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Emkay Global Financial Services Ltd. January 06, 2010 |1

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Contents

Equity Advisory May 29, 2014


2/22

Your success is our success

Emkay

Res

ultUpdate

Emkay Global Financial Services Ltd. 1

Financial Snapshot (Consolidated) (Rsmn)

YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

FY13A 54,911 4,987 9.1 3,075 25.8 -22.1 17.6 34.6 20.6 5.7

FY14E 50,998 4,120 8.1 2,749 23.1 -10.6 14.1 38.7 24.8 5.2

FY15E 55,344 4,807 8.7 3,177 26.7 15.6 14.9 33.5 21.1 4.8

FY16E 67,454 6,408 9.5 4,278 35.9 34.6 18.0 24.9 15.4 4.2

Thermax

Concerns persist, Retain Reduce

May 29, 2014

Rating

Reduce

Previous Reco

Reduce

CMP

Rs893

Target Price

Rs720

EPS Chg FY15E/FY16E (%) -15/--

Target Price change (%) 35

Nifty 7,330

Sensex 24,566

Price Performance

(%) 1M 3M 6M 12M

Absolute 21 28 38 53

Rel. to Nifty 12 10 15 26

Source:Bloomberg

Relative price chart

500

585

670

755

840

925

May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14

Rs

0

8

16

24

32

40%

Thermax (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector Engineering & Capital Goods

Bloomberg TMX IB

Equity Capital (Rs mn) 238

Face Value(Rs) 2

No of shares o/s (mn) 119

52 Week H/L 945/ 526

Market Cap (Rs bn/USD mn) 106/ 1,807

Daily Avg Volume (No of sh) 95,287

Daily Avg Turnover (US$mn) 1.2

Shareholding Pattern (%)Mar'14 Dec'13 Sep'13

Promoters 62.0 62.0 62.0

FII/NRI 16.6 16.2 15.3

Institutions 6.8 7.2 8.3

Private Corp 2.9 2.8 2.4

Public 11.8 11.9 12.1

Source: Bloomberg

n Revenues decline by 6% YoY to Rs13.8bn Energy -4%,

Environment -15%. EBITDAM down by 170bps YoY to 9.7%,

APAT down by 8% YoY to Rs1bn

n EBITM in Environment segment down by 920bps to 2.6% led

by losses in water & waste solutions and margin decline in

the air pollution control products

n Order inflows (consolidated) at Rs14bn. Order backlog at

Rs61bn up 25% YoY

n Strong balance sheet but expensive valuations factors in the

same. Maintain Reduce with target price of Rs720/share

Earnings continue to decline

Thermax reported disappointing numbers for the eight consecutive quarter in a row.

Revenues declined by 6% YoY to Rs13.8bn led by Energy (-4% yoy) and Environment(-15% yoy). EBITDA fell by 20% yoy to Rs1.33bn as EBITDAM eroded by 170 bps to

9.7%, impacted by losses in water & waste solutions and the margin decline in air

pollution control products. As a result, the PBT fell by 15% yoy to Rs1.5bn while the

decline in PAT was limited to 8% yoy to Rs1bn, helped by lower tax rates. For FY14,

revenues dipped by 8% to Rs43bn with the energy and environment segment declining

by 9.8% and 6.3% respectively. While the EBITM in the energy segment improved by

89bps to 11.3%, the environment segment reported 491bps decline to 5.6%. EBITDA

and PAT declined by 19% and 28% to Rs4bn and Rs2.5bn respectively.

Sustains order flow momentum

Order intake during the quarter remained flat at Rs11bn while the backlog at the end of

the quarter stood at Rs54bn. While no orders have been finalized in the EPC segment,

other businesses of cooling, chemicals, services, water and air pollution recorded strong

order flows. The company closed FY14 with order inflow of Rs54bn (+11%). Order

intake (consol) for 4QFY14 and FY14 was Rs14bn and Rs65bn (+14%) respectively,

while the backlog (consol) stood at Rs61bn (+25%).

Cut earnings by 15% for FY15E

Management expects the losses attributable to the water and waste treatment to spill

over into the next quarter and taper off by H1FY15E as bulk of the pending orders

achieve completion. Aggressive competition coupled with paucity of orders in energy

segment is impacting margins on incremental orders. The scope for enhancing margins

by continuously improving manufacturing efficiencies is also limited. We have revised

down our FY15E earnings estimates by 15% to Rs27 and introduce FY16E earnings

with an EPS of Rs36.

Concerns persist, Retain Reduce

Although Thermax has been able to sustain order inflow momentum, concerns persist

on operating margins and operational losses in the super-critical venture impacting

group profits. Thermax has a strong balance sheet, but its expensive valuations (34X

FY15E and 25X FY16E earnings) factors in the same. We maintain REDUCE with

revised target price of Rs720.


3/22

Thermax Result Update

Emkay Research May 29, 2014 2

Exhibit 1: Quarterly financial (Standalone)

Rs mn Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 YoY (%) QoQ (%)

Revenue 14,682 8,628 10,433 10,138 13,825 -5.8 36.4

Expenditure 13,009 7,814 9,496 9,229 12,486 -4.0 35.3

Consumption of RM 10,027 5,026 6,717 6,803 9,102 -9.2 33.8

as % of sales 68.3 58.3 64.4 67.1 65.8

Employee Cost 1,078 991 1,008 1,039 1,189 10.3 14.4

as % of sales 7.3 11.5 9.7 10.2 8.6

Other expenditure 1,905 1,797 1,772 1,387 2,196 15.3 58.3

as % of sales 13.0 20.8 17.0 13.7 15.9

EBITDA 1,672 814 937 908 1,339 -20.0 47.4

Depreciation 145 142 140 147 148 2.1 0.7

EBIT 1,527 672 797 761 1,191 -22.0 56.4

Other Income 244 81 75 229 351 43.8 53.3

Interest 5 8 19 23 39 723.9 70.5

PBT 1,767 745 853 968 1,503 -14.9 55.3

Total Tax 614 243 261 301 444 -27.7 47.4

Adjusted PAT 1,153 503 592 666 1,059 -8.2 58.9Extra ordinary items 0 0 -290 0 0 NA NA

Reported PAT 1,153 503 302 666 1,059 -8.2 58.9

Adjusted EPS (Rs) 9.7 4.2 5.0 5.6 8.9 -8.2 58.9

Margins (%) (bps) (bps)

EBIDTA 11.4 9.4 9.0 9.0 9.7 -170 70

EBIT 10.4 7.8 7.6 7.5 8.6 -180 110

EBT 12.0 8.6 8.2 9.5 10.9 -120 130

PAT 7.9 5.8 5.7 6.6 7.7 -20 110

Effective Tax rate 34.7 32.6 30.6 31.1 29.5 -520 -160

Source: Company, Emkay Research

Exhibit 2: Quarterly Snapshot (Consolidated)


Consolidated Results

Revenues 16,800 10,517 12,331 12,175 15,976 -4.9 31.2

Net Profit 1,040 529 353 623 955 -8.2 53.3

Subsidiaries Results

Revenues 2,118 1,888 1,898 2,037 2,152 1.6 5.7

Net Profit -113 27 51 -44 -105 -7.5 140.7


Exhibit 3: Order Backlog Details (Consolidated)

Rs mn Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 YoY (%) QoQ (%)Order Inflows 13,660 26,110 9,710 15,140 13,590 -0.5 -10.2

Order Backlog 48,780 63,220 61,280 64,450 61,210 25.5 -5.0

Order Book Cover 0.90 0.89 0.00 0.00 0.00



4/22



Exhibit 4: Segmental Performance (Standalone)


Segment Revenues

Energy 11,391 6,339 7,851 7,671 10,968 -3.7 43.0

Environment 3,500 2,397 2,684 2,538 2,978 -14.9 17.3

Less: Intersegment Revenues 209 107 103 71 121 - -

Total 14,682 8,628 10,433 10,138 13,825 -5.8 36.4

Segment Results

Energy 1,191 732 922 832 1,232 3.5 48.0

Environment 413 215 242 59 78 -81.2 32.5

Total 1,603 947 1,164 891 1,310 -18.3 47.0

Add- Unall Income / (Exp) 168 -193 -292 100 232 38.0 133.4

Less- Interest Exp 5 8 19 23 39 723.9 70.5

PBT 1,767 745 853 968 1,503 -14.9 55.3

Segment Capital Employed

Energy 5,338 6,032 3,389 1,780 2,927 -45.2 64.5

Environment 2,789 2,823 2,954 3,403 3,434 23.1 0.9

Unallocated 10,566 10,082 13,086 14,766 13,888 31.4 -5.9Total 18,693 18,937 19,429 19,949 20,250 8.3 1.5

Segment Margins (%) (bps) (bps)

