1 | P a g ebsmedia.business-standard.com/_media/bs/data/market-reports/equity...DCM Shriram is a...

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PICK OF THE WEEK

Aug 28, 2017

DCM Shriram Limited (DCMSHR)

Recommendation

Buy at CMP and add on declines

Add on dips to

Rs. 349-392

Target

Rs. 485

Time Horizon

4 Quarters

Industry

Diversified

CMP

Rs. 392

Kushal Rughani

[email protected]

HDFC Scrip Code DCMSHREQNR

BSE Code 523367

NSE Code DCMSHRIRAM

Bloomberg DCMS:IN

CMP - Aug 24 2017 Rs. 392

Equity Capital(Rscr) ((mn(Rscr)

32.6

Face Value (Rs) 2

Eq Share O/S(crs) 16.3

Market Cap (Rs crs) 6441

Book Value (Rs) 155

Avg. 52 Wk Volumes

178583

52 Week High 411

52 Week Low 195

Shareholding Pattern (%)

Promoters 63.9

Institutions 21.1

Non Institutions

15.0

PCG Risk Rating*

Yellow

* Refer Rating explanation

Company Background

DCM Shriram is a diversified conglomerate engaged in the business of fertilizer, sugar and caustic soda. The

Company's segments include Fertilisers - which manufactures urea; Chloro-Vinyl - which manufactures poly-

vinyl chloride, carbide and chlor alkali products; Shriram Farm solutions - which trades di-ammonium

phosphate, muriate of potash, super phosphate, other fertilizers, seeds and pesticides; Sugar- which

manufactures sugar products and co-generation of power; Bioseed, which produces hybrid seeds, and Others,

which includes Pre-Fabricated unplasticized polyvinyl chloride (UPVC) windows & Doors, Cement, rural retail

and plaster of Paris. Its Agri-Rural Business includes urea and single super phosphate (SSP) fertilizers, and

farm inputs marketing, such as crop care chemicals and hybrid seeds. Its Chlor-Vinyl Business includes caustic

soda, chlorine, calcium carbide, power and cement. It has manufacturing facilities of Fertilizer, Chloro Vinyl and

Cement in Kota (Rajasthan). On the back of capacity addition in the high margin Chloro Vinyl business and an

expected turnaround in the Sugar Industry, DCM Shriram is expected see significant change in its margin profile

going forward and is a suitable candidate for re-rating.

DCM Shriram’s Hariyali Kisan Bazar was involved in selling of Agriputs/ Fuels to the farmers. However, the

segment had been making huge losses for the past several years. Now the company has been in process of

rationalising its operations and is now limited to selling fuel to the farmers. The management is now focusing

on closure and sale of assets, when the contract with BPCL expires. It will take about 3-4 years to close the

segment completely.

Investment Rationale

Capacity addition in high margin Chloro Vinyl to aid in growth

Sugar Segment continues to post strong growth

Good Monsoon will lead to better growth in Agri Inputs segment

Fenesta windows UPVC segment to post strong growth

Expect revenues to post 13% and PAT to record 15% cagr over FY17-19E

mailto:[email protected]

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PICK OF THE WEEK

Aug 28, 2017


The company completed capacity expansion projects for Chlor-Alkali including a captive power plant at Bharuch in Gujarat and power

generation in Sugar business at total investment of approximately Rs 700 crores and company completed in Q3 FY17. These plants have

stabilized and have started contributing to the earnings of the company. Company will have benefits of these projects for the full year of FY18.

Simultaneously, discontinuation of DAP and MOP trading business and better payment situation for fertilizer subsidy led to reducing overall

debt levels over last year.

Company’s’ balance sheet and cash generation is very comfortable, which enables it to look at further growth initiatives. Company is presently

implementing projects involving Chlor-Alkali capacity expansion at Kota includes setting up of 150 kilolitres per day distillery at sugar factory

and expanding the fabrication capacity at Fenesta. These projects will involve investments of about Rs 300 crores and will be completed fully

by the end of FY18 and will further contribute to the earnings next year onwards.

Chloro Vinyl, post completion of the expansion and technology upgradation project total capacity now stands at 1,343 tonnes per day. At

Bharuch there's a capacity of 1,013 tonnes per day on the latest capacity on the latest technology. The capacity utilization at Bharuch stood

at 77% in Q4 FY17 and will improve with improvement in demand of chlorine.

