Phillip Carbon Black Limited (PCBL) BSE Code: 506590 NSE Id: PHILIPCARB

CMP (BSE): Rs. 200.75

CMP (NSE): Rs. 201.30

Industry: Carbon Black

Phillip Carbon Black Limited (PCBL) is a part of the RPG group. In India, it is the pioneer and the leading producer of carbon black, a key input for tyre industry. PCBL's present installed capacity is 270000 MTPA. PCBL is not only the largest exporter of carbon black from India but also one of the largest in Asia in its field. It has 4 plants in India that are strategically located, which facilitates it to optimize its logistics cost within India as well as exports to Europe.

Industry Overview:

Last year, the demand for carbon black dropped by 7.5%. The global capacity utilization of carbon black was just 71% in 2009, due to the low demand in USA, Europe and South East Asian markets. However in spite of the global meltdown, India and China witnessed growth due to strong domestic consumption. In India, there was a 29% growth in demand in 2009, it went up to 605000 MT from 470000 MT.

Opportunity:

• Recently one of the global player in the carbon black industry announced closure of its facility in India. With this, the total installed carbon black capacity in India stands at 700000 MT. Out of this, almost 58.5% of the installed capacity would be with PCBL by the end of FY11.
• Currently almost all tyre companies in India are executing green field/brown field expansion projects to meet increasing demand for tyres from replacement as well as OE segments, particularly for passenger radial tyres.
• A few major global automakers have announced significant investments in India which will raise the demand for carbon black in future.
• The thurst on infrastructure development, particularly roads, coupled with the rise in domestic disposable income should have favourable impact on demand for tyres and consequently carbon black.
• Launch of the smaller car during FY10 has paved the way for development of smaller cars by other players in the auto industry, which should push the four-wheeler population in India. The auto companies may also cater to demand for smaller car in overseas markets from their facilities in India resulting in higher demand for carbon black.

Threat:

• Countries such as China, Russia, Australia and Thialand dump their carbon black in India at a low price. This serves as a threat to the India carbon black players. In order to counter this Anti-dumping duty was imposed on the import of carbon black. Still, the carbon black imports increased by 30% during FY10. Thus this threat of dumping will continue to prevail as long as global carbon black capacity utilization remains lower than that in India.
• Expansion of carbon black manufacturing capacity simultaneously by the domestic competitors.
• The feedstock for carbon black is the residual oil obtained from the distillation process of crude and is subject to high volatility. However the price of carbon black is revised once a quater. If PCBL is unable to timely pass on the increased CBFS cost, it may have an impact on the its profit.

Expansion:

PCBL has commissioned its 90000 MT carbon black plant at Mundra during the first half of FY10. This brings the total capacity of PCBL to 360000 MT. In addition to this, PCBL moved up in the global ranking from 10th to 8th position. In addition to this, PCBL has further decided to expand its carbon black capacity at Mundra by setting up another 50000 MT plant, which is expected to be commissioned during 3rd quater of FY11. This will bring the total capacity to 410000 MT by end of FY11. Further statutory clearances for the proposed 65000 MT carbon black is awaited.

Power Business:

PCBL has a total of 46 MW of power generation capacity. It has a 30 MW co-generation power plant at Durgapur and 16 MW CPP at Mundra that was commissioned last year. In addition to this it is further expanding its power generation capacity. It is expanding it CPP capacity by 8 MW at Mundra. It is expected to be commissioned this year. Further, a 10 MW CPP is being set up at Kochi. This is expected to be commissioned by the end of this financial year. Another 12 MW CPP at Vietnam is being planned. However, PCBL is awaiting certain statutory clearances. With this the total installed capacity will increase to 68 MW in FY11 and to 78 MW by FY12. They are further expanding it by another 80 MW.

Now, power like in the sugar industry is a by-product for PCBL, but if you look at the bottom line contribution last year it is more than 60% to the bottom line because the entire gas that is getting generated from the carbon black business is a feed stop for the production of power which is just about 60 paise per unit cost and this power is sold at Rs.5 per unit. This means a clear 733% margin in its power business. Out of the total power that is produced by them, 30% is used by them whereas 70% is for merchant sell.

New Initiatives:

PCBL with its R&D activities launched special carbon black grades for non rubber applications. These new grades are well accepted by the domestic customers and are comparable with the imported products. The contribution of this special grade carbon black in the overall topline of PCBL was modest during FY10. It has even chalked out plans to ramp up sales from this segment in the coming years.

PCBL is quoting at 2 times its book value at the CMP. Its PE is 5.09. It is one of the major player in carbon black industry. The dividend yield is almost 2.5% at the CMP. Its sales is more than twice its market cap. For FY 2010, its EPS was Rs.43.43. In FY2009 it made a net loss of Rs 64.84 however in FY10 it made a net profit of Rs.122.69 due to the revival of the auto sector, the main user of carbon black. In addition to this it is even earning good amount of profits from its power business. All put together,with auto sector booming and cost benefit in power generation, PCBL has all chances of moving into higher space with around 160 cr profit and by next year around 200 crore plus profit.

