buy · himadri produces coal tar-based corrosion protection products using its own technology for...

SUHANI ADILABADKAR RESEARCH REPORT

HIMADRI SPECIALITY CHEMICAL LTD

HIMADRI SPECIALTY CHEMICAL LTD V/S S&P BSE SENSEX

Q3 FY18

CMP Rs. 147.45

TARGET Rs. 265.00

QUARTERLY OUTLOOK & RECOMMENDATION

Himadri Speciality Chemical Ltd, largest coal tar pitch

manufacturer, reported spectacular third quarter numbers on the

back of strong revenue growth and high operational efficiency.

Revenue or Income From Operations rose 28% YOY and stood at

Rs. 5001 Mn compared to Rs. 3913 Mn in the corresponding

December quarter previous year. EBDITA almost doubled and

was reported at Rs. 1222 Mn compared to Rs. 627 Mn on yearly

basis. Profit After Tax multiplied 4 times YOY from Rs. 201 Mn to

Rs. 701 Mn in the December quarter FY18. Sequential growth was

also strong and stable for Revenue, EBDITA & PAT at 7%, 17% &

37% respectively. Operating Expenditure jumped 17% YOY from

Rs. 3237 Mn to Rs. 3796 Mn in the Q3 FY18. On sequential basis,

operating expenditure grew 4%. As a result EBDITA margin

jumped phenomenally by 663 basis points YOY and 210 basis

points sequentially. One basis point is 0.01%. Net Profit Margin

followed suit rising 889 basis points YOY and 309 basis points on

quarterly basis. Depreciation expenditure is stable at around Rs.

79 Mn and interest expenditure has declined considerably over

the past 4 quarters. Interest/Finance costs halved from Rs. 242 Mn

to Rs. 121 Mn in Q3 FY18. Taxation jumped 3 times YOY from Rs.

106 Mn to Rs. 351 Mn in Q3 FY18. Himadari Chemicals has

maintained its profitability momentum through higher revenue

growth and controlled operating cost structure. The company has

also rationalized its debt and repaid about Rs. 400 Mn over the

previous 4 years. Himadari Specialty Chemical will be investing

Rs 1000 crore to expand its Carbon Black business. The company

will be setting up new carbon black lines in its existing integrated

plant in Mahistikry, West Bengal for producing Specialty Carbon

Black.

Himadari Speciality Chemical Ltd, is the largest coal tar pitch

manufacturer in India. The company is a carbon specialist

developing coal tar by-products and addressing needs of growing

industries such as aluminium, graphite, infrastructure, lithium ion

batteries and Tyre. About 98% of its revenues come from carbon

material & chemicals segment which have risen 28% YOY. Carbon

revenues stood at Rs. 4957 Mn against Rs. 3871 Mn corresponding

period previous year. The other segment, Power contributed just

2% in the Decmber quarter and was reported at Rs. 90 Mn. Strong

capex plans, specialized core product profile and high growth

opportunities in sunrise industry such as lithium-ion battery will

lead to strong and sustainable growth for the company in the long

run. With 17% market share, Himadri Speciality Chemical Ltd is

the 3rd largest player in the field of Carbon Black in the country.

We recommend BUY for the medium & long term with target price

of Rs. 265. We recommend BUY for the stock for medium & long

term investment with PE multiple of 25.70 x FY18E & 20.21 x FY19E

at CMP of Rs.147.45.

INDUSTRY SPECIALTY CHEMICALS

SCRIP CODE 500184

FACE VALUE 1.00

MARKET CAP Rs. 61693 Mn

52 WEEK

HIGH/LOW Rs. 197.00 /Rs.47.50

SHAREHOLDING PATTERN (%)

PROMOTER 48.95

PUBLIC 51.05

OTHERS -

TOTAL 100.00

In Mn Q3 FY18 Q3 FY17 CHN%

REVENUE 5000.80 3913.20 28%

PAT 701.40 201.10 249%

EBDITA 1222.10 626.80 95%

EPS 1.68 0.48 249%

In Mn FY17A FY18E FY19E

REVENUE 14712.50 19861.88 21848.06

PAT 811.80 2400.11 3053.35

EBDITA 2548.80 4638.29 5408.19

EPS 1.94 5.74 7.30

PE 76.00 25.70 20.21

BUY

PERFORMANCE METRICS (December Quarter FY18)

Profitability Analysis

Himadri Specialty Chemical Ltd reported strong

yearly numbers in December quarter FY18 as

Revenue, PAT & EBDITA all grew in double digits.

