CRISIL IERIndependentEquityResearch

Dhunseri Petrochem and Tea Ltd

Reinitiating Coverage

Enhancing investment decisions

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Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a fivepoint scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Excellent fundamentals Superior fundamentals Good fundamentals Moderate fundamentals Poor fundamentals

CRISIL Valuation Grade

5/5 4/5 3/5 2/5 1/5

Assessment
Strong upside (>25% from CMP) Upside (10-25% from CMP) Align (+-10% from CMP) Downside (negative 10-25% from CMP) Strong downside (<-25% from CMP)

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Analyst Disclosure
Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company.

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Dhunseri Petrochem and Tea Ltd

Capacity-based expansion to drive growth
Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 5/5 (CMP has strong upside) Chemicals

December 17, 2013 Fair Value CMP CFV MATRIX

Excellent Fundamentals 5
Fundamental Grade

187 110

Dhunseri Petrochem and Tea Ltd (Dhunseri), a dominant PET (polyethylene terephthalate) player in India, is well prepared to cater to the growing demand for PET following doubling of its capacity. Its upcoming greenfield plant in Egypt would offer locational advantage due to proximity to end markets and raw material sources; it derives similar benefits from its Haldia plant. Dhunseri stands to gain from the increase in demand for PET due to varied applications of PET and strong growth in the end-user industries. However, the current oversupply scenario and pressure on PET spreads are likely to continue over the next few years. We reassign the fundamental grade of 3/5. Locational advantage in Haldia gives edge; Egypt plant to strengthen its size and scale Dhunseris plant in Haldia (West Bengal) is located in proximity to raw material sources, lowering logistic and inventory holding costs and, thereby, overall production costs. Further, Dhunseris capacity will double with the commissioning of a 420,000 TPA (tonnes per annum) plant in Egypt (to meet the increasing global demand for PET). Sales to Europe and America from Egypt, Dhunseris key markets, are expected in half the time resulting in savings in freight costs and efficient working capital management. The unit will also benefit from proximity to raw material sources, availability of power at a cheaper rate and tax-free status. Stands to gain from healthy growth in demand for PET Dhunseri, being a dominant domestic player, is expected to benefit from strong demand from end-user industries such as FMCG, beverages and pharma. Also, preference for PET as a packaging material has increased due to its unique qualities eco-friendly, cost-effective and recyclable. Domestic PET demand clocked ~30% CAGR during FY07-12. Global PET demand is expected to grow at a CAGR of 5-6% over the next five years. PET spreads have been weak due to over-supply; spreads are currently in the range of US$120-160 per tonne compared to the five-year average of US$180-200 per tonne. We expect an improvement in the long run with supply rationalisation of PET and PTA globally and pick-up in demand. Key risks: Cyclical spreads, forex risk and political instability in Egypt The spreads of PET resins are cyclical as is with all commodity businesses. The companys imports and foreign loan transactions are un-hedged; any adverse movement in exchange rates could adversely impact its profitability since its exposure is not entirely hedged by exports. Further, continuous social unrest and political instability in Egypt have delayed project completion; continuous instability may pose a threat to the smooth functioning of Dhunseris operations. Revenues estimated to grow to 67.5 bn, EBITDA margin to improve in FY15 We expect revenues to grow at a two-year CAGR of 66% to 67.5 bn in FY15, of which 29 bn is estimated to be contributed by the Egypt plant. EBITDA margin is estimated to improve in FY15 driven by improvement in the PET spreads. Gearing is expected to be 2.0x in FY15. Valuations: Current market price has strong upside We have used the discounted cash flow method to value Dhunseri and arrived at a fair value of 187 per share; at the CMP of 110, the valuation grade is 5/5.

4 3 2 1

Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY/SENSEX NSE/BSE ticker Face value ( per share) Shares outstanding (mn) Market cap ( mn)/(US$ mn) Enterprise value ( mn)/(US$ mn) 52-week range ()/(H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) ( mn) 6155/20660 DPTL 10 35 3,864/63 21,840/354 127/72 0.7 32.7% 10414 1.0

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Dec-12 Mar-13 FII Jun-13 DII Sep-13 Others Promoter
67.1% 67.2% 67.2% 67.3% 8.7% 8.7% 8.7% 8.7% 24.2% 24.1% 24.1% 24.0%

KEY FORECAST
( mn) Operating income EBITDA Adj net income Adj EPS ( ) EPS growth (%) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) FY11 16,593 2,679 1,829 52.2 63.8 3.5 22.5 28.2 2.9 0.7 2.4 FY12 19,820 1,467 310 8.8 (80.0) 5.2 8.2 4.24 11.3 0.5 5.3 FY13 24,411 1,547 629 18.0 323.0 5.2 5.1 7.9 5.6 0.4 14.1 FY14E 40,818 3,054 1,239 35.4 23.3 7.1 7.8 13.9 2.8 0.4 8.0 FY15E 67,552 4,906 1,758 50.2 41.9 9.0 11.6 17.3 2.0 0.3 5.0

PERFORMANCE VIS--VIS MARKET

Returns 1-m Dhunseri CNX500 13% 2% 3-m 37% 7% 6-m 18.3% 5% 12-m -4% 1%

ANALYTICAL CONTACT
Mohit Modi (Director) Gaurav Samota Vishal Rampuria Client servicing desk +91 22 3342 3561 clientservicing@crisil.com mohit.modi@crisil.com gaurav.samota@crisil.com vishal.rampuria@crisil.com

NM: Not meaningful; CMP: Current market price Source: Company, CRISIL Research estimates

For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

CRISIL IERIndependentEquityResearch
Table 1: Dhunseri - Business environment
PET and tea Parameter Revenue contribution (FY13) Revenue contribution (FY15E) Product offering PET (India plant) 92% 54% Bottle grade PET resin PET (Egypt plant) 42% Bottle grade PET resin Tea business 8% 4% The company mainly grows/processes CTC (crush, tear and curl) tea, packet tea and a small percentage of orthodox tea The Indian tea business caters only to the domestic market. The Malawi tea business will cater largely to export markets

Geographic presence

Domestic market and 50 countries across the globe Mainly exports to Europe and America Exports accounted for 45% of sales revenues in FY13

Domestic market (Egypt) Exports to Europe, America, the Middle-East and Africa

Market position

Became the largest domestic player following capacity expansion in Haldia. Will be one of the top global PET manufacturers after commissioning of Egypt capacity

Currently produces 1% of the overall tea produced in India, which is a highly fragmented market Cater to the international markets through two Malawi acquisitions Is the market leader in Rajasthan Tea consumption is expected to grow moderately at 2.2% over the next five years Production is expected to be at the same level

Industry growth expectations Domestic demand is expected to grow at 15-18% over the next three years Global PET demand is expected to post a CAGR of 5-6% over the next five years Revenues of 29 bn estimated in FY15 Global PET demand is expected to log a CAGR of 5-6% over the next five years

Sales growth (FY11-FY13 2-yr CAGR)

24%

16% 21%* Rising population and growing preference for tea Affordability, increasing health awareness associated with tea consumption and emergence of new variants Focus on improving efficiencies, increase in yield per hectare by replacing old plants

