a time for midcaps - india...

Recommendation snapshot

Company CMP (Rs)

Target (Rs)

Apollo Hospitals 759 840

Apollo Tyres 87 102

Cox and Kings 141 185

Dena Bank 109 130

GSPL 77 92

ING Vyasya 464 535

JK Lakshmi Cements 127 175

Jyothy Labs 169 197

Jyoti Structures 47 63

Motherson Sumi 156 181

Talwalkars 192 235

Tata Global 157 184

Policy areas likely to be addressed • Labour reforms

• Land acquisition bill

• Direct subsidy

• PSU disinvestment programme

• Mining & environment related

• Telecom spectrum auction

FII flows run rate one of the highest in the past several years

18.0

29.3

17.6

(0.5)

(12.9)(20)

(10)

‐

10

20

30

40

CY08

CY09

CY10

CY11

YTDCY12

US$bn

Source: Bloomberg, India Infoline Research

Theme ReportOctober 25, 2012

Amar Ambani [email protected]

India Strategy

A Time for Midcaps

Nifty: 5,691 Sensex: 18,710

Indian equities have rallied since September on the back of global quantitative easing and a new found vigour by the Indian Government for decision making. The open‐ended approach to QE3 is likely to have a prolonged positive impact on equities and unlikely to create asset bubbles in commodity prices due to excess capacity and a slowing China. The near to medium term will see portfolio flows continuing into emerging markets with decisive Governments. We expect more action by the Indian Government in the coming months (Here itself lies the biggest risk to our call). Other factors like rate cuts, benign commodity prices, correction in current account deficit and a consequent appreciation in the Rupee are added triggers. Whether this is just another ‘risk on’ trade or the start to a new bull market is open for debate. Nevertheless, the current situation presents a tactical opportunity for equities, not to be missed. After the September rally, the benchmark indices offer a potential 7‐10% appreciation from current levels. But if the money flow continues at the current monthly run rate, quality midcaps can see 20‐30% upside, and is the place to be. We prefer a bottom up approach and recommend 12 midcap stocks worth adding to the portfolio.

Reforms and money supply: There’s more to come Indian equities have rallied after global easing coincided with the Indian Government getting into action on the policy front. Compelled by the fear of a downgrade of the country rating to junk status, the UPA shrugged off the lethargy and announced a slew of measures from diesel price hike and capping of subsidies to opening up of foreign investment in many sectors.

The Congress‐led UPA has managed the numbers in Parliament and is likely to go ahead with more reforms. This is because downgrade fears may have subsided for now, but they have not been dispelled completely. The ruling Government is also looking for an image makeover. The Winter Session holds the key here. Even in the low probability event of an early election (anyways may just be a few months before the due date), the Government may be seen as martyr of sorts, rather than an under‐achiever.

The timely action from global central banks helped equity markets immensely. On September 13, 2012, the US Federal Reserve announced another quantitative easing programme, the third of its kind. But this time it was different. The Fed’s easing focuses on mortgage‐backed securities and not Government bonds and is an open‐ended programme, both in terms of time duration and amount involved. The ECB and the Bank of Japan also convened similar monetary action. What’s more, the Fed promised to keep interest rates low till 2015. We read this as a sign of abundant liquidity flow, largely favouring equities.

To call this a bull market would be premature with trouble still brewing in many parts of the world. Unless Governments take concrete measures, economies could easily head back into a recession. But one thing is clear; money flow will remain upbeat in countries with decisive Government action, till the ‘risk on’ trade lasts. Already, net FII flows into Indian stock market have been $18bn year‐to‐date and $5bn since QE3 in September till date.

India Strategy – A time for midcaps

2

Low risk of commodity price bubble Unlike the previous rounds of quantitative easing, the risk of a speculative bubble in commodities is low due to excess global capacity and a slowing Chinese economy. Softening commodity prices augur well for emerging market economies like India and will boost margins of many corporates. Improvement in current account deficit likely The INR depreciated 18.4% from 46.7 to a low of 57 v/s the USD and is currently trading at 53.6 levels. The worst may be over for the Rupee. The current account deficit can be expected to correct to 3.5% of GDP from 4.2% currently on account of lower crude oil price, drop in gold imports and higher exports growth trajectory. The Rupee carry trade favours portfolio flows into India. A stronger INR will also help taming inflation. Rupee carry trade looks favourable

40.0

44.0

48.0

52.0

56.0

60.0

Oct‐09 Apr‐10 Oct‐10 Apr‐11 Oct‐11 Apr‐12 Oct‐12

(INR/USD)


CAD may have hit peak level World economy slowing; crude price consolidating

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1.0

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Dec‐07

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(As % of GDP)

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60

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100

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140

160

Apr‐08

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Oct‐12

(US$/BBL)



3

Rate cut on the anvil The consensus is that the interest rate cycle has peaked and rates can only fall from current levels. Already, rates on deposits, home and auto loans are on a downward trajectory. Although system liquidity has eased considerably, our banking analyst expects another CRR cut in the next policy meet on account of festive season. Drop in food inflation as revealed in the recent release is a big positive. We expect the central bank to cut repo rates in the first month of the new calendar year. This is the beginning of the downtrend in interest rates. System liquidity benign Inflation trajectory encouraging in recent months

(2,000)

(1,500)

(1,000)

(500)

‐

500

1,000

1,500

2,000

Feb‐07

Aug‐07

Feb‐08

Aug‐08

Feb‐09

Aug‐09

Feb‐10

Aug‐10

Feb‐11

Aug‐11

Feb‐12

Aug‐12

(%)

0

5

10

15

20

25

30

35LAF (LHS) Credit growth (RHS)(Rs bn)

4.0

6.0

8.0

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12.0

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Sep‐10

Dec‐10

Mar‐11

Jun‐11

Sep‐11

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WPI (%)


ROE at trough; P/E expansion on the cards India has historically enjoyed a significant valuation premium over other emerging markets due to its low cost of capital and high return on equity (ROE) differential. But the ROE premium significantly narrowed from an average of 5 percentage points during 2004‐2008 to a low of ~2 percentage points. FY11 onwards saw a big fall in the ROE differential. Although premature to predict a ROE reversal to 2004‐08 levels, it appears that a trough may have been hit. With interest rates set to fall, relief on the margin front for corporates and cyclical improvement in certain sectors, the situation appears improved. Even though GDP growth has been downgraded, the analyst community will wait for clarity to emerge before making significant changes to Nifty and Sensex earnings estimates. With improvement in business sentiment and money flow into equities, there is a case for expansion of the market trading multiple, currently at 13.5‐14x FY14E earnings, to 15‐odd times. This would translate into a Nifty and Sensex target of 6,300 and 20,000 respectively. Bottom up approach key; a time for midcaps While the medium term outlook for equities looks upbeat, many frontline sectors and stocks are facing headwinds. Metals, Capital Goods, Automobiles, Utilities, Telecom, Real Estate and PSU banks are sectors grappling with uncertainty. Among the large index names, the likes of Reliance, L&T, BHEL and Infosys are rated market performers at best. In our view, a bottom‐up approach, tactically targeting good quality midcap names is the way to go to boost portfolio returns in the medium term. While the target for leading indices mentioned above suggest a 7‐10% upside possibility, many midcap names can deliver relatively higher returns. In stock selection, business and earnings visibility, good governance and cashflows need to be kept in mind.


4

Midcaps and ancillaries appear better placed Sector View

Auto Negative

Auto‐Ancillary Positive

Pvt. Banks Positive

PSU Banks Neutral

NBFC Positive

Capital Goods Negative

Large‐cap Cement Neutral

Midcap Cement Positive

Large‐cap IT Neutral

Midcap IT Neutral

Oil & Gas Neutral

Ferrous Metals Negative

Non‐Ferrous Metals Negative

FMCG Positive

Health Care Positive

Power Negative

Power Ancillary Positive

We like the midcap cement pack where demand scenario is looking up especially for the Northern region players. Auto Ancs will benefit from replacement demand, more vehicle manufacturers and increasing trend of indiginisation. There are also other themes which may do well like power ancillaries, infra related stories, debt restructuring candidates. We have identified 12 potential winners from the rack. Buy recommendation summary

Company Revenue CAGR (%)

(FY12‐14) Earnings CAGR (%)

(FY12‐14)Debt/Equity (x)

(FY13)Avg. ROE

(%)P/E (x) (FY14)

Reco Price(Rs)

Target Price(Rs)

Upside (%)

Apollo Hospitals 23.5 7.1 0.5 13.1 40.6 759 860 13.3

Apollo Tyres 10.3 29.6 0.8 18.9 6.3 87 102 17.2

Cox and Kings 50.9 147.0 3.1 16.4 7.6 141 185 31.2

GSPL (0.3) (1.7) 0.5 16.9 8.6 77 92 19.5

JK Lakshmi Cements 19.6 52.3 1.1 21.0 4.3 127 175 37.8

Jyothy Labs 36.6 78.4 0.8 17.2 19.7 169 197 16.6

Jyoti Structures 7.4 5.9 1.2 11.6 4.1 47 63 34.0

Motherson Sumi 35.1 37.0 2.1 24.8 14.3 156 181 16.0

Talwalkars Better Value Fitness

29.5 35.0 0.9 19.8 11.7 192 235 22.4

Tata Global Beverages

11.8 17.9 0.2 8.8 20.9 157 184 17.2

Banks NII CAGR (%)

(FY12‐14) Earnings CAGR (%)

(FY12‐14)

Net NPL/ Networth (%)

(FY13)

Avg. ROA(%)

P/B (x) (FY14)

Reco Price(Rs)

Target Price(Rs)

Upside (%)

Dena Bank 20.9 20.5 12.3 1.0 0.7 109 130 19.3

ING Vysya Bank 20.0 26.0 1.9 1.2 1.4 464 535 15.3Source: India Infoline Research

Risks to our call

Adverse developments in the global economy

Political backlash in India, parliamentary clearance not received

Welfare measures in upcoming Union budget worsens fiscal deficit situation

Sector: Healthcare

Sector view: Positive

Sensex: 18,710

52 Week h/l (Rs): 804 / 452

Market cap (Rscr) : 10,574

6m Avg vol (‘000Nos): 164

Bloomberg code: APHS IN

BSE code: 508869

NSE code: APOLLOHOSP

FV (Rs): 5

Price as on Oct 23, 2012

Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

80

100

120

140

Oct‐11 Feb‐12 Jun‐12 Oct‐12

Apollo Hospitals Sensex

Share holding pattern

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20

40

60

80

100

Dec‐11 Mar‐12 Jun‐12 Sep‐12

Promoters Institutions Others%

Rating: BUY Target: Rs860

CMP: Rs759

Upside: 13.3%

Research Analyst: Bhavika Shinde

[email protected]

Apollo Hospitals

Will continue to lead Largest hospital chain in India with aggressive expansion plans Apollo Hospitals (AHEL) has grown organically from 300 beds in 1990 to 8,276 beds (2,388 managed) in 2012. AHEL, after establishing its dominance in South India (Chennai and Hyderabad), is geared up to have a pan India presence through its ‘REACH’ initiative, which is targeted at tier II and tier III cities. We believe AHEL with one of the highest number of hospitals under a single brand; will continue to maintain its leading position in India. The company has aggressive development plan to add ~2,900 beds at a cost of Rs17.8bn by FY15, a cumulative 35% increase in capacity. Pharmacy segment starts contributing to profits AHEL has India’s largest retail pharmacy chain (first of its kind) with 1,364 stores in operation. AHEL’s venture has finally started contributing even at net level led by management’s rationalisation strategies like slower expansion, reduced store sizes and increasing private label goods. We expect 3% EBITDA margin by FY15 from 0.9% in FY12 led by maturing stores and the increase in sale of private label goods. Stable revenue stream with sustainable growth We estimate 24% CAGR in revenues and 9% CAGR in earnings and stable margin (~16%) over FY12‐14E, despite addition of new hospitals (a new hospital takes ~2 to 3 years to breakeven at EBITDA level). Premium valuations to persist AHEL has expanded at a steady pace over the years without stressing balance sheet, despite being in a capital‐intensive industry. With a well laid out plan of expansion along with pharmacy business turnaround, we are confident of AHEL witnessing robust growth. We believe AHEL presents the best investment opportunity to participate in the promising growth story of Indian Healthcare sector and hence, premium valuations will persist (trades at 15.6x FY14E EBTDA). We recommend BUY.

