hi-tech pipes ltd

1

Hi-Tech Pipes Ltd.

2019

Initiating Coverage

Report

Target: INR 410

Hi-Tech Pipes Limited May 30, 2019

Initiating Coverage BUY

Hi-Tech Pipes Ltd. (Hi-Tech) is a three decade old company involved in manufacturing steel pipes, hollow sections, tubes, cold rolled coils, road crash barriers, solar mounting structures, strips and a variety of other galvanized products. Hi-Tech serves various industries ranging from Oil & Gas, water, construction, infrastructure and automobile. Company has manufacturing facilities in Uttar Pradesh (Sikandrabad), Gujarat (Sanand) and Andhra Pradesh (Hindupur,). Company over the years has increased capacity from 1.8 Lakh MTPA to 5 lakh MTPA. We believe Hi-tech makes a compelling investment in a sector which is under-going consolidation. Hi-Tech’s presence in key markets along with strong clientele and increased capacity paves way for a decent growth ahead.

Key Investment Arguments Capacity ramp-up and diversified product mix to drive volumes, while realizations are likely to remain soft: Hi-Tech Pipes Limited over the last three years has focused on diversification of products and in key geographies by expanding its capacities. Company’s capacity now stands at 0.5Mn MTPA with a market share of ~8% in organized industry. We believe Hi-tech stands to benefit out of improving infrastructure activities in India post elections. With most of the capex done focus lies on improving utilization, we therefore expect a volume growth of 20% CAGR between FY19-FY21E. However, with softening RM prices and increasing competition price realization will be soft hence we expect revenue to grow at 18% CAGR between FY19-21E.

EBITDA/Ton to show improvement driving better EBITDA margins: We believe while some of steel tubes products will say face increased competition, few product segments in Cold Rolling and Engineering structures will drive EBITDA through value addition. Going ahead, while the mix is likely to remain same, company is working on various value added products within the segment which would lead to better EBITDA realization. While we expect price realization to remain soft, EBITDA/Ton on the other hand will reflect improvement and that in turn would lead to higher EBITDA margin. EBITDA/Ton on blended basis is likely to improve by 2% CAGR over FY19 to FY21E.

Return ratios to improve, improving profitability to aid cash flow bring down D/E: We expect company’s PAT to show a stellar growth of 39.4% driven by improvement in operational efficiency followed by lower interest cost (stable debt), which should result in 40-60bps improvement in PAT margin. We believe with combined equity infusion and increasing cash-flow, company’s debt to equity ratio is likely to come down from current ~2x to 1.3x by FY21E. We therefore expect ROCE to improve from 17.8% of FY19 to 21.5% to FY21E. ROE in other hand with debt coming down should improve to 23.2% by FY21E from exisiting 21% of FY19.

Valuations & View: We have valued Hi-Tech Pipes on EV/EBITDA multiple and valued it at discount (25%) to its peer Apl Apollo Tubes as the later contiunes to have a lion’s share in industry, followed by better financials and prudent management. While this valuation gap may persist over time, Hi-Tech Pipe’s growth both on top-line and bottom-line is expected to be impressive (Revenue/EBITDA/PAT CAGR of 18%/23.3%/39.4%). We therefore, value at 6x EV/EBITDA on FY21E EBITDA of INR 1,136Mn, indicating an upside of 32% from current levels. We therefore initiate coverage with a “BUY” rating on the stock.

Financials:

Particulars (INR Mn) FY17 FY18 FY19 FY20E FY21E

Revenue 6,374 10,157 13,604 15,723 18,911

EBITDA 399 602 748 935 1,137

PAT 101 210 274 388 532

EBITDA Margin 6.3% 5.9% 5.5% 5.9% 6.0%

PAT Margin 1.6% 2.1% 2.0% 2.5% 2.8%

EV/EBITDA 12.8 9.8 7.9 6.5 5.3

ROCE (%) 13.6 17.5 17.8 19.5 21.5

ROE(%) 14.1 22.1 21.0 22.2 23.2

Source: Company, SMC Institutional Research

Sector-Iron and Steel Products

CMP 317

Target Price 410

% Up Side 29%

Bloomberg Code HITECH IN

Stock Info

Face Value (INR) 10

Market Cap ( INR Mn) 3,395

Beta 0.9

52 Week High/ Low 398/161

Average Daily Volume 24,738

Sensex 39,502

NIFTY 11,861

Shareholding Pattern (%)

