ION EXCHANGE

 Market Cap: 886 Cr.

 Current Price: 603.30
 52 weeks High / Low 794.00 / 335.00
 Book Value: 197.73
 Stock P/E: 13.11
 Dividend Yield: 0.63 %
 ROCE: 31.04 %
 ROE: 25.12 %

 Return on capital employed: 31.04 %

 Sales growth 3Years: 10.22 %
 Profit growth 3Years: 62.40 %
 Promoter holding: 44.04 %
 Pledged percentage: 0.00 %
 Debt to equity: 0.38
 Price to Sales: 0.81
 Price to Free Cash Flow: 10.97
 Price to Cash Flow: 8.33
 Price to book value: 3.63
 Return on assets: 16.63 %
 Interest Coverage Ratio: 5.77
 NPM last year: 5.61 %
 Debtor days: 133.21
 Inventory turnover ratio: 10.07
 Cash Conversion Cycle: 26.92
 Days Inventory Outstanding: 40.00
 Days Payable Outstanding: 146.29
 NPM latest quarter: 4.27 %
 Change in promoter holding 3Years: 0.00 %
 Sales growth 10Years: 8.96 %
 CROIC: 33.00 %
 Profit growth 10Years: 43.95 %
 Profit growth 5Years: 70.38 %
 Trade receivables: 424.17 Cr.

BUSINESS
Ion Exchange (India) Ltd (Ion Exchange), formed in 1964, is a pioneer in water, waste water
treatment & environment solutions and caters to various industries, homes & communities.
Headquartered in Mumbai, the company has six manufacturing & assembly facilities across
India, and one each in Bangladesh and UAE. It also has presence across other key geographies.

The company offers a wide range of solutions across the water cycle from pre-treatment to
process water treatment, waste water treatment, recycle, zero liquid discharge, sewage
treatment, packaged drinking water, sea water desalination etc. The company is also engaged
in manufacturing ion exchange resins, speciality chemicals for water and waste water
treatment as well as no water applications. The company has a global presence apart from
presence in major cities in India with sales & service centers and dealer network of more than
100. The company exports to Africa, Japan, Middle East, Russia, South East Asia, Europe, UK,
USA, Canada and neighboring countries.

It has two facilities for in-house R&D and two applications and testing centers. The company
has over 50 patents to their credit and 100+ products commercialized.

• Engineering (56%) – Provides comprehensive and integrated services and solutions in water &
waste water treatment including Sea Water desalination, Recycle and Zero liquid discharge
plants to diverse industries.
 • Chemicals (35%) - Provides a comprehensive range of resins, speciality chemicals and
customized chemical treatment programmes for water, non-water and specialty applications.

• Consumer Products (9%) – Caters to individuals, hotels, spas, educational institutions,

hospitals, laboratories, railway and defence establishments providing safe drinking water and a
clean environment.
ENGINEERING
The Company designs, engineers, manufactures and sells medium and large size equipment for
water and waste water treatment plants including recycling & Zero liquid discharge plants.

Extensive technologies, process design & detailed engineering experience and project
management capabilities are integrated into advanced solutions for industrial and municipal
applications. These are offered as standard and pre-engineered plants as well as customized,
design & build projects undertaken on turnkey, BOOT or EPC basis.

It caters to diverse industries like Petrochemical & Refinery, Power, Steel, Auto, Sugar,
Electronics, Pharma, Pulp & Paper, Textile, Cement, F&B etc.
INDUSTRY OVERVIEW

The domestic industrial sector is expected to grow at a CAGR of 5-7% while waste water
management is projected to grow at a CAGR of 8-10% through 2015-2020.

Water demand in the country is expected to grow at 21% CAGR over 2015-2020. A study by the
Central Pollution Control Board (CPCB) has revealed that almost 62,000 MLD of sewage is
generated across urban India and there are just 816 STP installed that treat 23,277 MLD or
37.5% of sewage per day.

In India only 60% of industrial waste water is treated. Around 40% of the STP’s do not conform
to the environment protection standards.

GOI has made a historical step by instituting a new Ministry for Water .Among their first announcements
is a budget of a whooping Rs. 6,30,000 Crores to be spent over several years for water management in
India. The Missions titled ‘Nal se Jal’ and ‘Jal Jivan’ offer almost 50% of the budget towards water
treatment and EPC projects, around Rs. 3,15,000 Crore.

CHEMICALS
The company is engaged in manufacturing water treatment chemicals, ion exchange resins and
other specialty chemicals. Water treatment chemicals are used in boiler, cooling water
treatment, coagulation and flocculation, membrane cleaning etc. Package treatment
programmes are tailor made to suit customer needs.
Ion exchange resins are used for softening, demineralization in water treatment. They are also
used in various non-water separation across many verticals such as pharmaceuticals,
biotechnology, food and beverages etc.

Specialty Chemicals include performance chemicals used in processing of Paper, Sugar, Pharma
and Refinery segment.

