initiating coverage carborundum universallimitedbreport.myiris.com/sfspl/carunive_20110617.pdf ·...

Carborundum Universal (CUMI) a part of the Murugappa Group - is engaged in the business of manufacturing abrasives (45% of revenues), ceramics includes industrial ceramics & refractories (20% of revenues) & electro minerals (35% of revenues).

Leadership position in Abrasives Abrasives are industrial consumables which find wide application in metals, auto, construction, fabrication & various machining industries. CUMI is a leading player in the Abrasives market with a dominant market share of about 35%. It has managed to maintain & enhance its leadership position competing against Global leader Saint Gobain’s Indian subsidiary Grindwel Norton (GNL). The Indian abrasives market has been growing at about 10% annually and CUMI & GNL together account for 70% of the market. CUMI has managed to maintain its leadership position in industry mainly due to its low‐cost efficient operating structure and its relative cost advantage over their competitors due to backward integration for sourcing raw materials through its international subsidiaries. CUMI has also realigned its product mix in this segment to address high value and better margin products. With Revenues of Rs.6.9 bn in FY11, this segment comprises of 42% of its Revenues, with the overall EBIT margins of ~13.7%. Going ahead, we believe CUMI’s leadership position & customized products along with the strong demand for abrasives in the industry would drive strong revenue growth in this segment.

Focus on high margin products CUMI is moving up the value chain by focusing and expanding the niche businesses viz. Metallised (Metz) cylinders (part of Ceramics business) and Silicon Carbide (SiC) microgrit (part of Electrominerals business). These are value added products which enjoys high margins. In Metz cylinders, CUMI is doubling its capacity from 0.35 mn. pcs to 0.75mn pcs. Furthermore in SiC microgrit, CUMI has capacity of 4,800 tons and is adding further 7,200 tons by FY12. Going ahead, we believe that these niche businesses will help CUMI maintain high margins of ~18‐19.5% in Ceramic Business and ~20% in Electrominerals business.

Aggressively expanding across the world, especially to source critical raw materials CUMI has invested aggressively to augment capacities through both organic and inorganic route, which is helping to capitalize on growth opportunities in domestic as well as global markets. CUMI has substantial operations outside India and derives almost 45% of total revenues from its international operations. CUMI has opted for backward integration for sourcing its critical raw materials through international acquisition viz. Volzhsky Abrasive Works Russia (97% stake) (raw material for Abrassives) and ANF Foskar Zirconia, South Africa (51% stake) the world’s largest manufacturer of Zirconia (raw material for Super Refactories).

OUTLOOK & VALUATION The Indian abrasives industry has been highly concentrated, but many global players have entered the Indian market due to slowdown in Europe & the US. CUMI continues to maintain leadership position (35% market share) despite heavy competition in the changing domestic market scenario. During FY11, CUMI’s consolidated revenues grew 26% (7% value growth & 18% volume growth) to Rs. 16.4 bn. Its EBIDTA grew by 31% to Rs. 3.1 bn, while its EBIDTA margins increased by 80 bps to 18.8%. Its APAT grew 46% to Rs. 1.5 bn and it registered AEPS of Rs. 15.8 for FY11.

We believe that CUMI is well‐placed to capitalize on the growth opportunities domestically, as the demand continues to be robust. Internationally also, its subsidiaries should perform well, as the demand begins to recover in Europe, US & Russia. Going forward, we expect its Con. Revenues to grow by 14.7% & 19.7% in FY12 & FY13, while it’s APAT to grow by 14.1% & 20.3% in FY12 & FY13 respectively. We initiate our coverage on the Company with an “ACCUMULATE” rating and a target price of Rs.325 (15x FY13E EPS of Rs.21.6).

KEY FINANCIALS Y/E March (Consol)

Revenue(Rsmn)

APAT(Rsmn)

APAT (% Ch.)

AEPS (Rs.)

P/E (x)

ROCE (%)

ROE (%)

P/BV(x)

FY10 13066.7 1010.3 34.8 10.8 25.4 12.6 19.3 4.3 FY11E 16442.5 1473.0 45.8 15.8 17.4 15.6 21.5 3.4 FY12E 18864.6 1680.8 14.1 18.0 15.3 15.5 20.6 2.9 FY13E 22585.8 2022.9 20.3 21.6 12.7 16.7 20.7 2.5

Please refer to important disclosures at the end of the report For private Circulation Only.

