Hidden Gem - Sept 2015, Ultramarine & Pigments Ltd

1. UNEXPLORED MULTIBAGGER SMALL CAP STOCKS
EQUITY RESEARCH REPORT
ULTRAMARINE & PIGMENTS LTD. BSE CODE: 506685
Industry: Specialty Chemicals CMP: Rs. 83.35 (11/10/2015)
Market Cap: 243.38 (INR in Crore) Target Price: Rs. 150
Date: Oct 11, 2015 Time Period: 12 – 24 months
Saral Gyan Capital Services
An Independent Equity Research Firm
www.saralgyan.in | www.saralgyan.com

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TABLE OF CONTENT
S.No Content Page No.
1. Company Background 03
2. Recent Developments 06
3. Financial Performance 07
4. Peer Group Comparison 09
5. Key Concerns / Risks 09
6. Saral Gyan Recommendation 10
7. Disclaimer 12

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1. Company Background
Established in 1960, Ultramarine
& Pigments has its manufacturing
facilities at Ambattur, Madras and
Ranipet in North Arcot,
Tamilnadu. It is the largest manufacturer of ultramarine blue and synthetic detergents.
The company also manufactures ultramarine colours, organic and inorganic pigments,
metal powders, chemicals, raw materials for the paint industry, varnishes, enamels, oils
and plastics. Company’s sales footprint has expanded from 2 countries to 50 countries
and is still growing widely in emerging markets in Latin America and Africa.
This is the only company in India to receive the ISO 9002 certification for both laundry
and industrial grades of ultramarine blue.
In 1987, the company diversified by setting up a unit to manufacture HDPE woven sacks.
In 1995, the company purchased about 150 acres of land in Coimbatore, Tamilnadu, and
set up four windmills which can generate one MW of electricity pa. The company also
set up a new plant in Sep.'95, to manufacture synthetic detergent bars/cakes with an
installed capacity of 15,000 mtpa.
In 1995-96, the company issued bonus shares in the ratio 1:1. Later in year 2005,
company again issued bonus shares in the ratio 3:5.
In April 96, company started manufacturing alkyl benzene sulphonic acid with a capacity
of 16,000 mtpa. During 1996-97, the company has set up a Linear Alkyl Benzene
Sulphonic Acid plant with an installed capacity of 16,000 mtpa. In 1997-98, the company
expanded the installed capacity of its Ultramarine Blue by 1,500 MT. The company has
amalgamated with Sri Narasimha Plastic Industries Pvt. Ltd. in 1999-2000 which enabled
the company to carry out the combined HDPE business more economically and
advantageously. Also during the year, the ultramarine blue unit and detergent unit at
Ranipet has been awarded ISO 9002 Certificate.
Company also launched its IT Enabled Services Division at Chennai. The company
diversified into the ITES segment and started Lapiz Digital Services in early 1993, which
has been performing well in its sector.
During 2000-2001, the company received ISO 14001 Certificate for Blue and Detergent
Divisions at Ranipet during 2000-2001. The company has expanded the installed
capacity of HDPE/PP Woven Fabric during the year 2003-04 by 180 MT and with this
expansion, the total capacity has risen to 900 MT.
Ultramarine & Pigments Ltd is equipped with an excellent infrastructural setup which
includes most modern production equipment, process and Quality control instruments,

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continuously updated technical know-how, Quality management and assurance
systems. The Quality assurance system ensures that every batch of products conforms
to the grade specification in all aspects.
Technically superior approach to analysis and measurements are constantly identified
and implemented. Besides, the organization has implemented ISO 9001 Quality system
management standard and ISO 14001 Environment system management standard.
Company operates in 3 segments, Pigment division, Surfactants division and IT division.
Pigment Division
This division caters to the domestic & export markets. Unseasonal rain in South India
affected the demand from the domestic market, causing a dip in sales. The European
market remained flat this year, and did not show any revival. This division achieved a
net revenue of Rs. 60.17 crores (4152 MT) as compared to Rs. 54.58 crores (4542 MT) in
financial year 2013 -14. Due to a better product mix, realization per MT was improved
by 21% resulting in a better profitability.
Surfactants Division
The Company has achieved a net revenue (including processing) of Rs. 79.10 crores
during the financial year ended March 31, 2015 as against Rs. 65.41 crores in the
previous year, showing an increase of 21%. This improvement in revenue and the
margins is due to a sustained focus on broadening the customer base, with an emphasis
on the organized sector and corporate customers. The increase in margins is also
attributable to the improved supply of imported Alpha Olefin (a key raw material) in the
first two quarters of the year. However in the latter part of the year, due to the volatility
of crude prices, we faced erratic and inconsistent supply of raw material.
IT Division
In FY 2014-15, IT division of the company reported an income of Rs. 28.88 crores, an
increase of 5% over last year. As per management, the profitability has improved
considerably (15%) due to better margins and controls on overhead costs.

