For subscribers only

Panchratna
Vol. 4, No.14 An Investment Newsletter by G. S. Roongta July Sep 2017

Back drop
The popular indices are at their lifetime highs and specific stocks hitting record highs both in the mid-cap and the
small-cap categories.
In view of this, it is now a herculean task to identify growth-oriented stocks that are potential multibaggers or a
dark horse or value pick. However, after much in-depth research, we have once again succeeded in identifying five
such stocks from the Steel, Plastic, Infrastructure and Petro-chemical sectors to make the 14th edition of
Panchratna most profitable for its subscribers. These stocks lie in the low price range of Rs.7-50 so that subscribers
can invest and hold maximum quantity based on their capacity.
We have selected two stocks from the steel sector as the industry is reported to have turned around and is
likely to perform well on the back of government initiatives.
We have selected one stock (a turnaround case) from the Plastic/Polymer industry which is also doing well.
Similarly, the stock selected from the Petro-chemical & fertilizers industry is also a turnaround story.
The stock selected from the real estate and power infrastructure sector is a value pick - a profitable company
that pays dividends as well.
We always make an effort to identify the best stocks available in the small-cap category for maximum returns.
This time, I wish to recommend the following five stocks:
1) Om Metals Infraprojects Ltd
2) Southern Petrochemicals Industries Corporation Ltd
3) Pearl Polymers Ltd
4) Modern Steels Ltd
5) Sunflag Iron & Steel Company Ltd
Let us summarize their respective highlights hereunder:
G.S. Roongta

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Panchratna July September 2017

1) OM METALS INFRAPROJECTS LTD

Stock Info
Category: Value Pick CMP (`) 48.95
BSE Code 531092
Company Background: Om Metals Infraprojects Ltd (OMIL) is a leading
NSE Symbol OMMETALS
hydro mechanical engineering company primarily engaged in engineering, Construction &
Sector
construction of dams and irrigation projects. It offers turnkey solutions Engineering
from designing to commissioning of hydro mechanical equipments. It has 52-week H/L (`) 57.15/38.30
Face Value (`) 1
host of subsidiaries, joint ventures, partnership firms both in India and
Market Cap (` cr.) 471.41
abroad. The Company is in its 46th year of operations. Its focus lies in two
areas - i) Hydro Power and ii) Real Estate Development.

Hydro Power:
Top 5 Unexecuted Order Book:
OMIL has executed
Sr. Project State Amount
over 60 Hydro
No. (` in crore)
Power projects till
1 Kachh Branch Gujarat 198
now and is
currently working Canal Power House
Shareholding Pattern: (in %)
on projects 2 Rampur Barrage U.P. 193
Mar. Dec. Sep.
totalling ~2,000 3 Ujjain Smart City M.P. 166 Particulars
2017 2016 2016
MW across 4 Pallacia Rajasthan 130 Promoter 70.74 70.74 70.74
segments. It has 5 Hydro Mechanical Uttarakhand 106 Institutions 3.95 3.95 3.95
executed one of works of Vyasi HE Non- 25.31 25.31 25.31
the worlds largest 6 Others - 109 Institutions
Vertical Lift gates Total 100 100 100
Total 902
at Koldam
Electronic Project in Himachal Pradesh and one of the worlds largest
Radial gates at Gosikhurd in Maharashtra.

During FY16, OMIL obtained a Hydro Mechanical works project worth

Rs.106 crore from Uttarakhand Jal Vidyut Nigam Ltd (UJVN), which has to
be executed over a period of 25 months. The project is for hydro
mechanical works of Vyasi HE Project in Dehradun district, Uttarakhand.
Dividend Declared
Hydro mechanical projects constitute 70% of its unexecuted order book of
Date % `
Rs.936 crore as at 31 March 2016. 17 Mar 2016 30% 0.30
23 Sep 2015 20% 0.20
OMIL is set to benefit from the governments focus on the power sector. 24 Sep 2014 10% 0.10
Indias installed power generation capacity as on 30 November 2015 was 26 Mar 2014 10% 0.10
2,82,023 MW comprising 1,96,204 MW Thermal, 42,623 MW Hydro, 5,780 22 Mar 2013 10% 0.10
MW Nuclear and 37,415 MW Renewable Energy Sources (RES) Capacity
addition target for FY16 was 20,037 MW as against which, 8,946 MW
capacity was added till 30 November 2015.

The target for hydro power in the 12th Five Year plan is 10,897 MW of
which only 3,811 MW was achieved in FY16. The government is taking

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Panchratna July September 2017

initiatives to harness more out of the hydro power generation segment as

70% of the target was to be achieved in FY17.

Real Estate Development: In India, real estate is the second largest

employer after agriculture where education is not a primary factor for
getting employment. OMIL has made opportunistic investments into
residential projects and industrial land bank yielding strong cash flows.
Through its subsidiaries and Joint Ventures, it has the following real estate
projects in hand:

Real Estate Projects:

Sr. Projects Location Partner No. Project Status as
No. of area sq. at
Units ft. (OMIL 31.3.16
share)
1 Meadows Kota - 450 5,00,000 Work in
progress
2 Pallacia Jaipur - 150 6,30,000 Work in
progress
3 Bandra Mumbai D.B. - 2,50,000 Yet to
Reclamation Realty & start
MHADA Others
4 Ashvita Hyderab Mahindra 60 80,000 Work in
ad Life progress
Spaces
Total 14,60,000

Key Industrial Land Banks:

Location Sq. Mtrs. Key Location Advantage
Faridabad 8,000 Located on main Mathura Road, New Delhi
VKIA Jaipur 28,000 In an industrial area at prime location
Kota 40,000 In the centre of Kota City
(Institutional Land)

The Indian real estate market is expected to touch $180 bn by 2020. The
housing sector contributes 5-6% to the country's GDP. Over FY08-20, the
market size of this sector is expected to grow at 11.2% CAGR. The
government has taken several initiatives to encourage the development in
the sector. For example, the Smart City project, under which it aims to
build 100 smart cities; Housing to All; Roads projects, etc.

