Elevator Pick: Buy India Glycols for upside of 52% - Rudra Shares

Rudra Shares And Stock Brokers | Jan. 25, 2017, midnight


Leading company that manufactures green technology based bulk, specialty and performance chemicals and natural gums, spirits, industrial gases, sugar and nutraceuticals.


EXPORTS - Company has identified exports as a key future growth driver.


Major export markets are the South East Asia, Middle East and China as company have logistic advantage in these region. Company export chemical products to more than 40 countries worldwide and the thrust for exports would be to other regions in Europe, USA, Japan Latin America for promotion of Bio-MEG and Bio-EODs.


During the year, company has achieved total export sales value of Rs. 873 Crores as compared to Rs. 1030 Crores during last year, decline in exports can be attributed to decline in sales of Glycol Ether & Acetates in view ofsteep drop in realizations and slowdown in key markets like China. However, company hopes to achieve reasonable growth in the overall export sales in the current year though the market conditions remain extremely challenging.


Has three primary business- Monoethylene Glycol, ethylene oxide derivatives, potable alcohol.


Sales of Glycols [Monoethylene Glycol (MEG), Diethylene Glycol(DEG),TriethyleneGlycol(TEG) and Heavy Glycols] have increased from 90,140 MT in FY 2014-15 to 94,268 MT in FY 2015-16. However, due to low international prices of the Glycols, the sales value decreased from Rs. 706 Crores to Rs.  700 Crores, respectively.


Sales under Ethylene Oxide Derivatives (EOD) business decreased to 95,000 MT in FY 2015-16 from 99,034 MT during previous year and resultantly, the sales value also decreased from Rs. 1,109 Crores to Rs. 974 Crores, respectively, sales were adversely affected due to steep drop in realizations as well as slowdown in key consuming markets like China.


During the year, company produced 96,245 MT of Glycols compared to 93,029 MT last year. Ethylene Oxide Derivatives (EODs) production has been 1,08,528 MT compared to 1,36,837 M T last year.


Capacity as on Q1 FY 2017 at:

  • Monoethylene Glycol- 1.50 lk tn/annum
  • Ethylene oxide- 1.20 lk tn
  • Likely to turn profitable by year-end


India Glycols is concentrating on consolidating its business and has no plans to raise capital.


Company is also working to reduce its debt, which currently stands at Rs. 1,500 crore.


Top line and EBITDA in FY17 is likely to improve by 10-15 %. The company became profitable in the first quarter a trend that is likely to continue this year.


India Glycols, which had suspended its sugar business a few years back, has no plans to resume it despite the northward movement of sugar prices.


Company has undertaken a restructuring exercise having 10-15% volume growth in first quarter of FY17.


Company is planning to start its captive railway terminal in the second quarter of this fiscal year and hopes to streamline its logistics business.


Stock is currently traded @ 128.


Horizontal line shows a support of Rs. 104 and shows high of Rs. 142.50.


If trend continues & break the high @142.50, then it may reach to elevator of (Rs. 94 in short to medium term, which is also our target.


Company aims to increase its business by developing new products and applications especially in areas of textile chemicals, oil field chemicals, paper chemicals, home care & personal care applications. It has already established itself as a major domestic speciality ethoxylates company and with the increased capacities, the scope for exports would be explored for higher growth. Considering above criteria coupled with volume growth in coming years & no plans to raise capital as of now, we recommend to BUY share with price target of Rs. 194 in medium term.

 

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