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Can new manufacturing facility pave the way for Manorama’s Growth?
The company wants to fulfill two objectives by establishing this manufacturing plant
The current business operation of the company involves two processes:
(1) Solvent extraction and pre-processing: The company outsources this activity to third parties in Chhattisgarh who operate under the supervision and guidance of company.
(2) Refining and fractionation: This process is carried out at their manufacturing facility in Nagpur. This distributed set up with processes and warehouses at multiple locations including Nagpur and Raipur and other parts in Chhattisgarh is leading to very high logistics cost & loss on account of wastages. Hence setting up an integrated state of the art manufacturing plant where all processes will take place at one location will definitely help in reducing cost.
The Company has largely been focused on the manufacturing of stearin, an intermediate product, which needs to be mixed with Palm oil to obtain CBE. By setting up this new facility, the current combined installed capacity will increase from 4500 MT p.a to 11500 MT p.a the company wants to manufacture more of CBE than Stearin and grow the business.
'As India has opened for 5% CBE consumption with effect from 1st January 2018 & hence the demand from MNC has gone up & to cater to this demand, setting up this integrated manufacturing facility seems to be a good strategy for the company’s long-term growth'- DRHP
So should you buy?
Based on the annualized earnings the asking price of Rs 188 translates to PE of about 20. We don’t know what’s a good company to compare this with. The company’s decision to focus on manufacturing and giving up trading makes sense. This could help in improving its foothold in exotic and specialty fat market if it sees growing demand from cosmetics and chocolate industry. But whether this demand will increase? We don’t know. We will let you decide.
We here at Finception, wish the company all the best in its future endeavor.
Based on the annualized earnings the asking price of Rs 188 translates to PE of about 20. We don’t know what’s a good company to compare this with. The company’s decision to focus on manufacturing and giving up trading makes sense. This could help in improving its foothold in exotic and specialty fat market if it sees growing demand from cosmetics and chocolate industry. But whether this demand will increase? We don’t know. We will let you decide.
Review By Finception on September 19, 2018
Finception
Finception is a startup dedicated to simplifying stocks through compelling storytelling. Finception aggregates, analyses and filters information from multiple sources and creates compelling narratives about publicly listed companies in an easy to understand language without financial jargons. The startup is the brainchild of 3 IIM Ahmedabad alumnus and they are currently based out of Ahmedabad.
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