TanFac Industries Limited

4 January 2012 Key Data (as on 4 Jan’ 12)

BSE 506854 ISIN INE639B01015
Face value 10.0 Mkt Cap (Rs.mn) 160.6
CMP: Rs.16 Current P/E Negative Current P/BV 0.81
Industry: Commodity chemicals
52 week high-low 23.8-14.5 30 day daily trading 779
BSE group/index: B
volume(nos)
Equity capital (Rs.mn) 99.7 Net worth (Rs.mn) 198
Promoters
Tamilnadu Industrial Development Company business
Corporation Ltd (TIDCO) Tanfac Industries Limited (TIL) was incorporated in 1974 by Tamil Nadu Industrial
Aditya Birla Group Development Corporation (TIDCO) as a joint sector company along with L. Narayanan
Chettiar. Chettiar later withdrew from the project and the Aditya Birla Group became
Year of incorporation the co-promoter with a 25% stake in 1980. While the company is a joint venture
1974 between TIDCO and the Aditya Birla Group, the management control vests with the
Aditya Birla Group.
Corporate office
Oxford Centre, First Floor Tanfac is a market leader in aluminum fluoride (AF) and also manufactures anhydrous
No.66 Sir C.P. Ramaswamy Road hydrogen fluoride (HF), sulphuric acid and specialty fluorides. These inorganic fluorine-
Alwarpet based chemicals have vital applications in industries such as aluminum smelting,
Chennai – 600 018 petroleum refining, refrigerant gases, steel re-rolling, glass, ceramics, sugar, fertilizers,
and heavy water. These specialty chemicals are also used as intermediates in the
Company website manufacture of pharmaceuticals, drugs and agrochemicals products.
http://www.tanfac.com/
Suresh Sodani is the chief executive officer and president of Tanfac Industries.

Peer group analysis – Standalone financials

The company’s performance is weak as compared to its peers in the industry.

FY12, Navin Omkar

Avon
Rs million Tanfac Ltd Fluorine Speciality
Organics Ltd
International Chemicals Ltd
Total income 1,478 7879.8 1706.5 1672.7
EBIDTA (62) 3406.7 368.9 417.6
EBIDTA margin Negative 43% 21.6% 25.0%
PBT (216) 3194.4 53.7 113.5
PAT (241) 2312.4 164.5 100.7
PAT margin Negative 29% 9.6% 6.0%
EPS Negative 236.9 8.4 4.5
Cash accruals (181) 2487.5 220.7 209.3
BV/share 19.9 495.2 53.9 30.6
Debt/EBIDTA(x) (14.1) 0.3 2.0 2.4
Debt/Equity(x) 4.4 0.19 3.8 4.4
ROANW Negative 35.52% 16.6% 15.5%
ROACE Negative 45.68% 15.7% 17.1%
P/E Negative 1.5 7.1 6.9
P/BV 0.94 0.7 1.1 1.0
Face Value 10 10 10 10
Source: Moneycontrol, Company
Write to us at:
equity.research@outlook.com

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 TanFac Industries Limited

Tanfac manufacturing capacity Price Performance

40% 33%
Product (FY11) Capacity (annually)
20%
Aluminum Fluoride 15,400 0%
3 YR 2 YR 1 YR
Hydrogen Fluoride 15,400 -20% -12%
-19%
-24%
-40%
Sulphuric Acid 81,600
-60% -46%
-53%
Specialty Florides 8,400
Tanfac BSE Small Cap
MT: Metric Tonnes
Source: BSE, Moneycontrol

Public Shareholders with >1% holding

No. of Shares Shares as % of Total
Sl. No. Name of the Shareholder
(‘000) Shares
1 Ajit Singh Chawla 270.5 2.7
2 Four Dimensions Capital Markets & Four Dimensions Securities 344.0 3.4
3 Kamal Mavji Visaria 213.8 2.1
4 Motilal Oswal Financial Services Ltd 150.8 1.5
Total 979.2 9.8
Source: BSE

Change in Shareholding Pattern (%) Shareholding Pattern (%)

