Saral Gyan Hidden Gem - Nov 2010

EQUITY RESEARCH REPORT

DE NORA INDIA LTD BSE CODE: 590031

Industry: Electrodes & Welding Equipment CMP: Rs. 75.50 (07/11/2010)
Market Cap: 419.4 (Million) Target Price: Rs. 155
Date: November 07, 2010 Time Period: 18 – 24 months

Saral Gyan Capital Services
www.saralgyan.in
An Independent Equity Research Firm

HIDDEN GEMS – NOV 2010

TABLE OF CONTENT
S.No Content Page No.

1. Company Background 03

2. Recent Developments 08

3. Financial Performance 10

4. Charts & Graphs 12

5. Peer Group Comparison 14

6. Key Concerns 14

7. Saral Gyan Recommendation 15

8. Disclaimer 16

-2- SARAL GYAN CAPITAL SERVICES


1. Company Background

De Nora India Limited is a Public Limited Company with 51% equity held by De Nora. The
Company is a subsidiary of the De Nora and has brought to India the latest
technologies with the complete support of De Nora's technical expertise and
management. The company is headed by Mr S. C. Jain, Managing Director, who leads a
team of professionals with vast experience.

De Nora India as part of De Nora is leader in the field of:

 Electrochlorinators
 Cathode & Anode for Chlor-Alkali Industry
 Cathodic Protection Systems
 Electrowinning

With his factory in Goa with state-of-the-art facilities, De Nora India meets the demands
of the rapidly developing Chlor-alkali industry. This factory also provides access to the
Goa port facilities for company’s future export commitments. This service is provided
through a team of specialists, a centralized data bank and access to the vast technology
resources of De Nora. De Nora India's strength lies in its technical expertise backed by
its well trained team of specialists. Of course, there is the additional benefit of the direct
technical support of De Nora’s highly trained engineering staff, ready to discuss the
needs of any prospective client, to define the best optimized solution.

In keeping with the philosophy of the De Nora, De Nora India Limited provides its
valuable customers, not only a superior product, but also technical assistance, in
installation and operation of their electrodes, for both, new and retrofitted cells of
different technologies, through out their operating life.



De Nora Product Overview

De Nora provides products and services based on electrochemical technology through
two main product lines:

 Chlor-Alkali which makes a full range of products and systems for chlorine and
alkali, and sodium and potassium chlorate commodity chemical producers.
 Oxygen & Specialties designs, develops and manufactures electrodes, anode
coatings and systems for several electrochemical applications.

De Nora can service a wide range of customer technical needs for all the
electrochemical processes with:

 Anodes and cathodes for Chlor Alkali Industry (Amalgam/Diaphragm/IEM cells)
 Anodes, Cathodes and GDE for Hydrochloric Acid Electrolysis
 Anodes for Chlorate and Perchlorate production
 Anodes for Surface Finishing
 Anodes for Electronics
 Anodes for Electrowinning and metal recovery
 Anodes for Pool chlorination
 Anodes for Industrial Electrochlorination
 Anodes for Cathodic Protection systems
 Anodes for Water Treatment

Range of DSA® Anodes applications

DSA® Anodes are titanium anodes coated with a proprietary and patented Mixed Metal
Oxide (MMO) solution of Precious Metals such Iridium, Ruthenium, Platinum, Rhodium,
Tantalum.

Thanks to their specific characteristics and the changes in the coating formulation and in
the coating techniques, the use of DSA® Anodes supplied by De Nora can range from the
long established application in the Chlor-Alkali industry to the most recent utilization in
a wide range of other uses in the Electro-galvanic industry, Copper foil, Printed Wiring
Board, various water treatment processes, and ultimately Cathodic Protection against
corrosion for the iron structures in soil, in concrete, sea water etc.

The direct sea water Seaclor® electrochlorination systems are to-day marketed by a
sister company, Severn Trent De Nora, to which De Nora supplies the electrode packs on
an exclusive basis.



Energy saving and environment protection

De Nora ’s main objective has always been the improvement of its proprietary coatings
to achieve the longest possible life in operation and the reduction on power
consumption of the anodes. Today De Nora offers (through its Spare Parts & Service
Division) Zero Mercury Emission packages for the improvement of the cathodic area of
the amalgam cells reducing the loss of Mercury to well below the limits imposed by
authorities.

In the field of Surface Finishing De Nora offers GreenChrome™ a specifically customized
product for the decorative chrome plating processes that obtain excellent results
allowing the conversion of carcinogen Cr6+ baths to environmentally and non poisonous
Cr3+ baths.

