Tata Chemicals Ltd. A steady, reliable bet for the long term February 21, 2013

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1 Initiating Coverage CMP (`) Equity India Chemicals & Fertilizers Tata Chemicals Ltd. A steady, reliable bet for the long term February 21, 2013 Target (`) Potential Upside Absolute Rating 27% BUY Market Info (as on February 21, 2013) BSE Sensex 19,325 Nifty S&P 5,852 Stock Detail BSE Group BSE Code NSE Code Bloomberg Code A TATACHEM TTCH IN Market Cap (`bn) Free Float (%) 70% 52wk Hi/Lo 381 / 299 Avg. Daily Volume (NSE) Face Value / Div. per share (`) / Shares Outstanding (mn) Shareholding Pattern (in %) Promoters FIIs DII Others Financial Snapshot Y/E Mar (`mn) 12(A) 13(E) 14(E) 15(E) Net Sales 136, , , ,258 EBITDA 24,715 27,258 29,758 31,940 PAT 8,376 11,457 12,621 14,417 EPS ROE (%) 14% 17% 16% 17% ROCE (%) 12% 14% 15% 15% P/E EV/EBITDA Share Price Performance Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Investment Rationale BUY Steady Free Cash Flow Generation going ahead: Tata Chemicals Limited (TTCH) enjoys optimum capacity utilization in its Urea and domestic Soda Ash business and has seen increase in capacity utilization in its North American and Kenyan (Magadi) operations. Also, Rallis India Limited (Rallis) which is a subsidiary of TTCH has seen consistent cash generation over the past few years. Based on these factors, we expect TTCH to generate Free Cash Flow of more than `17 bn between 13E-15E. More than 60% of revenues are from relatively safe businesses TTCH derives more than 60% of its revenues (61% in 12) from businesses which can be designated as relatively safe. These include businesses of Tata Chemicals North America (TCNA), Soda Ash business in India, Fertilizers, Salt, Cement and Rallis. These businesses either have low cost of production or are immune to cyclicality or have stable demand or strong pricing or a combination of these factors. We expect contribution from safe businesses to go up to 65% in 15E against 61% currently. Customized Fertilizers and Salt business to garner impressive revenue growth During 12, TTCH commissioned India s 1st customized fertilizer plant at Babrala, U.P. Customised fertilizers are crop- and region-specific. After its success in U.P., company is planning to make a foray into West Bengal, Punjab and Haryana in the near future. We expect customized fertilizers to log revenue growth of 93% CAGR over 12-15E. Tata Salt, owned by TTCH is the market leader in packaged salts in India with market share of more than 66% and is a household name in India. On the back of its increasing market share, constant market growth (expected to be 1.3%) and higher realization for customized salt offerings, we expect Revenues from Salt business to grow at 6% CAGR over 12 15E. Fertilizers and Rallis lend stability to the overall portfolio TTCH has two plants dedicated to manufacturing of fertilizers; Babrala, U.P. which manufactures Urea and Haldia (West Bengal) which manufactures DAP, NPK and SSP. TTCH has urea capacity of more than 1 mn MT at its plant in Babrala, U.P. with production of 1.16MT in 12. We expect sales from urea to grow at 3% CAGR over 12-15E. The Government hiked selling price of urea by `50 in October, 2012 to make it `5,390 per MT. As per the New Urea Investment Policy, Government will cover cost of natural gas and assure % post-tax return on fresh capital infused by the manufacturers for setting up of new plants as well as for expansion and revamp of the existing ones. This would improve profitability of urea manufacturers going ahead. Rallis, which is 50.06% subsidiary of TTCH has an installed capacity of 15,225 MT for solid pesticides and 13,500 KL for liquid pesticides. Rallis holds 75.64% in Metahelix which is an agricultural biotechnology company focusing on developing traits and technologies for crop protection & improved productivity. We expect Rallis to log revenue growth of 15% CAGR and EBITDA growth of 17% CAGR over 12-15E. It is Free Cash Flow Positive with Debt-Equity Ratio of 0.3. Valuation A well diversified portfolio with respect to products as well as geographies makes us like TTCH as a stable business with robust growth prospects. Besides, the company also has considerable pricing power in salt and faces an improving outlook for soda ash. Commencement of operations at Magadi would boost revenues further. We initiate coverage on TTCH with a BUY rating and target price of `421, implying an upside potential of 27%. We value TTCH using a Sum of the Parts (SOTP) approach since its businesses are varied in nature and geographies. Tata Chemical BSE SENSEX Rel. Perf. 1Mth 3 Mths 6Mths 1Yr TataChem (%) (10.5) (9.5) SENSEX (%) (3.9) Source: Company data, Institutional Research At the CMP of `332, TTCH is trading at an EV/EBITDA multiple of 4.79x its 14E EBITDA and 4.49x its 15E EBITDA respectively. At the CMP of `332, PE works out to be 6.70x TTCH s 14E EPS of `49.53 and 5.87x its 15E EPS of ` Analyst Aditya Anand Bapat adityab@geplcapital.com Institutional Research 1

