gujarat ambuja exports ltd...aug 01, 2018 · gujarat ambuja exports ltd initiating coverage ......

January 8, 2018Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) of 41

Gujarat Ambuja Exports Ltd

Initiating Coverage

January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497)

An A’maize’ing story unfolds

Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months

January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) of 41

Table of Contents

Structural growth levers in place - Initiate with LONG .......................................... 7

Well-diversified business model with an expanding core .................................... 7

Maize processing: Earning its corn! ................................................................. 8

Expansion of the pie: Growth drivers for starch and starch derivatives ................... 8

Competitive landscape – Lifting the maize cup! ............................................ 10

New capacity to be a booster shot for revenues – expect 17% CAGR (FY17-20E) ........ 13

Focus on VAP, higher utilization to drive margins .......................................... 13

Agro processing: Increase in import duties to help ............................................ 15

Strong demand drivers for refined oil and de-oiled cakes ................................. 16

Better utilization rates to drive 16% revenue CAGR over FY17-FY20E ................... 16

EBITDA margins to get steady .................................................................. 18

Cotton yarn: Non-core legacy business .......................................................... 18

Estimated segment revenue CAGR of 8% over FY17-FY20E ................................ 18

After recent upgrading of machinery, focus is on profitability ........................... 19

Financials ............................................................................................ 19

Revenue CAGR estimated at 17% over FY17-FY20E ......................................... 19

Expect 23% EBITDA CAGR over FY17-FY20E with 140bps margin expansion ............. 20

Cash generated mostly ploughed back into maize segment due to better return profile

..................................................................................................... 22

Valuation and risks .................................................................................. 24

Corporate governance .............................................................................. 28

Annexure 1: Maize industry overview ............................................................ 28

Annexure 2: Oilseed industry overview .......................................................... 31

Annexure 3: Company overview .................................................................. 33

January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) of 41

Before reading this report, you must refer to the disclaimer on the last page.

Gujarat Ambuja Exports Ltd. Absolute: Long

Relative: Outperform

Initiating note Spot Coverage 26% ATR in 15 months

An A’maize’ing story unfolds – Initiate with LONG Agricultural Products

© 2017 Equirus All rights reserved.

Rating Information

Price (Rs) 234

Target Price (Rs) 310

Target Date 31st Mar'19

Target Set On 8th Jan'18

Implied yrs of growth (DCF) 10

Fair Value (DCF) 318

Fair Value (DDM) 43

Ind Benchmark SPBSMIP

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 26,832

Free Float (%) 34.06 %

52 Wk H/L (Rs) 237.6/88

Avg Daily Volume (1yr) 1,85,319

Avg Daily Value (Rs Mn) 25

Equity Cap (Rs Mn) 229

Face Value (Rs) 2

Bloomberg Code GAEX IN

Ownership Recent 3M 12M

Promoters 65.9 % -0.2 % -6.0 %

DII 0.1 % 0.0 % 0.0 %

FII 0.4 % -0.4 % 0.1 %

Public 33.5 % 0.6 % 6.0 %

Price % 1M 3M 12M

Absolute 21.3 % 40.4 % 156.7 %

Vs Industry 14.3 % 25.2 % 108.6 %

Sukhjit Starch 15.5 % 29.6 % 63.2 %

Gulshan Polyols 14.8 % 9.6 % 24.4 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 4.3 2.6 4.0 2.9

EPS (18E) 1.5 1.8 3.9 5.1

Gujarat Ambuja Exports Limited (GAEX) is one of India’s leading manufacturers of agro-

processed products and cotton yarn. Over the last decade, GAEX has increased focus on

maize processing given its better and consistent returns. Maize segment’s revenues

have grown 10 times, from just Rs 1.23bn in FY07 to Rs 13.05bn in FY17 (28% CAGR), led

by debt-free capacity addition and market share gains. With the new maize processing

plant set to commission soon, GAEX will become India’s largest maize processor and will

be all set to ride the next wave of growth. Also, its legacy solvent extraction business

should see consistent growth post duty hikes on imported oils. We expect 17%/20%

revenue/EPS CAGR over FY17-FY20E. Initiate coverage with LONG and a SOTP-based

Mar’19 TP of Rs 310.

Earning its corn! Capacity addition, value addition to drive growth, profits: Due to

its better and consistent returns, maize processing has over a period become GAEX’s

focus area. Most cash flows generated over the last decade have been ploughed back

into this business. Segment revenue/EBITDA contribution has increased from 9%/25%

in FY07 to 39%/67% in FY17. With its new plant (1000 MTPD) coming on stream in

4QFY18, GAEX shall become the largest maize processor in India with an installed

capacity of 3,000 MTPD and a market share of ~22%. We expect the company’s maize

processing revenue/EBITDA to grow at 17%/24% CAGR over FY17-FY20E.

Slip resistant – Scope to treble oil revenues without capacity addition: Indian

oilseed crushing companies have been struggling with lower utilization levels due to

lack of price parity between raw materials and finished product prices. Recently, the

government increased import duty on soybean oil to 30% (from 18%), which should

give a level-playing field to Indian farmers; domestic production may begin to

improve, in turn helping Indian oilseed crushing companies. With 25-30% utilization at

present, GAEX can potentially increase its oil revenues 3-4 times from current levels

without setting up any new capacity.

Initiate with LONG, Mar’19 TP Rs 310: GAEX’s performance in the maize segment

over the last decade has been underappreciated due to a volatile scoreboard of its

legacy businesses. With commencement of its new plant, we expect growth

momentum in the maize segment to continue; besides, the oil business would also

benefit from import duty hikes. In this backdrop, we feel the stock is attractively

valued at 19x/13x/10x our FY18/FY19/FY20 EPS estimates. We initiate coverage on

GAEX with a LONG rating and a SOTP-based Mar’19 TP of Rs 310.

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 33,308 39,061 46,404 53,090

EBITDA 2,754 2,660 4,110 5,141

Depreciation 714 794 931 1,004

Interest Expense 228 161 160 128

Other Income 182 74 71 72

Reported PAT 1,586 1,409 2,070 2,733

Recurring PAT 1,586 1,409 2,070 2,733

Total Equity 8,531 9,738 11,510 13,848

Gross Debt 6,848 6,092 5,542 3,992

Cash 58 239 426 456

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 13.8 12.3 18.1 23.8

Book Value 74 85 100 121

Dividends 0.8 1.5 2.2 2.9

FCFF -3.7 12.5 11.4 19.1

P/E (x) 16.9 19.0 13.0 9.8

P/B (x) 3.1 2.8 2.3 1.9

EV/EBITDA (x) 12.2 12.3 7.8 5.9

ROE (%) 18 % 15 % 19 % 22 %

Core ROIC (%) 12 % 10 % 13 % 16 %

EBITDA Margin (%) 8 % 7 % 9 % 10 %

Net Margin (%) 5 % 4 % 4 % 5 %



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 12.3 - - There are no other estimates available.

FY19E 18.1 - -

Sales FY18E 39,061 - -

FY19E 46,404 - -

PAT FY18E 1,409 - -

FY19E 2,070 - -

Segmental Drivers:

Revenue growth (%) FY17 FY18e FY19e FY20e

Agro processing 24% 24% 17% 9%

Cotton 26% 12% 6% 8%

Maize processing 18% 6% 24% 24%

EBITDA margins (%) FY17 FY18e FY19e FY20e

Agro processing 5% 5% 5% 5%

Cotton 5% 2% 5% 5%

Maize processing 15% 12% 17% 18%

Key triggers:

a) Commencement of commercial operations of its new plant at Chalisgaon

b) Any favorable announcement for the sector in the upcoming budget

c) Sale of its non-core textile segment

Key downside risks:

a) Volatility in corn and soya prices.

b) Increase in competition which may put pressure on prices and utilization levels

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.8 % 1.3 14.6 % 6.0 % 30.5 %

FY18E FY19E FY20E FY21-27E

Sales Growth 17 % 19 % 14 % 11 %

NOPAT Margin 4 % 5 % 5 % 5 %

IC Turnover 2.54 2.80 3.06 4.11

RoIC 9.8 % 13.3 % 16.3 % 21.9 %

Years of strong growth 1 2 3 10

Valuation as on date (Rs) 29 92 149 269

Valuation as of Mar'19 35 109 176 318

Based on DCF, we derive our fair value of Rs. 318 as on 31st Mar’19.

Company Description:

Gujarat Ambuja Exports Limited (GAEX) is a leading manufacturer of starch derivatives,

soy derivatives and cotton yarn. It has the second highest crushing capacity in India with

six solvent extraction plants across India with a total capacity of 4,600 MTPD. Currently,

the company’s refining capacity stands at 1,200 MTPD. GAEX’s main focus area has been

wet-milling of corn and it has set up three operational processing plants. With

commencement of operations of its new Chalisgaon plant (expected in 4QFY18), the

company will become the largest maize processor in India in terms of installed capacity.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

Gujarat Ambuja Exports

LONG 234 26,832 310 31st Mar'19 13.8 12.3 18.1 16.9 19.0 13.0 74.4 2.8 18 % 15 % 19 % 0.3 % 0.6 %

Sukhjit Starch NA 462 3,409 NA NA 24.4 - - 18.9 - - 309.8 - 8 % - - 1.2 % -

Gulshan Polyols NA 91 4,265 NA NA 5.7 - - 15.8 - - 54.7 - 11 % - - 11.4 % -



Exhibit 1: GAEX Maize segment’s revenue have increased 10 fold in the last 10 years driven by continuous capacity expansion and market share gains

Source: Company, Equirus Securities

1,235 1,329 2,161

3,439 3,999 4,394

5,809

8,806

9,923

11,056

13,053 13,789

17,378

21,462

8%

63% 59%

16%

10%

32%

52%

13%

11%

18%

6%

26%

24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

5,000

10,000

15,000

20,000

25,000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Maize Segment Revenue (Rs. Mn) Maize Revenue Growth (%)

2007: Major debottlenecking at

existing plant in Himmatnagar

to achieve 500 TPD capacity

2008: New plant at Uttarakhand

with a 500 TPD capacity begins

commercial operations.

2013: Commences commercial production of its

750 TPD new Maize processing, derivatives and

other value-added products processing unit in the

Haveri district in the state of Karnataka

2018: New maize processing plant at

Chalisgaon, Maharashtra with a capacity of

1000 TPD expected to begin commercial

operations in Jan-Feb 2018



Exhibit 2: Well diversified Product portfolio

Product Name Description

Maize Processing Segment

Maize starch

Maize or corn starch is a typical cereal starch with

distinctly low protein and ash contents. Its carbohydrate

content of high purity makes it useful in several

industries like paper, textile, food, cardboard and

potable alcohol production industry

Liquid glucose

Liquid glucose (sweetose) is a clear, colorless, viscous

solution, making it compatible with the physical

properties desired in end products. It finds usage in

cough syrup and vitamin-based tonics. It is also used as a

base for artificial honey and as a granulating agent for

tablet coating

High Maltose

Corn Syrup

(HMCS)

High-maltose corn syrup is a food additive used as a

sweetener and preservative. Also, since maltose has a

low freezing point, HMCS is useful in frozen desserts.

Dextrose

anhydrous

Anhydrous Dextrose, a high purity product with moisture

below 1%, finds applications in special food preparations

and is the best sweetener for water-sensitive systems

such as chocolate. In medical application, it is used as a

raw material in manufacture of antibiotics, preparations

of intravenous glucose injections, and rehydration drip

lines, and is also formulated with vitamins and minerals

Liquid Sorbitol

70% solution

Sorbitol, a polyol (sugar alcohol), is a bulk sweetener

found in numerous food products. In textile and leather, it

is used as a dispensing, bodying, and sequestering agent

Dextrose

monohydrate

Dextrose has a greater depression of freezing point than

that of cane sugar, resulting in a smoother and creamier

texture of the final product like in frozen food products.

It also finds industrial uses in adhesives, resin

formulation and building materials

Product Name Description

Agro Processing Segment

Vanaspati ghee

Ambuja Vanaspati Ghee is used in most Indian Kitchens

as the best cooking medium for deep frying, sauteing and

making sweets. It is widely used by hoteliers and

preferred by chefs

Soybean refined

oil

Ambuja Gold Refined Soybean oil is made from non-GMO

soybean seeds and is a rich source of Omega-3 and

Omega-6 fatty acid. These are essential fatty acids and

considered one of the best, healthiest cooking oils

Non-GMO

defatted soya

flour

Non-GMO De-fatted Soya Flour (Toasted) is a high

protein, low-fat product and is the simplest form of soy

protein. It is used in the food as well as feed industry.

