Chemicals Archives | Dalal-Street

Mangalore Chemical–CMP 32

We had discussed about Mangalore Chemicals at our blog about in December, 2010 @ 37. Our interest was due to good results in first half and expectation of better times ahead. After a weak quarter of March (due to annual closedown and higher depreciation on impairment), the company has posted good set of results for June Quarter:

Particulars	June 11	June 10	% Variation	FY 2011
Sales	583.45	489.29	19.2%	2520.11
PBIDT	43.73	26.85	62.9%	159.07
Tax	2.75	6.23	-55.9%	34.51
PAT	29.70	12.54	136.8%	77.54
EPS	2.51	1.06		6.54

If one looks at the whole fertilizer sector, there is a lot of interest in these stocks as major reforms are expected. Agri related sector is doing well and with upcoming reform, investments should increase and better results should be seen.

We feel that Mangalore Chemical is one of the cheapest stock in the sector and stock at CMP of 32 provides a very favorable risk reward ratio due to strong fundamentals:

Stock is trading at 5 times FY 2011 EPS of 6.5. For FY 2012, the company may do better than last year.
Company has a good Book Value of 33. Stock is trading at less than Book Value.
Co has raised dividend from 10% last year to 12% in FY 2011.
Mangalore Chemicals is part of the Vijaya Mallaya group and M Cap of the company is just about 380 Cr.

Smruthi Organics Ltd. – BSE Code: 590046

We have been tracking this company for few years and we like the way the company has performed in the last 2-3 years and yet remains ignored and undervalued. We feel it’s a good pharma company to make a part of portfolio.

Smruthi Organics is a small sized pharma company based out of Solapur, engaged in manufacturing of APIs, drug intermediates, specialty chemicals & contract manufacturing. Continue reading Smruthi Organics Ltd. – BSE Code: 590046

Mangalore Chemicals & Fertilizers

MCF (Mangalore Chemicals & Fertilizers) is the largest manufacturer of chemical fertilizers in the state of Karnataka. MCF is part of the UB group and Dr. Vijay Mallya is the chairman of the company.

MCF has been a steady performer over the last few years and has been growing regularly at about 20% with stable margins.

The fertilizer sector as such is not a very attractive sector for investors as there are lots of Government policy influences and hence the returns are very much capped in this sector. But over last one year, the government has been bringing some changes and making better policies. There is also a small probability of Govt. decontrolling the urea sector.

What has aroused our interest in this stock? – the attractive valuations at which the company is available and the spectacular Q2 result by the company (though it may be a one time thing also).

Attractive Valuations (CMP 37):

Stock is trading at just 5 PE based on trailing twelve month results
Stock is available at 1.2 times FY 2010 BV and at equal to BV on expected FY 2011 results.

Stellar Q2 results:

IF the first 6 months of performance gets repeated, the stock will give excellent returns but a repeat of Q2 might not happen. A more likely scenario is – MCF might end up doing 2900-3000 Cr+ turnover with a Net Profit in the range of 75-85 Cr for FY 2011.

The interest cost have also reduced significantly and hence the company is in a very stable financial position. There is also is a possibility of the UB group selling out to a more serious player and may help in unlocking of the under-valuation.

In all, it seems to be a good low risk stock with high probability of better times ahead.

Financial Statements:

Company Website | Get the Company’s Annual Report @ reports.dalal-street.in

Pondy Oxide

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.

Trigger:

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.

Risks:

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.

Company Website

Yearly Consolidated (Valuation Sheet)

Yearly Standalone (Valuation Sheet)