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|
– 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.