Signet Industries Ltd BSE Scrip Code:

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1 Signet Industries Ltd BSE Scrip Code: Comm. Trading & Distribution September 21, 2012 Equity Statistics Current Market Price Rs. 52 Week High / Low Rs. Market Capitalisation Rs. crores Free Float Rs. crores Dividend Yield % One Year Regression Beta Times BSE Volumes Trend - Average = 5 Thousand in '000s / Business Summary Signet Industries Ltd. (Signet) is into manufacturing of polymers and trading of chemicals. The company is also engaged in distribution and trading of polyvinyl chloride (PVC) and polyethylene terephthalate (PET) resins; polyolefins, such as high-density polyethylene (HDPE), low-density polyethylene (LDPE), linear low density polyethylene (LLDPE), and polypropylene (PP). In addition, it manufactures micro irrigation systems; HDPE sprinkler pipes, HDPE pipes, and cable ducts; PVC pipes and fittings; spray etc. Furthermore, it operates wind turbine power units. Signet has it s headquarter in Indore. In FY12, Signet reported net sales of Rs crore and net profit of Rs.3.93 crore. The company caters only to the domestic market. Signet is currently trading 13.7 times FY12 adjusted book value. Relative Returns Sensex Signet Returns (%) 1M 3M 6M Since listing Absolute 5% 40% 77% 70% Relative to Sensex 2% 30% 69% 58% Shareholding Pattern 100% 50% 0% Sep `11 Dec `11 Mar `12 Jun `12 Board of Directors Person Role Qualification Mukesh Sangla MD NA Saurabh Sangla Director NA Dipak Kalani Director FCA Deepak Mehta Director FCA Murli Dhar Vashist Director FCA Source: AR and CARE Research Note: MD: Managing Director DII FII Others Promoter 1 Initiative of the BSE Investors Protection Fund

2 Background Formed in 1984, Signet commenced business in 1992 as a distributor of polypropylene (PP) for DCW Ltd (DCW) in Madhya Pradesh. Subsequently, it started the distributorship for other companies, including Haldia Petrochemicals Ltd, Indian Oil Corporation Ltd, API Industrial Corporation Ltd, and South Asian Petro Chemicals Ltd. Currently, Signet operates in three lines of business: distributorship, merchant trading of imported chemicals and manufacture of plastic-moulded products. It has also installed windmills with total capacity of 1.4 megawatts (MW). Business overview Signet derives revenue from four segments: distribution, irrigation sector, other manufacturing sector and wind energy with around 75% of its income being derived from the distribution segment. Signet caters only to the domestic market. Strengths and growth drivers Signet s operations derive strength from its established presence in the petrochemical and polymer trading industry, longstanding relationships with suppliers and enhanced dealer network. Risk and concerns High volatility in petrochemical and polymer prices and foreign exchange (forex) rates can have a negative effect on profitability for Signet. Future strategy and expansion plans The company has set up 7 lines of drip irrigation system with a capacity to manufacture 6,00,000 meters drip irrigation pipes per day. The company has also set up many injection moulding machines for in-house manufacturing of fittings and accessories. The company is in the process of manufacturing various out-sourced items like bends, valves & PVC agro fittings. This will help in reducing cost. Considering the healthy demand of drip irrigation systems in various states and the healthy order book of the company, Signet has planned to set up an additional drip line at its existing plant at Pithampur (Indore). Industry outlook The Indian plastic industry is expected to grow at a significant pace in the next 3 to 5 years due to capacity expansion of the existing petrochemical complexes. Plastics have helped to reduce the burden on natural resources, by replacing materials like wood, paper, metal, glass and carbon. India s consumption of plastics is expected to grow from the current 0.75 crore tons to 1.5 crore tons by 2015 and is set to be the third-largest consumer of plastics in the world. 2 Initiative of the BSE Investors Protection Fund

