INSTITUTIONAL EQUITY RESEARCH Parag Milk...

INSTITUTIONAL EQUITY RESEARCH

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Parag Milk Foods

Milking the growth in dairy consumption

INDIA | Dairy | IPO Note

03 May 2016

Parag Milk Foods, founded in 1992, is one of the leading private dairy players in India with a

pan-India presence. It manufactures dairy products such as cheese, ghee, curd, buttermilk,

flavoured milk, and fresh milk, and markets these under brands Gowardhan, Go, ToppUp, and

Pride of Cows. As was highlighted in our March 2016 Ground View edition, growth prospects

for the Indian dairy industry are strong, and Parag Milk Foods, being among the leaders in

value-added products, will benefit considerably from their increasing consumption and from a

shift to organised players (in both rural and urban India). The stock is available at 21x our FY18

earnings (adjusting for sales tax refund) and we believe that its valuation is justified given the

growth visibility, brand equity, innovations history, strong supply chain, and capable

management team. We recommend SUBSCRIBE.

Indian dairy to see 15% CAGR in 2014-20; organised segment to grow faster: The Indian dairy

industry is poised to grow to Rs 9.4tn by 2020 from Rs 4.1tn in 2014 (15% CAGR), as per a report

by research firm IMARC. Within this, the organised segment (20% value share) could see faster

20% CAGR. Organised players dominate high-margin categories (cheese, flavoured and UHT milk,

flavoured yoghurts, lassi), which are poised to see >25% CAGR. Parag Milk Foods is likely to top

overall dairy market growth due to its strong presence in high-growth, value-added categories.

Leading private player in value-added milk products with strong brands: Parag Milk Foods has a

cheese plant capacity of 40T/day and is the second-largest cheese player (32% market share)

after Amul (42% share) in India. Apart from a strong retail presence, its institutional customers

include major QSR brands like Dominos, Pizza Hut and KFC. Its brand Gowardhan Ghee sells at a

5-10% premium to others on a positioning of superior quality and purity. It is also present in

other key high-margin categories like UHT, flavoured milk, buttermilk, and flavoured yoghurt.

History of innovations and product premiumisation: Parag produces various types of cheese

(mozzarella, shredded, cheddar, each in a variety of flavours) and recently launched super

premium Go Almette cheese. It also produces flavoured yoghurt, buttermilk, and flavoured milk

(highest number of variants/flavours in the market for each). It is one of the pioneers of the

concept of farm-to-home fresh milk, which it supplies to Mumbai and Pune under its brand Pride

of Cows (commands 100% premium to regular brands).

Strong sourcing chain and pan-India presence: Parag sources milk from 250,000 farmers in 3,400

villages across Maharashtra, Andhra Pradesh, Karnataka, and Tamil Nadu, and also procures milk

indirectly through wholesalers. It has a dairy farm near Pune with 2,000 cows of the Holstein

breed, maintained mainly for R&D purposes. It is also among the few private dairy players with a

pan-India presence. Currently, its distribution network consists of 15 depots and over 3,000

distributors across the country. It employs 560 people for distribution and marketing. We believe

that the company has the right sourcing and distribution strategy and as its sales expand, its

network will increase and aid growth.

Margins, working capital, and cash-flow to improve as it expands: Gross/EBITDA margins in

FY15 were 23.5%/7.4%; as its sales rise, (1) its margins will expand gradually – due to higher

operating leverage and better supply-chain efficiencies, and (2) its receivables days will fall

(slowly) in the medium term (44 days in FY15) led by strong retail focus and higher bargaining

power with institutional clients. Also, by FY17 most of its capex will be in place and free cash

flows should rise from FY18.

