Stock review: Clariant Chemicals

SPECIALTY chemical manufacturer Clariant Chemicals may have lost heavily as the markets tumbled during the past few weeks, but investors need not fret as the company is likely to outperform the market due to its strong business position and sound financials.

   The company's profits more than doubled in 2008 and grew by over 60% in 2009. In 2010, the growth seems to have almost stagnated. Till September 2010, the company had posted a modest 13% profit growth on a 9% growth in revenues. As a result, its operating profit margin has come under pressure.

However, it has already paid a . 10 per share interim dividend in 2010 so far and is well placed to at least match its last year's dividend of . 25 per share.

   Clariant Chemicals, a 63.4% subsidiary of German specialty chemicals major, is India's leader in colorants, dyestuff and specialty chemicals catering to industries such as textiles, leather, paper, plastics, and paints, among others.

   During the past couple of years, the company shed its non-core businesses and monetised excess assets. It disposed of its flexible laminating adhesives business in 2009 and sold its diketene and intermediate business in early 2010. These two businesses contributed . 85.7 crore to its revenues in 2009 and fetched the company a profit of . 8.9 crore on sale.

   In August, the company approved the sale of its land at Balkum, Thane, for . 240 crore. The sale is likely to be completed in a few months. The funds will enable the company to meet its own internal requirement for expansions, besides raising its dividend payout.

   Clariant has maintained an excellent dividend payment record. It has paid dividends for 15 consecutive years. Even though the scrip has gained over 60% in the past one year, the dividend yield works out to 3.7%.

   Masterbatches, which used to be a small portion of the company's overall business, has registered a strong growth over the past couple of years. To cater to the market potential of its product range, the company is expanding capacities and setting up a green field manufacturing facility in Ambernath. A healthy dividend yield and steady capital appreciation could be passé for investors of this company.