Buy Parekh Aluminex; target Rs 390: Sunidhi Securities

“Parekh Aluminex (PAL), during Q3FY12, net profit surged by 42.3% to Rs 22.2 crore (Rs 15.6 crore) on 50.0% higher sales of Rs 345.0 crore (Rs 230.0 crore). OP and NP margin stood at 18.0% and 6.4% as against 18.2% and 6.8% respectively in Q3FY11. (YoY) During 9MFY12, net profit advanced by 24.7% to Rs 60.0 crore on 43.2% higher sales of Rs 953.2 crore. OP and NP margin stood at 17.9% and 6.3% Vs 17.5% and 7.2% respectively in 9MFY11. 9MFY12 EPS works out to Rs 46.5 Vs Rs 37.3 in 9MFY11.”

“PAL manufactures these products with various sizes, shapes and microns. Aluminium Foil containers are utensils, pans, trays, packing materials made from Aluminium Foil. AFC’s has increased its capacity (casseroles/trays & containers/dishes) from 4, 000 million to 5, 750 million pieces per annum; AFR’s from 75 million to 98 million pieces per annum; and Aluminium lids from 1200 million to 1, 590 million pieces per annum. The products find its application in packaging of food items in travel industry such as airlines, railways, fast food chains, restaurants, hotels etc and also find their application in household uses. PAL has set up a world-class plant to produce AFCs and is the biggest supplier of AFCs to Railways, flight kitchens, airlines and Five Star hotels. Further, it has the best production process and moulds to produce the widest range of products.”

“PAL enjoys healthy position in the international market. Quality of the products is best and comparable to any other products of World Class suppliers. The expansion shall enable to capture the export market and the ever expanding retail market. Considering all these factors PAL is very much optimistic about times to come. The installed capacities have increased three times from the existing capacities with a wide range of product mix, which shall result in higher turnover & profitability going forward. India is the world’s eleventh largest packaging consumer, with a market size of US$550-billion that is expected to grow 18-20% (presently 15%). Evidently, it is projected that increased incomes will translate into higher industry growth. The large manufacturing base, long term supply contracts with leading clients, almost zero inward freight cost, zero excise, octroi and sales tax benefits, strong brand, huge replacement market, the potentially large addressable market coupled with major expansion give strong revenue & profitability visibility for PAL going forward. At the CMP of Rs 314, the share of PAL is trading at a P/E of 5.1 on FY12E. We recommend BUY with a target price of Rs 390 at which the share will trade at a P/E of 6.5,” says Sunidhi Securities research report.

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