Financial summary Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E

Revenues 26,054 31,475 40,703 48,008

Yoy growth (%) 28.6 20.8 29.3 17.9

Operating profit 4,189 5,131 6,477 7,669

OPM (%) 16.1 16.3 15.9 16.0

Reported PAT 1,839 2,194 2,499 2,518

Yoy growth (%) 33.7 19.3 13.9 0.8

EPS (Rs) 14.7 16.3 18.5 18.7

P/E (x) 51.4 46.5 40.9 40.6

P/BV (x) 5.0 4.1 3.8 3.6

EV/EBITDA (x) 24.4 21.1 17.6 15.6

Debt/Equity (x) 0.5 0.3 0.5 0.7

RoE (%) 10.4 10.0 9.6 9.1

RoCE (%) 12.2 12.8 13.2 13.0 Source: Company, India Infoline Research

Apollo Hospitals

6

Revenue breakup Hospital segment revenue breakup

69%

1%

30%

Hospital

Pharmacy

Others

18%

36%

24%22%

Chennai

Hyderabad

Significant JV

Other

Source: Company, India Infoline Research

Company background AHEL was established in 1983 by Dr. Prathap C Reddy with a 150‐bed hospital. AHEL is one of the largest branded hospital chains in Asia and the largest in India. The company’s’ main business is to provide primary, secondary and tertiary healthcare services to patients. The company has 50 hospitals out of which seven hospitals have JCI accreditation, the largest accreditation of any group in Asia. Besides the hospitals segment, the company has ventured into various other related businesses such as pharmacies, health insurance and healthcare BPO over the years through floating subsidiaries, joint ventures or becoming an associate company. Apollo Pharmacy is one of the largest retail pharmacy chains in India. The company also owns 21% stake in Indraprastha Medical Corporation Ltd as a part of its expansion strategy. Apollo Hospitals presently has 50 hospitals with 8276 beds, 62 clinics, ~1364 Pharmacies, along with a medical BPO operations, health insurance services and clinical research.

20%+ growth in revenues to continue Stable operating margin despite addition of new hospitals

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10,000

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30,000

40,000

50,000

60,000

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

FY15E

(Rs mn)

CAGR 33%

CAGR 21%

12.5

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14.0

14.5

15.0

15.5

16.0

16.5

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

FY15E

(%)


Apollo Hospitals

7

Financials Income statement Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E

Revenue 26,054 31,475 40,703 48,008


Depreciation (942) (1,239) (1,704) (2,172)

Interest expense (814) (891) (1,410) (1,859)

Other income 181 259 326 384

Profit before tax 2,613 3,260 3,688 4,022

Taxes (873) (1,150) (1,291) (1,408)

Minority int (99) (83) (102) 96

Net profit 1,839 2,194 2,499 2,518

Balance sheet Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E

Equity capital 1,309 1,059 1,061 1,062

Reserves 17,681 24,009 25,803 27,536

Net worth 18,989 25,068 26,864 28,598

Minority interest 249 126 24 120

Debt 9,585 8,517 13,432 18,589

Def tax liab (net) 845 1,551 1,551 1,551

Total liabilities 29,668 35,261 41,870 48,857

Fixed assets 18,229 20,855 27,240 33,581

Intangible assets 677 1,351 1,351 1,351

Investments 5,020 5,642 5,642 5,642

Net working capital 3,818 5,046 6,383 7,145

Inventories 1,584 1,915 2,421 2,850

Sundry debtors 3,003 3,867 4,884 5,665

Other current assets 5,586 6,528 8,233 9,418

Sundry creditors (1,927) (2,439) (3,002) (3,534)

Other current liabilities (4,428) (4,826) (6,153) (7,253)

Cash 1,925 2,368 1,254 1,139

Total assets 29,668 35,261 41,870 48,857

Cash flow statement Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E


Depreciation 942 1,239 1,704 2,172

Tax paid (873) (1,150) (1,291) (1,408)

Working capital ∆ (888) (1,228) (1,337) (762)

Operating cashflow 1,794 2,121 2,764 4,024

Capital expenditure (3,590) (4,539) (8,089) (8,512)

Free cash flow (1,796) (2,418) (5,325) (4,488)

Equity raised 1,159 4,466 ‐ ‐

Investments (854) (621) ‐ ‐

Debt financing/disposal 762 (362) 4,915 5,157

Dividends paid (544) (581) (705) (785)

Other items 107 (39) ‐ ‐

Net ∆ in cash (1,166) 444 (1,114) (116)

Key ratios Y/e 31 Mar FY11 FY12 FY13E FY14E

Growth matrix (%)

Revenue growth 28.6 20.8 29.3 17.9

Op profit growth 39.0 22.5 26.2 18.4

EBIT growth 32.9 21.1 22.8 15.3

Net profit growth 33.7 19.3 13.9 0.8

Profitability ratios (%)

OPM 16.1 16.3 15.9 16.0

EBIT margin 13.2 13.2 12.5 12.2

Net profit margin 7.1 7.0 6.1 5.2

RoCE 12.2 12.8 13.2 13.0

RoNW 10.4 10.0 9.6 9.1

RoA 5.4 5.6 5.3 4.6

Per share ratios

EPS 14.7 16.3 18.5 18.7

Dividend per share 3.8 3.7 4.5 5.0

Cash EPS 22.3 25.5 31.2 34.8

Book value per share 152.3 186.4 199.4 212.3

Valuation ratio (x)

P/E 51.4 46.5 40.9 40.6

P/CEPS 34.2 29.8 24.4 21.9

P/B 5.0 4.1 3.8 3.6

EV/EBIDTA 24.4 21.1 17.6 15.6

Payout (%)

Dividend payout 29.6 26.5 28.2 31.2

Tax payout 33.4 35.3 35.0 35.0

Liquidity ratios

Debtor days 42 45 44 43

Inventory days 22 22 22 22

Creditor days 27 28 27 27

Leverage ratios

Interest coverage 4.2 4.7 3.6 3.2

Net debt / equity 0.4 0.2 0.5 0.6

Net debt / op. profit 1.8 1.2 1.9 2.3

Du‐Pont Analysis Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E

Tax burden (x) 0.70 0.67 0.68 0.63

Interest burden (x) 0.76 0.79 0.72 0.68

EBIT margin (x) 0.13 0.13 0.13 0.12

Asset turnover (x) 0.76 0.80 0.87 0.87

Financial leverage (x) 1.93 1.78 1.80 2.00

RoE (%) 10.4 10.0 9.6 9.1

Sector: Auto

Ancillary


Sensex: 18,710

52 Week h/l (Rs): 102 / 53


6m Avg vol (‘000Nos): 3,574

Bloomberg code: APTY IB

BSE code: 500877

NSE code: APOLLOTYRE

FV (Rs): 1


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

80

120

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200


Apollo Tyres Sensex


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40

60

80

100




CMP: Rs87

Upside: 17.2%

Research Analyst: Kalpit Oza

[email protected]

Apollo Tyres

Treading strong Well placed to capture domestic growth opportunities Demand for tyres in replacement market, which contributes 80% of the overall CV tyre volumes, is expected to be robust on the back of surge in CV volumes (23% CAGR FY10‐12) for the past 2 years. That apart, with distinct advantages of radial tyres over bias tyres, we expect a strong demand for the former. Apollo Tyres (ATL) has been enhancing capacity, which is expected to turn into full production by the end of this year, increasing the overall capacity from 850MTD to 1,300MTD. A large part of the incremental capacity will be used to cater to radial tyre demand. ATL, with its leadership in CV segment and capacity in place, is strategically positioned to capture the growth opportunities. Growing international operations; diversified business model ATL operations are spread across three different geographies with presence in most of the product segments. We believe, such diversified business model provides cushion to the revenues and profits of the company during difficult times. Recent performance in South Africa (SA) was impacted by economic slowdown and rising imports, while European operations consistently delivered robust earnings growth. SA subsidiary has turned profitable in Q1 FY13 from loss in FY12. We have built in conservative revenue growth and EBIT margin improvement assumptions for SA operations and expect earnings growth in European operations to stay healthy backed by strong replacement demand and increasing acceptance of Vredestein brand. Valuation not factoring improved fundamentals We expect 10% revenue CAGR at consolidated level as high growth from standalone business gets partially off‐set by modest growth in subsidiaries. Improvement in domestic utilization levels, stable rubber prices and margin expansion at SA is expected to result into 150bps overall OPM expansion in FY13. We believe current valuations do not capture improved fundamentals and hence recommend BUY with the target price of Rs102.


Revenues 88,677 121,533 135,373 147,900

yoy growth (%) 9.2 37.1 11.4 9.3


OPM (%) 10.9 9.6 11.1 11.1

Reported PAT 4,408 4,121 5,953 6,920

yoy growth (%) (32.5) (6.5) 44.5 16.2

EPS (Rs) 8.7 8.8 11.8 13.7

P/E (x) 9.8 9.8 7.3 6.3

Price/Book (x) 1.8 1.5 1.3 1.1

EV/EBITDA (x) 6.6 5.8 4.4 3.7

Debt/Equity (x) 0.9 0.9 0.8 0.5

RoE (%) 20.1 16.8 19.1 18.6


Apollo Tyres

9

Company background Apollo Tyres (ATL) is the largest CV‐tyre manufacturer in India. The company has been operational since 1975. ATL is present across the entire gamut of automotive tyres. It is headquartered in Gurgaon and has 6 plants in India. The company has the highest market share (27%) in the truck and LCV tyres domestically. In the passenger car tyre market ATL is ranked third with 17% market share. In 2006 ATL acquired Dunlop Tyres International Pty Ltd in South Africa (since renamed as Apollo Tyres South Africa Pty Ltd) and Zimbabwe, for a consideration of Rs2.9bn. In 2009, ATL acquired Vredestein Banden BV (VBBV) in Europe. VBBV is a Netherlands based tyre manufacturer, catering to high speed winter tyres. VBBV has a plant in Enschede, Netherlands with a capacity of 5.5 million tyres annually.

Well diversified product mix… .. with focus on replacement market

7%

35%

11%

47%

Truck

Light truck

PCR

Farm & Others

28%

72%

Replacement

OEM


Geographically diversified Revenue Mix (FY12) Among the fastest growing tyre producer globally

23%

66%

11%

India

South Africa

Europe

Revenue CAGR: Last 5 years

‐5%

0%

5%

10%

15%

20%

25%

30%

Apollo JK

MRF

Kumho

Hankook

Continental

Michelin

Sumitomo

GoodYear

Bridgestone


Apollo Tyres

10


Revenue 88,677 121,533 135,373 147,900


Depreciation (2,719) (3,256) (4,122) (4,272)

Interest expense (1,970) (2,873) (2,336) (2,111)

Other income 509 326 250 300


Taxes (1,063) (1,444) (2,932) (3,408)

Adj. profit 4,408 4,415 5,953 6,920

Exceptional items 0 (294) 0 0

Net profit 4,408 4,121 5,953 6,920


Equity capital 504 504 504 504

Preference capital

Reserves 23,621 27,824 33,482 40,108

Net worth 24,125 28,328 33,986 40,612


Debt 22,425 25,951 25,951 20,951

Deferred tax liab 3,162 4,025 4,025 4,025


Fixed assets 37,521 43,544 42,062 40,790

Intangible assets 1,250 1,338 1,250 1,250

Investments 112 158 158 158

Deferred tax asset (net)


Inventories 17,538 19,991 27,816 30,390

Sundry debtors 9,517 11,458 14,835 16,208

Other current assets 0 153 115 0

Loans and Advances 5,215 5,548 5,205 5,599

Other current liab. (23,340) (25,608) (29,965) (32,368)

Cash 1,909 1,730 2,486 3,560

Total assets 49,720 58,312 63,963 65,588



Depreciation 2,719 3,256 4,122 4,272

Tax paid (1,063) (1,444) (2,932) (3,408)

Working capi. ∆ (4,174) (2,612) (6,464) (1,824)

Operating CF 2,953 5,058 3,611 9,369

Capital exp. (10,529) (9,367) (2,553) (3,000)

Free cash flow (7,576) (4,309) 1,058 6,369

Equity raised 332 374 (0) ‐


Debt fin./dis. 5,353 3,526 ‐ (5,000)

Dividends paid (293) (293) (295) (295)

Other items 656 569 (8) ‐

Net ∆ in cash (1,581) (179) 756 1,074


Growth matrix (%)

Revenue growth 9.2 37.1 11.4 9.3

Op profit growth (17.9) 20.8 29.4 8.7

EBIT growth (21.0) 17.3 28.5 10.9

Net profit growth (22.1) 0.2 34.8 16.2


OPM 10.9 9.6 11.1 11.1

EBIT margin 8.4 7.2 8.3 8.4


RoCE 16.7 16.2 18.4 19.2

RoNW 20.1 16.8 19.1 18.6

RoA 7.3 6.0 7.1 7.6

Per share ratios

EPS 8.7 8.8 11.8 13.7


Cash EPS 14.1 15.2 20.0 22.2


Valuation ratios

P/E 9.8 9.8 7.3 6.3

P/CEPS 6.1 5.7 4.3 3.9

P/B 1.8 1.5 1.3 1.1

EV/EBIDTA 6.6 5.8 4.4 3.7

Payout (%)


Tax payout 19.4 24.6 33.0 33.0

Liquidity ratios



Creditor days (21) (17) (14) (14)

