March 11, 2023
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ION EXCHANGE (INDIA) LTD, specializes in water and environment management
Call & Research Report by HDFC Securities
Sector: Engineering – Industrial Equipments
CMP Rs. 3429, Target Rs. 4020 (17% upside potential)
Target Period: 12 Months
Ion Exchange (IEIL) specializes in water and environment management with over five decades of experience. There is huge potential in water and wastewater treatment as the demand for water is likely to outstrip the supply causing water scarcity in many areas of the globe including India. IEIL’s has witnessed steady order book both in domestic and international markets with order book of Rs 3650cr (visibility of ~2-3 years) and bid pipeline of over Rs 8400cr. The environment clearance for its resin facility expansion is expected to be received in Q4 and the company expects consumer products division to break even at EBIT level in FY23.
Focus of the Government on optimum utilisation of water due to the declining ground water levels could provide a strong boost to the water treatment chemicals business. Expansion of membrane and chemical capacity indicates strong demand for its products and would drive its revenues in the coming years.
On July 14, 2022, we had initiated coverage on the stock (Link) with a recommendation to ‘Buy in Rs 1790-1820 band & add more on dips in Rs 1630-1650 band’ for base case fair value of Rs 1996 and bull case fair value of Rs 2138. The stock achieved our bull case target on September 9, 2022.
Valuation & Recommendation:
The expansion of the membrane facility and greenfield expansion of chemicals capacity (environment clearance awaited) are likely to be strong growth drivers for IEIL especially when the demand drivers for its products/services remain robust. We expect IEIL’s Revenue/EBITDA/PAT to grow at 17/14/15% CAGR over FY22-FY25E, led by increased execution of orders. We believe investors can buy the stock in Rs 3400 3480 band and add on dips in Rs 3000-3050 band (18x Dec’24E EPS) for a base case fair value of Rs 3770 (22.5x Dec’24E EPS) and bull case fair value of Rs 4020 (24x Dec’24E EPS) over the next 2-3 quarters.
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