Buy stocks of Parekh Aluminex; target of Rs 390

"PAL, a Mumbai based company established in 1994, is engaged in the production and sale of Aluminium Foil Containers (AFC) together with lids or covers and Aluminium Foil Rolls (AFR). It came out with its IPO in 1997. PAL is the largest manufacturer and exporter of Aluminium Foil Containers (AFC) and also one of the biggest manufacturers in Aluminium Foil Rolls (AFRs) and Aluminium Lids, in India. Its two plants are located at Union Territory of Dadra and Nagar Haveli, India. From January 2009, PAL has been adjudged as 100 per cent EOU."

"PAL manufactures these products with various sizes, shapes and microns. Aluminium Foil containers are utensils, pans, trays, packing materials made from Aluminium Foil. AFC’s has increased its capacity (casseroles/trays & containers/dishes) from 4, 000 million to 5, 750 million pieces per annum; AFR’s from 75 million to 98 million pieces per annum; and Aluminium lids from 1200 million to 1, 590 million pieces per annum. The products find its application in packaging of food items in travel industry such as airlines, railways, fast food chains, restaurants, hotels etc and also find their application in household uses. PAL has set up a world-class plant to produce AFCs and is the biggest supplier of AFCs to Railways, flight kitchens, airlines and Five Star hotels. Further, it has the best production process and moulds to produce the widest range of products. PAL’s manufacturing location attracted sales tax benefits for 15 years (five years left). Its products were exempted under certain notifications and subsequent to it, EOU duties were payable but at concessional rates, resulting in cost benefit. PAL is getting the tax benefit for 100% Export Oriented Unit U/s 10B of Income Tax Act, 1961."

"During Q4FY12, net profit surged by 82.4% to Rs25.9 crore (Rs14.2 crore) on 76.5% higher sales of Rs416.1 crore (Rs235.9 crore). OP and NP margin stood at 17.1% and 6.2% as against 18.5% and 6.0% respectively in Q4FY11. (YoY) During FY12, net profit advanced by 27.8% to Rs85.9 crore on 51.8% higher sales of Rs1369.3 crore. OP and NP margin stood at 17.7% and 6.3% Vs 17.9% and 7.4% respectively in FY11. FY12 EPS works out to Rs66.6 Vs Rs52.1 in FY11."

"PAL enjoys healthy position in the international market with the quality of the products best and comparable to any other products of World Class suppliers. The expansion now enables to capture the export market and the ever expanding retail market. Considering all these factors PAL is very much optimistic about times to come. India is the world’s eleventh largest packaging consumer, with a market size of US$550-billion that is expected to grow 18-20% (presently 15%). Evidently, it is projected that increased incomes will translate into higher industry growth. The large manufacturing base, long term supply contracts with leading clients, almost zero inward freight cost, zero excise, octroi and sales tax benefits, strong brand, huge replacement market, the potentially large addressable market coupled with major expansion give strong revenue & profitability visibility for PAL going forward. At the CMP of Rs300, the share of PAL is trading at a P/E of 3.5x on FY13E and 2.8x on FY14E. We reiterate BUY with a target price of Rs390 in the medium-to-long term," says Sunidhi Securities research report.