Hindustan Inks and Resins is the only stock besides HDFC which has beaten the Sensex in the last three months. From a low level of Rs 395 in the first week of March, the stock has appreciated to the current level of Rs 698 - a 76 per cent rise in less than three months when the overall market has taken a sharp beating.Nothing but strong fundamentals is responsible for stock market's optimism. The company's main business is manufacture of printing inks, which contributed nearly three-fourth of the total revenue of the company. In fact, the company has set up the word's largest printing ink production plant. It has an installed capacity of 60,000 metric tonnes.
But what helps the company most is its backward integration.
The company also produces pigments, resins, and key additives. This not only ensures a regular supply of consistent high quality raw material but also gives a major cost advantage over its competitors.
Financial results reflect the cost advantage. For the first nine months (April-December), the company achieved a 26 per cent higher sale at Rs 139.42 crore, and profit at the net level has risen from Rs 15.17 crore to Rs 19.45 crore during the same period.
High taxation and provision for depreciation have affected the net profit growth. Tax provision has risen from Rs 28 lakh to Rs 5.70 crore, and depreciation increased from Rs 1.45 crore to Rs 3.07 crore.
The company supplies its products to packaging, printing & publishing industry. The company has concentrated on the high volume-low price segment and has been able to snatch market share from the unorganized segment. With the backward integration programme in place, the profit margins will show a smart improvement in the future.
The renewed focus on exports, and efforts to widen its marketing network will also yield positive results in the years to come. Overall, with strong fundamentals and a positive outlook, the market discounting for the stock should see a further improvement. At present, the stock gets a price multiple of around 15. This along with a steady improvement in earnings is expected to provide good capital appreciation.
As far as the technical position of the stock is concerned, the stock has a medium term base at Rs 570, and unless this level is broken, the medium term players need not worry. On the upper side, the uptrend is likely to gather momentum above Rs 740. Immediate support for the stock is at Rs 645 which can be used by the short-term players.
-- Deepak Singh Tanwar
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