Services

Uhde GmbH and Uhdenora S.P.A. manufacture IEM and HCl electrolysers for their
licensees in De Nora Deutschland, one of the factories of De Nora that has been
equipped, since 1998, with Laser welding machines customized for the assembly of the
latest generation of anodic and cathodic “single element” with proprietary DSA®
Anodes, activated cathodes and ELAT™, in cases of HCl specifically developed for these
cells.

All the electrochlorination systems marketed by Severn Trent De Nora are equipped
with electrode packs coated and assembled either in Italy, in De Nora Elettrodi
(Suzhou)and in De Nora Tech.

Financial – Leasing opportunities

In the seventies, when the metallic anodes coated with Mixed Metal Oxides were
initially commercialized, Permelec, now De Nora, started manufacturing the anodic
structures at its own cost offering them to its Customers on a Lease basis granting a
continuous electrodes efficiency by a scheduled maintenance and re-coating service
under its full responsibility and expense.

Today, De Nora owns more than 80,000 anodic structures installed in amalgam plants
and almost 200,000 anodes installed in diaphragm technology plants: the world’s largest
DSA® Anodes structures inventory.

De Nora is always available to study and prepare a financing scheme based on a lease
contract, in particular when working with partners like Uhde and Uhdenora, also for the
IEM technology even if for such a technology the anodes and cathodes are an integral
part of the Electrolyzer structures.



Product Range - Chlor Alkali

De Nora’s roots in the chlorine and chlorate industries run deep. From the creation of
the earliest commercial diaphragm cells in the early 1900s, to the development of the
very first membrane cell and now the most competitive anode coatings available. The
introduction of DSA® Anodes in mercury cells was justified primarily by the benefit of
power savings and the elimination of some hazardous plant operations associated with
the use of graphite anodes, increased production, and product quality.

De Nora efforts are aimed at radically improving the economics of the Chlor-Alkali
business studying components like Gas Diffusion Electrodes that are going to be the
feature of choice for the future generation of high CD IEM. Company offers recoating
techniques for almost any IEM cell type. De Nora has developed cathode coatings
suitable for all technologies and reduce cell voltage.

AMALGAM DIAPHRAGM MEMBRANE CHLORATE

De Nora provides:

 DSA® Anodes, the most successful and economical electrode for the production
of chlorine and caustic soda by MEMBRANE/AMALGAM/DIAPHRAGM
technologies.

 Anodes for different types of mercury cells under a lease or purchase program.

 Services for the anode structures include repair work and renewal of the DSA®
Anodes coating with the recoating of deactivated electrodes including the
necessary mechanical repairs to the structures.

 Technical Assistance to train and support customers in the installation, use and
operation of cells and anodes.

 Diaphragm that eliminate the need for asbestos, cell tops that last decade or
more, and everyday spare parts to keep existing plants running like new.



Product Range - Oxygen & Specialities

The Oxygen & Specialties business evolved from De Nora's goal to extend its
electrochemical technology beyond the chlor-alkali applications. DNOx supplies
innovative DSA® Anodes and systems that provide our customers lower operating costs,
improved performance and higher throughput.

De Nora's works closely with existing and potential customers to identify and respond
their needs and opportunities. De Nora innovative technical capability comes from:

 In-depth knowledge and understanding of insoluble anode processes.
 World leadership in DSA® Anodes technology.
 High performance, formulated mixed metal oxide anode catalyst coatings and
titanium anode structure design.
 A diversified and professional staff of in-house electrochemists, engineers and
R&D scientists.
 A full range of service and technical support available around the world.

ELECTROWINNING EMEW ELECTRONICS ELECTROCHLORINATION

Oxygen & Specialties is committed to excellence in various electrochemical process.
Company focuses on technical expertise and DSA® Anodes product’s to provide their
clients with practical, workable solutions to your most difficult electrochemical
challenges.

 Surface Finishing
 Electronics
 Water treatment
 Pool chlorination and SPA Disinfection
 Industrial Electrochlorination
 EMEW and Electrowinning
 Cathodic Protection
 Other Specialties



2. Recent Developments

i) De Nora – A Distinguished presence at the KPCA show 2010 in Korea (Aug 2010)

The KPCA show was an excellent opportunity for the company to look around the recent
trends of the electronic circuit industry and to show the latest PCB production
technologies.

De Nora stands presence at the exhibition has been an ideal opportunity to create
possible business opportunities for De Nora and to allow its customers to be informed
on the most advanced insoluble anode technology in copper plated micro via
metallization as well as via filling in both vertical and horizontal plating processes.

Company exhibition was successful at the KPCA 2010 show in Korea

ii) Acquisition of full control of Permelec Electrode Ltd. and majority of Chlorine
Engineers Corp. Ltd. (Sep 2010)

Industrie De Nora S.p.A. (De Nora) has reached an agreement with Mitsui and Co., Ltd.
(Mitsui), for the purchase of all the shares held by Mitsui in order to reach 100%
ownership of PERMELEC ELECTRODE Ltd. (PEL), in Fujisawa-shi, Japan.

