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IONEXCHANGE(INDIA) LTD.
- An Ionic Growth
- Initiating Coverage
30/09/2016
Initiating Coverage
Page | 1
Price Volume Graph
SOURCE: BSE
MARKET DATACMP (Rs) 276.00EPS(TTM - Rs) 25.10P/E(TTM) 11.0352 Week High (Rs) 394.2052 Week Low (Rs) 232.50Equity (Rs. Mn) 146.70Mkt. Cap (Rs. mn) 4059.70
CODES
BSE 500214
NSE Not Listed
Bloomberg ION@IN
Shareholding pattern
Jun-16 Mar -16 Dec-15
Promoter 44.04 44.37 44.37
FII NIL NIL NIL
DII 2.01 2.00 1.18
Others 53.95 53.63 54.45
source: BSE
Sector:Non-Electrical Equipment Recommendation: BUY
CMP: Rs.276 Target: Rs.375
Senior Analyst:Jigisha [email protected]
Largest one stop shop water solutions provider in AsiaIon Exchange India Ltd. (IEL) offers one stop water and non-water treatment solutionscatering to diverse segments like infrastructure, industry, institutions, municipal,homes and communities, urban and rural. It offers solutions across the water cyclefrom pre-treatment to process water treatment, waste water treatment, recycle, zeroliquid discharge, sewage treatment, packaged drinking water, sea water desalinationetc. It is also engaged in manufacturing ion exchange resins, speciality chemicals forwater and waste water treatment as well as non-water applications.Growth in the water & waste water treatment industryCapital expenditure on water and wastewater infrastructure in India is set to increaseby 83% over the next five years, hitting an annual run rate of $16 billion by 2020. Theutility market is set to top $14 billion within five years, while annual spending in theindustrial sector will approach $2 billion. The wastewater treatment sector is expectedto grow faster than water treatment, exhibiting a CAGR of 15.3% to reach $6.78 billionin 2020, up from $3.3 billion in 2015.Chemicals/Resins industry growthThe global water treatment chemical market is expected to reach an estimated $32.8
billion by 2021 with a CAGR of 3.4% from 2016 to 2021. The major drivers of growthfor this market are improving water quality standard and increasing demand for cleanwater. The demand for water treatment chemicals have increased substantially fromemerging economies such as Brazil, China, and India.Engineering order book binging strong on the Srilankan order worth Rs.12bnIEL currently has an order book of Rs.6bn comprising large EPC projects worth Rs.3bnmajorly from the industrial segment. The Srilankan Water Board has chosen IEL toexecute its water supply project worth US$194mn. Including the SriLanka order, totalorder book from the engineering business stands at more than Rs.17bn executableover next three years.The USFDA approval – key trigger for its chemicals segmentThe resins segment of IEL is operating @~90% capacity utilisation while its chemicalssegment is operating @~60-70% capacity utilisation. It has successfully renewed theWHO-GMP certification for its Pharma facility at Ankleshwar. It has received the USFDAnod for the manufacturing of resins for pharma industry in this facility. The potentialmarket in US and Europe for this Drug Active resins is huge.ValuationIEL is strategically well positioned providing end-to-end water solutions to itscustomers, from engineering equipments to water treatment resins and chemicals toconsumer products. The increasing government regulations and focus on water andwater management programmes will also drive the demand for water and wastewatertreatment solutions. We Initiate Coverage with a BUY rating, with a price target ofRs.375 based on its average PE of 15x FY18E EPS of Rs.25 per share.
Year end (Rs . Mn) FY14 FY15 FY16 FY17E FY18E FY19ENet Sales 7930 8005 8694 10687 13517 14480EBIDTA 341 466 558 768 996 1125Margin (%) 4.30% 5.82% 6.42% 7.18% 7.37% 7.77%Net Prof i t 47 114 169 286 391 445Margin (%) 0.60% 1.43% 1.94% 2.67% 2.90% 3.07%EPS 3.20 6.93 10.78 18.22 24.97 28.38PE 29.68 37.54 24.12 14.27 12.41 10.57
Key Highl ights
So urce:C o mpany/ Wallfo rt R esearch
30th September,2016
Initiating Coverage
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About the Company..
Ion Exchange pioneered water treatment in India and is today the country's premier company in
water and environment management, with a strong international presence. Formed in 1964, as
a subsidiary of the Permutit Company of UK, it became a wholly Indian company in 1985 when
Permutit divested their holding. It currently employs 1000 people - multi-disciplinary teams of
highly experienced professional managers, technologists and scientists, supported by a
widespread infrastructure in India and abroad.
It has two facilities for In-house R&D and two applications and testing centres. It has over 50
patents to their credit and 100+ products commercialized. It has a global presence apart from
presence in major cities in India with sales & service centres and dealer network of more than
100. It exports to Africa, Japan, Middle East, Russia, South East Asia, Europe, UK, USA, Canada
and neighbouring countries.
Source: Company/Wallfort Research
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Global Footprint
Domestic Footprint
Source: Company/Wallfort Research
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Work Flow Process
Waste Water Treatment
Pre-treatment Water Recycling and ZeroLiquid Discharge (ZLD)Post-Treatment
Water Treatment
Disinfection(Chlorinators)CoagulationFlocculationClarificationFiltration
Ion ExchangeProcesses
DemineralizersSoftenersDe-alkalisers
MembraneProcesses
Ultra - FiltrationReverse OsmosisNano-Filtration
CondensatePolishingElectro-de-ionzersBoiler & CoolingwatertreatmentDisinfection(Ozonators/Chlorinators)
Aerobic ProcessActivated SludgeProcessMBRMBBRSBR
AnaerobicUASB
Membrane ProcessUltra – FiltrationReverse OsmosisZLDMulti EffectEvaporators
Equipment Resins Membranes Chemicals Enzymes
Clientele – Industrial & Institution
Source: Company/Wallfort Research
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One Stop Shop solution provider
Total Water Management
IEL uses a wide range of processes with an integrated approach to deliver total solutions for
every market - household, institutional, commercial, industrial and public water supplies, urban
and rural, in India and overseas. Comprehensive services such as O&M and BOO/T enables
them to meet customer needs totally, offering end benefit conveniently and economically, with
single source responsibility.
The Widest Range Internationally
Pretreatment, process water/liquid treatment, waste water treatment, water recycle and
product recovery using various physico-chemical processes for settling, clarification,
filtration, and disinfection, membrane and ion exchange technology
Ion exchange resins, membranes, polymers and polyelectrolytes for water and speciality
non-water applications
Boiler and cooling water treatment chemicals
Fireside chemicals and fuel additives
Process chemicals for sugar and paper manufacture
Specialised systems for removal of excessive fluoride, arsenic, iron and nitrates from water.
These along with disinfection systems have been adapted to rural needs
Domestic and institutional drinking water purifiers and water conditioners; central drinking
water treatment systems
Sewage treatment and recycle systems
Comprehensive services - rehabilitation and automation of plant, BOT/Lease, O&M,
consultancy, operator training, design engineering and project management
The value chain for the water solutions business comprises three participants: water solutions
provider, onsite service provider, and water chemical manufacturer. The other two players that
have full end-to-end presence are
Thermax and
Nalco (Ecolab).
