balkrishna industries ltd. absolute : relative : benchmark ...€¦ · reported 17% yoy volume...

August 1, 2017 Analyst: AshutoshTiwari [email protected] (+91-8128694112, +91 79-61909517) of 13

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

Balkrishna Industries Ltd. Absolute :ADD

Relative : BENCHMARK

1QFY18 Result: Estimate (), TP (), Rating () Regular Coverage 5% ATRin 17 Months

Management commentary points to sharp margin recovery over coming quarters Auto Parts

© 2017Equirus All rights reserved

Rating Information

Price (Rs) 1,626

Target Price (Rs) 1,739

Target Date 30th Sept'18

Target Set On 28th May'17

Implied yrs of growth (DCF) 15

Fair Value (DCF) 1,210

Fair Value (DDM) 599

Ind Benchmark BSEAUTO

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 157,254

Free Float (%) 45.63 %

52 Wk H/L (Rs) 1750/705

Avg Daily Volume (1yr) 344,773

Avg Daily Value (Rs Mn) 422

Equity Cap (Rs Mn) 193

Face Value (Rs) 2

Bloomberg Code BIL IN

Ownership Recent 3M 12M

Promoters 54.4 % 0.0 % -3.9 %

DII 13.8 % 0.5 % -0.7 %

FII 18.3 % 0.0 % 0.4 %

Public 13.6 % -0.5 % 4.3 %

Price % 1M 3M 12M

Absolute -2.2 % 6.8 % 123.1 %

Vs Industry -6.9 % -0.8 % 106.9 %

APOLLOTYRE 10.5 % 9.0 % 62.9 %

MRF 1.1 % 1.8 % 104.2 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 15.4 25.1 19.2 14.2

EPS (18E) 15.8 17.3 18.7 21.5

Balkrishna Industries (BIL) delivered a soft 1Q due to volume miss and RM pressures;

however, management remains confident of achieving its FY18E guidance and also

guided for FY18E EBITDA margins of ~30% (1QFY18: 26%). The industry is also buoyant

with global leaders like Michelin and Trelleborg witnessing 17% volume growth and

8% yoy organic growth respectively in 2QCY17. We however cut our FY18E volumes by

1% as 1Q and 4Q are seasonally strong quarters, and therefore believe the 1Q miss

could be difficult to make up for. We accordingly pare our FY18E EPS by 6% but

increase our FY19E EPS by 2%. Maintain ADD with a Dec’18 TP of Rs 1,739 set at 20x

Dec’18 EPS (Sep’18 TP of Rs 1,656 earlier). Volume growth of larger global players points to market buoyancy: Michelin

reported 17% yoy volume growth in its specialty tyres segment during 2QCY17 and

16% growth for 1H. Growth was driven by mining tyres, a segment which is bouncing

back from years of decline. Trellebrg also reported an 8% yoy growth in organic

sales. Commentary from other market players has also been good, which should

benefit BIL as well in FY18. We have cut FY18E volumes by 1% but still expect 8%

volume growth; management is confident of achieving its guidance of 185-190k, in

fact talked about possibility of beating the same as well. Ultra-large mining tyres trials going well; contribution likely from 2HFY18: BIL has

been undertaking trials of ultra-large mining tyres like 2749 at 6-7 locations across

geographies; as per management, trials are going well as of now. Our channel checks

indicate that trials of radial tyres are still underway; however, the long life of tyres

and attractive pricing offers a good value proposition, which should benefit BIL. Even

in 1QFY18, BIL witnessed higher growth in mining tyre sales, contribution of which to

total sales increased to 12% from 10% in 1QFY17. Profitability hit by higher RM prices which peaked out in 1Q; price hikes partially

rolled back: ASPs increased only 2% qoq despite higher price increases taken from

Apr’17; management stated that while prices were hiked by 3-4%, these hikes were

partially rolled back as RM prices had started declining during the quarter. As RM

prices impact P&L with a lag, RM cost/kg increased 10% qoq and 27% yoy. EBITDA/kg

declined 19% yoy and 8% qoq to come in 15% below EE at Rs 60. Management has

guided for full-year realizations of ~Rs 230 and margins of around 30%, implying an

EBITDA/kg of ~Rs 69. Euro-INR realizations are expected to improve to Rs 81-82 in

FY18 vs. Rs 77-78 in FY17, shoring up profitability.

