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Monday, 30 October 2017

Ion Exchange : Long-Term potential Micro cap

Ion Exchange (India) Ltd; CMP 500, P/e 15.42, P/bv 2.36, Dividend Yeild 0.7%

Market Cap just 730 Cr
P/E of just 15 lowest among peers and very undervalued compared to industrial P/e 125
Regular dividend paying company with 0.7% dividiend yeild
Price to Book at 2.36, lowest among peers
Promoters holding at healthy 44.04% with zero pledge
Ace investors like Rakesh Jhunjunwala and Mukul agarwal (param capital) holding from lower levels
Sales growth YoY 17% , 3 Yrs 10%, 5 Yrs 8% and 10 Yrs 8%
OPM growth YoY 8% , 3 Yrs 7%, 5 Yrs 6% and 10 Yrs 6%
PAT growth YoY 33% , 3 Yrs 31%, 5 Yrs 21% and 10 Yrs 19%
Regular Tax paying company
Debt / equity is just 0.3
Return on Equity ROE% is at 16 and increasing YoY
Return on Capital Employed ROCE% is at 27 and increasing YoY
Return on Assets ROA% is at 3.5 and increasing YoY
Ebita margin at 8.35% and highest historically
Book value increasing consistently YoY
EPS growing at 50% compared to last year
Current ratio is at 1.06 only
Net cash flow and cash flow per share improved historically
Market cap to sales is at 0.54 only which shows very undervalued
50yr Old company and Market leader in water management
The Make in India initiatives, Swachh Bharat Abhiyan and the Namami Gange projects are expected to create significant opportunities in municipal segment
The National Mission for Clean Ganga (NMCG) has in principle approved 26 projects under the Centre’s 'NamamiGange’ programme. These projects are expected to be tendered progressively over the next two years
Ion Exchange’s INDION Water Vending Machines specially designed for the Indian Railways are now successfully installed at a number of railway platforms across Chennai & Egmore clusters inTamil Nadu. We will add more clusters in the near futureto explore the business potential from this segment.

Segment wise Operational Performance:
 The company can be segmented into:
1. Engineering
2. Chemicals
3. Consumer Products

ENGINEERING

On a standalone basis, the Engineering segment achieved higher turnover of INR 564 crores compared to INR 450 crores for the previous year.Engineering is one of the key business segments ofthe company which contributes to almost 60 percent ofthe revenues. In this segment, the company designs,engineers, builds and maintains medium and large sized water and wastewater treatment plants which include seawater desalination, recycling and zero liquid-discharge plants. Your company caters to a diverse range of industries and is the leading player in this segment.
Given that water and wastewater management is a key area for investments by the government; company is also well placed to benefit from the increased government focus on this segment.
Company also plans to capitalize it’s experienced technology and application knowledge in Seawater Reverse Osmosis(SWRO), Recycle and ZLD, increasing application coverage of resin and membrane technologies and providing value engineering.

CHEMICALS

 The segment achieved Sales turnover of 315 crorescompared to Rs.305 crores of the previous year.Industrial Chemical Division took another significant stepof installing a Manufacturing Plant in Morbi, Gujarat; for producing ceramic chemicals.
Close to 90% of India’sTile and ceramic manufacturing units are located in Morbi. Thus strategically having a ceramic chemical manufacturing unit closer to the customers will get quicker deliveries and pay much lesser transportation cost.
Bahrain Blending Facility which was started last year,has helped us to fulfill the growing Customer demandsin the Gulf Countries.

