CRISIL assigns fundamental grade of 2/5 to Pondy Oxides

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CRISIL assigns fundamental grade of 2/5 to Pondy Oxides

CRISIL Research has come out with its report on Pondy Oxides & Chemicals. The research firm has assigned the fundamental grade of 2/5 to the company which indicates, the company’s fundamentals are ‘moderate’ relative to other listed equity securities in India. in its January 16, 2012 report.

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CRISIL Research has come out with its report on Pondy Oxides & Chemicals . The research firm has assigned the fundamental grade of 2/5 to the company which indicates, the company's fundamentals are 'moderate' relative to other listed equity securities in India. in its January 16, 2012 report.

Pondy Oxides & Chemicals (POCL) manufactures lead metal, lead alloys and metallic oxides through smelting and refining. While demand for lead products is expected to grow at a healthy CAGR of ~7% over the next five years, a very competitive industry, high volatility in lead prices and exchange rates restrain our grade on POCL. We assign a fundamental grade of 2/5, indicating its fundamentals are moderate relative to other listed equity securities in India.

Lead demand to grow with consistent increase in battery usage
The battery segment accounts for ~80% of lead demand. Rise in demand for auto batteries from OEMs (original equipment manufacturers), replacement demand and increased need for power backup and inverter batteries have driven up the demand for lead, both locally and internationally.

Strong operational capabilities give it an edge over others
POCL has established its market position in the industry with its strong operational capabilities in procuring and ensuring adequate availability of raw materials through imports and its integrated operations. POCL has strong clientele in both domestic and international markets.

Key risks: Volatility in lead prices, raw material tie-ups, competition
A) POCL operates in a highly competitive industry. B) Raw materials (mainly lead) account for ~90% of POCL's total operating costs; huge fluctuations in lead prices will put pressure on POCL's margins. C) For future expansion, POCL requires raw material tie-ups in domestic and international markets.

Revenues to increase at a two-year CAGR of 8% to Rs 3.8 bn
Revenues (consolidated) are expected to increase at a two-year CAGR of 8% to Rs 3.8 bn in FY13 driven by volume and realisation growth. Higher utilisation will enable the company to reduce it's per unit fixed costs and is expected to improve its net profitability to 2.4% in FY13. EPS is expected to rise from Rs 6.8 in FY11 to Rs 8.3 in FY13.

Valuations- the current market price has strong upside
We have used the discounted cash flow method to value POCL and arrived at a fair value of Rs 34. At this value, the implied P/E multiples are 5.0 FY12E and 4.1 FY13E earnings.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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