sukhjit starch & chemicals ltd isin.… · the sukhjit starch & chemicals limited develops,...

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SUKHJIT STARCH & CHEMICALS LTDResult Update (PARENT BASIS): Q3 FY18

CMP: 513.00 APR 23rd, 2018

Overweight ISIN:INE450E01011

Index DetailsSYNOPSIS

The Sukhjit Starch & Chemicals Limited develops,manufactures, and distributes starch and itsderivatives in India. It operates through foursegments: Starch & Its Derivatives, ReadymadeGarments, Leasing & Hire Purchase Financing, andManufacturing of Heavy Machinery.

During Q3 FY18, the company’s net profit jumps toRs. 84.00 mn as compared to Rs. 40.50 mn in Q3FY17, an increase of 107.41%.

Revenue for the 3rd quarter stood at Rs. 1911.90 mnfrom Rs. 1791.80 mn, when compared with the prioryear period, up by 6.70%.

During the quarter, EBIDTA stood at Rs. 199.70 mnas against Rs. 118.30 mn in the correspondingperiod of the previous year, higher by 68.81%.

PBT stood at Rs. 117.00 mn in Q3 FY18 as againstRs. 56.50 mn in the corresponding quarter of theprevious year, grew by 107.08%.

EPS of the company stood at Rs. 11.38 in Q3 FY18against Rs. 5.49 in the corresponding quarter of theprevious year.

The company has initiated effective steps for Settingup of 600 TPD Maize Processing Unit in the Stateof Punjab entailing a Capex of Rs. 152 Crores. Theunit is likely to go full stream in the second half of2019.

Nine months ended on 31st Dec 2017, Net sales ofthe company were Rs. 5238.30 mn as compared toRs. 5000.90 mn in corresponding nine months of theprevious year, higher by 4.75%.

PAT of the company has increased by 16.76% toRs. 167.20 mn in 9M FY18 from Rs. 143.20 mn incorresponding period of the previous year.

Net Sales of the company is expected to grow at aCAGR of 10% over 2016 to 2019E.

Stock DataSector Other Agricultural ProductsBSE Code 524542Face Value 10.0052wk. High / Low (Rs.) 577.50/281.25Volume (2wk. Avg.) 2259Market Cap (Rs. In mn.) 3785.94

Annual Estimated Results(A*: Actual / E*: Estimated)Years (Rs. In mn) FY17A FY18E FY19ENet Sales 6546.90 7111.96 7965.40EBITDA 529.10 641.99 716.12Net Profit 186.20 230.48 256.24EPS 25.23 31.23 34.72P/E 20.33 16.43 14.77

Shareholding Pattern (%)

As on Mar 2018 As on Dec 2017

Promoter 61.69 61.50

Public 38.31 38.50

Others -- --

1 Year Comparative Graph

SUKHJIT STARCH & CHEMICALS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. In mn. (Rs.) Ratio Ratio (%)Sukhjit Starch & Chemicals Ltd 513.00 3785.94 28.48 18.01 1.62 50.00Balaji Amines Ltd 675.90 21899.80 30.21 22.37 5.94 110.00Vishnu Chemicals Ltd 304.10 3632.80 4.54 66.54 2.90 0.00Deepak Nitrite Ltd 250.00 34098.30 6.15 40.65 4.64 60.00


QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q3 FY18,

(Rs. In million) Dec-17 Dec-16 % Change

Revenue 1911.90 1791.80 6.70%

Net Profit 84.00 40.50 107.41%

EPS 11.38 5.49 107.41%

EBIDTA 199.70 118.30 68.81%

Sukhjit Starch & Chemicals Ltd has achieved a turnover of Rs. 1911.90 million for the 3rd quarter of the FY 2017-18 as

compared to Rs. 1791.80 million in the corresponding quarter of the previous year, an increase of 6.70%. During the 3rd

quarter, net profit increased by 107.41% to Rs. 84.00 million from Rs. 40.50 million in the corresponding quarter ending

of previous year. Reported earnings per share of the company stood at Rs. 11.38 in Q3 FY18 as against Rs. 5.49 in the

corresponding quarter of the previous year. Profit before interest, depreciation and tax stood at Rs. 199.70 million as

against Rs. 118.30 million in the corresponding period of the previous year, up by 68.81%.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q3 FY18 Q3 FY17 %Change

Cost of MaterialConsumed 1262.70 1188.30 6%

Employee BenefitsExpense 106.30 96.60 10%

Depreciation &Amortization Expense 30.00 30.00 0%

ManufacturingExpenses 236.60 194.90 21%

Excise Duty 0.00 78.30 --

Others 89.00 52.90 68%

Cost of MaterialConsumed 1262.70 1188.30 6%


Expansion

The company has initiated effective steps for Setting up of 600 TPD Maize Processing Unit in the State of Punjab

entailing a Capex of Rs. 152 Crores. The unit is likely to go full stream in the second half of 2019.

