sknl_230812

Please refer to important disclosures at the end of this report 1

1QFY2013 highlights (Standalone) Y/E March (` cr) 1QFY13 4QFY12 % chg. (qoq) 1QFY12 % chg. (yoy)

Net Sales 884 967 (8.6) 783 12.9

Operating profit 188 222 (15.6) 163 15.3

OPM (%) 21.2 23.0 (175)bp 20.8 44bp

Adj. PAT 31 57 (45.8) 36 (13.5)

Source: Company, Angel Research

S. Kumars Nationwide Ltd (SKNL) reported a mixed set of numbers for 1QFY2013. On a standalone basis, the company's top-line grew by 12.9% yoy to `884cr, in line with our estimate of `898cr for the quarter. The company’s operating margin improved marginally on a y-o-y basis by 44bp and came in at 21.2% for the quarter. The disappointment came at the PAT front on account of elevated interest and depreciation cost coupled with high tax outgo. The company’s profit saw a decline of 13.5% on a y-o-y basis and stood at `31cr, 34.2% lower our estimate of `47cr.

Consolidated segmental performance: The revenue from consumer textile grew by 11.0% yoy to `605cr (`545cr), luxury textile (primarily comprising Reid & Taylor) grew by 14.4% yoy to `279cr (`244cr), ready to wear grew by 20.4% yoy to `219cr (`182cr), home textiles grew by 8.5% yoy to `113cr (`105cr) and luxury cotton grew by 29.7% to `52cr (`40cr). However, all the segments (except the luxury cotton segment) saw a contraction in their operating margins mainly because of an increase in the raw material cost. The revenue from international business declined marginally by 1.3% yoy to `354cr (`359cr) due to the slowdown in the European and the US markets.

Outlook and valuation

We expect SKNL’s consolidated revenue to post a 14.2% CAGR to `8,290cr and profit to post a 10.9% CAGR to `486cr over FY2012-14E. Currently, at `21, SKNL (standalone) is trading at a PE of 2.6x; and on a consolidated basis, it is trading at 1.3x for FY2014E. We maintain our Buy recommendation on the stock with a revised target price of `38, based on SOTP valuation.

SOTP valuation Value of SKNL's stake in Reid & Taylor (discounted by 75%) (`cr) 654

Expected value of SKNL standalone (target PE of 2x for FY2014E) (`cr) 471

Net value of the company (SKNL standalone + Reid & Taylor) 1,125

Existing no.of shares (cr) 30

Expected CMP (`) 38


Key financials (Consolidated)

Year Sales (` cr)

OPM (%)

PAT (` cr)

EPS (`)

RoE (%)

P/E (x)

P/BV (x)

EV/ Sales (x)

EV/ EBITDA (x)

FY2013E 7,279 20.5 398 13.4 12.3 1.6 0.2 0.7 3.2

FY2014E 8,290 20.5 486 16.3 13.1 1.3 0.2 0.6 3.0 Source: Company, Angel Research

BUY CMP `21 Target Price `38

Investment Period 12 Months Stock InfoSector

Net debt (` cr) 3,762

Bloomberg Code

Shareholding Pattern (%)

Promoters 48.6

MF / Banks / Indian Fls 13.5

FII / NRIs / OCBs 26.2

Indian Public / Others 11.8

Abs.(%) 3m 1yr 3yr

Sensex 11.4 9.2 14.2

SKNL (21.6) (52.9) (58.4)

52 Week High / Low 52 / 21

TextileMarket Cap (` cr) 620

Beta 1.5

SKNL IN

Avg. Daily Volume 479,509Face Value (`) 10

BSE Sensex 17,850

Nifty 5,415

Reuters Code SKNL.BO

Tejashwini Kumari 022-39357800 Ext: 6856

[email protected]

S. Kumars Nationwide Performance Highlights

1QFY2013 Result Update | Textile

August 23, 2012

S. Kumars Nationwide | 1QFY2013 Result Update

August 23, 2012 2

Standalone 1QFY2013 performance

Exhibit 1: 1QFY2013 Performance highlights (Standalone) Y/E March (` cr) 1QFY13 4QFY12 % chg. (qoq) 1QFY12 % chg. (yoy) FY2012 FY2011 % chg

