Chemicals, Fertilizers, Agriculture & Sugar

Unnati Sector Report
September 20
2012
Chemical, Fertilizer, Sugar & Agriculture
Mohit Rastogi Senior Security Analyst
Arpit Jain & Shashank Reddy Junior Security Analyst

Table of Contents
Sugar Sector 1. 2. 3. 4. 5. 6. 7. Introduction .......................................................................................................................................... 3 Value Chain Analysis ............................................................................................................................. 5 Procurement and pricing policy ............................................................................................................ 9 Government regulations ..................................................................................................................... 10 SWOT analysis of the Sugar Industry .................................................................................................. 11 Latest in the sector ............................................................................................................................. 12 Some important players...................................................................................................................... 13
Agriculture Sector 1. 2. 3. 4. 5. Introduction ........................................................................................................................................ 18 Government Policies ........................................................................................................................... 20 Issues and Challenges ......................................................................................................................... 21 Recent Government Initiatives ........................................................................................................... 22 Some important players...................................................................................................................... 23
Chemicals Sector 1. 2. 3. 4. 5. 6. 7. Introduction ........................................................................................................................................ 28 Global and Indian Scenario ................................................................................................................. 28 Market constituents ............................................................................................................................ 30 Majorly Produced Chemicals in India ................................................................................................. 34 Issues faced by Indian Chemical Industry ........................................................................................... 42 Government Policies and Initiatives ................................................................................................... 42 Some Important Players in Chemicals ................................................................................................ 45
Fertilizers 1. 2. 3. 4. 5. 6. 7. Introduction ........................................................................................................................................ 52 Nitrogenous Fertilizers ........................................................................................................................ 53 Phosphatic Fertilizers .......................................................................................................................... 54 Potassic Fertilizers ............................................................................................................................... 55 Complex Fertilizers .............................................................................................................................. 56 Agrochemicals ..................................................................................................................................... 57 Factors effecting Fertilizer Prices: ....................................................................................................... 62 Page 1
SUGAR SECTOR
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1. Introduction
In India, Sugar industry is the second-largest agro based industry after textile, employing 0.5 million people in the sugar mills and 50 million farmers engaged in sugarcane cultivation. India is the largest consumer and the second largest producer of sugar across the globe. The global production of sugar is expected to be 173 million tons (MT) in 201112 marketing year (October-September) according to United Nations body FAO. The same figure stood at 165 MT in the 2010-11 marketing year. Major Contributors in Production and Consumption, World
Source: Sucden world statistics

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Sugar industry is largely driven by domestic consumption in India. Total sugar consumption in India is expected to be around 23.5 MT this year in comparison to the global figure of 163 MT. With growing population and increasing demand in other industries such as chocolates and confectionaries sugar consumption will still increase at a much faster rate owing to other economic factors such as rise in income levels and availability of the FMCG products. As seen from the figure below the consumption is expected to be growing faster in coming marketing year worldwide with increase in domestic consumption to be around 4% in India.
Global Consumption of Sugar rising faster than production
Source: USDA, foreign agriculture service, 2012

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Production of Sugar
Sugarcane and Sugar beet are the two most important sources from which sugar is extracted. These two crops grow under contrasting geographical conditions. Sugarcane is a semi-tropical crop and accounts for majority of the sugar production in the world whereas sugar-beet grows in temperate climate. The Indian sugar industry can be divided into two sectors including organized and unorganized sector. Sugar factories belong to the organized sector and those who produce traditional sweeteners fall into unorganized sector. Jaggery[gur] and khandsari are the traditional forms of sweeteners. Sugarcane is the raw material for the production of white sugar, gur and khandsari. Utilization of sugarcane for white sugar production has increased and that for gur and khandsari decreased in the past decade. This could be attributed on account of changed demand and consumption pattern. Sugar production in India has been cyclic in nature. Every 2-3 years of high sugar production are followed by 2-3 years of low sugar production.
2. Value Chain Analysis

There are various by products in the sugar manufacture from sugarcane and sugar beet. By products thus generated in the process of manufacture are used for various activities such as power generation, animal feed, fertilizer, construction, ethanol etc. Sugar mills across the country have adopted an integrated business model for an effective utilization of byproducts, including molasses and bagasse and have invested extensively in the last few years. The integrated model generates enhanced realizations, lower cyclicality and optimum resource utilization. This leads to power generation and green fuel with a positive impact on the environment The emerging scenario of sugarcane as the renewable energy crop in India for the production of ethanol, as a supplement to the fossil fuel is providing enough scope to increase the sugarcane production further. In India, molasses, a by-product of sugarcane processing for sugar, will remain the main raw material for ethanol production. Bagasse, the other byproduct of sugar processing will continue to remain as the basic raw material for co-generation of power in sugar mills. In fact, by 2030 AD it is visualized that every sugar mill in India will be modified as the energy-producing hub in the rural sector, giving boost to the rural economy thereby playing a major catalytic role in the socio-economic transformation of rural population. With more and more sugar mills adopting such measures it surely can become a great advantage specially when India is facing power problems and it is one of largest sugar producing country in the world.
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Value Chain Sugar by Sugar Cane
Source: Netscribes
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Cogeneration through Bagasse The fibre (28%-32%) per tonne of sugar cane crushed) derived from crushing sugarcane is known as bagasse, which is used as a combustible in furnaces to produce steam, which is then used to generate power. Sugar mills use bagasse to generate power needed for processing sugarcane and the surplus power is exported to the power grid. The Indian sugar industry has the potential to generate about 6,000 MW of power. Already, 50 units have an installed capacity to cogenerate around 900 MW of surplus power and a capacity of 1000 MW is in the process of being installed by 50 other sugar mills. The Government of India has shown a keen interest in promoting the cogeneration of power. Bagasse-based energy does not involve mining, extraction and long-distance transportation expenses as is the case with other fossil fuels. Other by products from Bagasse Pulp and paper, boards, furfural and animal feeds are among the main products obtained from bagasse not used as fuel. The most widespread use of bagasse around the world is in the production of pulp and paper. Alcohol Molasses is used primarily in alcohol production (rectified spirit). It accounts for 4-5% per tonne of sugar cane crushed. Alcohol is used as a raw material for the industrial manufacture of potable alcohol and fuel ethanol. The result is that around 80% of the total potable alcohol production in India is derived from molasses. The production of fuel ethanol emerged as a viable option, with the potential to earn carbon credits in line with the encouragement provided to other biofuels. Ethanol Ethanol is a clear, colorless liquid with an agreeable odour. Demand for ethanol is driven by the mandatory blending of petrol with ethanol, wherein under the National Biofuel Policy, it will be mandatory to blend 20% by 2017. At a 10% blending level, ethanol demand is expected to grow to 1,859 million liters. Organic Manure Press mud accounts for around 3%-4% per tonne of the sugarcane crushed. Press mud is mainly used as manure. The press mud organic manure is free of inorganic elements present in the traditional form of organic manures, commonly used by the farming community. Crops yield good results when applied during early land preparation. It increases soil porosity and helps the crop in the uptake of chemical fertilizers.
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Value Chain: Sugar by Sugar Beet
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Cyclicality of Sugar sector in India
The domestic sugar industry follows a 5 to 7 years cycle. Higher sugar cane and sugar production results in a fall in sugar prices and non-payment of dues to farmers. This compels the farmers to switch to other crops thereby causing a shortage of sugar cane, consequently an increase in sugar cane prices and extraordinary profits.
Source: Netscribes
3. Procurement and pricing policy

Procurement Government allocates area to the sugar mills within which it can purchase the sugarcane to ensure regular supply of cane. Every farmer within the command area of the Mill is provided with a calendar, which tells him when he can expect a Mill Supply Ticket (Purchy), against which he will deliver the sugarcane. He then harvests the cane and transports it either in a bullock cart or tractor trolley to the mill. Cane is also bought at the mill's own centers within the command area. This cane is then transported in trucks or through rail to the mill. In the State of Uttar Pradesh, sugarcane is procured through cooperative societies formed by sugarcane farmers in the Sugarcane Area. Based on their estimates of sugarcane production by their members, the sugarcane cooperative societies enter into agreements with sugar mills for the supply of identified quantities of sugarcane at a price determined in accordance with applicable laws.
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Pricing The Central Government had been fixing the Statutory Minimum Price (SMP) of sugarcane in terms of Clause 3 of the Sugarcane (Control) Order, 1966 for each sugar season having regard to the following factors: a) cost of production of sugarcane b) return to the growers from alternative crops and the general trend of prices of agricultural commodities c) availability of sugar to consumers at a fair price d) price at which sugar produced from sugarcane is sold by sugar producers e) recovery of sugar from sugarcane f) the realization made from sale of by-products viz. molasses, bagasse and press mud or their imputed value g) giving reasonable margins to the growers of sugarcane on account of risk and profits (amended in 2009) Central government fixes a fair and remunerative price (FRP)/SMP on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP) after consulting the State Governments and associations of sugar industry and cane growers. Apart from the FRP, the individual states where sugarcane is being produced also come up with State Advisory Price (SAP) for that state, for example: Uttar Pradesh. This price on most cases is given under political pressures. Though this is the minimum support price and often the farmers charge a price much more than this price, given the market price comes down, there are rare chances that FRP or SAP will be brought down.
4. Government regulations
Through Sugar Industry in Brazil was deregulated in 1990 as IAA, the government intervention agency ceased control, in India it is still influenced by the government both at state and central level. Dual sugarcane pricing in terms of FRP and SAP No other agriculture or food product is subjected to levy obligation Regulated monthly release mechanism Restriction on corporates for sugar farming Restriction on import and export of sugar through Import and Export duties Cane area reservation Minimum distance criteria of 15 kms is maintained among sugar factories
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Advantages of deregulation in sugar sector Market to establish stable prices: With the abolition of state-controlled pricing, sugarcane price will be linked to sugar prices, leading to a realistic return for mills & farmers Better cash flow: Following decontrol, companies can price products according to market realities, resulting in a better sales forecast, leading to a targeted cash flow Export availability: Following decontrol, sugar production could stabilize, addressing internal demand, leaving some sugar for export Investments: Increasing profits could attract investors, leading to technology investments
5. SWOT analysis of the Sugar Industry