Water treatment companies such as VATech Wabag, GE Water, Siemens and Toshiba do not
operate in the chemical manufacturing segment, but focus on construction and maintenance of
water treatment plants. There are a few mid-scale players such as
Vasu Chemicals and
Chembond, which are pure-play chemical manufacturers operating in this segment.
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Presence across the value chain
ION EXCHANGE LIMITED
ION ExchangeThermax
Nalco (Ecolab)
Va techWabag Siemens
Water Chemical manufacturerProducing a wide range of water
chemicals
Onsite Service ProviderRegular maintenance and
operational support
GE Water Toshiba ChembondVasu
Chemicals
Water Solution ProviderProviding customized water
treatment solution andproject management
services (Includingconstruction/EPC)
Business Segment Break up
Business Segments
ChemicalsRevenue - 35%Margins – 83%
Retail RuralInstitution
Consumer ProductsRevenue - 10%Margins – (6%)
EngineeringRevenue - 55%Margins – 23%
Source: Company/Wallfort Research
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Engineering Segment
Engineering is one of the key business segments of the company. In this segment, the company
designs, engineers, builds and maintains medium and large sized water and waste water
treatment plants including recycling and zero liquid discharge plants. It caters to diverse
industries under this segment such as petrochemical & refinery, power, steel, auto, sugar,
electronics, pharma, pulp & paper, textile, cement, F&B etc. It is one of the leading players in
this segment and has played a major role in industrial desalination plants in India. Water and
wastewater management is key priority area for Government and IEL is well positioned to
benefit from the strong government focus on water investment. As a result of the changing
landscape, it has selectively increased its focus on government projects to benefit from the
growing demand in this area. Simultaneously, it has taken significant steps to diversify its
geographical footprints and has also expanded presence in the international markets like the
Middle East, GEC region, Africa & South East Asia. These initiatives have started showing
traction. Going forward, it is taking multiple strategic steps to improve growth in this segment
such as selectively targeting projects in the Infrastructure and Municipal Segments and
capitalising on technology and application knowledge in SWRO, Recycle and ZLD, increasing
application coverage of resin and membrane technologies and providing value engineering to
maintain superior value to customers, gain market share and ensure better profitability.
• Industrial sector is witnessed to be growing at a CAGR OF 5- Only 60% of Industrial waste water is treated.7% while waste water treatment projected CAGR IS 8-10% Performance of state owned STPs are not complyingalone through 2015-2020. with prescribed standards.
• Central Pollution Control Board study reveals that 62,000 Around 40% of STPs do not conform to environmentMLD of sewage is generated across urban India and there protection standards. The increasing governmentare 816 STP installed that can treat 23,277 MLD or just regulations on polluted water discharge are driving37.5% of sewage per day. the demand for water and wastewater treatment
• The Government ‘Make in India’ programme is expected to Namami Gange”, the Clean Ganga Initiative, to creategenerate new opportunities for the company as Power, significant opportunities.Cement, Steel, Petroleum & Refineries industry gain traction. Cities and towns are finding it difficult to manage
• About 80% of water supplied (especially in urban areas) and treat the huge quantities of waste generatedbecomes wastewater of which only 30% is being treated. on a daily basis. This will lead to an increased
Demand for standard systems.
Market Potential Industrial Requirement
Engineering Industry Overview
Make In India Swachh Bharat Abhiyan
Source: Company/Wallfort Research
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Engineering segment Order book
IEL has a strong presence in the industrial water and wastewater treatment space and due to
muted investment by the industries, this segment reported negative growth over the last two
years and its profitability came under pressure. However, with the increase in industrial
spending on water and wastewater treatment due to strict regulation and its implementation,
improvement in revenue over the medium term is expected. IEL is currently equipped with an
order-book of Rs.6000mn worth projects; most of which are from the industrial segment. Large
size order book is ~3000mn, O&M order book is ~1500mn while small & medium size order
book is~1500mn & Rs.35000mn worth of orders is in bid pipeline. This will significantly
improve its order intake & revenue visibility which is currently close to ~1 year. Of its current
order backlog 500-600mn orders are slow moving.
Source: Wallfort Research
The Srilankan order
The Sri Lanka Water Board has chosen IEL to execute a water supply project worth US$ 194
million (Rs.12000mn) in 2015 over a period of 3yrs and EXIM Bank has extended the buyer’s
credit facility for this project. The entire financial closure has been achieved & they are in the
process of finishing the paper work. Including the Sri Lanka order, its total order book from the
engineering business currently stands at more than Rs.1600 crore, giving it a revenue visibility
of more than 3yrs. Margins are expected to improve as the Srilankan order is expected to give
them improved margins as compared to its current margins.
Engineering order book –Rs.6000mn
Operating Margins ~5-6%PAT margins ~1-2%
Large size order bookRs.3000mn
(Customised Orders)
O&M order bookRs.1500mn
Operating Margins ~10-15%
Small size order bookRs.1500mn
(Standard Systems)
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5,767
17,000
5,500 5,900
6,000 16,270 12,591 8,870
1.2
2.4
1.4
0.9
0.0
0.5
1.0
1.5
2.0
2.5
3.0
- 2,000 4,000 6,000 8,000
10,000 12,000 14,000 16,000 18,000
2015-16 2016-17E 2017-18E 2018-19E
Engineering Segment Order book details
Order Intake Closing Order Backlog Book to Bill ratio
53594611 4329
4842
6360
86749092
4.3% 2.8% 2.6% 2.8%5.3% 6.3% 6.2%
-14%
-6%
12%
31%36%
5%
-20%
-10%
0%
10%
20%
30%
40%
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2012-13 2013-14 2014-15 2015-16 2016-17E 2017-18E 2018-19E
Engineering segment turnover Rs. Mn
Engineering Segment % Margins % Growth
IEL has maintained a runrate of Rs.4-5bnin its Engineering segment
Source: Wallfort Research
IEL currently has less than 10% of its revenues coming from the Municipal segment. With
increasing Government thrust on the water & wastewater treatment sector, IEL is expected to
focus on bids from specific states in India. Internationally large portion of its order inflows is
from Middle East, Africa & South East Asia.
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The Water Value Chain
Water scarcity and increasing pressure on limited global water resources remain the secular
drivers of growth in the water sector.
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The global water market to rebound following the economic slowdown
Recent estimates put the size of the global water market at about USD 591billion in 2014. This
includes USD 203billion from municipal capital expenditure, USD 317billion from municipal
operating expenditure, USD 1billion from industrial capital expenditure, USD 37billion from
industrial operating expenditure, USD 12billion from point of use treatment and USD 3.7billion
from irrigation. Market opportunities related to the water sector are expected to reach USD 1
trillion by 2025.
