10,750 morning insight

JULY 19, 2018

Morning Insight

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The

views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group

of Kotak Securities Limited.

News Highlights

Domestic airlines registered 18.4% growth in passengers flown during

June compared to that a year ago, data released by the aviation regulator

showed. (ET)

The government decided to increase the minimum price sugar mills pay

cane growers by Rs 20 per quintal to Rs 275 per quintal for the 2018-19

marketing year starting October. (BL)

The government has decided to drop the controversial Financial

Resolution and Deposit Insurance (FRDI) Bill, thus allowing bank

customers to breath easy. (BL)

Bharti Airtel is in talks with Warburg Pincus to raise as much as $1.5

billion by divesting up to 15% stake in its holding company for African

operations Bharti Airtel International (Netherlands) BV. This will be

followed up by listing that will help the company repay some of its debt

and fend off competition in Indian market. (ET)

Daiichi Sankyo has approached the Delhi high court to block the $1 billion

sale of Fortis Healthcare to Malaysian group IHH Bhd while it enforces

an arbitration award against the former promoters of the Indian hospital

chain. (ET)

Reliance Industries Ltd. plans to raise about Rs 400 billion ($5.8 billion)

in fresh debt this financial year as it expands its consumer businesses. The

company will raise funds through loans and bonds, mostly in the Indian

currency. (BS)

The Union Cabinet eased the policies related to hydrocarbon exploration

further by relaxing production sharing contracts (PSC) of Pre-New

Exploration Licensing Policy (Nelp) and Nelp blocks. This includes giving

relief to companies like ONGC and Oil India (OIL) on sharing royalty and

cess in pre-Nelp exploration blocks. (BS)

Sun Pharmaceutical Industries announced that it received the first

product approval from the US drug regulator filed from the Halol facility

(Gujarat), after the facility was cleared last month. It received the nod for

an oncology injectable Infugem to be manufactured at the Gujarat facility.

(BS)

Cipla is taking the acquisition and product in-licensing route to

consolidate its business in Africa, the company’s second-largest market

after India. (BS)

DCB Bank is planning to focus on its retail and small and medium

enterprises businesses, and it believes that credit demand is now picking

up in these sectors. (BL)

Indian Overseas Bank has received a communication from Government

of India regarding capital infusion of Rs.21.57 bn towards contribution of

the Central Government in the preferential allotment of equity shares of

the Bank during FY19. (BL)

What’s Inside

Result Update: Ashok Leyland Ltd, GHCL Ltd, Tata Sponge Iron Ltd, NIIT

Technologies Ltd

Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, IE =

Indian Express, BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange,

MC = Moneycontrol

Equity

18-Jul 1 Day 1 M th 3 M ths

Indian Indices

SENSEX Index 36,373 (0.4) 2.3 5.9

NIFTY Index 10,980 (0.3) 1.7 4.3

NSEBANK Index 26,881 (0.5) 1.8 7.1

NIFTY 500 Index 9,270 (0.5) (0.5) (0.5)

CNXMcap Index 18,018 (1.0) (3.9) (9.2)

BSESMCAP Index 15,815 (0.9) (6.0) (12.5)

World Indices

Dow Jones 25,199 0.3 2.0 2.2

Nasdaq 7,854 (0.0) 1.7 8.5

FTSE 7,676 0.7 1.0 4.7

NIKKEI 22,794 0.4 2.8 3.2

Hangseng 22,794 0.4 2.8 3.2

Shanghai 28,117 (0.2) (4.1) (7.9)

Value traded (Rs cr)

Cash BSE 23.5

Cash NSE 4.7

Derivatives 220.5

Net inflows (Rs cr) 17-Jul M T D Y T D

FII (585) (2,353) (7,192)

Mutual Fund (29) 3,625 72,228

Nifty Gainers & Losers P rice Chg V ol

18-Jul (Rs) (%) (mn)

Gainers

Indiabulls Housing 1,200 4.1 2.9

ONGC 160 2.7 16.6

BPCL 402 2.5 6.7

Losers

Tata Steel 504 (5.3) 16.5

Hindalco Ind 212 (3.2) 7.5

Vedanta 204 (3.1) 7.9

Advances / Declines (BSE)

18-Jul A B T T otal % total

Advances 106 312 52 470 100

Declines 278 750 81 1,109 236

Unchanged 5 20 14 39 8

Commodity

18-Jul 1 Day 1 M th 3 M ths

Crude (US$/BBL) 72.8 (0.2) (3.1) (1.4)

Gold (US$/OZ) 1,228 (0.0) (3.9) (9.0)

Silver (US$/OZ) 15.6 (0.1) (5.0) (10.2)

Debt / forex market 18-Jul 1 Day 1 M th 3 M ths

10 yr G-Sec yield % 7.8 7.7 7.9 7.5

Re/US$ 68.6 68.5 68.0 65.7

Nifty

Source: Bloomberg

% Chg

2,392,879

% Chg

% Chg Day18-Jul

2,937

29,631

9,400

9,850

10,300

10,750

11,200

Jul-17 Oct-17 Jan-18 Apr-18 Jul-18

Kotak Securities – Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2

JULY 19, 2018

ASHOK LEYLAND LTD (ALL)

PRICE RS.111 TARGET RS.128 BUY

In 1QYF19, ALL reported robust revenue and earnings growth over same

quarter last year. During the quarter, volumes grew by 48% and EBITDA

margins witnessed strong expansion. Operating performance came in better

than our estimate.

Key Highlights

Revenue in the quarter grew by 47% YoY on strong volume growth. We note that

1QFY18 witnessed significantly weak volumes on account of BSIV transition and

GST implementation. EBITDA for the quarter increased by 112% YoY, supported

by 48% volume growth and margin expansion. PAT for the quarter came in at

Rs3.7bn as against Rs1.1bn in 1QFY18 and was ahead of our estimate of Rs3.3bn.

Outlook and Valuation

New norms announced by the government on load carrying capacity of trucks is

expected to impact truck demand in the near term. Over the medium to long term

(6-12months), impact of this move on truck demand will to a large extent depend

on the implementation of overloading ban. We lower our FY19/FY20 estimates on

account of expected impact on demand. We revise our target price lower to Rs128

(earlier Rs160) on earnings downgrade and assigning of lower PE multiple on

account of truck demand impact from new norms for truck load carry. Given

adequate upside from recent sharp correction in the stock price, we rate the stock

as BUY. We believe the stock could remain volatile and under pressure in the near

term due to possible near term dip in demand.

Key Risk

Due to lack of full clarity on new axle weight norms, there exist further downside

risk to our volume assumption. Lower volumes can negatively impact EBITDA

margins. Accordingly earnings could have further downside risk.

