Eastern

EasternFinanciers Ltd.
Financiers Ltd.
Ion Exchange(India)Ltd
SENSEX: 33,777 December 20, 2017

Ion Exchange(India)Ltd Company Background

INDUSTRY Engineering Ion Exchange (India) Ltd (IEL) pioneered water treatment in India and
No. of Shares (Crs) 1.47 is today theincountry's
(Fig Crores) premier company in water and environment
Face value 10.00 management, with a strong international presence. Formed in 1964,
Mkt. Cap (Rs. Crore) 869.22 as a subsidiary of the Permutit Company of UK, it became a wholly
Price (20/12/2017) 592.65 Indian company in 1985 when Permutit divested their holding. It
Book Value (Rs) 191.36 currently has multi-disciplinary teams of highly experienced
P/BV 3.10 manpower supported by a widespread infrastructure in India and
EV(Rs. Crore) 797.43
abroad. The Company is also in the business activities of Chemicals,
BSE Code 500214
Engineering and Consumer Products.
NSE Code IONEXCHANG
Bloomberg ION IN Highlights
Reuters IONX.BO  During 2014-17 IEL won a few low margin orders as demand in the
52 W H/L (Rs.)(BSE) 638.00/276.00 water treatment industry was muted. These projects are expected to
be completed by end of FY18. In FY16 the company won a water
Shareholding Pattern (%) as on 30th Sept 2017 treatment project in Sri Lanka worth Rs.1200 cr. The Sri Lankan
Promoters 44.04 project is expected to contribute to ~25% of consolidated revenue
MF/Banks/FIs 3.58
over the next couple of years. The designs approved & revenue
FII/FPI 0.26
booking started we expect revenue ramp up soon.
Individual 43.09
Others 9.03  Other water engineering companies maintain EBIDTA margins of
Total 100.00 11-13%. Given the lack of scale & dependency on sub-contracting
we expect IEL to maintain margins between 8-9%.
Recommendation BUY  About 2/3rd of revenues come from India while the balance is
700 overseas revenues. This could increase marginally with the SLC
600 order execution. Subsidiary performance has been subdued but we
500
expect things to improve gradually from here.
400
 Both the Engineering & Chemicals segments have short to negative
300
200 working capital cycles. The Company receives advances from
customers for projects. We expect the negative working capital cycle
to continue.
Standalone Quarterly Results:  Q2FY18 standalone sales were marginally higher at Rs.217.1 cr
DESCRIPTION Q2FY18 Q2FY17 Var % though operating margins were a hugh disappointment at 5.0% due
Net Sales 217.1 210.5 3.1% to higher raw material & employee costs due to ramp up of new
Other Income 9.1 4.3 111.1% facilities.Net profit was lower 10.3% at Rs.7.9 cr.
Operating Profit 10.9 14.6 (25.5%)  Water management projects are expected to increase manifold over
Net Profit 7.9 8.8 (10.3%) the next few years in India & we expect IEL to be a major beneficiary.
EPS (Rs.) 6.6 7.4 (10.6%) We value IEL at 15X FY19E EPS & recommend a BUY with a target
OPM % 5.0% 6.9% (192bps) price of Rs.716/sh.
NPM % 3.6% 4.2% (55bps)

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Eastern
EasternFinanciers Ltd.
Financiers Ltd.
Ion Exchange(India)Ltd
SENSEX: 33,777 December 20, 2017

 The Engineering Segment is likely to grow at over 20% over the next few years due to increased order execution of
Sri Lanka order and higher government allocation & increased focus towards AMRUT, Namani Ganga and coupled
with fast changing regulatory landscape across geographies focused on water treatment industry. We expect the
water treatment industry to grow many-fold & IEL is expected to benefit from it. IEL in October 2017 commissioned
an Integrated Automated Reverse Osmosis Membrane plant in Goa. The Engineering segment contributes to about
60% of consolidated revenues.