Housing Development is considered to be the biggest infrastructure

project in Indias economic growth story of the next five years. In view of

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Panchratna July September 2017

this, the government planned to invest Rs.56.3 lakh crore in infrastructure

development during the 12th Five year plan (2012-17), of which ~50% of
the investments was to be contributed by the private sector and the
balance by government agencies. The Make in India campaign is catching
the attention of multinationals as well.

OMIL is all set to benefit significantly from the governments thrust on

infrastructure development.

Subsidiaries:

1) Om Metals Consortium Pvt Ltd: This wholly-owned subsidiary of OMIL

is developing a high-end residential project at a prime location in
Jaipur with a saleable built-up area of 6.3 lakh sq.ft. on a 19,000
sq.mtr. plot.
2) Om Metals Real Estate Pvt Ltd: This wholly-owned subsidiary of OMIL
holds stakes in different SPVs (special purpose vehicles) and different
subsidiaries for different projects at different locations.
3) Skywave Impex Ltd: This wholly-owned subsidiary of OMIL is exploring
agri and FMCG business.
4) Pondicherry Port Ltd: OMIL has bought 94.46% stake in this company
thus making it a subsidiary. It was established to develop the sea port
in Pudducherry.

Other subsidiaries include 5) Odisha Marine Services Pvt Ltd; 6) Sanmati

Infradeveloper Pvt Ltd; 7) Bhilwara Jaipur Toll Road Pvt Ltd; 8) Om Metals-
SPML Infraprojects Pvt Ltd; and 9) Gurha Thermal Power Co. Ltd.

Apart from these Performance Review: (Rs. in lakh)

subsidiaries, OMIL
Particulars FY16 FY15
has several
Revenue 18905.10 22205.20
Partnerships, Joint
EBITDA 5129.84 4054.87
Ventures and
Associate Other Income 849.15 1634.31
Companies. Finance Cost 1325.43 1355.84
Depreciation 748.99 854.68
FY16 Performance
Profit before 3904.57 3478.66
Review: OMIL paid
Exceptional Item & Tax
30% dividend for
Exceptional Item - -
FY16 absorbing
Tax 789.90 573.30
around Rs.347.72
lakh including PAT 3114.67 2905.36
corporate dividend Balance available 29379.45 26636.34
tax of Rs.58.82 lakh for appropriation
which was paid

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Panchratna July September 2017

before 31 March 2016.

Segment wise Analysis:

1) Its Engineering division turnover for FY16 was Rs.156.6 crore (Rs.208
crore in FY15) with net profit of Rs.24.5 crore (Rs.26.3 crore in FY15).
2) Its Real Estate turnover was Rs.32.6 crore (Rs.14.5 crore in FY15) with
net profit of Rs.6.7 crore (Rs.2.7 crore in FY15).

As can be observed, the profitability of its real estate business has

improved faster than its engineering divisions (which reported a much
higher turnover) and this trend is likely to continue in the years to come.

Future Outlook: OMILs future outlook is quite promising based on its

projects pipeline and expansion plans over the next few years. It plans to
enter into new verticals such as packaging and manufacturing, smart city
infrastructure development and expand its global footprint through
acquisitions and strategic Joint Ventures. It also plans to establish its
presence in varied structure, steel design and fabrication works in bridges,
large building construction and heavy engineering works.

FY17 Performance Review: Based on the Companys quarterly

performances, we observe that the turnover for FY17 has grown around
25% to Rs.231 crore from Rs.189 crore in FY16, EBIDTA jumped to Rs.62
crore from Rs.51 crore in FY16 and Rs.40 crore in FY15 but net profit
declined to Rs.13 crore from Rs.31 crore in FY16 and Rs.29 crore in FY15.
This was mainly because of significantly higher depreciation and interest
costs on the back of the new development activities initiated by the
Company. Therefore, according to me, there is no reason to worry about
the drop in the bottom-line.

Reven Other Depre Net

Particulars OPM Interest Tax
ue Income ciation Profit
Q1FY17 50.90 10.99 1.80 2.66 2.88 2.15 4.22
Q2FY17 66.00 17.81 0.79 2.87 4.38 0.15 5.15
Q3FY17 48.30 16.94 2.73 2.54 3.53 2.55 2.30
Q4FY17 66.20 16.80 1.14 3.11 6.22 1.62 1.31
FY17
231.40 62.54 6.46 11.18 17.01 6.47 12.98
(Total)
Financial Review:

1) Its equity capital of Rs.9.63 crore seems quite small considering its
overall business size, infrastructure and projects in hand.