Year Promoters DII FII Others
Sept-12 50.98 0.09 0.01 48.92
Jun-12 50.98 0.09 0.01 48.92
Mar-12 50.98 0.09 0.01 48.92
48.92%
Mar-11 50.98 0.09 0.01 48.92
Mar-10 50.98 0.09 0.01 48.92 50.98%

Mar-09 50.98 0.09 0.01 48.92

Mar-08 50.98 0.64 0.01 48.37
0.01%
Mar-07 50.98 0.86 0.01 48.15 Promoters DII FII Others
Source: BSE

Source: BSE, as at 30 September 2012

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 TanFac Industries Limited
Key Strength
Strong promoter Tanfac has the strong backing of the Aditya Birla Group. The company has a long operating history of almost
backing and long four decades in the chemical industry, which has helped it develop a network of customers and suppliers.
track record The company also has significant financial flexibility on account of being part of the Aditya Birla group.

55% market share in Tanfac holds the leadership position in the Indian hydrofluoric acid (HF) market with a 55% share in the AHF
Anhydrous (Anhydrous Hydrofluoric Acid) market and is followed by Navin Fluorine International Limited (NFIL). The
Hydrofluoric Acid domestic demand for HF and ALF is expected to remain favorable due to growing demand from Hydro
(AHF) Chloro Fluoro Carbon (HCFC) manufacturers and aluminium smelting industries respectively.

Key concerns
Tanfac has commodity risk associated with its key products (aluminium fluoride-ALF- and hydrofluoric acid-
Vulnerability in the HF). It imports majority of its raw materials from China thus any change in the pricing and duties related to
price of raw import have a direct impact on the company’s material cost and its margins. In FY12 the company incurred a
materials foreign exchange loss of Rs 44.5 mn (excluding forward cover charges). The company imports 67 % i.e. Rs
688.6 mn of its raw material from international markets.
Increasing In addition to this, Tanfac also faces stiff competition from cheaper Chinese imports, leading to decline in
competition volumes and realizations for ALF (i.e. decline in the market share of ALF).
Delay in revenue The company had previously installed two new plants for the production of a pharma-intermediate and an
generation of new agro-intermediate. However, significant delays in commercialization of production due to technical issues
projects with higher depreciation have constrained profitability.
Industry overview
The Indian chemical industry is one of the oldest and fastest growing industries with the market size of USD
India chemical 108 bn. It contributes to around 3% of global chemical industry and is expected to grow at 11% p.a.
industry Inorganic chemical industry contributes to around 9% to the Indian Chemical segments.

Fluorspar is a commercial name for fluorite, a form of calcium fluoride (CaF2). World production capacity of
fluorspar is 6 million tpa. China is the largest producer of fluorspar (59% of production).

Fluorspar has two commercial grades which reflect different usages viz. Acid grade (acidspar) mainly used in
chemical industry and Metallurgical grade (metspar - low grade fluorspar) mainly used in the steel industry,
cement industry etc.

Uses of Fluorspar
Fluorspar 53%

29%
11% 7%

Hydrofluoric Acid Aluminium Others Steel making

production (HF) Production(AF) (Metspar)

Acidspar accounts for some 65% of fluorspar production and commands a significantly higher price than
metspar.

China had 33 ALF plants operating or under construction with a capacity of 900,000 MT, of which production
of HBD ALF (High bulk density ALF) was expected to reach 530,000 MT. China has a major competitive
Chinese dominance
advantage due to cheaper availability of key raw material fluorspar, with the country owning more than 60%
in fluorspar reserves
of the worldwide fluorspar reserves. Consequently, Chinese ALF players are able to sell at lower prices in the
international market, resulting in price disadvantage for domestic players in India.

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 TanFac Industries Limited
India’s aluminium production is expected to grow from 1.5 MMTPA to 4 MMTPA by FY2015 on the back of
huge capacity expansion programs by domestic majors such as Hindalco (0.53 MMTPA to 1.15 MMTPA) and
Demand for ALF in Vedanta Group (0.65 MMTPA to 2.5 MMTPA). TANFAC’s major customer Nalco has already undertaken a
aluminium capacity expansion from 0.35 MMTPA to 0.46 MMTPA in 2010. As a result, the domestic demand for ALF is
production expected to double over the next 4-5 years. The current domestic demand for ALF is estimated at 35000 MT.

