Buy ESS DEE Aluminium; target of Rs 581: SKP Securities

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Buy ESS DEE Aluminium; target of Rs 581: SKP Securities

SKP Securities is bullish on ESS DEE Aluminium and has recommended buy rating on the stock with a target of Rs 581 in its April 19, 2011 research report.

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SKP Securities is bullish on ESS DEE Aluminium and has recommended buy rating on the stock with a target of Rs 581 in its April 19, 2011 research report.

"Ess Dee Aluminium Ltd. (Ess Dee) is focusing on pharmaceutical packaging and has a core competency in aluminium foil based packaging products. It also caters to FMCG and food sector. It is the largest manufacturer of aluminium foil based packaging products in India with the market share of around 20%. The current capacity of the company is 37,000 MTPA which will increase to 52,000 MTPA after the commissioning of ongoing expansion at Daman. The company also has a presence in international markets with its direct exports contributing around 20% in the total revenue."

"As per the estimates of Ministry of Commerce a significant amount of USD 6.31 mn is expected to be invested in the Indian pharma industry, which will in turn boost the demand for pharma packaging. Foreseeing this, Ess Dee is undergoing a brownfield capacity expansion plan at Daman to cater the growing demand, with the estimated cost of Rs 3.5 bn. This expansion is expected to increase the capacity of the company from current 37,000 MTPA to 52,000 MTPA by the end of FY13. Topline of Ess Dee has grown with the CAGR of 56% in the past three years. It is further expected to grow by 30% in 2-3 years. The demand drivers are- growing pharmaceutical industry and; �� growing packaged food industry with rising income levels of middle class and penetration of organized retail in Tier -II and Tier - III cities. Ess Dee has recently revived its unit at Hoera, Kolkata which also have the caster plant with the capacity of 11,000 MTPA, which converts aluminium INGOTS to aluminium foil sheets. The company imports 100% of aluminium foil stock to meet its requirement from GARMCO, Bahrain, which makes the company highly dependent on GARMCO. The revival will reduce the dependency of Ess Dee on GARMCO."

"We expect packaging industry to see robust growth in the near future with the growth in pharma, food and FMCG sector. Brand functioning, budgeted spending, growing retail and health consciousness of people will encourage pharma and FMCG companies to look for effective and economical packaging for their products. At the current market price of Rs 440 the stock seems to be undervalued based on discounted free cash flow approach. We recommend BUY rating on the stock with a target price of Rs 581/- (32% upside) in 18 months," SKP Securities research report.

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To read the full report click on the attachment