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SHRINATH MITHANTHAYA
Motilal Oswal Securities
Man Industries
Man Industries is a major Saw (submerged arc welded) pipe manufacturer with two plants at Anjar (Gujarat) and Pithampur (Madhya Pradesh). Saw pipes are used for cross-country transport of critical inputs, mainly oil and gas.
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| Over the next 3-4 years, global demand for Longitudinal Saw/Helical Saw pipelines is estimated at 2 lakh km, including 20,000 km in India.
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| Prospects for the company look good. It has an outstanding order book of Rs 1,250 crore of which Rs 850 crore are for exports and the rest for the domestic market. It has managed a Rs 400 crore export order to supply LSaw pipes and participated in bids amounting to about Rs 2,000 crore. It expects a success rate of around 20 per cent.
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| Prices of HR plates have not gone up much (about $750 per tonne X-65 grade) and the company has ensured availability for its entire requirements of plates to cover its existing orders.
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| Its new plant at Anjar commenced full-fledged commercial production in October 2005, benefits of which will accrue going forward. The stock is worth buying with a price target of Rs 250.
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Era Constructions
Era Constructions India (ECIL) is a fast-growing mid-sized construction company and a beneficiary of large scale construction activity across sectors like roads, railways, ports, airports, power projects and commercial complexes.
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| ECIL is increasingly focussing on high margin industrial projects, where timely completion and delivery are critical.
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| ECIL has lined up several other growth drivers over the near and medium term like pre-engineered building materials, export of structural and allied designs and real estate development.
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| Group company, Era Metal Building Systems makes pre-engineered building material, which are used in non-residential projects such as industrial plants, railway stations and airports.
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| They form the core of the superstructure and are fabricated separately even as foundation work is going on at the site.
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| Thus, a project gets completed in half the time, six months instead of a year.
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| ECIL has also set up a 100 per cent EOU for structural and allied designs. Here it plans to undertake designing assignments for exports.
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| To begin with, ECIL plans to tap the Middle East and the UK markets for its products. Contribution to revenues from this division in FY07 is likely to be about Rs 40 crore.
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| ECIL has a 12 per cent stake in Era Infrastructure. This company develops real estate and has about 400 acres of land. The promoters have a target of increasing the land bank to about 1,000 acres. ECIL also has a small stake in Era Financial Services, which plans to operate multiplexes.
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| In February 2006, ECIL concluded a GDR issue which has strengthened its net worth by Rs 190 crore to bid for big-ticket projects. The stock is recommended with a price target of Rs 400.
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Mahindra Ugine Steel (Musco)
There are two main investment arguments for Musco. First, a transformation from a pure alloy steel company to a sheet metal stampings outfit and second, integration into Mahindra & Mahindra's (M&M) ancillarisation initiative MSat (Mahindra Systems & Automotive Technologies).
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| In FY06, Musco completed its merger with Pranay Sheetmetals (a stamping unit at Nashik), Valueline Hotels & Resorts and Console Estate & Investment.
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| Operating margins are up from 16 per cent in FY05 to 19 per cent in FY06 and net profit adjusted for extraordinary items is up 26.5 per cent. Following the merger, Musco issued about 15.5 lakh shares to shareholders of Pranay.
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| As a result, equity is up from Rs 30.93 crore to Rs 32.48 crore. Post preference dividend, EPS stands at Rs 18. For FY07, we expect an EPS of Rs 22. At the current price of Rs 104, the stock is trading at a P/E of 4.7x FY07E. Even the dividend yield is a healthy five per cent. We recommend the stock with a price target of Rs 200.
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AMITABH CHAKRABORTY
Brics PCG
Venus Remedies
This R&D company makes drugs to treat tumours. It has filed five international patents and six domestic patents. Its products, based on combination therapy in the cephalosporin space, have been successful. We are confident that the company will deliver 100 per cent CAGR in topline and bottomline till 2010.
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| The 100 per cent subsidiary in Germany is close to getting a German GMP certification that would be valid in EU, Japan and Latin American countries.
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| Exports generated about 17 per cent of the revenues in FY06 and it currently exports to about 13 countries, primarily to the CIS. We believe the company can become an outsourced manufacturing company for foreign multinationals by next year.
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| In our view, the current P/E of less than 6x FY07E earnings, does not adequately discount the future cash flow.
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| Venus posted good results for FY06. Sales increased by 170 per cent to Rs 92.1 crore, while net profit shot up by 311 per cent to Rs 8.4 crore. It has also tied up with three more domestic pharma companies, namely Wockhardt, Indoco Remedies and Alembic.
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The management has given a guidance of a 50 per cent topline growth in FY07. We recommend a
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