E.I.D. Parry (India) Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Sugar

Company

E.I.D. Parry (India) Ltd

Reco Price
Rs. 327.50
Price Target (1 Year)
Rs. 393.00
Upside
20.00%

Date

June 12, 2017
Sensex
31095.70
CNX Nifty
9616.40

Exchange

Code

NSE
EIDPARRY
BSE
500125

Stable cash flows from sugar business, CIL’s continuing good performance, good prospects for bio products segment puts EID Parry in a sweet spot.

Sugar business to generate decent cash flows:
EID Parry, engaged in manufacture of sugar, co-generation, distillery and bio-products, generates ~70% of its revenues from its sugar business. The uptrend in sugar prices since the start of 2016 has been beneficial for sugar companies. With a drought in Brazil, one of the largest sugar producing countries, supply of sugar in international markets fell, resulting in higher international prices. The increase in sugar prices has led to reduction in working capital needs for the company on account of improvement in operating cash flows. EID enjoys the additional benefit of being located in South India where sugar yields are the highest in the country.

In FY18, the production of sugarcane is expected to fall due to a historic drought in Tamil Nadu. To deal with this crisis, the government of India (GoI) has decided to give licenses to various companies in south, west and east India to import raw sugar without any import duty; out of the total import of about 5 lakh tons that the government is permitting, EID Parry has been allotted 64,000 tons. The company has contracted to buy the raw sugar from Brazil; the imports are expected by June 30. On account of this initiative, overall sugar production and sales for 2017-18 may not be very different from 2016-17; however, the company will have sufficient cash generation, which can be used in repayment of debt.

Bio-Product division: good potential:
EID’s bio-products division includes bio pesticides, which are mainly used in crop protection and nutraceuticals, which are necessary inputs to crops. There has been rising awareness about bio products due to strict environmental regulations in various developing and developed countries. Bio pesticides are also more environment-friendly as they are degradable. This division has shown good traction since the last 2 years. EID also exports a number of these products to developed markets like USA.

Coromandel International stake: adds value:
EID holds 62% stake in Coromandel International Ltd (CIL), which has strong presence in complex fertilizers and nutrient based fertilizers. This company is one of the most efficient players in the fertilizers market being the lowest cost producer for Phosphate fertilizers due to its backward integration. The reforms undertaken in the urea sector (the government has allowed urea importers to decide how much to import and at what price depending on demand-supply conditions) will also benefit the company as CIL will be able to import urea at more competitive prices from the international market.

Fertilizer business: Direct benefit transfer is a system where fertilizer subsidies would be transferred to manufacturers on the basis of actual sales, a move which could save up to Rs 7,000 crore by plugging leakages. CIL will benefit from DBT given its retail reach (800 Mana Gromor stores) and strong brand image in southern agri states. Volume/ margin will be propped by (a) higher captive production of Phosphoric Acid, (b) lower imports as domestic fertilizer prices are aligned to international prices, (c) reduction in dealer discounts.

Crop protection segment to benefit from (a) capacity expansion, (b) firm demand of Mancozeb as a stabilization agent in newer chemistries, and (c) operating leverage and margin expansion.

Stock Data

CMP (Rs)
326.75
Face value (Rs)
1
52 Week Range (Rs)
354.00 - 217.55
Market cap (Rs Crores)
5760.47
Price To Book Value (x)
3.82
P/E Ratio
19.92
EV/EBIDTA (x)
13.40

One Year indexed Stock Performance

E.I.D. Parry (India) LtdSensex
E.I.D. Parry (India) Ltd
Return (%)
1m
6m
12m
36m
Absolute
-2.27
26.06
32.42
52.09
Sensex
3.01
17.27
17.80
21.58

Shareholders

(in %)
31-Mar
Promoter
45.27
Public
54.73
Others
0.00
Total
100

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Industry

India Ratings and Research (Ind-Ra) has assigned a stable outlook to the sugar sector for FY18. Production recovery in the sugar season [October 2017 to September 2018] is likely to constrain any further increase in sugar prices during the period October 2017-December 2017. With average domestic sugar price expectation of Rs. 37-40/kg (6% higher than expected FY17 prices) in FY18, high cane procurement costs are likely to constrain profitability below FY17 levels. This is likely to result in credit ratings of sugar companies remaining largely similar in FY18.

