maruti suzuki india limited absolute : relative ......maruti suzuki india ltd. absolute – add...

January 25, 2018Analyst: AshutoshTiwari [email protected] (+91-8128694112 +91 79-40504017) of 12 Before reading this

report, you must refer to the disclaimer on the last page.

Maruti Suzuki India Limited Absolute : ADD

Relative : Benchmark

3QFY18 Result: Estimate (),PT (), Rating () Regular Coverage 5% ATR in 14 Months

Proposed royalty reduction to cushion impact of rising commodity prices – revise to ADD Auto

© 2017 Equirus All rights reserved

Rating Information

Price (Rs) 9,298

Target Price (Rs) 9,772

Target Date 31st Mar'19

Target Set On 25th Jan'18

Implied yrs of growth (DCF) 20

Fair Value (DCF) 8,950

Fair Value (DDM) 2,963

Ind Benchmark -

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 2,808,740

Free Float (%) 43.79 %

52 Wk H/L (Rs) 10000/5708.05

Avg Daily Volume (1yr) 513,973

Avg Daily Value (Rs Mn) 3,839

Equity Cap (Rs Mn) 1,510

Face Value (Rs) 5

Bloomberg Code MSIL IN

Ownership Recent 3M 12M

Promoters 56.2 % 0.0 % 0.0 %

DII 11.0 % -0.5 % -1.4 %

FII 25.8 % 0.5 % 1.3 %

Public 7.0 % -0.1 % 0.1 %

Price % 1M 3M 12M

Absolute -4.1 % 18.1 % 60.2 %

Vs Industry -0.8 % 15.1 % 43.8 %

Tata Motors -5.2 % -5.2 % -27.1 %

M&M 1.8 % 11.4 % 22.2 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 49.2 79.5 57.8 56.6

EPS (18E) 51.5 82.2 59.6 62.7

An upsurge in commodity prices poses a risk to MSIL’s FY19E EBITDA margins as there

may be a lag in passing on the entire impact to customers. However, the Board’s

approval for a downward revision in royalty rates on new models (subject to Suzuki

Board approval) would likely cushion the impact on margins. With strong bookings for

the upcoming Swift, volume momentum will remain strong for MSIL in FY19E,

constrained only by production. MSIL posted a strong 22% yoy EBITDA growth in

3QFY18, which came in 6% ahead of EE driven by the margin beat. Post a sharp run-up

in the stock over the last three months, we believe valuations are inflated and the

risk-reward not as favorable. We therefore revise our rating to ADD (from LONG) with a

Mar’19 TP of Rs 9,772 set at 31x/26x Mar’19/20E EPS.

Board approves downward revision in royalty on new models; final approval from

Suzuki is awaited: MSIL’s board has approved the revision in method of calculating

royalty, which would result in lower royalty payments for new model agreements

starting with Ignis, launched in Jan’17. Management stated that all new models

launched post Jan’17, including the new Dzire and Swift, would fall under this new

arrangement. Considering the combined volumes of these three models last quarter,

warranty would be lower for ~25% of MSIL’s current volumes, a number which will keep

increasing with new model launches. While this is subject to approval from Suzuki,

Japan’s board, we believe MSIL would not have disclosed this development in the

absence of an implicit nod from Suzuki; therefore the chances of implementation are

high. If approved, this will be effective from retrospective basis.

Rising commodity prices to hurt gross margins in FY19E: Both steel and aluminium

prices have run up sharply over the last six months, with the impact on gross margins

likely to be felt from 4QFY18 onwards. While MSIL has taken small price hikes across

models from Jan’18-beginning, these may not be enough to cover the cost increase.

We believe the entire impact may be passed on only with a lag, and there will be

intermediate pain.

Lower other expenses shore up EBITDA; PAT hit by MTM losses: Commodity inflation

in 3Q lead to a 33bps qoq gross margin compression. EBITDA margins tumbled 114bps

qoq on lower gross margins and operating deleverage. Other income tanked 59% yoy/

53% qoq due to MTM losses on investments of ~Rs 3.1bn amid rising yields; we expect

some losses in 4Q as well due to a further increase in G-Sec yield.

