Wait And Watch - Finolex Industries

We recommended Finolex Industries to our investors in our Issue No 8 dated April 13, 2008 in our Analysis column at Rs 61.50. We recommended the scrip on account of reasons like its plans to build a captive power plant of 44 MW, increased production capacity, land bank and most importantly, the investment portfolio.  But now the scrip is trading at Rs 33.50, showing a decline of more than 45 per cent. The main reason for the decline is delay in the power plant. On account of this factor, the company’s margins have remained under pressure. Secondly, the company expected a good amount of growth from the demand placed by the construction sector as it is a high margin business. But with the real estate industry going through tough times, the expected demand has declined.

But still we recommend the investors to hold the counter as there are certain factors which make the counter lucrative. The first reason is its investments where the book value of the investments is around Rs 250 crore as against its market capitalisation of 391 crore. In addition, although the real estate values have declined, its land holding of 70 acres still holds value in itself and is still not less than Rs 250 crore (Rs 550 crore stated in the Analysis column). So in a nutshell, the company’s business is available for free. As regards the financials, for FY09 we expect the company to post topline of Rs 1,615 crore and bottomline of Rs 81 crore, resulting in an EPS of Rs 6.50 and P/E of 4.80x. Hence we feel the company still holds value and would recommend investors to hold the counter for the next two quarters.