(post conference note) - india...

December 04, 2015

(Post Conference Note)

Sector: FMCG

Sector view: Positive

Sensex: 25,530

52 Week h/l (Rs): 522 / 327

Market cap (Rscr) : 6,239

6m Avg vol (‘000Nos): 143

Bloomberg code: BJCOR IN

BSE code: 533229

NSE code: BAJAJCORP

FV (Re): 1

Price as on December 07, 2015

Share price trend

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Bajaj Corp Sensex

Share holding pattern

Mar‐15 Jun‐15 Sep‐15

Promoters 66.9 66.9 66.9

Institutions 26.1 26.0 26.9

Others 7.0 7.1 6.2

Research Analyst: Alok Deora

[email protected]

Bajaj Corp Ltd.

Company Note This report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets.

CMP: Rs.423 We hosted Mr D.K Maloo (Deputy CFO) and Mr Kushal Maheswari (Head – Treasury) of Bajaj Corp Ltd at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows: The rural demand, which has been the key focus area for the Company,

has been sluggish during last couple of quarters, which has impacted Company’s volume growth. While the Management expects the next couple of quarters to be challenging, it is hopeful of revival in demand post that period. It continues to focus on increasing its market share from current levels of 61% to 65% in light hair oil segment in next few years.

On the raw material front, while the LLP prices have declined from Rs.84 per kg in Q2 FY15 to Rs.59 per kg during Q2 FY16 (currently at Rs.55 per kg), the refined oil prices have increased from Rs.70 per kg in Q2 FY15 to Rs.82 per kg during Q2 FY16 (currently at Rs.100 per kg). Considering the current decline in LLP prices, the Company has stopped forward booking of raw material and is largely buying in the spot market. Management expects marginal increase in LLP prices and decline in refined oil prices during the coming period.

The Company has been able to generate very strong margins of 31% EBITDA during Q2 FY16 largely on account of sharp decline in input costs. However, the Management does not see these levels of margins sustainable over the medium to long term. The expected rise in input costs coupled with higher advertising expenses (on the back of increase in competition) would add pressure on margins.

Bajaj Corp is a debt‐free Company with cash surplus of nearly Rs.400 cr. In absence of inorganic opportunities, the Company is paying high dividends to shareholders. The Management is continuously scouting for inorganic opportunities for the next level of growth. While the Management did not commit to any acqusition opportunities in the near term, it expects to close in on some inorganic opportunities during next few years.

Financial summary Y/e 31 Mar (Rs cr) FY12 FY13 FY14 FY15

Revenues 473 607 672 826

yoy growth (%) 32.0 28.2 10.7 22.9

Operating profit 117 173 186 239

OPM (%) 24.6 28.4 27.7 29.0

Reported PAT 120 166 149 173

yoy growth (%) 43.0 38.3 (10.5) 15.9

EPS (Rs) 8.2 11.3 10.1 11.7

P/E (x) 51.9 37.5 41.9 36.1

Price/Book (x) 14.6 12.9 12.0 12.8

EV/EBITDA (x) 53.3 35.1 32.9 25.5

Debt/Equity (x) 0.0 0.0 0.0 0.0

RoE (%) 29.9 36.5 35.4 43.6

RoCE (%) 37.6 45.7 44.2 52.7 Source: Company, India Infoline Research

Bajaj Corp Ltd.

The company has its presence through well established retail network

including big organized retail outlets like Hypercity. The Company does not sell its products through ecommerce route currently. The Management is likely to continue to focus on adding more retail networks and does not intend to sell its products through the e‐commerce medium.

For acquired brand Normarks which achieved topline of Rs.58 cr in FY15, the Company is hopeful of achieving strong topline and profitability growth over next few years. The Management plans to sell Normarks products through its well established retail distribution network of hair oil, which would lead to significant exposure and thereby generate strong volume growth. The Management expects Nomarks to be a Rs.250 cr brand over the next four years.

The gross margins for Nomarks brand as a whole is nearly 65% with nearly 80% gross margins from cream segment. The Company is in the process of integration of the brand into Bajaj Corp portfolio and as a strategy it is attempting to convert the brand from problem solution brand to cosmetic brand for mass distribution. The Company is therefore rationalizing the number of SKUs being sold and also reducing stock at the distributor levels which has impacted sales off late. The Company expects to benefit significantly once the rationalization process is complete.

Company Profile Bajaj Corp Ltd is one of India’s leading FMCG Company having strong brand portfolio which include Bajaj Almond Drops Hair Oil, Brahmi Amla, Bajaj Kailash Parbat Cooling Oil and Jasmine and Black tooth powder. The company’s brand Bajaj Almond Drop Hair Oil is among the top brands in the overall hair oil market. BCL acquired skin care brand Nomarks from Ozone Ayurvedics in 2013 which gave the Company entry into the personal care segment. In the light hair oil market, BCL enjoys a strong market share of nearly 60% and with the premium positioning it is able to generate higher prices per unit. The Company acquired Uptown Properties in September 2011 which owns a piece of land and building in Worli, Mumbai. Uptown Properties was previously owned by the C.K. Raheja Group. The corporate headquarters of Bajaj Corp Ltd will be constructed on this land and Construction is expected to be completed by 2016. BCL sells its products through a strong distribution network across 3 mn retail outlets.

Sector: Financials


Sensex: 25,530

52 Week h/l (Rs): 1028/406



Bloomberg code: CANF IN

BSE code: 511196

NSE code: CANFINHOM

FV (Rs): 10


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Can Fin SENSEX



Promoters 43.5 43.5 43.5


Others 55.7 55.7 55.6

Research Analyst: Rajiv Mehta

Franklin Moraes [email protected]

Can Fin Homes Ltd.


CMP: Rs.980 We hosted Mr. C Ilango (MD), Mr. Prashant Joishy (Chief Manager) and Mrs. Shamila M (DGM) of Can Fin Home Finance (CFH) at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings held were as follows: Management targets a loan book of Rs. 10,500‐10,600cr by the end of

FY16. The target has been lowered from Rs. 11,000cr on account of the likely impact of floods in Chennai. The long term target of reaching loan book size of Rs. 35,000cr by 2020 at a CAGR of 30% remains intact.

In terms of customer profile, ~78% of the loans are offered to the salaried and ~22% to the self‐employed. By loan type, ~86% of loans are housing loans and 14% are non‐housing loans (LAP, Top‐up Personal Loans, commercial housing loans, etc). Builder loans are negligible at ~Rs. 29cr and Can Fin has no plans to increase focus on this segment.

Regionally, ~38% of the total business comes from Karnataka, ~17% comes from Chennai, ~17% comes from Hyderabad and ~17% comes from the NCR region. In terms of sourcing, 51% of the loans are sourced through DSAs whereas 49% is sourced directly.

Can Fin has 110 branches and 26 satellite offices. It plans to add 15‐20 satellite offices and 5‐10 branches every year. The monthly cost for a satellite office is Rs. 50,000 whereas for a branch it is Rs. 1,50,000. It typically takes 3 months for a satellite office to breakeven and about 9 months for a branch. The branch manager is solely responsible for sourcing, credit appraisal, monitoring and recovery.