Revenue grew 28% YOY from Rs. 3913 Mn to Rs. 5001

Mn in the current December quarter with sequential

growth of 7%. Net Profit Tax jumped 3 times YOY and

37% QOQ at Rs. 701 Mn against Rs. 201 Mn

corresponding quarter previous year on the back of

controlled operating expenditure and higher

revenues growth. Earnings Before Depreciation,

Interest, Tax & Amortization (EBDITA) almost doubled

YOY and stood at Rs. 1222 Mn against Rs. 697 Mn same

period previous year. Operating cost has jumped 17%

YOY with raw material cost rising 1.5 times YOY in the

December quarter FY18. Other Income was reported

at Rs. 17 Mn against Rs. 20 Mn corresponding quarter

previous year. On quarterly terms, other income

declined 9% and stood at Rs. 19 Mn in the previous

September quarter FY18. Himadri Specialty Chemical

Ltd will be setting up new carbon black lines in its

existing integrated plant in Mahistikry, West Bengal for

producing Specialty Carbon Black.

201

304

500 512

701

Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18

NET PROFIT GROWTH

Rs. In Mn

697

744

1016

1045

1222

Q3 FY17

Q4 FY17

Q1 FY18

Q2 FY18

Q3 FY18

EBDITA

Rs. In Mn


3913 4153

5027 4680 5001

REVENUE GROWTH

Rs. In Mn

Expenditure Analysis

Cost of Material accounts for the largest chunk i.e 85% of total operating expenditure. Cost of Material rose 48% YOY

and stood at Rs. 3390 Mn whereas quarterly rise was j ust 2%. Employee Benefit Expenses grew 28% YOY at Rs. 115

Mn against Rs. 90 Mn same period previous year. Employee Benefit Expenses constituted 3% of total operating

expenditure and were constant on sequentially. Other Expenses stood at Rs. 410 Mn in Q3 FY18, almost stagnant YOY

with a quarterly rise of 5.50% in the December quarter FY18.

20.40

19.70

11.80

18.80

17.20

Q3

FY17

Q4

FY17

Q1

FY18

Q2

FY18

Q3

FY18

OTHER INCOME

Rs. In Mn

5.14%

7.32%

9.95%

10.93%

15.62%


NET PROFIT MARGIN


2288 2454

3083

3331 3390

COST OF MATERIAL

Rs. In Mn

Rs. In Mn Q3 FY18 Q3 FY17 CHG%

Cost Of

Materials 3390.00 2287.90 48%

Employee

Benefit

Expenses

115.10 90.00 28%

Other

expenses 410.20 404.20 1%

Excise Duty 0.00 395.60 -100%

Depreciation

&

Amortization

79.10 77.00 3%

EBDITA margin for the current quarter stood at 24.44%

compared to 17.81% same period previous year rising

663 basis points. QOQ, EBDITA margin grew

phenomenally by 210 basis points as margin was

reported at 22.34% in Q2 FY18. Revenue growth

outpaced rise in operating expenditure both yearly

and sequentially leading to healthy operating

margins. Operating expenditure increased 17% YOY

and 4% QOQ. Depreciation constituting 2% of the total

revenue was constant around Rs. 79 Mn sequentially

and jumped 3% YOY. Taxation expenditure accounted

5% of total revenue in Q3 FY18. On yearly basis,

taxation has jumped 3 times and in absolute value

about Rs. 164 Mn in the current Q3 FY18. On quarterly

basis Taxation expenditure rose 10% or Rs. 25 Mn in

absolute terms. Total expenditure including interest

cost and taxation constituted 87% of the total revenue

in the December quarter FY18 against 94% same

period previous year declining 19% YOY.

