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Monday, July 27, 2009

Parekh Aluminex Ltd:-Future growth prospects and outlook

Scripscan:Parekh Aluminex Ltd

Story:Parekh Aluminex (PAL) witnessed a topline growth of 29% YoY. Strong demand from the railways coupled with some recovery in the airline sector aided the performance. Also higher take-away sales at retail outlets led to a higher demand for company's products. Further, the company's entry into the tier II and tier III cities coupled with an increase in export sales enhanced its overall growth. As estimated earlier, the company's expansion plans are on track. From 1,537 m pieces capacity in FY08, the company is expected to have a capacity to manufacture 4,050 m pieces by FY11. On the lids front, the capacity will stand at 1,282 m pieces in FY12, from 587 m pieces in FY08.PAL reported a 1.3% YoY expansion in its operating margins. This was largely due to lower raw material costs. The input prices stood at 75% of sales as compared to 76.6% during 1QFY09. The company had purchased the raw material in advance at lower prices during the last year. Further, greater proportion of high-value products in its total sales also helped the margin expansion.The net profits saw an increase of 13% YoY during the quarter, led by higher margins and other income. The growth would have been higher but for the higher interest and depreciation costs (due to expansion).At the current price of Rs 100, the stock is trading at a multiple of 1.7 times our estimated FY12 earnings. The company continues to perform in line with our estimates. We had recently met up with the company's management and the vibes we received were pretty positive. With capacity addition on track and demand expected to pick up, the scenario looks favourable for the company. The management expects sales to touch Rs 20 bn over the next 5 years (though we have estimated the company to do just around 50% of this). A good growth, improving return ratios and attractive valuations makes PAL a good investment from the long-term perspective.We remain positive on the stock.

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