Sales forecast 28% (FY13-FY15E 2-yr CAGR) Demand drivers Superior product characteristics of PET

Growing packaging industry and increasing applications

Margin drivers

Robust demand growth, shift from fuel oil to coal-based plant Close proximity to ports leading to lower logistics cost Cyclicality in industry being a commodity business Over-supply of PET globally to put pressure on margins

Proximity to end-user markets and raw materials. Power available at cheaper rates Tax-free zone

Key competitors Key risks

Reliance Industries Ltd and JBF Industries Indorama Ventures, M&G, Ltd DAK and other global players Continuous social unrest and political instability in Egypt Foreign exchange fluctuation

Assam Tea, McLeod Russell, Jayshree Tea, Goodricke Group and Warren Tea

Dependent on a single supplier for its key raw material supply in the PET business Tea business is labour sensitive; labour cost accounts for about 25% of net sales

*FY13 figures include Malawi acquisition number for four months. Source: Company, CRISIL Research

Dhunseri Petrochem and Tea Ltd

Grading Rationale
Dominant domestic player in PET resins based on capacity
Dhunseri became a dominant domestic PET resin manufacturer with the capacity to produce 410,000 TPA following the capacity expansion in Haldia in November 2012, thereby enjoying economies of scale which are key to any commodity business. Plant I reported capacity utilisation of 107% whereas plant II, commissioned in November 2012, achieved 100% utilisation in the last quarter of FY13. The companys PET resin sales increased by 23% from 17.86 bn in FY12 to 21.92 bn in FY13 largely driven by volume growth, which increased by 21.8% on account of commissioning of plant II in Haldia. Domestic sales volume accounted for 55% of total PET sales and the rest was exported to around 50 countries.

Became dominant domestic player in PET resins with commissioning of plant II in Haldia

Figure 1: Collective domestic PET capacity = 9,62,000 TPA in FY13

Futura 7% JBF Industries 15% Dhunseri 43%

Reliance Industries 35%

Source: Industry, CRISIL Research

Table 2: Project expansion details

India (plant II) Location Capacity in TPA Technology Company Holding (%) Capex Capex/tonne Debt (%) Construction started Commissioned\expected commissioning Note: Exchange rate 1US$ = 53 Source: Company, CRISIL Research Haldia 210,000 Oerlikon Barmag, Germany Parent 100 4.7 bn 22,380 66.7 November 2010 Commissioned in November 2012 Egypt Ain Sukhna 420,000 Oerlikon Barmag, Germany Subsidiary 70 US$169 mn ( 8.9 bn) 21,200 70 June 2011 Plant I January 2014 Plant II March 2014 (six-month delay)

CRISIL IERIndependentEquityResearch
Capacity expansion to put Dhunseri amongst the top 12 players
Dhunseri is also setting up a new PET plant with a capacity of 420,000 TPA through a subsidiary company in Egypt in a joint venture (JV) with Egyptian Petrochemicals Holding Company (ECHEM - a nodal agency for the development of the petrochemical industry in Egypt) and Engineering for Petroleum & Process Industries (ENPPI - another Egyptian government agency). Dhunseri holds 70% stake in the project. Plant I of the project is expected to be completed by January 2014 and the plant II by March 2014. Post commissioning of the plant, Dhunseris total capacity would be 8,30,000 TPA, making it one of the largest producers of PET globally.

Table 3: Global PET players capacity

S.No. 1 2 3 4 5 6 7 8 9 10 11 12 Company Indorama Ventures China Resources DAK SFX Yisheng Petrochemicals FENC M&G Octal Nan Ya Lotte Chemical Reliance Industries Dhunseri Capacity (KTPA) 3,596 2,200 2,059 2,050 2,000 2,000 1,749 1,250 1,060 1,020 988 830 Remarks Including capacity expansion plan of 490 KTPA Including capacity expansion plan of 900 KTPA Including capacity expansion plan of 400 KTPA Including capacity expansion plan of 1,000 KTPA Including capacity expansion plan of 800 KTPA Including capacity expansion plan of 500 KTPA Including capacity expansion plan of 150 KTPA Including capacity expansion plan of 200 KTPA Including capacity expansion plan of 648 KTPA Including capacity expansion plan of 420 KTPA

Source: Industry, CRISIL Research

Locational advantage in Haldia gives competitive edge

Dhunseris plant in Haldia is strategically located in proximity to its raw material source. The major raw materials for manufacturing PET resins are purified terephthalic acid (PTA powder form) and mono-ethylene glycol (MEG liquid form). Collectively, they account for about 95% of the total raw material costs. Dhunseri sources PTA from the Haldia-based plant of Mitsubishi Chemical Corporation (MCC) PTA India which is around 7 km from the plant. The strategic location results in lower logistic and inventory holding costs (the company maintains inventory of five-seven days for PTA) and, thereby, overall production costs. It has entered into long-term supply agreement with MCC PTA India for PTA requirements of its newly commissioned plant in Haldia. The company imports MEG for Indian operations from Mitsui, Singapore. The Haldia PET facilitys proximity to the port reduces the lead time. The company is in the process of commissioning underground pipes from the port to the plant, to transfer MEG, to further reduce cost and time. MEG pipelines are expected to be commissioned by December 2013.

Dhunseris existing plant is strategically located near the raw material source

Dhunseri Petrochem and Tea Ltd

Egypt plant to strengthen its size and scale

With commissioning of the 420,000 TPA plant in Egypt, Dhunseri will become one of the largest producers of PET resins globally. The plant would double its scale of operations in terms of capacity and revenues. Being located at Ain-El-Sokhana (a deep sea port in the Red sea) with proximity to end markets (mainly Europe and the US) and also to the raw material source i.e. MEG from the Middle-East, Dhunseri would have tremendous competitive advantage (lower freight cost). As per the management, the plant would be the first PET plant in Egypt, giving Dhunseri a first-mover advantage as well in the region, which currently imports its annual requirement of ~1,60,000 TPA from Korea and China. The plant will cater to Egypt and also export to Europe, the US and the Middle-East. We expect it to contribute 42% to total revenues in FY15.

Egypt plant is close to endmarkets and raw material sources

Proximity to end-markets and raw material sources

With the commissioning of the PET manufacturing facility at Ain-El-Sokhana in Egypt, Dhunseris shipment time to its key markets of Europe and the US would reduce considerably -- it would be able to ship to any European market within two-three days and to the US within seven days compared to seven days and 20-25 days for shipments from India to Europe and America, respectively. This gives it a competitive edge over exporters from China and Korea (Asia). Proximity to rapidly growing PET resin markets in Africa (Algeria, Morocco, Libya and Tunisia), Israel, the US and the European Union is expected to strengthen the companys global footprint.

