fy18 ar analysis: building capacities...

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After 3 consecutive years of contraction, Thermax (TMX) reported a sharp jump in order

inflows (up 45% YoY) in FY18, but management guides for a cautiously optimistic outlook

amid rising interest rates and the run up to the 2019 elections. Key takeaways from TMX’s

FY18 annual report are: a) a cautious outlook on order inflows, to be driven largely by 2

sectors: consumer-led industries (food, beverage, textiles, tyres and automobiles) and

emission norm-related capex (power and oil & gas); b) expanding its manufacturing footprint

through new facilities in Indonesia, Dahej and the acquisition of assets in Poland to counter

cyclicality in sales; c) margin decline being restricted to 70bps in FY18 as projects’ improved

credit risk profiles created a 100bps swing, even as rising commodity prices and losses in the

Chinese subsidiary led to pressure on gross margins, d) FCF jumping 260% YoY as advances

on new orders led to a sharp fall in its NWC from 26 days to 1; and e) RoE/RoCE remaining

suppressed (in single digits) due to investments in non-revenue yielding and loss-making JVs.

We maintain HOLD with a TP of INR 930, valuing the stock at 25x FY20E EPS.

Strong order book, but cautious outlook on order inflows: Revenue visibility improved

substantially in FY18 as TMX reported a 43% jump in its order book (1.3x TTM sales) and

expanded its manufacturing capacity domestically and internationally. Although TMX

targets to sustain order inflows at FY18 levels, it has a cautiously optimistic outlook due

to rising interest rates and the run up to the 2019 elections. Order inflows should largely

be driven by capacity expansion in consumer-led sectors as well as stringent emission

norms in steel, power and oil and gas industries.

Expanding manufacturing footprint for future growth: In FY18, the company

commissioned new facilities in Indonesia (heating and cooling), Dahej (chemical resins),

Savli (steam engineering) and acquired the production assets of Barite Investments in

Poland. It further plans to extend is capacity through a chiller plant in Sri City and Phase-2

of the Dahej chemicals plant, thus gearing up to increase its share in the products

segment – pegged at 24% currently – to counter cyclicality in sales.

Balance sheet strengthens, but return ratios remain grim: Doubling of customer advances

helped offset rising debtor/inventory days due to project delays, thus reducing NWC days

from 26 to 1. This led to a sharp 26% YoY jump in FCF. However, low asset turns and

poor margins led to a fall in return ratios to single digits (RoE/RoCE: 9.7%/8.8%).

Losses at international subs continue to suppress profitability: TMX reported losses in

most overseas geographies including China, Denmark and Indonesia. While Indonesia and

Denmark are expected to turn around in FY19 on improved inquiries and rising capacity

utilisation, losses in China are likely to continue until export orders break even.

Maintain HOLD: Baking in optimistic estimates, we forecast 38% EPS CAGR, led by a

strong order book and margin expansion of 150bps over FY18-20. However, we maintain

our HOLD rating with a TP of INR 930 (valuing TMX at 25x FY20E EPS), given expensive

valuations of 38x FY19 and 28x FY20E EPS.