Non GMO Soya

Granules & Soya

Nuggets (TVP)

Textured vegetable protein (TVP), or textured soy

protein (TSP)/soy meat/soya meat, is also known as

meat analogue. It is used in several meat foods, such as

banger, pork luncheon meat and sausage

Refined Palm Oil

Palmolien is one of the few fatty fruits in existence; it’s

likely to hold a substantial place in the human diet and is

the second most consumed vegetable oil in the world.

Rich in vitamin E, and being cholesterol and lactose-free,

it is ideal for cooking and baking




Structural growth levers in place - Initiate with LONG

Well-diversified business model with an expanding core

GAEX has three business segments namely (1) agro processing,(2) corn/maize processing

and (3) cotton yarn (textiles). While in revenue terms, contribution of the agro-

processing division is the highest, the maize segment leads in terms of EBITDA

contribution (Exhibits 3, 4). The maize segment has become the company’s core and key

focus area due to a higher and stable margin profile and better growth potential.

GAEX’s agro processing segment is currently operating at ~30% utilization, and the

company’s focus ahead would be to profitably increase utilization levels. Segment

revenues can potentially treble without any capex going forward.

In terms of cotton yarn (textile), most revenues are derived from exports; this has been a

major drag on the company’s financials over the last two decades due to high volatility in

the segment caused by fluctuations in cotton and yarn prices, and adverse cross-currency

movements. GAEX may unlock value by hiving off this segment as and when the

opportunity arises.

In sections below, we discuss all business segments in detail.

Exhibit 3: Agro processing leads in terms of revenue contribution (FY17)


Exhibit 4: Maize segment contributed ~63% to overall FY17 EBITDA


Exhibit 5: Maize segment has been the focus area in terms of capital allocation


73% 63%

53% 53% 54% 58% 58% 55%

7%

8%

7% 6% 7% 6% 6%

5%

19% 28%

39% 40% 39% 35% 37% 40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e

AGRO COTTON MAIZE

28%

4%

63%

5%

AGRO

COTTON

MAIZE

POWER

13%

89%

77%

30%

55%

75% 80%

72%

50%

76%

62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

200

400

600

800

1000

1200

1400

1600

1800

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Capex in maize segment % of total capex



Maize processing: Earning its corn!

GAEX has been present in maize processing since the 1990s, with one plant at

Himmatnagar, Gujarat. However, management enhanced focus on this segment in FY07

with some de-bottlenecking at Himmatnagar and increased its rated capacity to 500

MTPD. Hit by high volatility in the cotton and agro segments, GAEX has increasingly

focused on the maize segment, which has a better margin profile than the other two.

Exhibit 6: GAEX has been expanding its maize processing capacity over last decade

Plant

locations

Capacity

(MTPD) Year

Initial

Capex

(Rs mn)

Comments

Himmatnagar,

Gujarat 600 2007 400

Close to main ports in Gujarat; focus on export

markets

Sitarganj,

Uttarakhand 650 2008 650

Mainly to serve India’s northern market; in proximity

to large institutional buyers

Hubli,

Karnataka 750 2013 1,250 Unit aggressively takes care of export markets

Chalisgaon,

Maharashtra 1,000 2018 2,600 Focus on high value-added derivatives


Apart from increasing its maize crushing capacity, the company has also adding

value-added derivative capabilities at each of its plants.

In our view, there is a huge market potential for starch and starch derivatives, and GAEX,

as the market leader in this segment, is all set to ride the wave. Following are some of

the major growth drivers of starch and its derivatives in India:

Expansion of the pie: Growth drivers for starch and starch derivatives

1. Industries using maize products shall continue to do well

Exhibit 7: Products and by-products of maize processing and user industries

Product User Industry

Starch Textile, Paper, Pharma, FMCG

Dextrine/ Pre Gel/ Modified Starch Food, Paper, Paint

Glucose Food, FMCG, Pharma

Sorbitol Pharma, Paint, FMCG

Source: Sukhjit Starch Investor Presentation, Equirus Securities

Exhibit 8: Pharma, Textile, Paper, and Food industries use starch as a raw material

Industry Use of Starch Growth Potential

Pharmaceutical

Used as a dusting media for coatings,

binder and filler for capsules &

tablets

Indian Pharma sector is pegged

to grow at a ~19% CAGR over

FY16-20E to reach ~US$ 55bn

Textile

Provides stiffness to clothes; used

along with thermoplastic or

thermosetting resins to obtain

finishing

Indian textile industry to touch

~US$ 223bn in 2021 from the

current size of ~US$ 108bn

Paper

Used for increasing paper strength,

and as an adhesive in pigmented

coating for paper products

Paper demand set to rise to 20

MMT by 2020 from the current

level of 13 MMT

FMCG

Used to thicken sauces, gravies and

pie fillings; used in baking and ice-

cream industries

India’s FMCG market set to

double from US$ 49bn now to

US$ 104bn by 2020

Source: Sukhjit Starch filings, IBEF, Equirus Securities

2. Lowest per capita consumption of starch in India

On the maize derivatives front, starch consumption in India is only ~1.5 kg/capita vs.

the global average of ~6.1 kg/capita. Consumer preference is tilting towards starch

and its derivatives vs. sugar earlier due to rising health consciousness across the

globe. Starch is also finding new applications in industries such as paper and ethanol

production.

3. Good availability of maize – key raw material for starch – in India

Maize accounts for ~83% of global starch production while potato, cassava, wheat

and rice account for the rest. On an average, India produces ~20mn tons of maize

every year, of which only 12-13% is used for starch manufacturing. Therefore, if

demand for starch and its derivatives increases, India will have abundant supply to

meet this demand.

Exhibit 9: Maize is the major RM for starch and its derivatives

Raw material % of global starch production

Maize 83%

Potato 6%

Cassava/Tapioca 6%

Wheat 4%

Rice 1%

Source: NABARD Consultancy Services, Equirus Securities



4. HFCS a potential industry game changer

High fructose corn syrup (HFCS), is a liquid fructose-glucose sweetener made from

corn that is commonly substituted for sugar in processed foods. In USA, the alcohol

fuel industry has been increasingly using derivatives of starch. Also, aerated soft-

drink makers such as Coca-Cola and Pepsi switched to HFCS (High Fructose Corn

Syrup) from sugar in USA due to the latter’s higher costs. Similarly, in China also

HFCS has become very popular post its introduction. In India, aerated drink

manufactures are yet to substitute sugar with starch derivatives; in case that

happens, a huge incremental demand for maize derivatives, especially HFCS, would

be created. GAEX is in the process of setting up HFCS facility in its new Chalisgaon

plant. It will be a small capacity to begin with and shall start operations by 2HFY19.

If the demand picks up, they can expand it further at lower incremental capex.

Currently, none of the competitors have HFCS production capabilities. If it clicks,

GAEX can capture the market share very fast while peers may take 1-2 years to set

up their plants.

Exhibit 10: Use of corn in wet milling steadily increasing in USA

Source: USDA, Equirus Securities

Exhibit 11: Share of HFCS in wet-milling products (excluding alcohol) at>40% in USA


18% 20%

24% 23% 21%

25%

32% 32%

40% 44%

50% 50% 54%

45% 45%

47%

44% 46%

0%

10%

20%

30%

40%

50%

60%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

U.S. corn crop (mn bushels) Wet milling share (%)

53% 53% 52% 51% 50% 51% 50% 50% 51% 50% 50% 48% 48% 48% 47% 45% 43% 43%

22% 22% 23% 23% 23% 23% 24% 25% 25% 25% 26% 28% 28% 31% 29% 32% 35% 35%

25% 24% 25% 26% 27% 26% 26% 25% 24% 25% 25% 24% 24% 22% 24% 23% 22% 22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

HFCS (%) Glucose Syrup and Dextrose (%) Corn Starch (%)



Competitive landscape – Lifting the maize cup!

The maize processing industry in India is dominated by 9-10 organized players which form

70% of the market, while the remaining players are small and largely unorganized.

Currently, India’s total maize crushing capacity is estimated at 13,000 MTPD, with

Roquette Riddhi Siddhi being the largest player (crushing capacity 2,300MTPD), GAEX the

second largest (2,000MTPD) and Sukhjit Starch & Chemicals Limited the third largest

(~1,500MTPD). The combined market share of these three players is ~44% currently.

Exhibit 12: Crushing capacities of major players now and post expansion

Players Crushing

capacity (MTPD)

Market share

(%)

Crushing capacity post

expansion

Market share

(%)

Roquette 2,330 18% 2,550 17%

GAEX 2,000 15% 3,000 21%

Sukhjit 1,500 12% 1,500 11%

Industry 13,000

14,220

Source: Company, Equirus Securities;

Post commencement of the new plant in Chalisgaon in 4QFY18, GAEX will become the

largest player in India in terms of maize crushing capacity.

Key players

Our channel checks suggest that many existing players are struggling to survive due to

their highly-leveraged balance sheets. For instance, Anil Ltd., a maize processing

company based out of Ahmedabad, is finding it difficult to make payments to its suppliers

and creditors. Many unorganized players in the industry have been troubled by GST

implementation. This has provided bigger and more efficient players enough headroom to

grow and gain market share in an industry that is expanding in single digits.

Below we look at GAEX’s major competitors in the maize processing segment i.e.

Roquette Riddhi Siddhi Pvt. Ltd and Sukhjit Starch & Chemicals Limited.

Roquette Riddhi Siddhi Pvt. Ltd (RRSPL) is a wholly-owned subsidiary of the France-

based Roquette (RF) group. RF had acquired a 74% stake in Riddhi Siddhi Corn Processing

Pvt. Ltd in FY13 and rechristened it as Roquette Riddhi Siddhi Pvt. Ltd. It acquired the

remaining 26% stake in FY15.

RRSPL is India’s largest manufacturer of starch and starch derivatives, with a ~17%

market share in the country’s overall maize crushing capacity. Its manufacturing plants

are located at Viramgam (Gujarat), Gokak (Karnataka) and Pantnagar (Uttarakhand) with

a total capacity of 2,330 TPD. The company plans to increase capacity to 2,550 TPD by

FY18-end. It manufactures starch powder, modified starch, glucose, dextrose

monohydrate, maltodextrine, and high maltose corn syrup. RRSPL’s customers include

Nestle India, Heinz India, and Mondelez India Foods.

Sukhjit Starch & Chemicals Limited (Sukhjit Starch) is one of India’s leading

manufacturers of starch and its derivatives. In FY17, the company derived ~34% of its

revenues from the sale of starch while the rest from starch derivatives like Dextrines &

Textilose, Glucose, Sorbitol and other by-products, such as maize oil, maize oil cake and

corn gluten. The company's products are used in various industries, including food,

textiles, pharmaceuticals and paper. Sukhjit Starch aims for a turnover of Rs 10bn by

FY20 from ~Rs 6.54bn in FY17.

The company is coming up with a 55-acre Mega Food Park at Phagwara with a capex of

Rs 1.52bn, which would be funded via a mix of internal accruals and term loans. The

plant is expected be fully operational in 2HFY19. There will also be a cold storage

capacity of 3,000 MT and silos/warehousing capacity of 25,000MT to ensure supply

consistency for Sukhjit Starch and its end users.

Other important players

Sayaji Industries is one of India’s leading manufacturers of starch and its derivatives,

based out of Ahmedabad. Its current corn crushing capacity is ~750-800 TPD and operates

from a single plant. In our view, its current market share shall be in the range of 5-6%.

Gulshan Polyols is a multi-product manufacturing company with ~55% of its revenues

coming from Sorbitol (starch derivative) and rest from calcium carbonate. In August

2016, the Company has started commercial production of native starch as well and

currently has a corn crushing capacity of 300 TPD.

Cargill (India) is an American MNC which started operations in India in 1987. The

Company has businesses in refined oils, food ingredients, grain and oilseeds, cotton,

animal nutrition, industrial specialties, and trade structured finance. According to

industry sources, Cargill (India) has a maize processing plant in Karnataka.



Exhibit 13: GAEX’s performance has been better than peers on most counts

Gujarat Ambuja Exports Roquette Riddhi Siddhi Pvt Ltd Sukhjit Starch & Chemicals Ltd Comments

FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17

Revenue (Rs. mn) 25,313 27,365 33,308 14,037 15,514 15,984 5,324 5,659 6,532 Revenues higher than peers due to solvent

extraction segment

Growth (%)

8% 22%

11% 3%

6% 15%

EBITDA (Rs. mn) 1,645 1,852 2,754 1,777 1,598 1,200 635 605 507

EBITDAM of maize segment higher than

peers due to a higher share of value-added

products, proximity to corn producing areas

which give a cost advantage.

