Nikhil Adhesives - Rs.22.00

Nikhil Adhesives Ltd (NAL) was originally incorporated in 1986 as Hans Marketing & Services Pvt., Ltd, primarily to market adhesives manufactured by M/s Nikhil Industries under the brand name “FORMISOL”. Subsequently with a view to achieve backward integration, it became a partner in M/s Nikhil Industries. In 1992, Nikhil Industries was converted into a public ltd company and changed its name to NAL. Later in 2003, it acquired the emulsion business of M/s Mafatlal Dyes & Chemicals Ltd with well-established brands like ‘Mahacol’ which has the distinction of being the first adhesive brand launched in the country. Today, NAL is engaged in manufacturing as well as marketing and export of variety of polymer emulsions used as adhesives for furniture, packaging and label / lamination industry and as a binder for the textiles and paints industry, etc. It also trades in various chemicals such as vinyl acetate monomer (VAM), butyl acetate monomer, polyvinyl alcohol, cyclohexanone, cyclohexane etc.

NAL’s manufacturing facility is located at Dahanu, Maharashtra with an installed capacity of 7500 MTPA. It has regional offices at Chennai, Ahmedabad, Delhi, Kolkata with warehouses and has more than 100 distributors spread all over India with lower presence in South India. It sell its products in two market segments viz. Industrial products and Consumer products. The industrial emulsions include adhesives for packaging such as BOPP tape, sticker/label and lamination application, binders for manufacture of paints, textiles, etc. In the retail segment of branded consumer and bazaar products, the company's products include wood adhesives, construction and paint chemicals, sealants, etc. which are used by carpenters, civil contractors, painters, plumbers, households, students, etc. It has reputed brands like Formisol, Emditex, Mahacol, Emdility etc. The greatest strength of NAL is the decade long distribution tie-ups for critical raw materials like VAM etc with world’s renowned names like Petronas-Malaysia and Diren-Taiwan. It is also the sole distributor of Marubeni Chemicals for various monomers. Almost all major adhesive manufacturers such as Pidilite, Jubilant Organosys, Vision Organics etc. source their critical raw materials from the company only.

With the implementation of VAT, it is now on a level playing field with its competitors located in tax-exempted areas. For FY06, NAL is estimated to clock a turnover of over Rs.50 cr. with NP of around Rs.1 cr., which translates into an EPS of Rs.3 on its small equity of Rs.3.09 cr., and it may declare 10% dividend. For FY07, the company is expected to report an EPS of Rs.4. Since it’s in a low margin business, it is poorly discounted by market and has a market cap of only Rs.7 cr. currently. With a 52W H/L of Rs.50/15 and a dividend yield of around 5%, it’s a risk-free buy at the current levels and can give 30% returns in 6~9 months. Although NAL is expected to perform well in future, the rising crude oil prices and imported emulsions remains a threat for the company.