Buy JBF Industries; target of Rs 169: Nirmal Bang

Nirmal Bang is bullish on JBF Industries and has recommended buy rating on the stock with a target of Rs 169 in its May 30, 2012 research report.

“Following lower profitability at RAK unit, JBF Industries’ operating profit fell 5.1%/16.9% versus QoQ/our estimate to Rs1,660mn. Lower operating profit and higher forex loss of Rs797mn versus our estimate of Rs541mn led to subdued net profit of Rs235mn against our estimate of Rs584mn. With the commissioning of 36,000tpa thick film capacity in 4QFY12, operating profit at RAK unit should improve by 14.1% in FY13, while forex losses on derivatives contract should reduce drastically from August 2012, driving net profit up by 102.2% to Rs3,064mn. Following lower profitability of RAK unit and higher debt, we reduce our FY13 sales/EBITDA/PAT estimates by 6.0%/6.3%/26.0%, respectively. We introduce FY14 earnings estimates and roll forward our target multiple to FY13. We retain our Buy rating on the stock with a revised TP of Rs169 (from Rs180) at 4.0x FY13E P/E.”

“JBF Industries improved operating profit at its Indian operations by 8.3% QoQ to Rs1,060mn following improvement in delta margin (sales less raw material costs). However, its RAK unit operated at a lower capacity following subdued demand from the Middle East/EU region. Its RAK unit’s operating profit fell 22.3% QoQ to Rs589mn. Following lower profitability at RAK unit, consolidated operating profit declined 5.1% QoQ to Rs1,660mn in 4QFY12, 16.9% lower than our estimate of Rs1,997mn. JBF Industries commissioned 30,000tpa thick BOPET film plant at its RAK unit at a cost of US$45mn in February 2012, which would improve the unit’s operating profit by 14.1% to Rs3,451mn in FY13E.”

“Against an operating profit of Rs7,127mn, the company suffered forex loss of Rs2,939mn in FY12, wiping out a substantial portion of profit. Out of Rs2,939mn forex loss, Rs1,678mn was on account of derivatives losses on a yen contract, while the balance Rs1,261mn was on account of sharp currency fluctuations. As per the auditor, outstanding MTM (mark-to-market) losses on the derivatives contract was a mere Rs475mn as of 31 March 2012, and a substantial portion would be booked between April-July 2012. We expect forex losses to reduce to Rs730mn in FY13E from Rs2,951mn in FY12, driving net profit up by 102.2% to Rs3bn in FY13E, which would drive up stock valuation. JBF has announced a dividend of Rs8/share, a dividend yield of 6.8%. It is trading attractively at 2.8x/3.5x FY13E P/E and EV/EBITDA and at 0.4x BV of Rs269,” says Nirmal Bang research report. 

Non-Institutions holding more than 90% in Indian cos

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