cochin shipyard ltd (cocshi) | 525 - icici...

February 7, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Strong performance…

Cochin Shipyard Ltd reported strong Q3FY18 numbers. Shipbuilding

and shiprepair segment contributed 66.3% and 33.7% respectively to

the topline of the company. For the quarter, shipbuilding segment

reported abnormally high EBIT margins of 32.4% (normal margins 8-

15%) whereas the shiprepair segment reported muted EBIT margins of

13.9% (normal margins 25-35%). Higher margin in shipbuilding

segment was due to execution of ‘fixed part’ portion in the IAC.

Revenue increased 5.7% YoY to | 615 crore. We expected revenues of

| 620 crore for the quarter. The company reported EBITDA margins of

22.3% vs. 19.4% in Q3FY17. This was due to 530 bps expansion in

gross margins for the quarter. However, employee expenses increased

from 9.7% of sales in Q3FY17 to 11.1% in Q3FY18. Accordingly,

absolute EBITDA grew 21.6% YoY.

PAT grew 25.9% YoY at | 113.8 crore due to better operational

performance and jump in other income by 36.1% YoY to | 51 crore.

Strong shiprepair performance, new initiatives

CSL has reported strong performance in shiprepair segment as it clocked

revenues of | 526 crore for 9MFY18 vs. | 543 crore in full year FY17. To

augment revenues from this segment, CSL has taken number of steps like

signing MOUs with Mumbai Port Trust, Andaman & Nicobar

administration and Kolkata port trust for management and operation of

their shiprepair facilities. We believe such a move will help CSL to clock

revenues of over | 1000 crore by FY20-21. To leverage on other

upcoming opportunities like inland water transportation and coastal

shipping vessels, CSL has entered formed a JV with Hooghly Dock & Port

Engineers (HDPEL) and planned a capex of | 100 crore at two of its

shipyards at Salkia and Nazirgunge in Howrah, West Bengal.

Healthy balance sheet, strong capacity additions and order book

CSL has a strong balance sheet with debt of | 123 crore and cash of over

| 2500 crore. To capture the upcoming opportunities, CSL has planned a

huge capex of ~| 3000 crore over FY18-21E (| 2768 crore for the new

larger size dry dock and repair facility, | 100 crore for Hooghly Cochin

Shipyard Ltd and | 150 crore for developing docks at Mumbai, Andaman

& Nicobar and Kolkata). CSL also has a healthy order book of | 2,337

crore plus L1 status for ASW vessels (| 5400 crore) and 56 boats (| 380

crore). It is also likely to receive order for phase III of IAC, which is likely

to be ~| 10,270 crore (| 3000 crore as fixed price contract and | 7270

crore as cost-plus contract). This takes the total order backlog to | 18,737

crore (adding shiprepair orders of | 350 crore). We believe these orders

give strong revenue visibility to CSL till FY21. With healthy balance sheet,

significant capacity additions, healthy order pipeline and strong execution

capabilities, we believe CSL will clock revenue, EBITDA and PAT CAGR of

15.3%, 11.1% and 9.6%, respectively, in FY17-20E. We value CSL at 21x

FY20E earnings for existing business (| 655/share) plus 0.2x (| 26/share)

and 0.6x (| 44/share) for its planned capex in shipbuilding and ship repair

segment, respectively, to arrive at SOTP value of | 725/ share. We have

BUY recommendation on the company.

Cochin Shipyard Ltd (COCSHI) | 525

Rating matrix

Rating Matrix

Rating : Buy

Target : | 725

Target Period : 12 - 15 months

Potential Upside : 38%

What’s changed?

