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Sunday, October 4, 2009

Gujarat Gas Company Ltd and Indian Card Clothing Company Ltd:Future growth prospects and outlook,news/views/analysis

1)Scripscan:Gujarat Gas Company Ltd

Story:Gujarat Gas Company (GGCL), a 65% subsidiary of the global gas major British Gas, is India’s largest private sector gas distribution and transmission company and has a regional presence across three of the largest industrial cities in the state of Gujarat. With a pipeline network of over 2,000 kms (nearly 35% of GAIL’s gas pipeline network), the company caters to industrial (for their energy requirements), domestic (piped natural gas or PNG) and automobiles (compressed natural gas or CNG) in the cities of Surat, Ankleshwar and Bharuch. Gujarat Gas is first private player to venture into the gas distribution and marketing space. It sources gas majorly from the private players (with well diversified sourcing base). The major suppliers of gas to the company are GAIL,GSPC, CAIRN, NIKO,R-LNG and PMT. Diversified sourcing of gas enables the company to diversify the risk associated with the sourcing. Company has done well on the sourcing side, given the constraints on the supply side in the country.The gas purchased by the company is largely at the market-determined prices. The purchased gas is then sold to various user industries, majorly pharma, chemicals, textile and diamonds.Gujarat gas also supplies PNG (Piped natural gas) to the domestic consumers. Gujarat Gas has a robust business model right from the sourcing to marketing of the natural gas. However, the constraints on the lower supply of the natural gas along with revenue loss form the transmission business can affect the company.However, company is trying to increase its focus on high margin business like CNG to offset the revenue loss from transmission business. With the fall in crude oil prices, the gas prices are also likely to reduce, thus margins will continue to be good in the core business. However, supply constraint in the domestic markets will cap the growth prospects of the company over the medium-term.A bet for hardcore defensive long term investors with a perspective of 3-5 years.

2)Scripscan:Indian Card Clothing Ltd

Story:Indian Card Clothing is into metallic card clothing. Their financial performance may not enthuse any investors because the company has been constantly delivering stagnant topline and bottomline.Promoter holds majority of the stake.But the interesting part of the company is that they are very cash rich. They are holding huge chunk of listed stocks, which they keep selling every year and on which they reasonably earn an EPS of Rs 10-Rs 15 every year.Apart from this the company has huge land in Pune. In fact, some years back the Pune Municipal Corporation has acquired their part of the land for road widening purposes about 1lakh square feet for which they got a compensation of about Rs 3 crore from the Municipal Corporation. So in the near future the company is likely to develop that Pune land also which can translate to a great unlocking in the value.Apart from this if you see the metallic card clothing business world over, it is getting consolidated. In India there are only two players Indian Card Clothing and Lakshmi Card Clothing. The trend now prevailing globally is that all the textile machinery manufacturers are acquiring the card clothing companies. Lakshmi Machine being a strong presence in textile machinery probably will try to seek consolidating their position in the Indian market also.So these companies are very asset rich companies having very good cash flows and very good investments with them giving a reasonably good profits of about Rs 10-Rs 12 per share from their operations.The company pays a hefty dividend too.Altogether an asset meant for investors with risk aversion.

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