Cyient Ltd. Absolute :ADD Relative : Benchmark …bsmedia.business-standard.com/_media/bs/data/market...Utilities & Geospatial drag services growth; DLM overall: Growth during the

July 14, 2017 Analyst: Abhishek Shindadkar ([email protected] +91 9619 137 983, +91 22 4332 0643) Page 1 of 12

Before reading this report, you must refer to the disclaimer on the last page.

Cyient Ltd. Absolute :ADD

Relative : Benchmark

1QFY18 Result: Estimate (), PT (), Rating () Regular Coverage 5% ATR in 15 Months

Good but not enough. Retain ADD IT Services

© 2017 Equirus All rights reserved

Rating Information

Price (Rs) 511

Target Price (Rs) 528

Target Date 30th Sep '18

Target Set On 13th Jul 17

Implied yrs of growth (DCF) 15

Fair Value (DCF) 557

Fair Value (DDM) 311

Ind Benchmark BSE IT

Model Portfolio Position NA

Stock Information

Market Cap (RsMn) 57,733

Free Float (%) 77.82 %

52 Wk H/L (Rs) 564.9/405

Avg Daily Volume (1yr) 127,290

Avg Daily Value (RsMn) 62

Equity Cap (RsMn) 563

Face Value (Rs) 5

Bloomberg Code CYL IN

Ownership Recent 3M 12M

Promoters 22.2 % 0.0 % 0.0 %

DII 22.2 % -0.2 % -0.9 %

FII 42.1 % -0.2 % 0.6 %

Public 13.6 % 0.4 % 0.3 %

Price % 1M 3M 12M

Absolute -1.9 % 7.0 % 4.6 %

Vs Industry -2.9 % 2.7 % 14.2 %

HEXAWARE 3.8 % 19.7 % 8.6 %

NIITTECH 0.9 % 33.9 % 14.8 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 6.6 8.6 8.4 7.0

EPS (18E) 7.8 9.0 8.1 11.6

Cyient Limited (CYL) reported softer than anticipated quarterly earnings as growth in

Services (3.2% qoq, $ terms) was offset by 26.5% qoq decline in DLM business. EBITDAM

declined a modest 48bps qoq to 12.8% (vs. 12.7% EE) despite wage hike, forex

headwinds. Noteworthy takeaways were a) 276bps improvement in services margins to

14.6% driven by 290/269bps improvement in segmental (UTC/MI) margins, b) 1Q being

the last quarterly cash burn for DLM. CYL continues to expect double digit growth in

services business in FY18E, while DLM growth could be 20%+ yoy. EBITDA margins could

expand 50bps yoy as focus shifts to improving DLM profitability. While we retain our

ADD rating, estimate changes (to account for 1Q) and target multiple revision leads to

change in TP to Rs. 528 (14x Sep‟18 TTM EPS of Rs. 37.7 vs. 15x Jun‟18 PT of Rs. 554

earlier). Slow start to FY18e poses risks to estimates and drives cut in multiple. Utilities & Geospatial drag services growth; DLM overall: Growth during the quarter

was broad based across segments. Transportation (10.5% of revenues), Semiconductor

(4.5%), Communications (22.8%), and Medical (2%) reported robust qoq growth of

11.7%, 11.5%, 9.9%, 6.9%, respectively. Aero (35.2%) grew 1.7% qoq. Utilities &

Geospatial (U&G, 16.6%) revenues declined 7% qoq and dragged Services average while

DLM pulled overall growth. Commentary suggests FY18e growth could be broad based

barring IE&NR. We expect FY18E $ revenues to grow 10.4% yoy. 1Q EBITDAM performance better despite seasonal headwinds: EBITDAM decline was

confined to 48bps qoq (to 12.8% vs. EE of 12.7%) led by GM improvements. GM

improved ~60bps qoq led by offshoring and improved onshore margins, despite wage

hike and forex impact. CYL reiterated its 50bps EBITDAM expansion guidance for FY18E

driven by operational improvements (~390bps) partially offset by headwinds from wage

hikes (~180bps), investments (~100bps), & pricing (~60bps). Operational improvements

include utilization (~70bps), offshore (~50bps), onsite margins (~100bps), & pyramid

