Basf Buy Emkay 06.10.17

BASF India Ltd
India Equity Research | Others

October 5, 2017
Initiating Coverage Emkay
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Refer to important disclosures at the end of this report

CMP Target Price
Benefits of capex surface; turnaround to Rs 1,466

as of (October 5, 2017)
Rs 2,212
12 months
sustain Rating Upside

BUY 51%
Change in Estimates
 BASF India Ltd (BASF India), a part of BASF SE, the largest chemicals company in the
EPS Chg FY18E/FY19E (%) NA
world, is well positioned to deliver solid performance on revenue and profitability front,
backed by ramp-up in new capacity utilization and consolidation of niche businesses. Target Price change (%) NA
Target Period (Months) 12
 Thirteen new product launches in Agrochemicals, and localization of many niche
Previous Reco NA
products in Construction, Coatings, Plastics and Care products are likely to boost high-
Emkay vs Consensus
margin Manufacturing revenue and reduce dependence on low-margin Trading business.
EPS Estimates
 Initial pay-offs from recent changes are visible in FY17 results with 7%/155% yoy FY18E FY19E
sales/EBITDA growth. Settlement of technical issues and enhanced capacity utilization
Emkay 25.4 60.1
should lead to CAGR of 13.6%/39.1% in revenue/EBITDA during FY17-20E.
Consensus - -
 BASF India is poised to demonstrate strong recovery in net profit (Rs4bn in FY20E v/s - Mean Consensus TP (12M) Rs 1,025
Rs141mn in FY17) and return ratios (RoCE: 21.8% in FY20E v/s 4.2% in FY17) going Stock Details
ahead. We initiate BUY with a TP of Rs2,212 with a 51% upside potential.
Bloomberg Code BASF IN
 Face Value (Rs) 10
 Dahej plant to spur revenue growth: The Dahej plant has stabilized in the last 2 years.
BASF India has also resolved product level technical issues besides obtaining key Shares outstanding (mn) 43
customer approvals after successful audits. In the next 3 years, based on product wise 52 Week H/L 1,812 / 989
plant capacities, the Dahej plant can add c.Rs28bn to total revenue. M Cap (Rs bn/USD bn) 63 / 0.98
 Promising non-Dahej outlook: Non-Dahej operation is expect to deliver revenue CAGR Daily Avg Volume (nos.) 18,505
of 7.3% over the next 3 years due to 13 new product launches in Agrochemicals covering Daily Avg Turnover (US$ mn) 0.4
larger crops portfolio (Rice, Corn, Soya, Grapes & Apple) whereas earlier it was largely
Shareholding Pattern Jun '17
focusing on Soya crop. Additionally, demand dynamics of Automotive Coating &
Promoters 73.3%
Construction segments are also looking favorable.
FIIs 3.0%
 Dahej plant replicates BASF’s successful Ludwigshafen model: Ludwigshafen is the
DIIs 6.8%
world’s largest integrated chemical complex of BASF SE. The Dahej plant is the largest
Public and Others 16.8%
investment made by BASF in India, which replicates 58% of product basket of
Ludwigshafen site like MDI splitter (Asia’s first) and Sulfation plant (India’s first). Price Performance
 Formidable R&D synergies: The combination of a strong R&D support from the German (%) 1M 3M 6M 12M
parent & strategic India research hub to catalyze innovative products in domestic market. Absolute (1) (15) 9 20
 Efforts to reduce import reliance: The Dahej facility is developed as a chemical Rel. to Nifty (1) (16) 4 8
complex to reduce imports of intermediate products. Relative price chart
1800 Rs % 40
 Valuation & Outlook: Rising revenue from manufacturing and new product launches in
1640 28
Agrochemicals are likely to drive revenue growth & margins. We estimate a CAGR of
13.6%/39.1% in revenue/EBITDA over FY17-20E. We initiate BUY with TP of Rs2,212 1480 16
(14.4x FY20 EV/EBITDA). 1320 4
1160 -8
Financial Snapshot (Standalone)

1000 -20
Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17
(Rs mn) FY16 FY17 FY18E FY19E FY20E
BASF India Ltd. (LHS) Rel to Nifty (RHS)
Net Sales 47,492 50,798 56,290 63,602 74,497 Source: Bloomberg

EBITDA 1,058 2,697 4,099 5,662 7,257
This report is solely produced by Emkay Global. The
EBITDA Margin (%) 2.2 5.3 7.3 8.9 9.7 following person(s) are responsible for the
production of the recommendation:
APAT (2,025) (141) 1,100 2,602 3,991
EPS (Rs) (46.8) (3.3) 25.4 60.1 92.2 Amar Mourya
EPS (% chg) 0.0 0.0 0.0 136.5 53.4 amar.mourya@emkayglobal.com
+91-022-66242425
ROE (%) (17.8) (1.3) 9.6 20.6 26.6
P/E (x) (31.3) (449.5) 57.7 24.4 15.9 Rohit Sinha
rohit.sinha@emkayglobal.com
EV/EBITDA (x) 73.4 28.7 18.4 13.2 10.1
022-266121306
P/BV (x) 5.7 5.8 5.4 4.7 3.8
Source: Company, Emkay Research
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer
to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
ED: HEMANT MARADIA SA: DHANANJAY SINHA

BASF India Ltd (BASF IN) India Equity Research | Initiating Coverage
Snapshot
Unfolding tailwinds set the stage for historically high margins to reemerge
Exhibit 1: EBITDA Margin Trend (%)
13.1
12.4 Amalgamated loss making business: Dahej technical issues are behind also seen uptick in
11.6 11.6 BASF Construction Chemicals (India), BASF capacity utilization and contributed Rs10bn t o revenue with
Coatings (India) & BASF Polyurethanes India ~50% capacity utilization
9.7
9.2 Dahej plant has the potential to add Rs28 bn at peak
8.9
capacity utilization level, which we are expecting by 2020
7.3
6.2 6.2 Dahej facility is positioned to replaced bulk of low margin

5.9 6.0
trading business Polyurethanes [BASF Polyurethane s
5.3
India] and Dispersions [BASF Coatings/ Construction]
with local manufacturing
Largest investment made to manufacture 2.8

Polyurethanes, Construction, and Coatings 2.2 Current changes will lead to higher manufacturing business
chemicals locally, but plant was down due to to 79% (v/s 67% in FY17) of the total revenue by 2020.
technical issues These recent changes could lead to historic high margins.
FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Gravitating towards a sustainable turnaround

 Dahej Chemical complex has the potential to add 55% to the current revenue
 Plans 13 new product launches in high-margin Agrochemicals segment, largely
manufactured locally
 Backward integration of Construction & Coating division likely to propel margins
 Indigenization of care-chemical feedstock by introduction of first sulfation plant in India
 First MDI Splitter cracker in South Asia installed by BASF India. The potential market size
of this product is Rs3.8-5.8bn and BASF India already commands strong market share,
which will be replaced by manufactured MDI Splitter (v/s Traded MDI Splitter)
Valuation compelling
We are comparing BASF India with listed MNC chemical names like Bayer Crop Science and
Akzo Nobel India, which are trading in the range of 18-20x EV/EBITDA. We are valuing BASF
India at 14.4x FY20E EV/EBITDA and arrive at a TP of Rs2,212 per share, which implies a
sizable 46% upside from the current market price.
Exhibit 2: Asia-Pacific EBIT margin trend (%) Exhibit 3: Peer Valuation
31.2x
9% 28.3x
23.2x 23.8x
23.1x
19.8x 18.2x 18.0x
5%
13.0x
4%
Akzo Nobel India Ltd BASF India Ltd Bayer Cropscience

