I N D I A R ES E A RC H
L ARGE & MI D CAPS
D ECEMBER 2010
20:11 Ideas for 2011
The Elephant Charge Continues
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.
1
Reliance Industries
77.0
1-6
2
TCS
49.5
7 - 10
3
ITC
29.0
11 - 14
4
ICICI Bank
28.0
15 - 18
5
Larsen & Toubro
26.4
19 - 22
6
Tata Motors
17.0
23 - 28
7
Tata Steel
13.0
29 - 32
8
Sun Pharmaceutical Ind
11.0
33 - 36
9
Mahindra & Mahindra
10.0
37 - 44
10 Power Grid Corp of India
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.
1
Oil India
7.0
53 - 56
11 Petronet LNG
2.0
95 - 100
2
Siemens
6.0
57 - 60
12 Shree Renuka Sugars
1.5
101 - 104
3
Idea Cellular
5.0
61 - 64
13 Essar Shipping, Ports & Logistics 1.4
105 - 108
4
Sun TV Network
5.0
65 - 68
14 Havells India
1.1
109 - 112
5
Union Bank of India
4.0
69 - 72
15 BGR Energy Systems
1.1
113 - 116
6
Shriram Transport Finance Co
4.0
73 - 76
16 Mahindra Holidays & Resorts
0.8
117 - 120
7
Exide Industries
3.0
77 - 82
17 Phoenix Mills
0.7
121 - 124
8
Dish TV India
2.0
83 - 86
18 Sterlite Technologies
0.6
125 - 128
9
Pantaloon Retail (India)
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
The ‘value’ and the ‘growth’
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
:
Oil & Gas
Market Cap (INRbn)
:
3,468
We upgrade our refining margins assumption for RIL to USD10.7/bbl for
FY12e on account of its high complexity and 80% transportation fuel yields.
Market Cap (USDbn)
:
77
O/S shares (m)
:
3,273
E&P - Deep value
Free Float (m)
:
1,618
52-wk HI/LO (INR)
:
1,187/841
Avg 6m Vol (‘000)
:
4,068
Bloomberg
:
RIL IN
Reuters
:
RELI.BO
Lack of clarity on KG-D6 production ramp-up to 80mmcmd has affected the
valuations of RIL’s E&P business. We believe clarity on KG-D6 volume growth
to emerge mid FY12e and production ramp-up is expected in FY13e (DGH).
RIL is expected to file FDP for R-cluster discoveries and NEC-25 (optimised
development plan) in the immediate future, approval of which gives certainty
in terms of production schedule and reserves under development to improve
the valuations. RIL and partners have promising exploration blocks, where
significant upsides are yet to be captured. Expansion into shale gas to help
access to diverse technology and earnings in the long term.
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%
Petchem - All cylinders firing
RIL reported consecutive better earnings from petrochemicals. Though risk
from new polymer projects remains, buoyancy in demand and delay in new
capacities has led to a rise in key petrochemical prices and margins. Also,
polyester integration to help RIL in improving the Petchem profitability as
margins expand across the chain.
Valuation and outlook
DII
10%
Source: BSE
Price performance vs Nifty
We upgrade RIL to BUY with an SOTP-based target price of INR1,152.
160
Key financials
1,512
2,037
2,427
2,622
100
231
238
309
371
445
80
15
3
30
20
20
265
EBITDA growth (%)
PAT (INRbn)
148
153
154
204
PAT growth (%)
22
3
1
32
30
EPS (INR/share)
53
47
47.2
62.5
81
EPS growth (%)
22
(11)
1
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
Net revenue (INRbn)
Jul-10
120
May-10
2012e
Mar-10
2011e
Jan-10
2010
Nov-09
2009
Jul-09
2008
Sep-09
140
Year ended 31st Mar
EBITDA (INRbn)
Promoters
45%
FII
17%
NIFTY
Amit Rustagi
+91 22 4031 3434
[email protected]
Ruchi Dugar
[email protected]
Miten Vora
[email protected]
COMPANY UPDATE
Reliance Industries Limited
Reliance Industries Limited
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.
Oil demand - All the way up
MMbbl/d
2010
2011
IEA
2.5
1.2
OPEC
1.3
1.1
EIA
2
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.
Our refinery capacity addition model suggests a slowdown in refinery capacity
addition over the next few years and also refinery closures to help the refiners.
Source: Industry reports, Antique
Capacity addition not expected to keep pace with demand
Mbbl/d
2009
2010
2011e
2012e
2013e
2014e
2015e
Refinery capacity addition
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
Net capacity addition
Demand growth
Cumulative supply growth
Cumulative demand growth
Net balance (shortfall)
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
Source: IEA, Industry reports, Antique
Spreads over brent
(USD/bbl) FY09 FY10 FY11e FY12e
Gasoline
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
Source: Bloomberg, Antique
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 RIL’s 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.
Valuing the refiners
We employ EV/EBITDA to assess the fair value of refiners as we recover from trough
to play the refining cycle. We value RIL refining at 7x EV/EVITDA on FY12e EBITDA of
INR188bn, which gives us a value of INR443/share for refining business.
Antique Stock Broking Limited
2
Reliance Industries Limited
Refining investment cycle
Profitability
Peak
Take profits
Over expansion
period
Time
Under Investment
period
NOW
Trough
Investment Cycle
6 Years
Source: Company, Antique
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.
E&P - Deep value
RIL's E&P portfolio comprises a total of 40 domestic operational blocks including 28
NELP, 7 Pre-NELP and 5 CBM blocks. 70% of its domestic portfolio consists of deep
water fields and most of them are concentrated in KG and Mahanadi basin. Apart
from domestic acreage, RIL also has interest in 13 international blocks with total
acreage of 93,526sqkm (~50% deepwater acreage). Yemen Block9 is the only
producing block in RIL's international portfolio. RIL along with its 100% subsidiary,
REP DMCC is operated in 11 of these blocks.
RIL currently has 48 discoveries to date and an overall exploration success ratio of 54%.
Out of all discoveries, RIL currently has 3 producing blocks namely - D1, D3 and D26
(MA) all in KG-D6 block. The status of all the announced gas discoveries where
commerciality has been submitted and development plans is underway is as below:
Status of RIL’s gas discoveries
Fields
Discoveries
Status
D1D3
D1, D3
Production underway
MA
D26
Production underway
Reserves
Producing Fields
Fields with development plan/commerciality submitted
Satellite-9 Discoveries
D2, D4, D6, D7, D8,
D16, D19, D22,&D23
DP submitted in Jul 2008
2.2tcf
Satellite-4/9 Discoveries
D2, D6, D19 & D22
Optimised DP submitted in Dec 2009
626bcf; Plateau rate of 7MMcmd
R1
D34
Commerciality submitted in Jul 2009/Feb 2010
1,616bcf; Plateau rate of 13-15MMcmd
Other satellite fields
D29, D30, D31
Commerciality submitted in Feb 2010
506bcf with further potential under
evaluation; Plateau rate of 5.7MMcmd
NEC25-6 Shallow water
D9, D10, D11, D15,
D20 & D21
Initial DP submitted in May 2007
1.5tcf; production expected
in mid 2015
NEC25-2 Deep water
D32 & D40
Commerciality submitted for 2 deep water discoveries in
Feb’10; Optimised DP for all discoveries to be submitted
CYD5
D35
Commerciality submitted in Mar 2010
1.1tcf
GS01
D33
Commerciality submitted in May 2010
0.2tcf
Source: Company, industry sources
Antique Stock Broking Limited
3
Reliance Industries Limited
We have valued RIL's E&P division applying different methodologies according to the
stages of production, exploration or development of its assets. We believe that for
valuing RIL's E&P business, we need to focus on existing/under-approval development
plans/declaration of commerciality (DoC) submitted before ascribing any value to
future exploration successes. This, we believe, should remove concerns over valuing
the E&P business for RIL.
Currently producing oil and gas assets: We value them on earnings
multiple and DCF. PMT on EV/EBITDA and KG-D6 on DCF.
Assets where commerciality is submitted/development plan expected
to be submitted. These are assets where exploration and appraisal are through,
i.e., major risk activities are over. (For example, satellite discoveries in KG-D6, NEC25 block, etc.) These assets are valued on USD/boe multiple, as production profile,
capital expenditure and reserve quantities are still to be known with certainty.
Assets where exploration is under progress. The valuation of these assets
depend on probabilistic estimation of success, history of previous exploration
successes in the block, experience and technical expertise of the operator, and the
risk appetite of investors. In our valuations, we ascribe nil value to these assets.
Valuation of RIL's E&P business
Name of fields
Stage of
development
PMT and International
Producing
2P reserves
Contingent
resources
13.3tcf and 64MMbbls
Method of valuation
Value
(INRbn)
Value
(INR/sh)
EV/EBITDA multiple of 7.0x
210
71
Dhirubhai 1 and 3 and MA fields
Producing
DCF
620
208
NEC-25, KG-D6 14 discoveries
and KG D1 & D3 3P reserves
DoC submitted
12.8tcf
USD/boe multiple of 4.5x
436
146
CBM
Exploration
3.5tcf
USD/boe multiple of 4.5x
123
41
Shale gas
Exploration
14tcf
DCF
Total
144
48
1,533
515
Source: Company, Antique
Update on gas discoveries accounted in our valuations
Name of fields
Stage of activity/Risk
D1, D3 3P resources
Under production
5.7
9 satellite discoveries (D2, D4, D6, D7, D8, D16, D19, D22, & D23)
FDP filed, OFDP under preparation
2.2
R-Cluster
FDP under preparation
1.6
NEC-25
FDP under preparation
1.5
D29, D30, D31 gas discoveries
DoC submitted
0.5
GS-01 and CY-D5
DoC submitted
1.3
Total resources for valuation
Contingent resources (tcf)
12.8
Source: Company, Industry reports
Antique Stock Broking Limited
Valuation of E&P: Our valuation model suggests that based on current
development plans and estimated capex, KG-D6' Dhirubhai 1 and 3 and MA
fields (both oil and gas) alone is worth USD14bn or (INR208/share). The entire
E&P division, including CBM, PMT, is worth INR466/share. We have added
another INR48/share in for Shale gas JVs.
4
Reliance Industries Limited
RIL polymer production (kta)
Product
FY08
FY09
FY10
HDPE/ LDPE
1,085
990
1,058
Polypropylene
1,712
1,514
2,399
579
614
624
PVC
Source: Company, Antique
Polyester production trend (kta)
Polyesters
FY08
FY09
FY10
PFY/ PC
753
695
796
PSF/ PC
680
618
687
PET
245
298
314
Petrochemicals - buoyancy to benefit the integrated players
We believe that the petrochemical segment has seen its trough periods during FY0809 and is geared up for a strong and a sustained growth for the next few years.
Moreover, Polyester margins are also expected remain strong due to current tightness
in cotton market. Thus, buoyancy in Petchem cycle to help RIL in improving its Petchem
earnings further and reaps benefits as biggest integrated player. We value Reliance's
petrochemical business at 7x FY12e EBITDA to arrive at the EV of INR764bn or
INR257/share for RIL.
Source: Company, Antique
Valuation and outlook
RIL Petrochemical capex plans
We upgrade RIL to BUY with an SOTP based target price of INR1,152.
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
Valuation of Petchem business
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
Valuation of Ref business (incl RPL)
PET
500
Silvasa
18-24
Oil & Gas prod (PMT and int)
POY
375
Silvasa
18-24
KG-D6 (D1, D3 and MA fields)
PFY
375
Silvasa
18-24
NEC, KG-D6 14 discoveries and
KG D1 &D3 3P reserves, other DoC
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
Key macro risks
There are four key macro risks to our earnings forecasts and ratings:
Domestic or global economic slowdown may reduce refining and chemicals demand.
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.
Key valuation assumptions
EBITDA break-up (INRbn)
Year ended 31st March
2009
2010
2011e
RIL and RPL refinery throughput (mt)
31.4
60.9
65.7
67.6
188
RIL blended margins (USD/bbl)
12.2
6.5
8.2
10.7
108
109
Gas prod from KG-D6 (mmcmd)
0.0
40.0
55.7
60.8
132
147
Oil prod from KG-D6 (mmbbl)
0.6
5.4
7.2
9.0
(3)
(2)
0
84.7
69.6
80.0
85.0
309
371
445
Light heavy spread (USD/bbl)
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
Oil and Gas
102
Others
Total
Source: Company, Antique
Dubai crude assumption (USD/bbl)
2012e
Source: Company, Antique
Antique Stock Broking Limited
5
Reliance Industries Limited
Financials
Profit and loss account (INRbn)
Year ended 31st Mar
Cash flow statement (INRbn)
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
Depreciation & amortisation
(50)
(57)
(109)
(116)
(121)
EBIT
181
181
199
255
Interest expense
(11)
(18)
(21)
60
16
199
Other income
Profit before tax
Year ended 31st Mar
2008
2009
2010
2011e
2012e
181
181
199
255
324
68
77
140
116
121
Interest expense
(11)
(18)
(21)
(25)
(30)
(Inc)/Dec in working capital
(46)
(58)
(59)
(20)
(23)
324
Tax paid
(25)
(19)
(31)
(43)
(60)
(25)
(30)
Others
25
37
EBIT
Depreciation & amortisation
(6)
0
(23)
28
34
CF from operating activities
162
163
205
312
365
(267)
(279)
(233)
(194)
(136)
43
34
26
2
2
(80)
14
24
19
31
(304)
(231)
(182)
(172)
(102)
17
152
5
1
1
172
184
(57)
(22)
(23)
230
179
377
255
331
Capital expenditure
Taxes incl def. taxation
(35)
(29)
(43)
(51)
(66)
Inc/(Dec) in investments
Profit after tax
195
150
245
204
265
Others
Adjusted profit after tax
148
153
154
204
265
CF from investing activities
53
47
47
62
81
Recurring EPS (INR)
Inc/(Dec) in share capital
Inc/(Dec) in debt
Balance sheet (INRbn)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Share Capital
14.5
16.4
29.8
29.8
29.8
Reserves & Surplus
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
Gross Fixed Assets
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
Capital work in progress
499
738
170
180
80
95
66
131
131
131
Investments
Current Assets, Loans & Advances
Inventory
191
201
344
402
434
Debtors
61
48
101
118
127
Cash & Bank balance
45
227
139
207
391
218
110
107
125
135
Loans & adv. and others
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
228
345
381
453
480
41
44
45
45
46
246
199
265
353
560
Def. tax assets/ (liabilities)
(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
Per share data
Year ended 31st Mar
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
7
8
8
2012e
No. of shares (m)
Others
(21)
(85)
(60)
(51)
(58)
CF from financing activities
167
250
(111)
(72)
(79)
Net cash flow
25
182
(89)
68
184
Opening balance
19
45
227
138
207
Closing balance
45
227
138
207
390
2012e
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
Revenue
21
10
35
19
8
EBITDA
15
3
30
20
20
PAT
22
3
1
32
30
EPS
27
(11)
1
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
1
1
1
1
1
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
9
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
Source: Company Antique
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
17
16
15
15
17
EBIT
13
12
10
11
12
PAT
11
10
8
8
10
Source: Company, Antique
Antique Stock Broking Limited
6
COMPANY UPDATE
Tata Consultancy Services Limited
All in favour: ‘Presence, Technology & Time’
Investment rationale
TCS, the largest Indian software services company, provides full breadth of
services across banking, insurance, manufacturing, telecom, retail and
transportation industries. Our belief that TCS will do well in coming quarters is
based on the fact it is well placed in the fastest growing domestic IT services
market and has strong technological capabilities (products - "Banc" and services)
coupled with agile resource management mechanism (lowest attrition).
Domestic presence
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.
"BANCS" deal worth over USD100m
27 December, 2010
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR1,140
INR1,288
13%
Market data
Sector
:
IT
Market Cap (INRbn)
:
2,233.4
Market Cap (USDbn)
:
49.5
O/S shares (m)
:
1,957.2
Free Float (m)
:
459.9
52-wk HI/LO (INR)
:
1,177/676
Avg 6m Vol (‘000)
:
2,001.8
Bloomberg
:
TCS IN
Reuters
:
TCS.BO
Source: Bloomberg
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 7075%, with a good predictable tail.
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%
Valuation and outlook
PAT* growth (%)
EPS (INR)
EPS growth (%)
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
5
30
31
20
26.0
27.4
35.8
46.7
56.1
19
5
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
EBITDA* growth (%)
2009
278,129
Oct-09
EBITDA (INRm)
2008
226,195
Apr-09
Net revenues (INRm)
250
200
150
100
50
0
-50
Oct-08
Year ended 31st Mar
Price performance vs Nifty
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
[email protected]
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.
"Products" Deal from one of the largest banks
Won BANCS" deal worth over
USD100m
"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.
Lowest attrition, high utilisation, improving margins
TCS has the lowest attrition
rate of (~13%) and highest
utilisaton of (~83%)
Antique Stock Broking Limited
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.
Large deals and integrated
solutions
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
Higher attrition contains utilisation
16%
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%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
TCS-Utilization
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
Infosys-Utilization
Infosys -Attrition
TCS-Attrition
Source: Company, Antique
Higher utilisation keeps employee cost low
Lower utilisation leads to increase in employee cost
38%
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
Source: Company, Antique
Valuation and outlook
TCS derives a significant amount of revenue from the Asia Pacific region (~16%) of
which a major portion (~9%) is from India. We believe TCS being a Tata Group
company will have a significant edge over other IT players in this market. Also, lack of
capital with many of regional and rural institutions (for instance banks) throws a
significant opportunity for TCS which can provide reasonably priced solutions for the
institutions on the back of its technological expertise. 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 with a target
price of INR1,288 based on 23x FY12e EPS estimate of INR56.
Antique Stock Broking Limited
9
TCS Ltd.
Financials
Profit and loss account (INRm)
Year ended 31st Mar
Cash flow statement (INRm)
2008
2009
2010
2011e
2012e
Year ended 31st Mar
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
Taxes incl deferred taxation
Extra ordinary Items & others
Profit after tax
2,721
Recurring EPS (INR)
Depreciation & amortisation
Interest expense
Interest / Dividend Recd
Other adjustments
Year ended 31st Mar
Reserves & surplus
Networth
(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
CF from investing activities (26,187) (34,329) (41,705)
42,272
195,977
(27)
Income from investments
757
(288)
(109)
(193)
(213)
(125)
(4,174)
(567)
-
(14,955)
(16,142)
(47,653)
(90,521)
(78,747)
CF from financing activities (14,410) (16,555) (51,936) (91,281)
(78,773)
Opening balance
1,033
-
-
Deferred tax liability
3,533
4,732
4,304
5,038
5,038
Capital employed
131,085
167,364 190,004 220,016
(4,808)
(11,168)
2,957
5,632
(2,426)
CF from operating activities 39,068
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
157,000 184,667 214,978
5,637
8,673
2008
121,023
2012e
142,081
(5,157)
Dividends & Interest paid
123,001
2010
(5,673)
Net cash flow
Share capital
2011e
82,901 115,632
(13,947)
Inc/(Dec) in debt
Balance sheet (INRm)
2009
61,501
(Inc)/Dec in working capital
Inc/(Dec) in share capital
Note: Revenues are ex-other income
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
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
252,310
Revenue
21
23
8
28
26
EBITDA*
20
26
21
39
23
Gross fixed assets
42,918
58,439
64,195
86,104
110,104
Accumulated depreciation
16,222
23,597
28,975
35,610
46,031
PAT*
19
5
30
31
20
64,073
EPS*
19
5
30
31
20
Note:*ex-one time items
Net assets
26,696
Capital work in progress
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
Cash & bank balances
12,234
26,981
47,186
77,389
312,612
Loans & advances and others
47,591
81,549
85,809
95,365
95,365
Investments
Valuation (x)
Current assets, loans & advances
Inventory
Current liabilities & provisions
Creditors
31,906
42,536
40,938
63,326
77,713
Other liabilities & provisions
12,866
17,266
43,001
16,614
16,614
Net current assets
Application of funds
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
1
1
2
2
3
EV/Sales
Dividend Yield (%)
69,258
109,324 107,789 182,817
416,701
Financial ratios
131,085
167,364 190,004 233,204
265,497
Year ended 31st Mar
Per share data
Year ended 31st Mar
2008
2009
2010
2011e
2012e
No. of shares (m)
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)
Year ended 31st Mar
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
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
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
Market Cap (INRbn)
:
1,308.0
Market Cap (USDbn)
:
29.0
O/S Shares
:
7,698.9
Free Float (m)
:
4,557.8
52-wk HI/LO (INR)
:
185/112
Avg Daily Vol ('000)
:
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
Valuation and outlook
At the CMP of INR167, the stock trades at a PE of 25.5x FY11e and at 21x
FY12e. We reiterate our BUY recommendation with a target price of INR192,
providing a 15% upside from the current levels. Our target price is based on
our SOTP valuation in which we have valued the cigarette business at 16x
FY12e EV/EBITDA and other FMCG division at 2x FY12e sales and the Agri
business, Paper business and Hotel business at 6x, 6x and 10x FY12e EV/
EBITDA. We believe that the high EV/EBITDA multiple provided to the cigarette
division is in line with the current valuations of its FMCG peers.
Key financials
DII
36%
Source: BSE
Price performance vs Nifty
220
2009
2010
2011e
2012e
170
153,881
179,609
213,760
254,103
120
48,585
60,740
73,523
87,233
70
EBITDA margin (%)
31.6
33.8
34.4
34.3
20
EBITDA growth (%)
11
25
21
19
32,036
40,610
50,782
60,806
3
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)
3
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
Source: Company, Antique
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
Year ended 31st Mar
FII
14%
Others
50%
ITC
NIFTY
Source: Bloomberg
Abhijeet Kundu
+91 22 4031 3430
[email protected]
ITC Limited
Investment rationale
Sharp hike in duties have not
impacted profitability in cigarettes
50
Resilience of the cigarette business would aid outperformance
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
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 business, 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 reduced from about INR1,952m (sales INR5,634m) in FY05 to
INR3,495m (sales INR36,417m) in FY10. While the improvement in the paper business
has been aided by improvement in technology and backward integration, improvement
in profits in agri business and reduction in losses in non-cigarette FMCG has been due
to increased focus on higher margin products. The margin improvement in agri business
especially during FY10 has been due to the higher sales of leaf tobacco while the
decline in losses of non-cigarette FMCG business was due to the improvement in product
mix in biscuits. Additionally, decline in commodity prices also led to decline in losses of
the non-cigarette business. Going ahead, we estimate Paper business to post a PBIT
margin expansion of 230bps to 23.5% in FY11and expect other FMCG division to
post lower loss at ~INR2.92bn in FY11e against a loss of INR3.49bn in FY10.
Improving profitability across major businesses
Rising contribution of leaf tobacco exports
70
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
0
FY05
FY06
Paper
FY07
Agri
FY08
FY09
Non-cigarette FMCG
Hotels
FY10
Internal consumption
Leaf tobacco
FY09
FY10
Other agri products
Source: Company, Antique
Antique Stock Broking Limited
12
ITC Limited
Revival in hotels and increase in market share in personal care to act
as triggers
Hotels division is expected to witness a continued revival in FY11e and to 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 FY11. We
expect the division to witness ~27.5% PBIT margins during FY11e, while to touch
FY09 profitability of 31% by FY12e. We anticipate the division to record ~28%
CAGR in revenues and ~46% CAGR in PBIT during FY10-12e. This in turn would lead
to a rerating of the division.
Revival in hotels and increase
in market share in the
personal care would act as
triggers for the stock
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.
Sales to grow 19% CAGR, PAT growth at 22% CAGR
30x
We expect ITC to record accelerated growth of 19% CAGR in sales to INR254bn
during the next two years (FY10-12) led by higher growth in non-cigarette FMCG and
agri business. Profit after tax is expected to grow at a higher rate of 22% CAGR to
INR60.8bn aided by improvement in profitability across all businesses. Cigarette division
is expected to witness improvement in profitability to the tune of 242bps to 31%
during FY10-12e backed by price hikes and richer mix. ITC's FMCG division is expected
to grow by 34% CAGR during FY10-12 to INR65.7bn while losses are expected to
reduce to INR2,302m by FY12e. Hotel is expected to witness 27.5% PBIT margins
during FY11e, while to touch FY09 profitability of 31% by FY12e. We anticipate the
division to record 28% CAGR in revenues and 46% CAGR in PBIT during FY10-12.
This in turn would lead to a rerating of the division. We expect a steady EBIT margin
of about 11.5-12% for ITC's agri division while EBIT margin of the paper division is
expected to witness 234bps to 23.5% during FY10-12e.
25x
Valuation and outlook
ITC PE(x) valuations
220
200
180
160
140
120
100
80
60
40
20
0
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.
Source - Bloomberg, Antique
Antique Stock Broking Limited
13
ITC Limited
Financials
Profit and loss account (INRm)
Year ended 31st Mar
Cash flow statement (INRm)
2008
2009
2010
2011e
2012e
Year ended 31st Mar
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
Depreciation & amortisation
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
Depreciation & amortisation
EBIT
Interest expense
Other income
Profit before tax
Taxes incl deferred taxation
(13,983)
(12,551)
(19,543)
(19,375)
CF from operating activities 25,088
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
Income from investments
6,109
4,750
6,034
9,000
10,500
CF from investing activities (13,420)
(11,144) (34,899)
Profit after tax
31,126
32,036
40,610
50,782
60,806
Adjusted profit after tax
31,126
32,036
40,610
50,782
60,806
4.1
4.2
5.3
6.6
8.0
Recurring EPS (INR)
(Inc)/Dec in working capital
Tax paid
Year ended 31st Mar
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
137,351 140,644 165,607
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
139,126 141,721 166,684
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
Capital work in progress
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
Cash & Bank balance
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
Current Assets, Loans & Advances
Inventory
Loans & advances and others
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Deferred tax assets/(liabilities)
27,870
Application of Funds
Closing balance
Year ended 31st Mar
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
3
27
25
20
3
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
Dividend Yield (%)
2.1
2.2
5.9
3.4
4.1
196,574
25.6
11263
(42)
139,126 141,721 166,684
5.7
(5,793)
10324
EPS
Year ended 31st Mar
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
(16,016) (39,537) (25,819)
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
Growth indicators (%)
17,405
2008
No. of shares (m)
Opening balance
34,561
Per share data
Year ended 31st Mar
Net cash flow
16,453
122,721
(9,500)
6
CF from financing activities (14,966)
25,870
Misc.Expenses
(6,000)
6
Inc/(Dec) in share capital
Dividends paid
Balance sheet (INRm)
(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)
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
14
COMPANY UPDATE
ICICI Bank Limited
Remarkable franchise building
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
Benefits from asset quality to accrue 3Q onwards.