The auto sector is humming and so is the tyre and tyre retrofits sector where carbon black is used. And in carbon black, PCBL is the largest player in India. With the huge growth in auto sector, the carbon black demand is bound to increase, which makes the prospects for PCBL more attractive.

Had this stock been bought 2 years back, it would already had become a MULTIBAGGER till now. However it still looks attractive to me with the capacity expansion in both carbon black business and power business. Right now, the markets are overpriced, thus wait for some time and buy when the market corrects it self. At lower market price, this stock would become more attractive.

Happy Investing.

Graphite India Limited (GIL) BSE Code: 509488 NSE Id: GRAPHITE

CMP (BSE): Rs. 94.85

CMP (NSE): Rs. 94.75

Industry: Other Industrial Goods

Graphite India Limited. (GIL) is the largest producer of graphite electrodes in India and is one of the largest producer globally. GIL accounts for almost 6.5% of the global electrode capacity. The principal manufacturers are GIL has a total of 4 manufacturing plants - 3 in India at Durgapur (34KT), Bangalore (13KT), Nashik (13KT) and the 4th one in Germany (14KT). The total manufacturing capacity comes to approximately 78000 tonnes per annum. GIL has over 40 years of expertise in the industry and is globally competitive. GIL exports around 65% of it production to caters to its clients in over 50 countries. GIL also has facilities designed for the manufacture of calcined petroleum coke (30KT), impervious graphite equipment and glass reinforced plastic pipes and tanks. It also has an installed capacity of 33 MW of power generation through hydel and multi-fuel routes.

GIL manufactures the full range of graphite electrodes but it stays more focused on the high margin, large diameter, ultra- high power (UHP) electrodes. Currently, approximately 85% of GIL's total capacity is UHP. GIL is well poised in the global graphite electrode industry through its quality, scale of operations and low cost production base.

Industry Overview:

Graphite Electode is used in the electric arc furnace (EAF) based steel mills for conducting current and is a consumable item for the steel industry. The estimated world capacity of the Graphite Electrode in EAF is over 1 million MT. There are 2 basic routes for the steel production - (1) Blast Furnace (BF) and (2) Electric Arc Furnace (EAF). The EAF route to steel production has increased over the last 2 decades from 26% to 32% at the global level. This share of EAF is expected to grow further in years to come due to 3 main reasons - (a) an environment friendly and less polluting process, (b) low capital costs, (c) faster project commissioning time. Fresh investments in the EAF steel mills are characterized by large diameter UHP electrodes. It is expected that the demand for UHP electrodes will grow in proportion.

Due to the global meltdown, the global production of steel during 2009 was 1.2 billion MT, down almost 8.1% compared to 1.31 billion MT in 2008. A relatively weak demand in the steel consuming sector resulted in a steep fall in the demand of crude steel as well as graphite electrodes. Though the developed economies like Europe, USA and Japan, still continue to reel under the recessionary pressure, steel production and electrode demand in India and some Asian economies have recovered back to the pre-recession levels or in some cases even more. Currently, there will be softening of the electrode prices due to American, European and Japanese suppliers entering the Indian and the Asian market due to the demand. However, it is expected that by mid 2011-2012 the steel industry would revive to its full potential.

Expansion:

Foreseeing the revival of demand in the steel industry, GIL revised its expansion plan at Durgapur plant from 10500 MTPA to 20000 MTPA. The additional capacity will be commissioned with a low incremental cost of Rs. 67.5 crore. This additional capacity will be installed with eco-friendly, energy- efficient advanced technology leading to a more cost efficient and sustainable operation in the long term.

Backward- Integration:

One of the many backward integration initiatives by GIL, is its coke division at Barauni. It is engaged in the manufacture of Calcined Petroleum Coke (CPC), Electrode paste and the Tamping paste. CPC is the raw material used in the manufacture of regular and high power grade Graphite Electrode. It is also a raw material for fine grained high density graphite used in speciality graphite products and Impervious Graphite Equipment. Electrode paste is used in ferro alloy smelters and Tamping paste is used as a lining in aluminium and steel smelters.

Other Businesses:

(1) Graphite Equipment Business: The Impervious Graphite Equipment (IGE) division is engaged in manufacturing and marketing heat exchangers, ejectors, pumps and turnkey plants at its Nashik plant. The Graphite Equipments have wide range of applications in corrosive chemicals industries such as pharmaceutical, agro-chemical, chloro alkali and fertilizer industries.

Modernization and expansion work of this division to improve the overall manufacturing efficiency has been completed.

