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REGISTER NOW OR LOGINThousands of have lived without love but not one without water – W.H.Auden
Water is so common in our life that most of us doesn’t know how it is managed. India has only 4% of the world’s fresh water which satisfies the 16% of the world’s population and that means we have a lot water management to do. Today, more than ever it has become imperative that water be effectively managed not just at the source but throughout its life cycle.
I am a proud Indian but there is one problem with my nation, why is it so filthy? When we can send a rocket to the Mars why can’t we fix this problem.? Are we Incapable to doing so or are we unwilling to do so? But then we are changing slowly but surely, The big industries can’t let their Waste run through the Ganges anymore, From the textile companies in Tamil Nadu to the Wheat Industries in Punjab have started to treat their waste in efficient manner.
This change has become the Gold mine for the company Ion Exchange India Ltd.
About the company – Ion Exchange is engaged in a wide range of solutions across the water cycle from pre-treatment to process water treatment, waste water treatment, recycle, zero liquid discharge, sewage treatment, packaged drinking water, sea water desalination etc; With 56 years of legacy the company has established a long standing presence in the Industry with more than 100,000 Installations worldwide. IEL India started its journey as a flagship company for the Ion Exchange Group London but the Foreign holding has been reduced in stages and now is owned by the Indian promoters since 1985. The Company’s main activity remains trading in water filtration equipment, water chemicals, resins and taking up projects of installing water filtration plants of any nature. Headquartered in Mumbai, the company has seven manufacturing & assembly facilities across India, and one each in Bangladesh, UAE, Bahrain and Indonesia. It also has presence across other key geographies.
Key segments – The company has three major segments namely, Engineering (contributes 61% of the revenue), Chemicals (31% of the revenue) and Consumer segment (8% of the revenue)
Engineering segment– The segment remains one of the major contributors of the revenue accounting for 61% of the total sales. In this segment the company provides pre designed and pre-engineered products catering to small industries, the company also offers customised solutions to heavy industries.
Chemical segment – Chemicals segment contributed 31% of the sales. The company provides a wide range of resins, specialty chemicals and customised chemical treatment programs for water, non-water and specialty applications. The profit from the chemical segment grew the highest of 39% owing to increasing acceptance of the product both in the domestic and International as against other major countries like China
Consumer Product – The segment contributed 8% of the revenue and the segment caters to individuals, hotels, spas, educational institutions, hospitals, laboratories, railway and defense establishments providing safe drinking water and a clean environment. The segment has added four new products in the UV and RO categories and they market their product under the brand Zero B.
Pandemic A boon or Bane for the Company – Covid was indeed a nightmare for most of the companies and Ion Exchange is certainly one among them but then the pandemic has yet again emphasied the importance of clean water and water conversation and this is especially for a country like us where 163 million doesn’t have access to clean and safe drinking water. As India like the rest of the world moves ahead on the path of recovery, the Company has a strategy as already defined in the future outlook section, for ensuring business growth both in the domestic and international market
Competitive edge of the company
Established Market position – Ion Exchange has long standing experience and strong expertise in providing full range of products and services in the water treatment segment with a 100,000+ installations worldwide and this has helped the company in establishing itself as an Iconic brand in the Industry.
Diversified Revenue – The revenue of the company is well diversified not only to various segments like Engineering and consumer but also its products and services cater to various Industries from the small scale units to the Large Multinational giants and its ability to provide services to the lower and the upper segments of the demand pyramid. This will ensure that the companies future revenue will not be impacted due to slowdown in anyone of the Industry.
Marquee Clientele base – The company clientele list includes the list of renowned companies like the Tata group of companies, Reliance Industries, NTPC, Oberoi Hotels, DLF, Apollo Hospitals and many more. The list also includes some of the International clients like Kargill Group, Kawakshi, Mitsubishi, Unilever group, Emirates steel etc… It is always good to have a clients who have a deep pocket and this has aided the company to have a low turnover ratio of 7 days.
Increasing Global Footprints - Headquartered in Mumbai, the company has seven manufacturing & assembly facilities across India, and one each in Bangladesh, UAE, Bahrain and Indonesia. It also has presence across other key geographies. The company has expanded its footprints globally and the exports contribute 38% of the revenue of the company. IEL has received a order from the south Asia’s largest paper company for their unit in Philippines and Indonesia, where the water plant will treat 23 million liters of waste water. Apart from its strong presence in Asia, the company also exports its chemicals to USA, UK, Europe and Canada. The products of the company also enjoyed increased acceptance in the domestic and international market against products from other countries, especially China and a global trend towards diversifying vendor base away from China is expected to continue benefit the company in the near term.
Strong Order Book - ION has a strong order book despite the Order book build up got severly hit by the pandemic. The company has received a major EPC order worth USD 194 Million water supply project from the Sri Lankan Water Board. Apart from the Sri Lankan project the company has a pre booking for its engineering products worth 62 crores and the company also had a Pipeline projects worth 50 crore as on Dec 2020.Going forth, with the economy reviving at a significant pace, we could see the Order book of the company become Stronger.
Threats for the company
Working Capital Intensive Operations – Water is not sophisticated but the Water Management business is Large and Time consuming. For Instance the companies gross current assets were high, at 235 days as on March 31, 2019, mainly led by rise in cash levels owing to receipt of advance from the Sri Lanka project along with high receivables at a consolidated level. Receivables stood at 139 days as on March 31, 2019.Payables have increased to 203 days as on March 31, 2019, from over 190 days during the past few years. Thus it is important for the company to maintain a healthy working capital at any given point of time and The group, to an extent, is protected against working capital issues due to back-to-back arrangements with suppliers.
Valuation and other metrics
Ion Exchange has one of the most phenomenal numbers which backs the growth the Growth story of the company,Ion Exchange clocked a PAT growth of 53% CAGR for the past three years with a 13.5% Average sales growth for the past three years.
The Growth story is amazing but what about the Valuations?
Ion Exchange is trading at a PE of 17.1 times (Industry PE 21.1) with a Market cap of 1780cr and the 52 week price band of the company is 1282/502. The company has given a 35% over the past three years on CAGR basis. With a book value at 274rs the company is currently trading at the range of 1200 which offers a less Margin of safety. While a low P/E ratio may make a stock look like a good buy, factoring in the company's growth rate to get the stock's PEG ratio may tell a different story. The lower the PEG ratio, the more the stock may be undervalued given its future earnings expectations. The companies PEG ratio is at 0.31x which offers makes the company more attractive for the long run.
The story behind the charts
The above chart is the one day chart of the company and we could see that the price is consolidating at the higher levels. The RSI Indicator is neutral though the price is trading near all time high. The two moving averages that I have added are 50 and 100 day simple moving averages and the 50 Day moving average is well above the 100 day moving averages which indicates the bullishness in the price of the stock.
The company has its immediate Resistance at the 1240 levels and a Break out from the zone can lead to higher appreciation of the prices. The Fist support for the company is at 1214 zone and a break down could lead to fall and the next strong support is at 1000 which also happens to be a psychological support.
In technical terms, one can closely monitor for a breakout and create fresh position and the next strategy in case of a breakdown would be to acquire the stock near the psychological support at the 1000 levels.
The Road Ahead.
The growing population and the economic development is putting enormous pressure on finite water sources and the global climate change is aggravating it further. With strong foundation and Immense opportunities, the company is geared up for the for the future prospects in the store and Ion Exchange will continue its pursuit of leading the change.
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