EBITDAM (%) 6% 7% 8% 13% 10% 8% 12% 11% 8%

PAT 841 1,004 1,586 251 14 -587 232 231 186 Debt-free balance sheet leads to lower

interest charges

Margin (%) 3% 4% 5% 2% 0% -4% 4% 4% 3%

CFO 2,534 1,374 567 2,195 884 -34 633 873 405

CFO/EBITDA(1-T) 1.8 0.9 0.3 1.6 -6.3 0.0 1.5 2.2 1.2

Receivable days 15.6 23.2 22.8 41.6 38.3 41.8 36.8 36.3 32.8

Payable days 13.6 17.3 15.9 32.0 25.6 29.5 28.4 29.5 26.8

Inventory days 64.0 57.5 68.4 45.0 44.6 62.3 100.9 70.4 46.3

Cash conversion cycle 65.9 63.3 75.2 54.6 57.3 74.6 109.2 77.2 52.2

Gross fixed asset turnover* 2.8 3.4 4.9 1.1 1.1 1.1 1.9 1.8 2.0

Working capital turnover 5.2 5.2 4.8 8.2 9.6 19.6 4.8 6.3 7.4

Total debt 3,618 3,779 6,848 8,242 9,010 9,882 1,712 1,500 1,429

Total cash 170 397 58 1,343 912 394 289 359 366

Net debt/Equity 0.4 0.4 0.8 0.8 0.9 1.1 0.7 0.5 0.5

ROE (%) 11% 12% 18%

0% -6% 12% 11% 8%

ROIC (%) 8% 9% 12%

0% 0% 10% 9% 7%

Source: Company, Ace Equity, Equirus Securities; For Roquette Net fixed asset turnover



Exhibit 14: Starch industry dynamics remain favorable for bigger players like Gujarat Ambuja Exports Limited

Source: Equirus Securities

Industry is dominated by 5-6 bigger players which form 60-70%

of the market. Some of the bigger players like Anil Starch has

put its plant on sale whereas foreign players (Roquette, Cargill

etc.) have not been very profitable.

Rivalry - MODERATE

As of now there exist no substitutes for starch and its

derivatives; on the contrary HFCS (a starch derivative)

has been replacing sugar in soft drinks in some

countries

Threat of Substitutes – LOW

Strong entry barriers due to capital intensive nature

of the industry. A plant takes at least 2 years to start

operations.

Threat of New Entrants - LOW

Most of the procurement happens from APMC

markets and corporate farmers; they are willing to

provide a discount on current price if order is

placed in bulk

Bargaining Power of Suppliers - Low

End customers are the larger players in FMCG,

Pharma, Paper, textile industries but at the same

time there are only a handful of quality suppliers

Bargaining Power of Buyers - High



New capacity to be a booster shot for revenues – expect 17% CAGR (FY17-20E)

GAEX’s current maize crushing capacity is 2,000 MTPD and it has already set up a new plant

at Chalisgaon, Maharashtra, with a crushing capacity of 1,000 MTPD. This plant is expected

to begin commercial operations in 4QFY18, post which the company’s crushing capacity

would touch 3,000 MTPD – the highest in India. This is a new Greenfield project and GAEX

has taken ample land for further brownfield expansions if and when the need arises.

We are estimating ~60% capacity utilization of this new plant in FY19E and full utilization

by FY20E. Overall, we estimate revenue CAGR (FY17-20E) of 17% in the maize segment.

Exhibit 15: Maize segment revenue to get a boost post capacity expansion


Focus on VAP, higher utilization to drive margins

Most maize processing companies in India sell starch or glucose to their customers but

GAEX offers higher proportion of value-added derivatives like High Maltose Corn syrup

(HMCS), dextrose anhydrous, dextrose monohydrate and liquid Sorbitol solution.

Broadly, EBITDA margins are the function of maize prices (RM cost), finished product

prices and the product mix, and also the capacity utilization of plants. Our channel

checks suggest that the industry is able to pass on the increase in RM costs to its

customers with a lag of 2-3 months.

Exhibit 16: Fluctuations in maize prices affect margins

Source: Company, Bloomberg, Equirus Securities

Maize prices moderate after a sharp rise in 2HFY17: As depicted in Exhibit 17, maize

prices have been volatile in any given year; prices generally fall in the month of October,

when the Kharif crop is harvested. In 2HFY17, maize prices reached an all-time high level

of Rs 19 per kg but have moderated now.

Exhibit 17: After sharp rise in 2HFY17, maize prices have moderated of late

Source: Bloomberg, Equirus Securities

16.3%

10%

32%

52%

13%

11%

18%

6%

24% 24%

0%

10%

20%

30%

40%

50%

60%

0

5000

10000

15000

20000

25000

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e

Maize processing revenue ( Rs mn) Growth ( YoY %) ( RHS)

0%

5%

10%

15%

20%

25%

-10%

-5%

0%

5%

10%

15%

20%

25%

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Maize prices yoy(%) Maize EBITDA margins(%) (RHS)

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

500

700

900

1100

1300

1500

1700

1900

2100

Oct-

07

Oct-

08

Oct-

09

Oct-

10

Oct-

11

Oct-

12

Oct-

13

Oct-

14

Oct-

15

Oct-

16

Oct-

17

Maize prices ( Rs/ quintal) YoY (%) ( RHS)



Product mix matters: There is significant difference in price points of starch and its

various derivatives. Starch is the most basic byproduct of maize processing, and various

other products are derived on further processing. Most industry players only mainly

manufacture starch, and hence generate lower margins. Over the years, GAEX has added

various derivative capabilities at its plants, which led to margin expansion. In FY17,

Company has added dextrose anhydrous derivative at the Karnataka plant.

Exhibit 18: Price points of maize starch and its derivatives


End customers determine quality, product price points: Starch and its derivatives are

mainly used in Pharma, FMCG, and paper and textile industries. The quality of starch

used in textile and paper industry differs a lot from the one used in Pharma and FMCG

industries. Accordingly, the amount of processing differs and also the price points of the

product. Nearly 40-50% of GAEX’s sales are to Pharma and FMCG players, which help

generate better margins than peers.

Exhibit 19: Margins to improve with higher utilization and value-added derivatives


In 1HFY18, the demand got impacted by GST which led to product mix changes and drop

in finished product realisations. Also, Company had to book inventory losses as the corn

prices fell in 1HFY18 from the historic high levels in 2HFY17. We expect these one-off

anomalies to get sorted in 2HFY18 and margins shall again get back to normal levels. In

FY19e, we estimate 17% EBITDA (+200bps from FY17 levels) mainly as the new Chalisgaon

plant and older plants as well are expected to focus more on value added products

leading to better margins.

0

10

20

30

40

50

60

Jan-1

3

Mar-

13

May-1

3

Jul-

13

Sep-1

3

Nov-1

3

Jan-1

4

Mar-

14

May-1

4

Jul-

14

Sep-1

4

Nov-1

4

Jan-1

5

Mar-

15

May-1

5

Jul-

15

Sep-1

5

Nov-1

5

Jan-1

6

Mar-

16

May-1

6

Jul-

16

Sep-1

6

Nov-1

6

Jan-1

7

Mar-

17

May-1

7

Jul-

17

Sep-1

7

Sorbitol (Rs/kg) Corn Starch (Rs/kg)

Dextrin and modified starch (Rs/kg)

914 677

980

1,422

1,782 1,878

1,981

1,693

2,897

3,789 22.9%

15.4% 16.9%

16.1%

18.0% 17.0%

15.2%

12.3% 17.0%

18.0%

0%

5%

10%

15%

20%

25%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


EBITDA ( Rs mn) Maize processing-EBITDA margins (%)



Agro processing: Increase in import duties to help

Agro processing is the biggest segment for GAEX in terms of revenue. In this segment, the

company is involved in manufacturing as well as trading activities. Trading of oil and

other products is a low-margin business. Given that GAEX intends to focus on profitability

over topline growth, we expect a decline in trading activities going ahead.

In terms of manufacturing, GAEX has fully integrated solvent extraction operations from

seed crushing to oil refining. Currently, the company’s seed crushing capacity is at 4,600

MTPD and refining capacity at 1,200 MTPD.

Exhibit 20: Proportion of trading activities to reduce as profitability focus increases

Source: Company, Equirus Securities, *Data available till FY16

Solvent extraction is the process of extracting oil from oilseeds. Commonly processed oil

seeds in solvent extraction include soybean, groundnut, mustard, sunflower, coconut,

castor and cotton. Post solvent extraction, final products include crude oil and

de-oiled cakes. Extracted oils are further processed in refineries to make them suitable

for human consumption. De-oiled cakes are a rich source of protein and are largely used

in the animal feed industry.

Exhibit 21: Revenue contribution from agro processing manufacturing activities


Among all oil seeds, GAEX is mainly involved in soybean as it ranks first among all oilseed

crops in the world (~63% of oilseeds production globally). USA, Brazil, Argentina, China

and India are the world’s largest producers and together accounted for ~90% of world

production during 2014-15 to 2016-17.

Exhibit 22: Globally soybean’s market share has reached ~63% in 2017


31%

16% 19% 11%

18% 29%

69%

84% 81% 89%

82% 71%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY11 FY12 FY13 FY14 FY15 FY16

Agro processing trading activities Agro processing manufacturing activities

42% 40%

53% 58%

41% 35%

50% 54%

42% 41%

50% 62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY11 FY12 FY13 FY14 FY15 FY16

Deoiled Cake Edible Oil Other Products

107

185

261 264 240 268 283

314 320 351 348

219

320

435 448 434

461 488

505 521 556 561

40%

45%

50%

55%

60%

65%

0

100

200

300

400

500

600

1992 2002 2010 2011 2012 2013 2014 2015 2016 2017 2018P

(MMT) Soyabean (MMT) Total Oilseeds (MMT) Soya as a % of total oilseeds



Strong demand drivers for refined oil and de-oiled cakes

Worldwide consumption of soy oil has grown by a healthy ~6% CAGR during 2015-17;

however, India’s soy oil consumption has increased at a much higher pace of ~17% CAGR.

Currently, India has the third largest consumption market share of ~10% after China’s 30%

and USA’s 17%. With a growing population, urbanization and changing lifestyles, India’s

demand for refined oil would continue to increase, warranting a ramp-up in own refining

capacities to reduce dependence on oil imports.

Exhibit 23: India’s soy oil consumption is growing faster than the world

Source: ussoy.org, Equirus Securities

Growing animal feed industry in India driving demand for de-oiled cakes

Soy de-oiled cakes are a rich source of protein and are widely used in animal feed

manufacturing. As the underlying animal feed industry is expected to grow at a 7% CAGR

over FY17-FY20E in volume terms and 14% in value terms, demand for de-oiled cakes is

expected to remain strong.

Exhibit 24:Indian animal feed industry estimated to grow at healthy rates

Feed

segment

Industry

volumes in

2017 (mn

tons)

Industry

volumes in

2020E (mn

tons)

CAGR

(2017-

2020E) %

Industry

value in

2017 (mn

tons)

Industry

value in

2020E (mn

tons)

CAGR(2

017-

2020E)

%

Poultry Feed 16-17 20-21 7% 480-490 730-740 15%

Cattle Feed 7.5-8.5 9-10 6% 148-150 197-199 10%

Aqua Feed 1.6-1.8 2.1-2.3 9% 85-86 131-132 15%

Total 25.1-27.3 31.1-33.3 7% 715-725 1,060-1,070 14%

Source: CRISIL estimates

Better utilization rates to drive 16% revenue CAGR over FY17-FY20E

GAEX has a seed crushing capacity of 4,600 MTPD, the second highest in India after Ruchi

Soya, and an oil refining capacity of 1,200 MTPD. All oil-seed crushing work is based on

reverse crush parity calculation. If prices of edible oil are at low levels, then it may not

be feasible for companies to crush seeds and produce DOC cakes and crude oil and then

refine it further. On the contrary, it becomes more economical for refineries to directly

import crude edible oil and then refine it. In the last few years, amid cheaper imports,

all crushing companies have been running below 30% utilization. As per our estimates,

GAEX operated at ~20-25% utilization of its seed crushing capacity in FY17, which was

better than fewer than 10% utilization in FY16.

