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Initiating coverage

(Wholly owned subsidiary of Bank of Baroda) BUY

Sector: Specialty Chemical
Vikas EcoTech Ltd. (VEL)
15th September, 2016
Road to a ‘GREENER’ tomorrow; initiate with BUY
Price Price Target Up/Down (%)
VEL has an experience of over 15 years in the chemical industry and is an
Rs. 12.7 Rs. 31 145
emerging player in the global arena of the high end Specialty Polymer
Compounds and Additives. VEL is the only Indian company that manufactures
Organotins (Tin based heat stabilizer for PVC) which is lead free and non-toxic. Bloomberg Code Reuters Code
The company has evolved from trading company to a manufacturing VKEC IN VKGL.NS
organization. The increasing awareness about lead poisoning which has led the
companies and countries preferring eco-friendly and non-toxic substitutes, will Share Holding (%) As on 30th June, 2016
boost the topline for a company like VEL. We believe that such factors coupled Promoters 46.01
with the capacity expansion plans of VEL would further drive the stock upside. FII 0.0
Strengthening manufacturing business: With a focused strategy, VEL has DIIs 0.19
transformed from trading business to manufacturing business (trading contributed 64%
in FY13 to 20% in FY16). In FY16, specialty compounds/specialty additives/ trading Stock Data
contributed 59%22%/20% of total revenue. Going forward, VEL has planned capacity Nifty 8,743
expansion in its Specialty compounds and Organotins segment. We expect, revenue Sensex 28,413
contribution in specialty compounds/specialty additives/ trading at 48%/43%/10%
52 week high/low 25.4/10.85
respectively by FY18e. This change in contribution will also help in expanding EBITDA
margins which are expected to expand by ~207 bps over FY16-18e. Maket Cap (Rs. bn) 3.2
Face value 1
Only manufacturer of Organotins - An eco-friendly heat stabiliser: Organotins is
a US FDA approved eco- friendly heat stabilizer; a substitute for health hazardous lead Price performance (%) 1M 3M 6M 1Y
based stabilizer. This stabilizer is mainly used as a heat stabilizer in PVC pipes. Various Absolute -1.2 -6.6 -14.2 -9.3
studies across globe has proven that lead based stabilizer are toxic, therefore, many
Relative to Sensex -2.1 -12.9 -29.9 -19.8
developed countries like Europe and USA have banned them. By looking at the ill
effects on the human body, plastic/pvc processors are shifting to the eco-friendly Relative Performance
Organotins. Indian stabilizer market is of ~60,000MTPA where at present Organotins
markets stands for 6,000MTPA. This shows broader scope for Organotins market 170
growth in India. VEL is the only manufacturer of Organotins in India. Considering the 150
growth prospects, VEL has planned capacity expansion from current 1,800 MTPA to 130
3,000MTPA in FY17 and additional 6,000 MTPA in FY18. We expect, Organotins 110
revenue to grow at a CAGR of 105% over FY18e. 90
70
Growth in Specialty compounds: Polymer and Polymer Rubber compounds are 50
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used in various industries like rubber (footwear industry) and plastic industry (pipe
industry), PVC, wire and cable industry. PVC / TPR-TPE/CPE compounds are
expected to grow at 15-20% CAGR for next 5years. VEL manufactures large range of Nifty Vikas EcoTech Ltd.
polymer and Polymer Rubber compounds. Polymer compounds require constant
Source:-Bloomberg
upgradation in the products and manufacturing technology, which is possible for VEL
with it’s in- house R&D facility. The company has a current capacity of 20,000MTPA
and achieved capacity utilization of 74% in FY16. VEL has planned to increase the
capacity to 31,000MTPA by FY18e. We expect the compounds business to grow at a
CAGR of 27% over FY16-18e.
Valuation: We believe that VEL is uniquely positioned in compound and additives
business with its integrated R&D. We further believe that, increasing demand for toxin
free stabilizers, growth in PVC industry, opportunities in export markets and capacity
expansion will create enormous opportunities for VEL’s revenue/ earning to grow at a
CAGR of 41%/49% over FY16-18e. Historically, VEL traded at an average one year
forward PE multiple of 14x. At the CMP of Rs.12.7, the stock is trading at 8.9x FY17e
and 5.7x FY18e earnings. We are initiating coverage on the stock with a BUY rating
and a target price of Rs.31 an upside of 145%.

Exhibit 1: Financial summary (Rs mn)
Year end: March FY14 F Y15 FY16 FY17e FY18e FY19e
Net sales 2500 2110 3072 3901 6102 7888
Growth (%) -0.9 -15.6 45.6 27.0 56.4 29.3
Operating margin (%) 5.3 7.9 15.9 17.7 18.0 18.4
PAT 37 38 255 363 566 779
Adjusted PAT 36 38 254 363 566 779
EPS (Rs) 0.4 0.1 1.0 1.4 2.2 3.1
Growth (%) -1.5 4.7 570.2 42.9 56.2 37.5
P/E(x) 35.6 85.0 12.7 8.9 5.7 4.1
ROE (%) 9.1 8.9 46.3 43.5 44.6 41.0
ROCE (%) 10.6 9.4 24.5 24.7 27.0 26.2
Source: Company, BOBCAPSe