Quarterly performance

(Rs mn) 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%)

Total Revenues 62,501 42,579 46.8 87,725 (28.8)

Total expenditure 56,026 39,518 41.8 77,398 (27.6)

RM consumed 43,511 29,415 47.9 63,061 (31.0)

Employee cost 4,930 4,217 16.9 4,549 8.4

Other expenses 7,584 5,885 28.9 9,788 (22.5)

EBITDA 6,475 3,061 111.6 10,327 (37.3)

EBITDA margin (%) 10.4 7.2 - 11.8 -

Depreciation 1,430 1,321 8.3 1,463 (2.2)

Interest cost 116 366 (68.4) 201 (42)

Other Income 500 384 30.2 577 (13.4)

Exchange gain / (loss) (63) (27) 59

Exceptional income/(loss) (147) (126) - 0 -

PBT 5,220 1,605 225.3 9,299 (43.9)

PBT margins (%) 8.4 3.8 - 10.6 -

Tax 1,519 492 208.4 2,626 (42.2)

Tax rate (%) 29.1 30.7 - 28.2 -

Reported PAT 3,701 1,112 232.7 6,674 (44.5)

PAT margins (%) 5.9 2.6 - 7.6 -

Reported EPS (Rs) 1.3 0.4 232.7 2.3 (44.5)

Source: Company

Financial Summary

Y/E Mar (Rs mn) FY18 FY19E FY20E

Sales 262,479 297,661 324,932

Growth (%) 31.1 13.4 9.2

EBITDA 27,390 31,006 34,156

EBITDA margin (%) 10.4 10.4 10.5

Adj. Net profit 15,709 18,668 20,794

Adj. EPS (Rs) 5.4 6.4 7.1

Growth (%) 4.9 18.8 11.4

Book value (Rs/share) 24 28 32

Dividend per share (Rs) 2.4 2.4 2.4

ROE (%) 23.6 24.3 23.7

ROCE (%) 28.3 32.1 32.4

P/E (x) 20.8 17.4 15.6

EV/EBITDA (x) 10.7 9.4 8.3

P/BV (x) 4.5 4.0 3.5

Source: Company

Market cap (Rs mn) : 323591

52-wk Hi/Lo (Rs) : 168 / 99

Face Value (Rs) : 1

3M Avg. daily volume : 18,127,120

Shares o/s (m) : 2927

Source: Bloomberg

Result Update

Stock Details

(%) 1M 3M 6M

Ashok Leyland (20.4) (26.0) (8.6)

Nifty 1.7 4.3 1.5

Source: Bloomberg

Source: Bloomberg

Price chart

Price Performance (%)

90

110

130

150

170

Jul-17 Nov-17 Mar-18 Jul-18

Arun Agarwal

[email protected]

+91 22 6218 6443


JULY 19, 2018

ALL’s revenue in 1QFY19 grew by 47% YoY, from Rs42.6bn in 1QFY18 to Rs62.5bn.

In 1QFY19, ALL reported 48% YoY growth in volumes. We note that 1QFY18

witnessed significantly weak volumes on account of BSIV transition and GST

implementation. Average selling price in the quarter was down marginally. In the

quarter, ALL saw its MHCV segment market share decline from 34.7% in 1QFY18

to 30.2%. In 1QFY19, ALL derived 62% revenues from domestic truck segment, 9-

10% from domestic bus and 9% from exports. Spare business grew by 28% YoY

in 1QFY19. In comparison with 4QFY18, decline in revenue was on account of

seasonal nature of business.

EBITDA for the quarter increased from Rs3.06bn in 1QFY18 to Rs6.48bn in 1QFY19.

Increase in EBITDA was on account of 48% volume growth and margin expansion.

EBITDA margin increased from 7.2% in 1QFY18 to 10.4% in 1QFY19, led by

operating leverage from high volumes and improvement in Hinduja Foundry

performance. Gross margin in the quarter improved sequentially and that came

as a positive surprise. Management highlighted that price hikes taken in April

2018 and product mix led contributed towards QoQ improvement in gross

margin.

Interest cost declined YoY due to lower debt. Other income increase can be

attributed to higher investible surplus. Exceptional loss relates to impairment

allowance on loans / provision for obligation related to a subsidiary. PAT for the

quarter came in at Rs3.7bn as against Rs1.1bn in 1QFY18 and was ahead of our

estimate of Rs3.3bn.

New norms for load carry

Ministry of Road Transport and Highways, through a notification announced

increase in load bearing capacity for trucks in India. Depending on the number of

axles and tyres in the truck, the increase in the capacity is in the range of 10-25%.

With this move truck operators will be able to carry additional freight on a similar

tonnage trucks. However, the impact of this move on truck demand will depend

on two factors – Firstly, the move applicable only to future new registrations or

will cover the existing truck fleet operating in the country (media reports suggest

that the move is retrospective). Secondly, given overloading prevalent in the

country, strict implementation of overloading ban will be the key for arresting any

significant fall in truck demand.

Management indicated that if the move is prospective, it will be positive for the

industry. However, if the demand is with retrospective effect, safety of existing

vehicles will be an issue. Given high overloading in trucks, company is not

expecting severe impact on demand. In fact, management expects that if ban on

overloading is enforced strictly, certain segment like tippers will see increase in

demand. Management expects that with new norms on gross vehicle weight

(GVW), changes / modifications need to be made to steering, transmission,

chassis, brakes and tyres. These changes can take 4-8 weeks and then another 3-

4 weeks is required for getting approval from ARAI.

While there is still clarity required on the new norms, management expects that

demand over the next 2 months can witness decline.


JULY 19, 2018

Outlook

New norms announced by the government on load carrying capacity of trucks is

expected to impact truck demand in the near term. Over the medium to long term

(6-12months), impact of this move on truck demand will to a large extent depend

on the implementation of overloading ban.

We lower our FY19/FY20 estimates on account of expected impact on demand.

We revise our target price lower to Rs129 (earlier Rs160) on earnings downgrade

and assigning of lower PE multiple on account of truck demand impact from new

norms for truck load carry. We value the stock at a PE of 18x (earlier valued at

20x). Given adequate upside from recent sharp correction in the stock price, we

rate the stock as BUY. We believe the stock could remain volatile and under

pressure in the near term due to possible near term dip in demand.

Key Risk

Due to lack of full clarity on new axle weight norms, there exist further downside

risk to our volume assumption. Lower volumes can negatively impact EBITDA

margins. Accordingly earnings could have further downside risk.

Change in estimates

FY19E FY20E

(Rs mn) Old New % chg Old New % chg

Revenues 306,560 297,661 (2.9) 343,805 324,932 (5.5)

EBITDA margin (%) 10.7 10.4 11.0 10.5

Reported PAT 19,605 18,668 (4.8) 23,360 20,794 (11.0)

Source: Kotak Securities - Private Client Research

Company Background

Ashok Leyland (ALL), is the flagship entity of Hinduja Group and is the second

largest medium and heavy commercial vehicle (M&HCV) manufacturer in India

with 34% market share. ALL is also present in the light commercial vehicle

segment (LCV) with 8% market share. Apart from this, the company has power

solutions and defence business. ALL’s domestic manufacturing plants are at

Ennore, Sriperumbudur and Hosur, (Tamilnadu); Bhandara, Maharashtra; Alwar,

Rajasthan; and Pantnagar, Uttarakhand.


