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Tuesday, August 5, 2008

Gwalior Chemicals-Recommended Stock

Report Date: July 29, 2008
Company Name: Gwalior Chemicals
Recommendation: BUY
CMP – Rs. 89.25

Target Price – Rs. 125/-
Mkt. Cap. Rs. 220.23 crore

Investment Rationale
Ø Gwalior Chemical Industries Ltd (GCIL), leading manufacturer of niche chemicals, namely Chlorinated compounds and their derivates in India, has reported encouraging performance for Q1 FY 2009.Net Sales were up 64.5% to Rs 99.01 crore primarily due to higher volume. OPM% declined to 16.1% because of increase in materials cost (petro base materials).After accounting for higher interest & depreciation (due to expansion of capacities), PBT rose by 51.1% to Rs 11.29 crore. PAT rose by 87.8% to Rs 9.54 crore after accounting Rs 1.96 crore non-recurring income.

Ø GCIL is largest producer of chlorinated compounds in India and amongst the top two globally. GCIL has 80 % market shares in domestic market. GCIL has 7 plants located across two chemicals facilities at Nagda (MP) and Ankleshwar (Gujarat)

Ø GCIL has product range of Chlorotoluene & Sulhur ranges . Main products are Benzyl chloride, Benzal Chloride, Sulphuryal Chloride & sulphurdichloride. These chemicals are used by agrochemicals, pharmaceuticals, flavours & fragrance & dye & paint industries.

Ø GCIL is looking forward to capture more export market (FY08 Rs 125 crore). GCIL has recently started exports to China. China has stopped all chemical plants due to Olympic Games. GCIL is concentrating on better margin yielding products and exploit growing market opportunities. GCIL has started marketing 4 products to the Flavour & fragrance markets which have wide acceptability in domestic & global markets.

Also Read: Chemicals industry offers excellent investment opportunities

Ø GCIL has recently successfully completed all capacity expansion projects in Phase I with capex of Rs 70 crore funded from IPO of Rs 80 crore at price of Rs 81 per share. Phase II expansion is under implementation, which will be funded from internal accrual & debt & will be completed by June 2009. After expansion, Chlorotoluene capacity will increase from 44220 MT to 93600 MT & turnover at full capacity at current prices will be Rs 700 crore

Ø GCIL has 4.425 MW wind mill capacity. GCIL is setting up 7 MW Cogeneration Power Plant (CPP) with capex of Rs 35 crore. This plant would be based on mix of coal and biofuel and will meet steam & power requirement of Nagda (MP) plant. The plant will be commissioned by Sept 2009.

Ø Recently Goldman Sach has acquired 9 % stake from open market. Total FII/mutual funds holding are 20 %.

Valuation
Ø At CMP, share is trading at 6.4 times FY 2009 expected EPS of Rs 13.90 and 5.7 times FY2010 expected EPS of Rs 15.60. In view of huge expansion, export market, China factor, cogeneration plant, we recommend to “ BUY” the share at CMP.
Source: Geojit market research desk

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