Equirus Securities Initiating Coverage GAEX 08.01.2018-Gujarat Ambuja Exports

Gujarat Ambuja Exports Ltd
Initiating Coverage
An A’maize’ing story unfolds
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497)
January 8, 2018Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) Page 1 of 41
Gujarat Ambuja Exports Absolute – Long Relative – Outperform 26% ATR in 15 months
Table of Contents
Structural growth levers in place - Initiate with LONG .......................................... 7

Well-diversified business model with an expanding core .................................... 7
Maize processing: Earning its corn! ................................................................. 8
Expansion of the pie: Growth drivers for starch and starch derivatives ................... 8
Competitive landscape – Lifting the maize cup! ............................................ 10
New capacity to be a booster shot for revenues – expect 17% CAGR (FY17-20E) ........ 13
Focus on VAP, higher utilization to drive margins .......................................... 13
Agro processing: Increase in import duties to help ............................................ 15
Strong demand drivers for refined oil and de-oiled cakes ................................. 16
Better utilization rates to drive 16% revenue CAGR over FY17-FY20E ................... 16
EBITDA margins to get steady .................................................................. 18
Cotton yarn: Non-core legacy business .......................................................... 18
Estimated segment revenue CAGR of 8% over FY17-FY20E ................................ 18
After recent upgrading of machinery, focus is on profitability ........................... 19
Financials ............................................................................................ 19
Revenue CAGR estimated at 17% over FY17-FY20E ......................................... 19
Expect 23% EBITDA CAGR over FY17-FY20E with 140bps margin expansion ............. 20
Cash generated mostly ploughed back into maize segment due to better return profile
..................................................................................................... 22
Valuation and risks .................................................................................. 24
Corporate governance .............................................................................. 28
Annexure 1: Maize industry overview ............................................................ 28
Annexure 2: Oilseed industry overview .......................................................... 31
Annexure 3: Company overview .................................................................. 33
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/Harshit Patel (+91 9825406497) Page 2 of 41
Gujarat Ambuja Exports Ltd.
Absolute: Long
Relative: Outperform
Initiating note Spot Coverage 26% ATR in 15 months
An A’maize’ing story unfolds – Initiate with LONG Agricultural Products
© 2017 Equirus All rights reserved. Gujarat Ambuja Exports Limited (GAEX) is one of India’s leading manufacturers of agro- Consolidated Financials
Rating Information processed products and cotton yarn. Over the last decade, GAEX has increased focus on Rs. Mn YE Mar FY17A FY18E FY19E FY20E
Price (Rs) 234 maize processing given its better and consistent returns. Maize segment’s revenues Sales 33,308 39,061 46,404 53,090
Target Price (Rs) 310 have grown 10 times, from just Rs 1.23bn in FY07 to Rs 13.05bn in FY17 (28% CAGR), led EBITDA 2,754 2,660 4,110 5,141
Target Date 31st Mar'19 by debt-free capacity addition and market share gains. With the new maize processing Depreciation 714 794 931 1,004
Target Set On 8th Jan'18 plant set to commission soon, GAEX will become India’s largest maize processor and will Interest Expense 228 161 160 128
Implied yrs of growth (DCF) 10 be all set to ride the next wave of growth. Also, its legacy solvent extraction business Other Income 182 74 71 72
Fair Value (DCF) 318 should see consistent growth post duty hikes on imported oils. We expect 17%/20% Reported PAT 1,586 1,409 2,070 2,733
Fair Value (DDM) 43 revenue/EPS CAGR over FY17-FY20E. Initiate coverage with LONG and a SOTP-based Recurring PAT 1,586 1,409 2,070 2,733
Ind Benchmark SPBSMIP Mar’19 TP of Rs 310. Total Equity 8,531 9,738 11,510 13,848
Model Portfolio Position NA Gross Debt 6,848 6,092 5,542 3,992
Earning its corn! Capacity addition, value addition to drive growth, profits: Due to Cash 58 239 426 456
Stock Information its better and consistent returns, maize processing has over a period become GAEX’s Rs Per Share FY17A FY18E FY19E FY20E
Market Cap (Rs Mn) 26,832 focus area. Most cash flows generated over the last decade have been ploughed back Earnings 13.8 12.3 18.1 23.8
Free Float (%) 34.06 % into this business. Segment revenue/EBITDA contribution has increased from 9%/25% Book Value 74 85 100 121
52 Wk H/L (Rs) 237.6/88 in FY07 to 39%/67% in FY17. With its new plant (1000 MTPD) coming on stream in Dividends 0.8 1.5 2.2 2.9
Avg Daily Volume (1yr) 1,85,319 4QFY18, GAEX shall become the largest maize processor in India with an installed FCFF -3.7 12.5 11.4 19.1
Avg Daily Value (Rs Mn) 25 capacity of 3,000 MTPD and a market share of ~22%. We expect the company’s maize P/E (x) 16.9 19.0 13.0 9.8
Equity Cap (Rs Mn) 229 processing revenue/EBITDA to grow at 17%/24% CAGR over FY17-FY20E. P/B (x) 3.1 2.8 2.3 1.9
Face Value (Rs) 2 EV/EBITDA (x) 12.2 12.3 7.8 5.9
Slip resistant – Scope to treble oil revenues without capacity addition: Indian ROE (%) 18 % 15 % 19 % 22 %
Bloomberg Code GAEX IN
oilseed crushing companies have been struggling with lower utilization levels due to Core ROIC (%) 12 % 10 % 13 % 16 %
Ownership Recent 3M 12M lack of price parity between raw materials and finished product prices. Recently, the EBITDA Margin (%) 8% 7% 9% 10 %
Promoters 65.9 % -0.2 % -6.0 % government increased import duty on soybean oil to 30% (from 18%), which should Net Margin (%) 5% 4% 4% 5%
DII 0.1 % 0.0 % 0.0 % give a level-playing field to Indian farmers; domestic production may begin to
FII 0.4 % -0.4 % 0.1 % improve, in turn helping Indian oilseed crushing companies. With 25-30% utilization at
Public 33.5 % 0.6 % 6.0 % present, GAEX can potentially increase its oil revenues 3-4 times from current levels
without setting up any new capacity.
Price % 1M 3M 12M
Absolute 21.3 % 40.4 % 156.7 % Initiate with LONG, Mar’19 TP Rs 310: GAEX’s performance in the maize segment
Vs Industry 14.3 % 25.2 % 108.6 % over the last decade has been underappreciated due to a volatile scoreboard of its
Sukhjit Starch 15.5 % 29.6 % 63.2 % legacy businesses. With commencement of its new plant, we expect growth
Gulshan Polyols 14.8 % 9.6 % 24.4 % momentum in the maize segment to continue; besides, the oil business would also
Consolidated Quarterly EPS forecast benefit from import duty hikes. In this backdrop, we feel the stock is attractively
Rs/Share 1Q 2Q 3Q 4Q valued at 19x/13x/10x our FY18/FY19/FY20 EPS estimates. We initiate coverage on
EPS (17A) 4.3 2.6 4.0 2.9 GAEX with a LONG rating and a SOTP-based Mar’19 TP of Rs 310.
EPS (18E) 1.5 1.8 3.9 5.1
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) Page 3 of 41
Before reading this report, you must refer to the disclaimer on the last page.
Company Snapshot Key downside risks:
How we differ from Consensus a) Volatility in corn and soya prices.

b) Increase in competition which may put pressure on prices and utilization levels
- Equirus Consensus % Diff Comment
FY18E 12.3 - - There are no other estimates available.
EPS DCF Valuations & Assumptions
FY19E 18.1 - -
FY18E 39,061 - - Rf Beta Ke Term. Growth Debt/IC in Term. Yr
Sales 6.8 % 1.3 14.6 % 6.0 % 30.5 %
FY19E 46,404 - -
FY18E 1,409 - -
PAT FY18E FY19E FY20E FY21-27E
FY19E 2,070 - -
Sales Growth 17 % 19 % 14 % 11 %
NOPAT Margin 4% 5% 5% 5%
Segmental Drivers:
IC Turnover 2.54 2.80 3.06 4.11
Revenue growth (%) FY17 FY18e FY19e FY20e RoIC 9.8 % 13.3 % 16.3 % 21.9 %
Agro processing 24% 24% 17% 9%
Cotton 26% 12% 6% 8%
Years of strong growth 1 2 3 10
Maize processing 18% 6% 24% 24%
Valuation as on date (Rs) 29 92 149 269
Valuation as of Mar'19 35 109 176 318
EBITDA margins (%) FY17 FY18e FY19e FY20e
Based on DCF, we derive our fair value of Rs. 318 as on 31st Mar’19.
Agro processing 5% 5% 5% 5%
Cotton 5% 2% 5% 5% Company Description:
Maize processing 15% 12% 17% 18% Gujarat Ambuja Exports Limited (GAEX) is a leading manufacturer of starch derivatives,
soy derivatives and cotton yarn. It has the second highest crushing capacity in India with
six solvent extraction plants across India with a total capacity of 4,600 MTPD. Currently,
Key triggers: the company’s refining capacity stands at 1,200 MTPD. GAEX’s main focus area has been
a) Commencement of commercial operations of its new plant at Chalisgaon wet-milling of corn and it has set up three operational processing plants. With
b) Any favorable announcement for the sector in the upcoming budget commencement of operations of its new Chalisgaon plant (expected in 4QFY18), the
c) Sale of its non-core textile segment company will become the largest maize processor in India in terms of installed capacity.
Comparable valuation EPS P/E BPS P/B RoE Div Yield

Mkt Cap Price Target
Company Reco. CMP Rs. Mn. Target Date FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E
Gujarat Ambuja
LONG 234 26,832 310 31st Mar'19 13.8 12.3 18.1 16.9 19.0 13.0 74.4 2.8 18 % 15 % 19 % 0.3 % 0.6 %
Exports
Sukhjit Starch NA 462 3,409 NA NA 24.4 - - 18.9 - - 309.8 - 8% - - 1.2 % -
Gulshan Polyols NA 91 4,265 NA NA 5.7 - - 15.8 - - 54.7 - 11 % - - 11.4 % -
Exhibit 1: GAEX Maize segment’s revenue have increased 10 fold in the last 10 years driven by continuous capacity expansion and market share gains
Maize Segment Revenue (Rs. Mn) Maize Revenue Growth (%)
2018: New maize processing plant at

2013: Commences commercial production of its
Chalisgaon, Maharashtra with a capacity of
2008: New plant at Uttarakhand 750 TPD new Maize processing, derivatives and
1000 TPD expected to begin commercial
with a 500 TPD capacity begins other value-added products processing unit in the
operations in Jan-Feb 2018
commercial operations. Haveri district in the state of Karnataka
25,000 80%
21,462
70%
20,000 63%
59% 17,378 60%
52%
50%
15,000 13,789
13,053
11,056 40%
32%
9,923
10,000 8,806
30%
26%
24%
16% 5,809
20%
4,394 18%
5,000 3,999
3,439
13%
8% 2,161 10% 10%
1,329 11%
1,235
6%
0 0%
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
2007: Major debottlenecking at

existing plant in Himmatnagar
to achieve 500 TPD capacity
Source: Company, Equirus Securities
Exhibit 2: Well diversified Product portfolio

Product Name Description Product Name Description
Maize Processing Segment Agro Processing Segment
Maize or corn starch is a typical cereal starch with

Ambuja Vanaspati Ghee is used in most Indian Kitchens
distinctly low protein and ash contents. Its carbohydrate
as the best cooking medium for deep frying, sauteing and
Maize starch content of high purity makes it useful in several Vanaspati ghee
making sweets. It is widely used by hoteliers and
industries like paper, textile, food, cardboard and
preferred by chefs
potable alcohol production industry
Liquid glucose (sweetose) is a clear, colorless, viscous

solution, making it compatible with the physical Ambuja Gold Refined Soybean oil is made from non-GMO
properties desired in end products. It finds usage in Soybean refined soybean seeds and is a rich source of Omega-3 and
Liquid glucose
cough syrup and vitamin-based tonics. It is also used as a oil Omega-6 fatty acid. These are essential fatty acids and
base for artificial honey and as a granulating agent for considered one of the best, healthiest cooking oils
tablet coating
High Maltose High-maltose corn syrup is a food additive used as a

Non-GMO Non-GMO De-fatted Soya Flour (Toasted) is a high
Corn Syrup sweetener and preservative. Also, since maltose has a
defatted soya protein, low-fat product and is the simplest form of soy
(HMCS) low freezing point, HMCS is useful in frozen desserts.
flour protein. It is used in the food as well as feed industry.
Anhydrous Dextrose, a high purity product with moisture

below 1%, finds applications in special food preparations
and is the best sweetener for water-sensitive systems
Dextrose Textured vegetable protein (TVP), or textured soy
such as chocolate. In medical application, it is used as a Non GMO Soya
anhydrous protein (TSP)/soy meat/soya meat, is also known as
raw material in manufacture of antibiotics, preparations Granules & Soya
meat analogue. It is used in several meat foods, such as
of intravenous glucose injections, and rehydration drip Nuggets (TVP)
banger, pork luncheon meat and sausage
lines, and is also formulated with vitamins and minerals
Sorbitol, a polyol (sugar alcohol), is a bulk sweetener Palmolien is one of the few fatty fruits in existence; it’s
Liquid Sorbitol
found in numerous food products. In textile and leather, it likely to hold a substantial place in the human diet and is
70% solution
is used as a dispensing, bodying, and sequestering agent Refined Palm Oil the second most consumed vegetable oil in the world.
Rich in vitamin E, and being cholesterol and lactose-free,
it is ideal for cooking and baking
Dextrose has a greater depression of freezing point than
that of cane sugar, resulting in a smoother and creamier
Dextrose
texture of the final product like in frozen food products.
monohydrate
It also finds industrial uses in adhesives, resin
formulation and building materials
Structural growth levers in place - Initiate with LONG Exhibit 4: Maize segment contributed ~63% to overall FY17 EBITDA
Well-diversified business model with an expanding core
GAEX has three business segments namely (1) agro processing,(2) corn/maize processing 5%
and (3) cotton yarn (textiles). While in revenue terms, contribution of the agro-
processing division is the highest, the maize segment leads in terms of EBITDA 28%
contribution (Exhibits 3, 4). The maize segment has become the company’s core and key AGRO
focus area due to a higher and stable margin profile and better growth potential. COTTON
GAEX’s agro processing segment is currently operating at ~30% utilization, and the MAIZE
company’s focus ahead would be to profitably increase utilization levels. Segment 4%
POWER
revenues can potentially treble without any capex going forward. 63%
In terms of cotton yarn (textile), most revenues are derived from exports; this has been a
major drag on the company’s financials over the last two decades due to high volatility in
the segment caused by fluctuations in cotton and yarn prices, and adverse cross-currency
movements. GAEX may unlock value by hiving off this segment as and when the
opportunity arises. Source: Company, Equirus Securities
In sections below, we discuss all business segments in detail.

