edel invest research not rated an integrated water play ... excha… · ion exchange (india) ltd 5...

1 Edel Invest Research

An integrated water play CMP: INR 338

Edel Invest Research Not Rated

Ion Exchange (India) Ltd- Visit Note

IEL is an end-to-end water solutions provider to industries and municipalities with capabilities around constructing the water treatment plant to its operations and maintenance to manufacturing and supplying the required water chemicals. The company boasts of INR 400 crore order book in large EPC projects and has been selected by the Sri Lanka Water Board to execute its water supply project worth US$ 194 million (financial closure pending). IEL also offers a complete range of water treatment chemical, specialty chemical and customized chemical treatment programs to complement its engineered water

treatment and provide optimum plant performance. As part of the consumer business, the company’s water management solution extends beyond industrial to home, hotels, hospitals under the brand name Zero B.

Key Highlights

Engineering business — riding on Industrial and Government’s water investment Capital expenditure on water and wastewater infrastructure in India is set to increase by 83% over the next five years, hitting an annual run rate of $16 billion by 2020. IEL has a strong presence in the industrial water and wastewater treatment space and due to muted investment by industries, this segment reported negative growth over the last two years and its profitability came under pressure. However, with the increase in industrial spending due to strict regulation and its implementation, management expects improvement in revenue in the medium term. IEL currently has an order book of INR 400 crore comprising large EPC projects with most being from the industrial segment. The Sri Lanka Water Board has chosen EIL to execute its water supply project worth US$ 194 million (financial closure due). Including the Sri Lanka order, total order book from the engineering business currently stands at more than INR 1,600 crore, executable over the next three years.

Chemical division — an organized play

It is estimated that 80% of market share for water chemicals in India belongs to the organised sector and hence gross margins are fairly attractive and are generally in the 30-40% range. IEL offers a complete range of water treatment chemical, speciality chemical and customized chemical treatment programs to complement its engineered water treatment and provide optimum plant performance. IEL’s chemical division has grown at 16.5% CAGR over FY09-15, which is the highest amongst competition. Going forward, management is confident of maintaining the growth momentum with improvement in profitability. Consumer business — focus on rural market to grow IEL’s consumer brand, Zero B, launched way back in 1986 won strong initial traction, but due to intensive competition and aggressive investment from large national and multi-national players, the consumer product has lost ground over the last few years. Going forward, focus will be on expansion of ground water treatment solutions by tailoring products to meet the requirements of specific markets.

Valuation

At CMP of INR 326, the stock is trading at 33x of TTM EPS of INR 9.65. With commencement of the Sri Lanka project, EPC business is expected to report strong growth from H2FY17. The chemical business is expected to maintain the growth momentum.

Year to March (Standalone) (INR Cr) FY11 FY12 FY13 FY14 FY15

Revenue 608 723 857 793 800

Reve. Growth (%) 16.3 19.0 18.6 -7.5 0.9

EBITDA 24 33 51 36 49

Net Profi t 7 10 14 5 10

Share Outstnading (Crs ) 1.4 1.4 1.4 1.4 1.4

Di luted EPS (INR) 5.0 6.9 10.1 3.3 7.0

EPS Growth (%) 49.3 37.5 46.7 (67.9) 113.4

Di lutd P/E 55.9 48.5 30.3 102.6 47.9

EV / EBITDA 20.3 15.6 9.6 15.2 10.9

ROE (%) 6.7 7.2 9.9 3.0 6.3

ROCE (%) 9.2 12.1 16.6 9.8 14.1

Debashish Mazumdar +91-22-4088 5819 [email protected]

Bloomberg: ION:IN

52-week range (INR): 394 / 192

Share in issue (Crs): 1.4

M cap (INR crs): 462

Avg. Daily Vol. BSE:(‘000): 4

SHARE HOLDING PATTERN (%)

Date:12th

May, 2016

Promoter, 44.37

Public, 55.63

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160

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-15

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-16

ION Sensex

Ion Exchange (India) Ltd


ION Exchange (IEL) — An end-to-end water service and solutions provider The value chain for the water solutions business comprises three participants: water solutions provider, onsite service provider, and water chemical manufacturer. IEL is an end-to-end water solutions provider, with capabilities spanning construction of the water treatment plant, operations and maintenance to manufacturing and supplying the required water chemicals. The other two players that have full end-to-end presence are Thermax and Nalco (Ecolab). Water treatment companies such as VA Tech Wabag, GE Water, Siemens and Toshiba do not operate in the chemical manufacturing segment, but focus on construction and maintenance of water treatment plants. There are a few mid-scale players such as Vasu Chemicals and Chembond, which are pure-play chemical manufacturers operating in this segment.

