Bodal Chemicals Ltd - 57.00 Rs

Bodal Chemicals Ltd (BCL), erstwhile known as Dintex Dyechem Ltd was originally promoted by Mr. Sevantilal Shah in 1986 to manufacture dyes and dye intermediates. In 2004-05, due to unfavorable market condition and consecutive losses, it was decided to merge a profit making company namely Bodal Chemicals Pvt Ltd (BCPL) with itself. BCPL, led by Mr. Suresh and Ramesh Patel was also engaged in the same line of business, hence BCL was created due to scheme of amalgamation. Consequently the management and control of the company vested with Patel family and today BCL is one of the largest manufacturers of dyes like direct dyes, reactive dyes acid dyes and also dye intermediates such as Vinyl Sulphone, DASA, FC Acid, Gamma Acid, 6 Nitro, Acetanilide etc. These products find application mainly in textile, leather and paper industry. Notably, BCL is a govt recognized star export house and nearly half of its production is exported to over 25 countries including USA, UK, Germany, Spain, Turkey, Taiwan, Korea, Greece, Egypt, Portugal, Hong Kong, Italy etc.

Presently, BCL has seven manufacturing plants with 4 units in Ahmedabad and one each in Ankleshwar, Panoli & Baroda. Out of these, company has recently commenced production at its new Baroda plant thereby taking its total installed capacity to 29435 MTPA. It is further contemplating another project at Baroda itself for a 12000 MTPA dyes manufacturing unit with an investment of Rs. 25 crore and intends to complete the project, once finalized, during April-June 2008. Company has also decided to merge Milestone Organics Ltd (MOL) a Baroda based company engaged in manufacture of dyes only, having installed capacity of 900 MTPA. Although, MOL is a loss making unit but BCL management is confident of turning it around due to various synergies and better operation. For this takeover, BCL will be allotting 68000 equity shares of the company to the shareholders of MOL under the swap ratio of 100:1. In future, company wants to get backward integrated by establishing new production facilities for Sulphuric Acid, Beta Naphthol & H.Acid with additional capacity of Vinyl Sulphone.

Interestingly, in order to fund the future expansion and acquisition plan, BCL is coming out with a right issue @ 20 Rs per share which is as good as mini bonus considering its CMP of 57/- Rs. The record date is yet to be finalized and as per the terms of issue a shareholder is entitled to get 1 equity shares @ 20 Rs and 1 detachable warrant for two shares held in the company. The detachable warrants can be converted into equity share during July 2008 @ 20 Rs per share. So once the record date is announced, the share price will shoot up sharply. For FY07, its sales increased by 70% to 254 cr but NP shot up 350% to 11.20 cr posting an EPS of 11 Rs on equity of 10.40 cr. Considering its performance for the June qtr and lower tax provisioning, it may end FY08 with sales of 325 cr and PAT of 13.50 cr i.e. EPS of 13 Rs on current equity. These figures are excluding MOL nos. To conclude only aggressive investors can buy this scrip at current levels being a high risk high return stock. However huge equity dilution and merger with loss making company is a cause of concern.