2 Company Background Headquartered in Mumbai, India, Tata Chemicals is a global company with a range of business interests focusing on three sectors living essentials, industry essentials and farm essentials or LIFE. The Tata Chemicals group is the world s second-largest producer of soda ash with a presence in India, Kenya, the UK and the US. Following is a brief about its major overseas businesses and subsidiaries: Tata Chemicals Magadi Formerly known as Magadi Soda Company, Tata Chemicals Magadi - a part of Tata Chemicals since occupies a significant place in the African economy. It is Africa's largest soda ash manufacturer and one of Kenya's leading exporters. Established in 1911, Tata Chemicals Magadi has been producing natural soda ash at Lake Magadi, Kenya, for a hundred years. Tata Chemicals Europe Tata Chemicals Europe (formerly Brunner Mond) is one of Europe's leading producers of sodium carbonate, salt and sodium bicarbonate and other products. Established in 1874, it became a part of Tata Chemicals in The company is headquartered in Northwich, UK, and has manufacturing operations in Cheshire. In 2011, Tata Chemicals Europe expanded its product portfolio by acquiring British Salt, UK's leading manufacturer of pure dried vacuum salt products. British Salt British Salt, UK's leading manufacturer of pure dried vacuum salt products, became a part of the Tata Chemicals group in British Salt produces approximately half of the UK s pure salt used in applications ranging from food processing to chemicals production. Tata Chemicals North America Established in 1884, Tata Chemicals North America is one of the world's leading producers of high quality soda ash. Formerly known as General Chemical Industrial Products, it became a part of Tata Chemicals in Tata Chemicals North America is headquartered in New Jersey with manufacturing facilities at Green River, Wyoming, US. Rallis India Rallis is one of India s leading agrochemicals companies, with a century-old tradition of servicing rural markets and a comprehensive portfolio of pesticides for Indian farmers. The company is known for its deep understanding of Indian agriculture, sustained relationships with farmers, quality agrochemicals, branding and marketing expertise and its strong product portfolio. Rallis is also known for its manufacturing capabilities in crop protection chemicals and various types of chemistries, with the ability to develop new processes and formulations supported by the capability to register new products. It has contract manufacturing alliances with several multinational agrochemicals companies. Institutional Research Initiating Coverage 2

3 As far as products are concerned, TTCH can be divided into the following 3 categories: Living Essentials Industry Essentials Farm Essentials Consumer Salt Pulses Fertilizers Customized Fertilizers Tata Salt i- Shakti Urea Paras Farmoola i- Shakti DAP, MoP Tata Salt Lite Water Purifier SSP NPK Tata Salt Flavoritz Swach Tata Salt Plus Allied Chemicals Soda Ash Industrial Salt Sodium Bicarbonate Cement Caustic Soda Tata Shudh Chlorine based Products Bromine based Products Gypsum Sodium Tri-polyphosphate Phosphoric Acid Sulphuric Acid Consolidated Revenue Break up 100% 11% 13% 13% 80% 60% 31% 37% 30% 40% 20% 58% 50% 57% 0% 12 9M13 15E Inorganic Chemicals Fertilisers Others Institutional Research Initiating Coverage 3

4 Capacities Product Capacity Unit Customized Fertilizers 132,000 MT Tata Swach 1,800,000 units per annum Soda Ash (TTCH) 5,000,000 MT Soda Ash (Global for all companies) 67,000,000 MT Sodium Bicarbonate 100,000 MT Urea (Gabon) 1,300,000 MT Vacuum Salt 847,500 MT DAP 670,000 MT SSP 215,000 MT Cement 440,000 MT Phosphoric Acid 430,000 MT Institutional Research Initiating Coverage 4