Estimate Revision:

Current

Change from previous

(%)

Rs Mn FY18E FY19E FY18E FY19E

Sales 783,858 903,972 -0.4% -0.5%

EBITDA 120,248 138,538 1.3% -0.5%

PAT 77,351 95,226 -3.8% -1.2%

EPS 256.1 315.2 -3.8% -1.2%

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 680,850 783,858 903,972 1,069,943

EBITDA 103,581 120,248 138,538 163,379

Depreciation 26,039 27,679 29,771 32,097

Interest Expense 894 774 192 192

Other Income 22,896 18,590 24,608 29,377

Reported PAT 75,100 81,774 95,226 114,733

Recurring PAT 74,865 77,351 95,226 114,733

Total Equity 370,751 423,446 482,324 555,256

Gross Debt 4,836 0 0 0

Cash 291,741 380,294 447,793 534,171

Rs. Per Share FY17A FY18E FY19E FY20E

Earnings 247.8 256.1 315.2 379.8

Book Value 1,227 1,402 1,597 1,838

Dividends 75.0 80.0 100.0 115.0

FCFF 38.9 385.8 344.2 424.8

P/E (x) 37.5 36.3 29.5 24.5

P/B (x) 7.6 6.6 5.8 5.1

EV/EBITDA (x) 24.5 20.3 17.2 14.0

ROE (%) 22 % 19 % 21 % 22 %

Core ROIC (%) 57 % 81 % 127 % 175 %

EBITDA Margin (%) 15 % 15 % 15 % 15 %

Net Margin (%) 11 % 10 % 11 % 11 %

Maruti Suzuki India Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 14 Months

January 25, 2018 Analyst: AshutoshTiwari [email protected] (+91-8128694112, +91-79-40504017) of 11

Exhibit 1: Domestic and export sales segmentation (in ‘000 units)

Source: Company, Equirus Securities

Exhibit 2: Average selling price and EBITDA margin variation

Source: Company, Equirus Securities

Exhibit 3: 3W domestic & export sales volumes (in ‘000 units)

Source: Siam, Equirus Securities

343 333 322 383 357 383 368

457 401

31 27 26

35 31

32 26

35

31 374 360 348

418 387

414 395

492

431

0

50

100

150

200

250

300

350

400

450

500

3Q FY16 4Q FY16 1Q FY17 2Q FY17 3Q FY17 4Q FY17 1Q FY18 2Q FY18 3Q FY18

('000s)

Thousa

nds

Domestic Vehicle sales Export sales Total vehicle sold

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

370,000

380,000

390,000

400,000

410,000

420,000

430,000

440,000

450,000

460,000


(Rs/car) Blended ASP (Rs/car) Margins - RHS

0

50

100

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250

300

350

400

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500


Mini Cars Compact Cars Super Compact Mid Size Utility Vans Others



Earnings call takeaways

Industry & business update

Domestic PV industry grew at about 6.1% yoy in 3QFY18.

MSIL outperformed the industry, posting 11.7% yoy growth largely driven by the

compacts and UV segments.

The company posted healthy operating margins of 15.8%, a ~102bps yoy expansion.

Margins were driven by an increase in the share of higher-value models, cost

reduction measures taken internally, and lower promotional expenses; however, all

this was partly offset by higher commodity prices and lower other income.

There is a sharp growth in footfalls, while enquiries are growing at ~20% yoy.

In 3QFY18, petrol vehicles outperformed industry growth, growing at 13.8% vs. 6.8%

for the diesel segment.

Diesel segment volumes stood at 113,948 vehicles in 3QFY18.

The decline in exports this quarter is likely to be covered in subsequent quarters.

Rural market saw a robust ~19% yoy growth, with the momentum likely to continue

ahead.

About 20-21% of sales were made to government employees.

Export revenue for 3QFY18 stood at Rs 14.30bn as against Rs 15.65bn in 2QFY18.

Average discount per vehicle was at Rs 17,900 vs. Rs 15,200 last quarter.

The Board has approved a revision in the method of royalty calculation for new

models, starting Ignis, which should result in lower royalty payments. The

implementation however hinges on the approval of the Suzuki Board.

Royalty amount for the quarter was at 5.3% of net sales.

Other income was lower because of MTM provisions of Rs 3.13bn owing to an increase

in G-sec rates.

The company has taken a price hike of 0.75% across models early this year.

Capacity and production

Second shift at the Gujarat plant has commenced and the company is clocking a run-

rate of 20,000 vehicles per month. The localization program for Gujarat is on track

and the company expects localization to reach a level of 60-70% in the next 3-4

years.