Promoters 60.5

DIIs 0

FIIs 1.0

Others 38.1

% Change 1 M 6M 1Yr

Absolute 18 47 -18

Relative 16 38 -32

Stock Chart

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May-18 Aug-18 Nov-18 Feb-19 May-19

HITECH IN Equity SENSEX Index

Analyst : Ankit Merchant

E-mail: [email protected]

PH-022-6734-1692

mailto:[email protected]

2

Company Brief:

Company’s journey started in late 1985 as M/S Ram Lal Harbans Lal Limited, later the name was changed to Hi-Tech Pipes Ltd (Hi-Tech). Company began its production in 1988 at Sikandrabad with manufacturing of MS pipes CR coils and strips in 1996. In 2001 as a measure of backward integration company installed Continuous Galvanizing Line.

In 2005 company installed hot-dipped galvanizing facilities and in 2008 started with production of highway crash barriers followed by hollow section in 2010, commenced production of solar mounting structures. Company in 2012 set up another manufacturing unit for steel tubes and hollow sections as second unit in Sikandrabad Industrial Area.

In 2014 company commissioned a new Greenfield state of art steel tubes and hollow sections manufacturing facilities in Sanand, Gujarat and commercialized it in July, 2015. In the year 2017-2018 company commenced its production at their Hindupur, Andhra Pradesh plant, followed by modernization and expansion of Cold rolling Mill at Sikandrabad Plant. Hi-Tech also commissioned ERW Pipe manufacturing at Hindupur.

Today, Hi-Tech Pipes limited, is one of India's leading engineering house of excellence and innovation producing steel pipes, hollow sections, tubes, cold rolled coils, road crash barriers, solar mounting structures and strips and a variety of other galvanized products. Company, today boasts of ERW pipes & tubes for Oil & Gas and water sector. Black steel pipes, galvanized steel pipes and tubes for construction industry and hollow section for infrastructure.

Company was listed on SME exchange in February, 2016 and successfully migrated to the main board in May, 2018. Company today has become a multi-location integrated plants having cold rolling mills to manufacture CRCA coils and strips, galvanizing lines to manufacture corrugated sheets and purling, pre-galvanized sheets required for manufacturing GP pipes, latest technology high speed tube mills to manufacture steel tubes, pipes, hollow sections of various sizes and types to cater the requirements of diverse industries and sectors.


3

Exhibit 1: Product Profile


4

Business Model


Hi-Tech Pipes operates in three business segment: 1) Flat Steel (Cold Rolled Sheets & Strips Galavanized Coils), 2) Tubular (Steel Tubes & Pipes) and 3) Engineering Products (Metal Crash Barriers, Solar Structures). Company over the years has focused on putting up capacities in key geographies, followed by diversification of product portfolio and addition on new clientele.


5

Investment Rationale:

1. Hi-tech Pipes a formidable player in steel structures to benefit out of Infrastructure development in India: The Indian steel industry has entered into a new development stage, post de-regulation, riding high on the resurgent economy and rising demand for steel. As per National Steel Policy, 2017 India is on the cusp of steel revolution as India, despite being third largest producer features as the lowest per capita steel consumer.

Particulars Global India

Steel Pipe Steel Pipe

2004 276 21 69 6 2018 835 90 100 10 2030 756 103 158 19

Source: Ministry of Steel, SMC Institutional Research

Steel Pipes & Tubes industry has witnessed growth resulting out of product evolution like Hollow Pipes for infrastructure. Gradually this segment has grown manifold replacing angles, channels, wood, etc. With industry now focusing on increasing awareness, numerous applications of the products are being explored and added continuously. Further, the industry of ERW steel pipes is leveraging on the growth from its increased usage in unconventional sectors such as construction of malls, airports, bus body, metros, gym equipment, furniture, etc. The growth is also driven by increasing usage of ERW steel pipes in the end-user segment.


Hi-tech Pipes is into manufacturing of steel pipes and other allied products such as Flat Steel and Engineering products, which has various applications ranging from high-rise buildings, metro stations, bridges, dams, refineries, telecom, airports, highways, power projects, Agriculture, Automobile etc. While pipes and tubes are primarily used in Construction, company’s presence in other allied products opens up opportunities in roadways and solar structures, which would continue to be focus of any government, opening up growth opportunities for Hi-Tech Pipes. We believe with NDA government being in power we would see continued focus on basic infrastructure activities and focus would be on faster implementation of existing projects. We believe with government initiatives underway ranging from Housing for all Scheme, National Highway development, Irrigation and etc, there would an impetus for any government to focus on working on infrastructure activities.

