Commodity Chemicals September 25, 2012 CMP Rs.65.7 BSE Code 532457 BSE ID GULPOLY High/Low 1Y (Rs.) 84.95 / 50.50 Average Volume (3M) 17,304 Market Cap (Rs. Cr.) 55 Shareholding % Jun-12 Mar-12 Promoters 68.85 68.85 DIIs # - - FIIs # - - Public & Others 31.15 31.15 Stock Chart ( Relative to Sensex) Stock Perfm.(%) 1M 6M 1Yr Gulshan Polyols 5.1-11.3 5.0 Sensex 5.6 9.5 16.3 Financials FY10 FY11 FY12 Revenue 220.1 274.9 272.8 Y-o-Y 1.8% 24.9% -0.8% EBITDA 34.8 36.3 37.0 Y-o-Y 0.5% 4.3% 2.0% Net Profit 12.7 16.3 17.9 Y-o-Y -26.8% 28.5% 9.9% EPS (Dil.) 15.22 19.29 20.07 EBITDA Margin 15.8% 13.2% 13.6% Net Profit Margin 5.8% 5.9% 6.6% P/E(x) 4.3x 3.4x 3.3x Financial year ends at March 31 on stand-alone basis. All figures in Rs. crore except for per share data # FIIs- Foreign Institutional Investors # DIIs- Domestic Institutional Investors Gulshan Polyols Limited. Company Overview Incorporated in the year 1981 as Gulsan Sugars and Chemicals Ltd. (GSCL merged with GPL with effect from April 2007), Gulshan Polyols Ltd. (GPL) is primarily engaged in the business of manufacturing calcium carbonate, both precipitated and activated grades, with an initial installed capacity of 2100 MTPA. In a phased manner, GPL expanded its installed capacities to the current levels of 1,05,000 MTPA. As a part of diversification in 1996, the company had set up starch derivative unit for manufacturing cornbased specialty chemicals such as sorbitol (70%) and liquid glucose, which is running at a capacity of 60,000 MTPA at present. GPL has six manufacturing facilities spread across five states in India and also has commissioned 10 MW co-generation power plants at various locations. Company Fundamentals Margins improved despite dip in the sales revenue for FY12 Total revenue for FY12 stood at Rs 272.8 crore against Rs 274.9 crore during the previous financial year, translating into a decline of 0.8% Y-o-Y. The dip in revenue growth is mainly attributed to the global economic slowdown which had an effect on the demand and margin outlook for industrial products across the globe. However, EBITDA margins improved to an extent of 2.0% Y-o-Y despite fall in the revenue growth. The net profit of GPL improved to Rs 17.9 crore in FY12 compared to Rs 16.3 crore in FY11 owing to reduced interest expenses. Operational Performance The company is operating in two business segments of inorganic chemicals, namely sorbitol and calcium carbonate (CC). During the year under review, the company produced a total of 50,700 MT of sorbitol and sweetener (SS) and 83,396 MT of CC, registering a combined de-growth of 9.0% Y-o-Y. The total quantity (both SS and CC) sold during FY12 also declined by 5.7% Y-o-Y. Despite dip in volumes, the product-wise sales of SS and CC improved by 1.3% and 5.3% respectively, owing to better realisation. Venturing into new product segment along with capacity expansion Gulshan Polyols Ltd. intends to diversify its product portfolio into value added starch-based products called mannitol and dextrose monohydrate, which will operate with a capacity of 4,000 MTPA and 12,000 MTPA respectively at Jhagadia Industrial Estate, Gujarat. This diversification is likely to increase the company s reach in specialty polyols and starch derivatives. Further, the company is venturing into new vertical of alcohol division under the brand name Indus Spirits. The facilities for producing IMFL and captive bottling unit are being set up at the industrial area of Boregaon Distt, Chhindwara (M.P.) with a capacity to produce 60,000 litres/day and are likely to commence operations during FY13. Also, the company is focusing to expand its existing wet corn grinding capacity and cater to new segments of starch and sweeteners industry. Key Strengths - Diversified product portfolio - Immense growth potential foreseen in specialty chemical segment, driven by high growing end-user industries Initiative of the BSE Investors Protection Fund -1-