(2) GRP Pipes and Tanks Business: Glass Reinforced Plastic (GRP) Pipes and Tanks Division is engaged in manufacturing and marketing of GRP Pipes and Tanks. GIL converts users of conventional pipes to GRP through re-engineering, strategic marketing, superior product quality, competitive pricing and value added services. Second manufacturing line which will enable production of pipes up to a diameter of 3000 mm has been commissioned during the year.

(3)Power: GIL has an installed capacity of 33 MW of power generation through hydel (19.5 MW) and multi-fuel routes (13.5 MW). Power is a major cost input in the manufacturing of Graphite Electrodes. The cost of power from grid continues to rise year-over-year. The power requirement at Durgapur Plant will go up with the on going expansion. In order to reduce dependence on grid power and ensure availability of quality power at economical rate, GIL is setting up a coal based thermal power plant of 50 MW capacity at Durgapur. This will enable GIL to further optimise its cost of production and increase its competitiveness in the global market. It has also entered into a long term agreement with Wardha Power Company (WPC), to receive power supply and in turn made a commitment to invest Rs. 9 crore in WPC and is expected to commence later in the year 2010-11.

(4) Powmex Steels Division (PSD): PSD is engaged in the business of manufacturing high speed steel and alloy steel having its plant at Titilagarh in the state of Orissa. PSD is the single largest manufacturer of High Speed Steel (HSS) in the country. Its current market share is estimated at around 60%. HSS is used in the manufacture of cutting tools such as drills, taps, milling cutters, reamers, hobs, broaches and special form tools. HSS cutting tools are essentially utilized in automotive, machine tools, aviation and DIY market.

The last year, in spite of challenging business scenario, GIL posted a satisfactory performance, primarily because of its continuous cost optimization efforts throughout all the divisions. Capacity utilization of graphite electrode segment was 52% in FY10 as compared to 85% in FY09. Production was attuned to demand. Lower demand resulted in lower sales. Despite lower sales, the higher sales realization, lower input costs and reduction in the operational costs helped it in improving the operating margins. In FY10, the gross sales were Rs.1178 crore as against Rs. 1183 crore in FY09. In spite of no significant difference in the gross sales, the PAT stood at Rs.232 crore for FY10 against Rs.194 crore in FY09, showing a growth of almost 19.5%. The graphite electrode division is the main contributor to the revenues for GIL. In FY10 it contributed nearly 82% to the total revenues. It has a total equity of Rs.34.30 crore and reserves of almost Rs.1149.22 crore. Against this it has total debt of Rs.249.26 crore which brings it debt equity ratio to just 0.21 because GIL has repaid a significant amount of debt in the last 4 years. Thus it has highly de-leveraged itself which makes it more attractive for me.

GIL is quoting at 1.47 times its book value and is available at a PE of 7.88 at the current price. Its EPS for the FY10 was Rs.13.54 per share. It has shown a growth of approximately 34% CAGR in its earnings since the last 5 years. It is a regular dividend paying company and it paid a dividend of Rs. 3.5 per share (175%, FV - Rs. 2 per share) which brings dividend yield at 3.7% at the current levels. GIL's recent decision to add capacity and backward integration initiatives would add to the volumes in the future. Growing demand for graphite electrodes with the revival of the global steel industry and all around improvement in the operating efficiency can lift GIL's topline as well as bottomline in the coming years.

GIL does not only offer its customers quality products and services. It conducts business with a respect for the environment at every stage of its product cycle across all its plants. As a result, GIL is committed to sustainable development. It is a green company. This thing might not be important for some of the investors but to me it is, because a company which does its business keeping the environment in mind is a good company to invest in. For me, the best CSR is to do business while sustaining the environment and this is definitely one of them.

Till the global economy is revivied, the performance of GIL will remain strained, however once the global economy picks up and the steel industry picks up, the growth will be tremendous. With the steel sector expected to pick up in the mid 2011-2012, I foresee huge growth potential and huge volumes for GIL with the new capacity additions. The future of this company seems very good. It may be considered as a VALUE pick. A good long term bet.

Buying at current levels and at further dips would be very attractive.

Happy Investing.

Micro Technologies (India) Limited BSE Code: 532494 NSE Id: MICROTECH

CRIME and TERROR have made security a prime concern for everyone.

CMP (BSE): Rs. 195.05

CMP (NSE): Rs. 194.35

Industry: IT Software Products

Micro Technologies (India) Limited. (MTIL) is an IT based company and a leading global developer, manufacturer and marketer of security devices. It caters to various clients throughout the globe. Its products includes the much-needed security devices, life style and support systems and web-based software. It is highly focused on innovation and advanced technology to accomplish its aim of providing its clients SECURITY. It is one of the most valued security solutions provider across the globe and has been accorded with many national and international awards for its growth and R&D.