Ltd
2014 2015 2016 FY 17 FY 18E FY 19E
Source: Company, Emkay Research Source: Company, Emkay Research
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the
last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore
ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 2

A. Manufacturing SBU: Seeing improvement in revenue

BASF India’s business is broadly divided into 3 SBUs - Manufacturing, Trading and Services
while the horizontal bifurcation is in terms of 5 key areas - Performance Products, Functional
Material & Solutions, Agriculture Solutions and Others. The key industry in which BASF operates
in India is illustrated below.
As can be seen from the below table, Manufacturing remains the largest SBU for BASF India.
Additionally, this remains the most profitable among the 3 SBUs. The German parent is aiming
for ~75% local production of products it sells in Asia Pacific by 2020. In Asia Pacific, BASF SE
intends to grow profitably with a sales target of US$30bn by 2020.
In order to achieve the 2020 revenue target, BASF SE has announced investment of US$12bn,
c.9,000 new jobs and annual savings of US$2bn. Further, c.25% of BASF SE’s global R&D will
be conducted in Asia Pacific by 2020, to develop innovative solutions that address the region’s
challenges.
The Asian region is one of the fastest growing geographies for BASF SE. Higher GDP growth
and rising income levels are likely to keep up the momentum and the region is expected to
expand at a CAGR of c.6% during 2016-20. The Asian region reported US$14.4bn revenue in
2016, contributing 20% to BASF SE’s overall revenue. Revenue is expected to reach c.US$30bn
by 2020, forming 25% of the total BASF SE revenue. BASF SE’s revenue from India stood at
US$0.79bn in FY17. However, India is likely to outperform the Asian region with growth rate in
mid-teens. The key trigger for BASF India’s growth would be back-ended capex of Rs16.0bn and
sharper focus on R&D investments.
Exhibit 4: BASF India Business Model
Manufacturing Trading Service Total
As % of SBU's Revenue As % of total revenue
Performance Dispersion: 9% |Rs2.9bn

Pigments: 9% | Rs 1.3 bn Performance Products:
Products Care Prod: 3% | Rs 0.9bn ------------No------------
Others: 54% | Rs 7.9 bn 39% | Rs.19.7 bn
Others: 20% | Rs6.7 bn
Eng. Plastic: 14% |Rs4.6bn Functional Material &

Functional Auto. Coatings: 9%|Rs3.2bn
Material & Construction: 4% | Rs1.5bn
PU: 17% | Rs 2.4 bn ------------No------------ Solutions:
PU: 25% | Rs8.4bn 40% | Rs.20.3 bn
Agriculture Agriculture
Herbicides: 17% |Rs5.7bn
Solutions Fungicides: 6% | Rs 0.9 bn ------------No------------ Solutions:
13% | Rs.6.6bn
Chemicals Chemicals:
------------No------------ ------------No------------ Monomers: 15% | Rs 2.1 bn
4% | Rs.2.1bn
Others Technical: 47% | Rs 0.9 bn Others:

------------No------------ ------------No------------
Others: 53% | Rs 1.0bn 4% | Rs.1.9bn
As % of total revenue
67% 29% 4% 100%

(Rs34.2 bn) (Rs14.6 bn) (Rs19.6 bn) (Rs50.8 bn)

Exhibit 5: BASF Asia Pacific 2020 Sales Target

($ Bn) 2016 2017E 2018E 2019E 2020E CAGR
World Chemical Production ($ Bn) 3715 3856 4003 4155 4312 3.8%
Asia Pacific Chemical Production ($ Bn) 1997 2111 2231 2359 2493 5.7%
BASF Asia Pacific Revenue ($ Bn) 14.4 17.3 20.8 24.9 29.9 20.0%
As % of Asia Pacific 0.7% 0.8% 0.9% 1.1% 1.2%
EBIT ($ Bn) 1.1 1.5 1.8 2.1 2.5 23.2%
EBIT Margin % 9% 10% 10% 10% 10%
BASF Region-Wise Revenue Mix ($ Bn) 2016 2017E 2018E 2019E 2020E CAGR
China 7.1 8.7 10.8 13.3 16.5 23.6%
South Asia (India/Pakistan/Bangladesh/Sri Lanka) 1.6 1.8 2.1 2.4 2.7 14.6%
South East Asia 2.2 2.5 2.9 3.3 3.8 15.4%
Japan 1.9 2.1 2.3 2.6 2.9 11.7%
South Korea 1.3 1.4 1.5 1.7 1.8 8.5%
ANZ 0.4 0.5 0.6 0.7 0.9 20.0%
Others 0.0 0.2 0.5 0.8 1.2 0.0%
Total 14.4 17.3 20.8 24.9 29.9 20.0%
Exhibit 6: Global Chemical Production ($ Trillion ) Exhibit 7: Asia Pacific Chemical Production ($ Trillion)
Exhibit 8: BASF Asia Pacific Revenue Mix (%) Exhibit 9: BASF India Revenue Mix (%)
Others
2% Agricultural
Functional Solution…
Materials &
Solutions…
Performanc
Chemi… e Products
41%

A.1 BASF India at an inflection point; Dahej plant to spur revenue

growth
Post the commencement of Dahej operations in FY15, BASF India’s gross block increased to
Rs18.7bn (v/s Rs9.0bn in FY14). However, revenue growth acceleration was not in tandem with
gross block due to technical issues. As a result, manufacturing revenue-to-fixed asset ratio
declined to 1.5x in FY15 from 3.0x in FY14. But, the Dahej plant has stabilized in the last 2 years
and technical issues have also been resolved. Over the next 3 years, based on product wise
plant capacities, Dahej can add ~Rs28.4bn to Manufacturing revenue (See Table Below).
Exhibit 10: Manufacturing Revenue-to-Gross Block Exhibit 11: Manufacturing Revenue Trend
3.6x 60,000
3.5x
3.4x 50,000
3.0x 40,000
30,000
2.4x
2.1x 20,000
2.0x 10,000
1.5x
1.7x
1.6x 0
FY15 FY16 FY17 FY18e FY19e FY20e
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e Manf. Rev: Dahej Manf. Rev: Non-Dahej
In FY17, the company’s Manufacturing revenue increased by 11.5% yoy to Rs34.2bn (v/s
Rs30.6bn in FY16), driven by enhanced plant utilization. On a full year basis, the Dahej plant’s
revenue jumped 66.7% yoy to Rs10bn (v/s Rs6.0bn in FY16) and contributed 29.2% to the
Manufacturing business revenue. The Dahej plant’s contribution to the overall Manufacturing
revenue could further increase to 51.0% in FY20E.
Exhibit 12: FY17 – Dahej Plant Revenue Mix Exhibit 13: FY20E – Dahej Plant Revenue Mix
Cellasto TPU Polyols
2% 1% 2% Dispersions Cellasto TPU Polyols
MDI Splitter 6%
9% 6% 1%
2%
MDI Splitter
Surfactants 1%
17% Dispersions
21%
Surfactants
PU
29%
PU 36%
67%
Exhibit 14: FY17 – Manf. Rev: Dahej v/s Non-Dahej Exhibit 15: FY20 – Manf. Rev: Dahej v/s Non-Dahej
Manf. Rev:
Dahej Manf. Rev:
29% Non-Dahej
Manf. Rev: 48% Manf. Rev:
Non-Dahej Dahej
71% 52%

