vesuvius 3qcy2012ru

7/31/2019 Vesuvius 3QCY2012RU

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Please refer to important disclosures at the end of this report 1

EBITDA 25 25 (2.1) 22 9.1

EBITDA margin (%) 18.6 18.1 45bp 16.1 243bp

Source: Company, Angel Research

For 3QCY2012, Vesuvius India Ltd (VIL) reported a 4.5% yoy decline in its

revenue to `132cr. The EBITDA margin expanded marginally by 45bp yoy to

18.6% on account of decline in raw material expense, while on a sequential basis,the EBITDA margin expanded by 243bp from 16.1% in 2QCY2012 owing to a

16% decline in other expenses. The net profit declined a tad by 4.0% yoy to `14cr

from `15cr in 3QCY2011.

We expect the

company to face short-term pressures on the volume front due to weak demand.

Raw material cost continues to show some relief, which coupled with decreased

other expenses lead to a sequential improvement in operating performance. We

expect raw material prices to remain stable at these levels; however employee

expense (as percentage of net sales) is expected to increase. The net profit is

expected to see a dip in CY2012E and then recover in CY2013E.

We expect VIL to post a 4.3% CAGR revenue growth over

CY2011-13E due to weak demand while the EBITDA margin is expected to

contract marginally by 41bp over CY2011-13E from 17.4% in CY2011 to 17.0%

in CY2013E, owing to relatively higher operating expenses. The net profit is

expected to decline in CY2012E to `51cr from `55cr in CY2011 and recover to

`56cr by CY2013E. At the current market price, the stock is trading at a PE of

12.4x its CY2013E earnings and P/BV of 1.8x for CY2013E.

Key financials

% chg 21.7 22.8 1.6 6.9

% chg 29.3 13.7 (7.2) 9.0

EBITDA (%) 18.7 17.4 16.6 17.0

P/E (x) 14.3 12.5 13.5 12.4

P/BV (x) 2.7 2.3 2.1 1.8

RoE (%) 20.8 20.1 16.1 15.5RoIC (%) 43.9 40.6 32.6 31.4

EV/Sales (x) 1.4 1.2 1.1 1.0

EV/EBITDA (x) 7.8 6.8 6.8 6.1


CMP `341

Target Price -

Investment Period -

Stock Info

Sector

Net Debt (` cr)

Bloomberg Code

Shareholding Pattern (%)

Promoters 55.6

MF / Banks / Indian Fls 15.7

FII / NRIs / OCBs 10.8

Indian Public / Others 17.9

Abs. (%) 3m 1yr 3yr

Sensex 7.8 6.8 16.8

VESUVIUS (6.8) (13.1) 118.8

52 Week High / Low 464/305

(22)

Cap Goods

Market Cap (` cr) 693

Beta 0.7

Avg. Daily Volume 3,363

Face Value (`) 10

BSE Sensex 18,763

Nifty 5,704

Reuters Code VESU.BO

VI@IN

+91- 22- 3935 7800 Ext: 6849

[email protected]

Performance Highlights

3QCY2012 Result Update | Capital Goods

November 5, 2012


2/12

Vesuvius India | 3QCY2012 Result Update

November 5, 2012 2

Exhibit 1:3QCY2012 performance

Net raw material 73 76 (5.2) 77 (5.5) 229 217 5.7(% of Sales) 54.9 55.3 55.1 55.8 54.8

Staff Costs 9 8 10.0 9 0.3 26 23 13.0

(% of Sales) 6.7 5.8 6.3 6.4 5.9

Other Expenses 26 29 (8.9) 31 (16.1) 88 80 9.6

(% of Sales) 19.9 20.8 22.5 21.4 20.2

EBITDA margin (%) 18.6 18.1 45bp 16.1 243bp 16.4 19.1 (266)bp

Interest 0 (0) 0 0 (1)

Depreciation 4 4 3.3 4 (2.6) 12 11 14.6

Other Income 0.3 0.0 0.3 1 0

(% of Sales) 15.7 15.4 13.4 13.8 16.6

Tax 7 7 (0.9) 6 11.3 18 21 (11.7)

(% of PBT) 32.5 31.8 32.5 32.5 31.6

PATM (%) 10.6 10.5 9.0 9.3 11.4

Equity capital (cr) 20 20 20 20 20


Exhibit 2:Actual vs. Angel estimates (3QCY2012)Total Income 132 140 (5.8)

