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Clariant: Focus pays off

Dec 20, 2001

Clariant (India) Limited, (CIL), is a 51% subsidiary of the Swiss multinational Clariant AG. The company manufactures, develops and markets dyes, pigments, additives, masterbatches and specialty chemicals for textiles, leather, paper, plastics, paints and inks. The company has six major divisions-process and performance, pigments & additives, masterbatches, surfactants, fine chemicals and cellulose. Clariant (India) is one of the three global sourcing centers for Clariant Worldwide.

(Rs m)1HFY011HFY02% change
Sales1,3411,48410.6%
Other Income253227.7%
Expenditure1,2261,3369.0%
Operating Profit (EBDIT)11514728.0%
Operating Profit Margin (%)8.6%9.9%
Interest (net)31-50.0%
Depreciation141614.5%
Profit before Tax12416231.0%
Tax465620.9%
Profit after Tax/(Loss)7810737.0%
Net profit margin (%)5.8%7.2%
No. of Shares (eoy) (m)11.911.9
Diluted Earnings per share*13.117.9
P/E (at current price) 6.0

A sales growth of more than 10% in 1HFY02 inspite of strong international competition was remarkable. This growth was the result of the company's focus and fast introduction of new products. The ratio of new products to sales has jumped to almost 20% currently, from less than 14% couple of years back. Infact, CIL has launched more than 100 new products in FY01 alone. This resulted in a 130 basis points rise in operating margins during the year.

Exports contribute around 30% to the company's revenues with textile dyes accounting for majority of export revenues. However, the export market is extremely competitive with price pressures especially from China. However, in future, the company's exports could show a decent growth as it forms part of three main sourcing bases for its parent apart from China and Japan. To sustain growth rate and maintain its strong presence in this industry, CIL would focus on the textile chemicals, leather and masterbatches businesses. Masterbatches is one of the fastest and most rewarding businesses for the company. With new manufacturing facility for masterbatches coming in place, operating margins could witness a slight improvement in the current year.

Reflecting this strong performance the stock price has moved up by more than 40% in last five months. At the current market price of Rs 107, the stock trades at a P/e of 6x its annualised 1HFY02 earnings. The company seems to be fighting against all odds strongly, the outlook for the speciality chemicals industry does not seem encouraging in the near term. Majority of the speciality chemicals is consumed by the pharma industry. Minus the pharma industry demand, the speciality chemical industry continues to face poor demand growth. Overall growth in the segment is expected to be around 4%-5%. Though Clariant India remains the leader in the industry and is expected to outperform the industry, the growth rates are expected to be unglamorous. The exports market are also expected to remain sluggish with substantial capacity built up in China and lack of demand from European markets.

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