Bodal Chemicals (BODCHE)

Management Meet Note Rating Matrix Rating : Unrated Target : NA Target Period : NA Potential Upside : NA Key Financials ( Crore) Net Sales 527.5 959.5 1,045.3 910.0 EBITDA 19.8 115.1 184.1 156.6 Net Profit (23.2) 30.2 91.8 86.0 EPS Adj ( ) (2.1) 2.8 8.4 7.9 Valuation Summary (x) P/E (61.3) 47.0 15.5 16.5 EV / EBITDA 78.8 13.5 8.5 9.9 P/BV 28.3 15.8 7.8 6.0 RoNW (%) (46.2) 33.6 50.6 36.7 RoIC (%) 1.9 22.1 46.6 38.4 Stock Data Particular Amount Market Capitalization 1418 crore Total Debt (FY16) 143 crore Cash (FY16) 4 crore EV 1557 crore 52 week H/L ( ) 155 / 39 Equity capital 22 crore Face value 2 FII Holding (%) 5.3 DII Holding (%) 0.0 Price Performance Return (%) 1M 3M 6M 12M Bodal Chemicals (.2) (4.2) 32.4 198.7 Kiri Industries (.3) (21.4) 41.5 148.7 Bhageria Industries (6.9).8 313.9 413.1 Shree Pushkar Chemicals (6.7) 29.9 35.6 101.2 Aksharchem (India) (1.7) 55.3 173.7 308.3 Price Movement 10,000 8,000 6,000 4,000 2,000 Dec13 Apr14 Research Analysts Sep14 Jan15 Price (R.H.S) Chirag J Shah shah.chirag@icicisecurities.com Jun15 Shashank Kanodia, CFA shashank.kanodia@icicisecurities.com Oct15 Feb16 Jul16 Nifty (L.H.S) Nov16 1 1 1 0 December 1, 16 Bodal Chemicals (BODCHE) Industry leader well poised for growth... 130 We recently attended the analyst day of Bodal Chemicals (Bodal). We met the senior management team to get an insight into the global dyes & dye intermediates industry and the company s role in the value chain. We were impressed by the industry stewardship of Bodal and lucrative expansion plans, which will ensure a sustainable topline and bottomline growth (~% CAGR) in FY1619E. Bodal is a three decade old enterprise engaged in the manufacture of basic chemicals, dye intermediates and dyestuff that are used across the textiles, leather and paper industry. It follows an integrated approach wherein it produces almost all chemicals along the dyestuff chain. Bodal has an installed capacity of 190,000, 30,000 & 17,000 tonne of basic chemicals, dye intermediates and dyestuff, respectively. It commands a market share of ~3% of the global and ~10% of the domestic dyestuff industry. In terms of dye intermediates, its market share is at ~5% at the global level and ~% domestically. The entire dyestuff industry and Bodal, in particular, have been natural beneficiaries of muted supply from China amid stringent pollution control norms and declining cost competitiveness of Chinese players in the global manufacturing space. In FY16, sales stood at 910.0 crore, EBITDA at 156.6 crore (EBITDA margins 17.2%) and PAT at 86.0 crore. Bodal is on a strong footing with healthy growth visibility in FY1619E. However, the company is susceptible to realisation risks amid volatile crude prices. Dye stuff & dye intermediates constitute 86% of revenues as of FY16 Sales can be largely bifurcated into three broad heads with dye intermediates comprising the majority share at 52% of sales as of FY16. Dyestuff constitutes 35% of sales with basic chemicals comprising the remaining 12% of sales. Bodal is currently operating its dye intermediates facility at ~75% utilisation levels and dyestuff facility at ~% utilisation levels. Sensing the same, the company has embarked on impressive capex plans both in related business segment (dyestuff) and diversified businesses (LABSA, liquid dyestuff, Trion Chemicals). Healthy balance sheet, robust cash flows and return ratios! Robust growth in EBITDA margins from 3.7% in FY13 to 17.2% in FY16 and a stable working capital cycle have led to strong return ratios with FY16 RoE and RoIC at 36.7% and 38.4%, respectively. The company is efficient in cash generation from its business with CFO in FY15 and FY16 at 198 crore and 131 crore, respectively. This has largely resulted in a substantial debt reduction with debt declining from 372 crore as of FY14 to 143 crore in FY16 with consequent debtequity at 0.6x (FY16). At the CMP of 130, Bodal trades at 13.0x P/E (TTM basis) and 6.0x P/B (FY16). Exhibit 1: Financial Performance ( Crore) FY12 Net Sales () 613.7 527.5 959.5 1,045.3 910.0 EBITDA () 3.4 19.8 115.1 184.1 156.6 Net Profit () (29.8) (23.2) 30.2 91.8 86.0 EPS Adj ( ) (2.7) (2.1) 2.8 8.4 7.9 P/E (x) (47.5) (61.3) 47.0 15.5 16.5 Price / Book (x) 24.5 28.3 15.8 7.8 6.0 EV/EBITDA (x) 459.4 78.8 13.5 8.5 9.9 RoIC (%) (1.6) 1.9 22.1 46.6 38.4 RoE (%) (51.4) (46.2) 33.6 50.6 36.7 ICICI Securities Ltd Retail Equity Research

