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SAW Pipes: An investment in the fixed deposit programme of SAW Pipes can be considered. However, depositors can choose the one-year lock-in option and avoid longer tenures due to the inherent risks involved in dealing with a company that is engaged in the cyclical commodities business.

The company offers a 7 per cent interest rate for a one-year deposit. Though this is lower than that offered by some of the other companies, the risk involved in also lower.

SAW Pipes is now riding on the benefits accruing from the rising prices of steel and steel products.

The company is also likely to benefit from the increased demand for submerged arc-welded pipes that are used in the transportation of water, oil and gas.

KCP Sugar and Industries: Investors can consider subscribing to the two-year fixed deposit programme from KCP Sugar and Industries Corporation. Longer tenures can be avoided in light of the fluid interest rate scenario.

However, the programme is not attractive to those who can avail of tax benefits by investing in small-savings schemes such as the Public Provident Fund, National Savings Certificates and Senior Citizens schemes.

The interest rate on offer — 9 per cent per annum — offers a reasonable premium over the fixed deposit options from less risky, top-rated manufacturing companies. The cyclical upturn in the sugar industry, which has significantly bolstered the financial position of KCP Sugar over the past two years, enhances the comfort level with this programme.

With crushing capacities for 11,500 tonnes of cane at two locations in Vuyyuru and Lakshmipuram, KCP Sugar is among the larger players in the sugar industry.

An increase in crushing volumes and buoyancy in sugar prices have helped KCP Sugar report a sharp ramp up in revenues and profitability over the past two years. In the first six months of 2004-05, the company reported a 83 per cent growth in sales, while net profits rose from Rs 1.08 crore to Rs 19.8 crore. This has resulted in a sharp improvement in the interest cover as well.

With a recovery in sugar output expected only by 2005-06, firm trends in sugar prices can be expected to last at least over the next couple of quarters. Thereafter, if cane output recovers, prices could flatten out, which could moderate the pace of earnings growth for producers such as KCP Sugar. However, the company has a reasonable record of servicing its fixed deposit obligations even during the depressed years in the sugar cycle.

Chambal Fertilisers: Investors need not consider investing in the fixed deposit programme of Chambal Fertilisers, as the interest rates offered appear to be less attractive when compared to options available in the universe of manufacturing companies as well as banks.

The company has a reasonable track record of revenue as well as profit growth. With its debt-equity ratio at 1.4:1 and an interest cover of about 7 times, the company also appears well-placed to service its fixed deposit obligations.

However, given the seasonal nature of the business and the dependence on subsidies from the government, the fertiliser business is characterised by a degree of risk. The interest rates offered appear to be unattractive in relation to those offered by some other finance companies and banks with a similar or superior risk profile.

BL Research Bureau

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