Thus we remain fairly confident that despite the initial hiccups post election, investment in infrastructure would continue it upward march thereby creating enough opportunities for Hi-Tech Pipes Ltd.

6

2. Diversification of products, ramping up capacities in key geographies to drive growth ahead: Hi-Tech Pipes since its listing has focused on diversification of products and in key geographies by expanding its capacities. Company over the last decade has focused on expanding its Steel Pipes segment along with other allied products like CR Sheets & Strips, Galvanized Coils and Engineering structures like Metal Crash-Barriers and Solar Structures. India’s domestic Steel Pipes & Tubes industry has witnessed growth resulting out of product evolution like Hollow Pipes for infrastructure. Gradually this segment has grown manifold replacing angles, channels, wood, etc. India’s total capacity stands currently at ~10mn MTPA out of which organized share of capacity stands at 5.2Mn MTPA.


Hi-Tech Pipes has been focusing on the latest technology to improve its productivity, quality and efficiency. Hi-Tech’s philosophy over the years been in product customization and readily available product ranges with manufacturing units near to the customers leading to prompt delivery. Post IPO Company expanded its reach to Sanand, Gujarat to focus on the demand supply gap and also easy accessibility near the port (~270Kms). Company further entered the southern market, driven by higher demand leading to a unit in Hindupur, Andhra Pradesh leading to current capacity stands at 0.425MnTPA. Company’s focus on diversification from core portfolio by adding capacity of 75,000 TPA in flat steel segment (for Automobile Applications) should take total capacity to 0.5Mn MTPA by end of FY20E leading to a market share of ~8% in organized market.

5.00

5.22

4.97

5.18

5.32 5.40

5.56

5.80

0.18

0.24

0.30

0.36

0.43

0.50 0.50

0.60

0.00

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4.40

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4.80

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5.20

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5.60

5.80

6.00

FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Industry Capacity in Mn MTPA Hi-Tech Capaicty in Mn MTPA

Product diversification

to drive up capacity

utilization

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Financial Commentary:

1) Capacity ramp-up and diversified product mix to drive revenue growth ahead:

Company derives its major revenues from Steel Pipes and Tubes (79% in FY19), while cold rolling (18% in FY19) and Engineering Structures (3% in FY19). We believe with demand increasing across sectors such as Infrastructure, Oil & Gas, Capital Goods, Power, Automotive and Railways should help Hi-Tech to get all round growth. Company’s recent capacity expansion should pave way for higher volume growth. We therefore estimate company’s volume growth of ~20% between FY19 to FY21E. The volume growth for Hi-Tech will be driven by Cold Rolling (~25% CAGR), followed by Steel Tubes (~19% CAGR) and Engineering products (6% CAGR). While we expect volume growth to remain strong, realization growth on the other hand is likely to weaken as higher competitive intensity and soft steel prices is likely to limit any realization growth. Furthermore, general slowdown in various segments will also result in pricing power shifting to buyers from sellers, which would further weaken price realization. However, company plans to mitigate this risk by diversifying into various end-user industries like CR Sheets & Strips for Auto and Auto Ancillaries, Galavanized Coils for Agriculture, Furniture & Fixtures and Cold Formed for Civil construction and storage systems. We believe with varied product mix company would be able to withstand any major price erosion.


We therefore expect company’s overall volume growth of ~20% CAGR between FY19-FY21E while realization is expected to decline by 3% leading to overall revenue growth of 17.9% CAGR between the same period and is expected to reach a revenue of INR 18,910.9Mn by FY21E.

100,000

138,000 158,000

226,024

269,000

328,067

387,133

43,492

34,266 37,491

42,344

49,443 46,083 46,970

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10,000

20,000

30,000

40,000

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60,000

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FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Volume in Lakh MTPA Blended Realization/ Ton in INR

Volume of 19% CAGR to

offset decline in

realization, leading to

revenue growth of

15.5% CAGR between

FY19-21E.