New Swift and Baleno will be manufactured from the Gujarat plant.

This quarter, the Gujarat plant contributed 36,000 units and YTD production has

been 95,000. Phase-2 for the Gujarat plant will come on stream from Jan’19.

The company is setting up a R&D centre in Rohtak with a total investment of

Rs 40bn, of which Rs 20bn has already been incurred.

Capex, tax and FY18 guidance

Capex guidance for FY18 is at Rs 40bn, of which 8bn would be invested in land and

property.

Effective tax rate for the year is expected at ~29-30%.

MSIL expects a significant impact of rising material costs going forward.

The Suzuki-Denso Toshiba JV is expected to roll out its first Li-ion battery by 2020.

The company has launched about 30 arena showrooms, and is expected to launch

another 32 arena showrooms this fiscal. MSIL expects to convert all its showrooms to

the Arena platform in 3-4 years.

MSIL will launch a new Swift in February, which will strengthen the product

portfolio.



Quarterly performance, standalone

Rs Mn 3QFY18 3QFY18E 2QFY18 3QFY17 % Change

Comments 3QFY18E 2QFY18 3QFY17

Net Sales 192,832 195,050 217,682 168,882 -1% -11% 14%

Raw Material 133,323 135,755 149,780 117,094 -2% -11% 14%

Employee Cost 6,869 6,827 6,666 6,169 1% 3% 11%

Other Expenses 22,262 23,796 24,460 20,737 -6% -9% 7%

Total Expenditures 162,454 166,378 180,906 144,000 -2% -10% 13%

EBITDA 30,378 28,672 36,776 24,882 6% -17% 22%

Depreciation 6,890 6,922 6,825 6,341 0% 1% 9%

EBIT 23,488 21,750 29,951 18,541 8% -22% 27%

Interest 263 48 150 290 NA 75% -9%

Other Income 2,449 5,448 5,229 5,968 -55% -53% -59%

PBT 25,674 27,150 35,030 24,219 -5% -27% 6%

Tax 7,684 7,656 10,186 6,747 0% -25% 14%

Recurring PAT 17,990 19,494 24,844 17,472 -8% -28% 3%

Extraordinaries 139 0 -3,845 417 NA -104% -67%

Reported PAT 17,851 19,494 28,689 17,055 -8% -38% 5%

EPS (Rs) 59.6 64.5 82.2 57.8 -8% -28% 3%

EBITDA Margin 15.8% 14.7% 16.9% 14.7% 105 bps -114 bps 102 bps

EBIT Margin 12.2% 11.2% 13.8% 11.0% 103 bps -158 bps 120 bps

PBT Margin 13.3% 13.9% 16.1% 14.3% -61 bps -278 bps -103 bps

PAT Margin 9.3% 10.0% 13.2% 10.1% -74 bps -392 bps -84 bps

Tax Rate 29.9% 28.2% 29.1% 27.9% 173 bps 85 bps 207 bps

Raw Material 69.1% 69.6% 68.8% 69.3% -46 bps 33 bps -20 bps

Employee Cost 3.6% 3.5% 3.1% 3.7% 6 bps 50 bps -9 bps

Other Expenses 11.5% 12.2% 11.2% 12.3% -66 bps 31 bps -73 bps

Domestic Volumes 400,586 400,586 457,401 356,503 0% -12% 12%

Export Volumes 30,526 30,526 34,717 30,748 0% -12% -1%

Total Volume 431,112 431,112 492,118 387,251 0% -12% 11%

ASP (Rs/car) 447,290 452,435 442,337 436,105 -1% 1% 3%

EBITDA/car (Rs) 70,464 66508 74,730 64,253 6% -6% 10%



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 256.1 280.1 -9 % Below consensus due to lower margin

assumptions FY19E 315.2 336.6 -6 %

Sales FY18E 783,858 806,740 -3 %

FY19E 903,972 933,179 -3 %

PAT FY18E 81,774 84,450 -3 %

FY19E 95,226 101,736 -6 %

Key Investment arguments:

Largest dealership network, high resale value and lower service cost are key

advantages.

Success of new launches has put MSIL in a strong position to deliver industry-leading

growth.

Volumes to grow at 11% CAGR over FY17-FY20E driven by mid-to-premium segment

cars, leading to better value growth.