Exhibit 25: Seed crushing results in DOC cakes (82%) and crude oil (18%)

Source: SOPA, Equirus Securities

0

2

4

6

8

10

12

14

16

18

20

22

24

India USA China EU Rest of the world

(MMT) 2015 2016 2017

0

2

4

6

8

10

12

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

1

2010-1

1

2011-1

2

2012-1

3

2013-1

4

2014-1

5

2015-1

6

Soybean Crushed(In Million Metric Ton)

Extraction Produced(In Million Metric Ton)

Oil Produced(In Million Metric Ton)



Exhibit 26: Soymeal exports have declined from historical levels…


Exhibit 27:…while Soybean oil imports has seen new peaks


Increase in import duties to help Indian solvent extractors

In the last few years, Indian farmers have been grappling with cheaper imports, which

have hit the entire oilseed economy. To support Indian farmers and other players in the

oilseed economy, the Government of India has recently increased import duties on all

major oil imports to achieve price parity.

Exhibit 28: Import duty revisions in Nov’17

Vegetable oils Old import duties Revised duties

Soyabean oil 18% 30%

Soya refined oil 20% 30%

Palm crude oil 15% 30%

RBD palm oil 25% 40%

Sunflower crude oil 13% 25%

Sunflower refined oil 20% 35%

Mustard crude oil 13% 25%

Mustard refined oil 20% 35%

Source: Business Standard, Equirus Securities

The Government has increased import duty on imported oils, which should help farmers

as well as improve the competitiveness of seed crushing companies. Also, many

unorganized players are feeling the heat post GST implementation, as a 5% tax rate will

make them uncompetitive in this lower-margin business.

Exhibit 29: Soy refined oil and soy meal price trends


0

1

2

3

4

5

6

2005-2

006

2006-2

007

2007-2

008

2008-2

009

2009-2

010

2010-2

011

2011-2

012

2012-2

013

2013-2

014

2014-2

015

2015-2

016

2016-2

017

2017-2

018

India-Soyameal exports (mn MT)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Imports of Soyabean oil ('000 MT)

500

550

600

650

700

750

800

850

10000

15000

20000

25000

30000

35000

40000

45000

50000

Dec-1

2

Jun-1

3

Dec-1

3

Jun-1

4

Dec-1

4

Jun-1

5

Dec-1

5

Jun-1

6

Dec-1

6

Jun-1

7

Dec-1

7

Soyameal ( Rs/tonne) Soya refined oil ( RHS) ( Rs/ 10kg)



Exhibit 30: Agro processing revenue to improve with better utilization rates


EBITDA margins to get steady

Exhibit 31: EBITDA margins are estimated to get steady


Cotton yarn: Non-core legacy business

Cotton yarn, the group’s legacy segment, has been entangled in several issues over the

past few years. The segment’s revenue share in the group’s overall revenue pie has

halved from 12% in FY07 to 6% in FY17. Going forward, GAEX has no plans to allocate any

capital to this segment and the revenue contribution should drop further. The company

has only one cotton yarn plant which is integrated with the maize processing plant at

Himmatnagar, Gujarat; therefore, operating the plant does not entail any extra costs for

the company.

Exhibit 32: Not much capital allocated to this segment, except in the last 3 years


Over the past three years, GAEX has invested ~Rs 600mn in this segment, mainly to

modernize its old machinery and stay competitive; the company has not planned any

major capital outlay for the segment in the foreseeable future.

Exports contributed nearly 75% to segment revenues till FY13; however, post that, the

proportion has been declining due to increasing preference for garments over yarn among

importing nations.

Estimated segment revenue CAGR of 8% over FY17-FY20E

GAEX’s cotton yarn segment has been exposed to high volatility over the past two

decades due to factors such as global demand and FX fluctuations. Current capacity of

the cotton segment stands at ~15,000 MTPA, and utilization levels have varied between

60-80% over the last three years. Since there are no plans to increase the capacity, and

11%

52%

-12% -31%

10%

24% 24%

17%

9%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

5000

10000

15000

20000

25000

30000

35000

FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e

Agro processing revenue ( Rs mn) Growth yoy (%) (RHS)

4.9%

4.4%

1.9%

-0.3%

0.7%

4.4% 4.8% 4.7%

4.7%

-1%

0%

1%

2%

3%

4%

5%

6%

0

200

400

600

800

1000

1200

1400

1600


Agro processing EBITDA EBITDA margin(%)

27

5

56 58

18 9

75

204

88

196

0

50

100

150

200

250

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17

Capex in Cotton segment

GAEX spent ~Rs 600mn over the last 3 years to modernize its machinery and stay competitive



utilization levels are expected to improve post the new machinery is put in place, we

estimate 8% revenue over FY17-FY20, which should take utilization levels to 90% in

FY20E.

Exhibit 33: Revenue CAGR estimated at 8% over FY17-FY20E


After recent upgrading of machinery, focus is on profitability

Several factors such as cotton prices, FX fluctuations, and international and domestic

yarn prices, influence the margins of this segment, making them highly volatile.

Exhibit 34:EBITDA margins have been volatile and depend on cotton and yarn prices


Financials

Revenue CAGR estimated at 17% over FY17-FY20E

We expect 17% revenue CAGR for GAEX over FY17-FY20E, driven by the following:

New maize processing plant becoming operational in 4QFY18

Improved utilization of solvent extraction units

Exhibit 35: Segment-wise revenue growth estimates

Sales growth (%) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

AGRO 11% 52% -12% -31% 10% 24% 24% 17% 9%

COTTON 7% -3% 18% -29% -4% 26% 12% 6% 8%

MAIZE 10% 32% 52% 13% 11% 18% 6% 24% 24%

POWER 15% 14% -6% 1% 27% -3% 0% 0% 0%

Total 10% 42% 3% -18% 8% 22% 17% 19% 14%

Source: Company data, Equirus Securities

Exhibit 36: Higher maize processing capacity, better utilization in agro processing to

drive revenues


3%

15%

7%

-3%

18%

-29%

-4%

26%

12%

6% 8%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

0

500

1000

1500

2000

2500

3000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e

Revenue of the cotton segment ( Rs mn) growth (yoy %)(RHS)

10.5%

-7.2%

4.0% 6.1%

-3.1% -3.9%

5.4%

2.1%

5.0% 5.0%

-10%

-5%

0%

5%

10%

15%


EBITDA margins ( Cotton)

10%

42%

3%

-18%

8%

22% 17% 19% 14%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

10000

20000

30000

40000

50000

60000


Revenue(Rs mn) growth ( YoY %) ( RHS)



Expect 23% EBITDA CAGR over FY17-FY20E with 140bps margin expansion

The main cost component for a commodity player such as GAEX is raw material (86% of

the total cost) followed by power & fuel costs.

Exhibit 37: Cost components for GAEX (FY17)


Due to focus on value-added derivatives, gross margins in the maize processing segment

are much higher than the agro processing segment.

Exhibit 38: Segment-wise gross margins for GAEX


Exhibit 39 outlines the power & fuel costs per MT of production in each segment. Data

suggests that power & fuel costs are the highest for the cotton segment, which explains

the lower EBITDA margins for the segment.

Exhibit 39: Segmental power and fuel cost per MT of production

Power and fuel cost FY09 FY10 FY11 FY12 FY13 FY14

Agro processing 487 672 765 701 687 808

Maize processing 2,439 2,204 2,377 2,524 2,713 2,597

Cotton Yarn 20,880 18,390 26,770 30,500 21,590 23,950


Exhibit 40: Increasing contribution of maize to improve overall profitability

Segmental EBITDAM (%) FY14 FY15 FY16 FY17 FY18E FY19E FY20E

AGRO 2.3% 0.3% 1.3% 4.8% 5.1% 5.0% 5.0%

COTTON 6.1% -3.1% -3.9% 5.4% 2.1% 5.0% 5.0%

MAIZE 16.1% 18.0% 17.0% 15.2% 12.3% 17.0% 18.0%

Total 6.3% 6.5% 6.8% 8.3% 6.8% 8.9% 9.7%


The company’s margin profile and absolute EBITDA is estimated to improve as the share

of the maize segment increases further in the Company, and the margin profile of the

segment itself improves with more focus on value-added derivatives.

Exhibit 41: EBITDA CAGR Estimated at 23% over FY17-FY20E


RM Cost, 86%

Employee cost, 3%

Power and fuel, 4% F&F charges, 3%

Other expenses, 4%

0%

10%

20%

30%

40%

50%

60%

FY12 FY13 FY14 FY15 FY16

Agro Processing Maize Processing Cotton Yarn

6.3% 6.5% 6.8%

8.3%

6.8%

8.9% 9.7%

0%

2%

4%

6%

8%

10%

12%

0

1000

2000

3000

4000

5000

6000

FY14 FY15 FY16 FY17 FY18e FY19e FY20e

EBITDA (Rs mn) EBITDA margins(%)



GAEX has a nominal long-term debt of ~Rs 145mn (FY17 end), which is mainly a TUF

subsidized loan. Due to high working capital requirements, the company has taken short-

term debt of ~Rs 6,211mn. As per management, it would reduce working capital loans on

the balance sheet and focus on reducing interest expenses. GAEX has already reduced its

short-term debt to ~Rs 5,454mn in 1HFY18 (from Rs 6,211mn in FY17).

GAEX has Rs 471mn of long-term investments, which provide regular dividend and

interest income.

In terms of taxes, GAEX was enjoying a taxation subsidy for its Uttaranchal plant, which

shall get over by FY18. Post that, the company is expected to pay full taxes. We estimate

a PAT CAGR of 20% over FY17-FY20E.

Exhibit 42: PAT CAGR estimated at 20% over FY17-FY20E


Exhibit 43: Cash conversion cycle has been broadly stable


Exhibit 44: Cash conversion remains healthy


3.6% 3.3%

3.7%

4.8%

3.6%

4.5%

5.1%

0%

1%

2%

3%

4%

5%

6%

0

500

1,000

1,500

2,000

2,500

3,000


PAT ( Rs mn) Net margin(%)

0

10

20

30

40

50

60

70

80

90

100


Receivable days Inventory days Payable days Cash conversion cycle

168%

83%

24%

107%

69% 70%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

0

500

1,000

1,500

2,000

2,500

3,000

FY15 FY16 FY17 FY18e FY19e FY20e

Cash flow from operations(Rs mn) Cash conversion (%)



Cash generated mostly ploughed back into maize segment due to better return profile

Exhibit 45: CFO and debt – primary sources of funds Funds deployed on capacity expansion, debt repayment and purchase of long-term investment


Over the past decade, GAEX has focused on growing its maize processing business, thus

spending most of the generated cash on increasing its capacities. With commencement of

the new Chalisgaon plant in 4QFY18, GAEX would become the largest maize crushing

company in India with a market share of ~21%. As seen in exhibits below, the maize

business has much better returns than the other two segments, and continuous

investments in this business over the last five years has yielded good returns for the

company. As GAEX intends to expand its maize processing capacities further, we expect

dividend payouts to remain low.

Debt on the balance sheet is largely working capital short-term debt; the long-term debt

is mainly subsidized TUF loan taken to modernize the cotton yarn segment.

Share buyback in FY17 more of a one-off

In Mar’17, GAEX offered to buy back ~23.7mn equity shares (representing 17.12% of its

total equity share capital) at Rs 95/share, aggregating to Rs 2.25bn by way of tender

offer. It was subscribed fully and the shares were extinguished by the end of Mar’17.

GAEX’s paid-up equity shares post buyback aggregate to ~114.7mn.

Capital allocation via the buyback was aimed at returning surplus cash to shareholders

and help GAEX achieve optimal capital structure that resulted in improved return ratios.

Exhibit 46: Investments in the maize segment yielding good returns

Maize Segment Rs mn

A) EBIT (FY12) 759

B) EBIT (FY17) 2,040

C) Last 5 year change in EBIT (B-A) 1,281

D) Invested capital (FY12) 9,637

E) Invested Capital (FY17) 15,379

F) Last 5 year change in Invested capital (E-D) 5,742

G) Return on Incremental capital (ROIIC) (C/F) 22%

Source: Company, Equirus securities

CFO, 29.8%

Debt raised, 36.2%

Dividend received, 0.2%

Interest received, 0.5%

Sale of investment, 32.6%

Capital subsidy received/Governm

ent grant, 0.7%

Net capex, 28%

Debt repayment, 21%

Interest paid, 3% Dividend paid, 2%

Purchase of Investment, 31%

Share buyback, 15%



Exhibit 47: …leading to improving return ratios


8% 9%

12%

10%

13%

16% 11%

12%

18%

15%

19%

22%

0%

5%

10%

15%

20%

25%

FY15 FY16 FY17 FY18e FY19e FY20e

RoIC RoE



Valuation and risks

GAEX currently trades at 19x/13x/10x P/E and an EV/EBITDA of 12x/8x/6x on our

FY18/FY19/FY20 estimates. The company has historically traded in the range of 5-15x

P/E on TTM EPS and an EV/EBITDA of 5-7x on TTM EBITDA.

