TRUST CREDIT INSIGHTS Nirma Limited Detailed Report

Shareholding pattern as on Mar 31, 2019 Credit Drivers: Promoters (K. K. Patel family) 100%  Strong market position: Nirma is among the largest players in the Soaps and detergents (S&D) segment in . Though it has lost market share in the past few years because of intense competition in the detergent business, strong brand equity and high sales penetration should help maintain its market position over the medium term. Long Term Rating Outlook  Mitigation of input risks through backward Integration: Backward AA AA AA- AA-/ Stable integration of detergents and its key raw material inputs has been a key AA AA AA AA/ Stable strategic strength for Nirma as it has protected company from increasing raw material prices and ensured timely delivery. NR NR AA- AA/ Stable  Diversified Business operations: Nirma has diversified its revenue profile through wide geographical reach. Operations outside India account for 17% of consolidated revenue and 10% of operating profit. For domestic operations as well, revenue and profitability has healthy diversification with FY 17 FY 18 FY19 FY20 YTD

CRISIL IND ICRA presence in soda ash, S&D, caustic soda, and other industrial chemicals.  Successful divestment of cement Business: The debt-funded acquisition of cement assets had constrained the financial risk profile, which is expected Short Term Rating to improve post divestment to promoter group company. Over the medium A1+ A1+ A1+ A1+ term, moderate capex and utilization of cash flow to reduce debt, should

A1+ A1+ A1+ A1+ strengthen debt protection metrics. Debt-funded acquisition of NVCL has constrained the financial risk profile, with net debt to EBIDTA, ratio at 5.5x as on Sept 30, 2019.  Liquidity: Liquidity remains adequate, primarily driven by its financial flexibility to raise short and long term debt at competitive rates.

FY 17 FY 18 FY19 FY20 YTD About the Company: CRISIL ICRA Nirma, set up by Dr. Karsanbhai K. Patel in 1980, is one of the leading manufacturers of detergents and soaps in India. Nirma has steadily expanded its operations over the years. It has also backward integrated its % Particulars H1FY20 H1FY19 manufacturing processes, thereby producing a variety of chemicals used as chg Total Income 33.1 31.7 4.4 inputs in detergent manufacture. Nirma has manufacturing plants in EBITDA 9.9 7.5 31.7 (USA), Mehsana, , Vadodara, Bhavnagar and PAT 4.0 3.3 18.6 Porbandar in Gujarat, and at Pali in Rajasthan. Nirma has a diversified Networth 56.8 49.8 14.0 product portfolio including soda ash, caustic soda, detergent, cement, Total Debt 53.9 54.2 (0.6) linear alkyl benzene, toilet soaps, salt and bromine. Nirma has set up a Debt/Equity (x) 0.95 1.09 - EBITDA Margins (%) 29.76 23.60 - cement plant in Pali (Rajasthan) with a capacity of 2.28 mtpa. In FY2008, PAT Margins (%) 11.90 10.51 - Nirma acquired the -based natural soda ash producer, Searles Interest Coverage (x) 4.95 2.69 - Valley Minerals Inc., which has manufacturing facilities at Argus, Trona and West End (USA). Source: Company Reports; As per INDAS wherever applicable. Industry Outlook: India continues to be one of the fastest growing economies in the world. Subsidiary and Holding Consumer demand trend remains stable despite current slowdown and the  Nuvoco Vistas Corporation Limited*  Rima Eastern Cement Limited government initiatives such as increases to Minimum Support Price (MSP),  Karnavati Holding Inc., USA provision of health insurance, doubling farmer income will lend further  Searles Valley Minerals Inc., USA impetus to the rural economy. Inclusive GDP growth will augur well for the  Searles Valley Minerals Europe, France overall economy. Commodity inflation and potential disruptions due to  Searles Domestic Water Company LLC, USA global events are possible headwinds which the business will need to  Company LLC, USA  FRM Trona Fuels LLC, USA navigate with caution. According to India Detergent Market Outlook, 2021,  Wardha Vaalley Coal Field Private Limited* the overall market for detergent is growing with a CAGR of 13.06% from the last five years. Detergents are available in three forms, namely powder Source: Annual Reports; *ceased as subsidiary/Joint detergent, bar detergent and liquid detergent. Powder detergents are Venture w.e.f 30.04.2019 widely accepted by Indian consumers and dominate the industry. Even though detergent bars are still used in rural areas, they are fast disappearing from the market because of ineffectiveness. The detergent industry in India is mostly captured by organized players, but unorganized regional players have a significant hold on the rural areas. On the basis of pricing, the organized detergent market can be divided into three categories, such as economy, mid-range and premium. It is common consumer item and the demand for which is increasing. It is becoming popular both in rural and in urban areas however new entrants (RB India) are also launching products.

