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Note: The artciles are not research reports but assimilation of information available on public domain and it should not be treated as a research report.

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Saturday, February 28, 2009

RADHA MADHAV CORPORATION LTD:-Bottomed out

Scripscan:RADHA MADHAV CORPORATION LTD
cmp:10
Traded in:Nse-bse

Story:Many times, bottom-fishing proves best strategy to outperform the markets when a particular scrip (with sound fundamentals intact) has crashed due to heavy selling.RMCL appears great opportunity to make quick bucks in short term (although it is a sound investment for medium-term as well) as few months ago, its share price had touched Rs 150/. Its share price had come down to 85-90 levels in tune with general fall in the market. However, subsequently, its share price crashed further as CITIGROUP (facing the crunch globally) sold its almost entire stake and recently, India Star of Mauritius (an FII) start selling lakhs of shares daily. Now, share price has almost bottomed out and should provide decent gains in short term as well as medium term.Promoted by Anil Agarwal, RMCL was formed after taking over the operations of three partnership firms. Company primarily manufactures polymer-based diversified packingand printing material and its products include MAP, polyolefin shrink film,three layer cast or blown lamination film, shrink film etc. It caters to FMCG, Pharmaceutical, metal and agro majors. It had come out with IPOin Dec 2005 to raise Rs 20 crs to expand its existing facilities in Daman. It is only manufacturer of MAP films in India which finds applications in a wide variety of food and pharma packaging.

EXISTING PRODUCT RANGE:

1. Barrier films are used in milk and dairy products, spices, edible oil, induction jellies, lubricants
2. Functional films are used for spices, ready-to-eat food, tea, pharma, bulk drugs
3. MAP Films are for Bulk drugs, vegetables, fruits
4. Laminatetd structures for contraceptives, induction jellies, health supplement

RMCL has incurred capex of Rs 175 crs for venturing into the high margin non-bulk pharma packaging space currently dominated by Bilcare. Its expansion plan is totally dedicated to pharma packaging for various hygiene, drugs and medical products. Company plans to manufacture new products like PVC Coated blisters, aluminium-aluminium collapsible tubes, health supplements laminates and labels for pharma applications.It has set up two units, one in Uttaranchal plant with a capacity of 21,000 tonnes , is one of the largest facilities in the country and is eligible for 100% excise exemption for 10 years and 100% income tax exemption for 5 years. Daman unit is having capacity of 22150 tonnes. R&D facility has already been set up at its current location in Daman in technical collaboration with a European company. Operations from both these units have started recently and company will report very strong growth in topline and expansion in margins now onwards.Company plans to leverage its existing relationship with pharma majorsas it currently manufacturers soft blister films, fold cartons and MAP films used by pharma companies for bulk packaging. New product range is highly synergetic to the existing business of the company and is targetted to service existing customer base of the company. Pharma packaging business will contribute around 60% of total sales and will enjoy OPM of more than 25%.

POST EXPANSION CAPACITY:

A. Existing capacity ( 4 units):

Barrier films 13300 tonnes
Paper packaging 5700 tonnes
MAP Films 8200 tonnes
Others 6150 tonnes

B. New units:

PVdC Coated blister 10500 tonnes
Alu-alu 1800 tonnes
Collapsible tubes 3600 tonnes
Laminates 5670 tonnes
Printed shrink sleeves 4000 tonnes
Security films 2500 tonnes

Production at new facilities has already started and hence, now company is in a position to polevault its performance. Due to excise and income tax exemption at new unit, company has huge improvment in profit margins as well.Companies in peer group are enjoying much higher valuations.Several big HNIs, brokers are also stakeholder in the company.At rs 10 its one of the best buy under the present environment.A very safe and sound buy at present levels.

Regards,
ARUN
I can be reached at:-arunanalyst@rediffmail.com

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