Energy 10.5 11.5 11.7 10.9 11.2 80 40

Environment 11.8 9.0 9.0 2.3 2.6 -920 30

Average 10.8 10.8 11.0 8.7 9.4 -140 70


Exhibit 5: Revision in Earning Estimates

Y/E, Mar FY15E FY16E

Rs Mn Earlier Revised % Change Introduce

Revenues 58,909 55,344 -6.1 67,454

EBITDA 5,964 4,807 -19.4 6,408EBITDA Margin (%) 10.1 8.7 -140 bps 9.5

APAT 3,726 3,177 -14.7 4,278

EPS (Rs) 31.3 26.7 -14.7 35.9

Order Inflows 63,000 63,000 0.0 75,600

Order Backlog 58,624 62,712 7.0 70,858



5/22



Key Financials (Consolidated)

Income Statement

Y/E Mar (Rsmn) FY13A FY14A FY15E FY16E

Net Sales 54,331 50,998 55,344 67,454

Growth (%) -9.9 -6.1 8.5 21.9

Expenditure 49,924 46,878 50,537 61,046Employee Cost 6,122 6,484 7,291 8,699

Other Exp 2,440 2,359 2,581 2,965

SG&A 3,624 4,081 4,338 4,864

EBITDA 4,987 4,120 4,807 6,408

Growth (%) -16.0 -17.4 16.7 33.3

EBITDA marg in (%) 9.1 8.1 8.7 9.5

Depreciation 771 800 887 987

EBIT 4,217 3,320 3,919 5,421

EBIT marg in (%) 7.7 6.5 7.1 8.0

Other Income 636 731 838 967

Interest expenses 165 157 157 157

PBT 4,687 3,893 4,600 6,230Tax 1,773 1,167 1,445 1,976

Effective tax rate (%) 37.8 30.0 31.4 31.7

Adjusted PAT 2,914 2,727 3,155 4,255

Growth (%) -24.0 -6.4 15.7 34.9

Net Margin (%) 5.3 5.3 5.7 6.3

(Profit)/loss from JVs/Ass/MI 161 23 23 23

Adj. PAT After JVs/Ass/MI 3,075 2,749 3,177 4,278

E/O items 127 -290 0 0

Reported PAT 3,201 2,459 3,177 4,278

PAT after MI 3,075 2,749 3,177 4,278

Growth (%) -22.1 -10.6 15.6 34.6

Balance Sheet


Equity share capital 238 238 238 238

Reserves & surplus 18,449 20,060 22,130 24,965

Net worth 18,687 20,298 22,368 25,203Minority Interest 1,103 1,080 1,057 1,034

Secured Loans 4,170 4,170 4,170 4,170

Unsecured Loans 40 40 40 40

Loan Funds 4,210 4,210 4,210 4,210

Net deferred tax liability 383 383 383 383

Total Liabilities 24,382 25,970 28,018 30,830

Gross Block 12,962 13,722 14,722 15,722

Less: Depreciation 4,236 5,035 5,923 6,910

Net block 8,727 8,687 8,800 8,812

Capital work in progress 5,175 5,175 5,175 5,175

Investment 4,430 6,430 6,430 6,430

Current Assets 31,319 31,051 34,138 42,155Inventories 3,240 4,929 5,228 6,202

Sundry debtors 15,467 14,173 15,381 18,746

Cash & bank balance 3,211 1,794 2,474 5,676

Loans & advances 1,625 2,380 3,279 3,754

Other current assets 7,776 7,776 7,776 7,776

Current lia & Prov 25,268 25,372 26,525 31,742

Current liabilities 22,456 23,350 24,336 28,984

Provisions 2,812 2,022 2,189 2,758

Net current assets 6,051 5,679 7,614 10,413

Misc. exp 0 0 0 0

Total Assets 24,382 25,970 28,018 30,830

Cash Flow


PBT (Ex-Other income) 4,051 3,163 3,762 5,264

Depreciation 771 800 887 987

Interest Provided 165 157 157 157

Other Non-Cash items 203 -290 0 0

Chg in working cap -2,627 -1,045 -1,255 403

Tax paid -2,206 -1,167 -1,445 -1,976

Operating Cashflow 1,022 1,618 2,107 4,835

Capital expenditure -3,765 -760 -1,000 -1,000

Free Cash Flow -2,743 858 1,107 3,835

Other income 636 731 838 967Investments -2,035 -2,000 0 0

Investing Cashflow -5,164 -2,029 -162 -33

Equity Capital Raised 0 0 0 0

Loans Taken / (Repaid) 1,506 0 0 0

Interest Paid -165 -157 -157 -157

Dividend paid (incl tax) -969 -848 -1,107 -1,443

Income from investments 0 0 0 0

Others 0 0 0 0

Financing Cashflow 371 -1,006 -1,265 -1,600

Net chg in cash -3,771 -1,417 680 3,202

Opening cash position 6,983 3,211 1,794 2,474

Closing cash position 3,211 1,794 2,474 5,676

Key Ratios

Y/E Mar FY13A FY14A FY15E FY16E

Profitability (%)

EBITDA Margin 9.1 8.1 8.7 9.5

Net Margin 5.3 5.3 5.7 6.3

ROCE 21.6 16.1 17.6 21.7

ROE 17.6 14.1 14.9 18.0

RoIC 41.7 27.5 29.6 39.4

Per Share Data (Rs)

EPS 25.8 23.1 26.7 35.9

CEPS 32.3 29.8 34.1 44.2

BVPS 156.8 170.4 187.7 211.5DPS 9.0 7.0 7.0 6.0

Valuations (x)

PER 34.6 38.7 33.5 24.9

P/CEPS 27.7 30.0 26.2 20.2

P/BV 5.7 5.2 4.8 4.2

EV / Sales 1.9 2.0 1.8 1.5

EV / EBITDA 20.6 24.8 21.1 15.4

Dividend Yield (%) 1.0 0.8 0.8 0.7

Gearing Ratio (x)

Net Debt/ Equity -0.2 -0.2 -0.2 -0.3

Net Debt/EBIDTA -0.7 -1.0 -1.0 -1.2

Working Cap Cycle (days) 18.9 27.8 33.9 25.6


6/22


Emkay

Res

ultUpdate


Financial Snapshot (Standalone) (Rsmn)



FY13A 33,678 7,589 22.5 3,542 25.3 15.3 26.3 12.6 5.4 3.0

FY14E 39,009 7,913 20.3 3,610 25.8 1.9 22.9 12.3 4.9 2.6

FY15E 42,834 8,236 19.2 3,730 26.6 3.3 20.9 11.9 4.5 2.4

FY16E 49,776 8,357 16.8 3,810 27.2 2.2 19.1 11.7 4.1 2.1

Indraprastha Gas

Muted volume growth

May 29, 2014

Rating

Hold

Previous Reco

UR

CMP

Rs313

Target Price

Rs327

EPS Chg FY15E/FY16E (%) NA

Target Price change (%) NA

Nifty 7,330

Sensex 24,566

Price Performance

(%) 1M 3M 6M 12M


Rel. to Nifty 1 6 -5 -9

Source:Bloomberg


200

230

260

290

320

350


Rs

-20

-12

-4

4

12

20%

Indraprastha Gas (LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector Oil & Gas

Bloomberg IGL IB

Equity Capital (Rs mn) 1,400

Face Value(Rs) 10


52 Week H/L 345/ 235

Market Cap (Rs bn/USD mn) 37/ 596




Promoters 45.0 45.0 45.0

FII/NRI 15.5 19.6 18.9



Public 6.9 7.3 7.3

Source: Bloomberg

Results were inline with our expectations at sales & PAT

level. Sales at Rs9.7bn, down 7% qoq, while PAT at Rs.0.90bn,

marginally up by 1.2% qoq.

Volume remains flat qoq, to 3.82mmscmd. Sequentially, CNG

declined by 1% to 191mnkg, while PNG volumes up by 3.1% to

92mmscm respectively

Gross margin declined by 15% qoq to Rs8.5/scm, mainly on

the back of change in CGD guideline, resulting into lower APM

gas supply for 8-10days, which replaced with costly LNG

Going ahead, volume growth in across the segment

determines the stock performance. Moreover, regulatory

uncertainty still persists in the stock. We recommended Hold

rating (Under Review earlier) with the target of Rs327

Highlights of the results

Revenue for the quarter was at Rs.9.7bn, (our estimates at Rs.9.6bn) decline of 7% qoq.

Sequential decline in revenue is mainly due to change in CGD guideline where company

has cut CNG and PNG price on 100% APM gas allocation and pass through benefit to

the consumers of lower gas cost. However, EBITDA declined on qoq by 1.5% to

Rs.1.9bn on the back of lower APM gas supply for 8-10days due to change in CGD

guideline which replaced with costly LNG. EBITDA/Scm remains flat qoq to Rs.5.5/scm.

PAT came at Rs.0.90bn, (our estimates at Rs.0.9bn) marginally up by 1.2% qoq.

CNG realisation declined from Rs50/kg to Rs41/kg on change in CGDguideline

During the quarter CNG volumes declined by 1% qoq to 191mnkgs. However, recentchange in CGD guideline (100% APM gas allocation to CNG and Domestic (PNG)

users) CNG prices came down to Rs.40.9/kg from Rs.50/kg earlier.