Vaishali Parkar Kumar | vaishali.parkar@bobcaps.in | +91 22 6138 9382

the total demand for PVC in the country grew at a CAGR of ~8. Globally.7%.5%. the Indian PVC demand is expected to be driven primarily by the Agriculture. Thereafter. the main driver for PVC consumption has been infrastructure (Ex: Pipes & Fittings) which now has a share of to over 70% from 14% in 1975. In spite of strong economic growth.0 6.8kg per capita in the US and 10.6% between 2016 and 2021The global consumption of PVC in 2014 was estimated at 40 million tons. India India is estimated to still has a long way to go to realize its infrastructural needs – nearly US$ 650 billion will be required grow at 15% over next for urban infrastructure in the next twenty years. The PVC industry in The PVC industry in India is valued at over Rs.0 0.0 4.0 10. | 15 September 2016 Industry Outlook The Indian Poly Vinyl Chloride (PVC) industry The PVC industry in India has historically been driven by agriculture till 2000. growing at a CAGR of 5. During the same period domestic production capacity grew at a CAGR of ~4.06 billion in 2015 and is expected to reach USD 78. Exhibit 2: PVC value chain Source: Company.3 kg per capita in China. Pipes & Fittings account for ~43% of the PVC consumption. BOBCAPS The global demand for PVC Market was valued at USD 57. The | Equity research | 2 .0 Quantity (kg per person) 12. For the period between 2002 and 2015.90 billion in 2021. BOBCAPS Going forward.0 2. pharmaceutical and retail segments. India has huge growth prospects as the per capita consumption in India of 2kg is low compared to 11. 200bn. Infrastructure.0 8. With the increasing GDP growth and implementation of new age material the PVC future is bright in India. This provides great opportunity for investment and hence for PVC products that are used in these sectors. Also.0 India Brazil Malaysia Thailand China USA Source: Company.6 % whereas imports grew at a CAGR of ~32. Exhibit 3: Per capita consumption of Suspension PVC 14. the construction sector contributes to 10% few years of the GDP. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. Housing and other sectors like FMCG.

With environment-friendly and non-toxic stabilizer alternatives. it presents a huge opportunity to tap.based substitute for lead stabilizers primarily used in rigid PVC applications for food and water contact. safe and eco-friendly • Sanctioned by most international legislations for potable water pipes and fittings • Extensive global approvals for food contact applications with equal or improved strength (efficacy) • Approval in all European countries and USA for potable water pipes | Equity research | 3 . Today. the phase out is driven by the Comprehensive Chemicals Regulation (REACH). registering 57. However. PVC Stabilizer Industry: Role of Stabilizers  Achieve an optimum balance of ecological and economical benefits  Enable custom properties in end products  Enable use in product engineering PVC stabilizer market  Enhance the key properties of plastics is estimated to be worth USD 3. moving towards a lead-free world is becoming an increasingly imperative need. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. Advantages of Organotins stabilizers • Lead-free. With the global manufacturing base moving to Asia and a special focus on China and India.1% share in 2014. Organotins . The global PVC pipe manufacturing industry has shown courage and acted responsibly in phasing out lead based stabilizers and plasticisers in Europe.8 billion by 2020. Stabilizers are added based stabilizer to PVC compounds as critical ingredients to maintain the properties of the end product throughout its life cycle. Europe and Asia use of lead-based stabilizers in PVC pipe manufacturing has been voluntarily ceased or mandatorily banned by the end of 2015. lead-based stabilizers are being phased out worldwide in a planned manner. | 15 September 2016 estimated annual growth for PVC is expected to be at least 13% in the next five years. these markets are expected to register significant growth. non-toxic. The harmful effects of lead have been medically proven. US and some nations like Australia and South Korea. few Indian PVC pipe manufacturers have resolved to shift to toxin- free stabilizers in their manufacturing. Globally. the PVC stabilizer market is estimated to be worth USD 3.8 billion  Ensure efficient processing without sacrificing physical properties by 2020  Provide higher performance in the intended function  Be thermodynamically constrained from free migration to the surface Across the progressive nations of US. Hence. irrigation or cooking. The Asia-Pacific market is the largest.A safe and eco-friendly alternative Organotins is a better Organotins stabilizers scientifically known as MTM (Methyl Tin Mercaptide) are tin (Sn) . India currently does not have any industry volunteerism or government regulation to ban lead based stabilizers in PVC pipes. with demand expected to cross 5 million tons in 2020. This is especially critical in pipes used for carrying water for drinking. In Europe.

plumbing and sanitation are being banned or voluntarily discontinued. With the National Green Tribunal giving a notice to major PVC pipe manufacturers and the Government of India. agriculture & infrastructure pipes. While the Indian market size is 6 KTPA. Indian manufacturers who are looking at exports or supplying to MNC clients have to adhere to lead-free stabilizer norms of EU. As most of the end products have significant human contact. | 15 September 2016 Industries switching to Organotins stabilizers Organotins stabilizers are being increasingly adopted by industries such as medical devices. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. being lead-free is a key requirement that is driving demand. Opportunity in Indian PVC pipe manufacturing Lead-based stabilizers in PVC pipes used for water. They are FDA-approved PVC additives and comply with the regulatory health standards of the most advanced nations.000MTPA. Consumer awareness for greener and safer products is creating demand for Organotins stabilizers in food-grade applications. Thus. Organotins stabilizers are the only safe and eco-friendly heat stabilizers that can be used for transparent and food-grade PVC applications. the global market is about 140 KTPA. medical components and the packaging industry. America and other progressive nations. BOBCAPS | Equity research | 4 . more and more players especially in the organized and premium product offerings space are shifting to green and environment-friendly stabilizers. Organotins stabilizers are suitable for critical applications. Out of Asia-Pacific market which Organotins share (2014) market is 57% ~6. eco-friendly stabilizers like tin-based stabilizers will become the industry’s preferred choice.000MTPA Rest of the world 43% Source: Company. Exhibit 4: PVC Stabilizer market Current stabilizer market in India ~60.

