From THE HINDU group of publications
Sunday, November 04, 2001


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Clariant India: Low Risk/Medium Risk -- Sell; High Risk -- Hold

Recommendation: Low Risk/Medium Risk -- Sell; High Risk -- Hold

Anup Menon

TRADING at around Rs 105, investors with a low-to-medium risk profile can consider liquidating their exposures at the current levels and re-entering the stock at around the Rs 80 level.

Investors with a high-risk profile who already have exposure in the stock can consider holding on to it for the time being.

The company's earnings performance for the second quarter of this fiscal was reasonably good.

Though the conditions in the specialty chemicals sector have not undergone any major change for the better, the fact remains that, in relative terms, Clariant is the best investment option within the industry. The current price movement is probably on account of positive sentiment revolving around the earnings announcement.

The stock is expected to stabilise at around the Rs 80 mark. Fundamentally, the company is on firm ground and the earnings performance is expected to remain more or less stable over the next couple of quarters. Risk-adverse investors can liquidate their holdings for the time being and re-enter at a lower level.

Earnings performance: The company's earnings for the quarter ended September 2001 was fairly impressive. Sales revenues rose 8.71 per cent to Rs 75.38 crore compared to the corresponding previous period. In the same time frame, operating margins improved from 7.71 per cent to 10.29 per cent. Post-tax earnings posted a 48 per cent rise to Rs 5.65 crore. On an equity base of Rs 11.93 crore, the annualised earnings per share works out to around Rs 19 per share.

Facts: Clariant (India) is one among the leading players in the specialty chemicals segment. Its product range includes masterbatches, paper chemicals, leather chemicals and textile chemicals.

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Prospects: The company's prospects in the near future look stable. A primary valuation parameter for the company is its growth prospects in the near future. The specialty chemicals industry has been going through a bad phase in the recent past affecting the offtake. Hence, topline growth is important from the valuation perspective. Clariant has managed to grow moderately during the first half of fiscal 2002. This is commendable and is likely to be looked upon favourably by the market.

The other positive factor is its innovativeness. The company is introducing new products at regular intervals. For instance, this fiscal, the company plans to introduce around 64 new products. This will help the company maintain its topline growth to some extent.

These apart, other measures such as strengthening its distribution network and concentration on exports also augurs well for the company. Any improvement in the distribution system should lead to a higher customer base. Further diversifying revenue streams through exports is also likely to be favourable to the company.

Among the risk factors to consider are the cyclical nature of the user industries and their present state of affairs. The user industries, including textiles and leather, have been going through a rough patch. The trend is expected to continue over the next six month. The weakening of prices in the paper industry could also lead to some pressure in the paper chemicals segment. But at present the negative impact is limited and is likely to remain so over the next couple of quarters.

Related links:
Clariant Q2 net rises
Clariant India net, turnover improve

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