Sequentially, PNG volumes improved; while realisation remains flat

During the quarter, PNG volume improved by 3.2% qoq to 92mmscm mainly due to

recovery in industrial customers demand on the back of favorable pricing in LNG price

vs. FO, which declined from $19/mmbtu to $16/mmbu currently. PNG realization for the

quarter stood at Rs30.8/scm, growth of 12.8% yoy and flat qoq.

Outlook and Valuations

During the quarter gross margins declined on change in CGD guideline where company

has not received APM supply for ~8-10 days, which replaced with costly LNG. Webelieve the company would maintain its margin in the forthcoming quarters, on the back

of the recent change in CGD guideline (100% APM gas allocation to CNG and Domestic

users (PNG).

Going ahead, volume growth in across the segment determines the stock price

performance. Moreover regulatory uncertainty still persists in the stock. We

recommended Hold (Under Review earlier) rating with the target of Rs327. At CMP of

Rs313, stock trades at 11.7x FY16EPS and 2.1x P/BV.


7/22

Indraprastha Gas Result Update


Exhibit 1: Quarterly Financials

Rs mn Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 YoY (%) QoQ (%) FY14 FY13 YoY (%)

Revenue 8824.0 9027.0 10100.3 10413.9 9680.5 9.7 -7.0 39222 33677 16.5

Expenditure 6969.5 7087.8 8089.0 8462.4 7758.6 11.3 -8.3 31398 26088 20.4

as % of sales 79.0 78.5 80.1 81.3 80.1 80 77

Consumption of RM 5850.1 5954.7 6925.6 7152.1 6780.3 15.9 -5.2 26813 21970 22.0

as % of sales 66.3 66.0 68.6 68.7 70.0 68 65

Employee Cost 178.2 146.8 147.6 156.4 144.8 -18.7 -7.4 596 567 5.0

as % of sales 2.0 1.6 1.5 1.5 1.5 2 2

Other expenditure 941.2 986.3 1015.8 1153.9 833.5 -11.4 -27.8 3990 3551 12.4

as % of sales 10.7 10.9 10.1 11.1 8.6 10 11

EBITDA 1854.5 1939.2 2011.3 1951.5 1921.9 3.6 -1.5 7824 7589 3.1

Depreciation 488.6 531.5 547.9 558.3 557.6 14.1 -0.1 2195 1866

EBIT 1365.9 1407.7 1463.4 1393.2 1364.3 -0.1 -2.1 5629 5723 -1.6

Other Income 31.3 38.1 38.4 70.2 64.2 105.3 -8.5 211 122

Interest 125.2 128.0 98.1 118.9 96.3 -23.1 -19.0 441 562

PBT 1272.0 1317.8 1403.7 1344.5 1332.2 4.7 -0.9 5398 5282 2.2

Total Tax 436.8 442.0 476.2 449.9 427.3 -2.2 -5.0 1795 1741Adjusted PAT 835.2 875.8 927.5 894.6 904.9 8.3 1.2 3603 3542 1.7

(Profit)/loss from JV's/Ass/MI 0 0 0 0 0 0 0

APAT after MI 835.2 875.8 927.5 894.6 904.9 8.3 1.2 3603 3542

Extra ordinary items 0 0 0 0 0 0

Reported PAT 835.2 875.8 927.5 894.6 904.9 8.3 1.2 3603 3542

Reported EPS 5.97 6.26 6.62 6.39 6.46 8.2 1.1 26 25 1.7

Margins (%) (bps) (bps) (bps)

EBIDTA 21.0 21.5 19.9 18.7 19.9 -116.3 111.4 19.9 22.5 -258.7

EBIT 15.5 15.6 14.5 13.4 14.1 -138.6 71.5 14.4 17.0 -264.2

EBT 14.4 14.6 13.9 12.9 13.8 -65.4 85.1 13.8 15.7 -192.2

PAT 9.5 9.7 9.2 8.6 9.3 -11.7 75.7 9.2 10.5 -133.1

Effective Tax rate 34.3 33.5 33.9 33.5 32.1 -226.6 -138.7 33.3 33.0 30.9

Source: Emkay Research

Exhibit 2: Key operating matrix

Particular Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14

CNG volume (in Mn Kg) 193.6 193.5 187.0 191.0 198.7 193.0 191.0

% Growth, YoY 9.2 7.6 3.9 4.4 2.6 -0.3 2.1

% Growth, QoQ 5.8 -0.1 -3.4 2.1 4.0 -2.9 -1.0

PNG volume (mmscm) 81.4 83.5 88.0 86.0 89.5 89.2 92.0

% Growth, YoY 19.4 17.4 12.8 7.5 10.0 6.9 4.5

% Growth, QoQ 1.8 2.6 5.4 -2.3 4.1 -0.3 3.1Total Volume (mmscm) 338.9 340.9 336.7 338.1 351.8 344.0 344.1

% Change YoY 10.5 8.9 5.2 4.6 3.8 0.9 2.2

% Change QoQ 4.8 0.6 -1.2 0.4 4.0 -2.2 0.0

Unit realisation/scm 25.2 25.5 26.2 26.7 28.7 30.2 28.1

% Growth, YoY 29.6 20.2 16.4 13.3 13.8 18.8 7.2

% Growth, QoQ 7.2 1.0 2.8 1.8 7.6 5.5 -7.1

Cost/scm 16.1 16.9 17.4 17.6 19.6 20.2 19.6

% Growth, YoY 38.2 24.8 21.4 16.2 21.5 19.9 12.8

% Growth, QoQ 6.4 4.6 2.9 1.5 11.2 3.3 -3.2

EBIDTA/scm 6.1 5.5 5.5 5.7 5.7 5.5 5.5

% Growth, YoY 18.1 14.0 3.6 2.7 -6.9 0.2 0.4

% Growth, QoQ 9.5 -9.8 0.0 3.9 -0.7 -3.0 0.3

Source: Emkay Research, Company


8/22



Exhibit 3: CNG volume growth

0

40

80

120

160

200

240

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

mnKg

-4

0

4

8

12

16

20

(%)

CNG Volume (Mn Kg) % Growth, YoY Source: Company, Emkay Research

Exhibit 4: PNG volume growth

020

40

60

80

100

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

mmscm

0

40

80

120

(%)

PNG volume (mmscm) % Grow th, YoY


Exhibit 5: Sales Realization/ scm trend

0

2000

4000

6000

8000

10000

12000

Q4FY11

Q1FY12

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Rsinmn

0

10

20

30

40

Rs/Scm

Sales Unit realisation/scm Source: Company, Emkay Research

Exhibit 6: EBIDTA/scm trend

0.0

2.0

4.0

6.0

8.0

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Rs/scm

-20

-10

0

10

20

%c

hang

e

EBIDTA/scm % change, QoQ % change, YoY


Exhibit 7: CNG price realization trend

0

10

20

30

40

50

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Rs/Kg

-20

-10

0

10

20

30

%C

hange

CNG Price Realization % Change, YoY % Change, QoQ


Exhibit 8: PNG price realization trend

0

10

20

30

40

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Rs/scm

-20

0

20

40

60

%C

hange

PNG Price Realization % Change, YoY % Change, QoQ



9/22



Key Financials (Standalone)

