Gujarat Ambuja Exports (GAEX) reported 3QFY18 revenues of Rs 10.13bn (+17% yoy, -9% vs. EE) as revenues for maize/other agro processing segments grew 6%/19% yoy. EBITM jumped 215bps yoy to 8.7%, beating EE by 333bps, supported by better profitability in both maize and other agro-processing segments. The maize division saw a sharp improvement in profitability with EBITM touching 16% (2Q: 5%) on higher utilisation levels and benign RM prices. With commissioning of its new maize plant this month, GAEL will be all set to ride the next wave of growth. We revise our FY18/FY19 EBITDA estimates by +16%/+5% respectively and accordingly raise our SOTP-based Mar’19 TP to Rs 330 (Rs 310 earlier). Maintain LONG.
After a weak H1, maize division margins back on track: Maize division revenues grew 6% yoy, mainly helped by a 10% yoy growth in volumes. As per management, the segment is operating at 90%+ utilization levels and meaningful growth would be seen only once the new plant commences operations. In 1HFY18, segment profits had tanked due to higher maize (RM) prices, and weak fodder and starch prices (see Exhibits 1-3). Though fodder prices still remain weak, the correction in maize prices helped margin recovery. Also, the product mix, which was hit by GST, has stabilized now. As highlighted in our Jan’18 initiation note, GAEX, with its new plant (1,000 MTPD) coming on stream in 4QFY18, will become the largest maize processor in India with an installed capacity of 3,000 MTPD and a market share of ~21%. We expect the company’s maize processing revenue/ EBITDA to grow at 17%/24% CAGR over FY17-FY20E.
Revival in soya DOC exports improves crushing division utilization: Agro processing revenues increased by 19% yoy driven by a 27% yoy growth in volumes. The decline in average realizations was more a function of mix change (in DOC cakes and oil) rather than a drop in pricing. In 9MFY18, exports increased to Rs 4.8bn (vs. Rs 1.8bn last year) (refer Exhibit 4). EBITM expansion of 140bps yoy was mainly driven by lower RM prices. Though soybean prices have started inching up, GAEX’s current inventory shall be sufficient for the next 2-3 months. We have argued that the recent hike in import duties on crude and refined edible oils will provide a level-playing field to domestic crushing companies and help increase their utilization levels.
Maintain LONG with a revised SoTP-based Mar’19 TP of Rs 330: While revenues were weaker, margin recovery came in earlier than we had estimated. Accordingly, we revise our FY18/FY19 EBITDA estimates by +16%/+5%. We raise our SoTP-based Mar’19 TP to Rs 330 (from Rs 310 previously) and maintain LONG on the stock. (Exhibit 9) Key downside risks: 1) Delay in commissioning of new plant 2) Fall in utilization levels of the oilseeds crushing division.
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