VEL has an experience of over 15 years in the chemical industry and is an emerging player in the global arena of the high end Specialty Polymer Compounds and Additives. VEL is the only Indian company that manufactures Organotins (Tin based heat stabilizer for PVC) which is lead free and non-toxic. The company has evolved from trading company to a manufacturing organization. The increasing awareness about lead poisoning which has led the companies and countries preferring eco-friendly and non-toxic substitutes, will boost the topline for a company like VEL. We believe that such factors coupled with the capacity expansion plans of VEL would further drive the stock upside.
Valuation: They believe that VEL is uniquely positioned in compound and additives business with its integrated R&D.; further believe that, increasing demand for toxin free stabilizers, growth in PVC industry, opportunities in export markets and capacity expansion will create enormous opportunities for VEL's revenue/ earning to grow at a CAGR of 41%/49% over FY16-18e. Historically, VEL traded at an average one year forward PE multiple of 14x. At the CMP of Rs.12.7, the stock is trading at 8.9x FY17e and 5.7x FY18e earnings. We are initiating coverage on the stock with a BUY rating and a target price of Rs.31 an upside of 145%.