Tripex Overseas : Piggybacking the sensex

Commentary on Tripex Overseas:

Tripex Overseas is a Gujarat based that manufactures exclusive range of intermediaries for dyes, pigments, pharmaceuticals and agro chemical companies. The company has five chemical plants located in Ahmedabad, Ankleshwar and Baruch respectively with a total production capacity of 2000MT.

The main products of the company can be classified into:

Ø Naphthalene Derivatives

Ø Benzene Derivatives

Ø Fast Base

Demand for dyes and pigments from textile and pharmaceutical companies is expected to remain firm and robust going forward and the company has a fairly good presence in the export market also with its established customer relationships in US, Japan and Europe.

Recent developments in the company

Ø In 2005, the company acquired a private sector undertaking engaged in the production of H acid/V acid and European K (these are intermediaries used in bulk formulations by pharma companies) for 15 crore. The acquisition of this unit has been revenue accretive for the company from FY 06 onwards propelling its topline and bottom line by more than four fold. For FY 07, the topline is expected to grow to Rs. 97.5crore (402% YoY growth) from Rs.19.4 crore in FY 06 and the bottom-line is expected to grow to Rs.11.7 crore from its FY 06 figure of Rs.2.21 crore by more than 422% YoY.

Ø On Feb 16, 2007 the Board of directors had approved a stock split of 1:5 and on April 30^th the BOD have approved a bonus issue of 3 shares for every 2 shares held in the company. The stock split was approved on 15^th March 2007 whereas the record date for bonus issue is yet to be decided.

Ø The latest news from this counter is that the company plans to set up a SEZ unit near Valsad (South-Gujarat). The SEZ will house a bulk drug and formulation manufacturing plant with an initial investment of Rs 200 crore. The Company has acquired approx. 1400 acres land from the farmers by signing a Memorandum of Understanding (Subject to Gujarat Govt, Clearance) and the development work is expected to commence very soon once the clearance is received. The company is in negotiation with overseas buyers to sign agreements to offtake the pharma products to be manufactured from the SEZ.

Ø The company is already engaged in research and development in the field of intermediaries and has allocated around Rs.6 crore to sustain international quality standards for its products.

Quarterly Results

Date Begin	1-Oct-06	1-Jul-06	1-Apr-06	1-Jan-06	1-Oct-05
Date End	31-Dec-06	30-Sep-06	30-Jun-06	31-Mar-06	31-Dec-05
	Rs.Mill	Rs.Mill	Rs.Mill	Rs.Mill	Rs.Mill
Net Sales	269.31	226	157.46	66.95	54.23
Other Income	1.04	2.5	1.9	1.43	1.94
Total Income	270.35	228.5	159.35	68.37	56.17
Expenditure	-216.65	-180.15	-128.26	-58.29	-44.6
Operating Profit	53.7	48.35	31.09	10.09	11.57
Interest	-	-1	-0.33	-0.43	-
Gross Profit	53.7	47.35	30.77	9.66	11.57
Depreciation	-3.73	-2.5	-1.84	-1.16	-0.92
Profit before Tax	49.97	44.85	28.92	8.5	10.64
Tax	-16.82	-15.1	-9.74	-8.69	-
Profit after Tax	33.15	29.75	19.19	-0.19	10.64
Net Profit	33.15	29.75	19.19	-0.19	10.64
Equity Capital	80.44	80.44	80.44	80.44	80.44
Reserves	-	-	117.32	98.14	114.52
EPS	4.12	3.7	2.39	-0.02	1.32

Shareholding Pattern As on 31-Mar-07	Percentage %
Promoters	14.91
Body Corporate	38.86
Individuals	46.23
Total	100

Shareholders holding greater than 1%

Natraj Commercial Enterprises Ltd	377500	4.69
Green River Properties Pvt Ltd	375000	4.66
Exode Construction Pvt Ltd	190000	2.36
Sandesh Finvest Pvt Ltd	225000	2.8
Religare Securities Ltd	194305	2.41
Nirmal Bang Securities P Ltd	114000	1.42
Emerlad System Engineering Ltd	131701	1.64
Shivkumar Shreeram Agarwal	87000	1.08
Marwadi Shares & Finance Ltd	81205	1.01
MTL Share & Stock Broker Ltd	100160	1.24
Shah Nayankumar Rameshchandra	90000	1.12
Total	1965871	24.42

Religare Securities is a Ranbaxy group company and holds 2.41% stake in the company.

Provisional FY 07 estimate

Particulars	Units	FY 06 Actuals	Trailing 12 months ended DEC 06 Actuals	FY 07 estimate
Sales	Rs.Crore	19.34	71.94	97.50
OPM	%	15.6	18.53	19
Net Profit	Rs.Crore	2.21	8.6	11.7
EPS	Rs. Per share	2.5	10.68	14.53
Market Cap	Rs.Crore			18.56
Net Profit margin	%	11.43	11.95	12.00
Price to Book Value	Times			0.68
Market Cap to Sales	Times			0.19
PE Ratio	Times			1.58
Dividend Yield	%	5.25
RONW	%	6.35	21	29

FY 07 audited numbers have not yet been declared in public domain.

Current market Price as on June 24^th 2007: Rs.23 (post stock split)

Post the acquisition in 2005, the company’s operating and financial metrics have

shown tremendous improvement. The company has an accumulated reserves position of Rs.329 crore as on 31 Dec 2006 and has shown robust growth in return on net worth from 6.35% in FY 06 to approx 29% in FY 07(estimate). The company has witnessed increasing operating and net profit margins post acquisition clearly showing the benefits of the synergy that have accrued to the company post 2005.

The company is expected to post a topline of Rs.97.50 crore for FY 07 and net profit of Rs.11-12 crore for the same period. Based on a provisional EPS of 14.53 for FY 07, the current market price of Rs.23 discounts earnings by just 1.58. However once the bonus issue is completed the Equity share capital will increase to Rs.20.12 crore and book value per share goes up to Rs.35 per share from its existing Rs.33 per share. Based on the increased equity base the EPS will be 5.8 and the current market price of Rs.23 discounts adjusted EPS /diluted EPS by 3.95 times. The average Industry PE for dyes and pigments is 8.8 which indicates that the share is available at a bargain basement price. The Price to book value is also less than 1 and is expected to go down further once the book value goes up on account of the bonus issue. The Market Cap to sales is also very low at 0.19 times and has sufficient room to move up in the days ahead. The dividend yield is also high at 5.25% and return on net worth has shown a strong growth YoY. The company is a zero debt company and has no interest rate fluctuation worries on its balance sheet. Even in the event of a market crash, there is limited downside for this scrip as it’s already trading below its Book value. There are a lot of news triggers for the company in the short term in the form of bonus record date, SEZ approval from Gujarat Govt and securing orders from overseas clients.

A sudden spurt in volume activity and a number of block deals have been noticed in this counter over the last four months displaying investor interest in this counter. A company that’s showing excellent earnings growth (even on a diluted basis the EPS has grown by more than 100% in the last 1 year) cannot remain dormant at such low valuations for long. The fact that the promoter’s stake is only 14% is a negative but it’s offset by the fact that the board has declared a liberal bonus issue and looks to be confident of supporting a higher equity base in the future.