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2) Despite dip in price realization product diversification to drive EBITDA/Ton:

We believe Hi-tech Pipes with its increased capacity and diversified product mix should result in higher EBITDA margin. However, important matrix would be absolute improvement in EBITDA/Ton. Company derives majority of its Revenue from Steel Tubes and Pipe (77% of FY19 Revenue), followed by cold rolling (18%) and Engineering (4.8%). Going ahead, while the mix is likely to remain same, company is working on various value added products within the segment which would lead to better EBITDA realization. While we expect price realization to remain soft, EBITDA/Ton on the other hand will reflect improvement and that in turn would lead to higher EBITDA margin. EBITDA/Ton on blended basis is likely to improve by 2% CAGR over FY19 to FY21E. We believe while some of steel tubes products will say face increased competition, few product segments in Cold Rolling and Engineering structures will drive EBITDA through value addition.


EBITDA margins on the other hand are likely to improve steadily as company is expected to improve on back of higher economies of scale and improved productivity. However, failure of running the plant at optimal utilization will have an impact on Hi-Tech’s EBITDA. We therefore assume, Hi-Tech’s focus would be to sell higher volume compromising higher price-realization and margin expansion, despite which EBITDA is expected to grow at 23% CAGR between FY19-20E. Given that industry leader APL Apollo also generates EBITDA/Ton of INR 3,200. Hitech-Pipes being a midsized player having a similar EBITDA/Ton (of INR 2,800) is in acceptable range. We believe while APL Apollo has far bigger economies of scale, Hi-Tech despite being a small player has been able to achieve similar EBITDA/Ton showcases Hi-Tech Pipes brand value.

2,521 2,311

2,526 2,659

2,780 2,851 2,937

5.5%

6.3% 6.3%

5.9%

5.5%

5.9% 6.0%

5.0%

5.2%

5.4%

5.6%

5.8%

6.0%

6.2%

6.4%

6.6%

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500

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3,500


Blended EBITDA/Ton (INR) EBITDA Margin

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3) Expansion in PAT margins on account of higher operational effeciency and lower

finance cost to result into stellar PAT growth:

Company’s impressive revenue growth is expected to show up in bottom-line. We

expect company’s PAT to show a stellar growth of 39.4% driven by improvement in

operational efficiency followed by lower interest cost (stable debt), which should

result in 40-60bps improvement in PAT margin.


4) Debt/Equity to improve on back of promoter infusion, return ratios to reflect

improving operational efficiency:

Hi-Tech Pipes, is highly levered (~2x D/E) company as majority of the company’s

recent capacity expansion was funded through debt. While higher capex

requirement was met by Term Loans, company being into working capital intensive

business further increased the requirement of debt.

As company went into agressive expansion from 1,80,000 MTPA in FY15 to 5,00,000

MTPA in FY19, company’s cash-flow woudn’t have been sufficient to boost the

growth. Company followed a balanced approach of funding initial capex by debt

followed by warrants issued to promoters.

While, majority of the company’s capex is already completed company’s focus lies

on improvement in operational efficieny and re-payment of long-term debt.

Company’s has issued warrants to promoters 0.8Mn shares at INR 400/each of

which 25% were converted into equity in FY19, the rest shares in FY20E.

We believe with combined equity infusion and increasing cash-flow, company’s debt

to equity ratio is likely to come down from current ~2x to 1.3x by FY21E. Return

ratios should improve signficiantly reflecting the improving operational

performance. We therefore expect ROCE to improve from 17.8% of FY19 to 21.5% to

FY21E. ROE in other hand with debt coming down should improve 23.2% by FY21E

from exisiting 21% of FY19.

49.8 64.9 100.7

210.1

273.5

387.9

531.6

1.1 1.3

1.6

2.1 2.0

2.5

2.8

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1.5

2.0

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PAT (INR Mn) PAT Margin(%)

11


26.4

13.8 13.6

17.5 17.8 19.5

21.5

21.0

11.4

14.1

22.1 21.0

22.2 23.2 2.39

2.29 2.48

2.30

1.77

1.26

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ROCE (%) ROE (%) D/E

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Outlook & Valuations:

We believe Hi-Tech Pipes Ltd is in a highly competitive industry, which is under-

going significant market consolidation. Disruptions led by demonitization and GST

have impacted the un-organized segment (~4.8Mn MPTA of total size of 10Mn

MTPA), but they have continued to thrive through various means. Organized players

on the other hand have focused on improving its market shares by eating the market

size of regional/unorganized players by expanding its capacity and offering varied

ranges at resonable prices.

APL Apollo Tubes has been the leader in pipe segment by focusing on bringing varied

products, through new technology followed by an aggressive capacity expansion

plan. Hi-Tech Pipes too has followed a similar strategy but have concentrated on

other allied steel products to diverisfy their clientele and product mix.