Strengths Indian sugar industry is the second largest producer of sugar in the world after Brazil. The sector has a potential to make the country to be self-reliant for domestic consumption and have rising exports in place Provides direct employment including ancillary activities to near about 0.5 million workers It also supports the downstream industries by providing the raw material Sugarcane farming is one of the most profitable cash crops in India This sector has been the focal point of socioeconomic development of the rural India and will remain to be in coming future Weaknesses Most of the co-operative sugar industries in India e. g. in Maharashtra find difficult to pay for the sugar cane supplied by the farmers due to price mechanisms and this leads to cyclic nature in arrear clearance Old technology being used in most of the mills which leads to the decrease in production and losses Government regulations Opportunities High value of by-products for downstream industries Huge potential to increase the productivity of cane and sugar recovery rate Technology up gradation, new advanced technology available for the byproduct utilization and better output Threats Sugar sector is vulnerable to political interest Highly fragmented industry Highly seasonal leading to unavailability of cane and hence mismatch in demand supply Ground water availability for irrigation
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6. Latest in the sector Growing population and rising income of the people in the country will further increase
the consumption of sugar Sugar inventory in the country is expected to come down to 5.7 Million tonnes by FY 2013 and 5.1 Million tonnes by 2014 through domestic consumption and export Drop in production this year due to deficient rainfall has led to increase in sugar prices and will further lead to more inventory utilization Export ban was lifted by GOI in May 2012 and allowed 3 MT of exports Retail sugar prices has increased to 38-40 Rs per Kg recently Withdrawal or reduction in the LEVY QUOTA expected which is currently 10% of the total produce, i.e. to sell 10% of produced sugar at Rs 1905 per quintal currently which is about 40% below the factory cost Government of India to come up with new Ethanol pricing policy for which key suggestions have been submitted by Saumitra Chaudhuri committee
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7. Some important players
7.1 Shree Renuka Sugars Limited (SRSL)
SRSL is a transnational agribusiness and bioenergy corporation. The company is currently 5th largest sugar producer in the world, India's largest sugar refiner and ethanol producer based in Mumbai, Maharashtra. It is the only sugar company of India to have significant operations in the two most relevant locations in the world: the largest sugar exporter, Brazil, and the largest sugar consumer, India. Besides, its integrated, diversified and flexible business model makes it relatively more resilient to cyclical downsides. SRS is the only sugar/ethanol producer in the world with almost year-long cane crushing operations as it has operations in Brazil and India, which have complimentary cane crushing seasons. This allows it to maximize/plan inventory, benefit from price arbitrage between sugar/ethanol, raw/white sugar and play price arbitrage between Indias regulated sugar industry and liquid global markets. It exports almost 20% of Indias international sugar trade. The Company directly markets sugar to institutional buyers instead of selling to wholesale agents and dealers. SRSL sells premium refined sugar and is a sugar supplier of choice amongst companies that produce carbonated soft drinks, fruit juices, chocolates, baby foods and dairy products including Pepsi, Coca Cola and many others. Being a Non-UP based sugar mill, it does not have to bear the politically motivated price burden being imposed in a cane farming dominant state. Company is also dealing with cane processing, refining sugar and generating carbon credits under Kyoto protocol. Owing to its Brazilian acquisitions SRSL now stands to benefit from the ongoing recovery in the global sugar industry. The Global prices have risen from low of 19 cents/lbs in June12 first week due to delay in the beginning of crushing season in Brazil. The Company expects better season in terms of cane crushing and capacity utilization for the Brazilian mills supported by improved weather conditions in Brazil and to reap benefits of better yields resulting from the cane plantation programs under taken during the last season wherein it has planted around 25000 Ha of land. SHRS has a gross debt of Rs 100 Billion. SHRS debt had increased from Rs8.5bn in SY08 to Rs65bn in SY10 on account of Brazilian acquisition. Companys debt is believed to come down in the subsequent quarters due to the release of working capital, reduction of inventory leading to higher margins in India and increased cash flows from Brazil.
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Source: Shree Renuka Sugars (Company Website)
Stock Performance
Key Ratios
Shree Renuka vs Sensex ( Last 2 Years)
March' 12 Debt/Equity Core EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) PAT Margin (%) ROCE (%) ROE (%) Earnings Per Share (Rs) 2.43 10.72 7.33 1.96 1.22 10.52 4.73 1.25
Sep' 10 .97 10.64 10.72 9.35 6.84 21.26 27.23 6.12
Source: Ace Analyzer

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7.2 EID Parry (MURUGAPPA Group)
EID Parry (India) Ltd is one of the largest business groups in the country. The company is engaged in the manufacture and marketing of a wide-range of products that includes Sugar, Bio-Pesticides and Neutraceuticals. Company had set up India's first sugar plant at Nellikuppam in 1842. It was India's first private sector company to perform Research & Development. The sugar division contributes to over 65% of EID Parrys turnover, and around 20% of the sugar production in Tamil Nadu is from EID. E.I.D-Parry pioneered sugarcane research and probably runs the only private R&D centre for sugarcane and tissue culture to develop new and improved cane varieties. It has also been aggressively promoting Eco-friendly pest management systems. Parry's varieties have comparatively higher average sucrose yield as compared to other benchmark varieties. The R&D division is focuses on developing sugarcane varieties having high yields, better sucrose content and greater pest resistance. E.I.D has been retailing its branded Sugar in South India. Apart from branded retail sugar, the company is moving up the value chain to products like pharma grade sugar which improve the margins. On a standalone basis, EID, has five sugar plants spread across South India, of which, four are in Tamil Nadu, one in Puducherry, with sugarcane crushing capacity of 19,000 TCD, cogeneration capacity of 84.5 MW and distillery capacity of 135 KLPD, cumulatively. EID has two sugar business related subsidiaries: A) Sadashiva Sugars: 76% shareholding, Cane crushing capacity of 2,500 TCD and cogeneration capacity of 15.5 MW B) Parrys Sugars Industries: 65% shareholding, Cane crushing capacity of 11,000 TCD, cogeneration capacity of 46 MW and distillery capacity of 95 KLPD Along with Cargill, EID has set up a JV, Silkroad Sugar, wherein it has 50% stake. Silkroad Sugar is a port-based refinery with refining capacity of 2,000 TPD and cogeneration capacity of 35 MW. EID also holds 65% stake in Coromandel International, which is the largest complex fertilizer maker.
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Stock Performance
Key Ratios
Eid Parry vs Sensex (Last 2 Years)
March' 12 Debt/Equity Core EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) PAT Margin (%) ROCE (%) ROE (%) Earnings Per Share (Rs) .73 6.25 12.7 8.62 8.7 10.29 11.69 7.91
March' 11 .57 1.65 8.84 5.16 6.06 6.67 7.09 4.58
Source : Ace Analyzer

