Southern online biotech - Brokerage report

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Considering full capacity utilization and six fold expansion, SBTL is set to show robust top-line growth of 499 per cent and bottom-line growth of 478.3 per cent in FY09-10. EPS will grow from Rs 0.84 in FY08-09 to Rs.4.35 in FY09-10 on expanded capital, according to securities firm Nirmal Bang.

The brokerage has assigned a ‘buy’ rating on the stock with a target price of Rs.44 per share on FY 09-10 earnings estimates of Rs 4.35 (PE 10* Rs 4.35EPS) and Rs.78 on FY 2010-11E (PE 10*Rs 7.8 EPS) on expanded capital.

Global demand for petroleum is predicated to increase by 40% by 2025. Hence, the concerns about oil supply and energy security have motivated many countries to consider alternative fuels i.e. liquid biofuels, renewable fuels derived from Biomass.

SBTL is the only listed biodiesel company with first mover advantage meeting the standards specified by IS 15607. It ventured into biodiesel operations with a Semi Automatic Multi-feed biodiesel plant at Nalgonda with capacity of 40,000 liters per day.

The company is going with further Greenfield expansion of 250 TPD at Vizag (Andhra Pradesh) fully automatic multi-feed technology to produce biodiesel from variety of feedstocks. This will increase its capacity by 6 times.

India consumed approximately 47.80 MMT of diesel in FY 07-08. With National biofuels policy likely to be approved in FY 08-09 and minimum 2% mandatory blending of biodiesel, the demand is likely to reach 1 million ton. SBTL is fully prepared to take advantage of this opportunity.

SBTL has taken initiative to go for planting of Jatropha and Pongamia through farmers by entering into long-term seed purchase contracts and is also on the verge of entering into long term contracts for the plantation in waste lands.

In Jan'08 SBTL bagged order for supply of 300,000 liters of biodiesel every month to APSRTC across its twelve depots in Hyderabad and Secunderabad. The State owned APSRTC consumes 18 lakh liters of diesel every day to operate its fleet of 22000 buses.

M&M is launching their first Biofuels powered vehicles for commercial use by year-end. M&M is also confident of fitting the new engines to all its existing models and is in the advance stage for testing B-100 (Biodiesel).

Further, Indian Railways has also called for tenders to procure 140000 liters of biodiesel per day. SBTL has participated in the tender and stood at L1 status.