Recommendation from Commodity Chemicals

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

GRAUER AND WEIL (INDIA) : WELL-POSITIONED FOR GROWTH

HERE IS WHY
✓ Increasing demand for chemicals and petrochemicals
✓ Ambitious expansion plans
✓ Upward spiral in net profit

I ndia’s chemical industry, which covers over 80,000 commercial products, is highly diversified and contributes 7 per cent to its GDP. The industry, which was worth USD 220 billion in 2022, is expected to grow to USD 300 billion by 2025. The chemical industry is expected to contribute USD 383 billion to India’s GDP by 2030. The country’s demand for chemical and petrochemicals is expected to nearly triple and reach USD 1 trillion by 2040. An investment of ₹8 lakh crore (USD 107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025.

Owing to this, our low-price scrip recommendation for this issue is Grauer and Weil (India) Ltd. (GWIL). GWIL, initially set up as a partnership concern in May 1940 by British nationals Grauer and Weil, was taken over by the More family in 1991, subsequent to a series of changes in the promoters. GWIL operates in three broad business segments – surface finishing, engineering and shopping malls. The surface finishing segment comprises its chemicals division, paints division and oil division. Under the chemical division, it manufactures and sells chemicals required for metal finishing (electroplating chemicals), their intermediates, and other specialty chemicals. Under the paints division, it manufactures mainly industrial paints and under the oil division it manufactures various oils and lubricants. The engineering segment is involved in manufacturing and providing turnkey solutions for electroplating plants, effluent treatment plants, and other engineering products. The company has shifted its focus to anodising, plating over plastics and phosphating with plans for horizontal expansion in paints and lubricants in 2024. It also aims to maintain growth and profitability in paint coatings by identifying new segments and focusing on railways and infrastructure.

The company is well-positioned for growth due to positive business sentiments, government initiatives and normalisation of the business environment. Additional manufacturing capacities are being built in Jammu, Barotiwala and Dadra, and the company has launched several products to meet the demands of these fast-growing segments. India has significant opportunities in paint coatings due to investments in oil and gas, infrastructure and drinking water segments.

In Q4FY24, on a consolidated basis, the company’s revenue increased by 1.82 per cent YoY to ₹333.12 crore as compared to ₹327.18 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 16.87 per cent. The PBIDT excluding other income increased by 30.93 per cent to ₹39.28 crore YoY as compared to ₹30 crore from the previous year’s same quarter, while sequentially it decreased by 28.02 per cent. The net profit stood at ₹29.17 crore compared to ₹21.7 crore, a YoY increase of 34.42 per cent, while sequentially decreasing by 31.77 per cent from ₹42.75 crore. Currently, the shares of Grauer & Weil are trading at a PE of 27.1 times, which is higher than its three-year median PE of 21.3 times whereas the industry PE stands at 42.8 times. If we look at the company’s last three-year profit and sales CAGR, they stand at 30 per cent and 21 per cent, respectively. The company has a debt-to-equity ratio of 0.03 times and a three-year average return on equity of 17.5 per cent along with a return on capital employed (ROCE) of 22.9 per cent. Considering the aforementioned factors, we recommend BUY.