We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.

INVESTING RATIONALE

• Steady revenue growth in FY18: IGPL is India’s largest Phthalic Anhydride manufacturer, commanding ~50% of the market share. The total capacity of phthalic anhydride and maleic anhydride stands at 1.69 lakh MTPA and 6920 MTPA respectively. In Q4FY18, IGPL produced 37,000 tonnes of PA and the revenue grew 8% on a YoY basis. The capacity utilizations for phthalic and maleic anhydride stood at ~91% and ~50% respectively for FY18. For FY18, revenues grew 9% YoY and exports constituted around 17% of the revenue for Phthalic anhydride.

• Increased demand for PA and MA led to margin increase: In Q4FY18, the EBITDA of the company increased by 35% to Rs 64 Cr. (vs. Rs 47 Cr Y-o-Y) mainly on account of increase in spreads due to increased demand of Phthalic Anhydride (PA) and Maleic Anhydride (MA), better recovery processes and operational efficiencies. This is reflected in the raw material cost as a % of revenues trend which declined from 87% in FY14 to 61.4% in FY18.

• Brownfield expansion to address increased demand: IGPL is planning to increase its capacity by ~30% in PA4 plant (53,000 MTPA) at existing location (Taloja) which is expected to be completed in Q2FY20E. Thus IGPL would have a total capacity of 2.22L MTPA for PA by FY20E. The total project cost in Rs. 300-350Cr and it could help generate annual revenues worth Rs 400-450 Cr for IGPL with an asset turnover of ~2x.

• Increased capacity utilization and product portfolio expansion to result in better margins: IG Petrochemicals’ capacity utilization in the last 5 years (FY13-FY17) has been 90%+ and we expect similar trend to continue. We expect ~50% capacity utilization for the PA4 capacity in FY20E once it is operationalized by Q2FY20E. It also plans to foray into downstream products, introducing products in advanced plasticizers like DEP, DOP, DMP etc.

• We maintain a BUY with a target of Rs.492.