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January 8, 2018Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) Page 1 of 41
Gujarat Ambuja Exports Ltd
Initiating Coverage
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497)
An A’maize’ing story unfolds
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 2 of 41
Table of Contents
Structural growth levers in place - Initiate with LONG .......................................... 7
Well-diversified business model with an expanding core .................................... 7
Maize processing: Earning its corn! ................................................................. 8
Expansion of the pie: Growth drivers for starch and starch derivatives ................... 8
Competitive landscape – Lifting the maize cup! ............................................ 10
New capacity to be a booster shot for revenues – expect 17% CAGR (FY17-20E) ........ 13
Focus on VAP, higher utilization to drive margins .......................................... 13
Agro processing: Increase in import duties to help ............................................ 15
Strong demand drivers for refined oil and de-oiled cakes ................................. 16
Better utilization rates to drive 16% revenue CAGR over FY17-FY20E ................... 16
EBITDA margins to get steady .................................................................. 18
Cotton yarn: Non-core legacy business .......................................................... 18
Estimated segment revenue CAGR of 8% over FY17-FY20E ................................ 18
After recent upgrading of machinery, focus is on profitability ........................... 19
Financials ............................................................................................ 19
Revenue CAGR estimated at 17% over FY17-FY20E ......................................... 19
Expect 23% EBITDA CAGR over FY17-FY20E with 140bps margin expansion ............. 20
Cash generated mostly ploughed back into maize segment due to better return profile
..................................................................................................... 22
Valuation and risks .................................................................................. 24
Corporate governance .............................................................................. 28
Annexure 1: Maize industry overview ............................................................ 28
Annexure 2: Oilseed industry overview .......................................................... 31
Annexure 3: Company overview .................................................................. 33
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) Page 3 of 41
Before reading this report, you must refer to the disclaimer on the last page.
Gujarat Ambuja Exports Ltd. Absolute: Long
Relative: Outperform
Initiating note Spot Coverage 26% ATR in 15 months
An A’maize’ing story unfolds – Initiate with LONG Agricultural Products
© 2017 Equirus All rights reserved.
Rating Information
Price (Rs) 234
Target Price (Rs) 310
Target Date 31st Mar'19
Target Set On 8th Jan'18
Implied yrs of growth (DCF) 10
Fair Value (DCF) 318
Fair Value (DDM) 43
Ind Benchmark SPBSMIP
Model Portfolio Position NA
Stock Information
Market Cap (Rs Mn) 26,832
Free Float (%) 34.06 %
52 Wk H/L (Rs) 237.6/88
Avg Daily Volume (1yr) 1,85,319
Avg Daily Value (Rs Mn) 25
Equity Cap (Rs Mn) 229
Face Value (Rs) 2
Bloomberg Code GAEX IN
Ownership Recent 3M 12M
Promoters 65.9 % -0.2 % -6.0 %
DII 0.1 % 0.0 % 0.0 %
FII 0.4 % -0.4 % 0.1 %
Public 33.5 % 0.6 % 6.0 %
Price % 1M 3M 12M
Absolute 21.3 % 40.4 % 156.7 %
Vs Industry 14.3 % 25.2 % 108.6 %
Sukhjit Starch 15.5 % 29.6 % 63.2 %
Gulshan Polyols 14.8 % 9.6 % 24.4 %
Consolidated Quarterly EPS forecast
Rs/Share 1Q 2Q 3Q 4Q
EPS (17A) 4.3 2.6 4.0 2.9
EPS (18E) 1.5 1.8 3.9 5.1
Gujarat Ambuja Exports Limited (GAEX) is one of India’s leading manufacturers of agro-
processed products and cotton yarn. Over the last decade, GAEX has increased focus on
maize processing given its better and consistent returns. Maize segment’s revenues
have grown 10 times, from just Rs 1.23bn in FY07 to Rs 13.05bn in FY17 (28% CAGR), led
by debt-free capacity addition and market share gains. With the new maize processing
plant set to commission soon, GAEX will become India’s largest maize processor and will
be all set to ride the next wave of growth. Also, its legacy solvent extraction business
should see consistent growth post duty hikes on imported oils. We expect 17%/20%
revenue/EPS CAGR over FY17-FY20E. Initiate coverage with LONG and a SOTP-based
Mar’19 TP of Rs 310.
Earning its corn! Capacity addition, value addition to drive growth, profits: Due to
its better and consistent returns, maize processing has over a period become GAEX’s
focus area. Most cash flows generated over the last decade have been ploughed back
into this business. Segment revenue/EBITDA contribution has increased from 9%/25%
in FY07 to 39%/67% in FY17. With its new plant (1000 MTPD) coming on stream in
4QFY18, GAEX shall become the largest maize processor in India with an installed
capacity of 3,000 MTPD and a market share of ~22%. We expect the company’s maize
processing revenue/EBITDA to grow at 17%/24% CAGR over FY17-FY20E.
Slip resistant – Scope to treble oil revenues without capacity addition: Indian
oilseed crushing companies have been struggling with lower utilization levels due to
lack of price parity between raw materials and finished product prices. Recently, the
government increased import duty on soybean oil to 30% (from 18%), which should
give a level-playing field to Indian farmers; domestic production may begin to
improve, in turn helping Indian oilseed crushing companies. With 25-30% utilization at
present, GAEX can potentially increase its oil revenues 3-4 times from current levels
without setting up any new capacity.
Initiate with LONG, Mar’19 TP Rs 310: GAEX’s performance in the maize segment
over the last decade has been underappreciated due to a volatile scoreboard of its
legacy businesses. With commencement of its new plant, we expect growth
momentum in the maize segment to continue; besides, the oil business would also
benefit from import duty hikes. In this backdrop, we feel the stock is attractively
valued at 19x/13x/10x our FY18/FY19/FY20 EPS estimates. We initiate coverage on
GAEX with a LONG rating and a SOTP-based Mar’19 TP of Rs 310.
Consolidated Financials
Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Sales 33,308 39,061 46,404 53,090
EBITDA 2,754 2,660 4,110 5,141
Depreciation 714 794 931 1,004
Interest Expense 228 161 160 128
Other Income 182 74 71 72
Reported PAT 1,586 1,409 2,070 2,733
Recurring PAT 1,586 1,409 2,070 2,733
Total Equity 8,531 9,738 11,510 13,848
Gross Debt 6,848 6,092 5,542 3,992
Cash 58 239 426 456
Rs Per Share FY17A FY18E FY19E FY20E
Earnings 13.8 12.3 18.1 23.8
Book Value 74 85 100 121
Dividends 0.8 1.5 2.2 2.9
FCFF -3.7 12.5 11.4 19.1
P/E (x) 16.9 19.0 13.0 9.8
P/B (x) 3.1 2.8 2.3 1.9
EV/EBITDA (x) 12.2 12.3 7.8 5.9
ROE (%) 18 % 15 % 19 % 22 %
Core ROIC (%) 12 % 10 % 13 % 16 %
EBITDA Margin (%) 8 % 7 % 9 % 10 %
Net Margin (%) 5 % 4 % 4 % 5 %
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 4 of 41
Company Snapshot
How we differ from Consensus
- Equirus Consensus % Diff Comment
EPS FY18E 12.3 - - There are no other estimates available.
FY19E 18.1 - -
Sales FY18E 39,061 - -
FY19E 46,404 - -
PAT FY18E 1,409 - -
FY19E 2,070 - -
Segmental Drivers:
Revenue growth (%) FY17 FY18e FY19e FY20e
Agro processing 24% 24% 17% 9%
Cotton 26% 12% 6% 8%
Maize processing 18% 6% 24% 24%
EBITDA margins (%) FY17 FY18e FY19e FY20e
Agro processing 5% 5% 5% 5%
Cotton 5% 2% 5% 5%
Maize processing 15% 12% 17% 18%
Key triggers:
a) Commencement of commercial operations of its new plant at Chalisgaon
b) Any favorable announcement for the sector in the upcoming budget
c) Sale of its non-core textile segment
Key downside risks:
a) Volatility in corn and soya prices.
b) Increase in competition which may put pressure on prices and utilization levels
DCF Valuations & Assumptions
Rf Beta Ke Term. Growth Debt/IC in Term. Yr
6.8 % 1.3 14.6 % 6.0 % 30.5 %
FY18E FY19E FY20E FY21-27E
Sales Growth 17 % 19 % 14 % 11 %
NOPAT Margin 4 % 5 % 5 % 5 %
IC Turnover 2.54 2.80 3.06 4.11
RoIC 9.8 % 13.3 % 16.3 % 21.9 %
Years of strong growth 1 2 3 10
Valuation as on date (Rs) 29 92 149 269
Valuation as of Mar'19 35 109 176 318
Based on DCF, we derive our fair value of Rs. 318 as on 31st Mar’19.
Company Description:
Gujarat Ambuja Exports Limited (GAEX) is a leading manufacturer of starch derivatives,
soy derivatives and cotton yarn. It has the second highest crushing capacity in India with
six solvent extraction plants across India with a total capacity of 4,600 MTPD. Currently,
the company’s refining capacity stands at 1,200 MTPD. GAEX’s main focus area has been
wet-milling of corn and it has set up three operational processing plants. With
commencement of operations of its new Chalisgaon plant (expected in 4QFY18), the
company will become the largest maize processor in India in terms of installed capacity.
Comparable valuation Mkt Cap
Rs. Mn.
Price
Target
Target
Date
EPS P/E BPS P/B RoE Div Yield
Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E
Gujarat Ambuja Exports
LONG 234 26,832 310 31st Mar'19 13.8 12.3 18.1 16.9 19.0 13.0 74.4 2.8 18 % 15 % 19 % 0.3 % 0.6 %
Sukhjit Starch NA 462 3,409 NA NA 24.4 - - 18.9 - - 309.8 - 8 % - - 1.2 % -
Gulshan Polyols NA 91 4,265 NA NA 5.7 - - 15.8 - - 54.7 - 11 % - - 11.4 % -
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 5 of 41
Exhibit 1: GAEX Maize segment’s revenue have increased 10 fold in the last 10 years driven by continuous capacity expansion and market share gains
Source: Company, Equirus Securities
1,235 1,329 2,161
3,439 3,999 4,394
5,809
8,806
9,923
11,056
13,053 13,789
17,378
21,462
8%
63% 59%
16%
10%
32%
52%
13%
11%
18%
6%
26%
24%
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
5,000
10,000
15,000
20,000
25,000
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Maize Segment Revenue (Rs. Mn) Maize Revenue Growth (%)
2007: Major debottlenecking at
existing plant in Himmatnagar
to achieve 500 TPD capacity
2008: New plant at Uttarakhand
with a 500 TPD capacity begins
commercial operations.
2013: Commences commercial production of its
750 TPD new Maize processing, derivatives and
other value-added products processing unit in the
Haveri district in the state of Karnataka
2018: New maize processing plant at
Chalisgaon, Maharashtra with a capacity of
1000 TPD expected to begin commercial
operations in Jan-Feb 2018
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 6 of 41
Exhibit 2: Well diversified Product portfolio
Product Name Description
Maize Processing Segment
Maize starch
Maize or corn starch is a typical cereal starch with
distinctly low protein and ash contents. Its carbohydrate
content of high purity makes it useful in several
industries like paper, textile, food, cardboard and
potable alcohol production industry
Liquid glucose
Liquid glucose (sweetose) is a clear, colorless, viscous
solution, making it compatible with the physical
properties desired in end products. It finds usage in
cough syrup and vitamin-based tonics. It is also used as a
base for artificial honey and as a granulating agent for
tablet coating
High Maltose
Corn Syrup
(HMCS)
High-maltose corn syrup is a food additive used as a
sweetener and preservative. Also, since maltose has a
low freezing point, HMCS is useful in frozen desserts.
Dextrose
anhydrous
Anhydrous Dextrose, a high purity product with moisture
below 1%, finds applications in special food preparations
and is the best sweetener for water-sensitive systems
such as chocolate. In medical application, it is used as a
raw material in manufacture of antibiotics, preparations
of intravenous glucose injections, and rehydration drip
lines, and is also formulated with vitamins and minerals
Liquid Sorbitol
70% solution
Sorbitol, a polyol (sugar alcohol), is a bulk sweetener
found in numerous food products. In textile and leather, it
is used as a dispensing, bodying, and sequestering agent
Dextrose
monohydrate
Dextrose has a greater depression of freezing point than
that of cane sugar, resulting in a smoother and creamier
texture of the final product like in frozen food products.
