the full year, it may post an EPS of Rs12. Its share price can rise smartly in future.

Valecha Engineering - Rs.121.00

Valecha Engineering Limited (VEL) was promoted by Valecha Brothers as an entrepreneurial concern in 1957 and was converted into a public limited company in 1993. VEL specializes in construction of infrastructure, civil engineering works such as Highways, Airports, Flyovers, Bridges, Tunnels, Canals, Water supply schemes, Sewerage projects, Irrigation Dams, Storage reservoirs, Buildings, and foundation engineering with sophisticated pile drilling Hydraulic Rigs. VEL has entered into a number of technical collaborations as well as joint ventures with overseas companies bringing the latest technical know-how in executing the projects. The management team consists of qualified professionals with relevant experience and expertise to ensure a proper techno-economic feasibility of the projects undertaken to achieve the objectives without any time and cost overruns. This is backed by state of art technology and using the latest techniques in construction. The company also plans to go global and is in talks with a UAE / German company for Middle East projects and is in search of an active local partner over there.

Almost 70 per cent of VEL’s revenues come from execution of road projects. It is also the largest piling company in the country. Capital adequacy, appropriate equipment, expertise and past experience, track record of timely project completion are some of the requisites for pre-qualification. VEL has thus pre-qualified for Rs2700 cr. worth of works in the NHAI projects. The Centre’s thrust on investments in infrastructure with increased participation from the private sector comes as a major boost to VEL with its current order book swelling to more than Rs350 cr. The company still expects good orders in this fiscal and is very bullish about its future prospects for the next 5 yrs.

Financially, the company has a strong balance sheet with a low debt equity ratio of 1:1 compared to its peers. Moreover, as a promoter of Jyoti Structures it holds more than 10 lakh shares at an average price of Rs40 whereas the CMP of Jyoti Structures is around Rs 140. For the six months ending 30 Sept. 2004, it reported robust numbers with turnover increasing 47 per cent to Rs70.30 cr. whereas its NP increased by 44 per cent to Rs4.02 cr. With such large orders in hand, the company will do much better in the second half and is expected to report total revenue of Rs180 cr. with NP of around Rs10 cr. Due to its small equity of Rs4.50 cr., any small increase in profit will lead to a sharp increase in EPS. With an expected EPS of Rs22 in FY05, it discounts very cheap at a PE multiple of only 5. A strong buy at CMP, which can give minimum 50 per cent return in the next 12 months. Long term investors can expect much higher returns.

Bihar Caustic - Rs.51.00

Bihar Caustic & Chemicals (BCCL), incorporated in 1976 is a Joint Venture between BSIDC(Bihar State Indl. Development Corp.) and Aditya Birla Group. It is one of the leading manufacturers of Caustic Soda in the eastern region. Its product portfolio consists of three products: Caustic Soda and the by-products of Caustic i.e. Liquid Chlorine and Hydrochloric Acid. Since the last few months, the chlor-alkali industry has been witnessing steady improvement in electrochemical unit (ECU) realizations and the trend is accelerating. Moreover, due to the current global upturn in the Aluminium, Iron and Steel and Paper industry, Caustic Soda prices have shot up more than 30 per cent in international market. And as far as BCCL is concerned, it is positioned very well in terms of capacity utilization with its parent company. Hindalco (along with INDAL) buying nearly 75 per cent of its total production of Caustic Soda whereas, the existing capacity for products like Chlorine and Hydrochloric Acid is well absorbed by the network of ancillaries already set up.

Its manufacturing plant at Ghanshyamkunj at Rehta in the state of Jharkhand has an installed capacity to produce 51048 TPA of Caustic Soda, 39600 TPA of Liquid Chlorine and 29040 TPA of Hydrochloric Acid. As caustic soda production is power intensive, the company has put up a 30 MW coal based captive Power Plant due to which company enjoys stable and economic power supply. Further, the company has installed sodium hypo chloride plant to utilize chlorine in its pursuit of value addition. It has also been successful in increasing caustic soda production by operating the plant at 225 KVA load. To encash the demand growth of its product in tandem with the significant growth in the principal user segments i.e. Aluminium and Steel industry, the company is in the process of finalizing the project for conversion of existing mercury technology to energy efficient and environment friendly membrane technology with simultaneous capacity expansion of caustic soda by 50 per cent i.e. increase in capacity from 150 TPD to 225 TPD at an estimated investment of Rs.112 cr. And to utilize the hydrogen as a value added product, the company is setting up a Hydrogen Bottling Plant at a total cost of Rs.2.80 cr. Recently, the company successfully restructured its long term debt from Financial Institutions by reducing the rate of interest. It has also returned to the dividend list after a gap of four years. Promoters hold 65 per cent stake and the rest is with the general public.

For the quarter ending 30th Sept 04, its net sales was up 8 per cent to Rs.26.30 cr. whereas NP jumped 150 per cent to Rs.7.10 cr. due to higher unit price realisation resulting in an EPS of Rs.3. Its OPM also improved 700 basis point to 49 per cent compare to 42 per cent last year. Considering the fact that the global prices of chlor-alkali products led by caustic soda are showing no signs of retreat, the company's profit margins are likely to improve in the second half of the current year and we expect it to clock a turnover of Rs.115 cr. and NP of Rs.26 cr. This works out to an EPS of Rs.11 on current equity of Rs.23.40 cr. Currently this scrip is trading at less than 4 PE, which is quite cheap compared to its peers. Investors should buy with a price target of Rs.80 i.e. 60 per cent appreciation in the coming 12 months.