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Saturday, June 27, 2009

Sree Rayalaseema Alkalies and Shreyans Industries:Future growth prospects and outlook

1)Scripscan:Sree Rayalaseema Alkalies & Allied Chemicals Ltd

Story:How much would it cost to set up a company manufacturing 6,600 tonnes of calcium hypochlorite, 9,900 tonnes of stable bleaching powder, 2,400 tonnes of monochloro acetic acid, 49,500 tonnes of sulphuric acid, 33,000 tonnes of chlorosulphonic acid, 65 tonnes of bromine across four factories in Andhra Pradesh and Tamil Nadu and allied services like a 9MW biomass power project? Certainly not Rs14 crore, which would hardly cover the cost of land, factory and office buildings and a few basic facilities. The cost would probably run into Rs100 crore. But just Rs14 crore is the market-cap of SRHHL (formerly Sree Rayalaseema Hi-Strength Hypo Ltd).Nearly 45% of SRHHL’s total turnover comes from calcium hypochlorite which is exported all over the world. The company belongs to the prosperous TGV group of Andhra Pradesh which has other businesses such as caustic chlorine (Sree Rayalaseema Alkalies and Allied Chemicals), a three-star hotel, theatres and educational institutions.The problem is that the com-pany’s turnover for 2007-08 hardly budged from Rs115 crore to Rs121 crore. Also, it reported a lower profit after tax of Rs4.75crore, down from Rs5.61 crore. The EPS (earning per share) was Rs4.66 but SRHHL skipped dividend ostensibly because the company was expanding the capacities of all its production units and needed to conserve cash. It has now increased its production capacities but demand has turned sluggish. You would think that it would be saddled with higher capacity for a while. Interestingly, over the nine months of the current year, sales and profits have been rocketing. The turnover was Rs163 crore, which was 135% of the entire turnover of 2007-08. Profit after tax over nine months was Rs12.88 crore, a surprisingly large jump. The improved performance has been possible due to higher volumes and better realisation in exports due to a weak rupee. For 2008-09, the company should post sales of Rs210 crore; and net profit should be Rs20.75 crore, translating into an EPS of Rs20.36.Apparently, thepromoters have been increasing their stake by acquiring shares from the open market.At the current market price of Rs14, the market-cap is just Rs14.4 crore, although gross block alone is Rs65 crore and net block is Rs55crore. The stock is trading at just 0.72 times its EPS of 2008-09. Small companies always suffer from low valuations but a PE ratio of 0.7 looks just too cheap.Listed on both the BSE and the NSE, the scrip is probably going cheap due to the poor investment climate at present and investor ignorance about this company. Worth a bet but not a stock for the long term, given the way the company’s financials are gyrating.

2)Scripscan:Shreyans Industries Ltd

Story:India currently consumes 8.50 million tonnes of paper; this is expected to go up to 10 million tonnes by 2010 and 15 million tonnes by 2015, a growth driven by increased spending on education, higher literacy levels, improved standards of living, an expanding retail sector and increase in packaging and advertise-ment expenditure. Paper manufacturing is, however, a very capital-intensive business with a long gestation period. This gives the already established units an upper hand when the economy emerges from a slowdown. Look at Shreyans Industries Limited (SIL), a stock which looks extremely attractive at its current valuations. SIL has a capacity to manufacture 60,000 tonnes of writing & printing paper at its two facilities, Shreyans Papers and Shree Rishabh Paper. It also manufactures soda ash but has only a small capacity for this.SIL is basically an agro-based company. Its main raw material is straw/grass. Its financial performance has been improving consistently over the past three years. In FY08, it produced a total of 61,122 tonnes of paper as against 58,954 tonnes manufactured in the preceding year. Its turnover was up 11% at Rs238.64 crore as against Rs214.33 crore during the preceding year. Better realisations in paper as well as soda ash have improved its margins and profitability. It reported a 7% rise in its operating profit during FY08. A marginal increase in depreciation and 7% saving in interest cost enabled it to record 51% increase in its profit before tax. Despite a one-time provision of Rs5.80 crore (amount paid to banks for debt restructuring), net profit was up 82%. The company has commissioned a 3.5MW co-generation plant at one of its plants last fiscal. Its earning per share for FY08 was Rs10.88 and, since it carries forward its previous losses, its tax provision is limited to only the deferred taxes that it has to pay.The result was Rs23.90 crore of cash profits translating into cash EPS (earning per share) of Rs21.60. Now look at its recent performance.The company is setting up another 5MW co-generation power plant (estimated cost: Rs25 crore) at its second factory. This plant is expected to bring about significant energy savings. Its power plant is also entitled to carbon credits. It has recently issued 6.90 lakh warrants to promoters and 20.60 lakh warrants to non-promoters which will be converted into equity shares @ Rs32.50 in FY10. What can you expect from this company? According to our estimates, the company could register a 20% growth in profit in FY10.Currently trading at Rs30, the stock is priced at less than 1 time its FY10(E) EPS making it extremely attractive even under the present market conditions.An excellent low-priced pick for decent appreciation in the medium term.
Source:Hemant gupta

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