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Products & Services
Pigment Division:
 Ultramarine Blue
 Ultramarine Violet
 Bismuth Vanadate Yellow
 Mixed Metal Oxides
Surfactants:
 Linear Alkyl Benzene Sulphonic Acid
 Alpha Olefin Sulphonate
 Sodium Lauryl Sulphate
 Sodium Lauryl Ether Sulphate
IT Division & Others:
 IT Enabled Services
 Dry Mixed Detergents
 Wind Mill Generation
Wind Mill Generation
In FY 2014-15, the total revenue of the windmills was Rs. 216 lacs, an increase of 24%
over the previous year. Company repaid the entire term loan availed from EXIM Bank,
and as a result, faced lesser interest charges. This helped company to improve the profit
from the Windmills significantly. In the coming years, company hope that the
constraints and bottlenecks faced by Windmill operators will be reduced, as the Tamil
Nadu State Grid capacity is augmented. This will help the company to avoid production
loss during peak season.

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2. Recent Development
Plan to expand Surfactant business with initiation of Gujrat-Dahej Project
Gujrat Industrial Development Corporation (GIDC) is in the process of establishing
infrastructural facilities at the industrial site at Dahej, Gujarat. The Company has paid
water contribution charges for the year, and is waiting for further progress, based on
which the Company will initiate the necessary steps for setting up the project to expand
its Surfactant Chemical business.
Increasing Focus on IT Enabled Services
In ITES division, company has a renewed focus on improving the operational efficiency,
broadening of customer base and enhancing the revenues of the domestic division.
ITES division reported an income of Rs. 28.88 crores in FY 2014-15, an increase of 5%
over last year. The profitability has improved considerably (15%) due to better margins
and controls on overhead costs. In FY2013-14 EBITDA margin of this segment was
20.4%, in FY2014-15 it was at 22.4%, increased by 200 basis points.
With recent initiatives and developments, company is expected to deliver better top line
and bottom line growth with increase in operating margins.
Promoters consistently increasing their stake in the Company
As per shareholding pattern submitted by the company for Sept’15, promoter’s
shareholding in the company is 51.99%. Promoters have increased their holding by
1.38% in last one year and by 4.83% in last 3 years.
YEAR FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Sept'15
Promoters Holding 48.94% 47.16% 49.55% 50.61% 51.62% 51.99%
% Increase (YoY) 0.0% -1.78% 2.39% 1.06% 1.01% 0.37%
Promoters buying own company's share from the open market is a signal of highest
commitment and confidence in the company's business. From above, it is evident that
management of Ultramarine & Pigments Ltd has steadily made purchases via open
market to increase their stake in the company.
Promoters buying shares from open market adds comfort in terms of associated
downside risk in stock price in case of market correction.

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3. Financial Performance
Ultramarine & Pigments standalone net profit rises 3.6% in the June 2015 quarter
Net profit of Ultramarine & Pigments rose 3.6% to Rs 5.22 crore in the quarter ended
March 2015 as against Rs 5.04 crore during the previous quarter ended March 2014.
Sales rose 21.1% to Rs 50.8 crore in the quarter ended March 2015 as against Rs 41.96
crore during the previous quarter ended March 2014.
Ultramarine & Pigments standalone net profit rises 25.17% in the March 2015 quarter
Net profit of Ultramarine & Pigments rose 25.17% to Rs 3.68 crore in the quarter ended
March 2015 as against Rs 2.94 crore during the previous quarter ended March 2014.
Sales rose 4.06% to Rs 41.55 crore in the quarter ended March 2015 as against Rs 39.93
crore during the previous quarter ended March 2014.
For the full year, net profit rose 30.23% to Rs 18.74 crore in the year ended March 2015
as against Rs 14.39 crore during the previous year ended March 2014. Sales rose 14.46%
to Rs 171.66 crore in the year ended March 2015 as against Rs 149.98 crore during the
previous year ended March 2014.
1 2 3 4 5 6
Net Sales 39.93 41.96 43.8 44.53 41.55 50.8
Net Profit 2.95 5.04 4.53 5.49 3.68 5.22
39.93
41.96
43.8 44.53
41.55
50.8
2.95
5.04 4.53 5.49
3.68
5.22
0
10
20
30
40
50
60
RsinCrores
Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15
Last 6 Quarters Net Sales & Profit

