Vardhman Acrylics – A hopelessly undervalued stock

Hi

Just wanted to share my views on Vardhman

Recent Developments :

1. Raw material price Acrylonitrile has fallen from Rs.134 per kg (incl. duty ) in Sep 14 to Rs.83 per kg in Sep 15 due to crude effect. ACN is 90 % of Raw Material Cost.

2. Acrylic Fiber landed cost, as per import data is marginally down from Rs.180 to Rs.133 in the same period.

3. Anti Dumping Duty – Govt has imposed Anti Dumping duty on Acrylic Fiber imports from Thailand of USD 162 per MT w.e.f 1st June 2015 for a period of 5 years. This gives additional margin / EBIDTA of Rs.10 per kg. Thai Fiber Imports account for 65 % of total Acrylic Fiber imports during FY 2015.

Cumulative effect of the above – Positive to VAL due to increase in margin and lesser import volume. EBIDTA for FY 2016 – Rs.65 cr + approx

Currently, ACN landed cost is Rs.93 per kg and AF is Rs.157 per kg factoring Customs and Anti dumping Duty.

As a result, Delta (Diff between RMC and Fin Good) up from Rs.39 to Rs.64 per kg.

1. Promoter stake increased from 58 % to 75 % between 2013 and 2015 through Buyback and Market Purchases. A positive feature. Potential merger with Vardhaman Textiles owing to synergies?

Valuation :

Current market cap is Rs.240 cr. Cash equivalent as of 31st March 2015 is Rs.260 cr. Debt Free

Core business, EBITDA expected at INR 65 cr for FY 2016. Company available free Mcap (ex-cash).

Company has excellent Management Bandwidth, Debt free, cash rich, good EBIDTA outlook and very cheap valuation.

Something amiss ? Or is it a Hidden Gem?