We are always in search of undervalued and under-researched mid/small caps. Pondy Oxide appears to be one!
Pondy Oxides and Chemicals (POCL) is one of the India’s leading metallic oxides and plastic additives producers. Its products are Zinc Oxide, Litharge, Grey Oxide & Red Lead. These products are used in battery industries and automobile sector. India has been witnessing a steep growth in the usage of Lead consumption due to sharp rise in use of Lead acid batteries in automobiles, invertors and UPS. POCL specializes in refining of Lead and related metals.
POCL extracts lead and other metals from scrap batteries and re-uses the same after refining. POCL has been able to refine Lead to 99.99% purity through its R&D department. This form of lead is being imported in India for manufacturing of VRLA batteries.
POCL has a impressive growth track record – the company has been grown from just 20 Cr turnover in 2001 to 230 Cr in 2010. Still the company is available at a M Cap of just 30 Cr.
POCL has 3 business segments – 1. Metals 2. Metal Oxides 3. Plastic Additives
The company is one of the major player in the Metal Oxide Segment. It ranks among the top 10 players in India.
The company claims to be having a 30%+ market share in Plastic Additives segment in India. POCL has been innovative and develops new products through it’s R&D department to stay ahead of the competition.
POCL caters to the top players of the battery industry – Exide Ind, Amara Raja, HBL power etc.
POCL has a subsidiary Lohia Metals Pvt Ltd. The company holds 51% stake in it. In FY 2010, the company did about 75 Cr of turnover and posted a NP of 6.50 Cr. Therefore on the consolidated basis POCL is having an EPS of 12.25 vs EPS of 5.74 on standalone basis.
Valuations at CMP of Rs 30:
- The company has been growing at a CAGR of 30.69% for last 10 years. Turnover has grown from 20.81 Cr in 2001 to 232 Cr in 2010.
- The stock is available at 1.2 times standalone BV of about 25 and 1 times consolidated BV of 30.
- The stock is trading at a PE of 5 on standalone earning and a PE of just 2.5 on consolidated earnings.
- POCL has a fantastic track record of consistent high dividend. The stock is still available cum dividend of 12%. Giving a high dividend yield of 4%
- The company has posted a very strong Q1. The standalone turnover has increased from 26.51 Cr to 60 Cr. If the company is able to repeat the trend, POCL may be able to do a turnover of 250 Cr vs 150 Cr last year on standalone basis.
So here is a strong growing company available at cheap valuations.
- Being a metal sector company, it is prone to risk of high volatility in metal prices. For eg in 2008-09 when the metal prices tumbled sharply, the company had to suffer inventory losses and the profits were wiped out for the year.
- As per FY 10 Annual report, company has raised loans for expansion hence Debt Equity ratio is high at 2:1.
Yearly Consolidated (Valuation Sheet)
Yearly Standalone (Valuation Sheet)