Target Unchanged

EPS FY19E Changed from | 26.2 to | 29.7

EPS FY20E Changed from | 29.9 to | 31.2

Rating Unchanged

Quarterly performance

Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%)

Revenue 615.0 581.8 5.7 583.2 5.5

EBITDA 137.2 112.8 21.6 94.4 45.3

EBITDA (%) 22.3 19.4 292 bps 16.2 612 bps

PAT 113.8 90.3 25.9 100.2 13.5

EPS (|) 8.4 8.0 4.9 7.4 13.5

Key financials

| Crore FY17 FY18E FY19E FY20E

Revenue 2,222 2,522 2,869 3,344

EBITDA 379 411 447 520

EBITDA (%) 18.4 17.8 16.9 16.5

Net Profit 322 377 404 424

EPS (|) 23.7 27.7 29.7 31.2

Valuation summary

(x) FY17 FY18E FY19E FY20E

P/E 18.5 18.9 17.6 16.8

Target P/E 25.5 26.1 24.4 23.2

EV / EBITDA 14.1 10.5 9.9 9.2

P/BV 3.7 2.2 2.1 1.9

RoNW (%) 17 11.8 11.7 11.4

RoCE (%) 18.7 14.9 14.4 13.6

Stock data

Average Volumes (shares) 0.34 lakh

Market Capitalization | 7137 Crore

Total Debt (FY18E) | 123 Crore

Cash and Investments (FY18E) | 2938 crore

EV (FY18E) | 4321 Crore

52 week H/L (|) 598 / 435

Equity capital | 135.9 Crore

Face value | 10

MF Holding (%) 10.0

FII Holding (%) 3.5

Promoter Holding (%) 75.0

Price performance

Return (%) 1M 3M 6M 12M

Cochin Shipyard Ltd (4.1) (9.1) - -

Bharat Electronics Ltd (17.7) (18.0) (7.8) 6.8

Reliance Naval and Engineering Ltd(33.6) (28.9) (34.7) (35.1)

ABG Shipyard Ltd (17.6) (22.8) (11.8) (59.6)

Research Analyst

Chirag J Shah

[email protected]

Sagar K Gandhi

[email protected]

mailto:[email protected]


Variance analysis

Q3FY18 Q3FY18E Q3FY17 YoY (%) Q2FY18 QoQ (%)

Revenue 615.0 620.3 581.8 5.7 583.2 5.5

Shipbuilding and shiprepair segment contributed 66.3% and 33.7%

respectively.

Other Income 51.0 48.0 37.5 36.1 65.2 -21.7 Strong other income due to interest income on IPO proceeds

Total Revenue 666.0 668.3 619.3 7.6 648.4 2.7

Total Raw Material Costs 365.8 400.1 376.8 -2.9 386.5 -5.3

Employee Expenses 68.4 65.8 56.3 21.4 62.2 10.0

employee expenses increased from 9.7% of sales in Q3FY17 to 11.1% in

Q3FY18 due to seventh pay commission revisions

Other expenses 32.6 39.1 32.2 1.0 37.7 -13.5

Provision for losses & exp. 11.1 -8.8 3.7 198.7 2.5 338.5

Operating Profit (EBITDA) 137.2 124.2 112.8 21.6 94.4 45.3

Higher EBITDA margins due to 530 bps expansion in gross margins for the

quarter

EBITDA margin (%) 22.3 20.0 19.4 292 bps 16.2 612 bps

Interest 3.0 3.3 2.7 13.3 3.2 -4.3

Depreciation 9.1 10.0 9.8 -7.6 9.6 -5.4

Total Tax 62.3 50.1 47.4 31.5 46.6 33.7

PAT 113.8 108.8 90.3 25.9 100.2 13.5

PAT grew 25.9% YoY at | 113.8 crore due to better operational performance

and jump in other income by 36.1% YoY to | 51 crore.

Key Metrics Q3FY18 Q3FY18E Q3FY17 YoY (%) Q2FY18 QoQ (%)

Revenue (Segment-wise)

Shipbuilding 408 422 -3.5

As a % of Sales 66.3% 72.4%

Shiprepair 207 161 28.9

As a % of Sales 33.7% 27.6%

EBIT (Segment-wise)

