[T.S.R:16054] National Peroxide - Visit Note - High on realisations (Not Rated)

Please find attached our Visit Note on National Peroxide.

The key highlights are:

High on realisations

Incorporated in 1956, National Peroxide Limited (NPL), a Wadia group company, manufactures Hydrogen Peroxide (H2O2), a chemical used widely in the paper and textile industry as a bleaching agent. The company has been at the forefront in developing new applications through continuous development of technology for manufacture of H2O2. It has been successful in differentiating itself from competition by offering exclusive technical services on all aspects related to H2O2. These efforts have helped NPL emerge as a preferred H2O2 vendor with a strong brand image. NPL derives 92% of its revenue from H2O2 and commands leadership position with 38% market share. Given the increasing demand for the product and NPL's intention to become a global player, it is looking at expanding capacity to 84,000 TPA by FY12 (from the current 65,000 TPA) and gradually to 1,40,000 over the next five years.

NPL's revenue and profit declined 10% and 22%, respectively, in FY10 owing to lower realisations and higher raw material cost. Nevertheless, in FY11, the company is expected to return to the growth trajectory. Revival in H2O2 prices (up 93% YoY) and lower raw material cost owing to a gas sale agreement with GAIL will enable NPL to deliver a robust performance. NPL would be undertaking a ~30-day shutdown of its plant in March 2011 to augment its capacity to 84,000 TPA, which would affect its 4QFY11 performance. Further, supply is expected to meet domestic demand in FY12, which might lead to softening of H2O2 prices.

The company is currently reaping benefits of high H2O2 realisations and lower raw material costs and it is expected to achieve PAT of around Rs 409 mn in FY11 and Rs 465 mn in FY12. With low debt on its books (Rs 14 mn) and good cash generation, the company would be able to fund its capex in the future. Current valuation at 5.5x FY12E earnings appears attractive.

 

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Thanks & Regards,
Abhishek Kothari
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