Anupam Rasayan shares are expected to surge as the company is seen as an attractive China+1 play by global brokerage and research firm Jefferies. “Anupam Rasayan is well-positioned to benefit from ‘China + 1’ with its diversified chemistry expertise, wide customer base and presence across multiple verticals,” said Jefferies as it initiated the coverage of the chemical manufacturer. Analysts added that the 16% year-to-date correction in Anupam Rasayan share price makes the stock’s valuations favourable now. Shares were trading at Rs 883 per share on Friday afternoon.
Target price discussions
In the base case scenario, Jefferies analysts predict Revenue CAGR 33% over FY21-24E helped by new contracts and a target price of Rs 1,040 per share. This implies around 17% upside from current levels. However, under more favourable conditions, the stock is expected to rally to Rs 1,270 per share target, around 44% higher than the current market price. For such a situation to occur, analysts expect revenue CAGR of 35% over FY21-24E and EBITDA margins to remain flat at 27% over FY22-24E.
A bearish scenario, where revenue grows 29% over FY21-24E, could see the stock plummet to Rs 690 per share.
“China’s climate goals have impacted the smooth functioning of its chemical industry,” Jefferies said in the note. China plans to achieve carbon neutrality by 2060. To attain this the country has decided to decrease energy intensity by 13.5% by as early as 2025. Jefferies added that the CSM revenue CAGR of Indian players (35% over FY18-21) has outstripped their Chinese counterparts (16%), suggesting a gain in market share.
With the EU’s share in the sector declining over the past decade, it was China and India that were the key beneficiaries, With China now fizzling out, India is set to capitalise on it.
Anupam Rasayan an attractive play
The company offers competency across various products. “No single chemistry contributes more than 12% of ARIL’s revenues,” Jefferies said. The company provides CSM services to agro chem, personal care, pharma, pigments, and dyes verticals, which diversifies its revenue streams, the brokerage firm said. The diversification also reduces Anupam Rasayan’s vulnerability to any slowdown in the global agrochemical cycle.
Anupam Rasayan derives 35% of its revenues from its top 3 customers and 82% from the top 10. Management has suggested that the revenue contribution from the top ten customers will decline over the next three fiscal years. Further, analysts added that Anupam Rasayan has announced firm contract wins of Rs 8.2 billion and LOI of Rs 18 billion over FY22 YTD. Contracts are spread over 3-5 years and include around Rs 1 billion of revenues that have been converted from short-term to long-term.
Since listing a year ago the stock has gained nearly 80% so far. Among major risks around the stock is the small size of its core R&D team, which creates key-man risk.
Eqwires Research Analyst
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