Vikas Ecotech Ltd. share price target

markets, Unlike in case of Maggi(from Nestle) couple of years back, which was contaminated with lead content coming from chemicals used in PVC pipes. Shift from toxic lead stabilisers to non-toxic stabilisers (Organotin stabilizers are the only alternative to lead-based...

Vikas Ecotech Ltd., (VEL) posted 4QFY17 result with a revenue growth of ~6.5% / ~21.9% YoY / QoQ, respectively, to Rs. 1,033mn led by normalization of demonetization effect and increase in manufacturing activity. The manufacturing revenue contributed 87% vs 83% (Q4FY16) of total sales to Rs.896.5mn and trading revenue contributed 13% vs 17% (Q4FY16) to Rs.136.5 mn. EBITDA stood at Rs.208mn with margins of 20.2%, an expansion of ~ -106 bps / ~228 bps YoY/QoQ, respectively. VEL's recurring PAT was Rs 154mn vs Rs 106mn in 4QFY16, a YoY/QoQ growth of...

Fire accident at Polypropylene new manufacturing plant at Shahjahanpur on 31st March 2017: VEL's newly commissioned Polypropylene manufacturing plant was destroyed in a fire that engulfed this particular section at company's Shahjahanpur manufacturing facility in Rajasthan. The damage was limited to only one building that housed the polypropylene section and a material warehouse. The company's four other manufacturing units situated in the same factory complex are safe and fully operational. No human casualties were reported and all company's employees are safe. The polypropylene unit was...

EBITDA margin contracted by ~588 bps YoY: VEL posted EBITDA of Rs 152mn a YoY/QoQ growth of -24.5%/ 1.4% respectively with margin contraction of ~588bps YoY to 17.9% in 3QFY17 led by reduced contribution from organotin segment and increased low margin product volumes impacting high margin businesses. We expect, VEL to expand its EBITDA margin by ~246bps over FY16-FY19e mainly due to increase in the contribution from organotin over medium to long term, high margin products...

Vikas Ecotech Ltd., (VEL) reported 2QFY17 result with a strong operational efficiency. Net sales for the company stood at Rs. 835mn with a growth of 16.5% YoY and -17.3% QoQ led by higher contribution from PVC compounds and overall exports (61%/52% respectively of total sales) even after the slow seasonal demand. EBITDA margin stood at 17.9% and expansion of 673 bps/28bps YoY/QoQ. VEL reported PAT of Rs...

VEL has an experience of over 15 years in the chemical industry and is an emerging player in the global arena of the high end Specialty Polymer Compounds and Additives. VEL is the only Indian company that manufactures Organotins (Tin based heat stabilizer for PVC) which is lead free and non-toxic. The company has evolved from trading company to a manufacturing organization. The increasing awareness about lead poisoning which has led the companies and countries preferring eco-friendly and non-toxic substitutes, will boost the topline for a company like VEL. We believe that such factors coupled with the capacity expansion plans of VEL would further drive the stock upside.

Valuation: They believe that VEL is uniquely positioned in compound and additives business with its integrated R&D.; further believe that, increasing demand for toxin free stabilizers, growth in PVC industry, opportunities in export markets and capacity expansion will create enormous opportunities for VEL's revenue/ earning to grow at a CAGR of 41%/49% over FY16-18e. Historically, VEL traded at an average one year forward PE multiple of 14x. At the CMP of Rs.12.7, the stock is trading at 8.9x FY17e and 5.7x FY18e earnings. We are initiating coverage on the stock with a BUY rating and a target price of Rs.31 an upside of 145%.