Exhibit 2: Activity flow diagram Exhibit 3: Activity flow diagram India gaining competitiveness over Chinese counterparts China is the largest manufacturer and supplier of dye intermediates and dye stuff globally, with share in global supply in excess of ~%. Chinese firms, however, of late, are losing their competitive advantage amid stringent pollution control norms and consequent requirement of setting up effluent treatment plants. The rapid rise in labour costs as well as declining state support have also led to its diminishing cost advantage thereby benefiting Indian players at large. Moreover, with frequent plant shutdowns in China, global customers are looking at diversifying their procurement base and increasingly targeting India as the next alternate source thereby benefiting Indian dye intermediates and dye stuff industry at large. ICICI Securities Ltd Retail Equity Research Page 2

Exhibit 4: Key expansion plans Dyestuff business Bodal will augment its dyestuff capacity by 00 tonne incurring a capex of ~ 28 crore largely funded through internal accruals. It is expected to be commissioned by H2FY18. At peak utilisation levels, it is expected to generate an incremental revenue of ~ 1 crore with EBITDA margins at ~16% and consequent RoCE in excess of 50%. Trion Chemicals Bodal has made an investment of ~ 15 crore in Trion Chemicals for a 42% stake. These chemicals are primarily used in swimming pools as disinfectant and as a bleaching agent in the textile industry. Production is expected to be commissioned in H2FY17. Being a high margin business (EBITDA margin of 22%) with revenue potential of ~ 225 crore at peak capacity, it is expected to boost profitability with annual PAT accruals of ~ 10 crore and consequent RoCE in excess of 50%. LABSA Bodal has recently commissioned an 100 tonne LABSA capacity at a capex of 12 crore with revenue coming in at 24 crore YTD FY17. This facility has a revenue potential of ~ crore with EBITDA margins expected at ~6% and consequent RoCE in excess of %. The company plans to double the capacity to 300 tonne at an incremental capex of ~ 5 crore consequent to robust market demand. The company houses this business in its wholly owned subsidiary i.e. Bodal Agrotech, which will eventually be merged into the parent entity in the near term (FY17E). Liquid dyestuff Bodal has also recently commissioned a 100 tonne liquid dyestuff facility, which is a high margin business (EBITDA margin of 21%). Liquid dyestuff is mainly used in the paper industry. The company incurred a capex of 14 crore for the same. At optimum capacity, this segment has a revenue potential of ~ crore with consequent RoCE in excess of %. Bodal is primarily targeting export markets for this product profile. ICICI Securities Ltd Retail Equity Research Page 3

Key financial Revenues have grown at 19.9% CAGR in FY1316 to 910 crore in FY16. Revenues declined 12.9% in FY16 over FY15 in value terms due to a drop in realisations, which is largely crude linked. However, in volume terms the dyestuff, dye intermediates & basic chemicals registered robust volume growth of ~%, ~5% & ~%, respectively. Exhibit 5: Revenue trend; records CAGR of 19.9% in FY1316 Production volume of Dyestuff was at 12764 tonne in FY16 while the same in FY15 was at 9021 tonne. Production volume of dye intermediates was at 21759 tonne in FY16 while the same in FY15 was at 625 tonne. Production volume of basic chemicals was at 177751 tonne in FY16 while the same in FY15 was at 1488 tonne 1,0 1,000 0 0 527 9 1,045 910 0 0 Exhibit 6: Segmental revenue in FY16 Basic Chemicals, 12% Other, 2% Exhibit 7: Sales mix: domestic vs. export Dyestuff, 35% Dye Intermediates, 52% Export, 34% Domstic, 66% EBITDA margins have improved to the tune of 1350 bps in FY1316. Margins improved to 17.2% in FY16 vs. 3.7% in FY15. Exhibit 8: EBITDA & EBITDA margins (EBITDA grows at CAGR of 99.4% in FY1316) 0 1 1 1 1 3.7 19.8 17.6 17.2 12.0 115.1 184.1 156.6 18 16 14 12 10 8 6 4 2 % EBITDA () EBITDA Margin (%) ICICI Securities Ltd Retail Equity Research Page 4

Robust growth in EBITDA margins from 3.7% in FY13 to 17.2% in FY16 and stable working capital cycle have led to strong return ratios with FY16 RoE and RoIC at 36.7% and 38.4%, respectively. The company is efficient in cash generation from its business with CFO in FY15 and FY16 at 198 crore and 131 crore, respectively. This has largely resulted in a substantial debt reduction with debt declining from 372 crore as of FY14 to 143 crore in FY16 with consequent debtequity at 0.6x (FY16). Exhibit 9: RoIC & RoE trend 50.6 33.6 38.4 46.6 36.7 1.9 22.1 % () () (46.2) () RoIC (%) RoE (%) Exhibit 10: PAT grows at CAGR of 68.9% in FY1416 8.4 7.9 2.8 91.8 86.0 30.2 (2.1) (23.2) FY13 () FY14 FY15 FY16 () Net Profit () EPS Adj ( ) 10 8 6 4 2 (2) (4) /share PAT has grown at a CAGR of 68.9% in FY1416. Net working capital cycle has been largely stable in the last two years with net working capital days at ~ days in FY15 16 Exhibit 11: Net working capital days 89 90 days 70 56 56 58 50 30 10 Exhibit 12: Debt: equity profile Debt: equity is on the decline with debt: equity declining from 6.9x as of FY13 to 0.6x as of FY16 0 350 300 250 0 150 50 0 6.9 348.0 50.2 371.7 4.1 89.8 8.8 181.5 1.2 142.9 234.6 0.6 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 x Debt Equity Debt:Equity ICICI Securities Ltd Retail Equity Research Page 5

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