We use the SOTP methodology to value GAEX as follows:

Maize processing: As shown in Exhibits below, Indian rice and shrimp processing

companies are currently trading at a FY19 median EV/EBITDA multiple of ~14x and 18x

respectively. We assign a TTM EV/EBITDA multiple of 11x (~20% and ~40% discount

respectively to rice and shrimp processing firms) to our FY19 maize processing EBITDA

estimates as, unlike rice processing firms, GAEX does not have its own branded business

and lags behind aqua processing firms in terms of asset turns and return ratios

(RoE/RoIC).

Agro processing: Global agro processing firms are currently trading at a CY18 median

EV/EBITDA multiple of 11x. Ascribing a ~25% discount, we value GAEX’s agro (soya)

processing business at a FY19 TTM EV/EBITDA multiple of 8x as segment margins and

return ratios have historically been very volatile.

Cotton/Textile (Others): We assign a FY19 EV/EBITDA multiple of 4x to other segments.

Overall, we arrive at a Mar’19 SOTP-based TP of Rs 310, implying a P/E multiple of

25x/17x/13x and an EV/EBITDA multiple of 12x/8x/6x on our FY18/FY19/FY20 estimates.

Exhibit 48: We arrive at a SOTP-based Mar’19 TP of Rs 310

FY19e (Rs mn) EBITDA Multiple EV

Agro processing 1,107 8 8,855

Maize processing 2,752 11 30,274

Others 251 4 1,004

Group's EV

40,133

Total debt

5,542

Total cash

897

Equity value

35,488

No. of shares outstanding(mn)

115

Mar’19 Target price (Rs)

310

Source: Equirus Securities

Investment risks

Downside risks:

1. Commodity price risk: Factors like political and regulatory changes, seasonal

variations, weather, technology and market conditions can significantly affect

commodity prices. An unexpected movement in commodity prices can have a bearing

on the company’s profitability. GAEX tries to mitigate the risk by covering positions

through hedging at commodity exchanges like CBOT, REFCO, NCDEX, NMCEX and

others.

2. Foreign currency risk: GAEX manages foreign currency exposures through forward

exchange contracts. Forex risks are partly mitigated by purchase of

goods/commodities in respective currencies.

3. Capital mis-allocation: GAEX has a good business (maize) , an average business ( Oil)

and a bad business ( textile). In the last decade, Company has mainly invested to grow

its maize business and has no intention of investing further in the oil and textile

business. Any major investments in the oil and textile business will be against our

investment thesis.

4. Increased Competition: Though many players have entered and exited the industry

over the last few years. Given the growth potential in the industry, there is always a

chance of many competitors entering the industry and put pressure on pricing and

the utilization levels of the existing players.



Exhibit 49: Relative Valuation vs. Indian and Global Peers

Company name Currency Price M Cap (mn) Sales (mn) Sales Growth (%) Sales CAGR EBITDA (mn) EBITDA Margin (%)

FY17 FY18E FY19E FY18E FY19E FY17-19E FY17 FY18E FY19E FY17 FY18E FY19E

Indian Peers

Rice Processing Companies

KRBL Ltd INR 635.5 1,49,590 31,490 33,842 36,711 7.5% 8.5% 8.0% 6,439 7,724 8,787 20.4% 22.8% 23.9%

LT Foods Ltd INR 108.2 34,607 32,865 35,780 39,814 8.9% 11.3% 10.1% 3,799 4,159 4,711 11.6% 11.6% 11.8%

Chaman Lal Setia INR 195.7 10,122 4,933 NA NA NA NA NA 647 NA NA 13.1% NA NA

Median

8.2% 9.9% 9.0%

13.1% 17.2% 17.9%

Aqua Processing Companies

Avanti Feeds INR 2680.0 1,21,713 26,157 36,225 48,670 38.5% 34.4% 36.4% 3,300 7,284 7,492 12.6% 20.1% 15.4%

Apex Frozen Foods INR 808.8 25,273 6,991 9,758 13,188 39.6% 35.1% 37.3% 453 956 1,219 6.5% 9.8% 9.2%

Median

39.0% 34.8% 36.9%

9.5% 15.0% 12.3%

Agro Processing Companies

Ruchi Soya Industries INR 19.1 6,381 1,90,731 NA NA NA NA NA -7,851 NA NA -4.1% NA NA

Sukhjit Starch & Chemicals INR 462.9 3,416 6,536 NA NA NA NA NA 519 NA NA 7.9% NA NA

Gulshan Polyols INR 90.8 4,260 4,949 NA NA NA NA NA 578 NA NA 11.7% NA NA

Godrej Agrovet INR 618.1 1,18,693 48,921 NA NA NA NA NA 4,404 NA NA 9.0% NA NA

Median

8.5%

Global Peers

CY16 CY17E CY18E CY17E CY18E CY16-CY18E CY16 CY17E CY18E CY16 CY17E CY18E

Sime Darby MYR 2.8 18,974 31,087 42,491 41,829 36.7% -1.6% 16.0% 2,045 3,350 3,623 6.6% 7.9% 8.7%

IOI MYR 4.6 29,157 14,124 13,594 13,599 -3.8% 0.0% -1.9% 1,736 2,102 2,186 12.3% 15.5% 16.1%

KLkepong MYR 25.1 26,752 21,004 19,904 20,228 -5.2% 1.6% -1.9% 2,071 2,229 2,308 9.9% 11.2% 11.4%

Golden Agro SGD 0.4 4,839 7,209 7,488 7,516 3.9% 0.4% 2.1% 541 677 662 7.5% 9.0% 8.8%

Wilmar SGD 3.2 20,369 41,402 43,578 45,417 5.3% 4.2% 4.7% 2,372 2,207 2,432 5.7% 5.1% 5.4%

Noble SGD 0.2 299 46,528 50,272 51,629 8.0% 2.7% 5.3% 65 448 532 0.1% 0.9% 1.0%

China Agro HKD 3.6 18,952 89,163 98,874 1,02,027 10.9% 3.2% 7.0% 3,939 4,332 4,347 4.4% 4.4% 4.3%

China Foods HKD 4.3 12,084 27,986 24,740 21,973 -11.6% -11.2% -11.4% 929 1,437 1,617 3.3% 5.8% 7.4%

Want Want HKD 6.4 79,406 19,710 20,225 21,115 2.6% 4.4% 3.5% 5,637 5,003 5,014 28.6% 24.7% 23.7%

Tingyi Holding HKD 15.5 87,005 55,617 57,675 60,512 3.7% 4.9% 4.3% 6,804 6,770 7,291 12.2% 11.7% 12.0%

China Mengniu HKD 23.4 91,900 53,779 58,523 63,582 8.8% 8.6% 8.7% 3,310 4,995 5,999 6.2% 8.5% 9.4%

ADM USD 40.2 22,471 62,346 61,839 63,746 -0.8% 3.1% 1.1% 2,454 2,743 3,138 3.9% 4.4% 4.9%

Bunge USD 69.9 9,835 42,679 46,589 48,127 9.2% 3.3% 6.2% 1,669 1,292 1,734 3.9% 2.8% 3.6%

Median

3.9% 3.1% 4.3%

6.2% 7.9% 8.7%

Gujarat Ambuja Exports INR 233.9 26,821 33,308 39,061 46,404 17.3% 18.8% 18.0% 2,754 2,660 4,110 8.3% 6.8% 8.9%



Company name Currency Price M Cap (mn) EPS EPS CAGR Net D/E RoE (%) RoIC Div Yield (%)

FY17 FY18E FY19E FY17-19E FY17 FY17 FY18E FY19E FY17 FY18E FY19E

Indian Peers


KRBL Ltd INR 635.5 1,49,590 17.0 19.9 22.8 16.0% 0.5 23.5% 20.9% 20.0% 15.0% 0.3% 0.3%

LT Foods Ltd INR 108.2 34,607 4.4 5.6 6.9 25.2% 2.2 19.7% 20.1% 20.5% 9.6% 0.2% 0.2%

Chaman Lal Setia INR 195.7 10,122 7.4 NA NA NA 0.0 30.2% NA NA 24.6% NA NA

Median

20.6% 0.5 23.5% 20.5% 20.2% 15.0% 0.3% 0.3%


Avanti Feeds INR 2680.0 1,21,713 47.1 103.1 105.3 49.5% -0.6 40.2% 57.2% 40.6% 35.8% 0.8% 0.8%

Apex Frozen Foods INR 808.8 25,273 8.0 19.4 23.0 69.8% 1.0 29.0% 33.2% 24.0% 18.1% 0.2% 0.3%

Median

59.6% 0.2 34.6% 45.2% 32.3% 26.9% 0.5% 0.5%


Ruchi Soya Industries INR 19.1 6,381 -45.0 NA NA NA 7.0 -78.0% NA NA 5.2% NA NA

Sukhjit Starch & Chemicals INR 462.9 3,416 23.9 NA NA NA 0.4 8.1% NA NA 7.3% NA NA

Gulshan Polyols INR 90.8 4,260 5.7 NA NA NA 0.4 11.4% NA NA 7.0% NA NA

Godrej Agrovet INR 618.1 1,18,693 12.4 NA NA NA 0.5 27.8% NA NA 11.9% NA NA

Median

0.5 9.7%

7.2%

Global Peers

CY16 CY17E CY18E CY16-18E CY16 CY16 CY17E CY18E CY16 CY17E CY18E

Sime Darby MYR 2.8 18,974 0.4 0.3 0.3 -10.6% 0.0 9.0% 6.0% 7.1% 3.2% 6.5% 6.5%

IOI MYR 4.6 29,157 0.1 0.2 0.2 34.4% 0.7 13.8% 15.6% 15.7% 5.2% 2.8% 2.6%

KLkepong MYR 25.1 26,752 0.9 1.1 1.2 11.9% 0.2 9.1% 10.5% 10.5% 7.1% 2.3% 2.5%

Golden Agro SGD 0.4 4,839 0.0 0.0 0.0 -31.1% 0.6 3.7% 4.1% 4.7% 3.3% 1.8% 2.1%

Wilmar SGD 3.2 20,369 0.2 0.2 0.2 11.1% 0.8 9.1% 7.2% 7.6% 4.1% 2.2% 2.7%

Noble SGD 0.2 299 -0.2 0.0 0.2 NA 0.7 -146.0% 4.9% 6.9% -32.8% 0.0% 0.0%

China Agro HKD 3.6 18,952 0.3 0.3 0.3 9.5% 0.8 10.1% 6.4% 6.0% 5.1% 2.0% 2.0%

China Foods HKD 4.3 12,084 0.2 0.1 0.2 -4.5% 0.1 10.4% 12.2% 6.7% 7.1% 9.0% 1.3%

Want Want HKD 6.4 79,406 0.3 0.2 0.3 -3.7% -0.2 NA 24.1% 23.9% NA 2.8% 2.7%

Tingyi Holding HKD 15.5 87,005 0.2 0.3 0.4 33.5% 0.2 9.8% 9.2% 10.9% 5.3% 1.6% 2.0%

China Mengniu HKD 23.4 91,900 0.5 0.6 0.8 26.4% -0.1 -3.2% 10.7% 13.4% -1.9% 0.8% 1.1%

ADM USD 40.2 22,471 2.2 2.3 2.7 12.2% 0.3 7.0% 7.5% 8.5% 4.2% 3.1% 3.4%

Bunge USD 69.9 9,835 4.7 2.8 4.7 0.6% 0.5 6.9% 5.5% 9.3% 4.3% 2.5% 2.6%

Median

10.3% 0.3 9.0% 7.5% 8.5% 4.3% 2.3% 2.5%

Gujarat Ambuja Exports INR 233.9 26,821 13.8 12.3 18.1 14.3% 0.7 17.9% 15.4% 19.5% 12.5% 0.6% 0.9%