Leverage ratios


Net debt / equity 0.9 0.9 0.7 0.4



Tax burden (x) 0.81 0.75 0.67 0.67


EBIT margin (x) 0.08 0.07 0.08 0.08

Asset turnover (x) 1.48 1.66 1.62 1.63


RoE (%) 20.1 16.8 19.1 18.6

Sector: Travel & Tourism

Sector view: Neutral

Sensex: 18,710

52 Week h/l (Rs): 232/119



Bloomberg code: COXK IB

BSE code: 533144

NSE code: COX&KINGS

FV (Rs): 5


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

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Oct‐11 Apr‐12 Oct‐12

Cox & Kings Sensex


0

20

40

60

80

100


Promoters FIIs Others


CMP: Rs141

Upside: 31.2%

Research Analyst: Bhavesh Gandhi

[email protected]

Cox & Kings

On a growth expedition India business cagr seen at 21% over FY12-14 Outbound travel is the most important component of C&K’s India offerings as it accounts for ~67% of the domestic revenues. C&K India segment revenues have witnessed robust 26% cagr over the past 4 years; we expect India business to motor along with ~21% revenue cagr driven by rising disposable incomes and growing share of organized travel segment. Holidaybreak offers diverse product offerings, increased cross selling opportunities Cox & Kings acquired Holidaybreak for an EV of US$730mn which brought a spate of four new operating divisions ‐ Education, Adventure, Hotel Breaks ( for short trips) and Camping, which have leading positions in UK and other major European markets. Education and Hotel Breaks together accounted for ~54%/57% of segment gross revenues/EBIDTA in FY11 (Oct‐Sep). The acquisition adds new product avenues for C&K and expands C&K’s buying scale as it now includes HBR’s European operations. Equity infusion in HBR parent co to help retire debt In August 2012, C&K roped in a PE fund to acquire a minority stake in wholly owned subsidiary, Prometheon Holdings UK which owns stake in HBR. The PE fund has invested ~US$138mn in Prometheon and the investment proceeds would largely be used to retire debt raised by Prometheon for HBR acquisition. This would help lower net D/E to 1.8x inFY14 from 3x in FY12. Robust earnings, attractive valuation support our BUY We find C&K FY14 PE valuation of 7.6x extremely attractive given 1) robust India business with market leadership in organized segment and an established brand 2) complementary nature of HBR business which acts as a relatively defensive bet 3) potential synergies between India outbound business and HBR operations. We use PE methodology to value C&K and arrive at a 9‐mth target of Rs185, based on 10x FY14 EPS. Financial summary Y/e 31 March (Rs m) FY11 FY12 FY13E FY14E

Revenues 4,967 8,379 17,898 19,069

yoy growth (%) 24.4 68.7 113.6 6.5


OPM (%) 46.3 20.0 36.7 37.5

Reported PAT 1,291 416 2,029 2,537

yoy growth (%) (3.6) (67.8) 387.8 25.0

EPS (Rs) 9.5 3.0 14.9 18.6

P/E (x) 15.0 46.6 9.6 7.6

P/BV (x) 1.6 1.6 1.4 1.2

EV/EBITDA (x) 7.9 33.2 7.8 6.8

Debt/Equity (x) 0.7 3.9 3.1 2.4

ROE (%) 12.8 3.5 15.8 16.9

ROCE (%) 13.9 3.8 9.7 10.8 Source: Company, India Infoline Research

Cox & Kings

12

Company background Cox and Kings brand has evolved over a 250‐year history and is amongst the most recognized holiday brands that caters to the overall travel needs of Indian and international traveler. The company serves as a ‘One Stop Shop’ for all travel and travel related products. Leisure travel is C&K’s core business, through which it provides tour operator and destination management services. Tour operator services mainly involve customers in India, Australia, Dubai, Japan, Netherlands, United Kingdom and United States traveling on leisure packages to local and overseas destinations. In India, leisure business also includes MICE and trade fairs for corporates. Destination management services include ground handling services, which cover all aspects of ground tour arrangements, primarily for customers traveling into Dubai, Europe, India and Singapore. Holidaybreak Group Holidaybreak is an education and activity travel group, acquired by C&K in September 2011. It provides 1) educational and activity trips for school children 2) worldwide adventure holidays 3) short break trips in the UK and Europe and 4) mobile‐home and camping holidays on sites throughout Europe. The group has accordingly three divisions: Education and Adventure, Hotel Breaks and Camping, which have leading positions in the UK and other major European markets, and has more than 15 long‐established brands.

Business profile


Cox & Kings

13


Revenue 4,967 8,379 17,898 19,069


Depreciation (186) (491) (1,455) (1,544)

Interest expense (544) (1,843) (2,961) (2,681)

Other income 230 356 520 453

Profit before tax 1,801 (305) 2,672 3,379

Taxes (625) (418) (802) (1,014)

Minorities (15) 146 158 172

Adj. profit 1,161 (577) 2,029 2,537

Exceptional items 130 993 ‐ ‐

Net profit 1,291 416 2,029 2,537



Reserves 11,396 11,241 13,113 15,493

Net worth 12,079 11,924 13,796 16,176

Debt 8,443 46,618 42,304 38,304

Def tax lia 91 766 766 766


Fixed assets 1,507 20,385 19,462 19,552


Investments 2,112 3,042 3,042 3,042

Net working cap 14,790 9,219 7,734 6,024

Inventories 86 173 392 418

Sundry debtors 4,077 7,086 15,201 16,196

Cash 9,613 10,533 10,539 9,012

Other curr assets 4,046 8,618 18,256 19,451

Sundry creditors (961) (4,111) (8,827) (9,404)

Other lia (1,721) (12,298) (26,038) (27,742)

Provisions (350) (781) (1,790) (1,907)

Total assets 20,613 59,308 56,866 55,246


Profit before tax 1,801 (305) 2,672 3,379

Depreciation 186 491 1,455 1,544

Def.tax lia/(asset) 66 670 17 ‐

Tax paid (625) (418) (802) (1,014)

Working capital ∆ (1,472) 6,491 1,491 183

Other op. items 115 1,139 158 172

Operating CF 74 8,068 5,009 4,264

Capital exp. (766) (43,823) (532) (1,634)

Free cash flow (692) (35,755) 4,477 2,631

Equity raised 2,766 (412) ‐ ‐

Investments 472 (930) ‐ ‐

Debt fin/disposal 3,400 38,175 (4,314) (4,000)

Dividends paid (79) (159) (157) (157)

Net ∆ in cash 5,866 920 6 (1,526)


Growth matrix (%)

Revenue growth 24.4 68.7 113.6 6.5

Op profit growth 23.4 (27.3) 292.6 8.9

EBIT growth 26.7 (34.4) 266.4 7.6

Net profit growth 10.1 ‐ ‐ 25.0


OPM 46.3 20.0 36.7 37.5

EBIT margin 47.2 18.3 31.5 31.8


RoCE 13.9 3.8 9.7 10.8

RoNW 12.8 3.5 15.8 16.9

RoA 6.0 (1.2) 2.4 2.7

Per share ratios

EPS 8.5 (4.2) 14.9 18.6


Cash EPS 9.9 (0.6) 25.5 29.9


Payout (%)

Dividend payout 6.8 ‐ 7.7 6.2

Tax payout 34.7 ‐ 30.0 30.0

Liquidity ratios

Debtor days 300 309 310 310



Leverage ratios


Net debt / equity (0.1) 3.0 2.3 1.8

Net debt / op. profit (0.5) 21.6 4.8 4.1


Tax burden (x) 0.64 1.89 0.76 0.75

Interest burden (x) 0.77 (0.20) 0.47 0.56

EBIT margin (x) 0.47 0.18 0.31 0.32

Asset turnover (x) 0.26 0.17 0.21 0.20


RoE (%) 11.5 (4.8) 15.8 16.9

Sector: Financials


Sensex: 18,710

52 Week h/l (Rs): 113 / 48


6m Avg vol (‘000Nos): 2,430

Bloomberg code: DBNK IB

BSE code: 532121 NSE code: DENABANK FV (Rs): 532121 Price as on Oct 23, 2012

Company rating grid

Low High

1 2 3 4 5

Earnings Growth

RoA Progression

B/S Strength

Valuation appeal

Risk

Share price trend

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75

100

125

150


Dena Bank Sensex


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20

40

60

80

100


Promoters Institutions Others

%


CMP: Rs109

Upside: 19.3%

Research Analyst: Bhavna Sinyal Rajiv Mehta

[email protected]

Dena Bank

Resilient performer System beating credit growth; deposit profile to improve further Dena Bank has a record of growing its advances faster‐than‐system, reporting a CAGR of ~25% over FY09‐12. In FY13 as well, loan growth is expected to be 3‐4% above system, largely driven by MSME segment. Share of bulk deposits would come off further to 10% by Mar’2013 (as per management strategy) from ~13% as on Jun’2012. Lower reliance on volatile bulk deposits and stable CASA ratio (aided by improved productivity) will strengthen deposit profile.

Resilient asset quality; healthy PCR at 75%+ As compared to most peers, Dena Bank’s asset quality has been more resilient with quarterly slippages in the range of 1.3‐1.9% in the past five quarters. Delinquency ratio has declined from 2.6% in FY09 to 1.4% in FY12. We do not foresee significant stress on asset quality with bank’s lower exposure to ailing sectors (infra/power, etc) and majority of the restructuring behind. Dena Bank has also been more conservative in provisioning and has sustained PCR near 75% thus providing comfort in challenging times.

NIM to remain stable at 3%+; steady RoA outlook Brisk loan growth, better deposit franchise, resilient asset quality and increase in C/D ratio (credit growth being higher than deposit growth in FY13) are likely to sustain NIM at 3%+. Dena Bank has been consistently improving its C/I ratio, from 51.4% in FY09 to 43% in FY12. We expect a further improvement (to be 40‐41% for FY13) driven by calibrated branch addition and intense focus on employee/branch productivity. Supported by stable NIM and improvement in C/I ratio, we expect RoA to remain near 1%.

Strong fundamentals and attractive valuation Dena Bank is fundamentally stronger than most mid‐sized PSU banks given relatively stable asset quality, healthy NIM, likely improvement in operating efficiency, high PCR and steady RoA outlook. Currently, the stock is trading at 0.7x FY14E P/Adj.BV; below its 6‐year mean of 0.8x and at par/discount to some weaker peers. Healthy fundamentals and attractive valuation limit downside risk while offering attractive long term returns.


Total operating income 22,972 26,832 32,649 38,821

yoy growth (%) 36.0 16.8 21.7 18.9

Pre‐prov Op. profit 12,238 15,284 19,370 23,151

Net profit 6,116 8,031 9,361 11,660

yoy growth (%) 19.6 31.3 16.6 24.6

EPS (Rs) 18.3 22.9 26.7 33.3

Adj.BVPS (Rs) 87.3 106.3 126.2 153.1

P/E (x) 5.9 4.7 4.1 3.3

P/Adj.BV (x) 1.2 1.0 0.9 0.7

RoA (%) 1.0 1.0 1.0 1.0

CAR (%) 13.4 11.5 11.2 10.6 Source: Company, India Infoline Research

Dena Bank

15

Lowest delinquency ratio among peers in FY12 NPA ratios trended lower despite macro headwinds

0

1

2

3

4

5

6

CBOI OBC UBI ALBK DNBK

(%)

0.5

1.0

1.5

2.0

2.5Q1 FY10

Q2 FY10

Q3 FY10

Q4 FY10

Q1 FY11

Q2 FY11

Q3 FY11

Q4 FY11

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Q1 FY13

(%)

Gross NPA ratio Net NPA ratio


Company background Dena Bank is a mid‐size Public sector bank with a balance sheet size of Rs874bn, market share of 1.3% as on Jun’2012. It operates through 1,358 branches, 11 Extension counters and has an ATM Network of 545 as on Jun’2012. In terms of geographic coverage, 61% of the branches are in Gujarat and Maharashtra. Smt.Nupur Mitra, former ED of Indian Overseas Bank, assumed the office of CMD in Oct’2011. Dena Bank has a well diversified loan portfolio spread across Corporate & SME (40% of total advances), MSME (15%), Agriculture (15%) and Retail (12%). ~31% of CASA ratio and only 13% of bulk deposits suggests a healthy deposit profile. Dena Bank is operationally efficient with C/I ratio of ~43% and is likely to improve further with several initiatives planned by the bank. Asset quality has shown remarkable improvement with consistent decline in GNPA ratio (from 4% in FY07 to 1.7% in FY12). Dena Bank has exhibited a resilient performance in past credit cycles.