SOE. with focused strategy. with the expansion plans in specialty compounds and specialty additives the company will focus on manufacturing products in these two segments. 4) capability to produce through recycling.  We expect. 5) increasing exports opportunities Exhibit 5: Changing revenue contribution trend to ensure better margins Revenue contribution trend EBITDA Margin trend 100% 80% 1.2% to 15. BOBCAPs Growth prospects in specialty Additives (Organotins) Huge scope for Organotins are lead free additive and a substitute for lead based additives which goes into the growth in Organotins manufacturing of PVC pipes. PVC. 3) increasing demand in the overall specialty chemical segment and 4) capacity expansions in Specialty Compounds and Organotins Stabilizers for supporting volume growth due to various triggers Focus on manufacturing to drive operational efficiency Trading reduced from  VEL is mainly into manufacturing of specialty compounds (TPR. and it is the only Indian Organotins which are lead free and non.friendly includes Organotins and lead based stabilizers.000MTPA is a market of stabilizer Organotins. We expect. we expect VEL to improve EBITDA margin by ~207bps to 18% led by 1) new capacity addition in additives segment. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd.800 20% 1. TPE. 2) Focus on increasing exports to provide higher realizations. respectively. huge scope for Organotins in coming years.200 Rs. | Equity research | 5 . company that manufactures Methyl Tin Mercaptide (MTM) also known as Organotins (heat toxic stabilizer) which are lead free and non-toxic. out of which ~6. Plasticizer.500 60% 15% 1. 3) achieving very low wastage. 2) breakthrough and streamlined production in few products with the help of R&D. Going FY16-18e forward. This as eco. led by 1) rising demand for PVC piping through various Government initiatives.9% over FY13 to FY16 led by increasing EBITDA margins over manufacturing activity and increasing share of specialty compounds and additives. VEL’s forte is in manufactures the manufacturing of Specialty Polymer Compounds and Additives. BOBCAPs Source: Company. PET.000MTPA.ESBO and in FY16 Flame Retardants . 0% FY13 FY14 FY15 FY16 FY17e FY18e FY19e FY14 FY15 FY16 FY17e FY18e FY19e Speciality Compounds Speciality Additives EBITDA EBITDA margin % Trading & Other Source: Company. EVA.MTM. has an experience of over 15 years in the chemical industry and is an company that emerging player in the global arena of high end specialty chemical players. ~207bps expansion in  VEL has improved EBITDA margin from 4. We believe. In FY13 the share of specialty compounds/ specialty additives/ trading was 25%/11%/64%.ATH which mainly goes into PVC manufacturing) along with trading. 64% in FY13 to 20% and recycled compounds) and specialty additives (Organotins . the company has increased its capacity in specialty compounds /additives and worked towards reducing share of trading business. which has changed to 58% /22% /20% respectively in FY16. the revenue contribution from specialty compounds/additives/trading would be 48% /43% /10% by FY18e which will be margin lucrative. At present. the company’s revenue/earnings will grow at a CAGR of ~41%/49% over FY16-18e. | 15 September 2016 Investment rationale VEL is the only Indian Vikas EcoTech Ltd. With the increasing awareness one can expect. Mn 40% 900 10% 20% 600 5% 300 0% . Over a period of time. the total additives market in India is ~60. going forward.

Adding to this advantage is the clients’ shifting preference to VEL’s products from Chinese products led by quality issues and USA products led by higher landing cost. PVC. which is expected to grow at 15% CAGR for next 5years. BOBCAPS Scope in Polymer Compounds In-house R&D a key Polymer compounds are used in various industries like rubber (footwear industry) and plastic catalyst in polymer industry (pipe industry).000MTPA by FY18e as well as increasing demand.000MTPA Organotins market the company had ~10% market share in FY16 and sold ~600MTPA of Organotins in India. Capacity expansion of VEL has current capacity of 1. The company has current capacity of 20. This helps the company to diversify its product concentration. VEL has grown at a CAGR of 42% over FY13-FY16. Mn 2. which is possible for VEL with its’ in. We expect. | 15 September 2016 VEL is the only manufacturer of Organotins in India with an in house R&D facility. VEL manufactures large range of polymer compounds which go into different industries. Polymer compounds require continuous developments in the products. Exhibit 6: Organotins stabilizer to grow at a CAGR of 105% over FY16-18e 4. 2) lower base and increasing new capacity 3) Governments’ eco-friendly initiatives in many countries banning lead based stabilizers which may be implemented in India too in the near future.300 150% Rs. wire and cable industry.TIN Growth (%) Source: Company.100 200% 3. BOBCAPs | Equity research | 6 .000MTPA to meet the future by FY18e.700 900 20% 100 0% FY14 FY15 FY16 FY17e FY18e FY19e Speciality Compounds Growth % Source: Company. Organotins sales to grow at a CAGR 105% by FY18e led by 1) Increasing demand awareness about lead poisoning and thus higher demand for lead / heavy metal free stabilizers. VEL has planned to increase the capacity to 31. We expect. with the increasing use of different polymer compounds and increasing production capacity assisted with constant upgradation through R&D.100 80% 3. Out of 6.800MTPA and with the growing awareness for lead free stabilizers 9.400KTPA/9KTPA/27KTPA. PVC compounds/ TPR-TPE/CPE market in compounds India is ~1.000MTPA and working at 74% capacity utilization.300 60% Rs. the company's polymer compound segment will be able to grow at 27%.000MTPA by FY18e. The company sees huge growth opportunities in this segment as it has direct competition only from Chinese and USA players (domestically no one has fully integrated technology).700 50% 900 0% 100 -50% FY14 FY15 FY16 FY17e FY18e FY19e Organotins .500 100% 1. Mn 2.house R&D. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd.500 40% 1. the company has planned to increase the capacity to 9. Exhibit 7: Specialty compounds to grow at a CAGR of 27% over FY16-18e 4.

