BASF India Ltd. | Q3FY15 Result Update | Poor set of performance: Maintain NEUTRAL: IndiaNivesh

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Valuation
At CMP of Rs.1366, the stock is trading at EV/EBITDA multiple of 39.0x FY15E, 22.6x
FY16E and 14.9x FY17E estimates. The parents focus to double Asia’s revenue in
seven year could lead to aggressive expansion in India. Additionally, introduction
of low carbon construction solution, advanced pharmaceutical products,
environment friendly coatings and solutions for intensive agriculture should
facilitate revenue growth. However, the key concern for BASF India is declining
margins and instability in quarterly performances. We maintain NEUTRAL stance
on BASF (PT of Rs.779 is already achieved).

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BASF India Ltd (BASF) Q3FY15 result was significantly below our estimate on all
front. The company’s revenue stood at Rs.9.77bn (v/s INSPL est. of Rs.11.8bn). The
below expectation revenue performance was due to de-growth in Performance
Products and Agricultural Solutions segment (together contributed 50.4% of the
revenue), partially offset by growth in other key segment.
Segment Analysis (Rs. Mn) Q3FY14 Q1FY15 Q2FY15 Q3FY15 QoQ% YoY %
Performance Products 4,455 4,586 4,263 4056 -4.9 -9.0
As % of Sales 47.6% 31.7% 35.3% 41.5%
Functional Material & Solutions 3,853 4,988 4,785 4413 -7.8 14.6
As % of Sales 41.2% 34.5% 39.6% 45.1%
Agricultural Solutions 893 4,547 2,616 875 -66.6 -2.0
As % of Sales 9.5% 31.4% 21.6% 8.9%
Chemicals 158 166 190 249 30.8 57.1
As % of Sales 1.7% 1.1% 1.6% 2.5%
Others 102 190 229 183 -20.0 79.3
As % of Sales 1.1% 1.3% 1.9% 1.9%
Total 9,359 14,476 12,083 9,776 -19.1 4.4
Source: Company Filings; IndiaNivesh Research
EBITDA during the quarter de-grew by 66.2% Y/Y to Rs.81 mn. The significant miss at
overall EBITDA level was due to severe underperformance in Chemicals,
Performance Products, Functional, and Others segments. During the quarter, total
expenses (as % of revenue) went up 170 bps to 99.2% (v/s 97.5% in Q3FY14). The
culprit for higher operating expenditure (as % of Revenue) was (1) rise in purchases
of stock-in-trade, (2) increase in employee expenditure, (3) increase in other
expenditure, and (4) rise in material cost.
Income Statement
(Rs. M n) Q3FY14 Q1FY15 Q2FY15 Q3FY15 QoQ% YoY %
Expenditure
Cost of Materials Consumed 3,092 6,707 5,584 4,250 -23.9 37.5
Purchases of Stock in Trade 2,415 3,788 3,161 3,133 -0.9 29.7
Changes in inv of FG/WIP/ST 1,195 390 128 -471 -468.5 -139.4
Employee Benefit Expenses 812 859 891 839 -5.8 3.3
Other Expenses 1,710 1,819 1,927 1,945 0.9 13.7
Total Expenses 9,223 13,562 11,690 9,695 -17.1 5.1
As % of Rev 97.5% 93.7% 96.8% 99.2%
FY14 FY15
Source: Company Filings; IndiaNivesh Research
Depreciation during the quarter went up 122.4% Y/Y to Rs.381 mn (v/s Rs.172 mn in
Q3FY14) due to commencement of Dahej plant (3 plants commenced operation).
Profit before tax, interest, un-allocable & exceptional items (PBTIUE) reported loss
of Rs 145 mn [v/s Rs 168 mn of profit in Q3FY14]. The key reason for loss was
higher losses in Functional Material & Solutions and Chemical segments.
Additionally, profitability in Performance Products, Agricultural Solutions, and
others also worsened. In our view, lower economies of scale in Dahej plant, rise in
fixed expenditure (depreciation and interest expenditure) and larger revenue from
low margin trading business led to significant deterioration in PBTIUE.


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