Buy Shree Pushkar Chemicals; target of Rs 245: ICICI Direct
ICICI Direct is bullish on Shree Pushkar Chemicals has recommended buy rating on the stock with a target price of Rs 245 in its research report dated September 14, 2017.
ICICI Direct's research report on Shree Pushkar Chemicals
Shree Pushkar Chemicals & Fertilisers (SPCL) has announced the 100% acquisition of Kisan Phosphate Pvt Ltd (KPPL), operating in the fertiliser segment, in an all-equity swap deal The target company manufactures and operates in a segment similar to SPCL in Hisar, Haryana and is a promoter entity KPPL possesses a 1 lakh tonne single super phosphate capacity, 3000 tonne cattle feed capacity and 6000 tonne soil conditioner capacity. At optimum utilisation levels, the company can generate a topline of ~ Rs 60 crore. In FY17, net sales, EBITDA and PAT were at Rs 35.7 crore, Rs 5.4 crore (margins 15.4%) and Rs 0.2 crore, respectively The deal values KPPL at ~ Rs 9.0 crore (equity value). It will be funded through a share swap agreement wherein KPPL shareholders will receive corresponding shares of SPCL. It is likely to result in a dilution of ~1.3% at the current market cap of SPCL (~ Rs 680 crore).
Acquisition of KPPL is a related party transaction (100% owned by promoters) done on an arm’s length basis, which is expected to be EPS accretive from FY19E onwards post the retirement of high costs debt & backward integration. Therefore, we retain our BUY rating on the stock with a target price of Rs 245. We have not yet incorporated the financials of KPPL. We will wait for all regulatory approvals before incorporation of the same. The acquisition, being small (~1.3% equity dilution, ~9% of FY18E sales), will not drastically change the financials.
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