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Monday, June 1, 2009

Gujarat State Fertilizers & Chemicals and Lakshmi Precision Screws and Upper Ganges Sugar & Industries:Future growth prospects and outlook

1)Scripscan:Gujarat State Fertilizers & Chemicals Ltd
cmp:167
Traded in:Nse-bse

Story:GSFC operates in two key segments – industrial chemicals and fertilisers. Over the years, it has diversified continuously and it now has a product mix consisting of more than 24 brands of fertilisers, petrochemicals, chemicals, industrial gases, plastics, fibres and other products.How has the company performed in the December quarter? Its sales and operating profit have doubled over the corresponding period and it earns an average operating margin of 13%. Is this a one-off spurt in financials? Its performance over the past five quarters has also been good; sales growth averaged a healthy 51% while its operating profit grew by 37% over the same period. Interestingly, the company maintains a very low debt profile which keeps its interest cost at a minimal level – averaging 1% of its net sales and 6% of its operating profit over the past five quarters. GSFC is among the 12 companies with whom Reliance has recently signed a contract to supply gas from its KG D6 fields. GSFC is also part of a consortium of companies promoted by the Gujarat government which is floating a new chemicals project at Dahej. This is a Rs10,000-crore project for setting up units to manufacture phenol, bisphenol and polycarbonate for use in synthetic rubber, PVC and ethylene dichloride industries. All this provides some clarity on the future of this company. A bet worth taking at its current price and valuation.

2)Scripscan:Lakshmi Precision Screws Ltd
cmp:36
Traded in:Nse-bse

Story:Lakshmi Precision Screws Ltd specialises in fastening products which include 6,000 varieties of standard cold-forged high-tensile fasteners, special high-tensile bolts/screws, studs, nuts and cold-forged components. LPSL also manufactures and supplies a system which offers a simple and cost-effective solution to installing and removing fasteners. Though the December-quarter performance has not been very impressive, sales have been growing by an average 14% over the past five quarters while its operating profit was up 6% over the same period. One positive aspect of its December-quarter performance, however, has been an improvement in operating margin to 16% from an average of 13% that it earned over the past five quarters. Its interest cost as a percentage of sales averaged 6% but as a percentage of its operating profit, it was 48%.A great buy at dips.

2)Scripscan:Upper Ganges Sugar & Industries Ltd
cmp:71
Traded in:Nse-bse

Story:Demand and supply forecasts for the sugar industry have been changing frequently. From a short supply scenario, it has suddenly shifted to an optimal supply position, thanks to the revised estimates of sugar production for the current season. On perceived shortage of sugar, sugar stocks have been doing well; this outperformance may continue for a while. One sugar company that fares well on the valuation parameters is Upper Ganges Sugar & Industries Ltd. At the current price, its market-cap is only 0.09 times its December-quarter annualised sales and 0.50 times its operating profit. Its December-quarter performance has been extremely good with sales rising 53% over the corresponding year-ago period while its operating profit shot up to Rs22.28 crore from a mere Rs24 lakh during the corresponding period last year. Operating margin was 15%. One worry is that its interest cost is 12% of sales. But the huge profits of the past quarters should help it pare the debt.Overall A good sugar stock to sweeten your portfolio.
Source:ML Research Desk

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