It also finds industrial uses in adhesives, resin
formulation and building materials
Product Name Description
Agro Processing Segment
Vanaspati ghee
Ambuja Vanaspati Ghee is used in most Indian Kitchens
as the best cooking medium for deep frying, sauteing and
making sweets. It is widely used by hoteliers and
preferred by chefs
Soybean refined
oil
Ambuja Gold Refined Soybean oil is made from non-GMO
soybean seeds and is a rich source of Omega-3 and
Omega-6 fatty acid. These are essential fatty acids and
considered one of the best, healthiest cooking oils
Non-GMO
defatted soya
flour
Non-GMO De-fatted Soya Flour (Toasted) is a high
protein, low-fat product and is the simplest form of soy
protein. It is used in the food as well as feed industry.
Non GMO Soya
Granules & Soya
Nuggets (TVP)
Textured vegetable protein (TVP), or textured soy
protein (TSP)/soy meat/soya meat, is also known as
meat analogue. It is used in several meat foods, such as
banger, pork luncheon meat and sausage
Refined Palm Oil
Palmolien is one of the few fatty fruits in existence; it’s
likely to hold a substantial place in the human diet and is
the second most consumed vegetable oil in the world.
Rich in vitamin E, and being cholesterol and lactose-free,
it is ideal for cooking and baking
Source: Company, Equirus Securities
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 7 of 41
Structural growth levers in place - Initiate with LONG
Well-diversified business model with an expanding core
GAEX has three business segments namely (1) agro processing,(2) corn/maize processing
and (3) cotton yarn (textiles). While in revenue terms, contribution of the agro-
processing division is the highest, the maize segment leads in terms of EBITDA
contribution (Exhibits 3, 4). The maize segment has become the company’s core and key
focus area due to a higher and stable margin profile and better growth potential.
GAEX’s agro processing segment is currently operating at ~30% utilization, and the
company’s focus ahead would be to profitably increase utilization levels. Segment
revenues can potentially treble without any capex going forward.
In terms of cotton yarn (textile), most revenues are derived from exports; this has been a
major drag on the company’s financials over the last two decades due to high volatility in
the segment caused by fluctuations in cotton and yarn prices, and adverse cross-currency
movements. GAEX may unlock value by hiving off this segment as and when the
opportunity arises.
In sections below, we discuss all business segments in detail.
Exhibit 3: Agro processing leads in terms of revenue contribution (FY17)
Source: Company, Equirus Securities
Exhibit 4: Maize segment contributed ~63% to overall FY17 EBITDA
Source: Company, Equirus Securities
Exhibit 5: Maize segment has been the focus area in terms of capital allocation
Source: Company, Equirus Securities
73% 63%
53% 53% 54% 58% 58% 55%
7%
8%
7% 6% 7% 6% 6%
5%
19% 28%
39% 40% 39% 35% 37% 40%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
AGRO COTTON MAIZE
28%
4%
63%
5%
AGRO
COTTON
MAIZE
POWER
13%
89%
77%
30%
55%
75% 80%
72%
50%
76%
62%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
200
400
600
800
1000
1200
1400
1600
1800
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Capex in maize segment % of total capex
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 8 of 41
Maize processing: Earning its corn!
GAEX has been present in maize processing since the 1990s, with one plant at
Himmatnagar, Gujarat. However, management enhanced focus on this segment in FY07
with some de-bottlenecking at Himmatnagar and increased its rated capacity to 500
MTPD. Hit by high volatility in the cotton and agro segments, GAEX has increasingly
focused on the maize segment, which has a better margin profile than the other two.
Exhibit 6: GAEX has been expanding its maize processing capacity over last decade
Plant
locations
Capacity
(MTPD) Year
Initial
Capex
(Rs mn)
Comments
Himmatnagar,
Gujarat 600 2007 400
Close to main ports in Gujarat; focus on export
markets
Sitarganj,
Uttarakhand 650 2008 650
Mainly to serve India’s northern market; in proximity
to large institutional buyers
Hubli,
Karnataka 750 2013 1,250 Unit aggressively takes care of export markets
Chalisgaon,
Maharashtra 1,000 2018 2,600 Focus on high value-added derivatives
Source: Company, Equirus Securities
Apart from increasing its maize crushing capacity, the company has also adding
value-added derivative capabilities at each of its plants.
In our view, there is a huge market potential for starch and starch derivatives, and GAEX,
as the market leader in this segment, is all set to ride the wave. Following are some of
the major growth drivers of starch and its derivatives in India:
Expansion of the pie: Growth drivers for starch and starch derivatives
1. Industries using maize products shall continue to do well
Exhibit 7: Products and by-products of maize processing and user industries
Product User Industry
Starch Textile, Paper, Pharma, FMCG
Dextrine/ Pre Gel/ Modified Starch Food, Paper, Paint
Glucose Food, FMCG, Pharma
Sorbitol Pharma, Paint, FMCG
Source: Sukhjit Starch Investor Presentation, Equirus Securities
Exhibit 8: Pharma, Textile, Paper, and Food industries use starch as a raw material
Industry Use of Starch Growth Potential
Pharmaceutical
Used as a dusting media for coatings,
binder and filler for capsules &
tablets
Indian Pharma sector is pegged
to grow at a ~19% CAGR over
FY16-20E to reach ~US$ 55bn
Textile
Provides stiffness to clothes; used
along with thermoplastic or
thermosetting resins to obtain
finishing
Indian textile industry to touch
~US$ 223bn in 2021 from the
current size of ~US$ 108bn
Paper
Used for increasing paper strength,
and as an adhesive in pigmented
coating for paper products
Paper demand set to rise to 20
MMT by 2020 from the current
level of 13 MMT
FMCG
Used to thicken sauces, gravies and
pie fillings; used in baking and ice-
cream industries
India’s FMCG market set to
double from US$ 49bn now to
US$ 104bn by 2020
Source: Sukhjit Starch filings, IBEF, Equirus Securities
2. Lowest per capita consumption of starch in India
On the maize derivatives front, starch consumption in India is only ~1.5 kg/capita vs.
the global average of ~6.1 kg/capita. Consumer preference is tilting towards starch
and its derivatives vs. sugar earlier due to rising health consciousness across the
globe. Starch is also finding new applications in industries such as paper and ethanol
production.
3. Good availability of maize – key raw material for starch – in India
Maize accounts for ~83% of global starch production while potato, cassava, wheat
and rice account for the rest. On an average, India produces ~20mn tons of maize
every year, of which only 12-13% is used for starch manufacturing. Therefore, if
demand for starch and its derivatives increases, India will have abundant supply to
meet this demand.
Exhibit 9: Maize is the major RM for starch and its derivatives
Raw material % of global starch production
Maize 83%
Potato 6%
Cassava/Tapioca 6%
Wheat 4%
Rice 1%
Source: NABARD Consultancy Services, Equirus Securities
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 9 of 41
4. HFCS a potential industry game changer
High fructose corn syrup (HFCS), is a liquid fructose-glucose sweetener made from
corn that is commonly substituted for sugar in processed foods. In USA, the alcohol
fuel industry has been increasingly using derivatives of starch. Also, aerated soft-
drink makers such as Coca-Cola and Pepsi switched to HFCS (High Fructose Corn
Syrup) from sugar in USA due to the latter’s higher costs. Similarly, in China also
HFCS has become very popular post its introduction. In India, aerated drink
manufactures are yet to substitute sugar with starch derivatives; in case that
happens, a huge incremental demand for maize derivatives, especially HFCS, would
be created. GAEX is in the process of setting up HFCS facility in its new Chalisgaon
plant. It will be a small capacity to begin with and shall start operations by 2HFY19.
If the demand picks up, they can expand it further at lower incremental capex.
Currently, none of the competitors have HFCS production capabilities. If it clicks,
GAEX can capture the market share very fast while peers may take 1-2 years to set
up their plants.
Exhibit 10: Use of corn in wet milling steadily increasing in USA
Source: USDA, Equirus Securities
Exhibit 11: Share of HFCS in wet-milling products (excluding alcohol) at>40% in USA
Source: USDA, Equirus Securities
18% 20%
24% 23% 21%
25%
32% 32%
40% 44%
50% 50% 54%
45% 45%
47%
44% 46%
0%
10%
20%
30%
40%
50%
60%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
U.S. corn crop (mn bushels) Wet milling share (%)
53% 53% 52% 51% 50% 51% 50% 50% 51% 50% 50% 48% 48% 48% 47% 45% 43% 43%
22% 22% 23% 23% 23% 23% 24% 25% 25% 25% 26% 28% 28% 31% 29% 32% 35% 35%
25% 24% 25% 26% 27% 26% 26% 25% 24% 25% 25% 24% 24% 22% 24% 23% 22% 22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
HFCS (%) Glucose Syrup and Dextrose (%) Corn Starch (%)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 10 of 41
Competitive landscape – Lifting the maize cup!
The maize processing industry in India is dominated by 9-10 organized players which form
70% of the market, while the remaining players are small and largely unorganized.
Currently, India’s total maize crushing capacity is estimated at 13,000 MTPD, with
Roquette Riddhi Siddhi being the largest player (crushing capacity 2,300MTPD), GAEX the
second largest (2,000MTPD) and Sukhjit Starch & Chemicals Limited the third largest
(~1,500MTPD). The combined market share of these three players is ~44% currently.
Exhibit 12: Crushing capacities of major players now and post expansion
Players Crushing
capacity (MTPD)
Market share
(%)
Crushing capacity post
expansion
Market share
(%)
Roquette 2,330 18% 2,550 17%
GAEX 2,000 15% 3,000 21%
Sukhjit 1,500 12% 1,500 11%
Industry 13,000
14,220
Source: Company, Equirus Securities;
Post commencement of the new plant in Chalisgaon in 4QFY18, GAEX will become the
largest player in India in terms of maize crushing capacity.
Key players
Our channel checks suggest that many existing players are struggling to survive due to
their highly-leveraged balance sheets. For instance, Anil Ltd., a maize processing
company based out of Ahmedabad, is finding it difficult to make payments to its suppliers
and creditors. Many unorganized players in the industry have been troubled by GST
implementation. This has provided bigger and more efficient players enough headroom to
grow and gain market share in an industry that is expanding in single digits.
Below we look at GAEX’s major competitors in the maize processing segment i.e.
Roquette Riddhi Siddhi Pvt. Ltd and Sukhjit Starch & Chemicals Limited.
Roquette Riddhi Siddhi Pvt. Ltd (RRSPL) is a wholly-owned subsidiary of the France-
based Roquette (RF) group. RF had acquired a 74% stake in Riddhi Siddhi Corn Processing
Pvt. Ltd in FY13 and rechristened it as Roquette Riddhi Siddhi Pvt. Ltd. It acquired the
remaining 26% stake in FY15.
RRSPL is India’s largest manufacturer of starch and starch derivatives, with a ~17%
market share in the country’s overall maize crushing capacity. Its manufacturing plants
are located at Viramgam (Gujarat), Gokak (Karnataka) and Pantnagar (Uttarakhand) with
a total capacity of 2,330 TPD. The company plans to increase capacity to 2,550 TPD by
FY18-end. It manufactures starch powder, modified starch, glucose, dextrose
monohydrate, maltodextrine, and high maltose corn syrup. RRSPL’s customers include
Nestle India, Heinz India, and Mondelez India Foods.
Sukhjit Starch & Chemicals Limited (Sukhjit Starch) is one of India’s leading
manufacturers of starch and its derivatives. In FY17, the company derived ~34% of its
revenues from the sale of starch while the rest from starch derivatives like Dextrines &
Textilose, Glucose, Sorbitol and other by-products, such as maize oil, maize oil cake and
corn gluten. The company's products are used in various industries, including food,
textiles, pharmaceuticals and paper. Sukhjit Starch aims for a turnover of Rs 10bn by
FY20 from ~Rs 6.54bn in FY17.
The company is coming up with a 55-acre Mega Food Park at Phagwara with a capex of
Rs 1.52bn, which would be funded via a mix of internal accruals and term loans. The
plant is expected be fully operational in 2HFY19. There will also be a cold storage
capacity of 3,000 MT and silos/warehousing capacity of 25,000MT to ensure supply
consistency for Sukhjit Starch and its end users.
Other important players
Sayaji Industries is one of India’s leading manufacturers of starch and its derivatives,
based out of Ahmedabad. Its current corn crushing capacity is ~750-800 TPD and operates
from a single plant. In our view, its current market share shall be in the range of 5-6%.
Gulshan Polyols is a multi-product manufacturing company with ~55% of its revenues
coming from Sorbitol (starch derivative) and rest from calcium carbonate. In August
2016, the Company has started commercial production of native starch as well and
currently has a corn crushing capacity of 300 TPD.
Cargill (India) is an American MNC which started operations in India in 1987. The
Company has businesses in refined oils, food ingredients, grain and oilseeds, cotton,
animal nutrition, industrial specialties, and trade structured finance. According to
industry sources, Cargill (India) has a maize processing plant in Karnataka.
