Tuesday, January 19, 2010

Stock Idea: Manaksia Ltd.

Manaksia Ltd (Rs 108) (Rs 2 Paid Up)
(BSE Code – 532932, NSE Code - MANAKSIA)
(P/E - 6.5, FY’09 Net Sales - Rs1,485 cr, Market Cap - Rs750 cr)
Manaksia Limited (formerly Hindusthan Seals Ltd., incorporated in 1984) is a multi-division and multi-location conglomerate. It possesses 15 manufacturing plants in India and three abroad; two in Nigeria and one in Ghana. Manaksia specialises in the manufacture of packaging products (crowns, closures and metal containers), metal products and fast moving consumer goods, among others. The company's metal packaging products include crowns, roll-on pilfer-proof closures, expanded polyethylene liners as well as push-open and other metal containers. In the fast moving consumer goods segment, the company is a dependable mosquito repellents outsourcing destination for the Mortein (owned by Reckitt Benckiser (India) Limited) and Maxo (owned by Jyothy Laboratories) brands. The company has now diversified into the production of aluminium rolled products, secondary specification aluminium alloys and galvanised steel. The company’s wholly owned subsidiary in Nigeria, MINL Limited, was set up in 1996 and is the market leader in ROPP caps and crown corks in Nigeria. It has also set up facilities for the manufacture of galvanised steel, metal colour coated sheets and coils and secondary specification aluminium alloys. The company also has subsidiary companies in Ghana (Dynatech Industries Ghana Limited) and Dubai (Euroasian Ventures FZE).
Manaksia manufactures value-added metal products and metal packaging products. The Kolkata-headquartered Manaksia Group is India’s largest secondary producer of value-added aluminium rolled products with 15 manufacturing facilities in the country and three abroad. The business of the Manaksia can be categorised into metal products, packaging products, mosquito coils, and engineering and other goods. For funding its expansion plans and general corporate purposes, the company had come with an IPO of Rs 248 cr., comprising fresh issue of 155 lakh shares at Rs 160 per share(Rs 2 paid up) in December 2007.
Manaksia has vertically integrated across a number of products, resulting in reduction in manufacturing cost. Its metal-management skills and innovations in manufacturing and product enhancement have enabled it to manufacture advanced metal packaging products and retain and add customers like Hindusthan Coca Cola Beverages (Coke), Reckitt Benckiser, Dabur India, Jyothy Laboratories, Eveready Industries and McDowell Group and other major beer and liquor manufacturers. The aluminium division has attracted reputed alloy ingot users like TVS Motor, Orient Fans and Toyota Tsusho Corporation as customers. The company does the bulk of its business in Nigeria, which offers two main advantages. One, it gets aluminium scraps at a cheaper rate compared to international prices since the export of aluminium scrap is banned by the Nigerian government. Second, it gets cash incentives on export of the finished products. Since the company has been getting this benefit for more than a decade, it expects this trend to continue for the next few years too.
In the fiscal 2008-09, Manaksia’s consolidated net sales stood at Rs 1,485.06 cr., up from Rs 1,147.37 cr. in 2007-08. The consolidated profit after tax in 2007-08 was Rs 106.3 cr. (Rs 128.19 cr.). This translated into an EPS of Rs 15.3 on Rs 2 paid up share(Equity-13.9 cr. Promoters’stake- 58.1%) and P/E multiple of 5.3 at its current price of 82. A 110% dividend (Rs 2.2 on equity shares of the face value of Rs 2 each) was declared for 2008-09. For the half year ended Sept. 2009, Manaksia has posted net profit of Rs 56.62 cr. on net sales of Rs 596 cr. on consolidated basis. The EPS for half year stands at Rs 8.14
Going forward, the company plans to focus on its metal business, which mainly consists of steel and aluminium-rolled products. Manaksia claims to be the largest player in secondary aluminium rolling in India. This gives the company economies of scale and helps it to reduce raw material costs, thereby resulting in better operating margins. The company has strong technical know-how in producing value-added metal products and expects to leverage this to generate higher profits. Some of the company’s metal products are also supplied to auto majors like Maruti Suzuki and Toyota. The management expects the metal business will grow at decent rates in coming years on a conservative basis. At current levels, the stock trades at 7 times its FY2009 earnings(Rs 15.3) and 6.5 times its estimated FY 2010 earnings(Rs 16-17). Investors can start accumulating the stock at current levels and add more on declines for decent returns of 40%-45% over the next 6-8 months.
Source: Internet (Valuenotes by Sanjay Chhabria)

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