Selling prices of caustic soda are firm, in line with international prices. However, low prices of chlorine and the currency appreciation are

impacting the overall price realization. We expect improvements in this situation over the next few months as the excess chlorine gets

absorbed in the market. The investments in technology and increase in scale has improved the cost competitiveness.

The expansion project at Kota, wherein it is expanding liquid as well as flaking capacity is progressing well and it will come online in Q4 FY18.

Regarding plastics, the prices of PVC, as well as carbide are stable. Currency appreciation is creating some pressure on domestic prices. The

increase in coal and carbon costs and pressure on prices will be a challenge going forward.

Sugar Segment

The Indian Sugar Industry has been reeling under bad monsoon and adverse Cane pricing, leading to significant losses over the past few

years. This was further exacerbated by significant fall in the Sugar prices last year. A more rational Cane Policy in U.P., where Cane price

subsidy is linked to sugar price has largely insulated the Sugar companies from adverse price shocks. This coupled with a Central Government

policy to push Ethanol use in fuel and policies to ensure exports of the surplus sugar have started pushing the Sugar prices upward. After

making a low of Rs 21-22 per kg almost 2-3 years back, Sugar prices has recovered off-late to ~Rs 35 per kg.

On the back of supporting government policies, Indian Sugar Industry, which has been a laggard for the past several years, is on the verge

of a significant turnaround. DCM Shriram has 379,500 MT of Sugar capacity and is expected capitalize on the emerging trend. The Sugar

business reported an EBIT of Rs 315cr in FY17, +259% yoy in FY17.

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Shriram Farm Solutions

Shriram Farm Solution had been selling Bulk Fertilizers or MOP/DAP (Rs 7000mn in FY17), Value added products (Rs 6000mn) and SSP (Rs

4983mn). As Bulk Fertilizers has a very low EBIT margin of ~1%, the company has stopped selling it from FY17. This has led to loss of ~Rs

700cr of sales. However, overall margin will significantly improve as SSP and Value Added products have EBIT margins of 4-5% and 8-9%

respectively.

Bio Seeds Business

DCM Shriram entered in the Hybrid seeds business in 2002 by acquiring Bio seeds. Bioseed is a Research oriented organization and believes

in serving the farmers by providing high quality hybrid seeds with desired traits. It is a business with end to end integration which involves

research, production, processing and marketing.

The key crops that company deal in India comprises of BT cotton, Corn, Paddy, Vegetables among others. In international markets of

Philippines, Indonesia and Vietnam, it deals primarily in corn and are developing market for paddy. The distribution network is wide spread

across regions and continues to grow as company increase volumes.

Company has research stations in all major agro-climatic regions, to cater to farmers in the respective regions. It spends about 8-10% of

revenue on research activities. This has led to healthy product pipeline. The product development is not only focused on providing high yielding

hybrids, but also meeting other challenges, such as pest resistance, disease tolerance, salinity and drought tolerance. The Company has got

into various research alliances to further strengthen its capabilities. The company increased its presence in India and South East Asia since

then. With an expectation of better monsoon, we expect this business to grow at strong growth going forward. DCM Shriram’s Bioseeds

business is vertically integrated with presence across Research, Production, Processing and Marketing.

Company Overview

DCM Shriram Ltd is a diversified Indian company, operating in Sugar, Chemicals (Cement, Chloro-Vinyl (Chlor Alkali and PVC Resins), Pre

Fabricated UPVC Doors & Windows (Fenesta Building Systems)) and Agri-Input (Fertiziliers, Bioseeds, Shriram Farm Solutions and Hariyali

Kisan Bazar).

Business Verticals:

Sugar

This business comprises 4 plants in Central U.P. with a total capacity of 33,000 TCD. The business is supported by a Co-gen power capacity

of 111MW (expanded in FY17 from 94.5 MW earlier). The company has announced a new project of 150 KLD distillery at the Hariawan sugar

plant, which will be completed by FY18. Power segment revenues for FY17 stood at Rs 88cr vs. Rs 52cr. PAT stood at Rs 60cr vs. Rs 37cr last

year.

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Aug 28, 2017


Sugar season the business had recorded about 47% increase in sugar cane crush. The sugar recovery stood at 11.1%, in line with last year.

