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During Q3FY24, Anupam Rasayan’s (Anupam’s) cons. Revenues/EBITDA/PAT plummeted 24.6%/26.4%/54.8% QoQ and 24.6%/28.9%/57.1% YoY impacted by year-end seasonality coupled with challenges in global agrochemicals. Nonetheless, the company was able to maintain its EBITDA margins at 26.8%. As per the management, headwinds in global agrochem are expected to impact near term performance while revenue pick up is expected from 1HFY25E. Anupam’s product launch momentum continued in Q3 with six new molecules launches taking 9M total to 11 molecules. During the quarter, Anupam signed LOI of USD61mn (~Rs5bn) with a leading Japanese company to supply new age polymer intermediate for a period of nine years. With this LOI, the total LOIs stand at Rs81.8bn executable over the next few years. Management indicated FY24E to be challenging for the agrochemical industry while remained confident of demand resurgence and strong growth in FY25E for Anupam. Based on 9MFY24 numbers, we have lowered our FY24E/FY25E/ FY26E earnings estimates substantially by 29%/22%/19%. We maintain Sell with a lowered TP of Rs652 (earlier Rs863).  

Deteriorating standalone performance, Tanfac performance deteriorates too  

In Q3, Anupam’s standalone revenues plummeted 26.0% YoY at Rs2.2bn while EBITDA margins declined 460bps YoY 25.7% and EBITDA declined 37.1% YoY at Rs562mn. Tanfac performance too deteriorated with 11.1% YoY decline in revenues at Rs878mn while EBITDA margins declined 620bps YoY at 16.6% leading to significant 35.1% YoY drop in EBITDA at Rs146mn. During Q3, consolidated revenues declined 24.6% YoY at Rs3.0bn, EBITDA plummeted 28.9% YoY at Rs791mn, and PAT plummeted 57.1% YoY at Rs184mn.

Six new molecules commercialised in Q3, new LOI of USD61mn signed

In Q3, Anupam commercialised six new molecules, four from fluorination series and two from singed LOIs/ contracts, taking the total to 11 molecules commercialised in 9M. During the quarter, the company also signed a LOI of Rs5.1bn with a Japanese multinational chemical company to supply a new age polymer intermediate for a period of nine years. With this LOI, the total LOIs signed since Q1FY22 stand at Rs81.8bn.

Lowered debt, capexes on track

Recently, Anupam repaid long-term debt of ~Rs2bn from the funds raised through preference issues and warrants. The total fund raised through preferential allotment and warrants is Rs5.5bn. Rs6.7bn fluorination capex is on track and management expects no material capex post commissioning of this capex. It also targets to become debt free in next 18 months.

Subdued FY24E, strong growth expected in FY25E

Anupam expects tepid growth in near term with strong growth propelled by demand recovery, scale up in LOIs, and fluorination capex in FY25E. Funds raised through QIP, preferential issue, and warrants are sufficient for capexes and lowering debt. However, management deferred its FY24E WC reduction target. We estimate 24%/28% FY24E/ FY25E revenue growth coupled with strong 51%/41% EPS growth. The stock is trading at 41.8x/29.6x FY25E/FY26E EPS of Rs19.9/Rs28.1. Valuations still remain expensive with subdued return ratios at ~10% for FY26E. We thus maintain Sell with a lowered TP of Rs652 (earlier Rs863).