Ion Exchange (India) Ltd. (IEIL) - Detailed Report
Ion Exchange (India) Ltd. (IEIL) - Detailed Report
Ion Exchange (India) Ltd. (IEIL) - Detailed Report
Initiating Coverage
03rd November, 2022
Investors are advised to refer through important disclosures made at the end of the
Research Report.
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Index
ABOUT .................................................................................................................................................................................. 3
CORPORATE GOVERNANCE ........................................................................................................................................ 6
INDUSTRY ANALYSIS ...................................................................................................................................................... 7
THE COMPANY ................................................................................................................................................................ 13
TRIGGERS .......................................................................................................................................................................... 23
SHAREHOLDING PATTERN (Q2FY23)...................................................................................................................... 28
PEER DESCRIPTION ...................................................................................................................................................... 29
PRICE HISTORY AND PERFORMANCE ................................................................................................................... 30
FINANCIALS ...................................................................................................................................................................... 31
VALUATIONS .................................................................................................................................................................... 40
The Company operates in three key segments Engineering, Chemical and Consumer products. The
Engineering business has 11-12% EBIT margin whereas the chemical business has 21-24%. EPC business is
driven by green field capex by the end user industry whereas the Chemical division is driven by opex. The
Company has a presence in entire water and waste water treatment value chain from preliminary
treatment to zero liquid discharge. Very few companies in India provide solutions across spectrum of water
and waste water management.
IEIL manufactures resins in Ankleshwar, Gujarat and water chemicals in Hyderabad, Telangana. They are
doubling the resin capacities through the green field capex at Roha, Maharashtra which will be operational
in FY24. The Company has in-house manufacturing of membrane at Verna, Goa which is used in different
technologies of water and waste water treatment. The Company is undergoing brownfield Capex of Rs. 49
Cr. which will be operational in Q4FY23. They have fabrication and assembly plants in Tamil Nadu,
Maharashtra in India and UAE, Bangladesh and Indonesia overseas.
The Company has seasonality in its business, with Q4 garnering the highest revenue and EBIT margin. The
overall scale of operations is much higher in the last quarter which helps the company to leverage the fixed
cost and supports them to scale EBIT margin. Further, the favorable product mix shift leads to a higher
profit margin in Q4. In comparison, Q1 is the smallest considering the contribution to revenue.
1. He is associated with the Company for the last 20 years. Mr. Patni is a
Chartered Accountant.
Checklist Remark
Auditors’ opinion Unmodified
Auditor change No Frequent change in Auditor
Promoter pledged % No history of promoter pledging since listing
Conference call Yes, shows investment friendliness
Investment presentation Yes, shows investment friendliness
Related party transaction (Loans given
No repayment schedule of loans given to subsidiaries
to subsidiaries)
Subsidiaries Complex subsidiaries structure in India and Offshores
Independent Directors as % of Board 50%, Good sign
• The value of the global water and wastewater treatment solutions market grew by 5.3% from
US$760 billion in CY2021 to US$801 billion in CY2022. It is expected to grow at a CAGR of 4.7%
from US$801 billion in CY2022 to reach US$1,057 billion in CY2027.
• Other factors that are contributing to the growth of the market are improving standards of living,
water scarcity, and emergence of more stringent water related laws and regulations, particularly
for effluent discharge. River cleaning initiatives in India, China, Indonesia, and the Philippines
have led to strongest enforcement of regulatory compliance, and imposition of recycling and
reuse systems with the provision of subsidies or incentives for implementation.
• Indian Wastewater treatment solutions segment is forecasted to grow at a CAGR of 8.8% from
Fiscal 2021 to Fiscal 2031 and Indian water & environment industry is projected to register a
healthy CAGR of 8.5 percent during the period 2022-2026.
• The industrial segment is expected to grow faster than the municipal segment during
the forecast period. Backed by investments and regulations, the industrial segment is
anticipated to grow at a CAGR of 11.7% from Fiscal 2021 to Fiscal 2031, The municipal
segment is expected to record a CAGR of 7.2% across the same period.
• Refineries have been the largest end-user segment for the industrial wastewater treatment
market In India, propelled by capacity addition, Bharat Stage (BS VI) conversion projects and
larger ticket sizes. Chemicals, power, textile, pharmaceuticals, food and beverage fertilizer and
distillery companies are the other major end-users.