000MTPA to 31. RPET (PET Reclaimed Bottles or Films) and off grades (batches which lack on meeting specs of virgin materials on any one of the key parameters) and reprocesses the same achieving the targeted specifications on the final product. has been able to transform itself to make recycling its specialty through in- machinery and strong house R&D. (Looking at continually increasing demand for its products).000MTPA by FY18e. The company foresees recycling to be a very attractive business as there is an increase in awareness on plastic and rubber recycling. The company has existing plants in capex planned till Rajasthan & J&K. revenue/earnings to grow at a CAGR of 41%/49% over FY16-18e. technical knowhow the specialized machinery and strong technical knowhow has opened up new opportunities in has enabled VEL to convert non-prime raw recycling business. VEL has already acquired land in Dahej (Gujarat) and construction work has started. 450 mn Organotins. If the Company is able to use for example 15% to 25% recycled raw material (replacing virgin materials) in making of a compound. In such conditions. a boost to topline and exports In the last two years Vikas EcoTech’s manufacturing volume has seen a growth rate of over 40% YoY. We expect. This will not only create goodwill for the company. With this initiative.000MTPA by FY18e and specialty compounds capacity from current 20. reduction in material cost Going forward. going forward. Considering better volume growth. VEL has planned capacity expansions in More than Rs. VEL Recycling to enhance already has a grip on the usage of such materials and should be in a better position than its margins on account of competitors in many ways (commercial & technical). We believe. but also improve its EBITDA margins by 207 bps over FY16-FY18e (on conservative basis). Capacity expansion. we believe. The margin improvement is a direct result of recycling as the recycled or non-prime materials generally cost less than the virgin materials. VEL has capex plan of ~ 450mn till FY18e. this new plant will also provide a significant boost to the Company’s exports through a better and faster access to ports. Apart from serving the domestic markets. but also helps other organizations to dispose their waste in a responsible manner material standards and in the process VEL is able to improve its margins. The new directives pouring in on mandatory recycling by all the plastic/pvc processors would contribute more to the same. VEL expects to increase its Organotins capacity from current 1. the Company not only contributes towards environmental materials to virgin preservation. Its forte through access to appropriate supply chain for ample & consistent supplies. VEL’s focus on recycling of non-prime materials and converting them to a compound that is as good as virgin raw materials due to its specialized machinery and strong technical expertise. VEL uses industrial and consumer wasted RPVC (Rigid PVC) pipes. they can save on raw material costs and thereby add to the overall margins of the company. The company expect to start trial production by January 2017 for Organotins and specialty compounds in Dahej plant.800MTPA to 9. Purpose of the Dahej plant is to predominantly cater the markets in western and southern India. | Equity research | 7 . specialty compounds and recycled compounds. increasing capacity will add to the growth in revenue/earning. | 15 September 2016 Transforming waste into profits through recycling Specialized Vikas EcoTech Ltd. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. FY18e to give revenue visibility For expansion purpose.

000 Capacity Dahej .000 Polymer Rubber Compounds Opening Capacity 10. In India. | 15 September 2016 Exhibit 8: Capacity Expansion Plan MTPA FY16 FY17e FY18e Organotins Stabilizers Opening Capacity 1.000 Plasticizers Opening Capacity 2.800 1.800 20. the use of lead can cause lead poisoning when in direct human contact.600 . the long term effects of which are tragic (adverse impact on multiple organs).800 Source: Company.800 1.000 on better serving domestic and export Capacity Dahej . - clientele Total Capacity 10.000 Addition (North) 4. Lead holds the longest history an adverse long term as a stabilizer for PVC as 1) it is a cost effective form of stabilizer.000 Addition (North) 600 . - Dahej plant to focus Closing Capacity (North) 10. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd.000 Total Capacity 1. | Equity research | 8 . 2) it has excellent stabilizing impact on the human effects.000 Recycled Compounds Opening Capacity 5.000 3.000 10.400 10.000 Flame Retardants Opening Capacity 1.000 3.000 10. .000 26.000 Capacity Dahej . - Closing Capacity (North) 1.200 1. 5.000 Total Capacity 20. - Closing Capacity (North) 3. Conversely. - Total Capacity 1.000 31. . and 3) it is used for PVC products with long service life and is required to endure long body fabrication (heating) hours.000 3.000 10.000 26.000 Capacity Dahej . .400 3.000 Addition (North) 600 1.800 Addition (North) 600 .000 26.000 Addition (North) 9. - Total Capacity 3.800 3.200 6. It could even be coming out of the tap water being carried by PVC pipes.800 1.000 3.000 10.800 1.000 3. 6.000 3. .000 10. .000 - Closing Capacity (North) 20.800 3.000 26.000 9. BOBCAPS “Lead” it go PVC is a volatile material and needs to be supported with a heat stabilizer which prevents it from Lead poisoning have degradation when subjected to high temperatures while processing.800 Capacity Dahej .800 3.800 1.200 - Closing Capacity (North) 1. this poison could be ubiquitous in modern day life and go unnoticed.200 1.