Exhibit 5: Maize segment has been the focus area in terms of capital allocation
Exhibit 3: Agro processing leads in terms of revenue contribution (FY17)
Capex in maize segment % of total capex
AGRO COTTON MAIZE
1800 89% 100%
100%
1600 90%
90% 19% 80% 76%
77% 75%
28% 1400 72% 80%
80% 39% 39% 35% 37% 40%
7% 40%
62% 70%
70% 1200
8% 55% 60%
50%
60% 6% 6% 1000
7% 6% 7% 5% 50%
50% 800
30% 40%
40% 600
73% 30%
30% 63% 58% 400
53% 53% 54% 58% 55% 20%
13%
20% 200 10%
10% 0 0%
0% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
Maize processing: Earning its corn! Exhibit 8: Pharma, Textile, Paper, and Food industries use starch as a raw material
GAEX has been present in maize processing since the 1990s, with one plant at Industry Use of Starch Growth Potential
Himmatnagar, Gujarat. However, management enhanced focus on this segment in FY07
with some de-bottlenecking at Himmatnagar and increased its rated capacity to 500 Used as a dusting media for coatings, Indian Pharma sector is pegged
MTPD. Hit by high volatility in the cotton and agro segments, GAEX has increasingly Pharmaceutical binder and filler for capsules & to grow at a ~19% CAGR over
focused on the maize segment, which has a better margin profile than the other two. tablets FY16-20E to reach ~US$ 55bn
Provides stiffness to clothes; used
Exhibit 6: GAEX has been expanding its maize processing capacity over last decade Indian textile industry to touch
along with thermoplastic or
Initial Textile ~US$ 223bn in 2021 from the
Plant Capacity thermosetting resins to obtain
Year Capex Comments current size of ~US$ 108bn
locations (MTPD) finishing
(Rs mn)
Used for increasing paper strength, Paper demand set to rise to 20
Himmatnagar, Close to main ports in Gujarat; focus on export
600 2007 400 Paper and as an adhesive in pigmented MMT by 2020 from the current
Gujarat markets
coating for paper products level of 13 MMT
Sitarganj, Mainly to serve India’s northern market; in proximity
650 2008 650 Used to thicken sauces, gravies and India’s FMCG market set to
Uttarakhand to large institutional buyers
FMCG pie fillings; used in baking and ice- double from US$ 49bn now to
Hubli,
750 2013 1,250 Unit aggressively takes care of export markets cream industries US$ 104bn by 2020
Karnataka
Source: Sukhjit Starch filings, IBEF, Equirus Securities
Chalisgaon,
1,000 2018 2,600 Focus on high value-added derivatives 2. Lowest per capita consumption of starch in India
Maharashtra
Source: Company, Equirus Securities On the maize derivatives front, starch consumption in India is only ~1.5 kg/capita vs.
the global average of ~6.1 kg/capita. Consumer preference is tilting towards starch
Apart from increasing its maize crushing capacity, the company has also adding
value-added derivative capabilities at each of its plants. and its derivatives vs. sugar earlier due to rising health consciousness across the
globe. Starch is also finding new applications in industries such as paper and ethanol
In our view, there is a huge market potential for starch and starch derivatives, and GAEX, production.
as the market leader in this segment, is all set to ride the wave. Following are some of 3. Good availability of maize – key raw material for starch – in India
the major growth drivers of starch and its derivatives in India:
Maize accounts for ~83% of global starch production while potato, cassava, wheat
Expansion of the pie: Growth drivers for starch and starch derivatives and rice account for the rest. On an average, India produces ~20mn tons of maize
every year, of which only 12-13% is used for starch manufacturing. Therefore, if
1. Industries using maize products shall continue to do well demand for starch and its derivatives increases, India will have abundant supply to
meet this demand.
Exhibit 7: Products and by-products of maize processing and user industries
Exhibit 9: Maize is the major RM for starch and its derivatives
Product User Industry Raw material % of global starch production
Starch Textile, Paper, Pharma, FMCG Maize 83%
Dextrine/ Pre Gel/ Modified Starch Food, Paper, Paint Potato 6%
Cassava/Tapioca 6%
Glucose Food, FMCG, Pharma
Wheat 4%
Sorbitol Pharma, Paint, FMCG
Rice 1%
Source: Sukhjit Starch Investor Presentation, Equirus Securities Source: NABARD Consultancy Services, Equirus Securities
4. HFCS a potential industry game changer Exhibit 11: Share of HFCS in wet-milling products (excluding alcohol) at>40% in USA
High fructose corn syrup (HFCS), is a liquid fructose-glucose sweetener made from
HFCS (%) Glucose Syrup and Dextrose (%) Corn Starch (%)
corn that is commonly substituted for sugar in processed foods. In USA, the alcohol
fuel industry has been increasingly using derivatives of starch. Also, aerated soft- 100%
drink makers such as Coca-Cola and Pepsi switched to HFCS (High Fructose Corn 90% 25% 24% 25% 26% 27% 26% 26% 25% 24% 25% 25% 24% 24% 22% 24% 23% 22% 22%
Syrup) from sugar in USA due to the latter’s higher costs. Similarly, in China also 80%
HFCS has become very popular post its introduction. In India, aerated drink 70%
22% 22% 23% 23% 23% 23% 24% 25% 25% 25% 26% 28% 28% 31%
manufactures are yet to substitute sugar with starch derivatives; in case that 60% 29% 32% 35% 35%
happens, a huge incremental demand for maize derivatives, especially HFCS, would 50%
be created. GAEX is in the process of setting up HFCS facility in its new Chalisgaon 40%
plant. It will be a small capacity to begin with and shall start operations by 2HFY19. 30%
53% 53% 52% 51% 50% 51% 50% 50% 51% 50% 50% 48% 48% 48%
47% 45% 43% 43%
If the demand picks up, they can expand it further at lower incremental capex. 20%
10%
Currently, none of the competitors have HFCS production capabilities. If it clicks, 0%
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
GAEX can capture the market share very fast while peers may take 1-2 years to set
up their plants.
Source: USDA, Equirus Securities
Exhibit 10: Use of corn in wet milling steadily increasing in USA
U.S. corn crop (mn bushels) Wet milling share (%)

16,000 54% 60%
50% 50%
14,000 46%
45% 45% 44% 50%
12,000
47%
32% 44% 40%
10,000 32% 40%
8,000 24% 23% 25% 30%
20% 21%
6,000 18%
20%
4,000
10%
2,000
0 0%
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
Competitive landscape – Lifting the maize cup! monohydrate, maltodextrine, and high maltose corn syrup. RRSPL’s customers include
Nestle India, Heinz India, and Mondelez India Foods.
The maize processing industry in India is dominated by 9-10 organized players which form Sukhjit Starch & Chemicals Limited (Sukhjit Starch) is one of India’s leading
70% of the market, while the remaining players are small and largely unorganized. manufacturers of starch and its derivatives. In FY17, the company derived ~34% of its
Currently, India’s total maize crushing capacity is estimated at 13,000 MTPD, with revenues from the sale of starch while the rest from starch derivatives like Dextrines &
Roquette Riddhi Siddhi being the largest player (crushing capacity 2,300MTPD), GAEX the Textilose, Glucose, Sorbitol and other by-products, such as maize oil, maize oil cake and
second largest (2,000MTPD) and Sukhjit Starch & Chemicals Limited the third largest corn gluten. The company's products are used in various industries, including food,
(~1,500MTPD). The combined market share of these three players is ~44% currently. textiles, pharmaceuticals and paper. Sukhjit Starch aims for a turnover of Rs 10bn by
Exhibit 12: Crushing capacities of major players now and post expansion FY20 from ~Rs 6.54bn in FY17.
Crushing Market share Crushing capacity post Market share The company is coming up with a 55-acre Mega Food Park at Phagwara with a capex of
Players Rs 1.52bn, which would be funded via a mix of internal accruals and term loans. The
capacity (MTPD) (%) expansion (%)
plant is expected be fully operational in 2HFY19. There will also be a cold storage
Roquette 2,330 18% 2,550 17%
capacity of 3,000 MT and silos/warehousing capacity of 25,000MT to ensure supply
GAEX 2,000 15% 3,000 21% consistency for Sukhjit Starch and its end users.
Sukhjit 1,500 12% 1,500 11%
Industry 13,000 14,220 Other important players

Source: Company, Equirus Securities; Sayaji Industries is one of India’s leading manufacturers of starch and its derivatives,
based out of Ahmedabad. Its current corn crushing capacity is ~750-800 TPD and operates
Post commencement of the new plant in Chalisgaon in 4QFY18, GAEX will become the
from a single plant. In our view, its current market share shall be in the range of 5-6%.
largest player in India in terms of maize crushing capacity.
Key players Gulshan Polyols is a multi-product manufacturing company with ~55% of its revenues
Our channel checks suggest that many existing players are struggling to survive due to coming from Sorbitol (starch derivative) and rest from calcium carbonate. In August
their highly-leveraged balance sheets. For instance, Anil Ltd., a maize processing 2016, the Company has started commercial production of native starch as well and
company based out of Ahmedabad, is finding it difficult to make payments to its suppliers currently has a corn crushing capacity of 300 TPD.
and creditors. Many unorganized players in the industry have been troubled by GST
implementation. This has provided bigger and more efficient players enough headroom to Cargill (India) is an American MNC which started operations in India in 1987. The
grow and gain market share in an industry that is expanding in single digits. Company has businesses in refined oils, food ingredients, grain and oilseeds, cotton,
animal nutrition, industrial specialties, and trade structured finance. According to
Below we look at GAEX’s major competitors in the maize processing segment i.e. industry sources, Cargill (India) has a maize processing plant in Karnataka.
Roquette Riddhi Siddhi Pvt. Ltd and Sukhjit Starch & Chemicals Limited.
Roquette Riddhi Siddhi Pvt. Ltd (RRSPL) is a wholly-owned subsidiary of the France-
based Roquette (RF) group. RF had acquired a 74% stake in Riddhi Siddhi Corn Processing
Pvt. Ltd in FY13 and rechristened it as Roquette Riddhi Siddhi Pvt. Ltd. It acquired the
remaining 26% stake in FY15.
RRSPL is India’s largest manufacturer of starch and starch derivatives, with a ~17%
market share in the country’s overall maize crushing capacity. Its manufacturing plants
are located at Viramgam (Gujarat), Gokak (Karnataka) and Pantnagar (Uttarakhand) with
a total capacity of 2,330 TPD. The company plans to increase capacity to 2,550 TPD by
FY18-end. It manufactures starch powder, modified starch, glucose, dextrose
Exhibit 13: GAEX’s performance has been better than peers on most counts
Gujarat Ambuja Exports Roquette Riddhi Siddhi Pvt Ltd Sukhjit Starch & Chemicals Ltd Comments
FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17

Revenues higher than peers due to solvent
Revenue (Rs. mn) 25,313 27,365 33,308 14,037 15,514 15,984 5,324 5,659 6,532
extraction segment
Growth (%) 8% 22% 11% 3% 6% 15%
EBITDAM of maize segment higher than
peers due to a higher share of value-added
EBITDA (Rs. mn) 1,645 1,852 2,754 1,777 1,598 1,200 635 605 507
products, proximity to corn producing areas
which give a cost advantage.
EBITDAM (%) 6% 7% 8% 13% 10% 8% 12% 11% 8%
Debt-free balance sheet leads to lower
PAT 841 1,004 1,586 251 14 -587 232 231 186
interest charges
Margin (%) 3% 4% 5% 2% 0% -4% 4% 4% 3%
CFO 2,534 1,374 567 2,195 884 -34 633 873 405
CFO/EBITDA(1-T) 1.8 0.9 0.3 1.6 -6.3 0.0 1.5 2.2 1.2
Receivable days 15.6 23.2 22.8 41.6 38.3 41.8 36.8 36.3 32.8
Payable days 13.6 17.3 15.9 32.0 25.6 29.5 28.4 29.5 26.8
Inventory days 64.0 57.5 68.4 45.0 44.6 62.3 100.9 70.4 46.3
Cash conversion cycle 65.9 63.3 75.2 54.6 57.3 74.6 109.2 77.2 52.2
Gross fixed asset turnover* 2.8 3.4 4.9 1.1 1.1 1.1 1.9 1.8 2.0
Working capital turnover 5.2 5.2 4.8 8.2 9.6 19.6 4.8 6.3 7.4
Total debt 3,618 3,779 6,848 8,242 9,010 9,882 1,712 1,500 1,429
Total cash 170 397 58 1,343 912 394 289 359 366
Net debt/Equity 0.4 0.4 0.8 0.8 0.9 1.1 0.7 0.5 0.5
ROE (%) 11% 12% 18% 0% -6% 12% 11% 8%
ROIC (%) 8% 9% 12% 0% 0% 10% 9% 7%