Sushil Financial Services Private Limited Member : BSEL, SEBI Regn.No. INB/F010982338 | NSEIL, SEBI Regn.No.INB/F230607435. Office : 12, Homji Street, Fort, Mumbai 400 001. Phone: +91 22 40936000 Fax: +91 22 22665758 Email : [email protected]

June 17, 2011 ACCUMULATE MEDIUM RISK PRICE Rs.275 TARGET Rs. 325

Initiating Coverage

Carborundum Universal Limited

ENGINEERING

SHARE HOLDING (%)

Promoters 42.2 FII 14.4 FI 15.5 Body Corporates 3.6 Public & Others 24.3

STOCK DATA

Reuters Code Bloomberg Code

CRBR.BO CU IN

BSE Code NSE Symbol

513375 CARBORUNIV

Market Capitalization*

Rs.25671 mn US $ 570mn

Shares Outstanding* 93.35 mn

52 Weeks (H/L) Rs.280 / 194

Avg. Daily Volume (6m)

10,259 Shares

Price Performance (%) 1M 3M 6M 7 25 10

200 Days EMA: Rs.239 *On fully diluted equity shares

ANALYST Bhavika Shah | +91 22 4093 5054 [email protected]

SALES: Devang Shah | +91 22 4093 6060/61 [email protected]

Nishit Shah | +91 22 4093 5074 [email protected]

June 17, 2011 2

Carborundum Universal Ltd.

COMPANY OVERVIEW Carborundum Universal (CUMI) was incorporated in 1954 as a Joint Venture (JV) between Carborundum Company (USA), Universal Grinding Wheel Company (UK) and Murugappa Group (India). CUMI is engaged in the business of manufacturing abrasives, industrial ceramics, refractories and electro‐minerals. CUMI is a fully integrated player which manufactures raw material like silicon carbide, brown and white fused alumina and zirconia which are used as raw material for manufacturing abrasives as well as refractories. With the acquisition of Foskor Zirconia (FZL), CUMI is now the world’s third largest producer of zirconia and second largest producer of silicon carbide grains after the acquisition of Volzhsky Abrasive Works (VAW), Russia.

. BUSINESS OVERVIEW

CUMI‐ JVs & Subsidiaries CUMI has substantial operations outside India. It derives 45% of total revenue from its international operations. VAW, FZL and CUMI Australia are one of the most important subsidiaries. JingRi‐CUMI Super Hard Materials Company, China was demerged into two separate divisions i.e. Abrasives and Diamond Tool. The abrasives business was taken over by CACCL (a subsidiary) from Dec’09 and the Diamond Tool business was taken over by the other JV partner. CUMI consists of 11 subsidiaries, 4 JVs and 1 associate.

SUBSIDIARIES CUMI America Inc. 100%CUMI Australia Pty. Ltd. ~52%Foskar Zirconia Pte Ltd. South Africa ~51%Sterling Abrassives Ltd, Ahmedabad 60%Net Access India Private Limited 100%CUMI Middle East 100%CUMI Canada Inc 100%Southern Energy Dev. Corp.Ltd.("SEDCO") 85%CUMI International Ltd. 100%CUMI Abrasives & Ceramics Company Ltd. (CACCL) 100%Volzhky Abrasive Works, Russia ~98%

JOINT VENTURES Wendt (India) Limited 40%Murugappa Morgan Thermal Ceramics Ltd. ("MMTCL") 49%Ciria India Limited ("Ciria India") 30%JINGRI‐ CUMI Super Hard Metal Company Ltd. 45%

Associate Laserwords Pvt. Ltd. 44%

Carborundum Universal (CUMI)

Abrasive Business(45% of Revenues)

Ceramic Business (Industrial Ceramics & Super Refactories) (20% of Revenues)

Electro‐minerals(35% of Revenues)

June 17, 2011 3


ABRASIVES Abrasives are industrial consumables, which find application in material removal, polishing and finishing. End‐user industries include: metals, auto, construction, fabrication and various machining industries. CUMI manufactures all three types of abrasives i.e. bonded, coated and super abrasives and has a dominant share with Grindwel Norton being its only competitor. CUMI and Grindwell hold close to 70% market share in abrasive. The size of global bonded abrasive market is close to US$5 bn, while the market size for coated abrasive stands at US$4 bn.

