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Buy Maithan Alloys

Maithan Alloys (MAL), headquartered in West Bengal, MAL belonging to the Rs 1, 500 crore Maithan Group commenced commercial production of ferro manganese and silico manganese in 1997. The combined current capacity is at 1, 75,600 tpa. MAL is India’s prime manufacturer and exporter of all three bulk ferro alloys ferro silicon, ferro manganese and silico manganese.

During Q1FY13, net profit has gone up by 14% to Rs 15.5 crore (Rs 13.7 crore) on 52% higher sales of Rs 196.5 crore (Rs 129.0 crore). Q1FY13 EPS works out to Rs 10.7 Vs Rs 9.4 in Q1FY12. During FY12, net profit fell by 35.0% to Rs 47.0 crore (Rs 72.8 crore) on 5.1% higher sales of Rs 624.9 crore (Rs 594.4 crore). EPS stood at Rs 32.2. A dividend of 20% (Rs 2.0/share) was paid.

MAL’s subsidiary, Anjaney Alloys has successfully commissioned two furnaces of 18 MVA each of its 72 MVA capacity for manufacturing of Ferro-alloys and thereby has concluded the 1st phase of the project. The plant is located at Andhra Pradesh Special Economic Zone at Atchutapuram (near Vishakhapatnam) in the state of Andhra Pradesh. The 2nd phase of the project of setting up another two furnaces of 18 MVA each for manufacturing of Ferro-alloys is scheduled to be completed in the 3rd quarter of FY13.

MAL is leveraging its unique positioning as India’s only major manufacturer of ferro manganese, silico manganese and ferro silicon to access a larger number of markets. MAL is strengthening capacity utilisation and with several operational measures it has undertaken, it expects to remain relevant across all market and product cycles. Due to increased steel production, the demand for manganese ore and ferro alloys has increased. However, with steel production projected to increase, a large gap between manganese alloys availability and requirement is foreseen. There requirement of ferro alloys to cater to the need of projected steel production will be 1.90 million tonnes by 2020 whereas prevailing ferro alloy production in India is 0.75 million tonnes. Modern constructions like glass and steel buildings require quality stainless steel with high manganese content. An increasing number of Indian railway wagons are made with stainless steel. Around 10 kg of manganese is required to produce one tonne of mild steel whereas 100-150 kg is required in one tonne of special steel.

We recommend a buy at CMP of 120 with a long term perspective.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this blog. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources

(With inputs from Sunidhi Securities)

Update - Rubfila International

The quarterly results as of end-Sep '12 of Rubfila International, lend credence to our research. For the HY 2012, the net income is 53.72 crores (45.53 crores for same period, last year) and the net profit is 7.41 crores (1.70 crores for same period, last year).

Detailed result is available here.

Update on Govind Rubber

Half yearly results of Govind Rubber have justified our buy call.

For the six months ended Sep '12, total income is at 186 crores against 142 crores in the same period last year. Net profit has shot up by a whopping 425% to 8.14 crores against 1.55 crores in the same period last year.

Buy - Rubfila International

Rubfila International Limited (RIL) is principally engaged in the manufacture of heat resistant latex rubber thread (HRLRT) and extruded rubber thread. The production facility of RIL is designed to produce talc coated rubber thread (TCR), as well as silicon coated rubber thread (SCR) and water-based adhesives. As of March 31, 2010, it had production capacity of 6,350 metric tons and 20,000 metric tons of adhesives per annum. RIL produces rubber threads for a range of applications, such as apparel, food grade, furniture webbing, bungee jumping, toys, medical netting, diapers and catheter manufacturing. RIL produces adhesives suitable for a range of industry segments, such as leather and footwear, tire re-treading, wood, rexin and foam, and automotive. RIL operates through manufacture and sale of rubber threads segment. Its products include food grade rubber thread, furniture grade rubber thread, coloured rubber threads, diaper threads and ADORIX adhesives.

The company is the market leader in India in rubber threads and is also one of its leading exporters. It is the only manufacturer in India of silicon coated rubber thread. The rubber thread market is estimated to grow at 10%.

