undervalued agrochemical stock with growth potential

Bharat Rasayan Ltd

Disclosure: Invested

CMP Rs 987 (11 Dec 2015), MCap Rs 426 crore
FY15 Debt Rs 141 crore, of which 52% is working capital debt. Equity Rs 113 crore
Cash and bank balance Rs 33 crore.
Book Value Rs 266
Face value Rs 10

Promoter holding 75%, has been stable for past five quarters. Remaining held by retail and others. No shares are pledged.

Highlight of the company has been steadily improving financial performance. This has been driven by an increase in Gross Block as well as improving gross margins. The company has added significant economic value by growing while generating increasing ROCE.



About 25% of revenue comes from exports. The company has no forex debt. Raw material is the largest cost component comprising 69% of total costs. Thus fixed cost component is low at 10%.

Effective tax rate has been 33-34%. Dividend payout ratio used to be 10-15% but has dropped sharply to almost nil in last two years.

The company is rated AA-/A1+ by CARE Ratings. Market has rewarded the company by increasing both PBV and PE ratio, the latter increasing from 6.1 times in FY13. However, it seems the strong cash flows and future growth is still not priced in the stock (PE of 13 times), which trades cheap compared to its historical EBITDA growth.

• Quarterly results

The company's growth has somewhat stagnated in H1 FY2016 and Q1 performance was lacklustre. EPS for the first half of FY2016 is Rs 53, but the latter half EPS tends to be lower (was Rs 24 in FY2015). Assuming a scenario of no growth, the company should post an yearly EPS of Rs 77 in FY2016.



Bharat Group

• Comprises 3 companies : Bharat Rasayan Ltd. (BRL), Bharat Insecticides Ltd. and Bharat Agrotech Ltd.
  Though in allied businesses of catering to agriculture industry, inter-company transactions / related party transaction are negligible – undermines good corporate governance. Total turnover of Bharat Group for FY2015 is Rs. 1035 cr. with BRL contributing majority of it at ~Rs. 470 crs.
  
  Product –
  BRL is manufacturer of Technical Grade Pesticide (TCP). Any pesticide has active ingredient and non-active ingredient. Active ingredient, also known as TCP, is a constituent working to destroy pests.
  Non-active ingredient facilitates storage, transportation of product in totality. Basically, TCP is key raw material going into manufacturing of pesticide. TCP seem to be functional equivalent of OEMs to auto manufacturers. Link below gives more insights into TCP - https://www.vikalpa.com/pdf/articles/1990/1990_apr_jun_23_33.pdf10
  
  Capacity –
  2 units at Mokhra (5000 MT) near Rohtak and Dahej (15000 MT) in Gujarat.
  Dahej capacity commissioned in FY2013. It has filliped sales and profitability. Expansion was funded by debt. D/E increased to 2x in FY2013 from under 1x in FY2012.
  Sales filliped from 97 crs. in FY2011 to 188 crs. in FY2013 and 439 crs. in FY2015.
  Not sure why have OPM has tripled to 18% in FY2015 from 6% in FY2010
  
  Certifications – BRL has ISO 9001:2008, ISO 14001:2004 and OHS 18001:2007 certification catalyzing long term partnership with institutional and foreign clients
  
  Peers including companies like Kanoria Chemicals, Dhanuka Agrotech, Sabero Organics, Insecticides India, Camson Biotech, Kaveri, Rallis India etc
  
  Some highlights from AR read –
  1. Foreign exchange earnings and outgo almost net each other, hedging exchange rate risk. This is consciously done by management.
  2. Rising exports are mitigating vagaries of domestic monsoon – Exports as % of sales have risen from 20% (Rs. 27 crs.) in FY2012 to 30% (Rs. 117 crs.) in FY2014
  3. No equity dilution over last decade while capacity quadrupled
  
  
  The important think is it is now available at less than 10 PCF senior members please post your comments
  This is sourced from valuepickr