The concept of complete security in vehicles, home and mobile is still making its place in the minds of people. As the economy is growing, the disposable income of people is increasing and with the concept nuclear families picking up the idea of having complete security is also sinking in the minds of the people. The oppurtunities thus presented by these factors are enormous. Currently, the penetration of security products in premises, automobiles and other asset segments is low, thus there is a huge potential demand for these security products.

The India security market is expected to increase enormously to about US$ 10-12 billion by 2016 because security is something that has been transformed from an administrative subject to a business continuity issue. According to the estimates, India's total homeland security spending in the Indian market is estimated to reach US$ 8 billion by 2016. The hotel infrastructure security is projected to total over US$ 1.2 billion and transport security is projected to reach US$ 1 billion by 2016. The banking and financial security services is estimated to over US$ 800 million. Government facilities and real estate is pegged at US$ 400 million.Healthcare sector estimated to US$ 660 million and industry sector demand over to US$ 800 million. Sensing this enormous oppurtunity from the beginning, MTIL displays high product diversity in various segments of vehicles, premises, mobile, other assets and now is even entering into the energy & health segment.

MTIL has earned a good reputation for providing leading security solution in India as well as other countries like Israel, Japan, Belgium, etc. The business potential in Israel is around US$ 10-15 million. It has even formed a JV with Bio-Guard systems, an Israel based company for expansion of micro products in the European markets such as Poland and Portugal with business potential of around US$ 5-6 million. Even in Japan, the micro products have a revenue potential of US$ 7-10 million. It has even targeted a niche market Sri Lanka by entering into a business partnership with I-Systems, a Sri Lanka based company to market it vehicle, home and mobile security products with a revenue generation of around US$ 4-5 million.

MTIL has a very small equity base of just 12.84 crores. This would be very beneficial as earnings of the company are distributed among a lower equity base and with MTIL, I expect very good earnings in the future because of the idea of security picking up in India. In addition to this, it is quoting at a PE of just 3.93 in an industry whose average PE is 22.10. The book value is Rs. 278, thus it is currently quoting at just 0.7 times its book value. Thus the stock is available at a discount. It would be a very good buy and good long term investment.

Buying at the current levels and even at further dips would be very attractive and a good long term bet.

Happy Investing.

Finolex Industries Limited BSE Code: 500940 NSE Id: FINPIPE

CMP (BSE): Rs. 78.35

CMP (NSE): Rs. 78.40

Industry: Plastic Products

Finolex Industries Limited (FIL) was incorporated in 1981. FIL is the largest PVC pipe manufacturer in India. The pipes division of FIL is the first PVC pipe manufacturer in India to get ISO 9001: 2000 certifications. It is India's only integrated PVC pipes and fittings manufacturer with 140000 MTPA capacity and 260000 MTPA capacity of PVC polymer. The company is also into drip irrigation business through its JV company Finolex Passion.

It has two ultra modern plants at Urse(near Pune) and Ratnagiri. Its manufacturing plant at Ratnagiri has an open sea jetty for importing raw materials. Half the PVC capacity is based on vinyl chloride monomer (VCM) route, while the other half uses ethylene and ethylene dichloride (EDC) as raw material. FIL offers a wide range of PVC pipes and fittings, for diverse applications in agriculture, housing, telecom, industry, etc., ranging between 20 mm to 400 mm diameter. FIL also manufactures specialty pipes and fittings, namely SWR (Soil, Waste and Rain Water) as well as ASTM pipes and fittings for the construction Industry. The product range of FIL includes PVC-U Pipes and Fittings, PVC Resin and Chemicals. Within chemicals, FIL actively trades in Ethylene Di Chloride and Methanol and caters to various industries such as pharma, fertilizers, paints, laminations, amines, etc.

Within FIL's PVC Pipes Business the bulk of FIL's PVC pipe production is sold in the rural markets for agriculture and irrigation. In addition to this FIL has a vast network spread across the length and breadth of the country. FIL reach is present even to the remotest village where PVC pipe demand exists. FIL has successfully completed the expansion of PVC pipes manufacturing capacity from 100000 MTPA to 140000 MTPA. The full capacity has already started from this year. Due to the strong demand for the FIL's products, FIL is now contemplating further increase in PVC pipe capacity at a new location.

FIL's PVC Resin Business has a lot of opportunities in front of them. The domestic demand for PVC resin grew by almost 25% during FY 10 and has been growing since the last so many years. This is because of a net shortage that has been prevailing in India since years.The total imports of PVC resin into India grew to almost 800000 MT and is expected to grow in future. Even the international prices of PVC resin had been on a rise. Despite this, FIL has been able to maintain its margins because of its ability to pass the cost increase to the market fairly quickly.

