equigrade asahi songwon colors limited aug13...dic (japan), the world's largest ink...
TRANSCRIPT
EQUIGRADE - Analytical Power for Investment Decisions
*CMP: 61.1/ CIV: 86 Sensex: 19,229
Very Good Fundamentals, Considerable Upside Potential
1
CARE EQUIGRADE Grid (CEG)
Key Equistats
Stock Performance
1M 3M 6M 1 Yr
Absolute -5% -3% -15% -37%
Rel. to Sensex -2% -6% -12% -41%
Returns
Shareholding Pattern
Asahi Songwon Colors LimitedPigments (Organic)
Update-Q1 FY14
Fundamentals
Valuation
1 2 3 4 5
CEG is explained on page 4
Market Capitalisation Rs. Crores 69
Enterprise Value Rs. Crores 129
52 Week High / Low Rs. 98.5/54.1
Diluted EPS (FY13) Rs. 8.4
P/E (FY13) times 6.7
Regression Beta times 0.87
Average Daily Volumes* Lakhs 0.1
50
70
90
110
130
150 Price Movement (rebased on 100)
Sensex ASCL
9-A
ug-1
2
9-S
ep-1
2
9-O
ct-1
2
9-N
ov-
12
9-D
ec-1
2
9-J
an-1
3
9-F
eb-1
3
9-M
ar-1
3
9-A
pr-
13
9-M
ay-1
3
9-J
un-1
3
Others38.52%
Promoter61.48%
Analytical Contacts
Jumana Badshah
Nihag Shah, CFA
Senior Manager
Deputy Manager
+91-22-6144 3406
+91-22-6144 3413
CARE Equity Research retains 4/5 on fundamental grade to Asahi Songwon Colors Limited (ASCL)
Valuation
During Q1FY14 (refers to the period April 01, 2013 to June 30, 2013), net revenue increased by 10.8% y-o-y and 34.3% q-o-q to Rs.68 crore. This increase in revenues was led 1) by volume growth up 9.1% y-o-y to 1,976 MT and 2) realization growth of 1.0% y-o-y to Rs 3,36,213/ MT .
Q1FY14 EBITDA margin declined by 597 bps y-o-y to 11.5% however, on q-o-q basis there was a margin expansion of 404 bps. The reduction in EBITDA margins was primarily on account of higher raw material costs up 379 bps y-o-y to 64.7%.
For Q1FY14, the company reported PAT of Rs.3 crores down 42.8% y-o-y. Net margin for the quarter was down 435 bps y-o-y and stood at 4.6%. This drop in margin was mainly on account of lower EBITDA margin reported by the company. For Q1FY14, the company reported an Earnings Per Share (EPS) of Rs.2.6/share as compared to Rs.4.5/share.
CARE Equity Research maintains the CIV assigned to the equity shares of ASCL at Rs.86 per share. CIV has been arrived at using the discounted cash flow valuation methodology. The CIV of Rs.86 per share is around 41% above the CMP of Rs.61.1 per share resulting in a valuation grade of 5/5, indicating that equity shares of ASCL have 'Considerable Upside Potential'.
