Report By: Surbhi Bagaria Page 1. Source: Company,

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1 Report By: Surbhi Bagaria Page 1

2 DCM Shriram Ltd- Present in all the top performing sectors Company Overview and Stock Price 3 Products 4 Company Financials 6 Shareholding Pattern 11 Industry Overview 12 Investment Rationale 14 Page 2

3 Company s Overview and Stock Price DCM Shriram Ltd. is a leading business conglomerate with a group turnover of Rs. 6,050 crores. The business portfolio of DCM Shriram comprises primarily of two types of businesses. Agri-Rural Business: Urea & SSP fertilizers, Sugar, Farm inputs marketing such as DAP, Crop care Chemicals, Hybrid Seeds Chlor-Vinyl Business: Caustic Soda, Chlorine, Calcium Carbide, PVC resins, PVC Compounds, Power and Cement. Also it has a value added business Fenesta Building Systems. DCM Shriram has been working in the agriculture sector with a vision to increase productivity and profitability of the farmers through its various businesses: Farm Solutions, Bioseed (Hybrid Seeds), DSCL Sugar. DCM Shriram aims to achieve its vision by adding value to farmers through its large farm extension programmes and last mile delivery activities. Fenesta UPVC windows is a customer focused brand of DCM Shriram, where the customer is assured of design support, offsite fabrication, firm commitments on deliveries and a trained installation team, to ensure consistent quality. The company is in the process of scaling up these operations and believes that these businesses would be its growth drivers in future. Chart Hypothesis: DCM gave more almost 10 % correction from recent high of 245 to 210. DCM Shriram Share Price Performance EXCHANGE SYMBOL DCM SHRIRAM Current Price * (Rs.) 223 Face Value (Rs.) (08-Aug- 52 Week High (Rs.) 16) (18-Sep- 52 Week Low (Rs.) 15) (01-Oct- Life Time high (Rs.) 14) Life Time low (Rs.) 2.15 (29-Apr-99) Average Daily Movement [ADM] Average Volume [20 days] Month Return (%) 3.14 P/E Ratio (x) Book Value Market Cap (Cr) % of Promoter holding pledged 0 COMPANY PROFILE OF DCM Shriram Date of Incorporation 06-Feb-1989 Date of Listing Name Vikramajit Sen Pravesh Sharma Ajay S Shriram Ajit S Shriram Sharad Shrivastva Vimal Bhandari Sunil Kant Munjal Ramni Nirula Pradeep Dinodia Vikram S Shriram K K Kaul N J Singh Management Designation 26-Apr-1995 Addnl.Independent Director Addnl.Independent Director Chairman & Sr.Mng.Director Joint MD Nominee Director Non ED Non ED Non ED Non ED Registered Office Address Vice Chairman & MD Whole Time Director Whole Time Director 1st Floor, Kanchenjunga Building,18, Barakhamba Road,110001,New Delhi,Delhi,India Website Page 3

4 Products: Agri-Rural Business UREA Urea brand, SHRIRAM' has developed a strong presence in the rural market over the last 4 decades of operations, and today it symbolises premium quality, reliability and trust. It is manufactured at Urea plant in Kota that has a production capacity of 379,500 TPA SUGAR DCM employs approximately 1.5 lakh farmers and has an installed capacity of 33,000 TCD, crushing around 4 million tons of cane from four manufacturing units. DSCL Sugar, entered the sugar business in 1997 with its first sugar manufacturing unit at Ajbapur in Lakhimpur Kheri District, followed by other manufacturing units at Rupapur, Hariawan and Loni, in Hardoi District of Uttar Pradesh. FARM SOLUTIONS At DCM Shriram, motto is not just to offer a range of quality inputs in agri-business, but provide complete productivity solutions. With this inspiration, Shriram Farm Solutions has been serving farmers for over four decades through an extensive network of around 3000 channel partners and retailers. Its value added product portfolio includes: Nutrition Solutions, including bulk fertilizers like Urea, DAP, MOP and SSP that ensure balanced and adequate nutrition to plants for robust growth and development. Improved Seeds, Open Pollinated Seeds, Research Wheat, Crop Care Chemicals and Yield Enhancement Solutions. HYBRID SEEDS BIOSEED DCM took over Bioseed in Bioseed had operations in India, Vietnam, Philippines and has since expanded to Indonesia, Bangladesh and Nepal. It s end-to-end expertise across R&D, field and lab testing, data analytics, seed production, farm extension and a strong distribution network, enables DCM to provide quality seeds to farmers across South and South East Asia. The rich germplasm and cutting edge biotechnology research allows Bioseed to develop unique solutions that benefit farmers in several countries with similar climatic conditions. Page 4

