Académique Documents
Professionnel Documents
Culture Documents
Table of Contents
Strategy
2-6
Top Picks
Bajaj Electricals
DB Corp
10
Finolex Cables
12
Goodyear India
14
Indoco Remedies
16
ITNL
18
Mahindra Lifespaces
20
Relaxo Footwear
22
Tech Mahindra
24
United Phosporus
26
Stock Watch
29-33
May 2013
Market Strategy
May 2013 Top Picks
Company
Mid Caps Bajaj Electricals DB Corp Finolex Cables Goodyear India Indoco Remedies ITNL Mahindra Lifespace Relaxo Tech Mahindra United Phosphorus 170 250 53 268 64 174 397 620 952 155 237 290 68 345 89 230 476 791 1,170 232
CMP (`)
TP (`)
Jul-12
Sep-12
Dec-12
Feb-13
May-13
(concerns in the Euro area) and policymakers are gearing towards proactive policy action to revive economic growth and preserve financial stability.
Market Strategy
Liquidity cheers markets, global positives outweigh concerns
Global liquidity continues to remain buoyant as Japan has kick-started an aggressive liquidity easing program in its boldest move yet to revive the economy and tackle deflation in the economy. The Bank of Japan (BoJ) aims to achieve its inflation target of 2% in about 2 years. The central bank seeks to double its monetary base by injecting about 60-70 trillion yen (USD580bn-680bn) annually. The US Federal Reserve is already expanding its balance sheet by USD85bn every month and is unlikely to taper off its purchases until mid-2014. The moderation in inflation to 1.1% yoy in April 2013 as against 1.5% yoy in the previous month and 2.3% in April 2012 is also favorable to support its easy monetary policy stance. Economic growth in the US is gaining traction with real GDP growth for 1Q2013 coming at 2.5% qoq as against 0.4% qoq in 4Q2012. Lead indicators in the United States such as new home sales, jobless claims, consumer and business confidence also indicate optimism towards a recovery. Growth in Japan too surprised positively at 3.5% qoq in 1Q2013 as against 1.0% qoq in 4Q2012. Owing to the robust global liquidity and the signs of green shoots of growth in the US and Japan superseding concerns of sluggish growth in the Euro area and China, global equity markets are upbeat. Equity markets in the US are recording new-highs. The Nikkei - Japan's benchmark market index too reached its highest level in the last 5 and half years.
(10.0)
Apr-11
Aug-11
Oct-11
Jun-11
Feb-12
Apr-12
Aug-12
Oct-12
Jun-12
Dec-12
Feb-13
Core Inflation
WPI Inflation
Brazil
India
Japan
Germany
China
South Korea
Euro Zone
UK
Hong Kong
South Africa
May 2013
Russia
US
Apr-13
Current valuation
Dec-11
Median
Market Strategy
Exhibit 4: Breakup of major components in WPI inflation (%, yoy)
Weight All Commodities I Primary Articles II Fuel & Power III Manufactured Products 100.0 20.1 14.9 65.0 Apr -12 Apr-12 7.5 9.6 12.1 5.3 Dec-12 7.3 10.6 10.2 5.0 Jan-13 7.3 11.4 9.3 4.9 Feb -13 eb-13 7.3 10.5 10.6 4.8 Mar -13 Mar-13 6.0 7.6 10.2 4.1 Apr -13 Apr-13 4.9 5.8 8.8 3.4
CAD set to moderate: Recent correction in crude oil and gold prices are a positive tailwind for our CAD since these items together contribute about 45% to our total import bill. Oil imports reported moderate growth of 3.9% in April as against 4.2% in the corresponding month of the previous year as India's crude basket declined by 13.4% yoy in April 2013. The decline in gold prices has led to a surge in demand and as volumes increased, imports of gold and silver reported growth of 136% yoy during April 2013. We believe that this can be attributed to front-ended consumer demand. Investment demand for gold is also expected to moderate as the precious metal has shed 18% of its value in
USD terms since the beginning of 2013 making equities a more attractive investment class globally. Another positive is that exports are showing signs of revival and growth in exports is in the positive territory for the third straight month at 1.7% in April 2013 as compared to 7.0% in the previous month. We believe the CAD has peaked at its record-high of 6.7% of GDP in 3QFY2013 and with a recovery in exports along with benign commodity prices it is likely to moderate to about 3.8 - 4.0% of GDP in FY2014 from about 5.0% of GDP in FY2013.
Aug-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
1QFY13 (16.7) (42.4) 76.7 119.1 25.8 14.1 16.6 (4.9) 16.3 2.0 6.2 9.4 (0.0) (1.2) 0.9 0.5
2QFY13 (22.8) (48.3) 69.8 118.1 25.5 15.2 15.9 (5.6) 23.6 16.6 5.3 5.5 (0.0) (3.8) (1.0) (0.2)
3QFY13 (32.5) (59.6) 71.8 131.4 27.1 17.6 15.7 (6.3) 31.8 11.3 10.6 5.3 0.0 4.5 1.6 0.8
Apr -Dec 2012 Apr-Dec (56.4) (138.2) 229.6 367.8 81.9 46.6 46.7 (11.4) 51.2 23.9 16.6 14.2 (0.0) (3.5) (1.9) (7.1)
Apr -Dec 2013 Apr-Dec (72.0) (150.3) 218.4 368.7 78.3 46.9 48.3 (16.8) 71.6 29.9 22.1 20.2 (0.0) (0.5) 1.5 1.1
(21.8) (51.5) 80.2 131.7 29.8 17.5 16.8 (4.6) 16.6 15.3 2.7 2.0 (0.0) (3.4) (0.6) (5.7)
May 2013
Market Strategy
In absolute terms our CAD is the second-largest in the world following the U.S. But we do not see any imminent threat to macroeconomic stability since 1) India remains amongst the favored emerging markets for foreign investors and we expect risk-on trade to bring in robust FII inflows and 2) the real interest rate differential in India vis--vis advanced economies is likely to be a pull factor for debt-related capital flows. During the April - December period of FY2013 although the CAD stood at USD72bn as against USD56.4bn in the corresponding period of the previous year it remained comfortable to finance without resulting into drawing down of forex reserves owing to buoyant capital inflows in the economy.