The sugar prices also recorded improvements over last year. Higher cane crush as well as increased power generation capacity has led to

62% higher power sales during the year. The cane planting the area has recorded almost 12% to 13% growth over the last season. With

reasonable weather conditions it should enable us to achieve satisfactory growth in volumes next year also.

The domestic sugar production in the current season is expected to be lower than demand. This would enable the industry to reduce the

excess stocks it has been carrying over the last few years and help stabilize its prices.

Company expect the central and state governments to continue a policy environment which is good for the farmer as well as the industry.

The 150 kiloliters per day distillery project to produce ethanol at the Hariawan sugar factory is progressing as per plan and is expected to be

completed in Q4 FY18. This will further strengthen Sugar business.

Chemical:

Chloro Vinyl Businesses

(a) Chlor-Alkali Business - DCM Shriram’s Chlor-Alkali business comprises Caustic Soda (Lye and flakes), Chlorine and associated chemicals

including Hydrochloric acid, Stable Bleaching powder, Compressed Hydrogen and Sodium Hypochlorite. The Company has two manufacturing

facilities located at Kota (Rajasthan) and Bharuch (Gujarat) with full coal based captive power. The company completed capacity expansion

at the Bharuch plant in FY17 taking the total caustic soda capacity to 1343 TPD from 780 TPD.

Chlor-Alkali (Chemicals) business produces core chemicals viz. Caustic Soda, Chlorine, Hydrogen, Hydrochloric acid and Stable Bleaching

Powder, which are widely used in manufacturing processes of other industries. The growth of this business is highly correlated to the growth

of GDP in the country. Caustic Soda and Chlorine are produced as Co products in the ratio of 1:0.88. Caustic Soda is used in Alumina, Paper,

Textiles, Detergents, Pharmaceuticals industries etc. and Chlorine is used in Polymers, Dyes & inks, Agro-chemicals, Water treatment etc. The

prices of Caustic Soda are influenced by international prices as well as domestic demand supply factors. Chlorine Prices are driven only by

local demand supply factors.

The company operates manufacturing facilities at Kota (Rajasthan) and Bharuch (Gujarat). It has been able to successfully complete its

expansion project at Bharuch in 2016-17, taking the aggregate production capacity of the Company to 1343 TPD. Caustic Soda flaking capacity

was enhanced from 150 TPD to 350 TPD and an additional 60 MW captive Power Plant was commissioned to support expanded capacity. Now,

DCM Shriram is the second largest manufacturer in the domestic Chlor-Alkali Industry and the Bharuch facility is the largest single location

Chlor-alkali manufacturing unit in India. Both the manufacturing units have access to 100% captive power, based on coal.

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Aug 28, 2017


(b)PVC Resin Business - A highly integrated business, located at the Kota plant, it involves manufacturing of PVC resins and Calcium Carbide

with captive production of Acetylene, Chlorine and Coal based power.

The business is involved in the manufacturing of PVC Resins and Calcium Carbide. The Plastics business is an integral part of the Chlor-Vinyl

manufacturing facility at Kota with integration in terms of Captive Power, Chlorine and Calcium Carbide. The Company manufactures PVC

Resin through the Calcium Carbide route as against the Ethylene route which is being followed by most of the companies worldwide except in

China. The Calcium Carbide manufactured by the company is partly sold and partly used for the manufacture of PVC Resins. The business has

swing capability to sell more of PVC or Calcium carbide depending on the return per unit of power consumed by these products.

PVC Resin is a widely used raw material owing to its safe, healthy, convenient and aesthetical advantage for applications in urban

infrastructure, Electronic products, Consumer products, Irrigation etc. It is a thermoplastic with 57% chlorine and 43% carbon, making

it excellent fire resistant material. More than 70% of PVC resins are used for producing PVC pipes in India. The Indian PVC market is

expected to grow in line with GDP growth of India. India’s PVC resin industry’s capacity currently stands at around 1.3 million Metric Ton

per annum (MTPA). As against this, domestic demand has been growing steadily and has reached ~2.5 MTPA. The gap of ~1.2 MTPA

is being met by the import of PVC resin in India.