Company Business The company is engaged in the business of producing 19 grades of calcium carbonate (precipitated, activated, ground and wet), sorbitol 70% and liquid glucose used in various industries. Further to this, the company has set up the first on-site PCC (precipitated calcium carbonate) manufacturing plant in the country and the same has been recorded in the Limca Book of records, 2010. GPL provides the technical support for setting up the plant and also supplies raw materials for the same. GPL is supplying PCC for alkaline paper to Paper Mills like ITC Ltd, TNPL, BILT, Shree Krishna Paper Mills Ltd etc. Products of GPL Calcium Carbonate (CC): Calcium carbonate finds applications as input material in various industrial sectors such as PVC and cable, paints, dentifrice, detergents, rubber and plastics. Its clientele includes top companies such as Colgate-Palmolive, Hindustan Unilever, Amar Remedies etc and also exported to countries like Nepal, Bangladesh, Muscat, UAE etc. Sorbitol 70%: Sorbitol is a water soluble polyhydric alcohol having sweet taste and high stability besides properties of humectancy and plasticizing. GPL s starch derivative facility is located at the Jhagadia Industrial Estate in Gujarat with a total capacity of 60,000 MTPA. It has a complete integrated set of operations from Corn, Starch, Dextrose, Sorbitol and is capable of producing crystalline and non-crystalline grades of Sorbitol. It finds applications in healthcare and cosmetics, other confectionaries, textiles, adhesives, paper emulsion, sweetener (sugar substitute) and paints. GPL s client base includes Colgate-Palmolive, Hindustan Unilever, Asian Paints, Dabur etc and is also exported to Asia, Africa and Australia. Liquid Glucose: GPL has its Liquid Glucose manufacturing facility at Jhagadia Industrial Estate in Gujarat, with a total production capacity of 10,000 TPA. Some of the major clients serviced are Britannia Industries, Dabur, Candico, Times Food etc and is packaged in 300 kg barrels 290 kg Galvanized Iron drums or transported loose in S. S. tankers. It finds its applications as sweetener for sweets, biscuits, ice creams, jellies, pastries in pharmaceuticals and in tobacco leather and shoe polish. Liquid Glucose by-products like maize germ, maize gluten and fiber are also packed and sold in the market. Operational Performance of Sorbitol and Calcium Carbonate Sorbitol Calcium Carbonate Particulars FY10 FY11 FY12 FY10 FY11 FY12 Production (MT) 45,846 51,086 50,700 77,628 96,198 83,396 growth % - 11.4% -0.8% - 23.9% -13.3% Qty sold (MT) 45,437 51,796 50,660 80,184 93,805 86,604 growth % - 14.0% -2.2% - 17.0% -7.7% Sales Revenue (Rs Cr) 121.6 150.6 149.2 83.2 107.1 104.1 Sales realization 26,752 29,078 29,442 10,377 11,414 12,017 growth % - 8.7% 1.3% - 10.00% 5.28% Source: Company Annual Reports Initiative of the BSE Investors Protection Fund -2-
Industry Overview The chemical industry is a multi-product and multi-faceted one that comprises basic chemicals, pharmaceuticals, petrochemicals, specialty chemicals, agrochemicals and biotechnology and their sub segments. With Asia s growing contribution to the global chemical industry, India emerges as one of the focus destinations for chemical companies worldwide. The Indian chemical industry, which is worth $108 billion as on FY10, accounts for approximately 7% of Indian GDP*. The chemicals sector accounts for about 14% in overall Index of Industrial Production (IIP). In terms of volume, India is the third largest producer of chemicals in Asia, after China and Japan. Despite its large size and significant GDP contribution, India chemicals industry represents only around 3% of global chemicals. With