Sunday, June 22, 2008

Stock Idea: Pondy Oxides & Chemicals Ltd.

Pondy Oxides & Chemicals Ltd. (Code: 532626) Rs.20
Incorporated in 1995, Pondy Oxides & Chemicals Ltd. (POCL) is one of India’s leading integrated metallic oxides and plastic additives producers. It manufactures zinc oxide, litharge (Lead monoxide), grey oxide (lead sub oxide) red lead and solid/liquid stabilizers of PVC. Metallic Oxides are largely used in batteries and the automobile sector whereas plastic additives are primarily used for the manufacture of PVC stabilizers. POCL has even promoted a subsidiary company, M/s. Baschem Pharma Ltd. to manufacture liquid stabilisers, epoxy oil and paint dryers. Besides, it also has a facility to manufacture lead acid batteries, which manufactures stationary batteries used for uninterrupted power supply (UPS), inverters, emergency lamps, photovoltaic batteries and automobile batteries. But recently, the company decided to dispose-off the same so that it can concentrate on its core business. Importantly, POCL boasts of being an integrated producer with in-house production facility of lead metal for captive consumption.
POCL’s has four manufacturing plants spread across Pondichery & Tamil Nadu with an installed capacity of 4680 MTA for lead sub oxide, 2880 MTA for zinc oxide, 1800 MTA for litharge and 360 MTA for red lead. To sum up, it has the capability to produce 9720 MTA of metallic oxides and 4200 MTA of PVC stabilizers. In addition it has a name plate capacity to manufacture 96,000 units of lead acid batteries at its Madurantagam plant, which the company is looking to sell off. Incidentally, lead is the major raw material for production of metallic oxides followed by zinc. Hence in order to reduce its dependence on suppliers and ensure regular and economical supply, POCL undertook backward integrated in late 2006 to manufacture lead and lead compounds. It has established a state-of-the-art manufacturing plant with a rated capacity of 14,4000 MTA for lead and lead alloys and another 3600 MT for lead compounds. The company is also engaged in the smelting, refining and alloying of lead metal and specialises in manufacturing lead alloys like lead tin calcium, lead tin, lead selenium alloy, lead antimony selenium alloy and others, which find use in the battery industry for grid casting for lead-acid batteries. Meanwhile, POCL is also looking to venture into the manufacture of refined Zinc and the project is under consideration. Another significant step recently finalized by the company is to acquire 51% stake in M/s. Lohia Metals Pvt. Ltd. at an investment of around Rs.2.25 cr. and make it a subsidiary. Lohia Metals is an associate company with a turnover of roughly around Rs.25-30 cr. and is engaged in the process of refining and alloying of lead metal with an installed capacity of 12,000 MTA. To fund its backward integration project, POCL had raised Rs.7.35 cr. in August 2006 through a 2:3 rights issue Rs.4 per share on the face value was Rs.2 per share. Subsequently, the company also issued 1:10 bonus and later consolidated all the equity shares on 20th January 2007 from the face value of Rs.2 to Rs.10 per share. On better capacity utilisation of the lead smelter and higher price realisation for metallic oxides, POCL’s sales shot up 60% to Rs.170 cr. and net profit jumped up 55% to Rs.4.50 cr. for FY08. It is expected to announce 15% dividend, which will give a yield of mind-boggling 7.5% at CMP. With robust metallic oxide prices and being an integrated producer as far as lead is concerned, POCL is expected to clock a turnover of Rs.200 cr. with PAT of Rs.5 cr. for FY09 i.e. EPS of Rs.5 on its equity of Rs.10 cr. So despite its low profit margin and low promoter holding, investors can buy this scrip at current levels as it can give 50% return in 12-15 months.
Source: Internet (MT)


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