1 July 2021 Motilal Oswal values your support in the Today’s top research theme Asiamoney Brokers Poll 2021 for India Research, Sales, Corporate Access and Specialty Chemicals : Genie is out! Trading team. We request your ballot. Initiating coverage with a positive outlook on the space We initiate coverage with a positive outlook on the Specialty Chemicals space. We assign a Buy rating to Deepak Nitrite (DN - our top pick), Vinati Organics (VO), Galaxy Surfactants (GALSURF), and NOCIL; a Neutral rating to Atul (ATLP), Alkyl Amines (AACL), Navin Fluorine (NFIL), and Fine Organic (FINEORG). Capex plans of INR39b over FY22-24E (similar to FY19-21) would result in 52% Market snapshot revenue growth by FY24E (from FY21 levels), making these companies exciting Equities - India Close Chg .% CYTD.% plays. We expect EBITDAM expansion to 25% by FY24E (from FY20/FY21 levels Sensex 52,483 -0.1 9.9 Nifty-50 15,722 -0.2 12.4 of 22.5%/24.3%). Nifty-M 100 26,971 0.3 29.4 We expect our Coverage Universe to post an EBITDA/PBT CAGR of ~20%, with Equities-Global Close Chg .% CYTD.% return ratios of 23-25% over FY22-24E (up from 22% in FY19/FY21). S&P 500 4,298 0.1 14.4 Our Coverage Universe consists of net debt-free companies (excluding DN and Nasdaq 14,504 -0.2 12.5 FTSE 100 7,037 -0.7 8.9 GALSURF, which are expected to turn net debt-free by FY23E) that plan to incur DAX 15,531 -1.0 13.2 capex through internal accruals only. We expect total FCF generation of INR83b Hang Seng 10,663 -0.9 -0.7 (v/s capex plans of INR39b) over FY22-24E. Nikkei 225 28,792 -0.1 4.9 Commodities Close Chg .% CYTD.% Brent (US$/Bbl) 75 0.1 46.8 Research covered Gold ($/OZ) 1,770 0.5 -6.8 Cu (US$/MT) 9,352 0.4 20.7 Cos/Sector Key Highlights Almn (US$/MT) 2,510 -1.1 27.2 Genie is out! Initiating coverage with a positive outlook on Currency Close Chg .% CYTD.% Specialty Chemicals USD/INR 74.3 0.1 1.7 the space USD/EUR 1.2 -0.3 -2.9 Vodafone Idea Adjusted EBITDA down 9% QoQ to 17.1b in 4QFY21 USD/JPY 111.1 0.5 7.6 Current account sees another deficit in 4QFY21 YIELD (%) Close 1MChg CYTD chg EcoScope Taxes continue to see strong growth in May’21 10 Yrs G-Sec 6.1 0.02 0.2 10 Yrs AAA Corp 6.9 0.01 0.3 Flows (USD b) 30-Jun MTD CY21 Piping hot news FIIs -0.22 1.43 8.23 DIIs 0.20 1.17 -0.44 Finmin reimposes spending curbs on ministries, depts for Q2 of FY22 Volumes (INRb) 30-Jun MTD* YTD* The finance ministry on Wednesday reimposed expenditure curbs on various Cash 642 775 789 central ministries and departments for the July-September quarter of the current F&O 49,504 46,087 43,264 Note: *Average financial year. Chart of the Day: Specialty Chemicals (Genie is out!) Relative financial performance of our Coverage Universe 1st 2nd 3rd 4th 5th 6th 7th 8th VO NFIL NOCIL AACL FINEORG DN ATLP GALSURF Rev CAGR FY21-24E (%) (37.8) (29.4) (25.3) (20) (18.2) (17.0) (13.2) (11.9) NOCIL VO NFIL FINEORG AACL DN ATLP GALSURF EBITDA CAGR FY21-24E (%) (46.5) (33.9) (30.6) (28.9) (17.5) (14.9) (13.0) (11.8) NOCIL VO FINEORG NFIL DN AACL GALSURF ATLP PBT CAGR FY21-24E (%) (53.5) (36.1) (35.1) (21.0) (18.7) (18.6) (14.6) (13.7) AACL DN VO FINEORG GALSURF NFIL ATLP NOCIL Avg ROE FY22-24E (%) (35.6) (30.9) (24.4) (23.7) (21.9) (20.5) (18.0) (14.7) AACL DN VO FINEORG GALSURF NFIL ATLP NOCIL Avg ROCE FY22-24E (%) (33.9) (28.3) (23.5) (22.9) (20.5) (20.4) (17.6) (13.8) DN NFIL ATLP AACL VO GALSURF FINEORG NOCIL Capex FY22-24E (INR b) (12.0) (7.3) (7.0) (5.0) (3.0) (3.0) (0.9) (0.6) AACL NFIL VO FINEORG ATLP GALSURF DN NOCIL EV/EBITDA FY23E (x) (30.1x) (26.4x) (25.9x) (23.9x) (20.4x) (18.4x) (14.3x) (11.0x) AACL FINEORG VO NFIL ATLP GALSURF DN NOCIL PE FY23E (x) (42.3x) (36.6x) (36.3x) (37.5x) (29.9x) (28.4x) (21.6x) (17.2x) Research Team ([email protected]) Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. In the news today Kindly click on textbox for the detailed news link 1 2 Govt removes import Microfinance loan portfolio grows 11.9% to Rs 2,59,377 cr as on restrictions on refined palm oil March-end: MFIN till December The overall microfinance industry’s gross loan portfolio (GLP) surged by The government on Wednesday 11.9 per cent to Rs 2,59,377 crore as on March 31, 2021 from Rs removed import restrictions on 2,31,787 crore as on March 31, 2020, says