Sree Rayalaseema Hi-Strength Hypo Ltd

SRHHL is the only Indian manufacturer of Calcium Hypochlorite. Although being blessed with adequate rainfall, alot of it is wasted and there is less and less of CLEAN and SAFE water available per person. Due to this, water treatment industry has changed considerably during the last 50 years and is growing with each passing year. Thus a lot og growth potential lies ahead for companies involves in manufacturing of water treatment chemicals, just like SRHHL. SRHHL is one such company that is dedicated to research and development of products in water treatment and purification.

SRHHL is internationally recognized as the provider of unmatched quality products through its world-class sodium process technology developed through highly skilled in-house research and development team. It has grown to become a global leader in exports too.

SRHHL is available at such high discount, almost at 0.63 times its book value at the CMP. Its EPS for the year ended 2011 stood at Rs.18.97 against Rs. 3.28 in the previous year, showing a growth of 4.78 times. At the CMP and the FY11 earnings, its PE stands at just 2.25. It paid a dividend of Rs.1.5 per share resulting in a dividend yield of 3.5% at the CMP. SRHHL has a very small equity base of Rs.10.45 cr. It looks very attractive at the current valuations.


Yes, this is one interesting co. The negative is lack of growth…any clarity on that front may lead to re-rating.



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The company had a dip in sales in 2009-2010 due to floods and the same was Rs. 175 crores. However, in 2010-2011 the company has clocked a sales of Rs. 211 crores. The company is also doubling its hypochlorite facility and the expansion is expected to be completed by March 2012. This should add another Rs. 100 crs to turnover from FY 2013 onwards. Now just to give some more insight in to the financials: -

  1. The company has a debt of Rs. 77 crores as on FY 11. However, Rs. 63 crores is related to wind mills which the company had installed to avail tax benefits as 80% depn is available in the first year. So debt to the tune of Rs. 63 crores is fully backed by designated asset. Hence, the chemical business is virtually debt free.

  2. If one looks at the financials closely, due to wind mill, depn figure is high and also tehre is negative provision of defferred tax. On EBIDTA /MC value, the company is available at EV of around 2.

  3. In the last three years the promoters have increased their stake from 36% to 48%.

More comments invited.

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Hi Sandeep,

Plz provide the link/report to the details on upcoming expansion.

The co claims to be one of the few cos in this business…is it true? I was reading annual report of Andhra Sugar and they also seem to be entering this business.

Thanks & Regards,


Please refer the annual report for 2010 available on BSE site for expansion details. Also giving the link to recent crisil report. Yes the company is the only manufacturer of Calcium Hypochlorite. Hitherto, Sodium Chloride was widely used for water purification but now Calcium Hypochlorite is being used due to higher chlorine content.

Reply to some basic queries raised and recd from the company

Mr Sandeep somani



With regard to queries raised by you through e-mail, we would like to clarify in the following lines.

  1. The exceptional item of Rs. 2.18 crores was insurance claim loss accrued due to flood claims i.e., the difference amount of claims lodged and claims received .
  2. Due to regrouping of expenses , the selling expenses in last quarter is more than preceding 3 quarters .Some selling and packing expenses shown under other expenditure in last three quarters was shown under selling expenses in the last quarter.
  3. With regard to expansion of hypo chlorite plant, the project is under process and expected to be completed by March, 2012 . The company had obtained term loan to meet the project cost.
  4. The Company had sufficient orders to sell the additional production .
  5. In view of tax planning, Company started wind power generation and 80% of depreciation is provided which covers capital expenditure.
  6. Our company is one and only manufacturer of Hypo Chlorite in India.
  7. One-third of total raw material consumed is purchased from group companies .
  8. There is no specific reason for non interaction with media .
  9. The market price of shares depends on many factors Viz., share market , economic conditions etc. and better performance of Company is only one of the factor.

V Surekha

Company Secretary

Dear Ayush,

Andhra Sugars in their 2009-2010 AR have mentioned about diversifying into Calcium Hypochlorite but no further announcements have come on that front.

