Refrigerators are no more a luxury and with the rising disposable income on the back of economic growth and development, the demand for air conditioners and refrigerators is continuously rising. This has resulted into strong demand for input industries.
Business
Refex Refrigerants Ltd( Refex) is one such player involved in the business of refilling and marketing non-ozone depleting refrigerant gases popularly known as ?HydrofluroCarbons? or HFCs which are used in auto air conditioners, room air conditioners, refrigerators and refrigerating equipments.
A shift from CFC-run equipments, which are hazardous to the environment, to HFC-based equipment is a mandatory movement and will throw open opportunity for players like Refex.
Financials
The company has grown from total revenue of Rs 0.90 crore in FY2004-05 to Rs 51.41 crore in FY 2006-07 depicting a CAGR of 283%. On the other hand, the net profit has shown a CAGR of 758%, as it has grown from Rs 0.62 crore in FY2004-05 and Rs 3.91 crore in FY2006-07. The operating profit margin has been falling from 21% to 12.91% over the same period.
Objectives
The company intends to part finance the expansion of the present installed capacity of cylinders from 480 MT per annum to 3,000 MT per annum using Rs 29.09 crore. Almost Rs 3.50 crore is to be spent on meeting the margin money requirement for working capital and expenses towards brand building.
Centurion Bank of Punjab has appraised the project and has approved a term loan of Rs 5.50 crore. The entire project costs stand at Rs 36.15 crore and the remaining is the promoter?s contribution in the equity share capital. The project is expected to come on stream by December 2007.
Outlook
The stock on offer is available at 25 times its twelve months trailing EPS of Rs 2.57 on fully diluted equity capital. On its face this valuation appears stretched. Though there is a six-fold growth in installed capacity, one needs to account for the nature of business. There are no entry barriers into this business. Also, one should note the commodity-like nature of the business. Project execution risks and ability to get business without compromising on margins holds the key to the success of this company.
