HDFC Sec has initiated coverage on Pondy Oxidex & Chemicals Ltd with the following note,
POCL is involved in the production of metals, metallic oxides and plastic additives that are consumed by users in various industries. POCL was hit badly during FY09 due to the fluctuating prices of raw materials especially lead. The slowdown in the economy globally impacted the business of POCL badly as it is one of the major manufacturers of lead metal in the country. POCL has been a dividend paying company from the very inception and it continues to do so signaling its investor friendliness. The metal prices have stabilized over the last few quarters thereby creating an opportunity for POCL to cover its previous
losses and improve its overall performance. The company is professionally managed; the promoters are conservative and have good experience and reputation in the market.
POCL seems positive with the order book especially in the metal segment completely full till December 2010. With the turnaround expected in its 51% subsidiary, POCL is expected to generate higher consolidated revenues and profits over the next two years.
POCL could FY10 with standalone net sales of Rs 137 crs (up 26.30%) and a PAT of Rs 5.8 crs. On consolidation, while the topline could be much higher, the bottomline may not be too different from the standalone figures. In FY11, it could report about 19% growth in standalone net sales and about 32% growth in PAT. The stock at a CMP of Rs 21.90 is available at 3.8x its FY10E EPS and could over 3-6 months trade at 5.5x FY10E EPS giving a target of Rs 32.