• India is lagging in terms of Sewage treatment capacity. Total sewage generation is 72,368 MLD,
of which India has the capacity to treat 44% of the sewage while only 28% of sewage is treated.
There is huge head room to grow for the sewage treatment companies as industrialization
increases and the Government focuses on reducing open sewage disposal.
• The Company has presence in the entire value chain from preliminary treatment to zero liquid
discharge. Very few companies in India provide solutions across the spectrum of water and
waste water management.
FY22 Sales
34.00%
58%
8.00%
Global Market size of Engineering Segment is Rs. 4.5 Lakh Cr. While in India it is Rs. 40,000
Cr and in Industrial segment it is Rs. 8,000 to 10,000 Cr. Of the total Engineering segment
sales, IEIL derives ~10% of revenue from membranes, ~15–20% from O&M services, and
the rest from remaining EPC related contracts.
a) INDUSTRIAL SEGMENT
I. Ion Exchange integrates process technologies and design, engineering & project
management expertise into design & build projects – on turnkey, BOOT or EPC
basis.
II. The Company provides customized solutions for water, waste water, recycle, ZLD to
core industries such as power plants, chemicals, refineries, fertilizer and steel
plants. It provides comprehensive turnkey solutions for Municipal Water, Waste
Water and Solid Waste Management.
III. Normal execution period of contracts is 2 years. (Mix of large and small). Mid-sized
contracts take 1-1.5 years for execution whereas for small contracts it takes 3-6
months for execution. Company has 40% private contracts in its current order book.
I. Annual Maintenance - They provide Water & Waste Water equipment for
efficient performance and zero downtime, scheduled inspection visits and
scheduled maintenance & services.
II. Comprehensive service contract- IEIL takes complete responsibility for supply
of treated water in required quantity and quality at the customer’s place. The
Company also provides solutions for Boiler & Cooling Water Treatment
Programs and Consultancy & Surveys.
c) MEMBRANES
a) In 1987, Ion Exchange pioneered and promoted the concept of reverse osmosis
membranes in India and started manufacturing membranes. The Company’s
manufacturing facility in Goa manufactures a wide range of Reverse Osmosis and
Nano Filtration membranes.
b) Ion Exchange offers its Membrane under the brand HYDRAMEM - High
performance membranes. Currently, 20–25% of production is captively
consumed, while external sales contribute ~10% to revenue.
• Water treatment chemicals are used for raw and waste water treatment conditioners in
boiler, cooling water treatment and membrane cleaning etc. Industry Chemicals are used to
increase the life of boilers and to reduce maintenance costs, corrosion, scaling chemicals, PH
conditioning. The Company is engaged in the manufacturing of water treatment chemicals
such as ion exchange resins and other specialty chemicals.
• Specialty Chemicals include performance chemicals used in the processing of Paper, Sugar,
Ceramic, Pharma and Refinery products. The Company also has a FDA approved pharma
grade resin facility.
• IEIL offers products under the registered trademark of INDION RESINS which include
complete range of cation and anion resins for water and waste water treatment, purification
of bio-diesel, sugar, food and beverages & host of specialty applications like pharmaceutical
excipients, catalysts, nuclear grade resins, brine softening, heavy metal removal, adsorbent
grade resins etc.
• India’s Resin market size is Rs. 300 Cr. The Company has 40% market share of Resin in India.
Resins are being imported in India and Thermax Ltd. is the major competitor.
• The Company exports to USA, Canada, Middle East, Japan, Korea and has a low single digit
global market share. Du Pont USA (2021 Revenue of USD 15.13 Billion) and LANXESS
European company (2021 Revenue of EUR 6.1 billion) are the major producers of resin and
cover almost 60% of global market share.
• R&D is an ongoing process and the Company has vast experience of working with many
companies to make tailor made solutions (Value added product) and come up with new
solutions for customers which improves client stickiness.
• Application
In industries, raw water enters in the plant which needs treatment to achieve right
specifications. Additionally, the used water which is thrown out needs specifications for
disposal. A one-solution-fits-all framework does not work every single time when there is a
large scale implementation. Resins are used for removal of colour, odour, organics, nitrate,
iron, fluoride, arsenic and tannin. Electronics manufacturing requires ultra-pure water
because even the slightest impurities can cause malfunction, which is similar to medical and
• Ion Exchange is the pioneer of the RO technology, in India. With its National & International
presence, the Company offers its products in Consumer products business under the brand
Zero B.
