institutional equity research uniply industries ltd

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Uniply Industries Ltd (UNIP IN)

In a new avatar

INDIA | MIDCAP | Initiating Coverage

4 May 2018

Read this report to see how these tremendous changes in Uniply will effect a rerating:

In FY15, a new promoter came in (by acquiring stake from the former owners), with a focus on stabilisation, consolidation, and growth.

Game changer: Acquired Vector, a leading player in interior fit-outs.

UNIP has moved towards becoming an end-to-end service provider with a larger addressable market size of at least Rs 3,000bn (vs. a plywood market of ~Rs 200bn).

Artmatrix (a higher margin business), helps in backward integration + value addition.

Diversified and healthy order book of Rs 15bn executable over 15-18 months.

De-leveraged its balance sheet by transferring its plywood business to Uniply Dećor.

With strong revenue visibility (for 2-3 years), improving margins, and better return ratios, UNIP will achieve revenue of Rs 7bn in FY19 vs. Rs 2.7bn in FY17.

UNIP in its new avatar is a game changer UNIP has become an end-to-end service provider in the building material space with Vector’s acquisition in 2016. UNIP now provides: (1) architecture and design services, (2) civil development, (3) mechanical, electrical, and plumbing (MEP), (4) interior fit-outs, and (5) furniture and furnishings. With this acquisition, it targets a bigger market size of Rs 3,000bn vs. plywood’s market size of Rs 200bn.

The Artmatrix merger will boost profitability In February 2018, UNIP announced the merger of Artmatrix (Malaysia) with itself to improve its product offerings and backward integration into premium furniture. Artmatrix manufactures modular workstations, partitions, and chairs, leveraging Malaysian competence in furniture manufacturing. It has strong global presence (22 countries, 5 continents) and a robust product profile (premium products), which helps it to achieve higher double digit margins and zero-debt. We expect the full benefits of this transaction to accrue from FY20 (have not factored Artmatrix in our estimates).

Plywood business sold to associate company Uniply Dećor UNIP aims to scale up its presence in the building solutions business. To achieve this, it reorganised its structure by selling its plywood division (in August 2017) to its associate company Uniply Décor ltd (UDL) for Rs 3bn. This took Uniply’s holding in UDL to 37% from 8% and has helped UNIP to reduce its debt. With the sale, UNIP has moved its manufacturing needs of plywood to UDL. UDL manufactures plywood, block-boards, doors, decorative veneers, adhesives, laminates, and flooring. Its two manufacturing facilities are located in Gujarat and Chennai.

Outlook and valuation We believe that over the next two years, UNIP will report strong growth, improvement in margins and return ratios, driven by: (1) Strong order book with improvement in its execution cycle (operating leverage), (2) product mix, (3) tight control on the working-capital cycle, and (4) higher asset:turnover (moved to an asset-light model). We expect UNIP to report healthy revenue of Rs 7.1/13.8bn in FY19/20 with an order book of Rs 15bn executable over the next 15 months. Backed by strong operating leverage we expect 158bps margin improvement over FY17-20.

At its CMP, UNIP trades at a FY19/20 PE of 36x/17x and EV/EBITDA of 20x/11.5x. We value company on SOTP bases and assign a FY20 target (a) PE of 13x to UNIP standalone business (designing, construction, and MEP) at Rs 295 per share, (b) PE of 20x to Vector - UNIP’s 100% subsidiary (mainly in interiors/furniture) at Rs 284per share, (c) PE of 20x to its associate company - UDL (37% stake) at Rs 21 per share. We arrive at an SOTP target (a+b+c) of Rs 600 (34% upside). We Initiate coverage with a BUY recommendation.

BUY CMP Rs 447 TARGET Rs 600 (+34%)

COMPANY DATA

O/S SHARES (MN) : 24

MARKET CAP (RSBN) : 11

MARKET CAP (USDBN) : 0.2

52 - WK HI/LO (RS) : 486 / 235

LIQUIDITY 3M (USDMN) : 0.9

PAR VALUE (RS) : 10

SHARE HOLDING PATTERN, %

Mar 18 Dec 17 Sep 17

PROMOTERS : 33.4 33.2 33.2

FII / NRI : 2.1 2.0 2.0

FI / MF : 0.2 0.1 0.1

NON PRO : 37.9 48.9 49.3

PUBLIC & OTHERS : 26.4 15.8 15.3

Note: After all the capital raising promoter holding

goes up to ~48%.

PRICE PERFORMANCE, %

1MTH 3MTH 1YR

ABS 21.6 6.2 38.8

REL TO BSE 15.0 8.4 21.2

PRICE VS. SENSEX

Source: Phillip Capital India Research

KEY FINANCIALS

Rs mn FY18E FY19E FY20E

Net Sales 3,693 7,091 13,888

EBIDTA 584 929 1,850

Net Profit 228 417 907

EPS, Rs 6.8 12.4 27.0

EV/EBIDTA, x 25.6 20.4 11.5

P/BV, x 3.2 3.0 1.7

Debt/Equity (%) 1.6 0.8 0.7

Source: PhillipCapital India Research Est. Deepak Agarwal (+ 9122 6246 4112) [email protected] Akshay Mokashe (+ 9122 6246 4130) [email protected]

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Apr-16 Oct-16 Apr-17 Oct-17 Apr-18

Uniply BSE Sensex


UNIPLY INDUSTRIES INITIATING COVERAGE

DuPont analysis reveals rerating triggers

Over FY08‐15, UNIP’s ROE was in lower single-digits or in negative territory, mainly because of its lower profitability in its plywood business and lower utilisation of assets. In this period, its net margin was +2% to -7% and total asset‐turnover was low (from 1.3x to 1.9x).

In FY15, the new promoter came in (by acquiring stake from the former owner), with a focus on stabilisation, consolidation of the business and growth. This strategy resulted in lowering of debt and improved profitability.

In last two years, UNIP has gone through a complete restructuring, which has resulted in better profitability, lower debt, and higher return ratios.

RoE will improve due to: (1) higher asset sweating, improving margin and tight control on working capital requirements, and with not much capex.

Opportunities – larger market with strong order book.

While ramp up in sales would be gradual (over 10‐12 months) there are significant opportunities to increase execution and asset sweating.

