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  • Stock recommendation: Bodal Chemicals Ltd – REDUCE – TP Rs.130

    Publish date: August 17, 2018

    Result Update

    Bodal Chemicals Q1FY19 numbers were above our estimates, due to better than expected volume and realisation. Supported by an uptick in intermediates prices, contribution from new dyestuff capacity and stable raw material prices, we expect margin to be in the range of 16-17.5%, as against management expectations of 18-19%.

    Key Highlights

    • SPS performance improved sequentially and reported Rs92.53 mn of revenue and PAT of Rs1.02mn (supported by realisation), while Trion Chemicals continues with its weak performance and recovery to take some more time.
    • Dyestuff Phase I expansion of 12,000 tonnes was operated at 8-10% utilisation and the management expects 50-60% utilisation by FY19E end and is expected to contribute incremental revenue of Rs1.1 - 1.2bn in FY19E. Expansion of Phase II will be undertaken, once phase I reached 80% utilisation.
    • The company's market share stands at 25% in domestic and 6% in global dye intermediates industry and 9% in domestic and 3% in global dyestuff industry.

    Valuation & Outlook

    • We have revised our price assumptions, resulting in an upward revision in estimates to Rs10.9 (earlier Rs10.4) and Rs13.0 (earlier Rs12.5) for FY19E and FY20E, respectively. Given the future road map in terms of revenue visibility and margin expansion plans in place, by undertaking an aggressive capex plan, we believe that long term story still remains intact. In the near term, the recent uptick in intermediate prices and contribution for Dyestuff phase I expansion shall support the earnings, but a weak performance from Trion chemicals would partly offset the benefit.
    • The stock has corrected sharply from our last update in the May (Reduce) and at current valuations of 11.4x/9.5x FY19E/FY20E earnings, factors in all the potential negatives. But re-rating will take some more time. Reiterate Reduce with a revised target price Rs130 (earlier Rs150).


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