JOCIL LIMITED

Ratings Facilities/Instruments Amount (Rs. crore) Ratings1 Remarks Factor (PLF) and realisation for its biomass power unit. PLF increased from 57% in FY09 to 65% in FY10 whilst realisation improved from Rs. 3.45/ KwH to Rs. 3.80/ KwH. Jocil procures its main raw material, non-edible oils from Indonesia and Malaysia through C&F agents located in Mumbai and Singapore. Other process-related raw materials like acid oils and crude glycerine are procured locally from chemical factories in Andhra Pradesh. Expansion Projects In view of the steadily-growing demand for soap products, Jocil has planned an expansion project wherein the manufacturing capacity of fatty acids is proposed to be increased by 150 TPD and soap noodle capacity by 120 TPD. The project is being executed at a cost of Rs.44.55 crore to be financed from Rs. 13 crore of debt and the balance from internal generations and available cash balances. The project is expected to complete by May 2011. As on September 30, 2010, Jocil had incurred an expenditure of Rs. 24.50 crore on the project. Jocil commissioned a windmill unit in Tamil Nadu with an installed capacity of 1.5MW in September 2010, thus increasing total windpower capacity to 4.8MW. The project cost of Rs.8.75 crore was entirely funded from internal accruals. Financial Analysis Total operating income of Jocil grew significantly in FY10 backed by an increased demand for soap and soap products. There was a significant growth in sales volumes for soap noodle and fatty acids. The growth in income was accompanied by an improvement in profitability margins as well. Contribution of raw material prices, the key contributor to operating costs (around 80% of total costs) increased, but was compensated by an improvement in operating efficiency and reduced contribution from manufacturing overheads. The interest and finance charges increased during FY10 on account of additional term loans taken by Jocil to fund its higher working capital requirement in line with increasing operations during the year. Interest coverage however, continued to remain strong for Jocil. The leverage position of Jocil, though deteriorated marginally because of increase in debt, continued to remain strong, for Jocil. The short-term liquidity also continued to remain comfortable characterised by an improvement in receivable collection and consequently, working capital cycle, with comfortable cash balances of Rs.10 crore as on March 31, 2010. The current ratio has remained over 2.0x in the period from FY08 to FY10 and the working capital utilisation for the year upto September 2010 remains a modest 55%. Further, Jocil reported a strong performance in H1FY11, with total operating income increasing to Rs.172 crore as against Rs.147 crore in the corresponding period last year. The company reported a PBILDT and PAT of Rs. 20 crore and Rs. 11 crore for the six-month period. Industry Review and Prospects Toilet soap & intermediate products The market size of branded toilet soap in India is around Rs.6,500 crore, with the existence of key players like Hindustan Unilever (market leader with 53% share), Godrej (10%) and others. The penetration level of toilet soaps is 88.6%. However, with rural penetration levels continuing to be low, the per capita consumption

Long-term Bank Facilities 26.50 (enhanced from 5.25) Short-term Bank Facilities 19.00 (enhanced from 13.00) Total Facilities 45.50

'CARE A+' 'Re-affirmed' (Single A Plus) 'PR1' 'Re-affirmed' (PR One)

Rating Rationale The ratings continue to draw strength from Jocil's track record, experienced management, sound financial position characterized by low overall gearing and moderate profitability, and a favourable industry outlook. Jocil continues to be vulnerable to the risks arising due to the moderate size of its operations, and low bargaining power with customers. The ability of the company to successfully complete its capacity expansion remains the key rating sensitivity. Background Jocil Limited (Jocil) is a public limited company incorporated in 1978 as Andhra Pradesh Oil and Chemical Industries Limited to manufacture toilet soap and fatty acids. In 1982, the company was renamed as Jayalakshmi Oil and Chemical Industries Limited and in 1992, as Jocil Limited. In 1988, The Andhra Sugars Limited acquired a controlling stake in Jocil and has since then, been the holding company. Jocil is headed by Mr. J Murali Mohan, Managing Director, who is ably supported by an experienced management team. Operations Jocil is engaged primarily in the manufacture of fatty acids and soap products (soap noodles and soap bars) at its plant in Guntur District, AP, with installed capacities of 60,000 MTPA for fatty acids, 45,000 MTPA for soap noodles and 18,000 MTPA for toilet soap. In case of soap noodles, it provides manufactured products to FMCG companies on a principal-to-principal basis wherein it undertakes the complete manufacturing process for the soap bars. The company also provides services on a job-work basis, wherein the customer provides Jocil with soap noodles and Jocil converts it into soap bars. Higher production and sales of Jocil in FY10 were driven by increased demand for fatty acids and toilet soap, thus resulting in an improvement in capacity utilization. Also, with a continuing trend in greater contribution from principal- to- principal sales, the capacity utilization for toilet soap increased. Capacity utilisation for fatty acids and soap products increased from 65% and 38% in FY09 to 93% and 55% in FY10. During the same period, prices of fatty acid distillates, the key raw material, declined by 7% to Rs.30,000 per tonne which was passed on to the consumers as reflected in a decline in realisation of soap products by 8% to Rs.44,780 per tonne. Jocil also benefitted from an improvement in the Plant Load