5 Hariyali Kisaan Bazaar Hariyali Bazaar is presently engaged in Fuel (petrol, diesel, LPG etc) retailing activities at 37 outlets in 6 states. Chlor-Vinyl Business If the wealth of a nation is determined by its industries, the health of its industries is dependent on the various raw materials that are used in the manufacture of different products. At DCM Shriram, they provide a lifeline for the country s industrial economy with a wide portfolio of basic chemicals and raw materials, such as,, Caustic Soda, Chlorine, PVC Compounds, PVC Resin, Cement, Calcium Carbide, among others. CHLOR ALKALI At DCM Shriram, they manufacture products that contribute to the competitiveness of India's industrial economy. CALCIUM CARBIDE Wide portfolio of PVC products play an important role in improving the performance of a broad range of industries. PVC RESINS Product portfolio includes multiple grades of PVC resins to the tune of 70,000 TPA produced at the integrated manufacturing complex in Kota. PVC COMPOUNDS At DCM Shriram they understand that industries need customized solutions for various specific segments. They have therefore formed a Joint Venture CEMENT Shriram Cement is a unit of DCM Shriram Ltd. Shriram Cement has carved a niche for itself in the cement industry with market-leading products. Page 5

6 Company Financials Consolidated Income Statement (in Cr) June-16 Mar-16 % Growth Net Sales/Income from operations 1, , Other Operating Income Total Income From Operations 1, , % Increase/Decrease in Stocks Consumption of Raw Materials Purchase of Traded Goods Power And Fuel Employees Cost Depreciation Other Expenses Total Expenditure 1, , % Operating Profit % Other Income % P/L Before Int., Excpt. Items & Tax Interest P/L Before Exceptional Items & Tax P/L Before Tax Tax P/L After Tax from Ordinary Activities PAT % Minority Interest Share Of P/L Of Associates Net Profit/(Loss) For the Period % Equity Share Capital EPS (Rs.) % The top line revenue of the company is increasing QoQ by 8% The operating profit increased % QoQ. The net profit of the company has increased 226% QoQ. Page 6

7 Balance Sheet (in Cr) Mar-16 Mar-15 % Growth Equity Share Capital Total Share Capital Reserves and Surplus 2, , % Total Reserves and Surplus 2, , % Total Shareholders Funds 2, , % Minority Interest Long Term Borrowings % Deferred Tax Liabilities [Net] % Other Long Term Liabilities % Long Term Provisions % Total Non-Current Liabilities % Short Term Borrowings % Trade Payables 1, , % Other Current Liabilities % Short Term Provisions % Total Current Liabilities 2, , % Total Capital And Liabilities 5, , % Tangible Assets 1, , % Intangible Assets % Capital Work-In-Progress Intangible Assets Under Development Other Assets Fixed Assets 1, , % Non-Current Investments % Long Term Loans And Advances % Other Non-Current Assets % Total Non-Current Assets 2, , % Inventories 1, , % Trade Receivables 1, , % Cash And Cash Equivalents % Short Term Loans And Advances % Other Current Assets % Total Current Assets 3, , % Total Assets 5, , %. The company has increased its long term assets in FY 16 in comparison to FY 15. The company is decreasing its liabilities every year. The company is decreasing its long term borrowings. Page 7

8 Cash Flows (in Cr) Mar-16 Mar 15 % Growth Net Profit/Loss Before Extraordinary Items And Tax % Net Cash Flow From Operating Activities % Net Cash Used In Investing Activities % Net Cash Used From Financing Activities % Net Inc/Dec In Cash And Cash Equivalents % Cash And Cash Equivalents Begin of Year % Cash And Cash Equivalents End Of Year % The cash from Operating activities has increased by 60% in FY 16compared to FY 15 The cash from Investing activities is negative as the Company is in expansion mode and has invested in machineries Comfortable financials with healthy cash flows and good credit track record provides ability to continuously invest in growth. Revenue by Product Mar 15 Mar 16 Revenue 56, ,947.7 Farm Solutions 14, ,978.0 Chloro-Vinyl 13, ,440.3 Sugar 10, ,427.8 Others-Textile 2, ,510.4 Fertilizer 7, ,939.8 Bioseed 3, ,213.3 Reconciliation (243.1) (653.4) Inter segment revenue (2,197.8) (1,908.5) Hariyali Kisaan Bazaar 4,648.2 Cement 1,554.2 Page 8