Market data
Sector
:
Banks
Market Cap (INRbn)
:
1,284
Market Cap (USDbn)
:
28
O/S shares (m)
:
1,148
Free Float (m)
:
634
52-wk HI/LO (INR)
:
1,279/712
Avg 6m Vol (‘000)
:
3,642
Bloomberg
:
ICICIBC IN
Reuters
:
ICBK.BO
Returns (%)
1m
3m
6m
12m
Absolute
(1)
0
26
29
Relative
(4)
0
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%
Valuation and recommendation
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.
YoY growth (%)
EPS (INR)
BPVS (INR)
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
Source: Company, Antique
110
50
2008
28.5
P/E (x)
140
Apr-08
PAT (INRm)
Price performance vs Nifty
Oct-07
YoY growth (%)
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.
Year ended 31st Mar
:
:
:
:
:
NIFTY
Source: Bloomberg
Alok Kapadia
+91 22 4031 3442
[email protected]
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)
Loan mix has tilted towards large corporates
15
100%
10
80%
5
60%
0
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
Corporate and SME
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
Traction in liability franchise to boost margins
Strong traction in savings deposits
35
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY11 FY11
Deposit grow th QoQ
Source: Company, Antique
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
0
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
ICICI bank narrow ing ALM mismatch
2.5
2.0
1.5
2002 2003 2004 2005 2006 2007 2008 2009 2010
Deposits (LHS)
Advances (RHS)
Source: Company, Antique
Tangible benefits from improving asset quality 3QFY11 onwards
The bank has shown a remarkable improvement in asset quality trends with slippage
ratios witnessing a sharp reduction at ~0.9% in 2QFY11 from the peak of 2.7% in
1QFY10. Accretions to NPLs from ICICI bank were practically negligible - bulk of
NPLs accretion has happened due to merger of BOR.
Antique Stock Broking Limited
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
Trends in credit costs
3.0%
2.6%
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
loan loss provisioning
Source: Company, Antique
14
12
4
8.0
8.9
6
7.8
9.1
8
0.6
0.4
0.2
-
Valuation and outlook
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
RoE to show traction FY12e onwards
RoA to show traction in FY12e
16
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)
Core Banking business
BV
Basis
2.5
100
1,015
ICICI Canada
BV
1
100
55
ICICI Bank UK
BV
1
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
ICICI Home finance
BV
1.5
100
25
Total
1,320
Source: Antique
Antique Stock Broking Limited
17
ICICI Bank
Financials
Profit and loss account (INRm)
Growth ratios (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Year ended 31st Mar
2008
2009
2010
2011e
Net interest income
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)
9
19
Trading profits
19,458
18,180
8,662
2,000
2,500
PAT
34
(10)
7
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
6
(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
Provision for tax
PAT
Balance sheet (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Advances
2,256,160 2,183,110 1,812,056 2,117,294 2,480,570
Investments
1,114,543 1,030,553 1,208,928 1,294,810 1,506,554
Cash and bank balances
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
3,792,975 3,633,997 4,092,745
4,761,452
Total assets
3,997,950
Valuation ratios (x)
Year ended 31st Mar
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
Operating ratios (%)
Year ended 31st Mar
Operating cost to income
Operating expenses/avg. assets
Profitability ratios (%)
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
Net interest margin
2.0
2.1
2.2
2.4
2.5
Networth
464,702
495,333
516,184
555,699
604,841
Return on avg. assets
1.1
1.0
1.1
1.4
1.5
3,500
3,500
Return on avg. net worth
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
2,444,311 2,183,478 2,020,166 2,391,912 2,915,820
Other liabilities
221,452
Total assets
3,997,950
170,513
196,090
3,792,975 3,633,997 4,092,745
182,647
155,012
4,761,452
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Shares outstanding (m)
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
Book value per share (INR)
Asset quality and capital (%)
Year ended 31st Mar
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
Per share data
EPS (INR)
Year ended 31st Mar
Loan loss provisions/avg loans
Tier I capital adequacy
1.2
1.7
2.2
1.3
1.2
11.8
12.2
13.5
13.8
11.8
Source: Company Antique
Source: Company, Antique
Antique Stock Broking Limited
18
COMPANY UPDATE
Larsen & Toubro Limited
Big Daddy
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
Market Cap (INRbn)
:
1,191
Market Cap (USDbn)
:
26
O/S Shares
:
608
Free Float (m)
:
413.1
52-wk HI/LO (INR)
:
2213/1371
Avg Daily Vol ('000)
:
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%
Valuation and outlook
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. Our SOTP value is INR2,167.
We have valued standalone business at 23x earnings FY12e. The other key
subsidiaries: a) L&T Finance Holdings Limited has been valued at 1.5x book
value FY12e. b) L&T Infotech and IT businesses has been valued at 15x
FY12e estimates. c) L&T IDPL & L&T Urban Infrastructure has been valued at
1.5x book value of FY12e and d) Supercritical JV at INR50bn.
Others
46%
DII
37%
Source: BSE
Price performance vs Nifty
140
100
Revenue (INRm)
297,130
404,787
439,698
518,691
645,107
EBITDA (INRm)
35,875
49,339
64,218
68,800
88,617
EBITDA growth (%)
65
37
30
7
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 (%)
Source: Company, Antique
60
20
LT
Source: Bloomberg
Dec-10
2012e
Jun-10
2011e
Dec-09
2010
Jun-09
2009
Dec-08
2008
Jun-08
Year ended 31st Mar
Dec-07
Key financials
NIFTY
Abhineet Anand
+91 22 4031 3441
[email protected]
Mohit Kumar
[email protected]
Mohit Gulati
[email protected]
Larsen & Toubro
Investment rationale
Sector-wise Investment in XIth FYP
Electricity
2
Infrastructure spend for XIIth plan estimated to be ~USD1tn
Ro ads & B ridges
2 6
32
5
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
Source: Planning Commision, Antique
Infrastructure investment in XIIth FYP (USDtn)
Infrastructure spends in XIIth FYP (USDtn)
300
12
10
10
8
250
6
4
100
2
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
0
XIIth FYP (e)
8.0
GDP
Infrastrcuture Investment
Infrastrcuture Investment (% of GDP)
FY15e
FY16e
FY17e
Infrastructure Investment
Infrastructure Investment (%of GDP)
Source: Planning Commision, Antique
L&T’s 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
Order book to sales
Source: Company, Antique
Power BTG capacity in line, benefits to accrue
L&T and MHI have jointly set up a BTG manufacturing facility of ~4,000MW at Hazira,
Gujarat. While there have been a lot of players to show interest in setting up similar
BTG facilities; attracted by huge opportunity in the BTG space, however we believe
Antique Stock Broking Limited
20
Larsen & Toubro
BTG order
Capacity
(MW)
Amount
JP Power Ventures Nigrie Project
1,320
4,000
JP Power Ventures Karchana Project
1,980
6,500
APPDCL*
1,600
(INRm)
1,500
Total
12,000
Source: Company, Antique
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.
Value unlocking round the corner in key subsidiaries
L&T Finance Holdings Limited, a wholly-owned subsidiary, has reported revenue of
INR9.6bn and PAT of INR1.6bn in FY10. The revenue and PAT grew 16% and 60%
YoY, respectively. Another key subsidiary 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. We expect the value unlocking in both
the subsidiaries by FY12/13.
Valuation of L&T Finance
FY10
FY11e
FY12e
11,269
13,148
15,309
L&T Infra Fin
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.
Valuation and outlook
L&T Infotech Limited - Revenue, PAT
and margin
16%
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
Antique Stock Broking Limited
FY12e
9%
FY11e
15,000
FY10
12%
FY09
20,000
PAT
Methodology
FY12e
PE
1,813
L&T Infotech and Other IT business
PE
98
L&T Finance Holdings Limited
PB
75
L&T IDPL and L&T Urban Infrastructure
PB
70
Supercritical JV
PE
84
Foreign Subsidiaries
PE
15
Machinery and Industrial
PE
Total
13
2,167
Source: Company,Antique
21
Larsen & Toubro
Financials
Profit and loss account (INRm)
Year ended 31st Mar
Cash flow statement (INRm)
2008
2009
2010
2011e
2012e
Year ended 31st Mar
Revenues
297,130
404,787
439,698
518,691
645,107
EBIT
Expenses
261,255
355,448
375,480
449,891
556,490
Depreciation & amortisation
EBITDA
35,875
49,339
64,218
68,800
88,617
Interest expense
Depreciation & amortisation
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
(Inc)/Dec in working capital
(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)
Profit before tax
34,166
43,261
73,440
60,351
78,522
Inc/(Dec) in investments&others (556,094)
8,756
Taxes incl deferred taxation
11,471
14,240
20,374
18,988
24,705
Income from investments
5,837
Profit after tax before minority
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
Profit after tax
Adjusted profit after tax
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
Recurring EPS (INR)
Balance sheet (INRm)
Year ended 31st Mar
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
139,877 209,913 241,778 296,533
194,574
237,432
294,012
318,040
334,451 447,345 535,790
614,573
Gross Fixed Assets
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
Capital work in progress
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
Current Assets, Loans & Advances
Inventory
50,190
71,060
23,782
33,295
46,613
Debtors
82,344
116,440
125,280
168,778
194,094
Cash & Bank balance
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
-
-
-
-
240,697 334,452 447,345 535,790
614,573
Loans & advances and others
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Deferred tax assets/(liabilities)
Misc.Expenses
Application of Funds
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
(40,182) (43,234) (16,941)
(21,989)
(1,497)
(5,093)
(7,219)
(10,350)
-
CF fm financing activities
78,591
50,131
57,321
56,865
24,028
Net cash flow
(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
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
Revenue
24
43
9
18
24
EBITDA
65
37
30
7
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
Dividend Yield (%)
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
Source: Company Antique
Per share data
Year ended 31st Mar
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
No. of shares (m)
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
Source: Company, Antique
Antique Stock Broking Limited
22
COMPANY UPDATE
Tata Motors Limited
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
Market Cap (INRbn)
:
772
Market Cap (USDbn)
:
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.
O/S shares (m)
:
531
Beneficiary from strong CV cycle
The demand drivers for the company's CV business are stronger than ever
given its high co-relation with the uptick in industrial activities. Uptick in
industrial production has kept freight movement extremely buoyant and brought
back the pricing power with the freight operators. Tata Motors is the biggest
beneficiary from the same given its 60% market share in CVs.
Free Float (m)
:
299
52-wk HI/LO (INR)
:
1,382/634
Avg 6m Vol (‘000)
:
3,149
Bloomberg
:
TTMT IN
Reuters
:
TAMO.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
7
22
66
67
Relative
4
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%
Valuation and outlook
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)
Price performance vs Nifty
Dec-08
Year ended 31st Mar
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
Balance sheet woes behind!
NIFTY
Source: Bloomberg
Ashish Nigam
+91 22 4031 3443
[email protected]
Tata Motors Limited
JLR - The key driver!
JLR has witnessed a phenomenal recovery and we reckon that the stellar performance
will continue. On the volumes front, we expect JLR to maintain the strong momentum
driven by the positive response to its newer products coupled with increasing demand
for luxury cars from emerging markets. The gap between the wholesale dispatches
and the retail sales has come down post the inventory check over the last few quarters
and consequently inventory levels (company + dealer) now stands at around 80 days
as against 160 days two years back. Wholesale dispatches are now expected to
move in tandem with the retail sales.
On the margins front, 2QFY11 saw a margin expansion of 111bps QoQ despite
currency being sequentially unfavorable in 2QFY11 (USD depreciation/Euro
appreciation vis-à-vis GBP). This was driven by a better product mix (7% QoQ realisation
growth due to higher contribution of the Jag XJ and high-end Range Rover variants)
coupled with adequate forex hedges and cost-cutting initiatives across all cost-items.
Barring any negative surprise on the currency front, we expect EBIDTA margins 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.
JLR trends
Cost cutting measures - Employee cost under check
Improvement in realisations reflecting better product mix
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
0%
24,000
1QFY10 2QFY10 3QFY10
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
Employee costs (£ mn) (LHS)
4QFY10 1QFY11 2QFY11
Net Realisations (£)
% to sales (RHS)
Source: Company, Antique
Lower fixed costs reflecting cost cutting initiatives ...
400
… which aids a sharp turnaround in profitability
20%
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
0
0%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
Other Expenses (£ mn) (LHS)
% to sales (RHS)
-50
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11
EBIDTA (£ mn) (LHS)
-4%
EBIDTA margins (RHS)
Source: Company, Antique
Antique Stock Broking Limited
24
Tata Motors Limited
Dispatches
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
Net Profit (£m)
May-10
4QFY10
Apr-10
3QFY10
Mar-10
2QFY10
Feb-10
1QFY10
Nov-09
-75
Jan-10
0
4,333 4,794 2,974 3,292 4,642 3,559 5,120
Dec-09
0
Jaguar
6,776 5,676
3,788 4,861 3,219
5,621
Nov-10
150
Oct-10
20,000
Sep-10
225
Aug-10
25,000
Jul-10
300
Jun-10
JLR - Sustaining high profits
Land Rover
Source: Company, Antique
Thousands
JLR volumes - Wholesale volumes moving in tandem
with retail sales
Inventory days (company + dealer)
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
Source: Company, Antique
JLR - product mix
77% 77% 82%
23% 23%
Nov-09
81%
19%
18%
China and other emerging markets to lead JLR volume growth
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
Source: Company, Antique
Antique Stock Broking Limited
25
Tata Motors Limited
Beneficiary from strong CV cycle
The demand drivers for the company's CV business are stronger than ever given its
high co-relation with uptick in industrial activities. The Indian CV industry has witnessed
a domestic volumes growth of 16% CAGR over FY03-10. Roads are still the most
preferred mode of transport with approximately 85% of passenger movement and
65% of goods movement in the country happening via road. Uptick in industrial
production has kept freight movement extremely buoyant and brought back the pricing
power with the freight operators.
Testimony to this is the fact that the last diesel price hike post the budget (of INR2.6/
litre) was completely passed on. Diesel accounts for almost 60% of a transporter's
total cost, therefore, a 5% increase in diesel, increased freight rates by approximately
3%. Given the buoyancy in industrial production and consequent buoyancy in freight
movement, we expect any further increase in fuel prices to be easily passed on by the
freight operators. Tata Motors has maintained its dominance in CVs and is the biggest
beneficiary from this buoyancy in the industry with its market share consistently above
the 60% mark.
Tata Motors domestic passenger vehicles - market share
under pressure across segments
Overall CVs - Tata Motors leading by a mile!
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
Source: SIAM, Antique
MHCV Goods Carriers - Tata Motors regains lost
market share from Ashok Leyland
LCV market share
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
M &M (Incl Navistar)
Jul10
Nov10
Others
Source: SIAM, Antique
Antique Stock Broking Limited
26
Tata Motors Limited
Balance sheet getting cleaned up!
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. With a cleaner balance sheet and turnaround in operations the company is all
geared up to take advantage of the opportunities ahead.
Valuation and outlook
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 (around 7%). We
recommend a BUY with an SOTP-based TP of INR1,570, which values the standalone
business at INR595, JLR at INR880 and other subsidiaries at INR94 per share. Our
target price provides a 20% upside from the current levels.
Tata Motors - Shareholding Pattern
Tata Motors DVR - Shareholding Pattern
29% 29% 31% 35%
29% 28%
35% 32% 33% 34% 35% 33% 33% 33% 30%
24% 23% 20% 18% 16% 17% 17% 15% 15%
23% 22%
16%
16%
16%
12%
5%
4%
9% 7% 9% 11% 16% 18% 22% 24%
15% 15% 15% 16%
15% 16%
9% 10% 11% 11% 12% 13% 14%
15% 15% 15% 14%
84%
84%
84%
17%
19%
14%
14%
8%
7%
22%
23%
19%
21%
27%
25%
36%
36%
80%
57%
33% 33% 33% 33% 33% 33% 33% 33% 33%
42% 42% 41% 41% 38% 37% 37% 37%
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
Mutual Funds / UTI
Others
Promoter
Insurance
FIIs
Mutual Funds / UTI
Others
Source: Company, Antique
Tata Motor DVR - Discount to ordinary shares
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Nov- Dec- Jan- Feb- Mar- Apr- May- Jun09
09
10
10
10
10
10
10
Jul- Aug- Sep- Oct- Nov- Dec10
10
10
10
10
10
Source: Company, Antique
Antique Stock Broking Limited
27
Tata Motors Limited
Financials
Tata Motors Limited Standalone (INRm)
Standalone volumes (Nos.)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Year ended 31st Mar
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
0
0
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
JLR financials (GBPm)
Year ended 31st Mar
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
Land Rover volumes
120,300
146,496
182,801
205,006
Total volumes
167,300
193,904
239,553
267,670
JLR Geographical volumes (Nos.)
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
4
889
987
Europe (excl UK and Russia)
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
Rest of the World
2012e
Total
925,193 1,198,107 1,413,215
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
Source: Company Antique
191,262
Source: Company, Antique
SoTP valuation
Methodology
Value per share
Tata Motors Standalone
A
8x FY12e EV/EBIDTA
595
Jaguar Land Rover
B
5x FY12e EV/EBIDTA
880
Value of Key Subsidiaries & Investments: (pro-rated)
Stake
Telco Construction & Equipment
40%
Based on latest stake sale
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%
Listed Investments (Tata Steel, Auto Corp of Goa)
1x Book
22
8x FY12e EPS
16
Market Value
Total value of Key Subsidiaries & Investments
6
118
Discount
Holding company discount
Net Value of Key Subsidiaries & Investments
SOTP Value of Tata Motors
20%
24
C
94
A+B+C
1,570
Source: Antique
Antique Stock Broking Limited
28
COMPANY UPDATE
Tata Steel Limited
Crossing the Rubicon
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
Market Cap (INRbn)
:
607
Market Cap (USDbn)
:
13
O/S shares (m)
:
902
Free Float (m)
:
491
52-wk HI/LO (INR)
:
739/449
Avg 6m Vol (‘000)
:
7,864
Bloomberg
:
TATA IN
Reuters
:
TISC.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
9
7
35
9
Relative
6
7
19
(5)
Source: Bloomberg
Shareholding pattern
Valuation and outlook
TSL is very well placed with strong Indian operations, raw material integration
visibility in the longer term and improving European operations. The proposed
balance sheet deleveraging will bring a flexibility in capital decisions and
TSL will be the prime beneficiary of the upturn in steel industry.
Public and
others
25%
At the CMP of INR673, TSL is trading at 6.2x FY12e EV/EBITDA and is
attractively 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 an SOTP of INR768. We
FIs
27%
1,191
181
80
142
177
2
(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
Source: Company, Antique
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
Year ended 31st Mar
Price performance vs Nifty
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
European operations: Restructuring is ongoing
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
Indian operations: Focus on value-added volume growth
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
Jun-09
Investment rationale
NIFTY
Source: Bloomberg
Rajesh Zawar
+91 22 4031 3450
[email protected]
Tata Steel Limited
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
Source: Company, Antique
Sales volume (FY09)
EBITDA break-up (FY09)
3%
13%
Sales volume (FY12e)
19%
17%
27%
45%
52%
56%
India
Europe
Asia
68%
India Europe
Asia
India
Source: Company, Antique
Source: Company, Antique
EBITDA break-up (FY12e)
Early entry in value accretive raw material projects
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
Source: Company, Antique
Antique Stock Broking Limited
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.
Balance sheet deleveraging in the offing
The management has proposed fund raising of USD1.5bn through various options
with deleveraging being the keyword. The debt refinancing at Corus coupled with its
fund raising plan would provide flexibility to the management to focus on efficiency
and growth projects. This will help in expanding the present EBITDA of USD~50-60
per tonne in European operations.
30
Tata Steel Limited
Valuation and outlook
TSL is very well placed with strong Indian operations, raw material integration visibility
in the longer term and improvement in European operations. The proposed balance
sheet deleveraging will bring flexibility in capital decisions and TSL will be the prime
beneficiary of the upturn in steel industry.
We reiterate a BUY with an
upside of 14% from current
levels
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
One year forward rolling EV/EBITDA
10
8
6
4
M ar-06
Nov-06
Jul-07
M ar-08
Nov-08
Jul-09
M ar-10
Nov-10
Source: Company, Antique
Antique Stock Broking Limited
31
Tata Steel Limited
Financials
Profit and loss account (INRbn)
Year ended 31st Mar
Cash flow statement (INRbn)
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
5
3
12
11
-
100
108
17
74
95
40
19
22
25
32
63
(41)
(17)
-
-
123
48
(21)
49
63
Depreciation & amortisation
EBIT
Interest expense
Other income
Profit before tax
Taxes incl deferred taxation
Exceptional Items
PAT
Adjusted profit after tax
Recurring EPS (INR)
123
50
(20)
48
61
176.8
66.1
(24.9)
52.6
66.9
2008
2009
2010
2011e
2012e
62
62
9
9
9
Reserves & Surplus
280
215
219
283
344
Networth
342
277
228
292
354
Debt
536
599
531
531
531
8
9
9
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
Current Assets, Loans & Advances
Inventory
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)
Cash & Bank balance
Loans & advances and others
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Deferred tax assets/(liabilities)
Misc.Expenses
Application of Funds
2009
2010
2011e
2012e
164
67
0
74
95
Depreciation & amortisation
41
43
45
46
50
Interest expense
45
38
35
32
32
(Inc)/Dec in working capital
(22)
3
46
(33)
(8)
Tax paid
(27)
(34)
(25)
(25)
(32)
Others
(67)
40
3
-
-
Cash flow from op activities
134
157
105
94
137
Capital expenditure
(84)
(84)
(71)
(75)
(75)
Inc/(Dec) in investments
(384)
(28)
20
(20)
(20)
Income from investments
6
4
5
-
-
Cash flow from inv activities (462)
(108)
(47)
(95)
(95)
Inc/(Dec) in share capital
104
0
24
16
-
Inc/(Dec) in debt
111
(15)
(63)
(32)
(32)
Cash flow from fin activities
Net cash flow
Opening balance
Closing balance
(9)
(12)
(13)
-
-
205
(28)
(51)
(16)
(32)
(123)
21
6
(17)
10
165
40
61
68
51
42
61
68
51
61
2012e
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
Revenue
422
12
(31)
8
7
EBITDA
139
2
(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
Dividend Yield (%)
2.4
2.4
1.2
1.2
1.2
2012e
Financial ratios
2008
2009
2010
2011e
(17)
RoE (%)
36
18
(9)
16
Year ended 31st Mar
17
15
16
5
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)
3
4
1
3
4
Per share data
Year ended 31st Mar
2008
Dividends paid
Balance sheet (INRbn)
Year ended 31st Mar
Year ended 31st Mar
Source: Company Antique
2008
2009
2010
2011e
2012e
No. of shares (m)
730
730
887
914
914
BVPS (INR)
468
380
257
320
387
CEPS (INR)
226
126
28
103
121
DPS (INR)
16
16
8
8
8
2012e
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
EBITDA
14
12
8
13
15
EBIT
10
9
3
9
11
PAT
9
3
(2)
4
5
Source: Company, Antique
Antique Stock Broking Limited
32
Holds further promise ...
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 company’s 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
Market Cap (INRbn)
:
487
Market Cap (USDbn)
:
11
O/S Shares
:
1,030
Free Float (m)
:
544
52-wk HI/LO (INR)
:
477/280
Avg Daily Vol ('000)
:
1,428
Bloomberg
:
SUNP IN
Reuters
:
SUN.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
4
23
32
51
Relative
(1)
23
16
31
Source: Bloomberg
Shareholding pattern
FII
19%
Valuation and outlook
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
EBITDA growth (%)
PAT (INRm)
PAT growth (%)
21
(28)
18
38
13
EPS (INR)
17.6
13.0
14.6
20.3
22.8
EPS growth (%)
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
Source: Company, Antique
NIFTY
Dec-10
42,723
EBITDA (INRm)
Aug-10
Net revenues (INRm)
Apr-10
2013e
Dec-09
2012e
Aug-09
2011e
250
200
150
100
50
0
Apr-09
2010
Price performance vs Nifty
Dec-08
2009
Source: BSE
Aug-08
Year ended 31st Mar
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
[email protected]
COMPANY UPDATE
Sun Pharmaceutical Ind Limited
Sun Pharmaceutical Industries Limited
Investment rationale
Strong therapy presence
D iv e rs if ie d T he ra py pre s e nc e
4% 2%
Core business to drive growth
6%
27%
5%
Strong product portfolio in the domestic formulation business as compared to peers
5%
7%
14%
19%
CNS
CVS
Res p
Others
11%
GI
Gynea c
Optha l
Di a betes
MS
Onco
Source: Company, Antique
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.
Clarity emerges in the US business; headwinds to continue
After almost 24 months into the drug seizures by the FDA, the management at Caraco
has finally announced a remediation course to the time taken to resolve the
manufacturing issue. Under the terms of the Consent Decree, before resuming the
manufacturing of any product in the Company's manufacturing facility in Detroit, a
number of significant steps and processes are required to be completed, and
certifications and approvals from both outside experts and the FDA are to be obtained.
Caraco has submitted a remediation action plan providing an update on resuming
manufacturing of own products for the local markets. Caraco will introduce two products
by 1HCY11; followed by three products which will commence production by 1HCY12.
We believe company to start production of its own products by end of CY12; full
traction of sales is expected to be registered in FY13e only.
Taro Pharma - Patience Pays
Sun Pharma announced to acquire Taro Pharma in May 2007 for USD 454m (a price
of USD7.75/share). After three years of legal battle, the Israeli Supreme court ruling
paved the way for allowing Sun Pharma to take complete control on Taro Pharma.
Sun Pharma also acquired 12% stake from Templeton Asset Management for USD14/
share resulting in 75% control of the company with majority voting rights.
Taro Snapshot
400
100
Scale up benefits from Taro
350
80
300
60
250
40
200
20
150
0
100
(20)
50
(40)
0
(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 company’s 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.
Net Sales (USDm)
Source: Company, Antique
Antique Stock Broking Limited
% Gro wth
34
Sun Pharmaceutical Industries Limited
One time opportunities
FY10
Exelon
Effexor XR
FY11e FY12e
0
1.8
0
FY13e
0
0.7
4.5
0
0
Taxotere
0
0
0
12.0
Prandin
0
0
0
4.3
Potential upside from one time opportunities
Sun Pharma has over 108 products awaiting approval from the US FDA and we
expect these approvals to come through in the next couple of years, especially the
ones which have limited competition. However, none of the products provide large
upside to the profits and hence we have not incorporated the same in our estimates.
Source: Industry reports, Antique
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.
Subsidiaries to provide growth impetus to Sun’s core business
40
20%
30
10%
20
0%
10
-
-10%
To tal Revenues (INRbn)
GR%
Source: Company, Antique
We expect company’s 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.
Integration to leverage economies of scale and positively impact
operating margins
Margin trend (%)
50%
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%
High cash keeps return ratios lower
25%
EB IDTA (%)
Net margins (%)
Source: Company, Antique
Lower return ratios
50%
45%
40%
35%
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.
Valuation and outlook
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
Source: Company, Antique
Antique Stock Broking Limited
We reiterate a BUY recommendation on the stock and a price target of INR526
providing an upside of 13% from current levels.