Agri-Input Businesses

(a) Fertilizer Business - The Company operates the dual feed Naphtha/LNG based Urea plant with a capacity of 3.79 lakh TPA, at its

integrated manufacturing facility at Kota. The plant is currently operating on 100% Natural Gas.

(b) Shriram Farm Solutions- This business provides a complete basket of Agri-inputs, viz. Bulk fertilizers, Micronutrients, Hybrid seeds,

Pesticides and other Value added products, through its wide distribution network. The business also provides high quality agronomy

services aimed at increasing farmer productivity.

(c) Bioseeds- DCM Shriram started the business of hybrid seeds in 2002 by taking over Bioseed, with operations in India, Vietnam &

Philippines and has since expanded to Indonesia, Bangladesh and Nepal. Bioseed business is present across the entire value chain, i.e.

Research, Production, Processing, Extension activities and Marketing with significant presence in India, Philippines and Vietnam. The

Company is present in both Field and Vegetable Crops in India. In Philippines and Vietnam the business is present primarily in Corn.

The Company has started commercial operations for a Corn hybrid in Indonesia.

Bioseed India business: revenues for FY17 were lower by about 6% at Rs 408 crores due to decline in cotton acreages in key markets during

Kharif '16. Cotton Seed Price Control Order that capped selling price of BT cotton seeds also impacted revenues. Other crops performed better.

PBIT for the year stood at Rs 51 crores, up 12% over last year. Q4 is an off-season for the business with sales restricted to mainly vegetable

segments.

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Bioseed International business: FY17, international business revenues increased 18% to Rs 62 crores led by Philippines and Indonesia. Losses

in Philippines and Indonesia have reduced, Vietnam had higher losses. The total losses were Rs 37 crores vs. Rs 38 crores last year. Keeping

in view the longer gestation period and higher losses over the last few years due to inventory write-offs, the company had taken write down

of Rs 85 crores in the value of investments in Bioseed International in its standalone accounts with no impact on the consolidated financials.

(d)Hariyali Kisaan Bazaar: The Company has rationalized this business and discontinued the retail operations except for sale of fuel. DCM

Shriram expects to completely exit from this business in the next two-three years.

Other Businesses:

Fenesta Building Systems manufactures UPVC windows (Un-plasticized PVC) and door systems under the brand “Fenesta”. Fenesta make

noise-proof windows and doors, and monsoon-proof windows. DCM is into Fenesta business since 2003. The business offers complete solutions

starting from Manufacturing, Design, Fabrication to Installation at the customer’s site. As a part of its marketing initiatives, the business has

set up self-owned Fenesta branded showrooms in nine cities across India.

In FY17, Revenues and PBIT stood higher by 20% to Rs 284cr and 56% yoy were driven by strong growth in retail segment volumes as well

as projects. The fresh order booking also improved by 48% yoy, driven by 22% increase in retail bookings and 100% increase in project

segment order bookings respectively. Windows and Doors Market in UPVC segment is set to grow by 25-30% in the coming years.

uPVC doors and windows have several intangible benefits over their counterparts as they are fire, wind, and moisture resistant, aesthetic,

long lasting, thermally and acoustically insulated, and can be customized according to individual requirements. It is a low thermal conductive

material and is proved to prevent loss of energy by up to 30-35% and also prevents thermal bridging, thus avoiding condensation unlike

aluminium. It needs only a light soapy wash and a check of the seals for maintenance.

Cement- The company’s cement business is located at its Kota plant with a manufacturing capacity of 400,000 MTPA. The cement business

leverages the waste generated from the Calcium Carbide production process. Revenue of the cement business stood at Rs. 211 crores vs. Rs

167 crores last year. This increase of 27% was on account of better realizations.

PVC Compounding: The business operates under a 50:50 Joint Venture with Axiall LLC (subsidiary of Axiall Corporation – a leading

international manufacturer of Chloro-Vinyl) - April 2014. The Capacity of this business stands at 32,564 MTPA.

Axiall is a North American manufacturer and international marketer of two integrated chemical product lines, chloro-vinyls and aromatics,

with annualized pro forma revenues of approximately US $5 billion. Axiall's products can be found in high-performance plastics, pulp and

paper production, packaging, chemical intermediates, pharmaceuticals, medical and agricultural applications, and paints, acrylics and

varnishes. Under the Royal Building Products and Exterior Portfolio brands, Axiall manufactures a complete line of custom and other vinyl-

based building and home improvement products including window profiles, siding, pipe and fittings, mouldings and trim, and decking.

