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Alkali Metals – Avoid

October 9, 2008

Alkali Metals Limited (AML) is engaged in the manufacturing of a range of fine, based on related chemistry. Currently, the company has two manufacturing facilities, each having an installed capacity of 2200 MTPA. The Unit I is engaged in the manufacture of sodium metals, organo alkali metallics, tetrazoles, amino pyridines and caters to the domestic market and Unit II, a 100% EOU is engaged in the manufacture of pyridine derivatives, cyclic compounds and fine chemicals.

Company’s product portfolio is diversified in three categories, Sodium Derivatives, Pyridine Derivatives and Fine Chemicals. Company manufactures the above products on bulk and regular basis, on campaign basis and also on contract manufacturing basis.

The company plans to use the proceeds of the current IPO for setting up of an API plant at Visakhapatnam.

Valuation:
At a price band of Rs.90 to Rs.105 per equity share, the company is trading at a P/E multiple of 13x at lower side of the band and 15.21x at the higher side of its annualized EPS of Rs.6.90 for four months ended July’08. Looking at the post issue valuation the issue will trade at a P/E of 17.31x at the lower side of the band and 20.19x at the higher side of its annualized EPS of Rs.5.20 four months ended July’08.

Jubilant Organosys, company in similar business is trading at a P/E of 10 and hence valuations for Alkali Metals appear expensive in the price band of Rs 90 to Rs 105 and hence we recommend investors to avoid the IPO.

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