Shares of BASF India surged by more than 14% on Friday morning after Emkay Global initiated coverage with a ‘Buy’ rating on the chemicals manufacturer, backed by a ramp-up in its new capacity utilisation, consolidation of niche business, and settlement of technical issues.
BASF shares were trading at Rs 1,665 on Friday morning. This is the highest single day jump for the chemicals player, after April 2015. Emkay has a target price of Rs 2,212 on the shares, implying an upside of nearly 50% from the current market prices.
The brokerage firm expects a rise in the chemicals maker’s revenue and profitability over the next three years, led by product launches and localisation of products. “BASF India’s key Dahej plant is expected to spur revenue growth due to substantial capital expenditure on it, and its development into a chemical complex to reduce imports of intermediate products”, the brokerage said. BASF India shares have returned 26% in the year so far, as compared to BSE Midcap returns of just 30%. Notably, the shares have lost 15% in the last three months.
In September this year, BASF SE Germany, the parent company of BASF India, had signed an agreement to acquire Solvay’s integrated polyamide business globally for EUR 1.6 billion. The acquisition complements BASF’s engineering plastics portfolio and expand its position as a solution provider for the transportation, construction, industrial applications and consumer industries.
Emkay believes that the agrochemicals segment of the company is set to undergo transformation due to 13 product launches. Further, localisation of products in constructions, coatings, plastics and care segments are likely to boost high-margin manufacturing revenue and reduce dependence on low-margin trading business, said the research and brokerage firm. BASF India is poised to demonstrate strong recovery in its net profit, and Emkay estimated the same to be around Rs 400 crore in financial year 2019-20.