Recomendation From Dyes And Pigments Sector
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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.
Here Is Why: Low debt to equity ratio
High growth prospects for domestic food colour market
Robust financial performance over last 5 years
Capacity expansion
Indian food colours and chemical industry players have been focusing on sustainable development. The industry is expected to register a growth of 8 to 9 per cent in the next decade. The production of high quality food colours depends on the use of high quality intermediates, which are the basic and essential ingredients of this Industry. High quality of intermediates also facilitates research, development and quality control of dyes. Vidhi Dyestuffs Mfg. Ltd (VDML) is one of the leading manufacturers of food colours in India. The company exports to more than 35 countries. Its food colours are distributed and consumed in over 80 countries across 6 continents.
The global natural and synthetic food colour market is estimated to grow at a CAGR of 4.5 per cent during the next five years and is expected to reach Rs 16,713 crore by 2020. Meanwhile, rising consumption of processed foods in India is leading to high demand for food colours. The per capita consumption of dyestuffs in India is about 50 grams as compared to the world average of 300 grams, indicating a largely untapped domestic market.
VDML has expanded the production capacity of its Roha plant in Raigad district by 1,400 tonnes to meet the growing requirements of food processing industry. VDML had a low debt to equity ratio of 0.89 in FY16. The company’s ROCE was 28.72 per cent and ROE was 29.37 per cent in FY16. Its dividend yield stood at 1.39 per cent in FY16.
On the financial front, VDML’s topline increased 0.02 per cent CAGR in FY16 over its topline in FY12. The company’s EBITDA too rose by a CAGR of 24.94 per cent during last five financial years. Its bottomline also soared 34.31 per cent in FY16 as compared to FY12.
VDML manufactured 2,776.43 million tonnes of food colours in FY16 as against 2,275.20 million tonnes in FY15 with a growth of 22.03 per cent. The company’s revenue declined 1.41 per cent to Rs 180 crore in FY16 as compared to the previous financial year. The company’s EBITDA rose 8.65 per cent to Rs 29 crore in FY16 on a yearly basis. Its EBITDA margin expanded by 157 basis points to 15.71 per cent in FY16 as compared to the previous fiscal. VDML’s net profit also increased 18.6 per cent to Rs 14.73 crore in FY16 on yearly basis. The company’s net profit margin expanded by 140 basis points to 7.98 per cent in FY16 as compared to the previous financial year.