Alufluoride Limited - Beneficiary of commodity cycle runup

Price: Rs. 110-140
CMP: Rs. 138.25
P/E: 16.40 ~ Expected P/E: 29.07
Book Value: Rs. 32.73
Price/Book: 4.22

Target: No specific target as is a mega multibagger, hold for 5-10 years, I'll review these stocks every March.

In my watchlist since 42 days.

Alufluoride Ltd (AL) is producer of high quality Aluminium Fluoride (ALF3) chemical with its plant located at Vizag , Andhrapradesh.  Aluminium Fluoride is added as a flux in the process of primary Aluminium Production. This is of critical importance as it lowers electricity consumption during the smelting process. Consequently, primary Aluminium Smelters are the biggest users of ALF3. AL is the only Company in Andhra Pradesh producing high purity Aluminium Fluoride having technology association with Alusuisse, Switzerland. This technology facilitates conversion of Fluorine effluents from Phosphatic Fertilizer Complex into Hydrofluosilicic Acid and then to Aluminium Fluoride.

Growth Triggers:
1. Till 2 years ago, company faced challenges in acquiring uninterrupted raw material supply of Hydrofluosilicic Acid. Though the company is having long term supply contract with  Coromandel Fertilizers Ltd (CFL), which is not fulfilled. Last year onwards AL is purchasing the same from Paradeep fertilizers and stability in operations.

2. Aiming for further growth, management allotting 8 lakh shares to promoters for capex and 2MW solar plant setup in the current location. This preferential allotment will increase the mgmt stake from current 53% to 65%.

3. Main application of ALF3 i.e Aluminium prices are improving on LME exchange. Recent pollute curbs implemented by China is also aiding the price jump of aluminium.

Hidden opportunity (aluminium fluoride as a new cathode material for lithium-ion batteries, this will take another 10 years for development):
Electric Vehicles (EVs) have caught the fancy of automakers and policy makers alike in India and around the world. With the Government’s push to make India a 100% EV nation by the year 2030, automotive companies are carefully treading into the EV space to expand their portfolio. This push for EVs will create a significant change in India’s securing lithium supplies, a key raw material for making batteries, becoming as important as buying oil and gas fields overseas.

With the proliferation of EVs, smart phones to laptops and storage of green energy production, lithium-ion batteries are gradually witnessing a rapid growth. Innovative battery designs, chemistries and cell formats are being introduced for power performances in order to meet the advanced needs of products today. These batteries, often called LiB, are rechargeable and with higher energy capacity thus allowing on-the-go consumers to keep using devices without replacing the batteries or frequently charging them.

Given the ambitious plan for an all-EV fleet powered by lithium-ion batteries by 2030, As lithium ion batteries are charting new frontiers like electric cars, designers are constantly working towards resolving issues that come with breakthrough innovation, mostly that of cell balancing and safety. For instance, one kWh of electricity is enough to go about 6km, so a 200km “full tank” range requires about 35 kWh of battery. Globally, prices for lithium ion batteries are about $250/kWh, roughly working to about Rs 5.7 lakh in battery costs alone, excluding import duties, considering batteries are imported.

To improve the lithium-ion batteries charging performance, AlF3 has been widely used to modify  the surface of cathode materials and graphite via a low-temperature (400◦C) reaction approach. The improved electrochemical performance was tentatively attributed to the “buffer” layer provided by the AlF3 coating, which reduced the activity of the extracted oxygen and suppressed the electrolyte decomposition.

Financials:

1. Growing at good 20% growth in top line and 70% growth in bottom line.

2. Debt free status and capacity expansion completion indicating strong financial status.

3. Positive cash flow of 6cr for last FY coupled with improved financial ratios.

4. Company holds reserves of 15cr including 12cr Mutual fund investments +3cr cash on hand against market cap of 96cr.

Conclusion:

Company is positioned well on fundamentals and attractively available under 96cr market capitalization with stock price trading @135rs, estimated conservative EPS of 8rs and PE of 16 with debt free status.

Disclosure: I hold investment in Alufluoride Limited.

Source: http://www.smallcap-valuefind.com/2018/01/alufluoride-limited-beneficiary-of.html?m=1