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Panchratna July September 2017

2) Reserves Financial Highlights: (Rs. in crore)

stood at Rs.558 Particulars FY16 FY15
crore (62 times
Equity Capital 9.63 9.63
its equity) as at
Reserves & Surplus 558.27 529.68
FY16 and will
be higher in Total (A) 567.90 539.31
FY17. Non-Current Liabilities
3) Its share book Long-Term Borrowings 10.52 14.03
value works Deferred Tax Liabilities 3.39 2.69
out to nearly Other Long-Term Liabilities 28.84 15.14
Rs.62. Long-Term Provisions 0.82 0.85
4) The stock Total (B) 43.57 32.71
currently
Current Liabilities
trades at Rs.48
Short-Term Borrowings 47.13 49.93
after hitting a
Trade Payables 38.31 29.08
high of Rs.57 in
May 2017, Other Current Liabilities 72.21 43.46
which means Short-Term Provisions 1.64 2.84
that the stock Total (C) 159.29 125.31
is highly Total (A+B+C) 770.76 697.33
underpriced Assets
and available Tangible Assets 154.15 128.68
below its share Capital work-in-progress 0.13 1.83
book value. For
Total (A) 154.28 130.51
well-
Non-Current Assets
established
Investment 134.04 129.57
and profit
earning Long-Term Loans & Advances 207.50 187.67
companies, Other Non-Current Assets 4.60 7.72
stock prices Total (B) 346.14 324.96
are generally Current Assets
twice the book Inventories 61.74 51.11
value. Trade Receivables 82.44 59.22
5) The share price Cash & Cash Equivalent 46.94 69.41
of a company
Short-term Loans & Advances 68.81 61.31
that is not
Other Current Assets 10.41 0.81
highly
Total (C) 270.34 241.86
leveraged
should still be Grand Total (A+B+C) 770.76 697.33
higher than its share book value whereas OMIL, according to the
latest Balance Sheet, does not seem to be leveraged. Non-current

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Panchratna July September 2017

liabilities stand at Rs.44 crore as against tangible assets of Rs.154

crore. The Company may turn cash-rich in the next two years.

Shareholding: The Promoters hold Price Fluctuations:

over 70% stake in the Company, Particulars High Low
which shows their confidence in the (Rs.) (Rs.)
Companys growth gaining strength
April 2016 51.80 42.10
year after year based on its
June 2016 54 45.25
expansion and diversification plans
October 2016 53 43
and projects in hand.
March 2017 47.70 38.30
Risk/Reward: There is no apparent June 2017 53 46.20
risk in buying the stock at the
current level for decent gains in the long-term.

********

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Panchratna July September 2017

2) SOUTHERN PETROCHEMICALS
Stock Info
INDUSTRIES CORPORATION LTD CMP (`) 25.30
BSE Code 590030
Category: Potential Multibagger NSE Symbol SPIC
Company Background: Promoted by Mr. Ashwin C. Muthiah, Southern Sector Fertilizers
Petrochemicals Industries Corporation Ltd (SPIC) was considered to be the 52-week H/L (`) 31.85/17.60
largest fertilizer and chemical complex in the South till the 1990s. SPIC was Face Value (`) 10
a blue-chip stock during that period and was actively and extensively Market Cap (` cr.) 420.68
traded in the stock market. It was listed under the A group category back
then.

However, unrelated expansions and

Stock movement in FY17
setting up plants overseas slowly
turned the Company into a sick unit Month High Low
and it lost its blue-chip status. After (Rs.) (Rs.)
bearing huge losses from its overseas April 25.35 19.70
operations, the management finally
May 27.30 22.00
decided to wind up the following
overseas subsidiaries in principle - June 24.25 20.40
Shareholding Pattern: in %
SPIC Fertilizers & Chemicals, July 23.95 21.40 Particulars Mar. 2016
Mauritius (SFCL) and its step-down August 23.15 19.75 Promoter 51.50
subsidiary SPIC Fertilizers &
September 20.50 18.60 Institutions 2.67
Chemicals FZE, Dubai (SFC FZE). SPIC
Non-Institutions 37.45
had invested in SFCL, which further October 26.45 19.10
Others 8.38
invested in a wholly-owned November 25.45 18.35
subsidiary - SFC FZE, with the Total 100
December 21.35 17.60
objective to produce ammonia and
urea in Jebel Ali Free Zone, Dubai. January 25.05 18.40
Since the project did not materialize February 23.75 21.05
due to non-allocation of gas, the March 24.40 20.50
subsidiary decided to wind up in
February 2016.
SPICs other units in India like Tamilnadu Petroproducts Ltd (TPL) and
Tuticorin Alkali Chemicals and Fertilizers Ltd are doing relatively well.
Industry Overview: The Indian Fertilizer industry has been the backbone
of Indian agriculture since the era of green revolution in 1960s. It has
emerged as a world class industry in terms of state-of-the-art production
technologies, high energy efficiency with excellent record in the areas of
safety and environment while supporting the ever growing demand for
Indian Agriculture, producing food grains, pulses, oil seeds, sugar, cotton,
fruits, vegetables and plantation crops like rubber, tea, coffee, cardamom,
etc. Even though India is the second largest consumer of fertilizers and
third largest producer of nitrogenous and phosphatic fertilizers in the
world, yet the domestic fertilizers capacity falls short to meet the demand
requirements and has to depend on imports like crude oil. It is because the
fertilizer industry does not provide gainful margins to its producers due to

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several government restrictions, subsidiary and price control, etc. This is

why very few companies set up fertilizer plants in India.
During FY16, India produced a total Urea of 24.465 million ton (MMT)
which is 8.3% higher than the production recorded in FY15. The country
imported 8.474 MMT, which is one-third of the total production.

