We remain positive on the traction towards vertical integration and capacity expansion.
Dyes and dyes intermediates major Bodal Chemicals posted a recovery in topline growth, in the quarter under review, aided by better realisations, volume and exports.
Bodal Chemicals: Q2 update – Margin expansion
Bodal Chemicals’ reported a 43 percent YoY sales growth in Q2FY19 driven by increase in volume, improved realizations, higher exports and better product mix. Dyestuff volume increased by 54 percent YoY on account of higher contribution from the new capacity commissioned last fiscal (12000 tonne in March’18). Blended capacity utilisation of dyestuff facility is now about 72 percent. Further, dyes intermediates volume increased as well by 12 percent (21 percent in Q1 FY19). Export sales (47 percent of sales), with 179 percent increase YoY, has been another strong lever for the company.
Raw material prices have remained elevated though management updates that most of the input prices have stabilized, particularly that of caustic soda and PNCB (Para-nitro chloro benzene). Standalone operating profit, adjusting for forex, has improved by 250 bps YoY on account of both moderation in inputs and higher realizations.
Allied businesses on an improving track
The company expects improved performance for Trion Chemicals JV wherein operations started towards the end of Q1 FY19. Some of the raw material prices have softened and company expects business to break even by the end of fiscal year. In case of SPS Processors, subsidiary has witnessed considerable improvement in topline (2.3 times QoQ) and bottomline (1.8 times QoQ) on account of better realisations for dye intermediates.
However, thionyl chloride project completion has got delayed to Q4 FY19.
Acceleration in dyestuff share of sales
Product mix is improving. Dyestuff sales contribution has improved from 29 percent of sales to 35 percent of sales in Q2 FY19. Ramp up in utilization of new capacity is noteworthy, which is about ~60 percent in the second quarter after commissioning. Further dyestuff share is expected to improve, even more, as management has decided to increase dyestuff capacity by 6000 tonne by Q1 FY20 (estimated cost: Rs 26 crore). It is noteworthy that this expansion is ahead of the original schedule and would put the total dyestuff capacity to 35000 tonne after expansion.
In the near term, softening of product prices post quick surge in Q1FY19 can moderate revenue momentum. However, overall we remain positive on the traction towards vertical integration and capacity expansion. Also reiterate that ongoing environmental restrictions in both China and India is helpful is keeping a favourable supply-demand dynamics for the integrated players like Bodal Chemicals (7.9x FY20e).Moneycontrol Research page