Net Sales 884 967 (8.6) 783 12.9 3,511 2,757 27.3

Net raw material 638 674 (5.3) 557 14.6 2,455.50 1,930 27.3

(% of Sales) 72.2 69.7 71.1 69.9 70.0

Employee Cost 19 35 (46.2) 17 11.7 88.45 54 64.8

(% of Sales) 2.1 3.6 2.1 2.5 1.9

Other Expenses 39 36 8.8 47 (15.7) 193.88 188 3.2

(% of Sales) 4.4 3.7 5.9 5.5 6.8

Total Expenditure 696 745 (6.6) 620 12.2 2,738 2,171 26.1

Operating Profit 188 222 (15.6) 163 15.3 773 586 32

OPM (%) 21.2 23.0 (175)bp 20.8 44bp 22.0 21.3 76bp

Interest 107 102 5.0 90 19.8 403.56 314 28.5

Depreciation 32 25 24.9 21 52.1 92.22 74 24.6

Other Income 0 (0) (333.3) 1 (71.4) 2.01 4 (47.4)

PBT 49 95 (48.2) 53 (8.3) 279 202 38.3

(% of Sales) 5.5 9.8 6.8 8.0 7.3

Tax 18 38 (51.8) 18 2.3 99.66 29 240.8

(% of PBT) 37.0 39.8 33.2 35.7 14.5

Reported PAT 31 57 (45.8) 36 (13.5) 180 173 4.0

Extraordinary Expense/(Inc.) - - - - (0)

Adjusted PAT 31 57 (45.8) 36 (13.5) 180 173 3.9

PATM 3.5 5.9 4.6 5.1 6.3

Equity capital (cr) 29.7 29.7 29.7 29.7 29.7

EPS (`) 1.0 1.9 (45.8) 1.2 (13.5) 6.0 5.8 3.9


Exhibit 2: 1QFY13 Vs. Angel estimate

Y/E March (` cr) 1QFY13 Angel est. % diff

Net sales 884 898 (1.6)

EBITDA 188 190 (1.1)

EBITDA margin (%) 21.2 21.1 11bp

Interest 107 97 10.2

Depreciation 32 25 27.9

Tax 18 21 (14.4)

% of PBT 37 31 589

Reported PAT 31 47 (34.2)


Revenues and operating margin in-line

SKNL (standalone) reported a mixed set of numbers for 1QFY2013 with revenue and EBITDA in line with our estimates. The company's top-line grew by 12.9% yoy to `884cr, in line with our estimate of `898cr for the quarter. The operating margin improved marginally by 44bp yoy to 21.2% for the quarter; however, it saw a dip of 275bp on a sequential basis, mainly because of an increase in the raw material cost as a percentage of net sales from 69.7% in 4QFY2012 to 72.2% in 1QFY2013. There was a significant decline of 148bp in the employee cost (as a percentage of net sales) on a sequential basis, mainly because of the company’s continuous effort to cut down the requirement majorly in the international operations.


August 23, 2012 3

Exhibit 3: Revenue trend


Exhibit 4: Margin improved marginally on y-o-y basis


Higher interest & depreciation cost dented profit

The interest cost for the quarter increased by 22.2% yoy to `107cr from `88cr, mainly on account of escalation in average cost of borrowed funds in line with the market rate of interest. The depreciation for the quarter also stood higher at `32cr, ie a 52.1% yoy increase, mainly because of the commencement of new plants. The tax outgo for the company in 1QFY2013 was `18cr with an effective tax rate as high as 37.0%. Consequently, the company’s profit saw a decline of 13.5% on a y-o-y basis and came in at `31cr, 34.2% lower than our estimate of `47cr.

Consolidated 1QFY2013 performance

Exhibit 5: 1QFY2013 Performance highlights (Consolidated) Y/E March (` cr) 1QFY13 4QFY12 % chg. (qoq) 1QFY12 % chg. (yoy)

Net Sales 1,617 1,716 (5.8) 1,457 11.0

Operating profit 319 375 (15.0) 292 9.1

OPM (%) 19.7 21.9 (214)bp 20.1 (34)bp

Interest 162 145 12.1 111 46.1

Depreciation 50 38 31.7 34 49.6

Tax 34 37 (7.4) 48 (28.7)

Adj. PAT 65 131 (50.6) 88 (26.6)


On a consolidated basis, SKNL reported an 11.0% yoy increase in its top-line to `1,617cr with an operating margin of 19.7%, ie a 34bp dip on a y-o-y basis. The company saw a decline in net profit by 26.6% on a y-o-y basis, which came in at `65cr.

