InCred Equities Sees Almost 500% Increase in Coastal Corporation; here’s why

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Amid growing demand for shrimp and ethanol, brokerage firm InCred Equities believes Coastal Corporation could multiply investor wealth in the coming quarters.

He set a price target of 1,852, indicating an increase of around 472% from the previous close of Rs 324.

Reacting to the screening, the script rose 20% to Rs 388.30 on Thursday. In contrast, the benchmark BSE Sensex traded nearly 100 points down to 61,050 around 1:30 p.m. (IST).

About the company

Coastal Corporation (CCL) is one of the leading shrimp processors and exporters based in Visakhapatnam. He’s been in the shrimp processing business for decades since his early days as a trawler.

CCL operated at a peak capacity of 6,500 mt. In addition, it has an unused capacity of 3,500 mt due to the lack of a pre-treatment facility.

The company has embarked on an expansion plan including a 10,000 mtpa shrimp processing plant in Kakinada, Andhra Pradesh, which will be operational in the first quarter of fiscal 23F, followed by a processing plant. of 10,000 mtpa shrimp from Haridamada to Odisha, which will be operational by the first quarter of fiscal year 24F.

Projects are eligible for central government and state capital grants. New capabilities will expand the basket of value-added products to breaded / marinated products, which enjoy high margins, according to InCred Equities.

In addition to this, the distillation activities are undertaken by CCL’s 100% subsidiary called Coastal Biotech, which is setting up a 198 klpd grain distillery at Gajapati in Odisha, which will be operational by the first quarter of l ‘exercise 24F.

The Engineering, Procurement and Construction (EPC) contract was awarded to Excel Engineering, Pune. The one-stop-shop authorization has been granted by the Odisha government and the benefit of the interest rate subsidy will be provided by the central government.

The road ahead

Shrimp exports take off with record volumes every month. The brokerage expects the momentum to continue and a figure of 80,000 tonnes of exports per month is not ruled out, taking total shrimp exports to a record high of around 7.50,000 tonnes in CY21F.

Total exports from CY20 fell 14% to 5,762,572 mt from a record 667,880 mt in CY19.

The distillation sector has undergone a massive structural change after the announcement of the “National Biofuels Policy-2018” by the central government, thus generating a huge demand for ethanol.

Valuations and key risk

With an 81% rally, the company’s shares significantly outperformed the benchmark BSE Sensex stock market index in 2021.

The script jumped to Rs 318.70 on December 31, 2021 from Rs 175.60 on December 31, 2020. On the other hand, Sensex at 30 shares gained 22% during the same period.

Despite the rally from Coastal Corporation, InCred Equities believes the stock is massively undervalued given the huge reach of the operating segment (shrimp) and the boarding segment (distillery).

The brokerage added that any drop in demand for shrimp and shrimp products and any obstacles to the supply of shrimp in the domestic market could limit the rise.

He further pointed out that there is a business risk for the distillation segment as it is a new activity for the company and that too, in a new state.

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