Global expected municipal water and wastewater capital spending
Regional expected municipal water and wastewater capital spending
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Based on economic growth and the need to catch up with basic infrastructure, water sector
investments in emerging markets are expected to grow faster than in developed markets, while
growth is likely to be sluggish in a number of European markets and Sub-Saharan Africa. Other
countries, however, will enjoy above-average growth rates, especially emerging Asia and the
Middle East and North Africa (MENA). The US market is expected to grow in the coming years,
driven by increased levels of investment to expand and upgrade an aging water infrastructure
as well as to meet the growing water demand in water- scarce areas where the population
continues to grow, particularly in Southern California. This market continues to be heavily
influenced by public budgets and water related policies. Economic performance in the Middle
East is closely linked to the provision of additional water through desalination, leading to strong
growth rates for related technologies and services. Areas of more acute water stress have seen
greater investment. In Australia, problems are concentrated in the southern regions. Total
annual water and sewage capital expenditures by Australian water utilities have increased by
200% between 2006 and 2012.
Industrial Water Capex
The overall industrial water capital expenditure market was worth an estimated USD 15 billion
in 2011 and is expected to reach USD 24 billion in 2018.
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Economic development in conjunction with fast-paced urbanization especially in emerging
countries is impelling the need for efficient water management solutions. A resurgence in the
global manufacturing sector is furthering demand, as escalating production in various
manufacturing industries stimulates the need for water and water recycling, given the growing
need for water conservation and tightening environmental regulations. Replacement of old
water infrastructure in regions such as North America and Europe is also catalyzing the market
growth.
Rising standards for process water in manufacturing industries such as pharmaceutical and
semiconductor in conjunction with increasing government focus on water reuse and recycling
with the help of programs such as zero liquid discharge and non-revenue water is increasing the
capital expenditure in both developed and developing markets. This is making water and water
recycling an expanding market.
Countries have been increasing their water reuse capacities between 2009 and 2016; capital
expenditure on water reuse is expected to grow at a CAGR of 19.5% while the global installed
capacity of high quality water reuse plants is expected to grow from 28million cubic meters per
day to 79million cubic meters per day.
The following countries are leading the way, Kuwait, Israel, Singapore and Egypt with 91%, 85%,
35% and 32% of its wastewater reuse respectively. The water reuse market still holds huge
opportunity in countries like Australia, USA, India and China, where the water recycling rate is
less than 20%.
Globally about 3,000 water reuse facilities are operating which is projected to increase further.
China announced the installation of an additional capacity of 10.7 million cubic meters between
2009 and 2016, whereas the US is expected to install an additional capacity of 5.9 million
cubic meters during the same period of time.
Countries investing heavily into Water & Water Recycling programs
Region Name of the Countries
Asia-Pacific China, India, Vietnam, South Korea
North America Mexico, the USA
Europe Poland, Spain
MEA Kenya, South Africa, Saudi Arabia
Latin America Brazil
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China - Intensifying demand for water recycling and reuse technologies at China’s power plants
are driving the growth of the market. The water and water reuse equipment market of China
stood at $723.13 million in 2011 which is expected to reach $1.18 billion by the end of 2020.
Apart from power; steel, chemicals, paper manufacture, leather, and pharmaceuticals are the
other major industries driving the growth of water and water recycling market in the country. In
2014, China held 4295 wastewater treatment plants which are anticipated to grow at a CAGR
of 6% over the next five years.
Industrialization in some major provinces of China such as Guangdong, Jiangsu, Shandong,
Zhejiang, Henan and Fujian is the key growth driver for the Chinese water reuse market. During
11th FYP the average water reclamation utilization rate of China was 8-9% which is expected to
reach to 11% after the end of 12th FYP.
Projected urban wastewater expenditure under China's 12th FYP (USD Billion)
Source: TechSci Research
India - Erratic rainfall patterns due to climate change, depleting water resources because of
extreme groundwater extraction, contamination of available surface/groundwater resources
due to the discharge of untreated sewage, and/or industry effluents have had an impact on
water quantity and quality in India.
In India, per capita water availability is declining continuously which in turn is generating strong
growth opportunities for the water & wastewater recycling market. In 2001, per capita water
availability was 1,820 cubic meters which is projected to decline to 1,140 cubic meters by
2050.
In order to fulfil the rising water demand, two sustainable options are available; one is
desalination and the other is wastewater recycle and reuse. The wastewater recycling and reuse
industry is still at its nascent stage.
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India wastewater capital expenditure (USD Million)
Source: TechSci Research
United States of America - Water recycling and reuse is gaining popularity in the U.S. due to the
growing demand for water in industries and municipal applications like agricultural irrigation,
lawn watering and other non-potable applications. 40 new water reuse plants are expected to
be operational in the US in next three years.
Vietnam - Water recycling and reuse is an emerging issue in Vietnam. Country generated about
1500 million cubic meter of wastewater majority of which is from urban areas.
South Korea - The Korean environmental market is one of the fastest growing markets growing
at annual growth of 10%. Water & water recycling is one of the largest segments of
environmental market. Country holds more than 300 wastewater treatment plants which are
growing at annual growth rate of 4%.
Mexico - The wastewater treatment market of Mexico is growing at growth rate of around 8%.
Growing industrialization in the country is driving the growth of wastewater treatment plants.
Country hold more than 1500 wastewater treatment plants which is anticipated to grow at a
CAGR of 5% during next five years. In 2013, addition of 10 new water reuse plants had been
announced by the government. The government has set targets to improve Mexico's water
supply and water reuse systems. They aim to achieve 100% wastewater coverage and reuse by
2030.
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Water & Wastewater infrastructure in India undergoing major changes
Capital expenditure on water and wastewater infrastructure in India is set to increase by 83%
over the next five years, hitting an annual run rate of $16billion by 2020. The utility market is
set to top $14 billion within five years, while annual spending in the industrial sector will
approach $2 billion. Due to the central and state governments’ renewed vigour in propounding
the reduction and eventual elimination of pollution in India’s rivers, the wastewater treatment
sector is expected to grow faster than water treatment, exhibiting a CAGR of 15.3% to reach
$6.78billion in 2020, up from $3.3billion in 2015. Spending on water supply will grow from
$5.56billion to $9.4billion over the next five years.
Cleaning up India’s rivers
The pollution of India’s rivers has become critical, and the government is leaping into action in
an attempt to tackle it. Only around 30% of wastewater generated in India is treated, and
millions of litres of untreated wastewater flow into rivers every day. A recent Central Pollution
Control Board (CPCB) survey of treatment capacity volumes compared to wastewater generation
revealed huge deficiencies in the majority of states in India (see map below).
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The prime example of river pollution is the river Ganga, the basin of which is home to some 400
million Indians. Current levels of pollution in the Ganga are the worst ever recorded, and the
new government has made cleaning the Ganga River one of its key priorities under the
“Namami Gange”programme. Rs.200billion ($3billion) has been pledged by the government
over the next five years to clean up the Ganga. A new Ganga River Basin Management Plan
(GRBMP) was submitted in January 2015, outlining important steps to prevent the discharge of
untreated wastewater into the river. Some of the more salient measures that the GRBMP
recommends include the mandatory reuse of wastewater from Class 1 towns (population over
100,000), along with a series of decentralised wastewater treatment plants in areas where no
sewerage systems exist. There is also a draft bill set to be enacted in the coming months to
regulate the discharge of waters into the Ganga via the setting up of a commission with the
power to take greater levels of punitive action than is currently exercised. As an extension of the
clampdown on pollution, the CPCB has introduced tighter wastewater discharge standards for
municipal wastewater treatment plants. Future facilities will need to comply with these
standards, while existing WWTPs will need to meet them within five years.