High valuations justified; Recommend SUBSCRIBE: The stock is available at 26/21x our

FY17/FY18 earnings vs. 33/21/10x FY17 earnings for Hatsun Agro/Prabhat Dairy/Kwality Dairy

(our/Bloomberg estimates) while it is available at FY17/FY18 EV/EBITDA of 13/11 vs. 14/8/7x for

FY17 EBITDA for the same peerset. The stock is slightly expensive to some peers but the higher

valuation is justified by lower share of institutional sales, stronger brands, distribution reach, and

strong execution history. Also, we believe that the lower RoE/RoCE for dairy players vs. FMCG

companies is compensated by 35% discount to FMCG sector multiple and higher growth and

premiumisation prospects compared to penetrated FMCG categories.

SUBSCRIBE COMPANY DATA

ISSUE OPENS 4th May 2016

ISSUE CLOSES 6th May 2016

PRE-ISSUE EQUITY SHARES 70.4mn

PRICE BAND Rs. 220-227

NO OF SHARES TO BE ISSUED 13.3-13.7mn

SHARES IN OFFER FOR SALE 20.57 mn

P/E @ FY18E EARNINGS UPPER

PRICE BAND 21

ISSUE SIZE Rs 3bn

PROPOSED MKT CAP.

(AT UPPER BAND) Rs 19bn

SHARE HOLDING PATTERN, %

Particulars Pre-offer (%) Post-offer (%)

Promoters 61.1% 47.5% Public 38.6% 52.2% Employee trusts 0.3% 0.3%

Details of Selling Shareholders

IDFC PE 8.3mn IBEF/IBEF I 6.0mn Promoter group 3.1mn Others 3.2mn

KEY FINANCIALS

Rs mn FY16E FY17E FY18E

Net sales 14,950 17,568 20,658

EBITDA 1,339 1,477 1,709

Net profit 407 707 875

EPS, Rs 4.8 8.4 10.4

PER, x @220 45.8 26.4 21.3

PER, x @227 44.4 25.6 20.7

ROCE, % 18.1 13.5 12.1

ROE, % 12.7 10.3 11.3

Source: PhillipCapital India Research Est.

Jubil Jain (+ 9122 6667 9766) [email protected] Naveen Kulkarni (+ 9122 6667 9947) [email protected] Preeyam Tolia (+ 9122 6667 9950) [email protected]

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_GV_-_Mar_issue_for_email_20160315204008.pdf


PARAG MILK FOODS IPO NOTE

About the IPO 13.7-13.3mn fresh shares in a band of Rs 220-227 per share, totalling Rs 3bn.

20.5mn shares for sale by existing investors — (IDFC PE – 8.3mn, Motilal Oswal’s IBEF/IBEF I – 6mn, promoter group – 3.1mn, others – 3.2mn).

Utilisation of funds: Rs 1.5bn for capex, Rs 1bn for loan repayment, and Rs 0.5bn for general corporate purposes and others.

Market capitalisation post-issue: Rs 19bn at upper price band (84.1mn shares).

Details of selling shareholders

Selling shareholder

No. of shares

sold (mn)

Total no. of

shares held

% of holding

sold

Promoters

Netra Shah 2.0 10.3 19%

Priti Shah 1.1 3.3 33%

PE investors

IDFC PE 8.3 14.1 59%

Motilal Oswal sponsored IBEF and IBEF I 6.0 6.7 90%

Others 3.2 - -

Total 20.6

Source: RHP

Shareholding structure: Before and after the issue Shareholding Pre-Issue % of total Post Issue % of total

Promoter & Promoter Group 43,045,822 61.1% 39,941,189 47.5%

Devendra Shah 14,570,832 20.7% 14,570,832 17.3%

Netra Shah 10,272,782 14.6% 8,268,149 9.8%

Pritam Shah 9,159,888 13.0% 9,159,888 10.9%

Other promoters 9,042,320 12.8% 7,942,320 9.4%

Public 27,143,065 38.5% 43,964,774 52.3%

IDFC PE 14,134,162 20.1% 5,874,234 7.0%

IBEF I 4,359,749 6.2% 442,511 0.5%

IDFC SPICE 2,411,870 3.4% 2,411,870 2.9%

IBEF I 2,316,866 3.3% 207,583 0.2%

Other Public 3,920,418 5.6% 35,028,576 41.6%

Shares in employee trusts 227,000 0.3% 227,000 0.3%

Total 70,415,887 100.0% 84,132,963 100.0%

Source: RHP



About Parag Milk Foods Parag Milk Foods Ltd was founded in 1992. It is an integrated dairy company, and one of the largest private dairy players, with milk-processing capacity of 2mn litres per day. It is present in over seventeen dairy product categories and it markets products under the brands Gowardhan, Go, Pride of Cows, and Topp-up.