Performance Review: (Rs. in crore) FY16 Performance Review:

There are no tax liabilities as the
Particulars FY16 FY15
Company had reported losses in
Revenue 1837.91 2094.16 the past. The management has
Other Income 17.94 8.64 made an effort to turn-around
PBIDT 57.01 76.23 the Company by selling some of
its unrelated assets, which
Finance Cost 12.05 28.26
reduced the finance cost
Depreciation 29.36 30.39 significantly.
Exceptional items 9.17 -
Tamilnadu Petroproducts Ltd
PBT 24.77 17.59 (TPL): During FY16, TPL posted a
Tax - - profit of Rs.38.15 crore after
PAT 24.77 17.59 exceptional item of Rs.57.71
crore against a loss of Rs.53.07
crore in FY15.
The plant which was shut down for 55 days from 2 December 2015 due to
unprecedented rainfall and flooding, resumed operations on 26 January
2016. In spite of this, the production was normal at 255-260 TPD (ton-per-
day).
Tuticorin Alkali Chemicals and Fertilizers Ltd (TFL): This unit also fared
better compared to FY15 with a turnover of Rs.156.54 crore. Efforts were
made to complete the settlement offered by the Asset Reconstruction
Company (ARC) and the consequent reduced interest write backs resulted
in a net profit of Rs.33.64 crore. The Company is implementing its own
CO2 facility, recovering it from the boiler flue gases. The plant started
commercial production partly in FY16 and fully in FY17.
Performance Review: (Rs. in crore)
Particulars Q1FY17 Q2FY17 Q3FY17 Q4FY17 FY17
Operating Profit 11.09 23.09 12.30 11.99 58.47
Other Income (8.89) 8.19 (3.47) 8.31 13.79
Finance Cost 1.86 1.12 1.41 4.35 8.75
Depreciation 7.44 7.90 7.82 7.67 30.83
Tax - - - - -
Net Profit (7.09) 22.26 3.95 8.28 27.39

FY17 Performance Review: Based on the quarterly results available on the

Companys website, we hereby give the performance highlights of FY17 so
as to give you a fair idea about its future growth potential.

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Panchratna July September 2017

Financial Highlights: (Rs. in crore) There is substantial

improvement in the
Particulars FY16 FY15
Companys
Equity 203.64 203.64 performance on
Pref. 12.50 12.50 account of significant
Reserves 30.20 5.43 reduction in finance
cost and zero tax
Total (A) 246.34 221.57
liability during FY17.
Non-Current Liabilities PAT has risen
Long-Term Borrowings - - consistently from
Other Long-Term Liabilities 24.80 30.36 Rs.17.59 crore in
FY15 to Rs.24.77
Long-Term Provisions - - crore in FY16 and
Total (B) 24.80 30.36 further to Rs.27.39
Current Liabilities crore in FY17. Thus,
the Company has
Short-Term Borrowings 119.92 120.20
successfully turned-
Trade Payables 1145.87 908.92 around its operations
Other Current Liabilities 27.66 46.01 after getting rid of
Short-Term Provisions 2.92 3.63 unviable assets and
getting relief on
Total (C) 1296.37 1078.76
interest from assets
Grand Total (A+B+C) 1567.51 1330.69 reconstructions
Assets entity. The Company
Tangible Assets 280.32 300.07 is expected to regain
its lost status soon.
Intangible Assets 0.48 -
Capital work-in-progress 11.78 12.54
Key Highlights:

Total (A) 292.58 312.60 1) Conversion of

plant from naphtha
Non-Current Assets
to gas: The
Non-Current Investment 31.98 31.98 Government of India
Long-Term Loans & 294.47 39.49 had permitted SPIC to
Advances continue production
of urea using naphtha
Total (B) 326.45 71.47
as feed stock, which
Current Assets enabled it to sustain
Inventories 92.52 132.66 its operation during
Trade Receivable 62.78 19.70 the year. During the
Global Investor Meet
Cash & Equivalent 15.71 9.90
in Tamil Nadu in
Short-Term Loans & 774.13 779.61 September 2015, the
Advances Company entered
Other Current Assets 3.33 4.74 into a MoU with the
Government of Tamil
Total (C) 948.48 946.62
Nadu for gas
Grand Total (A+B+C) 1567.51 1330.69 conversion,
modernization and

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capacity enhancement. Once this plant is ready, the Companys

profitability is likely to jump significantly.
2) During FY16, the Company achieved the best ever energy efficiency
levels of 6.8484 GCal/PMT of urea since commissioning.
3) The Company is continuously making efforts to augment its working
capital to enable sustained operations of its ammonia and urea
plants. The plant operations were carried out by mainly importing
Naphtha and Furnace Oil. The Naphtha handling facility in the
Tuticorin port premises was commissioned during July 2015 and
taken on lease by the Company.
4) The Government of India allotted two coastal ports to the Company
for handling imported urea in Karaikal and Tuticorin.
5) The completion of the gas pipeline infrastructure by IOC and steady
supply of gas are important requirements for stable operations. The
Company proposes to undertake modernization of the
ammonia/urea plants to achieve lower energy consumption, which is
a big challenge in terms of finance.
SPIC has faced a long spell of bad days on account of being highly
leveraged due to huge investments in its overseas subsidiaries which failed
to deliver any returns and ultimately impacted its domestic operations. It
was once a blue-chip in the late 1980s and early 1990s but slowly lost its
charm and went into the red for nearly a decade.
Bonus: SPIC had issued a1:1 bonus issue in September 1986.
Restructuring: With the help of the Restructuring process and liquidation
of unrelated assets and relief for accumulated interest and selling of
investments, SPIC could regain its vigour to stand up again. Long-term
loans and liabilities of the Company have been wiped out and short-term
loans against inventory, too, are at comfortable levels. There is no grave
risk now from the financial point of view going forward.
Conclusion: SPIC is a clear turnaround story. The Company has already
wiped out its carried forward losses making efforts to re-establish its
credibility among shareholders. The stock is a potential multibagger but is
struggling to cross the Rs.25 level due to lack of any fresh trigger. If that
happens, the stock may rise by 50-75% within a year.
Risk/Reward: I assign this stock a risk:reward ratio of 20:80.