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August 23, 2012 4

Segmental Performance (consolidated)

Exhibit 6: Segmental performance (consolidated) SBUs Q1FY13 Q1FY12 % chg. (yoy) Q4FY12 % chg. (qoq)

Consumer Textiles/Belmonte

Net Sales 605 545 11.0 668 (9.3)

EBITDA 133 123 8.5 159 (16.3)

EBITDA margin 22.0 22.5 (52)bp 23.8 (183)bp

Luxury Textiles

Net Sales 279 244 14.4 310 (10.1)

EBITDA 104 93 11.4 121 (13.7)


Ready to wear

Net Sales 219 182 20.4 267 (17.9)

EBITDA 42 37 13.6 53 (21.0)


Home Textiles

Net Sales 113 105 8.5 129 (11.7)

EBITDA 19 18 4.8 20 (6.2)

EBITDA margin 16.8 17.4 (58)bp 15.8 99 bp

Luxury Cotton

Net Sales 52 40 29.7 51 1.9

EBITDA 13 8 66.3 15 (10.9)

EBITDA margin 25.6 20.0 562 bp 29.3 (369)bp

International Business

Net Sales 354 359 (1.3) 296 19.5

EBITDA 10 22 (54.7) 10 (0.3)



The revenue from the consumer textile segment grew by 11.0% yoy to `605cr (`545cr), luxury textile (primarily comprising Reid & Taylor) grew by 14.4% yoy to `279cr (`244cr), ready to wear grew by 20.4% yoy to `219cr (`182cr), home textiles grew by 8.5% yoy to `113cr (`105cr) and luxury cotton grew by 29.7% to `52cr (`40cr). The luxury cotton segment clocked the highest growth mainly on account of an increase in capacity utilization at the Bharuch plant to 80% (70% in the 4QFY2012) and due to a strong order book. However, all the segments (except the luxury cotton segment) saw a contraction in their operating margins mainly because of an increase in the raw material cost.

The revenue from international business declined marginally by 1.3% yoy to `354cr (`359cr).The decline was mainly due to the slowdown in the European and the US markets. This segment also took a substantial hit at the EBITDA level mainly because of reduction in proportion of full price sales in HMX. On the contrary, Leggiuno delivered higher margins for the quarter. However, the management expects the margin to improve and come to ~5.5-6.0% for FY2013E as the company is taking various cost rationalizations measures, improving brand visibility and revamping product portfolio.


August 23, 2012 5

Investment arguments

Strong brand recognition

SKNL, being a multi-brand company, is very clear about differentiating its brands across segments so that brands do not end up cannibalizing each other. The company follows a strong brand ambassador-led strategy, as part of which, its major domestic brands are endorsed by big celebrities such as Amitabh Bachchan, Shahrukh Khan and Sachin Tendulkar.

The company has been spending rigorously on advertising for the recognition of its brands. In FY2011, the company spent `110cr on advertisement (including conferences, publicity and business promotion activities). We expect the company’s advertising spend to increase to `176cr by FY2014E.

The company is also gearing up for the launch of its premium casual brand, Kruger (price range: `999-4,999), competing with brands such as Tommy Hilfiger (Arvind Ltd JV) and ColorPlus (Raymond).

Overseas acquisitions to start paying off in coming years

SKNL extended its presence overseas to European and North American markets by expanding its brand portfolio to 45 leading brands, catering to various price points. SKNL acquired Leggiuno in Italy (October 2008) and HMX in the US (May 2009). The company has also signed an 80:20 JV between its wholly owned UK subsidiary, SKNL (UK) Ltd, and Louis Vuitton (LVMH) group for the global menswear license of DKNY brand.

In FY2012, the revenue from the international business stood at `1,334cr, with EBITDA margin at 4.7%. Further, we expect revenue from the international business to post a 14.5% CAGR over FY2012-14E to `1,747cr mainly backed by company’s efforts for various cost rationalizations measures, improving brand visibility and revamping product portfolio.

Reid & Taylor IPO – A potential re-rating trigger

SKNL had filed a Draft Red Herring Prospectus (DRHP) with SEBI on December 9, 2010, for the listing of Reid & Taylor (74.4% subsidiary) for an expected issue size of ~`1,000cr. However, the IPO for the same didn’t materialize due to the then prevailing unfavorable and volatile market. Going forward, if the IPO hits the market, we expect it to command a premium over SKNL’s valuation because of its strong brand name, supported by healthy financial and operational efficiency.

Well-diversified portfolio

SKNL deals in branded products across various price segments, ranging from the mass level to premium category. The company’s product portfolio ranges from fabric to ready-to-wear apparel. SKNL is also present in the home textile segment. This positioning allows the company to capitalize on the consumption patterns of all segments domestically. In addition, with its overseas acquisitions, the company is expanding its presence across the globe. The company has a strong brand portfolio of 45 owned and licensed brands, such as Reid & Taylor, Belmonte, S Kumars and Carmichael House and international names such as HMX, Hickey Freeman, Exclusively Misook, Austin Reed, Jag Jeans, Bobby Jones and DKNY.