35
Sun Pharmaceutical Industries LImited
Financials
Profit and loss account (INRm)
Cash flow statement (INRbn)
Year ended 31st Mar
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
Depreciation & amortisation
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
0
1,988
20,725
15,682
Recurring EPS (INR)
2013e
2,048
2,048
2,048
0
0
0
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
2011e 2012e 2013e
19,492
14,148
17,246 23,997 27,386
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)
7
(4,335)
(2,891)
(1,690)
(1,624)
(1,380)
(2,160)
(2,739)
CF from operating activities 21,649
7,933
12,795
17,712 22,257
Interest / Dividend Recd
Other adjustments
(Inc)/Dec in working capital
Tax paid
Capital expenditure
(Purchase)/Sale of Investments
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)
CF from financing activities (2,666)
(3,464)
Net cash flow
1,252
2,210
3,607 (5,821) (5,268)
(3,800)
11,139 16,238
Growth indicators (%)
2009
2010
1,712
Revenue
27.3
(8.6)
19.8
35.2
13.4
20.2
(37.5)
46.2
42.2
15.2
91,501 109,918 130,608
7,222
2,549
118,934
CF from investing activities (17,730)
Dividends & Interest paid
Balance sheet (INRbn)
Year ended 31st Mar
Year ended 31st Mar
Year ended 31st Mar
2011e 2012e
2013e
Deferred tax liability
(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
81,042 100,515 116,532
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
Year ended 31st Mar
PE
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
Current assets, loans & advances
Inventory
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
Loans & advances and others
6,983
8,488
8,488
8,488
8,488
Other Current assets
441.3
74
74
74
74
Cash & bank balances
Valuation (x)
Current liabilities & provisions
Creditors
3,767
4,095
4,676
6,320
7,169
Other liabilities & provisions
3,431
3,484
3,484
3,484
3,484
Net current assets
35,485
29,542
25,735
41,209
60,338
Application of funds
73,530
81,042 100,515 116,532
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
Per share data
Year ended 31st Mar
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
No. of shares (m)
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
Source: Company, Antique
Antique Stock Broking Limited
36
COMPANY UPDATE
Mahindra & Mahindra Limited
True Son of the Soil!
27 December, 2010
Investment rationale
Core businesses couldn’t 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
Market Cap (INRbn)
:
454
Market Cap (USDbn)
:
10
O/S shares (m)
:
597
Mahindra ~ Ssangyong - A match made in heaven
Free Float (m)
:
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.
52-wk HI/LO (INR)
:
827/474
Avg 6m Vol (‘000)
:
2,419
Bloomberg
:
MM IN
Reuters
:
MAHM.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(3)
10
21
43
Relative
(6)
10
7
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
Adjusted EPS (INR)
19.1
18.2
35.0
45.8
56.7
Core Auto PE (x)
16.2
18.2
17.2
13.2
10.6
Core EV/EBIDTA (x)
25.9
28.1
11.6
9.7
7.8
Source: Company, Antique
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
Price performance vs Nifty
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%
Valuation and outlook
Year ended 31st Mar
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&M’s foray into larger commercial vehicles.
Jun-10
Force to reckon within the CV space
NIFTY
Source: Bloomberg
Ashish Nigam
+91 22 4031 3443
[email protected]
Mahindra & Mahindra
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%
Utility vehicles market share
55%
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
Source: SIAM, Antique
Source: Company, Antique
Tractor Industry on a strong footing
On the back of the government's strong focus on the agriculture sector coupled with
improving farm mechanisation and a good monsoon, the tractor industry is in for a
good run. Our outlook on the tractor division too is extremely positive given the
structural shift in the tractor industry. The tractor industry has grown by 14% from
FY03-FY10, led by increase in disposable incomes on the back of rising MSPs over
the past few years, coupled with an enhanced focus on increasing farm credit. Farm
mechanization is on the rise attributable to a low availability of labour and sharp
increase in labour costs ~ a function of various policy measures including the increase
in allocation for NREGA (National Rural Employment Guarantee Act), which has
made rural labor scarce and expensive.
MSP of key crops
NREGA (INRbn)
INR/quintal
1,050
390
950
Sharp increase in MSPs
850
300
750
650
550
120
450
FY04
FY05
Paddy
FY06
Jow ar
Source: Ministry of Agriculture, Antique
Antique Stock Broking Limited
FY07
FY08
Bajra
FY09
FY10
Maize
FY08
FY09
FY10
Source: NREGA, Antique
38
Mahindra & Mahindra
Tractors ~ Co-relation with rainfall
40%
30%
20%
10%
0%
-10%
-20%
-30%
FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11e
Tractors
Rainfall (deviation from norm)
Source: IMD, Antique
NREGA has made farm labour
scarce and expensive - forcing
many farmers to mechanise
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.
Mahindra ~ Ssangyong - A match made in heaven
Multiple Synergies
The Mahindra ~ Ssangyong alliance has multiple synergies for both parties. As both
cater to different segments within UVs, there is no product overlap - in fact it is more of a
continuum. Ssangyong with its superior product line comprising Rexton, New Kyron
Korando C and Actyon caters to the middle to upper UV segment which complements
M&M's current product portfolio very well as it caters to lower to middle UV segment.
Furthermore, possibility of sharing components/vendors in the future provides headroom
for cost savings for both parties going ahead.
Antique Stock Broking Limited
39
Mahindra & Mahindra
M&M would also get a huge technological leap as Ssangyong's products are far superior
and about 2 life cycles ahead of M&M’s (Euro V and soon to be Euro VI compliant in
comparison to M&M's Euro IV). Ssangyong also has engines which go up to 175hp,
whereas M&M's engines capacity stretches only up to 140hp. M&M can leverage on
Ssangyong's superior technology to improve its own domestic portfolio. It also plans to
assemble some of the popular Ssangyong’s SUV brands in India, which will further
strengthen its leadership position in the domestic UV market. Ssangyong on the other
hand benefits from access to the lucrative Indian automobile market.
Superior technology, vast
dealer base - strongest
synergy of the alliance
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.
No strain on balance sheet Icing on the cake!
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
6
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
2
0
0
0
515
(28,404)
(13,192)
829
PAT
Source: Company, Antique
Antique Stock Broking Limited
40
Mahindra & Mahindra
Force to reckon within CVs
M&M is soon becoming a force to reckon within the LCV space (especially in the sub
one tonne category), kick-started by the savvy product placement of 'Gio' and 'Maxximo'.
The mini-truck market is estimated at around 200,000 units, growing by 20% pa (as
against 15% for the CV industry). It is a booming category in India, driven by growing
popularity of hub-and-spoke distribution model and rising importance of small
transporters' role in the road freight process.
M&M giving Tata Motors a run
for its money in the mini-truck
segment
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
Source: SIAM, Antique
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.
Antique Stock Broking Limited
41
Mahindra & Mahindra
Mahindra enjoys a parentage, probably as strong as the Tata's and given the already
well-established brand name and strong sales and distribution services, all it needs is
the right product. We believe that with the Maxximo and Gio, M&M has two potential
winners on its hands and the company has got it spot on as far as the product
placement is concerned. This further reinstates our positive view on M&M as it becomes
a force to reckon within the CV space and also gives us confidence in its foray into the
MHCV space - launch of 25, 31, 40 and 49-tonne trucks in FY11e; and further, 9, 11
& 16-tonne trucks and 16-tonne buses in FY12e and FY13e, respectively.
M&M - volumes break-up
100%
80%
60%
40%
20%
0%
Nov-06
Jul-07
UV
Mar-08
LCV
Logan
Nov-08
Jul-09
3-w heelers
Exports
Mar-10
Nov-10
Tractors
Source: SIAM, Antique
Strong pricing power coupled with control on fixed costs
to keep margins firm
72%
Strong performance to keep return ratios healthy
24%
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
RM to sales (%) (LHS)
Other exp to sales (%) (RHS)
FY10
FY11e
FY12e
Staff cost to sales (%) (RHS)
EBIDTA margins (%) (RHS)
10%
1.0
0.5
5%
0.0
0%
FY07
FY08
FY09
FY10
FY11e
FY12e
Asset Sw eating (x) (LHS)
ROCE (RHS)
ROE (RHS)
ROA (RHS)
Source: Company, Antique
Antique Stock Broking Limited
42
Mahindra & Mahindra
Valuation and outlook
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 our FY12e EPS,
which is a steep and unjustified discount to its peers given the company's strong
business model.
We reiterate a BUY on the stock with an SOTP-based target price of INR932, which
provides a 24% upside from the current levels.
SoTP valuation
Mahindra & Mahindra Standalone
Value of Key Subsidiaries & Investments: (pro-rated)
A
Methodology
Value (INRm)
Value per share
14x FY12e EPS
445,135
760
Stake (%)
Tech Mahindra
43
Market Value
39,274
67
Mahindra Forgings
51
Market Value
4,358
7
M&M Financial Services
60
Market Value
42,777
73
Mahindra Lifespaces
51
Market Value
9,500
16
Mahindra Ugine Steel Company
51
Market Value
1,148
2
Mahindra Holidays & Resorts
83
Market Value
28,700
49
125,757
215
Total value of Key Subsidiaries & Investments
Discount (%)
Holding company discount
20
25,151
43
Net Value of Key Subsidiaries & Investments
B
100,605
172
A+B
545,740
932
SOTP Value of Mahindra & Mahindra Ltd
Source: Antique
Antique Stock Broking Limited
43
Mahindra & Mahindra
Financials
Profit and loss account (INRm)
Year ended 31st Mar
Cash flow statement (INRm)
2008
2009
2010
2011e
2012e
Year ended 31st Mar
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
Depreciation & amortisation
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)
Depreciation & amortisation
EBIT
Interest expense
(Inc)/Dec in working capital
Tax paid
2,788
585
7,493
7,769
9,602
CF from operating activities 12,769
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
Income from investments
1,304
2,703
1,994
2,738
3,066
3,034
1,997
7,590
8,475
10,475
CF from investing activities (25,395) (26,391)
Profit before tax
Taxes incl deferred taxation
Capital expenditure
Profit after tax
11,034
8,675
20,878
27,307
33,172
Inc/(Dec) in share capital
Adjusted profit after tax
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)
Balance sheet (INRm)
Year ended 31st Mar
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
93,148 107,069 119,666
144,120
Capital Employed
69,371
Gross Fixed Assets
36,561
48,939
52,763
65,763
Accumulated Depreciation
18,417
23,263
25,378
29,371
Capital work in progress
Net Assets
Investments
2012e
(11,121) (22,499) (23,066)
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
CF from financing activities
6,448
15,102
Net cash flow
(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
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenue
16
14
42
26
19
77,763
EBITDA
22
(6)
133
20
24
34,035
PAT
1
(21)
141
31
21
EPS
1
(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)
Current Assets, Loans & Advances
Year ended 31st Mar
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
Cash & Bank balance
8,612
15,744
17,432
11,390
14,110
EV/EBITDA
Loans & advances and others
7,052
14,023
18,523
22,380
24,618
EV/Sales
4.0
3.5
2.4
1.9
1.6
Dividend Yield (%)
1.6
1.3
1.3
1.6
1.9
10.6
Current Liabilities & Provisions
Liabilities
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
Core Auto EV/EBIDTA
25.9
28.1
11.6
9.7
7.8
4,044
2,833
8,458
248
4,383
Core Auto EV/Sales
3.1
2.8
1.9
1.5
1.2
Deferred tax (assets)/liabilities
567
(183)
2,403
3,110
3,983
Misc.Expenses
135
126
7
277
-
93,148 107,069 119,666
144,120
2012e
Net Current Assets
Application of Funds
69,371
Per share data
Year ended 31st Mar
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)
No. of shares (m)
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
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
44
COMPANY UPDATE
Power Grid Corp of India Limited
'Higher Orbit' of Capex
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 Mar’10) 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
Market Cap (INRbn)
:
453
Market Cap (USDbn)
:
10
O/S Shares
:
4,630
Free Float (m)
:
874.3
52-wk HI/LO (INR)
:
121/92
Avg Daily Vol ('000)
:
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
PGCIL is executing 68 transmission projects worth INR817bn, which are in
various phases of implementation. Further, CERC has already approved high
capacity power transmission corridor (HCPTC) which will be implemented in
the next Five-Year Plan at a cost of INR580bn. PGCIL has most of its assets
regulated by CERC, thus returns will be protected for existing and new capex.
Valuation and outlook
We have ascribed a multiple of 18x and 2.25x for FY12e on a PE and a PB
basis respectively, and arrived at a fair value of INR116. In the past three
years, the average PE and PB has been in the range of 17-23x and 2-2.6x
respectively.
Shareholding pattern
FII
2%
DII
6%
Promoters
86%
Others
6%
Source: BSE(Post FPO promoter holding stands at 78%)
Price performance vs Nifty
120
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
EBITDA growth (%)
PAT (INRm)
PAT growth (%)
17
21
31
13
EPS (INR/share)
4.0
4.8
5.8
6.5
EPS growth (%)
PE (x)
PB (x)
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
Source: Company, Antique
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
Year ended 31 Mar
NIFTY
Abhineet Anand
+91 22 4031 3441
[email protected]
Mohit Kumar
[email protected]
Mohit Gulati
[email protected]
Power Grid Corporation
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.
Xth Five-Year Plan
XIth Five-Year Plan
Capex and commissioning (INRbn)
Capex and commissoning post IPO (INRbn)
80
160
Average capex
70
140
of INR36bn
60
Commissioning picks
120
50
up at the end of FYP
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
Source: PGCIL, Antique
Increase in capex (INRbn)
Earnings to boost by higher commissioning in FY11e and FY12e
160
We expect all construction work in progress (CWIP) (~INR200bn in PGCIL's books as
140
120
on Mar 31, 2010) to get commissioned over the next 5-6 quarters and estimate the
100
commissioning to be ~INR206bn in FY11e-12e. Although the capex has been on a
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
However, as commissioning cycle ranges between 18-24 months, it is likely to improve
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
Antique Stock Broking Limited
46
Power Grid Corporation
Huge visibility in project pipeline
Existing projects
Capex requirement for
existing projects is INR581bn
PGCIL is executing 68 transmission projects which are at various phases of
implementation. These projects are being built at a cost of INR817bn and incurred
capex till Sep 30, 2010 is INR236bn. These projects will add 40,000 circuit kilometers
and 65 substations with a total power transformation capacity of 106,000MVA. The
further capex requirement for these projects is INR581bn.
Future projects
Further, CERC has already approved High Capacity Power Transmission Corridors
(HCPTCs) to be implemented in the next Five-Year plan at a cost of INR580bn.
Project details
Section-I
Corridor
Transmission System Associated
INRm
HCPTC-I
Phase - 1 generation projects in Orissa
87,520
Section-II
HCPTC-II
IPP projects in Jharkhand
57,090
Section-III
HCPTC-III
IPP projects in Sikkim
13,040
Section-IV
HCPTC-IV
IPP in Chattisgarh and Madhya Pradesh
Section-V
HCPTC-V
IPP projects in Chattisgarh
Section-VI
HCPTC-VI
IPP projects in Krishnapatnam, Andhra Pradesh
20,650
Section-VII
HCPTC-VII
IPP projects in Tuticorin, Tamil Nadu
23,570
Section- VIII
HCPTC-VIII
IPP projects in Srikakulam, Andhra Pradesh
29,860
Section-IX
HCPTC-IX
IPP projects in Southern Region
Total
12,430
288,240
48,210
580,610
Source: Company, Antique
Valuation and outlook
We have ascribed a multiple of 18x and 2.25x for FY12e on a PE and a PB basis,
respectively, and arrived at a fair value of INR116. In the past three years, the average
PE and PB has been in the range of 17-23x and 2-2.6x, respectively. The stock provides
~18% upside from the current market price of INR98 over the next one year.
Valuation
FY12 book (INR/sh)
51.3
P/B @ 2.25x
115
FY12 EPS (INR)
6.5
P/E @ 18x
117
Target (INR/sh)
116
Source: Antique
Antique Stock Broking Limited
47
Power Grid Corporation
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Year ended 31st Mar
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
Depreciation & amortisation
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
Adjusted profit after 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
Income from investments
15,827
4,487
3,761
3,718
3,557
16,305
17,610
21,372
26,685
30,117
CF from investing activities (39,147) (88,606)
14,485
16,906
20,410
26,685
30,117
Inc/(Dec) in share capital
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)
CF from financing activities 30,213
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
146,071 159,419 216,257
237,655
92,985
135,074
242,077
308,504
Capital Employed
377,150
454,574
Gross Fixed Assets
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
(91,909) (111,410) (134,192) (161,869)
311,284 320,613 394,932
476,679
Capital work in progress
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
Cash & Bank balance
18,659
24,124
32,776
65,506
60,049
Loans & advances and others
21,625
42,129
37,899
41,445
45,078
76,346
78,402
94,164
Current Assets, Loans & Advances
Inventory
Current Liabilities & Provisions
Creditors
36,724
61,234
Other liabilities & provisions
13,526
21,898
24,583
30,369
36,475
Net Current Assets
3,521
(168)
(4,656)
18,084
(2,007)
Deferred tax assets/(liabilities)
(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
Per share data
No. of shares (m)
63,281 (51,715)
38,755
2012e
Year ended 31st Mar
(8,638)
CF from operating activities 15,625
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
Year ended 31st Mar
Debt
(6,295)
Tax paid
22,989
Balance sheet (INRm)
Networth
(Inc)/Dec in working capital
4,583
Recurring EPS (INR)
Reserves & Surplus
Interest expense
19,126
Taxes incl deferred taxation
Profit after tax
Depreciation & amortisation
1,607 (120,000) (150,000)
6,764 (113,282) (140,443)
Net cash flow
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
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
Revenue
29
23
25
24
20
EBITDA
22
22
28
25
21
PAT
18
17
21
31
13
EPS
7
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
7
8
7
8
8
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
Dividend Yield (%)
Financial ratios
Year ended 31st Mar
RoE (%)
RoCE (%)
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
48
COMPANY UPDATE
Hindalco Industries Limited
Growth for the ‘future’
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 company’s 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
Market Cap (INRbn)
:
459
Market Cap (USDbn)
:
10
O/S shares (m)
:
1,914
Free Float (m)
:
1,333
52-wk HI/LO (INR)
:
241/129
Avg 6m Vol (‘000)
:
10,091
Bloomberg
:
HNDL IN
Reuters
:
HALC.BO
Source: Bloomberg
Returns (%)
HNDL's consolidated gross debt at USD6bn has been restructured with
acquisition debt transferred to Novelis while the Indian arm will do the equity
financing for expansions. Henceforth, Novelis will bear USD4.8bn debt while
HNDL's capex will be on a 70:30 debt:equity ratio on a project basis through
SPV structure. Despite funding USD2.7bn equity required for new projects,
Novelis' improving cash flows and surplus cash will see net debt/EBITDA
within comfortable 2x levels.
1m
3m
6m
12m
Absolute
15
25
59
52
Relative
12
25
40
31
Source: Bloomberg
Shareholding pattern
Public and
others
24%
Promoters
32%
Valuation and outlook
109
131
(50)
166
0
12
20
5
39
40
41
51
PAT growth(%)
(78)
711
2
2
25
EPS (INR)
3.2
22.2
18.9
21.4
26.7
EBITDA growth (%)
PAT
EPS growth (%)
(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
3
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
Price performance vs Nifty
Dec-07
2009
Revenues
Source: BSE
Dec-06
Year ended 31st Mar
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
[email protected]
Hindalco Industries Limited
Investment rationale
Sales (INRm)
800,000
Capacity expansion on schedule
700,000
600,000
The smelter expansion project (from 155ktpa to 161ktpa) is nearing completion,16 of
28 pots are in operation, the balance to be taken in line soon. A further expansion,
from 161ktpa to 213ktpa, along with a 100MW power plant will be completed by
4QFY12e. The visibility on expansion plans related to Hirakud, Utkal, Mahan, Aditya
Aluminium and Alumina and Jharkhand are on track with improving visibility every
subsequent quarter.
500,000
400,000
300,000
200,000
100,000
FY09 FY10 FY11e FY12e
Aluminium
Novelis
Copper
Others
Source: Company, Antique
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
Cash flows to support expansion
20,000
INRbn
FY10
FY11e
FY12e
Capex
43
115
124
61
(20,000)
Operating cash flow
49
74
80
100
(40,000)
Proceeds from debt
(3)
30
30
-
Net Debt/Equity (x)
1.0
1.0
0.9
0.8
-
FY09
FY10 FY11e FY12e
Aluminium
Novelis
Others
Corporate
Copper
FY13e
Source: Company, Antique
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.
Source: Company, Antique
Capacity expansion details
Project
Scope
Progress
Estimated Project
Cost (INRbn)
Mahan Aluminium
359ktpa smelter,
900MWpower
Most approvals in place, orders placed, 7,800 people at site,
major contractors mobilized fully, 79% of project cost committed
92
2Q FY12e
Aditya Aluminium
359ktpa smelter,
900MWpower
Most approvals in place, critical equipment orders placed,
55% of project cost committed
92
3Q FY12e
Utkal Alumina
1.5mtpa refinery
5000 people at site, major equipment started arriving,
82% of project cost committed
56
2Q FY12e
Aditya Refinery
1.5mtpa refinery
Land acquisition >70%, water drawl agreement,
Railway siding clearance obtained
~60
1Q FY14e
Jharkhand Aluminium
359ktpa smelter,
900MWpower
Land acquisition process begun, Presentation for environmental
clearance made, Tubed coal mine allotted with JV partner
~100
1Q FY14e
Hirakud expansion
Smelter: (I) 155 to 213ktpa
Land acquisition completed, Technology agreement finalised,
BTG order placed
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
Significant increase in FRP
capacity to 600ktpa
(II) 213 to 360ktpa
Being finalised
Recently conceived
Expected
completion
Being finalised
8.5
2Q FY12e
USD 300m
3Q FY13e
Source: Analyst Presentation May 2010
Antique Stock Broking Limited
50
Hindalco Industries Limited
Valuation and outlook
The stock is currently trading at 11.2x FY12e EPS and 6.8x FY12 EV/EBITDA. We
believe that sustained uptrend in operations of Novelis, robust domestic operations
with rising volumes coupled with enhanced costing and operational efficiency augurs
well for the company in a volatile macro environment.
Growth traction offers
potential to capitalise on scale
and value chain expansions
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)
EBITDA Multiple (x)
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
Value per share (INR)
212
Source: Antique
SOTP valuation (FY13e)
Particulars (INRm)
EBITDA Multiple (x)
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
Value per share (INR)
301
Source: Antique
One year forward rolling PE (x)
50
45
40
35
30
25
20
15
10
5
0
Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10
One year forward rolling EV/EBITDA (x)
18
15
12
9
6
3
Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10
Source: Antique
Antique Stock Broking Limited
51
Hindalco Industries Limited
Financials
Profit and loss account (INRbn)
Year ended 31st Mar
Cash flow statement (INRbn)
2009
2010
2011e
2012e
2013e
Revenues
656
607
668
741
742
EBIT
Expenses
620
510
570
632
611
EBITDA
37
97
98
109
131
Depreciation & amortisation
30
28
28
31
6
70
70
78
12
8
12
13
16
7
-
-
-
-
(6)
62
57
65
(10)
(18)
17
3
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
6
70
70
78
98
Depreciation & amortisation
30
28
28
31
34
Interest expense
12
11
12
13
16
34
(Inc)/Dec in working capital
29
(6)
(3)
(6)
(7)
98
Tax paid
8
6
17
19
24
CF from operating activities
46
49
78
84
100
Capital expenditure
27
43
115
124
61
81
Inc/(Dec) in investments
49
(16)
30
40
-
19
24
Income from investments
7
4
-
-
-
45
57
CF from investing activities
29
(54)
(85)
(84)
(61)
Inc/(Dec) in share capital
51
28
-
-
-
(92)
(3)
30
30
-
5
39
40
41
51
3.2
22.2
18.9
21.4
26.7
2009
2010
2011e
2012e
2013e
2
2
2
2
2
Reserves & Surplus
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
Gross Fixed Assets
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
Capital work in progress
Investments
Inc/(Dec) in debt
Dividends paid
Balance sheet (INRbn)
Year ended 31st Mar
Year ended 31st Mar
Current Assets, Loans & Advances
4
3
3
3
5
(67)
4
15
13
(22)
Net cash flow
8
(1)
7
13
17
Opening balance
17
22
22
29
42
Closing balance
22
22
29
42
58
2009
2010
2011e
2012e
2013e
9
(7)
10
11
0
(50)
166
0
12
20
PAT
(78)
711
2
2
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
CF from financing activities
Growth indicators (%)
Year ended 31st Mar
Revenue
EBITDA
Valuation (x)
Year ended 31st Mar
Inventory
85
113
124
138
142
Debtors
67
65
71
79
79
PE
Cash & Bank balance
22
22
29
42
59
P/BV
Loans & advances and others
19
32
32
32
32
EV/EBITDA
Current Liabilities & Provisions
Creditors
100
131
146
161
159
Other liabilities & provisions
63
49
49
49
49
Net Current Assets
30
52
62
80
104
(28)
(39)
(39)
(39)
(39)
0
0
0
0
0
454
473
540
612
664
Deferred tax assets/(liabilities)
Misc.Expenses
Application of Funds
Per share data
Year ended 31st Mar
No. of shares (m)
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
Dividend Yield (%)
0.7
0.7
0.7
0.8
1.2
Financial ratios
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
RoE
3
18
16
14
15
RoCE
1
15
13
13
15
Net Debt/Equity (x)
1.6
1.0
1.0
0.9
0.7
EBIT/Interest (x)
0.5
8.9
5.7
5.8
5.9
Source: Company Antique
Margins (%)
Year ended 31st Mar
2009
2010
2011e
2012e
EBITDA
6
16
15
15
18
EBIT
1
11
10
11
13
PAT
1
6
6
6
7
Source: Company, Antique
Antique Stock Broking Limited
52
MID
CAPS
COMPANY UPDATE
Oil India Limited
Promising road ahead
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
:
Oil & Gas
Market Cap (INRbn)
:
337
Market Cap (USDbn)
:
7
O/S shares (m)
:
240
Production growth on track
Free Float (m)
:
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.
52-wk HI/LO (INR)
:
1,635/1,048
Avg 6m Vol (‘000)
:
109
Bloomberg
:
OINL IN
Reuters
:
OILIF.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
-
(7)
7
12
(3)
(7)
(5)
(3)
Absolute
Relative
Domestic E&P - future growth driver
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%
Valuation and outlook
We recommend a BUY on OIL with a target price of INR1,638/share by
applying a 11x multiple on FY12e EPS of INR142/share and accounting for
an exploration upside of INR75 on its Venezuela project.
