SENSEX NIFTY
Home » News » CRISIL Research
Nov 29, 2012, 02.55 PM IST | Source: Moneycontrol.com

CRISIL revise Dhunseri Petrochem's fair value to Rs 163

CRISIL Research has come out with its report on Dhunseri Petrochem & Tea (Dhunseri). According to the research firm, with expanded capacity, moderation in PET demand and PTA supply disruption, profitability is expected to remain under pressure.

CRISIL Research has come out with its report on Dhunseri Petrochem & Tea (Dhunseri). According to the research firm, with expanded capacity, moderation in PET demand and PTA supply disruption, profitability is expected to remain under pressure.

Dhunseri’s Q2FY13 revenues were in line while operating profitability was lower than CRISIL Research’s expectations. Revenues improved by 3.2% y-o-y. Polyethylene terephthalate (PET) margin contracted q-o-q due to moderation in demand. Further, the company reported forex gain of Rs 223 mn, which boosted profitability. The company reported EPS of Rs 13.6 against a negative EPS of Rs 2.5 in Q2FY13. The company inaugurated its 210,000 tpa PET capacity at Haldia (West Bengal) in October but was not able to commence production due to PTA short supply. We expect it to start commercial production from November. The company has incurred 65% capex on its 420,000 tpa greenfield plant in Egypt and expects to start production by H1FY14; as this becomes operational, the company will be one of the top 10 PET producers globally, which leads us to maintain the fundamental grade of 3/5.

PTA supply and moderation in demand lowers PET margin further
PET revenue stood at Rs 4.1 bn, down 8% q-o-q. Utilisation rates remained healthy at ~100%; however, its chips volume declined by 2% q-o-q on account of inadequate PTA supply (major raw material). PET realisation declined to Rs 83/kg (down 6% from Rs 88/kg in Q2FY12) mainly due to moderation in demand.

Strong growth in end-user industries and a preference for PET as packaging material has boosted the demand for PET; in the domestic market, it has clocked an impressive ~30% CAGR during FY07-12. With expanded capacity, moderation in PET demand and PTA supply disruption, profitability is expected to remain under pressure.

PET EBITDA margin contracted by 160 bps q-o-q to 4.8%, PET EBITDA/kg decreased q-o-q from Rs 5.7 to Rs 4.0; also it declined from Rs 7.0 y-o-y.

Better quality tea fetched higher realisation, volumes declined due to sale of estate
evenue from the tea business increased by 4% y-o-y to Rs 520 mn on account of higher realisation. Tea realisation for the industry has improved by 10% y-o-y, while it improved by 30% for Dhunseri as the proportion of better quality tea in total sales improved following the sale of tea estates, producing lower quality tea, in the past six months. Volume was down by 20% on account of tea estate sale.

Tea division’s EBITDA margin improved significantly y-o-y (up 530bps) to 35%; EBITDA/kg increased y-o-y from Rs 34/kg to Rs 52/kg on account of better quality.

Current market price has strong upside
We continue to use the DCF method to value Dhunseri and revise our fair value to Rs 163 per share. At this fair value, the implied P/E multiples are 10.7x FY13E and 4.8x FY14E EPS. At the CMP of Rs 119, the stock merits a valuation grade of 5/5.

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.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

To read the full report click here

Set email alert for

ADS BY GOOGLE

video of the day

See mild mkt pullback; like public sector banks: HDFC Sec

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.