Cost/Income ratio expected to improve further RoA sustained around 1% across past credit cycles

35

39

43

47

51

55

FY09 FY10 FY11 FY12 FY13E FY14E

(%)

0.6

0.7

0.8

0.9

1.0

1.1

FY08 FY09 FY10 FY11 FY12

(%)


Dena Bank

16


Interest income 50,335 67,941 80,000 93,490


Net interest income 17,634 21,010 25,780 30,715

Non‐interest income 5,338 5,822 6,870 8,106

Total op income 22,972 26,832 32,649 38,821

Total op expenses (10,734) (11,547) (13,280) (15,670)

Pre‐prov Op. profit 12,238 15,284 19,370 23,151

Provs for loan losses (2,813) (2,621) (4,552) (5,310)

Other provisions (1,445) (3,606) (2,500) (2,500)


Taxes (1,864) (1,026) (2,956) (3,682)

Net profit 6,116 8,031 9,361 11,660


Total cash & equivalents 241 241 241 241

Investments 1,017 1,202 1,450 1,818

Advances 1,258 1,443 1,691 2,059

Total int‐earning assets 1,219 1,552 1,602 1,522

Fixed assets 22 50 80 123

Other assets 107 143 143 143

Total assets 2,606 3,188 3,516 3,846

Net worth 2,060 2,576 2,919 3,157

Preference Capital 51 176 176 176

Deposits 495 437 421 514

Borrowings 203 201 263 334

Total int‐bearing liabs 292 200 101 111

Non‐int‐bearing liabs 221 224 299 380

Minority interest (108) (39) (52) (66)

Total liabilities (69) (47) (63) (80)

Equity + Total liabilities (42) (101) (127) (165)


Growth matrix (%)

Net interest income 60.3 19.1 22.7 19.1

Total op income 36.0 16.8 21.7 18.9 Op profit (pre‐provision) 45.6 24.9 26.7 19.5

Net profit 19.6 31.3 16.6 24.6

Advances 26.4 26.5 20.0 23.0

Deposits 25.1 20.2 18.0 21.0

Total assets 23.0 23.4 18.2 20.8


NIM 2.8 2.7 2.8 2.8

Non‐int inc/Total inc 23.2 21.7 21.0 20.9

Return on Avg Equity 20.9 20.7 20.0 20.9

Return on Avg Assets 1.0 1.0 1.0 1.0

Per share ratios

EPS 18.3 22.9 26.7 33.3

Adj.BVPS 87.3 106.3 126.2 153.1

DPS 2.6 3.5 4.0 4.5

Other key ratios (%)

Credit/Deposits 69.8 73.5 74.7 75.9

Cost/Income 46.7 43.0 40.7 40.4

CASA 35.5 34.6 35.0 35.5

CAR 13.4 11.5 11.2 10.6

Tier‐I capital 9.8 8.9 8.6 8.2

Gross NPLs/Loans 1.9 1.7 1.8 1.7

Credit Cost 0.7 0.5 0.7 0.7

Net NPLs/Net loans 1.2 1.0 1.0 0.9

Tax rate 23.4 11.3 24.0 24.0

Dividend yield 2.4 3.2 3.7 4.1

Sector: Oil & Gas


Sensex: 18,710

52 Week h/l (Rs): 104 / 62


6m Avg vol (‘000Nos): 1,241

Bloomberg code: GUJS IB

BSE code: 532702

NSE code: GSPL

FV (Rs): 10


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

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90

100

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120


GSPL Sensex


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20

40

60

80

100

Sep‐11 Dec‐11 Mar‐12 Jun‐12



CMP: Rs77

Upside: 19.5%

Research Analyst: Prayesh Jain

[email protected]

GSPL

Expanding boundaries Higher LNG imports to offset decline in domestic production Domestic gas availability has been on a decline with fall in production at the KG‐D6 field. However, this has been partly offset by higher LNG imports. The two LNG terminals that are servicing the LNG demand (Petronet LNG’s Dahej and Shell’s Hazira) are both located in Gujarat, leading to improved gas availability for transmission. Both Petronet and Shell are in process to expand capacities at these terminals. With LNG prices on a decline owing to lower demand from Japan and higher supply from US, spot cargos will only increase at these terminals leading to better volumes for GSPL in the near term. Expansion in Gujarat to aid near term growth While gas supplies should increase in Gujarat, demand too is on a rise especially from the industrial sector. To service this demand, GSPL is building additional pipelines in the state, which include Tana–Amreli, Mehsana‐Palanpur, Nano connectivity pipeline and Sterling SEZ pipelines among others. These investments would suffice for growth until FY14. Growth beyond Gujarat GSPL led consortium (52% GSPL stake) has won bids for building cross country pipelines (cumulative length 4,039km) enabling it to expand its operations beyond Gujarat. These pipelines will be connected to the existing gas grid in Gujarat (primarily operated by GSPL). We expect these pipelines to substantially contribute to GSPL’s topline beyond FY14. Tariff authorization better than expectation One of the key risks for GSPL was the pending authorization of tariffs for its existing pipeline network. PNGRB authorized the tariffs in September 2012, which were in line with our expectations but better than street estimates. Although, PNGRB has ordered a retrospective implementation, the same has been challenged by the company.


Revenues 10,465 11,233 10,549 11,169

yoy growth (%) 4.6 7.3 (6.1) 5.9


OPM (%) 92.6 91.7 91.7 91.8

Reported PAT 5,064 5,221 4,636 5,049

yoy growth (%) 22.4 3.1 (11.2) 8.9

EPS (Rs) 9.0 9.3 8.2 9.0

P/E (x) 8.6 8.3 9.3 8.6

P/BV (x) 2.2 1.8 1.5 1.3

EV/EBITDA (x) 5.8 5.4 6.0 5.5

Debt/Equity (x) 0.7 0.6 0.5 0.4

RoE (%) 28.4 23.3 17.4 16.4


GSPL

18

GSPL’s transmission volume trend GSPL’s tariff trend

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Q3 FY09

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mmscmd

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0.40

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Q1 FY09

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Q3 FY10

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Q1 FY12

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Q1 FY13

Rs/scm


Company background GSPL, a GSPC Group company, is a pioneer in developing energy transportation infrastructure and connecting natural gas supply basins and LNG terminals to growing markets. GSPL’s gas grid is spread across 18 districts in Gujarat. Its pipeline network currently spans 1,900kms through which it transmits 34mmscmd of gas. GSPL is constantly expanding its pipeline network in Gujarat to reach demand centers. The company has developed the requisite expertise and confidence with proven project management competencies. GSPL is the first pipeline company in India operating on open‐access basis and is a pure transmission network. The company’s transmission network envisages development of systematic and seamless pipeline network across Gujarat connecting various suppliers and users. The suppliers of natural gas include traders, producers and LNG terminals. The users comprise industries such as power, fertilizer, steel, chemical plants and local distribution companies.

GSPL pipeline expansion in Gujarat GSPL’s cross‐country pipelines


GSPL

19


Revenue 10,465 11,233 10,549 11,169


Depreciation (1,299) (1,819) (2,067) (2,190)


Other income 216 513 500 525


Taxes (2,586) (2,470) (2,193) (2,389)

Net profit 5,064 5,221 4,636 5,049


Equity capital 5,626 5,626 5,626 5,626

Reserves 14,440 19,040 23,032 27,437

Net worth 20,066 24,666 28,657 33,063

Debt 14,835 13,585 15,085 13,585

Def tax liab (net) 2,641 1,200 1,200 1,200


Fixed assets 35,363 38,820 44,809 47,318


Net working capital (980) (1,052) (988) (1,046)

Inventories 623 668 628 664

Sundry debtors 698 749 703 745



Other curr liab (4,692) (5,036) (4,729) (5,008)

Cash 2,393 917 356 810

Total assets 37,541 39,451 44,942 47,848



Depreciation 1,299 1,819 2,067 2,190

Tax paid (2,586) (2,470) (2,193) (2,389)

Working capital ∆ (1,547) 72 (64) 58



Free cash flow (2,092) 1,835 (1,417) 2,599

Equity raised 8 24 ‐ ‐

Investments (100) ‐ ‐ ‐

Debt financing/disposal 2,239 (1,250) 1,500 (1,500)

Dividends paid (644) (644) (644) (644)

Other items 1,235 (1,441) ‐ ‐

Net ∆ in cash 647 (1,476) (561) 454


Growth matrix (%)

Revenue growth 4.6 7.3 (6.1) 5.9

Op profit growth 3.0 6.2 (6.0) 6.0

EBIT growth 19.5 4.4 (9.8) 5.9

Net profit growth 22.4 3.1 (11.2) 8.9


OPM 92.6 91.7 91.7 91.8

EBIT margin 82.3 80.1 76.9 76.9


RoCE 25.6 23.4 19.2 18.5

RoNW 28.4 23.3 17.4 16.4

RoA 12.2 11.3 9.3 9.3

Per share ratios

EPS 9.0 9.3 8.2 9.0


Cash EPS 11.3 12.5 11.9 12.9


Valuation ratio (x)

P/E 8.6 8.3 9.3 8.6

P/CEPS 6.8 6.2 6.5 6.0

P/B 2.2 1.8 1.5 1.3

EV/EBIDTA 5.8 5.4 6.0 5.5

Payout (%)


Tax payout 33.8 32.1 32.1 32.1

Liquidity ratios




Leverage ratios


Net debt / equity 0.6 0.5 0.5 0.4



Tax burden (x) 0.66 0.68 0.68 0.68


EBIT margin (x) 0.82 0.80 0.77 0.77

Asset turnover (x) 0.25 0.24 0.21 0.21


RoE (%) 28.4 23.3 17.4 16.4

Sector: Financials


Sensex: 18,710

52 Week h/l (Rs): 475 / 276



Bloomberg code: VYSB IB

BSE code: 531807NSE code: INGVYSYABKFV (Rs): 10


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

RoA Progression

B/S Strength

Valuation appeal

Risk

Share price trend

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90

110

130


ING Vysya Bk Sensex


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40

60

80

100


Promoters Institutions Others

%


CMP: Rs464

Upside: 15.3%

Research Analyst: Rajiv Mehta

Bhavna Sinyal [email protected]

ING Vysya Bank

Prime Pick

Robust loan profile; largely working capital bank ING Vysya Bank’s (IVB) loan book is well distributed between three key segments of wholesale (43%), SME (31%) and retail (20%). The bank is pre‐dominantly a working capital lender in wholesale/SME segments with diversified industry exposure (has one of the lowest exposures to ailing sectors). Retail book has been evolving constructively with more profitable products (LAP, CV loans, gold loans and personal loans) growing faster than home loans. Sturdy NIM outlook; opex leverage to continue IVB’s NIM displayed impressive resilience in the recent rate up cycle driven by stable CASA and significant asset re‐pricing. In the medium term, improving retail loan mix, structural CASA improvement and benign wholesale rates would likely keep NIM above management guidance of 3.2‐3.3%. Robust salary account additions and decline in retail TD rates is expected to revive savings balance growth. Calibrated branch expansion and focus on employee productivity improvement would drive a secular decline in cost/income ratio. Sanguine asset quality; high PCR provides comfort IVB’s asset quality has held up commendably well in the ongoing credit cycle. Aided by lower delinquencies, gross NPL ratio has declined over the past five quarters. Restructured assets stand at ~1.4% of advances; no restructuring has taken place in FY13. As per the management, outlook on slippages and restructuring remains non‐perturbing. Bank’s PCR at 93% is one of the highest in industry and would cushion higher provisioning in future. IVB has probably the lowest net NPL ratio of 0.13%.

Impressive earnings growth and RoA delivery Driven by sturdy NIM, opex leverage and lower provisioning, IVB’s earnings (26% CAGR) would grow ahead of its balance sheet (18% CAGR) over FY12‐14. Consequently, RoA will improve by 10‐15bps over the next two years. Superior fundamentals would support a continuous valuation re‐rating.


Total operating income 16,615 18,781 22,411 26,326

yoy growth (%) 14.6 13.0 19.3 17.5

Operating profit (pre‐provisions) 6,355 7,679 9,921 12,088

Net profit 3,187 4,563 6,064 7,245

yoy growth (%) 31.6 43.2 32.9 19.5

EPS (Rs) 26.3 30.4 40.1 47.9

Adj. BVPS (Rs) 200.6 254.6 286.9 324.3

P/E (x) 17.6 15.3 11.6 9.7

P/BV (x) 2.3 1.8 1.6 1.4

ROE (%) 13.4 14.3 14.6 15.3

ROA (%) 0.9 1.1 1.2 1.2

CAR (%) 12.9 14.0 13.0 12.1 Source: Company, India Infoline Research

ING Vysya Bank

21

Diversified wholesale book Diversified SME book

13.5%

7.9%

4.6%

4.4%

5.6%4.0%4.0%

18.8%

5%

4.6%

7.1%

21.2%

NBFC

Retail

Food & Agri

Professional Serv

Telecom

Textiles

Chemicals

Construction

Gems & Jewellery

Infra

Manufacturing

Others

8.1%

11.1%

2.1%

2.5%

3.0%

4.9%

2.7%6.0%7.6%

8.4%

8.6%

35.1%

Trader

Gems & Jewellery

Rental Discounting

Food Processing

Automobile

Iron & steel

Textiles

Contractor

Service Enterprice

Pharmaceuticals

Other Manuf.