August 23, 2012 6

Financials

SKNL (Standalone)

Exhibit 7: Assumptions

2013E 2014E

Average volume growth (%) 10.2 10.2

Average realization growth (%) 4.1 3.9

Average change in RM prices (%) 7.0 5.0

Source: Angel Research

Exhibit 8: Change in estimates

Earlier estimates Revised estimates % chg

Y/E March FY2013E FY2014E FY2013E FY2014E FY2013E FY2014E

Net sales (` cr) 4,027 4,609 4,027 4,609 - -

OPM (%) 22.1 22.1 21.1 21.2 (100)bp (89)bp

Adj. PAT (` cr) 226 275 177 236 (21.8) (14.2)


Top-line to grow at a CAGR of 14.6%

Though the management expects the revenue to grow at ~20%, we remain conservative and expect the company’s revenues to grow at a CAGR of 14.6% over FY2012-14E to `4,609cr in FY2014E. The growing demand for branded fabrics and apparels in the future with changing consumers’ preference (shift from the unorganized market towards the branded market and from textile to ready-to-wear apparel) is expected to drive growth for the company.

Also the company’s strong brand positioning and its strategically planned growth strategy, which includes – 1) rollout of additional exclusive brand outlets for Reid & Taylor (~160 stores), Kruger and Belmonte to expand their distribution and franchisee networks, 2) setting up a shirts factory to improve margins by offering readymade products, 3) scaling up capacity utilization at BSFC and 4) capacity expansion in the luxury and mid-premium textile segments, are expected to be the company’s growth drivers.

Margin to remain under pressure owing to high raw material cost

We expect the company’s operating margin to remain under pressure in the near future. The employee cost is expected to come down for the full year as the company is constantly cutting down the employee requirement in the international businesses, but the same will get offset by increase in raw material costs, thus pressurizing the operating margin. We expect the margin to be 21.1% and 21.2% for FY2013E and FY2014E respectively.


August 23, 2012 7

Exhibit 9: Sales to be driven by volume growth


Exhibit 10: Margin to remain under pressure


Profit to decline marginally in FY2013E but rebound by FY2014E

We expect the depreciation cost for the company to increase, taking into account the commencement of the suit factory at Bangalore (at the end of Q3FY2012). Also, going forward, we expect the interest cost for the company to remain elevated. However, the relative increase in interest outgo for the company is expected to come down, assuming the interest rate to be stable at 17% and debt to increase by 10% and 6% for FY2013E and FY2014E respectively. Moreover, the tax outgo for the company has increased with effective rate at 34.0%, post losing the minimum alternate tax (MAT) credit entitlement in FY2012. Consequently, we expect the profit to decline marginally to `177cr for FY2013E, but to rebound to `236cr in FY2014E.

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August 23, 2012 8

Outlook and valuation

Considering the macroeconomic condition and factoring in the 1QFY2013 performance, we have revised our operating margin and earnings downwards; however, we maintain our revenue growth. We remain positive on the company’s future growth considering its growth plans which includes - 1) rollout of additional exclusive brand outlets for Reid & Taylor (~160 stores), Kruger and Belmonte to expand its distribution and franchisee networks, 2) setting up a shirts factory to improve margins by offering readymade products, 3) scaling up capacity utilization at BSFC and 4) capacity expansion in the luxury and mid-premium textile segments. We expect SKNL’s consolidated revenue to post a 14.2% CAGR to `8,290cr and profit to post a 10.9% CAGR to `486cr over FY2012-14E.

GIC had invested `900cr in Reid & Taylor in July 2008 for a 25.6% stake, which gives a value of `2,614cr for the 74.4% stake of SKNL. On a conservative basis, discounting SKNL’s stake in Reid & Taylor by 75%, its value in Reid & Taylor would be `654cr. Assuming a PE of 2x for SKNL (standalone) for FY2014E, we get a value of `471cr. Thus, the net value of SKNL would be `1,125cr, including the stake in Reid & Taylor’s, while the company currently has a market cap of `620cr.

Currently, at `21, SKNL (standalone) is trading at a PE of 2.6x; and on a consolidated basis, it is trading at 1.3x for FY2014E.

We maintain our Buy recommendation on the stock with a revised target price of `38, based on SOTP valuation.

Exhibit 11: SOTP valuation of JLL GIC investment in Reid & Taylor (` cr) 900

GIC's Stake 25.6

SKNL's stake in Reid & Taylor (%) 74.4

Value of SKNL's stake in Reid & Taylor (` cr) 2,614

Value after discounting stake by 75% (` cr) 654

SKNL's Standalone PAT (FY2014E) (` cr) 236

Target PE (x) 2

Expected Mcap (` cr) 471

Net value of the company (SKNL standalone + Reid & Taylor value) 1,125

Existing no.of shares (cr) 30

SKNL's current Mcap (` cr) 620

CMP 21

Expected CMP (`) 38

Upside (%) 81



August 23, 2012 9

Exhibit 12: One-year forward PE band


Exhibit 13: Comparative analysis

Company Year end Mcap (` cr)