PET, PTA and MEG logistics movement market

Europe

USA
PET Market China Middle East Egypt MEG

South Korea

PTA source

Source: CRISIL Research

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Dhunseri plans to import PTA, a key raw material, from Korea and China (the largest producers of PTA globally) for its Egypt facility. Of the total greenfield capacities added in 2012, about 70% are located in China, the world's largest consumer of PTA. In 2013, China is estimated to add another 10 mn tonnes; thereby, further increasing the supply in the global market. Egypts plant being located on the deep sea port in the Red sea would reduce the logistics cost for transportation of PTA from the port to the plant. Traditionally, MEG capacities were concentrated in America, accounting for 36% of the global capacities in 2002. However, over the years, the capacities have shifted to Asia Pacific and Europe/Middle-East/Africa due to increased availability of raw materials at lower costs. In 2011, America accounted for around 17%, while Asia Pacific accounted for 44% and the Middle-East, Africa and Europe together accounted for 39% of the total global capacities. The shift in capacities from America has made the Middle-East (Asia) a major MEG producer and exporter. Egypt plants proximity to high MEG-producing regions in the Middle-East, especially Saudi Arabia, is expected to reduce procurement costs.

Proximity to rapidly growing African markets and raw material supplying nations are some of the key advantages of the Egypt plant

Tax and other incentives

The Egypt plant, being located in a private free zone, is exempt from corporate income tax and is also entitled to receive duty-waiver benefits on the import of capital goods and raw materials as well as finished goods. Dhunseri is also expected to benefit from lower power, fuel (power and fuel cost in Egypt is around one-third of that in India) and overhead costs and also good infrastructure/ port facilities, thus lowering its overall cost of production and improving the profitability. Dividend distributed by the Egyptian companies to nonresident/foreign companies is also tax-exempt. Moreover, Egypt enjoys free trade status with many African/Middle-East countries. However, the political instability and unrest in the country, which has already led to delay of more than six months in the commissioning of the plant, continues to be a concern. GDP growth of Egypt is expected to come down to 1.5-2% in 2013 from 4-7% in the previous years. The overall slowdown in the economy due to political instability and unrest may have an impact on Dhunseris operations and profitability. Moreover, there is no definite tax holiday period and in case it is withdrawn, there could be significant risk to our earnings estimates for the Egypt plant.

Withdrawal of tax holiday in Egypt to have an impact

Large geographical footprint

Dhunseri has widened its international presence from 40 countries to 50. Exports increased to 9.4 bn (43% of total PET revenues in FY13) from 5.6 bn in FY12. Following the expansion, the company has created an international sales team to market the products. The company has started a Dubai marketing branch office to cater to the European and American markets. It has also carved out a greater market share in Bangladesh, Sri Lanka and Nepal. The company believes that by leveraging on its strong and widely distributed clientele across the globe and also with aggressive marketing strategy to tap other markets, selling products from Egypt would be easy.

Dhunseri Petrochem and Tea Ltd

Figure 2: Country-wise exports in FY13

Others 20% Peru 3% France 3% Germ any 4% Nepal 4% Belgium 9% Romania 10% Bangladesh 16% Italy 19%

United States of Am erica 12%

Source: Company

Stands to gain from healthy growth in domestic industry

The ~US$24 bn Indian packaging industry is expected to record 12-13% CAGR over 2012-16 as per Packaging Industry Association of India faster than the global average of 5-6% on account of increase in incomes, brand consumption and preference based on decisions of affordability, convenience and hygiene. Owing to strong growth in the domestic packaging industry and preference for PET as a packaging material, demand for PET grew by 30% during FY07-12. All three leading players Dhunseri, Reliance and JBF recorded a strong rise in domestic sales volume.

Dhunseris focus is on enhancing prospects in the local markets

Figure 3: PET demand driven by growth in packaging industry

('000 tonnes) 600 49% 500 400 300 200 100 148 0 FY07 FY08 FY09 FY10 FY11 FY12 177 244 309 409 500 0% 20% 37% 27% 32% 22% 50% 40% 30% 20% 10% 60%

Figure 4: Market segments for PET chips in India (FY13)

Juices & sauces 7% Pharma 10% Confectionary 12% Others 2%

Edible oil 10%

Liquor 8%

CSD 30%

Domestic demand

Growth (y-o-y) (RHS)

Mineral water & Jars 21%

Source: Industry, CRISIL Research

Source: Industry, CRISIL Research

PET is a preferred packaging material

PET is a polyester resin widely used for non-industrial usage - packaging foods and beverages, especially in convenience-sized soft drinks, juices and mineral water bottles. Due to varied applications, PET is preferred to other packaging materials such as aluminum, glass, paper etc. PET has become the worlds preferred packaging material due to its unique

CRISIL IERIndependentEquityResearch
properties eco-friendly and 100% recyclability. The other significant properties of PET are rigidity, transparency, hygiene, strength, lightness, durability, inertness, cost-effectiveness, attractiveness and freshness-retention capability among others.

Table 4: PET bottles vs glass bottles

PET bottles Low one-time cost Convenience of usage Light weight Easy disposal Cost 4-5 per bottle Source: CRISIL Research Glass bottles Difficulty in recovery of bottles Chances of breakages are high Heavy weight Cannot be disposed easily Cost 8 per bottle

Indias PET consumption is low

India accounts for 2-3% of the global packaging market; though it has 16% of the global population, the per capita consumption of PET is only 0.4 kg compared with the global average of 2 kg. Thus, there is tremendous growth potential considering the growth in various packaging applications, strong demand from end-user industries such as FMCG and newer applications (pharma and beverages). Growing middle-class population, rising per capita income and an organised retail sector are expected to drive growth in the packaging segment. CRISIL Research expects demand for PET to grow at a three-year CAGR of 15-18% to 10,42,000 TPA by FY16.

Table 5: Indias PET consumption lowest in the world

Regions North America South America Middle East/Africa Europe China India Rest of Asia Total Total demand '000 tonnes 4,066 1,599 2,256 4,113 4,026 605 2,351 19,016 Increase on 2012 '000 Tonnes 73 125 188 111 416 95 112 1120 % 1.8 8.5 9.1 2.8 11.5 23.2 4.8 6.3 Proportion of world total 21.4 8.4 11.9 21.6 21.2 2.7 12.9 100 Per capita consumption (in Kg) 7.7 4.2 1.7 5.9 2.8 0.4 1.7 2.4

Source: Company, Industry, CRISIL Research

Dhunseri Petrochem and Tea Ltd

Figure 5: PET sales volume growing strong

( mn) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FY09 FY10 Domestic FY11 FY12 Export FY13 4,649 6,087 9,015 12,207 12,435 6,464 4,016 5,175 5,648 9,485

Source: Company, CRISIL Research

New capacities in global PET market to put pressure on margins

At a five-year ~5% CAGR, PET is one of the fastest growing polyester inputs globally. Based on widening applications and replacement of container/glass bottles, the PET industry is expected to grow at a fast pace. Growth in the global PET resin market is being fuelled by the rapid growth coming out of the Asia-Pacific market. However, the global PET industry has been experiencing a surplus situation over the past two years, which has reduced operating rates from more than 85% to 80% in 2011 and 2012. Moreover, massive new capacity is scheduled during 2013-15 led by China. Total world capacity is estimated to reach 34 mn tonnes in FY15; this is not only in China, which is expected to add 4.75 mn tonnes by 2014, but across the world. This may lead to oversupply, thus lowering utilisation rates and putting pressure on PET spreads and, thereby, margins of all players.