Sandeep Tulsiyan [email protected] | Tel: (91 22) 66303085

Recommendation and Price Target

Current Reco. HOLD

Previous Reco. HOLD

Current Price Target (12M) 930

Upside/(Downside) -9.6%

Previous Price Target 930

Change 0.0%

Key Data – TMX IN

Current Market Price INR1,028

Market cap (bn) INR122.5/US$1.8

Free Float 37%

Shares in issue (mn) 119.2

Diluted share (mn) 119.2

3-mon avg daily val (mn) INR50.3/US$0.7

52-week range 1,375/834

Sensex/Nifty 36,520/11,008

INR/US$ 68.5

Price Performance % 1M 6M 12M

Absolute -8.9 -23.0 14.3

Relative* -11.2 -26.0 0.4

* To the BSE Sensex

Thermax | HOLD

17 July 2018 India | Industrials | Company Update

FY18 AR Analysis: Building capacities judiciously

Financial Summary (INR mn) Y/E March FY16A FY17A FY18A FY19E FY20E

Net Sales 51,450 44,831 44,649 51,934 62,283

Sales Growth (%) -3.0 -12.9 -0.4 16.3 19.9

EBITDA 4,291 4,330 4,009 4,802 6,519

EBITDA Margin (%) 8.3 9.7 9.0 9.2 10.5

Adjusted Net Profit 2,823 2,470 2,321 3,261 4,438

Diluted EPS (INR) 23.7 20.7 19.5 27.4 37.2

Diluted EPS Growth (%) 8.9 -12.5 -6.0 40.5 36.1

ROIC (%) 20.5 17.1 15.1 19.8 24.2

ROE (%) 12.2 10.0 8.8 11.5 14.2

P/E (x) 43.4 49.6 52.8 37.6 27.6

P/B (x) 5.1 4.8 4.5 4.2 3.7

EV/EBITDA (x) 28.3 28.1 30.4 25.4 18.4

Dividend Yield (%) 0.6 0.6 0.6 0.6 0.7

Source: Company data, JM Financial. Note: Valuations as of 17/Jul/2018

https://euromoney.com/brokers

http://jmflresearch.com/JMnew/JMCRM/analystreports/pdf/TeamJM-Flyer_1June2018.pdf

Thermax 17 July 2018


Operational performance and outlook

Sharp bounce-back in inflows improves order book position: After a 35% contraction in

TMX’s consolidated order book over FY14-17, the company reported a sharp jump in

order inflows in FY18, up 45% YoY. In addition to base orders, TMX booked several large

orders from the Dangote Group in Africa, a cement company in the UAE and from

government companies in India in chemicals and fertiliser sectors. This led to a 43% jump

in its order book position to INR 56.9bn (1.3x FY18 sales), improving revenue visibility,

which had largely been subdued over the past 4 years.

Large order wins in FY18 Exhibit 1.Date Client Particulars Value (US$ mn)

Q118 Dangote Group, Nigeria Utility boilers, HRSG and flue gas steam generators 157

Q218 Leading cement company, UAE Turnkey captive power plant - solid fuel based 43

Q318 Chemical PSU, Western India BTG Package for 2x65 MW captive plant 48

Q418 Fertiliser PSU, Haryana & Punjab Cogeneration plants – 3x20MW 73

Source: Company, JM Financial

Cautiously optimistic on future inflows; targeting specific business areas: While

management expects order inflows to sustain at FY18 levels, it guided is cautiously

optimistic amid rising interest rates, higher crude oil prices and the run up to the 2019

elections, which may slow down new project announcements. Order inflows in the near

term are likely to be driven in the areas of a) capacity expansion in consumer-led

businesses such as automobiles, textiles, food, beverages (including dairy), chemicals, tyre,

light engineering and packaging, and b) capex to adhere to stricter emission norms in

power generation (FGD systems) and oil & gas (BS-6 norms related) industries.

Order inflows and order book growth Exhibit 2.

Order inflows jump 45% YoY in FY18 Order book to TTM sales at 7 year high


Expanding manufacturing footprint to reduce cyclicality: TMX inaugurated its

manufacturing facility in Indonesia to capture a larger pie of the ASEAN region as well as

Phase-1 of its chemical factory at Dahej, which is expected to reach 70-80% utilisation in

CY18. The company also acquired assets and production activities of Barite Investments in

Poland, which should assist in expanding its operations in Eastern Europe. Over FY19-20,

the company is slated to a) commission a new manufacturing facility at Sri City for

cooling solutions, b) begin Phase-2 of the Dahej plant and c) acquire the remaining stake

in the TBW JV, which would give it access to the company’s technologies.

64 60 46 56 65 53 45 44 64

1.9

1.1

0.8

1.0

1.3

1.0

0.91.0

1.4

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

20

25

30

35

40

45

50

55

60

65

70

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Order inflow (INR bn) Book-to-bill Ratio (x)

60 64 48 49 61 57 47 40 57

1.8

1.2

0.80.9

1.2

1.1

0.9 0.9

1.3

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

20

25

30

35

40

45

50

55

60

65

70

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

Order book (INR bn) Order book / TTM sales (x)



Focus on capacity building Exhibit 3.