Source: BSE
Price performance vs Nifty
150
130
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Net revenue (INRbn)
63
74
81
86
89
EBITDA (INRbn)
26
31
37
47
49
EBITDA growth (%)
PAT (INRbn)
PAT growth (%)
EPS (INR/share)
EPS growth (%)
6
21
19
26
4
18
22
26
31
34
9
21
21
19
10
84
101
109
130
142
9
21
7
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
[email protected]
Ruchi Dugar
[email protected]
Miten Vora
[email protected]
Oil India Limited
Under-recoveries to remain capped
Following petrol price de-control and price hikes of key petroleum products in June
2010, the government reduced sector under-recoveries by INR260bn. However, recent
run up in oil prices continues to keep sector under-recoveries at an estimated INR630bn
for FY11e. We however believe that subsidy burden for upstream companies would
remain capped as government will continue to raise prices for diesel to keep diesel
under-recoveries under check, contrary to what it has done in past. Any increase,
though less likely, in cooking fuel prices, will also help in reducing the under-recoveries
following any rise in oil prices. We thus believe upstream companies to benefit from
reduction in under-recoveries, while any rise in crude oil prices will help them in
improving their net realisations
OIL to post net realisations of
USD58/bbl and USD61/bbl for
FY11e and FY12e
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
Gross realisations (USD/bbl)
FY2011e
FY2012e
FY2013e
Net realisations (USD/bbl)
Source: Company, Antique
Scenario analysis: OIL's net realisations at various oil prices
Oil prices
Total under-recoveries
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
OIL's Gross realisation
USD/bbl
74
79
84
89
94
99
Discount
USD/bbl
11
16
20
25
29
34
Net realisation (no diesel price hike) USD/bbl
63
63
64
64
65
65
Net realisation (with diesel price hike USD/bbl
of INR2/ltr)
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.
Antique Stock Broking Limited
54
Oil India Limited
Production growth on track
OIL targeted to grow its oil production by 3-4% over next few years. Though oil
production remained flat in 1HFY11 due to lower off-take by Numaligarh refinery, we
estimate that it will pick up in 2HFY11. As per latest estimates, OIL projects its gas
production to grow at a CAGR of 9% for the next four years, from 2.4bcm in FY11e
to 3.4bcm in FY15e. Commencement of Brahmaputra Gas Cracker (BCPL) would
help in meeting this target as OIL holds 10% stake in BCPL. The reserve accretion
during FY10 was 9.7mmt against the target of 9.5mmt. The Reserve to production
ratio stood at 1.65x.
Domestic E&P - the future growth driver
OIL which earlier had most of its E&P assets in North East has gradually expanded its
presence to Rajasthan, Mahanadi Offshore, Mumbai Deepwater, KG as well as various
overseas projects in Venezuela, Libya, Gabon, Iran, Nigeria and Sudan. OIL plans to
increase its investment on domestic front by concentrating more on developing domestic
exploration blocks. Total USD1.9bn is lined up for investment for the next two fiscal
years. Of the total investment, INR48bn is planned for FY11 and the remaining INR37bn
for FY12e.
Nearly 80% investment is planned in exploration and appraisal and development of
existing blocks. OIL also plans to participate in downstream ventures of refining &
petrochemicals, shale gas, alternative sources of energy and CNG/CGD.
OIL plans to acquire small-medium sized producing properties with exploration upsides
to help improving its oil & gas production and portfolio of assets.
E & P progress update
Valuations on FY12e financials
INRbn
OIL
Price
1,399
1,295
No. of shares (m) excl Treasury shares
2,139
240
Market cap (INRbn)
336
Gross debt (INRbn)
3
Cash/ Bonds in hand (INRbn) 101
Debt net of bonds (INRbn)
(97)
Value of investments (INRbn)
5
Value of investments/share
22
EV (excl investments) (INRbn) 234
2,770
Gabon: 2D seismic data processing and interpretation has been completed
and currently acquisition of 3D seismic data is in progress.
Timor Leste: Drilling of the first well is expected to start by mid November.
Venezuela: The company expects to start production by end of 2013
KG Basin: 3D seismic API is under progress and efforts are being made to start
drilling of exploratory wells next year.
Mizoram: integration of 2D seismic data, Gravity-Magnetic, Geodetic Survey
data and Structural modeling is going on to identify locations for exploratory drilling.
164
114
50
193
90
2,626
142
139
EBITDA (INRbn)
49
503
Book value (INR/share)
762
576
PE (excl investments)
8.5
8.7
EV/EBITDA (excl investments)
4.8
5.2
PB (excl investments)
1.8
2.1
EV/boe
5.4
5.7
2P O&G reserves (MMboe)
957
10,275
Antique Stock Broking Limited
Libya: The first two wells in Libya were not commercially viable and the third
exploratory well is being drilled (Block 102/4).
ONGC
EPS
Source: Company, Antique
Valuation and outlook
OIL has cash of INR101bn (INR419/share) as at 2QFY11 end, which is 30% of its
current market capitalisation. If we exclude the interest earnings and cash in hand
from valuations, then OIL is trading at a PE of 8.5x on its FY12e earnings and 4.8x
EV/EBITDA, which we believe is compelling. Comparing to ONGC, OIL is trading at
a discount of 9% on EV/EBITDA, and 5% discount to EV/boe. We recommend a BUY
on OIL with a target price of INR1,638/share by applying a 11x multiple on FY12e
EPS of INR142/share and accounting for an exploration upside of INR75 on its
Venezuela project.
55
Oil India Limited
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
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
Depreciation & amortisation
EBIT
(3,093)
(3,768)
(4,811)
(7,702)
(7,839)
22,563
27,292
32,235
39,032
40,934
Year ended 31st Mar
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)
Changes in working capital
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
CF from operating activities 27,883
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
CF from investing activities (9,806)
(4,965)
(8,418)
(5,559)
(4,283)
Profit before tax
Tax
Profit after tax
Tax paid
(9,245)
(12,253)
(12,846)
(16,012)
(17,560)
Investments
17,901
21,663
26,163
31,154
34,159
Income from investments
84
101
109
130
142
Recurring EPS (INR)
Changes in share capital
Balance sheet (INRm)
Year ended 31st Mar
Share Capital
Reserves & Surplus
Networth
2008
Gross Fixed Assets
2010
2011e
2012e
2,140
2,140
2,405
2,405
2,405
77,190
91,170
135,233
156,481
180,733
93,310 137,638 158,885
183,137
79,330
Debt
Capital Employed
2009
1,749
81,079
565
375
213
50
93,875 138,013 159,098
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
Capital work in progress
6,446
3,186
3,287
3,615
3,977
Investments
4,887
4,887
8,594
8,594
8,594
Current Assets Loans & Advances
Inventory
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
93,875 138,013 159,098
183,187
Cash & Bank
Loans & advances and others
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Deferred tax assets/(liabilities)
Misc expenses
Application of Funds
81,079
Per share data
Year ended 31st Mar
2008
2009
2010
2011e
2012e
No. of shares (Mn)
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
0
0
27,772
0
0
Changes in Debt
(6,391)
(1,184)
(190)
(163)
(163)
Dividends & Interest paid
(8,933)
(1,634)
(7,660)
(9,853)
(9,850)
CF from financing activities (8,025)
(8,845)
18,650 (10,016)
(10,012)
Net cash flow
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
Add: Opening balance
Closing balance
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenue
13
18
9
7
4
EBITDA
6
21
19
26
4
PAT
9
21
21
19
10
EPS
9
21
7
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
1
1
1
1
1
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
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
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
Market Cap (INRbn)
:
273
Market Cap (USDbn)
:
6
O/S shares (m)
:
337
Free Float (m)
:
105.4
52-wk HI/LO (INR)
:
857/566
Avg 6m Vol (‘000)
:
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%
Valuation and outlook
Our stand-alone EPS for FY11e and FY12e (Sept ending), stands at INR31
and INR36.7. Hence, the FY12e EPS (March ending) stands at INR33.8. We
have assigned a target multiple of 28.75x (15% premium to 25x of L&T given
historical evidence). Our target price is INR973 and we reiterate a BUY.
Key financials
Source: BSE
Price performance vs Nifty
130
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
EBITDA growth (%)
PAT (INR m)
PAT growth
EPS(INR/share)
EPS growth
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
Year ended 30th Sep
Others
18%
NIFTY
Abhineet Anand
+91 22 4031 3441
[email protected]
Mohit Kumar
[email protected]
Mohit Gulati
[email protected]
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
Order backlog (INRbn)
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
Order book to sales(LHS)
30
39
25
2003
Order inflow -INRbn(RHS)
4Q09
3Q09
2Q09
1Q09
Q408
0
Q308
0.8
60
2002
10
2001
1
Source: Company, Antique
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, an increase in order book of key transmission players. PGCIL, being the
CTU, is responsible for development of inter-regional grid. The incremental capacity
in inter-regional transmission grid is being built for higher voltage of 765KV. There are
only three to four players to address the 765KV transmission equipment size. Siemens
is well-placed with its medium and high-end voltage transmission technology to benefit
from the increasing order flow of PGCIL.
Further, as number of BTG orders have been awarded in the last two years, we expect
an increase in corresponding capital expenditure in transmission assets to handle the
increased load flow. The investment in the transmission systems associated with the
new generation assets and interregional capacity is expected to be tendered in the
near term.
The current inter-regional capacity of ~21,000MW is being upgraded to a capacity
of ~33,000MW by FY12e and would be upgraded to a capacity of ~75,000MW by
FY17e. Further, CEA has identified nine HPTCs to be implemented in XIIth FYP. The
total opportunity stands at INR581bn. Of this cost, 40% would be for Substation,
transformers and reactors, while 60% for Transmission lines.
Antique Stock Broking Limited
58
Siemens Limited
Inter regional capacity (MW)
High capacity power transmission corridor
Line
80,000
70,000
60,000
Transmission System associate with
HCPTC-I
Phase-I Generation Projects in Orissa
87.5
HCPTC-II
IPP projects in Jharkhand
57.1
HCPTC-III
50,000
40,000
30,000
20,000
10,000
FY17e
FY12e
FY11
(Current)
FY10
FY07
-
INRbn
IPP projects in Sikkim
13.0
HCPTC-IV
IPP in Chattisgarh(Bilaspur) & MP
12.4
HCPTC-V
IPP in Chattisgarh
HCPTC-VI
IPP projects in Krishnapatnam Area, AP
20.7
HCPTC-VII
IPP projects in Tuticorin Area, TN
23.6
HCPTC-VIII
IPP projects in Srikakulam Area, AP
29.9
HCPTC-IX
IPP projects in SR for transfer of power
48.2
Total High Capacity Power Transmission Corridor
581
288.2
Source: Company, Antique
Entry into Indian renewable energy market
Source: Company, Antique
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
7
38,103
5.9
5
30,000
22,207
25,000
4
20,000
3
15,000
US
17%
2
10,000
1,947
1,397
5,000
2,265
UK
69%
6
1
0
2007
Wind Market Size (MW)
2008
Siemens AG (MW)
2009
Siemens AG Market Share (%)
Source: Company, Antique
Source: Company, Antique
Valuation and outlook
Our standalone EPS for FY11e and FY12e (Sept ending), stands at INR31 and INR36.7.
Hence, the FY12e EPS (Mar ending) stands at INR33.8. We have assigned a target
multiple of 28.75x (15% premium to 25x of LT given historical evidence). Our target
price on the stock is INR973 and we reiterate a BUY.
Antique Stock Broking Limited
59
Siemens Limited
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 30th Sep
2008
2009
2010
2011e
2012e
Year ended 30th Sep
Revenues
83,577
84,585
94,000
120,541
146,479
EBIT
Expenses
75,787
74,353
81,068
104,486
127,511
Depreciation & amortisation
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
-
-
-
Profit before tax
8,918
14,377
12,587
15,695
18,610
2,984
3,870
4,316
5,253
6,228
Depreciation & amortisation
EBIT
Interest expense
Taxes incl deferred taxation
Profit after tax
Adjusted profit after tax
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
Recurring EPS (INR)
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)
(Inc)/Dec in working capital
(7,800)
(1,099)
(4,008)
(6,027)
(4,981)
Tax paid
(2,675)
(3,970)
(3,870)
(4,316)
(5,253)
CF from operating activities (3,136)
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
-
-
Income from investments
668
2,930
5,589
2,215
2,960
(889)
806
4,439
1,415
2,160
-
-
-
-
-
(5)
(5)
(5)
(5)
-
CF from investing activities
Inc/(Dec) in share capital
Inc/(Dec) in debt
Dividends paid
Balance sheet (INRm)
Year ended 30th Sep
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
6
1
1
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
Cash & Bank balance
4,636
9,131
15,977
20,391
27,947
Loans & advances and others
6,618
6,173
6,238
6,991
8,964
Reserves & Surplus
Networth
Debt
Capital Employed
Gross Fixed Assets
Capital work in progress
Investments
Current Assets, Loans & Advances
Inventory
Debtors
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Deferred tax assets/(liabilities)
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
Per share data
Year ended 30th Sep
No. of shares (m)
(729)
(946)
(1,972)
(1,972)
(2,490)
(733)
(950)
(1,977)
(1,977)
(2,490)
Net cash flow
(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
CF from financing activities
Closing balance
Growth indicators (%)
Year ended 30th Sep
2008
2009
2010
2011e
Revenue
72
1
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
Dividend Yield (%)
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)
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
60
COMPANY UPDATE
Idea Cellular Limited
Get ‘idea’
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
Market Cap (INRbn)
:
224
Market Cap (USDbn)
:
5
O/S shares (m)
:
3,301
Free Float (m)
:
944
52-wk HI/LO (INR)
:
80/49
Avg 6m Vol (‘000)
:
4,676
Bloomberg
:
IDEA IN
Reuters
:
IDEA.BO
Source: Bloomberg
Returns (%)
FCF break-even in FY12e
Idea's net profit would see a sharp drop in FY12e due to 3G-related costs
(amortisation and interest). Nonetheless, it is likely to achieve FCFF-breakeven,
driven by higher operating FCF and moderation in capex. We forecast net
debt of ~INR123bn by end-FY12e (excl. Indus), as against INR93bn presently.
1m
3m
6m
12m
Absolute
(3)
(12)
20
16
Relative
(7)
(11)
5
1
Source: Bloomberg
Shareholding pattern
Valuation and outlook
Idea’s stock currently trades at FY12e/13e EV/EBITDA of 7.8x/6.4x. However,
excluding the tower business (INR20/share), the core wireless business is
being valued at 7.4x/6.1x FY12e/13e EV/EBITDA. 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). Key downside risks are: Irrational
competition post introduction of MNP, levy of one-time fee for additional
spectrum held by incumbents.
Promoters
46%
Public and
others
38%
FIs
8%
FIIs
8%
Source: BSE
Price performance vs Nifty
140
Key financials
123,979
149,688
173,068
50
28,134
33,580
35,796
44,883
20
25
19
7
25
8,816
9,539
6,986
5,622
PAT growth (%)
(15)
8
(27)
(20)
EPS(INR/share)
2.8
2.9
2.1
1.7
EPS growth (%)
(28)
2
(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
7
8
6
4
RoE (%)
Source: Company, Antique
IDEA
Oct-10
101,313
Apr-10
80
Oct-09
PAT (INRm)
2012e
Apr-09
EBITDA growth (%)
2011e
Oct-08
EBITDA (INRm)
2010
Apr-08
Net Revenue (INRm)
2009
Oct-07
Year ended 31st Mar
110
NIFTY
Source: Bloomberg
Sanjay Chawla
+91 22 4031 3409
[email protected]
Idea Cellular
Investment rationale
Potential to outperform
Idea has steadily gained
revenue market share over the
last few years
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
Source: Company, Antique
ARPU and ARPM (INR)
300
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)
Source: Company, Antique
Antique Stock Broking Limited
62
Idea Cellular
Earnings to decline sharply in FY12e, but focus on free cash flows
We expect Idea's consolidated net profit to decline sharply in 4QFY11e and again in
1QFY12e, driven by 3G-related costs (spectrum fee amortization, depreciation and
interest). However, this is well known and already reflected in the share price. For the
next 1-2 years, we believe investors should focus on Idea's EBITDA growth and FCF
generation and not on earnings. We expect the company to turn FCFF positive by end
of FY12e; however, given the high interest burden, Idea's net-debt is unlikely to start
coming down until end-FY13e.
Net debt to EBITDA
140
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
Net Debt to EBITDA (x) - RHS
Source: Company, Antique
Valuation and outlook
Idea’s stock currently trades at FY12e/13e EV/EBITDA of 7.8x/6.4x. However,
excluding the tower business (INR20/share), the core wireless business is being valued
at 7.4x/6.1x FY12e/13e EV/EBITDA.
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.
Antique Stock Broking Limited
63
Idea Cellular
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Year ended 31st Mar
Revenues
67,200
101,313
123,979
149,688
173,068
PBT
Expenses
44,682
73,179
90,399
113,893
128,185
Depreciation & amortisation
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
(Inc)/Dec in working capital
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
CF from operating activities 25,224
22,642
25,421
48,159
49,424
Capital expenditure
(41,474) (101,500)
(35,000)
Depreciation & amortisation
EBIT
Interest expense
Profit before tax
Taxes incl deferred taxation
Reported PAT
FDEPS (INR)
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
Income from investments
923
1,511
1,906
-
-
CF from investing activities (59,768) (100,235) (29,532) (94,311) (35,000)
Inc/(Dec) in share capital
Balance sheet (INRm)
Year ended 31st Mar
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
132,653 113,724 120,710
126,332
Reserves & Surplus
Networth
Debt
Deferred Tax Liability
9,093
35,446
65,154
78,593
128,593
1,130
2,142
128,593
2,142
2,142
Capital Employed
101,261
222,906 194,459 251,445
257,067
Net Assets
107,163
166,672 187,143 265,719
271,491
Investments
Goodwill
661
89,122
5,560
20,452
11,304
4,115
4,115
61
22,457
61
61
61
Current Assets, Loans & Advances
Inventory
276
521
536
500
500
Debtors
1,986
3,618
4,656
5,688
6,577
Cash & Bank balance
4,975
30,864
2,900
1,210
6,090
Other current assets
521
1,861
2,979
3,742
4,327
Loans & Advances
7,742
16,821
25,559
22,231
22,231
Current Assets, Loans & Adv 15,499
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)
CF from financing activities 21,319
Net cash flow
Opening balance
Closing balance
Year ended 31st Mar
16
EBITDA
54
25
19
7
25
PAT
108
(15)
8
(27)
(20)
EPS
105
(28)
2
(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
222,906 194,459 251,445
257,066
Year ended 31st Mar
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
No. of shares (m)
(9,544)
(9,544)
Revenue
(11,523)
Year ended 31st Mar
(5,538)
44,462
Growth indicators (%)
Net Current Assets
Per share data
(13,225)
(8,255)
102,027 (24,010)
2008
2009
2010
2011e
2012e
RoE(%)
29
7
8
6
4
RoCE(%)
14
6
7
5
6
Debt/Equity (x)
1.8
0.7
0.7
1.1
1.0
Source: Company Antique
Margins (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
EBITDA
34
28
27
24
26
EBIT
20
14
11
9
9
PAT
16
9
8
5
3
Source: Company, Antique
Antique Stock Broking Limited
64
COMPANY UPDATE
Sun TV Network Limited
Shining ‘Bright’ as ever!
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
Sun’s 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 Sun’s 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
Market Cap (INRbn)
:
207
Market Cap (USDbn)
:
5
O/S shares (m)
:
394
Free Float (m)
:
30
52-wk HI/LO (INR)
:
550/331
Avg 6m Vol (‘000)
:
113
Bloomberg
:
SUNTV IN
Reuters
:
SUTV.BO
Source: Bloomberg
Returns (%)
EBITDA growth momentum to continue
Increasing traction in revenues coupled with high proportion of fixed costs
should generate operating leverage in the coming quarters. This will help
maintain the growth momentum in EBITDA. We have estimated EBITDA CAGR
of 30% during FY10-12e.
:
:
:
:
:
1m
3m
6m
12m
Absolute
7
1
29
56
Relative
4
1
14
35
Source: Bloomberg
Shareholding pattern
FII
9%
Valuation and outlook
Historically, the company has been traded at one-year forward average P/E
of ~30x. 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
FY12e P/E of 30x and 12x EV/EBITDA.
DII
4%
Promoters
77%
Others
10%
Source: BSE
Price performance vs Nifty
200
Key financials
50
7,368
10,909
14,060
16,940
17,995
0
23
48
29
20
6
3,683
5,199
6,709
8,883
9,807
PAT growth (%)
13
41
29
32
10
EPS (INR/share)
9.4
13.2
17.0
22.5
24.9
EPS growth (%)
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
EBITDA growth (%)
2011e
Mar-08
EBITDA (INRm)
2010
Nov-07
Net revenue (INRm)
150
2009
Jul-07
Year ended 31st Mar
NIFTY
Source: Bloomberg
Rajesh Zawar
+91 22 4031 3450
[email protected]
Varun Gupta
+91 22 4031 3412
[email protected]
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
3Q and 4Q - the strong quarters
Festive Seaso ns
15,000
5,000
10,000
Hike in advt rate by
5-27%
Hike in advt
rate by 3 -30%
INRm
4,000
5,000
-
Hike in advt rate by
3 - 33%
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
Source: Company, Antique
2QFY07
0
Broadcast fees
Others
1QFY07
Advertising income
Subscription income
FY11e
FY10
FY09
FY08
2,000
1QFY11
20,000
Source: Company, Antique
EBITDA margin to remain strong
Due to the cost structure of the industry wherein a large portion of costs are fixed, we
expect the increase in Sun’s revenues to generate significant operating leverage and
drive EBITDA growth. We have estimated EBITDA CAGR of 30% during FY10-12e.
Lower depreciation to increase EBIT
Declining cost as a % of revenue
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
8
1,000
800
6
600
4
400
2,000
48
200
0
46
0
FY08
EBIT
FY09
FY10
FY11e
Depreciation & Amortisation
FY12e
EBIT Margin
2
0
FY08
FY09
Cost of Revenue
FY10
FY11e
FY12e
Cost as % of sales(RHS)
Source: Company, Antique
Strong balance sheet and cash flow
Sun is a zero-debt company with a net cash balance of INR5-6bn as of 2QFY11.
This adds a significant degree of comfort, since the company is free to pursue any
organic/ inorganic growth options, without leveraging. Going forward, we estimate
an RoCE of 38% and 41% for FY11e and FY12e, respectively.
Antique Stock Broking Limited
66
Sun TV Network
Valuation and outlook
Sun’s has successfully maintained its dominance in the South regional genre over
the years and we expect the same to continue going forward. Consequently, we
expect its ability to command premium ad rates in these markets. We feel that
Jan’11 will see a hike in its ad rates, in keeping with its annual practice of increasing
ad rates in January every year. We estimate advertisement revenue CAGR of 25%
over FY10-12e, thereby generating benefits of scale.
We believe that the rapid digitisation of content will result in an increase in viewership
and subscription revenues. Additionally, Sun’s foray into movie production should
serve as an additional stream of revenues. Lastly, turnover should get a fillip from the
new Sun-18 JV, which is targetted at the regional population in non-Hindi speaking
markets.
Sun TV is a net cash company (INR5.6bn as of 2QFY11); with RoCE of 41% and twoyear earnings CAGR of 31% between FY10-12e, making it the most attractive
proposition in the media sector.
We reiterate a BUY with a
target price of INR624
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
-
Source: Company, Antique
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
Source: Company, Antique
Antique Stock Broking Limited
67
Sun TV Network
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
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
Depreciation & amortisation
(2,205)
(3,209)
(4,605)
(4,367)
(4,493)
(Inc)/Dec in working capital
EBIT
5,163
7,700
9,454
12,573
13,501
(138)
(49)
(0)
(0)
(0)
668
350
437
650
1,146
Profit before tax
5,693
8,000
9,891
13,223
14,647
Taxes incl deferred taxation
(2,293)
(2,991)
(3,264)
(4,364)
(4,834)
Inc/(Dec) in investments
3,400
5,009
6,627
8,860
9,814
Income from investments
3,683
5,199
6,709
8,883
9,807
9.4
13.2
17.0
22.5
24.9
Interest expense
Other income
Profit after tax
Adjusted profit after tax
Recurring EPS (INR)
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
EBIT
5,163
7,700
9,454
12,573
13,501
Depreciation & amortisation
(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
0
0
CF from operating activities
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
-
-
-
CF from investing activities (3,715)
(6,545)
(4,161)
(4,050)
(4,050)
Tax paid
Others
Inc/(Dec) in share capital
62
1,066
-
-
-
(306)
(752)
(0)
(0)
(0)
(1,844)
(1,153)
(2,757)
(2,347)
(3,107)
CF from financing activities (2,088)
(838)
(2,757)
(2,347)
(3,108)
(3,209)
Inc/(Dec) in debt
Dividends paid
Balance sheet (INRm)
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
1,970
1,970
1,970
1,970
1,970
Reserves & Surplus
15,046
16,885
21,247
27,022
33,399
Networth
17,016
18,856
23,218
28,993
35,369
716
1
1
1
1
18,378
20,445
24,733
30,494
36,885
Gross Fixed Assets
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
Capital work in progress
1,572
3,149
1,259
1,259
1,259
Investments
1,805
2,280
2,280
2,280
2,280
1
27
35
42
45
Debtors
2,412
3,292
4,224
5,084
5,512
Cash & Bank balance
3,654
4,367
8,129
14,325
21,257
Loans & advances and others
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
Current Assets, Loans & Advances
Inventory
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
468
2,768
2,357
3,118
3,441
7,214
6,258
10,990
17,067
23,902
Net cash flow
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
6
PAT
13
41
29
32
10
EPS
13
41
29
32
10
Growth indicators (%)
Year ended 31st Mar
Revenue
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
Dividend Yield (%)
EV/EBIT
Deferred tax assets/(liabilities)+ NCA 261
339
339
339
339
Financial ratios
Minority Interest and Misc expenses
386
371
298
283
298
Year ended 31st Mar
18,378
20,445
24,733
30,494
36,885
Application of Funds
Per share data
Year ended 31st Mar
No. of shares (m)
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
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
68
COMPANY UPDATE
Union Bank of India
Turning the corner
27 December, 2010
Investment rationale
Strong focus on branch expansion and CASA to help maintain margins
Management’s 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
Asset quality pains to ease in 2HFY11e
We believe that slippages for the bank are likely to stabilise in 2HFY11 after
disappointments in 1H, whereby slippages have been at INR17bn.
Management has attributed the higher than expected deterioration in asset
quality due to "one- offs' (INR4.2bn from agriculture debt relief scheme and
INR3.1bn aided by three large accounts); and is guiding slippages to
normalise to INR5-6bn per quarter going ahead. We are building in credit
costs at 85bps in FY11e and 60bps in FY12e.
