Attractive valuations, wide customer base make Anupam Rasayan an attractive 'China + 1' play, says Jefferies; initiates coverage

Anupam Rasayan India, engaged in the custom synthesis and manufacturing of specialty chemicals, is well positioned to benefit from China+1 play after correcting nearly 16%, says Jefferies while initiating coverage on the specialty chemical maker.  

Shares of Anupam Rasayan gained around 5% on Friday as the brokerage house gave a buy rating with target price of Rs 1,040, which translates into an upside of nearly 20% on March 24 closing price of Rs 864 a share on the BSE.  

"Anupam Rasayan is well-positioned to benefit from 'China + 1' with its diversified chemistry expertise, wide customer base and presence across multiple verticals. Strong LT contract pipeline offers medium-term growth visibility. Valuation is favorable after a 16% correction. We initiate at Buy with a Rs1,040 PT at 38x P/E on accelerating earnings growth and upside potential from new contract wins, "said Jefferies.  

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Shares of Anupam Rasayan have been trading flat for the past one month with barely 2.5% gain as on March 25. However, the counter surged more than 75% in the past one year. 

At 1.0 pm on Friday, the scrip was trading with 2.5% gain or higher by RS21.30 to 885.45 apiece on the BSE. 

The brokerage says that ARIL has process expertise in complex chemistries involving multi-step synthesis. "No single chemistry contributes more than 12% of its revenues. It has also developed expertise in continuous flow chemistry that is lower cost and greener compared to the traditional batch process used by majority of CSM players," it said.  

The company has also announced the acquisition of up to a 51% stake in Tanfac Industries for a consideration of Rs3bn. The acquisition would ensure raw material availability in the Halex (Potassium Fluoride) and HF (Hydro Fluoric Acid) fluorochemistry chains.  

"This will pave the way for capturing integrated margins across these two feedstock chains," says Jefferies. 

What are the risks? 

Meanwhile, key risks with the company remain small size of its core R&D team, employee cost as percentage of revenues is significantly lower than peers. Besides, loss of any major customer, potential environmental risk related to disposal of solid waste and Slowdown in the global agro-chem cycle can hurt the sentiments of the stock.  

About company profile 

Founded in 1984 and headquartered in Surat, Gujarat, Anupam Rasayan India Ltd. manufactures pharmaceutical and specialty chemical products. It operates in life science related specialty chemicals and other specialty chemicals segments. The life science related specialty chemicals segment manufactures a variety of life science related specialty chemicals comprising products related to agrochemicals, personal care and pharmaceuticals.  

It manufactures agro intermediates and agro active ingredients for the agrochemicals industry which are used in the manufacturing of, amongst others, insecticides, fungicides and herbicides. The other specialty chemicals segment manufactures specialty chemicals which are used in diverse end-user segments, comprising specialty pigments, specialty dyes and polymer additives.