UNDERVALUED GEM
SREE RAYALASEEMA HI-STRENGTH HYPO
LIMITED (SRHHL)
SREE RAYALASEEMA HI-STRENGTH HYPO LIMITED (SRHHL)
NSE CODE: SRHHYPOLTD, BSE Code: 532842) (CMP: Rs.148)
COMPANY PROFILE
Sree
Rayalaseema Hi-Strength Hypo Limited (SRHHL), is a part of the TGV group. It is
the only Indian manufacturer of Calcium Hypochlorite and is front ranking
producer of Stable Bleaching Powder (SBP), Monochloro Acetic Acid, Chloro
Sulphuric Acid, Sulphuric Acid. It is one of the few companies in the world
that are dedicated to research and development of products in water treatment
and purification. It
generates power through wind mill power units located in Tamil Nadu and a 10 MW
thermal power plant at Gondiparla in Andhra Pradesh.
SRHHL is
internationally recognized as the provider of unmatched quality products
through its world-class sodium process technology developed through highly
skilled in-house research and development team. It has grown to become a global
leader in exports too.
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INDUSTRY
OVERVIEW
Without
water, life is impossible. I would rephrase it and put it as without CLEAN and
SAFE water, life is impossible. However there is less and less of clean and
safe water available per person. Water treatment is something that touches
nearly every individual or industry in one way or another as the water
treatment industry seeks to bring impure water up to potable standards or
better. And as the human population continues to grow exponentially, the
need for clean water will grow with it. Responding to this trend, water
treatment has changed considerably in the last 50 years and new advances and
developments continue to shape the market. However, there has been various
regulations regarding providing clean water, but with each new regulation,
there has been restrictions on the use of certain chemicals and increased use
of others. And as population will increase, providing clean water will become
an increasingly difficult problem. Thus even if the water treatment chemicals
industry is considered as a mature market, it still is that one sector that
adapts and expands in response to market opportunities.
The various
chemicals that SRHHL manufactures are
(1) Calcium hypochlorite: Calcium hypochlorite is an extremely
versatile sanitation and disinfection product. SRHHL's Aquafit is a high
grade calcium hypochlorite which has very wide applications in swimming pools
and drinking water treatments. It is one of the few in the world and the only
in India to manufacture and export calcium hypochlorite of 65%- 70% min
chlorine content. A state-of-art sodium process technology developed through
in-house R&D efforts has helped SRHHL to manufacture the product with
chlorine content of 65%-70%. It is one of the few in the world and the
only one in India, to manufacturer and export Calcium Hypochlorite of 65% - 70
% Min Chlorine content.
(2)Stable Bleaching Powder: Due to its multi-dimensional properties, it
finds ready application in a range of industries such as textiles, paper,
leather, aquaculture and sugar industry. It is even used for water and sewage
treatment.
(3) Monochloro Acetic Acid: SRHHL is a front-ranking producer in this
product. It is used by all the leading manufacturers of Non-Steroid
Anti-Inflammatory Drugs, pharmaceuticals, pesticides, organic chemicals, etc.
(4) Sulphuric Acid: It is used in steel, heavy chemicals and fertilizer industry.
TRIGGERS
- The demand of Calcium Hypochlorite is growing in domestic and international market.
- Most of the raw materials are easily available locally thus saving their logistic cost. SRHHL has a distinctive edge in the manufacture of this product because of indigenous raw material availability and supply of some specialized chemicals by Sree Rayalaseema Alkalies and Allied Chemicals Ltd.
- The Government of India and the State Governments are very focussed towards cleaning of Ganga and huge capital has been allocated to Namami Gange Programme and this company is a direct beneficiary of this programme.
- Promoter has increased stake by 2.23% in March Quarter which signifies the confidence of the promoter in Company’s growth
- It is available very cheap compared to peers like Aarti Industries, Vishnu Chemicals.
- It is trading near its book value, and PE is also very low compared to peers
ANALYSIS
SRHHL has a small equity of just
15.49 crores. Companies with small
equity and good business models and products are always a good buy. If you look
at the Company’s share book value works out to Rs.136.16 and its P/BV ratio
stands at just 1.09x, which is attractive.
SRHHL is quoting at almost its book value which again makes it a good
buy. Its PE is 11.28 compared to the industry average of 19.75. Company has
also paid 15% dividend which makes it more attractive. Company
also holds 23.55% stake in Sree Rayalaseema Alkalies & Allied Chemicals Ltd
and 17.45% stake in Roopa Ind.
Sree Rayalaseema Hi-Strength Hypo plans to expand its synthetic organic chemicals capacity at Gondiparla village in Kurnool district of Andhra Pradesh. The estimated cost of the project is Rs 150 crore. This seems good as after the complete expansion, its calcium hypochlorite capacity will triple, leading to higher sales and higher profits, thereby increasing profitability for its shareholders. During the year, three streams of its Calcium Hypochlorite plants were shut down for scheduled maintenance. It tried to recover the loss of turnover by achieving higher turnover from other segments.
FINANCIAL SNAPSHOT
Company
has an equity capital of Rs.15.49 crore supported by reserves of Rs.195.44
crore. Company has posted profit of 18.35 Cr in FY17. Company has posted an EPS
of Rs 11.86 in FY17. Company is available at PE of just 11.28 while industry PE
is 19.75. Company is also declaring dividends from last 2 years. Promoter has increased
stake by 2.23% in March Quarter, now promoter holds 57.54% stake in the
company, which signifies the confidence of the promoter in Company’s growth.
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