Buy Epigral Ltd for the Target Rs.2,600 By Emkay Global Financial Services Ltd
Q2 meets expectations; worst largely behind
Epigral’s Q2 EBITDA at Rs1.3bn was in line with our estimates. Overall, revenue/EBITDA/PAT fell 6%/26%/36% YoY, on account of i) drop in realization of CPVC resins due to extended monsoons leading to lower demand (expected to recover in H2), ii) lower utilization at the caustic soda plant due to work of membrane replacement in phases during H1 (expect volume recovery in H2), and iii) lower EBITDA margin of 22.5% (28.5% YoY/26.9% QoQ) due to quarterly lag between CPVC and PVC spreads. ECH continues to run at optimal utilization. Epigral is evaluating capex for existing and new land-parcels for future growth, and will make an announcement after Board approval (all import substitutions with double-digit growth rate and higher RoCE). Capex for doubling CPVC and ECH capacities is on track, and shall contribute to growth in FY27. We cut FY26E/27E/28E EPS by 22%/7%/4% to factor in near-term pricing pressure and volume lost in caustic soda in H1FY26 (maintenance). We reiterate BUY on Epigral and TP of Rs2,600 (20x Sep-27E EPS on rollover).
Pricing impact on CPVC due to extended monsoons
Epigral reported lower revenue of Rs5.9bn (-6% YoY/-3% QoQ) in Q2FY26, due to a) drop in realizations of CPVC resins owing to extended monsoons impacting construction activities, b) lower utilization at the caustic soda plant due to work of membrane replacement in phases during H1, c) the improvement in ECH prices negating the decline. Overall sales volume grew 2% QoQ, in turn reflecting a ~6% decline in prices (CPVC prices declined 10% QoQ). Derivatives and specialty chemicals business revenue came in at Rs2.9bn (-20% YoY/-3% QoQ). Capacity utilization for CPVC in Q2 was 50%. The management highlighted that the ADD imposition on PVC resins shall be passed on to customers with a quarterly lag. The chloro-toluene plant was commissioned in Mar-25 and shall start contributing from H1CY26 (optimum utilization by end-FY27).
Chlor-alkali business to improve sequentially; caustic maintenance complete
Epigral’s chlor-alkali Q1 business revenue was Rs2.9bn (+14% YoY/-3% QoQ). Sequential growth moderation was due to lower utilization at the caustic soda plant during planned maintenance (membranes need replacement every 8-9Y). Maintenance work is complete, and we expect sequential improvement in revenue. We build in utilization rates of 75%/80%/85% for the caustic soda plant over FY26E/27E/28E, resp.
Healthy balance sheet augers well for any future capex
New CPVC/ECH capacities are expected to be commissioned by H1FY27 (may commence earlier). Work on the 19.8MwH wind-solar hybrid power plant is also on track. The company has spent ~Rs2.4bn (FY26 capex guidance: Rs4.5bn) in H1, funded via internal accruals (H1 OCF: Rs2.7bn). Net debt-to-EBITDA increased to 0.8x as of Sep-25, owing to near-term pressures. Epigral is evaluating capex for existing and new land parcels for future growth, and will make an announcement after receiving Board approval.
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