Q3

FY17

Q4

FY17

Q1

FY18

Q2

FY18

Q3

FY18

77.00

77.30

78.90 78.90 79.10

DEPRECIATION

Rs. In Mn

242.40

138.30

185.90 208.10

121.10


INTEREST EXPENSE

Rs. In Mn

106

153

245 246

351


TAXATION EXPENSE

Rs. In Mn

Segment Revenue Analysis

CARBON MATERIALS & PRODUCTS

Coal Tar Distillation

Coal tar is a by-product generated while processing coking coal into low ash metallurgical coke in a recovery-type

coke oven plant. Coal tar accounts for around 3.5-4% of coke produced. Coal tar pitch is a complex chemical with 22

chemical and physical properties obtained through coal tar distillation, which involves the conversion of coal tar into

a variety of intermediate chemical products. The residue is coal tar pitch, which is further processed into quality coal

tar pitch of desired chemical and physical properties. Himadri Speciality Chemical Ltd caters to more than two-third

of demand for Indian Graphite and Aluminium Industries. The company is supplier of upto 95% of Coal Tar Pitch

requirements of certain Smelters.

Carbon Black

Carbon black is defined as elemental carbon with tarbostatic structure, derived from the incomplete pyrolisis of

fossil oil. Carbon black is produced through the controlled incomplete combustion of hydrocarbons. Carbon black is

actually elemental carbon in the form of fine particles with an amorphous molecular structure. The company is third

largest carbon black producer in India with 120,000 MTPA. The company caters to niche applications in Tyre & Non-

tyre industry and Speciality such as Plastic Masterbatch, Fibre, Wire & Cable, Pipes, Engineering, Plastics, Flims,

Inks, Coatings, etc.

Advanced Carbon Material

At Himadri Speciality Chemical, anode material is manufactured from coal tar using in-house technology. The

manufacturing process involves coal tar treatment into specialised pitch, carbonisation, graphitisation and powder

processing. All these process upto quality control are conducted in our in-house facility. The products are in the form

of Standard synthetic graphite, high power graphite and carbonised pitch. The applications of these products are in

Li-ion batteries to power mobile devices, computers, automobiles, tools, EV and HEV.

Carbon

Materials

&

chemicals

98%

Power

2%

REVENUE MIX

Rs. In Mn Q3 FY18 Q3 FY17 CHG%

Carbon Materials & chemicals

4957 3871 28%

Power 90 85 6%

Corrosion protection

Himadri produces coal tar-based corrosion protection products using its own technology for use in the corrosion

protection of underground and off-shore pipelines. Major products are Himcoat, Himtape, Himwrap and are used in

oil and pipe gas pipelines, water and sewage pipelines, tanks, underground structure and fittings.

Naphthalene Sulphonate

Sulfonated naphthalene formaldehyde condensate sodium salt is produced in liquid and powdered form. It improves

concrete mix by dispersing cement particles for extended workability and also improves the compressive flexural

strength. It is also used as a dispersing agent in dyes, leather and agro industries. The company has emerged as the

largest Indian manufacturer of SNF with an installed capacity of 68,000 tonnes per annum.

POWER

Himadri Speciality Chemicals successfully commissioned its captive power plant running on carbon black off-gas

and connected to the grid. The entire power is marketed under the IPP model. Power plant of 15 MW is being set up

with green and clean energy.