5 Investment Rationale Steady Free Cash Flow Generation going ahead Tata Chemicals Limited (TTCH) enjoys optimum capacity utilization in its Urea and domestic Soda Ash business and has seen increase in capacity utilization in its North American and Kenyan (Magadi) operations. Also, Rallis India Limited (Rallis) which is a subsidiary of TTCH has seen consistent cash generation over the past few years. Based on these factors, we expect TTCH to generate Free Cash Flow of more than `17 bn between 13E-15E. Strong Free Cash Flow Generation Particulars E 14E 15E Cumulative (13E-15E) Cash Flow from Operations (` mn) 12,439 11,051 14,960 16,734 42,745 Cash Flow from Investing Activities (` mn) (7,947) (5,833) (8,379) (11,244) (25,455) Free Cash Flow from Operations (FCFO) (` mn) 4,492 5,218 6,581 5,490 17,290 Total No. of Shares (mn) FCFO per share (`) TTCH has not made any major capital expenditure announcement at present, hence we believe that with healthy cash in its kitty, the company can pursue value accretive acquisitions and other growth opportunities without straining its balance sheet. Most of the capital expenditure to be incurred over the next couple of years is maintenance capex. TTCH has a Debt Equity ratio of 0.93x currently. We believe that this is a comfortable ratio compared to its industry peers. Hence, the free cash could be used to pay off some of the existing debt as well. Both the scenarios are beneficial to the company going ahead. Debt/Equity Ratio Comparison with peers Company (Peer) D/E (12) (x) Chambal Fertilizers & Chemicals Ltd Coromandel International Ltd Rashtriya Chemicals & Fertilizers Ltd Tata Chemicals Ltd Source: Institutional Research Institutional Research Initiating Coverage 5

6 More than 60% of revenues are from relatively safe businesses TTCH derives more than 60% of its revenues (61% in 12) from businesses which can be designated as relatively safe. These include businesses of Tata Chemicals North America (TCNA), Soda Ash business in India, Fertilizers, Salt, Cement and Rallis. These businesses either have low cost of production or are immune to cyclicality or have stable demand or strong pricing or a combination of these factors. We expect contribution from safe businesses to go up to 65% in 15E against 61% currently. TCNA has access to world s largest reserves of trona in the Green River Facility in Wyoming, USA which has enough trona deposits to last for the next 100 years. Over 60% of TTCH s soda ash production is based on low-cost, naturally mined trona. Hence, cost of production of TCNA is lower (`7,084/ton) compared to other subsidiaries. It also enjoys better capacity utilization than others. Cost of production per ton for soda ash from various facilities of TTCH Subsidiary / Region of operation Cost of Production (`/Ton) Capacity Utilization Tata Chemicals Europe 14,274 75% Soda Ash India 10,070 75% Tata Chemicals Magadi 8,262 75% TCNA 7,084 95% Soda ash business in India is a relatively steady business since soda ash finds applications in industries such as glass, soaps, detergents, chemicals, pulp, paper manufacture, water treatment, etc. TTCH being the largest soda ash player in India enjoys economies of scale. Fertilizers, salt and cement, too are businesses which have relatively stable demand subject to some seasonal variances. In fact, Tata Salt has a 66.3% market share in the national branded segment. Rallis, a leading agrochemicals company has grown at 17% and 36% CAGR in revenues and EBITDA respectively over the past 5 years. Its comprehensive range of crop protection chemicals and services are spread across 80% of India s districts through an extensive distribution network of loyal and supportive dealers and retailers. Even on the margins front, 70% of TTCH s consolidated EBITDA is from safe businesses, thereby providing higher margin of safety to company s varied business segments. Institutional Research Initiating Coverage 6

7 Revenue Contribution from Safe vs Risky Businesses EBITDA Contribution from Safe vs Risky Businesses E E 38% 35% 29% 32% 62% 65% 71% 68% Safe Business Risky Business Safe Business Risky Business Safe Business Risky Business Safe Business Risky Business Revenue break up -- Safe Business Revenue break up -- Risky Business E E 15% 27% 18% 24% 11% 7% 16% 12% 13% 13% 11% 28% 53% 13% 50% 33% TCNA Fertilisers Rallis India Limited Soda Ash - India Salt & Cement- India 34% TCNA Fertilisers Rallis India Limited Soda Ash - India Salt & Cement- India BMGL IMACID Fertiliser trading Other Traded Goods 21% BMGL IMACID Fertiliser trading Other Traded Goods EBITDA break up -- Safe Business EBITDA break up -- Risky Business E E 4% 13% 39% 5% 17% 38% 5% 12% 3% 11% 11% 19% 1% 21% 24% TCNA Fertilisers Rallis India Limited Soda Ash - India Salt & Cement- India TCNA Fertilisers Rallis India Limited 19% Soda Ash - India Salt & Cement- India BMGL IMACID 80% Fertiliser trading Other Traded Goods BMGL IMACID 77% Fertiliser trading Other Traded Goods Institutional Research Initiating Coverage 7