Water business value chain - IEL is present as an end-to-end solutions provider

Source: Company data, Industry data, Edel Invest Research

IEL has 3 business segments

Under the Engineering business, the company designs, engineers, builds and maintains medium and large

sized water and waste water treatment plants including recycling and zero liquid discharge plants. As per

company 12 out of 20 industrial desalination plants in India are designed and built by IEL (Source :

company). It caters to diverse industries such as petrochemical & refinery, power, steel, auto, sugar,

electronics, pharma, pulp & paper, textile, cement, F&B etc.

Under the Chemical business, IEL is engaged in manufacturing of water treatment chemicals, ion exchange

resins and other specialty process chemicals used in different industries.

As part of the Consumer business, the company’s water management solutions extend beyond industrial to

home, hotels and hospitals under the brand name, ZERO B.

Business segments (based on FY15 data)

Source: Company, Edel Invest Research.

Onsite Service Provider

Water Solution Provider

Water chemical manufacturer

Regular maintenance and operational support

Providing customized water treatment solutions and project management services (including construction/EPC)

Producing a wide range of water chemicals

ChembondVasu Chemicals

VA Tech WabagSiemens , GE Water

Toshiba

Ion Exchange

ThermaxNalco (Ecolab)

Role played in value chain

Key Companies

Engineering Chemicals Consumer

Business Segments

Revenue52%

EBIT24%

Revenue37%

EBIT80%

Revenue11%

EBIT-4%



Engineering business — riding on industrial and government’s water investment Global water industry - growth driven by growing population and uneven distribution

The global water industry including sectors like desalination, wastewater treatment and water-efficiency

technologies, is expected to touch $529bn in 2016. A rapidly growing global population, especially in the

Emerging economies and static supply creating pressure on the water resources as the world’s water

reserves consist of only around 2.5% of freshwater.

Apart from the low water reserves, water accessibility to all is prevented by uneven distribution of fresh

water reserves. Regional imbalances in the per capita availability of fresh water is significantly high, with

over 60% of accessible fresh water supply in only 10 countries resulting in a ‘water-scarce’ situation for the

Emerging countries.

Rapid urbanization, increased industrialization, and improving living standards generally combine to increase

the overall demand for water in cities, particularly in Emerging economies. By 2050, global water demand is

projected to increase by 55%, mainly due to growing demand from manufacturing, thermal electricity

generation and domestic use, all of which results from the growing urbanization in developing countries.

Distribution of water is uneven across the globe China & India comprise 40% of global population, but have only 9% of

the total fresh water reserve

Source: Industry Data, Edel Invest Research

India is the third highest growing water market globally

Globally, the 10 biggest water users are India, China, United States, Pakistan, Japan, Thailand, Indonesia,

Bangladesh, Mexico and Russia. As per the Ministry of Water Resources (MoWR), India needs 813 billion

cubic metres (BCM) of water per annum against the current reserve of 1,123 BCM. Despite ample water

reserves today, the water distribution remains unequal. As against the requirement of 140 litres per capita

per day, urban India receives only 105 litres of water. Rural India fares even worse. One in four rural families

across India draws water from untreated taps and uncovered wells. In terms of growth, India would be the

third highest, and water demand in the country is expected to grow at 21% CAGR over 2015-2020.

Source: GWI, Edel Invest Research

24%

16%

6%

3%

China India Polulation Share Water Share

9%

9%

9%

9%

10%

16%

19%

21%

30%

56%

Peru

Indonesia

Australia

Spain

Oman

Saudi Arabia

Canada

India

Vietnam

Egypt Top 10 water markets by CAGR 2014-2020



Lack of infrastructure, strict regulation and its implementation, and industrialization will drive investment

in the Wastewater industry

As per Central Public Health and Environmental Engineering Organisation (CPHEEO) estimates, 70-80% of

the total water supplied for domestic use ends up generating wastewater. Maharashtra, Delhi, Uttar

Pradesh, West Bengal and Gujarat are the major contributors of wastewater. Overall, in class I cities, nearly

68% of the sewage goes untreated; this number is worse for class II cities, where nearly 90% of sewage

discharged is left untreated.

Industrial water consumption in India accounts for 6% of annual water consumption. This is expected to

reach 18% of total water consumption by 2050. For water sources to be sustainable, corporate India has to

invest in effluent treatment systems. Left untreated, industrial wastewater discharge causes pollution and

affects the fresh water reserves. Private sector involvement is necessary to optimise water use, especially in

sectors, such as chemicals, food & beverages, mining, microelectronics, power generation, refining and

pharmaceuticals.

