Narmada Gelatines

It is a company belonging to the Shaw Wallace Group. This company manufactures gelatine with its major customers being pharma and food industry. If you look at the financials of the company, for FY09, the company achieved sales of about Rs 69 crore with PAT of about Rs 5.9 crore.

For the first nine months of the current financial year, sales are at about Rs 62 crore which are up by about 23% over the same period last year. Profit after tax is about Rs 6.4 crore which is up by 44%. EPS on an annualized basis is about Rs 21. The stock at about current price of Rs 90-92 is available at a PE multiple of about 4-4.5.

This company is totally debt free. It has just about Rs 2 crore of working capital loans. The company has been consistently dividend payer and it paid dividend of 5% last year. The promoter holding is high at about 75%. Market capital of the stock at the current price is about Rs 37 crore as against the gross block of about Rs 47 crore, which the company has in its books. This is more than 50 year old company. So the value of gross block at the current price maybe substantially higher that what is getting reflected in the books of account.

The Shaw Wallace group has been selling various companies which were earlier a part of Shaw Wallace group. The company sold its flagship Shaw Wallace and Company to the UB Group couple of years back. They have sold of Dunlop India Limited and Falcon Tyres Limited to the Kolkata based Pawan Ruia Group. Company has also sold Hindustan Dorr Oliver to IVRCL Infrastructure and Mathar & Platt Pumps Limited to a German company called WILO. Narmada Gelatines is probably the only listed company left in the fold of Shaw Wallace which has not been sold by the company by the Group.

The possibility of Shaw Wallace Group making a complete exit out of Narmada Gelatines is something which may not be totally ruled out. At the current valuations, you have a company which is growing steadily at about 15-20% and is paying regular dividends. It's a debt free company and buying the stock at Rs 92-93 paying a price earning multiple of about 4-4.5 you are not buying the stock really expensive. In case the sale does not go through, you may have a steady stock which may be market linked or linked to the performance of the company. The downside from these levels look restricted. In the event of the promoters deciding to sell the company, the valuations which the company can fetch maybe substantially higher than what is getting reflected in the current market price of the stock.