Others


Company background Under the aegis of Mr.Shailendra Bhandari, MD & CEO (appointed in August 2009), and revamped management team, ING Vysya Bank (IVB) has witnessed a system‐beating loan CAGR of 25% over FY10‐12. The loan mix has significantly shifted towards the SME segment at the cost of retail segment. Currently, loan profile is well‐spread between Wholesale Banking (43%), SME Banking (31%) and Retail Banking (20%). IVB has significantly reduced its South India concentration over the past few years by opening majority of new branches in other regions.

Underpinned by strong focus on asset quality, the bank delivered robust 37% earnings CAGR over FY10‐12 on a much slower balance sheet CAGR of 18%. Such impressive profit performance was despite the bank following a conservative provisioning policy that improved PCR from 60% to 90%. RoA improved by 30bps in the aforesaid period to cross 1%. Apart from lower delinquencies, structural expansion in NIM contributed to the significant improvement in operating metric.

NIMs have been resilient Structural improvement in RoA to continue

0.8

1.3

1.8

2.3

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3.8

Q1 FY10

Q2 FY10

Q3 FY10

Q4 FY10

Q1 FY11

Q2 FY11

Q3 FY11

Q4 FY11

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Q1 FY13

Q1 FY13

(%)

0.6

0.7

0.8

0.9

1.0

1.1

1.2

FY09 FY10 FY11 FY12 FY13E FY14E

(%)


ING Vysya Bank

22


Interest income 26,941 38,568 48,494 54,908


Net interest income 10,065 12,084 14,776 17,393

Non‐interest income 6,550 6,698 7,635 8,933

Total op income 16,615 18,781 22,411 26,326

Total op expenses (10,260) (11,102) (12,490) (14,238)

Op profit (pre‐prov) 6,355 7,679 9,921 12,088 Provisions for loan losses (1,516) (1,137) (1,259) (1,738)


Taxes (1,652) (1,979) (2,599) (3,105)

Net profit 3,187 4,563 6,064 7,245


Total cash & equivalents 25,214 32,306 28,037 28,947

Investments 110,583 127,155 148,771 181,501

Advances 236,021 287,367 341,966 413,779 Total int‐earning assets 371,818 446,827 518,774 624,227

Fixed assets 5,028 5,008 5,258 5,521

Other assets 13,293 18,170 20,896 24,030

Total assets 390,140 470,005 544,928 653,778

Net worth 26,243 39,798 45,279 51,376

Deposits 301,942 351,954 411,786 500,320

Borrowings 41,469 56,965 65,510 78,612

Total int‐bearing liabs 343,412 408,919 477,296 578,932

Non‐int‐bearing liabs 20,485 21,288 22,353 23,470

Total liabilities 363,897 430,207 499,649 602,402 Equity + Total liabilities 390,140 470,005 544,928 653,778


Growth matrix (%)

Net interest income 21.3 20.1 22.3 17.7

Total op income 14.6 13.0 19.3 17.5 Op profit (pre‐provision) (1.0) 20.8 29.2 21.8

Net profit 31.6 43.2 32.9 19.5

Advances 27.5 21.8 19.0 21.0

Deposits 16.7 16.6 17.0 21.5

Total assets 15.2 20.5 15.9 20.0


NIM 2.9 3.0 3.1 3.0

Non‐int inc/Total inc 39.4 35.7 34.1 33.9

Return on Avg Equity 13.4 14.3 14.6 15.3

Return on Avg Assets 0.9 1.1 1.20 1.21

Per share ratios (Rs)

EPS 26.3 30.4 40.1 47.9

Adj.BVPS 200.6 254.6 286.9 324.3

DPS 3.0 4.6 5.5 6.5

Other Key ratios (%)

Credit/Deposits 78.2 81.6 83.0 82.7

Cost/Income 61.8 59.1 55.7 54.1

CASA 34.6 34.2 34.0 35.5

CAR 12.9 14.0 13.0 12.1

Tier‐I capital 9.4 11.2 10.6 9.9

Gross NPLs/Loans 2.3 1.9 2.1 2.1

Credit Cost 0.7 0.4 0.4 0.5

Net NPLs/Net loans 0.4 0.2 0.3 0.3

Tax rate 34.1 30.2 30.0 30.0

Dividend yield 0.6 1.0 1.2 1.4

Sector: Cement


Sensex: 18,710

52 Week h/l (Rs): 131 / 37



Bloomberg code: JKLC IN

BSE code: 500380

NSE code: JKLAKSHMI

FV (Rs): 5


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

0

50

100

150

200

250

300


JK Lakshmi Sensex

.


‐

20

40

60

80

100




CMP: Rs127

Upside: 37.8%

Research Analyst: Hemant Nahata

[email protected]

JK Lakshmi Cement

Concrete gains

JKLCE to ride the up cycle in North, East and Western markets The pace of cement capacity addition has slowed down over the past one year following major capacity additions between FY09‐11. On the other hand, demand outlook has improved on back of revival in real estate and commencement of new infrastructure projects. The current cement demand‐supply scenario indicates North, East and Western region’s capacity addition is likely to lag the incremental demand, translating into an up‐cycle for companies like JK Lakshmi Cement (JKLCE) (5.3mtpa capacity located at Rajasthan, Haryana and Gujarat). In addition, JKLCE is nearly doubling its capacity to 10mtpa by FY15, which includes a 2.7mtpa expansion plans in Durg, Chattisgarh, embarking its presence in high yield eastern market. We factor in a 24% topline CAGR for JKLCE over FY12‐15 backed by 8% / 15% CAGR in realisation/ volume.

Margins to get a boost from better utilization & realisation We expect higher demand coupled with tight demand‐supply scenario to translate into better utilization for companies catering to North, West and Eastern region. With improvement in utilization, we expect pricing power to improve for producers catering to these regions. We expect JKLCE to witness 8ppts enhancement in margin over FY12‐15.

Compelling BUY - stock trades at 60% discount to replacement cost We believe JKLCE will be a major beneficiary of improved demand in its key markets which in turn would support higher dispatches & realizations (due to lower surplus in those markets). This would translate into 44% CAGR in earnings over FY12‐15. Stock trades at FY14 PER of 4.3x, at a significant discount to much larger players such as ACC, Ultratech and Ambuja Cements, which are trading at ~13‐16x. On an EV/ton basis, company trades at FY14 EV/ton of US$67, representing a 60% discount to the replacement cost similar to that for South‐based players though the latter have to contend with capacity surplus. We recommend BUY for 9‐mth target price of Rs175, valuing the company at 6x FY14E earnings of Rs29/share.


Revenues 13,222 17,181 21,010 24,588

yoy growth (%) (11.3) 29.9 22.3 17.0


OPM (%) 14.4 19.1 22.1 25.7

Reported PAT 591 1,480 2,405 3,433

yoy growth (%) (75.5) 83.9 121.2 42.8

EPS (Rs) 4.8 12.1 20.4 29.2

P/E (x) 26.2 10.5 6.2 4.3

P/BV (x) 1.5 1.3 1.1 0.9

EV/EBITDA (x) 13.1 7.8 6.2 4.5

Debt/Equity (x) 1.0 0.9 1.1 0.9

RoE (%) 5.7 13.3 19.2 22.8


JK Lakshmi Cement

24

JKLCE capacity to almost double in next three years Higher realisation and volumes to drive topline

4.0

5.0

6.0

7.0

8.0

9.0

10.0

FY11

FY12

FY13E

FY14E

FY15E

mtpa ~23.5% CAGR increase in

capacity by FY15E

‐

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY11

FY12

FY13E

FY14E

FY15E

2,500

3,000

3,500

4,000

4,500

5,000

Revenue (Rs mn) Realisation (per ton)

Realisation to

witness 8% CAGR

over FY12‐15


Company background Incorporated in 1982, JK Lakshmi has clinker capacity (total 4.1mtpa) at Jaykaypuram, dist. Sirohi, Rajasthan and grinding units (total cement capacity 5.3mtpa) located at Motibhoyan, Kalol (Gujarat) & Bajitpur, Jhajjar (Haryana). The company caters to northern, western and central regions and has 5.3% share of dispatches in the northern and western markets. It has 100% captive power capacity (54MW thermal and 12MW waste heat power plant). Further, the company has also tied‐up with VS Lignite to source 21MW of power at fixed rate of 3.94/unit. JKLCE is expanding cement capacity by 2.7mtpa with a greenfield plant in Durg, Chhattisgarh by March 2014. JKLCE sells cement under the JK Lakshmi Cement brand. JKLCE currently has 10 Ready Mix Concrete plants with total capacity of 50,000 cubic metres, spread across the northern and western region

Sales mix to be favourable post expansion Commencement of new capacity to boost volumes

FY14E

33%34%

33%

North

East

West

3.0

4.0

5.0

6.0

7.0

8.0

FY11

FY12

FY13E

FY14E

FY15E

%

(10.0)

‐

10.0

20.0

30.0Mtpa

Volume yoy growth (%)

Expansion plans to

fuel volume growth


JK Lakshmi Cement

25

Financials Income statement Y/e 31 Dec (Rs m) FY11 FY12 FY13E FY14E

Revenue 13,222 17,181 21,010 24,588


Depreciation (846) (1,297) (1,314) (1,509)

Interest expense (527) (787) (819) (1,086)

Other income 252 624 616 636

Profit before tax 788 1,819 3,126 4,372

Taxes (197) (340) (721) (938)

Adj. profit 591 1,480 2,405 3,433


Net profit 591 1,087 2,405 3,433

Balance sheet Y/e 31 Dec (Rs m) FY11 FY12 FY13E FY14E


Reserves 9,851 11,140 12,769 16,203

Net worth 10,463 11,752 13,358 16,791

Minority interest

Debt 10,284 11,043 14,355 15,355

Def. tax liab (net) 1,072 1,233 1,233 1,233


Fixed assets 14,166 16,192 23,378 26,869

Intangible assets 79 60 0 0

Investments 5,278 4,538 4,334 4,334

Net working cap 1,409 2,348 546 493

Inventories 1,199 1,201 1,478 1,678


Other curr assets 2,470 4,594 4,339 4,879


Other curr liab (232) (316) (427) (427)

Cash 887 890 688 1,684

Total assets 21,819 24,028 28,946 33,380

Cash flow statement Y/e 31 Dec (Rs m) FY11 FY12 FY13E FY14E

Profit before tax 788 1,819 3,126 4,372

Depreciation 846 1,297 1,314 1,509

Tax paid (197) (340) (721) (938)

Working capital ∆ (522) (938) 1,802 54

Oper cashflow 915 1,839 5,521 4,996 Cap expenditure (2,642) (3,304) (8,440) (5,000) Free cash flow (1,727) (1,465) (2,919) (4) Equity raised (158) 477 (524) 275 Investments (472) 740 203 0 Debt financing/ disposal 1,067 759 3,313 1,000

Dividends paid (178) (275) (275) (275) Other items 151 (232) 0 0 Net ∆ in cash (1,317) 3 (203) 996

Key ratios Y/e 31 Dec (Rs m) FY11 FY12 FY13E FY14E

Growth matrix (%)

Revenue growth (11.3) 29.9 22.3 17.0

Op profit growth (55.1) 71.8 41.6 36.3

EBIT growth (62.9) 98.3 51.4 38.3



OPM 14.4 19.1 22.1 25.7

EBIT margin 9.9 15.2 18.8 22.2


RoCE 6.2 11.4 14.9 17.5

RoNW 5.7 13.3 19.2 22.8

RoA 2.4 5.7 7.7 9.2

Per share ratios

EPS 4.8 12.1 20.4 29.2


Cash EPS 11.7 22.7 31.6 42.0

BV per share 85.5 96.0 113.5 142.7

Payout (%)


Tax payout 25.0 18.7 23.1 21.5

Liquidity ratios




Leverage ratios


Net debt / equity 0.9 0.9 1.0 0.8


Raw material 16.6 20.6 21.3 20.7

Power & fuel 29.6 24.1 22.1 20.4

Staff cost 6.1 5.7 5.4 5.2

Freight cost 19.9 19.3 19.1 18.1

Other oper exp 13.3 11.3 10.0 9.8

Du‐Pont Analysis Y/e 31 Dec (Rs m) FY11 FY12 FY13E FY14E

Tax burden (x) 0.75 0.81 0.77 0.79


EBIT margin (x) 0.10 0.15 0.19 0.22

Asset turnover (x) 0.55 0.66 0.67 0.66

Finan. leverage (x) 2.34 2.35 2.49 2.48

RoE (%) 5.7 13.3 19.2 22.8

Sector: FMCG


Sensex: 18,710

52 Week h/l (Rs): 184/63



Bloomberg code: JYLIN

BSE code: 532926

NSE code: JYOTHYLAB

FV (Re): 1


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

50

100

150

200

250

300


Jyothy Lab Sensex


-

20

40

60

80

100

Dec-11 M ar-12 Jun-12 Sep-12



CMP: Rs169

Upside: 16.6%

Research Analyst: Vanmala Nagwekar

[email protected]

Jyothy Laboratories Ltd

Adding Brand value Henkel India acquisition provides premiumisation opportunity With Henkel India acquisition, JLL now addresses a market opportunity of ~US$5.6bn in India, 10x the size of its standalone portfolio couple of years ago. Combined with distribution synergies and effective brand extensions, it should double revenues over the next three years. Henkel portfolio brings premium brands to mass market portfolio of JLL to cater efficiently to the mid and premium segments of the pyramid. We forecast revenue CAGR of 36.6% over FY12‐14.