8 Customized Fertilizers and Salt business to garner impressive revenue growth During 12, TTCH commissioned India s 1st customized fertilizer plant at Babrala, U.P. Customised fertilizers are crop- and region-specific. After conducting scientific research to find out the nutrients missing in a particular soil for growing specific crops, the company manufactures fertilizers with those nutrients needed for that soil. TTCH has launched the Paras Farmoola range of customized fertilizers targeted at Paddy, Wheat, Potato and Sugarcane in Western U.P. Customized fertilizers eliminate the need to use multiple nutrients for a single crop in a particular region. E.g. A farmer may use Di-Ammonium Phosphate (DAP), Muriate of Potash (MoP) and Zinc Sulphide (ZnS) at the time of sowing. He/she may then use Urea while irrigating the standing crop. Instead, the farmer could use just the customized fertilizer and do away with the need to use each chemical separately. Currently, TTCH has customized fertilizer capacity of 1,32,000 MT p.a. and it intends to set up small customized fertilizer manufacturing facilities across the country within the next 2-3 years. After its success in U.P., company is planning to make a foray into West Bengal, Punjab and Haryana in the near future. We expect customized fertilizers to log revenue growth of 93% CAGR over 12-15E. Tata Salt, owned by TTCH is the market leader in packaged salts in India with market share of more than 66% and is a household name in India. The product has stable demand and hence offers a steady revenue stream to the company. TTCH has varied its offering by introducing some tweaks to the main product to change its appeal. Some of the variants are i-shakti (iodine-rich salt), Tata Salt Lite (low sodium salt), Samundar Crystal Salt (refined, iodized, clean, white, crystal salt) and Vacuum Salt. Besides, it also launched a range of flavored salts called Tata Salt Flavoritz which is the 1st indigenous brand of flavored salt in India. On the back of its increasing market share, constant market growth (expected to be 1.3%) and higher realization for customized salt offerings, we expect Revenues from Salt business to grow at 6% CAGR over 12 15E. Tata Salt Prices for variants Variant Price per Kg (`) i-shakti Tata Salt Regular Tata Salt Iodized Tata Salt Lite Tata Salt Low Sodium Tata Salt Flavoritz Source: Company, Industry, Institutional Research Tata Salt market share has steadily increased 70% 65% 60% 57% 59% 62% 64% 55% 51% 50% 45% 45% 47% 40% 35% 30% Institutional Research Initiating Coverage 8