 Chemicals segment which contribute to about 30% of consolidated revenues grew at ~8% as against market growth
of ~6% over the last few years due to product diversification & entry into new geographies. With WHO-GMP
approvals in place to start the pharma-raisins plant (USFDA approved) in addition to higher utilization of the old
plant will help the segment to grow at double digits over the next couple of years. IEL has a wide range of chemicals
& raisins products which contribute equally to the segment. Being one of the first entrants IEL is a market leader in
water treatment chemicals in India with ~20% market share. Water treatment chemicals are used in boiler and
cooling water treatment , ion exchange resins are used in softening and demineralization in water treatment and
other specialty chemicals that includes performance chemicals in paper, sugar, refinery and pharmaceutical
industries enables it to enjoy rich profitability in this segment.

 Under its consumer products business, IEL provides a one stop water treatment solution at a residential and
community level under its Zero B Brand that comprises 10% of its revenue. The company is the pioneer of
revolutionary RO technology in India. IEL executes small & medium sized water/waste water management projects
for power, steel & refinery plants. The Company also manufacturers membrane & engineering accessories to EPC,
Engineering companies & pre-engineered standard plants for pharma, Chemical, sugar, cement & textiles players.
IEL also takes up annual maintenance contracts, Operation & maintenance contacts for mid sized projects which not
only allows a steady income but also customer stickiness.

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Eastern
EasternFinanciers Ltd.
Financiers Ltd.
Ion Exchange(India)Ltd
SENSEX: 33,777 December 20, 2017

Income Statement Analysis (Consolidated)

Rs. in cr FY2015 FY2016 FY2017 FY2018E FY2019E

Net Sales 800.5 871.1 1024.1 1200.0 1500.0
Consumption of Raw Materials 522.8 564.2 662.8 775.0 970.0
% of Net Sales 65.3% 64.8% 64.7% 64.6% 64.7%
Staff Cost 97.5 110.2 121.7 140.0 165.0
% of Net Sales 12.2% 12.6% 11.9% 11.7% 11.0%
Power & Fuel 12.1 13.4 13.3 15.0 18.0
% of Net Sales 1.5% 1.5% 1.3% 1.3% 1.2%
Other Expenditure 116.5 124.4 143.3 170.0 205.0
% of Net Sales 14.6% 14.3% 14.0% 14.2% 13.7%
Operating Profit 51.5 58.8 82.9 100.0 142.0
Other Income 4.4 6.5 5.8 6.0 8.0
Operating Profit incl Ot Inc 56.0 65.4 88.6 106.0 150.0
Depreciation & Amortization 12.1 12.6 13.3 15.0 18.0
PBIT 43.8 52.8 75.3 91.0 132.0
Interest 20.0 18.1 21.6 19.0 20.0
PBT 23.8 34.6 53.7 72.0 112.0
Current Tax 12.4 17.7 25.1 33.0 45.0
Net Profit 11.4 16.9 28.7 39.0 67.0
Minority Interest (1.6) (1.7) (0.9) 0.0 1.0
Share of Associate 0.0 0.1 0.6 1.0 2.0
Consolidated Net Profit 9.8 15.3 28.3 40.0 70.0
Cash Profit 21.9 27.9 41.7 55.0 88.0
Equity shares (cr) 1.47 1.47 1.47 1.47 1.47
FD EPS (Rs.) 6.7 10.4 19.3 27.3 47.7
FD CEPS (Rs.) 14.9 19.0 28.4 37.5 60.0
Dividend per share (Rs.) 3.0 3.0 3.5 4.0 4.5
OPM 6.44% 6.75% 8.09% 8.33% 9.47%
NPM 1.43% 1.94% 2.80% 3.25% 4.47%

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Eastern
EasternFinanciers Ltd.
Financiers Ltd.
Ion Exchange(India)Ltd
SENSEX: 33,777 December 20, 2017

Balance Sheet Analysis(Consolidated)