Brand-wise product categories of Parag Milk Foods Brands Categories Target

Gowardhan Ghee, Milk, Paneer, Dahi, Curd , Butter,

Dairy Whitener and Gulab Jamun Mix

Every-day dairy products, house hold

consumption used as cooking ingredients

Go Flavoured cheese, tubes, slices etc Children and youth, primarily for direct

consumption

Pride of Cows Farm-to- home, subscription model Consumer seeking premium quality

Topp- Up Flavored milk with extra proteins Youth and travelers

Source: Company, PhillipCapital India Research

Currently, the biggest contributors to its revenue (>20% each) are fresh milk, ghee/butter and cheese/paneer. It intends to increase dairy-based beverages portfolio under the ‘Go’ brand, introduce milk-based high-protein drinks, and a new variant of curd with a higher protein and lower fat content. It also intends to set up a whey-proteins manufacturing facility and increase its presence in the premium health supplement space. Because of high proportion of sales from value-added products like cheese, UHT, flavoured milk, buttermilk and curd (~30%) and branding in the otherwise low-margin ghee business (~32%), Parag has consistently delivered gross margins of 22-25% in FY11-16.

Sales mix in FY14-9MFY16 Gross-margin movement from FY11-9MFY16


Manufacturing facilities It has two manufacturing facilities in Pune (Maharashtra)/Palamner (Andhra Pradesh) with milk-processing capacities of 1.2/0.8mn litres per day; it plans to expand capacity of both plants to 2.0mn/1.4mn respectively through the IPO proceeds. It also plans to expand capacity for cheese, paneer, whey, curd-flavoured beverages, and UHT, which we believe will help it to meet the demand growth for the next five years in all its categories.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2014 2015 9MFY16

Other manufactured products

Skimmed milk powder

Whey

UHT

Cheese/Paneer

Ghee/Butter/Cream

Fresh Milk 20%

21%

22%

23%

24%

25%

26%

FY11 FY12 FY13 FY14 FY15 9MFY16

Gross margins



Capacity for different product categories

Product Units Manchar Palamaner

Current

Total

Proposed

expansion

Milk processing capacity (litres per day) 1,200,000 800,000 2,000,000 1,400,000

Milk powders (includes drying capacity for whey

powders and dairy whiteners) (metric tons per day)

70 40 110 -

Liquid milk in pouches (litres per day) 200,000 175,000 375,000 150,000

Flavoured milk (packs per day) 30,000 70000 100,000 30,000

UHT Products* (litres per day) 0 165,000 165,000 80,000

Cheese/Paneer (metric tons per day) 40 0 40 20 cheese +

20 paneer

Ghee (metric tons per day) 40 30 70 -

Butter (metric tons per day) 50 25 75

Curd (includes pouch curd, cup curd, fruit yoghurt

and shrikhand) (metric tons per day)

20 40 60 20

Whey Processing (litres per day) 400,000 0 400,000 600,000

*Includes lassi and buttermilk


Historical capacity utilisation

Capacity Utilisation (%)

Product Units 2013 2014 2015 9MFY16

Milk processing capacity 49 49 66 71

Milk powders (incl drying capacity for whey powders and dairy whiteners) 50 59 75 73