The blended yield of the overall portfolio stands at 11.3%. Housing loan yields (11.08%) are much lower than non‐housing yields (13.5%). In terms of customer profile, salaried class yield is at 10.5% and yield of self employed segment is at 11.4%. The average ticket size for the housing and non‐housing loans is ~Rs. 18 lakhs and ~Rs. 12 lakhs respectively.

Management plans to boost overall portfolio yield by increasing the proportion of non‐housing loans to ~25% over the medium term. Of this, LAP is expected to increase to 10% of loan book from present ~5%.

Financial summary Y/e 31 Mar (Rs cr) FY14 FY15 FY16E FY17E

Total operating income 5,571 7,879 10,368 13,202

Yoy growth (%) 47.1 41.4 31.6 27.3

Operating profit (pre‐provisions) 1,113 1,517 2,448 3,240

Net profit 757 862 1,433 1,870

yoy growth (%) 39.9 13.9 66.1 30.5

EPS (Rs) 37.0 32.4 53.8 70.2

Adj. BVPS (Rs) 228.4 290.0 333.4 389.7

P/E (x) 26.5 30.2 18.2 14.0

P/Adj.BV (x) 4.3 3.4 2.9 2.5

ROE (%) 17.6 13.9 17.3 19.4

ROA (%) 1.5 1.2 1.5 1.5 Source: Company, India Infoline Research

Can Fin Homes Ltd.

The entire loan book is floating in nature except for Gruhlakshmi, a product which gets financed from NHB at 6.85% for a period of 5 yrs and maximum spread is capped at 2%. The funds obtained for this product can be lent only to the affordable housing segment. The outstanding book under this product is Rs. 740cr.

In terms of borrowing mix, bank borrowing stands at ~25%, NHB refinance stands at ~35% and CP/NCD issuances stand at ~35%. The overall cost of borrowing stands at 9.1% with Can Fin being able to garner incremental NCDs and CPs at much lower rates. Incremental borrowing rates for NCDs and CPs are at ~8.5% and ~7.4% respectively. This would lead to lower cost of funds over the coming quarters.

C/I ratio is expected to touch 15% over the medium term from 19% currently. The improvement in C/I ratio will happen due to cost rationalization and operational efficiency.

A strong focus in maintained on preserving asset quality. Continuous monitoring takes place on the 3‐months and 6‐months overdue portfolios and the company works with the customer to recover the amount. Asset quality will continue to be maintained at current levels with the long term target of GNPA at 0.25%.

Capital adequacy is strong at 21% and Can Fin will require fresh capital only by December 2017. Improvement in NIMs aided by asset mix and containment of C/I ratio will be the key levers for RoA improvement, which is expected to scale up to 2% by FY18.

In spite of trimming our loan growth assumptions to factor in the impact of Chennai floods, we have modestly upgraded earnings estimate for this year and FY17 on the back of a likely stronger performance on margin and opex productivity. Robust earnings growth of 45%+ over FY15‐17 justifies stock valuation at 14x P/E and 2.5x P/ABV on FY17 basis.

Company Profile Can Fin Home Finance (CHF) is one of the fastest growing housing finance companies (HFC) promoted by Canara Bank (42.4% stake). Regionally, CHF is mainly focused in South India where more than 70% of branches are located. Company mainly caters to the first time home buyers in largely urban pockets (metro and Tier‐1 cities). Bangalore itself houses 21‐22 of the existing 110 full‐fledged branches; Chennai, Hyderabad and Delhi‐NCR are other cities where company has significant presence. The customer profile is quite robust with 86% of the portfolio being individual home loans pre‐dominantly (90%+ of it) to salaried borrowers largely employed in IT sector and government companies/PSUs. The balance 14% largely comprises LAP; builder loans (small tickets to local developers) being an insignificant proportion. Average ticket size of housing loans is Rs1.8mn with CHF focused on the affordable housing segment.

Sector: Financials


Sensex: 25,530

52 Week h/l (Rs): 465/308



Bloomberg code: CAFL IN

BSE code: 532938

NSE code: CAPF

FV (Rs): 10


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Capital First SENSEX



Promoters 65.4 65.3 65.3

Institutions 17.8 17.7 18

Others 16.8 17 16.7

Research Analyst: Rajiv Mehta

Franklin Moraes [email protected]

Capital First


CMP: Rs.380 We hosted Mr. Saptarshi Bapari (Head ‐ Investor Relations & Strategy) of Capital First (CAPF) at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows: MSME‐LAP/MSME is 61%/69% of total AUM. Rest of the book includes

Wholesale Finance ‐ 14.5%, Consumer Durables ‐ 8.5%, 2w ‐ 8%. Wholesale Fin book comprises of builder loans and LAS. CAPF has ~1.7mn customers of which 1.2mn are consumer durables and ~40k are MSME customers

Company typically targets MSMEs that are present at the middle of the value chain (Bajaj Finance is the key competitor here). MSME‐LAP Avg. Ticket size is at Rs. 80lacs‐Rs. 1cr and Avg. LTV is ~42%.

While providing loans to MSME‐LAP customers, focus is on CIBIL score and enterprises’ ability to generate sufficient cash flows rather than the value of the mortgage collateral. Of the total applications logged in, typically just ~40% get converted into disbursals and a large part of the rejections are due to insufficient cash flows. The stringent risk management practices have led to robust asset quality.

Avg. yields for various segments; MSME ‐ 12.5‐12.75%, 2W ‐ 25%, Consumer Durables ‐ 23‐24%. Avg. loan tenure for various segments; MSME ‐ 6 to 8yrs, 2W ‐ 2 to 3yrs, Consumer Durables ‐ 8 to 9months.

80‐85% of the total business is currently sourced by DSAs. In terms of geographies, 70‐75% of the business comes from North and West, ~15% comes from the South and the rest comes from the East.

CAPF targets to double AUM by FY19 (CAGR of 25%) and would focus on

digital technology to drive this. Asset mix would likely shift towards

Consumer Durables and 2w loans and share of MSME financing is expected

to come down by 4‐5%. Within MSME segment, CAPF intends to move

towards lower end of the value chain where ticket sizes are Rs. 10‐25 lacs.

Financial summary Y/e 31 Mar (Rs cr) FY15 FY16E FY17E FY18E

Total operating income 643 927 1,183 1,506

Yoy growth (%) 49.6 44.1 27.6 27.3

Operating profit (pre‐provisions) 266 474 639 843

Net profit 112 181 264 363

yoy growth (%) 202.6 61.7 45.6 37.6

EPS (Rs) 12.3 19.9 29.0 39.9

Adj. BVPS (Rs) 167.5 178.7 198.9 226.2

P/E (x) 30.9 19.1 13.1 9.5

P/Adj.BV (x) 2.3 2.1 1.9 1.7

ROE (%) 8.4 11.2 14.7 17.8

ROA (%) 1.1 1.6 1.9 2.1 Source: Company, India Infoline Research

Capital First

Company intends to bring down the proportion of bank term loans from 75% to 60% of borrowings, which will lower the overall cost of funds. Currently, the NCD rates are ~100bps lower than Base Rate of banks.

