NATIONAL PEROXIDE LTD

By Jose Lonappan National Peroxide Ltd. is the largest manufacturer of Hydrogen Peroxide in India with 36% market share. It has a strong brand image. The Company was established in 1954. Manufacturing facility is at Kalyan in Maharashtra. Other products manufactured by the Company include Hydrogen Gas, Sodium Perborate, Per Acetic Acid etc. To meet the increasing demand from the consuming industries, the Company has gone for a capacity expansion of Hydrogen Peroxide from 68000Mt to 84000 MT per annum. End users of Hydrogen Peroxide Hydrogen Peroxide is widely used in various industries for bleaching, chemical synthesis, environmental control, effluent treatment, sterilization etc. End user industries are mainly Paper, Textiles etc. These industries are booming and the Company expects substantial increase in Turnover and net profit during 2010-11. Raw Materials The Company uses Naphtha/Natural Gas as its raw material. The Company has the ability to operate the plant on either Naphtha or Natural Gas. This flexibility in operation is a big advantage for the Company, as it can interchange the raw material based on price considerations. This has significantly contributed to the bottom line. Capital Structure National Peroxide is a small cap company with an equity capital of Rs 5.75 crores (Face Value Rs 10). Public issue was made during March 1996. Bonus shares were issued during 2006 in the ratio of 3:2. Out of the equity capital of Rs 5.75 crores, promoters hold 68.59%, public 26.25% and the balance by corporates/institutions. The Company is debt free and has enough leverage for further expansion. Financial Results for Q/E 6/10 The Company has declared bumper results for the Quarter Ending June 2010. Turnover has increased to Rs 37.10 crores compared to Rs 26.89 crores for the Quarter Ending June 2009. Net profit has gone up from Rs 1.65 crores to 10.50 crores for the Q/E June 2010. On an equity of Rs 5.75 crores, EPS for the Q/E June 2010 comes to Rs 18.27 compared to EPS of Rs 2.86 for the Q/E June 2009. Financial Projections for 2010-11 Actual working results for 2009-10 and projections for 2010-11 are tabulated below: 2009-10(A) 2010-11(P) 1.Sales Income (Rs/Cr) 122.45 158.00 2.PBIT (Rs/Cr) 25.33 47.40 3.PAT (Rs/Cr) 16.20 31.90 4.Equity Capital (Rs/Cr) 5.75 5.75 6.EPS (Rs) 28.19 55.50 Valuation After declaration of quarterly results for Q/E June 2010 on 30th July 2010, the share had a run up from Rs 294 to Rs 373 in a short period of one week. Even at this price, P/E ratio works out to 13.25 based on EPS of Rs 28.19 for 2009-10. Based on the projected EPS of Rs 55.50 for 2010-11, P/E works out to only 6.74, which is at an attractive valuation. Book value of the share is Rs 137 and P/BV ratio works out to 2.73. The Company has paid a dividend of 100% during 2009-10 and the dividend yield works out to 2.67%. Recommendation Based on the projected working results for 2010-11 and forward P/E ratio of 6.74, the stock is a strong buy. The stock has the potential to reach Rs 500 in a period of one year. However considering the steep increase in the stock price during the past week, investors may wait for some correction in the stock price before buying.