correction (~170bps). We modestly adjust our FY18E margin assumption to 13.5%

(13.6% earlier) primarily due to change in revenue estimate. Sequential growth across top/non-top customers remains uneven: Top 5 customer

growth for services business decelerated and declined 1.5% qoq (1.9% in 4Q) while it

recovered for top 6-10 (1.6%) after declining for 3 previous quarters. Retain ADD as focus shifts to profitable growth: DLM profitability improvement with

target margin trajectory (0%/4%/7% in year 1/2/3) and potential tailwinds from

defense related orders continue to be the key drivers for our ADD rating. Miss on

margin guidance, uneven growth in large customers, and delayed recovery in large

verticals are key risks to our estimates.

Change in Estimates:

Revised Estimates % Change vs. older

FY18E FY19E FY18E FY19E

Sales (Rs. mn) 38,984 43,457 -1.1% 0.0%

$ Sales 594 649 -0.6% 0.0%

EBITDA 5,268 6,021 -1.4% -0.3%

EBIT 4,211 4,917 -2.7% -0.7%

PAT 3,957 4,421 -2.4% -1.4%

EPS 35.1 39.3 -2.4% -1.4%

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 36,066 38,984 43,457 46,655

EBITDA 4,850 5,268 6,021 6,578

Depreciation 953 1,058 1,105 1,171

Interest Expense 189 230 231 216

Other Income 874 1,140 1,038 1,117

Reported PAT 3,441 3,957 4,421 4,895

Recurring PAT 3,441 3,957 4,421 4,895

Total Equity 21,199 23,116 25,312 27,793

Gross Debt 1,159 1,224 1,160 1,084

Cash 9,706 10,660 11,481 12,346

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 30.6 35.1 39.3 43.5

Book Value 188 205 225 247

Dividends 10.8 15.5 16.9 18.3

FCFF 21.7 25.3 28.9 30.9

P/E (x) 16.7 14.5 13.0 11.8

P/B (x) 2.7 2.5 2.3 2.1

EV/EBITDA (x) 10.5 9.5 8.2 7.3

ROE (%) 17 % 18 % 18 % 18 %

Core ROIC (%) 21 % 21 % 23 % 23 %

EBITDA Margin (%) 13 % 14 % 14 % 14 %

Net Margin (%) 10 % 10 % 10 % 10 %

Cyient Ltd Absolute – ADD Relative – BENCHMARK 5% ATR in 15 Months


Exhibit 1 a): Top 6-10 customers led quarterly growth

Average Rev/Client 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 6-Q CQGR

Top 5 ($ mn) 7.7 9.3 10.5 10.5 10.7 10.6 5.9%

qoq growth 3.3% 19.8% 13.4% 0.2% 1.9% -1.5%

Top 6-10 1.7 1.8 1.8 1.8 1.7 1.8 1.9%

qoq Growth 5.2% 7.1% -1.5% -0.3% -0.2% 1.6%

Source: Company, Equirus Securities

Exhibit 1b): Growth across top 10 and non-top 10 continues to be sporadic


Exhibit 2: Order intake driven by new wins

Order Intake ($ mn) 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18

Services 160.4 133.1 133.3 188.9 185.7 130.3

DLM 11.2 14.5 11.4 13.7 70.7 29.9

Total 171.6 147.6 144.7 202.6 256.4 160.2


Exhibit 3: Attrition rose after moderating in 4Q17

Employee Metrics 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18

Attrition % 21.6% 20.6% 18.4% 19.9% 22.7% 22.6% 15.6% 16.6%

Employee Cost % of Sales 53.9% 55.8% 55.3% 55.2% 55.1% 54.7% 53.6% 55.7%

Net Addition -310 160 312 174 70 152 202 44


Exhibit 4: DSO’ days increased after falling to lowest levels in 4Q17.


-15%

-10%

-5%

0%

5%

10%

15%

20%

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

Top 5 qoq % Top 10 qoq % Non Top 10 qoq %

95 95

91

87

93 90

85 83

88 89 86

80

76 77 75

73

79

60

70

80

90

100

110

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

DSO



Key Takeaways from Earnings Call: US$ revenues grew 12.8%/-0.3% yoy/qoq to US$ 140.6mn.

