All-round show fueling rally in BASF India, stock up 40% so far in CY2021

Healthy demand, focus on cost optimisation and expansion plans drive optimism

The stock of BASF India has gained nearly 40 per cent so far in 2021, much of it in the last one month, as healthy demand across segments, focus on cost optimisation and expansion into high-margin niche products drive hopes of sustained profitable growth going forward.

The agrochemicals business – accounting for nearly a quarter of its overall revenue – is seen growing at a steady pace on the back of healthy monsoon and strong rural demand. Increased off-take from end-user industries like pharmaceuticals and favourable pricing is likely to further enhance the performance of its chemicals division, which is up 73 per cent year-on-year for the first nine-months of FY21. Segments like Industrial solutions and materials, which have historically been laggards, are seeing a swift recovery too.

Similarly, the company remains focused on reducing its overall costs and drive margins. At its analyst meet held recently, BASF India highlighted that it has managed to reduce its fixed costs by Rs 15 – 18 crore in the current financial year with the potential for further saving likely from FY22. Additionally, the company has saved on interest outgo to the tune of Rs 40 crore after repaying nearly Rs 500 crore in debt so far this financial year. Going forward, it plans to further pared down Rs 140 crore in ECBs (external commercial borrowings), which will improve its cash generation ability, said Emkay Global.

All this is reflecting in its performance. The company’s revenues are up 16 per cent year-on-year to Rs 6,590 crore versus Rs 5,703 crore in the nine-months ended December, while net profit came in at Rs 67 crore as compared to Rs 10 crore during the same period. EBITDA has more than doubled to Rs 404 crore and margins are up 268 basis points to 6.1 per cent over the corresponding nine-month period. Q3 was equally good with revenues up 20 per cent year-on-year to Rs 2,424 crore, while the company reported a net profit of Rs 109 crore as compared to loss of Rs 18 crore during the year-ago period.

With prudent cost control and better free-cash flow generation, the company has stepped up expansion plans. BASF India has guided for capex of Rs 120 crore towards doubling dispersion capacity at Dahej which is expected to come online by mid-2022. Moreover, the company plans to launch 15 new molecules over the next 5 years in the agrochemical space either through in-house manufacturing or licensing with third parties.

In this backdrop, Emkay Global has raised its earnings estimates for FY22 and FY23 by 36 and 48 per cent respectively and hiked the stock's target price to Rs 2,640 from Rs 1,940 earlier. The stock closed at Rs 2,231 on Monday.