Source: Company, Ace Equity, Equirus Securities; For Roquette Net fixed asset turnover
Exhibit 14: Starch industry dynamics remain favorable for bigger players like Gujarat Ambuja Exports Limited
Rivalry - MODERATE
Industry is dominated by 5-6 bigger players which form 60-70%

of the market. Some of the bigger players like Anil Starch has
put its plant on sale whereas foreign players (Roquette, Cargill
etc.) have not been very profitable.
Bargaining Power of Suppliers - Low

Bargaining Power of Buyers - High
Most of the procurement happens from APMC

End customers are the larger players in FMCG,
markets and corporate farmers; they are willing to
Pharma, Paper, textile industries but at the same
provide a discount on current price if order is
time there are only a handful of quality suppliers
placed in bulk
Threat of New Entrants - LOW

Threat of Substitutes – LOW
Strong entry barriers due to capital intensive nature
of the industry. A plant takes at least 2 years to start As of now there exist no substitutes for starch and its
operations. derivatives; on the contrary HFCS (a starch derivative)
has been replacing sugar in soft drinks in some
countries
Source: Equirus Securities
New capacity to be a booster shot for revenues – expect 17% CAGR (FY17-20E) Exhibit 16: Fluctuations in maize prices affect margins
Maize prices yoy(%) Maize EBITDA margins(%) (RHS)

GAEX’s current maize crushing capacity is 2,000 MTPD and it has already set up a new plant
25% 25%
at Chalisgaon, Maharashtra, with a crushing capacity of 1,000 MTPD. This plant is expected
to begin commercial operations in 4QFY18, post which the company’s crushing capacity 20%
would touch 3,000 MTPD – the highest in India. This is a new Greenfield project and GAEX 20%
has taken ample land for further brownfield expansions if and when the need arises. 15%
We are estimating ~60% capacity utilization of this new plant in FY19E and full utilization 10% 15%
by FY20E. Overall, we estimate revenue CAGR (FY17-20E) of 17% in the maize segment.
5% 10%
Exhibit 15: Maize segment revenue to get a boost post capacity expansion
0%
Maize processing revenue ( Rs mn) Growth ( YoY %) ( RHS) 5%
-5%
25000 60%
52%
-10% 0%
50% FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
20000
Source: Company, Bloomberg, Equirus Securities
40%
15000 32% Maize prices moderate after a sharp rise in 2HFY17: As depicted in Exhibit 17, maize
24% 24% 30% prices have been volatile in any given year; prices generally fall in the month of October,
10000 18%
when the Kharif crop is harvested. In 2HFY17, maize prices reached an all-time high level
16.3% 20% of Rs 19 per kg but have moderated now.
10% 11%
5000 6%
13% 10% Exhibit 17: After sharp rise in 2HFY17, maize prices have moderated of late
0 0% Maize prices ( Rs/ quintal) YoY (%) ( RHS)

2100 60%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
1900 50%
Source: Company, Equirus Securities 40%
1700
30%
1500 20%
Focus on VAP, higher utilization to drive margins
1300 10%
1100 0%
Most maize processing companies in India sell starch or glucose to their customers but
GAEX offers higher proportion of value-added derivatives like High Maltose Corn syrup -10%
900
(HMCS), dextrose anhydrous, dextrose monohydrate and liquid Sorbitol solution. -20%
700 -30%
Broadly, EBITDA margins are the function of maize prices (RM cost), finished product 500 -40%
prices and the product mix, and also the capacity utilization of plants. Our channel
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
checks suggest that the industry is able to pass on the increase in RM costs to its
customers with a lag of 2-3 months.
Source: Bloomberg, Equirus Securities
Product mix matters: There is significant difference in price points of starch and its Exhibit 19: Margins to improve with higher utilization and value-added derivatives
various derivatives. Starch is the most basic byproduct of maize processing, and various
other products are derived on further processing. Most industry players only mainly EBITDA ( Rs mn) Maize processing-EBITDA margins (%)
manufacture starch, and hence generate lower margins. Over the years, GAEX has added 4,000 22.9% 3,789 25%
various derivative capabilities at its plants, which led to margin expansion. In FY17,
3,500
Company has added dextrose anhydrous derivative at the Karnataka plant.
18.0%
2,897
18.0% 20%
3,000 16.9% 17.0%
Exhibit 18: Price points of maize starch and its derivatives 16.1%
15.4% 15.2%
2,500 17.0% 15%
Sorbitol (Rs/kg) Corn Starch (Rs/kg) 1,981 12.3%
1,782 1,878
2,000
Dextrin and modified starch (Rs/kg) 1,422
60 1,500 10%
1,693
914 980
50 1,000 677
5%
40 500
30 0 0%
20
10
0 In 1HFY18, the demand got impacted by GST which led to product mix changes and drop
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
May-17
Jan-13
Sep-13
Jan-14
Sep-14
Jan-15
Sep-15
Jan-16
Sep-16
Jan-17
Sep-17
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
in finished product realisations. Also, Company had to book inventory losses as the corn
prices fell in 1HFY18 from the historic high levels in 2HFY17. We expect these one-off
anomalies to get sorted in 2HFY18 and margins shall again get back to normal levels. In
Source: Bloomberg, Equirus Securities FY19e, we estimate 17% EBITDA (+200bps from FY17 levels) mainly as the new Chalisgaon
plant and older plants as well are expected to focus more on value added products
End customers determine quality, product price points: Starch and its derivatives are leading to better margins.
mainly used in Pharma, FMCG, and paper and textile industries. The quality of starch
used in textile and paper industry differs a lot from the one used in Pharma and FMCG
industries. Accordingly, the amount of processing differs and also the price points of the
product. Nearly 40-50% of GAEX’s sales are to Pharma and FMCG players, which help
generate better margins than peers.
Agro processing: Increase in import duties to help Exhibit 21: Revenue contribution from agro processing manufacturing activities
Agro processing is the biggest segment for GAEX in terms of revenue. In this segment, the
Deoiled Cake Edible Oil Other Products
company is involved in manufacturing as well as trading activities. Trading of oil and
100%
other products is a low-margin business. Given that GAEX intends to focus on profitability
over topline growth, we expect a decline in trading activities going ahead. 90%
80% 41%
In terms of manufacturing, GAEX has fully integrated solvent extraction operations from 42%
70%
seed crushing to oil refining. Currently, the company’s seed crushing capacity is at 4,600 50% 54% 50% 62%
MTPD and refining capacity at 1,200 MTPD. 60%
50%
Exhibit 20: Proportion of trading activities to reduce as profitability focus increases 40%
Agro processing trading activities Agro processing manufacturing activities 30% 58%
53%
100% 20% 42% 40% 41%
35%
90% 10%
80% 0%
FY11 FY12 FY13 FY14 FY15 FY16
70%
69% 71% Source: Company, Equirus Securities, *Data available till FY16
60% 84% 81% 82%
89%
50%
40% Among all oil seeds, GAEX is mainly involved in soybean as it ranks first among all oilseed
crops in the world (~63% of oilseeds production globally). USA, Brazil, Argentina, China
30%
and India are the world’s largest producers and together accounted for ~90% of world
20%
31% 29% production during 2014-15 to 2016-17.
10% 16% 19% 18%
11%
0% Exhibit 22: Globally soybean’s market share has reached ~63% in 2017
FY11 FY12 FY13 FY14 FY15 FY16
(MMT) Soyabean (MMT) Total Oilseeds (MMT) Soya as a % of total oilseeds
Source: Company, Equirus Securities, *Data available till FY16
600 556 561 65%
505 521
488
Solvent extraction is the process of extracting oil from oilseeds. Commonly processed oil 500 461
448 434 60%
seeds in solvent extraction include soybean, groundnut, mustard, sunflower, coconut, 435
castor and cotton. Post solvent extraction, final products include crude oil and 400
351 348
de-oiled cakes. Extracted oils are further processed in refineries to make them suitable 320 314 320 55%
for human consumption. De-oiled cakes are a rich source of protein and are largely used 300 268 283
261 264 240
in the animal feed industry. 219 50%
200 185
107
45%
100
0 40%
1992 2002 2010 2011 2012 2013 2014 2015 2016 2017 2018P
Strong demand drivers for refined oil and de-oiled cakes Better utilization rates to drive 16% revenue CAGR over FY17-FY20E
GAEX has a seed crushing capacity of 4,600 MTPD, the second highest in India after Ruchi
Worldwide consumption of soy oil has grown by a healthy ~6% CAGR during 2015-17;
Soya, and an oil refining capacity of 1,200 MTPD. All oil-seed crushing work is based on
however, India’s soy oil consumption has increased at a much higher pace of ~17% CAGR.
reverse crush parity calculation. If prices of edible oil are at low levels, then it may not
Currently, India has the third largest consumption market share of ~10% after China’s 30%
be feasible for companies to crush seeds and produce DOC cakes and crude oil and then
and USA’s 17%. With a growing population, urbanization and changing lifestyles, India’s
refine it further. On the contrary, it becomes more economical for refineries to directly
demand for refined oil would continue to increase, warranting a ramp-up in own refining
import crude edible oil and then refine it. In the last few years, amid cheaper imports,
capacities to reduce dependence on oil imports.
all crushing companies have been running below 30% utilization. As per our estimates,
Exhibit 23: India’s soy oil consumption is growing faster than the world GAEX operated at ~20-25% utilization of its seed crushing capacity in FY17, which was
better than fewer than 10% utilization in FY16.
(MMT) 2015 2016 2017
24 Exhibit 25: Seed crushing results in DOC cakes (82%) and crude oil (18%)
22
Soybean Crushed(In Million Metric Ton)
20
Extraction Produced(In Million Metric Ton)
18
16 12 Oil Produced(In Million Metric Ton)
14
10
12
10 8
8
6 6
4
4
2
0 2
India USA China EU Rest of the world
Source: ussoy.org, Equirus Securities 0
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-11
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
Growing animal feed industry in India driving demand for de-oiled cakes
Soy de-oiled cakes are a rich source of protein and are widely used in animal feed
manufacturing. As the underlying animal feed industry is expected to grow at a 7% CAGR Source: SOPA, Equirus Securities
over FY17-FY20E in volume terms and 14% in value terms, demand for de-oiled cakes is
expected to remain strong.
Exhibit 24:Indian animal feed industry estimated to grow at healthy rates
Industry Industry Industry Industry CAGR(2
CAGR
Feed volumes in volumes in value in value in 017-
(2017-
segment 2017 (mn 2020E (mn 2017 (mn 2020E (mn 2020E)
2020E) %
tons) tons) tons) tons) %
Poultry Feed 16-17 20-21 7% 480-490 730-740 15%
Cattle Feed 7.5-8.5 9-10 6% 148-150 197-199 10%
Aqua Feed 1.6-1.8 2.1-2.3 9% 85-86 131-132 15%
Total 25.1-27.3 31.1-33.3 7% 715-725 1,060-1,070 14%
Source: CRISIL estimates
Exhibit 26: Soymeal exports have declined from historical levels… Increase in import duties to help Indian solvent extractors
In the last few years, Indian farmers have been grappling with cheaper imports, which
India-Soyameal exports (mn MT) have hit the entire oilseed economy. To support Indian farmers and other players in the
oilseed economy, the Government of India has recently increased import duties on all
6
major oil imports to achieve price parity.
5
Exhibit 28: Import duty revisions in Nov’17
4 Vegetable oils Old import duties Revised duties
3 Soyabean oil 18% 30%
2 Soya refined oil 20% 30%
Palm crude oil 15% 30%
1
RBD palm oil 25% 40%
0
Sunflower crude oil 13% 25%
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
2016-2017
2017-2018
Sunflower refined oil 20% 35%
Mustard crude oil 13% 25%
Mustard refined oil 20% 35%
Source: SOPA, Equirus Securities Source: Business Standard, Equirus Securities
The Government has increased import duty on imported oils, which should help farmers
Exhibit 27:…while Soybean oil imports has seen new peaks as well as improve the competitiveness of seed crushing companies. Also, many
unorganized players are feeling the heat post GST implementation, as a 5% tax rate will
Imports of Soyabean oil ('000 MT) make them uncompetitive in this lower-margin business.
4,500 Exhibit 29: Soy refined oil and soy meal price trends
4,000
Soyameal ( Rs/tonne) Soya refined oil ( RHS) ( Rs/ 10kg)
3,500
3,000 50000 850
2,500 45000 800
2,000 40000 750
1,500 35000
700
1,000 30000
650
500 25000
20000 600
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 15000 550
Source: SOPA, Equirus Securities 10000 500
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Source: Bloomberg, Equirus Securities
Exhibit 30: Agro processing revenue to improve with better utilization rates Cotton yarn: Non-core legacy business
Cotton yarn, the group’s legacy segment, has been entangled in several issues over the
Agro processing revenue ( Rs mn) Growth yoy (%) (RHS)
past few years. The segment’s revenue share in the group’s overall revenue pie has
35000 52% 60% halved from 12% in FY07 to 6% in FY17. Going forward, GAEX has no plans to allocate any
50% capital to this segment and the revenue contribution should drop further. The company
30000
40% has only one cotton yarn plant which is integrated with the maize processing plant at
25000 24% 24% 30% Himmatnagar, Gujarat; therefore, operating the plant does not entail any extra costs for
17%
20% the company.
20000 10% 9%
10%
15000 11% Exhibit 32: Not much capital allocated to this segment, except in the last 3 years
0%
10000 -10%
Capex in Cotton segment
-12% -20%
-31%
5000 250
-30%
0 -40% GAEX spent ~Rs 600mn over the last 3 years to 204
196
FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e 200 modernize its machinery and stay competitive
Source: Company, Equirus Securities 150
100 88
75
EBITDA margins to get steady 56 58
50 27
18
5 9
Exhibit 31: EBITDA margins are estimated to get steady 0
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Agro processing EBITDA EBITDA margin(%)
1600 6% Source: Company, Equirus Securities
4.9% 4.8%
1400 4.7%
4.4% 4.7% 5%
4.4% Over the past three years, GAEX has invested ~Rs 600mn in this segment, mainly to
1200 modernize its old machinery and stay competitive; the company has not planned any
4%
1000 major capital outlay for the segment in the foreseeable future.
3%
800 1.9% Exports contributed nearly 75% to segment revenues till FY13; however, post that, the
2% proportion has been declining due to increasing preference for garments over yarn among
600
0.7% importing nations.
1%
400
-0.3% Estimated segment revenue CAGR of 8% over FY17-FY20E
200 0%
0 -1% GAEX’s cotton yarn segment has been exposed to high volatility over the past two
FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
decades due to factors such as global demand and FX fluctuations. Current capacity of
Source: Company, Equirus Securities the cotton segment stands at ~15,000 MTPA, and utilization levels have varied between
60-80% over the last three years. Since there are no plans to increase the capacity, and
utilization levels are expected to improve post the new machinery is put in place, we Financials
estimate 8% revenue over FY17-FY20, which should take utilization levels to 90% in
Revenue CAGR estimated at 17% over FY17-FY20E
FY20E.
We expect 17% revenue CAGR for GAEX over FY17-FY20E, driven by the following:
Exhibit 33: Revenue CAGR estimated at 8% over FY17-FY20E
 New maize processing plant becoming operational in 4QFY18
Revenue of the cotton segment ( Rs mn) growth (yoy %)(RHS)  Improved utilization of solvent extraction units
3000 30%
18% Exhibit 35: Segment-wise revenue growth estimates
15% 26%
2500 20%
Sales growth (%) FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
3% 10%
2000 12% AGRO 11% 52% -12% -31% 10% 24% 24% 17% 9%
8%
7% 6% 0% COTTON 7% -3% 18% -29% -4% 26% 12% 6% 8%
1500
-3%
-4% MAIZE 10% 32% 52% 13% 11% 18% 6% 24% 24%
-10%
1000 POWER 15% 14% -6% 1% 27% -3% 0% 0% 0%
-20%
Total 10% 42% 3% -18% 8% 22% 17% 19% 14%
500 -30% Source: Company data, Equirus Securities
-29%
0 -40% Exhibit 36: Higher maize processing capacity, better utilization in agro processing to
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e drive revenues
Source: Company, Equirus Securities Revenue(Rs mn) growth ( YoY %) ( RHS)