Sector
:
Banks
Market Cap (INRbn)
:
164
Market Cap (USDbn)
:
4
O/S shares (m)
:
505
Free Float (m)
:
202
52-wk HI/LO (INR)
:
427/237
Avg 6m Vol (‘000)
:
442
Bloomberg
:
UNBK IN
Reuters
:
UNBK.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(10)
(16)
4
21
Relative
(12)
(16)
(8)
5
Source: Bloomberg
Shareholding pattern
Valuation and outlook
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
YoY growth (%)
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
Source: Company, Antique
250
200
150
100
50
0
Union Bank
Oct-10
YoY growth (%)
2008
28,537
Price performance vs Nifty
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
UBI 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 BoB and PNB) more than adequately
price these risks. We are likely to see strong rebound in return ratios in FY12e
backed by strong earnings.
FII
19%
Apr-10
Jul-10
We expect operating costs to increase 34% YoY in FY11e to account for
higher than expected pension liability for the second pension option at
INR24bn. CI ratio is estimated to increase from 40% in FY10 to 46% in
FY12e to account for higher pension expenses.
Oct-09
Jan-10
Cost ratios to trend upwards due to pension liability
Year ended 31st Mar
BUY
BUY
INR325
INR407
25%
NIFTY
Source: Bloomberg
Alok Kapadia
+91 22 4031 3442
[email protected]
Union Bank of India
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.
Bank’s 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
Growth in branches (YoY basis)
2007
2008
2009
2010
BOB
1
5
3
6
BOI
2
6
6
7
CBK
2
4
2
11
PNB
0
3
4
15
SBI
4
7
12
10
UNBK
6
7
8
10
Source: Company, Antique
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
Source: Company, Antique
Market share of savings deposits across PSU banks
2005
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
Source: Company, Antique
Asset quality pains to ease in 2HFY11e
The bank has made it a bit of a habit of delivering disappointing results with substantial
deterioration in asset quality over the last couple of quarters. 2QFY11 has been no
different with slippages coming in at INR11bn as against market expectations of INR8bn.
Management has attributed the higher than expected deterioration in asset quality due
to "one- offs' (INR4.2bn from agriculture debt relief scheme and INR3.1bn due to three
large accounts); and is guiding slippages to normalise to INR5-6bn per quarter going
ahead. We are estimating credit costs at 85bps in FY11e and 60bps in FY12e.
Trends in credit costs
1.0%
Trends in asset quality
0.86%
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
loan loss provisioning
FY11e
FY12e
1Q
2Q
FY10 FY10
3Q
FY10
4Q
1Q
FY10 FY11
GNPA %
2Q FY11e FY12e
FY11
NNPA %
Source: Company, Antique
Antique Stock Broking Limited
70
Union Bank of India
Trends in cost to income and cost to
assets
2.0%
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
Historical RoA and RoE
1.3
28
1.2
26
Cost ratios to trend upwards due to pension liability
We are building in operating costs to increase 34% YoY in FY11e to account for
higher than expected pension liability for the second pension option at INR24bn.
Cost to income ratio for the bank is likely to increase from 40% in FY10 to 46% in
FY12e to account for the higher provisions that the bank will have to make related to
pension liability.
Valuation and outlook
While earnings growth for UBI could be muted in FY11e at 1.6%, we are likely to see
strong rebound in return ratios in FY12e backed by strong earnings. We expect earnings
to grow at 26% in FY12e driven by lower credit costs on account of stabilisation in
asset quality and margins. We are estimating credit cost to peak in FY11e to 85bps
and trend downwards to 60bps in FY12e. Further, the bank has made significant
strides on its liability franchise due to strong branch expansion with savings deposit
growth maintained at ~20% over the last five years - amongst the highest within PSU
banks. This should help UBI maintain its margins at current levels in a rising rate
scenario.
24
1.1
22
1.0
0.9
ROA (RHS)
FY12e
Base Case Worst Case
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
ABPS - Adjusting for NNPAs
224
203
241
2012e
2011e
2010
2009
2008
2007
2006
2005
0.8
Scenario analysis
ROE (LHS)
Source: Company, Antique
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
Target Price (INR)
407
314
479
GNPA (%)
2.4
3.0
2.0
0.8
NNPA (%)
0.9
1.1
LLP bps (%)
0.6
0.8
0.5
Slippage ratios (%)
1.6
2.0
1.5
Source: Company, Antique
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
Source: Company, Antique
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.
Antique Stock Broking Limited
71
Union Bank of India
Financials
Profit and Loss Account (INRm)
Growth ratios (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Net interest income
28,537
38,136
41,924
55,332
64,219
Year ended 31st Mar
NII
2008
2009
2010
2011e
2
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
2
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
Valuation ratios (x)
Year ended 31st Mar
P/E
Balance Sheet (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Advances
743,483
965,342 1,193,153 1,407,921 1,689,505
Investments
338,226
429,970
544,035
625,373
740,703
Cash and bank balances
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
Operating ratios (%)
Year ended 31st Mar
30,489
Operating cost to income
37,054
Operating expenses/avg. assets
1,609,756 1,951,618 2,270,598 2,686,322
Profitability ratios (%)
Share Captal
5,051
5,051
5,051
5,051
5,051
Total Reserves
68,426
82,352
99,187
116,814
139,631
Year ended 31st Mar
2008
2009
2010
2011e
Networth
73,477
87,404
104,238
121,865
144,682
Net interest margin
2.6
2.8
2.4
2.7
2.7
Borrowings
47,605
87,749
92,153
96,761
106,437
Return on avg. assets
1.2
1.2
1.2
1.0
1.1
Return on avg. net worth
0.3
0.3
0.3
0.2
0.2
2012e
Deposits
Other liabilities
Total assets
1,038,587 1,387,028 1,700,397 1,994,401 2,371,874
81,064
1,240,733
47,574
54,830
57,572
63,329
1,609,756 1,951,618 2,270,598 2,686,322
Asset quality and capital (%)
Year ended 31st Mar
Per share data
Year ended 31st Mar
Shares outstanding (m)
EPS (Rs)
Book value per share (Rs)
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
Source: Company, Antique
Antique Stock Broking Limited
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
Loan loss provisions/avg loans
0.9
0.6
0.6
0.9
0.6
Tier I capital adequacy
7.5
8.2
7.5
7.2
6.9
Source: Company Antique
72
COMPANY UPDATE
Shriram Transport Finance Co Limited
On growth highway
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
Strong CV cycle; pre-owned vehicles sales benefitting from supply
constrains in new vehicles
Market data
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.
Liability franchise: Getting stronger
STFC has managed to alter its borrowing profile for advantageous means
and now around 75% of its borrowings are fixed-rate in nature. Thus, the
possibility of a squeeze on NIMs from any hardening of benchmark rates is
likely to have minimal impact on the company's operations.
AUM to touch INR500bn by FY13e
:
:
:
:
:
BUY
BUY
INR778
INR950
18%
Sector
:
Financials
Market Cap (INRbn)
:
176
Market Cap (USDbn)
:
4
O/S shares (m)
:
226
Free Float (m)
:
132
52-wk HI/LO (INR)
:
900/427
Avg 6m Vol (‘000)
:
371
Bloomberg
:
SHTF IN
Reuters
:
SRTR.BO
Source: Bloomberg
Returns (%)
Absolute
Relative
1m
3m
6m
12m
(7)
3
30
66
(10)
3
14
44
Source: Bloomberg
We expect STFC’s AUM to reach INR500bn by FY13e, from current to over
INR300bn. This growth is likely to be supported by a sharper focus on scaling
up partnerships developed with private financiers.
Shareholding pattern
FII
10%
Valuation and outlook
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 quasimonopolistic nature of its business, robust track record of asset quality across
business cycles and superior return ratios.
We reiterate our BUY recommendation with a target price of INR950/share.
At our target price, the stock would trade at 3.5x its FY12e BV and 13x its
FY12e EPS.
DII
10%
Promoters
50%
Others
30%
Source: BSE
Price performance vs Nifty
400
300
200
Key financials
PAT (INRm)
52.5
10.5
48.8
19.4
3,899
6,124
8,731
12,800
16,500
YoY growth (%)
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
Source: Company, Antique
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
Year ended 31st Mar
100
NIFTY
Source: Bloomberg
Sunesh Khanna
+91 22 4031 3437
[email protected]
Alok Kapadia
+91 22 4031 3442
[email protected]
Shriram Transport Finance
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.
Liability franchise: Getting stronger
STFC has managed to alter its borrowing profile for advantageous means and now
around 75% of its borrowings are fixed-rate in nature. Thus, the possibility of a squeeze
on NIMs from any hardening of benchmark rates is likely to have minimal impact on
the company's operations. Moreover, the company is also able to re-price incremental
loans quite finely. STFC is also aggressively garnering retail deposits, and we believe
that this move would be beneficial on account of: 1) Mitigating interest rate risk by
locking long term deposits at fixed rates; 2) Raising retail deposits will create stability;
3) Matching the lending and borrowing bucket (Retail borrowing 3, 5 & 7 years),
thereby mitigating ALM mismatch.
Increased securitisation will help minimise the impact of rising
interest rates
Increasing the retail base will help
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
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
Q4FY09A Q1FY10A Q2FY10A Q3FY10A
Banks & FI
Q4FY10
Q1FY11
Q2FY11
Securitize assets (INR Bn)
Source: Company, Antique
AUM to touch INR500bn by FY13e
We expect STFC to record a 20% CAGR in pre-owned CV disbursements and a
slightly higher 22% CAGR for new CVs (due to the lower base in FY10). AUM growth
is estimated to be in line with disbursals at 20% through FY13e (balance sheet growth
is likely to be higher owing to a smaller base in FY10 led by substantial securitisation
in 4QFY10). Growth is likely to be supported by a sharper focus on scaling up
partnerships developed with private financiers.
Unorganised moneylenders control ~70-75% of the market in the pre-owned CV financing
space. STFC, currently has tie-ups with more than 500 such private financiers and loans
Antique Stock Broking Limited
74
Shriram Transport Finance
originated through them constitute ~10% of incremental disbursals and 5% of outstanding
loan book. The company went slow on these partnerships in FY09 due to tight liquidity
conditions; however, with the improved economic outlook, it plans to increase the total
loan book contribution from private financiers to ~10% in the next 2-3 years.
AUM growth
600
30%
500
26%
400
22%
300
18%
200
14%
100
10%
0
FY09
FY10e
FY11e
AUM
FY12e
FY13e
AUM Grow th
Source: Company, Antique
Valuation and outlook
Best in class return ratios support premium valuations
STFC has a unique business model and strong competencies in the CV financing
space. In our view, it would be difficult for any other bank or financial institution to
compete with the company in its niche area in the near to medium term. It is likely to
report an NII and earnings CAGR of 26% and 25% respectively over FY10-FY13e,
driven by strong demand outlook for CVs, improvement in NIMs and stable asset quality.
Niche presence in a high yielding segment and tight control on loan recovery, STFC has
reported one of the best profitability ratios in the banking and financial services space.
Average RoA stood at over 3% over FY05-10 with average RoE of 25%+. We expect
RoA to improve further to ~4.1 over FY11e-13e due to further improvement in NIMs
(driven by higher securitisation). However, owing to lower leverage on the balance
sheet (given the recent capital raising of INR5.8 bn), RoE is likely to remain ~26-28%.
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
Source: Company, Antique
Antique Stock Broking Limited
75
Shriram Transport Finance
Financials
Profit and loss account (INRm)
Per share data (INR)
Year ended 31st Mar
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
Securitization income income
Year ended 31st Mar
2008
2009
2010
2011e
EPS
20.3
30.1
41.1
56.8
2012e
73.2
Book value per share
89.4
113.8
170.0
212.2
266.5
Adjusted book value per share
85.8
112.4
164.5
207.0
261.4
Interest expense
12,966
19,777
21,862
32,540
38,837
Net interest income
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
Year ended 31st Mar
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
Provision for tax
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
Valuation ratios (x)
Balance sheet (INRm)
Year ended 31st Mar
Loan book
Investment portfolio
Fixed Assets
Cash and Bank balance
Total assets
Equity Capital
Reserves & Surplus
Networth
Secured borrowings
Growth ratios (%)
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
Year ended 31st Mar
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
Profitability ratios (%)
181,444
245,966
270,629
356,061
458,454
Year ended 31st Mar
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
Net interest margin
7.7
7.9
8.4
8.5
8
Return on avg. assets
2.8
3
2.9
4
3.8
2012e
Asset quality and capital (%)
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
Year ended 31st Mar
Tier I Capital adequacy
Total CAR
Source: Company Antique
Antique Stock Broking Limited
76
COMPANY UPDATE
Exide Industries Limited
All charged up!
27 December, 2010
Valuation and outlook
After adjusting for the value of company's major subsidiaries and stake in
ING (valued at INR9 and INR10 per share, respectively), the CMP of INR164
discounts our FY11e and FY12e earnings of the core battery business by
17.5x and 14.6x respectively. We believe that the company is the best proxy
for the underlying buoyancy in the Indian automobile industry and hence
justifies the premium valuations. This also provides strong earnings visibility we estimate FY10-13e earnings CAGR of 23%. We recommend a BUY with
an SOTP-based target price of INR198, which provides a 21% upside.
Key financials
Year ended 31st Mar
Revenues (INRm)
EBITDA (INRm)
EBITDA margin (%)
Net profit (INRm)
EPS (INR)
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
Div Yield (%)
Source: Company, Antique
140
Market Cap (USDbn)
:
3
O/S shares (m)
:
850
Free Float (m)
:
416
52-wk HI/LO (INR)
:
180/102
Avg 6m Vol (‘000)
:
856
Bloomberg
:
EXID IN
Reuters
:
EXID.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
2
1
26
47
Relative
(1)
1
11
27
Source: Bloomberg
Shareholding pattern
FII
15%
DII
17%
Promoters
46%
Others
22%
Source: BSE
Price performance vs Nifty
300
250
200
150
100
50
0
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
Captive lead - Helps sustain high margins!
:
Market Cap (INRbn)
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
Replacement demand - The key driver!
:
:
:
:
:
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
Undisputed leader in the OEM segment
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
Dec-07
Investment rationale
NIFTY
Source: Bloomberg
Ashish Nigam
+91 22 4031 3443
[email protected]
Exide Industries Limited
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
Source: Company, Antique
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.
Replacement demand - The key driver!
Current buoyancy bodes well
for high margin replacement
segment
Antique Stock Broking Limited
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
Exide Industries Limited
Thousands
Auto volumes (domestic)
16,000
14,000
CAGR of 11%
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
Source: SIAM, Antique
With the organised players
strengthening their presence
in rural markets, the
contribution from the
unorganised sector is
gradually reducing
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%
Source: Company, Antique
68% market share in
organised auto replacement
Antique Stock Broking Limited
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
Exide Industries Limited
Segment-wise revenue break-up - Contribution from replacement set to increase
9%
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
Source: Company, Antique
Expect auto replacement to
account for 40% of revenues
going ahead
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.
Captive lead - Helps sustain high margins!
Captive smelters expected to
meet 70% of lead requirement
in FY13e
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%.
Antique Stock Broking Limited
80
Exide Industries Limited
The company currently meets 45% of its lead requirement from its captive smelters and
plans to increase the contribution to 70% within the next 2 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.
Lead procurement
35%
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
Source: Company, Antique
Valuation and outlook
After adjusting for the value of the company's major subsidiaries and stake in ING
(valued at INR9 and INR10 per share, respectively), the CMP of INR160 discounts
our FY11e and FY12e earnings of the core battery business by x and x respectively.
We believe that the company is the best proxy for the underlying buoyancy in the
Indian automobile industry and hence justifies the premium valuations. This also provides
strong earnings visibility - we estimate FY10-13e earnings CAGR of 23%.
Reiterate BUY with SOTP
based target price of INR198
We recommend a BUY with an SOTP-based target price of INR198, which provides a
21% upside from the current levels.
SOTP valuation
SOTP
Methodology
Value (INRm)
Value per share
Core battery business
A
18x FY12e EPS
152,353
179
Major subsidiaries
B
10x FY12e EPS
7,682
9
C
15x NBAP
50% stake in ING
SOTP Value of Exide Ind
A+B+C
8,151
10
168,186
198
Source: Antique
Value of Insurance Business
Amount
NBAP (INRm)
Multiple (x)
Enterprise Value (INRm)
1,087
15
16,301
Exide shareholding (%)
50%
Value for Exide (INRm)
8,151
No. of shares (m)
850
Insurance business value per share for Exide (INR)
9.6
Source: Antique
Antique Stock Broking Limited
81
Exide Industries Limited
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Year ended 31st Mar
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
Depreciation & amortisation
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
-
Profit before tax
3,743
4,354
8,106
10,916
12,539
Taxes incl deferred taxation
1,240
1,510
2,735
3,395
Depreciation & amortisation
EBIT
Interest expense
Other income
Extraordinary Items
Profit after tax
Adjusted profit after tax
Tax paid
1,208
1,577
2,557
3,291
3,950
CF from operating activities
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
Income from investments
65
65
121
671
752
4,075
CF from investing activities (3,007)
(2,733)
(7,553)
(5,466)
(6,395)
Inc/(Dec) in share capital
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
Adjusted EPS (INR)
(Inc)/Dec in working capital
50
-
50
-
-
251
(326)
(2,272)
(109)
(118)
(604)
4,273
(994)
(995)
301
(930)
2,051
(1,104)
(1,113)
Net cash flow
3
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
Balance sheet (INRm)
Year ended 31st Mar
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
Reserves & Surplus
Networth
Debt
Capital Employed
Gross Fixed Assets
Accumulated Depreciation
Capital work in progress
Current Assets, Loans & Advances
Inventory
5,707
4,385
6,068
7,535
8,729
Debtors
2,592
2,310
2,546
3,118
3,612
Cash & Bank balance
Growth indicators (%)
Year ended 31st Mar
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
Year ended 31st Mar
3,040
2,552
3,190
4,426
5,768
RoE (%)
479
412
590
694
820
-
-
-
-
13,762
15,675
23,098
29,515
Loans & advances and others
EV/Sales
5.0
4.2
3.8
3.0
2.6
Dividend Yield (%)
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
Current Liabilities & Provisions
Net Current Assets
Deferred tax (assets)/liabilities
Misc.Expenses
Application of Funds
Source: Company Antique
Per share data
Year ended 31st Mar
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
No. of shares (m)
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
Source: Company, Antique
Antique Stock Broking Limited
82
COMPANY UPDATE
Dish TV India Limited
A lot to "Wish" for
27 December, 2010
Investment rationale
Leadership position in DTH industry
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
:
:
:
:
:
BUY
BUY
INR65
INR91
38%
Dish TV Limited (DTV) has consistently maintained its leadership position in
the Indian DTH industry with 32% market share and a strong subscriber base
of 9.2m as on Nov 30, 2010. We estimate Dish TV’s gross subscriber base
to reach ~14.9m by FY13e, whereby the company can leverage on its high
fixed content cost.
Market data
ARPU growth to drive strong profitability
Sector
:
Media
Market Cap (INRbn)
:
70
Market Cap (USDbn)
:
2
O/S shares (m)
:
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)
Free Float (m)
:
363
52-wk HI/LO (INR)
:
77/35
Avg 6m Vol (‘000)
:
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
Valuation and outlook
Growth in subscriber base and ARPU followed by declining content cost and
SAC leads to a high growth potential for Company’s revenue and EBITDA.
ARPU has strong sensitivity towards DTH business cash flows; a mere 5%
change in ARPU is likely to result 14% increase in forecasted EBITDA for
FY12e. The upward revision in subscription packs gives strong confidence in
the scale and leadership built by DTV.
At the CMP of INR65, DTV 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 recommendation with an increased target price of INR91,
which provides a potential upside of 38%.
Key financials
FII
8%
Others
21%
Source: BSE
Price performance vs Nifty
200
19,341
23,622
50
(1,350)
947
2,437
5,129
7,000
0
na
na
157
111
36
(4,763)
(2,621)
(2,137)
(581)
4,004
EBITDA growth (%)
PAT (INRm)
PAT growth (%)
EPS (INR/share)
EPS growth (%)
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
Source: Company, Antique
DTV
Nov-10
14,443
Jul-10
10,848
Mar-10
7,377
Nov-09
Net revenue (INRm)
Jul-09
100
Mar-09
2013e
Nov-08
2012e
Jul-08
2011e
Mar-08
2010
Jul-07
2009
Nov-07
150
Year ended 31st Mar
EBITDA (INRm)
DII
6%
Promoters
65%
NIFTY
Source: Bloomberg
Rajesh Zawar
+91 22 4031 3450
[email protected]
Varun Gupta
+91 22 4031 3412
[email protected]
Dish TV
Investment rationale
DTV’s 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
1
Expenses
12,007
14,212
12,122
14,197
(1)
0
2,437
5,129
2,136
4,041
14
27
3,993
5,025
3,771
4,763
6
6
(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
Source: Company, Antique
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
EBITDA growing at a faster rate due to
high proportion of fixed content cost (INRm)
FY09
Falling programming cost as a
% of revenue (INRm)
FY10
High subscriber base and increasing
ARPU boost revenues (INRm)
Margin(RHS)
Source: Company, Antique
Increasing market and incremental market share
The DTH market increased from 23.2m subscribers in 1QFY11 to 29m as on Nov
2010 and Dish TV has been able to achieve an incremental market share of 29%.
After a successful festive season, the Cricket World Cup will drive the next spur and
the DTH market is all set to achieve an average monthly run rate of 1m subs. We have
modeled gross addition of 3.5m and 2.5m subs in FY11e and FY12e, respectively.
Falling subscriber acquisition cost
With increasing subscriber base, the SG&A cost per subscriber acquisition reduces.
This coupled with rupee appreciation has helped the company reduce its SAC cost
over the last few quarters. We expect the trend to continue and with falling CPE
(Customer Premises Equipment) costs in coming years, the capex requirement per
subscriber acquisition will reduce.
Antique Stock Broking Limited
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
Silver Saver Packs
160
Silver Saver Sports
195
Gold
225
192
South Gold Saver
270
182+2 regional A-la-carte packs
Gold Saver
270
199
South Platinum
325
201+2 regional A-la-carte packs
Platinum
325
216
150
155
South Silver
125
172
South Silver Saver Packs
160
South Gold
225
Number of channels
& services
172+cricket Airing channels
147+2 regional A-la-carte packs
150
154+2 regional A-la-carte packs
176+2 regional A-la-carte packs
Source: Company, Antique
Valuation and outlook
ARPU has high sensitivity to earnings
ARPU has strong sensitivity towards DTH business cash flows. Even a 5% change in
ARPU would result in 14% increase in forecasted EBITDA for FY12e. DTV will become
cash positive in FY12e itself with strong subscriber additions.
EBITDA (INRm) - Sensitivity to ARPU and net subscriber
Net Subscriber
FY12e (Mn)
ARPU FY12e (INR)
145
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
EPS (INR) - Sensitivity to ARPU and net subscriber
Net Subscriber
FY12e (Mn)
ARPU FY12e (INR)
145
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%.
Antique Stock Broking Limited
85
Dish TV
Financials
Profit and loss account (INRm)
Year ended 31st Mar
Cash flow statement (INRm)
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
Depreciation & amortisation
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
Depreciation & amortisation
EBIT
Interest expense
Other income
Profit before tax
13
53
30
-
-
(4,756)
(2,622)
(2,137)
(581)
4,004
Taxes incl deferred taxation
PAT
EPS(INR/share)
Share Capital
Reserves & Surplus
Networth
611
686
701
(883)
999
621
1,201
1,387
(24)
(15)
-
-
-
27
(477)
(30)
-
-
CF from operating activities (2,671)
2,047
3,058
6,330
8,388
Capital expenditure
(5,102)
(4,870)
(6,813)
(3,759)
(3,400)
14
(3,726)
-
-
-
Income from investments
11
327
30
-
-
(10.0)
(3.2)
(2.0)
(0.5)
3.8
CF from investing activities (5,077)
(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
Gross Fixed Assets
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
Cash & Bank balance
540
5,422
3,088
5,473
9,760
7,744
8,045
8,045
8,045
8,045
Current Assets, Loans & Adv 8,822
13,834
12,172
14,900
19,487
15,504
16,798
18,341
20,028
15,843
40
56
56
56
56
Current Liabilities & Provs
15,883
15,560
16,854
18,397
20,084
Net Current Assets
(7,061)
(1,726)
(4,682)
(3,497)
(598)
Profit and Loss Account
9,720
12,342
17,098
17,679
13,675
14,791
25,522
30,143
30,643
30,643
Per share data
2009
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
No. of shares (m)
1,123
Inc/(Dec) in investments
11,678
Year ended 31st Mar
2,296
810
-
28,024
Application of Funds
5,025
4,004
11,178
Other liabilities & provisions
3,993
-
27,524
Creditors
3,038
(581)
9,178
Loans & advances and others
4,004
2,154
-
25,522
Inventory
2013e
(581)
(2,137)
11,311
Investments
2012e
(2,137)
(0)
14,791
Capital work in progress
Others
2011e
(2,621)
Capital Employed
Net Assets
Tax paid
2010
(2,622)
7
Debt
Accumulated Depreciation
(Inc)/Dec in working capital
2009
(4,756)
(4,763)
Balance sheet (INRm)
Year ended 31st Mar
Year ended 31st Mar
(8,270)
(6,783)
(3,759)
Inc/(Dec) in share capital
3,077
12,845
1
-
-
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)
Net cash flow
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
CF from financing activities
Growth indicators (%)
Year ended 31st Mar
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)
0
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 (%)
Net debt/EBITDA (x)
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
86
COMPANY UPDATE
Pantaloon Retail (India) Limited
Making the right moves
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
Market Cap (INRbn)
:
75
Market Cap (USDbn)
:
2
O/S Shares
:
201
Free Float (m)
:
95
52-wk HI/LO (INR)
:
531/308
Avg Daily Vol ('000)
:
103
Bloomberg
:
PF IN
Reuters
:
PART.BO
Pantaloon is working towards increasing its private label contribution in foods
to 20% from 7% in the next 3-4 years. We estimate that the average differential
gross margins in foods between private label and branded is nearly 500700bps.
Source: Bloomberg
Valuation and outlook
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
(12)
(30)
(17)
(6)
Relative
(16)
(29)
(27)
(19)
Shareholding pattern
At the CMP of INR360, the stock is trading at a PE of 32.5x FY11e and at
23.8x FY12e.
PAT growth (%)
EPS(INR)
EPS growth (%)
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)
7
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
EBITDA growth (%)
2011e
114,496
Jun-08
EBITDA Margin (%)
2010
89,261
250
200
150
100
50
0
Dec-07
EBITDA
2009
63,421
Price performance vs Nifty
Jun-07
Revenue
Source: BSE
Dec-06
Year ended 31st Mar
FIs
19%
Public and
others
12%
Jun-06
Key financials
Promoters
45%
Dec-05
With the ongoing re-structuring initiative primarily aimed towards focusing
on core retail operations, we think that the company is back in business. We
believe that the stock would trade at a one-year forward PE of 20x, implying
FY12e 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 in a time span of 12-18 months.
