Professional Documents
Culture Documents
FOREWORD
Dear Investors,
While stepping into the new calendar year, one cannot but look back on CY10 wistfully and ponder. The
markets commenced the year with huge promises and a distinct edge over peer counties. Our banking
systems, often called archaic, had emerged through the global crisis relatively unscathed without
recapitalisation and the growth engine of our economy stood more or less intact. The slow and steady
upsurge in per capita income has maintained the trend of creation of a strong consumption class in
India, thereby making our economy dependent on domestic consumption to a large extent, with a
relatively low reliance on exports.
The only dark cloud on the horizon at that time was inflation, which the government was trying to tame
with all the resources at its disposal. The budget was a pragmatic exercise and government walked the
talk when it implemented certain gutsy reforms like partial decontrol of petroleum product prices, auctioning
of 3G licenses, etc. Thus, the stage was set for markets to remain buoyant, which was borne out by the
fact that they came within striking range of all time highs in Nov'10. FII interest in India was at the
highest and inflow for CY10 at USD28.5bn surpassed the high of USD18.5bn for CY07.
However, as the year draws to an end, there have been some blips which have the makings of a potential
spoilsport. The parliamentary deadlock over the 2G telecom license issue, gyrations in Andhra Pradesh
political scenario, hiccups in quite a few big ticket projects due to rule book implementation by the
environment ministry, the so called loan scam, deferral of GST implementation, etc., have turned to be
the proverbial Achilles' heels. However, there have been some silver linings like the successful big ticket
listing of Coal India and the decisive election mandate in Bihar. The uncertainties towards the end of the
year have resulted in the Indian markets shedding some of their gains with the broad-based indices
(BSE500) barely outperforming global indices. Thus, as we enter into CY11, the quest for profitable
investment options would be a bit harder as the past few weeks have heralded a flight to quality, size and
safety.
We, at Antique, are of the belief that upheavals in the market notwithstanding, there exist quite a few
investment options which not only offer a degree of safety on the business model and earnings front but
also the promise of growth owing to their balance sheet strength and prudent capital allocations. We
have attempted to weave together the threads of domestic consumption stories, strong costing and
operational advantages, high growth potential and capable management with implementation skills to
vector on some of them.
We therefore bid adieu to CY10 and sign off by presenting you, our patrons, with '20 Mid-Cap and 11
Large-Cap ideas from our coverage universe, which we believe will merit serious consideration as investment
opportunities in the New Year. After all, Mighty oaks from little acorns grow!!
Sandeep Shenoy
Head of Research
I N D E X (Large Caps)
Market Cap
(USDbn)
Page No.
Reliance Industries
77.0
1-6
TCS
49.5
7 - 10
ITC
29.0
11 - 14
ICICI Bank
28.0
15 - 18
26.4
19 - 22
Tata Motors
17.0
23 - 28
Tata Steel
13.0
29 - 32
11.0
33 - 36
10.0
37 - 44
10.0
45 - 48
11 Hindalco Industries
10.0
49 - 52
I N D E X (Mid Caps)
Market Cap
(USDbn)
Page No.
Market Cap
(USDbn)
Page No.
Oil India
7.0
53 - 56
11 Petronet LNG
2.0
95 - 100
Siemens
6.0
57 - 60
1.5
101 - 104
Idea Cellular
5.0
61 - 64
105 - 108
Sun TV Network
5.0
65 - 68
14 Havells India
1.1
109 - 112
4.0
69 - 72
1.1
113 - 116
4.0
73 - 76
0.8
117 - 120
Exide Industries
3.0
77 - 82
17 Phoenix Mills
0.7
121 - 124
Dish TV India
2.0
83 - 86
18 Sterlite Technologies
0.6
125 - 128
2.0
87 - 90
19 Escorts
0.4
129 - 134
2.0
91 - 94
20 Tecpro Systems
0.4
135 - 140
10 Aurobindo Pharma
LARGE
CAPS
27 December, 2010
Investment rationale
Refiners back in demand
After sluggish refining margins for last two years, we expect refining margins
to remain in an upward trajectory structurally led by strong oil products demand
growth and expected slow-down in refining capacity addition over 2011-13.
We see distillate demand led by industrialisation and transportation demand
from emerging markets to be the key driver of this growth. Distillate yield biased
Asian refiners like RIL are therefore expected to be in a sweet spot, in our view.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
HOLD
INR1,060
INR1,152
9%
Market data
Sector
3,468
77
3,273
1,618
1,187/841
4,068
Bloomberg
RIL IN
Reuters
RELI.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
6.4
5.8
0.7
(1.5)
Relative
3.1
5.6
(11.0)
(14.8)
Source: Bloomberg
Shareholding pattern
Others
28%
DII
10%
Source: BSE
160
Key financials
1,512
2,037
2,427
2,622
100
231
238
309
371
445
80
15
30
20
20
265
148
153
154
204
22
32
30
EPS (INR/share)
53
47
47.2
62.5
81
22
(11)
32
29
20.1
22.6
22.4
17.0
13.1
PE (x)
PB (x)
EV/EBITDA (x)
RoE (%)
Source: Company, Antique
3.6
2.9
2.5
2.2
1.9
15.2
14.8
11.4
9.5
7.9
17
13
11
13
14
RIL
Source: Bloomberg
Nov-10
1,371
Sep-10
Jul-10
120
May-10
2012e
Mar-10
2011e
Jan-10
2010
Nov-09
2009
Jul-09
2008
Sep-09
140
Promoters
45%
FII
17%
NIFTY
Amit Rustagi
+91 22 4031 3434
amit.rustagi@antiquelimited.com
Ruchi Dugar
ruchi.dugar@antiquelimited.com
Miten Vora
miten.vora@antiquelimited.com
COMPANY UPDATE
Investment rationale
Refiners back in demand
The prevailing view in the market seems to be that the Asian refining margins are
likely to remain flattish in FY11e and FY12e due to significant refining capacity additions
in the same period. Contrary to the market, we believe that the market will continue to
see net incremental demand (i.e., incremental demand > incremental supply) for the
global refining industry over the next two years.
2010
2011
IEA
2.5
1.2
OPEC
1.3
1.1
EIA
1.4
CERA
1.4
1.6
Average
1.8
1.3
Refiners witnessed three years of sluggish refinery margins during 2008-10 due
to poor oil products demand growth and significant refinery capacity addition
over the same period.
However, oil products demand in 2010 has bounced back very sharply with IEA,
in its recent report, estimating a 2.5MMbbl/d demand growth for 2010. IEA also
estimates continuation of strong demand growth over the next few years led by
China, India and other emerging markets.
2009
2010
2011e
2012e
2013e
2014e
2015e
1,900
1,460
712
971
1,645
2,575
3,235
Refinery closures
1,775
1,026
329
200
150
150
150
125
434
383
771
1,495
2,425
3,085
(1,200)
2,500
1,400
1,400
1,400
1,400
1,400
125
559
942
1,713
3,208
5,633
8,718
(1,200)
1,300
2,700
4,100
5,500
6,900
8,300
1,325
(741)
(1,758)
(2,387)
(2,292)
(1,267)
418
10.2
9.0
10.0
10.0
Diesel
23.2
8.0
12.5
15.0
RIL GRMs
12.2
6.5
8.3
10.7
We do not expect utilisation levels to increase significantly in the near term due to
delayed refinery expansion plans, ~3MMbbl/d of refinery capacity closures
announced (both temporary and permanent) as well increasing trend of unplanned
outages as 41% of refineries being operated globally for 40 years and above.
We thus believe that refinery margins are expected to remain in an upward trajectory
structurally over FY11e-13e before next wave of capacity addition moderates that
growth. We see distillate demand led by industrialisation and transportation demand
from emerging markets to be the key driver of oil products demand. Distillate yield
biased Asian refiners like RIL are therefore expected to be in a sweet spot, in our view.
We upgrade our refining margins assumption for diesel and gasoline to reflect the
above scenario. After bottoming out in FY10, we estimate RILs GRMs to improve to
USD10.7/bbl in FY12e, up 29% YoY. These margins are still 30% lower than peak
margins of USD15/bbl reported by RIL in FY08.
Over expansion
period
Time
Under Investment
period
NOW
Trough
Investment Cycle
6 Years
The refining industry is cyclical and at various points of the cycle different valuation
tools need to be applied. As we recover from the trough of the cycle, we have to
derive the valuations using higher earnings multiple to factor in when we approach
peak cycle.
Discoveries
Status
D1D3
D1, D3
Production underway
MA
D26
Production underway
Reserves
Producing Fields
2.2tcf
Satellite-4/9 Discoveries
R1
D34
CYD5
D35
1.1tcf
GS01
D33
0.2tcf
Stage of
development
Producing
2P reserves
Contingent
resources
Method of valuation
Value
(INRbn)
Value
(INR/sh)
210
71
Producing
DCF
620
208
DoC submitted
12.8tcf
436
146
CBM
Exploration
3.5tcf
123
41
Shale gas
Exploration
14tcf
DCF
Total
144
48
1,533
515
Stage of activity/Risk
D1, D3 3P resources
Under production
5.7
9 satellite discoveries (D2, D4, D6, D7, D8, D16, D19, D22, & D23)
2.2
R-Cluster
1.6
NEC-25
1.5
DoC submitted
0.5
DoC submitted
1.3
12.8
FY08
FY09
FY10
HDPE/ LDPE
1,085
990
1,058
Polypropylene
1,712
1,514
2,399
579
614
624
PVC
Source: Company, Antique
FY08
FY09
FY10
PFY/ PC
753
695
796
PSF/ PC
680
618
687
PET
245
298
314
Plant
Capacity
(ktpa)
Location
Time
(months)
PX
1,300
Jamnagar
24-30
FY12e financials
Methodology
Multiple
INR/bn
PTA (P-1)
1,100
Gandhar
20-24
EV/EBITDA
7.0
109
764
257
EV/EBITDA
7.0
188 1,319
443
EV/EBITDA
7.0
SoTP valuation
1,100
Gandhar
34-40
PET
500
Silvasa
18-24
POY
375
Silvasa
18-24
PFY
375
Silvasa
18-24
PTA (P-2)
Source: Company
Retail
CBM
SEZ
EV Value/sh
30
DCF
Multiple
12.8 tcf
4.5 x
210
71
620
208
436
146
85
29
41
DCF
Multiple
3.5 tcf
4.5 x
123
Valued on 1.0x
66
66
22
Atlas JV
DCF
100
33
Pioneer JV
DCF
45
15
Net debt
Total value
(337)
(113)
3,430
1,152
Source: Antique
Volatile crude and oil product prices may affect refining and petrochemical margins,
and E&P earnings.
Underestimation of capacity additions and how fast the new capacity will come
on-stream may affect our bullish view on margins.
Volatility in foreign exchange may affect the earnings as revenues are dollar
denominated.
2009
2010
2011e
31.4
60.9
65.7
67.6
188
12.2
6.5
8.2
10.7
108
109
0.0
40.0
55.7
60.8
132
147
0.6
5.4
7.2
9.0
(3)
(2)
84.7
69.6
80.0
85.0
309
371
445
9.5
2.8
3.5
3.5
Retail (m sq ft)
5.6
7.1
8.6
9.9
2010
2011e
2012e
Refining
94
132
Petchem
108
102
Others
Total
2012e
Financials
Profit and loss account (INRbn)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenues
1,371
1,512
2,037
2,427
2,622
Expenses
(1,140)
(1,275)
(1,728)
(2,056)
(2,177)
EBITDA
231
238
309
371
445
(50)
(57)
(109)
(116)
(121)
EBIT
181
181
199
255
Interest expense
(11)
(18)
(21)
60
16
199
Other income
Profit before tax
2008
2009
2010
2011e
2012e
181
181
199
255
324
68
77
140
116
121
Interest expense
(11)
(18)
(21)
(25)
(30)
(46)
(58)
(59)
(20)
(23)
324
Tax paid
(25)
(19)
(31)
(43)
(60)
(25)
(30)
Others
25
37
EBIT
Depreciation & amortisation
(6)
(23)
28
34
162
163
205
312
365
(267)
(279)
(233)
(194)
(136)
43
34
26
(80)
14
24
19
31
(304)
(231)
(182)
(172)
(102)
17
152
172
184
(57)
(22)
(23)
230
179
377
255
331
Capital expenditure
(35)
(29)
(43)
(51)
(66)
Inc/(Dec) in investments
195
150
245
204
265
Others
148
153
154
204
265
53
47
47
62
81
2008
2009
2010
2011e
2012e
Share Capital
14.5
16.4
29.8
29.8
29.8
841
1,198
1,380
1,560
1,798
Networth
855
1,215
1,410
1,590
1,828
Debt
507
763
646
624
602
Capital Employed
1,362
1,977
2,056
2,214
2,429
1,092
1,572
2,241
2,425
2,661
Accumulated Depreciation
451
501
639
755
876
Net Assets
641
1,070
1,602
1,670
1,785
499
738
170
180
80
95
66
131
131
131
Investments
191
201
344
402
434
Debtors
61
48
101
118
127
45
227
139
207
391
218
110
107
125
135
228
345
381
453
480
41
44
45
45
46
246
199
265
353
560
(78)
(96)
(107)
(115)
(122)
Minority interest
(41)
(1)
(6)
(6)
(6)
1,362
1,977
2,056
2,214
2,429
Application of Funds
2008
2009
2010
2011e
2012e
2,907
3,269
3,270
3,271
3,272
BVPS (INR)
294
371
431
486
559
CEPS (INR)
68
64
81
98
118
DPS (INR)
13
13
2012e
Others
(21)
(85)
(60)
(51)
(58)
167
250
(111)
(72)
(79)
25
182
(89)
68
184
Opening balance
19
45
227
138
207
Closing balance
45
227
138
207
390
2012e
2008
2009
2010
2011e
Revenue
21
10
35
19
EBITDA
15
30
20
20
PAT
22
32
30
EPS
27
(11)
32
29
2008
2009
2010
2011e
2012e
20.1
22.6
22.4
17.0
13.1
3.6
2.9
2.5
2.2
1.9
15.2
14.8
11.4
9.5
7.9
2.6
2.3
1.7
1.5
1.3
2012e
Valuation (x)
Year ended 31st Mar
PE
P/BV
EV/EBITDA
EV/Sales
Dividend Yield (%)
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
RoE (%)
17
13
11
13
14
RoCE (%)
13
10
12
13
Debt/Equity (x)
0.59
0.63
0.46
0.39
0.33
EBIT/Interest (x)
16.7
10.0
9.7
10.2
10.7
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
17
16
15
15
17
EBIT
13
12
10
11
12
PAT
11
10
10
COMPANY UPDATE
27 December, 2010
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR1,140
INR1,288
13%
Market data
Sector
IT
2,233.4
49.5
1,957.2
459.9
1,177/676
2,001.8
Bloomberg
TCS IN
Reuters
TCS.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
13.6
22.4
47.5
54.3
Relative
10.1
22.3
30.3
33.4
Source: Bloomberg
Shareholding pattern
Cloud computing
We strongly believe that TCS is best positioned to derive maximum benefit
from the Cloud space combined with significant growth in the domestic market.
We opine that countries like India where committing huge upfront cost is a
issue is the best market for pay and use business model.
FII
12%
Promoters
75%
DII
8%
Others
5%
2011e
2012e
385,563
485,048
57,114
71,698
86,946
120,572
147,721
20
26
21
39
23
50,933
53,658
70,006
91,475
109,894
19
30
31
20
26.0
27.4
35.8
46.7
56.1
19
30
31
20
P/E (x)
43.9
41.7
31.9
24.4
20.3
P/BV (x)
18.2
14.2
12.1
10.4
9.0
EV/EBITDA (x)
37.9
30.2
24.9
18.0
14.7
41
34
38
43
44
RoE (%)
Source: Company, Antique
TCS
Oct-10
PAT (INRm)
2010
300,289
Apr-10
2009
278,129
Oct-09
EBITDA (INRm)
2008
226,195
Apr-09
250
200
150
100
50
0
-50
Oct-08
Apr-08
Key financials
Source: BSE
Oct-07
At the CMP of INR1,140, TCS is trading at 20.3x discounting its FY12e EPS.
We reiterate our BUY recommendation with a strong belief in company's
fundamental and domestic presence. We reiterate a BUY on the stock with a
target price of INR1,288 based on 23x FY12e EPS estimate of INR56.
NIFTY
Source: Bloomberg
Sandip Agarwal
+91 22 4031 3427
sandip.agarwal@antiquelimited.com
TCS Limited
Investment rationale
Presence in fastest growing IT services market
TCS has been increasingly deriving significant revenues (~8-10%) from India. Based on
Indian Government's latest IT plan (estimating IT services revenues to go up from current
USD12bn to USD24bn by FY14e), we believe IT spend to increase from current USD10 to
USD20 per capita in the next two years with majority of revenues coming from government
undertakings in the banking, panchayats, municipal corporations, schools and hospitals.
Primary reason to computerise the whole state infrastructure will be to reduce human
interface and reduce corruption at the grass root level so that the good work done reaches
the most deserving candidates. For instance, when a question was asked to Mr. Nitish
Kumar post Bihar elections on one thing which he will do to curtail corruption - his answer
was to implement IT in all sectors and departments and curtail human interface.
We believe that keeping all the above factors in mind, both TCS and CMC are very
well poised to get maximum benefit from the domestic IT revolution which has been
triggered with launch of UID.
Since UID will provide the much needed back-end database architecture, the chance
of Indian departments going live looks very feasible.
"BANCS" deal worth over USD100m: Although the deal is worth only USD100m,
not amounting to much in the overall revenue bucket of TCS, what makes it significant
is the fact it heralds an Indian IT company into the league of players capable of
developing a Core Banking Solution for one of the largest banks in the world. We
believe that developing a CBS with robustness to handle/execute huge volume of
transactions entails a specific and specialised skill set and from technology point of
view it is a very significant achievement as it places TCS directly in the league of
Oracle, HP, IBM. The financial impact of these type of projects is high as the margins
from such projects can be as high as 70-75%, with a good predictable tail.
Cloud computing
We strongly believe that TCS is best positioned to derive maximum benefit from the
Cloud space combined with significant growth in the domestic market. We opine that
countries like India where committing huge upfront cost is a issue is the best market for
pay and use business model. Since Cloud offers everything on pay and use model it
finds lot of customers in fast growing Indian market.
TCS has grabbed the No. 1 slot in Best Employer Survey. This provided the company
an edge in an era where talent acquisition would be the key differentiating factor
both on growth as well as profitability front. This clearly explains why TCS has the
lowest attrition (~13%) vs. even Infosys (~17.5%) and would not only enhance utilisation
rates but also have a cascading effect on the employee cost and margins. Generally,
in IT companies, post resignation notice period varies from 1-2 months, during which
the resource becomes a non-utilisable bench. There is also a minimum training/induction
of 24-26 weeks, conveying impact on recruitment, training, utilisation, etc., for each
attrition. Thus, a company by giving a slightly higher salary hike of 15-20% or an
opportunity to go onsite (which TCS does invariably) can retain the talent.
8
TCS Limited
Order flow to Indian companies and Indian operations of MNCs is now increasingly
becoming large sized. USD100m execution per annum does not raise any toast
anymore. In the recent past even deals worth more than USD250mn had been awarded
to Indian IT vendors.
Also integrated solutions and offerings are enabling Indian companies to now be a
port of call for large organizations in BFSI space, who are now increasingly looking
forward to reduce their vendor base and at the same time reduce costing. Indian
vendors with their global and distributed delivery mechanism are poised correctly at
the time point and delivery point. All the top IT vendors can not only do deliveries from
multiple locations within India but also from multiple locations abroad, which gives
client the comfort of time and delivery.
Lower attrition helps utilisation to improve
85%
84%
83%
82%
81%
80%
79%
78%
77%
76%
14%
12%
10%
8%
6%
4%
2%
0%
82%
80%
78%
76%
74%
72%
70%
68%
66%
64%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
Infosys-Utilization
Infosys -Attrition
TCS-Attrition
85%
84%
83%
82%
81%
80%
79%
78%
77%
76%
37%
36%
35%
34%
33%
32%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
TCS-Utilization
TCS-Employee Cost
58%
82%
80%
78%
76%
74%
72%
70%
68%
66%
64%
57%
56%
55%
54%
53%
52%
51%
50%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
Infosys-Utilization
Infosys-Employee Cost
TCS Ltd.
Financials
Profit and loss account (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenues
226,195
278,129
300,289
385,563
485,048
PBT
Expenses
174,719
212,072
219,953
272,248
347,748
Operating Profit
51,477
66,057
80,337 113,315
137,300
7,283
(4,270)
57,114
71,698
5,637
5,641
Other income
EBIDTA
Depreciation
Interest expense
Profit before tax
2,510
4,808
86,946 120,572
147,721
6,609
7,258
10,421
161
193
27
82,896 115,632
142,081
300
287
58,460
61,501
7,863
8,390
11,970
23,007
31,041
336
547
920
1,150
1,147
50,933
53,658
70,006
91,475
109,894
26.0
27.4
35.8
46.7
56.1
2,721
(12,240)
(15,670)
(24,541)
(31,041)
53,902 102,144
81,033
118,020
Capital expenditure
(12,620)
(10,471)
(10,308)
(22,303)
(24,000)
(Purchase)/Sale of Investments
(13,989)
(12,928)
(21,242)
50,100
215,170
421
(10,930)
(10,155)
14,476
4,808
42,272
195,977
(27)
757
(288)
(109)
(193)
(213)
(125)
(4,174)
(567)
(14,955)
(16,142)
(47,653)
(90,521)
(78,747)
(78,773)
Opening balance
1,033
3,533
4,732
4,304
5,038
5,038
Capital employed
131,085
(4,808)
(11,168)
2,957
5,632
(2,426)
2012e
4,550
434
Tax paid
2,957
Debt
(4,803)
2011e
244,314
27
5,459
10,421
1,339
2,957
247,272
193
28,052
2010
212,021
7,258
159
(43,135)
1,979
181,710
6,609
287
5,768
2009
155,022
5,641
300
21,943
1,979
5,637
8,673
2008
121,023
2012e
142,081
(5,157)
123,001
2010
(5,673)
Share capital
2011e
82,901 115,632
(13,947)
Inc/(Dec) in debt
2009
61,501
2008
58,460
Closing balance
(1,529)
3,018
8,503
32,024 235,224
13,763
11,209
14,418
22,921
54,944
12,234
14,227
22,921
54,944
290,168
2012e
2008
2009
2010
2011e
252,310
Revenue
21
23
28
26
EBITDA*
20
26
21
39
23
42,918
58,439
64,195
86,104
110,104
Accumulated depreciation
16,222
23,597
28,975
35,610
46,031
PAT*
19
30
31
20
64,073
EPS*
19
30
31
20
Net assets
26,696
34,841
35,220
50,495
9,069
7,055
10,174
10,481
10,481
26,062
16,144
36,821
(10,588)
(225,758)
424
366
178
409
387
Debtors
53,781
60,229
58,554
89,594
102,664
12,234
26,981
47,186
77,389
312,612
47,591
81,549
85,809
95,365
95,365
Investments
Valuation (x)
31,906
42,536
40,938
63,326
77,713
12,866
17,266
43,001
16,614
16,614
2008
2009
2010
2011e
2012e
PE
43.9
41.7
31.9
24.4
20.3
P/BV
18.2
14.2
12.1
10.4
9.0
EV/EBITDA
37.9
30.2
24.9
18.0
14.7
9.6
7.8
7.2
5.6
4.5
EV/Sales
Dividend Yield (%)
69,258
416,701
Financial ratios
131,085
265,497
2008
2009
2010
2011e
2012e
1,957.0
1,957.2
1,957.2
1,957.2
1,957.2
BVPS (INR)
62.9
80.2
94.4
109.8
126.3
CEPS (INR)
28.9
30.3
39.1
50.4
61.5
7.0
7.0
20.0
27.1
33.8
DPS (INR)
2008
2009
2010
2011e
2012e
RoE (%)
41
34
38
43
44
RoCE (%)
39
39
42
52
54
Debt/Equity (x)
0.0
0.0
0.0
0.0
0.0
EBIT/Interest (x)
na
na
na
na
na
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
EBIDTA
25.2
25.8
29.0
31.3
30.5
EBIT
26.0
22.2
27.7
30.0
29.3
PAT
22.5
19.3
23.3
23.7
22.7
10
COMPANY UPDATE
ITC Limited
Inflation proof
27 December, 2010
Investment rationale
Resilience of the cigarette business would aid outperformance
Over the next 12 months, when FMCG companies would be muddled between
input cost inflation and intensifying competitive scenario, ITC would be in a
better position with its dominating presence and strong pricing power in the
cigarettes division (accounting for 84% of its total profits). ITC has consistently
demonstrated its strong pricing power in the past in a scenario of steep hikes
in cigarette duties and restrictions on cigarette consumption.
Focus on profitability, a positive strategy
In addition to its cigarettes business, ITC is witnessing improved profitability
across majority of its other businesses like agri, paper and non-cigarette
FMCG. It has witnessed margin expansion of 330bps and 1,040bps in paper
and agri business to 21.2% and 18.3% respectively from FY05 to FY10. In
the non-cigarette FMCG business, losses have been pared from INR1,952m
(sales INR5,634m) in FY05 to INR3,495m (sales INR36,417m) in FY10.
Revival in hotels and increase in market share in personal care to act as triggers
Hotels division is expected to witness continued revival during FY11e and
bounce back by FY12e. During the past two quarters, the hotel industry as a
whole has been witnessing revival in occupancy rates due to higher tourist
arrivals and domestic travel. This is expected to be followed by improvement
in ARRs by the end of FY11e.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR167
INR192
15%
Market data
Sector
Utilities
1,308.0
29.0
O/S Shares
7,698.9
4,557.8
185/112
4,092.0
Bloomberg
ITC IN
Reuters
ITC.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
0.1
(5.2)
12.7
35.7
Relative
(4.6)
(5.0)
(1.3)
17.3
Source: Bloomberg
Shareholding pattern
DII
36%
Source: BSE
2009
2010
2011e
2012e
170
153,881
179,609
213,760
254,103
120
48,585
60,740
73,523
87,233
70
31.6
33.8
34.4
34.3
20
11
25
21
19
32,036
40,610
50,782
60,806
27
25
20
4.2
5.3
6.6
8.0
Revenues (INRm)
EBITDA (INRm)
PAT (INRm)
PAT growth (%)
EPS(INR)
EPS growth (%)
PE (x)
PB (x)
25
25
20
40.0
31.9
25.5
21.3
9.3
9.2
7.8
6.6
EV/EBITDA (x)
26.3
21.0
17.4
14.6
RoE (%)
23.3
28.9
30.7
31.1
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
FII
14%
Others
50%
ITC
NIFTY
Source: Bloomberg
Abhijeet Kundu
+91 22 4031 3430
abhijeet@antiquelimited.com
ITC Limited
Investment rationale
Steep increase in
non-filter duties
40
Over the next 12 months, when FMCG companies would be muddled between
input cost inflation and the intensifying competitive scenario, ITC would be in a
better position with its dominating presence and strong pricing power in the cigarettes
division (accounting for 84% of its total profits). ITC has consistently demonstrated
its strong pricing power in the past in a scenario of steep hikes in cigarette duties
and restrictions on cigarette consumption. While the overall duty in cigarettes has
risen by 14% CAGR during the past five years (FY05-10), ITC's cigarette EBIT grew
by 17% CAGR. ITC's cigarette sales during the same period have grown by 12%
CAGR indicating an improvement in EBIT margins from 22.9% in FY05 to 28.6% in
FY10. During the same period, we estimate that the company has witnessed an
improvement in volume market share from 73% to 78.5%.
30
20
10
0
FY05 FY06 FY07 FY08 FY09 FY10
Duty hike (%)
Cigarette EBIT grow th (%)
ITC PAT grow th (%)
Source: Company, Antique
50
40
30
20
10
0
33.2
24.6
19.8
18.5
17.9
7.9
37.6
35.8
19.2
4.9
4.6
31.2
18.2
11.2
56.5
48.1
50
40
5.2
48.0
45.8
38.8
36.5
29.4
33.8
31.4
43.3
37.4
30
20.3
-10
-12.0
-20
-30
-40
57.3
60
23.9
21.2
18.3
-9.6
-10.5
20
15.4
13.3
12.1
13.2
FY05
FY06
FY07
FY08
-16.1
-17.0
19.4
10
-34.7
FY05
FY06
Paper
FY07
Agri
FY08
FY09
Non-cigarette FMCG
Hotels
FY10
Internal consumption
Leaf tobacco
FY09
FY10
12
ITC Limited
Further, the personal care portfolio comprising soaps, shampoos and the recent launch
skin creams is fast gaining traction, especially in case of soaps where ITC has gained
a volume market share of ~5% and has become a force to reckon within. In the current
scenario, where the competition in soaps is intensifying, any further gain in market
share would be commended and would lead to re-rating of the division. Therefore, we
believe that the revival in hotels and the increase in market share in the personal care
would act as triggers for the stock. We expect the other FMCG division to grow by
34% CAGR during FY10-12e to INR65.7bn while losses are expected to reduce to
INR2,302m by FY12e.
30x
25x
20x
15x
10x
At the CMP of INR167, the stock trades at a PE of 25.5x FY11e and at 21x FY12e. The
stock has witnessed a consistent re-rating during FY06-FY11 backed by strong resilience
demonstrated by the cigarette business and increasing contribution to PBIT from noncigarette businesses. We believe in an inflationary scenario, ITC's premium would expand
and the stock would witness a further re-rating.
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
We reiterate our BUY recommendation on the stock with a target price of INR192,
providing a 15% upside from the current levels.
13
ITC Limited
Financials
Profit and loss account (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
2012e
Revenues
139,475
153,881
179,609
213,760
254,103
EBIT
39,579
43,091
54,653
66,623
79,733
Expenses
95,511
105,296
118,869
140,238
166,870
4,385
5,494
6,087
6,900
7,500
EBITDA
43,964
48,585
60,740
73,523
87,233
Interest expense
(46)
(183)
(534)
(700)
(600)
4,385
5,494
6,087
6,900
7,500
(4,848)
(4,070)
34,712
(27,421)
7,054
39,579
43,091
54,653
66,623
79,733
(23,127)
46
183
534
700
600
6,109
4,750
6,034
9,000
45,642
47,658
60,153
14,517
15,622
19,543
(13,983)
(12,551)
(19,543)
(19,375)
31,782
75,375
26,026
70,560
10,500
Capital expenditure
(16,862)
(12,041)
(15,000)
(20,000)
74,923
89,633
Inc/(Dec) in investments
1,332
968
(28,891)
24,141
28,827
6,109
4,750
6,034
9,000
10,500
(11,144) (34,899)
31,126
32,036
40,610
50,782
60,806
31,126
32,036
40,610
50,782
60,806
4.1
4.2
5.3
6.6
8.0
Inc/(Dec) in debt
Others
2008
2009
2010
2011e
2012e
3,769
3,774
3,818
7,636
7,636
116,808
133,576
136,826
157,971
187,861
195,497
Share Capital
Reserves & Surplus
Networth
Debt
Capital Employed
Gross Fixed Assets
120,577
2,144
122,721
1,776
1,077
1,077
1,077
196,574
89,597
105,587
119,679
134,679
154,679
Accumulated Depreciation
(27,909)
(32,867)
(38,255)
(45,155)
(52,655)
Net Assets
61,688
72,719
81,424
89,524
102,024
11,268
12,141
10,090
10,090
10,090
Investments
29,346
28,378
57,269
57,269
57,269
40,505
45,997
45,491
59,811
69,627
Debtors
7,369
6,687
8,588
11,962
13,925
5,703
10,324
11,263
5,470
35,614
16,616
18,603
15,929
19,334
19,334
29,645
34,983
44,184
57,147
27,870
Application of Funds
Closing balance
7.0
DPS (INR)
3.5
3.7
10.0
5.8
6.9
2012e
30,144
5470
5,703
10,324
11,263
5,470
35,614
2012e
15
27
25
20
25
25
20
Valuation (x)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
PE
41.1
40.0
31.9
25.5
21.3
P/BV
10.6
9.3
9.2
7.8
6.6
EV/EBITDA
29.0
26.3
21.0
17.4
14.6
EV/Sales
9.2
8.3
7.1
6.0
5.0
2.1
2.2
5.9
3.4
4.1
196,574
25.6
11263
(42)
5.7
(5,793)
10324
EPS
21.7
939
5703
PAT
4.5
4,621
9002
19
18.4
(3,298)
19
3.5
(30,915)
21
18.2
(3,818)
25
3.5
5,650
11
Financial ratios
16.0
759
460
11
(18,316)
CEPS (INR)
(30,915)
EBITDA
(12,615)
BVPS (INR)
(25,819)
19
(7,850)
7,636
(44,533)
2011e
(8,672)
2012e
(16,412)
17
(5,451)
7,636
(15,568)
2010
35,846
2011e
10
45,507
7,636
(699)
2009
29,976
2010
(369)
15
22,416
7,549
136
2008
788
2009
3,818
Revenue
45,499
7,537
44
17,405
2008
Opening balance
34,561
16,453
122,721
(9,500)
25,870
Misc.Expenses
(6,000)
(20,861)
2008
2009
2010
2011e
2012e
RoE (%)
26
23
29
31
31
RoCE (%)
32
31
39
40
41
Debt/Equity (x)
0.0
0.0
0.0
0.0
0.0
EBIT/Interest (x)
(858.6)
(235.2)
(102.4)
(95.2)
(132.9)
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
31.5
31.6
33.8
34.4
34.3
EBIT
28.4
28.0
30.4
31.2
31.4
PAT
22.3
20.8
22.6
23.8
23.9
14
COMPANY UPDATE
27 December, 2010
Investment rationale
We firmly believe that the consolidation phase of ICICI Bank is clearly
behind us. With a well expanded distribution network, substantially improved
liability franchise and ALM profile. ICICI Bank is extremely well positioned
to participate in the credit cycle. We expect earnings to grow at 30% CAGR
over FY10-12e on the back of improving margins, steady loan growth and
lower loan provisioning resulting in RoA improving to 1.6% by FY12e.
Growth to return; our FY11e estimates at 17%
Management has revised its growth estimates for FY11e upwards from 15% to
18%, on the back of better traction in project financing and international
business. Our estimates are little more conservative at 17%. Infrastructure lending,
mortgage and auto loans within retail are likely to be key drivers of credit
growth. International business is likely to see more traction due to pick-up in
ECBs.
Improved liability franchise and ALM profile to support margins
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
Market data
Sector
Banks
1,284
28
1,148
634
1,279/712
3,642
Bloomberg
ICICIBC IN
Reuters
ICBK.BO
Returns (%)
1m
3m
6m
12m
Absolute
(1)
26
29
Relative
(4)
12
12
Source: Bloomberg
Shareholding pattern
Others
38%
Accretions to NPLs from ICICI Bank were practically negligible in 2Q FY11 bulk of NPLs accretion has happened due to merger of BOR. Hence, we
expect credit costs to decline materially from 3QFY11 onwards as the bank
has practically achieved its 70% coverage ratio target. We estimate credit
costs to decline from 2.2% in FY10 to 1.2% in FY12e.
FII
39%
DII
23%
Our valuation is based on SOTP method and we value the stand-alone bank
at INR1,015/share (2.5 FY12e P/BV) based on single stage Gordon growth
model and value various subsidiaries at INR306/share arriving at a target
price of INR1,320/share and reiterate a BUY on the stock.
83,666
81,144
91,646
111,426
29.6
14.5
(3.0)
12.9
21.6
41,577
37,580
40,250
54,883
68,252
33.7
(9.6)
7.1
36.4
24.4
39.2
33.8
36.1
45.7
61.5
445
463
498
543
33.2
31.0
22.7
18.3
P/B (x)
2.6
2.5
2.4
2.2
2.1
RoE (%)
8.9
7.6
7.8
9.9
11.3
20
ICICI
Oct-10
73,041
Apr-10
2012e
Oct-09
2011e
Apr-09
2010
Oct-08
2009
439
110
50
2008
28.5
P/E (x)
140
Apr-08
PAT (INRm)
Oct-07
Source: BSE
80
Key financials
NII (INRm)
BUY
BUY
INR1,135
INR1,320
16%
Source: Bloomberg
Substantially improved CASA ratio (44% at the end of 2QFY11) and lower
mismatches between assets and liabilities will help reduce the volatility in
margins. Further, balance sheet growth for the bank will be more branchoriented rather than DSA driven. Hence, a combination of better margins
and lower credit costs will improve sustainable profitability.
:
:
:
:
:
NIFTY
Source: Bloomberg
Alok Kapadia
+91 22 4031 3442
alok.kapadia@antiquelimited.com
ICICI Bank
Investment rationale
Growth to return; FY11e estimates at 17%
After successfully executing its 4C strategy (CASA ratio, cost to income, credit costs
and capital conservation) in FY10, ICICI Bank is now gearing itself for credit growth.
Credit growth has finally expanded in 2QFY11 (5% QoQ) as retail disbursements
more or less matched retail repayment.
The bank has revised its growth estimates for FY11e, upwards from 15% to18%, mainly
due to better traction in the international business (pick-up in ECBs). Infrastructure lending,
mortgage and auto loans within retail are likely to be key drivers of credit growth.
Loan growth (QoQ)
15
100%
10
80%
60%
20%
-10
-15
26
13
13
16
55
54
25
26
27
26
25
26
25
16
18
22
22
22
24
28
57
49
48
45
45
44
41
40
0%
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY11 FY11
Loan grow th QoQ
45
36.9
40
30.0
Rural
International
ICICI Bank has seen strong traction in savings deposits (>25% for last 4 quarters),
resulting in CASA ratio improving from 28% in FY09 to 44% currently. The bank has
doubled its branches in the last two years to ~2,500 which has aided it mobilise low
cost deposits. Further, the bank has improved gaps in its asset liability profile which
help reduce volatility in margins. Management is confident of maintaining average
CASA levels at 37% for FY11e.
ALM profile has turned more favourable.
50
27.6
Retail
35
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY11 FY11
30
26
40%
-5
24
27.4 28.7
39.6
41.7 42.1
44.0
3,000
2,500
2,000
1,500
30.4
1,000
500
25
20
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY11 FY11
CASA (%)
Branch
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
3.5
3.0
2.5
2.0
1.5
Advances (RHS)
16
ICICI Bank
We expect credit costs to decline materially from 3QFY11 onwards as the bank
achieved its 70% coverage ratio target. We estimate credit costs to decline from 2.2%
in FY10 to 1.2% in FY12e.
Trends in asset quality
5.3
3.0
4.3
2.5
2.5%
2.2%
2.2%
2.2%
2.2%
2.0
3.3
1.5
1.7%
1.8%
2.3
1.4%
1.4%
1.3%
1.2%
1.0
1.3
0.5
0.3
1.0%
1Q
FY10
2Q
FY10
3Q
FY10
4Q
FY10
1Q
FY11
2Q FY11E FY12E
FY11
0.0
1Q
2Q
FY10 FY10
3Q
FY10
14
12
8.0
8.9
7.8
9.1
0.6
0.4
0.2
-
1.0
0.8
11.8
15.0
1.0
2
FY09 FY10 FY11e FY12e
ROE (%) (LHS)
Source: Company, Antique
NNPA %
We firmly believe that the consolidation phase for ICICI Bank is behind us as the bank
is shifting its focus from capital conservation to credit growth. Further, the management
has been delivering well on its articulated 4C strategy - CASA ratio (now at 44%),
costs under control (Cost to income ratio at 40%) credit costs (negligible slippages)
and strong capital base (Tier 1 ratio at ~14%). Hence, we expect earnings to grow
at 31% CAGR over FY10-12e on the back of improving margins, steady loan growth
and lower loan provisioning.
