What is the story for the small cap Ess Dee Aluminium?

It is a stock in packaging business, basically in the aluminium, aluminium foils and blister packaging, i.e aluminium and PVC and almost 90% of their customers are in domestic pharmaceutical companies.

They are also expanding their capacity to 18,000 tonnes, which was earlier 6,000-8,000 tonnes. They are also trying to enter the FMCG space and they have a strong supply to domestic pharma companies. The margins come in because of the draw down in terms of thickness that happens.

They manufacture foils of various layers from 3-7 layers used for packaging of most of the pharmaceutical capsules. The stock looks cheap at the current level although we have not initiated the coverage but we are likely to do that in a short span of time.

Overall, we like the story in terms of earnings growth, valuation and the niche business they are in but at the same time one should remember that in this particular business, there is not a great pricing power because it is a cost plus business both for FMCG and Pharma because the buyers are extremely large corporations.

At the same time, on the raw material side, the raw material suppliers are bit multinational companies and so on that side there may not be much levy in terms of credit and so it's a highly working capital intensive business but at the same time with capacity expansion and existing client base looks an interesting story at this point in time.