Recommendation from Chemical Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

BASF India Ltd.:CHEMISTRY OF STRONG PERFORMANCE

HERE IS WHY
✓Profitable growth across business segments
✓Focus on cost control measures
✓High returns on capital employed 

BASF India is one of the leading multinational chemical companies. The company caters to several sectors, including agriculture, automotive, pharmaceuticals, construction, paper, paints, etc. These businesses have inherited strong technological support from parent company- BASF SE and embody total quality commitment. Its business segments are agricultural solutions, materials, industrial solutions, nutrition and care, and chemicals.

If we have a look at the company financials, the company reported net sales of ₹ 9,558 crore in FY21 as compared to ₹ 7,595 crore in FY20, a robust growth of nearly 25.8 per cent. The company’s strong performance across business segments have led to significant consolidated growth for the company. The EBIDTA recorded at ₹ 649 crore in FY21 soared by more than 78 per cent as compared with ₹ 363 crore in the previous year. In fiscal 2021, the management focused on controlling costs and better allocation of fixed and working capital, which yielded strong results during challenging times. The EBITDA margin stood at 6.79 per cent. Although the margin is not high, it improved significantly mainly due to volume growth, price increase and lower input material costs.

Also, the profit after tax came in strong at ₹ 552.6 crore, exponentially growing from ₹ 23 crore in FY20. The PAT exploded with a multiplier of 24x.

However, on the liquidity side, the cash flow from operating activities decreased 15.5 per cent from ₹ 572 crore in FY20 to ₹ 483 crore in FY21.

The net sales for the quarter ended September ‘21 stood at almost ₹ 3402 crore, a growth of 13 per cent on a sequential basis and 38.45 per cent on YoY basis. So far, this has been the highest ever revenue recorded for a quarter. The revenue growth was driven mainly due to robust volume growth in merchandise business and improved price realization. Also, the robust growth was on account of both volume and price growth. The EBITDA (exclusive of other income) came in at ₹ 229 crore, a decline of 21 per cent QoQ but a rise of 42.3 per cent YoY. The net profit stood at ₹ 137.3 crore, a decline of 30.4 per cent QoQ and 66.7 per cent YoY.

The company has not disappointed its stakeholders as the ROE stood at 36.57 per cent and the ROCE came in strong at 45.65 per cent. The company is almost debt-free, with its debt-to-equity ratio at just 0.09. For the past several years now, the company has been paying off its long-term liabilities and now it has become pretty solvent. The stock is trading near the P/E level of 27, which is slightly cheaper than the industry average P/E of 29.85.

This chemical giant has delivered a high profit growth with a CAGR of 28 per cent in the last five years. The company is partly dependent on its parent company for its supplies. The lockdown restrictions have disrupted the supply chain, which is expected to normalize going forward. It also has great opportunities lined up ahead as it manufactures battery materials for electric vehicles. By virtue of all these factors and based on our due diligence, we recommend our readerinvestors to BUY the scrip.