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Friday, October 7, 2011

Narmada Gelatines Ltd:-Buy/sell/,growth prospects and recommendation,news and results,target price and analysis,view and outlook,multibagger

Scripscan:Narmada Gelatines Ltd
BSE code:526739
cmp:90

Story:We like the stock of Narmada Gelatin for two reasons. First is this is a debt free co which is available at very attractive business valuation and also provides margin of safety. The second reason is the possibility of the company getting sold in the future and this event as and when it happens may lead to a huge value unlocking for the company in the future.This is belonging to the Shaw Wallace Group and manufactures gelatin and this is a 50 years company. The user industries for the company’s products are primarily pharma and food industry.If you look at the financials of the company for FY11, this company has achieved sales of about Rs 91 crore, which was up by about 10% in the same period last year. Profit after tax was up by about 15% to about Rs 9.5 crore. This company has got a small equity of about 4 crore. So EPS for FY11 was about Rs 23.50. At the current price of Rs 90 this stock is traded at a PE multiple of just about 4.The reason I am saying that - the business is available at attractive valuations because if you look at the balance sheet of the company - now this is a totally debt free company. The net current asset in the balance sheet is close to Rs 26 crore - I am talking about FY10 balance sheet.The company has got investment in mutual fund of about Rs 5.5 crore. If you add the profit for FY11 into this - you get total current assets and cash of about Rs 41 crore. As against current assets of about Rs 41 crore the market cap of this debt free company is less than Rs 40 crore, which means that the biz of a company which is 50 years old is available virtually free of cost.The promoter holding is about 75%. The company recently announced a dividend of 40% which at the current price of Rs 95 would result in a dividend yield of more than 4% for the investor.This company caters to a sector which is more steady compared to many other sectors. Pharma and FMCG is a sector, which is not really getting affected by the slowdown. The stock is available at a discount to book value. This is a 50 year old company having gross block of about Rs 50 crore.I think the current valuation will be substantially higher.If you see the Shaw Wallace Group - they have been slowly selling most of their companies. Their flagship company - Shaw Wallace and Company, the other companies like Hindustan Dorr-Oliver, Mather & Platt Pumps, Falcon Tyres, Gordon Woodroffe - I think all these companies have got sold in the last few years.Narmada Gelatin is probably lying unsold mainly because of the fact that management may not have got an attractive valuation. So this is a business which is giving you a dividend yield of 4%.It is steady stock, steady growth in the financials of the company. Whether and when this company gets sold is anybody’s guess. But I think in spite of that, given its steady performance over so many years and the attractive valuation - stock has got the potential to get re-rated. So I think any price below Rs 90 maybe a good opportunity to accumulate the stock.

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