of smart cities have been distributed among the states and initiatives UT (United Territories) ~Rs 1000bn of Government/ULB funds will be available for ‘Smart Cities’ development. non-toxic and eco-friendly. 24x7 electricity supply and access. can generate huge opportunities globally. 31% of samples have failed to adhere to WHO standards of lead content of less than 10 ppb. Various Government initiatives have been announced which would create huge opportunities for the piping industry. we expect Organotins revenue to grow at ~96% CAGR over FY16-18e. tests were ordered on a dozen samples of Nestle’s Maggie Noodles. companies are shifting towards substitute stabilizers. while another 2% of the samples failed to meet even the comparatively lenient Indian norms of 50 parts per billion (ppb). Noodle controversy  Considering the adversity of lead poisoning on health and environment. toilet facilities.  Organotins Stabilizers are tin based stabilizers primarily used in rigid PVC application for food and water contact. Pradhan Mantri Awas Yojana – “Housing for All (Urban) by 2022” Under this scheme the Govt.FY20) in the purview of expected to increase increasing urbanization (urban areas are expected to house 40% of India’s population and on account of various contribute 75% of India’s GDP by 2030). (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. a company like Vikas EcoTech Ltd. of India intends to develop 100 smart cites in five years (FY16. A major impact on demand growth of pipes can be seen as a result of the following initiatives: A 100 Smart Cities over 5 years Plastic pipes demand The Govt. Thus. improving the quality of life and attracting people and Government infrastructure investments to the City. the adaptation of modern is a perfect substitute practices (like drip irrigation systems) have been a key contributor to the rising demand for PVC. Going ahead. will play a major role in its revenue growth. The total no. this makes us believe that VEL’s Organotins Stabilizer. sanitation and waste water management.2 parts per million) were found. the lead based stabilizers are being phased out worldwide in a planned manner. there is a rapid shift seen in the preference of PVC over the conventional metal piping systems to. In the agri space. It is lead-free. a key contributor to revenue growth VEL’s eco-friendly The Indian piping industry (largely comprising of PVC) is on a growth path with increasing demand and non-toxic in water distribution.  Today. On account of increased awareness of lead poisoning and the emergence of eco-friendly & non- toxic stabilizer alternatives. being a perfect substitute of lead. which is sanctioned by most international regulatory authorities (including USFDA & EFSA) for portable pipes & fittings. Also. various nations are trying to eliminate the use of lead based stabilizers. where spotlight due to the high levels of lead (17. of India in planning to construct 2 crore houses for the weaker sections of the society. This discovery of lead presence in such recent Nestle Maggie high levels has brought lead poisoning to the limelight. The Pradhan Mantri Awas Yojna (PMAY) is amongst the flagship programs of the Government of India to tackle the problems of growing urbanization by providing ‘Pucca house’ with water connection. Nestle’s Maggie Downfall – A “Lead” Story Lead poisoning in the  In the year 2015. of lead stabilizers Also. 33% of over 370 samples of water from the top 26 cities in India have tested positive for harmful content of lead. Such a huge investment in next five years will provide growth opportunities for many industries including piping as one of the core infrastructure elements in a Smart City is adequate water supply. largely due to increasing Organotins Stabilizer infrastructure development in tier-II and tier-III cities. Out of these. wastewater management and plumbing. | 15 September 2016 Facts about Lead content in India According to the investigations by the Quality Council of India. | Equity research | 9 . Rising polymer compound and Organotins demand.

improve public transportation. which in rural areas shall mean improving the levels of cleanliness through Solid and Liquid Waste Management activities.96 tn that will include construction of 12 crore toilets across the country. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. | 15 September 2016 We believe that this initiative of “Housing for all”. since. We expect that going forward exports markets would contribute significantly to the revenue along with the growing domestic markets.. Government of India’s thrust for creating a “Swachh Bharat” will generate huge opportunities for the PVC piping industry. the Swachh Bharat Mission (Gramin) for rural areas and the Swachh Bharat Mission (Urban) for cities. with the purpose of providing basic services to household and build amenities in cities which will improve the quality of life for all. The total outlay for AMRUT is Rs. develop underground sewerage system. The overall project cost. Global presence VEL exports to more than 20 countries which contributed to ~48% of VEL’s overall revenue (Rs. 1. It is our belief that the growth of plastic piping industry would in-turn propel sales for a company like Vikas EcoTech Ltd. a step towards clean and hygienic India This initiative has two sub-missions. septage management. The mission aims to achieve “Swachh” India by 2019. VEL is also targeting to tap USA markets and is in the process of getting regulatory approvals. making Gram Panchayats free of Open Defecation. The Swachh Bharat Mission. would create ample opportunity for the Indian piping industry. has been estimated at Rs 1. safe handling of drinking water. construct storm water drains. in order to curb the shortage of housing along with the lack of water management systems. 500bn for five years from FY16 to FY20. 760mn in FY15). manufacturers of agriculture and infrastructure PVC pipes and fittings are amongst VEL’s key customers. | Equity research | 10 . Atal Mission for Rejuvenation and Urban Transformation The Atal Mission for Rejuvenation and Urban Transformation (AMRUT) scheme was launched by the Government of India on 25th June 2015. Five hundred cities will be taken up under the AMRUT scheme to improve existing water supply systems. Above factors will lead to growth in the Company’s revenue at a CAGR of ~41% over FY16-18e. etc.49 bn in FY16 vs ~Rs. for both rural and urban India. especially the poor and the underprivileged. We believe.