CONSUMER PRODUCTS

The segment achieved a turnover of Rs. 104 crores during the year, registering 20 percent growth over last year. This segment caters to individual home water solutions through Home Water Solutions (HWS) division and Institution and Community Water Treatment Solutions.
Home Water Solutions (HWS) division which caters to residential units registered a growth of 13% over the previous year. The successful launch of Zero B AutoSoft in the previous year helped in achieving this growth.Besides this, the division also saw growth in most of the product categories that it operates in.
In this year HWS launched Zero B Icy Hot range of hot and cold water dispensers in the Counter top and freestanding formats. The water dispensers have a goodpotential in the small commercial segment as well as new home markets.
The Institutional division serves segments like Construction, Hospitality & Healthcare, Educational Institutions and Public Sector Undertakings such as39Defense, State Transport Corporations, Railways, and Central Public Works Department (CPWD) etc

Indian Water Industry:

India’s water sector is mostly dominated by thegovernment which has to provide social welfareprograms to its people. This has led to a lot of interestfrom the private sector in the form of finance andtechnology for developing a sustainable water solutionsecosystem. Providing basic sanitation and availability ofwater is now considered as a fundamental right.Increased government regulations and stricterenforcement is also helping in sustaining the demandfor water solutions in India.
As per a study by the Central Pollution Control Board(CPCB) in 2015, India generated a total of approximately62,000 MLD of sewage. However the country had acapacity to treat approximately 23,000 MLD leaving agap of approximately 39,000 MLD of sewage or 63percent, which was left untreated and discharged in thelocal water bodies thereby causing large-scale waterand ground contamination.



 About Company: 

 Ion Exchange India pioneered water treatment in India and is today the country's premier company in water and environment management, with a strong international presence. Formed in 1964, as a subsidiary of the Permutit Company of UK, it became a wholly Indian company in 1985 when Permutit divested its holding. Ion Exchange currently employs 1,000 people -- multi-disciplinary teams of highly experienced professional managers, technologists and scientists, supported by a widespread infrastructure in India and abroad.

All operating units of the company are ISO 9001:2000 certified. It was the first ion exchange resin manufacturing company in India to have an FDA approved facility for the manufacture of pharmaceutical grade speciality resins. The resin unit is also ISO 14001 certified. And its chemical division, too, is the first in the water treatment sector in India to be ISO 14001 certified.
In its 40 years of experience, the company has provided installations for diverse industries in India and abroad, from nuclear and thermal power, fertilizer and refinery, to automobile, electronics and textile. The company has an in depth understanding and knowledge of the Indian market as well as of the cultural patterns prevailing particularly in South East Asia, Africa and the Middle East.
More than 35,000 plants in India and abroad are packaged, pre-engineered and custom built. Over 400 major installations at thermal and nuclear power plant stations, fertilizer factories, refineries, petrochemical and other industries. The company undertakes over $30 million worth projects in India on global tender basis and many projects abroad. Exports of equipment, ion exchange resins, membranes and water treatment chemicals to Japan, South East Asia, USA, Europe, Africa, Egypt, Middle East, Russia, Bangladesh, Nepal, Mauritius and Sri Lanka.

Products:
Drinking Water Purifiers, Water Conditioners, Sullage Recycle & Sewage Treatment Systems

Subsidiaries:
1. Ion Exchange Singapore Asia Pacific
To service the Pan Asian region for total water management it set up Ion Exchange Asia Pacific in Singapore.
2. Ion Exchange Services
Ion Exchange's investment in building an all-India service infrastructure, started almost two decades ago, is today serving the company in good stead. The service company's network, the largest in the water treatment industry in India, and recently extended to several countries overseas, offers a comprehensive range of technical and value-added services.
3. Ion Exchange Enviro Farms
Like its core business, Ion Exchange's diversification into organic agri-horticulture, through Ion Exchange Enviro Farms, is a natural extension of its activities and shares the vision of a better world. An agri-business subsidiary, this company harnesses Ion Exchange India's four decades of water and environmental management experience into organic agri-horticulture. The company is among the first corporate in India to undertake scientific bio-intensive organic farming on a commercial scale. Its thrusts areas of business are environ farms, contract farming and produce marketing.

Joint Venture:
รข€¢ Ion Exchange Waterleau
Their joint venture with Waterleau, Brussels specializes in environmental solutions and services with proprietary technologies encompassing air, water & waste water, bio solids, waste & soil remediation in municipal and industrial segments.


Conclusion:

 A good long term hold with good financials and overall opportunities.

 

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