From ICICI direct report


report is a bit dated
I have accomodated for the current valuations

http://myiris.com/shares/research/ICICISL/HIMCHEIN_20100312.pdf

Niche markets, premium margins…

Himadri Chemicals (HCIL) is the largest coal tar pitch (CTP) manufacturer in India. The company is poised to bank on capacity additions in user industries such as aluminium and graphite. Moreover, forward integration into advanced carbon manufacturing (used in batteries for mobiles, laptops, etc) provides HCIL with a competitive edge.

User industries on an expansion spree Himadri is set to capitalise on the aggressive expansion plans of its major user industries i.e. aluminium and graphite. Net sales is expected to jump from Rs 376 crore in FY09 to Rs 853 crore in FY12E at a CAGR of 31%. Net profits are expected to rise even faster from Rs 46.8 crore in FY09 to Rs 168.3 crore in FY12 at a CAGR of 53% over FY09-12E.
Climbing the value chain to expand the market and margins HCIL is scaling up the value chain for the by-products of CTP distillation.

The company has leased an 8000 TPA sodium naphthalene formaldehyde (SNF) plant, which fetches 1.61x better realisation than the input naphthalene. Similarly, carbon black gives 1.94x better realisations than the input creosote oil. The process releases a lot of heat, which is used by HCIL to generate 12 MW power (4 MW is used internally while the rest is sold).

Building moat around business HCIL has created a unique distribution model to protect and scale up its market share. It has a fleet of 70 temperature-controlled tankers maintainedat ~240 0C, which keeps the pitch in directly usable form vis-à-vis imported solid form, thus saving further energy required to liquefy the CTP.

Coal tar pitch capacity to expand ~3x to 5 lakh MTPA by FY2013 HCIL plans to ramp up its coal tar distillation capacity to 2.5 lakh TPA by the end of FY10 and to 5 lakh TPA (including 1 lakh TPA in China) by the end of FY13 from the existing 1.69 lakh TPA. This would make it one of the world’s largest CTP manufacturers.

Valuations HCIL currently controls 70% of the Indian CTP market and plans to be a global major by FY13 by expanding its capacity three fold. The stock is currently trading at an EV/EBIDTA multiple of 7x FY12E. In terms of P/E, it is available at 10x FY12E.


Latest update from Emkay's report

æ Himadri reported 81.5% yoy growth in revenues to Rs1.5 bn and RPAT declined 19.3% yoy to Rs183 mn - performance was below estimates


æ Key reasons for lacklustre performance (1) 45 days shut down at the Naphthalene facility and (2) marginal contribution from expanded distillation capacity


æ Changes in expansion of distillation capacity – implementing 150,000 MTPA greenfield capacity instead of brownfield earlier


æ Downgrade FY11E and FY12E earnings by 7-8% - Maintain
positive bias amidst strong near term catalysts and
attractive valuations


APAT increased 24.9% yoy to Rs256 mn – but below our estimate Himadri reported 81.5% yoy growth in revenues to Rs1.5 bn and RPAT declined 19.3% yoy to Rs183 mn - performance was below estimates.

The key reason for deviation was – 45 days shut down at the Naphthalene facility for synchronization of expanded coal-tar distillation capacity, marginal contribution from expanded distillation capacity and foreign currency loss of Rs72.6 mn in Q1FY11 versus gain of Rs22.2 mn in Q1FY10. Excepting this, performance was satisfactory elsewhere – sale of approximately 24,800 MT of CTP (23,700 MT in Q1FY11) and 9500 MT of Carbon Black during the quarter.

Carbon Black production stabilized, but 45 days loss of production at Naphthalene facility impacted revenue growth Himadri commenced commercial production at its 50,000 MTPA carbon black in Q2FY10. Production at the new carbon black facility is now stabilized with better
utilization - produced 9500 MT of Carbon Black at ~Rs61,500/Ton. However, the Naphthalene facility was shut down for 45 days for synchronization of 80,000 MTPA distillation capacity.

Changes in timelines for expansion, delayed the distillation capacity Himadri has communicated few changes in expansion of its coal-tar distillation capacity.

Instead of 230,000 MTPA brown-field expansion in 3 phases at West Bengal, Himadri is setting up 150,000 MTPA greenfield distillation capacity in Orissa, closer to Aluminum smelters. Whereas, 80,000 MTPA brownfield capacity at West Bengal has commenced operations. The greenfield unit will commence operations in FY13E instead of FY12E earlier. Other expansion remain intact i.e. (1) Carbon Black expansion from 50,000 MTPA to 90,000 MTPA and (2) SNF expansion from 18,000 MT to 95,000 MT. Himadri will incur total capex of Rs7.5 bn, spread-out in FY11E and FY12E


Edited by excel_monkey - 13/Dec/2010 at 9:11pm