InCred Equities sees nearly 500% upside in Coastal Corporation; here’s why
Amid rising demand for shrimp and ethanol, brokerage InCred Equities believes that Coastal Corporation may multiply investors’ wealth in the next few quarters.
It has set a target price of 1,852, indicating an upside of around 472 percent against the previous close of Rs 324.
Reacting to the projection, the scrip rallied 20 percent to Rs 388.30 on Thursday. On the other hand, the benchmark BSE Sensex traded nearly 100 points down at 61,050 at around 1.30 pm (IST).
About the company
Coastal Corporation (CCL) is one of the leading shrimp processors and exporters based in Visakhapatnam. It has been in the shrimp processing business for decades since its earlier trawler days.
CCL has been running at a peak capacity of 6,500 mt. Also, it has 3,500 mt unutilized capacity due to the lack of a pre-processing facility.
The company has embarked on an expansion plan comprising a 10,000 mtpa shrimp processing plant at Kakinada in Andhra Pradesh, to be operational in Q1FY23F, followed by a 10,000 mtpa shrimp processing plant at Haridamada in Odisha, to be operational by Q1FY24F.
The projects are eligible for central and state government capital subsidies. New capacities will widen the value-added product basket into breading/marinated products, which enjoy high margins, according to InCred Equities.
In addition to this, the distillation business is undertaken by CCL’s 100 percent subsidiary called Coastal Biotech, which is setting up a 198 klpd grain distillery at Gajapati in Odisha, to be operational by Q1FY24F.
The engineering, procurement, and construction (EPC) contract have been given to Excel Engineering, Pune. Single-window clearance has been given by the Odisha government and the benefit of interest rate subvention will be provided by the central government.
The road ahead
Shrimp exports are back on track with record-breaking volumes every month. The brokerage expects the momentum to continue and a figure of 80,000 mt of exports per month is not off the table, taking the total shrimp exports to a record around 7,50,000 mt in CY21F.
Total exports in CY20 had dropped by 14 percent to 5,76,572 mt from a record 6,67,880 mt in CY19.
The distillation sector witnessed a massive structural change after the announcement of the ‘National Policy on Biofuels-2018’ by the central government, thereby generating huge demand for ethanol.
Valuations and key risk
With a rally of 81 percent, shares of the company massively outperformed the benchmark equity index BSE Sensex in 2021.
The scrip jumped to Rs 318.70 on December 31, 2021, from Rs 175.60 on December 31, 2020. On the other hand, the 30-share Sensex gained 22 percent during the same period.
Despite the rally in Coastal Corporation, InCred Equities believes that the stock is massively underpriced given the huge scope in the operating segment (shrimp) and the embarking segment (distillery).
The brokerage added that any drop in demand for shrimp and shrimp products, and any hindrance in the supply of shrimp in the domestic market may cap the upside.
It further highlighted that there is a business risk for the distillation segment as it’s a new business for the company and that too, in a new state.