The Hindu Business Line : BASF India: Buy

Investors can consider taking exposures in the stock of BASF India, which trades at about 12 times its expected FY07 earnings. Volume growth of consumer durables, expansion in the textile sector and the Government's thrust on agriculture would contribute to BASF India's revenue and earnings growth.

Though the company's leather chemicals business registered a drop in both volumes and revenues in FY06, it was more than offset by the growth in the textile chemicals business, which has been fuelled by the expansion in the textile sector. Aided by growth in this business, the company's performance products division has recorded significant revenue and earnings growth in the June quarter. BASF India is likely to maintain this pace as the textile industry is still in an expansionary phase.

The company's dispersions and specialty chemicals is used in an array of industries. The construction and paper industries are likely to be growth drivers for this business. The automotive and detergents industries are also likely to chip in with revenue growth.

BASF India is among the larger players in the expandable polystyrene business. This business, which is largely dependent on growth in the white goods and industrial and commercial air-conditioning industries, has been growing at a healthy pace of about 18 per cent over the past five years. Demand for consumer durables spurred by higher disposable incomes and healthy industrial growth would help in sustaining this pace. Having de-bottlenecked its capacity and with scope for higher utilisation levels BASF India is poised to tap opportunities in this space.

The company, however, faces competition from overseas producers with under-utilised capacities in the ASEAN region and reduction in import duties. While low recycling of expandable polystyrene serves as a cushion for the impact on volume growth, a high level of concentration in the expandable polystyrene industry provides stable margins.

BASF India's agricultural chemicals division contributes about 25 per cent of its revenues. Though this division reported a disappointing performance in FY06, it staged a turnaround in the June quarter aided by revenue growth.

Alagappan Arunachalam

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