COMPANY PROFI1LE

The Sukhjit Starch & Chemicals Limited was founded in 1943 and is headquartered in Phagwara, India.

The Sukhjit Starch & Chemicals Limited develops, manufactures, and distributes starch and its derivatives in India. It

operates through four segments: Starch & Its Derivatives, Readymade Garments, Leasing & Hire Purchase Financing, and

Manufacturing of Heavy Machinery. The company offers maize starch, liquid glucose, high maltose syrup, monohydrate

dextrose, sorbitol, malto dextrin, oxidized starch, cationic starch, thin boiling starch, pre-gelatinized starch, yellow

dextrin, white dextrin, maize gluten, maize germ, maize oil, maize germ cake, corn steep liquor, and maize coarse bran for

use in various industries, such as food and drink, paper and board, personal care and pharma, and animal feed and pet

foods.


FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2016 -2019EFY16A FY17A FY18E FY19E

SOURCES OF FUNDS

Shareholder’s FundsShare Capital 73.80 73.80 73.80 73.80

Reserves and Surplus 2123.30 2265.20 2495.68 2751.93

1. Sub Total - Net worth 2197.10 2339.00 2569.48 2825.73

Non Current Liabilities

Long term borrowing 558.50 609.00 712.53 769.53

Deferred Tax Liabilities [Net] 230.00 247.50 260.37 275.99

Long Term Provisions 0.00 0.00 0.00 0.00

2. Sub Total - Non Current Liabilities 788.50 856.50 972.90 1045.52

Current LiabilitiesShort term borrowings 711.50 572.70 1557.74 1448.70

Trade Payables 328.90 314.00 364.24 418.88

Other Current Liabilities 71.10 74.40 105.65 133.12

Short Term Provisions 0.00 44.40 51.76 59.52

3. Sub Total - Current Liabilities 1111.50 1005.50 2079.39 2060.22

Total Liabilities (1+2+3) 4097.10 4201.00 5621.78 5931.47

APPLICATION OF FUNDS

Non-Current Assets

a) Fixed Assets 2307.80 2356.40 2566.71 2759.21

b) Non Current Investments 21.50 24.10 26.03 28.63

c) Long Term loans and advances 67.70 66.20 191.98 218.86

d) Other Non Current assets 38.60 68.60 78.20 92.28

1. Sub Total - Non Current Assets 2435.60 2515.30 2862.92 3098.98

Current Assets

Current Investments 182.80 292.80 228.38 246.65

Inventories 566.50 542.60 1682.06 1685.03

Trade receivables 573.50 599.10 623.06 657.33

Cash and Bank Balances 175.70 72.70 90.15 102.77

Short-terms loans & advances 137.60 161.00 125.58 130.60

Other Current Assets 25.40 17.50 9.63 10.11

2. Sub Total - Current Assets 1661.50 1685.70 2758.86 2832.50

Total Assets (1+2) 4097.10 4201.00 5621.78 5931.47


Annual Profit & Loss Statement for the period of 2016 to 2019E

Value(Rs.in.mn) FY16A FY17A FY18E FY19E

Description 12m 12m 12m 12mNet Sales 5684.30 6546.90 7111.96 7965.40

Other Income 0.00 7.10 34.27 39.06

Total Income 5684.30 6554.00 7146.23 8004.46

Expenditure -5053.60 -6024.90 -6504.24 -7288.34

Operating Profit 630.70 529.10 641.99 716.12

Interest -152.80 -133.70 -192.04 -217.00

Gross profit 477.90 395.40 449.95 499.12

Depreciation -121.10 -117.70 -120.90 -129.36

Profit Before Tax 356.80 277.70 329.05 369.76

Tax -126.30 -91.50 -98.57 -113.52

Net Profit 230.50 186.20 230.48 256.24

Equity capital 73.80 73.80 73.80 73.80

Reserves 2123.30 2265.20 2495.68 2751.93

Face value 10.00 10.00 10.00 10.00

EPS 31.23 25.23 31.23 34.72

Quarterly Profit & Loss Statement for the period of 30th Jun, 2017 to 31st Mar, 2018E

Value(Rs.in.mn) 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18E

Description 3m 3m 3m 3mNet sales 1708.60 1617.80 1911.90 1873.66Other income 5.10 22.40 3.30 3.47