Corporate Profile

Himadri Speciality Chemical Ltd established in 1990, is the largest vertically integrated speciality carbon company

and the largest producer of coal tar pitch in India with headquarters in Kolkata, West Bengal. The Company is a

leader in products like Coal Tar Pitch with market share of around 70% catering to more than two-thirds of the Indian

Graphite and Aluminium industry, Carbon Black with market share of 17% catering to niche application in Tyre and

non-Tyre industry. In the last few years, Himadri Speciality has diversified its product portfolio by way of forward

integration which includes advance carbon material and other value added speciality products. The Company has

eight manufacturing capacities spread across India in West Bengal, Andhra Pradesh, Chhattisgarh, Gujarat and

Odisha. The Company is focused on maintaining consistent leadership in the core products and developing market

for the value-added product. The Company has developed a strong and experienced R&D team with international

experts; its R&D unit is situated at Mahistikry, West Bengal which is recognized by Government of India.

Financial Analysis

QUARTERLY PROFIT & LOSS STATEMENT OF HIMADRI SPECIALITY CHEMICAL LTD FROM 30th June 2017 TO 31st March 2018E

VALUE 30-June-17 30-Sep-17 31- Dec-17 31-March-18E

Rs. In Million 3 months 3 months 3 months 3 months

INCOME FROM OPERATIONS 5026.70 4680.20 5000.80 5250.84

OTHER INCOME 11.80 18.80 17.20 18.92

TOTAL INCOME 5038.50 4699.00 5018.00 5269.76

EXPENDITURE -4022.90 -3653.60 -3795.90 -3947.74

EBDITA 1015.60 1045.40 1222.10 1322.02

DEPRECIATION -78.90 -78.90 -79.10 -80.68

PROFIT BEFORE INTEREST & TAX 936.70 966.50 1143.00 1241.34

INTEREST -185.90 -208.10 -121.10 -108.99

FOREIGN EXCHANGE FLUCTUATION -5.50 -0.70 30.00 0.00

PROFIT BEFORE TAX 745.30 757.70 1051.90 1132.35

TAX -245.00 -246.10 -350.50 -403.08

PROFIT AFTER TAX 500.30 511.60 701.40 729.28

EQUITY CAPITAL 418.40 418.40 418.40 418.40

FACE VALUE 1.00 1.00 1.00 1.00

EPS 1.20 1.22 1.68 1.74

ANNUAL PROFIT & LOSS STATEMENT OF HIMADRI SPECIALITY CHEMICAL LTD FROM 2016 TO 2020E

VALUE 31- Mar-16 31- Mar-17 31- Mar-18E 31-Mar-19E 31-Mar-20E

Rs. In Million 12 months 12 months 12 months 12 months 12 months

INCOME FROM OPERATIONS 12907.80 14712.50 19861.88 21848.06 24469.83

OTHER INCOME -1.50 79.00 79.79 87.77 96.55

TOTAL INCOME 12906.30 14791.50 19941.67 21935.83 24566.38

EXPENDITURE -11378.10 -12242.70 -15303.38 -16527.65 -18180.41

EBDITA 1528.20 2548.80 4638.29 5408.19 6385.97

DEPRECIATION -637.10 -309.70 -325.19 -344.70 -372.27

PROFIT BEFORE INTEREST & TAX 891.10 2239.10 4313.11 5063.49 6013.69

INTEREST -1099.90 -804.70 -627.67 -596.28 -584.36

FOREIGN EXCHANGE FLUCTUATION 0.00 -200.30 23.80 0.00 0.00

PROFIT BEFORE TAX -208.80 1234.10 3709.24 4467.21 5429.34

TAX 45.20 -422.30 -1309.13 -1413.86 -1594.83

PROFIT AFTER TAX -163.60 811.80 2400.11 3053.35 3834.50