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Trust Credit Insights – Nirma Limited

Key Credit Drivers: Strong market position: Nirma is among the largest players in the Soaps and Cons. Revenue and growth 200 0.5 detergents (S&D) segment in India. Though it has lost market share in the past few years led by intense competition in the detergent business, strong brand equity and 40% 42% 0.4 150 high sales network penetration has helped in maintaining its market position over 0.3 the medium term. Soda ash demand is expected to increase by 5-6% by the end of 100 0.2 FY20, led by healthy demand from end-user industries. Demand from the glass 9% industry (accounted for 32% of total demand in fiscal 2019) is expected to grow by Rs. Billion 10% 0.1 50 around 6% during the fiscal, owing to demand from the automobile sector, as well -1% - as increasing demand from construction in Tier-II and -III cities. Demand for S&D is 64 71 99 141 153 0 (0.1) expected to rise by 4-5% for the fiscal, owing to increasing rural demand. Between FY 15 FY 16 FY 17 FY18 FY 19 fiscals 2019 and 2024, a compound annual growth rate (CAGR) of 5-6% is expected Revenue (LHS) Growth (RHS)

in domestic demand for soda ash.

Mitigation of input risks through backward Integration: Backward integration has Cons. Revenue Mix: Mar 2019 been a key strategic strength for Nirma as it has protected the company from 12% increasing raw material prices and also ensures timely delivery. Nirma manufactures 43% key raw materials including soda ash and linear alkyl benzene (LAB) which are used to make detergents. Nirma’s operations are also backward integrated for 45% manufacturing of other chemicals like Normal Paraffin, Sulfuric Acid, Alpha Olefin Sulphonate, Glycerin and Fatty Acid.

Diversified Business operations: Nirma has diversified its revenue profile through wide geographical reach. Operations outside India account for 17% of consolidated Chemicals Cement Consumer products revenue and 10% of operating profit for the fiscal. For Indian operations too, revenue and profitability has healthy diversification with presence in soda ash, S&D, caustic soda, cement and industrial chemicals. Growth in revenue is supported by Cons. EBITDA and PAT Margins rampingStrong up parentage, of capacity shared (soda bran ash dand and caustic Board ofsoda), Directors completion and management of capex for support value- added chemicals (refined bi-carbonate and purified phosphoric acid), 20.3 Mahindra Finance is a subsidiary of Mahindra & Mahindra Ltd. which has a 18.7 18.2 17.6 debottleneckingleadership position of current in the capacities, tractors and and utility continued vehicles healthy (UV) segment demand infor India. products. M&M Operating margin will benefit from integrated operations. 12.8 has been supporting Mahindra Finance through shared ‘Mahindra’ brand as well 11.2 as representation on Board of Directors as well as management support. The 6.0 6.5 6.5 SuccessfulBoard ofdivestment Directors of of Cement Mahindra Business: Finance Nirma is headed had acquired by Mr. Dhananjaycement bus Mungaleiness of 5.6 Lafarge(Non -India Executive in October Chairman) 2016 whothrough has vastNuvoco experience Vistas Corp in corporate (NVCL) followingand investment which consolidatedbanking. The leverage operations had increasedof the company to 4x asare of headed March by 2017. Mr. NRameshuvoco isIyer a leadingwho is cementthe Viceplayer-Chairman in eastern and India Managing with about Director 14% and market has been share with; backed Mahindra by its Finance strong FY 15 FY 16 FY 17 FY18 FY 19 brand and extensive network of over 5,000 dealers. Operating efficiency is also since inception in 1995. He is also member of the Group Executive Board of M&M EBITDA (%) PAT (%) strong(as withPresident above –- averageFinancial perSer tonnevices Sector) profitability, which driven explores by salessynergies of only between blended all cementthe and businesses use of competitively and formulates sourced strategic power. Post plans. the Board acquisition, of MMFSL the EBITDA has levels of both Nirma and NVCL improved, resulting in an improved leverage of ~3x Debt and Debt to EBITDA representation from the Mahindra group by Dr. Anish Shah (Group President – 120 5.21 6.00 as ofStrategy March at2018 M&M). In andFebruary Mr. V 2019, S Parthasarathy the board of(Group Nirma CFO approved and CIO the f ordivestment M&M). of the majority equity stake in NVCL to Niyogi Enterprise Pvt. Ltd. (NEPL), a promoter 100 5.00