Shipbuilding 131.9 49.7 165.4

EBIT Margins(%) 32.4% 11.8%

Higher margin in shipbuilding segment was due to execution of ‘fixed part’

portion in the IAC

As a % of EBIT 73.7% 48.4%

Shiprepair 28.7 53.0 -45.8

Lower margins in the shiprepair segment due to the lumpy order booking in

this segment. Revenues are booked only after 75% completion in this segment

EBIT Margins (%) 13.9% 33.0%

As a % of EBIT 16.0% 51.6%

Source: Company, ICICIdirect.com Research

Change in estimates

FY17 FY18E FY19E FY20E

(| Crore) Old New % Change Old New % Change Old New % Change

Revenue 2,222.4 2,414.5 2,522.1 4.5 2,798.8 2,869.0 2.5 3,605.8 3,344.1 -7.3

EBITDA 379.5 386.9 410.8 6.2 433.4 447.4 3.2 558.8 519.7 -7.0

EBITDA Margin (%) 18.4 17.3 17.8 54 bps 16.5 16.9 40 bps 16.1 16.5 40 bps

PAT 322.1 334.3 377.1 12.8 356.8 404.4 13.3 406.7 424.2 4.3

EPS (|) 28.4 24.6 27.7 12.8 26.2 29.7 13.3 29.9 31.2 4.3



Conference call takeaways Q3FY18

CSL order backlog stands at | 18,737 crore.

Exhibit 1: CSL's order book

Sr.No. Current order book Nos Client Pending execution

Shipbuilding

1 Phase II of the IAC - Vikrant 1 Indian Navy 887

2 500 passenger cum 150 ton cargo vessels 2

A & N

Admin 471

3 1,200 passenger cum 1,000 ton cargo vessels 2

A & N

Admin 760

4 Research Vessel 1 GoI 219

5 IAC Phase III (Fixed price contract) Indian Navy 3000

6 IAC Phase III (Cost plus contract) Indian Navy 7270

7 Small boats 56

Home

Affairs 380

8 ASW Corvettes 8 of 16 Indian Navy 5400

Shiprepair

Shiprepair 350

Total 18737


Order for ASW corvettes was won after strong competitive bidding.

Accordingly, PAT margins for the order are likely to be 5-6%.

However, as per management commentary, CSL will try to squeeze

and improve margins as much as possible in this order. This will be

possible because of the learning curve that CSL will develop during

the production of initial few corvettes. This is likely as similar kind of

eight ASW corvettes are on order.

CSL is planning to augment its shiprepair capacity by partnering with

Mumbai Port Trust, Andaman & Nicobar administration and Kolkata

Port Trust. The memorandum of understanding (MoU) envisages for

management and operation of the existing ship-repair facilities at

Indira Dock for commercial and defence ship repairs.

For Mumbai Port Trust (MPT), CSL intends to spend | 80-100 crore in

the next one year. This is to be utilized for expansion of the ship-

repair capacity within the Indira Dock, and may include the setting up

of a floating dry dock (FDD) and upgrading the existing facility at

Hughes dry dock. CSL expects ~|100 crore of revenue from the MPT

by FY19E.

For the Andaman & Nicobar docks, management intends to spend

|10-15 crore by FY19E. Currently the opportunity is to repair 80

vessels of A & N administration.


Company Analysis

Revenues to grow at 15.3% CAGR in FY17-20E

We expect revenues to increase from | 2059 crore in FY17 to | 3156 crore

in FY20E at a CAGR of 15.3% in FY17-20E, mainly on the back of

accelerated growth in the shipbuilding segment. Over FY13-17, CSL

registered muted revenue CAGR of 7.3% on the back of growing higher

share of revenues in the ship repair segment. Contribution to revenue

from the ship repair segment increased from 13.8% in FY14 to 26.4% in

FY17. Accordingly, revenues from the ship repair segment grew 17.4%

CAGR in FY13-17 whereas it grew only 4.5% during the same period in

the shipbuilding segment.

However, going ahead, we expect revenues from shipbuilding to grow at

an accelerated rate of 17.9% in FY17-20E. In the ship repair segment, we

expect muted growth of 6.1% in FY17-20E due to current ship repair

capacity running at almost full utilisations. Accordingly, we expect

revenue contribution from the shipbuilding segment to increase from

73.5% in FY17 to 78.6% in FY20.

