Gujarat Carbon & Industries - Rs.12.50

Gujarat Carbon & Industries Ltd. (GCIL) was originally incorporated in 1974 as Gujarat Carbon Ltd to manufacture carbon black. Gujarat Industrial Investment Corporation Ltd and Phillips Carbon Black Ltd promoted it jointly. In 1989, it changed its name to Consolidated Petrotech Industries Ltd., which was later changed to GCIL in 1994. Today, it is a Duncan Goenka Group with promoters holding more than 67% stake. Currently, GCIL is engaged in the manufacture of a chemical called Methyl Ethyl Ketone (MEK) and Secondary Butyl Alcohol which has applications in various industries like refineries, paints, packaging, pharmaceuticals and other allied user industries.

Interestingly, in India there are only two companies producing MEK and GCIL is one of them having an installed capacity of around 3000 MT. Earlier, the company was in the red to higher cost of feedstock and capacity under-utlization. But in the last fiscal, it discovered an alternate and significantly cheaper source for supply of its main raw material, which helped it turnaround. Now its plant is operating at more than 100% capacity utlization and is in a position to capture business opportunities with stable production. It is implementing the capacity enhancement programme by adding balancing equipment. As there are only 2 manufacturers, GCIL faces competition only from a number of small traders who import MEK.

Although MEK prices have cooled off from their recent high, GCIL is expected to do reasonably well in the current year. For FY05, it dramatically turnedaround with Sales registering more than 100% growth at Rs.22.60 cr. and NP stood at Rs.4.20 cr. against a net loss of Rs.1.90 cr. last year. It reported an OPM of 23% mainly due to higher price realisation and better capacity utlisation. Inspite of strong June’05 numbers declared, it may not continue to report the same OPM this year due to softening of MEK prices and cheaper imports on account of lower import duty. Still for FY06, it is expected to clock a turnover of around Rs.30 cr. and NP of Rs.3.75 cr. which works out to an EPS of Rs.3 on its current equity of Rs.12.40 cr. Investors are strongly recommended to buy at current levels with a price target of Rs.30 (i.e. 150% return) in 9~12 months.