ENGLISH INDIAN CLAYS LTD. (EICL) Date : 18 th September, 212 Current Price : Rs. 38.1** Face Value : Rs. 2 per share 52 wk High / Low : Rs. 47.6 / Rs. 3.5 Total Traded Volumes : 1,78 shares** Market Cap : Rs. 191 crore** Sector : Commodity Chemicals EPS (FY212) : Rs. 2.14 per share P/E (TTM) : 17.62 (x)^ P/BV (TTM) : 1.65 (x)^ Financial Year End : 1 st April 31 st March BSE Scrip Name : EICL LTD BSE Scrip Code : 52656 **as on 18 th September, 212; ^ as on June 212 Particulars Promoter & Promoter Group Holding Total Institutional Holdings (FIIs & DIIs) Stock Performance Details Shareholding Details June 212 Shareholding Nos. (%) 3,91,74,63 77.92 29,93,544 5.95 Public Holdings 81,7,866 16.13 Total 5,2,76,13 1. Strategy Focus The company is witnessing increasing competition in the Calcined Clay Business. To counter the same, it has set up warehouses at strategic locations to offset the long delivery cycle in Kerala. For the starch business, the company plans to focus on research and Development and provide better import substitutes to sustain its market share. It is also looking at export markets in Asia and Africa. For its Speciality Clay business, EICL has set up a Green Field plant in Shimoga, Karnataka and shut down the unviable Pondicherry plant for the Starch business. This it expects, will enhance its competitive positioning and also increase the capacity utilisation levels. Meanwhile, for its clay business, it plans to set up a manufacturing facility at Bhuj in Gujarat. The company is also focussing on modernisation of its facilities to improve efficiencies. It continues to lay thrust on exports which is expected to drive growth in FY 213. English Indian Clays Ltd (EICL) was incorporated in 1963 in technical & financial collaboration with English China Clays (ECC) Ltd., U.K. The collaboration with ECC ceased in the year 1992. Recently, the company has formally changed its name from English India Clays Ltd. to EICL. Background EICL has two key Divisions, viz., Clay & Starch Divisions. The Clay Division has three manufacturing locations in Kerala and specialises in mining and processing of high end kaolins. EICL s Clay business is the largest integrated clay facility in Asia that is into mining and refining high end Calcined and Hydrous Clays. The total installed capacity is 24, tonnes per annum. The Calcined Clay capacity is 6, tonnes. Some of the end user industries for Clay include Paper & Board, Paint, Printing Inks, Rubber, Cable, Plastic, Glass Fiber, Ultramarine and Concrete Industries. The Starch Division has two manufacturing units, one located at Yamuna Nagar, Haryana which manufactures Starch and its derivatives, and the other located at Shimoga that exclusively specializes in the manufacture of value added Modified Starches for various Industrial applications. The company produces Starches for different applications, with particular focus on value added Speciality Starches. The business today has capacity of 765 MT per annum (both Maize and Tapioca products). The Starch Division was started under the name of Bharat Starch Industries in the year 1937. It was subsequently taken over by EICL Limited in the year 22. EICL Starch finds applications in Paper Industry, Paper Sack/ Packaging Industry, Pharmaceutical Industry, Confectionery, Food & Beverage Industry, Textile Industry and Oil well Drilling Industry. An Initiative of the BSE Investors Protection Fund 1
Financial Snapshot Particulars Standalone Financials Income Statement FY12 FY11 FY1 Net Sales / Income from Operations 3,78.9 3,561.5 3,364.6 Expenses Cost of material consumed 1,351.4 1,31.8 1,25.9 Change in Inventories -51.7-4.8-1.5 Employee Benefit Expenses 368.5 328.1 299.5 Administrative & Other Expenses 1,587.6 1,518. 1,353.4 EBIDTA 531.1 695.2 687.4 Depreciation & Amortization 133.7 123.6 118.5 Finance Costs / Interest Expense 195.9 137.6 143.7 Other Income 21.7 19.8 19.8 Profit After Tax (PAT) 148.4 33.9 294.1 Key Ratios Income Statement EBIDTA Margin (%) 14. 19.5 2.4 PAT Margins (%) 3.9 8.5 8.7 Balance Sheet Networth 1,543.6 1,451. 1,244. Non Current Liabilities / Loan Funds 587. 398.3 1,71.6 Non Current Assets / Fixed Assets 2,435.9 2,23.5 1,968.2 Inventories 425.4 366.2 295. Debtors 463.2 46.4 381.8 Key Ratios Balance Sheet Debt : Equity (x).63.69 1.2 Book Value (BV) (in Rs.) 24.72 22.88 211.19 Return on Capital Employed (ROCE) (%) 2.67 28.11 25.7 Return on Equity (ROE) (%) 16.95 25.76 25.7 Debtors Turnover Ratio (x) 8.45 8.72 9.89 Inventory Turnover Ratio (x) 9.86 11.1 11.97 Valuation Ratios P/E (x) 17.76 8.72 1.31 P/BV (x) 1.54 1.95 2.78 EV / EBDITA (x) 4.42 3.62 5.13 Source : Capitaline.com; as on 31 st March, 212 From the Research Desk of LKW s Gurukshetra.com Net Sales for FY212 on a standalone basis stood at Rs. 3,78.9 million which has increased marginally by 6% y-o-y. The sales have not grown as expected due to the slowdown witnessed by the manufacturing industries. However, exports increased from Rs. 173.7 million in FY211 to Rs. 253.1 million for the period under review thus marking an increase of about 46% y-o-y. The Clay business segment accounts for about 54% of the total turnover while the balance comes from the starch business. In terms of growth in these segments, though volumes in the clay business remained flat, higher realization due to higher prices and product demand. Meanwhile, the starch segment revenues were marginally better than previous year on account of improved sales realizations. An Initiative of the BSE Investors Protection Fund 2