Company name Currency Price M Cap (mn) P/E EV/EBITDA EV/Sales

FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

Indian Peers


KRBL Ltd INR 635.5 1,49,590 37.5 32.0 27.8 24.8 20.7 18.2 5.1 4.7 4.4

LT Foods Ltd INR 108.2 34,607 24.6 19.4 15.7 13.2 12.0 10.6 1.5 1.4 1.3

Chaman Lal Setia INR 195.7 10,122 26.3 NA NA 15.6 NA NA 2.0 NA NA

Median

26.3 25.7 21.8 15.6 16.4 14.4 2.0 3.1 2.8


Avanti Feeds INR 2680.0 1,21,713 56.9 26.0 25.5 35.8 16.0 15.2 4.5 3.2 2.3

Apex Frozen Foods INR 808.8 25,273 101.5 41.7 35.2 58.1 26.9 21.1 3.8 2.6 1.9

Median

79.2 33.8 30.3 47.0 21.5 18.1 4.1 2.9 2.1


Ruchi Soya Industries INR 19.1 6,381 -0.4 NA NA -8.2 NA NA 0.3 NA NA

Sukhjit Starch & Chemicals INR 462.9 3,416 19.3 NA NA 8.2 NA NA 0.6 NA NA

Gulshan Polyols INR 90.8 4,260 15.8 NA NA 9.3 NA NA 1.1 NA NA

Godrej Agrovet INR 618.1 1,18,693 50.0 NA NA 28.3 NA NA 2.5 NA NA

Median

17.6

8.8

0.9

Global Peers

CY16 CY17e CY18e CY16 CY17e CY18e CY16 CY17e CY18e

Sime Darby MYR 2.8 18,974 7.6 10.2 9.5 9.8 7.5 6.9 0.6 0.6 0.6

IOI MYR 4.6 29,157 39.3 25.2 21.8 20.1 16.1 15.2 2.5 2.5 2.4

KLkepong MYR 25.1 26,752 26.6 22.2 21.2 14.1 13.0 12.3 1.4 1.5 1.4

Golden Agro SGD 0.4 4,839 12.0 29.2 25.3 13.7 11.0 10.8 1.0 1.0 0.9

Wilmar SGD 3.2 20,369 20.8 18.8 16.9 14.0 15.0 13.5 0.8 0.8 0.7

Noble SGD 0.2 299 -1.5 11.3 1.5 48.8 7.1 6.0 0.1 0.1 0.1

China Agro HKD 3.6 18,952 13.4 10.9 11.1 10.7 8.1 7.8 0.5 0.4 0.3

China Foods HKD 4.3 12,084 24.2 40.8 26.5 13.6 7.8 6.7 0.5 0.5 0.5

Want Want HKD 6.4 79,406 23.0 25.8 24.8 13.6 15.5 15.4 3.9 3.8 3.6

Tingyi Holding HKD 15.5 87,005 73.8 52.0 41.4 13.6 13.4 12.0 1.7 1.6 1.4

China Mengniu HKD 23.4 91,900 44.3 37.6 27.7 27.3 19.2 15.6 1.7 1.6 1.5

ADM USD 40.2 22,471 18.6 17.3 14.8 11.5 10.1 8.7 0.5 0.4 0.4

Bunge USD 69.9 9,835 15.0 24.6 14.8 8.1 10.7 7.7 0.3 0.3 0.3

Median

20.8 24.6 21.2 13.6 11.0 10.8 0.8 0.8 0.7

Gujarat Ambuja Exports INR 233.9 26,821 16.9 19.0 13.0 12.2 12.3 7.8 1.0 0.8 0.7

Source: Company, Bloomberg, Equirus Securities



Corporate governance

Following are key highlights of our preliminary assessment of the level of corporate

governance as per GAEX’s FY17 Annual Report:

Board of Directors Composition: GAEX’s policy is to have an optimal combination of executive and non-

executive directors to ensure independent functioning of the Board. The Board Directors

have 10 members and Chairman as Executive Directors, including 6 Non-Executive

Directors, 5 of whom are Independent Directors. During FY17, six board meetings were

held and the maximum time gap between two meetings did not exceed 105 days.

Distribution of power: Executive power is a bit concentrated as most managerial tasks

are taken care of by three personnel: Mr. Vijaykumar Gupta – Chairman & Managing

Director; Mr. Manish Gupta - Managing Director; and Mr. Sandeep Agrawal – Whole-Time

Director & Independent Director. Of the nine board committees, eight (Audit, Nomination

& Remuneration, Stakeholders Relationship committees) are headed by Non-

Executive/Independent Directors.

Disclosure Norms:

Our preliminary study reveals that the company follows disclosure norms as stipulated by

listing agreements of exchanges and declares its quarterly results and other disclosures in

a timely manner. Management does not hold earnings call after quarterly results.

Annexure 1: Maize industry overview

Supply of maize is increasingly moving towards starch and starch derivatives

Global maize production dominated by USA and China

World maize production has grown at a ~4% CAGR (marketing year 2011-17) to reach

~1,038mn tonnes in 2017. India maintained its market share at 2.2-2.6% in this period

while Ukraine outstripped all other nations with its maize production growing at ~14%

CAGR during 2011-17. USA and China are the major maize-producing nations and

accounted for ~37% and 21% of total world production respectively in 2017.

Exhibit 50: Global maize production has grown at a ~4% CAGR during 2011-17

Source: USDA, FAS Grain: World Markets and Trade, Jan. 12, 2017, Equirus Securities

Of the total production of ~1,038mn tonnes, only ~142mn tonnes (14%) were traded

among countries. USA, Argentina and Brazil (~73% of world exports combined) are the

world’s largest exporters while China largely consumes its entire maize production.

816 868 852

967

988 968 1038

6.4%

-1.8%

13.4%

2.2% -2.0%

7.2%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

200

400

600

800

1000

1200

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

World Maize Production (mn tonnes) Yoy growth (%) (On RHS)

India's share (%) (On RHS)



Exhibit 51: USA and China account for ~58% of global maize production

Source: USDA, FAS Grain: World Markets and Trade, Jan. 12, 201'7, Equirus Securities

India’s maize production up ~4% CAGR in last 15 years

In 2014, India was the sixth largest maize producer (~9.3mn tonnes) and contributed ~2%

of world’s maize production. The country’s area under maize cultivation has steadily

risen at a ~2% CAGR during 2001-16 to reach ~8.7mn hectares in 2016. However, maize

production has grown at a ~4% CAGR during the same period to ~21.8mn tonnes helped by

increasing yields (~2.5 tonnes/hectare in 2016 vs. ~1.8 tonnes/hectare in 2001).

Exhibit 52: India’s maize production and yields have been increasing steadily

Source: Directorate of Economics & Statistics, DAC&FW, Equirus Securities

India’s maize production is mainly concentrated in Karnataka, Madhya Pradesh (MP),

Bihar, Tamil Nadu (TN) and Telangana, with these five states accounting for ~57% of

India’s maize production in 2016. It is to be noted that TN’s maize yield at

~6.5 tonnes/hectare was far higher than the national average of ~2.5 tonnes/hectare.

Exhibit 53: Top-5 states contribute ~57% of India’s maize production


Exhibit 54: Maize prices have generally trended higher than government MSPs

Source: Bloomberg, Directorate of Economics & Statistics, DAC&FW, Equirus Securities

385

220

87

61

37

27

25

25 16 13

0

145 U.S.

China

Brazil

EU-27

Argentina

Ukraine

Maxico

India

Russia

Canada

South Africa

Other

12.0

13.2

11.2

15.0

14.2

14.7

15.1

19.0

19.7

16.7

21.7

21.8

22.3

24.3

24.2

21.8

1822

2000

1681

2041 1907

1938 1912

2335 2414

2024

2542 2478

2566

2676 2632 2509

0

500

1,000

1,500

2,000

2,500

3,000

0

5

10

15

20

25

30

2000-0

1

2001-0

2

2002-0

3

2003-0

4

2004-0

5

2005-0

6

2006-0

7

2007-0

8

2008-0

9

2009-1

0

2010-1

1

2011-1

2

2012-1

3

2013-1

4

2014-1

5

2015-1

6*

Production (mn tonnes) Yield (kg/hectare) - RHS

Karnataka 15%

Madhya Pradesh 12%

Bihar 11%

Tamil Nadu 11%

Telangana 8%

Rest of India 43%

1,327 1,339

1,241

1,421

1,568

1,175

1,310 1,310 1,325 1,365

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2013 2014 2015 2016 2017

(Maize prices) Market Price (Rs/quintal) MSP (Rs/quintal)



On average, the Kharif season (Apr-Sep) sees ~73%of India’s maize production and the

Rabi season only the remaining ~27%. Interesting however, Rabi season yield (4,087

kg/hectare) is almost double than that of the Kharif season (2,272 kg/hectare).

Demand for starch and starch derivatives set to be strong

Indian Pharma industry expected to grow at a of ~19% CAGR over FY16-FY20E

India is expected to be the 6th largest pharmaceutical market globally by 2020. India’s

competitive edge comes from both supply and demand sides. Its cost of production is

substantially lower than developed countries whereas rapid growth in the middle class

and an improvement in medical infrastructure would boost demand for Pharma products.

Exhibit 55: India’s pharmaceutical industry is expected to post strong growth

Source: IBEF, Equirus Securities

Indian toothpaste market expected to grow steadily at a ~7% CAGR

India’s per capita consumption of toothpaste has grown at a CAGR of ~5.5% during CY01-

16 to reach to 179gms. It is still very low compared to developed countries, and even

lower than some developing countries like Brazil, China and Philippines. A significant

uptick in India’s per capita consumption would come from ‘twice-a-day brushing’, a habit

seen only in ~20% of India’s urban population.

Exhibit 56: India’s toothpaste market estimated to grow at a CAGR (CY15-20E) of 7%

Source: Euromonitor, Equirus Securities

Indian decorative paints industry pegged to grow at a 5% CAGR over CY15-CY20E

According to Euromonitor, India’s decorative paints market is expected to grow at a

CAGR of ~5% during CY15-20E, driven by increasing urbanization, rising share of the

organized sector, penetration in rural markets and easily available financing options.

Exhibit 57: India’s decorative paints industry is geared for a growth phase

Source: Euromonitor, Equirus Securities

21.0 22.5

24.5

28.5 29.8 27.6

29.6

55.0

0

10

20

30

40

50

60

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY20E

Pharmaceutical ($bn)

44.8 51.0

58.1

66.9

75.0

83.8 89.7

95.8 102.6

109.9

118.1

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Toothpaste (Rs bn)

153.4 167.8

184.0

204.2

228.3 244.8

254.4 265.4

278.6 294.0

311.8

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Decorative Paints (Rs bn)



Significant scope for India to shift maize consumption towards starch

About ~60% of India’s maize consumption goes towards animal and poultry feed, with

only ~21% used in industrial products like starch and food processing. In comparison, ~38%

of US maize production goes towards industrial uses and food processing.

Exhibit 58: Starch and its derivatives account for only ~13% of maize consumption in India vs. most of the consumption in USA

Source: USDA, NCoMM India, Equirus Securities

Annexure 2: Oilseed industry overview

Heavy dependence on oil imports to bridge supply-demand gap

Soybean oil is healthier for the heart vis-à-vis other oils as it is cholesterol-free and also

low in saturated fatty acids. It is a source of vitamin E and contains omega-3 (protective

against heart disease and cancer), just like fish oil.

Worldwide consumption of soy oil has grown by a healthy ~6% CAGR during 2015-17;

however, India’s soy oil consumption has increased at a much higher pace of ~17% CAGR.

Currently, India has the third largest consumption market share of ~10% after China’s 30%

and USA’s 17%. With a growing population, urbanization and changing lifestyles, India’s

demand for refined oil would continue to grow, warranting a ramp up in own refining

capacities to reduce dependence on oil imports.

Exhibit 59: India’s soy oil consumption is growing faster than the world


47%

13%

13%

7%

14%

6%

India

Feed - Poultry

Feed Livestock

Food - Direct Consumption

Food - Processed

Industrial product - Starch

Exports and others

38%

8% 15%

29%

3%

2%

2%

1%

1% 0%

USA Feed & Residual

DDG

Exports

Fuel Ethanol

HFCS

Sweetners

Starch

Cereal

Beverage/Alcohol

Seed

0

2

4

6

8

10

12

14

16

18

20

22

24

India USA China EU Rest of the world

(MMT) 2015 2016 2017



Exhibit 60: However, the supply-demand gap in soybean is huge for India


While world soybean production has grown at a ~8% CAGR over the last five years helped

by technical advancements, India’s soybean production has increased by only ~2% even as

area under cultivation grew by a ~3% CAGR during the same time period. India’s

production has fallen prey to almost stagnant yields (~1,202 kg/Ha in 2017 vs. ~1,208

kg/Ha in 2012). On the other hand, world’s soybean production yield has increased to

~2,885 kg/Ha in 2017 from ~2,298 kg/Ha in 2012

Exhibit 61: Top-5 producers account for ~90% of global soybean production

Source: FAOSTAT 2017/AMIS-FAO, Equirus Securities

Major reasons for the below-par yields of Indian crops are as follows: (a) Most of India’s

soybean crop (~98%) is monsoon-dependent. (b) Farmers are yet to adapt to newer crop

production technologies. (c) Nutrient application has been imbalanced and soil fertility is

not up to the mark.

