CHANGING TIMES: KDDL - PhillipCapitalbackoffice.phillipcapital.in/...Ideas_-_KDDL_-_Jan_2016_2016010415… · KDDL thesis KDDL is a story of multi-year compounding in revenue and

CHANGING TIMES:

KDDLJanuary 2016

KDDL thesis KDDL is a story of multi-year compounding in revenue and earnings growth driven by engineering capabilities, product diversification, and entry into new markets. We expect revenue CAGR of 24% to Rs 7.8bn over FY15-18 driven by 20% growth in manufacturing and 25% in retail. It has managed to successfully grow its manufacturing business – from being a domestic supplier; it is now a leading global supplier of high-quality watch components for international brands. It has developed its precision stamping division out of its tool room expertise of over thirty years and offers high-precision press components and tooling solutions for a wide range of engineering applications. We believe this division is at inflection point with emerging growth opportunities in aviation and defence. KDDL is setting up new manufacturing facility to enhance capabilities in precision engineering and we expect this business to report 64% revenue CAGR to Rs 850mn over FY15-18 with EBITDA margin of ~20%. The company has diversified into the premium watch-retailing segment through subsidiary Ethos, India’s largest retail chain for Swiss watches. It is an authorised retailer of over 60 luxury watch brands and sells through boutique stores and online marketing. The operating margins are expected to improve by ~300bps over FY15-17 driven by increase in sales per store providing operating leverage and growing contribution from online sales. KDD has authorized service centres for 15 of the world’s top luxury watch brands. The incremental focus on service and repair in watches would improve customer loyalty and profitability. All these internal drivers [manufacturing, precision engineering and Ethos retail] will lead to continuous improvement in revenue and earnings. These three revenue drivers will enable KDDL to deliver earnings CAGR of 65% over FY15-18.

Vikram Suryavanshi | [email protected] | + 9122 6667 9951

January 4th, 2016

Phillip Kaizen

We at PhillipCapital are presenting stocks with sustainable growth prospects generated by internal drivers.

改

善 Kaizen in Japanese stands for “continuous improvement” or “philosophy of improvement” derived from the words Kai, which means “change”, and Zen which means good. It involves all employees from the CEO to the assembly line workers. Kaizen was first implemented in several Japanese businesses after the Second World War, influenced in part by American business and quality management teachers who visited the country. It has since spread throughout the world and is now being implemented in environments outside of business and productivity.

Changing times | KDDL | 4January 4, 2016

KDDL

Changing times • KDDL (formally known as Kamala Dials & Device) is a diverse company that

focuses on watches, stamping, precision engineering, and watch retailing. Its scale of operations has reached an inflection point in both retail and precision engineering.

• From being a domestic supplier, it has successfully managed to grow its manufacturing business to become a leading global supplier of high-quality watch components to international brands in Switzerland.

• The premium watch segment in India has reported 25% CAGR in value over FY05-15 and share of premium watches has increased to ~50% in 2015 from 18% in 2005.

• The company is also focusing on online lead-generation and digital marketing along with consolidating store presence. KDDL has an authorized service centre for fifteen of the world’s top luxury watch brands and is capturing the high-margin repair and service market aggressively.

• We expect strong growth in retail business to improve its margins significantly, as stores mature and are able to cover fixed cost. Higher revenue per store brings economy of scale for the retail business, which the company has successfully managed.

Valuations At its CMP of Rs 343, KDDL trades at 17.9x FY17 earnings and a P/BV of 7.2x. We have valued the stock at 25x our FY17 EPS of Rs 19.2 to arrive at a price target of Rs 480. We initiate coverage with a BUY rating.

