Chirag Rajendra Shah

K. J. Somaiya Institute of Management

Studies & Research, Mumbai.

BASF India Ltd.

Equity Research Report

COMPANY INFORMATION:
BASF India Limited is a leading multinational chemical company guided by its corporate purpose – We
create chemistry for a sustainable future. The Company caters to several sectors including agriculture,
automotive, pharmaceuticals, construction, consumer durables, consumer care, paper, and paints. These
businesses have inherited a strong technological support from the parent company – BASF SE and
embody total quality commitment from every employee of the organization. Through its focus on
sustainability, the company embodies environment-friendly and customer-focused best practices to
deliver high value to customers, stakeholders and the community at large. BASF India Limited is listed on
BSE Ltd. and the National Stock Exchange of India Ltd. At BASF, they create chemistry for a sustainable
future. They combine economic success with environmental protection and social responsibility. BASF has
successfully partnered India’s progress for over 127 years. In 2019, BASF India Limited, the flagship
company of BASF in India, celebrated 75 years of incorporation in the country. BASF India generated sales
of around €1.4 billion. 

Founded: 1943
Industry Name: SECTOR: CHEMICALS
House Name: Public Sector
Traded as-
BSE: 500042
NSE: BASF REGISTERED CORPORATE OFFICE:
ISIN: INE373A01013
Address: The Capital, 'A' Wing, 1204- C, 12th Floor, Plot No. C-70, ‘G’ Block, Bandra Kurla Complex,
Headquarters: Bandra
Mumbai,
(East), Maharashtra,
Mumbai- 400051.India.
Tel. No.: 022-62785600
Email: investor-grievance-india@basf.com
Website: http://www.basf.com/in

168
Global view of Chemical Industry:
The chemical industry is of strategic importance to the sustainable development of national economies.
The ILO estimates that there are up to 20 million people employed in the global chemical, pharmaceutical
and rubber and tyre industries today. Global competition has rapidly changed the world map of chemical
production and consumption. Greater competitiveness and uncertainty have triggered restructuring
processes with significant implications for employment and earnings, composition of employment and
working conditions in general.

The improper use of chemicals can have adverse consequences for humans and the environment.
Although occupational safety and health prevention practices in the chemical sector have generally
improved, there is concern about the risk gaps between large and small companies, and especially
between regular workers and outsourced workers. Moreover, new occupational risks have emerged due
to technological innovation. On the basis of total returns to shareholders (TRS), the chemical sector has,
over the long term, outperformed not only the overall market but also most of its customer industries
and raw-material suppliers. Within chemicals, the commodity and specialty subsectors show similar
performance, while diversified companies have trailed. There have been variations on the theme over
time, with petrochemical players’ performance more affected by the naphtha-ethane spread and the
commodity cycle, while specialty players have been more affected by end-market growth and mergers-
and-acquisitions activity, but the variations have not changed the overall sunny picture.

Looked at globally, we estimate that the last decade’s 3.6 percent growth rate for petrochemicals may go
down by between 0.5 and 2.0 percentage points over the next ten years, depending on assumptions for
regional GDP growth. For an industry with an estimated capacity creep somewhere between 1 and 2
percent annually, this could be a dramatic shift. Other sectors are likely to see similar reductions in
growth rates—although the growth in overall chemical demand will continue to outpace GDP.

Chemical Industry in India:

Chemicals industry in India is highly diversified, covering more than 80,000 commercial products. It is
broadly classified into Bulk chemicals, Specialty chemicals, Agrochemicals, Petrochemicals, Polymers and
Fertilizers. India’s proximity to the Middle East, the world’s source of petrochemicals feedstock, makes for
economies of scale.

India is a strong global dye supplier, accounting for approximately 16% of the world production of
dyestuff and dye intermediates. Chemicals industry in India has been de-licensed except for few
hazardous chemicals. Upcoming Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs)
and Plastic parks will provide state-of-the-art infrastructure for Chemicals and Petrochemicals sector.

