emkay india conference post conference note_aug-14

INDIA Conference11th & 12th AUGUST, 2014

Trident Hotels, BKC, Mumbai

EMKAY CONFLUENCEPOST CONFERENCE NOTE

INDIA Conference Post conference note

Emkay Research August 20, 2014 2

Contents

Emkay Confluence; Permeating optimism predicated on reforms ...................................... 3

Companies

ACC..................................................................................................................................... 4

Anant Raj ............................................................................................................................ 6

CEAT................................................................................................................................... 8

Century Plyboards ............................................................................................................ 10

CESC ................................................................................................................................ 12

DB Corp............................................................................................................................. 14

Diamond Power Infrastructure .......................................................................................... 16

eClerx Services .................................................................................................................18

Firstsource Solutions ........................................................................................................ 20

Gati Ltd ............................................................................................................................. 22

Gujarat International Finance Tec-City ............................................................................. 24

Godawari Power & Ispat ................................................................................................... 25

Granules India ................................................................................................................... 27

Gujarat Pipavav ................................................................................................................ 29

HT Media .......................................................................................................................... 31

Indian Metals & Ferro Alloys ............................................................................................. 33

IRB Infrastructure ............................................................................................................. 35

J Kumar Infra .................................................................................................................... 37

KEI Industries ................................................................................................................... 39

LIC Housing Finance ........................................................................................................ 40

Lakshmi Machine Works .................................................................................................. 42

MPS Ltd ............................................................................................................................ 44

Natco Pharma ................................................................................................................... 46

Nava Bharat Ventures ...................................................................................................... 48

NIIT Tech .......................................................................................................................... 50

Pennar Industries ............................................................................................................. 52

PTC India Financial Services ............................................................................................ 54

PVR .................................................................................................................................. 56

TCS .................................................................................................................................. 58

Tech Mahindra .................................................................................................................. 60

Technocraft Industries ...................................................................................................... 62

Technofab Engineering .................................................................................................... 64

TIL India ........................................................................................................................... 66

TRIL .................................................................................................................................. 67

Vinati Organics ..................................................................................................................69

V-Mart ............................................................................................................................... 71

Welspun Corp ................................................................................................................... 72

Welspun India ................................................................................................................... 74

Zicom Security Systems ................................................................................................... 76

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Emkay Global Financial Services Ltd. 3

Emkay ConfluencePermeating optimism predicated on reforms

August 20, 2014

Dhananjay Sinha [email protected] +91 22 6624 2435 Emkay Research

The context of prevailing buoyant predilection made imminent sense for us to do a broad-based survey across corporates to fathom the realism behind the renewed sanguineness. Emkay Confluence, held last week, brought together 39 companies across market capitalization and industries, including consumers, infrastructure, financial services, capital goods, utilities, logistic, media, entertainment and industrials. Emkay Confluence saw enthusiastic participation from more than 160 institutional investors across India who attended over 2000 meetings.

The mood we gathered from the corporate meetings was more constructive than we may have seen during past several quarters. Most companies expect growth revival starting from H2FY15, which, in our view, is partially permeating through the modest revival in global growth and the changed government in India, where expectations are rife that the newly formed government, under the reformist leadership of Mr. Narendra Modi, will be able to usher in a full-blown recovery after two years of somnolent performance. Official prognosis is that the economy will pull off a 5.0-6.0% performance in FY15 and even higher in the following years. In fact, Finance Minister Arun Jaitley has vowed to lift economic growth to 7-8% within the next three years. Hope from the new government centres around its ability to effect a significant change with respect to governance, policies and implementations.

Since early 2014, business, consumer and market sentiment has buoyed suggesting that Indian economy has reached a turning point towards recovery in 2015. Industrial production growth averaged 3.9% yoy during Q1FY15 from a multi-decade low of -0.1% during FY14. Both DII and FII volume picked up in the first quarter. Sustenance of excess global liquidity have fuelled an upsurge in Emerging and Indian stock markets to record highs. Improved financial conditions have motivated several companies to raise capital to refurbish their balance sheets.

As this juncture, the corporate experience has been mixed, with relatively optimistic vibes emanating from exports and select consumption plays. Within the companies we hosted IT (TCS, Tech Mahindra, eClerx and First Source), Pharma (Granules), consumers-related (PVR, Century Ply, Ceat and CESC) and specialized financial services companies (LIC Housing and PTC Financial Services), and consumables and select industrials (KEI, Vinati Organics, Pennar Industries and Technocraft Industries) sounded fairly optimistic about the business outlook. Construction company JKumar expects considerable scope for the order-book build-up for the road sector and for urban infra projects.

However, the feedback from companies was not unanimously optimistic. Precautious views came from several industrial companies who continue to face trying times. Technofab Engineering and Transformer & Rectifiers are still awaiting revival in the power sector and a pick-up in domestic investment cycle. Similarly, Tractors India is facing weak demand, and associated problems like extended debtor days and pile up of inventory. Welspun Corp is confronted with uncertain order flows. Delhi-based real estate player, Anant Raj, finds the sentiment improving amidst weak demand conditions, which are expected to revive only in H2FY15.

Overall, while the macro conditions and sentiment are seemingly improving, the optimism level gathered from our conferences was not entirely pervasive. The sustenance of the recent exuberance depends largely on the Modi government’s ability to steer the economy through the next growth cycle. Uncertainty persists despite the improving global growth scenario. While advanced economies have done the necessary adjustments, India’s policy corrections are yet to happen.

The government’s actions towards meaningful fiscal consolidation and a revival of investments remain imperative. Long-term opportunities lie in various investment-driven measures such as restraining revenue expenditure, implementation of GST/DTC, higher capital spending, and further opening up of FDI. Only then is the economy will demonstrate a sustainable recovery cycle.

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Financial Snapshot (Standalone) (Rsmn) YE- Net EBITDA EPS EPS RoE EV/

Dec Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

CY12A 111,305 19,681 17.7 12,360 65.8 -19.7 17.0 21.8 11.9 3.6

CY13A 109,084 13,683 12.5 8,790 46.8 -28.9 11.6 30.6 16.5 3.4

CY14A 119,966 17,010 14.2 10,753 57.2 22.3 13.4 25.0 13.8 3.3

CY15E 134,547 21,116 15.7 13,373 71.2 24.4 15.6 20.1 11.2 3.0

ACCCost-saving initiatives to yield benefits

August 20, 2014

Rating

Accumulate

Previous Reco

Accumulate

CMP Rs1,465

Target Price Rs1,500

EPS Chg CY14E/CY15E (%) NA

Target Price change (%) NA

Nifty 7,727

Sensex 25,881

Price Performance (%) 1M 3M 6M 12M

Absolute 3 8 41 25

Rel. to Nifty -1 -2 12 -8

Source: Bloomberg

Relative price chart

900

1025

1150

1275

1400

1525

Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14

Rs

-30

-24

-18

-12

-6

0%

ACC (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Cement

Bloomberg ACC IB

Equity Capital (Rs mn) 1,877

Face Value(Rs) 10

No of shares o/s (mn) 188

52 Week H/L 1,526/ 911

Market Cap (Rs bn/USD mn) 275/ 4,499

Daily Avg Volume (No of sh) 385,724

Daily Avg Turnover (US$mn) 9.0

Shareholding Pattern (%) Jun'14 Mar'14 Dec'13

Promoters 50.3 50.3 50.3

FII/NRI 19.7 19.7 20.0

Institutions 12.8 13.2 12.9

Private Corp 3.7 3.1 2.9

Public 13.5 13.8 13.9 Source: Bloomberg

Vijay Goel [email protected] +91-22-66121285

About the company:

n ACC, the second-largest cement producer in India, is well diversified across all regions. It sells 21% of its output in North, 20% in East, 22% in South, 19% in Central and 18% in West

n With 16 cement plants located across the country, ACC has a current capacity of 30.6mtpa and has an 11% market share. Post-Jamul (Chhattisgarh) expansion, its capacity would reach 34.6mtpa

n Recent price hikes in South to aide margin recovery. Commissioning of Jamul clinker/cement capacity and coal mine in CY15 to help margin recovery

n Cost-saving initiatives to yield fruit by CY15. Likely savings of Rs145-195/t at the manufacturing level alone. Valuation at EV/t of USD119 is reasonable

Meeting summary:

§ Net capacity addition of 3.5mt by end-CY15: The ongoing capacity expansion of 3.5mtpa in the eastern region is expected to be completed by end-CY15. The clinker addition of 2.8mtpa at Jamul (Chhattisgarh) is expected by Q3CY15, while the grinding units (located at Jamul and Sindri) are likely by end-CY15. The Sindri grinding unit (Jharkhand) will source clinker from the Jamul unit. On this project, ACC incurred a capex of around Rs10bn in CY13, and will spend about Rs30bn during CY14-15e.

§ Cement demand expected to pick up in H2FY15: Demand for cement, which is currently muted due to the monsoon, is likely to pick up in H2FY15. The company expects 8-10% demand growth in the long term, with the highest demand potential expected from the eastern region.

§ Increase in petcoke usage: ACC has increased its petcoke usage to about 14% of its total fuel requirement from around 10% in CY13. A further scale-up in petcoke contribution to about 20% would be considered by CY14, which is expected to benefit the company, since petcoke as a fuel is more cost-efficient than other fuels. This measure is expected to result in cost-savings of Rs15-20/t.

§ Captive coal mining: Of the ongoing development of three coal blocks, the first block at Bicharpur (annual target of 1.2mtpa) is in advanced stages of development and is expected to start coal production by March 2015. The captive coal could contribute roughly 10% of ACC’s fuel requirement. The captive coal usage is expected to result in cost-savings of around Rs40/t, as its cost will be about 20% cheaper than the company’s average coal cost.

§ Use of alternative fuels: ACC has also increased usage of alternative fuels and has set up a 7MW waste heat recovery plant. These measures are expected to drive potential cost-savings of about Rs40/t. It is further looking to augment WHRP capacity and usage of alternative fuels. In all, ACC is expected to see cost-savings of around Rs200/t on account of cost-saving measures like clinker substitution, petcoke usage, captive coal, WHRP and alternative fuels, and logistics and bulk handling.

ACC Company Update


Key Financials (Standalone)

Income Statement Y/E Dec (Rsmn) CY12A CY13A CY14A CY15E

Net Sales 111,305 109,084 119,966 134,547

Growth (%) 12.1 -2.0 10.0 12.2

Expenditure 91,624 95,402 102,957 113,431

Raw Material 17,843 18,609 20,104 22,122

Operating Expenses 73,781 76,793 82,853 91,308

Other Expenses 0 0 0 0

EBITDA 19,681 13,683 17,010 21,116

Growth (%) -10.0 -30.5 24.3 24.1

EBITDA margin (%) 17.7 12.5 14.2 15.7

Depreciation 5,589 5,740 5,764 6,468

EBIT 14,092 7,943 11,246 14,648

EBIT margin (%) 12.7 7.3 9.4 10.9

Other Income 4,923 4,843 4,643 4,985

Interest expenses 1,147 517 528 528

PBT 17,869 12,270 15,361 19,104

Tax 5,509 3,479 4,608 5,731

Effective tax rate (%) 30.8 28.4 30.0 30.0

Adjusted PAT 12,360 8,790 10,753 13,373

Growth (%) -19.7 -28.9 22.3 24.4

Net Margin (%) 11.1 8.1 9.0 9.9

(Profit)/loss from JVs/Ass/MI 0 0 0 0

Adj. PAT After JVs/Ass/MI 12,360 8,790 10,753 13,373

E/O items -1,748 2,167 0 0

Reported PAT 10,612 10,958 10,753 13,373

PAT after MI 12,360 8,790 10,753 13,373

Growth (%) -19.7 -28.9 22.3 24.4

Balance Sheet Y/E Dec (Rsmn) CY12A CY13A CY14A CY15E

Equity share capital 1,880 1,880 1,880 1,880

Reserves & surplus 71,949 76,369 80,569 86,842

Net worth 73,828 78,248 82,448 88,722

Minority Interest 0 0 0 0

Secured Loans 1,600 320 320 0

Unsecured Loans 30 30 30 30

Loan Funds 1,630 350 350 30

Net deferred tax liability 5,169 5,073 5,073 5,073

Total Liabilities 80,628 83,671 87,871 93,825

Gross Block 102,188 103,996 109,468 136,940

Less: Depreciation 43,549 48,956 54,719 61,188

Net block 58,639 55,040 54,748 75,752

Capital work in progress 5,037 12,094 20,344 7,500

Investment 25,536 21,940 21,940 21,940

Current Assets 28,301 29,907 28,207 28,858

Inventories 11,336 11,215 12,161 12,902

Sundry debtors 3,035 3,972 4,273 4,792

Cash & bank balance 6,784 5,034 2,087 1,478

Loans & advances 6,859 9,491 9,491 9,491

Other current assets 288 195 195 195

Current lia & Prov 36,884 35,309 37,367 40,225

Current liabilities 26,544 27,522 29,581 32,439

Provisions 10,340 7,786 7,786 7,786

Net current assets -8,583 -5,402 -9,161 -11,367

Misc. exp 0 0 0 0

Total Assets 80,628 83,672 87,871 93,825 Cash Flow Y/E Dec (Rsmn) CY12A CY13A CY14A CY15E

PBT (Ex-Other income) 12,945 7,426 10,718 14,120

Depreciation 5,589 5,740 5,764 6,468

Interest Provided 1,147 517 528 528

Other Non-Cash items -14 679 0 0

Chg in working cap -1,620 -4,928 815 1,601

Tax paid -5,509 -3,479 -4,608 -5,731

Operating Cashflow 12,537 5,954 13,216 16,985

Capital expenditure -6,418 -8,865 -13,722 -14,629

Free Cash Flow 6,120 -2,911 -506 2,357

Other income 4,923 4,843 4,643 4,985

Investments -9,285 3,596 1 1

Investing Cashflow -10,779 -425 -9,078 -9,643

Equity Capital Raised 0 0 0 0

Loans Taken / (Repaid) -3,477 -1,280 0 -320

Interest Paid -1,147 -517 -528 -528

Dividend paid (incl tax) -6,546 -6,617 -6,553 -7,099

Income from investments 0 0 0 0

Others -4 -4 -4 -4

Financing Cashflow -11,174 -8,418 -7,085 -7,951

Net chg in cash -9,415 -2,889 -2,947 -609

Opening cash position 16,526 6,784 5,034 2,087

Closing cash position 7,110 3,895 2,087 1,478

Key Ratios Y/E Dec CY12A CY13A CY14A CY15E

Profitability (%)

EBITDA Margin 17.7 12.5 14.2 15.7

Net Margin 11.1 8.1 9.0 9.9

ROCE 23.4 15.6 18.5 21.6

ROE 17.0 11.6 13.4 15.6

RoIC 31.9 18.1 25.5 27.5

Per Share Data (Rs)

EPS 65.8 46.8 57.2 71.2

CEPS 95.5 77.3 87.9 105.6

BVPS 392.8 416.3 438.7 472.1

DPS 30.0 30.0 30.0 32.5

Valuations (x)

PER 21.8 30.6 25.0 20.1

P/CEPS 15.0 18.5 16.3 13.6

P/BV 3.6 3.4 3.3 3.0

EV / Sales 2.2 2.2 2.1 1.8

EV / EBITDA 11.9 16.5 13.8 11.2

Dividend Yield (%) 2.1 2.1 2.1 2.3

Gearing Ratio (x)

Net Debt/ Equity -0.4 -0.3 -0.3 -0.2

Net Debt/EBIDTA -1.5 -1.8 -1.3 -1.0

Working Cap Cycle (days) -50.4 -34.9 -34.2 -34.8

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Financial Snapshot (Consolidated) (Rsmn) YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

FY11A 4,242 2,356 55.5 1,678 28.4 -30.0 4.6 2.2 5.0 0.1

FY12A 3,121 1,642 52.6 1,135 19.2 -32.4 3.0 3.2 9.3 0.1

FY13A 5,586 1,588 28.4 1,026 17.4 -9.6 2.6 3.6 11.1 0.1

FY14A 4,834 1,412 29.2 997 16.9 -2.9 2.5 3.7 9.2 0.1

Anant RajWell placed to capture NCR recovery

August 20, 2014

Rating

Not Rated

CMP Rs57

EPS Chg (%) NA


Nifty 7,740

Sensex 25,919


Absolute -6 -2 7 18

Rel. to Nifty -10 -9 -17 -12

Source: Bloomberg


40

50

60

70

80

90


Rs

-20

-8

4

16

28

40%

Anant Raj (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Real Estate

Bloomberg ARCP IB

Equity Capital (Rs mn) 590

Face Value(Rs) 2


52 Week H/L 85/ 40

Market Cap (Rs bn/USD mn) 17/ 273

Daily Avg Volume (No of sh) 2,410,821



Promoters 63.4 63.4 63.4

FII/NRI 15.4 14.6 15.3




Tejas Sheth [email protected] +91-22-66242482

About the company:

n ARL, an NCR realty developer, has a strong presence across the segments. It has 2msf of area leased, five operational hotels and 3msf of on-going housing space

n Ready-to-move-in portfolio of 3msf of office space makes ARL a big beneficiary of economic revival. It also has a pipeline of high-value housing projects in New Delhi

n With a gross debt of Rs14bn, the company plans to reduce the same through cash generation by monetisation of high-value housing projects and selective hospitality assets

n On EV of Rs30bn, ARL has a rent generating portfolio valued at Rs9bn and 3msf of completed office space valued at Rs15bn with another 1100 acres of land

Meeting summary:

§ Anant Raj Ltd. (ARL) generates rental income of Rs9bn through 2msf of office space leased area, a mall leased in Delhi and another five hospitality assets leased

§ ARL has another 3msf of office space vacant across two IT parks and one IT SEZ in NCR. The company is also developing a large township project in Gurgaon spread across 200 acres.

§ The NCR real estate market has seen some revival of sentiment, though the demand continues to remain weak. The company expects a demand revival post-Diwali when it has plans to launch the group housing segment of its township project in Gurgaon.

§ The company has a gross debt of Rs13.8bn and a net debt of Rs13.2bn. It expects to reduce the same to Rs11bn by FY15 through sale of land in Delhi and some hospitality assets in Gurgaon

§ In its large township project, the company has till date invested Rs9bn. It has sold land worth Rs6.5bn and has collected Rs3bn from the area sold.

§ The company believes that the township project will be self-financed once the group housing project is launched in H2FY15.

§ In the next 2-3 years, the company’s focus would be on leasing of the completed office and retail space, launching of the group housing project in Gurgaon township, and reducing the debt through asset monetisation

§ Post 3 years, growth would come from the launches in Delhi once the new development plan by DDA is implemented. The company has most of its land bank falling under the area, which is recently zoned for housing space development by DDA.

Anant Raj Company Update


Key Financials (Consolidated)

Income Statement Y/E Mar (Rsmn) FY11A FY12A FY13A FY14A

Net Sales 4,242 3,121 5,586 4,834

Growth (%) 37.1 -26.4 79.0 -13.5

Expenditure 1,886 1,479 3,998 3,422

Employee Cost 83 124 171 184

Other Exp 176 238 1,002 429

SG&A 0 0 0 0

EBITDA 2,356 1,642 1,588 1,412

Growth (%) -8.7 -30.3 -3.3 -11.0

EBITDA margin (%) 55.5 52.6 28.4 29.2

Depreciation 135 111 140 154

EBIT 2,222 1,532 1,447 1,258

EBIT margin (%) 52.4 49.1 25.9 26.0

Other Income 288 204 195 191

Interest expenses 210 206 157 194

PBT 2,299 1,530 1,485 1,255

Tax 623 396 443 228


Adjusted PAT 1,678 1,135 1,026 997

Growth (%) -30.2 -32.4 -8.1 -1.4

Net Margin (%) 39.5 36.3 18.7 21.3

(Profit)/loss from JVs/Ass/MI 2 1 -16 -31

Adj. PAT After JVs/Ass/MI 1,678 1,135 1,026 997

E/O items 6 -2 3 -6

Reported PAT 1,684 1,133 1,029 991

PAT after MI 1,678 1,135 1,026 997

Growth (%) -30.0 -32.4 -9.6 -2.9

Balance Sheet Y/E Mar (Rsmn) FY11A FY12A FY13A FY14A

Equity share capital 590 590 590 590


Net worth 37,262 38,322 39,177 40,027

Minority Interest 795 860 988 1,080

Secured Loans 8,701 10,280 11,270 6,355

Unsecured Loans 1,081 2,836 3,508 3,508

Loan Funds 9,782 13,116 14,777 9,863

Net deferred tax liability 12 -8 26 38


Gross Block 20,784 22,548 22,373 22,831

Less: Depreciation 743 766 895 1,049

Net block 20,041 21,783 21,478 21,782


Investment 2,579 3,245 4,813 5,496

Current Assets 21,573 24,558 26,151 28,558

Inventories 7,117 8,884 10,381 11,048

Sundry debtors 221 534 919 722

Cash & bank balance 1,620 1,451 816 559

Loans & advances 3,905 3,775 5,793 9,293

Other current assets 8,710 9,914 8,242 6,936

Current lia & Prov 1,607 2,475 3,107 10,461

Current liabilities 778 2,273 3,062 10,355

Provisions 829 202 45 106

Net current assets 19,967 22,083 23,044 18,097

Misc. exp 0 0 0 0

Total Assets 47,851 52,290 54,968 51,008 Cash Flow Y/E Mar (Rsmn) FY11A FY12A FY13A FY14A



Interest Provided 210 206 157 194

Other Non-Cash items 0 0 0 0

Chg in working cap -14,991 -2,306 -1,562 4,702

Tax paid -623 -396 -443 -228

Operating Cashflow -13,252 -1,061 -414 5,880

Capital expenditure 1,530 -1,767 -290 -458

Free Cash Flow -11,722 -2,828 -704 5,423

Other income 288 204 195 191

Investments 370 -666 -1,568 -683

Investing Cashflow 2,188 -2,229 -1,662 -950

Equity Capital Raised -372 -73 -175 -141

Loans Taken / (Repaid) 8,407 3,334 1,662 -4,914

Interest Paid -210 -206 -157 -194

Dividend paid (incl tax) 0 0 0 0


Others -58 66 113 61

Financing Cashflow 7,767 3,121 1,442 -5,188

Net chg in cash -3,298 -169 -635 -257

Opening cash position 4,891 1,620 1,451 816

Closing cash position 1,594 1,451 816 558

Key Ratios Y/E Mar FY11A FY12A FY13A FY14A

Profitability (%)

EBITDA Margin 55.5 52.6 28.4 29.2

Net Margin 39.5 36.3 18.7 21.3

ROCE 5.8 3.5 3.1 2.7

ROE 4.6 3.0 2.6 2.5

RoIC 7.3 3.8 3.4 3.0

Per Share Data (Rs)

EPS 28.4 19.2 17.4 16.9

CEPS 30.7 21.1 19.8 19.5

BVPS 631.4 649.3 663.8 678.2

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 2.2 3.2 3.6 3.7

P/CEPS 2.0 3.0 3.2 3.2

P/BV 0.1 0.1 0.1 0.1

EV / Sales 2.8 4.9 3.2 2.7

EV / EBITDA 5.0 9.3 11.1 9.2

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)

Net Debt/ Equity 0.2 0.3 0.4 0.2

Net Debt/EBIDTA 3.5 7.1 8.8 6.6

Working Cap Cycle (days) 1,578.6 2,413.0 1,452.5 1,324.3

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Financial Snapshot (Standalone) (Rs mn) YE- Net EBITDA EPS EPS RoE EV/


FY11A 34,988 1,393 4.0 223 6.5 (86.5) 3.5 81.5 18.5 2.8

FY12A 44,757 2,436 5.4 75 2.2 (66.2) 1.2 240.7 11.4 2.8

FY13A 48,815 4,080 8.4 1,341 39.2 1,677.9 19.1 13.5 6.1 2.4

FY14A 53,548 6,184 11.5 2,638 73.4 87.4 30.8 7.2 4.3 2.0

CEATImproving product mix to drive re-rating

August 20, 2014

Rating

NA

CMP Rs524

Target Price NA

EPS Chg (%) NA


Nifty 7,649

Sensex 25,640


Absolute -19 38 72 374

Rel. to Nifty -18 20 36 254

Source: Bloomberg


100

225

350

475

600

725


Rs

-20

52

124

196

268

340%

CEAT Ltd (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Auto Ancillaries

Bloomberg CEAT IB


Face Value(Rs) 10


52 Week H/L 731/ 97





Promoters 57.1 57.1 57.1

FII/NRI 11.8 8.9 8.2




Kaushal Maroo [email protected] +91-22-66121252

Yaresh Kothari [email protected] +91-22-66121281

n Ceat, part of a US$3bn RPG Group, is among the leading tyre manufacturers in India, with a revenue market share of ~12%. It has an overall production capacity of 800tpd (including outsourced) across Bhandup, Nashik and Halol plants

n Ceat has a presence across all tyre segments, but has identified two/three-wheeler and utility vehicle tyres and exports as key strategic focus areas for the future

n The company has a strong exports presence (Latin America, Middle East, South Asia and Far East) – exports accounted for 20% of total sales in FY2014. Exports have grown at a strong CAGR of 22% over FY2010-14

n Ceat also operates in Sri Lanka through a JV (installed capacity of 60tpd), which enjoys a ~50% market share

Meeting summary:

§ Focusing on B2C ‘Passenger’ segments: Over the last few years, Ceat has evolved from a price taker present as No. 3/No. 4 player in each market segment, to a price maker in two segments of choice: two-wheeler tyres and utility vehicle tyres. Growth in both these segments is driven by brand recall by customers and barriers to entry for competition in the form of an extensive dealer/retailer network. This ensures superior profitability across the cycle driven by higher pricing power.

§ Emerging market and export thrust: Ceat has identified emerging markets as another focus area, with Sri Lanka being a case in point. The company is the only local tyre maker in Sri Lanka, enjoying an EBITDA margin of 20% and a market share of 50%. It competes largely with imports and has a significant pricing advantage over them. It is set to replicate the Sri Lanka example in Bangladesh soon, where it has entered into a 70:30 JV with a local player and is setting up capacity that is bigger than the one in Sri Lanka. Exports is a thrust area, where the company is looking to leverage other smaller emerging markets even in the segments, which have become highly competitive in large markets like India. A case in point is the CV bias tyres, which enjoys strong margins in exports while being fiercely competitive in India.

§ EBITDA margins to sustain double digit: Management sounds confident of retaining its double-digit margins, driven by: (a) the above-mentioned focus areas, which now account for 50% of revenues as against 33% in FY10. These segments, with significantly higher pricing power, have insulated the company’s margin from vagaries in natural rubber prices to a large extent, and (b) the decline in rubber prices on the back of a favourable demand-supply situation, which is likely to continue in the medium term.

§ Capacity expansion on the card: With an enhanced market share, successful strategic direction and strong cashflows, the company has lined up a significant capex to further enhance its market share. On its focus areas, the company will spend: (a) Rs6.5bn on the capex to expand the capacity of the UV/PC radial segment, (b) Rs0.7bn as equity infusion for the JV in Bangladesh, and (c) Rs0.7bn on the maintenance capex. The two probable capex areas in the profitable segments include: (a) equity share in partner (b) off highway tyres.

CEAT Company Update



Income Statement Y/E Mar (Rs mn) FY11A FY12A FY13A FY14A

Net Sales 34,988 44,757 48,815 53,548

Growth (%) 24.6 27.9 9.1 9.7

Expenditure 33,594 42,321 44,734 47,364

Raw Materials 25,935 33,491 33,778 34,672

Employee Cost 2,119 2,197 2,691 2,891

Other Exp 5,540 6,633 8,266 9,801

EBITDA 1,393 2,436 4,080 6,184

Growth (%) (52.9) 74.9 67.5 51.6

EBITDA margin (%) 4.0 5.4 8.4 11.5


EBIT 1,052 1,732 3,299 5,358

EBIT margin (%) 3.0 3.9 6.8 10.0

Other Income 284 287 215 205

Interest expenses 1,004 1,922 1,779 1,692

PBT 332 97 1,734 3,872

Tax 110 22 394 1,234


Adjusted PAT 223 75 1,341 2,638

Growth (%) (86.5) (66.2) 1,677.9 96.8

Net Margin (%) 0.6 0.2 2.7 4.9

(Profit)/loss from JVs/Ass/MI - - - -

Adj. PAT After JVs/Ass/MI 223 75 1,341 2,638

E/O items (53) (14) 277 100

Reported PAT 275 89 1,064 2,538

PAT after MI 275 89 1,064 2,538

Growth (%) (83.3) (67.7) 1,094.9 138.6

Balance Sheet Y/E Mar (Rs mn) FY11A FY12A FY13A FY14A



Net worth 6,491 6,563 7,467 9,671

Minority Interest

Secured Loans 3,046 5,012 3,822 5,748

Unsecured Loans 5,992 5,793 4,217 4,225

Loan Funds 9,038 10,805 8,038 9,973

Net deferred tax liability 241 334 745 1,091


Gross Block 18,816 21,116 21,668 22,287


Net block 13,611 15,241 15,029 14,821

Capital work in progress 1,074 134 99 223

Investment 865 745 447 1,243

Current Assets 12,437 14,107 14,986 17,489

Inventories 5,675 5,796 5,314 7,183

Sundry debtors 4,807 6,142 6,358 7,158

Cash & bank balance 479 372 814 1,030

Loans & advances 1,454 1,576 2,231 1,685


Current lia & Prov 12,216 12,524 14,311 13,042


Provisions 271 290 774 866

Net current assets 221 1,583 674 4,447

Misc. exp 0 0 0 0

Total Assets 15,771 17,703 16,250 20,735 Cash Flow Y/E Mar (Rs mn) FY11A FY12A FY13A FY14A

PBT (Ex-Other income) 101 (176) 1,243 3,566


Interest Provided 1,004 1,922 1,779 1,692

Other Non-Cash items (207) (36) 446 (1,157)

Chg in working cap 1,313 (2,324) 2,034 (4,078)

Tax paid (110) (22) (394) (1,234)

Operating Cashflow 2,442 68 5,889 (385)

Capital expenditure (4,987) (1,361) (518) (742)

Free Cash Flow (2,544) (1,293) 5,371 (1,127)

Other income 284 287 215 205

Investments (280) 120 298 (796)

Investing Cashflow (4,982) (953) (5) (1,333)

Equity Capital Raised 0 0 (0) 87

Loans Taken / (Repaid) 2,500 1,767 (2,767) 1,934

Interest Paid (1,004) (1,922) (1,779) (1,692)


Income from investments

Others (39) 855 (1,057) 1,184

Financing Cashflow 1,618 779 (5,442) 1,934

Net chg in cash (922) (106) 441 217

Opening cash position 1,401 478 372 813

Closing cash position 479 372 814 1,030


Profitability (%)

EBITDA Margin 4.0 5.4 8.4 11.5

Net Margin 0.6 0.2 2.7 4.9

ROCE 7.3 10.3 19.3 28.7

ROE 3.5 1.2 19.1 30.8

RoIC 7.2 10.4 21.8 28.7

Per Share Data (Rs)

EPS 6.5 2.2 39.2 73.4

CEPS 18.0 23.2 53.9 93.6

BVPS 189.6 191.7 218.1 268.9

DPS 2.0 1.0 4.0 10.0

Valuations (x)

PER 81.5 240.7 13.5 7.2

P/ CEPS 29.4 22.9 9.8 5.7

P/ BV 2.8 2.8 2.4 2.0

EV / Sales 0.7 0.6 0.5 0.5

EV / EBITDA 18.5 11.4 6.1 4.3

Dividend Yield (%) 0.4 0.2 0.8 1.9

Gearing Ratio (x)


Net Debt/ EBIDTA 5.5 4.0 1.7 1.2

Working Cap Cycle (days) 3 1 (2) 5

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Financial Snapshot (Standalone) (Rsmn)

YE- Net EBITDA EPS EPS RoE EV/


FY13A 11,311 1,128 10.0 527 2.4 -12.4 18.7 38.0 21.2 8.0

FY14A 12,840 1,482 11.5 669 3.0 27.1 24.7 29.9 16.7 6.9

FY15E 15,084 1,951 12.9 1,250 5.6 86.7 37.9 16.0 12.8 5.4

FY16E 17,859 2,539 14.2 1,611 7.3 28.9 38.6 12.4 9.7 4.3

Century PlyboardsBoasting of distribution strength

August 20, 2014

Rating

Buy

Previous Reco

Buy

CMP Rs87

Target Price Rs110

EPS Chg FY15E/FY16E (%) NA


Nifty 7,721

Sensex 25,895


Absolute 5 134 260 172

Rel. to Nifty 3 103 186 103

Source: Bloomberg


20

36

52

68

84

100


Rs

-30

12

54

96

138

180%

Century Plyboard (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Diversified

Bloomberg CPBI IB


Face Value(Rs) 1


52 Week H/L 97/ 22





Promoters 74.5 72.9 72.9

FII/NRI 2.9 1.2 1.2

Institutions 0.5 N/A N/A



Vijay Goel [email protected] +91-22-66121285

n Century Ply (CPL) is India’s second-largest premier wood panel company, with a 21% market share in organized plywood industry and its laminates division command 9% market share

n With plywood/laminate volumes growth of 11%/12% (CAGR) during FY10-14, its EBITDA has grown by ~15% (CAGR) during the period.

n 20% expansion in plywood and 2x expansion in laminate capacity, along with a commensurate expansion in the distribution network will support its revenue growth

n At 30-40% discount to its peers in building materials, we believe that CPL at current PE of 12x FY16e offers attractive investment opportunity

Meeting takeaways:

Strong growth in organized segment to benefit Century

The organized industry accounts for roughly 30% (increased from 10% a decade back) of the total plywood panel industry, with an estimated size of Rs150bn and two leading players (Century and Green together account for 50% market share, while the balance is with small regional players). The plywood industry is expected to grow at 10% annually, but leading organized players to register growth of 25-30%, as they gain market share from unorganized, as well as from small regional players. The government thrust on real estate and construction sectors, rising per capita income, the reduced home renovation cycle from 15 years to 5 years along with many other factors to drive growth.

