20 Microns Ltd: Buy

CMP: Rs.29.30

FV: Rs.5

BV: Rs.49.14

EPS: Rs.5.12

SL: Rs.26

Introduction: 20 Microns Ltd is India's largest producer and supplier of Ultrafine industrial minerals and specialty chemicals. It uses one of the most advanced quality control equipments to produce : industrial minerals, paint additives, quartz, fillers for paint and ceramics, etc

Shareholding Pattern: Promoters' Holdings have increased from 43.05% in the December, 2019 quarter to 44.83% in June quarter, invoking further confidence among the investors.

Investment Rationale:

- It is a Proxy - play to Paint and Paper Sectors

from which it gets around 45/50% of its revenues. Since, the export is low and hence, it is likely to be hit less due to Covid - 19 pandemic.

- The company has 9 captive mines which can continue up-to 20 -- 25 years. This adds tremendous value to the share, especially in comparison to its immediate  peer group company, Ashapura Minechem Ltd (Rs.73.90, FV: Rs.2; BV: -0.38, Mar Cap: Rs.645.87 Cr)

- The season of paint and paper industry starts post monsoon. As per Government directives, the Company suspended operations across its facilities w.e.f. 24/03/2020, in the wake of the COVID-19 pandemic, hitting its June Quarter results. 

Fortunately, the Company has resumed Operations in a phased manner in line with the Government directives around resuming manufacturing activities and after obtaining necessary permissions in this behalf. 

Disruption in operations as a result of the aforesaid, have impacted business performance during the June quarter and the Company continues to monitor economic effects of the pandemic while taking steps to improve its execution efficiencies and the financial outcome. The management has also evaluated the possible impact of the pandemic on the business operations and based on its assessment of the current indicators of the future economic conditions, it is expected that the carrying amount of assets will be recovered. We can thus expect better quarterly results in future. 

-- The Government of India, on 20/09/2019, vide the Taxation Laws (Amendment) Ordinance 2019, inserted a new Section 115BAA in the income Tax Act, 1961, which provides an option to the Company for paying Income Tax at reduced rates as per the provisions/conditions defined in the said section. The Company has decided to apply the lower income tax rates as per the provisions of the new section 115BAA from the financial year 2020-21, Consequently the Company had applied the lower income tax rates on the deferred tax assets / liabilities to the extent these were expected to be realised or settled in the future period and accordingly reversed net deferred tax liability of 691.50 Lacs during the period ended 30/06/2020. This is going to have a positive effect on its balance sheet. 

- It has a CEPS (TTM) of Rs.8.42, which gives it's fair value around Rs.45/50, against the CMP of Rs.29.30, after giving suitable discounts.

- Moreover, against a Market Cap of Rs.102.33 Cr, it has FY20, turnover of Rs.490.05 crore, which is quite impressive.

- Its product #Kaolin #Clay is used in: Paper, Ceramics & Sanitary wares, Fiberglass, Paints & Coatings, Rubber, Plastics, etc. It is a substitute for Titanium dioxide used in the Paint space.

#Its #Clients: Who's who of India Inc: ITC,  Pidilite, Berger Paints, Nerolac Paints, TNPL,  etc.

Conclusion: 20 Microns Ltd is a leader in its own sphere, whose stock is trading dirt cheap at the CMP of Rs.29.30. 

The prudent investors should accumulate the shares of the company, in all market dips, for at least 30/40% appreciation from the CMP, in the next 6/9 months.