Adi Finechem CMP: Rs309; Rating: Buy; M-cap: US$68.2mn; TP: Rs460 14
– Brownfield capex to provide healthy volume growth at lower costs
– Adi Finechem (AFL) plans to increase its capacity by 80% to 45,000tn at a cost of Rs210mn by December 2014, which is likely to result in a healthy 40.4% volume CAGR over FY14- FY16E as against a 23.3% CAGR over FY11-FY14.
| Y/E March (Rsmn) | FY12 | FY13 | FY14 | FY15E | FY16E | FY17E |
| Revenue | 972 | 1,231 | 1,518 | 1,748 | 2,830 | 3,396 |
| YoY (%) | 69.4 | 26.7 | 23.3 | 15.1 | 61.9 | 20.0 |
| EBITDA | 147 | 171 | 333 | 329 | 583 | 699 |
| EBITDA (%) | 15.2 | 13.9 | 21.9 | 18.8 | 20.6 | 20.6 |
| Adj. PAT | 74 | 84 | 187 | 190 | 349 | 420 |
| FDEPS (Rs) | 5.9 | 6.7 | 14.9 | 13.8 | 25.3 | 30.4 |
| YoY (%) | 46.2 | 13.6 | 122 | (7.6) | 83.8 | 20.2 |
| RoE (%) | 35.9 | 30.9 | 47.9 | 34.2 | 43.6 | 36.1 |
| RoCE (%) | 23.2 | 21.6 | 32.8 | 25.1 | 35.5 | 31.5 |
| RoIC (%) | 21.1 | 19.7 | 30.4 | 23.4 | 33.4 | 29.9 |
| P/E (x) | 52.2 | 46.0 | 20.7 | 22.4 | 12.2 | 10.1 |
| P/BV (x) | 16.3 | 12.6 | 8.2 | 6.7 | 4.4 | 3.1 |
| EV/EBITDA (x) | 27.7 | 23.6 | 12.5 | 13.7 | 7.7 | 6.4 |
– Healthy cash flow and return ratios
– RoCE is expected to improve by 270bps from 32.8% to 35.5% over FY14-FY16E.
– Healthy operating cash flow/free cash flow of Rs678mn/ Rs137mn, respectively, likely over FY14-FY17E.
– D/E ratio likely to fall from 0.6x in FY14 to 0.2x in FY17E.
– Value addition and lower costs to support margins
– AFL started selling an additional product called concentrated sterol, which directly aids EBITDA without incurring significant costs. With a better product mix and reduction in manufacturing costs, operating margin improved 799bps at 21.9% in FY14, which is sustainable.
– Following lower interest costs and modest capex, net profit is expected to grow 83.8% in FY16E.
