The Hindu Business Line : Invest in Jindal Stainless FD with one year horizon

Jindal Stainless: Investments in the fixed deposit scheme of Jindal Stainless can be considered with a one -year perspective. Jindal Stainless offers cumulative and non-cumulative schemes. The interest rates offered are 7 per cent for one year, 7.25 per cent for two years and 7.5 per cent for three years. An additional 0.25 per cent interest rate is offered to senior citizens, shareholders of the company with a minimum of 100 shares, and its employees.

The minimum deposit is Rs 21,000. The demand for stainless steel is expected to catch up in unconventional user industries such as furniture, aesthetics and decorative finishes and shopping malls, while it is expected to remain strong in conventional sectors such as automotives, railways, white goods and construction.

The exports of the company (in value terms) have increased over the last one-year resulting in higher realisations. This trend is expected to continue leading to an expansion in operating profit margins. The increase in steel melting and cold rolling capacity is likely to bolster the volume growth, while the commissioning of ferro alloys facilities would reduce its raw materials costs.

Post restructuring, the company has been able to improve its interest cover by reducing the weighted average cost of debt. The current cool off in steel prices appears to be a temporary blip and they are likely to settle at higher levels by third or fourth quarter.

India Cements: An investment in the one-year and two-year options may be considered. The rates of 8.0 per cent and 8.5 per cent are attractive when compared with what is on offer from a host of other companies. The improvement in price levels in the southern market over the past couple of months is likely to lead to a turnaround. Unless this is accompanied by a healthy growth in volumes, any turnaround may be short lived. If the company manages to raise equity in line with its plans, it would enhance the comfort level for investors in its fixed-deposit programme.

The cumulative option and the three-year option can be avoided, as the incremental returns do not compensate for the higher risk element.

Supreme Industries: Investors may avoid the fixed deposit scheme of Supreme Industries, which offers 6.75, 7 and 7.25 per cent for a period of 1, 2 and 3 years respectively. The minimum amount of deposit is Rs 5,000. Investors would be better off with their funds in banks.

Supreme Industries manufactures plastic products for industrial use such as crates and moulded components for automobiles and white goods, consumer products such as furniture and plastic pipes. Its operating margin has been on a downturn for a long time, which was at 11 per cent for the year ended June 2005.

A low interest cover ratio is a discouraging factor. Amalgamation of its subsidiaries with itself has impacted its operating margin.

It was 11 per cent for the year ended June 2005. Supreme Industries return on capital employed has been low for long. This coupled with a fluctuating cash flows from operations do not augur well for an investment decision.

First Leasing: Investments in the three-year fixed deposit of First Leasing can be considered. The company offers 8 per cent for a three-year tenure, one of the higher rates offered by established finance companies.

In terms of financial health, the company is in reasonably good shape. Its debt-equity ratio of less than five offers investors higher level of safety. The profit growth record is also impressive with the company growing its profits in nine out of the past ten years. In each of the past ten years, return on net worth has been above 15 per cent.

The proportion of bad loans is also quite low at less than 1 per cent and its capital adequacy of about 24 per cent offers scope for business expansion.

BL Research Bureau

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