EBITDA 25 24 0.7

EBITDA margin (%) 18.6 17.4 120bp

Adjusted PAT 14 14 2.3


Top-line below estimate, EBITDA margin surprises positively

For 3QCY2012, VIL reported a top-line of `132cr, 5.8% below our estimate of

`140cr owing to a weak demand scenario. However, lower-than-expected other

expenses led to expansion of EBITDA margin by 243bp qoq vis--vis our

expectation of 17.4%. As a result, the net profit for the quarter stood at `14cr

marginally higher than our expectation.


3/12


November 5, 2012 3

Investment rationale

About 75% of the total refractories are consumed in the iron and steel industry.Indias steel consumption reported a sluggish growth of 5.5% in CY2011 vs an

estimate of 13.3% by the World Steel Association (WSA). Following this, WSA

revised its consumption estimates for CY2012 to 6.9% in April 2012, which were

further reduced to 5.5% in October 2012. However, WSAs steel consumption

growth estimate for India still stands higher than most other developed as well as

developing countries. Thus, refractory consumption is expected to grow, but at a

relatively slower pace on account of reduced steel demand.

Exhibit 3:Country-wise steel consumption estimates (WSA)

Source: WSA, Angel Research

New capacity to replace imports, but with a lag

Imports constitute 25-30% of the refractory industry wherein a majority of the

imports are from China. Stagnation in domestic consumption due to increased

refractory life cycle in the critical areas of steel making process has led to lowcapacity utilization at ~60%, thus leading to a substantial unutilized capacity. Also,

~15% additional capacities are expected to be operational by CY2012E. Besides,

VIL has also acquired 15acres of land in Visakhapatnam for setting up itsproposed fifth plant.

Exhibit 4:Capacity expansion for major players (MT)VIL 622,500 155,900 778,400

IFGL 800,000 84,000 884,000

Tata Refractories 250,760 36,000 286,760

Source: Company

(0.6

)

(1.2

)

4.0

4.1

6.

8

6.9

5.2

2.2

(5.6

)

2.5

0.8

3.8

5.5 7

.5

(8)

(6)

(4)

(2)

0

2

4

6

8

10

Japan EU China CIS Central &South

America

India NAFTA

Growth(%)

CY2012E (April 2012) CY2012E (Oct 2012)


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November 5, 2012 4

We expect new capacities to contribute to the industry post improvement in

capacity utilization to higher levels. This would lead to a decrease in the imports

market share for refractories.

Exhibit 5:Refractory import market share to reduce (India)


Strong balance sheet favors return ratios

VIL being a debt free company had a RoIC of 40.6% for CY2011. Since the

company has completed its expansion, no major capex is required in the short

term. Hence, we expect the cash reserves to increase to `87cr by CY2013E from

`54cr in CY2011. VIL is expected to have a RoIC of 31.4% in CY2013E.

29.3

42.2

24.0

28.2 27.3 26.5

15

20

25

30

35

40

45

CY08 CY09 CY10 CY11 CY12E CY13E

(%)

Refractory imports marketshare


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November 5, 2012 5

Financials

Exhibit 6:Key assumptionsChange in refractory volume sales (4.1) 6.2

Change in MRP of refractories 3.0 1.0

Source: Angel Research

Exhibit 7:Change in estimates

OPM (%) 16.1 17.0 16.6 17.0 49bp (5)bp

Source: Angel Research

Slowdown in steel industry to restrain revenue growth

WSAs continuous downward revision for steel demand is an indication of

slowdown in the industry. Hence, we expect a decline in demand for refractories,

thus leading to a mere 4.3% CAGR revenue growth over CY2011-13E. Revenue

for 9MCY2012 has witnessed the impact of demand slowdown with marginal sales

growth. We expect the sluggishness to continue going forward with gradual

recovery from CY2013E.