Exhibit 2: Revenue trend

2,059

2,308

2,653

3,156

-

500

1,000

1,500

2,000

2,500

3,000

3,500


| c

rore

Revenues


Exhibit 3: Shipbuilding revenue trend

1410

1643 16241514

1698

2052

2481

0

500

1000

1500

2000

2500

3000

FY14 FY15 FY16 FY17 FY18E FY19E FY20E

| c

rore

Shipbuilding

2.4%

17.9%

Source: Company, ICICIdirect.com, Research

Exhibit 4: Ship repair revenue trend

228196

367

544

610580

650

-100

100

300

500

700

900


| c

rore

Shiprepair

33.6%

6.1%



Exhibit 5: Revenue segmentation (%)

85.3% 88.4%81.4%

73.5% 73.6% 77.3% 78.6%

13.8% 10.5%18.4%

26.4% 26.4% 21.9% 20.6%

0%

20%

40%

60%

80%

100%

120%


Shipbuilding Shiprepair


EBITDA to grow at 11.1% CAGR in FY17-20E; margins to decline

The operating income grew at 13.2% CAGR over FY13-17. This was

despite subdued growth of 7.9% in revenue over the same period. This

was mainly due to accelerated growth of 17.4% in the ship repair

segment. As stated earlier, contribution to revenue from the ship repair

segment increased from 13.8% in FY14 to 26.4% in FY17. Ship repair

business, depending on the vessel mix, can earn EBITDA margins up to

40%. The shipbuilding segment, on the other hand, earns 5-15% EBITDA

margins. Higher growth in the ship repair segment helped CSL post better

margins of 18.4% in FY17 vs. 14.8% in FY13.

Going forward, we expect this trend to reverse primarily due to increasing

contribution of the shipbuilding segment. We expect the shipbuilding

segment to grow at 17.9% CAGR in FY17-20E and contribute 78.6% to the

total topline by FY20E. This is likely to lead to a decline in the operating

margin from 18.4% in FY17 to 16.5% in FY20E. Higher employee

expenses due to implementation of the Seventh Pay Commission are also

likely to put pressure on margins, going forward. We estimate a 16.3%

increase in employee expenses in FY17-20E. However, despite a decline

in EBITDA margins, we expect absolute EBITDA to grow at 11.1% CAGR

in FY17-20E vs. 13.4% in FY13-17. Thus, we expect CSL to report

absolute EBITDA of | 520 crore in FY20E.

Exhibit 6: EBITDA and EBITDA margin trend

2,1

07

2,2

22

2,5

22

2,8

69

3,3

44

355

379

411

447

520

17.8

18.4

17.8

16.9

16.5

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY16 FY17 FY18E FY19E FY20E

| cro

re

15

16

16

17

17

18

18

19

19

%

Revenues EBITDA EBITDA margin (%)



PAT to grow at 9.6% CAGR over FY17-20E

Net profit grew at 14.9% CAGR in FY13-17. This was higher than revenue

growth during the same period (7.9% CAGR in FY13-17) due to operating

leverage (ship repair business) and accelerated growth in other income of

the company. Other income of the company grew at 17.1% contributing

to higher PAT growth of 14.8% CAGR in FY13-17. Higher interest income

was due to growing cash balance on the books of the company. Cash

balance grew from | 573 crore in FY14 to | 1927 crore in FY17. Post the

receipts of IPO proceeds, cash balance is likely to further grow from |

1927 crore to | 2938 core. However, going forward, we expect this trend

to reverse due to depletion in cash reserves on account of capex

expenditure of | 270 crore, | 450 crore and | 750 crore in FY18E, FY19E

and FY20E, respectively. Accordingly, we expect the cash balance to

decline from | 2938 crore to | 2556 crore in FY20E. CSL’s management

intends to keep cash levels of 40-50% of the topline to meet any

delays/cost overruns in new and existing projects. Thus, in a reducing

cash balance scenario, other income is likely to reduce.