60000 42% 50%
After recent upgrading of machinery, focus is on profitability 40%
50000
Several factors such as cotton prices, FX fluctuations, and international and domestic 30%
22%
yarn prices, influence the margins of this segment, making them highly volatile. 40000 17% 19%
14% 20%
10% 8%
Exhibit 34:EBITDA margins have been volatile and depend on cotton and yarn prices 30000 10%
EBITDA margins ( Cotton) 3% 0%

20000
-18% -10%
15%
10.5% 10000
-20%
10%
6.1% 5.4%
4.0%
5.0% 5.0% 0 -30%
5% 2.1% FY12 FY13 FY14 FY15 FY16 FY17 FY18e FY19e FY20e
0% Source: Company, Equirus Securities
-5% -3.1% -3.9%

-10% -7.2%
Expect 23% EBITDA CAGR over FY17-FY20E with 140bps margin expansion Exhibit 39 outlines the power & fuel costs per MT of production in each segment. Data
suggests that power & fuel costs are the highest for the cotton segment, which explains
The main cost component for a commodity player such as GAEX is raw material (86% of the lower EBITDA margins for the segment.
the total cost) followed by power & fuel costs.
Exhibit 39: Segmental power and fuel cost per MT of production
Exhibit 37: Cost components for GAEX (FY17) Power and fuel cost FY09 FY10 FY11 FY12 FY13 FY14
Agro processing 487 672 765 701 687 808
RM Cost,
86% Maize processing 2,439 2,204 2,377 2,524 2,713 2,597
Cotton Yarn 20,880 18,390 26,770 30,500 21,590 23,950
Exhibit 40: Increasing contribution of maize to improve overall profitability
Segmental EBITDAM (%) FY14 FY15 FY16 FY17 FY18E FY19E FY20E
AGRO 2.3% 0.3% 1.3% 4.8% 5.1% 5.0% 5.0%
COTTON 6.1% -3.1% -3.9% 5.4% 2.1% 5.0% 5.0%
Other expenses, 4%
Employee cost, 3% MAIZE 16.1% 18.0% 17.0% 15.2% 12.3% 17.0% 18.0%
Total 6.3% 6.5% 6.8% 8.3% 6.8% 8.9% 9.7%
F&F charges, 3% Power and fuel, 4%
The company’s margin profile and absolute EBITDA is estimated to improve as the share
Source: Company, Equirus Securities of the maize segment increases further in the Company, and the margin profile of the
Due to focus on value-added derivatives, gross margins in the maize processing segment segment itself improves with more focus on value-added derivatives.
are much higher than the agro processing segment.
Exhibit 41: EBITDA CAGR Estimated at 23% over FY17-FY20E
Exhibit 38: Segment-wise gross margins for GAEX
EBITDA (Rs mn) EBITDA margins(%)
Agro Processing Maize Processing Cotton Yarn 6000 12%
60% 9.7%
5000 8.9% 10%
8.3%
50%
4000 6.5% 6.8% 6.8%
8%
6.3%
40%
3000 6%
30%
2000 4%
20%
1000 2%
10%
0 0%
0% FY14 FY15 FY16 FY17 FY18e FY19e FY20e
FY12 FY13 FY14 FY15 FY16
GAEX has a nominal long-term debt of ~Rs 145mn (FY17 end), which is mainly a TUF Exhibit 43: Cash conversion cycle has been broadly stable
subsidized loan. Due to high working capital requirements, the company has taken short-
term debt of ~Rs 6,211mn. As per management, it would reduce working capital loans on Receivable days Inventory days Payable days Cash conversion cycle
the balance sheet and focus on reducing interest expenses. GAEX has already reduced its 100
short-term debt to ~Rs 5,454mn in 1HFY18 (from Rs 6,211mn in FY17). 90
GAEX has Rs 471mn of long-term investments, which provide regular dividend and 80
interest income. 70
In terms of taxes, GAEX was enjoying a taxation subsidy for its Uttaranchal plant, which 60
shall get over by FY18. Post that, the company is expected to pay full taxes. We estimate 50
a PAT CAGR of 20% over FY17-FY20E. 40
30
Exhibit 42: PAT CAGR estimated at 20% over FY17-FY20E
20
PAT ( Rs mn) Net margin(%) 10
3,000 6% 0
5.1%
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
4.8%
2,500 4.5% 5%
3.6% 3.7%
2,000 3.3%
3.6% 4%
Exhibit 44: Cash conversion remains healthy
1,500 3%
Cash flow from operations(Rs mn) Cash conversion (%)
1,000 2%
3,000 180%
168%
500 1% 160%
2,500
140%
0 0% 107%
2,000 120%
FY14 FY15 FY16 FY17 FY18e FY19e FY20e
83% 100%
Source: Company, Equirus Securities 1,500 70%
69% 80%
1,000 60%
24% 40%
500
20%
0 0%
FY15 FY16 FY17 FY18e FY19e FY20e
Cash generated mostly ploughed back into maize segment due to better return profile
Funds deployed on capacity expansion, debt repayment and purchase of long-term

Exhibit 45: CFO and debt – primary sources of funds
investment
Capital subsidy
received/Governm
ent grant, 0.7% Share buyback, 15%
Net capex, 28%

Sale of investment, CFO, 29.8%
32.6%
Interest received, Purchase of

0.5% Investment, 31%
Debt repayment,
Dividend received, 21%
0.2%
Debt raised, 36.2% Dividend paid, 2%
Interest paid, 3%
Over the past decade, GAEX has focused on growing its maize processing business, thus Exhibit 46: Investments in the maize segment yielding good returns
spending most of the generated cash on increasing its capacities. With commencement of
Maize Segment Rs mn
the new Chalisgaon plant in 4QFY18, GAEX would become the largest maize crushing
company in India with a market share of ~21%. As seen in exhibits below, the maize A) EBIT (FY12) 759
business has much better returns than the other two segments, and continuous B) EBIT (FY17) 2,040
investments in this business over the last five years has yielded good returns for the C) Last 5 year change in EBIT (B-A) 1,281
company. As GAEX intends to expand its maize processing capacities further, we expect
dividend payouts to remain low.
D) Invested capital (FY12) 9,637
Debt on the balance sheet is largely working capital short-term debt; the long-term debt
is mainly subsidized TUF loan taken to modernize the cotton yarn segment. E) Invested Capital (FY17) 15,379
F) Last 5 year change in Invested capital (E-D) 5,742
Share buyback in FY17 more of a one-off
In Mar’17, GAEX offered to buy back ~23.7mn equity shares (representing 17.12% of its
G) Return on Incremental capital (ROIIC) (C/F) 22%
total equity share capital) at Rs 95/share, aggregating to Rs 2.25bn by way of tender
offer. It was subscribed fully and the shares were extinguished by the end of Mar’17. Source: Company, Equirus securities
GAEX’s paid-up equity shares post buyback aggregate to ~114.7mn.
Capital allocation via the buyback was aimed at returning surplus cash to shareholders
and help GAEX achieve optimal capital structure that resulted in improved return ratios.
Exhibit 47: …leading to improving return ratios
RoIC RoE
25%
22%
19%
20% 18%
15%
15%
12% 16%
11%
13%
10% 12%
10%
8% 9%
5%
0%
FY15 FY16 FY17 FY18e FY19e FY20e
Valuation and risks Investment risks

GAEX currently trades at 19x/13x/10x P/E and an EV/EBITDA of 12x/8x/6x on our
FY18/FY19/FY20 estimates. The company has historically traded in the range of 5-15x Downside risks:
P/E on TTM EPS and an EV/EBITDA of 5-7x on TTM EBITDA. 1. Commodity price risk: Factors like political and regulatory changes, seasonal
We use the SOTP methodology to value GAEX as follows: variations, weather, technology and market conditions can significantly affect
commodity prices. An unexpected movement in commodity prices can have a bearing
Maize processing: As shown in Exhibits below, Indian rice and shrimp processing on the company’s profitability. GAEX tries to mitigate the risk by covering positions
companies are currently trading at a FY19 median EV/EBITDA multiple of ~14x and 18x through hedging at commodity exchanges like CBOT, REFCO, NCDEX, NMCEX and
respectively. We assign a TTM EV/EBITDA multiple of 11x (~20% and ~40% discount others.
respectively to rice and shrimp processing firms) to our FY19 maize processing EBITDA
estimates as, unlike rice processing firms, GAEX does not have its own branded business 2. Foreign currency risk: GAEX manages foreign currency exposures through forward
and lags behind aqua processing firms in terms of asset turns and return ratios exchange contracts. Forex risks are partly mitigated by purchase of
(RoE/RoIC). goods/commodities in respective currencies.
Agro processing: Global agro processing firms are currently trading at a CY18 median 3. Capital mis-allocation: GAEX has a good business (maize) , an average business ( Oil)
EV/EBITDA multiple of 11x. Ascribing a ~25% discount, we value GAEX’s agro (soya) and a bad business ( textile). In the last decade, Company has mainly invested to grow
processing business at a FY19 TTM EV/EBITDA multiple of 8x as segment margins and its maize business and has no intention of investing further in the oil and textile
return ratios have historically been very volatile. business. Any major investments in the oil and textile business will be against our
investment thesis.
Cotton/Textile (Others): We assign a FY19 EV/EBITDA multiple of 4x to other segments.
4. Increased Competition: Though many players have entered and exited the industry
Overall, we arrive at a Mar’19 SOTP-based TP of Rs 310, implying a P/E multiple of over the last few years. Given the growth potential in the industry, there is always a
25x/17x/13x and an EV/EBITDA multiple of 12x/8x/6x on our FY18/FY19/FY20 estimates. chance of many competitors entering the industry and put pressure on pricing and
the utilization levels of the existing players.
Exhibit 48: We arrive at a SOTP-based Mar’19 TP of Rs 310
FY19e (Rs mn) EBITDA Multiple EV
Agro processing 1,107 8 8,855
Maize processing 2,752 11 30,274
Others 251 4 1,004
Group's EV 40,133
Total debt 5,542
Total cash 897
Equity value 35,488
No. of shares outstanding(mn) 115
Mar’19 Target price (Rs) 310
Source: Equirus Securities
Exhibit 49: Relative Valuation vs. Indian and Global Peers

