Edelweiss Securities's research report on Zuari Agrochemicals
Zuari Agrochemicals (ZAC) reported strong consolidated performance led by impressive growth in JV - Paradeep Phosphate (PPL) and Mangalore Chemical (MCFL). While standalone volume/revenue fell 7%/28% YoY impacted by one-offs and lower fertiliser trading, consolidated (including 100% PPL) volume/revenue grew 11%/1% YoY. Key highlight of the quarter was the QoQ decline in debt and subsidy by INR13.1bn/INR12.6bn, respectively. Given the improvement in EBITDA/mt, reduction in interest on lower working capital and synergy benefits from MCFL, we expect ZAC to log sharp jump in FY18/19 earnings. Hence, we raise our FY18/FY19E EPS by 9/25% and given the improving earnings visibility, we raise our target multiple to 12x (from 10x) and revise our TP to INR 524 (INR 403 earlier). Maintain ‘BUY’.
Outlook
PPL’s bottom line was impacted by high interest cost (98% of EBITDA in FY17), but decline in working capital and subsidy is expected to lower interest cost (~60% of EBITDA in FY18E) and drive earnings. Factoring in lower working capital and better EBITDA/mt, we raise our FY18/19E EPS by 9/25%. With earnings visibility improving, we raise our target multiple to 12x (from 10x) and revise our target price to INR 524 (INR 403 earlier). We maintain ‘BUY’. For all recommendations report, click here
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