From heavy to light, reduced debt, and profitable The journey: From an asset-heavy, loaded-with-debt, and lower-profitability business to an asset-light, reduced debt, and higher profitability business In last two years, UNIP has gone through business restructuring, asset acquisitions, capacity expansion, and business mergers. After all this, it is in a new ‘avatar’, where it captures the entire value chain: 1. Architecture and design 2. Civil development 3. Mechanical, electrical, plumbing (MEP) 4. Interior fit-outs 5. Furniture and furnishings Uniply was founded in 1996 by a team of professionals from Kitply and Greenply. From its inception to 2014, it increased its reach to north and west India from south India. In 2015, Mr Keshav Kantamneni acquired a stake in Uniply after which Uniply went through two years of business restructuring, asset acquisition, capacity expansion, and mergers.

Timeline of restructuring 2015 Takeover: Manufacturing plant in Gujarat (Euro Décor, distress sale) from a bank for Rs 420mn. 2016: Forward integration: Buys 100% stake in Vector Projects, which has a state-of-the-art manufacturing plant in Pen, Maharashtra. Migration: To turnkey interior solutions industry (Rs 2,000-4,000bn size, according to the management) from the plywood industry (size Rs 200bn). Acquisition: 8% stake in Uniply Décor (UV Board earlier, plywood manufacturer) from former Uniply promoters) 2017: Hive off: UNIP sells its plywood business to Uniply Décor for an economic value of Rs 3bn, which enables it to deleverage and move to an asset-light model, enhancing its return on capital. Uniply Industries stake in UV Board increases to 37% from 8%. 2018 Merger: UNIP announced merger of a high-margin business, Artmatrix.

With all these products, UNIP is now a ‘one-point’ solution for customers looking for constructing offices, commercial hubs, or residential spaces

The current Chairman, Keshav Kantameni, has been a catalyst of change



UNIP in its new avatar - Game changing step of Uniply

Source: Company, PhillipCapital India Research

Until FY16, UNIP was a face-veneers and plywood company It had a revenue of Rs 1.2bn and OPM of ~10% and face-veneers (single-digit margins) accounted for ~40% of revenue in FY17. The management gradually discontinued this business. The company scaled up its plywood business (higher margin then face veneers) to 96% in FY17. Over the same period, the management also focused on widening its plywood mix; focused on value-added product extensions (such as anti-termite whose share increased to 60% of plywood sales in FY17 from 25% in FY15). Euro Décor: To increase its plywood capacity and presence, UNIP acquired another plywood manufacturing facility (Euro Décor, 38,400 CBM), a plywood unit in Gujarat) in FY16 for Rs 420mn. This acquisition helps UNIP to service the growing markets of west and north India. Additionally, port proximity makes it potentially possible to import and transport timber to this manufacturing facility and would lead to freight savings (UNIP expects to save around 3-5 % on logistics). The acquisition was completed in 4QFY18 and the management expects this plant to deliver attractive throughput from Q1FY19. At full utilization it expects additional revenues of Rs 3.5bn from this plant. Vector: After streamlining its plywood business, the management moved from being a product company to a service company by acquiring Vector Infrastructure Projects. This move helped UNIP to move from a thin-margin competitive-pricing industry (plywood) to one of India’s fastest growing industries, i.e., interior infrastructure fit-outs, with higher margins. Now Uniply caters to a larger market of over Rs 3,000bn vs. the Rs 200bn plywood industry. The Vector acquisition not only helps Uniply to cater to a larger market, but also helps increase its footprints pan-India. Vector also helps UNIP to service customised requirements of downstream customers. This move has helped UNIP to increase its product offering and capture larger wallet share of customers. All of these restructuring moves helped UNIP to increase its plywood capacity to 57,600 CBM from 19,200 CBM/annum in FY15, its presence to pan-India from about 15 cities, and its product profile to a complete fit-out solutions provider from just plywood, and also improved the company’s profitability.

2015 2016 2017 2018

U N I P L Y

New Owner

takeover

Acquires 100% stake in Vector Projects for Rs

640mn

Initiate take over of Gujarat plywood facility - (Euro Décor) for Rs 420mn

Merger of Artmatrix

UNIPLY DECOR8%

stak

e

From

8%

to 3

7%This step will help in increasing its presence in North India.

In FY17 sold of its plywood buiness to Uniply Décor (UDL) for an economic value of Rs 3.0bn & increased its stake in Uniply décor to 37%

In FY15 Manufactured plywood revenue was Rs 728mn (75% of revenue), out of that more than 50% from lower price products.

Source: Company

Value Added products (ATS & BWR), 25%

Lower price products, 50%

Interior infrastructure is a bigger industry with completely fragmented and unorganized players – big growth opportunity for organized players (Like – Uniply)



Sold its plywood business to an associate company In FY18, UNIP sold of its plywood business to its associate company, Uniply Décor Ltd (UDL), for an economic value of Rs 3bn, which helped UNIP to reduce its debt, move to an asset-light model, and improve its profitability (the plywood business is now with Uniply Décor). The plywood business is now completely professionally managed, with higher capacity and better product profile, which should lead to better financials and balance sheet. UNIP: Financials after the sell-off of the plywood business:

Revenue shut up in FY17, majorly because of Vector Margins improved to~19% in 9HFY18 from 12% in FY16

Source: Company, PhillipCapital India Research Estimates Note: * No. are consolidated numbers.

Why was Uniply not making money between FY11 and FY15? Problems faced by UNIP between FY11 and FY15

Higher share of lower-margin products

Higher RM cost (82% of sales) resulted in lower margins

UNIP was losing money (in FY14/15 PAT was Rs -29/+4mn).

The balance sheet was in need of repair (debt of Rs 618mn; interest cost of Rs 92mn in FY15)

Key moves by new owners: Improved utilisation to ~60% currently from 40% earlier (on increased capacity).

Improved product mix (by increasing contribution of premium products).

Lowered working capital requirement –brought down other liabilities toRs 300mnthrough better realisation of inventory and reducing the working-capital cycle through quicker collections).

Reduced RM costs (sourcing RM from Laos, Vietnam).

Reduced debt (restructured and paid off).

UNIP: Debt and debt-to-equity UNIP: ROCE and ROE#

Source: Company, PhillipCapital India Research Estimates

Note: * No. are consolidated numbers & FY18 no. are estimates. # Return ratio calculated after adjusting fund raised through preferential

and warrants.

