RESEARCH REPORT

Riddhi Siddhi Gluco Biols Ltd. -NOT RATED 5th May 2010

CMP: Rs. 238 BUY TARGET PRICE: Rs. 300

Sector : Chemical-Starch We initiate coverage on Riddhi Siddhi Gluco Biols which is India's
largest cornstarch producer. We believe that RSGBL is ideally
Analyst: Miten Chavda, FRM positioned to capitalise on the rising demand seen for corn based
[email protected] inputs from user segments like Pharma, FMCG, Textiles which should
drive strong volume growth in the next two years.
Price 238
Price Target 300
Also with a timely expansion coming in at Rudrapur, the company
will get the benefit of increased capacity expansion which will further
Price Appriciation 26%
boost earnings during FY11 and FY12. We rate the stock as a BUY
52 Week range(H/L) 237/77
with a Target price of Rs 300. At our Target price RSGBL will be
Market Cap (Rs Crs) 264
valued at 6x FY11E and 5x EV/EBIDTA based on FY11.
Avg Daily Volume (6 mths) 18476
Source: Capitaline
INVESTMENT RATIONALE
SHAREHOLDING PATTERN (%) Unique Business Strategy
RSGBL is having a unique business strategy, where in it has established
Promoter 43.06
production plants at strategic locations from where it can source raw
FII 20.06 materials within a radius of 350 kms.RSGBL has also entered into a strategic
Corporate holding 26.56 alliance with a French company Roquette Freres which will facilitate the
Public 10.32 company in the transfer of technology know how and help it company to
Total 100 enhance its standards and technology leadership in the industry
Source: Capitaline

Timely Capacity expansion at Rudrapur to boost

Financial Estimates earnings
2010E 2011E 2012E
The installed capacity of the company is 325000 tpa and company is adding
Net Sales (Rs Crs) 666 861 984
30% capacity at Rudrapur plant and company will be able to utilize added
Growth (%) 25% 29% 14%
EPS (RS.) 33 53 69
capacity by the year 2012 fully and partly during FY 11. This expansion
EBIDTA (%) 16% 18% 19% will boost sales on back of strong demand arising for cornstarch and other
P/E (X) 7 4 3 allied products.
ROE(%) 23% 29% 30%
EV/EBIDTA
ROCE (%) 12%
6
18%
4 3
22%
User segments for RSGBL doing well -
RSGBL is having a strong client base across different business segments
Source : Company / Anagram Research
offering portfolio of more than 30 products. The company is providing
9 months Performance (Rs. Crs) starch products to sectors like Food, Pharma, Textile, Paper, confectionaries.
9 MFY10 9MFY09 % change A higher growth in the Pharma and FMCG segments which are likely to
Net Sales 514 372 38%
grow by 15% pa should drive business fortunes for RSGBL in the near
Other Income 1 0
Total Income 515 373 38%
medium term.
Total Expenditure 444 315 41%
PBIDT 72 57 25% VALUATIONS
Interest 17 28 -40% RSGBL is the biggest player of starch production in India. The stock currently
PBDT 55 30 86%
trades at 5x FY11E and on a EV/EBIDTA basis it trades at 4x FY11. The
Depreciation 14 13 11%
Tax 14 6
stock also trades at a discount of 11% and 6% with regards to its P/E and
Profit After Tax 27 11 158% EBIDTA vis a vis its comparable peers despite having the largest capacity
EPS (Unit Curr.) 24 9 - in this business segment and has a decent financial track record. We
Company / Anagram Research
estimate RSGBL to record a 22% CAGR in topline growth in the next 2
ONE-YEAR PERFORMANCE: years, with net profits expected to grow at a CAGR of 44% in the period
(REL. TO SENSEX) between FY10-F12.

On a absolute basis we expect the company's bottomline to grow to Rs

46.7crs in FY10 from Rs 14.1crs recorded last year and to Rs 74.1crs in
FY11 and Rs97.2crs in FY12. Our EPS estimates for FY10 are Rs 33.4 and
Rs52.9 for FY11 and Rs69.4 for FY12 which indicates a robust earnings
growth of 58% in FY11 and 31% in FY12.

We rate the RSGBL stock as a BUY with a Target price of Rs 300. At our
Target price RSGBL will be valued at 5.67x FY11E and 4.53x EV/EBIDTA
Source: Capitaline
based on FY11 Contd...

