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Friday, October 2, 2009

JBF Industries Ltd:Future growth prospects and outlook,buy/hold/sell?

Scripscan:JBF Industries Ltd

Story:JBF is in the polyester industry. We have a positive outlook on the polyester industry considering the strong demand from the textile segment, both from the domestic as well as international.If you look at JBF, it is one of the leading players in polyester chip manufacturing and also the fifth largest player in polyester yarn in India. Apart from this, the company currently has a polyester chip capacity of around 5.5 lakh tonne. On the polyester yarn front, it has about 1.5 lakh tonnes capacity.Apart from this, the company has also got into a joint venture with a UAE-based company wherein it is expanding its product portfolio by getting into other polyester-based products, which will extend its product offerings. Apart from that, the operating margins of the company are amongst the best in the industry. It commands anywhere between 11-12% operating margins vis-à-vis 5-6% for its peers.On the operational front, we expect these operating margins to actually improve in the next couple of years, because the company has a 20 MW captive power plant in UAE, which is a natural gas-based plant considering the easy gas availability in UAE. Apart from that, since the power cost there are also lower, almost 50% lower than what India is, we expect that benefits to actually come into the company’s profit and loss.From that point of view, on the capacity expansion front and the volume, we expect at least a 60% operating growth over the next two years. Add to it, the operating margin improvement from almost 11% to 13%, we are looking at anywhere between 85-90% per annum growth in the bottomline.On the valuation front, with RoEs of 25% and low single digit valuation considering FY10 expected EPS, we expect the stock to move up at least 25% from the current levels.

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