Emkay Global initiates buy rating on Epigral; sets 1 yr target price of Rs 2000

Emkay anticipate Epigral Ltd to consistently achieve over 25 percent CAGR in earnings over the next few years.

Emkay Global has initiated coverage on Epigral Ltd with a buy rating and sets a twelve-month target price of Rs 2000 per share, significantly above its current market price. They anticipate Epigral Ltd to consistently achieve over 25 percent CAGR in earnings over the next few years.

Epigral anticipates increased earnings from higher capacity utilization, expanding into chlorine derivatives and value-added products with significant import substitution potential, and scaling up existing and new chemistries. With a strategy focusing on captive chlorine use in downstream products, Epigral leads in ECH, CPVC, and chlorotoluene. As its revenue mix shifts away from legacy caustic soda towards chlorine derivatives and value-added products, the company expects a re-rating in its valuation multiples, Emkay report added.

"We expect Epigral to report revenue/EBITDA/PAT CAGR of 21%/23%/33% over FY24-27E. We initiate coverage with a BUY", Emkay report said.

Emkay report said following a multi-year upcycle in FY22/23, caustic soda prices have now stabilized around their 10-year historical average with a positive bias. Epigral aims to utilize 85 percent of its chlorine output internally by FY26, focusing on manufacturing derivatives with substantial import substitution potential. These products promise higher margins and reduce business risks associated with caustic soda cycles, providing greater stability. Emkay expects Epigral's shift from legacy caustic soda towards derivatives and specialty chemicals by FY27 (aiming for a 35:65 mix versus 50:50 in FY24) to trigger a revaluation of its multiples.

Epigral has become India's largest producer of ECH and CPVC following recent expansions in FY23/24, with capacities of 50KTPA and 75KTPA respectively. Despite this, demand in FY24 stood at around 100KTPA for ECH and 240KTPA for CPVC, projected to rise to 250KTPA and 500KTPA by FY30. The significant import volumes of these products into India are prompting investments and capacity expansions among chlor-alkali players. Furthermore, the chlorotoluene chain, benefiting from import substitution, is enhancing Epigral's visibility among global agrochemical and pharmaceutical companies.

Emkay expects Epigral to achieve a PAT CAGR of over 25 percent in the coming years, driven by optimal utilization of current capacities by FY26 and ongoing capex in existing and new value chains post FY26. The company's FY25 annual capex guidance is Rs300 crore, focused on potential expansions in ECH, CPVC, and chlorotoluene derivatives. This strategy positions Epigral to generate robust operating cash flows exceeding Rs1600 crore from FY25 to FY27E, supporting return ratios consistently above 20 percent until FY27E.

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