Total Income 1713.70 1640.20 1915.20 1877.13

Expenditure -1593.20 -1498.00 -1715.50 -1697.54

Operating profit 120.50 142.20 199.70 179.59Interest -30.30 -53.70 -52.70 -55.34

Gross profit 90.20 88.50 147.00 124.25

Depreciation -30.00 -30.00 -30.00 -30.90

Profit Before Tax 60.20 58.50 117.00 93.35

Tax -18.00 -17.50 -33.00 -30.07

Net Profit 42.20 41.00 84.00 63.28Equity capital 73.80 73.80 73.80 73.80

Face value 10.00 10.00 10.00 10.00

EPS 5.72 5.56 11.38 8.58


Ratio Analysis

Particulars FY16A FY17A FY18E FY19E

EPS (Rs.) 31.23 25.23 31.23 34.72

EBITDA Margin (%) 11.10% 8.08% 9.03% 8.99%

PBT Margin (%) 6.28% 4.24% 4.63% 4.64%

PAT Margin (%) 4.06% 2.84% 3.24% 3.22%

P/E Ratio (x) 16.42 20.33 16.43 14.77

ROE (%) 10.49% 7.96% 8.97% 9.07%

ROCE (%) 14.70% 11.69% 10.77% 11.63%

Debt Equity Ratio 0.58 0.51 0.88 0.79

EV/EBITDA (x) 7.45 8.70 8.94 7.90

Book Value (Rs.) 297.71 316.94 348.17 382.89

P/BV 1.72 1.62 1.47 1.34

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 513.00, the stock P/E ratio is at 16.43 x FY18E and 14.77 x FY19E respectively.

Earning per share (EPS) of the company for the earnings for FY18E and FY19E is seen at Rs. 31.23 and Rs. 34.72

respectively.

Net Sales of the company is expected to grow at a CAGR of 10% over 2016 to 2019E.

On the basis of EV/EBITDA, the stock trades at 8.94 x for FY18E and 7.90 x for FY19E.

Price to Book Value of the stock is expected to be at 1.47 x and 1.34 x for FY18E and FY19E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

The Global industrial starch market, by volume, is projected to reach 113.9 MMT by 2022, at a CAGR of 3.80% from

2016. In terms of value, the Industry is projected to reach USD 106.64 Billion by 2022, at a CAGR of 6.64% from 2016.

Growth in demand for convenience foods, and multiple functionalities of starch, starch derivatives & sweeteners in a

diverse range of end-user industries are the factors driving this market. ''Asia-Pacific Leading at the Regional Front,

driven by India'' While the industrial starches market is segmented by region into North America, Europe, Asia-Pacific,

South America and Africa. Asia-Pacific has the major market share driven by India, the dominant position is due to the

increasing consumption of starch, its derivatives, and sweeteners. Moreover, due to fewer raw materials & production

costs, as well as less rigid environment regulations, Asia-Pacific is in a better position to produce starch at more

competitive prices than developed countries of Europe and North America.

Corn Leading the Starch Market in India

After cellulose, starch is the most abundant carbohydrate in nature. It is present in seeds, roots and tubers of higher plants

for energy storage. Starch can be extracted from a wide variety of agricultural products. These include - corn, cassava,

wheat and potato and in a lesser amount from rice, barley, sorghum, sago, etc. Corn currently represents the most popular

feedstock accounting for around 80% of the total global starch production due to following main reasons :

High starch content

Thickening

Adhesion

Additionally, Corn starch is obtained from the endosperm of the corn kernel. It is used in food, corrugation & paper

making, textiles, etc. Its other applications in pharmaceuticals, cosmetics, etc. collectively accounted as the fastest-

growing segments of the industrial starch market.


India - Corn Starch

Corn Starch production in India is very fragmented as there are a large number variety of producers or manufacturers with

different production capacities. Despite India having abundant supply of maize as well as the other raw materials used in

the processing or production of corn starch, the same remains untapped due to legal restrictions relating to the use of

modified starches in the country. As such, raw materials needed for the growth of the industry is not the issue that has to

be tackled. The annual maize or corn production in India is around 25 million tonne. The main percentage of maize

produced is used in its unprocessed form and only a small portion goes into use for corn starch production.

The main process which is used in the corn starch processing is corn wet milling. In spite of the fact that small percentage

of corn is used for corn starch production, the starch processing industry is one of the top 5 processing industries in the

country. It is one of the few industries that have a development period of more than 15 years behind it. The growth of

corn starch processing industry can be gauged from the very fact that about 40% of all the manufacturing companies

involved in starch processing are new entrants to the field.