JULY 19, 2018

Financials: Standalone

Profit and Loss Statement (Rs mn)

(Year-end March) FY17 FY18 FY19E FY20E

Revenues 200,187 262,479 297,661 324,932

% change YoY 5.7 31.1 13.4 9.2

EBITDA 22,025 27,390 31,006 34,156

% change YoY (2.3) 24.4 13.2 10.2

Depreciation 5,179 5,546 6,085 6,768

EBIT 16,846 21,844 24,921 27,388

% change YoY (4.6) 29.7 14.1 9.9

Net interest 1,554 1,312 585 315

Other Income 1,517 1,902 2,333 2,633

Exceptional income/(loss) (3,508) (126) - -

Profit before tax 13,301 22,307 26,669 29,706

% change YoY 60.9 67.7 19.6 11.4

Tax 1,070 6,681 8,001 8,912

as % of PBT 8.0 30.0 30.0 30.0

Profit after tax 12,231 15,626 18,668 20,794

Adjusted PAT 14,564 15,709 18,668 20,794

% change YoY 29.7 7.9 18.8 11.4

Shares outstanding (m) 2,846 2,927 2,927 2,927

Adjusted EPS (Rs) 5.1 5.4 6.4 7.1

DPS (Rs) 1.6 2.4 2.4 2.4

Source: Company, Kotak Securities – Private Client Research

Cash flow Statement


EBIT 16,846 21,844 24,921 27,388

Depreciation 5,179 5,546 6,085 6,768

Change in working capital 44 22,771 (2,618) 1,559

Chg in other net current asset 2,751 8,702 (442) (673)

Operating cash flow 24,820 58,863 27,946 35,042

Interest (1,554) (1,312) (585) (315)

Tax (3,092) (4,966) (8,001) (8,912)

Other Income 1,517 1,902 2,333 2,633

EO income (3,508) (126) - -

Others (6,882) 131 - -

Cash flow from operations 11,301 54,491 21,693 28,448

Capex (8,267) (7,534) (7,500) (7,500)

(Inc)/dec in investments (8,985) (29,238) (3,432) (3,500)

CF from investments (17,252) (36,772) (10,932) (11,000)

Proceeds from issue of equities - 81 - -

Increase/(decrease) in debt (2,701) (11,425) (4,923) (1,000)

Proceeds from share premium 5,095 45 - -

Dividends (3,254) (5,496) (8,585) (8,585)

Cash flow from financing (860) (16,795) (13,508) (9,585)

Opening cash 15,931 9,120 10,044 7,296

Closing cash 9,120 10,044 7,296 15,159


Balance sheet (Rs mn)


Cash and cash equivalents 17,891 40,596 37,848 45,711

Accounts receivable 8,599 9,805 12,233 13,353

Inventories 25,011 17,099 19,634 21,437

Loans and Adv & Others 14,710 17,132 19,702 22,657

Current assets 66,212 84,632 89,417 103,159

LT investments 20,017 27,475 30,907 34,407

Net fixed assets 51,767 53,755 55,169 55,902

Total assets 137,996 165,861 175,493 193,467

Payables 30,522 46,586 48,931 53,414

Other liabilities 17,326 25,907 27,202 28,562

Current Liabilities 47,848 72,493 76,133 81,976

Provisions 6,169 8,713 9,545 10,467

Deferred Tax Liability 1,269 2,984 2,984 2,984

Debt 21,449 10,023 5,100 4,100

Equity 2,846 2,927 2,927 2,927

Reserves 58,415 68,721 78,804 91,013

Total liabilities 137,996 165,861 175,493 193,467

Source: Company, Kotak Securities – Private Client Research;

Ratio Analysis


Margins

EBITDA margin (%) 11.0 10.4 10.4 10.5

EBIT margin (%) 8.4 8.3 8.4 8.4

Adj. net profit margin (%) 7.3 6.0 6.3 6.4

Working capital days

Inventory (days) 46 24 24 24

Receivable (days) 16 14 15 15

Payable (days) 56 65 60 60

Ratios

Debt/equity ratio (x) 0.4 0.1 0.1 0.0

ROE (%) 25.3 23.6 24.3 23.7

ROCE (%) 20.7 28.3 32.1 32.4

Valuations

EV/ Sales 1.6 1.1 1.0 0.9

EV/EBITDA 14.5 10.7 9.4 8.3

Price to earnings (P/E) 25.8 20.8 17.4 15.6

Price to book value (P/B) 5.2 4.5 4.0 3.5



JULY 19, 2018

GHCL LTD

PRICE RS.253 TARGET RS.330 BUY

GHCL’s Q1FY19 PAT was below our estimate due to higher expenses of

Rs220mn pertaining to the MTM loss and annual maintenance shutdown,

which impacted the inorganic chemical segment performance. The textile

segment reported sequential improvement in performance, supported by

spinning segment. EBITDA during the quarter declined 10%/17% YoY/QoQ to

Rs1.5 bn, with an EBITDA margin of 19.9%, down 490bps QoQ.

Key Highlights

The Inorganic chemical segment performance impacted by lower volume

(maintenance shutdown) and MTM forex loss of Rs70mn, which offset the

benefit of higher realisation (Rs380/tonne).

Textile segment operating performance improved sequentially supported by

improvement in the home textile business which reported EBITDA of Rs30mn

as compared to loss in the previous quarter

Management expects the global soda ash market to grow at 2.5% annually

and demand likely to remain strong in India (grew 11% in FY18E).

Anti-dumping duty (ADD) on soda ash is extended for six months from China

and US, as sunset review is under process, while ADD on Turkey and Russia is

extended for 1 year.

Valuation & outlook

Given the environmental issues in China (as there are still some soda ash plants

in East, South and Central China which needs to be relocated or upgraded),

the industry expects the soda ash production to decline in China and tightness

to prevail in the Industry. Backed by strong realisation, we expect soda ash

business to deliver strong performance and the recovery in textile business is

expected to provide support to the earnings in the medium term. Maintain

BUY rating, with a target price of Rs330

Quarterly performance table

Particulars (Rs Mn) 1QFY19 1QFY18 YoY (%) 4QFY18 QoQ (%)

Sales 7,546 8,041 (6.2) 7,287 3.6

Cost of Material consumed 3,302 3,747 2,865

Utility Cost 1,095 944 1,021

Man Power Cost 497 429 456

Other Expenses 1,150 1,252 1,135

EBITDA 1,502 1,669 (10.0) 1,810 (17.0)

EBITDA % 19.9 20.8 24.8

Depreciation 274 251 340

EBIT 1,228 1,418 1,470

Interest 343 306 307

Other Income 21 0 39

Profit before Tax 906 1,111 1,202

Tax 290 (467) 381

Profit after Tax 616 1,579 (61.0) 822 (25.0)

PAT % 8.2 19.6 11.3


Financial Summary


Revenue 29,432 32,724 35,579

Growth (%) 4.7 11.2 8.7

EBITDA 6,061 6,928 7,548

EBITDA margin (%) 20.6 21.2 21.2

PAT 3,564 3,561 4,030

EPS 36.6 36.8 41.6

EPS Growth (%) 12.1 10.9 11.3

BV (Rs/share) 165 197 233

Dividend/share (Rs) 5.0 5.0 5.0

ROE (%) 22.1 18.7 17.9

ROCE (%) 17.0 18.3 17.9

P/E (x) 6.9 6.9 6.1

EV/EBITDA (x) 6.2 5.4 4.9

P/BV (x) 1.5 1.3 1.1

Source: Company

Jatin Damania

[email protected]

+91 22 6218 6440

Source: Bloomberg

Price chart

200

240

280

320

360



JULY 19, 2018

Annual maintenance shutdown impacted inorganic chemical segment

Soda Ash business margin during the quarter declined by 630bps QoQ to 27.4%,

despite the increase in realisation. The key reason for a sharp fall in the

performance is attributed to the lower volume, as the company had undertaken

annual maintenance shutdown (once in 18 months), thereby impacting 15,000

tonnes production volume. Despite the new capacity coming on stream, the

management indicated that they will operate the facility at over +90% utilization,

in the coming quarter.

Sales volume during the quarter stood at 2.16LT, down10%QoQ (flat YoY). Lower

volume and elevated coal cost offset Rs380/tonne sequential improvement in

realisation. The soda ash performance was also impacted by Rs70mn of MTM

forex loss. All these factors led to 22% QoQ decline in soda ash EBITDA to Rs1.35

bn, with an EBITDA margin of 27.4%. Management expects the domestic market

to remain buoyant with a strong demand growth of 11%, while the global market

is likely to grow at 2.5% annually.