Sales (` cr)

OPM (%)

PAT (` cr)

EPS (`)

RoE (%)

P/E (x)

P/BV (x)

EV/Sales (x)

EV/EBITDA (x)

SKNL - Standalone FY2013E 620 4,027 21.1 177 6.0 10.9 3.5 0.4 0.7 3.2

FY2014E 620 4,609 21.2 236 7.9 13.2 2.6 0.3 0.6 3.0

SKNL - Consolidated FY2013E 620 7,279 20.5 398 13.4 12.3 1.6 0.2 0.7 3.2

FY2014E 620 8,290 20.5 486 16.3 13.1 1.3 0.2 0.6 3.0

Alok Industries* FY2013E 1,272 11,730 25.0 546 6.6 14.8 2.3 0.4 1.2 4.7

FY2014E 1,272 12,855 24.4 673 8.1 17.5 1.9 0.3 1.1 4.4

Arvind Ltd.* FY2013E 1,771 5,302 12.8 273 10.6 12.5 6.4 0.8 0.7 5.4

FY2014E 1,771 5,901 13.3 364 14.1 14.3 4.8 0.7 0.6 4.7

Raymond* FY2013E 2,196 4,091 12.9 174 28.4 12.0 12.9 1.5 0.8 6.1

FY2014E 2,196 4,628 13.3 228 37.1 14.2 9.8 1.3 0.7 5.2

Source: Company, Angel Research, * Bloomberg estimates

Concerns

Economic slowdown

According to industry reports, the domestic textile and apparel market is expected to post a CAGR of 11% to UD$220bn over FY2010-20E, mainly driven by increasing disposable incomes and awareness in the mass market about branded fabrics and garments. However, any slowdown in the economy may adversely affect demand and hence the company’s revenue.

Further postponement of Reid & Taylor IPO

SKNL had filed DRHP with SEBI on December 9, 2010, for the listing of Reid & Taylor. However, the IPO for the same didn’t materialize due to the then prevailing unfavorable and volatile market condition. If the IPO is delayed further, it may be a concern for the company as Reid & Taylor’s IPO is a major re-rating trigger for SKNL.

High net debt to equity level

Owing to the acquisitions and expansion activities, the net debt to equity for SKNL (consolidated) has been at high levels in previous years. However, the management expects the debt level to come down in the coming years as the investments start yielding profits. However, if that doesn’t happen, it may be a concern for the company going forward.

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August 23, 2012 10

Company background

S Kumars Nationwide Ltd

SKNL is one of the leading textile and apparel companies in India, which is involved in the manufacturing, marketing and distribution of polyester blended suitings, worsted suitings, workwear fabric, home textiles and ready-to-wear garments. The company’s main growth drivers include its strong brand positioning, diverse product portfolio that caters to all socioeconomic segments, vertically integrated business model, presence across the value chain and contemporary product offerings. SKNL is a market leader in the uniforms segment, with a 30% market share. In addition, the company is the second largest player in the worsted suiting segment. Further, SKNL is one of the largest institutional suppliers of textiles to defense and police forces in India. The company is also a leader in the formal wear segment in North America with popular brands, Coppley, HMX and Hickey Freeman.

Reid & Taylor

Reid & Taylor, a 74.4% subsidiary of SKNL, is the flagship brand of the company. The remaining 25.6% is owned by the Government of Singapore Investment Corporation (Ventures) Pte Ltd (GIC). In July 2008, GIC invested `900cr in Reid & Taylor for its stake, which gives a value of `2,614cr to SKNL’s stake.

Reid & Taylor covers premium and super premium fabrics, such as worsted, all-wool and wool polyester blended suitings, which cater to the premium and super premium markets, as well as ready-to-wear garments that focus on the formal wear part of the premium segment. The apparel range includes formal and casual daywear suits, jackets, trousers, ties and other accessories along with a wide range of t-shirts, jeans and other weekend wear. According to CARE Research, Reid & Taylor has a ~24% share (in 2010) of the worsted fabrics market in India.