 The Indian chemicals industry is projected to reach $304 bn by 2025

 Indian ranks 14th in export and 8th in import of chemicals (Excluding Pharmaceuticals products)
globally
169
  Demand of chemical products is expected to grow at approximately 9% p.a. over the next 5 years

 Indian chemical industry employs more than 2 million people

Total production of major chemicals and petrochemicals stood at 27,858 MT during 2018-19, a growth of
4.18% over 2017-18. Alkali chemicals had the largest share in the Chemical industry in India with
approximately 69% share in the total production. Production of polymers accounts for around 61% of the
total production of basic major petrochemicals.

 The petrochemical demand is expected to grow at 7.5% CAGR from FY 2019-23, with polymer
demand growing at 8%

 The agrochemicals market in India is expected to grow at 8% CAGR reaching $3.7 bn by FY22 and
$4.7 bn by FY25.

 The specialty chemicals constitute 22% of total chemicals and petrochemicals market in India. As
of FY18, the total market size is around $35 bn. The demand for speciality chemicals is expected
to grow at 12% CAGR from FY19-22.

Company Highlights:
BASF India Limited (the flagship company of BASF in India) is a public limited company1 with 73.33% of its
shares held by BASF SE. BASF Group companies operate key production sites in Dahej, Mangalore, Thane,
Hyderabad2 and Chennai. The Mangalore site is BASF’s largest manufacturing site in South Asia in terms
of area. BASF SE holds 90% of BASF Catalysts India Private Limited, and 100% of BASF Chemicals India
Private Limited, Chemetall India Private Limited, Nunhems India Private Limited, and BASF Colors &
Effects India Private Limited through its group companies. BASF also operates two Research and
Development Centers in India, in Mumbai and Mangalore, which are part of BASF’s global technology
platform.

 Number of companies: 3 wholly-owned (BASF Chemicals India Pvt. Ltd., Chemetall India
Pvt. Ltd., and Nunhems India Pvt. Ltd.); 1 joint venture (BASF Catalysts India Pvt. Ltd.); 1
publicly listed company (BASF India Ltd.) in which BASF SE holds a 73.33% stake.
 Number of production sites (group companies): 11
 Number of employees: 2,431
 Sales of BASF Group companies in India: approximately €1.3 billion

170
171
Revenue from Operations (net of GST / Excise duty) at Rs. 60,256.7 million represents an increase of 8%
over the previous year. The Company reported a profit after tax of Rs. 817.2 million for the year ended
31st March, 2019 as compared to profit after tax of Rs. 2,465.0 million in the previous year. The
profitability was mainly impacted due to higher input cost.

The business segments of the Company have been reorganized effective 1st January, 2019. The new
segment structure will enable an even more differentiated steering of the business, taking into account
market-specific requirements and the competitive environment. It will further increase the transparency
of the segment results. The new segments are as under:

a) Agricultural Solutions - The Agricultural Solutions segment consists of the Crop Protection business.

b) Materials - The Materials segment comprises of Performance Materials and the Monomers businesses.

c) Industrial Solutions - The Industrial Solutions segment consists of the Dispersions & Pigments and
Performance Chemicals businesses.

d) Surface Technologies - The Surface Technologies segment comprises of the Catalysts, Coatings and
Construction Chemicals businesses.

e) Nutrition & Care - The Nutrition & Care segment consists of the Care Chemicals and Nutrition & Health
businesses.

f) Chemicals - The Chemicals segment consists of the Petrochemicals and Intermediates businesses.

g) Others - Others include activities that are not allocated to any of the continued operating divisions.
These include remaining activities after divestiture of certain businesses including leather and textile
chemicals business, paper wet-end and water chemicals business.

