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Emkay India Equity Research | Chemical
July 9, 2018
Sector Report
This report is solely produced by Emkay Global. The following person(s)
are responsible for the production of the recommendation:
Amar Mourya
amar.mourya@emkayglobal.com | +91 22 66242425
Rohit Sinha
rohit.sinha@emkayglobal.com | +91 22 66242306
Chemical Industry
Capex progressions unlocking investment
opportunities
Refer to important disclosures at the end of this report
We seek your feedback and support in the ongoing Asia Money survey.
Click here to make your appreciation count
Soda Ash
Fluorine
PU
Emulsion
Polymers TolueneFood &
Anti-oxidantEnzymes
Series - I
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
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as defined in the Securities and Futures Act, Chapter 289 of Singapore.
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Preface
We present a comprehensive sector report on Specialty Chemical companies, spanning seven distinct
industry sub-sectors, with an objective to rank companies on the basis of relative investment opportunities.
The common framework across the sub-sectors includes profiling of existing and future capex initiatives -
cycle, stage, criticality, delivery capabilities and future allocation. On the basis of this assessment, we
prognosticate how capex decisions will affect operating profile (growth in EBITDA), return ratios (ROCE) and
balance sheet (Debt/Equity) of these companies.
We have also given adequate consideration to organizational constrains for accelerating capex, from
laboratory stage to the commercial production stage, and delays in decision making. Our preference is
geared towards companies that have crossed the critical capex threshold and are at the cusp of
demonstrating sustainable strength in their operating profit, return ratios and improved balance sheet. The
cyclical progression is then juxtaposed with valuation parameters to arrive at investment preferences.
In our assessment, we have included all our existing coverage companies (GHCL, Tata Chemicals, SRF,
Navin Fluorine, Camlin Fine, BASF, Advanced Enzymes and Apcotex), and a new initiation, viz Vinati
Organics Ltd. Based on our investment thesis, our top picks are Camlin Fine, Advanced Enzymes, Navin,
SRF, GHCL and Apcotex.
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
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Table of Contents
Contents Page No.
Our Investment Process Canvas 4
Covered Industry Snapshot 5
Evaluation Process 6
High Conviction Ideas 7-14
Initiating Coverage - Vinati Organics Ltd. 15
Soda-Ash Industry 16-28
Companies Covered
Tata Chemicals Ltd. 29
GHCL Ltd. 38
DCW Ltd. 43
Nirma 44
Polyurethane (PU) Industry 45-48
Company Covered
BASF India Ltd 49
Contents Page No.
Emulsion Polymerization (EP) Industry 56-60
Company Covered
Apcotex Industries Ltd. 61
Fluorine Industry 67-79
Companies Covered
SRF Ltd 80
Navin Fluorine International Ltd 92
Toluene Industry 99-104
Company Covered
Vinati Organics Ltd. 105
Enzyme Industry 117-121
Company Covered
Advanced Enzyme Technologies Ltd 122
Food Antioxidant & Flavors Industry 130-135
Company Covered
Camlin Fine Science Ltd 136
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Specialty Chemicals: Our Investment Process Canvas
Recent/Future
Capex Stage
A
EBITDA
CAGR
B
D/E
C
RoCE
Expansion
D
Capex Stage - in
chemical its linked
to process
criticality, demand,
supply, pricing,
import, export, and
funding dynamics
EBITDA CAGR is
key in chemical.
In rising Input
Prices = Revenue
looks inflated
In declining Input =
EBITDA margin
looks inflated
D/E ratio denotes
stability, philosophy
& risk. High D/E not
always denote risk
but also shows
corporates growth
phase
ROCE expansion is
a key catalyst for
stock to perform. It
also illustrates
plant utilization
level and
profitability in
products
Valuations
EV/EBITDA
E
Valuation indicates the
upside potential and
downside risk (Margin
of Error)
Note: Equal Weight Model
R A
N
K
I
N
G
1 Advanced Enzymes Camlin Fine Science Vinati Organics Camlin Fine Science GHCL
2 SRF BASF Navin Fluorine Camlin Fine Science
3 GHCL SRF Apcotex Advanced Enzymes Tata Chemicals
4 Camlin Fine Science Apcotex Advanced Enzymes SRF, BASF SRF
5 Apcotex Advanced Enzymes GHCL, SRF, BASF Apcotex Advanced Enzymes
6 BASF Vinati Organics Tata Chemicals Navin Fluorine, GHCL Apcotex
7 Navin Fluorine GHCL Navin Fluorine
8 Tata Chemicals Navin Fluorine Tata Chemicals BASF
9 Vinati Organics Tata Chemicals Camlin Fine Science Vinati Organics Vinati Organics
Note: EBITDA CAGR (2 Years Forward) | RoCE Expansion (2 Years Forward) | Valuation (FY20E)
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
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Specialty Chemicals: Covered Industry Snapshot
Industry Industry Key Drivers Companies
Soda Ash
Pollution control issue in China reduces export of soda ash from China to global markets. As a result, Soda
ash prices are likely to remain firm in coming years owing to discontinuation of many HoU based facilities in
China. Further, the application of Soda ash is increasing in lithium-ion-batteries and shipping industry.
Globally demand sustainability is set to absorb new capacity. With brownfield capacity expansion window,
GHCL & Tata Chemicals are set to ripe the benefits.
GHCL, Tata
Chemicals
Food & Anti-
oxidant
Globally synthetic food & anti oxidant industry growth is pegged at 5-6% CAGR with TBHQ and BHA having
the market of more than 50% of the total market.
Camlin Fine holds the global leadership in TBHQ and BHA market. Further, the strategy to reduce cost and
diversify in synthetics and natural anti-oxidants based blends along with aroma widens the market.
Camlin Fine
Fluorine
Global fluorochemicals industry is expected to grow by 4.4% and 4.6% CAGR in value and volume terms
over 2015 to 2024, respectively. Fluorocarbon contributes 50% and 46% of the total fluorochemical volume
and value. R-Gas & Fluor polymers accounts for 37% and 63% of Fluorocarbon volume. SRF & Navin
focuses on niche segments.
SRF, Navin
Fluorine
Enzymes
Top 4 global player captures +70% of market. Industry is growing at 7-8% globally. Advanced Enzy placed
among 116 global integrated player with large capacity. New initiatives and high margin Biocatalyst presence
should bode well on revenue and margin.
Advanced
Enzymes
Toluene
Vinati is having one of the cleanest process for ATBS and IBB with global market leadership which are based
on Tolune. Major growth driver for Vinati is new product initiatives. Toluene chemistry is anticipated to grow at
5% CAGR globally over 2017-2021.
Vinati
Organics
Emulsion
Polymers
Global Synthetic rubber latex the first branch of Emulsion Polymerization industry stood at ~$38bn with nearly
~14 mn MT of volume in CY17. The industry is expected to growth at 6% CAGR over 2018-20e. India
Synthetic Rubber/Latex industry contributes ~0.3% (~$0.24 bn) of the total global industry. This industry in
India is expected to grow at 10% over 2018-20e.
Apcotex
Polyurethane
(PU)
Global PU Industry is currently stood at ~19 million MT which is worth $51.4bn.India accounts for ~3.3% of
the Global PU Industry which is ~$1.7bn with 0.63 million MT in 2017. India is expected to see the volume
CAGR of 13.3% over 2018-22e.BASF
6
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Specialty Chemicals: Evaluation Process
Ranking Recommendation Upside Potential
1 - 5 Buy >15%
6 - 7 Accumulate <15% - 1%
8 - 9 Hold/Sell <1%
Recommendation criteria
Companies Capex Stage
EBITDA
CAGR*
(%)
D/E (x)RoCE
Expansion EV/EBITDA Ranking Rating
Upside**
(%)
Camlin FinePartially
Implemented
338 1.0x 2230 bps 6.4x 3BUY
107
Advanced Enzyme Running 21 0.1x 360bps 8.7x 4 BUY 57
Navin Fluorine Partially Planned 9 0.0x 20bps# 11.8x 5 BUY 42
SRFImplemented 27 0.9x 440bps 8.2x 4
BUY40
GHCLImplemented in
Phases
14 0.7x 280bps 4.7x 5BUY
33
ApcotexPartially
Implemented
26 0.1x 290bps 9.4x 5BUY
37
Vinati Organics Planning Phase 19 0.0x 0 bps 16.6x 6 HOLD -10
Tata Chemicals Unplanned 8 0.5x 15 bps 7.7x 7 ACCUMULATE 15
BASFFirst Phase
Running
44 0.4x 1630bps 12.1x 6ACCUMULATE
14
*CAGR FY18-20E
**based on price as on 4 July 2018
# Based on adjusted numbers after excluding exceptional other income in FY18 from sell of business
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Company Investment Rationale
Camlin Fine Science
Upside: 107%
TP: Rs183
Mcap: Rs11 bn
CMP: Rs88
Rating: BUY
Capex Stage: New capex at Dahej will take less time to reach full utilization level (v/s peers) as it will be utilized for
internal consumption. The stabilization of plant should take less time (v/s peers) because its a replica of 20 year old
technology for Camlin management. This new capex in India will lead to global cost leadership in downstream
products.
EBITDA CAGR: On back of new capex, new products and client diversification, we expect 338% EBITDA CAGR
over next two years (FY18A-20E).
RoCE Expansion: We see huge expansion in RoCE to 22.9% in FY20E from 0.6% in FY18.
D/E Profile: Despite capacity expansion & product diversification the D/E stood at 1.1x in FY18.
Valuation: The stock is trading at 6.4x EV/EBITDA and 9.3x P/E multiple FY20E.
Specialty Chemicals: High Conviction Ideas
Financials (Consolidated)
Source: Company, Emkay Research
Shareholding Pattern (%)
Source: Capitaline, Emkay Research
52.2
40.1 39.9 39.8 39.8 41.1 41.1 40.9 40.9 40.935.0
22.3
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
1.1 1.5 1.64.5 5.1
11.6 10.412.3 12.8
9.3
19.522.2
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 4,893 5,339 7,206 9,466 12,003
EBITDA 873 282 126 1,212 2,413
EBITDA Margin (%) 17.8 5.3 1.7 12.8 20.1
APAT 358 (45) (241) 429 1,203
EPS (Rs) 3.7 (0.4) (2.0) 3.5 9.2
EPS (% chg) (35.5) (111.6) 0.0 0.0 160.9
ROCE (%) 22.7 4.6 (0.4) 11.2 22.9
P/E (x) 23.3 NA NA 24.4 9.3
EV/EBITDA (x) 11.4 42.0 107.9 12.1 6.4
P/BV (x) 4.6 4.1 2.7 2.8 2.8
8
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Company Investment Rationale
Advanced Enzymes
Upside: 57%
TP: Rs333
Mcap: Rs24 bn
CMP: Rs212
Rating: BUY
Capex Stage: Advanced will not require any new capex for at least next 2-3 years. The capex will largely be for
inorganic acquisition (New Client, New Geography & New Products) which adds instantly to the top-line & profitability
relative to greenfield & brownfield capex.
EBITDA CAGR: On back of recent acquisition and existing business traction, we expect 21.3% EBITDA CAGR over
next two years (FY18A-FY20E).
RoCE Expansion: We expect expansion in RoCE to 27.6% in FY20E from 18.7% in FY18.
D/E Profile: The D/E stood at 0.1x in FY18.
Valuation: The stock is trading at 8.7x EV/EBITDA and 14.5x P/E multiple FY20E.
Specialty Chemicals: High Conviction Ideas
Financials Snapshot (Consolidated)
Source: Company, Emkay Research
Shareholding Pattern (%)
Source: Capitaline, Emkay Research
66.5 66.5 66.5
70.1 71.3 71.3 71.3 71.3
Jul/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
12.611.3 11.0
9.27.4 6.4 7.2 7.2
Jul/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 2,938 3,290 3,910 4,497 5,396
EBITDA 1,335 1,508 1,640 1,917 2,414
EBITDA Margin (%) 45.4 45.8 41.9 42.6 44.7
APAT 758 915 901 1,196 1,619
EPS (Rs) 7.0 8.2 8.1 10.7 14.5
EPS (% chg) 51.5 17.7 (1.6) 32.8 35.4
ROCE (%) 35.3 30.6 25.0 25.7 28.6
P/E (x) 32.3 25.7 26.2 19.7 14.5
EV/EBITDA (x) 17.8 15.9 14.4 11.7 8.7
P/BV (x) 8.3 5.1 4.2 3.5 2.8
9
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Company Investment Rationale
Navin Fluorine
Upside: 42%
TP: Rs922
Mcap: Rs32 bn
CMP: Rs651
Rating: BUY
Capex Stage: The total capex invested in CRAM’s business till date is Rs3.2bn (Ex Piramal JV capex of Rs1.4bn) with
fixed asset turnover ratio of 0.73x in FY18. This has the potential to reach 1.15x to 1.20x in next two years (16% Revenue
CAGR Excluding Piramal JV). Additionally, the company has cash balance of ~Rs3.5bn, which will be largely invested into
premium margin CRAMS business going-forward.
EBITDA CAGR: CRAMS business EBITDA CAGR (Excluding Piramal JV) is expected to grow at 21.2% (v/s overall
EBITDA CAGR of 9.3%) in next two years (FY18A-20E). The overall CRAMS EBITDA contribution is expected to increase
to 66% in FY20E (v/s 53% in FY18).
RoCE Expansion: The consolidated business RoCE is likely to remain flat at 21%, whereas the CRAMs business
(Excluding Piramal JV) RoCE will inch-up (CRAM’s RoCE stood at 35.0% v/s 21.4% in FY18).
D/E Profile: The D/E ratio stood at 0.02x in FY18.
Valuation: The stock is trading at EV/EBITDA of 12x and P/E multiple of 16.4x FY20E.
Specialty Chemicals: High Conviction Ideas
Financials Snapshot (Consolidated)
Source: Company, Emkay Research
Shareholding Pattern (%)
Source: Capitaline, Emkay Research
38.8 38.8 38.7 38.7 38.7 38.7 38.7 38.732.0 32.0 32.0 31.1
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
24.0 24.6 24.9 27.0 27.7 28.5 29.1 29.234.9 34.0 33.8 34.6
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 6,797 7,415 9,127 9,242 10,494
EBITDA 1,173 1,588 2,150 2,186 2,566
EBITDA Margin (%) 17.3 21.4 23.6 23.7 24.5
APAT 835 1,366 1,798 1,586 1,896
EPS (Rs) 17.1 27.9 36.4 32.1 38.4
EPS (% chg) 34.6 63.6 30.6 (11.8) 19.5
ROCE (%) 16.5 22.6 28.2 20.6 20.5
P/E (x) 36.9 22.5 17.3 19.6 16.4
EV/EBITDA (x) 26.9 19.4 14.4 13.8 11.8
P/BV (x) 4.9 3.8 3.2 2.8 2.5
10
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Company Investment Rational
SRF
Upside: 40%
TP: Rs2305
Mcap: Rs93 bn
CMP: Rs1650
Rating: BUY
Capex Stage: SRF had done the total capex of ~Rs36 bn in FY15-18. In the same period SRF’s debt increased by
only Rs9bn, illustrating that bulk of capex funding has come from internal accruals. Out of total capex ~45% is
deployed towards R-Gas & Speciality chemicals, which is largely under utilized.
EBITDA CAGR: The EBITDA CAGR will be 27.4% in FY18A-20E. The larger growth will come from Speciality
Chemical, R-Gas and Packaging segment.
RoCE Expansion: We expect RoCE expansion from 9.3% in FY18 to 16.3% in FY20E.
D/E Profile: The D/E ratio stood at 0.93x in FY18.
Valuation: The stock is trading at EV/EBITDA and P/E multiple of 8.2x and 12.6x FY20E.
Specialty Chemicals: High Conviction Ideas
Financials Snapshot (Consolidated)
Source: Company, Emkay Research
Shareholding Pattern (%)
52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
28.1 28.2 28.6 28.2 27.9
29.2 29.428.9 29.1
29.830.5 30.8
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
Source: Capitaline, Emkay Research
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 45,927 48,218 55,890 67,259 77,108
EBITDA 9,625 9,969 9,526 12,539 15,455
EBITDA Margin (%) 21.0 20.7 17.0 18.6 20.0
APAT 4,299 5,150 4,617 5,858 7,526
EPS (Rs) 73.6 88.1 79.0 100.2 128.8
EPS (% chg) 42.0 19.8 (10.3) 26.9 28.5
ROCE (%) 14.1 13.7 11.1 13.6 15.5
P/E (x) 22.1 18.5 20.6 16.3 12.6
EV/EBITDA (x) 12.1 12.0 13.4 10.2 8.2
P/BV (x) 3.5 3.0 2.7 2.3 2.0
11
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Company Investment Rationale
GHCL
Upside: 33%
TP: Rs358
Mcap: Rs26 bn
CMP: Rs269
Rating: BUY
Capex Stage: GHCL constantly expanded soda ash brownfield capacity. In next 3 years total capacity will increase
at 7.9% CAGR (FY18-21E). The capex is largely brownfield and funded from internal accruals. We do not expect any
large capex in loss making home-textile business.
EBITDA CAGR: EBITDA CAGR will be 14.3% in FY18A-20E. This excludes turnaround in home-textile business. In
FY18, overall textile EBITDA was Rs490mn (v/s Rs1710 mn in FY17). Textile business - Spinning reported Rs800
mn EBITDA profit v/s loss of Rs350 mn in home textile during FY18. Management expect EBITDA breakeven in
home textile business in FY19, which could be a positive surprise.
RoCE Expansion: The consolidated RoCE is going to inch-up by 280 bps to 20.6% despite poor performance from
Textile business.
D/E Profile: The D/E ratio stood at 0.72x in FY18.
Valuation: The stock is trading at EV/EBITDA and P/E multiple of 4.7x and 5.6x FY20E.
Specialty Chemicals: High Conviction Ideas
Financials Snapshot (Consolidated)
Source: Company, Emkay Research
Shareholding Pattern (%)
Source: Capitaline, Emkay Research
18.4 18.418.5 18.5 18.5 18.5 18.5
18.6
18.919.1 19.1
19.0
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
19.0 20.522.9 23.3 21.9
24.8 25.6 25.7 24.4 25.0 24.5 26.6
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 25,307 27,838 29,432 30,032 32.193
EBITDA 6,294 6,808 6,061 7,116 7,918
EBITDA Margin (%) 24.9 24.5 20.6 23.7 24.6
APAT 2,713 3,801 3,564 3,469 4,037
EPS (Rs) 27.1 38.2 36.0 35.6 41.4
EPS (% chg) 49.1 40.9 (5.8) (1.1) 16.4
ROCE 24.1 23.4 17.8 20.5 20.6
P/E (x) 10.0 7.1 7.4 6.8 5.6
EV/EBITDA (x) 6.0 6.1 6.2 5.2 4.7
P/BV (x) 2.6 2.0 1.6 1.3 1.1
12
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Company Investment Rational
Apcotex
Upside: 37%
TP: Rs686
Mcap: Rs11 bn
CMP: Rs500
Rating: BUY
Capex Stage: Apcotex announced first inorganic expansion in FY16 with acquisition of OMNOVA. The company is
also executing ~Rs600mn of brownfield capex expansion. Further management intent to do one mega capex of
~Rs1500mn for Latex based new product capacity expansion.
EBITDA CAGR: We expect EBITDA CAGR of 25.7% in FY18A-20E on back of debottlenecking and brownfield
capacity expansion.
RoCE Expansion: RoCE is likely to expand from 23.1% in FY18 to 28.3% in FY20E.
D/E Profile: The D/E ratio stood at 0.07x in FY18
Valuation: The stock is trading at EV/EBITDA and P/E multiple of 9.4x and 16x FY20E.
Specialty Chemicals: High Conviction Ideas
Financials Snapshot
Source: Company, Emkay Research
Shareholding Pattern (%)
Source: Capitaline, Emkay Research
57.6 57.6 57.6
57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
0.1 0.1 0.1 0.0 0.0 0.1 0.1 0.10.2
0.4
0.5
0.3
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 2,684 3,880 5,262 6,472 7,184
EBITDA 380 291 638 882 1,007
EBITDA Margin (%) 14.2 7.5 12.1 13.6 14.0
APAT 247 355 401 578 646
EPS (Rs) 11.9 17.2 19.4 27.9 31.2
EPS (% chg) 0.0 44.0 12.8 44.3 11.6
ROCE (%) 20.8 20.1 22.6 26.7 25.5
P/E (x) 42.0 29.1 25.8 17.9 16.0
EV/EBITDA (x) 27.7 36.3 16.1 11.1 9.4
P/BV (x) 5.7 4.8 4.3 3.7 3.1
13
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
Company Investment Rational
Tata Chemicals
Upside: 16%
TP: Rs804
Mcap: Rs187 bn
CMP: Rs691
Rating: ACCUMULATE
Capex Stage: Post the divestment of regulated business Tata Chemical will receive ~Rs40bn of cash in the
balance sheet. In our view, large part of this money will be deployed into high RoCE and premium margin business.
