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Khaitan Chemicals and

Fertilizers Limited

A turn-around case...?

Blog: http://dharmawat.blogspot.com/

Niteen S Dharmawat

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IMPORTANT DISCLAIMER: This presentation is prepared solely to provide information about this

company and take feedback from the readers. This presentation is NOT meant for equity

investment. It should NOT be construed as an investment advice for buy/sell/hold or any other

form of recommendation. This presentation does not recommend any price or price target for

the company discussed. Investment in equity shares has its own risks. The information contained

herein is based on my study and upon sources that I consider reliable. I, however, do not vouch

for the accuracy or the completeness thereof. This material is for personal information and not

intended for any investment decisions. I am not responsible for any profit or loss incurred based

upon it & take no responsibility whatsoever for any financial profits or loss which may arise from

the discussion thread above/anywhere in communication. It is safe to assume that I, my family,

friends have vested interest in any of the companies/stocks discussed/presented here. Please do

your due diligence and take the help of a qualified advisor/registered research analyst before you

take any financial decision. I am neither of these.

About Khaitan Chemicals and Fertilizers Ltd (KCFL)

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Background…

Largest producer and installed capacity in Single Super Phosphate (SSP) in India

6 plants: Madhya Pradesh (1 plant), Chhattisgarh (1 plant), Rajasthan (1 plant), Gujarat (1

plant) and Utter Pradesh (2 plants)

The company’s SSP sold under the brand name of “Khaitan SSP & Utsav SSP”, and is a the

brand leader in Western Madhya Pradesh

Factories certified OHSAS 18001-2007 (external auditors), ISO 14001 -2004 for Environment

Management System and ISO 9001-2008 for Quality Management System

Blog: http://dharmawat.blogspot.com/

About Khaitan Chemicals and Fertilizers Ltd (KCFL)

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Background…

Earned cash profits each and every year, since its inception

Dividend paying company: last 5%

As per AR of 2016, the company is running at 30% capacity.

Industry faced successive droughts: 2013 (below average rains), 2014, 2015

Blog: http://dharmawat.blogspot.com/

Numbers at a glance

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Background…

CMP: Rs10 (52Wk H: 14.52, L: 7.45)

5% circuit limit

Ever high 233 (Nov 2010, pre 1:10 split)

2016: Revenue = 400Crore, Net profit = 1.66Crore

2012: Revenue = 650Crore, Net Profit = 25Crore

Current Market Cap = 100Crore

Promoters holding 75% (unpledged 44%)

In non-promoters category

Suresh Kanmal Jajoo holding 2.8% (increased in last one year)

Vijaya S: 3.35%

Koushik Sekhar: 1.12%

Blog: http://dharmawat.blogspot.com/

What is Single Super Phosphate (SSP)?

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Background…

SSP contains Phosphate, Sulphur, Calcium and other micro nutrients

A ‘Generic Customized Fertilizer’

India is the third largest producers & consumer in the world

Consumption heavily depends on rains

Essential Fertilizer for crops likes Oilseeds, Pulses, Sugarcane, Fruits and Vegetables, Tea etc. and for sulphur deficient soils.

SSP also contains 10-15% sulphur and 10-15% calcium. This provides an advantage in the form of improving agricultural productivity since large areas in the country are deficient in sulphur and calcium

SSP fertilizer is the lowest priced fertiizer per kg, and preferred by small & marginal farmers

Highly dependent on Imported Raw Material. Highly subsidised by Government of India.

Blog: http://dharmawat.blogspot.com/

Demand forecast of fertilizer products (Lacs tonnes): 2012-13 to 2016-17

7Blog: http://dharmawat.blogspot.com/

Year SSP

2013-14 46.82

2014-15 50.91

2015-16 55.13

2016-17 59.48

2017-18 64.76

Source: working group report on fertilizer industry

Droughts/poor rains for 3-4 years. Consumption much

lower than expected

Overcapacity (2013)

8Blog: http://dharmawat.blogspot.com/

Source: working group report on fertilizer industry

(in million tonnes)

Over capacity of (77Lac tonnes)

compounded the problem

Ingredients to produce SSP

9Blog: http://dharmawat.blogspot.com/

Ingredients Approximate of raw material cost %

Rock Phosphate 70%

Sulphur 10-15%

Sulphuric Acid/Spent Acid 5-10%

Calcium/Others 10-16%

Total 100%

Key ingredient

Prices of Rock Phosphate

10Blog: http://dharmawat.blogspot.com/

INR 6,200 Per MT

$101 Per MT

NR 7,700 PMT

$115 Per MT

INR 11,110 Per MT

$202 Per MT

1USD = 55INR

1USD = 62INR

1USD = 67INR

30% down in INR Terms

Mansoon so far…

11Blog: http://dharmawat.blogspot.com/

SSP required in Rabi and Kharif

KCFL Plant Locations and Capacities

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KCFL capacity is 15% of total industry across India

Sulphuric Acid: One of the key ingredients to produce SSP. Its

availability is a big issue. Khaitanhas done this backward

integration to produce sulphuric acid in-house.