FIIs
24%
NIFTY
Source: Bloomberg
Abhijeet Kundu
+91 22 4031 3430
[email protected]
Pantaloon Retail India
Investment rationale
Revenue growth to be aided equally by same store growth and space expansion
Pantaloon’s 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 Retail India
Hiving off of financial services and insurance would free up cash
Pantaloon plans to hive off its
financial services (FCH) and
insurance business and merge
it into a separate company
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.
Valuation and outlook
We reiterate a BUY on the
stock with a target price of
INR473
Antique Stock Broking Limited
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
Pantaloon Retail India
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
2009
2010
2011e
2012e
2013e
Year ended 31st Mar
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
Depreciation & amortisation
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)
(Inc)/Dec in working capital
(3,946)
1,900
(4,686)
(821)
896
(754)
(613)
(1,105)
(1,750)
(2,635)
CF from operating activities (1,194)
5,565
120
5,471
9,263
Capital expenditure
(5,223)
(7,366)
(3,923)
(4,475)
(4,400)
Depreciation & amortisation
EBIT
Interest expense
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
Income from investments
65
760
139
150
179
CF from investing activities (8,833)
(4,221)
Other income
Profit before tax
Taxes incl deferred taxation
Profit after tax
1,417
2,302
2,406
3,533
5,257
Adjusted profit after tax
1,417
1,648
2,406
3,533
5,257
7.4
8.0
11.1
15.1
22.5
Recurring EPS (INR)
Balance sheet (INRm)
Year ended 31st Mar
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
Gross Fixed Assets
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
Current Assets, Loans & Advances
Inventory
17,878
24,032
28,418
31,786
34,274
Debtors
1,773
2,711
2,659
3,209
3,824
Cash & Bank balance
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
Loans & advances and others
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
8,914
205
436
790
1,204
1,767
23,709
22,133
30,616
34,306
35,972
Deferred tax assets/(liabilities)
(1,161)
(1,287)
(1,287)
(1,287)
(1,287)
Application of Funds
51,228
57,219
66,933
72,016
74,596
Net Current Assets
Tax paid
(7,309)
(3,783)
(4,325)
Inc/(Dec) in share capital
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
CF from financing activities
Net cash flow
(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
Growth indicators (%)
Year ended 31st Mar
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)
7
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
Dividend Yield (%)
0.2
0.3
0.4
0.5
0.7
2009
2010
2011e
2012e
2013e
6
6
8
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 (%)
Per share data
Year ended 31st Mar
2009
2010
2011e
2012e
No. of shares (m)
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)
Source: Company Antique
Margins (%)
Year ended 31st Mar
EBITDA
Source: Company, Antique
Antique Stock Broking Limited
90
COMPANY UPDATE
Aurobindo Pharma Limited
Execution mode
27 December, 2010
Aurobindo Pharma (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 off-patent medicines
for the growth. We estimate that the deal with Pfizer can boost revenue by
USD200m by FY14e for the company. The current agreements are targeted
towards US and European markets and will continue to explore ways to
further extend this partnership.
Pfizer sales witnessed a pick-up in Europe during 2QFY11 and we expect the
sales to Rest of the World (RoW) to commence during 2HFY11. A major part
of the revenue for Aurobindo is now emerging from this out-licensing and
dossier deals with Pfizer. It has also signed a licensing and supply deal with
AstraZeneca during the quarter for marketing its products in emerging markets.
Deals improve utilisation levels and allow entry into niche segments
Aurobindo is moving up the value chain by entering niche formulation segments
of oral contraceptives, controlled substances as well as injectables. Pfizer
and AstraZeneca deals help increasing presence in the branded generic
segment and improving utilisation levels of existing infrastructure resulting in
better realisation on sales generated in the regulated markets.
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
Sector
:
Pharmaceuticals
Market Cap (INRbn)
:
76
Market Cap (USDbn)
:
2
O/S shares (m)
:
58
Free Float (m)
:
24
52-wk HI/LO (INR)
:
1,350/786
Avg 6m Vol (‘000)
:
157
Bloomberg
:
ARBP IN
Reuters
:
ARBN.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
5
24
52
44
Relative
0
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
2
16
15
16
EPS (INR)
43.4
19.7
100.3
100.3
126.2
EPS growth (%)
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
Source: Company, Antique
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
PAT growth (%)
2010
Price performance vs Nifty
Aug-08
PAT (INRm)
2009
Source: BSE
Apr-08
EBITDA growth (%)
2008
Others
10%
Dec-07
EBITDA (INRm)
DII
9%
Promoters
55%
At the CMP of INR1,298, the stock trades at a PE and EV/EBIDTA of 10.3x
and 7x of its FY12e earnings respectively. We reiterate our BUY with an upward
revised target price of INR1,641, as we expect increased supply arrangements
with big pharmacos, strong ARV business, increased revenues from regulated
markets and consistent deleveraging to drive growth in coming years.
Key financials
Net revenues (INRm)
BUY
BUY
INR1,298
INR1,641
26%
Market data
Valuation and outlook
Year ended 31st Mar
:
:
:
:
:
Dec-10
Pfizer-like deals improve execution capabilities of Aurobindo
Aug-10
Investment rationale
NIFTY
Source: Bloomberg
Nishant Patel
+91 22 4031 3426
[email protected]
Aurobindo Pharma
Investment rationale
Pfizer-like deals improve execution capabilities of Aurobindo
Deals improve utilisation
levels and allow entry into
niche segments
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.
Significant ramp up in capacity utilisation
Increased product ramp-up
from the Pfizer and
AstraZeneca deal will further
boost the utilisation levels
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.
Streamlining operations for better performance
The company restructured its European operations and modified the product portfolio
by discontinuing low margin products and entering into licensing agreements with
MNCs. In these, revenues are in the form of milestone payments and supply contracts.
It has tie-ups with approximately 70 other formulators across EU countries and expects
a substantial chunk of revenues to flow in the coming quarters through other formulation
supplies. We expect the EU business to further ramp up in the coming quarters.
Increased allocations to PEPFAR and WHO aids ARV business
Aurobindo has the biggest basket of ARVs (anti-retrovirals) in the world. Given the
association with PEPFAR and the Clinton Foundation, the company is the largest
beneficiary in this segment. US has expanded the budget for PEPFAR from USD19bn
in CY08 by additional quantum of USD16.6bn in CY09 in order to increase the
scope of HIV medication. However, most of the allocated money currently remains
unutilised and thereby resulting in an opportunity for Aurobindo to bid for more
contracts and expand its revenues from the ARV business. The company is presently
scaling up its capacities to supply the ARVs in the developing markets of India, Africa
and Thailand.
Antique Stock Broking Limited
92
Aurobindo Pharma
Vertical integration maintains margins
Aurobindo has a sustainable
competitive advantage
because of its backward
integration and large product
filing
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.
Changing business-mix, increased capacities to expand margins
Aurobindo has transformed its business model from being a pure API play to a highend formulations player with presence in the regulated markets of US and EU. Its
inorganic presence in the less-penetrated markets of Europe and US and changing
product mix in formulations segment such as oral contraceptives, controlled substances
and sterile injectables will result higher revenues in FY11e and FY12e. We expect the
company to reduce its focus on APIs as most of the output will be captively utilised.
With improving proportion of high-margin formulations, the gross margins are expected
to expand from 47% in FY09 to 54% in FY11e and 59% in FY12e. However,
manufacturing efficiencies and lower selling costs will result in margin expansion.
Moreover, higher employee cost due to scaling up of US and EU operations and RoW
will impact margins. EBIDTA margins are likely to improve from 16.8% in FY09 to
25% in FY11e.
Strengthening balance sheet
FCCB conversion to deleverage
the balance sheet
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.
Valuation and outlook
We reiterate a BUY with a
target price of INR1,641 at
current levels
Antique Stock Broking Limited
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 Aurobindo’s 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)
Cash flow statement (INRm)
Year ended 31st Mar
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
Interest / Dividend Recd
Dossier Income
Other income
EBIDTA
2009
2010
2011e
2012e
2,917
726
7,523
8,534
10,728
Depreciation & amortisation
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
-
Income from investments
CF from investing activities
Interest expense
Taxes incl deferred taxation
Extra ordinary Items
Minority Interest
Profit after tax
2008
PBT
4,296
Depreciation
Profit before tax
Year ended 31st Mar
Other adjustments
(Inc)/Dec in working capital
Tax paid
459
302
1,531
1,877
2,360
CF from operating activities
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)
CF from financing activities (2,176)
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
Inc/(Dec) in share capital
43.4
19.7
100.3
100.3
126.2
Inc/(Dec) in debt
Recurring EPS (INR)
Dividends & Interest paid
Balance sheet (INRm)
Year ended 31st Mar
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
3
3
3
3
Accumulated depreciation
Net assets
2011e
269
Minority Interest
Gross fixed assets
2010
10,972
Deferred tax liability
Capital employed
2009
Capital work in progress
Investments
Current assets, loans & advances
Inventory
7,950
8,776
11,025
12,601
14,550
Debtors
6,650
8,898
9,560
11,459
13,482
Cash & bank balances
2,826
1,277
728
1,544
87
Loans & advances and others
3,165
3,939
3,746
3,759
3,759
Current liabilities & provisions
Creditors
Other liabilities & provisions
Net cash flow
(1,348)
Growth indicators (%)
Year ended 31st Mar
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
Net current assets
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
Source: Company Antique
Per share data
Year ended 31st Mar
No. of shares (m)
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
Source: Company, Antique
Antique Stock Broking Limited
94
COMPANY UPDATE
Petronet LNG Limited
Fuelling India’s gas needs
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.
We currently value PLL based on DCF methodology assuming average regas
tariff increase of 4% till FY12e and 1% thereafter, capacity of 19mmtpa by
FY14e, long-term capacity utilisation of 88%, WACC of 11% and terminal
growth rate of 1%. We recommend a BUY with a price target of INR143/
share, providing an upside of 14% from current levels.
Key financials
94
Market Cap (USDbn)
:
2
O/S shares (m)
:
750
Free Float (m)
:
261
52-wk HI/LO (INR)
:
131/69
Avg 6m Vol (‘000)
:
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
Price performance vs Nifty
200
150
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
EPS growth (%)
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
PAT growth (%)
Source: Company, Antique
Oil & Gas
:
Jan-10
PAT (INR m)
:
Market Cap (INRbn)
Nov-09
EBITDA growth (%)
Sector
Sep-09
EBITDA (INR m)
BUY
BUY
INR126
INR143
14%
Market data
Jul-09
Net Revenue (INR m)
:
:
:
:
:
Promoters
50%
Valuation and outlook
Year ended 31st Mar
Current Reco
Previous Reco
CMP
Target Price
Potential Upside
NIFTY
Amit Rustagi
+91 22 4031 3434
[email protected]
Ruchi Dugar
[email protected]
Miten Vora
[email protected]
Petronet LNG Limited
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
4
27
40
51
54
Petrochemicals
8
9
9
9
12
Sponge Iron
8
9
11
16
23
CGD
9
11
17
23
29
Pipeline internal consumption
3
3
4
4
4
152
188
221
257
282
6
7
7
8
9
10
11
12
13
15
168
206
240
278
305
Total priority sector demand
LPG extraction
Others
Total demand
Source: MoP&G, Industry reports
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)
Even the most optimistic
estimates assume the
availability of natural gas at
202mmcmd by FY16e, an
increase of 59mmcmd
Small Size (A)
Medium Size (B)
Pre-NELP (C)
NELP (D)
CBM (E)
ONGC
Nominated Firm (F)
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
Source: MoP&G, Industry reports
Antique Stock Broking Limited
96
Petronet LNG Limited
LNG import volumes to plug the gap
This clearly paves way for PLL to meet the deficit through imported LNG volumes. XI-XII
Plan estimated for LNG supply outlook further confirms our optimism. According to
the ministry of Petroleum, LNG supply is going to rise from 32mmcmd in FY08 to
60mmcmd in FY12e and further to 109mmcmd in FY17e implying a CAGR of 15%
for the next 5-6 years. LNG is thus expected to form almost 42% of total gas supply by
FY17e even under most conservative estimates.
PLL re-gasification capacity expansion comes at the right time
PLL’s capital expenditure estimates
for the next three years
20
17.1
13.9
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
Petronet expansion plans
10.5
10
PLL capex
7.9
6.0
FY13E
FY12E
FY11E
FY10
FY09
FY08
5
Capex (INRbn)
Under construction
2nd Jetty at Dahej ( IV Quarter, 2012)
10
Invited tenders
Kochi LNG Terminal expansion (2013)
3
5th & 6th Storage Tanks JV at Dahej
23
Sub - total
71
LNG Vessels (December, 2012)
Dahej + Kochi capacity - Dahej
capacity to grow by 16% CAGR from
FY09-15e (mmt)
25
21.0
19.0
20
10
11.5 11.5
Kochi
Source: Company, Antique
Antique Stock Broking Limited
FY15E
FY14E
FY13E
FY12E
FY11E
0
Dahej
3
Under feasibility study
35
Under feasibility study
Power Plant at Kochi (IV Quarter, 2013)
35
Under feasibility study
Sub - total
Total
73
144
Source: Company, Antique
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
5
FY10
Under feasibility study, to be built in
partnership with GSPC as per media reports
Comparing the capex of the Dahej and Kochi terminals
6.5
FY09
Pending for approval from Board
Power Plant at Dahej (March, 2013)
14.0
10.0
Comments
35
Investments
Source: Company, Antique
15
INRbn
Kochi LNG Terminal (IV Quarter, 2011)
Kochi
Total
Source: Company, Antique
97
Petronet LNG Limited
Concerns over PLL’s re-gasification charges being too high, are
overstated
Concerns over higher
re-gasification tariff charged
by PLNG are not justified in
our view
We analysed the economics of setting up of a green-field 5MMtpa LNG terminal with
initial capital costs of INR44bn, similar to the capex budgeted by IOC for its Ennore
LNG terminal. Our analysis reveals that such an LNG terminal needs atleast INR55/
mmbtu of re-gas tariffs to earn post tax RoCE of 12%, i.e regulated returns. We,
however, believe that earning just regulated returns do not justify the substantial risk in
sourcing LNG and managing sales contract. Thus, concerns over higher re-gasification
tariff charged by PLNG are not justified, in our view.
Furthermore, at regulated return, the required charges are significantly higher than
PLNG's re-gas tariff of INR32/mmbtu at Dahej, and hence do not pose any risk of
regulation.
Greenfield LNG terminal economic analysis
Re-gas tariff
Capex for 5mt LNG terminal (INRm)
40
45
50
55
60
44,000
44,000
44,000
44,000
44,000
Derived IRR (%)
11.1
13.6
15.9
18.1
20.1
Post tax IRR (%)
7.4
9.1
10.7
12.1
13.5
1
2
3
4
5
60
70
80
90
100
Year
Utilisation (%)
Internal F&L (INR/MMbtu)
1.5
Opex inflation (INR/MMbtu)
2.0
Source: Antique
As per management guidance, we expect the gross re-gasification charges on
contracted sales for the Dahej terminal to increase by 4% in FY11e and thereafter by
1% each year. However, management maintains that this is subject to negotiations
with the contracted LNG off-takers.
Lower re-gas charges as
compared to new project
economics would help PLNG to
keep competition away
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.
No concerns on regulating re-gasification charges
Re-gasification charges currently do not fall under any government regulations. Our
interaction with the senior MOP&G officials indicated that PNGRB would not bring
regassification charges under purview and this is not even at the thinking levels of
government think tanks. Our analysis also indicates that PLL's re-gasification tariffs will
be significantly lower than that required for green field LNG terminals, going forward
helping it to reduce regulatory concerns.
Antique Stock Broking Limited
98
Petronet LNG Limited
Valuation and outlook
We currently value PLL based on DCF methodology assuming average regassification
tariff increase of 4% for FY12e and 1% thereafter. Key assumptions for our DCF
valuation are: capacity of 19mmtpa by FY14e, long-term capacity utilisation of 88%,
WACC of 11% and terminal growth rate of 1%.
Reiterate a BUY with a price
target of INR143/share
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
Discounted free cash flow
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
Potential Upside/(Downside) (%)
14
Source: Antique
DCF assumptions
(%)
Risk Free Rate
8
Risk Premium
5.5
Beta
Cost of Equity
Cost of Debt
Post tax cost of debt
1
13.5
9.0
5.9
Average D/E ratio
50.0
WACC
11.0
Terminal Growth rate
1.0
Source: Antique
Antique Stock Broking Limited
99
Petronet LNG Limited
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Year ended 31st Mar
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
Changes in working capital
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
CF from operating activities
9,513
2,874
10,279
7,697
10,900
Profit before tax
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
0
Profit after tax
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
CF from investing activities (9,237)
(4,726) (12,358) (11,478)
(18,397)
6.3
6.9
5.4
6.8
9.6
Depreciation & amortisation
EBIT
Interest expense
Other income
Adjusted profit after tax
Recurring EPS (INR)
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)
CF from financing activities
(95)
4,845
(1,094)
4,764
6,063
Net cash flow
181
2,992
(3,173)
983
(1,435)
Dividends & Interest paid
Balance sheet (INRm)
Year ended 31st Mar
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
Gross Fixed Assets
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
Capital work in progress
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
Cash & Bank
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
Current Assets Loans & Advances
Inventory
Loans & advances and others
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Add: Opening balance
Closing balance
3,405
3,586
6,578
3,405
4,388
3,586
6,578
3,405
4,388
2,953
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Revenue
19
29
26
27
35
EBITDA
34
4
(11)
35
29
PAT
52
9
(31)
43
40
EPS
52
9
(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
1
1
1
2
2
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
Net Current Assets
2,887
9,175
3,211
4,962
3,204
Year ended 31st Mar
2008
2009
2010
2011e
Deferred tax assets/(liabilities)
(2,692)
(2,722)
(3,262)
(3,588)
(3,947)
RoE
29
26
16
20
23
0
0
0
0
0
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)
7
8
3
5
7
Minority interest
Application of Funds
Per share data
Year ended 31st Mar
No. of shares (Mn)
Source: Company Antique
2008
2009
2010
2011e
2012e
750
750
750
750
750
BVPS (INR)
22
26
30
34
41
CEPS (INR)
8
8
8
9
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
8
8
8
EBIT
12
9
6
7
7
PAT
7
6
3
4
4
Source: Company, Antique
Antique Stock Broking Limited
100
COMPANY UPDATE
Shree Renuka Sugars Limited
Brazilian Samba
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%
Healthy refining margins
The company has an operational port-based refining capacity of 2,000tpd
at Haldia and is also setting up another 3,000tpd refinery at Mundra. These
refineries will operate on a re-export model in times of surplus sugar situation
in India. The current refining spreads allow it to make healthy margins of
~USD35-40/mt.
Improving fundamentals at Brazil
With global sugar price on a firm trend, the fundamentals at Renuka Sugars
Do Brazil (RDB) and Vale Do Ivai (VDI), have improved substantially as the
companies' source part of their cane from the leased farms, where cane costs
are stable irrespective of sugar price trend.
De-leveraging of balance sheet
With improvement in profitability at RDB and VDI, we expect a considerable
improvement in the balance sheet strength over the next 15-18 months.
Market data
Sector
:
Sugar
Market Cap (INRbn)
:
66.5
Market Cap (USDbn)
:
1.5
O/S shares (m)
:
671.1
Free Float (m)
:
303.7
52-wk HI/LO (INR)
:
124 / 51
Avg 6m Vol (‘000)
:
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
Valuation and outlook
At the CMP of INR97, the stock trades at a P/E and EV/EBIDTA of 10.1x and
5.2x discounting its FY11e numbers, respectively.
We believe that the present business model of SRS should result in the company
benefiting from firm global sugar prices coupled with normalised profits from
the domestic operations. Additionally, a steady deleveraging of the balance
sheet should result in a gradual re-rating of the stock considering its scale of
operations and geographical diversification. We reiterate our BUY
recommendation on the stock with a target price of INR119.
Others
29%
FII
25%
Promoter
38%
DII
8%
Source: BSE
Price performance vs Nifty
150
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
EPS growth (%)
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
[email protected]
Shree Renuka Sugars Ltd
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.
Flexible cane price mechanism
minimises the cyclicality to
profits
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 India’s production will match the demand.
Foray into Brazil
Seventh largest sugar
manufacturer in Brazil post
the acquisition of RDB and VDI
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.
Potential for a sharp scale-up
in trading operations
Antique Stock Broking Limited
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
Shree Renuka Sugars Ltd
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 India’s 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)
Source: Cris Infac
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.
Valuation and outlook
At the CMP of INR97, the stock trades at a P/E and EV/EBIDTA of 10.1x and 5.2x
discounting its FY11e numbers, respectively.
We believe that the present business model of SRS should result in the company
benefiting from firm global sugar prices coupled with normalised profits from the
domestic operations. Additionally, a steady deleveraging of the balance sheet should
result in a gradual re-rating of the stock considering its scale of operations and
geographical diversification. We reiterate our BUY recommendation on the stock with
a target price of INR119.
Key assumptions
FY08
FY09
FY10
FY11e
FY12e
Cane crushing (mt)
4,623,550
3,365,805
3,909,150
5,046,000
4,644,000
Cane cost (INR/mt)
1,097
1,852
2,800
2,200
2,300
Recovery (%)
11.43
10.74
11.16
11.15
11.15
Sugar production (mt)
528,472
376,571
436,261
562,629
517,806
Sugar Price (INR/mt)
13,276
22,052
26,500
25,750
26,250
Raw Sugar Processed (mt)
-
595,000
1,071,000
1,120,500
1,275,000
Cane crushing (mt) - RDB
-
-
3,165,870
7,350,000
9,450,000
Cane crushing (mt) - VDI
-
-
1,242,947
2,635,000
2,790,000
Source: Company, Antique
Antique Stock Broking Limited
103
Shree Renuka Sugars Ltd
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 30th Sep
2008
2009
2010
2011e
2012e
Year ended 30th Sep
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
Depreciation & amortisation
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
Interest / Dividend Recd
(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
(Inc)/Dec in working capital
Tax paid
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
Profit after tax before MI & EO Items 1,181
2,248
7,159
7,829
9,289
Net Investments
7
-
-
-
Profit before tax
Taxes incl deferred taxation
Extra ordinary Items
(183)
Minority Interest
Profit after tax
25
5
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
Diluted EPS (INR)
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
Capital work in progress
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
Loans & advances and others
Other liabilities & provisions
Net Current Assets
Misc.Expenses
Application of Funds
No. of shares (m)
BVPS (INR)
(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
9
1,943
300
300
(4,839) (40,293)
(7,200)
(5,000)
CF from investing activities (5,323)
Inc/(Dec) in share capital
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)
Net cash flow
(1,667)
5,148
(3,381)
(617)
Opening balance
917
227
4,912
1,531
914
(751)
5,375
1,531
914
504
CF from financing activities
Closing balance
(409)
Growth indicators (%)
2009
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
0
477
477
477
477
Year ended 30th Sep
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
Per share data
Year ended 30th Sep
(305)
107
2008
Current Liabilities & Provisions
Creditors
(152)
Revenue
Current Assets, Loans & Advances
Cash & Bank balance
Income from investments
Dividends & Interest paid
Balance sheet (INRm)
Year ended 30th Sep
CF from operating activities
P/BV
EV/EBITDA
13.2
8.3
8.3
5.2
EV/Sales
1.7
1.4
1.5
1.1
1.0
Dividend Yield (%)
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
Source: Company Antique
276
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
Source: Company, Antique
Antique Stock Broking Limited
104
COMPANY UPDATE
Essar Shipping, Ports and Logistics Limited
Demerger to unlock value
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%
Second largest port with 158mtpa capacity
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)
:
:
Market Cap (USDbn)
:
1.4
O/S shares (m)
:
616
Free Float (m)
:
100
52-wk HI/LO (INR)
:
136/64
Avg 6m Vol (‘000)
:
1,015
Bloomberg
:
ESRS IN
Reuters
:
ESRS.BO
Long-term business commitment from group companies
The Port and logistics business would be providing services to group
companies like Essar Steel, Essar Power for handling of bulk cargo and
Essar oil for crude import and export of finished products. The scale up in
operation of these group companies also provides strong visibility to
earnings.
Port EBIDTA to post 58% CAGR to INR18.7bn over FY10-14e period
(2.1)
(7.2)
4.0
31.8
Shareholding pattern
FII
8%
24,124
EBITDA growth (%)
118
26
2
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
Price performance vs Nifty
Mar-10
56,896
8,345
Source: BSE
Dec-09
2013e
44,226
Others
8%
Jun-09
2012e
32,973
Source: Company, Antique
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
Year ended 31st Mar
P/E (x)
3m
1.0
Jun-08
Key financials
EPS growth (%)
1m
Absolute
Mar-08
At the current market price of INR105, there is a lucrative arbitrage opportunity
considering that the valuation of port business will align with its peers on
account of emerging as a focused entity. With our estimates of port valuation
at INR126/share and SOTP valuation of shipping, logistics and oilfield business
at INR47/share, we arrive at a target price of INR173. Hence, at current
levels, we reiterate our BUY recommendation.
EPS (INR)
Returns (%)
Promoters
84%
Valuation and outlook
PAT growth (%)
Source: Bloomberg
Source: Bloomberg
We expect the port to increase average realisation from INR173/mt in FY10
to INR248/mt in FY14 on account of favorable product mix. This, along with
a 31% CAGR increase in volumes, has the potential to propel revenues from
INR4.1bn in FY10 to INR25.4bn in FY14e.
EBITDA (INRm)
Port and Shipping
65
NIFTY
Source: Bloomberg
Vikram Suryavanshi
+91 22 4031 3428
[email protected]
Essar Shipping, Ports and Logistics
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
Essar Shipping Ports & Logistics Limited
Source: Company
(Shipping, Oilfields, Services, Logistics)
Essar Port Business
Essar Port to become the second
largest port by capacity in FY14e
(mtpa)
Capacity
Mundra
210
Essar
158
Kandla
136
Source: Antique, Company
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).
Demerged Entity: Shipping, Drilling and Logistics
Shipping, Drilling and Logistics will be demerged into separate listed entity Essar
Shipping. The new entity will have equity share of 210m compared to 610m currently.
Shipping
ESPL owns and operates a fleet of 26 vessels (2 tankers, 18 dry bulk, 6 support vessels)
with a total deadweight tonnage of 1.4m. These cater to captive demand of group and
are employed on long term contracts. ESPL does not have exposure to sport market as its
current fleet is on long term charter, thereby imparting strong visibility to earnings.
Essar Oilfield Services Limited (EOSL)
EOSL owns and operates 13 drilling rigs (1 semi-submersible, 12 onshore). Essar Wildcat,
a 3rd generation semi-submersible offshore rig, is deployed with Vietsovpetro JV. Two
new jack-up rigs on order for ~ USD480m with ABG shipyard are expected in FY12e.
