In its latest Research Report dated 14th October 2010, leading Indian Brokerage Firm KRChoksey says " Riddhi Siddhi GLuco Biols Ltd (RSGBL) continued with its strong earnings growth in Q2FY11 in line with our estimates. Net sales grew significantly by 25% y-o-y to Rs 205.3 crores on back of robust volume growth in starch & better plant utilization. Operating profit improved significantly by 64% y-o-y to Rs 38.7 crores on the back of 500 bps y-o-y decline (from 86% in Q2FY10 to 81% in Q2FY11) in total expenditure as a % to sales ".
"RSGBL's operating profit grew by 64% y-o-y to Rs 38.7 crore on the back of decline in raw material consumption as a % to sales(62.2% in Q2FY10 to 57% in Q2FY11) & decline in administrative expenses as a % to sales (12.2% in Q2FY10 to 10% in Q2FY11). Consequently OPM improved significantly by 448 bps y-o-y to 19%. Going forward, we believe company will be able to sustain margins of 17% -18%. Net profit improved significantly by 169% y-o-y to Rs 24.6 on the back of 42% y-o-y decline in interest expense & lower effective tax rate (32% in Q2FY10 to 22% in Q2FY11), partially offset by lower other income. NPM improved by 640bps y-o-y to 12%."
" Starch industry is at very nascent stage in india with per capita consumption being less than 1 kg compared to 9kgs in China & 64kg in USA. Also starch finds application in ethanol production & manufacturing of biodegradable plastics which in coming years can lead to significant rise in industry growth. Domestic industry is expected to grow at 15% p.a. till 2015. RSGBL being the market leader & having the largest capacity will be key beneficiary with the increasing penetration levels of starch & starch derivatives. Also their association with global starch major Roquette Freres will enhance its product portfolio & further strengthen its leadership position. We recommend a "HOLD" on the stock with a price target of Rs 550, giving an upside potential of 11%," says KRChoksey research report.
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