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Wednesday, December 9, 2009

Ion Exchange (India) Ltd:Future growth prospects and outlook,why its moving?Target price?prospects and buy/sell/hold?

Scripscan:Ion Exchange (India) Ltd
Code:500214
cmp:110

Story:This company has been more of a disappointment for us because inspite of being in a business, which is supposed to be a growth business and being a leader in the business and having been operating in this business segment for the past four decades – this thing is not getting reflected in the financials of the company. The pace of growth of the company in terms of revenues and profitability has been lackluster. But inspite of that what excites us about the company is its leadership status in the business segment where it operates and the potential of that business segment.This company operates in three business segments. First is the industrial segment where it caters to various industries starting from auto to steel and hotels to chemicals. It does water management solutions for these companies. The second segment is the home segment where its brand Zero B is a very big brand. The company sells different types of water purifiers and reverse osmosis RO systems under the Zero B brand.The third segment it caters to is the communities where it caters to the government public health services departments and societies and private builders mainly for water recycling and water filtration solutions.FY09 sales were about Rs 425 crore, which were down by about 10% compared to FY08. Profit after tax (PAT) crashed from about Rs 9 crore to about Rs 1.5 crore, which means the net profit margin of not even 1%. For six-months, September ’09 sales are up by about 8% to about Rs 225 crore. Profit after tax has also improved to about Rs 3 crore.Now the company has been a regular dividend player company but the quantum of dividends have been very small. I would like to compare this company with something like Jain Irrigation in terms of their leadership status in the business and the potential of the business.The point I am trying to make is that both are companies which are in businesses where the potential of business is good and both are leaders in the segment. Difference being that Jain Irrigation has been able to translate these opportunities into financial numbers whereas for Ion Exchange these numbers have largely been illusive till this point of time. Jain Irrigation commands a market cap which is 2.5 times its annual sales whereas Ion Exchange’s market cap is only 25% of its yearly sales. The point I am trying to make here is that markets in case – these are businesses where if the companies perform, markets are willing to give them very high discounting.So there is an opportunity in Ion Exchange. It is quite probable that the company has not done much in the last five years. It may continue to trade the way it has been for last five years maybe in the next five years also 10-15% growth – nothing beyond that and they maintained their dividend at 10-20% as they have done for the past eight-10 years. But there is definitely an opportunity and I would like to buy this kind of a company where the potential of the business is good at the right price. I think Rs 100-110 is a good level to accumulate this stock. It may happen that after a couple of years you may find the stock still trading at these levels and in case company is able to perform in the next couple of years you may have a multi-bagger in Ion Exchange.
Source:AC

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