Capital acc./GDP India 1.20 2.60 2.20 2.60 3.10 5.00 2.30 4.80 3.40 2.70 5.20
Nominal interest rate India 5.88 4.73 5.25 5.97 6.98 7.49 7.22 4.49 6.49 8.26 8.00 7.62 US 1.76 1.22 2.34 4.01 5.03 3.82 1.45 0.42 0.30 0.15 0.17 0.12
Nominal interest rate differential (India - US) 4.12 3.51 2.91 1.96 1.95 3.67 5.77 4.07 6.19 8.11 7.83 7.50
Inflation rate (%, yoy) India 3.38 5.47 6.47 4.44 6.59 4.73 8.06 3.81 9.56 8.94 7.38 4.89 US 1.99 2.00 2.99 3.54 2.92 3.27 2.79 0.24 1.59 3.32 1.70 1.10
Inflation differential (India - US) 1.39 3.47 3.48 0.90 3.66 1.46 5.27 3.57 7.97 5.62 5.68 3.79
Real interest rate India 2.50 (0.74) (1.22) 1.53 0.39 2.75 (0.84) 0.68 (3.06) (0.68) 0.62 2.73 US (0.23) (0.78) (0.65) 0.47 2.11 0.55 (1.34) 0.18 (1.29) (3.17) (1.53) (0.98)
Real interest differential (India - US) 2.73 0.04 (0.57) 1.06 (1.72) 2.20 0.50 0.50 (1.77) 2.49
at decadal high
1.20 2.30 (0.40) (1.20) (1.00) (1.30) (2.30) (2.80) (2.70) (4.20) (5.00)
2.42
3.71
240.0 220.0
Dec-09 Feb-10 Feb-11 Dec-10 Dec-11 Feb-12 Aug-09 Aug-10 Aug-11 Aug-12 Dec-12 Feb-13 Apr-09 Jun-09 Oct-09 Apr-10 Jun-10 Oct-10 Apr-11 Jun-11 Oct-11 Apr-12 Jun-12 Oct-12 Apr-13
2.0 1.0 0.0 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014
Focus on fiscal consolidation key: The key positive for government finances is the hike in administered fuel prices and its resultant impact on reducing under-recoveries and narrowing the fuel subsidy. Post the government's move towards allowing OMCs to hike diesel tariff in a calibrated manner, diesel prices have been hiked for the fourth time in 2013. In addition aided by easing of global prices, the under-recovery on diesel has come down multifold to Rs. 3.7/litre in May 2013 as against Rs. 13.64/litre during the corresponding period of the previous year. We expect underrecoveries on fuel to ease dramatically by 30-40% from 1.6lakh crores in FY2013.
Although the government has refrained from populist measures in the budget, it is politically motivated to move the food security bill in parliament before the elections. We believe this legislation could push up the food subsidy bill to about Rs. 1.2lakh crore from the budgeted Rs. 90,000 crore. But similar to the previous year we expect the government to take measures to curtail plan expenditure which is budgeted to rise by 29.4% in FY2014 in order to avert any major slippage in the fiscal deficit budgeted at 4.8% of GDP in FY2014.
May 2013
Market Strategy
Normal monsoon expected - positive for growth and inflation: The IMD has forecast a normal south-west monsoon in 2013 attributing it with a probability of 46%. But the probability of below-normal monsoon also remains high at 27%. Monsoon rainfall is estimated at 98% of the Long Period Average (LPA) with a +/-5% model error. Due to below-normal rainfall during FY2013 affecting kharif production, growth in total food-grain production for the period is estimated to decline by 1.5%. We expect normal rainfall to boost agricultural production in FY2014 taking growth in agriculture higher to about 3.5% in FY2014 from 1.8% expected by the CSO in its advance estimates for FY2013 and thus keep food inflation in check as well. Exhibit 11: Probability of Southwest monsoon rainfall in 2013
Total quantum < 90% of LPA 90-96% of LPA 96-104% of LPA 104-110% of LPA > 110% of LPA Classification Deficient Below-normal rainfall Near-normal rainfall Above normal rainfall Excess rainfall Probability 10% 27% 46% 14% 3%
Midcaps have so far lagged behind the benchmark indices and defensive sectors. In our view, once the Sensex makes new highs, midcaps are likely to come into greater focus. So far it has primarily been defensive stocks that have driven the markets but going forward considering the sharp decline in inflation, the outlook for rate-sensitive sectors is also likely to improve. Accordingly, we recommend our top mid-cap picks, which comprise of a judicious mix of high quality businesses at reasonable valuations as well as few rate-sensitives.
Mar-03
Mar-05
Mar-07
Mar-09
15 year Avg
Mar-11
5 year Avg
Mar-13
1,562
1,354
FY2014E
FY2015E
May 2013
Market Strategy
Top Picks
May 2013
Market Strategy
Bajaj Electricals
Penetration in rural market through exclusive 'Bajaj world' stores: Growing disposable incomes in rural India is poised to fuel the growth in the electrical appliances. BEL, hence, plans to capitalize on growth in rural markets by penetrating through its outlets 'Bajaj World' in rural India which are opened mainly through the franchise route displaying all the products of BEL. BEL targets to open ~50 stores in rural India (of total 100 stores pan-India) by next year. In addition, the company has plans to launch rural-specific brand to tap price sensitive segment under the Bajaj umbrella. Products under this economy brand will have different finish, designs and will be priced much lower than existing products of BEL. Thus, with expansion of the customer base, and fresh demand coming in, the top-line of the company assures decent growth visibility.
Products Luminaries Street lights Building management systems LED Electrical appliances Electrical appliances Fans Fans Fire alarm system
10.7
8.9
15 10 5
(%)
500 400 300 200 100 0 FY2010 FY2011 FY2012 FY2013E FY2014E FY2015E
0 (5) (10) (15) 737 832 834 688 695 702 (20)
E&P Revenue
Price
3x
10x
17x
24x
December 2010
Market Strategy
Profit & Loss Statement
Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITD A EBITDA % of net sales Depreciation& Amortisation EBIT Interest & other Charges Other Income Recurring PBT ax Net T Tax (% of PBT) PAT (reported) Extraordinary Expense/(Inc.) ADJ .P AT ADJ. PA FY2012 3,099 13.0 2,862 2,280 86 140 356 237 7.7 13 225 63 14 162 58 33.0 118 118 FY2013 FY2014E FY2015E 3,388 9.3 3,277 2,668 62 167 380 110 3.3 14 96 69 17 27 18 40.6 26 (25) 51 3,885 14.7 3,676 3,037 71 179 389 210 5.4 16 194 62 31 132 54 33.0 109 109 4,472 15.1 4,150 3,452 72 201 425 322 7.2 17 305 56 45 249 97 33.0 197 197
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders F unds Funds Total Loans Long term provision Net Deferred Tax Liability T otal Liabilities Total APPLICA TION OF FUNDS APPLICATION Gross Block Less: Acc. Depreciation less: impairment of assets Net Block Investments 272 85 3 184 44 335 100 3 232 30 73 265 1,550 1,244 306 906 368 116 3 250 33 73 253 1,753 1,395 358 966 405 133 3 269 36 73 268 2,045 1,575 470 1,116 20 680 700 187 19 (1.9) 905 20 709 729 160 25 (7.9) 906 20 785 805 144 25 (7.9) 966 20 950 970 130 25 (7.9) 1,116 FY2012 FY2013 FY2014E FY2015E
Long term loans and Advances 109 Other non current assets Current Assets Current liabilities Net Current Assets T otal Assets Total 186 1,423 1,045 378 905
Key Ratios
Y/E March P er Share Data (`) Per EPS (Basic) Cash EPS DPS Book Value Operating ratios (x) Inventory (days) Debtors (days) Creditors (days) Returns (%) ROE ROCE Angel ROIC V aluation Ratio (x) Valuation P/E (on FDEPS) P/E (Cash EPS) P/BV EV/Sales EV/EBITDA 14.4 13.0 2.4 0.6 7.5 33.4 26.0 2.3 0.5 16.1 15.6 13.6 2.1 0.5 8.4 8.6 7.9 1.8 0.4 5.3 16.8 24.8 27.9 7.0 10.6 11.6 13.5 20.1 21.7 20.3 27.3 30.2 38 109 121 49 109 121 47 109 121 47 109 121 11.8 13.1 2.8 70.2 5.1 6.5 2.8 73.1 10.9 12.5 2.8 80.8 19.7 21.5 2.8 97.3 FY2012 FY2013 FY2014E FY2015E
Incr/(Decr) In Balance Sheet Cash5 Opening Cash balance Closing cash balance 49 54
May 2013
Market Strategy
DB Corp
DB Corp is one of the leading publishing houses in India, with seven newspapers and 65 editions in four languages across 13 states. Its combined average daily readership is 19.2mn readers, which makes it the most widely read newspaper group in India. The company has an advertising focused revenue model with average cover prices being lowest among its peers at `2.6.
