LANXESS ABS LTD - A VALUE STOCK

Financials
http://geojit.com/profiles/Geojitfin.asp?index=1&a=13&pageOpt=4&Opt=B&Code=866
This is a zero debt company

Dirwectors report 05
http://geojit.com/profiles/pdirep.asp?index=1&pageOpt=12&code=866&a=10

LANXESS ABS LTD - A VALUE STOCK
October 20, 2005
Rakesh Sharma
Formed in the 1970s as ABS Plastics Ltd, the company later changed its name to ABS Industries Ltd. The company is a pioneer in the field of engineering thermoplastics and has played a significant role in the development of this industry in India.
Years later, in 1997, Bayer Industries, subsidiary of Bayer AG took a 50.97% stake in the company and it was subsequently named Bayer ABS Ltd. More recently, in April 2005, the interest held by Bayer was transferred to a new entity called Lanxess and the name of the company was changed, yet again, to Lanxess ABS Ltd (LANABS). This was as part of the global realignment of Bayer AG whereby it transferred its chemicals and parts of polymers businesses to the newly formed group, Lanxess.
Lanxess ABS is a leading producer of highly specialised engineering thermoplastics in India. These are a substitute for traditional material like sheet metals and find application in many industries. The company manufactures styrenic resins, mainly ABS (acrylonitrile-butadiene-styrene) and SAN (styrene-acrylonitrile). Its product range includes Absolac & Lustran ABS resins and Absolan SAN resins, which are supplied to industries such as information technology, automotive, consumer durables, extrusions and so on. The company currently has a market share of more than 60%.
The company has performed reasonably well in the past. In the six-year period (FY98 to FY03), sales increased from Rs147 crores to Rs344 crores, which is a CAGR of 15%. During the same period, profit after tax increased from Rs4 crores to Rs25.3 crores, a CAGR of 36%. The company paid dividends in each of these six years, the rate having gone up from 10% in FY98 to 25% in FY03. However, during FY04, while sales climbed 18% to touch Rs408 crores, profit after tax (excluding extraordinary items) was lacklustre. The (ordinary) dividend was maintained at 25%.
The company has the calendar year as its reporting period.
The following table carries its broad financials for the 9-month period, ended September 2005.
Particulars
Amount (in Rs crores)
Sales
296.94
Profit After Tax
10.16
Equity Capital
17.58
EPS (annualised)
7.5
CMP
102
PE (times)
14
MCap
180
MCap/Sales (annualised)
0.45
During the period, sales were flat and the trend (in the recent past) of a somewhat declining profitability continued. It can be hoped that the currently disappointing results will not affect the big picture.
The rationale for investment in the company is as follows.
Lanxess AG will be able to focus on the business of thermoplastics after its separation from Bayer. This would generally augur well for its group companies such as LANABS.
LANABS is an important part of Lanxess AG contributing about 12% to its global business in terms of volume. Going forward, Lanxess plans to increase its commitment in India, which is one of the fastest growing markets in the world.
The Indian styrenic resins market is expected to grow at double-digits in the next decade mainly due to a steady growth of user industries. The outlook for the industry looks fairly positive.
The company has recorded a consistent growth in earnings over the years while its share price has lagged. The share might catch up with the company's underlying performance. Moreover, the company is likely to get along nicely in the future.
The LANABS share currently trades at Rs102 on the NSE with a yearly high/low of Rs157 and Rs90 respectively. The current price translates into a MCap of Rs180 crores and a MCap/Sales ratio of 0.45.
Lanxess ABS deserves to be probed further. It appears that the stock offers both value and growth. It is a buy.