Income Statement

Y/E Mar (Rsmn) FY13A FY14E FY15E FY16E

Net Sales 33,678 39,009 42,834 49,776

Growth (%) 33.7 15.8 9.8 16.2

Expenditure 26,089 31,095 34,597 41,419Employee Cost 567 611 674 730

Other Exp 0 0 0 0

SG&A 0 0 0 0

EBITDA 7,589 7,913 8,236 8,357

Growth (%) 19.3 4.3 4.1 1.5

EBITDA marg in (%) 22.5 20.3 19.2 16.8

Depreciation 1,867 2,208 2,352 2,392

EBIT 5,723 5,706 5,884 5,965

EBIT mar gin (%) 17.0 14.6 13.7 12.0

Other Income 122 192 197 201

Interest expenses 562 479 555 522

PBT 5,283 5,418 5,525 5,645Tax 1,741 1,808 1,796 1,834


Adjusted PAT 3,542 3,610 3,730 3,810

Growth (%) 15.3 1.9 3.3 2.2

Net Marg in (%) 10.5 9.3 8.7 7.7



E/O items 0 0 0 0

Reported PAT 3,542 3,610 3,730 3,810

PAT after MI 3,542 3,610 3,730 3,810

Growth (%) 15.3 1.9 3.3 2.2

Balance Sheet


Equity share capital 1,400 1,400 1,400 1,400


Net worth 14,685 16,821 18,912 21,084Minority Interest 0 0 0 0

Secured Loans 5,675 4,625 4,625 3,725


Loan Funds 5,675 4,625 4,625 3,725

Net deferred tax liability 2,555 2,555 2,555 2,555


Gross Block 27,673 30,173 32,673 35,173


Net block 18,929 19,222 19,369 19,478


Investment 984 984 984 984

Current Assets 3,485 4,869 7,172 9,597Inventories 428 434 471 509

Sundry debtors 1,684 1,950 2,142 2,489

Cash & bank balance 404 1,363 3,327 5,168

Loans & advances 830 962 1,056 1,227

Other current assets 138 160 176 205

Current lia & Prov 3,434 4,025 4,384 5,145


Provisions 1,066 1,263 1,336 1,594

Net current assets 51 844 2,788 4,452

Misc. exp 0 0 0 0

Total Assets 22,929 24,014 26,106 27,378

Cash Flow



Depreciation 1,867 2,208 2,352 2,392

Interest Provided 562 479 555 522

Other Non-Cash items 0 0 0 0

Chg in working cap -263 165 20 177

Tax paid -1,741 -1,808 -1,796 -1,834


Capital expenditure -4,200 -2,500 -2,500 -2,000

Free Cash Flow 1,508 3,962 4,157 4,900

Other income 0 0 0 0Investments 0 0 0 0

Investing Cashflow -4,200 -2,500 -2,500 -2,000


Loans Taken / (Repaid) 285 -1,050 0 -900

Interest Paid -562 -479 -555 -522

Dividend paid (incl tax) -1,147 -1,474 -1,638 -1,638


Others 0 0 0 0

Financing Cashflow -1,424 -3,003 -2,193 -3,060

Net chg in cash 84 959 1,964 1,840

Opening cash position 320 404 1,363 3,327

Closing cash position 404 1,363 3,327 5,168

Key Ratios

Y/E Mar FY13A FY14E FY15E FY16E

Profitability (%)

EBITDA Margin 22.5 20.3 19.2 16.8

Net Margin 10.5 9.3 8.7 7.7

ROCE 27.1 25.1 24.3 23.1

ROE 26.3 22.9 20.9 19.1

RoIC 33.9 30.6 31.4 31.7

Per Share Data (Rs)

EPS 25.3 25.8 26.6 27.2

CEPS 38.6 41.6 43.4 44.3

BVPS 104.9 120.1 135.1 150.6DPS 7.0 9.0 10.0 10.0

Valuations (x)

PER 12.6 12.3 11.9 11.7

P/CEPS 8.2 7.7 7.3 7.2

P/BV 3.0 2.6 2.4 2.1

EV / Sales 1.2 1.0 0.9 0.7

EV / EBITDA 5.4 4.9 4.5 4.1

Dividend Yield (%) 2.2 2.8 3.1 3.1

Gearing Ratio (x)

Net Debt/ Equity 0.3 0.1 0.0 -0.1

Net Debt/EBIDTA 0.6 0.3 0.0 -0.3

Working Cap Cycle (days) -2.8 -3.5 -3.7 -4.1


10/22


Emkay

Res

ultUpdate





FY13A 14,070 5,360 38.1 2,053 13.6 63.1 13.4 6.2 3.4 0.8

FY14A 13,710 4,672 34.1 1,859 12.3 -9.4 11.0 6.8 3.6 0.7

FY15E 13,768 4,643 33.7 2,051 13.6 10.4 11.2 6.2 4.7 0.7

FY16E 14,181 4,636 32.7 2,090 13.8 1.9 10.5 6.0 4.0 0.6

Gujarat Industries Power

Posts good numbers; maintain Buy

May 28, 2014

Rating

Buy

Previous Reco

Buy

CMP

Rs83

Target Price

Rs138



Nifty 7,330

Sensex 24,566

Price Performance

(%) 1M 3M 6M 12M


Rel. to Nifty 9 27 17 -10

Source: Bloomberg


50

60

70

80

90

100


Rs

-30

-22

-14

-6

2

10%

Gujarat Industries Power ( LHS) Rel to Nifty (RHS) Source: Bloomberg

Stock DetailsSector Power

Bloomberg GIP IB


Face Value(Rs) 10


52 Week H/L 95/ 53





Promoters 58.2 58.2 58.2

FII/NRI 1.7 1.7 2.1



Public 11.7 11.9 11.5

Source: Bloomberg

GIPCL posted good numbers on the back of high availability

(PAF) across plants (94.8% avg.). In Q4 the company

reported a PAT of Rs757mn vs our expectation of Rs644mn

GIPCLs Surat plants continued to report high PAF at 92%+

during 4Q14. Overall company-level PAF at ~90% for FY14

Reiterate Buy on attractive valuations (6.2xFY15E EPS and

0.7xFY15E book) given the low earnings risks and core RoEs

of 16-17%

We revise our PT to Rs138/sh from Rs101/sh, on roll forward

of our valuations to FY16 and increase in book value multiple

to 1.0x from 0.8x earlier. Key risks: lower gas availability for

captive plant and operational issues at Surat plant

Good performance backed by high plant availability

For Q4FY14 GICPL reported a PAT of Rs757mn which was better than our estimate of

Rs644mn led by high availability across plant with PAF at 94.8% (96.6% YoY and 93.8%

QoQ), and also high commercial availability. The PLF for the quarter improved to 67.1%

vs 61.8% YoY and 58.3% QoQ. The fuel cost stood at Rs1.6/unit against Rs1.3/unit in

Q4FY13 and Rs1.8/unit in Q3FY14. The realizations for the quarter stood at Rs3.1/unit

vs. Rs2.8/unit in Q4FY13 and Rs3.3/unit in Q3FY14.

Slight disappointment on Rs2.5/sh dividend for FY14

Despite the company deferring its lignite expansion plan, the dividend for FY14 has

been kept constant at Rs2.5/sh (same as for FY13, though the payout was higher). We

have assumed constant dividend for FY15-16 as well. The company has deferred its

plan for lignite expansion (600MW) by 1-2 years, however it now plans to set-up 300MW

of wind based capacity. We have assumed only 150MW of the 300MW planned wind

based capacity. The bids invited are on cost of generation basis, and PPA for the same

will be tied with GUVNL (tariff of ~Rs4.15/unit and incentives of ~Rs0.5/unit). The

company expects to earn a RoE of 15-17% from this project, which will be in line with

the core RoEs it currently earns.

Valuations attractive; reiterate Buy with a revised target price of Rs138

Despite a 20% run-up in the stock price over the past one month, GIPCL at its current

market price of Rs83, trades at 6.2x its FY15E earnings and 0.7x its FY15E book value,

which we feel is attractive given; 1) low earnings risk, and 2) core ROE of 16-17%. Wereiterate our Buy rating on GIPCL with a revised target price of Rs138/sh (Rs101/sh

earlier) on roll forward of our valuations to FY16 and increase in book value multiple to

1.0x (0.8x earlier) on general re-rating of the sector. Lower gas availability for captive

plant and operational issues at Surat plant are key risks.


11/22

Gujarat Industries Power Result Update


Exhibit 1: Result snapshot

Rs mn Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 YoY (%) QoQ (%) FY13 FY14 YoY (%)

Revenue 3,290 3,111 3,237 3,480 3,882 18.0 11.5 14,070 13,710 -2.6

Expenditure -1,917 -1,948 -2,273 -2,341 -2,376 24.0 1.5 -8,710 -8,938 2.6

as % of sales -58.3% -62.6% -70.2% -67.3% -61.2% -61.9% -65.2%

Fuel -1,442 -1,450 -1,789 -1,893 -1,892 31.3 0.0 -6,931 -7,023

as % of sales -43.8% -46.6% -55.3% -54.4% -48.7% -49.3% -51.2%

Employee Cost -160 -145 -148 -162 -147 -8.3 -9.0 -562 -602 7.1

as % of sales -4.9% -4.7% -4.6% -4.6% -3.8% -4.0% -4.4%

Other expenditure -315 -353 -337 -287 -337 7.0 17.3 -1,217 -1,314 7.9

as % of sales -9.6% -11.4% -10.4% -8.2% -8.7% -8.6% -9.6%

EBITDA 1,374 1,163 964 1,139 1,506 9.7 32.2 5,361 4,772 -11.0

Depreciation -390 -394 -398 -398 -391 0.2 -1.8 -1,608 -1,581 -1.7

EBIT 983 769 566 741 1,115 13.4 50.5 3,753 3,192 -14.9

Other Income 70 93 67 105 100 42.6 -4.7 231 364 58.0

Interest -254 -230 -223 -219 -210 -17.2 -4.1 -1,051 -883 -16.0

PBT 799 632 411 626 1,005 25.7 60.4 2,932 2,673 -8.8

Total Tax -183 -188 -98 -201 -248 -618 -735 19.0

Adjusted PAT 616 444 313 426 757 22.8 77.8 2315 1938 -16.3

Extra ordinary items 0 -80 0 0 0 -127 -80

Reported PAT 616 364 313 426 757 22.8 77.8 2187 1858 -15.0

Adjusted EPS 4.1 2.9 2.1 2.8 5.0 22.8 77.8 15.3 12.8 -16.3


EBIDTA 41.7 37.4 29.8 32.7 38.8 -295 607 38.1 34.8 -329

EBIT 29.9 24.7 17.5 21.3 28.7 -116 744 26.7 23.3 -339

EBT 24.3 15.1 12.7 18.0 25.9 159 788 20.8 19.5 -134

PAT 18.7 14.3 9.7 12.2 19.5 76 727 16.5 14.1 -231

Effective Tax rate 22.9 22.6 23.9 32.1 24.7 179 -739 21.1 27.5 643


Note: Annual numbers in the above table have been arrived on the basis of sum total of four quarters