Financially the company is coming out of the woods. Following a BIFR order in Sep 2011, some of loan funds brought in by promoters and associates were converted into equity. In the quarter ended June 2012, sales rose 31% and net profit rose almost 10 times to 3.54 crore.

In FY 2012-13 the company is expected to register an EPS of 3.30. The share currently trades around 25 rupees.

We recommend a buy on this share.

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this blog. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources

Long term buy - HNG

Glass sector
The glass packaging industry is valued at close to Rs. 6000 plus crore and continues to grow at a healthy rate of 8 to 10 per cent per annum. India is amongst the top 15 markets for glass packaging globally and it is the third fastest growing market after Turkey and Brazil. The industry is driven primarily by downstream demand from of its user industries such as liquor, pharmaceuticals, food and beverages, cosmetics and perfumery etc.Industries that use glass are constructions, automotive, electronic information sector, pharmaceuticals, solar energy and daily use glass sector.

About the company
HNGIL was incorporated in 1946.HNG is the largest container glass manufacturer in India with gross annual turnover of more than Rs. 2,000 crores (FY-11-12). It has its headquarters in Kolkata. It caters to liquor, beer, food, soft drinks, and pharmaceuticals. The company has markets in 7-8 places in India and Germany. The company has manufacturing capacity of 3600 tons/day. Customers include Diageo, Tilaknagar Industries Ltd, Carlsberg, HUL, Nestle, Hamdard, Haldirams, Pepsi, Cocacola, Cipla, Dabur, Pfizer, Himalaya, Ranbaxy and GSK.

Presence:

Plant	Capacity (TPD)
Rishra	860
Bahadurgarh	840
Virbhadra	460
Puducherry	330
Nashik	980
Neemrana	180
Total	3650

Key financials growth

Rs in crore	FY 09	FY 10	FY 11	FY 12
Net Sales	1332.34	1380.77	1554.07	2014.82
EBITDA	233.54	316.99	271.56	310.1
Net Profit	108.18	154.15	86.57	70.12
EPS	61.93	17.65	9.91	8.03

Valuation summary

	FY 09	FY 10	FY 11	FY 12
EPS (Rs)	61.93	17.65	9.91	8.03
PE (x)	3.9	13.4	30.80	12.52
P/BV (x)	0.5	2.2	1.57	1.57
RoNW (%)	12.64	16.2	5.58	3.95
RoCE (%)	13.42	14.72	11.03	5.2

Stock data

Market Capitalization	1780.40 crores
Total Debt (FY 12)	2254.09 crores
Cash and Investments	72.32 crores
52 Week H/L	216.90/121.50
Equity  capital	17.47 crore shares
Face Value	2.00
MF Holding	0
FII Holding	7.27%

Product mix

Major share of the product portfolio is of liquor followed by beer and food.

Geographical revenues:

HNG caters mainly to the Indian market. The North India accounts for major share in revenues. It exports 4% of its produce to countries like Bangladesh, USA, SA, Kenya, Australia and Hongkong.

Key points

Glass container company to integrated glass packaging solutions provider:

In the last decade, the company had focused on creating a strong foundation, upon which a better scale and pace of growth can be sustained. Today, they are evolving from being a glass container company into an integrated glass packaging solutions provider, having indepth knowledge, established business model, reputed team and diversified geographical presence. For a Company whose input costs accounts for ~30%, backward integration is always a rewarding strategy. HNG has paced its growth story, from being a sole manufacturer of container glass to an integrated Group – with presence across the value chain – from moulds to market.

Commissioned 650 TPD furnace at Nashik

The company has successfully completed brownfield project at Nashik and commissioned the world’s largest capacity furnace at 650TPD. It is the world’s largest batch house. The world’s largest container glass and fired furnace of 175 sq mt with a capacity of 650TPD. It has latest technology and has a huge area to support expansion.