Hence, we do not expect large capex going into existing Soda-Ash and Salt business except some debottlenecking
capex. More capex may attracted towards managements vision to reach Rs50bn revenue mark in consumer
business, which does not give any great clarity at this point.
EBITDA CAGR: We expect EBITDA CAGR of 7.5% in FY18-20E.
RoCE Expansion: We expect RoCE expansion to 11.9% in FY20E from 10.5% in FY18.
D/E Profile: The D/E ratio stood at 0.50x in FY18. However, net debt is zero.
Valuation: The stock is trading at EV/EBITDA and P/E multiple of 7.7x and 14.6x FY20E.
Specialty Chemicals: High Conviction Ideas
Financials Snapshot (Consolidated)
Source: Company, Emkay Research
Shareholding Pattern (%)
28.1 28.2 28.6 28.2 27.9
29.2 29.428.9 29.1
29.830.5 30.8
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
Source: Capitaline, Emkay Research
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 1,48,729 1,03,461 1,02,697 1,17,683 1,23,219
EBITDA 21,659 20,943 21,907 24,331 25,313
EBITDA Margin (%) 14.6 20.2 21.3 20.7 20.5
APAT 7,706 8,640 11,771 11,789 12,821
EPS (Rs) 32.3 33.3 41.7 43.9 47.6
EPS (% chg) 34.9 3.1 25.4 5.2 8.3
ROCE (%) 9.7 9.0 9.1 10.2 10.6
P/E (x) 21.5 20.8 16.6 15.8 14.6
EV/EBITDA (x) 12.6 11.3 9.7 8.4 7.7
P/BV (x) 2.6 2.3 1.6 1.5 1.4
14
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Company Investment Rational
BASF
Upside: 14%
TP: Rs2212
Mcap: Rs83 bn
CMP: Rs1942
Rating: ACCUMULATE
Capex Stage: BASF’s historic capex of Rs14bn in Dahej took all most two years to stabilize. The company has
been able to show first leg of profitability improvement on back of plant stabilization and costumer specific
production. The next level of profitability expansion is expected due to increase in plant utilization.
EBITDA CAGR: We expect EBITDA CAGR of 44.9% in FY18-20E.
RoCE Expansion: RoCE is expected to expand from 9.7% in FY18 to 27.8% in FY20E.
D/E Profile: The D/E ratio stood at 0.41x in FY18.
Valuation: The stock is trading at EV/EBITDA and P/E multiple of 12.1x and 18.3x FY20E.
Specialty Chemicals: High Conviction Ideas
Financials Snapshot (Consolidated)
Source: Company, Emkay Research
Shareholding Pattern (%)
Source: Capitaline, Emkay Research
73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
6.8 6.5 5.7 5.9
8.7 9.2 9.4 9.8 9.9 9.8 10.1 10.0
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 47,492 50,782 55,834 63,602 74,497
EBITDA 1,057 2,697 3,459 5,661 7,258
EBITDA Margin (%) 2.2 5.3 6.2 8.9 9.7
APAT (304) (311) 879 3,150 4,583
EPS (Rs) (7.0) (7.2) 22.3 72.8 105.9
EPS (% chg) 0.0 0.0 0.0 225.7 45.5
ROCE (%) 4.2 4.6 9.9 20.4 26.2
P/E (x) NA NA 86.8 26.7 18.3
EV/EBITDA (x) 92.8 35.6 24.0 15.8 12.1
P/BV (x) 7.4 7.5 5.6 5.3 4.3
15
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Company Investment Rational
Vinati Organics
Upside: -10%
TP: Rs866
Mcap: Rs50 bn
CMP: Rs965
Rating: HOLD
Capex Stage: The company did the brownfield expansion in ATBS and IBB by 15% and 39% respectively. Further,
the new products are lined up with total capex of Rs7-8bn will fructify only post FY21. However, out off this ~Rs5bn
of capex is linked to PAP commercial production as per the global standards.
EBITDA CAGR: EBITDA will grow at 19% CAGR over FY18-FY20E. The growth would be largely driven capacity
expansion in ATBS and IBB.
ROCE Expansion: The RoCE will be at 27% in FY20E (v/s 27% in FY18)
D/E Profile: The D/E ratio stood at 0.02x in FY18.
Valuation: The stock is trading at EV/EBITDA and P/E multiple of 16.6x and 26.9x FY20E.
Specialty Chemicals: Initiating Coverage
Financials Snapshot
Source: Company, Emkay Research
Shareholding Pattern (%)
Source: Capitaline, Emkay Research
72.3 72.3 72.3 72.3 72.6
74.0 74.0 74.0 74.0 74.0 74.0 74.0
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Promoter & Group
7.9 8.0 7.4 7.2 8.2 8.6 8.5 9.0 9.6 9.711.0 10.2
Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18
Institution
(Rs mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 6,310 6,408 7,434 8,731 10,660
EBITDA 2,068 2,170 2,109 2,443 2,983
EBITDA Margin (%) 32.8 33.9 28.4 28.0 28.0
APAT 1,316 1,403 1,439 1,558 1,860
EPS (Rs) 25.5 27.2 28.0 30.3 36.2
EPS (% chg) 13.6 6.6 3.0 8.3 19.3
ROCE (%) 35.9 32.4 27.0 26.2 27.0
P/E (x) 38.1 35.8 34.7 32.1 26.9
EV/EBITDA (x) 24.1 23.2 23.7 20.2 16.6
P/BV (x) 9.4 7.4 6.3 5.5 4.7
16
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash Industry
17
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: Global Capacities (Geo-Wise)
Global Soda-Ash Capacity (Mn Metric Tons) World soda-ash capacity stood at 67.9 mn MT. Global
capacity expanded by 2.5% CAGR to 67.9 mn MT (v/s
45.4 mn MT in CY02).
In 16yrs, major capacity got added in China (7.3%
CAGR), followed by MEA (5.7%), SE Asia (2.0%), & S
America (0.3%).
Geographies like N America, W Europe, E Europe, & NE
Asia reported de-growth in capacity by 0.1%, 0.5%,
0.1%, & 6.8%, respectively.
64.2
65.3 65.7
66.8
65.4
66.6
67.9
CY11 CY12 CY13 CY14 CY15 CY16 CY17
21.2%
33.5%
21.3%
8.9%
7.8%
4.2%
2.5% 0.5%China
N America
W Europe
E Europe
SE Asia
MEA
NE Asia
S America
38.8%
23.6%
15.3%
7.6%
7.2% 5.5%
1.1% 0.8%
44.0%
22.1%
13.1%
5.9%
7.2%6.9%
0.5% 0.4%
Global Capacity Mix (CY02) Global Capacity Mix (CY10) Global Capacity Mix (CY17) COUNTRY
Source: Bloomberg, Emkay Research
Source: Bloomberg, Emkay Research
18
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: Why global capacity is important?
US Natural , 20%
Other Global Natural , 2%
Other Sythetic, 8%
Hou, 22%
Solvay, 48%
Technology Wise Market Share
SODA ASH IS A GLOBAL AND INTERCONNECTED MARKET
(24% OF TOTAL DEMAND) TRADED WORLDWIDE
HOU process generates
Ammonium Chloride which is
under scanner by Chines
government
Ciner19%
Solvay23%
Tronox28%
Tata20%
Searles10%
Major Producer of Soda Ash in US
Source: Emkay Research
Source: Emkay Research
19
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: China Market
Total Capacity touches 30 Mn tonnes which is 10x of India’s soda ash production capacity.
Production is around 28 Mn with capacity utilization at ~95%.
Prices have gone up significantly in the last one year from USD 190/ MT in early 2016 to USD 305/MT at the start
of 2018. However prices have cooled down to USD 230/MT in the February month 2018.
265
208
243228
190
243
305
150
200
250
300
350
CY11 CY12 CY13 CY14 CY15 CY16 CY17
Soda Ash Prices in China (USD/MT)
0.80.6
2.7
2.32.0
0.7
1.2
2.8
2.3
2.7
1.5
0.3
1.8
-1.2
0.10.3
0.9
0.5 0.6
1.2 1.1 1.20.9
1.71.3
1.1
0.3
1.8
0.5
3.0
0.70.4 0.3
1.0 1.1 1.1 1.2 1.2
CY2 CY3 CY4 CY5 CY6 CY7 CY8 CY9 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18E CY19E CY20E
Change in Capacity (MMT) Change in Consumption (MMT)No large new capacities
are planned…
Source: Bloomberg, Emkay Research
20
Earnings at RiskEarnings at Risk ©
Your success is our success
Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: China Planned Capacity
Company (Mn Tons) Location Process 2017 2018 2019 2020 2021 Total Remarks
Haitian BioChem Weifang, Shandong Solvay 0.11 0.04 - - - 0.15 0.15 Mn MT, April 2017
Henan Jindadi Wuyang, Henan HoU 0.08 0.33 0.50 - - 0.90 0.30 Mn MT in Oct 2017; 0.60 MT end 2018
Jiangsu Debang Lianyungang, Jiangsu HoU -0.08 -0.23 - - - -0.30
Jiangsu Debang Lianyungang, Jiangsu HoU - - - 0.60 - 0.60 may be delayed or cancelled
Jiangxi Jinghao Zhangshu, Jiangxi Solvay - 0.30 - - - 0.30
Zhonghai Huabang Huaian, Jiangsu HoU 0.19 - - - - 0.19 0.70 Mn MT plant may shut down in 2Hf 2018
Zhongyan Kunshan Kunshan, Jiangsu HoU 0.20 - - - - 0.20 Plant relocated, old plant closed, new plant built
Qinghai Salt Lake Golmud, Qinghai Solvay - 0.50 - - - 0.50
Sichuan Hebang Leshan, Sichuan HoU 0.18 - - - - 0.18
Total 0.68 0.94 0.50 0.60 - 2.72
65% of HoU based capacity, which may delayed or cancelled due to regulatory tightening in China.
Hence, only 0.95 mn MT of capacity may added (v/s 2.72 mn MT planned capacity).
Source: Emkay Research
21
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: Europe Market
Total Capacity accounts at 13 Mn tonnes out of which 60% in the Western Europe.
Production is around 11.5 Mn tonnes with capacity utilization at ~90%.
Prices have corrected in the last couple of year from USD 299/ MT in early 2013 to USD 248/MT in 2016.
However, prices inched up at USD 276/MT in 2017 which continued to move up in the early part of 2018 (USD
285/MT in Feb 2018).
263
282
299
274
254248
276
200
220
240
260
280
300
320
CY11 CY12 CY13 CY14 CY15 CY16 CY17
Soda Ash Prices in Europe (USD/MT)
0.0 0.0 0.1
0.0
-0.3
0.0 0.1 0.1
0.7
-0.8
-0.3
0.0
-0.5
-0.1
0.2 0.0 0.0 0.0 0.0
0.30.2
0.40.3
0.1 0.20.3
-1.2
0.30.4
0.0
0.00.2
0.3 0.2 0.3 0.2 0.2 0.2
CY2 CY3 CY4 CY5 CY6 CY7 CY8 CY9 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18E CY19E CY20E
Change in Capacity (MMT) Change in Consumption (MMT)
Source: Bloomberg, Emkay Research
22
Earnings at RiskEarnings at Risk ©
Your success is our success
Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: North American Market
Total Capacity is 15 Mn tonnes which accounts for 22% of the world capacity. This is largely natural soda ash
which has huge cost advantage over others.
Production is around 13 Mn tonnes with capacity utilization at ~85%.
Prices have remain firmed for the last 7 years and moved to USD 223/ MT in 2017 from USD 193/MT in 2011.
193
198
207209
223 223 223
180
190
200
210
220
230
CY11 CY12 CY13 CY14 CY15 CY16 CY17
Soda Ash Prices in North America (USD/MT)
0.1 0.0
-0.4
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
0.2
0.0 0.0 0.0 0.0 0.00.1
-0.2
0.0
0.2
-0.1-0.2 -0.2
-1.0
0.3
0.1
-0.2
0.0
0.1 0.1 0.1 0.1 0.1 0.1 0.1
CY2 CY3 CY4 CY5 CY6 CY7 CY8 CY9 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18E CY19E CY20E
Change in Capacity (MMT) Change in Consumption (MMT)
Source: Bloomberg, Emkay Research
23
Earnings at RiskEarnings at Risk ©
Your success is our success
Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: Middle East & Africa Market
Total Capacity is 4.6 Mn tonnes which has seen consistent capacity addition for the last 10 years.
Production is around 4 Mn tonnes with capacity utilization at ~95%.
Ciner Resources (global player) is adding up the 3 Mn tonnes capacity in Kazan, Turkey in 2018.
0.0 0.0 0.0 0.0 0.0
0.4
0.0
0.6 0.6
0.0 0.00.2
0.0 0.00.2
0.8
3.0
0.0 0.00.1 0.1 0.1 0.1 0.1 0.10.3
0.0 0.1 0.1
0.40.2 0.1 0.2 0.2 0.2 0.2 0.1 0.1
CY2 CY3 CY4 CY5 CY6 CY7 CY8 CY9 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18E CY19E CY20E
Change in Capacity (MMT) Change in Consumption (MMT)
253
243
233 233
200
210
220
230
240
250
260
CY15 CY16 CY17 YTD18
Soda Ash Prices in Middle East/North Africa (USD/MT)
Source: Bloomberg, Emkay Research
24
Earnings at RiskEarnings at Risk ©
Your success is our success
Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
30000
21000
29000
2650025500
25000 24600
20000
22000
24000
26000
28000
30000
32000
CY11 CY12 CY13 CY14 CY15 CY16 CY17
Soda Ash Prices in India (Rs/MT)
0.0 0.0 0.0 0.0 0.0
0.3
0.1
0.6
0.0
-0.3-0.1
-0.1-0.2
0.1
0.6
0.3
0.0 0.0 0.0
0.2 0.20.3
0.1 0.00.1 0.2
0.0
0.30.2
0.4
0.1
0.20.2 0.3 0.3 0.3 0.3 0.3
CY2 CY3 CY4 CY5 CY6 CY7 CY8 CY9 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18E CY19E CY20E
Change in Capacity (MMT) Change in Consumption (MMT)
Soda-Ash: South East Asia Market
Total Capacity is 4.8 Mn tonnes out of which more than 80% capacity is in India.
Production is around 3.3 Mn tonnes with capacity utilization at ~70%.
Prices have remain subdued for the last 5 years and moved to Rs 24,600/ MT in 2017 from Rs 29,000/MT in 2013.
However, price appreciation has witnessed in the early part of 2018 with February prices touching Rs 30,000/MT.
Source: Bloomberg, Emkay Research
25
Earnings at RiskEarnings at Risk ©
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Emkay
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: India Landed Price for Imported Soda Ash
US
Low High Low High Low High Low High Low High Avg
Rupee/mt, ex plant 19000 20700
$/mt, ex plant 292 318
Import Price, CFR 245 250 250 265 215 230 210 230 190
Import Duty, 7.5% 16 16 19 20 16 17 16 17 14
Anti Dumping Duty 36 36 9 9 18 21 20 20 39
Landed Price 297 302 278 294 250 268 246 268 243
Indian Soda Ash Prices
- Import V/S Domestic
(Oct 2017)Domestic Russia Black Sea Turkey Kenya
Import Prices ($/mt)
India Import Destinations
Regions ('000/Mt) ISC NEA SEA MDE AFR WEP CEP CIS NAM Total
Sep-17 1 0 0 7 10 6 20 9 11 64
YTD 16 35 35 8 32 72 14 210 24 70 500
YTD 17 20 9 1 44 71 46 196 42 107 536
Change -15 -27 -7 12 -1 31 -14 19 36 34
% Change -43% -75% -91% 37% -1% 217% -7% 80% 52% 7%
Share 4% 2% 0% 8% 13% 8% 37% 8% 20% 100%
(1.4)
1.2 1.3
3.9
0.5 0.6
CY15 CY16 CY17 CY18e CY19e CY20e
Soda-Ash: Global Capacity Change (Mn/Metric Tonnes)
Post Turkey capacity we do not expect any major capacity addition globally.
Source: Emkay Research
26
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: Global Consumption
55%
13%15%
12%
2%
2%
1%
2005
Glass
Soap & Detergents
Inorganic Chemicals
Other uses
Alumina
Paper & Pulp
Neutralisation
54%
14%
12%
16%
2%
1%
1%
2017
Glass
Soap & Detergents
Inorganic Chemicals
Other uses
Alumina
Paper & Pulp
Neutralisation
Product wise Consumption
Region wise Consumption
30%
18%
19%
8%
12%
5%
4%
4%
2005
China
North America
West Europe
East Europe
South & SouthEastAsia
Middle East And Africa
North East Asia
43%
11%
14%
7%
12%
6%
3%
4%
2017
China
North America
West Europe
East Europe
South & SouthEast Asia
Middle East And Africa
North East Asia
South America
Source: Bloomberg, Emkay Research
27
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash: Global Market Outlook
Global Market Highlight Demand Prices
Global OutlookThe soda ash market is balanced across most region with the exception of Asia and the ISC where
supply remain tight.
Asia
Chinese domestic price rose sharply in late April early May before stabilisation at the start of June.
Chinese spot export prices remain high at $270-300 per mt. Turkey exported 117000 mt to Asia
excluding ISC in the first 4 months of 2018.
EuropeThe market across WEP appears to be balanced. EU import price fall by Euro2/mt in Feb 2018 compard
to Jan 2018. Turkish imports to WEP have increased by 253,000 mt in the first 4 months of 2018.
Africa/MESoda ash is very balanced across the region. Ciner has started ramping up production at 5th line in
Kazan. Turkish exports increased by 553kt in Jan-Apr 2018.
IndiaIndia list and spot prices increased in May. Soda ash supply is quite tight across ISC region. Ban of
plastic will increase the consumption of glass bottles.
US Soda ash in S.America is balanced with positive demand and rise in prises.
Source: Emkay Research
28
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
"The surge in demand combined with tight supply in China from environmental shutdowns put significant upward pressure on
prices. Robust demand in the Chinese domestic market drove down their exports by 26% through November compared to the previous
year. Soda ash demand remained strong through the end of 2017. Demand increased 7% in China during the year and ANSAC
experienced similar growth in its Asian markets. The combination of higher demand and less available supply has set the stage for pricing
to remain relatively strong for most Asian markets at least through early 2018. The market globally is very tight, despite Kazan coming
online. And so, we're not in this hugely oversupplied global marketplace right now.“
- Ciner, US
Global Players Outlook & Commentary
“During the first quarter of 2018, we took advantage of the situation in the Asian market of soda ash, where we witnessed significant
changes of prices. In the context of the following quarters, good news is great demand for soda ash in all markets in which we operate. At
the same time, we reduce the negative impact of persisting high prices of materials. In 2018, we will commission next investments, very
important for the CIECH Group – e.g. new products in the salt business. We also face work on the construction of a new saltworks in
Germany and operational integration with Spanish company Proplan”
-CIECH S.A. Spain
29
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Soda-Ash Companies Covered
Tata Chemicals Ltd
GHCL Ltd
DCW
Nirma
Ghadi
30
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Tata Chemicals (TTCH IN) | Mcap: Rs174bn | TP: Rs804 | Rating: ACCUMULATE
Tata Chemicals is the world’s 2nd largest producer of soda ash with manufacturing facilities in Asia, Europe, Africa
and North America. It is the world’s 3rd largest producer of sodium bicarbonate, which has applications in
pharmaceuticals and air & water pollution control. With a capacity of ~4.3 mn MT (including US) soda ash and 0.2 mn
MT sodium bicarbonate, TTCH is world’s most geographically diversified soda ash company.
Key Positives
Higher focus on consumer business growth
Increased investment in premium margin business
Net-Debt free balance sheet
Exit from all regulated business
Positive price momentum in Soda-Ash business globally
Key Negatives
Lacks of clarity in deployment of high cash balance
Strategy to reach Rs50bn revenue mark in consumer business is unclear
Valuations & Outlook
We maintain our ACCUMULATE rating on the stock with our previous TP of Rs804, valuing it at 17.0x FY20E P/E. On
SoTP basis also we arrive at the TP of Rs804, valuing the total business at 8.5x EV/EBITDA.
