Date : 21 st September, 2012 CHEMBOND CHEMICALS LTD.(CHEMBOND) Stock Performance Details Current Price : Rs. 170.00** Face Value : Rs. 10 per share 52 wk High / Low : Rs. 213.9 / Rs. 132.0 Total Traded Volumes : 280 shares** Market Cap : Rs. 108 crore** Sector : Speciality Chemicals - Inorganic EPS (FY2012) : Rs. 19.70 per share P/E (TTM) : 11.40 (x)^ P/BV (TTM) : 1.87 (x)^ Financial Year End : 1 st April 31 st March BSE Scrip Name : CHEMBOND BSE Scrip Code : 530871 **as on21 st September, 2012; ^ as on June 2012 Shareholding Details June 2012 Particulars Shareholding Nos. (%) Promoter & Promoter Group Holding 42,51,314 66.84 Total Institutional Holdings (FIIs & DIIs) 23,800 0.37 Public Holdings 20,85,298 32.79 Total 63,60,412 100.00 Strategy Focus Chembond Chemicals Ltd (Chembond), which is based in Navi Mumbai, Maharashtra, is one of the leading manufacturers and suppliers of Specialty Chemicals to diverse sectors of industry such as automobile, steel mills, fertilizers, refineries and petrochemicals, power plants and infrastructure projects such as metro systems, bridges and expressways. It has manufacturing plants in Tarapur, Baddi, Dudhwada, Chennai and Balasore. Background The R&D facilities are located at Mhape in Navi Mumbai and are certified by the Department of Scientific and Industrial Research, Ministry of Science and Technology, New Delhi. In the construction chemicals field, the Company offers concrete admixtures, waterproofing, concrete repair, grout and anchor, surface treatment, joint sealant, tiling and cementitous flooring. The Coatings division consists of High Performance Coatings and Floor Coatings. Chembond's Animal Health Business has national presence. Within its Industrial Enzymes division the company has a presence in Textiles and Distilleries. Chembond has a Joint Venture with Ashland Inc, USA and specialises in water treatment chemicals. H2O Innovation India Limited was formed in April 2010, as a joint venture between Chembond and H2O Innovation Inc, Canada, to engineer, manufacture and supply custom built technological solutions in various water treatment processes. Henkel Chembond is a Joint Venture with Henkel KGaA and has facilities in Delhi, Chennai, Mumbai, Pune, and Uttarancha and caters to the metal pretreatment, water treatment, protective coatings, building chemicals, and monitoring instrumentation industries. Chembond has identified Water as the major area of thrust and has entered into a Joint Venture with H 2 O Innovation India Ltd. to offer complete solution to water problems - from RW treatment to waste water recycling. While, it has consolidated its position in the construction chemicals field and strengthened its distribution channel. It has also invested in equipping itself with the latest R&D and product development laboratory to be able to face competition. The Company is developing new products in the Coatings division for the infrastructure sector and for large turnkey projects. Chembond has also undertaken expansion at Dudhwada site to enable capacity addition, required due to higher demand for coatings and for metal treatment chemicals at Tarapur. The Company is investing in newer product lines for animal health, bioremediation, and in the expansion of construction chemicals and coatings. Plans are underway to diversify into the field of Biotechnology to introduce more eco friendly and energy efficient processes. It has launched products for textile pre-treatment and enzymatic finishing. In addition to the existing products for grain based alcohol production, it launched a new product which helps improve the production of alcohol from molasses under its distilleries business segment. The company intends to focus on strengthening its presence in the Animal Health business across neighboring countries after having being able to set its footprint in the domestic markets. An Initiative of the BSE Investors Protection Fund 1