CPL to benefit from strong brand and pan-India distribution network

CPL has invested significantly (around Rs2.2bn in the last decade, with annual spend of 4% of plywood revenue) in brand building. It also has a robust pan-India presence, with strategic location of six manufacturing facilities across all parts of India, and 1500 dealers and distributors. This will help the company to benefit from rising consumer preference for branded products.

Raw material availability is a concern

The management believes that the raw material (timber/wood) availability is a growing challenge for the industry, as the country has witnessed a steep increase in wood prices (almost 100%) and availability. Imports of timber from neighboring country (mainly Myanmar) have stopped. However, CPL is likely to gain from its plant located in Myanmar which is likely to offer uninterrupted supply of raw material in the form of finished Vinyer. CPL is also exploring options to source raw material from other countries.

Laminates business to benefit from capacity expansion

CPL has recently increased its capacity from 2.4mn to 4.8mn sheets per annum in its laminates business, which will help the company to increase its market share. Exports also offers attractive growth opportunity in the laminates segment, as the management targets increasing share of export from 25% to 40%.

Century Plyboards Company Update



Income Statement Y/E Mar (Rsmn) FY13A FY14A FY15E FY16E

Net Sales 11,311 12,840 15,084 17,859

Growth (%) 1.1 13.5 17.5 18.4

Expenditure 10,183 11,358 13,134 15,321

Employee Cost 1,184 1,514 1,697 1,900

Other Exp 0 0 0 0

SG&A 0 0 0 0

EBITDA 1,128 1,482 1,951 2,539

Growth (%) -10.0 31.3 31.6 30.1

EBITDA margin (%) 10.0 11.5 12.9 14.2


EBIT 861 1,149 1,596 2,166

EBIT margin (%) 7.6 9.0 10.6 12.1

Other Income 73 95 105 120


PBT 544 693 1,321 1,840

Tax 17 24 72 229


Adjusted PAT 527 669 1,250 1,611

Growth (%) -12.4 27.1 86.7 28.9

Net Margin (%) 4.7 5.2 8.3 9.0


Adj. PAT After JVs/Ass/MI 527 669 1,250 1,611

E/O items 0 0 0 0

Reported PAT 527 669 1,250 1,611

PAT after MI 527 669 1,250 1,611

Growth (%) -12.4 27.1 86.7 28.9

Balance Sheet Y/E Mar (Rsmn) FY13A FY14A FY15E FY16E



Net worth 2,497 2,915 3,679 4,665


Secured Loans 4,678 4,912 5,096 5,346


Loan Funds 4,678 4,912 5,096 5,346

Net deferred tax liability -2 -5 -5 -5


Gross Block 3,199 3,744 3,944 4,144


Net block 1,857 2,120 1,965 1,792

Capital work in progress 360 188 188 188

Investment 156 378 378 378

Current Assets 5,978 6,482 7,911 9,610

Inventories 2,177 2,927 3,306 3,914

Sundry debtors 1,816 2,046 2,480 2,936

Cash & bank balance 797 181 174 658

Loans & advances 612 701 1,323 1,475


Current lia & Prov 1,179 1,346 1,672 1,963




Misc. exp 0 0 0 0

Total Assets 7,172 7,821 8,770 10,005 Cash Flow Y/E Mar (Rsmn) FY13A FY14A FY15E FY16E

PBT (Ex-Other income) 471 598 1,216 1,720




Chg in working cap -594 -957 -1,110 -925

Tax paid -58 44 61 -89

Operating Cashflow 476 569 902 1,525

Capital expenditure -377 -423 -200 -200

Free Cash Flow 99 146 702 1,325

Other income 73 95 105 120

Investments 577 -222 0 0

Investing Cashflow -940 -594 -190 -180

Equity Capital Raised -5 0 0 0

Loans Taken / (Repaid) 1,133 234 184 250

Interest Paid -390 -551 -380 -446

Dividend paid (incl tax) 130 -251 -469 -584


Others 0 0 0 0

Financing Cashflow 868 -568 -665 -779

Net chg in cash 403 -593 47 565

Opening cash position 421 797 181 174

Closing cash position 797 181 201 740

Key Ratios Y/E Mar FY13A FY14A FY15E FY16E

Profitability (%)

EBITDA Margin 10.0 11.5 12.9 14.2

Net Margin 4.7 5.2 8.3 9.0

ROCE 13.5 16.6 20.5 24.3

ROE 18.7 24.7 37.9 38.6

RoIC 15.6 17.8 21.1 25.8

Per Share Data (Rs)

EPS 2.4 3.0 5.6 7.3

CEPS 3.6 4.5 7.2 8.9

BVPS 11.2 13.1 16.6 21.0

DPS 1.0 0.3 1.0 1.9

Valuations (x)

PER 38.0 29.9 16.0 12.4

P/CEPS 25.2 20.0 12.5 10.1

P/BV 8.0 6.9 5.4 4.3

EV / Sales 2.1 1.9 1.7 1.4

EV / EBITDA 21.2 16.7 12.8 9.7

Dividend Yield (%) 1.1 0.3 1.1 2.1

Gearing Ratio (x)



Working Cap Cycle (days) 129.1 140.8 146.7 142.8

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FY13A 53,170 13,244 24.9 6,187 49.3 11.7 12.0 13.3 8.4 1.5

FY14A 55,100 14,330 26.0 6,520 51.9 5.4 11.3 12.6 8.5 1.4

FY15E 57,861 14,970 25.9 6,377 50.8 -2.2 10.1 12.9 8.2 1.2

FY16E 60,601 15,679 25.9 6,888 54.8 8.0 10.0 11.9 7.5 1.1

CESCSpencer’s on track for break-even

August 20, 2014

Rating

Buy

Previous Reco

Buy

CMP Rs661

Target Price Rs830



Nifty 7,649

Sensex 25,640


Absolute -13 46 47 105

Rel. to Nifty -11 27 16 53

Source: Bloomberg


250

360

470

580

690

800


Rs

-10

10

30

50

70

90%

CESC (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Power

Bloomberg CESC IB


Face Value(Rs) 10


52 Week H/L 787/ 271





Promoters 52.5 52.5 52.5

FII/NRI 22.9 23.0 23.5




Amit Golchha [email protected] +91-22-66242408 Anujay Jain [email protected] +91-22-66242494

About the company:

n CESC, a flagship company of RP-Sanjiv Goenka Group incorporated in 1978, now operates in four segments: Power (as generation and distribution utility), Retail (Spencer’s), Property, and IT (First Source)

n The company owns 1225MW of generation capacity and provides electricity distribution services in the Kolkata circle. It also owns 1.2GW of under-construction power plants

n Spencer’s remain largely on track for an EBITDA break-even (Spencer’s break-even level Rs80-85/sq ft store EBITDA) by Q3/Q4FY15, as it reported store level EBITDA of ~Rs60/sq ft in FY14 (FY13 - Rs50/sq ft)

n CESC turning out to be a good mix of earnings growth (Chandrapur, Haldia), value unlocking (Spencer’s demerger and listing or stake sale) and value pick (7.6x FY16E EPS and 1.1x book). Maintain a Buy with a price target of Rs830/share

Meeting summary: § Spencer’s break-even: Spencer’s remain largely on track for an EBITDA break-even

(Spencer’s break-even level Rs80-85/sq ft store EBITDA) by Q3/Q4FY15. It has reported store level EBITDA of roughly Rs60/sq ft in FY14 (FY13 - Rs50/sq ft).

§ Chandrapur plant PPA: Unit-1 of the plant has been commissioned in 4Q14. With UPERC canceling PPA with Essar and asking for alternative sources, there is an increased visibility on signing of the PPA. Further, PPA with Tamil Nadu (100MW) is already undertaken, while for Noida and Tata Power Mumbai distribution, it is in various stages of discussion (200MW each).

§ Haldia plant: The plant is on track for commissioning in 4Q15, and the PPA for the whole 600MW is in the process of being approved by the regulator at cost-plus.

§ Kolkata distribution business: The business is expected to consistently provide ROEs of 19-20%.

§ First Source: The acquisition has turned out to be a profitable venture. By FY17, it is expected to be a debt-free company, and thereafter cashflows will start flowing to CESC.

Emkay’s view: CESC is turning out to be a perfect mix of earnings surprise, value unlocking (Spencer’s demerger and listing or stake sale) and value pick (7.9x FY16E EPS and 1.1x book). Despite the stock run-up, we continue to retain it as our top-pick, as we believe the stock has a significant upside even from these levels. The key triggers for CESC remains Spencer’s break-even and the signing of Chandrapur PPAs in the near term. We value CESC on an SOTP basis on FY16E, with a target price of Rs830/share (we have assumed value of Spencer’s in our base case). We value the standalone distribution business at 10x FY16EPS (Rs480/share) and Spencer’s separately at 0.5x EV/sales (Rs75/share). The key downside risks: Chandrapur PPAs not materializing, the slowing economy impacting Spencer’s operations and tariff reduction in the Kolkata distribution circle.

CESC Company Update




Net Sales 53,170 55,100 57,861 60,601

Growth (%) 13.6 3.6 5.0 4.7

Expenditure 39,926 40,770 42,890 44,922

Employee Cost 5,585 6,940 7,301 7,647

Other Exp 6,921 6,310 6,638 6,953

SG&A 0 0 0 0

EBITDA 13,244 14,330 14,970 15,679

Growth (%) 14.4 8.2 4.5 4.7

EBITDA margin (%) 24.9 26.0 25.9 25.9

Depreciation 3,062 3,390 3,566 3,735

EBIT 10,182 10,940 11,404 11,944

EBIT margin (%) 19.1 19.9 19.7 19.7

Other Income 930 1,000 450 731


PBT 7,737 8,250 7,972 8,609

Tax 1,550 1,730 1,594 1,722


Adjusted PAT 6,187 6,520 6,377 6,888

Growth (%) 11.7 5.4 -2.2 8.0

Net Margin (%) 11.6 11.8 11.0 11.4



E/O items 0 0 0 0

Reported PAT 6,187 6,520 6,377 6,888

PAT after MI 6,187 6,520 6,377 6,888

Growth (%) 11.7 5.4 -2.2 8.0




Net worth 72,088 78,156 83,977 90,215


Secured Loans 37,417 47,995 46,914 45,988


Loan Funds 37,417 47,995 46,914 45,988

Net deferred tax liability 0 0 0 0


Gross Block 133,856 142,421 147,421 152,421


Net block 81,710 86,189 87,623 88,888


Investment 32,614 43,248 47,917 48,517

Current Assets 26,776 29,747 29,866 34,738

Inventories 3,254 3,460 3,633 3,805

Sundry debtors 12,094 11,850 12,444 13,033


Loans & advances 2,864 6,627 6,959 7,289


Current lia & Prov 14,624 14,554 15,305 16,029


Provisions 2,273 3,200 3,360 3,519


Misc. exp 0 0 0 0



Depreciation 3,062 3,390 3,566 3,735



Chg in working cap -133 -3,795 -348 -367

Tax paid 1,550 1,730 1,594 1,722



Free Cash Flow 6,737 3,516 11,216 12,034

Other income 930 1,000 450 731

Investments -11,448 -10,634 -4,670 -600

Investing Cashflow -18,442 -18,382 -9,220 -4,869


Loans Taken / (Repaid) 5,565 10,578 -1,081 -926

Interest Paid -3,375 -3,690 -3,882 -4,066



Others 1,737 -337 -1,858 -2,144

Financing Cashflow 2,897 5,363 -7,977 -8,385

Net chg in cash -884 -754 -981 3,781




Profitability (%)

EBITDA Margin 24.9 26.0 25.9 25.9

Net Margin 11.6 11.8 11.0 11.4

ROCE 7.1 6.8 8.5 8.8

ROE 12.0 11.3 10.1 10.0

RoIC 14.2 13.8 13.4 13.8

Per Share Data (Rs)

EPS 49.3 51.9 50.8 54.8

CEPS 73.6 78.9 79.2 84.6

BVPS 432.8 483.9 525.4 570.3

DPS 8.2 9.5 9.2 9.9

Valuations (x)

PER 13.3 12.6 12.9 11.9

P/CEPS 8.9 8.3 8.3 7.7

P/BV 1.5 1.4 1.2 1.1

EV / Sales 2.1 2.2 2.1 1.9

EV / EBITDA 8.4 8.5 8.2 7.5

Dividend Yield (%) 1.3 1.4 1.4 1.5

Gearing Ratio (x)




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FY13A 15,923 3,821 24.0 2,181 11.9 7.9 22.3 27.1 15.6 5.7

FY14A 18,598 5,036 27.1 3,066 16.7 40.6 28.2 19.3 11.8 5.2

FY15E 20,878 5,678 27.2 3,404 18.6 11.0 27.8 17.3 10.1 4.5

FY16E 23,023 6,473 28.1 3,990 21.8 17.2 28.4 14.8 8.6 3.9

DB CorpTop-pick in print media space

August 20, 2014

Rating

Buy

Previous Reco

Buy

CMP Rs312

Target Price Rs370



Nifty 7,792

Sensex 26,103


Absolute -1 11 3 26

Rel. to Nifty -5 1 -20 -6

Source: Bloomberg


200

230

260

290

320

350


Rs

-20

-10

0

10

20

30%

DB Corp (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Media & Entertainment

Bloomberg DBCL IB


Face Value(Rs) 10


52 Week H/L 358/ 211





Promoters 70.0 74.9 75.0

FII/NRI 18.3 18.5 17.7




Naval Seth [email protected] +91-22-66242414 Pratik Shah [email protected] +91-22-66121241

About the company:

n Dainik Bhaskar is one of India’s largest print media companies, with a presence in 14 states, in 3 different languages (Hindi, Gujarati and Marathi). Publishing 37 editions of Dainik Bhaskar (Hindi daily), 7 editions of Divya Bhaskar (Gujarati Daily) and 7 editions of Divya Marathi and 199 sub-editions in three languages across 14 states. DB Corp operates 17 radio stations across 7 states under the brand-name MY FM. It operates Internet portals like bhaskar.com, divyabhaskar.co.in and Indiainfo.com

Meeting summary:

§ Advertising growth is expected to pick up in H2FY15. The regional print media is driving advertising growth, which augurs well for DB Corp, given its diversified presence in regional print media space.

§ The company expects an ad revenue growth of 12-14% in FY15E. With macro improvement, the management expects healthy double-digit ad growth in FY16E.

§ Circulation revenue is expected to grow in double-digits on the back of the leadership drive in Gujarat, launch in Bihar, Jharkhand and Maharashtra markets.

Radio § At present, the company has 17 stations in seven states. The plan is to scale up the

business to 100 new radio stations covering roughly 125mn customers.

§ In Phase-III, the content synergy and cost-efficiency to come into play, which shall aid margins, as the company expands its business in areas where it has an established print presence.

§ Principle approval for news on private FM shall augur well for DB Corp, as it has already integrated with the parent company for airing of news.

Digital media § The main focus is on: a) making online news credible and b) evolving the content

and delivery platforms to access markets, where print and radio cannot reach.

§ The core strategy of the digital business is to look at ways to: a) increase the number of unique visitors on its site and b) increasing the page-views

§ The company does not foresee the print business becoming marginalized due to the emphasis on the digital business

Outlook § The management foresees incremental growth in Bihar, Jharkhand and

Maharashtra. Further, it intends to scale up its presence in Gujarat by going for a leadership drive in the cities of Surat, Baroda and Rajkot. This would entail an additional cost of Rs50-100mn annually. Jharkhand and Maharashtra are expected to break even in the current fiscal.

§ It has discontinued eight print editions of Business Bhaskar and has launched them on an online platform.

§ EBITDA margin is expected to improve on account of the softening of newsprint prices, as the management expects newsprint prices to remain benign in FY15.

DB Corp Company Update




Net Sales 15,923 18,598 20,878 23,023

Growth (%) 9.7 16.8 12.3 10.3

Expenditure 12,103 13,562 15,200 16,550

Raw Materials 5,445 6,330 6,931 7,351

Employee Cost 2,795 3,025 3,385 3,739

Other Exp 3,862 4,207 4,883 5,460

EBITDA 3,821 5,036 5,678 6,473

Growth (%) 10.3 31.8 12.8 14.0

EBITDA margin (%) 24.0 27.1 27.2 28.1


EBIT 3,240 4,393 4,887 5,647

EBIT margin (%) 20.3 23.6 23.4 24.5

Other Income 213 239 350 477


PBT 3,313 4,524 5,160 6,045

Tax 1,132 1,457 1,755 2,055


Adjusted PAT 2,181 3,066 3,404 3,990

Growth (%) 7.8 40.6 11.0 17.2

Net Margin (%) 13.7 16.5 16.3 17.3



E/O items 0 0 0 0

Reported PAT 2,181 3,066 3,404 3,990

PAT after MI 2,181 3,066 3,404 3,990

Growth (%) 7.9 40.6 11.0 17.2




Net worth 10,291 11,468 12,985 15,124

Minority Interest 11 0 -2 -1

Secured Loans 1,134 1,008 558 458


Loan Funds 1,630 1,544 1,094 994



Gross Block 11,072 11,854 12,251 12,651


Net block 8,313 8,503 8,109 7,684


Investment 807 724 724 724

Current Assets 7,136 8,446 11,478 13,176

Inventories 1,299 1,732 1,840 1,914

Sundry debtors 3,083 3,280 4,042 4,032


Loans & advances 1,395 2,236 2,510 2,768


Current lia & Prov 3,561 3,798 5,370 4,603


Provisions 946 1,050 1,484 1,172


Misc. exp 0 0 0 0






Chg in working cap -321 -1,167 402 -1,098

Tax paid -1,132 -1,457 -1,755 -2,055


Capital expenditure -1,031 -785 -398 -400

Free Cash Flow 1,406 1,747 4,199 3,318

Other income 213 239 350 477

Investments -347 83 0 0

Investing Cashflow -1,165 -463 -48 77


Loans Taken / (Repaid) -503 -85 -450 -100

Interest Paid -140 -108 -77 -80



Others -57 -511 -609 -697


Net chg in cash -606 -145 1,862 1,367




Profitability (%)

EBITDA Margin 24.0 27.1 27.2 28.1

Net Margin 13.7 16.5 16.3 17.3

ROCE 27.7 34.7 36.3 38.3

ROE 22.3 28.2 27.8 28.4

RoIC 32.4 38.8 42.1 48.9

Per Share Data (Rs)

EPS 11.9 16.7 18.6 21.8

CEPS 15.1 20.2 22.9 26.3

BVPS 56.1 62.6 70.8 82.5

DPS 5.5 7.0 7.2 7.2

Valuations (x)

PER 27.1 19.3 17.3 14.8

P/CEPS 21.4 15.9 14.1 12.3

P/BV 5.7 5.2 4.5 3.9

EV / Sales 3.7 3.2 2.7 2.4

EV / EBITDA 15.6 11.8 10.1 8.6

Dividend Yield (%) 1.7 2.2 2.2 2.2

Gearing Ratio (x)

Net Debt/ Equity 0.0 0.0 -0.1 -0.2

Net Debt/EBIDTA 0.1 0.1 -0.3 -0.5


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FY11A 12,676 1,618 12.8 976 26.2 45.6 24.3 4.4 2.5 0.8

FY12A 17,404 1,930 11.1 1,084 29.1 11.0 19.3 3.9 3.4 0.7

FY13A 21,264 2,190 10.3 921 24.7 -15.1 14.2 4.6 4.7 0.6

FY14A 31,775 2,898 9.1 1,100 20.0 -19.0 13.5 5.7 6.3 0.7

Diamond Power InfrastructureIntegrated across the value-chain

August 20, 2014

Rating

Not Rated

CMP Rs115

Target Price NA

EPS Chg (%) NA


Nifty 7,747

Sensex 25,908


Absolute -8 57 136 266

Rel. to Nifty -8 36 84 171

Source: Bloomberg


20

46

72

98

124

150


Rs

-10

30

70

110

150

190%

Diamond Pow er (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Others

Bloomberg DIPI IB


Face Value(Rs) 10


52 Week H/L 131/ 29





Promoters 31.4 36.9 40.2

FII/NRI 16.2 11.7 12.7




John Perinchery [email protected] +91-22-66121374

About the company: n Diamond Power Infrastructure Ltd. (DPIL) is an integrated

power transmission & distribution (T&D) service provider and equipment manufacturer

n DPIL provides turnkey services in T&D, manufactures power cables up to 550KV, power & distribution transformers up to 220KV, transmission and distribution conductors up to 765KV and transmission towers

n Diatron, a brand built by DPIL, is one of the most respected names in the power industry, with a product portfolio that includes flexible wires & cables, power & control cables, conductors, power & distribution transformers, and transmission towers

Key takeaways from the Conference § DPIL offers four critical T&D products: conductors, cables (LT, MVC, HT and EHV),

transmission towers and transformer (power and distribution). In the conductor segment, the company supplies conductors up to 765kv to PGCIL and various SEBs. In the cables segment, it manufactures and supplies LT cables from 1.1kV to HT cables up to 132kV for power transmission and distribution purposes. It also manufactures and supplies aerial bunch cables for LT and HT lines, as well as EHV cable up to 550 kV capacity. Apart from the conductors and cables, DPIL also supplies transmission towers and transformers. In addition to the above products, DPIL also undertook projects in the distribution segment, wherein a substantial proportion of the material used are sourced from the company itself.

§ DPIL is in the process of expanding capacities in its conductor and cable segment. The company would be adding another 100,000 tonnes to its existing conductor capacity of 50,500 tonnes. In the cable segment, the company would be doubling the capacities of its MVC to 15,000km. The total capex planned for the above stands at around Rs8bn. Conductors (Rs3bn), Cables (Rs3.5bn), Windmill (Rs500mn), Ancillary units (Rs300mn) and working capital requirement of Rs800mn. The capex would be funded by a mix of debt (Rs4bn) and internal accruals (Rs3bn). Till date, the company has already spent Rs6.9bn towards the above capex. It is also planning a QIP and had passed the enabling provisions for the same.

§ DPIL’s existing working capital cycle extends to over 180 days, as a substantial portion of its receivables (including retention monies) are tied up in the EPC business. Excluding the EPC segment, the working capital cycle stood at around 120 days. Going forward, the company would not be bidding for any EPC projects, but would be tying up with other EPC contractors for supply of materials only.

§ The order backlog stands at Rs30bn. In the conductor segment, the order backlog stood at Rs6bn, cables at Rs5bn, and transformers at Rs19bn. The company is L1 in four PGCIL contracts of about Rs600mn each. Existing debt in the books stand at Rs18bn, with an average cost of 12% per annum.

Diamond Power Infrastructure Company Update




Net Sales 7,243 12,676 17,404 21,264

Growth (%) 0.0 75.0 37.3 22.2

Expenditure 6,259 11,059 15,474 19,074


Other Exp 213 153 181 240

SG&A 0 0 0 0

EBITDA 984 1,618 1,930 2,190

Growth (%) 0.0 64.5 19.3 13.5

EBITDA margin (%) 13.6 12.8 11.1 10.3


EBIT 919 1,430 1,687 1,863

EBIT margin (%) 12.7 11.3 9.7 8.8



PBT 697 1,195 1,234 1,071

Tax 191 219 150 150


Adjusted PAT 506 976 1,084 921

Growth (%) 0.0 93.0 11.0 -15.1

Net Margin (%) 7.0 7.7 6.2 4.3


Adj. PAT After JVs/Ass/MI 506 976 1,084 921

E/O items 0 0 0 0

Reported PAT 506 976 1,084 921

PAT after MI 506 976 1,084 921

Growth (%) 0.0 93.0 11.0 -15.1




Net worth 2,962 5,163 6,074 6,937


Secured Loans 3,117 1,548 3,623 5,229

Unsecured Loans 0 2,885 3,337 6,083

Loan Funds 3,117 4,433 6,960 11,312



Gross Block 1,320 4,501 6,252 7,973


Net block 956 3,988 5,534 6,971


Investment 51 171 171 171

Current Assets 5,453 6,995 10,254 16,217

Inventories 1,885 3,412 5,907 8,492

Sundry debtors 1,990 1,903 1,996 3,992


Loans & advances 1,183 1,284 1,865 2,808


Current lia & Prov 1,425 1,559 2,926 5,110


Provisions 257 335 304 328


Misc. exp 83 0 0 0


PBT (Ex-Other income) 441 846 911 921



Other Non-Cash items 140 -75 61 96

Chg in working cap -1,225 -1,221 -1,909 -3,385

Tax paid -3 -28 -30 -102

Operating Cashflow -346 -80 -279 -1,328

Capital expenditure -581 -2,167 -1,541 -1,704

Free Cash Flow -927 -2,247 -1,820 -3,032


Investments 0 -120 -1 0

Investing Cashflow -567 -2,254 -1,543 -1,641


Loans Taken / (Repaid) 365 1,290 0 0

Interest Paid -236 -249 -485 -856

Dividend paid (incl tax) 40 65 -130 -89


Others 806 1,316 2,527 4,352

Financing Cashflow 996 2,493 1,912 3,407

Net chg in cash 84 160 91 438




Profitability (%)

EBITDA Margin 13.6 12.8 11.1 10.3

Net Margin 7.0 7.7 6.2 4.3

ROCE 31.1 18.5 15.2 12.3

ROE 35.1 24.3 19.3 14.2

RoIC 38.7 20.8 15.8 12.6

Per Share Data (Rs)

EPS 1.8 2.6 2.9 2.5

CEPS 2.0 3.1 3.6 3.4

BVPS 10.3 13.9 16.3 18.6

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 63.6 43.7 39.4 46.4

P/CEPS 56.4 36.7 32.2 34.2

P/BV 11.2 8.3 7.0 6.2

EV / Sales 0.4 0.3 0.4 0.5

EV / EBITDA 2.9 2.5 3.4 4.7

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)




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FY13A 6,605 2,546 38.6 1,716 56.9 7.4 43.9 22.7 14.2 8.9

FY14A 8,410 3,535 42.0 2,556 82.9 45.8 49.8 15.6 10.3 6.8

FY15E 9,300 3,584 38.5 2,689 87.2 5.2 41.2 14.8 9.7 5.6

FY16E 10,486 3,977 37.9 3,065 99.4 14.0 38.9 13.0 8.3 4.6

eClerx ServicesModeration in growth trajectory

August 20, 2014

Rating

Hold

Previous Reco

Hold

CMP Rs1,291


EPS Chg FY15E/FY16E (%) Na

Target Price change (%) Na

Nifty 7,603

Sensex 25,481


Absolute 10 6 6 77

Rel. to Nifty 10 -6 -15 34

Source: Bloomberg


750

870

990

1110

1230

1350


Rs

-10

4

18

32

46

60%

eClerx Services (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector IT Services

Bloomberg ECLX IB


Face Value(Rs) 10


52 Week H/L 1,371/ 710





Promoters 52.5 52.7 52.9

FII/NRI 28.9 26.4 26.2




Manik Taneja [email protected] +91-22-66121253

Ruchi Burde [email protected] +91-22-66121385

About the company:

n eClerx is a leading knowledge process outsourcing (KPO) company providing middle/back-office operations support to over 30 Fortune-500 companies. Headquartered in Mumbai, India, the company has five delivery centres across India to support a diverse global client base, including the world’s leading Financial Services, Broadband, Cable & Telecom, eCommerce & Retail, High Tech, Industrial Manufacturing & Distribution, Software, Media & Entertainment, and Travel companies

Emkay’s view: eClerx highlighted the challenges within the top clients, which is driving the ‘relatively muted’ revenue growth at the overall level. While the company continues to do well in the sales and marketing segment (barring the large hi-tech client), it expects improved growth prospects in the Cable and Media business in H2FY15, as the M&A activity in the segment receives the necessary regulatory nod going forward. eClerx also expects to recoup 30-40% of the margin decline seen in June 2014 quarter in the next few quarters, and hopes to maintain EBIT margins in the ‘low–to-mid 30s range’ despite greater investments to drive traction in the emerging clients

Investment rationale

Growth pangs within top clients: The revenue growth trajectory for the top-5 clients has slipped to <10% YoY growth in recent quarters as against 30%-plus YoY growth until December 2011 quarters, and could remain subdued due to pressure in a couple of top-5 clients (top-5 clients accounted for roughly 71% of revenues in the June 2014 quarter, down 500bps YoY). While eClerx continues to drive strong growth in non-top-5 clients (revenues from emerging accounts have grown by 30%-plus in the past 4 quarters), high dependence on top clients and the associated dependence on them will limit the overall revenue growth for the company.

Low mid-teens’ growth outlook for FY15: Despite a strong headcount addition in June 2014 quarter (10%-plus QoQ), eClerx continues to indicate a ‘low mid-teens’ revenue growth trajectory for FY15, highlighting that the employee ramp-ups is inline with initial ramp-up plans on the cable and media business. While the business visibility of the cable and media business has improved, the company believes that the demand outlook within financial services and sales and marketing support business remains unchanged.

Hold with a target porice of Rs1140: We note that eClerx’s recent quarterly financial performance has remained lumpy unlike the consistent financial performance associated with eClerx in the past, given the growth challenges in top clients. Valuations at around 14.8x/13x FY15/16E earnings are full and limit any case for absolute upsides in our view. We retain a Hold, with a revised target price of Rs1140, based on 11.5x FY16 P/E.

Catalyst: Better-than-expected economic activities in western countries may lead to positive earning surprises for the company.

