INSTITUTIONALEQUITYRESEARCH

CamlinFineSciences(CFININ)

ExpectsbusinessrevivalfromQ2

23May2017
INDIA|SPECIALTYCHEMICALS|QuarterlyUpdate

ToptakeawaysfromQ4FY17 BUY(Maintain)
9 Consolidatedrevenueswereup15%/11%yoy/qoqtoRs1.49bn(+6%vs.estimates). CMPRS83/TARGETRS120(+44%)
8 EBITDAmargin(adjustedforaforexlossofRs40mn)wassubstantiallydownat1%due
COMPANYDATA
to: (1) initial cost of business diversification into antioxidant blends (particularly in its
O/SSHARES(MN): 103
US/Brazilsubsidiary),(2)enhancedinputprices,(3)pricingpressureinantioxidants,and MARKETCAP(RSBN): 9
(4)deterioratingproductmixcausedbyKeminssupplydiscontinuation. MARKETCAP(USDBN): 0.1
8 Operatingperformancewasdisappointingwitha95%fallinEBITDAtoRs14.6mnand 52WKHI/LO(RS): 120/83
netlossofRs78mn(vs.estimatedprofitofRs68mn). LIQUIDITY3M(USDMN): 0.5
PARVALUE(RS): 1
8 FY17 performance was below estimates net loss of Rs 102mn (estimated PAT of Rs
24mn) caused by sharp 10.5% fall in operating margin to 5.6%; sales grew 9% to Rs SHAREHOLDINGPATTERN,%
Mar17 Dec16 Sep16
5.34bn.
PROMOTERS: 40.9 41.1 41.1
FII/NRI: 7.6 7.0 8.8
Otherhighlights
FI/MF: 4.7 3.4 2.8
9 Q4s 15% yoy sales growth (despite key customer Kemins supply discontinuation) was NONPRO: 15.5 15.4 16.2
mainlyduetotheintegrationofDressen(acquiredinQ1FY17).The11%qoqriseinsales PUBLIC&OTHERS: 31.3 33.1 31.1
indicatesrampupinantioxidantblendsbusiness. KeyFinancials
8 CFINs Italy subsidiary saw excess inventory of hydroquinone due to termination of a Rsmn FY17E FY18E FY19E
supplycontractintheUSAandsoldinventoryexternallyatamuchlowerprice,which NetSales 5,339 7,355 9,726
dentedoveralloperatingperformance.Thissubsidiarycontributedmarginalearningsin EBIDTA 371 1,030 1,576
FY17. NetProfit 103 442 838
9 CFINs Mexican blender subsidiary, Dresen Quimica, reported strong sales/profit at Rs EPS,Rs (1.0) 4.3 8.1
1.30bn/130mninFY17.CFINexpectssteadydoubledigitgrowthinitssalesinFY18. PER,x (83.6) 19.4 10.2
EV/EBIDTA,x 30.1 11.3 7.6
ItsUSsubsidiary(CFSNorthAmerica,LLC)incurredalossofRs120mninFY17,mainly
P/BV,x 4.1 3.4 2.6
due to initial start up costs. Management expects a breakeven in Q3FY18 as this (3.6) 18.9 26.7
ROE,%
companyhasalreadyvalidateditsblendswithUScustomerssuchasCargil. Debt/Equity(%) 138.4 143.4 119.6
Its Brazil subsidiary (focused on antioxidant blends) expanded its product portfolio
CHANGEINESTIMATES
fromjustblendsforhumanfoodtopetfood/animalfeed/biodieseladditives(leveraging __RevisedEst.__ __%Revision__
Dresensexpertise).ThissubsidiaryhasalreadyachievedneutralEBITDAwithsalesofRs Rsmn FY18E FY19E FY18E FY19E
170mn;itsnetlosswasRs30mn.CFINseesnetprofitfromhereinFY18. Revenue 7,355 9,726 3.3 0.5
9 FY17 performance chemicals sales were up 15% yoy to Rs 1.25bn. CFIN sees strong EBITDA 1,030 1,576 15.4 0.5
growthinFY18ledbyarecentlongtermsupplyorderfromaEuropeanclient. CorePAT 442 838 17.2 7.3
CFINhasagreedtoacquireaChinabasesvanillinmanufacturingfacilityandexpectsto EPS(Rs) 4.3 8.1 17.2 7.3
commercialiseitbyQ2FY18.
SuryaPatraandMehulSheth

