Indag Rubber Ltd - 38.00 Rs

Established in 1978, Indag Rubber Ltd (IRL) was formed as a joint venture company between Khemka group and Bandag Inc-USA for the manufacture and marketing of pre-cured retreads. Today, it is one of the reputed players in tyre retreading business and operates thru franchisee business by offering the technology, specialized equipment, retreading material, technical back up etc to the franchisee. It also sets up captive retreading plants for various state road transport corporations. Retreading is basically a process of bonding a new flap of pre-vulcanized rubber in place of the worn-out flap which increases the tyre life. Retreading can be done either thru conventional hot process or the new advanced precured cold process. Cold process has various advantages, mainly improving the fuel efficiency and increased tyre life & performance in comparison to hot process. Notably, IRL is among the very few, offering the 'genuine' cold process precured retread in India.

IRL has a state of the art manufacturing unit at Bhiwadi, Rajasthan to produce precured tread rubber along with allied items like rubber cement, cushion gum, extrusion gum, envelopes, other accessories and specialized equipment for retreading. To increase the market share, it has set up a new plant in Nalagarh, Himachal Pradesh last year. IRL supplies the precured tread regularly to its more than 100 franchisee outlets, who eventually carry out the retreading operation at their place. The company is concentrating on utilizing the full potential of the existing franchisees and is setting up new franchisees in unrepresented areas so as to have a larger and more efficient network of franchisees. It also has a training center to impart high quality on-the-job training to its license customers. As there are very few organized players in this business, IRL enjoys a good branding and a dominant position especially in northern India. Last year, the joint venture between Indian promoters-Khemka’s and foreign promoters-Bandag Inc, USA was mutually terminated and accordingly Khemka’s acquired the latter’s stake thereby taking their total holding to 81%.

Retreading as a business is getting greater acceptance since apart from being a cost saving concept it is also environment friendly as it prevents millions of tyres from getting into land fills and tyre piles. However in India there is a possibility of retreading getting bad name as there is mushrooming growth of parties not conforming to any standards both in the manufacture of tread rubber as well as in retreading. But still the growth of retreading industry is directly linked to the growth of the road transport and hence IRL has a huge potential to grow. Financially, company has made a smart turnaround for FY07 with sales shooting up by 60% to 61 cr and registering a profit of 4.20 cr (incl. EO income) against net loss of 0.40 cr in FY06. For the latest June’07 qtr, sales increased by 25% to 17 cr but NP shot up 185% to 1.75 cr registering an EPS of 3.30 Rs for the quarter. Importantly it recorded a very healthy OPM of 15% for the qtr. Accordingly for FY08 it is expected to clock a turnover of 70 cr and PAT of 5 cr i.e. EPS of 10 Rs on equity of 5.25 cr. Investors are recommended to buy at current levels as share price can appreciate 50% in a year’s time.