Financial Information Snapshot
* Calculated on Current Face Value of Rs. 10/- per share
(Rs. Crores) FY12 FY13 FY14P FY15P
Operating Income 234 232 286 304
EBITDA 44 25 46 52
PAT (After minority interest) 23 10 20 25
Fully Diluted EPS* (Rs.) 18.3 8.4 16.3 20.4
Dividend Per Share (Rs.) 4.1 4.1 4.6 4.6
P/E (times) 3.1 6.7 3.5 2.8
EV/EBITDA (times) 3.0 5.2 2.8 2.5
*CMP: Current Market Price; CIV; Current Intrinsic Value
www.careratings.com
August 14, 2013
2 www.careratings.com
Result Analysis and Price Performance
CARE Equity Research retains the fundamental grade at 4/5, indicating 'Very Good Fundamentals'
Q1FY14 results indicate that turnaround in operating profits is round the corner
CARE Equity Research maintains valuation grade of 5/5
ASCL stock price up 3.7% since its coverage initiation
The grading factors ASCL's established position in the pigment industry. ASCL has long-standing relationships with the following customers:
DIC (Japan), the world's largest ink manufacturer, Sun Chemical Corporation (a subsidiary of DIC with key presence in USA & Europe) and
Clariant Chemicals India Ltd. (CCIL). As on June 31, 2013, DIC and CCIL held equity stake of 7.05% & 5.86% respectively, in ASCL. The grading
also factors in experience of ASCL's Board & Management team. Company's management is vigilant towards environmental compliance
which we believe would be a key differentiator given the government's increasing focus on pollution control. With, gradual recovery in the
developed economies like North America and Europe which account for around 60% of global pigment consumption, demand for
downstream products like printing inks and coating paints is expected to pick up, which will benefit ASCL. ASCL generates a maximum
portion of it total income (around 78%) through exports of pigments. However, the grade is constrained by 1) susceptibility of ASCL's
profitability to volatile raw material prices which is partially mitigated through quarterly renegotiations with its key customers, 2) foreign
exchange fluctuation risk owing to significant share of exports and 3) sales concentration risk.
Revenue for ASCL increased by 10.8% y-o-y from Rs.61 crore in Q1FY13 to Rs.68 crore in Q1FY14. This growth was led by led 1) by volume
growth of 9.1% y-o-y to 1,976 MT and 2) realization growth of 1.0% y-o-y to Rs 3,36,213/ MT . Capacity utilization for the quarter stood at 79%
as compared to 71 % in Q1FY13.
In Q1FY14 the company reported EBITDA margin of 11.5% down 597 bps y-o-y but up 404 bps q-o-q. Contraction in EBITDA margin was
mainly on account of higher raw material costs up 379bps y-o-y to 64.7%. However, the company's profitability margin improved
sequentially, this improvement was mainly led by lower other expenses, as there were no environmental related expenses during Q1FY14.
We believe that the operating profitability for the company has bottomed out given 1) the company would not be incurring any further
environmental related expenses and 2) stabilization of the upgraded capacities. For Q4FY13, the company reported PAT of Rs.3 crores down
42.8% y-o-y. Net margin for the quarter was down 435bps y-o-y at 4.6%. This drop in net margin was mainly on account of lower EBITDA
margin reported by the company. For Q1FY14, the company reported EPS of Rs.2.6/share as compared to Rs. 4.5/share in Q1FY13.
CARE Equity Research maintains the CIV for ASCL at Rs.86 per share. The CIV has been arrived using the discounted cash flow valuation
methodology. Given the Current Market Price (CMP) for ASCL at Rs.61.1 per share, the CIV of Rs.86 per share results in the valuation grade of
5/5, indicating the shares of ASCL have 'Considerable Upside Potential'.
CARE Equity Research initiated coverage on ASCL with a Current Intrinsic Value (CIV) of Rs.88 and a Valuation Grade of 5, based on the CMP of
Rs.58.9 on March 29, 2013. The stock price is up by 3.7% since then. The benchmark index (Sensex) in comparison is up by 2.1% during the
same period.
