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YEARS

JBF Industries Ltd


Moving a step ahead by going backward
Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 5/5 (CMP has strong upside) Chemicals

MAKING MA RK
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CTION BE TT FUN ER

July 10, 2012 Fair Value CMP CFV MATRIX


Excellent Fundamentals

Rs 194 Rs 135

Fundamental Grade

Polyester chip manufacturer JBF Industries Ltd (JBF) is backward integrating to produce PTA (purified terephthalic acid) to ensure a steady supply of raw material for its chips plant. Post integration, it will benefit from lower raw material and freight costs along with lesser working capital requirement. This will make it cost competitive and improve its operating margin. We maintain our fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India. Backward integrating into PTA to ensure assured raw material supply, better margins JBF is setting up a 1.25 mn tpa PTA plant in Mangalore SEZ, expected to commence operations by early 2015. The land has been allotted, financial closure has been achieved and the technology supplier has been finalised. PTA is one of the major raw materials for polyester and output from this plant will serve JBFs overall PTA requirement of ~0.85 mn tonnes (FY16), and will lead to better margins and assured raw material supply. India and UAE operations continue to perform well The company expanded its chips capacity in India and UAE (subsidiary: JBF RAK LLC) by 43,500 tpa and 42,000 tpa, respectively, during FY12. In India it continues to focus on the derisking strategy; after forward integrating into filament yarn (POY) it is now planning to shift portion of its fibre grade capacity to bottle grade capacity. In UAE, it also expanded its film capacity by 35,760 tpa. Hence, the share of specialty grade film will rise to 50% from 30%, thereby improving margins. Polyester demand to grow at 7-8%, competition to remain intense We expect demand for polyester to grow at a CAGR of 7-8% over FY12-FY17 on account of rise in per capita consumption of textiles and better competitiveness of polyester compared to cotton yarn. However, price competition cannot be ignored as the industry continues to operate at ~70% utilisation levels. Key risks execution of PTA plant and currency fluctuation Timely execution of the PTA project is very critical for JBF given the tight supply situation in the domestic market. Further, it is a new area of operation and requires huge capital. Import of raw materials and the derivative position expose it to the risk of currency fluctuations. Revenues to grow at 6%; margins to improve We expect JBFs revenues to grow at a CAGR of 6% to Rs 81 bn in FY14. EBITDA margin is expected to improve from the current levels to 10.9% on account of softening of raw material prices. Also, derivative losses will decline as 80% of the contract will expire in July 2012. Valuation: Current market price has strong upside We continue to use the discounted cash flow method to value JBF and maintain our fair value of Rs 194. At this value, the implied P/E multiples are 5.0x FY13E and 3.1x FY14E earnings. At the current market price of Rs 135, the assigned valuation grade is 5/5.

5 4 3 2 1
Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS


NIFTY/SENSEX NSE/BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs mn)/(US$ mn) 52-week range (Rs)/(H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5275/17392 JBFIND 10 72.0 9,680/173 30,935/554 165/89 1.0 57.3% 94,955 12.02

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jun-11 Sep-11 FII Dec-11 DII Mar-12 Others 41.9% 41.9% 42.4% 42.7% 18.8% 10.6% 16.7% 10.6% 16.6% 10.2% 17.3% 9.6% 28.7% 30.8% 30.8% 30.5%

KEY FORECAST
(Rs mn) Operating income EBITDA Adj net income Adj EPS-Rs EPS growth (%) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) FY10 49,369 4,721 1,675 26.9 1.3 3.0 14.3 14.3 8.6 1.2 6.5 FY11 64,658 9,629 5,382 75.1 154.6 7.3 28.5 40.5 1.7 0.6 2.6 FY12# 71,793 7,127 1,527 21.2 (59.1) 6.3 15.4 10.1 6.0 0.6 4.3 FY13E 75,523 7,725 2,816 39.1 26.3 6.3 14.5 16.6 3.2 0.5 3.9 FY14E 80,788 8,822 4,459 61.9 58.3 6.6 14.7 22.4 2.1 0.4 4.0

Promoter

PERFORMANCE VIS--VIS MARKET


Returns 1-m JBF NIFTY 14% 4% 3-m 24% 1% 6-m 39% 11% 12-m -17% -7%

ANALYTICAL CONTACT
Mohit Modi (Director) Vinay Chhawchharia Vishal Rampuria Client servicing desk +91 22 3342 3561 clientservicing@crisil.com mohit.modi@crisil.com vinay.chhawchharia@crisil.com vishal.rampuria@crisil.com

NM: Not meaningful; CMP: Current market price; # based on abridged financials Source: Company, CRISIL Research estimates

For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

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