The story so far ………..
ASCL entered the capital market in 2007 by raising Rs335mn to expand its capacities of CPC Blue, Green and Beta Blue pigments at its manufacturing facilities in Mehsana and Vadodara in Gujarat. Petroleum derivatives – Pthalic Anhydride and Cuprous Chloride are the key raw materials used to manufacture CPC Blue Crude and value added products like CPC Green and Beta Blue pigments.
What went wrong in FY’12?....... ASCL sold more of the low margin CPC Blue crude and exhausted its tax breaks in this year as a result of which despite growing its pre tax profits at a healthy 47% driven by a 27% growth in revenues the earnings growth was almost flat.
The result: A rather flat earnings growth with earnings per share at Rs18 per share
The story ahead ………..
Expanded capacities for beta blue and CPC Blue to go on stream from the third quarter of the current fiscal and for value added Alpha Blue and Green pigments from the first quarter next fiscal should in our view propel the growth engine for ASCL.
Technology is the key entry barrier in this business and given the technology and financial support from DIC and Clariant, we believe that the customer concentration risk emanating from over three fourth of its revenues being sold to DIC, Clariant, Sun Chemicals & BASF is unfounded. Overseas revenues now account for over 80% of its Rs2.5bn revenues with robust demand from user industries like Printing Ink, Paints, Cosmetics & Plastics.
DIC Inc holds a 7% equity stake in ASCL and Clariant Chemicals holds a 6% stake. A strong balance sheet and integrated operations makes ASCL trading at 2.5xFY13-14 expected earnings our preferred small cap pick to play the outsourcing theme in pigments. We Re-iterate Buy with a one year price target of Rs130
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