Financial Snapshot Particulars Consolidated Financials (Rs. in Million) Income Statement FY12 FY11 FY10 Net Sales / Income from Operations 2,284.5 2,067.8 1,750.5 Expenses Cost of material consumed 1,468.3 1,293.2 1,025.9 Change in Inventories -19.8-10.5 6.6 Employee Benefit Expenses 255.2 207.3 166.8 Administrative & Other Expenses 363.4 329.5 341.3 EBIDTA 217.4 256.6 234.1 Depreciation & Amortization 21.0 18.6 16.7 Finance Costs / Interest Expense 36.4 31.1 30.4 Other Income 43.50 40.9 34.1 Profit After Tax (PAT) 138.5 161.5 143.0 Key Ratios Income Statement EBIDTA Margin (%) 9.5 12.4 13.4 PAT Margins (%) 6.1 7.8 8.2 Balance Sheet Networth 827.5 702.4 506.7 Non Current Liabilities / Loan Funds 106.6 244.2 226.5 Non Current Assets / Fixed Assets 474.7 330.9 315.6 Inventories 317.1 259.3 196.4 Debtors 630.7 596.6 515.9 Key Ratios Balance Sheet Debt : Equity (x) 0.14 0.4 0.5 Book Value (BV) (in Rs.) 130.1 96.2 78.7 Return on Capital Employed (ROCE) (%) 26.0 31.9 34.6 Return on Equity (ROE) (%) 16.7 25.7 28.5 Debtors Turnover Ratio (x) 3.6 4.1 4.0 Inventory Turnover Ratio (x) 7.2 9.9 10.4 Valuation Ratios P/E (x) 9.2 9.8 7.3 P/BV (x) 1.6 2.0 1.7 EV / EBDITA (x) 4.01 4.6 3.6 Source : Capitaline.com; as on 31 st March, 2012 From the Research Desk of LKW s Gurukshetra.com The Company's Sales grew by 10.04% on a consolidated basis mainly driven by the Construction Chemicals segment which grew by about 60%. The same stood at Rs. 2,284.5 million in FY2012 The profit after tax de-grew by 14.24% on a consolidated basis while the margins dipped as the Company has made investments in the future of the Company in the newer product lines for animal health, bioremediation, and in the expansion of construction chemicals and coatings. The year ended March, 2012 also saw investments in the new facilities for coatings at Dudhwada and at Ranipet, Tamil Nadu for construction chemicals and metal treatment. As such, the Company's expenses have been in line with the growth in sales and have been under control. The increase in input costs due to inflationary pressure has resulted in the margins coming under pressure which stood at 9.5% at the EBIDTA level and 6.1% at the PAT level in FY2012. The same in FY2011 was12.4% and 7.8% respectively at the EBIDTA and PAT level. An Initiative of the BSE Investors Protection Fund 2
The R&D Expenses as a percentage of turnover was 0.3% for FY2012 as against 0.17% in FY2011 which appears to be in line with its strategic focus of investing in R&D activities. Although, on a standalone basis the company s performance was satisfactory, in terms of consolidated financials it witnessed pressure due to lower than expected margins in its joint venture business segments of Auto and Engineering sectors that were impacted by the slowdown and devaluation of rupee. Further, with the company venturing into newer areas during the last couple of years, it has undertaken huge investments that have resulted in lower profits. For Q1 FY 2013, Chembond's sales grew by 27.15% at Rs. 439.7 million. However EBITDA was under pressure due to rising expenditure and witnessed a drop of 24.27%. Net Profits also dropped by 45% and resultantly profitability margins came under pressure. The Company follows an integrated SHE-Q Management System under which, the Tarapur plants are ISO 9001, ISO 14001, OHSAS 18001 and ISO/TS 16949 certified. The corporate office and the Baddi and Dudhwada plants are ISO 9001 certified. Chembond is in process of obtaining ISO 14001 and OHSAS 18001 for its Baddi and Dudhwada Plant. Performance on the Bourses Stock Performance as on 20 th September 2012 % 120 100 80 60 40 20 - Chembon Chem Ltd BSE Small Cap Peer Comparison The below table gives a snapshot of the financial performance of the company for FY2012 vis-à-vis a peer from the Speciality Chemicals segment. (Rs. In million) Particulars Chembond Fineotex Chemicals Chemicals ## Net Sales 2,284.5 282.4 EBIDTA 263.4 60.7 PAT 138.5 42.5 EBIDTA Margins (%) 11.5 21.4 PAT Margins (%) 6.1 15.0 P/E (x)^ 11.4 8.41 P/BV (x)^ 1.87 0.81 Debt : Equity (x) 0.37 0.0 EV / EBITDA (x)^ 5.44 2.07 Source : Capitaline Database, ^TTM as on June 2012; ## as per Standalone Financials An Initiative of the BSE Investors Protection Fund 3
