In Q3FY14, JB Chemicals had reported results which optically had looked bad and the stock slumped to Rs. 126. Luckily, the punters at MMB had their finger on the pulse of JB and they advocated a strong buy. I swooped down and bought a chunk of the stock. Then, when the panic subsided, the stock surged to a high of Rs. 166.
The same thing is happening now. When JB Chem reported Q4FY14 results which looked uninspiring, the knee-jerk reaction amongst investors was to dump the stock, sending it spiraling down 7%. Luckily, this time, Daljeet Kohli, the originator of the stock idea, rushed to the scene to do damage control. He issued an immediate first-cut advisory (pdf) which advised investors not to panic but to accumulate the stock. I followed his advice and bought another chunk.
Now, Daljeet Kohli and Bhagwan Singh Chaudhary have carefully analyzed the results and reached a definite conclusion (pdf). Let’s look at the main points:
“One off provision for Rs 90 mn impacted margins, we maintain BUY & increase target price from Rs 149 to Rs 186
In Oct 2013, we had initiated coverage on the stock with BUY rating & target price of Rs 149, which was achieved in the previous quarter. We believe that new pricing policy is likely to be beneficiary for JB Chemical’s margins & EBITDA margins are likely to increase steadily and continuously. Additionally, company is likely to report healthy growth in exports business & domestic business going forward. Current quarter performance was one-off on margins front linked with bad debt provision in Vietnam (Rs 90 mn) & higher marketing expenses in Russian market. We continue to maintain our estimates & positive view on the stock. We value its core earnings at P/E multiple 8x of FY15E & Cash of Rs 60 per share & reached at Target Price of Rs 186. We maintain BUY rating on the stock.
At CMP of Rs 146, the stock is trading at P/E multiple of 7.9x of FY15E & 6.9x of FY16E.”
So, there you have it. Growth in domestic & exports business, expanding margins, low debt and low P/E. I intend to keep accumulating the stock, slowly and steadily.
Update: Sharekhan reiterates a Buy of JB Chem
Sharekhan is bullish on JB Chemical and has recommended buy rating on stock with a target of Rs 189 in its May 28, 2014 research report.
“JB Chemicals and Pharmaceuticals reported a moderate rise of 11.4% in its net operating income to Rs228.6 crore in Q4FY2014. Its operating profit declined by 2% to Rs26.8 crore mainly due to higher marketing spending. However, a 210% jump in the other income and a 96-BPS decline in the effective tax rate lifted the adjusted net profit by 30% to Rs24.6 crore during the quarter. Except Russia and the CIS region, which continued to see a decline during the quarter, most of the other geographies witnessed a strong growth in Q4FY2014.” “We believe growth would recover in the following quarter on the back of a better domestic performance and an improvement in the margin. Moreover, a cash rich balance sheet keeps alive the prospects of inorganic initiatives. We maintain our Buy rating on the stock with a price target of Rs189, which includes Rs129 (10x FY2015E core earnings; excluding the interest income on free cash) for the base business and Rs60 for the cash value,”