86

6

1,0

26

1,2

10

1,2

22

1,4

60

1,1

67

1,3

57

2,7

47

2,7

08

-

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1,000

1,500

2,000

2,500

3,000

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7*

9M

FY1

8*

41 97 104 17 42 114 162 323 517

5%

9% 9%

1% 3%

10% 12% 12%

19%

0%

5%

10%

15%

20%

25%

-

100

200

300

400

500

600

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7*

9M

FY1

8*

EBITDA OPM (%) RHS

2,427

2,699

-

0.5

1.0

1.5

2.0

2.5

-

500

1,000

1,500

2,000

2,500

3,000

FY11 FY12 FY13 FY14 FY15 FY16 FY17* FY18*

Debt Rs mn Debt:Equity (x) RHS

Debt increased in FY17 & 18 - mainly on the back of Working Capital

0

2

4

6

8

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FY15 FY16 FY17* FY18*

ROCE (%) ROE (%) RHS

Pre-new owner, UNIP was paying an interest rate of 17%, which dropped to 12% after the new ownership

- -

9MFY18 saw better margins because of high margin from modular furniture business as well the synergy with UDL resulting in more attractively priced raw material sourcing

Strong revenue growth resulting in improvement in return ratios

UNIP: will focus on large earnings accretive Building Solutions & MEP Turnkey projects along with Interior Fit Outs through its 100% subsidiary, Vector.



Vector is a game changer for Uniply Largest turnkey interior infrastructure solution provider in India: Complete

turnkey solution (design, execution and services), with superior quality and timely execution. More than 90% projects delivered on scheduled time.

Strong team of ~350 architects, engineers, interior designers, and project managers.

For delivery, Vector has deployed 3000+ employees at execution sites.

Track record of ~2000 completed projects (+10mn sq. ft.), delivered 250,000+ workstations and chairs.

60% revenues are from repeat customers (working for more than 5 years with Vector). Diversified and strong client base – IT, banks, financial institutions, corporates, hotels. About 60% of its order book is from IT, 30% from BFSI, and balance from other corporates.

Through its acquisition of Vector Projects India Pvt ltd in 2016, UNIP improved its product offering and extended its reach into the downstream business of ‘building and interior solutions’. This allows UNIP to offer plywood solutions, enhance transaction value, and account for a larger customer wallet share.

Offerings by Vector: Interior solutions that comprise electrical networks, air-conditioning, tiling, and workstations (commercial interiors – plug-and-play). Furniture is a part of its overall solutions. Product range includes: Panel-based systems (70mm, 60mm, and 45mm), executive furniture, laptop caddy, workplace analysis process, desk-based systems, and level-up workstations. Vector’s distinct advantages:

Ability to pre-fabricate offsite, resulting in minimum onsite congestion. (~30% of work done at onsite).

Resident pool of in-house architects and engineers provide integrated solutions within stringent deadlines (90% of its projects are completed before their deadline).

Ability to generate most consumables (plywood, laminates, flooring) in-house; rest are covered by back-to-back outsourcing arrangements.

Ability to provide turnkey solutions that enhance return on the architect’s time.

Track record of profitability with significant growth potential and attractive margins.

Vector: Strength Specialists Its electrical, HVAC, and BMS teams provide plug-

and-play infrastructure

Acquisitions Acquired Protocol 7 in 2008 to provide a turnkey managed networking service;

join hand with Artmatrix Malaysia to source global modular workstations &

chairs.

Turnkey Specializes in complete design and build solutions

for corporate offices.

Customers Some of the largest and most respectable Indian companies

Alliances Engaged with premium brands in Italy, Turkey,

China and India for executive and lounge seating.

Infrastructure 1,00,000 sq ft Mumbai factory with imported equipment (Germany) for wood

working and carpentry.

Vector: A quick history

Promoted by Mr Umesh Rao. He worked in Gammon India as a site manager and was head of ICICI Bank in the facility management team.

Mr Rao registered Vector Projects in January 2001 and managed to secure a few clients almost immediately; broke even in the first year.

Factory in Mumbai, in 2005

2009, tied-up with Artmatrix, a Malaysia-based factory. This factory supplied material such as chairs, shelves, and other furniture.

Until 2013, Vector delivered ~1,000 projects, which amounts to over 7mn sq. ft. area and 100,000 work stations and chairs

Vector: UNIP acquired this Mumbai-based company for Rs 640mn (Rs 230mn stock swap and Rs 410mn cash payout)

Key projects executed by Vector:

TCS: Has been working with Vector

Projects for 7 years; executed 40+

projects over 20 locations.

SARASWAT BANK: For its accelerated

branch rollout, Vector delivered in just 5

weeks (expected 5 months). Saraswat

selected Vector across all its new branch

locations.

KPIT: KPIT Navi Mumbai office — 950

seats across 80,000 sq. ft., VC room,

meeting rooms, café, service rooms.

Delivered in 120 days.

ZEECO INDIA, MUMBAI: 60 seats, 4,800

sq. ft.+ VC room, meeting rooms, pantry,

service rooms. Delivered in 75 days.



Vector: No. of repeat clients – contributes ~50% of rev. No of projects


Vector: Capacity and orders

Vector enhanced its manufacturing facility to 100,000 sq. ft. in FY17 (capex of ~Rs 300 mn) from 45,000 sq. ft., to serve its increased order book. At full utilization this facility can generate revenue of Rs 8.0bn.

For faster execution and timely delivery, UNIP is carving out some space from its plywood facility (Gujarat + Chennai) for Vector.

In 9MFY18, Vector had a revenue of Rs 2.14bn.

With the healthy order pipe line and strong offering (servicers) we expect additionally order inflow of Rs 11bn over 2-3 years.

Strong order book should help Vector report healthy revenue CAGR of 26% over FY17-20. Improved product mix, premium products, and RM sourcing from associate company (UDL), will help Vector improve its margin by ~380bps over FY17-20 (PC FY19/20 OPM estimates: 12.9%/13.4%).

Vector: Strong revenue growth RM sourcing and product mix = margin improvement


50 52

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FY15 FY16 FY17

New Repeat

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145 132

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FY15 FY16 FY17

Number of Projects 2

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FY15 FY16 FY17 FY18e FY19e FY20e

197 199 242 460 523 754

9.7% 9.6% 9.6%

15.9%

13.1%

14.0%

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9%

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17%

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EBITDA (Rs mn)

OPM (%) RHS

9MFY 18 witnessed better margins on account of high margin from modular furniture orders



Artmatrix to boost UNIP profitability In January 2018, UNIP announced the merger of Artmatrix. It is expected to contribute fully to earnings from FY20 (we have not yet factored Artmatrix in our estimates). Merger rationale

Margin expansion: Captive furniture manufacturing and premium products will increase UNIP’s overall margins.

Business growth: Widens market reach.

Strong synergies: To gain insight into manufacturing cost structures outside and inside India, this can then be optimized. Artmatrix will also have captive supply of plywood from UDL, leading to cost benefits.

