ANS Fundamental Desk ARHAM Financial Centre Harihar Chowk, RAJKOT (Guj) Speak to: 0281 6699401 Drop a line to: research@anspl.net Parekh Aluminex Ltd 19 th Jan 10 BSE Sensex 17356.82 NSE Nifty 5180.95 Scrip Details Equity Rs.12.94 Cr Face Value Rs.10/- Market Cap Rs.192 Cr 52 weeks High/Low Rs.166/45 BSE Code 532606 6 Month Avg. Volume 20631 Business Group - Shareholding Pattern as on Sep 09 (%) Promoters 33.91 Corporate Bodies 12.03 Public 40.68 Others 13.38 Company Background Parekh Aluminex was established in 1994. It is the largest manufacturer and exporter of aluminium foil containers (AFC), and also one of the biggest manufacturers in aluminium foil rolls (AFRs) and aluminium lids, in India. They lead the market in the AFR segment with their ME brand of aluminium rolls and are also manufacturing the same on a job-work basis for Hindalco, the largest manufacturer of aluminium in the country, which markets it under the Fresh Wrap brand.. 12% SHAREHOLDING PATTERN 41% They have two manufacturing facilities situated strategically close together in the tax haven of the Union Territory of Dadra and Nagar Haveli. 13% 34% PROMOTERS CORP. BOD PUBLIC OTHERS Share Price Movement Over last 2 Years In recent times Parekh Aluminex has increased its manufacturing capacity of AFC s (casseroles / trays & containers / dishes) from 457 million to 1175 million pieces, AFR s from 7.5 million to 15 million pieces and Aluminium Lids from 185 million to 470 million pieces, per annum. The company got listed in the year 1997. Business a quick glance The company produces following products: 1. Aluminium Foil Containers (AFC) 2. Aluminium Foil Rolls (AFRs) 3. Aluminium Lids
Industry Outlook The industry in which the Company operates is at a very nascent stage in India as the usage is largely restricted to airlines and railways. However with increased awareness for health and hygiene the demand for AFCs and AFRs is expected to pick up over the next couple of years in a big way. Moreover, AFCs and AFRs are slowly and steadily replacing other packaging substitutes like plastic, porcelain and glass containers as AFC's offer various advantages, Aluminium Foil has amazing properties. It is light weight, attractive, resistant to odor, water, air, light, gas, oil and grease and possesses high thermal and electrical conductivity features. All this adds up to a highly versatile product that can be used in myriad applications from the traditional food industry to the hi-tech electronics and telecommunications industry. Packaging accounts for around 11% of aluminium usage in India as compared to a global share of around 20%. As the Indian economy matures, this share is expected to move towards the global levels of 20%. With a CAGR of 8% during 2007-11, the consumer food service industry in India is expected to witness one of the fastest growth rates in the Asia Pacific region. Major Advantages for the company are: 1. Availability of cheap and skilled manpower and also lower administrative costs. These are the major cost components for AFC manufacturers in Europe/USA and other western countries after raw material costs. 2. Shift of focus from production to marketing by big international players like Novellis, Hindalco, and Pactiv etc helps the Company secure more orders and run its plants on optimum capacities. 3. Absence of bauxite mines in China is another positive for India and Companies like PAL, which operate in this space.
COMPANY REST Optimistic about The Firm Some positives about the company are as follows: 1. Parekh Aluminex is the single largest player in the organized sector in India and enjoys a market share of nearly 80% in the organized segment. 2. It is the first company in its sector to be awarded ISO 9001:2000 certification by BVQI, UK (2001-02) and was accredited 4S1-good status by Dun & Bradstreet. In 09 it also acquired ISO 22000:2005 certification for Food Safety Management and has also become 100% Export Oriented Unit. 3. It is the largest manufacturer and exporter of aluminium foil containers (AFC), and also one of the biggest manufacturers in aluminium foil rolls (AFRs) and aluminium lids, in India. 4. The company has entered into a strategic three-year tie-up with Hindalco giving them the advantage of outsourcing raw materials at preferential costs, thus boosting profits and ensuring growth. 5. It is the only company from India to break into the highly quality conscious European markets and maintains high quality standards in all its products. 6. The company has also signed a marketing agreement with one of the largest manufacturers of Aluminium in the world and has succeeded in gaining a foothold in the German Markets. 7. They have also taken over a Singapore based company manufacturing Aluminium Foils due to which they have succeeded in getting key customers like Thai Airways, Emirates Airlines and Singapore Airlines. 8. It is also the largest supplier of AFC s to the Indian Railways, flight kitchens, Airlines & five star hotels.