Antique Stock Broking Limited
106
Essar Shipping, Ports and Logistics
Pre-demerger (FY10)
INRm
Essar Logistics Limited (ELL)
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
* Adj. for other income; P&T - Port and terminals
Source: Antique
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.
Valuation and outlook
Demerger to provide arbitrage opportunity by re-rating port business
ESPL's asset rich integrated business model is well positioned to capitalize on the industrial
and trade growth in India with its diversified business in shipping, ports and logistics
as it would be grabbing an increasingly large share of the logistical spend of its
clientele. The contractual demand from group companies and third parties gives strong
revenue visibility to its earnings
As the company is in a huge capex phase which is maturing in a staggered manner,
we believe the DCF would be better method to value the company. The shipping
business is valued on earnings basis and not on Net Asset Value basis considering the
long term employment of vessels. As most of its projects are getting completed in FY12e
and FY13e, we have considered FY13e estimates for our valuation of Shipping and
Oilfield. However, for one year target price, we have discounted the estimated value
assuming cost of equity @14%. We expect significant rerating for port business after
expected demerger. The port business has been valued at INR125.2bn (EV) on account
better valuation for separate port business with reference to domestic peers and improved
visibility in earnings.
Our discounted cash flow valuation of port of INR77.7bn translates into INR126 per
share and sum of the parts (SOTP) valuation of shipping, logistics and oilfield business
of INR47 per share and gives a target price of INR173. Hence, at current levels, we
reiterate our BUY recommendation.
Demerger to provide arbitrage opportunity
Pre-merger valuation
Post-demerger valuation
Consolidated
Essar Port
Essar Shipping & Logistics
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
Antique Stock Broking Limited
107
Essar Shipping, Ports and Logistics
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar 2009
2010 2011e 2012e
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
Depreciation & amortisation
2013e
Year ended 31st Mar 2009
38
4,476
9,616
Depreciation & amortisation
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)
0
0
0
(Inc)/Dec in working capital
(1,012)
(1,806)
(60)
(470)
(1,159)
(2,099)
Interest / Dividend Recd
418
880
729
799
877
Profit before tax
637
1,524
766
5,275
10,493
Taxes incl deferred taxation
471
270
368
1,582
3,148
Capital expenditure
Tax paid
CF from operating activities
Profit after tax
167
1,254
399
3,692
7,345
(Purchase) /Sale of Investments
Profit after minority
167
1,240
399
3,692
7,345
Income from investments
Recurring EPS (INR)
0.3
2.0
0.6
6.0
11.9
Share Capital
2010 2011e 2012e
2013e
6,158
6,158
6,158
6,158
6,158
Reserves & Surplus
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
Gross Fixed Assets
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
Current Assets, Loans & Adv
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
Cash & Bank balance
1,173
2,805
4,044
5,665
7,548
Loan & advances and others
6,633
11,897
12,134
13,103
14,279
Current Liabilities & Provs
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)
-
-
-
(16,472) (24,235) (28,543)
(1,043)
CF from investing activities (75,227)
Inc/(Dec) in share capital
Year ended 31st Mar 2009
2013e
644
Other income
Balance sheet (INRm)
2010 2011e 2012e
219
-
5,760
7,490
-
-
-
Inc/(Dec) in debt
25,688
7,686
20,441
20,594
(10,535)
Dividends & Interest paid
(4,348)
(5,460)
(6,035)
(7,344)
(8,283)
CF from financing activities
27,101
9,716
14,406
13,250
(18,818)
Net cash flow
(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
2010 2011e 2012e
2013e
Growth indicators (%)
Year ended 31st Mar 2009
Revenue
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
2010 2011e 2012e
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
2010 2011e 2012e
2013e
6,643
6,842
7,047
7,681
7,912
Financial ratios
Other liabilities & provisions
713
4,161
4,267
4,674
5,121
Year ended 31st Mar 2009
Net Current Assets
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
EBIT/ Interest (x)
1.1
1.1
1.0
1.6
2.2
Deffered tax assets/(liabilities)
Application of Funds
Per share data
Source: Company Antique
Year ended 31st Mar 2009
2010 2011e 2012e
2013e
No. of shares (m)
616
616
616
616
BVPS (INR)
126
138
139
145
616
157
CEPS (INR)
6.4
9.3
8.1
15.4
22.0
2010 2011e 2012e
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
Antique Stock Broking Limited
108
COMPANY UPDATE
Havells India Limited
All lit up and ready to shine
27 December, 2010
Investment rationale
Comprehensive product profile
HIL’s 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
Strong brand recall and distribution
Sector
:
Consumer Electricals
Market Cap (INRbn)
:
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.
Market Cap (USDbn)
:
1.1
O/S shares (m)
:
124.8
Avg 6m Vol (‘000)
:
26
Sylvania bogey exorcised
Bloomberg
:
HAVL IN
Reuters
:
HVEL.BO
HIL had acquired the global operations of Sylvania in Apr’07 for Euro227m.
After losses incurred during the slowdown of FY09, HIL restructured Sylvania’s
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
Free Float (m)
:
44
52-wk HI/LO (INR)
:
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%
Valuation and outlook
2012e
66,136
2,886
3,222
6,256
7,766
EBITDA margin (%)
5.3
5.9
10.3
11.7
EBITDA growth (%)
(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)
Price performance vs Nifty
Mar-10
Year ended 31st Mar
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
With steady cash generation from Indian operations and operational
profitability achieved in Sylvania, we estimate cash flows to improve
substantially from FY11e onwards. Consequently, debt retirement over the
next few years should reflect in an improved EV on the consolidated level.
Nifty Rebased
Source: Bloomberg
Amol Rao
+91 22 4031 3435
[email protected]
Havells India Limited
Investment rationale
Havells India Limited (HIL), incorporated in 1983, is promoted by Mr. Q.R. Gupta
and one of India’s 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
Apr’07 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 Sylvania’s brand
was well established.
HIL: Business Segments
Segment
Products
Consumers
Revenue Drivers
Competitors
Cable and Wires
Power Cables, Copper
Cables, Control Cables
Retail Consumers and
Power Utilities
Investment in Power
and Real Estate
Finolex, Polycab, KEI
Switchgears
LV Switchgears and
Modular Switches
Retail Consumers
and Industry
Real Estate Growth and
Power Distribution
Legrand, Scnhneider, Siemens
Lighting and Fixtures
CFL and Luminaries
Retail and Commercial
Real Estate
Philips, Osram, GE, Wipro
Electrical Consumer Durables Fans (Geysers to be
introduced)
Retail
Housing Growth and
rising aspirations
CG, Orient, Khaitan
Sylvania
Industry, Commercial
and Retail
Housing Growth in
Europe and Latam
Osram, Philips, GE
CFL, Luminaries and HID
Source: Company, Antique
Operational overview
Indian operations
HIL: Trend of revenue composition
70,000
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 HIL’s
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
HIL’s Euro227m acquisition of Sylvania was effected with the intention to access markets
in Europe, Latin America and Asia with the help of the latter’s 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
Source: Company, Antique
Antique Stock Broking Limited
110
Havells India Limited
Valuation and outlook
Expansion of product profile
and marketing efforts to
continue in India
Sylvania turnaround augurs
well for HIL
HIL’s 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, HIL’s monthly revenues currently
hover between INR2-2.5bn. The increase in volumes and tight controls over costs have
ensured a steady increase in HIL’s OPM from 9% in FY07 to 12.6% in FY10.
Till recently, Sylvania’s 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 quarter’s results and we expect these to continue to contribute towards
an improvement in operating metrics going forward. Additionally, we feel that Sylvania’s
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 HIL’s 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 Sylvania’s 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 HIL’s and Sylvania’s 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)
Havells India Ltd. (Consolidated) (A+B): Value /sh (INR)
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 Sylvania’s 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.
Antique Stock Broking Limited
111
Havells India Limited
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
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
(Inc)/Dec in working capital
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
(Purchase) / Sale of Investments
377
429
932
1,324
1,967
Income from investments
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
Profit before tax & excp. Items 1,986
(+) Exceptional items
Profit before tax
Taxes incl deferred taxation
Profit after tax
Diluted EPS (INR)
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
-
2
2
2
2
19,789
18,328
14,934
15,662
16,617
Deferred Tax Liability
Minority Interest
Capital Employed
Gross Fixed Assets
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
Capital work in progress
1,005
308
336
300
300
Goodwill
3,346
3,579
3,212
3,212
3,212
32
-
-
-
-
Investments
Current Assets, Loans & Advances
Inventory
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
Loans & advances and others
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
1
1
0
0
0
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Miscellaneous Exp (not w/o)
Application of Funds
19,789
18,328
14,934
15,662
16,617
No. of shares (m)
2009
2010
2011e
1,986
(1,172)
1,628
4,415
5,960
Depreciation & amortisation
694
905
837
1,087
1,274
Interest expense
939
1,084
871
825
632
Interest / Dividend Recd
(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)
CF from operating activities
(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
CF from investing activities (7,693)
(400)
(1,626)
(1,061)
(341)
Inc/(Dec) in share capital
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)
CF from financing activities
9,991
(515)
(2,796)
(3,187)
(3,670)
Net cash flow
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
Growth indicators (%)
Year ended 31st Mar
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
Dividend Yield (%)
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
Per share data
Year ended 31st Mar
2008
Dividends & Interest paid
Balance sheet (INRm)
Year ended 31st Mar
Year ended 31st Mar
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
Source: Company, Antique
Antique Stock Broking Limited
Year ended 31st Mar
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
Source: Company Antique
112
COMPANY UPDATE
BGR Energy Systems Limited
Graduating
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
Market Cap (INRbn)
:
50.2
Market Cap (USDbn)
:
1.1
O/S shares (m)
:
72.1
Free Float (m)
:
25.6
52-wk HI/LO (INR)
:
950/410
Avg 6m Vol (‘000)
:
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%
Valuation and outlook
BGR systems has over the last few years evolved from a BoP to an EPC (with
external BTG supplier) player. With the formation of the current JV for BTG,
the company has moved up the value chain and can now bid for generation
projects of various types. Our FY12e target stands at INR919 assigning a16x
PE on FY12e EPS of INR57.
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
PAT growth (%)
EPS (INR)
EPS growth (%)
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
Source: Company, Antique
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
EBITDA growth (%)
PAT (INRm)
210
Jan-08
EBITDA (INRm)
Price performance vs Nifty
Apr-08
Revenues (INRm)
Source: BSE
160
Key financials
Year ended 31st Mar
Others
10%
NIFTY
Source: Bloomberg
Abhineet Anand
+91 22 4031 3441
[email protected]
BGR Energy Systems
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.
We estimate 20-25GW of EPC/
BTG tenders to be floated in
the next one to two years
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
NTPC Bulk Tender 1 Boiler
6,600
80-100
NTPC Bulk Tender II Boiler
7,200
88-105
NTPC Bulk Tender II Turbine
7,200
65-80
IPP Opportunity (BoP/EPC)
5,000
Source: Industry, Antique
List of BoP/EPC projects
Size (MW)
Type
Amount
Thermal Power Station-Kakatiya, APGENCO
500
BOP
6,949
Thermal Power Station-Khaperkheda, MAHAGENCO
500
BOP
9,980
Kothagudam Thermal PP, Khammam APGENCO
500
BOP
7,930
Mettur Thermal PP, TNEB
600
EPC
31,000
Projects under execution
Rajasthan Rajya Vidyut Nigam Ltd (Kalisindh)
1200
EPC
49,000
CSPGCL , Malwa
1000
BOP
16,330
Chandrapur, Maharashtra, MAHAGENCO
1000
BOP
16,320
Thermal Power Tech Limited
1320
BOP
21,680
Total
6,620
159,189
Projects executed
Aban Power Limited
120
EPC
2697
Rajasthan Rajya Vidyut Nigam Ltd (Dholpur)
330
BOP
2095
Thermal Power Station-Kakatiya, APGENCO
500
BOP
5788
Thermal Power Station-Vijaywada, APGENCO
500
BOP
Total
1,450
6949
17,529
Source: Industry, Antique
JV with Hitachi Japan and
Hitachi Europe to manufacture
subcritical/supercritical boiler
and turbines
Antique Stock Broking Limited
BTG JV to add value in long term
BGR has entered into a JV with Hitachi Japan and Hitachi Europe to manufacture
subcritical/supercritical boiler and turbines of 600/800/1,000MW. The venture would
require a total project cost of about INR44bn to set up the facility. The overall capital
expenditure for setting up the facility of Boiler and Turbine in JV would be ~INR44bn.
114
BGR Energy Systems
BGR Energy has spent INR1.5bn till date in the JV mainly towards purchase of land.
The equity requirement for BGR is estimated to be INR9.5bn over the next 2-3 years
which the company expects to fund through internal accrual.
The huge opportunity in the BTG space, coupled with BGR JV qualifying for the NTPC
orders while concerns remain over the Chinese players; puts the JV on a strong footing
to garner the incremental orders. Further, the company has transformed itself from a
component manufacturer to BoP player to EPC player. The company has been hitherto
awarding BTG contracts to Chinese players for its EPC orders. Going forward, BGR
intends to source BTG from its manufacturing JV for its EPC orders.
Competition in BTG space
Boiler
EBITDA and PAT margin QoQ
BHEL (15,000- 20,000MW)
14
LT (4,000-5000MW)
12
Thermax (3,000MW)
8
BGR (4,000MW)
Bharat Forge - Alstom
JSW - Toshiba
6
Source: Industry, Antique
4
BoP orders to pick up significantly in the medium term
2
0
2QFY11
1QFY11
4QFY10
3QFY10
2QFY10
1QFY10
4QFY09
3QFY09
Net pro fit mgn (%)
EB ITDA mgn (%)
Source: Company, Antique
6.1
6
4.2
4
3.3
2.5
3
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.
Order book to sales QoQ (x)
5
L&T (4,000-5000MW)
BGR (4,000MW)
10
7
Turbine - Generator
BHEL (15,000- 20,000MW)
2.4
2
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
Valuation and outlook
BGR systems has over the last few years evolved from a BoP to an EPC (with external
BTG supplier) player. With the formation of the current JV for BTG, the company has
moved up the value chain and can now bid for generation projects of various types.
Our FY12e target stands at INR919 assigning a16x PE on FY12e EPS of INR57.
Antique Stock Broking Limited
115
BGR Energy Systems
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
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
Depreciation & amortisation
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
Year ended 31st Mar
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
Interest / Dividend Recd
(32)
(24)
-
-
-
21
(44)
(1)
16
22
(3,226)
(1,528)
(673)
(1,902)
(1,295)
(64)
(37)
249
(1,614)
(2,143)
CF from operating activities (1,696)
773
3,266
2,036
3,867
(176)
(523)
(639)
(1,338)
(16,845)
(1,488)
1,466
9
-
-
32
24
-
-
-
(1,631)
967
(630)
(1,338)
(16,845)
Other Adjustments
55
75
98
117
141
(Inc)/Dec in working capital
254
579
538
672
840
Tax paid
1,296
1,752
3,047
4,747
6,302
Taxes incl deferred taxation
411
596
1,037
1,614
2,143
Capital expenditure
Profit after tax before MI & EO Items
885
1,156
2,010
3,133
4,159
Net Investments
11
1
9
15
22
Profit after tax
873
1,154
2,001
3,118
4,137
Diluted EPS (INR)
12.1
16.0
27.8
43.3
57.5
Interest expense
Profit before tax
Minority Interest
Balance sheet (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
720
720
720
720
720
Share Capital
Income from investments
CF from investing activities
Inc/(Dec) in share capital
3,197
-
-
-
-
Inc/(Dec) in debt
2,563
2,063
2,246
974
11,792
(2,035)
Dividends & Interest paid
(291)
(721)
(754)
(1,572)
CF from financing activities
5,469
1,342
1,493
(598)
9,757
Net cash flow
2,141
3,081
4,129
99
(3,221)
Reserves & Surplus
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
Gross Fixed Assets
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
5
5
5
5
Goodwill on consolidation of subsidiary 6
6
6
6
6
Minority Interest
Debt
Deferred Tax Liability
Capital Employed
Capital work in progress
Investments
150
140
162
178
196
Debtors
7,360
12,789
19,803
29,898
39,357
Cash & Bank balance
3,070
6,152
10,280
10,380
7,159
Loans & advances and others
2,749
6,610
7,455
8,909
9,782
Creditors
3,065
12,326
18,956
28,620
37,674
Other liabilities & provisions
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
Current Liabilities & Provisions
Net Current Assets
Misc.Expenses
Application of Funds
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
No. of shares (m)
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
Growth indicators (%)
Year ended 31st Mar
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
Source: Company Antique
Per share data
Year ended 31st Mar
929
3,070
Closing balance
PE
Current Assets, Loans & Advances
Inventory
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
Source: Company, Antique
Antique Stock Broking Limited
116
COMPANY UPDATE
Mahindra Holdiays & Resorts (I) Limited
Sunny days ahead
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
:
Market Cap (INRbn)
:
Leisure
35
Market Cap (USDmn)
:
789
O/S shares (m)
:
83
Free Float (m)
:
10
Robust business model
52-wk HI/LO (INR)
:
574/330
Its business model is designed to generate significant cash flows, especially
in the first 12-24 months, giving it adequate head room to expand inventory,
boost marketing efforts or pay out dividend or deploy its float as a treasury
instrument, thereby generating additional income. Lastly, the low capital and
operational outlay for the asset also facilitates high asset sweating.
Avg 6m Vol (‘000)
:
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
EBITDA margin (%)
26.6
32.6
26.1
31.9
EBITDA growth (%)
(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 (%)
Source: Company, Antique
14.3
(14.8)
(29.4)
(21.3)
Shareholding pattern
DII
3%
FII
4%
Promoter
83%
Others
10%
Source: BSE
Price performance vs Nifty
570
510
450
390
330
MHRIL
Dec-10
2,010
Relative
Source: Bloomberg
Oct-10
2009
(9.0)
Aug-10
Year ended 31Mar
12m
(19.4)
Jul-10
Key financials
6m
(14.9)
May-10
Despite a tepid performance in 1HFY11, MHRIL’s business model remains
intact and centred on optimisation of cash flows. Our confience in the company
stems from its scale of operations, float generation and comfortable valuations.
We iterate our BUY recommendation with a price target of INR502, which
represents an upside potential of 22% from current levels.
3m
19.9
Mar-10
Valuation and outlook
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
[email protected]
Mahindra Holidays
Investment rationale
Operational re-organisation
Operational restructuring initiated in
1QFY11
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
0
Rooms
Source: Company, Antique
With a view to rectify this situation, MHRIL has adopted the following measures:
Pains of operational overhaul
will reflect in FY11 numbers
Antique Stock Broking Limited
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.
It plans to strengthen its customer mapping in order to develop a homogenous
client base. In the process, it will be developing new product offerings for various
income groups, thereby preserving brand equity.
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.
Lastly, the company has completely stopped selling inventory to non-members,
freeing up rooms for existing members.
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 MHRIL’s 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 MHRIL’s 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 MHRIL’s 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.
Valuation and outlook
Business fundamentals remain
intact
At the CMP of INR412, MHRIL is trading at a PER and EV/EBIDTA of 28.1x and
12.6x, discounting its FY12e numbers. MHRIL’s operations are similar to but do not
replicate that of a hotel’s. 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
Market Premium (%)
5
Beta (x)
Cost of Equity (%)
Terminal Growth (%)
Total NPV (INR m)
O/s Shares (m)
Value/share (INR)
1.3
Topping out Year
14
Membership Count
83
502
2017e
238,259
7.0%
Peak Utilisation
4.8
41,825
Room Inventory
2,594
Source: Antique
Antique Stock Broking Limited
119
Mahindra Holidays
Financials
Profit and loss account (INRm)
Year ended 31st Mar
Cash flow statement (INRm)
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
Depreciation & amortisation
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
Interest from securitisation
Interest on instalment sales
Other income
EBIDT
Depreciation
Interest expense
Profit before tax
33
70
46
21
21
1,260
1,320
1,767
1,174
1,833
Taxes incl deferred taxation
455
487
589
391
611
Profit after tax
805
834
1,178
783
1,222
9.7
10.0
14.1
9.4
14.7
Diluted EPS (INR)
Year ended 31st Mar
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
Interest / Dividend Recd
(9)
(15)
(57)
(50)
(50)
Other Adjustments
2008
2009
2010
2011e
2012e
764
783
833
833
833
Reserves & Surplus
Networth
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
Gross Fixed Assets
479
640
862
1,095
1,359
2,255
3,582
4,030
4,731
4,627
450
512
979
200
140
2
6
2,272
2,006
5,506
Capital work in progress
Investments
Current Assets, Loans & Advances
Inventory
Debtors
Cash & Bank balance
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
Other liabilities & provisions
189
318
410
831
1,100
Net Current Assets
3,934
4,803
5,559
7,462
6,658
Application of Funds
6,641
8,903
12,839
14,400
16,931
Loans & advances and others
Current Liabilities & Provisions
Per share data
Year ended 31st Mar
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
No. of shares (m)
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)
9
9
43
50
50
197
372
97
364
419
CF from operating activities
Capital expenditure
Interest on Instalment sales
Income from securitisation
CF from investing activities
12
100
223
-
-
(494)
(1,083)
(3,041)
524
(3,131)
3
4
1,628
-
-
141
46
(147)
(0)
-
Inc/(Dec) in share capital
Inc/(Dec) in debt
Dividends & Interest paid
(135)
(234)
(314)
(460)
(508)
9
(183)
1,167
(460)
(508)
(1,107)
CF from financing activities
Net cash flow
(16)
252
(76)
3,048
Opening balance
84
68
320
244
3,292
Closing balance
68
320
244
3,292
2,185
Growth indicators (%)
Year ended 31st Mar
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
Dividend Yield (%)
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
Source: Company Antique
Margins (%)
Year ended 31st Mar
1
(223)
Interest received
Balance sheet (INRm)
Share Capital
(22)
(372)
(Inc)/Dec in working capital
(Purchase) / Sale of Investments
Year ended 31st Mar
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
Source: Company, Antique
Antique Stock Broking Limited
120
COMPANY UPDATE
Phoenix Mills Limited
Real estate play on retail revival
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
:
Market Cap (INRbn)
:
Real Estate
32
Market Cap (USDbn)
:
0.7
O/S shares (m)
:
145
Free Float (m)
:
42
52-wk HI/LO (INR)
:
270/171
Avg 6m Vol (‘000)
:
76
Bloomberg
:
PHNX IN
Reuters
:
PHOE.BO
Source: Bloomberg
Returns (%)
1m
3m
6m
12m
Absolute
0
(9)
4
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.
Valuation and outlook
We reiterate a BUY on the stock with a target price of INR274 comprising: 1)
INR124 for High Street Phoenix; 2) INR96 for market city projects; 3) INR24
for 53% economic interest in Shangri-La hotel; 4) INR8 for 75% stake in Phoenix
Hospitality; and 5) INR22 for stake in EWDPL and Big Apple Real Estate.
DII
6%
Promoter
65%
FII
22%
Others
7%
Source: BSE
Price performance vs Nifty
270
Key financials
Year ended 31st Mar
245
2008
2009
2010
2011e
2012e
Net revenues (INRm)
821
996
1,230
2,292
5,263
EBITDA (INRm)
501
602
775
1,545
3,340
EBITDA growth (%)
(30)
20
29
99
116
PAT (INRm)
428
768
620
971
1,870
PAT growth (%)
6
79
(19)
57
92
EPS (INR)
3.2
5.3
4.3
6.7
12.9
EPS growth (%)
(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
3
5
4
6
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
[email protected]
Phoenix Mills Limited
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
Retail and F&B
Courtyard
0.13
148
Tenants include Domino’s Pizza, Sports Bar,
Spaghetti Kitchen, Barista, Hamleys
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
Retail and F&B
Skyzone & Quorum
0.12
217
Tenants include Marks & Spencers, Guess, Pepe
Multiplex
PVR
0.05
NA
Long term lease of 900 years for Rs470m
Retail
Grand Galleria
0.05
242
Tenants include Chroma, Costa Coffee
Retail
Palladium
0.30
170
Tenants include Zara, Burberry, Manchester United
Café and The Comdedy Store
Hotel
Shangri-La
0.80
NA
Retail
Source: Company, Antique
0.25
420 keys
To be constructed
High Street Phoenix has a weighted average rental of ~INR150/sq.
ft./mth (ex-Palladium)
With the opening of Palladium, weighted average rentals are ~INR157/sq. ft./mth.
Besides, leases of three of the anchor tenants (Big Bazaar, Pantaloon and Lifestyle) are
expected to be renewed from Dec 2010 to Sep 2011; this is expected to further
enhance average rentals. Moreover, once Phase IV of ~0.25m sq ft is completed,
rental income will increase further.
Distinctive market city model
Phoenix Mills plans to replicate the successful High Street Phoenix model across other
locations in the country. The company is currently developing four market city projects at
Kurla (Mumbai), Pune, Bangalore and Chennai. All projects are strategically located
and are in the vicinity of high catchment areas. Funding both debt and equity has been
tied-up for all four market cities and construction of these projects is in advanced stages.
Antique Stock Broking Limited
122
Phoenix Mills Limited
Market City projects are designed to be large scale retail-led real estate developments
in city centre locations. The projects will have a mix of retail and entertainment space,
food & beverage outlets, multiplexes and office/residential space. Such a format is
expected to attract a wide spectrum of tenants and consumers.
Snapshot of market city projects
m sq ft
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
Source: Company, Antique
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 (%)
4QFY10 1QFY11 2QFY11
Kurla
35
47
Pune
64
Bangalore
32
Chennai
37
50
Key Tenants
55
Big Cinemas, Tata Group, Reliance, Landmark
75
75
PVR, Tata Group, Reliance, Landmark
55
70
Reliance
60
Fun Cinemas, Tata Group, Reliance, Landmark
Source: Company, Antique
Presence in smaller cities through EWDPL and Big Apple
EWDPL focuses on real estate development, primarily retail in Tier II and III cities
under the brand 'Treasure'. The company has a portfolio of ~13m sq ft (EWDPL's
share), of which ~0.8m sq ft comprising three retail projects at Indore and Nanded
are operational. Big Apple Real Estate develops malls under the brand 'Phoenix United'
in north India, particularly Uttar Pradesh. The company's first mall opened recently in
Lucknow while additional projects are planned in Lucknow, Agra and Bareilly.
Reiterate a BUY with a target
price of INR274
Valuation and outlook
We value Phoenix on an SoTP basis and arrive at a target price of INR274 based on the
following assumptions: 1) High Street Phoenix, Market City projects and Shangri-La
hotel are valued on a DCF basis with a terminal growth assumption of 5%. 2) 75% stake
in Phoenix Hospitality is taken at book value i.e., INR1.1bn representing the amount
invested. 3) In EWDPL and BARE, operational malls are valued based on capitalisation
of rentals, while other projects are valued at land cost. 4) WACC is 14.5%.