increasing demand in India based on increasing per-capita consumption, improved export competitiveness and resultant growth impact for each sub-sector of the chemical industry could lead to an overall growth rate greater than 15% p.a. and a size of $290 billion by 2017*. Targets and Policy initiatives for XIIth Plan by Planning Commission Alchol based chemicals 8% Chlor Alkali 8% Overall Chemical Industry Colorants Pesticides Basic Organic Chemicals Specialty Chemicals 13% Source: Indian Chemical Industry Five year plan 2012-2017 report Demand for Specialty Chemicals Global Scenario: The specialty chemicals industry is expected to grow by 14%* with automotive, paints and adhesives industry as key drivers. The global specialty chemical market is $740 billion in FY11, representing a compounded annual growth rate of 3.7% during 2006-11. Indian Scenario: The Indian specialty chemicals industry is valued at $17.7 billion and has grown at 11-13% p.a. over the XI th Plan period (FY07 to FY11). The key specialty segments in India are agrochemicals, paints coating and construction chemicals, colorants, Active Pharmaceutical Ingredients (APIs), personal care chemicals and flavours and fragrances. APIs and colorants, including dyes and pigments, are the key export-oriented products. The growth potential of the specialty chemicals consumption in India is strong and is expected to reach $38 billion by 2016-17*. Broadly the growth is driven by more end-user demand; intensity of consumption and improved consumption standards. Compared to the developed countries like the U.S., Europe and China, the current penetration of specialty chemicals within India s end market is low. With an increased focus on improving products, usage intensity of specialty chemicals within these end markets will rise in India over the decade and also act as an important catalyst to the growth of the overall chemical industry. * Source: Indian Chemical Industry- XIIth five year plan report (Planning Commission of India) Competitor Analysis We have compared Gulshan Polyols Ltd. with its close peers in the chemical industry. Company Year End CMP* M Cap Revenue EBIT Margin Gulshan Polyols Ltd Mar-12 65.7 190 272.8 13.6% 20.07 3.3x Omkar Speciality Chemicals Ltd Mar-12 87.3 172 167.0 22.1% 8.18 10.7x Chembond Chemicals Ltd Mar-12 170 108 152.0 7.7% 10.44 16.3x Source: Company Financials, BSE, ICRA Online Research Market cap and Revenue in Rs. Crore, *CMP as on 24 Sep 2012 EPS P/E Initiative of the BSE Investors Protection Fund -3-
Summary Financials Particulars (Rs crore) FY10 FY11 FY12 Net Sales 198.3 247.9 243.4 Other Op. Revenue 21.8 27.0 29.4 Total Revenue 220.1 274.9 272.8 Growth (%) 1.8% 24.9% -0.8% Cost of Goods Sold -108.7-137.6-156.2 Gross Profit 111.4 137.4 116.6 Employee Costs -7.0-8.4-9.2 Other Expenditure -69.6-92.6-70.3 EBITDA 34.8 36.3 37.0 Growth (%) 0.5% 4.3% 2.0% Depreciation -15.0-14.4-13.3 EBIT Profit 19.8 21.9 23.8 Finance cost -5.5-4.3-3.3 Other Income 0.3 1.2 1.1 Exceptional Items 0.0 0.0 0.0 PBT 14.6 18.8 21.6 Growth (%) -37.2% 28.7% 14.8% Income Tax -1.9-2.5-3.7 Profit after Tax 12.7 16.3 17.9 Extra Ordinary Items 0.0 0.0 0.0 Net Profit 12.7 16.3 17.9 Growth (%) -26.8% 28.5% 9.9% Rep. Basic EPS 15.22 19.29 20.07 Rep. Diluted EPS 15.22 19.29 20.07 Equity Capital 14.4 14.5 14.5 Face value 198.3 247.9 243.4 Ratio Analysis FY10 FY11 FY12 Margins EBITDA Margin (%) 15.8% 13.2% 13.6% Net Profit Margin (%) 5.8% 5.9% 6.6% Valuation P/E (x) 4.3 3.4 3.3 P/BV (x) 1.8 1.6 1.4 Profitability ROCE (%) * - 15.9% 15.1% RONW (%) 12.2% 13.4% 13.1% Solvency Ratio Debt/ Equity Ratio (x) 0.5 0.4 0.3 Interest Cover (x) 3.6 5.1 7.3 *Bifurcation between Long Term and Short Term debt is not available for FY10 Initiative of the BSE Investors Protection Fund -4-
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