Asahi Songwon Colors Limited
ASCL: Stock Performance Since Initiation
Source: Company, CARE Equity Research
Rs Crores Q1FY14 Q1FY13 Q4FY13 Growth Growth(y-o-y) (q-o-q)
Net Revenues 68 61 51 10.8% 34.3%Total Expenditure 60 51 47 18.8% 28.5%EBITDA 8 11 4 -27.0% 106.5%Depreciation and amortisation 2 1 1 17.3% 18.8%EBIT 6 9 2 -33.3% 153.4%Interest 2 1 1 15.0% 57.9%PBT 5 8 1 -42.2% 226.1%PAT 3 6 1 -42.8% 356.3%EBITDA Margin (%) 11.5% 17.5% 7.5% -597.2 bps 403.6 bpsNet Margin (%) 4.6% 9.0% 1.4% -434.7 bps 327.3 bps
ANALYSIS OF INTERIM RESULTS
Source: BSE, CARE Equity Research
90
100
110
120
130
140
150
160 rebased to 100
CIV ASCL Sensex
28-M
ar-1
3
5-A
pr-1
3
12-A
pr-1
3
22-A
pr-1
3
30-A
pr-1
3
8-M
ay-1
3
15-M
ay-1
3
22-M
ay-1
3
29-M
ay-1
3
5-Ju
n-13
12-J
un-1
3
19-J
un-1
3
26-J
un-1
3
3-Ju
l-13
10-J
ul-1
3
17-J
ul-1
3
24-J
ul-1
3
31-J
ul-1
3
7-Au
g-13
3 www.careratings.com
FINANCIAL STATISTICS
Source: Company, CARE Equity Research
Asahi Songwon Colors Limited
4
EXPLANATION OF GRADES
CARE Equigrade Grid (CEG)Through CEG, CARE Equity Research addresses two critical factors considered by an investor while investing in a particular company's equity shares:
1. Fundamentals: Whether the company is fundamentally sound with respect to its business, its financial position, its managementand its prospects.
2. Valuation: What is the Current Intrinsic Value (CIV) of the stock and how it compares vis-a-vis its Current Market Price (CMP)
These factors are answered assigning quantitative grades to both these parameters. CEG is the snapshot of 'Fundamental Grade' and 'Valuation Grade' assigned by CARE Equity Research.
Fundamental GradeThis grade represents how sound the company is fundamentally, vis-à-vis other listed companies in India. This grade captures:
1. Business Fundamentals and Prospects
2. Financial Soundness
3. Management Quality
4. Corporate Governance Practices
The grade is assigned on a five-point scale as under:
CARE Fundamental Grade
5/5 Strong Fundamentals
4/5 Very Good Fundamentals
3/5 Good Fundamentals
2/5 Modest Fundamentals
1/5 Weak Fundamentals
Evaluation
Asahi Songwon Colors Limited
Valuation GradeThis grade represents the potential value in the company's equity share for the investor over a 1-year period. The Current Intrinsic Value (CIV) or the price arrived by CARE Equity Research on fundamental basis is compared with the current market price (CMP) of the stock and the grade is assigned based on the gap between CIV and CMP of the stock.
The grade is assigned on a five-point scale as under:
CARE Valuation Grade
5/5 Considerable Upside Potential (>25% upside from CMP)
4/5 Moderate Upside Potential (10-25% upside from CMP)
3/5 Fairly Priced (+/- 10% from CMP)
2/5 Moderate Downside Potential (10-25% downside from CMP)
1/5 Considerable Downside Potential (>25% downside from CMP)
Evaluation
Grading determination is a matter of experienced and holistic judgment, based on relevant quantitative andqualitative factors of the company in relation to other listed companies.
www.careratings.com
Asahi Songwon Colors Limited
About CARE Research
CARE Research, a division of CARE Ratings provides contemporary research and information covering various industries and financial markets. Our
publications include Industry Research Reports, Updates on the industries tracked, budget analysis, other policy impact analysis, Industry Risk Metrics
Reports, and undertake customized assignments on request basis. CARE Research draws its strengths from CARE's two decades long experience and in-
depth understanding of the Indian economy/industries, use of rigorous analytical methods and its knowledge team. CARE Research also provides various
grading services like real estate star rating, equi-grade, edu-grade, etc.