Wastewater treatment capacity vs wastewater produced in India




Water capex to reach $16bn by 2020

Capital expenditure on water and wastewater infrastructure in India is set to increase by 83% over the next

five years, hitting an annual run rate of $16 billion by 2020. The utility market is set to top the spending to

$14 billion in 2020 from $8 bn currently. Annual spending in the industrial sector will approach $2 bn in 2020

from $0.8 bn in 2015. Due to the Central and state governments’ renewed vigour in propounding the

reduction and eventual elimination of pollution in India’s rivers, the wastewater treatment sector is

expected to grow faster than water treatment, exhibiting a CAGR of 15.3% to reach $6.78 billion in 2020, up

from $3.3 billion in 2015. Spending on water supply will grow from $5.56 billion to $9.4 billion over the next

five years.

Water & waste water treatment yearly capex ($ bn) Both utility and industry spend will drive capex growth ($ bn)

Water & wastewater capex by industry in India ($ bn)


Engineering business - to benefit from capex recovery and international orders

IEL has a strong presence in the industrial water and wastewater treatment space and due to muted

investment by the industries, this segment reported negative growth over the last two years and its

profitability came under pressure. However, with the increase in industrial spending on water and

wastewater treatment due to strict regulation and its implementation, management expects improvement

in revenue over the medium term. IEL’s management has also selectively increased focus on government

projects to support growth in this business. The company has also expanded presence in the international

market. These stated aggressive initiatives have started showing traction, as over the first nine months of

FY16, revenue from this business has reported 20% growth YoY.

5.6

9.4

3.3

6.8

2015 2020

Water Supply Waste Water Treatment

7.7

14.0

1.2 2.0

2015 2020

Utility Capex Industrial Capex

0.0

0.5

1.0

1.5

2.0

2013 2014 2015 2016 2017 2018 2019 2020

Refining & petrochemicals Power generation Steel processing

Food & beverage Pharmaceuticals Other

Power, refinery, food & beverage

(F&B) and metal will be the

drivers of water capex in India.



IEL is currently equipped with an INR 400 crore order-book from large EPC projects; most of which are from

the industrial segment. The management is also chasing INR 3,500 crore of bid pipeline and is confident of

significant improvement in order-intake in the near future. The Sri Lanka Water Board has chosen IEL to

execute a water supply project worth US$ 194 million and EXIM Bank will extend buyer’s credit facility for

this project. The formal contract and loan agreement is expected to be signed shortly and execution of the

project will start thereafter. Including the Sri Lanka order, total order book from the engineering business

currently stands at more than INR 1600 crore, executable over the next three years.

Engineering performance affected by industrial capex slowdown Current order book provides more than 3 years revenue visibility

Order book & revenue visibility INR Cr

Large EPC contract 400

Srilanka Order (Fin. closer due) 1261

Total Order book 1661

Revenue (Current runrate) (FY16E) 512

Revenue Visibility (years) 3.2

Source: Company Data, Edel Invest Research

395

472

557

485 457

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

5%

200

250

300

350

400

450

500

550

600

FY11 FY12 FY13 FY14 FY15

(IN

R C

r)

Revenue EBIT Margins



Chemical division — an organized play Indian water treatment chemical industry- expected to grow at 15% CAGR over 2020

The global demand for water chemicals is estimated at $ 25.1 bn currently; and this demand has grown at

5.6% over the last five years. In the next five years the market is estimated to grow at 5.8% p.a to reach USD

33.3 bn in 2019. The major global players include Nalco-Ecolab (USA), Kemira (Finland), Solenis (USA), Kurita

(Japan), BASF (Germany), Air Products and Chemicals Inc. (USA), AkzoNobel (Netherlands), Dow Chemical

Company (USA), BWA Water Additives (UK), GE Water & Process Technologies (USA) and Lonza Group

(Switzerland). Several of them are present in India.

In India, the market has grown at a CAGR of 12% from $0.2 bn in 2009 to $0.4 bn in 2014. In the next five

years this growth rate is expected to further accelerate to ~ 15% p.a., leading to a market size of $ 0.8 bn by

2019. In the near term, the industrial water segment is expected to drive the growth.


The segments employing water treatment chemicals — municipal and industrial — together constitute ~18%

of the water consumption in India. Most industrial water treatment companies produce a variety of

products used commonly across these end industries. In terms of application, coagulants and flocculants

constitute the largest segment i.e. ~38% of the total market size, followed by biocides and disinfectants,

constituting ~19%. Other large segments are defoamers (7% share) and pH adjusters (5% share).