• Besides Zero B products which cater to individuals, hotels, spas, educational institutions,
hospitals, laboratories, railway and defence establishments, this division also provides several
technologically advanced products to residential, commercial and rural segments.
• IEIL has focused on niche products (having a unit price of up to Rs. 3 lakh vs generic RO price
of Rs. 15,000–20,000/piece) that provide hydrogen and mineral-rich water. The Indian water
purifiers market was worth USD 754.2 million in 2020 and is further projected to reach USD
1937.5 million by the year 2027, growing at the CAGR of 14.3% during the forecast period (2020-
2027).
• This business was loss making at EBIT level and IEIL witnessed turnaround in this segment in
Q1FY23.
MARQUEE CLIENTS
• Industrial – NTPC, NPC, Reliance, IOCL, JSW, CPCL, L&T, ArcelorMittal, Nippon Steel, Nayara Energy,
IRCTC, BHEL, Tata Group.
• Institutional – Leela, Military Engineering Services, Taj Hotels, Holiday Inn, Hyatt Regency, Oberoi
Hotels, Apollo Hospitals, Escorts Heart Institute, DLF, Puravankara.
• International – Cargill, Technip France, Unilever Group, Jurong, Thyssenkrupp (Uhde), Jacobs,
Kawasaki, Mitsubishi, PDO Oman, Emirates Steel, IKPP Indonesia.
• Ion operates 9 manufacturing units, including a fabrication unit in the UAE, Indonesia, Bahrain
and Bangladesh
● The Company markets its products through 600+ dealers in FY22. (300+ in FY18)
SUBSIDIARIES
• Ion Exchange (India) Limited has 18 subsidiary companies in India and abroad as on March 2022.
Ion Exchange LLC, USA, Ion Exchange Asia Pacific Pte. Ltd., Singapore, Ion Exchange Projects and
Engineering Ltd. India (91% owned) are the major subsidiaries which are 100% owned.
STRENGTHS
● The Company has a chemical resin and membrane facility which is utilized captively. The Company
has long term relationships with major clients and has been providing solutions to them for tailor-
made products which improve client stickiness.
● The Company has a 40% market share in the resin market in India itself. The Company expects to
increase its global market share which is in the low single digits.
● The company has a global presence apart from presence in major cities in India with 36+ sales &
service centers and 100+ Channel Partners.
• The Company had got major contract of Rs. 1000 Cr. in Uttar Pradesh Q4FY21 under the Jal Jeevan
Mission for the rural water drinking supply to 1,000 villages in two districts of Uttar Pradesh that is
Varanasi and Aligarh. Under this contract, the Company is involved in extracting and treating
groundwater, and supplying drinking water to households.
• Every village has its own different contract hence it’s a major contract with a compilation of various
small contracts. The scope of work might increase in the contract going forward as there are various
moving parts in the contract. The contract order is in a staggered manner and the current value of
this contract stands at Rs. 1200 Cr.
• Outstanding contract order which is yet to be executed is valued at Rs. 1135 Cr. Of this amount, we
expect Rs. 350 Cr to be realized in FY23 and major chunk of more than Rs. 800 Cr. in FY24. This
contract has a timeline of 18-21 months. The Company will be getting recurring O&M business of
10 yrs. from this contract. (O&M stands for Operation and Maintenance)
• Depending on the attractiveness of the projects, IEIL may bid for more states for similar services.
ROBUST ORDER BOOK IN EPC AND STRONG BID PIPELINE OFFERS REVENUE VISIBILITY
• The Company has a total order book of Rs. 2,912 Cr. (Rs. 600 Cr. in Dec 2020, 4.8x growth) of which
outstanding UP SWSM is Rs. 1,138 Cr. (~40% of total order book) and the outstanding Sri Lanka
order is of Rs. 245 Cr.
• IEIL has a bid pipe line of Rs. 8,000 Cr. (majorly international) of which, as per management 30% of
their bid is at advanced stage which translates to Rs. 2,400 Cr. If the conversion happens the total
order book will be Rs. 5,312 Cr. (3.37x of FY22 revenue of Rs. 1,577 Cr.)
• Currently, O&M services contribute ~15–20% to revenue from the Engineering business. As the
order book grows, scope for O&M services will also improve.
• IEIL had frontloaded the cost for strengthening the infrastructure on the back of increased order
backlog and expects increased pace of execution in the coming quarters.