EV/EBITDA EBITDA EV
(x) (Rs Mn) (Rs Mn)
India Soda Ash 7.0 7,153 50,074
Salt 16.9 4,309 72,614
Consumer (Pulses) - -438 -
Rallis (50.9% Share) 10.0 1,973 19,734
US Soda Ash 7.0 7,572 53,002
Europe Soda Ash 7.0 1,936 13,554
Africa Soda Ash 7.0 903 6,322
Total 23,410 2,15,300
Debt (FY18) 55342
Cash (FY18) 44830
Mcap 2,04,788
O/Shares 255
Target Price (Rs) 804
SoTP Valuation (FY20E)
31
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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Increased focus on consumer centric businesses: TTCH intent to increase the consumer revenue from ~Rs16bn to
Rs50bn in next five years. The initiative is largely focus towards strengthening food products portfolio along with capacity
expansion in Salt business.
Consumer portfolio comprises umbrella brand ‘Tata Sampann’ under which TTCH sells Pulses, Spices, Besan etc. It
intends to expand its retail footprint to 2.5mn outlets from the current 1.8mn outlets. In addition to growing the current
retail network, the company is also focusing to launch various value added Pulses, Spice and Rice Mix (E.g. Khichdi
Mix). The focus is also to built Modern Trade and non-traditional channels such as e-Commerce, to ensure availability at
a multitude of consumer touch points.
The Salt business continues to be the mainstay in terms of revenue generation. In salt business management intent to
expand the capacity and add more value added salts to increase realization. However, we need to see the initial signs of
TTCH generating 25.6% Revenue CAGR in consumer business over next five years.
Tata Chemicals (Cont…)
Standalone, 58%
Europe, 9%
Africa, 4%
IMACID, 3%
North America,
17%
Rallis, 9%
FY16
Standalone, 52%
Europe, 11%
Africa, 4%
IMACID, 0%
North America,
21%
Rallis, 12%
FY17
Source: Company, Emkay Research
Revenue Mix - Standalone & Subsidiary Performance
32
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
New capex geared towards high-margin business: The management intent to allocate new capex into premium margin
and high RoCE business. On the same line, the company announced two round of capex one for nutritional solution such as
sufructo-oligosaccharides (FOS) and second for Specialty Chemical Businesses of new materials like highly dispersible silica
(HDS).
FOS is a prebiotic healthy sweetener used in dairy, bakery and confectionery. In FY17, the segment reported revenue of
Rs269mn and 680 tonnes of FOS across India. The company is also taking initiatives to seed US customers in order to
generate demand for upcoming commercial-scale 5,000 tonnes manufacturing facility at Nellore, Andhra Pradesh. We
estimate Rs1375mn of revenue in FY20 post the commercial production.
HDS is a product used in tyre industry, primarily for rubber reinforcements. It is expected to benefit the tyre industry by
lowering rolling resistance, better fuel economy, reducing greenhouse gas emissions, increasing traction for improved
safety compared to carbon black. The carbon black is ~13% of total tyre cost (India Market Size Rs50bn). Hence, HDS
has huge replacement market.
Tata Chemicals (Cont…)
Sweetener HDS
HDS
Source: Emkay Research
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Tata Chemicals (Cont…)
Revenue mix – Before & After Exit from Fertilizer Business
Source: Company, Emkay Research
Soda Ash, 37%
Vacuum and Iodised Salt,
10%Other
Chemicals, 9%
Urea, 13%
DAP, 7%
NPK, 7%
Other Agri -Products,
13%
Consumer, 2%
Before
Soda Ash, 52%
Vacuum and Iodised Salt,
14%
Other Chemicals, 12%
Other Agri - Products, 19%
Consumer, 3%After
Exit from regulated businesses to be margin accretive: The sale of Urea business to Yara last year and Complex Fertiliser
business to Indo Rama group is likely to be margin accretive. Indo Rama acquire all the assets and related working capital to
this business for Rs3.75bn. However, the government subsidy outstanding will remain with TTCH. We believe the overall
margin will improve from 14.6% in FY16 to 21.0% in FY20E given the fact that the fertilizer business was loss making. Further,
the exit from regulatory business will lead to improvement in cash conversion cycle going forward.
34
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Potential to improve RoCE: Post the exit of regulated business, the company’s Working Capital-to-Sales ratio declined from
16% in FY16 to -2%/1% in FY17/FY18. As a result, we expect gradual expansion in the RoCE from 10.5% in FY18 to 12.0% in
FY20E. Additionally, the management’s increased focus on consumer business should boost the return-ratios. The
management intent to reach ~Rs50bn revenue mark in overall consumer business in next five years.
Chemicals64%
Fertilisers5%
Other agri inputs
7%
Others1%
Un Allocable
23%
Chemicals73%
Other agri inputs
4%
Others1%
Un Allocable
22%
Capital Employed - FY17 Rs 220bnCapital Employed - FY18 Rs 191bn
Source: Company, Emkay Research Source: Company, Emkay Research
Tata Chemicals (Cont…)
35
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Tata Chemicals (Cont…)
Source: Company, Emkay Research
Product-wise Revenue Mix (%)
Soda Ash, 37%
Vacuum and Iodised Salt,
10%
Other Chemicals,
9%
Urea, 13%
DAP, 7%
NPK, 7%
Other Agri -Products,
13%
Consumer, 2%
FY17
Soda Ash, 38%
Vacuum Salt, 5%
Complex Fertilisers,
27%
Urea, 10%
Cement, 1%
Others, 16%
Other Income, 3%
FY12
Source: Company, Emkay Research
Positive price momentum in Soda-Ash business globally: Soda-ash is in the positive price momentum globally due to
tight supply situation and steady riss in demand. In India the supply situation is likely to remain tight for next 2-3 years given
that no large capacities are coming. Even Ghadi capacity is much less than the planned one. Further, the ban on plastic is
going to increase the consumption of glass and paper, which is also positive for Indian soda-ash demand. Globally, except in
Africa the prices are moving upward across the globe. Hence, we are of the view that positive price momentum may continue
for medium-term.
36
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Source: Company, Emkay Research
Stand alone, 50%
Europe, 7%
Africa, 5%
IMACID, 2%
North America,
26%
Rallis, 9%
FY16
Stand alone, 50%
Europe, 10%
Africa, 2%
IMACID, 0%
North America,
27%
Rallis, 11%
FY17
EBITDA Mix - Standalone and Subsidiary (%)
Tata Chemicals (Cont…)
37
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Key Financials (Standalone)
Tata Chemicals (Cont…)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 148,729 103,461 102,697 117,683 123,219
Expenditure 127,070 82,518 80,790 93,352 97,906
EBITDA 21,659 20,943 21,907 24,331 25,313
Depreciation 5,261 5,122 5,180 5,289 5,526
EBIT 16,399 15,821 16,727 19,042 19,787
Other Income 1,402 1,661 1,595 3,507 3,781
Interest expenses 5,255 2,973 3,256 3,545 3,146
PBT 12,545 14,510 15,066 19,003 20,423
Tax 2,484 3,460 601 4,466 4,799
Extraordinary Items (519) 156 1,136 600 700
Minority Int./Income from Assoc. (2,356) (2,410) (2,694) (2,748) (2,803)
Reported Net Income 8,225 8,484 10,635 11,189 12,121
Adjusted PAT 7,706 8,640 11,771 11,789 12,821
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 2,548 2,548 2,548 2,548 2,548
Reserves & surplus 65,995 76,534 108,469 115,836 124,134
Net worth 68,543 79,082 111,017 118,384 126,682
Minority Interest 25,985 26,239 27,172 29,920 32,723
Loan Funds 109,444 77,160 80,591 74,351 62,871
Net deferred tax liability 0 0 0 0 0
Total Liabilities 203,972 182,482 218,780 222,655 222,276
Net block 132,800 126,743 131,956 132,166 132,241
Investment 31,468 38,279 41,293 41,293 41,293
Current Assets 75,693 67,817 85,330 92,214 93,075
Cash & bank balance 12,654 16,648 44,830 46,239 44,938
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 39,491 53,386 39,798 43,018 44,332
Net current assets 36,202 14,431 45,531 49,196 48,743
Misc. exp 0 0 0 0 0
Total Assets 200,471 179,453 218,780 222,655 222,276
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) 11,144 12,848 13,471 15,496 16,642
Other Non-Cash items 0 0 0 0 0
Chg in working cap (885) 25,766 (2,918) (2,255) (848)
Operating Cashflow 474 46,640 42,497 16,971 19,601
Capital expenditure (58) 936 (10,393) (5,500) (5,600)
Free Cash Flow 416 47,576 32,103 11,471 14,001
Investments 0 (6,811) (3,014) 0 0
Other Investing Cash Flow 0 0 0 0 0
Investing Cashflow (58) (5,403) (10,378) (5,500) (5,600)
Equity Capital Raised 13,026 10,539 31,935 7,367 8,298
Loans Taken / (Repaid) 8,054 (32,284) 3,431 (6,240) (11,480)
Dividend paid (incl tax) 0 2,803 5,606 3,822 3,822
Other Financing Cash Flow (465) (40,045) (9,542) (13,885) (19,125)
Financing Cashflow (465) (37,242) (3,936) (10,062) (15,302)
Net chg in cash (49) 3,995 28,182 1,409 (1,301)
Opening cash position 14,643 12,654 16,648 44,830 46,239
Closing cash position 14,594 16,648 44,830 46,239 44,938
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 14.6 20.2 21.3 20.7 20.5
EBIT Margin 11.0 15.3 16.3 16.2 16.1
Effective Tax Rate 19.8 23.8 4.0 23.5 23.5
Net Margin 6.8 10.7 14.1 12.4 12.7
ROCE 9.7 9.0 9.1 10.2 10.6
ROE 12.4 11.7 12.4 10.3 10.5
RoIC 11.2 11.3 13.0 14.2 14.6
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER 21.5 20.8 16.6 15.8 14.6
P/CEPS 14.1 13.3 10.8 10.7 10.0
P/BV 2.6 2.2 1.6 1.5 1.4
EV / Sales 1.8 2.3 2.1 1.7 1.6
EV / EBITDA 12.6 11.3 9.7 8.4 7.7
Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0
EPS 32.3 33.3 41.7 43.9 47.6
38
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
GHCL Ltd (GHCL.IN) | Mcap: Rs27bn| TP: Rs358 | Rating: BUY
GHCL Ltd. is a diversified company with an established footprint in chemical, textiles and FMCG segments. It plays a
prominent role as a major B2B player in soda ash industry in India, wherein it produces several variants of soda ash. GHCL
Limited, being one of the leading manufacturers of Soda Ash in India, has an annual production capacity of 9,75,000 metric
tonnes (expanding to 11,00,000 metric tons by Q4FY19), which contributes to almost 29% of the annual domestic
requirement. GHCL Ltd. has integrated textile manufacturing facilities with an installed spinning capacity of around 1.76 lakh
spindles and 3,320 rotors.
Key Positives:
Strong cash flow generation
Capex in-lined with upcycle in Soda-Ash Business
Debt reduction on the cards with no major capex in 2 years
Recovery anticipated in Home textile margin
Key Negatives:
Slowdown in Textile business
Low promoter stake in the company
Valuation & Outlook: We reiterate BUY rating on the stock with TP of Rs358 based on 8.6x FY20E EPS of Rs41.6.
39
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
GHCL25%
Tata Chemicals20%
Nirma27%
Imports23% Others
5%Gujarat
28%
North29%
East9%
West19%
South15%
3024 2763
39834566
5187 5252
448 830
681
1133
1371
-157
-1000
0
1000
2000
3000
4000
5000
6000
7000
FY13 FY14 FY15 FY16 FY17 FY18
Soda Ash Home Textile
12155 12306 14164 14956 1565018960
10595 101709572
1063412270
10450
16
18
21
25 24
21
0
5
10
15
20
25
30
0
5000
10000
15000
20000
25000
30000
35000
FY13 FY14 FY15 FY16 FY17 FY18
Soda Ash Home Textile EBITDA margin (%)
EBIT Mix (Rs Mn)
Domestic demand concentrationDomestic Soda Ash players
Revenue Mix (Rs Mn)
GHCL Ltd.(Cont…)
Source: Company, Emkay Research
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
24.9%22.5%
28.1%30.5%
33.1%
27.7% 27.7% 28.0%
0.0%
10.0%
20.0%
30.0%
40.0%
0
2000
4000
6000
8000
FY13 FY14 FY15 FY16 FY17 FY18 FY19e FY20e
EBIT (Rs Mn) EBIT Margin (%)
Capex to serve firm demand in Soda Ash: Environmental issues resulted in closure of many Soda Ash plants in China. This has resulted in Soda Ash
price rise globally owing to supply constrain. The prices are likely to remain elevated as there are more plants that are needed to be relocated or
upgraded, which will further disrupt the supply chain. GHCL’s move to increase capacity consistently will prove vital in addressing steady demand in
Soda Ash. GHCL is expanding it capacity by 13% (1.25MT), which will be fully commissioned by Q4FY19.
GHCL Ltd.(Cont…)
GHCL Tata Chem Nirma DCW
EBIT % 28% 20% 14% 4%
ROCE % 18% 9% 18% 4%
850 850 850 850 870975
1100 1100
724 712 739 749 801937 997 1078
0
500
1000
1500
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Capacity Production
Soda Ash Capacity and Production (‘000 MT)
Soda Ash business a steady cash generator: GHCL is among the key domestic Soda Ash players (25% market share) and benefits from fully
integrated plant and various distinct cost advantages which helps it to enjoy highest margins in the industry (EBIT margins 28-31%) and strong return
ratios. With steady demand-supply dynamics going forward, the business is likely to continue generating steady cash flows for the company. We expect
revenues from this segment to increase at 8% CAGR over FY18-20E. Further, margins in this segment are expected to stay healthy at ~28%. Higher
margins in this segment are on the back of highest utilisation in the industry and well integrated business model with captive availability of raw materials,
leading to cost leadership in the industry.
Soda Ash segment EBIT (Rs mn) and EBIT margin (%) GHCL enjoys highest EBIT margin among peers
41
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
GHCL Ltd.(Cont…)
Company FY12 FY13 FY14 FY15 FY16 FY17 FY18
Himatsing. Seid 6.9% 7.0% 7.3% 9.2% 14.6% 15.0% 16.7%
GHCL 1.4% 4.2% 8.2% 7.1% 10.7% 11.2% -1.5%
Indo Count Inds. 4.1% 7.2% 11.6% 15.8% 20.9% 18.6% 13.0%
Welspun India 6.1% 13.6% 7.8% 19.5% 21.3% 16.2% 10.2%
Trident 4.1% 9.5% 12.3% 10.0% 11.2% 10.9% 7.1%
EBIT margin comparison with peers
Debt reduction measures along with capex plan: Over the past 4-5 years, the company has utilized significant amount of cash flows for
paying off overseas debt (due to write-offs taken on overseas retail investments). In last 2 years, GHCL has embarked on a capacity expansion
plan, wherein it expanded Soda Ash capacity and also installed wind turbine systems. With write-off of losses in overseas subsidiaries and
major capex in both the businesses nearing completion, the major focus for the company will be debt reduction and paying back investors,
either in the form of dividend or shares buyback. We believe GHCL’s strong free cash flow generation ability will lead to reduction its D/E to 0.4x
by FY20E from 0.9x in FY18.
Outlook remains positive; Maintain BUY: Soda Ash business continues to deliver consistently strong performance on the back of improving
realizations amid robust demand. We expect further increase in realizations going forward, driven by rising global demand and mounting issues
in China. The recovery in the Textiles business is expected over the medium to long term. We reiterate BUY and retain our previous TP of
Rs358 based on 8.6x FY20E EPS of Rs41.6 (31.6% upside).
Textile segment margin recovery derailed due to slowdown in US market: GHCL is one of the late entrants in Home Textiles segment. The
company supplies its fabrics to private label brands in exports markets. In this segment, GHCL competes with established players like Welspun
and Indo Count. GHCL’s margins in this segment shown improvement during FY13 (4.2%) to FY17 (11.2%). However, slowdown in the US
textiles market dented operational performance in FY18, resulting in EBIT loss of Rs157mn. We believe this segment will remain subdued till
1HFY19, owing to struggling textile retailers in the US.
15.6 14.9 13.2 11.3 14.6 11.5 10.3 9.8
2.7 2.5
1.7
1.0 1.10.7
0.5 0.4
0.0
1.0
2.0
3.0
0.0
10.0
20.0
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Debt (Rs bn) D/E (x)
42
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Financials…
GHCL Ltd.(Cont…)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 25,307 27,838 29,432 30,032 32,193
Expenditure 19,013 21,061 23,371 22,916 24,276
EBITDA 6,294 6,778 6,061 7,116 7,918
Depreciation 817 857 1,101 1,165 1,265
EBIT 5,477 5,921 4,960 5,951 6,653
Other Income 104 400 379 379 379
Interest expenses 1,649 1,368 1,266 1,229 1,095
PBT 3,932 4,953 4,074 5,101 5,937
Tax 1,219 1,152 511 1,632 1,900
Extraordinary Items 0 0 0 0 0
Minority Int./Income from Assoc. 0 0 0 0 0
Reported Net Income 2,713 3,801 3,564 3,469 4,037
Adjusted PAT 2,713 3,801 3,564 3,469 4,037
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 1,000 995 974 974 974
Reserves & surplus 9,359 12,471 15,134 18,023 21,479
Net worth 10,359 13,465 16,108 18,997 22,454
Minority Interest 0 0 0 0 0
Loan Funds 11,283 14,694 11,589 11,589 11,589
Net deferred tax liability 1,932 2,360 1,747 1,747 1,747
Total Liabilities 23,574 30,519 29,444 32,333 35,790
Net block 20,946 24,271 25,752 26,987 28,823
Investment 592 496 305 305 305
Current Assets 7,949 10,270 10,022 10,128 11,223
Cash & bank balance 489 361 356 621 767
Other Current Assets 599 1,303 1,012 1,033 1,107
Current liabilities & Provision 5,913 4,517 6,635 5,088 4,561
Net current assets 2,036 5,753 3,387 5,041 6,662
Misc. exp 0 0 0 0 0
Total Assets 23,574 30,519 29,444 32,333 35,790
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) 3,828 4,553 3,695 4,722 5,558
Other Non-Cash items 0 0 0 0 0
Chg in working cap 1,507 (3,416) 1,748 (1,389) (1,476)
Operating Cashflow 5,332 1,050 6,104 3,245 3,826
Capital expenditure (2,355) (4,181) (2,583) (2,400) (3,100)
Free Cash Flow 2,977 (3,132) 3,521 845 726
Investments (441) 96 191 0 0
Other Investing Cash Flow (2,630) 2,999 (3,764) (966) (830)
Investing Cashflow (2,796) (4,085) (2,392) (2,400) (3,100)
Equity Capital Raised 0 0 0 0 0
Loans Taken / (Repaid) (2,037) 3,411 (3,106) 0 0
Dividend paid (incl tax) (350) (497) (590) (581) (581)
Other Financing Cash Flow (2,037) 3,405 (3,126) 0 0
Financing Cashflow (2,387) 2,908 (3,716) (581) (581)
Net chg in cash 149 (128) (4) 264 146
Opening cash position 339 489 361 356 621
Closing cash position 489 361 357 621 767
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 24.9 24.3 20.6 23.7 24.6
EBIT Margin 21.6 21.3 16.9 19.8 20.7
Effective Tax Rate 31.0 23.3 12.5 32.0 32.0
Net Margin 10.7 13.7 12.1 11.6 12.5
ROCE 24.1 23.4 17.8 20.5 20.6
ROE 30.0 31.9 24.1 19.8 19.5
RoIC 24.5 22.7 17.0 19.8 20.1
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER 9.9 7.1 7.5 7.6 6.5
P/CEPS 7.7 5.8 5.8 5.7 5.0
P/BV 2.6 2.0 1.7 1.4 1.2
EV / Sales 1.5 1.5 1.3 1.2 1.2
EV / EBITDA 6.0 6.1 6.3 5.2 4.7
Dividend Yield (%) 1.3 1.9 2.2 2.2 2.2
EPS 27.1 38.2 36.0 35.6 41.4
43
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
DCW Ltd (DCW IN): MCap: Rs8bn
DCW is a diversified producer of basic chemicals such as PVC Resin, Caustic Soda, Liquid Chlorine, Chlorine based products such as
Trichloroethylene and HCL, Synthetic Rutile, Yellow Iron Oxide, Soda Ash & Ammonium bi-carbonate etc. The company has 2
manufacturing units located in Gujarat & Tamil Nadu. DCW has a capacity to produce 96,000TPA Soda Ash. This business contributes
~15% to the total turnover of Rs13bn (FY17).