Accordingly, we expect PAT to grow at a CAGR of 9.6% from | 322 crore

in FY17 to | 424 crore in FY20E.

Exhibit 7: Interest income trend

93

114

164

214 216

188

0

50

100

150

200

250

FY15 FY16 FY17 FY18E FY19E FY20E

| c

rore

Interest Income


Exhibit 8: Cash balance trend

1927

29382826

2556

0

500

1000

1500

2000

2500

3000

3500


| c

rore

Cash Balance


Exhibit 9: PAT and PAT margin trend

273

322

377

404424

12.0

14.515.0

14.1

12.9

-

50

100

150

200

250

300

350

400

450


| c

rore

10

11

12

13

14

15

16

17

18

19

20

%

Net Profit Margins (%)


We expect PAT to grow at a CAGR of 8.1% from | 322

crore in FY17 to | 424 crore in FY20E


Return ratios to remain stable

In the last few years (FY13-17), the RoE, RoCE have improved from

15.3%, 15.8% in FY13 to 16.5%, 18.7%, respectively, in FY17. This was

due to an improving operating performance due to higher contribution

from the high margin ship repair business of the company. The company

also incurred marginal capex spending of less than | 50 crore per year

over the same period.

However, going forward, we expect return ratios (RoEs & RoCEs) to

moderate to 11.4% and 13.6%, respectively, in FY20E due to declining

operating margins and heavy capex spending of ~| 3000 crore in FY18E-

21E. Post completion of the capex, we expect CSL to deliver its historical

return ratios of 15-20%. We reiterate that over the past 10 years, the

company has delivered average RoEs of 18.5%.

Exhibit 10: Return ratios to improve

16.818.7

14.9 14.4 13.6

15.6 16.511.8 11.7 11.4

39.1

48.152.5

42.3

30.7

-

10

20

30

40

50

60


%

RoCE (%) RoE (%) RoIC (%)


CSL is one of those few public sector companies that have

a consistent history of delivering superior returns on capital

employed. We believe that despite huge capex plans in

FY18E-20E, CSL will report double digit return ratios in

FY18E, FY19E and FY20E, respectively


Cash flows set to improve; CFO/EBITDA healthy at 1x

The company is expected to generate healthy cash flows with cash flow

from operations (CFO) increasing from | 374 crore in FY17 to | 558 crore

in FY20E. The CFO/EBITDA ratio is likely to be healthy at 1.1x in FY20E.

Exhibit 11: CFO/EBITDA trend

480

374

416

504

558

355379

411

447

520

1.4

1.0 1.0

1.11.1

0

100

200

300

400

500

600


| c

rore

0

0

0

1

1

1

1

1

2

(x)

CFO EBITDA CFO:EBITDA


The free cash flow (FCF) generation is likely to be impacted by capex

expenditure over FY18E-20E. Thus, we expect CSL to report cash flows of

| 146 crore, | 54 crore and negative | 192 crore in FY18E, FY19E and

FY20E, respectively. Net cash as a percentage of net worth is also likely to

reduce from ~100% in FY17 to 69% in FY20E.

Exhibit 12: Strong FCF generation, FCF yield

1094

438

301

54

-192

146

-400

-200

0

200

400

600

800

1000

1200


| c

rore

-5

0

5

10

15

20

%

FCF FCF Yield


Exhibit 13: Net cash as percentage of net worth (47% in FY20E)

15761746

1951

3204

3455

3719

91

99

82

69

99 92

0

500

1000

1500

2000

2500

3000

3500

4000


| c

rore

0

20

40

60

80

100

120

%Networth As %age of Networth


Our interaction with the management suggests CSL’s working capital is

likely to remain stable at 45-50 days in FY17-20E. This is mostly on

account of defence orders where the company sometimes receives

advance payments for its orders (15% of the total contract value). On the

commercial side, to mitigate any strain on the balance sheet of the

company for delays/cost overruns, CSL prefers to have a cash balance

which is 40-50% of the contract value.

Going forward, CSL is also likely to pay healthy dividends of ~30% of

earnings in line with the government policy on dividends for profitable

PSUs. Thus, we expect healthy dividends payouts over FY17-20E.

