Recommendations From Plastics Sector

Low Priced Scrip is a hidden gem, today's underdog, a stock with future potential that is expected to fetch returns within 1 year. This is a stock picked carefully based on a fundamental analysis of the company.

The company recommended as the Low Priced Scrip for this issue is a leading company in the Trading sector.

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Here Is Why:

·         Diversified revenue profile.

·         Robust result in first half of FY16.

·         Trading at attractive valuation.

JASCH INDUSTRIES

India’s present synthetic leather industry size is of around Rs 4,500-5,000 crore and is expected to double in the next five years on the back of (a) witnessing fast-changing retail scenario, especially in the footwear market; (b) increasing demand for automotives; (c) expansion of furniture/interior furnishing industry; and (d) rising consumption and purchasing power of consumers. Synthetic leather applications are vast and are rapidly replacing leather in many industries due to being 70 per cent cheaper than genuine leather. Therefore, this time we are focusing on a company that has a diversified revenue profile with manufacturing activities related to synthetic leather and electronic gauges.

Jasch Industries is engaged in the production of polyurethane (PU) resin and PU/polyvinyl chloride (PVC)-coated fabric, also known as synthetic leather. The company’s major focus is on PU synthetic leather where competition is somewhat less while it offers high margins compared to PVC synthetic leather. PU resin and PU-coated fabric currently contribute around 62 per cent of the total revenue of synthetic leather. The company’s primary income comes from the footwear industry since it supplies raw material for shoe-uppers, lining, insole, chappals, and sandal straps. Its clients are Bata, Liberty, Lakhani, Reebok, and so on. The company has developed many new varieties of PU synthetic leather for use in premium quality sports shoes that are manufactured by multinational companies in India.

Besides coated fabrics, the company also manufactures radiation-based on-line nucleonic gauges. These gauges are used for online measurement of thickness, grammage, moisture and ash contents in the paper-making industry, online measurement of thickness and coating weight in plastics, steel, sheet rolling, galvanizing, aluminum foil, and the nonferrous metal rolling industry.

Segment-wise, the company’s synthetic leather and electronic gauges’ business revenue contribute in the ratio of 80:20. However, at the EBIT level its contribution is in the ratio of 55:45 as electronic gauges earn EBIT margin of around 17 per cent compared to 5 per cent in case of synthetic leather. As of FY15, the ROCE of the company was at 18.2 per cent as against 16.24 per cent in FY14 and going forward, we expect it cross 20 per cent in FY16. For the six months ended September 30, 2015, the company’s net profit was at Rs 1.98 crore, which rose by 40 per cent. The company has been reducing its debt continuously over the last five years. As on H1 FY16, its debt stood at Rs 16.26 crore, consequently translating the debt equity ratio to 0.49x as against 0.80x in FY11. 

On the valuation front, Jasch Industries’ shares are trading at a TTM PE ratio of 9.7x with a EPS of Rs 3.23 and in terms of its price to book value, it trades at around 1x with market-cap to sales of around 0.36x. This looks attractive, also considering that it is trading at lower valuation as compared to its peers. Hence we recommend buying this stock, expecting 55-60 per cent upside in the next one year.