Riddhi Siddhi Gluco Biols Ltd. Term Buy Call: FairWealth Securities

Riddhi_Siddhi_Gluco_Biols

Incorporated in the year 1990, Riddhi Siddhi Gluco Biols Ltd. is a leading manufacturer of starch and starch derivatives. The company manufactures 35 products. The company’s product range includes maize starch, liquid glucose, corn syrup, dextrose syrup and Maltodextrin, Glucose-D. The products manufactured by the company are used in various industries such as paper, textile, pharmaceutical, adhesive, leather, food.

Key Highlights

• The company is a supplier of key ingredients to various industries such as Food, Pharmaceutical, Paper, Animal Feed, Confectionery, Textile.

• The company is the largest exporter in the Indian Starch Industry.

Future Outlook

At Current market price of Rs 216.15, the stock is available at P/E of 7.03x of its FY10E earnings, and 4.89x of its FY11E earnings. We recommend BUY with target price of Rs 258, given that company’s future shows potential.

Ridhi Sidhi Gluco Biols was incorporated in the year 1990. The company is the leading manufacturer of starch and starch derivative. The company transforms corn (maize) crops into essential industrial raw materials adopting the most modern technologies. Roquette Freres of France, has 14.95% stake in the company. Roquette is a leading producer of starch derivatives and the largest producer of polyols (sugar-free sweeteners) in the world. The company has entered into a technical co-operation agreement with Roquette, which provides for transfer of know-how for product and process up gradation and technology for new products to be introduced by the company. The company plans to introduce value-added products to cater to the specific needs of the food, pharmaceutical, textile and paper industries.

The company has highest sales among its peers i. e Rs. 675.89 crore. The industry P/E is 6.44 and the company is trading at a P/E of 7.81 on TTM Basis. The company has a EPS of 27.46 which is one of the best in the industry.

Riddhi Sidhi Gluco Biols has reported a 56.06% increase in the net sales to Rs 193.59 cr during the quarter ended on 31st Dec, 2009, as compared to Rs 124.05 cr in the same quarter last year. The operating profit of the company improved by 90.28% to Rs 28.98 cr as against Rs 15.23 cr during last year. The company has reported a massive jump of 914.29% in the net profit to Rs 12.78cr as against Rs 1.26cr during the same quarter last year.

However on Q-O-Q Basis, the company improved its net sales by 17.73% to Rs. 193.59 crore as compared to Rs. 164.44 cr in the previous quarter. The operating profit increased to Rs. 28.98 cr as against Rs. 23.87 cr. Net profit increased by 39.52% to Rs. 12.78 cr as against Rs. 9.16 cr during the previous quarter.

The top line of the company has been showing consistent growth rate. The bottom line of the company is not in accordance with that of the top line due to high interest rate.

The net worth of the company is increasing on a continuous basis. The term loans of the company have declined in the current year to Rs. 146.49 crore from Rs. 151.37 crore.

Ridhi Sidhi Gluco Biols Ltd is paying dividend from the last 5 years. The dividend yield for the company is in between 1 – 6.5. This gives a positive signal of the management’s focus on shareholders wealth creation

The Indian corn starch industry has an estimated size of around Rs. 1800 crore per annum. There are few players in the industry. The companies have small sized plants that are scattered around corn producing regions. India is the worlds’ seventh largest corn producer about 18.54 million tones produced annually with adequate raw material availability. The corn wet milling industry registered a steady growth. Exports have been strong. Over the past 3 years, the industry has shown a strong growth in exports, at approximately 18% constant annual growth. Corn refiners in India are recognizing the importance of maize and are working with seed companies to improve crop yield via the biotech route in seed development. Indian pharmaceutical companies are gearing up to become a major global player, not only in producing low-price generic medicines but also as innovators in drugs and vaccines. It is growing at a rate of 9% per year. India has also emerged as the fastest growing paper market in the world showing a 10 per cent growth in per capita paper consumption. Paper industry in India is the 15th largest paper industry in the world. The apparel industry of India is the largest foreign exchange earning sector, contributing 12% of the country's total exports.

COMPANY:

• The company is the largest wet corn miller in India.

• The company has a strong presence in its industry and has a cutting edge over its competitors to source the main raw material i. e corn (maize) from the corn growing areas during season, store it with the infrastructural facilities created to ensure uninterrupted operations of all its plants to ensure timely and effective service to its customers.

• The company has strong financials and has a network of more than 8 marketing points across India and has its presence in more than 25 countries in the world.

• The company has a market share of 36%.

• The company is the India’s largest corn miller with 1500 tonne daily capacity, producing a variety of starches and derivative products.

FUNDAMENTALS:

• The company’s 90% revenues comes from Pan India and 10% from exports.

• In the year 2008-09, the net sales of the company increased by 59.8% from Rs. 332.09 crore to Rs. 530.68 crore.

• The debt equity ratio of the company is 1.58 in the FY09.

• The company has higher operating profit ( i. e Rs 75.18 crores) among its peers.

• The company’s vision is to grow at CAGR of 20% to achieve a rupees one billion turnover and touch a million tonne annual production capacity in five years.