Sticking It Out

At the current price of Rs 124.50, the scrip discounts the 1996-97 annualised EPS around 9 times. With the current order book position of Rs 14 crore, the second half should be equally good. With expanded capacities coming up by the end of the fiscal, it is set to see further volume growth though higher interest and depreciation costs will continue to affect the net. At the current price, a hold is recommended on the stock.

In the first half, VWL sold 6,768 mt of guar product and it expects to sell 9,000 mt in the second half. It is at present implementing a Rs 38 crore 100 per cent EOU project financed by Rs 24.5 crore of debt and balance through internal accruals which will take the total capacity to 39,900 tpa. Now, it is catering to the toothpaste market in Japan and is also developing a substitute for application in the manufacture of gypsum boards.

 

In July-August 1996, it implemented a 4,200 tpa project for odourless polymers and a 4,200 tpa project for guar polymers. A splits plant of the same capacity to feed these plants was also implemented. The expansion project of 18,900 tpa will be completed sometime in April 1997 and subsequently, the 30,000 tpa enriched meal project will be completed. In 1997-98, VWL is projecting a sales of 28,500 mt with a value of Rs 120.8 crore. According to the company, the EOU status of the company will enable it to stay out of the MAT net until the year 2002.

The interest cost has gone up and the visible cause is the high level of finished goods inventory and sundry debtors. VWL is blaming the poor capacity of the Kandla port from where the shipments are made. The entire goods could not be shipped and could be completed only in April and May 1996. To tide over the problems, it has taken a warehouse on rent from August 1996 where the containers are stuffed. Bunching of exports in March also led to a higher debtors level at the end of the year. As the capacity of the company increases, it is more likely to face these problems of inadequate infrastructure. Though the rented warehouse near Kandla will solve problems to a great extent, some hiccups still persist.