Target: ₹900
CMP: ₹690.25
We raise FY23/24 EPS by 11 per cent /5 per cent as we assumed better near term margins for the TAN business. Our SOTP-based June-23 TP (rolled forward from Mar-23) moves up to ₹900 (from ₹835).
Q4 EBIDTA/PAT topped IIFL by 56 per cent/75 per cent, driven by strength in the TAN and nitric acid businesses. Tightness in both these markets has enabled the company to pass on rising input costs.
The management expects margins to remain firm in the near-term as demand for both key products remains robust. Increase in share of specialty products should also drive structural margin improvement.
The benefit from manufacturing ammonia (vs importing) is currently about $550-600/MT and should this sustain, returns from the ammonia plant will likely be double of that estimated.
At just 11x FY23 P/E, we continue to find the stock undervalued.
The commissioning of the ammonia and TAN projects will drive medium term growth. By FY26, when both capex projects should be running at optimal utilisation, we expect EPS to approach ₹85-90. Even a modest 12x P/E by then would imply a Mar-2025 target price of about ₹1,020-1,080 (and potentially higher, if DFPCL switches to the new tax regime).