Market share and use of different water chemicals


19.1

25.1

33.3

2009 2014 2019F

Emerging markets driving global growth

0.2

0.4

0.8

2009 2014 2019F

Vast untapped potential for water chemicals in India

Coagulants and

flocculants,

38%

Biocides and

disinfectants,

19%

Defoamers,

7%

pH adjusters,

5%

Others, 31%

● Power plant boilers● Power plant cooling

towers● Water utilities

● Power plant boilers● Cosmetics● Personal care products

● Municipal water plants

● Pulp and paper● Oil & Gas● Paints● Detergents● Pharmaceuticals● Industrial effluent

treatment

● Municipal wastewater treatment

● Industrial effluent treatment (Oil & Gas, Sugar, Paper, Textile, etc.)

● Textile● Food Industry● Personal care products● Hospitals● Municipal wastewater

treatment



A large share of the Indian market is with organised players and hence high margin

It is estimated that 80% of market share for water chemicals in India belongs to the organised sector and

hence gross margins are fairly attractive for most water chemical manufacturers; being generally in the 30-

40% range. Several large companies, both Indian and MNC, are present and many of the Indian companies

have a global footprint as well.

Water chemicals market structure And that offers better margins to existing players


IEL has a strong & diverse footprint in the water chemical industry

IEL offers a complete range of water treatment chemical, speciality chemical and customized chemical

treatment programs to complement engineered water treatment and provide optimum plant performance.

The company has a range of products covering the complete spectrum of customers’ needs in various

sectors like refineries, steel, power, textile, chemical etc. which includes: water treatment chemicals,

coagulants and flocculants, RO and thermal desalination chemicals, fuel & fireside additives, process

chemicals – sugar, paper, ceramics, refinery and mining application, water quality testing kits.

Indian (Organised),

50%

MNC, 30%

Unorganised, 20%

35%

100% 15%

20%

30%

0%

20%

40%

60%

80%

100%

120%

Gross Margin Factory Overheads

Labour RM Revenue from operations



Chemical product portfolio and its applications

Chemicals Application

Water Treatment Chemicals

Effluent water treatment

Wide range of high molecular weight water soluble polymers possessing high flocculating power in treatment

of suspended solids. These coagulants, flocculants improve the efficiency of solid-liquid separation and

therefore are effective in clarification of potable water, effluent treatment and recycling of waste water.

Boiler water treatment A wide range of boiler water chemical solutions for low, medium and high pressure boilers to prevent deposits and corrosion in pre-boiler, boiler and post-boiler systems.

Cooling water treatment Broad range of environmentally safe INDION products to treat open re-circulating cooling water systems.

Speciality Chemicals

Refinery chemicals The role of these speciality chemicals is to improve the unit run length and protect systems.

Fireside chemicals IEL offers a selection of pre-treatment programs designed to improve the performance of the entire energy systems and protect the pre-treatment equipment.

Metal and mineral processing

The mining and mineral processing industries utilize large quantities of water to separate and recover

valuable minerals, where polyelectrolytes assist in the separation of solid particles from aqueous

suspensions.

Paper process chemicals IEL caters to this industry’s requirements of process chemical additives that impart superior qualities to paper

such as thickness, brightness and strength.

Sugar process chemicals IEL’s high molecular weight polyelectrolytes of approved quality are used in sugar juice clarification. All

leading to improved sugar recovery.

Coal washeries New mining techniques result in fine coal particles. Flocculants have been used increasingly for recovering coal from tailings as a settling aid or by filtration/centrifugation by de-watering methods. In addition to controlling pollution, the large quantities of water used in washeries can be recycled using polyelectrolytes.

Oil field services

High performance polymers are used in all areas of the industry – production drilling, core drilling, water shut

off, mobility control, fracturing, workovers, completions, solids removal, shale inhibition, produced fluid

treatment and in certain EOR (enhanced oil recovery) techniques such as polymer flooding.

Source: Company data, Edel Invest research

IEL maintains highest growth among peers

IEL is one of the major players in the organized water chemical sector. Some other major players in India are

Nalco (Ecolab), GE Water and Process Technologies, Thermax, Chembond and Vasu Chemicals. Several of the

larger water treatment companies possess water chemical manufacturing capabilities (eg. Thermax and Ion

Exchange) or have tie-ups with other manufacturers (eg. Dow has a JV with Voltas for water treatment) to

provide complete water treatment solutions. IEL’s chemical division has grown at 16.5% CAGR over FY09-15,

which is highest among competition.

