Manali Petrochemicals - Rs.24.50

Incorporated in 1986, Manali Petrochemicals Ltd. (MPL) was promoted by SPIC to manufacture Propylene Oxide, Propylene Glycol and Polyols (Petrochemicals) used as industrial raw materials. Propylene Glycol is manufactured to IP/USP specifications and finds extensive use in pharma preparations, food flavours, cigarettes, paints, cosmetics etc. Its by-products di and tri propylene glycol are primarily used in the resin industry and for manufacturing of Fat-G-bricks - an energy conserving building material. It also supplies Isocyanates imported from USA and Japan along with Polyols to the Polyurethane (engineering plastic) industry and provides technical services to the user industries. Importantly, MPL is the only producer of polyol in India due to the sophisticated technology requirements and being a highly capital intensive industry

MPL has two plants located at Manali on the outskirts of Chennai and close to the plants of Chennai Petroleum from where it sources its major raw propylene through a pipeline. It has an installed capacity of 35,000 MTA of propylene oxide 13,250 MTA of propylene glycol and 14,000 MTA of polyol. MPL also has technical agreement with Technip France to provide the technology of Ato Chem of France for the manufacture of propylene oxide and propylene glycol and that of Arco Chemical Co. of USA. for the manufacture of polyols. Due to the strong demand from user industries and the healthy order book position, both its plant are working at almost 100% capacity utilization.

Financially, MPL was making losses but has dramatically turnaround from FY05. It had a carried forward loss of Rs.35.33 cr. on its equity of Rs.114.70 cr. But under the recent restructuring scheme MPL has adjusted the said losses of Rs.35.33 cr. partly by reducing its equity by Rs.28.67 cr. and partly from the share premium of Rs.6.66 cr. This equity reduction was by way of reducing the face value of its share from Rs.10 to Rs.7.50, which made the company’s net worth positive. Hence the company would be able to borrow at a lower rate of interest in future and can also declare dividend. For FY06, MPL is estimated to clock a turnover of Rs.375 cr. and NP of 45 cr. This works out to an EPS of about Rs.4 on its reduced equity of Rs.86 cr. and face value of Rs.7.50. With a 52 week high of Rs.29, this scrip has the potential to cross Rs.35 i.e.50% appreciation in 6~9 months. Long term investors can expect a price target of Rs.50 in 18 months or so.