Outlook and valuation: CFINs FY17 operational performance was dismal and below our
expectation,largelyduetoadiscontinuedsupplypact,weakdemandfromChina,andinitial
expenses related to business diversification into blends. We believe CFIN will face similar
challengesinQ1FY18,butexpectasmartrecoveryinbusinessinH2FY18.Hence,wecutour
FY18EBITDAestimatesby15%butalmostretainFY19estimates.Factoringdebtadditionfor
itsproposeddiphenolplantatDahejwithaninvestmentofRs1.3bn,wecutourtargettoRs
120 (10x FY19 EV/EBITDA) vs. Rs 130 earlier. However, we believe incremental sales from
antioxidantblendsandvanillincouldsurpriseourestimates.RetainBuy.
(Rsmn) Q4FY17 Q3FY17 qoq Q4FY16 yoy vs.Expect.% Comments
NetSales 1,494 1,341 11.4 1,304 14.6 6.4 Significantlybelowestimates
EBITDA 15 20 27.5 268 94.5 93.1 Sawsharpcorrectiononweakperformanceatsubsidiarieslevel
EBITDAmargin 1.0 1.5 20.5 1,402bps
EBIT (23) (37) 36.3 233 110.0 112.6
EBITmargin (1.6) (2.7) 17.9 1,478bps
ReportedPAT (75) (124) 39.5 142 152.5 193.9
CorePAT (78) (136) 42.6 142 154.9 215.5 WeakoperatingperformancedraggedPAT
EPS(Rs) (0.8) (1.3) 42.6 1.4 154.9 215.5

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Q4FY17:Resultsataglance
(Rsmn) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 QoQ(%) YoY(%)
TotalIncome 1,206 1,304 1,402 1,102 1,341 1,494 11.4 14.6
AdjustedRMcost 576 570 687 336 688 894 30.0 56.9
%ofsales 47.8 43.7 49.0 30.5 51.3 59.8
GrossProfit 630 734 715 765 653 600 8.1 18.2
GrossMargin% 52.2 56.3 51.0 69.5 48.7 40.2
EmployeeExpenses 76 137 136 148 165 147 10.9 7.6
%ofsales 6.3 10.5 9.7 13.4 12.3 9.8
OtherExpenses 404 330 422 439 468 439 6.3 33.1
%ofsales 33.5 25.3 30.1 39.8 34.9 29.3
Totaloperatingexpenditure 1,057 1,036 1,245 923 1,321 1,480 12.0 42.8
%ofsales 87.6 79.5 88.8 83.8 98.5 99.0
Operatingprofit 149 268 157 179 20 15 27.5 94.5
OPM(%) 12.4 20.5 11.2 16.2 1.5 1.0
OtherIncome 6 11 49 (9) (1) 22
Depreciation 44 45 48 55 56 60
EBIT 112 233 159 115 (37) (23) 36.3 110.0
EBITmargin(%) 9.3 17.9 11.3 10.4 2.7 1.6
Interest 62 66 71 62 85 86
PBT 50 167 88 53 (122) (109) 10.7 165.2
ExceptionalItem/Forex 40
CorePBTafterEO 50 167 88 53 (122) (149) 22.0 189.1
Totaltax 24 25 57 48 2 (74)
Taxrate(%) 47.8 14.7 65.1 89.8 1.4 49.7
Reportedprofit 26 142 13 (8) (136) (98) 27.9 169.0
Netprofitmargin(%) 2.2 10.9 2.2 0.5 9.2 5.0
CorePAT 37 142 13 (8) (136) (78) 42.6 154.9
CoreEPS 0.4 1.4 0.1 (0.1) (1.3) (0.8) 42.6 154.9
Source:Company,PhillipCapitalIndiaResearch

