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Supriya Khedkar supriya.khedkar@icicidirect.com Sanjay Manyal sanjay.manyal@icicidirect.com

OUTPERFORMER

Current price Rs 134

Target price Rs 194

Potential upside 44.8%

Time Frame 12-15 months

J K Industries (JKIND)

Initiating coverage

February 18, 2008| Tyres

Spreading growth…

Sales & EPS trend

2,000

2,600

3,200

3,800

4,400

FY06 FY07 FY08E FY09E FY10E

Net

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Stock metrics Promoters Holding 47.0Market Cap 41552 Week H/L 205 / 100Sensex 18,101Average Volume 75198 Comparative return metrics Stock return 3 M 6M 12M Apollo Tyre 16.2 22.8 33.1 Ceat 26.8 35.2 73.8 JK Tyre 8.7 -7.0 NA

J K Industries (JKT), the third largest tyre manufacturer in India, is boosting capacities to capitalize on volume expansion in the industry. Increasing demand for passenger vehicles (PVs) and commercial vehicles (CVs), and capacity expansions by auto manufacturers have resulted in soaring demand for tyres. The divestment of its investment business into a separate company and focus on the core tyre business is expected to bring a substantial improvement in the company’s financial performance, which are already visible in the results of the last two quarters.

• Increasing demand to drive growth

Soaring demand from OEMs (original equipment manufacturers) as well as replacement market, offers a great opportunity to leading player like JK Industries. We expect the company to clock a 38% CAGR in sales volumes and 13% CAGR in sales over FY07-10E.

• Capacity expansion to support demand growth

The company is expanding capacity by ~ 40% during FY07-11 to 12 million tyres at a total capital expenditure of Rs 1,180 crore in two phases. The enhanced capacities would give it leverage to meet increased demand.

• Improving financials, EBITDA margins to expand

JK Industries quadrupled its net profit to Rs 66.7 crore in FY07, with EBITDA margins improving to 9%. Going forward, we expect a 23.1% CAGR in net profit to Rs 124.4 crore over FY07-10E on the back of improving product mix and increased focus on high-value, high-margin radial tyres. EBITDA margins are expected to rise to 10.6% during the same period.

Valuations The share is currently trading at 5.7x and 5.3x its FY08E and FY09E EPS. On an EV/EBITDA basis, it is trading at 5.2x and 4.5x FY08E and FY09E. Given the strong growth outlook and improving return ratios, we feel the stock deserves a higher valuation. We have underplayed the threat of a slowdown in CV sales (major contribution to sales) as well as price fluctuations in key raw materials. We have valued the company on a conservative basis at 5.5x its FY09 EV/ EBITDA to arrive price of Rs 183 for its core business (on post-diluted equity by around 33%). The recently divested Netflier Finco is listed on bourses, and discounting it by 20% to the current price, we value it at Rs 11 per share. A SOTP valuation gives us a target price of Rs 194.

Exhibit 1: Key Financials

Year ending September FY06 FY07 FY08E FY09E FY10E

Net Profit (Rs crore) 16.9 66.7 95.9 104.7 124.4Equity shares (crore) 3.1 3.1 4.1 4.1 4.1EBITDA margin (%) 5.8 9.0 10.7 10.5 10.6EPS (Rs) 5.5 21.7 23.4 25.5 30.3PER (x) 24.2 6.2 5.7 5.3 4.4P/BV (x) 1.1 0.6 0.6 0.6 0.5Price/sales (x) 0.2 0.1 0.2 0.1 0.1EV/EBITDA (x) 9.0 6.2 5.2 4.5 4.6ROCE (%) 6.3 11.3 12.9 12.5 13.1ROE (%) 4.5 12.9 12.8 11.6 12.4 Source: ICICIdirect Research

Analysts’ Names

Price Trend

80100120

140160180200220240

Mar

-07

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7

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-07

Jun-

07

Jul-0

7

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07

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Oct-0

7

Nov-

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Dec-

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Target Price

Absolute Buy

Absolute Sell

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Exhibit 2: Revenue break-up

Source: Company, ICICIdirect Research

Share holding pattern Shareholders % HoldingPromoters 47.0Institutional investor 16.1Other Investors 19.7General public 17.3

Promoter & Institutional holding trend (%)

48.7 48.7 48.9 47.0 47.0

18.0 20.2 20.2 21.916.1

0

10

20

30

40

50

60

31/12/2006 31/03/2007 30/06/2007 30/09/2007 31/12/2007

Total of Promoter Non Promoter (Institution)

Company Background JK Industries, a Hari Shankar Singhania Group company, is the third largest tyre manufacturer in India, with an overall 17.6% market share. The company has four plants, two in Karnataka, and one each in Rajasthan and Madhya Pradesh. By the end of 2007, the company had total manufacturing capacity of around 8.6 million tyres. It now plans to raise the same to 12 million tyres in two phases at total capital outlay of Rs 1,180 crore. JK Industries hold major share in M&HCV (medium and heavy vehicles) tyres (22.7%) and passenger car tyres (18.4%) segments. It has significant share of export revenue in its gross sales with exports contributing around 14% of gross sales.