EQUITY CAPITAL 418.40 418.40 418.40 418.40 418.40

RESERVES 8791.00 10362.60 12762.71 15816.06 18821.11

FACE VALUE 1.00 1.00 1.00 1.00 1.00

EPS -0.39 1.94 5.74 7.30 9.16

BALANCE SHEET OF HIMADRI SPECIALITY CHEMICAL LTD FROM 2016-2020E

CAPITAL & LIABILITIES (Rs. In Mn) 2016 2017 2018E 2019E 2020E

CAPITAL 418.40 418.40 418.40 418.40 418.40

RESERVES & SURPLUS 8791.00 10362.60 12762.71 15816.06 18821.11

NETWORTH 9209.4 10781.00 13181.11 16234.46 19239.51

NON CURRENT LIABILITIES

Borrowings 3660.00 3870.30 4063.82 4185.73 4269.44

Derivatives 594.30 88.20 74.97 67.47 62.08

Other Financial Liabilities 2.60 2.60 2.73 2.93 3.20

Provisions 10.30 17.90 18.80 20.11 22.12

Deferred Tax Liabilities 475.80 897.40 1974.28 2467.85 2961.42

TOTAL NON CURRENT LIABILITIES 4743.00 4876.40 6134.59 6744.09 7318.26

CURRENT LIABILTIES

Borrowings 3920.60 3386.90 4301.36 5161.64 6039.11

Trade Payables 885.40 1493.10 1582.69 1709.30 1863.14

Derivatives 24.50 459.40 25.02 26.27 28.37

Other Financial Liabilities 1310.90 396.70 801.33 961.60 1125.08

Other Current Liabilities 239.80 347.70 278.16 292.07 306.67

Provisions 6.60 1.80 0.00 0.00 0.00

TOTAL CURRENT LIABILITIES 6387.80 6085.60 6988.56 8150.88 9362.37

TOTAL EQUITY & LIABILITIES 20340.20 21743.00 26304.26 31129.43 35920.14

ASSETS (Rs. In Mn)

NON CURRENT ASSETS

Property, Plant & Equipment 11008.40 11029.70 11360.59 12042.23 13005.60

Capital Work In Progress 273.30 93.60 252.72 265.36 273.32

Investments 1116.80 1665.80 3664.76 5712.33 7456.65

Trade Receivables 78.80 79.90 87.89 101.07 136.45

Loans 227.20 250.00 472.50 529.20 576.83

Other Financial Assets 0.20 0.70 0.00 0.00 0.00

Deferred Tax Assets 0.00 785.30 1217.22 1521.52 1764.96

Non Current Tax Assets 41.00 41.00 41.00 41.00 41.00

Other Non Current Assets 842.10 271.60 293.33 322.66 345.25

TOTAL NON CURRENT ASSETS 13587.80 14217.60 17390.00 20537.29 23601.98

Inventories 3150.10 3920.70 5096.32 6370.40 7644.48

Investments 210.00 2.50 1.50 1.65 1.90

Trade Receivables 1998.70 2156.10 2250.64 2374.42 2493.14

Cash & Cash Equivalents 182.00 113.30 59.99 65.99 75.89

Bank Balances 169.30 246.60 236.84 260.53 299.60

Loans 13.10 41.90 36.17 39.78 44.57

Other Financial Assets 108.20 106.20 153.99 184.79 230.99

Other Current Assets 921.00 938.10 1078.82 1294.58 1527.60

TOTAL CURRENT ASSETS 6752.40 7525.40 8914.26 10592.15 12318.17

TOTAL ASSETS 20340.20 21743.00 26304.26 31129.43 35920.14

Ratio Analysis

Year FY 16A FY 17A FY 18E FY19E FY20E

EPS -0.39 1.94 5.74 7.30 9.16

NPM - 5.52% 12.08% 13.98% 15.67%

EBDITA MAGIN 11.84% 17.32% 23.35% 24.75% 26.10%

ROE - 7.53% 18.21% 18.81% 19.93%

DEBT EQUITY 0.82 0.67 0.63 0.58 0.54

EV/EBDITA 43.04 25.37 13.94 13.08 10.22

BOOK VALUE 23.88 25.77 31.50 38.80 45.98

P/BV 6.18 5.72 4.68 3.80 3.21

PE - 76.00 25.70 20.21 16.09

Comparative Analysis

Standalone

Q3 FY18 EPS

(Rs)

REVENUE

(Rs. In Mn)

PAT

(Rs. In Mn)

EBDITA

(Rs. In Mn)

MKT CAP

(Rs. In Mn)