Volume trend Annual shutdown and MTM loss impacted EBITDA

Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research

Soda ash: demand-supply balanced globally

Globally soda ash demand-supply is fairly balanced, as per estimates of IHS

Chemical (Market Advisory Service), the total Global Demand in 2017 was ~59MT

against an estimated capacity of ~68 MT. China continues to be the largest Soda

Ash player in the world, having a capacity of 31MT, which is 46% of the global

capacity, operated at ~88% in 2017, reporting a production of 27MT and domestic

consumption of 25MT, with 1.5MT being exported. Management indicated that,

another round of environmental inspections is on in various provinces causing

some disruptions and lower rate of operations, these has supported the spurt in

soda ash prices in the recent past. Turkey has added 4 streams totaling 2.0 million

MT which has caused significant disruption on the supply side in 2017, which

disrupted the market for a short while, as the plant's prospective production for

2018 sold out. Besides this, new supply from Turkey is being balanced by

rationalization and reduced production in other regions (notably China).

As far as the domestic market is concerned, demand continues to remain strong

and at the same time pressure from imports seem to be ease. Total Soda Ash

installed capacity in India is 3.5MT, with an estimated production of about 3MT in

last financial year (2017-18). The total size of the Indian soda ash market is about

3.75MT. On the domestic front, the judgment on the anti-dumping duties is the

key things to monitor, as most of the duties officially expired in July (sunset review

in process), but the duties against Russia (US$ 35.99/tonne) and Turkey (US$ 18.39

– 75.16/tonne) extended for 1 more year.

15,750

17,500

19,250

21,000

22,750

24,500

0

1

2

3(Rs/T)(LT) Volume (LT) Realisation (Rs/T)

24.0%

29.0%

34.0%

39.0%

500

900

1300

1700

2100

EBITDA (Rs Mn) EBITDA Margin (%)


JULY 19, 2018

Textile segment performance improved sequentially

Revenue from the textile segment grew QoQ to Rs2.65 bn, supported by the

strong performance from the spinning segment and stabilization in home textile,

EBITDA margin improved sequentially by 100bps to 6.7%. The segment reported

EBIT profit of Rs66.2 mn, as against loss of Rs48.1 mn in 4QFY18. Going forward,

thrust is on improving its product mix. We believe that, an improvement in

product mix and higher capacity utilisation, EBITDA margin is expected to improve

further by 100-150bps.

Textile segment EBITDA Margin (%) trend


Maintain BUY

GHCL is confident about the prospects for the Soda Ash segment, underpinned

by healthy demand from India, which is likely to sustain over the next few years.

Backed by firm realisation, we expect soda ash business to deliver strong

performance (1QFY19 was impacted by annual shut down and MTM) going ahead

and the recovery in textile business is expected over the medium to long term. At

CMP, the stock is trading at 6.9x/6.1x FY19E/FY20E earnings. We continue to

maintain Buy rating, with a target price of Rs330.

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19


JULY 19, 2018

Company Background

GHCL is one of the leading manufacturers of soda ash with 23% domestic market

share. There are two main business verticals, i.e., Inorganic Chemicals and Textiles.

Inorganic chemicals mainly produce Soda Ash which caters to detergent & glass

industries whereas Textile vertical is well integrated and covers right from

spinning of fiber, weaving, dyeing and printing till the finished products for

exports. The company exports its product mix portfolio to US, Europe, Australia,

etc. GHCL has one Soda Ash plant in Gujarat and one salt refinery in Tamil Nadu.

It has three textile manufacturing plants- two in Tamil Nadu and one in Gujarat.


JULY 19, 2018

Financials: Consolidated



Net Sales 28,105 29,432 32,724 35,579

% Growth 11.1 4.7 11.2 8.7

Raw Materials 11,387 12,756 14,245 15,081

% of Net Sales 40.5 43.3 43.5 42.4

Employee Cost 1,585 1,767 1,734 1,921

% of Net Sales 5.6 6.0 5.3 5.4

Power & Fuel 3,065 3,903 4,090 4,625

% of Net Sales 10.9 13.3 12.5 13.0

Other Expenses 4,993 4,945 5,727 6,404

% of Net Sales 17.8 16.8 17.5 18.0

EBITDA 7,075 6,061 6,928 7,548

EBITDA Margin (%) 25.2 20.6 21.2 21.2

Depreciation 857 1,101 982 1,086

EBIT 6,218 4,960 5,946 6,462

Interest Exps. 1,368 1,266 1,361 1,293

EBT 4,851 3,695 4,585 5,169

Exceptional Items (30) 0 0 0

Other Income 133 379 417 459

PBT 4,953 4,074 5,002 5,628

Tax-Total 1,152 511 1,441 1,598

Profit after tax 3,801 3,564 3,561 4,030

PAT Margin (%) 13.5 12.1 10.9 11.3


Cash flow Statement


Net profit before tax 4,953 4,074 5,002 5,628

Depreciation 857 1,101 982 1,086

Interest 1,368 1,266 1,361 1,293

Others 1,205 (451) 0 0

Opt Profit before WC Changes 8,382 5,990 7,345 8,007

WC Changes (2,417) 416 (264) (407)

Cash Gene from Op. 5,965 6,406 7,081 7,600

Direct Taxes Paid 1,152 511 1,441 1,598

Cash from Ope act 4,813 5,895 5,640 6,002

Purchases of F.A (3,761) (2,779) (3,618) (3,435)

Investment 2 (15) (100) (100)

Others 11 0 0 0

Cash from Inv Act (3,748) (2,794) (3,718) (3,535)

Proc from Issue of Eq Shares (144) (21) (6) 0

Net loans 1,216 (1,233) 210 0

Interest paid (1,368) (1,266) (1,361) (1,293)

Dividend paid & Others (833) (676) (642) (532)

Cash from Fin Act (1,130) (3,195) (1,798) (1,825)

Net Increase in Cash (65) (93) 124 642

Cash at Beginning 426 361 268 392

Cash at End 361 268 392 1,034




Sources of Funds

Equity Capital 995 974 969 969

Reserves and Surplus 12,471 15,135 18,098 21,561

Shareholders’ Funds 13,466 16,109 19,066 22,529

Total Loan Funds 14,633 13,400 13,610 13,610

Deferred Tax Liab. 2,360 1,950 2,104 2,504

Total Liabilities 30,459 31,459 34,780 38,644

Appl. Of Funds

Gross Block 25,473 27,332 28,882 31,932

Accumulated Depn. 1,377 2,315 3,297 4,382

Net Fixed Assets 24,096 25,017 25,585 27,550

Capital WIP 260 735 3,000 3,750

Other Investments 88 103 203 303

Inventories 5,843 6,367 7,083 7,701

Sundry Debtors 2,762 2,287 2,690 2,924

Cash and Bank Bal 361 268 392 1,034

Loans and Advances 1,371 1,151 1,151 1,151

Total Current Assets 10,338 10,073 11,316 12,811


Net Current Assets 5,760 5,251 5,639 6,688

Other Non.Curr Ass/DTA 254 353 353 353

Total assets 30,458 31,459 34,780 38,644


Ratio Analysis


Per Share (Rs)

EPS 38.2 36.6 36.8 41.6

Cash EPS 46.8 47.9 46.9 52.8

Book value 135.4 165.4 196.8 232.6

Valuation (x)

P/E 6.6 6.9 6.9 6.1

Price/Book value 1.9 1.5 1.3 1.1

EV/EBITDA 5.6 6.2 5.4 4.9

EV/Sales 1.4 1.3 1.2 1.0

Turnover Days

Inventory 76 79 79 79

Receivables 36 28 30 30

Creditors 57 57 57 57

Profit ratios (%)

RoE 28.2 22.1 18.7 17.9

RoCE 20.8 17.0 18.3 17.9

Margin (%)

EBITDA 25.2 20.6 21.2 21.2

EBIT 22.1 16.9 18.2 18.2

PAT 13.5 12.1 10.9 11.3

Debt/ Equity 1.1 0.8 0.7 0.6



JULY 19, 2018

TATA SPONGE IRON LTD

PRICE RS. 955 TARGET RS.1,055 ACCUMULATE

Tata Sponge (TTSP) Q1FY19 reported numbers were in-line with estimates.

