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Posted: Wed Nov 20, 2019 11:04 pm
by Ravi
IG Petrochemicals Ltd Q2FY20 Result Update

IG Petrochemicals Ltd (IGPL), for Q2FY20, continued disappointing performance on all fronts. Revenue de-grew by 17.8% YoY to INR 2,666mn (est INR 2,461mn). EBITDA declined 79.9% YoY to INR 143mn (est INR 274mn) along with a 1661bps YoY contraction in margin from 22% in Q2FY19 to 5.4% in Q2FY19 (est. 11.1%).

Gross margins were also depressed (22.4% vs 36.2% in Q2FY19) on account of reduction in PAN/OX spread due to extreme volatility in raw material prices and unforeseen events such as 50% water supply cut in MIDC area along with multiple time power issues which affected 8 days production volume.

Overall one time expenses related to plant restart to reach optimum utilization level along with repair & maintenance was ~INR 80mn (included in other operating expense). During H1FY20, production of PAN volume de-grew by 8.8% on a sequential and 5.3% on a yearly basis. Net profit declined by 91.6% to INR34mn (est. INR 133mn), due to an operationally weak performance.

We are concerned about continued uncertainty over RM prices resulting into fluctuations in spread which leave us to take a cautious approach on profitability front. However, we observed current gross margin and EBITDA margins are at multi-year lows. Therefore, we believe the possibility of further contraction in margin is minimal. At the current market price (of INR144) the stock is available at 11.7x FY20E EPS of INR12.3 and 8.7x FY21E EPS of INR16.6.

We remain cautiously optimistic about future growth prospects of the company and maintain our ‘BUY’ rating. However, due to volatility in spread resulting into lack of clarity on margin and profitability front, we revise our earning expectation downwards for FY20 and 21 and value IGPL based on 15 year average P/E of 11x to its FY21E earnings and arrive at a target price of INR183.