Omkar Speciality Chemicals

Omkar Speciality Chemicals is a specialized chemicals company which manufactures such Molybdenum, cobalt, selenium derivatives.  Incorporated in 2005, it took over Omkar Chemicals. The installed capacity was 318 MT and the product range was cobalt, selenium & iodine derivatives in addition to molybdenum derivatives. During the year 2006 -07, Company expanded the total installed capacity to 325 MT which was further increased to 375 MT during the year 2007-08 and 750 MT in 2011/12. It has recently commissioned a new plant at its wholly owned subsidiary - Urdhwa Chemicals at Chiplun. The plant with a capacity of 2800 MTs per annum will manufacture a number of high value intermediaries for pharma industry catering to essential life-saving drugs. The capacities of Urdhwa's plant are already over booked with the reputed customers-domestic and international with whom OSCL is having long standing relations. Now with the commissioning of Urdhwa plant, the total capacity increased to 4600 MTs per annum. Thus OSCL has increased the capacity by 2 to 3 times and will drastically increase the earnings in the next financial year. All of its products are specialty chemicals and almost monopolistic in nature serving chemical and allied industries. 

Financials – Company is growing at CAGR of around 25% from 2008 with FY12 sales at 177 Cr and strong profitability from 2008. With the recent capacity addition, the revenue will continue to show impressive growth. Its EPS is 8.38 with net profit margin at around 10% for FY11 and FY12. Its ROCE is 17.4% and Debt to equity ratio is 0.7. Its PE for FY13 estimated earnings is at 12.5 and FY13 estimated earnings at around 10. Its current price to book value ratio is 2.62.   

This stock will be a multibagger stock and will show good growth in next years to come. This should be bought with horizon of 2 years and will provide good returns. 

Recommendations - 11/12/2012

State Bank of India (SBI) reported a 30.2% yoy growth in its standalone net profit to Rs3,658cr during 2QFY2013. The operating level performance was largely subdued, as pre-provisioning profit declined by 1.6% yoy.  During 2QFY2013, the bank’s advances grew by 17.2% yoy, while deposits registered a growth of 16.5% yoy. At the current market price, the stock is trading at PE of 10.50. This is due to the bank’s dominant position and reach, high fee income and superior earnings quality. Expectation is for SBI to deliver 17 to 18% CAGR in net earnings over FY12-FY14 driven by steady NIMs, industry line loan growth and improving operating efficiency. SBI will also benefit immensely from improving macro picture and falling interest regime; in turn growth pick up and receding asset quality pressure. This is a clear buy at the current levels and on declines with a short term target of 2450 and will scale much higher over next 2 years.

Next Generation Banks - YES Bank

YES Bank is a good story in the private banking space. Its income has grown from Rs.1671.50 Cr in 2008 to Rs. 7164 Cr in 2012. Profit over the same period has increased from Rs. 200 Cr in FY2008 to Rs. 977 Cr. For the Q2, its income as well as profitability rose by 33%. It has been paying dividends since last 3 years consistently. The strong earnings momentum is expected to continue this year despite the overall bearish market sentiment. It has strong operating metrics, one of the best asset quality in the industry. NPA stands at 0.06% and NIM is at 2.8%. YES bank also received equity broking license from RBI and this would augur well for the bank in the long term.

From valuations perspective it is available at P/E of 13.29(CMP of Rs. 418 ) as against industry PE of 11.67. These valuations appear reasonable given the revenue / earnings that it is projecting for FY13. Investors should invest in this stock at the current levels and also accumulate on declines with a long term perspective to get decent returns.