Distribution synergies to drive growth Prior to Henkel acquisition, rural market contributed ~70% of JLL’s sales given its mass‐focused product portfolio while Henkel’s portfolio with a strong presence in organized retail derived ~70% revenues from the urban market. Henkel’s brands have a pan‐India presence with a direct distribution reach of ~0.2mn outlets while JLL had a strong distribution reach of 2.7mn (direct reach of 1mn) outlets. We believe the strong distribution synergies will help JLL record over 30% growth in the Henkel portfolio in the immediate term.

New management to help integrate Henkel better JLL was a promoter‐driven business, operating across limited categories with a single flagship brand ‘Ujala’. In May’12, Mr. S. Raghunandan was appointed as a new CEO ‐ a “turnaround veteran” who changed the fortunes of the family‐owned Dabur and Paras Pharma. We believe the new management will help integrate Henkel successfully and accelerate revenue growth and profitability.

Expect earnings to treble over FY12-14 We believe acquisition of Henkel India will be value accretive for JLL over the longer term. Induction of new CEO is a step in the right direction and was much needed considering the large bouquet of brands under JYL + Henkel. Investments in brands and talent augur well for future growth. We expect earnings to treble over FY12‐14 and recommend Buy with a 9‐mth target price of Rs197.


Revenues 6,264 9,130 13,587 17,026

yoy growth (%) 5.0 45.8 48.8 25.3

Operating profit 793 841 1,821 2,537

OPM (%) 12.7 9.2 13.4 14.9

Pre‐exceptional PAT 688 446 909 1,420

Reported PAT 688 446 909 1,420

yoy growth (%) (7.5) (35.2) 104.0 56.2

EPS (Rs) 8.5 5.5 5.5 8.6

P/E (x) 19.8 30.5 30.8 19.7

Price/Book (x) 2.2 2.2 4.2 3.7

EV/EBITDA (x) 14.5 22.1 17.8 12.6

Debt/Equity (x) 0.1 0.9 0.8 0.6

RoE (%) 13.5 7.2 14.3 20.0



27

Henkel acquisition increases addressable market size 10x and offers huge premiumisation potential

US$540mn

41%

42%

17%

Dishwash bars

Coi l s

Liquid Blues

US$5.6bn

2%

39%

33%

5%

12%

5%4%

Detergents

Soaps

Repel lants

Dishwash(bars+l iquids )

Other Persona lCare

Deos

Liquid Blues


Company background Jyothy Laboratories Ltd (JLL) is a FMCG Company promoted by Mr. N. Ramchandran in 1983. From the single product with limited regional reach JLL has come a long way to multiple national brands in its portfolio. The company has presence in fabric care, household insecticides and dish washing and personal care. In FY11 its brand portfolio included Ujala, Maxo, Exo, Maya and Jeeva brands. It has also entered the laundry service segment with 75% subsidiary Jyothy Fabricare Services Ltd (JFSL). Remaining 25% of the stake of the subsidiary is held by Mr. Ulhas Kamath, Managing Director of JLL. JLL has moved to the next orbit post acquisition of Henkel India (in May’11) which has positioned JLL as a multi‐brand company, operating in multiple categories like fabric care, laundry, dish wash, mosquito repellants and personal care. Further acquisition has widened its distribution reach in urban modern retail and canteen sales. The synergies between both the companies are likely to benefit JLL, creating value for JLL. The company has inducted Mr. S. Raghunandan as CEO on May 23, 2012. He has served as MD with Reckitt Benckiser India and also worked at senior management level at leading FMCG companies like Paras Pharma, Dabur India and HUL etc. The induction of professional management will help JLL integrate Henkel in a better manner and will also help to unleash value of brands in better manner. Revenue mix change pre and post Henkel acquisition Category Jyothy % of JLL sales Jyothy + Henkel % of total sales

FY12 FY12 (Consolidated)

Fabric Care 3,150 47.5 5,077 47.4

Household Insecticides 1,477 22.3 1,477 13.8

Surface Cleaning 1,633 24.6 2,409 22.5

Other Products 367 5.5 1,747 16.3

Total 6,628 10,709


Potential synergies in distribution network

Henkel + Jyothy

19%

13%

22%

46%South

North

East

West

Henkel

37%

22%

14%

27%

South

North

East

West

Jyothy

52%

22%

13%

13% South

North

East

West



28


Revenue 6,264 9,130 13,587 17,026

Operating profit 793 841 1,821 2,537

Depreciation (130) (247) (255) (285)

Interest expense (20) (238) (588) (538)

Other income 169 227 235 245

Profit before tax 812 583 1,212 1,959

Taxes (154) (199) (303) (539)

Minorities and other 30 62 0 0

Adj. profit 688 446 909 1,420

Net profit 688 446 909 1,420



Reserves 6,230 6,044 6,471 7,408

Net worth 6,311 6,124 6,637 7,574


Debt 661 5,616 5,116 4,716

Deferred tax liab (net) 163 161 161 161


Fixed assets 2,383 3,273 4,230 4,345

Intangible assets 133 7,093 5,207 5,207


Net working capital 1,205 925 1,759 2,157

Inventories 694 1,188 1,717 2,152

Sundry debtors 1,053 807 1,240 1,554

Other current assets 639 1,156 1,531 1,706

Sundry creditors (419) (1,545) (2,099) (2,654)

Other current liabilities (762) (680) (630) (600)

Cash 2,796 662 770 794

Total assets 7,140 11,968 11,981 12,518


Profit before tax 812 583 1,212 1,959

Depreciation 130 247 255 285

Tax paid (154) (199) (303) (539)

Working capital ∆ (616) 280 (834) (398)

Operating cashflow 172 911 331 1,307

Capital expenditure (269) (8,096) 674 (400)

Free cash flow (98) (7,185) 1,004 907

Equity raised 2,214 (398) 85 0

Investments (622) 607 ‐ ‐

Debt financing/disposal 530 4,956 (500) (400)

Dividends paid (469) (234) (482) (482)

Other items 15 122 ‐ ‐

Net ∆ in cash 1,572 (2,134) 108 24


Growth matrix (%)

Revenue growth 5.0 45.8 48.8 25.3

Op profit growth (13.6) 6.1 116.5 39.3

EBIT growth (14.5) (1.2) 119.1 38.7

Net profit growth (7.5) (35.2) 104.0 56.2


OPM 12.7 9.2 13.4 14.9

EBIT margin 13.3 9.0 13.3 14.7


RoCE 14.7 8.6 15.0 20.4

RoNW 13.5 7.2 14.3 20.0

RoA 10.0 4.0 6.3 9.3

Per share ratios

EPS 8.5 5.5 5.5 8.6


Cash EPS 10.1 8.6 7.0 10.3


Valuation ratios (x)

P/E 19.8 30.5 30.8 19.7

P/CEPS 16.6 19.6 24.0 16.4

P/B 2.2 2.2 4.2 3.7

EV/EBIDTA 14.5 22.1 17.8 12.6

Payout (%)


Tax payout 19.0 34.2 25.0 27.5

Liquidity ratios




Leverage ratios


Net debt / equity (0.3) 0.8 0.7 0.5

Net debt / op. profit (2.7) 5.9 2.4 1.5


Tax burden (x) 0.85 0.76 0.75 0.73


EBIT margin (x) 0.13 0.09 0.13 0.15

Asset turnover (x) 0.91 0.81 0.94 1.12


RoE (%) 13.5 7.2 14.3 20.0

Sector: Capital Goods

Sector view: Negative

Sensex: 18,710

52 Week h/l (Rs): 65 / 35

Market cap (Rscr) : 383


Bloomberg code: JYS IB

BSE code: 513250

NSE code: JYOTISTRUC

FV (Rs): 2


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

50

70

90

110

130


Jyoti Struc Sensex


‐

20

40

60

80

100

Sep‐11 Dec‐11 Mar‐12 Sep‐12



CMP: Rs47

Upside: 34.0%

Research Analyst: Tarang Bhanushali

[email protected]

Jyoti Structures Ltd

Valuations attractive; Re-rating on the cards

SEB debt restructuring to ease out liquidity for power EPC players To revive the health of the power Discoms, the Government has proposed to restructure the outstanding loans of Discoms, which are facing liquidity crunch. In our view, the debt restructuring would ensure a resumption of credit flow by banks to the cash strapped SEBs. This would benefit utilities and power EPC companies as revival of credit flow from SEBs would reduce the high receivables of the EPC companies.

Order book healthy In Q1 FY13, Jyoti Structures (JSL) managed to reverse the slide in its fresh order inflows. JSL’s order book increased 3% yoy to Rs46bn, led by a big ticket order from West Bengal SEB (Rs7bn). PGCIL now accounts for 33% of JSL’s order book, SEBs make up 37% and private sector and others account for the remaining 30%. Specifically, transmission line towers account for 55% while sub‐station is at 18% and rural electrification comprises rest of order book.

Earnings to rise marginally over FY12-14E JSL’s operating profit growth over FY12‐14 is expected to remain subdued as the impact of higher revenue would be offset by lower margins. We expect JSL to report a marginal dip in earnings in FY13 due to high interest costs. However, in FY14, we expect a 27.8% growth in earnings for JSL led by a decline in interest rates and fall in debt levels.

Valuation cheap; SEB restructuring would lead to re-rating The stock has been under pressure on account of mounting working capital due to non‐payment of dues from few SEBs. If the SEB bailout package goes through, it could be positive for JSL as working capital will start to normalize resulting in reduced borrowing and interest cost. A reduction in its debtor days can lead to an earnings upgrade and can also effect a PE re‐rating for the stock. The stock is trading at a P/E of 4.3x its FY2012 EPS of Rs11.2. On our assumption of a marginal growth in earnings over the next two years, the stock looks undervalued compared to the larger players.


Revenues 23,797 25,924 29,253 29,877

yoy growth (%) 11.7 8.9 12.8 2.1


OPM (%) 11.5 10.8 10.6 10.6

Reported PAT 1,109 855 750 958

yoy growth (%) 31.5 (22.9) (12.3) 27.8

EPS (Rs) 13.5 10.4 9.1 11.7

P/E (x) 3.6 4.6 5.3 4.1

P/BV (x) 0.7 0.6 0.5 0.5

EV/EBITDA (x) 2.9 4.5 3.9 3.6

Debt/Equity (x) 0.8 1.4 1.2 1.0

RoE (%) 20.8 13.8 10.8 12.4



30

Order book has remained strong Transmission order accounts for 55% of order book

30

35

40

45

50

Q1 FY10

Q3 FY10

Q1 FY11

Q3 FY11

Q1 FY12

Q3 FY12

Q1 FY13

(Rs bn)

55%

18%

27%

Transmis ion Sub s tation Rural electri fication


Company background Jyoti Structures is amongst the leading transmission EPC players in the country. It operates in three primary segments (1) Transmission towers and Lines: This is the primary business segment for Jyoti Structures and it derives 70% of its revenues from this division alone. It has its own manufacturing plants at Nashik and Raiput, totaling a capacity of 110,000 tons. (2) Substation: Design, sourcing and construction of Extra High voltage substations of all voltage levels. (3) Rural Electrification: This division is into the electrification of villages and provides construction of distribution substations and laying of cables. Jyoti Structures is primarily focused on the domestic market. To reduce its domestic exposure, JSL has been actively tapping the overseas markets by entering into JVs in South Africa and the Gulf and setting up a transmission tower plant in US. It is prequalified to build transmission towers and lines across voltage levels and has extensive experience in the construction of substations and rural electrification.

