CRISIL assigns valuation grade of 5/5 to Dhunseri Petrochem

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CRISIL assigns valuation grade of 5/5 to Dhunseri Petrochem

CRISIL Research has come out with its report on Dhunseri Petrochem & Tea. The research firm has maintained the fundamental grade of 3/5 to the company in its January 6, 2012 report.

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CRISIL Research has come out with its report on Dhunseri Petrochem & Tea . The research firm has maintained the fundamental grade of 3/5 to the company in its January 6, 2012 report.

Kolkata-based Dhunseri Petrochem and Tea Ltd (Dhunseri) manufactures polyethylene terephthalate (PET) resin and cultivates tea. To benefit from the growing domestic and global demand for PET, it is increasing its PET capacity four-fold through expansion in India and Egypt. Both the projects are on schedule and post commissioning will make Dhunseri one of the top PET producers in the world. We maintain our fundamental grade of 3/5.

PET: Domestic and global demand to drive growth
Strong growth in end-user industries and a preference for PET as packaging material has given PET demand a boost; in the domestic market, it clocked an impressive ~35% CAGR during FY06-11. Despite a steep rise in domestic PET consumption, India's per capita PET consumption is low at 0.3 kg compared to the global average of 2.3 kg, which leaves tremendous room for growth.

Egypt plant to service international customers
Dhunseri is setting up a greenfield plant in Egypt with a capacity of 420,000 TPA. Globally, increasing demand for PET from both developing and developed nations is expected to result in firm operating rates over the medium term. Also, sales to Europe and America from Egypt, the key markets for Dhunseri, will happen at less than half the time resulting in effective client servicing and savings in freight costs. The unit will also benefit from proximity to raw material sources, availability of power at cheaper rate and tax-free status.

Key risks: Project execution, volatility in raw material prices
The timely execution of capacity expansions in India and Egypt will be key for the company's future. The company's EBITDA margins are sensitive to the movement in raw material prices. The company keeps its imports and foreign loan transactions un-hedged; any adverse movement in exchange rates could adversely impact the company's profitability with the increase in quantum of external commercial borrowing (ECBs) for expansion.

Revenues to become 3x in 3 years, EBITDA margins to improve in FY13
We expect revenues to grow at a three-year CAGR of 45% to Rs 51 bn in FY14, of which Rs 20.7 bn will be contributed by the Egypt plant. EBITDA margins are expected to improve in FY13 on the back of increasing share of the domestic market where realisation is higher.

Valuations: Current market price has strong upside
We continue to use the discounted cash flow method, and maintain our fair value at Rs 243 per share; at the CMP of Rs 101, it merits a valuation grade of 5/5. The company has been paying dividends consistently in the past and offers healthy dividend yield at CMP.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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