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Sunday, August 2, 2009

Sahyadri Industries Ltd:-Whats the future growth prospects looking like

Scripscan:Sahyadri Industries Ltd
cmp:73
Code:532841

Story:Pune-based Sahyadri Industries makes asbestos cement sheets (ACS) and other building materials sold under the brand name ‘Swastik’ with an installed capacity of 4.37 lakh tonnes. Its fibre cement corrugated roofing sheets are used for industrial sheds, air extractors, roof lights, etc. Its residential products division manufactures kitchen cabinets, doors, sign boards, bed cabinets, etc. It is also backed by a 8.9MW wind power facility, the output of which is sold to Maharashtra State Electricity Board at a pre-determined price. There are four major players in this industry accounting for half the production capacity. To make ACS, asbestos fibre is imported from Lab Crysotile INC of Canada and Sama Fibres of Brazil and mixed with cement.For the year ended March 2009, sales have gone up 11% but net profit has zoomed 200% to Rs19.80 crore. The main reason for this was a strong rural demand for roofing that led to higher product prices. The mere mention of the word ‘asbestos’ turns off many people. Western media label asbestos as pollution-causing. The asbestos that causes problems is sprayed-on asbestos and friable asbestos insulation. These have largely been discontinued. In India, asbestos has never been used as sprayed insulation; only the chrysotile variety is used. The fibres are mixed with cement and are locked into the matrix; there is a low chance of contamination. The probability of sickness due to living or working under an asbestos roof is low. Transportation of drinking water in asbestos pipes is safe and is approved by the World Health Organisation. In India, asbestos sheets have been used by the railways for the past 50 years over platforms through which crores of people pass everyday. Another major consumption of these is in the roofing of godowns of Food Corporation of India where millions of tonnes of food grains are stocked. India uses only 6% of asbestos produced in the world. The US still imports asbestos pipes for water. Canada has reinforced asbestos to make asphalt asbestos compound for re-paving of roads.For the first quarter of this year, Sahyadri may report sales of about Rs110 crore and net profit of about Rs9 crore. This kind of growth, and the prospects for a great full year, make the stock attractive. Net sales for 2010 may hit Rs315 crore and net profit could be over Rs26 crore. This would mean an EPS of Rs28 for 2010. Based on the current price of Rs73, that would mean a P/E of 2.2. The promoters hold 85.10% of the stock. While investors have to be careful about small and unknown promoters, Sahyadri has one thing going for it: sector prospects. ACS manufacturers will have great years ahead of them, thanks to the return of the Congress government and its various rural support schemes such as National Rural Employment Guarantee, loan waivers, etc. The potential for ACS can be gauged from the fact that, even now, 80% of houses in rural areas have thatched roofs.Considering all these points,Sahyadri Industries is a great buy at lower levels.

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