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(b)Textiles: The Company had sold off its textile business that comprised 14,544 spindles spinning unit at Tonk in Rajasthan.

Source: Company, HDFC sec Research

Chloro-Vinyl

Business

Agri Business

Others

•Chemicals •PVC Resins •Calcium carbide •Power

•Fenesta Building Systems •Cement •Polymer Compounds •Hariyali Kisaan Bazaar

• Agri- Inputs Shriram Farm Solutions Bioseeds Fertilisers • Sugar

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Industry Overview

Imports meet almost 50% of India's PVC demand. PVC Resin is a widely used raw material owing to its safe, healthy, convenient and aesthetical

advantage for applications in urban infrastructure, Electronic products, Consumer products, Irrigation etc. It is a thermoplastic with 57%

chlorine and 43% carbon, making it excellent fire resistant material. Almost 73% of PVC resins are used for producing PVC pipes in India,

mainly in agriculture & construction. The other key driver for PVC Resin is the rise in micro-irrigation. This sector is expected to account for a

sizeable percentage of the demand for PVC resins. Applications other than pipes such as packaging, profiles, pharmaceutical segments are

also poised for higher growth. India's per capita PVC consumption is ~2.3 Kg which is low compared to ~11.8 Kg in US & over 10 Kg in China.

With Steady rise in demand, high dependence on imports & promising prospects in the downstream agriculture & construction sectors, India

is likely to remain at the forefront of the global PVC market.

India's PVC resin installed capacity currently stands at around 1.4 million Metric Ton per annum (MTPA). As against this, domestic demand

has been growing steadily and has reached ~2.95 MTPA in FY17, up 9.3% over last year. The gap in demand and supply, which currently

stands at 54.5% of total demand, is being met by the import of PVC resin. The continued focus of the Govt. on building infrastructure –

development of smart cities, rural housing and Agri-asset creation, rapid urbanization and other initiatives like investments in rural sanitation

is expected to fuel growth of the PVC industry in India over the next few years. Indian PVC demand is expected to grow at 8 to 10% CAGR

for the next 4-5 years.

The Calcium Carbide demand in India is around 92000 MT p.a., Company is having 25% of the market share in the country, up from 23%

last year. Around 43% of India's demand is met by Imports, majorly from China which satisfies Southern & Western India's demand.

The business strives to provide complete solutions to the farmer ranging from products to agronomy. The product portfolio includes Value

added inputs such as Seeds (GM, Hybrid and OP), Crop Care Chemicals (Insecticide, Fungicide and Herbicide), Soluble Fertilizers, Micro-

Nutrients etc and Bulk Fertilizers like SSP & NPK. The business is supported by strong extension program called the SKVP (Shriram Krishi

Vikas Program). This program, apart from being an Agronomy services platform providing latest technology and practices to the farmers and

the Channel, also focuses on meeting its social responsibilities. The company lays strong emphasis on strengthening its customer interface

which will help in capturing the evolving trends in Agriculture and leverage technology to enhance performance of the Business, the Channel

and the Farmer. The business is supported by a strong distribution network spread across 17 states, reaching out to ~ 1.0 million farmers

and ~ 35,000 retailers. The Company sells these Agri-Inputs under brand 'Shriram' which is known for quality and has a strong brand image

within the farming community.

Q1 FY18 Results update

In Q1 FY18, DCM Shriram reported robust growth in revenues largely driven by robust growth in revenues from the sugar business as well

as capacity ramp-up of new Chloro-Vinyl plant. A robust profitability in the Sugar business was largely off-set by lower profitability in the

Chloro Vinyl and Fertilizer business. EBITDA margin improved marginally. Net profit during the quarter stood at Rs 233cr, +39% yoy.

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Key Result Highlights

1. DCM Shriram reported 35% yoy growth in the revenues to Rs 19.5bn.

2. Chloro-Vinyl Business: On the back of commissioning of the new Chlor-Alkali facility, its sales volumes grew by a robust 42.1% yoy,

while the Chlor-Alkali prices remained Y-o-Y flat during the quarter. PVC sales volumes and realizations grew 2.8% and 3.5% Y-o-Y during

the quarter. Overall Chloro Vinyl revenues grew by 34.8% yoy to Rs 5bn. Higher power cost and carbon prices impacted the margin in Q1FY18.