Financials: A zero-debt company; healthy margins (higher double digits) and profitability since inception.

About Artmatrix Designs and manufactures office furniture: Modular workstations, partitions, and

chairs, leveraging rich Malaysian competence in furniture manufacturing.

Offices in Malaysia; global project presence in 22 countries with visible presence in Malaysia, Singapore, Dubai; in India (showrooms) with Vector.

85,000 sq. ft. (green) manufacturing facility in Malaysia; good Environmental Choice Australia (GECA) certified.

Brief history of Artmatrix Incorporated in 2006; based out of Kuala Lumpur, Malaysia.

Provides one-stop solutions for design, manufacture, and supply of office furniture, primarily to corporate offices and institutions.

First overseas branch set up in April 2007 in Dubai Strong product portfolio with a wide customer base

Full solutions for office interiors –plug-and-play.

Products: Seating, workstations, accessories.

Services: Space planning, project management and installation.

Strong customer base dealing with more than 250 clients.

With UNIP’s acquisition, Artmatrix is spreading its wings in the Indian market. Artmatrix – Financial – Strong profitability Diversified customer & product mix (presence in premium products) gives Artmatrix a strong revenue visibility with healthy margins. Company has state of art manufacturing facility in Malaysia. Management has indicated that Artmatrix has healthy PAT margins of more the 20% and also expect this business to grow at 15-20% over the next 2-3 years. We have not factored Art Matrix numbers in our estimates.

S.no. Country No. of Clients Worked with

Artmatrix

1 Malaysia 107

2 India 80

3 Singapore 39

4 Mauritius 7

5 Indonesia 4

6 UAE 3

7 Myanmar 2

8 Pakistan 2



UNIPLY Dećor Ltd – a plywood manufacturing unit Uniply Dećor Ltd (UDL) is UNIP’s associate company.

UDL manufactures plywood and allied products.

Transition details

Plywood business valued at Rs 3bn – Rs 1.83bn business value (slump sale value Rs 1.47bn + working capital Rs 360mn) – Rs 750mn to be paid for using the ‘Uniply’ brand over the next 10 years – Rs 420mn to be paid for the Gujarat plant

Mode of payment: – 1.11bn shares, increasing UNIP stake in UDL to 37% from 8% – Cash of Rs 1.6bn – Stock purchased worth Rs 300mn

Use of proceeds: Deleveraging Uniply Industries Ltd.

UDL – India’s third-largest trading and manufacturing company of high-grade plywood, veneer, laminates, flooring, and adhesives with an all-India presence.

It has two state-of-the-art manufacturing facilities: Chennai (19,200 CBM/annum) and Gujarat (38,400 CBM/annum). Total manufacturing capacity is 57,600 CBM.

Strong product profile with a healthy distribution network UDL product profile 1. Plywood, boards, and doors 2. Laminates, adhesives, and flooring 3. Decorative veneers Presence

Healthy product mix as a result of the restructuring

Uniply is a national brand and a leading player in south India and #2 in Punjab and Chandigarh.

Uniply products have been well received in Delhi and NCR markets as well.

Pan-India presence with a dealer network of 800+. Expects to add 500 dealers in the next two years.

Increasing presence in tier-2/3 cities and in pockets in north and west India.

Manufacturing Facility:

South plant - serves

south, west, and east

India

Branch office: Chennai, Bangalore, Hyderabad, Mumbai, Delhi Large regional distributors: Kerala, Delhi, Punjab, Haryana, UP, Uttarakhand, Rajasthan, Gujarat

Gujarat Plant (45 acre),

provides logistic advantage

and saves 3-5% logistics

cost, as it serves north,

central, and west India

Uniply Industries Ltd.

Uniply Decor Ltd. (Capital increased by Rs

2.70bn)

Sells plywood business for an

economic value of Rs 3.0bn

Pays: Rs 1.11bn in shares, Rs 1.59bn in cash, and Rs 300mn Stock

purchase



UDL - In a sweet spot: Improved revenue visibility with healthy margins After the restructuring, UDL is in a sweet spot with: 1) Entire product range of plywood and wood products – presence in premium and

mass segments 2) Adequate installed capacity for 2-3 years. Current capacity of 57,600 CBM and

operating at ~40 CUF% 3) Strong distribution network (pan-India presence). 4) Backward integration for UNIP. 5) GST now @ 18% vs. 28% earlier resulting in lower price difference (currently at

15%) between organised and unorganised (was 25% earlier). All these factors place UDL as a strong candidate for healthy revenue growth. We expect UDL to see revenue of Rs 2.1/2.7bn in FY19/20 with improvement in utilization levels to 70%/90% in FY19/20.

UDL: Plywood Business – Revenue & OPM (%) RHS UDL: Adj. PAT, PAT margin (%)*

Source: Company, PhillipCapital India Research Estimates Note*: UDL PAT Ex. Royalty Paid to UNIP

Strong product profile (product mix), moving up in premium products

Management expect sales of products like ATS to increase to 30% from currently 15% as it is focusing more on high-margin products.

Lately, realisation has improved as UDL has hiked prices by 3% (to pass on higher RM cost).

We expect these factors (Product mix) to lead to 120bps higher margins over the next two years. PC: OPM of 8.4%/8.9% in FY19/FY20 with EBITDA of Rs 179/242mn. With strong revenue visibility, improved utilization, and improvement in margins, UDL will report strong improvement in profitability (PAT). We see PAT at Rs 24/62mn in FY19/20 (after deducting Rs 75mn annually – Royalty payment to Uniply for using UNIPLY as a brand). With not much capex under way and higher asset sweating, we expect improvement in return ratios. UDL will start generating FCF from FY20 onwards.

74

0

57

9

17

8

92

7

2,1

36

2,7

31

2.6%

4.0%

-0.4%

7.7% 8.4%

9.2%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

-

500

1,000

1,500

2,000

2,500

3,000


1

1 (10) 47 99 142

0.1% 0.2%

-5.8%

5.1% 4.6%

5.2%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

(20)

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20

40

60

80

100

120

140

160


PAT (Rs mn) PAT Margin (%) RHS

Plywood

(Rs/sft) Uniply Century Price diff.