Structural growth story; waiting period on key models to help stock trade at

valuation premiums.

Key Estimates:

FY16 FY17 FY18E FY19E FY20E

Volumes ('000) 1,429 1,569 1,753 1,937 2,187

yoy change 11% 10% 12% 11% 13%

ASP (Rs/car) 402,579 433,729 447,137 466,576 489,153

yoy change 4% 8% 3% 4% 5%

Sales (Rs mn) 575,381 680,348 783,858 903,972 1,069,943

yoy change 15% 18% 15% 15% 18%

EBITDA Margin 15.4% 15.2% 15.3% 15.3% 15.3%

EBITDA (Rs mn) 88,844 103,530 120,248 138,538 163,379

Key triggers

Margin decline & volume pressure

Sensitivity to Key Variables % Change % Impact on EPS

Revenue 5 % 4 %

EBITDAM 1 % 5 %

- - -

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.7 % 0.8 11.5 % 2.5 % 0.0 %

- FY18E FY19E FY20-22E FY23-27E FY28-32E

Sales Growth 15 % 15 % 15 % 10 % 8 %

NOPAT Margin 8 % 9 % 9 % 9 % 9 %

IC Turnover 12.28 15.53 21.87 21.87 21.87

RoIC 81.1 % 127.5 % 195.6 % 203.8 % 201.4 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 3,483 3,908 5,015 6,435 7,490

Valuation as of 30thSep'18 3,960 4,442 5,701 7,315 8,515

Based on DCF, assuming 20 years of 13% CAGR growth and 87% average ROIC, we derive

our 31st Mar’19 fair value of Rs 8,950.

Company Description:

MSIL is the leading passenger vehicle manufacturer in India with 47.4% of domestic

market share. The company was established in 1981 as a JV between the Government of

India and Suzuki Motor Corporation (SMC), Japan. Today, it is SMC’s largest subsidiary in

terms of volume of production and sales. SMC owns 56.21% equity stake in the company.

MSIL’s operational structure consists of manufacturing sites at Gurugram and Manesar

with an installed capacity of 1.55mn vehicles per year. It also sources vehicles from

SMC’s new plant in Gujarat, India.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

Maruti Suzuki ADD 9,298 2,808,740 9,772 Mar’19 247.8 256.1 315.2 37.5 36.3 29.5 1,227.3 6.6 22 % 19 % 21 % 0.8 % 0.9 %

TATAMOTORS NA 400 1,270,200 NA NA 22.0 29.0 45.6 18.2 13.8 8.8 30.6 6.4 10 % 56 % 45 % 0.0 % 0.8 %

M&M NA 760 944,826 NA NA 33.7 37.3 44.6 22.5 20.4 17.0 71.8 6.6 27 % 26 % 21 % 0.9 % 0.7 %



Standalone Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18A 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 149,273 178,687 168,882 183,334 175,457 217,682 192,832 197,887 199,984 251,391 224,121 228,476 680,348 783,858 903,972 1,069,943

EBITDA 22,157 30,365 24,882 25,607 23,312 36,776 30,378 29,782 30,998 38,966 33,618 34,957 103,530 120,248 138,538 163,379

Depreciation 6,389 6,291 6,341 7,010 6,839 6,825 6,890 7,125 7,146 7,344 7,541 7,739 26,021 27,679 29,771 32,097

EBIT 15,768 24,074 18,541 18,597 16,473 29,951 23,488 22,657 23,851 31,622 26,077 27,218 77,509 92,569 108,767 131,282

Interest 181 197 290 226 313 150 263 48 48 48 48 48 894 774 192 192

Other Income 4,833 8,189 5,968 4,449 6,827 5,229 2,449 4,085 5,877 5,716 6,423 6,592 22,798 18,590 24,608 29,377

PBT 20,420 32,066 24,219 22,820 22,987 35,030 25,674 26,694 29,681 37,290 32,451 33,762 99,413 110,385 133,183 160,466

Tax 5,558 8,051 6,747 5,730 7,423 10,186 7,684 7,741 8,459 10,628 9,249 9,622 26,086 33,034 37,957 45,733

Recurring PAT 14,862 24,015 17,472 17,090 15,564 24,844 17,990 18,953 21,222 26,662 23,203 24,140 73,327 77,351 95,226 114,733