Transforming India’s cities and towns
The new NDA government has unveiled initiatives that promise to transform India’s ever-
expanding cities and large towns to rival those in developed nations. In order to speed up the
construction of water and wastewater projects across the country, the government is adding
new incentive tools– such as priority release of budget allocations on the basis of reforms
implemented by states in the previous year– whilst also undertaking a review of water tariffs.
This had previously been attempted under the Jawaharlal Nehru National Urban Renewal
Mission (JNNURM), but with varying degrees of success.
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The Atal Mission for Rejuvenation and Urban Transformation (AMRUT)– the Modi government’s
successor to the JNNURM – and the Smart Cities Mission are aimed at realising the
government’s ambition of bringing the quality of India’s water supply and sanitation to a level
currently enjoyed by developed economies. Rs.500billion ($7.7billion) has been allocated for
investment in 500 towns and cities under AMRUT, with Rs.480billion ($7.4 billion) put aside for
upgrading 100 cities to attain ‘smart’ status. Water and wastewater infrastructure is anticipated
to constitute up to 40% of the total investment under these initiatives.
A trend towards services contracts is also creating opportunities for international companies.
Many contracts are now being awarded under a DBO or EPC+O&M model, typically with
operating contracts of five years or more attached to them. This contrast with the “build-neglect-
rebuild” practice of past years, where many treatment plants were built but not maintained
properly, and eventually fell into disrepair. With these types of maintenance contracts, utilities
are becoming less conservative when it comes to technology choice.
Industrial markets
The Indian economy has slowed recently, but good growth looks set to return to several
industrial sectors. There is a yawning power supply deficit as industry recovers from the
slowdown due to shortages in coal supply. Many projects which have been put on hold are now
moving forward again, creating a strong market for water and wastewater treatment services.
Refining & petrochemical plants are taking advantage of low oil prices, and many refineries in
India are operating at over 100% of their design capacity.
Opportunities in the industrial sector mainly lie in the field of wastewater treatment as
industries respond to the government’s clampdown on polluting entities. The regulation of
wastewater discharges has historically been lax, but many industrial units face closure unless
they meet the standards. The government has proposed zero liquid discharge (ZLD) for highly
polluting industries and the thinking behind this is that many small industrial units cannot meet
the discharge standards, and therefore going straight to ZLD will help reduce pollution of
surface water bodies. Wastewater reuse is rising up the agenda for many industries, including
power, refining & petrochemicals, pharmaceuticals, and steel. This is being driven by stricter
regulations around freshwater consumption and wastewater discharge. It means that the
biggest growth areas in terms of technology will be those that enable industrial users to treat
their wastewater to a higher standard, including reverse osmosis, nano-filtration and membrane
bioreactor systems, as well as more advanced biological treatment systems. Ultrafiltration
membranes are becoming more popular as a pre-treatment method for reuse systems.
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This sector is set to grow at a CAGR of 7.4% over five years. Spending on process water will
remain important, with high growth rates predicted for many industrial sectors. The Market for
ultrapure water treatment in the pharmaceutical industry will present key opportunities, where
demand for water and wastewater treatment systems is expected to grow by 15.2% until 2020.
The pharmaceutical sector is expected to see the highest growth over the period, followed by
food & beverage, power generation, steel, and refining & petrochemicals (see chart above).
India continues to set up industrial parks, with many of them located in corridors across the
country, such as the Delhi-Mumbai Industrial Corridor. Investment regions and industrial parks
being developed along these corridors will be Greenfield industrial townships, offering
opportunities for the management of integrated water and wastewater systems and the
outsourcing of operations in the form of EPC+O&M contracts, with a view to BOTs and similar
models in the future.
New CPCB Norms
Prodded by the environment ministry, the Central Pollution Control Board is set to notify
stringent new norms specifically for sewage treatment plants (STPs) for the first time so that
their discharge matches global parameters on water quality. In addition, it is revising bathing
water quality standards to ensure that people taking holy dips are not exposed to infection,
besides pollutants. The dumping of untreated human waste and industrial effluents have made
the Ganga and its largest tributary the Yamuna among the world's most polluted rivers,
rendering their water unfit for consumption or bathing.
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Sewage treatment capacity in the country is woefully inadequate and where they exist, about
40% of the facilities don't meet operating standards. Once notified, all new STPs will have to
meet the fresh norms and existing treatment plants, which now follow guidelines for general
effluents, will get five years to achieve them.
The stringent norms in the works will also apply to big industrial units, steel and thermal power
plants and new townships, which are increasingly setting up their own STPs. Our rivers have
been ruined due to the effluent discharge from STPs besides other factors. Reason being that
there are no STP-specific standards...they are just run based on the prescribed general effluent
standards.
The new standards that have been devised are comparable with global standards, will require
installation of modern filtration systems and will ensure zero-bacteria discharge into the rivers.
Source: Economic times.com
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Chemicals Segment
Ion Exchange is engaged in the manufacturing of water treatment chemicals, ion exchange
resins and other specialty chemicals. Water treatment chemicals are used in boiler, cooling
water treatment, coagulation and flocculation, membrane cleaning etc. Package treatment
programmes are tailor made to suit customer needs. Ion exchange resins are used for
softening, demineralization in water treatment. They are also used in various non water
separation across many verticals such as pharmaceuticals, biotechnology, food and beverages
etc. Specialty Chemicals include performance chemicals used in processing of Paper, Sugar,
Pharma and Refinery segment.
Chemicals ApplicationsWater Treatment Chemicals
Effluent Water treatment
Wide range of high molecular weight water soluble polymers possessing high flocculatingpower in treatment of suspended solids. These coagulants, flocculants improve theefficiency of solid-liquid separation and therefore are effective in clarification of potablewater, effluent treatment and recycling of waste water.
Boiler Water treatmentA wide range of Boiler water chemicals solutions for low, medium and high pressureboilers to prevent deposits and corrosion in pre-boiler, boiler and post-boiler systems.
Cooling water treatmentBroad range of environmentally safe INDION products to treat open re - circulating coolingwater systems.
Speciality Chemicals
Refinery ChemicalsThe role of these speciality chemicals is to improve the unit run length and protectsystems.
Fireside ChemicalsIEL offers a selection of pre – treatment programs designed to improve the performanceof the entire energy systems and protect the pre-treatment equipment.
Metal and mineralprocessing
The mining and mineral processing industries utilize large quantities of water to separateand recover valuable minerals, where polyelectrolytes assist in the separation of solidparticles from aqueous suspensions.
Paper process chemicalsIEL caters to this industry’s requirements of process chemical additives that impartsuperior qualities to paper such as thickness, brightness and strength.
Sugar Process chemicalsIEL’S high molecular weight polyelectrolytes of approved quality are used in sugar juiceclarification. All leading to improved sugar recovery.
Coal Washeries
New mining techniques result in fine coal particles. Flocculants have been usedincreasingly for recovering coal from tailings as a setting aid or bbyfiltration/centrifugation by de-watering methods. In addition to controlling pollution thelarge quantities of water used in washeries can be recycled using polyelectrolytes.
