By Hemant Gupta

Rationale for recommendation:  In current scenario when majority of scrips are quoting in 2 digit PE Ratios, DACL is available at just 3xFY11E Eps. DACL is in speciality chemical business with reasonable past track-record, has performed extremely well in H1 and has brighter future prospects.

BACKGROUND: Promoted by Kothari family (Alkyl Amines group), DACL is engaged in production of speciality chemicals. Its plant is situated at Petrochemical Chemical Complex in Baroda. DACL is the only manufacturer of Ethyleneamines (EAs) in India for which company developed inhouse technology. Its main focus is Piperazine/Piperazine Salts which are mainly used by Pharmaceuticals Agrochemicals, Lubricants and Fuel additives industry.

PAST TRACK-RECORD:

                                                   2005-06   2006-07  2007-08  2008-09   2009-10

Net Sales                                        23.73      23.26     19.31      31.73        46.86

Net Profit                                           6.11       6.88       1.71        1.36          9.35

Equity                                                                                                            6.52

EPS Rs                                            9.36       10.54      2.61        2.09          14.34

BookValue Rs                                  11.95       17.85     19.29     20.21          32.22

Dividend %                                          50%       40%       10%      10%            20%

From above, it is clear that promoters are quite investor-friendly as they paid 50% dividend when EPS was 9.36 (more than 50% payout ratio).Even, when profits plunged and EPS was mere Rs 2, still 10% dividend was paid (otherwise, at drop of hat, promoters look for excuse to skip dividends).

CURRENT PERFORMANCE AND FUTURE OUTLOOK:

                                     Q2/10-11     H1/10-11      2010-11E

Net Sales                          21.42           37.22                  72.00

Net Profit                             5.84            8.18                   19.00

Equity                                                                            6.52

EPS Rs                              8.96            12.55                 29.15

DACL has been performing extremely well in current year.  H1 EPS stands at Rs 12.55.

Co has reported EPs of 8.96 for Q2 alone. Full year eps can be Rs 29.15. Scrip is available at just  3xFY11E Eps. By any yardstick, such valuations are dirt cheap considering company is in business of speciality chemicals and at a time when Sensex is around 20,000 levels.  In current market situations, DACL is appears one of the safest and underpriced scrips which may not fall sharply even if market falls heavily. In stable markets, DACL scrip should rise more than 50% in just 3-6 months. Scrip can be Rs 200 in less than 18 months  BUYING RECOMMENDED