PEL was founded by Mitsui and De Nora as a 50-50% Joint Venture in 1969 to serve the
Japanese Chlor Alkali market.

This acquisition is an important step for De Nora to improve its global manufacturing
capacity and will further strengthen the ongoing technical exchange between De Nora
and PEL for the continuing development of high performing electrodes.

The move shall ensure that the world Chlor Alkali Industry will benefit even more from
De Nora’s well proven experience in cutting edge coating manufacturing facilities and
electrochemical technologies.

In the framework of the final agreement reached with Mitsui in this transaction, De
Nora has also secured the control of CHLORINE ENGINEERS Corp. Ltd. (CEC), in Tokyo,
Japan, Mitsui’s subsidiary engaged in engineering and manufacturing of sodium chloride
electrolysis plants.

CEC has been expanding its activities since its foundation in 1973 and has licensed a
significant share of the worldwide chlorine production by ion exchange membrane
process.



De Nora and CEC will align a combined portfolio of products and solutions to improve
plant performance and will offer to CEC Licensees, prompt and reliable assistance in the
maintenance and servicing of their plants, deploying the resources of De Nora’s
Network of Companies.

The combination of the expertise and resources shall be very beneficial to CEC’s attempt
to better serve its customer base and shall allow CEC customers to improve the
operation of their chlorine plants.

With the acquisition De Nora is also enlarging its technology platform, since both PEL
and CEC are involved in the development and the commercialization of novel
electrochemical processes driven by the environmental pressure, especially in the field
of Water Treatment and Clean Energy.

The move reflects De Nora’s renewed commitment to further develop its business,
remaining very focused on the electrochemical technologies – both in Chlor Alkali and
Environmental applications and its goal, to not only be a reliable supplier of
technologies but also a dynamic and innovative partner with a long term vision.



3. Financial Performance
De Nora India reports net profit of Rs 9.72 million in the September 2010 quarter

De Nora India reported net profit of Rs 9.72 million in the quarter ended September
2010 as against net loss of Rs 10.2 million during the previous quarter ended September
2009. Sales rose 55.72% to Rs 44.13 million in the quarter ended September 2010 as
against Rs 28.34 million during the previous quarter ended September 2009.

De Nora India net profit rises 105.17% in the June 2010 quarter

Net profit of De Nora India rose 105.17% to Rs 11.9 million in the quarter ended June
2010 as against Rs 5.82 million during the previous quarter ended June 2009. Sales rose
56.08% to Rs 46.3 million in the quarter ended June 2010 as against Rs 29.6 million
during the previous quarter ended June 2009.

Last 6 Quarters Net Sales & Profit

60
52.05
50 46.3 44.13
40
31.83 29.58
28.34
Rs in Millions

30
20
11.9 9.72
9.18
10 5.82

0
-0.49
-10
-10.2
-20
1 2 3 4 5 6
Net Sales 31.83 28.34 52.05 29.58 46.3 44.13
Net Profit 5.82 -10.2 9.18 -0.49 11.9 9.72
Jun 09 Sep 09 Dec 09 Mar 09 Jun 10 Sep 10

- 10 - SARAL GYAN CAPITAL SERVICES


Current & Expected Earnings:

Quarterly Ended Profit & Loss Account

Particulars Dec Mar Jun Sep Dec Mar
(Rs in Millions) 2009 2010 2010 2010 2010 E 2011 E
Audited / UnAudited UA UA UA UA UA UA
Net Sales 52.05 29.58 46.3 44.13 64.63 43.87
Total Expenditure 43.5 31.85 35.83 41.57 53.51 31.92
PBIDT (Excl OI) 8.55 -2.27 10.47 2.56 11.12 11.95
Other Income 2.42 4.57 4.43 2.6 3.67 4.93
Operating Profit 10.98 2.31 14.9 5.16 14.79 16.88
Interest 0 0.04 0.03 0.04 0.04 0.04
Exceptional Items 0 0 0 0 0 0
PBDT 10.98 2.27 14.87 5.12 14.75 16.84
Depreciation 1.66 1.46 1.52 1.49 1.72 1.58
Profit Before Tax 9.32 0.81 13.35 3.63 13.03 15.26
Tax 0.15 1.31 1.45 -6.08 1.43 1.32
Provisions & contingencies 0 0 0 0 0 0
Profit After Tax 9.18 -0.49 11.9 9.72 11.60 13.94
Extraordinary Items 0 0 0 0 0 0
Prior Period Expenses 0 0 0 0 0 0
Other Adjustments 0 0 0 0 0 0
Net Profit 9.18 -0.49 11.9 9.72 11.60 13.94
Equity Capital 55.55 55.55 55.55 55.55 55.55 55.55
Face Value (IN RS) 10 10 10 10 10 10
Reserves 0 0 0 0 0 0
Calculated EPS 1.65 -0.09 2.14 1.75 2.09 2.51
Calculated EPS –Annualized 6.61 -0.35 8.57 7 8.35 10.04
No of Public Share Holdings 2458268 2458268 2458268 2458268 2458268 2458268
% of Public Share Holdings 44.25 44.25 44.25 44.25 44.25 44.25