The overall Manufacturing revenue is expected to deliver revenue CAGR of 16.8% yoy during
FY17-20E on the back of the expected uptick in the Dahej plant utilization. Additionally, the
overall Manufacturing revenue contribution to the total topline will increase from 67% in FY17 to
77% in FY20E. In our view, enhanced Manufacturing revenue contribution will be a key trigger
for overall EBITDA expansion going forward. In FY17, the total EBITDA increased by 155% yoy
to Rs2.7bn (v/s Rs1.1bn in FY16).
Exhibit 16: Manufacturing Revenue (as % of total revenue) Exhibit 17: Overall EBITDA Margin Trend (%)
75% 78%
71% 9.9
65% 67% 8.9
61%
7.3
5.3
2.8
2.2
FY15 FY16 FY17 FY18e FY19e FY20e FY15 FY16 FY17 FY18e FY19e FY20e
Why Dahej plant is so crucial for BASF India?

The Dahej plant is the biggest investment (c.Rs10bn/US$180mn) made by BASF in India. The
strengthening of the production platform in India is part of BASF SE’s investment plans for the
Asia-Pacific region, where the German parent aspires to invest more than US$12bn (Rs778bn)
between 2013 and 2020. The plant is located at Dahej Petroleum, Chemicals and
Petrochemicals Investment Region (PCPIR). With this new facility, BASF India will significantly
increase its competitiveness in the Indian market.
The Dahej plant is divided into 4 key products: (1) Integrated Polyurethane (PU) Complex,
(2) Surfactants, (3) Polymeric Dispersion and (4) Automotive Engine Coolants Fluid. There
are 11 plants, which are divided into below mentioned product lines.
Exhibit 18: BASF - Dahej Plant Manufacturing Set-up

BASF
Dahej, Plant
Products Manufactured
Integrated Polyurethane (PU) Automotive Engines

Surfactants Polymeric Dispersion
Complex (Coolant Fluid)
- Polyols - Sulfation Products - Super Concentrate Coolants - Acronals

- MDI Splitter - Low/High Temperature Reaction - Concentrate Coolants - Styronals
- PU Systems - Ready to Use Coolants - Basoplasts
- Cellasto
- TPU
Integrated Polyurethane (PU) Complex: The Dahej plant is fully backward integrated, with
production facilities for precursors, such as Polyetherols and Polyesterols, and an MDI
(Methylene Diphenyl Diisocyanate) splitter - the first of its kind in South Asia - for processing
crude MDI. BASF India's Polyurethane plant has the capability to produce proprietary Elastollan
Thermoplastic Polyurethane (TPU), Elastocool, Elastopor, Elastogran, and Cellasto Microcellular
Polyurethane components.
 TPU: Used for combination of elasticity and robustness.

 Elastocool: To fill the vacuum with new refrigeration concepts.
 Elastopor: Rigid foam system largely used by construction industry.
 Elastogran: Structural TPU used for foot support for the feet.
 Cellasto Microcellular: Used by auto industry for NVH (noise, vibration and harshness)
reduction parts like Jounce Bumper, Bump Stop and Top Mount.

The addressable market for Polyurethane in India is c.Rs108bn with volume growth in the range
of 7-8%. BASF India has an advantage due to its integrated production facilities for Polyetherols,
Polyesterols and MDI Splitter, which is a feedstock for PU Systems. Typically, one metric tonne
of Polyurethane Foam needs 616kg of MDI and 386kg of Polyol, with 54kg of Pentane acting as
a blowing agent. The largest demand in India is demonstrated for Rigid Polyurethane followed
by Slabstock, Shoe Sole, Flxmolded, Case and TPU.
The dynamics of MDI Splitter business is also very strong and BASF India is the only producer
in the country. The market size (Rs3.8-5.8bn) is huge and BAFS India commands a strong
market share in this space. The key reason behind putting up the MDI Splitter plant was to
replace imports from BASF Korea with domestic production. However, due to some technical
issues at the Dahej plant, BASF India was not able to produce as per the clients’ specifications.
The management indicated that major technical issues are behind and seamless production is
possible over the medium term. The actual revenue potential from this unit at peak capacity
would be ~Rs14.3bn with c.15-16% EBITDA margin.
Exhibit 19: PU Demand Mix (%) India Exhibit 20: Huntsman MDI Splitter/PU EBITDA Margin Trend
TPU 16% 16%

CASE 1%
15% 15% 15%
5% 14%
SLABSTOCK
27% 11%
SHOE SOLES
9%
20%
RIGIDS
30%
FLXMOLDED
17% 2010 2011 2012 2013 2014 2015 2016 2017
Exhibit 21: Global Players in MDI Space
12
Huntsman
Degree of Differentiation
10
Top 5 MDI BASF
8
Producers = 90%
Covestro
6
DOW
4
2 Wanhua
0 Crude MDI Capacity Size

0 200000 400000 600000 800000 1000000 1200000
Surfactants: BASF India’s Dahej plant will produce a wide variety of Surfactants that are used
in Home Care and Personal Care. The company has core competencies in Alkoxylation and
Nonionic chemistries. The Dahej site integrates India’s first Sulphation plant to produce
Surfactants for Home Care and Personal Care. These Surfactants will also add value to
formulation technology applications, including Agrochemicals, Textiles and Emulsion
Polymerisation.
Surfactants for Home Care and Personal Care are manufactured using either natural or synthetic
ingredients. In India as well as in the developed countries, there is a gradual shift in consumers’
preferences for natural ingredients-based FMCG products. The Dahej site is certified by
Roundtable on Sustainable Palm Oil (RSPO) to produce sustainable oil palm products. This is a
positive for companies like BASF India, which mainly focuses on natural ingredients-based

Surfactants for Home Care and Personal Care products. The key raw materials for production of
Surfactants are Oleo-chemicals (fatty alcohols & fatty acids), Ethylene Oxide, Phenol etc.
The overall industry size of the Indian Surfactants market is c.US$3,748mn (Rs243bn) and it is
estimated to grow at 13% annually. However, the personal care surfactants market is estimated
at c.US$547mn (Rs36bn), which is largely dominated by Galaxy Surfactants and BASF. The
actual revenue potential from this unit at peak capacity would be ~Rs7.2bn with EBITDA
margin of c.8-10%.
Exhibit 22: Types of Surfactants

