Recommendation from Speciality Chemicals Company

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. 

INDO AMINES : FORMULATING THE RIGHT SUCCESS STRATEGY

HERE IS WHY
✓Strong focus on research and development
✓Exports contributing a large percentage to revenue
✓Capital structure expected to improve further

I ndia’s chemical industry, which covers over 80,000 commercial products, is highly diversified and contributes 7 per cent to its GDP. The sector is expected to grow to USD 300 billion by 2025 and USD 1 trillion by 2040. The Indian colourant industry has a global market share of around 15 per cent. The Indian chemicals and petrochemicals sector is expected to attract an investment of ₹8 lakh crore by 2025. Specialty chemicals account for 20 per cent of the global chemicals industry’s USD 4 trillion. Given this data, our low price scrip recommendation is Indo Amines Ltd.

Indo Amines is one of India’s largest independent manufacturers of fine, specialty and performance chemicals. The company focuses on high-pressure hydrogenation and has diversified into fine and speciality chemicals. In 1994, it went public and became one of India’s leading manufacturers. In 2001, Indo Amines focused on exports, anticipating growth opportunities. In 2003, research and development played a major role in achieving product and internationally recognised quality standards. The company has developed emulsifiers for stable emulsions suitable for various industries, including petroleum and agrochemicals.

In Q4FY24, on a consolidated basis, the company’s revenue increased by 7.96 per cent YoY to ₹253.24 crore compared to ₹234.57 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 30.63 per cent. This suggests strong momentum in recent business activities. The PBIDT excluding other income decreased by 43.78 per cent to ₹17.44 crore YoY as compared to ₹31.02 crore from the previous year’s same quarter, while sequentially decreasing by 13.08 per cent. The net profit stood at ₹9.12 crore compared to ₹17.13 crore, a YoY decrease of 46.78 per cent, while sequentially decreasing by 5.22 per cent from ₹9.62 crore. Indo Amines, a company with a strong market position and expertise, has a diverse product portfolio catering to various industries, including pharmaceuticals. The company’s experienced promoters have built strong industry relationships, resulting in a loyal customer base. Its moderate capital structure is expected to improve further, freeing up resources for future investments.

The company’s improved working capital management and profitability have led to sustainable net cash accruals exceeding ₹60 crore, providing financial muscle for growth initiatives. The potential growth drivers include capacity expansion, which could lead to higher production volumes and revenue growth, and new product development, which could open up new markets and revenue streams. Overall, Indo Amines’ established market position, improved financial health and potential growth drivers position them well for future success.

Currently, the shares of Indo Amines are trading at a PE of 21.4 times, which is higher than its three-year median PE of 20.9 times whereas the industry PE stands at 39.5 times. If we look at its PBV, it is currently at 3.49 times which is lower than the industry PBV of 3.51 times. The company has a debt-to-equity ratio of 0.82 times. If we consider the company’s last three-year profit and sales CAGR, they stand at 5 per cent and 20 per cent, respectively. The company has a three-year average return on equity of 16.9 per cent and a return on capital employed of 17.1 per cent. Considering the aforementioned factors, we recommend BUY.