Oil Field Services
High performance polymers are used in all areas of the industry – production drilling, coredrilling, water shut off, mobility control, Fracturing, workovers, completions, solidsremoval, shale inhibition, produced fluid treatment and in certain EOR (enhanced oilrecovery) tehniques such as polymer flooding.
Initiating Coverage
Page | 22
Ion exchange resins are used for softening, demineralization in water and non-water treatments
such as pharmaceuticals, biotechnology, food and beverages etc. Resins are backed by
innovation, quality and service, sustained R&D, and state-of-the art ISO 9001 and 14001
certified manufacturing facilities. It also has an FDA approved pharma grade resin facility. It
manufactures complete range of cation and anion resins for water and waste water treatment,
purification of bio-diesel, sugar, food and beverages & host of speciality applications –
pharmaceutical excipients, catalysts, nuclear grade resins, brine softening, heavy metal
removal and adsorbent grade resins. It provides resins for removal of colour, odour, organics,
nitrate, iron, fluoride, arsenic and tannin. It also develops tailor-made resins developed to suit a
specific application which has over 30 patents to their credit, over ten of these on ion exchange
resin products and processes.
Ion Exchange offers products under the registered trademark of INDION RESINS which include
the following
Indoion Resins Applications
Pharmaceuticals Ion Exchange is the first company in India to establish and promote use of Ion exchangeresins as pharmaceuticals excipients.
Bio-dieselINDION resins are an ideal solution for bio-diesel manufacturing and purification. Itremoves free fatty acid (0.5-1.0%).It also removes soaps, moisture and cationic impuritiesfrom raw bio-diesel when KOH is used as catalyst.
Chemical & specialprocesses
INDION resins are used in various process applications such as de-ashing, colour removal,de- acidification, declacification, of secondary brine etc.
SugarIEL offers INDION resins for decolourisation of sugar. Inversion of sucrose into glucose andfructose using INDION resins helps in reducing sugar consumption in the beveragesindustry for low calorie beverages.
Food & BeverageINDION resins are used for de-ashing and colour removal in gelatine, liquid glucose,sorbitol, dextrose and malto dextrine manufacture. INDION resins find application in theremoval of alkalinity from the wash water in the beverage industry.
Hydrometallurgy
IEL offers various grades of chelating resins, strong and weak acid cation exchange resinsfor removing or recovering metal ions. The chealting resins having aminophosphonic,iminodiacetate, thiol and thiouronium functional groups are used for removing specificions from a mixture of ions.
NuclearINDION nuclear grade resins have been developed after intensive research and haveexceptionally high bead strength, low levels of metal, chloride and organic impurities.These resins are used for a number of applications in the nuclear power industry.
Potable waterIEL manufactures a variety of high purity ion exchange resins designed for the purificationof potable water. The applications include softening, disinfection, removal of nitrate ,arsenic, fluoride and iron.
Industrial watertreatment
INDION ion exchange resins are used for conventional water treatment applications suchas sofening, deionisation and dealkalisation. Lower rinse volumes, high capacity, superiorlife pattern and proven track record make the INDION resins a preferred choice.
Initiating Coverage
Page | 23
Resins & Industrial chemicals both constitute 50% share of its overall chemicals segment
turnover. IEL has ~40% market share in the resins market manufactured by them.
• The Market for India water and waste treatment chemicals will expand leaps and bounds due to focus optimumutilization of water resources.
• The India Industrial water and waste water treatment chemicals market is expected to hit more than USD 500Mn by 2020.
• The global ion exchange resins market size is projected to grow at a CAGR of 5-6%.
• In Industrial application of water treatment The growing in the sector is attributed to the growingchemicals market ,29% of the revenue is investments of MNCs, urbanization and Governmentcontributed by corrosion & scale inhibitors on in sewage treatment plants. Chemicals business isaccount of its major application in all the industries. Chemicals business is expected to grow at an averageFlocculants and coagulants, biocides and rate of around 13-15% with a healthy bottom line.disinfectants, PH adjusters are the largest revenue Target industries include Oil & Gas, Power, Chemicals,contributor in the municipal water and waste water & Fertilizers ,F&B, Paper, Textile, Auto and Pharma.treatment chemicals market in India and areexpected to dominate sector.
Growth Potential
Market Potential
Chemicals IndustryOverviewIndustrial Application
Source: Company/Wallfort Research
Chemical Industry Growth
Its domestic sales for conventional resin have been steady whereas the sales of speciality
resins continue to show good growth and the upward trend has been seen since the past two
years. Number of new applications and customers in the speciality resin segment has provided
IEL with new avenues of growth in the coming years. Its resins for potable water treatment had
achieved higher sales in FY16 and the trend is expected to continue next year. Exports to USA
have increased substantially while exports to Europe and Far Asian markets have remained
steady.
Chemicals segment TurnoverFY16 – Rs.2977mn
Resins50%
Industrial chemicals50%
Initiating Coverage
Page | 24
IEL has successfully renewed the WHO-GMP certification for its Pharma facility at Ankleshwar. It
has also received US FDA nod for the manufacturing of resins for pharma industry in this facility.
IEL plans to tap the large potential markets in US and Europe for Drug Active resins which has
strong growth potential with very good margins.
Combination of subdued raw material prices, higher sales in anion and speciality resins and
controlled overheads saw significant improvement in profitability. Water treatment and
Industrial Chemical segment also achieved improvement in bottom line due to much higher
production of intermediates, sourcing of quality raw material at lower prices and controlled
overheads.
It has installed a Blending Facility in Bahrain to cater to its Customers in the Gulf Countries. In
the coming years it will be able to cater to the growing demand of this market and increase its
market share. Its business prospects of Specialty Chemicals and Resins are on strong footings
and are expected to grow by ~15-16% y-o-y with healthy net profit margins of ~15% p.a.
2325 2443 2838 2977 3423 3902 4410
9.1%9.9%
13.5%16.4% 16.0% 16.0% 16.0%
5%
16%
5%
15%
14%
13%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2012-13 2013-14 2014-15 2015-16 2016-17E 2017-18E 2018-19E
Chemical segment Turnover Rs. Mn
Chemicals % Margins % Growth
Source: Wallfort Research
Initiating Coverage
Page | 25
Water treatment Chemicals Industry
Water treatment chemicals are used for a wide range of industrial and in-process applications
such as reducing effluent toxicity, controlling Biological Oxygen Demand (BOD) & Chemical
Oxygen Demand (COD) and disinfecting water for potable purposes. In some developing
countries, chemical water purification is conducted at household level to provide safe drinking
water. In developed countries and urban centres of developing countries, this is generally done
at the municipal level by civic authorities or by water management organizations. Industrial
applications of water treatment chemicals largely entail waste water management, and
enhancing efficiency of industrial equipment by minimizing corrosive and other adverse impacts
of water. Based on their application and action, water chemicals are classified into coagulants,
flocculants, biocides, disinfectants, algaecides, defoamers, neutralizing agents, oxidants,
oxygen scavengers, pH adjusters, boiler water chemicals, resin cleaners and scale inhibitors. As
of FY15, the Indian water treatment chemicals market is estimated at $458mn. Coagulants and
flocculants form the largest segment with 38% market share followed by biocides and
disinfectants with 19% market share. Apart from use in potable water, the customer base is
widespread across diverse industries ranging from large power plants, refineries and fertilizer
factories to pharmaceuticals, food and beverages, electronic and automobile companies.
