Stone India is a part of Duncan Goenka group, the undisputed leader in locomotive brake systems and has a huge range of mechanical and electrical products for the railroad industry. It also manufactures few critical products for defence tanks and armoured vehicles.
Despite all these illustrious credentials, unfortunately, it has not got translated into good profit margins for the company. For the third quarter ended 31st December 2007, the company has shown an overall dip in the performance. On a qoq basis, the net sales dropped by 6% at Rs.18.60 crore. 90% of the company’s sales come from the railways but obviously; it has taken a beating during Q3. Expenditure was more or less consistent at Rs.15.73 crore, yet the lower sales led to the drop in the EBIDTA by 28% at Rs.2.88 crore. OPM dropped from 20.13% to 15.46%. PBT fell down further by 40% at Rs.1.89 crore and due to no provision for taxation; this was its PAT also. NPM slipped down from 15.98% to 10.18%.
The company is putting up a new facility at Nalagarh, Himachal Pradesh, expected to go on stream by end of March 2008. It is also contemplating putting up another new facility in Southern India, though all the plans yet only on the drawing board.
The stock of the company has taken quite a beating after the declaration of the Q3 results and the ongoing bearish trend also added on. Q2 results had also showed signs of a slowdown and this fall in Q3 is also worrisome.
With the Indian Railways planning to expand its network all over India and with the huge allocation earmarked for modernizing and expanding the railways network, clearly the company would stand to benefit. Being a supplier to the defence sector also, whose allocation has been increased in the Budget 2008-09, clearly the company could look ahead for some good times.
Despite the slowdown, given the expansions of the Indian Railways, the company might be able to get some better orders in the coming months. Based purely on this optimism, one can stay invested at the current rate of Rs.95.
Monday, March 10, 2008
Investment Idea: Stone India
Intraday Calls for 10th March
Today's Intraday Picks: GMR Infra, RCOM, JP Associates, Yes Bank.
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Good Luck
Sunday, March 9, 2008
Weekly Review
Auto Sector Report: Tata Motors, Maruti Suzuki, Ashok Layland, TVS Motor.
Special Report: Nestle India, Exide Industries.
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Saturday, March 8, 2008
Investment Idea: India Glycols
India Glycols is the first and only company in the world to produce Ethylene Oxide (EO) / Mono Ethylene Glycol (MEG) from renewable agro route based on molasses, which is a by-product of the sugar industry.
MEG is used in the manufacture of polyester resins, films fibres, and is an important raw material used in the production of coolants, antifreezers, aircraft ant-icers and solvents. Thus the client base of India Glycols covers almost entire India Inc, supplying MEG to more than 1,000 customers in various end-use industries such as Textile, Agrochemical, Oil & Gas, Personal Care, Pharmaceuticals, Brake Fluids, Detergent, Emulsion Polymerisation & paints etc.
Making MEG from ethanol is highly cost effective as against using crude, which is currently ruling at record high prices. Using crude is uneconomical and world over, companies are shifting to use of such renewable agro routes. Currently the price of ethanol has been fixed at Rs.21.50 per litre for the next three years (which is less than a dollar) and this is in no way even comparable to the over $100 per barrel of crude. So in this context, India Glycols, having the largest plant in India for making MEG from ethanol has a great advantage.
The company is now in the midst of enhancing its MEG capacity by 20% at an investment of Rs.25 crore resulting in a very attractive payback.
During the quarter, the company acquired a controlling stake in Shakumbari Sugar & Allied Industries at a consolidated price of Rs.47 crore, which has a crushing capacity of 3200 Tonnes Per Day(TCD) along with a modern distillery of 40 kilo litres per day(KLPD). With this acquisition, the company would be vertically integrated to captively produce additional ethanol requirements.
The company has also established its subsidiary in Singapore to augment its activities in South Eastern Asian region and other related areas. It is already exporting to South East Asia, Middle East, Europe, Australia and USA.
Apart from this, the company has also got into purifying Carbon Di-oxide (CO2), a by-product produced in the distillery, both at its Kashipur and Gorakhpur units which has application in food, beverage and other industrial usage. CO2 plants at both distilleries are to be commissioned in March 2008.
Indian Glycols has had a super third quarter ending. For Q3 ended 31st December 2007, the company, on a QoQ basis reported a 26% jump in net sales at Rs.449.98 crore, which on a YoY was up by 93%.
EBIDTA was up in Q3, on a Q0Q by 29% at Rs.113.53 crore which YoY was up by a whopping 219%. OPM improved from 15.27% in Q3 FY07 to 24.52% in Q2 FY08 and now in current Q3, it was at 25.23%.
The best probably jump has been in its net profit. For the current Q3 it was at Rs.67.50 crore, which on a QoQ indicated a jump of 40% but YoY, it has gone by an unbelievable over 6 times. NPM rose from a meager 4% in Q3 FY07 to 13.56% in Q2 FY08 and now in Q3 FY08 it stands at a healthy 15%.
On an equity of Rs.27.88 crore, the company, for Q3 FY08 posted an EPS of Rs.24.21. What this means is that the company will end this fiscal with an EPS of Rs.80, that’s a certainty. Also based on the present earnings, one can safely say that for FY09, the company will have an EPS of Rs.100, what with the additional capacity also expected to go on stream.
The cash EPS for Q3 was at Rs.31 and this means that we are looking at a certain cash EPS of around Rs.100 in FY08 and Rs.120 in FY09.
For a nine months ending 31st December 2007, though the company had forex gains of Rs.21.80 crore, the same would get added on in FY09 through improved performance and hence an EPS of Rs.100 for FY09 can be reasonably expected.
The stock is currently quoted at Rs.247, giving us a PE of just 3 on the EPS of Rs.80 estimated for this fiscal and if we look at the expected EPS of Rs.100 in FY09, the PE works to a measly 2.50 times. Now if that isn’t good enough, nothing else will be!
What makes India Glycol a great buy is the fact it has a unique business model which enables the company to produce petrochemicals and specialty chemicals from renewable agro route base and that too where the cost of the raw material is fixed and is available in abundant supply. Coupled with growing demand and higher margins through larger volumes, there is no way that this winner of a company can falter. The icing on the cake is that currently, looking at the future discounting, the company is quoted at a dirt-cheap price.
One can safely buy India Glycols at the current rate of Rs.247 for a sure 50% return over the next 12 months.
Source: sptulsian.com
Thursday, March 6, 2008
Wednesday, March 5, 2008
Intraday Calls for 5th March