Company name Currency Price M Cap (mn) Sales (mn) Sales Growth (%) Sales CAGR EBITDA (mn) EBITDA Margin (%)
FY17 FY18E FY19E FY18E FY19E FY17-19E FY17 FY18E FY19E FY17 FY18E FY19E
Indian Peers
Rice Processing Companies
KRBL Ltd INR 635.5 1,49,590 31,490 33,842 36,711 7.5% 8.5% 8.0% 6,439 7,724 8,787 20.4% 22.8% 23.9%
LT Foods Ltd INR 108.2 34,607 32,865 35,780 39,814 8.9% 11.3% 10.1% 3,799 4,159 4,711 11.6% 11.6% 11.8%
Chaman Lal Setia INR 195.7 10,122 4,933 NA NA NA NA NA 647 NA NA 13.1% NA NA
Median 8.2% 9.9% 9.0% 13.1% 17.2% 17.9%
Aqua Processing Companies
Avanti Feeds INR 2680.0 1,21,713 26,157 36,225 48,670 38.5% 34.4% 36.4% 3,300 7,284 7,492 12.6% 20.1% 15.4%
Apex Frozen Foods INR 808.8 25,273 6,991 9,758 13,188 39.6% 35.1% 37.3% 453 956 1,219 6.5% 9.8% 9.2%
Median 39.0% 34.8% 36.9% 9.5% 15.0% 12.3%
Agro Processing Companies
Ruchi Soya Industries INR 19.1 6,381 1,90,731 NA NA NA NA NA -7,851 NA NA -4.1% NA NA
Sukhjit Starch & Chemicals INR 462.9 3,416 6,536 NA NA NA NA NA 519 NA NA 7.9% NA NA
Gulshan Polyols INR 90.8 4,260 4,949 NA NA NA NA NA 578 NA NA 11.7% NA NA
Godrej Agrovet INR 618.1 1,18,693 48,921 NA NA NA NA NA 4,404 NA NA 9.0% NA NA
Median 8.5%
Global Peers CY16 CY17E CY18E CY17E CY18E CY16-CY18E CY16 CY17E CY18E CY16 CY17E CY18E
Sime Darby MYR 2.8 18,974 31,087 42,491 41,829 36.7% -1.6% 16.0% 2,045 3,350 3,623 6.6% 7.9% 8.7%
IOI MYR 4.6 29,157 14,124 13,594 13,599 -3.8% 0.0% -1.9% 1,736 2,102 2,186 12.3% 15.5% 16.1%
KLkepong MYR 25.1 26,752 21,004 19,904 20,228 -5.2% 1.6% -1.9% 2,071 2,229 2,308 9.9% 11.2% 11.4%
Golden Agro SGD 0.4 4,839 7,209 7,488 7,516 3.9% 0.4% 2.1% 541 677 662 7.5% 9.0% 8.8%
Wilmar SGD 3.2 20,369 41,402 43,578 45,417 5.3% 4.2% 4.7% 2,372 2,207 2,432 5.7% 5.1% 5.4%
Noble SGD 0.2 299 46,528 50,272 51,629 8.0% 2.7% 5.3% 65 448 532 0.1% 0.9% 1.0%
China Agro HKD 3.6 18,952 89,163 98,874 1,02,027 10.9% 3.2% 7.0% 3,939 4,332 4,347 4.4% 4.4% 4.3%
China Foods HKD 4.3 12,084 27,986 24,740 21,973 -11.6% -11.2% -11.4% 929 1,437 1,617 3.3% 5.8% 7.4%
Want Want HKD 6.4 79,406 19,710 20,225 21,115 2.6% 4.4% 3.5% 5,637 5,003 5,014 28.6% 24.7% 23.7%
Tingyi Holding HKD 15.5 87,005 55,617 57,675 60,512 3.7% 4.9% 4.3% 6,804 6,770 7,291 12.2% 11.7% 12.0%
China Mengniu HKD 23.4 91,900 53,779 58,523 63,582 8.8% 8.6% 8.7% 3,310 4,995 5,999 6.2% 8.5% 9.4%
ADM USD 40.2 22,471 62,346 61,839 63,746 -0.8% 3.1% 1.1% 2,454 2,743 3,138 3.9% 4.4% 4.9%
Bunge USD 69.9 9,835 42,679 46,589 48,127 9.2% 3.3% 6.2% 1,669 1,292 1,734 3.9% 2.8% 3.6%
Median 3.9% 3.1% 4.3% 6.2% 7.9% 8.7%
Gujarat Ambuja Exports INR 233.9 26,821 33,308 39,061 46,404 17.3% 18.8% 18.0% 2,754 2,660 4,110 8.3% 6.8% 8.9%
Company name Currency Price M Cap (mn) EPS EPS CAGR Net D/E RoE (%) RoIC Div Yield (%)
FY17 FY18E FY19E FY17-19E FY17 FY17 FY18E FY19E FY17 FY18E FY19E
Indian Peers
KRBL Ltd INR 635.5 1,49,590 17.0 19.9 22.8 16.0% 0.5 23.5% 20.9% 20.0% 15.0% 0.3% 0.3%
LT Foods Ltd INR 108.2 34,607 4.4 5.6 6.9 25.2% 2.2 19.7% 20.1% 20.5% 9.6% 0.2% 0.2%
Chaman Lal Setia INR 195.7 10,122 7.4 NA NA NA 0.0 30.2% NA NA 24.6% NA NA
Median 20.6% 0.5 23.5% 20.5% 20.2% 15.0% 0.3% 0.3%
Avanti Feeds INR 2680.0 1,21,713 47.1 103.1 105.3 49.5% -0.6 40.2% 57.2% 40.6% 35.8% 0.8% 0.8%
Apex Frozen Foods INR 808.8 25,273 8.0 19.4 23.0 69.8% 1.0 29.0% 33.2% 24.0% 18.1% 0.2% 0.3%
Median 59.6% 0.2 34.6% 45.2% 32.3% 26.9% 0.5% 0.5%
Ruchi Soya Industries INR 19.1 6,381 -45.0 NA NA NA 7.0 -78.0% NA NA 5.2% NA NA
Sukhjit Starch & Chemicals INR 462.9 3,416 23.9 NA NA NA 0.4 8.1% NA NA 7.3% NA NA
Gulshan Polyols INR 90.8 4,260 5.7 NA NA NA 0.4 11.4% NA NA 7.0% NA NA
Godrej Agrovet INR 618.1 1,18,693 12.4 NA NA NA 0.5 27.8% NA NA 11.9% NA NA
Median 0.5 9.7% 7.2%
Global Peers CY16 CY17E CY18E CY16-18E CY16 CY16 CY17E CY18E CY16 CY17E CY18E
Sime Darby MYR 2.8 18,974 0.4 0.3 0.3 -10.6% 0.0 9.0% 6.0% 7.1% 3.2% 6.5% 6.5%
IOI MYR 4.6 29,157 0.1 0.2 0.2 34.4% 0.7 13.8% 15.6% 15.7% 5.2% 2.8% 2.6%
KLkepong MYR 25.1 26,752 0.9 1.1 1.2 11.9% 0.2 9.1% 10.5% 10.5% 7.1% 2.3% 2.5%
Golden Agro SGD 0.4 4,839 0.0 0.0 0.0 -31.1% 0.6 3.7% 4.1% 4.7% 3.3% 1.8% 2.1%
Wilmar SGD 3.2 20,369 0.2 0.2 0.2 11.1% 0.8 9.1% 7.2% 7.6% 4.1% 2.2% 2.7%
Noble SGD 0.2 299 -0.2 0.0 0.2 NA 0.7 -146.0% 4.9% 6.9% -32.8% 0.0% 0.0%
China Agro HKD 3.6 18,952 0.3 0.3 0.3 9.5% 0.8 10.1% 6.4% 6.0% 5.1% 2.0% 2.0%
China Foods HKD 4.3 12,084 0.2 0.1 0.2 -4.5% 0.1 10.4% 12.2% 6.7% 7.1% 9.0% 1.3%
Want Want HKD 6.4 79,406 0.3 0.2 0.3 -3.7% -0.2 NA 24.1% 23.9% NA 2.8% 2.7%
Tingyi Holding HKD 15.5 87,005 0.2 0.3 0.4 33.5% 0.2 9.8% 9.2% 10.9% 5.3% 1.6% 2.0%
China Mengniu HKD 23.4 91,900 0.5 0.6 0.8 26.4% -0.1 -3.2% 10.7% 13.4% -1.9% 0.8% 1.1%
ADM USD 40.2 22,471 2.2 2.3 2.7 12.2% 0.3 7.0% 7.5% 8.5% 4.2% 3.1% 3.4%
Bunge USD 69.9 9,835 4.7 2.8 4.7 0.6% 0.5 6.9% 5.5% 9.3% 4.3% 2.5% 2.6%
Median 10.3% 0.3 9.0% 7.5% 8.5% 4.3% 2.3% 2.5%
Gujarat Ambuja Exports INR 233.9 26,821 13.8 12.3 18.1 14.3% 0.7 17.9% 15.4% 19.5% 12.5% 0.6% 0.9%
Company name Currency Price M Cap (mn) P/E EV/EBITDA EV/Sales

FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Indian Peers
KRBL Ltd INR 635.5 1,49,590 37.5 32.0 27.8 24.8 20.7 18.2 5.1 4.7 4.4
LT Foods Ltd INR 108.2 34,607 24.6 19.4 15.7 13.2 12.0 10.6 1.5 1.4 1.3
Chaman Lal Setia INR 195.7 10,122 26.3 NA NA 15.6 NA NA 2.0 NA NA
Median 26.3 25.7 21.8 15.6 16.4 14.4 2.0 3.1 2.8
Avanti Feeds INR 2680.0 1,21,713 56.9 26.0 25.5 35.8 16.0 15.2 4.5 3.2 2.3
Apex Frozen Foods INR 808.8 25,273 101.5 41.7 35.2 58.1 26.9 21.1 3.8 2.6 1.9
Median 79.2 33.8 30.3 47.0 21.5 18.1 4.1 2.9 2.1
Ruchi Soya Industries INR 19.1 6,381 -0.4 NA NA -8.2 NA NA 0.3 NA NA
Sukhjit Starch & Chemicals INR 462.9 3,416 19.3 NA NA 8.2 NA NA 0.6 NA NA
Gulshan Polyols INR 90.8 4,260 15.8 NA NA 9.3 NA NA 1.1 NA NA
Godrej Agrovet INR 618.1 1,18,693 50.0 NA NA 28.3 NA NA 2.5 NA NA
Median 17.6 8.8 0.9
Global Peers CY16 CY17e CY18e CY16 CY17e CY18e CY16 CY17e CY18e
Sime Darby MYR 2.8 18,974 7.6 10.2 9.5 9.8 7.5 6.9 0.6 0.6 0.6
IOI MYR 4.6 29,157 39.3 25.2 21.8 20.1 16.1 15.2 2.5 2.5 2.4
KLkepong MYR 25.1 26,752 26.6 22.2 21.2 14.1 13.0 12.3 1.4 1.5 1.4
Golden Agro SGD 0.4 4,839 12.0 29.2 25.3 13.7 11.0 10.8 1.0 1.0 0.9
Wilmar SGD 3.2 20,369 20.8 18.8 16.9 14.0 15.0 13.5 0.8 0.8 0.7
Noble SGD 0.2 299 -1.5 11.3 1.5 48.8 7.1 6.0 0.1 0.1 0.1
China Agro HKD 3.6 18,952 13.4 10.9 11.1 10.7 8.1 7.8 0.5 0.4 0.3
China Foods HKD 4.3 12,084 24.2 40.8 26.5 13.6 7.8 6.7 0.5 0.5 0.5
Want Want HKD 6.4 79,406 23.0 25.8 24.8 13.6 15.5 15.4 3.9 3.8 3.6
Tingyi Holding HKD 15.5 87,005 73.8 52.0 41.4 13.6 13.4 12.0 1.7 1.6 1.4
China Mengniu HKD 23.4 91,900 44.3 37.6 27.7 27.3 19.2 15.6 1.7 1.6 1.5
ADM USD 40.2 22,471 18.6 17.3 14.8 11.5 10.1 8.7 0.5 0.4 0.4
Bunge USD 69.9 9,835 15.0 24.6 14.8 8.1 10.7 7.7 0.3 0.3 0.3
Median 20.8 24.6 21.2 13.6 11.0 10.8 0.8 0.8 0.7
Gujarat Ambuja Exports INR 233.9 26,821 16.9 19.0 13.0 12.2 12.3 7.8 1.0 0.8 0.7
Source: Company, Bloomberg, Equirus Securities
Corporate governance Annexure 1: Maize industry overview

