Recommendation from Chemicals Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

GRAUER & WEIL (INDIA) LTD : PROFITING FROM EXPERTISE

HERE IS WHY
✓Good financial improvement
✓Good growth prospects
✓Good returns on capital employed

Grauer & Weil (India) is engaged in the business of manufacturing metal finishing plants, equipment chemicals, buffing and finishing compounds, mops, wheels and brushes. Its engineering division manufactures various types of plants and equipment for other industries such as aerated soft drinks, heat-treatment systems and other chemical plants. To manufacture electro-chemicals the company has entered into a technical collaboration with Union Inks and Graphics Pte Singapore.

The company reported net sales of Rs 619.40 crore in FY20, an increase of 3.05 per cent. It had reported net sales of Rs 601.08 crore in FY19. The company reported PBIDT of Rs 96.57 crore in FY20, a decrease of 8.06 per cent. It had reported PBIDT of Rs 105.04 crore in FY19. The company reported PAT of Rs 75.84 crore in FY20, an increase of 18.74 per cent. It had reported PAT of Rs 63.87 crore in FY19. The company has reported cash from operating activities of Rs 87.94 crore in FY20 as against Rs 32.50 crore it reported in FY19.

The company’s net sales were at Rs 170.83 crore in December 2020, up by 5.45 per cent from Rs 162 crore in December 2019. PBIDT was at Rs 34.70 crore in December 2020, up by 37.43 per cent from Rs 25.25 crore in December 2019. The quarterly net profit was at Rs 24.31 crore in December 2020 against net profit of Rs 18.02 crore in December 2019, an increase of 34.91 per cent. The company’s fundamental strengths of leadership in the chemical and engineering products in domestic market, ability to offer quality products at competitive prices, nimble-footed customer response in the areas of paints and lubricants, extensive distribution network, strong research and development, technical service and procurement strength place it in a relatively sound position.

The company actively interacts with its customers and delivers innovative new products and processes developed with the help of its technology partners. In the surface treatment area, business opportunities are rapidly arising from the defense and aviation sectors, which are expected to play a significant role in the future of the company’s growth. In the area of paints, the infrastructure and rural development thrusts of the government’s economic packages offer opportunities as the company’s paint business is focused on these segments. The company has drawn up plans to retain or grow market share in all the product lines in its surface finishing segment.

While the company is faced with major challenges due to the pandemic, it continues to invest and build on long-term assets and strategies. Accordingly, it is proceeding with the rebuilding of the remaining part of its factory at Vapi which was destroyed by an explosion and fire. The other expansion plans, be it for the mall or the paint division, are pending, awaiting suitable opportunity in respect of market trends, administrative and statutory clearances. All these segments hold excellent prospects in the coming future. The company is almost debt-free and the debt to equity ratio is 0.043. On the returns front, it has ROE and ROCE of 17.92 per cent and 22.26 per cent. The stock is trading at a PE multiple of 15.78x, which is well below its industry average PE. By virtue of these factors, we recommend our reader-investors to BUY this stock.