Estimate Revision:

Current

Change from previous

(%)

RsMn FY18E FY19E FY18E FY19E

Sales 43,421 50,004 -3.7% -0.2%

EBITDA 11,944 14,628 -10.7% 0.6%

PAT 7,147 8,716 -6.4% 2.1%

EPS 73.9 90.2 -6.4% 2.1%

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 37,838 43,421 50,004 55,112

EBITDA 11,310 11,944 14,628 15,777

Depreciation 3,040 3,109 3,199 3,281

Interest Expense 220 46 30 30

Other Income 2,536 1,747 1,420 1,929

Reported PAT 8,326 7,112 8,716 9,787

Recurring PAT 7,169 7,147 8,716 9,787

Total Equity 35,429 41,378 48,640 56,740

Gross Debt 7,970 1,990 1,990 1,990

Cash 13,740 14,068 22,246 31,745

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 74.2 73.9 90.2 101.3

Book Value 367 428 503 587

Dividends 8.0 10.0 12.5 14.5

FCFF 69.9 77.6 99.9 115.9

P/E (x) 21.9 22.0 18.0 16.1

P/B (x) 4.4 3.8 3.2 2.8

EV/EBITDA (x) 13.7 12.5 9.6 8.3

ROE (%) 23 % 19 % 19 % 19 %

Core ROIC (%) 17 % 18 % 24 % 27 %

EBITDA Margin (%) 30 % 28 % 29 % 29 %

Net Margin (%) 19 % 16 % 17 % 18 %

Balkrishna Industries Ltd. Absolute –ADD Relative – BENCHMARK 5% ATR in 17 Months

August 1, 2017 Analyst: Ashutosh Tiwari [email protected] (+91-8128694112, +91 79-40504017) of 12

Concall takeaways:

Market scenario and volumes:

Management stated that the demand scenario continues to improve.

The company is strengthening its distribution network in India to expand

domestic sales.

Management is confident of meeting its FY18 annual volume guidance of

185,000-190,000MT and may even revise it upwards.

While BIL had taken a 3-4% hike earlier, the company partially rolled it back in

select markets due to a decline in RM prices. No further reduction in pricing is

expected.

RM inventory days are normally 60-75 days for 1Q.

Full-year EBITDA margin is expected at 30%.

BIL does not see significant savings on logistics costs in India post GST, as it does

not follow a depot structure and dispatches goods directly to dealers.

Of the total production of 47,000 tons during the quarter, Bhuj production stood

at 15,376 tons.

Geographical breakup of volumes was as follows: Europe 55%, America 14-15%

and India 17%.

In terms of new geographies, the focus will be on Russia, CIS and certain parts of

the US where the company does not have a significant presence.

Management endeavors to increase penetration in OEM and replacement

segments.

OEM sales for the quarter stood at 26% and should increase at a steady pace to

32% in the next three years.

Though the non-agri segment is expected to yield better growth than the agri

segment, the focus will remain on the latter because of its non-cyclic nature.

BIL is getting a good response for mining tyres, especially from the replacement

market.

The proportion of mining tyre sales increased from ~10% in 1QFY17 to 12% in

1QFY18.

Forex and other highlights:

Realized forex gains pertaining to sales were at Rs 630mn for 1Q.

BIL booked an unrealized loss of Rs 100mn during the quarter.

MTM on currency futures outstanding are directly taken through the balance

sheet.

Euro-INR realizations for FY18E are expected at Rs 80-81 vs. 74-75 last year.

The company hedges 80-85% of its net exposure for Euro forex risk, and covers

its dollar exposure through imports.

On the debt front, BIL’s gross long-term loan stands at US$ 4.34bn. In

comparison, cash and cash equivalents were at 11.4bn, making the company net

debt-free.

