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Working capital challenges persist

Anupam’s Q2FY25 EBITDA at Rs521mn (-43%YoY/+41%QoQ) was better than consensus and our estimates. Q2 saw inventory build-up of new molecules and lower volume off-take from international customers owing to muted agro demand. Mgmt expects FY25 revenue to match that of FY24, on minimum guaranteed offtake (MGO) by international customers as they budget for CY25 and broad-based agro/pharma recovery in H2FY25. Number of working-capital (WC) days shot up to ~600 in Sep-24 and are likely to remain higher on new molecule additions in FY25 (FY27E: 245 days). We cut FY25E/26E/27E EPS by 31%/34%/18% to factor in stretched WC requirements for FY25-26 and slower LOI-led offtake (a large part of the growth capex till FY28 is behind). We maintain ADD and revise down our SoTP-based TP to Rs750.

Q2FY25 performance led by domestic sales

Anupam’s standalone Q2 EBITDA came in at Rs521mn (-43% YoY/+41% QoQ). EBITDA margin stood at 27.3% vs 28.8% YoY/22.5% QoQ, on shift in the product mix and volume growth. PAT at Rs141mn (-64% YoY/+894% QoQ) was above our estimate. Revenue recovered by 16% QoQ at Rs1.9bn (-40% YoY), on higher mix of domestic revenue, which was offset by weaker minimum guarantee offtake (MGO) from its agro-led international customers (the management expects H2FY25 to be better than H1, given MGOs kicking-in due to CY25 budgeting). The pharma and polymer segments contributed 15% each to Q2FY25 revenue (over 6 molecules to be commercialized in FY25).

LOI sales to kick-in from FY26 with revival in agrochemical demand

Management guided to LOI contribution of Rs14-15bn from FY27. Molecules under LOIs signed in FY22 have been commercialized (all are agro-based) and are generating Rs2- 2.5bn of annual revenue (peak revenue potential of Rs4.5-5bn by FY27). One LOI signed in FY23 is expected to commercialize in FY26 with ramp-up in FY28 (agro-based). Of the five LOIs signed in FY24, one is already commercialized, with three to be commercialized in FY26 and one in FY28. These FY24 LOIs have applications in polymer, pharma, and engineering fluid. Anupam has added 3 new molecules in H1FY25 (17 molecules in FY24).

Working capital remains an overhang

WC surged to ~600 days as of Sep-24 vs 348 days in Sep-23, on 1) lower revenue base of FY25E; 2) higher inventory buildup due to lower liquidation and commercialization of new molecules leading to stock pile-up; 3) higher debtor days due to the elongated business cycle/credit period. The mgmt would initially focus on reducing inventory. We model in 480 days in FY25E (due to a subdued H1 and uncertain outlook for H2), reducing to 330 days by FY26E and to 255 days by FY27E. FY26 would see preferential allotment of warrants to investors. Such funds will be used for repayment of LT debt (repayment of Rs2bn by H1FY26) and meeting short-term WC needs. Capex is largely done, with a small requirement for value engineering. Gross block of Rs19bn (Sep-24) will generate peak revenue (SA) of Rs30bn in 3-4 years, on the current product portfolio.

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