I G Petrochemicals, the largest manufacturer of phthalic anhydride (PAN) in India, has witnessed a decline of over 26% in its share price in the last two-year period. From an all-time high of ₹1,017.90, it is currently down by 49%. Despite this steep drop, the stock’s 10-year return stands at 2071%.
In its recent analysis, domestic brokerage firm Keynote Capitals has initiated coverage on the company, assigning it a ‘buy’ rating and establishing a target price of ₹819 per share. This forecast indicates a potential upside of 59.5% from the current closing price of ₹513.60 per share.
Also Read: With no upside in mid, small caps; large-cap funds a good buy in 2024: Report
About I G Petrochemicals
I G Petrochemicals Limited (IGPL), the flagship company of Dhanuka Group, is the largest manufacturer of phthalic anhydride (PAN) in India. The company is one of the most cost-efficient producers of PAN globally.
PAN is a downstream product derived from orthoxylene (OX), a fundamental petrochemical. Functioning as a versatile intermediate in inorganic chemistry, PAN plays a pivotal role in the production of plasticizers, unsaturated polyester resins, alkyl resins, and polyols.
Also Read: DMart stock drops nearly 4% after Q3FY24 business update; what should you do?
As of FY23, IGPL has a capacity of 222,110 MTPA, working at a utilisation level of 90%. The company owns over 55% of the PAN capacity in India, according to the brokerage.
Capacity expansion: The brokerage said the company’s ongoing brownfield capacity expansion is expected to lead to a rise in PAN capacity from 222,110 MT to 275,110 MT. Simultaneously, there is an expected augmentation in MAN and benzoic acid capacities from 7,660 MT to 9,160 MT and 1,000 MT to 1,250 MT, respectively. Revenue potential from this plant at optimum capacity utilisation would be ₹4.5-5 billion, it said.
Also Read: Multibagger stock: Up over 2100%, Subros shares turned ₹1 lakh into ₹23 lakh in 10 years
Lowest cost producer: IGPL’s plants are strategically located in MIDC, Taloja. This location, according to the brokerage, enables it to procure raw materials from the largest supplier of OX efficiently, offering a cost advantage compared to competitors who incur additional transportation expenses. The majority of the company sales come from the western chemical belt of India; IGPL acts as the nearest source of PAN for the customer, thereby minimising freight costs, it noted.
Further, it said the consolidation of all plants in a single location presents a distinct advantage for IGPL, allowing for the equitable distribution of fixed costs among its four facilities. Additionally, the utilisation of steam generated during the PAN manufacturing process contributes to a reduction in power and fuel expenses for the company.
Room for improvement in PAN/OX spread: The brokerage has stated that the average spread between PAN and OX in the last decade has ranged between $150 and 200 per ton. At its upper limit, this differential has exceeded $500 per ton.
As of Q2 FY24, the current spread falls within the range of $80 to $100 per ton. A heightened demand scenario could result in the restoration of average spread levels to the range of $150 to $200 per ton, it added.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
Published: 03 Jan 2024, 06:03 PM IST