The following factors provide potential for upside to our target price: 1) Phoenix Mills is
moving to a rental model based on minimum guarantee/revenue share, whichever is
higher. Revenue share could result in higher effective rentals. 2) EWDPL is planning an
IPO which is expected to value the company higher than our estimates.
Antique Stock Broking Limited
123
Phoenix Mills Limited
Financials
Profit and loss account (INRm)
Year ended 31st Mar
Cash flow statement (INRm)
2008
2009
2010
2011e
2012e
Revenues
821
996
1,230
2,292
5,263
Adjusted PAT
Expenses
320
394
455
747
1,923
Depreciation & amortisation
EBITDA
501
602
775
1,545
3,340
76
93
172
270
460
425
508
603
1,276
2,880
45
55
86
128
Depreciation & amortisation
EBIT
Interest expense
2008
2009
2010
2011e
2012e
428
768
620
971
1,870
76
93
172
270
460
-
(1)
(1)
54
290
(Inc)/Dec in working capital
(109)
71
544
1,022
373
Other Items
(194)
(321)
(156)
-
-
563
CF from operating activities
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
Profit before tax
620
957
759
1,368
2,537
Taxes incl deferred taxation
192
190
147
342
634
Year ended 31st Mar
Minority Interest
Inc/(Dec) in & income from investments (7,924)
CF from investing activities (13,846)
Profit after tax
428
767
612
1,026
1,903
Inc/(Dec) in share capital
15,090
86
33
-
-
Adjusted profit after tax
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
Recurring EPS (INR)
Balance sheet (INRm)
Year ended 31st Mar
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
Gross Fixed Assets
Accumulated Depreciation
Net Assets
2010
12,555
Minority Interest
Debt
2009
3,320
4,419
7,321
10,640
17,687
Capital work in progress
5,006
9,004
9,137
8,513
2,366
Investments
6,340
4,525
5,601
5,786
5,786
Current Assets, Loans & Advances
Inventory
3
3
3
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
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Deferred tax assets/(liabilities)
Goodwill
Application of Funds
Dividends paid
(94)
(167)
(167)
174
174
CF from financing activities 13,536
3,304
734
839
(524)
Net cash flow
(109)
1,888
(1,239)
8
1,108
Opening balance
131
22
1,910
671
679
22
1,910
671
679
1,787
2012e
Closing balance
Growth indicators (%)
Year ended 31st Mar
2008
2009
2010
2011e
Revenue
(17)
21
23
86
130
EBITDA
(30)
20
29
99
116
PAT
6
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
Dividend Yield (%)
Financial ratios
Year ended 31st Mar
2008
2009
2010
2011e
2012e
RoE (%)
3
5
4
6
10
RoCE (%)
3
2
2
5
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
Source: Company Antique
Per share data
Year ended 31st Mar
2008
2009
2010
2011e
No. of shares (m)
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
Source: Company, Antique
Antique Stock Broking Limited
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COMPANY UPDATE
Sterlite Technologies Limited
Spools of growth
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
Market Cap (INRbn)
:
26.1
Market Cap (USDmn)
:
600
O/S shares (m)
:
374
Free Float (m)
:
148
52-wk HI/LO (INR)
:
124/67
Avg 6m Vol (‘000)
:
109
Bloomberg
:
SOTL IN
Reuters
:
STTE.BO
Source: Bloomberg
Returns (%)
Favourable macro headwinds
With power generation capacity of 40-50GW set to come on stream over
the next 3 years, infrastructure in the domestic transmission and distribution
sector is set to be beefed up. This is expected to spawn humongous demand
for power conductors. On the telecom side, international demand for OF
and OFC is arising on account of improving ‘Last-Mile’ connectivity and
higher bandwidth requirements while strengthening of existing networks is
the primary driver of domestic demand.
:
:
:
:
:
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%
Valuation and outlook
STL’s ongoing capex, all inclusive nature and technological superiority of its
product profile, coupled with the management’s strong track record inspire
confidence. We believe that the its inherent operational strengths coupled
with a positive demand scenario will reflect STL’s financials. We upgrade our
recommendation to BUY with a price target of INR97, an upside of 39%.
Key financials
Others
31%
Source: BSE
Price performance vs Nifty
130
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
EPS growth (%)
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
Year ended 31Mar 2008
Nifty Rebased
Source: Bloomberg
Amol Rao
+91 22 4031 3435
[email protected]
Sterlite Technologies Ltd.
Investment rationale
Operational Recap
Telecom Products and Solutions
Power segment revenues (INRm)
Healthy capex by domestic telecom companies as well as robust exports to countries like
China translated into higher despatches and improved realisations as STL’s 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 STL’s 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
0
Source: Company, Antique
Future Outlook
Telecom Products and Solutions
Telecom segment revenues (INRm)
25,000
Domestic telcos are looking to maximise ARPUs by introducing bandwidth intensive
applications. At current levels, existing networks are incapable of handling the traffic,
with most telecom networks requiring drastic overhaul of their fiber backbones as
well as tower connectivity. Despite infrastructure sharing, new operators will have to
set up basic infrastructure; necessitating fresh demand for OFC.
The defence forces have outlined plans for 60,000kms of OFC, which should result
in crystallisation of 3m Fkms of orders.
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
Source: Company, Antique
Mar'12e
Mar'11e
Mar'10
Mar'09
Mar'08
Mar'07
Mar'06
0
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.
Antique Stock Broking Limited
126
Sterlite Technologies Ltd.
Towards this, PGCIL’s proposed expenditure outlay for the XIth plan is ~INR550bn.
The GoI’s game plan is to implement a national grid in the XIth plan and have an
interregional power evacuation capacity of over 37,500MW.
Capacity Expansions
Mindful of the tremendous opportunities in both sectors viz. power transmission and
telecom, STL has outlined the following plans:
Power transmission industry
set for dramatic overhaul
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.
Valuation and outlook
Macro indicators provide
robust outlook for offtake
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
P/E EV/ EBIDTA Year Ended
Corning Inc
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
P/E EV/ EBIDTA Year Ended
9.3
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
Antique Stock Broking Limited
127
Sterlite Technologies Ltd.
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Year ended 31st Mar
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
Depreciation & amortisation
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
(Inc)/Dec in working capital
(1,418)
2,383
59
(2,471)
(760)
Tax paid
(80)
(144)
(550)
(812)
(1,065)
CF from operating activities
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
Taxes incl deferred taxation
Extra ordinary Items
Profit after tax
(63)
(21)
-
-
-
1,007
902
2,461
2,718
3,227
2.7
2.4
6.6
7.3
8.6
Recurring EPS (INR)
Balance sheet (INRm)
Year ended 31st Mar
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
Gross Fixed Assets
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
Reserves & Surplus
Networth
Debt
Deferred Tax Liability
Capital Employed
Net Assets
Capital work in progress
Investments
Current Assets, Loans & Advances
Inventory
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
Cash & Bank balance
Loans & advances and others
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Application of Funds
2,347
2,679
4,422
3,137
3,612
871
2,326
1,792
3,431
3,962
No. of shares (m)
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)
Dividends & Interest paid
(423)
(1,005)
(502)
(560)
(503)
CF from financing activities
595
(2,707)
(1,195)
(401)
(934)
(106)
(4)
23
(373)
1,722
131
24
20
43
(329)
24
20
43
(329)
1,393
Net cash flow
Opening balance
Closing balance
Growth indicators (%)
Year ended 31st Mar
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
Dividend Yield (%)
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
Year ended 31st Mar
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
0
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)
Inc/(Dec) in share capital
12,408
Per share data
Year ended 31st Mar
Interest / Dividend Recd
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
Source: Company Antique
Margins (%)
Year ended 31st Mar
EBITDA
Source: Company, Antique
Antique Stock Broking Limited
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
:
Market Cap (INRbn)
:
Automobiles
18
Market Cap (USDbn)
:
0.4
O/S shares (m)
:
106
Free Float (m)
:
76
52-wk HI/LO (INR)
:
246/115
Avg 6m Vol (‘000)
:
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%
Valuation and outlook
At the CMP of INR170, the stock trades at 9.8x and 7.2x our FY11e and
FY12e consolidated earnings estimates. In our view, the current valuations do
not capture the sharp turnaround and potential earnings growth (FY10-12e
EPS CAGR of 40%). We recommend a BUY with a target price of INR236 (10x
FY12e EPS), which provides an upside potential of 39% from the current levels.
Key financials
Price performance vs Nifty
200
27,661
26,617
33,783
39,825
45,722
50
1,348
2,224
2,450
3,415
4,345
0
4.9
8.4
7.3
8.6
9.5
PAT (INRm)
(376)
286
1,320
1,836
2,492
Adjusted PAT (INRm)
(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 (%)
Adjusted EPS (INR)
PE (X)
EV/EBITDA (X)
Div Yield (%)
RoE (%)
RoCE (%)
Source: Company, Antique
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
Year ended 30th Sep
DII
20%
NIFTY
Source: Bloomberg
Ashish Nigam
+91 22 4031 3443
[email protected]
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.
Cleaning up balance sheet
25,000
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
0
Consolidated Debt (LHS)
Debt : Equity (RHS)
Source: Company, Antique
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.
Tractor business on strong footing
The tractor industry witnessed a growth of 14% during FY03-10, led by increase in
disposable incomes on the back of rising MSPs and enhanced focus on increasing
farm credit. Farm mechanisation is on the rise attributable to a low availability of
labour and sharp increase in labour costs ~ a function of various policy measures
including the increase in allocation for NREGA (National Rural Employment Guarantee
Act), which has made rural labor scarce and expensive. NREGA gives every rural
household the right to a minimum 100 days of guaranteed employment with a minimum
wage of INR100/day paid within 15 days.
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 mechanisation,
which has led to the recent buoyancy in tractor demand.
Escorts is the third largest player in the tractor segment after M&M and TAFE, with a
current market share of 13%. It has successfully maintained its No. 3 position in the
largest (and probably the most competitive) tractor market, despite major consolidation
in the tractor industry (M&M~PTL, TAFE~Eicher) which is testimony to the strong brand
equity it enjoys amongst the farmers.
Antique Stock Broking Limited
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%
Regionwise market share
Regionwise volumes break-up
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
Source: Crisil, Company, Antique
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.
Capacity utilisation (estimates based
on current run-rate)
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-à-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
John Deere + International
Tractors + New Holland
175
105%
105
70
John Deere
117%
International
Tractors
0%
127%
Escorts: Capacity
expansion of 37%
35
0
2004
50%
100%
Source: Crisil, Company, Antique
Antique Stock Broking Limited
150%
M&M + PTL
2005
2006
Escorts
2007
TAFE
2008
Others
Source: Crisil, Company, Antique
131
Escorts Limited
M&M vs. Escorts
Region-wise tractor break-up
Agri Division’s EBIT margins
Hp-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 +
Source: Crisil, Company, Antique
Capacity-wise Peer comparison
Tractor Industry
Capacity
M&M
Escorts
TAFE
John Deere
Int Tractors
New Holland
35,000
233,000
98,940
94,800
30,000
30,000
Market share (%)
42
13
22
7
8
5
Current capacity utilisation (%)
84
61
105
117
127
73
Source: Crisil, Company, Antique
Escorts tractor volumes ('000s)
77
69
53
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
Volumes (In '000s) (LHS)
YoY Grow th (RHS)
Source: Company, Antique
Tractors - Utilisation on an uptrend..
To benefit from operating leverage!
90%
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.
Other businesses - small contribution, big potential!
While the tractor business will be the mainstay for the company, its other businesses
are also on a favorable footing. The company's earth moving and construction
equipments division is under its 100% subsidiary - Escorts Construction Equipment
Limited (ECEL) which contributes 16% to the company's consolidated revenues and
10% to consolidated EBIT. The outlook for the construction equipment division is
extremely positive given the underlying buoyancy in the industry. We expect the
buoyancy in the sector to continue as infrastructure is still a high focus point for the
government considering its contribution to overall economic development. Investment
in infrastructure (as a % of GDP) is expected to increase from the 7-8% range currently
to almost 11% by FY17. With its already well-established service and distribution
network, coupled with its strong brand recall, there is a lot of scope for Escorts to
ramp-up its presence in the segment.
The company previously had a 40:60 JV with JCB through which it sold backhoe
loaders by the brand of "JCB Escorts". This JV ended in 2003 when JCB bought out
Escorts' 60% stake, post which Escorts had a non-compete clause with JCB till January
2008. Consequent to the expiry of this non-compete agreement, the company has
recently launched a backhoe loader under its own brand name. The backhoe segment
accounts for 26% of the total earth moving segment and is dominated by players like
JCB (70% market share) and L&T. With its already well established service and
Source: Company, Antique
Antique Stock Broking Limited
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)
EBIT Margin (RHS)
Source: Company, Antique
Valuation and outlook
At the CMP of INR170, the stock trades at 9.8x and 7.2x our FY11e and FY12e
consolidated earnings estimates. In our view, the current valuations do not capture the
sharp turnaround and potential earnings growth (FY10-FY12e EPS CAGR of 40%).
We recommend a BUY with a target price of INR236 (10x FY12e EPS), which provides
an upside potential of 39% from the current levels.
1,000
1,000
2%
0
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%
Consolidated Adjusted PAT (INRm) (LHS)
PAT margin (RHS)
-4%
-1%
ROE
FY12e
4%
20%
5%
FY11e
2,000
6%
FY10
1,500
Consolidated EBIDTA (INRm) (LHS)
EBIDTA Margin (RHS)
3.7%
2,000
6%
5.5%
FY09
4.9%
4.6%
2,500
… and substantial improvement in
return ratios
FY08
8%
3,000
FY12e
10%
FY11e
9.5%
7.3%
4,000
3,000
8.6%
8.4%
FY10
5,000
… coupled with minimal capex/lower
debt results in sharp increase in profits
FY09
Operating leverage/cost cutting enables
sharp improvement in margins ...
FY08
We recommend a BUY with a
target price of INR236
ROCE
Source: Company, Antique
Antique Stock Broking Limited
133
Escorts Ltd.
Financials
Profit and loss account (INRm)
Cash flow statement (INRm)
Year ended 30th Sept
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
Depreciation & amortisation
508
595
532
582
602
EBITDA
1,348
2,224
2,450
3,415
4,345
Interest expense
721
717
181
299
292
Depreciation & amortisation
508
595
532
582
602
1,071
(4,502)
1,895
559
206
EBIT
840
1,629
1,918
2,833
3,743
Interest expense (net)
721
717
181
299
292
Other Income
Year ended 30th Sept
(Inc)/Dec in working capital
Tax paid
CF from operating activities
260
290
490
719
982
(704)
5,720
(116)
1,838
2,865
6
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)
9
614
1,430
Profit before tax
(116)
576
1,810
2,555
3,474
Income from investments
260
290
490
719
982
Taxes incl deferred taxation
Profit after tax
Adjusted profit after tax
Adjusted EPS (INR)
(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
Balance sheet (INRm)
Year ended 30th Sept
2008
Share Capital
2009
2010
2011e
2012e
907
907
1,056
1,056
1,056
Reserves & Surplus
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
CF from investing activities
Inc/(Dec) in share capital
6
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)
CF from financing activities
514
242
1,042
(400)
(470)
Inc/(Dec) in debt
Net cash flow
(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
Growth indicators (%)
Year ended 30th Sept
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
Year ended 30th Sept
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
Current Assets, Loans & Advances
Cash & Bank balance
1,423
1,964
2,124
2,328
2,679
EV/EBITDA
18.5
9.0
8.1
5.7
Loans & advances and others
3,011
2,198
3,037
3,471
3,967
EV/Sales
0.9
0.8
0.6
0.5
0.4
Dividend Yield (%)
0.0
0.6
1.1
1.4
1.8
2008
2009
2010
2011e
2012e
(1)
4
7
10
12
5
9
9
13
15
Debt/Equity (x)
0.9
0.3
0.2
0.2
0.2
Interest Coverage (x)
1.2
2.3
10.6
9.5
12.8
Current Liabilities & Provisions
Liabilities
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
Net Current Assets
Deferred tax (assets)/liabilities
Misc.Expenses
Application of Funds
Per share data
Year ended 30th Sept
No. of shares (m)
Financial ratios
Year ended 30th Sept
RoE (%)
RoCE (%)
Source: Company Antique
90.7
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
Source: Company, Antique
Antique Stock Broking Limited
134
Initiating Coverage
Tecpro Systems Limited
Growth “Pro”
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
:
Balance of plant to be the key driver of growth
Market Cap (INRbn)
:
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).
Market Cap (USDbn)
:
0.4
O/S shares (m)
:
50
Free Float (m)
:
14
52-wk HI/LO (INR)
:
454/350
Avg 6m Vol (‘000)
:
16
Bloomberg
:
TPRO IN
Reuters
:
TPSL.BO
Source: Bloomberg
Returns (%)
Leading player in Coal and Ash handling with high margins
Tecpro is one of the leading suppliers of coal and ash handling plants (CHP
and AHP). As per the CEA monitoring report, the company holds a market
share of ~19% (11 out of total 57 orders - 1st in the category) in CHPs, while
~15% (9 out of 59 orders - 3rd in the category) in AHPs.
Valuation and outlook
Tecpro is poised to capture the huge demand in the Indian power sector
through BoP segment in the coming years. We believe Tecpro is better placed
to capture the BoP orders compared to its competitors on account of its higher
market share in CHPs and AHPs. 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 FY12e EPS
(INR38) and arrived at our target price of INR458. The stock provides 22%
upside from the current levels.
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
Price performance vs Nifty
130
Key financials
27,010
100
2,825
3,716
90
40.0
133.5
25.0
32.0
1,925
EBITDA growth (%)
PAT (INRm)
554
1,085
1,449
PAT growth (%)
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
EPS growth (%)
Source: Company, Antique
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
Year ended 31st March
Oct-10
120
NIFTY
Abhineet Anand
+91 22 4031 3441
[email protected]
Mohit Kumar
[email protected]
Mohit Gulati
[email protected]
Tecpro Systems Limited
Investment Rationale
Order inflows surge post IPO
Tecpro’s 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
Engineering Projects(I) Ltd
EPC for Bhilai Steel Plant,SAIL
Value (INRmn)
1-Nov-10
APGENCO
BOP for Rayalseema(1*600MW) & Kakatiya (1*600MW)
9-Nov-10
SEPCO
AHS for GMR's 3*350MW Kamalaga Thermal Plant, Orissa
10-Nov-10
NMDC
Material Handling for Balladila Iron Ore mine, Chattisgarh
278
14-Nov-10
Punj Lloyd
CHP for Dhariwal Thermal Plant (2*300MW), Chandrapur
940
22-Nov-10
Bhartiya Rail Bijlee
CHP for Nabinagar Thermal Plant (4*250MW)
710
19780
513
2692.0
Total
24,914
Source: Company, Antique
Higher order book to sales ratio
The order book to sales ratio of Tecpro stands at 2.7x at the end of 2QFY11. The
orders comprise primarily BoP, CHP and AHP. The execution cycle for these orders is
in the range of 18-30 months. Hence, the visibility of the revenue for the next two
years is very high. The size of the order book and order book to sales ratio are shown
in the charts below:
Order book to sales ratios
Order book (INRbn)
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
0.0
Source: Company, Antique
Antique Stock Broking Limited
136
Tecpro Systems Limited
Orders till July 31, 2010
Clients
Description
Balance of Plant
Chhatisgarh State Power Gen Co
BoP works for 1 x 500MW Korba West TPP Extn. III
Material handling orders
Jindal India Thermal Power Ltd.
Coal handling system for 2 x 600MW Thermal Power Plant
Tata Projects Ltd., Krishnapatnam, AP
Coal handling system for 2 x 800MW Krishnapatnam Super Critical TPP
Utkal Alumina Refinery Project
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
Steel Authority of India Ltd.
Erection of the plant and equipment, steel structures, refractories
Ash handling orders
NTPC, Vindhyachal
Ash handling system package for Stage IV 2 x 500MW project
Tata Projects, Krishnapatnam
Ash handling system for 2 x 800MW power project
Lanco, Anpara
Ash handling plant for 2 x 600MW at Anpara C
Lilama, Vietnam
Ash handling system for Vung Ang 1 TPP (Vietnam) 2 x 600MW
Source: Company, Antique
Reaffirming credentials as a BoP player
Tecpro has successfully moved into BoP space with a contract worth INR9,930m by the
Chhattisgarh State Power Generation for a 1x500MW thermal power plant at Korba
West in Aug 2009 in consortium with Gammon India and VA Tech Wabag. Further, it
has won two orders for BoP from APGENCO for Rayalseema and Kakatiya Power Plant.
Details of BoP orders
Awarding
Authority
Power plants
Capacity
(MW)
BTG
Order
Year
Amount
Lead Financing
Institution
CSPGCL
Korba, Chattisgarh
500
BHEL
Jun-12
9,930
PFC
APGENCO
Kakatiya Stage -II
600
BHEL
Dec-12
7,230
PFC
APGENCO
Rayalseema Stage - IV
600
BHEL
FY14
12,550
REC
Source: Company, Antique
Balance of plant to be the key driver of growth
Huge generation capacity planned in
XIIth FYP
80
70
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
Estimated BoP orders for XIIth FYP
40
Number of orders
Xth
XIth
30
Coal handling plant (CHP)
23
68
78
20
Ash handling plant (AHP)
23
69
79
Demineralised (DM) water plant
32
69
79
Cooling tower
41
79
91
Chimney
36
79
91
Fuel oil (FO) system
22
71
82
Water treatment plant
36
76
87
10
0
XIth
XIIth
Coal
Others
Source: Industry, Antique
Antique Stock Broking Limited
XIIth
Source: CEA, Antique
137
Tecpro Systems Limited
Leading player in Coal and Ash handling
Tecpro is leader in providing solutions for coal handling and ash handling system for
thermal power plants in India. As per CEA monitoring report of 26th May, 2009, the
company had highest number of orders of 11 coal handling plants out of 57 orders
placed by thermal power plants getting commissioned in XIth FYP. Similarly, Tecpro
has 9 orders of ash handling plant out of 59 orders placed by plants being
commissioned in XIth FYP.
Ash handling plant orders
10
5
4,500
Others
TRF
Elecon
Thyssen Krupp
Order book in steel and cement sector
L&T
Techpro
0
Others
15
McNally
20
DC
Industrial
25
20
18
16
14
12
10
8
6
4
2
0
Tecpro
30
Mecawber
Coal handling plant orders
Indure
As per the CEA monitoring
report, the company holds a
market share of ~19% (11 out
of total 57 orders - 1st in the
category) in CHPs, while ~15%
(9 out of 59 orders - 3rd in the
category) in AHPs.
Source: CEA, Antique
Entry barriers
4,000
Tecpro has technical collaborations and license agreements with international
companies including FAM Magdeburger Forderanlagen und Baumaschinen GmbH,
Germany, Maschinenfabrik Liezen und Giesserei GmbH, Austria, PEYTEC Material
Handling GmbH, Austria and Won Duck Industrial Machinery Company Limited,
Korea. The pre-qualification requirements for material handling contracts include track
record, technology availability and net worth. These technical collaborations act as
entry barrier for the new players in the coal handling plant and ash handling plant.
3,500
3,000
2,500
2,000
1,500
1,000
500
0
FY07
FY08
Steel
FY09
Cement
FY10
Others
Source: Company, Antique
Revenue in steel and cement sector
1800
1600
1400
1200
Opportunities in other sectors
There are significant opportunities in steel, cement, port and sugar sectors for material
handling players. 21% of Tecpro’s order book as on July 31, 2010 comprises material
handling orders from sectors other than power. The order book has grown at a CAGR
of 20% from FY07 to FY10 while the revenue from other sectors has grown by ~42%
CAGR from INR969m to INR2,800m.
Tecpro is expected to garner a large portion of material handling orders. There are
only three to four direct competitors to Tecpro in CHP and AHP space. The investment
in power generation, steel and cement would be key driver for the new orders.
1000
800
600
400
200
0
FY07
FY08
Steel
FY09
Cement
FY10
Others
Source: Company, Antique
Antique Stock Broking Limited
138
Tecpro Systems Limited
Valuation and outlook
Tecpro is poised to capture the huge demand in the Indian power sector through BoP
segment in the coming years.
EBITDA margin
18%
16%
14%
12%
10%
8%
6%
BGR Energy
TRF
Elecon Engg
Co
FY08
Mcnally
Bharat Engg
FY09
Tecpro
Average
FY10
Source: Bloomberg, Antique
We believe Tecpro’s 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
Elecon Engineering ELCN IN Equity
TRF Ltd
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
DIV Yield (%)
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
1
1
Source: Bloomberg, Antique
Antique Stock Broking Limited
139
Tecpro Systems Limited
Financials
Profit and loss account (INRm)
Year ended 31st Mar
Cash flow statement (INRm)
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
Depreciation & amortisation
EBITDA
690
966
2,256
2,825
3,716
Depreciation & amortisation
Year ended 31st Mar
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
(Inc)/Dec in working capital
(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)
CF from operating activities
85
(11)
(2,264)
(2,365)
(1,476)
(500)
Other income
44
120
207
238
324
(256)
(425)
(435)
(500)
Profit before tax
658
908
1,674
2,195
2,916
Inc/(Dec) in investments
-
-
(65)
-
-
Taxes incl deferred taxation
(249)
(355)
(589)
(746)
(991)
Income from investments
21
57
136
238
324
CF from investing activities
(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)
-
-
CF from financing activities
319
931
3,446
4,241
976
Net cash flow
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
Profit after tax
409
554
1,085
1,449
1,925
Adjusted profit after tax
408
554
1,089
1,449
1,925
Recurring EPS (INR)
15.3
11.6
24.5
28.7
38.1
Balance sheet (INRm)
Year ended 31st Mar
2008
2009
2010
2011e
2012e
Share Capital
267
477
442
505
505
Reserves & Surplus
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
Gross Fixed Assets
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
Capital work in progress
217
548
115
115
115
1
1
31
31
31
334
795
1,061
1,738
2,368
2,290
4,363
9,176
12,217
16,650
Cash & Bank balance
456
1,007
1,825
3,439
2,763
Loans & advances and others
328
589
2,709
3,801
5,180
Networth
Debt
Capital Employed
Investments
Current Assets, Loans & Advances
Inventory
Debtors
Current Liabilities & Provisions
Creditors
Other liabilities & provisions
Net Current Assets
Deferred tax assets/(liabilities)
Application of Funds
2,636
4,794
7,815
8,959
12,210
32
0
0
0
0
740
1,960
6,957
12,235
14,751
(7)
(5)
12
12
12
1,310
2,851
8,265
13,955
16,856
Per share data
Year ended 31st Mar
2008
2009
2010
2011e
2012e
No. of shares (m)
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
Inc/(Dec) in share capital
Inc/(Dec) in debt
Growth indicators (%)
Year ended 31st Mar
Revenue
EBITDA
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
Dividend Yield (%)
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
Source: Company Antique
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
Source: Company, Antique
Antique Stock Broking Limited
140
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