Expansion delayed due to Covid-19;maintain Hold

Q4FY20 revenue of Bodal Chemicals grew by 7.0% YoY to Rs3685mn in Q4FY20 majorly owing to a robust growth of 13% YoY in Dyestuff business. Gross margins expanded by 358bps to 37.6% in Q4FY20 because of decline in raw material prices of Naphthalene and Aniline. Despite strong improvement in gross margin, EBITDA margins contracted by 189bps to 10.8% in Q4FY20 vs 12.7% in Q4FY19 and Overall EBITDA declined by 8.8% to Rs 399mn in Q4FY20 owing to sharp increase in employee expenses of 132% YoY. Further, increase in depreciation and interest cost led consolidated PAT witnessing a decline of 22% YoY. Dyestuff reported impressive performance led by strong realization growth in speciality dyes • The Dyestuff business witnessed strong sales growth of 13% YoY in Q4FY20. This was majorly owing to improved realization as company is focussing on high value turquoise dyes segment which has higher realization as compared to overall Dyestuff basket. • Also, the company plans to introduce more range of Dyestuff in future and focus more towards B2C segment in Dyestuff to spur revenue growth going ahead. EBITDA margins witnessed contraction in Q4FY20 owing to sharp increase in employee cost • The company reported EBITDA margins of 10.8% in Q4FY20 which is a decline of 189bps as compared to Q4FY19 majorly owing to sharp increase in employee cost by 132% YoY. • Management stated that the company has capitalized employee expense in project Saykha GIDC (Dahej) of Rs80-90mn in the last 2 years which is now written off. • This one-off write-off, employee increments and commission payment to directors cumulatively led to such abnormal increase in employee cost in Q4FY20. Major subsidiaries continue to report losses, expect rebound from H2FY21 • SPS Processors & Trion Chemicals reported loss of Rs12mn & Rs28mn respectively in Q4FY20. • On SPS Processors, the company has received approvals to start the VS plant, however, management intends to start the plant once the demand scenario improves. We expect commercialization of plant and pickup in demand by H2FY21 only. • Trion Chemicals was not operational in this quarter due to safety related changes and absence of access to major raw material supply. Management intends to operationalize it by Q1FY21. Valuation • The management has put capex plans on hold due to uncertainty. Major DI prices of VS and H-acid has fallen back to the lowest levels witnessed in FY20. However, stock of Bodal recovered well from its recent lows. We feel major optimism might have been priced in now. • Currently, the stock is trading at FY22E P/E of 9.1x and EV/EBITDA of 5.4x. We value the stock on forward P/E of 9.5x and arrive at a target price of Rs 70 per share which indicates an upside of 4.9% from the current levels. Hence, we assign HOLD rating on the stock.

Rajesh Exports [RJEX_IN; Rs.139 billion/US$1.86 billion market cap; US$2.62 million total average daily value traded] reported stellar growth in revenues on a QoQ and YoY basis despite a global economic slowdown and a higher gold price. Revenues for the fiscal fourth quarter [ended March] came in at Rs.476 bn, up 38% and 17% on a YoY and QoQ basis, respectively. The strategy to focus on the sale of high margin products by the company accelerated revenue growth for the company in the fourth quarter of FY03/2020. The rising price of gold in the international market also added to the increase in revenues, especially in the fourth quarter. The surging order book also indicates that the company will show sustained growth in revenues and profitability after FY03/2021 from FY03/2022 and beyond [more details below]. For the fourth quarter, EPS increased by 3.5% to Rs.9.20 vs. Rs.8.89 in Q4 FY2019, while net profit also increased by 3.5% from Rs.2.62 bn in Q4 FY2019 to Rs.2.71 bn in Q4 FY2020. The net profit growth was lower as compared to the significant rise in revenues on account of an increase in raw material costs as a percentage of sales leading to a reduction in gross margins on a YoY basis. Our conversations with the senior management and CEO Rajesh Mehta suggest that the business will post sustained growth YoY and QoQ in both revenue and EPS once the global situation normalizes on account of higher contribution from the gold refining business. The CEO also mentioned that the company’s business witnessed a golden period in the fourth quarter of FY03/2020 as prices of gold have continued to remain strong making refining even more lucrative for its Switzerland-based subsidiary Valcambi, which is the largest refiner of gold in the world. The first quarter of FY03/2021 is expected to be impacted severely in terms of revenue and profitability on account of the lockdown in most of the countries due to the global pandemic situation. Once the economic situation comes back to normal, globally growth would gradually revive for Rajesh Exports. Since the bulk of the business of the company comes from refining of gold, we expect revenue and profitability to witness minimal impact as supply should begin to resume to ultimately reach full scale after the situation stabilizes completely. The demand for luxury goods, such as cars [both mass market as well as high-end], apartments and real estate, and gold/jewelry will however remain muted in the current year. The jewelry business of the company which has higher margins but relatively lower volumes in comparison to the gold refining business would get impacted to a significant extent not only for the company but for the entire industry only to begin gradual recovery later. Our FY03/2022 earnings forecast of Rs. 40.80 per share implies a growth of 13% over the FY03/2021 earnings. Barring the current situation, the USA end market remains robust with strong consumer spending expected once employment comes back to pre-covid levels. Europe has also shown an uptick as evidenced by the export orders executed by the company in Q3 and Q4 FY2020. Reduce Estimates and Price Target Rs. 800; 70% Upside We reduce our FY2022 earnings estimates of Rs.50.64 per share to Rs.40.80 per share on account of an expected fall in revenues and profitability due to the ongoing global pandemic situation which would return to normalcy in FY03/2022. We revise our price target from Rs.900 to Rs.800 on the stock and expect business conditions to come back to pre-pandemic levels at the end of 2020. Our price target represents an upside of approximately 70% from the current levels. Our 12- month price target on the stock is based on DCF methodology and backed by traditional P/E multiples as well. Please see detailed earnings and valuation model attached. Rajesh E

