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Thursday, December 15, 2016

Hidden Gem: Dynemic Products - ROI @ 235% in 2.5 Years

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of July 14 - Dynemic Products Ltd (BSE Code: 532707) has given returns of 235% in period of 2.5 years. Our team suggested Buy on Dynemic Products Ltd at price of 46.00 on 29th July'14, Dynemic Products stock has made 52 week high of Rs. 155 today and currently trading at Rs. 154 giving absolute returns of 235% to our Hidden Gems members over period of 2.5 years.

In Sept quarter, net profit of Dynemic Products rose 134.62% to Rs 3.05 crore as against Rs 1.30 crore during the previous quarter ended Sept 2015. Sales rose 21.83% to Rs 35.38 crore in the quarter ended Sept 2016 as against Rs 29.04 crore during the previous quarter ended Sept 2015.

Below is the summary of Dynemic Products Ltd shared by our team under Hidden Gem stock recommendation - July'14

1. Company Background

Dynemic Products Limited manufactures, markets, and exports dyes and dye intermediates in India and internationally. The company offers food colors used in foodstuff, beverages, animal feed, etc.; lake colors for use in pharmaceuticals, cosmetic and personal products, spice compounds, bakery products, dairy products, and snack foods; and blended colors. It also provides food and drug cosmetic colors used in food, drugs, and cosmetic products; salt free dyes for use in cartridge ink, roller ball point ink, etc.; and D&C and natural food colors for use in pharmaceutical products. In addition, the company offers dyes intermediates, which are used in the manufacture of food colors, acid dyes, reactive dyes, ramazol dyes, metal complex dyes, and direct dyes. Dynemic Products Limited was founded in 1990 and is based in Ahmedabad, India.

The manufacturing facilities of Dynemic Products Ltd are certified with HACCP & ISO 9001:2000. Dynamic Overseas (India) Pvt Ltd is the subsidiary of the company. Dynemic Products Ltd was incorporated on June 14, 1990 as a private limited company with the name Dynemic Products Pvt Ltd. The company was promoted with the objective of carrying on the business of manufacturing S P C P, the raw material for Food Color, Reactive & Ramazole Dyes. Company acquired on lease a plot in GIDC Estate at Ankleshwar admeasuring 1888 sq meter for this purpose. In January 1993, the company was converted into public limited company and the name was changed to Dynemic Products Ltd. In the year 1997 the company acquired on lease two additional plots in GIDC Estate both admeasuring 1888 sq meter. In the year 1999, company started export sales. Company obtained the export order from PT Dyestar- Indonesia. 

The company was promoted with the objective of carrying on the business of manufacturing S.P.C.P., the raw material for Food Color, Reactive & Ramazole Dyes. The company has acquired on lease the plot no. 6401 in GIDC Estate at Ankleshwar admeasuring 1888 Sq. Meter for this purpose. In the year 1997 the company acquired on lease additional plot no. 6415 & 6416 in GIDC Estate both admeasuring 1888 Sq. Meter.

In the year 2000 the company acquire the running business of M/s Saffron Dye Stuff Industries & started manufacturing wide range of food colours at the premises 3709/6, G.I.D.C Estate, Ankleshwar having plot area admeasuring 3700 Sq. Meter.

As the company aims to provide entire range of qualitative & quantitative services to Food Industry, at its Unit I Company commenced manufacturing of food colour namely Tartrazine in the year 2000-01. Both the units at Ankleshwar are modern and have eco- friendly plants with in-house testing facilities to control quality at every level of manufacturing.

Dynemic Products gained goodwill in the short span of time due to its quality product. The Company has a well-equipped state of art in house laboratory which conduct test of every parameter of food colour & Dye Intermediates laid down under national & international authorities.

In mid of 2005, the company incorporated a subsidiary company, namely Dynemic USA Inc, to expand geographical as well as their product coverage and capture the opportunities for their products in USA.

During the year 2008-09, Dynemic Products completed its expansion programme and thus increased the total production capacity from 1980 MT to 5700 MT. During the year 2009-10, the company initiated to develop D&C Colors (Colors that are used in Drugs, Hair Care, Cosmetics, Personal Care) & InkJet Dyes (these are used in producing Inks for Printing with InkJet Nozzle on various sunstrate like, Leather, Various Textile Products, Food & also for producing Ink for Computer Printers, Writing Ink, Marking Ink, Finer Liner Ball Point Ink & other Ink Industries)

The Company exports its product to around 45 countries worldwide. Also the Company has its office in USA and expects to capture good market in American continent. All these have led the company to acquire and retain a status of largest manufacturer and supplier of food colours and dye intermediates in India.