Key Data

CMP (Rs) : 343

Target (Rs) : 480 (40%)

RECO : BUY

Bloomberg : KDDL IN

Market Cap (Rs bn) : 3

Market Cap (USD bn) : 0.1

Stock Performance

O/S Shares (Mn) : 10

52 - Wk Hi/Lo (Rs) : 425 / 232

Liquidity 3m (USD mn) : 0.06

Shareholding Pattern (%)

Promoters : 47.6

FII / NRI : 15.5

FI / MF : 0.03

Non Promoter Corp. Holdings : 14.0

Public & Others : 24.5

Price Performance (%)

1mth 3mth 1yr

Absolute 15.2 20.0 34.3

Rel to BSE 15.9 20.7 39.5

Valuation Summary Rs mn FY14 FY15 FY16E FY17E FY18E Net Sales 3,342 4,108 4,924 6,148 7,784 EBIDTA 297 382 477 641 839 Net Profit 57 68 112 193 281 EPS, Rs 5.6 6.8 11.1 19.2 27.9 PER, x 61.1 50.8 31.0 17.9 12.3 EV/EBIDTA, x 14.2 11.1 9.9 7.5 5.6 P/BV, x 11.4 13.0 10.3 7.2 5.0 ROE, % 11.7 13.2 19.0 26.6 29.9 Debt/Equity, % 242.3 239.1 269.8 270.1 234.7

Source: Company, PhillipCapital India Research Estimates


Creating multiple growth drivers KDDL has successfully managed to grow its manufacturing business – from simply being a domestic supplier, with technical innovation and process improvements, it is now a leading global supplier of high-quality watch components to international brands in Switzerland. There are around five globally independent players in watch hands manufacturing and KDDL is one of them. The company diversified into the premium watch-retailing segment through its subsidiary Ethos and has since established India’s largest retail chain for Swiss watches. Ethos houses more than 60 luxury brands with 40 stores across India selling ~7,000 types of luxury watches. It is an authorized retailer of all leading luxury watch brands and sells through boutique stores and online marketing. Its retail formats address market segments such as luxury and prestige, exclusive boutiques, and airport boutiques. It offer pre-sale and post-sale services, which includes guiding customers in buying the right watch and offering them in-house repair and service facilities. It has authorized service centres for 15 of the world’s top luxury watch brands and is capturing the high-margin repair and service market aggressively. Revenue breakup (FY15: Rs 4.1bn)

Source: Company, PhillipCapital India Research s

The tool room is central to the manufacturing of watch components. KDDL has international-quality precision progressive tool design and fabrication facilities, and manufactures intricate stamped parts. It created its precision-stamping division from its tool-room expertise of over thirty years and offers high-precision press components and tooling solutions for engineering applications in electronics, electrical, communication, automotive, instrumentation, and aviation sectors. We believe this division is at an inflection point with emerging growth opportunities in aviation and defence. Ethos watch boutique – a play on growing retail in India International brands are entering India to capture growing potential among buyers. Mounting exposure to international trends and increase in the number of HNIs in India is leading to higher sales of Swiss watches. Watches are no longer just a tool for showing time – they are mostly associated with status and pleasure. They are important fashion accessories. High-end watches are also changing with time to adjust to new technological innovations such as Frederique Constant’s inspiration behind creating the Horological smart watch. Expansion in watch retail business

Source: Company, PhillipCapital India Research

Ethos (Retail)68%

Watch Dials11%

Watch Hands12%

Precision Engineering

5%

Packaging1% Service and others

3%

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The Indian watch market’s 10-year CAGR is ~15% (estimated size ~Rs 100bn). The organised market is estimated at ~Rs 55bn with market for premium segment is ~Rs 27bn. The premium segment has seen 25% value CAGR over FY05-15 with ~50% share in 2015, up from 18% in 2005. Rising income levels and standard of living is likely to increase demand for luxury watches. The usual age of the market’s audience is around 40 or below – people in this age group are more likely to experiment with colour, materials, and sizes. Older buyers prefer classic luxury watches. Mechanical watches are being increasingly viewed as collectibles and objects of art compared with quartz watches, which are mass-produced and hence considered less personal. The demand for women’s watches is likely to increase with increase in the number of working women and changing culture (seen in China and Russia). As per World Watch Report, online search interest in ladies watches was up 145% in China, up 28% in India, and 12% in Russia with request for top watch brands such as Rolex, Omega, Cartier, Vacheron Constantian, and Chopard. Watch market in India (Rs bn)