Any volatility in these raw material may hurt the EBITDA margins of the company for short term as the volatility in commodity prices get passed on with a lag period Currency Risk: VEL derives ~48% of the total revenue from exports. Volatility in commodity prices: VEL mainly works in polymer (linked to crude prices) for its compound business and in Tin for its Organotins business. Therefore. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. exports revenue accounted to ~48% of the total revenue. | 15 September 2016 Key risk Delay in capacity expansion: As the company has planned to invest for huge capacity expansion. However. In FY16. However. However. going forward. Pradhan Mantri Awas Yojana. the company is well diversified in terms of country concentration. any delay in the regulatory/environmental approvals may affect the sales growth of the company Delay in government flagship programmes: Government programmes like Smart Cities. any sudden fluctuations in the currency. Swachh Bharat and AMRUT would be a strong boost to the plastic piping industry in India. Country Risk: VEL exports to ~20 countries. VEL enjoys natural hedge on currency. Also the company imports ~70-80% of raw material which is billed in USD. any delay in execution of such projects could hurt the demand in India. Any changes in the exports policy or economic/ geopolitical tension arising in any country may impact the sales for VEL. may impact the company’s margins temporarily. | Equity research | 11 .

Packaging. BOBCAPSe | Equity research | 12 . Moreover. would further drive the stock upside. Historically. is engaged in the business of manufacturing and distribution of eco-friendly Specialty Polymer Compounds and Additives. Wires & Cables. At the CMP of Rs. 1 year forward PE 80 60 Current PE = 6x (x) 40 5 yr mean = 14x 20 0 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Sep-11 May-12 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 May-13 May-14 May-15 May-16 PE(x) Avg Source: Company.7. Electrical Goods. Exhibit 9: Vikas EcoTech ltd. VEL has emerged as a manufacturing company from trading company where its trading has reduced from 64% in FY13 to ~20%in FY16. will boost the topline for a company like VEL. the increasing awareness about lead poisoning which has led the companies and countries preferring eco-friendly and non-toxic substitutes. etc. Pradhan Mantri Awas Yojana. a lead free heat stabilizer used in the production of PVC.7x FY18e earnings. We reckon that growth in plastic piping industry (majorly PVC) is on cards due to the potential Government initiatives (like 100 Smart Cities.2. Textiles. revenue/earnings to grow at a CAGR of 41%/49% over FY16-18e. Writing instruments. Auto Parts. We further believe. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. | 15 September 2016 Valuation: Vikas EcoTech Ltd. the stock as traded at an average one year forward PE multiple of 14x. 12.9x FY17e and 5. Medical Goods. arriving at a target price of Rs. Footwear.) which is a strong push towards infrastructure development. 31 with a potential upside of 145%. the stock is trading at 8. The company manufactures high end products used in Agriculture/Infrastructure Components. We are initiating coverage on the stock with a BUY rating and assign 14x PE to FY18e EPS of Rs 2. among others. Organic & Inorganic chemicals. We expect. such factors coupled with the capacity expansion plans of Vikas EcoTech Ltd. It is the only Indian manufacturer of Methyl Tin Mercaptide (Organotins Stabilizer).

going forward VEL has planned to keep its trading revenue at current levels (with efficient raw material hedging policy) while focusing more on manufacturing. | 15 September 2016 Financial Summary Top line to grow at ~41%CAGR over FY16-18e VEL’s revenue grew at a CAGR of 17% over FY12-FY16.000 80% 6. other factors like various Government infrastructure push (Smart Cities. etc. BOBCAPSe | Equity research | 13 . Housing for all. Sitarganj (Uttarakhand) and Bawana (Delhi) which helped to consolidate its manufacturing activity at its main plant in Shahjahanpur (Rajasthan). Mn 900 10% 600 5% 300 . Exhibit 10: VEL likely to post ~41% revenue CAGR over FY16-18e 8.3% in FY12 to 15. Exhibit 11: EBITDA margin expansion by ~207 bps over FY16-18e 1. AMRUT. We expect. the company has forayed into manufacturing from trading.) and better realization due to focus on increasing exports would augur well for the company. 2) Automation in existing plant. -20% FY14 FY15 FY16 FY17e FY18e FY19e Net sales Growth (%) Source: Company.9% in FY16 mainly due to focus on manufacturing. Also. BOBCAPSe EBITDA margin to grow by ~207 bps over FY16-FY18e EBITDA margins of the company have improved from 7.. 3) Capacity expansion in FY16 which helped in expanding EBITDA margins. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. 4) focus on exports (higher margin contribution). Also. Mn 40% 4. and recycling them. In these years.000 20% 2.000 60% Rs. VEL’s EBITDA margins to expand by ~207 bps over FY16-FY18e to 18% mainly due to 1) increasing demand for Organotins and supporting technical expertise of VEL for the same 2) VEL being the only manufacturer of Organotins in India. VEL is currently focusing on Organotins and polymer compounds.500 15% 1.200 Rs. VEL has taken various initiatives in these years to expand its EBITDA margins like 1) Shutting down two plants viz. 0% FY14 FY15 FY16 FY17e FY18e FY19e EBITDA EBITDA margin % Source: Company. We expect that with the awareness in the society for non-toxic products and VEL’s expansion plans would be able to grow at a CAGR of 41% over FY16-18e. which are cheaper than virgin materials. 3) increasing use of non-prime raw materials.000 0% .800 20% 1.

