Parekh Aluminex BSE Id: 532606 NSE Code: PARAL

CMP (BSE): Rs. 236.40

CMP (NSE): Rs.236.50

Industry: Packaging

Parekh Aluminex Limited (PAL) is the largest manufacturer and exporter of Aluminium Foil Containers (AFC), and also one of the biggest manufacturers in Aluminium Foil Rolls (AFRs) and Aluminium Lids, in India. They are the single largest player in the organised sector in India. In the fifteen years of their existence, they have carved a niche for their products in not just India, but the entire region, emerging as the leading name in AFCs in the entire sub-continent. The adaptability and the multi-purpose quality of PAL's products sees them being utilized in domestic, industrial and commercial sectors worldwide.

From packing food and food-related items, ash-trays, trays, medicinal trays, gas-mats, barbequing servers, bake trays and containers to new-born babies’ bath pans, pet foods servers and casseroles - PAL’s products have penetrated every sector and enrich lives at every imaginable juncture.

It is the first company in this category to receive the prestigious ISO 9001:2000 certification from BVQI, UK and the only company from India to break into the highly quality conscious European markets. They have two manufacturing facilities situated strategically close together in the tax havens of the Union Territory of Dadra and Nagar Haveli, India. They have managed to not just maximise profits for their investors, but also have a distinctive edge over competition in India and worldwide markets.

Their startegic and well-thought out business plan has resulted in the signing of a marketing agreement with one of the largest manufacturers of aluminium in the world, to market its products in Germany. Further PAL has acquired a Singapore based company by taking over its plant and machinery for making Aluminium Foil Containers, along with its customer base. As a result business of South East Asian Airlines such as Emirates Airlines, Singapore Airlines, Thai Airways amongst others have been added to the company's kitty.

PAL's growth story:

The rising middle class and its conscious efforts to demand hygenic product was skilfully turned into a profitable opportunity by PAL. This can be seen in the sales graph of PAL which went up from Rs. 162.8 million in 1998-1999 to Rs. 4212.6 million in 2008-2009. During the same period, net income rose from Rs. 3.91 million to Rs. 381.4 million. This growth was accompanied by growth in asset base and customers, upgraded technology, semi - automatic processes being gradually replaced by automatic processes. Further, the variety of products to be offered to customers, too has increased. This kind of impressive performance is a result of long vision, long term planning, meticulous implementation and dedicated efforts of the employees and management.

PAL's Edge:

• It has a strategic job-work order and tie-up with Hindalco Industries Ltd. (one of the largest manufacturers of aluminium in the country). This tie- up ensures PAL getting raw materials at preferential rates.
• It entered into an agreement with ALCAN, one of the largest producers of aluminium in the world, to market AFC's and AFR's in Germany, thus opening up the entire German markets for PAL.
• It acquired DES (Singapore) with its plant and machinery along with its customer base, which includes Emirates Airlines, Singapore Airline and Thai Airways amongst others.
• It is the biggest supplier of AFC to railways, flight kitchens, airlines and fivestar hotels.
• With the aim of meeting future demands, fueling higher sales growth and economies of scale and increasing profitability, PAL has increased its manufacturing capacity by four times in the last two years. The manufacturing capacity of AFC's has increased from 457 million to 1175 million peices, AFR's from 7.5 million to 15 million pieced and aluminium lids from 185 million to 470 million pieces, per annum.
• PAL has ventured into trial exports to newer markets like Nigeria, Yemen and Sri-Lanka, resulting in additional and bigger orders for their products.
• It has the distinction of being the manufacturer of the largest variety of AFC's in various shapes and sizes catering to a wide gamut of industries.

PAL is quoting at 5.35 PE in an industry where the average PE is about 10.81. It is quoting at almost its book value. It is a regular dividend paying company and its dividend yield come to about 1.24% at the CMP. Its sales are almost twice its current market capitalization which puts PAL well within the comfortable zone. It has a very small equity of just Rs. 12.94 crores. An increase in profits will be shared and distributed among a smaller base thus resulting in exponential rise in its stock price. Thus this is a very good positive. Its debt equity ratio stands at 1.37 which is well within the safe zone. Its interest coverage ratio stands at 3.18 which puts PAL well within the margin of safety.

Thus it can be considered as a safe investment. Its EPS for the year 2009-2010 was Rs. 35.20. However in the first two quaters of the current financial year it has already earned around Rs. 25.09 which is quite impressive. Over the years it has shown a consistent growth in its sales and with the current expansion, it will continue with this growth projectary.

PAL belongs to an industry which can be considered as a recession proof industry. It is something like a match box industry. Its demand never ceases. Thus according to me, this is a very good safe and long term investment and it has the potential to become a multibagger in future. Buying at current levels and on dips would be good.

Happy Investing