4mm 64 63 1.6%

4mm 83 77 7.8%

9mm 96 94 2.1%

12mm 121 115 5.2%

16mm 154 143 7.7%

19mm 177 162 9.3%

Source: PhillipCapital Channel Check

Maharashtra prices

FY18 numbers reflects

only five months of UNIP

plywood business. From

FY15-17 it became Uniply

Décor (plywood business)

Additionally UDL, is a backbone (backward integration) for UIL, as around 60% of the consumables (plywood, laminates and flooring) that Vector buys is now sourced from UDL

Channel check: Uniply is a Premium brand and has price difference of ~ 5% This help company to enjoy high margins

Channel check: Uniply Premium brand in the space and has a superior price which will help them in improving profitability (Maharashtra prices)



UNIP: Healthy order book, strong revenue visibility UNIP (along with Vector and Artmatrix) is now an architecture, design and

interior fit out company, which handles large projects in the commercial and residential space — from designing, to fully furnished spaces, including electrical and plumbing works.

As of now, UNIP’s construction order book spans commercial and residential spaces across Maharashtra, Karnataka, Telengana, Tamil Nadu and Delhi. It is increasing its footprint pan-India and Artmatrix allows it to spread its wings in overseas markets (as Artmatrix has a strong presence in 22 countries).

With two years of restructuring, strong product profile (complete solution), and a dynamic management team, UNIP has a strong order book of Rs 15bn in design and turnkey projects, which has led to sizeable expansion in its business (reflected in healthy order book). Orders are likely to be executed over the next 15-18 months.

Order book: Break up – FY18 Rs 15bn order book


Significant strides in expanding national footprint of building solutions business because of improved distribution network and better product profile.

With India’s lifestyle standards increasing, the Pradhan Mantri Awas Yojna, RERA, Smart Cities, and the government’s other strategic initiatives, we foresee tremendous demand for integrated and turnkey building solutions providers. Uniply is well places to capture huge demand in this space and will focus on residential and commercial building solutions.

Experienced management team: Mr Sarma with 35 years of experience in IT (TCS) and Mr Rao with 30 years in banking will put Uniply in the priority list of many big corporate. We expect that over the next two years it will bag ~Rs 25bn of orders.

UNIP: Order book (Rs bn) and book-to-sales (x)


Affordabel Housing, 6000

Others, 3500

Furniture & Fit Outs, 5500

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

-

5,000

10,000

15,000

20,000

25,000

FY17 FY18e FY19e FY20e

Order Book Order Book to Sales (x) RHS

FY18: Order book of Rs 15bn We expect execution to pick up from FY19.

16% Order book CAGR

over FY18-FY20e

Key orders: Order wins in design and builds projects to be executed in the next 15-18 months:

– Rs 5.0bn affordable housing project in Telangana covering nearly 5,000 homes

– Other projects across India in the commercial sector

– Win by Vector – from key clients such as TCS, Infosys, JP Morgan



UNIP: Consolidated financials Strong order book: Rs 15bn in design and build turnkey projects (L1 in ~Rs 4bn of

projects – PC estimate), which provides strong revenue visibility for 1-2 years; executable over 15 months.

9MFY18: Revenue of Rs 2.7bn, EBITDA of Rs 517mn, OPM of 19%, PAT of Rs 185mn.

Project execution to pick up from FY19.

UNIP PC expectations: FY19/20 revenue at Rs 7.1/13.8bn, majorly driven by improvement in execution cycle and large-ticket-size projects which will be completed in FY19-20.

UNIP: Revenue – strong execution EBITDA, OPM


UNIP margins to improve to 13.3% in FY20 from 11.7% in FY17, majorly driven by strong operating leverage and product mix. We expect major saving will come from employee cost – currently 9% of sales. Additionally, we have not factored Artmatrix (a premium furniture business) numbers in our FY20 estimates. This segment has high double-digit margins.

UNIP – Key Financials: Rs mn FY16 FY17 FY18e FY19e FY20e

Revenues 1,357 2,747 3,693 7,091 13,888

Operating Profit 162 323 584 929 1,850

Profit after tax 38 133 228 417 907

Net worth 585 1,529 3,656 4,031 8,879

Debt 580 2,427 2,699 4,253 6,561

Capital Employed 1,145 3,992 6,391 8,321 15,477

Gross Fixed Assets 386 1,014 1,259 1,459 1,669

Cash & Bank balance 13 850 2,779 337 264

Investments 0 26 1,699 4,689 7,689


1,167 1,357

2,747 3,693

7,091

13,888

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000


114 162

323

584 929

1,850

9.8% 12.0%

11.7%

15.8%

13.1% 13.3%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

-

400

800

1,200

1,600

2,000


EBITDA (Rs mn) OPM (%) RHS

Management expects a revenue of Rs 11bn in FY19 and Rs 18bn in FY20

Uptake in Order execution

Networth includes - fund raised of ~Rs 6.0bn (through preferential and warrants)

Networth includes - fund raised of ~Rs 6.0bn (through preferential and warrants)

Increase in debt mainly on account of increase working capital loan.

In investments we have added – fund raised of ~Rs 6.0bn (through preferential and warrants) As we have not taken Artmatroix no in our estimates.



Sensitivity Analysis: Execution rate and profitability

Sensitivity with PC estimates Variation with PC estimates FY19: Execution rate with operating margins... ...variation with PC estimates

Revenues / Execution rate (%)

Revenue - FY19 4,610 5,850 7,091 9,075 11,308

Execution / Margin 18.6% 23.6% 28.6% 36.6% 45.6%

12.1% 558 708 858 1,098 1,368

12.6% 581 737 893 1,143 1,424

13.1% 604 766 929 1,188 1,481

13.6% 627 795 964 1,234 1,537

14.1% 650 825 999 1,279 1,594


Revenue - FY19 4,610 5,850 7,091 9,075 11,308


12.1% -40% -24% -8% 18% 47%

12.6% -37% -21% -4% 23% 53%

13.1% -35% -17% 0% 28% 59%

13.6% -33% -14% 4% 33% 66%

14.1% -30% -11% 8% 38% 72%

FY19: Execution rate with PAT margins... ...variation with PC estimates


Revenue - FY19 3,370 5,850 7,091 9,075 11,308


4.6% 164 286 346 443 552

5.1% 181 315 381 488 608

5.6% 198 344 417 534 665

6.1% 215 373 452 579 721

6.6% 232 403 488 624 778


Revenue - FY19 3,370 5,850 7,091 9,075 11,308


4.6% -60% -30% -15% 9% 35%

5.1% -56% -23% -7% 20% 49%

5.6% -51% -16% 2% 31% 63%

6.1% -47% -9% 11% 42% 77%

6.6% -43% -1% 20% 53% 91%


In FY19, we have taken a execution rate of 29% and we expect a revenue of Rs 7.0bn vs. management expectation of Rs 11bn.

