CRISIL upgrades Responsive Ind`s fundamental grade to 4/5

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CRISIL upgrades Responsive Ind`s fundamental grade to 4/5

CRISIL Research has come out with its report on Responsive Industries. The research firm has has upgraded Responsive Industries’ CRISIL IER fundamental grade to ‘4/5’ (pronounced ‘four on five’) from ‘3/5’.

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CRISIL Research has come out with its report on Responsive Industries . The research firm has has upgraded Responsive Industries' CRISIL IER fundamental grade to '4/5' (pronounced 'four on five') from '3/5'.

The grade indicates that the company's fundamentals are 'superior' relative to other listed equity securities in India. CRISIL Research has assigned a valuation grade of '3/5', indicating that the market price is 'aligned' with the current levels. Our one-year fair value of the stock is Rs 107. The stock is currently trading at Rs 107 per share. The grades are not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument's future market price or its suitability for a particular investor.

The upward revision in fundamental grade is driven by Responsive's ability to maintain its dominance in the domestic PVC flooring and PVC leather cloth market. Responsive is one of the low-cost producers on account of its cheaper production base in India, while most of its competitors' manufacturing facilities are located in the developed world. Responsive has registered over 30% revenue growth over FY07-FY11 and maintained profitability, whereas its international and domestic peers' revenues have stagnated. Completion of capacity expansion as per schedule and quick stabilisation of operations have increased our confidence in the management's ability to enhance the company's leadership position in the domestic market and further penetrate the global markets. Responsive is expected to reach optimum utilisation levels by FY13, given the increasing demand for PVC products. The company's strong foothold in the shipping ropes industry further supports the grade. The grade also factors in the company's efforts to improve its disclosure levels and corporate governance practices.

The grade is constrained by Responsive's dependence on crude oil derivatives for raw material requirements. Adverse movements in international crude oil prices will have an impact on profitability. Further, with exports accounting for ~60% of total revenues, the company remains exposed to currency movements.

Financial outlook
CRISIL Research expects Responsive's revenues to grow at a two-year CAGR of 31% to Rs 20.2 bn in FY13 largely driven by the new capacity coming onstream 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.

Valuation
CRISIL Research has used the discounted cash flow method to value Responsive at a one-year fair value of Rs 107 per share. At this value, the implied P/E multiples are 26.8x FY12 EPS and 16.3x FY13 EPS.

Disclaimer: This Company commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report.
CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person - especially outside India or published or copied in whole or in part, for any purpose.

The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment