Gujarat Foils - Will Patience Pay Someday?

Gujarat Foils Ltd. is a part of the $7 Billion company, Topworth Group, and is the third largest manufacturer of aluminium foils and sheets in India. The company covers the entire range of products from thin gauge sheets and coils for closure stock used in the Brewery and Pharmaceutical Sectors to bare foils like Fin stock for heat exchanger fins, tagger and lidding foil for the Food & Beverage Sector, as well as consumer house foil.
From an installed capacity of 3400 TPA for sheet/coil in 1992, the company has reached a capacity of 12600 TPA today.

The company's manufacturing plant is located at GIDC, Chhatral, Kalol, Gandhinagar, Gujarat and manufactures aluminium rolled products (Sheet & Foil). The total plot area of this plant is 20,000 sq. mtrs. that includes a 9,000 sq. mtrs. built-up area within for sheds, office buildings, canteens and quarters.
The company also has 20,000 sq. mtrs. of land in Kutch area for a wind mill, and 100,000 sq. mtrs. of land near Dist. Viramgam reserved for future expansions.

As per the annual report, Consumer Products Business division has shown very good growth. Nutriwrap as a brand has strengthened itself among the top brands with national footprint. The division has maximised growth vide improvements in distribution penetration across town classes. Product portfolio has been enhanced. The base building work done provides a good platform for performance in the immediate future.
Aluminium is going through a difficult phase, globally. But, the aluminium market in India is still growing at a rate of 9 to 10% over the last five years and it is going to remain so in the near future.

The biggest positive is that  the Indian pharma companies, with the faster commercialization of product filings due to Generic Drug User Fee Act implementation, will be able to launch their products quickly as a result of shorter approval time. With this, Indian pharma companies will be pushing their products aggressively in regulated markets. With this aggressive approach, pharma industry is expected to do much better than anticipated resulting in further improvement in prospects of pharma packaging industry.

Here is the list of Company's Pharma Cleints:
1. Lupin
2. Sun Pharma
3. Macleods
4. Aurobindo
5. Cadila Pharma
6. Inventia/ Pharose Remedies
7. Impactlabs
8. Anglo French
9. Hetero Drugs
10. Zydus Cadila
11. Ipcalabs
12. Torrent Pharma
13. Ajanta Pharma
14. Granules India
15. Fourts India
16. Caplin Point
17. Alkem Laboratories

Major Risks:
1) Company is currently having very high debt, due to nature of business. The Debt:Equity is more than 2. However, the good thing is that, the debt has not increased for past 3 years. Also, the credit rating agency CARE has been continuously revising its bank facilities as the company's performance has kept on improving.
Here is the latest revision on Mar 11:
http://www.indian-commodity.com/corporate/care-revises-ratings-of-gujarat-foils-bank-facilities.aspx

2) With the Foil Industry showing signs of growth, number of new entrants are already there and more will be further coming in this sector. Cheap import from China after withdrawal of anti dumping duty resulting in cost competition in the Indian Market.

3) Due to the nature of business, and high capital requirement, the company is not paying any dividend in spite of making decent profits.

Talking about numbers, for the nine months ended Dec'14, the company has shown growth of 24% in sales and 33% growth in net profit, The company is likely to end the year with annual EPS of around 14, which means the stock is currently trading at a P/E ratio of less than 5. However, the above mentioned risk factors has been somewhere responsible for such valuations.
CAGR for last 5 years in sales has been 42% and about 101% in net profit which is an incredible achievement in such industry. It is also very tough to maintain good operating cash flow in such businesses. However, if one checks the data for past 2 years, it has been excellent.

Overall, the only questions remains, is that whether the strong numbers will overcome the risk factors in long term? If yes, then we could see a very strong re-rating in the counter, as the market cap of the company is still  a meager 50 Cr, for a company which is likely to post close to 500 Cr sales this year.
Keeping a belief in fundamentals along with good management, I am positive on company's future.
However, it is advisable that readers goes through all the details and take his/her own decision based on his/her risk profile, or if required, also after consulting finance expert.