Shares of I G Petrochemicals have surged up over 13% in just the last five sessions and Keynote Capitals sees the stock continuing the momentum going forward.

The I G Petrochemicals Analyst: Chirag Maroo for Keynote Capitals initiated coverage on the stock with a “buy” rating and a price target of ₹819. The target reflects an around 60% upside from the stock’s last closing price of ₹513.95.

The I G Petrochemicals Thesis: Founded in 1988, I G Petrochemicals is a key player in the petrochemical industry, promoted by the Dhanuka Group and headquartered in Mumbai. The brokerage in its note said that as a leading and cost-efficient manufacturer, IGPL specializes in producing Phthalic Anhydride (PAN) and has established itself as a global player with a remarkable 50%+ market share in India.

IGPL, the largest PAN manufacturer in India, is renowned for its cost-efficient production globally. PAN, a derivative of Orthoxylene (OX), is a crucial intermediate in organic chemistry, playing a pivotal role in the production of various products such as Plasticizers, Unsaturated Polyester Resins, Alkyl Resins, and Polyols. The company anticipates robust growth in gross profit as the spread between PAN and OX normalizes.

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The brokerage added that strategically located in MIDC, Taloja, IGPL’s plants offer cost advantages by efficiently procuring raw materials from the largest OX supplier. With the majority of sales concentrated in the western chemical belt of India, IGPL minimizes freight costs by acting as the nearest PAN source for customers. The consolidation of all plants at a single location allows for equitable distribution of fixed costs, and the utilization of steam generated during PAN manufacturing reduces power and fuel expenses. Overall, IGPL’s strategic positioning, efficient operations, and expansion plans contribute to its prominent position in the petrochemical industry.

As per the analyst, to drive sales further, IGPL is executing a brownfield capacity expansion plan, increasing PAN capacity from 222,110 metric tonnes to 275,110 metric tonnes. The expansion also includes an increase in Maleic Anhydride (MAN) and Benzoic Acid capacity. With a strategic investment of ₹350 crore, the expanded capacity is expected to generate sales of ₹450-500 crore at optimum utilization, set to be completed in Q4 FY24.

Additionally, IGPL is seeking environmental clearance for downstream derivatives of PAN, specifically Advance Plasticizer. Subject to board approval, the company plans a greenfield facility with a capital expenditure of ₹150-200 crore, projecting a revenue potential of ₹800-900 crore.

Price Action: IGPL’s share price was up 2.05% to trade at ₹524.50 in early trade on Thursday.

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