Hidden Gems - Ashish Chugh - Dec 26 - Amco India Ltd.

Amco India Ltd.

CMP - Rs. 24 BSE Code -530133

Amco India Ltd. (Amco) was incorporated in the year 1987 as Amco Vinyl Pvt. Ltd. and later changed its name to reflect the other product areas that the company ventured into.

The company started its business activities by setting up a plant for the manufacturing of PVC films and sheeting at Noida. The project was financed by PICUP & UPFC. Later, the company set up another unit for the manufacture of PVC Flooring.

Thereafter, in 1996, the company decided to get into manufacturing of Aluminum Foil by Cold Rolling Process. The company today has four units - two located at Noida in close proximity to each other, one at Bhiwadi (Rajasthan) and the latest units coming up at Baddi (Himachal Pradesh). The unit at Baddi enjoys several tax benefits is is expected to go on stream soon. The company currently has manufacturing operations in three states - U.P, Rajasthan and Himachal Pradesh.

In the Aluminium Foil business, the company caters to the Pharmaceutical, Automobile and Packaging industry. The company claims to have a market share of around 7.5% to 10% in the business. In the PVC Films and Sheeting business, the company has executed orders for Automobile & Luggage industry. The company sees potential of the product in various applications including Electric Tape industry, Luggage, Automobile and Stationery. However, the inputs for the business being linked to Petroleum prices, any increase in Oil prices will adversely effect the business.

The company is continuously carrying out new product and application developments/ innovations. The company has developed Surgical Films for Pharma industry and Laminated Sheets which have applications in the Advertising industry. The company has also developed printed rolls which are fixed on Glass to give them better look (Like Frosted Glass, Printed Glass).

Financials

The company has an Equity Capital of Rs.4.11 crores with the promoters holding 63%. For the year 05-06, the company achieved a Net Sales of Rs.90.34 crores and a PAT of Rs.1.36 crores leading to an EPS of Rs.3.31. The company paid a dividend of 10%.

Conclusion

Amco India Ltd. has set up a new plant at Baddi to manufacture Flexible Laminated Foils which is expected to go on stream shortly. The plant being set up in an area enjoying several tax and excise benefits is expected to add substantially to the Topline and Bottomline of the company. The plant has been set up out of internal accruals and debt financing, without any equity dilutions. The company has a market cap of Rs.10 crores and Long Term Debt of roughly Rs.3.70 crores. (excluding working Capital Finance). In the year 05-06, the company achieved a PAT of Rs.1.36 crores leading to an EPS of Rs.3.31. The stock therefore trades at a PE of 7. The earnings in the year 07-08 are expected to take a substantial leap owing to the full benefits of the Baddi plant. The company with manufacturing operations at 4 locations, with Sales with Revenues from Manufacturing Sales many times over its market cap available at an enterprise value of Rs.13.70 crores and at a PE of 7 looks undervalued.

Long term investors can accumulate the stock at the current levels and on declines.