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ED: HEMANT MARADIA SA: DHANANJAY SINHA

©


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

[email protected] | +91 22 66242425

Rohit Sinha

[email protected] | +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

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.


https://surveys.euromoney.com/s3/Asiamoney-Brokers-Poll-2018

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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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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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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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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

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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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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


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

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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.


Financials Snapshot (Consolidated)




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


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

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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.






38.8 38.8 38.7 38.7 38.7 38.7 38.7 38.732.0 32.0 32.0 31.1


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


Institution


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

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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.


Valuation: The stock is trading at EV/EBITDA and P/E multiple of 8.2x and 12.6x FY20E.





52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4


Promoter & Group

28.1 28.2 28.6 28.2 27.9

29.2 29.428.9 29.1

29.830.5 30.8


Institution



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

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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.








18.4 18.418.5 18.5 18.5 18.5 18.5

18.6

18.919.1 19.1

19.0


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


Institution


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

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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.


Financials Snapshot




57.6 57.6 57.6

57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9 57.9


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


Institution


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

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52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4 52.4


Promoter & Group


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.






28.1 28.2 28.6 28.2 27.9

29.2 29.428.9 29.1

29.830.5 30.8


Institution



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

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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.








73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3 73.3


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


Institution


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

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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)



Specialty Chemicals: Initiating Coverage

Financials Snapshot




72.3 72.3 72.3 72.3 72.6

74.0 74.0 74.0 74.0 74.0 74.0 74.0


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


Institution


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

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Soda-Ash Industry

17



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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


18



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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


19



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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


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…


20



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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).


21



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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


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


Change in Capacity (MMT) Change in Consumption (MMT)


22



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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


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




23



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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



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)


24



Emkay





30000

21000

29000

2650025500

25000 24600

20000

22000

24000

26000

28000

30000

32000


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



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.


25



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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.


26



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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


27



Emkay





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.


28



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"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



Emkay





Soda-Ash Companies Covered

Tata Chemicals Ltd

GHCL Ltd

DCW

Nirma

Ghadi

30



Emkay





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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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


Revenue Mix - Standalone & Subsidiary Performance

32



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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.


Sweetener HDS

HDS


33



Emkay






Revenue mix – Before & After Exit from Fertilizer Business


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%


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



Emkay





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


35



Emkay







Product-wise Revenue Mix (%)

Soda Ash, 37%


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


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



Emkay






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 (%)


37



Emkay





Key Financials (Standalone)


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


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


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


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



Emkay





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



Emkay





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…)


40



Emkay





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



Emkay





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


Debt (Rs bn) D/E (x)

42



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Financials…

GHCL Ltd.(Cont…)

Income Statement


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


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


Adjusted PAT 2,713 3,801 3,564 3,469 4,037

Balance Sheet


Equity share capital 1,000 995 974 974 974


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


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



Misc. exp 0 0 0 0 0

Total Assets 23,574 30,519 29,444 32,333 35,790

Cash Flow




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


Key Ratios


EBITDA Margin 24.9 24.3 20.6 23.7 24.6

EBIT Margin 21.6 21.3 16.9 19.8 20.7


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


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



Emkay





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 %


44



Emkay





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


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


EBITDA (Rs mn) EBITDA Margin %


45



Emkay





Polyurethane (PU) Industry

46



Emkay





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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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: Huntsman AR, Emkay Research

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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



49



Emkay





Polyurethane Company Covered

BASF India Ltd

50



Emkay





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



Emkay





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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BASF India. (Cont.)

53



Emkay





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



Emkay





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

55



Emkay





Key Financials

BASF India. (Cont.)

Income Statement


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


Reported Net Income 1,401 (141) 2,465 3,150 4,583

Adjusted PAT (304) (311) 879 3,150 4,583

Balance Sheet


Equity share capital 433 433 433 433 433


Net worth 11,160 11,023 13,439 15,637 19,267


Loan Funds 14,209 12,402 6,653 5,452 4,146



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





Misc. exp 0 0 0 0 0

Total Assets 25,369 23,425 20,092 21,089 23,414

Cash Flow


PBT (Ex-Other income) (NI+Dep) (2,054) (410) 795 3,557 5,314


Chg in working cap 2,222 765 1,984 (2,246) (1,932)


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


Investing Cashflow (129) (293) (350) (225) (1,600)