Risks: Rupee appreciation, delays in execution of recent deal-wins, and cost pressure are some of the downside risks for the company.

eClerx Services Company Update




Net Sales 6,605 8,410 9,300 10,486

Growth (%) 39.7 27.3 10.6 12.8

Expenditure 4,059 4,875 5,715 6,508

Employee Cost 2,254 2,744 3,311 3,855

Other Exp 0 0 0 0

SG&A 1,805 2,131 2,404 2,653

EBITDA 2,546 3,535 3,584 3,977

Growth (%) 34.2 38.8 1.4 11.0

EBITDA margin (%) 38.6 42.0 38.5 37.9


EBIT 2,291 3,205 3,190 3,576

EBIT margin (%) 34.7 38.1 34.3 34.1

Other Income -182 110 312 404


PBT 2,109 3,315 3,502 3,980

Tax 393 759 813 915


Adjusted PAT 1,716 2,556 2,689 3,065

Growth (%) 7.4 48.9 5.2 14.0

Net Margin (%) 26.0 30.4 28.9 29.2



E/O items 0 0 0 0

Reported PAT 1,716 2,556 2,689 3,065

PAT after MI 1,716 2,556 2,689 3,065

Growth (%) 7.4 48.9 5.2 14.0




Net worth 4,383 5,889 7,162 8,613


Secured Loans 0 0 0 0


Loan Funds 0 0 0 0



Gross Block 1,983 2,392 2,615 2,828

Less: Depreciation 635 844 1,239 1,640

Net block 1,348 1,548 1,376 1,189


Investment 352 1,155 1,155 1,155

Current Assets 4,292 5,162 6,894 8,825

Inventories 0 0 0 0

Sundry debtors 1,292 1,808 1,962 2,212


Loans & advances 651 949 917 1,034


Current lia & Prov 1,628 2,005 2,293 2,586

Current liabilities 628 646 917 1,034

Provisions 1,000 1,360 1,376 1,551


Misc. exp 0 0 0 0






Chg in working cap -74 -442 165 -75

Tax paid -393 -759 -813 -915



Free Cash Flow 1,024 1,921 2,713 2,774

Other income -182 110 312 404


Investing Cashflow -599 -1,106 89 190


Loans Taken / (Repaid) 0 0 0 0

Interest Paid 0 0 0 0

Dividend paid (incl tax) -880 -1,242 -1,415 -1,613


Others -21 0 0 0

Financing Cashflow -827 -1,188 -1,415 -1,613

Net chg in cash 662 40 1,610 1,564




Profitability (%)

EBITDA Margin 38.6 42.0 38.5 37.9

Net Margin 26.0 30.4 28.9 29.2

ROCE 54.2 64.7 53.8 50.6

ROE 43.9 49.8 41.2 38.9

RoIC 194.8 161.8 149.7 187.7

Per Share Data (Rs)

EPS 56.9 82.9 87.2 99.4

CEPS 65.3 93.6 100.0 112.4

BVPS 145.3 191.0 232.3 279.4

DPS 24.7 34.3 39.2 44.7

Valuations (x)

PER 22.7 15.6 14.8 13.0

P/CEPS 19.8 13.8 12.9 11.5

P/BV 8.9 6.8 5.6 4.6

EV / Sales 5.5 4.3 3.7 3.2

EV / EBITDA 14.2 10.3 9.7 8.3

Dividend Yield (%) 1.9 2.7 3.0 3.5

Gearing Ratio (x)

Net Debt/ Equity -0.6 -0.6 -0.7 -0.8

Net Debt/EBIDTA -1.1 -1.0 -1.4 -1.7


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FY13A 28,185 2,796 9.9 1,459 2.2 50.8 9.3 17.1 12.1 1.5

FY14A 31,059 3,621 11.7 1,934 2.9 32.8 10.2 12.9 8.8 1.2

FY15E 32,233 4,184 13.0 2,555 3.8 32.1 11.5 9.7 7.3 1.1

FY16E 35,814 5,007 14.0 3,415 5.1 33.7 13.6 7.3 5.6 0.9

Firstsource SolutionsBack in the game

August 20, 2014

Rating

Buy

Previous Reco

Buy

CMP Rs37

Target Price Rs50



Nifty 7,603

Sensex 25,481


Absolute -7 17 53 225

Rel. to Nifty -7 3 23 146

Source: Bloomberg


10

18

26

34

42

50


Rs

-10

20

50

80

110

140%

Firstsource Solution (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg FSOL IB


Face Value(Rs) 10


52 Week H/L 42/ 11





Promoters 56.5 56.7 56.8

FII/NRI 6.5 3.7 3.1






About the company:

n Firstsouce Solutions works with Fortune-500, FTSE-100 and several hospital groups in the US, the UK and India to deliver business process management services in healthcare, telecom & media, and banking, financial services and insurance (BFSI) industries. Its service portfolio includes customer management, collections management and data processing, with assimilation of technology platforms and intellectual property (IP) assets, etc.

Emkay’s view: While noting that ramp-ups of some large deals is impacting near-term growth, Firstsource remains confident of growth prospects, highlighting the strong pipeline in certain telecom clients, as well as in the healthcare segment. Firstsource remains on track to improve margins by 150-200bps in FY15 (we build in around 130bps improvement currently), led by the full-year impact of the exit of the lower margin domestic business and the large deal ramp-ups. Firstsource indicates that while revenue growth in FY15 could be between 5% and 6%, FY16 revenue growth could be closer to around 10%, led by viability on ramp-ups on recently concluded deals.


‘Back in the game’ as revamped senior team executes a well-crafted turnaround: We believe Firstsource Solutions is ‘back in the game’ strongly after a series of steps undertaken during the past 18 months. The steps include: (1) the exit from low-margin domestic accounts and (2) improving operational factors (focus on improving seat-fill factor/utilization) along with focusing on the more profitable customer management and healthcare segment. These initiatives have already started bearing fruit in the form of a better revenue profile, thereby aiding improvement in margins (Firstsource’s EBITDA margin improved by 340bps over FY12-FY14). The company remains focused on chasing profitable growth in the global BPM industry. We expect it to witness a 3.8% and 11% revenue growth in FY15 and FY16E, respectively, as customer management services and healthcare vertical continue to grow for the company. We expect ‘US healthcare reforms’ (a US$20-bn BPM opportunity per industry research) to continue to catalyze growth in the healthcare vertical. Expect 230bps improvement in EBITDA margins over FY14-16E; near ‘zero-debt’ balance sheet by FY17E: We expect EBITDA margins to improve by around 230bps over FY14-16E, driven by better revenue mix (read: lower mix of the domestic business), as it realizes the benefit of the exit from lower-margin Indian telco accounts, as well as better hedge rates ahead. We thereby estimate EBITDA margins at 13%/14% in FY15/16 as against 11.7% in FY14. Further, given the improved focus and management commitment to repay US$45mn of outstanding debt annually, we estimate that Firstsource would be able to repay more than 85% of its outstanding debt by end-FY17E.

Buy with a target price of Rs50: Firstsource’s well-crafted turnaround continues to yield results, as it is evident from the improving financial profile, which, in our view, should support further stock upsides. We have a Buy recommendation with a target price of Rs50. Catalyst: Faster-than-expected spending on ‘Obamacare’ and better-than-expected economic activities in western countries may lead to positive earning surprises for the company.

Firstsource Solutions Company Update




Net Sales 28,185 31,059 32,233 35,814

Growth (%) 25.0 10.2 3.8 11.1

Expenditure 25,390 27,438 28,050 30,807

Employee Cost 19,349 21,294 21,678 23,896

Other Exp 0 0 0 0

SG&A 6,041 6,143 6,372 6,911

EBITDA 2,796 3,621 4,184 5,007

Growth (%) 50.9 29.5 15.5 19.7

EBITDA margin (%) 9.9 11.7 13.0 14.0


EBIT 1,912 2,864 3,461 4,194

EBIT margin (%) 6.8 9.2 10.7 11.7

Other Income 107 0 -17 0


PBT 1,592 2,033 2,779 3,748

Tax 129 101 227 337


Adjusted PAT 1,459 1,934 2,555 3,415

Growth (%) 134.7 32.1 32.0 33.7

Net Margin (%) 5.2 6.2 7.9 9.5

(Profit)/loss from JVs/Ass/MI -3 2 4 4


E/O items 0 0 0 0

Reported PAT 1,459 1,934 2,555 3,415

PAT after MI 1,459 1,934 2,555 3,415

Growth (%) 133.5 32.5 32.1 33.7




Net worth 17,136 20,915 23,462 26,869


Secured Loans 10,108 9,084 6,600 3,906


Loan Funds 10,129 9,100 6,600 3,906



Gross Block 31,732 34,615 35,215 36,110


Net block 25,144 27,304 27,181 27,263



Current Assets 8,327 9,534 10,015 11,110

Inventories 0 0 0 0

Sundry debtors 5,230 5,130 5,201 5,545

Cash & bank balance 901 1,863 398 659

Loans & advances 0 0 0 0


Current lia & Prov 5,957 6,548 6,851 7,312


Provisions 311 393 442 491


Misc. exp 0 0 0 0






Chg in working cap -9,944 381 -1,643 -373

Tax paid -129 -101 -227 -337



Free Cash Flow 2,024 4,244 1,688 3,402

Other income 0 0 -17 0



Equity Capital Raised 2,269 0 0 0

Loans Taken / (Repaid) -9,794 -1,029 -2,500 -2,694

Interest Paid -427 -832 -665 -446



Others 0 -1,396 29 0


Net chg in cash -5,928 962 -1,466 262

Opening cash position 6,829 901 1,863 398

Closing cash position 901 1,863 397 659


Profitability (%)

EBITDA Margin 9.9 11.7 13.0 14.0

Net Margin 5.2 6.2 7.9 9.5

ROCE 7.8 9.9 11.3 13.6

ROE 9.3 10.2 11.5 13.6

RoIC 8.9 10.4 11.9 13.9

Per Share Data (Rs)

EPS 2.2 2.9 3.8 5.1

CEPS 3.5 4.0 4.9 6.3

BVPS 25.6 31.3 35.1 40.2

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 17.1 12.9 9.7 7.3

P/CEPS 10.6 9.2 7.6 5.9

P/BV 1.5 1.2 1.1 0.9

EV / Sales 1.2 1.0 1.0 0.8

EV / EBITDA 12.1 8.8 7.3 5.6

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)




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Financial Snapshot (Consolidated) *FY14 financials for 9 Months (Rsmn)



FY11A 12,030 925 7.7 137 1.6 41.3 4.8 76.2 15.8 3.6

FY12A 11,874 640 5.4 -92 -1.1 -166.8 -2.6 -114.0 21.4 2.6

FY13A 12,730 751 5.9 173 2.0 0.0 2.9 60.5 19.7 1.3

FY14A 11,166 841 7.5 283 3.3 63.9 3.7 36.9 17.8 1.4

Gati LtdQuasi-play on economy and e-commerce growth

August 20, 2014

Rating

Not Rated

CMP Rs131

EPS Chg (%) NA


Nifty 7,740

Sensex 25,919


Absolute 20 57 125 433

Rel. to Nifty 16 44 75 295

Source: Bloomberg


20

46

72

98

124

150


Rs

-20

42

104

166

228

290%

Gati Ltd (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Logistics

Bloomberg GTIC IB


Face Value(Rs) 2


52 Week H/L 144/ 23





Promoters 34.9 38.1 33.9

FII/NRI 6.5 0.3 0.1





About the company:

n Network 2nd to India Post, Gati is the largest surface express cargo company in India, with a market share upward of 25%. The express business is in JV with KWE (30% share)

n Gati is also investing in the cold chain logistics business, wherein it is the second-largest player in India, with 200-plus reefer trucks, and plans to build 10 cold storages by FY17E

n Quasi-play on India’s economic recovery and its e-commerce growth. The company is seeing strong traction in e-commerce vertical, and expects high growth going forward

n Gati has a gross debt of Rs 4.3bn as on FY14, of which Rs1.3bn (USD22mn) is through FCCBs, which have a base conversion rate of Rs38/share.

Meeting summary:

§ Economic recovery should augur well for the company with the logistics industry growth at the rate of 2x of GDP growth.

§ The company further divests a 12% stake in Gati Ship, bringing the stake to 48%, leading to no consolidation. Gati Ship sells Gati Pride, a loss-making ship, during Q1FY15

§ Gross debt has come down to Rs4.3bn, with debt in Gati Ship is no more consolidated

§ Expects to dilute the stake in Gati Kausar in the near future. The capital will be raised through structured finance and will be utilised towards developers’ 10 cold storages. With expansion, Gati Kausar’s potential revenue would be Rs2.5bn in FY17E as against Rs0.5bn in FY14.

§ The company currently delivers 18,000 parcels per day for e-commerce clients on a capacity of 23,000 parcels. It expects to augment the capacity to 30,000 parcels by Q3FY15E, and further to 100,000 parcels by FY20.

§ The company targets revenue of Rs12bn from e-commerce in FY20, servicing most large players.

§ The company has started e-fulfillment centres in Delhi and Chennai, wherein it provides storage, assembling and packaging services for e-commerce companies. Currently, the Delhi centre handles 2000 parcels per day, which should increase to 20,000 parcels by FY15

§ Despite the huge rise in competition in surface transport, the company is able to maintain its market share of 17-18% over the last 3 years.

§ The company is in negotiations with FCCB holders for repayment of capital and avoid conversion at a much lower rate

Gati Ltd Company Update




Net Sales 12,030 11,874 12,730 11,166

Growth (%) 29.9 -1.3 7.2 -12.3

Expenditure 11,105 11,235 11,979 10,325

Employee Cost 1,130 1,136 1,236 1,027

Other Exp 0 0 0 0

SG&A 941 1,002 864 923

EBITDA 925 640 751 841

Growth (%) 15.4 -30.8 17.4 12.0

EBITDA margin (%) 7.7 5.4 5.9 7.5


EBIT 670 270 503 620

EBIT margin (%) 5.6 2.3 4.0 5.6

Other Income 83 1,017 166 106


PBT 237 667 232 402

Tax 96 252 60 118


Adjusted PAT 137 -92 173 283

Growth (%) 48.4 194.4 -58.4 63.9

Net Margin (%) 1.2 3.5 1.4 2.5

(Profit)/loss from JVs/Ass/MI -4 -507 0 0

Adj. PAT After JVs/Ass/MI 137 -92 173 283

E/O items 0 -1 -76 -49

Reported PAT 137 -92 96 234

PAT after MI 137 -92 173 283

Growth (%) 41.3 -166.8 0.0 63.9




Net worth 2,972 4,123 7,870 7,728

Minority Interest 0 537 1,154 1,173

Secured Loans 3,609 3,124 3,233 3,149

Unsecured Loans 860 1,493 1,537 1,653

Loan Funds 4,469 4,617 4,770 4,802



Gross Block 5,429 5,527 10,110 10,185


Net block 4,100 3,963 8,340 8,263


Investment 202 202 202 548

Current Assets 5,085 6,630 6,819 6,576

Inventories 121 108 118 119

Sundry debtors 1,903 1,890 2,203 2,414

Cash & bank balance 319 1,401 466 308

Loans & advances 1,849 1,822 2,535 3,717

Other current assets 893 1,409 1,497 18

Current lia & Prov 2,207 1,574 1,703 2,009

Current liabilities 1,656 941 1,109 1,170

Provisions 551 633 594 840


Misc. exp 0 0 0 0


PBT (Ex-Other income) 154 -350 -10 246




Chg in working cap -155 -1,099 -989 346

Tax paid -96 -252 -60 -118

Operating Cashflow 673 -712 -374 1,020

Capital expenditure 20 -24 -4,711 -288

Free Cash Flow 694 -736 -5,085 732

Other income 83 1,017 166 106

Investments 0 0 0 -346

Investing Cashflow 104 993 -4,545 -527

Equity Capital Raised -61 1,243 3,650 -376

Loans Taken / (Repaid) -72 148 153 32

Interest Paid -516 -619 -437 -325



Others -1 30 618 19

Financing Cashflow -650 801 3,984 -650

Net chg in cash 127 1,082 -935 -158

Opening cash position 192 319 1,401 466

Closing cash position 319 1,401 466 308


Profitability (%)


Net Margin 1.2 3.5 1.4 2.5

ROCE 10.1 15.3 5.8 5.3

ROE 4.8 -2.6 2.9 3.7

RoIC 10.1 3.8 4.9 4.9

Per Share Data (Rs)

EPS 1.6 -1.1 2.0 3.3

CEPS 4.5 3.2 4.9 5.8

BVPS 33.6 46.9 90.2 88.6

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 76.2 -114.0 60.5 36.9

P/CEPS 26.7 37.6 24.9 20.8

P/BV 3.6 2.6 1.3 1.4

EV / Sales 1.2 1.2 1.2 1.3

EV / EBITDA 15.8 21.4 19.7 17.8

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)




* FY14 Financials for 9 Months due to change in year ending

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Gujarat International Finance Tec-City

Preview of Mr. Modi’s plan for 100 'smart cities'

August 20, 2014

Jimit Sheth [email protected] +91 22 66121235

About the company:

n Gujarat International Finance Tec-City (GIFT city) is a Rs650bn DTA & SEZ by the Gujarat government to cater to financial services potential of India and will comprise stock exchanges, technology parks, international education zone, integrated townships, entertainment zone, hotels and a convention centre

n GIFT is conceptualised as a global financial and IT services hub similar to globally benchmarked financial centres such as Shinjuku in Tokyo, Lujiazui in Shanghai, La Defense at Paris and Dockyards in London

n IL&FS will partner the Government of Gujarat and the target is 2022 to complete the project. It is being developed on a 886-acre land, of which 673 acres is in possession of GIFT

n The city is centrally located in Gujarat between Ahmedabad and Gandhinagar and is 18km from the Ahmedabad International Airport

Meeting summary: § To develop and implement the GIFT project, the Government of Gujarat (GOG) and

Infrastructure Leasing & Financial Services (IL&FS) have established a 50:50 joint venture. GoG has earmarked 886 acres of land for GIFT project, out of which 673 acres of land is in possession of GIFT. Around 261 acres is SEZ and 412 acres in non-SEZ. The total project would have 62mn sq ft of built-up area. Out of this, 67% is towards commercial, 22% for residential and 11% for social facilities.

§ GIFT has been given IFSC status, which is required to become international financial centre. Currently, only one IFSC is allowed in India. GIFT has potential to generate 10 lakh jobs (direct and indirect). The focus would be on IT and finance job only.

§ Rs.10,000cr is the infrastructure cost of GIFT. It will generate revenues from the sale of development rights. The total project is expected to be completed over 12 years in four phases. The overall project would require an investment of Rs80,000cr. The first phase will entail Rs1800cr of infrastructure cost. Rs1157cr of financial closure has been done with five banks at an interest rate of 11.5%. The first phase of infra, scheduled to be completed in December 2014, has 13mn sq ft of area.

§ IL&FS has taken 7.77mn sq ft of built-up area in Phase-1 of the project. It has completed 1.4mn sq ft. The Narsee Monjee Education Trust is expected to start operations in FY15. Sterling Hospital with 200 beds is under construction. SBI Bank is developing its commercial tower of 2 lakh sq ft. Tata Communications is setting up a data centre. Overall, things are moving at a rapid pace, with Mr. Narendra Modi in power.

§ A district cooling system is being implemented for the first time in India by a reputed international agency, ETA, Dubai. It will significantly reduce energy costs. An automated waste collection system is being implemented by NY Corp of Sweden. GIFT will also have 1.2km of artificial water body. All utility and wiring will be undertaken through tunnels, which will be laid across the city. Tunnels of 12.1km are planned, out of which 2km have been completed. Recently, it has advertised for a 5.5mn sq ft of construction project and has received good response.

§ The project completion has been moving at a fast pace. The two towers of 29 floors have been completed in just 16 months. Of this, one tower is operational and houses leading PSU banks.

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Financial Snapshot (Consolidated) (Rsmn)



FY13A 23,567 3,309 14.0 1,488 46.9 76.6 20.3 3.6 6.1 0.7

FY14A 21,181 3,473 16.4 578 17.7 -62.3 6.7 9.6 7.5 0.6

FY15E 25,989 4,586 17.6 898 27.4 55.2 9.0 6.2 5.4 0.5

FY16E 28,798 6,031 20.9 1,839 56.2 104.9 16.1 3.0 3.8 0.5

Godawari Power & IspatOn a strong footing

August 20, 2014

Rating

Buy

Previous Reco

Buy

CMP Rs170

Target Price Rs209



Nifty 7,792

Sensex 26,103


Absolute 18 63 139 138

Rel. to Nifty 13 48 87 77

Source: Bloomberg


60

88

116

144

172

200


Rs

-20

4

28

52

76

100%

Godaw ari Pow er (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Metals & Mining

Bloomberg GODPI IB


Face Value(Rs) 10


52 Week H/L 188/ 62





Promoters 64.9 64.9 64.9

FII/NRI 0.1 0.1 0.1




Goutam Chakraborty [email protected] +91-22-66121275 Parin Vora [email protected] +91-22-66121234

n Starting of Boria Tibu mine (0.6mtpa), we believe, the future prospects look much better; restarting of Ardent Steel pellet plant would aid further

n Operations of the 50MW solar power plant and the 1.2mtpa pellet plant have been stabilized and has potential to contribute Rs3bn additional EBITDA

n No new capex in the immediate future allays concerns about further addition to debt, while cost rationalizations and stability in demand would address improvement in cashflow

n Consistent improvement in pellet business both at Raipur and Odisha along with higher mining output to be crucial; Maintain a Buy with a target price of Rs209

Meeting updates: § The company has been operating one iron ore mine, Ari Dongri (0.7mtpa magnetite

capacity) since 2010. It has started development work in its second mine, Boria Tibu (capacity 0.7mtpa hematite) in April 2014. The company expects production to commence from this new mine beginning October 2014. It also has been trying to increase its EC in the Ari Dongri mine to 1.2mtpa

§ A 1.2mtpa new pellet plant in Raipur has been ramping up well, and has reported a robust performance in Q1FY15. The solar power facility has become stable now and is operating currently at a PLF of 24-25%.

§ Another pellet plant (Ardent Steel with a 0.6mtpa capacity) in Odisha has been shut down since the previous quarter. Initially, the company undertook a maintenance shutdown, but later the MoEF sought clarification, as the company did not have environmental clearance for the same. However, the company is of the opinion that it is not required and has represented its case. The management expects the same to be resolved very soon

§ Three coal blocks, viz., Nakia and Madanpur North and South were dealocated. Currently, 50% coal is sourced through linkage and SECL, while the rest 50% through e-auction and imports

§ No new major capex is expected in the next 2 years; debt has peaked at Rs20bn. In 2-3 years, which is likely to come down by Rs2-3bn

Emkay’s views: We expect a meaningful contribution from the new mine in FY16, which would help save costs with regard to purchase of iron ore and raising revenue by way of higher sales of pellets. With regard to solar power, at a fixed selling price of Rs12.2/unit and at an average cloudy days of 25 in a year, the facility can generate Rs1.2bn EBITDA. In our view, without any new capex in the immediate future, it should not face any problem in servicing the current debt. Besides, a better operating performance would actually help improve its cashflow going forward. At the CMP of Rs170, the stock trades at 3x FY16 EPS and 3.8x FY16 EV/ EBITDA. We continue to value the stock at 4xFY16 EV/ EBITDA. We maintain a Buy with a target price of Rs209.

Godawari Power & Ispat Company Update




Net Sales 23,567 21,181 25,989 28,798

Growth (%) 14.4 -10.1 22.7 10.8

Expenditure 20,258 17,708 21,403 22,767

Raw Materials 14,826 12,203 15,356 15,745

Employee Cost 614 799 1,089 1,396

Other Exp 0 0 0 0

EBITDA 3,309 3,473 4,586 6,031

Growth (%) 17.4 4.9 32.1 31.5

EBITDA margin (%) 14.0 16.4 17.6 20.9

Depreciation 709 1,055 1,293 1,521

EBIT 2,600 2,418 3,293 4,510

EBIT margin (%) 11.0 11.4 12.7 15.7

Other Income 148 156 119 100


PBT 1,537 923 1,283 2,587

Tax -46 223 247 724

Effective tax rate (%) -3.0 24.2 19.2 28.0

Adjusted PAT 1,583 700 1,037 1,862

Growth (%) 80.7 -55.8 48.1 79.7

Net Margin (%) 6.7 3.3 4.0 6.5


Adj. PAT After JVs/Ass/MI 1,488 578 898 1,839

E/O items 0 0 0 0

Reported PAT 1,488 578 898 1,839

PAT after MI 1,488 578 898 1,839

Growth (%) 76.6 -61.1 55.2 104.9




Net worth 7,904 9,362 10,523 12,268

Minority Interest 1,573 1,573 1,573 1,573

Secured Loans 14,035 15,039 14,039 13,039

Unsecured Loans 1,520 6,229 6,229 6,229

Loan Funds 15,555 21,267 20,267 19,267



Gross Block 14,140 28,527 30,527 32,027


Net block 10,830 24,162 24,870 24,848


Investment 178 508 508 508

Current Assets 8,268 10,101 10,818 11,678

Inventories 3,475 4,022 4,820 4,881

Sundry debtors 1,067 1,019 1,266 1,294

Cash & bank balance 799 705 833 2,046

Loans & advances 2,926 4,355 3,898 3,456


Current lia & Prov 5,358 2,740 4,363 4,456


Provisions 171 142 142 142


Misc. exp 0 0 0 0


PBT (Ex-Other income) 1,537 923 1,283 2,587

Depreciation 709 1,055 1,293 1,521


Other Non-Cash items -124 -67 -139 -23

Chg in working cap 309 -4,545 1,034 446

Tax paid -437 -223 -247 -724

Operating Cashflow 1,995 -2,857 3,225 3,807


Free Cash Flow -7,956 -6,357 1,225 2,307




Equity Capital Raised 260 -130 0 0

Loans Taken / (Repaid) 6,931 5,713 -1,000 -1,000


Dividend paid (incl tax) -106 -96 -96 -93


Others 566 0 0 0

Financing Cashflow 7,651 5,486 -1,096 -1,093

Net chg in cash -179 -1,201 129 1,213


Closing cash position 799 705 833 2,046


Profitability (%)

EBITDA Margin 14.0 16.4 17.6 20.9

Net Margin 6.7 3.3 4.0 6.5

ROCE 12.5 8.7 10.3 13.7

ROE 20.3 6.7 9.0 16.1

RoIC 19.2 11.0 10.7 14.9

Per Share Data (Rs)

EPS 46.9 17.7 27.4 56.2

CEPS 69.2 49.9 66.9 102.6

BVPS 248.9 285.9 321.3 374.6

DPS 2.6 2.5 2.5 0.0

Valuations (x)

PER 3.6 9.6 6.2 3.0

P/CEPS 2.5 3.4 2.5 1.7

P/BV 0.7 0.6 0.5 0.5

EV / Sales 0.9 1.2 1.0 0.8

EV / EBITDA 6.1 7.5 5.4 3.8

Dividend Yield (%) 1.5 1.5 1.5 0.0

Gearing Ratio (x)




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FY13A 7,644 861 11.3 337 16.7 15.4 12.9 37.4 17.5 4.6

FY14A 10,959 1,584 14.5 753 37.4 123.9 23.9 16.7 10.4 3.5

FY15E 14,290 2,317 16.2 997 49.6 32.4 25.3 12.6 7.1 2.9

FY16E 17,626 3,123 17.7 1,484 73.7 48.8 29.7 8.5 5.1 2.2

Granules IndiaSteady outlook ahead

August 20, 2014

Rating

Buy

Previous Reco

Buy

CMP Rs641

Target Price Rs885



Nifty 7,603

Sensex 25,481


Absolute 31 82 180 385

Rel. to Nifty 31 60 126 267

Source: Bloomberg


100

220

340

460

580

700


Rs

-10

46

102

158

214

270%

Granuals India (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Pharmaceuticals

Bloomberg GRAN IB


Face Value(Rs) 10


52 Week H/L 705/ 120





Promoters 48.7 48.9 48.9

FII/NRI 4.2 1.8 1.6




Ashish Rathi [email protected] +91-22-66121257

Vivek Agrawal [email protected] +91-22-66121254

About the company:

n Granules offers three components of the pharma value-chain manufacturing APIs, PFIs and FDs and is seeing strong transformation to high profitable business mix

n Recent Auctus acquisition and Omnichem JV, providing the much-needed product diversification and a fillip to create a high-end regulated markets exporter with stronger margins

n Improving return ratios, cashflows and profitability to re-rate stock valuations. The stock i not pricing in improvement in business quality and growth

n Inexpensive and compelling valuations, despite strong growth outlook ahead; we recommend a Buy and a target price of Rs885 at 12x FY16E EPS of Rs73.7

Meeting takeaways Granules indicated that the strong growth path for the company would continue in FY15E and FY16E. The management was very confident of process-related efficiencies that has helped the company retain strong market share in molecules it is present in. The future course of growth will come mainly from growth in Finished Dosages and capacity built up which has happened in the PFI segment. On Auctus, the company remains confident of breaking-even operations in FY15, but Omnichem is expected to show tepid numbers over the next couple of years. Company guided that a 20% growth in top line and bottom line is sustainable over the next couple of years.

Emkay’s view Granules has metamorphosed from merely being an API manufacturer into a high-end intermediates and formulations supplier. Its strong presence across the value-chain makes it a preferred integrated player for global customers. Recently, it has acquired Auctus Pharma, which has a USFDA-approved manufacturing facility and several products. This acquisition would help the company to diversify its product basket. Its recent entry into the CRAMS business through the Ajinomoto OmniChem JV bodes well for its long-term profitability, helping upgrade the business quality a notch above peer pure play API manufacturers.

We believe Auctus Pharma and Ajinomoto OmniChem, along with an improvement in the base business product mix, will help catapult Granules into better profitability. The business mix would change more towards PFIs and finished dosages (FD), besides sales increasing more towards regulated markets, implying better margins ahead.

Sharp improvement in return ratios to continue ROEs have improved from 10% in FY11 to 24% in FY14, while ROICs have improved from 11% to 25% during the same period. We believe the improvement in ROEs and ROICs would continue towards 29% and 35%, respectively, by FY16E.

Valuations cheap; Recommend a Buy with a target price of Rs885 We believe current valuations are unjustified, given the fact that the growth rate, going forward, would be very strong, which is supported by a healthy change in the business quality. We recommend a Buy and a target price of Rs885.

Granules India Company Update




Net Sales 7,644 10,959 14,290 17,626

Growth (%) 16.9 43.4 30.4 23.4

Expenditure 6,783 9,374 11,973 14,503

Raw Materials 4,669 6,453 8,291 10,047

Employee Cost 639 879 1,154 1,410

Other Exp 1,475 2,043 2,528 3,046

EBITDA 861 1,584 2,317 3,123

Growth (%) 8.8 84.0 46.2 34.8

EBITDA margin (%) 11.3 14.5 16.2 17.7


EBIT 630 1,286 1,846 2,592

EBIT margin (%) 8.2 11.7 12.9 14.7



PBT 474 1,124 1,489 2,215

Tax 138 371 491 731


Adjusted PAT 337 753 997 1,484

Growth (%) 15.8 123.9 32.4 48.8

Net Margin (%) 4.4 6.9 7.0 8.4


Adj. PAT After JVs/Ass/MI 337 753 997 1,484

E/O items -11 0 0 0

Reported PAT 326 753 997 1,484

PAT after MI 337 753 997 1,484

Growth (%) 15.8 123.9 32.4 48.8




Net worth 2,748 3,559 4,320 5,686


Long Term Debt 2,000 3,395 3,192 3,192

Short Term Debt 855 1,009 1,009 1,009

Loan Funds 2,854 4,404 4,201 4,201

Other Liabilities 0 0 0 0


Gross Block 3,874 6,268 7,268 8,168


Net block 2,635 4,730 5,259 5,628


Other Assets 146 132 132 132

Current Assets 2,958 3,812 4,038 5,511

Inventories 1,365 1,742 1,963 2,476

Sundry debtors 710 1,109 1,266 1,598

Cash & Cash Equivalents 328 418 215 735




Accounts Payable 918 1,355 1,749 2,120

Other Current Liabilities 306 600 404 510


Misc. exp 0 0 0 0


PBT (Ex-Other income) 454 1,082 1,456 2,172




Chg in working cap 160 -34 -231 -477

Tax paid -138 -371 -491 -731

Operating Cashflow 891 1,320 1,451 1,915

Capital expenditure -1,156 -2,551 -1,000 -900

Free Cash Flow -265 -1,231 451 1,015



Investing Cashflow -1,174 -2,494 -968 -857


Loans Taken / (Repaid) 608 1,550 -203 0

Interest Paid -177 -204 -389 -420



Others 0 0 0 0

Financing Cashflow 384 1,263 -687 -538

Net chg in cash 102 89 -203 520




Profitability (%)

EBITDA Margin 11.3 14.5 16.2 17.7

Net Margin 4.4 6.9 7.0 8.4

ROCE 12.6 19.6 22.8 28.6

ROE 12.9 23.9 25.3 29.7

RoIC 15.5 25.2 28.2 35.3

Per Share Data (Rs)

EPS 16.7 37.4 49.6 73.7

CEPS 28.2 52.2 73.0 100.1

BVPS 136.6 176.9 214.6 282.5

DPS 2.3 4.1 4.7 5.8

Valuations (x)

PER 37.4 16.7 12.6 8.5

P/CEPS 22.2 12.0 8.6 6.3

P/BV 4.6 3.5 2.9 2.2

EV / Sales 2.0 1.5 1.2 0.9

EV / EBITDA 17.5 10.4 7.1 5.1

Dividend Yield (%) 0.4 0.7 0.7 0.9

Gearing Ratio (x)




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Dec Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

CY13A 5,179 2,558 49.4 1,744 3.6 135.8 13.3 37.0 25.5 4.6

CY14A 6,592 3,900 59.2 3,180 6.6 82.4 20.8 20.3 16.2 3.9

CY15E 7,569 4,619 61.0 3,781 7.8 18.9 21.0 17.1 13.8 3.3

CY16E 9,041 5,788 64.0 5,070 10.5 34.1 23.5 12.7 10.3 2.7

Gujarat PipavavIn a sweet spot

August 20, 2014

Rating

Accumulate

Previous Reco

Buy

CMP Rs145

Target Price Rs160



Nifty 7,603

Sensex 25,481


Absolute 22 76 135 205

Rel. to Nifty 22 55 89 132

Source: Bloomberg


40

62

84

106

128

150


Rs

-20

12

44

76

108

140%

Gujarat Pipavav (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Construction

Bloomberg GPPV IB


Face Value(Rs) 10


52 Week H/L 155/ 42





Promoters 43.0 43.0 43.0

FII/NRI 33.8 32.7 33.8




Nitin Arora [email protected] +91-22-66242491

Kunal Soni [email protected] +91-22-66242431

About the company:

n With a 43% stake held by APM Terminals and a part of the AP Moller-Maersk Group, GPPL is the largest container ship operator in the world. APM Terminals operates an integrated global terminal network of 60 ports. GPPL has rights to develop 1,561 acres, of which around 900 acres is still available for developing port infrastructure. The port has five cargo berths, including an LPG berth, with a total length of 1.1km. It has roughly 4km waterfront available for development, which provides very strong scalability potential. GPPL can potentially scale up its container handling capacity to 4m teu from 1.3m teu currently, and its bulk cargo-handling capacity to 20mt from the present 4mt.

