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One-offs impact margins; volumes back on track…

Q4FY21 revenues grew 11% YoY to | 2636 crore, mainly due to 38% YoY growth (albeit on lower base) in speciality product segment to | 519.6 crore. Basic chemical revenues grew 6% YoY to | 2111.3 crore mainly led by 12% growth in India, while the US and Europe grew 1% and 5%, respectively. EBITDA margins declined 610 bps to 10.7% mainly due to one-offs, negative operational leverage and spillover of cost to Q4 from Q3 in US and EU. Ensuing EBITDA declined 29% YoY to | 282.7 crore. PAT (excluding | 6236.7 crore of profit from discontinued operation in Q4FY20) declined 94% YoY to | 11.8 crore amid lower operational performance and higher tax rate.

Revival in end user demand seen, likely to aid soda ash consumption ahead

There was a revival in construction along with auto demand QoQ, which led to an upsurge in demand for soda ash demand that is back to pre-Covid levels in Q4. Besides this, the inventory situation in China seems to be getting normalised, largely on the back of decent growth in the demand for float and solar glass, which should support demand/supply situation of the global soda ash market. US market volumes are also improving with export volumes recovery.

We expect the same to revive to pre-Covid level in the next one or two quarters on the back of demand restoration from South Eastern market. As the focus is now shifting towards capex to revive the economy across major geographies, demand for soda ash is likely to witness a revival on the back of it being a key input in construction activity. We expect better capacity utilisation in soda ash plants from ~80% to 85- 90%, going ahead, thereby narrowing the demand/supply gap, to a certain extent, and assist realisation growth.

HDS, nutraceutical segments likely to aid performance further

With added focus on increasing capacity utilisation in nutraceutical segment and to expand capacity of HDS, we expect both these segments to post at least high thirties growth for the foreseeable future. This should expand speciality share in the overall basket given that crop protection has also been progressing well. Thus, it provides decent visibility of return ratio improvement and thereby valuations.

Valuation & Outlook

We value the company on an SOTP basis and arrive a target price of | 750 (earlier | 490) including investment portfolio value. We maintain HOLD rating on the stock. Improvement in margins and revival in the demand scenario especially in the backdrop of second Covid-19 weave are key notable aspects, going ahead.

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