UNDERVALUED GEMSREE RAYALASEEMA HI-STRENGTH HYPOLIMITED (SRHHL)SREE RAYALASEEMA HI-STRENGTH HYPO LIMITED (SRHHL)NSE CODE: SRHHYPOLTD, BSE Code: 532842) (CMP: Rs.148)COMPANY PROFILESreeRayalaseema Hi-Strength Hypo Limited (SRHHL), is a part of the TGV group. It isthe only Indian manufacturer of Calcium Hypochlorite and is front rankingproducer of Stable Bleaching Powder (SBP), Monochloro Acetic Acid, ChloroSulphuric Acid, Sulphuric Acid. It is one of the few companies in the worldthat are dedicated to research and development of products in water treatmentand purification. Itgenerates power through wind mill power units located in Tamil Nadu and a 10 MWthermal power plant at Gondiparla in Andhra Pradesh.SRHHL isinternationally recognized as the provider of unmatched quality productsthrough its world-class sodium process technology developed through highlyskilled in-house research and development team. It has grown to become a globalleader in exports too. A state-of-the-art technology developed through in-house R&D efforts helps the company in manufacturing the Sodium Dichloroisocyanurate - SDIC.The Certificate of Merit awarded by CHEMEXCIL for outstanding export performance reinforces its status as a recognized export house.Sree Rayalaseema Hi-Strength Hypo Ltd. has a distinctive edge in the manufacture of this product, thanks to the twin advantages of indigenous raw materials availability and supply of some specialized chemicals by Sree Rayalaseema Alkalies and Allied Chemicals Ltd.The company is also a front-ranking producer of Monochloro Acetic Acid. Manufactured by the scientific crystallizer technology, the product meets international quality standards. Monochloro Acetic Acid is used by all leading manufacturers of Non-Steroid Anti-Inflammatory Drugs, other pharmaceuticals, pesticides, organic chemicals etc. INDUSTRYOVERVIEWWithoutwater, life is impossible. I would rephrase it and put it as without CLEAN andSAFE water, life is impossible. However there is less and less of clean andsafe water available per person. Water treatment is something that touchesnearly every individual or industry in one way or another as the watertreatment industry seeks to bring impure water up to potable standards orbetter. And as the human population continues to grow exponentially, theneed for clean water will grow with it. Responding to this trend, watertreatment has changed considerably in the last 50 years and new advances anddevelopments continue to shape the market. However, there has been variousregulations regarding providing clean water, but with each new regulation,there has been restrictions on the use of certain chemicals and increased useof others. And as population will increase, providing clean water will becomean increasingly difficult problem. Thus even if the water treatment chemicalsindustry is considered as a mature market, it still is that one sector thatadapts and expands in response to market opportunities. The variouschemicals that SRHHL manufactures are(1) Calcium hypochlorite: Calcium hypochlorite is an extremelyversatile sanitation and disinfection product. SRHHL's Aquafit is a highgrade calcium hypochlorite which has very wide applications in swimming poolsand drinking water treatments. It is one of the few in the world and the onlyin India to manufacture and export calcium hypochlorite of 65%- 70% minchlorine content. A state-of-art sodium process technology developed throughin-house R&D efforts has helped SRHHL to manufacture the product withchlorine content of 65%-70%. It is one of the few in the world and theonly one in India, to manufacturer and export Calcium Hypochlorite of 65% - 70% Min Chlorine content. (2)Stable Bleaching Powder: Due to its multi-dimensional properties, itfinds ready application in a range of industries such as textiles, paper,leather, aquaculture and sugar industry. It is even used for water and sewagetreatment.(3) Monochloro Acetic Acid: SRHHL is a front-ranking producer in thisproduct. It is used by all the leading manufacturers of Non-SteroidAnti-Inflammatory Drugs, pharmaceuticals, pesticides, organic chemicals, etc.(4) Sulphuric Acid: It is used in steel, heavy chemicals and fertilizer industry.TRIGGERSThedemand of Calcium Hypochlorite is growing in domestic and international market.Most ofthe raw materials are easily available locally thus saving their logisticcost. SRHHL has a distinctive edge in the manufacture of this productbecause of indigenous raw material availability and supply of some specializedchemicals by Sree Rayalaseema Alkalies and Allied Chemicals Ltd.The Government of India and the StateGovernments are very focussed towards cleaning of Ganga and huge capital hasbeen allocated to Namami Gange Programmeand this company is a direct beneficiary of this programme.Promoter has increasedstake by 2.23% in March Quarter which signifies the confidence of the promoterin Company’s growthIt is available verycheap compared to peers like Aarti Industries, Vishnu Chemicals.It is trading near itsbook value, and PE is also very low compared to peersANALYSISSRHHL has a small equity of just15.49 crores. Companies with smallequity and good business models and products are always a good buy. If you lookat the Company’s share book value works out to Rs.136.16 and its P/BV ratiostands at just 1.09x, which is attractive. SRHHL is quoting at almost its book value which again makes it a goodbuy. Its PE is 11.28 compared to the industry average of 19.75. Company hasalso paid 15% dividend which makes it more attractive. Companyalso holds 23.55% stake in Sree Rayalaseema Alkalies & Allied Chemicals Ltdand 17.45% stake in Roopa Ind.SreeRayalaseema Hi-Strength Hypo plans to expand its synthetic organic chemicalscapacity at Gondiparla village in Kurnool district of Andhra Pradesh. Theestimated cost of the project is Rs 150 crore. This seems good as after thecomplete expansion, its calcium hypochlorite capacity will triple, leading tohigher sales and higher profits, thereby increasing profitability for itsshareholders. Duringthe year, three streams of its Calcium Hypochlorite plants were shut down forscheduled maintenance. It tried to recover the loss of turnover by achievinghigher turnover from other segments.Now ifyou compare the sales and the market capitalization of SRHHL, the sales isalmost 2 times the market cap. This makes it even more an attractive buy. Inaddition to this when the capacity expansion is complete, the sales will almosttriple, which will makes the investment in this company at the currentvaluation even more attractive.FINANCIAL SNAPSHOTCompanyhas an equity capital of Rs.15.49 crore supported by reserves of Rs.195.44crore. Company has posted profit of 18.35 Cr in FY17. Company has posted an EPSof Rs 11.86 in FY17. Company is available at PE of just 11.28 while industry PEis 19.75. Company is also declaring dividends from last 2 years. Promoter has increasedstake by 2.23% in March Quarter, now promoter holds 57.54% stake in thecompany, which signifies the confidence of the promoter in Company’s growth. For Q1FY18 company has reported strong numbers.Its net profit soared 65.89% to Rs.5.01crore from Rs.3.02crore on 25.69% highersales of Rs.119.27crore fetching an EPS of Rs.3.24. Currently, the stock trades at a P/E of 11.5x. FOLLOW US ON OUR TELEGRAM CHANNEL FOR REAL TIME UPDATES ON STOCK MARKEThttp://t.me/FundamentalBlastersMUST FOLLOW US ON OUR TWITTER HANDLE FORAMAZING FACTS AND NEWS RELATED TO INDIAN MARKETShttps://twitter.com/FundamentalGems