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Wednesday, December 23, 2015

Gulshan Polyols - ROI @ 142% in 18 Months

Dear Reader,

We are pleased to inform you that we published Hidden Gem - Jun 2014 research report and shared it with all Hidden Gems members on 30th Jun'14. Our Hidden Gem stock - Jun'14, Gulshan Polyols Ltd, which was recommended at price of Rs. 192 has already achieved its target price of Rs. 375. Gulshan Polyols has made all time high of Rs. 480 today and currently trading at Rs. 465 giving absolute returns of 142% to our Hidden Gems members in period of 18 months.

In Sept 2015 quarter, net profit of Gulshan Polyols rose 35.22% to Rs 6.68 crore as against Rs 4.94 crore as against quarter ended Sept 2014. Sales rose 4.72% to Rs 107.97 crore in the quarter ended Sept 2015 as against Rs 103.10 crore during the previous quarter ended Sept 2014. We do not suggest profit booking at current levels and advise our members to continue holding the stock in their portfolio.

Below is the summary of Gulshan Polyols Ltd shared by our team under Hidden Gems research report - Jun'14.

Gulshan Polyols is amongst the largest producer of Calcium Carbonate and Sorbitol in India. Gulshan Polyols Ltd (GPL) is the market leader with a substantial market share in the respective segments and looks attractive in terms of valuations offering good investment opportunity at current levels.

Company Background

Gulshan Group has diversified interests and is engaged in manufacture of various Industrial Chemicals for Multiple Applications in several companies. The Group was initially engaged in sugar business, which later diversified into the field of Industrial Chemicals. The Group set up its first Indigenous plant to produce ‘Synthetic Fillers’ popularly known as Calcium Carbonate (Caco3) Precipitated and Activated in the State of Uttar Pradesh where the high quality Limestone is available in plenty in nearby area.

Gulshan Polyols Ltd (GPL) was incorporated in year 1981 as Gulshan Sugars & Chemicals Limited with primary business of manufacturing Calcium Carbonate, both Precipitated and Activated grades, with an initial capacity of 2100 MTPA. Since then, company has multiplied its calcium carbonate capacity to 100,5000 MTPA.  In 1996, GPL set up its Starch Derivatives unit (specialty chemicals like Sorbitol 70% and Liquid Glucose) at 15,000 MTPA, which has grown to 60,000 MTPA. The company is amongst the largest producer of Calcium Carbonate and Sorbitol in India. It is the market leader with a substantial market share in the respective segments.

GPL has six manufacturing facilities spread across five states in India and an established sales-distribution network across the globe. Manufacturing facilities are built over 150 acres of total land area. GPL has commissioned 10MW co-gen Power Plants at its various locations and employees over 1500 people. Focus on quality is maintained through in-house microbiology laboratory, including HPLC equipment.

Company enjoys an esteemed customer profile including some of the most trusted names in the world. It is also the largest exporter of Sorbitol from the country with a presence in 16 countries covering three continents of Asia, Africa & Australia.

GPL's customer list includes top clients from various industries:

·  FMCG:  Colgate, Dabur, ITC, Unilever, Wipro
·  FOOD;   Britannia, Candico, Yahoo Foods
·  PAINTS:  Berger, Asian Paints, Kansai, Pidilite
·  PAPER;   ITC, TNPL, BILT, ABC Papers, Century Pulp
·  PHARMA:  IPCA, Cadilla, Torrent, AstraZeneca, Novartis, Pfizer, Merck etc


i) Calcium Carbonate (CaCO3)
Gulshan Polyols Ltd produces over 19 grades of Calcium Carbonate (Precipitated, Activated, Ground and Wet) used in various industries. Four of GPL’s facilities, spread across the country, are dedicated to manufacturing Calcium Carbonate with an integrated capacity of 1,05,000 MTPA. Facilities have in-house microbiology laboratory with extensive R & D facility and are backed by 7MW captive power plants.