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Roads Circle, Navrangpura, Ahmedabad – 380 009.
Riddhi Siddhi Gluco Biols Ltd. - Research Report
Research Report –Glenmark Pharmaceuticals Ltd

Investment Rationale
Unique Business Strategy
State wise production Riddhi siddhi Gluco Biols Ltd. is having a unique business strategy. They have
established there production plants at strategic location from where they can
Karnataka
18% source raw material within the radius of 350 kms. The company is able to
Others
41% source raw material at lower cost by saving transportation cost. The company
Andhra has its establishment in such states where it enjoys tax and excise benefits at
15%
locations like Gokak and Rudrapur. Company is enjoying sales tax deferment
at Gokak plant till 2014. States like Karnataka and Andhra are producing the
UP highest maize. Gokak Plant is situated in Karnataka near one of the largest
Rajasthan 9%
8% Bihar corn gainers of India. For other plants like Rudrapur, company is able to source
9%
raw material from the state like UP and Bihar.
Source : Company / Anagram Research

RSGBL entered into a strategic alliance with the French company Roquette
RSGBL has its establishment in
Freres which is worlds largest corn processing company. This will facilitate the
such states where it enjoys tax
company in the transfer of technology know how and help company to enhance
and excise benefits at locations
like Gokak and Rudrapur... its standards and technology leadership in the industry.

Raw material producer for leaders of growing sectors

RSGBL (Riddhi Siddhi Gluco Biols Ltd) is having strong client base of the different
business segments offering portfolio of more than 30 products. The company
Sector-wise sales breakup is providing starch products to the industries like Food, Pharma, Textile, Paper,
5%
15% confectionarie

Pharma sector is likely to grow by 14 to 15% CAGR for 10 years. Food industry
is not developed yet in India which is growing at 9% Indian food industry is
worth 0.4 million compared to 2.2 million food industry in USA although India’s
7%
population is three times that of USA. India is a growing economy and increase
Food & Pharma Textile& Paper in discretionary income and urbanization will indirectly help the confectionery
Others industry. India’s paper demand is also likely to grow at 8% CAGR over five
Source : Company / Anagram Research years. Company has very big customer portfolio including all the leaders of
sector.

Major customers
RSGBL has very big customer
Food & conf. Pharmaceutical Paper Textile Others
portfolio including all the leaders
Nestle Ranbaxy BILT Grasim Hindalco
of sector.
Heinz Novartis ITC Bombay Dye Emami
Cadbury Nicholas Piramal JK Paper Indian Rayon Amul
HUL Wockhardt TNPL Lakshmi Mills United Brew
Britannia Lupin West Coast Precot Mills Micro Inks
Wrigley’s Pfizer Seshasayee Anglo French Godrej
Agrovet Biocon A.P. Paper Paramount Suguna
Perfetti Cadila HC. Khanna Paper
Poultry Dabur India Century Hatcheries
Vadilal Inds.
Venkateshwara
Parle

Source : Company / Anagram Research

Contd...

2 5th May 2010

Riddhi Siddhi Gluco Biols Ltd. - Research Report

Industry Outlook: Robust potential

growth expected
Global starch consumption is estimated around 62mn mtpa and is projected to
increase to 70 mn mtpa. The consumption of starch in countries like USA,
Japan, China is likely to register the growth of 1%,2%and 4% respectively.
The consumption of starch in
India’s per capita starch consumption is still less than 1 kg, compared with the
countries like USA, Japan, China
US (64 kg) and the global average (6 kg). Corn starch industry is at very initial
is likely to register the growth
stage of business cycle in India so there is lot of room for improvements. The
of 1%,2%and 4% respectively.
Indian starch industry is producing starch 1800 crs tons. 65% of the total
production comes from organized sector and remaining 35% by unorganized
players. Organized sector comprises of 6 players, 16 manufacturing units and
around 40 products compared to 1000 starch products available across the
globe.

The starch industry in India is very concentrated. The Herfindahl Index of the
organized sector comes to 41% which is greater than the threshold 18% shows
industry is dominated by few players and companies in the industry are enjoying
bargaining power. RSGBL is the largest producer of starch in India. RSGBL is
having capacity of producing 325000 tonnes starch which is more than double
of its closest competitor.

Production capacity Break up

Ridhhi
siddhi
18%
Unorganized
35%

Organized
47%

Source : Company / Anagram Research

Incremental Analysis for capacity expansion at Rudrapur

Contd...

3 3 5th May 2010

Riddhi Siddhi Gluco Biols Ltd. - Research Report
Research Report –Glenmark Pharmaceuticals Ltd

The biggest player is getting bigger: Capacity expansion

at Rudrapur
The installed capacity of the company is 325000 tpa and the company is adding
30% capacity at Rudrapur plant and company will be able to utilize added
capacity by the year 2012 fully and partly during FY 11.