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Agriculture Sector
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1. Introduction
India constitutes one of the largest agrarian economies in the world ranking second worldwide in farm output. Agriculture and allied sectors accounts for 17% of the GDP and employs 50% of the total workforce. Despite a steady decline of its share in the GDP, agriculture is still the largest economic sector and a significant piece of the overall socioeconomic development of India. Agricultural products not only supply raw materials to agrarian-based industries but also account for about ten per cent of Indias export earnings. Higher productivity and prevention of food wastage is important even from the perspective of food security for the country. India has only 2.3% of the world's land area and has to ensure food security of its population, which is 17.5% of the world population. During the current Five Year plan, agriculture growth is estimated at 3.28 per cent against a target of 4 per cent. The approach paper to the Twelfth Five Year Plan emphasizes the need to redouble our efforts to ensure that 4.0 per cent average growth is achieved during the plan if not more.
1.1 Production
Normal monsoon in the year, 2010-11, had helped the country reach a significantly higher level of 244.78 million tonnes of food grains production post the severe drought conditions in 2009-2010. As per the second Advance estimates, production of food grains during 2011-12 is estimated at an all-time record level of 250.42 million tonnes which is a significant achievement mainly due to increase in the production of rice and wheat. Growth in the production of agricultural crops depends upon acreage and yield. Given the obvious limitations in expansion of agricultural land, long term growth primarily depends on improvement in yields.
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The country produced around 103 million tons of rice while consumption is expected to be around 95 million tons and Wheat production is estimated at 90 million tons and consumptions at 76 million tons for 2011-12. India is likely to export around 7.5 million tons of rice and 2 million tons of wheat for 2012-13. India's food grain production is expected to reach 270 million tonnes by 2016-17 with the increasing yields, leaving behind at least 10 million tons of exportable grains. Also, India can easily become self-sufficient in pulses production as the country produces around 17 million tons of pulses, while demand is 21 million tons. Around 3 million tons are imported to meet the demand. India faces serious problems in oilseed production. The country is one of the major importers of vegetable oil in the world. In India, area under oilseeds is around 100,000 hectare and area under oilseeds is expected to increase by 4 million hectares by 2016-17.
1.2 Exports
Indias trade policy on agricultural items is guided by the twin objectives of ensuring food security and building export markets for enhancing the income of farmers, depending on domestic availability. As per the International Trade Statistics 2011, published by the World Trade Organization (WTO), Indias agricultural exports amounted to US $ 23.2 billion with a 1.7 per cent share of world trade in agriculture in 2010. On the other hand, Indias agricultural imports amounted to US $ 17.5 billion with a 1.2 per cent share of world trade in agriculture in 2010. Latest Export Figures for Agriculture and allied products
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2. Government Policies
2.1 Price Policy Indian governments price policy for agricultural produce seeks to ensure remunerative prices to growers for their produce with a view to encouraging higher investment and production and safeguarding the interests of consumers by making available food supplies at reasonable prices. To achieve this end, the government announces minimum support prices (MSPs) for major agricultural commodities each season and organizes purchase operations through the Food Corporation of India, and cooperative and other agencies designated by state governments. The government decides on the MSPs for various agricultural commodities taking into account the recommendations of the Commission for Agricultural Costs and Prices (CACP), the views of state governments and central ministries as well as such other relevant factors which are considered important for fixation of MSP.
2.2 Duty Regime

Import Duty on Edible Oils Government of India has abolished import duty on crude edible oils to 0 and refined edible oils to 7.5% looking up to the growing demands of its increasing population and limited domestic production.
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Edible Oil: Import Duty structure w.e.f from March 2011
Source: The Solvent Extracters Association of India
VAT
There are differences in the percentage rates and rules from State to State under VAT for oilseeds, oil meals, oilcake and oils. There is an element of 4% VAT on edible oils / oilseeds plus octroi and other local taxes on edible oils imposed by the state governments, which accounts to nearly 6 to 7%. The VAT on Olive oils is also charged at the rate of 4% by the Indian States.
FDI
100% Foreign Direct Investment (FDI) is allowed in Indian vegetable oils and vanaspati industry through the automatic route. Moreover in the Food processing sector and the private oil refineries sector 100% FDI is allowed through the automatic route.
3. Issues and Challenges

The declining area under food grains: Speedy improvement in yield in order to increase production through adequate investment in research and development needed. Demand for protein rich items: The country has to step up efforts for increasing production of milk and other dairy products, egg, poultry, fish, meat, etc.
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Poor composition of public expenditures: Spending on agricultural subsidies is crowding out investments such as agricultural research & extension, as well as investments in rural infrastructure, & health and education of the rural people. Government interventions in labor, land, and credit markets: More rapid growth of the rural non-farm sector is constrained by government interventions in various factor markets. Storage capacity is a major problem facing the country. Adequate storage facility would help reduce post-harvest losses. Weak Framework for Sustainable Water Management and Irrigation.
4. Recent Government Initiatives

In Budget 2012-13, the Finance Minister Pranab Mukherjee made following key announcements in the Agriculture Sector: Plan Outlay for Department of Agriculture and Co-operation increased by 18 percent. Outlay for Rashtriya Krishi Vikas Yojana (RKVY) increased to 9,217 crore in 2012-13. Initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in increased production and productivity of paddy. Allocation for the scheme increased to 1,000 crore in 2012-13 from 400 crore in 2011-12. 300 crore to Vidarbha Intensified Irrigation Development Programme under RKVY. 2,242 crore project launched with World Bank assistance to improve productivity in the dairy sector. 500 crore provided to broaden scope of production of fish to coastal aquaculture. Target for agricultural credit raised by 1,00,000 crore to 5,75,000 crore in 2012-13. Interest subvention scheme for providing short term crop loans to farmers at 7 per cent interest per annum to be continued in 2012-13. Additional subvention of 3 per cent available for prompt paying farmers. Kisan Credit Card (KCC) Scheme to be modified to make KCC a smart card which could be used at ATMs. Remaining activities into a set of missions to address the needs of agricultural development in the 12th Five Year Plan.
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5. Some important players
5.1 Rallis India
Rallis India is one of Indias leading agrochemicals companies. It has more than 150 years of experience in servicing rural markets and a comprehensive portfolio of pesticides, herbicides, fungicides and plant nutrients for Indian farmers. Areas of business : The domestic formulation business caters to the crop protection and yield enhancement needs of the Indian farmers through a wide portfolio of products, including insecticides, fungicides, herbicides, plant-growth nutrients and seeds. The domestic institutional business caters to the bulk and technical requirements of institutional customers. The international business handles exports of pesticides to all parts of the world. The export basket includes technical-grade pesticides, branded formulations and contract-manufactured products.
Agricultural Businesses of Rallis India
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Growth Drivers and Future Outlook International sales to get a boost due to commencement of operations at the companys plant at Dahej catering mainly to Contract Research and Manufacturing Services (CRAMS). This would also reduce dependence of the company on domestic sales. Rallis has been consistently launching new products every year, maintaining a healthy rate of three launches per year. From FY06 to FY11, Rallis launched 19 products in all. In FY12, it has launched 13 products till date (9MFY12). Rallis has been continuously engaging with its customers via numerous programs such as Rallis Kisan Kutumb (farmer contact programme to understand farmer needs), More Pulses (increase yield and production of pulses), Rallis Poised (programme to drive sustained profitable growth) etc. The More Pulses (MoPu) initiative has caused yield to improve by up to 40% to 500 kg/acre from 300 kg/acre in Tamil Nadu which increased farmer income by 5,000 per acre. Increase in revenue contribution from recent acquisition (viz. Metahelix Lifesciences and Zero Waste Agro Organic) is a long-term growth driver. Rising world population and economic growth in developing nations have led to significantly higher global food demand.
Stock Performance
Key Ratios
Rallis India vs Sensex (Last 2 Years) Debt/Equity Core EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) PAT Margin (%) ROCE (%) ROE (%) Earnings Per Share (Rs)
March' 12 March' 11 .18 15.62 12.96 11.91 8.05 26.15 19.28 5.21 .18 16.1 16.51 15.99 10.99 36.94 27.26 64.9
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5.2 Ruchi Soya Industries Limited
Ruchi Soya is the flagship company of Ruchi Group of Industries. It features among one of the top FMCG players of India. It is also ranked among top 200 consumer products companies of the world. Two of the strongest brands of the group are Nutrela & Ruchi Gold. Areas of business : Edible Oils such as Nutrela Soyumm (Soya bean Oil), Ruchi Gold (Palmolein Oil), Sunrich (Sunflower Oil) and Mandap (Mustard Oil) Vanaspati and Bakery fats Food products such as textured soy protein, flour, fruit juice, and soya milk} Exports agricultural commodities including raw cotton. Highest exporter of soya meal and lecithin from India. Company also offers gram, wheat, rice, maize, shorgum, seeds, coffee, marine products, tuar, peas, barley, soap, fresh fruit bunch, seedling Plant & machinery (equipment) Subsidiary called Ruchi Industries Pte. Ltd. Singapore started in 2010 unit which engages in businesses including plantations and processing, dealing in agricommodity, acquisitions/investments in plantation companies, etc.
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Stock Performance
Key Ratios Ruchi Soya vs Sensex (Last 2 Years)
March' 12 Debt/Equity Core EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) PAT Margin (%) ROCE (%) ROE (%) Earnings Per Share (Rs) 2.23 2.75 3.08 .88 .47 12.62 5.64 3.67
March' 11 1.67 3.26 3.66 1.84 1.28 11.32 10.58 6.41
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Chemical Sector
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1. Introduction
Chemicals Industry is one of the oldest and most diversified industrial sectors. Its products can immensely help in accelerating the growth momentum by enhancing competitiveness and technological edge across various sectors. Majority of the chemicals produced in India go into a variety of manufacturing applications including fertilizers, pharmaceuticals, polymers, agrochemicals, paints and dyes. There are about 40,000 chemical manufacturing units located in the country out of which about 80 percent are in the small-scale sector. The sector provides employment to more than 3 million people. Basic Chemicals and Chemical products (excluding petrochemicals) constitute 10.1% of total manufacturing output in India (IIP Index weightage). Indian Chemical Industry (including petrochemicals) contributes about 7% to GDP of the country.
2. Global and Indian Scenario

