BUY - INDIA GELATINE & CHEMICALS LTD

Everything with a name tag of Gelatine is buzzing in Dalal Street for the past few weeks.I have already recommended two of these companies ,Nitta Gelatine @ Rs.86 (now quoting around Rs.146) and Narmada Gelatin @ Rs.95 (CMP is Rs.138).Now it is the time of India gelatine (BSE - 531253) This 40 year old KVS group company is in the same line of  business of the other two above mentioned companies –producing Pharma , Food Grade  and industrial gelatine and Ossein .Japan based Nippi Inc. Having 10% equity stake and Konica Gelatin having technical collaboration with India Gelatine.Company’s main raw material is Crushed animal bone.Company selling its products both in export and domestic market.
                                                                     It is foolishness to buy any stock only because of price movement and  without a reason,especially at its 52 week high.So let us look into the major factors led to the turnaround of the fortunes of  this industry.First of all,sharp improvement of demand from the pharma sector for manufacturing of capsules and at the same time lower capacity addition for gelatine due to stringent pollution control norms.The next and most important factor is, some developments in global level.In  mid 2010,Paris based OIE (Office Internationale de Epizooties) which is the monitoring authority of animal health worldwide upgraded India’s status to category 1.At the same time this same authority downgraded some nations and these decisions are based on Mad Cow Disease occurred in these countries.In a later review they maintain the status quo.In such a situation foreign countries preferred Indian Products (being a product from animal bone). This special situation  created shortage of quality gelatine in global market and results in  sharp improvement of prices. On the other hand In India ,Capsule makers who were  importing gelatine from overseas market turn to Indian product due to overseas price increase and sharp depreciation  of Indian Currency.Over all this situation helps gelatine makers from India  a lot and it is expecting  to continue in medium  term due to increasing demand from  user industries,repeated report of Mad Cow Diseases from various foreign countries,low availability of raw material,absence of capacity addition due to pollution issues .etc.Even the price of raw material increased about 25% in last year, companies could easily pass on the same to its customers.
                                                                        India Gelatine posted its best ever result in recent past in last quarter and this trend is expected to continue in next few too.For the full year ended March ,company posted a Sales of Rs.101 Cr,net profit of Rs.7 Cr and an EPS of Rs.7.5.It is an interesting  point to note that out of the 9.4 Cr equity of the company about 95% shares are issued through bonus issues.Company declared bonus shares 5 times in the past after the public issue.For the past four years company is paying dividends without any interruption.India Gelatine currently having a book value of Rs.110/- and trading now @Rs.66/- which is almost half of its book value.Recommending this debt free company as a BUY at CMP of Rs.66 even if it is at its 52 week high.

Click HERE for old posting on Nitta Gelatine

 Click HERE for old posting on Narmada Gelatine