Exhibit 2: Operational data

Particulars Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 YoY (%) QoQ (%) FY13 FY14 YoY (%)

Generation (Mn Units)

Vadodara-I 193 198 203 235 245 27.0 4.2 745 881 18.2

Vadodara-II 25 55 69 27 8 -66.6 -69.2 378 159 -57.8

Surat-I 450 342 313 380 454 0.9 19.6 1,837 1,488 -19.0

Surat-II 422 424 260 385 460 9.0 19.3 1,771 1,529 -13.7

Total Generation 1090 1018 845 1027 1167 7.1 13.6 4732 4057 -14.3

PAF 96.6 86.4 83.8 93.8 94.8 92.4 89.7Vadodara-I 97.0 98.4 95.0 95.8 99.7 93.4 97.2

Vadodara-II 99.6 100.0 100.0 100.0 98.5 94.3 99.6

Surat-I 95.9 68.4 84.0 91.2 92.2 92.3 83.9

Surat-II 95.2 89.0 66.8 91.2 92.3 90.8 84.8

PLF 61.8 57.7 47.9 58.3 67.1 67.1 57.5

Vadodara-I 61.8 62.4 63.4 73.4 78.2 58.7 69.4

Vadodara-II 7.0 15.1 19.0 7.7 2.4 26.0 11.1

Surat-I 83.3 62.7 56.7 68.8 84.1 83.9 68.0

Surat-II 78.0 77.6 47.1 69.8 85.2 80.9 69.9

Realisations (Rs/unit) 3.0 3.1 3.8 3.4 3.3 10.2 -1.8 3.0 3.4 40.6

Fuel cost (Rs/unit) 1.3 1.4 2.1 1.8 1.6 22.6 -12.0 1.5 1.7 26.6



12/22



Gujarat Industries Power: Investment summary

Earnings forecast - Emkay vs. Consensus

(Rs mn) Emkay Consensus Variance

FY15E 2,051 1,974 +3.9%FY16E 2,090 2,159 -3.2%

Source: Bloomberg

Company description

Gujarat Industries Power Company Ltd was promoted and

incorporated by Gujarat government in 1985. It currently owns andoperates 815MW of thermal power plants with another 300MW wind

based capacity under development. It came up with an IPO in 2005 at

Rs68/share.

Focus Table - Plant Availability Factor (PAF)

(%) 4Q13 1Q14 2Q14 3Q14 4Q14

Overall 96.6 86.4 83.8 93.8 94.8

Vadodara-I 97.0 98.4 95.0 95.8 99.7

Vadodara-II 99.6 100.0 100.0 100.0 98.5

Surat-I 95.9 68.4 84.0 91.2 92.2

Surat-II 95.2 89.0 66.8 91.2 92.3

Recent update

Invites bids for setting up 300MW wind based capacity in Nov-13 Cancelled LoI issed to Lanco Infra. for implementation of

2X300MW Surat Lignite Expansion project on EPC basis in Oct-

13, due to non furnishing of 10% bank guarantee.

Promoters background

GIPCL was promoted by Gujarat Urja Vikas Nigam Ltd, Gujarat State Fertilizers & Chemicals Ltd, Gujarat Alkalies & Chemicals Ltdand Petrofils Co-Operative Ltd. The first three promoters are promoted by Gujarat government whereas Petrofils Cooperative Ltd is a

joint venture of the Government of India and Weavers' Co-operative Societies

Investment rationale

Installed capacity at 0.8GW with 100% offtake tied up under regulated tariff regime (except one project of 140MW - which is groupcaptive) - Guaranteed RoE and fuel cost completely pass through. Fuel secured with captive coal mines in lignite plant (500MW) and

for gas based projects (305MW) tied up with GAIL for 20 year period. GIPCLs Surat showing continues improvement in plant availability factor (PAF); taking core ROE to 20%+. The stock is currently trading at valuations of 6.2xFY15E EPS and 0.7xFY15E book which looks attractive given- 1) low earnings risk

and 2) core ROE of 16-17%.

Maintain Buy with a target price of Rs138/sh

Investment risk

(1) Lower supply of gas to captive power plants may result into loss of profit and (2) any operational issues at Surat.

Top 5 Institutional holdings

Name Holding %

ICICI Prudential Life Insurance 5.0

LIC 3.5

ICICI Prudential AMC 2.9

UTI 2.6

Bajaj Allianz Life Insurance 2.6

Source: Bloomberg

Shares pledge

Period

Promoters

holding

Pledge % of

Prom. holding

Pledge % of

total holdings

Mar-13 58.2% 0.0% 0.0%

Jun-13 58.2% 0.0% 0.0%

Sep-13 58.2% 0.0% 0.0%

Dec-13 58.2% 0.0% 0.0%

Mar-14 58.2% 0.0% 0.0%

Source: BSE


13/22




Income Statement


Net Sales 14,070 13,710 13,768 14,181

Growth (%) 9.0 -2.6 0.4 3.0

Expenditure 8,710 9,038 9,125 9,545Employee Cost 562 602 651 703

Other Exp 1,217 1,414 438 451

SG&A 0 0 133 137

EBITDA 5,360 4,672 4,643 4,636

Growth (%) 26.0 -12.8 -0.6 -0.1

EBITDA margin (%) 38.1 34.1 33.7 32.7

Depreciation 1,608 1,581 1,638 1,638

EBIT 3,752 3,092 3,005 2,998

EBIT margin (%) 26.7 22.6 21.8 21.1

Other Income 233 365 369 425

Interest expenses 1,052 883 810 810

PBT 2,934 2,574 2,564 2,613Tax 881 715 513 523


Adjusted PAT 2,053 1,859 2,051 2,090

Growth (%) 63.1 -9.4 10.4 1.9

Net Margin (%) 14.6 13.6 14.9 14.7



E/O items 136 0 0 0

Reported PAT 2,189 1,859 2,051 2,090

PAT after MI 2,053 1,859 2,051 2,090

Growth (%) 63.1 -9.4 10.4 1.9

Balance Sheet




Net worth 16,141 17,558 19,169 20,820Minority Interest 0 0 0 0

Secured Loans 8,551 7,155 12,571 11,811


Loan Funds 8,551 7,155 12,571 11,811



Gross Block 38,697 38,758 38,758 38,758


Net block 22,091 20,571 18,933 17,295

Capital work in progress 75 208 9,208 9,258

Investment 727 1,618 1,618 1,618


Sundry debtors 1,715 2,226 1,678 1,728


Loans & advances 901 944 881 908


Current lia & Prov 3,569 3,788 3,580 3,735


Provisions 721 763 705 727

Net current assets 3,008 3,738 3,403 5,882

Misc. exp 0 0 0 0

Total Assets 25,901 26,135 33,162 34,053

Cash Flow



Depreciation 1,608 1,581 1,638 1,638

Interest Provided 1,052 883 810 810


Chg in working cap -1,439 -329 422 43

Tax paid -1,347 -715 -513 -523


Capital expenditure -85 -194 -9,000 -50

Free Cash Flow 3,285 3,435 -4,448 4,106

Other income 233 365 369 425Investments -274 -891 0 0

Investing Cashflow 668 -510 -8,631 375


Loans Taken / (Repaid) -892 -1,396 5,416 -761

Interest Paid -1,052 -883 -810 -810

Dividend paid (incl tax) -442 -440 -440 -440


Others 601 0 0 0

Financing Cashflow -1,785 -2,719 4,167 -2,010

Net chg in cash 2,253 401 87 2,521

Opening cash position 505 2,754 3,155 3,242

Closing cash position 2,758 3,154 3,242 5,763

Note:FY14 Annual report not yet available

Key Ratios

Y/E Mar FY13A FY14E FY15E FY16E

Profitability (%)

EBITDA Margin 38.1 34.1 33.7 32.7

Net Margin 14.6 13.6 14.9 14.7

ROCE 15.9 13.3 11.4 10.2

ROE 13.4 11.0 11.2 10.5

RoIC 16.5 14.2 14.9 16.4

Per Share Data (Rs)

EPS 13.6 12.3 13.6 13.8

CEPS 24.2 22.7 24.4 24.6

BVPS 106.7 116.0 126.7 137.6DPS 2.5 2.5 2.5 2.5

Valuations (x)

PER 6.2 6.8 6.2 6.0

P/CEPS 3.4 3.7 3.4 3.4

P/BV 0.8 0.7 0.7 0.6

EV / Sales 1.3 1.2 1.6 1.3

EV / EBITDA 3.4 3.6 4.7 4.0

Dividend Yield (%) 3.0 3.0 3.0 3.0

Gearing Ratio (x)

