X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indo Gulf: Undervalued? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 2, 2001

    Indo Gulf: Undervalued?

    Indo Gulf Corporation, a part of the Aditya Birla group, is engaged in the manufacture of urea and copper. We did a valuation exercise of its stock price based on both the earnings multiple approach and the replacement theory approach.

    The current year has been a tough year for urea manufacturers. (This division contributed 27% to the company’s turnover in the first half). Besides, there is uncertainty about the government policy with regard to the retention pricing scheme in the current year. This is accompanied by the fact that opening up of imports post April 2001 is likely to put pressure on the domestic fertiliser manufacturers in the coming year.

    The company’s diversification into copper two years back has helped the company to stabilise its earnings. FY99 marked the commissioning of Indo Gulf`s 100,000 tpa copper smelter at Dahej, Gujarat. This division is expected to account for almost 70% of its revenues and profits in the current year.

    Fertiliser business
    (Rs) Indo Gulf Tata
    Chemicals
    Urea production (tonnes per annum) 1,000,000 1,000,000
    DAP Capacity (tonnes per annum) 400,000  
    Approx. replacement value per share* 104.0  
    CMP 43.0  
    P/E of comparable companies (X)   9.7
    Estimated per share profit of fertiliser business 2.2  
    Estimated price per share (approx) (A) 20.0  
    *$500 mn for urea and DAP capacity

    In the current year the company commissioned a precious metal refinery and a 400,000 tonne Di–Ammonium phosphate plant. While the precious metal refinery refines gold and silver from the anode slime generated by the copper plant for sale in the domestic market, the DAP plant utilises the phosphoric acid generated by the copper division.

    Copper Business
    (Rs) Indo Gulf Sterlite
    Industries
    Capacity (tonnes per annum) 100,000 120,000
    Approx. replacement value per share* 62.0  
    P/E of Sterlite Industries (X)   3.8
    Estimated per share profit of the copper business 6.3  
    Estimated price per share (approx) (B) 24.0  
    * approx. $ 300 m for 100,000 capacity

    If one were to go by the annualised earnings based on the half–yearly results, the expected divisional post tax profits and comparative earnings multiples of the company’s competitors the stock seems fairly valued. However, if one were to go by the replacement theory and takes into account the capital cost of setting up the fertiliser and the copper facilities the intrinsic price works out to Rs 166 per share.

    Valuation
      (Rs)
    Current Market Price  48.0
    Price based on P/E approach (A+B)  44.0
    Price based on replacement value  166.0

    The market however seems inclined to go by the profits that the assets generate. And while the copper and precious metal divisions are expected to do well in FY2002 too, the prospects of the urea division seem uncertain.

     

     

    Equitymaster requests your view! Post a comment on "Indo Gulf: Undervalued? ". Click here!

      
     

    More Views on News

    Tata Chemicals: Lower Finance Costs Boost Profits (Quarterly Results Update - Detailed)

    Jun 2, 2017

    Tata Chemicals registers 54.2% YoY rise in net profits during fourth quarter of FY17 on the back of lower finance costs and rise in other income.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TRACK INDOGULF CORP.

    • Track your investment in INDOGULF CORP. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    MARKET STATS