9 Fertilizers and Rallis lend stability to the overall portfolio TTCH has two plants dedicated to manufacturing of fertilizers; Babrala, U.P. which manufactures Urea and Haldia (West Bengal) which manufactures DAP, NPK and SSP. Consumption of fertilizers depends on several factors such as availability of raw materials, pricing of fertilizers, subsidy policy, farmer sentiments and a host of other factors. Hence, fertilizers rarely show a secular trend in either growth or de-growth. TTCH has urea capacity of more than 1 mn MT at its plant in Babrala, U.P. with production of 1.16MT in 12. We expect sales from urea to grow at 3% CAGR over 12-15E. The Government hiked selling price of urea by `50 in October, 2012 to make it `5,390 per MT. As per the New Urea Investment Policy, Government will cover cost of natural gas, which is the main fuel used for manufacturing urea. The government will assure % post-tax return on fresh capital infused by the manufacturers for setting up of new plants as well as for expansion and revamp of the existing ones. Earlier, returns were less than 12%. This would improve profitability of urea manufacturers going ahead. For Greenfield investments, the government has fixed a floor-ceiling price band for urea at $ /mt at a landed gas price of $6.5/ mmbtu. For gas prices > $6.5/mmBtu, and going up to a maximum of $14/mmBtu, the ceiling will keep going up at the rate of $20/mt for every $1 increase in the price of gas. India s urea consumption in 12 stood at 29 mn Tons whereas production was 22 mn Tons. The resulting shortfall of 7 mn Tons is covered through imports. Also, urea is sold at `5,360 (after recent price hike) against actual market price (after including a 12% markup on cost of production) of `7,900 `8,000 per ton. The price differential is paid by the Government by way of subsidy. Fertilizer subsidy has crossed `1 tn mark of which 60% (`600bn) is urea subsidy. Hence, the Government will have to incentivize urea manufacturers to produce more urea domestically in order to tame the burgeoning import bill. Rallis, which is 50.06% subsidiary of TTCH is one of India s leading Agro-Chemicals companies manufacturing Pesticides, Plant Growth Nutrients and Seeds. It has an installed capacity of 15,225 MT for solid pesticides and 13,500 KL for liquid pesticides. TTCH and Rallis use each other s distribution network to ensure maximum availability of products. Rallis has a 2,500 strong retail network whereas Tata Chemicals has 700 exclusive outlets. Rallis holds 75.64% in Metahelix which is an agricultural biotechnology company focusing on developing traits and technologies for crop protection & improved productivity. Rallis managed to turn around Metahelix which was a loss making company at the time of acquisition to PAT of `6mn in 12. Recently, Rallis also acquired 22.81% stake in Zero Waste Agro Organics Ltd, a Maharashtra based manufacturer of organic compost. With this acquisition, the product portfolio of the Company will be strengthened with scientifically prepared organic compost rich in nutrients and organic carbon, derived out of wastes from sugar industry, to improve deteriorating soil health and drive agriculture productivity. The technology supports sustainable agriculture and will help farmers in addressing the challenge of food security. We expect Rallis to log revenue growth of 15% CAGR and EBITDA growth of 17% CAGR over 12-15E. It is Free Cash Flow Positive with Debt-Equity Ratio of 0.3. Institutional Research Initiating Coverage 9

10 Gabon urea project to be value accretive in the longer term In 11, TTCH announced an investment of $290mn to acquire a 25.1% stake as a strategic investor in the 1.3MTPA stream 1 of a Greenfield port-based ammonia-urea fertiliser manufacturing complex in the Republic of Gabon (Gabon). The Joint Venture would be between TTCH (25%), Olam International (63%) and the Government of the Republic of Gabon (12%) and is called the Gabon Fertiliser Company (GFC). GFC is expected to be one of the world s lowest cost urea producers. Stream 1 is expected to generate EBITDA of $300 mn - $350 mn from onwards. The project will enjoy tax holidays for the first 10 years and a concessional tax rate of 10% after that. The project is expected to start contributing to the EBITDA from onwards and hence we have valued it at book value only with a 50% discount. However, given the fact that there have been no commentary/updates on the project from the management, there is a possibility that the project could be delayed by 6 months or so. TTCH has also expressed the possibility of investing in Stream 2 of the project at a later date with a higher investment than in Stream 1. Institutional Research Initiating Coverage 10

11 Valuation A well diversified portfolio with respect to products as well as geographies makes us like TTCH as a stable business with robust growth prospects. Besides, the company also has considerable pricing power in salt and faces an improving outlook for soda ash. Commencement of operations at Magadi would boost revenues further. Most of TTCH s businesses are safe by way of stability of demand, pricing power, cheaper raw materials sourcing and economies of scale. We initiate coverage on TTCH with a BUY rating and target price of `421, implying an upside potential of 27%. We value TTCH using a Sum of the Parts (SOTP) approach since its businesses are varied in nature and geographies. We value the standalone business at 5.3x 15E EV/EBITDA multiple in line with its Indian peers. We attach a 10% discount to the standalone business to arrive at multiples of TCEL and TCNA (4.76x). The discount is valid to account for the inherent risks in their business. Rallis has been valued at 7.58x its 15E EV/EBITDA multiple as per our valuation model of the company (on which we have an active coverage). IMACID is valued at 30% discount to its larger competitor, Potash Corp to arrive at the EV/EBITDA multiple of 5.34x At the CMP of `332, TTCH is trading at an EV/EBITDA multiple of 4.79x its 14E EBITDA and 4.49x its 15E EBITDA respectively. At the CMP of `332, PE works out to be 6.70x TTCH s 14E EPS of `49.53 and 5.87x its 15E EPS of ` Valuation (SOTP) INR mn EV/EBITDA EBITDA Enterprise (x) 2014E 2015E value Value per share EV of Standalone ,723 10,191 53, EV of TCEL ,899 7,105 33, EV of TCNA ,244 7,624 36, EV of IMACID ,007 1, EV of Rallis (50.09% holding) ,696 3,288 12, Total EV ,477 29, , Add : Cash 32,837 35,568 35, Less: Total Debt 70,278 71,692 71, Cash Flow to Equity , % discount 3, Gabon 50% discount 4, Less: Minority Interest (2,458) (9.65) No of shares mn Per Share Value , CMP % upside 27% Institutional Research Initiating Coverage 11