********

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Panchratna July September 2017

3) PEARL POLYMERS LTD

Stock Info
Category: Dark Horse CMP (`) 30.80
BSE Code 523260
Industry Overview: Promoted by Chand Seth, Pearl Polymers Ltd (PPL) is
NSE Symbol PEARLPOLY
engaged in the business of plastic and related products. The Indian plastic
Containers &
processing sector comprises over 30,000 units involved in producing a Sector
Packaging
variety of items through injection moulding, blow moulding, extrusion and 52-week H/L (`) 41/15.15
calendaring. The capacities built in most segments of this industry coupled Face Value (`) 10
with inherent capabilities have made the Company capable of servicing Market Cap (` cr.) 51.85
the overseas markets.
Plastic material is gaining notable importance in different spheres of
activity and the per capita consumption is rising at a fast pace. Continuous
advancements and developments in plastic technology, processing
machineries, expertise and cost-effective manufacturing is fast replacing
the typical methods and materials. On the basis of value added share, the
Indian Plastic industry is ~0.5% of India's GDP.
For efficient plastic waste management, more focus is needed on research
& development (R&D) activities in the plastic processing industry. In view Shareholding Pattern: (in %)
of this, the domestic plastic sector has been deregulated and delicensed. Particulars Mar. Dec. Sep.
Further, with the Budget of FY2016-17, 100% Foreign Direct Investment 2017 2016 2016
(FDI) is allowed through the automatic route without any sectoral cap, 53.86 53.86 53.86
Promoter
which will increase the scope of the plastic industry beyond kitchen
Institutions 3.89 3.89 3.89
utensils, furniture, packaging - rigid or flexible. Plastic is one of the best
Non- 42.25 42.25 42.25
alternate materials for it requires minimum energy to be transformed in
Institutions
whichever way one wants it.
Total 100 100 100
Structure of Plastic industry: Packaging Global segment break-up of
in general is classified into Rigid packaging materials (%)
Packaging and Flexible Packaging. The
Rigid Plastic 22%
entire chain in the industry is classified
into i) Manufacturing of Polymers, Flexible Packaging 20%
which is called upstream; and ii) Metal 15%
Conversion of Polymers into plastic Glass 7%
articles, which is known as
Board 31%
downstream.
Others 5%
Downstream: The downstream plastic
Total 100%
processing industry is highly
fragmented and consists of micro, small and medium units. Presently,
there are ~26,000 registered plastic processing units of which ~75% are in
the small-scale sector. The small-scale sector, however, accounts for only
~25% of polymer consumption. The industry also consumes recycled
plastic, which constitutes ~30% of the total consumption.
Company Background: PPL mostly specializes in packaging of bottles and
manufacturing of jars, which finds application mostly in Pharma and FMCG
companies for soft drinks as well as in water filling in jars. With over 40%
of the packaging needs catered by plastics in India, the domestic market is

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Panchratna July September 2017

the third largest consumer of Polymers and a rise in the demand for plastic
is expected to boost the consumption further.
Besides the FMCG sector, growth is also driven by the growing adoption of
plastic products in the medical industry as well as the construction
industry with the adoption of advanced coating, ceiling and polymer-
based reinforcing material in construction as well as plastics, paints and
coatings for the automotive segment.

Performance Performance Review: (Rs. in crore)

Review: PPLs Particulars 9MFY17 FY16 FY15
performance
Revenue 125.85 186.47 208.81
though slow shows
signs of Less Excise - 9.54 10.23
improvement Net of Excise - 176.93 198.58
coming out of the Other Operating 0.47 1.10 3.10
woods since the
Income & Gains
last three years. It
made a complete Total Revenue 126.32 178.03 201.68
turnaround from a EBITDA 8.47 11.61 10.90
loss of Rs.2.5 crore Finance Cost 3.40 5.39 6.22
in FY15 to a profit
Depreciation 4.71 6.54 6.53
of Rs.0.5 crore in
FY16 and again at Profit Before 0.36 (0.32) (1.85)
Rs.0.4 crore in Exceptional Item & Tax
FY17. The Polymer Tax Expenses 0.07 (0.86) 0.59
and Plastic
Net Profit 0.29 0.46 (2.45)
industry is
reportedly doing Prior Periods Expenses 0.29 (0.09) (0.06)
well and is Net Profit - 0.46 (2.51)
expected to grow EPS (Rs.) 0.17 0.28 1.49
at 12-15%
annually. Hence, the Company is expected to do well in FY18 as well.
Financial Structure: Its equity has remained constant for over a decade at
Rs.16.83 crore because of its fluctuating performance in the past, which
was mostly in the red. However, its net worth is still positive and therefore,
the stock could prove to be a dark horse anytime from now since the
Company has successfully sustained the slow demand and the
recessionary period in the past.
There is a big plus point in the Company that it is not much leveraged as
far as long-term borrowings are concerned. Its long-term loans amount to
just Rs.6.85 crore against its net fixed assets of Rs.52.81 crore, which
means that its capital investment has become free by now.
The current assets:current liabilities ratio is sound at 66:54, which clearly
signifies that the Company is neither over leveraged nor debt-ridden but
in fact is on its way to become cash-rich, whenever it witnesses a good
harvest in the near future.