Higher realisation and improvement in operating leverage led to a 56.1% YoY

jump in EBITDA to Rs603 mn (down 2.2% QoQ), with an EBITDA margin of

23.1% (below estimates). TTSP’s spread in sponge iron segment continued to

remain strong, however, we feel the sustainability of the same for the long

term is difficult.

Key Highlights

Sponge iron sales volume during the quarter grew 16.8%/6.5% YoY/QoQ to

115KT (production during the quarter stood at 116KT, highest ever), the

realisation was largely flat QoQ (up 31.3% YoY) to Rs21,384/tonne.

TTSP reported PAT of Rs456mn, in-line with estimates

Management expects to operate the facility at rated capacity and is targeting

425KT of volume in FY19. At the same time, management is applying for the

fresh Environmental Clearance to further enhance its capacity. We are building

in 420KT and 425KT of volume for FY19E and FY20E, respectively.

Valuation & outlook

We continue to remain positive on TTSP’s strong business model, but foresee

current valuation as fair, as the sustainability of spreads in the sponge iron

business is difficult and expectation of deployment of surplus cash for the

forward integration (Steel plant). Besides this, strengthening of Dollar index

and trade war is weighing on valuation multiples across the metal sector. The

stock has corrected since our last recommendation (Reduce at CMP Rs.1130),

factoring this, we upgrade our stock to Accumulate, with a revised target price

of Rs1,055, valuing it at 4x FY20 EBITDA (earlier 5x). We have not assigned any

value to the investment of Rs1.8bn made by the company on the coal block,

as the company’s coal block is yet to put in the auction.


Particulars (Rs Mn) 1QFY19 1QFY18 % YoY 4QFY18 % QoQ

Net Sales 2,609 1,750 49.1 2,435 7.2

Raw Materials 1,709 1,054 1,463

% to sales 65.5 60.2 60.1

Other Expenses 298 310 357

% to sales 11.4 17.7 14.6

Total Expenditure 2,007 1,364 47.1 1,819 10.3

EBITDA 603 386 56.1 616 (2.2)

EBITDA Margin (%) 23.1 22.1 25.3


Interest 3 5 3

EBT 571 350 583


PBT 690 452 700

Tax 234 147 233

ETR (%) 34.0 32.4 33.3

PAT (reported) 456 306 49.1 467 (2.4)

NPM (%) 17.5 17.5 19.2


Financial Summary


Revenue 8,005 8,457 8,456

Growth (%) 43.6 5.6 (0.0)

EBITDA 1,827 1,848 1,837

EBITDA margin (%) 22.8 21.8 21.7

PAT 1,409 1,517 1,521

EPS 91.5 98.5 98.7

EPS Growth (%) 140.1 7.6 0.3

BV (Rs/share) 640 714 789


ROE (%) 14.3 13.8 12.5

ROCE (%) 14.3 13.8 12.5

P/E (x) 10.4 9.7 9.7

EV/EBITDA (x) 4.3 3.8 3.2

P/BV (x) 1.5 1.3 1.2

Source: Company


52-wk Hi/Lo (Rs) : 1249 / 768

Face Value (Rs) : 10

3M Avg. daily volume : 190,755

Shares o/s (m) : 15

Source: Bloomberg

Result Update

Stock Details

(%) 1M 3M 6M

Tata Sponge Iron (12.7) (15.0) (16.4)

Nifty 1.7 4.3 1.5

Source: Bloomberg

Source: Bloomberg

Price chart


750

950

1,150

1,350


Jatin Damania

[email protected]

+91 22 6218 6440


JULY 19, 2018

Higher volume led to increase in profitability

TTSP operated all its kilns at the rated capacity during the quarter, as against

industry average of 60%-65%. Volume during the quarter stood at

115kt,16.8%/6.5% YoY/QoQ, which was above expectations. Realisation during

the quarter stood at Rs21,384/tonne, flat QoQ, as domestic sponge iron prices

remained firm. Given the seasonally weak quarter 2QFY19, we expect sponge iron

prices to correct due to lack of infrastructure activities, which would impact its

profitability in the next quarter.

Operational Parameters

1QFY19 1QFY18 % YoY 4QFY18 % QoQ

Volume

Sponge Iron (Tonnes) 115 98.5 16.8 108 6.5

Power (Kwh) 38 38 0.0 37 2.7

Realisation

Sponge Iron (Rs/T) 21,384 16,282 31.3 21,263 0.6

Power (Rs/u) 4.0 3.9 2.6 3.7 5.5

Raw Materiasl (Rs/T)

Iron Ore 3,593 2,261 58.9 2,835 26.7

Coal 9,562 7,692 24.3 8,887 7.6

Dolomite 1,885 1,472 28.1 1,679 12.3

Source: Company

The benefit of higher volume and firm realisation was impacted by increase in

input costs, thereby resulting in 220bps QoQ decline in EBITDA margin to 23.1%.

The increase in input costs is largely attributed to increase in the coal costs, as the

coal situation remained tight in 1QFY19 and global coal prices were higher. The

raw material costs during the quarter increased by Rs840/tonne to

Rs14,638/tonne. Coal costs during the quarter increased to Rs9,562/tonne from

Rs8,887/tonne in 4QFY18 and iron ore cost increased toRs3,593/tonne from

Rs2,900/tonne.

Sponge iron prices and imported scrap (US$/t) Sponge iron prices and EBITDA/T (Rs/T)

Source: Bloomberg, Industry data, Company Source: Bloomberg, Industry data, Company

75

225

375

525

8,500

13,500

18,500

23,500

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

Sep

-17

Dec-

17

Mar-

18

Jun

-18

(US$/T)(Rs/T)

Sponge Iron (Rs/T) India Imported Scrap (US$/T

0

1,500

3,000

4,500

6,000

5,000

10,000

15,000

20,000

25,000

Q1FY

17

Q2FY

17

Q3FY

17

Q4FY

17

Q1FY

18

Q2FY

18

Q3FY

18

Q4FY

18

Q1FY

19

Sponge Iron (LHS) EBITDA/T (RHS)


JULY 19, 2018

Domestic sponge iron & global scrap prices outlook

Domestic sponge iron prices remained firm, supported by better demand-supply

and an increase in prices of other substitute products like scrap and pig iron.

Besides this, global scrap price has also remained strong due to increase in EAF

based steel production compared to BF based, as the latter has seen a sharp

increase in the cost of production. We expect domestic demand for long products

to remain subdued in 2QFY19 (seasonally low quarter) due to lack of infrastructure

activities, but is expected to pick-up from 3QFY19 led by an increase in

infrastructure spend.

Global scrap price trend (US$/T) Tata Sponge Realisation vs scrap prices

Source: Bloomberg Source: Bloomberg, Company

Forward integration

TheBoD has in-principle approved the setting of 1.5MT steel plant in phases at

Beleipada, Odisha, subject to the evaluation of financial viability of the project.