Growth in the services business (12.4% yoy in $ terms) was broad based.

Aerospace & Defense

For FY18, CYL expect growth in avionics led by increased capability from

CERTON integration.

CYL continues to witness growth in manufacturing and aftermarket.

Overall sector doing well led by aircraft deliveries.

Services business within Aerospace has grown at a CAGR of ~10% during the

previous 5 years. FY18E could be <10% ex-DLM and >10% including DLM.

Avionics/Electronics refresh cycle is quicker than mechanical.

Transportation

Rail transportation is witnessing large scale investments in infrastructure

globally.

FY18E growth could be supported by momentum in key accounts, growth in

focus segments of rolling stock and signaling, strong long term relationships with

clients, and healthy opportunity pipeline.

Communications:

Increased demand for high-speed infrastructure as well as fiber deployment

across Australia, New Zealand, and the US.

FY18 growth opportunities are driven by roll-out programs and small cell design

and deployment in Australia, and North America.

CYL is focused on building solutions around service assurance and analytics.

Communications business could grow double digit in FY18E.

Medical and Healthcare

Value proposition resonating well with customers. Continues to witness

momentum across both engineering and manufacturing services.

Has 3 of the largest Medical devices companies in the world as customers.

Utilities & Geospatial

Industry continues to witness growth driven by analytics and cost takeout.

Industry continues to witness pressure on capex spending as OEM‟s are shifting

away from product development to cost takeout.

Outlook for BU remains positive driven by strong order backlog and new

accounts.

Semi-conductor

Growth for the industry could be 7.2% in 2017.

Industry continues to witness a trend towards consolidation with revenue growth

and IP acquisition.

1Q revenues grew 18% yoy and momentum could continue in FY18E. That said,

offshore transition could moderate revenue growth but could help margins.

Industrial, Energy and Natural Resources

Industry continues to witness pressure on capex spending. OEM‟s are shifting

focus from product development to cost takeout.

Current services portfolio focused on mechanical design services does not

resonate well with customers.

For FY18 there will be continued focus on ramping up of new Infrastructure

clients in all 3 geographies. There is a good pipeline of new adjacent solutions

with analytics, electronics and Design Led Manufacturing.

Design-Led Manufacturing (DLM)

Outlook continues to be positive particularly in the telecommunication, Defense,

Transportation markets

FY18E growth is backed by a steady pipeline and order backlog.

Others

Wage hikes in two phases. Total impact could range 180-190 bps. Half of this

impact has been realized in 1Q and other half would be realized in 2Q.

CYL believes 1Q was the last quarter of cash consumption in DLM business. 2Q

onwards could be positive while 1H could also be positive.

Hedges: At current spot rate, CYL expect $ 6.2mn worth gains on hedges in

FY18E and ~$1mn in FY19E.

Softential revenues/OPM: $ 3-3.5mn/~10%.