The combined effect of favourable shift in borrowing and lending mix

would drive NIM improvement going forward.

Aided by QIP of Rs 300cr towards the end of FY15, CAPF’s CAR stands at 20% versus the regulatory requirement of 15%.

New initiatives include a) tie‐up with Amazon for supply financing b) entry

into lifestyle financing and c) planning for a co‐branded credit card that will

generate fee income.

We continue to believe that CAPF’s RoA and RoE would improve to 2.1% and

18% respectively by FY18 on the back of margin expansion and operating

leverage. Thus, stock valuation should structurally re‐rate from current 1.7x

FY18 P/ABV.

Company Profile Capital First is a specialized provider of finance to MSMEs offering varied financing options and catering to their needs at different stages of business lifecycle. Bulk of the company’s MSME portfolio is long term loans backed by collateral (being property, etc) and based on a thorough evaluation of enterprise’s business and cash flow. Average ticket size of the book is at ~Rs9.6mn and average LTV is at 42%. MSME lending forms nearly ~70% of the AUM; other segments of 2w financing, consumer durable financing and wholesale funding forms the rest. Standing at Rs. 13,604cr currently, Capital First’s AUM has grown at staggering ~65% pa over FY10‐15 driven by significant investments in network, employees, technology, credit appraisal and other processes. The portfolio mix has substantially moved towards MSME and Retail loans over the past five years. The profitability of the franchise is currently sub‐optimal with RoA at 1.5%, but the ratio is likely to move towards healthy 2% over the next couple of years driven by multiple operating levers.

Sector: Building Products


Sensex: 25,530

52 Week h/l (Rs): 1,130 / 699



Bloomberg code: MTLM IN

BSE code: 526797

NSE code: GREENPLY

FV (Rs): 5


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Greenply Sensex


(%) Mar‐15 Jun‐15 Sep‐15

Promoters 55.0 55.0 55.0


Others 24.9 24.0 21.7

Research Analyst: Ruchita Maheswari

[email protected]

Greenply Industries


CMP: Rs.922 We hosted Mr. V. Venkatramani, Chief Financial Officer of Greenply Industries or GIL at our IIFL Management Roadshow held on December 4, 2015. Following are the key takeaways from the investor meetings:

Greenply deals in Plywood and MDF (medium‐density fibreboard)

products. Plywood accounts for 72% of the total revenue and MDF accounts for the rest. Under plywood, the premium segment constitutes

80% of the revenue and the mid segment accounts for 20% (100% outsourced). GIL is not present in the cheap plywood segment.

Plywood: On the back of the decline in premium plywood category led by higher inventory built‐up in the real estate, GIL reported decline in margin

to the tune of 9% in H1FY16 (GIL had reported as high as 12% margin). As GIL is real estate sector‐ dependant, GIL is feeling the heat as plywood (the residential is the major consumption of premium plywood), unlike other building material, comes into the picture only after the customer takes possession of the house. With poor liquidity in the system and inventory built‐up led reduction in real‐estate sales hurting the performance of GIL.

As per the management, the plywood division would have grown by 12%‐15% if the company had extended the credit period for distributors. The company, however, decided to preserve its resources for the proposed expansion of the board’s division in Andhra Pradesh, which is expected to be operational by mid FY19.

GIL envisages a 50‐60bps improvement in margins in the plywood category in FY17E, driven by increased capacity utilization, higher outsourcing, and implementation of GST.

MDF: MDF is comparatively cheaper than plywood and acts as a substitute for cheap/economy grade plywood. The company is betting big on MDF growth, backed by an increase in use and availability of readymade furniture: Urban Ladder, Pepperfry, IKEA, Godrej, and Featherlight. Anticipating high demand for MDF, GIL has plans to set up a 0.36mn cbm, which will be double the size of its existing MDF plant in Chittor district, Andhra Pradesh. GIL has acquired �105 acres of land at a cost of Rs18.5cr and awaits statutory approvals/licences to set up a MDF board unit. GIL will likely incur a capex of ~Rs650cr over FY16E‐FY19E, most of which will be funded 50:50 or 60:40 via debt and internal accruals. The plant will likely be commissioned by October 2018.

Financial summary Y/E Mar (Rs cr) FY15 FY16E FY17E FY18E

Revenues 1,564 1,658 1,870 2,115

Growth (%) 12.5 6.0 12.8 13.1

EBITDA 205 232 265 302

EBITDA (%) 13.1 14.0 14.2 14.3

PAT 107 117 138 162

EPS (Rs) 44.5 48.4 57.2 67.2

P/E (x) 20.7 19.1 16.1 13.7

P/BV (x) 4.6 3.8 3.1 2.5

EV/EBITDA (x) 12.4 10.8 9.5 8.6


Greenply Industries

The growing phase of infrastructure and real estate markets has augmented the demand for furniture products in the country. Consequently, the use of automated plants to manufacture furniture will see an increase. An automated plant uses MDF boards over plywood to manufacture furniture. Plywood is manufactured in a labour‐intensive environment and hence is not uniform. MDF boards are, however, manufactured in an automated plant, which ensures uniformity in quality. Additionally, the conversion ratio from wood to MDF at �92% is far better for MDF over plywood (conversion ratio of 60%‐65%), thereby providing better cost efficiency.

The management is confident of achieving operating margins of 27%‐28% in FY16E for the MDF board division; operating margins stood at 23.3% in FY15.

GIL v/s Centuryply (MDF): Unlike Centuryply which is setting‐up a capacity in Punjab, GIL is setting‐up a capacity in South India. The thought process of setting‐up a capacity in Andhra Pradesh is to cater to the South India market efficiently, which has emerged as the huge market for MDF because of increase in the usage of readymade furniture. Further, it will help logistics cost savings by 10% (transportation cost from Uttarakhand plant to South India market) and cater to the huge market available with ease. Difference in the MDF plant of GIL v/s Centuryply GIL (European MDF plant) Centuryply (Chinese MDF plant)

The cost of the project is high The cost of the project is comparatively low

The plant can run at a maximum rate of 115% capacity utilization

The plant can run maximum 90% of capacity utilization

The company enjoys the flexibility to change the product composition as per the raw‐material price prevailing which will help the company in maintaining margins

The company can run only fixed composition product. No flexibility.

The power cost declines as the capacity utilization rate increases

No such benefit available

The quality of the product is superior The quality of the product is mediocre

Source: Company & India Infoline Research

GIL v/s Centuryply (Plywood): GIL sources its raw‐material requirement

from Myanmar by setting‐up a 42mnsqm or 12,600cbm installed capacity via 50:50 JV route with an invenstment of Rs28cr each in August 2014. As per the management, more than 60% or 7,000‐8,000cbm of high quality raw‐material is used for captive consumption and rest low grade is sold in the market. On the other hand, Centuryply (the arch rival of GIL) enjoys first mover advantage by setting‐up a 40,000cbm capacity in Myanmar in February 2014 and 40,000cbm capacity in Laos. With the shortage of face veneer in the domestic market, the prices of face veneer went up by 20%‐25%. The captive consumption of Centuryply is 9,000‐10,000cbm, the company sells balance capacity in the market. This helped Centuryply in generating higher revenue with better margins in the plywood segment.

