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Friday, August 21, 2009

Nitta Gelatin India Ltd:Future growth prospects and outlook(buy or sell?)

Scripscan:Nitta Gelatin India Ltd(Kerala chemicals)
cmp:130
Code:506532

Story:Earlier known as Kerala Chemicals, NGL is 80.50% subsidiary of Nitta Gelatin Inc., Japan, which is one of the largest producers of Gelatin in the world and, brand name 'Nitta' commands premium in the market.NGIL is engaged in the manufacture of Gelatin, Ossein, DCP and Collagen Peptide.NGL is the largest producer of Gelatin in India.It has installed capacity of 3500 TPA for Gelatin.Company has performed extremely well in 2008-09. Sales increased by 25% due to increased production, better unit sales realization and better sales mix. PBT zoomed by 238%.PAT increased by 126% despite significantly higher tax provision.During the year, company provided 6.49 cr. for depreciation and 6.57 cr. for deferred tax.Thus, total Cash Profit stood at 28 crs. Cash EPS Rs. 33.30 and EPS Rs. 17.88.Gelatin production increased by 14% to 3522 MT. Company changed its drying operation from furnace oil to firewood to more areas resulting in substantial savings. Increase in power tariff increased the power cost by 2.40 crs.Exports of Gelatin stood 2064 MT to 19 countries and 1413 MT sold in domestic market.Ossein turnover increased by 20%.Gelatin turnover increased by 30% to 84.06 cr..DCP sales increased by 21% to 52.31 crs.Company has been performing extremely well in current year. For Q1, sales have gone up by just 5%. However, PBT has climbed by 142%. Despite higher income tax provision, PAT is up 110% to 6.07 crs. Q1 EPS is 7.23.During the year, Company has already increased its Gelatin capacity by 400 MT and work is under progress to increase the capacity by further 500 MT. Company is also taking steps to increase the yield and reduce production costs.Collagen Peptide:In recent years, collagen has been found to physiologically activate the human body. Proper use of enzyme that splits the peptide bonds will enable control of Amino acid sequence involved in digestion of the collagen. NGIL Collagen Peptide helps in maintaining health and well being as it is a functional food for healthy/younger skin, controlling bone mineral density and for Joint Health. Company has already commissioned a Plant with 300 MT capacity. Company plans to increase its production capacity next year.Work in a Plant to manufacture 660 MT of Meat Meal and 360 MT of Sterilized Bone Meal has also been completed. It will utilize the solids that go into effluent and convert to value added products for pet food and poultry feed.Considering above developments and continued rising demand for its products from User Industry, NGIL should report spectacular performance.The company at present price of 130rs is quoting at 4 PE considering fy10 EPS of 32.5.Above valuations are quite cheap considering Japanese giant holds 80% stake and Company has world class technology to produce globally famous products. Even if NGIL gets a very modest P.E. Ratio of 9, based upon FY10E EPS, calculate what can be the share price.In stable market conditions, NGIL scrip should appreciate minimum 30% in next 12-15 months.A solid scrip available at compelling valuations.

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