FIL is quoting at a PE 7.34 in an industry where the average PE is around 17.11. Other players from the plastic processing company such as Supreme Industries, Jain Irrigation, Tulsi Extrusion, Kisan Mouldings are all trading in the PE range of 7 to 31. It is available at a price which is 1.65 times its book value. Though at a premium, it still appears cheap to me because of its growth prospects and growing demand of its products. Its EPS in FY 10 was Rs. 10.67 as compared to a loss of Rs.3.06 in the previous year, which is very impressive. However the loss in FY 09 was mainly due to the fluctuations in the prices of the raw materials, and this was the 1st tyme in the last 10 years that the company made any losses. The earnings of FIL has been growing at the rate of 33% CAGR for the last 5 years. This sounds very impressive. It is a regular dividend paying company. It has never missed a dividend in the last 10 years. Last year, it paid a dividend of Rs.3/, which brings the dividend yield to be around 3.83% at the current price which is quite good.

With the Indian economy poised to grow at 9.5 % in 2010-2011, the agricultural sector is also expected to show good improvement. In addition to this, the government is taking new initiatives in announcing progressive schemes for development in rural India that encourage micro and drip irrigation, due to which the demand is expected to be buoyant in the future and as FIL' products being largely sold in the rural markets, FIL too is set to grow. Out of the pipes capacity, FIL commissioned 40000 MTPA capacity in FY 10. FIL plans to add another 50000 MTPA capacity by FY 12. FIL also has completed its 43 MW thermal power plant at Ratnagiri, which is double the capacity it needs for captive consumption. Thus, apart from cost saving on energy, FIL will have earnings from the merchant sale of electricity going forward. FIL also has 78 acre free land in Chinchwad near Pune and over 600 acres in Ratnagiri that could either be sold off or utilized for expansions. FIL even plans to set up a 30 MW gas based plant in Chinchwad. All these initiatives are expected to take FIL from its investment phase to a high cash generation phase in the future. Hence its appears to be a good long term buy.

Happy Investing.

India Glycols Limited (IGL) BSE Code: 500201 NSE Id: INDIAGLYCO

Technology that sustains the Earth - GREEN Technology

CMP (BSE): Rs. 132.20

CMP (NSE): Rs.132.15

Industry: Commodity Chemicals

India Glycols Limited (IGL) holds the distinction of being the only green petrochemical company of its kind. It is the first and only company in the world to have commercialised the production of ethylene oxide, its derivatives and glycols from renewable agricultural resources, namely molasses or sugar cane. IGL has adopted several green technologies, and it continuously works to evolve new green methods, materials, innovative technologies and systems to meet the specific requirements of global clients. Their aim is to be at the forefront of efforts against global threats such as global warming, stratospheric ozone depletion, resource depletion, bioaccumulation and persistent chemicals.

IGL is one of the leading manufacturers of Glycols, Ethylene Oxide Derivatives, Ethyl Alcohol (Potable), Natural Gums & Derivatives and Industrial Gases. Its product range spans the chemicals, spirits, herbal and other phytochemical extracts and guar gums, industrial gases and realty sectors, IGL's portfolio of more than 250 products finds its application across a large number of industries such as agrochemicals, automotives, detergents, healthcare, food processing, mining, oil & gas, paints, paper, personal care, pharmaceuticals and textiles.

Almost 69. 2% of IGL's revenues come from the chemicals business. Ethyl Alcohol business contributes almost 28.78% to the total revenues and other businesses contribute merely 2%.

The various divisions of IGL are as follows:

(A) Chemicals

• Ethylene Glycols: IGL has a capacity of manufacturing 175,000MTPA of Ethylene glycols. IGL is the only manufacturer in the world to produce bio-ethylene glycols using methylene glycols (MEG, DEG and TEG) molasses. Glycols are used for the manufacture of polyester yarn, fibre, film and resin and as an automobile coolant. Bio-glycols cater to the beverage and food industry's packaging requirement of PET bottles and polyester film. IGL is promoting its gylcols as BIO/GREEN MEG to potential customers interested in meeting their objectives of using environment friendly chemicals made from natural renewable sources. IGL is hopeful in converting this concept further into a good business opportunity in future.
• Ethoxylates and Polyethylene Glycols: IGL is the largest manufacturer of ethoxylates in India, with a production capacity of 70,000MTPA. It produces wide range of Ethoxylates to meet the diversified needs of various end-use industries such as textile, pharmaceutical, personal care, emulsion polymerisation, paint, detergent, automotive, agrochemical and other industries.
• Glycol Ethers and Acetates: IGL has the capacity to manufacture 70,000MTPA of glycol ethers and acetates.
• Performance Chemicals: IGL has the capacity to manufacture 35,000MTPA of performance chemicals.

(B) Industrial Gases:

India Glycols manufactures 24,000MTPA of liquid oxygen including medical oxygen, 1,600MTPA of liquid nitrogen and 3,300 MTPA of liquid argon. The cryogenic gases are produced using pioneering air separation technology and are supplied to customers in India in the private and public sectors.

