We interacted with Mayur Padhya, CFO Bodal Chemicals to understand the progress of the expansion plan. Management stated that, except for the phase I of the Dyestuff expansion, all other units are delayed either due to changes in safety guidelines, delay in getting approval or issues pertaining to the production of the key products. Management expects the incremental revenue in FY19E and FY20E will be in the range of Rs 150-200 crore and margin likely to be in the range of 15-17% till all the units get stabilised.
The management is upbeat about the dyestuff expansion plan and believes that, the recent uptick in Vinyl Sulphone and H-Acid prices shall support the final product prices and overall revenues. Given the execution delay of certain facilities, we have revised our earnings estimated downwards to Rs 8.5 (earlier Rs 8.8), Rs 9.1 (earlier Rs 10.8) and Rs 10.8 (earlier Rs 12.6) for FY18E, FY19E and FY20E, respectively. Despite the sharp fall in the stock price in the recent past, at current valuation of 14.8x/12.5x FY19E/FY20E revised earnings, the stock is fairly valued. Hence, we recommend REDUCE (earlier Accumulate) rating, with a revised target price of Rs 140 (earlier Rs 164).
The company has undertaken an aggressive expansion plan of Rs 268 crore, of which Rs 100-110 crore was allocated for increasing Dyestuff capacity by 24,000 tonnes in 2 phases. Phase I expansion plan of 12,000 tonnes commissioned at the end of March 2018, while Phase II expansion is on hold till the time, phase I reaches its optimum utilisation level or crosses 60%. The company expects, at 80% utilisation level, phase I can generate incremental revenue of Rs 230-250 crore, with a sustainable EBITDA margin of 15%. Post the commissioning of Phase I, captive consumption of intermediate will go up by 50%. We expect the dyestuff expansion to contribute around R60 crore-65 crore in FY19E and an equal amount in FY20E (after adjusting the intermediate consumption), post which expansion plan of phase II will be taken up.