3. Sugar business reported a stupendous growth 139.1% yoy to Rs 6.6bn on account sustained high sugar price as well as robust growth in

sales volumes and power sales from the augmented co-gen plant. Despite higher Sugarcane prices by ~Rs 4 per Quintal, pick-up in Sugar

recovery to 11.1%, led to a robust improvement of 494bps Y-o-Y in the EBIT margin of Sugar business to Rs 16.4%. Sugar sales volumes

jumped 1166% Y-o-Y to 1.58mn Quintals, while the realization improved 8.9% to Rs 36.4 per kg

4. Bharuch plant capacity utilization improved from 77% in Q4 FY17 to 80% in Q1 FY18 and is currently operating at 82%.

5. Distillary plant with 150 KLPD capacity will be commissioned in Q4FY18, leading to further improvement of base case profitability of Sugar

business, in case of cyclical downturn in the Sugar business.

6. Shriram Farm Solutions was almost flat yoy to Rs 2.8bn in Q1FY18, driven by a decline of 12% yoy in the Value-Added products. The

Bioseed business grew by 9.1% Y-o-Y, driven by International business, which doubled to Rs 330mn. Further, International business which

had been dragging the profitability for the past several quarters reported a robust truned around and reported an EBIT of Rs 28mn in Q1FY18,

compared to a loss of Rs 74mn in Q1FY17

7. In Fenesta, revenues jumped 26.9% yoy to Rs 858mn, driven by higher project sales. Orderbook by the end of FY17 stood at Rs 765mn,

lower by 6.3% yoy. Retail and Project order booking grew 17% and 56% yoy in Q1FY18.

8. Consolidated EBITDA margin improved marginally by 38bps yoy to 16.9% in Q1 FY18. A robust profitability in the Sugar business, which

expanded by 494bps yoy to 16.4% was largely compensated by a sharp fall in the EBIT margin of Chloro Vinyl business (EBIT margin declined

404bps yoy to 28.5%.

9. EBITDA during the quarter stood at Rs 3,294mn. Company reported 39.7% yoy growth in the net profit to Rs 2,335mn.

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Valuations

Despite large investments, company’s debt equity ratio is at 0.3x only. We think the stock has the potential to get rerated gradually despite

its exposure to commodity businesses as its performance across cycles has been healthy. Better monsoon and capacity addition in the high

margin Chloro Vinyl business will largely be off-set by revenue loss on account of plan to stop selling MOP/DOP under Shriram Farm Solutions.

Further, we expect 13% revenues and earnings to witness CAGR of 14.9% due to strong performance from Sugar business and improvement

in the profitability of the Agri-Input business. The company is now focusing more on businesses apart from Urea and Sugar (the two regulated

sectors) and expect the other sectors to grow strongly going ahead. At the CMP of Rs 392, DCM Shriram trades at EV/EBITDA of 6.4x FY19E.

Based upon 8.2x FY19E EV/EBITDA, we assign DCM Shriram as BUY with TP of Rs 485. We recommend investors to BUY the stock at cmp of

Rs 392 and add on dips to Rs 349 with target price of Rs 485.

Risks and Concerns

Monsoon has significant impact on its revenue stream

DCM has a very high dependence on Monsoon as 70-75% of its revenues are from Agri-Input and Sugar businesses.

Government Policies

DCM Shriram’s Bioseeds, Sugar and Fertilizers businesses are directly regulated by the government and it makes the company highly

vulnerable to change in the government policies.

Business Segment Places

Chloro Vinyl, Carbide, Chlor Alkali Kota (Raj), Bharuch (Guj)

Sugar (Sugar, Molasis and Power) Ajbapur, Rupapur, Hariawan, Loni (UP)

Shriram Farm Distribution N/W across India

Bioseed Various Parts of India, Phillipines, Vietnam and Indonesia

Ferilisers (Urea) Kota (Raj)

Fenesta (UPVC windows and doors) Kota, Bhiwadi (Raj), Chennai (TN), Hyderabad (Telangana)

Cement Kota (Raj)

