Page 01

Andhra Petrochemicals Ltd. BOM500012

Sampann Vishal Jangir

pg22-087@jkbschool.org pg22-098@jkbschool.org

Price (08/09/21) Rs.150 Market Cap (Cr) ₹1267

52-wk High Rs 197 Present Enterprise Value (Cr) ₹1269
52- wk Low Rs27.5 Beta 0.5
Avg Daily Vol. (3 mo. Daily,) 383485 WACC 9.78%
Nominal Shares Outstanding 8.4 cr. Dividend Yield 1.01%
TEV / FY ‘22 Total Revenue 2.23 x
TEV / FY ‘22 EBITDA 8.4 x

Recommendation:
LONG for ~18.80% IRR with a 5-year price target of ₹353.07 based on a DCF with a terminal multiple of 10.14x
FY22 EBITDA and WACC of 9.78%

Business Description:
The Andhra Petrochemicals Ltd. APL is a joint venture company promoted by The Andhra Pradesh
Industrial Development Corporation (APIDC) and The Andhra Sugars Ltd (ASL). Subsequently the
structure of the Company has changed into an assisted sector Company with ASL being the major
share holder

Investment Thesis:
I. Significant business transformation:
• APL was established with a capacity to produce 30,000 MTPA of Oxo Alcohols at Visakhapatnam, Andhra
Pradesh, India.
• The Plant has undergone an Optimization & Modernization Scheme to increase the capacity to
80,000 MTPA
II. Expansion in product portfolio:
• We estimate that company has already been
growing it sales by ~11.50% CAGR in last 3
years.
 Page 02
Andhra Petrochemicals Ltd. Long
argi

III. Significant hidden operating

leverage in the business:
• During the Financial Year 2020-21 the Plant was shut down
for a period of 35 days.
• In spite of the COVID-19 crisis and Plant shut-down, your
Company could manage to post a Net Profit of Rs.76.47 crores
(after tax) for the year under review, due to the International / National
Product Prices coupled with implementation of cost reduction / Energy
Savings measures. Moreover, your Company developed BPCL-KOCHI as
alternative raw material (Propylene) supplier, which to some extent diluted
the Risk of single source.
IV. Business model has sustainable competitive advantages:
Valuation:
• DCF with 9.78% WACC, 8.22x
FY22 EBITDA terminal multiple. et ro t argi
• Forward revenue continues to compound
in line with last 5 years (~19% CAGR),
with observed ~6% incremental EBITDA
margins
• Net Profit is forecasted to grow at 6%.
• Despite a working capital-intensive
business model, Andhra petrochemical
been able to consistently generate free
cash flows thereby reducing its net debt
from 99cr in FY17 to 2.68cr in FY21.
Risks and mitigants:
• Your Company is depending for its major raw material i.e., Propylene from a single source - HPCL Visakha refinery.
However, the risk is built in the project evaluation. Risk is slightly diluted to some extent this year by sourcing Propylene
from BPCL - KOCHI when HPCL plant was under shutdown / maintenance.
• Crude prices, Exchange rate fluctuations are also a matter of concern