a report. The growth was refined palm oil till December 31 driven by an addition of 4 lakh borrowers during the pandemic-struck 12- this year, a move which could help month period ending March 2021, according to a report Micrometer, increase availability of the released by Microfinance Institutions Network (MFIN). MFIN is an commodity in the domestic industry association comprising 58 NBFC-MFIs and 39 associates market and bring down prices. including banks, small finance banks (SFBs) and NBFCs. As on March 31, According to a notification of the 2021, the microfinance industry served 5.93 crore unique borrowers, Directorate General of Foreign… through 10.83 crore loan accounts, the report said... 3 4 Indian Railways to become India's CAD stood at 1% of future-ready on mission GDP in Q4FY21, full year in mode; Will deliver 126 critical surplus at 0.9% 5 projects worth over Rs Reflecting the rise in economic 1,15,000 crore momentum, India's current IPOs raise ₹27,417 crore so To become future ready, Indian account balance showed a deficit of far this year, highest in 10 Railways is on its way to deliver 58 one per cent of GDP ($8.1 billion) in years super critical as well as 68 critical the fourth quarter ended March Indian companies raised ₹27,417 projects worth more than Rs 2021 (Q4FY21). The current crore through initial public 1,15,000 crore in the next few account was in surplus at 0.1 per offerings (IPOs) this year, the years on a mission mode. cent ($0.6 billion) in the fourth highest in at least a decade According to the Railway Ministry, quarter of last year (Q4FY20). For compared to six months of as many as 29 Super Critical … the full year FY21… previous years, driven by abundance of liquidity and investor euphoria. Data showed 6 7 that amid the robust liquidity chasing primary markets, most of Restaurants bypass Swiggy, Tech, policy changes to drive the funds raised through IPOs Zomato for more than just cost $30-35 billion in e-sales, farm were used to offer an exit to existing PE or VC funds or existing savings inputs by 2025: Report shareholders and promoters— The ‘Order Direct’ campaign, With an increasing investors' rather than for growth capital for launched by restaurants to resist interest for the agri-tech and companies… steep commissions charged by agri-ecosystem sectors, a report food aggregators such as Swiggy has estimated that over USD 30- and Zomato, is gaining 35 billion of the value pool will momentum for reasons beyond be created across agricultural costs as the industry wakes up to value chain by 2025. The Indian the possibilities of consumer agricultural sector is at the cusp data. Multiple restaurant… of a disruption based… 1 July 2021 2 30 June 2021 Specialty Chemicals Genie is out! Initiating coverage with a positive outlook on the space Globally, the Specialty Chemicals business accounts for ~20% of the USD4t Chemicals industry. From having an insignificant presence (4.5%) in this segment, India’s share in Specialty Chemicals is expected to double over the next five years – at a ~12% CAGR to USD64b by CY25. Various factors favor the Specialty Chemicals industry in India, including 1) strong domestic consumption – led by a young population (median age of 28 years), a high percentage (~67%) of which forms the working age group, 2) favorable labor cost (one- third that of China / half that of Vietnam), and 3) government impetus. In this sector initiation report, we propound our views on eight companies operating in India’s Specialty Chemicals space: Atul (ATLP), Deepak Nitrite (DN), Vinati Organics Company covered (VO), Alkyl Amines (AACL), Navin Fluorine (NFIL), Galaxy Surfactants (GALSURF), Fine Organics (FINEORG), and NOCIL. Atul Capex plans of INR39b over FY22-24E (similar to FY19-21 levels) would result in 52% Deepak Nitrite revenue growth by FY24E (from FY21 levels), making these companies exciting plays. Vinati Organics We expect 70bps EBITDAM expansion to 25% by FY24E (FY20/21 was 22.5/24.3%). Alkyl Amines We initiate coverage with a positive outlook on the Specialty Chemicals space. DN is our top pick in the sector. We assign a Buy rating to DN, VO, GALSURF, and NOCIL; a Navin Fluorine Neutral rating to ATLP, AACL, NFIL, and FINEORG.