Extraordinary -54 -1,076 417 -1,504 -717 -3,845 139 0 0 0 0 0 0 -4,423 0 0

Reported PAT 14,916 25,091 17,055 18,594 16,281 28,689 17,851 18,953 21,222 26,662 23,203 24,140 73,327 81,774 95,226 114,733

EPS (Rs) 49.20 79.50 57.84 56.57 51.52 82.24 59.55 62.74 70.25 88.26 76.81 79.91 242.74 256.06 315.23 379.81

Key Drivers

Volumes 348,443 418,470 387,251 414,439 394,571 492,118 431,112 435,262 435,755 543,898 476,390 481,415 1,568,603 1,753,063 1,937,457 2,187,339

ASP 428,400 427,001 436,105 442,367 444,678 442,337 447,290 454,640 458,938 462,202 470,457 474,593 433,729 447,137 466,576 489,153

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue -2 % 20 % -5 % 9 % -4 % 24 % -11 % 3 % 1 % 26 % -11 % 2 % - - - -

EBITDA -5 % 37 % -18 % 3 % -9 % 58 % -17 % -2 % 4 % 26 % -14 % 4 % - - - -

EBIT 0 % 53 % -23 % 0 % -11 % 82 % -22 % -4 % 5 % 33 % -18 % 4 % - - - -

Recurring PAT 1 % 62 % -27 % -2 % -9 % 60 % -28 % 5 % 12 % 26 % -13 % 4 % - - - -

EPS 1 % 62 % -27 % -2 % -9 % 60 % -28 % 5 % 12 % 26 % -13 % 4 % - - - -

Yearly Growth (%)

Revenue 12 % 29 % 12 % 20 % 18 % 22 % 14 % 8 % 14 % 15 % 16 % 15 % -36 % 15 % 15 % 18 %

EBITDA 2 % 35 % 16 % 10 % 5 % 21 % 22 % 16 % 33 % 6 % 11 % 17 % -37 % 16 % 15 % 18 %

EBIT 5 % 53 % 30 % 18 % 4 % 24 % 27 % 22 % 45 % 6 % 11 % 20 % -41 % 19 % 17 % 21 %

Recurring PAT 23 % 60 % 48 % 16 % 5 % 3 % 3 % 11 % 36 % 7 % 29 % 27 % -36 % 5 % 23 % 20 %

EPS 23 % 60 % 48 % 16 % 5 % 3 % 3 % 11 % 36 % 7 % 29 % 27 % -36 % 5 % 23 % 20 %

Margin (%)

EBITDA 15 % 17 % 15 % 14 % 13 % 17 % 16 % 15 % 16 % 16 % 15 % 15 % 15 % 15 % 15 % 15 %

EBIT 11 % 13 % 11 % 10 % 9 % 14 % 12 % 11 % 12 % 13 % 12 % 12 % 11 % 12 % 12 % 12 %

PBT 14 % 18 % 14 % 12 % 13 % 16 % 13 % 13 % 15 % 15 % 14 % 15 % 15 % 14 % 15 % 15 %

PAT 10 % 13 % 10 % 9 % 9 % 11 % 9 % 10 % 11 % 11 % 10 % 11 % 11 % 10 % 11 % 11 %



Consolidated Financials

P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 680,850 783,858 903,972 1,069,943 Equity Capital 1,510 1,510 1,510 1,510 PBT 99,544 110,385 133,183 160,466

Op. Expenditure 577,269 663,610 765,434 906,564 Reserve 369,241 421,936 480,813 553,746 Depreciation 26,039 27,679 29,771 32,097

EBITDA 103,581 120,248 138,538 163,379 Networth 370,751 423,446 482,324 555,256 Others -21,452 4,423 0 0

Depreciation 26,039 27,679 29,771 32,097 Long Term Debt 4,836 0 0 0 Taxes Paid 23,229 33,034 37,957 45,733

EBIT 77,542 92,569 108,767 131,282 Def Tax Liability 11,422 17,879 17,879 17,879 Change in WC 21,918 37,501 18,851 21,349

Interest Expense 894 774 192 192 Minority Interest 154 154 154 154 Operating C/F 102,820 146,954 143,848 168,179

Other Income 22,896 18,590 24,608 29,377 Account Payables 83,692 84,230 97,250 115,122 Capex -33,748 -30,266 -40,000 -40,000