Carbon black facility:

As part of its backward integration plan, BIL will incur a capex of Rs 1.5bn for

setting up a carbon black facility (annual capacity: 60,000MT) at the Bhuj plant.

This facility will be ready in 18-24 months.

At the current volume run-rate, BIL’s carbon black requirement is ~27% or 50k

tons. By the time the plant comes on stream, the requirement will increase to

over 60k tons.

Feed stock used in the plant will generate steam as a by-product, which can be

utilized in the tyre manufacturing process.

BIL expects the plant to generate a ROIC of more than 20% and 10% cost savings

on carbon-black sourcing. It will also help save on logistics and planning fronts.



Exhibit 01: Quarterly sales volume (tons)

Exhibit 02: ASP/kg & Raw material cost/Kg trend (Rs)

Source: Company, Equirus Securities

Exhibit 03: Quarterly EBITDA/kg (Rs)

Exhibit 04: Annual Sales volumes &EBITDA margins

Source: Company, Equirus Securities

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,0001Q

FY14

2Q

FY14

3Q

FY14

4Q

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1Q

FY15

2Q

FY15

3Q

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4Q

FY15

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FY16

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FY16

4Q

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1Q

FY17

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4Q

FY17

1Q

FY18

234 244 250 245 247 250 256 261

231 238 239

251

225 224 227 227 232

122 121 121 119 124 124 120 120 107

95 92 88 89 86 89 102

113

0

50

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300

1Q

FY1

4

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6

1Q

FY1

7

2Q

FY1

7

3Q

FY1

7

4Q

FY1

7

1Q

FY1

8

ASP/Kg RM cost/Kg

56 51

57 56 62

69

85

112

39

81 77

90

75 77 77

65 60

0

20

40

60

80

100

120

1Q

FY1

4

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FY1

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FY1

7

1Q

FY1

8

56

72 81 84

112

133 138 143 154

148

172 186

208

227

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

-

50

100

150

200

250

Sales Volumes EBITDA Margin



Quarterly Results Table (Standalone)

Rs Mn 1QFY18 1QFY18E 4QFY17 1QFY17 % Change

Comments 1QFY18E 4QFY17 1QFY17

Net Sales 10,128 11,527 10,029 9,420 -12% 1% 8% less: Forex loss/(gain) -630 0 -460 -320 Adjusted Sales 10,758 11,527 10,489 9,740 -7% 3% 10% Materials consumed 5,232 4,985 4,718 3,846 5% 11% 36% Employee Cost 587 634 595 546 -7% -1% 8% Other Expenses 2,147 2,478 2,162 2,119 -13% -1% 1% Total Expenditures 7,966 8,097 7,476 6,510 -2% 7% 22% EBITDA 2,792 3,430 3,014 3,230 -19% -7% -14% Depreciation 755 762 751 775 -1% 1% -3% EBIT 2,037 2,668 2,263 2,456 -24% -10% -17% Interest 51 52 53 66 -2% -2% -22% Other Income 293 281 157 -113 4% 86% -359% PBT 2,278 2,896 2,367 2,277 -21% -4% 0% Tax 747 927 993 786 -19% -25% -5% Recurring PAT 1,531 1,969 1,375 1,491 -22% 11% 3% Extraordinaries 34 0 -811 -154 Reported PAT 1,497 1,969 2,185 1,645 -24% -31% -9% EPS (Rs) 15.8 20.4 14.2 15.4 -22% 11% 3% EBITDA Margin 27.6% 29.8% 30.0% 34.3% -219 bps -248 bps -672 bps Adj. EBITDA Margin 26.0% 29.8% 28.7% 33.2% -380 bps -278 bps -721 bps Adj Gross Margin 51.4% 56.8% 55.0% 60.5% -538 bps -365 bps -915 bps EBIT Margin 20.1% 23.1% 22.6% 26.1% -303 bps -245 bps -595 bps PBT Margin 22.5% 25.1% 23.6% 24.2% -263 bps -111 bps -167 bps PAT Margin 14.8% 17.1% 21.8% 17.5% -230 bps -701 bps -268 bps Tax Rate 32.8% 32.0% 41.9% 34.5% 79 bps -915 bps -174 bps