Commissioned in Products manufactured Location Regions targeted

FY18 Standard products Krakatau, Indonesia ASEAN region

FY18 Ion exchange resins Phase-1 at Dahej, Gujarat US, Europe and South East Asia

FY18

Steam Engineering

Products under Rifox

Brand

Savli, Gujarat Global markets

FY18 Boilers and relevant

equipment Poland Eastern Europe

2QFY19E Vapour Absorption

Chillers Sri City, Andhra Pradesh Global markets

1QFY20 Ion exchange resins Phase-2 at Dahej, Gujarat US, Europe and

South East Asia

FY19/20 Emissions technology Revamp of Savli, Gujarat Both domestic and

global


Operating profitability assisted by provision reversal and tight control on site expenses: A

low starting order book, longer execution cycle and GST implementation presented

execution challenges in FY18. On the other hand, rising commodity prices, losses in

China/Denmark and lower absorption of fixed costs at newly commissioned plants in

Indonesia/Dahej exerted pressure on operating margins. However, a reduction in credit

the risk profile of projects created a 100bps swing in operating margins, thus restricting

margin contraction to 70bps YoY to 9.0%. This is typically captured under ‘provision for

impairment allowance of financial assets’ and which primarily refers to ‘expected credit

loss (ECL)’ and ‘bad debts written off‘. Excluding these non-cash items, operating margins

would have declined 170bps YoY to 8.0%. While the turnaround in Danstoker and

operating leverage benefits would improve profitability to some extent, we remain

cautious due to high commodity prices and the continuity of high fixed costs on newly

commissioned plants.

Major costs increases/decreases in FY18 Exhibit 4.Major Cost Increases / Decreases Change in bps

Site Expenses and Contract Labour Charges 225

Provision for impairment allowance of financial assets 140

Liquidated Damages 35

Legal and Professional Charges -20

Consumables and Tools -20

Miscellaneous expenses -25

Employee costs -30

Bad Debts w/off -40

Freight Outward -50


New products: The company introduced several new products and to keep abreast with

the latest technology.

New products introduced in FY18 Exhibit 5.Products Introduced Market

Energy Segment

Shellmax Global series boilers International Markets

Underfeed Stoker Technology (UFS) - Boilers Asia

Triple effect chillers India - Chemical sector

Ultra-low-pressure chillers India - F&B Sector

High COP hot water driven absorption chiller India


Jointly these items restricted

margin decline by 100 bps due

to improved credit risk profile

of projects under execution



Segmental outlook

Energy (78% of sales): This segment reported a decline in sales (-4%) as well as

contraction in margins (-80bps) due to low-margin orders in the cooling segment and

losses in its Chinese subsidiary. However, a jump in new orders improves the outlook for

the segment.

- Heating: Standard products saw a marginal improvement, but exports were lower due

to a dip in demand from Europe. In the large boilers segment, sales were flat due to a

weaker order book, but new order inflows and improved assembly capacity at Mudra

Port improved the growth outlook for the domestic and international segments. The

service business reported growth in both sales and order intake. Geographical

expansion and predictive maintenance are positive growth drivers for the future.

- Cooling: This segment recorded a dip in sales due to project delays in the international

region (Asia and Latin America); sales of chillers in China were also subdued. However,

with the launch of new products (triple effect chillers for chemicals and ultra-low-

pressure chillers for the F&B industry) and a new facility in Sri City, the segment is

poised to grow well in FY19-20. Also, the segment has created a new business unit in

Apr’18 to address the process cooling portfolio to increase its offerings globally.

- Cooling and heating services: The segment reported its best performance in both sales

and profitability in FY18. A new 22,000 sq.ft. facility for steam engineering products

was commissioned at Savli in FY18, which is slated to manufacture Rifox (Germany)

brand products in India. This segment would be merged with the respective product

segments in FY19 to enhance synergy.