The company is enhancing its geographical reach by opening new stores, strengthening its online presence, adding new brands to its portfolio, improving revenue per store through corporate tie-ups, offering loyalty programs, and setting up a service vertical. We believe KDDL is in a sweet spot in fulfilling the needs of high-value customers. Precision engineering to provide secular growth (capability + opportunity) KDDL’s precision-engineering business, EIGEN, develops and manufactures high-precision press tools and precision-stamped components in the domestic and global market. This business is seeing healthy growth in revenue because of its quality and its entry into new segments. It has developed tools for many components of mobile phone gadgets, medical applications, parts for a US company for defibrillators, and components for anaesthesia devices for a UK-based company. It also manufactures parts used in electric relays used in Boeing aircrafts. Precision engineering revenue CAGR 64% FY15-18 (Rs mn)


Currently, electrical and electronics components/automobile precision components account for ~45%/15% of its revenue. While the precision-

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component market in India is mainly unorganised currently, it is shifting to organised players with a growth in defence, auto, and aviation. The growing share of defence and aerospace is likely to improve margins with specialised products and lower competition. The company is adding capacity by setting up a new facility at Bangalore (near the airport) with capital expenditure of Rs 250-300mn to capture the growing defence and aerospace markets. EIGEN is also adding capacities in stamping, injection moulding, and CNC machining. It has set up team for improving the reach to customers by displaying its capabilities and competitiveness. We believe EIGEN will be a major source of growth in revenue and profitability ahead. Increasing focus on Make in India and capacity addition in Automobile and electrical components would be beneficial for organised players to become preferred supplier. Currently precision engineering component manufacturing is mainly catered by unorganised players in India. Capabilities enhancement initiatives will put the company in high-growth trajectory in expanding in Automotive, Electrical and Electronics and Medical equipments along with new opportunities in defence and aerospace. The export revenue in Precision engineering division is ~45% which is expected to increase to ~50% over next two years. The division has revenue CAGR in FY09-15 was 22% – we expect it to be 64% (to touch Rs 850mn) over FY15-18. Watch manufacturing: Global supplier with a competitive edge KDDL is focusing on medium to high-end watch dials, which have higher intrinsic value. In order to consolidate its manufacturing units, it has closed two low-value dial units in FY14. The dial manufacturing industry is saturated and we expect KDDL to maintain historical growth of 10%. It will continue to benefit from strong relations with global watchmakers and regular orders. For watch hands, KDDL is the sole supplier in the domestic market and exports account for about 65% of its revenue.

The company has demonstrated engineering capabilities in watch components over 20 years and successfully entered the high-end market. It is one of the best suppliers in watch hands and dials. It continuously tries to improve average price realisation by manufacturing components with additional features and higher complexity – this way it has been able to maintain margins. It is also planning to capture the hands market in China and Hong Kong. The growth in hands is likely to improve margins since these have a higher margin than dials. Watch component revenue to maintain growth (Rs mn)


KDDL has close and mutually beneficial associations with several leaders in the watch business such as with Titan and Timex in India and the Swatch Group in Switzerland.

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Ethos to provide growth and margin improvement Strong growth in the retail business should improve margins significantly as stores mature and are able to cover fixed cost. Higher revenue per store brings economies of scale for retail businesses, which the company has successfully managed. Increased revenue share of the online business is also likely to support margin improvement. Ethos focusing on profitability rather than store growth


KDDL has rationalised growth in number of stores and has invested in IT infrastructure for its online presence. It is building a team of watch specialist to service leads generated and has also invested in implementation of efficient logistics for fulfilment of orders. The number of visitors on its website doubled to 6mn in FY15 from 3mn in FY14, with ~40% growth in lead generation and transfers to stores at 130,000. Revenue contribution from online sales has increased to 24% in FY15 from 16% in FY14. EBITDA margins, excluding front-end expenses, have improved by 70bps to 9.6% in FY15 from 8.9% in FY14.