(C) Natural Gums:

IGL's Natural Gums Division (NGD) was started way back in 2001. It has a manufacturing capacity is 10,000MTPA of guar products for varied applications such as food, oilfield / petroleum, textile printing, paper, feed and pharma, mining and explosives. It is highly specialised in making textile-printing thickeners based on guar and tamarind kernel powder. The facilities for the manufacturing of textile-printing thickeners have been expanded to a production capacity of 2,500MT per year. From the beginning of 2008, improved facilities for manufacturing high- viscosity, fast-hydrating slurriable guar gum for the oilfield industry have been added with a capacity of 5,000MT. IGL specializes in manufacturing very special products for the oilfield industry.The products are marketed globally, especially, in the US, Europe (food, oilfield, etc) and South East Asia (food, textile, paper, etc).

(D) Spirits:

The spirits division of IGL commenced operations in 2002. In a short span, it has successfully achieved market penetration across the northern and southern parts of India. IGL has a strong presence in the semi premium, regular and prestige segments within the whisky, rum, brandy, vodka and gin product categories. IGL has three distilleries in Kashipur (Uttarakhand), Gorakhpur (Uttar Pradesh) and Todarpur (Saharanpur, Uttar Pradesh) with a total distillery capacity of 280,000KLPA for the production of ethyl alcohol, out of which, 80,000KLPA is for potable alcohol. The Kashipur facility is considered one of the most efficient distilleries in the country. At present, the distillery is working on the 'smart distillery concept' capable of producing alcohol from different raw materials, ie, molasses, grain and sugarcane. Apart from producing industrial alcohol for its captive consumption, IGL is also one of the biggest exporters of international quality ENA (neutral spirit).

Raw Material Availability:

IGL manufactures various products using molasses as the feedstock. Molasses is the waste product of sugar mills. Sugarcane production is dependent on adequacy of rain. Thus availability of feedstock is affected by climatic conditions. To protect against this risk, IGL has created large storage for feedstock so that adequate quantities can be produced during the season and also the inventories can be built up during the period of good monsoon. IGL also has a subsidiary Shakumbari Sugar and Allied Industries (SSAIL) in which it hasacquired a 96.6 per cent stake in 2007, a strategic investment that helped IGL not only gain a sizeable share of the domestic sugar market, but also bolster its ethanol and molasses production. SSAIL's sugar manufacturing unit was initially set up with a licensed capacity of 2,500 tonnes of cane per day (TCD), and was later expanded to 5,500TCD in 2008 as a part of its first phase of expansion plan. In the second phase of expansion the capacity of sugar manufacturing plant will be enhanced to 7500 TCD from 5500 TCD. Apart from the sugar facility, SSAIL has a distillery plant, which was set up in 2004. Expansion work is currently underway to bring the capacity up from 40KLPD to 240KLPD.

Opportunities for IGL:

• There is a substantial increase in the polyester manufacturing capacities in India due to major expansion undertaken at Reliance, Indo Rama, JBF and Garden Mills. The polyester industry is expected to grow at 11% during 2010-2011. Overall demand of MEG in India is 14 lakh MTPA as compared to 7.5 lakh MTPA, where the balance is being met by imports. Thus despite the recessionary trends in the international market, there is a high demand of MEG in India.

IGL's PE is 18.44 at the current market price but it is still quoting at a mere discount i.e 0.93 times the book value at the current market price. Its market capitalization is just Rs. 368.61 crores compared to its sales of Rs. 1345.55 crores. Thus its sales is almost 3.65 times its market cap. This makes it even more attractive because you get a business worth Rs.1345.55 crore by investing just Rs. 368.61crore. In FY 09, IGL made a net loss of Rs. 91.89 crore mainly due to the global meltdown. However with the revival of the global economy in FY 10, IGL made a net profit of Rs. 20 crore.

IGL appears to be a VALUE pick. Even at the CMP it is quoting at a discount but buying it at futher dips would make it even more attractive.

Happy Investing.

Sabero Organics Gujarat Limited (SOGL) BSE Code: 524446 NE Id: SABERORGAN

Addressing the needs of the robustly growing population.

CMP (BSE): Rs. 73.50

CMP (NSE): Rs. 73.75

Industry: Agrochemicals

The world population is currently 6.7 billion and 750 million people are born every year. Population is projected to reach 9 billion by 2050. In order to feed such huge population, the yields from the farm has to be increased substantially from the current levels. Due to this the demand for agrochemicals is going to be very strong in the coming years, because of it being one of the key inputs to increasing yields.

Sabero Organics Gujarat Limited (SOGL) is a company that is a leader in crop protection and a leading producer and supplier of agrochemicals such as fungicides, herbicides, insecticides and specialty chemicals. Currently it has a product portfolio of 5 insecticides, 2 fungicide and 1 herbicide. It has its manufacturing facilities located in Gujarat and has marketing offices in India, Brazil, Europe, Australia and Argentina. It supplies its products to over 1000 customers in 50 countries.