3 Peer comparison Year ended March 31, 2012 Income statement (Rs. crore) Signet Ester Kanpur Glory Total income Net sales EBITDA Ordinary PAT 3.9 (13.9) 10.4 (19.8) Adjusted PAT 3.9 (13.8) 10.4 (19.7) Per share data (Rs.) Adjusted BVPS Diluted EPS* Growth (Y-o-Y) (%) Growth in Total income (28.3) Growth in Net sales (25.5) Growth in EBITDA 46.5 NM NM Growth in Adjusted PAT NM NM NM Growth in EPS NM NM NM Profitability ratio (%) EBITDA margin Adjusted PAT margin 0.7 NM 5.6 NM Valuation ratios (Times) Price/EPS (P/E) NM 7.8 NM Price/Book value (P/BV) Enterprise value (EV)/EBITDA Note: Ester: Ester Industries Ltd; Kanpur: Kanpur Plastipack Ltd; Glory: Glory Polyfilms Ltd. NM: Non Meaningful Quarterly financials Quarter ended June 30, 2012 Income statement (Rs. crore) Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 Total income Net sales EBITDA Ordinary PAT (7.2) Adjusted PAT (7.2) Growth (Q-o-Q) (%) Growth in net sales NM Profitability ratio (%) EBITDA margin Adjusted PAT margin NM Initiative of the BSE Investors Protection Fund

4 Financial analysis In FY12, Signet reported net sales of Rs crore up 18.5% y-o-y. Total income witnessed a growth of 12.79% during the same period. Raw materials form the largest portion of cost for Signet. In FY12, raw materials cost as a percentage of net sales was at around 87%. The company reported EBITDA margins and adjusted PAT margins of 6.4% and 0.7%, respectively in FY12. Signet had high levels of leverage as on March 31, The total debt as on March 31, 2012 was at Rs crore compared to an adjusted net-worth of Rs.40 crore. The company has paid a dividend of Re.0.5 per share for FY12, resulting in a dividend yield of 0.3% at the current market price of Rs per share. Annual financial statistics FY08 FY09 FY10 FY11 FY12 Income statement (Rs. crore) Total income Net sales EBITDA Depreciation and amortisation EBIT Interest PBT Ordinary PAT Adjusted PAT Balance sheet (Rs. crore) Adjusted networth Total debt Cash and bank Investments Net fixed assets (incl. CWIP) Net current assets (excl. cash, cash equivalents) Per share data (Rs.) Adjusted BVPS Diluted EPS DPS Growth (Y-o-Y) (%) Growth in total income Growth in net sales Growth in EBITDA Growth in adjusted PAT (20.2) (32.9) Growth in EPS (25.9) 88.6 (92.5) (100.0) Key financial ratio EBITDA margin (%) Adjusted PAT margin (%) RoCE (%) RoE (%) Gross debt - equity (times) Net debt - equity (times) Interest coverage (times) Current ratio (times) Inventory days Receivable days Financial Year (FY) refers to period from April, 1 to March, 31 NM: Not Meaningful; NA: Not Available 4 Initiative of the BSE Investors Protection Fund

5 DISCLOSURES Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. This report has been sponsored by the BSE Investors Protection Fund. DISCLAIMER CARE Research, a division of Credit Analysis & REsearch Limited [CARE] has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of information contained in this report is guaranteed. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report can be construed as either investment or any other advice or any solicitation, whatsoever. The subscriber / user assumes the entire risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or employees do not have any financial liabilities whatsoever to the subscribers / users of this report. This report is for personal information only of the authorised recipient in India only. This report or part of it should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied for any purpose. PUBLISHED BY CARE Research is an independent research division of CARE Ratings, a full-service rating company. CARE Research is involved in preparing detailed industry research reports with 5-year demand and 2-year profitability outlook on the industry besides providing comprehensive trend analysis and the current state of the industry. CARE Research also offers research that is customized to client requirements. Credit Analysis & REsearch Ltd. (CARE) is a full service rating company that offers a wide range of rating and grading services across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international practices. Head Office: 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai Tel: Fax: Regional Offices: New Delhi Kolkata Ahmedabad Bangalore Hyderabad Chennai Pune Published on behalf of The Stock Exchange Investors' Protection Fund First Floor, P J Towers, Dalal Street, Mumbai. Tel: /34