- Power EPC: Sales declined in FY18 due to a low order book, several large orders in

sectors such as chemicals, fertilisers, power, and cement both internationally and

domestically improved the growth outlook for FY19-20. The company also added new

customers in O&M services and is focussing on growing its value-added services

portfolio.

- Solar business: The business continues to grow with repeat orders in the rooftop

segment. Even as module prices increased for the first time in FY18, installations

continued to grow with increasing preference for solar PV plants.

Energy segment revenue and order book Exhibit 6.

Energy segment continued to witness a decline on low opening order book Order book to TTM sales at 7 year high


Environment (14% of sales): The segment reported a decline in both sales (-1%) and

profitability (-80bps) due to rising commodity prices (mainly steel), which impacted the air

pollution control business. Order inflows were up 10% YoY.

- Air pollution control: Revenue was flat YoY in FY18 due to a poor order book and

operating margins were hit by rising commodity prices, primarily steel. The company

booked several orders from Indonesia and has seen a rise in enquiries in cement, steel,

25,7

60

43

,33

7

49

,09

0

44

,01

5

40

,57

6

43,8

36

43

,07

2

36

,24

8

34

,97

1

11.4%

9.6%

9.0%

7.8%

9.0%

7.3%

8.8% 8.9%

8.1%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

0

10,000

20,000

30,000

40,000

50,000

60,000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Energy (INR mn) Margin (%)

51,3

80

51,3

80

51,3

80

51,3

80

51,3

80

51,3

80

51,3

80

51,3

80

51,3

80

2.0

1.2

1.0

1.2

1.3

1.2 1.2

1.41.5

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

0

10,000

20,000

30,000

40,000

50,000

60,000


Energy OB (INR mn) OB/Sales (x)



palm oil and power due to stringent emission norms. However, given increased

competition from several players and complex bidding norms, TMX plans to participate

only in select tenders.

- Water: The segment profits turned positive in FY18 due to sustained momentum in

revenue and the company’s focus on short-cycle orders. With stringent norms

regarding the use of recycled water and discharge of effluents, ordering activity is

likely to remain strong.

Environment segment revenue and order book Exhibit 7.

Environment segment profitability suffered due to high steel prices Stringent emission norms improved order book and inflows


Chemicals (8% of sales): The segment reported growth in sales (+8%), but profits

declined (-280bps) due to high fixed costs at its newly commissioned plant at Dahej,

which is in the stabilisation phase. The segment’s order booking grew 12% YoY and the

growth in FY18 was largely driven by oil fields and construction chemicals. The new

factory at Dahej is expected to reach capacity utilisation of 70-80% in CY19 as it would

serve as a hub to supply ion exchange resins to the US, Europe and Southeast Asia.

Chemicals segment revenue and order book Exhibit 8.

Chemicals segment saw a jump in sales as new facility comes on stream Order book inflows jumped as addressable market expands


8,5

74

11,6

84

13,0

50

11,6

49

10,8

68

10,7

08

7,2

08

6,9

97

6,9

38

14.1%

12.5%12.0%

10.0%

5.9%

7.4%

2.5%

5.4%

4.2%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000


Environment (INR mn) Margin (%)

8,2

80

10,0

60

9,8

70

10,8

90

8,0

00

8,1

30

6,2

60

5,6

70

6,1

20

1.0

0.9

0.8

0.9

0.70.8

0.9

0.8

0.9

0.5

0.6

0.6

0.7

0.7

0.8

0.8

0.9

0.9

1.0

1.0

0

2,000

4,000

6,000

8,000

10,000

12,000


Environment OB (INR mn) OB/Sales (x)

3,2

76

3,3

19

3,6

10

15.7%

17.8%

15.0%

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

3,100

3,200

3,300

3,400

3,500

3,600

3,700

FY16 FY17 FY18

Chemicals (INR mn) Margin (%)

180

350

0.1

0.1

0.0

0.0

0.0

0.1

0.1

0.1

0.1

0

50

100

150

200

250

300

350

400

FY17 FY18

Chemicals OB (INR mn) OB/Sales (x)



Balance sheet analysis

Free cash flows jumps as customer advance reduce NWC: Muted sales growth and delays

in project execution led to an increase in debtor days (+15 days) and inventory (+7days).