Coagulants &Flocculants, 38%
Biocides &disinfectants,
19%Defoamingagents, 7%
pH adjusters, 5%
Others, 31%
Water Chemicals products share (%,FY14)
Coagulants & Flocculants Biocides & disinfectants Defoaming agentspH adjusters Others
Source: Industry reports, Analysis by Tata Strategic
Initiating Coverage
Page | 26
Demand and Supply scenario
The Indian water treatment chemicals market grew at a CAGR of 12% between FY10 and FY15
to reach $458mn in 2015. The largest consumer of water (76% of the total water consumption
in India) has been irrigation. Industrial, household and other segments constitute 24% of the
total consumption. The market for water treatment chemicals is expected to grow at a CAGR of
13.8% to reach $874mn in FY20.
Source: Industry reports, Analysis by Tata Strategic
The global water treatment chemicals market was valued at US$16 853.5 million in 2015, and
it is expected to grow at a CAGR of 5.6% during 2016 - 2022. The major factors driving the
growth of the market globally include increasing demand for water and its treatment, and
stringent environmental regulations. In addition, the increasing concern of governments in
developing countries for providing safe drinking water to their citizens is expected to drive the
growth of the water treatment chemicals market.
The global waste water treatment chemicals market is segmented on the basis of type and
application. Coagulants & Flocculants has the largest market share in the type segment and
accounts for approximately more than 28% of the total volume. Increase in the municipal water
treatment activities in the primary water treatment is responsible for large market share of this
segment.
However, it is anticipated that corrosion & scale inhibitors market will grow at the highest CAGR
owing to its advantage of providing optimum efficiency in maintaining correct water conditions,
13.8%
Initiating Coverage
Page | 27
generally in case of cooling systems. Also, pH adjusters will likely grow due to its prevention
capabilities pertaining to wastewater bacteria. Oil and gas industry is the largest end user of
waste water treatment chemicals as large quantity of water is required in processing and
exploration of oil and gas.
In 2015, North America held the largest share in the global water treatment chemicals market
with 31.8% share. In 2015, Asia Pacific was the second largest market in the global water
treatment chemicals market, accounting for an approximately 29.2% share, which is expected
to account for the largest share in the global market by 2022, at 33.0%. The increasing level of
urbanization and rapid industrialization are some of the major growth driving forces in the Asia
Pacific water treatment chemicals market, particularly in countries, such as India and China.
China is the largest market for water treatment chemicals in the region; however, India is
expected to witness the highest growth in the near future. The rapid growth of the urban
population is creating pressure on the existing water infrastructure, which includes the delivery
of utility water and the removal and treatment of wastewater. To overcome this situation,
various governments in Asia are expected to increase their spending on irrigation and drinking
water schemes. Moreover, the economic growth along with industrialization has increased the
demand for water treatment chemicals.
Global wastewater treatment chemicals market share is comprised of Kemira, Kurita, BASF, Air
Products & Chemicals, Nalco-Ecolab, AkzoNobel, BWA Water Additives, Ion Exchange, Thermax,
Carus Corporation, Hydrite Chemical, The Dow Chemical Company, Lonza Group, and GE Water
& Process Technologies.
Ion Exchange Resins Market
Initiating Coverage
Page | 28
Source: Global Industry Analysts Inc.
Initiating Coverage
Page | 29
Consumer Products segment – lacklustre growth
IEL’s water and environment management solutions extend beyond the industrial sector to
homes, hotels, spas, educational institutions, hospitals, laboratories, realty sector and defence
establishments providing safe drinking water and a clean environment. It focuses on household
and point of use water purifiers and plans to increase its presence in the rural drinking water
treatment.
Apart from systems for specific medical, laboratory and hospital water applications, typical
requirements include:
Water for drinking and use in kitchens and canteens
Softened water for bathing and laundry
Management of heating and cooling water circuits with speciality chemical treatment
programmes
Swimming pool water filtration and disinfection
IEL is the pioneer of the revolutionary RO technology, in India. With its National & International
presence, Zero B has emerged as one of the premier brand of the company in this segment.
Zero B has pioneered many path-breaking innovations in the field of technology to provide a one
stop water treatment solution for home and the community.
878 865 832 871 904 940 978
3.1%
-0.3%-1.9%
-4.2% -4.0% -4.0% -4.0%
-1%
-4%
5%
4%
4%4%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
750
800
850
900
950
1000
2012-13 2013-14 2014-15 2015-16 2016-17E 2017-18E 2018-19E
Consumer segment Turnover Rs. Mn
Consumer Segment % Margins % Growth
Source: Wallfort Research
IEL’s consumer brand, Zero B, launched way back in 1986 won strong initial traction, but due to
intensive competition and aggressive investment from large national and multi-national players,
the consumer product has lost ground over the last few years. Going forward, focus will be on
expansion of ground water treatment solutions by tailoring products to meet the requirements
of specific markets.
Initiating Coverage
Page | 30
Industry Outlook
The current market size for water purification in India which is Rs.3400cr is expected to be
Rs.9000cr by 2019. The water purification which was looked as a niche segment is growing at a
rapid pace. Increasing awareness about water related diseases accompanied by awareness
towards the need for water purifiers in households as a ‘must-have’ appliance is driving the
industry’s growth in India today.
IEL – Business Strategy
Source: Company/Wallfort Research
Exports
In 1965, Ion Exchange pioneered the production of world class resins in India, and
simultaneously commenced the design, engineering and supply of water treatment plants to
India’s industrial sector. It has supplied more than 100,000 plants worldwide including over
1,000 major installations in the core sectors such as thermal and nuclear power stations, steel,
fertilizer and refineries, as well as diverse industries such as chemicals, automobile,
electronics, paper, food & beverage, pharmaceutical and textile.
In 1976, it set up its first international plant, through BHEL, at the Sultan Ismail Power Station
of the National Electricity Board in Malaysia. This was followed by exports to Russia and Africa in
the ‘80s. Since then, it has successfully executed a large number of projects globally with
stringent requirements of customers. Globally it has offices in Asia, Africa, North America and
other continents through its business associates. It is also working with leading EPC companies
and multinational customers in Japan, Europe, USA and Korea for export of its products and
projects.
Initiating Coverage
Page | 31
87% 83% 78% 80%
13% 17% 22% 20%
0%
20%
40%
60%
80%
100%
120%
2012-13 2013-14 2014-15 2015-16
Domestic v/s Exports
Domestic Exports
Source: Wallfort Research
FY16 export turnover of Rs.1750mn was marginally lower as compared to FY15, due to the
slowdown in Middle East as a result of which many project got deferred. The drop in oil prices
has affected IEL’s performance in many markets where it is operating. However, growth of resin
market in North America has substantially improved its export business. With increased
demand for water & wastewater management solutions in the international markets it is poised
to register strong growth in the export business.