Following are key highlights of our preliminary assessment of the level of corporate Supply of maize is increasingly moving towards starch and starch derivatives
governance as per GAEX’s FY17 Annual Report:
Global maize production dominated by USA and China
Board of Directors
World maize production has grown at a ~4% CAGR (marketing year 2011-17) to reach
Composition: GAEX’s policy is to have an optimal combination of executive and non- ~1,038mn tonnes in 2017. India maintained its market share at 2.2-2.6% in this period
executive directors to ensure independent functioning of the Board. The Board Directors while Ukraine outstripped all other nations with its maize production growing at ~14%
have 10 members and Chairman as Executive Directors, including 6 Non-Executive CAGR during 2011-17. USA and China are the major maize-producing nations and
Directors, 5 of whom are Independent Directors. During FY17, six board meetings were accounted for ~37% and 21% of total world production respectively in 2017.
held and the maximum time gap between two meetings did not exceed 105 days.
Exhibit 50: Global maize production has grown at a ~4% CAGR during 2011-17
Distribution of power: Executive power is a bit concentrated as most managerial tasks
are taken care of by three personnel: Mr. Vijaykumar Gupta – Chairman & Managing World Maize Production (mn tonnes) Yoy growth (%) (On RHS)
Director; Mr. Manish Gupta - Managing Director; and Mr. Sandeep Agrawal – Whole-Time India's share (%) (On RHS)
1200 16%
Director & Independent Director. Of the nine board committees, eight (Audit, Nomination 13.4% 1038
& Remuneration, Stakeholders Relationship committees) are headed by Non- 988 968 14%
1000
Executive/Independent Directors. 868 852 12%
816 967
10%
Disclosure Norms: 800 7.2%
8%
6.4%
Our preliminary study reveals that the company follows disclosure norms as stipulated by 600 6%
listing agreements of exchanges and declares its quarterly results and other disclosures in 4%
a timely manner. Management does not hold earnings call after quarterly results. 400
2%
2.2%
-1.8% -2.0% 0%
200
-2%
0 -4%
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Source: USDA, FAS Grain: World Markets and Trade, Jan. 12, 2017, Equirus Securities
Of the total production of ~1,038mn tonnes, only ~142mn tonnes (14%) were traded
among countries. USA, Argentina and Brazil (~73% of world exports combined) are the
world’s largest exporters while China largely consumes its entire maize production.
Exhibit 51: USA and China account for ~58% of global maize production India’s maize production is mainly concentrated in Karnataka, Madhya Pradesh (MP),
Bihar, Tamil Nadu (TN) and Telangana, with these five states accounting for ~57% of
145 U.S. India’s maize production in 2016. It is to be noted that TN’s maize yield at
0 China ~6.5 tonnes/hectare was far higher than the national average of ~2.5 tonnes/hectare.
13 Brazil
16
25 385 EU-27 Exhibit 53: Top-5 states contribute ~57% of India’s maize production
25 Argentina
27 Karnataka
Ukraine
15%
37 Maxico
India
61
Russia
Rest of India Madhya Pradesh
Canada 12%
43%
87 South Africa
220 Other
Source: USDA, FAS Grain: World Markets and Trade, Jan. 12, 201'7, Equirus Securities
Bihar
India’s maize production up ~4% CAGR in last 15 years 11%
In 2014, India was the sixth largest maize producer (~9.3mn tonnes) and contributed ~2%
of world’s maize production. The country’s area under maize cultivation has steadily Tamil Nadu
risen at a ~2% CAGR during 2001-16 to reach ~8.7mn hectares in 2016. However, maize Telangana
11%
8%
production has grown at a ~4% CAGR during the same period to ~21.8mn tonnes helped by
increasing yields (~2.5 tonnes/hectare in 2016 vs. ~1.8 tonnes/hectare in 2001). Source: Directorate of Economics & Statistics, DAC&FW, Equirus Securities
Exhibit 52: India’s maize production and yields have been increasing steadily
Exhibit 54: Maize prices have generally trended higher than government MSPs
Production (mn tonnes) Yield (kg/hectare) - RHS
30 2676 3,000 (Maize prices) Market Price (Rs/quintal) MSP (Rs/quintal)
2542 2632 2509
2335
2414 2478 2566 1,800
25 2,500 1,568
2000 2041
1938 1912 2024 1,600
1822 1907 1,421
20 1681 2,000 1,327 1,339 1,310 1,365
1,400 1,310 1,325
1,241
15 1,500 1,200 1,175
10 1,000 1,000
800
5 500
12.0
13.2
11.2
15.0
14.2
14.7
15.1
19.0
19.7
16.7
21.7
21.8
22.3
24.3
24.2
21.8
600
0 0
400
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16*
200
0
Source: Directorate of Economics & Statistics, DAC&FW, Equirus Securities 2013 2014 2015 2016 2017
Source: Bloomberg, Directorate of Economics & Statistics, DAC&FW, Equirus Securities
On average, the Kharif season (Apr-Sep) sees ~73%of India’s maize production and the Exhibit 56: India’s toothpaste market estimated to grow at a CAGR (CY15-20E) of 7%
Rabi season only the remaining ~27%. Interesting however, Rabi season yield (4,087
kg/hectare) is almost double than that of the Kharif season (2,272 kg/hectare). Toothpaste (Rs bn)
140
118.1
Demand for starch and starch derivatives set to be strong 120 109.9
102.6
Indian Pharma industry expected to grow at a of ~19% CAGR over FY16-FY20E 95.8
100 89.7
India is expected to be the 6th largest pharmaceutical market globally by 2020. India’s 83.8
competitive edge comes from both supply and demand sides. Its cost of production is 80 75.0
substantially lower than developed countries whereas rapid growth in the middle class 66.9
58.1
and an improvement in medical infrastructure would boost demand for Pharma products. 60 51.0
44.8
Exhibit 55: India’s pharmaceutical industry is expected to post strong growth 40
Pharmaceutical ($bn)
20
60 55.0 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Source: Euromonitor, Equirus Securities
50
Indian decorative paints industry pegged to grow at a 5% CAGR over CY15-CY20E
40 According to Euromonitor, India’s decorative paints market is expected to grow at a
29.8 29.6 CAGR of ~5% during CY15-20E, driven by increasing urbanization, rising share of the
28.5 27.6
30 organized sector, penetration in rural markets and easily available financing options.
24.5
22.5
21.0
20 Exhibit 57: India’s decorative paints industry is geared for a growth phase
Decorative Paints (Rs bn)
10
350
311.8
0 294.0
300 278.6
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY20E 265.4
254.4
Source: IBEF, Equirus Securities 244.8
250 228.3
204.2
200 184.0
Indian toothpaste market expected to grow steadily at a ~7% CAGR 167.8
153.4
India’s per capita consumption of toothpaste has grown at a CAGR of ~5.5% during CY01- 150
16 to reach to 179gms. It is still very low compared to developed countries, and even
lower than some developing countries like Brazil, China and Philippines. A significant 100
uptick in India’s per capita consumption would come from ‘twice-a-day brushing’, a habit
50
seen only in ~20% of India’s urban population.
2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Source: Euromonitor, Equirus Securities
Significant scope for India to shift maize consumption towards starch Annexure 2: Oilseed industry overview
About ~60% of India’s maize consumption goes towards animal and poultry feed, with Heavy dependence on oil imports to bridge supply-demand gap
only ~21% used in industrial products like starch and food processing. In comparison, ~38%
Soybean oil is healthier for the heart vis-à-vis other oils as it is cholesterol-free and also
of US maize production goes towards industrial uses and food processing.
low in saturated fatty acids. It is a source of vitamin E and contains omega-3 (protective
Exhibit 58: Starch and its derivatives account for only ~13% of maize consumption in against heart disease and cancer), just like fish oil.
India vs. most of the consumption in USA Worldwide consumption of soy oil has grown by a healthy ~6% CAGR during 2015-17;
however, India’s soy oil consumption has increased at a much higher pace of ~17% CAGR.
India
Currently, India has the third largest consumption market share of ~10% after China’s 30%
Feed - Poultry
and USA’s 17%. With a growing population, urbanization and changing lifestyles, India’s
demand for refined oil would continue to grow, warranting a ramp up in own refining
6% Feed Livestock
capacities to reduce dependence on oil imports.
14%
Food - Direct Consumption Exhibit 59: India’s soy oil consumption is growing faster than the world
47%
7% (MMT) 2015 2016 2017
Food - Processed
24
13% Industrial product - Starch 22
20
13% 18
Exports and others
16
14
12
1% USA 10
2% Feed & Residual 8
2% 1% 0% DDG 6
3%
4
Exports
2
Fuel Ethanol 0
38% HFCS India USA China EU Rest of the world
Source: ussoy.org, Equirus Securities
29% Sweetners
Starch
Cereal
8% Beverage/Alcohol
15%
Seed
Source: USDA, NCoMM India, Equirus Securities
Exhibit 60: However, the supply-demand gap in soybean is huge for India India’s soybean production is mainly concentrated in MP, Maharashtra and Rajasthan with
these three states accounting for ~93% of soybean production in 2016. It is to be noted
('000 MT) Imports Domestic Consumption - RHS Production - RHS
that MP and Rajasthan’s soybean yield at ~830 kg/hectare is far higher than
4,500 6,000
Maharashtra’s and national yields of ~557 kg/hectare and ~737 kg/hectare respectively.
4,000
5,000
3,500 Exhibit 62: Brazil, Argentina are growing the fastest among major soybean producers
3,000 4,000
(MMT) Argentina Brazil USA China India Y-o-Y Growth (%)
2,500
3,000
2,000 350 15%
1,500 2,000
300 10%
1,000
1,000
500 250
606 842 1346 867 1046 1056 1734 2714 4256 3880 5%
0 0
200
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0%
Source: USDA, Equirus Securities 150
-5%
100
While world soybean production has grown at a ~8% CAGR over the last five years helped
50 -10%
by technical advancements, India’s soybean production has increased by only ~2% even as
area under cultivation grew by a ~3% CAGR during the same time period. India’s 0 -15%
production has fallen prey to almost stagnant yields (~1,202 kg/Ha in 2017 vs. ~1,208 2012 2013 2014 2015 2016 2017
kg/Ha in 2012). On the other hand, world’s soybean production yield has increased to
Source: ussoy.org, Equirus Securities
~2,885 kg/Ha in 2017 from ~2,298 kg/Ha in 2012
Exhibit 61: Top-5 producers account for ~90% of global soybean production
Exhibit 63: India has been battling the problem of stagnant yields
Others, 10% Argentina, 18% Production (MMT) Yield (Kg/ha) - RHS

16 1,600
USA, 34%
1327
14 1,400
1208 1353 1202
12 1,200
983
10 1,000
8 944 800
Brazil, 31%
6 738 600
China Mainland, India, 3%
4% 4 400
Source: FAOSTAT 2017/AMIS-FAO, Equirus Securities 2 200
12.7 12.2 14.7 11.9 10.4 8.6 13.8
Major reasons for the below-par yields of Indian crops are as follows: (a) Most of India’s 0 0
soybean crop (~98%) is monsoon-dependent. (b) Farmers are yet to adapt to newer crop 2011 2012 2013 2014 2015 2016 2017
production technologies. (c) Nutrient application has been imbalanced and soil fertility is
not up to the mark. Source: Directorate of Economics and Statistics, Govt. of India, Equirus Securities
Exhibit 64: Top-3 states contribute ~93% of India’s soybean production Exhibit 65: Control over whole value chain provides multiple growth avenues
Others
5%
Karnataka
2%
Gujarat Ambuja Exports
Ltd
Rajasthan
12%
Cotton Yarn Power

Agro Processing Maize Processing Revenue share: Generation
Madhya Pradesh Revenue share: Revenue share: 6% in FY17
Maharashtra 57% 55% in FY17 39% in FY17
24%
Source: Directorate of Economics & Statistics, DAC&FW, Equirus Securities

GAEX operates three maize processing manufacturing plants at Himmatnagar,
Uttarakhand and Karnataka. The fourth 1,000 TPD corn milling unit at Chalisgaon,
Annexure 3: Company overview Maharashtra, is under the final implementation stage with commercial production slated
to commence by 4QFY18.
GAEX manufactures agro-processed products and cotton yarn, with a focus on
exports. The company's agro-processing activities include processing of oil seeds, maize GAEL has two agro processing major products of DOC and edible oil. A bumper crop of
and wheat. GAEX’s cotton yarn unit enjoys a 100% export-oriented status and is mainly soya seed increased the procurement for crushing. Also, demonetization proved to be a
engaged in the manufacture of 100% cotton yarn through the production of ring spun and boon since it facilitated direct procurement of soy seeds from farmers. A positive
open-end yarn. Over the last decade however, GAEX has sharpened focus on the maize monsoon forecast, continued lower international prices of crude edible oil, better parity
processing segment considering the better and consistent returns along with dedicated in soy bean processing and other traditional factors are likely to have driven the
efforts placed to operate it. For FY17, the agro processing segment contributed ~55% of segment’s performance in FY17.
revenues, maize processing ~39%, and cotton yarn and power generation the remaining.
However, management has indicated that the maize processing segment is gaining Operations for the cotton yarn segment have been stagnant largely due to age-old
momentum with robust growth opportunities ahead. machines for the spinning line of 60,000 spindles. GAEX has completed the process of
replacing old machines installed in 1995 – right from blow room to winding - with latest
technology machines. At all locations, captive power generation is now an integral part
of respective projects. This has helped the company minimize power costs and reduce
dependence on state power.
Key milestones Key Management Profile