Scale-up in container volumes to continue

The container volume on the western coast continues to edge higher in Q1FY15. The volumes grew by 21% to 2mn teu YoY, with JNPT volumes grown by 6.5% to 1.1mn teu. The company plans to expand the capacity from 0.85mn teu to 1.35 mn teu. However, if the market continues to grow by 18-20%, the company can look to develop its fifth container berth. The addition of new lines will help increase the container volumes, as churning has not been fully seen.

Margin expansion scope increases further on higher utilisation

The company witnessed a significant increase in EBITDA margins by 327bps over CY11-13 on a tariff hike, higher utilisation and better efficiencies. We believe the margin expansion to continue over CY13-15E led by the following factors:

§ Benefit of the revision in port tariffs effective August 16, 2013; a year after dollarisation of container tariffs (August 2012) also to come in CY14E/15E.

§ Rise in volumes on increasing market on the western coast from 8.6% in CY13 to 9.5% in CY15E which, we believe, can also surpass our estimate higher if Hazira lacks growth further on the container business.

§ Both container and bulk traffic declined in CY12 and, consequently, operating leverage worked on the negative side. Considering that 70% of the container handling charges (in some ports it ranges more than 50%) is fixed in nature, it thus reduces cost/teu for every extra container box handled.

§ Better efficiencies, as the company has undertaken several efficiency improvement measures in the last few years such as replacing its stackers by rubber tyre gantry cranes (RTGCs), which save hire charges, diesel cost and also commissioned a well-mechanized fertilizer shed (savings amounts to Rs90-100mn in CY13).

The management expects the margin to expand once the handling of liquid cargo commences. Besides, it does not see Hazira as a threat to volume growth, due to logistics issues at Hazira Port. However, the company believes that over the longer term, Hazira will continue to compete with the JNPT container port.

Gujarat Pipavav Company Update



Income Statement Y/E Dec (Rsmn) CY13A CY14A CY15E CY16E

Net Sales 5,179 6,592 7,569 9,041

Growth (%) 24.5 27.3 14.8 19.4

Expenditure 2,621 2,692 2,950 3,253

Operational Cost 1,320 1,377 1,553 1,768


SG&A 870 872 931 996

EBITDA 2,558 3,900 4,619 5,788

Growth (%) 40.7 52.5 18.4 25.3

EBITDA margin (%) 49.4 59.2 61.0 64.0


EBIT 1,950 3,244 3,845 4,945

EBIT margin (%) 37.7 49.2 50.8 54.7

Other Income 168 235 200 334


PBT 1,744 3,180 3,781 5,070

Tax 0 0 0 0


Adjusted PAT 1,744 3,180 3,781 5,070

Growth (%) 135.8 82.4 18.9 34.1

Net Margin (%) 33.7 48.2 50.0 56.1



E/O items -174 102 0 0

Reported PAT 1,570 3,282 3,781 5,070

PAT after MI 1,744 3,180 3,781 5,070

Growth (%) 135.8 82.4 18.9 34.1

Balance Sheet Y/E Dec (Rsmn) CY13A CY14A CY15E CY16E



Net worth 14,035 16,477 19,502 23,558


Secured Loans 2,819 2,819 2,819 2,500


Loan Funds 2,819 2,819 2,819 2,500



Gross Block 19,029 20,632 24,275 24,622


Net block 13,062 14,009 16,877 16,381


Investment 830 830 830 830

Current Assets 3,197 5,699 5,629 10,098




Loans & advances 658 903 1,141 1,362


Current lia & Prov 1,812 2,348 2,489 2,725


Provisions 406 542 622 743


Misc. exp 0 0 0 0

Total Assets 16,854 19,399 22,424 26,161 Cash Flow Y/E Dec (Rsmn) CY13A CY14A CY15E CY16E






Tax paid 0 -636 -756 -1,014



Free Cash Flow 2,106 2,107 -492 3,910

Other income 168 235 200 334

Investments 0 0 0 0

Investing Cashflow -1,040 -1,000 -3,811 -14


Loans Taken / (Repaid) -387 0 0 -319

Interest Paid -374 -298 -263 -209



Others 0 0 0 0

Financing Cashflow -762 -298 -263 -528

Net chg in cash 1,512 2,044 -555 3,716

Opening cash position 512 2,024 4,068 3,512


Key Ratios Y/E Dec CY13A CY14A CY15E CY16E

Profitability (%)

EBITDA Margin 49.4 59.2 61.0 64.0

Net Margin 33.7 48.2 50.0 56.1

ROCE 13.2 19.2 19.4 21.8

ROE 13.3 20.8 21.0 23.5

RoIC 15.7 25.1 25.6 29.8

Per Share Data (Rs)

EPS 3.6 6.6 7.8 10.5

CEPS 4.9 7.9 9.4 12.2

BVPS 29.0 34.1 40.3 48.7

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 37.0 20.3 17.1 12.7

P/CEPS 27.4 16.8 14.2 10.9

P/BV 4.6 3.9 3.3 2.7

EV / Sales 12.6 9.6 8.4 6.6

EV / EBITDA 25.5 16.2 13.8 10.3

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)

Net Debt/ Equity 0.1 -0.1 0.0 -0.2

Net Debt/EBIDTA 0.3 -0.3 -0.1 -0.8

Working Cap Cycle (days) -44.9 -34.0 -13.0 10.0

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FY13A 20,484 2,826 13.8 1,677 7.2 1.4 11.0 15.1 9.9 1.6

FY14A 22,014 3,132 14.2 1,615 6.9 -3.7 12.3 15.6 9.1 1.4

FY15E 23,118 3,011 13.0 1,865 8.0 15.5 9.9 13.5 9.3 1.3

FY16E 25,500 3,612 14.2 2,343 10.0 25.6 11.3 10.8 7.4 1.2

HT MediaWaiting for macro recovery

August 20, 2014

Rating

Hold

Previous Reco

Hold

CMP Rs106

Target Price Rs102



Nifty 7,792

Sensex 26,103


Absolute -11 10 48 10

Rel. to Nifty -15 1 16 -18

Source: Bloomberg


70

86

102

118

134

150


Rs

-40

-30

-20

-10

0

10%

HT Media (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg HTML IB


Face Value(Rs) 2


52 Week H/L 131/ 70





Promoters 69.5 69.5 69.0

FII/NRI 11.8 9.7 13.2





About the company:

n Hindustan Times Media (HT media) is one of the largest media companies in India, with a presence across different business verticals of media (print, Internet, radio and education). HT Media publishes 3 national newspapers, viz., Hindustan Times (English), Hindustan (Hindi newspaper through a subsidiary Hindustan media ventures Ltd) and a business newspaper ‘Mint’. The company operates a job portal shine.com, besides an education portal HT campus.com aimed at students passing out of schools and colleges

Meeting summary:

§ The English print business is expected to taper off in the longer run in line with the Western countries. However, the management believes that it is still 5-6 years hence the English newspaper business might begin to taper off. A pick-up in urban spending is the key to English advertisement revenue growth.

§ Given the difference in buying patterns in India compared to Western countries, the decline would be gradual and not rapidly.

§ On the contrary, Hindi/vernacular publications would continue to see strong ad growth in the medium-to-long term. Improving disposable income in smaller towns and rural areas would continue to drive ad revenue growth

§ Hindustan continues to gain in Uttar Pradesh. The company has seen meaningful yield improvement post the recent IRS results. At the current juncture, its revenue market share stands at 22%

§ Hindustan has a strong No. 2 readership position in Uttar Pradesh, with 7mn readers (according to a new readership survey), driven by a 30% jump in yield in the state in FY14. Further, yields are expected to double in Uttar Pradesh over the next 2-3 years.

§ The management expects the EBITDA margin in Uttar Pradesh to improve by 100bps annually going forward.

§ DB Corp has gained further market share in Patna post its recent launch, and the entire gains have come at the expense of Jagran. Hindustan's market share is intact.

§ DB would take another 2-3 years to increase its reach across the state

§ Digital business accounted for roughly 10% of revenue (Rs76cr) in FY14 (Shine, HT Campus, Digital Quotient). Shine has already surpassed Monster, and now commands a No. 2 position after Naukri based on active users.

§ Investment in Shine.com would continue; however, the management expects losses to reduce substantially going forward. Change in revenue mix would reduce losses going forward

§ Radio revenue is expected to touch the Rs2-bn mark over the next 3-5 years. The company is looking at 5-6 new licences during Phase-III auctions. It has worked out a strategy to have a presence in major cities. The capex for both renewal and Phase-III auctions is expected to be around Rs1.5-2bn over the next 2-3 years

HT Media Company Update




Net Sales 20,484 22,014 23,118 25,500

Growth (%) 2.3 7.5 5.0 10.3

Expenditure 17,657 18,882 20,106 21,888

Raw Materials 7,268 7,353 7,595 8,161

Employee Cost 3,921 4,237 4,943 5,325

Other Exp 6,469 7,293 7,569 8,402

EBITDA 2,826 3,132 3,011 3,612

Growth (%) -1.5 10.8 -3.9 19.9

EBITDA margin (%) 13.8 14.2 13.0 14.2


EBIT 1,912 2,274 2,059 2,636

EBIT margin (%) 9.3 10.3 8.9 10.3

Other Income 938 1,623 1,305 1,395


PBT 2,404 3,248 2,924 3,615

Tax 623 917 802 1,012


Adjusted PAT 1,781 2,331 2,122 2,603

Growth (%) 3.8 30.9 -8.9 22.6

Net Margin (%) 8.7 10.6 9.2 10.2

(Profit)/loss from JVs/Ass/MI 104 248 257 260 Adjusted PAT After JVs/Ass/MI

1,677 2,083 1,865 2,343

E/O items 0 -468 0 0

Reported PAT 1,677 1,615 1,865 2,343

PAT after MI 1,677 2,083 1,865 2,343

Growth (%) 1.4 24.2 -10.4 25.6




Net worth 15,976 17,943 19,695 21,923


Secured Loans 4,341 4,526 3,826 3,526


Loan Funds 4,341 4,526 3,826 3,526



Gross Block 11,964 12,679 13,101 13,515


Net block 7,283 7,309 6,957 6,581


Investment 9,731 12,831 13,831 15,331

Current Assets 9,913 10,771 11,716 14,191

Inventories 1,631 2,219 2,446 2,826

Sundry debtors 2,712 2,837 3,117 3,590


Loans & advances 3,097 3,540 3,949 4,611

Other current assets 904 998 1,048 1,156

Current lia & Prov 6,348 8,082 8,393 9,834


Provisions 255 303 338 423


Misc. exp 0 0 0 0






Chg in working cap -273 484 -655 -182

Tax paid -623 -917 -802 -1,012



Free Cash Flow 620 2,541 1,563 2,536

Other income 938 1,623 1,305 1,395

Investments -1,411 -3,100 -1,000 -1,500

Investing Cashflow -1,752 -2,361 -295 -705


Loans Taken / (Repaid) 466 185 -700 -300

Interest Paid -446 -649 -440 -416



Others 0 0 0 0

Financing Cashflow -89 -575 -1,250 -826

Net chg in cash 58 489 618 1,606




Profitability (%)

EBITDA Margin 13.8 14.2 13.0 14.2

Net Margin 8.7 10.6 9.2 10.2

ROCE 13.9 17.1 13.7 15.3

ROE 11.0 12.3 9.9 11.3

RoIC 20.6 25.1 23.0 29.2

Per Share Data (Rs)

EPS 7.2 6.9 8.0 10.0

CEPS 11.1 12.5 12.0 14.2

BVPS 68.1 76.5 84.0 93.5

DPS 0.4 0.4 0.4 0.4

Valuations (x)

PER 15.1 15.6 13.5 10.8

P/CEPS 9.7 8.6 9.0 7.6

P/BV 1.6 1.4 1.3 1.2

EV / Sales 1.4 1.3 1.2 1.0

EV / EBITDA 9.9 9.1 9.3 7.4

Dividend Yield (%) 0.4 0.4 0.4 0.4

Gearing Ratio (x)




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FY11A 10,680 3,372 31.6 1,622 62.4 295.7 24.5 5.8 4.4 1.3

FY12A 11,927 2,274 19.1 616 23.7 -62.0 8.1 15.4 7.8 1.2

FY13A 12,733 2,573 20.2 648 24.9 5.2 7.9 14.6 7.2 1.1

FY14E 13,179 2,975 22.6 349 13.4 -46.1 4.0 27.2 6.3 1.1

Indian Metals & Ferro AlloysCaptive coal to be the biggest trigger

August 20, 2014

Rating

Not Rated

CMP Rs395

Target Price NA

EPS Chg (%) NA


Nifty 7,684

Sensex 25,723


Absolute -11 43 80 154

Rel. to Nifty -10 24 41 89

Source: Bloomberg


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310

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450


Rs

0

28

56

84

112

140%

Indian Metal & Ferrous (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg IMFA IB


Face Value(Rs) 10


52 Week H/L 450/ 134





Promoters 55.7 55.7 55.7

FII/NRI 0.6 N/A N/A




Goutam Chakraborty [email protected] +91-22-66121275

n An integrated ferro-alloy producer with captive chrome ore mines along with integrated power capacity

n Currently, it operates around 72% of its installed capacity due to lower availability of ore. However, with the recent EC extension for Sukinda, it expects increase in ore supply, resulting in higher alloy production

n Coal sourcing for power via e-auction and washery rejects. Allotted a linkage coal mine (Utkal coal block – sole ownership); however, the grant order from state remains pending despite all EC

n Receipt of grant order for linkage coal from captive Utkal C coal block and start of operations in Sukinda are near-term triggers

Meeting updates

§ At 72% capacity utilization, IMFA produced 198kt of ferro chrome in FY14 and 51kt during Q1FY15. Of the total production in FY14, 40% was supplied to POSCO (via long-term arrangements), while the rest was sold at spot. Supplies to POSCO are priced quarterly along with discounts and previous quarter prices as benchmark. Current ferro chrome realization stands at Rs65,000/tonne.

§ It has captive chrome ore mines, with estimated reserves of 21mn tonnes. It mined 505kt of chrome ore during FY14. However, with the closure of the Sukinda mine from April 2014 on failing to get EC, chrome ore production declined to 55,303tn in Q1FY15. Recently, the company received extension of the mine, and expects ore production in the coming months.

§ The company has 258MW of power generation capacity, of which 158MW (of which 120MW is coal-based) suffices the current production requirement. The remaining 100MW currently stands idle. For the operational 120MW plant, IMFA sources coal via e-auction and washery rejects. The company has been allotted a coal block (Utkal C – reserves of 123mn tonnes), which has all required ECs in place and awaits the grant order from the Odisha government. The management indicated to signing of the mining lease within 4 months of the grant order receipt and full production within 18 months.

§ Management indicated alloy production of >210kt in FY15. The company indicated a capex of Rs2.5bn during FY15, largely for maintenance purposes. The current net debt stands at 1x as at the end of FY14.

Emkay’s view

The operating profit margin is expected to expand over the next 2 years, with the expectation of a decline in costs due to: (1) a ramp-up in captive power generation from the new capacity, (2) increase in production, and (3) captive coal from Utkal-C block. The next trigger for the company is the Utkal-C coal mine in Odisha, with extractable reserves of 123mn tons. Once this is through, the execution of the mining lease would be a positive trigger, as it would halve the cost of thermal power consumed. The extension of EC for the Sukinda mine has been a positive.

Indian Metals & Ferro Alloys Company Update



Income Statement Y/E Mar (Rsmn) FY11A FY12A FY13A FY14E

Net Sales 10,680 11,927 12,733 13,179

Growth (%) 80.2 11.7 6.8 3.5

Expenditure 7,308 9,653 10,160 10,204

Raw Materials 4,092 6,439 6,808 6,240

Employee Cost 872 928 1,027 1,188

Other Exp 0 2 -25 0

EBITDA 3,372 2,274 2,573 2,975

Growth (%) 199.5 -32.6 13.1 15.6

EBITDA margin (%) 31.6 19.1 20.2 22.6

Depreciation 419 560 817 1,490

EBIT 2,954 1,715 1,756 1,484

EBIT margin (%) 27.7 14.4 13.8 11.3


Interest expenses 541 832 695 1,156

PBT 2,505 940 1,143 499

Tax 882 324 495 150


Adjusted PAT 1,622 616 648 349

Growth (%) 295.7 -62.0 5.2 -46.1

Net Margin (%) 15.2 5.2 5.1 2.7


Adj. PAT After JVs/Ass/MI 1,622 616 648 349

E/O items 0 0 -120 0

Reported PAT 1,622 616 528 349

PAT after MI 1,622 616 648 349

Growth (%) 295.7 -62.0 5.2 -46.1

Balance Sheet Y/E Mar (Rsmn) FY11A FY12A FY13A FY14E



Net worth 7,382 7,869 8,499 8,811


Secured Loans 5,654 8,586 9,708 9,506


Loan Funds 5,654 8,586 9,708 9,506



Gross Block 8,509 10,714 16,441 18,938


Net block 5,540 7,216 12,332 13,445



Current Assets 8,281 8,556 7,405 8,613

Inventories 3,312 3,297 3,192 3,727



Loans & advances 4,285 4,410 2,920 3,954


Current lia & Prov 4,629 5,714 4,344 4,909


Provisions 1,586 1,678 259 230


Misc. exp 0 0 0 0

Total Assets 13,403 16,883 19,052 19,405 Cash Flow Y/E Mar (Rsmn) FY11A FY12A FY13A FY14E

PBT (Ex-Other income) 2,413 882 1,061 329

Depreciation 419 560 817 1,490

Interest Provided 541 832 695 1,156


Chg in working cap -1,014 805 498 -796

Tax paid 0 0 0 0



Free Cash Flow -581 -2,070 294 758


Investments 486 44 -224 119



Loans Taken / (Repaid) 900 2,932 1,122 -202

Interest Paid -541 -832 -695 -1,156



Others 0 0 0 0

Financing Cashflow 359 2,097 427 -1,358

Net chg in cash -44 -71 379 -396



Key Ratios Y/E Mar FY11A FY12A FY13A FY14E

Profitability (%)

EBITDA Margin 31.6 19.1 20.2 22.6

Net Margin 15.2 5.2 5.1 2.7

ROCE 25.2 11.7 10.2 8.6

ROE 24.5 8.1 7.9 4.0

RoIC 37.6 18.6 14.4 9.4

Per Share Data (Rs)

EPS 62.4 23.7 24.9 13.4

CEPS 78.6 45.3 56.4 70.8

BVPS 284.1 302.9 327.1 339.1

DPS 5.1 5.0 5.0 3.0

Valuations (x)

PER 5.8 15.4 14.6 27.2

P/CEPS 4.6 8.1 6.5 5.2

P/BV 1.3 1.2 1.1 1.1

EV / Sales 1.4 1.5 1.4 1.4

EV / EBITDA 4.4 7.8 7.2 6.3

Dividend Yield (%) 1.4 1.4 1.4 0.8

Gearing Ratio (x)




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FY13A 36,872 16,333 44.3 5,567 16.7 12.2 20.4 14.3 8.8 3.0

FY14A 37,319 17,537 47.0 4,591 13.8 -17.5 16.6 17.3 9.5 2.7

FY15E 45,495 23,368 51.4 6,146 18.5 33.9 19.5 12.9 8.9 2.3

FY16E 52,394 29,289 55.9 6,048 18.2 -1.6 16.7 13.1 7.8 2.1

IRB InfrastructureImproved prospects

August 20, 2014

Rating

Buy

Previous Reco

Buy

CMP Rs249

Target Price Rs290

EPS Chg FY15E/FY16E (%) -13 / NA

Target Price change (%) 4

Nifty 7,603

Sensex 25,481


Absolute 6 117 223 359

Rel. to Nifty 6 91 160 248

Source: Bloomberg


60

103

146

189

232

275


Rs

-20

22

64

106

148

190%

IRB Infrastructure (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg IRB IB


Face Value(Rs) 10


52 Week H/L 276/ 52





Promoters 61.1 N/A 62.3

FII/NRI 24.8 N/A 23.2

Institutions 4.4 N/A 3.8

Private Corp 3.6 N/A 3.3

Public 6.1 N/A 7.4 Source: Bloomberg

Nitin Arora [email protected] +91-22-66242491 Kunal Soni [email protected] +91-22-66242431

About the company:

n Incorporated in 1998, IRB is one of the leading infrastructure companies in India focusing on development of roads and highways. IRB designs, builds and operates roads and highways. It manages one of the largest road portfolios in India – 21 roads with a total length of around 1978km. It has a market share of around 7.22% in the Golden Quadrilateral. The promoters of the company own about 61.1% of IRB.

Meeting summary:

Construction revenue visibility kicks in with recent order wins

IRB witnessed some slowdown in its construction revenues (flattish on a YoY basis) in FY14 on completion of four of its BOT projects (Talegaon-Amravati, Jaipur-Deoli, Amritsar-Pathankot and Tumkur-Chitradurga). The Ahmedabad-Vadodara project contributed the major portion of its construction business revenues at Rs19.6bn, which is 76% of FY14 construction revenues. Given the recent order wins, the company expects to clock construction revenue worth Rs25bn and Rs30bn in FY15E and 1FY6E, respectively. The NHAI will be giving out Rs880bn of projects in FY15, of which Rs550bn would be EPC projects and Rs300bn in BOT mode. IRB’s total order-book stood at Rs125bn, of which O&M stood at Rs30bln and EPC orders at Rs95bn. These will be executed over a period of 3 years.

Comfortably placed to meet incremental equity; restructuring also to help

Given that the equity requirement stands at Rs11bn for existing Ahmedabad-Vadodra (Rs5.9bn) and Goa-Kundapur project (Rs5.2bn), the three newly won projects adds to incremental equity requirement of Rs18bn, which will take the total equity requirement to Rs29bn. The company needs the same to infuse funds over the next 3-3.5 years. We believe, given the cash balance of Rs15bn, along with the operating cashflow from BOT projects (bulk of this originates from the Mumbai-Pune project), the construction business would be sufficient to meet the equity requirement. The recent premium restructuring scheme, which offsets the lower negative cashflows from Ahmedabad-Vadodara and Tumkur-Chitradurga projects, also supported the cashflows. However, we note that any further award wins in FY15 may put equity funding of new projects from internal cashflows under strain. The company highlighted that for the current project no funding will be required. It will continue to target 400-500km of orders over the next 2 years. The debt repayment at the BOT level stands at Rs3bn for FY15E and Rs4bn for FY16E.

IRB Infrastructure Company Update




Net Sales 36,872 37,319 45,495 52,394

Growth (%) 17.8 1.2 21.9 15.2

Expenditure 20,540 19,782 22,127 23,105

Employee Cost 1,557 1,799 1,815 1,845

Other Exp 0 0 0 0

SG&A 1,223 1,482 1,553 1,249

EBITDA 16,333 17,537 23,368 29,289

Growth (%) 18.9 7.4 33.3 25.3

EBITDA margin (%) 44.3 47.0 51.4 55.9

Depreciation 4,415 4,771 7,175 11,208

EBIT 11,918 12,766 16,193 18,081

EBIT margin (%) 32.3 34.2 35.6 34.5

Other Income 1,301 1,214 1,092 1,263


PBT 7,066 6,419 8,429 8,635

Tax 1,530 1,823 2,331 2,651


Adjusted PAT 5,567 4,591 6,146 6,048

Growth (%) 11.6 -17.0 32.7 -1.9

Net Margin (%) 15.0 12.3 13.4 11.4

(Profit)/loss from JVs/Ass/MI -31 5 -48 -63


E/O items 0 0 0 0

Reported PAT 5,567 4,591 6,146 6,048

PAT after MI 5,567 4,591 6,146 6,048

Growth (%) 12.2 -17.5 33.9 -1.6




Net worth 32,556 35,607 43,761 57,201

Minority Interest 1,092 356 308 244

Secured Loans 66,349 93,980 129,593 150,464

Unsecured Loans 12,712 8,965 8,965 8,965

Loan Funds 79,060 102,945 138,558 159,429



Gross Block 57,918 88,916 102,151 141,051


Net block 55,088 85,544 98,226 136,551


Investment 620 145 145 145

Current Assets 27,205 27,064 22,053 23,884

Inventories 2,488 2,683 2,385 2,787



Loans & advances 9,696 8,519 8,519 8,519


Current lia & Prov 19,106 17,986 17,367 17,983


Provisions 3,110 2,888 2,888 2,888


Misc. exp 0 0 0 0



Depreciation 4,415 4,771 7,175 11,208



Chg in working cap 476 117 -1,117 158

Tax paid -2,422 -1,823 -2,331 -2,651



Free Cash Flow -15,257 -15,851 -35,365 -17,446

Other income 1,301 1,214 1,092 1,263

Investments 1,680 475 0 0



Loans Taken / (Repaid) 14,815 23,884 35,614 20,871

Interest Paid -6,153 -7,562 -8,856 -10,708



Others 0 0 0 0

Financing Cashflow 7,471 15,258 25,332 8,759

Net chg in cash -3,497 1,096 -5,508 1,373




Profitability (%)

EBITDA Margin 44.3 47.0 51.4 55.9

Net Margin 15.0 12.3 13.4 11.4

ROCE 12.9 11.7 11.3 10.4

ROE 20.4 16.6 19.5 16.7

RoIC 22.9 20.1 18.9 16.2

Per Share Data (Rs)

EPS 16.7 13.8 18.5 18.2

CEPS 30.0 28.2 40.1 51.9

BVPS 78.4 87.6 101.8 115.8

DPS 4.0 2.8 0.0 0.0

Valuations (x)

PER 14.3 17.3 12.9 13.1

P/CEPS 8.0 8.5 6.0 4.6

P/BV 3.0 2.7 2.3 2.1

EV / Sales 3.9 4.5 4.6 4.3

EV / EBITDA 8.8 9.5 8.9 7.8

Dividend Yield (%) 1.7 1.2 0.0 0.0

Gearing Ratio (x)




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FY10 7,624 1,285 16.9 700 29.04 4.00 30.3 8.12 3.99 1.79

FY11 9,398 1,435 15.1 739 25.73 11.00 21.4 4.98 3.21 0.96

FY12 9,299 1,500 16.1 681 25.11 -2.00 16.7 7.19 3.44 1.1

FY13 9,990 1,674 16.7 757 27.24 8.00 16.1 7.34 3.8 1.08

J Kumar InfraPoised for Growth

August 20, 2014

Rating

NA

CMP Rs327

Target Price NA

EPS Chg (%) NA


Nifty 7,684

Sensex 25,723


Absolute 3 62 79 112


Source: Bloomberg


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-10

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J Kumar Infraprojects (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg JKIL IB


Face Value(Rs) 10


52 Week H/L 351/ 130





Promoters 59.2 57.4 57.4

FII/NRI 10.2 6.2 6.2




Nitin Arora [email protected] +91-22-66242491 Kunal Soni [email protected] +91-22-66242431

About the company:

n JKIL is a civil engineering and infrastructure development company, with its primary focus on development of roads, flyovers, bridges, metro projects, bridges, irrigation projects, commercial and residential buildings, railway buildings, sports complexes, etc. It also undertakes the piling of foundation work using hydraulic piling rigs for major projects, which are awarded to other contractors. With over two decades of experience, it has established a track record of efficient project management and execution skills, with trained and skilled manpower, efficient deployment of equipment and strategic purchasing capabilities

Meeting summary:

Focus on profitable growth

J Kumar Infra has bagged orders worth Rs5bn in Q4FY14; taking its yearly fresh order wins to Rs10bn in FY14 (order inflow has edged lower over FY12-14). The order backlog stands at Rs39bn 3.4x FY14 revenue, and continues to stand L1 for orders worth Rs8bn. Transportation accounts for 90% of the order backlog, which consists of projects like roads, bridges, flyovers, subways, overbridges, skywalks, railway terminus/station. The civil construction segment forms roughly 10% of the backlog, dominated by Rs5.8bn building construction work from Uttar Pradesh’s Rajkiya Nirman Nigam.

The management will continue to bid for metro projects (expects Mumbai Metro Phase-III projects to be tendered soon), and expects to garner Rs20bn-plus projects each in FY15E/16E, and maintain the order-book at over Rs50bn. The company raised Rs1.38bn via QIP to increase the financial net worth of the company, in order to bid for higher size projects (now can bid for projects worth Rs10-15bn as against earlier of Rs5bn). The owning of equipment in-house (90-95% of equipment are in-house) helps improve margins.

Management guides revenue CAGR of 24% over FY14-16E

Backed by a fairly healthy executable backlog now in place, the management expects to clock revenue of Rs15bn/Rs18bn, implying a revenue CAGR of 24% over FY14-16E. The management expects to maintain a 17-18% EBITDA margin (after paying a 2% royalty to the China JV rail company) for its current order-book and a 7-8% PAT margin.