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 11 of 41
Exhibit 13: GAEX’s performance has been better than peers on most counts
Gujarat Ambuja Exports Roquette Riddhi Siddhi Pvt Ltd Sukhjit Starch & Chemicals Ltd Comments
FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17
Revenue (Rs. mn) 25,313 27,365 33,308 14,037 15,514 15,984 5,324 5,659 6,532 Revenues higher than peers due to solvent
extraction segment
Growth (%)
8% 22%
11% 3%
6% 15%
EBITDA (Rs. mn) 1,645 1,852 2,754 1,777 1,598 1,200 635 605 507
EBITDAM of maize segment higher than
peers due to a higher share of value-added
products, proximity to corn producing areas
which give a cost advantage.
EBITDAM (%) 6% 7% 8% 13% 10% 8% 12% 11% 8%
PAT 841 1,004 1,586 251 14 -587 232 231 186 Debt-free balance sheet leads to lower
interest charges
Margin (%) 3% 4% 5% 2% 0% -4% 4% 4% 3%
CFO 2,534 1,374 567 2,195 884 -34 633 873 405
CFO/EBITDA(1-T) 1.8 0.9 0.3 1.6 -6.3 0.0 1.5 2.2 1.2
Receivable days 15.6 23.2 22.8 41.6 38.3 41.8 36.8 36.3 32.8
Payable days 13.6 17.3 15.9 32.0 25.6 29.5 28.4 29.5 26.8
Inventory days 64.0 57.5 68.4 45.0 44.6 62.3 100.9 70.4 46.3
Cash conversion cycle 65.9 63.3 75.2 54.6 57.3 74.6 109.2 77.2 52.2
Gross fixed asset turnover* 2.8 3.4 4.9 1.1 1.1 1.1 1.9 1.8 2.0
Working capital turnover 5.2 5.2 4.8 8.2 9.6 19.6 4.8 6.3 7.4
Total debt 3,618 3,779 6,848 8,242 9,010 9,882 1,712 1,500 1,429
Total cash 170 397 58 1,343 912 394 289 359 366
Net debt/Equity 0.4 0.4 0.8 0.8 0.9 1.1 0.7 0.5 0.5
ROE (%) 11% 12% 18%
0% -6% 12% 11% 8%
ROIC (%) 8% 9% 12%
0% 0% 10% 9% 7%
Source: Company, Ace Equity, Equirus Securities; For Roquette Net fixed asset turnover
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 12 of 41
Exhibit 14: Starch industry dynamics remain favorable for bigger players like Gujarat Ambuja Exports Limited
Source: Equirus Securities
Industry is dominated by 5-6 bigger players which form 60-70%
of the market. Some of the bigger players like Anil Starch has
put its plant on sale whereas foreign players (Roquette, Cargill
etc.) have not been very profitable.
Rivalry - MODERATE
As of now there exist no substitutes for starch and its
derivatives; on the contrary HFCS (a starch derivative)
has been replacing sugar in soft drinks in some
countries
Threat of Substitutes – LOW
Strong entry barriers due to capital intensive nature
of the industry. A plant takes at least 2 years to start
operations.
Threat of New Entrants - LOW
Most of the procurement happens from APMC
markets and corporate farmers; they are willing to
provide a discount on current price if order is
placed in bulk
Bargaining Power of Suppliers - Low
End customers are the larger players in FMCG,
Pharma, Paper, textile industries but at the same
time there are only a handful of quality suppliers
Bargaining Power of Buyers - High
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 13 of 41
New capacity to be a booster shot for revenues – expect 17% CAGR (FY17-20E)
GAEX’s current maize crushing capacity is 2,000 MTPD and it has already set up a new plant
at Chalisgaon, Maharashtra, with a crushing capacity of 1,000 MTPD. This plant is expected
to begin commercial operations in 4QFY18, post which the company’s crushing capacity
would touch 3,000 MTPD – the highest in India. This is a new Greenfield project and GAEX
has taken ample land for further brownfield expansions if and when the need arises.
We are estimating ~60% capacity utilization of this new plant in FY19E and full utilization
by FY20E. Overall, we estimate revenue CAGR (FY17-20E) of 17% in the maize segment.
Exhibit 15: Maize segment revenue to get a boost post capacity expansion
Source: Company, Equirus Securities
Focus on VAP, higher utilization to drive margins
Most maize processing companies in India sell starch or glucose to their customers but
GAEX offers higher proportion of value-added derivatives like High Maltose Corn syrup
(HMCS), dextrose anhydrous, dextrose monohydrate and liquid Sorbitol solution.
Broadly, EBITDA margins are the function of maize prices (RM cost), finished product
prices and the product mix, and also the capacity utilization of plants. Our channel
checks suggest that the industry is able to pass on the increase in RM costs to its
customers with a lag of 2-3 months.
Exhibit 16: Fluctuations in maize prices affect margins
Source: Company, Bloomberg, Equirus Securities
Maize prices moderate after a sharp rise in 2HFY17: As depicted in Exhibit 17, maize
prices have been volatile in any given year; prices generally fall in the month of October,
when the Kharif crop is harvested. In 2HFY17, maize prices reached an all-time high level
of Rs 19 per kg but have moderated now.
Exhibit 17: After sharp rise in 2HFY17, maize prices have moderated of late
Source: Bloomberg, Equirus Securities
16.3%
10%
32%
52%
13%
11%
18%
6%
24% 24%
0%
10%
20%
30%
40%
50%
60%
0
5000
10000
15000
20000
25000
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Maize processing revenue ( Rs mn) Growth ( YoY %) ( RHS)
0%
5%
10%
15%
20%
25%
-10%
-5%
0%
5%
10%
15%
20%
25%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Maize prices yoy(%) Maize EBITDA margins(%) (RHS)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
500
700
900
1100
1300
1500
1700
1900
2100
Oct-
07
Oct-
08
Oct-
09
Oct-
10
Oct-
11
Oct-
12
Oct-
13
Oct-
14
Oct-
15
Oct-
16
Oct-
17
Maize prices ( Rs/ quintal) YoY (%) ( RHS)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 14 of 41
Product mix matters: There is significant difference in price points of starch and its
various derivatives. Starch is the most basic byproduct of maize processing, and various
other products are derived on further processing. Most industry players only mainly
manufacture starch, and hence generate lower margins. Over the years, GAEX has added
various derivative capabilities at its plants, which led to margin expansion. In FY17,
Company has added dextrose anhydrous derivative at the Karnataka plant.
Exhibit 18: Price points of maize starch and its derivatives
Source: Bloomberg, Equirus Securities
End customers determine quality, product price points: Starch and its derivatives are
mainly used in Pharma, FMCG, and paper and textile industries. The quality of starch
used in textile and paper industry differs a lot from the one used in Pharma and FMCG
industries. Accordingly, the amount of processing differs and also the price points of the
product. Nearly 40-50% of GAEX’s sales are to Pharma and FMCG players, which help
generate better margins than peers.
Exhibit 19: Margins to improve with higher utilization and value-added derivatives
Source: Company, Equirus Securities
In 1HFY18, the demand got impacted by GST which led to product mix changes and drop
in finished product realisations. Also, Company had to book inventory losses as the corn
prices fell in 1HFY18 from the historic high levels in 2HFY17. We expect these one-off
anomalies to get sorted in 2HFY18 and margins shall again get back to normal levels. In
FY19e, we estimate 17% EBITDA (+200bps from FY17 levels) mainly as the new Chalisgaon
plant and older plants as well are expected to focus more on value added products
leading to better margins.
0
10
20
30
40
50
60
Jan-1
3
Mar-
13
May-1
3
Jul-
13
Sep-1
3
Nov-1
3
Jan-1
4
Mar-
14
May-1
4
Jul-
14
Sep-1
4
Nov-1
4
Jan-1
5
Mar-
15
May-1
5
Jul-
15
Sep-1
5
Nov-1
5
Jan-1
6
Mar-
16
May-1
6
Jul-
16
Sep-1
6
Nov-1
6
Jan-1
7
Mar-
17
May-1
7
Jul-
17
Sep-1
7
Sorbitol (Rs/kg) Corn Starch (Rs/kg)
Dextrin and modified starch (Rs/kg)
914 677
980
1,422
1,782 1,878
1,981
1,693
2,897
3,789 22.9%
15.4% 16.9%
16.1%
18.0% 17.0%
15.2%
12.3% 17.0%
18.0%
0%
5%
10%
15%
20%
25%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
EBITDA ( Rs mn) Maize processing-EBITDA margins (%)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 15 of 41
Agro processing: Increase in import duties to help
Agro processing is the biggest segment for GAEX in terms of revenue. In this segment, the
company is involved in manufacturing as well as trading activities. Trading of oil and
other products is a low-margin business. Given that GAEX intends to focus on profitability
over topline growth, we expect a decline in trading activities going ahead.
In terms of manufacturing, GAEX has fully integrated solvent extraction operations from
seed crushing to oil refining. Currently, the company’s seed crushing capacity is at 4,600
MTPD and refining capacity at 1,200 MTPD.
Exhibit 20: Proportion of trading activities to reduce as profitability focus increases
Source: Company, Equirus Securities, *Data available till FY16
Solvent extraction is the process of extracting oil from oilseeds. Commonly processed oil
seeds in solvent extraction include soybean, groundnut, mustard, sunflower, coconut,
castor and cotton. Post solvent extraction, final products include crude oil and
de-oiled cakes. Extracted oils are further processed in refineries to make them suitable
for human consumption. De-oiled cakes are a rich source of protein and are largely used
in the animal feed industry.
Exhibit 21: Revenue contribution from agro processing manufacturing activities
Source: Company, Equirus Securities, *Data available till FY16
Among all oil seeds, GAEX is mainly involved in soybean as it ranks first among all oilseed
crops in the world (~63% of oilseeds production globally). USA, Brazil, Argentina, China
and India are the world’s largest producers and together accounted for ~90% of world
production during 2014-15 to 2016-17.
Exhibit 22: Globally soybean’s market share has reached ~63% in 2017
Source: USDA, Equirus Securities
31%
16% 19% 11%
18% 29%
69%
84% 81% 89%
82% 71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY11 FY12 FY13 FY14 FY15 FY16
Agro processing trading activities Agro processing manufacturing activities
42% 40%
53% 58%
41% 35%
50% 54%
42% 41%
50% 62%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY11 FY12 FY13 FY14 FY15 FY16
Deoiled Cake Edible Oil Other Products
107
185
261 264 240 268 283
314 320 351 348
219
320
435 448 434
461 488
505 521 556 561
40%
45%
50%
55%
60%
65%
0
100
200
300
400
500
600
1992 2002 2010 2011 2012 2013 2014 2015 2016 2017 2018P
(MMT) Soyabean (MMT) Total Oilseeds (MMT) Soya as a % of total oilseeds
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 16 of 41
Strong demand drivers for refined oil and de-oiled cakes
Worldwide consumption of soy oil has grown by a healthy ~6% CAGR during 2015-17;
however, India’s soy oil consumption has increased at a much higher pace of ~17% CAGR.
Currently, India has the third largest consumption market share of ~10% after China’s 30%
and USA’s 17%. With a growing population, urbanization and changing lifestyles, India’s
demand for refined oil would continue to increase, warranting a ramp-up in own refining
capacities to reduce dependence on oil imports.
Exhibit 23: India’s soy oil consumption is growing faster than the world
Source: ussoy.org, Equirus Securities
Growing animal feed industry in India driving demand for de-oiled cakes
Soy de-oiled cakes are a rich source of protein and are widely used in animal feed
manufacturing. As the underlying animal feed industry is expected to grow at a 7% CAGR
over FY17-FY20E in volume terms and 14% in value terms, demand for de-oiled cakes is
expected to remain strong.
Exhibit 24:Indian animal feed industry estimated to grow at healthy rates
Feed
segment
Industry
volumes in
2017 (mn
tons)
Industry
volumes in
2020E (mn
tons)
CAGR
(2017-
2020E) %
Industry
value in
2017 (mn
tons)
Industry
value in
2020E (mn
tons)
CAGR(2
017-
2020E)
%
Poultry Feed 16-17 20-21 7% 480-490 730-740 15%
Cattle Feed 7.5-8.5 9-10 6% 148-150 197-199 10%
Aqua Feed 1.6-1.8 2.1-2.3 9% 85-86 131-132 15%
Total 25.1-27.3 31.1-33.3 7% 715-725 1,060-1,070 14%
Source: CRISIL estimates
Better utilization rates to drive 16% revenue CAGR over FY17-FY20E
GAEX has a seed crushing capacity of 4,600 MTPD, the second highest in India after Ruchi
Soya, and an oil refining capacity of 1,200 MTPD. All oil-seed crushing work is based on
reverse crush parity calculation. If prices of edible oil are at low levels, then it may not
be feasible for companies to crush seeds and produce DOC cakes and crude oil and then
refine it further. On the contrary, it becomes more economical for refineries to directly
import crude edible oil and then refine it. In the last few years, amid cheaper imports,
all crushing companies have been running below 30% utilization. As per our estimates,
GAEX operated at ~20-25% utilization of its seed crushing capacity in FY17, which was
better than fewer than 10% utilization in FY16.
