Buy Nagarjuna Agrichem; target of Rs 18: Angel Broking

Angel Broking's report on Nagarjuna Agrichem (NACL)

"Nagarjuna Agrichem (NACL) is one of the largest pesticide agrichemical companies in the country with a market share of ~4% and belongs to the Nagarjuna Group of Hyderabad. NACL manufactures a comprehensive range of pesticide technicals, formulations and custom manufactured fine chemicals through its three plants situated at Srikakulam, Ethakota and Shadnagar in Andhra Pradesh. Pesticides account for more than 95% of the company's total revenues. Historically, the domestic business has been contributing by around 70% to the company’s overall revenues, while exports have been accounting for the balance. However, in the recent past, the contribution of exports has come down, ie to ~20% in FY2014."

"NACL’s performance since FY2011-14 has been impacted on account of a slew of industry and company specific issues. Raw material constraints and raw material price hikes have diluted the gross margin of the company, which has now stabilized at around ~30% from a high of ~39% (Avg. FY2000-10). Also, in FY2013, exports were significantly impacted due to the closure of the Srikakulam Plant for about five months and the incapacitation of Block 5 which was affected by a fire. Block 5 is one of the largest blocks in the plant and accounting for around 40% of the total capacity of the plant (FY2013); its closure impacted the operating profitability of the company. These factors led the company to post an EBIDTA profit of a mere Rs 4cr in FY2014. However, with the block operational again and raw material prices stabilizing, the company is poised to be back on the path of recovery. Hence, we expect the company to post a 16.1% CAGR in its top-line over FY2014-16E to Rs 849cr and EBDITA margins bouncing back to around 10.3% levels (in FY2016)."

Outlook & Valuation: "With the Srikakulam plant’s Block 5 back into operation, the company is expected to witness improved profitability, going forward. Thus, we expect the company to post a sales CAGR of 16.1% over FY2014-16E and a net profit of Rs 39cr in FY2016E V/s a loss of Rs 12.6cr in FY2013. At the CMP, the stock trades at a P/E of 5.0x FY2016E EPS, which we believe is attractive in comparison to its peers. Thus we recommend a Buy on the stock with a target price of Rs 18", says Angel Broking research report.

Read More