India Glycols can give 50-60% returns: Ashish Chugh

India Glycols can give 50-60% returns over a period of one year, says Ashish Chugh, Investment Analyst.

Chugh told CNBC-TV18, "India Glycol was mainly a commodity company a few years back. I think the company has been transforming itself from just a commodity play and it’s focusing more on value added products now."
He further added, "This company is a leading manufacturer of glycols. This company manufactures Mono Ethylene Glycol (MEG) and ethyl oxide derivatives. The other products, which the company manufactures is guar gum derivatives."
"This company is into herbal extracts, industrial gases and also has a distillery. Company manufactures the MEG through the green route. Worldwide companies manufacture MEG with crude as raw material, in case of India Glycol, this company uses molasses as the raw material, which gives it a significant cost advantage compared to the other players."
"This company also has a distillery where it produces liquor under its own brand, which are sold primarily in Canteen Stores Department (CSD) canteens and also does bottling for Bacardi. Company has a bio-pharma division where it manufactures natural colors, herbal supplements and also plant based APIs."
"If you look at the financials of the company FY12 sales were about Rs 2,600 crore which were up by 50% over FY11. Profit after tax jumped by close to 300% to about Rs 100 crore. This strong performance is continuing in the first quarter also. In the first quarter of the current financial year the company has achieved sales of about Rs 950 crore which is up by 50% over the same period last year. Operating profit has grown by more than 100% to about Rs 150 crore and profit after tax is about Rs 35 crore which is up by 35%."
"But I think what needs to be noticed here is that this profit after tax is after providing for a Rs 70 crore loss on reinstatement of foreign currency loans. So if this loss was not provided profit would have been about Rs 100 crore."
"This company is moving away from the commodity products to higher value added products, which is evident from the improved financials of the company and also improved operating profit of the company. If I look at the valuation of the company at the current price, the market cap of the company is about Rs 400 crore. Last year this company did a profit after tax of about Rs 100 crore, which means a PE of about 4."
"In the first quarter it has done about Rs 35 crore after providing for an extraordinary item of about Rs 70 crore. So on a very conservative basis I think this company this year can achieve sales of about Rs 3,500-3,800 crore and profit after tax can be in the range of Rs 150-200 crore to be extremely conservative. So I think a market cap of Rs 400 crore today and profit after tax even if we assume Rs 150 crore gives it a PE of less than 3 and I think fair PE for this stock would be between 5 and 6, which means a 100% possibility of a rise from these levels."
"The other thing is that the management has been continuously buying the stock from the market. If you see the disclosures given by the management to the stock exchanges, the management group has been accumulating the stock from the market and they are also doing a preferential allotment of shares of close to Rs 30-35 crore to the management, which I think is a big positive."
"If you see the price movement of the stock this stock has been primarily range bound between say Rs 125-160 kind of levels and seeing the price movement of the stock in the last few days it seems that the stock is itching to just break into a new level. So I think on a conservative basis this stock has the potential to give 50-60% returns over a period of one year." Disclosure: No investment interest in India Glycols.