Mr. Vijay Kumar Gupta– Chairman & Managing Director
Year Milestone
Mr. Vijay Kumar Gupta, Chairman &Managing Director, is a Bachelor of Dental Surgery
Incorporated in Aug’91, GAEX manufactured refined castor oil, hydrated castor
1991 with managerial experience of 46 years. In 1998, Mr. Gupta took over as GAEX’s Managing
oil and hydrogenated castor oil
Director. With his vision and sheer dedication, he has set up various agro processing
Comes out with IPO aggregating Rs 37.8mn in Apr’92, to part-finance a project industries in Gujarat with varied interest in oil seed processing, maize-based starch &
1992
for crushing castor seed, setting up a refinery and meet WC requirements other products, wheat flour, ring spinning of cotton yarn, windmills& cattle feed.
Soy flakes plant commences commercial production; Vanaspati ghee project Mr. Manish Kumar Gupta – Managing Director
1995
starts operations in 1996-97
Mr. Manish Kumar Gupta, a young and dynamic entrepreneur, is a Commerce Graduate
2000 Expands installed capacity of solvent extraction unit by 30,000 tonnes with a vast managerial experience of over 26 years. In 1998, he took over as GAEX’s
Managing Director. He oversees the company’s day-to-day functioning at all levels. He
Soya DOC exports win GAEX the coveted recognition of being the second-largest
2001 also holds directorships in other companies such as Maharashtra Ambuja Exports Limited,
manufacturer exporter in India based on performance
Maharashtra Ambuja Biotech Limited, Royale Exports Limited (Sri Lanka), Jay Agroculture
Sets up a whole range of plant & machineries for expansion by putting in place and Horticulture Products Private Limited and Jay Ambe Infra Projects Private Limited.
2006
13,000 spindles capable of producing cotton yarn of 13 tons per day He is also the chairman of the GAEX’s Risk Management Committee.
Buys back 188,692 equity shares of which 1,80,959 Equity Shares were Mr. Sandeep Agrawal – Whole-Time Director
2007
extinguished Mr. Agrawal is a Commerce Graduate and a MBA. He is associated as a Director with the
company since 1995, and possesses varied and rich experience of more than 25 years. His
Maize Processing plant at Uttarakhand begins commercial production. In the
2008 other Directorship includes Sealac Agro Ventures Limited.
first quarter, the unit achieves more than 50% of capacity utilization
Mrs. Sulochana Gupta – Non- Executive Director
2009 Invests in seven wind turbines with total capacity of 6.95MW
2010 Installs 8,400 new spindles which commence production during H2 of 2010
Mrs. Sulochana is, an industrialist and GAEX’s promoter, and possesses rich experience of
more than 40 years. She supervises and monitors the administrative functions, and also
Successfully completes projects of generating power from bio gas for its corn actively contributes in the company’s policy decisions.
2011
processing units at Himmatnagar & Sitarganj
Mr. Sudhin Choksey – Non-Executive Independent Director
The 11MW cogeneration power plant begins operations at Village Dalpur,
2013 Himmatnagar. This project has helped sharply cut costs in the cotton yarn Mr. Sudhin Choksey, the Managing Director of GRUH Finance Limited, is a fellow member of
segment. the Institute of Chartered Accountants of India. He is on the Board of GAEX since 2012 as an
Independent Professional Director. He has over 36 years of working experience in functional
Maize processing becomes a core segment given more stability vis-à-vis the
2015 areas of finance, commercial and general management, both in India and abroad.
other two segments
Mr. Rohit Patel – Non-Executive Independent Director
In process of setting up a new maize processing project in Chalisgaon,
2016 Maharashtra. Completed the process of replacing old machines installed in 1995 Mr. Patel is B.E. II (Electrical) and consultant on Management and Human Resources
with latest technology machines Management. He has been an independent Director at GAEX since 2005.
Mr. Rashmikant Joshi – Non- Executive Independent Director
Successfully completes buyback of equity shares. Adds dextrose anhydrous
2017 derivative at the Karnataka plant. Plans to add other derivative products at Mr. Rashmikant Joshi is M.A. (English Literature), L.L.B and a retired IAS officer. He is on
Uttaranchal and Himmatnagar manufacturing locations the company’s Board since 2014 as an Independent Professional Director. He has rich
experience in the industrial management and functions at the executive level. He had
also served in Academic field for 4 years. He is Executive Director of Center for Banking
Research, Development & Excellence (CBRDE) of Gujarat Urban Co-Op. Banks Federation,
Ahmedabad. He had joined Indian Administrative Services in 2002 and worked in various
Government Departments including as Collector, District Development Officer, Deputy
Secretary, Additional Secretary and Director of Petroleum-Government of Gujarat, and
also as a Government nominee on the Board of Surat Electricity Company, and Gujarat
Industrial Power Company Ltd.
Mr. Vishwavir Saran Das – Non- Executive Independent Director
Mr. Vishwavir Saran Das is B.A. (Economics), MBA (Specialization in HRM) and Certified
Associate of Indian Institute of Bankers. He retired as Executive Director, Reserve Bank of
India (RBI) where he served for over 36 years in almost all central banking areas. He has
been serving as GAEX’s non- executive director since 2016. He also serves as Director
with two other firms. He is on the panel of arbitrators of the National Stock Exchange of
India Limited, BSE Limited and MCX Limited, advisor to Gujarat Urban Co-operative
Bank's Federation, Open Futures Private Limited & Centre for Tax Awareness & Research.
Mr. Sandeep Singhi– Non- Executive Independent Director
Mr. Sandeep Singhi is a B.Sc., LL. B. and is an advocate by profession, working as a
Partner of M/s. Singhi & Co., Advocates & Notary. He was enrolled as an Advocate with
the Bar Council of Gujarat in 1989, and is also a member of the International Bar
Association. His other Directorships include The Sandesh Limited.
Mr. Mohit Gupta –Executive Managing Director
Mr. Mohit Gupta ceased to be Joint Managing Director and Director (Key Managerial
Personnel) of the Company w.e.f. close of business hours of 31 May’17.
Consolidated Quarterly Earnings Forecast and Key Drivers

Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E
Revenue 7,704 6,300 8,676 10,628 6,904 7,705 11,109 13,343 9,007 9,089 13,451 14,856 33,308 39,061 46,404 53,090
Raw Materials Consumed 4,655 4,465 6,945 7,173 4,869 5,043 8,776 10,541 6,981 7,044 10,425 11,514 23,239 29,229 35,963 40,879
Increase/Decrease in Stock -16 69 -668 -321 -6 176 0 0 0 0 0 0 -936 170 0 0
Purchase of stock-in-trade 1,271 318 514 1,827 605 820 0 0 0 0 0 0 3,930 1,425 0 0
Employee benefits expense 240 210 237 226 193 218 249 235 237 237 237 237 913 895 949 1,006
Other expenses 746 741 904 1,017 845 972 1,299 1,566 927 931 1,674 1,850 3,407 4,682 5,382 6,064
EBITDA 808 497 744 705 398 476 785 1,001 863 876 1,115 1,256 2,754 2,660 4,110 5,141
Depreciation 170 177 177 190 183 188 190 234 233 233 233 233 714 794 931 1,004
EBIT 638 320 567 515 215 289 595 767 630 644 883 1,023 2,040 1,866 3,179 4,136
Interest 22 13 27 166 24 41 48 48 40 40 40 40 228 161 160 128
Other Income 29 42 34 76 10 40 12 12 18 18 18 18 182 74 71 72
PBT 645 349 575 425 202 288 559 731 608 621 860 1,001 1,994 1,779 3,090 4,080
Tax 148 51 121 89 33 78 112 146 201 205 284 330 408 369 1,020 1,346
PAT bef. MI & Assoc. 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733
Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Recurring PAT 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733
Extraordinaries 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Reported PAT 497 298 454 337 168 209 447 584 407 416 576 670 1,586 1,409 2,070 2,733
EPS (Rs) 4.33 2.60 3.96 2.93 1.47 1.83 3.90 5.10 3.55 3.63 5.03 5.85 13.83 12.29 18.05 23.84
Key Drivers
Agro processing revenue (Rs. mn) - - - - - - - - - - - - 18,462 22,862 26,688 29,164
Cotton revenue (Rs. mn) - - - - - - - - - - - - 2,175 2,431 2,570 2,776
Maize processing (Rs. mn) - - - - - - - - - - - - 13,053 13,789 17,044 21,049
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -
Sequential Growth (%)
Revenue 18 % -18 % 38 % 22 % -35 % 12 % 44 % 20 % -32 % 1% 48 % 10 % - - - -
Raw Materials Consumed 8% -4 % 56 % 3% -32 % 4% 74 % 20 % -34 % 1% 48 % 10 % - - - -
EBITDA 68 % -38 % 50 % -5 % -44 % 20 % 65 % 28 % -14 % 2% 27 % 13 % - - - -
EBIT 112 % -50 % 77 % -9 % -58 % 34 % 106 % 29 % -18 % 2% 37 % 16 % - - - -
Recurring PAT 61 % -40 % 52 % -26 % -50 % 24 % 113 % 31 % -30 % 2% 38 % 16 % - - - -
EPS 61 % -40 % 52 % -26 % -50 % 24 % 113 % 31 % -30 % 2% 38 % 16 % - - - -
Yearly Growth (%)
Revenue 26 % -9 % 11 % 63 % -10 % 22 % 28 % 26 % 30 % 18 % 21 % 11 % 22 % 17 % 19 % 14 %
EBITDA 46 % 52 % 50 % 47 % -51 % -4 % 6% 42 % 117 % 84 % 42 % 25 % 49 % -3 % 55 % 25 %
EBIT 61 % 97 % 70 % 71 % -66 % -10 % 5% 49 % 192 % 123 % 48 % 33 % 71 % -9 % 70 % 30 %
Recurring PAT 100 % 125 % 43 % 9% -66 % -30 % -1 % 74 % 142 % 99 % 29 % 15 % 58 % -11 % 47 % 32 %
EPS 100 % 125 % 43 % 9% -66 % -30 % -1 % 74 % 142 % 99 % 29 % 15 % 58 % -11 % 47 % 32 %
Margin (%)
EBITDA 10 % 8% 9% 7% 6% 6% 7% 7% 10 % 10 % 8% 8% 8% 7% 9% 10 %
EBIT 8% 5% 7% 5% 3% 4% 5% 6% 7% 7% 7% 7% 6% 5% 7% 8%
PBT 8% 6% 7% 4% 3% 4% 5% 5% 7% 7% 6% 7% 6% 5% 7% 8%
PAT 6% 5% 5% 3% 2% 3% 4% 4% 5% 5% 4% 5% 5% 4% 4% 5%
Consolidated Financials
P&L (Rs Mn) FY17A FY18E FY19E FY20E Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E
Revenue 33,308 39,061 46,404 53,090 Equity Capital 229 229 229 229 PBT 1,994 1,779 3,090 4,080
Op. Expenditure 30,554 36,401 42,294 47,949 Reserve 8,302 9,509 11,280 13,619 Depreciation 714 794 931 1,004
EBITDA 2,754 2,660 4,110 5,141 Networth 8,531 9,738 11,510 13,848 Others 108 87 89 57
Depreciation 714 794 931 1,004 Long Term Debt 6,356 5,600 5,050 3,500 Taxes Paid 467 369 1,020 1,346
EBIT 2,040 1,866 3,179 4,136 Def Tax Liability 492 492 492 492 Change in WC -1,782 161 -944 -1,126
Interest Expense 228 161 160 128 Minority Interest 0 0 0 0 Operating C/F 567 2,452 2,146 2,669
Other Income 182 74 71 72 Account Payables 1,015 1,121 1,478 1,680 Capex -1,706 -1,226 -1,021 -637
PBT 1,994 1,779 3,090 4,080 Other Curr Liabi 695 695 695 695 Change in Invest 440 0 0 0
Tax 408 369 1,020 1,346 Total Liabilities & Equity 17,088 17,645 19,223 20,214 Others 92 76 71 72
PAT bef. MI & Assoc. 1,586 1,409 2,070 2,733 Net Fixed Assets 6,071 8,090 8,179 7,812 Investing C/F -1,173 -1,150 -950 -565
Minority Interest 0 0 0 0 Capital WIP 1,587 0 0 0 Change in Debt 3,071 -756 -550 -1,550
Profit from Assoc. 0 0 0 0 Others 695 695 695 695 Change in Equity -2,266 0 0 0
Recurring PAT 1,586 1,409 2,070 2,733 Inventory 6,244 5,911 6,897 7,840 Others -214 -365 -459 -523
Extraordinaires 0 0 0 0 Account Receivables 2,078 2,354 2,670 3,055 Financing C/F 592 -1,121 -1,009 -2,073
Reported PAT 1,586 1,409 2,070 2,733 Other Current Assets 356 356 356 356 Net change in cash -14 181 187 30
FDEPS (Rs) 13.8 12.3 18.1 23.8 Cash 58 239 426 456 RoE (%) 18 % 15 % 19 % 22 %
DPS (Rs) 0.8 1.5 2.2 2.9 Total Assets 17,088 17,645 19,224 20,214 RoIC (%) 12 % 10 % 13 % 16 %
CEPS (Rs) 20.1 19.2 26.2 32.6 Non-cash Working Capital 6,968 6,807 7,751 8,876 Core RoIC (%) 12 % 10 % 13 % 16 %
FCFPS (Rs) -3.7 12.5 11.4 19.1 Cash Conv Cycle 76.4 63.6 61.0 61.0 Div Payout (%) 7% 14 % 14 % 14 %
BVPS (Rs) 74.4 84.9 100.4 120.8 WC Turnover 4.8 5.7 6.0 6.0 P/E 16.9 19.0 13.0 9.8
EBITDAM (%) 8% 7% 9% 10 % FA Turnover 4.3 4.8 5.7 6.8 P/B 3.1 2.8 2.3 1.9
PATM (%) 5% 4% 4% 5% Net D/E 0.7 0.6 0.4 0.2 P/FCFF -63.2 18.8 20.6 12.3
Tax Rate (%) 20 % 21 % 33 % 33 % Revenue/Capital Employed 2.3 2.5 2.8 3.0 EV/EBITDA 12.2 12.3 7.8 5.9
Sales Growth (%) 22 % 17 % 19 % 14 % Capital Employed/Equity 1.6 1.7 1.5 1.4 EV/Sales 1.0 0.8 0.7 0.6
FDEPS Growth (%) 58 % -11 % 47 % 32 % Dividend Yield (%) 0.3 % 0.6 % 0.9 % 1.2 %
TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE
800 EPS Growth 100% EBITDA Growth RoE
96000 50% 18x 1200 30%
25x 8x
80% 40% 15x
72000
20x 30% 800 20% 6x
60%
15x
20% 12x 4x
400 48000
10% 10x 400 10% 2x
40% 10x
24000 0% 1x
5x
20% 5x -10%
0 0%
0 -20%
Sep/11
Sep/12
Sep/13
Sep/15
Sep/17
Sep/18
Sep/14
Sep/16
Mar/13
Mar/14
Mar/15
Mar/16
Mar/17
Mar/18
Mar/19
Mar/12
Sep/10
Sep/11
Sep/12
Sep/13
Sep/14
Sep/15
Sep/16
Sep/17
Sep/18
Mar/11
Mar/12
Mar/13
Mar/15
Mar/16
Mar/17
Mar/18
Mar/19
Mar/14
0 0%
Sep/11
Sep/12
Sep/13
Sep/15
Sep/17
Sep/18
Sep/14
Sep/16
Mar/12
Mar/13
Mar/14
Mar/15
Mar/16
Mar/17
Mar/18
Mar/19
Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A
Revenue 30,918 25,313 27,365 33,308 Equity Capital 277 277 277 229 PBT 1,367 977 1,194 1,994
Op. Expenditure 28,971 23,668 25,512 30,554 Reserve 7,287 7,996 8,929 8,302 Depreciation 474 610 662 714
EBITDA 1,947 1,645 1,852 2,754 Networth 7,563 8,273 9,206 8,531 Others 90 93 -8 108
Depreciation 474 610 662 714 Long Term Debt 4,015 3,031 3,285 6,356 Taxes Paid 316 177 185 467
EBIT 1,473 1,035 1,191 2,040 Def Tax Liability 537 587 494 492 Change in WC -2,815 1,031 -290 -1,782
Interest Expense 207 150 99 228 Minority Interest 0 0 0 0 Operating C/F -1,200 2,534 1,374 567
Other Income 101 91 103 182 Account Payables 672 629 834 1,015 Capex -1,033 -1,234 -1,187 -1,706
PBT 1,367 977 1,194 1,994 Other Curr Liabi 329 325 351 695 Change in Invest 235 -84 -176 440
Tax 253 136 190 408 Total Liabilities & Equity 13,116 12,844 14,170 17,088 Others 65 23 39 92
PAT bef. MI & Assoc. 1,114 841 1,004 1,586 Net Fixed Assets 4,793 5,428 5,681 6,071 Investing C/F -733 -1,295 -1,324 -1,173
Minority Interest 0 0 0 0 Capital WIP 636 629 1,027 1,587 Change in Debt 2,183 -984 183 3,071
Profit from Assoc. 0 0 0 0 Others 801 778 658 695 Change in Equity 0 0 0 -2,266
Recurring PAT 1,114 841 1,004 1,586 Inventory 4,973 4,437 4,308 6,244 Others -311 -258 -210 -214
Extraordinaires 0 0 0 0 Account Receivables 1,496 1,081 1,737 2,078 Financing C/F 1,873 -1,242 -26 592
Reported PAT 1,114 841 1,004 1,586 Other Current Assets 345 322 362 356 Net change in cash -60 -3 23 -14
EPS (Rs) 9.7 7.3 8.8 13.8 Cash 71 170 397 58 RoE (%) 16 % 11 % 12 % 18 %
DPS (Rs) 0.7 0.8 0.8 0.8 Total Assets 13,115 12,844 14,170 17,088 RoIC (%) 12 % 8% 9% 12 %
CEPS (Rs) 11.5 10.5 12.0 20.1 Non-cash Working Capital 5,814 4,886 5,222 6,968 Core RoIC (%) 12 % 8% 8% 12 %
FCFPS (Rs) -12.8 9.9 1.0 -3.7 Cash Conv Cycle 68.6 70.5 69.7 76.4 Div Payout (%) 10 % 16 % 13 % 7%
BVPS (Rs) 54.7 59.8 66.5 74.4 WC Turnover 5.3 5.2 5.2 4.8 P/E 24.1 31.9 26.7 0.0
EBITDAM (%) 6% 6% 7% 8% FA Turnover 5.7 4.2 4.1 4.3 P/B 4.3 3.9 3.5 0.0
PATM (%) 4% 3% 4% 5% Net D/E 0.5 0.3 0.3 0.7 P/FCFF -18.3 23.7 244.4 -63.2
Tax Rate (%) 19 % 14 % 16 % 20 % Revenue/Capital Employed 2.9 2.1 2.2 2.3 EV/EBITDA 16.4 18.8 16.6 0.0
Sales growth (%) 3% -18 % 8% 22 % Capital Employed/Equity 1.5 1.5 1.4 1.6 EV/Sales 1.0 1.2 1.1 0.0
FDEPS growth (%) -1 % -25 % 19 % 58 % Dividend Yield (%) 0.3 % 0.4 % 0.3 % 0.3 %
Equirus Securities
Research Analysts Sector/Industry Email Equity Sales E-mail
Abhishek Shindadkar IT Services abhishek.shindadkar@equirus.com 91-22-43320643 VishadTurakhia vishad.turakhia@equirus.com 91-22-43320633
AshutoshTiwari Auto, Metals & Mining ashutosh@equirus.com 91-79-61909517 SubhamSinha subham.sinha@equirus.com 91-22-43320631
Depesh Kashyap Mid-Caps depesh.kashyap@equirus.com 91-79-61909528 SwetaSheth sweta.sheth@equirus.com 91-22-43320634
DevamModi Power & Infrastructure devam@equirus.com 91-79-61909516 Viral Desai viral.desai@equirus.com 91-22-43320635
DhavalDama FMCG, Mid-Caps dhaval.dama@equirus.com 91-79-61909518 Dealing Room E-mail
Manoj Gori Consumer Durables manoj.gori@equirus.com 91-79-61909523 Ashish Shah ashishshah@equirus.com 91-22-43320662
Maulik Patel Oil and Gas maulik@equirus.com 91-79-61909519 IleshSavla ilesh.savla@equirus.com 91-22-43320666
PrafulBohra Pharmaceuticals praful.bohra@equirus.com 91-79-61909532 Manoj Kejriwal manoj.kejriwal@equirus.com 91-22-43320663
Rohan Mandora Banking & Financial Services rohan.mandora@equirus.com 91-79-61909529 Dharmesh Mehta dharmesh.mehta@equirus.com 91-22-43320661
Associates E-mail SandipAmrutiya sandipamrutiya@equirus.com 91-22-43320660
Ankit Choudhary ankit.choudhary@equirus.com 91-79-61909533 Compliance Officer E-mail
Bharat Celly bharat.celly@equirus.com 91-79-61909524 Jay Soni jay.soni@equirus.com 91-79-61909561
Harshit Patel harshit.patel@equirus.com 91-79-61909522 Corporate Communications E-mail
Meet Chande meet.chande@equirus.com 91-79-61909513 MahdokhtBharda mahdokht.bharda@equirus.com 91-22-43320647
ParvaSoni parva.soni@equirus.com 91-79-61909521
Pranav Mehta pranav.mehta@equirus.com 91-79-61909514
RonakSoni Ronak.soni@equirus.com 91-79-61909525
Samkit Shah samkit.shah@equirus.com 91-79-61909520
ShreepalDoshi shreepal.doshi@equirus.com 91-79-61909541
VarunBaxi varun.baxi@equirus.com 91-79-61909595
Vikas Jain vikas.jain@equirus.com 91-79-61909531
Rating & Coverage Definitions: Registered Office:
Absolute Rating Equirus Securities Private Limited
• LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion andATR>= Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,
20% for rest of the companies N M Joshi Marg, Lower Parel,
• ADD: ATR >= 5% but less than Ke over investment horizon Mumbai-400013.
• REDUCE: ATR >= negative 10% but <5% over investment horizon Tel. No: +91 – (0)22 – 4332 0600
• SHORT: ATR < negative 10% over investment horizon Fax No:+91-(0)22 – 4332 0601
Relative Rating
• OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon
• BENCHMARK: likely to perform in line with the benchmark
• UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon
Investment Horizon
Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a Corporate Office:
calendar quarter. 3rd floor, House No. 9,
Lite vs. Regular Coverage vs. Spot Coverage Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,
We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we S.G. Highway Ahmedabad-380054
would have access to the company and we would maintain detailed financial model for Regular coverage companies. Gujarat
We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact Tel. No: +91 (0)79 - 6190 9550
the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for Fax No:+91 (0)79 – 6190 9560
one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot
coverage is meant to stimulate discussion rather than provide a research opinion.
January 8, 2018 Analysts: Depesh Kashyap, CFA (+91-7228934327)/ Harshit Patel (+91 9825406497) Page 39 of 41
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© 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not
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Analyst Certification
I, Depesh Kashyap/Harshit Patel, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their
securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures
Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the
Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock
Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers
Regulations, 1993 (Reg. No.INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP-324-2017). There are no disciplinary actions taken by any regulatory
authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to
merchant banking services, private equity, mergers & acquisitions and structured finance.
As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for
investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have
received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their
directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in
their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or
Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor
Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or
brokerage service transactions. ESPL has not been engaged in market making activity for the subject company.
The Research Analyst engaged in preparation of this Report:-
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Equirus Securities Initiating Coverage GAEX 08.01.2018-Gujarat Ambuja Exports

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Equirus Securities Initiating Coverage GAEX 08.01.2018-Gujarat Ambuja Exports

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Gujarat Ambuja Exports Ltd

An A’maize’ing story unfolds

Structural growth levers in place - Initiate with LONG .......................................... 7

Company Snapshot Key downside risks:

How we differ from Consensus a) Volatility in corn and soya prices.

Comparable valuation EPS P/E BPS P/B RoE Div Yield

Maize Segment Revenue (Rs. Mn) Maize Revenue Growth (%)

2018: New maize processing plant at

2007: Major debottlenecking at

Source: Company, Equirus Securities

Exhibit 2: Well diversified Product portfolio

Maize or corn starch is a typical cereal starch with

Liquid glucose (sweetose) is a clear, colorless, viscous

High Maltose High-maltose corn syrup is a food additive used as a

Anhydrous Dextrose, a high purity product with moisture

In sections below, we discuss all business segments in detail.

U.S. corn crop (mn bushels) Wet milling share (%)

Source: USDA, Equirus Securities

Industry 13,000 14,220 Other important players

FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17

ROE (%) 11% 12% 18% 0% -6% 12% 11% 8%

ROIC (%) 8% 9% 12% 0% 0% 10% 9% 7%

Industry is dominated by 5-6 bigger players which form 60-70%

Bargaining Power of Suppliers - Low

Most of the procurement happens from APMC

Threat of New Entrants - LOW

Source: Equirus Securities

Maize prices yoy(%) Maize EBITDA margins(%) (RHS)

0 0% Maize prices ( Rs/ quintal) YoY (%) ( RHS)

Source: Company, Equirus Securities 150

Source: Company, Equirus Securities Revenue(Rs mn) growth ( YoY %) ( RHS)

EBITDA margins ( Cotton) 3% 0%

0% Source: Company, Equirus Securities

-5% -3.1% -3.9%

Source: Company, Equirus Securities

Exhibit 40: Increasing contribution of maize to improve overall profitability

Source: Company, Equirus Securities

Funds deployed on capacity expansion, debt repayment and purchase of long-term

Net capex, 28%

Interest received, Purchase of

Source: Company, Equirus Securities

Exhibit 47: …leading to improving return ratios

Valuation and risks Investment risks

Exhibit 49: Relative Valuation vs. Indian and Global Peers

Company name Currency Price M Cap (mn) P/E EV/EBITDA EV/Sales

Corporate governance Annexure 1: Maize industry overview

Source: USDA, NCoMM India, Equirus Securities

Others, 10% Argentina, 18% Production (MMT) Yield (Kg/ha) - RHS

Cotton Yarn Power

Source: Company, Equirus Securities

Source: Directorate of Economics & Statistics, DAC&FW, Equirus Securities

Key milestones Key Management Profile

Consolidated Quarterly Earnings Forecast and Key Drivers

Historical Consolidated Financials

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