In addition, GIL hedges all the forward contracts unlike Centuryply which prefers to keep all its positions open. Moreover, any forex (gain) or loss, GIL shows before EBITDA which impacts margin for the company. However, Centuryply, posts after EBITDA as they treat as an interest cost item. Hence, margin of Centuryply is higher compared to GIL.

Greenply Industries

In FY15, Centuryply sold Rs137cr of face veneer against Rs32cr sold by GIL. As Centuryply built up stock at a low price (raw material benefit) and has added first‐mover advantage with 3x capacity, realisation of Centuryply was ~28% higher than the realisation of GIL in FY15. The management has given revenue guidance of Rs95cr‐Rs100cr at optimum capacity utilization.

Traded plywood pre‐tax RoCE stands at 39% against 18% in case of manufactured plywood. Hence, GIL is not expanding any capacity and instead increasing the contribution of traded plywood, which is expected to

touch 30% in the next three years from 20.5% in FY15. Greenteriors brand – a new venture: GIL expects to garner ~Rs500cr of

revenue from this segment over the next five years. Under Greenteriors, GIL is launching its first product ‐ wallpaper. Typically, the margin is expected to be in the range of 22%‐24% and is likely to generate a business of Rs200cr over the next three years.

GST implementation to benefit organised players: The uneven indirect duty structures in favour of unorganized players provide them price advantage over organized manufacturer. Organised players pay excise duty of 12.5% and value‐added tax or VAT of 12.5% ‐ a total of ~25% tax. However, with the implementation of GST, the unorganised players will also fall under the purview of tax, which will benefit the organised players significantly. As per the management, the difference between the prices of organised and unorganised players is ~15%. With the implementation of GST, the dealers’ purchase prices will come down. This will narrow down the price difference by 10% to 5%. Hence, the rapid shift from unorganised to organised segment will take place, thereby driving growth for GIL.

Revenue guidance FY16: The management expects GIL to do 5%‐6% revenue growth on the back of poor consumer sentiment, higher real estate inventory and no‐pickup in the premium category of Plywood. The Plywood segment expects to do 3%‐4% volume and MDF volume is expected to be in the range of 12%‐15%.

Company Profile

Greenply Industries Limited, India’s premier interior infrastructure company, manufactures, markets, distributes and brands plywood and medium density fibreboards. The Company enjoys a leadership position in this sector,

accounting for 26% of the organised plywood and 30% of the MDF market in India as on FY15.

Mr. Shiv Prakash Mittal and Mr. Rajesh Mittal are the promoters of the company. GIL ventured into the industry by setting up a saw mill in 1984 and a plant in Nagaland to manufacture plywood in 1988. The company, incorporated in 1990, has steadily grown as an integrated solutions provider for interior infrastructure products. The company has five plants in India. GIL has total plywood production capacity of 32.4mn sqm spread over Nagaland, West Bengal, Uttarakhand and Gujarat and MDF production capacity of 0.18mn cbm located in Uttarakhand. GIL has a presence across different price points to cater to all customers across the high‐end, mid‐market and value segments with a pan‐India presence. The company has a presence in over 300 cities across 21 states serviced through a well‐entrenched distribution network of 1,550 distributors and 10,000 retailers and 45 branches pan‐India.

Sector: Oil & Gas Sector view: Positive

Sensex: 25,530

52 Week h/l (Rs): 566 / 389



Bloomberg code: GOLI IS

BSE code: 538567

NSE code: GULFOILLUB

FV (Rs): 2

Prices as on December 07, 2015

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GULFOILLUB Sensex


(%) Mar‐15 Jun‐15 Sep‐15

Promoters 60.0 64.9 64.9


Others 17.1 16.6 15.7

CMP: Rs.486

Research Analyst: Prayesh Jain

[email protected]

Gulf Oil Lubricants


We hosted Mr Amit Mandhaniya (DGM Finance) and Ms Sugandha Khandelwal (Manager ‐ Business Planning) of Gulf Oil Lubricants at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings held were as follows:

India is significantly under‐penetrated when compared with other emerging markets and the developed countries with regards to lubricant consumption. With India’s GDP is likely to improve along with marked growth in industrial production (driven by Make in India campaign), Gulf Oil sees strong recovery in lubricant demand, which was on a weak trajectory in the recent past.

Gulf Oil Lubricants is the third largest private lubricant player in India. Overall it is the sixth largest player.

Currently, the company has an overall market share of 5%, while it has 7% market share in the replacement market. It expects to improve this on a sustained basis in the near future through entry into newer segments and agreements with new OEMs.

In the near future, Gulf Oil is launching new products for the passenger cars and the light commercial vehicles.

The company is setting up a new plant in Chennai, which will have a capacity of 40,000‐50,000 KL and will require a capex of Rs.150 crore, of which Rs.40 crore have already been incurred and the remaining will be spent over the next 18 months. The plant is expected to commence operations by Q1 FY18.

Gulf Oil products are priced at ~10% discount to Castrol products but command a similar premium to other player products.

Over the medium term, the company expects to see 2‐3x industry growth.

The company is in the process of widening its distribution network, which currently stands at 350 distributors and 58,000 retailers.


Revenues 967 1,024 1,126 1,262

yoy growth (%) 9.7 5.8 10.0 12.0


OPM (%) 13.4 15.2 15.7 16.2

Reported PAT 77 96 113 133

yoy growth (%) 13.5 24.0 17.5 18.1

EPS (Rs) 15.6 19.4 22.7 26.9

P/E (x) 30.6 24.7 21.0 17.8

Price/Book (x) 12.7 9.2 6.9 5.4

EV/EBITDA (x) 15.9 12.8 10.9 9.0

Debt/Equity (x) 1.2 1.0 0.6 0.4

RoE (%) 41.4 43.1 37.6 34.1


Gulf Oil Lubricants

The company derives 30% of its revenues from the B2B segment, which comprises the OEMs and industrials. Rest 70% comes from the B2C segment comprising 45‐50% from CVs, ~5% from passenger cars and rest from two‐wheelers.

When compared with the market leader, Gulf Oil’s operating margins are much lower. The majority of the gap is attributed to the pricing premium the market leader commands. Gulf Oil expects this gap to narrow down as it sees it getting some pricing power with innovative products.

Tie‐up with OEMs is critical for long term success in the lubricants business. Recently, the company entered into a tie‐up with Mahindra & Mahindra wherein all service centres will use only Gulf Oil products for specific models. The company expects many more such tie‐ups in the near future.

