denoraindia_firstcall_221112

7/28/2019 DENORAINDIA_Firstcall_221112

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CMP 201.00

Target Price 228.00

ISIN: INE244A01016

Nov 19th

, 2012

DE NORA INDIA LIMITEDResult Update: Q3 CY12

BUYBUYBUYBUYStock Data

Sector Industrial Goods

BSE Code 590031

Face Value 10.00

52wk. High / Low (Rs.) 229.00/76.35

Volume (2wk. Avg ) 10194.00

Market Cap ( Rs in mn ) 1067.11

Annual Estimated Results (A*: Actual / E*: Estimated)

Years CY11A CY12E CY13ENet Sales 341.68 505.69 682.68

EBITDA 75.21 109.64 146.92

Net Profit 47.83 72.41 98.46

EPS 8.79 13.64 18.55

P/E 22.88 14.74 10.84

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX DE NORA INDIA LTD

Source: Company Data, Firstcall Research

SYNOPSIS

De Nora India Limited (DNIL) is engaged in

the manufacture and coating of anode and

cathode for electrolytic process for

application in the chlor-alkali & chlorate

plants.

The company is the market leader in theChlor-alkali & Cathodic Protection Systems

business.

During the quarter, the robust growth of

Net Profit is increased by 669.15% to Rs.

68.07 million.

De Nora India Limited has signed an order

of approximately Rs.160 Million for

manufacture of Chlorate Cells.

De Nora India Limited has bought back

246,500 equity shares through open

market transactions for an aggregate

amount of Rs.22, 879, 685.

During the quarter, the robust growth of

Revenue is rose 401.88% to Rs. 255.81

million from Rs. 50.97 million.

Net Sales and PAT of the company are

expected to grow at a CAGR of 58% and48% over 2010 to 2013E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

De Nora India Ltd 201.00 1067.11 8.79 22.88 4.20 60.00

SKF India Ltd 600.45 31663.30 37.60 15.97 3.13 75.00

Ador Welding Ltd 135.50 1842.60 15.31 8.85 1.05 60.00

Esab India Ltd 431.00 6634.40 23.41 18.41 3.14 150.00


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Investment Highlights

Results updates- Q3 CY12,

De Nora India Limited (DNIL) is engaged in the

manufacture and coating of anode and cathode forelectrolytic process for application in the chlor-

alkali & chlorate plants, reported its financial results

for the quarter ended 30th Sep, 2012. The third

quarter witnesses a healthy increase in overall sales

as well as profitability of the company.

Months Sep-12 Sep-11 % Change

Net Sales 255.81 50.97 401.88

PAT 68.07 8.85 669.15

EPS 12.82 1.59 704.79

EBITDA 101.63 14.47 602.35

The companys net profit jumps to Rs. 68.07 million against Rs.8.85 million in the corresponding quarter endingof previous year, an increase of 669.15%. Revenue for the quarter rose 401.88% to Rs. 255.81 million from Rs.

50.97 million, when compared with the prior year period. Reported earnings per share of the company stood at

Rs.12.82 a share during the quarter, registering 704.79% increase over previous year period. Profit before

interest, depreciation and tax is Rs. 101.63 millions as against Rs. 14.47 millions in the corresponding period of

the previous year.

Expenditure :

During the quarter the total expenses are increased

by 299 per cent due to increase in the raw material

cost. Total expenditure in Q3 CY12 was at Rs. 159.82

millions as against Rs. 40.02 million in Q3 CY11. Cost

of material consumed was stood at Rs. 105.25

millions against Rs. 24.25 millions in the

corresponding period of the previous year. Other

Expenditure was at Rs. 22.37 millions and Employee

benefit cost was at Rs. 10.72 millions in Q3 CY12 is

the primarily attributable to growth of expenditure.


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Latest Updates De Nora India Limited has bought back 246,500 equity shares (135,451 equity shares during the nine months

period ended 30th Sep 2012) through open market transactions for an aggregate amount of Rs.22,879,685

(Rs. 13,432,195 during the nine months period ended 30th Sep 2012).

De Nora India Limited has signed an order of approximately Rs.160 Million for manufacture of Chlorate Cells.Company Profile

De Nora India Limited is a Public Limited Company with 51% equity held by De Nora. The Company is a

subsidiary of the De Nora and has brought to India the latest technologies with the complete support of De Nora's

technical expertise and management.