( ` cr)
Revival in ad growth: After four consecutive quarters of single digit advertising growth (due to slower GDP growth), ad growth has bounced back to double digit from 3QFY2013. The company expects ad growth momentum to continue driven by hike in ad yields. Double digit advertising revenue growth
350 15 300 250 17 7 5 (0) 3 11 18 13 16 14 12 10 8 150 100 50 0 6 4 2 0 (2)
1Q12
2Q12
3Q12
EBITDA
4Q12
1Q13
Revival in ad growth coupled with stable newsprint prices and reduction in losses of emerging editions is expected to improve DB Corp's margin.
(%)
( ` cr)
200
271
275
287
263
270
283
318
1Q12
2Q12
3Q12
4Q12
1Q13
Stable newsprint prices: Although newsprint prices are up 6.4% yoy to `33,388 in 4QFY2013 (due to 7.9% yoy depreciation of INR vs USD), the average newsprint prices have declined sequentially from 3QFY2013 and are stabilizing in the range of `33,000 to `34,000. Newsprint price trend
2Q13
3Q13
4Q13
298
40,000 35,000 30,000 25,000 20,000 15,000 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 INR/tonne Dec-11 Dec-12 USD/tonne
(INR/tonne)
Feb-11
Feb-12
2Q13
OPM
3Q13
4Q13
Jun -11
Oct -10
Oct -11
Jun -12
Apr-11
Apr-12
Oct -12
Feb-13
Aug-11
Aug-12
Dec-10
Dec-11
12x
15x
18x
21x
Reduction in losses of emerging editions: DB Corp has reduced its losses in emerging editions from `77cr in FY2012 to `34cr in FY2013. Since the company is not expected to undertake any major launch as entry in new markets is on the backburner
December 2010
Dec-12
Apr-13
10
(%)
(40)
Market Strategy
Profit & Loss Statement
Y/E March (` cr) Total operating income % chg Total Expenditure % chg EBITD A EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT Interest & other Charges Other Income PBT Tax (% of PBT) PAT % chg (% of Net Sales) Basic EPS (`) % chg FY2012 1,451 15.2 1,115 29.3 336 (15.4) 23.2 51 286 9 24 300 98 32.7 202 (22.4) 13.9 11.0 (21.9) FY2013 FY2014E FY2015E 1,593 9.8 1,216 9.1 377 12.1 23.7 58 318 8 21 332 113 34.2 219 8.2 13.7 11.9 8.2 1,750 9.9 1,310 7.7 440 16.8 25.1 63 377 8 19 389 128 33.0 261 19.2 14.9 14.2 19.2 1,925 10.0 1,412 7.8 513 16.5 26.6 69 444 6 21 459 152 33.0 308 18.1 16.0 16.8 18.1
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders F unds Funds Minority Interest Total Loans Deferred Tax Liability Other long term liablities Total Liabilities APPLICA TION OF FUNDS APPLICATION Net Block Goodwill Investments Long term loans and adv. Current Assets Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 760 33 46 87 610 329 281 9 1,217 801 37 81 85 622 349 273 6 1,282 855 37 106 99 690 346 344 6 1,447 902 37 128 99 822 356 466 6 1,639 183 744 927 2 180 75 33 1,217 183 844 1,028 1 137 83 33 1,282 183 1,019 1,202 1 127 83 33 1,447 183 1,241 1,424 1 97 83 33 1,639 FY2012 FY2013 FY2014E FY2015E
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV EV/Sales EV/EBITDA Per Share Data (`) EPS (Basic) Cash EPS DPS Book Value Returns (%) ROCE ROE Turnover ratios (x) Inventory / Sales (days) Receivables (days) Payables (days) 30 62 27 30 63 22 26 63 25 26 63 24 24.7 23.0 25.5 22.4 27.6 23.4 28.8 23.4 11.0 13.8 3.7 50.1 11.9 15.1 4.0 55.7 14.2 17.6 4.0 65.2 16.8 20.5 4.0 77.3 22.7 18.1 5.0 3.1 13.5 20.9 16.5 4.5 2.8 12.0 17.6 14.2 3.8 2.5 10.0 14.9 12.2 3.2 2.3 8.4 FY2012 FY2013 FY2014E FY2015E
(Inc.)/ Dec. in Investments (29.73) Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Interest / Dividend (Net) Cash Flow from F inancing Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (157) 0.55 8 80 (2) (69) (36) 173 136
May 2013
11
Market Strategy
Finolex Cables
Reducing copper rods sale, end of derivative contracts to boost margins: FCL sold the excess production of copper rods segment (initially set up as backward integration for the cables segment) to third parties at market price. However, owing to thin and declining margins from third party transactions, FCL is gradually reducing its third party exposure (from 21% in FY2010 to ~8% currently). This trend is expected to continue, thereby improving the overall EBITDA margin of the company. Further, with the end of the forex derivatives contract which has weighed on the bottom line since FY2009, the company is expected to directly enhance its bottom line. Segmental contribution
3,000 2,500 2,053 2,000 1,771 1,407 1,109 1,000 500 0 FY2010 FY2011 Electrical cables FY2012 FY2013 Communication FY2014E CCC rods rods CCC FY2015E 362 511 205 105 94 85 2,347 2,683
( ` cr)
1,500
Robust growth in user industries: Growth for electrical cables is expected to be robust owing to 1) Electrification on an uptrend 2) Government's initiative for underground power transmission (available only in metros as of now) and 3) Customers increasingly demanding high-quality and branded wires. Considering significant contribution of electrical cables (~85% of net sales) and substantial market share of FCL (~15-20% in the electrical cables segments), the growth in user industry will provide potential revenue visibility for the company. User industry growth to drive volumes
3,500 3,000 2,500
( ` cr)
(`)
Price
4.0x
7.5x
11.0x
14.5x
13.1
15 10 5 0
1.4
FY2010
December 2010
(%)
12
Market Strategy
Profit & Loss Statement