9 Ratios Ratios Mar-16 Mar-15 % Growth Per Share Ratios Basic EPS (Rs.) % Book Value [InclRevalReserve]/Share (Rs.) % Dividend / Share(Rs.) % Revenue from Operations/Share (Rs.) % PBDIT/Share (Rs.) % PBIT/Share (Rs.) % PBT/Share (Rs.) % Net Profit/Share (Rs.) % Profitability Ratios PBIT Margin (%) % Net Profit Margin (%) % Return on Networth / Equity (%) % Return on Capital Employed (%) % Return on Assets (%) % Total Debt/Equity (X) % Asset Turnover Ratio (%) % Liquidity Ratios Current Ratio (X) % Quick Ratio (X) % Inventory Turnover Ratio (X) % Dividend Payout Ratio (NP) (%) % Valuation Ratios Enterprise Value (Cr.) 3, , % Price/BV (X) % The Net profit Margin of the company is increasing. Return on Equity ratio of the company is increasing every year. Debt to Equity ratio has gone up by 35% indicating that the company has increased its Debt YoY. Page 9

10 Key Financials Mar 15 Mar 16 Total Revenue 56, ,947.7 Growth Over Prior Year (9.0%) 3.4% EBITDA 4, ,916.0 Margin % 7.3% 8.5% EBIT 2, ,929.6 Margin % 5.3% 6.8% Net Income 2, ,972.2 Margin % 3.8% 5.1% Diluted EPS Excl. Extra Items Growth Over Prior Year (11.2%) 41.1% WACC Mar 15 Mar 16 Equity Cost of Equity 10.9% 12.3% Weight of Equity 69.7% 67.9% Debt Cost of Debt 9.9% 8.2% Weight of Debt 30.3% 32.1% WACC 10.6% 11.0% Page 10

11 Share Holding Pattern Shareholding Pattern Mar 16 Dec 15 Sep 15 Jun 15 Mar - 15 Promoter and Promoter Group (%) Indian Foreign NIL NIL NIL NIL NIL Institutions (%) FII DII NonInstitutions (%) Bodies Corporate NIL NIL NIL Others Custodians NIL NIL Total no. of shares (cr.) Product Name Sales % of Sales Value to Total Sales Sugar Urea Caustic Soda PVC Resins Super Phosphate Petrol UPVC Windows Di Ammonium Phosphate (DAP) Cement Mop (Muriate Of Potash) Other Sales Page 11

12 Industry Overview Chloro Vinyl Businesses: The Chloro-Vinyl business earnings benefited from higher Chlor- Alkali revenue and lower cost of key input materials such as salt, limestone and carbon material. However, higher power cost at the Kota facility driven by various duties and levies on Coal and power generation by central and state government, moderated the earnings growth during the period Chlor-Alkali: The Chlor-Alkali industry in India has 35 operating units with a combined installed capacity of 3.5 million TPA of Caustic Soda. The top three players comprise about 45% of the total installed capacity. The domestic demand for Caustic Soda and Chlorine in is estimated at about 3.4 million TPA and 2.7 million TPA respectively. The growth in demand for Caustic soda and Chlorine is linked to GDP growth Plastics: India s PVC resin industry s capacity currently stands at around 1.4 million Metric Ton per annum (MTPA). As against this, domestic demand has been growing steadily and has reached 2.7 MTPA in FY 16, up 10% over last year. The gap in demand and supply is being met by the import of PVC resin in India. The continued focus of the Govt. on building infrastructure as envisaged in the 12th Five Year Plan development of smart cities, rural housing and Agri-asset creation, rapid urbanization and other initiatives like investments in rural sanitation is expected to fuel growth of the PVC industry in India over the next few years. For Calcium Carbide, continuous increase in usage of desulphurization (DS) Compound in the Steel Industry remains the key growth driver. Sugar The Indian Sugar Industry is the second largest producer after Brazil and the largest consumer of sugar in the world. In domestic context, sugar is the second largest agro-based industry supporting over 50 million farmers along with indirect employment to rural population. It is estimated that about 7.5% of the rural population in India is involved with the sugar industry. Indian Sugar Industry is highly fragmented with private sector, Government undertakings, Cooperatives, and unorganized players. Unorganized players are mainly involved in production of Gur and Khandsari, the less refined form of sugar. The crushing period varies from region to region Page 12