Application of food colours & dye intermediates:
2. Recent Development (as on 29th July'14) 

i) Board recommends dividend and Postponed the agenda item for sub division of shares - 29th May 2014 

Dynemic Products Ltd has informed BSE that the Board of Directors of the Company at its meeting held on May 29, 2014, inter alia, has decided the following matters: 

1. Recommended the dividend of Rs. 1.50 per share i.e. 15% per share subject to approval of members in the next annual general meeting. 
2. The Twenty Fourth Annual General Meeting of the members of the Company is scheduled to be held on September 11, 2014.
3. The Board postponed the agenda item for sub-division of shares. 

On 19th May, 2014, company announced that board of directors recommend and consider sub-division of Equity Shares of face value Rs. 10/- each into 10 equity shares of face value Rs. 1/- each. 

This was not a good move as this would have resulted the stock to trade as a penny share and become an operator’s play, we wrote to company officials seeking the clarification for such a move. We believe, company has realized the risk and hence postponed it. 

ii) Increase in Promoter’s Share Holding during last quarter 

Promoter’s shareholding in the company is increased by 0.77% during last quarter. Promoters have increased their stake from 41.93% to 42.70%. Below are the detail of transactions made by Promoters in the month of April and May 2014 

Promoter’s shareholding in the company is increased by 0.77% during last quarter. Promoters have increased their stake from 41.93% to 42.70%. Below are the detail of transactions made by Promoters in the month of April and May 2014.

3. Saral Gyan Recommendation (as on 29th July'14)

i) Colorants are used by various Industry especially by food, drug, cosmetic, personal care and FMCG industry in order to impart wide range of desired shades, improve on visual perception. Increasing consumption of these products especially in Asia Pacific and Latin America are expected to drive colarant demand over the next five years. Sales turnover of Dynemic Products has grown by almost 100% in the last 3 years with similar growth in profitability, we believe company will continue to deliver similar growth with good demand for its products from domestic and export markets.

ii) Dynemic Products installed MEE for treating the effluent generated by both the units as per GPCB norms in 2013. Due to MEE implementation, company had incurred Rs. 4.57 crores (45.7 million) on working capital and Rs. 47 lacs on fixed assets due to which net profit after taxes last year decreased by 18%. However, this is expected to benefit the company going forward as still there are many companies in their competition operating without MEE installation. 

iii) Recently, Dynemic Products has been allotted a plot in Dahej - III Industrial Estate having plot area of 80000 Company is planning to start Unit III for manufacturing Dye Intermediates and other Allied chemicals. This is expected to further boost up the sales turnover of the company.

iv) Dynemic Products got its Credit Rating through CRISIL last year, where CRISIL has assigned BBB/stable rating on long term and short term bank facilities of the company. A good rating from CRISIL carries weight with lenders.  It also helps company to build credibility for their business and gain confidence from business partners.

v) Increase in shareholding by Promoters during last quarter gives further confidence in terms of bright future prospects of the company. Promoters have increased their sharing holding by 0.77% through market purchase at price range of 33 to 36.

vi) As per our estimates, Dynemic Products Ltd can deliver bottom line of 124.6 million for full financial year 2014 – 15, annualized EPS of Rs. 11 with forward P/E ratio of 4.2 X for FY 2014-15, which makes stock an attractive bet at current market price.

vii) Management has rewarded shareholders by paying consistent and uninterrupted dividends over last many years. Company has distributed more than 25% of its net profits in form of dividends.

viii) For FY 2013-14, company has declared the dividend of Rs. 1.50, dividend yield at CMP of 46 is 3.26. Attractive valuations with high dividend yield offers good upside potential with limited downside risk.

ix) On equity of Rs. 113.28 million, the estimated annualized EPS for FY 14-15 works out to Rs. 11 and the Book Value per share is Rs. 45.3. At current market price of Rs. 46, stock price to book value is 1.02. 

Considering reasonable valuations, increase in product offerings and good demand of company’s product in domestic & export markets, we find Dynemic Products Ltd an attractive investment opportunity from medium to long term perspective. Saral Gyan Team recommends “BUY” on Dynemic Products Ltd. for a price target of Rs. 90 over a period of 12-24 months.

Buying Strategy:
  • 60% at current market price of Rs. 46
  • 40% at price range of Rs. 36 – 40 (in case of correction in stock price)
Portfolio Allocation: 3% of your equity portfolio

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