Liquid milk in pouches 64 61 60 52

Flavoured milk 2 28 29 65

UHT Products* 9 18 18 33

Cheese/Paneer 44 47 67 81

Ghee 31 28 27 47

Butter 16 14 32 38

Curd (includes pouch curd, cup curd, fruit yoghurt and shrikhand) 50 58 43 64

*Includes lassi and buttermilk


Strong institutional base and retail distribution network A large part of its range includes long shelf-life food and beverage products that enables it to transport and sell to retail and institutional customers (such as QSRs (quick-service restaurants) – Pizza Hut, Taco Bell, KFC, Dominos, Sam’s Pizza, and FMCG companies such as Nestle) across India. Currently, its retail distribution network in India consists of 15 depots, 104 super stockists, and over 3,000 distributors. It has a workforce of 560 people, dedicated to distribution and marketing. Strong sourcing chain Parag sources milk from 29 districts across Maharashtra, Andhra Pradesh, Karnataka, and Tamil Nadu, through over 3,400 village-level milk-collection centres, comprising 250,000 farmer members. It also procures milk indirectly through chilling centres and bulk coolers. In addition, It has a dairy farm near Pune with 2,000 cows of the Holstein variety (known for high milk production), which the company says are mainly kept for R&D. Average daily milk procurement for 9MFY16/FY15/FY14/FY13 was 1.00/1.05/0.77/0.85mn litres. The company has proposed to spend Rs 116mn from its IPO proceeds to expand its sourcing network.

While current utilisation levels are high, proposed expansion will cover for growth in the next five years.



Indian dairy poised to see 15% CAGR in 2014-20 India is currently the largest producer of milk – and the dairy industry is poised to grow to Rs 9.4tn by 2020 from Rs 4.1tn in 2014 (15% CAGR), as per a report by IMARC. The organised segment (20% share by value) is poised to see a faster 20% CAGR. High-margin categories – cheese, flavoured and UHT milk, flavoured yoghurts and lassi – in which organised players like Parag have dominant share are poised to see >25% CAGR in 2014-20. Key growth drivers for the sector are – rising middle class and urban population, changing dietary patterns, acceptance of milk as a perfect health food in India, and consumer shift towards packaged milk.

Indian dairy industry: Category-wise growth prospects

Industry size in

2010 (Rs bn)

Industry size in

2014 (Rs bn)

Industry size in

2020 (Rs bn)

CAGR 2014-

2020

CAGR 2014-

2020

Liquid milk 1501 2,621 6,068 15% 15%

Ghee 345 618 1,367 16% 14%

Paneer 164 293 654 16% 14%

Curd 124 216 493 15% 15%

Butter *96 168 382 15% 15%

Skimmed milk powder 28 50 113 15% 15%

UHT milk 10 26 104 27% 26%

Buttermilk 6 14 43 23% 21%

Cream 7 13 30 16% 15%

Flavoured milk 5 13 48 26% 25%

Lassi 5 12 39 26% 21%

Cheese 5 12 59 24% 31%

Whey (powder) *1.5 3 10 20% 21%

Flavoured & Frozen Yoghurt 1 2 12 23% 32%

Total 2,298 4,061 9,397 15% 15%

Source: IMARC report; * PC estimates

Currently, cooperatives (with 55% volume share) dominate the organised sector due to their strong sourcing capabilities. However, as our March 2016 edition of Ground View magazine highlighted, while cooperatives will continue to dominate, there is huge scope for private players to grow in value-added products through superior financial management.

High-margin categories – cheese, flavoured and UHT milk, flavoured yoghurts and lassi – in which organised players like Parag Milk Foods have dominant share are poised to see >25% CAGR in 2014-20..





Operational parameters for Parag Milk Foods to improve Sales growth to remain robust in the medium term We expect Parag’s sales growth of 15%+ to continue in the medium term because of the general growth in the dairy industry and rising consumption of value-added products.

