Silent Performer - Indo Borax & Chemicals

With the investor sentiment taking a hit in 2008 many scrips across the board have fallen like a pack of cards. The fall has been so severe that not only the froth has vanished but the scrips are well below their true value. One such counter, we feel, is Indo Borax & Chemicals (IBCL), which has fallen by more than 77 per cent from its peak it made in January 2008. And with the scrip trading at CMP of Rs 43.95 close to its 52 week low of Rs 38, we feel it is right time to recommend this scrip to investors.

IBCL is basically in to manufacturing of pharmaceutical grade Boric Acid and Borax, which is manufactured at the Food and Drug Administration-approved plant at Pithampur, Madhya Pradesh. The company’s products are used as inputs in various pharma and healthcare products such as eye wash, ointments, skin creams, mouth wash and shampoos. That apart these products also find application in manufacturing across various other industries such as paper, textiles, agro chemicals, plastics, auto and even in the steel industry for welding and soldering operations and in fire extinguishers. Apart from its products finding applications across various industries, there are various other reasons we are recommending this company. This company has been a silent performer in the last three years. IBCL’s sales have grown to Rs 36.76 crore in FY08 from Rs 23.45 crore in FY06, while its bottomline increased to Rs 7.94 crore from Rs 2.56 crore during the same period. The company has carried this performance in H1FY09 where its sales increased 32.61 per cent to Rs 23.34 crore (Rs 17.60 crore), while bottomline increased 47.79 per cent to Rs 5.35 crore (Rs 3.62 crore). This, we believe, is much better performance compared to India Inc’s performance as a whole in H1FY09. The best part about this performance is that IBCL has managed to consistently improve its operating margins. Its operating margins in the last three years improved 1459 basis points to 27.38 per cent, while in the H1FY09 these margins have expanded further by 775 basis points to 34.74 per cent on account of drop in input costs.

We believe this company would continue to do well as firstly, on dip in raw material costs, as discussed earlier and secondly, better realisations. The prices of Boric Acid in the last one year have increased by as much as 84 per cent. Even if we assume these prices stay at these levels it could still help IBCL to drive its revenues better in the coming quarters. IBCL is almost a zero-debt company, hence its profits wouldn’t be affected by the higher interest outgo due to hardened interest rates. However, the tax outgo has increased by 57 per cent in the H1FY09, which is a good indicator of better expectations of profits in the coming quarters. For FY09 on annualised basis IBCL could post estimated revenues of around Rs 46.48 crore, while the estimated profits could be around Rs 10.54 crore. Thus at these estimates IBCL gives an EPS of Rs 30.28, thereby resulting in to PE of 1.35x, which we feel is very low. But the real value for investors comes from the fact that IBCL has cash and liquid investments worth Rs 19 crore, which is more than the entire market cap of Rs 14 crore. Thus investors can buy this scrip at current levels as the probability of this scrip catching up with the valuations is much high.