For FY20, our execution rate is 41% and we expect revenue of Rs 13.9bn.

We have factored lower execution, mainly to keep some unforeseen delay in execution or revenue booking. If there are none, our numbers have scope for positive revision. FY20: Execution rate with operating margins... ...variation with PC estimates


Revenue – FY20 8,830 12,202 13,888 15,574 18,271


12.3% 1,088 1,504 1,712 1,919 2,252

12.8% 1,132 1,565 1,781 1,997 2,343

13.3% 1,177 1,626 1,850 2,075 2,434

13.8% 1,221 1,687 1,920 2,153 2,526

14.3% 1,265 1,748 1,989 2,231 2,617


Revenue – FY20 8,830 12,202 13,888 15,574 18,271


12.3% -41% -19% -8% 4% 22%

12.8% -39% -15% -4% 8% 27%

13.3% -36% -12% 0% 12% 32%

13.8% -34% -9% 4% 16% 36%

14.3% -32% -6% 8% 21% 41%

FY20: Execution rate with PAT margins... ...variation with PC estimates


Revenue – FY20 10,516 12,202 13,888 15,574 18,271


5.2% 582 675 768 862 1,011

5.7% 634 736 838 939 1,102

6.2% 687 797 907 1,017 1,193

6.7% 740 858 977 1,095 1,285

7.2% 792 919 1,046 1,173 1,376


Revenue – FY20 10,516 12,202 13,888 15,574 18,271


5.2% -34% -23% -13% -2% 15%

5.7% -28% -17% -5% 6% 25%

6.2% -22% -10% 3% 15% 35%

6.7% -16% -3% 11% 24% 46%

7.2% -10% 4% 19% 33% 56%




Outlook and valuation: Huge potential In the backdrop of its operational strengths, improving financials and strong order book, we believe that the UNIP is a candidate for rerating. Then (FY11 to FY17) Now

Higher sales of lower margin product

Higher cost RM

Lower plant utilisation (operating @ 40%)

Higher debt and interest cost

Higher working capital cycle.

All these factors resulted in lower profitability,

and increase in debt (working capital)

With the new management coming in, its first focus

was on reducing debt, interest, and lowering working

capital. In its first year of operation, UNIP started

showing results and profit.

Strong revenue visibility with an order book of

Rs 15bn (to be executed over 15 months)

Strong product mix (complete building

solutions)

Diversified customer base (India + overseas)

Strong brands (Uniply, Vector, Artmatrix)

Management team with vast experience

Healthy balance sheet and cash flow, which will

support strong growth.

Over the next two years, the UNIP business will show very strong growth in revenue, improvement in margins and return ratios, majorly driven by:

Improvement in execution cycle (Will pick up from FY19)

Product mix (all of UNIP’s offerings enjoy higher margins of 10%-15%, excluding Artmatrix)

Tight control on the working-capital cycle (PC: 148 days vs. management estimate of 100 days). We have taken higher working capital days majorly to factor any unforeseen delay in receivables.

Higher asset-turnover (moved to an asset-light model)

158bps improvement in operating margins between FY17 and FY20e We expect UNIP to report healthy revenue of Rs 7.1/13.8bn in FY19/20, with an order book of Rs 15bn executable over next 15 months. Backed by operating leverage, we expect 158bps margin improvement between FY17 and FY20.To support its strong growth, and factoring in the nature of its business, we expect a working capital cycle of 148 days (management estimate is 100 days). This will result in increase in working capital debt. We expect UNIP to report a PAT of Rs 417mn/907 mn in FY19/FY20. At its CMP, UNIP trades at a FY19/20 PE of 36x/17x and EV/EBITDA of 20x/11.5x. We value company on SOTP based valuation, Our TP is Rs 600, We Initiate our coverage with BUY recommendation.

SOTP Breakup 1) Vector - (Interiors/Furniture)

PAT - Rs mn 342

PE (x) 20

Vector/ Share Value (Rs) 284

2) Uniply - S.A. (Construction + Design + MEP)

PAT - Rs mn 543

PE (x) 13

Uniply - S.A. (Construction & architect)/ Share Value (Rs) 295

3) Uniply Decor - 37% Shake

PAT - (37% of Uniply Decor) 25

PE (x) 20

Uniply Decro - 37% Shake/ Share Value (Rs) 21

TP - Uniply (1+2+3) 600




UNIP: PE band (trading at below 1 SD) PAT CAGR over FY17-20 and FY20 PER: building material and EPC companies

Source: PhillipCapital India Research Estimates

Peer comparison: Building material companies

Financials Company MCap

(Rs bn)

__Revenue (Rs mn)__ _______OPM (%)_______ _______EPS (Rs) _______ _____Debt (Rs mn)______

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Green ply 37.8 17,296 21,006 26,138 14.9 14.8 15.4 12.1 13.1 16.5 6,145 6,909 5,700

Century Ply 72.5 20,589 25,472 29,448 16.1 18.0 18.6 7.9 11.7 14.6 7,056 6,101 3,817

Green lam 29.5 11,606 13,212 15,308 13.8 15.0 15.8 28.3 39.1 52.1 1,869 1,139 212


Key ratios

_______P/E (x) _______ ____EV/EBITDA(x)____ _____EV/Sales (x)____ _______ROE (%) ______ _____ROCE (%) ______

Company FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Green ply 25.6 23.5 18.7 16.6 13.7 10.6 2.5 2.0 1.6 16.8 15.5 16.7 17.1 16.3 18.1

Century Ply 40.9 27.8 22.2 23.2 16.8 14.1 3.8 3.1 2.6 22.4 26.9 27.5 18.0 25.0 30.0

Green lam 42.1 30.5 22.9 19.5 15.8 12.9 2.8 2.4 2.0 21.1 23.6 25.0 22.2 26.8 31.4


Peer comparison: EPC companies

Financials Company MCap

(Rs bn)

__Revenue (Rs mn)__ _______OPM (%)_______ _______EPS (Rs) _______ _____Debt (Rs mn)______

FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Ahluwalia 23.7 16,827 19,132 22,412 13.4 13.4 13.2 18.1 21.9 25.9 (922) (1,457) (2,347)

PSP 17.5 7,457 13,385 15,307 12.4 12.7 13.1 16.8 29.9 35.6 (1,212) (2,112) (3,555)

Capacite Infra 22.7 14,375 17,563 22,082 14.7 14.2 14.2 13.0 16.7 21.9 (3,191) (4,107) (5,104)