1.8
1.6
1.4
1.2
1.1
10.2
13.3
10
1.5
1.4
GNPA %
2Q FY11e FY12e
FY11
4Q
1Q
FY10 FY11
Core ROE
We expect RoA for ICICI bank to rise to 1.4% by FY11e (from 1.04% in FY10) and
1.6% by FY12e as the consolidation carried out over the last few quarters begins to
yield results. The main driver of RoA in our opinion is likely to come from lower loan
provisions, as NPLs begin to trend downwards coupled with expanding margins.
We value ICICI Bank using a SoTP method and value the stand-alone bank at INR1015/
share (2.5 FY12E P/BV) based on single stage Gordon growth model and value the
various subsidiaries at INR306/share arriving at a target price of INR1,320/share
which provides 16% at current levels.
Currently, the stock trades at 2x FY12E P/BV (core book- adjusting for value in subs)
offering strong returns in the long run as sustained results from structural correction
become more visible. We reiterate a BUY on the stock at current levels.
SoTP valuation
Multiple (x)
Stake (%)
Value/share (INR)
BV
Basis
2.5
100
1,015
ICICI Canada
BV
100
55
ICICI Bank UK
BV
100
24
Life Insurance
NBAP
12%
74
125
General Insurance
BV
1.1
74
13
AMC
Market value
5%
51
21
ICICI Ventures
% of AUM
10%
100
11
ICICI Securities
PE
15
100
11
ICICI PD
BV
1.4
100
23
BV
1.5
100
25
Total
1,320
Source: Antique
17
ICICI Bank
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
73,041
83,666
81,144
91,646
111,426
NII
30
15
(30)
13
22
Other income
88,108
76,037
74,777
78,186
91,137
net revenue
28
(1)
(2)
19
Trading profits
19,458
18,180
8,662
2,000
2,500
PAT
34
(10)
36
24
Non-trading income
68,650
57,857
66,115
76,186
88,637
Total assets
16
(5)
(4)
13
16
17
Net revenue
2012e
161,149
159,703
155,920
169,831
202,563
Advances
15
(3)
(17)
17
Operating expenses
81,542
70,451
58,598
68,000
82,125
Deposits
(11)
(7)
18
22
Provisions
29,047
38,083
43,869
26,131
27,197
CASA AS % DEPOSIT
26
29
42
38
38
PBT
50,561
51,169
53,453
75,700
93,240
8,984
13,588
13,203
20,818
24,988
41,577
37,580
40,250
54,883
68,252
2008
2009
2010
2011e
2012e
Advances
Investments
380,411
299,660
388,737
428,895
508,725
Fixed assets
41,089
38,016
32,127
40,382
43,670
Other assets
205,746
241,636
192,149
211,364
221,932
4,761,452
Total assets
3,997,950
2008
2009
2010
2011e
2012e
P/E
28.5
33.2
31.0
22.7
18.3
P/BV
2.6
2.5
2.4
2.2
2.1
P/ABV
2.8
2.8
2.6
2.4
2.2
2008
2009
2010
2011e
2012e
50.6
44.1
37.6
40.0
40.5
2.2
1.8
1.6
1.8
1.9
2012e
Share Captal
11,127
11,133
11,149
11,149
11,149
2008
2009
2010
2011e
Total Reserves
453,575
484,200
505,035
544,550
593,692
2.0
2.1
2.2
2.4
2.5
Networth
464,702
495,333
516,184
555,699
604,841
1.1
1.0
1.1
1.4
1.5
3,500
3,500
8.9
7.6
7.8
9.9
11.3
Preferance Capital
Borrowings
Deposits
3,500
3,500
3,500
863,986
928,055
939,136
974,621 1,044,701
Other liabilities
221,452
Total assets
3,997,950
170,513
196,090
182,647
155,012
4,761,452
2008
2009
2010
2011e
2012e
1112.7
1113.3
1114.9
1114.9
1114.9
39.2
33.8
36.1
45.7
61.5
438.7
444.9
463.0
498.4
542.5
2008
2009
2010
2011e
2012e
Gross NPAs
3.4
4.4
5.2
4.7
4.4
Net NPAs
1.5
2.1
2.1
1.4
1.3
53.9
52.8
59.5
70.0
70.0
Provisioning coverage
EPS (INR)
1.2
1.7
2.2
1.3
1.2
11.8
12.2
13.5
13.8
11.8
18
COMPANY UPDATE
27 December, 2010
Investment rationale
Infrastructure spend for XIIth plan estimated to be ~USD1tn
Post the mid term appraisal of XIth plan, the infrastructure spend is expected
to be ~USD500-550bn. Initial estimates for XIIth plan is ~USD1tn and key
sectors are power, roads, ports and airports. Larsen with competence across
these sectors is poised to be one of the key beneficiaries. Further, the company
provides services for the oil & gas and process industry which would be the
other driver of the economy going forward.
Power BTG capacity in line, benefits to accrue
L&T's manufacturing facility for Boiler and Turbine has been set up with total
output at ~4,000MW. While there have been a lot of players to show interest
in setting up similar BTG facility, we believe Larsen has an advantage over
others both from the perspective of facility in place and also its long term
brand as one of the best engineering companies in India.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR1,960
INR2,167
11%
Market data
Sector
Industrials
1,191
26
O/S Shares
608
413.1
2213/1371
900
Bloomberg
LT IN
Reuters
LART.BO
Source: Bloomberg
Returns (%)
Value unlocking round the corner for L&T Finance and Infotech
L&T Finance in FY10 reported a profit of INR1.6bn - a growth of 60%YoY.
The company has filled for an IPO for the same. L&T Infotech would scale up
in size, enabling it to bid for larger projects. We expect the potential listing of
L&T Finance and L&T Infotech would be a key trigger for the stock.
1m
3m
6m
12m
Absolute
(2.8)
(2.9)
9.4
16.5
Relative
(5.8)
(3.1)
(3.4)
0.8
Source: Bloomberg
Shareholding pattern
FII
17%
Others
46%
DII
37%
Source: BSE
Revenue (INRm)
297,130
404,787
439,698
518,691
645,107
EBITDA (INRm)
35,875
49,339
64,218
68,800
88,617
65
37
30
29
23,233
29,181
33,921
42,216
54,755
70
26
16
24
30
39.7
49.9
56.3
70.1
90.9
70
26
13
24
30
PE (x)
49.1
39.1
34.6
27.8
21.4
EV/EBITDA (x)
37.7
27.4
21.1
19.7
15.3
RoE (%)
21.5
20.9
16.2
17.5
18.5
PAT (INRm)
PAT growth (%)
EPS (INR/share)
EPS growth (%)
60
20
LT
Source: Bloomberg
Dec-10
2012e
Jun-10
2011e
Dec-09
2010
Jun-09
2009
Dec-08
2008
Jun-08
Dec-07
Key financials
NIFTY
Abhineet Anand
+91 22 4031 3441
abhineet@antiquelimited.com
Mohit Kumar
mohit.kumar@antiquelimited.com
Mohit Gulati
mohit.gulati@antiquelimited.com
Investment rationale
2 6
32
As per the midterm appraisal of XIth FYP, the investment in infrastructure is expected to
be in the region of ~USD500 - 550bn. The estimated investment in infrastructure for XIIth
FYP is expected to be ~USD1tn. Majority of these investments will happen in sectors like
power, roads, ports and airports. Larsen with competence across these sectors is poised
to be one of the key beneficiaries. Further, it provides services for the oil & gas and
process industry which would be other drivers of the economy going forward. The gross
investment in capital formation in infrastructure as a percentage of GDP has substantially
increased from 3.3% in FY03 to 7.2% in FY09. This is likely to increase to 8.0% in
FY12e and 10% in XIIth FYP as per mid-term appraisal by Planning Commission. The
infrastructure investment is likely to be more than USD1tn or USD150bn per annum in
XIIth FYP. Except for Telecom, L&T has been a leader in each segment of infrastructure
sector. We expect a nominal growth rate of 14% in infrastructure investment in XIIth FYP
and we expect LT to grow at a higher rate of 22 - 25% compared to industry average.
Teleco m
Railways (incl M RTS)
12
Irrigatio n
Water Supply
10
P o rts
14
17
A irpo rts
Sto rage
Oil & Gas P ipelines
12
10
10
250
6
4
100
50
0
Xth FYP
XIth FYP(e)
10.5
10.0
9.5
9.0
150
5.1
11.0
9.9
200
7.6
10.7
10.3
155
178
FY13e
FY14e
9.5
260
230
202
9.0
8.5
8.0
GDP
Infrastrcuture Investment
Infrastrcuture Investment (% of GDP)
FY15e
FY16e
FY17e
Infrastructure Investment
Infrastructure Investment (%of GDP)
L&Ts order book has already started reflecting upsurge. The order book to sales ratio
has consequently moved up from 2.1x at the end of 2QFY10 to 2.73x in 4QFY10.
Order inflow (INRbn)
130
99
116
122
125
144
178
156
131
96
2QFY11
1QFY10
4QFY09
3QFY09
2QFY09
1QFY09
4QFY08
75
3QFY08
2QFY11
1QFY11
4QFY10
3QFY10
2QFY10
1QFY10
0
4QFY09
40
0.0
3QFY09
0.5
2QFY09
80
1QFY09
120
1.0
4QFY08
1.5
3QFY08
160
2QFY08
205
183
200
2.0
1QFY08
238
240
1QFY11
2.4
2.2 2.2 2.2 2.1 2.1 2.1 2.2
2.1 2.1
280
4QFY10
2.9 3.0
2QFY08
2.5
2.7 2.7
1QFY08
3.0
3QFY10
3.5
2QFY10
20
Amount
1,320
4,000
1,980
6,500
APPDCL*
1,600
(INRm)
1,500
Total
12,000
L&T is also setting up dedicated factories for axial fans, air-pre heaters, electrostatic
precipitators, high pressure piping and a forging plant at Hazira. The company intends
to manufacture 80% of the components in the Boiler segment and 60-70% in Turbine
segment domestically. This will help the company to earn higher margins and remain
competitive in long term.
FY11e
FY12e
11,269
13,148
15,309
10125.6 11,565
13329
Total
21,768
Book
L&T Fin
L&T has an advantage over other new players as the facility has already commenced
production supported by its superior brand value built over its strong execution record.
25,244 28,638
PEER
Price to BV
1.5
Valuation of L&T
Finance Holdings
42,957
Per sh value
71
Source: Company,Antique
L&T Finance Holdings has filed for an IPO on September 27, 2010 and is expected to
raise INR15bn. The company vests interests in infrastructure finance, retail finance &
corporate finance and investment management businesses through its subsidiaries
L&T Infrastructure Finance, L&T Finance and L&T Investment Management.
We have valued L&T Finance Holdings Ltd on a Price to Book of 1.5x FY12e book
value. The FY12e book value of L&T Finance, L&T Infrastructure Finance and other
businesses stands at INR28bn thereby arriving at a value of INR75 per share. There
could be further upside in our valuation depending on the IPO price of L&T Finance
Holdings Limited.
L&T Infotech Limited is a information technology solution provider and reported net
revenue growth of 22% YoY to INR11.5bn while PAT grew at 32% YoY to INR1.6bn in
H2FY11.We estimate revenues of INR24.2bn and PAT of INR3.9bn in FY12e. We
value L&T Infotech at 15x FY12e PAT, which we believe is reasonable in view of its
peers such as Patni Computer Systems and Tech Mahindra trading at similar multiples.
30,000
25,000
17%
15%
18%
15%
12%
We believe the key concern with the company so far had been the revenue pick up,
which we feel, has been finally addressed. Our EPS for FY11e and FY12e stands at
INR70 and INR91, respectively. We recommend a BUY with a SOTP target price of
INR2,167 providing a potential return of 11%.
SoTP valuation
L&T Standalone
10,000
6%
Subsidiaries
5,000
3%
0%
Revenue
PAT Margin
Source: Company, Antique
FY12e
9%
FY11e
15,000
FY10
12%
FY09
20,000
PAT
Methodology
FY12e
PE
1,813
PE
98
PB
75
PB
70
Supercritical JV
PE
84
Foreign Subsidiaries
PE
15
PE
Total
13
2,167
Source: Company,Antique
21
Financials
Profit and loss account (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenues
297,130
404,787
439,698
518,691
645,107
EBIT
Expenses
261,255
355,448
375,480
449,891
556,490
EBITDA
35,875
49,339
64,218
68,800
88,617
Interest expense
2008
2009
2010
2011e
2012e
28,861
37,763
47,505
51,202
68,088
5,004
7,295
9,806
10,297
11,326
(2,031)
(4,620)
(6,919)
(8,154)
(10,141)
5,004
7,295
9,806
10,297
11,326
(41,671)
(39,903)
(28,318)
(53,011)
(38,635)
30,872
42,044
54,411
58,503
77,291
Tax paid
(11,680)
(11,503)
(17,547)
(18,988)
(24,705)
Interest expense
2,031
4,620
6,919
8,154
10,141
CF fm operating activities
(21,517)
(10,968)
Other income
5,325
5,837
25,948
10,001
11,372
Capital expenditure
(36,222)
(54,775)
(45,397)
34,166
43,261
73,440
60,351
78,522
8,756
11,471
14,240
20,374
18,988
24,705
5,837
22,695
29,021
53,066
41,363
53,817
CF fm investing activities
Inc/(Dec) in share capital
17,016
230
21,327
Inc/(Dec) in debt
63,072
54,994
43,212
67,215
24,028
EBIT
23,233
29,181
33,921
42,216
54,755
23,233
29,181
33,921
42,216
54,755
39.7
49.9
56.3
70.1
90.9
2008
2009
2010
2011e
2012e
585
1,171
1,204
1,204
1,204
138,706
208,708
240,574
295,329
Share Capital
Reserves & Surplus
Networth
Debt
Capital Employed
107,726
108,311
132,386
240,697
237,432
294,012
318,040
614,573
70,900
91,250
109,580
139,580
169,590
Accumulated Depreciation
21,102
25,777
30,022
40,319
51,655
Net Assets
49,798
65,474
79,558
99,261
117,935
13,115
29,370
41,147
41,147
41,147
Intangible assets
22,322
61,050
69,084
69,084
69,084
Investments
55,523
139,140
208,630
197,695
197,695
50,190
71,060
23,782
33,295
46,613
Debtors
82,344
116,440
125,280
168,778
194,094
15,608
14,590
33,216
54,788
67,856
108,742
66,892
125,380
130,475
138,881
133,552
175,380
212,946
212,946
212,946
22,460
33,174
24,743
24,743
24,743
100,871
60,428
69,969 149,646
209,755
(1,217)
(21,010)
(21,043)
(21,043)
(21,043)
285
614,573
Dividends paid
533,669
(58,647)
4,528 (18,654)
5,934
(30,000)
(30,010)
(23,785)
3,058
(3,351)
25,948
10,001
11,372
(21,989)
(1,497)
(5,093)
(7,219)
(10,350)
CF fm financing activities
78,591
50,131
57,321
56,865
24,028
(1,573)
(1,018)
18,615
21,271
7,972
Opening balance
17,180
15,608
14,601
33,517
59,883
15,608
14,590
33,216
54,788
67,856
2012e
Closing balance
2008
2009
2010
2011e
Revenue
24
43
18
24
EBITDA
65
37
30
29
PAT
70
26
16
24
30
EPS
70
26
13
24
30
Valuation (x)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
PE
49.1
39.1
34.6
27.8
21.4
P/BV
10.8
8.4
5.6
4.9
4.0
EV/EBITDA
38
27.4
21.1
19.7
15.3
EV/Sales
4.6
3.3
3.1
2.6
2.1
0.3
0.4
0.5
0.6
0.8
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
2012e
RoE
21.5
20.9
16.2
17.5
18.5
RoCE
12.8
12.6
12.2
10.9
12.6
Debt/Equity (x)
1.2
1.4
1.1
1.2
1.1
EBIT/Interest (x)
15.2
9.1
7.9
7.2
7.6
2008
2009
2010
2011e
292
586
602
602
602
BVPS (INR)
179.9
232.3
348.6
401.5
492.4
CEPS (INR)
46.9
60.6
72.6
87.2
109.7
DPS (INR)
6.1
8.2
10.3
12.0
14.9
2012e
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
EBITDA
12.1
12.2
14.6
13.3
13.7
EBIT
10.4
10.4
12.4
11.3
12.0
PAT
7.8
7.2
7.7
8.1
8.5
22
COMPANY UPDATE
Homegrown Multinational!
27 December 2010
Investment rationale
JLR - The key driver!
JLR has witnessed a phenomenal turnaround and what's commendable is
the stellar performance looks sustainable. On the volumes front, we expect
JLR to maintain the strong momentum driven by the positive response to its
newer products coupled with the increasing demand for luxury cars from
emerging markets. The high-waiting period on some of its newer models (46 weeks) would also reduce gradually as engine supply from Ford starts to
keep pace with the buoyancy in demand.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR1,310
INR1,570
20%
Market data
Sector
Automobiles
772
17
On the margins front, barring any adverse currency movement, margins are
expected to sustain above the 16% mark as the cost-cutting programme gains
traction - the full benefit of which would accrue over the next few quarters.
531
299
1,382/634
3,149
Bloomberg
TTMT IN
Reuters
TAMO.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
22
66
67
Relative
22
47
45
Source: Bloomberg
Shareholding pattern
The company has been gradually cleaning up its balance sheet and post the
recent USD750m QIP issue and several divestments done earlier, the company's
net automotive debt stands at INR200bn, bringing the net automotive leverage
down from 4.0x to 1.16x.
Others
22%
DII
18%
Promoters
36%
EBITDA (INRm)
EBITDA margin (%)
PAT (INRm)
2010
925,193
2011e
2012e
38,795
18,488
81,160
163,740
191,262
11.0
2.6
8.8
13.7
13.5
1,198,107 1,413,215
21,677
(25,053)
25,711
84,996
101,898
EPS (INR)
56.2
(56.9)
44.7
139.1
166.7
P/E (x)
23.3
(23.0)
29.3
9.4
7.9
EV/EBITDA (x)
25.8
54.1
12.3
6.1
5.2
2.8
1.4
1.1
0.8
0.7
EV/Sales (x)
Source: Company, Antique
Tata Motors
Dec-10
2009
709,389
Dec-09
2008
353,564
250
200
150
100
50
0
Jun-09
Revenues (INRm)
Dec-08
Source: BSE
Jun-08
Key financials
FII
24%
Dec-07
Clearly, the key factors in Tata Motors (JLR, CVs, and leverage - in that order)
are now on a favourable footing. While the domestic car division is on shaky
grounds, the contribution of the same to the consolidated entity is negligible
(~7%). We recommend a BUY with an SOTP-based target price of INR1,570,
which values the standalone business at INR595, JLR at INR880 and other
subsidiaries at INR94 per share. Our target price provides 20% upside from
the current levels.
Jun-10
NIFTY
Source: Bloomberg
Ashish Nigam
+91 22 4031 3443
ashish.nigam@antiquelimited.com
JLR trends
Cost cutting measures - Employee cost under check
250
20%
200
16%
150
12%
100
8%
50
4%
42,000
40,000
38,000
36,000
34,000
32,000
30,000
28,000
26,000
0%
24,000
1QFY10 2QFY10 3QFY10
Net Realisations ()
% to sales (RHS)
400
20%
350
350
16%
300
250
12%
200
8%
150
16%
300
250
12%
200
8%
150
100
100
4%
50
4%
50
0%
0%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
Other Expenses ( mn) (LHS)
% to sales (RHS)
-50
-4%
24
15,000
10,000
75
17,336
18,896
13,413
16,340
13,710
14,667
13,933
14,492
15,626
14,350
12,432
13,29513,905
5,000
1QFY11
2QFY11
May-10
4QFY10
Apr-10
3QFY10
Mar-10
2QFY10
Feb-10
1QFY10
Nov-09
-75
Jan-10
Dec-09
Jaguar
6,776 5,676
5,621
Nov-10
150
Oct-10
20,000
Sep-10
225
Aug-10
25,000
Jul-10
300
Jun-10
Land Rover
Thousands
70
200
57 59
60
50
49 48
47
40
47
44
59 59
55 56
162
160
47
125
140
36
33
180
120
104
99
100
30
79
80
20
77
85
60
10
40
20
0
3QFY09 4QFY09 1QFY10 2QFY10 4QFY10 1QFY11 2QFY11
Wholesale
0
3QFY09 4QFY09 1QFY10 2QFY10 4QFY10 1QFY11 2QFY11
Retail
23% 23%
Nov-09
81%
19%
18%
80% 80%
20% 20%
Feb-10
Jaguar
73%
27%
66% 71%
34% 29%
May-10
77% 75%
23% 25%
Aug-10
Land Rover
83%
17%
15%
4%
6%
13%
5%
9%
17%
7%
8%
17%
17%
30%
12%
7%
27%
13%
7%
26%
22%
22%
24%
24%
22%
22%
21%
23%
22%
20%
21%
20%
FY08
FY09
FY10
FY11e
FY12e
76%
24%
Nov-10
North America
Europe (excluding UK and Russia)
China
United Kingdom
Russia
Rest of the World
25
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Nov- Mar07
08
A1
Jul08
A2
Nov- Mar08
09
A3
Jul09
Nov- Mar09
10
UV
MPV
Jul10
Nov- Mar07
08
Nov10
Jul08
Nov- Mar08
09
Tata M o to rs
M &M (Incl Navistar)
Overall
Jul09
Nov- Mar09
10
Jul10
A sho k Leyland
Others
Nov10
Eicher
80%
70%
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
Nov- Mar07
08
Tata M o to rs
Jul08
Nov- Mar08
09
A sho k Leyland
Jul09
Nov- Mar09
10
Eicher M o to rs
Jul10
Nov10
Others
Nov- Mar07
08
Jul08
Tata M o to rs
Nov- Mar08
09
Jul09
Nov- Mar09
10
Jul10
Nov10
Others
26
23% 22%
16%
16%
16%
12%
5%
4%
15% 16%
9% 10% 11% 11% 12% 13% 14%
84%
84%
84%
17%
19%
14%
14%
8%
7%
22%
23%
19%
21%
27%
25%
36%
36%
80%
57%
53%
Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10
Promoter
Insurance
FIIs
Others
Promoter
Insurance
FIIs
Others
27
Financials
Tata Motors Limited Standalone (INRm)
2008
2009
2010
2011e
2012e
Revenues
287,394
256,297
355,930
482,183
568,272
MHCV
28,672
17,013
40,342
50,582
63,209
10.0
6.6
11.3
10.5
11.1
17,294
5,480
13,588
20,204
28,482
44.9
10.7
23.8
33.1
46.6
EBITDA
EBIDTA margin (%)
Adjusted PAT
Adjusted EPS (INR)
2008
2009
2010
2011e
2012e
166,025
113,674
155,137
186,164
208,504
LCV
147,334
151,338
218,478
249,065
278,953
Total CVs
313,359
265,012
373,615
435,229
487,457
Passenger Cars
167,058
160,422
171,049
196,706
216,377
200,000
Nano
30,350
150,000
47,700
39,303
33,531
38,561
42,417
528,117
464,737
608,545
820,496
946,251
51,709
57,743
UV
Total domestic
10MFY09
Jaguar volumes
FY10
FY11e
FY12e
Total exports
54,272
33,410
34,141
Total volumes
582,389
498,147
642,686
872,206 1,003,994
47,000
47,408
56,752
62,664
120,300
146,496
182,801
205,006
Total volumes
167,300
193,904
239,553
267,670
4,974
6,559
9,562
11,218
YE 31st Mar
2010
2011e
2012e
-44
432
1,463
1,655
North America
56,000
36,000
39,552
49,440
53,395
-0.9%
6.6%
15.3%
14.8%
United Kingdom
59,000
40,000
42,900
52,617
56,826
-337
889
987
73,000
46,000
50,100
52,605
57,866
Russia
14,000
14,300
15,264
16,790
18,469
Revenues
EBITDA
EBITDA Margin (%)
PAT
China
Consolidated (INRm)
Year ended 31st Mar
2008
2009
353,564
709,389
38,795
18,488
81,160
163,740
11.0
2.6
8.8
13.7
13.5
21,677
(25,053)
25,711
84,996
101,898
EPS (INR)
56.2
(56.9)
44.7
139.1
166.7
P/E (x)
23.3
(23.0)
29.3
9.4
7.9
EV/EBIDTA (x)
25.8
54.1
12.3
6.1
5.2
2.8
1.4
1.1
0.8
0.7
Revenues
EBITDA
EBITDA margin (%)
PAT
10MFY08 10MFY09
EV/Sales (x)
2010
2011e
2012e
Total
9,000
9,000
13,988
27,976
34,970
36,000
22,000
32,100
40,125
46,144
247,000
167,300
193,904
239,553
267,670
191,262
SoTP valuation
Methodology
8x FY12e EV/EBIDTA
595
5x FY12e EV/EBIDTA
880
Stake
40%
38
Tata Daewoo
100%
8x FY12e EPS
14
85%
8x FY12e EPS
12
85%
8x FY12e EPS
10
HV Axles
HV Transmissions
Tata Motors Finance
Tata Technologies
100%
82%
1x Book
22
8x FY12e EPS
16
Market Value
6
118
Discount
Holding company discount
Net Value of Key Subsidiaries & Investments
SOTP Value of Tata Motors
20%
24
94
A+B+C
1,570
Source: Antique
28
COMPANY UPDATE
27 December, 2010
European operations face near term headwinds from raw material costs but
ongoing restructuring is expetced to increase profitability from the present
EBITDA levels of ~USD50/tonne. The 3mpta TCP sale for USD500m is on
track and expected to be consummated by FY11e end. The management is
now focusing on efficiency projects by increasing annual capex to USD600m
from present USD350m.
High visibility on improving raw material integration
Projects like 4mtpa iron ore (starting with 2mtpa initially) at Canada and
2mtpa coal at Mozambique will start delivering by FY12e end. This coupled
with growing Indian volumes, TSL will increase iron ore integration from 26%
to 39% and coking coal from 16% to 23% by FY13e.
Market data
Sector
Metals
607
13
902
491
739/449
7,864
Bloomberg
TATA IN
Reuters
TISC.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
35
Relative
19
(5)
Source: Bloomberg
Shareholding pattern
Public and
others
25%
FIs
27%
1,191
181
80
142
177
(56)
76
25
EBITDA (INRbn)
EBITDA growth (%)
PAT (INRbn)
PAT growth (%)
EPS (INR)
EPS growth (%)
P/E (x)
50
(20)
48
61
(60)
(141)
339
27
66.1
(24.9)
52.6
66.9
(63)
(138)
311
27
10.2
(27.0)
12.8
10.1
P/BV (x)
1.8
2.6
2.1
1.7
EV/EBITDA
6.4
13.5
7.8
6.2
RoE (%)
18
(9)
16
17
Tata Steel
Dec-08
2012e
1,110
Jun-08
2011e
1,024
Jun-07
2010
1,473
Dec-07
2009
Revenues (INRbn)
300
250
200
150
100
50
0
Dec-06
Jun-06
Key financials
FIIs
16%
Source: BSE
Dec-05
reiterate our BUY recommendation with an upside of 14% from current levels.
Promoters
32%
Dec-10
BUY
BUY
INR673
INR768
14%
Jun-10
Indian operations of Tata Steel Limited (TSL) are in the midst of 3.05mtpa
crude steel expansion, increasing the capacity to 9.9mtpa by 3QFY12e. The
focus is on value-added products, which will maintain an EBITDA of USD350/
tonne despite initial lower cost raw material integration. The management has
accelerated the groundwork for the next expansion of 6mtpa in Orissa and
has set sights on FY14e for commissioning.
:
:
:
:
:
Dec-09
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
Jun-09
Investment rationale
NIFTY
Source: Bloomberg
Rajesh Zawar
+91 22 4031 3450
rajesh.zawar@antiquelimited.com
Investment rationale
Well-balanced operations by FY13e
Tata Steel Limited's 3.05mtpa crude steel brownfiled project at Jamshedpur (India)
and small incremental additions to NatSteel and Tata Steel Thailand will enhance the
finished steel-sales to 28mtpa by FY13e.
Sales volume (mt)
Tata Steel India
TS Europe
FY09
FY10
FY11e
FY12e
FY13e
5.2
6.3
6.5
6.9
9.5
14.7
19.0
14.2
14.7
14.7
NatSteel Holdings
2.4
2.4
2.7
3.0
3.0
TS Thailand
1.2
1.2
1.2
1.3
1.3
Total
28
24
25
26
28
13%
17%
27%
45%
52%
56%
India
Europe
Asia
68%
India Europe
Asia
India
3%
75%
Europe
Asia
Tata Global Minerals is the key piece in TSL's raw material integration strategy. The
increasing visibility on raw material projects in Canada and Mozmbique is favourable
for long-term raw material integration.
22%
India
Europe
Asia
TSL has 24.16% stake in Riversdale Mining Limited (RML), which is an ASX listed
miner with market capitalisation of USD3.5bn and interests in various coking coal
projects. The early stage investment has yielded significant returns with ~4x value
appreciation and raw material security as Benga Coal Phase I (4bt reserves) will start
delivering 2mtpa coal from FY12e end.
30
At the CMP of INR673, TSL is trading at 6.2x FY12e EV/EBITDA and is attractive
placed in Indian metals space. We have valued integrated and efficient Indian
operations at 7x EV/EBITDA while non integrated European and Asian operations
are valued at 5x arriving at SOTP of INR768. We reiterate our BUY recommendation
with an upside of 14% from current levels.
SOTP valuation
Particulars
EBITDA - TSI
EBITDA - TSE
EBITDA - Asia subsidiary
INRm
Multiple (x)
Value (INRm)
Value/share (INR)
133,457
7.0
934,197
1,022
38,280
5.0
191,400
209
4,776
5.0
Enterprise value
Net debt
Teeside sales receipt
Market value
23,882
26
1,149,479
1,258
469,977
514
22,500
25
702,003
768
Source: Antique
4
M ar-06
Nov-06
Jul-07
M ar-08
Nov-08
Jul-09
M ar-10
Nov-10
31
Financials
Profit and loss account (INRbn)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenues
1,315
1,473
1,024
1,110
1,191
PBT
Expenses
1,138
1,292
944
968
1,015
EBITDA
178
181
80
142
177
41
43
45
46
50
136
139
36
95
127
41
33
30
32
32
12
11
100
108
17
74
95
40
19
22
25
32
63
(41)
(17)
123
48
(21)
49
63
123
50
(20)
48
61
176.8
66.1
(24.9)
52.6
66.9
2008
2009
2010
2011e
2012e
62
62
280
215
219
283
344
Networth
342
277
228
292
354
Debt
536
599
531
531
531
11
14
886
885
768
835
899
1,051
1,084
1,066
1,141
1,216
599
599
579
625
675
32
32
29
29
29
420
453
458
487
512
Share Capital
Minority Interest
Capital Employed
Gross Fixed Assets
Accumulated Depreciation
Impairment
Net Assets
Investments
Other non current assets
34
64
54
76
97
180
158
145
145
145
231
217
187
200
213
Debtors
187
130
116
122
131
42
61
68
51
61
155
130
68
88
88
264
231
234
239
250
65
71
66
66
70
286
236
139
155
173
(25)
(17)
(17)
(17)
2009
2010
2011e
2012e
164
67
74
95
41
43
45
46
50
Interest expense
45
38
35
32
32
(22)
46
(33)
(8)
Tax paid
(27)
(34)
(25)
(25)
(32)
Others
(67)
40
134
157
105
94
137
Capital expenditure
(84)
(84)
(71)
(75)
(75)
Inc/(Dec) in investments
(384)
(28)
20
(20)
(20)
(108)
(47)
(95)
(95)
104
24
16
Inc/(Dec) in debt
111
(15)
(63)
(32)
(32)
(9)
(12)
(13)
205
(28)
(51)
(16)
(32)
(123)
21
(17)
10
165
40
61
68
51
42
61
68
51
61
2012e
2008
2009
2010
2011e
Revenue
422
12
(31)
EBITDA
139
(56)
76
25
PAT
196
(60)
(141)
339
27
EPS
173
(63)
(138)
311
27
Valuation (x)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
PE
3.8
10.2
(27.0)
12.8
10.1
P/BV
1.4
1.8
2.6
2.1
1.7
EV/EBITDA
6.3
6.4
13.5
7.8
6.2
EV/Sales
0.8
0.8
1.1
1.0
0.9
2.4
2.4
1.2
1.2
1.2
2012e
Financial ratios
2008
2009
2010
2011e
(17)
RoE (%)
36
18
(9)
16
17
15
16
11
14
(9)
(10)
(12)
(12)
(12)
RoCE (%)
886
885
768
835
899
Debt/Equity (x)
1.6
2.2
2.3
1.8
1.5
EBIT/Interest (x)
2008
Dividends paid
2008
2009
2010
2011e
2012e
730
730
887
914
914
BVPS (INR)
468
380
257
320
387
CEPS (INR)
226
126
28
103
121
DPS (INR)
16
16
2012e
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
14
12
13
15
EBIT
10
11
PAT
(2)
32
27 December, 2010
Investment rationale
Sun Pharmaceutical Industries Limited (Sun Pharma) is a leading player in the
Indian pharma space. Sharp focus on cost control, impressive pipeline for the
US markets, strong foothold in the domestic market and a healthy balance
sheet are major growth drivers.
Core business to drive growth
We expect companys revenue to grow at a CAGR of ~15% in FY10-13e
driven by new product introductions, higher productivity in the domestic markets
and improving US business through own and third-party product distribution
arrangements.
Taro gets into Sun's fold
This acquisition not only provides access to dermatology and pediatrics
business but also offers access to Israel, Canada and US markets. It offers
another beachhead in US markets whilst it implements remediation action
plan at its other entity i.e., Caraco.
Healthy financials
Sun Pharma has ~USD640m cash on its books which can be used for inorganic
expansion and stabilising Taro. Despite high cash on books dragging return
ratios, it registered an commendable RoCE of 22% and RoNW of 34% in
FY10.
Previous Reco
Current Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR466
INR526
13%
Market data
Sector
Pharmaceuticals
487
11
O/S Shares
1,030
544
477/280
1,428
Bloomberg
SUNP IN
Reuters
SUN.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
23
32
51
Relative
(1)
23
16
31
Source: Bloomberg
Shareholding pattern
FII
19%
39,040
46,761
63,201
71,689
18,640
11,645
17,021
24,206
27,887
20.2
(37.5)
46.2
42.2
15.2
18,780
13,470
15,866
21,838
24,647
21
(28)
18
38
13
EPS (INR)
17.6
13.0
14.6
20.3
22.8
22.2
(25.7)
11.9
39.2
12.4
P/E (x)
24.5
33.0
29.5
21.2
18.8
P/BV (x)
6.3
5.7
4.9
4.1
3.4
EV/EBITDA (x)
23.7
37.9
25.9
18.2
15.8
RoE (%)
30.7
15.7
19.0
22.1
21.7
NIFTY
Dec-10
42,723
EBITDA (INRm)
Aug-10
Apr-10
2013e
Dec-09
2012e
Aug-09
2011e
250
200
150
100
50
0
Apr-09
2010
Dec-08
2009
Source: BSE
Aug-08
Others
12%
Apr-08
Key financials
DII
23%
Promoter
63%
Dec-07
At the CMP of INR466, the stock trades at a PER and EV/EBIDTA of 20.4x and
17.1x of its FY13e EPS of INR22.8. We assign a 10% higher multiple to Sun
Pharma as compared to its peers on account of its strong management quality,
superior margins across segments and added option value from integration of
Taro to Sun Pharma's code of operations and resolution of Caraco manufacturing
issues. We reiterate a BUY recommendation on the stock and a price target of
INR526 providing an upside of 13% from current levels.
Sun Pharma
Source: Bloomberg
Nishant Patel
+91 22 4031 3426
nishant.patel@antiquelimited.com
COMPANY UPDATE
Investment rationale
4% 2%
6%
27%
5%
5%
7%
14%
19%
CNS
CVS
Res p
Others
11%
GI
Gynea c
Optha l
Di a betes
MS
Onco
Domestic formulation is the largest revenue contributor for Sun Pharma (~45% of
FY10 revenues). The company began its operations as a five-product anti-psychiatric
portfolio and emerged with one of the largest portfolios in the chronic therapy segment
in the country. Sun currently is the sixth largest branded generic player in the country,
with a product basket comprising ~537 formulations covering chronic therapy segments.
Rapid growth in chronic segments to continue
The company has high profitability potential in chronic segment due to strong marketing
reach and high product recall amongst speciality doctors. This has ensured better
leeway in terms of pricing too. Consistent price rise, ability to enter market early and
use of technological expertise has led the company to increase its market share.
Taro Snapshot
400
100
350
80
300
60
250
40
200
20
150
100
(20)
50
(40)
(60)
US generic business accounted for ~USD300m in CY09 (until the seizures by the
FDA) to Sun Pharma. With more than 320 ANDAs approvals (Sun and Caraco
combined), Taro to add another 26 ANDAs, taking the total tally to over 346. This is
expected to provide a significant upside in companys revenues during FY11e and
FY12e. Sun's acquisition of Taro provides it an entry in the dermatology and topical
segment which forms ~60% of Taro's revenue. The acquisition will also help Sun
Pharma gain a major foothold in the US and Canadian OTC market. Taro has an
established franchise in dermatology and topical products in the US, in addition to
generic products in cardiovascular, neuro-psychiatric and anti-inflammatory therapeutic
categories.
% Gro wth
34
FY11e FY12e
1.8
FY13e
0
0.7
4.5
Taxotere
12.0
Prandin
4.3
Revenue growth
80
60%
70
50%
60
40%
50
30%
Subject to clearance from the FDA, there are quite a few opportunities that could
make material impact on Sun Pharma and Caraco combined earnings. Opportunities
like Prandin from Caraco's facility are subject to FDA clearance of its Detroit facility,
providing meaningful cash flow in FY16e. Other drugs like Exelon, Effexor XR,
Metoprolol are not likely to add substantial cash flow to earnings.
40
20%
30
10%
20
0%
10
-
-10%
GR%
We expect companys revenues, EBITDA, and net profits to post a growth of 15%,
18% and 11.9% in FY10-13e. This is likely to be driven by higher than market growth
in the domestic formulations business, strong sales in the US business post the
remediation process at Caraco. While integration of Taro would be a key challenge
going forward, but considering the management expertise in turning around distressed
assets, we believe the same would be successfully addressed.
Sun Pharma has amongst the best operating margins in the industry despite high R&D
expenses. This is on account of presence in chronic therapy areas and technically
complex product profiles for the regulated markets, tight cost controls, and strong field
force productivity. We estimate Sun Pharma to maintain this high operating margin
growth rate in FY10-13e at ~34%. After integration of Taro is completed, a substantial
jump in operating margin is expected by FY12e.