J Kumar Infra Company Update



Income Statement Y/E Mar (Rsmn) FY10 FY11 FY12 FY13

Net Sales 7,624 9,398 9,299 9,990

Growth (%) 88% 23% -1% 7%

Expenditure 6,502 8,216 8,005 8,577

Raw Materials 5,892 7,352 7,113 7,292


Other Exp 749 692 891 1,595

EBITDA 1,285 1,435 1,500 1,674

Growth (%) 129% 12% 3% 9%

EBITDA margin (%) 16.9 15.1 16.1 16.7


EBIT 1,140 1,276 1,311 1,430

EBIT margin (%) 14.9 13.4 14.1 14.3


Interest expenses 22 (225) (308) (296)

PBT 1,051 1,070 1,012 1,112

Tax 351 330 331 354


Adjusted PAT 700 739 681 757

Growth (%) 33.4 30.9 32.7 31.9

Net Margin (%) 9.2 7.8 7.3 7.6


Adj. PAT After JVs/Ass/MI 700 739 681 757

E/O items 0 0 0 0

Reported PAT 700 739 681 757

PAT after MI 700 739 681 757

Growth (%) 113 6 -8 11

Balance Sheet Y/E Mar (Rsmn) FY10 FY11 FY12 FY13


Reserves & surplus 2837.8 3504 4112.1 4756.4

Net worth 3115.8 3782 4390.1 5034.4


Secured Loans 552.3 1674 433.4 1072.9

Unsecured Loans 18.9 0 1272.6 1290.5

Loan Funds 571.2 1674 1706 2363.4


Total Liabilities 3687 5460 6104.6 7399.4

Gross Block 1368.5 1628.1 2144.3 3009

Less: Depreciation 339.2 487.4 676 920.1

Net block 1029.3 1140.7 1468.3 2088.9

Capital work in progress 0 597.6 597.6 1012.5

Investment 0.2 1 1 1

Current Assets 4725.7 4091.1 5553.3 7287.7

Inventories 1132.5 1562.3 2753 3949.6

Sundry debtors 683.3 1018.4 888.5 1147.1

Cash & bank balance 792.3 468.3 1138.8 1118.7

Loans & advances 2117.6 1042.1 773 1072.3


Current lia & Prov 2084 1017.5 2384.7 4132

Current liabilities 1218.5 863 2249.3 4018.9

Provisions 865.5 154.5 135.4 113.1

Net current assets 2641.7 3073.6 3168.6 3155.7

Misc. exp 47.6 683.4 911.6 1192.7

Total Assets 3687 5460 6104.6 7399.4 Cash Flow Y/E Mar (Rsmn) FY10 FY11 FY12 FY13

PBT (Ex-Other income) 1,051.0 1,069.6 1,011.8 1,111.8

Depreciation 144.7 158.5 188.8 244.1

Interest Provided 93.3 209.9 304.7 323.4

Other Non-Cash items 98.9 222.4 317.8 324.9

Chg in working cap 1,304.7 1,730.4 338.2 410.4

Tax paid -351 -330 -331 -354

Operating Cashflow -10.1 -279.9 1,180.2 1,270.4

Capital expenditure -177.2 -885.1 -516.6 -864.7

Free Cash Flow -187.3 -1,165.0 663.6 405.7

Other income 55.4 67.4 61.5 (331.9)

Investments 0 -0.8 0 0

Investing Cashflow -114.1 -800.8 -454.8 -1,196.6

Equity Capital Raised 794.6 0.0 -- --

Loans Taken / (Repaid) 86.1 1,102.8 384.2 385.2

Interest Paid -93.3 -209.9 -304.7 -323.4

Dividend paid (incl tax) -57.9 -72.9 -72.9 -72.7


Others 0 2,278 0 0

Financing Cashflow 674.0 756.7 -54.9 -93.9

Net chg in cash 549.8 -324.0 670.5 -20.1

Opening cash position 242.5 792.3 468.3 1,138.8

Closing cash position 792.3 468.3 1,138.8 1,118.7

Key Ratios Y/E Mar FY10 FY11 FY12 FY13

Profitability (%)

EBITDA Margin 16.9 15.1 16.1 16.7

Net Margin 9.2 7.8 7.3 7.6

ROCE 42.94 29.6 23.83 22.49

ROE 30.3 21.4 16.7 16.1

RoIC 24.4 19.4 15.4 13.9

Per Share Data (Rs)

EPS 29.04 25.73 25.11 27.24

BVPS 112.08 136.04 157.91 181.08

DPS 2.25 2.25 2.25 3.5

Valuations (x)

PER 8.12 4.98 7.19 7.34

P/CEPS 6.71 4.09 5.61 5.53

P/BV 1.79 0.96 1.1 1.08

EV / Sales 0.73 0.38 0.52 0.54

EV / EBITDA 3.99 3.21 3.44 3.80

Dividend Yield (%) 10.26 8.59 9.3 13.12

Gearing Ratio (x)

Net Debt/ Equity 0.18 0.44 0.39 0.47

Net Debt/EBIDTA 0.01 0.39 0.73 0.77

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FY11A 11436 877 7.7 106 1.6 - 4.6 23.8 5.7 1.2

FY12A 16995 1500 8.8 243 3.6 125.0 10.5 10.9 4.5 1.1

FY13A 16398 1705 10.4 263 3.8 5.5 10.9 10.1 3.7 1.0

FY14A 16023 1530 9.5 116 1.6 -57.8 7.0 22.6 4.6 1.0

KEI IndustriesBrewing catalysts for re-rating

August 20, 2014

Rating

NA

CMP Rs34

Target Price NA

EPS Chg (%) NA


Nifty 7,726

Sensex 25,908


Absolute 9 84 186 380

Rel. to Nifty 9 60 124 247

Source: Bloomberg


0

8

16

24

32

40


Rs

-20

32

84

136

188

240%

KEI Industries (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg KEII IB


Face Value(Rs) 2


52 Week H/L 37/ 7





Promoters 49.4 47.0 47.0

FII/NRI 1.0 1.1 1.1




Pritesh Chheda [email protected] +91-22-66121273

About the company: n KEI is strong player in cables; portfolio comprises high tension,

low tension, and extra-high voltage cables. It also sells household wires. The bulk of sales is B2B in nature

n Sales had stagnated for the past 3 years (~Rs18 bn), owing to the lack of inertia in industrial & power capex. Exports and B2C wires arrested the decline. Margins were 8-10%

n KEI is awaiting up-tick of capex spends for growth inertia; eyeing better utilization of high voltage capacity; driving higher B2C sales to reduce working capital intensity

n Eyeing to fill 30% under-utilized capacity and efforts to reduce working capital intensity; KEI can see quadrupling of net profits in a short span

Key takeaways from the Conference

§ A strong player in the cables segment, KEI manufactures and sells high tension cables (HTC), low tension power cables (LTPC), extra-high voltage cables (EHVC), household wires, etc. KEI has manufacturing facilities in Silvassa and Bhiwadi. Revenues of Rs18.0bn is split into exports Rs2.0bn, wires Rs2.7bn, LTPC Rs9.0bn, HTC Rs2.5bn, stainless wires Rs0.9bn, EHV Rs0.2bn and EPC Rs0.6bn. A large part of business is B2B; wires are the only component of the B2C business. KEI has a network of 600 dealers and distributors, mainly in North and West.

§ Revenues have largely been stable for the past 3 years (around Rs18.0bn). It is largely due to stagnation in power capex and industrial capex. Exports and dealer channels have reported traction, which offset the decline from power and industrial customers. The EHV capacity has remained unutilized; it has been 3 years since the capacity becoming operational. EBITDA margins are in the range of 8-10%.

§ Going forward, KEI would be building its capabilities to execute EPC projects. As most utilities are now placing turnkey contracts, KEI would be interested in undertaking projects, where the main focus would be on supply of cables supplemented with value add services on product side to improve margins. Typical project break up would be – 30% cables, 35% transformers & 35% civil erection. KEI would limit its participation to funded projects of PFC, REC, ADB,etc. to avoid any cash flow risk. The focus would be on the key states of UP, MP, Haryana and Punjab to grow its project order book. The WC cycle is around 5 months. It expect revenues from the EPC segment to be around Rs5bn in the next 3-4 years with EBITDA margins of about 15%.

§ Asset utilization for KEI and industry at large is 70%. KEI can generate sales of Rs27.0bn at current facilities. With 60% of the capital deployed in working capital, return ratios are very low. KEI is increasing its B2C sales and aiming to route a lot of institutional business through dealers. This would warrant a cash discount of 3% and reduce working capital needs for incremental growth. It is aiming to increase B2C sales from Rs3-4bn in FY14 to Rs13.0 bn in FY17E.

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Y/E Net Net EPS ABV RoA RoE PE P/ABV Mar Income Profit (Rs) (Rs) (%) (%) (x) (x)

FY13A 17,343 10,819 21.4 124.5 1.5 17.8 13.9 2.4

FY14A 21,408 13,033 25.8 142.2 1.5 18.6 11.5 2.1

FY15E 24,795 13,759 27.2 151.7 1.3 17.8 10.9 2.0

FY16E 29,050 16,247 32.2 178.7 1.3 18.9 9.2 1.7

LIC Housing FinanceGetting back on track

August 20, 2014

Rating

Accumulate

Previous Reco

Accumulate

CMP Rs286

Target Price Rs300



Nifty 7,792

Sensex 26,103


Absolute -10 -6 44 58

Rel. to Nifty -14 -14 12 17

Source: Bloomberg


150

190

230

270

310

350


Rs

-10

2

14

26

38

50%

LIC Housing Finance (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Banking & Financial Services

Bloomberg LICHF IB


Face Value(Rs) 2


52 Week H/L 352/ 152





Promoters 40.3 40.3 40.3

FII/NRI 38.6 37.9 36.3




Kashyap Jhaveri [email protected] +91-22-66121249

Pradeep Agrawal [email protected] +91-22-66121340

Sohail Halai [email protected] +91-22-66121336

About the company:

n LICHF has become a formidable player in retail housing over the past few years. LICHF’s retail loan book now at just 40% lower than the leader (HDFC Ltd) vs. 65% in FY07

n Lack of clarity on DRR and disallowing unsecured bonds in new Companies’ Act impact NIMs in Q1FY15. Revival of bond borrowings to support margins in rest of FY15

n Various developers’ loan NPAs under different stages of resolution. Resolution in couple of them can have positive impact on NIMs and ABV

n Valuations at 1.8/1.5x FY15/16ABV, which is near to its 10-year average 1-year forward valuations. We have an Accumulate rating with a target price of Rs300

# DRR – debenture redemption reserve

Meeting summary:

§ NIMs to get support as bond borrowing programme resumes: LICHF has seen 9-10bp expansion in spreads over last few quarters, driven by repricing of the retail assets and the shift in the borrowing mix in favour of bonds vis-à-vis bank loans. In Q1FY15, LICHF had borrowed Rs3.6bn (13% of total) through bonds, due to a lack of clarity on creation of debenture redemption reserve and also because of a lack of clarity on whether a floating charge on assets counts as security to bondholders or not. Hence, it had to rely largely on bank loans for funding, which impacted NIMs negatively. As the rules have exempted finance companies from creation of DRR and clarity on the floating charge has come, LICHF has resumed its bond borrowing programme. In July 2014, it raised Rs22bn through bonds at an average cost of 9.3% as against its Q1FY15 cost of borrowings at 9.59%. It plans to repay Rs50bn bank loans in the coming quarters.

§ Retail disbursement growth back on track: LICHF’s retail disbursement growth had slowed down in Q1FY15, due to lower borrowings as highlighted above. Now that the borrowing programme is back on track, the retail disbursements have also picked up. For June-July 2014, the retail disbursements have grown by 19-22%. The full year FY15 disbursement growth is likely to be in the range of 18-19%.

§ Resolution of developers’ loans NPAs to help NIMs and ABV: LICHF has four large developers’ NPA accounts, viz., Orbit Corporation (Rs1.1bn including interest), HIRCO (Rs1.3bn), Marg Construction and an Indore-based account (Rs400mn). These accounts are in different stages of resolution, and a couple of them could probably see resolution in the next 1-2 quarters. The resolution of the two largest accounts could aid our ABV assumptions by 2-2.5% and aid NIMs by about 3bp.

LIC Housing Finance Company Update


Key Financials

Income Statement Y/E Mar (Rsmn) FY13A FY14A FY15E FY16E Net interest income 15,463 18,989 22,229 26,329 Other income 1,881 2,419 2,566 2,722

Net Income 17,343 21,408 24,795 29,050

Operating expenses 2,743 3,054 3,514 3,991


Preprovision profit 14,525 18,277 21,181 24,950


Profit before tax 14,523 18,062 20,535 24,249

Tax 3,504 5,083 6,777 8,002

Tax rate 25.5 27.8 33.0 33.0

Adj Profit after tax 10,819 13,033 13,759 16,247

Balance Sheet Y/E Mar (Rsmn) FY13A FY14A FY15E FY16E Equity share capital 1,010 1,010 1,010 1,010 Reserves And Surplus 63,803 74,318 78,240 91,415

Net worth 64,813 75,328 79,250 92,425

Borrowings 684,791 820,400 969,397 1,130,691

Deferred tax liability -2,489 -2,489 -2,489 -2,489


Total liabilities 803,400 957,770 1,117,866 1,292,572

Net block 627 756 733 723

Investments 11,214 13,029 13,029 13,029

Loans 778,120 913,409 1,074,618 1,251,151

Current assets 13,440 30,576 31,026 31,026

Total assets 803,400 957,770 1,117,866 1,292,572

Assets

Key Ratio (%)

Y/E Mar (Rsmn) FY13A FY14A FY15E FY16E Yield on assets 10.2 10.3 10.2 10.3

Spreads 1.1 1.2 1.3 1.3

NIM 2.1 2.2 2.1 2.2

Other income 0.3 0.3 0.2 0.2

Net Income 2.4 2.4 2.4 2.4

Operating expenses 0.4 0.3 0.3 0.3

Preprovision profit 2.0 2.1 2.0 2.1

Provisions 0.0 0.0 0.1 0.1

Profit before tax 1.9 2.1 2.0 2.0

RoAA 1.5 1.5 1.3 1.3

Gross NPA (%) 0.6 0.7 0.4 0.2

Net NPA (%) 0.3 0.4 0.2 0.2

Valuation Table Y/E Mar FY13A FY14A FY15E FY16E Adj Profit after tax 10,819 13,033 13,759 16,247

No of shares (mn) 505 505 505 505

FDEPS (Rs) 21.4 25.8 27.2 32.2

PER (x) 13.9 11.5 10.9 9.2

Book value (Rs) 128.3 149.2 156.9 183.0

P/BV (Rs) 2.3 2.0 1.9 1.6

Adjusted book value (Rs) 124.5 142.2 151.7 178.7

P/ABV (Rs) 2.4 2.1 2.0 1.7

P/PPP (x) 10.3 8.2 7.1 6.0

RoE (%) 17.8 18.6 17.8 18.9

Dividend yield (%) 1.3 1.5 1.6 1.8

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FY11A 19,023 3,314 17.4 1,533 13.6 0.0 37.9 274.5 6.0 52.0

FY12A 23,901 3,588 15.0 1,388 12.3 -9.4 16.4 303.0 3.0 47.6

FY13A 20,935 3,033 14.5 1,296 11.5 -6.7 14.1 324.6 4.3 44.0

FY14A 24,484 3,816 15.6 1,972 17.5 52.2 19.1 213.3 6.3 38.0

Lakshmi Machine WorksStable order-book

August 20, 2014

Rating

Not Rated

CMP Rs3,733

Target Price NA

EPS Chg (%) NA


Nifty 7,747

Sensex 25,908


Absolute -5 25 39 103


Source: Bloomberg


1750

2190

2630

3070

3510

3950


Rs

0

14

28

42

56

70%

Lakshmi Machine Works (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Textiles

Bloomberg LMW IB


Face Value(Rs) 10


52 Week H/L 4,025/ 1,726





Promoters 28.4 28.3 28.3

FII/NRI 1.7 1.9 1.9





About the company:

n Lakshmi Machine Works Ltd (LMW), incorporated in 1962, is among the six textile machinery manufacturers globally, with the entire range of core spinning machinery for the cotton yarn manufacturing industry

n On expiry of the collaboration contract with Rieter in 2000, LMW has built its own R&D capabilities in textile machinery and tooling divisions. With improvements to existing models and introduction of new ones, LMW has managed to achieve a leading domestic market share of 63% for spinning machines

Key takeaways from the Conference

§ With the entry of new players (MNCs), the focus of LMW has been to maintain the market share even at the cost of marginal sacrifice in profit margins. Till a few years ago, there were only three players, including LMW, in the domestic market. Currently, all the six global majors have manufacturing facilities in India, and are competing for a share of the Indian and Chinese spinning machinery markets. In such circumstances, LMW’s endeavour would be to maintain prices, increase volumes and market share, and maintain overall profitability.

§ In addition to being highly capital-intensive, the spinning industry requires high amount of working capital to be tied up in inventories. The volatility in cotton prices has the potential to impact the profitability of the spinning industry, necessitating the mills to procure and warehouse the entire year’s requirement of cotton at the beginning of the season. A large number of spinning mills are lying idle on account of working capital mismanagement, and banks are reluctant to further fund these units.

§ LMW estimates the size of the domestic spindle market to be around 3mn spindles. The total installed capacity stands at roughly 40mn spindles, out of which many units are either closed or sick or non-operating for various reasons. Though there exists potential for the ginners in Gujarat and Maharashtra to set up spinning mills, very few banks want to further increase their exposure to the spinning sector, which is already reeling under high NPAs.

§ The global spindle market is estimated at around 9mn spindles. LMW has exported 350,000 spindles, amounting to Rs3.7bn during FY14. Exports to Pakistan have accounted for Rs700mn, and have the potential to reach USD15-20mn. The company has exported parts and accessories of spinning machineries amounting to Rs450mn to China.

§ LMW expects the textile up-gradation fund (TUF) scheme of the Government of India to be extended, and does not expect the same to be contested at the WTO forum. The company believes that the interest rate differential (10-12%) in domestic markets is sufficient ground for extending the scheme.

Lakshmi Machine Works Company Update




Net Sales 18,242 23,054 20,172 23,378

Growth (%) 0.0 26.4 -12.5 15.9

Expenditure 15,708 20,313 17,902 20,668

Raw Materials 10,841 14,394 12,368 14,452

Employee Cost 1,746 1,916 1,897 2,393

Other Exp 0 0 0 0

EBITDA 3,314 3,588 3,033 3,816

Growth (%) 0.0 8.3 -15.5 25.8

EBITDA margin (%) 17.4 15.0 14.5 15.6

Depreciation 1,050 1,200 1,192 1,045

EBIT 2,264 2,388 1,841 2,772

EBIT margin (%) 11.9 10.0 8.8 11.3



PBT 2,251 2,333 1,837 2,766

Tax 719 896 541 794


Adjusted PAT 1,533 1,437 1,296 1,972

Growth (%) 0.0 -6.3 -9.8 52.2

Net Margin (%) 8.1 6.0 6.2 8.1



E/O items 0 0 0 -82

Reported PAT 1,533 1,388 1,296 1,891

PAT after MI 1,533 1,388 1,296 1,972

Growth (%) 0.0 -9.4 -6.7 52.2




Net worth 8,088 8,838 9,565 11,081




Loan Funds 0 0 0 0



Gross Block 4,315 5,521 4,423 3,927

Less: Depreciation 0 0 0 0

Net block 4,315 5,521 4,423 3,927


Investment 868 814 643 637

Current Assets 13,196 13,101 13,184 15,764

Inventories 2,907 2,622 2,707 3,348

Sundry debtors 841 1,544 1,209 1,532


Loans & advances 1,634 1,512 1,231 1,248


Current lia & Prov 10,121 10,453 8,699 9,575


Provisions 446 712 298 463


Misc. exp 0 0 0 0



Depreciation 1,050 1,200 1,192 1,045




Tax paid -754 -913 -655 -898

Operating Cashflow 2,807 1,762 813 1,509

Capital expenditure -916 -1,849 -400 -581

Free Cash Flow 1,891 -88 414 928

Other income 624 863 108 -575


Investing Cashflow -29 -1,479 -291 -1,137

Equity Capital Raised -2,255 0 0 0


Interest Paid 0 -7 -3 -4



Others -5 -1 -1 -2

Financing Cashflow -2,478 -397 -654 -273

Net chg in cash 301 -115 -132 98




Profitability (%)

EBITDA Margin 17.4 15.0 14.5 15.6

Net Margin 8.1 6.0 6.2 8.1

ROCE 54.1 27.4 19.6 26.6

ROE 37.9 16.4 14.1 19.1

RoIC -2,656.8 551.0 163.6 252.6

Per Share Data (Rs)

EPS 13.6 12.3 11.5 17.5

CEPS 22.9 23.0 22.1 26.8

BVPS 71.8 78.4 84.9 98.3

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 274.5 303.0 324.6 213.3

P/CEPS 162.9 162.6 169.1 139.4

P/BV 52.0 47.6 44.0 38.0

EV / Sales -0.4 -0.3 -0.4 -0.4

EV / EBITDA -2.3 -2.0 -2.5 -2.4

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)

Net Debt/ Equity -0.9 -0.8 -0.8 -0.8

Net Debt/EBIDTA -2.3 -2.0 -2.5 -2.4


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Financial Snapshot (Rsmn) YE- Net EBITDA EPS EPS RoE EV/


CY10A 1,274 -115 -9.0 -88 -5.2 -223.6 -10.0 -71.4 -53.4 9.4

FY12A* 1,910 198 10.4 109 5.2 0.0 15.8 72.3 38.8 8.9

FY13A 1,640 429 26.2 319 19.0 266.7 41.7 19.7 14.1 7.6

FY14A 1,883 661 35.1 434 25.8 36.2 49.6 14.5 9.0 6.8 *Note: FY12 numbers are for 15 months period.

MPS LtdOffering opportunity in apprehension

August 20, 2014

Rating

Not Rated

CMP Rs374

Target Price NA

EPS Chg (%) NA


Nifty 7,649

Sensex 25,640


Absolute 5 3 66 208

Rel. to Nifty 6 -10 31 130

Source: Bloomberg


100

165

230

295

360

425


Rs

-20

30

80

130

180

230%

MPS Ltd (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg MPS IB


Face Value(Rs) 10


52 Week H/L 425/ 106





Promoters 75.0 75.0 75.0

FII/NRI 0.1 0.0 N/A

Institutions 0.1 0.0 N/A





About the company:

n MPS Ltd is an India-based publishing services company, with over 43 years of experience with major publishers worldwide. Formerly known as Macmillan, it was bought by Mr. Nishith Arora (in October 2011; ADI BPO Services holds 75% equity) and known as MPS in its new innings. The company’s service offerings include print and digital publishing services, transformation of content for usability across multiple platforms, engaging and interactive media products, and customer support services for educational, academic, trade and directory publishers. MPS has six production facilities in India (Bengaluru, Chennai, Delhi, Gurgaon, Noida and Dehradun). It also has two on-shore offices for project management and business development at Portland and Orlando, both in the US. The company serves 62 clients across the globe and has employee strength of around 2,750 people. North America and Europe are the primary markets for the company, which contribute more than 95% of its total revenue

Meeting summary:

Client mining to fuel revenue growth

MPS’ top clients include world’s top-20 publishers such as Elsevier, Wiley, McGrawHill and Macmillan. Currently, the company derives roughly 75% of its revenue from top-10 clients. The management is confident of delivering multifold revenue growth on back of client mining efforts given the marquee clientele. The management is optimistic about the company’s growth prospects for the following reasons: (a) Vendor Consolidation: Publishers are consolidating suppliers to form fewer yet more strategic partnerships with suppliers, (b) Increasing outsourcing by publishers – MPS currently handles just about 1% of the work of top-5 clients of MPS, and (c) the company’s strong decade-long relationships and delivery excellence puts MPS in a sweet spot.

Base building is accomplished; launch pad is ready: MPS has already undergone a turnaround under the new ownership. Efforts have been channelized on: (1) consolidation of business locations, (2) consolidation of manpower, and (3) shifting work to a low-cost destination (Dehradun). These have transformed MPS into a highly profitable business, with EBITDA margins of 35.1% in FY14. The company has developed strong relations with top publishers. MPS is fairly confident of leveraging strong client relations and business platform to generate sustainable growth.

Industry fundamentals and MPS capabilities promise robust growth: Industry fundamentals are robust, with the global publishing industry estimated at US$550bn and outsourcing at a mere US$1.5bn (in CY2012), implying substantial headroom. MPS is well placed with strong relations, with top-20 global publishers. The company would be servicing 5-10% of the outsourcing budget of a client, leaving substantial headroom for a ramp-up. It is fairly confident of mining existing clients and generating sustained growth.

MPS Ltd Company Update


Key Financials

Income Statement Y/E Mar (Rsmn) CY10A FY12A* FY13A FY14A

Net Sales 1,274 1,910 1,640 1,883

Growth (%) -9.0 19.9 7.3 14.8

Expenditure 1,389 1,712 1,211 1,222

Employee Cost 840 1,069 771 781

Other Exp 340 379 222 0

SG&A 209 264 218 441

EBITDA -115 198 429 661

Growth (%) -193.9 0.0 170.8 54.0

EBITDA margin (%) -9.0 10.4 26.2 35.1


EBIT -182 91 356 610

EBIT margin (%) -14.3 4.8 21.7 32.4



PBT -97 146 399 660

Tax -9 37 81 225


Adjusted PAT -88 109 319 434

Growth (%) -223.6 0.0 266.7 36.2

Net Margin (%) -6.9 5.7 19.4 23.1


Adj. PAT After JVs/Ass/MI -88 109 319 434

E/O items 0 0 0 0

Reported PAT -88 109 319 434

PAT after MI -88 109 319 434

Growth (%) -223.6 0.0 266.7 36.2

Balance Sheet Y/E Mar (Rsmn) CY10A FY12A* FY13A FY14A


Reserves & surplus 504 535 658 758

Net worth 673 703 826 926




Loan Funds 109 66 47 37


Total Liabilities 783 770 874 964

Gross Block 871 807 775 1,332


Net block 356 265 218 189



Current Assets 888 653 739 702






Current lia & Prov 475 271 260 207

Current liabilities 467 194 259 196


Net current assets 413 383 479 495

Misc. exp 0 0 0 0

Total Assets 783 770 874 964 Cash Flow Y/E Mar (Rsmn) CY10A FY12A* FY13A FY14A

PBT (Ex-Other income) -97 146 400 659





Tax paid 12 -21 -85 -191

Operating Cashflow 39 47 316 425


Free Cash Flow -52 29 285 298


Investments 110 -116 -44 14

Investing Cashflow 20 -134 -74 -113


Loans Taken / (Repaid) 69 -50 -6 -2

Interest Paid -4 -5 -1 -1



Others 4 -5 -33 12


Net chg in cash 108 -182 0 -13


Closing cash position 257 90 111 98 *Note: FY12 numbers are for 15 months period.

Key Ratios Y/E Mar CY10A FY12A* FY13A FY14A

Profitability (%)

EBITDA Margin -9.0 10.4 26.2 35.1

Net Margin -6.9 5.7 19.4 23.1

ROCE -39.5 49.4 180.1 315.3

ROE -10.0 15.8 41.7 49.6

RoIC -35.5 17.1 62.2 104.2

Per Share Data (Rs)

EPS -5.2 5.2 19.0 25.8

CEPS -1.3 12.8 23.3 28.8

BVPS 40.0 41.8 49.1 55.1

DPS 0.0 4.0 10.0 0.0

Valuations (x)

PER -71.4 72.3 19.7 14.5

P/CEPS -294.0 29.2 16.0 13.0

P/BV 9.4 8.9 7.6 6.8

EV / Sales 4.8 4.0 3.7 3.2

EV / EBITDA -53.4 38.8 14.1 9.0

Dividend Yield (%) 0.0 1.1 2.7 0.0

Gearing Ratio (x)

Net Debt/ Equity -0.9 -0.9 -1.4 -2.0

Net Debt/EBIDTA 1.3 -0.7 -0.6 -0.5


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FY11A 4,831 944 19.5 521 16.2 10.0 15.2 67.2 41.1 10.2

FY12A 5,553 1,130 20.4 584 18.0 11.2 12.6 60.4 34.3 7.6

FY13A 6,640 1,498 22.6 774 21.7 20.6 13.5 50.1 25.9 6.7

FY14A 7,389 1,793 24.3 980 31.4 44.8 14.3 34.6 21.6 5.0

Natco PharmaConfident on Copaxone

August 20, 2014

Rating

NA

CMP Rs1,080

Target Price NA

EPS Chg (%) NA


Nifty 7,649

Sensex 25,640


Absolute 9 34 49 84


Source: Bloomberg


550

670

790

910

1030

1150


Rs

-10

2

14

26

38

50%

Natco Pharma (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Pharmaceuticals

Bloomberg NTCPH IB


Face Value(Rs) 10


52 Week H/L 1,211/ 545





Promoters 53.5 53.5 53.7

FII/NRI 14.5 13.0 11.5




Ashish Rathi [email protected] +91-22-66121257 Vivek Agrawal [email protected] +91-22-66121254

Key takeaways from Natco meeting:

n Copaxone – Management was fairly confident of receiving USFDA approval in 3QFY15. Delay in approval was mainly due to repeated citizen petitions filed by Teva

n Revlimid – The company is confident of launching the product in 2019 in the most probable scenario after the expiry of compound patents

n Excluding Copaxone, top-line and bottom-line are expected to grow by ~15% and ~25% for next couple of years driven by products like Fosrenol, Prevacid OTC, Tamiflu and Prevpac

n Company is looking for acquisition in domestic market, mainly specialty physician driven brands in non oncology segment

Copaxone approval to come soon, likely to launch “at risk” Copaxone was scheduled to be launched on May 24, 2014; however, the company is yet to receive the USFDA approval. The management indicated the key reason for delay in approval was repeated Citizen Petitions (CP) filed by Innovator (Teva). Teva has filed 7th CP on July 1, 2014 and USFDA is likely to respond within 45 days (by Aug 15th). The management expects Teva’s current CP should also be rejected as its earlier 6 CPs were rejected by USFDA. On the question of ‘at risk’ launch, the management indicated that they will be launching the product at risk upon receiving approval as they are fairly confident that US Supreme Court will uphold the verdict of Federal Circuit which earlier invalidated Copaxone’s patents expiring in Sept 2015. In the worst case scenario, if US Supreme Court upholds September 2015 patents valid, penalty will be limited to the ‘loss of profit’ to Teva rather than triple damages as there is no gross infringement of patents. According to the management, competition will be limited to only two players (Natco/Mylan and Sandoz/Momenta) for 9-12 months and after that Dr Reddy’s and Synthon may also come.

The management indicated that proceeds from copaxone will primarily be used in acquiring some specialty physician driven non oncology brands in India. Apart from that company will retire most of its debt (current debt Rs1700mn), and will also expand its injectable capacity (Rs1200mn investment) in Vizag.

Revlimid (sole FTF) launch expected in year 2019 The management has given following three scenarios for the Revlimid launch in the US: (1) launch can be possible in year 2016-17 if Natco invalidates compound patent; however possibilities are low, (2) If the company invalidates polymorph patents, then Revlimid launch can happen in year 2019, and this remains the most likely scenario, and (3) If the company loses on both (compound and polymorph) patents,, then launch can be delayed till 2024.

Base business growth of around 15% over next couple of years The launch of gPrevacid OTC (~USD 50mn) and gFosrenol (USD115mn) in FY15, gPrevpac (~USD100m) in FY16 with 2-3 undisclosed launches will help Natco’s top-line and bottom-line to grow by around 15% and about 25% over the next couple of years.

