IOL Chemicals and Pharmaceuticals Ltd is one of the leading pharmaceutical companies in the country and is a significant player in the field of specialty chemicals with world class facilities. It is catering to top-tier players across diverse important industries like pharma, ink industries, flexible packaging, adhesives, surface coatings, paints, laminates, etc. It is also one of the largest producer of Ibuprofen and the only company worldwide being backward integrated with a 35% global market share. IOL Chemicals and Pharma first commenced manufacturing Ethyl Acetate in 1986 with a starting capacity of 3000 tonnes per annum and today this business has grown to become the largest producer of Ethyl Acetate at a single location in the country with a production capacity of 100000 tonnes per annum. The company is also the second largest producer of ISO Butyl Benzene with around 30% global market share. The company has had few challenges in the last few quarters due to volatile prices of raw materials due to global uncertainty and disruptions. The procurement price of a key raw material, Acetic acid has been quite volatile for quite some time. The company management has clearly reiterated on the issue by clarifying that as their volume of manufacturing is significantly higher than industry averages and it needs to carry larger inventories than other competitors plus it is slightly removed from the port. Therefore, the amount of working capital which IOL deploys is also higher than competition. To mitigate this risk the company has to have an assurance of demand on a regular basis continuously. While the Ethyl Acetate is 80-85% of the company’s total chemical business and mostly domestic driven, it has, therefore, started to look at exports as an alternative as price realisation is somewhat better there. The management of IOL Chemicals and Pharma is expecting the same 6-8% EBITDA range for the chemicals business for the first two quarters of the current financial year and it expects a top line growth of over 10% in the pharmaceutical side of business along with decent margin expansion. This will be due to increase in higher volume and export of Ibuprofen business.
Analysts and fund managers are allocating a small percentage of IOL Chemicals and Pharma stock to their long term portfolio. The 52-week high of the stock was around Rs 800, while it is currently quoting at Rs 357 on the bourses. Long-term investors can accumulate the IOL Chemicals and Pharma stock at the current levels for a 40% gain over the next 18 months’ time frame.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.