We expect CSL to report healthy CFO/EBITDA of ~1.1x in

FY20E


Exhibit 14: Dividend payout to be 30%, going forward

24.1

28.4 27.7

7.78.5 8.3 8.9 9.4

29.7 31.232

30 30 30 30

0

5

10

15

20

25

30

35


| p

er s

hare

0

5

10

15

20

25

30

35

%

EPS DPS Dividend Payout


Exhibit 15: Working capital, best-in-class despite large and lumpy orders

42

33

35

35

35

88

56 60

62

6469

45 5

0

50

50

62

43

45

4749

0

20

40

60

80

100


Days

0

10

20

30

40

50

60

70

NW

C d

ays

Inventory Days Debtor Days

Creditor Days Net Working Capital Days



Outlook and valuation

CSL is the prime large shipbuilder of Government of India. The company

enjoys a near monopoly in shipbuilding and ship repair of large vessels. A

case in point is the shipbuilding order of IAC I – Vikrant, which was

awarded to CSL on a nomination basis. Similarly, the company has the

only commercial shipyard to have undertaken repair work of Indian

Navy's aircraft carriers, the INS Viraat and INS Vikramaditya. In any such

large projects where national security coupled with strong experience is

required, CSL is likely to emerge as the frontrunner. Being a government

company, it receives a number of orders on a nomination basis. Of the

domestic order book of ~| 2856 crore, the company has received

substantial orders on a nomination basis. We believe this trend is likely to

continue, going forward, also.

CSL also possesses a wide moat in the form of its infrastructure

capabilities. It currently has two large dry docks, three quays and a steel

stockyard that can hold 60,000 tonnes of steel. It also has India’s largest

hull fabrication shop that can process 2,000 tonnes of steel every month.

It has two gallantry cranes 150 tonnes & 300 tonnes and is in the process

of adding one more of 600 tonnes in its new facility. Strong infrastructure

capabilities coupled diverse competencies in the defence segment (both –

shipbuilding and ship repair) gives the company a significant edge over

any upcoming competition. CSL is one of the few companies among large

Indian public sector enterprises that have delivered consistent business

performance. The company delivered a topline, bottomline CAGR of

11.1%, 18.7%, respectively, in the past 10 years (FY07-17). It has also

clocked average RoEs, RoCEs of 15.5%, 16.5%, respectively, over FY12-

17. This is despite turbulent times in the global shipbuilding industry and

slow pace of decision making in the Indian defence industry.

CSL also has a healthy order book of | 2,337 crore plus L1 status for ASW

vessels (| 5400 crore) and 56 boats (| 380 crore). It is also likely to receive

order for phase III of IAC, which is likely to be ~| 10,270 crore (| 3000

crore as fixed price contract and | 7270 crore as cost-plus contract). This

takes the total order backlog to | 18,737 crore (adding shiprepair orders

of | 350 crore). We believe these orders give strong revenue visibility to

CSL till FY23. With healthy balance sheet, significant capacity additions,

healthy order pipeline and strong execution capabilities, we believe CSL

will clock revenue, EBITDA and PAT CAGR of 15.3%, 11.1% and 9.6%,

respectively, in FY17-20E. We value CSL at 21x FY20E earnings for

existing business (| 655/share) plus 0.2x (| 26/share) and 0.6x (| 44/share)

for its planned capex in shipbuilding and ship repair segment,

respectively, to arrive at SOTP value of | 725/ share. We have BUY

recommendation on the company.

Exhibit 16: SOTP Value of CSL

Sr.No. SOTP Valuation Multiplication factor Value ( | per share)

1 Base business FY20E EPS of | 31.2 21 655

2 For new dry dock 1799 0.2 26

3 For new ISRF 969 0.6 44

725


CSL is the prime large shipbuilder of Government of India.