Net Debt/ Equity 0.4 0.2 0.5 0.3

Net Debt/EBIDTA 1.1 0.9 2.0 1.3

Working Cap Cycle (days) 6.6 15.5 4.3 3.0


14/22


Emkay

Res

ultUpdate





FY13A 36,727 20,079 54.7 2,031 46.7 -31.0 7.3 15.3 8.5 1.0

FY14A 39,363 22,039 56.0 3,509 80.6 72.8 10.2 8.9 8.2 0.8

FY15E 42,692 23,258 54.5 4,759 100.1 24.2 11.6 7.1 7.4 0.8

FY16E 44,139 24,342 55.1 5,880 123.7 23.6 12.7 5.8 6.5 0.7

Aban Offshore

Margin surprise

May 28, 2014

Rating

Accumulate

Previous Reco

Accumulate

CMP

Rs715

Target Price

Rs840



Nifty 7,330

Sensex 24,566

Price Performance

(%) 1M 3M 6M 12M

Absolute 40 40 93 131


Source: Bloomberg


200

305

410

515

620

725


Rs

-30

-4

22

48

74

100%

Aban Offshore (LHS) Rel to Nifty ( RHS) Source: Bloomberg

Stock DetailsSector Offshore Oil Field Services

Bloomberg ABAN IB

Equity Capital (Rs mn) 87

Face Value(Rs) 2


52 Week H/L 737/ 188


Daily Avg Volume (No of sh) 1,966,089



Promoters 54.0 54.1 54.1

FII/NRI 8.2 7.6 7.8



Public 27.4 29.7 30.6

Source: Bloomberg

4Q14 EBIDTA at Rs6.3 bn (+26% yoy & 13% QoQ) 20% higher

than estimate. Higher day rates and lower other expenditure

boost EBIDTA margins to 60.2% vs estimate of 53.1%

Refinances USD60 mn (INR debt) at Libor+5% taking FY15

annualised interest saving to ~USD26. Repays ~USD80 mn in

FY14, debt stands at USD2.43 bn, leverage at 3.8x

Recent renewals at higher day rates and debt refinance to

drive 29% EPS CAGR over FY14-16e. Looking at USD400 mn

EBIDTA in FY16e

Positive outlook on global E&P spending & firm rig rates to

help Aban get cyclical uplift for renewal in FY16. Valuation

at P/B of 0.7x & 6.4x EV/E remains attractive considering

strong revenue at 71% for FY15. ACCUMULATE -TP Rs840

Higher day rates drive margins surprise

Abans delivered solid 4Q performance with EBIDTA at Rs6.3 bn +13.2% qoq (USD105

+12.5% yoy & qoq) significantly ahead of estimate of Rs5.26 bn led by margin surprise.

Higher day rates (Aban ice at higher day rates of USD165k vs USD120k earlier) and

lower other expenditure (-9% qoq) boost EBIDTA margins to 60.2% vs estimate of

53.1%. Company indicates sustainable margins at 56-60% range. Though INR revenues

at Rs10.5 bn grew by 9.6% yoy, 5.8% qoq, $ revenues at USD174 grew 7.5% and 6%

qoq, helped by higher utilization and day rates (particularly for Aban Ice)

Refinance of USD60 drive further reduction in interest cost

After refinancing of high cost rupee term loan of ~USD290mn with ECB @ LIBOR +6%,

(saving of ~800 bps) earlier during FY14, Aban has further refinanced USD60 mn at

Libor+5% (saving of ~900 bps) taking FY15 annualised interest saving to ~USD26.Consequently interest cost declined 8.2% yoy and 3.7% qoq to USD 47.4 mn. However

because of INR depreciation, rupee term interest cost increased 3% yoy (down 3% qoq).

Strong beat on operational numbers helped net profit growth of 162% yoy and 103% qoq

to Rs1.6 bn against our estimate of Rs659 mn

Aban ICE fully operational in Q4FY14, DD5 starts operation

Aban ice which had bagged a 3 year contract from ONGC at very attractive day rates

(USD168k/day vs earlier day rate of USD121k) was fully operational during the quarter

which helped strong 4Q performance. DD-5 started operation at Offshore Vietnam, for a

firm period of 1 year and an optional period of 1 year.

Earnings momentum to sustain, trigger still intact retain ACCUMULATE

The much awaited impact of positive triggers for Aban did play out with the stockdelivering handsome return. Recent renewals at higher day rates and debt refinance are

likely to drive 29% EPS over FY14-16e. Positive outlook on global E&P spending and

firm rig rates to help Aban get cyclical uplift for renewal in FY16. Moreover positive

outcome on US sanction on Iran to further increase ease of operations. Valuation at P/B

of 0.7x & 6.4x EV/EBITDA remains attractive considering high revenue visibility (71% for

FY15). Retain ACCUMULATE with a revise target price of Rs840 ass we roll over target

to FY16 number as compared to FY15 earlier.


15/22

Aban Offshore Result Update


Exhibit 1: Quarterly Financials


Revenue 9,597 8,885 10,016 9,944 10,518 9.6 5.8 39,363 36,727 7.2

Expenditure 4,567 4,096 4,698 4,347 4,182 -8.4 -3.8 17,324 16,648 4.1

as % of sales 47.6 46.1 46.9 43.7 39.8 44.0 45.3

Consumption of RM 562 544 589 785 535 -4.9 -31.9 2,453 1,911 28.4

As % of Sales 5.9 6.1 5.9 7.9 5.1 6.2 5.2

Employee Cost 1,180 1,070 1,158 1,244 1,487 26.1 19.6 4,958 4,480 10.7

As % of Sales 12.3 12.0 11.6 12.5 14.1 12.6 12.2

Other expenditure 2,825 2,483 2,951 2,319 2,160 -23.6 -6.9 9,912 10,257 -3.4

As % of Sales 29.4 27.9 29.5 23.3 20.5 25.2 27.9

EBITDA 5,030 4,789 5,318 5,596 6,336 26.0 13.2 22,039 20,079 9.8

Depreciation 1,192 1,270 1,407 1,422 1,384 16.0 -2.7 5,484 4,909 11.7

EBIT 3,837 3,518 3,910 4,174 4,952 29.1 18.6 16,555 15,170 9.1

Other Income 60 80 87 125 17 -71.0 -86.1 309 267 15.7

Interest 2788 2695 2887 2957 2867 2.8 -3.1 11,406 11,724 -2.7

PBT 1,109 903 1,110 1,342 2,103 89.6 56.7 5,458 3,712 47.0

Total Tax 500 170 316 555 504 0.8 -9.1 1,545 1,318 17.2Adjusted PAT 609 733 794 787 1,599 162.4 103.1 3,912 2,394 63.4

(Profit)/loss from JV's/Ass/MI -2 15 -17 16 5 18 -2

APAT after MI 607 747 777 803 1,604 164.2 99.7 3,931 2,391 64.4

Extra ordinary items 0 0 0 0 0 0 -480 -100.0

Reported PAT 607 747 777 803 1,604 164.2 99.7 3,931 1,911 105.6

Adjusted EPS 14.0 17.2 17.9 18.5 36.9 164.2 99.7 90.35 54.97 64.4


EBIDTA 52.4 53.9 53.1 56.3 60.2 783 396 56.0 54.7 132

EBIT 40.0 39.6 39.0 42.0 47.1 710 511 42.1 41.3 75

EBT 11.6 10.2 11.1 13.5 20.0 844 650 13.9 10.1 376

PAT 6.3 8.2 7.9 7.9 15.2 885 729 9.9 6.5 342

Effective Tax rate 45.1 18.9 28.5 41.3 24.0 -2110 -1737 28.3 35.5 -720



16/22


17/22


Emkay

Res

ultUpdate





FY13A 382,097 65,039 17.0 13,325 59.7 -1.7 7.9 20.6 7.1 1.6

FY14A 512,196 91,655 17.9 21,583 89.3 49.5 12.5 13.8 7.0 1.7

FY15E 525,887 98,461 18.7 24,711 102.2 14.5 13.3 12.0 6.5 1.5

FY16E 569,583 116,565 20.5 35,446 146.7 43.4 16.7 8.4 5.4 1.3

JSW Steel

Strong performance; Growth process continues

May 28, 2014

Rating

Buy

Previous Reco

Accumulate

CMP

Rs1,230

Target Price

Rs1,328

EPS Chg FY15E/FY16E (%) 17/46


Nifty 7,318

Sensex 24,550

Price Performance

(%) 1M 3M 6M 12M



Source:Bloomberg


450

615

780

945

1110

1275


Rs

-30

-14

2

18

34

50%

JSW Steel (LHS) Rel to Nif ty (RHS) Source: Bloomberg

Stock DetailsSector Metals & Mining

Bloomberg JSTL IB


Face Value(Rs) 10


52 Week H/L 1,295/ 452

Market Cap (Rs bn/USD mn) 297/ 5,040




Promoters 38.5 37.3 36.3

FII/NRI 19.2 18.6 17.2



Public 31.9 32.1 33.0

Source: Bloomberg

n Headline nos broadly in line; Operational performance much

stronger though with standalone EBITDA/ tonne at Rs 8053

($130) as against Rs 7478 ($121) in Q3

n Sales volume stood at 3.1 mt, slightly lower than expected;

Steel realizations rose 2% QoQ to Rs 40885/ tonne; These

along with improvement in Dolvi helped better EBITDA/ tonne

n Expanding Dolvi capacity from 3.3 mtpa to 5 mtpa in H2

FY16 with a capex of Rs 33 bn. Total capex for next two

years remain Rs 120 bn with FY15 capex at Rs 75 bn

n Though continuous capex is a concern, believe, timely

execution and low cost to help better cash generation; Buy

with a revised target price of Rs 1328

Strong operating performance continues despite higher iron ore pricesSince Q1FY14, the company has been consistently delivering better operational

performances. EBITDA/ tonne during this period went up by Rs 1200/ tonne despite

simultaneous rise in iron ore costs and amid continuous uncertainty on iron ore sourcing

in Karnataka. This can be attributed to improvement in grade of iron ore that helped in

better yield and reduction in costs, improvement in operating efficiency and most

importantly significant rise in underlying profitability of Dolvi unit. Though, EBITDA/ tonne

for Dolvi unit is not available separately, its evident from the gradual increase overall

number. During this quarter the company had got the partial benefit of pellet and coke

oven batteries commissioned in Dolvi and believe, in the coming period the company is

likely to get full benefit from these.

