Q1FY24 Review: Anupam Rasayan: Growth slows down – as expected

2 Aug 2023 , 11:47 AM

Anupam Rasayan’s (ARIL) Q1 performance was along the expected lines – wherein performance was impacted by the global destocking. Management has cut their revenue growth guidance for FY24 to ~20%. The recently signed LOIs are expected to ramp up over time but will meaningfully contribute to revenue only post FY25. Analysts of IIFL Capital Services cut FY24-26 EPS estimates by 5-14%, on the back of the current subdued demand and a marginal increase in effective tax rate. Their TP, rolled forward to Sep’24 comes down to Rs870. Analysts of IIFL Capital Services maintain caution, given the current valuations and industry headwinds. 

Revenue growth driven by Tanfac: 

The ~12% YoY revenue growth was entirely driven by a ~28% YoY growth at Tanfac. Base business (standalone) demonstrated a ~7% YoY decline in revenue, due to channel destocking happening across global markets. Management guided that Q2 is expected to remain flat and demand will likely be pushed into H2FY24. It cut its FY24 revenue growth guidance to ~20-25% (vs 25-26% previously). Margins are expected to remain steady, given ARIL’s pass-through business model. 

Meaningful contribution from LOIs is yet distant: 

The company has signed ~41bn worth of LOIs in Q1, taking total worth of LOIs signed since Q1FY22 to ~Rs77bn. However, revenue contribution from these was just ~Rs1bn in FY23; expected to increase to Rs3bn and Rs6bn in FY24 and FY25 respectively. Thus, any significant contribution from the same will only come from FY26. However, LOIs display the growing confidence that global MNCs are putting in ARIL’s technical capabilities. 

Valuations expensive:

Analysts of IIFL Capital Services expect EPS to grow at ~20% over FY23-26, on the back of the current capex initiative and launch of new products. Recently signed LOIs improve visibility of growth. However, stock valuations of ~47x/34x FY24/FY25 PE are one of the richest in the sector. Delay in commercialisation of LOIs and the continued slowdown in global Agrochemical industry is a risk to their estimates. Their TP, rolled forward to Sep’24, comes down to Rs870 (27x Jun’25 PE).