1QFY18 1QFY18E 4QFY17 1QFY17 % Change

Comments 1QFY18E 4QFY17 1QFY17

Volume (tonnes) 46,327 48,300 46,149 43,306 -4% 0% 7%

ASP/kg (Rs) 219 239 217 218 -8.4% 0.6% 0.5%

Adj ASP/Kg (Rs) 232 239 227 225 -2.7% 2.2% 3.2%

RM cost/kg (Rs) 113 103 102 89 9.4% 10.4% 27.2%

EBITDA/kg (Rs) 60 71 65 75 -15.1% -7.7% -19.2%

Gross Margin 51.4% 56.8% 55.0% 60.5% -538 bps -365 bps -915 bps

RM as % of Sales 48.6% 43.2% 45.0% 39.5% 538 bps 365 bps 915 bps

Empl. Cost as % of Sales 5.5% 5.5% 5.7% 5.6% -4 bps -21 bps -14 bps

Other exp. as % of Sales 20.0% 21.5% 20.6% 21.8% -154 bps -66 bps -180 bps



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 73.9 84.2 -12 % We are conservative in our FY19

estimates FY19E 90.2 100.1 -10 %

Sales FY18E 43,421 44,181 -2 %

FY19E 50,004 50,616 -1 %

PAT FY18E 7,147 8,134 -12 %

FY19E 8,716 9,670 -10 %

Key Drivers:

FY17A FY18E FY19E FY20E

Sales Volume (tons) 172,420 186,397 207,690 227,010

ASP (Rs/kg) 218 233 241 243

RM/kg (Rs) 92 107 106 109

EBITDA/kg (Rs) 66 64 70 70

Risk to Our View: Foreign exchange fluctuations and sharp increases in rubber prices are

major risks

Key Triggers

Fall in rubber and crude prices

Sensitivity to Key Variables % Change % Impact on EPS

Natural Rubber 10 % -5 %

NTCF 10 % -1 %

Carbon Black 10 % -1 %

DCF Valuations & Assumptions

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

6.8 % 1.0 12.8 % 3.0 % 6.4 %

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

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

NOPAT Margin 14 % 16 % 15 % 15 % 15 %

IC Turnover 1.32 1.56 1.56 1.45 1.45

RoIC 17.8 % 24.0 % 25.4 % 23.4 % 23.4 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 659 826 861 945 1,021

Valuation as of Sept'18 782 979 1,020 1,121 1,210

We have valued the company at 20x Dec’18 EPS, deriving our Dec’18 PT of Rs 1,739. Our

DCF-based valuation suggests a Dec’18 TP of Rs 1,210.

Company Description:

Balkrishna Industries has a 5% global market share in off-highway tires (OTR, agri). It gets

90% of revenues from exports. It derives ~55% / 15% of its revenues from Europe and

North America. Company hedges rubber commodity and currency.

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

Balkrishna Industries

ADD 1,626 157,254 1,739 30th Sept'18 74.2 73.9 90.2 21.9 22.0 18.0 366.5 3.8 23 % 19 % 19 % 0.5 % 0.6 %

Apollo Tyres SHORT 266 135 193 30th Sept'18 21.6 16.4 19.0 11.4 15.0 13.0 143.2 1.6 12 % 11 % 12 % 1.3 % 1.0 %

MRF NR 69,100 293 NR NR 3,531.3 4,079.6 5,049.3 19.6 16.9 13.7 3,996.0 2.9 23 % 17 % 22 % 0.1 % 0.0 %



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

Revenue 9,420 9,325 8,822 10,029 10,128 10,747 10,719 11,874 12,804 12,139 11,973 13,137 37,883 43,468 50,053 55,163

Materials consumed 3,846 3,666 3,584 4,718 5,232 4,853 4,657 5,158 5,644 5,351 5,277 5,790 15,813 19,899 22,062 24,659

Employee Cost 546 540 562 595 587 613 611 653 743 692 682 723 2,243 2,464 2,840 3,130