August 23, 2012 11

Profit and Loss (Standalone)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013E FY2014E

Net Sales 2,155 2,757 3,511 4,027 4,609

Other operating income - - - - -

Total operating income 2,155 2,757 3,511 4,027 4,609

% chg 39.0 28.0 27.3 14.7 14.5

Net Raw Materials 1,547 1,930 2,456 2,869 3,278

% chg 32.8 24.7 27.3 16.9 14.2

Other Mfg costs 31 58 63 72 83

% chg 29.9 88.1 9.0 14.7 14.5

Personnel 41 54 88 93 106

% chg 43.0 30.8 64.8 4.7 14.5

Other 113 130 131 145 166

% chg 31.9 14.4 0.7 11.0 14.5

Total Expenditure 1,733 2,171 2,738 3,179 3,633

EBITDA 422 586 773 848 976

% chg 71.2 38.9 31.9 9.7 15.2

(% of Net Sales) 19.6 21.3 22.0 21.1 21.2

Depreciation & Amortisation 42 74 92 128 141

EBIT 380 512 681 719 835

% chg 72.9 34.7 32.9 5.7 16.1

(% of Net Sales) 17.7 18.6 19.4 17.9 18.1

Interest & other Charges 244 314 404 454 481

Other Income 5 4 2 2 3

(% of Net Sales) 0.2 0.1 0.1 0.1 0.1

Recurring PBT 137 198 277 266 354

% chg 69.2 44.9 39.9 (4.1) 33.3

PBT (reported) 142 202 279 268 357

Tax 36 29 100 91 121

(% of PBT) 25.2 14.5 35.7 34.0 34.0

PAT (reported) 106 173 180 177 236

Extraordinary Expense/(Inc.) (4) (0) - - -

ADJ. PAT 110 173 180 177 236

% chg 1,008.2 57.7 3.9 (1.4) 33.1

(% of Net Sales) 5.1 6.3 5.1 4.4 5.1

Basic EPS (`) 4.6 6.1 6.0 6.0 7.9

Fully Diluted EPS (`) 4.6 6.1 6.0 6.0 7.9

% chg 946.7 30.9 (0.5) (1.4) 33.1


August 23, 2012 12

Balance Sheet (Standalone)


SOURCES OF FUNDS

Equity Share Capital 313 337 350 350 350

Reserves& Surplus 765 1,175 1,208 1,344 1,539

Shareholder’s Funds 1,077 1,512 1,557 1,694 1,889

Total Loans 2,366 2,226 2,426 2,668 2,828

Other Long Term Liabilities - 0 0 0 0

Long Term Provisions - 1 1 1 1

Deferred Tax (Net) 17 27 40 40 40

Total Liabilities 3,460 3,766 4,025 4,403 4,758

APPLICATION OF FUNDS

Gross Block 881 1,068 1,487 1,710 1,881

Less: Acc. Depreciation 230 304 396 524 665

Less: Impairment - - - - -

Net Block 651 764 1,091 1,186 1,216

Capital Work-in-Progress 564 55 24 74 124

Lease adjustment - - - - -

Goodwill - - - - -

Investments 426 504 517 517 517

Long Term Loans and advances - 493 585 585 585

Other Non-current asset - 205 48 48 48

Current Assets 2,229 2,550 2,901 3,213 3,663

Cash 46 21 11 30 27

Loans & Advances 427 355 206 262 300

Inventory 726 941 1,162 1,355 1,546

Debtors 1,030 1,189 1,494 1,539 1,761

Other current assets - 45 28 28 28

Current liabilities 409 805 1,141 1,220 1,393

Net Current Assets 1,819 1,745 1,760 1,994 2,269

Misc. Exp. not written off - - - - -

Total Assets 3,460 3,766 4,025 4,403 4,758


August 23, 2012 13

Cash Flow (Standalone)


Profit before tax 142 202 279 268 357

Depreciation 42 74 92 128 141

Change in Working Capital (260) 49 (25) (215) (277)

Direct taxes paid (36) (29) (100) (91) (121)

Others 148 (424) (2) (2) (3)

Cash Flow from Operations 36 (129) 245 88 97

(Inc.)/Dec. in Fixed Assets (156) 323 (388) (273) (221)

(Inc.)/Dec. in Investments (219) (78) (13) - -

(Inc.)/Dec. in LT loans & adv. - 698 (65) - -

Others (8) (1,188) 2 2 3

Cash Flow from Investing (384) (246) (464) (271) (218)

Issue of Equity 3 24 12 - -

Inc./(Dec.) in loans 428 (140) 200 243 160

Dividend Paid (Incl. Tax) - (39) (41) (41) (41)

Others (79) 504 38 - -

Cash Flow from Financing 351 349 210 202 119

Inc./(Dec.) in Cash 3 (25) (10) 19 (2)

Opening Cash balances 43 46 21 11 30

Closing Cash balances 46 21 11 30 27


August 23, 2012 14

Key Ratios (Standalone)

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E

Valuation Ratio (x)

P/E (on FDEPS) 5.7 3.6 3.5 3.5 2.6

P/CEPS 4.1 2.5 2.3 2.0 1.6

P/BV 0.6 0.4 0.4 0.4 0.3

EV/Net sales 1.2 0.8 0.7 0.7 0.6

EV/EBITDA 6.0 4.0 3.3 3.2 3.0

EV / Total Assets 0.7 0.6 0.6 0.6 0.6

Per Share Data (`)