Exhibit 8: Slowdown in revenue growth in 9MCY2012


Exhibit 9:Revenue growth to improve gradually


137 138 148 139 139 132

24.1

21.723.2

1.8 0.7 1.8

(5)

0

5

10

15

20

25

30

0

40

80

120

160

2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12

(%)

(`cr)

Revenue (LH S) yoy growth ( RH S)

353 362 440 540 549 587

10.4

2.5

21.7

22.8

1.6

6.9

0

5

10

15

20

25

30

0

100

200

300

400

500

600

700

CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

(%)

(`cr)

Revenue (LHS) Revenue growth ( RHS)


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November 5, 2012 6

Higher operational cost to impact EBITDA margin

Raw material cost which constitutes ~55% of the total cost was a major contributor

in impacting EBITDA margin to sub 15% levels in 4QCY2011 and 1QCY2012 in

comparison to more than 18% levels historically. However, recent fall in raw

material prices along with decrease in other expenses led to a recovery in the

EBITDA margin during the quarter. We expect raw material prices to stabilize at

these levels, but the commencement of the expanded facility has led to an increase

in employee cost. Hence, we expect the EBITDA margin to contract in CY2012E to

16.6% and recover to 17.0% in CY2013E.

Exhibit 10:Margin recovery on lower operational cost


Exhibit 11:EBITDA margin to recover in CY2013E


Net profit to rebound in CY2013E

Considering the impact of demand slowdown and margin pressure, we expect the

net profit to decline to `51cr in CY2012E and recover in CY2013E to `56cr.

Exhibit 12:Profit to recover at CY2011 level


25 25 22 20 22 25

18.318.1

14.8

14.6

16.1

18.6

13

14

15

16

17

18

19

0

5

10

15

20

25

30

2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12

(%)

(`cr)

EBITD A (LH S) EBITD A margin (RH S)

53 64 82 94 91 100

15.0

17.7

18.7

17.416.6 17.0

13

14

15

16

17

18

19

0

20

40

60

80

100

120

CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

(%)

(`cr)

EBITDA (LHS) EBITDA margin (RHS)

32 38 49 55 51 56(3.9)

18.8

29.3

13.7

(7.2)

9.0

(10)

0

10

20

30

40

0

10

20

30

40

50

60

CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E

(%)

(`cr)

PAT (LHS) PAT growth (RHS)


7/12


November 5, 2012 7

Outlook and valuation

We have revised our revenue and earnings estimates for CY2012E and CY2013E

marginally downwards on the back of slowdown in steel demand which is

impacting refractory demand. At current levels, the stock is trading at a PE of 12.4x

its CY2013E earnings and P/BV of 1.8x for CY2013E.

Exhibit 13:One year forward P/E band


Exhibit 14:One year forward P/E chart


Exhibit 15:Relative valuation

IFGL Refractor TTM ended June12 651 12.1 41 12 32.3 4.0 1.3 0.2 1.8Vesuvius India TTM ended Sept12 559 16.4 51 25 16.0 13.5 2.1 1.2 7.3

Source: Company

Risks

VIL is a manufacturer of refractories, which has major

application (~75% of total production) in the iron and steel industry. Slowdown in

steel demand has a direct impact on refractory demand. Underperformance in the

steel industry may be a cause for declining demand of refractories, thus affecting

the company.

0

100

200

300

400

500

Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12

(`)

Price 5x 8x 11x 14x

0

4

8

12

16

20

Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12

(x)

