Ion Exchange (India) Ltd again came out with spectacular results. And this time it was coupled with healthy margin in the engineering business. On a year on year basis, the revenue grew by 54%, EBITDA by 110%, PBT by 153% and PAT by 232%, and too be honest that is immense. But whenever we buy any stock, we pay for the future expected performance of any company. I will try to explain what the future holds for ION Exchange (India) Ltd in the blog ” Ion Exchange (India) Ltd- Q3FY20 Analysis “.
To make more sense of the current blog, I would request you to read 2 of my previous blogs on Ion Exchange Ltd.
Ion Exchange (India) Ltd- Q3FY20 Analysis
Ion Exchange (India) Ltd- Segmental Update
Engineering segment:
The engineering segment saw almost doubling of revenue YoY(Year on Year) and the EBIT margin was at an best of 7.8%.
As of now Ion Exchange in the process of executing 2 large orders (Srilankan + Vedanta) which has driven the growth of the engineering segment and overall revenue in the recent past.
As of 31st December 2019, the total order book for this segment remained at {₹766cr + ₹600cr(Srilankan Order)}= ₹1366 cr which is quite healthy. Co expects to execute further 200 cr of Srilankan order in Q4. The company won orders worth of ₹155 crore during the quarter.
Chemical segment:
The chemical business is the most consistent one with robust demand and a very healthy margin. For the quarter the EBIT stood at 14.4% and has not been able to grow much due to lack of additional capacity. Currently it is running at more than 90% capacity utilization. To keep up with the demand they have been adding modular capex of 40-50 crore to increase the current capacity by small amounts and have plans for a much larger greenfield project(nothing concrete yet).
Chemical segment which contributed less than half of the engineering segment has EBIT almost equal to the engineering segment.
Consumer segment:
The B2C consumer water purifier business(ZeroB brand) continues to struggle with no turnaround visible in the near term. Consumer business is incurring losses on a regular basis.
Ion Exchange (India) Ltd- Q3FY20 Analysis
Ion Exchange (India) Ltd- Segmental Performance
Ion Exchange (India) Ltd- Segmental Performance Q3FY20
Ion Exchange (India) Ltd- Q3FY20 Analysis
Ion Exchange (India) Ltd- Q3FY20 Financial Analysis
Ion Exchange (India) Ltd- Q3FY20 Financial Analysis
On a year on year basis the Gross Margin declined due to larger amount of revenue coming from the lower margin accretive engineering segment but improved on a quarter on quarter basis due to some improvement in the engineering segment performance. Hence, was a good solid 1.8% improvement in EBITDA margin on QoQ.
The subsidiaries of the company continue to make losses and hence the consolidated EBIT is less then Standalone numbers.
Ion Exchange (India) Ltd- Q3FY20 Analysis
Since, Last 8-9 months I have been tracking the company, it has not won any new big orders. The company has bid for ₹5000 cr worth of larger project and expect to win 20% but no idea or timeline given by the company when that will that happen. As of now the performance is driven with the 2 large projects won by them in the recent past years.
ION Exchange India Ltd is also present in waste water treatment for municipal corporation and Zero Liquid Discharge(ZLD) for manufacturing plants. They are not much interested in the municipal projects due to unfavorable working terms. Whereas zero liquid discharge offers much larger opportunity but again companies will typically go for ZLD only if they are expanding their existing capacities or setting up new capacities. For that to happen the demand needs to pick up in India and that again depends on the economic growth.
According to the management, they are witnessing immense opportunities for resins(chemical business) in the export market but have not been able to cater to the demand. Here the quality of management plays a part, they should have pushed for speedy expansion and while trying to make the most of the opportunity. My bet would have been on expanding this segment fast as engineering segment is more of a EPC business where the company needs to keep trying to win new bids & hence the lower margins.
With the current order book, there is a clear visibility of decent numbers in atleast the next 2 quarters. But now the quarterly or yearly comparison will be on a much higher base which will be very difficult to beat.
Further reading:
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