BASF – Positive Triggers Could Play Out

Stock Discussion / October 9, 2024

BASF Rs 8500

BASF Ltd is a German MNC with the parent holding 73% equity.

It operates in 6 verticals – Agri Solutions with FY24 PBT contribution of 54% (40% in FY23), Industrial Solution with 20% contribution (23% in FY23), Materials with 13% contribution (10% in FY23), Chemicals with 7% contribution (7% in FY23), Nutrition with 4% contribution (18% in FY23), Surface Technology with 2% contribution (2% in FY23).

Bulk of its sales are domestic with exports contributing only 2% to topline which is positive because India is growing at a high pace while global trade is disrupted due to geopolitical conflicts and increasing trade barriers. Low export contribution means that there can be little impact if these issues linger on.

Its past track record is good with 10, 5, 3 years sales CAGR of 12%, 18%, 13% and PAT CAGR of 15%, 80%, 25%. ROE is around 20% across all time frames. Debt is nil.
FY24 was good with Ebitda up 33%, PBT up 44%, PAT up 40%. Q1FY25 was even better with Ebitda up 61%, PBT up 85%, PAT up 94%.

Based on Q4FY24 conference call and recent developments, following triggers could play out positively in coming quarters: –

  1. Agri inputs, with around half of PBT contribution, is the most impactful vertical for the company. Hitherto BASF only had herbicide and fungicide products. It had no presence in the insecticide segment which constitutes 50% of the agri input market in India. Last year it launched an insecticide which received a ‘blockbuster’ response as per the management. This product and the newer ones in the pipeline have opened up rest of the agri input market for the company. Also, plentiful rainfall in 2024 will lead to topline revival for the entire industry including BASF.
  2. Its Chemical division has been facing stiff margin pressure due to Chinese competition. Since Chinese domestic demand is low their companies have been dumping across the world at low prices. With the recent Chinese stimulus, its domestic demand is expected to improve which would alleviate margin pressure.
  3. As per the management, general elections had affected its Industrial and Materials division negatively in Q1FY25. With decision making picking up after elections, there should be recovery in these segments.
  4. BASF’s parent company has announced that the Surface Coating division, presently part of the Surface Technologies segment, would be transferred to a wholly owned subsidiary of BASF India by the end of CY 2024 for better business focus. BASF expects the increasing trend of premiumization of cars to drive volumes of this segment.

At FY25 estimated EPS of Rs 150, BASF is trading at PE of 55 which is not cheap but its long term track record is steady, recent results are strong and if the triggers mentioned above play out, it could be a decent performer.