13 beginning in October/ November and goes on till April/ May in all states except in southern states like Tamil Nadu, Andhra Pradesh where it continues till July/ August. Globally, sugar prices are trading at almost 3 years high levels, which is a big respite for the entire industry. For the last 5 years high levels of inventory in the market led to lower sugar prices that adversely affected the financial viability of the sugar companies. The recovery in sugar prices is in anticipation of expected global deficit of 4-5 million Ton in season, a result of lower production in India, Thailand, north east Brazil and European Union sugar season is also expected to be sugar deficit season and cane production in Brazil and its diversion for sugar or ethanol production will be key factors impacting overall deficit in Domestically sugar season witnessed huge volatility wherein sugar prices revived to around Rs 3,400/Qtl levels after touching 5 year low of 2200/ Qtl. This has been possible with the Central Govt s exports push policy that enabled exports of about 1.5 million Ton of sugar in Sugar Season and decline in sugar production to just over 25 million Ton from 28.3 million Ton in last season. The majority of the decline in India production was driven by 20% fall in production to 8.4 million MT in Maharashtra due to draught during the year Shriram Farm Solutions turned out to be another challenging year for the domestic Agri-inputs sector as distressed farmer economics, deficient South West monsoons and delayed start to the 2015 Rabi season adversely impacted off take of Agri-inputs in India. In 2015, the southwest monsoons stood 14% deficient vis-a-vis the long term period average. In 2014 as well there was a deficit of 12% in the Southwest monsoons. Kharif 2015 witnessed change in sowing patterns as well reflected by the shift towards crops such as pulses and oil seeds. Late harvesting of Kharif crops and low reservoir levels led to delayed sowing in the Rabi season, which also impacted the sales volumes of Agri-inputs during the year. As per Indian Meteorological Department, 2016 Southwest monsoons are expected to be above average on expected easing out of the El-Nino phenomenon. This is expected to lift sentiment and provide fillip to the demand for fertilizers and other Agri-inputs such as crop care chemicals, seeds and micro-nutrients. However, weak farmer economics can weigh down to a certain extent on the positive impact of anticipated normal monsoons this year. Over the medium term, the Agri-inputs sector in India is poised to witness strong growth given the macro factors such as population growth, rising per capita income that are leading to rapid rise in growing demand for food. Page 13

14 Investment Rationale: The Company delivered a strong financial and operating performance during the year. Chemicals business performance improved led by better margins and volumes. Sugar business witnessed better margins with higher sugar recovery and firming up of sugar prices during the second half of the year. Fenesta business earnings improved on robust growth in sales volumes during the year. Performance of the Agri-input businesses faced challenges on account of deficient monsoons impacting demand and margins of Hybrid seeds, Agro Chemicals and bulk Fertilizer offerings. 1. Net Revenues increased by 4% to Rs.5,841 Crores Shriram Farm Solutions: FY 16 revenues increased by 27% YoY to Rs.1,798 Crores. The rise in business revenue was driven by higher sales volumes of bulk fertilizers during the year. Fertilizer: Revenue increased by 10% YoY to Rs 798 Crores primarily due to higher realizations, a result of the rise in gas prices, which is a pass through. Sugar: Revenue during FY 16 declined by 11% YoY to Rs.924 Crores due to lower volumes and a 11% fall in average realizations vis-à-vis last year. Bioseed: Revenue during the year declined 15%, to Rs 485 Crores vs. Rs.570 Crores last year on lower sales volumes, as challenging Agri scenario in India and international markets impacted off-take of Hybrid seed offerings. 2. Profit before depreciation, interest and tax increased to Rs 544 Crores in FY 16, up 21% over previous year. Chloro-Vinyl: PBDIT improved by 9% YoY to Rs.392 Crores on higher realizations in the Chlor Alkali business and overall decline in input costs. Sugar: Sugar business PBDIT improved to Rs 113 Crores vs. -ve Rs 31 Crores last year due to lower costs led by better recoveries, better prices in Q4 leading to lower inventory losses vis-a-vis last year and sugarcane subsidy for the previous season received during the year. Growth in Company s earnings driven by the above businesses was moderated by the lower performance of Agri-input businesses: Bioseed and Shriram Farm solutions: PBDIT in FY 16 stood lower as El-nino impact led to adverse agroclimatic conditions resulting in lower sales volumes and margins leading to lower earnings during the year. Fertilizer (Urea): PBDIT in FY 16 declined primarily due to the tightening in the energy efficiency norms under the New Urea Policy. 3. Finance Costs Finance costs during FY 16 declined by 23% to Rs.86 Crores. 4. Net Profit increased to Rs.297 Crores, up 41% YoY 5. Net Debt stood at Rs 1,057 Crores as on March 31, 2016 vs. Rs 688 Crores as on March 31, The Company s balance sheet remains strong with a capital gearing ratio of 0.5 as on March 31, We initiate coverage on DCM Shriram Ltd as a with a target of Rs 280 representing a potential upside of 33% from the buy price. DCM Shriram Ltd is trading at a low PE of Page 14

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