Andhra Petrochemicals Ltd BSE Scrip Code: 500012 Crude Oil February 12, 2016 Current Market Price Rs. 52 Week High/Low Rs. Market Capitalisation Free Float Dividend Yield % Equity Statistics Rs. Crores Rs. Crores 13.1 20.95/9.69 111.5 61.7 One Year Regression Beta Times 1.0 BSE Volumes Trend - Average = 95.88 Thousand 1500 1300 1100 900 700 500 300 100-100 0.0 Business Summary Andhra Petrochemicals Ltd (APL) was incorporated on April 18, 1984, promoted by The Andhra Sugars Limited (ASL). APL is currently the sole producer of oxo-alcohols in India with a capacity to manufacture 73,000 tonnes per annum (TPA) of oxo-alcohols. The product mix includes 2 ethyl hexanol (2EH), n-butanol (NB) and iso-butanol (IB). APL s oxo-alcohol manufacturing capacity currently caters to about 40% of the Indian market, with imports accounting for the rest. Oxoalcohols are primarily used as one of the raw materials for manufacturing polyvinyl chloride (PVC) plasticisers. APL commenced operations in February 1994. APL s factory is located appurtenant to Hindustan Petroleum Corporation Limited s (HPCL) Vishakhapatnam refinery and APL has entered into a long term contract with the latter for procurement of propylene, which is the key raw material in the manufacturing process. Relative Returns 150 130 110 90 70 Andhra Petrochemicals Ltd. Sensex Returns 1M 3M 6M 1Y Absolute -23% -24% -20% 3% Rel. to Sensex -19% -17% -8% 23% Shareholding Pattern 100% 80% 60% APL is currently trading 0.80 times adjusted book value. Board of Directors Person Role Qualification M R B Punja NEI NA A A Krishnan NEI NA Surinder Kumar Kapoor NEI NA B B Ramaiah MD NA P Narendranath Chowdary NED, P Graduate Mullapudi Thimmaraja NED, P Graduate K Rajendra Prasad NED, P NA Ravi Pendyala NED, P NA Source: AR and CARE Research Note: MD: Managing Director, ED: Executive Director, NED: Non Executive Director, P: Promoter Director, I: Independent Director, NA: Not Available 40% 20% 0% Dec `14 Mar `15 Jun `15 Sep `15 Promoter DII FII Others Source: CARE, BSE and ACE Equity 1 Initiative of the BSE Investors Protection Fund
Background Andhra Petrochemicals Ltd is an India-based company engaged in manufacturing of oxo-alcohols. The Company is engaged in manufacturing of products such as 2 ethyl hexanol (2EH), n-butanol (NB) and iso-butanol (IB). The aforementioned products are in turn utilized as raw materials for manufacturing of polyvinyl chloride (PVC) plasticisers. It has a manufacturing capacity of 73,000 TPA and is a sole producer of oxo-alcohols in India. Manufacturing facility is located appurtenant to Hindustan Petroleum Corporation Limited s (HPCL) Visakhapatnam refinery. It has entered into a contract with HPCL for procurement of propylene which is the key raw material for its manufacturing process. Business overview APL derives its entire revenue from manufacturing of oxo-alcohols. During FY15, the capacity utilization of the plant has been around 26% with annual production of 18,765 MT (as against 26,460 MT in FY14). Sales volume of APL in FY15 also declined to 19,101 MT (as against 29,157 MT in FY14) on account of low availability of raw material coupled with lower selling prices and effect of Hudhud Cyclone. Total revenue generated in FY15 was Rs.140.26 crore (as against Rs.259.29 crore in FY14). However, on account of aforementioned reasons, APL registered net loss of Rs.44.52 crore (as against Rs.25.67 crore in FY14). Strengths and growth drivers The company is the sole producer of oxo-alcohols in India Going forward, the company is expecting to realize full capacity in view of HPCL s capability to operate their Propylene Recovery Unit at full capacity which will be contributing to improvement in performance of the company. Further, APL is expecting the Anti-Dumping duty levied also to contribute to improved financial performance of the company. Risk and concerns Dependence of the company on HPCL, Visakha refinery for its raw material requirement which is a single source is the major risk to the company. However, the same is considered at the time of project evaluation. Risk arising from global crude oil prices and exchange fluctuations and political stability in middle-east countries will be major concern to the company s performance in future. Future strategy and expansion plans The company would continue to focus on increasing its capacity utilization, increase the scale of operations thereby deriving benefits therefrom. Industry outlook Petrochemicals industry, which forms part of chemical industry, plays a vital role in economic growth since it caters to the needs of various industries like plastics, textiles, rubber, surfactants, agriculture, packaging, infrastructure, healthcare, furniture, automobiles, information technology, power, electronics, telecommunications, etc. Basic petrochemicals fall in two major categories: Olefins and Aromatics. Olefins comprise of Ethylene, Propylene, Styrene and Butadiene. These are used for production of Polymers as primary building blocks or as co-monomers. Aromatics comprise Benzene, Toluene and Xylene. While Benzene is used for a variety of chemical usages, Paraxylene (PX) is mainly used for production of intermediates for synthetic fibres. Most of petrochemicals are produced either utilizing naphtha which is derived from crude oil or ethane which is derived from natural gas. These can also be produced from unconventional alternatives such as shale gas, coal, bio-mass etc. With the view of unavailability of natural gas, these alternatives need to be explored. The overall demand looks quite robust and expected to grow at CAGR of 9.5 to 10 per cent in short to medium term while the addition in capacity is expected to grow at CAGR of 8.2 per cent. 2 Initiative of the BSE Investors Protection Fund