PBT 99,544 110,385 133,183 160,466 Other Curr Liabi 43,840 89,333 105,916 124,153 Change in Invest -58,475 -678 0 0

Tax 26,162 33,034 37,957 45,733 Total Liabilities & Equity 514,695 615,043 703,523 812,564 Others 491 0 0 0

PAT bef. MI & Assoc. 73,382 77,351 95,226 114,733 Net Fixed Assets 133,107 131,934 142,164 150,067 Investing C/F -91,732 -30,944 -40,000 -40,000

Minority Interest 10 0 0 0 Capital WIP 12,523 16,034 16,034 16,034 Change in Debt 2,527 -4,836 0 0

Profit from Assoc. 1,493 0 0 0 Others 16,277 17,204 17,204 17,204 Change in Equity 0 0 0 0

Recurring PAT 74,865 77,351 95,226 114,733

Inventory 32,637 24,198 27,938 33,072 Others -13,820 -22,622 -36,349 -41,801

Extraordinaires -235 -4,423 0 0 Account Receivables 12,026 18,116 20,916 24,760 Financing C/F -11,293 -27,458 -36,349 -41,801

Reported PAT 75,100 81,774 95,226 114,733 Other Current Assets 16,384 27,263 31,475 37,257 Net change in cash -205 88,552 67,499 86,378

FDEPS (Rs) 247.8 256.1 315.2 379.8 Cash 291,741 380,294 447,793 534,171 RoE (%) 22 % 19 % 21 % 22 %

DPS (Rs) 75.0 80.0 100.0 115.0 Total Assets 514,695 615,043 703,523 812,564

RoIC (%) 22 % 19 % 20 % 21 %

CEPS (Rs) 334.0 347.7 413.8 486.1 Non-cash Working Capital -66,485 -103,986 -122,837 -144,186

Core RoIC (%) 57 % 81 % 127 % 175 %

FCFPS (Rs) 38.9 385.8 344.2 424.8 Cash Conv Cycle -35.6 -48.4 -49.6 -49.2 Div Payout (%) 36 % 36 % 38 % 36 %

BVPS (Rs) 1,227.3 1,401.8 1,596.7 1,838.1 WC Turnover -10.2 -7.5 -7.4 -7.4 P/E 37.5 36.3 29.5 24.5

EBITDAM (%) 15 % 15 % 15 % 15 % FA Turnover 4.7 5.3 5.7 6.4 P/B 7.6 6.6 5.8 5.1

PATM (%) 11 % 10 % 11 % 11 % Net D/E -0.8 -0.9 -0.9 -1.0 P/FCFF 239.1 24.1 27.0 21.9

Tax Rate (%) 26 % 30 % 29 % 29 % Revenue/Capital Employed 2.7 2.7 2.6 2.6 EV/EBITDA 24.5 20.3 17.2 14.0

Sales Growth (%) 18 % 15 % 15 % 18 %

Capital Employed/Equity 1.1 1.0 1.0 1.0

EV/Sales 3.7 3.1 2.6 2.1

FDEPS Growth (%) 37 % 3 % 23 % 20 %

Dividend Yield (%) 0.8 % 0.9 % 1.1 % 1.2 %

TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE

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08

Nov/08

Jul/

09

Mar/

10

Nov/10

Jul/

11

Mar/

12

Nov/12

Jul/

13

Mar/

14

Nov/14

Jul/

15

Mar/

16

Nov/16

Jul/

17

Mar/

18

Nov/18

RoE

2x

3x

4x

5x

6x



Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 444,506 508,014 575,890 680,850 Equity Capital 1,510 1,510 1,510 1,510 PBT 37,339 49,760 74,658 99,544

Op. Expenditure 392,467 439,573 487,003 577,269 Reserve 213,454 258,710 304,650 369,241 Depreciation 21,160 25,153 28,218 26,039

EBITDA 52,039 68,441 88,887 103,581 Networth 214,964 260,220 306,160 370,751 Others -7,390 -7,123 -11,978 -21,452

Depreciation 21,160 25,153 28,218 26,039 Long Term Debt 18,653 1,802 774 4,836 Taxes Paid 8,582 10,751 19,475 23,229

EBIT 30,879 43,288 60,669 77,542 Def Tax Liability 10,445 2,650 5,604 11,422 Change in WC 7,419 8,352 14,421 21,918