However, a sharp 45% jump in order inflows led to a 100% YoY a quantum jump in

customer advances (+100% YoY), leading to an increase in other liabilities (+48 days).

Overall, the NWC days declined from 26 to 1, thus leading to a jump in free cash flows by

260% YoY.

Cash flows improved as healthy order inflows led to increase in customer advances Exhibit 9.

Free cash flows were up 260% YoY NWC days slumped to 1 day vs. 26


Muted return ratios dip further: RoE/RoCE declined from to 9.7%/8.8% in FY18 as asset

turns declined due to low utilisation at newly commissioned facilities, higher current

investments (+52% YoY) and losses in TMX’s overseas subsidiaries in Denmark and

China. While increasing capacity utilisations at new plants and reducing losses at

Danstoker would improve profitability, we believe the continuity of higher fixed costs at

new manufacturing plants and high commodity prices would continue to keep return

ratios low at 11-14% over FY19-20.

Return ratios Exhibit 10.


Investments made in FY18:

- Thermax acquired assets and production activities of Barite Invesments in Poland for a

consideration of INR 219mn, paid in cash

- Thermax acquired additional 21.33% stake in First Energy for a consideration of INR

10mn, thus increasing its stake to 76%

-1,485-2,420

1,033

8,440

1,646 1,164

4,201

8652,729

-0.3

0.1

0.2

-0.1

0.0 0.0 0.0 0.0

-0.1

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

FCF (INR mn) Net debt to equity (x)

2,861 2,322 2,415 2,719 3,194 150 2,190 3,595

19

17 17

19

26

1

15

21

FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

NWC (INR mn) NWC/Sales (days)

22.3

14.0

10.19.1

13.712.0

9.711.3

13.8

27.4

18.3

14.4

12.2 12.2

10.08.8

11.5

14.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

RoCE (%) RoE (%)



Subsidiaries/JV performance

Domestic subsidiaries/JVs: Report substantial improvement as losses reduce in TBW

Thermax Engineering Construction Company Limited (TECC) – undertakes engineering

construction projects for the B&H division. It reported a severe decline in revenue (down

57% YoY) due to a lower opening order book but reported a profit of INR 73mn

compared with a break-even performance last year. Its order pipeline is lower and hence

revenues would decline in FY19.

Thermax Instrumentation Limited (TIL) – is a wholly-owned subsidiary, engaged in

construction and commissioning of captive power plants. It reported a decline of 12%

YoY in revenues but managed to grow margins by 250bps.

Thermax Onsite Energy Solutions Limited (TOESL) –is engaged in the BOO business of

providing sustainable solutions by supplying utilities such as steam and heat to its

customers. Its revenue rose 9.7% YoY as rising oil prices are driving a shift towards

biomass, along with a growing preference for outsourcing.

Thermax Babcock and Wilcox Energy Solutions Pvt. Ltd (TBWES) – is engaged in the

manufacture and supply of supercritical boilers at its facility in Shirwal. Over the recent

years, after the COP-21 Paris agreement for climate change, prospects for thermal power

have diminished globally while GoI investments in thermal power plants have reduced,

eventually leading to absence of orders, affecting revenues drastically (down 54% YoY).

TMX has signed a definitive agreement to acquire the 49% stake of Babcock & Wilcox in

the TBWES JV as it will provide it access to the modern manufacturing facility of TBWES

and also to a few B&W technologies.

International subsidiaries: Continue to be a drag on profits

Danstoker A/S, Denmark – is engaged in the business of design, production and sale of

boilers and relevant equipment to the energy market, including rebuilding and servicing

of boilers. A delay in decision-making by clients led to a revenue decline of 14% in INR

terms. Signs of improvement in the EU economy, rising oil prices and commitment to

COP-21 have improved enquires to Danstoker as focus shifts to biomass-based projects.

Boilerworks A/S – is engaged in the business of designing, production and supply of high

pressure components to power plants, waste and biomass combustion plants, industrial

and petrochemical plants. In local currency revenues were up 22% and 36% in INR terms.