Revisionofestimates
______OldEst.______ ____RevisedEst.____ _____%Revision______
Fig.Rsmn FY18E FY19E FY18E FY19E FY18E FY19E
Revenue 7,606 9,774 7,355 9,726 3.3 0.5
EBITDA 1,217 1,583 1,030 1,576 15.4 0.5
EBITDAMargin% 16.0 16.2 14.0 16.2
CorePAT 533 781 442 838 17.2 7.3
EPS 5.2 7.6 4.3 8.1 17.2 7.3
Source:Company,PhillipCapitalIndiaResearch

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CAMLINFINESCIENCES QUARTERLYUPDATE

Financials

IncomeStatement CashFlow
Y/EMar,Rsmn FY16 FY17e FY18e FY19e Y/EMar,Rsmn FY16 FY17e FY18e FY19e
Netsales 4,893 5,339 7,355 9,726 PAT 358 143 442 838
Growth,% 12 9 38 32 Depreciation 171 218 231 269
Totalincome 4,893 5,339 7,355 9,726 ChangeinWC 71 943 344 638
Rawmaterialexpenses 2,031 2,605 3,163 4,036 Cashflowfromoperatingactivities 458 868 328 469
Employeeexpenses 401 584 794 982 Capitalexpenditure 868 647 781 684
OtherOperatingexpenses 1,524 1,779 2,368 3,132 MiscExp 228 125 0 0
EBITDA(Core) 938 371 1,030 1,576 Cashflowfrominvestingactivities 640 523 781 684
Growth,% 6.2 (60.4) 177.6 53.0 Equity 27 557 0 0
Margin,% 19.2 6.9 14.0 16.2 Dividends 53 52 52 52
Depreciation 171 218 231 269 Debt 204 1,120 665 344
EBIT 767 153 799 1,307 Investments 0 111 0 0
Growth,% 6.5 (80.1) 422.6 63.6 Cashflowfromfinancingactivities 178 1,514 613 292
Margin,% 15.7 2.9 10.9 13.4 Netchgincash 4 123 160 76
Interestpaid 239 304 318 354 Openingcashbalance 193 189 312 472
OtherNonOperatingIncome 21 148 110 146 Closingcashbalance 189 312 472 548
Pretaxprofit 500 43 592 1,099
Taxprovided 142 33 118 220
Profitaftertax 358 75 473 879
ValuationRatios
NetProfit 358 75 473 879
FY16 FY17e FY18e FY19e
Growth,% 3.5 (125.2) (530.6) 89.8
PerSharedata
NetProfit(adjusted) 407 (103) 442 838
EPS(INR) 4.2 (1.0) 4.3 8.1
Unadj.shares(m) 97 103 103 103
Growth,% 2.7 (123.6) (530.6) 89.8
Wtdavgshares(m) 97 103 103 103
BookNAV/share(INR) 18.2 20.5 24.2 31.8
FDEPS(INR) 4.2 (1.0) 4.3 8.1
CEPS(INR) 6.0 1.1 6.5 10.7
BalanceSheet CFPS(INR) 4.6 (9.6) 2.4 3.5
Y/EMar,Rsmn FY16 FY17e FY18e FY19e Returnratios
Cash&bank 189 312 472 548 Returnonequity(%) 20.3 (3.6) 18.9 26.7
Debtors 755 1,129 1,471 1,891 Returnoncapitalemployed(%) 21.9 5.7 14.4 19.5
Inventory 1,733 1,978 2,425 3,056 Turnoverratios
Loans&advances 39 120 147 195 Assetturnover(x) 1.6 1.3 1.4 1.6
Othercurrentassets 298 350 350 350 Sales/Totalassets(x) 1.1 1.0 1.0 1.1
Totalcurrentassets 3,014 3,889 4,865 6,041 Sales/NetFA(x) 3.6 2.9 3.1 3.4
Investments 11 121 121 121 Workingcapital/Sales(x) 0.4 0.5 0.4 0.4
Grossfixedassets 3,597 4,041 4,196 4,980 Receivabledays 56.3 77.2 73.0 71.0
Less:Depreciation 2,194 2,412 2,643 2,912 Workingcapitaldays 129.0 179.0 147.0 135.1
Add:CapitalWIP 251 453 1,079 979 Liquidityratios
Netfixedassets 1,653 2,083 2,633 3,048 Currentratio(x) 2.8 4.1 3.4 3.2
Totalassets 4,827 6,288 7,814 9,405 Quickratio(x) 1.2 2.0 1.7 1.6
Currentliabilities 1,095 958 1,430 1,891 Interestcover(x) 3.2 0.5 2.5 3.7
Provisions 134 79 79 79 Totaldebt/Equity(%) 102.3 138.4 143.4 119.6
Totalcurrentliabilities 1,229 1,037 1,509 1,970 Netdebt/Equity(%) 91.6 123.6 124.5 102.9
Noncurrentliabilities 1,836 2,962 3,627 3,971 Valuation
Totalliabilities 3,065 3,999 5,136 5,941 PER(x) 19.7 (83.6) 19.4 10.2
Paidupcapital 97 103 103 103 PEG(x)yoygrowth 7.3 0.7 (0.0) 0.1
Reserves&surplus 1,665 2,009 2,398 3,185 Price/Book(x) 4.6 4.1 3.4 2.6
Shareholdersequity 1,762 2,288 2,678 3,464 EV/Netsales(x) 2.0 2.1 1.6 1.2
Totalequity&liabilities 4,827 6,288 7,814 9,405 EV/EBITDA(x) 10.3 30.1 11.3 7.6
EV/EBIT(x) 12.6 73.1 14.6 9.1
Source:Company,PhillipCapitalIndiaResearchEstimates