Interest Expense 1,846 2,178 817 894 Minority Interest 122 134 144 154 Operating C/F 49,945 65,391 85,844 102,820

Other Income 8,305 8,650 14,806 22,896 Account Payables 49,999 56,860 74,089 83,692 Capex -35,360 -32,631 -26,047 -33,748

PBT 37,339 49,760 74,658 99,544 Other Curr Liabi 19,933 32,494 35,578 43,840 Change in Invest -17,102 -15,239 -47,917 -58,475

Tax 9,023 11,854 20,875 26,162 Total Liabilities & Equity 314,115 354,160 422,349 514,695 Others 2,493 2,060 776 491

PAT bef. MI & Assoc. 28,316 37,906 53,783 73,382 Net Fixed Assets 110,337 120,323 125,296 133,107 Investing C/F -49,969 -45,810 -73,188 -91,732

Minority Interest 16 12 10 10 Capital WIP 26,395 18,169 10,069 12,523 Change in Debt 3,790 -13,578 -2,255 2,527

Profit from Assoc. 229 180 998 1,493 Others 31,846 17,078 17,034 16,277 Change in Equity 0 0 0 0

Recurring PAT 28,529 38,074 54,771 74,865 Inventory 17,632 26,831 31,326 32,637 Others -4,529 -6,457 -10,133 -13,820

Extraordinaires 0 0 -191 -235 Account Receivables 14,891 11,181 13,234 12,026 Financing C/F -739 -20,035 -12,388 -11,293

Reported PAT 28,529 38,074 54,962 75,100 Other Current Assets 16,469 14,671 18,125 16,384 Net change in cash -763 -454 268 -205

EPS (Rs) 94.4 126.0 181.3 247.8 Cash 96,545 145,907 207,265 291,741

RoE (%) 14 % 16 % 19 % 22 %

DPS (Rs) 12.0 25.0 30.0 75.0

Total Assets 314,115 354,160 422,349 514,695

RoIC (%) 13 % 16 % 19 % 22 %

CEPS (Rs) 164.5 209.3 274.7 334.0 Non-cash Working Capital -20,939 -36,671 -46,982 -66,485 Core RoIC (%) 19 % 27 % 40 % 57 %

FCFPS (Rs) 4.6 70.3 43.8 38.9 Cash Conv Cycle -17.2 -26.3 -29.8 -35.6 Div Payout (%) 15 % 24 % 20 % 36 %

BVPS (Rs) 711.6 861.4 1,013.5 1,227.3 WC Turnover -21.2 -13.9 -12.3 -10.2

P/E 98.5 73.8 51.3 37.5

EBITDAM (%) 12 % 13 % 15 % 15 % FA Turnover 3.3 3.7 4.3 4.7 P/B 13.1 10.8 9.2 7.6

PATM (%) 6 % 7 % 10 % 11 % Net D/E -0.4 -0.6 -0.7 -0.8 P/FCFF 2,041.8 132.2 212.1 239.1

Tax Rate (%) 24 % 24 % 28 % 26 % Revenue/Capital Employed 2.7 2.6 2.5 2.7 EV/EBITDA 52.9 39.0 29.4 24.5

Sales growth (%) 0 % 14 % 13 % 18 %

Capital Employed/Equity 1.1 1.1 1.1 1.1

EV/Sales 6.2 5.3 4.5 3.7

FDEPS growth (%) 16 % 33 % 44 % 37 %

Dividend Yield (%) 0.1 % 0.3 % 0.3 % 0.8 %



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 SubhamSinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 Sweta Sheth [email protected] 91-22-43320634

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Maulik Patel Oil and Gas [email protected] 91-79-61909519 IleshSavla [email protected] 91-22-43320666

PrafulBohra Pharmaceuticals [email protected] 91-79-61909532 Manoj Kejriwal [email protected] 91-22-43320663

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Dharmesh Mehta [email protected] 91-22-43320661

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Pranav Mehta [email protected] 91-79-61909514

Ronak Soni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

Shreepal Doshi [email protected] 91-79-61909541

Varun Baxi [email protected] 91-79-61909527

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

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Analyst Certification

I, Ashutosh Tiwari, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also

certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

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merchant banking services, private equity, mergers & acquisitions and structured finance.

As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for

investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have

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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

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