Scripscan:Asahi Songwon Colors Ltd
cmp:40
Code:532853
Story:ASCL is one of the leading manufacturers of the CPC grade pigments used for manufacturing paints, inks etc. The company makes CPC Blue crude and CPC Green-7 pigments and has forayed into Beta Blue, which is a derivative of Blue crude. The demand for Beta Blue and CPC Blue crude is buoyant primarily in the international markets. This is on the back of developed countries restricting the production of blue crude due to environmental hazards caused by the pigment. Hence companies like ASCL would stand to benefit in the form of enhanced demand for their products. Further more ASCL has attained the No 1 supplier status for global majors like like DIc(Japan), Clariant etc on the back of better quality of the products offered by the company. Also the company has ample headroom to ramp up the production to meet the increasing requirements for these customers.ASCL has a technical tie up with Clariant Korea. Hence this provides the company, access to advanced technologies like glass-lined reactors technology for manufacturing CPC Blue crude. The use of advanced technology would augment the operating margins, which in turn boost the profitability of the company. Apart from the above, ASCL has a low leverage, which provides further room for borrowing, if required for expansion of the capacities.Cumulatively, buoyant demand scenario in the international market coupled with the company’s ability to cash-in on the same would arive the top line going further. At CMP of Rs 40 the stock is trading at 6x its FY10E EPS and 4.5x its FY11E EPS. On the back of the above-mentioned positives we think that ASCL is a good buy on dips.
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