Increasing online revenue (Rs mn)


The company has also demonstrated like store growth rate in billings. Same store sales growth


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Improving working capital and return ratios with operational control Revenue growth in its retail business has the benefit of higher turnaround and improvement in working capital cycle. Here, the inventory is a function of minimum product display requirements (as per brand) and is not necessarily related to sales volume. As the company improves revenue-per-store and online sales, its inventory days will come down to 170 in FY18 from 190 in FY15. Its Ethos business has negligible receivable days (~2-5) and its payable days are ~90. Standalone business (manufacturing) has also shown improvement in working capital to 24% of sales in FY15 from 31% in FY10. We have not factored any further improvement in the standalone business and expect it to maintain net working capital (ex-cash) as percentage of sales at ~24% with inventory days of 60 and receivable days at 50. Improving working capital


Strategy to improve return ratios in Ethos

Return ratios to improve


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Financials We expect revenue CAGR of 24% to Rs 7.8bn over FY15-18, driven by 20% growth in manufacturing and 25% in retail. Revenue from watch components (dials and watches) should see marginal CAGR of 10% to touch Rs 1.27bn. Online sale and recovery in the Indian economy will increase retail business sales – we believe this business is at an inflection point. We expect revenue CAGR of 64% in precision components, considering strong growth opportunity and increase in capacity. Revenue CAGR of 24% FY15-18


EBITDA margins in the standalone business improved by 170bps to 19.5% in FY15 from 17.8% in FY14. We have assumed stable margins in manufacturing at 19.4% in FY17 and FY18. A successful entry into defence and growth in the hands segments are upside risks to our assumptions. We see retail business margins increasing to 8% in FY18 from 4.9% in FY15. Currently, its operating margins excluding central expenses are ~10%. It has been able to reduce front-end expenses as percentage of sales to 16.1% in FY15 from 17.9% in FY14. On a consolidated level, we expect EBITDA margins to improve to 10.8% in FY18 from 9.3% in FY15. We expect EBITDA CAGR of 30% to Rs 839mn in FY18.

Margin improvement supported by Ethos and product mix


Profit growth trend


We estimate earnings CAGR of 65% to Rs 314mn between FY15 and FY18, dividend payout at 15% (FY15 was ~20%), and standalone business earnings

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CAGR of 35% to Rs 152mn. We have not assumed gains from investments in overseas subsidiaries and any non-recurring income. KDDL has a debt of Rs 546mn in standalone and Rs 1.23bn in the consolidated business in FY15. Debt-to-equity is likely to remain at 2.5x, considering capex in precision engineering. We estimate cash generation of ~Rs 1.1bn over the next three years, which should be sufficient to fulfil its capex and growth requirements.

Quarterly Financials Rs mn 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16

Revenue 984 1208 1075 1002 1104

Raw material 539 745 636 572 657

RM % of sales 54.8 61.7 59.2 57.1 59.5

Employee cost 146.5 149.9 148.9 151.1 158.3

Other expenditure 187.9 189.8 189.2 201 192.9

Total Expenditure 874 1085 974 924 1008

EBITDA 111 123 101 78 96

EBITDA margin (%) 11.2 10.2 9.4 7.8 8.7

Other income 9.3 0.8 0.5 9.5 31.1

Depreciation 29.8 28.2 30.1 28.4 29

Interest 43 37.5 34.4 41.5 38.8

PBT 47.2 58 36.7 17.8 59.4

Tax 15.6 20.4 14.2 4.5 3.9

Effective tax rate (%) 33.1 35.2 38.7 25.3 6.6

PAT 30 33.1 24.5 13.3 53.1

Extraordinary 0 0 0 0 0

Reported Apt 30 33.1 24.5 13.3 53.1

Adjusted EPS (Rs) 3.3 3.7 2.7 1.5 5.3


Valuations KDDL has evolved into a global player for supplying precision equipment and is expanding capacity for capturing growth in aerospace and defence. The company is structurally focussing on diversifying revenue from manufacturing business streams and strategically enhancing the growth in each segment. We expect improvement in asset utilisation and return ratios with a scalable business model – this will lead to a rerating. The retail business Ëthos is at an inflection point and growth in ecommerce will drive profitability with high return on investment. At its CMP of Rs 343, KDDL trades at 17.9x FY17 earnings and a P/BV of 7.2x. We have valued the stock at 25x our FY17 EPS of Rs 19.2 to arrive at a price target of Rs 480. We initiate coverage with a BUY rating. One-year forward P/E chart


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Management Team Mr Yashovardhan Saboo – Chief Executive Officer Set up KDDL in 1983.He is Founding Member of All India Federation of Horological Industries (AIFHI) and alumnus of IIM (A), with more than 30 yrs of experience in Luxury Watch Industry.