Figure 6: Operating rates low due to capacity additions

(MMT) 30 25 20 15 10 5 18 0 2008 2009 Capacity 2010 2011 2012 2013 Global operating rate (RHS) 18 19 21 23 25 82% 81% 80% 78% 87% 85% 88% 86% 84% 82% 80% 78% 76% 74% 72%

Table 6: Major capacity addition over next two years

Chinese players Yisheng Petrochemical China Resources FENC Zhejiang Wankai Guangdong Indorama Other players globally OCTAL Oman Reliance India Polyplex Turkey PQS Brazil Ibn Rushd KSA Nameplate capacity (KTPA) 1,000 900 800 500 300 Nameplate capacity (KTPA) 500 648 300 450 420

MMT: Million metric tonnes Source: Industry, CRISIL Research Source: Industry, CRISIL Research

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Figure 7: Dhunseris realisations higher than its peers
(/tonne) 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 FY10 Dhunseri FY11 FY12 JBF FY13 58,734 55,674 86,318 70,709 65,272 79,970 87,009 82,728

Figure 8: Utilisation rate has been higher than its peers

( mn) 3,500 3,000 2,500 2,000 1,500 1,000 500 200 200 410 998 1,040 1,040 1,402 2,886 3,261 0% 107% 100% 104% 83% 77% 73% 120% 93% 80% 78% 80% 60% 40% 20% 100%

FY11

FY12

FY13

FY11

FY12

FY13

FY11

FY12
Indorama

Dhunseri Capacity

JBF

Utilisation rate (RHS)

*JBFs capacity inclusive of its UAE plant capacity of 4,32,000 TPA Source: Industry, CRISIL Research Source: Industry, CRISIL Research

Figure 9: Delta trends (PET-PTA-MEG)

(US$/tonne) 300 250 200 150 100 50 -

Figure 10: EBITDA per tonne

(US$/tonne) 200 180 160 140 120 100 80 60 40 20 77 79 123 91 162 150 137 181

Delta (PET-PTA-MEG)

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

FY10 FY11 Dhunseri FY12 Indorama FY13

Delta (PET-PTA-MEG)

Source: Industry, CRISIL Research

Source: Industry, CRISIL Research

10

FY13

Dhunseri Petrochem and Tea Ltd

Table 7: Competitive landscape

Dhunseri FY10 Revenues ( mn) EBITDA ( mn) EBITDA margin (%) Capacity (TPA) Utilisation rate (%) Sales volume (TPA) Sales value ( mn) Realisations per kg () Debt service ratios Debt equity ratio times (x) Interest coverage ratio (x) Working capital ratio Debtor days Creditor days Inventory days Gross asset turnover (x) 45 81 29 1.9 38 97 52 2.2 44 102 48 2.5 77 52 83 2.3 33 64 44 2.2 39 73 51 2.5 37 57 46 2.3 48 75 54 1.8 0.7 42.2 0.6 12.2 1.2 1.2 2.4 2.4 1.1 3.1 1.3 5.1 1.8 2.7 2.4 2.2 11,582 1,154 10.0% 200,000 84% 172,023 10,104 59 FY11 16,593 2,679 16.1% 200,000 100% 200,681 14,190 71 FY12 19,820 1,467 7.4% 200,000 104% 206,857 17,855 86 FY13 24,411 1,547 6.3% 410,000 107% 251,923 21,920 87 FY10 49,369 4,721 9.6% 910,800 87% 607,425 33,818 56 JBF Industries* FY11 64,658 9,629 14.9% 998,000 83% 554,732 36,209 65 FY12 71,772 7,141 10.0% 1,040,000 77% 529,512 42,345 80 FY13 74,558 7,140 9.6% 1,040,000** 73% 522,720 43,244 83

*JBFs numbers Include bottle grade, textile grade and film grade chips. **Including 4,32,000 MT capacity of the UAE plant Source: Company, CRISIL Research

Table 8: Capex cost comparison

Dhunseri Haldia Project cost ( mn) Capacity (tonnes) Cost per tonne ( ) *Cost in US$ ** Capacities added in phases from 2007 to 2012. Source: Company, CRISIL Research 4,700 210,000 22,381 Dhunseri Egypt 169* 420,000 402* JBF RAK 7110** 390 18,231 JBF Belgium 200* 390,000 513*

One of the top tea cultivators in India

Dhunseri is among the top 10 tea growing companies in India and a market leader in the packet tea segment in Rajasthan. It mainly grows and processes CTC tea and a small amount of orthodox tea. The company has 10 tea estates in Assam with production capacity of 12 mn kgs. It produces around 1% of the overall tea produced in India. In 2012-13, overall tea production decreased from 13.48 mn kg in 2011-12 to 10.91 mn kg in 2012-13 due to sale of leaf factories and one tea estate. Tea revenues increased by15% y-o-y to 1,871 mn in FY13 mainly due to increase in average tea realisations, which went up from 113 per kg to 153 per kg, and Malawian tea estate acquisitions.

11

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Figure 11: Dhunseri is among the top 10 Indian tea producers
(Mn Kg) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 FY09 FY10 FY11 Tea Production FY12 FY13 9.9 13.5 10.5 10.3 10.9

Source: Industry, CRISIL Research During 2012-13, it sold its Namsang tea estate and three leaf factories to partially finance the acquisition of two tea estates in Malawi with the capacity of 9.5 mn kgs. The acquisition offset the loss of production due to sale of tea factories. Further, it has commenced operations from its new factory in Hatijan Estate (Assam) with an annual capacity of 1.5 mn kg. The acquisition and new factory in Hatijan have taken the total capacity to 22 mn kg from 10.5 mn kg.

Malawi acquisitions open doors to global tea market

Dhunseri has entered the international tea market via the acquisition of two tea estates in Malawi, Africa at a consideration of 1,220 mn (US$22 mn) through its subsidiary in Singapore.The acquisition is funded through debt of US$12 mn and balance out of internal accruals and sale of a tea estate in India. The two estate- Makandi and Kawalazi have the capacity to produce 9.5 mn kg of tea, 0.4 mn kg of macadamia and 0.1 mn kg of coffee beans. The Malawi gardens produce tea of a middling quality, being preferred by tea bag manufacturers across the globe, it is a fast growing global tea segment. Besides, the Malawi acquisitions have widened the companys offerings across the premium and middling segments and created a consistent international presence with a growing geographic footprint. It has also de-risked the concentration of the tea business in a single tea-growing area since all its estates are in Assam. Following the acquisitions, the companys annual production is estimated to be around 22 mn kg. We expect it to contribute 36% to total tea revenues in FY15.

Malawi acquisitions give international presence in the tea segment.

Continues to be a market leader in Rajasthan

Dhunseris strong marketing presence through its well-established brands Lal Ghora and Kala Ghora has helped it to maintain the number 1 position in Rajasthan in the packet tea sales segment. Packet tea sales accounted for 33.81% of total sales in FY13. Leveraging on the existing distribution network in Rajasthan, Dhunseri has now introduced a premium variant called Bahipookri in 1kg packets. The company has ramped up its advertising campaign with Ms. Hema Malini as the brand ambassador for packet tea brands Lal Ghora and Kala Ghora to boost the companys brand visibility. However, the company has no plans to foray into the packet tea business on a national basis.