However, the operational profit as measured by EBIDTA came under pressure thereby squeezing the EBIDTA margins for FY212. This was primarily due to rising input costs, especially the prices of maize, high power and fuel costs and a rise in inventory levels. The EBIDTA stood at Rs. 411.8 million against Rs. 416 million in FY211. Further, for the starch segment, the impact was felt of the slowdown witnessed by the paper and other industry segments and also due to slower than expected product approvals that were rolled out from the Shimoga Plant. For the year ended 31 st March, 212 the power and fuel costs as a percentage of sales were 21.5% and stood at Rs. 811.5 million as compared to FY211, where it was 694.7 million. Further, rise in price of maize the key raw material input too led to expansion of the costs as increase in raw material prices could not be fully passed on to its customers. In addition to this, high finance costs too seem to have impacted the bottomline performance. The PAT stood at Rs. 148.4 million as compared to Rs. 33.9 million in FY211 marking a decline of 51% on y-o-y basis. Resultantly, the PAT margins slipped from 8.5% in the previous year to 3.9% during FY212. The R&D expenditure of the company for FY212 stood at.59% as a percent of total turnover as against.51% in FY211. The inventory as at 31 st March, 212 have increased by 16% and stood at Rs. 425.4 million as compared to Rs. 366.2 million during the last fiscal. In Q1 FY13 too EICL reported a huge decline of 58% in bottomline at Rs. 35.1 million because of increase interest costs, slower growth in the topline and increased cost of manufacturing. The net sales stood at Rs. 1,11.4 million as compared to Rs. 974.2 million which improved marginally by 4% y-o-y. However, the EBIDTA declined by over one fourth due to a sharp rise in the power and fuel costs for Q1 FY13 as compared to Q1 FY12. Performance on the Bourses Stock Performance as on 17th September 212 % 16 14 12 1 8 6 4 2 EICL BSE Small Cap An Initiative of the BSE Investors Protection Fund 3
Peer Comparison While the company operates in the Chemicals segment within the Indian Chemical Industry, it faces competition from the organized as well as unorganized players in the industry. However, within the listed space, Riddhi Siddhi Gluco Biols and Sukhjit Starch & Chemicals are some of the companies which operate in similar lines of business. However, these are not directly comparable. The financial snapshot for 212 is given in the table mentioned below for EICL and its peers. (Rs. In million) Standalone Financials Particulars English Indian Riddhi Siddhi Sukhjit Starch & Clays Gluco Biols Chemicals Net Sales 3,78.9 1,17.3 3,534.3 EBIDTA 531.1 2,548.3 444.8 PAT 148.4 1,644.9 221 EBIDTA Margins (%) 14. 25.4 12.5 PAT Margins (%) 3.9 16.4 6.3 P/E (x)^ 17.62 1.37 8.6 P/BV (x)^ 1.65.63.81 Debt : Equity (x).63.9.3 EV / EBITDA (x)^ 5.26 1.9 4.64 Source : Capitaline Database, ^TTM as on June 212 About the Industry The company's products find application in a wide range of industries including Paper & Board, Paint, Printing Inks, Rubber, Cable, Plastic, Glass Fiber, Ultramarine, Concrete, Paper Sack/ Packaging Industry, Pharmaceutical Industry, Confectionery, Food & Beverage Industy, Textile Industry and Oil well Drilling Industries. Thus its prospects will be directly linked to those of these end user industries. The company has witnessed a slowdown in its end user clients from the paper, paints as well as textile segments. The paint industry which usually witnesses sound growth in thrid quarter was impacted during FY212 and a recessionary phase in the textile industry too impacted the perfroamnce of commodity chemical providers. Further it has seen a downturn in the starch import cycle form August 211 on account of rising fuel prices and imposition of anti dumping duty on some of the imported chemicals. The user industries are also adversely impacted due to rising fuel prices as well as high interest rate scenario. The clay industry is expected to grow by 6-8% while the modified starch industry is also expected to show moderate growht of 4-5% (Source: Company Annual Report ). Outlook Given the macroeconomic headwinds, the company is expected to be impacted by the downward trend in some of its key user industries. The rising fuel prices and chemical prices are expected to hamper the growth of the company. Further with rising contribution of exports, the impact of currency fluctuation also needs to be taken into account. With no major capacity expansions in the industry the competitive scenario is expected to remain unchanged. However, successful commissioning and increasing capacity utilization of the company's manufacturing plants may enhance EICL s competitive positioning. 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 3,9 Net Income from Operations Rs.in Millions 3,75 3,6 3,45 3,3 3,15 3,781 3,562 3,365 FY 21 FY 211 FY 212 EBITDA & EBITDA Margins Rs. in Millions 75 6 45 3 15 2.4 19.5 687 695 14. 531 25 2 15 1 5 % FY 21 FY 211 FY 212 EBIDTA EBIDTA Margins PAT & PAT Margins 4 8.7 8.5 1 Rs. in Millions 3 2 1 3.9 294 34 148 FY 21 FY 211 FY 212 8 6 4 2 % 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 199 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, 55-56, Fairlink Centre, Off Andheri Link Road, Andheri (W), Mumbai 4 53 Email : consulting@lotusknowlwealth.com Tel : 22-41 5482 41 5483 Website : www.lkwindia.com www.gurukshetra.com An Initiative of the BSE Investors Protection Fund 6