FINANCIAL HIGHLIGHTS PROFIT & LOSS (IN CRORES) PARTICULARS MAR 07 MAR08 MAR 09 MAR10 (E) MAR11 (E) NET SALES 186.32 298.62 421.26 674.01 1078.42 OTH INCOME 0.17 0.19 1.07 0.8 1.29 TOTAL EXP. 156.68 250.31 349.64 566.16 905.52 OP. PROFIT 29.81 48.50 72.69 108.65 174.19 DEPRICIATION 7.02 9.48 15.14 21.56 34.50 INTEREST 6.96 9.52 14.05 22.24 35.58 TAX 1.94 3.53 5.35 7.54 12.07 PAT/ NET PROFIT 13.88 25.97 38.14 57.31 92.04 EPS 19.83 20.07 29.48 44.28 71.12 DIV (%) 16 20 25 N.A. N.A. P & L COMPARISON 1. Net Sales have shown a solid CAGR 60% in last 4 years and has posted robust results even in recessionary times of last 1 year. 1200 IN CRORES 1000 IN CRORES 800 600 400 200 0 NET SALES EXPEND PAT EPS 2007 2008 2009 2010 (E) 2011 (E) 300 250 200 150 100 50 COMPARISON 0 FUNDS DEBTS CONT LIAB BOOK VALUE 2007 2008 2009 2. The Expenditures have historically formed an average of 84% of the total net sales for the company and the Raw material costs have formed a major part of these expenses mainly due to substantial rise in prices of Aluminium. 3. The Company has a comfortable D/E ratio of 0.59. However its Contingent Liabilities have increased in past 1 year (Rs. 3.26 Crores in 08 to Rs. 84.10 Crores in 09) most of which are Liabilities under Guarantees. 4. The company s EPS and CEPS have increased at an average rate of 25% and 30% respectively for last 4 years. 5. The company has historically been undervalued by the markets and its P/E ratios have hovered around 2-11 while currently its P/B.V. is 0.75.
PEER COMPARISON (IN CRORES) PARTICU YEAR PARE. ESSDEE INDIA GUJ FOILS ALUM ALUMI FOILS NET SALES 2009 421.26 401.48 98.94 83.66 2008 298.62 280.48 168.85 88.63 EXPEND 2009 349.64 298.93 218.79 79.47 2008 250.31 208.93 167.40 84.96 PAT 2009 38.14 66.46-148.82 1.48 2008 25.97 61.71-27.96 1.30 EPS 2009 29.48 23.88 0 2.99 2008 20.07 22.18 0 2.64 DIV (%) 2009 25 20 0 0 2008 20 20 0 0 500 400 300 200 100 0-100 -200 PEER COMPARISON NET SALES EXP PAT EPS PARE. ALU ESSDEE INDIA FOIL GUJ FOILS As can be seen the company has the largest amount of sales compared to its peers in the organized industry. The company has been able to deliver higher EPS compared to its closest competitor. The chart shows that there are no major players within the industry which can pose serious challenge to the company s leadership position. Ess Dee Aluminium is not very much in the business of producing Aluminium Foils for food industry. Expenditure for the company has been equivalent to what its peers are facing in the industry. The dividend payments made by the company are also higher compared to its peers. Most importantly at current levels the company is highly undervalued compared to its peers since it has shown strong growth numbers in last few years.
CURRENT & FUTURE EXPANSION PLANS The company has undertaken an expansion project of Rs. 2400 million. The project is scheduled to be completed by March, 2010. After the completion of this mega expansion the installed capacities will be increased three times from the existing capacities and will result in higher turnover & Profitability for the company. VALUATIONS The company s stock is currently trading at Rs. 148.50 (as of Jan 13, 2010) which is at 32x its current P/E of 4.64. The current P/B.V. of the company is 0.72 and considering the sector in which it operates as well as its past performances and business strategies we think that the stock is highly undervalued at this particular time. However the stock has moved up by 3x from its March 2009 lows. RISK FACTORS Macro & Micro View The Aluminum products industry is highly fragmented and it is currently facing pricing pressures due to the substantial increase in the Aluminium prices in past 1 year. Pricing pressures may continue in the future as well since Demand is out stripping the Supply in the international markets. As far as company is concerned it faces risks from international players having large economic of scales. Moreover the company is basically in food industry wherein continuous quality is a priority and if the company fails to provide the same then it may loose its credentials in the market. Moreover the company does not have any well known branded products of its own and may have to currently rely upon large players like Hindalco to maintain foothold in the markets.
RECOMMENDATIONS We expect the company to witness a Net Sales CAGR of 60% from FY09-11E as well. We remain positive on the long term prospects of the company since it is in a niche sector with tremendous growth potentials. In view of this remain Positive and Recommend a BUY rating on the stock with a target price of Rs.220 denoting a multiple of 5x of FY10E forward earnings and Rs.426 denoting a multiple of 6x of FY 11E forward earnings.
ANS Research Desk Efforts by, Bhaskar Pranav Mehta Speak to: 0281 6699401 0281-6699401 Drop a Line to: research@anspl.net pranavmehta85@gmail.com Disclaimer: The information being provided to you is compiled from sources we believe to be reliable. ANS Pvt. Ltd cannot and does not take any guarantees about the accuracy, reliability, validity or timeliness of the information and/or data provided/made available to you in this document. The views are purely indicative. Neither ANSPL nor any of its associates, subsidiaries, affiliates, directors, and/or officials become liable or have any kind of responsibility for any loss or damage that you may incur from any decisions taken by you based on our recommendations. None of the information contained herein constitutes a solicitation from ANSPL to Buy and/or Sell securities and/or any Future, Options or Other Financial Contracts. Clients may exercise their own caution and double check or verify the information contained in our recommendations.