Production capacity
450000

400000

capacity (tpa)
350000

300000

250000

200000

150000
After the capacity expansion at
100000
Rudrapur it will be the highest
2006 2007 2008 2009 2010E 2011E 2012E
production contributor among
year
the all three production
Source : Company / Anagram Research
facilities...
The cost of capacity expansion will be Rs.45 Crs and it will be financed partially
by debt and internal accruals. The company has taken ECB of $ 8 mln for the
capacity expansion and remaining will be financed by internal accruals. After
the capacity expansion at Rudrapur it will be the highest production contributor
among the all three production facilities.
Incremental Analysis for capacity expansion at Rudrapur
2011E 2012E 2013E
Aditional Sales 162.3 216.4 216.4
EBT 16.9 25.4 25.8
PAT 11.8 17.8 18.1
Add: Dep (1-t) 3.2 2.9 2.6
Incremental Profit 15.0 20.7 20.7
Source : Company / Anagram Research

As per the incremental analysis Payback period for additional capex is 2.4
years. After reaching breakeven by the end of FY 13 Rudrapur plant is like to
contribute heavily on company basis. Here we have taken very conservative
scenario where additional sales prices will remain stable and we have taken
exchange rate of 46 for interest payment and conservative operating margin
of 15%.

Attractive fundamentals amongst all peers

RSGBL is having installed capcity of 325000 mtpa which is more than double
RSGBL is enjoying largest
of its closest competitor shukhjit starch with installed capcity of 150750 tpa.
market share which is likely to
The industry is very much dominated by few players and RSGBL is enjoying
ramp up by 30% after capacity
largest market share which is likely to ramp up by 30% after capacity expansion
expansion at Rudrapur... at Rudrapur.
Peer comparison
Riddhi siddhi Sukhjit English Ind. Clay
Sales (Rs.Crs) 665.9 219.6 281.0
EBIDTA (Rs.Crs) 108.0 23.7 47.4
PAT (Rs.Crs) 46.7 11.6 15.5
EBIDTA% 16% 11% 17%
NPM% 7% 5% 6%
ROE% 23% 14% 18%
EV (Rs.Crs) 606.4 145.4 448.0
BVPS (Rs.) 166.3 123.3 164.3
EPS (Rs.) 33.4 15.7 34.6
EV/EBIDTA (x) 5.6 6.1 9.4
P/BV (x) 1.4 1.0 4.5
P/E (x) 6.7 8.0 21.3
Capacity(Tns/Anm) 325000 150750 91245
Source : Company / Anagram Research

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Riddhi Siddhi Gluco Biols Ltd. - Research Report

Financial Analysis
Du-Pont Analysis
2008 2009 2010E 2011E 2012E
PAT/PBT (Tax Effect) 68% 65% 67% 67% 67%
PBT/PBIT (Int. Effect) 69% 44% 80% 85% 89%
PBIT/Sales(PBIT Margin) 13% 9% 16% 15% 17%
Sales/T.A(Asset TO) 0.8 1.2 1.3 1.5 1.6
T.A/N.W (Fin. Leverage) 2.5 2.5 2.4 2.1 1.8
ROE % 12% 8% 27% 28% 29%

If ROE will be decomposed in to five factor Du-Pont analysis it is very evident

that increase in net profit is result of lower interest burden and spurt in margin.
Decreasing financial leverage is showing some healthy signs of real profit
growth.

Margins expected to stabilize at 18%

20% 35%
1200
19%
18% 18%
16% 984 30%
1000
16% 16% 16%
861
14% 25%
800
666 12%
12%
20%
600 10% 10%
534
8% 9% 8% 15%
400 333 332
7% 6%
3% 10%
6% 4%
200
2%
5%
0 0%
2007 2008 2009 2010E 2011E 2012E
0%
2007 2008 2009 2010E 2011E 2012E
Sales EBIDTA% NPM%
ROE ROCE

Source : Company / Anagram Research

The margins of the company plunged to the level of 12% and made bottom of
3% in FY 09 due to economic downturn and un favorable business environment.
Company is having international $ denominated debt so due to adverse currency
During FY 10 things are getting movement company paid very high financing cost. During FY 10 things are
stable and margins are likely to getting stable and margins are likely to come back to there normal level of
come back to there normal level 16% to 18%. The expansion at Rudrapur plant will increase the total sales and
of 16% to 18%... ultimately the profit in absolute rupee term. Rudrapur plant is getting the
benefit like excise holiday for 10 years and Gokak plant is benefited by sales
tax deferment till FY 14.