Mr Sanjeev Masown - CFO, KDDL Mr. C. Raja Sekhar - CFO, Ethos Mr. Dinesh Agrawal - COO, KDDL

Business Risks • Retail business is subject to changes in government policy and regulation

related to cash transaction and disclosure norms. Currently, in retail, 40% business is cash. Compulsory PAN card reporting is not required for watches (such as in gold jewellery). However, KDDL has started educating customers about mentioning PAN card in billing. Management does not see major impact even if government starts PAN-card reporting.

• Around 65% of the company's manufacturing turnover comes from exports denominated in Swiss Francs and US. The fall and rise in these currencies can affect the working of the company in the short and medium term.

• The opportunity in defence and aerospace for precision equipment is huge in India. However, the delayed progress of policy and emergence of supportive infrastructure could adversely affect it in the medium term.

• The requirement of watch components from the domestic market is irregular and could affect capacity utilization and earnings.

Company Background KDDL (formerly known as Kamla Dials & Device) was established in 1983 as a watch-dial factory in technical collaboration with Leschot SA of Switzerland. It is a premium manufacturer of high-quality watch dials and hands, with factories at Parwanoo (Himachal Pradesh), Derabassi (Punjab), and Bangalore (Karnataka). It set up a watch hands production factory at Bangalore in 1997. It established Eigen, its precision stamping division, in 2004 and retail chain Ethos, in 2003.

Source: Company

KDDL acquired a manufacturing unit in Switzerland to cater to the high-end requirement of watch dials of well-known Swiss watch brands in 2007 and also to fulfil anticipated eligibility criteria for Swiss Made. After 2008, due to recession, financials of its Swiss subsidiary, Pylania SA, were negatively impacted and KDDL restricted manufacturing operations in 2013. It is working on cutting costs and tapping alternate revenue streams of consultancy and trading. We expect operations of Pylania to recover with the implementation of the new ‘Swiss Origin’ regulations that are under discussions in the Swiss parliament and are in the process of being adopted into Swiss Law.

Started production of Watch Dials

Began production of Watch Hands

EIGEN – Precision stamping division established

Ventured into retailing of luxury watches - Launch of “ETHOS”

Established strong network of 45 premium watch boutiques across country

E-Tailing – commenced marketing through online portal

1983

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WatchComponent

Manufacturer

India’s LargestRetailer of

LuxuryWatches

... Enhancing focus and strengthening E-Commerce platform


KDDL business structure

Source: Company

Business segments A. Watch Dials KDDL is leading global supplier of watch dials to many well-known brands over the world. Manufacturing facilities are located at Parwanoo and Derabasi near Chandigarh with capacity of 4.5mn pieces p.a. and one assembly unit. It has 30+ years of experience in dial manufacturing. B. Hands KDDL is the only supplier in India and one of the five independent manufacturers globally. Its manufacturing facilities are located at Bengaluru with manufacturing capacity of 50mn hands per annum with two factories. It manufactures ~2.5mn hands p.a. for the high-end export market and ~40mn hands for the mid-size market. It has the capability of manufacturing hands with strict dimensional control product reliability with series of physical and chemical test. It works on +/- 1 micron accuracy and claims to be one of the best suppliers

to global brands. Its major clientele is distributed across Switzerland, India, and Hong Kong. C. EIGEN - Precision Engineering EIGEN, its precision-engineering division manufacturer high-precision stamping parts and precision progressive tools. Its manufacturing facility is located at Bangalore. The division addresses market for products in electrical, electronics, automobile, telecommunications, medical equipment, and aerospace.

