Omkar Speciality: H2 to witness better growth momentum Moneycontrol (16/11/2012)
CRISIL Research has come out with its report on Omkar Speciality Chemicals . The research firm expects manufacturing of new products to ramp up as the Urdhwa plant starts commercial production and remained positive on the company's growth and maintained fundamental grading of 3/5.
Product mix likely to improve in 2H as Urdhwa plant gets ready for production Q2FY13 sales grew by 29% y-o-y partly driven by consistent growth in exports (Rs 160 mn vs. Rs 27 mn in Q2FY12). The exports largely consisted of new products. Following the completion of capacity expansion and with all the necessary approvals in place, the Urdhwa plant is expected to begin commercial production in this month. At the Urdhwa plant, the company plans to ramp up the production of high value added products for which it already has sales visibility from large domestic and overseas pharma players; these new products are expected to generate incremental sales of around Rs 300 mn.
Focus on forward integration of its existing products to manufacture end products The company is working on to forward integrate a few of its existing products, including pharma intermediates, to develop end-market products that will be commercially launched. The company has begun production of a few generic APIs and plans to commercially sell them to end customers. Although the sales contribution from these products is small, we believe it is a step in the right direction for margin expansion and sales growth.
Remain positive on growth prospects; maintain fair value of Rs 110 We remain confident on the company’s growth prospects to be driven by both new and existing products. We maintain our revenue estimates of Rs 2,435 mn and Rs 3,363 mn for FY13 and FY14, respectively; however we lower our EBITDA margin estimates for FY13 and FY14 from 20.6% to 20.0% and 21.1% to 20.8%, respectively because of higher than expected employee costs and other manufacturing expenses related to capacity expansion. Omkar’s financing expenses have declined significantly in Q2FY13 because of availability of lower-cost working capital financing. As a result, we maintain our FY13 and FY14 EPS estimates of Rs 11.0 and Rs 15.3, respectively. We reiterate our fair value of Rs 110 per share. The fair value implies a one-year forward P/E of 8x FY14 EPS estimate. At the current market price of Rs 122, the valuation grade is 3/5.