Key ratios

_______P/E (x) _______ ____EV/EBITDA(x)____ _____EV/Sales (x)____ _______ROE (%)______ _____ROCE(%)______

Company FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Ahluwalia 19.7 16.2 13.7 18.2 15.2 11.7 2.7 2.2 1.8 21.2 20.9 20.4 19.0 19.0 18.0

PSP 28.7 16.1 13.5 23.9 18.1 14.9 3.8 3.0 2.6 29.3 30.3 27.7 18.0 23.0 21.0

Capacite Infra 25.6 19.9 15.2 10.7 5.2 3.4 1.0 0.7 0.5 16.2 13.5 15.4 15.0 12.2 14.0

Source: Bloomberg, PhillipCapital India Research Estimates

Avg

+1SD

-1SD

0

10

20

30

40

50

60

Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18

P/E

UNIPLY

-20%

0%

20%

40%

60%

80%

100%

120%

5.0 15.0 25.0 35.0 45.0

PE - FY20

EPC Construction Companies

Ply Board Companies



UNIP: Experienced management team with a focus on execution Management Role Experience

Keshav Kantamneni Chairman • 12 years of experience in General Management, Finance & Banking and Management Consulting

Srinivasan Sethuraman Managing Director • 20 years across various operating functions

• Founder KASG Finnaissance, which provides strategic consultancy services to mid-sized companies

• Formerly head of corporate finance for CATISA

BVM Sharma Joint Managing Director • 33 years of experience in construction and infrastructure

• Formerly head of TCS of infrastructure planning; executing 33mn sq. ft. of IT space

• Conceptualisation and execution of Tidel Park in Tamil Nadu with 1.2mn sq. ft. area

Umesh Rao Joint Managing Director • 34 years of experience in infrastructure, interior design project development

• Delivered 1,500 projects with 10mn sq.ft. area

• Former head of infrastructure at ICICI

• Built Vector Projects from scratch to Rs 2bn top line in 16 years

Ramesh Malpani Joint Managing Director •40 years experience in plywood industry

•Former Head of Operations for Greenply Industries

Industry landscape

Plywood The Indian plywood industry’s size is Rs 200bn (30% organized, within which 20% of the industry is split between the top-2 brands – Century and Greenply). After GST, the price (final product) difference between organised and unorganised players has reduced to 15% from 25% earlier. Additionally, with E-Way bill implementation from February 2018, we expect a faster shift towards organized players, increasing the market size of branded players.

Size of the wood panel industry (USD bn) Plywood industry – largely unorganised


Indian plywood industry Plywood industry value chain Market size

(Rs bn)

FY16

Market

share

CAGR FY10-

16

Brand break up (Rs mn) Market leaders Organised/unorganised

mix

Luxury/ Premium plywood - (Rs140-

100/sqf)

35 19% 15% Tire I Brand- Rs. 15bnTire II Brand- Rs.

10bn Tire III Brand- Rs. 10bn

Largely organised 70:30

Medium/Mass plywood - (Rs70-

90/sqf)

105 58% 5% -7% Tire I Brand- Rs. 4bn

Tire II Brand- Rs. 11bn Unorganised

Brand- Rs. 90bn

Largely organised 15:85

Low-end

plywood - (Rs40-60/sqf)

40 22% 0%-1% Unorganised Only Largely

unorganised

00:100

Plywood Total 180 67% 6-8% 25:75


2.5 2.6 2.8 3

0.6 0.7

0.8 0.9

0.4 0.5

0.6 0.7

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2013 2014 2015 2016

Plywood Laminates Engineered Products

Organised market, 70%

Unorganised market, 30%



Brand plays a important role Besides, there is a growing respect for branded products (slightly more expensive) over those produced by unorganised manufacturers (slightly cheaper). Consumers’ growing preference for environment-friendly brands presents a good opportunity for all players including Uniply. Indian building solutions and interior fit-outs industry has a size of Rs 2,000 to 4,000bn (according to the management). While the industry is growing, it is currently dominated by unorganized and fragmented service providers. However, exposure to global design trends is slowly pushing customers towards branded solutions providers with back-end integration to factory-based made-to-order fit-outs, which offers better cost advantages, design flexibility, uniformity, and flawless execution. The industry is also seeing lesser reliance on imports, as domestic manufacturers compete with ‘foreign’ products. E-commerce has also allowed manufacturers to offer their products and solutions to a larger customer base at a lower cost as compared to brick and mortar stores. The building solutions and interior fit-outs market should consolidate and grow at about 7% until 2022, with home furnishings being the largest contributor, followed by office and institutional furniture. Growth divers:

Shifting emphasis to overall solutions from furniture fabrication.

Customer wants integrated offerings on time, and within their budgets.

Growing aspiration levels of a population of 1.3bn; consumption and living standards will only keep increasing.

Large-scale strategic initiatives by the Indian government : Pradhan Mantri Awas Yojana Real Estate Regulation & Development Act (RERA) Smart Cities (in the recent budget, the government increased allocation to this

project to Rs 62bn from Rs 40bn earlier).

Uniply: Moving towards a bigger addressable market (providing complete building solutions)


Design industry by turnover

Number of Companies (in %)*

Design Area less than Rs mn 25 Rs mn 25 - 49 Rs mn 50 - 250 Rs mn 250 +

Architectural Design 50 17 17 16

Interior Design + Landscape Architecture+ Furniture Design 47 10 26 17

Fashion + Textile + Jewellery + Leather Design 73 9 9 9

Graphic Design 64 12 15 9

Animation + New Media Design 53 0 20 27

Industrial + Automotive + Retail Design 55 5 24 16

Allied (Toy + Set & Exhibition + Design Research) 22 11 44 23

HCI 43 0 29 28

(*Based on a sample size of 170 studios surveyed) Source: CII National Committee on Design

Organised market, 70%

Unorganised market, 30%

Indian plywood industry: Rs 200bn

Management speak on the Indian plywood industry: India has half a dozen cement companies with an installed capacity in more than 5mn TPA and there are half a dozen steel companies with an installed capacity of more than 1mn TPA, but when it comes to interior infrastructure such as plywood, there are just two prominent pan-India brands. We believe that as India builds more and larger homes and offices, plywood consumption will increase, and consumers will gravitate towards value-added plywood. This will create opportunities for many large and profitable plywood brands, including Uniply

