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Tuesday, September 15, 2009

India Gelatine & Chemicals Ltd and Pasupati Acrylon Ltd:Future growth prospects and outlook

1)Scripscan:India Gelatine & Chemicals Ltd

Story:Established in 1973, IGCL started its production in 1975 with the technicalcollaboration & know-how from M/s. Konica Gelatine Corporation, Japan. The Financial collaboration came from M/s. Nichimen Corporation, Japan.In the year 1975, the company started its production of Ossein, the raw material for Gelatine, which was exported to Japan. Within two decades, the company expanded & installed modern equipment imported from countries like Japan, Holland, USA, UK & Germany. From the year 1997, the company commenced the manufacture of Gelatine with the continued support of M/s. Konica Gelatine Corporation, Japan.Company has equity of just Rs.9.40crore while company has reserve of aroundRs.75crore, promoter hold 58.65% stake in company, foreign investors hold 9.83% and Indian public hold 29.31% stake in this company.Company has declared very good result in June quarter; net sales zoomed toRs.22.50crore from Rs.16.29crore. While net profit zoomed by 498% to Rs.2.75crore from Rs.46lack. Company has shown EPS of Rs.2.92 in June quarter and declared 20% dividend which was only 7% in last year. Company has fix book closure for dividend from 18th September.Current level stock is trading at PE ratio of just 4.8 with 20% dividend right.Investors, buy with stop loss of Rs.49, on upper side stock will go up to Rs.70levels in coming days while stock will cross Rs.100 levels in medium term.

1)Scripscan: Pasupati Acrylon Ltd

Story:Acrylic Fibre Industry has taken a big U-Turn in current year. Acrylic Fibre is mainly used for clothes and Acrylic Yarn produced from Acrylic Fibre is warm to manufacture Sweaters, Scarves,T-Shirts, Kids Clothes, Mufflers, Jogging Suits, Socks etc. Its other use for Household Segments for manufacturing Carpets, Blankets, Rugs etc.Until last year, Acrylic Fibre Industry was suffering heavily due to:a) Low priced imports in big quantity.b) All time high price of ACN (which is main Raw Material for making Acrylic Fibre).However, recently government decided to impose Anti-dumping duty on imports of Acrylic Fibre from China. Simultaneously, ACN prices also dropped heavily in Q4 which, have again gone up in Q1 (but still considerably lower than earlier high price). Consequently, selling price of Acrylic Fibre have gone up by more than 30%. Further, no new capacities have been added in the Industry in last 2 years. Rather, some units of Acrylic Fibre (J.K. Synthetics, IPCL, Consolidated Fibre) have closed down. On the other hand, capacity of user industry has been on the rise. In some, now, Acrylic Fibre manufacturers in India are enjoying Golden period caused by Anti-dumping duty, reasonable Raw Material prices, Sellers Market due to shrinking supplies. Hence, the recommendation to buy undergiven scrip.Promoted by Delhi based Jain group, Pasupati Acrylic has capacity to produce 30,000 TPA Acrylic Fibre. Due to reasons explained above, earlier financial performance has not been satisfactory.Performance in 08-09 was extremely bad mainly due to all time high prices of ACN. When crude prices had touched USD 150 a barrel, ACN prices had touched USD 2000. There was a time when selling price of Acrylic Fibre was lower than ACN cost which means, mills were unable to recover even Raw Material cost.However, with ACN prices coming down, losses also came down as is evident from Q4 results.Company has reported spectacular results for Q1 wherein, its profit margin is more than 20%.Against loss of nearly 3 crs., it has made profit of 18 crs. which means, turnaround of 21 crs. in a single quarter.Since April 2009, Acrylic Fibre prices have gone up by more than 30% whereas, Raw Material prices have risen 15-18%. It will lead to big expansion in profit margins for the Company.For Acrylic Fibre Industry, April - December is good/peak season. Sales in Jan - March months are on the lower side. Herein, we are not giving estimates for 2010 - 11 although there is a strong belief that 10-11 should also be a good year as no new capacities of Acrylic Fibre arecoming up.Stock is trading at 0.90 x FY10E EPS. Company is likely to make turnaround of 90 its bottomline (profit of current year plus losses of previous year). Share price has been lying so low as,analysts/investors have almost written-off this Company, looking at constant losses. We have presumed that Company will maintain 12 months Year Ending (although we feel that Company may extend its year ending to September '09 which will make it 18 months so that, there is NetProfit in the balance sheet). Further, promoters brought in the money to pay for OTS which is clear indication that company has bright future for the medium term.If, stock gets modest P.E. Ratio of 2, share price should be Rs. 16/- based upon above estimates.

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