Jun 29, 2010

BASF LTD.- World's Largest Chemical Company

BASF INDIA LTD is a German Chemical Company founded in 1865.
BASF is world’s largest chemical company.
It has its presence in world’s more than 80 countries.
It also has cooperation agreement with Monsanto for research and development in agricultural space.
It started operations in Indian in   1943

It operates in following business segments:
plastics, engineering plastics, styrenics, Polyurethanes
foams, Polyamides and Intermediates, dyes, soda, acids, tanning agents, leather chemicals, auxiliaries, crop protection chemicals, textile chemicals, automotive and coil construction chemicals, polystyrene and polyurethane systems, biodegradable plastics, functional chemicals, agricultural.
Investment arguments:
The company has doubled its sales in last 5 year period and has been showing consistent growth in topline during the same period.
The average 5 yr EPS comes around 20.85 and at CMP of 425 we get a PE ratio of 20.38.
The market capitalization is close to 1700 crore at stock price of Rs.425. Thus an attractive sale to market cap ratio. Last yearly sales was Rs.1394 cr.
Looking at the topline and bottomline performance. The company is likely to do well in next couple of years. According to us a Price Earnings ratio of 20 is not expensive looking at the global footprint, MNC status, low volatility of share price, and other commendable factors.
The debt level of the company is also close to il at less than 1cr.
The company is sustaining operating profit margins above 10% and net profit margins above 5% consistently for last 5 yrs.
According to FY2009-10, the company has a reserve of Rs.825 cr.
The rush and run for investing into Multinational companies has been on the rise in Indian stock market. This company has remained largely isolated from this run. The float capital is not as less as many other mncs.
We follow on the maxim that the large and leading player should get highest valuation and then descending order, and that too irrespective of the profitability.
Any corporate action for delisting, bonus issue, etc.can bring a good trigger to stock of this company.
Risk factors:
The possible lower interest of institutional investors due to less free float and market capitalization issue could be a cause of concern for this counter.
Looking at the rationals we recommend a buy on this counter for short medium and long term.
The stock is likely to deliver 20-40% return in short-mid term.
Our clients and research team at MEGHA INVESTMENTS AND RESEARCH holds position.


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