ICICIdirect_JBFIndustries_Q3FY11

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February 3, 2011

ICICIdirect.com | Equity Research

Result Update

CICI Securities Limited

WHAT’S CHANGED…PRICE TARGET......................................................................Changed from | 228 to | 236

EPS (FY11E)........................................................................Changed from | 42.1 to | 67.6

EPS (FY12E)........................................................................Changed from | 50.7 to | 70.3

RATING ......................................................................... Changed from BUY to Strong Buy

BOPET films deliver a stellar performance…JBF Industries’ (JBF) Q3FY11 results were well ahead of the street and our

estimates on the back of a superior performance in the BOPET films

segment. Standalone net sales increased 41% YoY to | 845 crore lower

than our estimated | 1054.2 crore on the back of a lower volume and

value growth in the textile grade chips segment. It reported a standaloneEBITDA margin of 13.4% (up 131 bps and 195 bps QoQ and YoY,

respectively). PAT growth was relatively muted at 16.9% YoY to | 29.8

crore lower than our estimated | 55.2 crore due to a forex loss of | 34.3

crore. A 62.9% and 16.8% increase in BOPET films and pet chips

realisation respectively, led to a YoY growth of 44.0% and 192.1% in

consolidated net sales and EBITDA respectively. Consolidated PAT grew

by over six times to | 185.6 crore.

BOPET Films segment leads the growth

JBF delivered a strong performance on a consolidated level led by

the BOPET films division at Ras-Al-Khaima (RAK). While realisations

improved 37% QoQ, the input costs increased by only 16% leading

to an EBITDA margin expansion of 180 bps QoQ to 17.7%.

Capacity addition to aid growth in FY12

JBF is expanding its chips capacity at the RAK unit from 3,60,000

tonnes per annum (TPA) to 4,30,000 TPA by end of FY11. It is also

expanding the films capacity (at the RAK unit) by 30,000 TPA to

96,000. This is likely to be completed by December 2011. This will

further aid revenue and profitability growth in FY12.

ValuationJBF has reported a strong growth in the last three quarters aided by

realisation growth. JBF is well poised to reap the benefits of the expanded

capacities and cater to the increasing demand for chips, POY and films(thick and thin). The management opines that the current realisations

might hold for a couple of quarters before they normalise. Owing to a

stellar performance we have revised our estimates upwards. JBF is

currently trading at 2.5x FY12E EPS of | 70.4. Our revised target price

works out to | 236 (based on an average of 4.5x FY12E EPS and 0.60x

FY12E book value). We have a STRONG BUY rating on the stock.

Exhibit 1: Financial Performance

(| Crore) Q3FY11 Q3FY11E Q3FY10 Q2FY11 QoQ(Ch %) YoY(Ch%)

Net Sales 845.4 1,054.2 599.6 861.6 (1.9) 41.0

EBITDA Margin (%) 13.4 11.4 11.5 12.1 131 bps 195 bps

Depreciation 18.8 20.0 16.3 18.2 3.5 15.3 Interest 16.7 20.0 13.9 19.0 (12.3) 19.6

Other Income 1.8 3.5 0.7 7.7 (76.8) 165.7

Reported PAT 29.8 55.2 25.5 42.1 (29.3) 16.9

EPS (|) 4.2 7.8 4.1 5.9 - - Source: Company, ICICIdirect.com Research

JBF Industries (JBFIND)

| 173

ting matrix

ing : Strong Buy

get : | 236

get Period : 12 months

ential Upside : 36 %

y Financials

Crore) FY09 FY10 FY11E FY12E

t Sales 4,309.9 4,940.9 6,080.7 6,835.0

ITDA 449.5 471.2 946.3 1,027.3

t Profit 188.9 190.4 481.2 500.7

luation summary

FY09 FY10 FY11E FY12E

(x) 5.7 5.7 2.6 2.5

rget PE (x) 7.8 7.7 3.5 3.3

to EBITDA(x) 5.0 5.0 2.9 2.5

ce to book (x) 1.5 1.2 0.9 0.7

NW (%) 28.5 23.7 42.6 31.1

CE (%) 22.8 18.7 30.3 25.7

ock data

arket Capitalisation | 1,230 crore

bt (Dec-10) | 1,628 crore

sh (Dec-10) | 278 crore

(Dec-10) | 2,580 crore

week H/L (|) 228 / 97

uity capital | 71.16 crore

ce value | 10

F Holding (%) 18.5

Holding (%) 10.0

ce movement

0

000

000

000

000

000

000

000

Feb-10 May-10 Aug-10 Nov-10

0

50

100

150

200

250

NIFTY JBF Industries Ltd

alyst’s name

harat Chhoda

[email protected]

hvani Modi

[email protected]



