High On Performance - Dujodwala Products

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It is quite difficult to recommend any low-priced scrip when the market is trading at a 30-month high. But there are certain relatively unknown scrips which are still available at good valuations. One such counter is Dujodwala Products (DPL) which has kept a low profile but has put up a very good financial performance in FY10. However, strong financial performance is not the only reason for recommending DPL to our investors.

The other compelling factors include the right decision of the management to diversify the product portfolio, entry into the synthetic resin business, planned expansion in the synthetic resin segment, improved realisation and better expected financial performance in Q2 as well as Q3FY11. On the valuation front, the scrip is placed well where its CMP of `43 discounts its trailing four quarter earnings by 3.42x (EPs of `12.84). Even its EV/EBITDA stands comfortably at 2.59x. Earlier DPL was into the business of manufacturing camphor and allied products like turpentine oil, pine oil and rosin etc. But in FY09, the management decided to diversify the product base and also started to manufacture rosin-based synthetic resins. The diversification decision paid off and in FY10 the company posted a strong financial performance led by the synthetic resin division which helped the company to improve its bottomline.

As regards the revenues, currently camphor and its allied products contribute up to 60 per cent and the rest is contributed by resin. But in terms of bottomline, resin contributes around 60 per cent. As a result, the management is expanding its capacity of synthetic resins from 250 tonnes per month to 1,000 tonnes per month by April 2011. The expansion is an on-going process and currently it has installed four reactors to take its manufacturing capacity to 480-500 tonnes per annum. It will be installing eight more in the current fiscal to take its capacity to 1,000 tonnes per month. According to the management, the impact of both will be seen from Q2FY11. In the camphor business the current capacity is 300 tonnes per month.

Here too the performance is expected to be good in Q2 and Q3FY11 as it is a seasonal business which starts from July and continues till mid of January. So the combination of both the segments is expected to result in a strong financial performance in FY11. In FY10 its topline stood at `145.83 crore and bottomline was at `7.21 crore as compared to `12.68 crore and `54 lakh respectively in FY09. It carried its momentum into Q1FY11 and posted bottomline of `4.50 crore as compared to `3.37 crore in Q1FY10. With the management expecting better growth in the next two quarters the financial performance is expected to be strong. Even on a conservative basis the EPS is estimated at `17.50. This results into a P/E of 2.51x, thus providing scope for upward movement. Hence, our recommendation is that you should buy DPL at its current levels with a target price of `65 in the next one year.