CRISIL maintains fair value of Rs 243 to Dhunseri Petrochem

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CRISIL maintains fair value of Rs 243 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 February 16, 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 February 16, 2012 report.

Dhunseri Petrochem & Tea Ltd's (Dhunseri's) Q3FY12 revenues were higher than CRISIL Research's expectations while earnings were lower due to pressure on profitability (higher than expected raw material cost impacted margin). Forex loss (on account of depreciation in the rupee against the dollar) also affected net profitability. The company's plans - to add 210,000 MTPA capacity at its Haldia (West Bengal) plant by Q1FY13 and to set up a 420,000 MTPA greenfield plant in Egypt by H1FY14 - are on track. We maintain our fundamental grade of 3/5.

Q3FY12 result analysis
• Revenues grew by 38% y-o-y to Rs 5,376 mn. Its polyester chips business was up by 43% y-o-y to Rs 4,494 mn due to higher realisation, while the tea business grew by 5% y-o-y to Rs 469 mn.

• Realisation increased by ~25% y-o-y to Rs ~86/kg from Rs 69/kg mainly due to higher raw material prices. Sales volume increased by ~15% y-o-y mainly supported by export demand. Exports grew by ~40% y-o-y and its share increased to 40% in the current quarter from 33% in Q3FY11.

• Inability to pass on the entire hike in raw material cost resulted in EBITDA margin contracting to 7.6% as compared to 16.8% in Q3FY11(raw material cost increased to 78.9% in Q3FY12 from 67.7% in Q3FY11).

• PET EBITDA/kg decreased y-o-y from Rs 12.7 to Rs 7.4, while it declined marginally q-o-q (Q2FY12 Rs 8.4).

• For the tea division, EBITDA/kg declined significantly y-o-y to Rs 15.2 from Rs 50.8 as lower quality of tea resulted in lower realisation. The company is in the process of stabilising quality at their newly acquired factories.

• The company reported a forex loss of Rs 44 mn against profit of Rs 3 mn (Q3FY11) on account of restatement of foreign currency term loan and other monetary items due to deprecation in the rupee against the dollar. It reported PBT of Rs 239 mn against profit of Rs 630 mn in Q3FY11.

• Lower EBITDA and forex losses led PAT margins contraction by 267 bps. The company reported EPS of Rs 5.8 as against Rs 7.1 in Q3FY11. However, after adjusting for forex losses, EPS stood at Rs 7.5 in Q3FY12.

Earnings estimates revised downwards for FY12
Inability to pass on higher raw material cost in the PET division and lower realisation (due to lower quality) in the tea segment leads us to reduce our earnings estimates for FY12.

Valuation: Current market price has strong upside
We continue to use the discounted cash flow method to value Dhunseri and maintain our fair value to Rs 243 per share. At the CMP of Rs 122, the stock merits a valuation grade of 5/5.

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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