Hariyali Bazaar (Fuel) Fuel Outlets in India Source: Company, HDFC sec Research

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Financial overview


Segmental Revenue Expectations

FY15 FY16 FY17 FY18E FY19E

Chloro-Vinyl 1399 1379 1584 1817 2090

Sugar 1075 968 1601 1793 1955

Shriram Farm Solution 1417 1799 1016 934 962

Bioseed 484 488 470 484 508

Fertiliser 728 800 747 754 807

Others 839 780 850 930 1070 Source: Company, HDFC sec Research

Revenues PBIT PBIT %

FY16 FY17 yoy FY16 FY17 yoy FY16 FY17

Chloro Vinyl 1379 1584 14.9 349 399 14.2 25.3 25.2

Sugar 968 1601 65.4 88 315 259 0.2 19.7

Agri Inputs 3087 2232 -27.7 112 98 -12 3.6 4.4

Shriram Farm (DAP/MOP) 688 0 0 13 -12 - 1.9 -

Shriram Farm (Excl. DAP/MOP) 1111 1019 -8.2 60 41 -31.3 5.4 4

Bioseed 488 470 -4 8 15 83 1.7 3.1

Fertilisers 800 747 -7 31 55 77 3.9 7.4

Others 780 850 9 1 13 - 0.1 1.6

Total 6030 6117 1.4 448 704 57 7.4 11.5

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Revenues Trend


0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0

1000

2000

3000

4000

5000

6000

7000

8000

FY16 FY17 FY18E FY19E

Revenue Growth

EBITDA and EBITDA Margin (%)


5.0

10.0

15.0

20.0

0

200

400

600

800

1000

1200


EBIDTA EBIDTA Margin

Debt/Equity (x)


0.3

0.5

0.4

0.3


Return Ratios (%)


11.9

15.2

23.922.6

14.4

17.7

22.1 22.3


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FY17 revenues Break up (%)


25

2616

7

12

14

Chloro-Vinyl Sugar Shriram Farm Solution Bioseed Fertiliser Others

Others Mix FY17 (%)


33.4

24.8

41.8

Fenesta Building Cement Hariyali Kisan Bazar

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Balance sheet (Consolidated)

As at March FY15 FY16 FY17 FY18E FY19E

SOURCE OF FUNDS

Share Capital 32.6 32.6 32.6 32.6 32.6

Reserves 1826 2060 2495 2992 3554

Shareholders' Funds 1859 2093 2528 3025 3586

Long Term Debt 301 258 472 515 587

Net Deferred Taxes 19 0 0 73 65

Long Term Provisions & Others 185 172 189 190 205

Total Source of Funds 2365 2524 3191 3805 4445

APPLICATION OF FUNDS

Net Block 1505 1785 2079 2300 2399

Deferred Tax Assets (net) 0 14 80 50 50

Long Term Loans & Advances 205 194 157 152 159

Total Non Current Assets 1710 1994 2317 2502 2608

Current Investments 0 0 0 120 250

Inventories 1132 1320 1616 1617 1814

Trade Receivables 1071 1287 1004 1181 1286

Short term Loans & Advances 214 209 267 334 418

Cash & Equivalents 95 40 212 445 582

Other Current Assets 194 158 158 198 237

Total Current Assets 2706 3013 3257 3894 4587

Short-Term Borrowings 339 727 508 493 459

Trade Payables 1120 1149 1176 1360 1499

Other Current Liab & Provisions 454 578 657 678 712

Short-Term Provisions 37 30 42 47 54

Total Current Liabilities 1949 2483 2383 2578 2724

Net Current Assets 757 530 874 1316 1863

Total Application of Funds 2365 2524 3191 3805 4445 Source: Company, HDFC sec Research

Income (Consolidated)