Company Background Gulf Oil is part of the Hinduja Group, one of largest diversified groups in India. The Group acquired Gulf from Chevron in the late 1980s and owns the rights to the brand for all countries worldwide, except Portugal, Spain & USA. In India, Gulf as a brand has been present since the 1920s and is one of the most popular automotive brands in the country. The Indian lubricant business of the group is under the listed entity, Gulf Oil Lubricants (GOL). GOL was demerged from Gulf Oil Corporation as a separate entity In July 2014 to have a pure India lubricants play. It also manufactures and markets 2‐wheeler batteries, automotive filters and lubricating equipment. Gulf's Indian operations have:

Widespread nationwide availability

State‐of‐the‐art blending plant with a capacity of 72,000 MTPA, located at Silvassa

More than 300 Distributors and over 50,000 Retailers

5 Regional Offices – Bengaluru, Gurgaon, Kolkata, Lucknow & Mumbai

33 Sales Offices and Depots

Over 200 sales and technical services personnel

Sector: Financials


Sensex: 25,530

52 Week h/l (Rs): 38/19.75


6m Avg vol (‘000Nos): 2914

Bloomberg code: MGFL IN

BSE code: 531213

NSE code: MANAPPURAM

FV (Rs): 10


Share price trend

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100

160

220


Manappuram SENSEX



Promoters 32.2 32.2 32.3


Others 22.7 22.8 26.0

Research Analyst: Franklin Moraes

Rajiv Mehta [email protected]

Manappuram Finance Ltd


CMP: Rs.26 We hosted Mr. Kapil Krishan (CFO) of Manappuram Finance (MGFL) at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows: Manappuram has already begun diversifying its loan portfolio from being

a pure gold loan financier. The non‐gold loan portfolio share in total AUM is expected to reach 25% by FY18.

It acquired Asirvad MFI in FY15, having an AUM of ~Rs. 350cr. This has already increased 30% qoq over the past two quarters aided by strong distribution expansion. Management targets to grow this book to Rs. 2000cr by FY18. There would be dedicated branches for managing the MFI business.

Asirvad MFI currently does an RoA of 4%, which could moderate to 3.5% by FY18 as expenses relating to branch and employee addition would be incurred. In terms of capital requirement, Asirvad MFI would require Rs. 100cr/yr capital to fund the expansion plans. The capital would be consumed from the existing capital base of Manappuram.

Mortgage and CV Fin are other businesses that are expected to contribute another Rs. 2000cr to the AUM by FY18. The Mortgage Fin business caters to the self employed segment with average ticket size of Rs. 15 lacs and yields of 14‐15%. These businesses are expected to generate RoAs of 1.5% by FY18.

Gold loan portfolio is expected to increase by Rs. 1000cr/yr for the next three years. This is assuming gold prices remain at current levels. Should gold price increase, higher growth can be expected as the ticket size itself will improve.

Strong customer addition is driving volume growth in the gold loan business, which is why Manappuram is showing good growth in spite of the sluggish gold prices.


Total operating income 1,116 1,294 1,489 1,724

yoy growth (%) 2.8 15.9 15.1 15.8

Operating profit (pre‐provisions) 441 478 551 646

Net profit 271 282 320 370

yoy growth (%) 20.0 4.1 13.2 15.9

EPS (Rs) 3.2 3.4 3.8 4.4

Adj.BVPS (Rs) 30.2 31.2 32.3 33.9

P/E (x) 8.2 7.9 7.0 6.0

P/adj.BV (x) 0.9 0.8 0.8 0.8

ROE (%) 10.6 10.5 11.4 12.4

ROA (%) 2.4 2.3 2.3 2.3

Dividend yield (%) 6.8 6.8 6.8 6.8

CAR (%) 25.7 24.6 22.1 19.8 Source: Company, India Infoline Research

Manappuram Finance Ltd

Auctions during Q2 FY16 were unusually high at ~Rs. 800cr partially due to the residual impact of erstwhile high LTV loans. Going forward, auction run rate is likely to be at ~5‐6% of AUM (~Rs. 500‐600cr/quarter in absolute terms).

The entire gold portfolio has migrated to the new product structure and a lower duration. Hence, improvement in net yields is expected from the coming quarter onwards. Average duration of the gold loan portfolio is now ~5 months. The portfolio break‐up is as follows

3‐month duration: 60% of total gold loan portfolio



Manappuram has scaled‐up the issuance of Commercial Paper in the last two quarters, which have now reached 12% of the borrowing mix. The contribution is likely to reach 15‐20% in the medium term, which should support lower cost of funds as the borrowing cost of commercial paper is significantly lower than bank funding. Modest improvement in portfolio yield and moderation in cost of funds will drive NIM improvement going forward.

Opex/AUM ratio, which is currently at 8% is likely to remain at similar levels as there will be significant branch and employee related investments in the non‐gold loan businesses. Scope for operating leverage exists in the gold loan business with Avg. gold AUM/Branch expected to go up to Rs. 4‐4.5cr from current Rs. 3cr over a period of three years.

Post the event, we have trimmed our net profit estimates by 2‐5% for FY17 and FY18 to factor continuance of a high opex structure. The investment risk reward is still highly favourable for long term investors owing to a) initiatives that have de‐risked the business b) robust capitalization c) improved corporate governance d) ample scope to improve RoEs e) high dividend payout (yield at 7%).

Company Profile Manappuram Finance is one of the leading gold loan NBFCs in India having major AUM concentration in South India due to substantial gold holdings in the region. A highly under‐penetrated gold loan market and increasing share of organised players represents significant growth opportunity for the company. Over FY12‐14, Manappuram’s AUM shrunk due to tightening of regulatory environment i.e capping of LTV, higher Tier‐I capital threshold, exclusion from PSL category and sharp correction in gold prices. However, stability in operating environment and intense branch activation efforts have driven consistent AUM growth since early FY15, which should continue in the future. Credible attempt has been made by the management towards reducing the inherent risk of business by introducing shorter‐tenure gold loans and diversifying into synergistic products such as micro finance, mortgages and CV financing.

Sector: INFRA


Sensex: 25,530

52 Week h/l (Rs): 385 / 233



Bloomberg code: SADE IN

BSE code: 532710

NSE code: SADBHAV

FV (Re): 1


Share price trend

0

100

200


Sadbhav Engg Sensex

Share holding pattern Mar‐15 Jun‐15 Sep‐15

Promoters 47.1 47.1 47.1


Others 12.6 12.0 11.1


[email protected]

Sadbhav Engineering Ltd.


CMP: Rs.338 We hosted the Management of Sadbhav Engineering Ltd at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings were as follows: Management expects strong increase in NHAI award activity in 2H FY16.

The Company intends to participate in tenders worth around Rs.2,000 cr across selected states and expects tenders for these projects to be opened in the next couple of quarters.

In the mining segment, the company is planning to set up an SPV to act as Mine Developer and Operator (MDO), which would contract nearly 70‐ 80% of work to SEL.

Management indicated that large ticket MDO orders worth Rs.35,000 cr from the Mining space would come up for awarding. Considering the strong pipeline, the Management remains optimistic to win significant orders in this space. The orders would span across multiple years.

Management continues to focus on segments like Irrigation and Mining and its exposure in these two segments has increased from nearly 25% of total order book as on FY11 to more than 40% as on H1 FY16. Management indicated of margin improvement in the mining segment going forward owing to certain high margin projects in portfolio.

The Company has undertaken debt refinancing for some of the projects. It expects the debt refinancing coupled with expected decline in interest rates to lead to decline in interest costs going forward. Management expects the consolidated debt to peak out at nearly Rs. 80 bn by FY18.