Other Expenditure 2,119 2,045 1,896 2,162 2,147 2,257 2,251 2,493 2,689 2,549 2,514 2,759 8,508 9,148 10,511 11,584

EBITDA 2,910 3,075 2,780 2,554 2,162 3,025 3,201 3,569 3,729 3,547 3,499 3,865 11,319 11,956 14,641 15,791

Depreciation 775 725 788 751 755 767 773 778 783 788 793 798 3,038 3,073 3,163 3,245

EBIT 2,136 2,350 1,992 1,803 1,407 2,257 2,428 2,791 2,946 2,759 2,706 3,067 8,280 8,884 11,478 12,545

Interest 66 47 49 53 51 36 36 36 36 36 36 36 214 160 144 144

Other Income 207 1,035 632 617 923 241 268 305 297 328 369 416 2,491 1,737 1,410 1,919

PBT 2,277 3,338 2,574 2,367 2,278 2,462 2,660 3,060 3,207 3,051 3,039 3,447 10,557 10,461 12,744 14,319

Tax 786 909 718 993 747 788 851 979 1,026 976 972 1,103 3,406 3,366 4,078 4,582

Recurring PAT 1,491 2,429 1,857 1,375 1,531 1,674 1,809 2,081 2,181 2,075 2,066 2,344 7,151 7,096 8,666 9,737

Extraordinary -154 -160 -33 -811 34 0 0 0 0 0 0 0 -1,158 34 0 0

Reported PAT 1,645 2,589 1,890 2,185 1,497 1,674 1,809 2,081 2,181 2,075 2,066 2,344 8,309 7,061 8,666 9,737

EPS (Rs) 15.42 25.13 19.21 14.22 15.84 17.32 18.71 21.53 22.56 21.46 21.38 24.25 73.99 73.41 89.65 100.74

Key Drivers

Sales Tonnage ('000 MT) 43 43 40 46 46 46 45 50 53 50 50 55 172 186 208 227

Realization (Rs/kg) 218 219 218 217 219 236 239 239 241 241 241 241 218 233 241 243

Natural Rubber (Rs/kg) 111 111 115 130 150 138 132 132 136 136 136 136 117 138 136 140

Synthetic Rubber (Rs/kg) 106 106 110 125 145 133 127 127 131 131 131 131 112 133 131 135

NTCF (Rs/kg) 200 206 206 215 225 225 225 225 227 227 227 227 207 225 227 229

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

Sequential Growth (%)

Revenue 8 % -1 % -5 % 14 % 1 % 6 % 0 % 11 % 8 % -5 % -1 % 10 % - - - -

Materials consumed 9 % -5 % -2 % 32 % 11 % -7 % -4 % 11 % 9 % -5 % -1 % 10 % - - - -

EBITDA 33 % 6 % -10 % -8 % -15 % 40 % 6 % 12 % 4 % -5 % -1 % 10 % - - - -

EBIT 46 % 10 % -15 % -9 % -22 % 60 % 8 % 15 % 6 % -6 % -2 % 13 % - - - -

Recurring PAT 10 % 63 % -24 % -26 % 11 % 9 % 8 % 15 % 5 % -5 % 0 % 13 % - - - -

EPS 10 % 63 % -24 % -26 % 11 % 9 % 8 % 15 % 5 % -5 % 0 % 13 % - - - -

Yearly Growth (%)

Revenue 10 % 15 % 26 % 15 % 8 % 15 % 22 % 18 % 26 % 13 % 12 % 11 % 16 % 15 % 15 % 10 %

EBITDA 165 % 20 % 71 % 17 % -26 % -2 % 15 % 40 % 72 % 17 % 9 % 8 % 35 % 6 % 22 % 8 %

EBIT 370 % 26 % 131 % 23 % -34 % -4 % 22 % 55 % 109 % 22 % 11 % 10 % 49 % 7 % 29 % 9 %

Recurring PAT 47 % 129 % 94 % 2 % 3 % -31 % -3 % 51 % 42 % 24 % 14 % 13 % 63 % -1 % 22 % 12 %

