SREE RAYALASEEMA HI-STRENGTH HYPO LIMITED (SRHHL)

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.

A state-of-the-art technology developed through in-house R&D efforts helps the company in manufacturing the Sodium Dichloroisocyanurate - SDIC. The Certificate of Merit awarded by CHEMEXCIL for outstanding export performance reinforces its status as a recognized export house. Sree Rayalaseema Hi-Strength Hypo Ltd. has a distinctive edge in the manufacture of this product, thanks to the twin advantages of indigenous raw materials availability and supply of some specialized chemicals by Sree Rayalaseema Alkalies and Allied Chemicals Ltd. The company is also a front-ranking producer of Monochloro Acetic Acid. Manufactured by the scientific crystallizer technology, the product meets international quality standards. Monochloro Acetic Acid is used by all leading manufacturers of Non-Steroid Anti-Inflammatory Drugs, other pharmaceuticals, pesticides, organic chemicals etc.

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.

Now if you compare the sales and the market capitalization of SRHHL, the sales is almost 2 times the market cap. This makes it even more an attractive buy. In addition to this when the capacity expansion is complete, the sales will almost triple, which will makes the investment in this company at the current valuation even more attractive.

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. For Q1FY18 company has reported strong numbers. Its net profit soared 65.89% to Rs.5.01crore from Rs.3.02crore on 25.69% higher sales of Rs.119.27crore fetching an EPS of Rs.3.24. Currently, the stock trades at a P/E of 11.5x. 

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