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Current & Expected Earnings
Quarterly Ended Profit & Loss Account
In FY 14-15, the overall performance of the Company both in terms of revenue & profit
before tax increased by 14% & 27% respectively. The total revenue was Rs. 172.21
crores & profit before tax was Rs. 27.51 crores. The profitability of all the major
segments improved due to several steps initiated by the management.
We believe company will continue to show improvement in operating margins from ITES
division and its exports sales with increase in product offerings.
Particulars
(Rs in Crores)
Sep
2014
Dec
2014
Mar
2015
Jun
2015
Sep
2015 E
Dec
2015 E
Audited / UnAudited UA UA UA UA UA UA
Net Sales 43.8 44.53 41.55 50.8 51.37 54.21
Other Operating Income 0.16 0.13 0.15 0.12 0.18 0.16
Total Income - Operations 43.96 44.66 41.7 50.92 51.55 54.37
Raw Materials Consumed 21.18 17.52 15.42 24.66 24.14 26.42
Purchase of Traded Goods -- -- 0.01 -- -- --
Increase/Decrease in Stocks -3.06 1.59 2.58 1.45 0.08 1.80
Power & Fuel -- -- -- -- -- --
Employees Cost 7.99 7.56 8.14 8.07 8.56 8.19
Depreciation 0.82 0.81 0.75 0.73 0.74 0.72
Provisions And Contingencies -- -- -- -- -- --
Other Expenses 9.77 9.35 10.1 8.69 9.90 10.31
P/L Before Other Income 7.26 7.83 4.7 7.32 8.15 11.63
Other Income 0.36 0.46 0.47 0.63 0.44 0.53
P/L Before Int., E. Items & Tax 7.62 8.29 5.17 7.95 8.59 12.16
Interest 0.15 0.11 0.11 0.06 0.06 0.06
P/L Before E. Items & Tax 7.47 8.18 5.06 7.89 8.53 12.10
Exceptional Items -- -- -- -- -- --
P/L Before Tax 7.47 8.18 5.06 7.89 8.53 12.10
Tax 2.94 2.69 1.38 2.67 2.88 4.05
Net Profit/(Loss) 4.53 5.49 3.68 5.22 5.65 8.05
Equity Share Capital 5.84 5.84 5.84 5.84 5.84 5.84
Calculated EPS 1.55 1.88 1.26 1.79 1.93 2.76
Calculated EPS (Annualised) 6.2 7.52 5.04 7.16 7.74 11.03
No Of Public Shares Holding 1.42 1.42 1.41 1.41 1.40 NA
Public Share Holding (%) 48.53 48.53 48.38 48.27 48.01 NA

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4. Peer Group Comparison
PEER GROUP
ULTRAMARINE
& PIGMENTS
PODDAR
PIGMENTS
ASAHI
SONGWON COLORS
VIDHI
DYE-STUFFS
CMP 83.35 123.50 130.20 64.50
52 W H/L 91.25/60.00 158.00/105.05 178.95/105.15 66.40/8.40
Market Cap 243.38 131.03 159.78 322.15
Results (in Crores) Jun-15 Jun-15 Jun-15 Jun-15
Sales 50.80 75.31 57.86 59.05
PAT 5.22 3.77 5.04 3.80
Equity 5.84 10.61 12.27 5.00
EPS (TTM) 6.48 15.19 15.11 2.77
P/E 12.86 8.13 8.62 23.29
5. Key Concerns / Risks
 The domestic market for pigments continued to pose challenges. There is shrinking
demand for laundry and white washing applications, and there is a slowdown in the
manufacturing sector.
 As there was an erratic supply of Alpha Olefin due to fluctuations in crude pricing.
This has had an adverse impact on the Surfactants division, and has limited company
plans to expand its customer base.
 Revenues in the detergents division are limited by the need for huge outlays on sales
promotions and distribution for retail sale. While company has consolidated its retail
operations for detergents and its retail pigments, overheads remain prohibitive and
a limiting factor.

