The Hindu Business Line : Orient Abrasives: Buy

AN investment may be considered in the Orient Abrasives stock when it settles on an ex-stock split basis next week, as it holds promise of appreciation over a one- to two-year period. Based on the split ratio, it is likely to settle at about Rs 30 on an ex-stock split basis.

The company proposes to reduce the face value from Rs 10 to Re 1.

The stock trades at a price-earnings multiple of less than 10 times its FY 06 earnings.

Orient Abrasives' products find application in the steel, cement and engineering sector.

The buoyancy in steel output and the expansion plans announced by major players augur well for the company's prospects, as supplies to this sector account for a substantial proportion of revenues. The trends in industrial growth also points to robust demand from other sectors.

The impact of enhanced capacities in key products, a gradually rising share of exports and the commissioning of a new power facility, which could improve profitability levels, are likely to be reflected in performance over the next couple of years. With robust cash flows, Orient Abrasives is well placed to bankroll its growth plans and cut the debt that it had accumulated last year to implement its expansion plans.

We have a `buy' outstanding on the stock at Rs 180; subsequently the company had announced a bonus in the ratio of one share for every share held.

We remain bullish on the prospects for this small-cap stock though its earnings card for the first quarter of FY 06 sported lacklustre numbers.

Going forward, gains are, however, likely to be steady and accrue over a longer period in contrast to the manifold rise in price over the past couple of years.

S. Vaidya Nathan

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