Surfactants Types Characteristics Uses
Anionic Surfactants
BASF Portfolio
- Fatty alcohol ethersulfates Shampoos, toothpastes, body wash formulations,
High foam and dirt removal properties
- Fatty alcohol sulfates laundry detergents and dishwashing products
- Linear alkylbenzene sulfonates
- Oleic acid sulfonates
Nonionic surfactants
BASF Portfolio
- Alcohol ethoxylates
- Alkyl polyglucosides
- Amine ethoxylates
- Aminopolyol
Cosmetics, personal care like shampoos, bath & shower
- Resins precursors and additives
products, home care products like liquid detergents
- Emulsifiers and Solubilizers
- Foam suppressors
- Low-foaming nonionic surfactants
- Special Surfactants
- Agro blends
-Unsaturated alcohol ethoxylates
Cationic surfactants Helps in conditioning due to substantively to hair and
Hair conditioners and fabric softeners
- Betaines antimicrobial properties
Amphoteric surfactants
Dermatological properties and reduces skin irritation Personal care and household cleaning products
- Betaines
Surface active preparations Preformulated and is a mixture of various surfactants Shampoo, body wash, syndet and transparent soap bars
Polymeric Dispersion: The Polymer Dispersions plant, which complements BASF India's
existing dispersions facility in Mangalore (largest plant in India), produces BASF's proprietary
Acronal and Styrofan products for Architectural Coatings, Adhesives and Construction Materials;
Styronal and Basonal for Paper Coating, and Basoplast for Sizing. The plant will cater to North
and West Indian markets.
 Acronal: This is a water-based acrylic and styrene acrylic dispersions, which are used as
binders in high quality Architectural Coatings, Adhesives, Construction and Fiber Bonding
applications. Acronal redispersable powders act as co-binders in dry mix mortars and
improve their properties in a wide range of construction applications. Under the Acronal
brand, BASF India offers a comprehensive range of Acrylate Dispersions and Acrylate
Dispersion Powders, which are used for the production and formulation of Paints,
Adhesives, Sealants, Construction Materials & Fiber Bonding materials as well as in the
Paper industry.
 Basoplast: This is the BASF brand name for a range of sizing agents. Sizing agents allow
control of paper absorbency. Basoplast is a well-established range of sizing agents used
in the manufacture of Printing & Writing papers, Paperboards, Newsprint and Paperboard
grades. Basoplast range of surface sizing agents provide excellent control of paper product
absorbency.
 Styronal: This is the BASF brand name for a range of synthetic binders based on styrene
and butadiene copolymers used in the manufacture of Coated Paper and Coated Board.
Styronal latex binder is used for all Coated Paper and Board segments. Styronal is a well-
established range of synthetic binders based on styrene-butadiene copolymers that can be
used for all Paper and Board segments.
 Styrofan: This is a water-based styrene butadiene dispersion. Styrofan dispersions are
used in the construction industry for fiber bonding applications, cementations as well as

ready-to-use construction materials and adhesives. Styrofan is a water-based styrene

butadiene dispersion. BASF offers different product grades with specific properties.
Styrofan gives elasticity, besides resistance from water and solvent. This binder makes
nonwovens more resistant and durable. This product offers excellent process ability and by
adding specific BASF additives one can easily adjust viscosity, foam-ability or wetting
properties as per the needs.
 Basonal: This offers new potential for improvement with top performance in obtaining
individual properties and balance on other properties. BASF India supplies a range of
aqueous dispersions of copolymers of acrylonitrile, butadiene, butyl acrylate and styrene
under the Basonal trademark. Additionally, BASF India has recently developed and
launched its novel 3-in-1 Basonal Food Contact Board product line, which is tailor-made for
the specific requirements in food contact materials.
The actual revenue potential from this unit at peak capacity would be ~Rs6.0bn with
EBITDA margin of c.15-16%.
Exhibit 23: Polymeric Dispersion Product Portfolio

Polymeric Dispersion Acronal Styrofan Styronal Basonal Basoplast
Fiber bonding Architectural Coatings Packaging & Print Packaging & Print Packaging & Print
Adhesives Auto & Transportation Coatings Pulp & Paper Pulp & Paper Pulp & Paper
Applications
Construction Industrial coatings

Architectural Coatings
Paper
Industry Size (Rs mn) Rs 12.9 bn Rs 27.3 bn

Automotive Engines (Coolant Fluid): BASF India’s key brand Glysantin, the original engine
coolant, offers proven triple protection against corrosion, overheating and frost. Products from
the Glysantin series have the official approvals from most manufacturers in the automotive
industry. These approvals are the result of superior quality and comprehensive technical know-
how. The actual revenue potential from this unit at peak capacity would be ~Rs1.3bn with
EBITDA margin of c.17-18%.
Exhibit 24: Coolant Fluid Application Industry
AUTOMOTIVE ENGINES (COOLANT FLUID)
Machines, Instruments
Combustion turbines and engines
Combustion
Coolant
Coolant (Turbines)
Vehicles
APPLICATIONS
Motor vehicles
Cooling System
Cooling water tanks
Corrosion (Vehicles)
Cylinder head covers
Expansion tanks
Heat exchangers
Thermostats

Exhibit 25: Dahej Plant - SBU Wise Revenue Potential (Rs mn) Exhibit 26: Dahej Plant - SBU Wise EBITDA Potential (Rs mn)
28,775
3,752
1,305
183
6,003
720
780
7,204
14,264
2,068
PU Surfactants Polymeric Auto Collent Total PU Surfactants Polymeric Auto Collent Total
Dispersion Dispersion
What is the outlook for Non-Dahej manufacturing revenue?

In FY17, Non-Dahej Manufacturing revenue contributed ~48% (Rs24.2bn) to the total topline.
We expect revenue CAGR of 8.7% in this vertical over the next 3 years. The major positive
should be seen on the EBIT margin front due to new product launches in Agrochemicals and
favorable demand scenario in Automotive and Construction sectors. The key revenue
contributors to Non-Dahej Manufacturing business are Agrochemicals, Automotive Coatings,
Admixture System, PU, Care Products and Pigments. However, the details of all sub-segments
are not disclosed by the company.
Agrochemicals: BASF India has received approval for 11 new crop protection products from
the Central Insecticide Board, including strategic key active ingredient registrations such as
Fluxapyroxad, Metrafenone, Bentazone and Boscalid. The new products will help BASF India
service a much larger base of farmers, in particular India’s strategic rice market. BASF India’s
launch of 2 new fungicides [SELTIMA™ and ADEXAR™] and one selective herbicide
[BASAGRAN™] in Rice should bode well for driving Agrochemicals revenue, given that India has
the largest cultivated area of rice in the world at nearly 43 million hectares. In addition, 13 label
expansions have also been approved, which allow existing Agrochemicals to be used for certain
other crops. The new products like TYNZER™ in corn, XELORA™ and OPERA™ in soybean,
ACRISIO™ and MERIVON™ in specialty crops like grapes have already seen increased sales.
Many training and marketing programs have also been launched to make these products familiar
to the farmers.
Automotive Coatings: The Automotive Coatings business comprises coatings for Passenger
Cars, Commercial Vehicles and Two Wheelers. In FY17, the Automotive Coatings business grew
at an average rate. Demonetization had a dampening effect on this business from Dec.2016 to
Feb.2017. Going forward, in view of the GST implementation the Automotive industry is expected
to do well. The company is focusing on developing new products besides enhancing supply to
existing accounts and acquisition of new customers.
Construction & Admixture System: The Construction Chemicals business supplies chemical
solutions to the construction industry. The Admixture Systems segment in the Construction
Chemicals division caters to customers from the ready-mix, precast, site mix, underground
construction and the cement producing industries. This segment was affected in FY17 due to
delays in the execution of infrastructure projects, liquidity concerns and increased price pressure
from domestic as well as overseas competition. During the year, a new Admixture plant was
commissioned at Kharagpur, West Bengal, which produces the entire range of admixtures and
accelerators, and caters to the demand of customers in East India and Bhutan. The segment
offers a wide range of products & solutions such as Industrial Floorings, Grouting and Anchoring
Systems, Concrete Repair & Protection Materials, Crack Repair & Injection Resins, Joint
Sealants, Tiling Products, Waterproofing Membranes, Exterior Insulation and Facade Systems.
KPMG estimates that India’s urban population will grow from 420mn in 2015 to 583mn in 2030,
which is expected to drive demand for affordable mass housing and durable infrastructure
projects.
ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017| 10

