Result Update: Bodal Chemicals Ltd - ACCUMULATE - TP Rs.130 - Kotak

Bodal Chemicals Q2FY19 numbers were in line with estimates. EBITDA margin during the quarter strengthened further by 40bps QoQ, supported by a change in product mix and a higher realisation. Going ahead, we foresee contribution from new dyestuff capacity to support revenue growth.

Key Highlights

- SPS performance improved sequentially and reported Rs305 mn of revenue and PAT of Rs16 mn (supported by increased in volume and a higher realisation), while Trion Chemicals continues with its weak performance and recovery to take some more time. Trion reported loss of Rs25mn in 2QFY19.

- Dyestuff Phase I expansion of 12,000 tonnes operated at 65% utilisation.

- The company market shares stands at 25% in domestic and 6% in global dye intermediates industry and 9% in domestic and 3% in global dyestuff industry.

- Dye intermediates realisation declined by 6-7% from the average in 2QFY19 starting October due to low demand. Second half is seasonally weak for the industry.

Valuation & outlook

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 (compared to FY18) and contribution for Dyestuff expansion shall support the earnings, but a weak performance from Trion chemicals would partly offset the benefit. The stock at current valuations of 10.8x/9.0x FY19E/FY20E earnings, factors in all the potential negatives. But re-rating will take some more time. Recommend ACCUMULATE (earlier Reduce) with an unchanged target price Rs130.

Shares of BODAL CHEMICALS LTD. was last trading in BSE at Rs.117.15 as compared to the previous close of Rs. 117.7. The total number of shares traded during the day was 40189 in over 541 trades.

The stock hit an intraday high of Rs. 120.05 and intraday low of 116.1. The net turnover during the day was Rs. 4748770.

Source : Equity Bulls

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