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Wednesday, October 7, 2009

Thirumalai Chemicals Ltd:Future growth prospects and outlook

Scripscan:Thirumalai Chemicals Ltd

Story:Thirumalai Chemicals occupies a dominant position in the phthalic anhydride (PAN) business from which it derives majority of its revenue. The company is also the largest manufacturer of maleic anhydride (MAN). Medium-term threats from peers appear muted given their financially weak position.The threat from imports is also not imminent, as they constitute only a minuscule portion of domestic consumption. International prices, however, play a key role in determining domestic prices of PAN and MAN. The company occupies a dominant position in its key products. The company also manufactures food acids and phthalate esters.Paints, plastics, dyes and pigments industries are among the larger consumers of PAN. Consumption of MAN is driven mainly by the unsaturated polyester resins industry. Growth in the user industries has contributed to higher PAN offtake which, of late, has been in double digits.While the real-estate boom and the government's focus on the textile industry are likely to help in sustaining this growth for PAN, higher offtake for MAN is likely to come from the automobile industry. With its plants operating substantially below installed capacity, the company is poised to tap growth opportunities in these businesses.Backed by better operating margins and higher asset turnover ratios the company, unlike its peers, has been able to withstand the vicissitudes of the commodity cycle.Contract tie-ups are likely to translate into lower inventory levels and rein in the sluggish cash flows, which has been a concern.Investors can retain their exposures in Thirumalai Chemicals. Valuations appear to be moderate. However, volatility in prices of raw materials and finished products is a dampener. Growth in key user industries is likely to translate into higher volumes for its anhydride businesses.A hold as of now.Its a good dividend play too.

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