Monday, December 22, 2008

Stock Idea: Savita Chemicals

Savita Chemicals (Rs. 140)

BSE Code : 524667

TTM EPS : Rs. 42
Market Cap : 200 Cr.
Pmt Stake : 71 %
52W H/L : Rs. 420/119
P/E Ratio : 3.3x
Dividend : 115%
Incorporated in 1961, Savita Chemicals Ltd (SCL) specializes in manufacturing of petroleum specialty products like transformer oil, liquid paraffin, petroleum jelly, white mineral oil, automotive and other industrial lubricants. With 40% market share, it is the leading supplier of transformer oil in India. Automotive lubricant being a consumable item is expected to do well as the number of vehicles on road has shot up significantly in past few years. Similarly, the market for liquid paraffins and white oils will also grow in line with the growing importance for personal hygiene amongst the masses. However despite the promising future ahead, SCL's profitability mainly depends upon the price of base oil which is the major raw material for all its petroleum products and is a refined fraction derived from crude oil. Hence, company's margin was under tremendous pressure when crude oil price shot up to US$ 130 per barrel. But with the recent fall in crude oil prices to below US$ 50 levels, company is expected to report improved margin and healthy bottomline in coming quarters. Accordingly it may clock a turnover of Rs 1000 cr and NP of Rs 45 cr for FY08 which leads to an EPS of Rs 31 on equity of Rs 14.60 cr. Having a healthy book value of Rs 171, promoter holding of 71%, dividend yield of around 6~7% & very low debt equity ratio of 0.14x this company is available fairly cheap at a market cap of less than Rs 200 cr. Investors are recommended to buy at current levels and add on declines for a 50% return in 9~12 months.

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