Consolidated quarterly results

Q1FY18 Q1FY18E Q4FY17 Q1FY17 % Change

Comments Q1FY18E Q4FY17 Q1FY17

Net Sales 9,070 9,330 9,410 8,349 -3% -4% 9%

Net Sales (US$Mn) 140.6 144.6 141.0 124.7 -2.8% -0.3% 12.8%

Travelling Expense 189 224 220 206 -16% -14% -8%

Employee Cost 5,051 5,166 5,043 4,608 -2% 0% 10%

Other Expenditure 1,854 1,866 1,826 1,764 -1% 2% 5%

Rangsons Expenses 816 885 1,072 682 -8% -24% 20%

Total Expenditures 7910 8141 8161 7259 -3% -3% 9%

EBITDA 1160 1189 1249 1090 -2% -7% 6%

Depreciation 261 261 255 223 0% 2% 17%

EBIT 899 928 994 867 -3% -10% 4%

Interest 52 56 38 53 -7% 37% -2%

Other Income 351 356 265 116 -2% 32% 203%

PBT 1,198 1,229 1,221 930 -3% -2% 29%

Tax 373 313 221 237 19% 69% 57%

PAT before MI & Associates 826 916 1000 693 -10% -17% 19%

Minority Interest 0 0 0 0

Profit from Assoc. 52 24 -214 47 116% -124% 10%

Recurring PAT 878 940 786 740 -7% 12% 19%

Extraordinaries 0 0 261 0

Reported PAT 878 940 525 740 -7% 67% 19%

EPS (Rs) 7.9 8.4 7.0 6.6 -7% 12% 19%

EBITDA Margin 12.8% 12.7% 13.3% 13.1% 5 -48 -27

EBIT Margin 9.9% 9.9% 10.6% 10.4% -3 -65 -47

PBT Margin 13.2% 13.2% 13.0% 11.1% 4 23 207

PAT Margin 9.7% 10.1% 5.6% 8.9% -40 409 81

Tax Rate 31.1% 25.5% 18.1% 25.5% 563 1,299 563 *Historical numbers restated as per Ind-AS



Exhibit 5: Operating metrics for the last 10 quarters

Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18

$ revenue(in mn) 117.4 114.3 118.7 118.4 120.6 124.7 136.5 135.8 141.0 140.6

Major segmental revenue

UT&C 40.5 39.4 39.4 39.8 39.3 NR NR NR NR NR

Engg. 67.7 68.9 68.8 67.9 69.2 NR NR NR NR NR

Utilization

UT&C 75.2% 78.2% 78.9% 80.4% 79.4% NR NR NR NR NR

Engg. 72.4% 72.5% 73.3% 72.9% 66.1% NR NR NR NR NR

Manpower addition

UT&C -353 -38 -255 207 315 NR NR NR NR NR

Engg. -34 16 59 -37 -12 NR NR NR NR NR

Revenue split

Onsite 56.7% 56.1% 56.3% 56.6% 59.3% 59.3% 59.9% 59.6% 60.8% 59.6%

Offshore 43.3% 43.9% 43.7% 43.4% 40.7% 40.7% 40.1% 40.4% 39.2% 40.4%

Revenue by Client Tier (US$Mn)

Top-5 37.8 38.6 38.2 37.4 38.7 46.3 52.5 52.6 53.6 52.8

Top 6-10 15.8 16.8 16.0 15.8 16.7 17.9 17.6 17.5 17.5 17.8

Non Top-10 54.6 52.8 54.0 54.5 53.0 51.1 52.9 50.8 53.9 58.2

Revenue by geography

US 63.7% 64.0% 64.1% 63.6% 60.2% 60.0% 59.1% 58.0% 57.1% 55.8%

Europe 25.8% 24.0% 24.1% 23.2% 25.5% 24.6% 24.0% 24.0% 25.1% 26.6%

APAC & Others 10.5% 12.0% 11.8% 13.2% 14.3% 15.4% 16.9% 18.0% 18.0% 18.0%

Attrition 27.4% 18.8% 21.6% 20.6% 18.4% 19.9% 22.7% 22.6% 15.6% 16.6%

DSO 83 88 89 86 80 76 77 75 73 79




Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 36.5 37.1 -2 % Consensus numbers before earnings

FY19E 44.4 42.9 4 %

Sales FY18E 38,079 39,169 -3 %

FY19E 42,667 44,034 -3 %

PAT FY18E 4,106 4,100 0 %

FY19E 4,999 4,706 6 %

Our Key Investment arguments:

Broad based growth across segments with acceleration in Aero, Transport, and

recovery in Communication.

Defense “offset” orders could boost DLM growth

Profitable growth in DLM business

Key parameters FY17A FY18E FY19E FY20E

Overall revenue (US $Mn) 538 594 649 696

Overall revenue (Rs. Mn) 36,066 38,984 43,457 46,655

EBIT Margin(%) 10.8% 10.8% 11.3% 11.6%

PBT Margin(%) 12.7% 13.1% 13.2% 13.5%

PAT Margin(%) 9.5% 10.2% 10.2% 10.5%

Overall Headcount 13,146 13,399 13,795 14,276

Utilization - UT&C 79% 80% 82% 83%

Utilization - Engg. 72% 73% 75% 75%

Risks to Our View: Margin miss, uneven growth in top 20 customers, delayed recovery in

large verticals, and unforeseen impact of tough visa regime in Australia are key risks to

our estimates.