172
COMPANY MANAGEMENT:
Board of Directors:

173
FINANCIALS OF THE COMPANY:
Balance Sheet
Narration Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Equity Share Capital 43.29 43.29 43.29 43.29 43.29

Reserves 1,118.77 1,072.72 1,058.97 1,300.59 1,369.60

Borrowings 1,600.20 1,349.22 1,274.55 867.69 912.21

Other Liabilities 1,405.61 1,311.33 1,497.74 1,634.79 1,526.37

Total 4,167.87 3,776.56 3,874.55 3,846.36 3,851.47

Net Block 1,351.09 1,288.87 1,222.39 1,117.35 956.98

Capital Work in Progress 74.18 55.14 32.86 27.48 42.24

Investments - - - - -

Other Assets 2,742.60 2,432.55 2,619.30 2,701.53 2,852.25

Total 4,167.87 3,776.56 3,874.55 3,846.36 3,851.47

Working Capital 1,336.99 1,121.22 1,121.56 1,066.74 1,325.88

Debtors 930.45 1,042.34 1,068.82 1,088.78 1,040.67

Inventory 990.77 807.58 920.13 1,019.17 1,212.63

Debtor Days 72.17 80.11 76.89 71.18 63.04

Inventory Turnover 4.75 5.88 5.51 5.48 4.97

174
Profit & Loss Account
Narration Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Sales 4,705.76 4,749.17 5,073.41 5,583.40 6,025.67

Expenses 4,572.73 4,643.43 4,803.73 5,261.77 5,904.19

Operating Profit 133.03 105.74 269.68 321.63 121.48

Other Income 39.09 175.04 28.52 205.75 182.58

Depreciation 142.42 163.09 169.03 153.39 147.09

Interest 95.56 148.06 141.64 112.96 85.11

Profit before tax -65.86 -30.37 -12.47 261.03 71.86

Tax 1.04 - 1.66 14.53 -9.86

Net profit -66.90 -30.37 -14.13 246.50 81.72

EPS -15.45 -7.01 -3.26 56.93 18.87

Price to earning -72.54 -125.11 -420.08 33.79 78.45

Price 1,120.75 877.50 1,370.85 1,923.35 1,480.55

Cash Flow Statement:

Narration Mar-15 Mar-16 Mar-17 Mar-18 Mar-19

Cash from Operating Activity -96.33 198.86 221.07 290.00 -77.15

Cash from Investing Activity -163.05 199.31 -65.96 158.25 176.80

Cash from Financing Activity 372.01 -425.09 -132.99 -464.65 -94.97

Net Cash Flow 112.63 -26.92 22.12 -16.40 4.68

175
SHARE HOLDING PATTERN:
Share holding pattern:
Standalone Mar-20 Dec-19 Sep-19 Mar-19
Promoters 73.33 73.33 73.33 73.33
Pledged 0 0 0 0

FII/FPI 3.55 2.21 2.05 1.75

Total DII 10.57 11.82 11.81 11.72
Fin.Insts 0.05 0.04 0.04 0.02
Insurance Co 6 6 5.98 5.94
MF 1.63 3.02 2.93 2.79
Others DIIs 2.89 2.76 2.86 2.97

Others 12.55 12.63 12.81 13.18

Total 100 99.99 100 99.98

DIVIDEND & RIGHTS:

Dividend:
Announcement Date Effective Date Dividend Type Dividend (%)
26-05-20 22-07-20 Final 30
30-04-19 04-07-19 Final 30
01-05-19 04-07-19 Special 20
04-05-18 26-07-18 Final 30
05-05-17 20-09-17 Final 10
04-05-16 03-08-16 Final 10
07-05-15 12-08-15 Final 40

176
Bonus:

Announcement Date Bonus Ratio

17-08-98 1:2
30-09-92 1:2
05-10-91 1:2
12-06-90 1:2
05-10-88 1:2
12-06-79 1:1
12-06-76 1:3

Rights Issue:

Ex-
Announcement
Rights Ratio Face Value Premium Record Date Rights
Date
Date
30-04-96 2:05 0 115 30-11-001 01-07-96
08-11-94 1:05 0 90 07-12-94 18-11-94

RATIOS:

Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Basic EPS (Rs.) 4.3 18.9 56.9 -3.3 -7