Peer comparison Year ended March 31, 2015 Income statement (Rs. crore) APL GPL GWIL CAPL Total income 141.42 405.14 418.76 355.93 Net sales 140.26 402.16 416.34 355.06 EBITDA -28.79 57.00 76.43 43.17 Ordinary PAT -44.52 25.48 33.19 19.26 Adjusted PAT -44.52 25.48 33.19 19.26 Per share data (Rs.) Adjusted BVPS 16.89 224.49 9.73 260.86 Diluted EPS* -5.24 27.76 1.46 37.51 Growth (Y-o-Y) (%) Growth in Total income -46.51 24.02 7.57 14.54 Growth in Net sales -45.91 23.66 7.90 14.78 Growth in EBITDA 177.06 18.61 19.28-10.69 Growth in Adjusted PAT 73.44-6.07 7.77-4.24 Growth in EPS* 73.44-10.85 7.77-4.24 Profitability ratio (%) EBITDA margin -20.53 14.17 18.36 12.16 Adjusted PAT margin -31.74 6.33 7.97 5.42 Valuation ratios (Times) Price/EPS (P/E) 0.00 11.97 9.84 6.64 Price/Book value (P/BV) 0.69 1.48 1.48 0.96 Enterprise value (EV)/EBITDA -6.18 5.72 5.08 5.66 Source: BSE, ACE Equity and CARE Research Note: APL: Andhra Petrochemicals Ltd, GPL: Gulshan Polyoils Ltd., GWIL: Grauer & Weil (India) Ltd, CAPL: Camphor & Allied Products Ltd Quarterly financials Quarter ended Sept 30, 2015 Income statement (Rs. crore) Q2FY16 Q1FY16 Q4FY15 Q3FY15 Q2FY15 Total income 96.78 105.67 78.70 15.71 2.01 Net sales 96.53 105.47 78.54 15.61 1.82 EBITDA -0.10 3.00-0.36-9.12-5.08 Ordinary PAT -4.97-1.55-6.11-17.72-7.54 Adjusted PAT -4.97-1.55-6.11-17.72-7.54 Growth (Q-o-Q) (%) Growth in net sales -8.48 34.30 403.12 758.16-95.89 Profitability ratio (%) EBITDA margin -0.11 2.85-0.45-58.43-279.16 Adjusted PAT margin -5.15-1.47-7.78-113.52-414.51 Source: BSE, Capitaline and CARE Research 3 Initiative of the BSE Investors Protection Fund
Financial analysis In FY15, APL reported net sales of Rs.140.26 crore - declined by 45.91% y-o-y. Total income also declined by 46.51% during the same period. Raw materials form the largest portion of cost for APL. In FY15, raw materials cost as a percentage of net sales was at around 82.35%. The company reported operational loss and net loss during the year FY15 of Rs.28.79 crore and Rs.44.52 crore respectively. APL had moderate levels of leverage as on March 31, 2015. The total debt as on March 31, 2015 was at Rs. 82.30 crores compared to an adjusted networth of Rs. 143.53 crores. The company exhibited a cash conversion cycle of around 46 days, i.e. around 1-2 months in FY15. Operating cash flows for the company has been negative for FY14 and FY15 The company has not paid any dividend for FY15 on account of loss incurred for the year under report. Annual financial statistics FY11 FY12 FY13 FY14 FY15 Income statement (Rs. crore) Total income 459.49 605.61 566.13 264.41 141.42 Net sales 456.59 597.16 562.76 259.29 140.26 EBITDA 91.59 79.69 31.49-10.39-28.79 Depreciation and amortization 22.88 22.65 13.72 13.35 9.00 EBIT 68.72 57.04 17.77-23.74-37.79 Interest 17.10 12.55 8.60 6.50 9.70 PBT 51.61 44.49 4.63-30.24-47.49 Ordinary PAT 35.64 30.01 3.12-25.67-44.52 Adjusted PAT 35.64 30.01 3.12-25.67-44.52 Balance sheet (Rs. crore) Adjusted networth 187.63 212.71 215.83 190.16 143.53 Total debt 145.88 63.65 63.33 48.46 82.30 Cash and bank 57.17 2.96 13.25 1.20 3.33 Investments 5.26 5.26 5.26 15.27 15.27 Net fixed assets (incl. CWIP) 257.39 237.28 224.27 212.28 200.15 Net current assets (excl. cash, cash equivalents) 18.06 31.97 19.99 1.18-17.11 Per share data (Rs.) Adjusted BVPS 22.08 25.03 25.40 22.38 16.89 Diluted EPS* 4.19 3.53 0.37-3.02-5.24 DPS 1.00 0.50 0.00 0.00 0.00 Growth (Y-o-Y) (%) Growth in total income 219.63 31.80-6.52-53.30-46.51 Growth in net sales 220.91 30.79-5.76-53.92-45.91 Growth in EBITDA 1781.76-13.00-60.49-133.01 177.06 Growth in adjusted PAT -762.30-15.77-89.61-923.05 73.44 Growth in EPS* -762.30-15.77-89.61-923.05 73.44 Key financial ratio EBITDA margin (%) 20.06 13.34 5.60-4.01-20.53 Adjusted PAT margin (%) 7.80 5.03 0.55-9.90-31.74 RoCE (%) 21.51 18.70 4.76-9.17-16.28 RoE (%) 20.39 14.99 1.46-12.64-26.68 Gross debt - equity (times) 0.78 0.30 0.29 0.25 0.57 Net debt - equity (times) 0.47 0.29 0.23 0.25 0.55 Interest coverage (times) 4.02 4.55 1.54-3.65-3.90 4 Initiative of the BSE Investors Protection Fund
Current ratio (times) 2.80 1.81 1.53 1.04 0.75 Inventory days 21 18 27 60 75 Receivable days 8 12 8 4 2 Source: BSE, Capitaline and CARE Research 5 Initiative of the BSE Investors Protection Fund