The United Nations Industrial Development Organization (UNIDO) valued Indian Chemical Industry (in 2010) at $108.4 Billion which accounts for about 3% of global chemical industry (valued at $3.4 trillion). Indian Chemical Industry stands as 6th largest producer of chemicals in world and 3rd largest in Asia (Next only to China and Japan).Global chemical production growth slowed down from 4.4% p.a. in 1999-2004 to 3.6% p.a. in 2004-2009 whereas Indian chemicals production capacity witnessed a low growth rate of about 2% p.a. in past 10 years and owing to grim macro-economic factors like rupee depreciation, Indian Chemical Industry witnessed a sharp de-growth of over 15% in past one year (based on IIP Index). Global Revenue growth of Chemical Industry has been robust with a CAGR of about 8% (from $1.5 trillion in 2002 to $3.4 trillion in 2010), while the Indian industry far exceeds the global figure with a CAGR of about 16% in revenues of the chemical sector. Chemical Industry accounts for 11% of total national exports. In the chemical sector, 100% FDI is allowed and manufacture of most chemical products is de-licensed (except for Chemical Weapons). The Chemical industry accounts for around 2% of the total FDI during 2000-10 in India. India has a total installed chemicals production capacity of 10.35 Million Metric Tonnes and production efficiency is about 77.5%.
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3. Market constituents
Market Segmentation Chemical Industry
Indian Chemical Sector
Basic Chemicals (53%)
Specialty Chemicals(18%) Paints and Varnishes Dyes and Intermediat eries Polymer Additives
Knowledge Chemicals (29%) Pharmaceut icals Agrochemic als
Organic Petro Chemicals Basic Petro Chemicals polymer

Other organic Chemicals
Inorganic
Fertilizers Basic Inorganic Chemicals Chlor Alkali
Biotechnolo gy
Other
Chemical Industry can be segmented into three sub segments 1. Basic Chemical 2. Specialty Chemicals 3. Knowledge Chemicals
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The basic chemicals make up for nearly 53% of the subsector, followed by about 18% of specialty chemicals and the rest is Knowledge chemicals 3.1 Basic Chemicals Basic Chemicals also generally referred to as Commodity Chemicals is a high volume low margin market segment. Basic chemical segment includes Petrochemicals, other organic chemicals and Inorganic chemicals. Indian Basic Chemical Industry is valued at $57.45 Billion (in 2010). This segment includes organic and inorganic chemicals - chloralkalis, aromatics, thermoplastics, thermosets, and fertilizers. Raw material and energy costs form the largest cost components. Therefore there is a strong emphasis on reducing feedstock usage and costs, energy requirements and labor costs, through engineering process improvements. Volumes drive growth, as products are standard and there is very little product differentiation across manufacturers
This segment is characterized by high capital intensity and high entry barriers such as, stringent regulations on health, safety and environment because of the large volumes involved. R&D spends are limited and largely application oriented. Basic chemicals are used by other industries as raw material and converted to end-products. Hence their demand depends on the market dynamics of the end-use industries, which is often cyclical. Logistics play a key role in this industry since raw materials and finished products are voluminous and require special transport and material handling equipment. Manufacturing locations are therefore located either close to the raw material source or close to the consuming markets.
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3.2. Specialty Chemicals Specialty chemicals is generally described as a group of relatively high value, low volume chemicals known for their end use applications and catalyzing properties. In India, the industry is recording a rapid growth of approximate 15% y-o-y which includes fine chemicals, organic chemicals and pharmaceutical intermediates. The usage of specialty chemicals is found in multitude of industries like textiles, paints, inks, plastics, adhesives, flavors/fragrances and also in paper industry. Extensive applications are also found in construction, automotive, electronics and water treatments whereas Active Pharmaceutical Ingredients (API) constitutes the largest segment of the specialty chemical industry. The industry size is about US$15 Billion and this growth momentum is backed by cost efficiency and a large pool of engineers & scientists whose emphasis and expertise on R&D is leading to new discoveries Major drivers for specialty chemicals are favorable macroeconomic factors in India and growing export market with scope for import substitution. Moreover, there is a great potential of chemical demand in India as per capita chemical consumption is relatively low compared to global and Asian countries. In the past, markets like Western Europe, North America and Japan constituted a majority of global specialty chemicals but this status is expected to change in the near
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future. Emerging countries such as China and India are expected to grow at significantly higher rates than developed countries
3.3 Knowledge Chemicals Knowledge chemicals constituted a USD 420 billion industry, accounting for 28 per cent of the global chemical industry in 2002. The Knowledge chemicals segment consists of highly differentiated chemical and biological substances used to induce specific outcomes in humans, animals, plants and other life forms. The segment is characterized by a high degree of research, intellectual capital and skilled manpower. The segment comprises agrochemicals, pharmaceuticals and biotechnology sub-segments, with pharmaceuticals being the largest. However in the future, biotechnology is expected to be the most dominant segment as product applications are being developed to either substitute or to provide improved manufacturing processes for each of the chemical segments viz. Basic, Specialty as well as Knowledge. This segment relies extensively on R&D for new products. Most of the R&D is capital intensive and the scale of operations is important to provide the financial strength and access to global markets. Patents and the presence of appropriate regulations to protect intellectual capital is a key consideration for players wishing to enter new markets.
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4. Majorly Produced Chemicals in India
4.1 Soda Ash Soda Ash, also popularly known by the name Washing soda (chemical name sodium Carbonate) is one of the highest produced chemical in India. It has extensive uses in detergents and glass industry. Rising urbanization, increase in per capita income and increased levels of middle class prosperity has fueled the growth of the detergents and glass. Over the last 5 years (2007-12) demand for soda ash in India has grown at a CAGR of about 3% and is expected to grow at 3.5% for next 5 years.
Soda Ash (in 000' MT) 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Installed 2626 2651 2651 2952 2952 2952 Produced 2298.24 2078.06 2002.21 1989.04 2058.34 2298.75 Demand 2758
2626 2298 2758 2651
Soda Ash (in 000' Metric Tonnes)

Installed 2868 Produced 2954 2952 3013 Demand 2952 3089 2952 3197
2651
2868 2954 3013 3089 3197
2078
2002
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Source: CIER, ISI Emerging Markets

Major Manufacturers Tata Chemicals GHCL Nirma Saurashtra Chemicals Tuticorn Alkali Modified Solvay Process - 12% Dry Lime Process - 28% Different Process employed for Manufacturing Standard Solvay Process - 60% Used in Soaps and detergents Glass Chemical industry Sodium silicates Others
Sales - Market Share Others 26% Tata Chemicals 25%
User Segmentation Sodium Silicates 10%
Others 12% Soaps & Detergent s 40% Glass 24%
Saurashtr a 10%
Nirma 15%
GHCL 24%
Chemical Industry 14%
1989
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2058
2298

4.2 Caustic Soda There are 37 manufacturers of caustic soda, having aggregate installed capacity to the extent of 3.246 million tonnes. Today 95% plants are running on state of the art energy efficient membrane cell technology. The key raw material for the industry is salt and India has adequate volumes of this resource. The Caustic soda market witnessed a growth rate of 3.2% in last five years and is expected to grow around the same rate for next five years
Caustic Soda (in 000' MT) 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Installed Produced 2295 2561 2561 2647 2647 2647 1882 1914 2051 2050 2103 2178 Demand 2210 2276 2356 2450 2524 2587
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2295 1882 2210
Caustic Soda (in 000' Metric Tonnes)

Installed 2561 1914 2276 Produced 2647 2050 2450 Demand 2647 2103 2524 2647 2178 2587 2561 2051 2356

Major Manufacturers Gujarat Alkalies Grasim Industries DCM Shriram Consolidated Reliance Industries Punjab Alkalis Mercury Cell - 24% Diaphragm & Chemical - 2% Different Process employed for Manufacturing Membrane Cell - 74% Used in Paper / newsprint Textiles Soaps and detergents Water treatment Aluminum (Al) Pharmaceuticals
User Segmentation Water Treatm't 10% Dye Stuffs 5% Others 22% Pharma 4%
Al 9%
Paper / newsprint 21%
Textiles 19% Soaps & detergents 10%
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4.3 Liquid Chlorine In India chlorine is treated as a byproduct of caustic soda. Chlorine production has been growing in line with the growth of caustic soda manufacturing and has not been determined by the growth of the chlorine-based downstream industries. In contrast, globally, caustic-chlorine industry is driven by demand supply of chlorine. Caustic soda plants co-produce chlorine in the ratio of 1:0.89.
1682 1294 2087
1891
1891
2009-10 2010-11 2011-12
1891 1891 1891
1403 1440 1504
2469 2605 2735
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Major Manufacturers Gujarat Alkalies DCM Shriram Consolidated Punjab Alkalies Chemplast Sanmar Travancore Cochin Chem Used in Paper Chlorinated wax PVC Pesticides Pharmaceuticals Water Treatment
User Segmentation Paper 28% 43% 8% Chlorinated Wax PVC Pharma Water Treatm't Pesticides 5% 5% 4% 7% Others
1277
1387
1403
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1440
2008-09
1860
1387
2330
1891 1504
2007-08
1860
1277
2202
1860
2202
1860
2330
2469
2605
1682
1294
2087
2735
Soda Ash (in 000' MT) 2006-07
Installed Produced
Demand
Liquid Chlorine (in 000' Metric Tonnes)