Thanks for the details, Sandeep.

Dear Ayush,

I am not a professional analyst and would appreciate if you all can throw some light on this stock. On some basic parameters like EV, PE Ratio, EBIDTA Margins, increasing promoter holding, expansion, Net current assets<Market cap, etc this stock looks attractive.

Q1 FY 11 results attached

RESULTS-JUN-1-2011.xlsx (14.2 KB)

Hi Sandeep,

My reading is also quite similar to yours nothing much to add.

Interestingly the co paid a strong maiden dividend of 15% last year and if they continue/improve the same, the stock deserves attention.



SRHHL, a group company listed on BSE is to be merged with SRHSHL. In the shareholding details of SRHHL, a certain Ayush Mittal holds around 1.72% stake i.e around 200000 shares. Is this your holding?

Hi Sandeep

I have checked moneycontrol and edelweiss ad both of them show PE of close to 16 and EPS of mere 0.25.Is there anything wrong in the data?




I think your are looking at SRHHL INdustries.Here we are talking about Sree Rayalseema Hi Strength Hypo Ltd. Both companies are under the same management and there is board meeting scheduled on 3rd Nov to discuss the merger of both these companies.

Hi Sandeep


Stock is showing lot of weakness ahead of result.Is Q2 traditinally bad quarter for this company due to monsoon season?



The company’s product are not seasonal in nature and hence,the results are not subject to quarterly fluctuations. The stock price movement is very boring to say the least with very low volumes. Hence there is nothing to be inferred from stock price movement.

Hi Sandeep,

The Q2 nos are good once again :slight_smile: Waiting for the merger ratio.




Yes the results look quite good, specially from wind energy generation.

But it is very difficult to buy stock as no seller is available.From where do you buy stock NSE or BSE?There is quite different price movement between NSE and BSE.

Yes the numbers are on expected lines. IN fact if we see the last 4 quarters numbers, each number except the tax are more or less similar. So on valuationn front this stock is very very cheap. But for stock price movement, the expansion will be the trigger which will happen next FY. There are some issues which are scaring me at the moment: -

Debt levels are v. high though it pertains to the wind mill. The debt has to be repaid from either existing chemical business or by sale of the wind mill.

Equity dilution is quite frequent for my comfort.

Debt will rise further due to expansion.

The management is very lethargic in responding to invetors queries.

The huge number of investor complaints each quarter is not a good reflection on management.

The problem with such stocks is that it takes a while before it is rerated. IN the meanwhile if the tide turns, then it takes a very long time for it to come back.

Let me add that today the stock is up by 16% and taking advantage of that I sold of 20% of my holdings. I still maintain that it is a stock for people with loads of patience and it has all the makings of a multibagger but one should be prepared mentally for some inaction.

At 38-40 levels this is a stock with great margin of safety and I will continue to hold my balance holdings.

In my opinion one should start buying this stock like a SIP once it falls around 40-42 levels.

Another important point is the interest figure in the segment results. Earlier, the major figure was related to wind mill as majority of debt pertained to wind mill. In this quarter, the interest cost for chemicals division is Rs. 149 lacs and for wind mill is Rs. 32 lacs. It suggests that either the wind mill loan is considerably reduced and there is a increase in laon related to chemical business. Or maybe there is some more debt which has been taken due to expansion.

Hi Friends,

I think this stock is trading really cheap and it deserves a re-look.

The co’s expansion project seems to have been completed and they are on growth track now yet the stock is trading at just 3 times earning and probably just 3-4 times cash flows.

The co has a niche area and perhaps a brand too. The co has high operating margins and hence good ROCE etc despite a lower ROE area - wind power.

The stock hasn’t been getting attention as the promoter has been increasing his holding by going some mergers etc which though negative but is common in small caps at early stages. The nos have been lumpy due to forex adjustments etc and one should look at operating profits etc.

Look forward to views