Operationally better performance: Maintain BUY SH Kelkar & Co Ltd (SHK) posted revenues of INR2,744mn with 16.1% YoY increase which was above our estimate of INR2,589mn. Revenue growth was mainly driven by new product and brand launch and value & volume growth in existing products. Overall domestic business grew by 9.8% (YoY) and Exports shown growth of 25.4%(YoY). Despite 97bps decline in gross margin due to change in product mix, EBITDA margin improved by 297bps, was 234bps higher than our estimate. Surge in margin due to adoption of Ind AS 116for lease – this led to lower rent exp by INR39mn. Adj EBITDA margin were up by 154bps. Adj. PAT came below our estimate at INR185mn (est INR235mn) due to higher finance and depreciation cost (Ind As adjustment). As per management, over the last few months the industry has been witnessing signs of stability in raw material supplies. Management believes that if this environment continues over the next few months, the raw material situation will fully normalize Dominant player in domestic F& F market with diversified product portfolio SHK is the largest domestic player with ~13% market share in Flavour and Fragrance market with ~23% market share in the domestic fragrances market and the company along with Givaudan and Firmenich control more than 60% market. The fragrance market is highly consolidated with the top 5 players controlling ~85% of the total market. F&F constitutes key components of a variety of consumer products and hence are critical raw metrical for FMCG companies. The sticky nature of the business thus acts as a moat for the company. Currently, the company has product basket of over 9,700 products, which they supply to 4,000 customers in the fragrance and flavours segment including long-term relationships with global MNCs (2% of revenue), as well as with domestic players. We believe, due to intensifying competition among FMCG companies, product innovation is expected to gain traction. The company’s products, which are used as raw materials in many FMCG companies, thus will be a critical component of product success. SHK derived 15-20% of its revenue from products launched in past 2-3 years. Additionally, we believe entering into new categories would help the company register revenue CAGR FY19-21E of 10.4%. Strategic shift in ingredients and exports business to drive margins In the past, up until recently, the company has been conducting research and manufacturing activity of ingredients at the Netherlands facility through its subsidiary PFW Ingredients Ltd. This activity is very critical for the company as it forms the backbone of the F&F business. Total ingredients sales from the Netherlands facility stood at ~INR1.6bn (FY18).However, EBITDA margin of the business was negative as it operates from the high cost facility in the Netherlands. Strategically, SHKL has shifted production to its Mahad facility (part of VNCC acquisition) and continues with just R&D in the Netherlands. The Mahad facility was commissioned in sep 2018 and is currently operating at optimum utilization levels. SHKL will also focus on requirements for in-house consumption with incremental R&D spends. By shifting production to India (Mahad), we expect 100bps of improvement in gross margins. Additionally, low labour costs and operating expenses would also result in higher EBITDA margins going ahead. We expect the company to improve its EBITDA margins to15% in the near term, and gradually take it to 18-20% levels over the next 3-5 years. We believe SHK would be a major beneficiary of increasing demand from FMCG companies specifically present in personal care, packaged foods & dairy products. We expect the company to post 10.4% revenue CAGR over FY19-21E led by steady growth in end user industry. We forecast 417bps of EBITDA margin expansion over FY19-21E driven by (a) shift in composition of exports in favor of high value added items and( b) shift in production base of ingredient business fro

Revenues reported at INR 33.7 bn (-0.5% YoY, 9.3% QoQ) led by declining crude production and lower realizations YoY

