For private circulation only Volume No. I Issue No. 39 Sukhjit Starch & Chemicals Sweet prospects Price: Rs 289 Target Price: 400 Sensex: 26,626 Nifty: 7,969 FINANCIALS SUMMARY Year Net OPM OP Other PBIDT Interest PBDT Deprn PBT Total PAT EPS Sales (%) income Tax (Rs)* 1603 (12P) 677.52 12 81.3 0.6 81.9 22.19 59.72 17.59 42.13 13.06 29.07 39.4 1503(12P) 589.15 11.4 67.34 0.58 67.92 18.8 49.12 14.9 34.21 10.11 24.1 32.7 1403 (12) 508.43 10.1 51.1 0.48 51.58 16.65 34.93 12.27 22.66 6.62 16.04 21.7 1303(12) 419.74 12.1 50.95 0.37 51.32 14.12 37.2 8.85 28.35 6.77 21.58 29.2 1203 (12) 354.33 12.8 45.37 0.62 45.99 11.19 34.8 7.13 27.67 5.56 22.11 30 * On current equity of Rs 7.38 crore. Face Value: Rs 10. (P): Projections. Figures in Rs crore Source: Capitaline Databases STOCK DATA BSE Code : 524542 BSE Group : B NSE Code : Not listed Bloomberg : SHSC IN Reuters : SSCL.BO Par Value : Rs 10 52-week High/Low : Rs 324 / Rs 146 Sector : Miscellaneous SHAREHOLDING PATTERN* Category % of equity Foreign : 0.13 Institutions : 0.38 Corp Holding : 3.21 Promoters : 60.28 Public & Others : 36 * as on 30/06/2014 Source: Capitaline Databases Sukhjit Starch & Chemicals (SSCL) is engaged in the manufacture of Starch and Starch derivatives. It is one of the largest starch manufacturers in India. Sukhjit s technical expertise of more than 60 years ensures optimum adaptation to end use. Apart from Native Starch, the Company manufactures modified starch, dextrine, Liquid Glucose, HMS, Maltro-Dextrin, Mono-Hydrate Dextrose, Any-Hydrose dextrose, sorbitol-70% Solution and various By-Products, catering to a wide spectrum of Industries. A double pronged approach using State-of-the-art technology as well as exploiting indigenous potential is the Company philosophy that has served it well. Years of research and careful Co-Ordination of methodology has resulted in qualitatively superior products meeting stringent customer norms, manufactured by cost effective production techniques. Strong R&D and manufacturing facilities SSCL has one research and development laboratory at Phagwara & which givers it first entry mover advantages in newer products. SSCL has full-fledged manufacturing facilities at four different locations and these are located in the major maize producing regions of the country. This gives SSCL logistic advantages in respect of raw material procurement and supply of finished products at lower freight cost to the regional customers. Multi-locational presence also helps SSCL to improve market visibility of its products. In the last few years, the company has aggressively expanded its geographical markets in India and its client base includes many multinational companies and leading corporates in the user industry. Starch industry is growing and is expected to continue to grow at a fast pace This industry is in the fledging stage and has shown a growth of above 15% (CAGR) in the past five years. Despite past healthy growth, the size of industry is still very small (just below or around one billion US Dollars). Per capita consumption of Starch in India is very low as compared to global average and it is just 3% of per capita consumption of the U.S. The momentum of growth is expected to continue at the same pace in the next five to ten years as the industry shifts to high value products and per capita consumption of Starch improves.