Exhibit 25: Seed crushing results in DOC cakes (82%) and crude oil (18%)
Source: SOPA, Equirus Securities
0
2
4
6
8
10
12
14
16
18
20
22
24
India USA China EU Rest of the world
(MMT) 2015 2016 2017
0
2
4
6
8
10
12
2003-0
4
2004-0
5
2005-0
6
2006-0
7
2007-0
8
2008-0
9
2009-1
1
2010-1
1
2011-1
2
2012-1
3
2013-1
4
2014-1
5
2015-1
6
Soybean Crushed(In Million Metric Ton)
Extraction Produced(In Million Metric Ton)
Oil Produced(In Million Metric Ton)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 17 of 41
Exhibit 26: Soymeal exports have declined from historical levels…
Source: SOPA, Equirus Securities
Exhibit 27:…while Soybean oil imports has seen new peaks
Source: SOPA, Equirus Securities
Increase in import duties to help Indian solvent extractors
In the last few years, Indian farmers have been grappling with cheaper imports, which
have hit the entire oilseed economy. To support Indian farmers and other players in the
oilseed economy, the Government of India has recently increased import duties on all
major oil imports to achieve price parity.
Exhibit 28: Import duty revisions in Nov’17
Vegetable oils Old import duties Revised duties
Soyabean oil 18% 30%
Soya refined oil 20% 30%
Palm crude oil 15% 30%
RBD palm oil 25% 40%
Sunflower crude oil 13% 25%
Sunflower refined oil 20% 35%
Mustard crude oil 13% 25%
Mustard refined oil 20% 35%
Source: Business Standard, Equirus Securities
The Government has increased import duty on imported oils, which should help farmers
as well as improve the competitiveness of seed crushing companies. Also, many
unorganized players are feeling the heat post GST implementation, as a 5% tax rate will
make them uncompetitive in this lower-margin business.
Exhibit 29: Soy refined oil and soy meal price trends
Source: Bloomberg, Equirus Securities
0
1
2
3
4
5
6
2005-2
006
2006-2
007
2007-2
008
2008-2
009
2009-2
010
2010-2
011
2011-2
012
2012-2
013
2013-2
014
2014-2
015
2015-2
016
2016-2
017
2017-2
018
India-Soyameal exports (mn MT)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Imports of Soyabean oil ('000 MT)
500
550
600
650
700
750
800
850
10000
15000
20000
25000
30000
35000
40000
45000
50000
Dec-1
2
Jun-1
3
Dec-1
3
Jun-1
4
Dec-1
4
Jun-1
5
Dec-1
5
Jun-1
6
Dec-1
6
Jun-1
7
Dec-1
7
Soyameal ( Rs/tonne) Soya refined oil ( RHS) ( Rs/ 10kg)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 18 of 41
Exhibit 30: Agro processing revenue to improve with better utilization rates
Source: Company, Equirus Securities
EBITDA margins to get steady
Exhibit 31: EBITDA margins are estimated to get steady
Source: Company, Equirus Securities
Cotton yarn: Non-core legacy business
Cotton yarn, the group’s legacy segment, has been entangled in several issues over the
past few years. The segment’s revenue share in the group’s overall revenue pie has
halved from 12% in FY07 to 6% in FY17. Going forward, GAEX has no plans to allocate any
capital to this segment and the revenue contribution should drop further. The company
has only one cotton yarn plant which is integrated with the maize processing plant at
Himmatnagar, Gujarat; therefore, operating the plant does not entail any extra costs for
the company.
Exhibit 32: Not much capital allocated to this segment, except in the last 3 years
Source: Company, Equirus Securities
Over the past three years, GAEX has invested ~Rs 600mn in this segment, mainly to
modernize its old machinery and stay competitive; the company has not planned any
major capital outlay for the segment in the foreseeable future.
Exports contributed nearly 75% to segment revenues till FY13; however, post that, the
proportion has been declining due to increasing preference for garments over yarn among
importing nations.
Estimated segment revenue CAGR of 8% over FY17-FY20E
GAEX’s cotton yarn segment has been exposed to high volatility over the past two
decades due to factors such as global demand and FX fluctuations. Current capacity of
the cotton segment stands at ~15,000 MTPA, and utilization levels have varied between
60-80% over the last three years. Since there are no plans to increase the capacity, and
11%
52%
-12% -31%
10%
24% 24%
17%
9%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
0
5000
10000
15000
20000
25000
30000
35000
FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Agro processing revenue ( Rs mn) Growth yoy (%) (RHS)
4.9%
4.4%
1.9%
-0.3%
0.7%
4.4% 4.8% 4.7%
4.7%
-1%
0%
1%
2%
3%
4%
5%
6%
0
200
400
600
800
1000
1200
1400
1600
FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Agro processing EBITDA EBITDA margin(%)
27
5
56 58
18 9
75
204
88
196
0
50
100
150
200
250
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Capex in Cotton segment
GAEX spent ~Rs 600mn over the last 3 years to modernize its machinery and stay competitive
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 19 of 41
utilization levels are expected to improve post the new machinery is put in place, we
estimate 8% revenue over FY17-FY20, which should take utilization levels to 90% in
FY20E.
Exhibit 33: Revenue CAGR estimated at 8% over FY17-FY20E
Source: Company, Equirus Securities
After recent upgrading of machinery, focus is on profitability
Several factors such as cotton prices, FX fluctuations, and international and domestic
yarn prices, influence the margins of this segment, making them highly volatile.
Exhibit 34:EBITDA margins have been volatile and depend on cotton and yarn prices
Source: Company, Equirus Securities
Financials
Revenue CAGR estimated at 17% over FY17-FY20E
We expect 17% revenue CAGR for GAEX over FY17-FY20E, driven by the following:
New maize processing plant becoming operational in 4QFY18
Improved utilization of solvent extraction units
Exhibit 35: Segment-wise revenue growth estimates
Sales growth (%) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
AGRO 11% 52% -12% -31% 10% 24% 24% 17% 9%
COTTON 7% -3% 18% -29% -4% 26% 12% 6% 8%
MAIZE 10% 32% 52% 13% 11% 18% 6% 24% 24%
POWER 15% 14% -6% 1% 27% -3% 0% 0% 0%
Total 10% 42% 3% -18% 8% 22% 17% 19% 14%
Source: Company data, Equirus Securities
Exhibit 36: Higher maize processing capacity, better utilization in agro processing to
drive revenues
Source: Company, Equirus Securities
3%
15%
7%
-3%
18%
-29%
-4%
26%
12%
6% 8%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
0
500
1000
1500
2000
2500
3000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Revenue of the cotton segment ( Rs mn) growth (yoy %)(RHS)
10.5%
-7.2%
4.0% 6.1%
-3.1% -3.9%
5.4%
2.1%
5.0% 5.0%
-10%
-5%
0%
5%
10%
15%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
EBITDA margins ( Cotton)
10%
42%
3%
-18%
8%
22% 17% 19% 14%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
10000
20000
30000
40000
50000
60000
FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Revenue(Rs mn) growth ( YoY %) ( RHS)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 20 of 41
Expect 23% EBITDA CAGR over FY17-FY20E with 140bps margin expansion
The main cost component for a commodity player such as GAEX is raw material (86% of
the total cost) followed by power & fuel costs.
Exhibit 37: Cost components for GAEX (FY17)
Source: Company, Equirus Securities
Due to focus on value-added derivatives, gross margins in the maize processing segment
are much higher than the agro processing segment.
Exhibit 38: Segment-wise gross margins for GAEX
Source: Company, Equirus Securities, *Data available till FY16
Exhibit 39 outlines the power & fuel costs per MT of production in each segment. Data
suggests that power & fuel costs are the highest for the cotton segment, which explains
the lower EBITDA margins for the segment.
Exhibit 39: Segmental power and fuel cost per MT of production
Power and fuel cost FY09 FY10 FY11 FY12 FY13 FY14
Agro processing 487 672 765 701 687 808
Maize processing 2,439 2,204 2,377 2,524 2,713 2,597
Cotton Yarn 20,880 18,390 26,770 30,500 21,590 23,950
Source: Company, Equirus Securities, *Data available till FY14
Exhibit 40: Increasing contribution of maize to improve overall profitability
Segmental EBITDAM (%) FY14 FY15 FY16 FY17 FY18E FY19E FY20E
AGRO 2.3% 0.3% 1.3% 4.8% 5.1% 5.0% 5.0%
COTTON 6.1% -3.1% -3.9% 5.4% 2.1% 5.0% 5.0%
MAIZE 16.1% 18.0% 17.0% 15.2% 12.3% 17.0% 18.0%
Total 6.3% 6.5% 6.8% 8.3% 6.8% 8.9% 9.7%
Source: Company, Equirus Securities
The company’s margin profile and absolute EBITDA is estimated to improve as the share
of the maize segment increases further in the Company, and the margin profile of the
segment itself improves with more focus on value-added derivatives.
Exhibit 41: EBITDA CAGR Estimated at 23% over FY17-FY20E
Source: Company, Equirus Securities
RM Cost, 86%
Employee cost, 3%
Power and fuel, 4% F&F charges, 3%
Other expenses, 4%
0%
10%
20%
30%
40%
50%
60%
FY12 FY13 FY14 FY15 FY16
Agro Processing Maize Processing Cotton Yarn
6.3% 6.5% 6.8%
8.3%
6.8%
8.9% 9.7%
0%
2%
4%
6%
8%
10%
12%
0
1000
2000
3000
4000
5000
6000
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
EBITDA (Rs mn) EBITDA margins(%)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 21 of 41
GAEX has a nominal long-term debt of ~Rs 145mn (FY17 end), which is mainly a TUF
subsidized loan. Due to high working capital requirements, the company has taken short-
term debt of ~Rs 6,211mn. As per management, it would reduce working capital loans on
the balance sheet and focus on reducing interest expenses. GAEX has already reduced its
short-term debt to ~Rs 5,454mn in 1HFY18 (from Rs 6,211mn in FY17).
GAEX has Rs 471mn of long-term investments, which provide regular dividend and
interest income.
In terms of taxes, GAEX was enjoying a taxation subsidy for its Uttaranchal plant, which
shall get over by FY18. Post that, the company is expected to pay full taxes. We estimate
a PAT CAGR of 20% over FY17-FY20E.
Exhibit 42: PAT CAGR estimated at 20% over FY17-FY20E
Source: Company, Equirus Securities
Exhibit 43: Cash conversion cycle has been broadly stable
Source: Company, Equirus Securities
Exhibit 44: Cash conversion remains healthy
Source: Company, Equirus Securities
3.6% 3.3%
3.7%
4.8%
3.6%
4.5%
5.1%
0%
1%
2%
3%
4%
5%
6%
0
500
1,000
1,500
2,000
2,500
3,000
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
PAT ( Rs mn) Net margin(%)
0
10
20
30
40
50
60
70
80
90
100
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Receivable days Inventory days Payable days Cash conversion cycle
168%
83%
24%
107%
69% 70%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
0
500
1,000
1,500
2,000
2,500
3,000
FY15 FY16 FY17 FY18e FY19e FY20e
Cash flow from operations(Rs mn) Cash conversion (%)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 22 of 41
Cash generated mostly ploughed back into maize segment due to better return profile
Exhibit 45: CFO and debt – primary sources of funds Funds deployed on capacity expansion, debt repayment and purchase of long-term investment
Source: Company, Equirus Securities
Over the past decade, GAEX has focused on growing its maize processing business, thus
spending most of the generated cash on increasing its capacities. With commencement of
the new Chalisgaon plant in 4QFY18, GAEX would become the largest maize crushing
company in India with a market share of ~21%. As seen in exhibits below, the maize
business has much better returns than the other two segments, and continuous
investments in this business over the last five years has yielded good returns for the
company. As GAEX intends to expand its maize processing capacities further, we expect
dividend payouts to remain low.
Debt on the balance sheet is largely working capital short-term debt; the long-term debt
is mainly subsidized TUF loan taken to modernize the cotton yarn segment.
Share buyback in FY17 more of a one-off
In Mar’17, GAEX offered to buy back ~23.7mn equity shares (representing 17.12% of its
total equity share capital) at Rs 95/share, aggregating to Rs 2.25bn by way of tender
offer. It was subscribed fully and the shares were extinguished by the end of Mar’17.