Management indicated that, this would be a brownfield project and most likely

route for this plant would be BF-BOF combination with forwards integration into

long products. Tata Sponge has a strong and debt-free balance sheet with cash

and cash equivalent of ~Rs8.2bn at the end of FY18. In addition, the recovery of

its investment in Radhikapur East Coal Block (deallocated) would further increase

the cash balance by ~Rs1.8bn. TSIL, is in good position to deploy cash, but setting

up a steel plant, would lead to raising of debts in the years to come. We have not

factor in any impact of the capex on steel plant, as final details are yet to be

disclosed by the management.

Recommend Accumulate

We continue to remain positive on TTSP’s strong business model, but foresee

current valuation as fair, as the sustainability of spreads in the sponge iron

business is difficult and expectation of deployment of surplus cash for the forward

integration (Steel plant). Besides this, strengthening of Dollar index and trade war

is weighing on valuation multiples across the metal sector. The stock has

corrected since our last recommendation (Reduce), factoring this, we upgrade our

stock to Accumulate, with a revised target price of Rs1,055, valuing it at 4x FY20

EBITDA (earlier 5x). At CMP, the stock is trading at 9.7x both in FY19E and FY20E

earnings and on EV/EBITDA, it trades at 3.8x/3.2x FY19E/FY20E EBITDA.

75

150

225

300

375

450

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

Sep

-17

Dec-

17

Mar-

18

Jun

-18

Turkey import Heavy Melt Scrap China

75

200

325

450

7,500

15,000

22,500

30,000 Tata Sponge Realisation (Rs/T) - LHS

Global Scrap Prices(US$/T) - RHS


JULY 19, 2018

Company Background

Tata Sponge is a subsidiary of Tata Steel and has sponge iron production capacity

of 4.25 lakh tonne in Orissa with 26 MW of waste heat recovery based captive

power. Thecompany has impressive track record and maintains consistent quality.

Tata Sponge produce and market sponge iron, which isa single end use (steel

making) and a single grade product. The company generate power through Waste

Heat Recovery Boilers (WHRB), anon-conventional source of ‘green’ power, which

has helped the company to shift their dependence on thermal power. The

company export surplus power to their holding company.


JULY 19, 2018




Net sales 5,573 8,005 8,457 8,456

growth (%) (2.8) 43.6 5.6 (0.0)

Operating expenses 4,958 6,178 6,609 6,618

EBITDA 615 1,827 1,848 1,837

growth (%) 162.4 196.9 1.1 (0.6)

Depreciation &amortisation 128 123 130 136

EBIT 488 1,704 1,717 1,701

Other income 371 431 452 475

Interest paid 24 32 33 34

PBT 834 2,102 2,136 2,142

Tax 247 693 619 621

Effective tax rate (%) 32.0 33.8 29.0 29.0

Net profit 587 1,409 1,517 1,521

Minority interest 0 0 0 0

Reported Net profit 587 1,409 1,517 1,521

Adjusted Net profit 587 1,409 1,517 1,521

growth (%) 84 140 8 0


Cash flow Statement


Pre-tax profit 834 2,102 2,136 2,142

Depreciation 128 123 130 136

Chg in working capital (248) (213) (214) (7)

Total tax paid (272) (715) (624) (626)

Other operating activities 233 193 33 34

Operating CF 675 1,491 1,462 1,679

Capital expenditure (39) (61) (127) (177)

Chg in investments 118 112 376 (250)

Other investing activities 30 0 0 0

Investing CF 109 51 248 (427)

Equity raised/(repaid) 0 0 0 0

Debt raised/(repaid) 54 24 32 33

Dividend (incl. tax) 185 371 371 371

Other financing activities 0 0 0 0

Financing CF 239 396 404 405

Net chg in cash & bank bal. 545 1,146 1,307 847

Closing cash & bank bal 3,068 4,216 5,525 6,374




Cash & Bank balances 3,068 4,216 5,525 6,374

Other Current assets 3,052 3,756 3,824 3,832

Investments 2,736 2,623 2,248 2,498

Net fixed assets 1,603 1,548 1,547 1,590

Other non-current assets 0 0 0 0

Total assets 10,459 12,144 13,143 14,294

Current liabilities 1,619 2,109 1,963 1,965

Borrowings 0 0 0 0

Other non-current liabilities 191 180 180 180

Total liabilities 1,809 2,289 2,143 2,145

Share capital 154 154 154 154

Reserves & surplus 8,494 9,700 10,845 11,995

Shareholders' funds 8,648 9,854 10,999 12,149

Minority interest 0 0 0 0

Total equity & liabilities 10,459 12,144 13,143 14,294


Ratio Analysis


Profitability and return ratios (%)

EBITDAM 11.0 22.8 21.8 21.7

EBITM 8.8 21.3 20.3 20.1

NPM 10.5 17.6 17.9 18.0

RoE 6.8 14.3 13.8 12.5

RoCE 6.8 14.3 13.8 12.5

Per share data (Rs)

EPS 38.1 91.5 98.5 98.7

FDEPS 38.1 91.5 98.5 98.7

CEPS 46.4 99.5 106.9 107.6

BV 568.0 639.9 714.3 788.9

DPS 11.0 20.0 20.0 20.0

Valuation ratios (x)

PE 25.1 10.4 9.7 9.7

P/BV 1.7 1.5 1.3 1.2

EV/EBITDA 14.5 4.3 3.8 3.2

EV/Sales 1.6 1.0 0.8 0.7

P/CEPS 20.6 9.6 8.9 8.9

Other key ratios

DSO (days) 23.4 26.8 27.0 27.0



JULY 19, 2018

NIIT TECHNOLOGIES LTD

PRICE RS.1121 TARGET RS.1185 ACCUMULATE

NIIT Tech, in the past few consecutive quarters, has delivered a steady beat on

revenue expectations. Company has been consistently winning large deals (> TCV

USD 20mn) against Tier I vendors which is aiding the strong revenue visibility.

Company intends to grow in double digit in FY19 with better profitability v/s FY18.

Key Highlights

NIIT Tech reported revenue growth of ~2% in dollar terms, ahead of our

estimates. EBITDA margins at 15.8% was in line with our estimates. Margins

during the quarter were impacted by wage hikes, visa costs and seasonal

decline in GIS business. PAT increased by 67.4% YoY to Rs.858mn.

Management has guided for a strong FY19 and expects organic CC revenue

growth to be in at least double digit. Also, margins are expected to expand

further aided by strong deal momentum(higher digital wins) and process

changes.

NIIT Tech continues to win USD100mn + deal during the quarter with 12

month executable order rising to USD 347mn from USD 339mn in previous

quarter. Fresh order intake rose by ~37% YoY to USD151mn whereas the rise

in executable order was up by ~8%. The difference between order intake and

executable order is largely due to higher proportion of digital wins which are

of shorter cycle with higher margins.Company won three USD 10mn + deals

during the quarter against the Tier I vendors.