Operating efficiency

Net turnover increased by 21.7% due to improved capacities, proven product quality and customer relations. EBITDA increased by 12.6%. The growth was restricted by higher input costs. Net profit increased by 5.8%. cash profit increased by 11.3%. Gross block increased by 68.4% due to Nashik plant. Debt equity ratio was 1.38 as debt was required to fund plants at Nashik and Naidupeta. Interest coverage ratio decreased to 2.43 on account of increase in interest rates.

Mitigation of input cost risk

2011-12 witnessed steep increase in prices of key inputs – silica sand, soda ash and power, leading to margin contraction. Non-availability of key raw materials at affordable cost can result in sustained erosion in Company’s margins.

The Company has strengthened its raw material procurement function to consistently to ensure consistent availability of cost-effi cient inputs. To meet the requirements of key raw materials like Silica sand, dolomite, limestone and feldspar, the Company is now aggressively pursuing acquisition of mines so as to ensure consistent supplies of key inputs and also aid its future expansion plans. On the power front, the company is taking proactive initiatives to convert its power source to gas-based, wherever the option exists. Apart for that, the focus is consistently ensuring higher energy efficiency and lower process wastage by investing into modern technologies across its units.

Dividend payout ratio

2009 – 8.1%

2010 – 8.4%

2011 – 15.2%

2012 – 14.4%

Financials and Future Projections-

Particulars	Mar 12 (in cr)	Mar 13E (in cr)
Income
Sales Turnover	2180.09	2585.59
Excise duty	165.27	103.42
Net Sales	2014.82	2482.16
Expenditure
Raw material	807.86	929.04
Power and fuel cost	701.22	736.28
Employee cost	170.2	251.89
Other manufacturing expenses	10.54	11.07
Miscellaneous expenses	103.93	124.72
Total expenses	1793.75	2052.99
Operating profit	284.88	429.16
Interest	102.76	110.98
Depreciation	133.77	147.15
PBT	73.57	171.04
Tax	5.44	8.82
PAT	70.12	138.32
EPS	8.03	15.84
PE ratio		12.52

Recommendation

HNG mainly caters to alcohol, beer food  and FMCG companies like HUL, Nestle, Hamdard, Haldirams, Pepsi, Cocacola, Cipla, Dabur, Pfizer, Himalaya, etc. There is anticipated growth in FMCG sector due to increasing demand for quality products and rising per capita income. The projected glass segment growth is 12%. HNG caters to Germany wherein the projected growth in Perfumery and Cosmetics industry is 5.7%. It also does not have much effect of the depreciating rupee as it exports only to Germany. CAGR of the Indian Industry is estimated to be 20%.

Assuming the growth figures as 20% in India and 6% in Germany and increasing the costs, the expenses amount to 85.26% of the income. The EPS would be 15.84 and PE 12.52.

The present PE of HNG is 12.52 as against industry PE of 13.07. (PE calculated by taking market price as Rs.198)

We recommend a buy with a long term view

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Research report compiled by Prachi K Saiya

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this blog. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources

Govind Rubber - Buy

Govind Rubber Limited (GRL) is a global name for a range of world-class bicycle tires. The company is showing string growth with an increase of 35% for the quarter ending June 30, as compared to the corresponding period in 2011. The profitability for Q1 jumped by as much as 248% over the last year.

For the quarter ending June 30, net sales of the company were reported to be Rs 7,823 lakh, which was Rs 5,768 lakh in 2011. The profit after tax (PAT) shot up to Rs 101 lakh, from Rs 29 lakh in 2011.

The company expects better profitability in the quarters to come due to softening of rubber prices, which would be a major contributing factor, coupled with other avenues explored by the company.

The company is setting up a greenfield project near Dahej with a capital outlay of Rs 750 crore. It has entered into a joint venture agreement with a South Korean company to set up a manufacturing plant for specialized rubber. 

At an EPS (TTM) of 5.37 and book value of 13.90 the share price is trading at 20.80 making it an attractive long term buy. 

Disclosure:- It is safe to assume that the author may have interest in the sectors recommended in this blog. Seeking personal advice from your Financial Advisor is recommended before acting on any of the substance given herein. The numbers, figures, etc., presented may have been taken from various sources