Clariant India: Buy

Recommendation: Buy

Anup Menon

TRADING at around Rs 72, the Clariant India stock is a good investment option for a portfolio with a low-to-moderate risk profile. The stock trades at a price-earnings multiple of around five times its latest earnings per share.

Though the company managed to regain its balance in 2000-01, the stock has been pushed down from Rs 92, seen in the week of announcement of results, to around Rs 72 now. The reason for the fall can be attributed to the slump in its user industries. This is expected to continue into this fiscal, thereby increasing the prospective operational risk for the company. The stock should stabilise at the Rs 60-65 levels. Investors can consider taking fresh exposures after the first quarter performance is announced. Going by current trends, the growth rates are not likely to be very attractive. Investors can consider liquidating their positions with a 20-30 per cent gain over the purchase price.

Earnings performance: The company's earnings performance for 2000-01 was fairly impressive, considering the state of the user industries. Sales revenues rose 11 per cent to Rs 282.22 crore compared to Rs 252.79 crore the previous year. Operating margins improved from 9.8 per cent to 10.2 per cent. Post-tax earnings grew around 5.2 per cent on a year-on-year basis to Rs 16.30 crore. On the equity base of Rs 11.93 crore, the earnings per share works out to around Rs. 13.70.

Business profile: Clariant India is a major player in the specialty chemicals business. Its main line of business is in textile, leather and paper, chemicals and masterbatches. Its products find application in a variety of commodity industries such as textiles, leather, carpets, paper and plastics.

Prospects: The company's near-term prospects are not impressive. Considering the state of the user industries, it is hard to imagine the valuations would improve. However, it is also important to consider the company's position in the user industry.

Clariant would definitely rank among the more efficient and well-established players. This being the case, though the company may not generate substantial improvements in growth rates, it is likely to sustain its current growth rates.

The key to this would be the ability to come out with new products, which has been a major contributor to its revenues. For instance, in fiscal 2001, new products contributed close to 23 per cent of sales revenues. It is expected that the company will be in a position to sustain its revenues from new products.

In terms of efficiency, the company rests on solid ground. Growth rates over the next few quarters are expected to remain stagnant. Therefore, an investment in the stock should be considered with caution and a long-term investment horizon.