12 Peer Comparison PE PB MCap EV/EBITDA Company Price 2013E 2014E 2015E 2013E 2014E 2015E Current 2013E 2014E 2015E Tata Chemicals , Chambal Fertilizers* , GSFC* , Coromandel International* , RCF* , Source: Bloomberg, Institutional Research *Bloomberg Estimates Institutional Research Initiating Coverage 12

13 Risks to the valuation 1. Fluctuating raw material prices. 2. Currency risk due to various geographies involved. 3. Uncertainty surrounding gas allocation. 4. Urea pricing and subsidy structure. 5. Expected pressure on soda ash prices due to over-capacity. 6. Weak demand in Europe due to the prevailing economic weakness. Institutional Research Initiating Coverage 13

14 Income Statement Y/E Mar (`mn) 11(A) 12(A) 13(E) 14(E) 15(E) Total net revenues 108, , , , ,258 COGS 56,301 70,921 71,807 78,986 87,102 Gross Profit 52,646 65,630 72,184 76,614 81,156 Employee Cost 8,197 9,710 10,551 10,965 11,627 Other Expenditure 27,571 34,393 36,340 38,242 40,387 EBITDA 19,495 24,715 27,258 29,758 31,940 EBITDA Margin (%) 17.9% 18.1% 18.9% 19.1% 19.0% Depreciation 4,511 5,087 5,085 5,308 5,656 Other Income 958 1, Interest (Net) 3,508 4,270 4,562 4,853 5,106 PBT 11,578 15,358 17,611 19,597 21,178 PBT Margin (%) 10.6% 11.2% 12.2% 12.6% 12.6% Tax 2,749 3,439 4,051 4,703 5,083 Minority Interest & Share of Associates (1,926) (2,019) (2,103) (2,273) (1,678) Extraordinary /exc , Key Ratio Y/E Mar (`mn) 11(A) 12(A) 13(E) 14(E) 15(E) Per Share Ratios Fully diluted E P S Book Value Dividend per share per share FCFO (10) Valuation Ratio P/E P/BV EV/EBITDA EV/Sales Growth Ratios Sales Growth 15% 25% 5% 8% 8% EBITDA Growth 12% 28% 17% 8% 6% Net Profit Growth 8% 28% 37% 10% 14% EPS Growth 9% 43% 16% 10% 14% Margins EBITDA Margin 15% 16% 18% 18% 17% PAT Margin 6% 6% 8% 8% 9% Return ratios RoCE 10% 12% 14% 15% 15% RoNW 13% 14% 17% 16% 17% Turnover ratios (days) Debtors ( Days) Creditors ( Days) Inventory (Days) Solvency Ratios Total Debt/Equity Interest coverage Source: Institutional Research Balance Sheet Y/E Mar (`mn) 11(A) 12(A) 13(E) 14(E) 15(E) Equity capital 2,548 2,548 2,548 2,548 2,548 Reserves & Surplus 51,969 61,632 70,108 79,151 89,393 Net worth 54,517 64,180 72,656 81,699 91,942 Minority interest 4,065 4,481 4,481 4,481 4,481 Deffered tax liabilities 2,183 1,018 1,018 1,018 1,018 Total debt 51,148 59,461 65,585 70,278 71,692 Total Liabilities 111, , , , ,132 Net block 37,814 43,945 44,832 48,109 54,749 Capital WIP 6,510 5,492 5,492 5,492 5,492 Total fixed assets 44,324 49,436 50,324 53,601 60,241 Investments 4,479 6,097 6,401 6,722 7,058 Goodwill 56,324 63,587 63,587 63,587 63,587 Deferred Tax Assets 1,635 1,343 1,343 1,343 1,343 Forex Translation Diff Current Assets 49,542 70,417 71,701 84,597 92,450 Inventories 11,456 18,632 15,738 16,879 18,375 Sundry Debtors 16,374 24,820 18,541 20,889 23,049 Cash & bank 13,450 16,780 25,141 32,837 35,568 Loans & advances 7,271 8,555 10,651 12,363 13,829 Other Current Assets 991 1,629 1,629 1,629 1,629 Current Liab. & Prov. 44,398 62,034 49,910 52,668 55,840 Current Liabilities 31,194 46,595 34,471 37,229 40,401 Provisions 13,204 15,439 15,439 15,439 15,439 Net Working capital 5,144 8,383 21,791 31,929 36,610 Miscellaneous Exp Total Assets 111, , , , ,132 Cash Flow Y/E Mar (`mn) 11(A) 12(A) 13(E) 14(E) 15(E) PBT 11,578 15,358 17,611 19,597 21,178 Add: Depreciation 4,511 5,087 5,085 5,308 5,656 Add: Others 2,088 4,586 (445) (527) (609) Minority & Others (4,271) (2,806) (6,154) (6,976) (7,540) Chg in working capital (3,968) (8,261) (5,047) (2,442) (1,951) CF from operations 9,570 12,439 11,051 14,960 16,734 Change in fixed assets (6,196) (7,948) (5,973) (8,586) (12,296) Sale of fixed assets Other income Others (6,236) (688) (305) (320) 443 CF from investing acti. (12,008) (7,947) (5,833) (8,379) (11,244) Change in debt 14,812 28,012 6,124 4,693 1,414 Dividend Paid (3,918) (4,967) (2,981) (3,578) (4,174) Others (7,283) (24,997) 0 (0) 0 CF from financing acti. 3,610 (1,953) 3,143 1,115 (2,760) Cash Generated 1,172 2,539 8,360 7,696 2,731 Forex Translation Diff Opening cash 11,589 13,450 16,780 25,141 32,837 Incr. in Cash & eq. pursuant to merger Closing cash 13,450 16,780 25,141 32,837 35,568 Du-Pont Analysis 11(A) 12(A) 13(E) 14(E) 15(E) Net Profit Margin 6% 6% 8% 8% 9% Asset Turnover (Times) Leverage (Times) ROE 13% 14% 17% 16% 17% Institutional Research Initiating Coverage 14

