Earlier in Aug 2003, Money Times recommended this scrip at Rs.61 under 'Best Bets'. It is now being recommended again at double the price in view of the company having expanded capacities and is poised to exploit new opportunities emerging in polyester films and fibres. Belonging to the Delhi based Bhartia family, promoters of Jubilant Organosys (formerly Vam Organics) group, India Glycols Ltd. (IGL) is engaged in the manufacture of mono ethylene glycol (MEG), di ethylene glycol (DEG) and tri ethylene glycol (TEG) at Kashipur in Uttaranchal through the molasses route in technical collaboration with Scientific Design Company of USA. IGL also manufacture Ethoxylates and other performance chemicals, Glycol Ether and Guar Gum Powder. MEG is the basic feedstock for the production of Polyester.
With the textile quota phasing out in Dec 2004, the demand for polyester is expected to increase substantially. The demand for PET and PE films is witnessing higher growth at 20 per cent and MEG is in huge demand, which is expected to strengthen in 2005. The price of MEG is constantly on the rise and is currently ruling high at Rs. 52 per kg. This is due to the high crude oil prices since traditionally ethylene needed for the manufacture of MEG is derived from crude oil. But IGL, the only producer using the organic route of molasses - a byproduct of sugar refining, is therefore at an advantage. Although the price of molasses has also gone up due to lower sugar production, it is relatively better placed than those using the inorganic route.
Due to the increasing demand and shortage of MEG, the company has decided to expand its capacity from 225 MT/day to 350 MT/day from December 2004. This expansion will have an inbuilt provision to produce 425 MT/day without any major capital expenditure and IGL is de-bottlenecking the existing MEG plant by installing an additional reactor along with allied balancing equipment by the use of better catalysts. This should be operational by Q3FY05. It has also planned capital expenditure of around Rs 150 cr. over the next two years, which would largely be funded through internal accruals. It is also planning to produce liquid oxygen, liquid nitrogen, and argon gas by March 2005. It has also undertaken a scheme to produce RAB (concentrated sugarcane juice) and to produce ethanol required for MEG plant. The setting up of a distillery in Eastern UP and herbal farming in Uttaranchal are the other diversifications it is working on. It is also merging its loss making subsidiary, CDS International, with itself to avail of tax benefits.
For FY04, sales were up 34 per cent at Rs.422.60 cr. with 58 per cent higher NP of Rs. 57.20 cr. registering an EPS of Rs. 20.50. Q1FY05 posted a substantial rise on y-o-y basis due to the capacity expansions carried out in June 2003. Sales increased 71 per cent to Rs.138.50 cr. and NP was up 165 per cent at Rs.20.30 cr. despite the sharp increase in tax provision. Considering the increasing MEG prices and the planned capacity expansion, sales of Rs.550 cr. with NP of Rs.80 cr. resulting in an EPS of Rs.29 are envisaged in FY05. Its current share price of Rs.126 discounts FY05 earning by only 4.3 times and the scrip could rise by 50 per cent in 6 months and 100 per cent in 18 months form the current level.
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