• The Chemical business contributes 34% to the revenue and has 22-24% EBIT and contributes 50%
to the total profits of the entire business. The current capacity for Resins- 36,000 TPA, is running at
70-75% utilization levels. The facility is expected to get optimally utilized at 90% by FY24.
• The Company is doing a green field Capex of >Rs. 250 Cr. in Roha, Maharashtra to enhance resin
capacity. The Capex will have 2 phases. Phase 1 (P1) will double the existing capacity of 36,000 TPA
in Cation and Anion Resin each and in Phase 2 (P2) further 36,000 TPA will be added to each resins.
The existing capacity will be 3x of current capacity, post the P2 expansion.
● This Capex can achieve 2.5-3x of asset turnover which translates to Rs. 625-750 Cr. in revenue (40-
48% of FY22 sales) at full utilization. The Company expects to increase its global market share which
is in low single digits and the Company is expecting the expanded capacity to be fully utilized within
2-3 years.
• IEIL is undergoing brownfield Capex of Rs. 49 Cr. in the Membrane business which runs at 90%
utilization level. The expanded capacities will be live by Q4FY23. Expected revenue from this Capex
would be Rs. 60-70 Cr. (4- 4.4% of FY22 sales) at full utilization.
• IEIL witnessed turnaround in the Consumer business. As per our conservative estimates we expect
this division to grow by 30% CAGR till FY24 from a low base of Rs. 157 Cr. (FY22) which translates
to Rs. 265 Cr. by FY24 (Management has guided for upwards of 50% CAGR growth for FY23)
• IEIL has focused on niche products (with a unit price of up to Rs. 3 lakh vs generic RO price of Rs.
15,000–20,000/piece) that provide hydrogen and mineral-rich water. This segment became
profitable at the EBIT level in Q1FY23 and is likely to see improvement in the future.
• We expect the topline will grow by 20% CAGR till FY24 (the management has guided 40% growth for
FY23 YoY). The EBIT margins will be in the range of 13-14%.
• As per our conservative estimates we expect EPC to grow by a CAGR of 21% till FY24 which translates
to Rs. 1347 Cr. by FY24 and the Chemical business to grow by 13% CAGR till FY24 which translates
to Rs. 712 Cr. by FY24 (FY22 Rs. 558 Cr.) whereas Consumer division will grow by 30% on a low base
which translates to Rs. 265 Cr. by FY24 Cr.
2 YR CAGR
FY20 FY21 FY22 FY23E FY24E
growth
Total REVENUE 1480 1450 1576 2049 2295 21%
EPC 939 941 935 1218.9 1346.47 20%
Growth in % 0% -1% 30% 10%
CHEMICAL 469 440 558 652 717 13%
Growth in % -6% 27% 17% 10%
CONSUMER 126 108 137 178.1 231.53 30%
Growth in % -14% 27% 30% 30%
CASH RICH BALANCE SHEET WITH NEGLIGIBLE DEBT CUSHION FOR UPCOMING Capex
• The Company stands at a cash surplus of Rs. 536 Cr. (March 22), which includes Rs. 43 Cr. margin
money related to specific EPC contracts in an escrow account and Rs. 197 Cr. margin money
deposited with banks.
• The Company possesses unblocked cash of Rs. 296 Cr, which is sufficient enough for Phase 1 green
field Capex in the Chemical division.
• The Company will be consolidating all its subsidiaries in H2FY23. This will help The Company to form
a simple structure and evade the complex related party transaction.
• Capital expenditure on water and waste water infrastructure in India is set to increase by 83% over
the next five years, hitting an annual run rate of USD 16 Bn by 2023. In 2001, per capita water
availability was 1,820 cubic meters which is projected to decline to 1,140 cubic meters by 2050.
• Almost 62,000 MLD of sewage is generated across urban India and there are just 816 STPs installed
that treat 23,277 MLD or 37.5% of sewage per day. The Govt. of India plans to spend Rs. 200 bn in
the next 5 years for the Clean Ganga project.
• Global water treatment chemical market size is expected to grow from $39.1 billion in 2021 to $61.1
billion in 2026.
• Competition risk from L&T water, Concord Enviro- (FY21 Revenue Rs. 348 Cr, IPO awaited main
board), Triveni engineering (Order book of Rs. 1,889 Cr, Technology till ZLD), Praj industries. The
company operates in the EPC industry which is fragmented.