Concerns
Working capital intensive model
Political risk across geographies
Subsidiaries performance is dependent on Infra spend and hence uneven from year to
year, impacting consolidated performance.
Initiating Coverage
Page | 32
Subsidiaries
Sr no Name Holding / Subsdiary % of shares held
1 Aqua Investments (India) Limited Subsdiary 99.42
2 Watercare Investments (India) Limited Subsdiary 99.43
3 Ion Exchange Enviro Farms Limited Subsdiary 79.6
4 Global Composities & Structurals Ltd Subsdiary 76.78
5 Ion Exchange Infrastructure Limited Subsdiary 76
6 Ion Exchange Projects & Engineering Ltd Subsdiary 100
7 Ion Exchange Purified Drinking Water Pvt. Ltd Subsdiary 100
8 Total Water Management Service (l) Limited Subsdiary 99.87
9 Ion Exchange Asia Pacific Pte. Ltd. Subsdiary 100
10 IEI Environment Management (M) Sdn. Bhd. Subsdiary 60
11 Ion Exchange Environment Management (BD) Limited Subsdiary 100
12 Ion Exchange LLC Subsdiary 100
13 Ion Exchange & Company LLC Subsdiary 51
14 Ion Exchange Asia Pacific (Thailand) Limited Subsdiary of Subsdiary 100
15 Ion Exchange WTS (Bangladesh) Limited Subsdiary 100
16 Ion Exchange Safic Pty.Ltd Subsdiary 60
17 Ion Exchange Waterleau Limited Associate 50
18 Astha Technical Services Limited Associate46.53(Includes holding through
subsdiary)19 Aquanomics Systems Limited Associate 48.42
20 Ion Exchange Financial Products Pvt. Ltd Associate24.02 (holding throughsubsdiary companies)
21 IEI Water - Tech (M) Sdn. Bhd. Associate30 (holding through subsdiary
company)
22 Ion Exhange PSS Co. Ltd Associate49 (holding through subsdiary
company)
Source: Company/Wallfort Research
Raw Material prices
Raw material price levels ruled high in the first half of FY15, but with crude oil prices easing
subsequently, input prices started softening, albeit with the customary lag.
470 449
547 530
298
193238 261
0
100
200
300
400
500
600
11-01-2013 11-01-2014 11-01-2015 11-01-2016
Benzene Price USD $ Spot
76.869.15
78.168.95
36.25
61.05
35.8543.05
0
10
20
30
40
50
60
70
80
90
11-01-2013 11-01-2014 11-01-2015 11-01-2016
Styrene Price USD $ Spot
Source: Bloomberg
Initiating Coverage
Page | 33
Financial Performance
Revenue performance expected to be strong going ahead
Negative growth in the engineering business had affected its topline growth in FY14 and FY15
which is expected to grow strong on the back of the Srilankan order. Its Chemical business has
maintained its growth momentum and is expected to deliver strong growth going ahead with the
USFDA resin drug approval. It consumer business will stay affected by massive competition
from global and domestic peers.
7930 8005 8694
10687
1351714480
341 466 558 768 996 1125-8%
2%
9%
23% 26%
7%
4.30%
5.82%
6.42% 7.18%
7.37%
7.77%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
2000
4000
6000
8000
10000
12000
14000
16000
FY14 FY15 FY16 FY17E FY18E FY19E
Net Sales & Ebidta Margins
Net Sales EBIDTA % Sales Growth EBIDTA Margin
Source: Wallfort Research
Operating margins to improve
The Srilankan order is expected to have better margins, which will improve its margins in the
engineering segment, whereas its chemical business has strong margins @15-16%p.a. Its
consumer business has not been a focus for the company & is expected to stay stagnant.
18.57%
24.68%27.79%
36.06%38.30%
35.56%
3.11%7.31%
9.92%14.95%
17.68% 17.34%
0%5%
10%15%20%25%30%35%40%45%
FY14 FY15 FY16 FY17E FY18E FY19E
ROCE & ROE
ROCE ROE
Source: Wallfort Research
Initiating Coverage
Page | 34
Return ratios to improve
The Srilankan order with improved margins & strong chemical business segment are expected
to improve its ROCE & ROE going ahead. It has a comfortable debt equity ratio which is a
positive for the company.
0.630.55 0.53
0.49 0.470.43
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
FY14 FY15 FY16 FY17E FY18E FY19E
Debt-Equity Ratio
Debt-Equity Ratio
Source: Wallfort Research
Peers
Peer Analysis CMPINR in Mn FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19EVa tech Wabag Ltd 552 - 25421 31650 37026 40606 - 8.7% 9.1% 9.5% 9.7% - 3.6% 4.5% 5.0% 5.2%Thermax Ltd 849 - 54253 51000 55830 65642 - 6.1% 7.2% 7.9% 8.3% - 5.1% 5.6% 6.1% 6.4%BASF (Germany)INR* 5475 5017006 4234661 4445804 4635180 4879939 14.9% 17.6% 17.8% 18.3% 19.4% 5.2% 7.5% 7.6% 8.1% 8.8%ION Exchange Ltd. 284 8005 8694 11093 13754 14615 5.8% 6.4% 7.2% 7.4% 7.8% 1.4% 1.9% 2.7% 2.9% 3.1%
Peer Analysis CMPINR in Mn FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19EVa tech Wabag Ltd 552 - 33.3 21.4 16.7 14.7 - 9.7% 14.4% 15.8% 14.2% - 16.6 25.7 33.1 37.7Thermax Ltd 849 - 35.4 33.7 28.3 22.8 - 12.2% 11.6% 12.6% 14.5% - 24.0 25.2 30.0 37.2BASF (Germany)INR* 5475 283.6 343.2 375.0 409.7 471.8 13.6% 13.5% 14.3% 15.2% 16.3% 19.30 15.95 14.60 13.36 11.60ION Exchange Ltd. 284 6.9 10.8 19.1 25.5 28.7 7.3% 9.9% 15.6% 17.9% 17.4% 37.54 24.12 13.58 12.14 10.45
(* F igures for Current Year(CY) i.e as on 31st December.)
Net Sales Op Margins NP Margins
EPS ROE PE
Source: Bloomberg
Initiating Coverage
Page | 35
ValuationIEL is strategically well positioned providing end-to-end water solutions to its customers, fromengineering equipments to water treatment resins and chemicals to consumer products. Theincreasing government regulations and focus on water and water management such as theSwachh Bharat Mission, the Clean Ganga initiative, the National Rural Drinking WaterProgramme, along-with stricter enforcement of the environmental norms for polluted waterdischarge, reduced carbon footprint, waste water treatment and requirement of zero liquiddischarge plants from various industries will also drive the demand for water and wastewatertreatment solutions. We Initiate Coverage with a BUY rating, with a price target of Rs.375based on its average PE of 15x FY18E EPS of Rs.25 per share.