Natco Pharma Company Update




Net Sales 4,831 5,553 6,640 7,389

Growth (%) 1.1 14.9 19.6 11.3

Expenditure 3,886 4,422 5,142 5,596

Raw Materials 1,880 2,029 2,428 2,332

Employee Cost 641 778 1,023 1,128

Other Exp 1,366 1,616 1,690 2,136

EBITDA 944 1,130 1,498 1,793

Growth (%) 4.0 19.7 32.6 19.7

EBITDA margin (%) 19.5 20.4 22.6 24.3

Depreciation 147 138 221.2 304.5

EBIT 797 993 1,277 1,489

EBIT margin (%) 16.5 17.9 19.2 20.2



PBT 653 795 1,138 1,290

Tax 132 211 364 310


Adjusted PAT 521 584 774 980

Growth (%) 8.6 12.1 20.6 44.8

Net Margin (%) 10.8 10.5 11.7 13.3



E/O items 0 0 115.9 0.0

Reported PAT 535 595 718 1,040

PAT after MI 535 595 718 1,040

Growth (%) 10.0 11.2 20.6 44.8

Balance Sheet Y/E Mar (Rsmn) FY11A FY12E FY13A FY14A



Net worth 3,524 4,720 5,335 7,259


Long Term Debt 1,254 1,341 1,378 955

Short Term Debt 946 978 1,477 986

Loan Funds 2,200 2,319 2,856 1,941

Other Liabilities 251 289 536 552


Gross Block 3,744 5,250 7,256 8,181


Net block 2,702 4,070 5,828 6,447

Capital work in progress 987 833 1,085 1,270

Other Assets 626 625 15 16

Current Assets 2,759 3,654 3,877 4,224

Inventories 1,022 1,104 1,460 1,811

Sundry debtors 710 947 1,297 1,188

Cash & Cash Equivalents 333 329 116 115

Loans & advances 692 797 976 1,086



Accounts Payable 1,087 1,743 1,961 2,120

Other Current Liabilities 102 11 17


Misc. exp 0 0 0 0





Other Non-Cash items 240 233 -116 0

Chg in working cap -179 -280 -329 -184

Tax paid 185 236 364 310



Free Cash Flow -1,181 -568 -1,438 320



Investing Cashflow -2,012 -911 -1,402 -797


Loans Taken / (Repaid) 1,005 120 698 -915

Interest Paid -158 -236 -263 -366



Others -168 -102 -7 -275

Financing Cashflow 614 -284 535 -1,604

Net chg in cash 253 -5 -213 -1




Profitability (%)

EBITDA Margin 19.55 20.36 22.57 24.27

Net Margin 10.78 10.51 11.65 13.26

ROCE 13.92 14.10 15.59 16.18

ROE 15.18 12.61 13.45 14.32

RoIC 11.11 10.66 10.33 12.00

Per Share Data (Rs)

EPS 16.17 17.98 21.69 31.41

CEPS 20.62 22.15 28.37 40.61

BVPS 106.47 142.60 161.19 219.30

DPS 3.00 3.00 3.00 3.00

Valuations (x)

PER 67.18 60.39 50.08 34.58

P/CEPS 52.67 49.04 38.28 26.74

P/BV 10.20 7.62 6.74 4.95

EV / Sales 8.03 6.99 5.84 5.25

EV / EBITDA 41.09 34.33 25.90 21.64

Dividend Yield (%) 0.00 0.00 0.00 0.00

Gearing Ratio (x)

Net Debt/ Equity 0.62 0.49 0.54 0.27

Net Debt/EBIDTA 2.33 2.05 1.91 1.08


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FY13A 11,422 2,746 24.0 2,309 25.8 -5.0 9.7 10.1 10.6 0.9

FY14A 17,276 4,728 27.4 2,963 33.2 28.4 11.4 7.9 8.1 0.9

FY15E 17,368 3,922 22.6 2,359 26.4 -20.4 8.3 9.9 12.3 0.8

FY16E 27,960 9,037 32.3 2,246 25.1 -4.8 7.4 10.4 5.4 0.7

Nava Bharat VenturesZambia to achieve financial closure in 2 months

August 20, 2014

Rating

Hold

Previous Reco

Hold

CMP Rs218

Target Price Rs300



Nifty 7,649

Sensex 25,640


Absolute -10 34 40 23

Rel. to Nifty -9 17 11 -8

Source: Bloomberg


150

180

210

240

270

300


Rs

-30

-20

-10

0

10

20%

Nava Bharat Ventures (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Power

Bloomberg NBVL IB


Face Value(Rs) 2


52 Week H/L 300/ 148





Promoters 43.4 43.3 43.3

FII/NRI 32.7 32.8 32.7




Amit Golchha [email protected] +91-22-66242408

Anujay Jain [email protected] +91-22-66242494

About the company:

n Nava Bharat Ventures Ltd, incorporated in 1972, is a diversified player with a presence in ferro alloys, power generation, coal mining and agri business

n It owns and operates 442MW of generation capacity, with another 300MW is under construction. It also owns a coal mine in Zambia, with 120mt of reserves

n PPA for the 150MW Paloncha plant in AP renewed till May 2015 provides certainty on its earnings for FY15E. Further, Zambia commissioning in FY16E to provide stability in earnings against the likely fall in its southern region plant profitability

n The stock at 8.0xFY15E EPS and 0.6xFY15E book looks attractive; however, we would wait for the financial closure of Zambia before turning positive. We maintain a Hold with a target price of Rs300

Meeting summary: § Zambian operations: The 300MW plant is 65% complete (total project cost, including

associated coal mine development, stands at $800mn with D:E mix of 70:30, with a 65:35 JV with the Zambian government). The total equity required in the project has been invested, and now the project has to be completed with debt, for which the financial closure in expected in the next 2 months. The project is expected to generate RoE of 20%. The PPA has been signed for 20 years with ZESCO for USD10.89c/unit. The commissioning is scheduled in FY17. The mining at the associated coal mine (reserves of 150mt; 90mt low grade and 60mt high grade) has started, and the low-grade thermal coal is being stored to be used at the plant when commissioned. From FY17 onwards, the company plans to sell 1mt of high-grade coal locally annually. The mining cost currently is at USD45/tn, including washing and compacting costs.

§ 64MW plant in Odisha: The company plans to commission the plant by October 2014. It has received approval from MOEF for use of domestic coal for the plant. An MOU has been signed with GRIDCO for supply of 12% power at cost, while the balance will be sold at merchant prices.

§ Outlook on merchant power prices: Due to the severe power shortage in Telangana and Andhra Pradesh, there is less likelihood of prices going below Rs5/unit in the near term.

Emkay’s view The stock at 8.0xFY15E EPS and 0.6xFY15E book looks attractive. However, we maintain a Hold rating on the stock, and would wait for financial closure of Zambia before turning positive. We value the stock at Rs300/share based on a 10% discount to book value (for uncertainties with respect to Odisha plants).

Nava Bharat Ventures Company Update




Net Sales 11,422 17,276 17,368 27,960

Growth (%) 14.8 51.3 0.5 61.0

Expenditure 8,676 12,547 13,447 18,923

Employee Cost 955 1,042 0 0

Other Exp 3,822 2,253 5,500 6,132

SG&A 0 0 0 0

EBITDA 2,746 4,728 3,922 9,037

Growth (%) 58.0 72.2 -17.1 130.4

EBITDA margin (%) 24.0 27.4 22.6 32.3

Depreciation 588 1,119 947 3,018

EBIT 2,158 3,609 2,975 6,019

EBIT margin (%) 18.9 20.9 17.1 21.5

Other Income 783 935 586 1,021

Interest expenses 189 1,263 612 3,248

PBT 2,752 3,282 2,949 3,792

Tax 641 355 590 758


Adjusted PAT 2,309 2,963 2,359 2,246

Growth (%) 0.2 38.6 -19.4 28.6

Net Margin (%) 18.5 16.9 13.6 10.9

(Profit)/loss from JVs/Ass/MI -197 -37 0 788


E/O items -405 -164 0 0

Reported PAT 1,903 2,799 2,359 2,246

PAT after MI 2,309 2,963 2,359 2,246

Growth (%) -5.0 28.4 -20.4 -4.8




Net worth 24,606 27,327 29,257 31,503

Minority Interest -497 -876 2,042 3,465

Secured Loans 13,118 18,721 28,426 32,978


Loan Funds 13,118 18,721 28,426 32,978



Gross Block 15,582 22,382 22,382 64,978


Net block 11,553 17,233 16,489 56,067

Capital work in progress 13,630 16,452 33,023 -3,529

Investment 202 146 146 146

Current Assets 17,293 15,618 15,791 21,381

Inventories 4,603 5,387 5,128 5,721

Sundry debtors 953 1,111 1,482 2,381


Loans & advances 1,741 2,780 2,780 2,780


Current lia & Prov 5,112 4,014 5,462 5,857


Provisions 0 0 0 0


Misc. exp 0 0 0 0



Depreciation 588 1,119 947 3,018

Interest Provided 189 1,263 612 3,248


Chg in working cap 896 -3,195 1,335 -1,097

Tax paid -641 -355 -590 -758



Free Cash Flow -3,528 -8,443 -12,107 1,138

Other income 783 935 586 1,021

Investments 52 56 0 0



Loans Taken / (Repaid) 4,433 5,603 9,705 4,552

Interest Paid -189 -1,263 -612 -3,248



Others -283 -138 2,934 1,081

Financing Cashflow 3,559 3,755 11,581 1,939

Net chg in cash 866 -3,696 60 4,098




Profitability (%)

EBITDA Margin 24.0 27.4 22.6 32.3

Net Margin 18.5 16.9 13.6 10.9

ROCE 8.5 10.9 6.8 11.0

ROE 9.7 11.4 8.3 7.4

RoIC 13.4 17.3 12.3 13.8

Per Share Data (Rs)

EPS 25.8 33.2 26.4 25.1

CEPS 32.4 45.7 37.0 58.9

BVPS 275.4 305.8 327.4 352.6

DPS 4.5 5.0 5.0 5.0

Valuations (x)

PER 10.1 7.9 9.9 10.4

P/CEPS 8.1 5.7 7.1 4.4

P/BV 0.9 0.9 0.8 0.7

EV / Sales 2.6 2.2 2.8 1.7

EV / EBITDA 10.6 8.1 12.3 5.4

Dividend Yield (%) 1.7 1.9 1.9 1.9

Gearing Ratio (x)




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FY13A 20,213 3,296 16.3 2,133 35.5 1.8 21.3 11.4 6.3 2.2

FY14A 23,050 3,516 15.3 2,306 38.4 8.1 19.6 10.5 6.1 1.9

FY15E 23,738 3,555 15.0 2,082 34.7 -9.7 15.6 11.7 5.9 1.7

FY16E 26,220 4,164 15.9 2,470 41.2 18.7 16.6 9.8 4.8 1.5

NIIT TechOn the road to being predictable

August 20, 2014

Rating

Hold

Previous Reco

Hold

CMP Rs377

Target Price Rs410



Nifty 7,721

Sensex 25,895


Absolute -15 -7 -6 57

Rel. to Nifty -17 -20 -26 17

Source: Bloomberg


250

300

350

400

450

500


Rs

-10

6

22

38

54

70%

NIIT Tech (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg NITEC IB


Face Value(Rs) 10


52 Week H/L 487/ 234





Promoters 31.0 31.1 31.1

FII/NRI 35.0 33.3 32.4






About the company:

n NIIT Technologies is a leading IT solutions organization, servicing customers in the Americas, Europe, Asia and Australia. It offers services in Application Development and Maintenance, Enterprise Solutions, including Managed Services and Business Process Outsourcing to enterprise in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and Government sectors. It has a large talent pool of about 8000-plus professionals

Emkay’s view NIIT Tech expects the softness in revenue growth to persist in the near term on account of pressure in some of the large clients. Although the company is enthused with the strong order booking in recent quarters, which will help drive a greater share of revenues from international geographies, margins are expected to recover only partially in H2FY15 and, more notably in FY16. The company is in the final stages of negotiation on a large IMS deal (short-listed in the top-2), and believes that the steps taken by it on sales reorganization after Mr. Sudhir Chaturvedi’s induction as COO in FY14 will put NIIT Tech on a better footing going forward.


Strategy for inducing predictability: The company management is focusing on delivering a more consistent and predictable financial performance. This initiative is being led by Mr. Sudhir Chaturvedi (ex-head of Financial Services Business in the US for Infosys), who was recently inducted as Chief Operating Officer, with Sales function being led by him. The company has embarked on a correction course as part of this strategy, whereby it intends to focus more on the international business and thereby reduce the dependence on the India business.

Target to be vendor of choice in focus verticals: NIIT Tech intends to leverage its longstanding relationships and execution track record in verticals like Financial Services and Travel/Transportation to drive increased mining within large clients. While maintaining its leadership in tavel/transportation vertical, the company intends to position itself as a vendor of choice in the BFSI vertical. NIIT Tech intends to increase its focus in the US market, and hopes to gain from the improved spending from the geography.

Recent setback in top clients slows down the journey: Some client-specific issues have led to dented revenue performance in the last 2 quarters (revenues from top-5 client declined by 5.2%/4.7% QoQ in March 2014 and June 2014 quarter, respectively). While the company expects muted revenues in the September 2014 quarter, it expects a stronger revenue performance in H2FY15, aided by ramp-ups of recent deals. However, the company has tempered down its FY15 margin outlook to around 16% (vs. 17% earlier), as it expects transition costs related to some of these deals to impact margins adversely in the near term.

Hold with a target price of Rs410: We have a Hold recommendation on NIIT Tech, with a target price of Rs410.

NIIT Tech Company Update




Net Sales 20,213 23,050 23,738 26,220

Growth (%) 28.2 14.0 3.0 10.5

Expenditure 16,917 19,534 20,183 22,056

Employee Cost 13,159 15,166 15,545 17,021

Other Exp 0 0 0 0

SG&A 3,758 4,368 4,639 5,034

EBITDA 3,296 3,516 3,555 4,164

Growth (%) 17.6 6.7 1.1 17.1

EBITDA margin (%) 16.3 15.3 15.0 15.9


EBIT 2,729 2,897 2,777 3,314

EBIT margin (%) 13.5 12.6 11.7 12.6

Other Income 207 287 133 132


PBT 2,936 3,184 2,910 3,446

Tax 751 803 757 896


Adjusted PAT 2,133 2,306 2,082 2,470

Growth (%) 6.0 9.0 -9.5 18.4

Net Margin (%) 10.8 10.3 9.1 9.7

(Profit)/loss from JVs/Ass/MI -52 -75 -72 -80


E/O items 0 0 0 0

Reported PAT 2,133 2,306 2,082 2,470

PAT after MI 2,133 2,306 2,082 2,470

Growth (%) 3.1 8.1 -9.7 18.7




Net worth 10,941 12,603 14,030 15,812




Loan Funds 60 89 89 89



Gross Block 7,020 7,790 8,790 9,890


Net block 4,383 4,534 4,757 5,007

Capital work in progress 277 1,286 1,286 1,286

Investment 820 820 820 820

Current Assets 9,785 10,569 11,780 13,787

Inventories 4 4 0 0

Sundry debtors 4,539 5,643 6,243 6,896


Loans & advances 1,302 1,302 1,302 1,302


Current lia & Prov 4,214 4,547 4,552 5,028


Provisions 1,058 1,326 1,301 1,437


Misc. exp 0 0 0 0






Chg in working cap -685 -1,155 -648 -381

Tax paid -751 -803 -757 -896


Capital expenditure -606 -1,779 -1,000 -1,100

Free Cash Flow 1,254 -221 1,150 1,788

Other income 207 287 133 132


Investing Cashflow -671 -1,492 -867 -968


Loans Taken / (Repaid) -411 29 0 0




Others -154 -74 -71 -81

Financing Cashflow -1,083 -669 -726 -769

Net chg in cash 107 -603 558 1,150




Profitability (%)

EBITDA Margin 16.3 15.3 15.0 15.9

Net Margin 10.8 10.3 9.1 9.7

ROCE 28.6 26.9 21.8 23.0

ROE 21.3 19.6 15.6 16.6

RoIC 38.1 35.2 30.0 33.1

Per Share Data (Rs)

EPS 35.5 38.4 34.7 41.2

CEPS 45.0 48.8 47.7 55.3

BVPS 182.4 210.0 233.8 263.5

DPS 8.5 8.9 9.4 9.9

Valuations (x)

PER 11.4 10.5 11.7 9.8

P/CEPS 9.0 8.3 8.5 7.3

P/BV 2.2 1.9 1.7 1.5

EV / Sales 1.0 0.9 0.9 0.8

EV / EBITDA 6.3 6.1 5.9 4.8

Dividend Yield (%) 2.1 2.2 2.3 2.4

Gearing Ratio (x)

Net Debt/ Equity -0.3 -0.2 -0.2 -0.3

Net Debt/EBIDTA -0.9 -0.7 -0.8 -1.0


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FY11A 12,082 1,487 12.3 739 6.1 0.0 30.6 6.2 4.1 1.7

FY12A 12,186 1,447 11.9 620 5.1 -16.1 21.3 7.4 4.2 1.5

FY13A 11,182 1,165 10.4 419 3.4 -32.5 12.6 11.0 4.9 1.3

FY14E 10,745 898 8.4 259 2.2 -37.2 7.2 17.5 6.5 1.2

Pennar IndustriesValue addition, macro improvement to drive

August 20, 2014

Rating

Not Rated

CMP Rs41

Target Price NA

EPS Chg (%) NA


Nifty 7,684

Sensex 25,723


Absolute -11 23 82 58


Source: Bloomberg


10

18

26

34

42

50


Rs

-30

-14

2

18

34

50%

Pennar Industries (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg PSL IB


Face Value(Rs) 5


52 Week H/L 46/ 18





Promoters N/A 40.6 40.6

FII/NRI N/A 29.6 29.6

Institutions N/A 0.6 0.6

Private Corp N/A 11.9 11.7

Public N/A 17.3 17.5 Source: Bloomberg

Goutam Chakraborty [email protected] +91-22-66121275

About the company:

n Leading engineering multi-product company, with an annual production capacity of more than 300ktpa manufacturing precision engineered products for various sectors

n Pennar operates through four strategic business units (Steel Products, Solar, Railway and others), and two subsidiaries (PEBS & PEL) along with six manufacturing facilities

n Focus would be on business segments, with high margins and higher RoCE, viz., CRFS, PEBS, PEL, railways and solar segments

n Improving market conditions and economic recovery portray growth factors for gaining market share, expanding margins with value-added products, benefit of operating leverage

Meeting updates: § Pennar Industries (PIL) is a diversified player in the engineering space. It has four

business verticals under the standalone business: steel products, industrial components, tubes and systems and projects. Besides, it has two subsidiaries, viz., Pre-engineered building systems (PEBS) and Pennar Enviro (PEL)

§ The company has been focusing mainly on its high-margin businesses, viz., Railways, PEBS and PEL

§ Steel products revenue run-rate can reach Rs4.5bn, depicting a 20% YoY growth; the Tube division can see revenue of Rs2bn. The Tube division is likely to grow at a CAGR of 30%, which can double its revenue from the current level

§ The industrial component segment, comprising hydraulics, etc., with an annual revenue run-rate of Rs600mn has not been growing. However, the operating margin has been at 20%

§ The railways segment, with an annual revenue run-rate of Rs2.2bn has been growing satisfactorily. Operating margins are good at 18-20%. Coaches have been doing well, while wagons have started gearing up and should aid the revenue further

§ The solar module mounting business has done well so far, but overall weakness in solar power market, this segment is likely to see slow progress

§ Among subsidiaries, the annual revenue run-rates in PEBS and PEL have been Rs6bn and Rs500mn, respectively. The company is likely to achieve revenue of Rs 10bn in PEBS and Rs5bn in PEL in the next three years.

Emkay’s view: We understand the strategy is to ensure growth through improvement in margins, product development through value additions and gaining market share in focused businesses. In FY15 itself the revenue can go up to Rs 14- 16 bn from Rs 10.7 bn with margins improving by 200 bps YoY to 10%. Similar growth can be seen in FY16 too, driven primarily by Railways, PEBS and PEL. With low fixed costs and no new major capex, profitability is likely to improve as well. Along with these, we believe, a possible revival in the macro economic scenario would be an added advantage for the company.

Pennar Industries Company Update



Income Statement Y/E Mar (Rsmn) FY11A FY12A FY13A FY14E

Net Sales 12,082 12,186 11,182 10,745

Growth (%) 51.5 0.9 -8.2 -3.9

Expenditure 10,595 10,739 10,017 9,847

Raw Materials 8,561 8,347 7,373 6,923


Other Exp 622 543 547 580

EBITDA 1,487 1,447 1,165 898

Growth (%) 33.6 -2.7 -19.5 -22.9

EBITDA margin (%) 12.3 11.9 10.4 8.4


EBIT 1,355 1,277 985 710

EBIT margin (%) 11.2 10.5 8.8 6.6



PBT 1,220 1,006 690 482

Tax 464 359 234 174


Adjusted PAT 756 647 456 307

Growth (%) 50.6 -14.4 -29.5 -32.6

Net Margin (%) 6.3 5.3 4.1 2.9



E/O items 0 0 0 0

Reported PAT 739 620 419 259

PAT after MI 739 620 419 259

Growth (%) 47.4 -16.1 -32.5 -38.0

Balance Sheet Y/E Mar (Rsmn) FY11A FY12A FY13A FY14E



Net worth 2,687 3,141 3,479 3,765


Secured Loans 1,413 1,429 1,322 1,266


Loan Funds 1,659 1,669 1,571 1,520



Gross Block 3,453 4,073 4,182 4,701


Net block 2,033 2,458 2,347 2,678



Current Assets 3,540 4,436 4,986 5,262

Inventories 1,481 1,614 1,658 1,888

Sundry debtors 1,659 2,096 2,333 2,498




Current lia & Prov 1,095 1,843 2,093 2,487




Misc. exp 0 0 0 0

Total Assets 4,547 5,067 5,444 5,836 Cash Flow Y/E Mar (Rsmn) FY11A FY12A FY13A FY14E

PBT (Ex-Other income) 1,193 968 672 445




Chg in working cap -88 -91 -85 -63

Tax paid 0 0 0 0

Operating Cashflow 1,188 1,156 864 798


Free Cash Flow 846 613 641 321


Investments 0 0 -33 -222


Equity Capital Raised 0 0 0 -40

Loans Taken / (Repaid) -265 10 -98 -51

Interest Paid -162 -309 -313 -265



Others 0 0 0 0

Financing Cashflow -427 -299 -410 -356

Net chg in cash -10 27 215 -220



Key Ratios Y/E Mar FY11A FY12A FY13A FY14E

Profitability (%)

EBITDA Margin 12.3 11.9 10.4 8.4

Net Margin 6.3 5.3 4.1 2.9

ROCE 31.7 27.4 19.1 13.2

ROE 30.6 21.3 12.6 7.2

RoIC 32.9 27.9 20.3 14.1

Per Share Data (Rs)

EPS 6.1 5.1 3.4 2.2

CEPS 7.1 6.5 4.9 3.7

BVPS 22.0 25.7 28.5 31.3

DPS 1.2 1.0 1.0 0.0

Valuations (x)

PER 6.2 7.4 11.0 17.5

P/CEPS 5.3 5.8 7.7 10.1

P/BV 1.7 1.5 1.3 1.2

EV / Sales 0.5 0.5 0.5 0.5

EV / EBITDA 4.1 4.2 4.9 6.5

Dividend Yield (%) 3.3 2.7 2.7 Na

Gearing Ratio (x)




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Y/E Net Net EPS ABV RoA RoE PE P/ABV Mar Income Profit (Rs) (Rs) (%) (%) (x) (x)

FY11 513 369 0.7 18.1 2.8 4.5 54.1 2.0

FY12 1,114 1,541 2.7 20.9 8.4 14.1 13.0 1.7

FY13 1,854 1,541 1.9 21.8 4.3 14.1 19.2 1.6

FY14 2,430 1,541 3.7 24.0 5.0 14.1 9.6 1.5

PTC India Financial ServicesGrowing thrust on Infra puts PTC in a sweet spot

August 20, 2014

Rating

Not Rated

CMP Rs36

Target Price NA

EPS Chg (%) NA


Nifty 7,649

Sensex 25,640


Absolute -3 94 166 220

Rel. to Nifty -2 69 110 139

Source: Bloomberg


10

16

22

28

34

40


Rs

-20

18

56

94

132

170%

PTC India Financial Services (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Banking & Financial Services

Bloomberg PTCIF IB


Face Value(Rs) 10


52 Week H/L 40/ 9





Promoters 60.0 60.0 60.0

FII/NRI 4.9 4.9 6.3




Kashyap Jhaveri [email protected] +91-22-66121249

Pradeep Agrawal [email protected] +91-22-66121340

About the company:

n Established name in the field of investments in projects in the energy value-chain. Provides debt/equity financing for greenfield/brownfield projects across the energy value-chain

n Sanctioned around Rs105bn in the form of long/short-term debt assistance to various power projects, which will help to generate more than 30,000MW capacities in the coming years

n Despite a strong growth in the loan book, CAR is ~25% and the gearing ratio is 3x , giving them enough room for further expansion in FY15 without fidgeting the capital

n At CMP, the stock trades at 1.5x FY14ABV and 9.6x FY14 EPS. We do not have formal coverage on the stock

Meeting summary:

§ Balance sheet to grow exponentially: The company has growth its advance book at a CAGR of 46% over last 3 years. With 25% CAR and ample lending opportunities the management aims to grow the book at a CAGR of 80% over the next two years. The company has about Rs50bn of sanctioned pipeline, which is yet to be disbursed. As there is a lag of 5-7 months between sanction and disbursal in renewal projects, the company is targeting a disbursement of Rs40bn for FY15 from the current sanction pipeline.

§ Incremental sanction largely in renewal: While renewal/thermal constitute 35% each of the current lending book, incrementally almost 80% of the lending would be in renewal. As a result, the renewal proportion would increase to 55-60%.

§ Reduction in risk weight on PPP projects to drive CAR higher: PTC Financials CAR as on June 2014 stood at 25%. However, post-clarification from the RBI, PTC now need to allocate only 50% risk weight (as against 100% earlier) to PPP projects which has completed 1 year of satisfactory performance. The company has about Rs10bn of such projects on its total book of Rs53bn. Adjusting for the same, the companies CAR will increase to 32% from the current level of 25%.

§ Maturing investment to drive profitability: The company has equity investment in four companies at Rs3.5bn. One of the investment in Ind Bharat Energy is maturing in current year which will fetch Rs3bn (Rs1bn cost), generating 23% CAGR return over the investment cycle of 6 years.

§ Margins likely to be maintained at current levels: PTC enjoy better yields than REC/PFC, as it has about 15% of the portfolio into short term bucket, where yields are higher than PTC’s. The yield on the short-term loan is 2% higher than the long-term loan. The management expects to maintain the current mix. On the liability side also the company guided for stable cost of funds. They have also sanctioned lined from IFC, ADB, and European development financial institution. However, as the current hedging cost is almost 8%, they would draw once the hedging cost comes down.

PTC India Financial Services Company Update


Key Financials

Income Statement

Y/E Mar (Rsmn) FY11 FY12 FY13 FY14

Net interest income 308 643 1,502 1,990

Other income 205 470 352 440

Net income 513 1,114 1,854 2,430

Operating expenses 130 279 249 238

Pre provision profit 531 834 1,605 2,193

PPP excl treasury 531 834 1,605 2,193


Profit before tax 513 744 1,553 2,027

Tax 144 476 511 772

Tax rate 28% 24% 33% 27%

Profit after tax 369 1,541 1,042 2,077

Balance Sheet

Y/E Mar (Rsmn) FY11 FY12 FY13 FY14

Liabilities

Equity 5,621 5,621 5,621 5,621

Reserves 4,556 6,099 6,641 7,868

Net worth 10,177 11,720 12,261 13,489

Deposits & Borrowings 5,699 7,474 15,325 37,696

Total liabilities 16,940 19,593 28,848 53,889

Assets

Cash and bank 4,835 1,981 679 334

Investments 4,637 4,211 3,950 3,010

Advances 6,795 12,661 22,962 49,740

Others 677 744 1,255 807

Total assets 16,943 19,597 28,847 53,891

Key Ratio (%)

Y/E Mar (Rsmn) FY13A FY14A FY15E FY16E

NIM 6.9 7.5 9.5 5.6

Non-II/avg assets 1.6 2.6 1.5 1.1

Opex/avg assets 1.0 1.5 1.0 0.6

NPA provisions/advances 0.4 1.1 0.3 0.5

PBT/avg assets 3.9 4.1 6.4 4.9

Tax/avg assets 1.1 2.6 2.1 1.9

RoA 2.8 8.4 4.3 5.0

RoAE 4.5 14.1 8.7 16.1

RoAE 4.5 14.1 8.7 16.1

Valuation Table Y/E Mar FY13A FY14A FY15E FY16E

Net profit (Rs mn) 369 1,541 1,042 2,077

Shares in issue (mn) 562 562 562 562

EPS (Rs) 0.7 2.7 1.9 3.7

PER (x) 54.1 13.0 19.2 9.6

Book value (Rs) 18.1 20.9 21.8 24.0

P/BV (x) 2.0 1.7 1.6 1.5

Adj book value (Rs) 18.1 20.9 21.8 24.0

P/ABV (x) 2.0 1.7 1.6 1.5

P/PPP (x) 37.6 24.0 12.5 9.1

P/PPP (x) 37.6 24.0 12.5 9.1

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FY13A 8,053 1,156 14.4 445 10.8 75.2 9.6 56.2 27.0 3.9

FY14A 13,512 2,154 15.9 528 12.9 18.7 10.2 47.4 14.5 6.3

FY15E 15,706 2,568 16.3 813 19.8 53.9 18.8 30.8 12.0 5.4

FY16E 18,337 3,254 17.7 1,318 32.1 62.1 25.2 19.0 9.3 4.3

PVRMarket leader in multiplex industry

August 20, 2014

Rating

Buy

Previous Reco

Buy

CMP Rs649

Target Price Rs900



Nifty 7,792

Sensex 26,103


Absolute 5 28 15 77

Rel. to Nifty 1 17 -10 32

Source: Bloomberg


350

420

490

560

630

700


Rs

0

12

24

36

48

60%

PVR (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg PVRL IB


Face Value(Rs) 10


52 Week H/L 705/ 356





Promoters 28.9 28.9 29.8

FII/NRI 24.9 19.5 18.4





About the company:

n PVR, which is among India’s most recognized film exhibition brands, has evolved from being a single theatre to the country’s largest multiplex operator, with a presence in 41 cities with 101 properties and 444 screens. Entertaining 60mn customers through its retail presence, it is among the top-10 multiplex chains across the globe in terms of footfalls, and enjoys dominant leadership in India with a 30-35% and 20-22% share of Hollywood and Bollywood box-office collections, respectively. A dominant market share and aggressive screen expansion would provide better negotiating power with content providers and continued growth in footfalls

Meeting summary:

§ The company expects to add 65-70 screen in outside of major cities, including southern region cities Kochi/Chennai/Hyderabad/Mysore

§ FY14 saw a 6% drop in footfalls as against a 22% increase in footfalls in FY13. The management remains confident that FY15 would witness marginal improvement as Q2 and Q3FY15 is loaded with strong content pipeline.

§ Strong brand positioning and robust content pipeline to drive sponsorship revenues going forward. The management expects sponsorship revenue to growth in 17-19% range going forward

§ PVR has introduced flexi-pricing across its cinemas to drive footfalls. The admit ratio for weekdays: the weekend was 35:65 three years ago, but now it stands at 48:52, due to its flexi pricing strategy (Friday is considered a weekend).

§ It has launched F&B application on mobile in order to help patrons pre-book their orders during movie would help in generating additional revenue.

§ Entertainment tax: The company pays ~23% entertainment tax on the whole portfolio. After implementation of GST it is expected to come down to 16-18%. As of now, the suggestion is that E-tax will be part of GST. In FY14; the company paid Rs2.25bn Entertainment tax, plus Rs400mn VAT, plus Rs450mn Service tax, resulting in a total outgo of Rs3.bn. Post-implementation of GST, the company would be able get set off of Rs450mn.

§ Online ticket sales: 20% of the tickets sold online, and the company has to share some part of the convenience fee with Bookmyshow

§ Bowling: BluO will add 1-2 centres every year (18-19% EBITDA margin).

§ PVR does not intend to expand its restaurant business.

§ The company expects to be FCF neutral in FY15E on account of its expansion plans. However, PVR expects to be FCF positive in FY16E.

PVR Company Update




Net Sales 8,053 13,512 15,706 18,337

Growth (%) 55.5 67.8 16.2 16.8

Expenditure 6,897 11,358 13,138 15,083

Film Distributor Share 2,004 3,295 3,816 4,417

Employee Cost 796 1,244 1,387 1,534

Other Exp 4,096 6,819 7,936 9,132

EBITDA 1,156 2,154 2,568 3,254

Growth (%) 56.9 86.3 19.2 26.7

EBITDA margin (%) 14.4 15.9 16.3 17.7

Depreciation 560 944 1,067 1,166

EBIT 596 1,210 1,501 2,088

EBIT margin (%) 7.4 9.0 9.6 11.4



PBT 319 491 846 1,505

Tax -124 19 56 226

Effective tax rate (%) -38.7 3.9 6.6 15.0

Adjusted PAT 445 528 813 1,318

Growth (%) 75.3 6.5 67.3 62.1

Net Margin (%) 5.5 3.5 5.0 7.0



E/O items 0 0 0 0

Reported PAT 445 528 813 1,318

PAT after MI 445 528 813 1,318

Growth (%) 75.2 18.7 53.9 62.1




Net worth 6,426 3,982 4,653 5,813


Secured Loans 6,566 6,362 6,062 5,562


Loan Funds 6,566 6,362 6,062 5,562

Net deferred tax liability -10 7 7 7


Gross Block 12,176 11,138 12,762 14,360


Net block 10,422 8,507 9,367 10,106


Investment 380 230 230 230

Current Assets 3,596 3,979 4,343 4,872




Loans & advances 2,551 2,889 3,201 3,462


Current lia & Prov 2,014 2,577 3,207 3,726


Provisions 0 0 0 0


Misc. exp 0 0 0 0


PBT (Ex-Other income) 229 415 804 1,460

Depreciation 560 944 1,067 1,166



Chg in working cap -317 68 206 102

Tax paid 124 -19 -56 -226


Capital expenditure -8,564 1,441 -1,727 -1,856

Free Cash Flow -7,357 2,963 360 731



Investing Cashflow -8,847 1,667 -1,685 -1,810


Loans Taken / (Repaid) 4,530 -204 -300 -500

Interest Paid -368 -795 -697 -629



Others 3,536 -2,214 655 583

Financing Cashflow 7,790 -3,318 -461 -665

Net chg in cash 150 -128 -60 111




Profitability (%)

EBITDA Margin 14.4 15.9 16.3 17.7

Net Margin 5.5 3.5 5.0 7.0

ROCE 7.3 10.3 13.6 18.0

ROE 9.6 10.2 18.8 25.2

RoIC 7.6 11.4 15.0 19.6

Per Share Data (Rs)

EPS 10.8 12.9 19.8 32.1

CEPS 24.5 35.8 45.7 60.4

BVPS 156.3 96.9 113.2 141.4

DPS 1.1 2.9 2.9 2.9

Valuations (x)

PER 56.2 47.4 30.8 19.0

P/CEPS 24.9 17.0 13.3 10.1

P/BV 3.9 6.3 5.4 4.3

EV / Sales 3.9 2.3 2.0 1.7

EV / EBITDA 27.0 14.5 12.0 9.3

Dividend Yield (%) 0.2 0.5 0.5 0.5

Gearing Ratio (x)




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FY13A 629,894 180,912 28.7 139,457 71.3 31.1 38.1 33.4 25.2 11.4

FY14A 818,094 251,322 30.7 191,087 97.6 37.0 39.6 24.4 17.6 8.4

FY15E 944,115 284,242 30.1 216,089 110.4 13.1 35.4 21.6 15.3 7.0

FY16E 1,080,341 318,285 29.5 245,440 125.4 13.6 33.5 19.0 13.3 5.8

TCSCommentary stays on course

August 20, 2014

Rating

Accumulate

Previous Reco

Accumulate

CMP Rs2,580




Nifty 7,721

Sensex 25,895


Absolute 8 20 17 44


Source: Bloomberg


1700

1885

2070

2255

2440

2625


Rs

-20

-12

-4

4

12

20%

TCS (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg TCS IB


Face Value(Rs) 1

No of shares o/s (mn) 1,959

52 Week H/L 2,610/ 1,665

Market Cap (Rs bn/USD mn) 5,054/ 83,517





FII/NRI N/A 16.1 16.3






About the company:

n TCS is India’s largest IT Services firm and amongst the top-10 technology firms in the world. With revenues of US$13.4bn in FY14, TCS accounted for 15% of Indian IT services industry revenues. It has 300,000-plus employee strength in as many as 46 countries across the globe

Emkay’s view: TCS continues to exude confidence on FY15 being a stronger year than FY14, indicating that it expects organic revenue growth inn FY15 to be higher than FY14. TCS says that the demand in key verticals/geographies remains strong barring telecom, which remains ‘relatively challenged’. The company expects growth in the domestic market to pick up in H2FY15. TCS believes that it continues to gain market share from global peers, and expects even a higher growth in overall outsourced IT spending in the medium term from the current growth rates of 3-4%, as clients increase spending in new technology areas.