In keeping with the philosophy of the De Nora, De Nora India Limited provides its valuable customers, not only a

superior product, but also technical assistance, in installation and operation of their electrodes, for both, new and

retrofitted cells of different technologies, through out their operating life.

With his factory in Goa with state-of-the-art facilities, De Nora India meets the demands of the rapidly developing

Chlor-alkali industry. This factory also provides access to the Goa port facilities for our future export

commitments.

This service is provided through a team of specialists, a centralized data bank and access to the vast technology

resources of De Nora. It is our firm opinion, that De Nora India's strength lies in its technical expertise backed by

its well trained team of specialists. Of course, there is the additional benefit of the direct technical support of De

Noras highly trained engineering staff, ready to discuss the needs of any prospective client, to define the best

optimized solution.

The Company has got the prestigious certification for ISO 9001:2008 for Quality Management System from JAS-

ANZ on 17.08.2010 valid till 16.08.2013 for the production and trading of Titanium Anodes/ Nickel Cathodes for

Chlor-alkali Industry used for NaOH/ KOH/Cl2, Electro Chlorinators for On-site Hypo, Cathodic Protection

Systems, Surface Finishing Products and Electro winning Products.

Products

Chlor-Alkali which makes a full range of products and systems for chlorine and alkali, and sodium andpotassium chlorate commodity chemical producers.

Oxygen & Specialties designs, develops and manufactures electrodes, anode coatings and systems forseveral electrochemical applications


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5/12

Financial Highlight

Balance sheet as atDecember 31st, 2011

(A*- Actual, E* -Estimations & Rs. In Millions)

Particulars March (Rs.in.mn) CY11A CY12E CY13E

1.Shareholders Funds

a) Capital 54.44 53.09 53.09b) Reserves & Surplus 205.91 278.33 376.79

Total Net worth 260.35 331.42 429.88

Total Liabilities (1) 260.35 331.42 429.88

1.Fixed Assets

a) Gross block 150.69 155.21 158.31b) Depreciation 93.91 99.54 103.03c) Net Block 56.78 55.67 55.29d) Capital Work in Progress 6.70 7.91 8.85

Total Fixed Assets 63.48 63.57 64.14

2. Investments 50.22 45.20 47.46

3.Differed Tax Assets 7.34 8.07 8.48

Current Assets, Loans & Advances (A)

a) Inventories 134.39 169.33 199.81b) Sundry Debtor 107.77 157.30 224.35c) Cash & Bank Balance 33.31 46.63 61.56d) Other Current Assets 0.82 1.11 1.37e) Loans & Advances 32.72 40.90 47.44f) Unbilled revenue 3.73 3.80 3.86

Total Current Assets 312.74 419.08 538.39

Less: Current Liabilities & Provisions (B)

a) Liabilities 126.23 154.00 175.56b) Provisions 47.20 50.50 53.03

4. Net Current Assets (A-B) 139.31 214.57 309.80

Total Assets( 1+2+3+4 ) 260.35 331.42 429.88


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Annual Profit & Loss Statement for the period of 2010 to 2013E

Value(Rs.in.mn) CY10 CY11 CY12E CY13E

Description 12m 12m 12m 12m

Net Sales 173.44 341.68 505.69 682.68

Other Income 13.40 10.91 12.55 13.80

Total Income 186.84 352.59 518.23 696.48

Expenditure -146.50 -277.38 -408.59 -549.55

Operating Profit 40.34 75.21 109.64 146.92

Interest -0.12 -0.18 -0.14 -0.14

Gross profit 40.22 75.03 109.50 146.78

Depreciation -7.09 -6.05 -6.66 -7.12

Profit Before Tax 33.13 68.98 102.85 139.66

Tax -2.54 -21.15 -30.44 -41.20

Net Profit 30.59 47.83 72.41 98.46

Equity capital 55.55 54.44 53.09 53.09

Reserves 204.40 205.92 278.33 376.79

Face value 10.00 10.00 10.00 10.00

EPS 5.51 8.79 13.64 18.55

Quarterly Profit & Loss Statement for the period of 31stMar, 2012 to 31stDec, 12E