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Dhunseri Petrochem and Tea Ltd

Figure 12: Tea revenue regional break-up as of FY13

West 17% East 13%

South 23%

Rajasthan (North) 47%

Source: Company

Focus on efficiency improved the operating profitability of tea business

Dhunseris tea business witnessed improvement in operating profitability with EBITDA margin increasing from 11.9% in FY12 to 24.5% in FY13. The company is taking various measures such as plant automation to enhance labour productivity, upgradation of factories with new drying machines, replacement of old tea plants to increase yields to enhance the efficiency resulting in lower production cost and, thereby, improve the profitability. Factory productivity in 2012-13 at 55.19 kg was also higher compared to the industry average of 40.2 kg. Its average tea yield per hectare of 2,090 kgs per hectare in the past three years is better than the district average ranging between 1,800 and 1,860 kgs per hectare. The company plans to replant/extend planting of 30 lakh saplings each year which will result in increase in yield per hectare and, thereby, profitability.

Profitability of tea business has improved over the years

IT SEZ park on hold due to weak demand

Dhunseri ventured into setting up an IT complex in the IT and IT-enabled services (ITeS) SEZ at Bantala on the south-eastern fringes of Kolkata with the objective of earning stable annuity income. The IT park is being developed on six acres of land and is mapped to consist of a twin tower with a total built-up area of about 750,000 sq ft at a total cost of 1,300 mn. The project is being executed in two phases of equal magnitude. Construction work in phase I (370,000 sq ft) has been completed and it is ready for mechanical, electrical and plumbing (MEP) and other exterior works. Piling work has been completed for phase II. The company has spent around 450 mn on the project as of FY13. Though the project was progressing well and the first phase was expected to be completed by February 2013, due to the poor industry scenario, Dhunseri has put the project on hold until the situation improves and accordingly has revised the commencement of phase I and phase II to June 2014 and December 2015, respectively. Hence, we have factored lease rentals from FY16 onwards in our projections.

IT SEZ park put on hold due to the poor industry scenario

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CRISIL IERIndependentEquityResearch
Key Risks
Social unrest and political instability: key risk for Egypt plant
Dhunseri is in the process of setting up a greenfield PET plant with capacity of 420,000 MTPA in Egypt. The project is expected to get commissioned in January 2014. The timely execution of this large project is a challenge for the company since political instability and uncertainty have already led to a delay of more than six months in the commissioning of the plant. Continuous social unrest and political instability may pose a threat to smooth functioning of its operations.

Political instability and social unrest in Egypt, volatility in crude oil prices and forex fluctuations are key risks

Profitability vulnerable to forex fluctuations

Though Dhunseri follows a prudent hedging policy for its export sales, it does not hedge for MEG imports. Further, the company had foreign currency loan of 18 bn in FY13 in its book, which is un-hedged, and the quantum of external commercial borrowings (ECBs) is set to increase to fund the expansion plan. Therefore, the company is exposed to forex risk. It has reported forex losses of 380 mn on term loan and other monetary items in FY13 due to rupee depreciation.

Dependent on single supplier for key raw material

Dhunseri is highly dependent on MCC for PTA. Consequently, when MCCs operations were adversely affected in FY10 due to its expansion, Dhunseris PET production declined owing to lack of PTA supply. Production declined by almost 11% from 190,000 tonnes in FY09 to 170,000 tonnes in FY10. Post commissioning of plant II (210,000 TPA), Dhunseris PTA requirement has doubled to 0.35 mn tonnes, which will be ~25% of MCCs production.

Volatility in crude oil prices

PTA and MEG, the key raw materials for PET, account for 83% of total operating costs for the segment. Historically, prices of PTA and MEG (both crude oil derivatives) have been volatile and are currently on an upward trend at the heels of rising crude oil prices. PTA prices are directly linked to naphtha prices while MEG prices are linked to ethylene prices, both of which are volatile in nature. Hence, the companys spreads/EBITDA margins are sensitive to the movement in raw material prices, more so in a downcycle.

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Dhunseri Petrochem and Tea Ltd

Figure 13: PTA and MEG prices

(/tonne) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 FY10 PTA FY11 FY12 MEG FY13

Source: CRISIL Research

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CRISIL IERIndependentEquityResearch
Financial Outlook
Revenues to grow at two-year CAGR of 66% to 67.5 bn
We expect Dhunseris total revenues to rise at a two-year CAGR of 66% to 67.5 bn in FY15 from 24.4 bn in FY13 driven by revenues flowing from expansion at the plants in Haldia and Egypt. The Egypt plant is expected to contribute ~42% to Dhunseris total revenues in FY15. Tea business revenues are expected to rise at a two-year CAGR of 21% to 2,735 mn in FY15 mainly driven by increased contribution from two acquisitions in Malawi, which are expected to collectively constitute 36% of total tea revenues.

Revenues to grow at two- year CAGR of 66% to 67.5 bn in FY15

Figure 14: Revenue and revenue growth

( mn) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 FY11 FY12 Revenue FY13 FY14 E FY15E Growth (RHS) 16,593 19,820 24,411 40,818 67,552 19% 23% 43% 67% 80% 65% 70% 60% 50% 40% 30% 20% 10% 0%

Figure 15: PET sales volume

('000 tonnes) 450 400 350 300 250 200 150 100 50 0 FY11 FY12 India FY13 FY14 E Egypt FY15 E 201 209 18 269 410 402 336

Source: CRISIL Research

Source: CRISIL Research

Figure 16: 42% revenues to come from Egypt in FY15

Egypt - PET 42% Tea 4%

Figure 17: Segment-wise revenues

( mn) 100% 98% 96% 94% 92% 64,817 90% 88% 86% 15,218 18,241 22,539 38,250 1,375 1,580 1,871 2,568 2,735

India - PET 54%

FY11

FY12 PET

FY13

FY14 E Tea

FY15E

Source: CRISIL Research

Source: CRISIL Research

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Dhunseri Petrochem and Tea Ltd

EBITDA margin to improve from current levels

Dhunseris EBITDA is expected to grow at a two-year CAGR of 78% to 4,906 mn in FY15. EBITDA margin is expected to improve to 7.3% in FY15 from 6.3% in FY13 mainly driven by improvement in PET spreads. We expect an improvement in PET spreads in the long run with supply rationalisation of PET and PTA globally and pick-up in demand. Spreads are expected to improve from the current levels over the next two years. Further various cost reduction measures and high capacity utilisation rates will reduce the overhead cost thereby lowering cost of production and improving operating profitability.