ii) Sorbitol 70%
It is one of the largest manufacturers of Sorbitol with a capacity of 60000 MTPA in India. GPL’s Sorbitol 70% facility is ISO 9001:2008, HACCP, OU-Kosher and HALAL certified. It also meets IP, BP and USP grade specifications. Strict quality standards are maintained through in-house fully equipped QC & QA lab along with separate microbiology laboratory, equipped with latest HPLC machines

iii) Liquid Glucose
It has its Liquid Glucose manufacturing facility at Jhagadia Industrial Estate in Gujarat, with a total production capacity of 10,000 TPA. The facility is equipped with microbiology laboratory and follows strict quality control. Some of the major clients serviced by the company in the LG segment are Britannia Industries, Dabur, Candico, Times Food etc.

Recent Developments (as on 30th Jun'14)

i) Commencement of Commercial Production 

As per the management, ITC had awarded GPL to set up an onsite PCC (percipated calcium carbonate) plant for their specialty paper division at Tribeni, West Bengal. GPL has recently announced that it has successfully commissioned the cigarette paper making plant . This is the third onsite PCC plant set up by the company in India for supply of specialty PCC suitable for paper industry. 

GPL also commenced commercial production of Indian Made Foreign Liquor (IMFL) at its bottling unit situated at Boregaon, Madhya Pradesh. As per the company’s management, the product is very well received in the market under the brand name of 'Tiger Gold'. 

Company has also received the environmental clearance from Ministry of Environment and Forest (MOEF), New Delhi, to set up a grain based distillery at Boregaon. Further clearance from Madhya Pradesh Pollution Control Board is expected soon. 

GPL's grain based plant for manufacturing Dextrose Monohydrate (DMH), Maltodextrin Powder (MDP) and Liquid Glucose has also started the commercial production at Muzaffarnagar, Uttar Pradesh.

GPL has successfully commissioned the plant & equipment for updating the technology of Sorbitol manufacturing and making more environment friendly together with enhancement of capacity at Bharuch, Gujarat.

ii) Increase in Share Holding of Promoters

During last 4 quarters, promoters have increased their share holding in the company by 3.4% from 68.87% to 72.27% (68.87% in Jun’13, 71.94% in Sep’13, 72.19% in Dec’13 and 72.27% in Mar’14) which is another good signal in terms of good future prospects of the company. Moreover, FII and DII holding is nil in the company and their entry can easily re-rate the stock from current levels. 

Financial Performance (as on 30th Jun'14) 

Net profit of Gulshan Polyols rose 37.31% to Rs 9.90 crore in the quarter ended March 2014 as against Rs 7.21 crore during the previous quarter ended March 2013. Sales rose 2.02% to Rs 81.30 crore in the quarter ended March 2014 as against Rs 79.69 crore during the previous quarter ended March 2013. 

For the full year, net profit rose 12.39% to Rs 27.12 crore in the year ended March 2014 as against Rs 24.13 crore during the previous year ended March 2013. Sales rose 15.08% to Rs 323.76 crore in the year ended March 2014 as against Rs 281.33 crore during the previous year ended March 2013.

Company has posted good consistent profit growth of 26.8% over last 5 years. Company has achieved compounded sales growth of 23.2% and ROE (return on equity) is 18% over last 5 years. Moreover, company has rewarded shareholders by paying regular dividends. At CMP of Rs. 191.65, dividend yield is at 1.3%.

Future Outlook

Rising Demand from Paper and Plastic Industries Drives the Global Calcium Carbonate Consumption, According to New Report by Global Industry Analysts, Inc. 

Global market for Calcium Carbonate is projected to reach 94 million tons by 2018, driven by the rising consumption in paper and plastic industries and the growing demand for PCC and GCC in Asia-Pacific, Latin America, and the Middle East. Dynamics of the global calcium carbonate market are closely linked to the trends in the paper, automotive, plastics, and construction industries, which are significantly affected by cyclical fluctuations of the global economy. With major end markets affected by uncertain economic conditions, consumption of calcium carbonate declined during the recession years. In particular, the demand for precipitated calcium carbonate (PCC) fell drastically owing to the steep decline in paper output in the US and Europe. The market is expected to make steady recovery and post growth in the long run, driven led by the material’s increasing use in paper industry, and the continuous shift of paper mills from acid-based to alkaline-based process technology. Growth would also be driven by the rising demand for nano calcium carbonate and precipitated calcium carbonate. 