Installed Produced Demand

4.4 Acetic Acid Acetic acid is one of the simplest carboxylic acids. It is an important chemical reagent and industrial chemical, mainly used in the production of cellulose acetate mainly for photographic film and polyvinyl acetate for wood glue, as well as synthetic fibers and fabrics. Global demand for acetic acid is around 6.5 Mn Metric Tonne per annum The Acetic acid market witnessed a growth rate of 3.1% in last five years and is expected to grow around 4.5% for next five years
Acetic Acid (in 000' MT) 2007-08 2008-09 2009-10 2010-11 2011-12 Installed 349.44 349.44 351 351 351 Produced 287.84 316.01 203.34 146.09 156.48 Demand 364 373 384 398 416 Major Manufacturers GNVF (30 % Market Share) Jubilant Organosys (25% market share) Industrial Organics Ashok Alco-chem Godavari Sugar Mills User Segments Chemicals Plastics Pharmaceuticals Dyes Insecticides
Source: CIER, ISI Emerging Markets 4.5 Carbon Black Carbon black is a form of amorphous carbon that has a high surface-area-to-volume ratio, although its surface-area-to-volume ratio is low compared to that of activated carbon. Carbon black is widely used as a model compound for diesel soot for diesel oxidation experiments. Over the last 5 years (2007-12) demand for Carbon Black in India has grown at a CAGR of about 6.0% and is expected to grow at 7.4% for the next five years.
Major Manufacturers Phillips Carbon Black (40% Market Share) Aditya Birla Nuvo (35% Market Share) Cabot India (10% market Share) Indian Rayon 2011-12 Continental Carbon 655 452.44 670 User Segments Tyres Rubber Paints Dyes Carbon Black (in 000' MT) 2007-08 2008-09 2009-10 2010-11 Installed 455 455 455 455 Produced 422.47 426.96 371.39 219.43 Demand 530 559 587 623

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4.6 Phenol Phenol is an organic aromatic compound and is derived from cumene, benzene and propylene derivatives. 95% of Phenol is produced by partial oxidation of cumene (isopropyl benzene) via the Hock rearrangement. It is an important industrial commodity as a precursor to many materials and useful compounds. Its major uses involve its conversion to plastics or related materials. The Acetic acid market witnessed a CAGR of 10.9% in last five years and is expected to grow around 7% for next five years
Phenol (in 000' MT) 2007-08 2008-09 2009-10 2010-11 2011-12 Installed 742 842 840 840 840 Produced 712.73 749.37 757.47 715.9 798.1 Demand 257.3 283.95 311.9 341.15 371.6 Major Manufacturers HOCL >15 SIG India Herdillia >10 Bengal Chemicals APL Life Science Neyveli Lignite Corp. User Segments Resins Nylon 6 Refining lube oils Speciality chemicals Pharmaceuticals
Source: CIER, ISI Emerging Markets 4.7 Formaldehyde Formaldehyde is an important methanol derivative which is used in numerous industrial applications. Formaldehyde is more complicated than many simple carbon compounds because it adopts different forms. It is an important precursor to many other chemical compounds, especially for polymers. Over the last 5 years (2007-12) demand for Formaldehyde India witnessed a CAGR of about 5.6% and is expected to grow at 5% CAGR for the next five years.
Major Manufacturers Kanoria Chemicals (20% Market Share) HOCL (20% Market Share) Atul Nuchem Kothari Phetochemicals User Segments Urea, fertilizers Melamine resins Speciality chemicals Precious metal recovery Textile fabrics Formaldehyde (in 000' MT) 2007-08 2008-09 2009-10 2010-11 2011-12 Installed 311.54 311.54 315 315 315 Produced 234.82 242.76 231.84 259.67 266.6 Demand 312.3 329.5 352.6 375.5 394.3

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4.8 Calcium Carbide Calcium Carbide (Chemical formula CaC2) has extensive industrial use in the production of acetylene and Calcium Cyanamide. Pure calcium carbide is a colorless solid. The common crystalline form at room temperature is a distorted rock-salt structure. Over the last 5 years (2007-12) demand for Calcium Carbide in India witnessed a CAGR of about 1.7% and is expected to grow at 4.6% for the next five years.
Acetic Acid (in 000' MT) 2007-08 2008-09 2009-10 2010-11 2011-12
Installed 142.35 142.35 145 145 145
Produced 91.95 97.41 66.55 22.02 44.7
Demand 91 91.9 93.3 95.1 99
Major Manufacturers DCM Shriram (15% Market Share) Elfotech Electro Chemicals Birla Corp Swan Industries
User Segments Acetylene Vinyl Acetate Monomer (VAM) Calcium Cyanamide Steel Making Carbide lamps
Source: CIER, ISI Emerging Markets 4.9 Dyes and Dye Stuffs Dyes are soluble substances which are used to pass color to the substance. Major end use industries are textiles and leather. There are 12 types of dyes, classified on the basis of the usage, however disperse, reactive and direct dyes are the most commonly used in India. Over the last 5 years (2007-12) demand for Indian Dye stuffs witnessed a CAGR of about 6.5% and is expected to grow at 5.5 % CAGR for the next five years.
Major Manufacturers Atul Products Sudarshan Chemicals Metrochem Inds Ciba Speciality Pidilite
Dye Variants Disperse dyes Azoacid & direct dyes Organic pigments Reactive dyes Sulphur dyes
Formaldehyde (in MT) 2007-08 2008-09 2009-10 2010-11 2011-12
Installed 52591 55000 54900 54900 54900
Produced 32552 43644 31999 42390 47330

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4.10 Paint Industry Indian paint Industry is valued at INR 222 Billion (in 2010-11) and the past 5 years paints sector grew by 9.2% per annum. In India per capita consumption of paints is very low at around 1.5Kg, as against 10-15 kg in developed markets and 4Kg in China indicating substantial potential for growth. Paints industry can be broadly classified into 2 segments Decorative and Industrial paints. Decorative paints accounted for 72% of the total Indian paint industry and is expected to grow at 15% per annum in the next decade. Decorative paints are widely used in building and construction industries for wall finishes, both interior and exterior. This segment is relatively price sensitive compared to industrial paints. Industrial paints are used for coating applications including automobiles, consumer durables, marine equipment and industrial components.
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Growth drivers Rise in disposable income and changing demographic profile Strong growth in end-user industry including automotive and home appliances Increasing demand for affordable housing schemes Rise in demand for repainting of real estate properties High consumer involvement due to extensive brand building Introduction of small sized sampler cans and other offers such as hassle free painting Paint companies targeting niche segments such as children in the metropolitan and urban areas
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5. Issues faced by Indian Chemical Industry
The spread of the chemical industries has been uneven across different parts of the country, giving rise to regional imbalances Absence of a strong manufacturing and R&D base also pose perpetuating threats to Indias strategic sectors and interests, which is a cause for rising concern. To meet the evolving consumer requirements and to compete globally, the industry would need to increase R & D spending substantially from existing 1-2% to at least 5-6 %. The industry has to gear up to face the challenges of product patent regime. India faces significant challenges in terms of feedstock availability and prices. Organic chemicals based on ethylene/ propylene, xylene, naphthalene and their derivatives are imported in large quantities due to non-availability of costcompetitive feedstock. Apart from large imports of methanol (about 80% of domestic demand in 2009), India also imports significant volumes of sulphur, urea, ammonia, phosphorous and potash, which are key raw materials for various downstream sectors. In addition, utility prices in India are higher than the global average. This translates into high end-product prices, exposure to commodity pricing volatility and continuous threat of dumping from low-cost producers. India is also deficient in three basic inorganic chemicals feedstocks, viz. sulfur, rock phosphate and potassium chloride. Govt. to Govt. agreements for long-term supply of basic minerals at competitive price could be initiated to improve feedstock availability.
6. Government Policies and Initiatives