Source: Company Data, Edel Invest Research

15.9% 16.5%

12.7%

3.7%

Nalco* Ion Exchange (Chemicals) Chembond - Speciality Chemicals

Thermax Environmental

Revenue CAGR (FY09-15) of leading water chemicals companies

Average = 12.2%



Global ion exchange resins market to reach $2 bn by 2019

Ion exchange resin is a kind of synthetic resin and its key applications are separation, purification, and

decontamination processes in industries such as power generation, water & wastewater treatment,

chemical processing, pharmaceuticals, food & beverage, electrical & electronics, mining and others. The ion

exchange resins market is segmented into four types: cation exchange resins, anion exchange resins,

chelation resins and adsorbent resins. These individual ion exchange resin types have application specific

demands that are differentiated by placement, cost, and efficiency. The power generation (nuclear energy)

is a dominant application for the ion exchange resins market followed by water & wastewater treatment.

The global ion exchange resin market is expected to grow at 6% through 2014-19 to reach $2 bn in 2019.

Cation exchange resin would be the largest of the overall segment with a value of $983 mn. The Asia-Pacific

region dominates the ion exchange resins market and is expected to be the fastest growing in terms of

value, from 2014 to 2019, owing to rising consumption in this region. This is because the end-user markets

of ion exchange resins are growing especially in power generation and water & wastewater treatment.

**The ion exchange resins market is consolidated, and major players are The Dow Chemical Company (US),

Lanxess AG (Germany), Purolite Corporation (U.S.), Thermax Ltd. (India), Mitsubishi Chemical Holding

Corporation (Japan), Ion Exchange (India) Ltd. India captured majority of the market share in production and

supply. The companies in this market need to compete with each other with respect to prices and a wide

product range including an advanced technology in order to meet market requirements.

IEL is largest player amongst ion exchange resin players with ~40% market share

IEL manufacturers world class ion exchange resins of all types for water, non-water and speciality

applications in industries such as pharma, food & beverage, nuclear, chemical, bio-diesel, hydrometallurgy,

sugar etc.

IEL has a ~40% market share in Indian resin market which is approximately around INR 400 cr. The company

earns 15% EBITDA margin from the resin operations. Going forward, the company is expected to maintain

10-12% growth in the resin business with stable profitability. IEL is the first company in India to establish and

promote use of ion exchange resins as pharmaceutical excipients. The company is accredited with GMP

certificate by the Food & Drugs Control Administration (FDA), Gujarat for manufacturing bulk drugs.



Different ion exchange resins supplied by IEL

INDOION resins Applications

Pharmaceutical Ion Exchange is the first company in India to establish and promote use of ion exchange resins as

pharmaceutical excipients.

Bio-diesel

INDION resins are an ideal solution for bio-diesel manufacturing and purification. It removes free

fatty acid (0.5-1.0%). It also removes soaps, moisture and cationic impurities from raw bio-diesel

when KOH is used as catalyst.

Chemical & special processes INDION resins are used in various process applications such as de-ashing, colour removal, de-

acidification, decalcification of secondary brine etc.

Sugar

IEL offers INDION resins for decolourisation of sugar. Inversion of sucrose into glucose and fructose

using INDION resins helps in reducing sugar consumption in the beverage industry for low calorie

beverages.

Food & Beverage

INDION resins are used for de-ashing and colour removal in gelatine, liquid glucose, sorbitol,

dextrose and malto dextrine manufacture. INDION resins find application in the removal of alkalinity

from the wash water in the beverage industry

Hydrometallurgy

IEL offers various grades of chelating resins, strong and weak acid cation exchange resins for

removing or recovering metal ions. The chelating resins having aminophosphonic, iminodiacetate,

thiol and thiouronium functional groups are used for removing specific ions from a mixture of ions.

Nuclear

INDION nuclear grade resins have been developed after intensive research and have exceptionally

high bead strength, low levels of metal, chloride and organic impurities. These resins are used for a

number of applications in the nuclear power industry.

Potable water IEL manufactures a variety of high purity ion exchange resins designed for the purification of potable

water. The applications include softening, disinfection, removal of nitrate, arsenic, fluoride and iron.

Industrial water treatment

INDION ion exchange resins are used for conventional water treatment applications such as

softening, deionisation and dealkalisation. Lower rinse volumes, high capacity, superior life pattern

and proven track record make the INDION resins a preferred choice.

Source: Company data, Edel Invest Research



Chemical division to improve growth momentum ahead

IEL’s revenue from the chemical business grew at 18% CAGR over FY11-15 mainly due to continuous

innovation and diverse presence across the resins and water treatment chemicals. Going forward,

management is confident of maintaining at-least 15% growth in the chemical business. With higher growth

in the chemical business, EBIT margin is expected improve by 200bps going forward.