Ethos This is a supplier of premium watches from international brands. Retail business contributes to 69% of KDDL’s revenue. It is India’s largest chain of luxury watches with brand Ethos and an authorized retailer of over 60 luxury watch brands, ranging from Rs 5,000 to more than Rs 2mn with 40 premium watch boutiques ( 8 Summit, 27 Ethos and 5 Ethos Airport) across 13 cities in the country. Its range of luxury watch brands include Swatch, Richemont, Rolex, and LVMH. Ethos Malls showcases brands in the prestige segment (Rs 5,000 to Rs 200,000) while Ethos Summit has brands in the luxury segment (above Rs 200,000) with stores across Mumbai, New Delhi, Bangalore, and Chandigarh. Ethos – play on premium watch market in India Prestige Luxury

Target Audience Professional, entrepreneur, showcasing their early career

success

HNI, industrialist,

professionals, celebrities

Price Range RS 5000 to Rs 200,000 RS 20,00,000+

Ethos Presence Thirty two stores in Mumbai, Delhi, Bengaluru, Hyderabad,

Chandigarh, Ludhiana, Ahmedabad, Bhopal, Pune, Nagpur,

Gurgaon

Eight stores in Mumbai, Delhi,

Bengaluru, Chandigarh.

Store Location Malls, airport duty free and domestic terminal.


Dials Hands Precision Ethos

80%KDDL


Airport Boutiques: KDDL opened its first airport store in 2009 and now has two duty-free retail outlets and three duty-paid outlets at Bangalore, Mumbai. Online presence with launch of web portal KDDL is aggressively expanding in growing online market through www.ethoswatches.com, which is amongst Asia’s most visited websites for multi-brand watch retail. Internet presence enables it better access and larger accessibility, thereby limiting the need to expand offline stores. It spent around 2% revenue on advertising and marketing and around 60% on online. Leads generated through online are contacted and first-time buyers are urged to visit the store. It has trained team of 27 dedicated watch specialists to handle high-end requests. In FY15, 24% revenue (Rs 680mn) came from leads generated from ecommerce and online enquiries compared with 16% (Rs 360mn) in FY14.

Ethos market all top global luxury and premium brands

Strategy for digital marketing

Source: Company

Google Search Engine Ads targeted to users on Social media based on life-events

www.ethoswatches.com

Browse online catalogue of finest watch collections of Luxury & Premium Watch Brands

Click on “Click on Selling Price” –creating a “LEAD”

Member from Watch Specialist Team will connect with visitor to guide through watch selection process

Visitor directed to closest ETHOS storeGoogle

Final fulfillment of transaction happens at Store

Catalogue of over 60 brands

Directed to closest of the 41 stores across

India

Payment & Delivery happens at the store

brandsSupportedby Watch

specialist team of members


Annexure Hengdeli: Riding on retail growth in China Hengdeli has a retail business in China that is similar to KDDL’s in India. It is the largest retailer of internationally renowned branded watches in the world. Its strategic shareholders include Swatch Group (the world’s largest watch manufacturer and distributor) and LVHM Group, a luxury giant. It has an extensive sales network of 511 retail outlets and across its entire wholesale business it serves around 400 wholesale customers over 100 major cities. Hengdeli is also a maintenance agent for 68 international brands and provides integrated after-sales warranty maintenance for international branded watches and has established an interactive customer service network covering the Greater China Region including Mainland China, Hong Kong, and Taiwan. The group also owns a number of comprehensive packaging and display products manufacturing enterprises. (Nos) Mainland China HK & Macau Taiwan Total

Prime Time 381 6 36 423

Elegant 14 5 1 20

Brand Boutique 35 15 18 68

Total 430 26 55 511

Source: Company

It has seen revenue CAGR of 26% over the past ten years (2004-14) to RMB 14.7bn, its gross margins improved to 29% from 20%, with EBITDA margins of 8-15%.

