Shree Hari Chemicals - Rs.29.50

Established in 1987, Shree Hari Chemicals Export Ltd. (SHCEL) is among the reputed manufacturers and exporters of a wide range of dyes & intermediates. Its Dyes division manufactures reactive dyes, acid dyes and direct dyes whereas under Intermediates it produces H-acid, Gamma Acid, Peri Acid, Toblas Acid, J.Acid, K.Acid etc. In addition to this, it also makes F.C.Acid, Vinyl Sulphone etc. with its updated technology and zero error in-process control system. The eventual product of the company is an intermediate for various types of dyestuffs. Interestingly 75% of India's total dyestuff production is intended for the textile industry and the balance 25% is used in leather, paper, food, soap/detergents and cosmetics etc. And with these sectors growing rapidly, the demand for the company’s products is bound to increase.

With an administrative office in Mumbai, SHCEL’s main manufacturing plant is situated on a 13,500 sq. mts. plot at the premier industrial estate in Mahad, about 175 km from Mumbai. It is in proximity to the main market of Mumbai, as well as to the ports of Mumbai & Nhava Sheva. The company also has production facilities with its associates in Gujarat. Nearly 40-50% of the production is exported to blue chip companies around the world. It has been awarded quality management system ISO 9001:2000 by SWISO, Switzerland. Last year, the company set-up a Solvent plant system, which is the latest technology available in the world, to increase the yield and improve quality. Besides, it has its own full-fledged Effluent Treatment Plant as per norms prescribed by the Maharashtra Pollution Control Board. It is also a member of Common Effluent Treatment Plant (CETP) managed by the Mahad Manufacturing Association and has contributed Rs.27.46 lakh to it. Importantly, earlier China was an exporter of dye & intermediates to India whereas recently it started importing some of these intermediates from India. Due to this, the company is witnessing a phenomenal increase in demand as well as better price for some of its products.

This is clearly visible in its December 2006 quarter numbers. Sales have more than doubled to Rs.20.52 cr. whereas its OPM shot up to 19% compared to 6% last year. Net profit stood at Rs.1.36 cr. against Rs.0.10 cr. in the last fiscal i.e. quarterly EPS of Rs.3. This means that the company has made a very smart turnaround from December’06 quarter. Whether it continues to report such performance is to be keenly watched. However, the annual per capita consumption of dyestuffs in our country stands at a merely 50 grams compared to the world average of over 200 grams. Hence there is a great potential growth of the dyestuffs demand in the domestic market. Also, India's share in the global dyestuff market is around 6.8% with an annual growth rate of around 20%. Assuming that the company repeats its December 2006 performance, it may end FY07 with net sales of Rs.70 cr. with net profit of around Rs.3.50 cr. This works out to an EPS of approx Rs.8 on its equity of Rs.4.50 cr. Eventhough the scrip is near its 52W high, it is trading at a P/E ratio of 3.5. And the company reports an OPM of more than 15% for the March 2007 quarter, the scrip can zoom up 50% in no time. Only speculative investors can take some exposure with the chance of getting handsome gains in short-term.