Not many would be able to recollect Asahi Songwon Colors (Asahi), a Gujarat-based pigment manufacturer. However, that doesn’t take away from the fact that this low-profile company is one of the top 10 global suppliers of pigments, growing at a four-year CAGR of almost 25 per cent and 19 per cent in topline and bottomline respectively. With a consistent dividend history (dividend yield of three per cent), strong clientele, a huge capex in place to drive future growth and the probability of featuring among the top five global suppliers within two years, Asahi certainly looks like a good grab at a CMP of Rs 95.

A manufacturer of green and blue pigments, Asahi’s products include Copper Phthalocyanine Blue (CPC Blue), Copper Phthalocyanine Green (CPC Green) and Phthalocyanine Beta Blue (Beta Blue). These pigments are colouring agents and find application in inks, paints, plastics and so on. CPC Blue contributes to 45 per cent of the total revenues, 30 per cent comes from CPC Green and the balance 25 per cent from Beta Blue. Its CPC Blue capacity is about 10800 TPA, while that of CPC Green and Beta Blue stands at 1200 TPA and 2040 TPA, respectively. Around 85-90 per cent revenues come from exports, while the balance is from domestic markets.

There are many reasons why Asahi would do well. It has a strong clientele support, catering to names like DIC Japan (25-30 per cent of total sales), Sun Chemicals USA (25 per cent), BASF and Clariant Korea (15 per cent each). DIC and Clariant are not only clients, but also hold 7.05 and 5.86 per cent stake in the company respectively. Asahi also has a technical tie-up with DIC. Besides, being the principal supplier to these clients ratifies Asahi’s significance as a major vendor. All of this augurs well for the company, assuring continuous business and giving good revenue visibility. In fact, Asahi’s orders in hand as on date are worth around Rs 65 crore.

The company is continuously expanding its capacities to cater to the incremental demand. The expansions are expected to be commissioned by Q2 FY13. The total project cost is around Rs 30-35 crore, which would be funded through Rs 20 crore in debt (D/E ratio on expanded debt would still be at a low 0.7x) and Rs 10-15 crore in internal accruals. As these capacities get commissioned, they will drive the company’s revenues at a brisker pace, besides making it amongst the top five global suppliers of pigments.

Coming to the financial performance, in Q1 FY12, Asahi’s topline increased 24 per cent to Rs 55.63 crore (Rs 44.71 crore), while its bottomline increased by 47 per cent to Rs 6.16 crore (Rs 4.18 crore) during the same period. For FY12 as a whole, the management is looking at a conservative Rs 230 crore, while it expects to maintain the margins seen in the recent quarter. Thus, the profits could be roughly around Rs 25-26 crore. At these estimates for FY12, Asahi is available at PE and EV/EBIDTA of 4x, which is quite low for a briskly-growing company like this one. The only concern is that almost 85-90 per cent revenues are from exports, and that too from only four clients. Though the management is confident that there would no major impact in FY12, any further aggravation in the global economic scenario could have an impact on Asahi. However, one can still grab the scrip with a one-year target of Rs 123.