TCS’s commentary continues to indicate confidence on FY15 being a better revenue growth year as against FY14. The company’s stellar sequential revenue growth of 5.5% in the June 2014 quarter pulled down the stiff CQGR arithmetics against the company.

Under-penetration-led growth in Europe and discretionary/digital spending-led growth from the US to fuel revenue growth: Growth prospects remain rock solid in Europe (both for TCS and the sector as a whole), as the market continues to become more amenable for offshoring/outsourcing with TCS’s early investments in the market expected to continue driving results. On the other hand, the up-tick in discretionary spending in North America will further aid revenue growth.

Expects BFSI & Telecom to boost ‘better than company average’ growth in FY15: In terms of verticals, TCS indicates that apart from good prospects in Manufacturing, Retail, Hi Tech and Life sciences, it should see very strong growth in BFSI and Telecom in FY15 (the company believes that both verticals could go ahead of company level average). TCS also expects the Life Sciences and Healthcare vertical to see strong growth over the foreseeable future, given its low base, as well as the opportunity arising out of the US Healthcare reforms (we highlight that Healthcare and Life sciences was the fastest-growing vertical for TCS in FY14, with a 28% $US revenue growth).

Well-oiled execution engine justifies rich valuations: We find greater comfort in TCS’s overall growth prospects, driven by the June’14 quarter beat (which pulls down the stiff arithmetic to a more manageable level) along with strong lateral hiring during the quarter. While TCS’s valuations appear punchy at ~21.6x/19x FY15/16, they need to be weighed in context of its strong and well-oiled execution engine. We have an Accumulate recommendation, with a target price of Rs2,600.

Catalyst: Faster-than-expected adoption of digital technologies and better-than- expected economic activities in western countries may lead to positive earning surprises for the company.

Risks: Rupee appreciation, non-availability of critical resources and cost pressure are some of the downside risks for the company.

TCS Company Update




Net Sales 629,894 818,094 944,115 1,080,341 Growth (%) 28.8 29.9 15.4 14.4

Expenditure 448,982 566,772 659,873 762,056

Employee Cost 332,502 422,065 497,675 579,281

Other Exp 0 0 0 0

SG&A 116,480 144,707 162,198 182,775

EBITDA 180,912 251,322 284,242 318,285

Growth (%) 25.5 38.9 13.1 12.0

EBITDA margin (%) 28.7 30.7 30.1 29.5

Depreciation 10,792 13,243 17,607 17,032

EBIT 170,120 238,079 266,635 301,253

EBIT margin (%) 27.0 29.1 28.2 27.9

Other Income 11,175 15,809 19,779 23,800


PBT 181,295 253,888 286,414 325,053

Tax 40,344 60,712 68,715 78,013


Adjusted PAT 139,457 191,087 216,089 245,440

Growth (%) 31.1 37.1 12.7 13.5

Net Margin (%) 22.4 23.6 23.1 22.9

(Profit)/loss from JVs/Ass/MI -1,494 -2,089 -1,610 -1,600


E/O items 0 0 0 0

Reported PAT 139,457 191,087 216,089 245,440

PAT after MI 139,457 191,087 216,089 245,440

Growth (%) 31.1 37.0 13.1 13.6




Net worth 410,560 553,352 668,320 798,904


Secured Loans 2,323 1,273 1,273 1,273

Unsecured Loans 0 1,696 0 0

Loan Funds 2,323 2,969 1,273 1,273

Net deferred tax liability -16,667 -17,504 -17,504 -17,504


Gross Block 173,620 215,069 235,069 255,069


Net block 117,006 145,212 147,605 150,573


Investment 94,369 219,303 219,303 219,303

Current Assets 287,711 290,262 425,613 573,864

Inventories 0 0 0 0

Sundry debtors 172,366 222,360 256,075 293,024




Current lia & Prov 96,311 109,056 131,917 150,952


Provisions 8,797 13,349 15,520 17,759


Misc. exp 0 0 0 0



Depreciation 10,792 13,243 17,607 17,032



Chg in working cap -75,324 5,614 -27,478 -27,992

Tax paid -40,344 -60,712 -68,715 -78,013



Free Cash Flow 37,408 154,775 168,049 192,281

Other income 11,175 15,809 19,779 23,800

Investments -373 -124,934 0 0

Investing Cashflow -17,519 -150,574 -221 3,800

Equity Capital Raised 1,012 6 0 0

Loans Taken / (Repaid) 1,169 646 -1,696 0




Others -1,464 20,585 0 0


Net chg in cash -1,405 -3,743 85,011 101,225




Profitability (%)

EBITDA Margin 28.7 30.7 30.1 29.5

Net Margin 22.4 23.6 23.1 22.9

ROCE 50.6 53.5 47.5 44.7

ROE 38.1 39.6 35.4 33.5

RoIC 69.3 79.1 81.6 84.4

Per Share Data (Rs)

EPS 71.3 97.6 110.4 125.4

CEPS 76.8 104.4 119.4 134.1

BVPS 209.8 282.7 341.5 408.2

DPS 22.0 32.0 44.2 50.2

Valuations (x)

PER 33.4 24.4 21.6 19.0

P/CEPS 31.0 22.8 19.9 17.8

P/BV 11.4 8.4 7.0 5.8

EV / Sales 7.2 5.4 4.6 3.9

EV / EBITDA 25.2 17.6 15.3 13.3

Dividend Yield (%) 0.9 1.3 1.9 2.1

Gearing Ratio (x)

Net Debt/ Equity -0.3 -0.4 -0.5 -0.5

Net Debt/EBIDTA -0.6 -0.9 -1.1 -1.3


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FY13A 143,320 30,631 21.4 22,754 95.9 -75.8 36.3 22.4 15.3 7.4

FY14A 188,313 41,836 22.2 29,088 121.8 27.0 36.3 17.7 10.8 5.6

FY15E 219,064 43,225 19.7 29,193 120.1 -1.4 27.9 17.9 10.5 4.4

FY16E 248,369 48,938 19.7 33,752 138.8 15.6 25.5 15.5 8.9 3.5

Tech MahindraIncreasing confidence on revenue growth

August 20, 2014

Rating

Accumulate

Previous Reco

Accumulate

CMP Rs2,150




Nifty 7,649

Sensex 25,640


Absolute 2 17 21 74


Source: Bloomberg


1200

1405

1610

1815

2020

2225


Rs

-20

-10

0

10

20

30%

Tech Mahindra (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg TECHM IB


Face Value(Rs) 10


52 Week H/L 2,199/ 1,209





Promoters 36.2 36.3 36.3

FII/NRI 39.1 39.1 40.4






About the company:

n Tech Mahindra is a US$ 3.1-billion turnover company, with 92,729 professionals across 51 countries, providing services to 632 global customers, including Fortune-500 companies. The company’s consulting, enterprise and telecom solutions, platforms and reusable assets connect across a number of technologies to deliver tangible business value to all stakeholders.

Emkay’s view: TechM remains focused on revenue growth, while it believes that both telecom business and Enterprise business will grow well. While acknowledging the sharp decline in margins in June’14 quarter, company believes that utilization improvement along with lower subcontractor costs could drive an improvement in margins through the next few quarters. Without giving any formal guidance, company believes that it can maintain margins at ~20% in the medium term. Acquisitions remain core to TechM’s strategy with Company looking to increase presence in the Financial Services space. TechM also believes that it can improve it’s dividend payout ratio to 20% without diluting the focus on driving growth.


Revenue growth stays on course: While chasing US$5mn revenues by 2015 (i.e., FY16), TechM has delivered revenue growth ahead/matching top-5 IT Services vendors in the last 5 quarters. TechM remains confident of sustaining a strong revenue growth momentum, given the deal pipeline in verticals like Financial Services and Manufacturing in the US and Retail and Manufacturing verticals in Europe.

Margins hiccups may take longer to recoup: TechM’s EBITDA has declined by 490bps in the last 2 quarters (due to wage increments in the Mar’14 quarter, while visa expenses, strong net hiring, higher onsite mix of revenues adversely impacted margins in the Jun’14 quarter). The company is focusing on utilisation improvement, as the margin lever in the near term and broadening of employee pyramid as a longer-term lever. However, we believe, the increasing onsite mix of the business, led by managed services deals, will limit any meaningful improvement in margins in the near/medium term.

Accumulate with a target price of Rs2,200: Our Accumulate recommendation for TechM is based on greater comfort on revenue growth. We have a target price of Rs2,200 based on 14x FY16E earnings.

Catalyst: Better-than-expected economic activities in western countries may lead to positive earning surprises for the company.

Risks: Rupee appreciation, non-availability of critical resources and cost pressure are some of the downside risks for the company.

Tech Mahindra Company Update




Net Sales 143,320 188,313 219,064 248,369

Growth (%) 22.5 31.4 16.3 13.4

Expenditure 112,689 146,477 175,839 199,430

Employee Cost 90,007 117,001 143,683 162,920

Other Exp 0 0 0 0

SG&A 22,682 29,476 32,155 36,510

EBITDA 30,631 41,836 43,225 48,938

Growth (%) -67.7 36.6 3.3 13.2

EBITDA margin (%) 21.4 22.2 19.7 19.7

Depreciation 3,896 5,221 6,049 6,363

EBIT 26,735 36,615 37,177 42,575

EBIT margin (%) 18.7 19.4 17.0 17.1

Other Income 1,199 332 2,382 2,960


PBT 27,934 36,947 39,558 45,535

Tax 6,479 7,523 10,036 11,384


Adjusted PAT 22,754 29,088 29,193 33,752

Growth (%) -77.0 37.1 0.3 15.7

Net Margin (%) 15.0 15.6 13.5 13.8

(Profit)/loss from JVs/Ass/MI -301 -336 -329 -400


E/O items 1,600 0 0 0

Reported PAT 22,754 29,088 29,193 33,752

PAT after MI 21,154 29,088 29,193 33,752

Growth (%) -77.4 37.5 0.4 15.6




Net worth 68,535 91,817 117,594 147,397


Secured Loans 3,215 190 0 0

Unsecured Loans 5,311 684 0 0

Loan Funds 8,526 875 0 0



Gross Block 22,318 22,966 28,917 34,553


Net block 22,318 22,966 28,917 34,553


Investment 14,174 14,718 14,718 14,718

Current Assets 95,541 120,137 148,690 181,527


Sundry debtors 40,225 43,486 60,018 68,046


Loans & advances 219 11,774 11,774 11,774


Current lia & Prov 47,396 55,217 64,819 73,490


Provisions 16,203 18,714 21,606 24,497


Misc. exp 0 0 0 0



Depreciation 3,896 5,221 6,049 6,363



Chg in working cap -9,050 -18,554 -11,364 -4,175

Tax paid -6,479 -7,523 -10,036 -11,384



Free Cash Flow 1,492 12,485 15,874 27,743

Other income 1,199 332 2,382 2,960




Loans Taken / (Repaid) -2,974 -7,652 -875 0


Dividend paid (incl tax) -750 -3,403 -3,416 -3,949


Others 4,214 -2,673 -6,378 -6,763

Financing Cashflow 502 -13,699 -10,668 -10,712

Net chg in cash 3,669 -1,426 7,588 19,991




Profitability (%)

EBITDA Margin 21.4 22.2 19.7 19.7

Net Margin 15.0 15.6 13.5 13.8

ROCE 35.7 38.9 34.4 32.0

ROE 36.3 36.3 27.9 25.5

RoIC 95.5 80.9 58.7 55.4

Per Share Data (Rs)

EPS 95.9 121.8 120.1 138.8

CEPS 105.5 143.6 144.9 165.0

BVPS 288.7 384.4 483.6 606.2

DPS 2.7 12.2 12.0 13.9

Valuations (x)

PER 22.4 17.7 17.9 15.5

P/CEPS 20.4 15.0 14.8 13.0

P/BV 7.4 5.6 4.4 3.5

EV / Sales 3.3 2.4 2.1 1.7

EV / EBITDA 15.3 10.8 10.5 8.9

Dividend Yield (%) 0.1 0.6 0.6 0.6

Gearing Ratio (x)

Net Debt/ Equity -0.4 -0.5 -0.5 -0.5

Net Debt/EBIDTA -0.9 -1.1 -1.3 -1.5


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FY11A 5,740 724 12.6 344 10.9 -11.6 8.5 17.1 9.6 1.4

FY12A 6,519 503 7.7 140 4.4 -59.2 3.3 42.0 13.3 1.3

FY13A 8,088 1,224 15.1 714 22.7 409.6 15.2 8.2 5.6 1.2

FY14A 9,395 1,722 18.3 1,214 38.5 69.9 22.7 4.9 3.6 1.0

Technocraft IndustriesDeep value pick

August 20, 2014

Rating

Buy

CMP Rs165

EPS Chg (%) NA


Nifty 7,727

Sensex 25,881


Absolute -5 51 94 109


Source: Bloomberg


60

93

126

159

192

225


Rs

-30

-6

18

42

66

90%

Technocraft Industries (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg TIIL IB


Face Value(Rs) 10


52 Week H/L 218/ 67





Promoters 75.0 75.0 75.0

FII/NRI 4.2 4.8 4.8





About the company:

n Blend of four business segments, TIL has potential of 10-12% CAGR for topline and 18-20% for bottom-line over next 3 years on a constant currency basis

n Cash generation from business will be much higher going forward, as the capital invested towards expansion and working capital would generate growth

n INR appreciation is the biggest risk, as the company derives most of its revenue from exports. Capital misallocation, seen through NSEL fiasco, is another risk to growth

n With RoCE and RoE upward of 20%, net cash balance sheet and scope for steady growth, we believe the stock is trading cheap at P/E of 5x and P/B of 0.9x on broad FY15 estimates

Meeting summary:

§ TIIL has a 35% market share of the global drum closure market ex-China. The closest competitor is Grief Inc., with a 60% market share.

§ Drum Closure business is high precision engineering that acts as an entry-barrier, as well as generates margins upward of 30%.

§ The company expects to double its China plants’ capacity and eventually make it 3x to capture higher market share of China’s drum closure market.

§ The company expects growth of 10% in the Drum Closure business on the back of 7-8% industry growth and capacity expansion.

§ Company is seeing strong growth traction in the Scaffolding business whose revenue increased by ~100% YoY in Q1FY15E.

§ Textiles business is under pressure and may not see much profitability in FY15E. Q1FY15 financials of Textiles are not comparable YoY as the same quarter last year had extraordinary income. The company expects EBIT of Rs 110-120mn in FY15 as against Rs 203mn in FY14

§ EPC designing and consultancy business, which is under the 100% subsidiary, Technosoft, is expected to grow at a high rate as the company is seeing healthy traction of services provided in the US shale gas industry

§ Clarity towards dividend policy is missing, which leads to concerns over capital misallocation

Technocraft Industries Company Update




Net Sales 5,740 6,519 8,088 8,795

Growth (%) 26.0 13.6 24.1 8.7

Expenditure 5,016 6,017 6,864 7,673


Other Exp 0 0 0 0

SG&A 453 526 613 723

EBITDA 724 503 1,224 1,722

Growth (%) 38.6 -30.6 143.6 40.6

EBITDA margin (%) 12.6 7.7 15.1 18.3


EBIT 360 175 915 1,451

EBIT margin (%) 6.3 2.7 11.3 15.4

Other Income 209 211 236 221


PBT 482 272 1,070 1,626

Tax 148 120 327 406


Adjusted PAT 344 140 714 1,214

Growth (%) -16.4 -54.2 386.2 64.2

Net Margin (%) 5.8 2.3 9.2 13.0

(Profit)/loss from JVs/Ass/MI 10 -13 -28 -6


E/O items 0 0 0 -177

Reported PAT 344 140 714 1,037

PAT after MI 344 140 714 1,214

Growth (%) -11.6 -59.2 409.6 69.9




Net worth 4,221 4,373 5,000 5,684


Secured Loans 1,171 1,038 991 1,565


Loan Funds 1,689 1,038 1,206 1,565



Gross Block 3,854 4,117 4,243 4,517


Net block 1,732 1,672 1,497 1,500


Investment 706 476 1,519 1,460

Current Assets 4,263 4,224 4,326 5,716

Inventories 1,693 1,186 1,418 1,794

Sundry debtors 1,345 1,512 2,176 2,792


Loans & advances 489 1,163 456 569


Current lia & Prov 872 1,015 1,189 1,463

Current liabilities 823 942 1,069 1,223



Misc. exp 0 0 0 0






Chg in working cap -664 -226 30 -892

Tax paid -148 -120 -327 -406

Operating Cashflow -88 157 927 -354


Free Cash Flow -348 -62 807 -628

Other income 209 211 236 821

Investments -85 230 -1,043 60

Investing Cashflow -136 222 -928 607


Loans Taken / (Repaid) 282 -651 168 359




Others 16 -14 -26 20


Net chg in cash -2 -388 -29 234




Profitability (%)

EBITDA Margin 12.6 7.7 15.1 18.3

Net Margin 5.8 2.3 9.2 13.0

ROCE 10.2 6.9 20.0 25.0

ROE 8.5 3.3 15.2 22.7

RoIC 9.0 3.8 20.1 29.7

Per Share Data (Rs)

EPS 10.9 4.4 22.7 38.5

CEPS 22.5 14.8 32.5 47.1

BVPS 133.9 138.7 158.6 180.3

DPS 1.0 1.0 3.0 5.0

Valuations (x)

PER 17.1 42.0 8.2 4.9

P/CEPS 8.3 12.6 5.8 4.0

P/BV 1.4 1.3 1.2 1.0

EV / Sales 1.2 1.0 0.9 0.7

EV / EBITDA 9.6 13.3 5.6 3.6

Dividend Yield (%) 0.5 0.5 1.6 2.7

Gearing Ratio (x)




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FY11A 2,904 413 14.2 256 24.4 34.7 26.8 6.1 2.4 1.1

FY12A 3,775 509 13.5 340 32.4 32.6 21.7 4.6 2.4 0.9

FY13A 4,268 561 13.1 323 30.8 -5.0 17.1 4.8 2.5 0.8

FY14A 4,063 291 7.1 69 6.6 -78 3.4 22.7 8.2 0.6

Technofab EngineeringTough times

August 20, 2014

Rating

Not rated

CMP Rs149

Target Price NA

EPS Chg (%) NA


Nifty 7,747

Sensex 25,908


Absolute -7 82 103 65


Source: Bloomberg


60

83

106

129

152

175


Rs

-40

-24

-8

8

24

40%

Technofab Engineering (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Engineering & Capital Goods

Bloomberg TECE IB


Face Value(Rs) 10


52 Week H/L 170/ 59





Promoters 47.8 47.8 47.7

FII/NRI 2.3 5.3 5.3

Institutions N/A N/A N/A




n Company’s order-book stands at around Rs12bn, and the management expects to execute Rs4-4.5bn worth of orders in FY15

n Revival in the domestic economy remains a key driver for earnings performance. The company has been focusing on increasing the average ticket-size of orders, due to better profitability in larger-size orders

n One-off exceptional cancellation of order due to seizure of project funding impacted profitability in FY14. The company continues to focus on diversifying its customer base and increasing its presence across geographies

n The management has set a target to achieve Rs10bn in revenue in the next 2-3 years, which will be dependent on the revival in domestic growth

Revival in domestic economy a key to growth

Revival in domestic growth remains a key catalyst for a pick-up in order bookings and revenue growth. The company has an existing order book of Rs12bn, and expects to execute Rs4-4.5bn worth of order in the current fiscal. However, in order to achieve its medium-term target of Rs10bn in revenues, a revival in growth for the beleaguered power sector remains crucial along with a pick-up in domestic investments.

Continues to focus on geographical diversification

The company continues to focus on geographical diversification, as margins in the international business are relatively better than those in the domestic business. The company is focused on booking international orders only for projects which are funded by bilateral agencies in order to reduce the payment risks. Currently, the international order-book accounts for 29% of the total order-book.

Focus on the water segment to drive growth

The company is also focusing to exploit the niche developed in the water segment in order to drive growth. The water segment accounts for around 48% of the existing order- book, where in the company has worked significantly in international geographies, and is now focusing on the domestic business to drive growth. Apart from water, electricals remains a critical segment accounting for about 38% of the order-book.

One-off loss impacted FY14 margins, expect profitability to normalize

Profitability of the company was significantly impacted in FY14 on the back of one-off premature cancellation in order due to seizure of funding. The project was largely funded by the US Congress and was put on hold at the time of the US shutdown last year. The write-offs and under-recoveries of cost for the project impacted the overall profitability in FY14 to the extent of Rs500-600mn. Going forward, the management expects losses from the said project to impact profitability by Rs150-160mn only, and hence expects normalization in earnings going forward. However, acceleration in growth will depend on overall pick-up in economic activity domestically.

Technofab Engineering Company Update




Net Sales 2,015 2,904 3,775 4,268

Growth (%) 0.0 44.1 30.0 13.0

Expenditure 1,677 2,491 3,267 3,707


Other Exp 650 244 308 549

SG&A 0 0 0 0

EBITDA 337 413 509 561

Growth (%) 0.0 22.4 23.1 10.3

EBITDA margin (%) 16.8 14.2 13.5 13.1


EBIT 324 401 485 524

EBIT margin (%) 16.1 13.8 12.9 12.3



PBT 292 382 492 470

Tax 102 125 152 147


Adjusted PAT 190 256 340 323

Growth (%) 0.0 34.7 32.6 -5.0

Net Margin (%) 9.4 8.8 9.0 7.6



E/O items 0 0 0 0

Reported PAT 190 256 340 323

PAT after MI 190 256 340 323

Growth (%) 0.0 34.7 32.6 -5.0



Reserves & surplus 427 1,306 1,622 1,949

Net worth 502 1,411 1,727 2,054




Loan Funds 194 158 443 703


Total Liabilities 698 1,575 2,177 2,772

Gross Block 90 114 229 384


Net block 55 114 229 384



Current Assets 1,142 2,490 2,963 3,774


Sundry debtors 575 1,294 1,668 2,120




Current lia & Prov 502 1,403 1,431 1,903


Provisions 117 146 188 186

Net current assets 639 1,087 1,532 1,870

Misc. exp 0 0 0 0

Total Assets 698 1,574 2,177 2,772 Cash Flow Y/E Mar (Rsmn) FY10A FY11A FY12A FY13A




Other Non-Cash items 2 -9 -26 -12


Tax paid -87 -134 -121 -151

Operating Cashflow -97 452 -141 -49


Free Cash Flow -125 381 -261 -202


Investments -1 -375 -39 -106







Others 24 -47 269 239

Financing Cashflow -8 590 229 163

Net chg in cash -134 610 -41 -129




Profitability (%)

EBITDA Margin 16.8 14.2 13.5 13.1

Net Margin 9.4 8.8 9.0 7.6

ROCE 92.9 36.5 28.2 22.0

ROE 75.8 26.8 21.7 17.1

RoIC 110.9 75.7 60.7 36.1

Per Share Data (Rs)

EPS 18.1 24.4 32.4 30.8

CEPS 19.4 25.6 34.6 34.4

BVPS 47.8 134.5 164.6 195.8

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 8.2 6.1 4.6 4.8

P/CEPS 7.7 5.8 4.3 4.3

P/BV 3.1 1.1 0.9 0.8

EV / Sales 0.0 -0.3 -0.2 -0.1

EV / EBITDA 0.2 -2.2 -1.1 -0.5

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)

Net Debt/ Equity 0.2 -0.6 -0.3 -0.1

Net Debt/EBIDTA 0.2 -2.2 -1.1 -0.5


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FY11A 13761 1282 9.3 602 60.0 - 20.4 6.7 4.5 1.2

FY12A 13237 747 5.6 153 15.3 -75 4.6 26.7 9.8 1.1

FY13A 11243 817 7.3 43 4.3 -72 0.9 93.0 10.4 1.1

FY14A 12595 1063 8.4 99 9.9 130 2.8 40.4 8.6 1.1

TIL IndiaOn the cusp of operating & financial leverage

August 20, 2014

Rating

NA

CMP Rs406

Target Price NA

EPS Chg (%) NA


Nifty 7,726

Sensex 25,908


Absolute -6 135 226 367

Rel. to Nifty -5 104 156 237

Source: Bloomberg


90

162

234

306

378

450


Rs

-10

40

90

140

190

240%

Til India (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg TIL IB


Face Value(Rs) 10


52 Week H/L 452/ 82





Promoters 56.3 56.3 56.3

FII/NRI N/A 2.7 2.7





n On ground situation continues to remain difficult as order bookings have not picked up significantly though some enquiries have witnessed some pick up

n Focus in the near term to remain on inventory liquidation and reduction in debtor days

n PIXEF a new mobile crane product launched in FY14 provides promising outlook. Expect sale of the same to pick up meaningfully going forward

n New Kharagpur facility continues to remain under utilized. To continue to focus on improving the utilization levels at the Kharagpur facility by gradually shifting product lines from the existing Kamarhatty facility

Demand environment continues to remain challenging: The demand environment for the company continues to remain challenging as the management has not witnessed any meaningful improvement on the ground. The management though highlighted that enquiries have picked up but it has not translated into any meaningful order conversion. The company continues to focus on reducing inventories and recovering sums due from debtors in the near term which will aid in improving balancing strength.

The company has currently restricted fresh purchases due to slowdown in order bookings. Further, as per the new negotiations with Caterpillar, the company has been able to shift from providing firm orders for a year previously to a mechanism of 1 month firm and 2 month flexible order booking. This new arrangement significantly reduces the inventory pile-up risk and currency risk.

PIXEF the new product provides promising growth opportunities: The company has launched a new mobile pick and carry crane PIXEF in FY14 which has witnessed good response from the customers. The product has also received “The Indian Design Mark” award for its excellent product design. PIXEF is a retail market product unlike the other existing product offerings and the management remains positive as far as revenue growth from this product is concerned in the medium-to-long term. The company expects the profitability from this product to be high if it achieves the desired production level which will allow the company to benefit from scale economies.

Ramp up in Kharagpur plant utilization to drive profitability: The newly commissioned Kharagpur plant continues to operate at a loss due to low level of plant utilization. The management has guided that the plant will achieve break-even if the revenue inches up to Rs3bn with single shift peak revenues pegged at Rs5.5bn, and double shift peak revenues at Rs 12bn. The company is also focusing on shifting certain existing product lines from its Kamarhatty facility to the new state of the art Kharagpur plant due to higher operating efficiencies at the new facility.

Focus on spares and service revenues: The company is also focused on increasing its revenue mix in favour of spares and service revenues due to significantly better margin profile compared to sale of Caterpillar products. The management has guided that the improvement in overall margins will be gradual and will depend on ramp-up in the overall plant utilization.

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FY11A 5,429 664 12.2 415 3.2 0.0 25.4 61.8 0.2 7.9

FY12A 5,191 240 4.6 100 0.8 -75.9 3.0 256.2 -1.4 7.6

FY13A 5,124 212 4.1 49 0.4 -51.0 1.5 522.9 3.5 7.6

FY14A 7,316 394 5.4 52 0.4 3.1 1.5 507.4 3.6 7.7

TRILStepping up the performance

August 20, 2014

Rating

Not rated

CMP Rs199

Target Price NA

EPS Chg (%) NA


Nifty 7,747

Sensex 25,908


Absolute -9 62 169 218

Rel. to Nifty -9 41 111 135

Source: Bloomberg


50

85

120

155

190

225


Rs

-20

16

52

88

124

160%

TRIL (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg TRIL IB


Face Value(Rs) 10


52 Week H/L 237/ 54





Promoters 74.9 74.9 74.9

FII/NRI N/A N/A N/A





About the company:

n Transformers & Rectifiers (India) Ltd (TRIL) is one of the leading manufacturers of power transformers of up to 765KV class, with an installed capacity of 33,200 MVA p.a.

n TRIL also manufactures industrial transformers such as furnace transformers and rectifier transformers, and caters to wide spectrum of transformer users in various industries such as petrochemicals, oil refining, cement, paper and pulp, pharmaceuticals, automobile, steel, power, railway applications and mining

n Power utilities and power transmission companies are key customers of the company. TRIL’s client base includes various SEBs and PSUs, as well as private sector clients

Key takeaways from the Conference § The current industry size in 765KV is about 350000 MVA. The capacity utilisation of

the industry stands at 80%, taking the total operative capacity to 280000 MVA, of which total production stands at 250000 MVA

§ There is no change in the demand sentiments in the 765 KV segment, but with a clear mandate at the centre, the company is expecting higher tendering in the transformers space, which could enhance opportunities for companies like TRIL. The company has guided for 10-15% revenues in FY15.

§ Current order-book profile stands at Rs4.6bn, of which Power & distribution transformers to SEB stands at Rs3.5bn, transformers to PGCIL is Rs0.5bn, Industrial is Rs0.4bn and exports is Rs0.2bn. This order book is executable over the next 9-12 months. The company has till date executed 15 transformers of 765 KV capacity.

§ The company has tendered for two orders worth Rs3.4bn from GETCO (Gujarat electric transmission company).

§ Owing to demand moderation and competitive intensity, transformer prices have corrected from highs of Rs1.2-1.5mn to lows of Rs0.4-0.5mn. With improvement in the demand sentiment, the company expects pricing scenario to improve.

§ TRIL is venturing into new vertical of electric arc transformers, which is in the 220KV segment. The size of this market is Rs10bn, and the company is targeting for revenues of Rs700-800mn from this segment. Currently, margins are expected to stay at 6-6.5%, but with improved pricing, margins could improve.

§ The company has debt of Rs1.6bn with the average cost at 11.25%. It has stated that it would keep debt levels in check.