45%
40%
35%
30%
25%
EB IDTA (%)
Sun Pharma currently has USD640m of cash on books. It has been maintaining ~22.6%
RoCE and ~34% RoNW during FY05-10. This period has witnessed considerable
amount of investments in acquiring companies both in the domestic and international
markets. However, high cash on books, has been the key reason for lower return ratios
for the company. We expect Sun Pharma to utilise some cash to incur capex in Taro
and resolve compliance of issues at Caraco, apart from scouting for inorganic growth.
We expect the company to maintain its return ratios at ~20% RoCE and RoNW.
30%
25%
At the CMP of INR466, the stock trades at a PER and EV/EBIDTA of 20.4x and 17.1x
of its FY13e EPS of INR22.8. We assign a 10% higher multiple to Sun Pharma as
compared to its peers driven by strong management quality, better than peers margins
across segments, integration of Taro to Sun Pharma's code of operations and resolution
of Caraco manufacturing issues.
20%
15%
10%
Ro CE
Ro NW
Financials
Profit and loss account (INRm)
2009
2010
Revenues
42,723
39,040
46,761
63,201
71,689
PBT
Expenses
24,084
27,394
29,740
38,995
43,802
18,640
11,645
17,021 24,206
27,887
Interest expense
2,085
2,048
Operating Profit
Other income
Non-operating Other Income
EBIDTA
Depreciation
Profit before tax
Taxes incl deferred taxation
1,988
20,725
15,682
2013e
2,048
2,048
2,048
19,069 26,254
29,935
1,233
1,533
1,823
2,257
2,549
19,492
14,148
17,246
23,997
27,386
712
679
1,380
2,160
2,739
(3)
559
640
603
(41)
18,780
13,470
15,866
21,838
24,647
17.6
13.0
14.6
20.3
22.8
Minority Interest
Profit after tax
2011e 2012e
Share capital
Reserves & surplus
Networth
Debt
2009
2010
19,492
14,148
1,233
1,533
1,823
2,257
59
62
(1,276)
(1,200)
(2,048)
(2,048)
(2,048)
3,802
(630)
(2,853)
29
(4,356)
(4,335)
(2,891)
(1,690)
(1,624)
(1,380)
(2,160)
(2,739)
7,933
12,795
17,712 22,257
2009
2010
1,036
1,036
69,414
77,254
70,449
78,289
1,789
1,712
2011e 2012e
1,036
2013e
1,036
1,036
90,466 108,883
129,572
4,022
6,302
2,931
5,500
1,300
319,523
12,250
(2,259) (20,202)
(752)
(752)
Inc/(Dec) in debt
1,300
(10)
49
(3,200)
(2,310)
(2,422)
(3,328)
(1,904)
(2,621)
(2,958)
(3,464)
1,252
2,210
11,139 16,238
2010
1,712
Revenue
27.3
(8.6)
19.8
35.2
13.4
20.2
(37.5)
46.2
42.2
15.2
2,549
118,934
2011e 2012e
2013e
(679)
(890)
(890)
(890)
(890)
EBITDA
Minority Interest
1,970
1,932
2,682
3,482
4,482
PAT
21.1
(28.3)
17.8
37.6
12.9
135,912
EPS
22.2
(25.7)
11.9
39.2
12.4
2009
2010
2011e 2012e
2013e
24.5
33.0
29.5
21.2
6.3
5.7
4.9
4.1
3.4
Capital employed
Gross fixed assets
Accumulated depreciation
Net assets
Capital work in progress
Investments
Goodwill on Consolidation
73,530
21,476
23,340
30,289
36,089
38,889
6,851
8,013
9,836
12,093
14,642
14,625
15,328
20,453
23,996
24,247
1,571
18,595
3253.4
1,448
30,664
4060.3
4,500
42,914
6913.2
1,500
42,914
6913.2
1,500
18.8
42,914
P/BV
6913.2
EV/EBITDA
23.7
37.9
25.9
18.2
15.8
EV/Sales
10.3
11.3
9.4
7.0
6.2
2011e 2012e
2013e
9,757
10,739
10,249
12,589
14,316
Debtors
8,811
11,748
12,811
16,450
18,462
16,690
6,073
2,273
13,413
29,651
6,983
8,488
8,488
8,488
8,488
441.3
74
74
74
74
Valuation (x)
3,767
4,095
4,676
6,320
7,169
3,431
3,484
3,484
3,484
3,484
35,485
29,542
25,735
41,209
60,338
Application of funds
73,530
135,912
Financial ratios
Year ended 31st Mar
2009
2010
RoE (%)
30.7
15.7
19.0
22.1
21.7
RoNW (%)
30.2
18.2
17.8
20.9
19.7
0.0
0.0
0.1
0.0
0.0
Debt/Equity (x)
Source: Company, Antique
2009
2010
1,036
1,036
1,036
1,036
1,036
BVPS (INR)
68.0
75.6
88.4
106.1
126.1
CEPS (INR)
25.5
22.7
32.8
42.9
42.0
2011e 2012e
2013e
2011e 2012e
2013e
Margins (%)
Year ended 31st Mar
2009
2010
EBIDTA
43.6
29.8
36.4
38.3
EBIT
40.7
25.9
32.5
34.7
35.3
PAT
42.5
34.6
32.3
33.3
33.0
38.9
36
COMPANY UPDATE
27 December, 2010
Investment rationale
Core businesses couldnt be stronger
M&M's two "bread and butter" segments - UVs (45% of volumes) and tractors
(37% of volumes) - are relatively less competitive, which gives it a strong
pricing power. In UVs, it has consistently gained market share (currently at
52%) led by its strong brand image and unmatched grip in tier 2 & 3 cities.
Furthermore, the tractor industry is in a sweet spot due to enhanced focus on
farm credit, higher MSP prices, increasing commercial usage of tractors and
most importantly higher labor wages (attributable to NREGA). M&M is clearly
the biggest beneficiary from the same given its 42% market share in tractors.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR750
INR932
24%
Market data
Sector
Automobiles
454
10
597
446
The Mahindra ~ Ssangyong alliance has multiple synergies for both parties.
While Ssangyong benefits from access to the lucrative Indian markets,
Mahindra will benefit from access to Ssangyong's superior technology, namely
Euro V & VI compliant products and engines with power up to 175hp.
Furthermore, Ssangyong's huge dealership base in markets relatively untapped
by M&M (Europe, South America, Middle East, Africa), will help the company
realise its aspirations of becoming a truly global SUV player. In our view, this
is the strongest synergy of the alliance.
827/474
2,419
Bloomberg
MM IN
Reuters
MAHM.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(3)
10
21
43
Relative
(6)
10
24
Source: Bloomberg
Shareholding pattern
EBITDA (INRm)
EBITDA margin (%)
Adjusted PAT (INRm)
Reported EPS (INR)
13,666
12,849
29,962
35,883
44,390
11.9
9.8
16.2
15.4
16.3
9,306
10,188
20,380
26,839
33,172
45.4
31.1
35.9
46.6
56.7
19.1
18.2
35.0
45.8
56.7
16.2
18.2
17.2
13.2
10.6
25.9
28.1
11.6
9.7
7.8
M&M
Dec-10
2012e
271,651
Dec-09
2011e
232,991
Jun-09
2010
185,296
250
200
150
100
50
0
Dec-08
2009
130,488
Jun-08
2008
114,484
Source: BSE
Dec-07
At the CMP of INR750, after adjusting for the current value of M&M's key
listed subsidiaries, its core auto business is available at a P/E of 10.6x,
discounting our FY12e EPS. This, in our view, is a steep and unjustified
discount to its peers given the company's strong business model. We reiterate
a BUY with an SOTP-based target price of INR932 (24% upside from current
levels).
Key financials
Revenues (INRm)
Promoters
26%
FII
23%
Others
26%
DII
25%
M&M has now become a strong force to reckon within CVs driven by bright
prospects and savvy product placement of its two products ~ 'Gio' &
'Maxximo'. It is poised to garner a commendable 15% market share in the
INR40bn mini-truck segment within just 12-14 months of its launch. This also
gives us confidence in M&Ms foray into larger commercial vehicles.
Jun-10
NIFTY
Source: Bloomberg
Ashish Nigam
+91 22 4031 3443
ashish.nigam@antiquelimited.com
Investment rationale
Core businesses could not be stronger
UV dominance to continue
Mahindra & Mahindra (M&M) is the largest UV and tractor player in the country with
a market share of 52% and 42%, respectively. It has been continuously gaining market
share in both these segments driven by its strong brand image (result of a very strong
parentage), widespread distribution networks and unmatched grip in the rural markets.
Margins are likely to remain firm as the company's pricing power remains intact (a
function of a benign competitive scenario). As a result, its invincible position looks
secure for a long time, which is a major contrast from the leaders of other segments
(cars, motorcycles and CVs).
UV volumes break-up
Maxx
19%
Comma
nder
7%
52%
47%
42%
Xylo
16%
20%
17%
20% 21%
20% 18%
18% 17%
13% 13%
Bolero
40%
Scorpio
18%
M&M
Toyota
FY08
FY09
Tata Motors
FY10
12%
14%
Others
YTDFY11
NREGA (INRbn)
INR/quintal
1,050
390
950
850
300
750
650
550
120
450
FY04
FY05
Paddy
FY06
Jow ar
FY07
FY08
Bajra
FY09
FY10
Maize
FY08
FY09
FY10
38
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e
Tractors
With buoyancy in construction activities, work has been aplenty and labour costs have
risen significantly. This has diverted rural labour (mainly unskilled) from agriculture related
activities to more rewarding and secure NREGA led construction/infrastructure based
activities. This is solely responsible for a high proportion of farm mechanization, which
has led to the recent buoyancy in tractor demand.
Besides NREGA, the increase in agricultural credit, coupled with the farm loan waiver
and increasing commercial usage of a tractor has also been strong contributing factors
to this growth in the Indian tractor Industry. With a large proportion of the rural population
still dependent on core farming activities, we expect the thrust on rural development,
agriculture and infrastructure to continue - all of which bodes very well for sustainable
tractor growth over a longer term.
M&M is the undisputed leader in the domestic tractor industry. Post the PTL (Punjab
Tractors Ltd.) merger, its market share stands at 42% (30% pre-merger). PTL and M&M
now share distribution and service networks, the synergies from which have resulted in
tractor profitability being miles ahead of competition. The company now plans to increase
focus on the marginal farmers (<2.5 acres) and smaller farmers (2.5 - 5 acres), where
penetration is relatively much lower (at just about a percentage) as these farmers normally
use bullocks for farming.
For the same, it has recently launched the 15hp tractor at an affordable price - Mahindra
Yuvraj (priced at around INR162,000), the usage of which is estimated to entail cost
saving of INR20,000 p.a. - compared to the cost of owning a pair of bullocks.
Comparatively lower tractor penetration and consequently lower levels of farm productivity
in these farm households, provides headroom for tractor growth.
39
M&M also stands to gain from Ssangyong's strong dealer base which gives it direct
access to relatively untapped markets like Europe, Russia, South America, Middle East,
Africa and Asia through Ssangyong's 1,300 dealers across 90 countries. This in our
view is the strongest synergy of the alliance as it will help M&M realise its dream of
becoming a truly global SUV player.
No financial strain - Icing on the cake
The fact that the acquisition does not strain M&M's balance sheet is an icing on the cake.
The deal size of USD464m for a 70% stake would be met easily through a combination
of debt and internal accruals (cash reserves of INR25bn and FCF of INR5bn per quarter).
Even assuming the deal is fully funded by debt, gearing levels would remain comfortable,
increasing from 0.22x to 0.44x.
Furthermore, Ssangyong is debt free and going ahead, barring basic working capital, we
do not expect M&M to pump in additional funds into Ssangyong to augment capacity
since its current capacity of 120,000 units (with engine capacity of 150,000 units) is being
utilised by only 70% (considering the current run-rate of 85,000 units pa).
Ssangyong has been prone to labour disputes resulting in production disruptions in the
past. Post the deal they have been co-operative with M&M as it is their best chance to
restore the past glory of the company and secure their own jobs. The labour unions of
both companies have signed a Tripartite Agreement containing provisions for employment
protection, long-term investment and commitment towards no labor dispute.
Ssangyong financials (INRm)
CY07
CY08
CY09
Domestic Volumes
60,616
39,165
22,189
Exports
64,001
43,240
34,936
Total
Net realisations (INR)
Sales
Cost of sales
% of sales
Gross Profit
% of sales
Selling & Admin Costs
% of sales
Operating income
YTDCY10
124,617
82,405
57,125
1,113,322
1,211,893
711,476
138,739
99,866
40,643
57,210
112,623
87,522
38,215
47,303
81
88
94
83
26,116
12,344
2,428
9,907
19
12
17
24,156
21,445
13,607
11,710
17
21
33
20
1,961
(9,101)
(11,179)
(1,803)
% of sales
1.4
(9.1)
(27.5)
(3.2)
PBT
516
(28,404)
(13,192)
829
Tax
515
(28,404)
(13,192)
829
PAT
Source: Company, Antique
40
The trend of these mini-trucks was popularised by the Tata Ace, which single-handedly
shrunk the 3W goods carrier industry. Currently, with clocking volumes of approximately
15,000 units per month, it has a 90% market share in this mini-truck segment. M&M
is now giving Tata Motors a run for their money in this segment, with the recently
launched, powerful and economical - Maxximo.
The company is expected to garner sales of 30,000 units for the Maxximo in FY11e,
which would give it a market share of over 15% in INR40bn mini-truck segment, within
just 12-14 months of its launch. A passenger variant of the same is also in the pipeline.
LCV (Goods) market share
64% 61%
59%
57%
Includes UV
P ick-ups
26%
29%
32% 33%
3%
Tata Motors
M&M
FY08
FY09
5% 4%
3%
Piaggio
FY10
7%
7%
4% 5%
Others
YTDFY11
Another savvy product by M&M in the mini-truck segment is the Gio, which targets
the three-wheeler goods carrier. Gio has an RTO passed payload capacity of 500kgs
(which could be loaded up to 800kgs), as against 300kgs for a three-wheeler. However,
the USP of Gio lies in its extremely competitive pricing and smart product placement.
Before the Gio, there was a huge price gap between a three-wheeler goods carrier
(priced at around INR160-170,000) and the next four-wheeler (at INR345,000).
Currently priced at INR206,179 (on-road Mumbai), Gio is now the cheapest upgrade
from a three-wheeler goods carrier to a four-wheeler, a position once enjoyed by the
Tata Ace (at almost INR140,000 more expensive). While Gio is the first product in
0.5-tonne segment, it will not be for long as Tata Motors plans to launch the Penguin
in the same segment. Even Bajaj Auto and Piaggio are reported to launch their products
in this segment. The 0.5-tonne segment has now caught the fancy of all players,
however, M&M spotted this trend much earlier, and thereby, it would enjoy the firstmover advantage.
41
Jul-07
UV
Mar-08
LCV
Logan
Nov-08
Jul-09
3-w heelers
Exports
Mar-10
Nov-10
Tractors
16.2%
70%
11.4%
15.4%
16.0%
4.0
35%
3.5
30%
18%
3.0
2.5
25%
12%
2.0
11.9%
9.8%
68%
20%
15%
1.5
66%
6%
64%
0%
FY07
FY08
FY09
FY10
FY11e
FY12e
10%
1.0
0.5
5%
0.0
0%
FY07
FY08
FY09
FY10
FY11e
FY12e
ROCE (RHS)
ROE (RHS)
ROA (RHS)
42
Methodology
Value (INRm)
445,135
760
Stake (%)
Tech Mahindra
43
Market Value
39,274
67
Mahindra Forgings
51
Market Value
4,358
60
Market Value
42,777
73
Mahindra Lifespaces
51
Market Value
9,500
16
51
Market Value
1,148
83
Market Value
28,700
49
125,757
215
20
25,151
43
100,605
172
A+B
545,740
932
43
Financials
Profit and loss account (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
2012e
Revenues
114,484
130,488
185,296
232,991
278,277
EBIT
11,279
9,934
26,255
31,890
39,725
Expenses
100,818
117,639
155,334
197,108
233,887
2,387
2,915
3,708
3,993
4,665
EBITDA
13,666
12,849
29,962
35,883
44,390
Interest expense
242
453
278
(687)
(856)
2,387
2,915
3,708
3,993
4,665
(2,133)
(8,343)
3,938
(2,169)
1,415
11,279
9,934
26,255
31,890
39,725
242
453
278
(687)
(856)
2,788
585
7,493
7,769
9,602
20,154
18,253
30,969
34,228
Other income
1,304
2,703
1,994
2,738
3,066
6,923
13,380
6,999
15,000
15,000
Extraordinary Items
1,727
(1,513)
498
468
Inc/(Dec) in investments
19,776
15,714
6,116
10,237
11,133
14,068
10,672
28,468
35,782
43,647
1,304
2,703
1,994
2,738
3,066
3,034
1,997
7,590
8,475
10,475
Capital expenditure
11,034
8,675
20,878
27,307
33,172
9,306
10,188
20,380
26,839
33,172
Inc/(Dec) in debt
45.4
31.1
35.9
46.6
56.7
EPS (INR)
2008
Share Capital
Reserves & Surplus
Networth
Debt
2009
2010
2011e
2,431
2,792
2,910
2,928
2,928
41,070
49,829
75,358
94,882
118,600
43,501
52,621
78,268
97,810
121,528
25,871
40,528
28,802
21,856
22,592
144,120
Capital Employed
69,371
36,561
48,939
52,763
65,763
Accumulated Depreciation
18,417
23,263
25,378
29,371
2012e
19
361
118
18
9,511
14,657
(11,726)
(6,945)
735
4,652
(7,782)
(9,454)
(6,957) (14,710)
(8,719)
Others
(3,081)
84
6,448
15,102
(4,648)
7,132
1,688
(6,042)
2,720
Opening balance
13,261
8,612
15,744
17,432
11,390
8,612
15,744
17,432
11,390
14,110
Closing balance
2008
2009
2010
2011e
2012e
Revenue
16
14
42
26
19
77,763
EBITDA
22
(6)
133
20
24
34,035
PAT
(21)
141
31
21
EPS
(32)
15
30
21
2008
2009
2010
2011e
2012e
16.5
24.1
20.9
16.1
13.2
4.2
4.0
5.6
4.5
3.6
33.2
35.9
14.9
12.5
10.1
5,465
6,467
9,642
11,642
14,642
23,609
32,143
37,027
48,034
58,370
42,151
57,864
63,980
74,217
85,350
Valuation (x)
Inventory
10,841
10,607
11,888
14,043
17,535
PE
Debtors
10,049
10,437
12,581
14,043
17,535
P/BV
8,612
15,744
17,432
11,390
14,110
EV/EBITDA
7,052
14,023
18,523
22,380
24,618
EV/Sales
4.0
3.5
2.4
1.9
1.6
1.6
1.3
1.3
1.6
1.9
10.6
23,076
35,202
34,000
45,440
51,630
Core Auto PE
16.2
18.2
17.2
13.2
Provisions
9,435
12,776
17,965
16,169
17,786
25.9
28.1
11.6
9.7
7.8
4,044
2,833
8,458
248
4,383
3.1
2.8
1.9
1.5
1.2
567
(183)
2,403
3,110
3,983
Misc.Expenses
135
126
277
144,120
2012e
Application of Funds
69,371
2008
2009
2010
2011e
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
RoE (%)
21
19
26
27
27
RoCE (%)
20
15
29
32
33
2012e
Debt/Equity (x)
0.6
0.8
0.4
0.2
0.2
46.5
21.9
94.4
(46.4)
(46.4)
243.1
279.2
581.9
585.5
585.5
EBIT/Interest (x)
BVPS (INR)
179.0
188.5
134.5
167.1
207.6
CEPS (INR)
55.2
41.5
42.2
53.5
64.6
DPS (INR)
11.6
10.0
9.4
11.7
14.2
2008
2009
2010
2011e
2012e
11.9
9.8
16.2
15.4
16.0
EBIT
9.9
7.6
14.2
13.7
14.3
PAT
8.1
7.8
11.0
11.5
11.9
Margins (%)
Year ended 31st Mar
EBITDA
44
COMPANY UPDATE
27 December, 2010
Investment rationale
Moving into higher orbit
PGCIL is moving into higher capex mode in order to meet the transmission
capacity requirements for the next two years and XIIth Five-Year Plan. Post its
successful IPO in FY08, the company has increased its average capital
expenditure (FY08-10) to INR84bn from INR36bn in the Xth Five-Year Plan.
PGCIL intends to increase its capital expenditure to INR120bn and INR150bn
by FY11e and FY12e, respectively. The equity infused via FPO and internal
accruals addresses the equity requirements in medium term.
Earnings will get a boost by higher commissioning in FY11e and FY12e
We expect all construction work in progress (CWIP) (~INR200bn in PGCIL's
books as on Mar10) to get commissioned over the next 5-6 quarters and
estimate the commissioning to be INR206bn in FY11-12e. Although the capex
has been on a higher level at INR80bn and INR100bn in FY09 & FY10
respectively, commissioning during corresponding years has been at lower
levels of INR49bn and INR29bn. However, as the commissioning cycle ranges
between 18-24 months, commissioning is likely to improve in FY11-12e.
Huge visibility in project pipeline
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR98
INR116
18%
Market data
Sector
Utilities
453
10
O/S Shares
4,630
874.3
121/92
6,951
Bloomberg
PWGR IN
Reuters
PGRD.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
0.7
(7.4)
(3.6)
(10.2)
Relative
(2.4)
(7.5)
(14.9)
(22.3)
Source: Bloomberg
Shareholding pattern
FII
2%
DII
6%
Promoters
86%
Others
6%
Key financials
71,275
88,052
105,753
60
EBITDA (INRm)
45,865
58,694
73,643
88,972
30
22
28
25
21
16,906
20,410
26,685
30,117
17
21
31
13
EPS (INR/share)
4.0
4.8
5.8
6.5
17
21
19
13
24.1
20.0
16.8
14.9
1.9
2.8
2.6
2.1
EV/EBITDA (x)
15.1
11.8
9.4
7.8
RoE (%)
11.6
12.8
12.3
12.7
Pow er Grid
Source: Bloomberg
Dec-10
56,900
Jun-10
Revenue (INRm)
Dec-09
2012e
Jun-09
2011e
Dec-08
2010a
Dec-07
2009a
Jun-08
90
NIFTY
Abhineet Anand
+91 22 4031 3441
abhineet@antiquelimited.com
Mohit Kumar
mohit.kumar@antiquelimited.com
Mohit Gulati
mohit.gulati@antiquelimited.com
Investment rationale
Capex : Moving into higher orbit
PGCIL's capital expenditure in Xth Five-Year Plan was INR180bn, which tripled in
XIth Plan to INR550bn and is expected to double to ~INR1,200bn in the next plan.
It incurred a capital expenditure of ~INR36bn per annum on an average during
FY03-07. Post its successful IPO in FY08, the company has increased its average
capital expenditure (FY08-10) to INR84bn from INR36bn in the Xth Five-Year Plan.
It is expected to invest INR120bn and INR150bn in FY11e and FY12e, respectively.
The equity required for these projects would be in the range of INR40-50bn. However,
the company generates cash accrual of ~INR20-25bn per annum presently. FPO
proceeds (of INR37bn) and internal accruals would meet the equity requirement for
the next two years. The capital expenditure for Xth and XIth Five-Year Plan is shown
in the charts below.
80
160
Average capex
70
140
of INR36bn
60
Commissioning picks
120
50
100
40
80
30
60
20
40
10
20
0
0
FY03
FY04
FY05
Commissioned
Capex
FY06
FY07
Average
FY08
FY09
FY10
1HFY11
Commissioned
FY11e
FY12e
Capex
160
140
120
on Mar 31, 2010) to get commissioned over the next 5-6 quarters and estimate the
100
80
higher level at INR80bn and INR100bn in FY09 and FY10, respectively, commissioning
60
during corresponding years has been at lower levels of INR49bn and INR29bn.
40
20
in FY11-12e. Graph of Xth Five-Year Plan clearly depicts that healthy capex during
0
FY12new
FY12old
FY11new
FY11old
FY03-05 translated into huge commissioning during FY06-07. In the Xth Five-Year
Plan, 63.8% of the commissioning happened in FY06 and FY07. PGCIL has
commissioned INR48bn in 1HFY11 compared to INR26bn in 1HFY10.
Source: Antique
46
Corridor
INRm
HCPTC-I
87,520
Section-II
HCPTC-II
57,090
Section-III
HCPTC-III
13,040
Section-IV
HCPTC-IV
Section-V
HCPTC-V
Section-VI
HCPTC-VI
20,650
Section-VII
HCPTC-VII
23,570
Section- VIII
HCPTC-VIII
29,860
Section-IX
HCPTC-IX
Total
12,430
288,240
48,210
580,610
51.3
P/B @ 2.25x
115
6.5
P/E @ 18x
117
Target (INR/sh)
116
Source: Antique
47
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
2012e
Revenues
46,232
56,900
71,275
88,052
105,753
EBIT
27,938
34,925
38,897
50,861
61,295
Expenses
8,697
11,036
12,581
14,409
16,781
9,597
10,940
19,797
22,782
27,677
EBITDA
37,535
45,865
58,694
73,643
88,972
(13,396)
(16,423)
(15,432)
(20,240)
(26,097)
14,634
9,597
10,940
19,797
22,782
27,677
EBIT
27,938
34,925
38,897
50,861
61,295
Interest expense
13,396
16,423
15,432
20,240
26,097
Other income
Profit before tax
93,618
68,871
Capital expenditure
3,557
(58,128)
(94,236)
Inc/(Dec) in investments
3,155
1,143
1,396
3,000
6,000
2,821
5,380
5,854
7,654
8,638
15,827
4,487
3,761
3,718
3,557
16,305
17,610
21,372
26,685
30,117
14,485
16,906
20,410
26,685
30,117
19,660
3.4
4.0
4.8
5.8
6.5
Inc/(Dec) in debt
15,984
36,699
59,514
60,120
74,834
Dividends paid
(5,432)
(5,909)
(5,909)
(7,726)
(8,720)
30,790
53,604
52,394
66,114
(5,458)
Share Capital
42,088
42,088
42,088
46,297
46,297
103,982
117,331
169,960
191,357
237,655
92,985
135,074
242,077
308,504
Capital Employed
377,150
454,574
354,171
403,193
(80,619)
273,552
368,292
428,412
503,246
527,711 644,670
740,901
432,023
529,123
638,547
476,679
87,581
132,860
204,222
227,121
267,697
Investments
17,362
15,928
14,532
11,532
5,532
2,482
2,976
3,449
3,621
3,803
Debtors
11,005
13,736
22,149
16,284
19,702
18,659
24,124
32,776
65,506
60,049
21,625
42,129
37,899
41,445
45,078
76,346
78,402
94,164
36,724
61,234
13,526
21,898
24,583
30,369
36,475
3,521
(168)
(4,656)
18,084
(2,007)
(4,938)
(5,385)
(7,035)
(7,035)
(7,035)
72
55
36
36
36
377,150
454,574
527,711 644,670
740,901
63,281 (51,715)
38,755
2012e
(8,638)
3,718
2011e
Application of Funds
(7,654)
34,339
2010
Misc.Expenses
47,869
(5,854)
3,761
2009
Net Assets
(89,123)
(1,540)
27,226
2008
Accumulated Depreciation
35,379
(2,219)
4,487
Debt
(6,295)
Tax paid
22,989
Networth
4,583
Interest expense
19,126
6,691
5,465
8,653
32,730
Opening balance
11,968
18,659
24,123
32,777
65,506
18,659
24,123
32,777
65,506
60,049
2012e
Closing balance
2008
2009
2010
2011e
Revenue
29
23
25
24
20
EBITDA
22
22
28
25
21
PAT
18
17
21
31
13
EPS
17
21
19
13
2008
2009
2010
2011e
2012e
28.2
24.1
20.0
16.8
14.9
3.0
2.8
2.6
2.1
1.9
EV/EBITDA
18.4
15.1
11.8
9.4
7.8
EV/Sales
14.9
12.1
9.7
7.8
6.5
1.2
1.2
1.2
1.5
1.7
2008
2009
2010
2011e
2012e
10.7
11.6
12.8
12.3
12.7
Debt/Equity (x)
1.8
2.1
2.3
2.0
2.1
EBIT/Interest (x)
2.1
2.1
2.5
2.5
2.3
Valuation (x)
Year ended 31st Mar
PE
P/BV
Financial ratios
Year ended 31st Mar
RoE (%)
RoCE (%)
2008
2009
2010
2011e
2012e
4,209
4,209
4,209
4,630
4,630
BVPS (INR)
32.1
34.7
37.9
46.7
51.3
CEPS (INR)
5.7
6.6
9.6
10.7
12.5
DPS (INR)
1.2
1.2
1.2
1.4
1.6
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
EBITDA
81.2
80.6
82.3
83.6
84.1
EBIT
60.4
61.4
54.6
57.8
58.0
PAT
31.3
29.7
28.6
30.3
28.5
48
COMPANY UPDATE
27 December, 2010
Investment rationale
High visibility on India expansions
Expansion projects of Hindalco Industries Limited (HNDL) are on schedule,
thereby increasing its leverage to high margin Indian markets. Refining capacity
in India will double by FY12e while smelting capacity will grow by 140%.
Thus, the business portfolio will become more stable and aligned with end-toend value chain transforming Hindalco to a different league.
Novelis' sustainable restructuring
The restructuring of Novelis and efficiency improvements are yielding strong
operating performance. The companys efforts are directed towards improving
and sustaining the performance by shutting down unprofitable and low margin
operations. The debottlenecking of existing 3mtpa capacity at ~3% every
year till FY14e and 220kt Brazil expansion in FY13e will increase the exposure
towards growing markets and premium products.
Financial reengineering will reflect in balance sheet strength
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR240
INR279
16%
Market data
Sector
Metals
459
10
1,914
1,333
241/129
10,091
Bloomberg
HNDL IN
Reuters
HALC.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
15
25
59
52
Relative
12
25
40
31
Source: Bloomberg
Shareholding pattern
Public and
others
24%
Promoters
32%
109
131
(50)
166
12
20
39
40
41
51
PAT growth(%)
(78)
711
25
EPS (INR)
3.2
22.2
18.9
21.4
26.7
(81)
588
(15)
13
25
P/E
74.4
10.8
12.7
11.2
9.0
P/BV
EV/EBITDA
RoE (%)
Source: Company, Antique
3.0
2.8
2.5
2.4
2.4
20.0
7.1
7.4
6.8
5.6
18
16
14
15
Hindalco
Dec-10
98
Jun-10
97
Dec-09
742
37
EBITDA
2013e
Jun-09
741
Dec-08
2012e
668
Jun-08
2011e
607
250
200
150
100
50
0
Jun-07
2010
656
Dec-07
2009
Revenues
Source: BSE
Dec-06
FIIs
28%
Jun-06
Key financials
FIs
16%
Dec-05
The stock is currently trading at 11.2x FY12e EPS and 6.8x FY12 EV/EBITDA.
Majority of the capital work in progress will become operational by FY12e
end, and thereby, FY13e is likely to witness stronger cash flows and profitability
with higher scale of operations. The high predictability of the capex project
completions and back-ended cash flows has prompted us to base our target
price by allocating 25% and 75% weightage to FY12e and FY13e, respectively.
We reiterate a BUY with a target price of INR279 per share.
NIFTY
Source: Bloomberg
Rajesh Zawar
+91 22 4031 3450
rajesh.zawar@antiquelimited.com
Investment rationale
Sales (INRm)
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
FY09 FY10 FY11e FY12e
Aluminium
Novelis
Copper
Others
EBIT (INRm)
80,000
60,000
The management believes the global system of linking alumina prices to aluminium
(12.5% to 14%) is set for a break down. Thus, standalone smelters will have tough
time as alumina prices will have free pricing function and move towards copper TcRc
way offering huge advantages to integrated operations of Hindalco. The company
aims to have a cash cost of ~USD100 for alumina, a marked discount to the global
range of USD150-200, while cash cost of aluminium will be ~USD950-1,050, which
is one of the lowest.
40,000
20,000
INRbn
FY10
FY11e
FY12e
Capex
43
115
124
61
(20,000)
49
74
80
100
(40,000)
(3)
30
30
1.0
1.0
0.9
0.8
FY09
Aluminium
Novelis
Others
Corporate
Copper
FY13e
The equity funding of Utkal (INR70bn) and Mahan (INR92bn) will be done through
existing cash in the balance sheet. Also, when Aditya moves to the capex mode
(INR92bn), the debt will not move beyond 1:1.
Scope
Progress
Estimated Project
Cost (INRbn)
Mahan Aluminium
359ktpa smelter,
900MWpower
92
2Q FY12e
Aditya Aluminium
359ktpa smelter,
900MWpower
92
3Q FY12e
Utkal Alumina
1.5mtpa refinery
56
2Q FY12e
Aditya Refinery
1.5mtpa refinery
~60
1Q FY14e
Jharkhand Aluminium
359ktpa smelter,
900MWpower
~100
1Q FY14e
Hirakud expansion
8.5
4Q FY12e
FRP, Hirakud
Transfer from Novelis UK plant Dismantling activities 65% complete complete, major orders
to produce can body stock
for other equipment placed.
Equipments have started arriving in India
Pinda
Being finalised
Recently conceived
Expected
completion
Being finalised
8.5
2Q FY12e
USD 300m
3Q FY13e
50
Structural stability in aluminium prices globally along with operating metrics can be
rated amongst the top deciles globally. The growth traction offers potential to capitalise
on both scale and value chain expansions fruitfully.
Majority of the capital work in progress will become operational by FY12e end, and
thereby, FY13e is likely to witness stronger cash flows and profitability with higher scale
of operations. The high predictability of the capex project completions and backended
cash flows has prompted us to base our target price by allocating 25% and 75%
weightage to FY12e and FY13e, respectively. We reiterate a BUY on this stock with a
target price of INR279 per share providing an upside of 16% from the current levels.
SOTP valuation (FY12e)
Particulars (INRm)
Amount
Hindalco - parent
40,613
7.0
284,290
Novelis
51,447
6.5
334,406
7,648
6.0
ABML
45,890
Total EV
664,586
Net debt
258,046
Implied Mcap
406,541
212
Source: Antique
Amount
Hindalco - parent
65,721
7.0
460,048
Novelis
47,178
6.5
306,659
8,439
6.0
ABML
50,637
Total EV
817,343
Net debt
241,405
Implied Mcap
575,938
301
Source: Antique
Source: Antique
51
Financials
Profit and loss account (INRbn)
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
Revenues
656
607
668
741
742
EBIT
Expenses
620
510
570
632
611
EBITDA
37
97
98
109
131
30
28
28
31
70
70
78
12
12
13
16
(6)
62
57
65
(10)
(18)
17
44
40
EBIT
Interest expense
Other income
Profit before tax
Taxes incl deferred taxation
Reported PAT
Adjusted profit after tax
Recurring EPS (INR)
2009
2010
2011e
2012e
2013e
70
70
78
98
30
28
28
31
34
Interest expense
12
11
12
13
16
34
29
(6)
(3)
(6)
(7)
98
Tax paid
17
19
24
46
49
78
84
100
Capital expenditure
27
43
115
124
61
81
Inc/(Dec) in investments
49
(16)
30
40
19
24
45
57
29
(54)
(85)
(84)
(61)
51
28
(92)
(3)
30
30
39
40
41
51
3.2
22.2
18.9
21.4
26.7
2009
2010
2011e
2012e
2013e
157
213
247
284
330
Networth
159
215
249
286
332
Debt
283
240
270
300
300
13
17
21
26
31
Capital Employed
454
473
540
612
664
462
456
456
719
780
Share Capital
Minority Interest
Accumulated Depreciation
144
166
194
225
258
Net Assets
318
290
262
494
522
29
58
173
35
35
104
112
82
42
42
Inc/(Dec) in debt
Dividends paid
(67)
15
13
(22)
(1)
13
17
Opening balance
17
22
22
29
42
Closing balance
22
22
29
42
58
2009
2010
2011e
2012e
2013e
(7)
10
11
(50)
166
12
20
PAT
(78)
711
25
EPS
(81)
588
(15)
13
25
2009
2010
2011e
2012e
2013e
74.4
10.8
12.7
11.2
9.0
3.0
2.8
2.5
2.4
2.4
5.6
Valuation (x)
Year ended 31st Mar
Inventory
85
113
124
138
142
Debtors
67
65
71
79
79
PE
22
22
29
42
59
P/BV
19
32
32
32
32
EV/EBITDA
100
131
146
161
159
63
49
49
49
49
30
52
62
80
104
(28)
(39)
(39)
(39)
(39)
454
473
540
612
664
2009
2010
2011e
2012e
2013e
1,705
1,914
1,914
1,914
1,914
BVPS (INR)
79
87
94
98
99
CEPS (INR)
23
38
36
40
48
DPS (INR)
1.8
1.7
1.6
1.8
2.9
2013e
20.0
7.1
7.4
6.8
EV/Sales
1.1
1.1
1.1
1.0
1.0
0.7
0.7
0.7
0.8
1.2
Financial ratios
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
RoE
18
16
14
15
RoCE
15
13
13
15
1.6
1.0
1.0
0.9
0.7
EBIT/Interest (x)
0.5
8.9
5.7
5.8
5.9
Margins (%)
Year ended 31st Mar
2009
2010
2011e
2012e
EBITDA
16
15
15
18
EBIT
11
10
11
13
PAT
52
MID
CAPS
COMPANY UPDATE
27 December, 2010
Investment rationale
Subsidy burden to remain capped, improving realisations
We believe that subsidy burden of upstream companies will remain capped
despite sharp run up in oil prices as government will strive to raise diesel
prices more frequently to keep diesel under-recoveries under check, contrary
to what it has done in past. This will help improving realisations for upstream
companies in a rising oil price environment. In our view, with no diesel price
hike, OIL's net realisations are expected to improve by USD1/bbl for every
USD10/bbl increase in oil prices and by another USD4/bbl if government
raises diesel prices by INR2/litre.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR1,399
INR1,638
17%
Market data
Sector
337
240
30
Crude oil production for FY11e which remained flat in 1HFY11 due to lower
off-take by Numaligarh refinery is expected to pick up in 2HFY11. OIL guides
an oil production growth of 3-4% for the next few years. OIL projects its gas
production to grow at a CAGR of 9% for the next 4 years from 2.4bcm in
FY11 to 3.4bcm in FY15e. Commencement of Brahmaputra Gas Cracker
(BCPL) would help in meeting this target as OIL holds 10% stake in BCPL.
1,635/1,048
109
Bloomberg
OINL IN
Reuters
OILIF.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
(7)
12
(3)
(7)
(5)
(3)
Absolute
Relative
Source: Bloomberg
OIL has lined up USD1.9bn capex for E&P activities over next two years
including acquisitions. Of this, USD1bn will be spent in FY11 and the
remaining in FY12e. For FY12, 80% investment is planned in exploration
and appraisal and development of existing blocks. OIL has also been looking
out for potential E&P acquisitions abroad and has sufficient cash balance of
INR98bn in its books as at Sept, 2010 end. This will help OIL to strengthen
its domestic asset portfolio which was earlier concentrated in North East.