Maize Starch Applications in India

FMCG:

The fast moving consumer goods (FMCG) segment is the fourth largest sector in the Indian economy. The market size of

FMCG in India is estimated to grow from US$ 30 billion in 2011 to US$ 74 billion in 2018 Food products is the leading

segment, accounting for 43 per cent of the overall market. Personal care (22per cent) and fabric care (12 per cent) come

next in terms of market share.

India's market for fast moving consumer goods (FMCG) is expected to more than double to $104 billion by 2020 from the

present level of $49 billion, as per Assocham-TechSci research report 2016.

Paper Industry:

Despite the continued focus on digitisation, India's demand for paper is expected to rise over 50 percent in the next six

years, primarily due to a sustained increase in the number of school-going children in rural areas. Growing consumerism,

modern retailing, rising literacy and the increasing use of documentation will keep demand for writing and printing paper

buoyant. Though India's per capita consumption is quite low compared to global peers, things are looking up and demand

is set to rise from the current 13 MMT to an estimated 20 MMT by 2020. This indicates there is a lot of headroom for

growth in India. In the last five years, the Indian paper sector has invested about Rs. 20,000 crore on capacity

enhancement, technology upgradation and acquisitions. The sector is eager to expand capacity further.

Textile Industry:

The Indian textiles industry, currently estimated at around US$ 108 billion, is expected to reach US$ 223 billion by 2021.

The Indian Textile Industry contributes approximately 5 per cent to India's Gross Domestic Product (GDP), and 14 per

cent to overall Index of Industrial Production (IIP).


Current opportunity

Company firmly believe that the buying decision has been influenced by superior product quality. Company is confident

that the products are better in quality and in prices. Company vision is to establish Sukhjit as a company known for its

values, assertiveness and the acumen to adapt to an ever-changing environment company felt that in a transforming India,

a new consumer was emerging. A consumer willing to upgrade. Even an industry procurement head needing to be proud

about what input is being used in his product. From a complete focus on manufacturing and native starch products, the

company graduated to value added products recently. These products are marked by product innovation and differentiated

pricing.

Company is working on long-term strategy to build capacities for high margin value added products while at the same

time making short- term interventions

The company strengthened its portfolio by shedding businesses that did not meet the long-term financial objectives.

Company is changing the product mix and will focus more on higher-margin value added products

The company broadened its regional footprint. Company is entering emerging regional geographies And, its aggressively

managed the company costs and capital.

This work allowed us to maintain the balanced approach to capital allocation, which is to invest about 75 percent of the

company annual cash flow in value-creating growth projects while deploying around 25 percent either for strategic M&A

or for returning to shareholders in the form of dividends.

OPPORTUNITIES

The Company is strategizing itself to move towards a new niche portfolio of components that will not only drive the

company profitability but also support its plan for sustained growth in medium to long term. With immense support from

the Government and foreign investments FY 2017-18 is expected to be driven by strong domestic demand from FMCG,

FOOD AND PAPER SECTORS: The company over the years has strategize itself to serve these industries through

competitive edge with impacting its profitability. The ''Make in India'' initiative of the Government coupled with the

interest rate reduction cycle is expected to bring an economic revival and increase spending on infrastructure and related

sectors. This will create a huge opportunity for the industrial as well as consumer products. The Government's Make in

India initiative is aimed at reviving the manufacturing sector and increasing its percentage of GDP from 15% to 25%.


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The information and opinions in Firstcall Research was prepared by our analysts and it does not constitute an offer orsolicitation for the purchase or sale of any financial instrument including any companies scrips or this is not an officialconfirmation of any transaction. The information contained herein is from publicly available secondary sources and dataor other secondary sources believed to be reliable but we do not represent that it is accurate or complete and it should notbe relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damagethat may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/or its affiliates and/or employees will not be liable for the recipients’ investment decision based on this document.

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The following analysts hereby state that their views about the companies and sectors are on best effort basis to the best oftheir knowledge. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Theanalyst qualifications, sectors covered and their exposure if any are tabulated hereunder:

Name of the Analyst Qualifications SectorsCovered

Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

Dr.C.V.S.L. Kameswari M.Sc, PGDCA,M.B.A,Ph.D (Finance)

Pharma &Diversified

No Interest/ Exposure

U. Janaki Rao M.B.A CapitalGoods


B. Anil Kumar M.B.A Auto, IT &FMCG


M. Vijay M.B.A Diversified No Interest/ ExposureV. Harini Priya M.B.A Diversified No Interest/ ExposureMD. Naveed M.B.A Diversified No Interest/ ExposureA. Bhikshapathi M.B.A Diversified No Interest/ Exposure

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sukhjit starch & chemicals ltd isin.… · the sukhjit starch & chemicals limited develops,...

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