Moneycontrol Research maintains the view that Bodal Chemicals is on an accelerated growth path for the next few years.
Bodal Chemicals's quarterly result reflected a sequential improvement in operational performance aided by higher offtake from the textile end market. Further, guided by management updates on capacity expansion plans and initiatives on vertical integration, we maintain our view that, the company is on an accelerated growth path for the next few years.
Quarterly results – sequential improvement
Bodal Chemicals Q3 FY18 sales were up 10 percent YoY aided by higher domestic sales (72 percent vs 65 percent in Q3 FY17) and dyestuff contribution (31 percent vs 26 percent in Q3 FY17).
EBITDA margin, however, declined to 18 percent from 20.1 percent in Q3 FY17 due to surge in raw material prices. Profit before tax, excluding one-off profit from the sale of Unit-5 in base quarter, had a flattish growth on YoY basis.
Sequentially, there was a similar double-digit growth for both topline and bottomline reflecting easing conditions in end markets, post GST implementation.
New CAPEX projects on track
Company has nearly completed its first phase of dyestuff capacity expansion (12,000 MT) and it is expected to be operational in Q4 2018.
Additionally, Thionyl Chloride project (36,000 MT; raw material for Vinyl Sulphone) is also on track and expected to contribute from Q3 of 2019 respectively. Here, it is noteworthy that while 30 percent of Thionyl Chloride capacity would be used in-house, 70 percent would be sold to pharma, agri-chemical and chemical end-markets. Presently, there are only three major producers for Thionyl Chloride.
Further, additional Vinyl Sulphone capacity (SPS processors) of 6,000 MT is expected to complete in current quarter.
Overall results are in line, particularly, revenue run rate meets our expectations. Bodal chemicals is currently trading at 12.6x/9.0x 2019/2020e earnings which is attractive, given the multiple growth drivers. In our view, current phase of consolidation provides an opportunity, as increasingly vertically integrated Bodal Chemicals is well placed for the growth opportunity in the sector.