(Rs.mn) 4QFY18 1QFY19 % Chg 1QFY18 % Chg

Income 7888 8249 4.6 7090 16.4

Income(in USD mn) 122 124 1.7 110 13.1

Expenditure 6471 6942 5982

Operating Profit 1418 1307 -7.8 1108 18.0


Gross Profit 1113 995 -10.6 792 25.6

Interest 0 0 0


PBT 1261 1204 -4.5 850 41.6

Tax 288 300 295

PAT 973 904 -7.1 555 62.9

Minority interest & EO 112 46 42

Adjusted PAT 861 858 -0.3 513 67.2

Extra Ordinary items 0 0 0

Shares (mns) 61 61 61

EPS (Rs) 14.0 13.97 8.4

OPM (%) 18.0 15.8 15.6

GPM (%) 14.1 12.1 11.2

NPM (%) 12.3 11.0 7.8

Source : Company

Financial Summary


Revenue 29,915 35,495 39,473

Growth (%) 6.8 18.7 11.2

EBITDA 5,011 6,237 6,912

EBITDA margin (%) 16.7 17.6 17.5

PAT 2,801 3,813 4,288

EPS 45.5 62.0 69.7

EPS Growth (%) 1.50 36.13 12.48

BV (Rs/share) 312 360 416


RONW (%) 15.4 18.5 18.0

ROCE (%) 20.6 24.4 23.5

P/E (x) 22.6 16.6 14.7

EV/EBITDA (x) 11.3 9.0 7.8

P/BV (x) 3.3 2.9 2.5

Source: Company


52-wk Hi/Lo (Rs) : 1192 / 463

Face Value (Rs) : 10

3M Avg. daily volume : 1,953,606

Shares o/s (m) : 61

Source: Bloomberg

Result Update

Stock Details

(%) 1M 3M 6M

NIIT Technologies 0.7 20.7 61.6

Nifty 1.7 4.3 1.5

Source: Bloomberg

Source: Bloomberg

Price chart


360

860


Nipun Gupta

[email protected]

+91 22 6218 6433


JULY 19, 2018

Valuation & outlook

We have upgraded our revenue estimate for FY19/FY20E given the strong

execution and healthy order intake, and believe the changes made in

strengthening of its leadership and sales team would further boost the deal

momentum in FY19. We expect USD revenues to grow at CAGR of 12.6% over

FY18-20. We expect margins to improve further over FY19/20. With continues

outperformance, optimistic outlook and companies capabilities to match well

performing peers we ascribe a higher multiple of 17x v/s 16x previously. We

maintain ACCUMULATE with a revised target price of Rs.1185 (Rs.1082 earlier).

Steady quarter with broad based growth

NIIT Tech reported a ~2% sequential growth in revenue in USD Terms to USD

125mn v/s our estimate of USD 121mn. EBITDA margin at 15.8% was in line with

our estimate and declined 213bps sequentially. The margin decline was due to

wage revision impact, visa cost and seasonal decline in GIS business. The growth

has been quiet broad based during the quarter with BFS growing 8.8%, insurance

10% and T&T 7.7% sequentially. Even client mix wise the growth was not

concentrated from only Top clients during the quarter. Morris which did impact

the Top 5 and Top 10 client contribution during the quarter has bottomed out

and the company doesn’t expect any further impact going forward. Company has

increased the contribution of digital to revenues, aided by acquisitions of

Incessant and RuleTek. Digital revenues for the company are growing at 30-40%

CAGR and are also at higher margins, thus aiding margins as well. Digital

contributes 27% of total revenue reflecting a sequential growth of 11% and YoY

growth of 53%. We believe this provides enhanced revenue visibility and would

result in a steady revenue growth going forward. Management has indicated that

it is focusing on automation initiatives through its platform which too should aid

in improving margins with rationalization of SGA expenses.

EBITDA margins; SGA %

Source: Kotak PCG Research

Recent organization changes for sustainable growth

NIIT Tech has inducted several new leaders from Tier I under the leadership of Mr.

Sudhir Singh. Company has restructured to a vertical led organization from a

geographical led organization. It has also restructured its rewards and incentive

structure in line with the large deal wins. Company now has dedicated units for

cloud, robotics process automation, and data services, besides changing the front

end sales to better leverage on its deep expertise in the travel, insurance and

wealth management verticals.

17.00

17.50

18.00

18.50

19.00

19.50

20.00

20.50

13.00

14.00

15.00

16.00

17.00

18.00

19.00

1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19

EBIDTA Margins% SGA % revenue


JULY 19, 2018

Deal win remains strong; large deals enhance visibility

During FY18, company increased its focus to win large deals, which has yielded

positive results for the company. Company won deals worth USD151mn during

the quarter. It added 9 new clients during the quarter v/s 7 new clients in the

previous quarter. The client addition has been across geographies with 5 in USA,

3 in EMEA and 1 in India. Company added 3 USD 1mn + clients during the quarter.

Digital wins were highest during the quarter with company signing its first ever

security based offshore airline contract. According to the restructured incentive

scheme a large deal win will now earn an employee bonus that is worth 4x more

than that obtained earlier. Company faced slower growth after 1HY16 with slower

than expected deal closures due to client specific challenges and delay in ramp

ups. Executable order stands at USD 347mn at end of 1QFY19.

Fresh Order Intake (in USD Mn)

Particulars 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19

USA 60 64 82 43 69

EMEA 23 32 25 69 56

ROW 27 25 23 33 26

Order bkg ($mns) 110 121 130 145 151

Executable in 12M ($mns) 320 320 329 339 347

Source: Company

Takeway from Concall

Company made significant investment in strengthening its front end, sales and its

delivery capability. It added many new leaders from Tier I organization to drive

various businesses across geographies.

Geographically strong growth was reported in US despite Morris ramp down.

Growth was led by TNT and Insurance vertical. EMEA too reported strong growth

due to growth in NITL, IMS and digital engagement. ROW declined largely due to

decline in GIS product sales.

Travel vertical is not restricted to airline for the company and includes airport,

hotel and etc. So aggregate the scenario remains positive for this vertical with no

material risk due to rise in crude prices.

Company Background

NIIT Technologies is a leading IT solutions organisation with customers across

North America, Europe, Middle East, Asia and Australia. Company offers

comphrehensive end to end software solutions and services in Application

Development, Managed Services, Cloud Computing, and Business Process

Outsourcing. It primarily caters to companies across banking and financial,

insurance, travel and transportation, manufacturing and government sector.


JULY 19, 2018




Net Sales 28,021 29,915 35,495 39,473

% Growth 3.5 6.8 18.7 11.2

Cost of Sales 23,143 24,904 29,258 32,561

% of Net Sales 82.6 83.2 82.4 82.5

EBITDA 4,878 5,011 6,237 6,912

EBITDA Margin (%) 17.4 16.8 17.6 17.5

Depreciation 1,276 1,273 1,272 1,240

EBIT 3,602 3,738 4,965 5,672

Interest Exps. - - - -

EBT 3,602 3,738 4,965 5,672

Exceptional Items/Extra ordinary 221 - - -

Other Income 159 298 429 355

PBT 3,540 4,036 5,394 6,027

Tax-Total 786 950 1,306 1,446

Minority Interest 220 285 276 292

Profit after tax 2,534 2,801 3,813 4,288

PAT Margin (%) 9 9 11 11


Cash flow Statement


Net profit before tax 3,761 4,036 5,394 6,027

Depreciation 1,276 1,273 1,272 1,240

Interest 0 0 0 0

Other Income (159) (298) (429) (355)

Opt Profit before WC Changes 4,878 5,011 6,237 6,912

WC Changes 1,124 (2,379) (3,147) (1,837)

Cash Gene from Op. 6,001 2,632 3,090 5,075

Direct Taxes Paid (1,082) (950) (1,306) (1,446)

Cash from Ope act 4,919 1,681 1,784 3,629

Purchases of F.A /CWIP (1,359) (1,813) (1,093) (800)

Investment - - - -

Others 0 0 0 0

Cash from Inv Act (1,359) (1,813) (1,093) (800)

Proc from Issue of Eq Shares 2 1 0 0

Net loans 11 111 (20) (20)