CUMI has a capacity of 20,000 tonne capacity in India of bonded abrasives which is running at full capacity, about 3,200 tonnes in China running at around 70% of capacity utilisation and about 26,000 tonees in Russia running at about 40% of capacity utilisation. Bonded abrasives are used in diverse applications like floor polishing, fabrication, polishing, off‐hand tool grinding and precision grinding of diverse products like crank shaft, balls and razor blade across a wide spectrum of industries ranging from automobile, construction, fabrication, steel, bearing etc.

CUMI has a capacity of 17.8 mn square meter in coated abrasives (standalone). Coated abrasives are used in light polishing applications in automobile, auto ancillaries, white goods, hand and power tools, sanitary ware, furniture, fabrication, and construction industry.

Almost one‐third of the abrasives manufactured by CUMI is customized and meets the demand of industries like auto, auto ancillary, bearing etc. The realization and margin is higher in customized products as compared to the standard products in abrasives. Silicon carbide and alumina are the two key raw materials for abrasives, while zirconia is used in high‐end abrasives and ceramics. CUMI has opted for backward integration for the critical raw materials through international acquisition viz. Volzhsky Abrasive Works Russia and South Africa‐based Foskar Zirconia (FZL), world’s largest manufacturer of Zirconia. Post‐acquisition of FZL, CUMI has become world’s 3rd largest producer of zirconia and 2nd largest producer of silicon carbide grains after the acquisition of VAW. To get access to alumina, CUMI has entered into a JV with GMDC to set up a brown‐fused alumina plant in Gujarat.

Bonded Abrasives Coated Abrasives Super Abrasives

June 17, 2011 4


CERAMICS This segment consists of super refractories and industrial grade ceramics, which caters to a wide variety of industries including metals, healthcare, food processing, cement, electricity transmission, etc. The size of the global ceramics market is around US$2 bn. Given the capital and technology intensity of the business, CUMI is the only established domestic player. The products are directly sold to the customers.

Industrial Ceramics: The Ceramics product group offers products, which harness the heat resistance/containment, wear resistance and insulation properties of ceramics and also corrosion resistance properties of various materials. Industrial ceramic materials are non‐metallic, inorganic compounds mostly made of high alumina. They have high melting points, low wear resistance, and a wide range of electrical properties. CUMI's range of industrial ceramics comprises wear and corrosion limiting products and grinding media. CUMI also offers certain value added industrial ceramic products viz. engineered ceramics, metalized ceramics and ceramic lined equipment. These products caters to critical and demanding applications in thermal power plants, material handling, coal washeries, cement, steel, floor and wall tiles, paints, food processing, mineral processing, electrical and electronic industries.

The industrial ceramics manufacturing operation is predominantly based in India. It has a capacity of 5,900 tonne in wear resistant liner and engineered ceramics and another 0.4 mn pieces in Metz cylinders. 34% of the total ceramic sales (in standalone) come from exports. The average realization for wear resistant liner is around Rs. 150,000 per tonne. Metz cylinder realization is around Rs. 600‐650 per cylinder. The Metz cylinder is used in vacuum interrupters/bottles, which are used in the power plants transmission equipment. The Company is targeting a capacity expansion from current 0.4 mn to 0.75 mn pieces.

This segment faces stiff competition from ABB, Crompton Greaves, Areva, Siemens, etc. In India, CUMI is a major player in this field for almost two decades and the only manufacturer of metalized ceramics. Apart from CUMI, Jyothi Ceramics and BHEL are the other manufacturers of industrial ceramics.

In Australia, CUMI has a sizeable share of the market for lined equipment through its subsidiary. Here, CUMI has a strong position in coal washery industry. Of late, the Australian operation faced stiff competition from imports, which led to pricing pressure. CUMI is now focusing on consolidation of the strong market position it enjoys in supply of products to coal washeries and also expanding customer base by adding clients from other mining sectors.

Wear Resistant Products

Metz Cylinders

Engineered Ceramics

June 17, 2011 5


Super Refractories: CUMI is a market leader in the manufacture of super refractory products in India since 1965 with technical know‐how from Carborundum Company USA. The acquisition of VAW, Russia has given CUMI a foothold in the Russian market for refractories. The acquisition has also given CUMI access to advanced technology. Iron and steel industries account for 80% of India’s refractory usage.

