Himadri Chemicals an outperformer: ICICIdirect Research

ICICIdirect Research report on Himadri Chemicals:

Performance Chart

"Himadri Chemicals is India’s largest coal tar pitch manufacturer with a 70% market share. Its main user industries like aluminium and graphite electrodes are seeing a major demographic shift to Asia. Himadri plans to capitalise on it by undertaking an ambitious expansion wherein it is targeting capacity of one million TPA by 2010, which is 6 times its current capacity. We rate the stock an OUTPERFORMER."

KEY TRIGGERS

User industries are on a roll

"Himadri is set to capitalise on the aggressive expansion plans of its major  user industries i.e aluminium and graphite electrodes. Turnover is expected  to jump from Rs 207 crore in FY06 to Rs 559 crore in FY08 at a CAGR of  64%. Net profits are expected to rise even faster from Rs 24 crore to Rs  82.4 crore at a CAGR of 85% over FY06-08E." 

Technology-driven growth

"Himadri is one of the three players in the world to have developed impregnating   QI coal tar pitch, which is used in the graphite industry. Prior   to its development by Himadri, this was entirely imported. QI pitch sells at   1.5x the price of normal pitch. The company has also developed MCMB   (micro-carbon meso beads), which is used in lithium ion batteries and   whose price is around 34x more than normal coal tar pitch."  

Targeting one million tones by 2010

"Himadri Chemicals plans to ramp up of coal tar distilling capacity to 1   million tonnes per annum by 2010 from existing 169,000, which would   make it one of the world’s largest coal tar pitch manufacturers. In order to   achieve this ambitious target, the company is planning to make a foray in   the Chinese coal tar pitch market through a mix of inorganic and organic route."  

Valuation

"The stock is currently trading at an EV/ EBIDTA of 7.22x FY08E earnings and 10.25x FY07E earnings. In terms of P/E, it is currently trading at 11.58x its FY08E EPS of Rs 25.90 and 16.44x the FY07E EPS of Rs 18.25. The stock has been historically trading in a P/E band of 8-18x one-year forward earnings. Himadri currently controls 70% of the Indian coal tar pitch market and plans to be global major by 2010 by expanding capacity 6 fold. We believe the current stock price does not factor in its near monopoly status in domestic market and exponential future growth. We rate the stock an OUTPERFORMER with a 12- month price target of Rs 388 at a P/E of 15x FY08E earnings. Once the Chinese plans crystallise we will then factor them into our projections and revise the target."