New Plasticizer Unit At Taloja And Compressed Biogas Plant Will Improve Future Operational Efficiency

Key Takeaways

• Investments in new facilities and renewable initiatives aim to boost revenue, operational efficiency, and profit margins by tapping into rising domestic demand and renewable energy.
  
• Switching to natural gas and implementing solar power initiatives will likely reduce operating expenses and enhance EBITDA and net margins.
  
• IGPL faces revenue growth challenges due to market volatility, currency risks, operational disruptions, capacity utilization issues, and raw material price fluctuations.

Catalysts

Engages in the manufacture and sale of organic chemicals in India and internationally.

• The company is investing in a greenfield unit at Taloja, Maharashtra to produce various types of plasticizers, expected to complete by Q3 FY '26. This expansion aims to tap into growing domestic demand, potentially boosting revenue and profit margins.
  
• IGPL is also setting up a Compressed Biogas (CBG) plant, which is expected to come online by the end of December 2025. This could add a new revenue stream, increase operational efficiency, and contribute to improved net margins through cost savings from renewable energy.
  
• The expected increase in volume capacity from 200,000 to 210,000 tonnes this year to between 230,000 and 250,000 tonnes next year can lead to higher revenues and economies of scale, positively impacting earnings and net margins.
  
• The company plans to replace the current fuel oil with natural gas for plant operations by FY '26-'27, which should result in significant operating expense reductions, thus enhancing net margins.
  
• Ongoing implementation of solar power initiatives is expected to further reduce energy costs and lower operating expenses, supporting improved EBITDA margins over time.

I G Petrochemicals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming I G Petrochemicals's revenue will grow by 12.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 9.3% in 3 years time.
• Analysts expect earnings to reach ₹2.9 billion (and earnings per share of ₹77.74) by about February 2028, up from ₹549.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.0x on those 2028 earnings, down from 25.3x today. This future PE is lower than the current PE for the IN Chemicals industry at 28.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.94%, as per the Simply Wall St company report.

I G Petrochemicals Future Earnings Per Share Growth

Risks

• The chemical industry faces challenges such as subdued price volatility in crude markets, rising trade costs, and moderate demand from Western markets, which could potentially impact IGPL's future revenue growth.
  
• The company's significant euro-denominated debt exposes it to currency fluctuations, which can impact net margins through unrealized foreign exchange losses or gains.
  
• There is potential operational risk due to planned and unplanned shutdowns necessary for the change of catalysts, impacting overall production capacity and earnings.
  
• Despite increasing capacity, there are existing challenges with fully utilizing production capacity, which could limit revenue growth if not addressed.
  
• Dependence on key raw materials and products with volatile pricing could affect gross profit margins unpredictably if market conditions do not stabilize.

Valuation

• The analysts have a consensus price target of ₹862.0 for I G Petrochemicals based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹31.5 billion, earnings will come to ₹2.9 billion, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 13.9%.
  
• Given the current share price of ₹451.1, the analyst price target of ₹862.0 is 47.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.