Strong positioning in diversified product portfolio, ever-increasing capacity, scale up in US market as well as improvising domestic formulations, accelerated ANDA approvals, coupled with renewed business strategy, better operating leverage and reduce financial leverage

Below est.; Op. deleverage hurts; Expect business to bottom out

Lower revenue compensated by better margin performance; Cloudy outlook in near-term: Maintain HOLD Fine Organic Industries (FOIL) posted revenues of INR 2,473mn with 13% YoY decline which was below our estimate of INR2,734mn mainly due to loss of sales during last two week of March led by COVID 19 outbreak and logistic challenges in domestic as well as in many other countries. In the near term revenue outlook remains cloudy as management expects regaining pre Covid operational level can be possible post Aug–Sep due to slow recovery in existing business and challenging environment in new business development. On the back of favourable product mix, Gross margin expanded by 505bps, which resulted in 226bps (YoY) improvement in EBITDA margin to 23.2%(est. 22.1%) in Q4FY20. Commissioning of new capacity (Ambernath 3) resulted in a sharp increase (178% YoY) in depreciation cost. However, higher other income (INR 46mn vs INR 6mn) coupled with lower tax rate (25.9% vs 50.3%) supported PAT growth of 29% to INR 344mn. Fresh capacity addition to drive next leg of growth As there is an increasing demand in Additive industry, the company is going for capacity expansions which could lead to volume growth, aided by higher realizations and a stable rupee. FOIL is expanding capacity by 42,000 MTPA of which 32,000 MTPA in Ambernath for plastic, rubber and cosmetic additives got commissioned in Q2FY20, which we believe open up a new avenue of revenue growth. Moreover, another 10,000TPA capacity dedicated to food additives at Patalganga near Karjat, expected to be operational by FY21E. The company has earmarked a capex of INR1.5-1.6bn for Ambernath while INR550-600mn for Patalganga with 3-4x of asset turnover. Hence, we expect incremental revenue of INR5-6bn at peak utilization level from these plants in the next three to four years. Given the continued uncertainty over COVID-19 situation, it is likely that the benefit of the expanded capacity will take time to ramp-up. We modelled 15%/40%/60% capacity utilization in FY21/FY22/FY23 from Ambernath 3 facility (32,000MTPA) and 50%/90% utilization from Patalganga facility in FY22/FY23 respectively. Valuation and Outlook With a global leadership position in slip additives and its proprietary technology to manufacture green additives provides a competitive edge to FOIL. Going forward, we expect the company to continue its growth strategy on the back of volume growth in the light of planned capacity expansion, growing demand for green additives from the food industry, changing customer preferences and better business mix. Over FY20-23E, FOIL is expected to post 14.7%/13.8%/ 14.6% revenue /EBITDA/ PAT CAGR with +25% return ratios. W0e believe FOIL will continue to strengthen its balance sheet with strong free cash flow generation of INR4.8bn over FY20-23E. Considering the expected steady growth in profitability, healthy balance sheet and complex nature of the business with high entry barriers, we remain optimistic about the long-term growth prospects of the company. At the CMP (INR 1,882), the stock is trading at 23.2x its FY23E EPS of INR 80.9. We maintain our HOLD rating on the stock with a target price of INR 2,022 (earlier: INR 2,141) by valuing the stock at P/E of 25x on Its FY23E.

To merge holdco, including other unlisted businesses

Bandhan Bank is focussed on serving the unbanked and under banked population of India.

More bang for same bucks; upgrade to Buy