INDIA GLYCOLS LTD.

Q1 FY 2009 update RESEARCH

Sector Chemicals I

BUY
CMP Rs 217 I Target Rs 449

KEY HIGHLIGHTS
STOCK DATA Market Cap Book Value per share Eq Shares O/S (F.V. Rs.10) Median Vol (12 mths) 52 Week High/Low Bloomberg Code Reuters Code Rs6.04bn Rs117 27.9mn 82,424 (BSE+NSE) Rs504/152 IGLY IN IGLY.BO

India Glycols Ltd.s (IGL) net sales declined by 8% YoY to Rs2.5bn. OPM slipped by 643 bps to 14% resulting in net profit plunging by 66% to Rs121mn. A planned shut-down of 21 days for debottlenecking its MEG capacity at Kashipur and adding a new catalyst in the process, were the key reasons for lower volumes during the quarter.
z Volume dip acts as a dampener

SHAREHOLDING PATTERN (%) Qtr. Ended Promoters MFs/FIs FIIs PCBs Indian Public Dec-07 48.6 9.1 7.5 11.6 23.2 Mar-08 49.5 6.8 5.6 10.2 27.8 June-08 50.0 5.0 5.7 9.5 29.8

During the quarter, mono-ethylene glycol (MEG) volumes declined by 39% to 18,700mt. This not only impacted the performance but also spelt opportunity loss as average realisation of MEG improved by 19% to Rs47,700/mt.
z Changing product mix

IGL is continuously focusing on its high margin ethylene-oxide derivatives (EOD) business and plans to maintain the product mix between MEG:EOD at 50:50 for FY09.
z No provision for MTM losses

STOCK PERFORMANCE (%) 1M (7.2) (14.3) 3M (30.9) (16.5) 12M 28.3 33.2

Absolute Relative

IGL has not provided for a mark-to-market loss of Rs156mn on restatement of its foreign currency loans whereas it has accounted for a Rs147mn forex gain in Q1FY08. The company plans to adjust the same either at the end of the fiscal or on liquidation of the contract.
z Capex plan

STOCK PRICE PERFORMANCE

600 450 300 150 0 Aug-07

IGL

BSE Rebased

It has outlined a capex of Rs5bn spread over the next two years in expanding its crushing capacity at Shakumbari, MEG expansion and setting up of CO2 as well as Nutraceuticals plants. VALUATIONS AND RECOMMENDATION

Oct-07

Jan-08

Apr-08

Jul-08

At the CMP of Rs217, IGL is trading at an EV/EBIDTA of 2.4x and P/E of 2.2x FY10E earnings. While the first quarter numbers were expected to be subdued, they turned out to be much lower than expected. However, the benign petrochemical cycle combined with flexibility of raw material impart greater flexibility in managing its costing and we expect earnings traction Q2FY09 onwards. Hence, we maintain our BUY recommendation with a price target of Rs449.
KEY RATIOS
Yr Ended (March) Yr Ended (March)
2010E 17,053 Dil. EPS (Rs) ROCE (%) RONW (%) P/E (x) EV/Sales (x) EV/EBDIT (x) 2006 21.0 17.8 22.2 10.3 1.5 9.2 2007 14.7 17.5 13.6 14.7 1.3 8.3 2008 64.0 37.8 44.1 3.4 0.9 3.5 2009E 69.2 30.8 33.1 3.1 0.9 3.4 2010E 99.7 30.6 34.5 2.2 0.7 2.4

KEY FINANCIALS (CONSOLIDATED)

Rs mn
Net Sales

Quarter Ended*
Dec-07 3,877 Mar-08 3,387 Jun-08 2,501 2006 7,113

2007 8,831

2008 13,439

2009E 14,553

YoY Gr. (%)

Op. Profits

67
1,047

62
673

(8)
350

27.6
983

24.2
1,060

52.2
3,400

8.3
3,640

17.2
4,605

Op.Marg.(%)
Net Profits Eq. Capital

27
675 279

20
271 279

14
121 279

13.8
586 279

12.0
410 279

25.3
1,785 279

25.0
1,930 279

27.0
2,778 279

* Standalone
Analyst - Naveen Trivedi I naveent@pinc.co.in I Tel: +91-22-6618 6384