Boilerworks turned break-even in FY18 and the outlook for FY19 remains positive.

Thermax Zhejiang, China – is engaged in the manufacture, sales and service of vapour

absorption systems. Revenues grew 17.5% in local currency and 11% in INR terms to INR

640mn but losses further extended to INR 106mn. Management has decided to recognise

diminution in the value of investment in the subsidiary and will discontinue from selling in

China, using the facility primarily as a feeder factory for exports.

Thermax Inc, USA – is a step-down subsidiary engaged in the sale of absorption chillers

and ion exchange resins. Recovery in the US markets led to revenue/profit growth of 9%

and 27% respectively.

Thermax Europe Limited, UK – is engaged in the sales and service of vapour absorption

chillers. Revenues were down 17.5% in local currency and 9% in INR terms, while profit

margins were down by 300bps to 5.1%.



Major Subsidiaries and JVs performance Exhibit 11.

FY15 FY16 FY17 FY18

INR mn Sales PAT Sales PAT Sales PAT Sales PAT

Thermax Engineering Construction Co. Ltd 2,059 58 3,383 14 2,364 3 1,007 73

Thermax Instrumentation Ltd 1,002 37 1,316 90 1,215 111 1,068 124

Thermax Onsite Energy Solutions Ltd 411 11 523 22 521 74 571 101

Thermax Europe Ltd. (U.K.) 873 50 585 45 672 55 631 32

Thermax Inc. (U.S.A.) 935 53 871 38 992 42 1,078 54

Thermax (Zhejiang) Cooling & Heating Engineering Co. Ltd. (China) 788 -10 728 -31 577 -86 640 -106

Danstoker A/S 1,678 -423 1,729 31 1,722 60 1,475 -132

Boilerworks A/S 652 -21 960 2 1,091 -20 1,482 1

Boilerworks properties 0 13 0 14 0 14 21 17

Rifox Richter 240 4 281 10 206 -26 270 3

PT Thermax International Indonesia 0 -1 0 -58 0 -76 17 -125

Thermax Babcock & Wilcox energy solutions 364 -1,237 3,488 -701 3,137 -1,250 1,440 -416




Financial Tables (Consolidated)

Income Statement (INR mn)

Y/E March FY16A FY17A FY18A FY19E FY20E

Net Sales 51,450 44,831 44,649 51,934 62,283

Sales Growth -3.0% -12.9% -0.4% 16.3% 19.9%

Other Operating Income 0 0 0 0 0

Total Revenue 51,450 44,831 44,649 51,934 62,283

Cost of Goods Sold/Op. Exp 27,398 22,642 23,493 27,525 33,010

Personnel Cost 6,597 6,864 6,966 7,662 8,428

Other Expenses 13,163 10,995 10,180 11,945 14,325

EBITDA 4,291 4,330 4,009 4,802 6,519

EBITDA Margin 8.3% 9.7% 9.0% 9.2% 10.5%

EBITDA Growth -7.0% 0.9% -7.4% 19.8% 35.8%

Depn. & Amort. 722 819 824 844 896

EBIT 3,569 3,511 3,185 3,958 5,623

Other Income 1,224 1,141 1,164 1,222 1,283

Finance Cost 122 97 129 164 164

PBT before Excep. & Forex 4,671 4,554 4,220 5,017 6,743

Excep. & Forex Inc./Loss(-) 0 -178 0 0 0

PBT 4,671 4,376 4,220 5,017 6,743

Taxes 1,439 1,560 1,658 1,756 2,360

Extraordinary Inc./Loss(-) 0 0 0 0 0

Assoc. Profit/Min. Int.(-) 409 586 242 0 -55

Reported Net Profit 2,823 2,230 2,321 3,261 4,438

Adjusted Net Profit 2,823 2,470 2,321 3,261 4,438

Net Margin 5.5% 5.5% 5.2% 6.3% 7.1%

Diluted Share Cap. (mn) 119.2 119.2 119.2 119.2 119.2

Diluted EPS (INR) 23.7 20.7 19.5 27.4 37.2

Diluted EPS Growth 8.9% -12.5% -6.0% 40.5% 36.1%

Total Dividend + Tax 959 848 824 920 1,000

Dividend Per Share (INR) 6.6 5.7 5.7 6.5 7.0


Cash Flow Statement (INR mn)