Exhibit 27: Total Manufacturing Revenue Trend (Rs Mn) Exhibit 28: Non-Dahej Manufacturing Revenue Trend (Rs Mn)
58,512 29,938
28,243
26,830 25,911
47,423 24,694 24,216
39,911
34,216
28,830 30,694
FY15 FY16 FY17 FY18e FY19e FY20e FY15 FY16 FY17 FY18e FY19e FY20e
A.2 Dahej Chemical Complex: Micro replica of BASF, Ludwigshafen

BASF, Ludwigshafen, Germany site is the world’s largest integrated chemical complex with an
area of approximately 10sq. km. This is BASF SE’s headquarters, where production facilities,
energy flow and logistics are networked together intelligently. This integration leads to efficient
value-adding chains from basic chemicals to highly sophisticated products. The backbone of the
Ludwigshafen production is a dense network of c.200 production plants that are connected to
each other by over 2,850 kilometers of pipelines and more than 230 kilometers of rail track. At
BASF SE’s Ludwigshafen site, c.8,000 products are manufactured with a total volume of 8.5
million metric tonne per year from just a few raw materials, such as Naphtha, Rock Salt and
Sulfur. This site also serves as a technology hub and the center of corporate research.
Exhibit 29: BASF, Ludwigshafen Product Manufacturing (v/s Dahej, Plant Product)
Segments Products Manufactured
Chemicals Petrochemicals Monomers Intermediates
Dispersions & Performance
Performance Products Care Chemicals Nutrition & Health
Pigments Chemicals
Functional Materials & Construction Performance
Catalysts Coatings
Solutions Chemicals Materials
Crop
Agricultural Solutions
Protection
Oil & Gas
Dahej has total production capacity of 0.547mn metric tonne (~6% of BASF, Ludwigshafen Site)
per year. The plant has total plot area of 0.234Sq.Km. (v/s 10 Sq.Km at BASF, Ludwigshafen Site).
Water requirement for the Dahej facility is 4600KLD while waste water generation will be 1352KLD.
BASF India has invested Rs4.5bn for various utilities like boiler, thermic fluid heater, cooling tower,
brine plant, chilling plant, DM plant, air compressor, DG set etc. The Dahej chemical complex is the
biggest investment (c.Rs10bn) made by BASF SE in India. The strengthening of production base
in India is part of the German parent’s investment plans for the Asia Pacific region, where BASF
SE aspires to invest more than US$12bn between 2013 and 2020. BASF SE aims to increase local
production to 75% of total sales. With domestic production of feedstock increasing in India, foreign
imports are likely to reduce in the long term, a key catalyst for margin expansion. BASF SE aims
to increase Asia Pacific revenue to US$30bn in 2020E from US$14bn in 2016.
Exhibit: Dahej, Plant Capex Highest in the history of BASF India (Rs mn)
9674
1618
959 1024 1009 1026
FY12 FY13 FY14 FY15 FY16 FY17

Power, emission data corroborate Dahej production ramp-up

Overall production volume of BASF India increased in CY16, as all the manufacturing plants at
Dahej became fully operational. The production volume is not disclosed by BASF India. However,
seeing the power consumption and emission data, we can connect the dots from the
management commentary about the potential increase in production and revenue numbers.
Exhibit 30: Fuel Consumption (MWh) - Central Power Plant & Boilers Exhibit 31: Greenhouse gas emissions (MT CO2 Equivalents)
92855 84515
86064
68554
78198
73078
2014 2015 2016 2014 2015 2016

As a result, we are of the view that BASF India has huge potential to deliver strong revenue and
significant improvement in margin going forward, in-line with the Asia Pacific region.
Exhibit 32: Emissions to water (Nitrogen MT) Exhibit 33: Asia-Pacific EBIT margin improvement (%)
1.6 9%
1.3
5%
0.8
4%
2014 2015 2016 2014 2015 2016


B. Trading SBU: Declining Contribution

Low-margin trading business should see a declining trend
BASF India’s Trading business comprises Herbicides, Pigments, Polyurethane, Fungicides,
Monomers and Petrochemical Intermediates. In FY17, the Trading business contributed 29% to
the total revenue. In the last 5 years, this segment has delivered 3.6% revenue CAGR with
average EBIT margin of ~3.5%. We expect a gradual decline in the Trading business over the
next 3 years given that BASF India is focusing more on the indigenous production and has
already invested ~Rs16.0bn in the Manufacturing business.
Exhibit 34: SBU Wise Revenue Mix (%) Exhibit 35: SBU Wise EBIT Margin
Services
4% 24.0%
Trading
29% 4.5%
Manufacturing
67% -0.4%
Trading Manufacturing Services
Why trading business?

BASF India’s business model is largely divided into 3 parts - Manufacturing, Trading and
Services. Trading is generally pursued to launch and increase the market share of new products;
once it reaches a certain size, the product is manufactured locally. In FY17, Agriculture segment
contributed 16% to the total topline followed by Monomer (15%), Polyurethane (16%), Pigments
(9%) and others (44%).
Exhibit 36: Trading SBU Revenue Mix (%)

Herbicides
16%
Pigments
Others 9%
44%
Polyurethane
Monomer 16%
15%
We expect Trading business to clock a revenue CAGR of -1.4% over the next 3 years (FY17-
20E), with average EBIT margin of 2.7%. In FY20E, the Trading business revenue contribution
to the total revenue is likely to decline to 19% from 29% in FY17. The major de-growth in revenue
is likely to come from Polyurethane (-30% CAGR), and Fungicides (-5% CAGR) over the next 3
years.
Exhibit 37: Services SBU Revenue Trend (Rs Mn) Exhibit 38: Services SBU EBIT Tend (Rs Mn)
1,970 500 470

1,957 1,957 1,957 1,957
1,960 369
400 350
1,950
297
1,940 300 266
1,930
1,917 200
1,920
1,910
100
1,900
1,890 -
2016 2017 2018E 2019E 2020E 2016 2017 2018E 2019E 2020E

C. Service SBU: Expect Muted Show

BASF India’s Services business includes various types of technical assistance, which is offered
to customers along with the products. This segment has demonstrated 2.7% revenue CAGR
over the last 5 years. In FY17, this SBU contributed 3.9% to the total topline with 24% EBIT
margin. In the next 3 years, we expect muted revenue show from the Services business, with
average EBIT margin of 15.8%. As per our estimate, the Services business revenue contribution
will reduce to 2.6% in FY20.
Exhibit 39: Services Business Revenue Trend (Rs Mn) Exhibit 40: Services Business EBIT Trend (Rs Mn)
470
1,967 1,967 1,967
1,957 369 357
303
272
1,917
2016 2017 2018E 2019E 2020E 2016 2017 2018E 2019E 2020E
Exhibit 41: Manufacturing Revenue Mix (%) Exhibit 42: Trading Revenue Mix (%)
Herbicides Herbicides Pigments