06 August 2008

PERFORMANCE OVERVIEW Net sales in Q1FY09 declined by 8% to Rs2.5bn, primarily led by 11% and 10% decline in gross revenues of chemicals and ethyl alcohol (Liquor) segments to Rs2.5bn and Rs480mn respectively. Chemicals segments margins shrank by 460bps to 12.5% on account of lower production due to the planned shutdown. Margins of liquor segment improved by 290bps to 9.3% as a result of better realisations arising from higher share of own brand sales. IGL was unable to capitalise on the buoyant MEG realisations as it had undertaken a planned 21 day shutdown. In Q1FY09, the plant was operational for 70 days at 396mt per day equivalent MEG production compared to 88 days at 472mt per day equivalent MEG production in Q1FY08. Planned shutdown at Kashipur

Plant will now run at 575mt per day equivalent MEG production...

IGL had undertaken a planned 21 days shutdown in Jun08 to increase its effective MEG (equivalent) production capacity by 20% to ~575mt per day. Equivalent MEG production capacity pertains to production of MEG and/or EOD. The ratio of MEG:EOD can be varied by the company as per its marketing focus. While the former is a commodity, the latter is a specialised product whose realisation are much higher and the margins are commensurately better. Over the years, IGL plans to increase the share of EOD in its product mix and the same for the current year is estimated to be 50:50 ( 60:40 in FY08). During this shutdown, IGL has also added new catalyst in the process and it is expected that through this, it will curtail alcohol consumption by 3.5%. Commissioning of CO2 plant

Kashipur CO2 plant has commenced from April08...

It commenced production on its 80mt CO2 plant at Kashipur from Apr08 onwards whereas its 80mt CO2 plant at Gorakhpur is expected to be commissioned in Aug08. Other expansion plan At Shakumbari, IGL plans to undertake a phased expansion in increasing its crushing capacity to 10,000 TCD from the present 3,200 TCD, distillery capacity to 300 KLPD from 40 KLPD and cogen to 26 MW from 3 MW. Phase-I expansion will enhance its crushing capacity to 5,500 TCD by Q3FY09 and distillery capacity to 240 KLPD by Q4FY09. To reduce its power costs, IGL also plans to expand its capacities from the current 11 MW to 55 MW across all three units viz. Kashipur, Gorakhpur and Shakumbari. The move is likely to reduce power costs to <Rs1/kwh against current average of ~Rs2.5-3/kwh.

Power Plant Expansion

Particulars (MW) Kashipur & Gorakhpur Shakumbari Source: Company Existing Capacity 8 3 Additional 20 23.5

Foray into new ventures IGL is foraying into the Nutraceuticals business by setting up a plant in Dehradun, which is expected to be commissioned in Q2FY09. The unit will cater to the USA, EU and Japan markets and has the potential to contribute Rs400-500mn in FY09 and Rs600-700mn in FY10 with healthy margins in the range of 30%. The company plans to lease out ~200k sq ft of its Noida property (total area of 275k sq ft). In FY09, it plans to generate ~Rs75mn through lease rental from ~5 months at an average rate of Rs75-80/sq ft per month. For FY10, it expects to receive ~Rs180-200mn at the same rate. Capex Of the Rs2.4bn capex at Shakumbari facility, 40% will be funded by Sugar Development Fund (at 4% interest), 40% will be through term loan and the balance through internal accruals. Capex of Rs2.6bn for other segments is expected to be funded internal accruals.
2

Total planned capex is Rs5.0bn by FY10...

Application of Capex
Particulars (Rs mn) Shakumbari Catalyst, Kashipur CO2 (Kashipur & Gorakhpur) MEG Kashipur Nutraceutical Plant Real Estate Total Source: Company FY09E 2,040 350 250 750 433 784 4,607 FY10E 383 383

We maintain a BUY on the stock at a one year target of Rs449...

