Buy JBF Industries; target of Rs 482: KRChoksey

KRChoksey's report on JBF IndustriesWe believe the recent correction in the stock price of JBF industries provides an excellent opportunity to enter the stock. The equity funding by Knights (KKR) to the tune of USD 150 mn will allay investor concerns about its debt of USD 1.4bn. The company is on course to improve its debt-equity ratio from 4.7x to 2.6x by FY17 respectively. KKR will take 20% stake in JBF Industries and 14.5% stake in its Singapore subsidiary respectively. We believe fund infusion from KKR will help JBF Industries to improve its cash flow and reduce its debt requirement for its ongoing Greenfield PTA project in Mangalore.Mangalore facility to commence in FY16 respectively: The company is likely to complete its greenfield 1.25MMTPA capacity PTA plant at Mangalore SEZ, which is a feeder for its PET products. The Mangalore plant is expected to commence production by Q3 FY16 respectively. We are expecting company to save in terms of working capital and logistics costs as Paraxylene (raw material) for PTA would be sourced from adjacent MRPL plant. We are expecting margins for Indian operations to increase by ~200 bps post commencement of its PTA facility. The company will have integrated PTA and PET operations post commencement of Mangalore facility. The company currently source some of its PTA requirement from globally which has an anti dumping duty despite excess demand of ~1mn MTPA by domestic players.Strong relationship with BP: The company has strong global business relationship with British petroleum. JBF Industries is first company globally which will be using BP’s patented PTA conversion technology which has benefits in terms of lower conversion cost, requires less water and much more environmental friendly than its peer technologies. The company is also sourcing PTA from BP’s facility which is close by its PET plant in Zeel helping company to save working capital and logistics cost . Other Key Investment Rationale: Strong PET demand despite slowdown in global economy, Efficient Capex by the company, Higher utilization Tax benefits to new Plants, Recovery in Euro, Strong Client relationship and approvals from various regulatory bodies are other key investment rational for the company.Valuation: "We are expecting JBF Industries to post healthy growth in next two years and expecting company to deleverage its balancesheet substantially from current levels post commencement of its Mangalore facility and fund infusion from KKR. We are expecting EBIDTA grow from to jump substantially from INR 9,266mn to INR 19,213mn & PAT to grow from INR 312mn to INR 7,812mn between FY15-FY17 respectively. We are valuing JBF at 5.5x EV/ EBIDTA its FY17 numbers and arrived at a value of INR 482 per share which gives an upside of 156% from current levels. Buy the stock with a target price of Rs 482", says KRChoksey research report.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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