OPM to remain under pressure due to intense competition

Debt/Equity to decline over FY12‐14E

1,500

2,000

2,500

3,000

3,500

FY08 FY09 FY10 FY11 FY12 FY13E FY14E

(Rs mn)

8

10

12

14

16(%)

Operating profi t OPM

0.0

0.4

0.8

1.2

1.6

FY08 FY09 FY10 FY11 FY12 FY13E FY14E

(X)



31


Revenue 23,797 25,924 29,253 29,877


Depreciation (202) (213) (210) (228)


Other income 84 109 163 166


Taxes (565) (430) (378) (483)

Net profit 1,109 855 750 958



Reserves 5,597 6,438 7,109 7,964

Net worth 5,761 6,602 7,273 8,129

Debt 4,801 9,182 8,770 7,895

Minority Interest 0 12 12 12

Deferred tax liab 180 127 127 127


Fixed assets 2,040 3,961 4,001 4,073



Inventories 2,307 2,945 3,084 3,110

Sundry debtors 10,508 15,695 15,067 14,734



Other curr liabilities (443) (601) (225) (383)

Cash 673 540 649 602

Total assets 10,741 15,923 16,183 16,163




Tax paid (565) (430) (378) (483)

Working capital ∆ (1,569) (3,344) (111) 45

Operating cashflow (259) (2,275) 850 1,231

Capital expenditure (464) (2,134) (250) (300)

Free cash flow (723) (4,409) 600 931

Equity raised (260) (14) (79) (103)

Investments (2) (50) ‐ ‐ Debt financing/ disposal 1,111 4,381 (411) (875)

Other items 2 (40) ‐ ‐

Net ∆ in cash 129 (133) 109 (47)


Growth matrix (%)

Revenue growth 11.7 8.9 12.8 2.1

Op profit growth 19.8 2.2 10.9 1.8

EBIT growth 20.7 2.8 13.4 1.4

Net profit growth 31.5 (22.9) (12.3) 27.8


OPM 11.5 10.8 10.6 10.6

EBIT margin 11.0 10.4 10.5 10.4


RoCE 26.9 20.2 19.0 19.2

RoNW 20.8 13.8 10.8 12.4

RoA 6.6 3.9 2.9 3.7

Per share ratios

EPS 13.5 10.4 9.1 11.7


Cash EPS 16.0 13.0 11.7 14.4


Valuation ratio (x)

P/E 3.6 4.6 5.3 4.1

P/CEPS 0.0 0.0 0.0 0.0

P/B 0.7 0.6 0.5 0.5

EV/EBIDTA 2.9 4.5 3.9 3.6

Payout (%)

Tax payout 33.7 33.5 33.5 33.5

Liquidity ratios

Debtor days 161 221 188 180



Leverage ratios


Net debt / equity 0.7 1.3 1.1 0.9



Tax burden (x) 0.66 0.67 0.67 0.67


EBIT margin (x) 0.11 0.10 0.10 0.10

Asset turnover (x) 1.43 1.18 1.12 1.15


RoE (%) 20.8 13.8 10.8 12.4

Sector: Auto Ancillary


Sensex: 18,710

52 Week h/l (Rs): 180 / 86



Bloomberg code: MSS IB

BSE code: 517334

NSE code: MOTHERSUMI

FV (Re): 1


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

60

80

100

120

140


MSSL Sensex


‐

20

40

60

80

100




CMP: Rs156

Upside: 16.0%

Research Analyst: Prayesh Jain

[email protected]

Motherson Sumi

Inorganic growth

Exemplary track record of meeting financial targets Motherson Sumi (MSSL) sets for itself five year targets for revenue growth, RoCE, exports and dividend payout. The targets set in the year 2000 were fully met by 2005 and most of the targets set in the year 2005 were closely met by 2010. For 2015, MSSL has set a target of achieving US$5bn revenues, 70% of which will be from exports, a RoCE of 40% and dividend payout of 40%. With large acquisitions of Visiocorp and Peguform in place, we expect the revenue and export sales target to be on track. However, RoCE and dividend payout targets could be missed owing to high debt used to fund Pegugorm acquisition.

Turnaround of Peguform would be a key trigger MSSL acquired Visiocorp in 2009 and has turned around its business since then. When MSSL acquired Peguform in November 2011, similar turnaround expectations were built by the investors. MSSL has been able to revive the margins of Peguform from 0.4% in Q3 FY12 to 4.2% in Q1 FY13. As Peguform contributes to ~50% of MSSL’s consolidated revenues, every 50bps improvement in its OPM will lead to ~5% increase in MSSL’s consolidated EPS. The key steps MSSL is implementing to improve margins include 1) improve plant level utilization, 2) diversify customer base, 3) build capacities in emerging markets and 4) reduce the bought‐outs by in‐sourcing from the existing businesses of MSSL.

Profit to double over FY12-14E We expect a MSSL’s consolidated earnings to more than double over FY12‐14E. The growth will be driven by a strong improvement in Peguform’s margins and steady increase in Visiocorp’s margins. Higher debt is a point of concern but robust cash generation will bring down the D/E ratio from 2.4x in FY12 to 1.7x in FY14E. At 13.8x FY14E P/E we find the risk reward favorable given 57% FY12‐14 earnings CAGR, FY14E RoE of 26.3% and improving D/E ratio.


Revenues 82,491 147,766 249,920 269,793

yoy growth (%) 23.1 79.1 69.1 8.0


OPM (%) 9.3 6.0 6.2 7.3

Pre‐exceptional PAT 3,908 3,405 4,742 6,391

Reported PAT 3,908 2,596 4,742 6,391

yoy growth (%) 61.0 (33.6) 82.7 34.8

EPS (Rs) 6.7 5.9 8.1 11.0

P/E (x) 23.4 26.8 19.3 14.3

Price/Book (x) 5.7 4.9 4.1 3.4

EV/EBITDA (x) 13.1 14.7 8.0 6.2

Debt/Equity (x) 0.8 2.4 2.1 1.7

RoE (%) 28.2 19.6 23.3 26.3


Motherson Sumi

33

Diversifying product mix Diversifying geographical base

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY07 FY08 FY09 FY10 FY11 FY12

Wiring harness MirrorsPolymer components Rubber/Metal machined

0%

20%

40%

60%

80%

100%

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

0

5

10

15

20

25

30

Outside India (%) India (%) No of countries (RHS)


Company background MSSL, the flagship company of the Samvardhana Motherson Group, is a joint venture between Samvardhana Motherson Finance Limited (SMFL) and Sumitomo Wiring Systems (SWS), Japan, which is a global supplier and manufacturer of wiring harnesses, components & wires. MSSL is India’s largest manufacturer of automotive wiring harnesses and mirrors for 4‐Ws, and is also a leading supplier of plastic components and modules to the automotive industry. The acquisition of the mirror business from Visiocorp and Peguform has helped it evolve as one of the world’s leading automotive component manufacturer. Over the years, MSSL has evolved as a JV specialist, having collaborations with global technology leaders to bring world‐class technologies to serve its customers. The company has developed a network of manufacturing bases, design centers, logistics centers, marketing support and sourcing hubs across a diversified geographical base. MSSL has presence in 25 countries and has 124 manufacturing facilities.

Diversifying customer base Strong profit growth trend

Before Visiocorp &

Peguform (2009)

Post Visiocorp &

Peguform (2012)

Maruti Hyundai SumitomoVW Ford Nissan GM BMW Daimler

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13E

FY14E

Rs mn


Motherson Sumi

34


Revenue 82,491 147,766 249,920 269,793


Depreciation (2,465) (3,796) (6,583) (7,025)


Other income 1,687 1,445 1,953 2,005


Taxes (1,885) (2,153) (2,436) (3,678)

Minorities and other (521) 633 (791) (1,642)

Adj. profit 3,908 3,405 4,742 6,391


Net profit 3,908 2,596 4,742 6,391



Reserves 15,700 18,325 21,451 25,924

Net worth 16,088 18,713 22,033 26,506

Minority interest 2,276 5,027 5,818 7,460

Debt 12,584 45,517 45,517 45,517

Deferred tax liab (net) 256 1,506 1,506 1,506


Fixed assets 21,566 51,380 49,339 48,314



Inventories 10,376 22,496 25,414 27,615

Sundry debtors 9,557 30,127 30,812 36,958




Cash 3,781 5,457 12,638 14,153

Total assets 31,204 70,763 74,874 80,989



Depreciation 2,465 3,796 6,583 7,025

Tax paid (1,885) (2,153) (2,436) (3,678)

Working capital ∆ (3,771) (7,597) 1,029 (5,625)

Operating cashflow 3,123 (1,029) 13,146 9,432


Free cash flow (4,552) (34,639) 8,604 3,432

Equity raised 1,775 1,063 ‐ ‐

Investments 6 (473) ‐ ‐

Debt financing/disposal 4,405 32,933 ‐ ‐

Dividends paid (1,244) (1,034) (1,423) (1,917)

Other items (16) 3,825 ‐ ‐

Net ∆ in cash 374 1,676 7,181 1,514


Growth matrix (%)

Revenue growth 23.1 79.1 69.1 8.0

Op profit growth 134.4 16.4 73.1 27.2

EBIT growth 72.1 (4.6) 64.5 35.3

Net profit growth 61.0 (12.9) 39.3 34.8


OPM 9.3 6.0 6.2 7.3

EBIT margin 8.4 4.4 4.3 5.4


RoCE 26.0 13.6 15.3 18.8

RoNW 28.2 19.6 23.3 26.3

RoA 8.8 4.0 3.8 4.8

Per share ratios

EPS 6.7 5.9 8.1 11.0


Cash EPS 11.0 12.4 19.5 23.1


Valuation ratio (x)

P/E 23.4 26.8 19.3 14.3

P/CEPS 14.3 12.7 8.1 6.8

P/B 5.7 4.9 4.1 3.4

EV/EBIDTA 13.1 14.7 8.0 6.2

Payout (%)


Tax payout 29.9 43.7 30.6 31.4

Liquidity ratios




Leverage ratios


Net debt / equity 0.5 2.1 1.5 1.2



Tax burden (x) 0.62 0.69 0.60 0.55


EBIT margin (x) 0.08 0.04 0.04 0.05

Asset turnover (x) 1.85 1.72 2.01 2.04


RoE (%) 28.2 19.6 23.3 26.3

Sector: Miscellaneous

Sector view: -

Sensex: 18,710

52 Week h/l (Rs): 202/107

Market cap (Rscr) : 462


Bloomberg code: TALW IN

BSE code: 533200

NSE code: TALWALKARS

FV (Rs): 10


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

30

70

110

150


Talwalkars Sensex


0

20

40

60

80

100


Promoters FIIs Others


CMP: Rs192

Upside: 22.4%

Research Analyst: Bhavesh Gandhi

[email protected]


Best Fit A unique play on an under penetrated market Gym membership penetration in India is probably below 1% as compared to average ~3.7% for Asia Pacific. A severely under penetrated market offers huge opportunity for organized players of which Talwalkars’ is the only listed company. The company has displayed a strong growth momentum as reflected in 1) ~2x jump in owned gym base and 2) robust revenue/PAT cagr of 36%/68% over FY10‐12.

Owned gym revenues to expand at ~22% cagr TBVF has 91 owned gyms and combined with subsidiaries, franchisees etc it currently operates ~130 gyms spread across 69 cities/towns with ~126,000 members. It ended FY12 with about 90 owned gyms and we expect it to add another 32 owned gyms in the next two years. We continue with our assumption of ~Rs17mn/Rs5mn in per gym revenue in the mature/new (<1 year of operations) phase. With 122 owned gyms by March 2014, we forecast 22% cagr in own gym gross revenues over next two years. New initiatives to sustain revenue buoyancy A slew of steps undertaken in FY12‐13 would ensure revenue momentum beyond FY13. These include 1) HiFi gyms introduced as no‐frills gyms in rural areas that would not support full‐fledged Talwalkars gym 2) NuForm studios at premium locations for weight loss though Electro Muscle Stimulation and 3) Zumba (aerobics) fitness program at existing gym base; we expect these initiatives to account for ~15% of FY14 gross revenues.

Growth with impressive margins, rising RoE: BUY Based on 65% jump in total gym base, we factor in 29%/35% revenue/PAT cagr over FY12‐14. At 11.7x FY14E EPS, stock trades at the lower end of historic 1‐yr fwd range. Attractive valuation, impressive 46% EBIDTA margin and rising return ratios (RoE, RoCE) support a strong case for re rating in our view. Recommend BUY for 9‐mth tgt price of Rs235.


Revenues 928 1,194 1,572 2,001

yoy growth (%) 43.0 28.6 31.7 27.3

Operating profit 401 543 725 926

OPM (%) 43.1 45.5 46.1 46.3

Reported PAT 160 221 283 403

yoy growth (%) 106.0 37.5 28.4 42.3

EPS (Rs) 6.7 9.1 11.7 16.7

P/E (x) 29.5 21.4 16.7 11.7

P/BV (x) 3.8 3.3 2.8 2.3

EV/EBITDA (x) 14.1 11.2 8.6 6.6

Debt/Equity (x) 1.0 1.1 0.9 0.7

RoE (%) 19.1 16.3 18.1 21.5



36

Share of owned gyms to dip by FY14 Trend in owned gym additions

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY11 FY12 FY13E FY14E

Talwalkars Subsidiaries Franchisees HiFi

11

9

23

14

7 1224

3544

6790

108

5 12

23

18

0

15

30

45

60

75

90

105

120

135

FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E

Existing Added


Company background TBVF is amongst the largest fitness chains in India offering a wide range of services including gyms, spas, aerobics and health counseling under ‘Talwalkars’ brand. Co‐promoted in 2003 by the Talwalkar and Gawande groups, it has pioneered the concept of gyms in India. Talwalkars currently operates ~130 gyms in 69 cities/towns serving over 126,000 members. The company accounts for largest market share in the organized health club market in India which itself is just 10% of the total. It has recently taken steps to migrate from being gym‐centric to fitness by introducing new initiatives such as NuForm studios with a focus on weight loss and Zumba fitness program. The company has its own 25,000 sq ft training academy in Thane (near Mumbai) which helps create professional trainers thereby forming a basis for uniform service experience to all its members.

