Result Update: Aksharchem (India) Ltd - REDUCE - TP Rs.533 - Kotak

AksharChem Q1FY19 PAT was above estimates, due to higher than expected other income. However, the increase in raw material costs and other expenses led to underperformance at the operating level.

Key Highlights

- Revenue during the quarter grew 18.4% YoY to Rs755mn (down 1.4% QoQ), driven by strong volume growth. Volume in Q1FY19 stood at 2,310 tonnes, up 6.9% YoY (down 9.2% QoQ)

- The company reported PAT of Rs76 mn, up 54.7% QoQ, backed by higher other income (includes dividend from mutual funds).

- The capex plan is on track, 480 tonnes of CPC Green capacity and 1,200 tonnes of H-Acid commercial production is expected from 2QFY19. The benefit of the same would start to accrue from 2HFY19 onwards.

Valuation & outlook

The completion of capex plan, will transform AksharChem business to more stable earnings from FY20E onwards. However, in the near term till the new unit get stabilized and the company is able to pass on the rise in input costs, we believe that the earnings are likely to remain under pressure. We have revised our estimates downward on the back of lower than expected operating performance (consistent with Q1FY19 results). Our revise earnings stands at Rs41.9 (earlier Rs46.4) and Rs44.4 (earlier 49.5) for FY19E and FY20E, respectively. We believe, given the supply disruption in China (environmental concern), should keep the final product prices firm, but the volatility in the raw material prices, will be the key variable to monitor. The stock has corrected sharply, since our last update dated 5th June (Reduce). At CMP, the stock is trading at 12.5x/11.8X FY19E/FY20E revised earnings, which in our view is fairly valued and offer a limited upside. Hence, we recommend REDUCE with a revised target price of Rs533 (earlier Rs640).

Shares of AKSHARCHEM (INDIA) LTD.-$ was last trading in BSE at Rs.526 as compared to the previous close of Rs. 505.75. The total number of shares traded during the day was 1097 in over 76 trades.

The stock hit an intraday high of Rs. 526 and intraday low of 512.9. The net turnover during the day was Rs. 572259.

Source : Equity Bulls

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