Buy DCW, target price Rs 48: HDFC Securities

HDFC Securities has buy call on DCW with a target price of Rs 48. The current market price of DCW is Rs 39.7. Time period given by analyst is six months when DCW Ltd. price can reach defined target.

DCW Ltd., incorporated in the year 1939, is a Small Cap company (having a market cap of Rs 1038.90 Crore) operating in Petrochemicals sector.

DCW Ltd. key Products/Revenue Segments include Petrochemicals, Other Operating Revenue and Scrap & Others for the year ending 31-Mar-2019.


Financials
For the quarter ended 30-06-2021, the company reported a Standalone Total Income of Rs 522.74 Crore, up 12.91 % from last quarter Total Income of Rs 462.96 Crore and up 83.15 % from last year same quarter Total Income of Rs 285.41 Crore. Company reported net profit after tax of Rs 13.37 Crore in latest quarter.

Investment Rationale
The brokerage expects, with the required capital infusion, the company’s operations are likely to stabilize and there will be an end to the turbulent phase which it had experienced since last 2-3 years. DCW is one of the oldest company in the commodity chemical space and scale-up in its margin accretive speciality chemical side along with constant de-leveraging and no large capex lined up for next 2 years will result in strong cash flow generation and improvement in its return ratios which would the key drivers for the stock to get re-rated. The brokerage thinks DCW can post a revenue/EBITDA and PAT growth of CAGR 16/22/480% over FY21-FY23E. It believes the base case fair value of the stock is Rs.44 (4.4x FY23E EV/EBITDA) and the bull case fair value is Rs.48 (4.7x FY23E EV/EBITDA). Investors can buy the stock in the band of Rs. 38-41 and further accumulate on dips at Rs.33.