The consumption of Starch has increased fourfold in the last decade in the neighbouring economy of China which outpaced their GDP growth in the higher proportions. Similar replay in the Indian economy is expected to increase the use of starch and its derivatives, manifolds in the coming decade. Starch has wide application in many industries Starch finds wide applications in various industries such as: Food & Drink (Baked Goods, Confectionary & Chocolate, Frozen Foods, Ice Cream & Dairy, Honey, Baverages, Preserved Foods, Instant Foods). Paper & Board (Wet End, Size Press, Corugated Board, Coating) Personal Care & Pharma (Tooth Paste, Shoe Polish, Injectable Solutions, Excipients, Bulk Drug Fermentation) Animal Feed & Pet Foods (Pet Foods, Cattle Feed, Poultry Feed, Compound Feeds) Industrial Applications (Detergents, Paints, Glues & Adhesives, Steel Castings, Aluminium, Textile, Oil Well Drilling, Construction) Major demand drivers for Starch and its derivatives include Processed Food & Confectionery, Pharmaceuticals, Paper and Textiles industries which ensures 15-20% growth for the starch industry. Many innovative uses of starch emerging Starch and its derivatives have found more than 1000 applications in the developed economies and their use has started gaining ground in India. Starch Sweetners are finding increasing use as low cost alternative to sugar in various industries especially Food and Beverages. There is a direct co-relation of sugar consumption and starch consumption pattern in many emerging economies where use of sugar has been substantially reduced in the last decade with a corresponding increase in the consumption of Starch and Starch Sweetners. The Indian economy is still continuing with a wide gap of per capita consumption of sugar viz-a-viz Starch i.e. sugar consumption of 20 Kgs against starch consumption of 1.4 Kgs only. So higher growth is expected in the industry in the coming years to bridge the wide gap. Starch is also emerging as an environmental friendly alternative to plastic bags etc. It may find its increased use in innovative applications such as ethanol and biodegradable plastics. The company has well placed strategies to mitigate risks Key risks in the industry come from basic raw material which is Maize - an agriculture produce and its availability and price fluctuate from year to year owing to natural vagaries. An invariable revision of MSP by the Govt, also increases the cost disproportionately. The company has most of its plants located in the major Maize growing states of the country which mitigates the raw material risks to some extent and ensures raw material availability at the most competitive cost with adequate supplies during Rabi and Kharif seasons. The company enjoys well established credit worthiness and integrity amongst maize suppliers and has become the most preferred buyer in all the maize procurement areas. On the marketing side, the company has additional advantage to cope up with the market risks due to multi-locational presence which has not only improved market visibility to company s products but the logistic advantage helps it serve Apart from Native Starch, the Company manufactures modified starch, dextrine, Liquid Glucose, HMS, Maltro- Dextrin, Mono-Hydrate Dextrose, Any-Hydrose dextrose, sorbitol-70% Solution and various By- Products, catering to a wide spectrum of Industries Per capita consumption of Starch in India is very low as compared to global average and it is just 3% of per capita consumption of the U.S. The momentum of growth is expected to continue at the same pace in the next five to ten years as the industry shifts to high value products and per capita consumption of Starch improve 2