Break up of gym base by ownership West & North account for ~70% of gyms

10

10

7

11

92

Owned

Subsidiaries

Franchisees

Trade mark licensed

HiFi

39

25

31

5

West

South

North

East



37


Revenue 928 1,194 1,572 2,001

Operating profit 401 543 725 926

Depreciation (90) (118) (137) (153)

Interest expense (86) (91) (144) (137)

Other income 21 16 10 10

Profit before tax 246 350 453 646

Taxes (74) (104) (140) (200)

PAT 172 245 313 446

Minority int (8) (29) (30) (43)

Extra items (4) 4 ‐ ‐

Net profit 160 221 283 403



Reserves 1,017 1,202 1,450 1,818

Net worth 1,258 1,443 1,691 2,059

Debt 1,219 1,552 1,602 1,522

Minority Interest 22 50 80 123

Deferred tax lia 107 143 143 143


Fixed assets 2,060 2,576 2,919 3,157


Net working capital 495 437 421 514


Cash 292 200 101 111

Other current assets 221 224 299 380

Sundry creditors (108) (39) (52) (66)

Other curr lia (69) (47) (63) (80)

Provisions (42) (101) (127) (165)

Total assets 2,606 3,188 3,516 3,846


Profit before tax 246 350 453 646


Misc. exp w/o 8 ‐ ‐ ‐

Def.tax lia 59 36 ‐ ‐

Tax paid (74) (104) (140) (200)

Working capital ∆ (237) (33) (83) (83)

Other op.items (4) 4 ‐ ‐

Operating CF 88 370 367 516

Capital exp. (858) (634) (481) (391)

Free cash flow (770) (264) (114) 125

Equity raised 697 ‐ ‐ ‐


Debt fin/disp 247 333 50 (80)

Dividends paid (28) (35) (35) (35)

Net ∆ in cash 167 (91) (99) 10


Growth matrix (%)

Revenue growth 43.0 28.6 31.7 27.3

Op profit growth 50.5 35.5 33.5 27.8

EBIT growth 61.3 32.8 35.5 31.1

Net profit growth 106.0 37.5 28.4 42.3


OPM 43.1 45.5 46.1 46.3

EBIT margin 35.7 36.9 38.0 39.2


RoCE 16.4 15.2 17.8 21.3

RoNW 19.1 16.3 18.1 21.5

RoA 7.2 7.1 7.9 10.2

Per share ratios

EPS 6.7 9.1 11.7 16.7


Cash EPS 10.9 15.1 18.7 24.8


Valuation ratio (x)

P/E 29.5 21.4 16.7 11.7

P/CEPS 18.1 13.0 10.5 7.9

P/B 3.8 3.3 2.8 2.3

EV/EBIDTA 14.1 11.2 8.6 6.6

Payout (%)


Tax payout 30.0 29.8 31.0 31.0

Liquidity ratios



Leverage ratios


Net debt / equity 0.7 0.9 0.9 0.7



Tax burden (x) 0.65 0.63 0.62 0.62


EBIT margin (x) 0.36 0.37 0.38 0.39

Asset turnover (x) 0.42 0.38 0.44 0.51


RoE (%) 19.1 16.3 18.1 21.5

Sector: FMCG


Sensex: 18,710

52 Week h/l (Rs): 165/80


6m Avg vol (‘000Nos): 2,370

Bloomberg code: TGBL IN

BSE code: 500800

NSE code: TATAGLOBAL

FV (Re): 1


Company rating grid

Low High

1 2 3 4 5

Earnings Growth

Cash Flow

B/S Strength

Valuation appeal

Risk

Share price trend

0

50

100

150

200


Tata Global Sensex


-

20

40

60

80

100

Dec-11 M ar-12 Jun-12 Sep-12



CMP: Rs157

Upside: 17.2%

Research Analyst: Vanmala Nagwekar

[email protected]

Tata Global Beverages Ltd

A Strong Brew!

Successful transformation into a global beverage player TGBL has emerged as a global beverage player from a pure tea producer, with geographically diversified revenue base and a well developed product portfolio. Acquisitions and strategic partnerships with global beverage giants like PepsiCo and Starbucks offers a huge market potential for TGBL as it can develop and market products in local as well as global markets. With its strong product portfolio, TGBL is well placed to benefit from rising beverage consumption in India. We expect TGBL to witness revenue CAGR of 12% over FY12‐14.

Rising contribution from acquisitions to improve ROE Over the past decade, TGBL has spent ~Rs14bn on the coffee business and ~Rs34bn on overseas business for acquiring tea and coffee brands to enter into new geographies. TGBL’s India tea business earns an ROE of ~28% led by strong distribution‐reach and brand portfolio. However, ROE of its international business is low at ~2% as TGBL is investing heavily in brands, new product launches and geographic expansion. Most of these brands have started witnessing increase in revenues and margin. We believe the ROE to improve gradually as these investments start contributing to earnings.

New business initiatives to drive growth New business initiatives like entry into energy and health drinks segment, NourishCo (JV between TGBL and PepsiCo India), Starbucks JV (50:50) and tie up with Green Mountain Coffee Roasters, Inc. (Keurig) have a strong growth potential for the next phase of growth. Besides changing TGBL’s revenue mix, these initiatives will also improve margins and capital ratios.

Outlook and valuation Despite its leadership position in the Indian packaged tea market, No. 2 position in the global tea market and generating ~90% of its total revenues from branded products, TGBL is trading at 20.9x FY14E EPS (which is at a discount to its FMCG peers that are trading at 25‐30x FY14E EPS). We recommend Buy on the stock with a target price of Rs184.


Revenues 60,032 66,312 74,382 82,922

yoy growth (%) 3.1 10.5 12.2 11.5


OPM (%) 10.1 9.4 9.4 9.5

Pre‐exceptional PAT 2,448 3,336 3,991 4,641

Reported PAT 2,543 3,561 3,991 4,641

yoy growth (%) (34.8) 40.0 12.1 16.3

EPS (Rs) 4.0 5.4 6.5 7.5

P/E (x) 39.6 29.1 24.3 20.9

Price/Book (x) 2.5 2.1 2.0 1.8

EV/EBITDA (x) 16.0 15.8 13.8 12.0

Debt/Equity (x) 0.3 0.2 0.2 0.1

RoE (%) 6.4 7.8 8.4 9.1



39

Geographical sales mix Brand wise sales break‐up

29%

28%

20%

23%

India

USA & Canada

UK

Rest Of World

39%

29%

15%

17%

Tetley

India Tea Brands

Eight O'Clock

Other and specialty

brands


Company background Tata Global Beverages Ltd (TGBL) is a global beverage company headquartered in London. It has a strong portfolio of global and regional brands such as Tata Tea, Tetley, Eight O’Clock Coffee, Good Earth, Jemca, Grand Vitax and Himalayan. Over the past decade, TGBL has made acquisitions in various countries in the tea, coffee, water and other beverages categories. Tea accounts for a major 70%+ share of the total turnover; coffee contributes ~19% to revenues while the balance comes from other activities like energy drinks, water etc. TGBL also has a listed subsidiary 'Tata Coffee Ltd.', which is one of the largest coffee plantation owners in Asia, with a sizeable international presence. TGBL's standalone business primarily comprises Indian tea operations. Earlier it used to be an integrated player and owned tea estates in North & South India. In 2005, TGBL hived‐off its south Indian plantations (Kanan Devan) to an entity which was largely an employee/workers owned trust and retained a minority stake (~19%). TGBL has now evolved into a non‐integrated brand player which procures tea from these plantations as well as auctions. Presently, TGBL is the second largest player after Hindustan Unilever in the ~Rs195bn domestic tea industry.


TGBL: Acquisitions History Acquired company

Tetley Group Good Earth Corporation

JEMCA Eight O' Clock Coffee

Joekels Tea Packers

Vitax and Flosana

Grand Rising Beverages LLC

Year Feb‐00 Oct‐05 May‐06 Jun‐06 Sep‐06 Apr‐07 Mar‐09 Oct‐10

Cost GBP 271m USD 31m

GBP 11.6m

USD 220m GBP 0.91m GBP 4.8m NA USD 10.7m

Terms

0.85x Sales, P/E of 10.4x and was 4x NW of Tata Tea

2x Sales 1.7x Sales

2x Sales 0.35x Sales 0.41x Sales

NA NA


40


Revenue 60,032 66,312 74,382 82,922


Depreciation (994) (961) (1,036) (1,101)

Interest expense (1,210) (704) (575) (525)

Other income 972 945 975 995


Taxes (2,023) (1,417) (1,625) (1,848)

Minorities and other (377) (758) (758) (758)

Adj. profit 2,448 3,336 3,991 4,641

Exceptional items 95 225 0 0

Net profit 2,543 3,561 3,991 4,641



Reserves 38,954 45,039 48,351 52,312

Net worth 39,571 45,657 48,969 52,930

Minority interest 11,081 10,659 10,659 10,659

Debt 10,214 8,883 7,683 6,683

Deferred tax liab (net) 637 657 657 657


Fixed assets 5,631 6,004 6,067 6,166


Investments 5,865 5,665 5,665 5,665


Inventories 10,697 11,607 13,368 14,903

Sundry debtors 5,733 6,518 7,520 8,383




Cash 9,973 7,362 7,869 9,288

Total assets 61,503 65,856 67,968 70,929



Depreciation 994 961 1,036 1,101

Tax paid (2,023) (1,417) (1,625) (1,848)

Working capital ∆ (2,293) (2,263) (1,540) (1,444)

Other operating items



Free cash flow (550) (3,071) 3,145 3,856

Equity raised 1,243 4,095 758 758

Investments (674) 200 ‐ ‐

Debt financing/disposal (7,754) (1,331) (1,200) (1,000)

Dividends paid (1,447) (1,570) (1,437) (1,437)

Other items 117 (934) (758) (758)

Net ∆ in cash (9,065) (2,611) 508 1,419


Growth matrix (%)

Revenue growth 3.1 10.5 12.2 11.5

Op profit growth (15.7) 2.5 12.5 12.4

EBIT growth (7.2) 2.6 11.8 11.8



OPM 10.1 9.4 9.4 9.5

EBIT margin 10.1 9.4 9.3 9.4


RoCE 9.5 9.8 10.4 11.2

RoNW 6.4 7.8 8.4 9.1

RoA 3.1 4.2 4.7 5.2

Per share ratios

EPS 4.0 5.4 6.5 7.5


Cash EPS 5.6 6.9 8.1 9.3


Valuation ratios (x)

P/E 39.6 29.1 24.3 20.9

P/CEPS 28.2 22.6 19.3 16.9

P/B 2.5 2.1 2.0 1.8

EV/EBIDTA 16.0 15.8 13.8 12.0

Payout (%)


Tax payout 41.7 25.7 25.5 25.5

Liquidity ratios




Leverage ratios


Net debt / equity 0.0 0.0 (0.0) (0.0)

Net debt / op. profit 0.0 0.2 (0.0) (0.3)


Tax burden (x) 0.50 0.61 0.63 0.64


EBIT margin (x) 0.10 0.09 0.09 0.09

Asset turnover (x) 0.75 0.83 0.87 0.92


RoE (%) 6.4 7.8 8.4 9.1

Recommendation parameters for fundamental reports:

Buy – Absolute return of over +10%

Market Performer – Absolute return between ‐10% to +10%

Sell – Absolute return below ‐10%

Published in 2012. © India Infoline Ltd 2012 This report is for the personal information of the authorised recipient and is not for public distribution and should not be reproduced or redistributed without prior permission. The information provided in the document is from publicly available data and other sources, which we believe, are reliable. Efforts are made to try and ensure accuracy of data however, India Infoline and/or any of its affiliates and/or employees shall not be liable for loss or damage that may arise from use of this document. India Infoline and/or any of its affiliates and/or employees may or may not hold positions in any of the securities mentioned in the document. The report also includes analysis and views expressed by our research team. The report is purely for information purposes and does not construe to be investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Investors should not solely rely on the information contained in this document and must make investment decisions based on their own investment objectives, risk profile and financial position. The recipients of this material should take their own professional advice before acting on this information. India Infoline and/or its affiliate companies may deal in the securities mentioned herein as a broker or for any other transaction as a Market Maker, Investment Advisor, etc. to the issuer company or its connected persons. This report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc and therefore, may at times have, different and contrary views on stocks, sectors and markets. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to local law, regulation or which would subject IIFL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. IIFL, IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel (W), Mumbai 400 013. For Research related queries, write to: Amar Ambani, Head of Research at [email protected] or [email protected] For Sales and Account related information, write to customer care: [email protected] or call on 91‐22 4007 1000

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