Operating margin to improve to 7.3% in FY15 driven by improvements in PET spreads

Figure 18: EBITDA margin to improve from FY13 levels

( mn) 6,000 5,000 4,000 3,000 2,000 1,000 2,679 FY11 FY12 EBITDA FY13 FY14 E FY15E EBITDA margins (RHS) 1,467 1,547 3,054 4,906 7.4% 6.3% 7.3% 16.1% 18% 16% 14% 12% 10% 7.5% 8% 6% 4% 2% 0%

Source: CRISIL Research

PAT margin to remain at FY13 levels

We expect Dhunseris PAT margins to remain at the FY13 level, i.e. 2.6%, in FY15. We expect improvement in operating profitability but higher depreciation and finance cost (on account of capitalisation of the Egypt plant) are expected to keep PAT margin at FY13 levels. We expect PAT to grow at a CAGR of 32% to 1,758 mn in FY15.

Figure 19: PAT margin to remain at FY13 levels

( mn) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 FY11 FY12 PAT FY13 FY14 E PAT margins (RHS) FY15E 1,187 1.2% 238 1,005 1,239 1,758 0% 2.6% 3.0% 2.6% 7.2% 8% 7% 6% 5% 4% 3% 2% 1%

Source: CRISIL Research

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CRISIL IERIndependentEquityResearch
We estimate Dhunseris EPS at 35.4 for FY14 and 50.2 for FY15. EPS is expected to more than double in FY15 with the commissioning of the Egypt facility and higher utilisation at the Haldia plant. We expect its RoE to improve to 17.3% in FY15 from 7.9% in FY13. RoE of the Egypt plant is expected to be significantly higher as it enjoys 100% tax exemptions. Dhunseris gearing increased to 2.4x in FY13 from 1.2x in FY12 on account of debt-funded acquisition of Malawi tea estates and debt funded capex. However, it is expected to be 2.0x in FY15 with improvement in profitability and repayment of debt.

Figure 20: EPS and RoE to improve significantly

() 60 50 40 30 20 10 33.9 0 FY11 FY12 EPS FY13 FY14 E FY15E RoE (RHS) 8.8 18.0 35.4 50.2 4.2% 7.9% 18% 13.9% 17.3% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Figure 21: Gearing to moderate to 2.0x in FY15

(x) 3.0 2.5 2.0 1.5 1.0 0.5 FY11 FY12 FY13 Gearing FY14 E FY15E 1.2 2.4 2.4 2.0

0.6

Source: CRISIL Research Estimates

Source: CRISIL Research Estimates

Working capital cycle increased sharply in FY13

Dhunseris working capital days increased from 25 days in FY12 to 78 days in FY13. This was mainly due to increase in debtor and inventory days. Debtor days went up from 44 days to 77 days in FY13 as the company has extended the credit period to its customers against letter of credits (LCs). Moreover, the company follows the accounting policy of classifying LCs of customers discounted with the bank as bills receivable until the maturity of LCs, thereby resulting in higher debtor days. Inventory days increased from 48 to 83 days as there was inventory pile-up - of raw materials as well as finished goods - from Haldia plant II which achieved optimum utilisation rate last quarter. Moreover, raw materials and finished goods worth 1,150 mn in transit also pushed up inventory days. Creditor days decreased from 102 days to 52 days in FY13.

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Dhunseri Petrochem and Tea Ltd

Management Overview
CRISIL Researchs fundamental grading methodology includes a broad assessment of management quality apart from other key factors such as industry, business prospects and financial performance. Overall, we believe the management is good.

Experienced management
Dhunseri has a strong and experienced top management headed by promoter directors, Mr Chandra Kumar Dhanuka (executive chairman) and Mr Mrigank Dhanuka (vice chairman and managing director). They are ably supported by Mr Biswanath Chattopadhyay (managing director and CEO) and Mr Rajiv Kumar Sharma (executive director - finance). The Dhanuka family has been in the tea business for over five decades and in the petrochemicals business for around a decade. The top management is well experienced in both the businesses and well versed with the dynamics of these segments. Despite being a promoter-driven company, we believe that Dhunseris management has a professional approach towards managing the company.

Top management has strong domain expertise

Second line of management

Based on our interactions, we believe that the companys second line is reasonably experienced. Key managerial personnel have several years of experience in their respective fields.

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CRISIL IERIndependentEquityResearch
Corporate Governance
CRISILs fundamental grading methodology includes a broad assessment of corporate governance as well apart from other key factors such as industry, business prospects, financial performance and management quality. In this context, CRISIL Research analyses shareholding structure, board composition, typical board processes, disclosure standards and related-party transactions. Any qualifications by regulators or auditors also serve as useful inputs while assessing a companys corporate governance. Overall, corporate governance at Dhunseri reflects good practices supported by a fairly experienced board. We feel that the company's corporate governance practices are adequate and meet the statutory requirement supported by reasonably good board practices and involvement of an independent board.

Dhunseris corporate governance practices are adequate and meet the minimum required standards

Board composition
Dhunseris board comprises 12 members, of whom six are independent, which is in accordance with the stipulated SEBI guidelines relating to the Clause 49 of the listing agreement. Given the background of the directors, we believe that the board is fairly experienced and diversified. The independent directors have a fairly good understanding of the companys business and its processes.

Table 9: Profile of independent directors

Name Mr Joginder Pal Kundra Age Year of appointment 2010 Qualification/background He is a Bachelor of Arts and a Bachelor of Law. He is the former managing director of the State 83 Bank of India and has also been the chairman of the Banking Service Recruitment Board. He has around 53 years of experience in the field of finance and banking He is a Master in Economics and has a PhD from the Indian Statistical Institute. He has over Dr Basudeb Sen Mr Raj Narain Bhardwaj 65 2010 three decades of executive experience in commercial and development banking and investment management organisations 68 2010 He was the former managing director/chairman of Life insurance Corporation of India. He was also a member of the Securities Appellate Tribunal (SAT) He has more than 35 years of experience in the tea industry. He is the managing director of Mr Bharat Bajoria 60 2008 Teesta Valley Tea Co. Ltd and Bormahan Tea Co (1936) Ltd and holds directorship in other companies. He was the chairman of the Indian Tea Association and Consultative Committee of Plantation Association in the past Mr Anurag Bagaria Mr Dharam Pal Jindal 37 63 2010 2012 He is qualified as a chemical engineer and has a MBA. He has over 13 years of experience in a variety of companies He is a graduate from St. Xaviers College. He is the chairman of Jindal Pipes Ltd, Maharashtra Seamless Ltd, Jindal Drilling & Industries Ltd and other allied companies

Boards processes
The companys quality of disclosure can be considered good judged by the level of information and details furnished in the annual report, websites and other publicly available data. The company has all the necessary committees audit, remuneration, nomination and investor grievance in place to support corporate governance practices. The audit committee is chaired by an independent director, Mr Joginder Pal Kundra.

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Dhunseri Petrochem and Tea Ltd

Valuation

Grade: 5/5

We have used the discounted cash flow method (DCF) method to value Dhunseri and arrived at fair value of 187 per share. This fair value implies P/E multiple of 3.7x FY15E EPS and P/B multiple of 0.6x FY15E book value. The stock is currently trading at 110 per share. Consequently, we assign Dhunseri a valuation grade of 5/5, indicating that the market price has strong upside from the current levels.