Value(Rs.in.mn) 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12E

Description 3m 3m 3m 3m

Net sales 106.79 98.73 255.81 342.79

Other income 3.13 1.13 4.01 4.21

Total Income 109.92 99.86 259.82 347.00

Expenditure -88.50 -65.69 -158.19 -255.38

Operating profit 21.42 34.17 101.63 91.62

Interest 0.00 -0.05 -0.02 -0.02

Gross profit 21.42 34.12 101.61 91.61

Depreciation -1.50 -1.60 -1.63 -1.66

Profit Before Tax 19.92 32.52 99.98 89.94

Tax -6.21 -10.32 -31.91 0.00

Net Profit 13.71 22.20 68.07 89.94

Equity capital 54.44 53.09 53.09 53.09

Face value 10.00 10.00 10.00 10.00

EPS 2.52 4.18 12.82 16.94


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Ratio Analysis

Particulars CY10 CY11 CY12E CY13E

EPS (Rs.) 5.51 8.79 13.64 18.55

EBITDA Margin (%) 23.26% 22.01% 21.68% 21.52%

PBT Margin (%) 19.10% 20.19% 20.34% 20.46%

PAT Margin (%) 17.64% 14.00% 14.32% 14.42%

P/E Ratio (x) 36.50 22.88 14.74 10.84

ROE (%) 11.77% 18.37% 21.85% 22.90%

ROCE (%) 18.25% 31.21% 35.09% 35.83%

EV/EBITDA (x) 27.27 14.11 9.31 6.84

Book Value (Rs.) 46.80 47.83 62.43 80.97

P/BV 4.30 4.20 3.22 2.48

Charts


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Outlook and Conclusion

At the current market price of Rs.201.00, the stock P/E ratio is at 14.74 x CY12E and 10.84 x CY13Erespectively.

Earning per share (EPS) of the company for the earnings for CY12E and CY13E is seen at Rs.13.64 andRs.18.55 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 58% and 48% over 2010 to 2013Erespectively.

On the basis of EV/EBITDA, the stock trades at 9.31 x for CY12E and 6.84 x for CY13E. Price to Book Value of the stock is expected to be at 3.22 x and 2.48 x respectively for CY12E and CY13E.

We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth

story in the coming quarters also. We recommend BUY in this particular scrip with a target price ofRs.228.00

for Medium to Long term investment.

Industry Overview

Electricity is a cornerstone of national economy of any country and electrical industry is so robust that

prosperity and development of a country banks on it. The industry has become an integral traction of the

economy of a country, helps in promoting business development and expansion, and opens the flood gate of

employment opportunities for people throughout the world.

The electronic industry has carved a niche in the metamorphosing and globalized market. Recovery in Indias

manufacturing sector is in full swing. While revival of automation projects typically one of the first indicators

for any growth in the economy is already under way, an 11.3% rise in the electrical equipment industry has

underscored the overall growth story in the worlds second fastest growing economy.

The Rs 52,000-crore industry, which sells cables, switchgears, transformers and other large electrical products,

saw a major part of its growth come in the second half of 2009-10, after liquidity improved and companies

resumed expansion plans. Industry witnessed surge in imports by 100% for insulators, motors and generators

According to the Indian Electrical and Electronics Manufacturers Association (IEEMA), an apex body

representing the Indian electrical equipment industry, the sector grew about 20% in the second quarter,

compared with 1.7% in the first half. This demand growth could likely see a two-fold increase in the next 2-3

years. Industry seeks urgent intervention from Central Government at the highest level for conducive policy

initiatives while entering into 12th Plan so as to meet laid down targets of power generation capacity and related

transmission & distribution capacity expansions.


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Some of the companies in this sector are Siemens, L&T, ABB, Crompton Greaves, Havells, Schneider Electric and

WS Industries. Coming after a lull of two years, the growth in electrical will strengthen policy measures as the

government is working to restrict Chinese power equipment makers.

Since spends on automation and electrical in any project are equal, it was expected that growth in automation

would also give a boost to the electrical sector. Also as prices of electrical equipment are typically stable unlikethat of the automation sector, higher electrical sales implies that projects have been revived.

