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Thursday, May 21, 2009

Duncans Industries Ltd:-Future prospects and growth outlook

Scripscan:Duncans Industries Ltd

Story:Here is a company, which, when it was fully operational, has produced an EBIDTA of Rs 180-190crs.As against this, the current market capitalization of the company is less than Rs 45 crs.After the government unilaterally and with retrospective effect, changed the subsidy norms for the company (for its urea operations), the company stopped its urea plant and went into the red. It has recently restarted operations, and is in the process of restructuring its debts.I expect that it will become fully operational in the coming quarters. However, for sustained growth to become visible will take atleast another 3-4 quarters. At full sales, this division can achieve sales of Rs800 crs (capacity 675,000 tonnes).The tea business is expected to do better this year than in the past. Duncans tea plantations are located in the east not in the South where most of the corporates are looking to sell their plantations. Valuations remain cheap on break up basis. Iffco sometimes back purchased Oswal Chemicals urea facility of 850,000 tonnes for 1900crs. This would put the value of Duncans fertilizer facility at Rs 1500crs. Further, as other group companies come out of the red Andhra Cement, Stone India, NRC etc.,I expect that the cash flow position of this company will improve too, and reflect in the market capitalization. Even at Rs 20 per share, the market capitalization will be only Rs 106crs.In the meanwhile however,I expect that the stock will under perform as the quarterly results are likely to remain weak, with significant clean-up required.I continue to believe that this it is a fit case where we can take concentrated long-term bets in the hope of beating the market over the long term by a margin.In a nutshell Duncans Industries Ltd is only meant for high risk apetite investors.

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