Soda Ash15%
Caustic Soda32%
PVC50%
Others1%
Sythetic Iron oxide pigments
2%
Revenue -FY17 (Rs13bn)
Segment-wise Revenue Mix (%) Soda Ash segment performance
1685 17491834 1773
1928
2178
19372046
138 111 103
315 367 396216
407
8%6% 6%
18%19%
18%
11%
20%
0%
5%
10%
15%
20%
25%
0
500
1000
1500
2000
2500
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Sales Turnover (Rs Mn) EBIT (Rs Mn) EBIT Margin %
Source: Company, Emkay Research
44
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Nirma Ltd (Unlisted)
Nirma is the largest Soda Ash producer in India followed by Tata Chemicals and GHCL with an installed capacity of 1.1mn MT. Post its
acquisition of Searles Valley Minerals (SVM), Nirma became the second largest Soda Ash player in the US behind Ciner. SVM was
among the 5 natural Soda Ash manufacturers in the US and the acquisition put Nirma in the world’s top 7 producers of the chemical.
Revenue & Growth (Standalone) EBITDA Performance (Standalone)
3% 0%
101%
-64%
73%
7% 11%4%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
0
10000
20000
30000
40000
50000
60000
70000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Sales Turnover (Rs mn) Growth %
18%
14% 15%
17%16%
15%
24%
22%
0%
5%
10%
15%
20%
25%
30%
0
2000
4000
6000
8000
10000
12000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
EBITDA (Rs mn) EBITDA Margin %
Source: Capitaline, Emkay Research
45
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Polyurethane (PU) Industry
46
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Global PU Industry
17.9 18.8 19.6 20.5 21.4 21.9 23.4
2016 2017 2018e 2019e 2020e 2021e 2022e
Global PU Industry is currently stood at ~19 million MT which is worth
$51.4bn. The global volume is expected to grow at the CAGR of 7%
over 2018-22E.
3.4% 3.3%3.7%
4.0%4.3%
4.7%5.0%
2016 2017 2018e 2019e 2020e 2021e 2022e
India accounts for ~3.3% of the Global PU Industry which is ~$1.7bn with
0.63 million MT in 2017. India is expected to see the volume CAGR of
13.3% over 2018-22E.
Polyurethane (PU) Industry Size (Mn MT) India PU Industry (as % of Global)
Segment Volume 2005 2010 2015 2016 2017 CAGR
SLABSTOCK 50000 83000 140000 162000 200000 12%
FLXMOLDED 25000 54000 90000 110000 125000 14%
RIGIDS 30000 65000 150000 186000 230000 18%
SHOE SOLES 15000 53000 100000 118000 145000 21%
CASE 8000 14000 25000 29000 35000 13%
TPU 2000 3000 5000 7000 9000 13%
Total 130000 272000 510000 612000 744000 16%
India Demand Category Wise Price: Rigid – 120-240 Rupees per kg Shoe Sole: 180-300 Rupees per kg
Source: PU Association India, Emkay Research
Source: PU Association India, Emkay Research
47
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
PU Application
Key Raw Material (MDI & TDI) Producers
MDI TDI
Top 5: 90% Top 5: 74%
Local TDI Player in
India: GNFC, 50KL
capacity
Source: Emkay Research
Source: Huntsman AR, Emkay Research
48
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
TDI & MDI Demand Region-wise
2.12.9
3.70.20.2
0.21.7
2
2.40.9
1.3
1.6
2011 2016 2021E
APAC LATAM EMEA NAFTA
0.9 1.1 1.3
0.20.1
0.20.60.7
0.80.20.3
0.3
2011 2016 2021E
APAC LATAM EMEA NAFTA
MDI Demand by region ('000kt) TDI Demand by region ('000kt)
1.71.3
0.8 0.6
5
Dow Covestro Shell BASF Others
Top Polyols Producers Globally (‘000kt)-2016
Others: Lanxess, Perstorp, LyondellBasel
Source: Emkay Research
Source: Emkay Research
49
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Polyurethane Company Covered
BASF India Ltd
50
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
BASF India (BASF) deal in various specialty chemicals used in Performance Plastics, Automotive & Coil Coatings,
Construction Chemicals, Polystyrenes etc. The company merged 3 BASF entities (BASF Construction Chemicals India Pvt
Ltd, BASF Coatings India Ltd and BASF Polyurethanes India Ltd with BASF India) in 2011. As a resut, its profitability suffered
significantly post this major consolidation exercise, as many of these businesses were low-margin or loss-making. Expansion
of chemical complex at Dahej will broadly indigenize the basic chemicals for many sectors like Construction, Coatings and PU.
As a result, we are of the view that improvement in margin will be huge over the next 3 years followed by revenue growth.
Key Investment Positives
Dahej plant to spur revenue growth
Dahej plant replicates BASF’s successful Ludwigshafen model
Promising non-Dahej outlook
Formidable R&D synergies
Efforts to reduce import reliance
Debt reduction
Key Investments Negatives
Agri solution segment reeling under pressure
Valuation & Outlook
Rising revenue from manufacturing and new product launches in Agrochemicals are likely to drive revenue growth & margins.
We estimate a CAGR of 13.6%/39.1% in revenue/EBITDA over FY18-20E. We reduce our rating to ACCUMULATE from BUY
with TP of Rs2,212 (14.4x FY20 EV/EBITDA).
BASF India (BASF IN) | Mcap Rs 83bn | TP Rs2,212 | Reco: ACCUMULATE
51
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
BASF India. (Cont.)
Dahej plant to spur revenue growth: The Dahej plant has stabilized in the last 2 years. BASF India has also resolved
product level technical issues besides obtaining key customer approvals after successful audits. In the next 3 years, based on
product wise plant capacities, the Dahej plant can add ~Rs28bn to total revenue.
Dahej plant replicates BASF’s successful Ludwigshafen model: Ludwigshafen is the world’s largest integrated chemical
complex of BASF SE. The Dahej plant is the largest investment made by BASF in India, which replicates 58% of product
basket of Ludwigshafen site like MDI splitter (Asia’s first) and Sulfation plant (India’s first).
Promising non-Dahej outlook: Non-Dahej operation is expect to deliver revenue CAGR of 7.3% over the next 2 years due to
13 new product launches in Agrochemicals covering larger crops portfolio (Rice, Corn, Soya, Grapes & Apple) whereas earlier
it was largely focusing on Soya crop. Additionally, demand dynamics of Automotive Coating & Construction segments are also
looking favorable.
Formidable R&D synergies: Being an innovator, BASF SE invests heavily in R&D. The company plans ~25% of global R&D
to be conducted in Asia Pacific by 2020. With this, the Indian entity is also engaged in R&D, primarily focusing on customized
solutions to domestic customers with annual spending of Rs72.6mn in FY17, which is ~0.14% of total revenue. We believe
that the strong R&D support from the German parent will help BASF India to introduce newer products in the domestic market.
Efforts to reduce import reliance: The commencement of Dahej site will help BASF India to cater to the demand of fast-
growing segments like Personal Care, Adhesives, Appliances, Paper and Coatings etc. Additionally, the Dahej facility is
developed as a chemical complex to reduce reliance on imports by BASF India to cater to the domestic market (import of raw
materials formed ~78% of total requirement in FY17).
Valuation & Outlook: Rising revenue from manufacturing and new product launches in Agrochemicals are likely to drive
revenue growth & margins. We estimate a CAGR of 15.5%/44.9% in revenue/EBITDA over FY18-20E. We reduce our ration to
ACCUMULATE from BUY with TP of Rs2,212 (14.4x FY20 EV/EBITDA).
Investment Rationales
52
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
BASF India. (Cont.)
53
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Manufacturing Trading Service
As % of SBU's Revenue
Total
As % of total revenue
Performance Products
Functional Material &
Agriculture Solutions
Dispersion: 9% |Rs2.9bnCare Prod: 3% | Rs 0.9bnOthers: 20% | Rs6.7 bn
Pigments: 9% | Rs 1.3 bnOthers: 54% | Rs 7.9 bn
------------No------------Performance Products:
39% | Rs.19.7 bn
Eng. Plastic: 14% |Rs4.6bnAuto. Coatings: 9%|Rs3.2bnConstruction: 4% | Rs1.5bnPU: 25% | Rs8.4bn
PU: 17% | Rs 2.4 bn ------------No------------Functional Material &
Solutions: 40% | Rs.20.3 bn
Chemicals
Others
Herbicides: 17% |Rs5.7bnFungicides: 6% | Rs 0.9 bn ------------No------------
Agriculture Solutions:
13% | Rs.6.6bn
------------No------------ ------------No------------Monomers: 15% | Rs 2.1 bnChemicals:
4% | Rs.2.1bn
------------No------------ ------------No------------Technical: 47% | Rs 0.9 bnOthers: 53% | Rs 1.0bn
Others: 4% | Rs.1.9bn
As % of total revenue
67% (Rs34.2 bn)
29% (Rs14.6 bn)
4% (Rs19.6 bn)
100% (Rs50.8 bn)
BASF India. (Cont.)
BASF India Business Model
54
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Production and Revenue MixDahej Plant Revenue Mix – FY17
Manf. Rev: Dahej v/s Non-Dahej – FY20E
Dahej Plant Revenue Mix - FY20E
Manf. Rev: Dahej v/s Non-Dahej- FY17
BASF India. (Cont.)
Source: Company,Emkay Research
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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Key Financials
BASF India. (Cont.)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 47,492 50,782 55,834 63,602 74,497
Expenditure 46,434 48,085 52,375 57,941 67,239
EBITDA 1,057 2,697 3,459 5,661 7,258
Depreciation 1,631 1,690 1,534 1,531 1,502
EBIT (573) 1,007 1,925 4,130 5,756
Other Income 1,750 115 229 78 78
Interest expenses 1,481 1,416 1,130 574 443
PBT (304) (295) 1,025 3,635 5,392
Tax 0 17 145 484 808
Extraordinary Items 1,705 170 1,586 0 0
Minority Int./Income from Assoc. 0 0 0 0 0
Reported Net Income 1,401 (141) 2,465 3,150 4,583
Adjusted PAT (304) (311) 879 3,150 4,583
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 433 433 433 433 433
Reserves & surplus 10,727 10,590 13,006 15,204 18,835
Net worth 11,160 11,023 13,439 15,637 19,267
Minority Interest 0 0 0 0 0
Loan Funds 14,209 12,402 6,653 5,452 4,146
Net deferred tax liability 0 0 0 0 0
Total Liabilities 25,369 23,425 20,092 21,089 23,414
Net block 13,440 12,553 11,448 10,143 10,241
Investment 2,038 1,528 1,448 1,448 1,448
Current Assets 22,288 24,666 25,108 28,524 33,681
Cash & bank balance 32 251 86 143 438
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 12,397 15,321 17,911 19,025 21,955
Net current assets 9,891 9,345 7,196 9,499 11,726
Misc. exp 0 0 0 0 0
Total Assets 25,369 23,425 20,092 21,089 23,414
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) (2,054) (410) 795 3,557 5,314
Other Non-Cash items 0 0 0 0 0
Chg in working cap 2,222 765 1,984 (2,246) (1,932)
Operating Cashflow 3,410 2,361 6,052 2,484 4,247
Capital expenditure 5,816 (1,026) (484) (500) (1,600)
Free Cash Flow 9,226 1,336 5,568 1,984 2,647
Investments 689 510 80 0 0
Other Investing Cash Flow 0 0 0 0 0
Investing Cashflow (129) (293) (350) (225) (1,600)
Equity Capital Raised 0 0 0 0 0
Loans Taken / (Repaid) (4,508) (1,806) (5,749) (1,201) (1,306)
Dividend paid (incl tax) 17 43 118 952 952
Other Financing Cash Flow (4,543) (1,893) (5,985) (3,155) (3,305)
Financing Cashflow (4,526) (1,850) (5,867) (2,202) (2,352)
Net chg in cash (1,245) 219 (165) 57 295
Opening cash position 1,277 32 251 86 143
Closing cash position 32 251 86 143 438
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 2.2 5.3 6.2 8.9 9.7
EBIT Margin (1.2) 2.0 3.4 6.5 7.7
Effective Tax Rate 0.0 (5.6) 14.2 13.3 15.0
Net Margin (0.6) (0.6) 1.6 5.0 6.2
ROCE 4.2 4.6 9.9 20.4 26.2
ROE (2.7) (2.8) 7.2 21.7 26.3
RoIC (2.3) 4.5 9.6 21.7 28.1
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER (276.5) (269.7) 86.8 26.7 18.3
P/CEPS 63.3 60.9 31.6 17.9 13.8
P/BV 7.5 7.6 5.7 5.4 4.4
EV / Sales 2.1 1.9 1.5 1.4 1.2
EV / EBITDA 92.8 35.6 24.0 15.8 12.1
Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0
EPS (7.0) (7.2) 22.3 72.8 105.9
56
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Emulsion Polymerization (EP) Industry
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Emulsion Polymerization is a difficult chemistry where droplets of monomer (oil) are emulsified (with surfactants) in
a continuous phase of water. Water-soluble polymers, such as Polyvinyl Alcohols or Hydroxyethyl Celluloses can
also be used as emulsifiers/stabilizers. The polymers produced by Emulsion Polymerization can be divided into three
broad categories.
Companies: BASF
India Ltd & Apcotex
Industries Ltd
Companies: Ineos
Styrolation & Bhansali
Engineering Company: Asian Paint
Emulsion Polymerization Industry
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3233
3538
4042
45
2014 2015 2016 2017 2018e 2019e 2020e
0.3%
0.3%
0.3%
0.3%
0.4%
0.5%0.5%
2014 2015 2016 2017 2018e 2019e 2020e
Emulsion Polymerization Industry Size
Global Synthetic Rubber/Latex the first branch of
Emulsion Polymerization industry stood at ~$38bn
with nearly ~14 mn MT of volume in CY17. The
industry is expected to growth at 6% CAGR over
2018-20e.
India Synthetic Rubber/Latex industry contributes ~0.3%
(~$0.24 bn) of the total global industry. This industry in
India is expected to grow at 10% over 2018-20e.
Global Synthetic Rubber/Latex Industry
India Synthetic Rubber/Latex Industry
Source: Emkay Research
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Global Large Peers
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Large Global Players Financials
Source: Bloomberg, Emkay Research
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Emulsion Polymerization Company Covered
Apcotex Industries Ltd. (2nd Largest Player)
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Apcotex Industries Ltd (APCO.IN) | Mcap Rs 11bn|TP Rs 686 | Rating: Buy
Apcotex is one of the leading producers of Latex in India. The company was a division of Asian Paints (India) Ltd. In 1991, the
division was spun off as a separate company headed by Mr. Atul Choksey, former MD of Asian Paints. Apcotex’s products are
used as applications in Tyre Cord Dipping, Paper/Board Coating, Carpet Backing, Construction (Concrete Modification, Water
Proofing, etc.), Paints, Textile Finishing & Automotive Components. Apcotex’s high Styrene Synthetic Rubber finds
applications in Footwear. Additionally, newly acquired Nitrile Rubber business finds application in Automotive Components, V-
belts, Conveyer Belts and Hoses.
Key Positive
Huge capacity expansion in niche product chemistry,
New product launches
Better export traction
Strong balance sheet
Past hurdles largely resolved.
Key Negative
Limited market size
Valuation & Outlook
We remain upbeat on management’s deliverable capabilities, ability to fund capex from internal accruals and strong show
across all levels. We have a Buy rating on the stock with TP to Rs686 (22x FY20E).
Revenue Mix (%)
Natural Rubber
32%
Synthetic latex50%
SBR Rubber
18%
63
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Apcotex Ind. (Cont.)
Highest ever capex (Rs2.1bn-2.6bn) plan lined up: APCOTEX’s first phase (augmentation of Valia facility) capex of
Rs300mn is largely completed. The second phase (debottlenecking and power plant) will be completed by the end of
Q3FY19E. Additionally, the management intends to invest Rs1.5bn-2.0bn for capacity expansion in NBR, Latex and new
products at Valia and Taloja. Capacity expansion in Latex by 40,000MT is largely attributable to various new products in the
pipeline (e.g. X-NBR).
New product launches offer a big growth opportunity: Looking at Apcotex’s current product development capability, it is
well positioned to launch few new products in the Latex segment like Medical & Examination Gloves and EIFS Glass Fiber
Textiles. The consolidated market size of these two products in Europe is ~Rs23.9bn, which is dominated by a single global
player.
OMNOVA acquisition a game changer: OMNOVA’s current EBITDA margin could inch up to 12-13% from 7% on the back
of captive power and higher utilization. OMNOVA enjoys sole manufacturer of Nitrile rubber with 20,000 MT (utilization ~40%)
capacity (India Market ~40,000 MT), given the quality issues behind, we expect market share gain for OMNOVA.
Exports to further boost revenue outlook: Exports grew at a CAGR of 34% and constituted 16% of the total revenue in
FY18 (+109% yoy) compared to 4.3% in FY07. Apcotex is seeing good export demand for construction, tyre, and textile latex.
The new product launch would be additional booster for export revenue growth.
Self-sustaining growth model: Debt-free balance sheet, favorable liquidity position and ability to fund growth capex through
internal accruals are key positives. The unutilized land at both plant locations imply that capex requirements will be minimal.
Valuation and outlook; BUY with TP of Rs686: Growth capex guidance (Rs2.1-2.6bn), which will largely be funded through
internal accruals, looks positive for shareholders. We remain upbeat on management’s deliverable capabilities, ability to fund
capex from internal accruals and strong show across all levels. We have a Buy rating on the stock with TP to Rs686 (22x
FY20E).
Investment Rationale
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Apcotex Ind. (Cont.)
Product Portfolio
Source: Emkay Research
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Apcotex Market Share
Apcotex Ind. (Cont.)
Source: Company, Emkay Research
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Key Financials (Standalone)
Apcotex Ind. (Cont.)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 2,684 3,880 5,262 6,472 7,184
Expenditure 2,303 3,590 4,624 5,590 6,177
EBITDA 380 291 638 882 1,007
Depreciation 89 121 121 149 185
EBIT 291 170 516 732 822
Other Income 74 299 71 53 53
Interest expenses 30 29 16 15 15
PBT 334 440 572 771 861
Tax 88 84 171 193 215
Extraordinary Items (43) (5) (14) 0 0
Minority Int./Income from Assoc. 0 0 0 0 0
Reported Net Income 204 350 386 578 646
Adjusted PAT 247 355 401 578 646
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 104 104 104 104 104
Reserves & surplus 1,768 2,125 2,360 2,814 3,335
Net worth 1,872 2,229 2,464 2,918 3,439
Minority Interest 0 0 0 0 0
Loan Funds 288 263 254 254 254
Net deferred tax liability 0 0 0 0 0
Total Liabilities 2,160 2,492 2,718 3,172 3,693
Net block 947 939 878 1,028 1,143
Investment 178 398 499 499 499
Current Assets 1,688 1,635 2,114 2,844 3,370
Cash & bank balance 98 66 327 822 1,150
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 653 479 773 1,200 1,319
Net current assets 1,035 1,156 1,341 1,644 2,051
Misc. exp 0 0 0 0 0
Total Assets 2,160 2,492 2,718 3,172 3,693
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) 261 141 501 718 808
Other Non-Cash items 0 0 0 0 0
Chg in working cap (600) (153) 76 191 (78)
Operating Cashflow 406 428 556 918 753
Capital expenditure (247) (112) (60) (300) (115)
Free Cash Flow 159 316 495 618 638
Investments 0 (220) (101) 0 0
Other Investing Cash Flow (9) (79) 30 (53) (238)
Investing Cashflow (256) (332) (162) (300) (300)
Equity Capital Raised 52 0 0 0 0
Loans Taken / (Repaid) (54) (25) (9) 0 0
Dividend paid (incl tax) (93) (104) (124) (124) (124)
Other Financing Cash Flow 30 29 16 15 15
Financing Cashflow (96) (129) (133) (124) (124)
Net chg in cash 54 (32) 261 494 329
Opening cash position 44 98 66 327 822
Closing cash position 99 66 327 822 1,150
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 14.2 7.5 12.1 13.6 14.0
EBIT Margin 10.8 4.4 9.8 11.3 11.4
Effective Tax Rate 26.2 19.2 30.0 25.0 25.0
Net Margin 9.2 9.2 7.6 8.9 9.0
ROCE 20.8 20.1 22.6 26.7 25.5
ROE 17.2 17.3 17.1 21.5 20.3
RoIC 20.3 8.7 26.4 39.1 42.2
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER 42.0 29.1 25.8 17.9 16.0
P/CEPS 30.9 21.8 19.9 14.3 12.5
P/BV 5.5 4.6 4.2 3.5 3.0
EV / Sales 3.9 2.7 2.0 1.5 1.3
EV / EBITDA 27.7 36.3 16.1 11.1 9.4
Dividend Yield (%) 0.9 1.0 1.2 1.2 1.2
EPS 11.9 17.2 19.4 27.9 31.2
67
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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Fluorine Industry
68
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Fluorine Industry
The global fluorochemicals industry market size is around USD21.3 billion (3.67 million tonnes) in 2015, which is
expected to reach USD31.21 billion (5.49 million tonnes) by 2024.