The company enjoys a near-monopoly in shipbuilding and

ship repair of large vessels. CSL also possesses a wide

moat in the form of its infrastructure capabilities. It has

two large dry docks and India’s largest hull fabrication

shop that can process 2,000 tonnes of steel every month


Recommendation history vs. consensus

0

20

40

60

80

100

120

0

100

200

300

400

500

600

700

800

Feb-18Nov-17Sep-17

(%

)(|)

Series1 Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research, Initiated coverage on 10th October 2017

Key events

[

Year Event

1969

Cochin Shipyard was chosen for the launch of the first greenfield shipbuilding yard in the country. Yard was designed and constructed under technical

collaboration with M/s Mitsubishi Heavy Industries (MHI), Japan.

1978-81 Shipbuilding operations commenced in 1978 and shiprepair in 1981.

2008 Company receives Miniratna Category I status

2009 Keel laying of first indigenous aircraft carrier for Indian Navy in February 2009

2010 Receives order for building 20 fast patrol vessels for Indian Coast Guard

2015 Obtains license from GTT to build LNG Ships using the containment system, Mark-III Technology in Dec 2015

2017 CSL lists on stock exchanges, receives order for building eight ASW SWC for the Indian Navy via competitive bidding


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date O/S Position Position Change

1 Government of India 30-09-2017 75.00% 101.95M 0

2 Reliance Nippon Life Asset Management Limited 30-09-2017 3.85% 5.24M -1.65M

3 PineBridge Investments Asset Management Company (India) Private Limited 30-09-2017 1.64% 2.24M +2.24M

4 HDFC Asset Management Co., Ltd. 30-09-2017 1.31% 1.78M -0.04M

5 Mirae Asset Global Investments (India) Pvt. Ltd. 31-12-2017 0.83% 1.12M -0.05M

6 BNP Paribas Asset Management Asia Limited 31-10-2017 0.64% 0.87M +0.50M

7 Invesco Asset Management (India) Private Limited 30-11-2017 0.45% 0.61M 0

8 BNP Paribas Asset Management India Pvt. Ltd. 31-12-2017 0.41% 0.56M 0

9 IDFC Asset Management Company Private Limited 30-11-2017 0.30% 0.41M +0.11M

10 Sundaram Asset Management Company Limited 31-12-2017 0.16% 0.22M -0.13M

(in %) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17

Promoter 100.0 100.0 100.0 75.0 75.0

FII 0.0 0.0 0.0 3.1 3.5

DII 0.0 0.0 0.0 10.6 10.9

Others 0.0 0.0 0.0 11.3 10.6

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

PineBridge Investments Asset Management Company (India) Private Limited+17.80M +2.24M Reliance Nippon Life Asset Management Limited -13.13M -1.65M

BNP Paribas Asset Management Asia Limited +4.45M +0.50M Canara Robeco Asset Management Company Ltd. -3.76M -0.42M

Franklin Templeton Investments (Asia) Ltd. +0.87M +0.11M Sundaram Asset Management Company Limited -1.12M -0.13M

IDFC Asset Management Company Private Limited +0.93M +0.11M Mirae Asset Global Investments (India) Pvt. Ltd. -0.44M -0.05M

FIL Investment Management (Singapore) Ltd. +0.32M +0.04M ICICI Prudential Asset Management Co. Ltd. -0.35M -0.04M

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(| Crore) FY17 FY18E FY19E FY20E

Net Sales 2,062 2,308 2,632 3,131

Operating income - - 21 25

Revenue 2,059 2,308 2,653 3,156

% Growth 3.3 12.1 14.9 19.0

Other income 163.6 214.1 216.2 188.4

Total 2,226 2,534 2,869 3,344

% Growth 5.6 13.9 13.2 16.6

Raw Mtl costs 1,314 1,489 1,734 2,098

Employee Expenses 217 247 276 313

other expenses 135 138 168 194

Total Operating Exp. 1,679 1,897 2,205 2,636

Operating Profit (EBITDA) 379 411 447 520

% Growth 6.9 8.3 8.9 16.2

Interest 11 12 12 18

PBDT 533 613 651 690

Depreciation 39 42 48 57

PBT & Except. items 494 571 604 633

Total Tax 172 194 199 209

PAT before MI 322 377 404 424

Minority Interest - - - -

PAT 322 377 404 424

% Growth 18.1 17.1 7.2 4.9

EPS 28.4 27.7 29.7 31.2

EPS (Post IPO dilution) 23.7 27.7 29.7 31.2


Cash flow statement | Crore


Profit after Tax 322 322 404 424

Depreciation 39 39 48 57

Interest 11 11 12 18

Cash Flow before WC changes 371 371 464 499

Changes in inventory 45 (35) (33) (48)