SEL expects order inflow to the tune of nearly Rs.2000 cr during the second half of FY16. Taking the current order book and new order inflows into consideration, Management expects the standalone revenues to grow by more than 20% with EBITDA margins in the range of 10‐11% during FY17.

Financial summary (Standalone) Y/e 31 Mar (Rs cr) FY12 FY13 FY14 FY15

Revenues 2,676 1,811 2,358 2,970

yoy growth (%) 21.1 (32.3) 30.2 25.9


OPM (%) 10.8 8.6 10.6 10.1


yoy growth (%) 17.5 (47.3) 43.3 7.2

EPS (Rs) 9.3 4.9 7.0 7.3

P/E (x) 36.2 68.9 48.3 46.3

Price/Book (x) 6.7 6.1 5.4 4.3

EV/EBITDA (x) 16.2 29.1 42.0 35.6

Debt/Equity (x) 0.5 0.8 0.9 0.7

RoE (%) 20.3 1.6 16.2 9.9 RoCE (%) 25.0 9.9 14.1 13.6

Source: Company, India Infoline Research

Sadbhav Engineering Ltd.

The Company currently undertakes EPC projects for third party as well as

for in‐house BOT projects. Going forward management expects to maintain focus on both (third paty and in‐house BOT) with a view to have a strong addressable market. This provides strong visibility on the EPC revenues for the Company going forward.

The Management expects its subsidary SIPL to generate strong revenue growth by FY18 as under construction projects turn operational and start toll collection. With the increase in revenues and the expected decline in debt, the Management expects SIPL to turn profitable by FY18.

Company Profile

SEL is primarily engaged in the construction of Roads, Mining and Irrigation. SIPL is a subsidiary of SEL and is the holding company of all the BOT assets. The order book of the SEL stands at Rs.9,306 cr as on September 30,2015. The order inflow during 2Q FY16 and 1H FY16 was Rs.1,608 cr and Rs.2,684 cr respectively. The order inflow during 1H FY16 was predominantly from the EPC space. Road and Highways constitute 70% of the order book while Irrigation and Mining constitute 30% of the order book. SIPL, a subsidiary of SEL was incorporated as an asset holding company for road and other Infrastructure BOT projects in 2007. SIPL has been engaged in development, operation and maintenance of road infrastructure assets. SIPL undertakes turnkey contractual works, other than civil construction, of the projects. Sadbhav is focused on building a sizable asset base in the road BOT project. SIPL has a project portfolio consisting of eleven BOT projects of which seven projects are fully operational, one is partially operational and the remaining three projects are in various stages of completion. The total project cost for eleven BOT projects is Rs.10,160 cr and Equity investment (including subdebt) as on September 2015 is Rs.2,000 cr. The Company also acquired stake in MBHPL from SEL & JV partner which is under process of completion. The Company has strong track record of completing four out of six operational projects on or before scheduled date. The Company has presence in high growth states of Gujarat, Maharashtra, Rajasthan, Haryana, Karnataka and Andhra Pradesh.

Sector: DIVERSIFIED


Sensex: 25,530

52 Week h/l (Rs): 110 / 48


6m Avg vol (‘000Nos): 2219

Bloomberg code: SOTL IN

BSE code: 532374

NSE code: STRTECH

FV (Re): 2


Share price trend

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100

200


Sterlite tech Sensex


Promoters 54.8 54.8 54.8


Others 32.9 32.0 30.1


[email protected]

Sterlite Technologies Ltd.


CMP: Rs.100 We hosted Mr Anupam Jindal (CFO), Mr Vishal Aggarwal (Head ‐ IR) and Mr Kartik Sankaran (Corporate Strategy and IR) of Sterlite Technologies Ltd at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings held were as follows: The Company is currently operating at almost full capacity in its optic fibre

(OF) and optic fire cables (OFC) capacity and Management expects strong demand going forward. The Management believes doubling of the capacity (8 mn fkm to 15 mn fkm) in OFC and debottlenecking in OF bsuiness (20 mn fkm to 22 mn fkm) would be key driver for its revenues going forward. As it is demerging the power business (which is witnessing relative lower growth than telecom), it expects the consolidated entity (post demerger) to witness strong growth over the next few years.

The Company uses OF for captive consumption of OFC and also for selling outside and the current cabling mix is nearly 45%. The Management expects the cabling mix to increase to nearly 65% by FY18. It expects to sell ~22 mn fkms of OF and ~15 mn fkm of OFC by FY18.

Management expects margins to remain strong for the telecom business owing to the premium pricing. It generates higher margins in the OF business as against the OFC business. While in OF it generates EBITDA of $2.25 per km on sale of $7 per km, it generates EBITDA $4.25 per km on sale of $20 per km. With the doubling of capacity in OF business, the blended margins likely to maginally come down in product business.

Management expects Elitecore, which is into software products, to be a significant contributor to topline going forward. It expects nearly 20% YoY growth during FY17 in this business with EBITDA margin of nearly 11%. The Management expects strong growth to continue over the long term owing to strong expertise in Operations and Business support systems. It believes Elitecore would allow Sterlite to transform from capital driven to a service‐driven Company.

Financial summary Y/e 31 Mar (Rs cr) FY12 FY13 FY14 FY15 FY15**

Revenues 2,622 3,092 2,564 3,097 1,619

yoy growth (%) 15.9 17.9 (17.1) 20.8 NA

Operating profit 189 223 275 461 345

OPM (%) 7.2 7.2 10.7 14.9 21.3

Reported PAT 40 25 ‐36 ‐3 118

yoy growth (%) (72.0) (36.5) (241.0) (92.6) NA

EPS (Rs) 1.0 0.6 ‐0.9 ‐0.1 2.9

P/E (x) 98.9 155.6 NA NA 26.6

Price/Book (x) 3.4 3.4 3.5 3.6 5.1

EV/EBITDA (x) 16.4 13.3 32.8 19.6 7.8

Debt/Equity (x) 0.9 2.4 3.7 5.0 1.1

RoE (%) 3.6 2.2 (3.1) (0.2) 19.7 RoCE (%) 7.0 4.7 3.5 5.5 19.5

Source: Company, India Infoline Research; FY15** contains proforma financials post demerger of power business.Proforma multiples calculated post reduction of Rs.22.5 from CMP as per scheme of demerger.

Sterlite Technologies Ltd.

The Company is the only player in the industry manufacturing its own glass used in cables. As per the Management, the backward integration allows the company to reduce the cost of manufacturing its products. It is therefore able to generate higher margins that other peers.

Management is extremely optimistic on the telecom services business, which is currently a marginal revenue contributor. However it has a current order book of around Rs.2,000 crore, which majorly comprises NFS orders to be executed by end of 2016. Out of the NFS order book, major proportion is from services business. Management expects strong traction in this business over the medium to long term.

The Company does not expect significant capex going forward. The Management also highlighted the sharp decline in D/E from more than 5x to 1.1x post the demerger. While the current debt of the telecom entity is Rs.924 cr as of Sep 30, 2015, it expects to bring down debt to Rs.800 cr levels by end of FY16.