GAEX’s paid-up equity shares post buyback aggregate to ~114.7mn.
Capital allocation via the buyback was aimed at returning surplus cash to shareholders
and help GAEX achieve optimal capital structure that resulted in improved return ratios.
Exhibit 46: Investments in the maize segment yielding good returns
Maize Segment Rs mn
A) EBIT (FY12) 759
B) EBIT (FY17) 2,040
C) Last 5 year change in EBIT (B-A) 1,281
D) Invested capital (FY12) 9,637
E) Invested Capital (FY17) 15,379
F) Last 5 year change in Invested capital (E-D) 5,742
G) Return on Incremental capital (ROIIC) (C/F) 22%
Source: Company, Equirus securities
CFO, 29.8%
Debt raised, 36.2%
Dividend received, 0.2%
Interest received, 0.5%
Sale of investment, 32.6%
Capital subsidy received/Governm
ent grant, 0.7%
Net capex, 28%
Debt repayment, 21%
Interest paid, 3% Dividend paid, 2%
Purchase of Investment, 31%
Share buyback, 15%
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 23 of 41
Exhibit 47: …leading to improving return ratios
Source: Company, Equirus Securities
8% 9%
12%
10%
13%
16% 11%
12%
18%
15%
19%
22%
0%
5%
10%
15%
20%
25%
FY15 FY16 FY17 FY18e FY19e FY20e
RoIC RoE
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 24 of 41
Valuation and risks
GAEX currently trades at 19x/13x/10x P/E and an EV/EBITDA of 12x/8x/6x on our
FY18/FY19/FY20 estimates. The company has historically traded in the range of 5-15x
P/E on TTM EPS and an EV/EBITDA of 5-7x on TTM EBITDA.
We use the SOTP methodology to value GAEX as follows:
Maize processing: As shown in Exhibits below, Indian rice and shrimp processing
companies are currently trading at a FY19 median EV/EBITDA multiple of ~14x and 18x
respectively. We assign a TTM EV/EBITDA multiple of 11x (~20% and ~40% discount
respectively to rice and shrimp processing firms) to our FY19 maize processing EBITDA
estimates as, unlike rice processing firms, GAEX does not have its own branded business
and lags behind aqua processing firms in terms of asset turns and return ratios
(RoE/RoIC).
Agro processing: Global agro processing firms are currently trading at a CY18 median
EV/EBITDA multiple of 11x. Ascribing a ~25% discount, we value GAEX’s agro (soya)
processing business at a FY19 TTM EV/EBITDA multiple of 8x as segment margins and
return ratios have historically been very volatile.
Cotton/Textile (Others): We assign a FY19 EV/EBITDA multiple of 4x to other segments.
Overall, we arrive at a Mar’19 SOTP-based TP of Rs 310, implying a P/E multiple of
25x/17x/13x and an EV/EBITDA multiple of 12x/8x/6x on our FY18/FY19/FY20 estimates.
Exhibit 48: We arrive at a SOTP-based Mar’19 TP of Rs 310
FY19e (Rs mn) EBITDA Multiple EV
Agro processing 1,107 8 8,855
Maize processing 2,752 11 30,274
Others 251 4 1,004
Group's EV
40,133
Total debt
5,542
Total cash
897
Equity value
35,488
No. of shares outstanding(mn)
115
Mar’19 Target price (Rs)
310
Source: Equirus Securities
Investment risks
Downside risks:
1. Commodity price risk: Factors like political and regulatory changes, seasonal
variations, weather, technology and market conditions can significantly affect
commodity prices. An unexpected movement in commodity prices can have a bearing
on the company’s profitability. GAEX tries to mitigate the risk by covering positions
through hedging at commodity exchanges like CBOT, REFCO, NCDEX, NMCEX and
others.
2. Foreign currency risk: GAEX manages foreign currency exposures through forward
exchange contracts. Forex risks are partly mitigated by purchase of
goods/commodities in respective currencies.
3. Capital mis-allocation: GAEX has a good business (maize) , an average business ( Oil)
and a bad business ( textile). In the last decade, Company has mainly invested to grow
its maize business and has no intention of investing further in the oil and textile
business. Any major investments in the oil and textile business will be against our
investment thesis.
4. Increased Competition: Though many players have entered and exited the industry
over the last few years. Given the growth potential in the industry, there is always a
chance of many competitors entering the industry and put pressure on pricing and
the utilization levels of the existing players.
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 25 of 41
Exhibit 49: Relative Valuation vs. Indian and Global Peers
Company name Currency Price M Cap (mn) Sales (mn) Sales Growth (%) Sales CAGR EBITDA (mn) EBITDA Margin (%)
FY17 FY18E FY19E FY18E FY19E FY17-19E FY17 FY18E FY19E FY17 FY18E FY19E
Indian Peers
Rice Processing Companies
KRBL Ltd INR 635.5 1,49,590 31,490 33,842 36,711 7.5% 8.5% 8.0% 6,439 7,724 8,787 20.4% 22.8% 23.9%
LT Foods Ltd INR 108.2 34,607 32,865 35,780 39,814 8.9% 11.3% 10.1% 3,799 4,159 4,711 11.6% 11.6% 11.8%
Chaman Lal Setia INR 195.7 10,122 4,933 NA NA NA NA NA 647 NA NA 13.1% NA NA
Median
8.2% 9.9% 9.0%
13.1% 17.2% 17.9%
Aqua Processing Companies
Avanti Feeds INR 2680.0 1,21,713 26,157 36,225 48,670 38.5% 34.4% 36.4% 3,300 7,284 7,492 12.6% 20.1% 15.4%
Apex Frozen Foods INR 808.8 25,273 6,991 9,758 13,188 39.6% 35.1% 37.3% 453 956 1,219 6.5% 9.8% 9.2%
Median
39.0% 34.8% 36.9%
9.5% 15.0% 12.3%
Agro Processing Companies
Ruchi Soya Industries INR 19.1 6,381 1,90,731 NA NA NA NA NA -7,851 NA NA -4.1% NA NA
Sukhjit Starch & Chemicals INR 462.9 3,416 6,536 NA NA NA NA NA 519 NA NA 7.9% NA NA
Gulshan Polyols INR 90.8 4,260 4,949 NA NA NA NA NA 578 NA NA 11.7% NA NA
Godrej Agrovet INR 618.1 1,18,693 48,921 NA NA NA NA NA 4,404 NA NA 9.0% NA NA
Median
8.5%
Global Peers
CY16 CY17E CY18E CY17E CY18E CY16-CY18E CY16 CY17E CY18E CY16 CY17E CY18E
Sime Darby MYR 2.8 18,974 31,087 42,491 41,829 36.7% -1.6% 16.0% 2,045 3,350 3,623 6.6% 7.9% 8.7%
IOI MYR 4.6 29,157 14,124 13,594 13,599 -3.8% 0.0% -1.9% 1,736 2,102 2,186 12.3% 15.5% 16.1%
KLkepong MYR 25.1 26,752 21,004 19,904 20,228 -5.2% 1.6% -1.9% 2,071 2,229 2,308 9.9% 11.2% 11.4%
Golden Agro SGD 0.4 4,839 7,209 7,488 7,516 3.9% 0.4% 2.1% 541 677 662 7.5% 9.0% 8.8%
Wilmar SGD 3.2 20,369 41,402 43,578 45,417 5.3% 4.2% 4.7% 2,372 2,207 2,432 5.7% 5.1% 5.4%
Noble SGD 0.2 299 46,528 50,272 51,629 8.0% 2.7% 5.3% 65 448 532 0.1% 0.9% 1.0%
China Agro HKD 3.6 18,952 89,163 98,874 1,02,027 10.9% 3.2% 7.0% 3,939 4,332 4,347 4.4% 4.4% 4.3%
China Foods HKD 4.3 12,084 27,986 24,740 21,973 -11.6% -11.2% -11.4% 929 1,437 1,617 3.3% 5.8% 7.4%
Want Want HKD 6.4 79,406 19,710 20,225 21,115 2.6% 4.4% 3.5% 5,637 5,003 5,014 28.6% 24.7% 23.7%
Tingyi Holding HKD 15.5 87,005 55,617 57,675 60,512 3.7% 4.9% 4.3% 6,804 6,770 7,291 12.2% 11.7% 12.0%
China Mengniu HKD 23.4 91,900 53,779 58,523 63,582 8.8% 8.6% 8.7% 3,310 4,995 5,999 6.2% 8.5% 9.4%
ADM USD 40.2 22,471 62,346 61,839 63,746 -0.8% 3.1% 1.1% 2,454 2,743 3,138 3.9% 4.4% 4.9%
Bunge USD 69.9 9,835 42,679 46,589 48,127 9.2% 3.3% 6.2% 1,669 1,292 1,734 3.9% 2.8% 3.6%
Median
3.9% 3.1% 4.3%
6.2% 7.9% 8.7%
Gujarat Ambuja Exports INR 233.9 26,821 33,308 39,061 46,404 17.3% 18.8% 18.0% 2,754 2,660 4,110 8.3% 6.8% 8.9%
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 26 of 41
Company name Currency Price M Cap (mn) EPS EPS CAGR Net D/E RoE (%) RoIC Div Yield (%)
FY17 FY18E FY19E FY17-19E FY17 FY17 FY18E FY19E FY17 FY18E FY19E
Indian Peers
Rice Processing Companies
KRBL Ltd INR 635.5 1,49,590 17.0 19.9 22.8 16.0% 0.5 23.5% 20.9% 20.0% 15.0% 0.3% 0.3%
LT Foods Ltd INR 108.2 34,607 4.4 5.6 6.9 25.2% 2.2 19.7% 20.1% 20.5% 9.6% 0.2% 0.2%
Chaman Lal Setia INR 195.7 10,122 7.4 NA NA NA 0.0 30.2% NA NA 24.6% NA NA
Median
20.6% 0.5 23.5% 20.5% 20.2% 15.0% 0.3% 0.3%
Aqua Processing Companies
Avanti Feeds INR 2680.0 1,21,713 47.1 103.1 105.3 49.5% -0.6 40.2% 57.2% 40.6% 35.8% 0.8% 0.8%
Apex Frozen Foods INR 808.8 25,273 8.0 19.4 23.0 69.8% 1.0 29.0% 33.2% 24.0% 18.1% 0.2% 0.3%
Median
59.6% 0.2 34.6% 45.2% 32.3% 26.9% 0.5% 0.5%
Agro Processing Companies
Ruchi Soya Industries INR 19.1 6,381 -45.0 NA NA NA 7.0 -78.0% NA NA 5.2% NA NA
Sukhjit Starch & Chemicals INR 462.9 3,416 23.9 NA NA NA 0.4 8.1% NA NA 7.3% NA NA
Gulshan Polyols INR 90.8 4,260 5.7 NA NA NA 0.4 11.4% NA NA 7.0% NA NA
Godrej Agrovet INR 618.1 1,18,693 12.4 NA NA NA 0.5 27.8% NA NA 11.9% NA NA
Median
0.5 9.7%
7.2%
Global Peers
CY16 CY17E CY18E CY16-18E CY16 CY16 CY17E CY18E CY16 CY17E CY18E
Sime Darby MYR 2.8 18,974 0.4 0.3 0.3 -10.6% 0.0 9.0% 6.0% 7.1% 3.2% 6.5% 6.5%
IOI MYR 4.6 29,157 0.1 0.2 0.2 34.4% 0.7 13.8% 15.6% 15.7% 5.2% 2.8% 2.6%
KLkepong MYR 25.1 26,752 0.9 1.1 1.2 11.9% 0.2 9.1% 10.5% 10.5% 7.1% 2.3% 2.5%
Golden Agro SGD 0.4 4,839 0.0 0.0 0.0 -31.1% 0.6 3.7% 4.1% 4.7% 3.3% 1.8% 2.1%
Wilmar SGD 3.2 20,369 0.2 0.2 0.2 11.1% 0.8 9.1% 7.2% 7.6% 4.1% 2.2% 2.7%
Noble SGD 0.2 299 -0.2 0.0 0.2 NA 0.7 -146.0% 4.9% 6.9% -32.8% 0.0% 0.0%
China Agro HKD 3.6 18,952 0.3 0.3 0.3 9.5% 0.8 10.1% 6.4% 6.0% 5.1% 2.0% 2.0%
China Foods HKD 4.3 12,084 0.2 0.1 0.2 -4.5% 0.1 10.4% 12.2% 6.7% 7.1% 9.0% 1.3%
Want Want HKD 6.4 79,406 0.3 0.2 0.3 -3.7% -0.2 NA 24.1% 23.9% NA 2.8% 2.7%
Tingyi Holding HKD 15.5 87,005 0.2 0.3 0.4 33.5% 0.2 9.8% 9.2% 10.9% 5.3% 1.6% 2.0%
China Mengniu HKD 23.4 91,900 0.5 0.6 0.8 26.4% -0.1 -3.2% 10.7% 13.4% -1.9% 0.8% 1.1%
ADM USD 40.2 22,471 2.2 2.3 2.7 12.2% 0.3 7.0% 7.5% 8.5% 4.2% 3.1% 3.4%
Bunge USD 69.9 9,835 4.7 2.8 4.7 0.6% 0.5 6.9% 5.5% 9.3% 4.3% 2.5% 2.6%
Median
10.3% 0.3 9.0% 7.5% 8.5% 4.3% 2.3% 2.5%
Gujarat Ambuja Exports INR 233.9 26,821 13.8 12.3 18.1 14.3% 0.7 17.9% 15.4% 19.5% 12.5% 0.6% 0.9%
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 27 of 41
Company name Currency Price M Cap (mn) P/E EV/EBITDA EV/Sales
FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Indian Peers
Rice Processing Companies
KRBL Ltd INR 635.5 1,49,590 37.5 32.0 27.8 24.8 20.7 18.2 5.1 4.7 4.4
LT Foods Ltd INR 108.2 34,607 24.6 19.4 15.7 13.2 12.0 10.6 1.5 1.4 1.3
Chaman Lal Setia INR 195.7 10,122 26.3 NA NA 15.6 NA NA 2.0 NA NA
Median
26.3 25.7 21.8 15.6 16.4 14.4 2.0 3.1 2.8
Aqua Processing Companies
Avanti Feeds INR 2680.0 1,21,713 56.9 26.0 25.5 35.8 16.0 15.2 4.5 3.2 2.3
