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Riddhi Siddhi Gluco Biols – BUY

September 6, 2007

Riddhi Siddhi Gluco Biols, India’s largest cornstarch producer, is well-positioned to capitalize on the current consumption-led boom in the economy, which should see a spurt in demand for cornstarch and its derivatives.

The company reported a modest growth in quarter ended June 30, 2007 (Q1FY08), following a major fire at its plant in in Gokak (Karnataka) in May 2007, which forced it to suspend starch production. Revenues grew 3.95% y-o-y to Rs 68.28 crore, while net profit increased 11.9% to Rs 4.7 crore. EBIDTA margin improved by 82 bps to 17%. The management expects normal production to start by the end of September at the Gokak plant, which is currently running at around 50% capacity.

At the current price of Rs 270, the stock trades at a P/E of 8.28x its FY08E EPS of Rs 32.61. On an EV/ EBIDTA basis, the stock is available at a multiple of 6.19x FY08E earnings. ICICI values the stock at a P/E multiple of 11x its FY08E earnings with a price target of Rs 358.

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