Recommendation From Specialty Chemical Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon ;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Himadri Speciality Chemical (HSCL) is a coal tar pitch manufacturing company. The company manufactures coal tar pitch used in the manufacture of aluminium, which is used in automobiles, televisions, rockets, beverage cans, wires, cables, smartphones, furniture and foil wraps, among others. It manufactures coal tar pitch, specialized coal tar pitch, advanced carbon, coal tar-based thermoplastic polymeric coating, carbon black and specialty carbon black. It also manufactures sulfonated naphthalene formaldehyde (SNF); poly carboxylate ether (PCE) and wood preservatives and fuel oils.

HSCL's management is seeing good growth and demand coming in from various industries to which the company caters. The company is eyeing increasing demand from the sectors of auto, aluminium and infrastructure that is leading to an increase in demand for its products. The long-term outlook for aluminium looks strong as the leading aluminium smelters are ramping up capacities. Coal tar pitch is a key input for the aluminium industry. With all these positives happening in these industries, HSCL has been able to see increase in its capacity utilisation, volumes and realisations.

On the financial front, HSCL's revenue increased 6.39 per cent to Rs 949 crore in 9MFY17, as compared to the same period in the previous financial year. The company's EBITDA too rose 70.85 per cent to Rs 162 crore in 9MFY17 on a yearly basis. Its EBITDA margin was 18.40 per cent, a YoY improvement of over 669 basis points, mainly on the account of operating efficiencies and increase in capacity utilization. It has witnessed turnaround in profitability and posted net profit of Rs 50.78 crore in 9MFY17, as against net loss of Rs 23 crore in 9MFY16.

On the geographical front, HSCL has earned 84 per cent from domestic and the balance 16 per cent from exports in 9MFY17. On the segmental revenue front, the company has earned major chunk of its revenue, i.e. 98.5 per cent, from carbon materials and chemicals and the remaining 1.5 per cent from power in 9MFY17.

On a TTM basis, HSCL's topline decreased 2.35 per cent to Rs 1203 crore on YoY basis at the end of December 2016. The company's EBITDA more than doubled to Rs 207 crore. It posted net profit of Rs 62.54 crore at the end of December 2016, as against net loss of Rs 39 crore in previous year.

HSCL has successfully reduced its total debt from Rs 1058 crore in Q3FY16 to Rs 833 crore in Q3FY17. The company's debt-to-equity ratio stood at 0.77x in Q3FY17. The company's ROCE stood at 14 per cent in Q3FY17.

On the valuation front, the share price of HSCL is trading at PE of 39.07x as compared to its peers such as Pidilite Industries (43.66x) and Vinati Organics (31.01x). At the same time, industry PE is trading at 26.08x. We recommend our reader-investors to BUY this stock.