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Bodal Chemicals Ltd. has reported numbers for the quarter Mar’ 22 & following are the highlights of the result:

HIGHLIGHTS FROM THE QUARTER:

* The company's total revenue in FY22 was Rs 2,050.6 cr, a growth of 67% which is the highest-ever annual performance led by higher price realization and a better product mix. Indian manufacturers, which are highly integrated and operate on a large scale, have benefited from structural demand shifts as a result of global supply chain disruption.

* The same trend can be seen in the dyestuff business, where the business has grown significantly in FY22, with revenue of Rs. 700 cr compared to Rs. 399 cr in FY21, an increase of 75% on YoY basis.

* Average prices for dye intermediates i.e. H Acid and Vinyl Sulphone, were Rs 474 per kg and Rs 288 per kg respectively in Q4FY22. This price have remain volatile during the fourth quarter. This year, Dye intermediate chemicals made a revenue of Rs 735 cr, compared to Rs 557 cr in FY21, an increase of 33% on YoY basis. The basic chemical division of the company also reported robust performance as demand for all essential chemicals were high.

* The Chlor Alkali business reported a robust performance in FY22, with revenue of Rs 254 cr driven by a healthy volume uptick and higher realization from caustic soda. The company is confident that demand from FMCG, textile, and paper industries will be sustainable, and they will be their reliable & preferred partner in the long term. Post upgradation of the Rajpura unit, the Chlor Alkali business will be a significant pie of total revenue.

* The company’s total exports stood at 32% of the total topline, hence, the increase in freight and transportation cost has increased the company’s other expenses. Additionally, volatility in the Turkish Lira has also affected the company’s performance and the impact of these factors have been incorporated in consolidated performance of the company.

* The company has acquired remaining 20% equity Stake of SENER BOYA to make it a 100% Subsidiary. * The company has planned a green field expansion into benzene downstream products with an annual capacity of 78,960 MTPA and Sulphuric acid & derivatives having annual capacity of 340,000 TPA at Saykha GIDC, Bharuch, Gujarat. Total cost of the project will be around Rs. 400 cr with revenue potential of Rs. 550 cr along with EBITDA margins of 15-18%.

* Also, the company acquired SCC chlor alkali complex, which is a unit of Mawana Sugars Ltd, located at Rajpura, Punjab in March 2021. The complex has a capacity of 82,500 TPA along with manufacturing of auxiliaries like stable bleaching powder, chlorine etc.

* The company would further upgrade the plant replacing old electrolysers and increase chlor alkali complex capacity by another 16,500 TPA which would be completed by Q3FY23. This would cost the company Rs.100-120 cr.

* SPS Processors reported revenues of Rs. 56.5 cr & loss of Rs.6.3 cr in Q4FY22. On SPS Processors, the company VS production is ramping up. The expected revenue at peak utilization would be Rs. 120-140 cr. As the business ramps up, the company is expected to report profits.

* Trion Chemicals reported revenues of Rs. 10.4 cr in Q4FY22 and Rs. 34.6 cr for FY22 which is ~209% growth on YoY basis. The major issues regarding hazardous application of TCCA in US market has been resolved and company is expecting ramp up much faster in the coming quarters.

OUTLOOK AND 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 coming years. The structural shift in the sector dynamics coupled with increased product innovation, addition of new chemistries is expected to fuel growth for the company. Further, capex plans of the company for the ramping up Dyestuff segment, commercialization of Sulphone plant and greenfield Saykha project wrt Sulphuric acid and benzene that is expected to commercialize by Q1FY24 is expected to provide further push to the company’s growth prospects. On the back of these reasons, we have projected the revenue of the company to grow by 10% FY23E respectively. For FY23E EBITDA margins & PAT margins are expected to be 10.0% & 5.2% respectively. Our estimates for EPS for the year FY23E is projected to be ~Rs. 9.51. We have assigned a P/E multiple of ~17X and arrived at a target price of Rs. 165 that provides an upside of ~68% from the current market price of Rs. 98 within an investment horizon of 9-12 months. Hence, we maintain our stance on Bodal Chemicals Ltd with a ‘BUY’ rating.

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