PONDY OXIDES & CHEMICALS LIMITED - POCL

CMP - Rs 61

COMPANY PROFILE

The metallic oxides industry in India is synonymous with Pondy Oxides & Chemicals Ltd POCL. It is one of the India's leading metallic oxides producers. Incorporated in 1995 as a Public limited company. POCL is doubling its lead metals smelting capacity to ~57,000 TPA through a greenfield expansion in Andhra Pradesh. The plant, with a capacity of 28,000 TPA is expected to be commissioned in April 2015. The capex has been funded through `5 crore in debt, with the remaining being met through internal accruals. We expect the new plant to average at 50% utilization in the first year of operations and gradually ramp up to 70-75% from the second year on wards. The expansion comes after a period of five years and its timing could not have been better given that macro economic factors have turned favorable. Further, the plant is located near Amara Raja Batteries’ unit which is POCL’s largest domestic consumer. Indian Lead Zinc Development Association has forecasted a gradual deficit in lead supply over the coming years. The automobile sector is the major consumer of lead ingots and oxides, which is the key raw material for its batteries. A large part of the demand for automotive batteries stems from replacement demand, since the typical life of a battery is 2-3 years depending on the extent of usage. Given that 3-3.5 mn vehicles are sold annually in India, the replacement demand will remain robust.  The demand for industrial batteries will remain strong given the world-wide impetus on solar energy, batteries for back-up power and telecom. 

Recently POCL de-merged its metallic oxides and plastic additives segments into a different entity- PEL. Post the de-merger major equity reduction happened in POCL, for every 2 shares of POCL, 1 share of POCL (de-merged entity) and 1 share of PEL will be allotted.

KEY FACTORS THAT MAKES IT A COMPELLING BUY 

QoQ  Results

• Investor friendly company, it paid continuous dividend for last 12 years.
• Reduction in equity and expansion in production capacity will create big boost in the EPS.
• NILE is in similar business and sales turnover, it is trading around Rs 300.
• Its quarterly result trend tells the actual growth story.
• Promoters are buying the stock continuously from open market.

Listing of POCL will happen within 10 days. Try to catch it early at lower price on the day of listing.

Disc: I have vested interest in POCL.