EPS (Basic) 4.6 6.1 6.0 6.0 7.9

EPS (fully diluted) 4.6 6.1 6.0 6.0 7.9

Cash EPS 6.4 8.7 9.1 10.3 12.7

DPS - 1.0 1.0 1.0 1.0

Book Value 45.6 53.1 52.4 57.0 63.5

DuPont Analysis

EBIT margin 17.7 18.6 19.4 17.9 18.1

Tax retention ratio 0.7 0.9 0.6 0.7 0.7

Asset turnover (x) 0.9 0.9 1.0 1.1 1.1

ROIC (Post-tax) 11.8 13.9 12.8 12.7 13.6

Cost of Debt (Post Tax) 8.5 11.7 11.2 11.8 11.5

Leverage (x) 1.8 1.1 1.2 1.3 1.2

Operating ROE 17.7 16.3 14.7 13.8 16.1

Returns (%)

ROCE (Pre-tax) 11.0 13.7 17.1 16.5 17.7

Angel ROIC (Pre-tax) 15.8 16.2 19.8 19.2 20.6

ROE 11.0 13.3 11.7 10.9 13.2

Turnover ratios (x)

Asset TO (Gross Block) 2.8 2.8 2.7 2.5 2.6

Inventory / Net sales (days) 110 110 109 114 115

Receivables (days) 158 147 139 139 139

Payables (days) 73 102 130 140 140

WC cycle (ex-cash) (days) 278 231 181 168 167

Solvency ratios (x)

Net debt to equity 1.8 1.1 1.2 1.3 1.2

Net debt to EBITDA 4.5 2.9 2.5 2.5 2.3

Int. Coverage (EBIT/ Int.) 1.6 1.6 1.7 1.6 1.7


August 23, 2012 15

Profit and Loss (Consolidated)


Net Sales 3,838 5,180 6,355 7,279 8,290

Other operating income - - - - -

Total operating income 3,838 5,180 6,355 7,279 8,290

% chg 69.8 35.0 22.7 14.6 13.9

Net Raw Materials 2,316 2,971 3,738 4,333 4,934

% chg 58.5 28.3 25.8 15.9 13.9

Other Mfg costs 124 187 203 232 260

% chg 57.6 50.8 8.9 14.1 12.2

Personnel 313 506 584 659 756

% chg 328.4 61.5 15.5 13.0 14.6

Other 338 487 492 564 642

% chg 84.9 44.1 1.0 14.6 13.8

Total Expenditure 3,091 4,151 5,017 5,788 6,592

EBITDA 747 1,029 1,337 1,491 1,698

% chg 60.7 37.9 29.9 11.5 13.9

(% of Net Sales) 19.5 19.9 21.0 20.5 20.5

Depreciation & Amortisation 81 125 148 207 230

EBIT 665 905 1,190 1,284 1,468

% chg 58.3 36.0 31.5 7.9 14.3

(% of Net Sales) 17.3 17.5 18.7 17.6 17.7

Interest & other Charges 264 390 533 599 641

Other Income 23 43 10 11 13

(% of Net Sales) 0.6 0.8 0.2 0.2 0.2

Recurring PBT 401 515 656 685 827

% chg 45.7 28.4 27.4 4.4 20.7

PBT (reported) 425 558 666 696 839

Tax 147 165 195 226 272

(% of PBT) 34.7 29.6 29.3 32.4 32.4

PAT (reported) 277 392 471 471 567

Minority interest 48 62 76 72 81

PAT after MI 229 331 395 398 486

Extraordinary Expense/(Inc.) (3) (1) - - -

ADJ. PAT 232 332 395 398 486

% chg 73.5 43.0 19.1 0.8 22.0

(% of Net Sales) 6.0 6.4 6.2 5.5 5.9

Basic EPS (`) 9.8 11.6 13.3 13.4 16.3

Fully Diluted EPS (`) 9.8 11.6 13.3 13.4 16.3

% chg 63.8 18.7 14.1 0.8 22.0


August 23, 2012 16

Balance Sheet (Consolidated)


