CRISIL assigns valuation grade of 3/5 to Responsive Inds

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CRISIL assigns valuation grade of 3/5 to Responsive Inds

CRISIL Research has come out with its report on Responsive Industries. The research firm has upgraded the fundamental grade to 4/5 for the company in its October 28, 2011 report.

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CRISIL Research has come out with its report on Responsive Industries . The research firm has upgraded the fundamental grade to 4/5 for the company in its October 28, 2011 report.

Responsive Industries Ltd (Responsive) manufactures PVC flooring solutions, seat covering, upholstery, pharmaceutical packaging, transparent sheeting and shipping ropes. It has completed its capacity expansion in Q2FY12 which increases our confidence in the management's ability to enhance Responsive's dominance in domestic markets and further penetrate global markets. In addition, based on the improvements in corporate governance practices, we upgrade the fundamental grade to 4/5, indicating that its fundamentals are superior relative to other listed securities in India.

Capacity expansion to help leverage Responsive's strong position
Responsive has doubled its PVC products capacity to 90,000 MTPA and its shipping ropes capacity to 40,000 MTPA from 33,000 MTPA in FY10. It is by far the largest domestic manufacturer of PVC and shipping rope products and has the largest market share. Responsive is expected to reach optimum utilisation levels by FY13, given the increasing demand for PVC products, combined with increasing penetration in the international markets.

Expansion + low cost base + strong distribution = strong growth
Responsive is one of the low-cost producers globally, as most competitors have manufacturing facilities in the developed world. Responsive has shown 30%+ revenue growth rates, whereas its international and domestic peers' revenues have stagnated. Due to its low cost positioning, strong distribution base, and increasing investments in international sales, we expect the company to benefit significantly from the capacity expansion and register strong growth.

Exposed to fluctuations in raw material prices
• Responsive relies heavily on crude oil derivatives. Adverse movements in international crude oil prices will have an impact on profitability.

• With exports accounting for ~60% of total revenues, the company remains exposed to currency movements.

Expect two-year revenue CAGR of 31%
Revenues are expected to register a two-year CAGR of 31% to Rs 20.2 bn in FY13 due to new capacity coming on stream in FY12. EBITDA margin is expected to increase by 280 bps to 18.8% in FY13 due to higher share of high margin PVC flooring products. EPS is expected to increase to Rs 6.5 in FY13 from Rs 3.7 in FY11.

Valuations - the current price is 'aligned' with fair value
We continue to use the discounted cash flow method to value Responsive at Rs 107 per share. At the current market price of Rs 107, the stock merits a valuation grade of 3/5.

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.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

To read the full report click on the attachment