BOBCAPSe Optimal returns despite the multifold capacity expansion With the increasing operational efficiency (revenue/earnings to grow at a CAGR of 41%/49% over FY16-18e) VEL would able to finance its expansion mainly through internal accruals. This will help the company to improve its return ratios in future.5 1. However.6% and ~24. we expect ROE and ROCE to the tune of ~43.0 Rs.0 0. BOBCAPSe | Equity research | 14 .0 2. Mn 600 6% 400 4% 200 2% 0 0% FY14 FY15 FY16 FY17e FY18e FY19e PAT PAT margin% Source: Company. | 15 September 2016 Exhibit 12: PAT to grow at ~49% CAGR over FY16-18e 1000 12% 800 10% 8% Rs.5 2. 1. BOBCAPSe Exhibit 14: High growth in EPS over FY16-18e 3. respectively. in short term perspective.7%/27% over FY17/18e.5%/44. Exhibit 13: Marginal reduction in ROE & ROCE 50 40 30 % 20 10 0 FY14 FY15 FY16 FY17e FY18e FY19e ROE ROCE Source: Company. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd.0 FY14 FY15 FY16 FY17e FY18e FY19e Source: Company.5 0.

020 1.5 Source: Company. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd.200 Tax 11 24 137 196 306 421 Minority interest 1 . . .500 2.888 growth (%) (0.199 1.545 2.003 1.120 1.761 2.4 29.5) 4.102 7.615 1.6) 45.760 2.029 1. | 15 September 2016 Exhibit 15: Income statement Y/E Mar (Rsmn) FY14 FY15 FY16 FY17e FY18e FY19e Net sales 2.026 Source: Company. .901 6.014 Shareholders' funds 420 433 662 1.808 Staff Cost 38 37 33 46 79 102 R&D Cost .473 2. . .003 1.9) (15. - SG&A Cost 130 146 177 229 382 526 EBITDA 133 166 490 691 1. . - Adjusted PAT 36 38 254 363 566 779 growth (%) (1.099 1.539 Other non-current liabilities 3 0 .2 42.473 2.040 1. BOBCAPSe Exhibit 16: Balance sheet Y/E Mar (Rsmn) FY14 F Y15 FY16 FY17e FY18e FY19e Cash & Bank balances 5 8 44 168 246 393 Other Current assets 1.935 4.541 1. .026 Current liabilities 447 378 703 732 1.6 27.7 570. .759 Share capital 102 254 254 254 254 254 Reserves & surplus 319 179 408 749 1. . BOBCAPSe | Equity research | 15 .372 2.951 2.081 5.343 Other income 28 37 48 41 44 48 Interest paid 92 107 113 128 192 191 Extraordinary/Exceptional .950 1.277 2. (2) . .536 2.110 3.958 3. - PAT 37 38 255 363 566 779 Non-recurring items . - Total liabilities 1. .542 1. . .2 37.541 1.251 1.081 5.451 growth (%) 27 25 194 41 59 32 Depreciation 22 34 34 45 79 108 EBIT 111 132 456 646 1.0 56. .304 1. 2 .765 4.765 4.774 Investments 0 0 0 0 0 0 Net fixed assets 229 210 279 644 875 857 Goodwill .3 COGS 2.220 Borrowings 669 662 912 1. - Other non-current assets 3 3 4 2 2 2 Total assets 1.268 Total liabilities 1.542 5.072 3.277 2.281 2. . - items PBT 48 62 391 559 873 1. .9 56. .

- Net inc/dec in debt 130 (8) 250 117 513 (3) Dividend (incl.1 1.1 3.7 8.1 CEPS 0.8 21.0 26.1 0.3 1.9 6.9 15.9 Valuation ratios (x) PE 35.3 5.0 0.4 1.7 23.6 0.1 8.4 2.6 85.0 18.1 0.1 1.1 P/BV 3.4 0.6 RoE 9. - Cash flow from (82) 44 (90) 436 (91) 287 operations Capital expenditure (53) (8) (98) (410) (310) (90) Change in investments (0) (0) (0) .0 EV/Sales 0.7 23.2 21.0 24.9 46.6 24.6 2.4 EV/EBITDA 14. . BOBCAPSe | Equity research | 16 .0 12.3 9.9 5.3 2.1 1.4 4.7 0.5 24. .2 2.5 3.5 DPS 0.1 7.9 17. - Cash flow from (54) (8) (98) (410) (310) (90) investments Free cash flow (135) 36 (188) 26 (401) 197 Issue of shares 1 153 .7 27.2 RoIC 3.4 Net margins 1.3 9.1 0.7 2.3 1.8 1.1 EBITDA margins 5.7 18. .0 8.9 Source: Company.6 3.2 BV 4.3 25.5 44. tax) (6) (15) (15) (22) (34) (47) Other financing activities 10 (163) (11) 2 (0) 0 Cash flow from financing 135 (34) 224 97 479 (49) Inc/(Dec) in Cash & Bank (0) 3 36 124 78 147 bal.8 8. Source: Company.9 4.9 3.2 24.3 43.1 1.8 1.6 41.4 24.7 4.2 3.1 0.0 1.3 9.5 14. BOBCAPSe Exhibit 18: Cash flow statement Y/E Mar (Rsmn) FY14 FY15 FY16 FY17e FY18e FY19e Profit after tax 36 38 255 363 566 779 Depreciation 22 27 29 45 79 108 Chg in working capital (140) (17) (373) 28 (736) (600) Deferred tax paid 0 (4) (2) .3 7.6 9.0 RoCE 10. . (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd.5 19.2 8.1 0.9 Profitability ratios (%) Gross margins 10. | 15 September 2016 Exhibit 17: Ratios Y/E Mar FY14 F Y15 FY16 FY17e FY18e FY19e Per share data (Rs) EPS 0.

