 |
Much of the magic lies in picking stocks of companies whose manufactured items represent critical ingredients in branded products used in everyday living.
Much of the magic lies in picking stocks of companies that have captured a major share of their rapidly growing markets.
Much of the magic lies in picking stocks of companies that enjoy a loyal vendor relationship with large Indian and multinational brands.
Much of the magic lies in picking stocks of companies where it has been possible to pass on cost increases to customers and retain some part of the margin during price declines.
Much of the magic lies in picking stocks of companies where the capacity increase will now be followed by revenue growth and profit increase.
Much of the magic lies in picking stocks of companies where margins are beginning to inch ahead on account of enhanced value addition.
Much of the magic lies in picking stocks of companies where the portfolio of existing products is a fraction of products that can be developed.
Much of the magic lies in picking stocks of companies where one of the largest companies within that industry has taken a stake and intends to use the company in question to export. Riddhi Siddhi Gluco Biols answers to each of these diverse requirements.
The company is India’s largest starch manufacturer and fastest growing starch company. Its products: maize starch powder, liquid glucose, dextrose monohydrate, maltodextrine, high maltose corn syrup, dextrose syrup and allied by-products.
If you look at the evidence of the last few quarters, the company has disappointed. Sales and profits declined after the peak of the last quarter of 2006-7. Thereafter, an industrial mishap staggered production, sales and profits.
But if you track the results of the last quarter of 2007-8, there is a vigorous rebound. The company’s corn milling capacity has increased from 2,83,000 tonnes per annum (TPA) to 5,00,000 TPA following the commissioning of a new plant in Uttaranchal, which has only barely begun to reflect in the numbers:
• Total income rose from Rs 60 crore in July-Sept quarter of 2007-8 to Rs 88.3 crore in Oct-Dec quarter
• Increase in earnings before income, taxes, depreciation and amortisation (EBITDA) from Rs 10.24 crore in July-Sept quarter of 2007-8 to Rs 15.76 crore in the Oct-Dec quarter
• Increase in EBITDA by Rs 5.52 crore across quarters but an increase in interest outflow by only Rs 9 lak
The last quarter of 2007-8 could see the uptrend accelerating, reflected in a top line of Rs 130 crore at existing margins. On the basis of a top-line projection of Rs 550 crore and a 200-basis point increase in EBITDA margin following the full flow of benefits from the new Uttaranchal plant in 2008-9, there is a possibility of the company reporting an EBITDA in excess of Rs 100 crore for the coming financial year on a market capitalisation of less than Rs 250 crore.
Disclosure: The writer holds stocks in Riddhi Siddhi Gluco Biols.
Patherya heads Trisys, an annual reports consultancy. His column will identify stocks that are not in the limelight He can be reached at mudar@trisyscom.com
