KIRI INDUSTRIES LTD Result Update (CONSOLIDATED BASIS): Q3 FY18 Index Details Stock Data Sector Specialty Chemicals BSE Code 532967 Face Value 10.00 52wk. High / Low (Rs.) 674.40/227.05 Volume (2wk. Avg.) 44000 Market Cap (Rs. in mn.) 13891.12 Annual Estimated Results(A*: Actual / E*: Estimated) Years(Rs in mn) FY17A FY18E FY19E Net Sales 11231.50 11737.83 13028.99 EBITDA 1614.55 1864.60 2060.32 Net Profit 2665.41 2910.25 3261.09 EPS 95.73 96.23 107.83 P/E 4.80 4.78 4.26 Shareholding Pattern (%) As on Dec 2017 As on Sep 2017 Promoter 42.62 37.68 Public 55.31 60.08 Others 2.07 2.24 1 Year Comparative Graph KIRI INDUSTRIES LTD S&P BSE SENSEX CMP: 459.50 MAR 12 th, 2018 Overweight SYNOPSIS ISIN: INE415I01015 Kiri Industries Limited (KIL) is one of the largest manufacturers and exporters of wide range of Dyes, Intermediates and Chemicals from India. The Consolidated Revenues of the company for Q3 FY18 stood at Rs. 2722.98 mn as against Rs. 2569.85 mn in Q3 FY17, up by 5.96%. The Consolidated EBIDTA for Q3 FY18 stood at Rs. 416.74 as against Rs. 335.33 mn in the corresponding period of last year, an increase of 24.28%. During Q3 FY18, consolidated PBT increased by 36.68% to Rs. 333.48 mn from Rs. 243.99 mn in Q3 FY17. In Q3 FY18, net profit stood at Rs. 417.23 mn from Rs. 438.06 mn in Q3 FY17. The company has reported an EPS of Rs. 13.80 for the December quarter as against an EPS of Rs. 15.73 in the corresponding quarter of the previous year. The overall finance costs have reduced by around 67% in the current 9Months in comparison to corresponding period of FY16-17. During 9M FY18, consolidated revenue stood at Rs. 8633.63 mn as compared to Rs. 8665.59 mn in 9M FY17. The Consolidated Net Profit of KIL for 9Months period ending on December 31, 2017 amounts to Rs.2380.06 mn, 12% higher Y-O-Y basis. DyStar s contribution to the Net Profit during the 9Months of FY17-18 has been Rs.1409.3 mn. Similarly, the JV, Lonsen Kiri Chemical Industries Ltd (LKCIL) has contributed Rs.179.8 mn during the same period. Net Sales and Operating Profit of the company are expected to grow at a CAGR of 9% and 19% over 2016 to 2019E, respectively. PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Kiri Industries Ltd 459.50 13897.12 96.83 4.75 1.41 0.00 Sudarshan Chemical Industries 408.00 28244.70 12.22 33.39 7.14 175.00 Bodal Chemicals Ltd 126.00 15395.80 9.82 12.83 4.25 40.00 Ultramarine & Pigments Ltd 309.50 9037.40 14.71 21.04 6.15 200.00
QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS) Results updates- Q3 FY18, Rs. In million Dec-17 Dec-16 % Change Revenue 2722.98 2569.85 5.96% Net Profit 417.23 438.06-4.75% EPS 13.80 15.73-12.31% EBITDA 416.74 335.33 24.28% The company has achieved a turnover of Rs. 2722.98 million for the 3 rd quarter of the financial year 2017-18 as against Rs. 2569.85 million in the corresponding quarter of the previous year, up by 5.96%. EBITDA was Rs. 416.74 million in Q3 FY18 as against Rs. 335.33 million in the corresponding period of last year, an increase of 24.28%. In Q3 FY18, net profit stood at Rs. 417.23 million from Rs. 438.06 million in Q3 FY17. The company has reported an EPS of Rs. 13.80 for the December quarter as against an EPS of Rs. 15.73 in the corresponding quarter of the previous year. Break up of Expenditure Break up of Expenditure Value in Rs. Million Q3 FY18 Q3 FY17 % Chng Cost of material consumed 1383.16 1784.56-22% Purchase of stock in trade 165.28 1.13 -- Employee benefits expense Depreciation and amortization expenses 84.82 76.71 11% 78.12 68.16 15% Other expenses 415.05 369.60 12% Excise duty on sales 276.70 128.99 115%
