Bodal Chemicals benefits from favourable demand-supply dynamics

We remain positive on the traction towards vertical integration and capacity expansion.

Dyes and dyes intermediates major Bodal Chemicals posted a recovery in topline growth, in the quarter under review, aided by better realisations, volume and exports.

Bodal Chemicals: Q2 update – Margin expansion

Bodal Chemicals’ reported a 43 percent YoY sales growth in Q2FY19 driven by increase in volume, improved realizations, higher exports and better product mix. Dyestuff volume increased by 54 percent YoY on account of higher contribution from the new capacity commissioned last fiscal (12000 tonne in March’18). Blended capacity utilisation of dyestuff facility is now about 72 percent. Further, dyes intermediates volume increased as well by 12 percent (21 percent in Q1 FY19). Export sales (47 percent of sales), with 179 percent increase YoY, has been another strong lever for the company.

Raw material prices have remained elevated though management updates that most of the input prices have stabilized, particularly that of caustic soda and PNCB (Para-nitro chloro benzene).  Standalone operating profit, adjusting for forex, has improved by 250 bps YoY on account of both moderation in inputs and higher realizations.

Allied businesses on an improving track

The company expects improved performance for Trion Chemicals JV wherein operations started towards the end of Q1 FY19. Some of the raw material prices have softened and company expects business to break even by the end of fiscal year. In case of SPS Processors, subsidiary has witnessed considerable improvement in topline (2.3 times QoQ) and bottomline (1.8 times QoQ) on account of better realisations for dye intermediates.

However, thionyl chloride project completion has got delayed to Q4 FY19.

Acceleration in dyestuff share of sales

Product mix is improving. Dyestuff sales contribution has improved from 29 percent of sales to 35 percent of sales in Q2 FY19. Ramp up in utilization of new capacity is noteworthy, which is about ~60 percent in the second quarter after commissioning. Further dyestuff share is expected to improve, even more, as management has decided to increase dyestuff capacity by 6000 tonne by Q1 FY20 (estimated cost: Rs 26 crore). It is noteworthy that this expansion is ahead of the original schedule and would put the total dyestuff capacity to 35000 tonne after expansion.

In the near term, softening of product prices post quick surge in Q1FY19 can moderate revenue momentum. However, overall we remain positive on the traction towards vertical integration and capacity expansion. Also reiterate that ongoing environmental restrictions in both China and India is helpful is keeping a favourable supply-demand dynamics for the integrated players like Bodal Chemicals (7.9x FY20e).

Source: https://www .moneycontrol.com/news/business/moneycontrol-research/bodal-chemicals-benefits-from-favourable-demand-supply-dynamics-3097751.html

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Rupee fall brings back IT, pharma sectors in favour for mutual funds

The rupee has fallen over 15 percent against the dollar so far this year

A sharp slide in rupee has prompted mutual fund managers to bet on export-oriented sectors such as information technology and pharmaceuticals.

The rupee has fallen over 15 percent against the dollar so far this year and is currently trading at 73.43 against the dollar. The currency is down 8.3 percent year on year, which means the depreciation is at a five-year high.

Krishna Sanghavi, head-equities, Canara Robeco Mutual Fund believes companies in export-oriented sectors will benefit from the rupee's depreciation. “We are positive on IT and pharma because of improving business outlook and benefits of rupee depreciation," he says.

Echoing Sanghavi’s view, LIC Mutual Fund’s Chief Investment Officer Sarvana Kumar says, “Pharma and IT companies are likely to report better earnings and an improvement in their profit margins.”

LIC Mutual Fund is sitting on a lot of cash in its equity funds as it feels the upcoming five state assembly elections have given rise to some measure of uncertainty in the market. It is now gradually deploying its cash, taking into account stock valuations and growth, Kumar said.

Fund managers said IT companies having a large exposure to the US will benefit the most, while pharma companies will benefit as exports account for more than 50 percent of their revenues.

Going forward, hedging strategies will be a deciding factor for these companies to make profits on a falling rupee.

ICRA expects the domestic IT services sector to register a compounded annual growth rate of 9-12 percent from 2018 to 2021.

According to the rating agency, there were early signs of improvement in demand for the sector.

Also, given that that the trade deficit and the current account deficit or CAD are rising, the rupee's weakness is beneficial.

The trade deficit hit $157 billion in 2017-18, while the CAD rose to 1.9 percent of the gross domestic product or GDP.

India's third and fourth largest information technology firms reported results this week, and both seem to be recovering from client-specific issues that are slowing growth.

While HCL Technologies reported second-quarter results above analyst estimates, helped by growth across verticals. The Noida-based company's rupee revenue was up 7.1 percent at Rs 14,861 crore, while constant currency growth was 3 percent during the quarter.

On the other hand, Wipro’s IT services revenues rose 5 percent to Rs 14,377.3 crore, 2.8 percent after adjusting for a strong dollar.

Source: https://www.moneycontrol.com/news/business/mutual-funds/mf-wrap-rupee-fall-brings-back-it-pharma-sectors-in-favour-for-mutual-funds-3092981.html

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