PE BAND EV/EBIDTA
450
400 1400
10X
350 1200 10X
300 1000
8X
250 800
Price

EV

7X
200 600
5x
150 5X
400
100 200 3X

50 0
0 2006 2007 2008 2009 2010
2006 2007 2008 2009 2010 Year
year

Source : Company / Anagram Research

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Riddhi Siddhi Gluco Biols Ltd. - Research Report
Research Report –Glenmark Pharmaceuticals Ltd

Valuation
RSGBL is the biggest player of starch producer of India. After the capacity
expansion at Rudrapur company will add 30% extra capacity. The Company is
catering to the domestic clients mostly and export is contributing barely 10%
of the total sales. International market is still unexploited business territory
for the company which will be considered in time to come. Moreover RSGBL
entered into a strategic alliance with the French company Roquette Freres
which is worlds largest corn processing company. This will facilitate the company
in the transfer of technology know how and help company to enhance its
standards and technology leadership in the industry. Company brought its
cash conversion cycle to 91 days from 136 days in FY 8 this will further go
down to the level of 83 days by improved operational efficiency.

RSGBL is the biggest player of starch production in India. The stock currently
trades at 5x FY11E and on a EV/EBIDTA basis it trades at 4x FY11. The stock
We rate the RSGBL stock as a
also trades at a discount of 11% and 6% with regards to its P/E and EBIDTA
BUY with a Target price of Rs
vis a vis its comparable peers despite having the largest capacity in this
300.
business segment and has a decent financial track record. We estimate
RSGBL to record a 22% CAGR in topline growth in the next 2 years, with net
profits expected to grow at a CAGR of 44% in the period between FY10-F12.

On a absolute basis we expect the company's bottomline to grow to Rs 46.7crs

in FY10 from Rs 14.1crs recorded last year and to Rs 74.1crs in FY11 and
Rs97.2crs in FY12. Our EPS estimates for FY10 are Rs 33.4 and Rs52.9 for
FY11 and Rs69.4 for FY12 which indicates a robust earnings growth of 58% in
FY11 and 31% in FY12.

We rate the RSGBL stock as a BUY with a Target price of Rs 300. At our Target
price RSGBL will be valued at 5.67x FY11E and 4.53x EV/EBIDTA based on
FY11

6 5th May 2010

Riddhi Siddhi Gluco Biols Ltd. - Research Report

Risks
Raw material prices
The raw material accounts for 60% of the total operating cost of the company
which is maize. The prices of maize is dependent upon the many factors like
Rain, international demand of Maize and now a days price Maize is also used
Though RSGBL has certain
for Bio diesel so prices of this commodity will also affect by the prices of
efficient procurement process in
crude in international market. Though company has certain efficient
place to cope up with price hike procurement process in place to cope up with price hike but still uncertainty
but still uncertainty regarding the
regarding the prices of maize is a one of the main concern.
prices of maize is a one of the
main concern.
International Debt
The company is having international loan in its balance sheet so company.
The company is keeping its exposure un-hedged so its prone to the risk
adverse movement of currency like in FY 09 where company has to pay higher
interest cost.

7 7 5th May 2010

Riddhi Siddhi Gluco Biols Ltd. - Research Report
Research Report –Glenmark Pharmaceuticals Ltd