17% 6% 9%
Others
44% Polyurethan
e
16%
Polyurethan Others
e 59%
25%
Fungicides
Admixture Auto. OEM 10%
Systems Coatings
4% 10%
Source: Company, Emkay Research Source: C006Fmpany, Emkay Research
Exhibit 43: Services Revenue Mix (%)
Technical/Service charges
46%
Indent Commission
54%

D. Strong parentage to aid in new product launches

Being an innovator, BASF SE invests heavily in R&D. The company plans c.25% of global R&D
to be conducted in Asia Pacific by 2020, to not only develop innovative solutions but also to
address the region’s challenges. In keeping with this strategic thinking, BASF SE has made its
biggest R&D investment in South Asia at a new innovation campus in Mumbai, India. The project
will involve a total expected investment of up to €50mn from BASF Group. In FY17, the company
had 12 production sites and different offices, as well as 2 R&D centers, located in Mumbai and
Mangalore. With this, the Indian entity is also engaged in R&D, primarily focusing on customized
solutions to domestic customers with annual spending of Rs72.68mn in FY17, which is c.0.14%
of total revenue. We believe that the strong R&D support from the German parent will help BASF
India to introduce newer products in the domestic market.
Exhibit 44: India’s Production Site/R&D Centers

E. Substantial capex to reduce reliance on imports

The commencement of Dahej site will help BASF India to cater to the demand of fast-growing
segments like Personal Care, Adhesives, Appliances, Paper and Coatings etc. Additionally, the
Dahej facility is developed as a chemical complex to reduce reliance on imports by BASF India
to cater to the domestic market (import of raw materials formed ~78% of total requirement in
FY17). The parent also targets ~75% local production of the products it sells in Asia Pacific by
2020. Given that the petrochemicals capacities and feedstock availability are increasing in Asia,
we could see significant decline in the overall raw material imports of BASF India going forward.
Further, the government’s initiatives to become self-sufficient in basic chemicals will further move
the needle in terms of reduction of raw material imports.
Exhibit 45: Large Capex (Rs Mn)
9674
1449 1521 1618

959 1024 1009 1026
473 321 256
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Exhibit 46: Import (as % of the total RM Cost)
78.1% 78.1%
69.6% 71.8%
55.4% 55.8%
51.0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17

Company Background
BASF India is a subsidiary of BASF SE, the world’s largest chemicals company with global
revenue of over €57.5bn. BASF India caters to an array of customers with products like Polymers,
Tanning Agents, Leather Chemicals & Auxiliaries, Crop Protection Chemicals, Textile
Chemicals, Dispersions, Specialty Chemicals, Performance Plastics, Automotive & Coil
Coatings, Construction Chemicals, Polystyrenes etc. In FY11, the company merged 3 BASF
entities (BASF Construction Chemicals India Pvt Ltd, BASF Coatings India Ltd and BASF
Polyurethanes India Ltd with BASF India, and separately acquired Cognis Specialty Chemicals
Pvt. Ltd. However, the company’s profitability suffered significantly post this major consolidation
exercise, as many of these businesses were low-margin or loss-making due to lower volumes
and lack of manufacturing base in India. The expansion of the chemical complex at Dahej will
broadly indigenize the base chemicals for many sectors like Construction, Coatings and PU. As
a result, we are of the view that improvement in margin will be huge over the next 3 years followed
by revenue growth.
Exhibit 47: Key Management Personnel

Name Position
Dr. Raman Ramachandran Chairman & Managing Director
Mr. Narendranath Baliga Vice President- Finance & Corporate Processes
Mr. Rajesh Naik Director, Manufacturing
Mr. R. A. Shah Director
Mr. Pradip P. Shah Director
Mr. R.R. Nair Director
Mr. Arun Bewoor Director
Dr. Andrea Frenzel President, South & East Asia, ASEAN, and Australia/New Zealand
President, Performance Materials Division, BASF Belgium Coordination
Mr. Raimar Jahn
Centre
Exhibit 48: Management Personnel
Performance Functional Material Agriculture

Chemicals Others
Product & Solution Solution
 Tanning Agents  Catalysts  Agrochemicals  Monomers  Technical

 Leather Chemicals  Coatings which are  Intermediates  Service
 Textile Chemicals  Construction seasonal in  Petrochemicals Charges
 Dispersion Chemicals Chemicals nature.
 Styropor Dependent
 Speciality crop -Soya.
 Polyurethanes
Chemicals:-
-Additives
System
-Water Treatment  Engineering
-Home Care Plastics.
-Febric Care
 Fine Chemicals
-Food
-Pharmaceuticals
-Animal Feed
-Cosmetic Industries

Exhibit 49: Consolidation and acquisition strengthened BASF India portfolio
BASF and New

York based
Chatterjee group
form a strategic
alliance to
produce and BASF India
BASF acquires market merges 3 group
the coil coatings polystyrene in entities in India -
business from India. BASF takes BASF Coatings
Hydro Coatings up majority in the BASF SE (India) Pvt. Ltd.,
Worldwide and BASF acquires Ciba
partnership and BASF
Hydro Coatings Polyurethane Holding AG and
Pushpa Polymers Construction
BASF AG India ltd. is s India Ltd is begins
Pvt. Ltd is Chemicals (India)
acquires remamed as formed as a integration of
renamed BASF Pvt. Ltd. and
majority BASF Coatings 100% local Ciba
Styrene Pvt. ltd. BASF
holding subsidiary of entities around
BASF India Polyurethanes
(50.00104%
) in BASF
1995 1998 2000 2001 2005 2006 2008 2010 2011 2012
Automotive Cynamid
coating business Agro Ltd is With the global BASF AG The merger of BASF SE Expan
is acquired from merged with acquisition of acquires USA Ciba India, acquires Polyst
Dr. Beck & co. BASF India construction based Diamond Dye- Cognis (EPS)
and printing inds pursuant to chemicals Engelhard Chem and Holding part of
business is BASF's business of Corporation Ciba GmbH Plastic
acquired from worldwide Degussa AG by and Research worldwide of the
JBA Printing acquistion of BASF AG, its its Indian unit India) including its Comp
Indian unit is re-named Private Ltd Indian unit under
renamed BASF Cognis name
Construction India.
Exhibit48: ….Consolidation and acquisition strengthened BASF India portfolio
Sold BASF's
BASF India global industrial
merges 3 group The greenfield BASF India coatings
chemical plant signed a MoU business to BASF SE, has
entities in India - signed
BASF Coatings at Dahej with Wurth India AkzoNobel, Sold
Petroleum, Pvt. Ltd to Photoinitiator agreement to
(India) Pvt. Ltd., BASF SE, acquire Solvay's
BASF Chemicals and transfer its business to IGM
announced and consider integrated
Construction Petrochemicals Import and
setting up of a global polyamide
Chemicals (India) Investment distribution
new global Restructuring of business
Pvt. Ltd. and Region in business of
business unit BASF's Plant globally for EUR
BASF Gujarat Glasurit, an
combining all its Biotechnology 1.6 bn.
Polyurethanes commence automotive
pigment (Expected to
commercial refinish paint
2010 2011 2012 2014 2015 2016 2017
BASF India Transfered the BASF has entered

merger of BASF SE Expandable
inaugurated the textile chemicals into crop
a India, acquires Polystyrene
new Agricultural business of the protection
mond Dye- Cognis (EPS), forming
Research Company to market for Rice in
m and Holding part of the
Station in Pune Archroma India
a GmbH Plastics Division India with its two
(cost ~Rs 64 Pvt Ltd.
earch worldwide of the products i.e.
Company is sold cr), will focus on Seltima and
a) including its
under the brand undertaking
ate Ltd Indian unit Adexar.
name Styropor in global research
Cognis
India. in the area of