Sales growth potential is high Sales mix to improve in favour of high-margin products


We do not expect a drastic change in the portfolio mix in the medium term. The mix will gradually shift towards high-margin products such as cheese, whey, UHT, curd/buttermilk, and flavoured milk. Gross margins may not expand beyond current levels in the medium term Due to oversupply of milk globally and in India, milk procurement prices have been flattish or deflationary in the last two years. The supply glut is expected to end sometime in 2017, after which we expect prices to rise. As a result, Parag’s gross margins could slide down slightly.

Gross margins have been relatively stable Gross profit saw 24% CAGR in FY11-15


0%

5%

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15%

20%

25%

30%

35%

40%

FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Sales growth

0%

20%

40%

60%

80%

100%

FY14 FY15 FY16E FY17E FY18E

Other manufactured products

Skimmed milk powder

Whey

UHT

Cheese/Paneer

Ghee/Butter/Cream

Fresh Milk

20%

21%

22%

23%

24%

25%

26%

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Gross margins

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25%

30%

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40%

45%


Gross profit growth



EBITDA growth to accelerate due to operating leverage Sales growth should provide operating leverage and contribute positively to margins. While margins will fall slightly due to rising input costs, EBITDA growth will accelerate from FY17, and grow in teens in the medium term.

EBITDA margins have been relatively stable at 7-9% EBITDA growth to accelerate from FY17 on operating leverage


PAT to grow faster than EBITDA due to lower finance cost and higher other income With the IPO proceeds of Rs 3bn, the company will pay Rs 1bn of debt. The infusion of capital will help reduce finance costs and will also increase other income. We expect PAT to jump by 74%/24% to Rs 707/8mn in FY17/18 from Rs 260mn in FY15. From FY18 onwards, PAT should grow slightly ahead of revenue in the medium term.

PAT margins have been rising PAT growth to stabilise in mid teens from FY18


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2%

4%

6%

8%

10%


EBITDA margins

-10%

0%

10%

20%

30%

40%

50%

60%

70%


EBITDA growth

-1%

0%

1%

2%

3%

4%

5%


PAT margin

-40%

-20%

0%

20%

40%

60%

80%

FY13 FY14 FY15 FY16E FY17E FY18E

PAT growth



Working capital days to reduce very gradually in the medium term Working capital as a percentage of sales, while higher compared to pure FMCGs, will start reducing gradually led by reduction in receivables, as its retail sales portfolio expands and inventory levels reduce due to growth of non-cheese high-margin products.

Working capital/sales will stay high, unlike pure FMCG players Historical and projected working capital days


Free cash flow to see a decisive upward trend from FY18 Parag saw negative cash flow between FY11 and FY14 because of significant capex. In FY15, this parameter turned positive; we see cash flow remaining positive in FY16, turning negative in FY17 (high planned capex) and turning positive again in FY18. From FY18 onwards, most of its capacity will be in place for the next 3-5 years, and free cash flow should stay positive.

Historical and projected cash flows


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25%


WC/Sales

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60

70

80

Recievable Days Inventory days Payable Days


(1,000)

(500)

-

500

1,000

1,500

2,000

Operating cash flow Investing cash flow Financiing cash flow Free cash flow

FY14 FY15 FY16E FY17E FY18E



RoE and RoCE will stay lower than pure FMCG players Parag’s RoE and RoCE will continue to remain low, but see gradual improvement as margins and cash flow improve from FY18. Dairy players’ RoE and RoCE will stay lower than pure FMCG plays.

Historical RoE Historical RoCE


Sales Tax incentive in Maharashtra has NPV of ~ 1bn The company received sales tax incentive of Rs 239mn in FY15 from the state of Maharashtra. This benefit will be available till FY22 as per the management. As per our estimates, the current NPV of the benefits is Rs 1bn which we have adjusted from profits and valuations.

NPV of sales tax incentive is ~Rs 1bn Rs mn FY2017 FY2018 FY2019 FY2020 FY2021 FY2022

Tax refund benefit post tax 180 202 226 253 283 317 Discount rate (in %) 15% 15% 15% 15% 15% 15% PV 180 175 171 166 162 158 NPV 1,012


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45%


RoE

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12%

14%


RoCE



Comparison of financial performance of key private dairy players

Sales: have increased significantly for all key players over the years.

