Shares of this small-cap firm engaged in manufacturing and selling ethanol, along with natural gum and sugars opened at Rs 1,052 apiece on Tuesday. The stocks of this firm have generated a return of 72 percent over the past year and a return of 21 percent over the past 6 months.
This bullish movement in India Glycols Limited was observed after an Indian brokerage firm Nuvama, provided an optimistic recommendation on the stock, forecasting an upside potential of 30 percent.
About the company:
Incorporated in the year 1988, India Glycols Limited is engaged in the manufacturing of green technology-based bulk, specialty & performance chemicals, and natural gums, spirits, industrial gases, sugar, and nutraceuticals. The firm also produces ethanol derivatives like ethylene oxide, glycols, biopolymers, biofuels, potable spirits, and plant-based APIs and nutraceuticals.
Financial Performance:
On a year-on-year basis, the revenue from operations increased by 24 percent from Rs 2,651 crores in FY23 to Rs 3,294 crores in FY24. Meanwhile, the net profits of the firm increased by 23 percent from Rs 141 crores to 173 crores for the same time period.
The Indian brokerage firm Nuvama has initiated a buy recommendation on India Glycols Limited with a target price of Rs 1,365 per share, implying an upside potential of up to 31 percent from the current price.
The investment rationale for providing such a recommendation is as follows:
Biofuels to boost the company’s BSPC business:
The company’s basic and Specialty Chemicals (BSPC) business, which makes products like glycols, guar gum powder, and biofuels faced a tough situation in FY23 due to a price drop in Monoethylene Glycol (MEG) and a rise in energy costs.
To overcome this issue, the BSPC business focused more on Biofuels which saw its revenue increase by 5 percent in FY23 to 19 percent in FY24.
As per the broker, this shift towards more biofuels is expected to improve their profit margins. BSPC is anticipated to see its overall revenue grow by 17 percent annually, driven by a 41 percent annual growth in biofuels revenue.
Furthermore, the company’s Earnings Before Interest and Taxes (EBIT) margin, is projected to increase to 8.2 percent In FY25 and 8.5 percent in FY26, up from 7.9 percent in FY24.
Revenue and Profit Expectations:
According to the brokerage report provided by Nuvama, the analysts expect revenue and profit after tax CAGR (compounded annual growth rate) of 16 percent and 40 percent, respectively, over the period FY24-26E.
The report also mentions that India Glycols Limited (IGLY) has divested a few stakes in a non-core business and sold a part of its business to a joint venture with Clariant International to manage IGLY’s cash flows better.
Optimization of capex over FY25–26 to generate healthy cash flow:
IGLY incurred a capital expenditure (CAPEX) of Rs 874 crores in FY23-24, which led to negative cash flow. The firm expects to generate over Rs 400 crores in free cash flows over the period FY25-26 with the new investments/CAPEX made.
As per reports, the company had a gross debt of Rs. 1,325 crores at the end of FY24. With better free cash flows and no major capex pending, debt is likely to reduce materially in subsequent years.
EBIT margin expectations:
Nuvama also forecasts its EBIT margin to improve to 8.2 percent in FY25 and 8.5 percent in FY26, up from 7.9 percent in FY24.
This will be achieved by a larger contribution from the firm’s Biofuels business. The brokerage expects its Basic and Specialty Chemical business to achieve a 17 percent annual revenue growth rate, which will be driven by a 41 percent annual revenue growth rate in Biofuels.
Ethanol capacity plans:
To tap opportunities from the Centre’s ethanol oil blending program, India Glycols Limited increased its ethanol production and started special production facilities or departments that make unique or high-quality products known as New Specialty Units (NSU) in FY24.
Some of this work was finished in FY24, with the rest to be done by the first half of FY25. While the NSUs might take time to run smoothly, ethanol production is expected to grow quickly in FY25–26.
Part of this new capacity became operational in FY24, with the rest expected to start in the first half of FY25. By FY25, the company will have an ethanol capacity of 1,070 KLPD (Kilo Liters Per Day), up from 350 KLPD in FY23, with 27 percent of this capacity being grain-based.
Growth in Potable Spirits:
IGLY is number one in Uttarakhand and Uttar Pradesh for both the vodka and whiskey business and the firm has also recently entered the Delhi market.
India Glycols Limited supplies liquor to paramilitary forces across 19 states. The brokerage predicts strong growth due to a few key factors: an increase in country liquor prices starting from Q4FY24, the addition of MaQintosh to their IMFL lineup, and new supplies to paramilitary forces in four more states.
Plus, a new policy in Uttarakhand has raised prices for country liquor along with the introduction of better margin tetra packs in country liquor and IMFL segments. Because of these changes. Further, the brokerage expects the company’s revenue to grow by a CAGR of 14 percent from FY24 to FY26.
Conclusion:
To summarize, the brokerage firm initiated coverage on BSPC, emphasizing strategic shifts, reducing non-core businesses and prioritizing biofuels, expanding ethanol capacity, scaling up potable spirits, and enhancing cost efficiency and supply security in ethanol through grain-based facilities.
With improved operating performance and a stronger balance sheet, they recommended a ‘BUY’ rating with a target price of Rs. 1,365 per share
Written By Zahal
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