We believe Hi-Tech Pipes Ltd is a propelling investment idea to play on India’s steel

and infrastructure segment. Company since its listing have followed an aggressive

strategy to build-up capacity backed by demand from regions its operates. While

most of the capacity is now in place, company’s focus is on achieveing higher

operational efficiency and improving volumes. We therefor expect company’s

volume to grow by 20% CAGR between FY19-21E, which will drive

Revenue/EBITDA/PAT growth of 18%/23.3%/39.8% CAGR.

We have valued Hi-Tech Pipes on EV/EBITDA multiple, company currently trades at

EV/EBITDA multiple of 8x FY2019 EBITDA of INR 747Mn. Company’s closest peer APL

Apollo Tubes being the market leader currently trades at 11.7x FY19E EBITDA of INR

3,928Mn. We believe current valuation gap between Hi-Tech Pipes and Apl Apollo

Tubes is justified as APL Apollo continues be the segment leader followed by lower

D/E (0.8x), superior finacials and proven management.


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Enterprise Value 3x 4x 5x 9x

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FY21E EV/EBITDA Revenue EBITDA PAT D/E ROCE ROE Current Promoter

Holding

Hi-Tech Pipes 5.3x 18,911 1,136 535 1.5 21.5% 23.2% 60.85%

Apl Apollo Tubes 7.9x 86,996 6,003 2,731 0.6 23.3% 20.7% 38.1%


While this valuation gap may pertain over time, Hi-Tech Pipe’s growth both on top-

line and bottom-line is expected to be impressive. We therefore, value at 6x

EV/EBITDA on FY21E EBITDA of INR 1,136Mn, indicating an upside of 32% from

current levels. We therefore assign a “BUY” rating on the stock.

EV/EBITDA Valuation

FY21E EBITDA 1,137 Multiple avg 6 Enterprise Value 6,821 Less: Debt 2,598 Market Value 4,223 Add: Cash 160 Equity Value 4,383 No. of Shares 10.70 Target Price 410 CMP 310 Upside 32%


Alternatively, we have worked on scenarios of bull case and bear case. While in bear

market, multiple in general are likely to trend lower company may fetch a multiple

of and the lowest company has traded at 5x EV/EBITDA. Therefore valuing at 4x

EV/EBITDA on FY21E leads to a price of INR197/share, indicating an downside of

36%. However, in the bullish scenario company has traded at 8x EV/EBITDA on

FY21E, therefore indicating a price of INR622/share, an upside of 101% from current

levels.

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Risk Factors

Inventory and Raw Material: Company’s key raw material is steel and forms ~90% of the company’ sales. Steel Prices over the last 2 years have been in uptrend but have become volatile with prices declining ~10% in a matter of month leading to losses for most of the pipe manufacturers with higher inventory. We believe while Hi-Tech’s management has followed a prudent strategy to control its RM and inventory. Wild swings in RM can lead to significant losses for the company affecting its operations, eventually leading to loss in earnings.

Capacity Utilization: Company over the years have expanded its capacity agressively in anticipation of increase in demand. While company’s capacity has goone up 2x since FY16, company’s overall utilization has been in the range 60 to 65%. We believe that with most the capacity expansion behind now improving utilization would be a key factor. Failure to lift utilization either through slowing demand, hyper competition or in-adequate RM availabilty will lead to extreme stress on already leveraged balance-sheet. We therefore believe financial numbers projected by us could show sever divergeneces leading change in valution of business.

Inability to pay-off Debt/Further rise in Debt: Company’s D/E stands at 1.8x on FY19. Company’s plans to reduce debt by infusion of capital through issuance of warrants to promoters and internal accural. Company’s current debt stands at 3.5x of FY19 EBITDA. We believe any failure in business operations, increase in working capital can further lead to stress on balance sheet leading to increase in finance cost and affecting the overall profitability and returns.

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Management Bandwidth

Name Designation Experience

Mr. Ajay Kumar Bansal Chairman/MD

Commerce Graduate from Delhi University.

Industry Stalwart with more than 35 years of rich experience

Nominated as Chairman of Federation of Indian Industries (Steel Tube Panel) representing entire steel tubes industries at various National and International Summits, Seminars and Conferences

Mr. Anish Bansal Executive Director

B.Sc Economics in Banking and Finance from Cardiff University U.K in 2005

Responsible in taking care of entire area of Corporate Finance and Business Strategies.