Shareholding pattern
FII
2%
DII
4%
Promoters
79%
Others
15%
Source: BSE
2008
2009
2010
2011e
2012e
63
74
81
86
89
EBITDA (INRbn)
26
31
37
47
49
21
19
26
18
22
26
31
34
21
21
19
10
84
101
109
130
142
21
19
10
PE (x)
16.7
13.8
12.9
10.8
9.8
EV/EBITDA (x)
11.5
8.9
6.8
5.4
5.1
23
23
19
20
19
RoE (%)
Source: Company, Antique
110
90
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Key financials
Oil India
Source: Bloomberg
NIFTY
Amit Rustagi
+91 22 4031 3434
amit.rustagi@antiquelimited.com
Ruchi Dugar
ruchi.dugar@antiquelimited.com
Miten Vora
miten.vora@antiquelimited.com
We expect OIL to post a net realisation of USD58/bbl and USD61/bbl for FY11e
and FY12e, respectively, assuming average oil price of USD75/bbl and USD80/bbl
in FY11e and FY12e, respectively.
Under-recoveries to remain capped, thereby improving realisations
90
83
82
83
81
76
80
70
69
65
58
60
62
61
58
56
56
46
50
40
30
FY2007
FY2008
FY2009
FY2010
FY2011e
FY2012e
FY2013e
USD/bbl
USD/INR
(INRbn)
75
45
80
45
85
45
90
45
386
529
672
815
95
45
100
45
958 1101
OIL's share
(INRbn)
13
19
24
30
35
40
Production
mmt
3.6
3.6
3.6
3.6
3.6
3.6
USD/bbl
74
79
84
89
94
99
Discount
USD/bbl
11
16
20
25
29
34
63
63
64
64
65
65
65
67
68
68
69
69
Source: Antique
Thus, in a rising oil price scenario, with subsidy burden remaining capped, OIL is
expected to report better net realisations. Our analysis reveals that with no diesel
price hike, OIL's net realisations are expected to improve by USD1/bbl for every
USD10/bbl increase in oil prices. Further, if government raises diesel prices by INR2/
litre, OIL's realisations would improve by a further USD4/bbl.
54
OIL
Price
1,399
1,295
240
336
(97)
Value of investments/share
22
2,770
Timor Leste: Drilling of the first well is expected to start by mid November.
KG Basin: 3D seismic API is under progress and efforts are being made to start
drilling of exploratory wells next year.
164
114
50
193
90
2,626
142
139
EBITDA (INRbn)
49
503
762
576
PE (excl investments)
8.5
8.7
4.8
5.2
PB (excl investments)
1.8
2.1
EV/boe
5.4
5.7
957
10,275
Libya: The first two wells in Libya were not commercially viable and the third
exploratory well is being drilled (Block 102/4).
ONGC
EPS
55
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
Revenues
62,593
73,712
80,513
85,834
89,237
Expenses
(36,936)
(42,651)
(43,467)
(39,099)
(40,464)
Depreciation
EBITDA
25,657
31,061
37,046
46,735
48,773
Interest
(3,093)
(3,768)
(4,811)
(7,702)
(7,839)
22,563
27,292
32,235
39,032
40,934
2008
2009
2010
2011e
2012e
PBT
27,134
33,870
38,951
47,109
51,661
3,093
3,821
4,811
7,702
7,839
(4,085)
(6,180)
(6,103)
(7,464)
(10,114)
9,004
3,864
(9,113)
660
754
Others
1,272
1,500
(1,529)
(670)
(670)
(16,569)
Interest expense
(344)
(87)
(37)
(4)
(0)
(8,535)
(5,174)
(12,520)
(15,109)
Other income
4,926
6,711
6,810
8,139
10,785
31,701
14,497
32,229
32,900
27,145
33,916
39,009
47,167
51,719
Capex
(9,492)
(10,435)
(11,485)
(13,698)
(15,068)
(811)
5,027
2,397
7,468
10,114
497
443
671
671
671
(4,965)
(8,418)
(5,559)
(4,283)
Tax paid
(9,245)
(12,253)
(12,846)
(16,012)
(17,560)
Investments
17,901
21,663
26,163
31,154
34,159
84
101
109
130
142
2008
2010
2011e
2012e
2,140
2,140
2,405
2,405
2,405
77,190
91,170
135,233
156,481
180,733
183,137
79,330
Debt
Capital Employed
2009
1,749
81,079
565
375
213
50
183,187
50,387
60,558
67,532
75,134
84,073
Accumulated Depreciation
(16,199)
(18,383)
(21,358)
(23,294)
(25,365)
Net Assets
34,188
42,175
46,173
51,840
58,708
6,446
3,186
3,287
3,615
3,977
Investments
4,887
4,887
8,594
8,594
8,594
4,509
5,010
4,534
5,663
6,084
Debtors
6,110
4,047
6,597
4,650
5,032
42,808
60,700
85,429
102,083
120,688
8,338
13,796
26,136
25,836
25,536
2,518
3,403
2,459
3,667
3,910
15,022
27,510
30,234
28,569
29,582
44,225
52,640
90,003 105,996
123,847
(8,655)
(8,998)
(10,209)
(11,112)
(12,102)
(11)
(15)
165
164
163
183,187
81,079
2008
2009
2010
2011e
2012e
214
214
BVPS (INR)
371
436
240
240
240
572
661
762
CEPS (INR)
98
DPS (INR)
28
119
129
162
175
31
34
34
34
2012e
27,772
Changes in Debt
(6,391)
(1,184)
(190)
(163)
(163)
(8,933)
(1,634)
(7,660)
(9,853)
(9,850)
(8,845)
18,650 (10,016)
(10,012)
10,051
17,892
24,729
16,654
18,605
32,757
42,808
60,700
85,429
102,083
42,808
60,700
85,429 102,083
120,688
2008
2009
2010
2011e
2012e
Revenue
13
18
EBITDA
21
19
26
PAT
21
21
19
10
EPS
21
19
10
2008
2009
2010
2011e
2012e
16.7
13.8
12.9
10.8
9.8
3.8
3.2
2.4
2.1
1.8
11.5
8.9
6.8
5.4
5.1
4.7
3.7
3.1
2.7
2.4
Valuation (x)
Year ended 31st Mar
PE (x)
P/BV (x)
EV/EBITDA (x)
EV/Sales (x)
Dividend Yield (%)
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
2012e
RoE
23
23
19
20
19
RoCE
28
29
23
25
22
Debt/Equity (x)
na
0.0
0.0
0.0
0.0
EBIT/Interest (x)
66
312
883
10,003
83,031
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
41
42
46
54
55
EBIT
36
37
40
45
46
PAT
29
29
32
36
38
56
COMPANY UPDATE
Siemens Limited
Transformer(s)
27 December, 2010
Investment rationale
All time high order book
With strong order inflows during the year, Siemens presently has an all time
high order book. The order backlog at the end of Sept'10 stood at INR135bn.
Order inflow for the current year is registered at INR120bn. Order book to
sales which in general has ranged from 1-1.2x, presently stands at 1.5x. In
the current year, the company received two mega orders namely Qatar
transmission (~INR24bn) and Torrent Power repeat order. With the execution
cycle of these projects closer to 24 months, we believe there would be significant
revenue growth for the next two years.
Power transmission capex to pick up in the coming years
With PGCIL's FPO in place, we expect higher capital expenditure by the
company, and hence, all key transmission players are expected to benefit.
Siemens is one of the key players in the medium and high-end voltage
transformer segment. Further, as a number of BTG orders have been awarded
in the last two years, we expect a number of transmission assets to be tendered
in the near term. Nine HPTCs have been identified, which would in near term
benefit transformer and ancillary companies.
Entry into Indian renewable energy market
With increasing interest in the renewable market in India, Siemens (globally
one of the key players in the wind and solar market) has entered the Indian
market. Siemens intends to invest EUR70m (INR4.3bn) in the first phase for
the Baroda project, to set up a 250MW manufacturing capacity. This facility
will act as a hub for energy-efficient automation and building solutions, a
major business for Siemens.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR810
INR973
20%
Market data
Sector
Industrials
273
337
105.4
857/566
237
Bloomberg
SIEM IN
Reuters
SIEM.BO
Source: Bloomberg
Returns (%)
Absolute
Relative
1m
3m
6m
12m
2.5
3.0
9.4
39.7
(0.6)
2.8
(3.4)
20.8
Source: Bloomberg
Shareholding pattern
FII
4%
DII
23%
Promoters
55%
Source: BSE
94,000
120,541
146,479
40
EBITDA (INR m)
10,232
12,932
16,055
18,968
10
31
26
24
18
7,088
8,272
10,443
12,382
39
17
26
19
21.0
24.5
31.0
36.7
39
17
26
19
PE (x)
38.5
33.0
26.1
22.0
PB (x)
13.2
9.4
7.7
6.3
EV/EBITDA (x)
25.3
20.0
16.1
13.6
34
28
29
29
RoE (%)
Source: Company, Antique
Siemens
Source: Bloomberg
Dec-10
84,585
Jun-10
70
Revenue (INR m)
Dec-09
2012e
Jun-09
2011e
Dec-08
2010
Jun-08
100
2009
Dec-07
Others
18%
NIFTY
Abhineet Anand
+91 22 4031 3441
abhineet@antiquelimited.com
Mohit Kumar
mohit.kumar@antiquelimited.com
Mohit Gulati
mohit.gulati@antiquelimited.com
Siemens Limited
Investment rationale
All time high order book
The large inflow in this fiscal year has resulted in an all time high order book for
Siemens. The order backlog at the end of September 2010 stood at INR135bn.
Order inflow for the current year was registered at INR120bn. Order book to sales
which in general has ranged from 1-1.2x, presently stands at 1.5x. In the current year,
the company received two mega orders namely: Qatar transmission (~INR24bn) and
repeat order from Torrent Power Limited for 387.5MW. With the execution cycle of
these projects closer to 24 months, we believe there would be significant revenue
growth for the next two years.
Order book to sales
1.8
60
1.6
50
150
133
103
2009
90
98
2008
30
1.2
94
2007
120
40
1.4
76
20
12
10
13
2010
2006
2005
0
2004
4QFY10
3QFY10
2QFY10
1QFY10
30
39
25
2003
4Q09
3Q09
2Q09
1Q09
Q408
0
Q308
0.8
60
2002
10
2001
58
Siemens Limited
Inter regional capacity (MW)
80,000
70,000
60,000
HCPTC-I
87.5
HCPTC-II
57.1
HCPTC-III
50,000
40,000
30,000
20,000
10,000
FY17e
FY12e
FY11
(Current)
FY10
FY07
INRbn
13.0
HCPTC-IV
12.4
HCPTC-V
IPP in Chattisgarh
HCPTC-VI
20.7
HCPTC-VII
23.6
HCPTC-VIII
29.9
HCPTC-IX
48.2
581
288.2
The increased focus on reducing the carbon footprint and increasing interest in the
renewable market in India augurs well for the investment in renewable energy market
space. Siemens AG, the parent company, is one of the key players in the wind and solar
market In Europe. Siemens AG had 6% market share in supplier of wind turbines in
2009. The company plans to invest overall INR16bn in India over the next three years
and a major part of this will be invested in the renewable energy market and to expand
presence in value priced products. Siemens plans to invest EUR70m (INR4.3bn) in the
first phase for the Baroda project, to set up a 250MW manufacturing capacity for wind
turbines. The Indian wind energy market size is ~1,800-2,000MW (~INR100bn). Further,
this facility will act as a hub for energy-efficient automation and building solutions, a
major business for Siemens. It is in the process of acquiring land for the unit, which will
sell medium to low-end wind turbines globally, mainly to emerging markets like India.
The plant is expected to take off by FY12e.
Global wind market
Market share in various regions (%)
45,000
6.3
40,000
Italy Spain
France 4% 2%
8%
6.2
31,326
35,000
38,103
5.9
30,000
22,207
25,000
20,000
15,000
US
17%
10,000
1,947
1,397
5,000
2,265
UK
69%
1
0
2007
Wind Market Size (MW)
2008
Siemens AG (MW)
2009
Siemens AG Market Share (%)
59
Siemens Limited
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
Revenues
83,577
84,585
94,000
120,541
146,479
EBIT
Expenses
75,787
74,353
81,068
104,486
127,511
EBITDA
7,791
10,232
12,932
16,055
18,968
Interest expense
637
778
1,015
1,097
1,207
7,153
9,454
11,917
14,958
17,762
(451)
(523)
(670)
(737)
(848)
Other income
1,313
4,401
8,918
14,377
12,587
15,695
18,610
2,984
3,870
4,316
5,253
6,228
5,933
10,507
8,272
10,443
12,382
5,104
7,088
8,272
10,443
12,382
15.1
21.0
24.5
31.0
36.7
2008
2009
2010
2011e
2012e
7,153
9,454
11,917
14,958
17,762
637
778
1,015
1,097
1,207
(451)
(523)
(670)
(737)
(848)
(7,800)
(1,099)
(4,008)
(6,027)
(4,981)
Tax paid
(2,675)
(3,970)
(3,870)
(4,316)
(5,253)
4,640
4,384
4,975
7,887
Capital expenditure
(1,780)
(1,657)
(1,237)
(800)
(800)
Inc/(Dec) in investments
223
(467)
87
668
2,930
5,589
2,215
2,960
(889)
806
4,439
1,415
2,160
(5)
(5)
(5)
(5)
2008
Share Capital
2009
2010
2011e
2012e
337
674
674
674
674
15,572
20,017
28,492
34,791
42,744
15,909
20,691
29,166
35,466
43,418
15
11
15,924
20,701
29,172
35,467
43,420
8,701
9,911
11,348
12,348
13,348
Accumulated Depreciation
(4,064)
(4,339)
(5,053)
(6,067)
(7,164)
Net Assets
4,637
5,572
6,295
6,280
6,183
933
870
670
470
270
4,676
5,236
5,149
5,149
5,149
7,491
7,621
7,483
8,152
10,507
22,243
34,328
34,714
38,630
49,537
4,636
9,131
15,977
20,391
27,947
6,618
6,173
6,238
6,991
8,964
30,299
41,868
48,264
51,507
5,283
7,272
5,405
8,113
16,147
22,657
30,906
273
910
910
910
910
15,924
20,701
29,172
35,467
43,420
Misc.Expenses
Application of Funds
66,050
(729)
(946)
(1,972)
(1,972)
(2,490)
(733)
(950)
(1,977)
(1,977)
(2,490)
(4,758)
4,495
6,846
4,413
7,557
Opening balance
9,394
4,636
9,131
15,977
20,390
4,636
9,131
15,977
20,390
27,947
2012e
Closing balance
2008
2009
2010
2011e
Revenue
72
11
28
22
EBITDA
87
31
26
24
18
PAT
50
39
17
26
19
EPS
50
39
17
26
19
Valuation (x)
Year ended 30th Sep
2008
2009
2010
2011e
2012e
PE
53.4
38.5
33.0
26.1
22.0
P/BV
17.1
13.2
9.4
7.7
6.3
33
25.3
20.0
16.1
13.6
EV/EBITDA
EV/Sales
3.1
3.1
2.7
2.1
1.8
0.6
0.4
0.7
0.7
0.9
2012e
Financial ratios
Year ended 30th Sep
2008
2009
2010
2011e
RoE (%)
32
34
28
29
29
RoCE (%)
45
46
41
42
41
Debt/Equity (x)
0.0
0.0
0.0
0.0
0.0
EBIT/Interest (x)
(16)
(18)
(18)
(20)
(21)
2008
2009
2010
2011e
2012e
169
337
337
337
337
BVPS (INR)
47
61
87
105
129
CEPS (INR)
17.0
23.3
27.5
34.2
40.3
DPS (INR)
4.8
3.0
5.8
5.9
7.4
2012e
Margins (%)
Year ended 30th Sep
2008
2009
2010
2011e
EBITDA
9.3
12.1
13.8
13.3
12.9
EBIT
8.6
11.2
12.7
12.4
12.1
PAT
6.1
8.4
8.8
8.7
8.5
60
COMPANY UPDATE
27 December, 2010
Investment rationale
Well positioned for long-term value creation
Idea Cellular is the fifth largest telecom operator in India, in terms of wireless
subscriber market share, but third in terms of revenues. Thanks to its attractive
2G/3G spectrum footprint, strong brand and execution capabilities, we expect
Idea to further consolidate its position as a Tier-I wireless operator, alongside
Bharti and Vodafone-Essar.
Significant catch up in operational/financial metrics likely
We expect Idea to continue to outperform industry revenue growth, owing to
its 2G footprint expansion and favourable base-effect in terms of total subs as
well as MOU/sub. More importantly, Idea's wireless EBITDA margin (~21%
in 2QFY11) is significantly lower compared to Bharti (37%). We expect the
gap to narrow (to <10pps) over medium to long term, driven by turnaround
in 10 new circles (incl. Karnataka), and higher revenue scale in older circles.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
SELL
INR70
INR85
21%
Market data
Sector
Telecom
224
3,301
944
80/49
4,676
Bloomberg
IDEA IN
Reuters
IDEA.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(3)
(12)
20
16
Relative
(7)
(11)
Source: Bloomberg
Shareholding pattern
Promoters
46%
Public and
others
38%
FIs
8%
FIIs
8%
Source: BSE
Key financials
123,979
149,688
173,068
50
28,134
33,580
35,796
44,883
20
25
19
25
8,816
9,539
6,986
5,622
(15)
(27)
(20)
EPS(INR/share)
2.8
2.9
2.1
1.7
(28)
(27)
(20)
PE (x)
24.7
24.3
33.2
41.2
PB (x)
1.6
2.0
1.9
1.8
EV/EBITDA (x)
9.6
8.8
9.9
7.8
RoE (%)
Source: Company, Antique
IDEA
Oct-10
101,313
Apr-10
80
Oct-09
PAT (INRm)
2012e
Apr-09
2011e
Oct-08
EBITDA (INRm)
2010
Apr-08
2009
Oct-07
110
NIFTY
Source: Bloomberg
Sanjay Chawla
+91 22 4031 3409
sanjay.chawla@antiquelimited.com
Idea Cellular
Investment rationale
Potential to outperform
Idea's operating and financial metrics are significantly lower than those of 'senior'
GSM operators like Bharti and Vodafone-Essar. Prima-facie, this indicates potential
for superior revenue and EBITDA growth relative to the industry and closest peers.
Idea has steadily gained revenue market share over the last few years, thanks to
expansion in geographic footprint, increased capex spend in established circles, and
strong brand/execution. The company should continue to deliver superior revenue
growth in our view, thanks to base-effect (lower market share of net-adds and MOU
per sub versus peers).
More importantly, Idea's wireless EBITDA margin (~21% in 2QFY11) is significantly
below that of market leader Bharti (~37%). We expect this gap to narrow over the
medium-to-long term, driving Idea's out-performance at the EBITDA level versus its
larger rivals. At present, Idea's margins are weighed down by start-up losses in the
nine new circles, poor margins in the Karnataka circle (acquired from Spice), as well
as lower network utilisation and revenue scale in the older circles.
Subscribers forecast (m)
120
101
100
84
80
64
60
39
40
20
FY09
FY10
FY11e
FY12e
0.70
0.63
250
0.60
264
200
0.53
0.39
206
150
0.42
167
0.50
0.40
154
100
0.30
0.20
50
0.10
FY09
FY10
ARPU(LHS)
FY11e
FY12e
ARPM (RHS)
62
Idea Cellular
3.6
120
4.0
2.7
3.5
127
3.0
100
80
2.1
2.0
76
60
40
2.5
2.3
123
58
1.5
1.0
20
0.5
-
FY09
FY10
Net Debt (INRbn) - LHS
FY11e
FY12e
We upgrade our
recommendation to BUY on
current levels with a target
price of INR85
With prospects of >20% EBITDA CAGR over the next 2-3 years, we believe Idea's
forward EV/EBITDA valuation is likely to sustain at around 7.5x, implying a share
price of INR85 by Dec-11 (>20% absolute upside potential). We upgrade our
recommendation to BUY on current levels.
Key downside risks are: Irrational competition post introduction of MNP, levy of onetime fee for additional spectrum held by incumbents.
63
Idea Cellular
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
Revenues
67,200
101,313
123,979
149,688
173,068
PBT
Expenses
44,682
73,179
90,399
113,893
128,185
EBITDA
22,518
28,134
33,580
35,796
44,883
Interest expense
3,743
6,960
5,215
5,538
9,544
8,768
14,028
20,149
22,924
29,228
2,221
(4,133)
(7,504)
12,710
5,030
13,750
14,106
13,430
12,872
15,654
(431)
(1,463)
(2,347)
(348)
(489)
2,602
4,714
2,677
5,538
9,544
Other
499
(1,566)
369
348
489
11,148
9,391
10,754
7,334
6,111
22,642
25,421
48,159
49,424
Capital expenditure
(41,474) (101,500)
(35,000)
Tax paid
2008
2009
2010
2011e
10,423
8,816
9,539
6,986
2012e
5,622
8,768
14,028
20,149
22,924
29,228
725
576
1,214
348
489
(55,576)
(62,053)
10,423
8,816
9,539
6,986
5,622
Inc/(Dec) in investments
(5,116)
(39,692)
10,036
7,189
4.0
2.8
2.9
2.1
1.7
923
1,511
1,906
2008
2009
2010
2011e
2012e
Share Capital
26,354
31,001
32,998
32,998
32,998
101,652
80,725
87,711
93,333
126,332
9,093
35,446
65,154
78,593
128,593
1,130
2,142
128,593
2,142
2,142
Capital Employed
101,261
257,067
Net Assets
107,163
271,491
Investments
Goodwill
661
89,122
5,560
20,452
11,304
4,115
4,115
61
22,457
61
61
61
276
521
536
500
500
Debtors
1,986
3,618
4,656
5,688
6,577
4,975
30,864
2,900
1,210
6,090
521
1,861
2,979
3,742
4,327
7,742
16,821
25,559
22,231
22,231
53,685
36,630
33,371
39,724
26,203
38,637
38,447
48,974
55,120
819
1,724
2,233
2,847
3,205
Current Liabilities
Provisions
Current Liabilities & Prov
3,188
93,686
23
Inc/(Dec) in debt
22,649
15,974
(15,779)
50,000
Interest/Dividends paid
(4,517)
(7,633)
16
EBITDA
54
25
19
25
PAT
108
(15)
(27)
(20)
EPS
105
(28)
(27)
(20)
2008
2009
2010
2011e
2012e
17.7
24.7
24.3
33.2
41.2
5.2
1.6
2.0
1.9
1.8
12.7
9.6
8.8
9.9
7.8
4.3
2.7
2.4
2.4
2.0
Valuation (x)
Year ended 31st Mar
PE
P/BV
EV/EBITDA
EV/Sales
Financial ratios
101,261
257,066
2012e
3,300
BVPS (INR)
13.5
42.8
34.5
36.6
38.3
CEPS (INR)
7.3
7.4
9.0
9.1
10.6
6,090
2012e
Application of Funds
3,300
1,210
21
58,324
2011e
2,900
2011e
(18,600)
3,300
30,864
22
51,821
2010
1,210
4,975
2010
40,680
3,100
2,900
51
(4,050) (18,450)
2009
4,880
31,021
2009
13,324
2,635
(1,690)
6,430
54
40,361
2008
24,434 (28,121)
18,199
2008
27,022
(9,544)
(9,544)
Revenue
(11,523)
(5,538)
44,462
(13,225)
(8,255)
102,027 (24,010)
2008
2009
2010
2011e
2012e
RoE(%)
29
RoCE(%)
14
Debt/Equity (x)
1.8
0.7
0.7
1.1
1.0
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
EBITDA
34
28
27
24
26
EBIT
20
14
11
PAT
16
64
COMPANY UPDATE
27 December, 2010
Investment rationale
Sustained leadership commanding premium
With sustained dominance in the South regional genre, which seconds
the Hindi GEC genre in terms of viewership, Sun TV Network (Sun) is able
to command premium ad rates in these markets. As a result, Sun TV has
managed to increase its ad rates every year during the month of January.
We expect scale benefits to persist and estimate advertisement revenue
CAGR of 25% over FY10-12e
Growing digitisation and movie portfolio
Suns DTH business is growing with a CAGR of 29% over FY10-12e. This,
coupled with a healthy growth in its movie business with a portfolio of 8-10
movie releases per year, are key positives and triggers for Suns revenue
growth. Going forward, we estimate a total revenue growth of 28% and 20%
in FY11e and FY12e, respectively.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
BUY
BUY
INR524
INR624
19%
Market data
Sector
Media
207
394
30
550/331
113
Bloomberg
SUNTV IN
Reuters
SUTV.BO
Source: Bloomberg
Returns (%)
:
:
:
:
:
1m
3m
6m
12m
Absolute
29
56
Relative
14
35
Source: Bloomberg
Shareholding pattern
FII
9%
DII
4%
Promoters
77%
Others
10%
Source: BSE
Key financials
50
7,368
10,909
14,060
16,940
17,995
23
48
29
20
3,683
5,199
6,709
8,883
9,807
13
41
29
32
10
EPS (INR/share)
9.4
13.2
17.0
22.5
24.9
13
41
29
32
10
P/E (x)
56.1
39.7
30.8
23.3
21.1
P/B (x)
12.1
11.0
8.9
7.1
5.8
EV/EBITDA (x)
27.7
18.6
14.1
11.4
10.3
22
28
29
31
28
RoE (%)
Source: Company, Antique
SUNTV
Nov-10
24,327
Jul-10
22,439
Mar-10
18,640
Nov-09
14,528
Jul-09
100
10,394
Mar-09
2013e
Nov-08
PAT (INRm)
2012e
Jul-08
2011e
Mar-08
EBITDA (INRm)
2010
Nov-07
150
2009
Jul-07
NIFTY
Source: Bloomberg
Rajesh Zawar
+91 22 4031 3450
rajesh.zawar@antiquelimited.com
Varun Gupta
+91 22 4031 3412
varun.gupta@antiquelimited.com
Sun TV Network
Investment rationale
Stronger ad revenues in 3Q and 4Q
Historically, the company has always seen a jump in 3Q and 4Q revenues due to
strong ad momentum from festival season and hike in advertisement rates. After posting
a 32% YoY growth in 1HFY11, we expect a stronger 2HFY11 and estimate 28% and
21% growth in FY11e and FY12e.
Revenue break-up
25,000
15,000
5,000
10,000
Hike in advt
rate by 3 -30%
INRm
4,000
5,000
-
Kiran &
Surya
beco me
pay
channels
3,000
FY12e
1,000
2QFY11
4QFY10
3QFY10
2QFY10
1QFY10
4QFY09
3QFY09
2QFY09
1QFY09
4QFY08
3QFY08
2QFY08
1QFY08
4QFY07
3QFY07
2QFY07
Broadcast fees
Others
1QFY07
Advertising income
Subscription income
FY11e
FY10
FY09
FY08
2,000
1QFY11
20,000
14,000
58
12,000
56
1,600
12
1,400
10
1,200
10,000
54
8,000
52
6,000
50
4,000
1,000
800
600
400
2,000
48
200
46
FY08
EBIT
FY09
FY10
FY11e
FY12e
EBIT Margin
2
0
FY08
FY09
Cost of Revenue
FY10
FY11e
FY12e
Cost as % of sales(RHS)
66
Sun TV Network
Historically, it has traded at one-year forward average P/E of ~30x and at the current
market price, the company is trading at P/E of 23.3x on FY12e EPS and 11.4x on
FY12e EV/EBITDA basis. We reiterate a BUY with a target price of INR624 based on
average of FY12 P/E of 30x and 12x EV/EBITDA.
P/E band
700
30x
27x
21x
24x
18x
600
500
400
300
200
100
Oct-10
Apr-10
Oct-09
Apr-09
Oct-08
Apr-08
Oct-07
Apr-07
Apr-06
Oct-06
EV/EBITDA band
25x
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
Oct-10
Apr-10
Oct-09
Apr-09
Oct-08
Apr-08
Oct-07
Apr-07
Oct-06
Apr-06
22x
19x
16x
13x
67
Sun TV Network
Financials
Profit and loss account (INRm)
2009
2010
2011e
2012e
2013e
Revenues
10,394
14,528
18,640
22,439
24,327
Expenses
3,026
3,620
4,581
5,499
6,333
EBITDA
7,368
10,909
14,060
16,940
17,995
Interest expense
(2,205)
(3,209)
(4,605)
(4,367)
(4,493)
EBIT
5,163
7,700
9,454
12,573
13,501
(138)
(49)
(0)
(0)
(0)
668
350
437
650
1,146
5,693
8,000
9,891
13,223
14,647
(2,293)
(2,991)
(3,264)
(4,364)
(4,834)
Inc/(Dec) in investments
3,400
5,009
6,627
8,860
9,814
3,683
5,199
6,709
8,883
9,807
9.4
13.2
17.0
22.5
24.9
Interest expense
Other income
2009
2010
2011e
2012e
2013e
EBIT
5,163
7,700
9,454
12,573
13,501
(2,205)
(3,209)
(4,605)
(4,367)
(4,493)
(138)
(49)
(0)
(0)
(0)
413
(892)
(561)
(641)
(226)
(2,293)
(2,991)
(3,264)
(4,364)
(4,834)
4,934
6,912
9,656
5,875
7,471
10,680
3,201
3,948
Capital expenditure
(7,085)
(5,825)
(4,161)
(4,050)
(4,050)
(466)
484
361
(6,545)
(4,161)
(4,050)
(4,050)
Tax paid
Others
62
1,066
(306)
(752)
(0)
(0)
(0)
(1,844)
(1,153)
(2,757)
(2,347)
(3,107)
(838)
(2,757)
(2,347)
(3,108)
(3,209)
Inc/(Dec) in debt
Dividends paid
2009
2010
2011e
2012e
2013e
1,970
1,970
1,970
1,970
1,970
15,046
16,885
21,247
27,022
33,399
Networth
17,016
18,856
23,218
28,993
35,369
716
18,378
20,445
24,733
30,494
36,885
14,914
18,881
24,931
28,981
33,031
Accumulated Depreciation
(6,768)
(9,904)
(14,509)
(18,875)
(23,369)
Net Assets
8,146
8,978
10,423
10,106
9,663
1,572
3,149
1,259
1,259
1,259
Investments
1,805
2,280
2,280
2,280
2,280
27
35
42
45
Debtors
2,412
3,292
4,224
5,084
5,512
3,654
4,367
8,129
14,325
21,257
3,335
3,179
3,179
3,179
3,179
1,720
1,839
2,218
2,444
2,650
Share Capital
Debt
Capital Employed
468
2,768
2,357
3,118
3,441
7,214
6,258
10,990
17,067
23,902
72
88
3,762
(3,196)
Opening balance
3,581
4,272
4,367
8,129
14,325
Closing balance
3,654
4,367
8,129
14,325
21,257
2009
2010
2011e
2012e
2013e
19.5
39.8
28.3
20.4
8.4
EBITDA
23
48
29
20
PAT
13
41
29
32
10
EPS
13
41
29
32
10
Valuation (x)
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
PE
56.1
39.7
30.8
23.3
21.1
P/BV
12.1
11.0
8.9
7.1
5.8
EV/EBITDA
27.7
18.6
14.1
11.4
10.3
EV/Sales
19.6
13.9
10.7
8.6
7.6
0.5
1.4
1.0
1.3
1.4
39.5
26.3
21.0
15.3
13.7
339
339
339
339
Financial ratios
386
371
298
283
298
18,378
20,445
24,733
30,494
36,885
Application of Funds
2009
2010
2011e
2012e
2013e
394
394
394
394
394
BVPS (INR)
43.2
47.8
58.9
73.6
89.8
CEPS (INR)
14.9
21.3
28.7
33.6
36.3
2.5
7.5
5.1
6.8
7.5
2013e
DPS (INR)
2009
2010
2011e
2012e
2013e
RoE (%)
22
28
29
31
28
RoCE (%)
28
38
38
41
37
Debt/Equity (x)
0.0
0.0
0.0
0.0
0.0
EBIT/Interest (x)
37.4
155.9 56,276.2
74,839.4
80,364.7
Margins (%)
Year ended 31st Mar
2009
2010
2011e
2012e
EBITDA
70.9
75.1
75.4
75.5
74.0
EBIT
49.7
53.0
50.7
56.0
55.5
PAT
35.4
35.8
36.0
39.6
40.3
68
COMPANY UPDATE
27 December, 2010
Investment rationale
Strong focus on branch expansion and CASA to help maintain margins
Managements focus on branch expansion and investment in technology has
yielding results with the bank gaining market share in CASA deposits. Savings
deposits have averaged 20% over the last five years which should help Union
Bank (UBI) maintain its margins at current levels in a rising interest scenario.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
Market data
Sector
Banks
164
505
202
427/237
442
Bloomberg
UNBK IN
Reuters
UNBK.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(10)
(16)
21
Relative
(12)
(16)
(8)
Source: Bloomberg
Shareholding pattern
2009
2010
2011e
2012e
38,136
41,924
55,332
64,219
2.3
33.6
9.9
32.0
16.1
13,871
17,265
20,749
21,082
26,559
64.1
24.5
20.2
1.6
26.0
EPS (Rs)
27.5
34.2
41.1
41.7
52.6
BPVS (Rs)
111
140
174
209
254
11.8
9.5
7.9
7.8
6.2
PAT
P/E (x)
P/B (x)
2.9
2.3
1.9
1.6
1.3
ROE (%)
0.3
0.3
0.3
0.2
0.2
250
200
150
100
50
0
Union Bank
Oct-10
2008
28,537
Jan-09
Apr-09
Jul-09
NII
Source: BSE
Oct-08
Key financials
Others
14%
Jan-08
Apr-08
Jul-08
We value the bank using a single state Gordon growth model arriving at a
target price of INR407/share based on 1.6x FY12e P/BV and 6.2x FY12e
PE offering 25% upside from current levels and reiterate a BUY.
DII
12%
Promoters
55%
Oct-07
FII
19%
Apr-10
Jul-10
Oct-09
Jan-10
BUY
BUY
INR325
INR407
25%
NIFTY
Source: Bloomberg
Alok Kapadia
+91 22 4031 3442
alok.kapadia@antiquelimited.com
Investment rationale
Strong focus on branch expansion and CASA to help maintain margins
A strong focus to grow its branch network and invest in technology has placed UBI
among few PSU banks, which have been gaining market share in CASA deposits.
Banks average CASA deposits have increased from ~27-28% to 32%. Although CASA
ratio at 32% is still lower than industry standards, a faster growth and market share
gains definitely augurs well for sustainability of margins in a higher interest rate
environment. We forecast calculated margins for UBI to be at 2.6% for both FY11e
and FY12e (an improvement of 25bps over FY10) resulting in strong NII growth.
Growth in saving deposits (YoY)
(%)
Q1FY10
Q2FY10
Q3FY10
Q4FY10
1QFY11
Q2FY11
BoB
18.05
21.75
23.39
24.03
27.07
26.77
BoI
13.43
17.79
23.07
25.89
28.50
29.50
3.39
13.99
14.83
19.29
28.28
22.64
Canara Bank
2008
2009
2010
BOB
BOI
CBK
11
PNB
15
SBI
12
10
UNBK
10
PNB
15.11
22.66
25.37
24.72
26.37
25.12
SBI
23.99
30.75
32.15
29.75
33.85
31.71
UBI
14.59
23.00
26.92
32.17
35.10
29.13
2006
2007
2008
2009
2010
BoB
6.66
6.57
6.64
6.56
6.56
6.43
BoI
6.18
6.16
6.15
6.13
5.90
5.89
Canara Bank
6.94
6.92
6.82
6.47
6.45
6.11
PNB
10.33
10.14
10.11
9.86
9.67
9.57
SBI
27.73
27.26
27.16
28.29
30.60
31.53
UBI
4.44
4.35
4.37
4.47
4.41
4.62
0.8%
0.4%
0.64%
0.57%
0.6%
2.8
1.4
2.6
1.2
0.85%
0.65%
0.60%
1.0
2.4
0.8
2.2
0.33%
0.6
2.0
0.4
0.2%
0.2
1.8
0.0%
2006
2007
2008
2009
2010
FY11e
FY12e
1Q
2Q
FY10 FY10
3Q
FY10
4Q
1Q
FY10 FY11
GNPA %
2Q FY11e FY12e
FY11
NNPA %
70
48%
46%
1.8%
44%
1.6%
42%
1.4%
40%
1.2%
38%
2012E
2011E
2010
2009
2008
2007
2006
2005
Opex to assets
Cost/Income Ratio( RHS)
Source: Company, Antique
28
1.2
26
24
1.1
22
1.0
0.9
ROA (RHS)
FY12e
Best Case
20
PAT (INRm)
26,559
18
Growth (%)
26.0
26.3
16
EPS
53
45
59
Growth (%)
26.0
26.3
23.3
BPS (INR)
254
242
266
224
203
241
2012e
2011e
2010
2009
2008
2007
2006
2005
0.8
Scenario analysis
ROE (LHS)
Relative performance
150
125
100
22,960
29,600
23.3
RoA (%)
1.07
0.93
1.19
RoE (%)
22.7
20.4
24.3
Target Multiple
1.6
1.3
1.8
407
314
479
GNPA (%)
2.4
3.0
2.0
0.8
NNPA (%)
0.9
1.1
0.6
0.8
0.5
1.6
2.0
1.5
75
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
50
UNBK
Sensex
Bankex
Union Bank of India has underperformed the broader bankex by 12% on concerns
related to asset quality and higher pension expenses. However, current valuations at
1.3 FY12E P/BV (25-30% discount to the BoB and PNB) more than adequately price
these risks.
We value the bank using a single state Gordon growth model arriving at a target
price of INR407/share based on 1.6 FY12e P/BV and 6.2 FY12e P/E offering 25%
upside from current levels. Key risk for the bank is higher than expected slippages in
asset quality.
We reiterate a BUY at current levels.