Diluted EPS (Rs.) 4.3 18.9 56.9 -3.3 -7

Cash EPS (Rs.) 45.87 52.86 92.37 35.78 30.66

Book Value
[InclRevalReserve]/Share 320.17 326.38 310.44 254.62 257.8
(Rs.)
Dividend / Share(Rs.) 3 5 3 1 1
Revenue from
1,744.29 1,391.93 1,289.77 1,171.96 1,096.61
Operations/Share (Rs.)
PBDIT/Share (Rs.) 69.43 41.12 85.2 64.95 25.1

PBIT/Share (Rs.) 27.84 7.14 49.76 25.91 -12.57

PBT/Share (Rs.) 1.07 16.6 60.3 -2.88 -7.02

Net Profit/Share (Rs.) 4.28 18.88 56.94 -3.26 -7.02

177
Key Profitability Ratios:
20

15

10
PBDIT Margin (%)
Net Profit Margin (%)
Return on Networth / Equity (%)
Return on Assets (%)
5

0
Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

-5

Liquidity Ratio:

Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Current Ratio
1.17 1.26 1.21 1.27 1.34
(X)
Quick Ratio
0.65 0.68 0.72 0.8 0.85
(X)
Inventory
Turnover 5.05 4.97 5.48 5.51 5.88
Ratio (X)
Dividend
Payout Ratio 0 19.16 2.11 -36.87 -56.99
(NP) (%)
Dividend
Payout Ratio 0 6.84 1.3 3.36 13.04
(CP) (%)
Earnings
Retention 0 80.84 97.89 136.87 156.99
Ratio (%)
Cash
Earnings
0 93.16 98.7 96.64 86.96
Retention
Ratio (%)

178
Valuation Ratios:

Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Enterprise
5,267.82 7,243.54 8,747.39 6,937.99 5,123.75
Value (Cr.)
EV/Net
Operating 0.7 1.2 1.57 1.37 1.08
Revenue (X)
EV/EBITDA (X) 17.53 40.69 23.72 24.67 47.15
MarketCap/Net
Operating 0.64 1.06 1.48 1.16 0.8
Revenue (X)
Retention
0 80.83 97.88 136.87 156.99
Ratios (%)
Price/BV (X) 3.51 4.52 6.15 5.36 3.39
Price/Net
Operating 0.64 1.06 1.48 1.16 0.8
Revenue
Earnings Yield 0 0.01 0.03 0 -0.01

179
Peer Comparison:

180
TECHNICALS:

181
182
EFFECT OF COVID-19:
Unlike many other sectors, the chemical industry is not in a position to stop production and send workers
home. Instead, it needs to strike the right balance between social distancing and keeping plants running
to provide the basic necessities for society, as well as the antiseptics, disinfectants, protective packaging
and more needed to fight the pandemic.

COVID-19 has quickly turned into an epidemic of massive, global proportions—one that is posing a
serious challenge to many industries. For a wide range of companies, COVID-19 is affecting demand,
supply, and customer and investor confidence. Indeed, value chains are being disrupted in
unprecedented ways.

183
For the chemical industry, such challenges are compounded by the fact that its customer industries, such
as automotive and electronics, are deeply affected by plant shutdowns and the disruption of sales
channels. Furthermore, the oil industry is experiencing oversupply in tandem with weak demand resulting
from reduced economic activity associated with the virus. This is disrupting the oilfield chemical business
as well as the economics of alternate feedstock routes and recycling.

In the weeks following the COVID-19 outbreak, the chemical industry share price index dropped farther
and more deeply than it did in previous crises, including the 2008 financial crisis. During that time, there
were also more shutdowns of plants in customer industries, such as automotive, than there were during
the financial crisis.

184
My Recommendation:
The chemical sector is India is flourishing especially after the ban on manufacturing certain chemicals in
China. Moreover now after the Covid-19 outbreak many companies are planning to move out of China
and India is quite a favourable option on their list. Also the movement which has been started to make
India “self-sufficient” that is “aatm nirbhar”. Looking at all these factors this industry is bound to increase
multifold times.
Coming to the discussion of BASF India, currently it’s P/E ratio it is very high compared to the industry
average P/E. As per my understanding the current market price of this stock is particularly on the higher
side.

185
Hence my view for this script is to wait for better entry levels to invest on a long term perspective.

186