India’s soybean production is mainly concentrated in MP, Maharashtra and Rajasthan with

these three states accounting for ~93% of soybean production in 2016. It is to be noted

that MP and Rajasthan’s soybean yield at ~830 kg/hectare is far higher than

Maharashtra’s and national yields of ~557 kg/hectare and ~737 kg/hectare respectively.

Exhibit 62: Brazil, Argentina are growing the fastest among major soybean producers


Exhibit 63: India has been battling the problem of stagnant yields

Source: Directorate of Economics and Statistics, Govt. of India, Equirus Securities

606 842 1346 867 1046 1056 1734 2714 4256 3880

0

1,000

2,000

3,000

4,000

5,000

6,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Imports Domestic Consumption - RHS Production - RHS ('000 MT)

Argentina, 18%

Brazil, 31%

India, 3% China Mainland,

4%

USA, 34%

Others, 10%

-15%

-10%

-5%

0%

5%

10%

15%

0

50

100

150

200

250

300

350

2012 2013 2014 2015 2016 2017

Argentina Brazil USA China India Y-o-Y Growth (%) (MMT)

12.7 12.2 14.7 11.9 10.4 8.6 13.8

1327

1208 1353

983

944

738

1202

0

200

400

600

800

1,000

1,200

1,400

1,600

0

2

4

6

8

10

12

14

16

2011 2012 2013 2014 2015 2016 2017

Production (MMT) Yield (Kg/ha) - RHS



Exhibit 64: Top-3 states contribute ~93% of India’s soybean production


Annexure 3: Company overview

GAEX manufactures agro-processed products and cotton yarn, with a focus on

exports. The company's agro-processing activities include processing of oil seeds, maize

and wheat. GAEX’s cotton yarn unit enjoys a 100% export-oriented status and is mainly

engaged in the manufacture of 100% cotton yarn through the production of ring spun and

open-end yarn. Over the last decade however, GAEX has sharpened focus on the maize

processing segment considering the better and consistent returns along with dedicated

efforts placed to operate it. For FY17, the agro processing segment contributed ~55% of

revenues, maize processing ~39%, and cotton yarn and power generation the remaining.

However, management has indicated that the maize processing segment is gaining

momentum with robust growth opportunities ahead.

Exhibit 65: Control over whole value chain provides multiple growth avenues


GAEX operates three maize processing manufacturing plants at Himmatnagar,

Uttarakhand and Karnataka. The fourth 1,000 TPD corn milling unit at Chalisgaon,

Maharashtra, is under the final implementation stage with commercial production slated

to commence by 4QFY18.

GAEL has two agro processing major products of DOC and edible oil. A bumper crop of

soya seed increased the procurement for crushing. Also, demonetization proved to be a

boon since it facilitated direct procurement of soy seeds from farmers. A positive

monsoon forecast, continued lower international prices of crude edible oil, better parity

in soy bean processing and other traditional factors are likely to have driven the

segment’s performance in FY17.

Operations for the cotton yarn segment have been stagnant largely due to age-old

machines for the spinning line of 60,000 spindles. GAEX has completed the process of

replacing old machines installed in 1995 – right from blow room to winding - with latest

technology machines. At all locations, captive power generation is now an integral part

of respective projects. This has helped the company minimize power costs and reduce

dependence on state power.

Madhya Pradesh 57% Maharashtra

24%

Rajasthan 12%

Karnataka 2%

Others 5%

Gujarat Ambuja Exports Ltd

Agro Processing

Revenue share: 55% in FY17

Maize Processing


Cotton Yarn


Power Generation



Key milestones

Year Milestone

1991 Incorporated in Aug’91, GAEX manufactured refined castor oil, hydrated castor

oil and hydrogenated castor oil

1992 Comes out with IPO aggregating Rs 37.8mn in Apr’92, to part-finance a project

for crushing castor seed, setting up a refinery and meet WC requirements

1995 Soy flakes plant commences commercial production; Vanaspati ghee project

starts operations in 1996-97

2000 Expands installed capacity of solvent extraction unit by 30,000 tonnes

2001 Soya DOC exports win GAEX the coveted recognition of being the second-largest

manufacturer exporter in India based on performance

2006 Sets up a whole range of plant & machineries for expansion by putting in place

13,000 spindles capable of producing cotton yarn of 13 tons per day

2007 Buys back 188,692 equity shares of which 1,80,959 Equity Shares were

extinguished

2008 Maize Processing plant at Uttarakhand begins commercial production. In the

first quarter, the unit achieves more than 50% of capacity utilization

2009 Invests in seven wind turbines with total capacity of 6.95MW

2010 Installs 8,400 new spindles which commence production during H2 of 2010

2011 Successfully completes projects of generating power from bio gas for its corn

processing units at Himmatnagar & Sitarganj

2013

The 11MW cogeneration power plant begins operations at Village Dalpur,

Himmatnagar. This project has helped sharply cut costs in the cotton yarn

segment.

2015 Maize processing becomes a core segment given more stability vis-à-vis the

other two segments

2016

In process of setting up a new maize processing project in Chalisgaon,

Maharashtra. Completed the process of replacing old machines installed in 1995

with latest technology machines

2017

Successfully completes buyback of equity shares. Adds dextrose anhydrous

derivative at the Karnataka plant. Plans to add other derivative products at

Uttaranchal and Himmatnagar manufacturing locations

Key Management Profile

Mr. Vijay Kumar Gupta– Chairman & Managing Director

Mr. Vijay Kumar Gupta, Chairman &Managing Director, is a Bachelor of Dental Surgery

with managerial experience of 46 years. In 1998, Mr. Gupta took over as GAEX’s Managing

Director. With his vision and sheer dedication, he has set up various agro processing

industries in Gujarat with varied interest in oil seed processing, maize-based starch &

other products, wheat flour, ring spinning of cotton yarn, windmills& cattle feed.

Mr. Manish Kumar Gupta – Managing Director

Mr. Manish Kumar Gupta, a young and dynamic entrepreneur, is a Commerce Graduate

with a vast managerial experience of over 26 years. In 1998, he took over as GAEX’s

Managing Director. He oversees the company’s day-to-day functioning at all levels. He

also holds directorships in other companies such as Maharashtra Ambuja Exports Limited,

Maharashtra Ambuja Biotech Limited, Royale Exports Limited (Sri Lanka), Jay Agroculture

and Horticulture Products Private Limited and Jay Ambe Infra Projects Private Limited.

He is also the chairman of the GAEX’s Risk Management Committee.

Mr. Sandeep Agrawal – Whole-Time Director

Mr. Agrawal is a Commerce Graduate and a MBA. He is associated as a Director with the

company since 1995, and possesses varied and rich experience of more than 25 years. His

other Directorship includes Sealac Agro Ventures Limited.

Mrs. Sulochana Gupta – Non- Executive Director

Mrs. Sulochana is, an industrialist and GAEX’s promoter, and possesses rich experience of

more than 40 years. She supervises and monitors the administrative functions, and also

actively contributes in the company’s policy decisions.

Mr. Sudhin Choksey – Non-Executive Independent Director

Mr. Sudhin Choksey, the Managing Director of GRUH Finance Limited, is a fellow member of

the Institute of Chartered Accountants of India. He is on the Board of GAEX since 2012 as an

Independent Professional Director. He has over 36 years of working experience in functional

areas of finance, commercial and general management, both in India and abroad.

Mr. Rohit Patel – Non-Executive Independent Director

Mr. Patel is B.E. II (Electrical) and consultant on Management and Human Resources

Management. He has been an independent Director at GAEX since 2005.

Mr. Rashmikant Joshi – Non- Executive Independent Director

Mr. Rashmikant Joshi is M.A. (English Literature), L.L.B and a retired IAS officer. He is on

the company’s Board since 2014 as an Independent Professional Director. He has rich

experience in the industrial management and functions at the executive level. He had



also served in Academic field for 4 years. He is Executive Director of Center for Banking

Research, Development & Excellence (CBRDE) of Gujarat Urban Co-Op. Banks Federation,

Ahmedabad. He had joined Indian Administrative Services in 2002 and worked in various

Government Departments including as Collector, District Development Officer, Deputy

Secretary, Additional Secretary and Director of Petroleum-Government of Gujarat, and

also as a Government nominee on the Board of Surat Electricity Company, and Gujarat

Industrial Power Company Ltd.

Mr. Vishwavir Saran Das – Non- Executive Independent Director

Mr. Vishwavir Saran Das is B.A. (Economics), MBA (Specialization in HRM) and Certified

Associate of Indian Institute of Bankers. He retired as Executive Director, Reserve Bank of

India (RBI) where he served for over 36 years in almost all central banking areas. He has

been serving as GAEX’s non- executive director since 2016. He also serves as Director

with two other firms. He is on the panel of arbitrators of the National Stock Exchange of

India Limited, BSE Limited and MCX Limited, advisor to Gujarat Urban Co-operative

Bank's Federation, Open Futures Private Limited & Centre for Tax Awareness & Research.

Mr. Sandeep Singhi– Non- Executive Independent Director

Mr. Sandeep Singhi is a B.Sc., LL. B. and is an advocate by profession, working as a

Partner of M/s. Singhi & Co., Advocates & Notary. He was enrolled as an Advocate with

the Bar Council of Gujarat in 1989, and is also a member of the International Bar

Association. His other Directorships include The Sandesh Limited.

Mr. Mohit Gupta –Executive Managing Director

Mr. Mohit Gupta ceased to be Joint Managing Director and Director (Key Managerial

Personnel) of the Company w.e.f. close of business hours of 31 May’17.



Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 7,704 6,300 8,676 10,628 6,904 7,705 11,109 13,343 9,007 9,089 13,451 14,856 33,308 39,061 46,404 53,090 Raw Materials Consumed 4,655 4,465 6,945 7,173 4,869 5,043 8,776 10,541 6,981 7,044 10,425 11,514 23,239 29,229 35,963 40,879

Increase/Decrease in Stock -16 69 -668 -321 -6 176 0 0 0 0 0 0 -936 170 0 0

Purchase of stock-in-trade 1,271 318 514 1,827 605 820 0 0 0 0 0 0 3,930 1,425 0 0

Employee benefits expense 240 210 237 226 193 218 249 235 237 237 237 237 913 895 949 1,006

Other expenses 746 741 904 1,017 845 972 1,299 1,566 927 931 1,674 1,850 3,407 4,682 5,382 6,064 EBITDA 808 497 744 705 398 476 785 1,001 863 876 1,115 1,256 2,754 2,660 4,110 5,141 Depreciation 170 177 177 190 183 188 190 234 233 233 233 233 714 794 931 1,004 EBIT 638 320 567 515 215 289 595 767 630 644 883 1,023 2,040 1,866 3,179 4,136 Interest 22 13 27 166 24 41 48 48 40 40 40 40 228 161 160 128 Other Income 29 42 34 76 10 40 12 12 18 18 18 18 182 74 71 72 PBT 645 349 575 425 202 288 559 731 608 621 860 1,001 1,994 1,779 3,090 4,080 Tax 148 51 121 89 33 78 112 146 201 205 284 330 408 369 1,020 1,346 PAT bef. MI & Assoc. 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733 Extraordinaries 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Reported PAT 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733

EPS (Rs) 4.33 2.60 3.96 2.93 1.47 1.83 3.90 5.10 3.55 3.63 5.03 5.85 13.83 12.29 18.05 23.84

Key Drivers

Agro processing revenue (Rs. mn) - - - - - - - - - - - - 18,462 22,862 26,688 29,164 Cotton revenue (Rs. mn) - - - - - - - - - - - - 2,175 2,431 2,570 2,776 Maize processing (Rs. mn) - - - - - - - - - - - - 13,053 13,789 17,044 21,049 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue 18 % -18 % 38 % 22 % -35 % 12 % 44 % 20 % -32 % 1 % 48 % 10 % - - - - Raw Materials Consumed 8 % -4 % 56 % 3 % -32 % 4 % 74 % 20 % -34 % 1 % 48 % 10 % - - - - EBITDA 68 % -38 % 50 % -5 % -44 % 20 % 65 % 28 % -14 % 2 % 27 % 13 % - - - - EBIT 112 % -50 % 77 % -9 % -58 % 34 % 106 % 29 % -18 % 2 % 37 % 16 % - - - - Recurring PAT 61 % -40 % 52 % -26 % -50 % 24 % 113 % 31 % -30 % 2 % 38 % 16 % - - - -

