Himadri Specialty Chemicals’ Profit to double in three years, with better margins & RoCE: Anand Rathi

Himadri Specialty Chemicals Profit to double in three years, with better margins, RoCE

Positive about its battery chemicals’ business, Himadri Specialty Chemicals intends to double profit in three years to ~Rs8bn, thanks to its specialty carbon black capacity expansion, liquid coal-tar pitch (CTP) exports commencing, debottlenecking 20% of CTP capacity and the rising share of value-added products (eg, oils). It expects no huge revenue growth in FY25 owing to lower realisations. Volume growth, however, is likely to be good. For its lithium-iron phosphate (LFP) expansion, it expects to receive land by Q3 FY25, with commercialisation in FY27. Besides, it is coming up with a pilot plant for LFP. It is revamping the recently acquired assets of Birla Tyres, which would contribute considerably to revenue from FY26 (the plant is expected to re-start in Dec’24).

Focus areas. The company is focusing on CTP exports to Australia and the Mid-East (where CTP commands a higher premium), increasing specialty-oil volumes (which enjoy better margins) and improving efficiency and utilisation, which would then reflect in margins. Further, it is adding specialty carbon black capacity to fortify its position and margin profile.

Birla Tyres. With Dalmia Bharat Refractories as a resolution applicant, the company jointly acquired Birla Tyres for Rs3bn. By levering its carbon-black expertise, it is on track to develop tyres for CVs and PVs. It intends to tap the replacement market and use the Birla brand and incentives to drive the business and hit target margins. It would become forward-integrated and lever its global and domestic network once the ramp-up is complete. The plant is expected to re-start by Dec’24, with signal contribution likely from FY26.

Making a foray into battery chemicals. The company is entering battery chemicals—manufacturing LFP cathode active material, catering to 100GWh of lithium-ion batteries in phases (5-6 years), 200,000 tonnes needing Rs48bn capex. Phase 1 of 40,000 tonnes requires Rs11.3bn capex. The company has now completed R&D stage trials and setting up a pilot plant. It is acquiring land to set up a commercial plant. Besides, it acquired stakes in Sicona Battery Technologies (12.79%) and in Invati Creations (40%) to produce quality anode materials and li-ion battery materials.

Guidance. The company intends to maintain its net-debt-to-EBITDA ratio at 1:1, with profit doubling by FY27 primarily from the present business, better margins and more sales of, and revenue from, value-added products. Further, it is not looking for any dilution or raising debt in the near term. Its focus is on projects driving RoCE growth and on reaching mid-30s RoCE.

Valuation. At the Rs390 ruling price, the stock trades at 47x FY24 EPS.

Himadri Specialty Chemicals’ Profit to double in three years, with better margins & RoCE Anand Rathi