IGI Logo

Tanfac synergies will kick in gradually; maintain BUY

Anupam Rasayan’s (ARIL) 3QFY22 gross profit was 2% above JMFe primarily on account of higher-than-anticipated gross margin while revenue was 7%/4% below JMFe/consensus. We believe increase in gross margin would have been on account of higher share of exports and favourable inventory since the company’s average realisation only saw a modest 2% QoQ uptick. As a result, EBITDA came in 4%/8% ahead of JMFe/consensus, more than offsetting the jump in other expenses. However, during the quarter, tax rate was higher at 36%. Hence, PAT came in 11%/6% below JMFe/consensus. We have raised our FY22 EBITDA estimate by 2% to account for higher EBITDA margin while we have lowered our FY22 PAT by 1% to factor in higher tax rate. Our FY23-24 estimates remain largely unchanged. We maintain BUY with an unchanged TP of INR 1,170/share as we believe its 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

* EBITDA beat driven by gross margin expansion despite lower sales: Anupam Rasayan’s (ARIL) 3QFY22 gross profit was 2% above JMFe at INR 1.76bn (up 11%/37% QoQ/YoY) primarily on account of higher-than-anticipated gross margin of 66% (vs. JMFe of 61% and 64% in 2QFY22) despite revenue coming in 7%/4% lower than JMFe/consensus at INR 2.66bn (up 7%/45% QoQ/YoY). As a result, EBITDA came in 4%/8% ahead of JMFe/consensus and stood at INR 751mn (up 17%/41% QoQ/YoY) more than offsetting the jump in other expenses to INR 888mn (vs. JMFe of INR 866mn and INR 824mn in 2QFY22). However, during the quarter, tax rate was higher at 36%. Hence, PAT came in 11%/6% below JMFe/consensus, at INR 379mn (up 5%/75% QoQ/YoY).

* Gross margin improvement likely on account of higher exports: During 3QFY22, ARIL’s exports stood at 61% of overall sales (vs. 57% of overall sales in 2QFY22) as revenue from Europe increased to 33% (vs. 18% in 2QFY22 and 23% in 1QFY22). ARIL’s revenue was lower than anticipated presumably due to modest improvement in average realisation to INR 455/kg (vs. INR 445/kg in 2QFY22) despite the increase in capacity utilisation to 86% (vs. 83% in 2QFY22) leading to ~5% QoQ growth in production volume. Further, revenue from the top 10 customers (consisting ~24 products) stood at 85% of overall revenue (vs. 76% in 2QFY22).

* Working capital requirement likely to reduce, going forward: We believe that next quarter onwards the company’s working capital requirement is likely to reduce as half of its customers have agreed to semi-annual prices (vs. fixed annual prices earlier). These requirements could decline further once the rest of the customers agree to semi-annual prices. As per the management, these customers are waiting for raw material volatility to subside.

* Gradually capitalising on Tanfac acquisition: Till the time capex of ~ INR 2.0bn for Fluoro derivatives is finalised, the company is likely to spend INR 0.2bn (from the available cash of INR 0.4bn at Tanfac) to increase HF and KF capacities. It has also received the environment clearance at its Sachin facility to make end-products using HF. We believe this is a step in the right direction for the company since it’ll finally be able to make molecules using the Hydrogen fluoride (HF) route, which it could not do earlier. However, reaping the full benefits of this acquisition depends on the proposed INR 2.0bn capex on Fluoro derivatives (likely to be finalised by end-4QFY22), in our view.

* Strong earnings growth visibility owing to contracts/LOIs; maintain BUY: To factor in the 3QFY22 results, we raise our FY22 EBITDA estimate by ~2% while we lower our FY22 PAT by ~1%. Our FY23-24 EBITDA/PAT estimates remain unchanged. The management raised its gross margin guidance to 60-62% (vs. 58-60% earlier) and kept its revenue growth guidance unchanged as it has received cumulative orders worth INR 26bn during FY22, which are to be executed over the next 4-5 years. We maintain BUY with an unchanged TP of INR 1,170/share as we believe Anupam’s CSM business provides strong earnings growth visibility (similar to Navin and PI). Moreover, with its recent Tanfac acquisition, Anupam’s strong entry barriers have increased further and it has joined the likes of other fluorination players such as Navin and SRF.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784

Above views are of the author and not of the website kindly read disclaimer