Indian Acrylics - Rs14.00

Indian Acrylics Ltd (IAL) was incorporated as a public limited company in February 1986. It was originally formed as a joint sector project by Mr. R K Garg along with Punjab State Industrial Development Corporation Limited (PSIDC). Today, it is the largest manufacturer of Acrylic Staple Fibre (ASF) in the country with 35 per cent of the total domestic capacity. It enjoys the credit of introducing micro-deniers for the first time in India. The company has technical collaborations with world renowned M/s E T Du Pont de Nemours & Co. Acrylic fibre is one of the fastest growing fibres because of its outdoor performance appeal with characteristics like quick drying time, softness, excellent colour fastness, luxurious touch & drape, warmth in thermal construction, easy care, resistance to weathering, stain and wrinkle resistance etc. Since the last few months, ASF prices have risen smartly in international markets due to short supply on account of closure of some manufacturing plants in USA & Europe and the rising demand from China.

The company’s manufacturing plant is located in Sangrur district of Punjab with a capacity to produce 38,500 TPA of ASF. To reduce the operating cost, the company is de-bottlenecking to increase its capacity to 42,000 TPA, which is expected to be completed by this fiscal. The company is also planning on backward integration with the production of methyl acrylate, the raw material that along with acrylonitrile (main raw material) goes into the production of ASF. It plans to produce semi-dull fibres and other newly developed fibres to mitigate the seasonal effects on demand. It has installed Tow to top converters to produce ready to use Acrylic Tops and is setting up value added projects like Spinning and a Dye House. It has also embarked upon technology exports to Acrylic Fibre plants abroad. Its R&D team is continuously experimenting on developing new uses of acrylic fibres such as Mink blankets, Socks, Upholstery, Sarees, Dress material, T- shirts, Soft toys, Plush & Fur fabrics, blending with velvet and silk etc. However, the company is totally dependent on imported raw materials, mainly Acrylonitrile, which is highly price sensitive to international crude oil prices

Financially, IAL is a turnaround case. For the six months ending Sept. 2004, its Sales increased by 29 per cent to Rs144.50 cr. and it posted an NP of Rs25.40 cr. against a loss of Rs8.50 cr. last year. Its OPM stood at 28.50 per cent compared to 6.25 per cent in the corresponding period last year. To cash in on the rising demand, the company is giving a special thrust to develop exports to China, Taiwan, Iran, Syria, etc. Recently, it approved preferential allotment of around 13 lakh shares to promoters and their associates at the rate of Rs 13 per share. Considering all these factors and IAL’s initiatives to reduce costs, it can post sales of Rs300 cr. with NP of Rs45 cr., which works out to a diluted EPS of Rs3.5. The scrip is recommended for investment with expectations of 50 per cent returns i.e. a price target of Rs20 in 15 months time.