About the Industry According to the Government of India, the specialty chemicals sector of the country has potential to grow by 13-14 per cent per year during 2012-17. The chemical sector registers around one-eighth of India's industrial production and one-sixth of the country's exports of manufactured goods. Specialty chemicals is a highly knowledge driven industry, in which R&D plays a pivotal role for development of non-conventional specialty chemicals where raw materials cost much less than any commodity chemicals. The chemical sector registers around one-eighth of India's industrial production and one-sixth of the country's exports of manufactured goods. The specialty chemicals segment has grown at 11-13 per cent p.a. over the XI th plan period (FY07 to FY11). Outlook The specialty chemicals segment is poised for significant growth. This segment was adversely impacted during the global economic slowdown. However, postrecession it has successfully returned to the growth trajectory due to growth being witnessed in several industries from which it derives its demand. Further specialty chemicals segment is now required to customise most products as per consumer requirements, which demands huge investment in R&D to undertake technology upgradation and ensure product innovation. Companies like Chembond who have the experience and R&D capabilities are poised to benefit from the positive outlook for the sector. India's specialty chemical industry (excluding agrochemicals and dyes & pigments) is currently valued at USD 17.7 billion and is an important growth driver for Indian economy. This segment has the potential to reach USD 38 billion by the end of XII th Five Year Plan period growing at a rate of 13-14 per cent p.a. According to the Indian Chemical Council (ICC), the Indian chemical industry is diverse having several sub-sectors and there is a need for a comprehensive policy focusing on each segment of the domestic chemical industry. The unique properties of each segment within the domestic chemical industry call for separate analysis to understand their applications and competitive edge in a better manner. As per the Planning Commission, with Asia s growing contribution to the global chemical industry, India emerges as one of the focus destinations for chemical companies worldwide. With its current size of approximately USD 108 billion, the Indian chemical industry accounts for ~3% of the global chemical industry. The Indian chemical industry could grow at 11% p.a. to reach a size of USD 224 billion by 2017. Disclaimer All information contained in the document has been obtained by LKW s Gurukshetra.com from sources believed to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and LKW s Gurukshetra.com in particular makes no representation or warranty express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion, and LKW s Gurukshetra.com shall not be liable for any losses incurred by users from any use of this document or its contents in any manner. Opinions expressed in this document are not the opinions of our company and should not be construed as any indication of our recommendation to buy, sell or invest in the company under coverage. An Initiative of the BSE Investors Protection Fund 4
Financial Graphs Net Income from Operations 2,500 2,000 Rs.in Million 1,500 1,000 500 1,751 2,068 2,285 0 FY 2010 FY 2011 FY 2012 EBITDA & EBITDA Margins 270 13.4 14 Rs. in Million 255 240 12.3 253 11.5 263 12 % 225 234 FY 2010 FY 2011 FY 2012 10 EBIDTA EBIDTA Margins PAT & PAT Margins Rs. in Million 170 150 130 110 90 70 8.2 7.8 162 143 6.1 139 10 8 6 4 2 % 50 FY 2010 FY 2011 FY 2012 0 PAT PAT Margins An Initiative of the BSE Investors Protection Fund 5
Disclosure Each member of the team involved in the preparation of this report, hereby affirms that there exists no conflict of interest. The report has been sponsored and published as part of Initiative of BSE s Investors Protection Fund About Us LOTUS KNOWLWEALTH (LKW), commenced business in 1990 and is currently engaged in providing WEALTH ADVISORY, CORPORATE ADVISORY and ECONOMIC & FINANCIAL RESEARCH & CONTENT services. LKW s ECONOMIC & FINANCIAL RESEARCH & CONTENT division currently generates Reports on Economic & Industry Trends, Global & Indian Equity Markets, Fundamental Analysis of IPOs, Companies & Industries, Management Meeting Reports, Balance Sheet & Financial Analysis Reports and an Economic Political and Sentiment Barometer. LKW also conducts Capital Market related Training Programs and has cutting edge expertise in Mutual Fund Analysis and specializes in Grading of Mutual Fund Schemes and IPOs. GURUKSHETRA.com is an online initiative of LKW that focuses on Personal Finance while theipoguru.com is India s Premier Primary Market (IPO) Portal. Contact Us LOTUS KNOWLWEALTH Pvt. Ltd. Regd.Office : B Wing, 505-506, Fairlink Centre, Off Andheri Link Road, Andheri (W), Mumbai 400 053 Email : consulting@lotusknowlwealth.com Tel : 022-4010 5482 4010 5483 Website : www.lkwindia.com www.gurukshetra.com An Initiative of the BSE Investors Protection Fund 6