Buy Bodal Chemicals; target of Rs 249: BP Equities

BP Equities' research report on Bodal Chemicals

Bodal Chemicals Limited (BCL) is the most integrated Dyestuffs Company in India and also the biggest manufacturer of Dye Intermediates in India. The Company’s product range covers Dyestuffs, Dye Intermediates and Basic Chemicals broadly classified under Specialty Chemicals. It has a unique and integrated product line covering forward and backward integration to dye intermediates. It contributes about 20% of India’s capacity and about 5% of the world’s capacity for Dye Intermediates. Bodal Chemicals has capacity of manufacturing upto about 25 varieties of Dye Intermediates and upto about 150 variants of Dyestuff which are principally used as raw materials in Textiles, Leather, Paper & other Dyestuff consuming industries. Out of the total production, about 30% is exported to over 50 countries across the world.

Outlook
We expect The company’s Revenue/ EBITDA/PAT to clock 11%/14%/12% CAGR during FY17-20E. Though BCL is a commodity player, product diversification , margin improvement trend and gaining market share in domestic dyestuff could result in further rerating of the stock going forward. At the current market price (of Rs 175) the company is trading at 12.7x its FY19E EPS of Rs 13.8 and 10.5x its FY20E EPS of Rs 16.6. We believe the valuations are attractive and the stock can give decent returns in the future. We initiate coverage on the stock & recommend ‘BUY’ rating by assigning 15x to its FY20E earning. We arrive at a target price of Rs 249 (potential upside of 42% from CMP) for an investment horizon of 12-15 months.

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