its customers at most competitive incidence of freight with regular supplies. The company boasts of reputed clients The company is well known for its standard quality products and fair market policies reflected by its long term business relationship with many leading corporates in the user sectors such as Dabur, Wrigley, Perfetti, Hindalco, Cadbury, Cremica, Marico, Cadila Pharmaceuticals, Berger Paints, Ballarpur, Parle, Nestle, Dr. Reddy s Laboratories & others. Smart improvement in performance in June 2014 quarter Sukhjit has registered a good 15% rise in sales to Rs 137.69 crore in June 2014 quarter. OPM rose from 8.9% to 11.2% taking OP up by a good 45% to Rs 15.42 crore. Interest cost grew 17% to Rs 3.57 crore and depreciation was up 27% to Rs 3.30 crore. Thus PBT grew 67% to Rs 8.83 crore. Tax was up 150% to Rs 2.50 crore after which PAT jumped 48% to Rs 6.33 crore. The company has procured most of its raw material requirement at lower costs and expects better margins to sustain throughout the year. Also interest costs has increased in Q1 due to higher working capital on raw material stock, but will come down gradually as working capital requirement eases during the course of the year. Armed with completed capex the company is ready to cater to the rising demand In the last two years, the company has spent over Rs 100 crore in capex resulting in the enhanced capacity of its Malda unit to three times of its original size with an additional facility for the key product dextrose monohydrate having capacity of 50 tonnes per day. Expansion of Himachal Pradesh unit will also start delivering in this fiscal. Valuation In FY 2015 we expect the company to register sales and net profit of Rs 589.15 crore and Rs 24.10 crore respectively. On a small equity of Rs 7.38 crore (60.28% held by the promoters) and face value of Rs 10 per share, EPS works out to Rs 32.7. In FY 2016, sales, net profit and EPS of Rs 677.52 crore, 29.07 crore and Rs 39.4 is expected. The share price trades at Rs 289. P/E on FY 2016 projected EPS works out to 7.3. Our target price of Rs 400 discounts the FY 2016 projected EPS by around 10 times. Key risks are sharp rise in raw material prices, monsoon failure in its raw material producing regions leading to inadequate availability of raw materials leading to margin pressure, fluctuations in quarterly results etc. The consumption of Starch has increased fourfold in the last decade in the neighbouring economy of China which outpaced their GDP growth in the higher proportions. Similar replay in the Indian economy is expected to increase the use of starch and its derivatives, manifolds in the coming decade. Starch and its derivatives have found more than 1000 applications in the developed economies and their use has started gaining ground in India. Starch Sweetners are finding increasing use as low cost alternative to sugar in various industries especially Food and Beverages 3
SUKHJIT STARCH & CHEMICALS: RESULTS 1406(03) 1306(03) VAR. (%) 1403 (12) 1303 (12) VAR. (%) Sales 137.69 119.24 15 508.43 419.74 21 OPM (%) 11.2% 8.9% 10.1% 12.1% OP 15.42 10.64 45 51.10 50.95 0 Other income 0.28 0.29 0 0.48 0.37 30 PBIDT 15.70 10.93 44 51.58 51.32 1 Interest 3.57 3.05 17 16.65 14.12 18 PBDT 12.13 7.88 54 34.93 37.20-6 Depreciation 3.30 2.60 27 12.27 8.85 39 PBT 8.83 5.28 67 22.66 28.35-20 Tax 2.50 1.00 150 6.62 6.77-2 PAT 6.33 4.28 48 16.04 21.58-26 EPS (Rs)* # # 21.7 29.2 * On current equity of Rs 7.38 crore. Face Value: Rs 10. #EPS can not be annualized due to seasonality in business. Figures in Rs crore. Source: Capitaline Databases 4
FINANCIAL STATEMENT PROFIT & LOSS A/C-CONSOLIDATED - RS. CRS FY10 FY11 FY12 FY13 FY14 Total Income 267.7 346.88 365.33 424.07 515.11 Y-o-Y 22.8% 5.1% 13.9% 17.7% Total Expenditure 235.56 285.68 325.56 374.79 466.14 Raw Materials 159.75 194.56 221.28 255.93 316.15 Stock Adjustments 0.11 1.47 5.26 1.09 3.31 Power & Fuel Cost 31.02 37.6 43.34 56.76 70.92 Employee Cost 13.91 16.68 19.78 21.56 25.81 Other Manufacturing Expenses 22.41 24.93 25.09 27.79 34.58 Selling and Administration Expenses 7.83 10.02 10.35 11.15 14.84 Miscellaneous Expenses 0.53 0.42 0.46 0.51 0.53 EBIDTA 32.25 62.67 45.03 50.37 52.28 Margin 12.0% 17.6% 10.9% 11.6% 9.5% Depreciation 