Behshahr Industrial Development Corp. (BIDCO)

Pasargad Bank Brokerage Co. (PBBCO)

Analysis Department

Ali Ahangar Mahaleh

SBEH11

Overview of company

Registered under the title Behshahr Cotton Ginning Co. on April 9, 1951, Behshahr Industrial

Development Corp. (BIDCO) became a public joint stock company later on February 7, 1995. Listed on

the Tehran Stock Exchange (TSE) under the stock symbol SBEH1 on March 16, 1995, the company was

first traded on June 14, 1995. The BIDCO is the largest Iranian producer of edible oil with a capacity of

500,000 tons per year. The facilities can store a total of 100,000 tons of raw oil including 30 large

storage tanks with a nominal capacity of 3,300 tons. The tanks have been installed on an area of

100,000 m2 at Bandar Imam Khomeini (BIK). The facilities host 42 personnel capable of unloading ship

cargos at 350 tons/hour. There are also facilities to load oil into tankers and sea shipping containers.

The loading capacity amounts to 8,000 and 3,500 tons per day for tankers and containers, respectively.

SBEH1 accounted for 35% of the domestic market in 2014 and 31% in 2012. The products are exported

to Iraq, Afghanistan, Bahrain, Tajikistan, Kyrgyzstan, Kazakhstan, Azerbaijan, Kuwait and the UK. The

BIDCO’s primary scope of activity revolves around the operation of several factories for cotton ginning,

oil extraction, oil refining, etc. as well as the production of various types of oil, cotton, Linter and

cottonseed meal. The secondary activities of the company are the production, purchase and sale,

packaging and distribution of food products such as ketchup, sugar cubes, sugar, grains, rice, tea,

pasta, noodles, nuts, dried fruit, juice, tomato paste, canned products, compotes and mineral water. In

an effort to supply the ever-increasing consumer needs and market demand, the BIDCO has begun to

produce packaged sugar and sugar cubes under its brand name, Ladan, since January 2009.

Subsidiary companies

1. Behshahr Vegetable Oil Company, Arvand Free Zone (100%) – liquidated – employee settlement

in 2008.

2. Behshahr Partogostar Shipping and Support Company (98%) – Insignificant financial events

No consolidated financial statements available

SBEH1 at one glance

Company Stock symbol Fiscal year Capital P/E group Last expected EPS Nominal

capacity

Number of

personnel

Behshahr Industrial

Development Co.

(BIDCO)

SBEH1 9,30 1,023,000 7.6 1704 500,000 680

Capital and Shareholder Structure

1 It refers to Behshahr Industrial Development Corp. (BIDCO). Every company listed on the Tehran Stock Exchange (TSE) is represented by a unique stock symbol.

The BIDCO’s initial capital amounted to 6.5 million IRR. The most recent capital expansion dates back

to 2013, when the total sum increased through accumulated profits from 330 billion IRR to 1023 billion

IRR (210%). The latest shareholder composition can be seen in the following figure.

Turnover at the TSE

The Status of BIDCO in the industry

There are 47 vegetable oil factories operating in Iran. The per capita consumption of this product is

approximately 17 kg, which is almost equal to the global level. The Iranian annual demand for

vegetable oil amounts to 1,400,000 tons. Supplying 500,000 tons of vegetable oil, BIDCO accounts for

over 35% of the total annual household and corporate market share of this product. The company’s

brand names include Ladan, Ladan Talayee, Bahar and Nastaran. The per capita consumption of this

product is approximately 17 kg, which is almost equal to the global level.

Ban on Exports from 2014 onwards

Shareholder composition

Safula Behshahr

Sepah Investment

Pension Fund Management Service and Investment

Modaberan Eqtesad Co.

Pars Tousheh Investment

Others

80%

13% 1%

1%

2%

3%

Three-year trend (IRR)

Factors Influencing the global price of vegetable oil

Global economic growth

The global economic growth is undoubtedly one of the factors affecting the demand for food products

and animal feed. The correlation between the economic growth and the price of oilseeds is inevitable

given their role in the provision of human and animal feed.

Agriculture

Since vegetable oils are made of crude oil as their raw material, which itself is highly dependent on

growing oilseeds, agriculture and weather conditions influence the fluctuations in this product’s prices.

