Goa Carbon …Risky bet (Turnaround + growth story)

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Company Name: Goa Carbon Limited (BSE code: 509567)

Industry: Refineries/Petro Chemicals

Investment Horizon: Holding for One year (This is a risky bet with some value left)

Recommendation:  Allocate not more than 5% of your portfolio. At CMP of Rs.245 is trading at a 10% discount of 52 week high.

About the company:

It is in the business of manufacture and marketing of Calcined Petroleum Coke (CPC).
The company's calcination plant of 75,000 tpa capacity is located in southern Goa. It has a well equipped laboratory and quality control systems and procedures. The plant is ISO 9001:2008 certified by Bureau Veritas. It is also 14001:2004 certified.



The Goa plant has the largest mechanical sieving and screening facilities for petcoke in India. The Company also has two other plants, at Bilaspur in Chattisgarh and at Paradeep in Orissa.
The company is a regular supplier to aluminium smelters, graphite electrode and Titanium Dioxide manufacturers, as well as other users in the matallurgical and chemical industries.
Goa Carbon is now firmly established as a leading Indian pet coke calciner.
Aluminium industry is the main user of CPC which consumes almost 75% of production.

Pros:

  • The Company has reduced the debt to 158 crores in FY 17 which in turns reduced the interest cost of 8 crores directly impacting the bottom-line
  • The Company turns into profit of Rs.9.5 crores in FY 17 from a loss of 3 crores in FY 16
  • The Company has managed to lower the raw material costs
  • The Management believes that the demand for aluminium will grow at least 5 times from the current levels by 2030, which in turn will increase the demand for this product
  • The Aluminium industry to grow by 3.5% by 2020
  • The Company is continuously innovating and discovering methods and concepts to improve the quality of its product and achieve operational efficiency.
  • The company is awarded with quality certification of ISO 9001 and ISO 14001 that demonstrates the ability of the Company to achieve higher level of customer satisfaction.
  • Promoter holding is 60.09% (No pledged shares)


Cons:

  • Due to slowdown in Chinese industrial growth, will have a greater impact on commodity businesses in India
  • Global uncertainties will impact on Production levels
  • Currency risk due to importation of raw materials
  • Company has low return on equity of 3% for last three years
  • Currently it is trading at a P/E of 23


Financial Highlights:
  • Net profit has grown for last 3 years is at 60.4%
  • Reduced the debt
  • Credit rating of ICRA-A3
  • Debt to equity stood at 2.02
  • Equity base is just 9 crores with face value of Rs.10
  • Currently it is trading at Rs.247, 52 week high is Rs.268
  • Dividend pay-out is 45%

Narration
2012
2013
2014
2015
2016
2017
Sales
     343.84
     295.60
     291.83
     187.95
     316.03
     291.08
Expenses
     324.38
     282.64
     286.66
     195.87
     309.06
     275.89
Operating Profit
        19.46
        12.96
          5.17
        (7.92)
          6.97
        15.19
OPM
          5.66
          4.38
          1.77
        (4.21)
          2.21
          5.22
Net profit
        10.49
          7.91
          2.29
     (10.09)
        (3.08)
          9.42
EPS
        11.46
          8.64
          2.50
     (11.03)
        (3.37)
        10.29

 Management:
  • Mr. Shrinivas V Dempo – Chairman (Promoter)
  • Mr. Dara P. Mehta – Independent Director
  • Mr. Keki M. Elavia - Independent Director
  • Mr. Raman Madhok - Independent Director
  • Dr. A. B. Prasad - Independent Director
  • Ms. Kiran Dhingra - Independent Director
  • Mr. Rajesh S. Dempo- Non-Executive Director
  • Mr. Jagmohan J. Chhabra - Executive Director

Rating:
  • Technical rating: 87
  • Fundamental rating: 81
  • Overall rating: 84

Valuations:

With the investment horizon given, considering all the inputs of estimates the valuations are at Rs.380

Since the revenues are volatile and require it to be consistent over the next coming quarters,(hence the investment horizon is limited) and if we believe that the revenues and bottomline are going to be consistent even after one year we will update our valuations

Currently the valuations are made at 18X FY 18 EPS

(The valuations are calculated on the basis of financial inputs but investors are required to invest based on the business potential and business risks too) 

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