TRIL Company Update




Net Sales 5,429 5,191 5,124 7,316

Growth (%) 0.0 -4.4 -1.3 42.8

Expenditure 4,765 4,951 4,912 6,922


Other Exp 543 588 554 758

SG&A 0 0 0 0

EBITDA 664 240 212 394

Growth (%) 0.0 -63.8 -11.8 85.8

EBITDA margin (%) 12.2 4.6 4.1 5.4


EBIT 602 175 136 294

EBIT margin (%) 11.1 3.4 2.7 4.0



PBT 620 148 79 93

Tax 200 46 20 33


Adjusted PAT 415 100 49 52

Growth (%) 0.0 -75.9 -41.9 2.1

Net Margin (%) 7.7 2.0 1.2 0.8



E/O items 0 0 0 0

Reported PAT 415 100 49 52

PAT after MI 415 100 49 52

Growth (%) 0.0 -75.9 -51.0 5.8




Net worth 3,263 3,360 3,397 3,435


Secured Loans 671 434 990 1,421


Loan Funds 677 436 1,043 1,634



Gross Block 944 1,060 1,538 1,547


Net block 944 1,060 1,538 1,547



Current Assets 4,319 3,962 4,626 6,251

Inventories 1,125 962 1,077 1,269

Sundry debtors 2,253 1,761 2,299 3,820




Current lia & Prov 1,415 1,419 1,760 2,820




Misc. exp 0 0 0 0







Tax paid -200 -85 -13 -26

Operating Cashflow -365 897 -427 -323


Free Cash Flow -499 602 -857 -522









Others -35 -245 604 591

Financing Cashflow -162 -411 536 376

Net chg in cash -615 232 -266 -105




Profitability (%)


Net Margin 7.7 2.0 1.2 0.8

ROCE 33.1 6.0 4.4 6.8

ROE 25.4 3.0 1.5 1.5

RoIC 36.5 5.7 3.9 6.6

Per Share Data (Rs)

EPS 3.2 0.8 0.4 0.4

CEPS 3.7 1.3 1.0 1.1

BVPS 25.3 26.0 26.3 25.9

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 61.8 256.2 522.9 507.4

P/CEPS 53.7 154.8 205.6 173.3

P/BV 7.9 7.6 7.6 7.7

EV / Sales 0.0 -0.1 0.1 0.2

EV / EBITDA 0.2 -1.4 3.5 3.6

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)

Net Debt/ Equity 0.0 -0.1 0.2 0.4

Net Debt/EBIDTA 0.2 -1.4 3.5 3.6


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FY11A 3,290 761 23.1 520 10.5 29.9 42.8 33.2 23.6 12.0

FY12A 4,503 977 21.7 547 11.1 5.2 33.1 31.5 19.1 9.2

FY13A 5,567 1,240 22.3 686 13.9 25.4 32.0 25.1 15.5 7.1

FY14A 6,961 1,529 22.0 862 17.4 25.5 31.3 20.0 11.8 5.6

Vinati OrganicsFocus on green chemistry and global competency

August 20, 2014

Rating

NA

CMP Rs349

Target Price NA

EPS Chg (%) NA


Nifty 7,603

Sensex 25,481


Absolute 8 31 57 247


Source: Bloomberg


80

144

208

272

336

400


Rs

-20

22

64

106

148

190%

Vinati Industries (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Speciality Chemicals

Bloomberg VO IB


Face Value(Rs) 2


52 Week H/L 393/ 74





Promoters 75.0 75.0 75.0

FII/NRI 2.8 2.7 1.8




Chetan Thacker [email protected] +91-22-66121272

Rohan Gupta [email protected] +91-22-66121248

n Established in 1989, Vinati Organics Ltd. (VOL) is a specialty chemicals company producing aromatics, monomers, polymers and other specialty products

n Company has achieved global leadership in manufacturing of IBB (isobutyl benzene) and ATBS on the back of process-driven cost-efficiency and economies of scale

n Company has enhanced focus on supporting revenue growth from other co-products/by products, and strengthening R&D on finding other block-buster product for future growth

n To ensure sustained future growth, the company is focusing on new products with green chemistry, where it can achieve global competencies with ROI of 20%-plus

Meeting takeaways:

Existing product portfolio offers revenue potential of Rs 12bn

Vinati Organics has a concentrated product portfolio, with four products contributing around 90% to revenues. However, on the recently expanded capacity of its two key products, ATBS and IBB, it can achieve revenue of Rs12bn-plus by FY17, implying a revenue CAGR of 20% (Rs 6.9bn in FY14). Thrust on improving its existing production process and improve sales of other products/by-products is likely to support revenue growth (currently contributes 10% of sales).

Margins are likely to remain at current level

The company’s current EBITDA margin at 23% has witnessed an expansion of around 500bps over last 3-4 years, mainly driven by increased sales of ATBS, as it enjoys higher margins. Though growth in ATBS sales is likely to continue, sales from other products is likely to cap further expansion in margin.

Markets for ATBS remain strong

Global demand for ATBS, where Vinati enjoys world leadership with a 40% market share, is likely to remain strong at 15%. The company to benefit from this growth, as no other supplies are coming. As a result, it targets capacity utilisation of 100% in the next 2 years from 60% currently. It is also focusing on reducing the working capital cycle with reduction in debtors.

ROI and cash flow generation-led approach to keep return ratios intact

The company has a near-term capex plan of Rs1.5bn, which includes Rs0.5bn on boiler that will reduce its cost, and Rs1bn on new products to drive near-term growth. For long-term growth, the company is screening opportunities in globally competitive products under green chemistry with ROIs potential of above 20%, and 8-10 products are under its pipeline. We see this ROI-focused approach of product selection and the company’s skill to leverage its R&D and process-driven chemistry will keep the return ratios healthy.

Vinati Company Update




Net Sales 3,227 4,475 5,529 6,873

Growth (%) 39.2 38.7 23.6 24.3

Expenditure 2,529 3,526 4,326 5,432

Raw Material 1,834 2,677 3,350 4,188


Other Exp 546 666 750 970

EBITDA 761 977 1,240 1,529

Growth (%) 24.5 28.4 26.9 23.3

EBITDA margin (%) 23.1 21.7 22.3 22.0


EBIT 697 907 1,141 1,376

EBIT margin (%) 21.2 20.1 20.5 19.8



PBT 625 815 1,026 1,286

Tax 105 268 339 424


Adjusted PAT 520 547 686 862

Growth (%) 29.9 5.2 25.4 25.6

Net Margin (%) 15.8 12.2 12.3 12.4



E/O items 0 0 0 0

Reported PAT 520 547 686 862

PAT after MI 520 547 686 862

Growth (%) 29.9 5.2 25.4 25.6




Net worth 1,437 1,870 2,412 3,101


Secured Loans 703 1,370 1,990 1,100


Loan Funds 770 1,727 2,373 1,222



Gross Block 1,487 1,887 3,417 3,769


Net block 1,112 1,443 2,901 3,042



Current Assets 1,074 1,956 2,299 2,351


Sundry debtors 519 857 1,132 1,151




Current lia & Prov 254 300 423 867

Current liabilities 151 160 237 660

Provisions 104 140 186 206

Net current assets 820 1,657 1,877 1,484

Misc. exp 0 0 0 0






Chg in working cap -258 -505 -90 578

Tax paid -105 -268 -339 -424


Capital expenditure -354 -608 -1,103 -311

Free Cash Flow -58 -556 -500 1,368


Investments 0 0 0 0

Investing Cashflow -354 -608 -1,103 -220


Loans Taken / (Repaid) 138 957 646 -1,150

Interest Paid -71 -92 -115 -181



Others 0 0 0 0

Financing Cashflow 61 856 518 -1,344

Net chg in cash 2 299 18 116




Profitability (%)

EBITDA Margin 23.1 21.7 22.3 22.0

Net Margin 15.8 12.2 12.3 12.4

ROCE 34.5 29.9 26.0 30.3

ROE 42.8 33.1 32.0 31.3

RoIC 43.2 38.7 31.6 32.3

Per Share Data (Rs)

EPS 10.5 11.1 13.9 17.4

CEPS 11.8 12.5 15.9 20.6

BVPS 29.1 37.9 48.9 62.8

DPS 0.1 0.2 0.3 0.2

Valuations (x)

PER 33.2 31.5 25.1 20.0

P/CEPS 29.5 27.9 21.9 17.0

P/BV 12.0 9.2 7.1 5.6

EV / Sales 5.6 4.2 3.5 2.6

EV / EBITDA 23.6 19.1 15.5 11.8

Dividend Yield (%) 0.0 0.1 0.1 0.1

Gearing Ratio (x)




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FY11A 2147 194 9.0 63 4.5 - 15.0 81.0 34.0 14.0

FY12A 2810 283 10.1 105 5.8 29 15.0 62.9 24.0 12.0

FY13A 3830 400 10.4 180 10.0 72 21.0 36.5 17.0 5.0

FY14A 5741 545 9.5 252 14.0 40 18.0 26.1 12.0 4.0

V-MartDifferentiated retail business model

August 20, 2014

Rating

NA

CMP Rs359

Target Price NA

EPS Chg (%) NA


Nifty 7,726

Sensex 25,908


Absolute -5 9 37 118

Rel. to Nifty -5 -5 7 57

Source: Bloomberg


150

200

250

300

350

400


Rs

-10

6

22

38

54

70%

V Mart (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg VMART IB


Face Value(Rs) 10


52 Week H/L 400/ 163






FII/NRI N/A 23.9 15.1





About the company:

n Differentiated retail player, with a differentiated business model; V-Mart does apparel retailing with an 89-store presence in tier-2 and tier-3 towns, and stores expansion on cluster approach

n Extremely prudent in store expansion with close monitoring of store operating matrix; leverage being capped at 0.8x clearly indicates discipline and prudence

n V-Mart has scaled-up 5x in 5 years; store network increased from 22 to 89, revenues increased from Rs1.0bn to Rs5.7bn, and PAT increased from Rs35mn to Rs250mn - past 5 years

n India offers a humungous opportunity with 600-plus districts having catchment population of 1.5 mn; V-Mart has presence in just 45 districts; scaling up 5x in 5 years looks achievable

Key takeaways from the Conference § Operational parameters in Q1FY15 have witnessed an improving trend. I) Footfalls

increased 29% yoy to 4.22mn, ii) transaction size increased 14% yoy to Rs 601, iii) Average selling price increased 19% yoy to Rs 160, iv) Increase in sales per sq ft by 8% to Rs 795/sq ft, v) sales store sales growth improved from 8% to 8.8% yoy.

§ Margins in the quarter were impacted by higher shrinkage, which stayed at 1.5% yoy, owing to shifting of warehouses. The actual shrinkage in stores is just 0.8-0.9%. Going forward, shrinkages would be kept under control.

§ The company has maintained sales 5-year CAGR of 30% with SSG of 10% and profit 5-year CAGR of 30%.

§ Product mix: 25% private labels, 25% exclusive labels and 50% general merchandise. Company plans to increase the share of private labels in this mix over the next 2 years.

§ Store expansion on track, till date in FY15, the company has opened 6 stores and has targeted to open 25 stores by FY15. It has entailed a capex of Rs 250-280mn for FY15, which is per store investment of Rs 10-11mn.

§ The company is setting up a distribution centre, whereby it is moving its warehouses to a single location, for better utilisation of logistics and effective merchandise planning.

§ The company believes there is ample potential in its key markets, UP & Bihar, which it expects the store count can double from current levels of 46 in UP & 17 in Bihar. Company is looking at venturing at new geographies like Orissa, West Bengal and Assam over the next couple of years.

§ Management is targeting revenues of Rs7.5bn, expects EBITDA margins to improve to 10% and subsequently PAT of Rs 300mn in FY15.

§ With healthy earnings growth of 30%-plus, coupled with working capital under control and capex equivalent to Rs 25mn every year, the company expects to turn free cash flow positive by FY16. Current ROCE is 20%, which it expects to increase to 25% over 2 years.

Valuations: Trailing on a 12-month basis, the stock is trading at 24x FY14 on price/earnings and price-to-book of 3.9x.

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FY11A 80,221 12,645 15.8 6,330 30.9 3.7 20.2 2.8 2.3 0.5

FY12A 89,766 8,571 9.5 2,385 10.5 -66.1 6.4 8.2 4.3 0.5

FY13A 108,701 7,179 6.6 388 1.5 -85.9 0.8 58.4 6.0 0.4

FY14A 77,047 8,439 10.9 733 2.8 86.6 1.7 30.7 6.6 0.7

Welspun CorpGrowing consistently

August 20, 2014

Rating

Not rated

CMP Rs86

Target Price NA

EPS Chg (%) NA


Nifty 7,747

Sensex 25,908


Absolute -6 13 44 163

Rel. to Nifty -6 -2 13 95

Source: Bloomberg


20

41

62

83

104

125


Rs

-30

4

38

72

106

140%

Welspun Corp (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg WLCO IB


Face Value(Rs) 5


52 Week H/L 108/ 25





Promoters 38.2 38.2 37.2

FII/NRI 15.0 14.5 14.0





About the company:

n Welspun Corp Ltd (WCL), incorporated in 1995, forayed into the steel pipes business in 1998, with the commissioning of the first HSAW mill at Dahej, Gujarat

n In 2000, the company also started producing LSAW pipe by commissioning its first LSAW mill at the same location. It also started production of ERW pipes in 2005 at Anjar, Gujarat

n The company is pre-approved by some of the major international oil & gas companies as a preferred supplier, as it follows stringent quality standards specified by American Petroleum Institute (API)

n The company has a strong presence in key regions like the US and the Middle East. In the past few years, it has also started to focus on developing and exploring new markets like Africa, Southeast Asia and Latin America

Key takeaways:

§ During the past 3-4 years, no domestic pipeline projects have been awarded in the oil and gas sector, resulting in severe under-utilization for the domestic pipe companies. The recent announcement by the Government of India (GoI) to double capacities by an incremental 15,000km of gas pipelines over the next few years will help revive the industry.

§ Competitive pressure is expected to go down in future as many players with highly leveraged balance sheets are not in a position to bid for additional projects. For example, the companies like PSL, which used to aggressively bid, have gone for corporate debt restricting and would be barred from bidding. With the elimination of weaker players, the industry is expected to witness rational bidding.

§ Welspun had received a large HSAW order of 420,000 tonnes in Saudi Arabia in FY14, and the execution of the same would help the Saudi Arabian facility to operate at optimum levels.

§ The Little Rock facility in the US is operating at lower utilization levels, as major US projects are tied up in red-tape. With the recent availability of shale gas, the US is less likely to import petroleum products from other countries. Going forward, the focus of the US and Canada would be to export shale gas to other countries through west coast, which may need new pipe infrastructure. Welspun would be aggressively bidding for such new projects, and is optimistic of bagging a few of them.

§ The Anjar plate mill continues to be mired in high debt and sub-optimal utilizations, resulting in the shutting down of the facility. The lower utilization of the plate mill is largely related to sourcing of slabs at competitive rates. The spread between the slabs and plates have now fallen to around USD25/tonne compared to about USD200/tonne during FY2007-08, when it was originally set up.

Welspun Corp Company Update




Net Sales 73,637 80,221 89,766 108,701

Growth (%) 0.0 8.9 11.9 21.1

Expenditure 60,451 67,576 81,195 101,522

Raw Materials 47,484 50,053 58,911 71,746

Employee Cost 0 3,909 4,876 6,075

Other Exp 0 0 0 0

EBITDA 13,186 12,645 8,571 7,179

Growth (%) 0.0 -4.1 -32.2 -16.2

EBITDA margin (%) 17.9 15.8 9.5 6.6

Depreciation 2,061 2,439 3,515 4,761

EBIT 11,126 10,205 5,055 2,417

EBIT margin (%) 15.1 12.7 5.6 2.2

Other Income 185 1,139 2,676 3,110


PBT 9,240 9,104 3,732 597

Tax 3,136 2,871 1,503 390


Adjusted PAT 6,104 6,233 2,229 207

Growth (%) 0.0 2.1 -64.2 -90.7

Net Margin (%) 8.3 7.8 2.5 0.2


Adj. PAT After JVs/Ass/MI 6,104 6,330 2,385 388

E/O items 6,459 0 0 -1,091

Reported PAT 12,563 6,330 2,385 -703

PAT after MI 6,104 6,330 2,385 388

Growth (%) 0.0 3.7 -62.3 -83.8




Net worth 29,011 33,735 40,933 56,578

Minority Interest 0 2,024 11,316 3,546

Secured Loans 18,730 4,398 7,773 2,043

Unsecured Loans 6,822 32,620 39,714 49,531

Loan Funds 25,551 37,018 47,487 51,574



Gross Block 38,810 41,731 67,322 80,402

Less: Depreciation 5,889 0 0 0

Net block 32,921 41,731 67,322 80,402


Investment 1,596 14,405 19,785 18,671

Current Assets 51,471 45,590 64,678 64,476

Inventories 20,322 18,479 25,632 25,669

Sundry debtors 8,077 12,893 15,260 17,614


Loans & advances 13 5,854 10,942 9,952

Other current assets 6,031 856 2,589 4,197

Current lia & Prov 33,510 32,387 53,270 51,616


Provisions 1,219 2,082 2,056 1,595


Misc. exp 25 0 0 0


PBT (Ex-Other income) 9,240 9,104 3,732 -494

Depreciation 2,061 2,439 3,515 4,761


Other Non-Cash items -1,474 -1,043 -1,505 -3,770

Chg in working cap -6,095 -3,546 6,925 -3,068

Tax paid -1,841 -2,181 -1,453 -173



Free Cash Flow 18 -4,369 9,389 -5,497

Other income 384 351 1,277 2,586

Investments -444 -11,891 -18,433 2,320


Equity Capital Raised 4,695 28 5,079 10

Loans Taken / (Repaid) 0 8,700 7,884 -1,813

Interest Paid -2,033 -1,873 -1,556 -3,846



Others 432 -795 -1,298 3,133

Financing Cashflow 2,767 5,585 9,634 -2,648

Net chg in cash 2,725 -10,324 1,867 -3,239




Profitability (%)

EBITDA Margin 17.9 15.8 9.5 6.6

Net Margin 8.3 7.8 2.5 0.2

ROCE 39.1 16.8 8.5 5.0

ROE 42.1 20.2 6.4 0.8

RoIC 65.7 25.1 8.7 3.1

Per Share Data (Rs)

EPS 29.8 30.9 10.5 1.5

CEPS 39.9 42.9 25.9 19.6

BVPS 141.6 164.8 179.7 215.2

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 2.9 2.8 8.2 58.4

P/CEPS 2.2 2.0 3.3 4.4

P/BV 0.6 0.5 0.5 0.4

EV / Sales 0.1 0.4 0.4 0.4

EV / EBITDA 0.6 2.3 4.3 6.0

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)




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FY11A 22,042 3,221 14.6 942 9.4 -49.2 15.8 24.5 12.5 3.5

FY12A 32,581 3,242 10.0 242 2.4 -74.3 3.4 95.4 12.8 3.1

FY13A 36,541 5,982 16.4 2,316 23.1 856.5 26.7 10.0 6.9 2.3

FY14A 44,954 9,211 20.5 921 9.2 -60.2 8.8 25.1 5.2 2.1

Welspun IndiaPlay on niche textile exports

August 20, 2014

Rating

Not Rated

CMP Rs230

EPS Chg (%) NA


Nifty 7,684

Sensex 25,723


Absolute 11 89 152 358

Rel. to Nifty 12 64 98 241

Source: Bloomberg


50

90

130

170

210

250


Rs

-10

32

74

116

158

200%

Welspun India (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock Details Sector Textiles

Bloomberg WLSI IB


Face Value(Rs) 10


52 Week H/L 244/ 47





Promoters 73.4 73.1 68.8

FII/NRI 0.2 N/A N/A





About the company:

n WIL is India’s largest manufacturer & exporter of cotton towels. Structural changes and currency movements have made Indian textile products highly competitive vs. China

n WIL has planned capex of Rs24bn, of which Rs11bn would be towards backward-integration and the balance Rs13bn for capacity expansion. It has spent Rs8bn on the former

n INR appreciation is biggest growth risk, as exports contribute 95% to the topline. As on FY14, the company had gross debt of Rs 30.3bn and net D/E of 2.4x

n At CMP, WIL is trading at TTM Adj. P/E of 9x. On adj. RoEs of more than 25%, the valuations look cheap, as growth would be sustainable on higher demand and higher capacities

Meeting summary:

§ The backward-integration with increasing in yarn capacities should lead to reduced dependence on vendors as well as reduce material costs. The increased yarn capacity should suffice company’s 70% of expanded capacity of finished goods as well as lead to margin expansion of roughly 300bps at the EBITDA level

§ The company has already spent Rs 12bn as on Q1FY15E of the planned Rs 24bn of capex. The capex which will go towards plant modernization, capacity de-bottle necking and some expansion should lead to revenue potential of Rs 65bn which is ~50% higher of FY14 revenue

§ The company hedges 60% of the currency risk, partly by sourcing the raw material which is priced on import parity and partly by taking 1 year currency forwards on weekly rolling

§ The capex incurred is on the estimated iRR of at least 18%

§ The company expects to maintain 20-21% margins at EBITDA level over the medium term

§ Loftex and Sunwim are the two sizeable competitors in the global home textiles market, while Trident Group and Alok Textiles are key peers in India.

§ The company’s growth will be function of addition of new product every 4-5 years. The company, which started as a mere towel manufacturer, has added three new product since then with latest being rugs and table carperts

§ The company expects to maintain higher margins and RoEs despite of higher costs. Currently, it is enjoying TUF which reduced its borrowings cost to 7-8%, which is further amplified through 4% interest cost benefit over the next 5 years, leading to net cost of borrowing at nerely 3%.

§ 15-20% CAGR is expected in revenue over next 3 years, with RoE maintained in upwards od 30%

Welspun India Company Update




Net Sales 22,042 32,581 36,541 44,954

Growth (%) 21.0 47.8 12.2 23.0

Expenditure 18,821 29,339 30,558 35,743

Employee Cost 1,653 3,050 2,766 3,400

Other Exp 0 0 0 0

SG&A 1,038 4,767 3,652 8,496

EBITDA 3,221 3,242 5,982 9,211

Growth (%) 91.1 0.6 84.5 54.0

EBITDA margin (%) 14.6 10.0 16.4 20.5

Depreciation 1,203 1,378 1,449 6,863

EBIT 2,018 1,864 4,534 2,348

EBIT margin (%) 9.2 5.7 12.4 5.2

Other Income 405 461 492 1,042


PBT 1,345 406 3,049 1,037

Tax 403 193 733 199


Adjusted PAT 942 242 2,316 921

Growth (%) -49.2 -77.4 986.7 -63.8

Net Margin (%) 4.3 0.7 6.3 1.9


Adj. PAT After JVs/Ass/MI 942 242 2,316 921

E/O items 3 466 2 0

Reported PAT 945 708 2,318 921

PAT after MI 942 242 2,316 921

Growth (%) -49.2 -74.3 856.5 -60.2


Equity share capital 940 995 1,000 1,004


Net worth 6,690 7,428 9,902 11,096


Secured Loans 16,549 18,632 19,275 27,043

Unsecured Loans 864 1,151 1,101 1,100

Loan Funds 17,414 19,783 20,376 28,143

Net deferred tax liability 1,879 1,502 1,917 434


Gross Block 21,916 25,164 27,828 42,227


Net block 15,600 16,762 18,073 25,609

Capital work in progress 550 1,233 542 0

Investment 1,007 1,205 931 1,115

Current Assets 11,703 16,160 19,033 24,960

Inventories 4,597 7,293 8,205 10,094

Sundry debtors 1,453 2,492 2,750 4,117

Cash & bank balance 389 1,482 1,724 2,332

Loans & advances 3,083 3,081 3,458 5,376


Current lia & Prov 2,879 6,396 6,135 11,694


Provisions 92 404 273 1,390


Misc. exp 0 0 0 0


PBT (Ex-Other income) 943 411 2,559 -4

Depreciation 1,203 1,378 1,449 6,863



Chg in working cap -1,200 -223 -2,477 -1,243

Tax paid -403 -193 -733 -199



Free Cash Flow -19 69 705 -6,088

Other income 405 461 492 1,042

Investments -857 -198 274 -184



Loans Taken / (Repaid) 544 2,370 593 7,768

Interest Paid -1,078 -1,919 -1,977 -2,352



Others 0 279 0 149

Financing Cashflow -4 761 -1,228 5,838

Net chg in cash -475 1,093 243 608

Opening cash position 864 389 1,482 1,724

Closing cash position 389 1,482 1,724 2,332


Profitability (%)

EBITDA Margin 14.6 10.0 16.4 20.5

Net Margin 4.3 0.7 6.3 1.9

ROCE 9.8 8.5 16.4 9.4

ROE 15.8 3.4 26.7 8.8

RoIC 8.7 7.6 16.7 7.1

Per Share Data (Rs)

EPS 9.4 2.4 23.1 9.2

CEPS 21.4 16.1 37.5 77.6

BVPS 66.7 74.0 98.7 110.6

DPS 0.0 0.0 0.0 0.0

Valuations (x)

PER 24.5 95.4 10.0 25.1

P/CEPS 10.8 14.3 6.1 3.0

P/BV 3.5 3.1 2.3 2.1

EV / Sales 1.8 1.3 1.1 1.1

EV / EBITDA 12.5 12.8 6.9 5.2

Dividend Yield (%) 0.0 0.0 0.0 0.0

Gearing Ratio (x)




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FY11A 3,734 162 4.3 445 35.0 195.8 30.8 3.4 15.9 0.9

FY12A 4,841 485 10.0 168 13.3 -62.1 9.5 9.1 6.0 0.8

FY13A 6,913 826 11.9 303 17.8 34.5 14.1 6.7 5.8 0.8

FY14A 9,261 1,084 11.7 465 26.4 48.3 18.2 4.5 5.2 0.8

Zicom Security SystemsHuge opportunity for growth avails

August 20, 2014

Rating

Not Rated

CMP Rs104

Target Price NA

EPS Chg (%) NA


Nifty 7,792

Sensex 26,103


Absolute 1 61 61 76


Source: Bloomberg


40

57

74

91

108

125


Rs

-40

-20

0

20

40

60%

Ziocom Electronics (LHS) Rel to Nifty (RHS) Source: Bloomberg


Bloomberg ZSS IB


Face Value(Rs) 10


52 Week H/L 128/ 37





Promoters 24.1 24.1 24.1

FII/NRI 5.9 8.0 8.0





About the company: n Need for electronic security solution is gaining pace across

the segments viz. household, business enterprise, housing societies, public infrastructure, retail stores, banks, etc. ZESS is well-placed to capitalize the same

n ZESS has shifted its core business strategy from being a product to a service company. This has widen the market for the company, although at a cost of high capital requirement

n ZESS also has presence in middle-east market for providing fire protection solutions. Company sees a huge opportunity for growth in these markets

n At CMP, ZESS is trading at P/E of 4.5x and P/B of 0.8x on trailing basis. On RoE of 18% and huge opportunity for growth, the stock has potential for re-rating

Meeting summary:

§ Zicom Electronic Security Systems (ZESS) is into business of providing electronic and digital security and surveillance across the user base in India. The company has shifted its core business strategy, wherein now the focus is on providing Security as a Service (SaaS), rather than selling it as an electronic hardware.

§ The management expects SaaS business to be a key growth driver. The service is provided to banks, retail stores, housing societies and business enterprises. The company initially installs hardware, for which it doesn’t charge the end-user, while makes revenue from the monthly charges. The pay-back for the hardware cost is typically 18 months, which is the lock-in period for the service agreement.

§ ‘Make your city safe’ is another initiative of the company towards providing SaaS for areas and cities. The Telangana state government has recently passed an order, wherein it has made mandatory for housing societies to have digital security solutions. The company expects many states to take such initiatives, which will immensely widen the market for ZESS.

§ We believe there is huge growth potential for security solutions in India. With the RBI making mandatory for banks to have their ATMs, as well as state governments promoting societies to be under surveillance, the market will be grow is multiple from here. ZESS is well-place to capitalize on this opportunity

§ ZESS is also looking at high growth opportunity in the overseas market. Through its subsidiary Unisafe Singapore, company has a presence in providing fire protection solutions in the UAE and Qatar. The company is guiding for high growth in this segment of business as well.

§ The company is not generating free cash flows at this point, as it is high growth phase, and the business requires huge capital towards funding the working capital requirement

§ The promoter stake is low at 24.6%. A large number of shares (~40%) are pledged to banks for working capital needs.

Zicom Company Update




Net Sales 3,734 4,841 6,913 9,261

Growth (%) -29.3 29.6 42.8 34.0

Expenditure 3,571 4,355 6,088 8,177


Other Exp 4 3 6 0

SG&A 169 161 240 0

EBITDA 162 485 826 1,084

Growth (%) -70.5 198.9 70.1 31.4

EBITDA margin (%) 4.3 10.0 11.9 11.7


EBIT 10 342 645 835

EBIT margin (%) 0.3 7.1 9.3 9.0



PBT 494 219 416 511

Tax 18 9 47 19


Adjusted PAT 445 168 303 465

Growth (%) 167.8 -55.8 75.5 33.4

Net Margin (%) 12.7 4.3 5.3 5.3



E/O items -486 22 1 -46

Reported PAT -41 190 304 419

PAT after MI 445 168 303 465

Growth (%) 195.8 -62.1 80.0 53.5




Net worth 1,654 1,885 2,422 2,683


Secured Loans 1,254 1,604 3,183 3,321


Loan Funds 1,359 1,626 3,227 4,164



Gross Block 1,144 984 1,953 2,158


Net block 874 668 1,445 1,811



Current Assets 2,865 3,287 5,183 7,252

Inventories 337 449 830 1,389

Sundry debtors 1,529 2,061 2,813 3,681


Loans & advances 645 497 1,030 1,471


Current lia & Prov 553 352 760 1,925

Current liabilities 520 336 701 1,851



Misc. exp 0 0 0 0


PBT (Ex-Other income) -144 204 393 486



Other Non-Cash items -46 50 96 -113

Chg in working cap 350 -664 -1,227 -756

Tax paid 0 0 0 0

Operating Cashflow 467 -129 -306 216


Free Cash Flow 365 -150 -1,231 -387


Investments 0 -68 -21 -2

Investing Cashflow 536 -48 -854 -644


Loans Taken / (Repaid) -882 267 1,601 937

Interest Paid -154 -139 -252 -349



Others 0 0 0 0

Financing Cashflow -1,036 129 1,399 587

Net chg in cash -34 -47 240 159




Profitability (%)

EBITDA Margin 4.3 10.0 11.9 11.7

Net Margin 12.7 4.3 5.3 5.3

ROCE 19.3 10.3 13.6 12.9

ROE 30.8 9.5 14.1 18.2

RoIC 0.4 11.0 14.8 14.1

Per Share Data (Rs)

EPS 35.0 13.3 17.8 26.4

CEPS 47.0 24.5 28.5 40.6

BVPS 130.3 148.4 142.5 152.5

DPS 1.0 1.0 1.2 1.2

Valuations (x)

PER 3.4 9.1 6.7 4.5

P/CEPS 2.6 4.9 4.2 3.0

P/BV 0.9 0.8 0.8 0.8

EV / Sales 0.7 0.6 0.7 0.6

EV / EBITDA 15.9 6.0 5.8 5.2

Dividend Yield (%) 0.8 0.8 1.0 1.0

Gearing Ratio (x)




Zicom Company Update


DISCLAIMER: Emkay Global Financial Services Limited and its affiliates are a full-service, brokerage, investment banking, investment management, and financing group. We along with our affiliates are participants in virtually all securities trading markets in India. Our research professionals provide important input into our investment banking and other business selection processes. Investors may assume that Emkay Global Financial Services Limited and/or its affiliates may seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may participate in the solicitation of such business. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additionally, other important information regarding our relationships with the company or companies that are the subject of this material is provided herein. This report is not directed to, 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 law or regulation or which would subject Emkay Global Financial Limited or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributed in Canada or used by private customers in United Kingdom. All material presented in this report, unless specifically indicated otherwise, is under copyright to Emkay. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of Emkay. All trademarks, service marks and logos used in this report are trademarks or registered trademarks of Emkay or its Group Companies. The information contained herein is not intended for publication or distribution or circulation in any manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly authorized. Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. In so far as this report includes current or historic information, it is believed to be reliable, although its accuracy and completeness cannot be guaranteed.

Emkay Global Financial Services Ltd. CIN - L67120MH1995PLC084899

7th Floor, The Ruby, Senapati Bapat Marg, Dadar - West, Mumbai - 400028. India Tel: +91 22 66121212 Fax: +91 22 66121299 Web: www.emkayglobal.com

www.emkayglobal.com

EMKAY GLOBAL FINANCIAL SERVICES LIMITED

Registered Office :

Tel: +91 22 6612 1212; Fax: +91 22 6612 1299

www.emkayglobal.com

CIN - L67120MH1995PLC084899 thThe Ruby, 7 Floor, Senapati Bapat Marg, Dadar (W), Mumbai - 400 028

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