Apex Frozen Foods INR 808.8 25,273 101.5 41.7 35.2 58.1 26.9 21.1 3.8 2.6 1.9
Median
79.2 33.8 30.3 47.0 21.5 18.1 4.1 2.9 2.1
Agro Processing Companies
Ruchi Soya Industries INR 19.1 6,381 -0.4 NA NA -8.2 NA NA 0.3 NA NA
Sukhjit Starch & Chemicals INR 462.9 3,416 19.3 NA NA 8.2 NA NA 0.6 NA NA
Gulshan Polyols INR 90.8 4,260 15.8 NA NA 9.3 NA NA 1.1 NA NA
Godrej Agrovet INR 618.1 1,18,693 50.0 NA NA 28.3 NA NA 2.5 NA NA
Median
17.6
8.8
0.9
Global Peers
CY16 CY17e CY18e CY16 CY17e CY18e CY16 CY17e CY18e
Sime Darby MYR 2.8 18,974 7.6 10.2 9.5 9.8 7.5 6.9 0.6 0.6 0.6
IOI MYR 4.6 29,157 39.3 25.2 21.8 20.1 16.1 15.2 2.5 2.5 2.4
KLkepong MYR 25.1 26,752 26.6 22.2 21.2 14.1 13.0 12.3 1.4 1.5 1.4
Golden Agro SGD 0.4 4,839 12.0 29.2 25.3 13.7 11.0 10.8 1.0 1.0 0.9
Wilmar SGD 3.2 20,369 20.8 18.8 16.9 14.0 15.0 13.5 0.8 0.8 0.7
Noble SGD 0.2 299 -1.5 11.3 1.5 48.8 7.1 6.0 0.1 0.1 0.1
China Agro HKD 3.6 18,952 13.4 10.9 11.1 10.7 8.1 7.8 0.5 0.4 0.3
China Foods HKD 4.3 12,084 24.2 40.8 26.5 13.6 7.8 6.7 0.5 0.5 0.5
Want Want HKD 6.4 79,406 23.0 25.8 24.8 13.6 15.5 15.4 3.9 3.8 3.6
Tingyi Holding HKD 15.5 87,005 73.8 52.0 41.4 13.6 13.4 12.0 1.7 1.6 1.4
China Mengniu HKD 23.4 91,900 44.3 37.6 27.7 27.3 19.2 15.6 1.7 1.6 1.5
ADM USD 40.2 22,471 18.6 17.3 14.8 11.5 10.1 8.7 0.5 0.4 0.4
Bunge USD 69.9 9,835 15.0 24.6 14.8 8.1 10.7 7.7 0.3 0.3 0.3
Median
20.8 24.6 21.2 13.6 11.0 10.8 0.8 0.8 0.7
Gujarat Ambuja Exports INR 233.9 26,821 16.9 19.0 13.0 12.2 12.3 7.8 1.0 0.8 0.7
Source: Company, Bloomberg, Equirus Securities
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 28 of 41
Corporate governance
Following are key highlights of our preliminary assessment of the level of corporate
governance as per GAEX’s FY17 Annual Report:
Board of Directors Composition: GAEX’s policy is to have an optimal combination of executive and non-
executive directors to ensure independent functioning of the Board. The Board Directors
have 10 members and Chairman as Executive Directors, including 6 Non-Executive
Directors, 5 of whom are Independent Directors. During FY17, six board meetings were
held and the maximum time gap between two meetings did not exceed 105 days.
Distribution of power: Executive power is a bit concentrated as most managerial tasks
are taken care of by three personnel: Mr. Vijaykumar Gupta – Chairman & Managing
Director; Mr. Manish Gupta - Managing Director; and Mr. Sandeep Agrawal – Whole-Time
Director & Independent Director. Of the nine board committees, eight (Audit, Nomination
& Remuneration, Stakeholders Relationship committees) are headed by Non-
Executive/Independent Directors.
Disclosure Norms:
Our preliminary study reveals that the company follows disclosure norms as stipulated by
listing agreements of exchanges and declares its quarterly results and other disclosures in
a timely manner. Management does not hold earnings call after quarterly results.
Annexure 1: Maize industry overview
Supply of maize is increasingly moving towards starch and starch derivatives
Global maize production dominated by USA and China
World maize production has grown at a ~4% CAGR (marketing year 2011-17) to reach
~1,038mn tonnes in 2017. India maintained its market share at 2.2-2.6% in this period
while Ukraine outstripped all other nations with its maize production growing at ~14%
CAGR during 2011-17. USA and China are the major maize-producing nations and
accounted for ~37% and 21% of total world production respectively in 2017.
Exhibit 50: Global maize production has grown at a ~4% CAGR during 2011-17
Source: USDA, FAS Grain: World Markets and Trade, Jan. 12, 2017, Equirus Securities
Of the total production of ~1,038mn tonnes, only ~142mn tonnes (14%) were traded
among countries. USA, Argentina and Brazil (~73% of world exports combined) are the
world’s largest exporters while China largely consumes its entire maize production.
816 868 852
967
988 968 1038
6.4%
-1.8%
13.4%
2.2% -2.0%
7.2%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
200
400
600
800
1000
1200
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
World Maize Production (mn tonnes) Yoy growth (%) (On RHS)
India's share (%) (On RHS)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 29 of 41
Exhibit 51: USA and China account for ~58% of global maize production
Source: USDA, FAS Grain: World Markets and Trade, Jan. 12, 201'7, Equirus Securities
India’s maize production up ~4% CAGR in last 15 years
In 2014, India was the sixth largest maize producer (~9.3mn tonnes) and contributed ~2%
of world’s maize production. The country’s area under maize cultivation has steadily
risen at a ~2% CAGR during 2001-16 to reach ~8.7mn hectares in 2016. However, maize
production has grown at a ~4% CAGR during the same period to ~21.8mn tonnes helped by
increasing yields (~2.5 tonnes/hectare in 2016 vs. ~1.8 tonnes/hectare in 2001).
Exhibit 52: India’s maize production and yields have been increasing steadily
Source: Directorate of Economics & Statistics, DAC&FW, Equirus Securities
India’s maize production is mainly concentrated in Karnataka, Madhya Pradesh (MP),
Bihar, Tamil Nadu (TN) and Telangana, with these five states accounting for ~57% of
India’s maize production in 2016. It is to be noted that TN’s maize yield at
~6.5 tonnes/hectare was far higher than the national average of ~2.5 tonnes/hectare.
Exhibit 53: Top-5 states contribute ~57% of India’s maize production
Source: Directorate of Economics & Statistics, DAC&FW, Equirus Securities
Exhibit 54: Maize prices have generally trended higher than government MSPs
Source: Bloomberg, Directorate of Economics & Statistics, DAC&FW, Equirus Securities
385
220
87
61
37
27
25
25 16 13
0
145 U.S.
China
Brazil
EU-27
Argentina
Ukraine
Maxico
India
Russia
Canada
South Africa
Other
12.0
13.2
11.2
15.0
14.2
14.7
15.1
19.0
19.7
16.7
21.7
21.8
22.3
24.3
24.2
21.8
1822
2000
1681
2041 1907
1938 1912
2335 2414
2024
2542 2478
2566
2676 2632 2509
0
500
1,000
1,500
2,000
2,500
3,000
0
5
10
15
20
25
30
2000-0
1
2001-0
2
2002-0
3
2003-0
4
2004-0
5
2005-0
6
2006-0
7
2007-0
8
2008-0
9
2009-1
0
2010-1
1
2011-1
2
2012-1
3
2013-1
4
2014-1
5
2015-1
6*
Production (mn tonnes) Yield (kg/hectare) - RHS
Karnataka 15%
Madhya Pradesh 12%
Bihar 11%
Tamil Nadu 11%
Telangana 8%
Rest of India 43%
1,327 1,339
1,241
1,421
1,568
1,175
1,310 1,310 1,325 1,365
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2013 2014 2015 2016 2017
(Maize prices) Market Price (Rs/quintal) MSP (Rs/quintal)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 30 of 41
On average, the Kharif season (Apr-Sep) sees ~73%of India’s maize production and the
Rabi season only the remaining ~27%. Interesting however, Rabi season yield (4,087
kg/hectare) is almost double than that of the Kharif season (2,272 kg/hectare).
Demand for starch and starch derivatives set to be strong
Indian Pharma industry expected to grow at a of ~19% CAGR over FY16-FY20E
India is expected to be the 6th largest pharmaceutical market globally by 2020. India’s
competitive edge comes from both supply and demand sides. Its cost of production is
substantially lower than developed countries whereas rapid growth in the middle class
and an improvement in medical infrastructure would boost demand for Pharma products.
Exhibit 55: India’s pharmaceutical industry is expected to post strong growth
Source: IBEF, Equirus Securities
Indian toothpaste market expected to grow steadily at a ~7% CAGR
India’s per capita consumption of toothpaste has grown at a CAGR of ~5.5% during CY01-
16 to reach to 179gms. It is still very low compared to developed countries, and even
lower than some developing countries like Brazil, China and Philippines. A significant
uptick in India’s per capita consumption would come from ‘twice-a-day brushing’, a habit
seen only in ~20% of India’s urban population.
Exhibit 56: India’s toothpaste market estimated to grow at a CAGR (CY15-20E) of 7%
Source: Euromonitor, Equirus Securities
Indian decorative paints industry pegged to grow at a 5% CAGR over CY15-CY20E
According to Euromonitor, India’s decorative paints market is expected to grow at a
CAGR of ~5% during CY15-20E, driven by increasing urbanization, rising share of the
organized sector, penetration in rural markets and easily available financing options.
Exhibit 57: India’s decorative paints industry is geared for a growth phase
Source: Euromonitor, Equirus Securities
21.0 22.5
24.5
28.5 29.8 27.6
29.6
55.0
0
10
20
30
40
50
60
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY20E
Pharmaceutical ($bn)
44.8 51.0
58.1
66.9
75.0
83.8 89.7
95.8 102.6
109.9
118.1
20
40
60
80
100
120
140
2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Toothpaste (Rs bn)
153.4 167.8
184.0
204.2
228.3 244.8
254.4 265.4
278.6 294.0
311.8
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Decorative Paints (Rs bn)
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 31 of 41
Significant scope for India to shift maize consumption towards starch
About ~60% of India’s maize consumption goes towards animal and poultry feed, with
only ~21% used in industrial products like starch and food processing. In comparison, ~38%
of US maize production goes towards industrial uses and food processing.
Exhibit 58: Starch and its derivatives account for only ~13% of maize consumption in India vs. most of the consumption in USA
Source: USDA, NCoMM India, Equirus Securities
Annexure 2: Oilseed industry overview
Heavy dependence on oil imports to bridge supply-demand gap
Soybean oil is healthier for the heart vis-à-vis other oils as it is cholesterol-free and also
low in saturated fatty acids. It is a source of vitamin E and contains omega-3 (protective
against heart disease and cancer), just like fish oil.
Worldwide consumption of soy oil has grown by a healthy ~6% CAGR during 2015-17;
however, India’s soy oil consumption has increased at a much higher pace of ~17% CAGR.