6.37 7.08 7.56 9.01 12.36 EBIT 25.88 55.59 37.47 41.36 39.92 Interest 7.2 7.1 11.33 14.1 16.6 Other Income 0.77 0.74 1.49 0.71 3.43 PBT 18.68 48.49 26.14 27.26 23.34 Tax 3.62 9.85 5.33 3.48 2.52 Deferred Tax 0.72 0.84-0.02 2.98 4.96 PAT 14.34 37.8 20.83 20.8 15.85 Extraordinary Items 0.12 0.26 0.47-0.46 1.63 Adjusted PAT 14.24 37.57 20.38 21.26 14.22 Margin 5.3% 10.8% 5.6% 5.0% 2.8% EPS (Rs) 18.47 49.95 27.53 27.34 20.88 Book Value (Rs) 133.43 175.79 198.81 221.16 238.55 Dividend Per Share (Rs) 6 8 4.5 5 3.5 CASH FLOW (Rs in crore) FY10 FY11 FY12 FY13 FY14 Cash Flow Summary Cash and Cash Equivalents at Beginning of the year 3.85 1.89 5.18 1.57 3.31 Net Cash from Operating Activities 1.17 45.24 36.45 15.39 34.19 Net Cash Used in Investing Activities -9.16-39.49-53.48-37.53-25.05 Net Cash Used in Financing Activities 6.03-2.46 13.42 23.88-3.61 Net Inc/(Dec) in Cash and Cash Equivalent -1.96 3.29-3.61 1.74 5.53 Cash and Cash Equivalents at End of the year 1.89 5.18 1.57 3.31 8.84 Year 2010 2011 2012 2013 2014 5
BALANCE SHEET (Rs in crore) FY10 FY11 FY12 FY13 FY14 SOURCES OF FUNDS : Share Capital 7.38 7.38 7.38 7.38 7.38 Reserves Total 93.17 125.37 143.61 160.88 173.89 Total Shareholders Funds 100.55 132.75 150.99 168.26 181.27 Secured Loans 55.22 45.14 60.32 85.21 109.09 Unsecured Loans 17.15 45.29 49.44 74.64 67.44 Total Debt 72.37 90.43 109.76 159.85 176.53 Total Liabilities 172.92 223.18 260.75 328.11 357.8 APPLICATION OF FUNDS : Gross Block 131.31 150.7 164.28 240.42 270.77 Less : Accumulated Depreciation 38.09 44.64 51.74 60.35 72.41 Net Block 93.22 106.06 112.54 180.07 198.36 Capital Work in Progress 2.29 9.26 51.2 14.57 10.41 Investments 13.05 21.99 20.88 20.77 20.52 Current Assets, Loans & Advances Inventories 57.29 59.19 58.56 83.41 92.45 Sundry Debtors 26.52 33.54 34.46 47.89 52.05 Cash and Bank 1.89 5.18 1.57 3.31 8.84 Loans and Advances 12.23 13.96 16.18 16.86 17.57 Total Current Assets 97.93 111.87 110.77 151.47 170.91 Less : Current Liabilities and Provisions Current Liabilities 18.83 18.71 27.74 27.4 28.41 Provisions 7.97 4.18 3.86 4.32 3.02 Total Current Liabilities 26.8 22.89 31.6 31.71 31.43 Net Current Assets 71.13 88.98 79.17 119.76 139.48 Deferred Tax Liability 6.77 7.59 7.82 11.12 15.22 Net Deferred Tax -6.77-7.59-7.82-11.12-15.22 Other Assets 0 4.48 4.78 4.05 4.24 Total Assets 172.92 223.18 260.75 328.10 357.79 Contingent Liabilities 17.07 18.5 20.53 0 0 6
KEY FINANCIAL RATIOS FY10 FY11 FY12 FY13 FY14 Key Ratios Debt-Equity Ratio 0.67 0.7 0.71 0.84 0.96 Long Term Debt-Equity Ratio 0.25 0.22 0.3 0.41 0.42 Current Ratio 1.19 1.2 1.21 1.18 1.16 Turnover Ratios Fixed Assets 2.16 2.51 2.35 2.18 2.09 Inventory 5.79 6.07 6.28 6.22 6.09 Debtors 11.49 11.78 10.88 10.73 10.71 Total Asset Turnover Ratio 1.66 1.79 1.53 1.50 1.56 Interest Cover Ratio 3.66 8.09 3.47 3.01 2.36 PBIDTM (%) 12.03 17.83 12.43 11.62 9.64 PBITM (%) 9.80 15.95 10.51 9.61 7.35 PBDTM (%) 9.36 15.86 9.41 8.42 6.53 CPM (%) 7.68 12.85 7.9 6.89 5.29 APATM (%) 5.44 10.97 5.98 4.88 3.00 ROCE (%) 16.26 28.49 16.06 14.43 11.46 RONW (%) 15.07 33.26 15.58 13.52 9.18 Payout (%) 32.31 15.62 15.4 17.61 16.54 Disclaimer : This document has been prepared by M/s Latin Manharlal Securities Pvt. Ltd. and Capital Market Publishers India Pvt. Ltd. (the company) and is being distributed in India by Latin Manharlal Securities Pvt. Ltd. The information in the document has been compiled by the research department. Due care has been taken in preparing the above document. However, this document is not, and should not be construed, as an offer to sell or solicitation to buy any securities. Any act of buying, selling or otherwise dealing in any securities referred to in this document shall be at investor s sole risk and responsibility. This document may not be reproduced, distributed or published, in whole or in part, without prior permission from the Company. Copyright 2013 - Capital Market Publishers India Pvt. Ltd and Latin Manharlal Securities Pvt. Ltd. 7