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CAMLINFINESCIENCES QUARTERLYUPDATE

StockPrice,PriceTargetandRatingHistory
140

120

100
B(TP135) B(TP130)
B(TP135) B(TP130)
B(TP135)
80

60

40

20

0
J16 F16 A16 M16 J16 A16 O16 N16 J17 F17 A17

RatingMethodology
Weratestockonabsolutereturnbasis.Ourtargetpriceforthestockshasaninvestmenthorizonofone
year.

Rating Criteria Definition

BUY >=+15% Targetpriceisequaltoormorethan15%ofcurrentmarketprice
NEUTRAL 15%>to<+15% Targetpriceislessthan+15%butmorethan15%
SELL <=15% Targetpriceislessthanorequalto15%.

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CAMLINFINESCIENCES QUARTERLYUPDATE

Management
Vineet Bhatnagar (Managing Director) (91 22) 2483 1919
Kinshuk Bharti Tiwari (Head Institutional Equity) (91 22) 6246 4101
Jignesh Shah (Head Equity Derivatives) (91 22) 6667 9735
Research
Automobiles IT Services Pharma & Specialty Chem
Dhawal Doshi (9122) 6246 4128 Vibhor Singhal (9122) 6246 4109 Surya Patra (9122) 6246 4121
Nitesh Sharma, CFA (9122) 6246 4126 Shyamal Dhruve (9122) 6246 4110 Mehul Sheth (9122) 6246 4123
Banking, NBFCs Infrastructure Strategy
Manish Agarwalla (9122) 6246 4125 Vibhor Singhal (9122) 6246 4109 Naveen Kulkarni, CFA, FRM (9122) 6246 4122
Pradeep Agrawal (9122) 6246 4113
Paresh Jain (9122) 6246 4114 Logistics, Transportation & Midcap Telecom
Consumer & Retail Vikram Suryavanshi (9122) 6246 4111 Naveen Kulkarni, CFA, FRM (9122) 6246 4122
Naveen Kulkarni, CFA, FRM (9122) 6246 4122 Media Manoj Behera (9122) 6246 4118
Jubil Jain (9122) 6246 4117 Manoj Behera (9122) 6246 4118 Technicals
Preeyam Tolia (9122) 6246 4129 Metals Subodh Gupta, CMT (9122) 6246 4136
Cement Dhawal Doshi (9122) 6246 4128 Production Manager
Vaibhav Agarwal (9122) 6246 4124 Yash Doshi (9122) 6246 4127 Ganesh Deorukhkar (9122) 6667 9966
Economics Mid-Caps & Database Manager Editor
Anjali Verma (9122) 6246 4115 Deepak Agarwal (9122) 6246 4112 Roshan Sony 98199 72726
Shruti Bajpai (9122) 6246 4135 Oil & Gas Sr. Manager Equities Support
Engineering, Capital Goods Sabri Hazarika (9122) 6667 9756 Rosie Ferns (9122) 6667 9971
Jonas Bhutta (9122) 6246 4119
Vikram Rawat (9122) 6246 4120
Sales & Distribution Corporate Communications
Ashvin Patil (9122) 6246 4105 Sales Trader Zarine Damania (9122) 6667 9976
Shubhangi Agrawal (9122) 6246 4103 Dilesh Doshi (9122) 6667 9747
Kishor Binwal (9122) 6246 4106 Suniil Pandit (9122) 6667 9745
Bhavin Shah (9122) 6246 4102
Ashka Mehta Gulati (9122) 6246 4108 Execution
Archan Vyas (9122) 6246 4107 Mayur Shah (9122) 6667 9945

