Chemfab Alkalies - Rs.176.00

Incorporated on 16th June 1983, Chemfab Alkalis Ltd (CAL) was promoted by Titanium Equipment and Anode Manufacturing Co. Ltd., (TEAM) to produce caustic soda. Today, this ISO 14001 certified company is the leading player engaged in the manufacture of Caustic Soda lye, Liquid Chlorine Hyd rogen Gas, Hydrochloric Acid, Sodium Hypochlorite / Bleach Liquor, Barium Sulphate etc. Notably, CAL is the first in the country to introduce Pollution-free Membrane Cell Technology, which became the trendsetter in the Chlor-Alkali Industry. Moreover, it is also the first company to manufacture Barium Sulphate from solid waste and also holds a patent for the manufacture of the same.

CAL’s manufacturing plant is located just 500m from the seashore at Kalapet in Pondicherry, which offers great potential for desalination. In fact the company intends to put up a desalination plant of 1 MGD capacity, which will meet its total water requirement and will enable it to sell water to potential customers since the entire East-coast has huge deficit of ground water. Importantly, due to backward integration the company is self-sufficient on the salt front and its entire requirement of salt is met from its own salt fields resulting in significant savings. On the power front, CAL has its own 110KV sub-station and receives uninterrupted power supply from Pondicherry Electricity Department. Knowing the future potential of Biotechnology, CAL has recently undertaken a conscious decision to meet the technological challenges and commercial demands of the future by creating a separate Life Science Division for pursuing effective product portfolios on Nutrition and Wellness. It has also identified Bio-separation, Nano-Membranes and Bio-remediation to decimate industrial and environmental pollution.

Due to the increasing demand from the user industry like paper, aluminium, detergents, pharma, PVC etc. caustic soda prices are rising constantly and are expected to remain high due to limited supply. Being a strong player in southern market, CAL is witnessing the best of times. For FY05, its net sales increased by 14% but its NP almost tripled to Rs.9 cr. due to higher price realisation and saving in interest costs leading to an EPS of Rs.26 on a small equity of Rs.3.50 cr. The company declared 100% dividend, which means a dividend payout ratio of 40%. For FY06, it may report an EPS of Rs.30 and can declare Rs.12 dividend giving a dividend yield of 7%. Investors are advised to accumulate this scrip at sharp declines with a price target of Rs.250 in 15 months.