FY15 volume guidance at 12.4 mtpa; iron ore imports on the card

Believe, FY15 volume guidance of 12.4 mt is on the conservative side factoring in the

ongoing iron ore sourcing problem in Karnataka. After achieving sales volume of 11.86

mt in FY14, this number for FY15 seems achievable with expected improvement in iron

ore supply in Karnataka. The company plans to source 13.5 mt iron ore including 4.5 mt

lump from Karnataka and 6 mt iron ore from Odisha and Chhattisgarh. Rest ~1.5 mt is

likely to be imported. The company has already finalized imports for its Dolvi plant and is

hopeful that better grade should almost nullify higher costs.

Dolvi capacity to be expanded to 5 mtpa in FY16 with a capex of Rs 33 bn

To position itself better in FY16, JSTL has announced brownfield expansion in Dolvi

from 3.3 mtpa to 5 mtpa with a capex of Rs 33 bn including upgradation of blast furnace

and sinter plant. The entire expansion would be in long products to capture the Western

region markets. Including this, total capex for next two years is set at Rs 120 bn out of

which Rs 75 bn would be spent in FY15 and Rs 45 bn is earmarked for FY16.

Valuation

At the CMP of Rs 1230, the stock trades at 5.4xFY16 EV/EBITDA. We continue to

believe, that internal improvement would the key driver for the better performance going

ahead. We continue to value the company at 5.5xFY16 EV/ EBITDA and including JSW

Energy stake we upgrade the stock to Buy with a revised target price of Rs 1328/share.


18/22

JSW Steel Result Update


Exhibit 1: Quarterly financials: Consolidated


Revenue 98,982 102,707 129,838 136,228 143,424 44.9 5.3 512,196 382,097 34.0

Expenditure (81,650) (83,912) (106,358) (112,134) (118,138) 44.7 5.4 (420,541) (317,057) 32.6

as % of sales 82.5 81.7 81.9 82.3 82.1 83.0

Consumption of RM (61,830) (58,521) (78,212) (80,965) (85,538) 38.3 5.6 (303,236) (241,685) 25.5

as % of sales 62.5 57.0 60.2 59.4 59.6 59.2 63.3

Employee Cost (2,210) (3,346) (3,143) (3,228) (3,266) 47.8 1.2 (12,982) (9,803) 32.4

as % of sales 2.2 3.3 2.4 2.4 2.3 2.5 2.6

Other expenditure (17,610) (22,045) (25,003) (27,941) (29,334) 66.6 5.0 (104,323) (65,570) 59.1

as % of sales 17.8 21.5 19.3 20.5 20.5 20.4 17.2

EBITDA 17,332 18,795 23,480 24,094 25,286 45.9 4.9 91,655 65,039 40.9

Depreciation (5,947) (7,504) (8,025) (8,058) (8,239) 38.6 2.2 (31,826) (22,375) 42.2

EBIT 11,385 11,291 15,455 16,036 17,047 49.7 6.3 59,829 42,664 40.2

Other Income 28 191 511 144 11 (60.4) (92.2) 858 697 23.1

Interest (5,074) (7,179) (7,564) (7,893) (7,842) 54.6 (0.6) (30,479) (19,675) 54.9

PBT 6,340 4,304 8,402 8,287 9,216 45.4 11.2 30,208 23,687 27.5

Total Tax (3,761) 321 (1,190) (3,737) (4,595) 22.2 23.0 (9,201) (8,453) 8.9Adjusted PAT 2,579 4,625 7,212 4,550 4,621 79.2 1.6 21,007 15,235 37.9

(Profit)/loss from JV's/Ass/MI (321) 174 143 115 207 (164.6) 80.7 640 (1,910) -

Adj.PAT after MI 2,258 4,799 7,355 4,665 4,828 113.9 3.5 21,647 13,325 62.5

Extra ordinary items 702 (8,617) (8,510) - - (100.0) NA (17,128) (3,694) -

Reported PAT 2,959 (3,819) (1,155) 4,665 4,828 63.2 3.5 4,520 9,631 (53.1)

Reported EPS 12.9 (16.1) (5.1) 19.0 19.6 51.9 3.4 17 42 (58.5)


EBIDTA 17.5 18.3 18.1 17.7 17.6 12 (6) 17.9 17.0 87

EBIT 11.5 11.0 11.9 11.8 11.9 38 11 11.7 11.2 51

EBT 6.4 4.2 6.5 6.1 6.4 2 34 5.9 6.2 (30)

PAT 2.6 4.5 5.6 3.3 3.2 62 (12) 4.1 4.0 11

Effective Tax rate 59.3 (7.5) 14.2 45.1 49.9 (946) 476 30.5 35.7 (523)


Exhibit 2: US Plate and Pipe Mill operational performance

Q4FY14 Q3FY14 Q4FY13

Production (NT)

Plate Mill 1,10,407 97,290 82,177

Pipe Mill 15,782 12,031 11,907

Sales (NT)

Plate Mill 94,680 85,774 72,994

Pipe Mill 15,672 19,409 11,114Financials ( US$ mn)

Turnover 106.23 92.75 76.94

EBITDA+ Other income (4.00) (1.73) 0.47

Profit After Tax (18.69) (15.22) (16.43)



19/22



Exhibit 3: Quarterly financials: Standalone

(Rs mn) Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 YoY (%) QoQ (%) FY14 FY13 YoY (%)

Revenue 92,909 93,582 114,857 119,645 124,894 34.4 4.4 452,977 354,918 27.6

Expenditure (75,936) (76,090) (92,517) (96,613) (99,931) 31.6 3.4 (365,151) (291,836) 25.1

as % of sales 81.7 81.3 80.6 80.7 80.0 80.6 82.2

Consumption of RM (58,136) (54,928) (69,604) (70,936) (73,994) 27.3 4.3 (269,462) (224,279) 20.1

as % of sales 62.6 58.7 60.6 59.3 59.2 59.5 63.2

Employee Cost (1,606) (2,093) (1,951) (1,981) (1,971) 22.8 (0.5) (7,996) (6,709) 19.2

as % of sales 1.7 2.2 1.7 1.7 1.6 1.8 1.9

Other expenditure (16,194) (19,070) (20,962) (23,697) (23,966) 48.0 1.1 (87,694) (60,841) 44.1

as % of sales 17.4 20.4 18.3 19.8 19.2 19.4 17.1

EBITDA 16,973 17,491 22,340 23,032 24,963 47.1 8.4 87,826 63,089 39.2

Depreciation (5,274) (6,439) (6,852) (6,904) (7,064) 33.9 2.3 (27,259) (19,739) 38.1

EBIT 11,698 11,052 15,488 16,128 17,899 53.0 11.0 60,567 43,350 39.7

Other Income 537 723 1,208 607 773 43.9 27.5 3,311 2,609 26.9

Interest (4,425) (6,418) (6,890) (7,192) (6,902) 56.0 (4.0) (27,401) (17,245) 58.9

PBT 7,811 5,357 9,806 9,543 11,771 50.7 23.3 36,476 28,713 27.0

Total Tax (3,377) 965 (400) (3,021) (3,752) 11.1 24.2 (6,208) (7,029) (11.7)

Adjusted PAT 4,434 6,322 9,406 6,521 8,019 80.9 23.0 30,268 21,684 39.6

Adj.PAT after MI 4,434 6,322 9,406 6,521 8,019 80.9 23.0 30,268 21,684 -

Extra ordinary items 1,299 (8,529) (8,394) - - (100.0) NA (16,923) (3,672) -

Reported PAT 5,732 (2,208) 1,012 6,521 8,019 39.9 23.0 13,345 18,012 (25.9)

Reported EPS 25.3 -9.5 3.9 26.6 32.8 29.6 23.3 53.9 79.3 (32.1)