Profit and Loss Statement (Rs. Crs) Balance Sheet (Rs. Crs)
Particulars FY09 FY10E FY11E FY12E Particulars FY09 FY10E FY11E FY12E
Net Sales 534.0 665.9 860.6 984.4 Equity Share Capital 16.1 16.1 16.1 16.1
% Growth 61% 25% 29% 14% Total reserves 169.1 203.7 266.5 349.1
COGS 457.8 541.9 689.8 779.5 Total Shareholders F 185.3 219.8 282.6 365.3
Administration Exp 14.5 16.0 18.7 19.8 Secured Loan 223.3 255.3 229.3 198.3
Misc exp 0.0 0.0 0.0 0.0 Unsecured loan 37.2 41.0 44.7 48.5
Cost of sales 472.4 558.0 708.5 799.3 Total Debt 260.5 296.2 274.0 246.7
EBITDA 61.6 108.0 152.1 185.1 Deferred Tax Liability 18.4 21.9 26.8 35.4
% Margins 12% 16% 18% 19% Total Liabilities 464.1 538.0 583.4 647.3
Depreciation 14.7 17.7 19.5 20.2 Fixed Assets
Gross Profit 46.9 90.3 132.6 164.9 Gross Block 418.1 448.4 463.6 463.6
Gross Profit Margins 9% 14% 15% 17% Less Acc Depreciation 103.8 123.1 144.2 166.1
Interest 27.2 22.2 20.4 18.2 Net Block 314.3 325.3 319.4 297.5
Other Income 1.9 1.7 1.7 1.8 Capital Work in Prog. 6.1 9.1 12.0 16.6
PBT 21.7 69.7 110.5 145.1 Inventories 78.5 103.8 133.2 157.2
PBT Margins % 4% 10% 13% 15% Sundry Debtors 58.2 98.7 126.6 192.1
Tax 7.2 23.0 36.5 47.9 Cash and Bank 6.1 4.8 4.9 4.7
Net Profit 14.5 46.7 74.1 97.2 Loans and Advances 13.5 15.4 18.9 20.7
Net Profit Margins % 3% 7% 9% 10% Total Current Assets 156.2 222.7 283.6 374.7
Adjustments -0.4 0.0 0.0 0.0 Current Liabilities 14.7 17.5 22.4 25.4
Reported Net Profit 14.1 46.7 74.1 97.2 Provisions 4.7 8.4 12.8 16.2
Net Current Assets 136.8 196.8 248.5 333.1
Investments 0.1 0.1 0.1 0.1
Foreign currency Trans 6.8 6.8 3.4 0.0
Total Assets 464.1 538.1 583.4 647.4

Cash Flow Statement (Rs. Crs) Ratio Analysis

Particulars FY09 FY10E FY11E FY12E Particulars FY09 FY10E FY11E FY12E
PBT 21.7 69.7 110.5 145.1 Market price (Rs) 238.0 238.0 238.0 238.0
Depreciation 14.7 17.7 19.5 20.2 EPS – RS. 10.4 33.4 52.9 69.4
Interest 26.0 21.0 19.2 16.9 OPM% 12% 16% 18% 19%
Adjustments 0.0 0.0 0.0 0.0 NPM% 3% 7% 9% 10%
Cash flow from op 62.4 108.5 149.2 182.2 Du-Pont Analysis
Changes in work. cap 21.7 -67.5 -60.8 -91.2 PAT/PBT (Tax Effect) 65% 67% 67% 67%
Taxes paid 3.0 2.4 23.0 32.8 PBT/PBIT (Int. Effect) 44% 76% 84% 89%
Net Cash from op 81.1 38.5 65.4 58.2 PBIT/Sales(PBIT Margin) 9% 14% 15% 17%
Capital Expenditure -53.4 -33.2 -18.2 -4.6 Sales/T.A(Asset Trnover) 1.2 1.3 1.5 1.6
Net Cash from Invest -53.4 -33.2 -18.2 -4.6 T.A/N.W (Fin. Leverage) 2.5 2.5 2.2 1.9
Increase/decr in debt 1.8 16.8 -22.3 -27.3 ROE % 8% 23% 29% 30%
Dividends 4.4 3.1 6.6 10.4 ROCE % 11% 12% 18% 22%
conversion of warrents 0.0 0.0 0.0 0.0 Book Value's per share 132 157 202 261
Interest 26.0 21.0 19.2 16.9 P/E Ratio 23.0 7.1 4.5 3.4
Others 0.7 0.7 0.7 0.7 P/BV 1.8 1.5 1.2 0.9
Net cash from finan -27.9 -6.5 -47.2 -53.8 EV/EBIDTA 9.5 5.8 4.0 3.1
Net Inc/Dec in Cash -0.2 -1.2 0.0 -0.2 Leverage Ratios
Opening Cash Balance 6.4 6.1 4.8 4.9 Debt-Equity Ratio 1.4 1.3 1.0 0.7
Closing cash balance 6.1 4.8 4.9 4.7 Interest Cover Ratio 1.8 4.1 6.4 9.0
Working capital ratios
Debtor Days 46 43 48 59
Inventory Days 55 50 50 50
Creditor Days 10 10 10 10
Cash Conversion Cycle 91 83 88 99

Source: Anagram / Company

8 5th May 2010

Riddhi Siddhi Gluco Biols Ltd. - Research Report

For Further Details

- Avinash Gorakshakar - Head Research
Tel.: -91-22-42198100
Email: [email protected]

RATING INTERPRETATION :

BUY Expected to appreciate more than 20% over a 12-month period

Accumulate Expected to appreciate up to 20% over a 12-month period
Neutral Expected to remain in a narrow range
SELL Expected to depreciate more than 10% over a 12-month period

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9 9 5th May 2010