The size of the Indian building

solutions and interior fit-outs

industry is Rs 2,000bn and it is

completely unorganised and

fragmented. This provides larger

scope for organised players to gain

market share



Financials

Income Statement Y/E Mar, Rs mn FY17 FY18E FY19E FY20E

Net sales 2,747 3,693 7,091 13,888

Growth, % 102% 34% 92% 96%

Other income 42 52 95 95

Total income 2,789 3,745 7,186 13,983

Raw material expenses 1,879 2,476 4,882 9,591

Employee expenses 250 352 608 1,090

Other Operating expenses 295 281 672 1,356

EBITDA (Core) 365 636 1,024 1,945

Growth, % 124.6% 74.3% 61.0% 90.1%

Margin, % 13.3% 17.2% 14.4% 14.0%

Depreciation 28 45 58 63

EBIT 336 590 966 1,883

Growth, % 130.7% 75.5% 63.6% 94.9%

Margin, % 12.2% 16.0% 13.6% 13.6%

Interest paid 140 259 348 541

Non-recurring Items -2 0 0 0

Pre-tax profit 195 331 618 1,342

Tax provided 62 110 210 460

Profit after tax 133 222 408 882

Others (Minorities, Associates) 0 6 9 25

Net Profit 133 228 417 907

Growth, % 267% 71% 83% 118%

Net Profit (adjusted) 135 228 417 907

Unadj. shares (m) 24 24 24 34

Balance Sheet Y/E Mar, Rs mn FY17 FY18E FY19E FY20E

Cash & bank 850 2,779 337 264

Debtors 1,762 1,518 2,945 6,013

Inventory 1,075 727 1,319 2,608

Loans & advances 280 519 499 629

Other current assets 28 1 1 1

Total current assets 3,995 5,544 5,100 9,514

Investments 26 1,699 4,689 7,689

Gross fixed assets 1,014 1,259 1,459 1,669

Less: Depreciation 266 311 369 431

Add: Capital WIP 24 40 30 30

Net fixed assets 773 988 1,120 1,267

Total assets 4,794 8,231 10,909 18,470

Current liabilities 735 724 1,472 2,878

Provisions 67 67 67 67

Total current liabilities 802 791 1,540 2,945

Non-current liabilities 2,463 2,735 4,290 6,598

Total liabilities 3,265 3,526 5,830 9,543

Paid-up capital 239 1,287 1,287 385

Reserves & surplus 1,290 3,417 3,792 8,543

Shareholders’ equity 1,529 4,705 5,080 8,928

Total equity & liabilities 4,794 8,231 10,909 18,470


Cash Flow Y/E Mar, Rs mn FY17 FY18E FY19E FY20E

Pre-tax profit 195 331 618 1,342

Depreciation 28 45 58 63

Chg in working capital 313 590 937 1,875

Total tax paid -24 -110 -210 -460

Other operating activities -473 369 -1,250 -3,081

Cash flow from operating activities -184 849 -522 -1,666

Capital expenditure -71 -260 -190 -210

Chg in investments -587 -1,673 -2,990 -3,000

Other investing activities 41 52 95 95

Cash flow from investing activities -617 -1,881 -3,085 -3,115

Free cash flow -113 1,109 -332 -1,456

Equity raised/(repaid) 758 2,990 0 3,000

Debt raised/(repaid) 966 272 1,555 2,308

Dividend (incl. tax) 0 -42 -42 -59

Other financing activities -131 -259 -348 -541

Cash flow from financing activities 1,593 2,961 1,165 4,708

Net chg in cash 793 1,929 -2,442 -73

Valuation Ratios

FY17 FY18E FY19E FY20E

Per Share data

EPS (INR) 4.0 6.8 12.4 27.0

Growth, % n.a. 71% 83% 118%

Book NAV/share (INR) 63.9 152.9 168.6 263.9

CEPS (INR) 6.7 11.4 19.9 28.8

DPS (INR) - 1.5 1.5 1.5

Return ratios

Return on assets (%) 3% 3% 4% 5%

Return on equity (%) 9% 13% 20% 31%

Return on capital employed (%) 8% 13% 15% 20%

Turnover ratios

Asset turnover (x) 0.7 0.6 - 0.8

Sales/Net FA (x) 3.7 3.9 6.5 11.2

Working capital/Sales (x) 0.9 0.5 0.5 0.5

Receivable days 231 148 150 156

Inventory days 160 84 77 78

Payable days 109 84 86 86

Working capital days 281 148 141 148

Liquidity ratios

Current ratio (x) 5.0 7.0 3.3 3.2

Quick ratio (x) 3.6 6.1 2.5 2.3

Interest cover (x) 2.2 2.1 2.4 2.8

Dividend cover (x) - 6.4 11.6 18.0

Total debt/Equity (X) 1.6 1.6 0.8 0.7

Net debt/Equity (X) 1.0 (0.0) 0.2 0.0

Valuation

Price/Book (x) 9.8 3.2 3.0 1.7

Yield (%) - 0.3 0.3 0.3

EV/Net sales (x) 6.0 4.1 2.7 1.5

EV/EBITDA (x) 51.5 25.6 20.4 11.5

EV/EBIT (x) 49.4 25.3 19.6 11.3



Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

Management Vineet Bhatnagar (Managing Director) (91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6246 4101

Jignesh Shah (Head – Equity Derivatives) (91 22) 6667 9735

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Subodh Gupta, CMT (9122) 6246 4136

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Akshay Mokashe (9122) 6246 4130

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Mid-Caps

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Economics

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Anjali Verma (9122) 6246 4115

Sales & Distribution Asia Sales

Corporate Communications

Ashvin Patil (9122) 6246 4105

Dhawal Shah 8522 277 6747

Zarine Damania (9122) 6667 9976

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Suniil Pandit (9122) 6667 9745

Archan Vyas (9122) 6246 4107

Execution

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Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd

250 North Bridge Road, #06-00 RafflesCityTower,

Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd

B-3-6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur

Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong

Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd

4-2 Nihonbashi Kabutocho, Chuo-ku

Tokyo 103-0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia

ANZTower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, OceanTower Unit 2318

Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, VorawatBuilding, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc.

141 W Jackson Blvd Ste 3050

The Chicago Board of TradeBuilding

Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia

Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia

Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA

PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2483 1919 Fax: (9122) 6667 9955 www.phillipcapital.in

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/



Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.



Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.

Kindly note that past performance is not necessarily a guide to future performance.

For Detailed Disclaimer: Please visit our website www.phillipcapital.in

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.-regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain

business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker-dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer.

If Distribution is to Australian Investors This report is produced by PhillipCapital (India) Pvt Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services Licence No. 246827).

This report contains general securities advice and does not take into account your personal objectives, situation and needs. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with

these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.

PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

http://www.phillipcapital.in/

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