CARE Ratings is a premier credit rating, research and information leverage our domain and analytical expertise backed by the
services company promoted in 1993 by major banks / financial methodologies congruent with the international best practices. With
institutions in India. It has emerged as a creditable agency for covering independent and unbiased credit rating opinions forming the core of its
many rating segments like that for banks, sub-sovereigns and IPO business model, CARE Ratings has the unique advantage in the form an
gradings. The three largest share holders of CARE Ratings are IDBI Bank, External Rating Committee to decide on the ratings. Eminent and
Canara Bank and State Bank of India. The other share holders include experienced professionals constitute CARE's Rating Committee. CARE
Federal Bank Ltd., IL&FS Ltd., ING Vysya Bank Ltd. etc CARE Ratings Ratings has been granted registration by Securities and Exchange Board
provides the entire spectrum of credit rating that helps corporates to of India (SEBI). It is recognized by RBI as External Credit Assessment
raise capital for their various requirements and assists the investors to Institution (ECAI). CARE Ratings follow best practices International
form an informed investment decision based on the credit risk and their Organization of Securities Commissions (IOSCO) and Association of
own risk-return expectations. Our rating and grading service offerings Credit Rating Agencies in Asia (ACRAA) code of conduct.
About CARE Ratings
MUMBAI CHENNAI KOLKATAMs. Jumana Badshah Mr. V Pradeep Kumar Mr. Atish PalmalCell: +91-96199 21405 Cell: +91 98407 54521 Cell: +91-98307 15456,Tel: +91-22-6144 3413 Tel: +91-44-2849 7812 / 2849 0811 Tel: +91-33-4018 1634E-mail: [email protected] Fax: +91-44-2849 0876 E- mail: [email protected]
Email: [email protected] NEW DELHIMr Sharad Pandya HYDERABAD Mr. Puneet AroraCell: +91-97129 46655 Mr. Shiva Sanket Cell: +91-95822 32782Tel: +91-79-40265658 Cell: +91-90300 60965, Tel: +91-11-4533 3213E-mail: [email protected] Tel: +91-40-40102214 E-mail: [email protected]
E-mail: [email protected] PUNEMr. Sandeep Kothapalli JAIPUR Mr. Rahul PatniCell: +91-72597 14863 Mr. Rahul Jain Cell: +91-78754 33355Tel:+91-80-2211 7140 Cell: +91-93149 21496 Tel:+91-20-40009000E-mail: [email protected] Tel: +91-141-4020213/14 E-mail: [email protected]
E-mail: [email protected]
CREDIT ANALYSIS & RESEARCH LTD
CORPORATE OFFICE4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (East), Mumbai 400022Tel: +91-22-6754 3441, Fax: +91-022- 6754 3457, E-mail: [email protected]
503, Kaledonia, Sahar Road, Off Western Express Highway, Andheri (E), Mumbai - 400069.Tel.: +91-22-6144 3456
4
Disclosures
Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can bias the
grading recommendation of the company.
This report has been sponsored by the company.
DislclaimerThis report is prepared by Credit Analysis & REsearch Limited [CARE]. CARE has taken utmost care to ensure accuracy and objectivity while developing
this report based on information available in public domain or from sources considered reliable. However, neither the accuracy nor completeness of
information contained in this report is guaranteed. Opinions expressed herein are our current opinions as on the date of this report.
CARE's valuation of the security is mainly based on company specific fundamental factors. Equity prices are affected by both fundamental factors as well as
market factors such as – liquidity, sentiment, broad market direction etc. The impact of market factors can distort the price of the security thereby
deviating from the intrinsic value for extended period of time. This report should not be construed as recommendation to buy, sell or hold a security or any
advice or any solicitation, whatsoever. It is also not a comment on the suitability of the investment to the reader. The subscriber / user assumes the entire
risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or employees have no financial liabilities whatsoever
to the subscribers / users of this report. This report is for personal information only of the authorised recipient in India only. This report or part of it should
not be reproduced or redistributed or communicated directly or indirectly in any form to any other person, especially outside India or published or copied
for any purpose.
¨
¨
www.careratings.com