Mr. Ashok Aggarwal

Commercial Head

Graduated from Delhi University

More than 32 years of experience in area of procurement of steel from primary steel producers at competitive prices

Mr. Arvind Bansal Chief Financial Officer

Qualified Chartered Accountant with over 20 years of experience in matters related to Corporate Finance, Corporate Restructuring, Taxation, Capital Market, Management Information System and Accounting


16

Financial Details

Profit & Loss Statement (INR Mn)

Particulars FY17 FY18 FY19 FY20E FY21E

Total Sales 6,374 10,157 13,604 15,723 18,911

COGS 5,755 9,293 12,364 14,194 16,951

EBITDA 399 602 748 935 1,137

Depreciation 69 40 53 94 106

Interest & Finance charges 205 274 299 293 277

Other Income 24 13 14 14 17

Extraordinary items - - - - -

EBT (as reported) 149 300 410 562 770

Tax 45 90 136 174 239

PAT 104 210 274 388 532

RPAT 104 210 274 388 532

Extraordinaries adj. 3 - - - -

APAT 101 210 274 388 532


Balance Sheet (INR Mn)


Equity Share Capital 103 105 107 113 113

Reserves 666 1,031 1,361 1,917 2,442

Net worth 769 1,136 1,468 2,030 2,555

Total loans 1,904 2,617 2,598 2,548 2,473

Deferred tax liability (Net)

38 64 114 114 114

Capital Employed 2,710 3,817 4,180 4,692 5,143

Gross Block 882 1,349 1,854 2,096 2,364

Depreciation 69 109 163 257 363

Net block 812 1,240 1,692 1,840 2,001

CWIP 77 174 37 63 94

Inventories 1,244 1,543 1,512 1,714 1,999

Sundry debtors 959 1,039 1,374 1,361 1,595

Cash and bank 164 128 160 367 192

Loans and advances 269 281 232 309 422

Other Current Assets - - - - -

Total Current assets 2,635 2,991 3,278 3,750 4,208

Total Current liabilities 885 668 871 1,034 1,276

Net Current assets 1,750 2,323 2,407 2,716 2,932

Misc. Expense (not (w/o) - - - - -

Capital Deployed 2,710 3,817 4,180 4,692 5,143


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Cash Flow (INR Mn)


PAT 104 210 274 388 532

Depreciation & Amortization (309) 40 53 94 106

Incr/(Decr) in Deferred Tax Liability 7 27 50 - -

(Incr)/Decr in Working Capital (165) (610) (52) (103) (391)

Cash Flow from Operating (363) (333) 325 380 247

(Incr)/ Decr in Gross PP&E 48 (468) (505) (242) (267)

(Incr)/Decr In Work in Progress (12) (97) 137 (26) (32)

(Incr)/Decr In Investments - - - - -

(Incr)/Decr in Other Non-Current Assets

(20) (9) 36 (29) (41)

Cash Flow from Investing 16 (574) (333) (297) (341)

(Decr)/Incr in Debt 382 714 (19) (50) (75)

(Decr)/Incr in Share Capital - 2 2 6 -

(Decr)/Inc in Other reserves (101) (207) (270) (382) (526)

Dividend (3) (3) (3) (6) (6)

Cash Flow from Financing 384 870 40 124 (81)

Incr/(Decr) in Balance Sheet Cash 37 (36) 32 207 (175)

Cash at the Start of the Year 127 164 128 160 367

Cash at the End of the Year 164 128 160 367 192


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Key ratios


Growth (%)

Total Sales 26.5 59.3 33.9 15.6 20.3

EBITDA 25.0 50.8 24.3 25.1 21.5

APAT 55.2 108.6 30.2 41.8 37.1

Profitability (%)

EBITDA Margin 6.3 5.9 5.5 5.9 6.0

Adj. Net Profit Margin 1.6 2.1 2.0 2.5 2.8

ROCE 13.6 17.5 17.8 19.5 21.5

ROE 14.1 22.1 21.0 22.2 23.2

Per Share Data (Rs.)

