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Dividend paying stock picks
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The strong growth in Indian economy continues to create demand for CV and it is likely to increase in the coming time. In the near term high input costs and rising interest rates may create some margin pressures for the company.
At Rs 28.75, the stock is trading at 7.7 times and 6.6 times its FY09 and FY10 estimated earnings of Rs 3.7 and Rs 4.3, respectively, and can deliver about 30 per cent returns over the next 18 months.
Clariant Chemicals
Clariant Chemicals recorded a 44 per cent increase in net profits to Rs 41.7 crore for the six months ended June 2008 (year ending is December). Net sales were up 7 per cent at Rs 466 crore.
The company has been able to increase its profits as a result of its ability to increase product prices, prune costs and benefit from a leaner organisation.
Clariant Chemicals is focusing on technical textiles in dyes and specialty chemicals, which account for 55 per cent of its sales and is expected to register an annual growth of 14 per cent till 2015.
While the company’s sales of textile chemicals last year was impacted due to rupee appreciation margins in the second largest segment (40 per cent of sales) - intermediates and colours - more than doubled to 14.1 per cent in the first half.
Going forward, the company is planning to focus on promoting the wider usage of safer pigments (lead/chrome replacement) and the usage of fluro chemicals and coating based products in the technical textiles segment.
With rupee showing some signs of weakening in 2008, the same should also prove beneficial for Clariant. At Rs 230 and considering annualized CY08 earnings of Rs 17.14, the stock is attractively priced at 13.5 times.
Castrol India
Castrol has prominent brands, and its product is technologically advanced. The sales and net profits of the company have grown at a CAGR of 13.4 per cent and 19.3 per cent in the last three years, although volume growth has remained muted.
The low volume growth is mainly due to a shift in consumer preference towards high-tech products, especially in the auto lubricants where Castrol enjoys a market share of 21 per cent.
Technological advances in autos have increased demand for high-tech products. This is positive for Castrol, which has access to its UK parent’s R&D.High end products have a higher profit margin.
The company has already entered into tie-ups with players like Volvo, Ford and Audi (cars) and Tata Motors (CVs), besides being the exclusive ‘first fill’ lubricant for Tata Motors’ Nano.
India is adding close to ten million vehicles (two million cars and UVs and over seven million two-wheelers) every year, creating a demand for automotive lubricants. Same is the story for industrial lubricants with increasing spend towards infrastructure and industrial capex.
While concern over the surge in base oil prices exists, Castrol has raised prices in the past to offset the increase. The cut in import duty by half to 5.13 per cent on base oil in June 2008 also provides respite.
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