Valuation
EPS FY18E 25
Target PE multiple 15
Target Price (Rs) 375
Current Stock Price (Rs.) 275
Upside/(Downside) 36%
Initiating Coverage
Page | 36
Income Statement (Consol idated) Rs . Mn Rat io Analys isDate End FY14 FY15 FY16 FY17E FY18E FY19E Category FY14 FY15 FY16 FY17E FY18E FY19ENet Sales 7930 8005 8694 10687 13517 14480% Sales Growth -8% 2% 9% 23% 26% 7% Margin Rat ioExpenditure 7589 7539 8137 9920 12521 13354 EBIDTA Margin 4.30% 5.82% 6.42% 7.18% 7.37% 7.77%EBIDTA 341 466 558 768 996 1125 Net Profit Margin 0.60% 1.43% 1.94% 2.67% 2.90% 3.07%% Growth -31% 37% 20% 38% 30% 13% Prof i tabi l i t y Rat iosDepreciation & amortisation 106 121 126 139 153 168 ROCE 18.57% 24.68% 27.79% 36.06% 38.30% 35.56%EBIT 235 345 432 629 844 957 ROE 3.11% 7.31% 9.92% 14.95% 17.68% 17.34%Other Income 48 43 65 77 95 101 DuPont Analys isInterest 136 150 149 115 129 139 PAT / PBT 0.32 0.48 0.49 0.48 0.48 0.48PBT before Excep. Item 147 238 348 590 809 919 PBT / EBIT 0.63 0.69 0.81 0.94 0.96 0.96Exceptional Items 0 0 0 0 0 0 EBIT / Net Sales 0.03 0.04 0.05 0.06 0.06 0.07PBT af ter Excep. Item 147 238 348 590 809 919 Net Sales / Total Assets 1.21 1.18 1.21 1.30 1.39 1.37Tax 100 124 179 305 418 475 Total Assets / Equity 4.31 4.36 4.21 4.31 4.41 4.12Prof i t Af ter Tax 47 114 169 286 391 445 ROE 3.11% 7.31% 9.92% 14.95% 17.68% 17.34%Adjus ted PAT af ter except ionali tems 47 114 169 286 391 445 Valuat ion Rat ios% Growth 141% 48% 69% 37% 14% EV/EBIDTA 12.85 9.15 7.62 5.60 5.07 4.15No of Equity Shares (in mn.) 14.10 14.09 14.19 14.19 14.19 14.19 EV/ Net Sales 0.55 0.53 0.49 0.40 0.37 0.32EPS 3.20 6.93 10.78 18.22 24.97 28.38 PE 29.68 37.54 24.12 14.27 12.41 10.57
Leverage Rat iosBalance Sheet Debt-Equity Ratio 0.63 0.55 0.53 0.48 0.47 0.43as at 31st March FY14 FY15 FY16 FY17E FY18E FY19E Turnover Rat iosShare Capital 141 141 142 142 142 142 Fixed Assts 3.85 3.78 3.63 4.05 4.66 4.54Reserves 1381 1419 1560 1768 2071 2423 Working Capital 9.23 11.21 11.81 12.72 11.32 11.26Networth 1522 1560 1702 1910 2213 2565 Inventory 10.51 10.09 10.68 10.00 10.00 10.00Minori ty In teres t 78 85 62 93 134 182 Total Assets 1.21 1.18 1.21 1.30 1.39 1.37Long Term debt 177 296 327 360 396 435 Liqu idi ty Rat iosShort Term debt 779 567 567 562 636 680 Current Ratio 1.07 1.09 1.11 1.11 1.14 1.19Total Loan 957 863 894 922 1032 1115 Interest Coverage 1.73 2.30 2.89 5.45 6.54 6.87Deferred Tax liability 68 47 44 44 44 44 Other Rat iosTotal Liab. 2625 2555 2703 2968 3424 3906 EPS 3.20 6.93 10.78 18.22 24.97 28.38
Book Value per share 107.97 110.71 119.91 134.54 155.92 180.70Gross Block 2058 2119 2397 2636 2900 3190 DPS 2.00 3.00 2.98 2.98 2.98 2.98Depreciation (1,122) (1,274) (1,367) (1,506) (1,659) (1,826)Net Block 936 845 1030 1130 1241 1364 Cash Flow (Rs mn .)Capital work-in-progress 12 144 21 21 21 21 Year FY14 FY15 FY16 FY17E FY18E FY19ETotal Fixed Assets 948 989 1050 1151 1262 1384 Profit before Work. Cap. 388 567 620 768 996 1125Inves tment 25 24 25 24 23 19 Change in working capital (217) (16) 22 (241) (354) (132)Inventory 755 793 814 1069 1352 1448 Less: Taxes (119) (97) (144) (245) (336) (382)Sundry Debtors 3676 3844 3893 4595 5650 6009 Cash f low f rom op. 52 453 498 281 306 612Cash & Bank Bal 238 262 334 315 383 702 Change in fixed assets (26) (164) (283) (240) (264) (290)Other Current assets 9 12 13 13 14 13 Change in investments 0 2 0 1 1 3Loan and Advances 902 877 1030 1069 1068 985 Other income 18 18 25 77 95 101Total Cu rren t Assets 5579 5787 6084 7061 8466 9156 Others (1) (30) 7Trade Payables 3154 3268 3313 4035 5017 5333 Cash f low f rom inv. (9) (174) (252) (162) (168) (185)Other Current Liability 561 692 811 834 825 753 Change in debt 99 (94) 31 28 110 83Provision 214 286 333 399 485 569 Dividend & dividend tax -33 -42 -64 -51 -51 -51Curren t Liabi l i t ies & Provis ions 3930 4246 4457 5268 6327 6654 Change in eq. & share prem. 3 2Net Cu rren t Assets 1649 1542 1627 1793 2139 2502 Interest paid (135) (150) (136) (115) (129) (139)Mis . expenses not wri t ten of f 0 0 0 0 0 0 Cash f low f rom f in . (66) (286) (167) (138) (70) (107)Total Net Assets 2623 2555 2702 2968 3424 3906 Change in cash & cash eq. (23) (6) 80 (20) 68 319
Opening cash and cash eq. 261 267 255 334 315 383Cl . cash and cash eq. 238 261 334 315 383 702
Initiating Coverage
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Wallfort Research is also available on Bloomberg <Code WFSR>
Disclaimer: Wallfort Financial Services Limited (hereinafter referred to as “WFSL”) is a registered Member of National Stock Exchange of India Limited,Bombay Stock Exchange Limited and MCX stock Exchange Limited. We have been granted certificate of Registration as a Research Analyst with SEBI.Registration no. is INH000001824 for the period 30.09.2015 to 29.09.2020 .WFSL or its associates including its relatives/analyst do not hold anyfinancial interest/beneficial ownership of more than 1% in the company covered by Analyst (in case any financial interest of more than 1% is heldkindly disclose) WFSL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelvemonths. WFSL/analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market makingactivity of the company covered by Analyst. The views expressed are based solely on information available publicly and believed to be true. Investorsare advised to independently evaluate the market conditions/risks involved before making any investment.
Disclosure: WFSL / its affiliates entities / employees may hold a position in the stock(s) recommended above. However, the purchase would havebeen made at least 30 days prior to release of the report, which is in compliance with the SEBI research regulations, 2014.