Himadri Specialty

Chemicals Ltd 1.68 5000.80 701.40 1222.10 61693.08

Bhageria Industries Ltd 2.56 3040.71 305.40 548.14 17075.90

Meghmani Organics Ltd 0.67 3073.06 171.35 481.32 23918.30

SUHANI ADILABADKAR

[email protected]

9701063320

mailto:[email protected]

Disclaimer

The information and opinions contained in the research reports have been compiled

or arrived at from sources believed reliable but no representation or warranty,

express or implied, is made as to their accuracy or completeness. The research report

does not constitute a personal recommendation or take into account the particular

investment objectives, financial situations, or needs of individual clients. Clients

should consider whether any advice or recommendation in this research is suitable for

their particular circumstances and, if appropriate, seek professional advice, including

but not limited to tax advice. The reports do not take into account the particular

investment objectives, financial situations, risk profile or needs of individual clients.

The user assumes the entire risk of any use made of this information. This report is not

to be relied upon in substitution for the exercise of independent judgment.

The price and value of investments referred to in this research and the income from

them may fluctuate. Past performance is not a guide to future performance, future

returns are not guaranteed, and a loss of original capital may occur.

Research data and reports published/ emailed/ text messaged via Short Messaging

Services, Online Messengers, WhatsApp etc/transmitted through mobile

application/s, including but not limited to FLIP™, Video Widget, telephony networks,

print or electronic media and or those made available/uploaded on social networking

sites (e.g. Facebook, Twitter, LinkedIn etc) is for informational purposes only. The

reports are provided for assistance and are not intended to be and must not alone be

taken as the basis for an investment decision. The user assumes the entire risk of any

use made of this information. Though disseminated to clients simultaneously, not all

clients may receive the reports at the same time. We will not treat recipients as clients

by virtue of their receiving this report.

The reports include projections, forecasts and other predictive statements which

represent our assumptions and expectations in the light of currently available

information. These projections and forecasts are based on industry trends,

circumstances and factors which involve risks, variables and uncertainties. The actual

performance of the companies represented in the report may vary from those

projected.

The opinions expressed in the reports are subject to change but we have no obligation

to tell our clients when our opinions or recommendations change. The reports are

non-inclusive and do not consider all the information that the recipients may consider

material to investments.

We shall not be in any way responsible for any indirect, special or consequential

damages that may arise to any person from any inadvertent error in the information

contained in the reports nor do they take guarantee or assume liability for any

omissions of the information contained therein. Information contained therein cannot

be the basis for any claim, demand or cause of action. These data, reports and

information do not constitute scientific publication and do not carry any evidentiary

value whatsoever.

The user should consult their own advisors to determine the merits and risks of

investment and also read the Risk Disclosure Documents for Capital Markets and

Derivative Segments as prescribed by Securities and Exchange Board of India before

investing in the Indian Markets. The securities discussed in this report may not be

suitable for all investors. Investors must make their own investment decision based on

their own investment objectives, goals and financial position and based on their own

analysis. Prospective investors and others are cautioned that any forward-looking

statements, if any, are not predictions and may be subject to change without notice.

This report may provide the addresses of, or contain hyperlinks to websites. Except to

the extent to which the report refers to material we take no responsibility whatsoever

for the contents therein. Such addresses or hyperlinks are provided solely for your

convenience and information and the content of the linked site does not in any way

form part of this report. Accessing such website or following such link through this

report shall be at your own risk.

The author of this Research Report accepts no liability and will not in any way be

responsible for the contents of this report or for any losses, costs, expenses, charges,

including notional losses/lost opportunities incurred by a recipient as a result of acting

or non-acting on any information/material contained in the report. This is not an offer

to sell or a solicitation to buy any securities or an attempt to influence the opinion or

behavior of investors or recipients or provide any investment/tax advice. The

securities described herein may or may not be eligible for sale in all jurisdictions or to

certain category of investors. Persons in whose possession this document may come

are required to inform themselves of and to observe such restriction.