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Demand outlook strong, supply chain issue to persist in near term

We Maintain our Accumulate rating and our target price of Rs.3520. The company’s revenue grew ahead of our expectations. The company posted revenue growth of 36% YoY driven by a 16% YoY jump in performance surfactants while revenues from speciality chemicals (+96% YoY) almost doubled off last year’s low base. The impressive growth was driven by strong growth in realization (+18% YoY) in line with higher RMAT prices. However, higher RM and international freight costs impacted EBITDA – which came in below estimates (+20% YoY).

The management believes the international logistics scenario is likely to remain challenging for the remaining months of FY22 as well. That said, demand for performance surfactants remains strong, and the opening up of developing economies would aid higher growth in the Specialty segment as well. Given the current scenario, we have increased our revenue estimates for FY22E and FY23E by 4.4 and 3.5% respectively. However, given the volatility in RMAT and logistics scenario we have decreased our earnings by 7.9% and 9.6% respectively.

* Robust revenue growth- Revenue grew 36% YoY to Rs8,264mn driven by 18% growth in realisation to Rs138 per kg (on RM inflation) and 15.4% volume growth to 60kte on a low base. India volumes grew 32% YoY and RoW was up 28.6% on a low base, while AMET volumes fell 5.8% YoY due to the non-availability of raw materials on logistics issues. Performance product volumes rose 6.5% YoY and speciality care volumes were up 36% YoY on volume bounce-back in RoW.

* One-off Expenses impact OPM-. Gross profit margin dip to 31.7% as against 34.2% YoY and 36.5%QoQ given high RM costs. EBITDA grew 20% YoY to Rs1.085mn; EBITDA per kg was at Rs18.1 (up 4% YoY, down 2.7% QoQ). Other expenses rose 40% YoY on higher volumes and rise in freight expenses, which impacted EBITDA margin (down 190bps to 13.1%)

* Growth Trickle downs to PAT- PAT for the quarter grew by 36% YoY to Rs.768.2mn, driven by higher other income and lower interest cost.

* Valuation and rating: We assign a PE multiple of 32x (premium to other chemical companies as discussed above) on Sept’23 earnings of Rs110 post which we arrive at a target of Rs.3,520, an upside of 15% from the current levels. The company sees demand remaining steady, while logistic issues could pose a challenge in the short term. We see new product launches will drive growth in the future. Commissioning of CAPEX in Sep’21 should further help drive higher volumes in speciality care.

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