Rs. in cr FY2015 FY2016 FY2017 FY2018E FY2019E

Equity Share Capital 14.1 14.1 14.2 14.2 14.2
Share Warrants o/s 1.6 1.5 0.0 0.0 0.0
Reserves & Surplus 140.4 154.5 183.7 216.8 279.1
Minority Interest 8.5 6.2 6.3 6.3 7.3
Deferred Tax Liability 3.9 3.6 3.3 4.0 5.0
Tong term Loans 20.2 23.0 29.9 30.0 30.0
Other Long Term Liabilities 7.9 8.9 9.2 10.0 12.0
Long Term Provisions 14.8 16.8 15.2 18.0 20.0
Total Liabilities 211.3 228.7 261.8 299.4 367.7
Net Block 84.5 102.9 112.1 142.1 154.1
Capital Work in Progress 14.4 2.1 33.2 5.0 5.0
Intangible assets under development - - - - -
Non-current Investment 2.4 2.4 2.9 3.0 3.0
Long Term Loans & Advances 73.7 80.6 71.6 70.0 75.0
Other Non-current Assets 0.1 0.0 0.3 1.0 1.0
Current Assets
Current Investments - - - - -
Inventories 79.3 81.3 110.9 125.0 145.0
Sundry Debtors 358.2 363.0 440.5 480.0 530.0
Cash and Bank Balance 26.2 33.4 166.9 51.3 94.5
Short Term Loans and Advances 34.4 40.9 49.3 50.0 50.0
Other Current Assets 6.0 8.5 15.8 20.0 25.0
504.2 527.3 783.5 726.3 844.5
Less: Current Liab. & Prov.
Short Term Borrowings 56.7 56.7 60.8 65.0 65.0
Trade Payables 316.2 331.4 396.0 450.0 500.0
Other Current Liabilities 78.2 78.1 265.0 113.0 130.0
Short Term Provisions 16.9 20.4 20.1 20.0 20.0
468.1 486.6 741.8 648.0 715.0
Net Current Assets 36.1 40.6 41.7 78.3 129.5
Miscellaneous Expenses not w/o - - - - -
Total Assets 211.3 228.7 261.8 299.4 367.6
Net Worth 163.0 174.9 204.2 237.4 300.7
Capital Employed 196.9 226.6 228.6 294.4 362.6
RoNW 7.10% 10.01% 15.12% 17.66% 24.91%
RoCE 22.65% 24.91% 33.09% 34.80% 40.18%
Book Value (Rs.) 111.1 119.2 139.3 161.9 205.0

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Eastern
EasternFinanciers Ltd.
Financiers Ltd.
Ion Exchange(India)Ltd
SENSEX: 33,777 December 20, 2017

EASTERN FINANCIERS RESEARCH DESK

Sabyasachi Paul 033 – 4000 6823 sabyasachi@easternfin.com

Disclaimer
Eastern Financiers Limited (hereinafter referred to as ‘EFL’) is a Member registered with SEBI having membership of NSE, BSE, CSE, MCX-SX. It is also
registered as a Depository Participant with NSDL. It is also having AMFI certificate for Mutual Fund Distribution. The associates of EFL are engaged in
activities relating to Commodities Broking and Insurance Broking. No disciplinary action has been taken against EFL by any of the regulatory authorities.
EFL/its associates/research analysts do not have any financial interest/beneficial interest of more than one percent/material conflict of interest in the subject
company(s). EFL/its associates/research analysts have not received any compensation from the subject company(s) during the past twelve months. EFL/its
research analysts has not served as an officer, director or employee of company covered by analysts and has not been engaged in market making activity of
the company covered by analysts. This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any
investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such
investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document
(including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Reports based on
technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing
on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed
on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or
complete and it should not be relied on as such, as this document is for general guidance only. EFL or any of its affiliates/group companies shall not be in
any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. EFL has not
independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty,
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discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so.This document is being supplied to you
solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Neither, EFL, nor
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proprietary trading and investing businesses may make investment decisions that may be inconsistent with the recommendations expressed herein. If you
have any questions about this report please get in touch with Eastern Financiers Ltd. 102, 104 & 210 ‘Lords’
7/1, Lord Sinha Road, Kolkata : 700 071, Phone - 033-4000 6800, Email: research@easternfin.com Website: www.easternfin.com