IG Petrochemicals Ltd Research Report By BP Wealth

Strong Performance in a Row : Maintain BUY with Upgraded target

IG Petrochemicals Ltd (IGPL), for Q3FY18, reported strong set of numbers. Revenue grew at 23.9% YoY to Rs 2,946mn (est Rs2,931mn). EBITDA shown growth of 90% YoY to Rs 714mn (est Rs733mn) with 844bps YoY improvement in margin from 15.8% in Q3FY17 to 24.2% in Q3FY18 due to increase in PAN-Ox spread on the back strong demand for PAN. IGPL back on track with 39,000 tn PAN volume from 35,000 tn volume in Q2FY18( Lower volume due to one฀month plant shutdown at one of their three plant for changing the catalysts). Net profit grew by 74.8% to Rs 405 mn (est. Rs 428mn) due to healthy growth in operating profit.

Capacity ramp up coupled with healthy demand scenario to boost profitability in FY20

In order to meet growing demand and limited head room for volume growth ( capacity utilization 92%), IGPL has proposed to set up a new plant through Brownfield expansion (PA4) and increase its capacity by 53,000(TPA), taking its total capacity to 2,28,250 TPA .PA4 expected to get commission in Q4FY19. The company added 6,000TPA capacity (3.5% of total capacity) through debottlenecking during Q2FY18, we expect this will provide scope for volume growth in FY19. We modeled 6.3% volume growth in PAN with 6.9% realization growth which will leads to 13.6% overall PAN growth over FY17-20E. Further, we expect incremental revenue from MA and DEP in FY19/20 respectively which will aid revenue CAGR of 16.2% over FY17-20E.

Why we like this stock & valuation methodology

IGPL has a leadership position in terms of capacity and costs in the domestic PAN market. The company is well positioned to witness steady revenue and profitability growth going forward in the business through brown field expansion and higher capacity utilization with domestic demand likely to remain robust. We expect Revenue/EBITDA/PAT to clock 16.2%/29.7%/34.5% CAGR during FY17-20E. Though IGPL is a commodity player, large entry barriers, margin improvement trend and large Indian market share could result in further rerating of the stock going forward. At the current market price (of Rs 740) the company is trading at 13.5x its FY19E EPS of Rs 54.8 and 9.2x its FY20E EPS of Rs 80.2. We believe the valuations are attractive and the stock can give decent returns in the future. We remain positive on the stock & recommend ‘BUY’ rating by assigning 15x to its FY20E earning. We arrive at a revised target price of Rs 1,203 (earlier target Rs. 602) for an investment horizon of 12- 15 months.