Buy Cochin Minerals; target of Rs 350: Sunidhi Securities

Sunidhi Securities is bullish on Cochin Minerals and Rutile and has recommended buy rating on the stock with a target of Rs 350 in its December 5, 2012 research report.

“Incorporated in 1989, CMRL’s plant is ideally located at Edayar Industrial Development Area, hardly 15 Km. from Cochin Port and 100 Km. from the Ilmenite deposits. CMRL started production with a modest capacity of 10,000 tpa of Synthetic Rutile (Titanium Dioxide) and 12,500 tpa of Ferric Chloride. Subsequent through innovations and debottle-necking, the Company enhanced its production capacity of Synthetic Rutile to 45,000 tpa, Ferric Chloride to 24,000 tpa, Ferrous Chloride to 72,000 tpa and Cemox to 18,000 tpa.  CMRL is a 100 percent Export Oriented unit in the Mineral Processing sector with manufacturing, marketing and research capabilities.”

“CMRL's main product is Synthetic Rutile, which finds application as raw material for the Titanium pigment and titanium sponge/metal industry. Other products are by products.  Ferric Chloride has applications as an etching agent and is an effective coagulant for drinking water and effluent treatment. Ferrous Chloride is coagulant for drinking water and effluent treatment. Iron Hydroxide (Cemox) clay used for brick and tile making.  The main raw materials of CMRL are Ilmenite and Hydrochloric Acid. While Hydrochloric Acid is indigenously available, CMRL has to arrange supply of ilmenite from domestic and international market.”

“During Q2FY13, net profit surged by 156% to Rs21.0 crore (Rs8.2 crore) on 69% higher sales of Rs79.8 crore (Rs47.1 crore). OP and NP margin stood at 41.1% and 26.3% as against 28.9% and 17.4% respectively in Q2FY12. (YoY). Q2FY13 EPS works out to Rs26.9 Vs Rs10.5 in Q2FY12.
During H1FY12, net profit rose by 224% to Rs35.0 crore on 50% higher sales of Rs138.6 crore. OP and NP margin stood at 39.6% and 25.3% Vs 20.4% and 11.7% respectively in H1FY12. H1FY13 EPS works out to Rs44.9 Vs Rs13.8 in H1FY12.”

“CMRL has entered into an agreement with Regional Research Laboratory, Trivandrum, (RRLT) and adopted a modified version of their technology for production of Synthetic Rutile via the metallization process. The technology was adopted as it was professed to be more environments friendly. By-products from the new process are recovered as saleable, which renders it pollution-free. International clients, such as Sumitomo Corp of Japan, have testified to the quality, reliability and safety aspects. Many new innovations have been incorporated to make the process environment-friendly and economically viable in Indian conditions. CMRL products are of highest International Standards and are well accepted by the buyers. CMRL continues to be certified ISO 9001: 2008 by the prestigious agency Bureau Veritas Quality International, with accreditation from UKAS London, ANSI-RAB, USA and NABCB, India.”

“CMRL also has certification from NSF International for its products Ferric Chloride, Ferrous Chloride and Ferrous chloride with hydrated Titania (Catalyst) that these products conform to NSF/ANSI standard 60 for drinking water treatment.  There has been improvement in the global demand for Synthetic Rutile/and Ferric Chloride in the sea water desalination plant in Gulf countries and for Ferrous chloride in sewage treatment plants in African Countries. It exports more than 80% of its production and in the current scenario where the Rupee is weakening against the USD, the company could benefit out of higher Rupee realization. These give strong visibility to revenue going forward.  At the CMP of Rs267, the share is trading at a P/E of 3.2x on FY13E and 2.8x on FY14E. We recommend BUY with a target of Rs350 in the medium term,” says Sunidhi Securities research report.

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