crisil report - Diamines And Chemicals Limited

Diamines and Chemicals Ltd
Valuation Grade: 5/5
We have used the discounted cash flow (DCF) method to value Diamines and
arrived at a fair value of Rs 98 per share. The stock is currently trading at Rs 70
per share, which implies a PE of 4.7x our FY13 EPS estimate of Rs 14.8. Our fair
value of Rs 98 implies a PE of 7.5x and 6.6x our FY12 and FY13 EPS estimate
respectively, which appears justified based on current multiples of the industry
peers. Consequently, we initiate coverage on Diamines with a valuation grade of
We assign a fair value of Rs 98
per share to Diamines and
initiate coverage with a
valuation grade of 5/5
5/5, indicating that the current market price has a strong upside to the fair
value.
Key DCF assumptions
We have considered the discounted value of the firm’s estimated free cash flow
from FY12 to FY25.
Terminal year assumptions:
The fair value implies P/E of
7.5x our FY12 EPS of Rs 13.0
and 6.6x our FY13 EPS of Rs
14.8
1. Growth rate of 3%
2. Capital expenditure of ~Rs 110 mn, 2.5% of sales
3. Depreciation of ~Rs 90 mn, 2.1% of sales.
WACC computation
FY12-25 Terminal value
Cost of equity 19.6% 19.6%
Cost of debt (post tax) 9.0% 9.0%
WACC 14.7% 14.5%
Terminal growth rate 3%
Some of its selected peer trade
at an average PE of 7.9x at
FY12 EPS
Sensitivity analysis to terminal WACC and terminal growth rate
Terminal growth rate
1% 2% 3% 4% 5%
Terminal WACC
12.5% 117 127 140 155 174
13.5% 99 107 116 127 140
14.5% 85 91 98 106 116
15.5% 74 79 84 90 97
16.5% 65 69 73 77 83
Source: CRISIL Research
Factors that can impact the fair value
Upside
• Any potential increase to our expected product prices will have a
meaningful impact on our estimates.
• Earlier-than-expected completion of de-bottlenecking exercise and ramp up
in operations.
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