CUM‐manufactured Super Refractories are in two forms: fired refractories and monolithic. CUMI has a capacity of 39,000 tonne, which includes 20,000 tonne of monolithic, 6,000 tonne of fired refractories (adding another 3,000 tonnes by FY13) and 10,000 tonne of anti‐corrosive products. Realization of fired refractories is around Rs. 95,000 per tonne, while anti‐corrosive products are close to Rs. Rs. 48,000 per tonne and monolithic is Rs. 24,000 per tonne. CUMI is looking to expand its capacity in monolithic.

Refractories are consumables, which require replacement frequently. So, the business opportunity arises at two stages: first, at the setting up of the project and second, for regular maintenance of refractories.

Super Refractories

June 17, 2011 6


ELECTROMINERALS

Electro Minerals Division of CUMI is in the business of brown‐fused Alumina, white‐fused Alumina, Silicon Carbide, and High Quality Micro Grits. The Division also offers other Fused and Sintered products for various applications

Electro minerals are used as basic raw material in the manufacture of abrasives and refractories. They are also used for surface preparation in tile and paint industries. Silicon carbide is also used as an input in metallurgical industries. The global market size for electro minerals is estimated at around US$2.5 bn. The acquisition of Volzhsky Abrasive Works, Russia has positioned CUMI as the 2nd largest producer of silicon carbide in the world. Apart from CUMI, the major players in this industry are Saint Gobain, Treibacher, Washington Mills, Kollo and a few Chinese manufacturers.

In India, CUMI is one of the leading players in aluminium oxide grains. In Electro‐minerals, the current capacity in India is close to 27,740 tonne, which includes silicon carbide macros‐4,000 tonne, brown and white‐fused alumina macrogrit‐18,940 tonne and SiC microgrit‐4,800 tonne. The capacity of silicon carbide in Russia is close to 70,000 tonne, while South Africa has a capacity of 4,500 tonne of Zirconia. The average realization for SiC macros is around Rs. 55,000 per tone running at full capacity utilisation and alumina Rs. 45,000 per tonne in India. The average realization in Russia and South Africa is Rs. 47,000 per tonne and Rs. 190,000 per tonne, respectively.

The company is focusing on manufacturing silicon carbide microgrit. These are value added products which are predominantly supplied to the photovoltaic industry. In the photovoltaic, poly silicon and mono‐crystalline silicon are used to make the wafers which are used finally to make the cells and then the panels for the photovoltaic electricity generation. The current capacity stands at 4,800 tonne. The capacity is expected to increase 2.5 times to 12,000 tonne by FY12. This would require a capex of approximately Rs. 360 mn. The realization for SiC microgrit is around Rs. 150,000 per tonne.

June 17, 2011 7


INVESTMENT RATIONALE Leadership position in abrasives Abrasives contribute 45% of CUMI’s revenues, industrial ceramics & refractories contribute 20%, and electro‐minerals contribute 35 % of its revenues. The Company has a diverse customer base, and 65% of its revenues are from international markets including Russia, Australia, South Africa, China, North America, and Europe. With a market share of nearly 35%, CUMI is a strong player in the Indian abrasives industry. The acquisitions of the Russia‐based VAW in 2007, and of 51% stake in South Africa‐based FZL in 2008, established CUMI among a handful of global players with product offerings across the electro‐minerals value chain. Some of the sectors where CUMI’s Abrasives are used include bearings, automobile and auto ancillary, alloy steel, foundry and forging, fabrication and general engineering industries. All the above being the core sectors of the economy, the demand in these sectors is expected to remain strong over the coming years.

Abrasives are industrial consumables which find wide application in metals, auto, construction, fabrication & various machining industries. CUMI is a leading player in the Abrasives market with a dominant market share of about 35%. It has managed to maintain & enhance its leadership position competing against Global leader Saint Gobain’s Indian subsidiary Grindwel Norton (GNL). The Indian abrasives market has been growing at about 10% annually and CUMI & GNL together account for 70% of the market.

The Indian abrasives market is expected to grow at 8‐10% annually. Growth in demand for bonded abrasives is likely to be about 12% and that in coated abrasives is likely to be about 10‐12%.

The size of global bonded abrasive market is close to US$5 bn, while the market size for coated abrasive stands at US$4 bn. The major players are: Norton, Baystate and 3M from the USA, Tyrolit and Treibacher from Austria, and Noritake from Japan.

