India Glycols: Attractive valuations, strong buy

Sumpoorna | Nov. 10, 2016, midnight

Investment Rationale:

- The Company should witness a healthy growth primarily on account of growth in end-user industries. The company is likely to have an edge over its closest competitors, through price advantages and increased realizations, due to secular increase in the price of crude oil (a substitute product used to manufacture similar products).

- During the Fiscal year ended March 31, 2011 (‘FY2010-11’ or ‘FY11’), the company reported a growth in top-line of over 40 percent; further, the company registered a growth of 42 percent in its bottom-line. The company has increased the use of debt funds to fund expansions, with a debt-equity ratio of 4.40 x as on March 31, 2011; however, in our view the increase in cash flows should auger well for the company.

- At CMP of Rs145.40, the stock is trading at a P/BV of 0.8 times, a Price/ Cash EPS of 2.38 times, and Market Cap/ Sales of 0.26 times; these valuations seem quite attractive considering India Glycols integrated and diversified business model.

- Further, the valuation multiples are expected to further moderate rapidly due to strong earnings growth contributed by capacity additions and improvement in realizations.

Outlook:Aided by robust capacity expansions and healthy domestic consumption demand going forward, combined with rising crude oil prices (a substitute raw material for the industry), Sumpoorna recommends a strong buy with a price target of Rs189.55
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