This document recommends buying shares of KEMET Corporation, a capacitor manufacturer, at a price target of $11.27 per share. KEMET has three business segments that drive its valuation: tantalum capacitors with 10% operating margins and 42% of revenue; ceramic capacitors with 17% margins and 22% of revenue; and film and electrolytic capacitors with -7% margins and 36% of revenue. Catalysts for the stock include margin improvements, cost reductions, and the acquisition of NEC-Tokin, which would make KEMET the market leader in tantalum capacitors. The recommendation is based on a discounted cash flow analysis valuing KEMET at $11.27 per share, below its

1. KEMET Corporation
(KEM)
Seamus Sullivan

2. The Company
Recommendation: Buy Price Target - $11.27
Current Price $5.00
52-week range $10.60 – 3.69
Market Cap 464.4M
P/E (2013) N/A
EV/EBITDA (2013) 6.2X

3. The Company
• Founded in 1919
• IPO 1992
• Headquarters: Sampsonville, SC
• Per-Olof, CEO
• 22 locations in 10 countries as of Q2
• 10,000 employees, ~ 600 in US, 5,000 in
Mexico and the rest evenly divided between
Asia and Europe
• Sector: Capacitor Manufacturer

4. The Company
The Company reports three key segments that drive valuation.
1. Tantalum Business: 10% Op margins and ~42% of revenue. Controls ~ 20%
of the market and the third largest maker of tantalum capacitors is KEM's future
partner NEC-Tokin with ~15%
2. Ceramic Business:17% Op margins and ~22% of revenue.
3. Film $ Electrolytic ("F&E"): -7% Op margins and ~36% of revenue. Industry
leader.

5. Catalysts
Achievement of:
• Margin Improvement
– Vertical integration
• Niotan acquisition (now KEMET Blue Powder)
• Reduction in raw material costs that will yield a benefit of $10-$15MM in FY 2013 and
$40MM in FY2014
• F&E Operating Margin Improvements
– Resulting in ~ $6MM lower costs in Europe FY2013
– FY2015 management expects full realization of restructuring plan achieving total
annualized operational cost reductions of ~$25-30MM vs. FY2012
• Realignment initiatives
– Worldwide reduction in workforce
– Consolidation and relocation of manufacturing to lower-cost regions
– Reduction of operating costs/leverage
• Resulting in a lower break even point (~$196-206MM per Q or $784-824MM per FY)
• Acquisition NEC-Tokin
– Received regulatory approval of JV from China Antitrust 12/31/12

6. Acquisitions
• Niotan
– $75MM + $10MM in royalty payments
• $30MM at closing
• $45MM over thirty months
– Makes KEMET the only completely vertically-integrated tantalum capacitor manufacturer in the world
• NEC-Tokin
– $755MM FY2011
– 10% EBITDA
– Total purchase price if consolidated would be $350MM
– No debt placed on KEMET’s Balance Sheet
– “option upside”