ICICIdirect.com | Equity Research Page 2

ICICI Securities Limited

Exhibit 2: Consolidated financials

(| Crore) Q3FY11 Q3FY10 YoY(Ch%)

Net Sales 1,711.8 1,189.1 44.0

EBITDA Margin (%) 17.7 8.7 899 bps

Depreciation 33.7 31.1 8.4

Interest 35.3 33.6 4.8

Other Income 1.6 0.8 91.6

PAT 185.6 29.3 534.1

EPS (|) 25.9 4.7 -

Source: Company, ICICIdirect.com Research

In Q3FY11, consolidated net sales increased 44.0% to | 1,711.8 crore. A

62.9% increase in BOPET films’ realisation led to a strong growth in

EBITDA. The EBITDA margin more than doubled from 8.7% in Q3FY10 to

17.7% in Q3FY11. PAT grew over six times to | 185.6 crore on the back of

increased sales and operating margins.

Exhibit 3: JBF – RAK, UAE: Sales volumes

84,272

14,650

96,384

18,433

-

20,000

40,000

60,000

80,000

100,000

120,000

Chips BOPET films

M T

Q3FY10 Q3FY11


Exhibit 4: JBF – RAK, UAE: Average realisations

54

112

63

182

-

50

100

150

200

Chips BOPET films

|

Q3FY10 Q3FY11


Healthy growth in BOPET films realisation leads to an

operating margin expansion and aids bottom-line growth

Both the bottle grade chips and BOPET films manufactured

at the RAK unit witnessed a healthy increase in

realisations. On a YoY basis, the chips and BOPET

realisations improved 16.8% and 62.9% respectively.





Exhibit 5: Cost analysis (as percentage of sales)

Particulars Q3FY11 Q3FY10 Q3FY11 Q3FY10

Raw Materal Cost 75.4% 79.0% 70.1% 79.2%

Purchase of traded goods 0.3% 0.0% 0.2% 0.0%

Employee Cost 1.3% 1.4% 1.3% 1.4%

Other Expenses 9.6% 8.7% 10.7% 10.7%

Standalone Consolidated


Exhibit 6: Sales volume trend (Standalone)

67,107

75,57680,664

74,692

60,020 61,034

82,011 81,483

56,264

1,875 1,474 1,376 1,789 1,766 1,586 2,014 2,101 2,174

51,53140,884

38,49639,120

35,33832,42035,473

39,390 54,872

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11

M T

Polyester Chips POY Processed Yarn


Exhibit 7: Realisation trend (Standalone)

5661

676356

68 69 6673 74

6981

9989

101107

99

121

97 96106

5447

5457 63

59

-

20

40

60

80

100

120

140


| perkg

Polyester Chips POY Processed Yarn


A lower growth in raw material costs as compared to end

product prices led to enhanced operating margins on a

standalone and consolidated basis.

Owing to a steep increase in cotton prices and the

consequent increase in cotton yarn prices, JBF has

benefited from increased blending. It has witnessed a

double digit growth in POY volumes for three quarters in a

row.

POY realizations increased 21.2% YoY on the back of

increased demand





Exhibit 8: Operating margin (Standalone)

13.4

10.3

9.1

11.5

10.210.4

11.111.6

12.1

8.0

9.0

10.0

11.0

12.0

13.0

14.0


%

OPM(%)


Exhibit 9: Revised estimates

(| crore)

Particulars Earlier Revised % Change Earlier Revised % Change

Sales 5,721.2 6,080.7 6.3 6,092.2 6,835.0 12.2

Operating Profit 744.3 946.3 27.1 751.6 1,027.3 36.7

Margin (%) 13.0 15.6 255 bps 12.3 15.0 269 bps

Net Profit 299.4 481.2 60.7 360.7 500.7 38.8

EPS (|) 42.1 67.6 - 50.7 70.4 -

FY11E FY12E


Considering the strong growth in realisations and a strong outlook for

prices of finished products we have revised our estimates for FY11E and

FY12E. Our revised revenue estimates stand at | 6,080.7 crore and |

6,835.0 crore for FY11E and FY12E respectively. The EBITDA margin and

PAT estimates stand at 15.6% and 15.0%, and | 481.2 crore and | 500.7

crore for FY11E and FY12E, respectively. As a result, EPS for FY11E and

FY12E stand at | 67.6 and | 70.4, respectively.