OUTLOOK In a scenario where petrochemical companies are experiencing supply shortage and rising prices of feedstocks, green route (Biomass) players have become more competitive. In this backdrop, IGLs capacity expansion by 20% and foray into value added products augurs well for its growth prospects. Its recent acquisition of Shakumbari has afforded it flexibility (making sugar and/or ethanol), thereby enabling it to capitalise on the market conditions. IGL should also benefit from savings in power costs following commencement of its cogeneration power plant in Shakumbari and Kashipur. Besides reducing costs, it is also focusing on high margin EOD business where prices are more stable and competition minimal. The revenue flow from other streams i.e. Nutraceuticals, CO2 plant, property lease and sugar will also augment by FY10. VALUATIONS AND RECOMMENDATION At the CMP of Rs217, IGL is trading at an EV/EBIDTA of 2.4x and P/E of 2.2x FY10E earnings. While Q1FY09 performance was disappointing, the scale up in capacity, altered product mix and firm MEG realisations augur well for the earnings in the coming quarters. Despite this, the robust business model, synergies across various operations, diversified revenue stream and flexible feedstock option offers strong visibility for the company. Hence, we maintain our BUY recommendation with a price target of Rs449.

Estimate Changes
Rs mn Net Sales Operating Profit EBITDA Net Profit Diluted EPS OPM (%) NPM (%) Prev. Estimates FY2009 14,653 3,764 4,114 2,279 81.7 25.7 15.6 FY2010 17,062 4,538 4,888 2,981 106.9 26.6 17.5 Revised Estimates FY2009 14,553 3,640 3,990 1,930 69.2 25.0 13.3 FY2010 17,053 4,605 4,955 2,778 99.7 27.0 16.3 % Change FY2009 (0.7) (3.3) (3.0) (15.3) (15.3) (69) (229) FY2010 (0.1) 1.5 1.4 (6.8) (6.7) 40 (118)

CONCERNS 1) Though, we have taken a conscious view for raw material prices (molasses and ethanol) in our estimation, any sudden jump in the same might hurt the companys profitability. 2) Increase in cane cost above Rs125/quintal for next season might further impact profitability.

Company description IGL is one of the leading manufacturers of Glycols and Ethylene Oxide (EO) derivatives, which cater primarily to industries like Textiles, Agrochemicals, Oil & Gas, Personal Care, Pharmaceuticals, Brake Fluids, Detergent and Paints. It is one of the few manufacturers, globally, of MEG, EOD and ethyl alcohol (potable) via the organic route (molasses and ethanol).
3

Financial Results for the quarter ended 30 June 2008 (Standalone)

Particulars (Rs Mn) Net Sales Total Expenditure (Inc)/dec in Stock of Mfr Goods Consumption of Raw Material Purchase of goods for trading Staff cost Power & Fuel Others Operating Profit Other income PBIDT Interest (Net) Depreciation PBT Current Tax Deffered Tax FBT MAT credit entitlment Net Profit Equity Capital Reserves( excl reserves) Book Value Basic EPS Diluted EPS OPM % NPM % Expenditure as % of Net Sales RM Consumed Staff cost Purchase of goods for trading Power & Fuel Other Expenditure 48.2 4.6 0.4 15.8 17.0 46.3 5.1 0.0 13.7 14.5 39.1 4.5 4.3 12.4 16.5 52.9 3.8 0.0 15.5 15.8 Quarter Ended 30/06/08 2,501 2,151 (5) 1,209 10 116 394 426 350 77 427 110 148 170 19 41 2 (14) 121 279 4.4 4.4 14.0 4.8 30/06/07 2,712 2,158 53 1,203 139 371 392 554 190 744 119 142 483 93 32 2 0 356 279 12.8 12.8 20.4 13.1 (66.0) 0.5 (16.4) 6.3 8.7 (36.8) (59.3) (42.6) (7.9) 4.2 (64.8) Gr % (7.8) (0.3) 31/03/08 13,039 10,016 100 4,997 563 582 1,619 2,155 3,023 471 3,495 458 661 2,376 335 234 14 7 1,785 279 4,548 173 64.0 64.0 23.2 13.7 Year Ended 31/03/07 8,831 7,772 148 4,527 340 1,366 1,391 1,059 319 1,378 373 483 522 57 101 11 (57) 410 279 2,891 114 14.7 14.7 12.0 4.6 335.5 10.4 71.4 18.5 54.9 185.5 48.0 153.7 22.8 37.0 355.2 Gr % 47.7 28.9

