JBF Industries (JBFIND) : BOPET Films Deliver A Stellar Performance

ICICI Securities Limited
Result Update
February 3, 2011
Rating matrix
Rating Target Target Period Potential Upside : : : : Strong Buy | 236 12 months 36 %
JBF Industries (JBFIND)

| 173
WHATS CHANGED
PRICE TARGET......................................................................Changed from | 228 to | 236
Key Financials
(| Crore) Net Sales EBITDA Net Profit FY09 4,309.9 449.5 188.9 FY10 4,940.9 471.2 190.4 FY11E 6,080.7 946.3 481.2 FY12E 6,835.0 1,027.3 500.7
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 standalone EBITDA 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.
Valuation summary
FY09 PE (x) Target PE (x) EV to EBITDA(x) Price to book (x) RoNW (%) RoCE (%) 5.7 7.8 5.0 1.5 28.5 22.8 FY10 5.7 7.7 5.0 1.2 23.7 18.7 FY11E 2.6 3.5 2.9 0.9 42.6 30.3 FY12E 2.5 3.3 2.5 0.7 31.1 25.7
Stock data
Market Capitalisation Debt (Dec-10) Cash (Dec-10) EV (Dec-10) 52 week H/L (|) Equity capital Face value MF Holding (%) FII Holding (%) | 1,230 crore | 1,628 crore | 278 crore | 2,580 crore 228 / 97 | 71.16 crore | 10 18.5 10.0
Price movement
7000 6000 5000 4000 3000 2000 1000 0 Feb-10 May-10 NIFTY Aug-10 Nov-10 JBF Industries Ltd 250 200 150 100 50 0
Valuation
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.
Exhibit 1: Financial Performance
(| Crore) Net Sales EBITDA Margin (%) Depreciation Interest Other Income Reported PAT EPS (|) Q3FY11 845.4 13.4 18.8 16.7 1.8 29.8 4.2 Q3FY11E 1,054.2 11.4 20.0 20.0 3.5 55.2 7.8 Q3FY10 599.6 11.5 16.3 13.9 0.7 25.5 4.1 Q2FY11 861.6 12.1 18.2 19.0 7.7 42.1 5.9 QoQ(Ch %) (1.9) 131 bps 3.5 (12.3) (76.8) (29.3) YoY(Ch%) 41.0 195 bps 15.3 19.6 165.7 16.9 -
Analysts name
Bharat Chhoda bharat.chhoda@icicisecurities.com Dhvani Modi dhvani.bavishi@icicisecurities.com
Source: Company, ICICIdirect.com Research ICICIdirect.com | Equity Research

Healthy growth in BOPET films realisation leads to an operating margin expansion and aids bottom-line growth
Exhibit 2: Consolidated financials

(| Crore) Net Sales EBITDA Margin (%) Depreciation Interest Other Income PAT EPS (|)
Source: Company, ICICIdirect.com Research
Q3FY11 1,711.8 17.7 33.7 35.3 1.6 185.6 25.9
Q3FY10 1,189.1 8.7 31.1 33.6 0.8 29.3 4.7
YoY(Ch%) 44.0 899 bps 8.4 4.8 91.6 534.1 -
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
120,000 100,000 80,000 MT 60,000 40,000 20,000 Chips Q3FY10 BOPET films Q3FY11 14,650 18,433 84,272 96,384
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 4: JBF RAK, UAE: Average realisations

200 150 100 54 50 Chips Q3FY10 BOPET films Q3FY11 | 182
112 63
ICICIdirect.com | Equity Research
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A lower growth in raw material costs as compared to end product prices led to enhanced operating margins on a standalone and consolidated basis.
Exhibit 5: Cost analysis (as percentage of sales)

Standalone Particulars Raw Materal Cost Purchase of traded goods Employee Cost Other Expenses
Consolidated Q3FY11 70.1% 0.2% 1.3% 10.7% Q3FY10 79.2% 0.0% 1.4% 10.7% 79.0% 0.0% 1.4% 8.7%
Q3FY11 75.4% 0.3% 1.3% 9.6%
Q3FY10
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.
Exhibit 6: Sales volume trend (Standalone)

90,000 82,011 81,483 80,664 75,576 74,692 80,000 67,107 70,000 60,020 61,034 56,264 60,000 50,000 40,884 51,531 54,872 39,390 40,000 38,496 35,473 35,338 39,120 32,420 30,000 20,000 10,000 2,101 2,174 2,014 1,875 1,789 1,766 1,586 1,474 1,376 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 POY Q4FY10 Q1FY11 Q2FY11 Q3FY11
MT
Polyester Chips
Processed Yarn
POY realizations increased 21.2% YoY on the back of increased demand
Exhibit 7: Realisation trend (Standalone)