Historical sales growth


Gross margins: Except Kwality Dairy, which sells more of low-margin products, others have gross margins in range of 20-25%. Margins have not improved or fallen in last two years because of a fall in prices of global commodities such as skimmed milk powder. EBITDA margins: Are lower for dairy players because of higher operating expenses.

Gross margins EBITDA margins


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5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Kwality Dairy (adj.) Hatsun Agro Prabhat Dairy Parag Milk Foods

FY2011 FY2012 FY2013 FY2014 FY2015

0%

5%

10%

15%

20%

25%

30%

Kwality Dairy (adj.)

Hatsun Agro Prabhat Dairy Parag Milk Foods

FY2011 FY2012 FY2013 FY2014 FY2015

0%

2%

4%

6%

8%

10%

12%

Kwality Dairy Hatsun Agro Prabhat Dairy Parag Milk Foods

FY2011 FY2012 FY2013 FY2014 FY2015



Dairy profit margins: Are lower than those of FMCG peers, because dairy requires higher capital expenditure and higher working capital.

Profit margins


Receivable days: Except Hatsun, which has major portion of portfolio in retail, these are very high for others. Inventory days: Parag Milk Foods has high inventory days due to higher share of cheese in sales, which requires aging.

Receivables days Inventory days


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%


FY2011 FY2012 FY2013 FY2014 FY2015

-

10

20

30

40

50

60

70

80

90


FY2011 FY2012 FY2013 FY2014

-

10

20

30

40

50

60

70

80


FY2011 FY2012 FY2013 FY2014



Payable days: Parag Milk Foods has the highest bargaining power with suppliers. Free cash: Most worrisome aspect of the dairy industry is that free cash flow has been negative for most companies for many years because of capital investment and increase in receivables.

Payables days Free cash flow


Net debt and net debt/EBITDA: Very high for all four companies.

Net debt Net debt/EBITDA


-

5

10

15

20

25

30

35

40

45


FY2011 FY2012 FY2013 FY2014

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000


FY2011 FY2012 FY2013 FY2014 FY2015

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000


FY2011 FY2012 FY2013 FY2014 FY2015

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00


FY2011 FY2012 FY2013 FY2014



RoE: Most companies have seen continuous deterioration. RoCE: Poor for the entire industry due to high investment required.

RoE RoCE


0%

10%

20%

30%

40%

50%

60%

70%

80%


FY2011 FY2012 FY2013 FY2014

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


FY2011 FY2012 FY2013 FY2014



Financials

Profit & Loss

Y/E Mar, Rs mn FY13 FY14 FY15 FY16e FY17e FY18e

Net sales 8,949 10,387 13,782 14,950 17,568 20,658 Growth, % 2 16 33 8 18 18 Other income 301 496 605 421 483 555 Total income 9,250 10,883 14,387 15,370 18,051 21,213 Raw material expenses -7,375 -8,831 -11,585 -12,050 -14,315 -16,907 Employee expenses -398 -478 -575 -630 -722 -849 Other Operating expenses -644 -750 -1,164 -1,351 -1,537 -1,749 EBITDA (Core) 834 823 1,063 1,339 1,477 1,709 Growth, % 1.4 (1.3) 29.2 25.9 10.3 15.7 Margin, % 9.3 7.9 7.7 9.0 8.4 8.3 Depreciation -261 -275 -275 -322 -372 -430 EBIT 573 548 788 1,017 1,105 1,279 Growth, % (4.1) (4.4) 43.9 29.1 8.7 15.8 Margin, % 6.4 5.3 5.7 6.8 6.3 6.2 Interest paid -403 -437 -494 -459 -225 -200 Other Non-Operating Income 21 12 18 8 102 136 Non-recurring Items 0 0 0 19 19 21 Pre-tax profit 191 123 312 584 1,000 1,236 Tax provided 16 37 -53 -158 -275 -340 Profit after tax 208 160 260 426 725 896 Others (Minorities, Associates) 0 0 0 0 0 0 Net Profit 208 160 260 426 725 896 Growth, % 9.9 (23.1) 62.6 56.8 73.5 23.8 Net Profit (adjusted) 208 160 260 407 707 875 Unadj. shares (m) 16 16 16 70 84 84 Wtd avg shares (m) 16 16 16 70 84 84


