We recommend a BUY on India Glycols, which is recovering smartly from the setback suffered during the global economic crisis. The company makes MEG from biomass, which gives it an advantage over rivals who use crude oil. It has diversified into value added products, is set to export more and has lined up plans for further growth through expansion, modernization and diversification.
It is indeed a herculean task to select the Fortune Scrip at a time when the market sentiment is extremely depressed and no one is sure in which direction it may move. But we know it well that once the cyclone passes over and the dust settles, bright stars will start shining once again. In the stock markets, shares which are fundamentally strong and have bright prospects ahead are bound to be in the limelight sooner or later. It is from this angle only that we have selected India Glycols, a Bhartia group company, as the Fortune Scrip for this fortnight.
India Glycols is engaged in the manufacture of petrochemicals such as MEG (Monoethylglycol), ethoxylates, glycol ethyls, ethylene oxide (EO), nutraceuticals and herbal extractions, natural gum and its derivatives, industrial gases etc. This is the only company in the world to produce ethylene oxide from molasses which is a by-product of sugar industry. The company’s products are used in various industries including pharmaceuticals, nutraceuticals, textiles, automobiles, foods, oil and gas, detergent and paints.
The company which had suffered a severe setback in the global financial meltdown and economic recession in the year 2008-09, has come out of the woods. During the fiscal 2008-09, the turnover had declined from Rs. 1524 crore (2007-08) to Rs. 1137 crore and the company had plunged into the red by incurring a loss of Rs. 92 crore in striking contrast to a net profit of Rs. 179 crore in the previous year. But things have started improving thereafter.
In the fiscal 2009-10, it earned a net profit of Rs. 20 crore on a sales turnover of Rs. 1143 crore and both these figures moved up further to Rs. 25.60 crore and Rs. 1629 crore in the fiscal 2011. In the current year, going by its actual performance in the first half, the company is doing extremely well despite the difficult situation for the corporate sector in general. For the six months ended September 2011, the sales turnover has shot up to Rs. 1335 crore (Rs. 849 crore) and profit at the net level has zoomed from just Rs. 1.12 crore to Rs. 53.95 crore, more than doubled the level achieved in the whole of the last year.
However, if we have selected this company as the Fortune Scrip, it is because of the following reasons:
l India Glycols is the largest manufacturer of bio-MEG in the world made out of agriculture feedstock i.e. molasses and ethanol. As the company’s competitors use inputs derived from crude oil, the company has a distinct edge over its close competitors. Its capacity expansion by 20 per cent a year ago and its foray into value added products augur well for its growth prospects.
l Availability of molasses is most likely to improve as the company has a subsidiary Shakumbari Sugar and sugar production has been substantially higher this year. At the same time, crude oil prices have shot up. This would enhance the company’s competitive edge over its rivals.
l In 2008-09, the company had incurred heavy losses as there was a global financial meltdown leading to economic recession which bought down glycol prices to uneconomical levels. Keeping in mind this setback, the company has successfully diversified by taking up manufacture of high value added products like ethylene oxide derivatives (EODs). Last year (fiscal 2011), the company had sold more than 100,000 tonnes of EODs. Sales are likely to move up further this year as well as next year.
l The company is doing well on the export front also. It exports extra neutral alcohol (ENA) to Middle East, Africa and Sri Lanka. As the company’s facilities have been approved and certified by international agencies like DNV (Det Norske Veritas), the prospects for exports have improved further. Last year (fiscal 2011), the company’s export turnover had crossed Rs. 700-crore mark as compared to over Rs. 400 crore in the previous year. Now the company has been granted one Star Export House status by the Government of India.
In order to give a further boost to exports, the company has set up a 100% Exported Oriented Unit (EOU) by the name Ennature Bio-pharma. Besides export earnings, this EOU will provide tax benefits also.
l The company is setting up a private freight terminal under a joint venture with Fourcee Infrastructure Equipments for providing railway-based logistics services and other facilities at Kashipur where one of its plants is situated.
l What is more, the company is exploring opportunities for further growth through expansion, modernisation and diversification. It is examining possibilities of expanding its ethoxylates capacity and diversifying into areas other than chemicals. It is also considering the setting up of a captive power plant. Important decisions in this regard will be taken in the next two months.
The company’s shares are being quoted around Rs. 115, with a 52-week high/low of Rs. 169/103. In view of the current depression in the capital market, the share price may go down to Rs. 90-100 range also. But buy at every decline. You will reap rich appreciation in the long run.
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