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



Key Ratios


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


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



Emkay





Emulsion Polymerization (EP) Industry

57



Emkay





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

58



Emkay





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


59



Emkay





Global Large Peers

60



Emkay





Large Global Players Financials


61



Emkay





Emulsion Polymerization Company Covered

Apcotex Industries Ltd. (2nd Largest Player)

62



Emkay





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



Emkay





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

64



Emkay






Product Portfolio


65



Emkay





Apcotex Market Share



66



Emkay







Income Statement


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


Reported Net Income 204 350 386 578 646

Adjusted PAT 247 355 401 578 646

Balance Sheet




Net worth 1,872 2,229 2,464 2,918 3,439


Loan Funds 288 263 254 254 254



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


Current liabilities & Provision 653 479 773 1,200 1,319


Misc. exp 0 0 0 0 0

Total Assets 2,160 2,492 2,718 3,172 3,693

Cash Flow


PBT (Ex-Other income) (NI+Dep) 261 141 501 718 808


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)


Loans Taken / (Repaid) (54) (25) (9) 0 0


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


Closing cash position 99 66 327 822 1,150


Key Ratios


EBITDA Margin 14.2 7.5 12.1 13.6 14.0

EBIT Margin 10.8 4.4 9.8 11.3 11.4


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


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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Fluorine Industry

68



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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


69



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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*


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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.

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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

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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).

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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)


R22

R407A HFC blend

Commercial Refrigeration, Cold

storage cells, Food storage &

Processing

Medium

(GWP-2107)


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)


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


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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


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


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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…)


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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…)


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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…)


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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…)


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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…)


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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…)


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Key Financials (Consolidated)

SRF Ltd. (Cont…)

Income Statement


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


PBT 5,849 6,572 5,817 8,137 10,453

Tax 1,551 1,422 1,200 2,278 2,927




Adjusted PAT 4,299 5,150 4,617 5,858 7,526

Balance Sheet




Net worth 27,630 31,827 35,645 40,919 47,861


Loan Funds 25,622 25,612 33,493 33,493 33,493



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




Misc. exp 0 0 0 0 0

Total Assets 53,252 57,439 69,138 74,411 81,353

Cash Flow




Chg in working cap 945 (2,071) 575 (1,528) (3,293)


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


Investing Cashflow (6,148) (7,881) (15,426) (7,000) (7,000)


Loans Taken / (Repaid) 606 (10) 7,881 0 0


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


Key Ratios


EBITDA Margin 21.0 20.7 17.0 18.6 20.0

EBIT Margin 15.0 14.8 11.4 13.5 14.8


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


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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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


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.


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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%



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Emkay






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)


96



Emkay






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)


97



Emkay






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

98



Emkay







Income Statement


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


PBT 1,156 1,820 2,665 2,221 2,502

Tax 321 451 840 699 775


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




Net worth 6,454 8,352 9,835 11,110 12,695


Loan Funds 1,103 428 383 383 383



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



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


PBT (Ex-Other income) (NI+Dep) 911 1,262 1,740 1,741 2,125


Chg in working cap (4) 1,087 (940) (1) (161)


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)


Investing Cashflow (877) (2,478) (940) (765) (1,720)


Loans Taken / (Repaid) 214 (675) (45) 0 0


Other Financing Cash Flow (325) (1,288) (1,004) (687) (792)


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


Key Ratios


EBITDA Margin 17.3 21.4 23.6 23.7 24.5

EBIT Margin 14.0 17.4 19.2 19.0 20.4


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


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

* *

*

*

*

99



Emkay





Toluene Industry

100



Emkay





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

101



Emkay





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.


102



Emkay





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

103



Emkay





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

104



Emkay






105



Emkay





Toluene Industry Company Covered

Vinati Organics Ltd

106



Emkay





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



Emkay





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.)…


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



Emkay





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



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



Emkay





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.



1131

256

568

766

9851093

500

1750

0

200

400

600

800

1000

1200

1400

1600

1800

2000


Capital expenditure (Rs Mn)

921

1315

1126

1675

1008

14031492

1705

0

200

400

600

800

1000

1200

1400

1600

1800


Cash flow from operations (Rs Mn)

110



Emkay





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.


111



Emkay





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.