71
Financials
Profit and Loss Account (INRm)
2008
2009
2010
2011e
2012e
28,537
38,136
41,924
55,332
64,219
2008
2009
2010
2011e
34
10
32
2012e
Other income
13,196
14,826
19,747
18,298
20,950
net revenue
16
20
27
16
19
16
Trading profits
3,765
3,307
5,721
2,000
2,000
PAT
64
24
20
26
Non-trading income
9,432
11,518
14,026
16,298
18,950
Total assets
21
30
21
16
18
Net revenue
41,733
52,961
61,672
73,631
85,169
Advances
19
30
24
18
20
Operating expenses
15,930
22,141
25,078
33,696
39,494
Deposits
22
34
23
17
19
CASA AS % DEPOSIT
35
30
32
33
33
2008
2009
2010
2011e
2012e
11.8
9.5
7.9
7.8
6.2
P/BV
2.9
2.3
1.9
1.6
1.3
P/ABV
3.0
2.4
2.1
1.8
1.5
2008
2009
2010
2011e
2012e
38.2
41.8
40.7
45.8
46.4
0.7
0.7
0.6
0.6
0.6
2012e
Provisions
PBT
Provision for tax
PAT
7,162
7,375
8,264
11,055
9,292
18,641
23,445
28,329
28,880
36,383
4,770
6,180
7,580
7,798
9,823
13,871
17,265
20,749
21,082
26,559
2008
2009
2010
2011e
2012e
Advances
743,483
Investments
338,226
429,970
544,035
625,373
740,703
100,978
159,850
157,767
175,503
188,571
Fixed assets
Other assets
Total assets
22,004
36,041
1,240,733
23,352
31,242
23,054
33,609
26,513
35,289
30,489
37,054
Share Captal
5,051
5,051
5,051
5,051
5,051
Total Reserves
68,426
82,352
99,187
116,814
139,631
2008
2009
2010
2011e
Networth
73,477
87,404
104,238
121,865
144,682
2.6
2.8
2.4
2.7
2.7
Borrowings
47,605
87,749
92,153
96,761
106,437
1.2
1.2
1.2
1.0
1.1
0.3
0.3
0.3
0.2
0.2
2012e
Deposits
Other liabilities
Total assets
47,574
54,830
57,572
63,329
2008
2009
2010
2011e
2012e
505.1
505.1
505.1
505.1
505.1
27.5
34.2
41.1
41.7
52.6
111.3
139.7
174.4
209.3
254.4
2008
2009
2010
2011e
Gross NPAs
2.2
2.0
2.2
2.7
2.4
Net NPAs
0.2
0.3
0.8
1.1
0.9
Provisioning coverage
92.4
83.1
63.9
58.0
62.0
0.9
0.6
0.6
0.9
0.6
7.5
8.2
7.5
7.2
6.9
72
COMPANY UPDATE
27 December, 2010
Investment rationale
Shriram Transport Finance Company Limited (STFC) is the largest asset
financing NBFC in India, with an AUM of over INR300bn. Over the years, it
has established its presence and reach via a strong network of origination,
disbursement and collection in many pockets of India and also has developed
a strong brand equity in the CV financing.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
Market data
:
:
:
:
:
BUY
BUY
INR778
INR950
18%
Sector
Financials
176
226
132
900/427
371
Bloomberg
SHTF IN
Reuters
SRTR.BO
Source: Bloomberg
Returns (%)
Absolute
Relative
1m
3m
6m
12m
(7)
30
66
(10)
14
44
Source: Bloomberg
Shareholding pattern
FII
10%
DII
10%
Promoters
50%
Others
30%
Source: BSE
Key financials
PAT (INRm)
52.5
10.5
48.8
19.4
3,899
6,124
8,731
12,800
16,500
95.0
57.1
42.6
46.6
28.9
EPS (INR)
20.3
30.1
41.1
56.8
73.2
BPVS (INR)
P/E (x)
89
114
170
212
267
38.4
25.8
18.9
13.7
10.6
P/B (x)
8.7
6.8
4.6
3.7
2.9
RoE (%)
26.9
29.6
28.4
29.7
30.6
STFC
May-10
75.6
0
Dec-09
2012e
30,716
Jul-09
2011e
25,051
Feb-09
2010
22,213
Sep-08
2009
16,821
Apr-08
YoY growth(%)
2008
11,567
Nov-07
NII (INRm)
Jun-07
100
NIFTY
Source: Bloomberg
Sunesh Khanna
+91 22 4031 3437
sunesh.khanna@antiquelimited.com
Alok Kapadia
+91 22 4031 3442
alok.kapadia@antiquelimited.com
Investment rationale
Strong CV cycle; pre-owned vehicles sales benefitting from supply
constrains in new vehicles
Demand momentum for STFC continues to be robust. The company believes that the
sporadic shortage of new vehicles, which is largely due to constraints from ancillary
suppliers, offers strong tailwinds for the company as it results in higher turnover in the
used vehicles segment.
The freight capacity in the system is moving up. This along with gradual hardening of
freights rates (demand aided by pass through of operational costs) and change in
freight carrier movement patterns (to a hub and spoke model) has stoked demand for
pre-owned vehicles. Thus, the demand from rural, semi-urban and urban markets
continues to be on a strong footing.
51
78
84
84
82
49
FY06
22
16
16
18
FY07
FY08
FY09
FY10
Retail
120
110
100
90
80
70
60
50
40
30
20
112
113
99
66
54
49
55
Banks & FI
Q4FY10
Q1FY11
Q2FY11
74
30%
500
26%
400
22%
300
18%
200
14%
100
10%
0
FY09
FY10e
FY11e
AUM
FY12e
FY13e
AUM Grow th
We reiterate a BUY
recommendation with a target
price of INR950/share
The stock is currently trading at 2.9x FY12e BV and 10.6 FY12e EPS - a premium to
other NBFCs, which we believe is justified given the quasi-monopolistic nature of its
business, robust track record of asset quality across business cycles and superior
return ratios. We reiterate a BUY recommendation with a target price of INR950/sh.
At our target price, the stock would trade at 3.5x FY12e BV and 13x FY12e EPS.
Trend in return ratios (%)
33
31
29
27
25
23
21
19
17
15
5
4
4
3
3
2
2
1
1
FY 06
FY 07
FY 08
FY 09
ROE
FY 10
FY 11e
FY 12e
FY 13e
ROA
75
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
Interest income
22,875
32,446
37,544
39,212
49,868
1,658
3,390
6,531
7,470
7,810
2008
2009
2010
2011e
EPS
20.3
30.1
41.1
56.8
2012e
73.2
89.4
113.8
170.0
212.2
266.5
85.8
112.4
164.5
207.0
261.4
Interest expense
12,966
19,777
21,862
32,540
38,837
11,567
16,821
22,213
25,051
30,716
Employee expenses
1,255
2,005
2,601
3,462
Operating expenses
2,344
3,265
5,512
3,760
4,887
2008
2009
2010
2011e
2012e
Provisions
2,467
3,058
4,107
2,477
3,150
Total assets
68.4
35.6
10.0
31.6
28.8
PBT
6,059
9,206
13,246
17,090
20,817
Advances
80.5
18.5
0.1
30.0
25.0
2,160
3,082
4,515
5,469
6,661
Book value
51.6
27.3
49.4
24.8
25.6
PAT
3,899
6,124
8,731
12,800
16,500
EPS
86.6
48.6
36.4
38.2
28.9
2008
2009
2010
2011e
2012e
151,191
179,216
179,461
233,299
291,623
13,851
6,548
7,530
8,660
9,959
1,426
1,343
1,343
1,343
1,343
2008
2009
2010
2011e
2012e
P/E
38.4
25.8
18.9
13.7
10.6
P/BV
8.7
6.8
4.6
3.7
2.9
P/ABV
9.1
6.9
4.7
3.8
3.0
2012e
12,503
53,650
75,110
105,154
147,216
181,444
245,966
270,629
356,061
458,454
2,032
2,035
2,255
2,255
2,255
16,132
21,131
36,092
45,600
57,857
18,164
23,166
38,348
47,856
60,112
115,450
167,727
150,665
271,918
324,268
2008
2009
2010
2011e
7.7
7.9
8.4
8.5
2.8
2.9
3.8
2012e
Unsecured borrowings
32,281
33,467
36,814
38,655
40,587
2008
2009
2010
2011e
Current Liabilities
15,191
21,605
44,802
70,295
111,779
Gross NPA
1.6
2.1
2.2
1.6
1.2
181,444
245,966
270,629
356,061
458,454
Net NPA
0.9
0.8
0.7
0.5
0.4
9.8
11.1
15.1
14.8
14.9
12.7
16.4
21.5
22.6
23.8
Total Liabilities
Source: Company, Antique
76
COMPANY UPDATE
27 December, 2010
2008
2009
2010
2011e
28,449
33,930
37,940
47,418
2012e
54,934
4,694
5,448
8,894
10,693
12,850
16.5
16.1
23.4
22.6
23.4
2,503
2,844
5,371
7,051
8,464
10.0
3.1
3.6
6.3
8.3
PE (x)
52.4
46.1
26.0
19.8
16.5
Core PE (x)
46.5
40.9
23.0
17.5
14.6
EV/EBITDA (x)
30.4
26.2
16.0
13.3
11.1
0.4
0.4
0.6
0.6
0.6
140
850
416
180/102
856
Bloomberg
EXID IN
Reuters
EXID.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
26
47
Relative
(1)
11
27
Source: Bloomberg
Shareholding pattern
FII
15%
DII
17%
Promoters
46%
Others
22%
Source: BSE
Exide
Dec-10
The company currently meets 45% of its lead requirement from its two captive
smelters and plans to increase the contribution to 70% within the next two
years. This would not only reduce its exposure on foreign exchange volatility
(20% of lead is still imported) but also entail significant cost benefits as
captive lead is estimated to be almost 10% cheaper.
Automobiles
Jun-10
Dec-09
Over the last eight years, the Indian domestic automobile industry has grown
at a CAGR of 14%. On an average, every vehicle battery is replaced after
three years. This augurs well for EIL since it has a 68% market share in the
organized battery replacement market (which is approximately 50% of total
replacement market). An inherent advantage that EIL enjoys is that
approximately 3/4th of the vehicles on road already have EIL batteries and
when they come up for replacement clients usually prefer the same brand.
BUY
BUY
INR164
INR198
21%
Sector
Jun-09
:
:
:
:
:
Market data
Dec-08
Exide Industries Limited (EIL) is the undisputed leader for automobile batteries
in India with a market share of 75% in the OEM segment. EIL's almost
monopolistic position in auto batteries clearly makes it the biggest beneficiary
from the uptrend in the Indian auto industry. Its ability to maintain high margins
in a rising commodity scenario (whilst gaining market share) is testimony of
the strength of brand "Exide".
Jun-08
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
Dec-07
Investment rationale
NIFTY
Source: Bloomberg
Ashish Nigam
+91 22 4031 3443
ashish.nigam@antiquelimited.com
Investment rationale
Undisputed leader in the OEM segment
Exide - The most preferred
brand for batteries in the
Indian Auto industry with
market share of 75%
Over the years, Exide Industries Ltd (EIL) has emerged as the most preferred brand for
batteries in the Indian Auto industry. The Automotive segment accounts for around
68% of EIL's total revenues. The company supplies batteries to all segments in the
automobile industry i.e., cars, CVs, UVs, tractors and two-wheelers. Within the OEM
segment passenger vehicles accounts for 50%, two wheelers for 30% and CVs for the
balance 20%. The list of clientele includes all the leading players such as Maruti
Suzuki, Tata Motors, M&M, Hyundai Motors, General Motors, Toyota, Honda, Ashok
Leyland, Hero Honda, Bajaj Auto, John Deere etc. The company is also the sole
supplier to the Nano and thereby supplies batteries to most leading OEM.
Auto OEM segment break-up
Exports
3%
30%
Replacement
57%
20%
OEM
40%
50%
Cars/Uvs
CVs
2 w heelers
EIL is the market leader in the OEM segment with a market share of over 75%, driven
by its strong brand image and product range. It has a range of well established
brands like EXIDE, SF, SONIC and Standard Furukawa that caters to the domestic
clients. In the overseas markets, the products are sold under brand names like DYNEX,
INDEX and SONIC brands. Besides its strong R&D base, EIL has a technical
collaboration with Shin Kobe Denki, Japan and Furukawa Battery Company for
automotive technology. This has enabled EIL to constantly upgrade its product mix
and launch new products which find usage across diverse segments.
Given EIL's dominant market share in the OEM segment and its superior distribution
network in the replacement market, EIL is poised to be the biggest beneficiary of the
uptrend in auto industry volumes. This will also help to sustain its overall revenue
growth as automobile industry accounts for 68% of its total sales.
Over the last seven years, Indian domestic automobile industry has grown at a CAGR of
11% and in the last two years (FY10 and YTDFY11) it has been over 20%. This trend
augurs well for EIL which benefits from the replacement demand for batteries given that
on an average, every vehicle battery is replaced after three years. Hence, in addition to
the growth accruing from new models through OEMs, demand from the fast growing
higher margin replacement market will provide an impetus to the company's profitability.
78
Thousands
12,000
10,000
8,000
6,000
4,000
2,000
0
FY03
Tw o Wheelers
FY04
FY05
FY06
Passenger Vehicles
FY07
FY08
FY09
Commercial Vehicles
FY10
FY11e
Three Wheelers
Within the replacement segment passenger vehicles accounts for 65%, two wheelers
for 20% and CVs for the balance 15%. Penetration of the commercial vehicles and
tractors segments are much smaller in the replacement segment since they are largely
dominated by the unorganised market. However, with the organised players
strengthening their presence in rural markets, the contribution from the unorganised
sector (currently 50% of the battery replacement industry) is gradually reducing.
Auto replacement segment break-up
Exports
3%
20%
15%
Cars/Uvs
CVs
2 w heelers
Replacement
57%
OEM
40%
65%
EIL has a 68% market share in the organized battery replacement market (which is
approximately 50% of total replacement market). An inherent advantage that EIL
enjoys is that approximately 75% of the cars already have EIL batteries and when they
come up for replacement clients usually prefer the same brand. We estimate the
revenue contribution from the same to increase from 36% in FY10 to 39% in FY12e as
the company targets the untapped CV and tractor replacement markets currently
dominated by the unorganised players.
79
10%
9%
9%
8%
8%
21%
24%
26%
25%
22%
22%
36%
35%
36%
38%
39%
40%
26%
25%
26%
28%
28%
27%
FY08
FY09
FY10
FY11e
FY12e
FY13e
Auto OEM
Auto Replacement
Auto Exports
Industrial OEM
Industrial Replacement
Industrial Exports
In addition to the strong brand image that the company enjoys, EIL's success in the
replacement segment is further strengthened by its extensive distribution network
christened "Exide Care". There is scope for further penetration into the tractor and CV
battery market as it still remains largely unorganised.
Besides enabling growth in volumes for EIL, the replacement market also augurs well
for the profitability of the company as the segment enjoys higher margins as compared
to the OEM segment.
With a view to further increase its penetration across India, EIL has further expanded
its marketing and distribution set up by increasing the number of marketing offices to
around 200 as compared to 30 earlier. It has undertaken "Project Kissan", which
largely targets the rural customers by increasing the awareness about brand Exide. It
has also entered into arrangements with IOC, HPCL and other OMCs for distribution
of its products through their retail outlets. This will significantly help EIL to extend its
presence across Tier II and Tier III cities, given that the three major OMCs (i.e., IOC,
HPCL & BPCL) combined have over 38,000 petrol pumps across the country.
Lead is the primary raw material for EIL and it meets a significant proportion of its
lead requirements through imports. Lead accounts for 70-75% of the total cost of a
battery. Of the total lead requirements, 60-65% is pure lead and the balance is lead
alloys. Lead is imported from Australia, China, Europe, etc. and 100% of the lead
procurement is on a spot basis. Domestically, the company procures lead from Hindustan
Zinc Ltd., which too is primarily on a spot basis.
The volatility in lead prices in the global markets coupled with the volatility in foreign
currency has a direct bearing on EIL's operating costs. To reduce its exposure on
foreign exchange volatility, EIL has increased its lead off-take through captive sources
which also provides cost benefits in lead sourcing. EIL has two smelting units with a
total capacity of 36,000 tonnes per annum. It acquired 100% in Tandon Metals
(erstwhile Chloride Metals Ltd), Pune in October 2007. It also acquired 51% stake in
Leadage Alloys, Karnataka in June 2008 and recently hiked it to 100%.
80
35%
15%
35%
35%
35%
42%
45%
50%
28%
50%
70%
37%
23%
Dec 2008
30%
June 2009
20%
March 2010
Imported
15%
Sep 2010
Captive
FY11e
FY13e
Domestic
Methodology
Value (INRm)
152,353
179
Major subsidiaries
7,682
15x NBAP
A+B+C
8,151
10
168,186
198
Source: Antique
1,087
15
16,301
50%
8,151
850
9.6
Source: Antique
81
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
2012e
Revenues
28,449
33,930
37,940
47,418
54,934
EBIT
4,052
4,768
8,088
9,841
11,838
Expenses
23,755
28,483
29,046
36,725
42,084
642
679
807
852
1,012
EBITDA
4,694
5,448
8,894
10,693
12,850
Interest expense
374
479
103
66
50
642
679
807
852
1,012
1,388
(808)
945
915
920
4,052
4,768
8,088
9,841
11,838
374
479
103
66
50
65
65
121
671
752
469
3,743
4,354
8,106
10,916
12,539
1,240
1,510
2,735
3,395
Tax paid
1,208
1,577
2,557
3,291
3,950
1,725
4,200
5,289
6,421
7,929
Capital expenditure
1,670
1,299
1,002
4,000
2,500
Inc/(Dec) in investments
1,403
1,499
6,672
2,137
4,647
65
65
121
671
752
4,075
(2,733)
(7,553)
(5,466)
(6,395)
2,503
2,844
5,371
7,521
8,464
2,503
2,844
5,371
7,051
8,464
3.13
3.55
6.32
8.30
9.96
50
50
251
(326)
(2,272)
(109)
(118)
(604)
4,273
(994)
(995)
301
(930)
2,051
(1,104)
(1,113)
320
(308)
321
421
Opening balance
14
17
337
29
350
Closing balance
17
337
29
350
771
2012e
Inc/(Dec) in debt
Others
CF from financing activities
2008
Share Capital
2009
2010
2011e
2012e
800
800
850
850
850
9,464
11,704
21,348
27,874
35,343
10,264
12,504
22,198
28,724
36,193
3,498
3,172
900
791
673
13,762
15,675
23,098
29,515
36,866
10,975
12,567
13,365
15,865
17,865
5,424
5,887
6,598
7,450
8,462
467
173
378
1,878
2,378
Net Assets
6,018
6,853
7,144
10,293
11,781
Investments
5,183
6,682
13,354
15,490
20,137
5,707
4,385
6,068
7,535
8,729
Debtors
2,592
2,310
2,546
3,118
3,612
2008
2009
2010
2011e
Revenue
21
19
12
25
16
EBITDA
15
16
63
20
20
PAT
27
14
89
40
13
EPS
24
14
78
31
20
Valuation (x)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
PE
52.4
46.1
26.0
19.8
16.5
P/BV
12.8
10.5
6.3
4.9
3.9
EV/EBITDA
30.4
26.2
16.0
13.3
11.1
17
337
29
350
771
448
387
476
523
602
Liabilities
4,671
3,807
4,943
6,066
6,861
Financial ratios
Provisions
1,054
1,059
985
1,035
1,086
3,040
2,552
3,190
4,426
5,768
RoE (%)
479
412
590
694
820
13,762
15,675
23,098
29,515
EV/Sales
5.0
4.2
3.8
3.0
2.6
0.4
0.4
0.6
0.6
0.6
2008
2009
2010
2011e
2012e
24
23
24
25
23
RoCE (%)
31
31
36
38
37
Debt/Equity (x)
0.3
0.3
0.0
0.0
0.0
36,866
EBIT/Interest (x)
10.8
10.0
78.6
149.2
234.5
2008
2009
2010
2011e
2012e
800.0
800.0
850.0
850.0
850.0
BVPS (INR)
12.8
15.6
26.1
33.8
42.6
CEPS (INR)
3.9
4.4
7.3
9.8
11.1
DPS (INR)
0.6
0.6
1.0
1.0
1.0
2012e
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
16.5
16.1
23.4
22.6
23.4
EBIT
14.2
14.1
21.3
20.8
21.5
PAT
8.8
8.4
14.2
14.9
15.4
82
COMPANY UPDATE
27 December, 2010
Investment rationale
Leadership position in DTH industry
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR65
INR91
38%
Market data
Sector
Media
70
1,064
After seeing a stable ARPU over the past few quarters, DTH players with
overall market share of ~28% in C&S may witness a surge of 3-6% in ARPUs
during FY12e. Dish TV, which commands leadership in the DTH market, is
likely to witness an increase of ~6% to reach INR150 by FY12e. Growth in
ARPU alongwith a strong subscriber base and spreading of overheads over a
large base will help expand margins.
Falling subscriber acquisition cost (SAC)
363
77/35
1,673
Bloomberg
DITV IN
Reuters
DSTV.BO
Source: Bloomberg
The company has been able to reduce its SAC consistently over the last few
quarters resulting from increasing subscriber base and rupee appreciation.
We estimate the trend to continue in coming years and thus reduce the capex
requirement per incremental subscriber.
Returns (%)
1m
3m
6m
12m
Absolute
(5)
20
43
58
Relative
(8)
20
26
37
Source: Bloomberg
Shareholding pattern
FII
8%
Others
21%
Source: BSE
19,341
23,622
50
(1,350)
947
2,437
5,129
7,000
na
na
157
111
36
(4,763)
(2,621)
(2,137)
(581)
4,004
na
na
na
na
na
(10.0)
(3.2)
(2.0)
(0.5)
3.8
na
na
na
na
na
PE (x)
(6.5)
(20.5)
(32.5)
(119.5)
17.4
PB (x)
17.8
4.3
4.3
4.3
4.3
EV/EBITDA (x)
(59.4)
77.4
31.8
14.8
10.2
RoE (%)
(137)
(16)
(13)
(4)
24
DTV
Nov-10
14,443
Jul-10
10,848
Mar-10
7,377
Nov-09
Jul-09
100
Mar-09
2013e
Nov-08
2012e
Jul-08
2011e
Mar-08
2010
Jul-07
2009
Nov-07
150
DII
6%
Promoters
65%
NIFTY
Source: Bloomberg
Rajesh Zawar
+91 22 4031 3450
rajesh.zawar@antiquelimited.com
Varun Gupta
+91 22 4031 3412
varun.gupta@antiquelimited.com
Dish TV
Investment rationale
DTVs leadership position to command premium
The overall increase in subscription charges amidst six players' DTH industry is indicating
the receding concerns of fierce competition and leadership capability of DTV which
warrants significant rerating. We have increased our ARPU from INR140 to INR150 for
FY12e and have increased gross addition in subscriber base by 0.5m for both FY11e
and FY12e. This resulted an overall increase in estimates of EBITDA and EPS by
INR1,088m and INR0.70, respectively for FY12e. Below table shows change in estimates.
Change in estimate
INRm
New estimates
FY11e
FY12e
Old estimates
FY11e
FY12e
Revenues
14,443
19,341
14,258
18,238
Expenses
12,007
14,212
12,122
14,197
(1)
2,437
5,129
2,136
4,041
14
27
3,993
5,025
3,771
4,763
(1,556)
104
(1,635)
(722)
na
na
EBITDA
Deprec & amort
EBIT
Taxes incl taxation
PAT
EPS (INR/share)
Chg (%)
FY11e FY12e
6
(2,137)
(581)
(2,138)
(1,329)
na
na
(2.0)
(0.5)
(2.0)
(1.2)
na
na
7,377
10%
0%
FY09
8,000
20%
4,000
FY13e
FY12e
FY11e
FY10
FY09
Programming Cost(LHS)
% of revenue(RHS)
30%
20%
10%
0%
-10%
-20%
-30%
EBITDA(LHS)
FY13e
10,848
12,000
30%
40%
FY12e
14,443
16,000
40%
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
(1,000)
(2,000)
FY11e
20,000
50%
FY10
19,341
60%
FY13e
24,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
FY12e
23,622
FY11e
28,000
FY09
FY10
Margin(RHS)
84
Dish TV
Subscription packs
Rest of India
Packs
Current
rate pm
Earlier
rate pm
South India
Number of channels
& services
Packs
Current
Earlier
rate pm rate pm
Silver
135
160
195
Gold
225
192
270
Gold Saver
270
199
South Platinum
325
Platinum
325
216
150
155
South Silver
125
172
160
South Gold
225
Number of channels
& services
150
158
165
9.9
4,661
5,129
5,832
6,534
10.4
4,858
5,339
6,061
6,783
10.9
5,055
5,550
6,291
7,033
11.4
5,253
5,760
6,521
7,282
Source: Antique
150
158
165
9.9
(0.99)
(0.55)
0.11
0.77
10.4
(0.80)
(0.35)
0.33
1.01
10.9
(0.62)
(0.15)
0.55
1.24
11.4
(0.43)
0.05
0.76
1.48
Source: Antique
Growth in subscriber base and ARPU followed by declining content cost and SAC
lead to a high growth potential for revenue and EBITDA for the company.
At the CMP of INR65, the company is trading at 14.8x EV/EBITDA on FY12e basis.
We have valued the company at 20x EV/EBITDA on FY12e basis. We reiterate our
BUY with an increased target price of INR91, presenting a potential upside of 38%.
85
Dish TV
Financials
Profit and loss account (INRm)
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
Revenues
7,377
10,848
14,443
19,341
23,622
PBT
Expenses
8,727
9,901
12,007
14,212
16,622
EBITDA
(1,350)
947
2,437
5,129
7,000
Interest expense
2,154
3,038
3,993
5,025
2,296
(3,504)
(2,091)
(1,556)
104
4,705
1,264
583
611
686
701
13
53
30
(4,756)
(2,622)
(2,137)
(581)
4,004
Share Capital
Reserves & Surplus
Networth
611
686
701
(883)
999
621
1,201
1,387
(24)
(15)
27
(477)
(30)
2,047
3,058
6,330
8,388
Capital expenditure
(5,102)
(4,870)
(6,813)
(3,759)
(3,400)
14
(3,726)
11
327
30
(10.0)
(3.2)
(2.0)
(0.5)
3.8
(3,400)
2009
2010
2011e
2012e
2013e
687
1,062
1,063
1,063
1,063
2,792
15,282
15,282
15,282
15,282
3,480
16,344
16,346
16,346
16,346
11,678
28,024
13,123
16,977
22,790
26,549
29,949
4,316
6,826
10,819
15,844
18,140
8,806
10,151
11,971
10,705
11,809
2,381
2,251
3,251
3,251
3,251
945
2,506
2,506
2,506
2,506
31
28
28
28
28
Debtors
507
338
1,011
1,354
1,654
540
5,422
3,088
5,473
9,760
7,744
8,045
8,045
8,045
8,045
13,834
12,172
14,900
19,487
15,504
16,798
18,341
20,028
15,843
40
56
56
56
56
15,883
15,560
16,854
18,397
20,084
(7,061)
(1,726)
(4,682)
(3,497)
(598)
9,720
12,342
17,098
17,679
13,675
14,791
25,522
30,143
30,643
30,643
2010
2011e
2012e
2013e
946
1,063
1,063
1,063
1,063
BVPS (INR)
3.7
15.4
15.4
15.4
15.4
CEPS (INR)
(2.8)
0.4
1.7
4.2
5.9
2013e
1,123
Inc/(Dec) in investments
11,678
2,296
810
28,024
Application of Funds
5,025
4,004
11,178
3,993
27,524
Creditors
3,038
(581)
9,178
4,004
2,154
25,522
Inventory
2013e
(581)
(2,137)
11,311
Investments
2012e
(2,137)
(0)
14,791
Others
2011e
(2,621)
Capital Employed
Net Assets
Tax paid
2010
(2,622)
Debt
Accumulated Depreciation
2009
(4,756)
(4,763)
(8,270)
(6,783)
(3,759)
3,077
12,845
Inc/(Dec) in debt
5,899
(646)
2,000
500
Interest expense
(887)
(1,024)
(611)
(686)
(701)
8,089
11,174
1,391
(186)
(701)
341
4,882
(2,335)
2,385
4,287
Opening balance
199
540
5,422
3,088
5,473
Closing balance
540
5,422
3,088
5,473
9,760
2013e
2009
2010
2011e
2012e
Revenue
78
47
33
34
22
EBITDA
na
na
157
111
36
PAT
na
na
na
na
na
EPS
na
na
na
na
na
Valuation (x)
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
PE
(6.5)
(20.5)
(32.5)
(119.5)
17.4
P/BV
17.8
4.3
4.3
4.3
4.3
(59.4)
77.4
31.8
14.8
10.2
10.9
6.8
5.4
3.9
3.0
2009
2010
2011e
2012e
2013e
(137)
(16)
(13)
(4)
24
RoCE (%)
(24)
(8)
(6)
17
Debt/Equity (x)
3.3
0.6
0.7
0.7
0.7
EBIT/Interest (x)
2.8
3.6
2.5
(0.2)
(6.7)
(0.1)
0.3
0.3
0.8
3.7
EV/EBITDA
EV/Sales
Financial ratios
Year ended 31st Mar
RoE (%)
Margins (%)
Year ended 31st Mar
2009
2010
2011e
2012e
EBITDA
(18.3)
8.7
16.9
26.5
29.6
EBIT
(47.5)
(19.3)
(10.8)
0.5
19.9
PAT
17.1
5.4
4.2
3.5
3.0
86
COMPANY UPDATE
27 December, 2010
Investment rationale
Revenue growth to be aided by same store growth and space expansion
According to the management, the growth in revenues would be driven equally
by same store sales and expansion of retailing space. According to our
estimates, the retail space would grow by1.6m square feet during FY11 and
1.8m square feet per annum during FY12 and FY13. We expect sales to
grow by 23% CAGR during FY10-13e.
Reduction in inventory to reduce working capital and aid cash flows
Pantaloon's key focus and the game changer going ahead would be the
management of inventory. The company is focusing on reducing its inventory
requirement by primarily focusing on increasing the inventory turns through
increase in contribution of foods and improvement in inventory turns of fashion.
Increase of Private label in foods to aid profitability
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR360
INR473
31%
Market data
Sector
Retail
75
O/S Shares
201
95
531/308
103
Bloomberg
PF IN
Reuters
PART.BO
Source: Bloomberg
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(12)
(30)
(17)
(6)
Relative
(16)
(29)
(27)
(19)
Shareholding pattern
9,649
12,046
14,891
9.2
8.4
8.7
9.0
45
22
18
25
24
1,417
1,648
2,406
3,533
5,257
12
16
46
47
49
7.4
8.0
11.1
15.1
22.5
(6)
39
37
49
PE (x)
48.4
45.0
32.5
23.8
16.0
PB (x)
3.0
2.6
2.5
2.3
2.0
11.7
9.5
8.1
6.5
5.2
6.2
5.9
7.7
9.7
12.8
EV/EBITDA (x)
RoE (%)
Source: Company, Antique
Pantaloon
Dec-10
8,191
10.5
Jun-10
6,688
Dec-09
2013e
165,088
Jun-09
PAT (INRm)
2012e
138,395
Dec-08
2011e
114,496
Jun-08
2010
89,261
250
200
150
100
50
0
Dec-07
EBITDA
2009
63,421
Jun-07
Revenue
Source: BSE
Dec-06
FIs
19%
Public and
others
12%
Jun-06
Key financials
Promoters
45%
Dec-05
FIIs
24%
NIFTY
Source: Bloomberg
Abhijeet Kundu
+91 22 4031 3430
abhijeet@antiquelimited.com
Investment rationale
Revenue growth to be aided equally by same store growth and space expansion
Pantaloons management is targeting a space addition of 2-2.5m square feet per annum
during the next three years. Further, it targets to grow revenues at 25-30% CAGR during
the next three years. According to the management, the growth in revenues would be
driven equally by same store sales and expansion of retailing space. Therefore the
management has been indicating at a 12-15% growth in retailing space and a 12-15%
same store growth. According to our estimates, the retail space would grow by1.6m
square feet per annum during FY11e, while during FY12e and FY13e retail space
would grow by 1.8m square feet. We expect sales to grow by 23% CAGR during
FY10-13e. We estimate a same store growth of 10% in value retailing while same store
growth in lifestyle retailing and value retailing will be to the tune of 12% and 15%
respectively. During FY11, the company has added about 0.4mn square feet in 1QFY11
and plans to add another 0.3-0.4m square feet of retailing space during 2QFY11. For
the full year FY11, the company plans to add close to 1.8-2.0m square feet.
Reduction in inventory to reduce working capital and aid cash flows
Pantaloon's key focus and the game changer for the company going ahead would be
inventory management. It is focusing on reducing its inventory requirement by focusing
on increasing the inventory turns. The company targets to reduce its inventory
outstanding days by about 30% during the next 2-3 years. This strategy in turn would
lead to lower working capital requirement as inventory forms about 60% of Pantaloon's
current assets. This would be primarily through increase in the contribution from foods
and the increase in inventory turnover or reduction in inventory outstanding days of
fashion. Pantaloon plans to increase the contribution of foods from 33-35% of total
sales to 40-45% of sales in the next 3-4 years. The international standard for food's
contribution to retail sales stands at 60%. However with the expansions happening on
a consistent basis, the company at best would increase it to 40-45%. According to
our estimates, foods has a high inventory turnover of about 8-10x which would in turn
would lead to lower inventory outstanding days. The reduction in inventory foods
would be through higher focus on fresh fruits and vegetables, which structurally have
a higher inventory turnover. Further the company wants to improve the inventory turnover
in fashion. Big retailers like Zara have inventory turnover of about 7-8x.
Increase of Private label in foods to aid profitability
Pantaloon is working towards increasing the private label contribution in foods to 20%
from 7% in the next 3-4yrs. We estimate that the average differential gross margins in
foods between private label and branded is to the tune of about 500-700bps. Therefore
the increase in contribution of foods from 33-35% to 40-45% coupled with the
improvement in profitability of the category aided by higher contribution of private
labels, would lead to higher profitability for the core retail operations.
Home Town gaining traction with changing lifestyle
With the improvement in lifestyle and growing awareness of aesthetics, Home Town
and the overall home solution business is gaining traction and is expected to witness
accelerated sales growth in the coming years. We expect Home solutions to break
even by FY12e with strong growth in sales of home town.
Antique Stock Broking Limited
88
Pantaloon plans to hive off its financial services (FCH) and insurance business and
merge it in to a separate company. This would lead to an increased focus on its retail
business apart from freeing-up funds for the core operations as the insurance business
attracts entails an annual investment of ~INR0.8-1bn. According to the company,
restructuring is expected to happen over a period of 12-18 months. Currently, it is
facing regulatory hurdles for hiving off its insurance business and merging it with FCH
as the former business is governed by IRDA while FCH is an NBFC governed by RBI.
Pantaloon will first hive off its financial services venture and will follow it up by demerging
its insurance venture.
FDI in multi-brand would be an added advantage
The DIPP has floated discussion papers to liberalize FDI policy in retail. While the
process of consulting the retailing companies is over, the government is yet to take a
formal call on the issue. Indian retailers, expect that there is a high probability of FDI
in multi-brand to happen in a phased manner going ahead. In the initial phase, the
FDI could be capped at 24-25% and gradually could be increased over the years.
However, we understand the government is facing strong resistance from the states on
the issue and uncertainty looms large over the sector. In a scenario of allowance of
FDI in multi-brand retail, it would be a bigger positive for Pantaloon as it has been in
talks with the French retailer, Carrefour for a while. On account of uncertainty, Pantaloon
is now planning to enter in to a franchisee agreement with the global retailer.
Core business to post a CAGR of 23% in revenues and 47% in PAT during FY10-13e
Pantaloon's Core retail is expected to grow by 23% CAGR to INR165bn during FY1013e. We expect EBITDA to grow by 22% CAGR during the period, however higher
sales coupled with higher inventory turns and lower working capital requirement would
lead to lower interest outgo and hence higher profit after tax. We expect profit after
tax for the core retail to grow by 47% to INR5.3bn during FY10-13e.
At CMP of INR360, the stock is trading at a PE of 32.5x FY11e and at 23.8x FY12e.
The stock has been consistently de-rated due to the concerns of free cash flow generation
and de-focus on core business, retail. However, with the ongoing re-structuring initiative,
we believe that the company is back in business. We expect the company to be the
biggest beneficiary of the changing demographics and the strong growth expected in
the organised retail sector due to its wide spread retail network and comprehensive
portfolio of formats.
We therefore believe that the stock would trade at a PE of 20x, FY13e earnings,
providing value per share of INR450 for the core retail operations. Further, its stake in
future capital holdings would fetch a value per share of INR23, after factoring in a
holding company discount of 20%. Therefore, we arrive at a target price of INR473
for the company in a time span of 12-18 months.
89
Financials
Profit and loss account (INRm)
2009
2010
2011e
2012e
2013e
2009
2010
2011e
2012e
2013e
Revenues
63,421
89,261
114,496
138,395
165,088
EBIT
5,288
6,068
7,109
9,137
11,602
Expenses
56,733
81,070
104,848
126,349
150,197
1,401
2,123
2,539
2,908
3,289
EBITDA
6,688
8,191
9,649
12,046
14,891
Interest expense
(3,182)
(3,913)
(3,737)
(4,004)
(3,889)
(3,946)
1,900
(4,686)
(821)
896
(754)
(613)
(1,105)
(1,750)
(2,635)
5,565
120
5,471
9,263
Capital expenditure
(5,223)
(7,366)
(3,923)
(4,475)
(4,400)
1,401
2,123
2,539
2,908
3,289
5,288
6,068
7,109
9,137
11,602
3,182
3,913
3,737
4,004
3,889
65
760
139
150
179
2,166
1,515
1,169
1,912
3,219
Inc/(Dec) in investments
(3,675)
(704)
754
613
1,105
1,750
2,635
65
760
139
150
179
(4,221)
Other income
Profit before tax
Taxes incl deferred taxation
Profit after tax
1,417
2,302
2,406
3,533
5,257
1,417
1,648
2,406
3,533
5,257
7.4
8.0
11.1
15.1
22.5
2009
2010
2011e
2012e
2013e
381
412
434
467
467
22,344
27,654
30,647
35,898
40,577
22,724
28,067
31,081
36,365
41,044
28,504
29,152
35,852
35,652
33,552
51,228
57,219
66,933
72,016
74,596
18,765
26,745
30,667
35,142
39,542
Accumulated Depreciation
(3,077)
(3,453)
(6,144)
(9,226)
(12,712)
15,688
23,292
24,523
25,916
26,830
Share Capital
Reserves & Surplus
Networth
Debt
Capital Employed
Net Assets
Capital work in progress
3,452
2,838
2,838
2,838
2,838
Investments
9,540
10,244
10,244
10,244
10,244
17,878
24,032
28,418
31,786
34,274
Debtors
1,773
2,711
2,659
3,209
3,824
1,093
1,648
5,800
9,083
12,207
12,083
10,291
11,128
11,874
12,514
16,114
16,598
20,442
25,081
8,914
205
436
790
1,204
1,767
23,709
22,133
30,616
34,306
35,972
(1,161)
(1,287)
(1,287)
(1,287)
(1,287)
Application of Funds
51,228
57,219
66,933
72,016
74,596
Tax paid
(7,309)
(3,783)
(4,325)
3,609
3,241
915
2,149
Inc/(Dec) in debt
6,586
648
6,700
(200)
(2,100)
(577)
Dividends paid
(135)
(200)
(307)
(399)
Others
(151)
(1,390)
506
587
760
9,909
2,299
7,814
2,138
(1,917)
3,124
(118)
555
4,151
3,283
Opening balance
1211
1093
1648
5800
9083
1,093
1,648
5,800
9,083
12,207
Closing balance
2009
2010
2011e
2012e
2013e
Revenue
26
41
28
21
19
EBITDA
45
22
18
25
24
PAT
12
16
46
47
49
EPS
(6)
39
37
49
2009
2010
2011e
2012e
2013e
48.4
45.0
32.5
23.8
16.0
3.0
2.6
2.5
2.3
2.0
11.7
9.5
8.1
6.5
5.2
EV/Sales
1.2
0.9
0.7
0.6
0.5
0.2
0.3
0.4
0.5
0.7
2009
2010
2011e
2012e
2013e
10
13
10
11
11
13
16
Valuation (x)
Year ended 31st Mar
PE
P/BV
EV/EBITDA
Financial ratios
Year ended 31st Mar
RoE (%)
RoCE (%)
2009
2010
2011e
2012e
190.3
206
217
233
2013e
233
BVPS (INR)
119.4
136.1
143.2
155.8
175.8
CEPS (INR)
14.8
18.3
22.8
27.6
36.6
DPS (INR)
0.7
0.97
1.4
1.7
2.5
2009
2010
2011e
2012e
2013e
10.5
9.2
8.4
8.7
9.0
EBIT
8.3
6.8
6.2
6.6
7.0
PAT
2.2
1.8
2.1
2.6
3.2
Debt/Equity (x)
1.3
1.0
1.2
1.0
0.8
EBIT/Interest (x)
(1.7)
(1.60
(1.9)
(2.3)
(3.0)
Margins (%)
Year ended 31st Mar
EBITDA
90
COMPANY UPDATE
27 December, 2010
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
Sector
Pharmaceuticals
76
58
24
1,350/786
157
Bloomberg
ARBP IN
Reuters
ARBN.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
24
52
44
Relative
24
33
25
Source: Bloomberg
Shareholding pattern
FII
26%
33,777
41,825
50,214
2,717
8,188
10,960
13,705
14.2
9.3
24.2
26.2
27.3
2,332
1,061
5,590
6,481
8,158
32
16
15
16
EPS (INR)
43.4
19.7
100.3
100.3
126.2
32.3
(54.5)
408.4
(0.0)
25.9
P/E (x)
29.9
65.8
12.9
12.9
10.3
2.2
P/BV (x)
7.5
6.7
4.7
2.7
EV/EBITDA (x)
27.6
35.2
11.7
8.7
7.0
RoE (%)
10.8
4.8
21.1
20.9
23.0
Aurobindo Pharma
Apr-10
29,348
3,459
Dec-09
24,301
Aug-09
2012e
Apr-09
2011e
200
160
120
80
40
0
Dec-08
2010
Aug-08
PAT (INRm)
2009
Source: BSE
Apr-08
2008
Others
10%
Dec-07
EBITDA (INRm)
DII
9%
Promoters
55%
BUY
BUY
INR1,298
INR1,641
26%
Market data
:
:
:
:
:
Dec-10
Aug-10
Investment rationale
NIFTY
Source: Bloomberg
Nishant Patel
+91 22 4031 3426
nishant.patel@antiquelimited.com
Aurobindo Pharma
Investment rationale
Pfizer-like deals improve execution capabilities of Aurobindo
Aurobindo has over the years emerged as a preferred supplier to global pharma
majors and has entered into long-term supply contracts with them. It has entered into
a 15-year licensing and supply arrangement with Pfizer for the supply of 40 products
in the orals and injectable segment. As per the agreement, Pfizer will in-license an
array of generic pills and injectable medicines from Aurobindo, as it looks at offpatent medicines for the growth. We estimate that the deal with Pfizer can boost
revenue by USD200m by FY14e. The current agreements are targeted towards US
and European markets and will continue to explore ways to further extend this
partnership.