80 4.00 Group entity. Post completion of the transaction, NVCL would cease to be a 2.74 2.43 subsidiary of Nirma. This divestment would reduce the debt on the company. The 60 3.00 1.84 debt-funded acquisition of NVCL had constrained the financial risk profile, which is Times

Rs. Rs. Billion 40 2.00 expected to improve. Over the medium term, moderate capex and utilization of cash 0.79 20 1.00 flow to reduce debt, should strengthen the debt protection metrics. Currently the 15 11 96 70 66 leverage stands at 0.95x as on Sept 30, 2019 on standalone basis. 0 0.00 FY 15 FY 16 FY 17 FY18 FY 19 Debt Debt to EBITDA (times) Stable profit Margin: Domestic soda ash prices move in line with global prices. Prices are range bound, as demand of soda ash from China, Europe, and Southeast Asia absorbs the new capacities in Turkey. However, in fiscal 2020, domestic prices have Networth and gearing declined due to increase in supply in the domestic market. The profitability of 120 1.02 1.20 domestic soda ash players increased in fiscal 2018, driven by volume growth and 100 1.00

rise in domestic soda ash prices. Power cost increased significantly by 20% due to 0.69

80 0.80 rise in coal prices. However, better utilization rates helped the players to stabilize 0.58 60 0.60 margins. In fiscal 2019, the price increase was led by rise in international prices 0.38

Times

coupled with rupee depreciation against the dollar, thereby making imports costlier. Rs. Billion 40 0.23 0.40 Profitability of domestic soda ash players is expected to be range bound in the 20 0.20 current fiscal 2020, as softening of price due to increase in domestic supply will be 40 49 94 102 113 0 0.00 restricted by healthy demand from the glass and S&D segments. FY 15 FY 16 FY 17 FY18 FY 19 Networth Gearing (inc Securitisation)

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Trust Credit Insights – Nirma Limited

Healthy Liquidity position: Nirma’s liquidity position remains healthy, primarily driven by its financial flexibility to raise short and long-term debt at short notice Interest Coverage and at competitive rates. The company has repaid debt of Rs 10.50 bn as 18.60 scheduled by September 2018, and had no major obligation in fiscal 2019. It has debt obligation of Rs 11.80 bn in fiscal 2020 and then about Rs 200 each year, and 10.89 the debt servicing is likely to be supported by higher cash accrual. Funding has already been availed for immediate capex. 3.54 3.01 3.43 Sustained improvement in business risk profile and debt protection metrics, driven by increased market share and healthy cash accrual in the soda ash and S&D businesses. Captive production of raw material assures timely and FY 15 FY 16 FY 17 FY18 FY 19 adequate supply as well as control over both quality and cost. The high degree Int. Coverage (times) of backward integration has partially insulated the company from the steadily increasing raw material prices over the past few years. With new products, Net Cash Accruals to Total Debt such as bromine, and the expansion of soda ash and caustic capacities, 1.09 coupled with capacity additions to captive power and diversified operations, the cyclicality in products is expected to be de-risked.