Zero Liquid Discharge: KIL has invested around Rs.420 mn till date on Zero Liquid Discharge to strengthen its environmental responsibilities from the total expected capital outlay of Rs.720 mn, which is in process of completion in the first quarter of FY18-19. As per statutory requirement, the company has undertaken this project to make manufacturing plants- zero liquid discharge. The company will reuse water requirement in manufacturing process and reduce dependence on ground water. It will also help to strengthen reputation of the company internationally. 9M FY18 The Consolidated Net Profit of KIL for 9Months period ending on December 31, 2017 amounts to Rs.2380.06 mn, 12% higher Y-O-Y basis. DyStar s contribution to the Net Profit during the 9Months of FY17-18 has been Rs.1409.3 mn. Similarly, the JV, Lonsen Kiri Chemical Industries Limited (LKCIL) has contributed Rs.17 9.8 mn during the same period. The overall finance costs have reduced by around 67% in the current 9Months in comparison to corresponding period of FY16-17 since debt burden of KIL has been reduced by Rs.2488.6 mn during FY16-17 and further Rs.17.8 mn during current 9Months. Further debt amounting to Rs.88.0 mn of KIL shall get repaid in coming twelve months which shall further strengthen the earnings. KIL s Capex plans envisage contributing to the growth from FY2018-19 which shall add to its portfolio various products including disperse dyes. COMPANY PROFILE Kiri Industries Limited (KIL) is one of the largest manufacturers and exporters of wide range of Dyes, Intermediates and Chemicals from India. It is an accredited and certified Key Business Partner with world s top Dyestuff majors across Asia-Pacific, EU and Americas having footprint in over 50 countries across 7 continents. Kiri is a manufacturer of Reactive Dyes, Dye Intermediates and Basic Chemicals. The Company is a total solution provider across the entire textile value chain providing quality products to its sales network globally. Kiri s operations are vertically integrated across the dyes synthesis textile value chain, to provide dyes, intermediates and basic chemicals. The Company s facilities are also versatile enough to allow it the flexibility to produce Reactive Dyes, acid / metal complex dyes and wool reactive dyes. This in turn has enabled the Company to meet the time, quantity and quality requirement of its customers. By virtue of the large scale facilities and fully integrated operations from manufacturing of basic chemicals, manufacturing of dye intermediaries and dyes, the Company derives benefits of
economies of scales and quality control. This along with the Company s wide product range makes it a preferred partner for sourcing of dyes. Kiri s R&D activities broadly comprise various processes for developing new products and standardizing new analytical methods. It s R&D center focuses especially on products and technologies that improve products and processes for a better ecological profile and provide cost advantages for customers. Through the R&D center, the Company continuously interacts with consumers to obtain feedback on its existing as well as new products to complement its new product development activities.
FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March 31, 2016-2019E FY16A FY17A FY18E FY19E SOURCES OF FUNDS Shareholder's Funds Share Capital 308.84 321.78 450.35 450.35 Reserves and Surplus 5982.33 8808.22 11718.47 14530.90 Share application money 175.98 1270.50 0.00 0.00 Translation Reserve -22.03-5.40 0.00 0.00 1. Sub Total - Net worth 6445.12 10395.10 12168.82 14981.25 Non Current Liabilities Long term borrowings 2688.53 1617.61 1520.56 1368.50 Deferred Tax Liabilities 283.82 322.10 421.95 481.02 Other Long term liabilities 6.10 6.60 6.27 6.58 Long Term Provisions 49.39 73.05 81.09 89.20 2. Sub Total - Non Current Liabilities 3027.84 2019.36 2029.86 1945.30 Current Liabilities Short term borrowings 146.01 105.20 92.57 83.32 Trade Payables 1956.27 1874.55 1949.53 1832.56 Other Current Liabilities 1798.95 313.20 297.54 279.69 Short Term Provisions 17.75 60.73 68.01 74.81 3. Sub Total - Current Liabilities 3918.98 2353.67 2407.65 2270.37 Total Liabilities (1+2+3) 13391.94 14768.13 16606.33 19196.92 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible assets 3328.32 3668.72 3815.46 4044.39 Intangible assets 0.00 94.78 100.46 110.51 Capital Work in Progress 56.39 360.34 518.89 591.53 a) Sub Total - Fixed Assets 3384.71 4123.83 4434.82 4746.44 b) Non-current investments 5678.33 7248.67 8698.40 10264.11 c) Long Term Loans and Advances 148.73 237.50 265.99 305.89 d) Other non-current assets 0.86 0.63 0.74 0.79 1. Sub Total - Non Current Assets 9212.62 11610.62 13399.95 15317.23 Current Assets Inventories 857.76 825.00 1072.50 1329.90 Trade receivables 2534.54 1538.01 1431.70 1726.35 Cash and Bank Balances 200.49 132.46 113.92 141.26 Short-terms loans & advances 573.38 644.87 567.48 658.28 Other current assets 13.14 17.17 20.78 23.90 2. Sub Total - Current Assets 4179.32 3157.51 3206.38 3879.69 Total Assets (1+2) 13391.94 14768.13 16606.33 19196.92