Company

E.I.D. Parry (India) Limited is engaged in manufacturing and marketing sugar, bio pesticides and nutraceuticals. The company’s other segments include co-generation (power), distillery (spirits), bio products (neem and nutraceuticals), and other activities, which include corporate investments and infrastructure development. Its geographical segments include North America, Europe, rest of the world and India. It has over nine sugar mills spread across Tamil Nadu, Puducherry, Andhra Pradesh and Karnataka, including a distillery in Sivaganga. Its sugar factories are located at Haliyal and Bagalkot. It has Cogeneration plants at Nellikuppam, Pugalur and Pudukottai. Its sugar factories have a total capacity to crush approximately 39,000 tons of cane per day and generate over 160 megawatts of power.

The company has a 62% stake in Coromandel International which manufactures farm inputs consisting of fertilizers and pesticides.

Profit & Loss Statement:- (Standalone)
(Rs Crores)
Particulars
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18E
Mar-19E
Income:-
  • Net Sales
  • Other op income
  • Total revenue
  • Growth (%)
  • Total Expenditure
  • EBITDA
  • % Margin
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Tax
  • Profit After Tax
  • Share of Associates / Minority interest
  • Report consol PAT
  • Adjusted PAT
  • Adjusted EPS
  • 1,782.0
  • -
  • 1,782.0
  • -
  • 1683.1
  • 98.9
  • 5.5
  • 163.5
  • 262.4
  • 196.2
  • 66.2
  • 97.3
  • -31.1
  • 0.0
  • -57.6
  • 26.5
  • 0.0
  • 26.5
  • 26.5
  • 1.5
  • 2,081.7
  • -
  • 2,081.7
  • 16.8%
  • 1875.9
  • 205.8
  • 9.9
  • 183.4
  • 389.2
  • 151.3
  • 237.9
  • 101.9
  • 136.0
  • 0.0
  • -12.3
  • 148.3
  • 0.0
  • 148.3
  • 148.3
  • 8.4
  • 2,561.3
  • 40.0
  • 2,601.3
  • 25.0%
  • 2540.3
  • 61.0
  • 2.4
  • 96.5
  • 157.5
  • 167.1
  • -9.6
  • 112.0
  • -121.6
  • 0.0
  • -29.5
  • -92.1
  • 0.0
  • -92.1
  • -92.1
  • -5.2
  • 2,346.5
  • 18.8
  • 2,365.2
  • -9.1%
  • 2011.0
  • 354.2
  • 15.1
  • 154.5
  • 508.7
  • 139.9
  • 368.8
  • 112.1
  • 256.7
  • 0.0
  • -27.0
  • 283.6
  • 0.0
  • 283.6
  • 283.6
  • 16.1
  • 2,374.6
  • 18.6
  • 2,393.2
  • 1.2%
  • 1959.1
  • 434.2
  • 18.3
  • 155.0
  • 589.2
  • 60.0
  • 529.2
  • 110.0
  • 419.2
  • 0.0
  • 80.0
  • 339.2
  • 0.0
  • 339.2
  • 339.2
  • 19.3
  • 2,469.6
  • 18.0
  • 2,487.6
  • 3.9%
  • 2148.6
  • 339.0
  • 13.7
  • 156.0
  • 495.0
  • 58.0
  • 437.0
  • 111.4
  • 325.6
  • 0.0
  • 62.0
  • 263.6
  • 0.0
  • 263.6
  • 263.6
  • 15.0
Source: Stockaxis Research, Company Data

Valuation

With the sugar business set to have a another year of stable profitability and CIL’s continuing good performance, EID Parry should have another year of good cash flow generation which will be used to reduce its debt. The company will also benefit from strong growth prospects in its nutraceuticals segment. We recommend ‘BUY’ with a target price of Rs. 393 (the 62% stake in Coromandel is valued at 55% discount to current market price is Rs 244 per share; the standalone business is valued at 1.3 times FY 19 BV (book value) to arrive at a valuation of Rs 149 per share) with 20% upside from a long term perspective.

 

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