EPS 47 % 129 % 94 % 2 % 3 % -31 % -3 % 51 % 42 % 24 % 14 % 13 % 63 % -1 % 22 % 12 %

Margin (%)

EBITDA 31 % 33 % 32 % 25 % 21 % 28 % 30 % 30 % 29 % 29 % 29 % 29 % 30 % 28 % 29 % 29 %

EBIT 23 % 25 % 23 % 18 % 14 % 21 % 23 % 24 % 23 % 23 % 23 % 23 % 22 % 20 % 23 % 23 %

PBT 24 % 36 % 29 % 24 % 22 % 23 % 25 % 26 % 25 % 25 % 25 % 26 % 28 % 24 % 25 % 26 %

PAT 16 % 26 % 21 % 14 % 15 % 16 % 17 % 18 % 17 % 17 % 17 % 18 % 19 % 16 % 17 % 18 %



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 37,838 43,421 50,004 55,112 Equity Capital 193 193 193 193 PBT 10,586 10,537 12,819 14,394

Op. Expenditure 26,529 31,477 35,376 39,335 Reserve 35,235 41,184 48,447 56,547 Depreciation 3,040 3,109 3,199 3,281

EBITDA 11,310 11,944 14,628 15,777 Networth 35,429 41,378 48,640 56,740 Others 1,158 -34 0 0

Depreciation 3,040 3,109 3,199 3,281 Long Term Debt 7,970 1,990 1,990 1,990 Taxes Paid 3,418 3,391 4,103 4,607

EBIT 8,270 8,836 11,429 12,496 Def Tax Liability 3,805 3,806 3,806 3,806 Change in WC -2,714 -1,140 -673 -673

Interest Expense 220 46 30 30 Minority Interest 0 0 0 0 Operating C/F 8,653 9,081 11,242 12,396

Other Income 2,536 1,747 1,420 1,929 Account Payables 3,744 5,826 6,460 7,221 Capex -2,043 -1,610 -1,610 -1,210

PBT 10,586 10,537 12,819 14,394 Other Curr Liabi 6,943 109 125 138 Change in Invest 0 0 0 0

Tax 3,418 3,391 4,103 4,607 Total Liabilities & Equity 57,891 53,108 61,020 69,894 Others 0 0 0 0

PAT bef. MI & Assoc. 7,169 7,147 8,716 9,787 Net Fixed Assets 28,411 26,257 24,269 22,197 Investing C/F -2,043 -1,610 -1,610 -1,210

Minority Interest 0 0 0 0 Capital WIP 1,097 0 0 0 Change in Debt -4,932 -5,980 0 0

Profit from Assoc. 0 0 0 0 Others 2,051 3,802 4,202 4,202 Change in Equity 285 0 0 0

Recurring PAT 7,169 7,147 8,716 9,787

Inventory 4,761 4,402 5,069 5,587 Others 205 -1,163 -1,454 -1,687

Extraordinaires -1,158 34 0 0 Account Receivables 4,118 6,900 7,946 8,757 Financing C/F -4,442 -7,143 -1,454 -1,687

Reported PAT 8,326 7,112 8,716 9,787 Other Current Assets 3,714 -2,321 -2,711 -2,594 Net change in cash 2,167 328 8,178 9,499

FDEPS (Rs) 74.2 73.9 90.2 101.3 Cash 13,740 14,068 22,246 31,745 RoE (%) 23 % 19 % 19 % 19 %

DPS (Rs) 8.0 10.0 12.5 14.5 Total Assets 57,891 53,108 61,020 69,894

RoIC (%) 16 % 15 % 17 % 17 %

CEPS (Rs) 105.6 106.1 123.3 135.2 Non-cash Working Capital 1,906 3,046 3,719 4,392

Core RoIC (%) 17 % 18 % 24 % 27 %

FCFPS (Rs) 69.9 77.6 99.9 115.9 Cash Conv Cycle 18.4 25.6 27.1 29.1 Div Payout (%) 11 % 16 % 17 % 17 %