ContactInformation(RegionalMemberCompanies)

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INDIA
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DisclosuresandDisclaimers

PhillipCapital(India)Pvt.Ltd.hasthreeindependentequityresearchgroups:InstitutionalEquities,InstitutionalEquityDerivatives,andPrivateClientGroup.
ThisreporthasbeenpreparedbyInstitutionalEquitiesGroup.Theviewsandopinionsexpressedinthisdocumentmay,maynotmatch,ormaybecontraryat
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Certifications:Theresearchanalyst(s)whopreparedthisresearchreportherebycertifiesthattheviewsexpressedinthisresearchreportaccuratelyreflectthe
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AdditionalDisclosuresofInterest:
UnlessspecificallymentionedinPointNo.9below:
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company(ies)coveredinthisreportasoftheendofthemonthimmediatelyprecedingthedistributionoftheresearchreport.
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4. TheResearchAnalyst,PCIL,anditsassociateshavenotreceivedcompensationforinvestmentbankingormerchantbankingorbrokerageservicesorfor
anyotherproductsorservicesfromthecompany(ies)coveredinthisreport,inthepasttwelvemonths.
5. TheResearchAnalyst,PCILoritsassociateshavenotmanagedorcomanagedintheprevioustwelvemonths,aprivateorpublicofferingofsecuritiesfor
thecompany(ies)coveredinthisreport.
6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in
connectionwiththeresearchreport.
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9. DetailsofPCIL,ResearchAnalystanditsassociatespertainingtothecompaniescoveredintheResearchreport:

Sr.no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for No
investmentbankingtransactionbyPCIL
2 WhetherResearchAnalyst,PCILoritsassociatesorrelativesoftheResearchAnalystaffiliatescollectivelyholdmorethan1%of No
thecompany(ies)coveredintheResearchreport
3 WhethercompensationhasbeenreceivedbyPCILoritsassociatesfromthecompany(ies)coveredintheResearchreport No
4 PCIL or its affiliates have managed or comanaged in the previous twelve months a private or public offering of securities for the No
company(ies)coveredintheResearchreport
5 ResearchAnalyst, hisassociate,PCILoritsassociateshavereceived compensationforinvestmentbankingormerchantbankingor No
brokerage services or for any other products or services from the company(ies) covered in the Research report, in the lasttwelve
months

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment
banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek
compensationforinvestmentbankingservicesfromthesubjectissuersinthenextthree(3)months.PhillipCapital(India)Pvt.Ltdisnotamarketmakerinthe
securitiesmentionedinthisresearchreport,althoughit,oritsaffiliates/employees,mayhavepositionsin,purchaseorsell,orbemateriallyinterestedinany
ofthesecuritiescoveredinthereport.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or
particularrequirementsofanyindividualrecipienthereof.Certainsecuritiesmaygiverisetosubstantialrisksandmaynotbesuitableforcertaininvestors.
Eachinvestormustmakeitsowndeterminationastotheappropriatenessofanysecuritiesreferredtointhisresearchreportbaseduponthelegal,taxand
accountingconsiderationsapplicabletosuchinvestoranditsowninvestmentobjectivesorstrategy,itsfinancialsituationanditsinvestingexperience.The
value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or
politicalfactors.Pastperformanceisnotnecessarilyindicativeoffutureperformanceorresults.

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Date: 2017.05.23 18:42:02 +05'30'

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