Profit before Tax 4,671 4,554 4,220 5,017 6,743

Depn. & Amort. 655 942 639 844 896

Net Interest Exp. / Inc. (-) 0 0 0 0 0

Inc (-) / Dec in WCap. -303 -475 3,044 -2,040 -1,405

Others -409 -764 -242 0 55

Taxes Paid -1,860 -1,504 -1,581 -1,756 -2,360

Operating Cash Flow 2,754 2,752 6,080 2,065 3,929

Capex -1,108 -1,589 -1,879 -1,200 -1,200

Free Cash Flow 1,646 1,164 4,201 865 2,729

Inc (-) / Dec in Investments -1,589 -332 -3,887 0 0

Others 0 0 0 0 0

Investing Cash Flow -2,696 -1,921 -5,766 -1,200 -1,200

Inc / Dec (-) in Capital 0 0 0 0 0

Dividend + Tax thereon -958 -824 -824 -940 -1,013

Inc / Dec (-) in Loans -37 -596 980 0 0

Others 221 -178 260 0 -55

Financing Cash Flow -774 -1,598 416 -941 -1,068

Inc / Dec (-) in Cash -717 -767 730 -76 1,662

Opening Cash Balance 3,693 2,976 2,210 2,940 2,864

Closing Cash Balance 2,977 2,209 2,940 2,864 4,526


Balance Sheet (INR mn)


Shareholders’ Fund 24,162 25,376 27,147 29,468 32,893

Share Capital 225 225 225 225 225

Reserves & Surplus 23,936 25,151 26,922 29,243 32,668

Preference Share Capital 0 0 0 0 0

Minority Interest 0 14 0 0 -55

Total Loans 1,954 1,357 2,337 2,337 2,337

Def. Tax Liab. / Assets (-) -1,049 -993 -917 -917 -917

Total - Equity & Liab. 25,066 25,754 28,567 30,888 34,258

Net Fixed Assets 8,873 9,520 10,761 11,117 11,420

Gross Fixed Assets 14,701 15,183 17,413 19,646 20,846

Intangible Assets 0 0 0 0 0

Less: Depn. & Amort. 6,105 7,047 7,686 8,530 9,426

Capital WIP 278 1,385 1,034 0 0

Investments 10,498 10,830 14,717 14,717 14,717

Current Assets 30,708 28,929 32,761 37,297 44,967

Inventories 2,903 2,833 3,666 4,269 5,119

Sundry Debtors 13,870 11,178 12,992 15,651 17,917

Cash & Bank Balances 2,976 2,210 2,940 2,864 4,526

Loans & Advances 309 265 226 285 341

Other Current Assets 10,650 12,444 12,937 14,229 17,064

Current Liab. & Prov. 25,013 23,526 29,672 32,243 36,847

Current Liabilities 9,964 10,516 10,605 12,806 15,357

Provisions & Others 15,049 13,009 19,067 19,437 21,489

Net Current Assets 5,695 5,403 3,090 5,054 8,121

Total – Assets 25,066 25,754 28,568 30,888 34,258


Dupont Analysis


Net Margin 5.5% 5.5% 5.2% 6.3% 7.1%

Asset Turnover (x) 2.1 1.8 1.6 1.7 1.9

Leverage Factor (x) 1.0 1.0 1.0 1.1 1.0

RoE 12.2% 10.0% 8.8% 11.5% 14.2%

Key Ratios


BV/Share (INR) 202.8 213.0 227.8 247.3 276.1

ROIC 20.5% 17.1% 15.1% 19.8% 24.2%

ROE 12.2% 10.0% 8.8% 11.5% 14.2%

Net Debt/Equity (x) 0.0 0.0 0.0 0.0 -0.1

P/E (x) 43.4 49.6 52.8 37.6 27.6

P/B (x) 5.1 4.8 4.5 4.2 3.7

EV/EBITDA (x) 28.3 28.1 30.4 25.4 18.4

EV/Sales (x) 2.4 2.7 2.7 2.3 1.9

Debtor days 98 91 106 110 105

Inventory days 21 23 30 30 30

Creditor days 77 95 95 99 101




History of Earnings Estimate and Target Price

Date Recommendation Target Price % Chg.

