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Clariant India: Ready for a take off?

May 30, 2000

Over the past few days the old economy stocks have begun to stage a comeback ostensibly on the ground that there is a recovery happening out there. This logically should lead to a cascading effect on industries that provide inputs to the major sectors. One such industry is the specialty chemicals industry that provides inputs to the leather, textiles, paper, paints, rubber, automotives, cosmetics and metal mining industries. One of the biggest players in this industry is Clariant (India), the Indian subsidiary of the Swiss chemical giant, Clariant International. The Indian company is a leading manufacturer of textile chemicals and dyes (which contribute around 40% to the company’s turnover) leather dyes (which contribute around 24% of the company’s turnover) and exports to its international affiliates which contribute around 32% to the company’s turnover.

The international consolidation favours Clariant

The high percentage of exports can be partially explained by the fact that the international consolidation in the industry has led to Clariant International emerging as the biggest specialty chemical manufacturer. The company, which was spun of from Sandoz when the latter merged with Ciba to form Novartis also acquired Dystar (which was formed through the merger of specialty chemicals business of Hoechst and Bayer). In India the company is slated to acquire Dystar’s affiliate Colour Chemicals by the next year.

The company can be expected to report a net profit of Rs 160 m (EPS: 13.41) on a turnover in excess of Rs 2.5 bn for the current year FY 2000 which implies an earning multiple of around 10 times at the current price of Rs 139. This is much lower than the lowest price–earning multiple at of 19.4 at which the stock quoted in 1998. The stock in fact is quoting around its three year low (of Rs 133 touched in April 1997) and for the biggest specialty chemical company with 32% of its turnover accruing from exports and a zero debt status, an impending economic recovery could spell good times.

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