Indag Rubber Ltd -Value Pick Stock Reco for July 2010

8/8/2019 Indag Rubber Ltd -Value Pick Stock Reco for July 2010

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MPSs Value pick stock for the month of July 2010

HBJ Capital, India

Web: www.hbjcapital.com

E-Mail: [email protected]

Call: +91 98867 36791

n ag u er m e


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Best Buying Price

2 Phase Buying Strategies Suggested [Always buy in SIP ways]ase : uy a e curren pr ce range s - o nves men

2nd Phase : Add if the price fall down to Rs 100-105 [50% of investment]

>>> Expect at least 60-100% return in next 12 months time frame!!!


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Overview


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Basic Details

Indag Rubber (INDAG) is a tire retreading company. It was incorporated in the year 1978 and went public in1984.

The ISO 9001:2000 certified company manufactures Pre cured tread rubber (PTR) and allied items includingcushion gum, ungalvanized repair gum, universal spray cement, tyre envelopes and other accessories andequipment for retreading. Company is Indias longest-established manufacturer of pre-cure tread rubber &its main source of revenue is PTR only.

The company has a manufacturing facility at Bhiwadi, Rajasthan, on the outskirts of Delhi & it makes Pre-cure treads in its plant at Bhiwadi.

The company has also set up captive retreading plants for various State Road Transport Corporations.


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Expansion Plans

The company sells its products directly to its franchises appointed all over the country and the actualretreading operations are carried out by the franchises. It has already established over 100 franchisee outlets.

With an eye on exports and increased sales within the country, the company started capacity expansion of themain manufacturing facility at Nalagarh, Himachal Pradesh.

Expansion of Plant & Machinery at Nalagarh unit of the Company has been successfully completed. As aresult of this the monthly production capacity of Pre cured Tread Rubber and Uncured Rubber Gum of theplant is 1200 tons a month & 1800 tons respectively from first quarter of financial year 2010-2011.

Earlier the company had a production capacity of 8,950 MTPA of PTR (Pre cured Tread Rubber), 1,450 MTPAof repair cement and 1,150 MTPA of rubber strip gum. Since the capacity expansion the Annual productioncapacity of Precured Tread rubber stands at 14,400 tons while the Annual production capacity for uncuredrubber gum stands at 21,600 tons per month.

The company has increased its capacity of PTR by 61%, which is the main source of revenue for the company.


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Performance Income Statement

The company has declared verygood set of results for FY 2009-10with 46.16% increase in the topline at Rs 112 over Rs 76.3 crores inFY09. Similarly the net profit of thecompany witnessed a growth of51.84% at Rs 11.57 crores.

The company has recorded an EPS

of Rs 22.04 for FY10 over Rs 14.52for FY09. On the basis of thetrailing twelve months EPS, thecompany is being discounted at aPE multiple of 5.

EV/EBITDA stands at just 4.5 while

the debt equity ratio stands at just0.19. At this price the company issignificantly undervaluedconsidering its margins and debtequity ratio.


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Quarterly Results

The company has been

consistently reporting goodnumber QoQ.

The company has been ableto increase its revenue fromRs 18.68 crores at the end ofMar09 to Rs 32.62 crores at

the end of Mar10.

We expect the company toperform at this growth rate ,seeing the potential &demand emerging in thissector.

The company has alsoexpanded its productioncapacity and thus it willhave a positive effect on theresults of the company.


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Shareholding Pattern

Promoters hold a large chunk of shares. The Promoter holding stands at almost 80%.

The company has been able to fund all its expansion through internal accruals and debt. In the last manyyears, the company has never diluted its equity.

The Promoters have been holding roughly 80% since long. Earlier there were both Indian and ForeignPromoters. However at the end of Mar10, the Indian Promoters hold approximately 78%, which reflectstheir confidence in the future prospects of the company.


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Technical View

The company has been growing at a good pace and thus we can notice that the stock has moved above itsprevious 4 year high of Rs 100/-.

Going forward Rs 100/- will serve as a strong support level and thus the downside is limited in this stockboth fundamentally and technically.


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Investment Rationale

Indag Rubber is one of the leading company in the tyre retreading spaceand has been performing exceedingly well since last few years.

The company is available at very attractive valuations

PE multiple of 5, even though the company commands a NPM of 10-11%

EV/EBITDA of just 4.5 while the debt equity ratio of the company is

comfortably low at just 0.19

The company has recently expanded its PTR production capacity by 61%.The same has not been discounted by the market, considering very lowvaluations.

Promoters hold approximately 80% and have not diluted equity since

many years. The same reflects their confidence in the future prospects ofthe company.

Demand for Pre Cured Tread Rubber is expected to improve on account ofrising rubber prices which has forced tyre manufacturers to increase theirprices, and thus demand for PTR should improve further.


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THANK YOU

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Indag Rubber Ltd -Value Pick Stock Reco for July 2010