BVPS (Rs) 366.5 428.1 503.2 587.0 WC Turnover 19.9 14.3 13.4 12.5 P/E 21.9 22.0 18.0 16.1

EBITDAM (%) 30 % 28 % 29 % 29 % FA Turnover 1.3 1.7 2.1 2.5 P/B 4.4 3.8 3.2 2.8

PATM (%) 19 % 16 % 17 % 18 % Net D/E -0.2 -0.3 -0.4 -0.5 P/FCFF 23.3 20.9 16.3 14.0

Tax Rate (%) 32 % 32 % 32 % 32 % Revenue/Capital Employed 0.8 0.9 1.0 0.9 EV/EBITDA 13.7 12.5 9.6 8.3

Sales Growth (%) 15 % 15 % 15 % 10 %

Capital Employed/Equity 1.4 1.2 1.1 1.1

EV/Sales 4.1 3.4 2.8 2.4

FDEPS Growth (%) 61 % 0 % 22 % 12 %

Dividend Yield (%) 0.5 % 0.6 % 0.8 % 0.9 %

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

6x

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Ma

r/1

0Se

p/1

0M

ar/

11

Sep

/11

Ma

r/1

2Se

p/1

2M

ar/

13

Sep

/13

Ma

r/1

4Se

p/1

4M

ar/

15

Sep

/15

Ma

r/1

6Se

p/1

6M

ar/

17

Sep

/17

Ma

r/1

8Se

p/1

8M

ar/

19

EPS Growth

-10%

0%

10%

20%

30%

40%

0

50000

100000

150000

200000

Mar

/04

Sep/

04M

ar/0

5Se

p/05

Mar

/06

Sep/

06M

ar/0

7Se

p/07

Mar

/08

Sep/

08M

ar/0

9Se

p/09

Mar

/10

Sep/

10M

ar/1

1Se

p/11

Mar

/12

Sep/

12M

ar/1

3Se

p/13

Mar

/14

Sep/

14M

ar/1

5Se

p/15

Mar

/16

Sep/

16M

ar/1

7Se

p/17

Mar

/18

Sep/

18M

ar/1

94x

6x

8x

10x

12x

EBITDA Growth

0%

10%

20%

30%

40%

0

500

1000

1500

2000

2500

Ma

r/0

4N

ov/

04

Jul/

05

Ma

r/0

6N

ov/

06

Jul/

07

Ma

r/0

8N

ov/

08

Jul/

09

Ma

r/1

0N

ov/

10

Jul/

11

Mar

/12

No

v/1

2Ju

l/1

3M

ar/

14

No

v/1

4Ju

l/1

5M

ar/

16

No

v/1

6Ju

l/1

7M

ar/

18

No

v/1

8

RoE

1.0x

2.0x

3.0x

4.0x



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 37,719 38,168 32,895 37,838 Equity Capital 193 193 193 193 PBT 7,062 7,133 6,743 10,586

Op. Expenditure 28,822 28,236 24,671 26,529 Reserve 18,757 22,566 27,555 35,235 Depreciation 1,703 2,437 2,823 3,040

EBITDA 8,896 9,933 8,223 11,310 Networth 18,951 22,760 27,748 35,429 Others 379 437 1,421 1,158

Depreciation 1,703 2,437 2,823 3,040 Long Term Debt 24,120 23,574 12,902 7,970 Taxes Paid 1,772 2,125 2,342 3,418

EBIT 7,193 7,496 5,400 8,270 Def Tax Liability 2,212 1,903 2,669 3,805 Change in WC -1,355 1,959 2,084 -2,714

Interest Expense 273 476 395 220 Minority Interest 0 0 0 0 Operating C/F 6,017 9,841 10,729 8,653

Other Income 141 114 1,737 2,536 Account Payables 4,648 4,595 3,411 3,744 Capex -8,858 -3,699 -2,387 -2,043

PBT 7,062 7,133 6,743 10,586 Other Curr Liabi 290 354 7,253 6,943 Change in Invest -3,668 -771 -3,151 0

Tax 2,316 2,408 2,285 3,418 Total Liabilities & Equity 50,221 53,185 53,984 57,891 Others 230 101 18 0