Y/E March (` cr) Net Sales % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITD A EBITDA % of net sales Depreciation& Amortisation EBIT Interest & other Charges Other Income Recurring PBT Exceptional item PBT (reported) Net Tax (% of PBT) PAT (reported) FY2012 2,064 1.4 1,889 1,568 84 69 167 175 8.5 39 135 26 36 109 36 109 11 10.1 98 FY2013 FY2014E FY2015E 2,270 10.0 2,041 1,689 113 85 156 229 10.1 47 182 13 24 170 23 171 26 15.0 145 2,563 12.9 2,312 1,914 127 95 176 250 9.8 48 202 17 31 185 216 62 28.0 154 2,899 13.1 2,614 2,163 144 108 199 285 9.8 51 234 16 24 218 242 69 28.0 173
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders F unds Funds Total Loans Other long term liability Net Deferred Tax Liability Total Liabilities APPLICA TION OF FUNDS APPLICATION Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Long term loans nd advances Investments Other non current assets Current assets Current liabilities Net Current Assets Total Assets 871 442 429 12 4 237 534 194 340 1,022 937 489 448 17 324 19 596 229 368 1,175 993 537 456 17 331 19 663 213 451 1,273 1,072 588 484 17 364 19 770 240 530 1,413 31 770 800 155 35 33 1,022 31 894 924 162 54 34 1,175 31 1,048 1,078 151 22 22 1,273 31 1,220 1,251 140 9 14 1,413 FY2012 FY2013 FY2014E FY2015E
Key Ratios
Y/E March P er Share Data (`) Per EPS (Basic) Cash EPS DPS Book Value Operating ratios (x) Inventory (days) Debtors (days) Creditors (days) Returns (%) ROE ROCE Angel ROIC V aluation Ratio (x) Valuation P/E P/E (Cash EPS) P/BV EV/Sales EV/EBITDA 8.3 5.9 1.0 0.3 3.9 5.6 4.2 0.9 0.3 2.7 5.3 4.0 0.8 0.2 2.4 4.7 3.6 0.7 0.2 1.9 12.3 13.2 18.7 15.7 15.5 22.5 14.3 15.9 22.2 13.8 16.5 23.1 50 16 47 49 16 47 47 16 47 47 16 47 6.4 9.0 0.8 52.3 9.5 12.5 0.8 60.4 10.1 13.2 0.8 70.5 11.3 14.6 0.8 81.8 FY2012 FY2013 FY2014E FY2015E
Incr/(Decr) in Balance Sheet Cash28 Opening cash balance Closing cash balance 21 49
May 2013
13
Market Strategy
Goodyear India
Investment rationale
Branded business in the commodity industry GIL caters to high-end brands such as Audi, BMW, Land Rover, Mitsubishi and Porsche and has a brand name in the commodity business with a stupendous RoIC of 65.1% for CY2012 in comparison to less than 30% in case of other listed peers.
210
190
150 May-11
Tyre companies have taken price cuts during 1QCY2013. The price cuts have however been offset by a decline in rubber prices. Lower rubber prices have been and are expected to be beneficial for Goodyear and other tyre companies. But this would only be in the short term as in the long term the EBITDA margins will contract slightly owing to the price cuts that have been taken.
May-09 Price
May-10 2x
May-11 6x 10x
May-12 14x
May-13
December 2010
14
Market Strategy
Profit & Loss Statement
Y/E Dec. (` cr) Total operating income % chg Total Expenditure Net Raw Materials Personnel Other EBITD A EBITDA (% of Net Sales) Depreciation& Amortisation EBIT Interest Other Income (% of Net Sales) Recurring PBT Extraordinary Expense/(Inc.) PBT (reported) Tax PAT (reported) ADJ .P AT ADJ. PA CY2011 CY2012E CY2013E CY2014E 1,513 16.7 1,406 1,133 73 201 107 7.1 20 87 5 14 0.6 82 0.0 96 32 65 65 1,481 (2.1) 1,391 1,102 81 207 91 6.1 24 67 4 22 0.6 63 0.0 85 28 56 56 1,458 (1.6) 1,337 1,051 80 206 121 8.3 26 94 4 21 0.6 90 0.0 112 37 74 74 1,542 5.8 1,404 1,108 83 213 138 9.0 29 109 4 23 0.6 105 0.0 128 43 85 85
Balance Sheet
Y/E Dec. (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders F unds Funds Total Loans Long Term Provisions Deferred Tax Liability (Net) Total Liabilities APPLICA TION OF FUNDS APPLICATION Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Long Term Loans and adv. Current Assets Cash Loans & Advances Inventory Debtors Current liabilities Net Current Assets Total Assets 373 184 190 20 15 474 249 9 85 131 353 121 345 398 201 198 17 19 507 238 10 104 154 357 150 384 438 227 211 20 19 520 273 9 94 144 330 190 440 482 256 226 20 19 586 325 9 100 152 346 240 505 23 293 317 0 18 11 345 23 331 354 0 19 11 384 23 387 410 0 19 11 440 23 452 475 0 19 11 505 CY2011 CY2012E CY2013E CY2014E
Key Ratios
Y/E Dec. P er Share Data (`) Per EPS (Basic) Cash EPS DPS Book Value Operating ratio Inventory/Net sales (days) Receivables (days) Payables (days) Returns (%) ROE ROCE (Pre-tax) Angel ROIC (Pre-tax) Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV EV/Net sales EV/EBITDA 9.6 7.3 2.0 0.2 3.3 11.0 7.7 1.7 0.3 4.2 8.3 6.1 1.5 0.2 2.8 7.2 5.4 1.3 0.2 2.1 22.0 29.7 475.9 16.8 18.3 65.1 19.5 22.9 69.6 19.3 23.1 73.2 18 10 86 23 11 86 25 11 90 23 12 90 28.0 36.5 7.0 137.2 24.4 34.9 7.0 153.5 32.3 43.8 7.0 177.6 37.0 49.6 7.5 205.9 CY2011 CY2012E CY2013E CY2014E
May 2013
15
Market Strategy
Indoco Remedies
Investment arguments
Focus on domestic formulation- Aiming for higher than industry growth: Indoco has a strong brand portfolio of 135 products and a base of ~2,200MRs. The company operates in various therapeutic segments, including anti-infective, anti-diabetic, CVS, ophthalmic, dental care, pain management and respiratory.Prominent Indoco brands include Cyclopam, Vepan, Febrex Plus, ATM, Sensodent-K and Sensoform. The company has seen strong growth across the respiratory, anti-infective, ophthalmic and alimentary therapeutic segments. Further, the company is investing to enhance its share of the chronic segment, which constitutes 10% of the overall sales. During 3QFY2013, the company recruited 254 MRs for its chronic segment, taking the total MRs in the chronic segment to around 400. Post the restructuring of the domestic business in FY2009, which has resulted in an improvement in the working capital cycle, Indoco is back on the