Sree Rayalaseema High-Strength Hypo Ltd.

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1 CMP `96.40 Recommended Price `85.00 Anticipated Price ` View 1 Year & Above Sree Rayalaseema Hi-Strength Hypo Ltd (SRHH), part of TGV Group is the only Indian manufacturer of Calcium Hypochlorite and one of the very few in the world. Company has been known for decades of dedicated research and development in water treatment and purification. Share Holding % Promoters FII 0.00 FI/MF/Insurance Co Bodies Corporate 0.00 Public & Others StockData Market Cap `141.87Cr 52 Week High/Low `103.0/`43.5 Sector Chemicals Bloomberg Code SRAY:IN Reuters Code SRHL:NS Bse Code Nse Code SRHHYPOLTD Outstanding Shares 1,47,16,689 Face Value `10 SRHH s principal business is manufacturing and sale of Industrial chemicals and generation and distribution of power. The company has presence in both domestic as well as international markets. SRHH s product basket includes Calcium Hypochlorite, Stable Bleaching Powder, Aluminium Sulphate, Monochloro Acetic Acid, Sulphuric Acid, Chlorosulphonic Acid, Hydrochloric Acid, Oleum and Hydrogen Gas. SRHH is engaged not only in the production of Inorganic Chemicals but in generation of power through wind and thermal sources as well. Company runs a 10 MW Thermal Power Plant in Gondiparla which is situated in Kurnool district in Andhra Pradesh while its Wind Mill Power units are situated in the state of Tamil Nadu. Chemicals business chip in the majority of revenues as the segment constitute about 84% of total revenues with the balance 16% is registered under its Power business. Calcium Hypochlorite is the major contributor to the total revenues with the product comprising about 51% of total revenues (FY15) which is followed by Stable Bleaching Powder, sales of which constitute 10% of total revenues (FY15). 1 P a g e

2 State-of-the-art sodium process technology developed through inhouse R&D efforts. A state-of-the-art sodium process technology developed through in-house R&D efforts has helped the company in manufacturing Calcium Hypochlorite with a chlorine content of 65% to 70%. SRHH produced Calcium Hypochlorite touches vital facets of human existence and is of proven importance in many areas of day-to-day activity. SRHH enjoys distinctive edge in manufacture of Calcium Hypochlorite. SRHH has a distinctive edge in the manufacture of Calcium Hypochlorite as it enjoys twin advantages of indigenous raw materials availability and supply of some specialized chemicals by its associate company, Sree Rayalaseema Alkalies and Allied Chemicals Ltd. Calcium Hypochlorite produced by the company is marketed under the brand Aquafit which is the preferred choice for swimming pools. Maintenance of swimming pools encounter problems like growth of bacteria, viruses and other microbes on the surfaces of the pools and its water is exposed to air which may cause infection and diseases to the swimmers. Swimming pools also require regular and effective treatment by disinfectants as the water in the pool get contaminated from oils, perfumes, urination etc. imparted into the water from body and hairs of the swimmers which make water unfit for further usage over a few cycles. Chlorine is a time tested and trusted sanitizer as it destroys microorganisms and protects swimmers from diseases. Aquafit is a dry form of Chlorine which is readily soluble in water and is free from any organic substances. Aquafit provides better protection for concrete, plaster pipes and other pool equipment. 2 P a g e

3 Aquafit, preferred choice for residential swimming pools. Aquafit is preferred choice for residential swimming pools as it acts a bactericide, germicide and algaecide and can be used for disinfecting and cleaning purposes. It is also a strong oxidizer and can easily destroy organic body oils and other organic debris if any present in the swimming pool water. Aquafit also suitable for Super Chlorination of commercial pool. Aquafit is also the most suitable, sanitizer and versatile for Super Chlorination (Shocking) of commercial pool water as it is unstabilized which induces rapid growth of residual chlorine level into water which is needed for super chlorination. For routine sanitization also, Aquafit, is used in all commercial pools with added safety by adding stabilizer separately to minimize the loss of chlorine due to exposure to sunlight almost by 50%. The second major product in its portfolio, Stable Bleaching Powder has valuable properties which make it applicable in various industrial and day-to-day activities. Company produced Stable Bleaching Powder is a strong bleaching agent which removes impurities and adds to luster to materials. It also acts as an anti-bacterial and anti-microbial agent. Sree Rayalaseema Stable Bleaching Powder (SRSBP) due to its multidimensional properties finds ready application in a range of industries like Textile where it is used in bleaching cotton, cotton yearn and hemp, Aquaculture where it is used for disinfecting seawater by chlorination, Paper industry where it is used for bleaching wood pulp and straw, Leather industry where it is used in curing raw hides and also for extra shine and in Sugar industry for disinfecting vessels. 3 P a g e

