Stock Idea: Ester Industries

Company produces PET films and Engineering plastic, for which domestic demand is growing at more than 15% p.a. Company’s utilization levels are currently more than 100% for PET film and around 100% for engineering plastic. Thus to meet growing demand, company is planning to expand capacity of PET film from 30,000 Mts to 57,000 Mts by the end of 2010 and also planning to raise Engineering plastic capacity from 3,600Mts to 11,000Mts. Expansion is mostly funded from internal accruals and debt. (No equity dilution is contemplated). Company also has more than matching capacity of PET chips, which is and intermediate product. Last year performance was affected due to volatility and high prices of the raw material like PTA and MEG. But now the raw material prices have stabilized and better realizations are leading to healthy margins for the company. Better performance is expected to continue as the realizations are better and the input costs have come down. Most of the sales are to the domestic markets [75%] catering to FMCG segment where demand is strong at 20-22% [and least affected by any slowdown], rest is exported [25%]. Outlook for the current year and the coming year looks promising with company expected to achieve sales close to 450 crores and profit after tax close to 50 crores for 2010. Current years earnings could be close to Rs 9 and thus discounting present stock price by around 2.4X and offers scope for appreciation looking to growth potential.

Background
The company manufactures and sells PET film [Capacity - 30,000 MTs], its value added variants and Engineering plastics [Cap. 3,600 MTs]. It also manufactures intermediate required for PET films - Polymer chips [Cap. 36,000Mts] which is mostly used for captive consumption and the surplus is sold in market. Utilisation levels for PET films is over 100% thus company is now expanding capacity for PET films from 30,000Mts to 57,000Mts and for Engineering plastic from 3,600Mts to 11,000Mts by the end of 2010. These expansion plans will cost around 200Crores and they would be funded, 50% by internal accruals and the remaining by debt. For ‘09 company has prepaid their term loan significantly leading to lower interest costs. Plus this will enable company to take low cost term loan again for expansion plans. The global demand growth of PET film is growing around 7-8% and in India it has been growing at around 15%p.a.This demand growth in the segment of PET film has been triggered by steep growth in Flexible Packaging of FMCG/Snack food products which continue to shift from loose/ bulk packs to smaller unit packs. A significant shift in use of packaged products and rapidly growing organized retailing, promises a sustained growth in packaging & PET film usage.
The Engineering Plastics compounds and blends business continues to be a high growth segment. The major applications for Engineering Plastics compounds are in the - Electrical, Electronics and Automotive sectors. Of these three sectors, the growth in demand of Engineering Plastics compounds continues to be in excess of 20% per annum in Electrical and Electronics industry. The raw materials for these products are PTA and MEG which ruled quite high in 08-09 with high volatility of the oil prices. But now oil prices have stabilized considerably and settled at lower levels, leading to better margins. Company is the first company to use rice husk for Thermic Fluid Heater which will save emission of 18000Mts of carbon di-oxide and once registered under CDM (Clean development Mechanism), the company will get equivalent CER’s under Kyoto Protocol of United Nations.

Risks and Concerns
The anti-dumping and anti-subsidy duties on Indian PET film manufacturers in US, EU & Brazil continue. Turkey has also imposed an anti-subsidy duty on Indian PET Film producers. Any sharp rise in the oil prices leading to price rise in raw material, PTA and MEG could affect the profit margins of the company.
Peer Valuations
The peer group companies are – Polyplex [with smaller capacity and lower sales], is available at 15X of current earnings; another player Garware polyster [with large capacity and much bigger sales] is available at much higher discounting.

Recommendation
Looking to present fundamentals, expansion plans and very attractive valuations, we expect company to give very good returns in medium to long term. We have price target of Rs 30 in next 3-6 months and over Rs 40 in 12 months.

Source: Internet (By DD SHARMA)

Stock Idea: PSL Ltd. & Blue Star Infotech Ltd.