The global fluorochemicals value market is expected to grow
at CAGR of 4.4% over 2015 to 2024.
Fluorochemicals Value Market Size ($ billion) Fluorochemicals Volume Market Size (Mn Tonnes)
The global fluorochemicals volume market is expected to
grow at CAGR of 4.6% over 2015 to 2024.
0
5
10
15
20
25
30
35
2015 2024e0
1
2
3
4
5
6
2015 2024e
Source: Emkay Research
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Fluorine Industry (Applications)
Fluorocarbon contributes nearly 50% and 45.6% of the total fluorochemical volume and value, respectively.
Refrigeration and Fluoropolymers account for nearly 37% and 63% of the total Fluorocarbon volume.
Application Wise Fluorochemicals Market-Size (%)
The growth in Fluoropolymers is going to be faster than refrigeration. Key driver for Fluoropolymers are strong growth
expected in Automotive, Construction, Electrical & Electronics, Industrial Applications, Chemical Processing, and Healthcare.
Refrigeration segment will demonstrate the mixed performance on back of expected decline in the volumes of HCFC’s due to
Montreal and Kyoto protocols. However, this will be offset by strong demand in new generation gases like HFC’s, and HFO’s.
World Consumption of Fluorocarbon (%) 2017*
Source: Emkay Research
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Fluorochemical Applications
Fluorocarbon
REFRIGERANTS
Fluorine atom produces low temperature chemicals
Non corrosive , non poisonous and non flammable
Fluorochemicals do not decompose easily.
Plastics / Polymers / Lubricating Oils
Carbon- Fluorine bond is the strongest of all chemical bonds. Hence Fluoroplastics are very tough and impact resistant.
Used in aerospace industry.
They are non corrosive to acids and alkalies, withstand high temperature. Used extensively in Chemical industry.
Also used in domestic kitchen ware (Non-stick utensils), plumbing (Teflon tape, gaskets etc).
Aluminium/Steel pickling
BULK CHEMICALS
Addition of Fluorochemical reduce Melting Temperature and hence, electricity requirement of Aluminium Smelter. AlF3
is critical raw material in Aluminium industry.
Fluorochemicals are also used as fluxing agent in welding rods, steel and foundry industry.
Fluorine chemicals are used in etching glass, electroplating industry, wood preservation, stainless steel pickling etc.
Catalyst / Fluorine Gas
SPECILTIES IN PHARMA/ PESTICIDE INDUSTRY
Addition of fluorine atom in molecular structure increases the effectiveness of chemical 4 to 5 times. Hence doze
becomes smaller and more economical.
Fluorination also increases lipophilicity because the bond is more hydrophobic than the carbon–hydrogen bond, and
this often helps in cell membrane penetration and hence bioavailability.
71
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Fluorochemical Key Raw Materials
FLUORSPAR (Calcium Fluoride)
Mineral found in China/ South Africa/ Mexico/ Mongolia ( Not in India )
India has to import all its Fluorspar
Advantage China
Global fluorspar production is ~6000 thousand MT.
Sulphur
Refinery By-product available in India (Reliance Jamnagar)
Large quantity easily imported (No disadvantage)
Chlorochemicals
Chloroform, Trichloroethylene, Methylene Chloride, Benzotrichloride
India makes them all ( No disadvantage)
Top Five Fluorspar Production (000’ thous. MTPA)Top Five Fluorspar Resources (000’ thous. MTPA)
China Fluorspar Prices (USD/Ton)
200
250
300
350
400
450
500
Ma
r/16
Ma
y/…
Jul/16
Se
p/1
6
Nov/1
6
Jan
/17
Ma
r/17
Ma
y/…
Jul/17
Se
p/1
7
Nov/1
7
Jan
/18
72
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Fluorspar: Downstream Products
Once the fluorspar is
graded it gives nearly 49%
of Acid Grade spar, 47% of
Metspar and 4% of Others.
Acid Grade spar is used
for production of
Hydrofluoric Acid (HF).
73
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Montreal & Kyoto Protocol Update
Montreal Protocol: This is an international treaty designed
to protect the ozone layer by phasing out the production of
numerous substances that are responsible for ozone
depletion. Under the Montreal Protocol - substances that
deplete Ozone Layer like HCFCs (R22 & R142b) need to
be stopped. The reducing of consumption and production of
R22 and R142b was started in 2015. The complete phase-
out of HCFC’s will happen by 2030.
HCFC phase-out schedule
Hydro chloro fluoro carbons (HCFC) refrigeration
gases are R22 and R142b.
Kyoto Protocol: This protocol was adopted in Kyoto,
Japan, and came into force on February 16, 2005,
currently 192 countries are following this protocol. As per
the agreement, emission savings include cuts in methane,
HFC, and N2O emissions. The phasing-out of HFC’s
(R134a, R32, R125 and Blends which have GWP) will
start from 2020 in developed economy. All developed
countries will move towards HFO’s (1234yf, 1233zd)
which are not having Global Warming Potential (GWP).
Yet not applicable
for India
Hydro fluoro carbons (HFC) refrigeration gases are
R134a, R32, R125 and Blends.
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Gas Type Details ApplicationGlobal Warming
Potential (GWP)Remark
R404A HFC blend
Industrial Refrigeration, Commercial
Refrigeration, Transport
Refrigeration, Cold storage cells, Ice
vending machine
Very High
(GWP-3922)
Replacement for R502 and
R22
R134a HFC blend
Commercial Refrigeration,
Domestic Refrigeration, Transport
Refrigeration, Mobile Refrigeration,
Chillers
Low
(GWP-1430)
Replacement for R12 and
R22
R407A HFC blend
Commercial Refrigeration, Cold
storage cells, Food storage &
Processing
Medium
(GWP-2107)
Replacement for R22 and
R404A, also for R404A &
R507
R407C HFC blend
Industrial Refrigeration, Commercial
Refrigeration, Commercial Air
Conditioning, Domestic Air
Conditioning
Medium
(GWP-1774)Replacement for R22
Refrigerant Gases Replacement...
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Gas Type Details ApplicationGlobal Warming Potential
(GWP)Remark
R410A HFC Blend Domestic Air ConditioningMedium
(GWP-2088)Alternative to R13B1
R134a HFC Blend
Commercial Refrigeration,
Domestic Refrigeration, Transport
Refrigeration, Mobile Refrigeration,
Chillers
Low
(GWP-1430)
Replacement for R12 and
R22
R1234yf HFO Blend Automotive Air ConditioningNegligible
(GWP-4)Replacement for R134a
...continued
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Fluorochemicals Indian Market Size
Particulars (Rs mn) Types Tonnage Market Size Import/Export
Bulk
HF 50,000 5000
ALF3 30,000 2500 Imported
Other 5,000 750
Refrigerants
R22 10,000 2500
R134A 10,000 2000
Other 5000 1500 Imported
R22 10,000 2500
FluoroplasticsPTFE 5,000 3000
Other 500 500
Specialties
Inorganics 2,000 800
Organics 5,000 2500
Imports 2000
Total 23050
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Global Growth outlook
Source: Company, Emkay Research
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Key Players In Fluorine
Product Types
Fluorocarbons
HCFC
o Fluoropolymers
o Fluorelastomers
o HFC
o HFO
AIF3 and Others
Others
Asahi Glass Co.
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PARTICULARSNAVIN
FLUORINESRF GFL
TANFAC DEEPAK
NITRITEAARTI
BULK
REFRIGERANTS
FLUOROPLASTIC
SPECIALTY
AGRO CHEM
Business Models
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Fluorine Industry Companies Covered
SRF Ltd
Navin Fluorine International Ltd
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SRF Ltd. (SRF.IN)| Mcap: Rs94bn | TP: Rs 2,305| Rating: Buy
SRF Ltd operates in 3 core segments - Technical Fabrics (Tyre Cord, Belting Fabrics, Laminated & Coated Films), Chemicals
(Fluorinated Speciality Chemicals & Refrigerants), and Packaging Films (BoPET & BoPP). The company have operations
across India, Thailand and South Africa. In refrigerant business, SRF enjoy leadership position in domestic market with only
producer status for HFC32, HFC134a, HFC125, HFC401, HFC407 in India. It has 13 plant location (9 in India; 4 abroad) with
total workforce of 6500 employees globally. SRF also have significant presence in Packaging Films and Specialty Chemicals.
Key Positives
Chemicals to contribute to 23% CAGR in revenue from FY18-20E
R-Gas continue to drive Chemicals & Polymer segment revenue
Packaging Films (PF) to see steady demand
Margins progressively inching up across segments
Key Negatives
Uncertainty over pick-up in speciality chemical business
Pressure in BOPP margin
Valuations & Outlook
We maintain our BUY rating on the stock with TP of Rs2305, valuing it at 12.8x FY20E P/E. On SoTP basis also we arrive at
the TP of Rs2305, valuing the total business at 10.4x EV/EBITDA.
Segments EV/EBITDA EBITDA (Rs Mn) EV (Rs Mn)
Chemicals & Polymers Revenue 14.5x 8,353 1,21,118
Technical Textile Revenue 5.7x 3,081 17,563
Packaging Films Revenue 5.4x 4,021 21,711
Total 15,455 1,60,392
Debt (net) 25663
Mcap 1,34,729
TP 2,305
Upside 39.7%
SoTP Valuations (FY20E)
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SRF Ltd. (Cont…)
Chemicals to deliver 23% revenue CAGR from FY18-20E
The management expects strong growth in Speciality Chemicals, driven by the commencement of three new dedicated
facilities and an impending uptick in global Agrochemicals cycle. We are of the view that SRF is well placed to deliver 23%
revenue CARG in overall Chemicals & Polymers Business segment and 30% in core speciality chemical segment over FY18-
20E. The major capex in speciality chemicals is done and now the contribution from these should increase in next two years.
Further, the normalization of global agrochemical inventories around 10% of sales remains the additional booster for
the specialty chemical revenue. The improvement in utilization level will lead to rise in profitability (expect 397bps/146bps
improvement in EBITDA margin in FY19/20E) from current lower levels.
Engineering
Plastics
Technical Textile
37%
Chemical & Polymers
32%
Packaging Films31%
Revenue FY18-Rs57bn
Source: Company, Emkay Research
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R-Gas continue to drive Chemicals & Polymer revenues: In FY18, SRF’s Refrigeration business delivered a strong
performance (39.3% yoy) on the back of 31.5% and 44.6% increase in Exports and Domestic revenue, respectively. Excluding
R-gas, other key sub segments like Chlorinated Chemicals, Engineering Plastics, and Core Speciality Chemicals revenue
declined by 16.8% yoy. We forecast 25% revenue CAGR over FY18-20E.
Packaging Films (PF) to see improved operational performance: PF business reported strong growth in Q4FY18
(+39.4%) at Rs5.3bn, led by new capacity addition. EBIT margin has also improved on yoy basis to 13.7% (9.9% in Q4FY17)
despite oversupply situation in the industry. In FY18, PF segment reported 8% yoy revenue growth with 160bps contraction in
EBITDA margin. Global demand-supply situation improved in BOPET. SRF is putting up a new capex of Euro 58mn to install
new BoPET Film capacity in Hungary (Eastern Europe) to cater rising demand. However, BOPP continues to be under
pressure globally. Commissioning of SRF’s new BOPP plant in Q4FY18 might dent the operational margin (management is
also sceptical about this segment), which could be offset by better performance from BOPET. We forecast 27%/14% top-line
growth with 17bps/98bps improvement in EBITDA margin in FY19/20E.
Margins progressively inching up across segments: All the 3 segments, i.e. Technical Textiles, Packaging Films and
Chemicals & Polymer segments exhibited margin expansion in Q4FY18 by 345/387/90 bps, respectively on a yoy basis, led by
better volume and cost improvement measures. Packaging and Technical Textiles segments are showing sustainable margin
expansion for the last couple of quarters. Going forward, we expect better margin show from speciality and R-gas segments.
Hence, we expect 300 bps improvement in the overall margin in next two years to 20% from 17% in FY18.
SRF Ltd. (Cont…)
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Technical Textile Business (TTB) contributed ~36% of the FY18 top-line
TTB has plant across four locations in India and one plant in Thailand
Key raw-materials are Caprolactum, Nylon Yarn, & Polyester Chips
Segment reported negative 1.1% revenue CAGR for FY13-18
However, EBIT increased by 17.0% CAGR for FY13-18
Capacity Mix (%)
Tyre Cord Fabrics
Nylon Tyre Cord Fabric: Used as Tyre
reinforcement in bias tyres
Polyester Tyre Cord Fabric: Used as
Tyre reinforcement in radial tyres
Belting Fabrics
Finds applications as a reinforcement
material for Conveyor Belts
Coated Fabrics
PVC synthetic coated fabrics used
architecture, lifestyle, sports, advertising,
defense, mines, food & agriculture,
automobile and transportation etc
Laminated Fabrics
Used in printing, advertising & signage
industry, etc
Industrial Yarn
Used in Fishnets Twine, Sewing Thread,
Velcro, Narrow, Webbing, etc
Technical Textile Revenue (Rs Mn) FY13 FY14 FY15 FY16 FY17 FY18
Tyre Cord Reinforcement 14,379 15,742 15,226 14,750 15,129 15,583
Belting Fabric 919 1,005 948 626 640 697
Coated Fabrics 1,157 644 291 300 300 327
Laminated Fabrics 1,660 1,501 1,208 1,309 1,703 1,456
Industrial Yarn 2,228 2,354 2,020 1,833 1,589 1,276
Others 939 555 627 700 700 763
Total 21,283 21,802 20,319 19,519 20,060 20,102
EBITDA 2,385 2,541 2,603 2,364 3,060 3,227
EBITDA Margin % 11.2% 11.7% 12.8% 12.1% 15.3% 16.1%
Dep 1,151 910 646 553 517 517
EBIT 1,234 1,631 1,957 1,810 2,543 2,710
EBIT Margin % 5.8% 7.5% 9.6% 9.3% 12.7% 13.5%
Capex 365 266 386 702 146 180
Assets 17,211 17,398 14,845 15,472 16,450 17,429
Liability 3,914 4,456 3,330 3,295 4,300 5,305
Technical Textile Business (TTB)
SRF Ltd. (Cont…)
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TTB Revenue Mix (%)
Nylon Textile Production Process
We are estimating 8.3%/5.3% revenue and EBITDA CAGR over FY18A-20E. Key
growth driver would be Laminated Fabrics (+29.7% 2Yrs CAGR), Belting
Fabrics (+3.0% 2Yrs CAGR), Tyre Cord (+4.9% 2Yrs CAGR) and Others (+6.1%
2Yrs CAGR).
Technical Textile Revenue (Rs Mn) FY16 FY17 FY18 FY19e FY20e
Tyre Cord Reinforcement 14,750 15,129 15,583 16,551 17,132
Belting Fabric 626 640 697 718 740
Coated Fabrics 300 300 327 337 466
Laminated Fabrics 1,309 1,703 1,456 2,077 2,449
Industrial Yarn 1,833 1,589 1,276 1,689 1,923
Others 700 700 763 816 859
Total 19,519 20,060 20,102 22,187 23,569
EBITDA 2,364 3,060 3,227 3,401 3,581
EBITDA Margin % 12.1% 15.3% 16.1% 15.3% 15.2%
Dep 553 517 517 517 517
EBIT 1,810 2,543 2,710 2,884 3,064
EBIT Margin % 9.3% 12.7% 13.5% 13.0% 13.0%
TTB Segment Outlook
SRF Ltd. (Cont…)
Source: Company, Emkay Research
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Packaging Films Business (PFB)
Packaging Films Business (PFB) contributed ~32% of the FY18 top-line
PFB has 2 locations in India and 3 plants in Thailand, S Africa, & E Europe
Key raw-materials, Polypropylene (PP), Monoethylene glycol (MEG)
Segment reported 24% revenue CAGR for FY13-18
However, EBIT increased by 107% CAGR for FY13-18
Capacity Mix (%)
BOPP Production Process
Packaging Films Business Revenue (Rs Mn) FY13 FY14 FY15 FY16 FY17 FY18
Domestic 6,677 7,048 6,741 6,881 7,168 8,780
Foreign 3,846 5,225 8,759 9,085 9,179 11,243
Total 10,522 12,273 15,500 15,966 16,347 20,023
Less: Inter Segment 4,323 3,456 3,055 2,900 2,255 2,200
Total 6,199 8,817 12,445 13,066 14,092 17,823
EBITDA 351 488 1,109 2,443 2,544 2,936
EBITDA Margin % 5.7% 5.5% 8.9% 18.7% 18.1% 16.5%
Depreciation 291 538 473 503 531 638
EBIT 60 (50) 636 1,940 2,013 2,298
EBIT Margin % 1.0% -0.6% 5.1% 14.8% 14.3% 12.7%
SRF Ltd. (Cont…)
Source: Company, Emkay Research
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Packaging Films Business Outlook
PFB Revenue Mix (%)
We are estimating 20%/25% revenue
and EBITDA CAGR over FY18A-20E.
Key growth driver would be Domestic
and Foreign business largely driven by
brownfield expansion.
BOPET Production Process
Packaging Films Business Revenue (Rs Mn) FY16 FY17 FY18 FY19e FY20e
Domestic 6,881 7,168 8,780 10,887 12,302
Foreign 9,085 9,179 11,243 13,941 15,753
Total 15,966 16,347 20,023 24,828 28,056
Less: Inter Segment 2,900 2,255 2,200 2,200 2,200
Total 13,066 14,092 17,823 22,628 25,856
EBITDA 2,443 2,544 2,936 3,767 4,558
EBITDA Margin % 18.7% 18.1% 16.5% 16.6% 17.6%
Depreciation 503 531 638 893 938
EBIT 1,940 2,013 2,298 2,874 3,620
EBIT Margin % 14.8% 14.3% 12.7% 12.7% 14.0%
SRF Ltd. (Cont…)
Source: Company, Emkay Research
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Chemicals & Polymers Business (CPB)
Chemicals & Polymers Business (CPB) contributed ~33% of the FY18 top-line
CPB has 2 locations in India for Speciality Chemicals, R-Gas and Engineering Plastics
Key raw-materials are HF, Fluorspar and Sulphuric Acid
CPB reported positive12% revenue CAGR for FY13-18 due to R22 volume increase
EBIT negative 3.1% CAGR for FY13-18 due to decline in speciality chemical revenue
CPB Revenue Mix (%)
Speciality Chemicals (SC) business currently has ~36 products in portfolio. SRF is likely to introduce ~50 new
products to strength the SC segment product portfolio. In our view this will be a significant booster for the overall
margin of the company.
Chemicals & Polymers Business (Rs Mn) FY13 FY14 FY15 FY16 FY17 FY18
Speciality Chemicals 3417 5105 7035 7652 6459 5765
R-Gas 5648 2990 3970 5700 7177 10000
Export 2259 1196 1588 2280 2871 3774
Domestic 3389 1794 2382 3420 4306 6226
Eng Plastic 1284 1468 1630 3047 3586 2500
Total 10350 9563 12634 16398 17222 18265
EBITDA 4115 2635 4219 5520 4950 4850
EBITDA Margin % 39.8% 27.6% 33.4% 33.7% 28.7% 26.6%
Depreciation 650 722 1236 1584 1677 1894
EBIT 3465 1913 2983 3936 3273 2956
EBIT Margin % 33.5% 20.0% 23.6% 24.0% 19.0% 16.2%
SRF Ltd. (Cont…)
Source: Company, Emkay Research
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Chemicals & Polymers Business Outlook
We estimate 23.1%/35.1% revenue and EBITDA CAGR over FY18A-20E. Key growth driver would be
new product expansion in Speciality Chemicals and better domestic and export growth in R-Gas
business.