growth trajectory with its domestic formulation business growing at a healthy pace of 16.2% during 9MFY2013, V/s 11.7% CAGR during FY2009-12.Going forward, the Management expects the domestic formulation business to outperform the industry. We expect the domestic formulation segment to grow at 15% CAGR during FY2012-15. Scaling -up on the export front: Indoco has also started focusing Scaling-up on regulated markets by entering into long-term supply contracts. The company is currently executing several contract-manufacturing projects, covering a number of products for its clients in the UK, Germany and Slovenia. The company has incurred a capex of `55cr for construction of the API facility in Patalganga and is expecting USFDA approval. We belive that the same will enhance its exports growth and expect the exports segment to grow at 27.1% CAGR during FY2012-15. Partnering with Pharmaceutical majors: The Company has a large customer base of small and medium sized generic companies across the globe and has major tie-ups with generic
(`)
Financials to improve, aiding stock outperformance: With these growth drivers in place, we belive that the company's growth is likely to accelerate. The top line is expected to register a CAGR of 18.1% during FY2012-15E, mainly driven by the exports. This will aid a robust net profit growth for the company 21.2% CAGR in the net profit during the period, inspite of accounting for just a 100bps expansion in the OPM. Thus, overall the profitability of the company is set to improve, with ROE and ROCE to reach 15.8% and 15.2% in FY2015E V/s 12.6% and 13.0% in FY2012 respectively. Thus, at CMP the stock is trading at 8.3x and 6.7x FY2014E and FY2015E earnings respectively. We recommend Buy on the stock with a revised target price of `89. PE band
90 80 70 60 50 40 30 20 10 0
companies for certain territories and products. The deal with Watson Pharmaceuticals, Inc. (Watson) is to develop and manufacture a number of sterile (ophthalmic) products for marketing in USA. The agreement with South Africa's largest pharmaceutical company, Aspen Pharmacare Limited (Aspen) encompasses a number of solid dosages and ophthalmic
December 2010
Jan-06 Apr-06 Jul-06 Oct-06 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 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
16
Market Strategy
Profit & Loss Statement (Consolidated)
Y/E March (` cr) Total operating income % chg Total expenditure EBITD A EBITDA (% of Net Sales) Depreciation& amortisation EBIT Interest & other charges Other income PBT (reported) Tax (% of PBT) PAT after MI (reported) ADJ .P AT ADJ. PA % chg FY2012 571 17.4 484 85 14.9 19 65 16 51 5 9.6 46 46 (9.2) FY2013 FY2014E FY2015E 640 12.1 542 90 14.2 21 69 18 2 60 9 15.0 51 51 10.5 782 22.2 656 118 15.2 26 92 18 2 83 17 20.0 67 67 30.0 945 20.9 795 143 15.2 31 111 18 2 103 21 20.0 82 82 23.9
Long Term Loans And Advances 55 Current assets Current liabilities Net current assets T otal Assets Total 267 114 152 542
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/BV EV/Sales EV/EBITDA P er Share Data (`) Per EPS (fully diluted) DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE T urnover ratios (x) Turnover Inventory / Sales (days) Receivables (days) Payables (days) 56 71 47 57 73 49 61 78 50 59 75 50 13.0 14.8 12.6 12.1 13.2 12.6 14.2 15.5 14.5 15.2 16.2 15.8 5.0 0.1 41.8 5.6 0.1 46.7 7.2 0.1 52.6 8.9 0.1 60.3 12.0 1.4 1.2 7.9 10.8 1.3 1.1 7.4 8.3 1.1 0.9 6.1 6.7 1.0 0.8 5.1 FY2012 FY2013 FY2014E FY2015E
May 2013
17
Market Strategy
ITNL
Largest portfolio in the BO T segment: IL&FS Transportation BOT Networks (ITNL) is a surface transport player, with an established track record of successfully bidding, developing and operating road BOT projects on a commercial basis. ITNL is the largest in the road BOT segment (in terms of both - number of projects and lane kms), with portfolio comprising of 25 projects spanning over ~13,000 lane kms. We believe ITNL, being a market leader, is well poised to leverage on the growing opportunities in the BOT space, owing to 1) strong parentage (belongs to the IL&FS Group); 2) experienced Management at the helm of affairs (rich experience of over 22 years in the infrastructure business); and 3) unique business model (present across the value chain). Largest BOT portfolio
(Lane kms) 14,000
12,000 10,000 8,000 6,000 4,000 2,000 0 FY2011 FY2012 FY2013 Ashoka FY2014E IRB FY2015E ITNL FY2016E FY2017E 4,350 4,502 6,357 9,316 9,316 9,354 12,806
Operational portfolio to cloak a CA GR of 19% over CAGR FY2013-17: Out of the total portfolio, the company has 14 projects which are under various stages of construction. Of these under development projects, 82% of total under construction projects aggregating to ~6,500 lane kms are BOT toll projects, while remaining 18% aggregating to ~1,300 lane kms are BOT annuity projects. Over the past three years, owing to commissioning of BOT projects such as Thiruvananthapuram road phase-II, Hazaribagh Ranchi Expressway, Jharkhand road phase - I, Hyderabad Ring Road and many others, the company Projects under development to be operational over FY2014-17
(Lane kms) 14,000 12,000 10,000 8,000 6,357 6,000 4,000 2,000 0 FY13 (total) FY14 FY15 FY16 FY17 FY17 (total) 2,958 1 38 3,452 12,806
4-Dec-10
4-Dec-11
4-Feb-11
4-Jun-10
4-Dec-12
4-Feb-12
4-Jun-11
4-Aug-10
4-Aug-11
4-Aug-12
4-Oct-11
4-Apr-12
4-Oct-12