Median PE v/s Daily PE

16 12 8 4 0 Apr-04 Daily P/E Median PE
800

PE Band
10x

600 400 200 0 Apr-04

8x 6x 4x 2x

Apr-05

Apr-06

Apr-07

Apr-08

Apr-05

Apr-06

Apr-07

Apr-08
4

Segmental Results for the quarter ended 30 June 2008 (Standalone)

Particulars (Rs Mn) Segment Revenues Business Chemicals Liquor Others Gross Sales 2,451 480 19 2,950 2,750 531 20 3,302 (10.9) (9.7) (5.1) (10.7) 12,726 2,462 53 15,241 8,834 1,531 129 10,494 44.1 60.8 (58.7) 45.2 Quarter Ended 30/06/08 30/06/07 Gr % 31/03/08 Year Ended 31/03/07 Gr %

Segment PBIT Business Chemicals Liquor Others Total PBIT Less: Interest Other un-allocable exp.(net) Total PBT 307 45 (10) 341 110 62 170 471 34 (3) 502 119 (100) 483 (64.8) (34.8) 30.7 (32.0) 3,077 159 (33) 3,203 458 369 2,376 825 140 (10) 956 373 60 522 354.7 273.0 13.3 235.1

Capital Employed Business Chemicals Liquor Others Capital Employed in segment 10,939 694 435 12,068 9,707 462 200 10,369 12.7 50.3 117.5 16.4 9,990 665 268 10,923 8,709 357 173 9,238 14.7 86.4 55.1 18.2

PBIT Margin (%) Business Chemicals Liquor Others Total 12.5 9.3 (55.3) 11.6 17.1 6.4 (13.6) 15.2 24.2 6.5 (62.2) 21.0 9.3 9.2 (7.4) 9.1

ROCE (%) Business Chemicals Liquor Others Total 11.2 25.8 (2.4) 2.8 19.4 29.6 (1.4) 4.8 123.2 95.7 (12.4) 29.3 37.9 157.4 (5.6) 10.3

Gross Sales Mix (%) Business Chemicals Liquor Others Total 83.1 16.3 0.6 100.0 83.3 16.1 0.6 100.0 83.5 16.2 0.4 100.0 84.2 14.6 1.2 100.0

PBIT Mix (%) Business Chemicals Liquor Others Total 90.0 13.1 (3.0) 100.0 93.7 6.8 (0.5) 100.0 96.1 5.0 (1.0) 100.0 86.3 14.7 (1.0) 100.0 5

Year Ended March (Figures in Rs mn) Income Statement Revenues 2005 5,575 2006 7,113 2007 8,831 2008 13,439 2009E 14,553 2010E 17,053

Growth (%)
Total Expenditure Operating Profit

31.9
4,096 1,478

27.6
6,130 983

24.2
7,772 1,060

52.2
10,040 3,400

8.3
10,914 3,640

17.2
12,448 4,605

Growth (%)
Interest & dividend income EBIDT (-) Interest (-) Depreciation PBT (-) Tax provision (incl FBT) Net Profits

16.9
35 1,514 156 317 1,041 250 791

(33.5)
218 1,201 212 367 623 37 586

7.8
319 1,378 373 483 522 112 410

220.9
152 3,551 494 681 2,377 591 1,785

7.1
350 3,990 586 864 2,540 610 1,930

26.5
350 4,955 481 935 3,539 761 2,778

Growth (%)
Fully diluted Eq. sh. O/s (mn no) Book Value (Rs) Basic EPS (Rs) Diluted EPS (Rs)