One-year forward P/E band

() 600 500 400

One-year forward EV/EBITDA band

( mn) 25,000 20,000 15,000

300 200 100 0 10,000 5,000

Oct-09

Oct-10

Nov-11

Nov-12

May-08

Dec-13

Jan-08

Jan-09

Jun-09

Feb-10

Jun-10

Feb-11

Jul-11

Mar-12

Jul-12

Sep-08

Mar-13

Aug-13

Oct-10

Oct-11

Nov-12

May-09

Dhunseri 6x

1x 9x

3x 12x

EV

2x

3x

4x

5x

Source: NSE, CRISIL Research

Source: NSE, CRISIL Research

P/E premium / discount to CNX 500

20% 0% -20% -40% -60% -80% -100%

P/E movement
(Times) 20 18 16 14 12 10 8 6 4 2 0 -1 std dev +1 std dev

Oct-10

Oct-11

Nov-12

Nov-12

Dec-13

May-09

May-09

Feb-11

Mar-12

Mar-13

Sep-09

Premium/Discount to CNX 500 Median premium/discount to CNX 500

Aug-13

1yr Fwd PE (x)

Median PE

Source: NSE, CRISIL Research Terminal growth rate Terminal WACC 1.0% 11.2% 12.2% 13.2% 14.2% 15.2% 224 173 131 97 68 2.0% 267 206 157 118 85 3.0% 320 246 187 143 105 4.0% 388 297 227 173 129

Source: NSE, CRISIL Research

5.0% 477 361 275 209 157

Dec-13

Oct-10

Oct-11

Jan-09

Jan-10

Jun-10

Jan-09

Jan-10

Jun-10

Jun-11

Feb-11

Jun-11

Jul-12

Mar-12

Mar-13

Sep-09

Jul-12

Aug-13

Dec-13

Jan-09

Jan-10

Jun-10

Feb-11

Jun-11

Mar-12

Jul-12

Sep-09

Mar-13

Aug-13

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Peer comparison
M.cap Companies Dhunseri JBF Industries Global peers Indorama Ventures 121,560 8.9 26.3 31.3 2.4 2.0 1.9 12.1 16.5 13.6 34.4 7.8 6.8 Source: CRISIL Research, Industry sources mn 2,897 5,514 FY12 9.9 3.6 P/E (x) FY13 4.9 6.5 FY14E 3.1 3.5 FY12 0.4 0.5 P/B (x) FY13 0.3 0.4 FY14E 0.4 0.3 EV/EBITDA (x) FY12 5.1 5.3 FY13 13.9 6.2 FY14E 8.1 4.9 FY12 4.2 14.3 RoE (%) FY13 7.9 6.2 FY14E 13.9 9.7

CRISIL IER reports released on Dhunseri Petrochem and Tea Ltd

Fundamental Date 04-Nov-10 21-Feb-11 21-Mar-11 07-June-11 10-Aug-11 15-Nov-11 06-Jan-12 16-Feb-12 25-May-12 30-Aug-12 19-Nov-12 17-Dec-13 Nature of report Initiating coverage Q3FY11 result update Event update Q4FY11 result update Q1FY12 result update Q2FY12 result update Detailed report Q3FY12 result update Q4FY12 result update Q1FY13 result update Q2FY13 result update Reinitiating coverage grade 3/5 3/5 3/5 3/5 3/5 3/5 3/5 3/5 3/5 3/5 3/5 3/5 Fair value 236 266 266 266 243 243 243 243 206 184 163 187 Valuation grade 3/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 5/5 CMP (on the date of report) 220 155 155 154 140 112 101 122 104 110 119 110

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Dhunseri Petrochem and Tea Ltd

Company Overview
Dhunseri manufactures PET resin and grows/processes tea. It is also setting up an IT SEZ at Bantala in Kolkata with the objective of earning stable annuity income. It has become a dominant PET resin manufacturer in India following expansion in Haldia with a total capacity of 4,10,000 TPA. The company is also setting up a PET resin plant in Egypt with a capacity of 4,20,000 TPA. Its PET resins for bottle/sheet/jar are marketed under the ASPET brand. The company has six gardens in Upper Assam and four gardens in Lower Assam. Its packet tea is marketed under the Lal Ghora and Kala Ghora brands. Following the acquisition of two tea estates in Malawi, the companys total production capacity is 22 mn kgs as of FY13. Products (capacity) PET resin (TPA) Tea (mn kgs) *Proposed Egypt plant Indian operations 4,10,000 12 Overseas subsidiary 4,20,000* 10

Milestones
1916 1955 Incorporated as Dhunseri Tea Company S L Dhanuka Group took over management of the company from James Finlay & Company 1970 1980 1991 1992 1994 1996 Changed name to Dhunseri Tea & Industries Acquired the Namsang and Dilli Gardens in Assam Took over Bahadur Tea Company and amalgamated with Dhunseri Tea Came out with a public issue Acquired Santi, Khetojan and Khagorijan tea estates Promoted South Asian Petrochem Ltd to manufacture PET resins under technical and financial collaboration with Lurgi Zimmer AG of Germany Dhunseri Tea & Industries and South Asian Petrochem merged together to form Dhunseri Petrochem and Tea Ltd Construction work started at the Haldia plant Construction work started at the Egypt plant; acquired four tea factories Acquired 100% shareholding of Dowamara Tea Company Private Ltd (DTCPL) 2012 Two acquisitions in Malawi, Africa Commissioning of second PET plant in Haldia

2009

2010 2011

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Annexure: Financials (Consolidated)
Income statement
( m n) Operating income EBITDA EBITDA margin Depreciation EBIT Interest Operating PBT Other income Exceptional inc/(exp) PBT Tax provision Minority interest PAT (Reported) Less: Exceptionals Adjusted PAT FY11 16,593 2,679 16.1% 312 2,368 194 2,174 323 (642) 1,854 667 1,187 (642) 1,829 FY12 19,820 1,467 7.4% 333 1,134 916 218 217 (72) 362 125 238 (72) 310 FY13 24,411 1,547 6.3% 401 1,146 475 670 319 376 1,365 228 132 1,005 376 629 FY14E 40,818 3,054 7.5% 702 2,352 1,184 1,168 175 1,343 269 (165) 1,239 1,239 FY15E 67,552 4,906 7.3% 1,129 3,777 1,438 2,338 233 2,572 514 299 1,758 1,758

Balance Sheet
( m n) Liabilities Equity share capital Reserves Minorities Net w orth Convertible debt Other debt Total debt Deferred tax liability (net) Total liabilities Assets Net fixed assets Capital WIP Total fixed assets Investments Current assets Inventory Sundry debtors Loans and advances Cash & bank balance Marketable securities Total current assets Total current liabilities Net current assets Intangibles/Misc. expenditure Total assets FY11 350 6,785 7,135 4,098 4,098 671 11,904 5,857 483 6,339 612 1,824 1,722 2,454 2,905 8,905 4,001 4,904 49 11,904 FY12 350 7,130 7,481 8,997 8,997 724 17,201 5,954 5,447 11,401 339 2,276 2,517 1,419 4,064 590 10,867 5,444 5,424 37 17,201 FY13 350 7,411 726 8,487 20,160 20,160 901 29,548 9,935 7,000 16,935 211 4,772 5,324 3,149 2,184 330 15,759 3,556 12,203 199 29,548 FY14E 350 8,403 561 9,314 22,660 22,660 1,008 32,982 17,993 1,079 19,072 211 6,710 8,387 4,082 1,943 330 21,452 7,932 13,519 179 32,982 FY15E 350 9,844 860 11,054 22,090 22,090 1,214 34,358 18,372 754 19,126 211 8,328 12,955 4,729 1,609 330 27,951 13,089 14,862 159 34,358