Key Triggers

Growth acceleration in Aero, Communications, better DLM margin profile, improvement

in execution, rupee depreciation

Sensitivity to Key Variables % Change % Impact on EPS

Rupee Appreciation 1 % -40 bps

Utilization 1 % +50 bps

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.9 % 0.5 9.9 % 3.0 % 5.9 %

- FY18E FY19E FY20-22E FY23-27E FY28-32E

Sales Growth 8 % 11 % 7 % 6 % 5 %

NOPAT Margin 8 % 8 % 9 % 8 % 8 %

IC Turnover 2.50 2.57 2.53 2.53 2.53

RoIC 20.9 % 22.7 % 22.8 % 21.3 % 20.9 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 391 435 474 481 508

Valuation as on 30thSep „18 428 477 520 527 557

Based on DCF, assuming 15 years of 5% CAGR growth and 21% average ROIC, we derive

current fair value of Rs. 508 and 30thSep‟18 fair value of Rs. 557.

Company Description:

Cyient Enterprises Limited is a global engineering services and solutions company

headquartered in, Hyderabad, India and is among top 100 outsourcing companies in the world.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

Cyient ADD 511 57,733 528 30th Sep '18 30.6 35.1 39.3 16.7 14.5 13.0 188.5 2.5 17 % 18 % 18 % 2.1 % 3.0 %

Hexaware ADD 246 74,565 228 30th Jun'18 13.8 14.8 15.9 17.8 16.6 15.5 56.7 3.8 27 % 24 % 23 % 2.2 % 1.6 %

NIIT Tech LONG 571 35,057 544 30th Jun '18 44.5 48.0 51.7 12.8 11.9 11.0 317.8 1.6 15 % 15 % 14 % 1.8 % 1.9 %



Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18E 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 8,349 9,136 9,171 9,410 9,070 9,751 9,896 10,267 10,578 10,883 10,902 11,093 36,066 38,984 43,457 46,655 Travelling Expense 206 208 191 220 189 215 228 236 222 218 229 233 825 867 902 980

Employee Cost 4,608 5,031 5,014 5,043 5,051 5,356 5,427 5,478 5,793 6,133 6,035 5,982 19,696 21,312 23,943 25,676

Other Expenditure 1,764 1,731 1,756 1,826 1,854 1,814 1,811 1,848 1,883 1,796 1,908 1,930 7,076 7,327 7,517 7,465

Rangsons Expenses 682 884 982 1,072 816 1,043 1,076 1,274 1,228 1,283 1,237 1,325 3,619 4,209 5,074 5,957

- - - - - - - - - - - - - - - - - EBITDA 1,090 1,283 1,228 1,249 1,160 1,323 1,353 1,432 1,452 1,455 1,493 1,622 4,850 5,268 6,021 6,578 Depreciation 223 232 243 255 261 265 265 267 269 277 279 281 953 1,058 1,105 1,171 EBIT 867 1,051 985 994 899 1,058 1,089 1,165 1,183 1,178 1,214 1,341 3,897 4,211 4,917 5,406 Interest 53 52 46 38 52 59 59 59 59 58 57 56 189 230 231 216 Other Income 116 184 309 265 351 257 248 284 262 254 245 277 874 1,140 1,038 1,117 PBT 930 1,183 1,249 1,221 1,198 1,256 1,277 1,390 1,386 1,374 1,401 1,562 4,583 5,121 5,724 6,307 Tax 237 267 322 221 373 301 307 334 347 344 350 390 1,046 1,314 1,431 1,577 PAT bef. MI & Assoc. 693 916 927 1,000 826 955 971 1,056 1,040 1,031 1,051 1,171 3,536 3,807 4,293 4,730 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 47 57 15 -214 52 33 33 33 43 38 24 23 -96 150 128 165 Recurring PAT 740 973 942 786 878 987 1,003 1,089 1,082 1,069 1,075 1,195 3,441 3,957 4,421 4,895 Extraordinaries 0 0 0 261 0 0 0 0 0 0 0 0 0 0 0 0 Reported PAT 740 973 942 525 878 987 1,003 1,089 1,082 1,069 1,075 1,195 3,441 3,957 4,421 4,895

EPS (Rs) 6.63 8.71 8.43 7.04 7.86 8.84 8.98 9.75 9.69 9.57 9.63 10.70 30.56 35.14 39.26 43.48