Annual Profit & Loss Statement for the period of 2016 to 2019E Value(Rs.in.mn) FY16A FY17A FY18E FY19E Description 12m 12m 12m 12m Net Sales 10329.47 11231.50 11737.83 13028.99 Other Income 87.46 46.00 71.99 79.91 Total Income 10416.93 11277.50 11809.82 13108.90 Expenditure -9165.36-9662.95-9945.22-11048.59 Operating Profit 1251.58 1614.55 1864.60 2060.32 Interest -734.80-88.22-28.31-19.82 Gross profit 516.78 1526.33 1836.29 2040.50 Depreciation -268.63-292.69-317.83-343.26 Profit Before Tax 248.15 1233.65 1518.45 1697.24 Tax -38.37-130.34-203.78-223.19 Profit After Tax 209.78 1103.30 1314.67 1474.05 Extraordinary Items 46.96 0.97 0.00 0.00 Share of Profit & Loss of Associate 1700.39 1561.14 1595.57 1787.04 Net Profit 1957.13 2665.41 2910.25 3261.09 Equity capital 265.50 278.44 302.44 302.44 Reserves 5982.33 8808.22 11718.47 14530.90 Face value 10.00 10.00 10.00 10.00 EPS 73.72 95.73 96.23 107.83 Quarterly Profit & Loss Statement for the period of 30 th Jun, 2017 to 31 st Mar, 2018E Value(Rs.in.mn) 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18E Description 3m 3m 3m 3m Net sales 2897.82 3012.84 2722.98 3104.20 Other Income 4.82 1.01 35.19 30.97 Total Income 2902.63 3013.85 2758.17 3135.17 Expenditure -2438.30-2523.82-2341.44-2641.67 Operating profit 464.33 490.03 416.74 493.50 Interest -9.94-9.59-5.14-3.65 Gross profit 454.39 480.45 411.60 489.85 Depreciation -76.76-77.81-78.12-85.15 Profit Before Tax 377.64 402.63 333.48 404.70 Tax -33.22-50.38-59.47-60.70 Profit After Tax 344.42 352.26 274.01 343.99 Share of Profit & Loss of Associate 692.35 573.80 143.23 186.20 Net Profit 1036.77 926.06 417.23 530.19 Equity capital 278.44 278.44 302.44 302.44 Face value 10.00 10.00 10.00 10.00 EPS 37.23 33.26 13.80 17.53
Ratio Analysis Particulars FY16A FY17A FY18E FY19E EPS (Rs.) 73.72 95.73 96.23 107.83 EBITDA Margin (%) 12.12% 14.38% 15.89% 15.81% PBT Margin (%) 2.40% 10.98% 12.94% 13.03% PAT Margin (%) 2.03% 9.82% 11.20% 11.31% P/E Ratio (x) 6.23 4.80 4.78 4.26 ROE (%) 3.36% 12.14% 10.94% 9.94% ROCE (%) 16.74% 17.64% 16.01% 14.76% Debt Equity Ratio 0.45 0.19 0.13 0.10 EV/EBITDA (x) 11.85 8.91 8.26 7.38 Book Value (Rs.) 235.32 326.34 397.46 490.46 P/BV 1.95 1.41 1.16 0.94 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 459.50, the stock P/E ratio is at. 4.78 x FY18E and 4.26 x FY19E respectively. Earning per share (EPS) of the company for the earnings for FY18E and FY19E is seen at Rs. 96.23 and Rs. 107.83 respectively. Net Sales and Operating Profit of the company are expected to grow at a CAGR of 9% and 19% over 2016 to 2019E, respectively On the basis of EV/EBITDA, the stock trades at 8.26 x for FY18E and 7.38 x for FY19E. Price to Book Value of the stock is expected to be at 1.16 x and 0.94 x for FY18E and FY19E, respectively. KIL has been taking firm strides in establishing its presence in specialty tech-intensive chemical space and has its focus on organic growth in the Colors business by strengthening its product mix and introducing additional range of products such as disperse dyes and others in its portfolio. The company s expansion plan remains on tract and will start contributing from FY18-19. The on-going research and development is strengthening product basket enabling KIL to improve margins by broadening its product offerings to its customers. KIL has invested around Rs.420 mn till date on Zero Liquid Discharge to strengthen its environmental responsibilities from the total expected capital outlay of Rs.720 mn, which is in process of completion in the first quarter of FY18-19. During Q4 the company expects to improve strengthen its performance in comparison to Q3 since the global markets demands shall open up during January-March, for the next season, especially for the market segments related to textiles, leather, paper, etc to which KIL has been a market leader from India. Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.
