Indian Petrochemicals Ltd- Rs.176.50

Established in 1969, Indian Petrochemicals Ltd. (IPCL) is the second largest player in the petrochemicals industry manufacturing polymers, synthetic fibre, fibre intermediates, solvents, surfactants, industrial chemicals, catalysts and adsorbents. It is the largest integrated PVC player, the largest Polyethylene (PE) producer and the second largest MEG producer in India with the largest ethylene capacity. Till June 2002, it was a government undertaking when Reliance took 46 per cent stake and took over its management. Since then, the company has vastly improved and become financially stronger.

The company has three petrochemical complexes, a naphtha based complex at Vadodara and gas based complexes at Nagothane near Mumbai and at Dahej on the Narmada estuary in the Bay of Khambhat. The company also owns a catalyst manufacturing facility at Rabale, Navi Mumbai. With better management and the strong uptrend in the petrochemical cycle, all its plants are operating above 100 per cent capacity utilization. Of late, it is in talks with potential domestic/RLNG suppliers to replace expensive imported propane with cheaper domestic gas. It is also planning some minor de-bottlenecking of its PVC and MEG capacities. It also has a capex plan of Rs1000 cr. to build a new mono ethylene glycol (MEG) plant at its Gandhat complex in Dahej in the coming 24~30 months.

Due to the current feud among the Ambani brothers, the IPCL stock is poorly discounted by the market and is the best time to accumulate the scrip for the long term. The company is doing very well and with the petrochemical cycle expected to remain firm over the next 18 months, IPCL is one of the best bets. For the nine months ending 31 Dec.’ 04, its sales grew marginally by 2 per cent to Rs5556 cr. but the NP jumped 160 per cent to Rs450 cr. due to better efficiency and lower interest cost. IPCL could post a topline of Rs7600 cr. and NP of Rs600 cr. leading to an EPS of Rs24 on its equity capital of Rs249 cr. It’s a strong buy at current levels with a price target of Rs280 in a year’s time. The downside risk is very limited from hereon considering that the Government divested its stake at Rs170 through an IPO in 2004 while the Ambanis acquired the majority stake at double the price.