>ESTER INDUSTRIES LIMITED (ANAND RATHI)

Investment Argument

Company produces PET films and Engineering plastic, for which domestic demand is growing at more than 15% p.a. Company’s utilization levels are currently more than 100% for PET film and around 100% for engineering plastic. Thus to meet growing demand, company is planning to expand capacity of PET film from 30,000 Mts to 57,000 Mts by the end of 2010 and also planning to raise Engineering plastic capacity from 3,600Mts to 11,000Mts. Expansion is mostly funded from internal accruals and debt. (No equity dilution is contemplated).

Company also has more than matching capacity of PET chips, which is and intermediate product. Last year performance was affected due to volatility and high prices of the raw material like PTA and MEG. But now the raw material prices have stabilized and better realizations are leading to healthy margins for the company. Better performance is expected to continue as the realizations are better and the input costs have come down. Most of the sales are to the domestic markets [75%] catering to FMCG segment where demand is strong at 20-22% [and least affected by any slowdown], rest is exported [25%].

Outlook for the current year and the coming year looks promising with company expected to achieve sales close to 450 crores and profit after tax close to 50 crores for 2010.

Current years earnings could be close to Rs 9 and thus discounting present stock price by around 2.4X and offers scope for appreciation looking to growth potential.

To see full report: ESTER INDUSTRIES