Chemicals & Polymers Business (Rs Mn) FY16 FY17 FY18 FY19e FY20e
Speciality Chemicals 7652 6459 5765 7318 9302
R-Gas 5700 7177 10000 12500 15625
Export 2280 2871 3774 4718 5897
Domestic 3420 4306 6226 7783 9728
Eng Plastic 3047 3586 2500 2625 2756
Total 16398 17222 18265 22443 27683
EBITDA 5520 4950 4850 6850 8853
EBITDA Margin % 33.7% 28.7% 26.6% 30.5% 32.0%
Depreciation 1584 1677 1894 1913 1932
EBIT 3936 3273 2956 4938 6921
EBIT Margin % 24.0% 19.0% 16.2% 22.0% 25.0%
SRF Ltd. (Cont…)
Source: Company, Emkay Research
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Key growth assumption across segments…
Key Assumptions FY15 FY16 FY17 FY18 FY19e FY20e
Technical Textile Revenue 20,319 19,519 20,060 20,102 22,187 23,569
Revenue Grow th -7% -4% 3% 0% 10% 6%
EBIT Margins 10% 9% 13% 13% 13% 13%
Chemicals & Polymers Revenue 12,634 16,398 17,222 18,265 22,443 27,683
Revenue Grow th 32% 30% 5% 6% 23% 23%
EBIT Margins 24% 24% 19% 16% 22% 25%
Packaging Films Revenue 12,445 13,066 14,092 17,823 22,628 25,856
Revenue Grow th 41% 5% 8% 26% 27% 14%
EBIT Margins 5.10% 14.80% 14.30% 12.70% 12.70% 14.00%
SRF Ltd. (Cont…)
Source: Company, Emkay Research
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Key Financials (Consolidated)
SRF Ltd. (Cont…)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 45,927 48,218 55,890 67,259 77,108
Expenditure 36,302 38,249 46,365 54,719 61,653
EBITDA 9,625 9,969 9,526 12,539 15,455
Depreciation 2,750 2,834 3,158 3,468 4,068
EBIT 6,876 7,135 6,368 9,071 11,387
Other Income 278 455 688 688 688
Interest expenses 1,305 1,018 1,239 1,622 1,622
PBT 5,849 6,572 5,817 8,137 10,453
Tax 1,551 1,422 1,200 2,278 2,927
Extraordinary Items 0 0 0 0 0
Minority Int./Income from Assoc. 0 0 0 0 0
Reported Net Income 4,299 5,150 4,617 5,858 7,526
Adjusted PAT 4,299 5,150 4,617 5,858 7,526
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 584 584 584 584 584
Reserves & surplus 27,045 31,242 35,061 40,335 47,276
Net worth 27,630 31,827 35,645 40,919 47,861
Minority Interest 0 0 0 0 0
Loan Funds 25,622 25,612 33,493 33,493 33,493
Net deferred tax liability 0 0 0 0 0
Total Liabilities 53,252 57,439 69,138 74,412 81,353
Net block 42,300 46,635 56,804 60,336 63,268
Investment 3,709 4,421 6,519 6,519 6,519
Current Assets 18,231 18,628 20,307 24,185 29,207
Cash & bank balance 3,892 961 967 1,182 1,898
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 10,987 12,245 14,492 16,628 17,642
Net current assets 7,243 6,383 5,815 7,556 11,566
Misc. exp 0 0 0 0 0
Total Assets 53,252 57,439 69,138 74,411 81,353
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) 5,571 6,117 5,129 7,449 9,765
Other Non-Cash items 0 0 0 0 0
Chg in working cap 945 (2,071) 575 (1,528) (3,293)
Operating Cashflow 8,936 5,649 8,240 7,799 8,301
Capital expenditure 22,818 (7,089) (13,327) (7,000) (7,000)
Free Cash Flow 31,754 (1,440) (5,088) 799 1,301
Investments (1,364) (712) (2,099) 0 0
Other Investing Cash Flow 0 0 0 0 0
Investing Cashflow (6,148) (7,881) (15,426) (7,000) (7,000)
Equity Capital Raised 0 0 0 0 0
Loans Taken / (Repaid) 606 (10) 7,881 0 0
Dividend paid (incl tax) 574 689 689 584 584
Other Financing Cash Flow (542) (1,388) 6,503 (1,169) (1,169)
Financing Cashflow 32 (699) 7,192 (584) (584)
Net chg in cash 2,820 (2,931) 6 215 716
Opening cash position 1,073 3,892 961 967 1,182
Closing cash position 3,893 961 967 1,182 1,898
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 21.0 20.7 17.0 18.6 20.0
EBIT Margin 15.0 14.8 11.4 13.5 14.8
Effective Tax Rate 26.5 21.6 20.6 28.0 28.0
Net Margin 9.4 10.7 8.3 8.7 9.8
ROCE 14.1 13.7 11.1 13.6 15.5
ROE 17.0 17.3 13.7 15.3 17.0
RoIC 15.2 14.6 11.2 14.1 16.3
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER 22.1 18.5 20.6 16.3 12.6
P/CEPS 14.6 12.9 13.3 11.1 8.9
P/BV 3.4 3.0 2.7 2.3 2.0
EV / Sales 2.5 2.5 2.3 1.9 1.6
EV / EBITDA 12.1 12.0 13.4 10.2 8.2
Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0
EPS 73.6 88.1 79.0 100.2 128.8
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Navin Fluorine International Ltd (NFIL) operates in Refrigerants (R22), Inorganic Fluoride, Specialty Chemicals and
CRAMS segment. NFIL has over four decade long experience in handling niche Fluorine chemistry. It has strategic tie
ups with significant entities (viz Honeywell PLC & Piramal Enterprises). Company is investing heavily in the Speciality
chemicals and CRAMS business. Refrigerants is expected to grow on the back of improved realizations due to the
imminent cuts in production in China.
Key Positives
Increasing presence in high margin CRAMs business
New product launches in Specialty Chemicals
Inorganic fluoride has strong revenue outlook
R-22 will show steady revenue and margin in short-to-medium term
Key Negatives
Limited revenue visibility in CRAMs segment
Mature product portfolio in specialty chemicals
Valuations & Outlook
We maintain our BUY rating on the stock with TP of Rs922, valuing it at 23.7x FY20E EPS.
Navin Fluorine Intern. Ltd (NFIL.IN) | Mcap: Rs32bn | TP:922 | Rating: Buy
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Moving up the fluorine value chain
Navin Fluorine Intern. Ltd (Cont…)
Increasing presence in high-margin CRAMs segment: The company’s presence in high margin CRAM’s segment has
increased from 0% in FY11 to 25% in FY18. In FY18, the segment reported 61% yoy revenue growth at Rs3.0bn v/s Rs1.8bn
in FY17. Higher utilization from the Devas facility, increasing demand for 1234yf from Honeywell and incremental revenue from
the Piramal JV are driving revenue for this segment. Also, it emerged as the highest margin business among the other key
segments. We expect 29.4% revenue CAGR over FY18-20E.
Source: Company, Emkay Research
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CRAMs Segment (Cont…)
CRAMs Revenue Mix (%)
CRAMs revenue is driven by 4 verticals:
Standalone (ST) CRAMs division in which Rs1000 mn is an Capex,
Piramal JV total Rs1400mn is invested in plant & machinery,
H1234yf in association with Honeywell with investment of Rs600 mn,
MOL in which Rs975 mn is invested for acquiring 100% stake.
Note: Piramal JV will be consolidated directly to the bottom-line of the company. MoL business is in the separate subsidiary as
a result it is captured in the consolidated numbers.
ST CRAMs48%
MoL13%
H1234fy14%
JV25%
CRAMs Product Revenue Mix* (%)
*Standalone CRAMS business
Top 10 Products
97%
Others3%
Navin Fluorine Intern. Ltd (Cont…)
Source: Company, Emkay Research
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Navin Fluorine Intern. Ltd (Cont…)
New product launched in Specialty Chemicals: The segment’s revenue remained muted at Rs2,260mn in FY18, indicating
sluggishness in the global Agrochemicals outlook and client-specific issues in domestic Pharma businesses. Agrochemical
business is largely export oriented (~38% Rev Contr.) and Pharma (62% Rev Contr.) business is largely domestic driven. The
management is focusing on new chemical products to revive this segment. However, we expect a 3% decline in growth each
for FY19/20E. Any new breakthrough in this segment could add to earnings. The company is currently putting in efforts to
revive the growth in this segment through new customers and new products.
2,260 2,260
2,192
2,126
2,050
2,100
2,150
2,200
2,250
2,300
FY17 FY18 FY19E FY20E
Agro40%
Pharma40%
Chemicals20%
Specialty Chemicals – Industrial Distribution*
Approx*
Specialty Chemicals (Rs Mn)
Source: Company, Emkay Research
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Navin Fluorine Intern. Ltd (Cont…)
Inorganic fluoride has strong revenue outlook: Revenue increased 23% yoy to Rs1480mn. The segment is witnessing a
turnaround with an accelerated traction in demand for its products from the end-user industries, along with enhanced demand
from the export markets. We forecast a revenue growth of 15%/12% yoy in FY19/20E. NFIL has one of the largest Anhydrous
Hydrofluoric (AHF) and Aqueous Hydrofluoric acid manufacturing capacities in India. AHF is used for captive manufacture of
various inorganic fluorides. Inorganic fluoride segment finds application in various industries like Oil & gas, Stainless steel,
Pharma & Agrochemicals, Abrasive, Electronics, Solar energy. Rising demand for steel products in the domestic market aided
by good demand from other industries also helped in registering robust revenue in last 2 years. We expect the segment to
continue its performance in future also and deliver 13.5% revenue CAGR over FY18-FY20E.
1,200
1,480
1,702
1,906
-
500
1,000
1,500
2,000
2,500
FY17 FY18 FY19E FY20E
Inorganic Fluoride (Rs Mn)
Source: Company, Emkay Research
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Navin Fluorine Intern. Ltd (Cont…)
R-22 will show steady revenue and margin in short to medium term: Revenue grew by 15.0% yoy to Rs2420mn, aided by
growth in exports as well as the domestic market and significant improvement in realizations. The share of exports stood at
38% (39% in Q4FY17). Stringent pollution related regulations in China resulted in price increase in R22. We are of the view
that the prolonged issues in China will lead to sustainable R22 refrigeration and non-refrigeration realizations. However, we
have factored in decline (Revenue CAGR -6.1%) over FY18-20E.
Segmental revenues Est. FY16 FY17 FY18 FY19E FY20E
Refrigerant 2,150 2,110 2,420 2,372 2,134
Specialty Chemicals 2,390 2,260 2,260 2,192 2,126
Inorganic fluorides 940 1,200 1,480 1,702 1,906
CRAMS 870 1,860 2,998 3,196* 4,590*
EBITDA margins (%) 17% 21% 24% 24% 25%
Source: Company, Emkay Research | Note: *Excluding JV revenue in FY19E & FY20E Source: Company, Emkay Research
Segment Wise Estimates
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Key Financials (Consolidated)
Navin Fluorine Intern. Ltd (Cont…)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 6,797 7,415 9,127 9,242 10,494
Expenditure 5,623 5,827 6,977 7,056 7,928
EBITDA 1,173 1,588 2,150 2,186 2,566
Depreciation 225 299 398 433 429
EBIT 949 1,289 1,752 1,753 2,137
Other Income 245 558 925 480 377
Interest expenses 38 27 12 12 12
PBT 1,156 1,820 2,665 2,221 2,502
Tax 321 451 840 699 775
Extraordinary Items 0 0 0 0 0
Minority Int./Income from Assoc. 0 4 27 (65) (170)
Reported Net Income 835 1,366 1,798 1,586 1,896
Adjusted PAT 835 1,366 1,798 1,586 1,896
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 98 98 99 99 99
Reserves & surplus 6,356 8,254 9,736 11,011 12,597
Net worth 6,454 8,352 9,835 11,110 12,695
Minority Interest 0 0 0 0 0
Loan Funds 1,103 428 383 383 383
Net deferred tax liability 0 0 0 0 0
Total Liabilities 7,557 8,780 10,218 11,493 13,079
Net block 3,951 5,783 4,477 4,809 6,099
Investment 2,664 3,009 4,858 4,923 5,093
Current Assets 2,928 2,981 3,221 4,098 4,447
Cash & bank balance 287 418 374 1,253 1,217
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 1,986 2,994 2,338 2,336 2,560
Net current assets 943 (13) 883 1,762 1,887
Misc. exp 0 0 0 0 0
Total Assets 7,557 8,780 10,218 11,494 13,079
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) 911 1,262 1,740 1,741 2,125
Other Non-Cash items 0 0 0 0 0
Chg in working cap (4) 1,087 (940) (1) (161)
Operating Cashflow 1,004 3,588 1,408 2,019 2,165
Capital expenditure (833) (2,132) 908 (765) (1,720)
Free Cash Flow 171 1,457 2,316 1,254 445
Investments (44) (346) (1,848) (65) (170)
Other Investing Cash Flow 0 0 0 0 0
Investing Cashflow (877) (2,478) (940) (765) (1,720)
Equity Capital Raised 0 0 1 0 0
Loans Taken / (Repaid) 214 (675) (45) 0 0
Dividend paid (incl tax) 206 308 493 311 311
Other Financing Cash Flow (325) (1,288) (1,004) (687) (792)
Financing Cashflow (120) (980) (511) (376) (481)
Net chg in cash 7 131 (43) 878 (36)
Opening cash position 281 287 418 374 1,253
Closing cash position 288 418 375 1,252 1,217
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 17.3 21.4 23.6 23.7 24.5
EBIT Margin 14.0 17.4 19.2 19.0 20.4
Effective Tax Rate 27.7 24.8 31.5 31.5 31.0
Net Margin 12.3 18.5 20.0 16.5 16.4
ROCE 16.5 22.6 28.2 20.6 20.5
ROE 13.5 18.5 19.8 15.1 15.9
RoIC 22.1 25.9 33.9 34.0 35.4
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER 36.9 22.5 17.3 19.6 16.4
P/CEPS 29.1 18.5 14.2 15.4 13.4
P/BV 4.8 3.7 3.2 2.8 2.4
EV / Sales 4.7 4.2 3.4 3.3 2.9
EV / EBITDA 26.9 19.4 14.4 13.8 11.8
Dividend Yield (%) 0.7 1.0 1.6 1.0 1.0
EPS 17.1 27.9 36.4 32.1 38.4
Note: * FY18 numbers are not comparable v/s estimates, as this includes
Piramal JV revenue and higher other income due to sale of NOCIL shares
* *
*
*
*
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Toluene Industry
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Properties:-
Toluene is a clear colorless liquid that has a distinctive, sweet smell
It has a pungent, benzene-like odor
It is flammable and produces poisonous gas in a fire
It is slightly soluble in water.
It occurs naturally in crude oil and in the tolu tree.
It is less dense than water.
It evaporates quickly
Toluene
Toluene is an aromatic building block and a hydrocarbon solvent. Natural sources of toluene include crude oil and in
small quantities it is found in tolu tree. Toluene alternative names include methylbenzene, toluol, anisen, phenyl
methane. Toluene is produced during the process of making gasoline along with other BTX (Benzene, Toluene,
Xylene) fuels from crude oil, in making coke from coal, and as a by-product in the manufacture of styrene.
Toluene Chemical
Structure
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Toluene: Production
Asia Pacific is the largest producing region, followed by North America and Europe
Top 5 toluene producing countries include USA, China, South Korea, USA, Taiwan and Japan
China and USA consume about 50% of total global output; Asia Pacific is the leading region in terms of demand
Solvents production and TDI industries remains the main drivers of global toluene market
Global demand for toluene was valued at over USD 25.1 billion in 2016. It is expected to reach above USD 31.8billion in 2021 and is anticipated to grow at a CAGR of slightly above 4.0% between 2016 and 2021
Population growth in Asian Countries along with growing applications of PET and PS will support the benzeneand xylene markets, which in turn is expected to drive the toluene supply market.
Source: Emkay Research
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Most of the domestic demand for toluene is met through imports and the international market has a direct bearingon domestic prices.
In India, toluene is mostly produced by separation of aromatic mixture.
The production of toluene depends significantly on the differential between toluene and naphtha prices.
Toluene prices are directly proportionate to naphtha prices due to which production and supply patterns aredirectly affected by the swing in the prices of its feedstock.
RIL, IOCL, BPCL and GNFC are the key producers of Toluene in India.
Singapore is the major importing source of toluene and UAE is the major exporting destination.
China and USA consume about 50% of the total global output; Asia Pacific is the leading region in terms ofdemand.
Out of the total consumption of toluene, major portion is utilized in production of xylene where benzene comesout as a by product.
Toluene: Indian Scenario
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As a solvent in
Paints
Lacquers
Thinners
Glues
Correction fluid
Nail polish remover
Printing process
Leather tanning process
Raw material for toluene diisocynate (TDI)
Used as an octane booster in gasoline fuels
Can be used as a fuel for 2 stroke and 4 stroke engines.
Also as substitute of Benzene
Toluene : Applications
Toluene Production From Styrene
Toluene is a by-product in the production of styrene from ethylbenzene by dehydrogenation.
Small amounts of toluene are also produced as a styrene by-product via the isothermal production process
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Toluene Industry Company Covered
Vinati Organics Ltd
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
Vinati Organics Ltd. is a Specialty Chemicals company producing aromatics, monomers, polymers and other speciality
products. Vinati is world leader in two of its main products, Isobutyl Benzene (IBB) (65% market share) and 2-Acrylamido 2
Methylpropane Sulfonic Acid (ATBS) (45% market share). Vinati has presence in over 22 countries worldwide. Currently,
company has total installed capacity for IBB and ATBS is 16,000 MT (expanding to 25,000 MT by FY19 end) and 26,000 MT
(expanding to 30,000 MT by FY19 end), respectively. Vinati’s continuous innovations has lead to a diverse profile of 14
products catering to various sectors.
Key Positives
Global market leadership in two main products
Unique chemistry with strong R&D support
Zero Net debt balance sheet
Stickiness with client ensures performance
New product launches to drive revenue growth
Forward and Backward integrated
Key Negatives
Future growth mostly factored in the stock price
Big capex plan lined up with uncertainty on the time line for the product launch.
Valuation & Outlook: We believe the strong earning growth from existing products and new product pipeline are largely
factored in the current valuation. We value the company at 26.0x FY20E EPS to arrive at the TP of Rs866.
Vinati Organics Ltd. (VO.IN) | Mcap: Rs50bn | TP: 866| Rating: HOLD
107
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Investment Rationale: ATBS remains pivotal for future growth
ATBS: Global demand set to rise…ATBS was identified as most potential products in the market due to its wide range of applications. The demand for ATBS in global market is expected
to rise because of its versatility in application. ATBS have wide uses in the textile, medical, personal care, water treatment, coatings, and chemical
industries. However, the most important primary application of ATBS is in the enhanced oil recovery industry, where it is used in its highest purity grade.
In terms of form, the powder/granular segment holds a major share of the total acrylamide tertiary butyl sulfonic acid (ATBS) market.
The segment is projected to expand at a rapid pace in the near future due to the expansion of the water treatment and enhanced oil industries where
ATBS is used extensively. The consumption of granular ATBS acid is expected to grow during the forecast period, as it is environment friendly and easy
to handle. Geographically, Asia Pacific is anticipated to expand at a high growth rate, primarily due to the high GDP growth rate and rising population
with higher disposable income and also the major growth rate in health care, food & beverages, chemical processing and Acrylic fiber & detergents
applications.
Vinati is world’s largest player (26,000 TPA) in ATBS market followed by players like Lubrizol (14,000 TPA), Toagosei Co. Ltd.(6,000 TPA) and
Shandong Taihe Water Treatment Technologies Co (5,000 TPA), etc. Post shutdown of Lubrizol ATBS plant, Vinati’s market share increased to ~60%
(from earlier 45%) which will further increase to ~65% following Vinati’s expansion of 4000 MTPA in ATBS. For FY18, more than 90% of Vinati’s ATBS
revenues came from export (+47% yoy). Globally ATBS market is growing at ~12-14%, which is likely to continue for the next 3-4 years. However, We
believe with limited competition in global market coupled with widening of its applications area there is a huge potential for growth in export. Moreover,
limited usage of ATBS in India also provide big market to capture going forward. In the domestic market majorly ATBS is being used by oil & gas
exploration companies for EOR (Enhanced Oil Recovery) techniques to improve their yields.
