Invest In This Specialty Chemicals Industry Stock With High TTM EPS Growth For 17% Upside

KR Choksey has given buy call to the stock of Anupam Rasayan India Ltd (ARIL) for a potential upside of 16.42% with a target price of 780. The company's healthy order book and new product pipeline expect to boost the topline growth. Aril has received healthy orders worth INR 26,200 Mn in FY22 which would be executed in next 4-5 years. New product innovation for new and existing customers is expected to generate 20-25% growth in overall revenue, whereas it expects 10-15% growth from existing molecules.

The pharma segment comes with a huge potential in CRAMS / CSM industry where Anupam is increasing its focus on R&D process, as 50% of its molecules under development stage that caters to the pharma segment. Agrochemicals segment remains the major contributor to its overall revenue. There are 2-3 molecules of telecom industry under development stage to be applied in the semiconductors of 5G technology.

1. Stock Outlook

The current market price of the stock is Rs 670 apiece. It has touched a 52-week high of Rs 1107 apiece and 52-week low of Rs 546 apiece. The brokerage has given a target price of Rs 780 for the stock which implies that it can give investors potential gain of 16.42% if they buy it at its current market price.

2. Cost reduction measures to aid the margin expansion

The gradual shift in pricing mechanism from annual to semi-annual pricing contracts to ease the working capital requirement in the near term. Commissioning of solar and wind power plant with a capacity of 10.5 MW in June 2021 and 12.5 MW in April 2022 are expected to save costs worth ~INR 200 to 220Mn on an annual basis. Anupam has a major focus on continuous flow chemistry and photo chemistry amongst few industry players, as it has the potential to save up to ~10-12% of overall costs.

3. Organic and inorganic routes to pave the way for business growth

Anupam Rasayan is growing its business through organic route by focusing more on advancement of R&D in new molecules and chemistries to serve better its existing as well as new clients. It is also looking to facilitate backward integration and foray into niche products by way of inorganic growth opportunities to remain competitive in the market.

Anupam operates in fluorospecialty products since last 4-5 years and its acquisition with Tanfac industries has enabled backward integration with a direct access to raw materials for its fluorination-based products such as Hydrofluoric Acid (HF) and Potassium Fluoride (KF). These fluorinating agents would be used to manufacture value added products. Currently, KF derivatives forms 14% of its business while it aims to diversify with HF based derivatives within next 4-5 years.

4. Valuation

We initiate coverage on Anupam Rasayan India Ltd with a BUY recommendation at target price of INR 780 (implied PE 29.0x to FY24 EPS) based on the company's robust earnings growth and strong order pipeline for the upcoming years.

5. About Anupam Rasayan India Ltd

Incorporated in 2003, Anupam Rasayan India Ltd (ARIL) is headquartered at Gujarat (Sachin). The journey of Anupam Rasayan has evolved from conventional business towards innovation in custom synthesis and manufacturing of various molecules which are being applied in industries such as agriculture, pharmaceutical, personal care, specialty dyes and pigments and polymers. Generally, it has long term contracts with its large MNC customers and it is the primary or sole supplier for majority of the products under contracts which provides a stable revenue growth. It has a market capitalization of Rs 6719 crore.

Disclaimer

The stock has been picked from the brokerage report of KR Choksey Research. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.