Interest paid - - - -

Dividend paid & Others (630) (759) (856) (856)

Other Income 159 298 429 355

Cash from Fin Act (458) (349) (447) (521)

Net Increase in Cash 3,102.0 (480.5) 244.4 2,307.9

Cash at Beginning 4,217 7,319 6,839 7,083

Cash at End 7,319 6,839 7,083 9,391




Sources of Funds

Equity Capital 614 615 615 615

Reserves and Surplus 16,608 18,553 21,509 24,942

Shareholders’ Funds 17,222 19,168 22,124 25,557

Minority Interes 865 1,150 1,426 1,718

Total Loan Funds 113 224 204 184

Total Liabilities 18,200 20,542 23,754 27,459

Appl. Of Funds

Gross Block 17,023 18,829 19,929 20,729

Accumulated Depn. 8,545 9,818 11,090 12,330

Net Fixed Assets 8,478 9,011 8,839 8,399

Capital WIP - 7 - -

Sundry Debtors 4,903 5,230 6,267 6,821

Cash and Bank Bal 7,319 6,839 7,083 9,391

Other Current Assets 4,935 6,102 6,972 9,307

Total Current Assets 17,157 18,171 20,322 25,519


Net Current Assets 9,722 11,524 14,915 19,060

Total assets 18,200 20,542 23,754 27,459


Ratio Analysis


Book value 280.5 311.7 359.7 415.6

Margin (%)

EBITDA 17.4 16.8 17.6 17.5

EBIT 12.9 12.5 14.0 14.4

PAT 9.8 9.4 10.7 10.9

Balance sheet Ratios

Receivable (days) 63.9 63.8 64.4 63.1

Inventories (days) 0.0 0.0 0.0 0.0

Payables (days) 31.9 32.3 29.3 29.6

Debt equity ratio (x)

Return ratios (%)

RONW 16.6 15.4 18.5 18.0

RoCE 21.3 20.6 24.4 23.5

Valuation (x)

P/E 22.9 22.6 16.6 14.7

Price/Book value 3.7 3.3 2.9 2.5

EV/EBITDA 11.5 11.3 9.0 7.8

ev/Sales 2.0 1.9 1.6 1.4



JULY 19, 2018

Forthcoming events

Date Event

19-Jul DB Corp, Kotak Bank, RBL Bank, Omax Auto earnings expected

20-Jul Bajaj Auto, Havells Kansai Nerolac earnings expected

21-Jul HDFC Bank earnings expected

23-Jul ACC, Hindustan Zinc, Saregama earnings expected

24-Jul Asian Paint, Century Ply, Kajaria Ceramics, Radico Khaitan earnings expected

25-Jul Crompton Greaves, Hero MotoCorp, JSW Steel, KPIT, L&T earnings expected

26-Jul Biocon, Colgate Palmolive, Concor, Dr. Reddy’s, Eveready Ind, ITC, Jindal Stainless

(Hisar), Maruti Suzuki India, Petronet LNG, Tata Power earnings expected

27-Jul Bank of Baroda, Genus Power, HCL Tech, ICICI Bank earnings expected

28-Jul Balmer Lawrie, JK Cement, Persistent earnings expected

30-Jul Axis Bank, GSPL, HDFC, IDFC, IDFC Bank, Shree Cement, Tech Mahindra earnings

expected

31-Jul BEL, Bludart, Castrol India, Dabur, MGL, Redington, Supreme Ind, Tata Motors,

Tech Mahindra, Vedanta,

Source: www.bseindia.com


JULY 19, 2018

RATING SCALE

Definitions of ratings

BUY – We expect the stock to deliver more than 12% returns over the next 12 months

ACCUMULATE – We expect the stock to deliver 5% - 12% returns over the next 12 months

REDUCE – We expect the stock to deliver 0% - 5% returns over the next 12 months

SELL – We expect the stock to deliver negative returns over the next 12 months

NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The

report has been prepared for information purposes only.

SUBSCRIBE - We advise investor to subscribe to the IPO.

RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target

for this stock, either because there is not a Sufficient fundamental basis for determining, or

there are legal, regulatory or policy constraints around publishing, an investment rating or

target. The previous investment rating and price target, if any, are no longer in effect for this

stock and should not be relied upon.

NA – Not Available or Not Applicable. The information is not available for display or is not

applicable

NM – Not Meaningful. The information is not meaningful and is therefore excluded.

NOTE – Our target prices are with a 12-month perspective. Returns stated in the rating scale are our

internal benchmark.

FUNDAMENTAL RESEARCH TEAM

Rusmik Oza Arun Agarwal Amit Agarwal Nipun Gupta Krishna Nain

Head of Research Auto & Auto Ancillary Transportation, Paints, FMCG Information Tech, Midcap Special Situations

[email protected] [email protected] [email protected] [email protected] [email protected]

+91 22 6218 6441 +91 22 6218 6443 +91 22 6218 6439 +91 22 6218 6433 +91 22 6218 7907

Sanjeev Zarbade Ruchir Khare Jatin Damania Cyndrella Carvalho K. Kathirvelu

Cap. Goods & Cons. Durables Cap. Goods & Cons. Durables Metals & Mining, Midcap Pharmaceuticals Production

[email protected] [email protected] [email protected] [email protected] [email protected]

+91 22 6218 6424 +91 22 6218 6431 +91 22 6218 6440 +91 22 6218 6426 +91 22 6218 6427

Teena Virmani Sumit Pokharna Pankaj Kumar Jayesh Kumar

Construction, Cement, Building Mat Oil and Gas, Information Tech Midcap Economy

[email protected] [email protected] [email protected] [email protected]

+91 22 6218 6432 +91 22 6218 6438 +91 22 6218 6434 +91 22 6218 5373

TECHNICAL RESEARCH TEAM

Shrikant Chouhan Amol Athawale

[email protected] [email protected]

+91 22 6218 5408 +91 20 6620 3350

DERIVATIVES RESEARCH TEAM

Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT, CFTe

[email protected] [email protected] [email protected] [email protected]

+91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497 +91 33 6625 9810

mailto:[email protected]







JULY 19, 2018

Disclosure/Disclaimer

Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house.

Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management.

Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014.

We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time.

We offer our research services to clients as well as our prospects.

This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions.

This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.

We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement 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.

Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor 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. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent.

Details of Associates are available on our website ie www.kotak.com

Research Analyst has served as an officer, director or employee of subject company(ies): No

We or our associates may have received compensation from the subject company(ies) in the past 12 months.

We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No

We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies).

Research Analyst or his/her relative's financial interest in the subject company(ies): No

Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: Ashok Leyland, NIIT Tech - Yes

Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report.

Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No.

Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No

Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report.

"A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose a company from the list on the browser and select the "three years" icon in the price chart)."

Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. CIN: U99999MH1994PLC134051, Telephone No.: +22 43360000, Fax No.: +22 67132430. Website: www.kotak.com/www.kotaksecurities.com. Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825. SEBI Registration No: NSE INB/INF/INE 230808130, BSE INB 010808153/INF 011133230, MSE INE 260808130/INB 260808135/INF 260808135, AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586. NSDL/CDSL: IN-DP-NSDL-23-97. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: 022 - 4285 8484, or Email: [email protected] case you require any clarification or have any concern, kindly write to us at below email ids:

Level 1: For Trading related queries, contact our customer service at '[email protected]' and for demat account related queries contact us at [email protected] or call us on: Toll free numbers 18002099191 / 1800222299, Offline Customers - 18002099292

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Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at [email protected] or call on 91- (022) 4285 8301.

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