140 120 100 | per kg 80 60 40 20 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 POY Q4FY10 Q1FY11 Q2FY11 Q3FY11 54 99 63 47 89 56 54 101 68 107 69 57 99 66 56 73 61 121 97 74 63 59 96 69 106 81 67
Polyester Chips
Processed Yarn
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JBF has witnessed a healthy revival in EBITDA margins over the last three quarters
Exhibit 8: Operating margin (Standalone)

14.0 13.0 12.0 11.0 10.0 9.0 8.0 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 9.1 % 11.6 11.1 10.4 10.2 11.5 10.3 13.4 12.1
OPM(%)
Exhibit 9: Revised estimates

(| crore) Particulars Sales Operating Profit Margin (%) Net Profit EPS (|) Earlier 5,721.2 744.3 13.0 299.4 42.1 FY11E Revised 6,080.7 946.3 15.6 481.2 67.6 % Change 6.3 27.1 255 bps 60.7 Earlier 6,092.2 751.6 12.3 360.7 50.7 FY12E Revised 6,835.0 1,027.3 15.0 500.7 70.4 % Change 12.2 36.7 269 bps 38.8 -
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.
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Exhibit 10: The road ahead
8,000 7,000 6,000 | crore 5,000 4,000 3,000 2,000 1,000 FY09 FY10 FY11E FY12E 30.34 449 189 30.59 471 190 946 481 1,027 501 4,310 4,941 6,081 67.62 6,835 70.36 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 |
Net Sales
EBITDA
Net Profit
EPS (RHS)
Page 5
ICICIdirect.com Coverage Universe

Alok Industries Idirect Code MCap ALOTEX CMP (|) Target (|) 2,001 Upside (%) Bombay Rayon Fashions Idirect Code MCap JBF Industries Idirect Code MCap Kewal Kiran Clothing Idirect Code MCap KEWKIR CMP (|) Target (|) 657 Upside (%)
Sales (| Crore) 25 FY10 28 FY11E 11 FY12E 4,311.2 5,663.1 5,924.2 Sales (| Crore) 243 FY10 253 FY11E 4 FY12E 1,614.8 2,074.7 2,524.8 Sales (| Crore) JBFIND CMP (|) Target (|) 1,236 Upside (%) 173 FY10 236 FY11E 36 FY12E 4,940.9 6,080.7 6,835.0 Sales (| Crore) 533 FY10 461 FY11E -13 FY12E 175.3 228.3 286.5
EPS (|) 3.1 4.0 5.1 EPS (|) 15.7 21.2 25.3 EPS (|) 30.6 67.6 70.4 EPS (|) 26.4 35.2 41.9
PE (x) 8.1 6.4 4.9 PE (x) 15.5 11.5 9.6 PE (x) 5.7 2.6 2.5 PE (x) 20.2 15.2 12.7
EV/EBITDA 7.6 6.1 5.3 EV/EBITDA 14.0 8.8 7.7 EV/EBITDA 5.0 2.9 2.5 EV/EBITDA 12.9 9.2 7.5
RoNW(%) 8.9 9.5 12.3 RoNW(%) 9.2 11.3 12.2 RoNW(%) 23.7 42.6 31.1 RoNW(%) 18.6 21.7 21.3
RoCE (%) 8.0 9.2 10.9 RoCE (%) 7.1 10.3 11.1 RoCE (%) 18.7 30.3 25.7 RoCE (%) 21.2 26.8 26.6
BOMRAY CMP (|) Target (|) 2,969 Upside (%)
Exhibit 11: Recommendation History

250 200 150 100 50 0 TP: 156, Buy TP: 228, Buy TP: 236, Strong Buy TP: 145, Add
10
Ap r-1 0 M ay -1 0
Se p10
Ju n10
M ar
Au
JBF Industries Ltd
No v-
De c10
Ja n11
-1 0
10
Fe b10
Ju l-
g10
Oc t
-1 0
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RATING RATIONALE
ICICIdirect.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 ICICIdirect.com Research Desk, ICICI Securities Limited, 7th Floor, Akruti Centre Point, MIDC Main Road, Marol Naka, Andheri (East) Mumbai 400 093 research@icicidirect.com ANALYST CERTIFICATION
We /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 report 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 specific 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.
pankaj.pandey@icicisecurities.com
Disclosures:
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JBF Industries (JBFIND) : BOPET Films Deliver A Stellar Performance

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