Financial Performance
Exhibit 50: Revenue Growth Trend (Reaching to the historical higher levels)
30%
24% 24%
25% 22%
20% 19%
17%
15%
15% 13% 12% 12% 13%
11%
10% 7%
6%
5%
1%
0%
FY18E
FY07
FY08
FY09
FY10
FY12
FY13
FY14
FY15
FY16
FY17
FY19E
FY19E
FY11*
Exhibit 51: EBITDA Margin Trend (Margin to reach historical higher levels)
14.0 13.1
12.4
11.6 11.6
12.0
9.2 9.7
10.0 8.9
8.0 7.3
5.9 5.9 6.4 6.4
6.0 5.3
4.0 2.8
2.2
2.0
-
FY14
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY15
FY16
FY17
FY18E
FY19E
FY20E
Exhibit 52: Sales/Fixed-Asset Turnover Ratio (x)

4.3x
3.9x 3.9x
3.5x
3.1x
2.8x 2.9x
2.5x
2.2x 2.3x
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Exhibit 53: RoCE Trend (%) Exhibit 54: RoE Trend (%)
21.79
24.2
16.79 19.3
12.21 12.72 12.04 11.6

10.00 10.0 9.2 9.4 9.3
8.74
4.23
-0.34 -2.7 -1.3

-2.33 -5.8
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18eFY19eFY20e FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18eFY19eFY20e

Exhibit 55: Net Debt/Equity Exhibit 56: Cash Balance (Rs Mn)
1.3x
1.2x
1.1x 1948
0.9x
0.8x 1513 1482
0.7x 1277
0.5x
0.3x
0.2x 339 251
0.1x 185 156 151
32
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18eFY19eFY20e FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18eFY19eFY20e
Exhibit 57: Cash Conversion Cycle (Days)
67
64
54
49 50 49 46
41
38 38
Exhibit 58: RoIC (%)
19.3
15.3
10.2
8.9 8.5 8.1
5.3
4.0
-0.4
-2.3
Exhibit 59: Dividend Yield (%)
1.49 1.49
0.47
0.27
0.16
0.04 0.05 0.03 0.07
0.01

Valuation
In FY17, BASF India posted a 7% jump in revenue at Rs50.79bn (v/s Rs47.49bn). However,
demonstrated 310 BPS YoY expansion in EBITDA margin to 5.3% (v/s 2.2% in FY16). EBITDA
profit jumped by 155% yoy to Rs2.69bn. The higher depreciation and interest costs, resulted in
net loss of Rs141mn in FY17. The last few years have been affected by the addition of new
capacity, consolidation of loss making business and subdued demand.
We believe that the recent capex has started reaping a rich harvest and the company will be able
to comfortably report 13.6% CAGR in revenue to Rs74.49bn over FY17-20E. The company’s
Agrochemicals division has suffered from single crop dependence and lack of rich product
basket. The recent launch of thirteen new products in rice, corn, soya, grapes and apple is likely
to bode well on revenue growth and margin. Additionally, the company key concern - low Dahej
plant utilization level also seen the uptick with rise in profitability. The major negatives begin to
reverse in 2017. Going forward the growth momentum is expected to accelerate from its new
facility at Dahej, which can potentially add c.Rs2.8bn in revenue during next three years.
Additionally, the economies of scale and operational efficiency will help BASF India to expand
margins.
We estimate margin expansion from 5.3% in FY17 to 7.3% in FY18E and further to 8.9%/9.7%
in FY19/20E. Consequently, the net loss of FY17 is expected to turn into a profit in FY18 at
Rs1.1bn, and thereafter will exhibit exponential growth. We estimate a CAGR of 13.6% in
revenue and 39.1% in operating profit. This growth is backed by robust growth in Agricultural
Solutions, Performance Chemicals and Functional Solutions businesses along with margin
expansion. We initiate BUY with TP of Rs2,212 (14.4x FY20 EV/EBITDA) with a 51% upside
potential.
Exhibit 60: Peer Valuation (EV/EBITDA)
35.0x 31.2x
30.0x 28.3x
23.2x 23.1x 23.8x
25.0x
19.8x
20.0x 18.2x 18.0x
15.0x 13.0x
10.0x
5.0x
0.0x
Akzo Nobel India Ltd BASF India Ltd Bayer Cropscience Ltd
FY 17 FY 18E FY 19E
Exhibit 61: Peer Valuation (RoCE)
35% 33%
30%
30% 26% 27%
24%
25%
20% 17% 16%
15%
10%
10%
4%
5%
0%
Akzo Nobel India Ltd BASF India Ltd Bayer Cropscience Ltd
FY 17 FY 18E FY 19E

Key Financials (Standalone)

Income Statement
Y/E Mar (Rs mn) FY16 FY17 FY18E FY19E FY20E
Net Sales 47,492 50,798 56,290 63,602 74,497
Expenditure 46,434 48,101 52,190 57,939 67,240
EBITDA 1,058 2,697 4,099 5,662 7,257
Depreciation 1,631 1,690 1,657 1,492 1,490
EBIT (573) 1,007 2,443 4,170 5,767
Other Income 29 285 20 156 121
Interest expenses 1,481 1,416 1,340 1,324 1,193
PBT (2,025) (125) 1,123 3,002 4,695
Tax 0 17 22 400 704
Extraordinary Items 1,721 0 0 0 0
Minority Int./Income from Assoc. 0 0 0 0 0
Reported Net Income (304) (141) 1,100 2,602 3,991
Adjusted PAT (2,025) (141) 1,100 2,602 3,991
Balance Sheet
Equity share capital 433 433 433 433 433
Reserves & surplus 10,727 10,590 11,387 13,037 16,075
Net worth 11,160 11,023 11,820 13,469 16,508
Minority Interest 0 0 0 0 0
Loan Funds 14,209 14,121 13,871 12,621 11,221
Net deferred tax liability 0 0 0 0 0
Total Liabilities 25,369 25,144 25,692 26,091 27,730
Net block 12,889 12,224 10,291 10,599 10,909
Investment 2,038 2,141 2,141 2,141 2,141
Current Assets 22,288 24,112 27,863 29,894 34,113
Cash & bank balance 32 251 1,948 1,513 1,482
Other Current Assets 0 0 0 0 0
Current liabilities & Provision 12,397 13,662 14,932 16,872 19,762
Net current assets 9,891 10,451 12,931 13,023 14,351
Misc. exp 0 0 0 0 0
Total Assets 25,369 25,144 25,692 26,091 27,730
Cash Flow
PBT (Ex-Other income) (NI+Dep) (2,054) (410) 1,103 2,846 4,574
Other Non-Cash items 0 0 0 0 0
Chg in working cap 2,222 (340) (784) (526) (1,359)
Operating Cashflow 1,550 1,849 1,873 3,568 4,121
Capital expenditure (1,009) (1,026) (1,700) (1,800) (1,800)
Free Cash Flow 542 823 173 1,768 2,321
Investments 0 0 0 0 0
Other Investing Cash Flow 880 119 1,977 0 0
Investing Cashflow (129) (906) 277 (1,800) (1,800)
Equity Capital Raised 0 0 0 0 0
Loans Taken / (Repaid) (4,508) (87) (250) (1,250) (1,400)
Dividend paid (incl tax) (17) (43) (303) (952) (952)
Other Financing Cash Flow 3,340 824 1,440 1,324 1,193
Financing Cashflow (2,666) (723) (453) (2,202) (2,352)
Net chg in cash (1,245) 219 1,697 (434) (31)
Opening cash position 1,277 32 251 1,948 1,513
Closing cash position 32 251 1,948 1,513 1,482

