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ADDING NEW CHEMISTRY AND MOVING ALONG THE VALUE CHAIN.

The company currently has 12 products in the basic chemicals segment, ~25 products in the Dye Intermediates segment and 175 products in the Dyestuff business segment. In addition to these products, the company is adding new products in the Benzene Derivatives, Sulphuric Acid and Chlor Alkali chemistries which have applications in multiple industries like Pharma, Agro-Chemical, Paper, Textiles and Home Care.

CAPEX TO FUEL GROWTH FOR THE COMPANY.

The company’s capex plan includes capacity expansion in the Causitc soda plant and developing of Benzen and Sulphur chemistries. The total planned capex is of Rs. 650 crore with an expected revenue of Rs. 850 crore with an expected EBITDA margin of 17%-19% and to be completely operational by Q3 FY23. The company will manufactured a number of products fit for industries like Pharma, Agrochemical and Textile industries with whom the company already has long standing relations.

MEGATRENDS IN THE CHEMICAL INDUSTRY TO FUEL GROWTH FOR THE COMPANY IN THE SECTOR.

The Indian chemical industry has been going through a structural shift in itself where many countries are looking at India for the next best location for manufacturing chemicals after the environmental restrictions in China. The Indian chemical industry is expected to reach 304 Bn USD by 2025 showing a growth of approximately ~9.3% CAGR from FY19. The companies are investing huge amount of money in backward integration, and the benefits of this expansion which will increase their revenue and profitability as the industry expands and grows in the recent future.

OUTLOOK & VALUATION

We believe that the growth in the chemical industry through expansion and increased investment in the sector will be the primary reason for the growth of the company in the next 2 years. The structural shift in the sector dynamics coupled with increased product innovation, addition of new chemistries in the product basket and with it incurring capex to fuel the growing demand will be the major reason for the growth of the company’s revenue and profitability. Hence, we assume that for FY22E to FY23E the company may deliver sales growth of 12% & 15% respectively.

In addition to the growth in the revenue, we expect the company to deliver strong EBITDA and PAT margins of ~10% and ~6% respectively in FY23E. Our estimates for EPS for the year FY22E & FY23E is projected to be ~Rs. 4.92 and Rs. 7.50 respectively. Hence, we initiate coverage on Bodal Chemicals Ltd with a ‘BUY’ rating. We have assigned a P/E multiple of ~18X and arrived at a target price of Rs.135 that provides an upside of ~31% from the current market price of Rs. 103 within an investment horizon of 18 to 24 months.

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