Company Profile

Sterlite Technologies is fully integrated Optical Fiber producer and one of the largest suppliers of Optical Fibers to overseas markets in China, Europe and South East Asia. Sterlite Technologies is primarily engaged in manufacturing of Optical Fibre, Optical Fibre cables and Power conductors (Capacity 160 ktpa). The company has also forayed into power transmission through its subsidiary Sterlite Grid. The subsidiary has 7 projects out of which 3 projects are operational. STL has nearly 50 Patents for optic fibre and optic fibre cables and uses optic fibre for captive consumption of optic cables as well as selling outside. The telecom services business (similar to EPC business) is currently a marginal revenue contributor for STL. In July 2014, the company received an order from BSNL to execute a Network for Spectrum (NFS) order for Jammu and Kashmir. This is a Government of India (GoI) initiative for rollout of telecom network for the Defence. The Company recently announced demerger of power business into a separate entity Sterlite Power Transmission Limited (SPTL). As per the scheme of arrangement, STL’s shareholders will continue to retain their equity share of Rs 2 in STL (Telecom Company). Additionally, for every five share held in STL, the shareholders will have an option to receive one equity share of Rs. 2 each of SPTL issued at a premium of Rs 110.30 or one Redeemable Preference Share (RPS) of Rs. 2 each issued at a premium of Rs 110.30 each. The RPS will be redeemable within 30 days of issue if opted for. The appointed date for demerger is April 1, 2015, and demerger is expected to complete by Q4 FY16.

Sector: Telecom


Sensex: 25,530

52 Week h/l (Rs): 505/336



Bloomberg code: TCOM IB

BSE code: 500483

NSE code: TATACOMM

FV (Rs): 10


Share price trend

80

100

120

Dec‐14 May‐15 Nov‐15

Tcom Sensex



Promoters 75.0 75.0 75.0


Others 6.3 6.3 6.9

Research Analyst: Bhavesh Gandhi

[email protected]

Tata Communications


CMP: Rs.412 We hosted Mr. Mahesh Pratap Singh of Tata Communications at our IIFL Management Roadshow held on December 04, 2015. Following are the key takeaways from the investor meetings: Company’s target audience consists of ~6,000 global customers with at

least US$3‐4bn in revenues across 3‐4 countries and ~5,000 employees

Tcom has 24‐25% share of India enterprise data, which has increased ~100bps every year with the perception of a premium service provider

Globally company is quite small at US$1bn in enterprise revenues as compared to 5‐6 leaders who have a combined US$50bn+ in sales; on the positive side, enterprise is growing at 25% vs. at best 6% growth for global peers

Traditional services share of revenue has come down to 35% in FY15 from 70% in FY10; though a good business company explained that ‘in the long term it is more like running on a tread mill’ as busines is suspect to steep price erosion

Data is growing at 15% pa with constantly evolving revenue composition; 75% of EBIDTA is derived from data services; Tcom enjoys 15% share of global wholesale voice market

Data operating margin at 19‐20% with medium term goal of high 20s and even 30% in the long term; base data portfolio is making 26% margin

Tcom targets limited ATM roll outs of <2,000 per year or ~100‐150/month with primary objective to get profit from each ATM; company believes it would be unfair at this stage to get distracted with long term end game for ATM business

New services in data are making US$40mn annualized EBIDTA loss, which is sizable in terms of P&L

Company says the latest turn of events at Neotel (Neotel shareholders and Vodacom to revise the terms of transaction) is disappointing and would know contours of the revised structure by December 10th


Revenues 19,913 20,564 19,796 21,354

yoy growth (%) 1.3 3.3 (3.7) 7.9

Operating profit 2,994 3,167 3,207 3,523

OPM (%) 15.0 15.4 16.2 16.5


yoy growth (%) (98.8) ‐ 45.5 87.4

EPS (Rs) 0.0 3.5 5.1 9.5

EV/EBITDA (x) 8.0 7.6 7.4 6.0

ROE (%) 19.0 35.3 64.9 108.4

ROCE (%) 7.9 9.0 8.8 12.7 Source: Company, India Infoline Research

Tata Communications

In response to investor queries regarding the complexity of business, company did agree about difficulty of understanding the various moving parts of data business; hence as a simple rule of thumb, it recommended tracking two parameters‐absolute EBIDTA growth and capex

Company targets 15% RoCE in three years from current 5% driven by faster (than revenue) EBIDTA growth and largely unchanged capital employed

Company is operating at peak leverage with US$300‐350mn annual capex nearly equal to annual depreciation

Company Profile Tata Communications is a part of the Tata group of companies and became the umbrella brand for erstwhile government monopoly VSNL, VSNL International as well as Teleglobe and Tata Indicom in Feb 2008. Its’ portfolio includes transmission, IP, converged voice, mobility, managed network connectivity, hosted data center, communications solutions and business transformation services to global and domestic enterprises and service providers as well as, broadband and content services to Indian consumers. Tcom owns amongst the largest undersea cable networks, a Tier‐1 IP network, and connectivity to more than 200 countries across 400 PoPs; it also owns more than 10 lakh sq feet of data center space. Tcom has a strategic investment in South African operator Neotel, which it is in talks with Vodacom for divestment of its entire holdings. Company posted H1 FY16 revenues of Rs. 10,361cr and pretax profit of Rs. 166cr along with 15% EBIDTA margin.

Sector: Capital Goods

Sector view: Neutral

Sensex:

52 Week h/l (Rs):

Market cap (Rscr) :

6m Avg vol (‘000Nos):

Bloomberg code:

BSE code:

NSE code:

FV (Rs):

25,530

580 / 329

3,152

48

TEEC IB

533281

TECHNO

2


Share price trend

40

90

140

190

Dec‐14 Apr‐15 Aug‐15 Dec‐15

Techno Electric Sensex


Promoters 58.0 58.0 58.0


Others 21.8 20.5 17.1

Research Analyst: Tarang Bhanushali

[email protected]

Techno Electric & Engineering Ltd


CMP: Rs.555 We hosted Techno Electric & Engineering Ltd at our IIFL Management Roadshow held on December 04, 2015. The key takeaways from the meetings held were as follows:

Transmission and Distribution (T&D) capex is expected to remain strongover the next five years. The growth would be witnessed at both, Centreand State. Share of high voltage would increase going forward to reduceT&D losses and addressing issues related to availability of land.

Order book at the end of Q2 FY16 stood at Rs. 2,200crore. The companyhas managed to gain orders worth Rs. 550crore in H1 FY16 and expectsordering to improve further in H2 FY16 on the back of strong ordersexpected from Power Grid. Of the total order book, power generationsector accounted for Rs. 90crore, transmission business accounted for Rs.1,795crore and distribution accounted for the rest, Rs. 315crore.

The company continues to focus on complex projects, which have highermargins and better cash flow and projects, which are funded bygovernment agencies. Power Grid accounts for 43.9% of total order bookfollowed by Bihar state with a share of 22.5% and NTPC with 9.9%. Thecompany has ventured into the STATCOMS and HVDC corridor.

The management believes investments going forward in solutions onSTATCOMS, HVDC and other power electronics would increase. Withincreased focus in renewable power, the challenge in managing dynamicflow of power will further increase leading to greater technology andinvestment in these solutions. It has formed a JV with a Chinese company,which gives the technological component of the project.