Key Drivers

$ revenue(in mn) 125 137 136 141 141 148 150 156 158 162 163 166 538 594 649 696

Net manpower addition 124 125 202 202 44 70 17 122 132 90 22 152 648 253 396 481

$-Re exchange rate 67 67 68 67 65 66 66 66 67 67 67 67 67 66 67 67

$ Revenue Sequential Growth(%) 3.6% 9.5% -0.5% 3.8% -0.3% 5.1% 1.5% 3.8% 1.5% 2.9% 0.2% 1.8% 14.0% 10.4% 9.2% 7.4%

Sequential Growth (%)

Revenue 2 % 9 % 0 % 3 % -4 % 8 % 1 % 4 % 3 % 3 % 0 % 2 % - - - - Travelling Expense 14 % 1 % -8 % 15 % -14 % 14 % 6 % 4 % -6 % -2 % 5 % 2 % - - - - EBITDA 3 % 18 % -4 % 2 % -7 % 14 % 2 % 6 % 1 % 0 % 3 % 9 % - - - - EBIT 13 % 21 % -6 % 1 % -10 % 18 % 3 % 7 % 2 % 0 % 3 % 11 % - - - - Recurring PAT 9 % 31 % -3 % -17 % 12 % 13 % 2 % 9 % -1 % -1 % 1 % 11 % - - - -

EPS 9 % 31 % -3 % -17 % 12 % 13 % 2 % 9 % -1 % -1 % 1 % 11 % - - - -

Yearly Growth (%)

Revenue 15 % 18 % 17 % 15 % 9 % 7 % 8 % 9 % 17 % 12 % 10 % 8 % 16 % 8 % 11 % 7 % EBITDA 19 % 12 % 16 % 18 % 6 % 3 % 10 % 15 % 25 % 10 % 10 % 13 % 16 % 9 % 14 % 9 % EBIT 18 % 10 % 17 % 30 % 4 % 1 % 11 % 17 % 32 % 11 % 12 % 15 % 18 % 8 % 17 % 10 % Recurring PAT -1 % -2 % 14 % 16 % 19 % 1 % 7 % 39 % 23 % 8 % 7 % 10 % 6 % 15 % 12 % 11 %

EPS -1 % -2 % 14 % 16 % 19 % 1 % 7 % 39 % 23 % 8 % 7 % 10 % 6 % 15 % 12 % 11 %

Margin (%)

EBITDA 13 % 14 % 13 % 13 % 13 % 14 % 14 % 14 % 14 % 13 % 14 % 15 % 13 % 14 % 14 % 14 % EBIT 10 % 12 % 11 % 11 % 10 % 11 % 11 % 11 % 11 % 11 % 11 % 12 % 11 % 11 % 11 % 12 % PBT 11 % 13 % 14 % 13 % 13 % 13 % 13 % 14 % 13 % 13 % 13 % 14 % 13 % 13 % 13 % 14 %

PAT 9 % 11 % 10 % 8 % 10 % 10 % 10 % 11 % 10 % 10 % 10 % 11 % 10 % 10 % 10 % 10 %



Consolidated Financials P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 36,066 38,984 43,457 46,655 Equity Capital 563 563 563 563 PBT 3,989 5,121 5,724 6,307

Op. Expenditure 31,216 33,716 37,435 40,078 Reserve 20,636 22,553 24,749 27,230 Depreciation 880 1,058 1,105 1,171

EBITDA 4,850 5,268 6,021 6,578 Networth 21,199 23,116 25,312 27,793 Others -113 0 0 0

Depreciation 953 1,058 1,105 1,171 Long Term Debt 1,159 1,224 1,160 1,084 Taxes Paid 965 1,314 1,431 1,577

EBIT 3,897 4,211 4,917 5,406 Def Tax Liability 1,874 1,979 1,876 1,753 Change in WC 511 -353 -340 -343

Interest Expense 189 230 231 216 Minority Interest 0 0 0 0 Operating C/F 4,302 4,512 5,057 5,559

Other Income 874 1,140 1,038 1,117 Account Payables 4,021 4,011 4,561 4,893 Capex -852 -780 -869 -1,073