PSL Ltd (Rs 126)
(BSE Code- 526801 NSE Code-PSL)
(P/E- 5, Mkt. Cap-505 cr. Order Book- 6,000 cr.)
PSL has the largest HSAW (helical submerged arc welded) pipe manufacturing facility in the country. Further, the company also has an integrated pipe coating and an in-house engineering facility that makes pipe manufacturing and coating equipment. PSL enjoys a significant share of the helical pipes market in India. Helical pipes are finding wider acceptance and newer applications, globally, due to their lower cost structure and improved welding technology. Helical pipes are now increasingly being used in non-critical applications in onshore oil and gas transportation and water projects in the west Asian countries and North America. In the domestic market, the expected ramp up in city gas distribution and the increasing number of onshore blocks awarded under NELP may keep the demand buoyant. That the domestic market is, by and large, price-sensitive may also lead to a preference for helical over line pipes
Besides a strong domestic presence, the company has presence in the UAE and has initiated steps to set up shop in the US. This should help it gain wider presence in the overseas market, which offers high growth and margin potential over the next two years. In the domestic market, the company's large production facility will help it meet incremental demand, even as its domestic peers are in the midst of expansion plans. The company's presence spanning over five states in the country is an advantage too. Apart from improving its accessibility to project sites of its end-users, a well-spread network will help PSL bring down its freight costs significantly. Further the demand scenario within India remains buoyant, with the formation of the Gas Grid progressing on schedule and expected to continue at a steady pace
PSL's consolidated order book now stands over Rs 6,000 cr.. About Rs 4000 cr. of orders, out of the total order book, are from domestic buyers. This healthy growth in order flows not only provides PSL with a strong revenue visibility, it also inspires confidence on the company's capability to win big orders. Further, the room for enhancement in PSL's capacity utilisation also bears attention. At a time when most of its peers have limited available capacities, PSL enjoys relatively large unutilised capacities
For the year ended March 2009, PSL posted net sales of Rs 3,549 cr.(up 60%) and net profit of Rs 85.9 cr.(flat) on standalone basis. On a equity of 42.5 cr.(Promoters'stake-49%), the EPS stood at Rs 20 and the total dividend declared is 50%. The company's strengthening order book, expansion in capacities and healthy demand from user industries also suggest strong growth prospects. With an installed capacity of over a million tonnes per annum, PSL appears best placed to benefit from the rising global acceptance of helical pipes. At the current market price of Rs 119, the stock trades at about 6 times its FY09 earnings and about 4.7 times FY10E earnings. This appears low considering PSL's growth potential. PSL sells for roughly Rs 505 cr. in market cap and an EV of Rs 1200 cr. Compare this to revenues of Rs 3589 cr. and FY09 PAT of Rs 85.9 cr., and under-valuation becomes apparent. Investors, however, can consider buying the stock in lots given the broad market volatility for 40-50% returns in the next 6-8 months.

Blue Star Infotech Ltd (Rs 80)
(BSE Code- 532346 NSE Code- BLUESTINFO)
(P/E- 5, Market Cap- 80 cr. Dividend yield-6.25%)
Blue Star Infotech (BSIL) is a global provider of Product Development services, ERP solutions, Travel Technology solutions and Testing services. Part of the US$600M Blue Star Group, Blue Star Infotech provides profit-enhancing solutions to enterprises and product companies. With operations in North America, Europe, UK, Japan and India, Blue Star Infotech delivers high-performance technology-based services by adopting a partnering approach with its clients. Blue Star Infotech is a Microsoft Gold Partner and an Oracle Certified Partner. In December 2008, Blue Star Infotech completed 25 years of operations. Blue Star Infotech enjoys long-term relationships with most of its customers. It has a distinguished list of customers across different industries such as Manufacturing, Financial Services, Travel, Retail, Technology, Life Sciences and Engineering. Headquartered in Mumbai, India, BSIL has seven software development centers in Mumbai and Bangalore and serves its global clientele through offices in Santa Clara (CA) and Jersey City (NJ) in North America, London in UK, Helsinki in Finland and Tokyo in Japan. The Company also has business associates in USA and Europe.
BSIL enjoys a 24-year old relationship with Hewlett-Packard, a Fortune 100 company and has been certified as a Hewlett-Packard's Developer and Solution Partner Program member. Some of the other major clients of the co. include names such as Hitachi Medical Corp., 3M, York Intl. Apart from these, BSIL has worked with organizations such as McDonald's, Expedia.com,, Warner Brothers, NEC, European Parliament, HLL, United Breweries, Cipla, Raymond, amongst others.
For the Q1 ended June 2009, BSIL has posted a 65% rise in net profit to Rs 2.5 cr. on net sales of Rs 33.81 cr. on consolidated basis. For the year ended March 31, 2009, Consolidated Revenue stood at Rs. 155.03 cr., representing an increase of 8% over Rs. 143.56 cr. registered in FY08. Consolidated Net Profit for the year was Rs. 15.55 cr., representing a significant growth of 217% y-o-y. On a equity of 10 cr.(Promoters'stake-55.38%), the EPS stood at Rs 15.55 and the dividend declared is 50% (Rs 5 per share). The Company added 47 new customers during 2008-09 and initiated multi-year engagements with four leading companies from UK; a multi-billion dollar engineering company in US and a leading BPO service provider and one of the largest theatre chains in India. Based on current trends and industry outlook, BSIL hopes to improve its performance in the coming year. With its current focus on strengthening and increasing its sales and marketing efforts, it is well-positioned to capitalize on the expected turnaround.
BSIL's financial position is strong with zero debt and Rs 23 cr. in cash/cash equivalents as on March 31, 2009. The steady flow of revenues from HP coupled with the increasing contribution of business from key clients provides significantly visibility in the company's future revenues. At current level of Rs 80, BSIL trades at 5.1 times its FY09 earnings and looks attractive for the medium-long term. The BSIL share at current levels also offers an attractive dividend yield of 6.25%. Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-50% over the next 6-8 months.

Source: Internet (By Sanjay Chhabria)