*MMTPA - million metric tonnes per annum

Company fundamentals
The company’s principal products are ALF and HF. ALF is used as a flux in reducing the melting point of
alumina in the electrolytic process of manufacturing aluminum. It started as a single product company
manufacturing only ALF, but started producing HF in 1989. HF is used in the manufacture of refrigerant
gases (like Freon), Teflon and Linear Alkyl Benzene (LAB). HFA, in a diluted form, Diluted Hydrofluoric Acid
(DHF), is used in alloy steel mills for use in pickling of metal, glass industry, printed circuit boards, etc. The
company also manufactures specialty fluorides which are sold to diverse customers such as alloy
manufacturers, pharmaceutical and agrochemical companies. As of FY 2011, the company had ALF capacity
of 15,600 metric tons per annum (mtpa), 15,600 of AHF, 81,600 mtpa of Sulphuric Acid and 8,400 mtpa of
Company brief specialty fluorides.

The Company had implemented Isobutyl Acetophenone (IBAP) project during 2010-11 with a capital outlay
of Rs 147.2 mn. Based on plant trials, company had made some modifications, cost amounting to Rs 2 mn
during the current year. The company is also working with Indian Institute of Technology – Madras for
resolving the technical issues pertaining to yield of IBAP.

ICRA has revised the long-term rating of the company from [ICRA]BBB- to [ICRA]BB+, a negative outlook,
indicating moderate risk of default regarding timely servicing of financial obligations.

Shutdown of plant in There was a recent shutdown in the operations at the company’s plant in Cuddalore due to the Cyclone
Cuddalore due to “Thane”, which has impacted the company’s turnover and profitability. Nevertheless, the company is
cyclone expecting the insurance proceeds to aid its cash flows.
Key financial indicators
The total income of the company reduced by 7% to Rs.1478.2 mn (FY12) from Rs.1488.6 mn (FY11).
Production was affected by Cyclone “Thane” leading to the shutdown of the plants for more than 30 days
during the year. During FY11-12 the company’s EBIDITA was a negative Rs 17.4 mn as compared to profit of
Rs 147 mn in FY11 primarily due to increase in raw material costs and manufacturing expenses. The
company’s PBT fell from a profit of Rs 23 mn in FY11 to a loss of Rs 171 mn due to increase in the
depreciation and finance expenses incurred during the year. During the year the company incurred
exceptional expenses of Rs 44.2 mn to repair machineries (damaged by Cyclone ‘Thane’) which further
reduced the profits of the company incurring a net loss of Rs 241 mn from profit of Rs 30 mn in the previous
Financial year.
performance FY12
The company’s reserve and surplus have reduced by 70% to Rs 98.3 mn mainly due to losses faced in the
current year. In addition to this the company has witnessed an increase in short term borrowing (buyers
credit) from Rs 411.7 mn to Rs 777.3 mn primarily for working capital expenses. During the year the
company has also seen a reduction in export incentives from Rs. 32.8 mn to Rs 0.9mn. The company has
also delayed in making payments to some of its suppliers worth Rs 5 mn.

The Company had implemented a Multi-purpose Plant Project to manufacture 3 Phenoxy & other products
with a total capital outlay of Rs 102.4 mn in FY09 which was accordingly capitalized. However, this project
Deferred revenue faced technical issues in the processing of the raw materials. Further modification was carried out and the
expenditure written trial run in April 10 was successful. The expenses of Rs 54.7 mn incurred during the intervening period
off for next five between the date, the project was ready to commence commercial production and the date at which
years commercial production was treated as deferred revenue expenditure to be written off equally over a period
of five years (amount outstanding in FY12 – Rs 10.9 mn).

