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Indian Foils Limited (IFL) Story
EDAL had acquired 90% stake in India Foils Limited (IFL),
from Madras Aluminium Ltd (MALCO) a Vedanta Group
Company in 2008 for Rs. 128 cr. It infused Rs. 150 cr for
refurbishment of the plant since the buyout. IFL also has a
castor plant at its facility which makes Aluminium sheets which
is the input for Ess Dee. The current capacity utilization of
castor plant is 60% which is much below the breakeven
rate(80%). This current under utilization is expected to
improve in Q3FY13 which will increase income which have
currently been hit due to underutilization at IFL. EDAL
currently imports Aluminium Sheets, its raw material, from
only one supplier GRAMCO which costs ‘LME+$650’. After
the Castor at IFL reaches 80% utilization the cost of sheets to
EDAL will come down to ‘LME+$220’. This will give
additional profit to EDAL, thus increasing profit margins.
Market Leader in Aluminium Packaging
Ess Dee commands 20-22% market share in a segment where
the unorganized sector is huge. Ess Dee follows a complete
pass through model and the fluctuation in prices of LME is
passed on to its customer. Ess Dee currently derives 85% of its
sales from the Pharma Industry. The cost of wrapping is 4-5%
of the total cost to the pharma company. Even if Ess Dee
increases the cost by 20%, the total increase in the product
cost to pharma company is 1%. This gives pricing power to
Ess Dee giving it more headroom for increase in price.
Outlook & Valuation
The IFL operation is in the process of being turned around,
we believe the earning has bottomed out and is to increase
significantly after four quarters of under performance. At the
CMP, The stock trades at TTM P/E of 4.4x. We put a BUY
rating on the stock with a target price of Rs. 235
(8XEPSFY13E) providing an upside of 40% from the
current levels.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Foils Limited (IFL) Story
EDAL had acquired 90% stake in India Foils Limited (IFL),
from Madras Aluminium Ltd (MALCO) a Vedanta Group
Company in 2008 for Rs. 128 cr. It infused Rs. 150 cr for
refurbishment of the plant since the buyout. IFL also has a
castor plant at its facility which makes Aluminium sheets which
is the input for Ess Dee. The current capacity utilization of
castor plant is 60% which is much below the breakeven
rate(80%). This current under utilization is expected to
improve in Q3FY13 which will increase income which have
currently been hit due to underutilization at IFL. EDAL
currently imports Aluminium Sheets, its raw material, from
only one supplier GRAMCO which costs ‘LME+$650’. After
the Castor at IFL reaches 80% utilization the cost of sheets to
EDAL will come down to ‘LME+$220’. This will give
additional profit to EDAL, thus increasing profit margins.
Market Leader in Aluminium Packaging
Ess Dee commands 20-22% market share in a segment where
the unorganized sector is huge. Ess Dee follows a complete
pass through model and the fluctuation in prices of LME is
passed on to its customer. Ess Dee currently derives 85% of its
sales from the Pharma Industry. The cost of wrapping is 4-5%
of the total cost to the pharma company. Even if Ess Dee
increases the cost by 20%, the total increase in the product
cost to pharma company is 1%. This gives pricing power to
Ess Dee giving it more headroom for increase in price.
Outlook & Valuation
The IFL operation is in the process of being turned around,
we believe the earning has bottomed out and is to increase
significantly after four quarters of under performance. At the
CMP, The stock trades at TTM P/E of 4.4x. We put a BUY
rating on the stock with a target price of Rs. 235
(8XEPSFY13E) providing an upside of 40% from the
current levels.
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