Expected Earnings for 3rd & 4th Qtr FY 2010-11:

We expect De Nora Ltd will post robust growth in coming quarters with revival
happening in chlor alkali industry. Moreover, company operations in water treatment
industry is expected to do well as De Nora India supplies electro-chlorination
equipments for purifying water for drinking and Industrial purpose.

In financial front, company’s performance has improved significantly showing good
growth in last two quarters. Company has registered sales growth of above 55% in last
two quarters on YoY basis and is expected to sustain similar performance.



4. Charts & Graphs

i) Share Price Moving Average:

De Nora India Ltd is currently trading near to its 50 days and 200 days price moving
average.

ii) Comparative Graph:



iii) Share holding Pattern:

Promoters share holding is 55.74% without any change in terms of holding since last
many quarters. We expect that parent company Gruppo De Nora (Italy) will significantly
increase its operations in India considering business opportunities developing in the
country.



5. Peer Group Comparison

De Nora IFGL Rasi
PEER GROUP India Iykot Hitech Refactories Ador Welding Electrodes
CMP 75.50 23.20 52.80 219.80 24.00
52 W H/L 101.10/60.50 34.90/20.10 73.40/33.60 241.10/133.30 29.80/15.15
Market Cap 419.4 141.15 1827.43 2988.94 114.24
Results (in Mn) Sep-10 Sep-10 Jun-10 Sep-10 Jun-10
Sales 951.93 25.87 449.50 752.22 49.26
PAT 34.83 3.55 6.00 79.16 4.78
Equity 114.11 30.42 346.10 135.99 47.60
EPS 5.46 1.24 3.69 21.75 2.68
P/E 14.27 18.75 14.29 10.10 8.95

6. Key Concerns / Risks
i) Company operates in business which is cyclical in nature showing up and downs
in demand & supply.
ii) Business dependency is directly related to performance of Chlor Alkali Industry.



7. Saral Gyan Recommendation

De Nora India is into a niche segment and commands market share of 75%.
Company uses advance technologies for coating of anode and cathode using in
Chlor Alkali plants and corrosion systems used for preventing corrosion in saw
pipes. De Nora products offering with latest membrane cell technology is
opening new growth opportunities in the country. Further, company also
supplies electro chlorination equipments for water purification.

De Nora India Ltd is an MNC which is expected to trade at premium when
compared to local players, but company is available at decent valuations with
current P/E ratio of 14, giving an opportunity to investors to buy the stock at
current market price. Company business seems to be complex which could be
one of the reasons that stock has overlooked by Investors.

As per our estimates, De Nora can deliver bottom line of 47.5 million for full
financial year 2010 – 11, annualized EPS of Rs 8.55 with forward P/E ratio of 8.83
X for FY 2010-11, which makes stock of the company an attractive bet at current
market price.

Company has paid consistent dividend in past except the last financial year when
company performance was poor due to slowdown in chlor alkali industry.
Dividend of 70% was paid in 2006, 69% in 2007, 58% in 2008, 25% in 2009. De
Nora India Ltd is expected to do well with revival in chlor alkali industry.

On equity of Rs. 55.55 million the estimated annualized EPS works out to Rs. 8.55
and the Book Value per share is Rs. 47.14. At a CMP of Rs. 75.50, stock price to
book value is 1.6. The scrip is trading at 8.83 X FY 2010-11 estimated earnings
which make it an attractive considering the past track record and strong global
presence of De Nora Group.

Saral Gyan Team recommends “BUY” for De Nora India Ltd. at current market price of
75.50 for a target of Rs. 155 over a period of 18-24 months.



8. Disclaimer
Important Notice: Saral Gyan Capital Services is an Independent Equity Research Company.

Disclosure: The author of this article does not hold shares in the recommended company.

© SARAL GYAN CAPITAL SERVICES

This document prepared by our research analysts does not constitute an offer or solicitation for
the purchase or sale of any financial instrument or as an official confirmation of any transaction.
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. Saral Gyan Capital Services (www.saralgyan.in) or any of its affiliates 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 provide for assistance only and is
not intended to be and must not alone be taken as the basis for an investment decision.


Saral Gyan Hidden Gem - Nov 2010

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