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Monday, November 26, 2007

Buy Riddhi Siddhi Gluco Biols Ltd

Riddhi Siddhi Gluco Biols Ltd (RSGB) is the largest manufacturer of starch, liquid glucose, dextrose monohydrate and other derivatives, high maltose corn syrup and byproducts like corn gluten meal and enriched fibre, which are used in various applications such as chocolates, processed foods, glass and medicines, paper, glucose and textiles.

RSGB controls about 17 per cent of the total starch market. With the current expansion in place the market share is expected to increase around 25% by FY09. Currently exports constitutes around 10% of it's revenue and the company is projecting exports to increase 25% of it's revenue by FY10.

RSGB major revenue comes from clients like Nestle, HUL, Ranbaxy, Ballarpur, ITC, Grasim, Indian Rayon and Godrej.

At the current market Rs. 237/- the stock trades at around 10 times it's trailing 12 month diluted EPS of 24. Investor with medium to high risk profile can consider investment into this stock with a horizon of 20 to 24 months. We expect the stock to do EPS of around 38 in FY09E. Based on our FY09E the stock has a target of around Rs. 440/-

Positive on

1) The company recently added 500 tpa of starch capacity which is expected to be reflected in FY09 earnings.

2) Roquette which has around 14.95 per stake in RSGB and is also the world 5th largest starch manufacturer. Roquette will help RSGB add more value added products in its portfolio by way of providing technology and knowhow. The new products will be for nutrition, biotech and health and dextrose for sugar free goods.

3) The new value added product will help RSGB realize better margins.

Risks

1) Increase in Raw Corn Prices. Corn prices are in Increase due to US policy on using corn as alternate fuel.

2) There has been under utilization in the first two quarters of FY07 due to fire in one of it's plant. The company seems to be back in business after 5 months of severe disruption.

Posted by Srivatsan

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