As stated by the new market research report on Calcium Carbonate, Asia-Pacific represents the largest and the fastest growing market for calcium carbonate, globally, with rapid progress of plastics and paper industries expected to drive future growth. Rise in paper production, establishment of new paper mills and increase in mineral loadings of paper to cut down pulp usage are expected to drive demand for both GCC and PCC. China, in particular, is expected to remain a major contributor to growth, owing to the material’s rising use in paper and paperboard manufacturing sectors. On the other hand, calcium carbonate market in developed regions is expected to grow at a relatively moderate pace. 

As Gulshan Polyols Ltd produces over 19 grades of Calcium Carbonate (Precipitated, Activated, Ground Natural Calcite Powder and Wet) used in various industries, rising demand of Calcium carbonate ensures bright future prospects for the company in coming years.

Saral Gyan Recommendation (as on 30th Jun'14)

i) Recently, company has announced that it has successfully commissioned the cigarette paper making plant to meet the demand of ITC specialty paper division. This is the third onsite PCC plant set up by the company in India for supply of specialty PCC suitable for paper industry which will help company to increase its revenue.

ii) The company also increased production of Sorbitol 70% and Liquid Glucose to cater to global demand. GPL's grain based plant for manufacturing Dextrose Monohydrate (DMH), Maltodextrin Powder (MDP) and Liquid Glucose has started the commercial production at Muzaffarnagar, Uttar Pradesh. GPL also commenced commercial production of Indian Made Foreign Liquor (IMFL) at its bottling unit situated at Boregaon, Madhya Pradesh. This will help company to significantly increase its revenue going forward.

iii) Company’s EPS for FY 13-14 stands at Rs. 32. Increase in revenues from recent commencement of commercial production is expected to deliver 20% growth in bottom line of the company. As per our estimates, company can achieve EPS of Rs. 39 by end of FY 2014-15 and Rs. 45 by FY 2016. The company is currently trading at a PE of 6 as against an approximate industry PE of 16. Other players like Clariantchemicals, BASF and Thirumalai Chemicals are trading at a PE of 14.7, 29.5, and 28.9 respectively which offers good upside potential and limited downside risk for the company.

iv) Gulshan Polyols possesses a highly experienced team of professionals and holds significant experience in various industries including FMCG, Food, Paper, Pharmaceuticals, Plastics and Printing etc. Its clients include large domestic and international players like Asian paints, Dabur, Colgate, ITC, Unilever, Wipro, Ranbaxy etc. Long term engagements with a majority of these esteem clients emphasize strong uninterrupted profitable business operations for the company.

v) Increase in shareholding by Promoters during last 1 year gives further confidence in terms of bright future prospects of the company. We believe that promoters will continue to increase their stake in the company to achieve maximum shareholding of 75%.

vi) On equity of Rs. 42.24 million, the estimated annualized EPS for FY 14-15 works out to Rs. 39 and the book value per share is Rs. 207.70. At current market price of Rs. 191.65, stock price to book value is 0.92. As per our estimates, Gulshan Polyols Ltd can deliver bottom line of 330 million for full financial year 2014 – 15, with forward P/E ratio of 4.9 X for FY 2014-15, which makes stock an attractive pick at current market price. 

Considering reasonable valuations and good demand of company’s products in domestic & export markets, we find Gulshan Polyols Ltd an attractive pick at current market price. Saral Gyan Team recommends “BUY” on Gulshan Polyols Ltd. for a target of Rs. 375 over a period of 12-24 months.

Buying Strategy:
  • 70% at current market price of Rs. 191.65
  • 30% at price range of Rs. 160 – 170 (in case of correction in stock price)
Portfolio Allocation: 4% of your equity Portfolio

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