MUMBAI (Commodity Online): Crisil Equities has given a rating which equates to Good relative to other listed equities for JBF Industries Ltd. The company has been assigned CRISIL IER Fundamental Grade of 3/5 while it has been given a valuation of 4/5 indicating that the stock hs potential 'Upside' from the current market price of Rs 95 to CRISIL assigned fundamental value of Rs 119 per share.

The grades are not a recommendation to buy/sell or hold the graded instrument, or a comment on the graded instrument’s future market price or its suitability for a particular investor, CRISIL Research said.

The assigned fundamental grading reflects JBF’s growing business opportunities in the UAE market and reduced dependence on the domestic market. The UAE subsidiary’s share in total revenues has increased from 20 per cent in FY08 to nearly 43 per cent in FY09. Going forward, the subsidiary would continue to be a major contributor to the company’s revenues, supported by the fast-growing Middle East market.

In the domestic market, JBF is the market leader in polyester chips. However, its major polyester chip clients, accounting for 20-25 per cent of the demand, have integrated backward, resulting in a contraction in overall chips demand. As a de-risking strategy, JBF has forward integrated into processed yarn and is further expanding its yarn capacity. This will result in increased internal consumption of polyester chips and enhance its presence in the polyester yarn segment. However, the company’s growth would still be constrained by overcapacity in thedomestic polyester market.

Explore Commodity Online Mobile Services

CRISIL Equities expects JBF’s total revenues to grow at a 3-year CAGR of 7 per cent to Rs 53 billion in FY12 from Rs 43 billion in FY09. The growth would be driven by its UAE subsidiary and the processed yarn business in the domestic market. Operating margins are expected to remain under pressure due to limited pricing flexibility. Net margins will improve post FY10 on the back of declining interest costs, but will remain vulnerable to foreign exchange fluctuations.

CRISIL Equities expect JBF’s Earnings per share (EPS) to increase at a 3-year CAGR of 6.7 per cent to Rs 35.7 per share in FY12 from Rs 29.4 in FY09. However, its RoE is expected to dip to 18 per cent in FY10 from 23 per cent in FY09, and stabilise at 18 per cent, going forward. CRISIL Equities has used a multiple based approach to value JBF. We have assigned a 1-year forward PE of 4 times to JBF’s estimated EPS of Rs. 29.7 in FY11 to arrive at a fundamental value of Rs.119 for a share of JBF.

JBF Industries is one of the key players in the polyester segment and operates in the polyester chips and partially-oriented yarn segments. It is now increasing its presence in the processed yarn space by forward integrating in the domestic market. The company is the largest PET chip maker in the country, with plants located in Silvassa and Vapi. JBF has also ventured into related businesses - bottle-grade PET chips andpolyester film – through its UAE subsidiary, JBF RAK LLC

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook