Himadri: Hold on Expansion Pace, TP Cut to ₹470 by ICICI

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AuthorAnanya Iyer|Published at:
Himadri: Hold on Expansion Pace, TP Cut to ₹470 by ICICI
Overview

Himadri Speciality Chemical reported an 11.3% year-on-year volume increase for Q3 FY26. However, EBITDA per kilogram declined 1.3% to INR15.9, a factor ICICI Securities attributes to pressure on specialty carbon black spreads. The company is advancing significant capacity expansions, including coal tar distillates, carbon black, and specialty oils, alongside investments in LFP facilities. ICICI Securities has reduced EBITDA estimates by 5-7% for FY26/27 and lowered its target price to ₹470 from ₹500, reiterating a 'Hold' recommendation.

THE SEAMLESS LINK

Despite reporting volume growth in the third quarter of fiscal year 2026, Himadri Speciality Chemical's performance is under scrutiny from analysts due to margin pressures, leading to a revised valuation and a cautious stance from ICICI Securities.

Q3 Performance Amidst Margin Headwinds

Himadri Speciality Chemical's Q3 FY26 results revealed an 11.3% year-on-year increase in sales volume. However, the operational profitability metric, EBITDA per kilogram, saw a marginal year-on-year decline of 1.3% to INR15.9. ICICI Securities has identified prevailing pressure on specialty carbon black spreads as the primary driver for this compressed profitability. This dynamic, impacting per-unit margins, overshadows the topline volume gains and influences the brokerage's adjusted financial outlook for the company.

Strategic Expansion into New Frontiers

The company is actively pursuing a multi-pronged capacity expansion strategy. Plans are underway to increase coal tar distillates capacity by 20% to 600 kilotonnes per annum (ktpa), and carbon black capacity by 40% to 250 ktpa. Furthermore, expansions in specialty oil products are progressing. Himadri has also recorded initial revenue from its involvement with Birla Tyres and anticipates further product and distribution development in this segment. Crucially, investments in Lithium Iron Phosphate (LFP) facilities are on schedule, while market participants await an announcement regarding capital expenditure for anode materials. The commencement of trial production for a specialty carbon black expansion at the Mahistikry facility is a notable operational milestone, positioning Himadri to potentially operate the world's largest single-site specialty carbon black plant upon full ramp-up. The company's ambition extends to becoming a significant non-Chinese supplier in the global lithium-ion battery materials market.

Valuation Adjustment and Cautious Outlook

In response to the observed margin pressures and to reflect evolving market conditions, ICICI Securities has revised its financial forecasts. EBITDA estimates for fiscal years 2026 and 2027 have been reduced by 5% to 7%. This recalibration has led to a cut in the target price, derived from a Sum-of-the--Turns (SoTP) valuation, to ₹470 per share from a previous ₹500. The brokerage has also adjusted the valuation multiple for Himadri's core business, lowering the EV/EBITDA multiple from 16x to 12x, while rolling over its valuation horizon to fiscal year 2028 earnings estimates. Consequently, ICICI Securities maintains its 'Hold' recommendation on Himadri Speciality Chemical stock, signaling that while the company's expansion initiatives are recognized, current market valuations and margin dynamics warrant a patient approach. Himadri Speciality Chemical, with a market capitalization around ₹23,000 crore and a TTM P/E ratio of approximately 32.2x, operates in a competitive landscape that includes players like Phillips Carbon Black Limited (PCBL). The specialty carbon black market, a key segment for Himadri, is projected to grow robustly, driven by demand in automotive, plastics, and battery applications. Similarly, the Indian lithium-ion battery market is expected to expand at a significant CAGR of over 38% through 2030, driven by EV adoption and energy storage needs. Himadri's strategic investments in this burgeoning sector are a key long-term growth driver, yet the near-term margin pressures are a critical factor influencing analyst sentiment.

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