Originally promoted by Agarwal family, this Hyderabad based company has 2 factories with DIKETENE division situated in Medak and BIO-TECH division situated at Solapur. Until, 2005-06, company had been performing reasonably well but in 2006-07, it reported disastrous performance:
Y E A R E N D E D

In 2006-07, company suffered huge losses in Diketene division due to reduction in domestic selling prices, Exorbitant increase in Platinum prices,increase in crude oil prices, severe pressure on selling prices of Diketene due to imports from China. As a result, it led to substantial loss of sales. However, Biotech division had shown profits during the year.

Company had incurred capex of 7.70 crs towards creation of facilities for addition of high value derivatives, backward integration of some of the finished products and also for various fixed assets of Diketene and Biotech division. Acetic Acid is one of the major R/M, prices of which went very high. Now, company plans to introduce some high value products in which cost component of acetic acid will be lower.

Company, at its Solapur factory, has creeated a most modern factory for Biotech products which is capable of producing STATINS (SAME AS BIOCON)with small additional capex/balancing equipments. Its exports had suffered last year but now exports will pick up sharply as plant has received USFDA approval. It is also believed that erstwhile promters were not efficient managers and there were allegation of siphoning off funds as well.

NEW MANAGEMENT: Recently, promoters have sold their equity stake Arch Pharmalabs who have, now, acquired controlling stake in the company. Initially, Arch was known as Merven Drugs Ltd which had turnover of hardly 60 crs but when Merven was acquired by Kamath family, its turnover has already zoomed to 350 crs last year. Now, ICICI Venture holds approx 14% stake in Arch and ILFS holds around 5% stake (acquired at Rs 150/ per share).Marketmen expect that in coming year, Arch Pharmalab may get listed at bourses at around Rs 450-500(and Avon has become arm of Arch). It is fairly certain that Avon organics will make a sharp turnaround in near future under leadership of new management. Some signs are already visible.

Arch has entered a partnership with DSM, which is a part of Euro 9 billion, Netherland based DSM Group. Under this agreement, Arch group will produce DSM products at its plants and DSM will provide access to global markets. The first products resulting from the partnership would belong to the statins (biotech products used for the treratment of lifestyle ailments like diabetes and high blood pressure) and immuno-suppressives. These products will be manufactured at USFDA facilities of Avon. Arch group is targetting turnover of 1000 crs by 2010.

From above development, it is clear that Avon is poised for leap in its performance. These days, Biotech companies enjoy very high valuations and Avon will be no exception. Scrip is being accumulated by knowledgeable circules who are aware of the strength of Arch promoters and of strong financials/gowth of Arch which is bound to rub off on Avon also in immediate future. In a leading English daily, Mr Kamath of Arch has confirmed that Arch would like to acquire majority stake in Avon either by buying out balance 15% stake of erstwhile promoters and or making a revised open offer at Rs65/ or so. Further, it is almost a certainty that Avon will be merged with Arch as carry forward losses of Avon will provide big tax shelter to ArchInvestors can buy big quantity with medium/long term perspective. With downside of hardly 10%, Avon scrip has potential to go up by 50% in less than 6 months and can deliver more than 200% appreciation in 12-15 months. Early Bird gets the Worm.BUY NOW AVON ORGANICS WHICH MAY BE KNOWN AS A BIOTECH COMPANY IN NEAR FUTURE

Hemant K. Gupta
Centre for Development Of financial Treasure