Fundamentals Analysis: Parekh Aluminex

About the company
Parekh Aluminex is India's largest aluminum foil containers, aluminum foils and allied products manufacturer. It is an established company, and a leader in its industry. In the organized sector, it commands upto 70% market share.

Sector Outlook
The industry in which Parekh Aluminex operates is in a very nascent stage, and it is a pioneer. The raw materials command a large amount of operating costs, and thus affect margins very directly. Aluminum prices were down till now, and with demand picking up, they are seen to rise- a negative, if the company hasn't hedged well.

Parekh Aluminex's current position
The topline of Parekh Aluminex is growing at a CAGR of over 50%. From a topline of Rs. 102 cr in 2006, the company has grown to posting a topline of Rs. 421 cr in 2008. The company expects 30% growth in the next fiscal. Exports constitute more than a third of the total revenues of the company, so a revival in the world markets would augur well for the company.

Parekh Aluminex had concluded significant capacity addition last year- and this allowed them to increase their topline by a significant amount. This capacity addition was made possible by closure through debt, and interest costs for the company are rising rapidly. This is a negative.

They've already notched 270 cr of sales in the first two quarters. The company is indeed growing at a very high pace. Promoter holding is low, but it has increased over the past year from 24% to 34%. Long term debt programs of the company have received a rating of A- by CARE. This means, the credit risk is low- affirming the company's capacity to handle debt.

Valuation
The company now trades at a P/E of close to 5, against an industry P/E of 17. The market has discounted the debt of the company in this valuation- and it doesn't expect the company's bottomline (or topline too? maybe.) to grow as fast now. The results of the coming 4 quarters of this calendar year matter a lot. And that would gain the markets' sentiment. The stock had reached a high of Rs. 301 during the bull run of 2007, and now trades at Rs. 157 a share as on Friday's(8/jan/10) close. It reached a low of Rs. 45.15 in 2009. It seems to be trading at fair value- but a lot depends on the market sentiment, which would be affected by the Q3 earnings season and the budget.