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Financial Highlights: (Rs. in crore)

Future Outlook: The
Particulars FY16 FY15 low level of per
Equity Capital 16.83 16.83 capita plastics
Reserves & Surplus 36.02 35.56
consumption in India
indicates a massive
Total (A) 52.85 52.38 growth potential for
Non-Current Liabilities the plastics industry.
Long-Term Borrowings 6.85 2.87 Compared to the per
capita consumption
Deferred Tax Liabilities 3.95 4.81
of plastics of ~109 kg
Other Long-Term Liabilities 2.03 5.30 in USA, ~29 kg in
Long-Term Provisions 3.49 3.44 China and ~32 kg in
Total (B) 16.33 16.42 Brazil, India at ~6 kg
is still at a nascent
Current Liabilities
stage. As per reports,
Short-Term Borrowings 19.49 24.05 the consumption in
Trade Payables 25.49 29.80 developed countries
Other Current Liabilities 8.94 9.70 has reached the
saturation level with
Short-Term Provisions 0.57 0.64 no scope for a further
Total (C) 54.50 64.20 rise. So, it is now
Grand Total (A+B+C) 123.67 133 Indias turn for higher
consumption of
Assets
plastics with peoples
Tangible & Intangible Assets 52.76 56.65 psychology of eat
Intangible Assets 0.04 0.01 ready and throw
Capital work-in-progress - - away.
Total (A) 52.81 56.66 Opportunities: India
Non-Current Assets is projected to be the
fastest growing
Non-Current Investment 2.10 2.22
market in the Asia-
Long-Term Loans & Advances 2.23 2.30 Pacific region. With
Other Non-Current Assets 0.10 0.19 the Indian economy
Total (B) 4.43 4.71 booming, the
demand for plastics
Current Assets across sectors is
Inventories 21.78 22.94 steadily increasing
Trade Receivable 36.90 40.80 and opening up new
opportunities for the
Cash & Cash Equivalent 3.17 3.24
nation. By 2020,
Short-Term Loans & Advances 2.26 2.99 plastics consumption
Other Current Assets 2.33 1.64 in India is expected
Total (C) 66.44 71.62 to grow to 20 MMTA
from the current 12
Grand Total (A+B+C) 123.67 133
MMTA.

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Panchratna July September 2017

With more than 40% of the packaging industry already shifted from other
modes of packaging like Jute, Steel, Aluminium plastics is expected to
reach 50% soon.
In view of this, the management reported that it has reviewed the
Companys strategic objectives and is geared to tap new opportunities in
the marketplace and develop innovative solutions for its customers going
forward. Its focus henceforth will remain on strategic growth initiatives for
business expansion and sector penetration.
Expansion: PPL had set up a plant at Guwahati, which started commercial
production w.e.f. 30 March 2017 and the impact of which will be reflected
partially in FY18 and fully in FY19.

Price Fluctuation: PPLs share Price Fluctuation High (Rs.) Low (Rs.)
price shows a definite sign of
April 2016 17.50 12.15
improvement through its rise
from its earlier levels of June 2016 19.40 13.30
Rs.15-20 to hit a high of July 2016 26.75 16.80
Rs.41 in April 2017. October 2016 31 18
From April 2016, its share January 2017 30.95 23.60
price has been making higher February 2017 40.10 24.50
bottoms and higher tops
while appreciating by over April 2017 41 35.05
130% over a year. This again creates hope that the stock is a dark horse set
to perform in the years to come.
Risk/Reward: There does not seem to be any risk in this counter as the
Company is making efforts to become cash-rich and improving its
performance through new initiatives like the new Guwahati factory which
has started commercial production already. However, a risk:reward ratio of
20:80 looks reasonable considering any unforeseen circumstances.

********

A Money Times group newsletter 15

Panchratna July September 2017

4) MODERN STEELS LTD

Stock Info
Category: Turnaround Stock CMP (`) 7.30
BSE Code 513303
Company Background: Delhi-based Modern Steels Ltd (MSL) was
NSE Symbol -
promoted by Amarjit Goyals family. With the ups and downs in the metal
Iron & Steel/
industry, the MSL share had once hit a high of over Rs.200 two decades Sector
Interm. Products
back. The Company is currently exploring the possibilities of a survival 52-week H/L (`) 8.56/5.06
since its net worth has been eroded and it has been referred for Face Value (`) 10
restructuring to the BIFR under Section 15 of Sick Industrial Companies Market Cap (`
(Special Provisions) Act, 1985. Once the restructuring terms are decided 10.05
cr.)
favorably, the Company might get relief for waiving off past accumulated
interest and reduction in interest cost for future and rescheduling of
outstanding loan repayments.
In view of this, the future of MSL hangs in uncertainty. But we have
selected this stock based on its past golden days. Its lost glory and fortunes
might return back once the BIFR decides its restructuring favorably looking Shareholding Pattern: (in %)
at the revival of the steel sector in 2017-18 after a prolonged recession. Particulars Mar. Dec. Sep.
2017 2016 2016
Status of Companys accounts with Lenders: MSL had submitted its
proposal for additional working financial assistance to the lenders in FY15. Promoter 65.53 65.53 65.53
During the year, the lenders conducted the TEV (Techno Economic Institutions 0.05 0.05 0.05
Viability) Study of the Company and assessed its need based working Non- 34.42 34.42 34.42
capital requirements. But the inadvertent delay in sanctioning the financial Institutions
assistance on fears of the bad loans regime hotly aired in the press and TV Total 100 100 100
media put the Company under financial stress till FY17. However, reports
suggest that the Company is in discussion with the lenders to find out a
workable solution to overcome its financial difficulties.
Kaizen & T.S. 16949 Certification: MSLs manufacturing facilities are TS
16949 certified by DNV Netherlands. This gives hopes that if the Company
succeeds to weather out the current financial crisis, it may be just like Dividend Declared
SPIC. Date % `
22 Aug 2007 20 2
Product Development: 14 Jun 2006 20 2
Performance Results: (Rs. in crore)
MSL has undertaken 21 Jun 2005 20 2
initiatives to produce value- Particulars FY16 FY15
added products, which Gross Sales 302.70 356.60
shows positive results. Its
Less: Excise duty 33.45 39.04
auto components division
is also caters to the new Net Sales 269.25 317.56
component requirements Operating Profit 15.34 12.48
Bonus Declared
of OEMs. Finance Cost 27.13 25.03 Date Ratio
Management Overview: Cash Profit (11.79) (12.55) 28 Sep 2007 3:2
The performance of special
Depreciation 5.39 5.83
and alloy steel industry
mainly depends upon the PBT (17.24) (18.40)
demand from automobile
and engineering sectors and growth in infrastructure development.

