Gulshan Polyols Ltd.

Industry and Growth Drivers

The chemical industry in India has a positive outlook ahead with India being the
third largest producer of chemicals in Asia and sixth largest in the world
supplying a diversified range of products. The Make in India program of the
government of India has also put emphasis on investment in the chemical sector
and liberalized it by allowing 100% FDI under the automatic route and inviting
foreign funding in the industry. Apart from this there are various incentives
provided by government to chemical manufacturers like reduction in the custom
duty on import of certain raw components required in manufacturing, incentives
for R&D, tax reductions etc. All of this signifies government support towards the
growth of the sector and a positive investor sentiment.
Being among the established traditional sectors, the contribution of the industry
in nations economy and industrial growth is also significant, with the industry
contributing 2.11% towards Indias GDP and a weightage of about 13% in the
Index of Industrial Production (IIP). As per a Tata group report titled 'Spurting the
Growth of the Indian Chemical Industry', Indian chemical industry is expected to
touch $ 190 billion in size by FY 2017-18.
The output provided by this industry not only contributes to the industrial sector
but also in agricultural development by serving the needs of textiles, paper,
leather, food products etc.
Other growth drivers for the industry include expectations of improved domestic
demand because of the large population and its dependence on agriculture along
with the rise in GDP and purchasing power. Low cost manufacturing, skilled
professionals, strong engineering and R&D capabilities etc. are certain other
factors contributing towards the growth of the industry.
Company Strengths
Gulshan Group was established in 1981 with the primary intention of
manufacturing Calcium Carbonate. The company later diversified and Gulshan
Polyols Limited was formed in the year 2000 to serve a diverse range of
industries manufacturing products such as sweetners, alcohol, paints,
toothpastes etc. to an impressive base of clients which include ColgatePalmolive, Asian Paints, Hindustan Unilever etc. The products offered by the
company vary from Sorbitol to Calcium Carbonate, IMFL to Agro based animal
feeds.
The ISO 9001:2000 certified company has six manufacturing facilities across five
states in India along with a distribution network spread across the planet. Initially
being involved in the sugar business, the group has diversified into Industrial
chemicals mainly producing Sorbitol and Calcium Carbonate. The company is the
largest manufacturer of Sorbitol in India and produces multiple grades of Calcium
Carbonate to meet the requirements of various industries as mentioned above.

The company has been reporting an almost steady growth in Revenues and
bottom line over the year. With the growth of consumer industry, there is a scope
of further improvement in business and margins of the company. Dividends have
also been steadily provided to the investors over the years and at times to even
50% of the face value and 35% of the face value for FY 15.
Financial performance of the firm has also been commendable over the years.
The FY 15 Annual Report shows that the Net Revenue grew 23.6% on account of
increased exports and commencement of a grain processing division at
Muzaffarnagar plant which shows the optimistic outlook of the management in
operations. Cash flows also showed a positive growth by about 54%.
The confidence of institutional investors in Gulshan Polyols was also evident with
Reliance Small and Mid Cap funds buying 6.7% of companys stock during March
2015 resulting to the surging of the company stock by 20%.
Certain other developments in the past year include the commencement of IMFL
under the brand of Tiger Gold, obtaining environmental clearances from Ministry
of Environment and Forest for an alcohol producing plant in MP, setting up for
Precipitated Calcium Carbonate plant for supply of paper at multiple locations
across the country, commissioning of plant and equipment for enhanced
production capacity for its Sorbitol manufacturing plant in Gujarat etc. All of
these signifying the optimistic outlook towards the future of the company and
creating a strong case for positive investor outlook about the company.
Financial Analysis and Peer Comparison

Source: Moneycontrol.com
Looking at the above technical data of the stock price of Gulshan Polyols Limited,
we can see that the stock price has been rising over the past one year,
specifically after February 14, 2015 when it announced its stellar results for Q3,
FY 15. The stock rally continued with Reliance Mid and Small Cap fund buying
6.7% stake in the company. This continued till June 2015 when the company
announced its results for the Q4, FY 15 which were below the expectations. This
downturn continued as a whole for the markets for a while because of global

factors such as Chinas stock market crash, Yuan devaluation and the economic
condition of Greece, thus affecting the stock of the company.
Key Valuation Ratios
Ratio/Year
FY 15
EPS
27.76
D/E ratio
0.43
Dividend
Per 3.5
Share
Source: Moneycontrol.com

FY 14
30.97
0.52
2.5

FY 13
27.43
0.29
2.5

The above table shows some key financial ratios for the firm.
The Earnings per Share ratio of the firm has increased from FY 13 to FY 14 but
then decreased for FY 15 as the company issued 435,000 equity shares during
the year to Antara India Evergreen Fund Ltd.
The Debt/Equity ratio first shows a significant increase from FY 13 to FY 14
verifying the fact that company raised significant capital through debt in FY 14 to
fund its operations; the ratio comes down marginally in FY 15 as the operations
stabilize.
The company has also been steadily providing dividends to the shareholders,
which is another indicator of the healthy operations of the firm.
Considering the latest data in the P/E ratio of the company, it stands at 11.22
which when compared to the past performance of the firm; it is close to the
highest ever ratio recorded at 12.56. This indicates that investors are
anticipating higher growth in the future which seems justified looking at the
recent performance of the stock and the operations of the firm. If we break down
the P/E ratio and individually verify the Price and the Earnings per share, we see
that both are on the rise which is a good sign and when looked at in conjunction
with the companys performance on the ground, this doesnt signify that the firm
is over-valued.
Future Outlook and Conclusion
The way the company is performing on the ground as discussed above, the
outlook of the company seems bright. During the past year, the company
expanded its plant and manufacturing facilities, explored export markets and
achieved substantial business. The present strong investment climate and
support by the government also allay the concerns of a downturn in the
business.
The growth in the consumer industry is also a positive sign for Sorbitol and
Calcium Carbonate Industry and the company can expect robust growth and
good demand from various quarters resulting into a scope of a better future for
the company.

However certain external factors in the domestic and global economy can dent
the positive outlook. With growth slowing down in major economies of the world,
the exports of the company can be affected. Chinas slowing growth is another
cause of concern which could bring down the optimism of the global economy.
Domestically the lethargy in reforms implementation by the present government
due to stalling of the parliament by the opposition can be a factor which will
affect the markets.
Considering all the factors discussed above, the recommendation is to BUY in
the above outlook for medium to long term investment.