INSUBCONTINENT EXCLUSIVE:
SBICAP Securities has a buy call on Gujarat Ambuja Exports (GAEX) with a target price of Rs 370.
The current market price of Gujarat Ambuja
Exports is Rs 250.70.
Time period given by SBICAP Sec is one year when Gujarat Ambuja Exports price can reach the defined target.
Investment
rationale by SBICAP Securities:
GAEX has announced its plans to set up a 1,000tpd greenfield unit in Malda, West Bengal (WB), to meet demand
from eastern India and exports to South East (SE) Asian countries
Also, the recently opened plant at Chalisgaon continues to see strong ramp-up with the unit already operating at 80 per cent utilization
GAEX continues to benefit from strong export demand and has successfully passed on the MSP-led increase in corn prices, boosting
realizations from starch and starch derivatives
We believe that GAEX will continue to deliver, propelled by improving product mix (greater mix of starch and derivatives, which will account
for over 70 per cent of FY20e EBITDA, see exhibit 2), efficient RM procurement, and low cost operations
We reiterate a strong BUY with a TP of Rs 370 (48 per cent upside)
Nearly 33 per cent increase in capacity planned at Malda, WB: GAEX has announced that it will set up a 1,000tpd maize processing greenfield
plant in WB at an estimated cost of Rs 3bn (funded through internal accruals)
The company has already been allotted land for the project and expects to execute it within 2 yeaRs
The plant will manufacture starch, liquid glucose and sorbitol to meet demand in eastern India and export markets of Bangladesh and SE Asian
countries (only Sukhjit Starch has a sizeable capacity of about 500tpd in the East)
Its proximity to the corn belts of Bihar and its export customeRs , would help save on logistics costs
This will make GAEX a pan-India manufacturer in maize processing, with operational plants already in Uttarakhand (North), Karnataka (South),
Gujarat and Maharashtra (West)
(vs.57 per cent in Q2 and 37 per cent in Q1) buoyed by steady export demand
Clearly, demand (along with exports) for starch and starch derivatives is rising, and the new plant should help meet the additional demand
as its other existing facilities are operating at peak utilization
The plant involved a capex of about Rs 2.4bn for the starch and liquid glucose facility, and the company is spending an additional about Rs
1.2bn for production of starch derivatives (which should begin contributing from FY20e)
Rise in corn prices have been passed on successfully: Corn prices have inched up to Rs 17/kg from Rs 14-15/kg earlier, after the government
This increase in input prices has been passed on with starch realization now at Rs 26-27/kg (Rs 21-22/kg) and starch derivatives
realizations at Rs 30-35/kg (vs
Rise in prices of tapioca starch produced locally in the SE Asian countries (relative to corn starch), and rupee depreciation have helped
The company has also improved its working capital cycle through stringent control on receivables and lower inventory days
Maize processing segment is expected to contribute over 70 per cent of EBITDA in FY20e
With the Malda facility, GAEX is rationally expanding in the attractive corn processing segment leveraging its low cost
positioning.
Valuation: We maintain our estimates, as the new plant will begin contributing only post FY21e
We maintain BUY with a target price of Rs 370 (15x-FY21e EPS)