With Revenues of Rs.6.9 bn in FY11, this segment comprises of 42% of its Revenues, with the overall EBIT margins of ~13.7%.

CUMI has managed to maintain its leadership position in industry mainly due to its low‐cost efficient operating structure and its relative cost advantage over their competitors due to backward integration for sourcing raw materials through its international subsidiaries. CUMI has also realigned its product mix in this segment to address high value and better margin products. CUMI is focusing more on customized products which yield high realization and better margin than the standard products. 1/3rd of the abrasives sold by CUMI are customized. Going ahead, we believe CUMI’s leadership position & customized products along with the strong demand for abrasives in the industry would drive strong revenue growth in this segment.

Focus on high margin products CUMI is moving up the value chain by focusing and expanding the niche businesses viz. Metz cylinders (part of Ceramics business) and SiC microgrit (part of Electrominerals business). These are value added products which enjoys high margins.

The Company is establishing a new facility for metalized cylinders at its existing manufacturing complex in Hosur on the back of huge potential and prospects for such cylinders in the power industry. The Metz cylinders are used in vacuum interrupters/bottles, which are used in the power plants transmission equipment. Countries such as China, Japan and Korea are among the potential international markets

June 17, 2011 8


for such products. CUMI is targeting a capacity expansion from current 0.4 mn to 0.75 mn pieces.

Furthermore, CUMI is also expanding the capacity of SiC microgrits at its Kerala plant to cater to the growing demand in Photovoltaic industry. The current capacity stands at 4,800 tonne. The capacity is expected to increase 2.5 times to 12,000 tonne by FY12. This would require a capex of Rs. 360 mn. The realization for SiC microgrit is around Rs. 1.8 lakh per tonne. Going ahead, we believe that these niche businesses will help CUMI maintain high margins of ~18‐19.5% in Ceramic Business and ~20% in Electrominerals business.

Aggressively expanding across the world, especially to source critical raw materials CUMI has invested aggressively to augment capacities through both organic and inorganic route, which is helping to capitalize on growth opportunities in domestic as well as global markets. CUMI has substantial operations outside India and derives almost 45% of total revenues from its international operations. CUMI has opted for backward integration for sourcing its critical raw materials through international acquisition viz. Volzhsky Abrasive Works Russia (97% stake) (raw material for Abrassives) and ANF Foskar Zirconia, South Africa (51% stake) the world’s largest manufacturer of Zirconia (raw material for Super Refactories).

RISKS & CONCERNS Availability of Raw Materials: Escalation in international prices of calcined alumina and brown‐fused alumina, which are key inputs for the industrial ceramics and abrasives business, is one of the major concerns. In India, the Gujarat Government tweaked its mineral policy and allowed private players to export bauxite. All this has posed supply side issues for alumina. To mitigate this risk, CUMI has signed a Memorandum of Understanding (MoU) with GMDC to set up a brown fused alumina facility.

Increase in Fuel Prices: Fuel and power cost is one of the major components of the overall cost structure constituting 12‐13% of the sales, so any increase in the cost will affect the margins.

Exchange Rate Fluctuations: Around 18% of Company’s revenue comes from export. So appreciation of Indian Rupee will reduce the competitiveness as well as the profitability of the business. Also, Ruble (RUB‐ Russian currency)) appreciation impacts the margin negatively as Russian SiC is exported to Europe. CUMI Australia is also impacted by weakening of dollar as imports become cheaper.

Slowdown in the world economy: The slowdown in the world economy may impact the working of the Company, especially its export business and its international operations.

June 17, 2011 9


FINANCIAL OUTLOOK Sales to grow at CAGR of 17% over FY11‐FY13 CUMI’s consolidated net sales have grown at a 22% CAGR of the past three years (FY07‐FY10). The Company is well‐positioned to encash the growth as it enjoys higher brand equity. We expect its sales to grow at a CAGR of 17% over FY11‐FY13.

Source: Company & Sushil Finance Research estimates

EBITDA to grow at a CAGR of 18% over FY11‐13 We believe that the Company will be able to maintain its margins of 18%, mainly due continuous improvement in its operational efficiencies and backward integrated for the critical raw materials through international acquisitions.