was incorporated in 1984. | 15 September 2016 Company Profile Vikas EcoTech Ltd. BOBCAPS | Equity research | 17 . National Housing Bank. has an in-house R&D Centre located in Delhi. NABARD. Organotins in India Currently. one at Shahjahanpur. It is engaged in the business of manufacturing and distribution of Specialty Polymer Compounds and Additives since 1998. he has a vast experience of over 45 years. Electrical Goods. It is additives and the only the only Indian manufacturer of Methyl Tin Mercaptide (Organotins Stabilizer). Exhibit 19: Management details along with an upcoming Dahej plant A commerce graduate with more than 18 years of Promoter & Managing experience in the line of polymer compound and chemicals. Medical Goods. Textiles. chemicals. Packaging. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. technical services. State Bank of India. He has also served on the board of the Bombay Stock Exchange (BSE). (RBI). Vikas EcoTech Ltd.e. Administration and Purchase Segments Experience spanning over 34 years in field of Plastics Raw Material and Polymer Compounds. Rajasthan and the other at Samba. The construction of Phase I of this plant has commenced and full-fledged Manufacturing units at production should commence from FY18. Organic & inorganic Manufactures eco. friendly specialty polymer compounds & VEL is a company focused on manufacturing eco-friendly specialty chemicals and polymers. among others. Source: Company. a lead free heat producer of stabilizer used in the production of PVC. Along with its manufacturing units. Auto Parts. Promoter & Whole-time Vivek Garg Supervises the operations of the company pertaining to the Director Real Estate. business development. Rajasthan and Jammu & Kashmir. Vikas Garg Director Lead the group’s diversification into polymer compounds and chemicals. Footwear. Writing instruments. Logistics. Wires & Cables. he has served on the boards of several banks. and HDFC Bank (as Chairman). Exim Bank. The company manufactures high end products used in Agriculture/Infrastructure Components. Gujarat to manufacture Organotins Stabilizer and specialty compounds for domestic and export markets. i. sourcing of raw material. Apart from the above mentioned manufacturing sites. marketing. the Company has planned to setup a manufacturing unit in Dahej. machinery and R&D An industry stalwart. 16 years of experience with an in-depth knowledge of the business. A former Deputy Governor of the Reserve Bank of India Jagdish Independent & Non. Jammu and Kashmir. Responsible for Business Development and Technical Ashutosh CEO & Whole-time Verma Director support to the customers of VEL. A research and development centre will also be housed in this facility. Capoor Executive Director Bank of Baroda. comprising of dedicated chemical engineers and technologists. Experience and expertise in the field of sales. the Company has two manufacturing sites.

. (Wholly owned subsidiary of Bank of Baroda) Vikas EcoTech Ltd. Suolificio Linea Italia. Super Tannery Ltd. Ilpea Paramount Ltd. Euro Shoes. Apex Footwear Limited. BOBCAPS | Equity research | 18 .. SRS Chemical Companies Navratan Specialty Chemicals LLP. Medibank. Footwear Horizon Global Ltd. JHS Svendgaard Hygiene & Healthcare Laboratories Ltd. Jindal Specialty Source: Company... KEI. Royal End Users – Premium Polymers. Prince Piping Systems. Polymed. Indcoat Footwear. Stationery Flair Textiles Jinflex. HIM-CHEM Ltd. Shriram Axiall Biotique. Ltd. SRF. RR Kabel.. Avlight Automotive Ltd.. Pioneer Automotive Components Tooling Services Pvt. Plastic Polymer (Pvc) Premier Polyfilm Ltd. OEM Supplier of Maruti & Ford India Ltd. Supreme. Capstan Rubber. SBM Yarn Dyeing. Shilpi. Vectus.. Unisal India. Escorts. DSM Soles. Aeroflex.. OEM Supplier of Yamaha Motors. F.. BOBCAPS Exhibit 21: Supplying to a Diverse Range of Industries & Customers Industries Customerss Footwear Liberty. Disposafe.. Kriti Industries (India) Ltd. | 15 September 2016 Exhibit 20: Serving a diverse range of industries Products Used  Organotins Stabilizers  Plasticizers  Plasticizers  Plasticizers  Flame Retardants  Flame Retardants  PVC Compounds  TPR Compounds  EVA & PVC Compounds Products Used  Chlorinated Paraffin  Organotins Stabilizers  Organotins Stabilizers  DMTDC  Plasticizers  Plasticizers  Chlorinated Polyethylene  PVC Compounds Products Used  Organotins Stabilizers  Plasticizers  Plasticizers  Plasticizers  Flame Retardants  TPR Compounds  Recycled PET  TPR Compounds  PVC Compounds Source: Company. Electricals Polycab Wires & Cables. APL Apollo. Action. OEM Supplier of Maruti Suzuki Ltd. Prakash. Relaxo Omega Polymicrons. Footwear Brands Alvin Leather Craft.B. Havells Apar Industries Ltd.

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