KCFL Performance

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YearCapacity

(MT)Sold (MT)

Sold/Capacity

2015-16 1,113,500 404,646 36%

2014-15 1,113,500 322,071 29%

2013-14 1,113,500 372,984 33%

2012-13 913,500 402,861 44%

2011-12 913,500 538,250 59%

KCFL Performance

14Blog: http://dharmawat.blogspot.com/

ParameterMar 2008

Mar 2009

Mar 2010

Mar 2011

Mar 2012

Mar 2013

Mar 2014

Mar 2015

Mar 2016

Sales 392 350 202 457 644 455 388 329 392

Operating Profit 28.32 42.42 7.55 68.64 60.60 27.09 17.79 34.60 40.04

OPM% 7.21 12.09 3.73 14.99 9.40 5.95 4.58 10.51 10.21

Other Income 3.82 2.25 11.89 2.29 3.45 7.85 8.74 2.78 1.70

Net Profit 9.03 10.27 0.81 31.43 21.74 2.13 -1.62 3.50 1.66

EPS (unadj) 9.01 10.28 0.63 32.01 2.20 0.21 0.00 0.35 0.16

Dividend Payout 19.38 17.04 143.21 7.41 10.72 22.54 - 13.71 28.92

Operating Cash Flow 27.26 41.24 -11.52 -20.97 -5.29 -43.76 175.07 21.06 27.20

Last 3 years due to drought and weak mansoonwere extremely difficult for the industry

Subsidy (?) causing fluctuations in OCF

Good operating

performance

KCFL BODs & Audit & Remuneration Committee

15Blog: http://dharmawat.blogspot.com/

All the members of Audit and

Remuneration Committees are

independent directorsResigned due to ill health

4 out of 7 members of the board are

independent directors

Risks and Mitigation

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Background…

• Khaitan had also diversified in Soy extraction. But now as per recent AR, the soy industry is passing through a tough phase with widespread activities of speculation by Industry players.

• The Company has reduced its activities in this segment to large extent along with total control on fixed expenses.

• The contribution from Soya business was less than 15% to the total revenue and is gradually reducing.

• Subsidy reduction: The Government reduced subsidy rates from Rs. 3173 per MT to Rs. 2343 per MT w.e.f. 01.04.2016 and this revision in subsidy would impact the realizations in the short term

• The impact would be neutralized over a period with gradual increase in prices of the products

• The company has good brand name in the market.

• Stock has 5% circuit limits

• Significant working capital requirement

Blog: http://dharmawat.blogspot.com/

17Blog: http://dharmawat.blogspot.com/

About the presenter:

Niteen is an MBA and cleared CFA Level 2, CFA Institute USA. A firm believer in long-term financial planning, and a 20 years veteran of the stock market. He also conducts free investor awareness sessions.

He likes reading books/magazines/news papers on the topics as diverse as general management, technology, investment, fiction, marketing and the Gita.

He is a person who believes in "Everything else can stop but learning".

Thank you

Email: niteen.dharmawat@gmail.com

Mobile: 9850571857

Blog: http://dharmawat.blogspot.com/

Twitter: @niteen_india

Slideshare: www.slideshare.net/ndharmawat/

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IMPORTANT DISCLAIMER: This presentation is prepared solely to provide information about this

company and take feedback from the readers. This presentation is NOT meant for equity

investment. It should NOT be construed as an investment advice for buy/sell/hold or any other

form of recommendation. This presentation does not recommend any price or price target for

the company discussed. Investment in equity shares has its own risks. The information contained

herein is based on my study and upon sources that I consider reliable. I, however, do not vouch

for the accuracy or the completeness thereof. This material is for personal information and not

intended for any investment decisions. I am not responsible for any profit or loss incurred based

upon it & take no responsibility whatsoever for any financial profits or loss which may arise from

the discussion thread above/anywhere in communication. It is safe to assume that I, my family,

friends have vested interest in any of the companies/stocks discussed/presented here. Please do

your due diligence and take the help of a qualified advisor/registered research analyst before you

take any financial decision. I am neither of these.