Balance Sheet


Cash & bank 22 42 56 745 2,160 1,720 Marketable securities at cost 0 0 0 0 0 0 Debtors 1,473 1,635 1,715 2,463 2,447 2,647 Inventory 1,395 1,903 2,119 2,176 2,710 3,070 Loans & advances 215 422 976 511 611 711 Other current assets 363 384 506 308 308 308 Total current assets 3,467 4,386 5,372 6,203 8,235 8,456 Investments 3 3 3 3 3 3 Gross fixed assets 3,348 3,600 4,367 4,824 5,655 6,282 Less: Depreciation -914 -1,181 -1,456 -1,777 -2,149 -2,579 Add: Capital WIP 63 374 260 290 290 290 Net fixed assets 2,497 2,793 3,171 3,337 3,796 3,993 Non-current assets 947 1,047 684 676 776 876 Total assets 6,914 8,229 9,230 10,219 12,811 13,328 Current liabilities 3,680 4,377 6,043 5,454 4,690 4,532 Provisions 16 4 10 10 10 10 Total current liabilities 3,697 4,381 6,052 5,464 4,700 4,542 Non-current liabilities 2,405 2,876 1,946 1,550 1,259 1,059 Total liabilities 6,102 7,257 7,998 7,015 5,959 5,601 Paid-up capital 160 160 160 704 841 841 Reserves & surplus 653 812 1,072 2,500 6,010 6,885 Shareholders’ equity 812 972 1,232 3,204 6,851 7,726 Total equity & liabilities 6,914 8,229 9,230 10,219 12,811 13,328




Cash Flow Statement


Pre-tax profit 191 123 312 584 1,000 1,236 Depreciation 261 275 275 322 372 430 Chg in working capital -617 -399 -420 -471 -482 -557 Total tax paid -129 -5 -6 -158 -275 -340 Other operating activities 456 474 503 459 225 200 Cash flow from operating activities 163 469 665 736 841 968 Capital expenditure -560 -591 -231 -487 -831 -626 Chg in investments 0 0 0 0 0 0 Chg in marketable securities 0 0 0 0 0 0 Other investing activities -10 -6 3 8 102 136 Cash flow from investing activities -570 -593 -223 -479 -730 -490 Free cash flow -407 -125 442 257 111 478 Equity raised/(repaid) 25 0 0 -43 2,940 0 Debt raised/(repaid) 795 646 121 961 -1,291 -561 Dividend (incl. tax) 0 0 0 0 0 0 Other financing activities -413 -501 -544 -459 -225 -200 Cash flow from financing activities 407 145 -423 459 1,424 -761 Net chg in cash 0 20 19 716 1,535 -283 Opening cash balance 18 22 42 56 745 2,160 Closing cash balance 22 42 56 745 2,160 1,720


Ratio analysis


Per Share data

EPS (INR) 2.5 1.9 3.1 4.8 8.4 10.4

Growth, % 9.9 (23.1) 62.6 56.8 73.5 23.8 Book NAV/share (INR) 9.7 11.6 14.6 38.1 81.4 91.8 FDEPS (INR) 2.5 1.9 3.1 4.8 8.4 10.4 CEPS (INR) 5.6 5.2 6.4 8.4 12.6 15.3 CFPS (INR) (4.2) 0.3 14.5 2.7 7.3 8.7 DPS (INR) - - - - - - Return ratios

