Chromium Investments And SAP Migration Will Improve Future Efficiency

Key Takeaways

• Capital investment and diversification, including the chromium mine acquisition, are aimed at enhancing revenue growth, EBITDA, and gross margins.
  
• Expanding barium division and strontium carbonate launch could improve leverage and boost growth in the U.S. and India.
  
• Delays in regulatory approvals and uncertainties in expansions, combined with geopolitical and demand fluctuations, could impact margins and future earnings.

Catalysts

Engages in the manufacture and sale of chromium chemicals in India.

• Vishnu Chemicals plans significant capital expenditure in the chromium chemicals vertical for FY '26, which is expected to increase volumes. This could drive revenue growth.
  
• The acquisition of a chromium mine in South Africa, once operational, will secure long-term raw material supply and potentially lower production costs, enhancing EBITDA margins.
  
• The company is expanding its barium division, with expectations of 15-20% volume growth driven by strong demand in the U.S. and India. This expansion could improve operating leverage and increase gross margins.
  
• Vishnu Chemicals is adding a new product, strontium carbonate, with operations starting in FY '26 Q1. This diversification could boost revenue and margin growth.
  
• The SAP migration enhances decision-making capabilities across the company, potentially improving operational efficiency and net margins through more streamlined processes and cost management.

Vishnu Chemicals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vishnu Chemicals's revenue will grow by 19.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 11.2% in 3 years time.
• Analysts expect earnings to reach ₹2.6 billion (and earnings per share of ₹38.35) by about February 2028, up from ₹1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, down from 25.5x today. This future PE is lower than the current PE for the IN Chemicals industry at 24.7x.
• Analysts expect the number of shares outstanding to grow by 2.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.89%, as per the Simply Wall St company report.

Vishnu Chemicals Future Earnings Per Share Growth

Risks

• Reliance on the regulatory and statutory clearances for the acquisition of the South African chromium mine could delay the expected benefits, thereby impacting future revenue growth from this venture.
  
• Uncertainties around the exact quantum of CapEx and expansions in the Chromium and Barium segments could pose potential risks to the timely achievement of operational targets, impacting future earnings.
  
• The company's significant exposure to export markets, including regions with fluctuating freight costs and geopolitical tensions, could affect export margins and overall net margins.
  
• The pace of the company's growth in new product lines, such as strontium carbonate, is contingent on swift market adoption and competitor actions, presenting risks to projected revenue and earnings.
  
• Dependence on high utilization rates to drive growth in the current product lines may strain operational capabilities and risk potentially flattening margins if demand fluctuations occur.

Valuation

• The analysts have a consensus price target of ₹600.0 for Vishnu Chemicals 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 ₹23.1 billion, earnings will come to ₹2.6 billion, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 13.9%.
  
• Given the current share price of ₹436.55, the analyst price target of ₹600.0 is 27.2% 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.