Ministry of Chemicals & Fertilizers has set up a statutory department- Department of Chemicals and Petrochemicals (DCPC) - under it in 1991. DCPC is responsible for the policy, planning, development, and regulation of chemicals and petrochemicals industries. To promote investments in chemicals and petro chemicals sectors DCPC set up Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) which integrate the whole Chemical Industry chain thereby reduce transportation and feedstock costs. Also PCPIRS are set up near sea ports Department of Chemicals and Petrochemicals (DCPC) has a set up a task force group under the chairmanship of Shri Arun Maira, Member Planning Commission in 2010 to
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identify the bottlenecks faced by the chemical industry and make recommendations in addressing the issues. This group (was subsequently merged with already setup planning commission committee) has submitted a report based on which Draft National Chemical Policy-2012 was proposed. The policy proposes various measures by Government to enable rapid growth in chemicals sector. As part of Draft National Chemical Policy (NCP-2012), DCPC proposed the following 1. At present, there are multiple legislations in India governing the chemicals industry that fall under the purview of different Ministries as given below: Ministry Ministry of Environment & Forests Ministry of Labor Ministry of Road Transport & Highways Ministry of Commerce & Industry Ministry of Home Affairs Dept. of Chemicals & Petrochemicals Ministry of Rural Development Act Environment Protection Act, 1986 Factories Act, 1948 The Motor Vehicles Act, 1988 The Explosives Act, 1884 The Disaster Management Act, 2005 The CWC Act, 2000 Land Acquisition. Act, 1894
Chemical Draft Policy proposes to consolidate acts into an Integrated Chemical Legislation which will cover entire life cycle of chemicals and thereby simplifies regulatory structure and also strengthen regulations. 2. Establish chemical innovation fund & the National Chemical Innovation Council Establish an autonomous USD 100 million chemical innovation fund by securing 10% of the total inclusive national innovation fund set up by the National Innovation Council to encourage commercialization efforts for innovations generating inclusive growth. For which it is proposed to levy an Chemical Upgradation & Innovation Cess at the rate of 0.5% and may be collected by the Excise Authorities, and then subsequently transferred to the DCPC 3. Development of regional clusters and innovation centers in universities dedicated to chemical industry 4. Sign international collaboration agreements with other advanced countries like Germany and Singapore in this sector (which have world class chemical parks with strong R&D and integrated infrastructure of whole chemicals industry chain) to learn and develop capabilities in chemical product and process innovation. 5. Incentives for development of Green Products and Processes
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6. Setting up of a National Chemical Centre to provide an effective regulatory framework and adequate safeguards to ensure fair competition, and protection of industry as well as consumer interests 7. Setting up of Chemical Standard Development Organization (CSDO) for regulating standards and grading quality of chemical products 8. Encourage Consortium Cracker project so that every PCPIR will have a cracker which produces all the building blocks and thus integrate whole chemical industry at one place. 9. Create 100 million additional jobs through creation of National Investment and Manufacturing Zones (NIMZs) as mega investment regions, equipped with world class infrastructure. These zones will enjoy fast track clearances from the environment ministry and state pollution boards, special policy regimes, tax concessions and more favorable labor laws
Apart from these, few other issues that need to be addressed Government should expedite swift implementation of GST to lower transaction costs and avoid cascading of taxes. Currently, the basic customs duty on most chemical feedstock is 2.5%. Import duty on most of the chemical products is at 7.5% and the central excise duty rate is about 10%. Feedstock and basic building blocks for the downstream chemical products should be preferably at zero duty. This should be followed by slightly higher duty for primary chemicals, still higher for secondary chemicals and still higher for final products/chemicals, to provide an opportunity for value addition and also provide adequate competitive protection. Example, Naphtha which is a basic feedstock, should have zero duty, followed by slightly higher duty for primary products like Ethylene, Propylene, Butadiene etc. and still higher duty for secondary products like Polyethylene, Polypropylene etc.
Ministry of Chemicals and fertilizers estimates Indian chemical industry to grow between 11% p.a. and 15% to reach the turnover between $224 billion and $290 by 2017, given the provisions of National Chemical Policy are implemented.
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7. Some Important Players in Chemicals TATA CHEMICALS
Tata Chemicals Limited (TCL) is a global company with interests in chemicals, crop nutrition and consumer products and serves a diverse set of customers across five continents. Established in 1939 at Mithapur, the Company has a market capitalization of Rs.8084 Crores and fixed assets worth Rs.1810 crores. TCL is one of Indias leading producers of nitrogenous and phosphatic fertilizers in the private sector and markets a range of crop nutrition offerings under Tata Paras brand TATA CHEMICALS Production Levels (2011-12) , source : ISI Markets Chemicals Production Fertilizers Production (Capacity) in Metric (Capacity) Tonnes Soda Ash 696746 (917700) Urea 1117153 (742500) Clinker 385178 (825000) DAP 208464 (670000) Vacuum Salt 597077 (647500) Single Super 140496 (165000) Phosphate (SSP) Caustic Soda 10979 (36000) Sodium Tri Poly 10575 (50000) Phosphate Ammonia 636305 (445500) Sodium 78278 (100000) Bicarbonate Hydro Chloric Acid 18188 (64800) Phosphoric Acid 11388 (52700) Key Ratios Debt/Equity Core EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) PAT Margin (%) ROCE (%) ROE (%) Earnings Per Share (Rs) March' 12 0.67 12.91 11.96 9.38 7.20 12.11 12.02 23.03 March' 11 0.63 13.83 11.77 8.65 6.32 10.18 9.06 16.03
Source: Moneycontrol.com
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Manufacturing Plants Global Presence
Plant Mithapur, Gujarat Products Chemicals: Soda ash, chloro-caustic group, marine chemicals, cement Consumer products: Salt & cooking soda Chemicals: Sulphuric acid, phosphoric acid, sodium tripolyphosphate (STPP) Crop nutrition: Di-ammonium phosphate (DAP), NPK complexes, single super phosphate (SSP) Chemicals: Ammonia Fertilizers: Urea Capacity 875000 Tonnes Per Annum 1.2 Million Tonnes Per Annum
Haldia, West Bengal India Babrala, Uttar Pradesh, India
Ammonia 1520 Tonnes Per Day Urea 864000 Tonnes Per Annum 2.5 Million Tonnes Per Annum 1.3 Million Tonnes for Soda Ash
USA (Tata Chemicals North America) UK (Tata Chemicals Europe) Kenya (Tata Chemicals Magadi)
Green River Basin, Wyoming Northwich West (Winnington) and Northwich East (Lostock) sites Lake Magadi, Kenya
Chemicals: Soda Ash Chemicals: Soda ash, sodium bicarbonate, calcium chloride, associated alkaline chemicals
Chemicals: Soda ash, crushed refined soda, salt
350000 Tonnes per Annum
Salient Features Market Leader in Edible salt segment with a market share of 64% Global capacity of soda ash is around 5.5 Million Tonnes p.a., TCL is worlds second and Indias largest producer of soda ash Dual feedstock Babrala facility in urea production - most efficient in India Tata Chemicals has recently won the FICCI Water Awards 2012 in the category of Innovation and Community Initiatives. Recorded its all-time highest net earnings from core operations in 2011-12 Growth Factors: Recently expanded its salt capacity by 200,000TPA by expending 180 crores Finished debottlenecking SSP plant in Haldia to add 50,000 tonne per annum A new 50,000 tpa sodium bicarbonate plant in Europe, targeted at flue gas treatment applications Risks and Concerns: Uncertain economic and depreciating rupee is a matter of concern as it impacts import of raw materials and feedstock. Monsoon uncertainty poses a gloomy market for urea and fertilizers. In FY13Q1 TCL witnessed reduced production of di-ammonium phosphate (DAP), which is a key revenue generator, owing to an impasse over phosphoric acid price (is a key raw material for making phosphate-based fertilizers, especially DAP) and two months of Haldia plant shutdown.
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GUJARAT ALKALIS AND CHEMICALS LIMITED
GACL is the largest producer of Caustic Soda in India with present installed production capacity of 429000 MT of Caustic Soda (as on March 31, 2012) and enjoys the economies of scale. The company has about 18% share in the domestic ChlorAlkali market. GACL has always ensured upgrading and adapting eco-friendly and green technologies while it outpaced the industry average capacity utilization of 81.7% with its 89.76% capacity utilization. The Companys products basket comprises total 28. The Company derives around 53% of its revenues from Chlor-Alkali business and 47% of its revenues from the other value added products. Chlor-alkali is power intensive industry where power is the highest cost contributor. The company has devised a sustainable strategy to meet its growing energy demand. Besides 90 MW gas based captive power plant and participation in a 140 MW Joint Captive Co-generation Power Plant, the Company has taken major initiative for green energy by setting up wind farms for a total installed capacity of 94.25 MW. The Company is aiming to meet substantial part of its power requirements through alternative environment friendly sustainable renewable energy sources.
GACL Profits (in Crore Rs)
Net Fixed Assets 387.61 1599.48 1385.73 1415.47 1356.64 1221.04 153.61
344.33
382.41
Operating Profit
PAT
232.63 171.84
224.09
192.27
262.92 114.3
2007-08 2008-09 2009-10 2010-11 2011-12
2007-08 2008-09 2009-10 2010-11 2011-12
R & D Activities The company is involved in Research and Development activities with specific focus on specialty chemicals, cooling water treatment, process improvement, cost reduction, import substitutes, technical backup to Operations / Marketing / Purchase Departments and absorption of new technologies. The designing of 100 MT / month capacity Pilot Plant for Sodium Per carbonate is under progress which is based on the process development work and data generated at our R & D Centre.
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The cleaning formulations based on Sodium Hypochlorite & Hydrochloric Acid developed by the Companys R&D Centre have been successfully tested. Expansion & Upcoming Projects Hydrogen Peroxide Expansion Project - at Dahej to raise the capacity by 39080 TPA 10.5 MW Wind Farm Project - at Jamanwada, Kutch Dist. With the commissioning of this wind farm project, the total capacity of wind power generation has increased to 94.25 MW. Sodium Chlorate Project - for manufacturing 20000 TPA Sodium Chlorate at Dahej Other Projects - The Company is also considering for putting up Hydrazine Hydrate Project, Caustic Soda Project, Chloromethane Project and Polyols/PG Project over the next 3-4 years.
Key Ratios Debt/Equity Core EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) PAT Margin (%) ROCE (%) ROE (%)
Source: Moneycontrol.com
March' 12 0.21 20.65 13.01 11.91 8.19 12.79 9.95
March' 11 0.26 17.13 9.43 8.08 7.27 8.29 7.96 15.56
Earnings Per 20.92 Share (Rs) Source: AceEquity.com
Risks & Concerns Timely and successful completion of expansion projects Intense competition from domestic as well as international market Rise in raw material prices due to scarcity in the global market Increasing power & fuel cost which is major input for production Ability to sustain margins in a cyclical and price sensitive industry
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BERGER PAINTS INDIA LIMITED (BPIL)
Berger Paints is the second largest paints company in India. The Company's products consist of interior wall coatings, exterior wall coatings, and metal and wood paints. Berger paints has a global presence and has markets in Poland, Russia, Cyprus and Ukraine. The company has seven manufacturing facilities in India and more than 85 depots, several regional & area offices, besides four facilities overseas. It has a workforce of over 2500 employees and a countrywide distribution network of 16000 plus dealers. The company is looking to expand its distribution channel from the existing 12,000 dealers to 16,000 in the next four years. Aggressive marketing campaigns are being planned and new products are being launched.
Berger Paints Profits (in Crore Rs)
Market Capitalization ( in crore INR) 3693.45 3092.16 281.3
Operating Profit
PAT
212.97 148.31
2034.9 177.4 1147.94 1112.86
135.05 92.08
2007-08 2008-09 2009-10 2010-11 2011-12
127.42 88.76
176.33 120.14
2007-08 2008-09 2009-10 2010-11 2011-12
BPIL is also on a massive expansion mode and is expected to increase its capacity from current 24000 tonnes per month to 42000 Tonnes per month by the end of 2013. Berger Paints is considered one of the most expensive stock as its Price to Earnings is around 26.35 the second highest in paint industry. Over the past 5 years, the company has seen dynamic growth in both its revenues as well as earnings. On a consolidated basis, revenues grew at a compounded annual growth rate (CAGR) of 21% while net profits grew at a CAGR of 20%, the companys market capitalization grew at 34% CAGR.
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Berger Paints Vs Sensex (Past 1 year)
Key Ratios Debt/Equity Core EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) PAT Margin (%) ROCE (%) ROE (%) Earnings Per Share (Rs)
March' 12 0.2 9.57 9.33 8.56 6.11 29.36 22.69 5.13
March' 11 0.15 9.73 9.71 9.18 6.45 30.20 22.03 4.29
Expansion & Upcoming Projects Automated water based paint plant at Hindupur in Andhra Pradesh is in full swing. The first phase of the Project is expected to be completed by the middle of calendar 2013. The first phase of the plant will give BPIL 160,000 MT water based paint capacity. Once fully completed, the capacity of the plant will be 320,000 MT per annum for water based paints and 100,000 MT for the emulsions per annum. Work on expansion of the water based paint plant at Rishra (from 18000MT to 78000MT per annum) and at Goa (from 28,000 MT to 78,000 MT per annum) is expected to be completed by end of 2012.