EPS 61 % -40 % 52 % -26 % -50 % 24 % 113 % 31 % -30 % 2 % 38 % 16 % - - - -

Yearly Growth (%)

Revenue 26 % -9 % 11 % 63 % -10 % 22 % 28 % 26 % 30 % 18 % 21 % 11 % 22 % 17 % 19 % 14 % EBITDA 46 % 52 % 50 % 47 % -51 % -4 % 6 % 42 % 117 % 84 % 42 % 25 % 49 % -3 % 55 % 25 % EBIT 61 % 97 % 70 % 71 % -66 % -10 % 5 % 49 % 192 % 123 % 48 % 33 % 71 % -9 % 70 % 30 % Recurring PAT 100 % 125 % 43 % 9 % -66 % -30 % -1 % 74 % 142 % 99 % 29 % 15 % 58 % -11 % 47 % 32 %

EPS 100 % 125 % 43 % 9 % -66 % -30 % -1 % 74 % 142 % 99 % 29 % 15 % 58 % -11 % 47 % 32 %

Margin (%)

EBITDA 10 % 8 % 9 % 7 % 6 % 6 % 7 % 7 % 10 % 10 % 8 % 8 % 8 % 7 % 9 % 10 % EBIT 8 % 5 % 7 % 5 % 3 % 4 % 5 % 6 % 7 % 7 % 7 % 7 % 6 % 5 % 7 % 8 % PBT 8 % 6 % 7 % 4 % 3 % 4 % 5 % 5 % 7 % 7 % 6 % 7 % 6 % 5 % 7 % 8 %

PAT 6 % 5 % 5 % 3 % 2 % 3 % 4 % 4 % 5 % 5 % 4 % 5 % 5 % 4 % 4 % 5 %



Consolidated Financials

P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 33,308 39,061 46,404 53,090 Equity Capital 229 229 229 229 PBT 1,994 1,779 3,090 4,080

Op. Expenditure 30,554 36,401 42,294 47,949 Reserve 8,302 9,509 11,280 13,619 Depreciation 714 794 931 1,004

EBITDA 2,754 2,660 4,110 5,141 Networth 8,531 9,738 11,510 13,848 Others 108 87 89 57

Depreciation 714 794 931 1,004 Long Term Debt 6,356 5,600 5,050 3,500 Taxes Paid 467 369 1,020 1,346

EBIT 2,040 1,866 3,179 4,136 Def Tax Liability 492 492 492 492 Change in WC -1,782 161 -944 -1,126

Interest Expense 228 161 160 128 Minority Interest 0 0 0 0 Operating C/F 567 2,452 2,146 2,669

Other Income 182 74 71 72 Account Payables 1,015 1,121 1,478 1,680 Capex -1,706 -1,226 -1,021 -637

PBT 1,994 1,779 3,090 4,080 Other Curr Liabi 695 695 695 695 Change in Invest 440 0 0 0

Tax 408 369 1,020 1,346 Total Liabilities & Equity 17,088 17,645 19,223 20,214 Others 92 76 71 72

PAT bef. MI & Assoc. 1,586 1,409 2,070 2,733 Net Fixed Assets 6,071 8,090 8,179 7,812 Investing C/F -1,173 -1,150 -950 -565

Minority Interest 0 0 0 0 Capital WIP 1,587 0 0 0 Change in Debt 3,071 -756 -550 -1,550

Profit from Assoc. 0 0 0 0 Others 695 695 695 695 Change in Equity -2,266 0 0 0

Recurring PAT 1,586 1,409 2,070 2,733

Inventory 6,244 5,911 6,897 7,840 Others -214 -365 -459 -523

Extraordinaires 0 0 0 0 Account Receivables 2,078 2,354 2,670 3,055 Financing C/F 592 -1,121 -1,009 -2,073

Reported PAT 1,586 1,409 2,070 2,733 Other Current Assets 356 356 356 356 Net change in cash -14 181 187 30

FDEPS (Rs) 13.8 12.3 18.1 23.8 Cash 58 239 426 456 RoE (%) 18 % 15 % 19 % 22 %

DPS (Rs) 0.8 1.5 2.2 2.9 Total Assets 17,088 17,645 19,224 20,214

RoIC (%) 12 % 10 % 13 % 16 %

CEPS (Rs) 20.1 19.2 26.2 32.6 Non-cash Working Capital 6,968 6,807 7,751 8,876

Core RoIC (%) 12 % 10 % 13 % 16 %

FCFPS (Rs) -3.7 12.5 11.4 19.1 Cash Conv Cycle 76.4 63.6 61.0 61.0 Div Payout (%) 7 % 14 % 14 % 14 %

BVPS (Rs) 74.4 84.9 100.4 120.8 WC Turnover 4.8 5.7 6.0 6.0 P/E 16.9 19.0 13.0 9.8

EBITDAM (%) 8 % 7 % 9 % 10 % FA Turnover 4.3 4.8 5.7 6.8 P/B 3.1 2.8 2.3 1.9

PATM (%) 5 % 4 % 4 % 5 % Net D/E 0.7 0.6 0.4 0.2 P/FCFF -63.2 18.8 20.6 12.3

Tax Rate (%) 20 % 21 % 33 % 33 % Revenue/Capital Employed 2.3 2.5 2.8 3.0 EV/EBITDA 12.2 12.3 7.8 5.9

Sales Growth (%) 22 % 17 % 19 % 14 %

Capital Employed/Equity 1.6 1.7 1.5 1.4

EV/Sales 1.0 0.8 0.7 0.6

FDEPS Growth (%) 58 % -11 % 47 % 32 %

Dividend Yield (%) 0.3 % 0.6 % 0.9 % 1.2 %

TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE

25x

5x

10x

15x

20x

0%

20%

40%

60%

80%

100%

0

400

800

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

Sep

/18

Mar

/19

EPSGrowth

-20%

-10%

0%

10%

20%

30%

40%

50%

0

24000

48000

72000

96000

Sep

/10

Mar

/11

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

Sep

/18

Mar

/19

5x

10x

12x

15x

18xEBITDA Growth

0%

10%

20%

30%

0

400

800

1200

Sep

/11

Mar

/12

Sep

/12

Mar

/13

Sep

/13

Mar

/14

Sep

/14

Mar

/15

Sep

/15

Mar

/16

Sep

/16

Mar

/17

Sep

/17

Mar

/18

Sep

/18

Mar

/19

RoE

1x

2x

4x

6x

8x



Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 30,918 25,313 27,365 33,308 Equity Capital 277 277 277 229 PBT 1,367 977 1,194 1,994

Op. Expenditure 28,971 23,668 25,512 30,554 Reserve 7,287 7,996 8,929 8,302 Depreciation 474 610 662 714

EBITDA 1,947 1,645 1,852 2,754 Networth 7,563 8,273 9,206 8,531 Others 90 93 -8 108

Depreciation 474 610 662 714 Long Term Debt 4,015 3,031 3,285 6,356 Taxes Paid 316 177 185 467

EBIT 1,473 1,035 1,191 2,040 Def Tax Liability 537 587 494 492 Change in WC -2,815 1,031 -290 -1,782

Interest Expense 207 150 99 228 Minority Interest 0 0 0 0 Operating C/F -1,200 2,534 1,374 567

Other Income 101 91 103 182 Account Payables 672 629 834 1,015 Capex -1,033 -1,234 -1,187 -1,706

PBT 1,367 977 1,194 1,994 Other Curr Liabi 329 325 351 695 Change in Invest 235 -84 -176 440

Tax 253 136 190 408 Total Liabilities & Equity 13,116 12,844 14,170 17,088 Others 65 23 39 92

PAT bef. MI & Assoc. 1,114 841 1,004 1,586 Net Fixed Assets 4,793 5,428 5,681 6,071 Investing C/F -733 -1,295 -1,324 -1,173

Minority Interest 0 0 0 0 Capital WIP 636 629 1,027 1,587 Change in Debt 2,183 -984 183 3,071

Profit from Assoc. 0 0 0 0 Others 801 778 658 695 Change in Equity 0 0 0 -2,266

Recurring PAT 1,114 841 1,004 1,586 Inventory 4,973 4,437 4,308 6,244 Others -311 -258 -210 -214

Extraordinaires 0 0 0 0 Account Receivables 1,496 1,081 1,737 2,078 Financing C/F 1,873 -1,242 -26 592

Reported PAT 1,114 841 1,004 1,586 Other Current Assets 345 322 362 356 Net change in cash -60 -3 23 -14

EPS (Rs) 9.7 7.3 8.8 13.8 Cash 71 170 397 58

RoE (%) 16 % 11 % 12 % 18 %

DPS (Rs) 0.7 0.8 0.8 0.8

Total Assets 13,115 12,844 14,170 17,088

RoIC (%) 12 % 8 % 9 % 12 %

CEPS (Rs) 11.5 10.5 12.0 20.1 Non-cash Working Capital 5,814 4,886 5,222 6,968 Core RoIC (%) 12 % 8 % 8 % 12 %

FCFPS (Rs) -12.8 9.9 1.0 -3.7 Cash Conv Cycle 68.6 70.5 69.7 76.4 Div Payout (%) 10 % 16 % 13 % 7 %

BVPS (Rs) 54.7 59.8 66.5 74.4 WC Turnover 5.3 5.2 5.2 4.8

P/E 24.1 31.9 26.7 0.0

EBITDAM (%) 6 % 6 % 7 % 8 % FA Turnover 5.7 4.2 4.1 4.3 P/B 4.3 3.9 3.5 0.0

PATM (%) 4 % 3 % 4 % 5 % Net D/E 0.5 0.3 0.3 0.7 P/FCFF -18.3 23.7 244.4 -63.2

Tax Rate (%) 19 % 14 % 16 % 20 % Revenue/Capital Employed 2.9 2.1 2.2 2.3 EV/EBITDA 16.4 18.8 16.6 0.0

Sales growth (%) 3 % -18 % 8 % 22 %

Capital Employed/Equity 1.5 1.5 1.4 1.6

EV/Sales 1.0 1.2 1.1 0.0

FDEPS growth (%) -1 % -25 % 19 % 58 %

Dividend Yield (%) 0.3 % 0.4 % 0.3 % 0.3 %


January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) of 41

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Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion andATR>= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office: Equirus Securities Private Limited Unit No. 1201, 12th Floor, C Wing, Marathon Futurex, N M Joshi Marg, Lower Parel, Mumbai-400013. Tel. No: +91 – (0)22 – 4332 0600 Fax No:+91-(0)22 – 4332 0601

Corporate Office: 3rd floor, House No. 9, Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge, S.G. Highway Ahmedabad-380054 Gujarat Tel. No: +91 (0)79 - 6190 9550 Fax No:+91 (0)79 – 6190 9560

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© 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not

be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited

Analyst Certification

I, Depesh Kashyap/Harshit Patel, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their

securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers

Regulations, 1993 (Reg. No.INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP-324-2017). There are no disciplinary actions taken by any regulatory

authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to

merchant banking services, private equity, mergers & acquisitions and structured finance.

As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for

investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have

received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their

directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in

their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or

Associates 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 ESPL 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. ESPL has not been engaged in market making activity for the subject company.

The Research Analyst engaged in preparation of this Report:-

(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months;

(c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products

or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the

subject company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the

subject company.

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject ESPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein

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This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based

on this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as

to its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant

information contained herein. While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the

information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended

to be and must not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an

investment in the securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific

investment objectives, financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the

consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with

companies covered in its research report. Thus, investors should be aware that the firm may have conflict of interest.



A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp and www.bseindia.com (Choose a company from the list on the browser and select the

“three years” period in the price chart).

Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No

Research Analyst’ or Relatives’ material conflict of interest No

Disclaimer for U.S. Persons

ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a

registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the “Acts”), and under applicable state laws in the United States.

Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended

for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition

on soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective

contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S.

Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US

Persons" under certain rules.

gujarat ambuja exports ltd...aug 01, 2018 · gujarat ambuja exports ltd initiating coverage ......

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