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June 17, 2011 10


APAT to grow at CAGR of 16% over FY11‐FY13


OUTLOOK & VALUATION The Indian abrasives industry has been highly concentrated, but many global players have entered the Indian market due to slowdown in Europe & the US. CUMI continues to maintain leadership position (35% market share) despite heavy competition in the changing domestic market scenario. During FY11, CUMI’s consolidated revenues grew 26% (7% value growth & 18% volume growth) to Rs. 16.4 bn. Its EBIDTA grew by 31% to Rs. 3.1 bn, while its EBIDTA margins increased by 80 bps to 18.8%. Its APAT grew 46% to Rs. 1.5 bn and it registered AEPS of Rs. 15.8 for FY11. We believe that CUMI is well‐placed to capitalize on the growth opportunities domestically, as the demand continues to be robust. Internationally also, its subsidiaries should perform well, as the demand begins to recover in Europe, US & Russia. Going forward, we expect its Con. Revenues to grow by 14.7% & 19.7% in FY12 & FY13, while it’s APAT to grow by 14.1% & 20.3% in FY12 & FY13 respectively. We initiate our coverage on the Company with an “ACCUMULATE” rating and a target price of Rs.325 (15x FY13E EPS of Rs.21.6).

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June 17, 2011 11


PROFIT & LOSS STATEMENT (Consol) Rs.mn

Y/E March FY10 FY11 FY12E FY13E

Total Sales 13066.7 16442.5 18864.6 22585.8

Total Raw Mat. Cost 3901.6 4936.5 5659.4 7001.6

Staff Cost 1714.2 2401.4 2833.7 3343.7

Other Expenditure 5096.2 6017.6 6860.1 7957.7

EBITDA 2354.7 3087.0 3511.5 4282.8

Interest 307.5 271.0 315.7 394.6

Depreciation 412.7 504.5 567.6 692.4

Other Income 72.8 33.9 40.7 50.9

PBT incl OI 1707.3 2345.4 2668.9 3246.6

Tax 560.4 741.7 854.1 1086.3

APAT 1146.9 1603.7 1814.9 2160.3

Minority Interest 139.5 128.6 131.8 135.1

Sh. of P/L in the ass cos 2.9 (2.1) (2.2) (2.3)

CONAPAT 1010.3 1473.0 1680.8 2022.9

Extraordinary Exp./ (Inc) (7.0) (234.9) 0.0 0

RPAT 1017.3 1707.9 1680.8 2022.9

BALANCE SHEET STATEMENT (Consol) Rs.mn

As on 31stMarch FY10 FY11E FY12E FY13E

Share Capital 186.7 186.9 186.9 186.9 Cap Res on Consol 20.6 20.6 20.6 20.6 Reserves 5721.4 7247.9 8600.7 10240.9 Shareholders Funds 5928.7 7455.4 8808.2 10448.4 Minority Interest 490.0 594.3 594.3 594.3 Total Debt 4390.8 4084.7 4601.7 3996.1 Total Liabilities 10809.4 12134.4 14004.2 15038.8 Fixed Assets 5315.6 5524.5 6674.6 6832.2 Goodwill on Consolidation 848.5 832.3 832.3 832.3

Investments 779.0 749.0 749.0 749.0 Sundry Debtors 2800.3 3290.4 3775.1 4519.8 Cash and Bank 469.3 697.9 713.3 620.3 Loans and Adv. 608.9 683.8 784.5 939.3 Inventory 2351.8 3107.7 3565.5 4268.8 Current Assets 6230.3 7779.8 8838.4 10348.2 Current Liabilities 1703.9 2171.2 2472.0 3052.1 Provisions 210.7 103.3 117.6 145.2 Current Liabilities 1914.6 2274.5 2589.6 3197.3 Net Current Assets 4315.7 5505.3 6248.8 7150.9 Def. Tax Assets (Net) (449.4) (476.7) (500.5) (525.6)Total Assets 10809.4 12134.4 14004.2 15038.8

CASH FLOW STATEMENT (Consol) Rs. mn

Y/E March FY10 FY11E FY12E FY13E

RPAT 1017.3 1707.9 1680.8 2022.9 Depreciation 336.5 504.5 567.6 692.4 Chg in Deferred tax 38.0 27.3 23.8 25.0 Chg in Working cap (183.2) (960.9) (728.1) (995.0)Cash flow from operations 1208.6 1278.8 1544.1 1745.3

Chg in Gross PPE (362.1) (920.5) (1800.0) (800.0)Chg in WIP (117.3) 207.1 82.3 (50.0)Chg in Investments (169.1) 30.0 0.0 0.0 Chg in Goodwill on Consol 187.8 16.2 0.0 0.0

