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Sunday, October 14, 2012

Ion Exchange Stock Analysis: Challenge of providing Pure Drinking Water to burgeoning population!

Pure Drinking Water is one of the most challenging and underrated issues for most emerging economies, India being one of them. We are already seeing states in India sparring over river water distribution issues and this problem is going to compound in days to come. Consumer is not willing to pay market rates for base commodities like Electricity, LPG, Petrol, Diesel and he will not pay anything for Water. This severely complicates the water cleaning and distribution ecosystem and economics of states and hence this problem will keep on compounding until it blasts in our face.

Shrewd investors like Private Equity realize this challenge in India and are already investing in several cutting edge companies which do research and implement waste water treatment, desalination and effluent treatment  etc. Several international players are aggressively entering Indian markets and today we talk about one of the few listed companies in this space - Ion Exchange.

Zero-B was one of the first water purification device launched in India, and company who launched this was Ion Exchange. Ion Exchange pioneered water treatment in India and was formed as early as 1964 with a JV with Pemutit, a UK company. In addition to Zero-B which is a home focused purifier, Ion Exchange is strong in Industrial water purification segment as well. Ion Exchange runs more than 35,000 water purification plants in India with over 400 installations at thermal and nuclear power stations, fertilizer factories, refineries, petrochemical etc. Ion Exchange also exports equipment, ion exchange resins, membranes and water treatment chemicals to host of countries globally.

Ion Exchange is a small-cap stock with current market cap of just about 190 crores. Similar firms working in same area are also commanding market cap of over 6000 crores, so there is ample scope for Ion Exchange's market cap to expand and flourish. Looking at numbers, firm has grown from annual revenues of Rs 503 crores in Mar, 08 to Rs 651 crores in year ending Mar,12. EPS has grown well from Rs 8.41 in 2008 to Rs 12.94 in year ending 2012. Firm is trading at close to just about 1.2 its Book Value as well.

The firm is a regular dividend paying firm from past 9 years and has a clean balance sheet with almost negligible loans and debts of Rs 30 crores.

Promoters have a holding of about 40.7% holding with balance with General Public (46.6%) and private bodies.

Technically speaking, Ion Exchange is currently trading at Rs 140, and nearest support is at Rs 122. Next set of resistance levels are at Rs 160, crossing which Ion Exchange will face resistance at 175 and 195 respectively. Once crossed scrip can see rapid escalation to Rs 250 or so, which is about 80% higher than current prices. Definitely, a good quality scrip in right business domain for patient long term investor.

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