0.55

0.26 0.28 0.15

FY 15 FY 16 FY 17 FY18 FY 19

NCATD (times)

Company Management

Name Designation Name Designation Mr. K.K. Patel Chairman Mr. Pankaj Patel Director

Mr. Hiren K Patel Managing Director Mr. Paresh Sheth Company Secretary

Mr. Rakesh K Patel Vice Chairman Mr. Kaushikbhai Patel Director Mr. Vijay Shah Director Mr. Chinubhai Shah Director Ms. Purvi Pokhariyal Director Mr. Shailesh Sonara Director (Environment and Safety)

NCD & CP Issuances over 5 years Credit spread over 3 Year G-Sec:

9.07 9.55 9.11 8.68 8.75 8.15 7.10 7.12 7.53 7.84 20 6.81 15 6.43 6.19 5.60 5.54 5.27

FY 16 FY17 FY18 FY19 FY20 (YTD)

Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 NCD Quantum (Rs. Bn) CP Quantum (Rs. Bn) Q3FY20 Nirma Ltd G-SEC Source: NSDL, Prime Database Source: Reuters

Latest Issuance:

Quantum Name Type Date Tenor Coupon (%) (Rs. Bn) Nirma Limited Secured March 1,2017 3 years 7.9 10 Other Information: Auditors M/s. Rajendra D. Shah & Co.CA

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Trust Credit Insights – Nirma Limited

Financials: (Consolidated as per IND AS)

Profit & Loss Statement Particulars (in Bn) FY17 FY18 FY19 Balance Sheet INCOME : Particulars (in Bn) FY17 FY18 FY19 Gross Sales 108.27 144.80 153.35 EQUITY AND LIABILITIES Net Sales 99.05 140.97 153.35 Share Capital 0.73 0.73 0.73 EXPENDITURE : 0.00 0.00 0.00 Shareholder's Funds 94.15 101.56 112.76 Increase/Decrease in Stock 0.17 -0.31 -0.13 Long-Term Borrowings 85.99 66.73 56.58 Raw Material Consumed 23.61 33.97 37.67 Other Non-current liabilities 18.94 19.30 18.94 Power & Fuel Cost 15.84 25.93 29.96 Total Non-Current Liabilities 104.93 86.03 75.53 Employee Cost 9.04 11.14 11.91 Current Liabilities 0.00 0.00 0.00 Other Manufacturing Expenses 6.19 32.39 34.15 Trade Payables 12.68 12.61 14.25 General and Administration Expenses 2.73 8.07 7.86 Other Current Liabilities 12.22 38.12 38.09 Selling and Distribution Expenses 18.46 3.76 4.19 Short Term Borrowings 10.41 3.61 9.08 Miscellaneous Expenses 4.49 0.39 0.73 Short Term Provisions 6.08 6.84 7.20 Less: Expenses Capitalized 0.00 0.00 0.00 Total Current Liabilities 41.39 61.18 68.62 Total Expenditure 80.53 115.33 126.34 Total Liabilities 240.47 248.77 256.91 Operating Profit (Excl OI) 18.52 25.63 27.00 ASSETS 0.00 0.00 0.00 Other Income 1.83 1.81 2.08 Non-Current Assets 0.00 0.00 0.00 Operating Profit 20.34 27.44 29.09 Net Block 180.93 177.57 178.72 Interest 5.23 8.51 7.88 Capital Work in Progress 3.37 8.69 17.31 PBDT 15.12 18.93 21.21 Other Fixed Assets 0.13 0.03 0.00 Depreciation 5.30 9.46 8.56 Non Current Investments 0.67 0.60 0.31 Profit Before Taxation & Exceptional Long Term Loans & Advances 3.64 4.32 3.54 Items 9.82 9.47 12.65 Other Non-Current Assets 2.31 3.83 4.31 Profit Before Tax 8.71 9.47 12.65 Total Non-Current Assets 191.06 195.04 204.19 Provision for Tax 2.30 1.57 2.69 Current Assets - Loans & Advances 0.00 0.00 0.00 Profit After Tax 6.41 7.90 9.96 Currents Investments 4.12 8.44 4.56 Inventories 18.36 19.30 20.42 Key Ratios Sundry Debtors 12.60 13.09 13.87 Particulars FY17 FY18 FY19 Cash and Bank 7.59 7.79 9.09 Other Current Assets 1.62 1.12 1.11 Operational & Financial Ratios Short Term Loans and Advances 5.12 3.99 3.67 Earnings Per Share (Rs) 43.72 53.95 68.03 Total Current Assets 49.41 53.73 52.72 DPS(Rs) 0.00 0.00 0.00 Miscellaneous Expenses not written Book Value (Rs) 644.52 695.25 771.93 off 0.00 0.00 0.00 Margin Ratios Total Assets 240.47 248.77 256.91 PBIDTM (%) 18.79 18.95 18.97 Total Debt (Long Term Plus Short PATM (%) 5.92 5.45 6.49 Term) 98.37 97.31 91.38 Performance Ratios