The company has commissioned its formulation facility Unit VII in Hyderabad SEZ. It
has invested INR2.2bn for setting up a large manufacturing unit to cater to growing
demand for generic drugs from supply contracts and exports market. The facility would
cater to high value non-betallactum products for regulated markets and will further
enhance Aurobindo's capabilities in providing comprehensive pharma manufacturing,
distribution, services and solutions to its customers including global alliances. This
facility has an annual capacity to manufacture 6bn tablets (which can be increased
up to 18bn tablets with minimum incremental capex). We expect the capacity utilisation
to increase to 45-50% by the end of FY11e from the current levels of 30% (in three
months of operations). Increased product ramp-up from the Pfizer and AstraZeneca
deal will further lead the utilisation levels to increase by FY12e.
92
Aurobindo Pharma
Utilisation of its own APIs for its formulations has been the biggest advantage for
Aurobindo. Approximately 95% of its key intermediates and APIs are sourced captively.
This has helped Aurobindo broaden its product offerings from antibiotics & ARVs to
lifestyle related segments such as CVS, CNS and GI. We expect the company to shift
its focus from SPPs to high margin cephs. On the formulations front, it caters to the
high margin niche segments of oral contraceptives, controlled-release products, sterile
injectable and other lifestyle ailments. In the US, Aurobindo has 148 DMF filings - the
highest among Indian company - and has filed a total of 1,667 DMF filings globally.
We believe Aurobindo has a sustainable competitive advantage because of its
backward integration and large product filing.
With rising contribution to the revenues from regulated markets, venturing into newer
business areas to improve capacity utilisation levels and focus on niche-APIs in the
domestic and international markets, we expect Aurobindo to generate strong operating
cash flow in the coming years. The company has incurred INR6bn in capex over the
past two years and we expect an additional capex of INR3bn over FY11-12. Healthy
operational cash flows should help the company improve its leverage from the present
1.0x to 0.3x in FY12e.
The ramp-up in the regulated markets on the back of supply tie-ups across geographies
enables Aurobindo to have a better product mix with a transition towards selling highend formulations. Additionally all concerns such as leveraged balance sheet, lower
growth, and profitability and return ratios have been effectively addressed. Aurobindo
has incurred all the required capex that can sustain growth and improve blended
utilisation rates from 65% to ~100% in the next few years.
We are of the view that Aurobindos transformation from an API player to formulation
player is almost complete. This would not only have a positive bearing on its growth,
but also improve its earnings quality as well. Hence, we raise our target P/E to 13x
arriving at a target price of INR1,641 and reiterate a BUY at current levels.
93
Aurobindo Pharma
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
Revenues
24,301
29,348
33,777
41,825
50,214
106
1,424
1,977
1,516
1,592
Expenses
20,948
28,055
27,566
32,381
38,102
Interest expense
Operating Profit
3,459
2,717
8,188
10,960
13,705
Dossier Income
Other income
EBIDTA
2009
2010
2011e
2012e
2,917
726
7,523
8,534
10,728
1,004
1,276
1,493
1,906
2,508
621
826
625
664
576
(262)
(94)
(53)
(143)
(107)
(963)
2,268
(1,160)
(1,272)
(3,340)
(2,609)
(1,953)
(3,279)
837
177
1,462
143
107
2,894
9,650
11,104
13,812
1,004
1,276
1,493
1,906
2,508
432
839
678
664
576
2,860
779
7,479
8,534
10,728
531
208
1,914
2,053
2,571
490
22
Interest expense
Taxes incl deferred taxation
Extra ordinary Items
Minority Interest
Profit after tax
2008
PBT
4,296
Depreciation
Profit before tax
Other adjustments
(Inc)/Dec in working capital
Tax paid
459
302
1,531
1,877
2,360
1,252
1,541
1,913
1,631
1,440
Capital expenditure
(2,444)
(4,788)
(4,001)
(2,200)
(2,500)
(940)
453
224
103
143
107
(750)
(4,063)
(3,990)
(5,257)
(4,893)
15
54
32
(1,409)
2,867
(5)
(6,250)
(3,500)
(782)
(1,217)
(925)
(1,090)
(1,129)
1,650
(876)
(1,057)
(4,629)
(1,387)
(562)
816
(1,457)
(Purchase)/Sale of Investments
(3)
(1)
(3)
2,332
1,061
5,590
6,481
8,158
43.4
19.7
100.3
100.3
126.2
Inc/(Dec) in debt
2008
Share capital
Reserves & surplus
Networth
Debt
2012e
269
279
323
323
12,144
18,013
30,318
37,922
11,241
12,413
18,291
30,641
38,245
18,470
23,330
21,546
15,296
11,796
732
769
912
1,087
1,298
32
32
43
43
43
30,475
36,543
40,792
47,067
51,382
17,180
19,736
24,077
31,978
37,678
4,177
5,749
6,968
8,874
11,382
13,003
13,988
17,109
23,103
26,296
2,146
5,363
5,701
3,200
2,500
604
Accumulated depreciation
Net assets
2011e
269
Minority Interest
Gross fixed assets
2010
10,972
2009
7,950
8,776
11,025
12,601
14,550
Debtors
6,650
8,898
9,560
11,459
13,482
2,826
1,277
728
1,544
87
3,165
3,939
3,746
3,759
3,759
(1,348)
2008
2009
2010
2011e
2012e
Revenue
15.9
20.8
15.1
23.8
20.1
EBITDA
14.2
9.3
24.2
26.2
27.3
PAT
32.4
1.9
16.5
15.5
16.2
EPS
32.3
(54.5)
408.4
(0.0)
25.9
2008
2009
2010
2011e
2012e
29.9
65.8
12.9
12.9
10.3
7.5
6.7
4.7
2.7
2.2
27.6
35.2
11.7
8.7
7.0
3.9
3.3
2.8
2.3
1.9
2012e
Valuation (x)
Year ended 31st Mar
PE
P/BV
EV/EBITDA
EV/Sales
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
RoE (%)
10.8
4.8
21.1
20.9
23.0
RoNW (%)
28.3
10.7
43.2
28.2
23.7
5,546
5,435
6,728
8,250
8,942
Debt/Equity (x)
1.6
1.9
1.2
0.5
0.3
323
266
352
352
352
EBIT/Interest (x)
5.7
1.7
9.9
13.6
19.4
14,722
17,189
17,980
20,761
22,583
Application of funds
30,475
36,543
40,792
47,067
51,382
2008
2009
2010
2011e
2012e
54
54
56
65
65
BVPS (INR)
209.1
230.9
328.3
474.2
591.8
CEPS (INR)
79.8
53.8
173.1
171.8
213.7
2012e
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBIDTA
14.2
9.3
24.2
26.2
27.3
EBIT
10.1
4.7
18.7
20.9
21.6
PAT
9.6
1.9
16.5
15.5
16.2
94
COMPANY UPDATE
27 December, 2010
Investment rationale
Natural Gas availability - The future does not look so bright
Gas demand in India is projected to grow to 305mmcmd by FY14e. However,
MoP&G's projections puts expected gas supply in most optimistic scenario at
201mmcmd by FY16e leaving a huge shortfall, further accentuated by delay
in ramp up of KG-D6 output. Petronet LNG Limited (PLL) stands to benefit from
this natural gas deficit which can be met through increased LNG import
volumes only.
PLL re-gasification capacity expansion coming at the right time
Increase in Dahej re-gasification capacity to 11.5mmtpa in FY10 and further
to 14.5mmtpa along with 2.5-5mmtpa Kochi terminal would increase PLL's
re-gasification capacity to ~20mmtpa by end of FY13E implying a CAGR of
20% over FY10-13e. Kochi expansion plans have also been brought forward
to FY13e from FY14-15e which indicates the potential of LNG demand growth
that PLL is foreseeing.
Concerns of PLL re-gasification charges being too high, are overstated
We believe concerns over PLL charging higher re-gas tariff, are not justified.
Our economic model of setting up a green field 5mmtpa LNG terminal needs
atleast INR55/mmbtu of re-gasification tariff to earn a post tax ROCE of 12%
(~regulated return). Though earning just regulated returns may not justify the
substantial risk in sourcing LNG and managing sales contract. PLL's much
lower Dahej re-gasification charges of INR32/mmbtu, reduces concerns on
the same.
94
750
261
131/69
1,978
Bloomberg
PLNG IN
Reuters
PLNG.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
8.6
14.7
62.3
75.0
Relative
5.3
14.5
43.4
51.3
Source: Bloomberg
Shareholding pattern
FII
10%
DII
10%
Others
30%
Source: BSE
106,029
135,008
181,911
9,013
8,003
10,784
13,926
6.3
(3.4)
22.1
25.7
5,184
4,045
5,135
7,197
9.2
(22.0)
26.9
40.2
EPS (INR/share)
6.9
5.4
6.8
9.6
9.2
(22.0)
26.9
40.2
PE (x)
18.2
23.4
18.4
13.1
PB (x)
4.8
4.2
3.7
3.1
EV/EBITDA (x)
12.7
13.5
11.4
9.6
RoE (%)
28.8
19.2
21.3
25.4
100
50
Petronet LNG
Source: Bloomberg
Nov-10
84,287
Sep-10
FY12e
Jul-10
FY11e
May-10
FY10
Mar-10
FY09
Jan-10
PAT (INR m)
Nov-09
Sector
Sep-09
EBITDA (INR m)
BUY
BUY
INR126
INR143
14%
Market data
Jul-09
:
:
:
:
:
Promoters
50%
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
NIFTY
Amit Rustagi
+91 22 4031 3434
amit.rustagi@antiquelimited.com
Ruchi Dugar
ruchi.dugar@antiquelimited.com
Miten Vora
miten.vora@antiquelimited.com
Investment rationale
Gas demand in India - strong demand from priority sector
There is a huge gap between demand and supply of gas in India, which has necessitated
the need for new sources of gas. Power and fertilizers are the largest consumers of
natural gas in India, together comprising around 65% of domestic demand.
Demand for natural gas by various priority sectors identified by the EGoM is expected
to grow to 266mmcmd by FY14e from present supplies of 136mmcmd. This results in
18% CAGR growth in demand growth from priority sector over FY10-14e
Sector-wise current supply and demand estimates by MoP&G (mmcmd)
Sector
Present supply
Future estimates
FY10
FY11e
FY12e
FY13e
FY14e
Power Sector
74
82
91
91
91
Fertilizers
46
47
50
64
68
Refineries
27
40
51
54
Petrochemicals
12
Sponge Iron
11
16
23
CGD
11
17
23
29
152
188
221
257
282
10
11
12
13
15
168
206
240
278
305
As opposed to the rising demand conditions, natural gas production is not expected
to rise by much over the next 5-6 years, according to estimates by the petroleum
ministry. Total availability of domestic gas during FY11e has been pegged at
143mmcmd and will go up only to 187mmcmd by FY16e, an increase of just
44mmcmd. Even the most optimistic estimates assume the availability of natural gas
at 202mmcmd by FY16e, an increase of 59mmcmd.
MoP&G estimates for natural gas availability (mmcmd)
FY11e
FY12e
FY13e
FY14e
FY15e
FY16e
2.0
1.8
2.4
2.1
2.0
1.7
14.3
11.6
9.6
8.2
7.3
6.9
2.1
1.8
1.4
1.2
1.2
1.2
59.6
60.3
91.0
95.0
98.7
106.7
0.1
0.4
3.4
5.8
7.4
8.6
58.9
68.7
73.1
67.6
61.3
55.8
7.5
13.2
15.2
ONGC (Nominated)
Additional Indicated (G)
OIL (Nominated) (H)
5.8
5.8
5.8
5.8
5.8
5.8
Total (Firm)
(A+B+C+D+E+F+P)
142.8
150.5
186.6
185.6
183.7
186.5
Total (Optimistic)
(A+B+C+D+E+F+G+H)
142.8
150.5
186.6
193.2
196.9
201.7
96
15
Dahej re-gasification capacity has been increased from 6.5mmtpa to 10mmtpa (effective
1.5mmtpa) in FY10. PLL is also commissioning a new 2.5mmtpa Kochi terminal which
s expected to be completed in 4QFY12e. Kochi terminal would be further expanded
to 5mmtpa back to back in FY13e, with minimal capex of INR3bn. PLL is also planning
to set up another jetty at Dahej with a capex of INR9.5bn, which would increase the
capacity of Dahej terminal by another 3-4mmtpa and is expected to be commissioned
by mid FY13e. Thus, PLL's re-gasification capacity is slated to rise from 11.5mmtpa
currently to ~20mmtpa by FY13e, implying a CAGR of 20% over FY10-13e. Another
point to note is that the Kochi expansion plan for another 2.5mmtpa capacity addition
was earlier planned for FY14-15e which has now been brought forward to FY13e.
This clearly indicates the potential of LNG demand growth that PLL is foreseeing and
is in a favourable position to capitalise on the same, in our view.
12.3
10.5
10
PLL capex
7.9
6.0
FY13E
FY12E
FY11E
FY10
FY09
FY08
Capex (INRbn)
Under construction
10
Invited tenders
23
Sub - total
71
20
10
11.5 11.5
Kochi
FY15E
FY14E
FY13E
FY12E
FY11E
Dahej
35
35
Sub - total
Total
73
144
Cost (USDm)
USD/t
Greenfield 5mtpa
424
85
Expansion 5mtpa
320
64
Total
744
74
Greenfield 2.5mtpa
778
311
Expansion 2.5mtpa
67
27
861
172
Dahej
FY10
6.5
FY09
14.0
10.0
Comments
35
Investments
15
INRbn
Kochi
Total
Source: Company, Antique
97
40
45
50
55
60
44,000
44,000
44,000
44,000
44,000
11.1
13.6
15.9
18.1
20.1
7.4
9.1
10.7
12.1
13.5
60
70
80
90
100
Year
Utilisation (%)
Internal F&L (INR/MMbtu)
1.5
2.0
Source: Antique
For the new 2.5mmtpa Kochi terminal, we have assumed gross re-gasification margin
of INR55/mmbtu in FY13 based on management guided post tax equity IRR of 1516%. This is however 15-30% lower than the management guided INR80-82/mmbtu
for the initial 1.5mmt of LNG sales from Kochi terminal and INR64-65/mmbtu as
sales increase to 2.5mmt. Moreover management was confident of securing regasification margins at INR64-65 even for additional 2.5mmt of sales after Kochi
terminal capacity is expanded to 5mmtpa. The lower re-gas charges as compared to
new project economics would help PLNG to keep competition away.
98
We reiterate a BUY with a price target of INR143/ share, providing an upside of 14%
from current market prices. We are currently not assigning any value to the company's
port and power project, given the limited visibility around the financial returns from
the same.
DCF valuation
(INRm)
FY11e
45,698
Terminal value
PV of Terminal value
Total value
Net Debt (FY11e end)
Equity Value
231,415
90,613
136,310
28,954
107,357
No of shares (INRm)
750
Target Price
143
CMP
126
14
Source: Antique
DCF assumptions
(%)
Risk Free Rate
Risk Premium
5.5
Beta
Cost of Equity
Cost of Debt
Post tax cost of debt
1
13.5
9.0
5.9
50.0
WACC
11.0
1.0
Source: Antique
99
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
2012e
Revenues
65,553
84,287
106,029
135,008
181,911
PBT
7,152
7,740
5,995
7,780
10,905
Expenses
56,892
75,274
98,026
124,223
167,984
Depreciation
1,022
1,025
1,609
1,860
1,860
EBITDA
8,661
9,013
8,003
10,784
13,926
Interest
1,171
483
1,455
1,892
1,731
1,022
1,025
1,609
1,860
1,860
1,589
(3,384)
3,026
(768)
323
7,640
7,988
6,394
8,924
12,066
274
(335)
(166)
(747)
(570)
1,024
1,012
1,839
1,892
1,731
Tax paid
(1,693)
(2,656)
(1,640)
(2,319)
(3,349)
536
765
978
747
570
9,513
2,874
10,279
7,697
10,900
7,152
7,740
5,533
7,780
10,905
(263)
(27)
(10,470)
(13,226)
(18,968)
Tax
2,405
2,556
1,950
2,645
3,708
Investments
(2,780)
2,462
(2,339)
1,000
4,747
5,184
3,583
5,135
7,197
Others
(6,194)
(7,161)
452
747
570
4,747
5,184
4,045
5,135
7,197
(18,397)
6.3
6.9
5.4
6.8
9.6
Others
Capex
Changes in Debt
1,944
7,041
2,181
8,344
9,904
(2,039)
(2,196)
(3,275)
(3,579)
(3,841)
(95)
4,845
(1,094)
4,764
6,063
181
2,992
(3,173)
983
(1,435)
2008
2009
2010
2011e
2012e
7,500
7,500
7,500
7,500
7,500
Share Capital
Reserves & Surplus
8,685
12,334
14,849
18,296
23,384
Networth
16,185
19,834
22,349
25,796
30,884
Debt
15,776
22,817
24,998
33,342
43,245
Capital Employed
31,962
42,651
47,347
59,138
74,129
19,718
19,748
35,495
35,495
35,495
Accumulated Depreciation
(4,038)
(5,062)
(6,667)
(8,526)
(10,386)
Net Assets
15,680
14,686
28,829
26,969
25,109
10,614
18,470
13,184
26,409
45,377
5,473
3,043
5,386
4,386
4,386
909
3,856
2,223
2,690
3,647
Debtors
3,330
6,712
5,035
7,398
9,469
3,586
6,578
3,405
4,388
2,953
682
952
1,554
1,592
1,637
4,287
7,365
7,449
9,550
12,945
Investments
3,405
3,586
6,578
3,405
4,388
3,586
6,578
3,405
4,388
2,953
2008
2009
2010
2011e
2012e
Revenue
19
29
26
27
35
EBITDA
34
(11)
35
29
PAT
52
(31)
43
40
EPS
52
(22)
27
40
2008
2009
2010
2011e
2012e
19.9
18.2
23.4
18.4
13.1
5.8
4.8
4.2
3.7
3.1
12.3
12.3
14.5
11.4
9.7
1.6
1.3
1.1
0.9
0.7
2012e
Valuation (x)
Year ended 31st Mar
PE (x)
P/BV (x)
EV/EBITDA (x)
EV/Sales (x)
Dividend Yield (%)
Financial ratios
1,332
1,557
1,557
1,557
1,557
2,887
9,175
3,211
4,962
3,204
2008
2009
2010
2011e
(2,692)
(2,722)
(3,262)
(3,588)
(3,947)
RoE
29
26
16
20
23
RoCE
24
19
14
15
16
31,962
42,651
47,347
59,138
74,129
Debt/Equity (x)
1.0
1.2
1.1
1.3
1.4
EBIT/Interest (x)
Minority interest
Application of Funds
2008
2009
2010
2011e
2012e
750
750
750
750
750
BVPS (INR)
22
26
30
34
41
CEPS (INR)
12
1.5
1.8
1.8
2.0
2.5
2012e
DPS (INR)
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
13
11
EBIT
12
PAT
100
COMPANY UPDATE
27 December, 2010
Investment rationale
Flexible cane price mechanism
Shree Renuka Sugars Limited (SRS) follows a flexible cane price mechanism
where the cane costs are linked to the sugar price, subject to the floor of Fair
and Remunerative Price (FRP), thereby minimising the cyclicality to the profits.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR97
INR119
23%
Market data
Sector
Sugar
66.5
1.5
671.1
303.7
124 / 51
13,476
Bloomberg
SHRS IN
Reuters
SRES.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
13.6
18.7
47.2
(10.7)
Relative
10.1
18.5
30.2
(22.8)
Source: Bloomberg
Shareholding pattern
Others
29%
FII
25%
Promoter
38%
DII
8%
Source: BSE
Key financials
Year ended 30th Sep
125
2009
2010
2011e
2012e
28,160
76,696
81,728
92,918
100
4,656
12,202
17,534
20,420
75
84.5
162.1
43.7
16.5
2,236
6,922
6,411
7,028
66.9
209.6
(7.4)
9.6
3.3
10.3
9.6
10.5
66.9
209.6
(7.4)
9.6
P/E (x)
13.8
9.4
10.1
9.2
4.2
2.8
2.2
1.8
Revenues
EBITDA
EBITDA growth (%)
PAT
PAT growth (%)
EPS (INR)
P/BV (x)
EV/EBITDA (x)
RoE (%)
Source: Company, Antique
8.3
8.3
5.2
4.3
18.9
35.9
24.6
21.9
50
Dec-09 Mar-10 May-10 Aug-10 Nov-10
Renuka
Nifty Rebased
Source: Bloomberg
Nirav Shah
+91 22 4031 3473
nirav.shah@antiquelimited.com
Investment rationale
Background
Shree Renuka Sugars Limited (SRS) is the largest sugar manufacturer in southern India
with an operational capacity of 35,000tcd across seven units in Karnataka and
Maharashtra. It also has a cogen (surplus) and distillery capacity of 135MW and
930KLPD, which minimises the cyclicality to revenues and profits. SRS has followed an
asset light model to scale-up where it has acquired co-operative mills on lease. This
has helped it achieve significant scale in operations at minimal capital costs.
The key advantage SRS enjoys over UP-based companies is the flexible cane price
mechanism where price paid to farmers is linked to sugar prices (subject to the floor
of FRP). This enables it to minimise the cyclicality to profits even during down cycles.
Additionally, SRS has the largest sugar refining capacity in India, with an operational
capacity of 6,000tpd and expandable to 9,000tpd by 2QFY11e post commissioning
of the port-based capacity at Mundra. The business model for the port-based refineries
will be raw sugar imports for re-exports during times of surplus in India and for
domestic sales during deficit times. For FY11e, we expect the refinery to operate on a
re-export model as Indias production will match the demand.
SRS has emerged as the seventh largest sugar manufacturer in Brazil post the acquisition
of RDB (earlier known as Equipav) and VDI in FY10. While it acquired 100% stake in
VDI at an EV of USD240m, 50.34% stake in RDB was acquired at an EV of
~USD1.15bn. It has also refinanced the existing high cost loans with USD denominated
loans, which will help reduce interest burden.
While VDI has a cane crushing capacity of 3.1mmt spread across two units in the
state of Parana, RDB has two units with a capacity of 10.5mmt in Sau Paulo. It also
has a cogen capacity of 203MW, of which ~110MW is saleable to the grid.
With the foray, SRS has gained access to four modern facilities with a total cane
crushing capacity of 13.6mmt. All the units source cane from a mix of leased farms
and third party purchase. While cane costs from third party purchases are linked to
sugar prices, cane costs from leased farms follow a steady increase that is linked to
the lease payments. Another advantage of having a presence in Brazil is that the
industry is de-controlled unlike India where the government intervenes to keep prices
at acceptable levels.
As part of the strategy to improvise its business model and increase profitability, SRS
also plans to increase the area under owned cultivation for sourcing cane and also
increase the flexibility for altering its product mix between sugar and ethanol. Thus,
SRS has strengthened its presence in the two largest sugar producing countries viz.
Brazil and India.
Furthermore, with increasing volumes coupled with improved product flexibility, SRS
can also capitalise on any price arbitrage between sugar and ethanol prices and
benefit from widening of raw-white sugar spreads. This can potentially also lead to a
sharp scale-up in trading operations.
102
Capex
On the domestic operations, the company is setting up a 3,000tpd port-based refinery
at Mundra at a cost of INR3.5bn. Expected to commission by 2QFY11e, the refinery
will operate on a re-export model in FY11e as Indias sugar production will match the
demand of ~23mmt.
At VDI, SRS plans to increase the flexibility for sugar production to 70% at both the
units at a total capex of ~USD85m (Real44m). This should increase the flexibility of
changing the product mix between sugar and ethanol depending on the product
prices. It also has plans to increase the cane crushing capacity at RBI from the present
10.5mmt to 12.5mmt and power capacity from 204MW to 295MW at a total capex
of ~USD129m (Real218m).
Pricing outlook
Sugar price trend
44,000
600
38,000
475
32,000
350
26,000
225
20,000
100
Oct-09 Feb-10 Jun-10 Oct-10
Domestic (INR/mt)
Raw (USD/mt, RHS)
On the domestic scenario, we expect prices to remain stable till March 2011 at
~INR27,000/mt in Karnataka and Maharashtra. Post March 2011, the trend will be
determined by the overall production, which we expect at ~24.5-25mmt. At these
levels of production and factoring for exports of 1.5mmt, the availability will match
the domestic consumption levels.
Globally, production has been impacted by adverse climatic conditions in countries
like Brazil, Russia, Pakistan and Thailand on account of adverse climatic conditions.
Production estimates in India have also been pegged at ~25mmt against the initial
estimates of ~26mmt on account of lower than expected increase in acerage. We
expect prices to stabilise at 25-30cents/lbs against the current price of ~33cents/lbs.
FY09
FY10
FY11e
FY12e
4,623,550
3,365,805
3,909,150
5,046,000
4,644,000
1,097
1,852
2,800
2,200
2,300
Recovery (%)
11.43
10.74
11.16
11.15
11.15
528,472
376,571
436,261
562,629
517,806
13,276
22,052
26,500
25,750
26,250
595,000
1,071,000
1,120,500
1,275,000
3,165,870
7,350,000
9,450,000
1,242,947
2,635,000
2,790,000
103
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
2012e
Revenues
21,053
28,160
76,696
81,728
92,918
EBT
1,608
2,968
8,689
11,184
13,270
Expenses
18,529
23,504
64,494
64,195
72,497
369
675
2,586
3,450
3,950
Operating Profit
2,524
4,656
12,202
17,534
20,420
Interest expense
701
1,077
2,870
3,200
3,500
(15)
(9)
(1,943)
(300)
(300)
Other Adjustments
(27)
131
(2,377)
(3,274)
(12,379)
5,187
(4,624)
Other income
EBIDT
139
64
1,943
300
300
2,663
4,720
14,145
17,834
20,720
369
675
2,586
3,450
3,950
Depreciation
Interest expense
685
1,077
2,870
3,200
3,500
1,608
2,968
8,689
11,184
13,270
427
720
1,530
3,355
3,981
Capital expenditure
2,248
7,159
7,829
9,289
Net Investments
(183)
Minority Interest
Profit after tax
25
237
1,417
2,262
1,339
2,236
6,922
6,411
7,028
2.0
3.3
10.3
9.6
10.5
2008
2009
2010
2011e
2012e
276
317
670
670
670
8,060
14,985
22,623
28,251
34,495
8,336
15,302
23,293
28,920
35,164
533
147
384
1,802
4,063
8,595
13,427
53,848
44,490
40,886
467
821
821
1,380
2,044
17,931
29,698
78,346
76,592
82,157
8,401
15,704
57,725
66,525
884
1,555
4,141
Net Assets
7,516
14,149
5,212
310
Share Capital
Reserves & Surplus
Networth
Minority Interest
Debt
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Accumulated Depreciation
Investments
Inventory
2,252
Debtors
1,603
227
3,581
(1,530)
(2,796)
(3,318)
1,263
(1,707)
19,925
12,478
(5,205)
(4,681)
(42,236)
(7,500)
(5,300)
(149)
(167)
30
1,943
300
300
(4,839) (40,293)
(7,200)
(5,000)
2,184
5,178
1,853
Inc/(Dec) in debt
2,120
4,678
40,421
(9,358)
(3,604)
(3,654)
(755)
(1,132)
(3,984)
(4,284)
3,549
8,724
38,619 (13,342)
(7,888)
(1,667)
5,148
(3,381)
(617)
Opening balance
917
227
4,912
1,531
914
(751)
5,375
1,531
914
504
Closing balance
(409)
2010
2011e
2012e
121.5
33.8
172.4
6.6
13.7
EBITDA
91.3
84.5
162.1
43.7
16.5
73,325
PAT
61.4
66.9
209.6
(7.4)
9.6
7,591
11,541
EPS
61.4
66.9
209.6
(7.4)
9.6
53,584
58,934
61,784
2,585
2,800
1,500
477
477
477
477
2008
2009
2010
2011e
2012e
20.0
13.8
9.4
10.1
9.2
7.8
4.2
2.8
2.2
1.8
4.3
Valuation (x)
Year ended 30th Sep
PE
10,721
18,206
12,054
15,271
1,762
6,074
6,901
7,936
4,912
1,531
914
504
5,236
5,238
6,590
8,352
2,213
9,157
8,577
9,790
11,181
572
1,014
1,014
1,014
1,014
4,877
12,459
21,457
15,653
19,868
16
28
28
28
28
17,931
29,698
78,346
76,592
82,157
2008
2009
2010
2011e
2012e
(305)
107
2008
(152)
Revenue
P/BV
EV/EBITDA
13.2
8.3
8.3
5.2
EV/Sales
1.7
1.4
1.5
1.1
1.0
0.2
1.0
1.0
1.0
1.0
Financial ratios
Year ended 30th Sep
2008
2009
2010
2011e
2012e
RoE (%)
21.0
18.9
35.9
24.6
21.9
RoCE (%)
24.6
19.1
22.6
18.9
21.1
Debt/Equity (x)
1.0
0.9
2.3
1.5
1.2
EBIT/Interest (x)
3.3
3.8
4.0
4.5
4.8
317
670
670
670
30.2
48.3
34.8
43.2
52.5
CEPS (INR)
6.2
9.2
14.2
14.7
16.4
DPS (INR)
0.2
1.0
1.0
1.0
1.0
2012e
Margins (%)
Year ended 30th Sep
2008
2009
2010
2011e
EBITDA
12.0
16.5
15.9
21.5
22.0
EBIT
10.9
14.4
15.1
17.6
18.0
PAT
6.4
7.9
9.0
7.8
7.6
104
COMPANY UPDATE
27 December, 2010
Investment rationale
To demerge port business
The company has embarked on a demerger scheme which envisages the split
into two, i.e., a port and a shipping entity. As per the proposed demerger
scheme, investors will get two shares of Essar Port and one share of Essar
Shipping.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
: BUY
: BUY
: INR105
: INR173
: 65%
Market data
Post demerger, ESPL has aggressive plans to emerge as one of the largest
private port operators in India, with a total port capacity of 158mtpa by FY13e
(current capacity 76mtpa). The company is developing port capacity for liquid
and bulk cargoes at four locations across West and East Coast of India, at
an outlay of INR85.2bn.
Sector
Market Cap (INRbn)
:
:
1.4
616
100
136/64
1,015
Bloomberg
ESRS IN
Reuters
ESRS.BO
(2.1)
(7.2)
4.0
31.8
Shareholding pattern
FII
8%
24,124
118
26
65
37
PAT (INRm)
167
1,240
399
3,692
7,345
(115.3)
644.3
(67.9)
826.4
98.9
0.3
2.0
0.6
6.0
11.9
(110.6)
644.3
(67.9)
826.4
98.9
388.1
52.1
162.2
17.5
8.8
0.8
0.7
0.7
0.7
0.7
15.1
12.7
14.2
9.7
6.6
0.2
1.7
0.5
4.7
8.6
Essar Shipping
Dec-10
17,639
Jun-10
10,690
150
120
90
60
30
0
Sep-10
10,487
Mar-10
56,896
8,345
Source: BSE
Dec-09
2013e
44,226
Others
8%
Jun-09
2012e
32,973
Relative
Sep-09
2011e
29,995
RoE (%)
52.4
Mar-09
2010
25,742
EV/EBITDA (x)
12m
17.8
Dec-08
2009
Revenues (INRm)
P/BV (x)
6m
(7.1)
Sep-08
P/E (x)
3m
1.0
Jun-08
Key financials
1m
Absolute
Mar-08
EPS (INR)
Returns (%)
Promoters
84%
Source: Bloomberg
Source: Bloomberg
EBITDA (INRm)
NIFTY
Source: Bloomberg
Vikram Suryavanshi
+91 22 4031 3428
vikram.suryavanshi@antiquelimited.com
Investment rationale
Restructuring plan to unlock value
ESPL had announced plans to separate its shipping, logistics and oilfields businesses
into a separate entity, i.e., Essar Shipping, while the existing entity will be renamed as
Essar Ports (the approval is expected by Feb 2011). As per the proposed demerger
scheme, investors will get two shares of Essar Port and one share of Essar Shipping.
Company's port operations have a capacity to handle 76mtpa currently, which is
planned to increase to 158mtpa by FY13e. A separate entity for port business will
enable it to follow an independent growth path creating better value for stakeholders.
The port business is also expected to get a re-rating in valuation in terms of higher
earnings multiples compared to pure shipping company as its valuations are aligned
with its global and domestic peers.
ESPL demerger
Post Demerger
Pre Demerger
P D
Promoters
Promoters
Public
Public
83.7%
16.3%
83.7%
83.7%
16.3%
Essar Shipping
Capacity
Mundra
210
Essar
158
Kandla
136
Essar Ports
Essar Port will hold all port and storage assets for liquid and bulk cargo through separate
Special Purpose Vehicles (SPV) dedicated to each terminal. The company has 46mtpa
liquid terminal and 30mtpa bulk terminal operations at Vadinar and Hazira, respectively.
ESPL has outlined aggressive plans to emerge as one of the largest private port operators
in India. The company is developing port capacity for liquid and bulk cargoes at four
locations spread on West and East coast of India at an outlay of INR85.2bn After
completion, liquid cargo handling capacity will increase from 46mtpa to 158mtpa and
dry bulk capacity will reach to 100mtpa in FY13e. The Port business is expected to
become number one in terms of cargo handling with a capacity of ~110mt by FY14e
(assuming 8% CAGR growth in major port cargo handling).
106
ESPLL
P&T
Shipping,
Oilfield
Revenue
30,289
4,130
26,159
EBIDTA
10,490
3,042
7,448
377
(931)
1,308
100,648
45,450
55,198
PAT*
CE
Debt
75,075
32,469
42,606
Net worth
25,573
12,981
12,592
Equity sh
615.8
410.5
205.3
Post-demerger (FY14e)
INRm
SOTP
Essar
Port
Essar
Shipping
Revenue
66,671
25,404
41,267
EBIDTA
30,645
18,768
11,877
PAT
13,550
9,085
4,466
CE
164,003
95,327
68,675
Debt
103,265
63,121
40,144
60,738
32,207
28,531
Net worth
Source: Antique
ELL provides logistics, stevedoring and lighterage services and owns material handling,
lighterage and mobile equipments for efficient jetty operations and a fleet of dedicated
trailers and tankers to cater to the movement of steel and petroleum products. It provides
end-to-end logistics services - from ships to ports, lighterage services, intra-plant logistics
and dispatch of finished products. It also operates a fleet of 5,000 trucks (76 of which
are own) to provide inland transportation of steel and petroleum products.
Financials of demerger
The ongoing capex of USD1.16bn in ports for 109mtpa, USD440m in oil drilling and
acquisition of 12 dry bulk ships on lease basis would augment its asset base substantially
and propel its consolidated revenues and profits by a CAGR of 24.3% and 81% to
INR56.8bn and INR7.34bn, respectively, from FY10 to FY13e. Accordingly, we expect
a significant re-rating in valuations once the financial impact of the above capex
becomes discernible and ESPL capitalises on operating leverage. Please refer the
alongside charts for the details of dermerger.
