Thursday, March 17, 2011

Stock Idea: Ess Dee Aluminium

Increase in utilization of idle capacity in FY12 and additional capacity of 15,000 TPA in FY13 to boost topline, revenues likely to grow at a CAGR of over 30% in next two years
- Established relationship with large pharma players and regulatory approvals for pharma packaging like USFDA to act as entry barrier for new entrants
- Volumes and realization growth potential high as 50% of current pharma packaging domestic demand being met from imports, also the packaging expense is just 4% of the product
- Large and diversified client base, total 200 clients, top ten clients account for only 15-18% of total revenues
- Billet caster to become operational from FY12, to help in backward integration and enhance margin
Outlook and Recommendation: MLR Securities believes that there is huge potential in the Indian pharma packaging space and the company’s growth prospects looks bright. The stock has high chances of rerating based on its scalable business model and high entry barriers in the sector. At CMP of Rs416, the stock is trading at 10.1, 7.1 and 5.3 times its adjusted EPS of Rs41.3, Rs59.0 and Rs78.7 for FY11e, FY12e and FY13e respectively. Investors are recommended to buy the stock for a price target of Rs551
Source: internet (Valuenotes by MLR Securities)

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