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6. Saral Gyan Recommendation
Ultramarine & Pigments has made a continuous effort to bring in more value added
products in pigments division, and has developed products like violet, cobalt blue &
yellow. This will help company in improving overall realization of Pigments division.
The utilization of the sulphonation plant capacity will also improve due to
committed off take of sulphonated products by leading corporates.
In ITES division, company has a renewed focus on improving the operational
efficiency, broadening of customer base and enhancing the revenues of the
domestic division. We expect company will continue to achieve good revenue
growth and profitability from its ITES division going forward.
In FY 2014-15, exports earnings of the company have increased by 17% (Rs. 55.56
crores as against Rs. 47.29 crores) on account of better performance of both
manufacturing & ITES divisions. The Company continues to focus on the export
market. Management has been consistently successful in broadening the customer
base and at offering custom grade material at faster pace. In order to improve
realization, company has focused on offering finer grades of material. The emphasis
on in-house R&D augurs well for export market.
Company’s EBITDA and PAT margins are expected to improve considering better
margins from IT segment and focus on exports with increase in product offerings.
Key Financial Parameters Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015
Return on Equity (%) 20.40 17.55 14.16 16.50 19.50
ROCE (%) 19.41 17.19 14.15 16.50 19.65
Operating Profit Margin (%) 19.57 17.49 14.97 17.02 17.09
Net Profit Margin (%) 12.98 10.34 8.50 9.80 10.85
Debt to Equity (%) 0.1 0.12 0.07 0.02 0.0
Working Capital Days 110 108 120 144 163
Ultramarine & Pigments is a debt free company with reserves of Rs. 99 crores.
Promoter’s shareholding is at 51.99% (as on Sept’15) without pledging any shares.
FII shareholding in the company is nil and DII shareholding is negligible at 0.14%.
Management has rewarded shareholders by paying regular dividend in the past. For
FY 14-15, the company has paid dividend of 150% i.e Rs. 3 per share. At current
share price of Rs. 83.35, this results in a dividend yield of 3.6%.
YEAR Mar'11 Mar'12 Mar'13 Mar'14 Mar'15
EPS 5.24 4.82 25.60 17.93 11.15
Dividend / Share (In Rs) 3.00 3.00 2.25 2.50 3.00

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Gujrat Industrial Development Corporation (GIDC) is in the process of establishing
infrastructural facilities at the industrial site at Dahej, Gujarat. The Company has
paid water contribution charges for the year, and is waiting for further progress,
based on which the Company will initiate the necessary steps for setting up the
project to expand its Surfactant Chemical business.
During last 3 years, promoters have increased stake by 4.83% in the company.
Considering reasonable valuations and good future prospects, we expect promoters
will continue to buy the shares from open market to further increase their stake in
the company. Moreover, management has been maintaining a healthy dividend
payout of 56.3% and rewarded shareholders by issuing bonus shares in the ratio 3:5
in 2005 which is impressive.
As per our estimates, Ultramarine & Pigments Ltd can deliver PAT of 26 crores for
full financial year 2016, annualized EPS of Rs. 8.9 with forward P/E ratio of 9.4X for
FY16. Valuation looks attractive for a debt free company with expected expansion in
its profit margins.
On equity of Rs. 5.84 crore, the estimated annualized EPS for FY 15-16 works out to
Rs. 8.9 and the Book Value per share is Rs. 34.07. At current market price of Rs.
83.35, stock price to book value is 2.45.
Considering company’s initiatives to increase its product offering with focus on higher
revenues from exports, improvement in operating efficiency from IT division and
company’s expansion plans to drive business growth, Saral Gyan team
recommends “Buy” on Ultramarine & Pigments Ltd at current market price of Rs.
83.35 for target of Rs. 150 over a period of 12 to 24 months.
Buying Strategy:
 80% at current market price of 83.35
 20% at price range of 70-75 (in case of correction in stock price in near term)
Portfolio Allocation: 2-3% of your equity portfolio.

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