SOURCES OF FUNDS

Equity Share Capital 313 337 350 350 350

Reserves& Surplus 1,855 2,401 2,674 3,097 3,616

Equity Share Warrants 13 33 - - -

Equity Application Money 6 6 - - -

Shareholders’ Funds 2,188 2,777 3,023 3,447 3,965

Minority Interest 337 411 487 507 589

Total Loans 2,759 2,999 3,795 4,197 4,510

Other Long Term Liabilities - 2 0 0 0

Long Term Provisions - 34 3 3 3

Deferred Tax (Net) 150 75 103 103 103

Total Liabilities 5,434 6,297 7,411 8,257 9,170

APPLICATION OF FUNDS

Gross Block 1,573 1,839 2,615 3,004 3,345

Less: Acc. Depreciation 376 490 638 845 1,075

Less: Impairment - - - - -

Net Block 1,196 1,349 1,977 2,159 2,270

Capital Work-in-Progress 783 59 247 497 647

Lease adjustment - - - - -

Goodwill 125 125 125 125 125

Investments 1 1 1 1 1

Long Term Loans and advances - 782 931 931 931

Other Non-current asset - 225 50 50 50

Current Assets 4,077 4,882 5,728 6,197 7,074

Cash 132 82 32 55 81

Loans & Advances 921 1,194 1,175 1,346 1,575

Inventory 1,307 1,586 2,023 2,239 2,503

Debtors 1,717 1,968 2,459 2,518 2,876

Other current assets - 53 39 39 39

Current liabilities 748 1,126 1,647 1,703 1,928

Net Current Assets 3,329 3,756 4,081 4,493 5,146

Misc. Exp. not written off - 0 0 0 0

Total Assets 5,434 6,297 7,411 8,257 9,170


August 23, 2012 17

Cash Flow (Consolidated)


Profit before tax 349 425 558 666 696

Depreciation 44 81 125 148 207

Change in Working Capital (727) (1,029) (478) (374) (390)

Direct taxes paid (153) (147) (165) (195) (226)

Others 114 550 (305) (10) (11)

Cash Flow from Operations (374) (120) (266) 235 277

(Inc.)/Dec. in Fixed Assets (517) (862) 458 (964) (640)

(Inc.)/Dec. in Investments (2) 2 0 (0) -

(Inc.)/Dec. in LT loans & adv. - - 1,007 (27) -

Others 60 389 (1,831) (138) 11

Cash Flow from Investing (459) (470) (366) (1,129) (629)

Issue of Equity (70) 3 24 12 -

Inc./(Dec.) in loans 409 955 240 797 402

Dividend Paid (Incl. Tax) - - (39) (41) (41)

Others 591 (344) 357 76 14

Cash Flow from Financing 931 613 582 844 375

Inc./(Dec.) in Cash 98 23 (50) (50) 23

Opening Cash balances 11 109 132 82 32

Closing Cash balances 109 132 82 32 55


August 23, 2012 18

Key Ratios (Consolidated)

Y/E March FY2010 FY2011 FY2012 FY2013E FY2014E

Valuation Ratio (x)

P/E (on FDEPS) 2.7 1.9 1.6 1.6 1.3

P/CEPS 2.0 1.4 1.1 1.0 0.9

P/BV 0.3 0.2 0.2 0.2 0.2

EV/Net sales 0.8 0.7 0.7 0.7 0.6

EV/EBITDA 4.3 3.4 3.3 3.2 3.0

EV / Total Assets 0.6 0.6 0.6 0.6 0.6

Per Share Data (`)

EPS (Basic) 9.8 11.6 13.3 13.4 16.3

EPS (fully diluted) 9.8 11.6 13.3 13.4 16.3

Cash EPS 13.2 16.0 18.2 20.3 24.1

DPS - 1.0 1.0 1.0 1.0

Book Value 92.5 97.4 101.7 115.9 133.3

DuPont Analysis

EBIT margin 17.3 17.5 18.7 17.6 17.7

Tax retention ratio 0.7 0.7 0.7 0.7 0.7

Asset turnover (x) 0.9 0.9 0.9 1.0 1.0

ROIC (Post-tax) 10.2 10.7 12.2 11.6 12.1

Cost of Debt (Post Tax) 7.6 9.5 11.1 10.1 9.9

Leverage (x) 1.2 1.0 1.2 1.2 1.1

Operating ROE 13.5 11.9 13.5 13.4 14.4

Returns (%)

ROCE (Pre-tax) 12.6 14.5 16.3 15.7 16.2

Angel ROIC (Pre-tax) 15.7 15.2 17.2 17.2 17.9

ROE 12.1 13.4 13.6 12.3 13.1

Turnover ratios (x)

Asset TO (Gross Block) 3.2 3.0 2.9 2.6 2.6

Inventory / Net sales (days) 101 102 104 107 104

Receivables (days) 139 130 127 125 119

Payables (days) 72 82 101 106 101

WC cycle (ex-cash) (days) 304 259 233 223 223

Solvency ratios (x)

Net debt to equity 1.2 1.0 1.2 1.2 1.1

Net debt to EBITDA 3.5 2.8 2.8 2.8 2.6

Int. Coverage (EBIT/ Int.) 2.5 2.3 2.2 2.1 2.3


August 23, 2012 19

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement S. Kumars Nationwide

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors. Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%)

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