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Monday, December 14, 2009

DIC India Ltd:Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis

Scripscan:DIC India Ltd

Story:DIC India(DIC), formerly known as Coates of India, is a 71.75% subsidiary of DIC Asia Pacific Pte Ltd, Singapore, which in turn is a wholly-owned subsidiary of US $ 9 billion Dainippon Inks and Chemicals (DIC) of Japan, world leader (40% global market share) in printing inks, organic pigments and thermosetting resins. The DIC group, with its subsidiary Sun Chemical, is the largest ink company in the world. Around US$ 5 billion (Rs 22,000 crore) of the group’s revenue of more than US$ 9 billion comes from ink-related businesses. DIC is the world’s largest supplier of inks, organic pigments, varnishes, coatings, resins, and toners and ink jet inks. DIC India enjoys strong market position (33% market share) in Rs. 1,500 cr. printing and liquid ink market. There are three segments in printing ink, viz., Publishing inks (covers newspapers, magazines & books), Packaging inks (as covers FMCG sector, has tremendous potential to grow) and high quality emerging segment – Commercial printing inks (covers sales literature, leaflets, brochures, tourist literature, catalogues, etc). Company is the market leader in high volume low value publishing inks segment.The fortunes of the printing ink industry are linked to the economy, particularly the publishing and packaging sectors. Despite the high GDP growth in the recent past, the growth of the packaging sector in India was impacted by the slow growth of the FMCG sector, restricting the top line growth of the printing ink industry. However, the fortunes of the FMCG industry have revived. This will directly benefit DIC India. Moreover, the publishing sector is on the rebound. The increasing urbanisation and literacy levels as well as new launches and higher media spend are likely to result in comfortable growth rates for the publishing industry. With more foreign publication houses setting up their outfits in India, the publication sector is poised for major growth. All this will benefit DIC India.DIC India’s focus remains on maintaining strong position as a leading supplier to the high technology and quality end of the market, where new presses with full automation require rapid drying and coating with quick wash-ups and make-readies. In India, the company also manufactures and distributes Varn chemicals and blankets from Day International. DIC India will have full access to the total portfolio of products and technology available with DIC and Sun Chemical. Therefore, the value from DIC and Sun Chemical will be added to its brands and products. The beneficial impact of this is expected to result in better range and quality of DIC India’s products. The parent company has launched several new products in the recent past, to which DIC India is expected to get access. For the nine months ended Sept. 2009, DIC on standalone basis has posted net profit of Rs 14.58 cr. on net sales of Rs 340 cr.. On a consolidated basis, the revenue grew 20.5% to Rs 515.1 cr. in CY 2008 (ended December 2008). The consolidated net profit stood at Rs 18.07 cr.. On a equity of Rs 9.17 cr. consolidated EPS stood at Rs 19.7 and the dividend declared was 35%. The Book value per share stood at Rs 196. The company’s market cap is just Rs 165 cr. against CY08 net sales of Rs 515 cr.DIC India has changed its business focus towards highly profitable publishing ink and commercial printing ink (growing at 12-15%), while simultaneously cutting down on sales of low margin packaging ink segment. Changed business composition and new product launches will be driving volume growth. Considering good industry prospects, low valuations, DIC India’s strong market positioning and technological & marketing support from DIC, Japan, company is poised for good times ahead. At current market price of Rs 180, DIC stock trades at 9.1 times consolidated CY08 earnings(Rs 19.7) and at 8 times expected consolidated CY09 earnings(Rs 22.5). Investors can start accumulating the stock at current levels and add more on declines for decent returns of 35%-40% over the next 6-8 months.

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