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Decent quarter; maintain BUY

Anupam Rasayan’s (ARIL) 1QFY23 EBITDA was 7%/22% ahead of JMFe/consensus primarily on account of lower other expenses despite lower sales. However, PAT missed our and consensus estimates by 11%/5% on account of forex loss. Going forward, the company continues to see robust demand from its existing as well as upcoming molecules (seven molecules will be commercialised in FY23). Moreover, there remains no risk of inventory losses in case of raw material price contraction. Further, the company plans to launch more than 14 fluorinated molecules over the next 2 years. We have cut our FY23 PAT estimates by 3% to account for 1QFY23 numbers while our FY24 estimates remain largely unchanged. We maintain BUY with a revised Sep’23 TP of INR 1,180 (from Mar’23TP of INR 1,125 earlier) as we believe the company’s CSM business provides long-term visibility while its recent foray into fluorination using the HF route (with the acquisition of Tanfac) has further enhanced its already strong barriers (Tanfac acquisition to add strong capabilities)

* EBITDA beat driven by fall in other expenses: Anupam Rasayan’s (ARIL) 1QFY23 gross profit was 7% below JMFe at INR 1.9bn (down 10% QoQ still up 33%YoY) primarily on account of a) revenue coming in 6% below JMFe, at INR 3.1bn (still 6% above consensus) and b) gross margin being marginally lower at 63.2% (vs. JMFe of 64.0% and 67.76% in 4QFY22). However, EBITDA came in 7%/22% above JMFe/consensus and stood at INR 939mn (down 3% QoQ still up 55% YoY) primarily on account of sharp fall in other expenses to INR 873mn (vs. JMFe of INR 1,070mn and INR 1,046mn in 4QFY22). Further, during the quarter, there was a forex loss of INR 165.24mn. As a result, PAT came in 11%/5% below JMFe/consensus and stood at INR 397mn (down 14% QoQ, still up 24% YoY).

* No adverse risk of excess inventories: Anupam’s current utilisation of existing plants is around 80%. Hence, there remains enough room for growth. Moreover, the company is planning to invest in capacity expansion along with some value engineering, which should aid in revenue growth. Moreover, the company highlighted that it doesn’t foresee a price/volume risk from an inventory point of view. Hence, there is unlikely to be any inventory losses with correction in RM prices. Further, its customers are paying for holding inventories and carrying cost of inventory is also passed on to the customers.

* FY23 PAT estimates cut by 3%, FY24 estimates largely unchanged- maintain BUY: 60- 70% of the company’s contracted revenue is now based on 6 months’ price revisions. Moreover, the company is in talks of 6 months’ pricing for the rest of its contracts. Going forward, the management expects a sharp decline in inventory days. On the capex front, the company has only guided for INR 2.5bn in FY23; FY24 capex could be similar or higher than this quantum. In the near term, we build in revenue contribution from INR 2.5bn capex only in FY24, which is likely to generate ~20% RoCE. We estimate 35% EPS CAGR over FY22-25E. We maintain BUY with a revised Sep’23 TP of INR 1,180/share (based on 35x Sep’24E EPS) (from Mar’23 TP of INR 1,125/share earlier) as we believe Anupam’s CSM business provides strong earnings growth visibility.

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