Revenue and yoy growth trend

Maintained strong margins during growth


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The rapid expansion of the luxury car market in India Sales of premium watches have a strong corelation with luxury car sales. India’s luxury car market has grown despite the slowdown in the Indian automobile industry and a difficult economic environment. The market for premium vehicles in India is likely to see a CAGR of 30% over the next few years on a rising HNI (high net-worth individuals) population and low ownership rates. According to credit rating agency ICRA, India's luxury car sales are set to triple to 100,000 by 2020. Mercedes, which is currently the fastest growing luxury brand in India, has doubled its production capacity in India to 20,000 units. Population of high net-worth (HNW) individuals is slated to grow to 1.5mn by 2020 from 200,000 in 2012 while the number of ultra high net-worth individuals (UHNIs) is forecast to triple by 2018. Luxury car sales in India continues in top gear


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Financials Profit & Loss As at 31st Mar, Rs mn FY15 FY16E FY17E FY18E

Net sales 4,108 4,924 6,148 7,784

Growth, % 23 20 25 27

Total income 4,108 4,924 6,148 7,784

Raw material expenses -2,394 -2,856 -3,566 -4,554

Employee expenses -583 -653 -771 -910

Other Operating expenses -748 -938 -1,171 -1,482

EBITDA (Core) 382 477 641 839

Growth, % 28.9 24.8 34.4 31.0

Margin, % 9.3 9.7 10.4 10.8

Depreciation -118 -130 -148 -163

EBIT 264 347 493 676

Growth, % 22.1 31.4 42.0 37.2

Margin, % 6.4 7.0 8.0 8.7

Interest paid -153 -169 -186 -204

Other Non-Operating Income 10 10 11 11

Non-recurring Items 18 0 0 0

Pre-tax profit 139 188 317 483

Tax provided -51 -66 -111 -169

Profit after tax 88 122 206 314

Others (Minorities, Associates) -1 -11 -13 -33

Net Profit 86 112 193 281

Growth, % 20.4 64.0 72.9 45.4

Net Profit (adjusted) 68 112 193 281

Unadj. shares (m) 9 10 10 10

Wtd avg shares (m) 10 10 10 10


Cash Flow Y/E Mar, Rs mn FY15 FY16E FY17E FY18E

Pre-tax profit 139 188 317 483

Depreciation 118 130 148 163

Chg in working capital -179 -243 -161 -181

Total tax paid -65 -66 -111 -169

Cash flow from operating activities 13 9 194 296

Capital expenditure -85 -102 -202 -152

Cash flow from investing activities -85 -102 -202 -152

Free cash flow -72 -93 -8 144

Equity raised/(repaid) 42 37 30 30

Debt raised/(repaid) 65 350 380 240

Dividend (incl. tax) -22 -24 -30 -46

Cash flow from financing activities 155 353 368 192

Net chg in cash 82 260 360 336



Balance Sheet As at 31st Mar, Rs mn FY15 FY16E FY17E FY18E

Cash & bank 130 337 644 926

Debtors 248 297 371 469

Inventory 1,687 2,023 2,358 2,772

Loans & advances 338 365 394 425

Other current assets 4 4 5 5

Total current assets 2,407 3,026 3,771 4,598

Investments 8 8 8 8

Gross fixed assets 1,550 1,652 1,854 2,006

Less: Depreciation -807 -937 -1,085 -1,248

Add: Capital WIP 25 25 25 25

Net fixed assets 769 741 795 784

Total assets 3,184 3,775 4,573 5,390

Current liabilities 1,008 1,164 1,427 1,775

Provisions 146 159 173 189

Total current liabilities 1,154 1,323 1,600 1,964

Non-current liabilities 1,260 1,610 1,990 2,230

Total liabilities 2,414 2,933 3,591 4,194

Paid-up capital 92 92 92 92