PAT bef. MI & Assoc. 4,746 4,726 4,457 7,169 Net Fixed Assets 23,890 25,731 28,588 28,411 Investing C/F -12,296 -4,369 -5,520 -2,043

Minority Interest 0 0 0 0 Capital WIP 5,656 4,763 2,311 1,097 Change in Debt 4,319 -608 -4,985 -4,932

Profit from Assoc. 0 0 0 0 Others 5,887 2,256 1,657 2,051 Change in Equity 0 8 0 285

Recurring PAT 4,746 4,726 4,457 7,169 Inventory 5,684 4,114 3,983 4,761 Others -669 -702 -1,269 205

Extraordinaires 0 0 40 -1,158 Account Receivables 6,138 5,797 3,850 4,118 Financing C/F 3,649 -1,302 -6,254 -4,442

Reported PAT 4,746 4,726 4,418 8,326 Other Current Assets 2,796 2,317 2,024 3,714 Net change in cash -2,631 4,170 -1,045 2,167

EPS (Rs) 49.1 48.9 46.1 74.2 Cash 170 8,207 11,573 13,740

RoE (%) 28 % 23 % 18 % 23 %

DPS (Rs) 2.0 2.4 5.6 8.0

Total Assets 50,221 53,185 53,984 57,891

RoIC (%) 12 % 11 % 10 % 16 %

CEPS (Rs) 66.7 74.1 75.3 105.6 Non-cash Working Capital 9,680 7,279 -807 1,906 Core RoIC (%) 12 % 12 % 10 % 17 %

FCFPS (Rs) -63.1 59.9 56.6 69.9 Cash Conv Cycle 93.7 69.6 -9.0 18.4 Div Payout (%) 5 % 6 % 14 % 11 %

BVPS (Rs) 196.1 235.5 287.1 366.5 WC Turnover 3.9 5.2 -40.7 19.9

P/E 33.1 33.3 35.3 21.9

EBITDAM (%) 24 % 26 % 25 % 30 % FA Turnover 1.3 1.3 1.1 1.3 P/B 8.3 6.9 5.7 4.4

PATM (%) 13 % 12 % 14 % 19 % Net D/E 1.3 0.7 0.0 -0.2 P/FCFF -25.8 27.2 28.7 23.3

Tax Rate (%) 33 % 34 % 34 % 32 % Revenue/Capital Employed 0.9 0.8 0.7 0.8 EV/EBITDA 20.9 17.8 19.9 13.7

Sales growth (%) 11 % 1 % -14 % 15 %

Capital Employed/Equity 2.5 2.2 1.8 1.4

EV/Sales 4.9 4.6 5.0 4.1

FDEPS growth (%) 36 % 0 % -6 % 61 %

Dividend Yield (%) 0.1 % 0.1 % 0.3 % 0.5 %



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

AbhishekShindadkar IT Services [email protected] 91-22-43320643 VishadTurakhia [email protected] 91-22-43320633

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

DepeshKashyap Mid-Caps [email protected] 91-79-61909528 SwetaSheth [email protected] 91-22-43320634

DevamModi Power & Infrastructure [email protected] 91-79-61909516 Viral Desai [email protected] 91-22-43320635

DhavalDama FMCG, Mid-Caps [email protected] 91-79-61909518 BinoyDharia [email protected] 91-22-43320632

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Dealing Room E-mail

Maulik Patel Oil and Gas [email protected] 91-79-61909519 Ashish Shah [email protected] 91-22-43320662

PrafulBohra Pharmaceuticals [email protected] 91-79-61909532 IleshSavla [email protected] 91-22-43320666

RohanMandora Banking & Financial Services [email protected] 91-79-61909529 Manoj Kejriwal [email protected] 91-22-43320663

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Meet Chande [email protected] 91-79-61909513

ParvaSoni [email protected] 91-79-61909521

Pranav Mehta [email protected] 91-79-61909514

RonakSoni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

ShreepalDoshi [email protected] 91-79-61909541

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

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• 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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