30-Jul-15 Hold 932

29-Oct-15 Hold 884 -5.1

1-Feb-16 Hold 814 -8.0

27-May-16 Hold 648 -20.4

12-Aug-16 Hold 750 15.8

15-Nov-16 Hold 729 -2.8

10-Feb-17 Hold 835 14.5

9-Aug-17 Hold 820 -1.8

9-Nov-17 Hold 860 4.9

7-Feb-18 Hold 975 13.4

21-May-18 Hold 930 -4.6

Recommendation History



APPENDIX I

JM F inancia l Inst itut ional Secur it ies Limited ( fo rmer l y known as JM F inanc ia l Secur i t i e s L im i ted)

Corporate Identity Number: U67100MH2017PLC296081 Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.

SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.

Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: [email protected] | www.jmfl.com

Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: [email protected]

Definition of ratings

Rating Meaning

Buy Total expected returns of more than 15%. Total expected return includes dividend yields.

Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.

Sell Price expected to move downwards by more than 10%

Research Analyst(s) Certification The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Important Disclosures This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the

company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select

recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written

consent of JM Financial Institutional Securities. This report has been prepared independent of the companies covered herein.

JM Financial Institutional Securities is registered with the Securities and Exchange Board of India (SEBI) as a Research Analyst and a Stock Broker having trading

memberships of the BSE Ltd. (BSE), National Stock Exchange of India Ltd. (NSE) and Metropolitan Stock Exchange of India Ltd. (MSEI). No material disciplinary

action has been taken by SEBI against JM Financial Institutional Securities in the past two financial years which may impact the investment decision making of

the investor.

JM Financial Institutional Securities renders stock broking services primarily to institutional investors and provides the research services to its institutional

clients/investors. JM Financial Institutional Securities and its associates are part of a multi-service, integrated investment banking, investment management,

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covered herein. JM Financial Institutional Securities and/or its associates might have received during the past twelve months or may receive compensation from

the company(ies) mentioned in this report for rendering any of the above services.

JM Financial Institutional Securities and/or its associates, their directors and employees may; (a) from time to time, have a long or short position in, and buy or

sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other

compensation or act as a market maker in the financial instruments of the company(ies) covered under this report or (c) act as an advisor or lender/borrower to,

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in, it may have potential conflict of interest at the time of publication of this report on the subject company(ies).

Neither JM Financial Institutional Securities nor its associates or the Research Analyst(s) named in this report or his/her relatives individually own one per cent or

more securities of the company(ies) covered under this report, at the relevant date as specified in the SEBI (Research Analysts) Regulations, 2014.

The Research Analyst(s) principally responsible for the preparation of this research report and members of their household are prohibited from buying or selling

debt or equity securities, including but not limited to any option, right, warrant, future, long or short position issued by company(ies) covered under this report.

The Research Analyst(s) principally responsible for the preparation of this research report or their relatives (as defined under SEBI (Research Analysts)

Regulations, 2014); (a) do not have any financial interest in the company(ies) covered under this report or (b) did not receive any compensation from the

company(ies) covered under this report, or from any third party, in connection with this report or (c) do not have any other material conflict of interest at the

time of publication of this report. Research Analyst(s) are not serving as an officer, director or employee of the company(ies) covered under this report.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or

developments referred to herein, and JM Financial Institutional Securities does not warrant its accuracy or completeness. JM Financial Institutional Securities

may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.

This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.



The investment discussed or views expressed or recommendations/opinions given herein may not be suitable for all investors. The user assumes the entire risk

of any use made of this information. The information contained herein may be changed without notice and JM Financial Institutional Securities reserves the

right to make modifications and alterations to this statement as they may deem fit from time to time.

This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any

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no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as

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affiliates and authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of

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