Chemical business reported 18% CAGR over FY11-15


6%

7%

8%

9%

10%

11%

12%

13%

14%

0

50

100

150

200

250

300

350


(IN

R C

r)

Revenue EBIT Margins



Consumer division — not a large focus area The home water purifier industry in India is currently valued at INR 4,200 cr and growing at ~20% for the last

three years. Even today nearly 67% of Indian households do not treat drinking water and rely only on boiled

water. These factors are expected to boost growth of the water purifier market in the region. The market is

dominated by organized players and their share is expected to increase in coming years.

IEL extends water and environment management solutions beyond the industrial sector to homes, hotels,

spas, educational institutions, hospitals, laboratories, realty sector and defence establishments providing

safe drinking water and a clean environment. It focuses on households and point of use water purifiers and

plans to increase its presence in the rural drinking water treatment. The company is the pioneer of the

revolutionary RO technology in India.

Although, IEL’s consumer brand — Zero B — was launched way back in 1986 and won strong traction

initially, due to intensive competition and aggressive investment from large national and multi-national

players, the consumer product has lost ground. Going forward, management wants to focus more on the

rural drinking water market to get back into the growth mode. In the current year the company has plans to

introduce surface water treatment solutions by closely working with public health engineering departments

(PHEDs) & rural water supply departments of various states. The focus will be on expansion of ground water

treatment solutions by tailoring products to meet the requirements of specific markets.

IEL’s consumer business revenue - not in growth mode


76

78

80

82

84

86

88

90

92

94

96


(IN

R C

r)



Overall revenue performance impacted by slow industrial capex

Overall revenue for IEL grew at a CAGR of 7% across FY11-15. Negative growth in engineering business

affected topline growth in FY14 and FY15. Chemical business has maintained the growth momentum and

grew at 18% CAGR over FY11-15. However, consumer business wasalso affected by massive competition

from global and domestic peers.

Revenue growth was muted due to decline in engineering business

Operating margin improved marginally, PAT margin under pressure

EBITDA margin improved by 300 bps to 8% in FY15 from 5% in FY11. This was helped by higher growth in

chemical business aiding operating margin improvement. However, high interest cost and higher tax

affected PAT performance.

EBITDA margin improved, but lower versus peers

Return ratios started improving

IEL’s return ratios are showing initial signs of recovery. In FY15, RoCE improved by 430 bps mainly due to

higher contribution from the chemical business wherein the company earns more than 50% RoCE.

ROCE started showing initial signs of recovery


500

550

600

650

700

750

800

850

900

950


(IN

R C

r)

0%

2%

4%

6%

8%


EBITDA Margin PAT Margin

0%

5%

10%

15%

20%


ROCE ROE

Financial

Analysis



Quarterly and nine months performance (standalone)

Particulars Q3FY16 Q3FY15 % change 9MFY16 9MFY15 % change

Net Sales

- Engineering 113 109 3.9% 306 255 20.1%

- Chemical 79 76 4.8% 222 207 7.4%

- Consumer 22 21 4.0% 60 58 4.8%

Total Net Sales 203 196 3.5% 561 497 12.9%

Operating Cost

Raw Material Cost 137 135 1.6% 380 332 14.4%

Employee Cost 23 22 6.8% 67 58 15.3%

Other Expenses 29 29 NA 83 80 NA

Total Operating Cost 189 185 2.0% 529 470 12.6%

EBITDA 13 10 30.6% 32 27 18.8%

Depreciation 3 3 1.6% 7 9 -14.4%

EBIT 11 8 40.1% 25 18 34.7%

- Engineering 4 3 23.5% 11 6 60.6%

- Chemical 12 11 8.9% 32 26 20.6%

- Consumer -1 -1 2.2% -3 -2 70.2%

Finance cost 3 3 5.1% 8 8 -7.9%

Other Income 3 4 -37.9% 10 8 29.5%

PBT 11 9 15.6% 27 18 52.7%

Tax 3 3 5.7% 9 5 64.1%

PAT 7 6 20.7% 18 12 47.5%

Equity capital 14 14 0.0% 50 50 0.0%

No. of shares (Cr) 1.4 1.4 0.0% 10 10 0.0%

Diluted EPS (INR) 5.3 4.4 20.7% 2.7 1.8 52.7%



Company profile Ion Exchange was originally formed as a subsidiary of Permutit, UK in 1964. It became a wholly owned Indian

company in 1985. The company is currently celebrating its 51st year of operations. The company has

