ENGLISH INDIAN CLAYS LIMITED Industry: Commodity Chemicals/Diversified BSE Scrip Code:

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1 CARE Independent Equity Research ENGLISH INDIAN CLAYS LIMITED Industry: Commodity Chemicals/Diversified BSE Scrip Code: ENGLISH INDIAN CLAYS LTD. CMP Rs st November 2011 Update for Quarter ended 30 th September, 2011 Moderate top line growth English Indian Clays Limited (EICL) reported a top-line growth of 7.8 per cent y-o-y during the second quarter ended 30 th September 2011 (Q2 FY12) to Rs crore compared with Rs crore in Q2FY11. EBITDA and EBITDA margins witness drop EBITDA margins for Q2FY12 dropped by 587 bps year-on-year to per cent given the rise in raw materials and power and fuel costs for the quarter. Both the segments witnessed a decline in profitability in the quarter. Net Profit margin dip With decline in operating margins, EICL s net profit too dipped from 9.2 per cent in Q2FY11 to 4.5 per cent in Q2FY12. Diluted EPS for the quarter too decreased 53 per cent y-o-y to Rs.0.68 compared with Rs.1.45 in the same period last year. Valuations EICL is currently trading at trailing P/E and EV/EBITDA multiples of 6.4x and 4.4x, respectively. Quarterly Performance Snapshot (Rs Crore) Q2FY12 Q2FY11 Growth Net operating income % Total Income % EBITDA % EBITDA Margin 15.3% 21.1% -587 bps PAT % PAT Margins 4.5% 9.2% -473 bps Fully Diluted EPS* (Rs.) % * Calculated on Current Face Value of Rs.10/- per share 1

2 ENGLISH INDIAN CLAYS LTD. CARE INTERIM FINANCIAL PERFORMANCE ANALYSIS Moderate growth in revenue EICL witnessed a moderate growth in revenues in Q2FY12 compared to Q2FY11. The company reported revenues of Rs.97.3 crore up 7.8 per cent. Revenue of the allied products segment witnessed higher growth, while revenue of the clay segment (which formed 52 per cent share in EICL s revenues in Q2FY12) grew at a relatively lower pace. The allied product primarily consists of the corn starch segment. The company had recently commenced the commercial production of the starch division at their Shimoga plant on 27th June 2011, which supported the revenue growth of this segment in Q2FY12. EICL: Snapshot of Interim Financial Performance (Rs Crore) Q2FY12 Q2FY11 Growth Net operating income % EBITDA % PAT % EBITDA margins 15.3% 21.1% -587 bps Net margins 4.5% 9.2% -473 bps EPS (diluted) % Source: Company and CARE Equity Research EBITDA declines; operating margin subsequently drop by around 5.9 percentage points EICL witnessed an EBITDA drop of 22 per cent y-o-y, from Rs.19.1 crore in Q2FY11 to Rs crore in Q2FY12. The company witnessed increase primarily in raw materials and power & fuel expenses. The raw materials expenses witnessed an increase of around 19.6 per cent, while power and fuel cost increased by 13.5 per cent. While both segments witnessed a drop in the profitability, with the commencement of the new starch manufacturing facility at Shimoga, the allied products division reported higher depreciation cost in the quarter, leading to a steeper drop in PBIT for the division. 2

3 CARE ENGLISH INDIAN CLAYS LTD. EICL: Segmental Performance (Rs Crore) Q2FY12 Q2FY11 Growth Net Sales % Clay products % Starch and allied products % PBIT % Clay products % Starch and allied products % Source: Company and CARE Equity Research Significant drop in net profits EICL s net profits for the quarter Q2FY12 dropped by 47.5 per cent, y-o-y. The net margins too subsequently dropped from 9.2 per cent in Q2FY11 to 4.5 per cent in Q1FY12. The higher drop in net margins was primarily on account of increase in interest expenses. The interest expenses for the quarter stood at Rs.4.99 crore as against Rs.3.36 crore in Q2FY

4 ENGLISH INDIAN CLAYS LTD. CARE INTERIM Source: Company FINANCIAL and CARE SUMMARY Research (Rs Crores) Q2FY12 Q2FY11 Growth H1FY12 H1FY11 Growth Net operating income % % EBITDA % % Depreciation and amortisation % % EBIT % % Interest and financial expenses % % PBT % % PAT % % EPS (diluted) (Rs.) % % Ratios Q2 FY12 Q2 FY11 Growth H1FY12 H1FY11 Growth EBITDA margin 15.25% 21.12% -587 bps 17.53% 20.69% -316 bps PAT margin 4.48% 9.21% -473 bps 6.55% 9.34% -279 bps Source: Company and CARE Equity Research 4

5 CARE ENGLISH INDIAN CLAYS LTD. DISCLAIMER 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 Bombay Stock Exchange (BSE). DISCLAIMER This BSE-sponsored report is prepared by CARE Research, a division of Credit Analysis & REsearch Limited [CARE]. CARE Research 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. CARE Research operates independently of the ratings division and this report does not contain any confidential information obtained by the ratings division, which it may have obtained in the regular course of operations. 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 Credit Analysis & REsearch Ltd., 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road, Sion East, Mumbai CARE Research is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this product. This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or manner without prior written permission of CARE Research. 5

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