The industry has posted a 30% growth in the fourth quarter in sales of rotating machines, switchgear and cables

as a recovery in real estate and infrastructure pushed up the demand for such products. The growth in demand

mainly came from industries such as power, textile, steel and cement. Analysts and industry experts said the

growth will be sustained as most of the transmission and distribution projects are likely to begin in the next

fiscal year, mainly by the Power Grid Corporation.

The Indian Electrical and Electronics Manufacturers Association (IEEMA), the apex Indian industry association of

manufacturers of electrical, industrial electronics and allied equipment today released the Q1 FY13 performance

of the US$25 billion Indian electrical equipment industry. For the first time in 10 years, the Indian electrical

equipment industry has seen a negative growth of 2.4% in the first quarter (Q1) of the current fiscal (2012-13)

compared to the corresponding period of Q1 FY12 (13.82 %) and sequential quarter Q4 FY12 (14.10%).

Demand for power equipment is expected to rise as India is targeting at least 9% GDP growth for the year ahead.

India has historically faced a demand-supply gap and this will feed the electrical industry.

However, most of the orders would be through EPC route with more new players entering the business and sub-

contracting the same to existing contractors. It is expected that competition would be intense. The government

plans to add about 12,000 mw of capacity by the end of this fiscal, including from renewable sources. The Central

Electricity Authority has set a target to add more than 21,000 mw capacity by the end of 2012.

The government has also taken policy initiatives to speed up power sector development, such as the Rajiv Gandhi

Gramin Vidyutikaran Yojana. The power sector reforms if implemented as scheduled will create large business

for power sector equipment manufacturers and service providers.

Growth Drivers:

The Companys position as the market leader is due to its persistent efforts and emphasis in the following areas:

Product quality Continuous product improvement Introduction of new products through in-house developments


10/12

Creating customer preferences Competitive pricing and extremely competitive cost structure Dynamic approach to situations Strong and dependable distribution channel spread all over the Country.

Business Environment

Electrical CablesElectrical cables are the main focus area of business for the Company. It accounted for 82% of total sales for the

year under review. Growth during the year under review was driven by the improvement shown by the

construction and automobile sectors. The long term out look for this sector remains positive since the economic

growth for the country depends on industrial and infrastructural developments.

Communication cables

The communication cables comprise of state of art, new generation communication cables and traditional

telephone cables. The communication cables segment (including optic fiber) recorded sales of Rs.1,420 million

for the year under review against Rs.2,042 million for the earlier year. The uncertainties that have plagued the

telecom sector over the past two years have had an impact on Companys revenues from this segment. Full

fledged introduction of value added service has been delayed by telecom service providers. Uncertainties over

spectrum usage and licensing also acted as a dampener in this business.

BSNL after several years came out with a tender for JFTC cables, the order for a part of which Company securedand serviced during the year. The economic development requires inter-alia, a strong, dependable and

sustainable communication network. The Companys communication cables meet with the requirement of local

as well as international standards and therefore, find ready acceptance with domestic customers as well as in the

exports market.

Copper RodsCopper rod is the feed stock for copper based electrical and communications cables. The copper rod production

is mainly for in-house consumption. The Companys steps to set up new plants for cables as well as to expand the

cable capacity at the existing plants will boost up the captive consumption of copper rods. During the year under

review, the CCC rods division recorded a production volume of 21,288 metric tones as against 33,496 metric

tones for the earlier year. The sales were Rs.9,504 million (previous year Rs.13,815 million) of which Rs.2,051

million were sales to third parties (previous year Rs.5,106 million) and balance was inter-divisional transfers.


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Electrical Switches and CFLsThe manufacture and sale of these electrical products act as a logical extension of the cables business. On its part

to contain the effects of global warming, the Government is promoting use of CFLs. Keeping in mind the expected

growth in CFL demand the Company has built capacity in T3 and T4 type CFLs and has also launched the latest

T5 tube lights and fittings in the market.

Road Ahead

As the country marches ahead towards attaining the status of being a developed nation, it is natural that the

demand for the products produced and marketed by Company would grow. With the focus being on supplying

products of superior quality at a price that is attractive to the customer, backed by the distribution reach that the

Company has it is but a logical conclusion that the future holds vast promise. The Company has resources

available at its disposal to implement and realize its business goals.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.


12/12

Firstcall India Equity Research: Email [email protected]

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