Clariant Chemicals India Ltd - "Value unlocking from Real Estate asset and sound business model makes it an attractive proposition" - Ajcon Global

Clariant Chemicals (India) Ltd. is India's leading specialty chemicals producer and is the No. 1 player in Pigments, Biocides for Paints and Masterbatches. The employee base of 1000 plus generate sales of about Rs. 11 bn (in CY 2012) through its various businesses including Pigments (Coatings, Printing and Plastics and Special Applications), Additives, Industrial & Consumer Specialties, Detergents & Intermediates, Oil & Mining Services and Masterbatches. The Company remains a zero debt company with no long-term borrowings. Clariant International has stated in its Annual report that it expects revenues from India to jump 3 fold by 2016-17. Though management of Clariant Chemicals (India) Ltd remained silent on the road map to achieve this ambitious target, Mr. Henri Schloemer sounded very confident and hinted of a detailed plan being made in joint study with Mckinsey. Of the expected 3 fold revenue growth, ~66% growth would be attributed by domestic factors and remaining would be supported by exports. Parent is highly committed for stable margin exports growth and will be assisting domestic entity to secure export orders. Parent is highly optimistic for resumption of Indian demand, particularly from Industrial & Consumer and Additives segment over medium to long term. Rising income level, higher young working age population and rising aspiration levels is generating remarkable shift in consumer preferences towards value added products. This, according to parent, would be a major growth driver and would eventually change revenue mix towards higher margin products.

As per media reports the Company has put its Thane land up for sale and expects to raise Rs.1500-1600 crores from the 80 acre land parcel which translates into cash per share of Rs. 60. Cash-rich companies like Oberoi Realty, Piramal Realty and Lodha Developers are some of the serious contenders in the fray, sources suggest. The deal is expected to be closed within the next six months. Clariant has a chemical manufacturing unit on the Thane land parcel and is planning to relocate it to Gujarat once the land is sold off. Apart from monetizing the property, another reason for Clariant to sell the land and change the location of the chemical factory is it's proximity to other residential areas. Clariant International, the holding company of Clariant Chemicals (India) Ltd is in talks to sell its leather services business to Dutch company, Stahl Holdings B.V, BSE filing states. Clariant would receive 23% of the shares of Stahl and a cash payment of approximately CHF 85 Mn in exchange for the sale of its business to Stahl. Stahl Holdings, a member of France-based Wendel Group provides high quality chemicals, dyes and coatings for leather and other applications. This transaction would expand Stahl's geographic coverage and its product range even further. Clariant Chemicals (India) Ltd. has leather service centres located at Chennai, Kanpur, Kolkata, Ranipet and Vaniyambadi. In 2012, the Clariant Leather Services business generated US$295 mn in reported sales and a reported EBITDA before exceptional items of US$26 Mn. With the proposed divestment of the Leather Services Business Unit to Stahl, the repositioning of Clariant's portfolio will be completed in the coming quarters.

At CMP of Rs. 590, the stock is currently trading at 16 x its CY2012 Earnings which makes it attractively priced at mouth watering valuations. We value the stock on SOTP basis and arrive at a value of Rs. 980 (Rs. 60 per share from expected land deal and assign a P/E of 12x at Estimated CY13 EPS of Rs. 75). We recommend a "BUY" target price of Rs. 980 for investors with a horizon 6-9 months.

Source : Equity Bulls

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