(Rs Cr) FY15 FY16 FY17 FY18E FY19E

Net Revenue 5639 5780 5788 6631 7358

Other Income 51.6 40.7 46.8 53.0 62.0

Total Income 5691 5821 5835 6684 7420

Growth (%) -8.7 2.3 0.2 14.5 11.0

Operating Expenses 5240 5276 5017 5704 6291

EBITDA 450 546 818 979 1129

Growth (%) -19.4 21.2 49.9 19.7 15.3

EBITDA Margin (%) 8.0 9.4 14.1 14.8 15.3

Depreciation 110 98 113 129 151

EBIT 340 448 704 850 978

Interest 112 85 71 78 84

PBT 228 362 633 773 894

Tax 18 62 80 131 152

RPAT 211 300 552 619 724

Growth (%) -13.0 42.5 83.8 13.6 16.4

EPS 13.0 18.6 34.0 38.4 44.7 Source: Company, HDFC sec Research

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PICK OF THE WEEK

Aug 28, 2017


Key Ratios: Consolidated


EBITDA Margin 8.0 9.4 14.1 14.8 15.3

EBIT Margin 6.0 7.7 12.2 12.8 13.3

APAT Margin 3.7 5.2 9.5 9.5 9.9

RoE 11.9 15.2 23.9 22.6 22.1

RoCE 14.4 17.7 22.1 22.3 22.0

Solvency Ratio

Net Debt/EBITDA (x) 1.2 1.7 0.9 0.5 0.2

D/E 0.3 0.5 0.4 0.3 0.3

Net D/E 0.3 0.5 0.3 0.1 0.1

Interest Coverage 3.0 5.2 9.9 11.0 11.7

PER SHARE DATA

EPS 13.0 18.6 34.0 38.4 44.7

CEPS 19.7 24.4 40.8 46.3 54.0

BV 113.8 128.6 155.3 185.4 219.7

Dividend 2.2 3.2 5.8 6.8 9.0

Turnover Ratios (days)

Debtor days 69 81 63 65 64

Inventory days 74 77 93 89 90

Creditors days 78 80 86 87 87

Working Capital Days 65 79 70 67 67

VALUATION

P/E 29.9 20.9 11.4 10.1 8.7

P/BV 3.4 3.0 2.5 2.1 1.8

EV/EBITDA 16.2 13.3 8.9 7.4 6.4

EV / Revenues 1.3 1.3 1.3 1.1 1.0

Dividend Yield (%) 0.6 0.8 1.5 1.8 2.3 Source: Company, HDFC sec Research

Cash Flow: Consolidated


Reported PBT 228 362 633 773 894

Non-operating & EO items -48 -1,485 -164 -53 -62

Interest Expenses 112 85 71 78 84

Depreciation 110 98 114 129 151

Working Capital Change -110 173 -174 -209 -410

Tax Paid -18 -62 -80 -131 -152

OPERATING CASH FLOW ( a ) 274 -828 400 586 505

Capex -31 1,079 -349 -350 -250

Free Cash Flow 244 252 50 236 255

Investments -40 -4 -29 35 -6

Non-operating income 52 41 47 53 62

INVESTING CASH FLOW ( b ) -19 1,117 -331 -262 -194

Debt Issuance / (Repaid) -384 -75 231 117 79

Interest Expenses -112 -85 -71 -78 -84

FCFE -252 91 210 275 251

Share Capital Issuance 0 1 0 0 0

Dividend -43 -60 -109 -130 -169

FINANCING CASH FLOW ( c ) -539 -220 51 -91 -174

NET CASH FLOW (a+b+c) -284 69 120 233 137

Closing Cash 12 164 159 445 582 Source: Company, HDFC sec Research

16 | P a g e

PICK OF THE WEEK

Aug 28, 2017


Rating Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST PRICE CAN FALL 20% OR MORE

IF RISKS MANIFEST PRICE CAN FALL 15%

& IF INVESTMENT RATIONALE

FRUCTFIES PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE

FRUCTFIES PRICE CAN RISE BY 20% OR

MORE

YELLOW MEDIUM RISK - HIGH RETURN STOCKS






FRUCTFIES PRICE CAN RISE BY 35% OR

MORE

RED HIGH RISK - HIGH RETURN STOCKS







OR MORE

17 | P a g e

PICK OF THE WEEK

Aug 28, 2017


Price Chart

Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year. Sell: Stock is expected to decline by 10% or more in the next 1 Year.

50

100

150

200

250

300

350

400

450

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

De

c-1

6

Jan

-17

Feb

-17

Ma

r-1

7

Ap

r-1

7

Ma

y-1

7

Jun

-17

Jul-

17

Au

g-1

7

18 | P a g e

PICK OF THE WEEK

Aug 28, 2017


Disclosure: I, Kushal Rughani, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or HDFC Securities Ltd. does not have financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – NO HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the Subject Company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

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