7. Kemet Corp
Discounted Cash Flow Analysis
($ in millions, fiscal year ending March 30) Operating Scenario Base
Operating Scenario 1
Mid-Year Convention N Historical Period CAGR CAGR
2009 2010 2011 ('09 - '11) 2012 2013 2014 2015 2016 2017 ('13 - '17)
Sales $804.4 $736.3 $1,018.5 12.5% $984.8 $837.1 $904.1 $949.3 $1,234.1 $1,283.4 5.4%
% growth NA (8.5%) 38.3% (3.3%) (15.0%) 8.0% 5.0% 30.0% 4.0%
COGS 729.1 611.6 752.8 775.7 703.2 741.3 730.9 950.2 962.6
Gross Profit $75.3 $124.7 $265.6 87.8% $209.2 $133.9 $162.7 $218.3 $283.8 $320.9 8.9%
% margin 9.4% 16.9% 26.1% 21.2% 16.0% 18.0% 23.0% 23.0% 25.0%
SG&A 93.5 86.1 104.6 80.9 90.4 85.9 90.2 113.5 116.8
EBITDA ($18.2) $38.6 $161.0 - $128.3 $43.5 $76.8 $128.2 $170.3 $204.1 9.7%
% margin (2.3%) 5.2% 15.8% 13.0% 5.2% 8.5% 13.5% 13.8% 15.9%
Depreciation & Amortization 58.1 52.6 52.9 44.1 41.9 38.0 28.5 37.0 38.5
EBIT ($76.3) ($14.0) $108.1 - $84.1 $1.7 $38.9 $99.7 $133.3 $165.6 14.5%
% margin (9.5%) (1.9%) 10.6% 8.5% 0.2% 4.3% 10.5% 10.8% 12.9%
Taxes (26.7) (4.9) 37.8 29.4 0.6 13.6 34.9 46.6 57.9
EBIAT ($49.6) ($9.1) $70.3 - $54.7 $1.1 $25.3 $64.8 $86.6 $107.6 14.5%
Plus: Depreciation & Amortization 58.1 52.6 52.9 44.1 41.9 38.0 28.5 37.0 38.5
Less: Capital Expenditures (30.5) (12.9) (35.0) (49.3) (48.6) (38.9) (38.0) (43.2) (44.9)
Less: Increase in Net Working Capital 32.6 (15.0) 3.6 (30.9) 7.7
Unlevered Free Cash Flow $27.0 $9.4 $58.9 $49.5 $108.9
WACC 11.0%
Discount Period 1.0 2.0 3.0 4.0 5.0
Discount Factor 0.90 0.81 0.73 0.66 0.59
Present Value of Free Cash Flow $24.3 $7.6 $43.1 $32.6 $64.7
Projection Period
Enterprise Value Implied Perpetuity Growth Rate
Cumulative Present Value of FCF $172.3 Enterprise Value $778.3 Terminal Year Free Cash Flow (2017E) $108.9
Less: Total Debt (361.2) WACC 11.0%
Less: Preferred Securities 6.9 Terminal Value $1,020.3
Terminal Year EBITDA (2017E) $204.1 Less: Noncontrolling Interest
Exit Multiple 5.0x Plus: Cash and Cash Equivalents 160.5 Implied Perpetuity Growth Rate 0.3%
Terminal Value $1,020.3
Discount Factor 0.59 Implied Equity Value $584.5 Implied EV/EBITDA
Present Value of Terminal Value $606.0 Enterprise Value $778.3
% of Enterprise Value 77.9% Implied Share Price 51.8 LTM 9/30/2012 EBITDA 102.5
Enterprise Value $778.3 Implied Share Price $11.27 Implied EV/EBITDA 7.6x
Terminal Value
Implied Equity Value and Share Price
Assumptions
Sales (% growth) NA (8.5%) 38.3% (3.3%) (15.0%) 8.0% 5.0% 30.0% 4.0%
COGS (% sales) 90.6% 83.1% 73.9% 78.8% 84.0% 82.0% 77.0% 77.0% 75.0%
SG&A (% sales) 11.6% 11.7% 10.3% 8.2% 10.8% 9.5% 9.5% 9.2% 9.1%
Depreciation & Amortization (% sales) 7.2% 7.1% 5.2% 4.5% 5.0% 4.2% 3.0% 3.0% 3.0%
Capital Expenditures (% sales) 3.8% 1.8% 3.4% 5.0% 5.8% 4.3% 4.0% 3.5% 3.5%
Tax Rate 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
Working Capital (% sales) 18.8% 19.1% 17.8% 16.2% 15.0%
Valuation

8. Valuation
• Inventory days show the
cyclicality of the sector
and are reaching prior
resistance and standard
deviation
• KEMET has only
traded below
Tangible book value
four time in the last
10years

9. Risks to my call
• Execution risk with the four most significant items being achieving the:
1) $40MM expected from vertical integration of the tantalum supply chain
2) $25MM expected from the phase two of the F&E segment
3) Additional $25MM expected from the incremental operating margin improvements
announced on July 26th
4) Joint venture with NEC Tokin
• KEMET's end markets are cyclical and a potentially extended global economic
slowdown creates challenges which may be compounded by the high fixed costs
associated with the business and KEMET's operating leverage. As with any leverage,
it is a double edged sword
• Substitution of tantalum by other dielectrics given its high relative cost
• Inability to realize benefits from the F&E restructuring program

10. • KEMET is trading at a 22% discount to Tangible Book Value
• KEMET LTM TEV/EBITDA is 7x versus the comparables average of 14x
• Strong history of positive fee cash flow generation
• As a result of the Niotan acquisition KEMET is now the only completely vertically-
integrated tantalum capacitor manufacturer of any appreciable size in the world.
• NEC Tokin full combination provides potential for substantial longer-term benefits and
value creation and would also make KEMET the market leader, at 35%, in tantalum
capacitors
– Tantalum is projected to grow at a CAGR of 11.8%1, which makes it the fastest growing
segment
• Management believes in the restructuring and strategic initiatives.
– This is evident by management as well as directors spending $455,400 in aggregate to
purchase shares in 20012, primarily in May, at prices $5.38-5.77
• Once these initiatives are in place KEMET will be well positioned for substantial gains
1: Paumanok Publications Research
Summary