Reserves & surplus 424 495 635 847

Shareholders’ equity 769 841 982 1,195

Total equity & liabilities 3,184 3,775 4,573 5,390


Profitability, Productivity, Liquidity and Valuation Ratios Y/E Mar, Rs mn FY15 FY16E FY17E FY18E Per Share data EPS (INR) 6.8 11.1 19.2 27.9 Growth, % 20.4 64.0 72.9 45.4 Book NAV/share (INR) 25.9 32.9 46.7 67.6 FDEPS (INR) 6.8 11.1 19.2 27.9 CEPS (INR) 16.7 24.0 33.8 44.0 CFPS (INR) 0.3 (0.1) 18.2 28.2 DPS (INR) 1.8 2.0 2.4 3.8 Return ratios Return on assets (%) 6.2 6.6 7.7 8.8 Return on equity (%) 13.2 19.0 26.6 29.9 Return on capital employed (%) 9.0 9.6 11.2 13.0 Turnover ratios Asset turnover (x) 2.1 2.3 2.6 3.0 Sales/Total assets (x) 1.4 1.4 1.5 1.6 Sales/Net FA (x) 5.2 6.5 8.0 9.9 Working capital/Sales (x) 0.3 0.3 0.3 0.2 Fixed capital/Sales (x) 0.2 0.1 0.1 0.1 Liquidity ratios Current ratio (x) 2.4 2.6 2.6 2.6 Quick ratio (x) 0.7 0.9 1.0 1.0 Interest cover (x) 1.7 2.1 2.7 3.3 Dividend cover (x) 3.8 5.5 7.8 7.4 Total debt/Equity (%) 239.1 269.8 270.1 234.7 Net debt/Equity (%) 213.8 212.4 181.5 136.0 Valuation PER (x) 50.8 31.0 17.9 12.3 PEG (x) - y-o-y growth 2.5 0.5 0.2 0.3 Price/Book (x) 13.2 10.4 7.3 5.1 Yield (%) 0.5 0.6 0.7 1.1 EV/Net sales (x) 1.0 1.0 0.8 0.6 EV/EBITDA (x) 11.1 9.9 7.5 5.6 Source: Company, PhillipCapital India Research Estimates


Notes

Notes


Notes

Notes


Notes

Notes


Contact Information (Regional Member Companies) SINGAPORE | MALAYSIA | HONG KONG | JAPAN | INDONESIA | CHINA | THAILAND | FRANCE | UNITED KINGDOM | UNITED STATES | AUSTRALIA | SRI LANKA PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013. Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management (91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Cement Metals Technicals

Dhawal Doshi (9122) 6667 9769 Vaibhav Agarwal (9122) 6667 9967 Dhawal Doshi (9122) 6667 9769 Subodh Gupta, CMT (9122) 6667 9762Nitesh Sharma, CFA (9122) 6667 9965 Yash Doshi (9122) 6667 9987

Economics Production ManagerAgri Inputs Anjali Verma (9122) 6667 9969 Midcap Ganesh Deorukhkar (9122) 6667 9966Gauri Anand (9122) 6667 9943 Amol Rao (9122) 6667 9952

Engineering, Capital Goods Mid‐Caps & Database ManagerJonas Bhutta (9122) 6667 9759 Oil & Gas Deepak Agarwal (9122) 6667 9944

Manish Agarwalla (9122) 6667 9962 Hrishikesh Bhagat (9122) 6667 9986 Sabri Hazarika (9122) 6667 9756Pradeep Agrawal (9122) 6667 9953 EditorParesh Jain (9122) 6667 9948 Infrastructure & IT Services Pharma Roshan Sony 98199 72726

Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768Consumer, Media, Telecom Deepan Kapadia (9122) 6667 9992 Mehul Sheth (9122) 6667 9996 Sr. Manager – Equities SupportNaveen Kulkarni, CFA, FRM (9122) 6667 9947 Rosie Ferns (9122) 6667 9971Jubil Jain (9122) 6667 9766 Logistics, Transportation & Midcap Portfolio StrategyManoj Behera (9122) 6667 9973 Vikram Suryavanshi (9122) 6667 9951 Anindya Bhowmik (9122) 6667 9764

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Sidharth Agrawal (9122) 6667 9934 ExecutionBhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

Banking, NBFCs

Corporate Communications


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Sr. no.

Particulars Yes/No

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No

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