Valuations

JBF has reported a strong growth in the last three quarters aided by

realisation growth. JBF is well poised to reap the benefits of the expanded

capacities and cater to the increasing demand for chips, POY and films(thick and thin). The management opines that the current realisations

might hold for a couple of quarters before they normalise. Owing to a

stellar performance we have revised our estimates upwards. JBF is

currently trading at 2.5x FY12E EPS of | 70.4. Our revised target price

works out to | 236 (based on an average of 4.5x FY12E EPS and 0.60x

FY12E book value). We have a STRONG BUY rating on the stock.

JBF has witnessed a healthy revival in EBITDA margins

over the last three quarters





Exhibit 10: The road ahead

4,3104,941

6,081

6,835

449 471946 1,027

189 190481 501

70.3667.62

30.5930.34

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

FY09 FY10 FY11E FY12E

| core

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

|

Net Sales EBITDA Net Profit EPS (RHS)






Exhibit 11: Recommendation History

0

50

100

150

200

250

F e b - 1

0

M a r - 1

0

A p r - 1

0

M a y - 1

0

J u n - 1

0 J u l - 1

0

A u g - 1

0

S e p - 1

0

O c t - 1

0

N o v - 1

0

D e c - 1

0

J a n - 1

1

JBF Industries Ltd

TP: 156, Buy

TP: 228, Buy

TP: 236, Strong Buy

TP: 145, Add


ICICIdirect.com Coverage Universe

Sales (| Crore) EPS (|) PE (x) EV/EBITDA RoNW(%) RoCE (%)

Idirect Code ALOTEX CMP (|) 25 FY10 4,311.2 3.1 8.1 7.6 8.9 8.0

Target (|) 28 FY11E 5,663.1 4.0 6.4 6.1 9.5 9.2

MCap 2,001 Upside (%) 11 FY12E 5,924.2 5.1 4.9 5.3 12.3 10.9


Idirect Code BOMRAY CMP (|) 243 FY10 1,614.8 15.7 15.5 14.0 9.2 7.1

Target (|) 253 FY11E 2,074.7 21.2 11.5 8.8 11.3 10.3

MCap 2,969 Upside (%) 4 FY12E 2,524.8 25.3 9.6 7.7 12.2 11.1


Idirect Code JBFIND CMP (|) 173 FY10 4,940.9 30.6 5.7 5.0 23.7 18.7

Target (|) 236 FY11E 6,080.7 67.6 2.6 2.9 42.6 30.3

MCap 1,236 Upside (%) 36 FY12E 6,835.0 70.4 2.5 2.5 31.1 25.7


Idirect Code KEWKIR CMP (|) 533 FY10 175.3 26.4 20.2 12.9 18.6 21.2

Target (|) 461 FY11E 228.3 35.2 15.2 9.2 21.7 26.8

MCap 657 Upside (%) -13 FY12E 286.5 41.9 12.7 7.5 21.3 26.6

Bombay Rayon Fashions

JBF Industries

Alok Industries

Kewal Kiran Clothing






RATING RATIONALE

CICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Add, Reduce and Sell. The performance horizon is 2 years unless specified and the

notional target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;

Add: Up to 10%;

Reduce: Up to -10%

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,ICICI Securities Limited,

7th Floor, Akruti Centre Point,MIDC Main Road, Marol Naka,Andheri (East)

Mumbai – 400 093

[email protected]

ANALYST CERTIFICATIONWe /I, Bharat Chhoda MBA (FINANCE) Dhvani Modi MBA (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research

eport accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the

pecific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

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nderwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of

ompanies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities

enerally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts

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he information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and

meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without

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ICICIdirect_JBFIndustries_Q3FY11