English Indian Clays Ltd

CARE IndependentEQUITY Equity Research RESE ARCH ENGLISH INDIAN CLAYS LTD. ENGLISH INDIAN CLAYS LIMITED Industry: Commodity Chemicals/Diversified 1 st BSE Scrip Code: 526560 CMP Rs. 33.4 21 November 2011

th Update for Quarter ended 30 September, 2011

Moderate top line growth English Indian Clays Limited (EICL) reported a top-line growth

th of 7.8 per cent y-o-y during the second quarter ended 30 September 2011 (Q2 FY12) to Rs.97.33 crore compared with

Rs.90.25 crore in Q2FY11.

EBITDA and EBITDA margins witness drop

EBITDA margins for Q2FY12 dropped by 587 bps year-on-year to 15.25 per cent given the rise in raw materials and power and fuel costs for the quarter. Both the segments witnessed a decline

in profitability in the quarter.

Net Profit margin dip With decline in operating margins, EICL’s net profit too dipped

from 9.2 per cent in Q2FY11 to 4.5 per cent in Q2FY12. Diluted EPS for the quarter too decreased 53 per cent y-o-y to

Rs.0.68 compared with Rs.1.45 in the same period last year.

Valuations

EICL is currently trading at trailing P/E and EV/EBITDA multiples of 6.4x and 4.4x, respectively.

Quarterly Performance Snapshot (Rs Crore) Q2FY12 Q2FY11 Growth Net operating income 97.3 90.2 7.84% Total Income 97.3 90.2 7.84% EBITDA 14.8 19.1 -22.11% EBITDA Margin 15.3% 21.1% -587 bps PAT 4.4 8.3 -47.55% PAT Margins 4.5% 9.2% -473 bps Fully Diluted EPS* (Rs.) 0.68 1.45 -53.10% * Calculated on Current Face Value of Rs.10/- per share

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INTERIM FINANCIAL PERFORMANCE ANALYSIS

Moderate growth in revenue EICL witnessed a moderate growth in revenues in Q2FY12 compared to Q2FY11. The company reported revenues of Rs.97.3 crore – up 7.8 per cent. Revenue of the allied products segment witnessed higher growth, while revenue of the clay segment (which formed 52 per cent share in EICL’s revenues in Q2FY12) grew at a relatively lower pace. The allied product primarily consists of the corn starch segment. The company had recently commenced the commercial production of the starch division at their Shimoga plant on 27th June 2011, which supported the revenue growth of this segment in Q2FY12.

EICL: Snapshot of Interim Financial Performance

(Rs Crore) Q2FY12 Q2FY11 Growth Net operating income 97.3 90.2 7.8%

EBITDA 14.8 19.1 -22.1% PAT 4.4 8.3 -47.5% EBITDA margins 15.3% 21.1% -587 bps Net margins 4.5% 9.2% -473 bps EPS (diluted) 0.68 1.45 -53.1%

Source: Company and CARE Equity Research

EBITDA declines; operating margin subsequently drop by around 5.9 percentage points EICL witnessed an EBITDA drop of 22 per cent y-o-y, from Rs.19.1 crore in Q2FY11 to Rs.14.85 crore in Q2FY12. The company witnessed increase primarily in raw materials and power & fuel expenses. The raw materials expenses witnessed an increase of around 19.6 per cent, while power and fuel cost increased by 13.5 per cent. While both segments witnessed a drop in the profitability, with the commencement of the new starch manufacturing facility at Shimoga, the allied products division reported higher depreciation cost in the quarter, leading to a steeper drop in PBIT for the division.

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EICL: Segmental Performance

(Rs Crore) Q2FY12 Q2FY11 Growth

Net Sales 97.3 90.2 7.8% Clay products 50.5 48.0 5.24% Starch and allied products 46.8 42.2 10.81% PBIT 11.8 16.4 -28.0% Clay products 11.0 13.1 -16.2% Starch and allied products 0.8 3.3 -75.1%

Source: Company and CARE Equity Research

Significant drop in net profits EICL’s net profits for the quarter Q2FY12 dropped by 47.5 per cent, y-o-y. The net margins too subsequently dropped from 9.2 per cent in Q2FY11 to 4.5 per cent in Q1FY12. The higher drop in net margins was primarily on account of increase in interest expenses. The interest expenses for the quarter stood at Rs.4.99 crore as against Rs.3.36 crore in Q2FY11.

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INTERIMSource: Company FINANCIAL and CARE SUMMARY Research

(Rs Crores) Q2FY12 Q2FY11 Growth H1FY12 H1FY11 Growth

Net operating income 97.33 90.25 7.8% 195.11 179.04 9.0% EBITDA 14.85 19.06 -22.1% 34.21 37.04 -7.6% Depreciation and amortisation 3.34 3.02 10.3% 6.43 5.95 8.0% EBIT 11.51 16.04 -28.2% 27.78 31.09 -10.6% Interest and financial expenses 4.99 3.37 48.3% 8.74 6.45 35.5% PBT 6.52 12.67 -48.6% 19.04 25.20 -24.5% PAT 4.36 8.31 -47.5% 12.78 16.72 -23.6% EPS (diluted) (Rs.) 0.68 1.45 -53.1% 2.11 2.92 -27.7%

Ratios Q2 FY12 Q2 FY11 Growth H1FY12 H1FY11 Growth EBITDA margin 15.25% 21.12% -587 bps 17.53% 20.69% -316 bps PAT margin 4.48% 9.21% -473 bps 6.55% 9.34% -279 bps Source: Company and CARE Equity Research

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