Clean And Shining - Amar Remedies

[INSERT_1]

Amar Remedies (ARL), which is primarily into manufacturing and exports of personal hygiene products, caters to both domestic as well as the international markets and has a presence in more than 20 countries, including the US, UK, Canada, Italy and France. We are recommending thisscrip for two basic parameters. Its low price-to-book value of 1.27 times and a reasonably high dividend yield of 1.10 per cent.With demographic changes in the rural and urban areas, companies catering to personal hygiene are slowly but steadily catching the eyes of the investors.
ARL produces products like toothpastes, tooth powders, toothbrushes, petroleum jellies, talcum powder, soaps, shampoos, lotions, ointments, and creams. Oral care contributes to about 60 per cent of the company’s topline. This segment offers huge potential as the penetration and per capita consumption of oral care products is very low. However, the rising per capita income and increasing awareness is driving the demand for oral care products in a very big way. The penetration level of toothpowder/toothpaste in urban areas is three times that of rural areas. Neem tree, salt, ash, and tobacco are some of the traditional materials that are still popularly used for cleaning teeth in the rural areas. The per capita consumption of products like toothpastes is very low in India. In rural areas, consumers are gradually switching from toothpowders to toothpastes. However,this segment is characterised by high entry barriers, a few major players, high advertisement spending, and frequent product variant launches. The company has forayed into retail and is betting big on this segment. The Nature Co, as it is called, is promoted as a one-stop shop for luxurious beauty and holistic wellness products. The company is focusing on the Tier-II cities to expand its footprint in this segment. The business which kicked off in the year 2010 has witnessed a growth rate of around 50 per cent. It is believed that the retail arm is going to play a vital role in the growth of the company going forward.
On the financial front, the company has fared well in terms of both topline and bottomline for 9MFY11. Its topline for 9MFY11 witnessed a growth of 22.65 per cent on a YoY basis and stood at Rs 405 crore as against Rs 330 crore. The bottomline witnessed a growth of 16.42 per cent on a YoY basis and stood at Rs 27.29 crore as against Rs 23.44 crore. On the valuation front, the stock discounts its 12-month earnings by 6.43 times and the EV/EBITDA stands at 5.03 times. In the last three years the sales and net profit have witnessed a CAGR growth of 32.72 per cent and 23.70 per cent respectively.The company has enjoyed a relatively better return on equity of 19.78 per cent as compared to its peers. Most importantly, the debt-to-equity ratio stands at 0.64 times. We believe that going forward the company can be an ideal candidate to find a place in one’s portfolio with an expected return of 20 – 25 per cent from DS the present levels.