INDUSTRY OVERVIEW Economic Outlook India s GDP is expected to expand at faster rate as compared to other major economies, according to the IMF World Economic Outlook, at 7.2% in FY 2017-18, compared to 7.1% in FY 2016-17. Economists suggest that the state action of demonetization and economic reforms in form of Goods and Services Tax (GST) shall not affect the growth of India n economy because of the vast population and the economy is a consumption lead economy. Economists suggest policy initiatives by the Government of India, such as Make in India and Start-up concept, structural reforms (the introduction of GST and formalisation of the inflation targeting framework) has improved the overall confidence for India amongst Industry Captains worldwide. Indian Chemical Industry In terms of value and production volume, Indian chemical industry is the third largest producer in Asia and sixth by output in the world. The Indian Chemical Industry has witnessed robust growth in the past decade and according to United Nations Industrial Development Organization (UNIDO), it is expected to register a growth of 8-9% in the next decade and double its share in global chemical industry to 5-6% by 2021. Many MNCs are focusing on India for considering it as their manufacturing hub. Low labour cost, availability of key raw materials, large consumer markets and adaptability to technology, Governmental Reforms has been the main attractions for having a strong manufacturing base in India. Development in Indian Chemical Industries The Indian Chemical Industry is fundamental part of Indian economy which is key linkages with several mainstream economic segments including agriculture, infrastructure, textiles, food processing plastic, paper etc. It is needed to focus and provide support to knowledge based segments of the chemical industry namely Specialty Chemicals. There is a large talent pool in the country, coupled with huge emerging market resulting from massive urbanization, infra building and increasing aspirations of the masses of India. The development in the Chemical Industries depends upon the five pillars i.e. world class engineering and strong R&D capabilities, enormous growth for the domestic market, Government Policy support and increase in investment initiatives, Great Infrastructural Investment and Increase in GDP and purchasing power. With Asia s growing contribution to the global chemical industry, India is emerging as one of the focus destinations for chemical companies worldwide. The chemicals exports from India in 2015-16 went up by 7.5% in volume terms. During the period from April 2016 Jan 2017, the exports have grown by 1.5% in value and 7.59% volume terms. Indian chemical companies now able to compete with world s chemical companies including China. The impact of the steps initiated by the governments will be visible in the current financial year onwards. This industry has shown remarkable spirit in adverse global conditions. India Chemical Operations continued strong focus on operational efficiencies contributed to improved profitability of the business in a mixed business environment.
Strengthening the backbone of Indian Chemical Industry Since this industry has numerous forward and backward linkages, it is called the backbone of the industrial and agricultural development of the country and provides building blocks for many downstream industries. The GDP of a country depends mainly on its exports. The stability of a country improves when there is more export and less import, and also if the country is self sufficient to meet its needs. Chemical industry not only provides stability to the country but also enhances the confidence. Outlook and Opportunities The Indian chemical industry has graduated from manufacturing principle chemicals in a highly regulated market to being a mature industry in a liberalized economy. Until 1991, India had a closed economy, with the domestic chemical industry enjoying protection in the form of differential import duties on raw materials and finished chemical products. Chemical manufacturing was largely controlled by licensing regulations. The speed of innovations in chemical processing has exceedingly increased over the last couple of years. Now there is more focus on optimizing alternative production technologies and using alternative energy sources. The chemical industry is among the fastest growing ones in India. The bulk of chemicals produced in India comprise either upstream products or intermediates, which go into a variety of manufacturing applications including fertilizers, pharmaceuticals, textiles and plastics, agrochemicals, paints and dyes. The textile dye market remains attractive due to its large market size and around eight percent CAGR. Asia is the most attractive market due to its large demand and high growth rate. Specifically, India, the second largest global dye producer, is ramping up its capacities to meet demand growth within India and Global Markets. Secondly India is gaining a strong foothold in Global Markets because of deteriorating supply from China on account of environmental constraints in China.
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