Post-demerger valuation
Consolidated
Essar Port
93
189
140
173
615
410
205
615
Mcap
57,195.0
77,682
28,778
106,460
Debt
75,075.1
47,522
44,785
92,307
132,270.1
125,204
73,563
198,767
CMP
Equity
EV
SOTP
Source: Antique
107
Financials
Profit and loss account (INRm)
Revenue
25,742
29,995
32,973
44,226
56,896
EBT
Expenses
17,397
19,508
22,283
26,587
32,771
EBIDTA
8,345
10,487
10,690
17,639
24,124
3,778
4,469
4,617
5,819
6,225
EBIT
4,567
6,018
6,073
11,820
17,899
Interest expense
4,348
5,374
6,035
7,344
8,283
2013e
38
4,476
9,616
3,778
4,469
4,617
5,819
6,225
Interest expense
4,348
5,374
6,035
7,344
8,283
418
880
729
799
877
Other Adjustments
38,859
(782)
(1,012)
(1,806)
(60)
(470)
(1,159)
(2,099)
418
880
729
799
877
637
1,524
766
5,275
10,493
471
270
368
1,582
3,148
Capital expenditure
Tax paid
CF from operating activities
167
1,254
399
3,692
7,345
167
1,240
399
3,692
7,345
0.3
2.0
0.6
6.0
11.9
Share Capital
2013e
6,158
6,158
6,158
6,158
6,158
73,114
80,132
80,530
84,223
91,568
Networth
79,272
86,290
86,688
90,381
97,726
689
689
689
95,516 116,111
105,576
Minority
Debt
Capital Employed
329
689
67,389
75,075
146,990
162,054 182,894
85,447
82,088
Accumulated Depreciation
11,220
15,768
Net Assets
Capital work in progress
Goodwill on consolidation
207,181
203,991
130,792 158,418
166,426
20,385
26,204
32,429
74,228
66,320 110,406
132,214
133,996
10,512
31,103
6,635
7,550
586
50,371
50,371
50,371
50,371
50,371
Investments
5,202
4,131
4,131
4,131
4,131
7,724
9,457
10,829
12,993
15,535
Inventory
1,502
1,460
1,490
1,609
1,753
Debtors
5,049
5,192
5,295
5,719
6,234
1,173
2,805
4,044
5,665
7,548
6,633
11,897
12,134
13,103
14,279
7,356
11,003
11,314
12,355
13,032
Creditors
(400)
(391)
(291)
(1,055)
46,210
8,389
11,068
16,913
21,744
(70,383)
(17,232)
(24,235) (28,543)
(1,043)
(5,030)
1,072
186
(312)
(1,043)
2013e
644
Other income
219
5,760
7,490
Inc/(Dec) in debt
25,688
7,686
20,441
20,594
(10,535)
(4,348)
(5,460)
(6,035)
(7,344)
(8,283)
27,101
9,716
14,406
13,250
(18,818)
(1,916)
1,632
1,239
1,621
1,883
Opening balance
3,089
1,173
2,805
4,044
5,665
Closing balance
1,173
2,805
4,044
5,665
7,548
2013e
39.7
16.5
9.9
34.1
28.6
118.4
25.7
1.9
65.0
36.8
PAT
(115.3)
644.3
(67.9)
826.4
98.9
EPS
(110.6)
644.3
(67.9)
826.4
98.9
2013e
EBIDTA
Valuation (x)
Year ended 31st Mar 2009
P/E
P/BV
EV/EBIDTA
EV/Sales
388.1
52.1
162.2
17.5
0.8
0.7
0.7
0.7
8.8
0.7
15.1
12.7
14.2
9.7
6.6
4.9
4.4
4.6
3.9
2.8
2013e
6,643
6,842
7,047
7,681
7,912
Financial ratios
713
4,161
4,267
4,674
5,121
369
(1,546)
(485)
638
2,503
RoE (%)
0.2
1.7
0.5
4.7
8.6
(325)
(222)
(299)
(826)
(1,875)
Roce (%)
7.4
6.8
6.2
9.0
11.7
140,357
150,157
170,760 194,078
189,712
Debt/Equity (x)
1.0
1.1
1.4
1.6
1.3
1.1
1.1
1.0
1.6
2.2
2013e
616
616
616
616
BVPS (INR)
126
138
139
145
616
157
CEPS (INR)
6.4
9.3
8.1
15.4
22.0
2013e
Margins (%)
Year ended 31st Mar 2009
EBIDTA
32.4
35.0
32.4
39.9
42.4
EBIT
(1.3)
(0.6)
2.0
11.3
34.1
0.6
4.1
1.2
8.3
12.9
PAT
Source: Company, Antique
108
COMPANY UPDATE
27 December, 2010
Investment rationale
Comprehensive product profile
HILs product profile in the electricals space spans the entire value chain from
cables and wires to switchgears. Over the years, it has kept adding products
to its portfolio while maintaining strong focus on quality. These factors have
contributed to HIL becoming a One-Stop-Shop for customers, enabling it to
capture a larger chunk of the Indian consumer spend on household electricals.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
INR393
INR495
26%
Market data
Sector
Consumer Electricals
49.7
Its marketing strategy is centered around brand recall. Its ad spends are on
par with multinational peers and designed to showcase individual products.
It has backed this up with a formidable distribution network in Tier 1-2 cities
and is now focusing on increasing its penetration in the rural hinterland.
1.1
124.8
26
Bloomberg
HAVL IN
Reuters
HVEL.BO
HIL had acquired the global operations of Sylvania in Apr07 for Euro227m.
After losses incurred during the slowdown of FY09, HIL restructured Sylvanias
operations and headcount. As a result, the latter is now profitable at the PAT
level and its operations and cash flows are expected to improve going forward.
Robust operational cash flows to boost valuations
44
447/241
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
5.1
(2.2)
26.1
49.5
Relative
0.2
(2.0)
10.4
29.3
Source: Bloomberg
Shareholding pattern
Promoter
61%
DII
3%
2012e
66,136
2,886
3,222
6,256
7,766
5.3
5.9
10.3
11.7
(16.7)
11.7
94.2
24.1
(1,601)
696
3,090
3,993
PAT (INRm)
PAT growth (%)
EPS (INR)
EPS growth (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
RoE (%)
Source: Company, Antique
344.0
29.2
(12.8)
5.6
24.8
32.0
344.0
29.2
70.5
15.9
12.3
8.0
12.3
7.4
4.8
11.3
9.5
8.7
6.5
(24.5)
13.7
58.0
47.4
Havells
Dec-10
2011e
60,472
Aug-10
2010
54,315
Jul-10
EBITDA (INRm)
2009
54,775
450
400
350
300
250
200
150
May-10
Revenues (INRm)
Mar-10
Source: BSE
Jan-10
Key financials
Others
19%
Dec-09
While new product launches and improved penetration into foreign markets
will serve as kickers for earnings, the successful monetisation of its two strong
brands are crucial to improved financial metrics. Given its ability to successfully
negotiate challenging situations, we are confident that HIL will accomplish
the same. We recommend a BUY on the stock with a target price of INR495.
FII
17%
Oct-10
Nifty Rebased
Source: Bloomberg
Amol Rao
+91 22 4031 3435
amol.rao@antiquelimited.com
Investment rationale
Havells India Limited (HIL), incorporated in 1983, is promoted by Mr. Q.R. Gupta
and one of Indias premier electrical equipment companies. With a comprehensive
product profile that encompasses cables and wires, switchgears and electrical durables
like CFLs, fans, water geysers, switches, etc., it is one of the most preferred brands in
these product segments.
The company has an international presence through Sylvania, which it acquired in
Apr07 for a consideration of Euro227m. The primary driver for the same was access
to markets like Europe, L. America and some parts of Asia, where Sylvanias brand
was well established.
HIL: Business Segments
Segment
Products
Consumers
Revenue Drivers
Competitors
Investment in Power
and Real Estate
Switchgears
LV Switchgears and
Modular Switches
Retail Consumers
and Industry
Real Estate
Retail
Sylvania
Industry, Commercial
and Retail
Housing Growth in
Europe and Latam
Osram, Philips, GE
Operational overview
Indian operations
HIL is a dominant player in the domestic electrical durables and lighting and fixtures
segments. Over the years, it has regularly expanded its product profile, with hot water
geysers being the latest addition. Its contemporary product repertoire, coupled with a
strong focus on quality through in-house manufacturing (except lighting fixtures) have
stood the company in good stead. Simultaneously, HIL has consistently marketed its
products as Value-for-Money propositions, backing the same with one of the most
extensive distribution networks in the industry. Consequently, HIL is amongst the Top
Five consumer electricals brands in India. The same is evident from the growth in HILs
operating metrics, wherein revenues and operating profits have registered a CAGR of
17% and 29% over the past four years (FY07-10).
55,000
Sylvania
40,000
HILs Euro227m acquisition of Sylvania was effected with the intention to access markets
in Europe, Latin America and Asia with the help of the latters brands viz. Sylvania,
Concord:Marlin, Lumiance, SLI Lighting, Zenith and Linolite. However, things turned
sour when Sylvania started bleeding operationally during the economic downturn of
FY09. HIL infused Euro12m as equity and restructured operations by shutting down
some production lines in Europe, outsourcing products from China and India, right
sizing the workforce and renegotiating the terms of credit from suppliers. Consequently,
Sylvania posted an PAT of Euro1.3m (v/s loss of Euro10.2m) in 2QFY11.
25,000
Sw itchgears
Lighting
FY12e
FY11e
FY10
FY09
FY08
FY07
10,000
Cables
Electricals
110
HILs Indian operations have always been on a firm footing, with the company clocking
consistent improvement in revenues over the past four years. Backed by an aggressive
advertising campaign and new product launches, HILs monthly revenues currently
hover between INR2-2.5bn. The increase in volumes and tight controls over costs have
ensured a steady increase in HILs OPM from 9% in FY07 to 12.6% in FY10.
Till recently, Sylvanias operations and financials were proving to be a drag on overall
valuations for HIL. The efficacy of measures like higher focus on sales in emerging
markets in L. America, outsourcing of production and right-sizing of the workforce is
evident from last quarters results and we expect these to continue to contribute towards
an improvement in operating metrics going forward. Additionally, we feel that Sylvanias
brands have yet to be monetised to the fullest and that the foray into L. America and
the Far East will help fetch richer realisations and margins.
Going forward, we expect the HILs consolidated revenues at INR60bn, with an EBIDTA
of 10.3% and PAT of INR3.1bn. The crucial factor is the generation of sustainable
cash flows with which HIL will retire Sylvanias debt. In FY12, we expect the company
to maintain its growth trajectory, with revenues of INR66bn, OPM of 11.7% and PAT
of INR4bn.
At the CMP of INR393, HIL trading at a PER and EV/EBIDTA multiple of 12.3x and
6.5x respectively, discounting its FY12e numbers. We have valued the company using
the Sum-of-Parts method and assigning EBIDTA multiples to HILs and Sylvanias profits.
HIL: Valuation
Havells (Stand-Alone)
EBIDTA (INRm)
EBIDTA multiple (x)
EV (INR m)
Net Debt (INR m)
Equity Value
Value / sh (INR) - (A)
Sylvania
4,243
12
50,917
1,200
49,717
398
EBIDTA (INRm)
EBIDTA multiple
EV (INRm)
Net Debt (INRm)
Equity Value
Value / sh (INR) - (B)
3,623
6
21,845
9,765
12,080
97
495
Source: Antique
We are optimistic about the overall operations of HIL and believe that the gradual
reduction in Sylvanias debt over the next few years coupled with the buoyancy in
Indian operations will trigger a re-rating in the stock. We recommend a BUY with a
price target of INR495, which reflects an upside of 26% from current levels.
111
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
Revenues
50,029
54,775
54,315
60,472
66,136
PBT
Expenses
46,563
51,889
51,093
54,216
58,370
Operating Profit
3,466
2,886
3,222
6,256
7,766
250
86
222
100
100
3,716
2,972
3,444
6,356
7,866
Other Adjustments
694
905
837
1,087
1,274
1,036
1,253
979
825
632
814
1,628
4,445
5,960
(1,986)
(30)
1,986
(1,172)
1,628
4,415
5,960
377
429
932
1,324
1,967
1,610
(1,601)
696
3,090
3,993
12.9
(12.8)
5.6
24.8
32.0
Other income
EBIDT
Depreciation
Interest expense
2008
2009
2010
2011e
2012e
469
325
312
624
624
6,433
5,821
3,690
6,031
9,586
Share Capital
Reserves & Surplus
Networth
6,902
6,146
4,002
6,654
10,210
Debt
12,962
12,278
10,664
8,739
6,139
(76)
(97)
266
266
266
19,789
18,328
14,934
15,662
16,617
27,262
28,961
26,963
27,440
27,940
Accumulated Depreciation
19,944
20,427
18,089
19,176
20,450
Net Assets
7,318
8,534
8,874
8,263
7,490
1,005
308
336
300
300
Goodwill
3,346
3,579
3,212
3,212
3,212
32
Investments
10,419
7,947
8,246
9,036
9,728
8,227
7,573
6,982
7,727
8,451
Debtors
Cash & Bank balance
2,429
2,473
1,481
2,331
3,913
2,154
2,221
1,679
1,679
1,679
14,652
13,934
15,555
16,566
17,835
490
373
321
321
321
8,087
5,907
2,512
3,886
5,615
19,789
18,328
14,934
15,662
16,617
2009
2010
2011e
1,986
(1,172)
1,628
4,415
5,960
694
905
837
1,087
1,274
Interest expense
939
1,084
871
825
632
(32)
(18)
(16)
(100)
(100)
62
(369)
(2,252)
(3,498)
2,168
2,543
(524)
(147)
Tax paid
2012e
(391)
(400)
(699)
(1,324)
(1,967)
(239)
2,199
2,913
4,378
5,652
Capital expenditure
(7,725)
(1,676)
(1,077)
(441)
(500)
33
32
18
16
100
100
(400)
(1,626)
(1,061)
(341)
2,779
1,397
Inc/(Dec) in debt
7,487
(684)
(1,761)
(1,925)
(2,600)
(275)
(1,229)
(1,035)
(1,263)
(1,070)
9,991
(515)
(2,796)
(3,187)
(3,670)
2,059
57
(944)
850
1,582
299
2,358
2,415
1,471
2,321
2,358
2,415
1,471
2,321
3,903
2012e
Opening balance
Closing balance
2008
2009
2010
2011e
Revenue
223.3
9.5
(0.8)
11.3
9.4
EBITDA
137.8
(16.7)
11.7
94.2
24.1
PAT
57.6
(199.5)
(143.5)
344.0
29.2
EPS
57.6
(199.5)
(143.5)
344.0
29.2
2008
2009
2010
2011e
2012e
30.5
(30.6)
70.5
15.9
12.3
P/BV
7.1
8.0
12.3
7.4
4.8
EV/EBITDA
9.0
11.3
9.5
8.7
6.5
EV/Sales
0.6
0.6
0.6
0.9
0.8
0.6
0.6
1.0
0.8
0.8
Valuation (x)
Year ended 31st Mar
PE
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
EBITDA
6.9
5.3
5.9
10.3
11.7
EBIT
6.0
3.8
4.8
8.7
10.0
PAT
3.2
(2.9)
1.3
5.1
6.0
2012e
Financial ratios
2008
2008
2009
2010
2011e
2012e
58
60
60
125
125
BVPS (INR)
119.2
102.2
66.5
53.3
81.8
CEPS (INR)
39.8
(11.6)
25.5
33.5
42.2
DPS (INR)
2.5
2.5
3.8
3.0
3.0
2008
2009
2010
2011e
RoE (%)
33.8
(24.5)
13.7
58.0
47.4
RoCE (%)
26.2
10.8
15.7
34.4
40.8
Debt/Equity (x)
1.9
2.0
2.7
1.3
0.6
EBIT/Interest (x)
2.9
1.6
2.7
6.4
10.4
112
COMPANY UPDATE
27 December, 2010
Investment rationale
Large EPC/BTG order tendering expected in the next few months
As the orders for XIIth plan EPC/BTG are underway, a large number of tenders
will be awarded over the next 1-2 years. NTPC bulk tenders I (11*660MW)
and II (9*800MW) are expected to be finalised over the next few quarters.
BGR has put up its bid for the boiler portion of NTPC bulk tender I for which
it would be one of the key contenders. We believe NTPC bulk tender II will be
floated in the next 2-3 quarters and expect finalisation of the EPC players for
the Suratgarh and Chhabra projects by the end of FY11, in which BGR is one
of the final bidders. Furthermore, a number of IPPs are expected to come up
with EPC or BTG orders in the near term.
BTG JV to add value in long term
BGR has entered into a JV (74%) for manufacturing boiler and turbine with
Hitachi (Europe) and Hitachi (Japan). The two JVs will have a capacity of
4,000MW of boilers and turbines. The capital expenditure is expected to be
~INR44bn in the next 2-3 years. We believe the equity requirement for the
same can be met by internal accrual and cash on books presently. As the
company is entering the BTG segment, we believe it will try to win a project
even at a lower margin.
BoP orders to pick up significantly in the medium term
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR696
INR919
32%
Market data
Sector
Industrials
50.2
1.1
72.1
25.6
950/410
110.3
Bloomberg
BGRL IN
Reuters
BGRE.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(0.5)
(8.1)
(3.2)
44.0
Relative
(3.5)
(8.3)
(14.5)
24.6
Source: Bloomberg
While a large number of BTG orders (70-80%) of XIIth plan have already
been awarded, we believe the BOP orders for a large number of these units
are still awaited. BGR is one of the key players in the BoP space. In the last
few years, the company has been able to win BoPs from APGENCO,
MAHAGENCO and RRVUNL.
Shareholding pattern
FII
3%
DII
6%
Promoters
81%
1,553
2,089
3,480
5,221
6,873
34.5
66.6
50.0
31.6
873
1,154
2,001
3,118
4,137
32.2
73.4
55.8
32.7
12.1
16.0
27.8
43.3
57.5
32.2
73.4
55.8
32.7
PE (x)
43.4
25.0
16.1
12.1
PB (x)
8.9
7.1
5.4
4.1
EV/EBITDA (x)
19.8
12.5
8.5
6.5
RoE (%)
22.3
31.7
38.3
38.6
60
10
BGR
Jul-10
61,090
Oct-10
46,408
Jan-10
30,738
Apr-10
19,303
Oct-09
15,205
110
Jul-09
2012e
Apr-09
2011e
Jan-09
2010
Jul-08
2009
Oct-08
2008
210
Jan-08
EBITDA (INRm)
Apr-08
Revenues (INRm)
Source: BSE
160
Key financials
Year ended 31st Mar
Others
10%
NIFTY
Source: Bloomberg
Abhineet Anand
+91 22 4031 3441
abhineet@antiquelimited.com
Investment rationale
Large EPC/BTG order tendering expected in the next few months
A large number of EPC/BTG tenders will be awarded over the next 1-2 year for
commissioning of power plants in XIIth FYP. NTPC bulk tender I (11*660MW) and
II(9*800MW) is expected to be finalised over the next three-four quarters. BGR has
submitted bids for supply of NTPC bulk tender I boiler bids of 11*660 MW along
with BHEL and L&T-MHI consortium. We expect NTPC bulk tender I bids for boiler and
turbine to be finalised by the end of FY11. NTPC bulk tender II (9*800MW) will be
floated in the next 2-3 quarters. The company would be in the race to bid for boiler
and turbine for the NTPC bulk tender II.
The company is among final bidders for the EPC contracts of the Suratgarh (1,320MW)
and Chhabra (1,320MW) projects being developed by Rajasthan Rajya Vidyut Utpadan
Nigam Limited (RRVUNL). These tenders are expected to be finalised by the end of
FY11 and estimated to be in the range of INR50bn each. Further, a number of IPPs
planned under XIIth FYP are yet to float the bids for EPC and BTG orders .We estimate
20-25 GW of EPC/BTG tenders to be floated in the next one to two years.
EPC/BTG Opportunities in near term
Project Details
Capacity (MW)
Opportunity (INRbn)
RRVUNL, Suratgarh
1,320
50
RRVUNL, Chhabra
1,320
50
6,600
80-100
7,200
88-105
7,200
65-80
5,000
Type
Amount
500
BOP
6,949
500
BOP
9,980
500
BOP
7,930
600
EPC
31,000
1200
EPC
49,000
CSPGCL , Malwa
1000
BOP
16,330
1000
BOP
16,320
1320
BOP
21,680
Total
6,620
159,189
Projects executed
Aban Power Limited
120
EPC
2697
330
BOP
2095
500
BOP
5788
500
BOP
Total
1,450
6949
17,529
14
LT (4,000-5000MW)
12
Thermax (3,000MW)
BGR (4,000MW)
Bharat Forge - Alstom
JSW - Toshiba
2
0
2QFY11
1QFY11
4QFY10
3QFY10
2QFY10
1QFY10
4QFY09
3QFY09
6.1
6
4.2
3.3
2.5
Balance of Plant orders are expected to ramp up in the next few years. Order of BTG
packages for power plant coming up in XIIth FYP has gathered pace in the last few
quarters. The total expected addition in XIIth FYP for thermal power plant is expected
to be 75GW. Out of which, BTG orders of 60GW has been already placed till date.
BoP orders for these power plants will come up for bidding in next couple of years.
The dearth of quality BoP players has been one of the frequent complaints of power
plant developers. In fact, many a times the delay in commissioning of the power
plants has been attributed to failure of BoP players.
L&T (4,000-5000MW)
BGR (4,000MW)
10
Turbine - Generator
BHEL (15,000- 20,000MW)
2.4
BGR with its strong execution track record of developing EPC/BoP of 1,450MW and
an experienced and reputed management is in an enviable position to benefit from
the increased order flow. The strong track record and focused management has resulted
in further inflow of order of 6,600MW. We expect BGR to be one of the frontrunner
for BoP/EPC contracts.
The current order book stands at INR105bn at the end of 2QFY11 and the order
book to sales at healthy 2.4x.
1
0
2QFY103QFY104QFY101QFY112QFY11
Source: Company, Antique
115
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
Revenues
15,205
19,303
30,738
46,408
61,090
EBT
Expenses
13,652
17,214
27,257
41,187
54,217
Operating Profit
1,553
2,089
3,480
5,221
6,873
52
317
202
315
410
1,605
2,406
3,682
5,536
7,283
Other income
EBIDT
Depreciation
2008
2009
2010
2011e
2012e
1,296
1,752
3,051
4,747
6,302
55
75
103
117
141
Interest expense
254
579
538
672
840
(32)
(24)
21
(44)
(1)
16
22
(3,226)
(1,528)
(673)
(1,902)
(1,295)
(64)
(37)
249
(1,614)
(2,143)
773
3,266
2,036
3,867
(176)
(523)
(639)
(1,338)
(16,845)
(1,488)
1,466
32
24
(1,631)
967
(630)
(1,338)
(16,845)
Other Adjustments
55
75
98
117
141
254
579
538
672
840
Tax paid
1,296
1,752
3,047
4,747
6,302
411
596
1,037
1,614
2,143
Capital expenditure
885
1,156
2,010
3,133
4,159
Net Investments
11
15
22
873
1,154
2,001
3,118
4,137
12.1
16.0
27.8
43.3
57.5
Interest expense
Profit before tax
Minority Interest
2008
2009
2010
2011e
2012e
720
720
720
720
720
Share Capital
3,197
Inc/(Dec) in debt
2,563
2,063
2,246
974
11,792
(2,035)
(291)
(721)
(754)
(1,572)
5,469
1,342
1,493
(598)
9,757
2,141
3,081
4,129
99
(3,221)
4,017
4,919
6,343
8,575
11,540
Networth
4,737
5,639
7,063
9,295
12,260
27
28
29
44
66
5,027
7,090
9,336
10,310
22,102
356
747
1,551
1,551
1,551
10,147
13,504
17,979
21,200
35,979
Revenue
734
1,245
1,819
3,210
20,056
EBITDA
Accumulated Depreciation
206
268
365
483
623
Net Assets
527
977
1,454
2,728
19,432
11
54
104
50
50
1,514
Minority Interest
Debt
Deferred Tax Liability
Capital Employed
150
140
162
178
196
Debtors
7,360
12,789
19,803
29,898
39,357
3,070
6,152
10,280
10,380
7,159
2,749
6,610
7,455
8,909
9,782
Creditors
3,065
12,326
18,956
28,620
37,674
2,176
903
2,334
2,334
2,334
8,089
12,462
16,410
18,411
16,485
10,147
13,504
17,978
21,200
35,979
2008
2009
2010
2011e
72
72
72
72
72
BVPS (INR)
65.8
78.3
98.1
129.1
170.3
CEPS (INR)
12.9
17.1
29.2
44.9
59.4
2.0
3.0
6.9
10.7
14.2
2012e
DPS (INR)
3,070
6,152
10,280
10,380
6,152
10,280
10,380
7,158
2008
2009
2010
2011e
2012e
93.3
27.0
59.2
51.0
31.6
75.7
34.5
66.6
50.0
31.6
PAT
110.8
32.2
73.4
55.8
32.7
EPS
(67.9)
32.2
73.4
55.8
32.7
2008
2009
2010
2011e
2012e
53.6
40.5
23.4
15.0
11.3
9.9
8.3
6.6
5.0
3.8
30.4
19.8
12.5
8.4
8.5
3.2
2.5
1.5
1.0
1.0
Valuation (x)
Year ended 31st Mar
P/BV
EV/EBITDA
EV/Sales
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
2012e
RoE (%)
31.8
22.3
31.7
38.3
38.6
RoCE (%)
23.1
19.8
22.9
27.8
25.0
Debt/Equity (x)
1.1
1.3
1.3
1.1
1.8
EBIT/Interest (x)
6.3
4.2
6.8
8.2
8.7
929
3,070
Closing balance
PE
Opening balance
2012e
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
10.2
10.8
11.3
11.3
11.3
EBIT
10.2
12.1
11.7
11.7
11.7
PAT
5.7
6.0
6.5
6.7
6.8
116
COMPANY UPDATE
27 December, 2010
Investment rationale
Diversified product profile
MHRIL has a diversified product basket which is customised to various price
points and customer preferences. Its formidable marketing reach helps monetise
this product basket in the form of an increasing member base.
Bolstering of business practices
In order to homogenise its customer base, MHRIL has inititated several steps
like increasing the initial downpayment from 10% to 15% and withdrawing
the 60 month EMI scheme. These will help weed out potential delinquencies
and shorten the cash flow cycle.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR412
INR502
22%
Market data
Sector
Leisure
35
789
83
10
574/330
4.3
Bloomberg
MHRL IN
Reuters
MAHH.BO
2011e
2012e
Revenues
3,931
4,687
3,890
5,172
EBITDA
1,044
1,528
1,014
1,649
26.6
32.6
26.1
31.9
(11.8)
46.3
(33.6)
62.6
834
1,178
783
1,222
PAT
PAT growth (%)
0.0
0.4
(0.3)
0.6
10.0
14.1
9.4
14.7
3.5
41.4
(33.6)
56.2
P/E (x)
38.7
29.1
43.8
28.1
P/BV (x)
16.2
7.8
7.2
6.3
EV/EBITDA (x)
20.7
17.1
20.4
12.6
RoE (%)
48.9
36.9
17.1
23.9
EPS (INR)
EPS growth (%)
14.3
(14.8)
(29.4)
(21.3)
Shareholding pattern
DII
3%
FII
4%
Promoter
83%
Others
10%
Source: BSE
MHRIL
Dec-10
2,010
Relative
Source: Bloomberg
Oct-10
2009
(9.0)
Aug-10
12m
(19.4)
Jul-10
Key financials
6m
(14.9)
May-10
3m
19.9
Mar-10
1m
Absolute
Jan-10
The company is promoted by the Mahindra Group, one of the largest industrial
conglomerates in India today. The group has operations spread across
automobiles, information technology, metals, financial services etc. and is
one of the most reputed brands in the country. The brand inspires customer
confidence, which makes it relatively easier while enrolling customers.
Returns (%)
Dec-09
Strong parentage
Source: Bloomberg
Nifty Rebased
Source: Bloomberg
Amol Rao
+91 22 4031 3435
amol.rao@antiquelimited.com
Mahindra Holidays
Investment rationale
Operational re-organisation
While the company has been clocking impressive growth in its membership base and
balancing out the same with an increase in inventory, it was experiencing a peculiar
problem of bunched up demand at specific times viz. holidays like Diwali, Christmas.
This was due to a combination of reasons like inventory blocked for newer members,
external sales to non-members and mismatch in subscription classifications. As a result,
existing members were unable to access inventory and thereby unable to utilise their
allocation of holidays. Consequently, the management started noticing a drop in
utilisation rates of older members.
MHRIL: Rooms & Member addition
120,000
1,600
90,000
1,200
60,000
800
30,000
400
Membership
Sep'10*
Mar'10*
Mar'09*
Mar'08*
Mar'07*
Mar'06
Mar'05
0
Mar'04
Rooms
With a view to rectify this situation, MHRIL has adopted the following measures:
It has increased the initial down-payment on holiday packages from 10% to 15%
to weed out potential delinquencies. Additionally, it has withdrawn its 60 month
EMI scheme in order to shorten its cash flow.
The release of an additional 150keys Tungi in FY11 will give the company the
elbow room to offer more room nights to its existing clientele.
The company has been implementing these measures through 1HFY11 as a result of
which operating metrics have fallen considerably YoY. The slowdown in enrollments
has reflected in MHRILs financial performance over the past two quarters, as revenues
have fallen 14% to INR2.2bn while profits have plummeted 45% to INR315m.
118
Mahindra Holidays
Our view
With a member base in excess of 100,000, brand identity and maintenance of service
levels are of prime importance for the future sustainability of MHRILs operations, as is
product line segmentation. Any dilution of the brand would jeopardise future cash
flows, by way of low enrollments and utilisations in addition to higher delinquencies.
Tweaking of operations to
prove beneficial in the long
run
Hence, we believe that the rejig in operations in conjunction with a deliberate slow
down in enrollments is timely. The freeing up of existing inventory in favour of current
members should go a long way in beefing up service levels and improving brand
equity. Going forward, diversification of product profile in terms of targeting of various
income segments and the corresponding capex will be critical to cash flows.
Additionally, the control it exercises on its fixed costs and the ensuing effect on
profitability will also be pertinent to the float generating ability of the business.
On the macro level, the penetration of the VO concept in India is abysmally low and
a pickup in the same is imminent, given the brand equity MHRIL has earned over the
past decade. Lastly, customised offerings like Fundays, Zest and Terra have enabled
the company to satisfy diverse vacationing needs thus increasing the scope of
addressable markets.
Going foward, we remain confident about MHRILs business model and believe that its
financials would take a turn for the positive from 1QFY12. Moreover, the low penetration
of the VO concept in India and the tremendous brand equity earned so far with the
company We believe that the high incidence of fixed costs like sales promotion, marketing
and resort maintenance would generate operating leverage for the company in FY12, as
MHRIL monetises its brand and steps the gas on the pace of enrollments.
At the CMP of INR412, MHRIL is trading at a PER and EV/EBIDTA of 28.1x and
12.6x, discounting its FY12e numbers. MHRILs operations are similar to but do not
replicate that of a hotels. Hence, it is difficult to ascribe a peerset valuation to the
company. We have used the DCF method to arrive at the valuation of the company,
considering the cash generating capabilities of its business model. We have arrived
at a DCF based price of INR502 for the company and reiterate coverage with a BUY
recommendation.
Key assumptions
Risk Free Return (%)
7.5
Beta (x)
Cost of Equity (%)
Terminal Growth (%)
Total NPV (INR m)
1.3
14
Membership Count
83
502
2017e
238,259
7.0%
Peak Utilisation
4.8
41,825
Room Inventory
2,594
Source: Antique
119
Mahindra Holidays
Financials
Profit and loss account (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenues
3,527
3,931
4,687
3,890
5,172
EBIT
Expenses
2,345
2,887
3,160
2,877
3,523
Operating Profit
1,183
1,044
1,528
1,014
1,649
223
513
476
414
469
1,406
1,556
2,004
1,428
2,118
113
166
191
233
264
Other income
EBIDT
Depreciation
Interest expense
Profit before tax
33
70
46
21
21
1,260
1,320
1,767
1,174
1,833
455
487
589
391
611
805
834
1,178
783
1,222
9.7
10.0
14.1
9.4
14.7
2008
2009
2010
2011e
2012e
1,262
1,320
1,767
1,174
1,833
113
167
191
233
264
Interest expense
33
70
46
21
21
(9)
(15)
(57)
(50)
(50)
Other Adjustments
2008
2009
2010
2011e
2012e
764
783
833
833
833
651
1,210
3,560
3,904
4,640
1,416
1,993
4,393
4,737
5,473
Debt
Deferred Income
Deferred Tax Liability
Capital Employed
247
100
100
100
6,368
8,050
9,229
11,026
236
295
333
333
333
8,903
12,877
14,400
16,931
2,734
4,221
4,892
5,826
5,986
Accumulated Depreciation
Net Assets
201
4,789
6,641
479
640
862
1,095
1,359
2,255
3,582
4,030
4,731
4,627
450
512
979
200
140
2,272
2,006
5,506
35
52
30
56
69
4,034
4,842
6,315
5,449
6,197
68
320
244
3,292
2,185
576
735
812
613
710
Creditors
591
828
1,432
1,117
1,403
189
318
410
831
1,100
3,934
4,803
5,559
7,462
6,658
Application of Funds
6,641
8,903
12,839
14,400
16,931
2008
2009
2010
2011e
2012e
76
78
83
83
83
BVPS (INR)
18.5
25.4
52.7
56.9
65.7
CEPS (INR)
12.0
12.8
16.4
12.2
17.8
DPS (INR)
1.0
1.3
1.5
1.7
2.0
37
(12)
(100)
(187)
(364)
(419)
(303)
863
1,071
2,324
1,494
Tax paid
(440)
(395)
(811)
(391)
(611)
469
1,518
1,798
2,984
2,532
(711)
(1,559)
(1,143)
(155)
(100)
(1)
(4)
(2,261)
265
(3,500)
43
50
50
197
372
97
364
419
12
100
223
(494)
(1,083)
(3,041)
524
(3,131)
1,628
141
46
(147)
(0)
(135)
(234)
(314)
(460)
(508)
(183)
1,167
(460)
(508)
(1,107)
(16)
252
(76)
3,048
Opening balance
84
68
320
244
3,292
Closing balance
68
320
244
3,292
2,185
2008
2009
2010
2011e
2012e
Revenue
51.8
11.4
19.3
(17.0)
32.9
EBITDA
67.5
(11.8)
46.3
(33.6)
62.6
PAT
0.9
0.0
0.4
(0.3)
0.6
EPS
90.8
3.5
41.4
(33.6)
56.2
Valuation (x)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
PE
39.1
38.7
29.1
43.8
28.1
P/BV
22.2
16.2
7.8
7.2
6.3
EV/EBITDA
22.5
20.7
17.1
20.4
12.6
EV/Sales
9.0
8.2
7.3
7.5
5.2
0.4
0.7
1.0
1.1
1.2
2012e
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
RoE (%)
74.2
48.9
36.9
17.1
23.9
RoCE (%)
24.8
18.9
17.7
9.1
12.0
Debt/Equity (x)
0.1
0.1
0.0
0.0
0.0
EBIT/Interest (x)
39.2
19.8
39.8
56.8
88.3
Margins (%)
Year ended 31st Mar
1
(223)
Interest received
(22)
(372)
21
(197)
2008
2009
2010
2011e
2012e
EBITDA
33.5
26.6
32.6
26.1
31.9
EBIT
36.7
35.4
38.7
30.7
35.9
PAT
22.8
21.2
25.1
20.1
23.6
120
COMPANY UPDATE
27 December, 2010
Investment rationale
Stable revenues from rental model
Phoenix Mills Ltd. (Phoenix) is the pioneer of utilising textile mill land in Mumbai
for retail and entertainment purposes. In 1987, the company developed High
Street Phoenix, a first of its kind consumption centre, on its mill land. Phoenix
owns and operates retail-led mixed use projects and its focus on high quality
retail projects with rental income are the key differentiators.
Core value derived from High Street Phoenix
High Street Phoenix is strategically located at Lower Parel and has now become
South/Central Mumbai's leading retail and entertainment destination. This
key property comprises ~3.2m sq ft of development including retail and
entertainment, residential, commercial, parking space and a multiplex.
High visibility on execution of market city projects
Phoenix Mills is developing four market city projects at Kurla (Mumbai), Pune,
Bangalore and Chennai on the lines of High Street Phoenix. Construction is
in advanced stages and pre-leasing activities have been implemented for the
market cities. All four projects are expected to commence operations by end
FY12. Besides retail, Phoenix Mills is also diversifying into hotels. Its first hotel
project, Shangri-La at Lower Parel, is expected to open in the next six months.
Presence in Tier II and III cities
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR219
INR274
25%
Market data
Sector
Real Estate
32
0.7
145
42
270/171
76
Bloomberg
PHNX IN
Reuters
PHOE.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(9)
15
Relative
(3)
(9)
(8)
(1)
Source: Bloomberg
Shareholding pattern
Phoenix holds 40% in EWDPL (Entertainment World Developers Ltd) and 74%
in BARE (Big Apple Real Estate). These projects, primarily retail, are located in
Tier II and III cities in India. EWDPL has three operational retail projects in
Indore and Nanded while Big Apple has one operational mall in Lucknow.
DII
6%
Promoter
65%
FII
22%
Others
7%
Source: BSE
Key financials
Year ended 31st Mar
245
2008
2009
2010
2011e
2012e
821
996
1,230
2,292
5,263
EBITDA (INRm)
501
602
775
1,545
3,340
(30)
20
29
99
116
PAT (INRm)
428
768
620
971
1,870
79
(19)
57
92
EPS (INR)
3.2
5.3
4.3
6.7
12.9
(52)
68
(19)
57
92
P/E (x)
69.6
41.4
51.3
32.7
17.0
2.3
2.1
2.0
1.9
1.7
75.3
62.6
48.7
24.4
11.3
10
P/BV (x)
EV/EBITDA (x)
RoE (%)
Source: Company, Antique
220
195
170
Dec-09 Mar-10 May-10 Aug-10 Nov-10
Phoenix Mill
Nifty Rebased
Source: Bloomberg
Karishma Solanki
+91 22 4031 3446
karishma.solanki@antiquelimited.com
Investment rationale
Flagship development - High Street Phoenix
High Street Phoenix is company's key property and is the main source of rental income
currently. In FY10, the property generated revenues of INR1.15bn, which is expected
to increase to nearly INR1.88bn and INR2.01bn by FY11e and FY12e, respectively.
This sharp increase has been primarily on account of higher rental contribution from
Palladium (0.3m sq ft of luxury retail space; ~95% leased and ~90-92% operational)
which commenced operations in September 2009.
Phoenix, one of the first to convert textile mill land into real estate
High Street Phoenix is a pioneering concept of retail-centric mixed use development in
India, which includes retail and entertainment space, residential area, commercial
and parking space, multiplex and a five-star deluxe hotel.
The total area of High Street Phoenix is ~3.2m sq ft spread over 17.3 acres. Development
of the project began in 1987. So far, three phases comprising ~3m sq ft have already
been completed and construction of the fourth phase of ~0.25m sq ft is still to commence.
Snapshot of High Street Phoenix
Type
Phase I
Area (m sq ft)
Monthly Rent/sq ft
Residential
Phoenix Towers
0.35
NA
Retail
Big Bazaar
0.07
67
Courtyard
0.13
148
0.12
187
Leased
0.05
71
Commercial
Phase II
Phase III
Phase IV
Comments
148 apartments of 160 sold.
Retail
Pantaloon
Retail
Lifestyle
0.05
71
0.12
217
Multiplex
PVR
0.05
NA
Retail
Grand Galleria
0.05
242
Retail
Palladium
0.30
170
Hotel
Shangri-La
0.80
NA
Retail
0.25
420 keys
To be constructed
122
Kurla
Pune
Bangalore
Retail
1.40
1.45
0.85
Chennai
1.00
Commercial
1.20
0.35
0.00
0.00
Residential
0.00
0.00
0.55
0.45
Parking
0.60
0.65
0.50
0.60
Total
3.20
2.45
1.90
2.05
In order to strengthen its market city projects, Phoenix Mills is diversifying into hotels. The
company is developing a ~420 key hotel to be operated by Shangri-La at High Street
Phoenix and has acquired 75% stake in Phoenix Hospitality which has equity interest in
hotel properties being developed in Kurla (Mumbai), Pune, Chennai and Agra.
Strong execution
With land in place, funding tied-up and construction and leasing activity in full swing,
there is high visibility on execution of market city projects. Pune, Bangalore, Chennai
and Kurla market cities are 75%, 70%, 60% and 55% leased respectively and all
projects are expected to become operational by end FY12.