Changes in debtors 168 (66) (71) (103)

Changes in loans & Advances 52 4 (34) (50)

Changes in other CA (59) (2) (18) (27)

Net Increase in Current Assets 206 (99) (157) (228)

Changes in creditors (119) 61 47 69

Changes in provisions 4 59 46 67

Net Inc in Current Liabilities (204) 144 196 287

Net CF from Operating activities 374 416 504 558

Changes in deferred tax assets 33 - - -

(Purchase)/Sale of FA (73) (270) (450) (750)

Net CF from Inv.activities (56) (270) (450) (750)

Dividend and Dividend Tax (118) (136) (146) (153)

Net CF from Financing Activities (128) 866 (166) (78)

Net Cash flow 189 1,011 (112) (271)

Opening Cash/Cash Equivalent 1,737 1,927 2,938 2,826

Closing Cash/ Cash Equivalent 1,927 2,938 2,826 2,556


Balance sheet | Crore


Equity Capital 113.3 135.9 135.9 135.9

Reserve and Surplus 1,837 3,068 3,319 3,582

Total Shareholders funds 1,951 3,204 3,455 3,719

Minority Interest - - - -

Total Debt 123 123 123 223

Total Liabilities 2,076 3,330 3,580 3,944

Gross Block 700 756 981 1,511

Acc: Depreciation 328 369 417 474

Net Block 372 387 564 1,037

Capital WIP 56 270 495 715

Total Fixed Assets 429 657 1,059 1,752

Non Current Assets 53 53 53 53

Inventory 186 221 254 303

Debtors 314 379 451 553

Loans and Advances 234 231 265 316

Other Current Assets 120 122 141 167

Cash 1,927 2,938 2,826 2,556

Total Current Assets 2,781 3,892 3,937 3,894

Current Liabilities 255 316 363 432

Provisions 247 306 352 419

Net Current Assets 1,595 2,562 2,410 2,081

Total Assets 2,076 3,330 3,580 3,944


Key ratios

(Year-end March) FY17 FY18E FY19E FY20E

Per Share Data

EPS 23.7 27.7 29.7 31.2

Cash per Share 170.1 216.1 207.9 188.0

BV 143.5 235.7 254.1 273.6

Dividend per share 8.5 8.3 8.9 9.4

Dividend payout ratio 0.3 0.3 0.3 0.3

Operating Ratios

EBITDA Margin 18.4 17.8 16.9 16.5

PAT Margin 14.5 15.0 14.1 12.7

Return Ratios

RoE 16.5 11.8 11.7 11.4

RoCE 18.7 14.9 14.4 13.6

RoIC 48.1 52.5 42.3 30.7

Valuation Ratios

EV / EBITDA 14.1 10.5 9.9 9.2

P/E 22.2 18.9 17.6 16.8

EV / Net Sales 2.6 1.9 1.7 1.5

Sales / Equity 1.1 0.7 0.8 0.8

Market Cap / Sales 3.5 3.1 2.7 2.3

P/BV 3.7 2.2 2.1 1.9

Turnover Ratios

Asset Turnover Ratio 2.9 3.1 2.7 2.1

Debtors Turnover Ratio 5.2 6.7 6.4 6.3

Creditors Turnover Ratio 6.5 8.1 7.8 7.9

Solvency Ratios

Debt / Equity 0.1 0.0 0.0 0.1

Current Ratio 1.7 1.5 1.5 1.5

Quick Ratio 1.3 1.1 1.2 1.2



RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


Disclaimer

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issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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