Antique

Published on June 2016 | Categories: Documents | Downloads: 107 | Comments: 0 | Views: 1098
of x
Download PDF   Embed   Report

Comments

Content

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

124

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

Important Disclaimer:
This report is prepared and published on behalf of the research team of Antique Stock Broking Limited (ASBL). ASBL, its holding company and associate
companies are a full service, integrated investment banking, investment advisory and brokerage group. Our research analysts and sales persons provide
important inputs for our investment banking and allied activities. We have exercised due diligence in checking the correctness and authenticity of the
information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions
expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without any notice. ASBL or any
persons connected with it do not solicit any action based on this report and do not accept any liability arising from the use of this document. The recipients of
this material should rely on their own judgment and take their own professional advice before acting on this information. The research reports are for private
circulation and are not to be construed as, an offer to sell or solicitation of an offer to buy any securities. Unless otherwise noted, all research reports provide
information of a general nature and do not address the circumstances of any particular investor. The distribution of this document in certain jurisdictions may
be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. ASBL its holding
company and associate companies or any of its connected persons including its directors or employees shall not be in any way responsible for any loss or
damage that may arise to any person from any inadvertent error in the information contained, views and opinions expressed in this publication. ASBL its holding
company and associate companies, officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities
thereof, of company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or
act as advisor or lender/borrower to such company(ies) or have other potential conflict of interest with respect to any recommendation and related information
and opinions. ASBL, its holding company and associate companies, directors, officers or employees may, from time to time, deal in the securities mentioned
herein, as principal or agent. ASBL its holding company and associate companies may have acted as an Investment Advisor or Merchant Banker for some of
the companies (or its connected persons) mentioned in this report. The research reports and all the information opinions and conclusions contained in them are
proprietary information of ASBL and the same may not be reproduced or distributed in whole or in part without express consent of ASBL. The analyst for this
report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their
securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.
One of the Directors in Antique group is a Partner in audit firm, who are the statutory auditors of Reliance Industries Ltd.
Analyst ownership in stock

No

Antique Stock Broking Limited

Nirmal, 2nd Floor, Nariman Point, Mumbai 400 021.
Tel. : +91 22 4031 3444 • Fax : +91 22 4031 3445
www.antiquelimited.com

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close