>ESTER INDUSTRIES (KREDENT FINANCE)

Investment Rationale:
• The Company will invest Rs 2.1 billion to double the production of poly film by 2011-12, which will be funded through a mix of debt and equity , due to which its annual EPS to climb to Rs 10 for 2011-12

• The Company will increase the current capacity of PET thin film from 30000 TPA to 57000 TPA by the last quarter of calendar year 2010

• The Company expects to earn about Rs 10 million a year by selling the carbon credits

• It has been saving on power cost by switching to different fuels from time to time• The Company has forward as well as backward integrated manufacturing facilities

• The Company has sales tax exemption till 2012 on its second film line of 12,000 TPA capacity

• Despite its strong financial performance and good client base, the Company is trading at a PE(x) of only 2.94 against the industry average of 27.20

• In 2009, the Company has a low debt to equity ratio of 0.40 and a high interest coverage ratio of 6.98 thus signifying a low financial leverage

• The Company is a low cost producer of Engineering Plastics compounds and blends which provides it a major edge vis a vis competition.

Risk:
• Many of the raw material manufacturing companies are present in the organized sector on account of high capital costs required for setting up a unit

• Technological developments play a very important role in this industry. In India there has been a slow progress in the technology adoption and up gradation

• Trade barriers in US, EU and Brazil continue. Turkey has also imposed an antisubsidy & anti-dumping duty on Indian PET Film producers

• The major raw material supplies are expected to remain stable barring the price fluctuations attributable to volatility in Crude Oil prices and the resultant effect on the petrochemical value chain.

To see full report: ESTER INDUSTRIES