Buy Thirumalai Chem; target of Rs 145: Sunidhi Securities

Sunidhi Securities is bullish on Thirumalai Chemicals and has recommended buy rating on the stock with a target of Rs 145 in its December 7, 2012 research report.

“Incorporated in 1976, Thirumalai Chemicals (TCL), started production of Phthalic Anhydride in in Ranipet, in South India. Since then, it has grown into a diverse and respected enterprise, rapidly expanding into the manufacture of many other critical industrial chemicals: Maleic Anhydride, Fumaric Acid and Malic Acid and various Fine Chemicals and Derivatives. Today TCL ranks among the largest producers in the world in all its core products. TCL has a strong manufacturing base capable of delivering quality products, with excellent logistics and technical support, at competitive prices.”

“During Q2FY13, net profit rose 1021% to Rs8.4 crore on 46% higher sales of Rs295 crore. OP and NP margin stood at 9.7% and 2.8% as against 8.2% and 0.4% respectively in Q2FY12. (YoY). Q2FY13 EPS works out to Rs8.2 Vs Rs0.7 in Q2FY12.  During H1FY13, net profit jumped 996% to Rs25.2 crore, which fetched half yearly EPS of Rs24.7. OP and NP margin stood at 11.8% and 4.2% as against 8.7% and 0.7% respectively in Q2FY12. (YoY). What went right is the work that TCL had put in over the last one year and the various changes that it made internally in terms of efficiency improvement, cost cutting programs and responsiveness to market in reorganizing the company and training. All these things finally worked out well.  Of late there had been a rise in the product prices of Phthalic Anhydride coupled with the fact that government has imposed an antidumping duty on the imports of Phthalic Anhydride and also there has been a depreciation of rupee which has led to imports becoming costly, so all these things have had a positive impact on the earnings of TCL.”

“Phthalic Anhydride is an essential chemical for the paint industry and besides paint this chemical is used in coatings, inks and pigment industry. The major manufacturers of Phthalic Anhydride in the country are Thirumalai which happens to be the largest player in the business and there are other companies like IG Petro and Mysore Petro and Asian Paints is also into this chemical but it manufacture this only for captive consumption.  The Food Ingredients and Fine Chemicals products of TCL have been identified as a business area for focused and significant growth. These products directed towards the Food, Beverage and Cosmetic Industries. TCL plans to grow these significantly over the next 5 years both in scale and in product/functional range. About 60% of TCL’s sale of these products is in the International market, largely in the developed world. The growth of this business will be useful also to de-risk the cyclicality of its commodity chemical businesses and increase the profitability.”

“TCL plans to increase its revenues and profitability significantly over the next few years as it works towards becoming a truly global player in scale and in reach. In pursuit of these goals, TCL plans for growth in the speciality chemicals business with greater margins, as well as the streamlining of the commodity chemicals business, so that it operates with higher efficiency. The firm is also working on upgrading logistics and reducing total cost and improving efficiencies all around.  At the CMP of Rs114, the share is trading at a P/E of 3.3x on FY13E and 2.8x on FY14E. We recommend BUY with a target of Rs145 in the medium term,” says Sunidhi Securities research report. 

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