AEPS 9.8 20.0 25.6 34.3 47.0

Reported CEPS 17.8 28.3 35.1 42.7 56.5

BVPS 74.6 108.2 137.2 179.6 226.1

Valuations (x)

PER (x) 31.7 15.5 12.1 9.0 6.6

PEG (x) 0.6 0.1 0.4 0.3 0.2

P/BV (x) 4.2 2.9 2.3 1.7 1.4

EV/EBITDA (x) 12.8 9.8 7.9 6.5 5.3

EV/Net Sales (x) 0.8 0.6 0.4 0.4 0.3

Dividend Yield (%) 0.1 0.1 0.1 0.1 0.1

Turnover days

Debtor Days 46.8 35.9 32.4 31.7 28.5

Payable Days 46.4 30.5 22.7 24.5 24.9

Gearing Ratio

D/E 2.5 2.3 1.8 1.3 1.0


19

Key to ratings

Ratings Defination

Buy ESR is greater than EMR + 15%

Accumulate/ Hold ESR falls between EMR + 5% and EMR + 15%

Sell ESR is lesser than EMR - 5%

Notes: ESR = Expected Security Return EMR = Expected Market Return, defined as 1 year domestic yield + 5% (as a proxy for market risk premium)

SMC Global Securities Ltd

Lotus Corporate Park , A Wing 401 / 402 ,

4th Floor ,Graham Firth Steel Compound,

Off Western Express Highway, Jay Coach Signal,

Goreagon (East) Mumbai - 400063

Tel: 91-22-67341688

Email ID: [email protected]

SMC Global Securities Ltd. (hereinafter referred to as “SMC”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, depository services and related activities. SMC is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited, MSEI (Metropolitan Stock Exchange of India Ltd) and M/s SMC Comtrade Ltd is a registered member of National Commodity and Derivative Exchange Limited and Multi Commodity Exchanges of India and other commodity exchanges in India. SMC is also registered as a Depository Participant with CDSL and NSDL. SMC’s other associates are registered as Merchant Bankers, Portfolio Managers, NBFC with SEBI and Reserve Bank of India. It also has registration with AMFI as a Mutual Fund Distributor.

SMC is a SEBI registered Research Analyst having registration number INH100001849. SMC or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities market. SMC or its associates or its Research Analyst or his relatives do not hold any financial interest in the subject company interest at the time of publication of this Report. SMC or its associates or its Research Analyst or his relatives do not hold any actual/beneficial ownership of more than 1% (one percent) in the subject company, at the end of the month immediately preceding the date of publication of this Report. SMC or its associates its Research Analyst or his relatives does not have any material conflict of interest at the time of publication of this Report.

SMC or its associates/analyst has not received any compensation from the subject company covered by the Research Analyst during the past twelve months. The subject company has not been a client of SMC during the past twelve months. SMC or its associates has not received any compensation or other benefits from the subject company covered by analyst or third party in connection with the present Research Report. The Research Analyst has not served as an officer, director or employee of the subject company covered by him/her and SMC has not been engaged in the market making activity for the subject company covered by the Research Analyst in this report.

The views expressed by the Research Analyst in this Report are based solely on information available publicly available/internal data/ other reliable sources believed to be true. SMC does not represent/ provide any warranty expressly or impliedly to the accuracy, contents or views expressed herein and investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of the subject company.

Disclaimer: This Research Report is for the personal information of the authorized recipient and doesn't construe to be any investment, legal or taxation advice to the investor. It is only for private circulation and use. The Research Report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. No action is solicited on the basis of the contents of this Research Report. The Research Report should not be reproduced or redistributed to any other person(s)in any form without prior written permission of the SMC. The contents of this material are general and are neither comprehensive nor inclusive. Neither SMC nor any of its affiliates, associates, representatives, directors or employees shall be responsible for any loss or damage that may arise to any person due to any action taken on the basis of this Research Report. It does not constitute personal recommendations or take into account the particular investment objectives, financial situations or needs of an individual client or a corporate/s or any entity/s. All investments involve risk and past performance doesn't guarantee future results. The value of, and income from investments may vary because of the changes in the macro and micro factors given at a certain period of time. The person should use his/her own judgment while taking investment decisions. Please note that SMC its affiliates, Research Analyst, officers, directors, and employees, including persons involved in the preparation or issuance if this Research Report: (a) from time to time, may have long or short positions in, and buy or sell the securities thereof, of the subject company(ies) mentioned here in; or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company(ies) discussed herein or may perform or seek to perform investment banking services for such company(ies) or act as advisor or lender/borrower to such subject company(ies); or (c) may have any other potential conflict of interest with respect to any recommendation and related information and opinions.

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