Ultramarine is a chemical company with three divisions.
Pigments division – This is the oldest division which makes ultramarine blue pigment which is as a colorant, optical whitener and in paint finishes. The same division also makes LAB which is used in detergents. This division had a revenue of around 45 Crs and a pre – tax margin of around 18 % in 2006
IT enabled services – This is a small division of the company engaged in BPO and engineering services. This division had a revenue of around 15 Crs and margins of 50% in 2006
Packaging products – This division had a revenue of around 9 Crs and a margin of just 7 %. This division had a turnaround in the performance in 2006
The company level margins have marked a sudden rise from 2003 , due to the turnaround in the IT services division and positive contribution of the packaging division
The company had a turnover of 63 Crs last year and may close the year at 65-70 Crs. The net profit was 15.6 crs last year and may come to 18-19 Crs for the current year.
The company has a 20% holding in thirumalai chemicals on its books which is valued at almost 42 Crs and there are cash equivalents of around 10 Crs
The company has high margins of around 20% + and ROC has been in 25%+ range. In addition the company is debt (the debt on books is interest free sales tax loan)
The company is shareholder friendly. It has a good dividend payout of almost 50% of net profit (2007 dividend was Rs 3 per share). In addition the company has given bonus issue and has split the stock in the past.
The management seems to be allocating capital rationally and not blowing it away. In addition the IT services division does not require a very high amount of capital.
This is a very small company. With a 15 Cr revenue from IT services and lack visibility of clients, the revenue stream may not be very stable.
The pigments business is a commodity business and may not offer very high margins and returns. The valuation upside for the company depends on the IT services business continuing its performance as it contributes to almost 50% of the net profits.
The company has almost 52 Crs on it balance sheet. However this is unlikely to be realised by shareholders as it is mainly investment in a sister concern – thirumalai chemicals. With a net profit of almost 18-19 Crs, the company can be valued at around 210-220 Crs which is almost 70% higher than the current price.
This is a deep value stock. The company is a small cap company, shareholder friendly with very low competitive advantages. The stock can be purchased as a graham type stock as a part of a portfolio and should be liquidated at 90% of the intrinsic value