Cash flow from investing (460.8) (667.2) (1717.7) (850.0)

Chg in debt (759.7) (306.1) 517.0 (605.6)Chg in Net Worth 83.3 92.1 (0.0) 0.0 Chg in Minority Interst 4.4 104.3 0.0 0.0 Dividend (210.7) (273.3) (328.0) (382.7)Cash flow from financing (882.6) (383.0) 189.0 (988.3)

Chg in cash (134.8) 228.6 15.4 (93.0)Cash at start 604.1 469.3 697.9 713.3 Cash at end 469.3 697.9 713.3 620.3

FINANCIAL RATIO STATEMENT (Consol) Y/E March FY10 FY11E FY12E FY13E

Growth (%) Net Sales 7.3 25.8 14.7 19.7 APAT 50.4 39.8 13.2 19.0 EBITDA 23.6 31.1 13.8 22.0 Profitability (%) EBITDA Margin 18.0 18.8 18.6 19.0 Adj. PAT Margin 8.8 9.8 9.6 9.6 ROCE 12.6 15.6 15.5 16.7 ROE 19.3 21.5 20.6 20.7 Per Share Data (Rs.) Adj. EPS 10.8 15.8 18.0 21.6 Adj. CEPS 15.3 23.7 24.1 29.1 BVPS 63.5 79.8 94.3 111.8 Valuations (X) PER 25.4 17.4 15.3 12.7 PEG 0.7 0.4 1.1 0.6 P/BV 4.3 3.4 2.9 2.5 EV / EBITDA 12.6 9.5 8.5 6.8 EV / Net sales 2.3 1.8 1.6 1.3 Turnover Days Debtors days 78 73 73 73 Creditors days 48 48 48 49 Gearing Ratio Total Debt to Equity 0.7 0.5 0.5 0.4

Source : Company, Sushil Finance Research Estimates

June 17, 2011 12


Rating Scale This is a guide to the rating system used by our Equity Research Team. Our rating system comprises of six rating categories, with a corresponding risk rating.

Risk Rating

Risk Description Predictability of Earnings / Dividends; Price VolatilityLow Risk High predictability / Low volatility

Medium Risk Moderate predictability / volatility

High Risk Low predictability / High volatility

Total Expected Return Matrix

Rating Low Risk Medium Risk High RiskBuy Over 15 % Over 20% Over 25%

Accumulate 10 % to 15 % 15% to 20% 20% to 25%

Hold 0% to 10 % 0% to 15% 0% to 20%

Sell Negative Returns Negative Returns Negative Returns

Neutral Not Applicable Not Applicable Not Applicable

Not Rated Not Applicable Not Applicable Not Applicable

Please Note

Recommendations with “Neutral” Rating imply reversal of our earlier opinion (i.e. Book Profits / Losses).

** Indicates that the stock is illiquid With a view to combat the higher acquisition cost for illiquid stocks, we have enhanced our return criteria for such stocks by five percentage points.

Additional information with respect to any securities referred to herein will be available upon request. This report is prepared for the exclusive use of Sushil Group clients only and should not be reproduced, re‐circulated, published in any media, website or otherwise, in any form or manner, in part or as a whole, without the express consent in writing of Sushil Financial Services Private Limited. Any unauthorized use, disclosure or public dissemination of information contained herein is prohibited. This report is to be used only by the original recipient to whom it is sent.

This is for private circulation only and the said document does not constitute an offer to buy or sell any securities mentioned herein. While utmost care has been taken in preparing the above, we claim no responsibility for its accuracy. We shall not be liable for any direct or indirect losses arising from the use thereof and the investors are requested to use the information contained herein at their own risk.

This report has been prepared for information purposes only and is not a solicitation, or an offer, to buy or sell any security. It does not purport to be a complete description of the securities, markets or developments referred to in the material. The information, on which the report is based, has been obtained from sources, which we believe to be reliable, but we have not independently verified such information and we do not guarantee that it is accurate or complete. All expressions of opinion are subject to change without notice.

Sushil Financial Services Private Limited and its connected companies, and their respective directors, officers and employees (to be collectively known as SFSPL), may, from time to time, have a long or short position in the securities mentioned and may sell or buy such securities. SFSPL may act upon or make use of information contained herein prior to the publication thereof.

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