Crude oil prices

The fluctuations in crude oil prices lead to changes in biodiesel consumption. Hence, lower prices of

crude oil will prevent the cost-effective production of biodiesel, resulting in an excess supply of

vegetable oil and consequently price decline.

Raw materials: crude oil

1. Palm oil (African oil palm: It accounts for 35% of the world's supply of edible oils. The largest palm

oil producers are Malaysia, with 18 million tons of exports last year. Indonesia, Philippines and Latin

America countries are other major producers.

Palm: Pomace cooking oil

Palm kernel: cosmetics

Various applications from biodiesel to…

Tajikistan Kuwait Kyrgyzstan Kazakhstan Iraq UK Bahrain Azerbaijan Afghanistan

Indonesia and Malaysia are the world’s largest palm oil producers and exporters, accounting for a

combined 84% of the production volume. Moreover, India is the world’s largest palm oil importer,

covering 22% of the total market.

Price trend of palm oil

Palm Oil Production

Indonesia

Malaysia

Other

47%

16%

37%

2. Soybean Oil: It is the main competitor of palm oil and the most widely used type of vegetable oil

produced worldwide. The global popularity of this product lies in its abundance, low cost and high

quality. Over a fairly wide thermal range, soybean oil stays in liquid phase. Moreover, it contains a

huge amount of unsaturated compositions, making it unsuitable for frying purposes. It is rather used in

mayonnaise and margarine and such foods as rice at low temperatures.

The US and Brazil are the largest soybean producers, while Argentina is the largest exporter of soybean

covering 19% of the global market. Moreover, India is the largest importer of soybean (21%).

Palm Oil prices (USD)

Palm Oil

3. Sunflower: The sunflower oil seeds are obtained through mechanical pressure (pressing), solvents or

a combination of the two. Sunflower seed is one of the most valuable oilseeds, with sunflower oil

accounting for about 30% of the total vegetable oil produced worldwide.

Soybean Oil Production

USA

Brazil

Argentina

China

India

Other

Soybean prices (USD)

Soybean oil

Ukraine and Russia are the largest producers of sunflower oil, accounting for 27 and 25% of the

market, respectively. Moreover, India is the largest importer of sunflower oil with 25% of the total

market.

Sunflower Oil Production

Ukraine

Russia

Europe

Argentina

Turkey

Other

Partnership agreement with margarine

According to a contract signed with Margarine Co. aimed at enhancing the production efficiency and

optimization, both parties agreed to exchangeable Job production under commission terms for 18

months (one year plus 6 months extendable). In fact, the BIDCO shall refine, produce and pack the

products ordered by Margarine Co. by a maximum of 6,100 tons per month. In return, Margarine Co.

shall refine, produce and pack (if necessary) the orders placed by BIDCO by a maximum of 6,400 tons

per month of undyed oil.

The trust assets transferred from Margarine Co. to BIDCO amounted to a total value of 63.5 billion IRR

and book value of 18.6 billion IRR until the end of the fiscal year report on 06/21/2014 according to

Margarine’s GLs. Moreover, the total value and book value of trust assets transferred from BIDCO to

Margarine Co. amounted to 2,331 billion IRR until the end of fiscal year report. Additionally, the

transferred assets are deemed trust, where the costs of repair and maintenance will be paid by the

company utilizing the equipment, while the premiums and shipment fees will be paid by the asset

owner.

Income Statement

Description 2013 2015 2015 (9 months) 2015 (forecast) 2016 (forecast) 2015 (analytical) 2016 (analytical)

Sale 17,525,777 19,883,296 15,289,182 21,463,981 20,723,945 20,837,788 22,737,270

Cost of

commodity sold

-13,513,331 -17,193,586 -13,259,412 -18,722,760 -17,685,546 -18,103,324 -19,931,140

Gross profit 4,012,446 2,689,710 2,029,770 2,741,221 3,038,399 2,734,464 2,806,130

Sale,

administrative

and general costs

-447,378 -402,657 -359,969 -435,445 -501,658 -479,959 -527,955

Other net

earnings and

operating costs

232,395 242,620 263,950 275,600 41,500 275,600 46,452

Sunflower oil (USD)