Risk Factors: Costs of key raw materials like zylene and toluene (aromatic hydrocarbons commonly used as solvents in industrial paints) and Mineral Turpentine Oil - MTO (which accounts for 35% of solvent based decorative paints raw material cost) have been on rise which might force BPIL to raise prices of its paints. A slowdown in the economy is the biggest risk for the paints industry, as about 75% of demand for decorative paints arises from repainting, which, in turn, depends heavily on the countrys economic condition. Slowdown in real estate and industrial growth poses the biggest threat to volume growth. A rise in crude oil price could hurt the companys margin as crude derivatives account for 35-40% of Berger Paints input costs
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Fertilizer sector
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1. Introduction
Fertilizers have played an important role in making the country selfreliant in food grain production. The Indian Fertilizer Industry is today the third largest producer and consumer of fertilizers in the world. The GOI is continuously pursuing policies to increase production and consumption of fertilizers. The Indian fertilizer industry can be broadly divided into three categories depending on nutrient composition, namely, nitrogenous (N), phosphatic (P) and potassic (K) and Complex category.
Fertilizers
Nitrogen Based(N)
Phosphate based(P)
Potassium based(K)
Complex
Urea
Single Super Phosphate(SSP)
Muriate Of Potash(MOP)
Grades of Complex fertilizers, N:P:K
Calcium Ammonium Nitrate (CAN)
Di Ammonium Phosphate(DAP) Mono Ammonium Phosphate(MAP) Triple Super Phosphate
India has achieved near self-sufficiency in production capacity of urea and about 77% of consumption is met through domestic production. In case of phospatic fertilizers, nearly 50% of domestic requirement is met through imports. For potash (K) since there are no viable sources/reserves in the country, its entire requirement is met through imports. Fertilizer consumption has increased from 0.07 million MT in 195152 to more than 286 Lakh Metric Tonne (LMT) in 201011 and per hectare consumption, has increased from less than 1 Kg in 195152 to the level of 135 Kg. Indias fertilizer consumption has shown CAGR of 3.3%. Urea accounts for 50% of Indias fertilizer consumption followed
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by DAP - 20% and complex fertilizers - 15%. Indias focus on balance use of nutrients has led to higher growth rate of DAP, MOP, complex fertilizers. The overall demand growth for fertilizers industry has remained steady at around 5% over the period 2005-12, production has remained largely stagnant owing to lack of capacity creation due to various policy related hurdles and limited availability of raw materials to some extent. As a result, India's dependence on fertilizer imports has increased at a rapid pace, and currently imports constitutes around 27% of urea consumption and 68% of DAP consumption. Additionally, given that India is deficient in primary sources of fertilizer inputs (such as natural gas, rock phosphate, potash); it has sizeable import dependence for the intermediates like phosphoric acid and ammonia. Urea is the key fertilizer consumed within the nitrogenous fertilizers segment and accounts for around 50% of all fertilizers consumed in India. Phosphatic fertilizers are consumed in the form of complex fertilizers with varying levels of NP [that is, mixtures of Nitrogen and Phosphorous including Di Ammonium Phosphate or DAP], and NPK [that is, mixtures of Nitrogen, Phosphorous & Potassium]. Pottassic fertilizers mainly comprise Muriate of Potash (MOP), which is not manufactured in India and is entirely imported.
2. Nitrogenous Fertilizers Out of three main nutrients namely nitrogen, phosphate and potash, (N, P &K) required for various crops, indigenous raw materials are available mainly for nitrogenous fertilizers. The Governments policy has hence aimed at achieving self-sufficiency in the production of nitrogenous fertilizers based on utilization of indigenous feedstock. Prior to 1980, nitrogenous fertilizer plants were mainly based on naphtha as feedstock. A number of fuel oil/LSHS based ammonia-urea plants were also set up during 1978 to 1982. However, with natural gas becoming available from offshore Bombay High and South Basin, a number of gases based ammonia-urea plants have been set up since 1985. As the usage of gas increased and its available supply dwindled, a number of expansion projects came up in the last few years with dual feed facility using both naphtha and gas. Feasibility of making available Liquefied Natural Gas (LNG) to meet the demand of existing fertilizer plant and/or for their expansion projects along with the possibility for utilizing newly discovered gas reserves is also being explored by various fertilizer companies in India. Urea is the major fertilizer that is extensively consumed in nitrogenous fertilizer segment. The production of Urea has increased from 187.3 LMT in 2003 to 211 LMT in 2009-10. The capacity utilization has been over 100% due to revamping and modernization of existing plants. NFL, IFFCO are the largest producers of Urea in India.
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In 2011, GoI appointed a committee to suggest improvements in the old urea investment policy as the latter failed to encourage investments due to lack of transparent gas price pass through mechanism. While, an Empowered group of ministers (EGoM) approved the new urea investment policy in Feb 2012, the industry has been awaiting final approval by the Cabinet Committee on Economic Affairs (CCEA). The new investment policy provides for implicit pass through of gas prices up to US$14/mmbtu and designs floor and cap urea prices at each level of gas price to ensure minimum of 12% and maximum of 20% post tax RoE respectively. Due to requests by the industry to increase cut off gas prices beyond US$ 14/mmbtu, the finalization of the policy has been held up.
3. Phosphatic Fertilizers
Phosphatic fertilizers are of 2 types straight phosphatic and NP/NPK phosphatic. The usage of straight phosphatic fertilizers is not so popular in India. NP (Nitrogen, Phosphate based) or NPK (Nitrogen, Phosphate, Potash based) with high concentration of phosphate are general employed. Urea Ammonium Phosphate [N-P 24-24] and Di Ammonium Phosphate [N-P 18-46] are few examples of NP fertilizers. In case of phosphates, the paucity of domestic raw material has been a constraint in the attainment of self-sufficiency in the country. Indigenous rock phosphate supplies meet
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only 5-10% of the total requirement of P2O5. A policy has therefore been adopted which involves mix of three options, viz, domestic production based on indigenous/ imported rock phosphate, imported sulphur and ammonia; domestic production based on indigenous / imported intermediates, viz. ammonia and phosphoric acid; and third, import of finished fertilizers. During 2008-09 roughly 65% of the requirement of phosphatic fertilizers was met through the first two options. Di Ammonium Phosphate (DAP): India has an installed capacity of 73 LMT for production of DAP but original production levels has drastically reduced to the range of 15 LMT owing to high price rise of Phosphoric acid which is a key raw material in the production of DAP. The consumption levels have also come down drastically from over 72 LMT in 2010 to around 57 LMT in 2011. The major producers of DAP are IFFCO and Tata Chemicals.
4. Potassic Fertilizers
In the absence of commercially exploitable potash sources in the country, the entire demand of potassic fertilizers for direct application as well as for production of complex fertilizers is met through imports. The only fertilizer used is Muriate of Potash (MOP) and 52.86 LMT of MOP was imported in 2010 for both Industrial and agricultural use.
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5. Complex Fertilizers
Complex fertilizers are a mix of Nitrogen, Phosphorus and potash. The usage of complex fertilizers gives better fields as the amount of N,P,K contents are customized according to soil properties. There is growing demand for complex fertilizers in India. Around 78.2 LMT of complex fertilizers was consumed in 2010. The production levels are also in sync with the demand of this segment.
The demand for complex fertilizers has averaged at around 6% over FY 2008-10. The trend in production for complex fertilizers differs from that of DAP due to substitution between the two, depending upon subsidy and international price levels, as reflected in the varying consumption patterns. A positive development has been the opening up of imports of complex fertilizers with effect from 1 April 2010 and the move towards Nutrient Based Subsidy (NBS), which has encouraged the consumption of customized complex fertilizers. As a result of healthy demand growth and higher availability, the demand for complex fertilizers increased by 33% in 2011 over 2009-10. The resilience in demand growth in a period marked by an increase in complex fertilizer prices by around Rs. 1,000/tonne proves the underlying potential in the sector.
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Value chain in Fertilizer industry
6. Agrochemicals
India is the fourth largest producer of agrochemicals globally, after United States, Japan and China. The agrochemicals industry is a significant industry for the Indian economy. The total demand for agrochemicals in India stood at $ 1.51 Bn in FY11, of which 53% was exports. Imports to India are minimal and mainly limited to next-generation pesticides and patented molecules. The current domestic production of $ 0.71 Bn is expected to grow at 8% annually, driven by rising population, decreasing per capita availability of arable land and focus on increasing agricultural yield. In the same period, exports are also expected to grow at a rapid pace (15% annually), driving the total agrochemicals market size to almost $ 11 Bn by 2020.
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India's agrochemicals consumption is one of the lowest in the world with per hectare consumption of just 0.58 Kg compared to US (4.5 Kg/ha) and Japan (11 Kg/ha). The key reasons for low usage are low purchasing power of farmers, lack of awareness about crop protection benefits and poor reach and accessibility of crop protection chemicals. Annual crop losses due to pests are estimated at $ 17 Bn for FY09. Key Players in this segment are United Phosphorus Limited (UPL) and Rallis India have a market share of around 10% and 5% in Indian domestic market. UPL is aggressively investing and executing acquisitions of a total net worth of INR 10 billion. Several Multinational companies have entered into marketing tie ups with domestic players Dupont, Bayer and Syngenta have tied up with United Phosphorus while other big players like Sumitomo, Nissan, Nitsui and Chemitomo have alliance with Dhunuka Agritech Arysta Lifesciences, based in Tokyo, acquired majority stake in Devidayal Sales Ltd in March 2011 Sumitomo Chemicals and Willowood Chemicals also acquired stakes in domestic companies - New Chemi Industries and Sreeji Pesticide respectively
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Key Segments: Insecticides: Insecticides are used to ward off or kill insects and pests. Consumption of insecticides for cotton has come down to 50% from 63% of total volume after introduction of BT cotton. Major insecticides & Pesticides produced in India Production (in 2007 2008 2009 Metric Tonnes) Total Insecticides & 84701 83430 85340 Pesticides Mancozab 22875 27115 35338 Acephate 8333 10059 9652 Monocrotophos 4913 5118 4570 Cypermethrin 5064 4659 4034 Isoproturon 3150 2962 2979 Chlorpyriphos 4715 4539 3887 D.D.V.P. 3890 3292 2734 D.D.T. 4495 3441 3305 Phorate 5713 3229 2029 Glyphosate 2100 1517 2331 Aluminium 1526 1615 1722
2010 82190 31490 10830 5740 6230 2910 2900 3120 3610 2000 1700 2160
2011 81220 26050 12840 8600 4950 3900 3350 3130 3090 2630 2280 1800
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Fungicides: Fungicides are used to control disease attacks on crops. The growing horticulture market in India owing to the government support has given a boost to fungicide usage. The market share of fungicides has increased from 16% in 2004 to 20% in 2009 . Herbicides: Herbicides are the fastest growing segment of agrochemicals. Their main competition is cheap labor which is employed to manually pull out weeds. Sales are seasonal, owing to the fact that weeds flourish in damp, warm weather and die in cold spells. Bio-pesticides: Bio-pesticides are pesticides derived from natural substances like animals, plants, bacteria and certain minerals. Currently a small segment, bio-pesticides market is expected to grow in the future owing to government support and increasing awareness about use of non-toxic, environment friendly pesticides. Others: Plant growth regulators, Nematocides, Rodenticides, Fumigants etc. Rodenticides and plant growth regulators are the stars of this segment.
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Industry Structure: The domestic agrochemical industry is controlled by Government of India which mandates registrations for sales, consumption and trade of products The registration procedure is complicated and new entrants have to undergo cumbersome process Based on the level of processing, the domestic agrochemical sector comprises of technical grade pesticide manufacturers as well as formulators Technical grade manufacturers produce bulk quantities of high purity pesticides and are highly regulated There are around 125 technical grade manufacturers in the Indian organized agro chemical sector including around 10 multinationals Formulators essentially process technical grade pesticides with other agents/emulsifiers Lack of product patents till recently, encouraged the entry of unorganized formulators Trade Scenario: India is noted exporter of generic agrochemicals and overall exports were valued at INR 52 billion (173170 tonnes) in 2010-11 registering per year growth of around 16% in preceding 5 years.
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7. Factors effecting Fertilizer Prices:

Nutrient Based Subsidy: In the context of Nations food security, the declining response of agricultural productivity to increased fertilizer usage in the country and to ensure the balanced application of fertilizers, GoI has introduced the Nutrient Based Subsidy (NBS) Policy with effect from April 2010 for decontrolled P & K fertilizers. As per this policy, the fertilizers DAP, MOP, NPKS complexes, MAP, TSP, Ammonium Sulphate (AS) and Single Super Phosphate (SSP) are provided to the farmers at the subsidized rates based on the nutrients (N, P, K & S) contained in these fertilizers. Additional subsidy is also provided on the fertilizers fortified with secondary and micronutrients such as Boron and Zinc Subsidy Cut by GoI on de-controlled fertilizers: The Cabinet Committee on Economic Affairs (CCEA) has approved Fertilizer ministrys proposal to reduce the subsidy on de-regulated fertilizers. This decision was taken in lieu with the reduced prices of fertilizers globally. This reduces the subsidy rates by about 22%. The implications of this decision have multiple effects. On a positive note the reduced subsidy prices are in line with reduced raw material costs and hence the margins remain safer. On the other hand the inventory levels of Complex fertilizers are at all-time high, given the volatility of raw material prices, companies might end up making losses on inventory stock. With deficit monsoon, farmers might move towards cheaper alternatives like urea. DAP would be most affected as price of phosphoric acid is still uncertain and is highly volatile.
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Coromandel Fertilizers
Coromandel International (CRIN) was founded by IMC and Chevron at Visakhapatnam in 1961. Coromandel International is a subsidiary of both the Murugappa Group and EID Parry, which holds 62.82% of the equity in the company. CRIN is into business segments of Fertilizers, Speciality Nutrients, Crop Protection and retail. In 50 years of its existence, CRIN grew manifold and currently manufactures a wide range of fertilizers and markets around 2.9 million tons making it a leader in its addressable markets and the second largest phosphatic fertilizer player in India. The company has eight manufacturing units located in the states of Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Gujarat and Jammu and Kashmir. The Crop Protection business produces insecticides, fungicides and herbicides and markets these products in India and across the globe. Coromandel is the second largest manufacturer of Malathion and only the second manufacturer of Phenthoate. Coromandel has also ventured into the retail business setting up more than 640 rural retail centers in the agro segment called Mana Gromor out of which about 200 centers have lifestyle segment called Mitra in the States of Andhra Pradesh and Karnataka.
Coromandel International Profits (in Crore Rs)
Coromandel International Profits (in Crore Rs)
Operating Profit
PAT
Net Block
Long Term Debt
807.1
824.09 496.38
728.59 468.2
1018.61 694.46
512.27
436.29 209.76
465.6
2007-08 2008-09 2009-10 2010-11 2011-12
2007-08 2008-09 2009-10 2010-11 2011-12
297.05
387.69
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807.1 733.64
1202.73 693.27
804.04
793.7
764.04

Key Ratios Debt/Equity Core EBITDA Margin(%) EBIT Margin(%) Pre Tax Margin(%) PAT Margin (%) ROCE (%) ROE (%) Earnings Per Share (Rs)
Source : Money Control
March' 12 1.04 10.71 10.96 9.79 7.00 26.98 32.43 24.53
March' 11 0.72 13.73 13.96 12.84 9.02 32.44 41.60 24.64
Source: Ace Equity
Key Concerns: Sharp increase in long term and short term debt levels of the company Deficit monsoon might push farmers to choose cheaper fertilizers Inventory of CRIN is at all-time high, the reduced subsidy by GoI might prove disastrous if demand for complex fertilizers may not be same as estimated Volatility in raw material supply and prices Rupee depreciation and volatile foreign exchange
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Chemicals, Fertilizers, Agriculture &amp; Sugar

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