The Company has a range of products covering the complete spectrum of customer needs in
various sectors like refineries, steel, power, textile, chemical etc. which includes:

• Water Treatment Chemicals

• Coagulants and Flocculants

• RO and Thermal desalination Chemicals

• Fuel & Fireside additives

• Process Chemicals – Sugar, Paper, Ceramics, Refinery and Mining application

• Water quality testing kits

RESINS

 Complete range of cation and anion resins for water and waste water treatment,
purification of bio-diesel, sugar, food and beverages & host of speciality applications –
pharmaceutical excipients , catalysts, nuclear grade resins, brine softening, heavy metal
removal and adsorbent grade resins.
 Resins for removal of colour, odour, organics, nitrate, iron, fluoride, arsenic and tannin
 Tailor-made resins developed to suit specific applications which has over 30 patents to
their credit, over ten of these on ion exchange resin products and processes.

INDUSTRY OVERVIEW

The market for water and water treatment chemicals in India is expected to expand leaps and
bounds due to the focus on optimum utilization of water resources. In 2016, global demand for
water treatment chemicals totalled $25.4 billion which is forecast to rise 5.3% per year to $32.9
billion in 2021.
Segments using water treatment chemicals constitute approximately 18% of the water
consumption in India and is bound to grow further with the governments increased focus on
water treatment. Global ion exchange resins market is expected to reach USD 2.26 Bn by 2026.

Increased investments by the Government, industry and rapid urbanization will lead to greater
demand for water treatment infrastructure. Chemicals business is expected to grow at an
average rate of around 13-15% with a healthy bottomline.

CONSUMER PRODUCTS
The company’s water and environment management solutions extend beyond the industrial
sector to homes, hotels, spas, educational institutions, hospitals, laboratories, realty sector and
defence establishments providing safe drinking water and a clean environment. It focuses on
household and point of use water purifiers and plans to increase its presence in the rural
drinking water treatment.

Apart from systems for specific medical, laboratory and hospital water applications, typical
requirements include:

• Water for drinking and use in kitchens and canteens

• Softened water for bathing and laundry

• Management of heating and cooling water circuits with speciality chemical treatment
programmes

• Swimming pool water filtration and disinfection

INDIA WATER NEEDS

India is one of the largest consumers of freshwater in the world today, accounting for about
750 billion cubic meters annually. For a country which accounts for only 4 per cent of the
world’s water resources despite hosting 17 per cent of the world’s population, the water crisis
is looming large. The Central Pollution Control Board (CPCB) estimates that by 2030, India’s
water demand is expected to rise to 1.5 trillion cubic meters. This poses an urgent need as well
as opportunity to use alternate sources of water.

Wastewater market in India is projected to grow at a CAGR of over 12% during 2016-2021
driven by curbs on increasing water pollution, rapid urbanization and implementation of
stringent regulations. Demand for tertiary wastewater treatment plants in India is also surging
on account of rising industrialization and development of residential sector that require good
quality of water in large quantities. Strict directives issued by Central Pollution Control Board
(CPCB) regarding proper disposal and reuse of sewage, necessitating construction of new
sewage treatment and recycle plants in the country

(According to a study by the federal government think tank NITI Aayog, 21 Indian cities will run out of groundwater by
next year, including the capital New Delhi and the information technology hub of Bengaluru. Two hundred thousand
Indians already die every year because they don’t have a safe water supply, the report said. A shocking 600 million
people face “high to extreme” water stress)
FINANCIAL OVERVIEW

Particular Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19

Sales 857 793 800 871 1008 1045 1162
EBITDA 52 36 51 58 72 80 108
PAT 14 4.5 9.79 15.2 30.4 40.2 64.8
CFO 31 5.2 45.3 49 176 86 126
Cash Cycle 13 17.9 20.5 16.2 17.3 30.8 24.3
ROCE 20% 12.50% 17.8% 21% 27% 27.4% 33.3%
ROE 10.3% 3.2% 7.4% 10.4% 17.2% 21.7% 28%

10 year Sales CAGR 9.96%

10yr PAT CAGR 45%

Cash and Bank Balance 290 Cr

Advance from Customer 288 Cr

FY 19 Snapshot
SHAREHOLDING

KEY SHAREHOLDERS

RELIANCE CAPITAL TRUSTEE CO LTD-A/C RELIANCE CAPITAL

1 666763 6,66,763 4.55
BUILDER FUND 4 SR C
RAKESH JHUNJHUNWALA 1 577500 5,77,500 3.94

MUKUL MAHAVIR PRASAD AGRAWAL 1 225176 2,25,176 1.54

JHUNJHUNWALA RAKESH RADHESHYAM 1 197500 1,97,500 1.35

MANAGEMENT TEAM

KEY RISKS AND MITIGATION

- Since debtor days are high company has to continue being aggressive in collections and
manage its cash conversion cycle . Any slip ups in the cycle could make situation difficult for the
company

- Order Book - Company has 6000 cr of enquiries and expects to win 15-20% of those which
would turn into a very healthy number along with the already existing orders

- Susceptibility to Economic Cycle - The past govt have not taken water on priority but this govt
has started many projects and is seriously recognizing the water problem .

OUTLOOK : Stock is attractively priced and with acute water shortage the order book
should swell up in the near future . Ion is the most efficient listed player in this sector which
has grown well last decade and kept its balance sheet in check . Expect the company to do
well for next few years .

BY RACHIT PANDEY