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Panchratna July September 2017

The initiatives taken by the government for infrastructure development

i.e. ports, rails, roads, smart cities, etc. is expected to improve steel
consumption in the country and thus benefit steel companies. Further, the
government initiatives like Make in India and Digital India are boosting
the demand for steel in India, which augurs well for the Company giving
hopes of a revival.
FY16 Performance Review: The Companys operating profits grew from
Rs.12 crore in FY15 to Rs.15 crore in FY16 on account of reduction in scrap
and other input cost. However, it could not utilize its capacities to a
reasonable extent due to shortage of working capital which resulted in low
capacity utilization and lower volumes.
Because the capacity was not fully operational in FY16, interest and
depreciation remained at the same level, which affected the bottom-line
negatively.
Performance Review: (Rs. in crore)
Particulars Q1FY17 Q2FY17 Q3FY17 Q4FY17
Sales 80.44 81.71 76.42 76.46
Operating Profit 3.91 3.68 1.12 (3.47)
Other Income 0.56 0.61 0.50 0.89
Depreciation 1.35 1.34 1.32 1.35
Interest 6.13 5.78 5.85 0.29
Net Profit (3.01) (2.83) (5.55) 10.82

FY17 Performance Review: In FY17, the Company managed to almost

wipe out its loss at the net level thus giving hopes of a revival.
From the quarterly results, one may observe that there is a sudden spurt
in Other Income at Rs.0.89 crore in Q4FY17 with a significant reduction in
interest liability from an average of Rs.5-6 crore to just Rs.0.29 crore. This
indicates that something is either cooking between the Company and its
lenders or may be at the BIFR level. As otherwise, how can the Companys
performance turn positive so suddenly! If there is any positive outcome at
BIFR level, then the Company will become a sure case of turnaround going
forward.
The steel industry has already started doing well supported by
government initiatives such as imposing dumping duty of 20% on steel
imports from China, Japan and Korea, thus creating excess supply in the
domestic market. Steel imports have come down substantially and
domestic producers are now in a position to export quality stocks to
selective markets in USA and UK. The demand-supply scenario is now in
the favour of domestic producers, which means that FY18 will be a good
year for steel producers.
Financial Highlights: MSLs net worth was in the negative at Rs.9.8 crore as
at FY16. If the Companys working capital requirements are met

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Panchratna July September 2017

successfully and its capital utilization increases, the anticipated rise in

demand for its value-added products, will lead to its revival. 1

Share Price: We Financial Highlights: (Rs. in crore)

have Particulars FY16 FY15
recommended
Equity Capital 14.40 14.40
this beaten down
share based on Reserves & Surplus (24.24) 9.33
the bright Total (A) (9.84) 23.73
industry Non-Current Liabilities
prospects. Also, Long-Term Borrowings 70.59 83.12
the share is
Deferred Tax Liabilities - -
available below
its face value of Other Long-Term Liabilities 0.04 0.04
Rs.10. Long-Term Provisions 1.60 1.59
Risk/Reward: I Total (B) 72.23 84.75
assign this stock Current Liabilities
a risk:reward Short-Term Borrowings 98.04 77.48
ratio of 40:60. Trade Payables 30.58 49.04
******* Other Current Liabilities 29.84 24.77
Short-Term Provisions 0.71 0.71
Total (C) 159.17 152
Grand Total (A+B+C) 221.56 260.48
Assets
Tangible & Intangible Assets 72.88 77.63
Intangible Assets 0.02 0.03
Capital work-in-progress - -
Total (A) 72.90 77.66
Non-Current Assets
Non-Current Investment 4.85 4.88
Deferred Tax Assets - 16.32
Long-Term Loans & Advances 8.74 8.90
Other Non-Current Assets - -
Total (B) 13.59 30.10
Current Assets
Inventories 59.56 60.81
Trade Receivable 65.53 80.56
Cash & Cash Equivalent 4.59 5.80
Short-Term Loans & Advances 4.54 5.13
Other Current Assets 0.85 0.42
Total (C) 135.07 152.72
Grand Total (A+B+C) 221.56 260.48