4-Feb-13
4-Apr-10
4-Oct-10
4-Apr-11
4-Jun-12
0.5x
1.0x
1.5x
2.0x
December 2010
4-Apr-13
18
Market Strategy
Profit & Loss Statement (Consolidated)
Y/E March (` cr) Total operating income % chg Total Expenditure EBITD A EBITDA (% of Net Sales) Depreciation & Amortisation EBIT Interest & other Charges Other Income Recurring PBT PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) PAT after MI (reported) Fully Diluted EPS (`) FY2012 5,606 38.5 4,140 1,466 26.1 77 1,389 728 124 785 785 246 31.3 539 4 46 497 25.6 FY2013 FY2014E FY2015E 6,645 18.5 4,804 1,840 27.7 94 1,746 1,119 141 768 768 227 29.6 541 5 25 520 26.8 7,444 12.0 5,404 2,040 27.4 129 1,911 1,253 170 828 828 259 31.3 569 (1) (12) 580 29.8 8,041 8.0 5,717 2,324 28.9 150 2,174 1,393 204 984 984 308 31.3 676 (20) 33 623 32.1
Key Ratios
Y/E March V aluation Ratio (x) Valuation P/E (on FDEPS) P/BV EV/Sales EV/EBITDA P er Share Data (`) Per EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE T urnover ratios (x) Turnover Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Wcap cycle (ex-cash) (days) 1.1 2 54 121 178 0.8 1 46 125 144 0.7 1 38 134 129 0.7 1 39 152 132 12.9 14.0 19.6 10.9 11.6 16.2 9.7 10.2 14.9 9.9 10.4 14.2 25.6 29.5 4.0 144.1 26.8 31.6 4.0 187.4 29.8 36.5 4.0 212.4 32.1 39.8 4.0 239.7 6.8 1.2 2.4 9.1 6.5 0.9 2.6 9.4 5.8 0.8 2.5 9.3 5.4 0.7 2.6 9.0 FY2012 FY2013 FY2014E FY2015E
Cash Flow from Operations 877 (Inc.)/ Dec. in Fixed Assets (3,535) (Inc.)/ Dec. in Investments Other income (201) 124
Cash Flow from Investing (3,612) Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others 4,752 (91) (2,352)
Cash Flow from F inancing 2,491 Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (244) 528 284
May 2013
19
Market Strategy
Mahindra Lifespaces
In the right markets: Mahindra Lifespaces Developers (MLIFE) is ITNL a mid and premium housing developer catering to strong demand in tier-1 cities and small metros in the country. Apart from real estate development, MLIFE also operates two integrated business cities - Mahindra World City (MWC) Chennai and Jaipur [special economic zones (SEZ) and domestic tariff area (DTA)]. With slowing demand in super metros (Mumbai and NCR), we favor MLIFE's exposure to tier-1 cities (Pune and Nagpur) and small metros (Hyderabad), given their strong demand dynamics. Pune, Nagpur and Hyderabad now form 60% of MLIFE's exposure in terms of saleable area. With 5.4mn sq. ft. of forthcoming projects (~4.7x its FY2013 sales), we expect strong sales momentum during FY2014 and FY2015, as a primary catalyst. We also note that with the initiation of the rate cut cycle, mid-market housing will lead the recovery in demand, which has been a focus area for MLIFE. City wise project exposure- Forthcoming and Ongoing projects
11% 16% 36%
10% 17%
Chennai Mumbai Pune NCR Nagpur
10%
Hyderabad
`528/share, and apply a 10% discount to our SOTP value to arrive at a target price of `476, suggesting an 20% upside from the current levels. We recommend a Buy rating on the stock. One year forward P/BV band
2.5 2.0
New launches to help pick up in sales: As on 4QFY2013, MLDL holds a total land bank of 22.94mn sq ft which includes 14.79mn MLIFE's forthcoming projects breakdown City Mumbai Mumbai Pune Pune Hyderabad Chennai Chennai Chennai Chennai Nagpur Total
Source: Company, Angel Research; Note: *Joint Development
Forthcoming P rojects Projects Andheri Alibaug Antheia -subsequent phases SopanBaug* Ashvita -subsequent phases * Aqualily -subsequent phases New project at MWCC Iris Court Phase III B Avadi(Affordable Housing) Bloomdale subsequent phases
Area (mn sqft) 0.37 0.23 1.38 0.09 0.65 0.2 0.54 0.13 0.72 1.12 5.41
P/B (x)
December 2010
20
Market Strategy
Profit & Loss Statement (Consolidated)
Y/E March (` cr) Operating income % chg Total Expenditure EBITD A EBITDA (% of Net Sales) Depreciation& Amortisation EBIT Interest & other charges Other Income (% of sales) PBT Tax (% of PBT) PAT (reported) Minority Interest ADJ .P AT ADJ. PA Fully Diluted EPS (`) FY2012 701 14.6 510 191 27.3 9 182 21 27 3.0 188 59.3 31.5 129 10 119 29.2 FY2013 FY2014E FY2015E 738 5.3 496 242 32.8 9 233 31 34 4.2 236 79.9 33.9 156 15 141 34.6 888 20.3 616 272 30.6 8 264 40 41 4.5 265 89.7 33.9 175 17 159 38.8 1,002 12.8 695 307 30.6 8 299 49 46 4.9 296 100.3 33.9 196 19 177 43.4
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/BV EV/Sales EV/EBITDA Per Share Data (`) EPS (fully diluted) DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) 0.5 517 97 288 615 0.4 662 71 414 704 0.4 693 41 416 695 0.5 675 42 443 669 10.5 11.8 10.3 11.7 12.6 10.9 11.6 12.4 11.2 12.2 13.1 11.4 29.2 (5.8) 282.8 34.6 (7.2) 316.7 38.8 (8.1) 347.4 43.4 (9.1) 381.7 13.6 1.4 2.8 10.3 11.4 1.3 3.1 9.3 10.2 1.1 2.5 8.3 9.1 1.0 2.3 7.4 FY2012 FY2013 FY2014E FY2015E
May 2013
21
Market Strategy
Relaxo Footwear
Store expansion and brand revamp to drive volume
As a part of aggressive retail expansion strategy, Relaxo has added 27 retail outlets in FY2013 taking the total outlet count to 168. Additionally, Relaxo has leading celebrities to endorse its brands. Salman Khan endorses Hawaii, Katrina Kaif endorses Flite and Akshay Kumar endorses Sparx. The expansion of retail outlets along with the leading celebrity endorsing the brands will help the company in expanding its reach as well as strengthening its brand image which will eventually result in top-line addition.