Ratios
FY11 Grow th Operating income (%) EBITDA (%) Adj PAT (%) Adj EPS (%) Profitability EBITDA margin (%) Adj PAT Margin (%) RoE (%) RoCE (%) RoIC (%) Valuations Price-earnings (x) Price-book (x) EV/EBITDA (x) EV/Sales (x) Dividend payout ratio (%) Dividend yield (%) B/S ratios Inventory days Creditors days Debtor days Working capital days Gross asset turnover (x) Net asset turnover (x) Sales/operating assets (x) Current ratio (x) Debt-equity (x) Net debt/equity (x) Interest coverage 43.3 132.1 152.8 152.8 FY12 19.4 (45.2) (83.1) (83.1) FY13 23.2 5.4 103.0 103.0 FY14E 67.2 97.5 96.9 96.9 FY15E 65.5 60.6 41.9 41.9

16.1 11.0 28.2 22.5 32.8

7.4 1.6 4.2 8.2 14.6

6.3 2.6 7.9 5.1 8.1

7.5 3.0 13.9 7.8 8.7

7.3 2.6 17.3 11.6 12.2

Cash flow
( m n) Pre-tax profit Total tax paid Depreciation Working capital changes Net cash from operations Cash from investm ents Capital expenditure Investments and others Net cash from investments Cash from financing Equity raised/(repaid) Debt raised/(repaid) Dividend (incl. tax) Others (incl extraordinaries) Net cash from financing Change in cash position Closing cash FY11 2,497 (379) 312 (846) 1,584 (894) 203 (690) 233 123 (184) (590) (418) 476 2,905 FY12 435 (72) 333 1,230 1,926 (5,384) (317) (5,701) 4,899 (183) 219 4,934 1,159 4,064 FY13 989 (51) 401 (8,919) (7,580) (6,097) 389 (5,708) (148) 11,163 (183) 576 11,408 (1,880) 2,184 FY14E 1,343 (161) 702 (1,558) 326 (2,820) (2,820) 0 2,500 (248) 0 2,252 (241) 1,943 FY15E 2,572 (309) 1,129 (1,676) 1,716 (1,163) (1,163) (570) (316) (886) (334) 1,609

3.0 0.8 2.5 0.4 15.5 3.4

12.3 0.5 5.6 0.4 77.1 4.8

4.9 0.4 13.9 0.9 18.2 5.9

3.1 0.4 8.1 0.6 20.0 6.4

2.2 0.3 5.1 0.4 18.0 8.2

52 97 38 35 2.2 3.0 2.7 2.2 0.6 0.2 12.2

48 102 44 25 2.5 3.4 2.2 2.0 1.2 0.6 1.2

83 52 77 78 2.3 3.1 1.7 4.4 2.4 2.1 2.4

65 70 71 94 2.4 2.9 2.3 2.7 2.4 2.2 2.0

50 69 68 65 3.0 3.7 3.5 2.1 2.0 1.8 2.6

Quarterly financials (standalone)

( m n) Operating Incom e Change (q-o-q) EBITDA Change (q-o-q) EBITDA m argin Reported PAT Adjusted PAT Change (q-o-q) Reported PAT margin Reported EPS Q2FY13 4,738 -3% 380 0% 8.0% 476 253 -804% 10.1% 13.6 Q3FY13 5,924 25% 534 40% 9.0% 67 319 -86% 1.1% 1.9 Q4FY13 8,524 44% 616 15% 7.2% 293 272 336% 3.4% 8.4 Q1FY14 9,241 8% 856 39% 9.3% 101 645 -66% 1.1% 2.9 Q2FY14 10558 14% 1141 33% 10.8% 402 756 17% 3.8% 11.5

Per share
Adj EPS () CEPS Book value Dividend ( ) Actual o/s shares (mn) FY11 52.2 61.1 203.7 5.2 35.0 FY12 8.8 18.4 213.5 5.2 35.0 FY13 18.0 29.4 242.3 5.2 35.0 FY14E 35.4 55.4 265.9 7.1 35.0 FY15E 50.2 82.4 315.5 9.0 35.0

Source: CRISIL Research

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Dhunseri Petrochem and Tea Ltd

Focus Charts
Revenue and revenue growth trend
( mn) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 FY11 FY12 Revenue FY13 FY14 E FY15E Growth (RHS) 16,593 19,820 24,411 40,818 67,552 19% 23% 43% 67% 80% 65% 70% 60% 50% 40% 30% 20% 10% 0% 1,000 2,679 FY11 FY12 EBITDA FY13 FY14 E FY15E EBITDA margins (RHS) 1,467 1,547 3,054 4,906 4,000 3,000 2,000 7.4% 7.5% 7.3%

EBITDA and EBITDA margin trend

( mn) 6,000 5,000 16.1% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

6.3%

Source: Company, CRISIL Research

Source: Company, CRISIL Research

EPS and RoE trend

() 60 50 40 30 20 10 33.9 0 FY11 FY12 EPS FY13 FY14 E FY15E RoE (RHS) 8.8 18.0 35.4 50.2 7.9% 18% 13.9% 17.3% 20% 18% 16% 14% 12% 10% 8% 4.2% 6% 4% 2% 0%

PAT and PAT margin trend

( mn) 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 FY11 PAT FY12 FY13 FY14 E FY15E PAT margins (RHS) 1,187 1.2% 238 1,005 1,239 1,758 2.6% 3.0% 2.6% 7.2% 8% 7% 6% 5% 4% 3% 2% 1% 0%

Source: Company, CRISIL Research

Source: Company, CRISIL Research

Dhunseri has underperformed CNX500

300 250

Fair value movement since initiation

() 300 250 ('000) 1,600 1,400 1,200 200 150 100 50 0 1,000 800 600 400

200 150 100 50 0

200 0

Apr-08

Dec-08

Apr-09

Dec-09

Apr-10

Dec-10

Apr-11

Dec-11

Apr-12

Dec-12

Apr-13

Dec-13

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Dhunseri

CNX500

-Indexed to 100 Source: Company, CRISIL Research Source: Company, CRISIL Research

Oct-09 Jan-10 Mar-10 Jun-10 Aug-10 Oct-10 Dec-10 Mar-11 May-11 Jul-11 Oct-11 Dec-11 Mar-12 May-12 Jul-12 Oct-12 Dec-12 Feb-13 May-13 Jul-13 Sep-13 Dec-13
Traded Quantity (RHS) CRISIL Fair Value Dhunseri

25

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