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of most of the products in the country is amongst the lowest in the world. In India, soaps are adequately available in 50 lakh retail stores, out of which, 37.5 lakh retail stores are in the rural areas. Around 70% of India's population resides in the rural areas and around 50% of the soaps are sold in the rural markets. With increase in disposable incomes, rural demand is expected to increase because consumers are moving towards premium products. However, in the recent past there has not been much change in the volume of premium soaps in proportion to economy soaps, because increase in prices has led some consumers to look for cheaper substitutes. The Indian toilet soap industry is growing at around 10% in value terms. The value growth is high because of increasing prices of input raw material viz. vegetable oil. It is expected that the industry will continue to grow at around 9-10% in the coming years. Controlling input cost and increasing competition are likely to be the challenges for manufacturers. The demand for soap-grade fatty acids and soap noodle is derived from the demand for toilet soaps. Fatty acids (Stearic acid) Stearic acid is the most common of the long-chain fatty acids. It is a saturated fatty acid and hence it can be transformed into random shapes. The market size of fatty acid (stearic acid) could roughly be considered around 10,000 mt per month. The key players in the industry are Godrej, Jocil, VVF Ltd. and many other small companies having manufacturing facilities in the duty-free zones. With no close substitute, the demand for the product is likely to increase in future. Duty structure Before FY08, the excise duty rate on Fatty acids and Soap products was 16%. Certain states like Himachal Pradesh and Uttarakhand provided excise duty exemptions to manufacturers, thus enhancing their competitive edge over others. In FY09, the Central Government reduced the excise duty from 16% to 8% as a part of the stimulus programme and also limited the area-based exemptions to only manufacturing units and limited to the value addition undertaken in the manufacture of goods, to incentivize genuine value addition and to avoid misuse of the scheme by undertaking peripheral activities. Further the excise duty has now reverted to the 10% level. In light of the earlier duty rate of 16%, the increase from 8% to 10% seems marginal and may not affect units like Jocil, which are operating outside the duty-exempt areas. Jocil is expected to benefit from the increased demand for soap, however, with capacity addition by major FMCG players, prices may be affected in future.

Financial Results (Rs. Crore) For the period ended / as at Mar.31, 2008 (12m, A) 2009 (12m, A) 2010 (12m, A)

Working Results Net Sales Total Operating income PBILDT Interest Depreciation PBT PAT (after deferred tax) Gross Cash Accruals Financial Position Equity share capital Networth Total capital employed Key Ratios Growth Growth in Total income (%) Growth in PAT (after D.Tax) (%) Profitability PBILDT/Total Op. income (%) PAT (after deferred tax)/ Total income (%) ROCE (%) Average cost of borrowing (%) Solvency Long Term Debt Equity ratio (times) Overall gearing ratio(times) Interest coverage(times) Term debt/Gross cash accruals(years) Liquidity Current ratio(times) Quick ratio(times) Turnover Avg. Collection Period (days) Average Inventory (days) Average Creditors (days) Operating cycle (days)

113 113 15 0 5 12 8 14 4 94 96

193 193 18 0 5 15 10 15 4 100 106

302 302 34 1 5 32 21 26 4 116 127

33.54 49.25 13.29 7.35 10.25 8.01 0.02 0.03 62.01 0.14 3.15 2.45 51 51 19 83

71.29 16.71 9.47 5.01 12.80 7.70 0.03 0.06 54.15 0.22 2.59 2.08 37 32 14 55

55.96 120.49 11.37 7.08 24.19 6.35 0.07 0.09 62.07 0.30 2.20 1.59 33 31 16 48

December 2010 Disclaimer

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