( ` cr)
200 0
407
554
686
860
1,005
1,146
1,333
400
10.0
0.0
Revenue (LHS)
The PAT is expected to grow at a CAGR of 27.7% to `73cr for the same period. With the growth triggers in place, which includes - 1) capacity expansion plan, 2) store expansion, 3) improved sales mix, 4) brand revamping and 5) continuous product development - we remain positive on the company's future. We maintain our Buy recommendation on the stock with a revised target price of `791, based on a target PE of 13x for FY2015E . FY2015E. One-Year Forward P/E Chart
250 200 150
(`)
100 50 0
Dec-10
FY2013E
FY2014E
FY2015E
FY2009
FY2010
FY2011
FY2012
May-11
Mar-12
Aug-12
Apr-09
Feb-10
Sep-09
Price (`)
10x
15x
Oct-11
20x
25x
40.0 20.0 0.0 FY2008 FY2009 FY2010 FY2011 49.2 44.4 40.8
35.5
33.0
FY2012
Hawaii
Flite
Sparx
Others*
December 2010
Jan-13
Jul-10
22
(%)
Market Strategy
Profit & Loss Statement
Y/E March (` cr) Total operating income % chg Total Expenditure Net Raw Materials Personnel Other EBITD A EBITDA (% of Net Sales) Depreciation& Amortisation EBIT Interest Other Income (% of Net Sales) Recurring PBT Extraordinary Expense/(Inc.) PBT (reported) Tax PAT (reported) ADJ .P AT ADJ. PA FY2012 860 25.4 770 459 82 229 90 10.5 23 67 19 5 0.6 48 0.0 54 14 40 40 FY2013 FY2014E FY2015E 1,005 16.8 900 469 113 317 105 10.4 25 79 18 6 0.6 62 0.0 68 23 45 45 1,146 14.1 1,021 544 129 348 125 10.9 29 96 19 6 0.6 77 0.0 83 28 55 55 1,333 16.3 1,182 623 150 408 152 11.4 32 120 17 7 0.6 103 0.0 110 37 73 73
Balance Sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders F unds Funds Total Loans Other Long Term Liabilities Long Term Provisions Deferred Tax Liability (Net) Total Liabilities APPLICA TION OF FUNDS APPLICATION Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments 379 108 272 21 0 464 133 330 20 0 15 1 240 154 87 452 510 162 348 20 0 15 1 284 176 108 491 561 193 367 20 0 15 1 336 204 132 535 6 166 172 146 0 3 22 344 6 208 214 205 6 3 24 452 6 257 263 195 6 3 24 491 6 325 331 171 6 3 24 535 FY2012 FY2013 FY2014E FY2015E
Long Term Loans and advances 12 Other Non-current asset Current Assets Current liabilities Net Current Assets Total Assets 1 169 131 38 344
Key Ratios
Y/E March Per Share Data (`) EPS (Basic) Cash EPS DPS Book Value Operating ratio Inventory / Net sales (days) Receivables (days) Payables (days) Returns (%) ROE ROCE (Pre-tax) Angel ROIC (Pre-tax) Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV EV/Net sales EV/EBITDA 18.6 11.8 4.3 1.0 9.9 16.6 10.6 3.5 0.9 9.0 13.5 8.9 2.8 0.8 7.4 10.2 7.1 2.3 0.7 6.0 26.0 19.5 20.8 23.2 17.6 18.5 23.0 19.6 20.8 24.6 22.5 23.7 52 10 60 52 11 58 56 11 63 58 12 63 33.3 52.5 1.5 143.7 37.3 58.6 5.0 178.7 45.9 69.8 5.0 219.6 60.9 87.2 5.0 275.4 FY2012 FY2013 FY2014E FY2015E
May 2013
23
Market Strategy
Tech Mahindra
Tech Mahindra and Mahindra Satyam - merger of two companies with minimal overlap
Tech Mahindra and Satyam are set to merge, approval pending in the Andhra Pradesh High Court, which would take the proposed merged entity to be the fifth largest amongst the Indian offshore service providers. The management of both the companies intends to create a single go-to-market strategy with benefits of scale and enhanced depth and breadth of capabilities, translating into increased business opportunities and reduced expenses. We believe the proposed merger would benefit both the companies based on the following potential synergies: Well diversified industry wise revenue mix along with limited client concentration risks: The combined entity will have a broader service offering. As of now, Tech Mahindra's entire revenue comes from the telecom vertical, which has been shrinking over the past couple of years. After the merger, contribution from telecom would come down to sub-50% (47-48%). The combined entity will have a broad based play across industries such as manufacturing, BFSI, telecom, technology, media and entertainment (TME), retail, transport and logistics and lifesciences and healthcare. In addition, we believe market concerns over Tech Mahindra's high dependency on BT posing a risk to revenues could be mitigated significantly as BT's share of revenues would decline to ~15% (from 25% currently). Combined entity revenue mix - vertical wise
3% 5% 7%
11%
47%
BFSI
10%
Others
Diversified portfolio of services: Tech Mahindra possesses expertise in mobility, system integration, and delivery of large transformational deals, while Mahindra Satyam's Enterprise services experties will get added to Tech Mahindra's portfolio of services. Thus, we believe the proposed merged entity would be well-equipped to offer a wide range of services to clients across multiple verticals.
December 2010
24
Market Strategy
Profit & Loss Statement (Consolidated)
Y/E March (` cr) Net sales Cost of revenues Gross profit % of net sales SG&A expenses EBITD A EBITDA % of net sales Dep. and amortization % of net sales EBIT Interest expense Other income Profit before tax Provision for tax PAT Share from associates Exceptional item AT Reported P PA Adjusted P AT PA FY2012 5,490 3,678 1,811 33.0 892 919 16.7 161 2.9 758 103 98 753 144 610 557 (68) 1,095 1,117 FY2013 FY2014E FY2015E 6,873 4,339 2,535 36.9 1,110 1,424 20.7 200 2.9 1,224 103 (75) 1,047 236 811 497 69 1,288 1,357 7,779 5,000 2,778 35.7 1,245 1,534 19.7 233 3.0 1,300 84 91 1,307 366 941 528 1,429 1,429 8,398 5,432 2,966 35.3 1,344 1,622 19.3 252 3.0 1,370 48 115 1,436 402 1,034 573 1,567 1,567
Key Ratios
Y/E March Valuation ratio (x) P/E P/BVPS EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS Cash EPS Dividend Book value Return ratios (%) RoCE (pre-tax) Angel RoIC RoE Turnover ratios (x) Asset turnover (fixed assets) Receivables days Payable days 6.5 78 24 5.4 80 34 5.8 80 33 6.0 80 33 13.1 14.1 27.6 17.4 19.8 25.0 15.8 18.8 21.2 14.3 17.9 19.0 84.6 95.3 4.0 307.2 96.7 111.8 5.0 407.8 107.4 125.0 5.0 507.7 117.8 136.7 5.0 619.3 11.2 3.1 2.4 14.5 15.7 9.8 2.3 1.9 9.1 10.1 8.9 1.9 1.6 8.1 9.2 8.1 1.5 1.4 7.2 8.3 FY2012 FY2013 FY2014E FY2015E
Cashflow from operations 1,280 (Inc)/dec in fixed assets (Inc)/dec in investments (Inc)/dec in other non CA Cashflow from investing Inc/(dec) in debt Inc/(dec) in deferred rev. Inc/(dec) in equity/premium Add. to resv. on amalgmn. Cashflow from financing Cash generated/(utilised) Cash at start of the year Cash at end of the year (333) (557) 83 (807) (56) 38 12 (394) (498) (25) 267 242
May 2013
25
Market Strategy
United Phosphorus
Investment arguments