112



Emkay





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 sets benchmark globally

Source: Company Filings, Emkay Research


113



Emkay





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)



ATBS53%

HP-HTBE2%

IBB28%

Others (Speciality)

17%

FY17

114



Emkay





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


• FY20E – Rs5.6bn

Isobutylene (IB)Largest manufacturer

in the country

Agro-based chemicals, food Additives

and anti-oxidants

• FY17 – Rs577mn


• FY20E – Rs645mn

High Purity- Methyl

Tertiary Butyl Ether

(HPMTBE)

Largest manufacturer

in the countryPharmaceuticals

• FY17 – Rs384mn


• FY20E – Rs386bn

Tertiary Butyl

Amine (TB Amine)

Only manufacturer in

the country

Agro based chemicals, Pharmaceuticals and

rubber

N-Tertiary Butyl

Acrylamide (TBA)


the country

Thickeners, personal care, water

Treatment and metal working fluid

N-Tertiary Octyl

Acrylamide (TOA)


the country

Personal care, adhesives and

enhanced oil recovery



115



Emkay





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



116



Emkay






Income Statement


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


PBT 1,866 2,060 2,034 2,291 2,735

Tax 550 657 595 733 875




Adjusted PAT 1,316 1,403 1,439 1,558 1,860

Balance Sheet




Net worth 5,408 6,800 7,967 9,216 10,768


Loan Funds 421 205 184 184 184



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





Misc. exp 0 0 0 0 0

Total Assets 5,829 7,005 8,150 9,400 10,951

Cash Flow




Chg in working cap 210 (548) (280) (279) (493)


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)


Loans Taken / (Repaid) (232) (216) (21) 0 0




Net chg in cash 451 (675) 5 765 (301)




Key Ratios


EBITDA Margin 32.8 33.9 28.4 28.0 28.0

EBIT Margin 29.8 30.5 25.2 24.6 24.3


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


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


117



Emkay





Enzyme Industry

118



Emkay





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.


119



Emkay





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


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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.


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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 (%)



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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.




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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


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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.


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Income Statement


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


PBT 1,182 1,371 1,390 1,711 2,290

Tax 414 441 454 479 634


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




Net worth 2,781 4,640 5,591 6,731 8,295


Loan Funds 1,015 496 617 417 317



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


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




Chg in working cap (315) (347) 172 (135) (215)


Capital expenditure (95) (1,498) (907) (115) (115)

Free Cash Flow 933 195 477 1,164 1,511

Investments 0 35 2 0 0


Investing Cashflow (95) (1,463) (905) (115) (115)


Loans Taken / (Repaid) (135) (519) 121 (200) (100)


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


Key Ratios


EBITDA Margin 45.4 45.8 41.9 42.6 44.7

EBIT Margin 42.5 42.0 37.3 38.6 41.3


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


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


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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).


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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


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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


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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



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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.


Camlin Fine Sciences Ltd (Cont.)


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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).



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Income Statement


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


PBT 500 (60) (309) 599 1,675

Tax 142 (16) (68) 170 472



Reported Net Income 358 (44) (240) 429 1,203

Adjusted PAT 358 (45) (241) 429 1,203

Balance Sheet




Net worth 1,762 2,126 3,712 3,698 3,866


Loan Funds 1,822 3,212 3,570 4,570 5,070



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



Current liabilities & Provision 1,094 970 1,865 1,721 2,264


Misc. exp 0 0 0 0 0

Total Assets 3,584 5,514 7,904 8,890 9,559

Cash Flow


PBT (Ex-Other income) (NI+Dep) 458 (205) (425) 549 1,625


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


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



Financing Cashflow (69) 1,364 2,329 957 466

Net chg in cash (10) 126 168 (92) 461




Key Ratios


EBITDA Margin 17.8 5.3 1.7 12.8 20.1

EBIT Margin 14.3 1.2 (2.0) 9.4 17.2


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


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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a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which

is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major

Institutional Investors.

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GENERAL DISCLOSURE/DISCLAIMER BY DBS BANK LTD AS DISTRIBUTOR OF THE RESEARCH REPORT

This report is solely intended for the clients of DBS Bank Ltd,its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by

any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and

their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors

which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report.

Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial

situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate

independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this

document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or

persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and

may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of

the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is

subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS

Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or

frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and

contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results.

Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons

associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or

events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the

covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as

recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment

banking transaction in the past twelve months and does not engage in market-making.

ANALYST CERTIFICATION BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL)

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal

views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible

of the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer, director or employee of the issuer or the new listing applicant (which includes in the case of a real estate

investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the

issuer or the new listing applicant). The research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the

analyst reviews. EGFSL has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for

this report operates as part of a separate and independent team to the investment banking function of the EGFSL and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of EGFSL compensation to any specific investment banking function of the EGFSL.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child,

is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interest that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the

issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at the arm’s length, or investments in any collective investment scheme other than an issuer or new listing

applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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COMPANY-SPECIFIC / REGULATORY DISCLOSURES BY EMKAY GLOBAL FINANCIAL SERVICES LIMITED (EGFSL):Disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject company(s) covered in this report-:

1. EGFSL, its subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of Report Date July 9, 2018

2. EGFSL, and/or Research Analyst does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report

Disclosure of previous investment recommendation produced:

3. EGFSL may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed

in the first page of this report to view previous investment recommendations published by EGFSL in the preceding 12 months.

4. EGFSL , its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have any material conflict of interest in the securities recommended in this report as of Date July 9, 2018

5. EGFSL, its subsidiaries and/or other affiliates and Research Analyst or his/her relative’s does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately

preceding the Date July 9, 2018

6. EGFSL, its subsidiaries and/or other affiliates and Research Analyst have not received any compensation in whatever form including compensation for investment banking or merchant banking or brokerage services or for

products or services other than investment banking or merchant banking or brokerage services from securities recommended in this report (subject company) in the past 12 months.

7. EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst have not received any compensation or other benefits from securities recommended in this report (subject company) or third party in connection

with the research report.

8. Securities recommended in this report (Subject Company) has not been client of EGFSL, its subsidiaries and/or other affiliates and/or and Research Analyst during twelve months preceding the Date July 9, 2018

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COMPANY-SPECIFIC / REGULATORY DISCLOSURES BY DBS BANK LTD AS DISTRIBUTOR OF THE RESEARCH REPORT1. DBS Bank Ltd., DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Jan 2018.

2. Neither DBS Bank Ltd nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services:

3. DBSVUSA, does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past

twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA

exclusively.

Disclosure of previous investment recommendation produced:

4. DBS Bank Ltd. DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments

recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd. DBS

Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates in the preceding 12 months.

RESTRICTIONS ON DISTRIBUTION

GeneralThis report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such

distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is not for distribution into Australia.

Hong Kong This report is not for distribution into Hong Kong.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is not for distribution into Malaysia.

Singapore

This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 16800306E) or DBSVS (Company Regn. No. 1860024G) both of which are Exempt Financial Advisers as defined in the Financial

Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses

pursuant to an agreement under Regulation 32C of the financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.

United Kingdom

This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied,

photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters

relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments

should not rely on this communication.

Dubai International

Financial Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC),

Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA

rulebook) and no other person may act upon it.

United Arab

Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of

Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not

constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment

adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be

accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

United States

DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research

analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report

is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to

such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact

DBSVUSA directly and not its affiliate.

Other jurisdictionsIn any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations

of such jurisdictions.

Emkay Global Financial Services Ltd.

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7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India

Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com

http://www.emkayglobal.com/

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SINGAPORE

DBS Bank Ltd

Contact: Janice Chua

12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982

Tel. 65-6878 8888

Fax: 65 65353 418

e-mail: [email protected]

Company Regn. No. 196800306E

THAILAND

DBS Vickers Securities (Thailand) Co Ltd

Contact: Chanpen Sirithanarattanakul

989 Siam Piwat Tower Building,

9th, 14th-15th Floor

Rama 1 Road, Pathumwan,

Nagkok Thailand 10330

Tel. 66 2 687 7831

Fax: 66 2 658 1269


Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand

INDONESIA

PT DBS Vickers Sekuritas (Indonesia)

Contact: Maynard Priajaya Arif

DBS Bank Tower

Ciputra World 1, 32/F

JI. Prof. Dr. Satrio Kav. 3-5

Jakarta 12940, Indonesia

Tel. 62 21 3003 4900

Fax: 62 21 3003 4943


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Amar Mourya, MBA

[email protected]

+91-022-66242425

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