PBT 4,583 5,121 5,724 6,307 Other Curr Liabi 3,111 3,626 4,139 4,443 Change in Invest 0 0 0 0

Tax 1,046 1,314 1,431 1,577 Total Liabilities & Equity 31,364 33,956 37,048 39,966 Others -1,153 -1,058 -1,105 -1,171

PAT bef. MI & Assoc. 3,536 3,807 4,293 4,730 Net Fixed Assets 7,775 7,497 7,262 7,163 Investing C/F -2,005 -1,837 -1,974 -2,244

Minority Interest 0 0 0 0 Capital WIP 0 0 0 0 Change in Debt -28 65 -64 -76

Profit from Assoc. -96 150 128 165 Others 2,876 3,934 5,038 6,210 Change in Equity 14 0 0 0

Recurring PAT 3,441 3,957 4,421 4,895

Inventory 935 1,011 1,127 1,210 Others -319 -1,785 -2,200 -2,373

Extraordinaires 0 0 0 0 Account Receivables 6,496 7,022 7,827 8,403 Financing C/F -333 -1,720 -2,263 -2,449

Reported PAT 3,441 3,957 4,421 4,895 Other Current Assets 3,576 3,833 4,314 4,634 Net change in cash 1,964 954 821 866

FDEPS (Rs) 30.6 35.1 39.3 43.5 Cash 9,706 10,660 11,481 12,346 RoE (%) 17 % 18 % 18 % 18 %

DPS (Rs) 10.8 15.5 16.9 18.3 Total Assets 31,364 33,956 37,048 39,966

RoIC (%) 16 % 16 % 17 % 17 %

CEPS (Rs) 39.1 44.5 49.1 53.9 Non-cash Working Capital 3,875 4,228 4,568 4,911

Core RoIC (%) 21 % 21 % 23 % 23 %

FCFPS (Rs) 21.7 25.3 28.9 30.9 Cash Conv Cycle 39.2 39.6 38.4 38.4 Div Payout (%) 41 % 52 % 50 % 49 %

BVPS (Rs) 188.5 205.3 224.8 246.8 WC Turnover 9.3 9.2 9.5 9.5 P/E 16.7 14.5 13.0 11.8

EBITDAM (%) 13 % 14 % 14 % 14 % FA Turnover 4.6 5.2 6.0 6.5 P/B 2.7 2.5 2.3 2.1

PATM (%) 10 % 10 % 10 % 10 % Net D/E -0.4 -0.4 -0.4 -0.4 P/FCFF 23.5 20.2 17.7 16.6

Tax Rate (%) 23 % 26 % 25 % 25 % Revenue/Capital Employed 1.7 1.7 1.7 1.7 EV/EBITDA 10.5 9.5 8.2 7.3

Sales Growth (%) 16 % 8 % 11 % 7 %

Capital Employed/Equity 1.1 1.2 1.1 1.1

EV/Sales 1.4 1.3 1.1 1.0

FDEPS Growth (%) 6 % 15 % 12 % 11 %

Dividend Yield (%) 2.1 % 3.0 % 3.3 % 3.6 %

TTM P/E vs. 2 yr forward EPS growth TTM P/B vs. 2 yr forward RoE

-10%

0%

10%

20%

30%

40%

50%

-

100

200

300

400

500

600

700

800

900

Jun/

08

Jun/

09

Jun/

10

Jun/

11

Jun/

12

Jun/

13

Jun/

14

Jun/

15

Jun/

16

Jun/

17

Jun/

18

EPS Growth

8x

12x

16x

20x

10%

12%

14%

16%

18%

20%

22%

24%

-

100

200

300

400

500

600

700

800

900

Jun/0

8

Jun/0

9

Jun/1

0

Jun/1

1

Jun/1

2

Jun/1

3

Jun/1

4

Jun/1

5

Jun/1

6

Jun/1

7

Jun/1

8

RoE

3.5x

2.75x

2x

1.25x



Historical Consolidated Financials P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 22,064 27,359 31,014 36,066 Equity Capital 560 562 562 563 PBT 3,538 4,456 3,968 3,989

Op. Expenditure 17,962 23,350 26,829 31,216 Reserve 15,325 17,879 17,810 20,636 Depreciation 720 713 836 880