Agrichemical - A highly consolidated industry, generic companies in sweet spot The global agrichem industry, valued at ~US$45bn (CY2012E), is dominated by the top six innovators, viz Bayer, Syngenta, Monsanto, BASF, DuPont and Dow. These top five companies enjoy a large market share of the patented (28%) and off-patent (32%) market and in generic, they occupy 61% of the share (of the 40% off-patent market). From overall market perspective, the top 11 players control 84% of the total agrichemical market. This is due to high entry by way of investments required for product registration and to set up manufacturing facilities. Thus, one-third of the total pie worth ~US$15bn, which is controlled by the top six innovators through proprietary off-patent products, provides a high-growth opportunity for larger integrated generic players such as UPL. Moreover, as we go forward, around US$7bn worth of the products would be going off-patent in the next 2-3 years, augmenting overall growth opportunity for generic players like UPL. Global agrichemical industry
(incl. other income) expanding by 100bp. However, as of now we have factored in a conservative estimates. On the capital efficiency front, the company's RoCE is expected to improve from 14.9% in FY2013 to 15.8% in FY2015E, respectively. At current valuations of 7.1x FY2015E EPS, the stock is attractively valued. At these levels, the stock is trading at its lower end of the valuation band over the last 8 years. Also in comparison to its Indian peers like Rallis, the stock trades at ~44% discount. Thus given its scale and growth opportunities, we believe that the stock is a attractive value pick in the space, thus maintain our Buy rating on the stock with a T arget P rice of `232. Target Price One-Year Forward P/E Chart
350 300 250
(`)
December 2010
26
Market Strategy
Profit & Loss Statement (Consolidated)
Y/E March (` cr) Total operating income % chg Total Expenditure EBITD A EBITDA (% of Net Sales) Depreciation& Amortisation EBIT % chg Interest & other Charges Other Income Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT after MI (reported) ADJ .P AT ADJ. PA % chg FY2012 7,655 31.9 6,288 1,246 16.5 292 1,075 19.9 415 109 769 13.3 18 751 128 17.0 556 561 1.6 FY2013 FY2014E FY2015E 9,195 20.1 7,556 1,454 16.1 354 1,285 19.5 429 100 956 24.3 12 944 203 21.5 775 786 40.0 10,114 10.0 8,595 1,703 16.5 378 1,510 17.5 568 100 1,041 8.9 1,041 208 20.0 860 860 9.4 11,125 10.0 9,439 1,870 16.5 399 1,656 9.7 568 100 1,188 14.0 1,188 238 20.0 979 979 13.8
Long Term Loan & Advances 259 Current Assets Current liabilities Net Current Assets T otal Assets Total 5,671 2,240 3,432 8,014
Key Ratios
Y/E March V aluation Ratio (x) Valuation P/E (on FDEPS) P/BV EV/Sales EV/EBITDA Per Share Data (`) EPS (fully diluted) DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE T urnover ratios (x) Turnover Inventory / Sales (days) Receivables (days) Payables (days) 78 79 66 82 82 68 87 87 70 89 89 71 16.1 22.8 13.7 14.9 20.9 16.9 15.7 22.6 16.4 15.9 24.4 16.2 12.2 2.5 95.8 17.8 2.6 110.2 19.4 2.6 127.0 22.1 2.6 146.5 12.9 1.6 1.1 6.7 8.9 1.4 1.0 6.2 8.1 1.2 0.8 4.8 7.1 1.1 0.7 4.0 FY2012 FY2013 FY2014E FY2015E
Cash Flow from Operations 235 (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Inc./ (Dec.) in loans and adv. Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others (989) 29 -
Cash Flow from F inancing 1,591 Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances 866 700 1,566
May 2013
27
Market Strategy
Stock Watch
May 2013
28
Agri / Agri Chemical Rallis Neutral United Phosphorus Buy Auto & Auto Ancillary Amara Raja Batteries Accumulate Apollo Tyres Buy Ashok Leyland Buy Automotive Axle# Neutral Bajaj Auto Accumulate Bharat Forge Neutral Bosch India* Neutral CEAT Buy Exide Industries Accumulate FAG Bearings* Neutral Hero Motocorp Accumulate JK Tyre Buy Mahindra and Mahindra Neutral Maruti Accumulate Motherson Sumi Accumulate Subros Buy Tata Motors Accumulate TVS Motor Neutral Financials Allahabad Bank Buy Andhra Bank Neutral Axis Bank Buy Bank of Baroda Buy Bank of India Buy Bank of Maharashtra Accumulate Canara Bank Accumulate Central Bank Neutral Corporation Bank Buy Dena Bank Accumulate Federal Bank Neutral HDFC Neutral HDFC Bank Neutral ICICI Bank Buy IDBI Bank Accumulate Indian Bank Buy IOB Accumulate
29
Accumulate 1,249 Accumulate Accumulate Buy Neutral Buy Accumulate Neutral Accumulate Buy Neutral Neutral
30
Buy 736 Buy 80 Accumulate 2,347 Accumulate 169 Buy 106 Accumulate 110 Buy 797 Reduce 440 Buy 21 Buy 508 Accumulate 1,470 Buy 952 Accumulate 337 Buy Buy Buy Neutral Neutral 250 98 91 329 411
31
Neutral Accumulate Buy Buy Buy Neutral Neutral Buy Buy Neutral Buy Neutral Neutral Accumulate Buy Buy Buy Buy Buy Neutral Accumulate Neutral Neutral Neutral Buy Neutral
Buy 118 Buy 172 Neutral 2,470 Buy 794 Accumulate 408 Buy 2,065 Buy 68 Neutral 2,268 Buy 60 Buy 571 Accumulate 770 Neutral 390 Neutral 970
32
Accumulate 1,445 Buy 170 Buy 447 Buy 365 Buy 53 Buy 374 Buy 268 Buy 143 Neutral 2,438 Buy 164 Buy 183 Accumulate 179 Reduce 15,270 Reduce 3,889 Buy 625 Buy 261 Buy 434 Buy 69 Buy 299 Accumulate 634 Accumulate 260 Buy 185 Neutral 2,570 Buy 369
Source: Company, Angel Research, Note: *December year end; #September year end; &October year end; ^June year end; Price as on May 24, 2013
33
Market Strategy
Disclaimer
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Ratings (Returns) :
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Market Strategy
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Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Viral Shah Sharan Lillaney V Srinivasan Yaresh Kothari Ankita Somani Sourabh Taparia Bhupali Gursale Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Akshay Narang Harshal Patkar Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Tejas Vahalia Dilip Patel Research Editor Production Incharge tejas.vahalia@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Sr. Analyst (Infrastructure) Analyst (Mid-cap) Analyst (Cement, FMCG) Analyst (Automobile) Analyst (IT, Telecom) Analyst (Banking) Economist Research Associate Research Associate Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com viralk.shah@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com ankita.somani@angelbroking.com Sourabh.taparia@angelbroking.com bhupali.gursale@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com akshay.narang@angelbroking.com harshal.patkar@angelbroking.com
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