Leasing progress at market city projects
Area leased (%)
Kurla
35
47
Pune
64
Bangalore
32
Chennai
37
50
Key Tenants
55
75
75
55
70
Reliance
60
123
Financials
Profit and loss account (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenues
821
996
1,230
2,292
5,263
Adjusted PAT
Expenses
320
394
455
747
1,923
EBITDA
501
602
775
1,545
3,340
76
93
172
270
460
425
508
603
1,276
2,880
45
55
86
128
2008
2009
2010
2011e
2012e
428
768
620
971
1,870
76
93
172
270
460
(1)
(1)
54
290
(109)
71
544
1,022
373
Other Items
(194)
(321)
(156)
563
200
611
1,179
2,318
2,993
Capital expenditure
(5,922)
(4,437)
(2,694)
(2,964)
(1,361)
2,410
(458)
(185)
(2,027)
(3,152)
(3,149)
(1,361)
Other income
240
503
243
220
220
620
957
759
1,368
2,537
192
190
147
342
634
Minority Interest
428
767
612
1,026
1,903
15,090
86
33
428
768
620
971
1,870
Inc/(Dec) in debt
(1,460)
3,386
868
665
(697)
3.2
5.3
4.3
6.7
12.9
2008
Share Capital
Reserves & Surplus
Networth
Capital Employed
2011e
2012e
290
290
290
290
290
14,858
15,759
16,556
18,253
12,844
15,147
16,048
16,846
18,542
813
2,119
2,190
2,592
3,230
3,048
5,452
6,608
7,273
6,576
16,705
22,718
24,847
26,712
28,348
3,689
4,881
7,955
11,542
19,050
369
462
633
903
1,363
2010
12,555
Minority Interest
Debt
2009
3,320
4,419
7,321
10,640
17,687
5,006
9,004
9,137
8,513
2,366
Investments
6,340
4,525
5,601
5,786
5,786
81
216
351
431
229
263
22
1,910
671
679
1,787
4,052
4,077
3,628
3,628
3,628
206
439
461
623
685
2,057
1,143
1,508
2,244
2,623
2,029
4,759
2,764
1,750
2,485
10
11
24
24
24
16,705
22,718
24,847
26,712
28,348
2012e
Debtors
Cash & Bank balance
Loans & advances and others
115
Dividends paid
(94)
(167)
(167)
174
174
3,304
734
839
(524)
(109)
1,888
(1,239)
1,108
Opening balance
131
22
1,910
671
679
22
1,910
671
679
1,787
2012e
Closing balance
2008
2009
2010
2011e
Revenue
(17)
21
23
86
130
EBITDA
(30)
20
29
99
116
PAT
79
(19)
57
92
EPS
-52
68
(19)
57
92
2008
2009
2010
2011e
2012e
69.6
41.4
51.3
32.7
17.0
2.3
2.1
2.0
1.9
1.7
EV/EBITDA
75.3
62.6
48.7
24.4
11.3
EV/Sales
45.9
37.8
30.7
16.5
7.2
0.5
0.5
0.5
0.5
0.5
Valuation (x)
Year ended 31st Mar
PE
P/BV
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
2012e
RoE (%)
10
RoCE (%)
10
Debt/Equity (x)
0.2
0.4
0.4
0.4
0.4
EBIT/Interest (x)
9.5
9.3
7.0
10.0
5.1
2008
2009
2010
2011e
136
145
145
145
145
BVPS (INR)
94.7
104.6
110.8
116.3
128.0
CEPS (INR)
3.7
5.9
5.5
8.6
16.1
DPS (INR)
1.1
1.0
1.2
1.2
1.2
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
EBITDA
61
60
63
67
63
EBIT
52
51
49
56
55
PAT
52
77
50
42
36
124
COMPANY UPDATE
27 December, 2010
Investment rationale
Operational scale and market leadership
Sterlite Technologies Ltd. (STL) is a market leader in the OF, OFC and Power
Conductors segments and is amongst the Top Five global manufacturers in
both segments. It has built up strong manufacturing expertise in noth verticals
and is amongst the cheapest global manufacturers in both segments. Its
domestic market share is ~ 25%, with a sizeable portion of the National Grid
(~25%) set up using its conductors. In the OF and OFC segments, STL has
50% market share in India, 7% in China and 4% in CIS.
Comprehensive product profile
Currently, STL has one of the widest possible product ranges in power
conductors and OFC. Thus, it is not only able to compete with smaller players
in the commoditised categories, but also able to derive strong positioning
advantage at the top end of the product range, where it performs the important
function of import substitution.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
BUY
HOLD
INR70
INR97
39%
Market data
Sector
Cables
26.1
600
374
148
124/67
109
Bloomberg
SOTL IN
Reuters
STTE.BO
Source: Bloomberg
Returns (%)
:
:
:
:
:
1m
3m
6m
12m
Absolute
(13.3)
(30.3)
(40.8)
(1.8)
Relative
(17.3)
(30.2)
(48.2)
(15.1)
Source: Bloomberg
Shareholding pattern
DII
15%
Promoter
50%
FII
4%
Others
31%
Source: BSE
29,408
35,677
1,932
2,320
3,810
4,311
4,932
70
75.3
20.1
64.2
13.2
14.4
1,007
902
2,461
2,718
3,227
98.1
(10.5)
172.9
10.4
18.7
2.7
2.4
6.6
7.3
8.6
98.1
(10.5)
172.9
10.4
18.7
P/E (x)
11.2
12.5
10.1
9.6
8.1
P/BV (x)
2.1
1.8
2.7
2.1
1.7
EV/Sales (x)
1.3
1.0
0.6
1.0
0.9
EV/EBITDA (x)
8.6
6.2
6.3
6.1
5.1
21.1
15.5
32.0
25.1
23.1
EBITDA (INR m)
EBITDA growth (%)
PAT (INR m)
PAT growth (%)
EPS (INR)
RoE (%)
Source: Company, Antique
50
Sterlite
Dec-10
24,316
Oct-10
22,892
Aug-10
90
16,858
Revenues (INR m)
Jul-10
2012e
May-10
2011e
Mar-10
2,010
Jan-10
2009
Dec-09
110
Nifty Rebased
Source: Bloomberg
Amol Rao
+91 22 4031 3435
amol.rao@antiquelimited.com
Investment rationale
Operational Recap
Telecom Products and Solutions
Healthy capex by domestic telecom companies as well as robust exports to countries like
China translated into higher despatches and improved realisations as STLs revenues in
this segment registered a healthy growth of 20% in 1HFY11 to INR3.3bn. However, EBIT
margins were slightly better at ~23% (vs ~22%) due to the rendering of broadband
integration services, which are high margin offerings.
12,500
10,000
7,500
5,000
Power Conductors
2,500
1HFY11 was wholly unremarkable for STLs power segment. The absence of any tendering
by key domestic customers like PGCIL resulted in static despatches. Revenues stood at
INR6.7bn (+7%), with EBIT margins of 12% (vs 14%). The decline in margins was
largely on account of inventory carrying costs and execution of lower margins orders.
Mar'12e
Mar'11e
Mar'10
Mar'09
Mar'08
Mar'07
Mar'06
Future Outlook
Telecom Products and Solutions
20,000
BSNL is scheduled to tender for its ambitious rural connectivity program which should
result in 0.5m Fkm of demand in FY11. This demand is set to crystallise into firm
orders from 2HFY11.
15,000
10,000
5,000
Mar'12e
Mar'11e
Mar'10
Mar'09
Mar'08
Mar'07
Mar'06
While China currently accounts for the highest consumption of OFC, demand is also
picking up with countries like USA, Australia and U.K. lining up ambitious plans for
the overhaul of existing networks.
Power Conductors
The fructification of ~40-50GW of generating capacity over the next three years
has necessitated addition of 60,000Ckm of transmission network. Of this capacity,
~25,000Ckm is to be devoted to beefing up the inter-regional power transmission
network, since ~28GW of generating capacity is set to come on stream in eastern
India, while the largest load centres are in western and northern India.
Additionally, the existing infrastructure, which is largely 400KV AC and 500KV
HVDC, will not be able to support such heavy evacuation loads unless switched
over to Ultra High Voltage (UHV) networks of 765KV/1200KV AC or 800KV DC.
These will serve the dual purposes of not only reducing current levels of transmission
losses but also entail lower land and RoW (Right of Way) requirements.
126
Capacity Expansions
Mindful of the tremendous opportunities in both sectors viz. power transmission and
telecom, STL has outlined the following plans:
Expansion of its OF capacity from 12m km to ~ 20m km over the next two years at
an outlay of INR2.5bn. Additionally, STL intends to increase its OFC capacity from
3m Fkm to 5m Fkm in the next 12-18 months at a cost of INR400m. The entire
exercise is to be funded through internal accruals.
Capacity addition in its Power Transmission Business of 40,000MT at a cost of
INR800m.
The UMTP project secured by the company (2 X 462km, 400KVA, running through
3 states) is expected to entail an investment of INR10bn, which STL is expected to
fund in a DER of 4:1. We await more details on the same.
FY12 should mark a return to historical growth rates for STL as the impasse in the
tendering process at PGCIL gets resolved shortly. This should result in improved revenues
in the power vertical. Additionally, we expect the newly installed glass fiber capacity
to stabilise in 1HFY12. Higher output and improved utilisation rates across both
verticals should result in margins settling between 15-16%, with PAT at INR3.5bn.
At the CMP of INR70, STL is currently trading at PER and EV/EBIDTA multiples of 8.1x
and 5.1x, discounting its FY12e numbers. Mindful of its peerset valuations, ongoing
capacity expansion and lucrative opportunities at hand, we recommend a BUY on the
stock with a price target of INR97, which represents an upside of 39%.
Peerset
Year 1
Year 2
10.1
Furukawa Electric
Draka
Prysmian
Sterlite Tech
11.3
Dec-11
18.6
8.0
Mar-11
13.6
8.7
Dec-11
10.9
7.3
Dec-11
9.6
6.1
Mar-11
10.1
Dec-12
14.0
7.5
Mar-12
11.3
7.8
Dec-12
8.8
6.4
Dec-12
8.1
5.1
Mar-12
Source: Antique
127
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
2012e
Revenues
16,858
22,892
24,316
29,408
35,677
PBT
1,304
1,073
3,175
3,530
4,629
Expenses
14,926
20,572
20,506
25,097
30,744
372
425
483
543
617
Operating Profit
1,932
2,320
3,810
4,311
4,932
Interest expense
360
880
381
342
285
41
37
229
103
161
(5)
(117)
(103)
(207)
1,973
2,357
4,039
4,415
5,093
42
144
39
372
425
483
543
617
(1,418)
2,383
59
(2,471)
(760)
Tax paid
(80)
(144)
(550)
(812)
(1,065)
580
4,755
3,468
1,028
3,499
(1,101)
(1,372)
(647)
(1,964)
(1,000)
Other income
EBIDT
Depreciation
Interest expense
Profit before tax
360
880
381
342
286
1,241
1,052
3,175
3,530
4,190
297
172
714
812
964
(63)
(21)
1,007
902
2,461
2,718
3,227
2.7
2.4
6.6
7.3
8.6
2008
Share Capital
2009
2010
2011e
2012e
322
323
711
748
748
5,073
5,887
8,449
11,725
15,070
5,395
6,209
9,160
12,472
15,818
6,632
4,966
3,582
2,928
2,497
381
560
602
602
602
12,408
11,735
13,344
16,001
18,916
9,189
9,762
10,946
12,315
13,480
Accumulated Depreciation
3,950
4,309
4,682
5,225
5,842
5,239
5,453
6,264
7,090
7,638
362
1,114
570
1,165
1,000
60
920
1,061
200
250
Net Assets
Capital work in progress
Investments
2,194
1,004
1,709
3,137
3,612
Debtors
5,191
5,459
6,290
7,225
8,408
891
779
2,097
1,724
3,446
1,689
2,012
1,567
2,028
2,136
2,347
2,679
4,422
3,137
3,612
871
2,326
1,792
3,431
3,962
Other Adjustments
Capital expenditure
(Purchase) / Sale of Investments
Income from investments
CF from investing activities
813
Inc/(Dec) in debt
765
(1,702)
(1,384)
(654)
(430)
(423)
(1,005)
(502)
(560)
(503)
595
(2,707)
(1,195)
(401)
(934)
(106)
(4)
23
(373)
1,722
131
24
20
43
(329)
24
20
43
(329)
1,393
2008
2009
2010
2011e
2012e
Revenue
40.7
35.8
6.2
20.9
16.4
EBITDA
75.3
20.1
64.2
13.2
23.5
PAT
98.1
(10.5)
172.9
10.4
31.1
EPS
98.1
(10.5)
172.9
10.4
31.1
2008
2009
2010
2011e
2012e
11.2
12.5
10.1
9.6
8.1
P/BV
2.1
1.8
2.7
2.1
1.7
EV/EBITDA
8.6
6.2
6.3
6.1
5.1
EV/Sales
1.0
0.6
1.0
0.9
0.7
0.6
0.7
0.7
0.7
0.7
2012e
Valuation (x)
Year ended 31st Mar
PE
7,547
10,028
Financial ratios
18,916
64
65
142
150
150
83.7
96.2
64.4
83.4
105.8
CEPS (INR)
21.4
20.6
20.7
21.8
28.0
DPS (INR)
0.4
0.5
0.5
0.5
0.5
2008
2009
2010
2011e
2012e
11.5
10.1
15.7
14.7
15.6
EBIT
9.5
8.4
14.6
13.2
14.4
PAT
6.0
3.9
10.1
9.2
10.4
(843)
(999)
690
16,001
BVPS (INR)
207
(2,250)
5,448
2012e
(50)
103
13,344
2011e
861
114
(2,053)
4,248
2010
(1,717)
71
252
11,735
2009
(752)
(1,281)
6,747
2008
28
(208)
12,408
2008
2009
2010
2011e
RoE (%)
21.1
15.5
32.0
25.1
25.2
RoCE (%)
14.8
17.0
30.4
28.0
30.0
Debt/Equity (x)
1.2
0.8
0.4
0.2
0.2
EBIT/Interest (x)
4.4
2.2
9.3
11.3
17.3
Margins (%)
Year ended 31st Mar
EBITDA
128
COMPANY UPDATE
Escorts Limited
Favourable Tailwinds!
27 December, 2010
Investment rationale
Selling Investments - focusing on business!
Escorts has restructured its entire business by divesting its stake in all its loss
making businesses (telecom, healthcare, etc.) and using the proceeds to repay
the huge debt accumulated for the same. Subsequently, it has now enhanced
its focus on its core businesses (agri-machinery, railway equipment, auto
components and construction equipment). In our opinion this could not have
come at a better time as all its core businesses are at an inflection point with
favourable tailwinds and Escorts is well-positioned to benefit from the same.
Tractor business on strong footing
Escorts, with 13% market share in tractors, has successfully maintained its
number three position despite major consolidation in the tractor industry
(M&M~PTL, TAFE~Eicher). Now, as utilisation levels ramp-up from the current
61% to 70% in FY11e and 78% in FY12e, Escorts is expected to benefit from
operating leverage, which will enable it to show a sharp improvement in
profitability. The minimal capex will also ensure a sharp uptick in cash
generation and return ratios.
Other businesses - small contribution, huge potential!
While tractors will remain the mainstay for the company, the outlook for its
other businesses is positive. The underlying buoyancy in the infrastructure
segment provides huge scope for the construction equipment subsidiary (ECEL).
With its already well-established service and distribution network along with
a strong brand recall, Escorts is well-placed to benefit from the same.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR170
INR236
39%
Market data
Sector
Automobiles
18
0.4
106
76
246/115
1,087
Bloomberg
ESC IN
Reuters
ESCO.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(21)
(15)
(14)
36
Relative
(23)
(15)
(24)
18
Source: Bloomberg
Shareholding pattern
Promoters
28%
Others
29%
27,661
26,617
33,783
39,825
45,722
50
1,348
2,224
2,450
3,415
4,345
4.9
8.4
7.3
8.6
9.5
PAT (INRm)
(376)
286
1,320
1,836
2,492
(134)
645
1,266
1,836
2,492
(1)
7.1
12.0
17.4
23.6
(115.1)
23.9
14.2
9.8
7.2
18
9.0
8.1
5.7
4.4
EBITDA (INRm)
EBITDA margin (%)
0.0
0.6
1.1
1.4
1.8
(1.4)
4.5
7.4
9.9
12.1
4.7
8.7
9.1
12.6
15.3
Escorts
Dec-10
100
Jun-10
FY12e
Dec-09
FY11e
Jun-09
FY10
Dec-08
FY09
Jun-08
150
FY08
Revenues (INRm)
FII
23%
Source: BSE
Dec-07
DII
20%
NIFTY
Source: Bloomberg
Ashish Nigam
+91 22 4031 3443
ashish.nigam@antiquelimited.com
Escorts Limited
Investment rationale
Selling investments - focusing on business!
The company has managed to clean up its balance sheet after previously diversifying
into too many businesses, most of which were totally diverse from its core agri-equipment
and engineering division. Some of these like hospitals and telecom were extremely
capital intensive, which put strain on the company's balance sheet and also diluted
the management's bandwidth (and financial resources) from the company's core
businesses.
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
20,000
15,000
10,000
5,000
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11e
FY12e
However, Escorts has now restructured its entire business by divesting its stake in all its
loss making investments. It hived off its telecom business (Escotel and Cellnext) for a
total consideration of INR2.2bn and hospitality business (Escorts Heart and Research
Institute) for a total consideration of INR5.85bn. It used proceeds to repay the huge
debt accumulated for the same. As a result, its consolidated debt has reduced from
INR15bn in FY03 to INR8.8bn in FY05 to INR4bn in FY10 (year ending September).
Consequently, leverage has reduced from 2x to 0.2x.
Subsequently, it has now enhanced its focus (managerial and financial) on its core
businesses, i.e., agri-machinery, railway equipment, auto components and construction
equipment. Now, without the drain of loss-making businesses and burden of the huge
debt, Escorts is well-positioned to capitalise on the growth potential offered by the core
businesses. This could not have come at a better time as all its core businesses are at an
inflection point with favourable tailwinds. With utilisation levels on an uptrend, it will
benefit from the operating leverage. Furthermore, with capacities in place, the capex
will be minimal, which will ensure a sharp uptick in cash generation and return ratios.
130
Escorts Limited
Tractor industry - marketshare trends
3%
4%
5%
10%
3%
6%
5%
9%
3%
7%
5%
9%
15%
14%
13%
24%
22%
22%
24%
20%
South
5.5%
16%
East
14.0%
12%
North
58.0%
8%
39
41
41%
FY08
FY09
FY10
North
East
Others
Source: Crisil, Company, Antique
West
22.5%
FY10
FY09
FY08
Esco rts
Jo hn Deere
FY07
Tafe + Eicher
New Ho lland
FY06
M &M
So nalika
FY05
0%
FY04
4%
South
West
The company has a wide product range, but its forte is the more powerful higher hp
tractors. As a result, it is particularly strong in the 41-50hp range, which accounts for
51% of its volumes (as against 23% of industry volumes). The company is a market
leader in that segment along with M&M, with a market share of 29% each. To cement
its position in the 41-50hp range, it has launched a 45hp tractor with a four-cylinder
engine for the northern market as well as exports. In the longer term, it also plans to
launch a new product in the 15hp tractor range in future to compete with the Mahindra
Yuvraj, which targets smaller farmers to upgrade from bullocks. Penetration levels in
these smaller farms are extremely low (at 1 per 1,000 hectares).
Enhanced focus on relatively untapped avenues, i.e. the smaller-medium hp tractor range,
will help the company outperform the industry. Smaller tractors are apt for soft soil
conditions, as conducting agricultural operations on the same require lower-powered
tractors. Typically, northern states have relatively soft soil, and hence, the demand for
small tractors is higher in these regions, whereas in the southern and western regions, the
soil is relatively hard, and hence, the demand for medium and large tractors are higher.
With a strong ramp-up in volumes, led by aggressive product launches, coupled with
cost cutting initiatives and better working capital management, the company is in a
strong position to improve profitability as well. With annual capacity of 98,940 units,
the utilisation rates are still low at 60%, as against 84% for M&M, 105% for TAFE.
The lower utilisation levels has a visible effect on the margins of the company's tractor
division vis--vis that of Mahindra & Mahindra's.
Tractor industry - capacity of key players (000s)
245
Escorts
61%
New
Holland
210
73%
M&M Group
140
84%
TAFE
175
105%
105
70
John Deere
117%
International
Tractors
0%
127%
Escorts: Capacity
expansion of 37%
35
0
2004
50%
100%
150%
M&M + PTL
2005
2006
Escorts
2007
TAFE
2008
Others
131
Escorts Limited
M&M vs. Escorts
Region-wise tractor break-up
24%
Huge gap expected
to narrow
20%
25.2%
22.5%
17.1%
14.0%
5.5%
10.0%
14.1%
16.9%
16%
41.2%
12%
22.0%
52.0%
8%
34.3%
58.0%
4%
35.7%
0%
Sep- Mar- Sep- Mar- Sep- Mar- Sep07
08
08
09
09
10
10
M&M
Escorts
17.0%
M&M Group
North
South
Escorts
East
14.5%
M&M Group
West
Upto 30hp
Escorts
31-40hp
41-50hp
51hp +
M&M
Escorts
TAFE
John Deere
Int Tractors
New Holland
35,000
233,000
98,940
94,800
30,000
30,000
42
13
22
84
61
105
117
127
73
30%
60
47
40%
20%
46
10%
0%
-10%
FY12e
FY11e
FY10
FY09
FY08
-20%
FY07
90
80
70
60
50
40
30
20
10
0
78%
80%
70%
70%
60%
50%
61%
54%
47% 46%
40%
30%
20%
10%
0%
FY07 FY08 FY09 FY10 FY11e FY12e
Now, with utilisation levels on an uptrend, the company is expected to benefit from
the operating leverage, enabling it to show a sharp improvement in profitability. In
addition to leveraging of fixed costs, Escorts is undergoing a series of cost-cutting
initiatives like increasing employee productivity, replacing diesel with gas for fuel (as
per the management, this is estimated to reduce their power bill by ~10%) etc.
132
Escorts Limited
distribution network, coupled with its strong brand recall, there is a lot of scope for
Escorts to ramp-up its presence in the same and the company is confident of garnering
~10% market share in this segment by FY11. It currently has capacity in place to
produce 8 backhoe loaders per day (on a three-shift basis).
This division currently has margins of only 3%, but has a lot of potential to scale up as
this business has strong operating leverage. We expect margins to veer towards 810%, over the next two years, once size and scale gets utilised properly and product
mix improves.
Construction equipment division - scaling up profitability
600
15%
13.0%
8.6%
500
8.4%
6.3%
400
5.1%
5.8%
3.8%
1.6%
300
2.0%
3.6%
10%
5%
200
0%
100
0
-8.0%
-5%
-100
-10%
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e FY12e
Construction Equipments EBIT (LHS)
1,000
1,000
2%
0%
FY12e
FY11e
FY10
FY09
FY08
500
0
16%
4%
2.4%
3%
-0.5%
12%
2%
8%
1%
4%
0%
-500
15%
13%
9%
9%
12%
5%
10%
7%
4%
0%
-1%
-4%
-1%
ROE
FY12e
4%
20%
5%
FY11e
2,000
6%
FY10
1,500
3.7%
2,000
6%
5.5%
FY09
4.9%
4.6%
2,500
FY08
8%
3,000
FY12e
10%
FY11e
9.5%
7.3%
4,000
3,000
8.6%
8.4%
FY10
5,000
FY09
FY08
ROCE
133
Escorts Ltd.
Financials
Profit and loss account (INRm)
2008
2009
2010
2011e
2012e
2008
2009
2010
2011e
2012e
Revenues
27,661
26,617
33,783
39,825
45,722
EBIT
840
1,629
1,918
2,833
3,743
Expenses
26,313
24,392
31,333
36,410
41,377
508
595
532
582
602
EBITDA
1,348
2,224
2,450
3,415
4,345
Interest expense
721
717
181
299
292
508
595
532
582
602
1,071
(4,502)
1,895
559
206
EBIT
840
1,629
1,918
2,833
3,743
721
717
181
299
292
Other Income
260
290
490
719
982
(704)
5,720
(116)
1,838
2,865
23
19
21
23
Capital expenditure
415
5,724
1,207
650
650
Exceptional Items
(242)
(359)
54
Inc/(Dec) in investments
(71)
(1,315)
614
1,430
(116)
576
1,810
2,555
3,474
260
290
490
719
982
(376)
286
1,320
1,836
2,492
(134)
645
1,266
1,836
2,492
(1.5)
7.1
12.0
17.4
23.6
2008
Share Capital
2009
2010
2011e
2012e
907
907
1,056
1,056
1,056
8,548
13,446
15,939
17,483
19,604
Networth
9,455
14,353
16,995
18,539
20,660
8,402
4,020
4,056
3,948
3,850
389
401
84
84
84
18,245
18,773
21,135
22,571
24,594
16,155
21,949
23,156
23,806
6,673
6,352
6,884
192
123
123
Net Assets
9,674
15,720
Investments
2,484
1,169
Debt
Other Liabilities
Capital Employed
Gross Fixed Assets
Accumulated Depreciation
Capital work in progress
23
19
21
23
(338)
(4,386)
(1,197)
(1,243)
(2,057)
70
149
102
(4,382)
37
(109)
(98)
Others
342
4,624
856
(291)
(372)
514
242
1,042
(400)
(470)
Inc/(Dec) in debt
(643)
540
161
204
351
Opening balance
2,066
1,423
1,964
2,124
2,328
1,423
1,964
2,124
2,328
2,679
Closing balance
2008
2009
2010
2011e
2012e
Revenue
(3)
(4)
27
18
15
EBITDA
(44)
65
10
39
27
24,456
PAT
623
(176)
361
39
36
7,466
8,068
EPS
583
(582)
68
45
36
123
123
Adj PAT
623
(582)
96
45
36
16,395
16,463
16,511
1,177
1,791
3,221
Valuation (x)
2012e
2008
2009
2010
2011e
Inventory
3,908
3,292
4,365
4,642
5,341
PE
(115.1)
23.9
14.2
9.8
7.2
Debtors
7,555
4,261
4,501
6,336
7,138
P/BV
1.6
1.1
1.1
1.0
0.9
4.4
1,423
1,964
2,124
2,328
2,679
EV/EBITDA
18.5
9.0
8.1
5.7
3,011
2,198
3,037
3,471
3,967
EV/Sales
0.9
0.8
0.6
0.5
0.4
0.0
0.6
1.1
1.4
1.8
2008
2009
2010
2011e
2012e
(1)
10
12
13
15
Debt/Equity (x)
0.9
0.3
0.2
0.2
0.2
1.2
2.3
10.6
9.5
12.8
9,207
8,818
9,108
10,961
12,603
Provisions
1,202
1,370
1,338
1,472
1,619
5,488
1,527
3,582
4,345
4,901
(485)
(302)
40
40
40
115
57
21
13
18,245
18,773
21,135
22,571
24,594
2008
2009
2010
2011e
2012e
Financial ratios
Year ended 30th Sept
RoE (%)
RoCE (%)
90.7
105.6
105.6
105.6
BVPS (INR)
104.2
158.2
160.9
175.6
195.6
CEPS (INR)
4.1
13.7
17.0
22.9
29.3
1.0
2.0
2.4
3.1
2012e
DPS (INR)
Margins (%)
Year ended 30th Sept
2008
2009
2010
2011e
EBITDA
4.9
8.4
7.3
8.6
9.5
EBIT
3.0
6.1
5.7
7.1
8.2
PAT
-0.5
2.4
3.7
4.6
5.5
134
Initiating Coverage
22 December 2010
Investment rationale
Order inflows surge post IPO - YTD INR33bn orders
The order book of Tecpro Systems Limited (Tecpro) stood at INR23bn at the
end of July 31, 2010 (disclosed order book at the time of initial public offer).
The company has seen a further surge in orders post IPO and new orders of
INR33bn have been bagged in this fiscal till date. The company has moved
from being a pure material and ash handling player to a complete balance
of plant (BoP) package provider.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
N.A.
INR375
INR458
22%
Market data
Sector
Industrials
19
Tecpro has won three BoP orders in the last two years. The same is expected to
pick up further in the next 1-2 years as a number of BTG (Boiler-Turbine-Generator)
contracts have been awarded or are in the process. The total expected addition
in XIIth FYP (five year plan) for thermal power plant is ~75-85GW. While BTG
orders of 50GW have already been placed, we expect the rest 25-35GW to
be tendered over the next year (incl. NTPC bulk tender I and II).
0.4
50
14
454/350
16
Bloomberg
TPRO IN
Reuters
TPSL.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
Absolute
(8)
NA
NA
12m
NA
Relative
(9)
NA
NA
NA
Source: Bloomberg
Shareholding pattern
Others
27%
DII
17%
Promoters
52%
FII
4%
Source: BSE
Key financials
27,010
100
2,825
3,716
90
40.0
133.5
25.0
32.0
1,925
554
1,085
1,449
35.8
96.7
33.1
32.8
EPS (INR)
11.6
24.5
28.7
38.1
(24.2)
111.3
17.0
32.8
P/E (x)
32.3
15.3
13.1
9.8
P/BV (x)
10.0
4.9
2.8
2.2
EV/EBITDA (x)
22.6
9.7
7.8
5.9
RoE (%)
30.9
32.1
21.2
22.7
Tecpro
Source: Bloomberg
Dec-10
20,318
2,256
Dec-10
14,642
966
Dec-10
8,262
EBITDA (INRm)
Nov-10
Revenue (INRm)
Nov-10
110
Nov-10
2012e
Nov-10
2011e
Nov-10
2010
Oct-10
2009
Oct-10
Oct-10
120
NIFTY
Abhineet Anand
+91 22 4031 3441
abhineet@antiquelimited.com
Mohit Kumar
mohit.kumar@antiquelimited.com
Mohit Gulati
mohit.gulati@antiquelimited.com
Investment Rationale
Order inflows surge post IPO
Tecpros order book stood at INR23bn at the end of July 31, 2010 (disclosed order
book at the time of initial public offer). It has seen a further surge in orders post IPO
and new orders of INR33bn have been bagged in this fiscal till date. The current
order book of the company stands at INR46bn. Tecpro has moved from being a
material and ash handling player to a complete BoP package solution provider. The
recent wins of BoP orders from APGENCO for Rayalseema and Kakatiya of 600MW
has affirmed the capability of Tecpro to bid for BoP package of 600-800MW.
Further, these wins are significant considering the fact that Tecpro received its first BoP
order in Aug 09 from CGPCL (INR9.9bn for 500MW BoP). We consider this as a
positive development and expect it to garner new orders as majority of new power
plants are being set up in the size range of 600-800MW.
Strong order flow post IPO of INR25bn
Date
Client
Description
20-Oct-10
Value (INRmn)
1-Nov-10
APGENCO
9-Nov-10
SEPCO
10-Nov-10
NMDC
278
14-Nov-10
Punj Lloyd
940
22-Nov-10
710
19780
513
2692.0
Total
24,914
3.0
50
2.5
40
2.0
46
30
20
1.5
20
1.0
10
23
13
10
0.5
2QFY11
1QFY11
FY10
FY09
2QFY11
1QFY11
FY10
FY09
FY08
FY08
0.0
136
Description
Balance of Plant
Chhatisgarh State Power Gen Co
Bauxite handling and secondary crushing plant for 1.5MTPA refinery project
NTPC Ltd.
Coal handling system for 1 x 500 Super TPP, Stage-III at Korba, Chhatisgarh
Lanco, Anpara
Lilama, Vietnam
Power plants
Capacity
(MW)
BTG
Order
Year
Amount
Lead Financing
Institution
CSPGCL
Korba, Chattisgarh
500
BHEL
Jun-12
9,930
PFC
APGENCO
600
BHEL
Dec-12
7,230
PFC
APGENCO
Rayalseema Stage - IV
600
BHEL
FY14
12,550
REC
MW
60
Number of BoP orders is expected to ramp up in the next few years. Order for the BTG
packages for power plant coming up in XIIth FYP has gathered pace in the last few
quarters. The total expected addition in XIIth FYP for thermal power plant is expected
to be 75GW. Out of which, BTG orders of 50-60GW has been already placed till
date. BoP orders for these power plants will come up for bidding in next couple of
years. We expect Tecpro systems to be one of the largest beneficiaries for these BoP
orders in terms of direct BoP orders or coal handling plant and ash handling plant
orders. Even at a conservative estimate of INR12-15m/MW, the annual market size
for the BoP would be in range of INR180-225bn.
50
40
Number of orders
Xth
XIth
30
23
68
78
20
23
69
79
32
69
79
Cooling tower
41
79
91
Chimney
36
79
91
22
71
82
36
76
87
10
0
XIth
XIIth
Coal
Others
XIIth
137
10
5
4,500
Others
TRF
Elecon
Thyssen Krupp
L&T
Techpro
Others
15
McNally
20
DC
Industrial
25
20
18
16
14
12
10
8
6
4
2
0
Tecpro
30
Mecawber
Indure
Entry barriers
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
FY07
FY08
Steel
FY09
Cement
FY10
Others
1000
800
600
400
200
0
FY07
FY08
Steel
FY09
Cement
FY10
Others
138
TRF
Elecon Engg
Co
FY08
Mcnally
Bharat Engg
FY09
Tecpro
Average
FY10
We believe Tecpros higher market share in CHPs and AHPs (two of the most important
components in BoP segment), has placed it in a better way than its competitors.
While the other three players (McNally, TRF and Elecon) are trading at 10-11x on
FY12e, larger players like BGR Energy are trading at 14-16x. We have assigned a PE
of 12x on FY12 EPS (INR38) and arrived at our target price of INR458. The stock
provides 22% upside from the current levels.
Peer comparison table
Last
Mcap
Prices
(INRbn)
218
6.8
77
7.2
TRF in equity
561
6.2
BGR Energy
BGRL in equity
696
Tecpro Systems
TPRO In equity
375
Company
Ticker
McNally Bharat
MCNA In Equity
Indian Average
PE (x)
FY11e
EV/EBITDA(x)
FY12e
FY11e
8.8
6.8
12.1
10.0
16.0
9.3
50.2
17.0
13.6
18.8
12.8
9.6
15.1
11.7
8.8
FY12e
FY11e
FY12e
4.8
3.8
0.9
1.1
7.2
6.2
2.0
2.3
10.3
6.2
1.4
1.5
9.4
7.2
0.8
1.0
8.6
6.3
0.8
1.1
6.6
139
Financials
Profit and loss account (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenues
5,054
8,262
14,642
19,818
27,010
EBIT
Expenses
4,364
7,296
12,387
16,993
23,295
EBITDA
690
966
2,256
2,825
3,716
Interest expense
2008
2009
2010
2011e
2012e
664
932
2,181
2,737
3,600
26
34
74
88
115
(50)
(144)
(714)
(780)
(1,008)
(3,192)
26
34
74
88
115
(405)
(537)
(3,179)
(3,664)
EBIT
664
932
2,181
2,737
3,600
Tax paid
(150)
(296)
(626)
(746)
(991)
Interest expense
(50)
(144)
(714)
(780)
(1,008)
85
(11)
(2,264)
(2,365)
(1,476)
(500)
Other income
44
120
207
238
324
(256)
(425)
(435)
(500)
658
908
1,674
2,195
2,916
Inc/(Dec) in investments
(65)
(249)
(355)
(589)
(746)
(991)
21
57
136
238
324
(235)
(368)
(364)
(262)
(176)
334
440
90
2,188
82
709
3,521
2,260
1,250
Dividends paid
(74)
(219)
(162)
(207)
(274)
Others
(23)
(4)
319
931
3,446
4,241
976
170
552
818
1,614
(676)
Opening balance
286
456
1007
1825
3439
Closing balance
456
1,007
1,825
3,439
2,763
2008
2009
2010
2011e
2012e
113
63
77
35
36
88
40
134
25
32
PAT
102
36
97
33
33
EPS
-5
-24
111
17
33
2012e
409
554
1,085
1,449
1,925
408
554
1,089
1,449
1,925
15.3
11.6
24.5
28.7
38.1
2008
2009
2010
2011e
2012e
Share Capital
267
477
442
505
505
734
1,316
2,955
6,322
7,973
1,001
1,793
3,397
6,827
8,478
309
1,058
4,868
7,128
8,378
1,310
2,851
8,265
13,955
16,856
395
411
1,311
1,811
2,311
Accumulated Depreciation
(36)
(63)
(161)
(249)
(364)
Net Assets
359
347
1,150
1,562
1,947
217
548
115
115
115
31
31
31
334
795
1,061
1,738
2,368
2,290
4,363
9,176
12,217
16,650
456
1,007
1,825
3,439
2,763
328
589
2,709
3,801
5,180
Networth
Debt
Capital Employed
Investments
Current Assets, Loans & Advances
Inventory
Debtors
2,636
4,794
7,815
8,959
12,210
32
740
1,960
6,957
12,235
14,751
(7)
(5)
12
12
12
1,310
2,851
8,265
13,955
16,856
2008
2009
2010
2011e
2012e
26.7
47.7
44.2
50.5
50.5
BVPS (INR)
37.5
37.6
76.8
135.3
168.0
CEPS (INR)
16.2
12.3
26.3
30.5
40.4
7.0
2.9
3.0
3.5
4.6
DPS (INR)
Capital expenditure
Valuation (x)
Year ended 31st Mar
2008
2009
2010
2011e
PE
24.5
32.3
15.3
13.1
9.8
P/BV
10.0
10.0
4.9
2.8
2.2
EV/EBITDA
31.8
22.7
9.7
7.8
5.9
EV/Sales
4.3
2.7
1.5
1.1
0.8
1.9
0.8
0.8
0.9
1.2
2012e
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
RoE
41
31
32
21
23
RoCE
51
33
26
20
21
Debt/Equity (x)
0.3
0.6
1.4
1.0
1.0
EBIT/Interest (x)
13.3
6.5
3.1
3.5
3.6
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
EBITDA
13.7
11.7
15.4
14.3
13.8
EBIT
13.1
11.3
14.9
13.8
13.3
PAT
8.1
6.7
7.4
7.3
7.1
140
Important Disclaimer:
This report is prepared and published on behalf of the research team of Antique Stock Broking Limited (ASBL). ASBL, its holding company and associate
companies are a full service, integrated investment banking, investment advisory and brokerage group. Our research analysts and sales persons provide
important inputs for our investment banking and allied activities. We have exercised due diligence in checking the correctness and authenticity of the
information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions
expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without any notice. ASBL or any
persons connected with it do not solicit any action based on this report and do not accept any liability arising from the use of this document. The recipients of
this material should rely on their own judgment and take their own professional advice before acting on this information. The research reports are for private
circulation and are not to be construed as, an offer to sell or solicitation of an offer to buy any securities. Unless otherwise noted, all research reports provide
information of a general nature and do not address the circumstances of any particular investor. The distribution of this document in certain jurisdictions may
be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. ASBL its holding
company and associate companies or any of its connected persons including its directors or employees shall not be in any way responsible for any loss or
damage that may arise to any person from any inadvertent error in the information contained, views and opinions expressed in this publication. ASBL its holding
company and associate companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities
thereof, of company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or
act as advisor or lender/borrower to such company(ies) or have other potential conflict of interest with respect to any recommendation and related information
and opinions. ASBL, its holding company and associate companies, directors, officers or employees may, from time to time, deal in the securities mentioned
herein, as principal or agent. ASBL its holding company and associate companies may have acted as an Investment Advisor or Merchant Banker for some of
the companies (or its connected persons) mentioned in this report. The research reports and all the information opinions and conclusions contained in them are
proprietary information of ASBL and the same may not be reproduced or distributed in whole or in part without express consent of ASBL. The analyst for this
report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their
securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
One of the Directors in Antique group is a Partner in audit firm, who are the statutory auditors of Reliance Industries Ltd.
Analyst ownership in stock
No