Vinati Organics Ltd. (Cont.)…
Source: Emkay Research
17752148 2273
2854
3550
2902 2884
4168
4918
5656
0
1000
2000
3000
4000
5000
6000
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
ATBS Installed Capacity (MTPA) Revenue From ATBS (Rs mn)
3600
5000
10000
12000
12000
26000
26000
26000
26000
26000
26000
26000
30000
30000
0
5000
10000
15000
20000
25000
30000
35000
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19E
FY
20E
ATBS Capacity (MTPA)Based on
Emkay
Estimates
108
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Vinati commands leadership position in IBB: Vinati has ~65% global market share in IBB segment with export dominating
the revenue generation. Being a market leader, Vinati reported ~75% of IBB revenue as export in FY18. IBB is used an
intermediate in ibuprofen (used as anti-inflammatory, analgesic medicine) manufacturing. IBB is a ~25,000 TPA volume market
globally and is growing at low single digit growth around ~5%. Vinati has capacities of ~16000 TPA which is expected to touch
25,000 MTPA in next year. Although, we don’t see any major revenue growth in this segment going forward, FY19 would be
better compared to FY18, which got affected due to plant shutdown at BASF resulting in lower volume. Company has ability to
produce the downstream product of IBB, i.e. IBAP, which has better margins. IBAP is a molecule that is between IB and
ibuprofen in the value chain and commands higher margin than IBB. However, we believe it is on the cards only as of now as
company don’t see much demand for IBAP.
IBB: Another segment where Vinati is a dominant player
Vinati Organics Ltd. (Cont.)…
Source: Emkay Research
IBB Installed Capacity (MTPA) IBB Revenue (Rs mn)
1032
1566
2383 2436 2392
19562051
1833
21082213
0
500
1000
1500
2000
2500
3000
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
10000
14000
14000
14000
14000
16000
16000
16000
16000
16000
16000
18000
25000
25000
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19E
FY
20E
Based on
Emkay
Estimates
109
Earnings at RiskEarnings at Risk ©
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Efficient working capital management...
Vinati was able to generate strong cash from operations during last five years. Cash from operations grew at 9% CAGR over
FY13-18 to Rs1.4bn. Capex plans over FY18–FY19 amounting to Rs8bn are likely to be funded largely by internal accruals
considering the robust cash flow generation. We believe Vinati’s virtual zero debt status will aid in achieving superior return
ratios going ahead.
Investment Rationale…
Stickiness with clients to ensure consistent performance
Having niche product in the portfolio Vinati not only deliver purity, it also offers customization to their customer which helps
Vinati to grow hand in hand with their customers. The company’s products address critical and precise applications, translating
into customised manufacture, liberating it from commoditisation. The intensive nature of chemistries has reflected in a long
vendor appraisal and engagement tenure; conversely, a high cost of switching has resulted in enduring customer
relationships. Vinati’s clientele includes BASF, NALCO, Akzo Nobel, SNF, DOW Chemicals, Perrigo, Clariant, Chemtall and
Shasun, among others. In FY18, nearly 65% of the company’s revenues were derived from stable client relationships of five
years or more.
Vinati Organics Ltd. (Cont.)…
Source: Emkay Research
1131
256
568
766
9851093
500
1750
0
200
400
600
800
1000
1200
1400
1600
1800
2000
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Capital expenditure (Rs Mn)
921
1315
1126
1675
1008
14031492
1705
0
200
400
600
800
1000
1200
1400
1600
1800
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Cash flow from operations (Rs Mn)
110
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Emkay
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
New products to bolster revenue growth
PAP - a futuristic product under trial
Para amino phenol is one of the most widely used intermediate in the pharmaceutical industry. Primarily, PAP is used in the
manufacturing of paracetamol, a widely used over-the-counter analgesic (pain reliever) and antipyretic (fever reducer). Vinati’s
investment in Para Amino Phenol (PAP) will further widen its product basket and drive revenues. India presently imports PAP
from China. The one-step process developed by Vinati to manufacture PAP is greener as well as cost effective than the
Chinese process. Vinati has projected the estimated cost to be ~Rs6bn on this product. However, it is still under testing stage
and has no clarity as of now on its commencement. Hence, we have not factored in any revenue from this product in our
assumptions, but the product has potential of generating ~Rs9-10bn once commenced.
Downstream products of IB; Butylated Phenols
Vinati, moving down the product chain, is ready to roll out 4 more IB derivatives (PTBP, OTBP, 2,4 DTBP & 2,6 DTBP), by
FY19 end. These products find applications as intermediates in various industries like fragrance, resins, lubricants and
antioxidants. Presently, these products are not manufactured in India and are being imported. Vinati’s leadership position in
India for IB coupled with superior technology bodes well to substitute these imports and to address the global demand also.
With the capex of ~Rs1.5bn we believe company could generate revenue of ~Rs2.5bn annually.
Value-added product from IBB
PAP and Butylated phenols are not a high margin products, however, Vinati is intended to forward integrate IBB business by
manufacturing IBAP. It is an intermediary between IBB and Ibuprofen which has better margin than their existing profile. We
expect the product to come on-stream only post FY20.
Outlook & Valuation
Vinati is among the best Specialty Chemicals companies with better margins and strong balance sheet, generating average
~30% ROCE for the last 7 years. However, we believe the strong earnings growth from existing products and new products
pipeline are largely factored in the current valuation. We initiated the stock with Hold rating valuing the company at 26x FY20E
EPS to arrive at the TP of Rs866.
Vinati Organics Ltd. (Cont.)…
111
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Investment Rationale….
Forward and Backward integrated
Being a market leader in its key product Vinati insures the forward and backward integration process which leads to
the improvement in the margin in the last couple of years. Moving forward also company is determined to add
further products in the same chemistry that would be most value added products.
Vinati Organics Ltd. (Cont.)…
Source: Emkay Research
112
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Niche chemistry with benchmark quality..
Vinati operates in a niche speciality chemicals field, characterised by an oligopolistic market dynamics. Over a period of time
company has specialised the chemical knowledge and adopted latest technological process, which needs high precision and
difficult to emulate. Vinati’s main products ATBS, IBB & IB requires utmost purity benchmarks, in order to satisfy the global
market demand. Vinati has achieved 99.8% purity in IBB against prevailing international standard of 99.5%. Whereas for IB
99.85%, HP-MTBE 99.97% and in ATBS ~0.5% tolerance vs. accepted global tolerance level of ~3%, which is amongst
highest in the world. In the technological front, Vinati has tie ups with Institut Francais du Patrole (IFP), France for IBB and
National Chemicals Laboratory Pune (NCL), India for ATBS. Vinati’s cost leadership position, economies of scale and high
entry barriers makes it the stand out performer in the industry.
Vinati Organics Ltd. (Cont.)…
Vinati sets benchmark globally
Source: Company Filings, Emkay Research
Source: Emkay Research
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY11 FY12 FY13 FY14 FY15 FY16 FY17
ATBS IBB IB HP-HTBE Others
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Others ATBS IBB IB HP-HTBE
ATBS + IBB contribute more than 80% to exports
Domestic 31%
Export69%
FY17
Revenue MixExport Revenue Break-up
Revenue Mix (%) Revenue Mix (Rs mn)
Source: Emkay Research
Vinati Organics Ltd. (Cont.)…
ATBS53%
HP-HTBE2%
IBB28%
Others (Speciality)
17%
FY17
114
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Existing Product portfolio…..
Product Market position Market Size Application/End Usage Revenue
Isobutyl Benzene
(IBB)
• World’s largest manufacturer
• 65% market share
• FY18 capacity- 16,000 MTPA
• FY19E Capacity – 25,000 MTPA
• 25,000 MTPA global market size
Pharmaceutical
• FY17 - Rs2.05bn
• Last 6 year CAGR 12%
• FY20E – Rs2.2bn
2-Acrylamido 2
Methylpropane
Sulfonic Acid (ATBS)
• World’s largest manufacturer
• 45% market share
• FY17 capacity- 26,000 MTPA
• FY19E Capacity – 30,000 MTPA
• 58,000 MTPA global market size
Water treatment chemicals, emulsions for
paint and paper coatings, adhesives, textile
auxiliaries and acrylic fibre, detergents and
cleaners, oil field, mining chemicals and
construction chemicals
• FY17 – Rs2.88bn
• Last 6 year CAGR 8%
• FY20E – Rs5.6bn
Isobutylene (IB)Largest manufacturer
in the country
Agro-based chemicals, food Additives
and anti-oxidants
• FY17 – Rs577mn
• Last 6 year CAGR 12%
• FY20E – Rs645mn
High Purity- Methyl
Tertiary Butyl Ether
(HPMTBE)
Largest manufacturer
in the countryPharmaceuticals
• FY17 – Rs384mn
• Last 2 year CAGR 29%
• FY20E – Rs386bn
Tertiary Butyl
Amine (TB Amine)
Only manufacturer in
the country
Agro based chemicals, Pharmaceuticals and
rubber
N-Tertiary Butyl
Acrylamide (TBA)
Only manufacturer in
the country
Thickeners, personal care, water
Treatment and metal working fluid
N-Tertiary Octyl
Acrylamide (TOA)
Only manufacturer in
the country
Personal care, adhesives and
enhanced oil recovery
Source: Emkay Research
Vinati Organics Ltd. (Cont.)…
115
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
New Product pipeline…..
Product Planned Capex Application/ Market Size Revenue Potential Expected Commissioning
Para Amino Phinol
(PAP)• Rs 6bn
• Raw material for ParacetamolRs 7.5-8bn • >FY21
Isobutyl
AcetoPhenone (IBAP)• Rs1-1.5bn • subsequent use in making Ibuprofen Rs 2-2.5bn • >FY21
Para Tertiary Butyl
Toluene / Para
Tertiary Butyl Benzoic
Acid (PTBT/PTBBA)
• Rs 0.5bn• Application in perfumery, personal care
and polymer additives Rs 2bn • >FY20
Butylated Phenol • Rs 2bn
• Used as antioxidants and light-
protection agents for the stabilization
for polymers
Rs 3bn • FY19 End
Source: Emkay Research
Vinati Organics Ltd. (Cont.)…
116
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Key Financials (Standalone)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 6,310 6,408 7,434 8,731 10,660
Expenditure 4,242 4,238 5,324 6,288 7,677
EBITDA 2,068 2,170 2,109 2,443 2,983
Depreciation 185 216 234 294 390
EBIT 1,883 1,953 1,876 2,149 2,593
Other Income 62 125 170 150 150
Interest expenses 79 19 12 8 8
PBT 1,866 2,060 2,034 2,291 2,735
Tax 550 657 595 733 875
Extraordinary Items 1 0 0 0 0
Minority Int./Income from Assoc. 0 0 0 0 0
Reported Net Income 1,316 1,403 1,439 1,558 1,860
Adjusted PAT 1,316 1,403 1,439 1,558 1,860
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 103 103 103 103 103
Reserves & surplus 5,305 6,697 7,864 9,114 10,665
Net worth 5,408 6,800 7,967 9,216 10,768
Minority Interest 0 0 0 0 0
Loan Funds 421 205 184 184 184
Net deferred tax liability 0 0 0 0 0
Total Liabilities 5,829 7,005 8,150 9,400 10,951
Net block 4,067 4,780 4,941 5,147 6,507
Investment 27 618 1,317 1,317 1,317
Current Assets 2,775 2,813 3,541 4,744 5,134
Cash & bank balance 722 47 52 817 516
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 1,041 1,206 1,649 1,809 2,007
Net current assets 1,734 1,607 1,892 2,935 3,127
Misc. exp 0 0 0 0 0
Total Assets 5,829 7,005 8,150 9,400 10,951
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) 1,804 1,935 1,864 2,141 2,585
Other Non-Cash items 0 0 0 0 0
Chg in working cap 210 (548) (280) (279) (493)
Operating Cashflow 1,669 1,086 1,403 1,573 1,757
Capital expenditure (247) (929) (394) (500) (1,360)
Free Cash Flow 1,422 157 1,009 1,073 397
Investments 0 (591) (699) 0 0
Other Investing Cash Flow (532) 466 529 (150) (540)
Investing Cashflow (780) (1,520) (1,093) (500) (1,750)
Equity Capital Raised 0 0 0 0 0
Loans Taken / (Repaid) (232) (216) (21) 0 0
Dividend paid (incl tax) (206) (26) (283) (308) (308)
Other Financing Cash Flow 79 19 12 8 8
Financing Cashflow (439) (242) (305) (308) (308)
Net chg in cash 451 (675) 5 765 (301)
Opening cash position 271 722 47 52 817
Closing cash position 722 47 53 817 516
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 32.8 33.9 28.4 28.0 28.0
EBIT Margin 29.8 30.5 25.2 24.6 24.3
Effective Tax Rate 29.5 31.9 29.3 32.0 32.0
Net Margin 20.9 21.9 19.4 17.8 17.4
ROCE 35.9 32.4 27.0 26.2 27.0
ROE 27.0 23.0 19.5 18.1 18.6
RoIC 38.5 34.2 28.6 30.6 31.7
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER 38.1 35.8 34.7 32.1 26.9
P/CEPS 32.2 29.8 28.8 26.0 21.4
P/BV 9.3 7.4 6.3 5.4 4.6
EV / Sales 7.9 7.9 6.7 5.6 4.7
EV / EBITDA 24.1 23.2 23.7 20.2 16.6
Dividend Yield (%) 0.4 0.1 0.6 0.6 0.6
EPS 25.5 27.2 28.0 30.3 36.2
Vinati Organics Ltd. (Cont.)…
117
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Enzyme Industry
118
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
as defined in the Securities and Futures Act, Chapter 289 of Singapore.
ED: HEMANT MARADIA SA: DHANANJAY SINHA
Global Market Share in Enzyme
ADVENZY Presence Across Industry
Global Industry Size
Novozymes , 47%
Danisco/Genencor , 21%
DSM, 6%
BASF, 4%
Others, 22%Global market size of the Enzyme industry is $18bn.
Out-of this ~47% is Technical Enzymes (Detergent &
Other Enzymes), ~29% is Food Enzymes (Baking &
Beverage industries), ~12% is Feed Enymes, and ~12%
is Microorganisms (Biopharma and Nutraceutical
ingredients).
- 1 2 3 4 5 6 7 8 9
10
Technical Food Feed Microorganisms
$ B
n
73% Rev
of
ADVENZY
14% Rev
of
ADVENZY
6% Rev of
ADVENZY
5% Rev of
ADVENZY
Advanced Enzymes Tech. Ltd. (ADVENZY) the only
listed enzyme company in India. The company has
higher revenue contribution from Microorganisms
which is ~$2.2bn market globally followed by Feed,
Food and Technical enzymes.
Source: Emkay Research
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Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the
distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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ED: HEMANT MARADIA SA: DHANANJAY SINHA
54
32
18
17
15
12
11
11
7
6
6
5
5
4
4
3
3
3
2
2
2
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
USA
Germany
India
China
UK
Italy
France
Japan
Canada
Netherlands
Turkey
Belgium
Czech…
Austria
Finland
Bulgaria
Denmark
Spain
Hong Kong
Hungary
Israel
Russia
Australia
Columbia
Iceland
Ireland
Mexico
New Zealand
Norway
Portugal
Romania
Singapore
Sweden
Switzerland
UAE
Vietnam
28
20
10
9
7
6
5
4
4
3
3
2
2
2
1
1
1
1
1
1
1
1
1
1
1
USA
Germany
Japan
UK
France
India
Netherlands
Italy
Canada
Austria
Denmark
China
Belgium
Bulgaria
Turkey
Czech…
Finland
Spain
Russia
Iceland
Ireland
Norway
Portugal
Switzerland
UAE
However, only 116
Enzyme companies
do business
globally.
ADVENZY also one
amongst the global
suppliers.
Country Wise Enzymes Companies (No’s) Country Wise Global Enzymes Companies (No’s)
Total there are 238
Enzyme companies in
the world.
78% of the World’s
Enzymes business is
dominated by only 4
companies.
Remaining 234
companies share 22%
($4bn) of the world
market.
Novozymes 47%
Dupont 21%
DSM 6%
BASF 4%
Global Industry Dynamics
Source: Emkay Research
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Vertical Wise: Top Enzyme Companies Operating in India
Enzym. Co. Operating in
India Biocatalysts
Textiles &
Detergents
Pulp &
Paper
Food, Baking
& Juices
Wine Making &
Brewing
Animal
FeedOil Field
Diagnostic &
AnalyticalLeather Carbohydrates
Molecular
Biology
Novozymes P P P P P P P
Dupont (Danisco/Genencor) P P P P P
DSM P P P P
BASF P P P
Advance Enzymes P P P P P P P P
AlfaNzyme Bio-Tech P P P P P
Alliance Enzymes Pvt Ltd P
Americos Industries Inc P P
Anil Bioplus P P P P P P
Anthem Cellutions P P P P P
Zytex P P P
Aum Enzymes P P P P P
Aumgene P P P P P P P P
Concord Biotech P
Enzymes Naveen P P
Fermenta Biotech Ltd P
Lumis Biotech P P P P
ML Chemicals(India) P P
Maps Enzyme Ltd P P P P P
ADVENZY is the 2nd largest producer after Novozymes in India with total capacity of ~60,000 litters in India. In Biocatalysts
there are very few players globally. ADVENZY enjoy very strong position in Biocatalysts/Nutraceuticals market.
Source: Emkay Research
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Indian Companies Primary Manuf. Distributors Contract Manuf. Contract Res. Services
Advance Enzymes (No.1) P
AlfaNzyme Bio-Tech P
Alliance Enzymes Pvt Ltd P P
Americos Industries Inc P
Anil Bioplus P
Anthem Cellutions P
Arun & Co P
Aum Enzymes P
Aumgene (No.3) P P P
Concord Biotech P
Enzymes Naveen P
Fermenta Biotech Ltd P P
Lumis Biotech (No.2) P
ML Chemicals(India) Pvt Ltd P
Maps Enzyme Ltd P
Rossari Biotech P
S I Chemicals Industries P
Tex Bio sciences P
Zytex P P P
Classifications: Top Indian Enzyme Companies
ADVENZY is the 1st Indian enzyme manufacture to cross the revenue of >Rs3.0 bn. The other two players (Lumis Biotech &
Aumgene) are significantly smaller than ADVENZY.
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Enzyme Industry Companies Covered
Advanced Enzyme Technologies Ltd
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Advanced Enzyme is one of the leading players in nutraceutical (Human Health & Nutrition) enzyme space. Additionally, the
company is increasing presence in industries like animal feeds, human food, Biodiesel, Palm-oil and industrial enzymes space
looks positive. It has 400 enzymes developed from 60 technical. Additionally, the acquisition of JC-Biotech and Evoxx
expanded the technical enzyme library.
Key Positives
Strong global presence
Evoxx acquisition gives entry into new technology enzymes
Diversifying into various high volume industrial enzymes – Palm & Biodiesel
Cutback in consolidated tax-rate
Growth in Top-accounts
Key Negatives
Pledge shares
Too much dependence of few, products, customers and geographies.
Valuation & Outlook
The long-term prospects of business & industry looks robust. Additionally, ADVENZY’s strategy to improve overall plant
utilization though industries and geography diversification looks positive. These initiatives should reduce dependence of client
and vertical specific revenue risk and likely to bode well on revenue & profitability. We maintain BUY rating with TP of Rs333
(Valuing 22.3x FY20E).
Advanced Enzyme Tech (ADVENZY.IN) | Mcap:Rs24bn | TP: Rs333|Rating: Buy
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Strong global presence: The company’s presence across US, Europe, and South Asia demonstrates its capability to deliver
products and services across the globe. It has global clientele of more than 700 customers spanning presence across 50
courtiers. Further, ADVENZY presence across Feed, Food and Technical reduces single segment revenue risk. However, even
today the bulk of the revenue is largely driven by US and India (~90%) but the scenario is changing at accelerated space post
the acquisition on Evoxx in Europe. Going forward, management expect the revenue from Europe to reach in low double-digit
from current levels of ~4% in FY18.
- 1 2 3 4 5 6 7 8 9
10
Technical Food Feed Microorganisms
$ B
n73% Rev
of
ADVENZY
14% Rev
of
ADVENZY
6% Rev of
ADVENZY
5% Rev of
ADVENZY
Advanced Enzyme.. (Cont.)