Sunflower oil

Operating profit 3,797,463 2,529,673 1,933,751 2,581,376 2,578,241 2,530,105 2,324,627

Financial costs -155,088 -597,761 -299,554 -427,500 -385,000 -427,500 -354,200

Net earnings from

investment

57,021 82,836 29,375 41,358 35,000 41,358 35,000

Miscellaneous

Net

income/expense

106,746 68,400 76,673 100,224 81,000 100,224 81,000

Profit prior to tax

deduction

3,806,142 2,083,148 1,740,227 2,295,458 2,309,241 2,244,187 2,086,427

Taxes -1,025,902 -594,471 -454,960 -562,412 -565,704 -561,047 -521,607

Net profit 2,780,240 1,488,677 1,285,267 1,733,046 1,743,537 1,683,140 1,564,821

Capital 1,023,000 1,023,000 1,023,000 1,023,000 1,023,000 1,023,000 1,023,000

EPS 2,718 1,455 1,256 1,694 1,704 1,645 1,530

Calculation of commodity cost

Type of oil 2015 2016 Weight Source

Sunflower (USD) 1037 866 0.25 http://knoema.com/wxgcxde/commodity-p

Palm (USD) 529 655 0.30 http://knoema.com/wxgcxde/commodity-p

Soybean (USD) 652 751 0.45 http://knoema.com/wxgcxde/commodity-p

Description Oil price (USD) USD exchange rate CPT cost Clearance

cots

Domestic

transport cost for

raw oil (IRR)

Raw oil price

delivered at

factory

Assumptions 2015 711 30,189 58 8% 800 25,710,352

Assumptions 2016 751 33,208 58 8% 800 29,620,308

Key points:

The conversion rate from crude oil to vegetable oil was considered to be 1.05.

The sales, general and administrative costs were applied by 10% growth in 2016.

Overhead costs were considered to be 12% in 2016, while the compensation cost was 17% in

2016.

The currency exchange rate for 2016 was considered to be 33,208, which grew by 10%

compared to 2015.

According to an approval by the Board of Directors, Iranian Vegetable Oil Industries Association,

the vegetable oil producing companies are obliged to pay 1500 IRR per kilogram of raw. The

auditor shall report the company’s disagreement with the payment terms and exclusion from

the income statement. This figure has not been included within the report. The company will

experience excessively negative balance if the company is obliged to pay the costs above.

The vegetable oil sale in 2016 was assumed to grow by 10%.

The cost of customs clearance in 2015 was 10% for the import of palm oil, 10% for soybeans

and 7% for sunflower oil.

The company’s products will be priced by the Consumer and Producer Protection Organization

(CPPO).

Dividend payout ratio was 50% for 2015 and 60% for 2016.

Valuation

Description Terminal value Estimated 2016 Estimated 2015

Shareholder free cash flow 8,237,292 1,729,831 1,830,471

Discount rate 153% 123% 124%

Shareholder free cash flow

discounted

5,370,312 1,402,376 1,472,032

Value per share (IRR) 8,059

Description Terminal value Estimated 2016 Estimated 2015

Corporate free cash flow 10,483,827 1,729,831 1,830,471

Discount rate 153% 123% 125%

Corporate free cash flow

discounted

6,853,780 1,408,888 1,469,266

Value per share (IRR) 9,504

Fiscal year Terminal value 2016 Estimated 2016 Estimated 2015

Inflation in Iran 12% 12% 13%

Rf 21% 21% 22%

β 0.94

Rm - Rf 2.5% 2.5% 2.5%

Re 23% 23% 24%

EPS 1,645

Dividend payout ratio 50%

DPS (IRR) 3,930 918 823

DPS discounted (IRR) 4,887 910 662

Terminal value (IRR) 7,887

Value per share (IRR) 6,459

BIDCO Method

Value per share (IRR) FCFE FCFF DDM

Estimated weight

percentage

8,059 9,504 6,459

Adjusted value per share

(IRR)

33% 33% 33%

Conclusion

The increase in the sales rate of products will be a key potential for growth. Since raw oil is imported,

any increase in the raw materials and volatility in dollar exchange rate will become major risks. Given

the stock valuation of SBEH1, the intrinsic value will amount to 7,927.