EBITDA 4,102 4,010 4,185 4,850 Networth 15,885 18,441 18,372 21,199 Others -293 -715 44 -113

Depreciation 720 713 889 953 Long Term Debt 58 813 1,147 1,159 Taxes Paid 1,025 1,171 1,024 965

EBIT 3,382 3,297 3,296 3,897 Def Tax Liability 432 1,103 2,268 1,874 Change in WC -669 335 -41 511

Interest Expense 14 77 192 189 Minority Interest 0 122 0 0 Operating C/F 2,272 3,617 3,783 4,302

Other Income 169 1,236 1,064 874 Account Payables 1,744 2,754 3,098 4,021 Capex -761 -803 -648 -852

PBT 3,538 4,456 4,168 4,583 Other Curr Liabi 1,346 2,553 2,423 3,111 Change in Invest 585 -4,479 0 0

Tax 1,030 1,096 1,011 1,046 Total Liabilities & Equity 19,464 25,785 27,308 31,364 Others 51 1,236 -1,019 -1,153

PAT bef. MI & Assoc. 2,508 3,361 3,157 3,536 Net Fixed Assets 3,437 4,981 6,672 7,775 Investing C/F -125 -4,046 -1,667 -2,005

Minority Interest 0 0 0 0 Capital WIP 0 96 0 0 Change in Debt 55 455 369 -28

Profit from Assoc. 152 173 89 -96 Others 1,579 5,006 2,721 2,876 Change in Equity 52 66 21 14

Recurring PAT 2,660 3,534 3,246 3,441 Inventory 0 606 979 935 Others -535 -840 -1,328 -319

Extraordinaires 0 0 0 0 Account Receivables 4,800 5,336 6,145 6,496 Financing C/F -427 -319 -938 -333

Reported PAT 2,660 3,534 3,246 3,441 Other Current Assets 2,335 3,197 3,052 3,576 Net change in cash 1,719 -748 1,178 1,964

EPS (Rs) 23.8 31.4 28.9 30.6 Cash 7,313 6,565 7,739 9,706

RoE (%) 18 % 21 % 18 % 17 %

DPS (Rs) 5.0 8.0 7.0 10.8

Total Assets 19,464 25,785 27,308 31,364

RoIC (%) 18 % 19 % 16 % 16 %

CEPS (Rs) 30.2 37.9 36.8 39.1 Non-cash Working Capital 4,045 3,832 4,655 3,875 Core RoIC (%) 28 % 22 % 18 % 21 %

FCFPS (Rs) 19.3 -3.3 20.1 21.7 Cash Conv Cycle 66.9 51.1 54.8 39.2 Div Payout (%) 25 % 30 % 28 % 41 %

BVPS (Rs) 142.1 164.6 163.4 188.5 WC Turnover 5.5 7.1 6.7 9.3

P/E 21.5 16.2 17.7 16.7

EBITDAM (%) 19 % 15 % 13 % 13 % FA Turnover 6.4 5.4 4.6 4.6 P/B 3.6 3.1 3.1 2.7

PATM (%) 12 % 13 % 10 % 10 % Net D/E -0.5 -0.3 -0.4 -0.4 P/FCFF 26.5 -154.3 25.4 23.5

Tax Rate (%) 29 % 25 % 24 % 23 % Revenue/Capital Employed 1.7 1.8 1.7 1.7 EV/EBITDA 12.5 13.5 13.3 10.5

Sales growth (%) 18 % 24 % 13 % 16 %

Capital Employed/Equity 1.0 1.0 1.1 1.1

EV/Sales 2.3 2.0 1.8 1.4

FDEPS growth (%) 14 % 32 % -8 % 6 %

Dividend Yield (%) 1.0 % 1.6 % 1.4 % 2.1 %



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 Sweta Sheth [email protected] 91-22-43320634

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Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Binoy Dharia [email protected] 91-22-43320632

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Praful Bohra Pharmaceuticals [email protected] 91-79-61909532 Ilesh Savla [email protected] 91-22-43320666

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Manoj Kejriwal [email protected] 91-22-43320663

Associates E-mail Dharmesh Mehta [email protected] 91-22-43320661

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Ronak Soni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

Shreepal Doshi [email protected] 91-79-61909541

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

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