IG Petrochemicals Ltd - Rs.72.00

Incorporated in 1988, IG Petrochemicals Ltd. (IGPL) is the world’s third largest producer of Pthalic Anhydride (PAN), mainly used in the manufacture of plasticizers for production of PVC products, shoe soles etc., Alkyd Resins used for manufacturing paints and as an intermediate in the production of dyes and pigments and for the in production of unsaturated Polyester Resins. IGPL is a recognized EOU with exports accounting for 75% of sales. It is an ISO accredited 9001:2000 company for Quality Management Systems from BVQI. A few years back, the company was in a very bad shape and registered as a sick company with BIFR. But by aggressive debt restructuring and better market conditions, it made a smart turnaround and is now on a strong footing. It has also been de-registered from BIFR in June’06 as its net worth has positive.

IGPL’s plant is located at MIDC-Taloja in Maharashtra, 50 kms away from JNPT in Nhavasheva and has an installed capacity of 1,20,000 MTPA. It uses the Orthoxylene Oxidation method which produces high-pressure steam that makes the plant self-sufficient in power and steam requirements and is therefore, one of the most cost-effective plants for manufacturing PAN in the world. Earlier, the company had to import its main raw material i.e. Orthoxylene at higher prices but now sources 70% indigenously from Reliance Industries at much lower cost. Also the price of PAN has risen substantially due to strong demand from the user industries. Importantly, the company is now working at 100% capacity utilization compare to less than 75% in FY06 and is planning to expand its production capacity to meet the rising demand. With higher capacity utilization coupled with better price realization, the company is witnessing one if its best times and is expected to end FY07 on a buoyant note.

Last fiscal, the company undertook major financial restructuring by settling the debts and liabilities of all banks and financial institutions. This was made possible by an investment of Rs.125 cr. by Spinnaker, a global fund, in the form of convertible debentures. Recently, IGPL came out with stunning numbers for the Dec.’06 quarter. Sales increased by 50% to Rs.150 cr. whereas it registered a net profit of Rs.10.90 cr. against net loss of Rs.15.60 cr. last year. Notably, it recorded the highest OPM of around 14% due to high realization, low raw material cost and increased capacity utilization. Besides, the recent fall in crude oil prices also augurs well for the company. For FY07, it is estimated to clock a turnover of Rs.600 cr. with PAT of Rs.33.50 cr. This translates into an EPS of Rs.13 on its current equity of Rs.26.30 cr. and EPS Of Rs.11 on its diluted equity of Rs.30.80 cr. Investors are advised to accumulate this scrip at sharp declines only as it has the potential to hit Rs.100 (50% appreciation) in 15-18 months.