• The steel and cement price movements would certainly have an impact on the Engineering
business. Similarly, the petrochemical prices (Crude derivative are a major RM cost) and other
commodity price movements on the chemical front would have an impact on the chemical segment.
The container unavailability due to any foreseen event can erode revenue and margins. The
Company is vulnerable to exchange rate fluctuations.
• Passing on the cost increase does not happen immediately and tends to have lag which could erode
the margins for the shorter run.
1. Promoters- 27.01%
• No history of promoter pledging shares.
2. Others- 16.18%
3. FII- 0.71%
4. DII-10.82%
5. Public- 45.28%
• Zero liquid discharge is niche market where there are very few players of which Ion Exchange is
the major player with ~20% market share.
• Va Tech Wabag Ltd (VTWL) is Indian multinational player in the water treatment industry which
provides a turnkey solution for water and waste water treatment. WABAG’s offerings span across
municipal drinking water, municipal sewage, industrial water, industrial effluents, desalination and
recycling. The Company operates through EPC, O & M, DBO, BOOT, HAM models.
• VTWL has a total order book of Rs. 10,592 Cr. of which 52% is from India and 48% is from rest of the
world (Row). The order book comprises of 69% municipal and 31% Industrial segment contracts.
The said order book has 67% of EPC contracts and 33% of O&M contracts.
• Their 54% of revenue comes from India and 46% from the RoW. The projects have an average
execution cycle of 30-36 months, VTWL expects a 10% YOY sustainable growth in topline.
• VTWL had a 2-3% sales growth for last 3 yrs. with 7-8% EBIT margins with ROCE of 13-14%. Though
the company has a robust order book, 69% of its orderbook is from Municipalities which adds a
concentration risk for their order book. Working capital of VTWL has been stretched historically.
• Ion Exchange had a 10-11% sales growth for last 3 years with EBIT of 13-14% driven by Chemical
business majorly with EBIT margin of 22-24%. Company has a ROCE profile of 35-38%. IEIL
Judiciously selects contracts considering the credit profile of the issuer. Private orders comprise 40%
of the total order book.
• In our point of view, Ion exchange is well place as compared to VA tech Wabag in the water and
waste treatment space.
600
500
400
300
200
100
0
01-Apr-2019 01-Apr-2020 01-Apr-2021 01-Apr-2022
Other Manufacturing
179.44 199.04 237.17 229.82 274.2 11.2%
Expenses
Operating Expenses 110.73 126.84 139.48 123.39 141.81 6.4%
EBITDA 80.05 108.88 137.85 204.41 215.12 28.0%
EBITDAM 7.7% 9.4% 9.3% 14.1% 13.6%
• RATIO ANALYSIS
DUPONT ROE
Inventory Days 62 58 50 54 60
Operating
Manufacturing
Expenses 179.44 199.04 237.17 229.82 274.20 320.20 365.34
Operating Expenses 110.73 126.84 139.48 123.39 141.81 164.95 156.57
EBITDA 80.05 108.88 137.85 204.41 215.12 286.99 344.39
EBITDAM 7.7% 9.4% 9.3% 14.1% 13.6% 14.0% 15.0%
25
20
15
10
0
01-Apr-2019 01-Apr-2020 01-Apr-2021 01-Apr-2022
• Going forward, we estimate a 21% CAGR till FY24, driven by revenue recognition in major EPC
projects, growth from the Chemical division and Consumable product division. We expect IEIL to
post a PAT CAGR of ~22% during FY22-24E driven by EPC efficiencies and Chemical division margin
improvement. Currently, IEIL is trading at a 18.2x PE multiple, we assign a FY24E PE multiple of 16x.
We arrive at a target price of Rs. 2,610, which represents an upside of 26% from CMP which we
believe can be achieved within 12 months.
The Company is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014 vide SEBI
Reg. No. INH000009843 and engaged in the business of providing research analyst services, as well as in
other research activities including activities engaged in preparation and/or publication of research report
or research analysis or making “buy/sell/hold” recommendation on securities including options and
derivatives or giving price target or offering an opinion concerning public offer by companies and
The company does not provide investment banking or merchant banking or brokerage services.
Disciplinary History:
There has been no instance of any disciplinary action, penalty etc. levied/passed by any
regulation/administrative agencies against the Company and its Directors.
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POTENTIAL
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