Return on assets (%) 7.2 5.8 6.6 7.4 7.5 7.8 Return on equity (%) 25.6 16.4 21.1 12.7 10.3 11.3 Return on capital employed (%) 16.2 12.4 16.4 18.1 13.5 12.1 Turnover ratios Asset turnover (x) 2.1 2.2 2.8 2.9 3.0 3.1 Sales/Total assets (x) 1.4 1.4 1.6 1.5 1.5 1.6 Sales/Net FA (x) 3.6 3.9 4.6 4.6 4.9 5.3 Working capital/Sales (x) (0.0) (0.0) (0.1) 0.0 0.1 0.1 Fixed capital/Sales (x) - - - - - - Receivable days 60.1 57.4 45.4 60.1 50.8 46.8 Inventory days 56.9 66.9 56.1 53.1 56.3 54.2 Payable days 40.0 45.3 49.4 37.1 36.6 34.9 Working capital days (9.6) (1.2) (19.2) 0.1 28.8 38.9 Liquidity ratios Current ratio (x) 0.9 1.0 0.9 1.1 1.8 1.9 Quick ratio (x) 0.6 0.6 0.5 0.7 1.2 1.2 Interest cover (x) 1.4 1.3 1.6 2.2 4.9 6.4 Dividend cover (x) Total debt/Equity (%) 561.0 535.4 349.0 114.0 34.5 23.3 Net debt/Equity (%) 558.3 531.1 344.5 90.7 2.9 1.0 Valuation PER (x) 91.9 119.6 73.6 46.9 27.0 21.8 PEG (x)ju - y-o-y growth 9.3 (5.2) 1.2 0.8 0.4 0.9 Price/Book (x) 23.5 19.6 15.5 6.0 2.8 2.5 Yield (%) - - - - EV/Net sales (x) 2.6 2.3 1.7 1.5 1.1 0.9 EV/EBITDA (x) 28.3 29.5 21.9 16.4 13.1 11.2 EV/EBIT (x) 41.3 44.3 29.6 21.6 17.5 15.0




Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd

250 North Bridge Road, #06-00 Raffles City Tower,

Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd

B-3-6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur

Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong

Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd

4-2 Nihonbashi Kabutocho, Chuo-ku

Tokyo 103-0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, Ocean Tower Unit 2318

Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, Vorawat Building, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc.

141 W Jackson Blvd Ste 3050

The Chicago Board of Trade Building

Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia

Level 37, 530 Collins Street

Melbourne, Victoria 3000, Australia

Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA: 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 IT Services Pharma & Speciality Chem

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768

Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996

Banking, NBFCs Infrastructure Strategy

Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947

Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 Anindya Bhowmik (9122) 6667 9764

Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap Telecom

Consumer & Retail Vikram Suryavanshi (9122) 6667 9951 Naveen Kulkarni, CFA, FRM (9122) 6667 9947

Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media Manoj Behera (9122) 6667 9973

Jubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 Technicals

Preeyam Tolia (9122) 6667 9950 Metals Subodh Gupta, CMT (9122) 6667 9762

Cement Dhawal Doshi (9122) 6667 9769 Production Manager

Vaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 Ganesh Deorukhkar (9122) 6667 9966

Economics Midcap Editor

Anjali Verma (9122) 6667 9969 Amol Rao (9122) 6667 9952 Roshan Sony 98199 72726

Engineering, Capital Goods Mid-Caps & Database Manager Sr. Manager – Equities Support

Jonas Bhutta (9122) 6667 9759 Deepak Agarwal (9122) 6667 9944 Rosie Ferns (9122) 6667 9971

Hrishikesh Bhagat (9122) 6667 9986 Oil & Gas

Sabri Hazarika (9122) 6667 9756

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976

Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747

Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745

Bhavin Shah (9122) 6667 9974

Ashka Mehta Gulati (9122) 6667 9934 Execution

Archan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/



Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.

This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.

Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No

4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report

No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.

Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.



Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.

Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.

Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for the recipient in light of the recipient’s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advice before investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducing the recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient.

For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.-regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account.

This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker-dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

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