In our country, agriculture and allied sectors account for around 18% of the GDP but employs almost 70% of the total workforce. Hence it is still the largest economic sector and plays a significant role in the overall socio-economic development in India. In addition to this the performance of this sector is more dependent on the weather and climatic conditions and to some extent is largely insulated from the financial markets and economic scenario. SOGL exports almost 65% of its turnover and to that extent it is insulated from the regional climatic conditions by diversifying this risk by selling to countries in all the parts of the world in the southern and northern hemispheres, both of which have opposing climate throughout the year. In addition to this it is present in all the three segments- insecticides, fungicides and herbicides, so if there is a dip in the demand in one segment it can be made up in other segments. This is how it diversifies its risk of uncertainity. This also ensures fairly stable and uniform sales throughout the year. Currently insecticides and fungicides each bring in about 40% of SOGL's revenues while the herbicide - Glyphosate, brings in the remaining 20%.

In the herbicide segment, the largest herbicide globally is Glyphosate which is used to kill unwanted plants in both agricultural and non- agricultural landscapes. The demand for this product has gone up significantly. The company has recently obtained registration for glyphosate technical in Europe and is now focusing on high margin markets like Africa and Latin America. SOGL is the undisputed leader of glyphosate in India and stands second in the world.

In the fungicide segment, Mancozeb is the largest selling product. SOGL has recently expanded its mancozeb capacity to 30000MT, which has a potential to deliver $125 million of revenues at full capacity. The company has gained significant market share in Phillipines, Ecuador, Guatemela, Cameroun, Costa Rica, Columbia and also in some of the European countries. SOGL is the leading player in Mancozeb in India and the 2nd biggest player in the world.

In the insecticide segment, the largest selling insecticide globally is Chlorpyriphos. The demand for this product had increased globally. The company has received orders from Brazil in excess of half of its capacity from Brazil alone. SOGL is also a significant producer of acephate, the other large selling insecticide and a major product in India, Brazil, USA, Argentina, Paraguay and Japan. SOGL is a major player in both this products, in both domestic as well as international markets.

SOGL has set up a total of 6 subsidiaries and associate companies in Australia, Europe, Philippines, Argentina and Brazil. Though them SOGL obtains registrations both locally as well as in neighboring countries. Currently, SOGL and its subsidiaries have about 240 product registration in 50 countries. A product registration is a prerequisite to selling a product in a particular market. Brazil is the 2nd largest agrochemical market in the world and hence registrations in such countries are more expensive and difficult to obtain. SOGL obtained its first registration of Chlorpyriphos in April,2009. SOGL expects to obtain three more registrations of Mancozeb, Acephate and Glyphosate in Brazil.

New Initiatives:

• SOGL is filing for new product registrations in key markets such as US, Europe, Argentina, Brazil and Latin America. In the last 3-4 quaters , 4-5 new products have already been registered in Australia and Argentina. Approval of 3-4 more product registrations are present in th pipeline and will be complete within the next 2 months. This is expected to drive SOGL's topline as well as its bottomline.
• SOGL has entered into the formulations business for it to become an integrated player in the crop protection industry. The strategy is to use its own technical products to form new formulations. SOGL is also planning to set up a plant in Dahej SEZ which will help it to reduce its cost. In addition to this, SOGL also plans to launch 2-3 new products every year to enhance its product base and help it in backward as well as forward integration.

During the past 5 years, the profits of SOGL has grown at 61% CAGR and its sales have grown at 30% CAGR. Currently SOGL is quoting at a PE of just 6.93 in an industry whose average PE is 17.40. Its EPS for the FY10 was Rs. 13.15 as compared to the EPS of FY09 which was Rs. 7.47, an increase of about 76% in its earnings. Its revenues showed a growth of 15.5% as it stood at Rs. 461 cr for FY10 up from Rs. 399 cr for FY09. Its EBIDTA was up by 62.5% to Rs. 85.87 cr in FY10 from Rs. 52.82 cr in FY09. This resulted in higher operating margins. The operating margins stood at 19.95% in FY10 compared to 14.41% in FY09. The net profit margin was up 77.7% at Rs. 38.72 cr in FY10 from Rs. 21.79 cr in FY09. The net profit margin also improved to 9% from 5.9% in FY09.

SOGL is following a steady business model that requires little capex to grow. Registering more and more products in overseas market, introducing new products and expanding retail footprint are the three prolonged strategies adopted by SOGL. At a time when Indian agrochemical players are expected to gain from the pressure to improve the agricultural yield and the shift of manufacturing base from western countries to Asia, long term investment in SOGL should be considered.

Happy Investing.

