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Sunday, December 13, 2009

IOL Chemicals & Pharmaceuticals Ltd:Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis

Scripscan:IOL Chemicals & Pharmaceuticals Ltd
Code: 524164

Story:The Punjab-based IOL Chemicals commissioned its 6,600-tonne per annum plant to manufacture isobutyl benzene (IBB), which marks the near completion of its Rs 250-crore expansion plans launched last year. When this expansion plan is completed by March ‘10, the company will emerge as India’s largest producer of ibuprofen with full backward integration in terms of raw materials and power.The company had earlier raised capacities of its chemical products such as acetic acid, acetic anhydride and added plants to manufacture acetyl chloride and monochloro acetic acid (MCA), which again are inputs for ibuprofen. By March ‘10, its ibuprofen capacity will reach 6,000 tonnes from the current 3,600 tonnes, making IOL India’s largest producer of this anti-inflammation drug. The company is also completing expansion of its captive power plant from 4 MW to 17 MW.The company’s performance during the first half of FY10 was subdued mainly because of the global depression in the acetic acid and derivatives market, which together constitute nearly 70% of the company’s annual sales. The rising cost of alcohol, the company’s key raw material, also impacted profits. But with the new sugarcane crushing season starting in India, the raw material worries will subside.The expansion project is likely to bring down the average cost of production for the company and improve its margins. At the same time, the company, which has already started marketing IBB, will continue to sell at least one-third of its production in the open market. The company, which recently obtained permission to export to Canada, is also awaiting US FDA approval for its ibuprofen. Exports to US can improve its realisation by nearly 10% compared to other export markets. All these factors will bring in additional revenues and profits to the company.The company is currently carrying around Rs 210 crore of debt taken mainly for the expansion projects. In the next step, the company has plans to enter the market of anti-ulcer pharmaceutical ingredients by setting up a Rs 100-crore plant. R&D efforts and pilot testing are under way and the company may go for private equity placement to finance the unit. The company has also announced plans to make a preferential allotment of 15 lakh shares and 30 lakh warrants to the promoter group. The scrip, which is currently trading at 12.5 times its profit for the last 12 months, appears fully priced.Buy at sub 40 levels.

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