Savita Chemicals Limited (SCL) is one of the largest manufacturers of transformer oils in India.
The company reported an impressive performance for Q4 FY 2008. Net Sales surged 14.7% to Rs264.62 crore. OPM more than doubled to 12.1% due to sharp decline in raw material cost to 77.1% of sales.
Consequently, PBT more than doubled to Rs32.18 crore. However, higher average tax rate of 27.6% (12.5%), growth in PAT was restricted to 66.6% Rs23.28 crore.
With huge capacities planned in power generation, demand for transformer oil is expected to be strong. SCL with a 40% market share in transformer oils is expected to be a key beneficiary of capacity addition of 100,000 MW envisaged under 11th Five Year Plan.
In addition to strong domestic presence, SCL is exporting transformer oil to South Africa, South East Asia, Australia and Middle East and is exploring newer markets to increase its exports.
In order to cater to incremental demand from domestic as well as overseas customers, it is expanding capacity by 40-50,000 KL at capex of Rs8-10 crore.
At the current price, the stock is trading at 6.08 times FY 2008 actual EPS of Rs42.44 and 5.28 times FY 2009 expected EPS of Rs48.88. SCL has declared dividend of 115% for FY 2008. At CMP, dividend yield works to 4.5%. We recommend a BUY in this counter with a target price of Rs400.