Currently, India has the third largest consumption market share of ~10% after China’s 30%
and USA’s 17%. With a growing population, urbanization and changing lifestyles, India’s
demand for refined oil would continue to grow, warranting a ramp up in own refining
capacities to reduce dependence on oil imports.
Exhibit 59: India’s soy oil consumption is growing faster than the world
Source: ussoy.org, Equirus Securities
47%
13%
13%
7%
14%
6%
India
Feed - Poultry
Feed Livestock
Food - Direct Consumption
Food - Processed
Industrial product - Starch
Exports and others
38%
8% 15%
29%
3%
2%
2%
1%
1% 0%
USA Feed & Residual
DDG
Exports
Fuel Ethanol
HFCS
Sweetners
Starch
Cereal
Beverage/Alcohol
Seed
0
2
4
6
8
10
12
14
16
18
20
22
24
India USA China EU Rest of the world
(MMT) 2015 2016 2017
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 32 of 41
Exhibit 60: However, the supply-demand gap in soybean is huge for India
Source: USDA, Equirus Securities
While world soybean production has grown at a ~8% CAGR over the last five years helped
by technical advancements, India’s soybean production has increased by only ~2% even as
area under cultivation grew by a ~3% CAGR during the same time period. India’s
production has fallen prey to almost stagnant yields (~1,202 kg/Ha in 2017 vs. ~1,208
kg/Ha in 2012). On the other hand, world’s soybean production yield has increased to
~2,885 kg/Ha in 2017 from ~2,298 kg/Ha in 2012
Exhibit 61: Top-5 producers account for ~90% of global soybean production
Source: FAOSTAT 2017/AMIS-FAO, Equirus Securities
Major reasons for the below-par yields of Indian crops are as follows: (a) Most of India’s
soybean crop (~98%) is monsoon-dependent. (b) Farmers are yet to adapt to newer crop
production technologies. (c) Nutrient application has been imbalanced and soil fertility is
not up to the mark.
India’s soybean production is mainly concentrated in MP, Maharashtra and Rajasthan with
these three states accounting for ~93% of soybean production in 2016. It is to be noted
that MP and Rajasthan’s soybean yield at ~830 kg/hectare is far higher than
Maharashtra’s and national yields of ~557 kg/hectare and ~737 kg/hectare respectively.
Exhibit 62: Brazil, Argentina are growing the fastest among major soybean producers
Source: ussoy.org, Equirus Securities
Exhibit 63: India has been battling the problem of stagnant yields
Source: Directorate of Economics and Statistics, Govt. of India, Equirus Securities
606 842 1346 867 1046 1056 1734 2714 4256 3880
0
1,000
2,000
3,000
4,000
5,000
6,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Imports Domestic Consumption - RHS Production - RHS ('000 MT)
Argentina, 18%
Brazil, 31%
India, 3% China Mainland,
4%
USA, 34%
Others, 10%
-15%
-10%
-5%
0%
5%
10%
15%
0
50
100
150
200
250
300
350
2012 2013 2014 2015 2016 2017
Argentina Brazil USA China India Y-o-Y Growth (%) (MMT)
12.7 12.2 14.7 11.9 10.4 8.6 13.8
1327
1208 1353
983
944
738
1202
0
200
400
600
800
1,000
1,200
1,400
1,600
0
2
4
6
8
10
12
14
16
2011 2012 2013 2014 2015 2016 2017
Production (MMT) Yield (Kg/ha) - RHS
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 33 of 41
Exhibit 64: Top-3 states contribute ~93% of India’s soybean production
Source: Directorate of Economics & Statistics, DAC&FW, Equirus Securities
Annexure 3: Company overview
GAEX manufactures agro-processed products and cotton yarn, with a focus on
exports. The company's agro-processing activities include processing of oil seeds, maize
and wheat. GAEX’s cotton yarn unit enjoys a 100% export-oriented status and is mainly
engaged in the manufacture of 100% cotton yarn through the production of ring spun and
open-end yarn. Over the last decade however, GAEX has sharpened focus on the maize
processing segment considering the better and consistent returns along with dedicated
efforts placed to operate it. For FY17, the agro processing segment contributed ~55% of
revenues, maize processing ~39%, and cotton yarn and power generation the remaining.
However, management has indicated that the maize processing segment is gaining
momentum with robust growth opportunities ahead.
Exhibit 65: Control over whole value chain provides multiple growth avenues
Source: Company, Equirus Securities
GAEX operates three maize processing manufacturing plants at Himmatnagar,
Uttarakhand and Karnataka. The fourth 1,000 TPD corn milling unit at Chalisgaon,
Maharashtra, is under the final implementation stage with commercial production slated
to commence by 4QFY18.
GAEL has two agro processing major products of DOC and edible oil. A bumper crop of
soya seed increased the procurement for crushing. Also, demonetization proved to be a
boon since it facilitated direct procurement of soy seeds from farmers. A positive
monsoon forecast, continued lower international prices of crude edible oil, better parity
in soy bean processing and other traditional factors are likely to have driven the
segment’s performance in FY17.
Operations for the cotton yarn segment have been stagnant largely due to age-old
machines for the spinning line of 60,000 spindles. GAEX has completed the process of
replacing old machines installed in 1995 – right from blow room to winding - with latest
technology machines. At all locations, captive power generation is now an integral part
of respective projects. This has helped the company minimize power costs and reduce
dependence on state power.
Madhya Pradesh 57% Maharashtra
24%
Rajasthan 12%
Karnataka 2%
Others 5%
Gujarat Ambuja Exports Ltd
Agro Processing
Revenue share: 55% in FY17
Maize Processing
Revenue share: 39% in FY17
Cotton Yarn
Revenue share: 6% in FY17
Power Generation
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 34 of 41
Key milestones
Year Milestone
1991 Incorporated in Aug’91, GAEX manufactured refined castor oil, hydrated castor
oil and hydrogenated castor oil
1992 Comes out with IPO aggregating Rs 37.8mn in Apr’92, to part-finance a project
for crushing castor seed, setting up a refinery and meet WC requirements
1995 Soy flakes plant commences commercial production; Vanaspati ghee project
starts operations in 1996-97
2000 Expands installed capacity of solvent extraction unit by 30,000 tonnes
2001 Soya DOC exports win GAEX the coveted recognition of being the second-largest
manufacturer exporter in India based on performance
2006 Sets up a whole range of plant & machineries for expansion by putting in place
13,000 spindles capable of producing cotton yarn of 13 tons per day
2007 Buys back 188,692 equity shares of which 1,80,959 Equity Shares were
extinguished
2008 Maize Processing plant at Uttarakhand begins commercial production. In the
first quarter, the unit achieves more than 50% of capacity utilization
2009 Invests in seven wind turbines with total capacity of 6.95MW
2010 Installs 8,400 new spindles which commence production during H2 of 2010
2011 Successfully completes projects of generating power from bio gas for its corn
processing units at Himmatnagar & Sitarganj
2013
The 11MW cogeneration power plant begins operations at Village Dalpur,
Himmatnagar. This project has helped sharply cut costs in the cotton yarn
segment.
2015 Maize processing becomes a core segment given more stability vis-à-vis the
other two segments
2016
In process of setting up a new maize processing project in Chalisgaon,
Maharashtra. Completed the process of replacing old machines installed in 1995
with latest technology machines
2017
Successfully completes buyback of equity shares. Adds dextrose anhydrous
derivative at the Karnataka plant. Plans to add other derivative products at
Uttaranchal and Himmatnagar manufacturing locations
Key Management Profile
Mr. Vijay Kumar Gupta– Chairman & Managing Director
Mr. Vijay Kumar Gupta, Chairman &Managing Director, is a Bachelor of Dental Surgery
with managerial experience of 46 years. In 1998, Mr. Gupta took over as GAEX’s Managing
Director. With his vision and sheer dedication, he has set up various agro processing
industries in Gujarat with varied interest in oil seed processing, maize-based starch &
other products, wheat flour, ring spinning of cotton yarn, windmills& cattle feed.
Mr. Manish Kumar Gupta – Managing Director
Mr. Manish Kumar Gupta, a young and dynamic entrepreneur, is a Commerce Graduate
with a vast managerial experience of over 26 years. In 1998, he took over as GAEX’s
Managing Director. He oversees the company’s day-to-day functioning at all levels. He
also holds directorships in other companies such as Maharashtra Ambuja Exports Limited,
Maharashtra Ambuja Biotech Limited, Royale Exports Limited (Sri Lanka), Jay Agroculture
and Horticulture Products Private Limited and Jay Ambe Infra Projects Private Limited.
He is also the chairman of the GAEX’s Risk Management Committee.
Mr. Sandeep Agrawal – Whole-Time Director
Mr. Agrawal is a Commerce Graduate and a MBA. He is associated as a Director with the
company since 1995, and possesses varied and rich experience of more than 25 years. His
other Directorship includes Sealac Agro Ventures Limited.
Mrs. Sulochana Gupta – Non- Executive Director
Mrs. Sulochana is, an industrialist and GAEX’s promoter, and possesses rich experience of
more than 40 years. She supervises and monitors the administrative functions, and also
actively contributes in the company’s policy decisions.
Mr. Sudhin Choksey – Non-Executive Independent Director
Mr. Sudhin Choksey, the Managing Director of GRUH Finance Limited, is a fellow member of
the Institute of Chartered Accountants of India. He is on the Board of GAEX since 2012 as an
Independent Professional Director. He has over 36 years of working experience in functional
areas of finance, commercial and general management, both in India and abroad.
Mr. Rohit Patel – Non-Executive Independent Director
Mr. Patel is B.E. II (Electrical) and consultant on Management and Human Resources
Management. He has been an independent Director at GAEX since 2005.
Mr. Rashmikant Joshi – Non- Executive Independent Director
Mr. Rashmikant Joshi is M.A. (English Literature), L.L.B and a retired IAS officer. He is on
the company’s Board since 2014 as an Independent Professional Director. He has rich
experience in the industrial management and functions at the executive level. He had
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 35 of 41
also served in Academic field for 4 years. He is Executive Director of Center for Banking
Research, Development & Excellence (CBRDE) of Gujarat Urban Co-Op. Banks Federation,
Ahmedabad. He had joined Indian Administrative Services in 2002 and worked in various
Government Departments including as Collector, District Development Officer, Deputy
Secretary, Additional Secretary and Director of Petroleum-Government of Gujarat, and
also as a Government nominee on the Board of Surat Electricity Company, and Gujarat
Industrial Power Company Ltd.
Mr. Vishwavir Saran Das – Non- Executive Independent Director
Mr. Vishwavir Saran Das is B.A. (Economics), MBA (Specialization in HRM) and Certified
Associate of Indian Institute of Bankers. He retired as Executive Director, Reserve Bank of
India (RBI) where he served for over 36 years in almost all central banking areas. He has
been serving as GAEX’s non- executive director since 2016. He also serves as Director
with two other firms. He is on the panel of arbitrators of the National Stock Exchange of
India Limited, BSE Limited and MCX Limited, advisor to Gujarat Urban Co-operative
Bank's Federation, Open Futures Private Limited & Centre for Tax Awareness & Research.
Mr. Sandeep Singhi– Non- Executive Independent Director
Mr. Sandeep Singhi is a B.Sc., LL. B. and is an advocate by profession, working as a
Partner of M/s. Singhi & Co., Advocates & Notary. He was enrolled as an Advocate with
the Bar Council of Gujarat in 1989, and is also a member of the International Bar
Association. His other Directorships include The Sandesh Limited.
Mr. Mohit Gupta –Executive Managing Director
Mr. Mohit Gupta ceased to be Joint Managing Director and Director (Key Managerial
Personnel) of the Company w.e.f. close of business hours of 31 May’17.