4 SRBSP find its application in swimming pools, for water purification & sewage treatment and also in hospitals, hotels and homes. SRSBP also has general uses as it finds its application in swimming pools as an disinfectant and clearing agent, apart from controlling algae. Company made bleaching powder is also used for water purification where it is used as a disinfectant and deodorizing agent to reduce B.O.D (Biological Oxygen Demand) concentration in water as also it finds its application in sewage treatment as it enables hazardous effluents such as Cyanide from escaping into atmosphere by forming compounds. Hospitals, hotels and even households use Stable Bleaching Powder for sterilizing linen and also for removal of stains. SRHH is front-ranking producer of Monochloro Acetic Acid through scientific crystallizer technology. Sree Rayalaseema Hi-Strength Hypo is a front-ranking producer of Monochloro Acetic Acid which it manufactures by the scientific crystallizer technology. Monochloro Acetic Acid produced by the company meets international quality standards and is used by all leading manufacturers of Non-Steroid Anti-Inflammatory Drugs, other pharmaceuticals, pesticides, organic chemicals, etc. Sulphuric Acid manufactured by SRHH is used in various industries like explosives, pharmaceuticals, steel, heavy chemicals, fertilizers among others. SRHH also manufactures Sulphuric acid which is used as dehydrating agent, a catalyst and an active reactant in chemical processes as a solvent and an absorbent. Sulphuric Acid has usage in multiple industries like dye intermediate, explosives, pharmaceuticals, steel, heavy chemicals and fertilizer industries. Sulphuric Acid after its initial use in some phases of the explosive, petroleum and dye-intermediate industries is recovered in a form often unsuitable for use in the same process, but of a strength and grade entirely suitable for use in other industries. 4 P a g e

5 SRHH is internationally recognized as the provider of unmatched quality products through its world class sodium process technology developed through the highly skilled in-house research and development team. Company exports across the globe with Europe being the biggest export market. Exports constituted about 45.3% of the company s total sales in FY15. During Q4 FY16, company registered 4.8% (YoY) growth in its Net Sales at `105.07cr while its Profits after Tax for the quarter under review surged 69.8% (YoY) to `8.50cr on the back of substantial reduction in finance cost. Ebitda margins in Q4 FY16 catapulted to 15.09% from 6.51% it recorded in Q4 FY15. For the financial year ending 31 st March 2016, company s total operating income stood at ` while it registered consolidated Net Profits of `25.05cr with an Ebitda margin of 11.6%. Consolidated Profits includes company s share of profits in its associate company Sree Rayalaseema Alkalies & Allied Chemicals Ltd where it owns 24.79%. 5 P a g e

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7 FINANCIAL SUMMARY: P&L STANDALONE Y/E MARCH (`CR) PARTICULARS Q4 16 Q3 16 Q4 15 FY 16 FY 15 Net Sales Other Operating Income Total Income Total Expenditure EBIDTA Depreciation Other Income EBIT Finance Cost PBT before exceptional items Exceptional (income)/expense (4.68) 1.33 (6.58) PBT Tax Reported Profit After Tax Minority Interest After NP Profit/Loss of Associate Company Net Profit after Minority Interest & P/L Asso.Co Extra-ordinary Items Adjusted Profit After Extra-ordinary item EQUITY Earnings Per Share Source: Company. 7 P a g e

8 FINANCIAL SUMMARY P&L CONSOLIDATED Y/E MARCH (`CR) PARTICULARS FY14 FY 15 FY16 FY17E Net Sales Other Operating Income Total Income Total Expenditure EBIDTA Depreciation Other Income EBIT Finance Cost PBT before exceptional items Exceptional (income)/expense 3.02 (6.58) PBT Tax Reported Profit After Tax Share of Profit/Loss of Associate Company Minority Interest After NP Net Profit after Minority Interest & P/L Asso.Co Extra-ordinary Items Adjusted Profit After Extra-ordinary item EQUITY Earnings Per Share Source: Company. 8 P a g e

9 BALANCE SHEET CONSOLIDATED Y/E MARCH (`CR) PARTICULARS As at 31-Mar-16 As at 31-Mar-15 Equity and Liabilities: SHAREHOLDER'S FUNDS Share Capital Reserves & Surplus MINORITY INTEREST - - NON-CURRENT LIABILITIES Long Term Borrowings Deferred Tax Liabilities (Net) Other Long Term Liabilities Long Term Provisions CURRENT LIABILITIES Short Term Borrowings Trade Payables Other Current Liabilities Short Term Provisions TOTAL ASSETS NON-CURRENT ASSETS Fixed Assets Non - Current Investments Deferred Tax Assets (Net) - - Long Term Loans and Advances Other Non-Current Assets CURRENT ASSETS Current Investments - - Inventories Trade Receivables Cash and Cash Equivalents Short Term Loans and Advances Other Current Assets TOTAL Source: Company. 9 P a g e

10 Investment Rationale: Sree Rayalaseema Hi-Strength Hypo is amongst the very few companies in the world and the only Indian company manufacturing Calcium Hypochlorite. Promoters have vast experience in the field and at the same time company is professionally managed. Business outlook seems to be stronger going forward as the Central government as well as the state governments like Andhra Pradesh, Telangana, etc. are giving lot of thrust on recycling and conservation of water. Currently, company is into non-potable segment but going forward it plans to enter potable segment (like ponds, reservoirs, lakes, etc.). SRHH enjoys virtual monopolistic in the business of Calcium Hypochlorite and due to the potential future growth prospects company might get re-rated going forward. At current market price of `96.40, shares of SRHH are trading at price to equity of 4.18x its FY17(E) consolidated earnings per share of `23.06 and at a PE ratio of 5.66x its trailing twelve months consolidated EPS of ` This report is for educational and knowledge purpose. 10 P a g e

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