Indo Rama Synthetics Ltd (IRSL), the country's largest dedicated polyester manufacturer, is well placed to capitalise on the upturn in the polyester sector due to its timely capacity expansions. Benign raw material scenario and reduction in power costs would further catalyse margins and profitability. The company will be OUTPERFORMER.
Polyester sector headed for good times Polyester is becoming the preferred fibre the world over. In India, government initiatives have reduced the price differential with cotton fibres and we expect this to trigger increasing demand for polyester. Timely expansion to help increase market share IRSL has doubled its capacity from 300,000 tpa to 600,000 tpa. The expanded capacity would enable it capture higher market share across various product categories.
Favourable raw material scenario: Prices of key inputs like purified terephthalic acid (PTA) and mono ethylene glycol (MEG) have stabilized due to new capacities. This move is expected to ease the pressure on raw material costs.
Lower power costs to expand margin: IRSL is merging a group company, Indo Rama Petrochemicals Ltd (IRPL), with itself. The merger will enable it to access power at substantially lower rates and reduce its power costs by Rs 26.43 crore in FY09E, thereby improving EBIDTA margins in FY09E.
Valuation: We believe the stock is available at a very attractive FY09E market cap-tosales ratio of 0.24x. We expect the company’s net profit to grow at a CAGR of 52.3% over FY07-09E due to the ramp up in volumes and improvement in operating margins. We expect the stock to be re-rated and quote at a market cap-to-sales ratio of 0.30x to our 12-15 month target price of Rs 73, a potential upside of 21% from current levels.
Source: icicidirect.com
Polyester sector headed for good times Polyester is becoming the preferred fibre the world over. In India, government initiatives have reduced the price differential with cotton fibres and we expect this to trigger increasing demand for polyester. Timely expansion to help increase market share IRSL has doubled its capacity from 300,000 tpa to 600,000 tpa. The expanded capacity would enable it capture higher market share across various product categories.
Favourable raw material scenario: Prices of key inputs like purified terephthalic acid (PTA) and mono ethylene glycol (MEG) have stabilized due to new capacities. This move is expected to ease the pressure on raw material costs.
Lower power costs to expand margin: IRSL is merging a group company, Indo Rama Petrochemicals Ltd (IRPL), with itself. The merger will enable it to access power at substantially lower rates and reduce its power costs by Rs 26.43 crore in FY09E, thereby improving EBIDTA margins in FY09E.
Valuation: We believe the stock is available at a very attractive FY09E market cap-tosales ratio of 0.24x. We expect the company’s net profit to grow at a CAGR of 52.3% over FY07-09E due to the ramp up in volumes and improvement in operating margins. We expect the stock to be re-rated and quote at a market cap-to-sales ratio of 0.30x to our 12-15 month target price of Rs 73, a potential upside of 21% from current levels.
Source: icicidirect.com
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