Robust performance with healthy order book: Revise to Hold GMM Pfaudler Ltd (GMM), for Q1FY20, reported a strong set of numbers. On standalone basis revenue grew by 39.4% YoY to INR 1,303mn (est INR 1,207mn). EBITDA showed growth of 56.8% YoY to INR239mn (est INR203mn) with 200bps YoY improvement in margin from 16.4% in Q1FY19 to 18.4% in Q1FY20, due to favorable product mix mainly led by Glasslined business ,which grew by 46% YoY with 74% contribution in revenue (vs 71% in Q1FY19). However, Heavy engineering business delivered poor performance with 40% decline in revenue and 2.8% EBIT margin compared to 22.1% in Q1FY19. As per the management, the decline in margin was due to cyclical nature of the business and expect improvement in margin going forward. Net profit surged by 61.2% to INR 147mn (est. INR125mn) due to operationally strong performance and lower tax expense (28.4% vs 34.4%). During the quarter, export share in revenue remained at 12%. Most of the export orders were mainly lead by Pfaudler Inc( Parent) network. GMM’s swiss based subsidiary Mavag AG’s posted revenue of INR200mn (est INR241mn) with EBITDA of INR37mn (est INR39mn). Its profit grew by 28.6% (YoY) at INR30mn (est 31mn). For FY20, Management has guided revenue of Swiss franc15mn-16mn (INR1050mn-INR1120mn) with PAT of Swiss franc 2mn-3mn. Glass lined Equipment business to remain mainstay of growth GMM is expanded capacity at its existing facility by 200 vessels per month in June, which is 85% of current monthly run rate (500 EUs in Q1FY20) and thereafter to 240 per month by FY21. The Management is targeting to achieve 2400 equivalent units in by the end of FY20 and 20% volume growth in FY21.Revenue contribution from pharmaceutical industry was restricted to 1/3rdduring Q1FY20 compared to more than half (two year ago) of GL revenue due to the challenging environment in the sector and increased order from chemicals sector. However, the management expects recovery in the pharmaceuticals sector as the capex cycle is poised to witness better pace. The company is already getting enquiries from few companies in the Hyderabad region. Currently, the company has 5 furnaces– 3 electric and 2 natural gas based. During Feb 18, the company installed an additional natural gas furnace, post the installation of which the use of the electric furnaces has stopped. As a result, there was significant saving in power cost, which was already visible during FY19. The company would be installing one more natural gas furnace in Sep19 for increasing capacity. Given the above factors, we expect GMM’s GL revenue to grow at CAGR of 20% over FY19- 21E, with overall revenue growth of 22.5% during the same period. Recent acquisition to provide additional avenue of growth in non GL business GMM is expected to register an exceptional growth in the Non-GL segment with Heavy Engineering and Proprietary Products (Mixing systems, engineered systems, filtration & drying) on the back of high order execution and robust order inflows. The Non-GL business contributed 26% to standalone revenues in Q1FY20. The Company is also bringing Mavag’s high-end technology for filtration, drying and mixing applications to GMM’s India business. During the quarter GMM integrated the mixing solution business of Sudarshan chemicals Ltd. This business has revenues of INR 320mn with EBITDA margins of 20-22% for FY19. GMM paid 4 times EBITDA for this acquisition. As GMM is already into mixing solutions, we expect this acquisition can also help GMM to cater to different industries like fertilizers, minerals and metals, which provide good growth opportunity in INR 3bn mixing solution market in India. Moreover, with health export opportunity in Non GL business lead by Pfaudler Inc( Parent ) network, we expect a gradual increase in export share from 12% to 15% going forward. We modeled 27.7% revenue growth in Non-GL (incl Mavag AG) over FY19-21E. Valuation and Outlook : GMM has a leadership position in

Glenmark Pharmaceuticals reported Revenue growth of 7.3% YoY (down 9.4% QoQ) while Net Profit declined 53.1% YoY (down 32.4% QoQ).

Net sales of INR 15.7 bn (+22.3% YoY, 2.2% QoQ) driven by robust volumes and increased realizations.

Better segmental performance; poor demand visibility to dent earning in near term Aarti Industries Ltd (AIL), for Q1FY20, reported steady set of numbers. Revenue has grown by 8.8%(on adjusting HPC business revenue) mainly due to higher utilisation across all segments. EBITDA grew by 26.1%YoY to INR2.36bn with 439bps improvement in margins to 21.7% on account of increasing share of value added and high margin products. Net profit grew at a higher pace of 53.9% to INR 1.37bn, due to slower growth in depreciation and decline in interest expenses bolstered by operationally strong performance. AIL saw 15% yoy jump in export sales to INR 4.55bn and accounted for 42% of revenues. Higher realization with favorable margin profile compensated to low volume growth During the quarter, the speciality chemicals business, which accounts around 82.4% of AIL’s overall revenues. EBIT margin has also shown 349bps improvement on the back of increasing share of value added and high margin products. AIL is expanding its nitrochlorobenzene capacity from 75,000MTPA to 108,000 MTPA resulting in a capex of INR1.5bn. These capacities would be fully commissioned in two phases, Phase 1 in end of FY20 and Phase 2 in FY21. The expanded capacity would not only help in meeting the increasing domestic demand but also for downstream captive requirement. Pharma business: Continuing growth momentum The pharmaceutical segment reported strong growth of 27.6% in Q1FY20, aided by expanding volumes across markets, higher share of value adds such as xanthene derivatives and opportunity from disruption in China. EBIT margin came at 16.8% on the back of increasing share of value-added products and operating leverage benefit. The Management expects pharma revenues to grow at 20-25% with margin improvement. Since major fixed costs are already built-in, incremental volumes will result in significant increase in segment profits. We expect AIL’s pharma segment to deliver strong revenue growth of 21.5% CAGR over F19-FY21E. Demand slowdown to hurt volume growth in H2FY20 Due to poor visibility led by slowdown in global agrochemical and automotive sectors (account for ~50% of revenue), the management has lowered its growth outlook for H2FY20 and guides for a downside risk to its FY20 earning guidance of 15-20%. Valuation and Outlook AIL is well placed to capture the benefit on account of shit in manufacturing base from western countries to emerging economics like India and China. With China facing environmental and cost pressures leading to the creation of a supply risk situation. This situation is beneficial for the company and it is expected to capitalize this opportunity and increase its market penetration. Improving demand visibility and new product introduction would lead to increased capacity utilization. However, cautious demand outlook for H2FY20 in speciality chemical segment can act as headwind in near term. Overall, we remain optimistic on the future growth prospects of the company. Hence, we retain our Hold rating, with a revised price target of INR1,747 (from earlier INR1,881) by assigning P/E of 21x on its FY21E earnings.

Revenues came in at INR 267.6 bn, (+11.6% YoY, -3.4% QoQ) led by lower realizations and declining oil production.

Sun Pharmaceutical Industries reported Revenue growth of 15.9% YoY (down 16.9% QoQ) and Net Profit growth of 41.2% YoY (up 118.2% QoQ).

Achieves highest ever sales volume in Q1FY20…