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Industry Wise: Revenue Mix (%)
Revenue Mix
Geo Wise: Revenue Mix (%)
Animal HC: Revenue Mix (%)
Food: Revenue Mix (%)
Human HC: Revenue Mix (%)
Industrial Processing: Rev Mix (%)
Advanced Enzyme.. (Cont.)
Source: Company, Emkay Research
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Client Wise Revenue: (% of Human Rev)
Revenue Mix
Product Wise Revenue: (% of Human Rev)
Human segment remains the largest revenue
contributor (~73%) for ADVENZY. However, bulk of
these revenues are driven by top accounts, JC
Biotech and Evoxx.
ADVENZY enjoy strong market share in
Serratiopeptidase, Fungal Lactase, and Nattokinase.
These are high value (Rs.13,000 to Rs.22,000/Kg) low
volume products used for Nutraceutical or OTC
products.
Advanced Enzyme.. (Cont.)
Source: Company, Emkay Research
Source: Company, Emkay Research
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Evoxx acquisition gives entry into new technology enzymes: ADVENZY recently acquired Evoxx Technologies GmbH
and added 5 new products in human nutrition (Sucrase, Transferase, Epimerases & Racemases, Transaminase and Lipase)
and 3 new products in food processing (MAOS/Fibermalt, Alternan and Alcohol Dehydrogenase) verticals. JC Biotech
acquisition gave it a monopoly position in Serratiopeptidase in India and added 5 new products that are in the trial stage.
Acquisition History
JC BioTech Evoxx
Serratiopeptidase Alternan
DHA (Docosahexaenoic Acid) MAOS/Fibermalt
SIROLIMUS Alcohol dehydrogenase (ADH)
Pneumocandin Bo Sucrase
THYMINE Transferase
Thymidine Epimerases and Racemases
New Product addition from acquisitions
Advanced Enzyme.. (Cont.)
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Investment Rationale
Top-client delivered growth: In Q4FY18, the company’s premium-margin Human segment delivered 36% yoy growth on the
back of strong revenue from the top client (Rs234 mn v/s Rs135mn in Q4FY17). In FY18, the Human segment grew by 23.6%
yoy to Rs2.9bn and contributed 76% to the overall revenue. JC Biotech contributed 14% to Rs401mn in the Human segment
(v/s 7% to Rs160mn in FY17). The overall revenue growth was 19% yoy. Management expects top-line growth of 13-15% yoy
in FY19E.
Cutback in consolidated tax rate: The Company’s overall tax rate is likely to decline from 32.5% to 28.0% in FY19E/FY20E
due to reduction of tax rate in US subsidiary from ~39% to 28%, as ADVENZY is complying with US BEAT provisions.
However, we believe the benefit of lower tax rate would be absorbed by moderation in EBITDA margin due to increased R&D
expenses post Evoxx acquisition.
Growth across geographies: In Q4FY18 all key geographies delivered strong performance (US/India/Asia/Others/Europe |
36%/7%/281%/154%/27% yoy). Also, for FY18, India and Asia (Ex-India) showcased 34% & 66% yoy growth supported by 3%
yoy growth in US business. India and the US together contributed 91% to the top-line followed by 5% and 3% revenue
contribution from Asia and Europe, respectively in FY18. Management expects Europe’s revenue contribution to inch up to 9%
in FY19E.
Diversifying into various high volume industrial enzymes to drive growth: The management’s new initiatives to focus on
Palm oil, detergents and industrial catalyst business is likely to forge the long-term growth for the company. Further, the new
product addition (Probiotics) in Feed enzymes and increasing registrations in new geographies to foster growth in near-to-
medium term.
Advanced Enzyme.. (Cont.)
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Key Financials (Consolidated)
Advanced Enzyme.. (Cont.)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 2,938 3,290 3,910 4,497 5,396
Expenditure 1,603 1,782 2,271 2,580 2,982
EBITDA 1,335 1,508 1,640 1,917 2,414
Depreciation 87 128 183 182 186
EBIT 1,248 1,380 1,457 1,735 2,228
Other Income 13 26 14 47 103
Interest expenses 79 36 81 71 41
PBT 1,182 1,371 1,390 1,711 2,290
Tax 414 441 454 479 634
Extraordinary Items 26 0 0 0 0
Minority Int./Income from Assoc. (9) (14) (35) (36) (36)
Reported Net Income 784 915 901 1,196 1,619
Adjusted PAT 758 915 901 1,196 1,619
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 218 223 223 223 223
Reserves & surplus 2,563 4,417 5,368 6,508 8,071
Net worth 2,781 4,640 5,591 6,731 8,295
Minority Interest 54 211 226 262 298
Loan Funds 1,015 496 617 417 317
Net deferred tax liability 0 0 0 0 0
Total Liabilities 3,850 5,348 6,434 7,410 8,910
Net block 2,924 4,294 5,018 4,951 4,881
Investment 182 148 146 146 146
Current Assets 1,397 1,385 2,110 3,228 4,924
Cash & bank balance 263 79 614 1,523 2,878
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 654 479 840 915 1,040
Net current assets 744 906 1,270 2,313 3,884
Misc. exp 0 0 0 0 0
Total Assets 3,850 5,348 6,434 7,410 8,910
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) 1,169 1,345 1,376 1,664 2,187
Other Non-Cash items 0 0 0 0 0
Chg in working cap (315) (347) 172 (135) (215)
Operating Cashflow 1,027 1,693 1,385 1,279 1,626
Capital expenditure (95) (1,498) (907) (115) (115)
Free Cash Flow 933 195 477 1,164 1,511
Investments 0 35 2 0 0
Other Investing Cash Flow 0 0 0 0 0
Investing Cashflow (95) (1,463) (905) (115) (115)
Equity Capital Raised 0 6 0 0 0
Loans Taken / (Repaid) (135) (519) 121 (200) (100)
Dividend paid (incl tax) 27 44 44 56 56
Other Financing Cash Flow (643) (458) 13 (312) (212)
Financing Cashflow (616) (414) 57 (256) (156)
Net chg in cash 317 (184) 536 908 1,355
Opening cash position 43 263 79 614 1,523
Closing cash position 360 79 614 1,522 2,878
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 45.4 45.8 41.9 42.6 44.7
EBIT Margin 42.5 42.0 37.3 38.6 41.3
Effective Tax Rate 35.1 32.2 32.7 28.0 27.7
Net Margin 26.1 28.3 23.9 27.4 30.7
ROCE 35.3 30.6 25.0 25.7 28.6
ROE 31.1 24.7 17.6 19.4 21.6
RoIC 38.4 32.4 27.0 30.4 38.3
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER 30.3 25.7 26.2 19.7 14.5
P/CEPS 27.7 23.0 22.2 17.4 13.3
P/BV 8.3 5.1 4.2 3.5 2.8
EV / Sales 8.1 7.3 6.0 5.0 3.9
EV / EBITDA 17.8 15.9 14.4 11.7 8.7
Dividend Yield (%) 0.2 0.2 0.2 0.2 0.2
EPS 7.0 8.2 8.1 10.7 14.5
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Food Antioxidant & Flavors Industry
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Global Food Antioxidants Market was valued at USD1.05 billion in 2015 and is expected to reach USD1.49 billion by
2022, registering a CAGR of 5.1% during the forecast period.
Food Antioxidants Market
FOOD
ANTIOXIDANT
MARKET
BY TYPE BY GEOGRAPHY
NATURAL VITAMIN A
VITAMIN B
VITAMIN C
ROSEMARY EXTRACT
SYNTHETIC BHA
BHT
TBHQ
ASP
PROPYL GALLATE
BY GEOGRAPHY NORTH AMERICA
EUROPE
ASIA-PACIFIC
LAMEA
TBHQ
BHA
Others (BHT, Propyl Gallate)
Natural v/s Synthetic
Natural
Synthetic
$ billion
Source: Emkay Research
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Food Antioxidants Applications (Synthetic)
TBHQ Application:
• Animal feeds
• Antioxidant
• Cosmetic and personal care
• Edible fats
• Emulsifiers
• Flavorings
• Food additives
Key Players:
• Eastman | US
• Camlin Fine Sciences | India
• Nova International | India
• Milestone Preservatives | India
• Guangzhou Taibang | China
• Shevalyn Multichem | India
• Aeci | Africa
• VDH Chemtech | India
• Crystal Quinone | India
• Guangdong Food Industry | China
• Yourui |Japan
BHT Application:
• Food
• Animal Feed
• Cosmetics
• Pharmaceuticals / Rubber
• Electrical transformer oil / Fuel additive
Key Players:
• Ratnagiri Chemicals | India
• Caldic | UK
• Cargill | US
• LANXESS | Germany
• Impextraco | Belgium
• Perstorp Group | Sweden
• Merisol USA LLC | US
• Milestone Preservatives Pvt Ltd | India
• Eastman Chemical Co. | US
• Oxiris Chemicals S.A. | Spain
• Nova International | India
• Feiya Chemical Industry Co | China
• JiYi Chemical (Beijing) Co Ltd | China
• NanJing LongYan Chemical | China
BHA Application:
• Food packaging
• Animal feed
• Cosmetics
• Rubber
• Petroleum products
• Medicines (isotretinoin, lovastatin, & simvastatin)
Key Players:
• Camlin Fine Sciences | India
• VDH Chem | India
• Milestone Preservatives | India
• Nova International | China
• Shevalyn Multichem | India
• Eastman | US
• Solvay | Europe
• Crystal Quinone | India
• Clean Science and Technology | India
• Zhengzhou Hing | China
Key Players:
• Gallochem | China
• Chicheng Biotech | China
• Hunan Linong Technology | China
• Jiurui Biotech | China
Propyl Gallate Application:
• Edible oil
• Fried foods
• Dried fish products
• Quick cooking noodles
• Leshan Sanjiang Bio-tech | China
• Longyuan Nature Polyphesis Synthesis | China
• Tianxin Medical&Chemical | China
• Microherb | UK
• Wenzhou Ouhai Fine Chemicals | China
Total synthetic food antioxidant market is ~USD745mn where TBHQ accounts for 18% (USD104mn) followed by BHA
32% (USD186mn), BHT 34% (USD198mn), Propyl Gallate 8% (USD46mn) and Others 8% (USD46mn).
Source: Emkay Research
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Food Antioxidants Applications (Synthetic)
Meat, 13%
Beverages, 15%
Bakery, 15%
Confectionary, 16%
Packaged food, 18%
Edible oil, 23%
Synthetic Food Antioxidants Applications (%)
Synthetic food antioxidants are largely used in
Edible Oil followed by Packaged Foods,
Confectionary, Bakery, Beverages and Meat
Source: Emkay Research
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Flavors Industry (Vanillin)
The basic RM to manufacture Vanillin is Guaiacol, which is a derivative of Catechol (CT). Globally, there are ~6 players that
manufacture CT, which include Rhodia (now Solvay, biggest player), Eastman Chemicals, Mitsui and Ube (small player). The
market size is 40,000MTPA and is expected to increase to 44,000-45,000MTPA over the next 3-4 years. For Hydroquinone,
the market size is 60,000MTPA and is expected to increase to 68,000-70,000MTPA in the next 3-4 years.
There are very few companies which are manufacturing synthetic Vanillin through the Catechol route: (I) Rhodia Solvay, (II)
Jiaxing Zhonghua, and (III) Lianyungang Sanjili Chemical. The global vanillin market size was estimated at US$243mn
(~24,342MT | assuming US$10/kg) in 2016. Synthetic Vanillin dominated with ~99.14% of the global volume share in 2016
followed by Natural Vanillin. The global Vanillin market is expected to expand at a CAGR of 8% during CY16- 25E. The global
demand for Vanillin is expected to reach ~50,000MT over CY16-25E. Realizations are in the range of US$10-14 per kg. The
largest use of Vanillin is as a flavoring agent, usually in sweet food items. Ice Cream and Chocolate industries together
account for 75% of the Vanillin flavoring market, with smaller amounts being used in Confectionaries and Bakery foods. In
addition, Vanillin is also used in the Pharmaceuticals industry, to mask the unpleasant taste in livestock fodder or medicines.
Vanillin also acts as an intermediate during the manufacturing of certain Agrochemicals and Pharmaceuticals.
Region-Wise Vanillin Consumption
Source: Emkay Research
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Flavors Industry (Vanillin)
Global Top Vanillin Manufacturers Region-Wise Market Demand (MT) CY16
Region-Wise CAGR Growth (CY16-25E)
CFIN’s acquisition
Source: Emkay Research
Source: Emkay Research
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Food Antioxidant & Flavors Company Covered
Camlin Fine Science Ltd
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Camlin Fine Sciences Ltd (CFIN.IN) |Mcap Rs 1.5bn| TP Rs183 | Rating: Buy
Camlin Fine Sciences Ltd (CFIN) is integrated and one of the leading producer of synthetic food antioxidants (TBHA
& BHA), flavors (Vanillin) and food blends (TBHQ & BHA) globally. The company also has a small presence in natural
antioxidant like Ascorbyl Palmitate (Vitamin C). In Food Anti-oxidants, CFIN is the world’s largest manufacturer of
TBHQ and BHA with a market share of 40-45% and 70%, respectively. The Food Anti-oxidant division contributed 57%
to the standalone revenue in FY17.
Key Positives
Global expansion in high margin food blends segment
Acquisition of Ningbo Wanglong, China lead to 3rd largest producer in Vanillin market
Enter into CRAMS business for Lockheed Martin
Greenfield expansion of Hydroquinone (HQ) and Catechol (CT) facility in Dahej, India
Cash conversion cycle to improve
Key Negatives
Execution Risk.
Valuation & Outlook
The commencement of Dahej facility will accelerate the momentum for CFIN. Improvement in the subsidiary businesses
across the globe will further aid in profitability. Collective outcome off all this will be Revenue/EBITDA CAGR of 29%/338%
(FY18-20E). We have a BUY rating on the stock with TP of Rs183 (valuing it at 20x FY20E EPS).
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Base Business
43%
Blend31%
CRAMS6%
China20%
Base Business
75%
Blend25%
Revenue Mix – FY17 Revenue Mix – FY20E
Committed to expand globally: CFIN remained focused on niche segments and global expansion. Company acquired
Borregaard Italia in 2011 which enabled backward integration and gave firm control over prices and supply of HQ, the basic
RM used by the company. Further, the acquisition of Dresen Quimica expanded its presence in Blends business in America.
Management’s commitment to expansion was validated further when CFIN became the 3rd largest Vanillin producer post its
acquisition of Ningbo Wanglong in China. We believe that these expansions will yield a rich harvest in the years to come,
keeping CFIN competitively at par with the global giants.
CRAMS: a blockbuster opportunity: CRAMS tie-up with Lockheed Martin will be a money spinner over medium-to-long-
term. However, we had not forecasted significant top-line growth in our projection period. The company is setting-up first 5000
MT greenfield plant in Dahej, Gujarat for this particular chemical.
Investment Rationale
Camlin Fine Sciences Ltd (Cont.)
Source: Company, Emkay Research
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Future capex funding issue resolved: Dahej facility got its final push to start operations in full swing post the fund
raising exercise (Rs3.0bn through QIP, Preferential Issue, FCCB). The new facility will produce 5,500/4,500MTPA of
Hydroquinone (HQ) and Catechol (CT). CFIN will be the world’s lowest cost producer of HQ and CT post the
commencement of Dahej operations. The new facility will start the operation by Dec-2018. Commencement of
Dahej facility will reduce various manufacturing costs and likely to boost the profitability by 700-800bps.
Cash conversion cycle likely to improve: CFIN’s cash conversion cycle increased to 149 days in FY17 (v/s 84
days 5-Year Avg) due to higher inventory level of Guaiacol. The China Vanillin plant should significantly reduce
inventory from hereon aided by closure of 2nd largest Vanillin player in China. Additionally, the commencement of
Dahej plant will lead to structural reduction in the raw-material inventory levels.
Strong outlook; Maintain BUY: CFIN’s recent fund raising reduces the concern over balance sheet and capital
crunch. The move also improves visibility about the planned Greenfield and brownfield expansion plans. The
commencement of Dahej facility will further accelerate the momentum. Collective outcome off all this will be
Revenue/EBITDA CAGR of 29%/338% (FY18-20E). We maintain Buy with TP of Rs183 (valuing 20x FY20E).
Investment Rationale
Camlin Fine Sciences Ltd (Cont.)
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distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors
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Key Financials (Consolidated)
Camlin Fine Sciences Ltd (Cont.)
Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Revenue 4,893 5,339 7,206 9,466 12,003
Expenditure 4,021 5,058 7,081 8,254 9,590
EBITDA 873 282 126 1,212 2,413
Depreciation 171 218 267 323 354
EBIT 702 64 (141) 889 2,059
Other Income 43 145 116 50 50
Interest expenses 244 269 284 339 434
PBT 500 (60) (309) 599 1,675
Tax 142 (16) (68) 170 472
Extraordinary Items 0 0 2 0 0
Minority Int./Income from Assoc. 0 0 0 0 0
Reported Net Income 358 (44) (240) 429 1,203
Adjusted PAT 358 (45) (241) 429 1,203
Balance Sheet
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
Equity share capital 97 104 121 121 130
Reserves & surplus 1,666 2,022 3,590 3,576 3,736
Net worth 1,762 2,126 3,712 3,698 3,866
Minority Interest 0 176 622 622 622
Loan Funds 1,822 3,212 3,570 4,570 5,070
Net deferred tax liability 0 0 0 0 0
Total Liabilities 3,584 5,514 7,904 8,890 9,559
Net block 1,653 2,085 2,917 3,194 3,640
Investment 28 542 1,824 1,424 424
Current Assets 2,997 3,857 5,028 5,993 7,758
Cash & bank balance 189 312 481 389 850
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 1,094 970 1,865 1,721 2,264
Net current assets 1,903 2,887 3,163 4,272 5,494
Misc. exp 0 0 0 0 0
Total Assets 3,584 5,514 7,904 8,890 9,559
Cash Flow
Y/E Mar (Rs mn) FY16 FY17 FY18 FY19E FY20E
PBT (Ex-Other income) (NI+Dep) 458 (205) (425) 549 1,625
Other Non-Cash items 0 0 0 0 0
Chg in working cap (89) (861) (107) (1,201) (761)
Operating Cashflow 716 (586) 1,502 (449) 796
Capital expenditure (707) (1,164) (2,381) (1,000) (1,800)
Free Cash Flow 9 (1,750) (879) (1,449) (1,004)
Investments 50 512 (1,282) 400 1,000
Other Investing Cash Flow 0 0 0 0 0
Investing Cashflow (657) (652) (3,663) (600) (800)
Equity Capital Raised (233) (23) 1,971 0 9
Loans Taken / (Repaid) 207 1,390 358 1,000 500
Dividend paid (incl tax) 44 3 0 43 43
Other Financing Cash Flow 157 263 284 253 348
Financing Cashflow (69) 1,364 2,329 957 466
Net chg in cash (10) 126 168 (92) 461
Opening cash position 199 186 312 481 389
Closing cash position 189 312 481 389 850
Source: Company, Emkay Research
Key Ratios
Profitability (%) FY16 FY17 FY18 FY19E FY20E
EBITDA Margin 17.8 5.3 1.7 12.8 20.1
EBIT Margin 14.3 1.2 (2.0) 9.4 17.2
Effective Tax Rate 28.4 26.1 21.9 28.4 28.2
Net Margin 7.3 (0.8) (3.4) 4.5 10.0
ROCE 22.7 4.6 (0.4) 11.2 22.9
ROE 23.0 (2.3) (8.3) 11.6 31.8
RoIC 23.1 1.6 (2.7) 14.0 26.8
Valuations (x) FY16 FY17 FY18 FY19E FY20E
PER 23.3 (200.7) (43.3) 24.4 9.3
P/CEPS 16.5 53.8 434.6 14.5 7.5
P/BV 4.7 4.2 2.8 2.8 2.9
EV / Sales 2.0 2.2 1.9 1.5 1.3
EV / EBITDA 11.4 42.0 107.9 12.1 6.4
Dividend Yield (%) 0.5 0.0 0.0 0.4 0.4
EPS 3.7 (0.4) (2.0) 3.5 9.2
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Emkay Rating Distribution
BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.
ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.
HOLD Expected total return (%) (Stock price appreciation and dividend yield) of up to 10% within the next 12-18 months.
REDUCE Expected total return (%) (Stock price depreciation) of up to (-) 10% within the next 12-18 months.
SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.
Completed Date: 09 Jul 2018 19:30:05 (SGT)
Dissemination Date: 09 Jul 2018 19:31:05 (SGT)
Sources for all charts and tables are Emkay Research unless otherwise specified.
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