>JBF INDUSTRIES: Margins to improve in Financial Year 2011

JBF Industries (JBF) reported strong YoY revenue growth on the back of significantly higher sales realisation in the Polyester chips and POY segment. Revenues for Q1FY11 were higher by 26% at Rs 849.2 crore. In spite of raw material cost to sales ratio increasing by 50 bps YoY to
79.5%, JBF has been able to maintain its EBITDA margin owing to improvement in realisations. However, Q1FY11 net profit has declined by 38.6% YoY to Rs 31.6 crore mainly on account of absence of extraordinary profit on buyback of FCCBs to the tune of Rs 17.5 crore.

■ Significantly higher realisations
In Q1 FY11, polyester chips volume (including bottle grade chips) increased YoY by 1.7% to 82011 tonnes while the POY volume increased by 26% YoY to 40884 tonnes. The average realisation of chips (including bottle grade chips) improved by 16% to Rs. 62.6 per kg, while that of POY segment was higher by 9% at Rs 74.

■ EBITDA margin to improve in FY11
JBF’s EBITDA margin which had declined in Q4FY10 to 9.1%, has shown considerable improvement in Q1FY11 with a 120 bps improvement to 10.3% due to easing of raw material prices . We expect EBITDA margin to improve further in FY11 to 10.7% as the company enhances sales of higher margin bottle grade chips.

Valuation
At CMP of Rs. 137, the stock trades at 4x and 3.5x FY11E and FY12E earnings of Rs 34.4 and Rs. 39.1 per share. The expansion plan provides the much required growth visibility to the company and introduction of value added segments would improve the profitability going forward. We value the stock at 4x FY12E earnings with a target price of Rs 156 and assign a Buy rating to the stock.

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