Our expert Rahul Sonthalia gives you a sound suggestion with strong background investment research for Value Investing

Growing at a 5 years CAGR of 22 per cent, huge capex lined up, 17 year dividend track record, high

dividend yield, and EV/EBITDA of mere 4x makes the company an attractive bet.The three business segments contribute the following amount to the total revenue:

• Technical textile business: 50 per cent
• Chemicals and polymers business: 34 per cent
• Packaging film business: 16 per cent

The company has chalked out an impressive plan for future growth earmarking a capex of Rs 1,400

crore for expansion and backward integration which will be under the following heads

• Setting up a 14,500 TPA polyester yarn at a cost of Rs 184 crore
• Investing Rs 257 crore towards capacity enhancement
• Investing Rs 40 crore for a dipping tyre cord plant
• Investing Rs 92 crore for wind power project and Rs 60 crore for laminates

Apart from organic growth the company also isn’t shy of treading the inorganic route and has

recently completed major acquisitions and will look for further opportunities as well as a result of the acquisitions the company has become the 2nd largest player in the nylon tyre cord fabric (NTCF) segment which has good prospects considering the revival of the auto sector and the anti dumping duty imposed on NTCF being dumped in from China
What’s more to the company is the sale of carbon credits which is estimated to earn around Rs

271- 338 crore until 2014 which is an added bonus
Considering the financials the company trades at a P/E of 4.8x nd compared to Century Enka which

trades at a P/E of 6x and has given an interim dividend of Rs 7 having a dividend yield of around 7

per cent and thus makes it a good value buy.

Author: Rahul Sonthalia, Research Head, Kredent

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Last week I heard a very interesting story which eventually gave me the idea of investing in BGR Energy Systems Ltd. Thought of sharing with you.

Years back when the South African Government opened their country for outsiders to come and do mining for diamonds, entrepreneurs form all over the world rushed to South Africa in the hope of finding diamonds and changing their fortunes. Of them only very few were able to do so and become rich. But there was one African business man who instead of joining this rat race to discover diamond started the business of selling/renting hammers and other mining material whoever was coming to discover diamond. He eventually became a millionaire and one of the most successful entrepreneur of this Diamond run.

I hope some of you must have realized the point I am trying to put here. In India currently most of the companies are running to set up the power plant to generate power and other half are running to build the great power generating turbines or boilers. But very few are there in the business of building the Balance of Plants (BOP) which accounts for more than 35% of the total money spent in building up a power plant.

Thus, I strongly believe that there is a huge potential in this sector and BGR energy being the undisputed leader with a strong order book and execution track record offers great long term investment opportunity.

I would recommend one to start a SIP form of investment in this stock for a minimum of 2.5-3 years period, since at the current levels investing lump sum might be a little dangerous given the market conditions.

Happy Investing….!!

Author: Rahul Sonthalia, Analyst, Kredent Group

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Investment Rationale

• BSCL, an agro-chemical company, is subsidiary of the Euro 35 billion Bayer AG

• Its business is divided into crop protection, environmental science and bio-science

• Per hectare consumption of pesticide in India is merely 0.48 kgs, lower than 5.0 kgs per hectare in the US and again less than 10.0 kgs per hectare in Japan

• With its strong R&D, BSCL continues to offer new products to its customers

• The Company derives nearly 80.0% of its exports revenue from its Bayer AG group companies due to the cost advantages

• New products’ launch, outsourcing from parent and low pesticide penetration will drive the future growth of the Company

• Despite poor rainfall in H1FY10, the Company registered a strong performance

• Its profit  in H1FY10 is Rs. 109.42 crore higher than Rs. 94.46 crore posted for FY09

• The Company has shut down its Thane plant spread over 108 acres of land, valued around Rs. 1,000.0 crore

• The sale of land could generate huge cash reserves for BSCL

• The stock could be bought at current levels with one year target price of Rs. 632.0

Bayer Crop Science (CMP: Rs. 498.00)
• BSCL, an agro-chemical company, is subsidiary of the Euro 35 billion Bayer AG• Its business is divided into crop protection, environmental science and bio-science• Per hectare consumption of pesticide in India is merely 0.48 kgs, lower than 5.0 kgs per hectare in the US and again less than 10.0 kgs per hectare in Japan• With its strong R&D, BSCL continues to offer new products to its customers• The Company derives nearly 80.0% of its exports revenue from its Bayer AG group companies due to the cost advantages • New products’ launch, outsourcing from parent and low pesticide penetration will drive the future growth of the Company• Despite poor rainfall in H1FY10, the Company registered a strong performance• Its profit  in H1FY10 is Rs. 109.42 crore higher than Rs. 94.46 crore posted for FY09• The Company has shut down its Thane plant spread over 108 acres of land, valued around Rs. 1,000.0 crore • The sale of land could generate huge cash reserves for BSCL• The stock could be bought at current levels with one year target price of Rs. 632.0

Please read the Disclaimer before investing

Recommendation by Rahul Sonthalia, Analyst, Kredent Group

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