Median PE (5 yr) PE


8/12


November 5, 2012 8

Profit & Loss Statement

Less: Excise duty 22 33 40 38 41Net Sales 362 440 540 549 587

Other operating income - - - - -

% chg 2.5 21.7 22.8 1.6 6.9

Net Raw Materials 198 242 307 308 331

Other Mfg costs 46 59 73 77 80

Personnel 21 25 30 35 36

Other 32 32 37 38 41

Total Expenditure 298 358 446 458 487

% chg 20.9 28.5 14.4 (2.9) 9.2

(% of Net Sales) 17.7 18.7 17.4 16.6 17.0

Depreciation 13 13 15 16 18

% chg 15.9 35.1 14.6 (5.6) 9.0

(% of Net Sales) 14.2 15.7 14.7 13.6 13.9

Interest & other charges 1 1 1 - -

Other Income 6 6 5 2 2

(% of Net Sales) 1.5 1.5 0.9 0.3 0.3

% chg 17.4 33.6 10.6 (7.5) 9.0

Tax 19 26 27 25 28

(% of PBT) 33 35 33 33 33

Extraordinary (Exp)/Inc. (0) 0 - - -

% chg 18.8 29.3 13.7 (7.2) 9.0

(% of Net Sales) 10.4 11.0 10.2 9.3 9.5

% chg 18.8 29.3 13.7 (7.2) 9.0


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November 5, 2012 9

Balance Sheet

Equity Share Capital 20 20 20 20 20Preference Capital - - - - -

Reserves& Surplus 193 233 278 317 361

Minority Interest - - - - -

Total Loans - - - - -

Deferred Tax Liability (Net) 5 6 6 6 6

Other Long Term Liabilities - - - - -

Long Term Provisions - - 177 177 177

Gross Block 161 181 207 239 262

Less: Acc. Depreciation 79 90 99 115 133

82 92 109 123 129

Capital Work-in-Progress 21 20 30 20 20

Goodwill - - - - -

Investments - - - - -

Long Term loans and adv. - - 181 184 197

Other long term assets - - 1 1 1

Cash 55 56 54 72 87

Loans & Advances 11 164 15 16 17

Inventory 29 38 48 56 63

Debtors 98 116 149 151 162

Other current assets - - 3 3 4

Current liabilities 77 226 109 105 113

Misc. Exp. not written off - - - - -


10/12


November 5, 2012 10

Cash Flow Statement

Profit before tax 56 75 83 76 83

Depreciation 13 13 15 16 18Change in Working Capital 32 (31) (16) (14) (11)

Direct taxes paid (19) (26) (27) (25) (28)

Other income (6) (6) (5) (2) (2)

Others (4) 6 (4) - -

(Inc.)/Dec. in Fixed Assets (37) (19) (37) (21) (24)

(Inc.)/Dec. in Investments - - - - -

(Incr)/Decr. in L.T loans & adv - - (182) (3) (13)

Other income 6 6 5 2 2

Others 8 (8) 174 - -

Issue of Equity - - - - -

Inc./(Dec.) in loans - - - - -

Dividend Paid (Incl. Tax) (9) (9) (10) (12) (12)

Others 5 1 2 - -

Inc./(Dec.) in Cash 45 1 (2) 18 15


11/12


November 5, 2012 11

Key Ratios

P/E (on FDEPS) 18.4 14.3 12.5 13.5 12.4P/CEPS 6.8 5.5 4.9 10.2 9.4

P/BV 3.2 2.7 2.3 2.1 1.8

Dividend yield (%) 1.1 1.2 1.2 1.5 1.5

EV/Sales 1.8 1.4 1.2 1.1 1.0

EV/EBITDA 10.0 7.8 6.8 6.8 6.1

EV / Total Assets 2.9 2.5 1.3 1.2 1.1

EPS (Basic) 18.5 23.9 27.2 25.2 27.5

EPS (fully diluted) 18.5 23.9 27.2 25.2 27.5

Cash EPS 24.8 30.3 34.4 33.4 36.4

DPS 3.7 4.0 4.3 5.0 5.0

Book Value 105.1 124.6 146.9 166.2 187.9

EBIT margin 14.2 15.7 14.7 13.6 13.9

Tax retention ratio 0.7 0.7 0.7 0.7 0.7

Asset turnover (x) 2.5 2.4 1.4 1.3 1.3

ROIC (Post-tax) 24.0 24.7 13.3 11.7 11.9

Cost of Debt (Post Tax) - - - - -

Leverage (x) (0.3) (0.2) (0.2) (0.2) (0.2)

Operating ROE - - - - -

ROCE (Pre-tax) 25.1 29.0 21.4 14.9 15.0

Angel ROIC (Pre-tax) 33.8 43.9 40.6 32.6 31.4

ROE 18.9 20.8 20.1 16.1 15.5

Asset Turnover 2.2 2.4 2.6 2.3 2.2

Inventory / Sales (days) 11 8 8 10 10

Receivables (days) 99 96 101 101 101

Payables (days) 95 231 89 70 70

WC (ex-cash) (days) 61 75 72 81 82

Net debt to equity (0.3) (0.2) (0.2) (0.2) (0.2)

Net debt to EBITDA (0.9) (0.7) (0.6) (0.8) (0.9)

Interest Coverage 61.0 80.5 62.4 - -


12/12


November 5 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in

the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Disclosure of Interest Statement Vesuvius India Ltd.

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

vesuvius 3qcy2012ru

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