Whispers July 2018

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By IE&M Research

Focus on Steel Sector

There has been a sharp increase in Steel Billet prices in Q1FY18 which has led to spread expansion between Steel Billet and Sponge Iron. Companies with higher Long Steel product range should be benefitted the most. The major reason for this is a strong pick up in domestic demand of the long products coming from the infrastructure development throughout the country. Companies like JSPL, SAIL and Prakash Industries who have a larger portfolio of long steel products will do well.

Meghmani Organics Ltd.
BSE Code/NSE: 532865/ MEGH; Face Value: Rs1; CMP: Rs80
Market Cap: Rs2087; 52 Weeks H/L: Rs129.40/ 44.75

 

The company produces pigment, pesticide and basic chemicals. The profit of the March quarter increased by 169%; the profit of the financial year 2018 increased 105%, whereas the last 4 years of profits increased by 80% CAGR. The company is in an expansion mode at large-scale, which will be reflected in its financials soon. It is a preferred stock to play the monsoon theme with strong fundamentals. The downside is also limited in the stock as it is corrected 36% from the its 52 week high.

Confidence Petroleum India Ltd.
BSE Code/NSE: 526829; Face Value: Rs1; CMP: Rs45
Market Cap: Rs1253; 52 Weeks H/L: Rs51.95/ 14.90

 

Confidence Petroleum is one of the largest Cylinder manufacturing companies in India. The government’s initiative ‘Pradhan Mantri Ujjwala Yojna (PMUY)’ has given a boost to this company’s performance since last couple of quarters. The government recently has again announced target of eight crore cylinders to be distributed to poor people. This push will prove to be a gold mine for the company. Also on other fronts, there is a huge demand of cylinders which will certainly be augmented since General elections of 2019 are around the corner and the government has a plan to reach as many people as possible under PMUY. Due to this FY2019 could be a big year for Confidence Petroleum.

IOL Chemicals and Pharmaceuticals Ltd.
BSE Code/NSE: 524164/ IOLCP; Face Value: Rs10; CMP: Rs78
Market Cap: Rs458; 52 Weeks H/L: Rs116.60/ 42

 

Sales in March quarter increased by 38.5% and profit rose by 474.5%. In FY18, sales increased by 29.46% and profits increased 493%. The stock is currently being quoted with a low PE of only 16.6. The company is the second largest in the production of ISO BUTYL BENZENE, while in IBUPROFEN it is considered as the world’s largest backward integrated manufacturer. IBUPROFEN’s prices are steadily increasing in the global market and the global capacities are not going to increase till 2022. To get the benefit of this macro changes the company is increasing its 8000 TPS’ capacity by 50%. The management has targeted guidance for 30% growth in the top line while expecting 80-100% growth in bottom line aided by a weakening rupee.

CESC Ltd.
BSE Code/NSE: 500084/ CESC; Face Value: Rs10; CMP: Rs887
Market Cap: Rs12073; 52 Weeks H/L: Rs1190/ 847.50

 

The company’s demerger is on the cards. The company will split four ways, i.e. Distribution business, Generation business, Retail business and CESC Ventures. Estimates of Various brokerages based on SOTP valuations are in the range of Rs15,500 crore to Rs18,000 crore market cap, currently it is at Rs12,100 crore. Relying on various brokerages estimates this looks like a clear winner and margin of safety with the Management Pedigree is huge. Estimated FY19 PAT should be in the range of Rs1100-Rs1200 crore, which for an RP Sanjiv Goenka group company quiet reasonable. An analyst is very bullish on this counter and more than Rs 3000 crore gap he feels can give a sure push.

Manali Petrochemicals Ltd.
BSE Code/NSE: 500268/ MANALIPETC; Face Value: Rs 5; CMP: Rs42
Market Cap: Rs794; 52 Weeks H/L: Rs55.90/ 30

 

The company, which produces various types of chemicals, has grown its profit in the March quarter to 294.66%, whereas in the financial year 2018, the company’s profit has increased 46%. At the current price, the stock is only quoting at a PE of 12.5. Indian Chemical companies got the biggest advantage of declining capacities from China. This stock is ideal to play the chemical sector. The margins of Indian companies are constantly increasing. The finances of the company will look stable in the future. Some of the HNIs are advised by an analyst to heavily accumulate this stock.

Ruchira Papers
BSE Code/NSE: 532785/ RUCHIRA; Face Value: Rs10; CMP: Rs105
Market Cap: Rs246; 52 Weeks H/L: Rs219.80/ 101.05

 

In the March quarter, the company had closed 25 days of its Craft paper plant for modernization due to which profit of that quarter was depressed, but in the financial year 2018 the company’s profit increased by 19.31% to Rs 38.24 crore. At the current price, the stock is only quoting at 6.5x. In the last 4 years, the company’s profit have risen 44% CAGR. Post the modernization of Craft Paper’s plant, the company is expecting an expansion of 3-3.5% in the EBITDA margin of Craft Paper in 2019. To reach this target the company has already acquired 107 acres of land for a new plant in Punjab. Most of the paper companies have given excellent results in the financial year 2018, so the future of this sector is bright. The company’s stock, which is paying a regular dividend, is quoted at the lowest level of valuation of five years. There will be a fast bounce back on the stock in the 4-6 a month once the sentiments improve.

Super Crop Safe Ltd.
BSE Code/NSE: 530883; Face Value: Rs10; CMP: Rs24
Market Cap: Rs20; 52 Weeks H/L: Rs37.75/ 22.10

 

This agro-chemical sector company is expanding at large-scale in bio-fertilizers. In the past, the company has launched products such as Super Gold and Trinetra, which are getting very good response. There are more than 100 products in the company’s product basket. In the financial year 2018, the company’s profit has increased 78%, whereas in the last 4 years, the profit of the company has increased at a CAGR of 77%. Just a few months ago, the company has issued to promoters and non promoters 280000 shares at a price of Rs 32 and 690000 warrants at a price of Rs 34. The stock is still trading below 25% of the issued price. The company has started its operations in Uttar Pradesh this year, whereas its distribution network will increase from 2100 to 4000. This can be the best stock in the small cap sector to play the monsoon theme.

About the author: IE&M Team

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