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 TanFac Industries Limited
Joint ownership with Tanfac has invested Rs 16.96 mn (unquoted) in Cuddalore Sipcot Industries Common Utilities Limited
14.3% stake (SICUL), a company jointly owned by Tanfac and SICUL to dispose-off common effluents.

Quarterly results
1 2
Particulars (Rs in mn) Apr ‘12 to Jun ‘12 Apr ‘11 to Jun ‘11 % Change Jan ’12 to Mar ‘12 % Change
Total income 434.7 313.7 38.6% 344.2 26.3%
Total expenditure 413.0 308.4 33.9% 359.6 14.9%
EBIDTA 21.7 5.3 309.4% (15.4) -
PBT (19.3) (22.9) - (54.8) -
PAT (18.9) (29.1) - (96.6) -
EPS (Face value Rs.10) Negative Negative - Negative -
1 2
compared to corresponding quarter in the previous year sequential comparisons

Segment-wise contribution to operating revenue Key ratios

50.0 41.6 44.0
40.0
30.0 19.9
20.0
6% Fluorine 10.0
6% Chemicals -
19% 14% FY10 FY11 FY12
Sulphuric Acids BV/share
and Oleum

10.0
80% Others (Gypsum
75% and Speciality 3.0
-
Chemicals) FY10 FY11 FY12
(10.0) (9.8)

(20.0) (24.2)

(30.0)
Inner ring represents FY11 data: represents total income Rs1661 mn EPS DPS
Outer ring represents FY12 data : represents total income Rs 1614 mn

Profitability ratios Leverage ratios

200.0
20.0%
7.0%
10.0% 0.4% 150.0
141.3
-
FY10 FY11 FY12
(10.0%) 100.0
(20.0%)
(20.4%)
(30.0%) 50.0
4.3
(40.0%)
(50.0%) - 1.84 1.45 4.37
(60.0%) FY10 FY11 FY12

(70.0%) (50.0) (49.7)

(80.0%) ROAE ROACE (75.7%)
(100.0)

Debt to EBITDA Debt to Equity

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 TanFac Industries Limited

Financials

P&L (Rs.mn) FY10 FY11 FY12 Balance Sheet (Rs.mn) FY10 FY11 FY12
Total income 1,304.7 1,488.6 1,478.2 Share Capital 99.7 99.7 99.7
EBITDA 5.4 147.4 (17.4) Reserves & Surplus 315.2 339.3 98.3
EBITDA Margin 0% 10% (1%) Net worth 414.9 439.0 198.0
Depreciation 52.3 53.7 59.9 Borrowings 763.0 637.1 865.5
EBIT (46.9) 93.7 (77.3) Other Liabilities 350.7 314.0 344.9
Interest 71.8 70.5 94.1 Total liabilities 1,528.6 1,390.1 1,408.4
PBT (118.7) 23.2 (171.4) Net fixed assets 787.3 771.4 741.5
Exceptional item - - 44.2 Other non-current assets 43.8 67.0 12.0
Tax (20.9) (6.8) 25.4 Loans & advances 150.7 102.7 78.7
PAT (97.8) 30.0 (241.0) Current Assets 546.8 449.0 576.1
PAT Margin (7.5%) 2.0% (16.3%) Total assets 1,528.6 1,390.1 1,408.4
Dividend - 0.5 -
Cash Flow (Rs.mn) FY10 FY11 FY12
Dividend (incl. tax) - 5.8 -
PBT (118.7) 23.2 (215.6)
CF from Operation 271.2 161.2 (171.2)
Valuation ratios FY10 FY11 FY12 CF from Investment (78.0) (38.1) (29.0)
P/E Negative 6.5 Negative CF from Financing (188.6) (126.0) 205.0
P/BV 0.7 0.4 0.8 Inc/(dec) in Cash 4.6 (3.0) 4.9
Closing Balance 7.9 4.9 9.8

Disclaimer

The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate
or complete and it should not be relied on as such. Our company shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to
be and must not alone be taken as the basis for any investment decision. The user assumes the entire risk of any use made of this information.
Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation which may affect
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