38.4
28 86 28.4 28.4

(25.9)
28 103 21.0 21.0

(30.0)
28 114 14.7 14.7

335.4
28 177 64.0 64.0

8.1
28 241 69.2 69.2

43.9
28 336 99.7 99.7

Balance Sheet

2005 279 2,133

2006 279 2,595

2007 279 2,892

2008 279 4,648

2009E 279 6,447

2010E 279 9,094

Equity Share Capital Reserves & Surplus

Net worth

2,411

2,874

3,171

4,926

6,726

9,373

Total Debt

3,699

4,993

5,509

6,570

8,371

6,871

Deferred Tax

411

518

619

853

1,087

1,321

Capital Employed

6,521

8,384

9,299

12,357

16,184

17,565

Fixed Assets

4,643

6,190

7,750

9,103

12,240

12,004

Net current assets

1,854

2,170

1,523

3,227

3,918

5,535

Investments

24

24

26

26

26

26

Total Assests

6,521

8,384

9,299

12,357

16,184

17,565

Year Ended March (Figures in Rs mn) Cash Flow Statement PBT & Extraord. items Depreciation Interest & dividend inc. Interest paid Miscellaneous expenses Tax paid (Inc) /Dec in working capital Cash from operations Net capital expenditure Net investments Interest / Dividend recd Cash from investing activities Issue of eq. shares Change in debt Dividend paid Interest paid Cash from financing activities Inc/Dec. in cash 2005 1,041 317 142 32 (179) (691) 662 (1,894) 10 (1,884) 1,548 (79) (204) 1,266 44 2006 623 367 195 41 (33) (287) 905 (1,879) 51 (1,829) 1,293 (95) (329) 870 (53) 2007 522 483 338 (138) (74) 743 1,874 (1,955) 15 (1,940) 644 (95) (369) 181 115 2008 2,377 681 (15) 460 (132) (500) (1,431) 1,441 (1,987) 8 (1,972) 1,177 (97) (511) 569 38 2009E 2,540 864 (350) 586 (376) (111) 3,153 (4,000) (0) 350 (3,650) 1,801 (131) (586) 1,084 587 2010E 3,539 935 (350) 481 (527) (1,381) 2,697 (700) 350 (350) (1,500) (131) (481) (2,112) 235

Key Ratios OPM (%) ROACE (%) ROANW (%) Sales/Total Assets (x) Debt:Equity (x) Current Ratio (x) Debtors (days) Inventory (days) Net working capital (days) EV/Sales (x) EV/EBIDT (x) P/E (x) P/BV (x)

2005 26.5 31.6 38.2 0.9 1.5 2.7 37.7 176.1 126.5 1.7 6.4 7.6 2.5

2006 13.8 17.8 22.2 0.8 1.7 2.5 39.5 128.7 92.1 1.5 9.2 10.3 2.1

2007 12.0 17.5 13.6 0.9 1.7 1.6 31.9 105.2 22.0 1.3 8.3 14.7 1.9

2008 25.3 37.8 44.1 1.1 1.3 2.4 24.0 98.3 64.1 0.9 3.5 3.4 1.2

2009E 25.0 30.8 33.1 0.9 1.2 2.2 35.0 105.0 70.0 0.9 3.4 3.1 0.9

2010E 27.0 30.6 34.5 1.0 0.7 3.0 35.0 105.0 70.0 0.7 2.4 2.2 0.6 7

T E A M
EQUITY DESK
R. Baskar Babu Gealgeo V. Alankara Sachin Kasera Sailav Kaji Head - Equity Broking Head - Institutional Sales Co-Head - Domestic Equities Head Derivatives & Strategist baskarb@pinc.co.in alankara@pinc.co.in sachink@pinc.co.in sailavk@pinc.co.in 91-22-6618 6465 91-22-6618 6466 91-22-6618 6464 91-22-6618 6344

SALES
Anil Chaurasia Alok Doshi Sapna Mehta Sundeep Bhat anil.chaurasia@pinc.co.in adoshi@pinc.co.in sapna.mehta@pinc.co.in sundeepb@pinc.co.in 91-22-6618 6483 91-22-6618 6484 91-22-6618 6485 91-22-6618 6486

DEALING
Chandrakant Ware Ashok Savla Raju Bhavsar Manoj Parmar Shivkumar R Hasmukh D. Prajapati Pratiksha Shah chandrakantw@pinc.co.in ashok.savla@pinc.co.in rajub@pinc.co.in manojp@pinc.co.in shivkumarr@pinc.co.in hasmukhp@pinc.co.in pratikshas@pinc.co.in 91-22-6618 6327 91-22-6618 6400 91-22-6618 6301 91-22-6618 6326 91-22-6618 6329 91-22-6618 6325 91-22-6618 6329

DIRECTORS
Gaurang Gandhi Hemang Gandhi Ketan Gandhi gaurangg@pinc.co.in hemangg@pinc.co.in ketang@pinc.co.in 91-22-6618 6400 91-22-6618 6400 91-22-6618 6400

COMPLIANCE
Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400

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