Electrosteel Castings Limited BSE Code: 500128 NSE Id: ELECTCAST

CMP (BSE): Rs. 51.20

CMP (NSE): Rs. 51.20

Industry: Construction & Engineering

Water infrastructure is the need of the hour because India has about 16% of the world population but is estimated to have access to just 4% of the world's water resource. As per the planning commission, in India almost 9% of the urban population and approximately 25 % of the rural population does not have access to water supply. 76% of the water supply in rural India is still being sourced from tubewells, handpumps, wells and others. In urban India, 31% of the water supply is through sources other than tap. This indicates the strong potential for developing pipeline network for supplying safe drinking water to the households. Thus future prospects for water infrastructure are bright. So the companies present in this area are set to grow in the future. Electrosteel Castings Limited (ECL) is one such company engaged in providing solutions for water infrastructure.

ECL is a company providing techno-economic solutions for water supply and sewerage systems. ECL is India's largest manufacturer, and one of the few manufacturers in the world, of ductile iron (DI) spun pipes. A lack of safe drinking water and proper sanitation is a significant problem in India, and the demand for safe drinking water is increasing at a rapid rate. In order to transport sufficient quantities of water from different sources, i.e. rivers, lakes or well, to a treatment plant with minimal loss and then transport the treated water to the end user, a reliable pipe material is required that is strong, long-lasting, corrosion resistant and reduces the risk of contamination. DI pipes possess these qualities and are currently the single most widely used type of pipe for the transportation of water and sewage. Initially cast iron (CI) pipes were used, however DI pipes are preferred over CI pipes because DI pipes are more light, strong, durable and cost efficient. They also have high water carrying capacity. The DI pipes can also be laid out much faster and are virtually maintenance free.

ECL manufactures DI spun pipes, DI fittings, pig iron, cast iron (CI) spun pipes and low ash metallurgical coke (LMAC). ECL has a total capacity of 460000 tonnes in the DI segment. ECL supplies DI spun pipes and DI fittings both domestically and internationally, mainly in South East Asia, South Asia, Middle East, Africa and Europe. CI spun pipes are manufactured for domestic market only. It is also involved in the execution of turnkey projects as an engineering, procurement and construction (EPC) contractor for water and sewerage infrastructure projects, including sourcing, treatment and distribution.

The government's thrust on the infrastructure facilities is already showing continuous increasing demand for the DI pipes in the domestic market. Currently domestic demand for DI pipes is estimated to be around 610 KTPA and is expected to grow at around 15% per annum. ECL currently enjoys 65% of the market share in the domestic market and 6% in the international market. However competition is creeping in due to additional capacity being installed by the new entrants and peer group companies. But the risks of ECL loosing its market share is minimal because of its strong relationship with the government. In addition to this, there is constant endeavor by the ECL for increasing the share in the existing foreign markets and enter new countries. Currently the total investment in water infratructure throughout the world is around US $ 70 billion, and is expected to increase to almost US $ 180 billion by 2025. Thus ECL is well poised to benefit from its expanding export initiatives.

However lately even the cost of the basic inputs are going up. To deal with this and aiming at cost reduction, the company has fully integrated production facilities which include Sinter plant, Coke Oven plant, Blast furnace, Pig Iron plant, Sponge Iron plant and Captive Power plant. This integrated manufacturing facility helps the ECL to minimize the production cost because ultimately cost competitiveness is the key component of success. ECL is also awaiting final environmental clearance for its iron ore mine, which will further lower its cost.

Value unlocking through listing of EIL:

ECL is setting up a 2.2 mn tonne steel plant through EIL, in which ECL holds about 40% stake. The total cost of the project is around Rs. 7262 cr. It has been funded through debt equity ratio of 3:1 and the project has already achieved financial closure. Of the total equity contribution of Rs.1815 cr, ECL has made an investment of around Rs. 726 cr. To raise the remaining equity portion (Rs.300 cr), ECL plans to list EIL, which is likely to unlock the value for ECL. Along with ECL, the other stakeholders in EIL are Stemcor, ILFS and others that hold 20%, 8% and 32% respectively. Stemcor is the world's largest steel trader with a network of 80 offices across the globe. The strategic alliance with Stemcor will enable EIL to leverage on the former's well spread distribution channel. EIL has also entered into a 20 year long agreement with ECL- owned mines and plans to set up a 120 MW captive power plant to meet 84% of the plant's power requirement.

ECL is quoting at almost its book value. Its PE is 7.72 compared to the industry PE of 10.07. The dividend paid last year was 125% which brings the dividend yield at about 2.56% at the current market price. The EPS for the year 2009-2010 was Rs. 6.31/share (Rs. 1 face value share). Following the listing of EIL, there would be value unlocking of ECL which will earn good good returns for the investors. In addition to this, with the increase in investment in water infrastructure, the ECL is bound to grow.

Buying this stock on dips would be a very good buy, somewhere around 40-45 levels.

Happy Value Investing.