15 NOTES Recommendation Rationale Recommendation Expected Absolute Return (%) over 12 months BUY >20% ACCUMULATE <20% and >10% NEUTRAL <-10% and <10% REDUCE >-10% and <-20% SELL >-20% Expected absolute returns are based on share price at market close unless otherwise stated. Stock recommendations are based on absolute upside (downside) and have a 12-month horizon. Our target price represents the fair value of the stock based upon the analyst s discretion. We note that future price fluctuations could lead to a temporary mismatch between upside/downside for stock and our recommendation. GEPL CAPITAL Pvt Ltd (formerly known as Gupta Equities Pvt. Ltd.) Reg Office: D-21/22 Dhanraj mahal, CSM Marg, Colaba, Mumbai Analyst Certification The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Name : Aditya Anand Bapat Sector : Chemicals & Fertilizers Disclaimer: This report has been prepared by GEPL Capital Private Limited ("GEPL Capital "). GEPL Capital is regulated by the Securities and Exchange Board of India. This report does not constitute a prospectus, offering circular or offering memorandum and is not an offer or invitation to buy or sell any securities, nor shall part, or all, of this presentation form the basis of, or be relied on in connection with, any contract or investment decision in relation to any securities. 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In no event shall GEPL capital be liable for any direct, special indirect or consequential damages, or any other damages of any kind, including but not limited to loss of use, loss of profits, or loss of data, whether in an action in contract, tort (including but not limited to negligence), or otherwise, arising out of or in any way connected with the use of this report or the materials contained in, or accessed through, this report. GEPL Capital and its affiliates and/or their officers, directors and employees may have similar or an opposite positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). The disclosures contained in the reports produced by GEPL Capital shall be strictly governed by and construed in accordance with Indian law. GEPL Capital specifically prohibits the redistribution of this material in whole or in part without the written permission of GEPL Capital and GEPL Capital accepts no liability whatsoever for the actions of third parties in this regard. Institutional Research Initiating Coverage 15