Fairly valued for a commodity player: Our positive stance was based on improving outlook for rubber chemicals business post anti-dumping duty. Also, the company is expected to benefit from its timely expansion at Dahej to manufacture intermediate products. The effect of the positive factors is clearly visible in the strong earnings growth reported in Q2 and H1 of the current fiscal. However, after the appreciation, the stock trades at close to 12x its FY2017E earnings which is not cheap for its commoditised business. Thus, we see limited upside in near term and recommend booking profit at the current level.
Key risk: Further improvement in margins from the current level of 17% reported in H1FY2016 could result in a higher-than-expected growth in earnings and subsequent further re-rating of the stock.
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