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Monday, June 8, 2009

Chemcel Bio-Tech Ltd:-Future growth outlook and prospects

scripscan:Chemcel Bio-Tech Ltd

Story:CBL is a pesticide formulator with 34 product registrations to manufacture pesticides for crops such as paddy, cotton and sugarcane. It plans to expand its reach to entire Andhra Pradesh over the next 12 months. The agrochemicals industry in India is seasonal, highly competitive and directly dependent on the vagaries of nature; hence, it is working capital intensive. The company''s products are in three formats - liquids, granules and dusts. CBL has 1,000 kilolitres of liquid capacity, 1,000 tonnes of granules and 300 tonnes of dusts capacity. During FY08, the average capacity utilisation was around 30%. The company, through its 60% subsidiary Jetro Petro Biotech, has entered into long-term contracts with 179 farmers for growing jatropha plants in their land aggregating 2,000 acres. Commercial production from this bio-diesel plant is expected to commence by September ''09. As the jatropha cultivation is just a year old in the areas contracted by the company, it may have to source feedstock from the open market for the first few months after it commissions the bio-diesel plant. This may depress the capacity utilisation levels and profitability.The company had negative cash flows for the past three years.At present price of 7 the company is quoting at 16 times its trailing earnings. Small and medium agrochemical companies such as Dhanuka Agritech, Insecticides India, Bhagiradha Chemicals and Bharat Rasayan are trading at P/E multiples of 5-12. Till CBL''s bio-diesel plant commences production after one year, the company is not expected to report much growth.Considering the company''s weak financials and small size, unattractiveness of the industry in which it operates, and uncertainties over the successful implementation and future profitability of its proposed bio-diesel project,I find the present valuation to be too expensive. Investors can give it a miss and can opt for better counters which are suggested on these blog itself.

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