expanded its footprint globally and possesses a diversified product range. It offers one-stop water and non-

water treatment solutions catering to diverse segments like infrastructure, industry, institutions,

municipality, homes and communities, urban and rural. The company offers a wide range of solutions across

the water cycle from pre-treatment to processed water treatment, waste water treatment, recycling, zero

liquid discharge, sewage treatment, packaged drinking water, sea water desalination etc. The company is

also engaged in manufacturing ion exchange resins, speciality chemicals for water and waste water

treatment as well as non-water applications. It has two facilities for in-house R&D and two applications and

testing centers. The company has over 50 patents to its credit and has 100+ products commercialized. The

company has a global presence apart from presence in major cities in India with sales & service centres and

a dealer network of more than 100. The company exports to Africa, Japan, Middle East, Russia, South East

Asia, Europe, UK, USA, Canada and neighbouring countries.

Key milestones

1965 – 1979 1982 – 1988 2007 – 20151991 – 2006

• 1964 – Incorporated as 60% subsidiary ofPermutit Co., U.K.

• 1965 – Resin Production and equipmentfacility starts at Ambernath

• 1977 – Listed on BSE

• 1978 – First company to launch ReverseOsmosis concept in India

• 1979 – Resin manufacturing plant set-upat Ankleshwar

• 1982 – Engineering and fabrication setupstarted operation at Hosur

• 1983 – Industrial Chemical Production startedat Patancheru

• 1985 – Ion Exchange became a wholly ownedIndian company and started services business

• 1986 – Zero-B as a brand launched withSuraksha tap attachment

• 1987 – Started manufacturing RO membranesat Halol, Gujarat

• 1991 – Established the internationaldivision and started SE Asia operations

• 1996 - First sea water reverse osmosisdesalination plant in India at GEB, Sikka

• 1997 – 100% EOU at Rabale

• 1998 – Consumer productsmanufacturing started at Goa

• 2004 – Setup subsidiary in Bangladesh

• 2006 – Setup Joint Venture in Oman

• 2008 – Operations setup at USA• 2010 – Commissioned largest reverse

osmosis based water desalination plant• 2012 – Setup Joint Venture in South

Africa• 2013 – Setup state of the art Pharma

grade resins facility at Ankleshwaroriented for exports and Joint Venture inThailand

• 2015 – Contract for Water supplyproject worth US$194 mn signed withSriLanka Water Board



Clientele- Industrial & Institution

Management Team

Name Designation

Rajesh Sharma Chairman & Managing Director

Aankur Patni Executive Director

Dinesh Sharma Executive Director

Ajay A. Popat President – Corporate Diversification & Marketing

N.M. Ranadive Executive VP - Finance

Dinesh Sadasivan Executive VP – Standard systems, CSD & services

S. V. Mehendale Sr. VP - Resin & Membrane Division

Prashant K. Chitnis Sr. VP- Technology

S. N. Iyengar Sr. VP- Medium Industry

Anil Khera Sr. VP- Chemical Division

J. P. Pathare Sr. VP- International Division

Vasant Naik Sr. VP- Finance

C. K. Sandeep Sr. VP- Env. Division



Income statement (Consolidated) (INR crs)

Year to March FY11 FY12 FY13 FY14 FY15

Income from operations 608 723 857 793 800

Direct costs 435 517 597 555 542

Employee costs 64 75 98 97 98

Other expenses 149 172 210 203 210

Total operating expenses 584 690 806 757 752

EBITDA 24 33 51 36 49

Depreciation and amortisation 7 9 12 11 12

EBIT 17 25 39 25 36

Interest expenses 10 13 17 15 17

Other income 9 9 5 5 4

Profi t before tax 16 21 26 15 24

Provis ion for tax 7 9 11 10 12

Core profi t 9 12 15 5 11

Extraordinary i tems (1) 0 0 0 (0)

Profi t a fter tax 7 12 15 5 11

Minori ty Interest (0) (2) (1) (0) (2)

Share from associates 0 0 0 0 0

Adjusted net profi t 7 10 14 5 10

Equity shares outstanding (mn) 1 1 1 1 1

EPS (INR) bas ic 5.9 6.8 11.0 3.2 6.9

Di luted shares (Cr) 1.4 1.4 1.3 1.4 1.4

EPS (INR) ful ly di luted 5.9 6.8 11.0 3.2 6.9

Dividend per share 1.9 2.6 2.2 2.0 3.0

Dividend payout (%) 32.7 38.3 20.0 62.1 43.3

Common size metrics- as % of net revenues (INR crs)


