Buy Chemcon Speciality Chemicals, target price Rs 503: HDFC Securities

HDFC Securities has buy call on Chemcon Speciality Chemicals with a target price of Rs 503. The current market price of Chemcon Speciality Chemicals is Rs 437.1. Time period given by analyst is 6-9 months when its price can reach defined target.

Chemcon Speciality Chemicals, incorporated in the year 1988, is a small cap company (having a market cap of Rs 1602.59 Crore) operating in chemicals sector.

Its key products/revenue segments include speciality chemicals, sale of services, export incentives and other operating revenue for the year ended March 31, 2022.


Financials
For the quarter ended June 30, 2022, the company has reported a Standalone total income of Rs 92.09 crore, up 0.27 per from last quarter total income of Rs 91.84 crore and up 55.70 per cent from last year same quarter Total Income of Rs 59.15 crore. Company has reported net profit after tax of Rs 25.46 crore in latest quarter.

The company’s top management includes Mr.Kamalkumar Rajendra Aggarwal, Mr.Pradeep Vishambhar Agrawal, Mrs.Neelu Atulkumar Shah, Mr.Bharat Chunilal Shah, Mr.Lalit Devidutt Chaudhary, Mr.Himanshu Prafulchandra Purohit, Mr.Rajveer Kamal Aggarwal, Mr.Rajesh Chimanlal Gandhi, Mr.Navdeep Naresh Goyal, Mr.Samir Chandrakant Patel. Company has K C Mehta & Co as its auditors. As on June 30, 2022, the company has a total of 4 crore shares outstanding.

Investment Rationale
The brokerage remains positive on the company on the back of strong position in top products and expected launch of new products, which is expected to drive growth in the next 2 years.

It estimates strong double digit revenue growth along with robust operating margin at around 32-33.5% in the next 2 years on the back of capacity expansion and strong demand. It expects the company to register 25% CAGR in revenue led by strong growth in volumes. It estimates EBITDA and PAT CAGR of 26.5%/23% respectively over FY22-24E.

Chemcon had cash & equivalents of ~Rs 220cr as on March, 2022, and the company may use the cash for aggressive capacity expansion or inorganic growth opportunities.

According to the brokerage the investors can buy the stock in the band of Rs 412-418 and add more on declines to Rs 361 (14x FY24E EPS) for base case target of Rs 465 (18x FY24EEPS) and bull case target of Rs 503 (19.5x FY24E EPS) over the next two quarters.