The company has also ventured into EPC for Solar projects in a JV with aChinese company. In the initial stage, the company would execute a singleproject and post the execution of this project would decide on thecontinuation of this business.

Financial summary Y/e 31 Mar (Rs cr) FY12 FY13 FY14 FY15

Revenues 820 700 708 794

yoy growth (%) 14.4 (14.6) 1.2 12.1


OPM (%) 26.8 33.5 27.2 26.2

Pre‐exceptional PAT 121 120 87 105


yoy growth (%) 7.2 (0.4) (27.3) 20.1

EPS (Rs) 21.2 21.1 15.3 18.4

P/E (x) 26.2 26.3 36.2 30.1

Price/Book (x) 4.7 4.1 3.8 3.5

EV/EBITDA (x) 16.9 15.8 19.0 17.4

Debt/Equity (x) 0.9 0.8 0.6 0.5

RoE (%) 19.6 16.7 10.9 12.0


Techno Electric & Engineering Ltd.

The company expects 20‐25% yoy growth in order inflows over the next three years. Execution cycle for the current order book is 24‐36 months. The company has guided for EPC revenue of Rs. 1,000crore in FY16 and Rs. 1,200crore in FY17 from Rs. 670crore in FY15. However, it believes slower execution in Bihar during the elections would lead to a marginal miss in FY16 revenues.

Operating margins are expected to expand marginally due to higher execution and lower competitive intensity.

Performance of wind power has been lower on a yoy basis due to climatic change and lower wind. Evacuation issues continue to impact overall profitability. The company has sold 44.45MW at 215cr and intends to divest balance portfolio to improve strength for bidding more PPP projects in transmission sector. Techno plans to garner ~Rs. 800crore from the sale of balance wind power assets.

The company plans to bid for projects with IRR of 18‐20% and which have substation as a major scope of work.

Company Profile Techno Electric & Engineering Company Ltd (TEEC) was founded in 1963 and provides EPC services to power generation, transmission and distribution sectors. Since its inception in 1963, TEECL has groomed itself in the field of comprehensive engineering, procurement and construction services for fuel oil storage and handling system, comprehensive piping systems including power cycle piping, process plant installation, fire protection systems, EHV switchyards, EHV sub stations, power plant cabling system, plant electrical distribution system including plant earthing systems, lightning protection system and plant illumination systems installed nationwide. The Company is headquartered in Kolkata, West Bengal (India) with marketing offices in three Indian states. TEEC is involved in APDRP and Rajiv Gandhi Rural Electrification Program of the Government of India. TEEC entered into the wind power business by acquiring Super Wind (45MW) and Simran Wind (50.45MW) from Suzlon in FY10. While 45MW of capacity of Super is in parent company, Simran Wind continues to be wholly‐owned subsidiary of TEEC. Subsequent to this TEEC has expanded its power capacity in Simran Wind from 50MW to 167MW by doing Greenfield expansion. The company has sold 44.45MW of wind power at an effective valuation of Rs. 215cr and intends to divest balance portfolio to improve strength for bidding more PPP projects in transmission sector, improve ROCE & focus on EPC. The company entered BOOT/BOOM business with a JV with Kalpataru Power in FY11 at Jhajjar and secured a second project in FY15 at Patran. Currently, it has 2 projects and is looking to add 1 or 2 projects annually targeting a portfolio of 5 projects by FY17.

11

‘Best Broker of the Year’ – by Zee Business for contribution to brokingNirmal Jain, Chairman, IIFL, received the award for The Best Broker of the Year (for contribution to broking in India) at India's Best Market Analyst Awards 2014 organised by the Zee Business in Mumbai. The award was presented by the guest of Honour Amit Shah, president of the Bharatiya Janata Party and Piyush Goel, Minister of state with independent charge for power, coal new and renewable energy.

'Best Equity Broker of the Year' – Bloomberg UTV, 2011IIFL was awarded the 'Best Equity Broker of the Year' at the recently held Bloomberg UTV Financial Leadership Award, 2011. The award presented by the Hon'ble Finance Minister of India, Shri Pranab Mukherjee. The Bloomberg UTV Financial Leadership Awards acknowledge the extraordinary contribution of India's financial leaders and visionaries from January 2010 to January 2011.

'Best Broker in India' – Finance Asia, 2011IIFL has been awarded the 'Best Broker in India' by Finance Asia. The award is the result of Finance Asia's annual quest for the best financial services firms across Asia, which culminated in the Country Awards 2011

Other awards

2012BEST BROKING HOUSE WITH

GLOBAL PRESENCE

2009, 2012 & 2013BEST MARKET

ANALYSTBEST BROKERAGE,

INDIAMOST IMPROVED,

INDIABEST BROKER,

INDIA

2009FASTEST GROWING

LARGE BROKING HOUSE

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12

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entities including the subject company/ies mentioned in this Report. However, IIL encourages independence in preparation of research report and strives to minimize conflict in preparation of research report. IIL and its associates did not receive any compensation or other benefits from the subject company/ies mentioned in the Report or from a third party in connection with preparation of the Report. Accordingly, IIL and its associates do not have any material conflict of interest at the time of publication of this Report.

h) As IIL and its associates are engaged in various financial services business, it might have:‐

(a) received any compensation (except in connection with the preparation of this Report) from the subject company in the past twelve months; (b) managed or co‐managed public offering of securities for the subject company in the past twelve months; (c) received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) engaged in market making activity for the subject company.

i) IIL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company/ies mentioned in the report as of the last day of the month preceding the publication of the research report.

j) The Research Analyst/s engaged in preparation of this Report or his/her relative

(a) does not have any financial interests in the subject company/ies mentioned in this report; (b) does not own 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of the research report; (c) does not have any other material conflict of interest at the time of publication of the research report.

k) The Research Analyst/s engaged in preparation of this Report:‐ (a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co‐managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject company or third party in connection with the research report; (f) has not served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company.

We submit that no material disciplinary action has been taken on IIL by any regulatory authority impacting Equity Research Analysis. A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp, www.bseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock‐quotes. (Choose a company from the list on the browser and select the “three years” period in the price chart).

Published in 2015. © India Infoline Ltd 2015 India Infoline Limited (Formerly “India Infoline Distribution Company Limited”), CIN No.: U99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91‐22) 4249 9000 .Fax: (91‐22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B‐23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91‐22) 25806650. Fax: (91‐22) 25806654 E‐mail: [email protected] Website: www.indiainfoline.com, Refer www.indiainfoline.com for detail of Associates. National Stock Exchange of India Ltd. SEBI Regn. No. : INB231097537/ INF231097537/ INE231097537, Bombay Stock Exchange Ltd. SEBI Regn. No.:INB011097533/ INF011097533/ BSE‐Currency, MCX Stock Exchange Ltd. SEBI Regn. No.: INB261097530/ INF261097530/ INE261097537, United Stock Exchange Ltd. SEBI Regn. No.: INE271097532, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:‐ INH000000248.

For Research related queries, write to: Amar Ambani, Head of Research at [email protected] For Sales and Account related information, write to customer care: [email protected] or call on 91‐22 4007 1000

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