onsistency is one thing which is highly rated everywhere and the stock market is no exception. Hence, companies displaying consistent performance always get a premium on the bourses. One such counter is BASF
India which has been a noteworthy performer in terms of stability ovet the last seven years with its topline and bottomline increasing steadily. But that is not the only reason for recommending BASF to our investors. The company also has been a regular payer of dividends, has pegged a good financial performance in the first half, plans to expand its capacity of engineering plastics, wants to sell off an unviable facility and last but not the least, is been driven by the remarkable improvement in the manufacturing sector. On the valuation front, its CMP of Rs 416 discounts its trailing four quarter earnings by 14.35x (EPS Rs 28.71) while its EV/EBITDA is at 7.82x. But these trailing four quarters includes the poor performance of H2FY09. With H2FY10 expected to be better, the valuations will no doubt improve. Along with all these factors, the company's MNC parentage and the merger of Ciba India with BASF are two other positives that will put sail in its winds. We recommend that investors should buy with a target price of Rs 490 in the next one year.
As regards the business of the company, it is mainly divided into four segments viz. performance and specialty chemicals, agro and nutrition products, plastics, and other chemicals. With the manufacturing activity in the country picking up gradually, this is what the management of BASF had to say in a recent interview:
"We are manufacturers for manufacturers, offering customised chemistry solutions. Our growth in India is dependent on the growth of the manufacturing industries. Since January 2009 there have been some positive signs in the India market. We are hopeful that demand will pick up in the coming months as the outlook for end-use industries is showing an improvement." As for its expansion plans, it is setting up a compounding 9,000 tonnes per annum engineering plastic plant at the Thane site with a capex of Rs 17.2 crore to be funded through internal accruals. The company is now running product qualification trials and also exploring the possibility of de-bottlenecking of its facility at Mangalore for certain products. Further, the company has recently passed a resolution to sell its Dadra plant for Rs 5.15 crore and we feel it's a good decision. While this will help unlock the value from unviable projects, the cash so obtained would be invested in more profitable projects.
Its merger with Ciba India is also expected to be beneficial as the acquisition of Ciba's product portfolio and assets is a perfect strategic fit. The integration process is expected to be completed by April 2010. With MNC parentage there is an advantage of building up a strong new product portfolio. Further, it has already been made clear that BASF has identified India and China among their key focus geographies. As mentioned earlier, the company has been a consistent performer for the last seven years and it has carried this momentum to HI FYI 0 also. Here it posted a topline of Rs 752.54 crore and bortomline of Rs 75.07 crore as againsr Rs 697.81 crore and Rs 62.75 crore respectively for H1FY09. With the demand expected to rise in the second half the performance is expecred to be better in H2FY10. Considering all these factors, our recommendation is that investors should buy the scrip with a target price of Rs 490 in the next one year.
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