EBIDTA 18.3 18.7 19.4 19.3 20.0 172 74 19.4 17.8 161

EBIT 12.6 11.8 13.5 13.5 14.3 174 85 13.4 12.2 116

EBT 8.4 5.7 8.5 8.0 9.4 102 145 8.1 8.1 (4)

PAT 4.8 6.8 8.2 5.5 6.4 165 97 6.7 6.1 57

Effective Tax rate 43.2 (18.0) 4.1 31.7 31.9 (1,136) 21 17.0 24.5 (746)


Exhibit 4: Chile operational performance

Q4FY14 Q3FY14 Q4FY13

Production (tonne) 226,440 243,171 197,389

Sales (tonne) 149,443 231,000 226,288

Financials (USD mn)

Revenue 16.77 27.3 30.99

EBITDA 1.32 5.23 6.62

PAT (0.25) 2.79 3.84

Realization/ tonne (US$) 112.2 118.2 136.9

EBITDA/ tonne (US$) 8.8 22.6 29.3


Exhibit 5: JSW Steel Coated Products operational performance

Q4FY14 Q3FY14

Production volume (mt) 0.43 0.41

Sales Volume (mt) 0.44 0.42

Financial (INR mn)

Net Sales 27,350 24,450

EBITDA 940 793

EBITDA Margin (%) 0%

PAT 350 124.6

Realization (Rs/tonne) 62,159 58,214

EBITDA/tonne (Rs) 2,1236 1,888



20/22



Key highlights of the analyst meet

The company expects steel demand to grow beyond 3.3% as predicted by theWorld Steel Association in calendar year 2014

Against 3.1 mt export volume, the company plans to export 2.8 mt in FY15 focusingmore on the domestic market

Value added product mix to improve from 24% in FY14 to 33% in FY15 The company has been finalized iron ore imports for Dolvi and believes better grade

(65%) of ore would help it to offset the higher prices to a great extent

The decision on iron ore import is backed by appreciation in INR coupled with fall inglobal prices and also scarcity of iron ore in domestic market especially uncertainty

arising after ban on mines in Odisha

Vijaynagar expansion of 2 mtpa is subject to some necessary approval onenvironment issues

Average iron ore price stood at Rs 3800/ tonne as against Rs 3300/ tonne in theprevious quarter

The company plans to bring US Coking coal in H2FY15 and plans to spend Rs 7.5bn on this

In Chile too the company will be spending Rs 7.5 bn in development works andbeneficiation

Total capex of Rs 120 bn includes Rs 40 bn carry forward capex, Rs 40 bn Dolviexpansion and Vijaynagar expansion (Rs 7.2 bn) and another Rs 40 bn on normal

capex, mine development in Jharkhand and backward integration

The current consolidated D/E stands at 1.54x and company expects to keep it below1.5x. current net debt stands at Rs 340 bn and the company has a repayment target

of Rs 30- 35 bn per annum for next three years

Out of the total debt 60% is INR denominated and the company plans to partlyrefinance this with foreign currency by choosing among various instruments so that

the proportion becomes 50%

Revision in estimates

Based on the strong and consistent operational performance further possible benefits we

have upgraded our estimates for both FY15 and FY16. Our revised EBITDA/ tonne

estimates for FY15 and FY16 stands at Rs 7989 and Rs 8714. Significant jump in FY16

estimates can be attributed to higher volume in FY16 from Dolvi. Speedier solution of iron

ore situation in Karnataka and Odisha would be further positive for the company and thus,

our FY16 volume estimates of 13.2 mt has an upside risk.

Exhibit 6: Revised Estimates

FY15E FY16E

Earlier Revised Earlier Revised

Revenue 517,246 525,887 546,571 569,583

EBITDA 93,814 98,461 100,007 116,565

APAT 21,017 24,711 24,300 35,464

EPS (Rs) 87.0 102.2 100.5 146.7

Source: Emkay Research

Valuation

At the CMP of Rs 1230, the stock trades at 5.4xFY16 EV/EBITDA. We continue to believe,

that internal improvement would the key driver for the better performance going ahead.

With sentiments improving in the domestic markets and having already going through

various challenges we expect things should change for better. We continue to value the

company at 5.5xFY16 EV/ EBITDA and including JSW Energy stake we upgrade the stock

to Buy with a revised target price of Rs 1328/share. In a blue- sky scenario with 14 mtpa

volume and Rs 10000/ tonne of EBITDA, keeping the EV/ EBITDA multiple at 5.5 and net

debt at Rs 340 bn, the fair value of the stock works to be Rs 1780.


21/22




Income Statement


Net Sales 382,097 512,196 525,887 569,583

Growth (%) 12.0 30.2 2.7 8.4

Expenditure 317,057 420,542 427,427 453,018Raw Materials 241,685 303,236 291,234 308,559

Employee Cost 9,803 12,982 11,832 12,816

Other Exp 45,160 65,791 91,814 96,400

EBITDA 65,039 91,655 98,461 116,565

Growth (%) 7.8 40.9 7.4 18.4

EBITDA marg in (%) 17.0 17.9 18.7 20.5

Depreciation 22,375 31,890 32,523 33,476

EBIT 42,664 59,765 65,937 83,090

EBIT mar gin (%) 11.2 11.7 12.5 14.6

Other Income 697 858 2,629 2,848

Interest expenses 19,675 30,479 32,371 33,721

PBT 23,687 30,144 36,196 52,217Tax 8,453 9,201 11,945 17,232


Adjusted PAT 15,235 20,943 24,251 34,986

Growth (%) -34.1 37.5 15.8 44.3

Net Margin (%) 4.0 4.1 4.6 6.1

(Profit)/loss from JVs/Ass/MI -343 -504 -360 -360


E/O items -3,694 -17,128 0 0

Reported PAT 9,631 4,456 24,711 35,446

PAT after MI 13,325 21,583 24,711 35,446

Growth (%) -1.7 62.0 14.5 43.4

Balance Sheet




Net worth 170,647 174,447 196,027 228,342Minority Interest 1,972 1,972 1,972 1,972

Secured Loans 148,864 296,131 299,131 304,131

Unsecured Loans 57,273 57,273 57,273 57,273

Loan Funds 206,136 353,403 356,403 361,403



Gross Block 459,111 665,316 700,316 720,366


Net block 347,602 471,918 474,395 460,969


Investment 17,500 6,627 6,627 6,627


Sundry debtors 21,063 22,924 24,493 28,089


Loans & advances 58,772 94,034 96,548 104,554


Current lia & Prov 163,653 214,913 217,551 225,819


Provisions 2,649 2,649 2,649 2,649

Net current assets -12,171 -9,548 -2,445 23,295

Misc. exp 0 0 0 0

Total Assets 411,475 562,542 587,122 624,436

Cash Flow



Depreciation 22,375 81,890 32,523 33,476

Interest Provided 14,598 30,479 32,371 33,721


Chg in working cap 5,888 -49,257 -2,106 -9,935

Tax paid -5,105 -9,201 -11,945 -17,232


Capital expenditure -56,180 -238,730 -50,000 -45,050

Free Cash Flow -7,873 -171,163 37,500 47,657

Other income 533 0 0 0Investments 1,312 10,872 0 0

Investing Cashflow -54,334 -227,858 -50,000 -45,050


Loans Taken / (Repaid) 9,546 177,330 3,500 5,500

Interest Paid -15,186 -30,479 -32,371 -33,721

Dividend paid (incl tax) -2,269 -3,131 -3,131 -3,131


Others 0 2,278 0 0

Financing Cashflow -7,909 145,998 -32,002 -31,352

Net chg in cash -13,936 -14,292 5,498 16,305

Opening cash position 30,470 16,534 6,680 12,178

Closing cash position 16,534 2,241 12,178 28,483* Capex for FY14 stands at Rs 55 bn

Key Ratios

Y/E Mar FY13A FY14A FY15E FY16E

Profitability (%)

EBITDA Margin 17.0 17.9 18.7 20.5

Net Margin 4.0 4.1 4.6 6.1

ROCE 10.9 12.4 11.9 14.2

ROE 7.9 12.5 13.3 16.7

RoIC 13.6 15.4 14.4 18.2

Per Share Data (Rs)

EPS 59.7 89.3 102.2 146.7

CEPS 160.0 221.2 236.8 285.2

BVPS 764.8 721.7 811.0 944.7DPS 10.0 10.0 10.0 10.0

Valuations (x)

PER 20.6 13.8 12.0 8.4

P/CEPS 7.7 5.6 5.2 4.3

P/BV 1.6 1.7 1.5 1.3

EV / Sales 1.2 1.3 1.2 1.1

EV / EBITDA 7.1 7.0 6.5 5.4

Dividend Yield (%) 0.8 0.8 0.8 0.8

Gearing Ratio (x)

Net Debt/ Equity 1.1 2.0 1.8 1.5

Net Debt/EBIDTA 2.9 3.8 3.5 2.9

Working Cap Cycle (days) -27.4 -11.6 -10.1 -3.3


22/22


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