Operating expenses 96.1 95.4 94.0 95.5 93.9

Depreciation 1.1 1.2 1.4 1.3 1.5

Interest expenditure 1.7 1.8 2.0 1.9 2.1

EBITDA margins 3.9 4.6 6.0 4.5 6.1

Net profi t margins 1.2 1.3 1.7 0.6 1.2

Growth metrics (%)


Revenues 16.3 19.0 18.6 (7.5) 0.9

EBITDA (2.9) 38.9 53.8 (30.3) 36.4

PBT 44.1 28.2 26.9 (43.2) 61.5

Net profi t 51.7 36.6 25.2 (67.3) 138.4

EPS 102.7 15.2 60.2 (70.5) 114.3

Financials



Balance sheet (Standalone)

As on 31st March FY11 FY12 FY13 FY14 FY15

Equity share capita l 13 13 12 14 14

Preference Share Capita l 0 0 1 0 0

Reserves & surplus 119 124 137 138 142

Shareholders funds 132 137 150 152 156

Secured loans 21 65 83 92 84

Unsecured loans 26 4 3 4 2

Borrowings 47 69 86 96 86

Minori ty interest 4 7 8 8 8

Sources of funds 183 213 244 256 251

Gross block 137 162 203 206 212

Depreciation 77 87 102 112 127

Net block 61 75 101 94 85

Capita l work in progress 9 15 1 1 14

Total fixed assets 70 90 103 95 99

Unreal ised profi t 0 0 0 0 0

Investments 5 5 3 3 2

Inventories 56 66 72 75 79

Sundry debtors 249 352 358 348 358

Cash and equiva lents 31 19 26 24 26

Loans and advances 23 34 49 41 40

Other current assets 0 0 0 0 0

Total current assets 359 471 505 488 504

Sundry creditors and others 305 393 402 363 385

Provis ions 10 17 16 15 22

Total CL & provis ions 315 410 419 379 407

Net current assets 44 61 86 110 98

Net Deferred tax (5) (4) (7) (6) (4)

Misc expenditure 70 62 59 55 56

Uses of funds 183 213 244 256 251

Book va lue per share (INR) 93 97 116 108 111

Cash flow statement


Net profi t 9 12 15 5 11

Add: Depreciation 7 9 12 11 12

Add: Misc expenses wri tten off (70) 8 2 5 (1)

Add: Deferred tax 1 (0) 3 (1) (2)

Add: Others (0) (2) (1) (0) (2)

Gross cash flow (54) 26 31 19 19

Less : Changes in W. C. (81) 36 18 25 (15)

Operating cash flow 27 (10) 14 (7) 33

Less : Capex 8 29 25 3 16

Free cash flow 19 (39) (11) (9) 17



Ratios


ROAE (%) 6.7 7.2 9.9 3.0 6.3

ROACE (%) 9.2 12.1 16.6 9.8 14.1

Debtors (days) 150 178 152 160 163

Current ratio 1.1 1.1 1.2 1.3 1.2

Debt/Equity 0.4 0.5 0.6 0.6 0.6

Inventory (days) 34 33 31 35 36

Payable (days) 183 198 171 167 176

Cash convers ion cycle (days) 0 13 12 28 24

Debt/EBITDA 2.0 2.1 1.7 2.7 1.8

Adjusted debt/Equity 0.4 0.5 0.6 0.6 0.6

Valuation parameters


Di luted EPS (INR) 5.9 6.8 11.0 3.2 6.9

Y-o-Y growth (%) 102.7 15.2 60.2 (70.5) 114.3

CEPS (INR) 10.8 13.0 20.5 10.7 15.5

Di luted P/E (x) 53.4 46.3 28.9 98.0 45.7

Price/BV(x) 3.4 3.3 2.7 2.9 2.9

EV/Sales (x) 0.8 0.7 0.5 0.7 0.6

EV/EBITDA (x) 19.4 15.0 9.2 14.6 10.4

Di luted shares O/S 1.4 1.4 1.3 1.4 1.4

Bas ic EPS 5.9 6.8 11.0 3.2 6.9

Bas ic PE (x) 53.4 46.3 28.9 98.0 45.7

Dividend yield (%) 0.6 0.8 0.6 0.6 0.9

Water


Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)

Board: (91-22) 4272 2200

Vinay Khattar

Head Research

[email protected]

Rating Expected to

Buy appreciate more than 25% over a 12-month period

Hold appreciate up to 10% over a 12-month period

Reduce depreciate more than 10% over a 12-month period

0

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-16

Ion Exchange (India) Ltd. 5 year price chart

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edel invest research not rated an integrated water play ... excha… · ion exchange (india) ltd 5...

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