ROA (%) 4.04 3.23 3.94 ROE (%) 8.99 8.07 9.29 Cash flow Statement ROCE (%) 10.99 9.19 10.18 Particulars (in Bn) F17 F18 F19 Efficiency Ratios Profit Before Tax 8.69 9.45 12.63 Receivable days 35.93 32.38 32.09 Adjustment 10.78 16.76 15.99 Inventory Days 51.36 47.46 47.27 Changes In working Capital -0.26 -3.64 -1.00 Payable days 42.95 39.38 38.51 Cash Flow after changes in Growth Ratio Working Capital 19.21 22.57 27.62 Net Sales Growth(%) 39.77 42.32 8.78 Interest Paid 0.00 0.00 0.00 Core EBITDA Growth(%) 32.28 34.88 6.00 Tax Paid -0.10 -2.19 -1.61 PAT Growth(%) -19.51 23.19 26.08 Other Direct Expenses paid 0.00 0.00 0.00 Financial Stability Ratios Extra & Other Item 0.00 0.00 0.00 Total Debt/Equity(x) 1.04 0.96 0.81 Cash From Operating Activities 19.11 20.38 26.00 Current Ratio(x) 1.19 0.88 0.77 Cash Flow from Investing Activities -94.17 -15.44 -11.02 Quick Ratio(x) 0.75 0.56 0.47 Cash from Financing Activities 77.82 -9.96 -14.10 Interest Coverage Ratio 2.67 2.11 2.61 Net Cash Inflow / Outflow 2.76 -5.02 0.88 Opening Cash & Cash Equivalents 4.58 7.34 2.31 Peer Comparison as on March 31, 2019 Cash & Cash Equivalent on Amalgamation / Take over / Particulars (in Bn) Nirma Ltd HUL Jyothy Labs Merger 0.00 0.00 0.00 Total Income 155.43 398.61 18.41 Cash & Cash Equivalent of PAT 9.96 60.60 1.98 Subsidiaries under liquidations 0.00 0.00 0.00 Net Worth 112.76 78.43 13.27 Debt 91.38 0.99 2.81 Translation adj. on reserves / op EBITDA margin (%) 18.71 23.66 16.77 cash balances frgn subsidiaries 0.00 0.00 0.00 ROE (%) 9.29 80.29 16.20 Effect of Foreign Exchange ROCE (%) 10.18 113.29 16.88 Fluctuations 0.00 0.00 0.00 Leverage (times) 0.81 0.01 0.21 Closing Cash & Cash Equivalent 7.34 2.31 3.20

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