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 36 of 41
Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue 7,704 6,300 8,676 10,628 6,904 7,705 11,109 13,343 9,007 9,089 13,451 14,856 33,308 39,061 46,404 53,090 Raw Materials Consumed 4,655 4,465 6,945 7,173 4,869 5,043 8,776 10,541 6,981 7,044 10,425 11,514 23,239 29,229 35,963 40,879
Increase/Decrease in Stock -16 69 -668 -321 -6 176 0 0 0 0 0 0 -936 170 0 0
Purchase of stock-in-trade 1,271 318 514 1,827 605 820 0 0 0 0 0 0 3,930 1,425 0 0
Employee benefits expense 240 210 237 226 193 218 249 235 237 237 237 237 913 895 949 1,006
Other expenses 746 741 904 1,017 845 972 1,299 1,566 927 931 1,674 1,850 3,407 4,682 5,382 6,064 EBITDA 808 497 744 705 398 476 785 1,001 863 876 1,115 1,256 2,754 2,660 4,110 5,141 Depreciation 170 177 177 190 183 188 190 234 233 233 233 233 714 794 931 1,004 EBIT 638 320 567 515 215 289 595 767 630 644 883 1,023 2,040 1,866 3,179 4,136 Interest 22 13 27 166 24 41 48 48 40 40 40 40 228 161 160 128 Other Income 29 42 34 76 10 40 12 12 18 18 18 18 182 74 71 72 PBT 645 349 575 425 202 288 559 731 608 621 860 1,001 1,994 1,779 3,090 4,080 Tax 148 51 121 89 33 78 112 146 201 205 284 330 408 369 1,020 1,346 PAT bef. MI & Assoc. 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733 Extraordinaries 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Reported PAT 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733
EPS (Rs) 4.33 2.60 3.96 2.93 1.47 1.83 3.90 5.10 3.55 3.63 5.03 5.85 13.83 12.29 18.05 23.84
Key Drivers
Agro processing revenue (Rs. mn) - - - - - - - - - - - - 18,462 22,862 26,688 29,164 Cotton revenue (Rs. mn) - - - - - - - - - - - - 2,175 2,431 2,570 2,776 Maize processing (Rs. mn) - - - - - - - - - - - - 13,053 13,789 17,044 21,049 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue 18 % -18 % 38 % 22 % -35 % 12 % 44 % 20 % -32 % 1 % 48 % 10 % - - - - Raw Materials Consumed 8 % -4 % 56 % 3 % -32 % 4 % 74 % 20 % -34 % 1 % 48 % 10 % - - - - EBITDA 68 % -38 % 50 % -5 % -44 % 20 % 65 % 28 % -14 % 2 % 27 % 13 % - - - - EBIT 112 % -50 % 77 % -9 % -58 % 34 % 106 % 29 % -18 % 2 % 37 % 16 % - - - - Recurring PAT 61 % -40 % 52 % -26 % -50 % 24 % 113 % 31 % -30 % 2 % 38 % 16 % - - - -
EPS 61 % -40 % 52 % -26 % -50 % 24 % 113 % 31 % -30 % 2 % 38 % 16 % - - - -
Yearly Growth (%)
Revenue 26 % -9 % 11 % 63 % -10 % 22 % 28 % 26 % 30 % 18 % 21 % 11 % 22 % 17 % 19 % 14 % EBITDA 46 % 52 % 50 % 47 % -51 % -4 % 6 % 42 % 117 % 84 % 42 % 25 % 49 % -3 % 55 % 25 % EBIT 61 % 97 % 70 % 71 % -66 % -10 % 5 % 49 % 192 % 123 % 48 % 33 % 71 % -9 % 70 % 30 % Recurring PAT 100 % 125 % 43 % 9 % -66 % -30 % -1 % 74 % 142 % 99 % 29 % 15 % 58 % -11 % 47 % 32 %
EPS 100 % 125 % 43 % 9 % -66 % -30 % -1 % 74 % 142 % 99 % 29 % 15 % 58 % -11 % 47 % 32 %
Margin (%)
EBITDA 10 % 8 % 9 % 7 % 6 % 6 % 7 % 7 % 10 % 10 % 8 % 8 % 8 % 7 % 9 % 10 % EBIT 8 % 5 % 7 % 5 % 3 % 4 % 5 % 6 % 7 % 7 % 7 % 7 % 6 % 5 % 7 % 8 % PBT 8 % 6 % 7 % 4 % 3 % 4 % 5 % 5 % 7 % 7 % 6 % 7 % 6 % 5 % 7 % 8 %
PAT 6 % 5 % 5 % 3 % 2 % 3 % 4 % 4 % 5 % 5 % 4 % 5 % 5 % 4 % 4 % 5 %
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 37 of 41
Consolidated Financials
P&L (Rs Mn) FY17A FY18E FY19E FY20E
Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E
Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 33,308 39,061 46,404 53,090 Equity Capital 229 229 229 229 PBT 1,994 1,779 3,090 4,080
Op. Expenditure 30,554 36,401 42,294 47,949 Reserve 8,302 9,509 11,280 13,619 Depreciation 714 794 931 1,004
EBITDA 2,754 2,660 4,110 5,141 Networth 8,531 9,738 11,510 13,848 Others 108 87 89 57
Depreciation 714 794 931 1,004 Long Term Debt 6,356 5,600 5,050 3,500 Taxes Paid 467 369 1,020 1,346
EBIT 2,040 1,866 3,179 4,136 Def Tax Liability 492 492 492 492 Change in WC -1,782 161 -944 -1,126
Interest Expense 228 161 160 128 Minority Interest 0 0 0 0 Operating C/F 567 2,452 2,146 2,669
Other Income 182 74 71 72 Account Payables 1,015 1,121 1,478 1,680 Capex -1,706 -1,226 -1,021 -637
PBT 1,994 1,779 3,090 4,080 Other Curr Liabi 695 695 695 695 Change in Invest 440 0 0 0
Tax 408 369 1,020 1,346 Total Liabilities & Equity 17,088 17,645 19,223 20,214 Others 92 76 71 72
PAT bef. MI & Assoc. 1,586 1,409 2,070 2,733 Net Fixed Assets 6,071 8,090 8,179 7,812 Investing C/F -1,173 -1,150 -950 -565
Minority Interest 0 0 0 0 Capital WIP 1,587 0 0 0 Change in Debt 3,071 -756 -550 -1,550
Profit from Assoc. 0 0 0 0 Others 695 695 695 695 Change in Equity -2,266 0 0 0
Recurring PAT 1,586 1,409 2,070 2,733
Inventory 6,244 5,911 6,897 7,840 Others -214 -365 -459 -523
Extraordinaires 0 0 0 0 Account Receivables 2,078 2,354 2,670 3,055 Financing C/F 592 -1,121 -1,009 -2,073
Reported PAT 1,586 1,409 2,070 2,733 Other Current Assets 356 356 356 356 Net change in cash -14 181 187 30
FDEPS (Rs) 13.8 12.3 18.1 23.8 Cash 58 239 426 456 RoE (%) 18 % 15 % 19 % 22 %
DPS (Rs) 0.8 1.5 2.2 2.9 Total Assets 17,088 17,645 19,224 20,214
RoIC (%) 12 % 10 % 13 % 16 %
CEPS (Rs) 20.1 19.2 26.2 32.6 Non-cash Working Capital 6,968 6,807 7,751 8,876
Core RoIC (%) 12 % 10 % 13 % 16 %
FCFPS (Rs) -3.7 12.5 11.4 19.1 Cash Conv Cycle 76.4 63.6 61.0 61.0 Div Payout (%) 7 % 14 % 14 % 14 %
BVPS (Rs) 74.4 84.9 100.4 120.8 WC Turnover 4.8 5.7 6.0 6.0 P/E 16.9 19.0 13.0 9.8
EBITDAM (%) 8 % 7 % 9 % 10 % FA Turnover 4.3 4.8 5.7 6.8 P/B 3.1 2.8 2.3 1.9
PATM (%) 5 % 4 % 4 % 5 % Net D/E 0.7 0.6 0.4 0.2 P/FCFF -63.2 18.8 20.6 12.3
Tax Rate (%) 20 % 21 % 33 % 33 % Revenue/Capital Employed 2.3 2.5 2.8 3.0 EV/EBITDA 12.2 12.3 7.8 5.9
Sales Growth (%) 22 % 17 % 19 % 14 %
Capital Employed/Equity 1.6 1.7 1.5 1.4
EV/Sales 1.0 0.8 0.7 0.6
FDEPS Growth (%) 58 % -11 % 47 % 32 %
Dividend Yield (%) 0.3 % 0.6 % 0.9 % 1.2 %
TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE
25x
5x
10x
15x
20x
0%
20%
40%
60%
80%
100%
0
400
800
Sep
/11
Mar
/12
Sep
/12
Mar
/13
Sep
/13
Mar
/14
Sep
/14
Mar
/15
Sep
/15
Mar
/16
Sep
/16
Mar
/17
Sep
/17
Mar
/18
Sep
/18
Mar
/19
EPSGrowth
-20%
-10%
0%
10%
20%
30%
40%
50%
0
24000
48000
72000
96000
Sep
/10
Mar
/11
Sep
/11
Mar
/12
Sep
/12
Mar
/13
Sep
/13
Mar
/14
Sep
/14
Mar
/15
Sep
/15
Mar
/16
Sep
/16
Mar
/17
Sep
/17
Mar
/18
Sep
/18
Mar
/19
5x
10x
12x
15x
18xEBITDA Growth
0%
10%
20%
30%
0
400
800
1200
Sep
/11
Mar
/12
Sep
/12
Mar
/13
Sep
/13
Mar
/14
Sep
/14
Mar
/15
Sep
/15
Mar
/16
Sep
/16
Mar
/17
Sep
/17
Mar
/18
Sep
/18
Mar
/19
RoE
1x
2x
4x
6x
8x
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 38 of 41
Historical Consolidated Financials
P&L (Rs Mn) FY14A FY15A FY16A FY17A
Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A
Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 30,918 25,313 27,365 33,308 Equity Capital 277 277 277 229 PBT 1,367 977 1,194 1,994
Op. Expenditure 28,971 23,668 25,512 30,554 Reserve 7,287 7,996 8,929 8,302 Depreciation 474 610 662 714
EBITDA 1,947 1,645 1,852 2,754 Networth 7,563 8,273 9,206 8,531 Others 90 93 -8 108
Depreciation 474 610 662 714 Long Term Debt 4,015 3,031 3,285 6,356 Taxes Paid 316 177 185 467
EBIT 1,473 1,035 1,191 2,040 Def Tax Liability 537 587 494 492 Change in WC -2,815 1,031 -290 -1,782
Interest Expense 207 150 99 228 Minority Interest 0 0 0 0 Operating C/F -1,200 2,534 1,374 567
Other Income 101 91 103 182 Account Payables 672 629 834 1,015 Capex -1,033 -1,234 -1,187 -1,706
PBT 1,367 977 1,194 1,994 Other Curr Liabi 329 325 351 695 Change in Invest 235 -84 -176 440
Tax 253 136 190 408 Total Liabilities & Equity 13,116 12,844 14,170 17,088 Others 65 23 39 92
PAT bef. MI & Assoc. 1,114 841 1,004 1,586 Net Fixed Assets 4,793 5,428 5,681 6,071 Investing C/F -733 -1,295 -1,324 -1,173
Minority Interest 0 0 0 0 Capital WIP 636 629 1,027 1,587 Change in Debt 2,183 -984 183 3,071
Profit from Assoc. 0 0 0 0 Others 801 778 658 695 Change in Equity 0 0 0 -2,266
Recurring PAT 1,114 841 1,004 1,586 Inventory 4,973 4,437 4,308 6,244 Others -311 -258 -210 -214
Extraordinaires 0 0 0 0 Account Receivables 1,496 1,081 1,737 2,078 Financing C/F 1,873 -1,242 -26 592
Reported PAT 1,114 841 1,004 1,586 Other Current Assets 345 322 362 356 Net change in cash -60 -3 23 -14
EPS (Rs) 9.7 7.3 8.8 13.8 Cash 71 170 397 58
RoE (%) 16 % 11 % 12 % 18 %
DPS (Rs) 0.7 0.8 0.8 0.8
Total Assets 13,115 12,844 14,170 17,088
RoIC (%) 12 % 8 % 9 % 12 %
CEPS (Rs) 11.5 10.5 12.0 20.1 Non-cash Working Capital 5,814 4,886 5,222 6,968 Core RoIC (%) 12 % 8 % 8 % 12 %
FCFPS (Rs) -12.8 9.9 1.0 -3.7 Cash Conv Cycle 68.6 70.5 69.7 76.4 Div Payout (%) 10 % 16 % 13 % 7 %
BVPS (Rs) 54.7 59.8 66.5 74.4 WC Turnover 5.3 5.2 5.2 4.8
P/E 24.1 31.9 26.7 0.0
EBITDAM (%) 6 % 6 % 7 % 8 % FA Turnover 5.7 4.2 4.1 4.3 P/B 4.3 3.9 3.5 0.0
PATM (%) 4 % 3 % 4 % 5 % Net D/E 0.5 0.3 0.3 0.7 P/FCFF -18.3 23.7 244.4 -63.2
Tax Rate (%) 19 % 14 % 16 % 20 % Revenue/Capital Employed 2.9 2.1 2.2 2.3 EV/EBITDA 16.4 18.8 16.6 0.0
Sales growth (%) 3 % -18 % 8 % 22 %
Capital Employed/Equity 1.5 1.5 1.4 1.6
EV/Sales 1.0 1.2 1.1 0.0
FDEPS growth (%) -1 % -25 % 19 % 58 %
Dividend Yield (%) 0.3 % 0.4 % 0.3 % 0.3 %
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) Page 39 of 41
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Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 40 of 41
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Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 41 of 41
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