Key Ratios
Profitability (%) FY16 FY17 FY18E FY19E FY20E
EBITDA Margin 2.2 5.3 7.3 8.9 9.7
EBIT Margin (1.2) 2.0 4.3 6.6 7.7
Effective Tax Rate 0.0 (13.3) 2.0 13.3 15.0
Net Margin (4.3) (0.3) 2.0 4.1 5.4
ROCE (2.0) 5.1 9.7 16.7 21.9
ROE (17.8) (1.3) 9.6 20.6 26.6
RoIC (2.4) 4.5 11.2 19.2 25.1
Per Share Data (Rs) FY16 FY17 FY18E FY19E FY20E

EPS (46.8) (3.3) 25.4 60.1 92.2
CEPS (9.1) 35.8 63.7 94.6 126.6
BVPS 257.8 254.6 273.0 311.1 381.3
DPS 0.4 1.0 7.0 22.0 22.0
Valuations (x) FY16 FY17 FY18E FY19E FY20E

PER (31.3) (449.5) 57.7 24.4 15.9
P/CEPS (164.8) 41.9 23.6 15.9 11.8
P/BV 5.7 5.8 5.4 4.7 3.8
EV / Sales 1.6 1.5 1.3 1.2 1.0
EV / EBITDA 73.4 28.7 18.4 13.2 10.1
Dividend Yield (%) 0.0 0.1 0.5 1.5 1.5
Gearing Ratio (x) FY16 FY17 FY18E FY19E FY20E

Net Debt/ Equity 1.3 1.3 1.0 0.8 0.6
Net Debt/EBIDTA 13.4 5.1 2.9 2.0 1.3
Working Cap Cycle (days) 75.8 73.3 71.2 66.0 63.0
Growth (%) FY16 FY17 FY18E FY19E FY20E

Revenue 0.9 7.0 10.8 13.0 17.1
EBITDA (20.5) 155.0 52.0 38.1 28.2
EBIT 0.0 0.0 142.6 70.7 38.3
PAT 0.0 0.0 0.0 136.5 53.4
Quarterly (Rs mn) Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18

Revenue 13,949 12,919 11,225 12,753 15,101
EBITDA 776 526 155 1,217 700
EBITDA Margin (%) 5.6 4.1 1.4 9.5 4.6
PAT 115 (194) (461) 451 (30)
EPS (Rs) 2.7 (4.5) (10.9) 9.5 (0.7)
Shareholding Pattern (%) Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Promoters 73.3 73.3 73.3 73.3 73.3
FIIs 1.3 2.0 2.3 2.8 3.0
DIIs 7.3 7.2 7.1 6.9 6.8
Public and Others 18.0 17.5 17.3 16.9 16.8
Source: Capitaline

Emkay Rating Distribution

BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.
ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.
HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.
REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months.
SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.
Completed Date:
Dissemination Date:
Sources for all charts and tables are Emkay Research unless otherwise specified.
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Disclosures by Emkay Global Financial Services Limited (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014
with reference to the subject company(s) covered in this report-:
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Basf Buy Emkay 06.10.17

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BASF India Ltd

India Equity Research | Others

Refer to important disclosures at the end of this report

Benefits of capex surface; turnaround to Rs 1,466

sustain Rating Upside

(14.4x FY20 EV/EBITDA). 1320 4

Financial Snapshot (Standalone)

Net Sales 47,492 50,798 56,290 63,602 74,497 Source: Bloomberg

ED: HEMANT MARADIA SA: DHANANJAY SINHA

Exhibit 1: EBITDA Margin Trend (%)

6.2 6.2 Dahej facility is positioned to replaced bulk of low margin

Largest investment made to manufacture 2.8

Source: Company, Emkay Research

Gravitating towards a sustainable turnaround

Exhibit 2: Asia-Pacific EBIT margin trend (%) Exhibit 3: Peer Valuation

Akzo Nobel India Ltd BASF India Ltd Bayer Cropscience

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 2

A. Manufacturing SBU: Seeing improvement in revenue

Exhibit 4: BASF India Business Model

Manufacturing Trading Service Total

As % of SBU's Revenue As % of total revenue

Performance Dispersion: 9% |Rs2.9bn

Eng. Plastic: 14% |Rs4.6bn Functional Material &

Others Technical: 47% | Rs 0.9 bn Others:

67% 29% 4% 100%

Source: Company, Emkay Research

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 3

Exhibit 5: BASF Asia Pacific 2020 Sales Target

Source: Company, Emkay Research Source: Company, Emkay Research

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 4

A.1 BASF India at an inflection point; Dahej plant to spur revenue

Source: Company, Emkay Research Source: Company, Emkay Research

Source: Company, Emkay Research Source: Company, Emkay Research

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 5

Source: Company, Emkay Research Source: Company, Emkay Research

Why Dahej plant is so crucial for BASF India?

Exhibit 18: BASF - Dahej Plant Manufacturing Set-up

Integrated Polyurethane (PU) Automotive Engines

- Polyols - Sulfation Products - Super Concentrate Coolants - Acronals

Source: Company, Emkay Research

 TPU: Used for combination of elasticity and robustness.

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 6

TPU 16% 16%

Source: Company, Emkay Research Source: Company, Emkay Research

Exhibit 21: Global Players in MDI Space

0 Crude MDI Capacity Size

Source: Company, Emkay Research

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 7

Exhibit 22: Types of Surfactants

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 8

ready-to-use construction materials and adhesives. Styrofan is a water-based styrene

Exhibit 23: Polymeric Dispersion Product Portfolio

Construction Industrial coatings

Industry Size (Rs mn) Rs 12.9 bn Rs 27.3 bn

Exhibit 24: Coolant Fluid Application Industry

AUTOMOTIVE ENGINES (COOLANT FLUID)

Combustion turbines and engines

Cooling water tanks

Cylinder head covers

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017 | 9

What is the outlook for Non-Dahej manufacturing revenue?

ED: HEMANT MARADIA SA: DHANANJAY SINHA October 5, 2017| 10

A.2 Dahej Chemical Complex: Micro replica of BASF, Ludwigshafen