A Money Times group newsletter 18

Panchratna July September 2017

5) SUNFLAG IRON & STEEL COMPANY LTD

Stock Info
Category: Blue-Chip Potential CMP (`) 36.55
BSE Code 500404
Company Background: Sunflag Iron & Steel Company Ltd (Sunflag)
NSE Symbol SUNFLAG
performed steadily during the recession in the steel industry ever since
Iron & Steel/
2011-12 to 2015-16. The stock has never been in the limelight and very Sector
Interm. Products
few investors know about it because the Company although has been 52-week H/L (`) 42.05/24.50
going slow but steady while keeping a low profile. Face Value (`) 10
Market Cap (`
Sunflag in its Annual 658.70
Production Details FY16 cr.)
Report of 2015-16
mentioned that Direct Reduction 98092 MT
although the Steel Melt Shop 334991 MT
management tried to Rolled Products 322504 MT
explore additions to the
Companys existing Mini Blast Furnace/ Pig iron 265468 MT
business and Sinter Plant 336802 MT
commercial activities, it Coal 165013 MT Shareholding Pattern: (in %)
could not explore any Power 1598.54 MT Particulars Mar. Dec. Sep.
change in the nature of 2017 2016 2016
its business and commercial activities. This clearly indicates that the
Promoter 49.06 49.06 49.06
Company does not take risky decisions when the going is not good. This is
Institutions 0.14 0.14 0.14
a positive for investors who want to reap a good harvest and are satisfied
Non-
with steady returns. This is why Sunflag could comfortably sail through the 50.80 50.80 50.80
Institutions
recessionary period in the steel industry whereas some of the other steel Total 100 100 100
companies had to write-off their net worth over the last 3-4 years.
Product Profile: Sunflag is engaged the manufacture of rolled products,
mini blast furnace (hot metal)/ pig iron, sinter plant, coal (Belgaon coal
block), power, etc.
Technology Up-gradation: Sunflag has always been conscious about
upgrading and modernizing its technology and facilities and seeking
expansion opportunities.
Dividend Declared
Date % `
Performance Review: (Rs. in crore) FY16 Performance
30 Aug 2011 5 0.50
Review: Despite the
Particulars FY16 FY15 recessionary trend in the 02 Sep 2010 5 0.50
Revenue 1667.16 1762.59 steel industry, Sunflags 03 Sep 2009 5 0.50
Total Expenditure 1469.63 1587.31 profitability looked steady 04 Sep 2008 5 0.50
with a turnover of Rs.1763 06 Sep 2007 2.5 0.25
Gross Profit 197.53 175.28
crore in FY15 and Rs.1667
Finance Cost 60.55 71.44 crore in FY16, which is
PBDT 136.98 103.84 quite impressive.
Depreciation 51.76 51.13
A gross profit margin of
Profit before Except. 85.22 10-12% in a recessionary
52.71
Item & Tax atmosphere is quite
remarkable with gross
profit of Rs.175 crore in FY15 and Rs.198 crore in FY16. Even after

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Panchratna July September 2017

absorbing high interest and depreciation costs of nearly 3-4% of turnover,

it posted 60% higher net profit in FY16, which was 5% of the turnover and
really creditable.
Dividend: Despite such an impressive performance, Sunflag did not a
recommend a dividend since it intends to plug the surplus funds into
expansion, modernization and up-gradation of plants.
Market Scenario: The management said that despite the various initiatives
taken by the Government of India to protect the domestic steel industry
from cheaper imports, domestic steel companies are still facing stiff
competition due to dumping from China, Korea and Japan at lower prices.
However, it is believed that after imposing anti-dumping duty, the
domestic steel industry is breathing a sigh of relief after sustaining the
earlier shocks and the current market scenario is likely to improve FY17
onwards after a long slowdown.
Performance Review: (Rs. in crore)
Particulars Q1FY17 Q2FY17 Q3FY17 Q4FY17 FY17
Revenue 374.39 394.47 396.17 395.82 1509.66
Other Income 1.69 2.32 2.09 1.65 7.75
Interest 8.49 7.97 7.82 10.78 35.06
Depreciation 9.27 9.17 7.13 7.62 33.19
Tax 5.50 5.95 6.98 1.31 19.74
Net Profit 18.48 21.11 13 12.58 65.17

Unaudited FY17 Performance Review: The Companys performance for

FY17 is in line with FY16 and FY15 as far as the net level is concerned
despite higher tax payment of Rs.19.7 crore. The finance cost at Rs.35
crore is lower by Rs.25 crore as compared to FY16, which should have
ideally boosted the bottom-line but it didnt. Similarly, depreciation cost is
also lower by Rs.19 crore. So this again should have reflected in the PBT
beyond Rs.100 crore to Rs.115 crore but there is no mention of reduced
profit at the PBT level, the reason for which is best known to the Company.
Subsidiaries:
1) SunFlag Power Ltd
2) SunFlag Special Steels Ltd
3) Khappa Coal Company Pvt. Ltd
Joint Ventures:
1) Madanpur (North) Coal Company Pvt Ltd & CT Mining Pvt Ltd
2) Gujarat State Mining & Resources Corporation Ltd
3) Daido D.M.S. India Pvt. Ltd
4) Ramesh Sunwire Pvt. Ltd
Expansion: During FY16, the Company had installed an alloy feeding
system in Ladle re-heating furnace 2 of Steel Melt Shop wherein alloy
materials will be weighed and fed through the automatic process into the

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Panchratna July September 2017

steel ladle in the re-heating process. This system has reduced the heat
cycle time and in turn resulted in improved productivity.
Further, it has proposed installation of new capital projects viz. (i)
pulverized coal injection system; (ii) Refurbishing of mini blast furnace; (iii)
Capacity enhancement of sinter plant; (iv) Conversion of heat recovery
boiler of DRP-I to dual operation of FBC and WHRB. These projects are
expected to be commissioned in FY18.
Risk/Reward: I assign this stock a risk:reward ratio of 25:75.

********

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A Money Times group newsletter 21