ICICIdirect | Equity Research

% to Revenues

OEMs7%

Exports14%

Government7%

State transport

6%

Replacement market66%

Segment contribution (%)

CVs77%

PVs22%

Others1%

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INVESTMENT RATIONALE

Increasing demand to drive growth JK Industries is the leading tyre manufacturer and has presence in both the CV and PV segments, with a market share of 22.7% and 18.4% respectively. It has also emerged as the largest exporter of India for FY07 with exports at Rs 436.9 crore. Though FY08 started with subdued growth in M&HCV sales, LCV and PV sales were rising continuously. We believe that LCV to rise at a CAGR of 10%, M&HCV at 8% and PVs at 11.3% over FY07-12E on the back of the following factors.

1. Good economic growth supported by rising GDP and industrial production, a key demand driver for commercial vehicles

2. Capacity expansion programs of almost all Indian automobile companies

3. Softening of interest rates

Exhibit 3: Volume expansion in automobile sector (Lakh nos)

Category FY06 FY07 FY08 FY09 FY10 FY11 FY12 CAGR (07-12E)

Passenger Cars 10.5 12.4 13.9 15.5 17.1 19.3 21.6 11.8%

Utility Vehicles 2.0 2.2 2.4 2.7 2.9 3.1 3.4 8.6%

MPVs 0.7 0.8 0.9 1.1 1.2 1.3 1.4 10.4%

Total passenger Vehicels 13.1 15.4 17.3 19.3 21.2 23.7 26.4 11.3%

M&HCVs 2.2 2.9 3.2 3.4 3.7 4.0 4.3 8.0%

LCVs 1.7 2.3 2.5 2.8 3.0 3.3 3.6 10.0%

Total Commercial Vehicles 3.9 5.2 5.7 6.2 6.7 7.3 8.0 8.9%

Three Wheelers 4.3 5.6 6.0 6.4 6.8 7.3 7.8 7.0%

Scooters 10.2 9.4 10.4 11.4 12.6 13.6 14.9 9.6%

Motorcycles 62.1 71.1 81.8 91.6 100.8 109.8 118.6 10.8%

Mopeds 3.8 3.8 4.1 4.3 4.5 4.7 4.9 5.4%

Electrict Two Wheelers - 0.1 0.1 0.2 0.2 0.2 0.3 28.5%

Total Two Wheelers 76.1 84.4 96.4 107.4 118.0 128.4 138.8 10.4% Grand Total 97.4 110.7 125.3 139.3 152.7 166.6 180.9 10.3%

Source: ICICIdirect Research

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Blue-chip clientele to help garner larger share of incremental demand

JK Industries is a major supplier to almost all Indian OEMs, which include Maruti Suzuki, Mahindra & Mahindra, Tata Motors, Force Motors and Volvo. The company is the exclusive supplier to Mahindra’s Logan and Maruti’s Sx4, Swift, Estilo. For Maruti’s other variants, it is the leading supplier. Sales of these vehicles are growing at a rapid space and would support direct demand for tyres at present as well as in replacement market in the coming period.

The company is strong in research and development efforts (R&D) and has developed a new tyre for Tata Motor’s Nano, which can meet the latter’s cost-cutting criteria. We believe, JK Industries would meet around 25% of Nano’s requirements in the initial phases. The company supplies to all the major OEMs in India and has good market share in replacement segment. The company has well positioned itself to garner higher share of the incremental demand going forward. Exhibit 4: JK Industries’ market share in various segments

Market share in M & HCV segment

MRF Ltd20%

Ceat Ltd.15%

Birla Tyres9%

Apollo Tyres29%

JK Tyre23%

Goodyear India3%

Others1%

Source: Crisil Research

Market share in PV segmentMRF Ltd

22%

JK Tyre18%

Ceat Ltd.5%

Apollo Tyres16%

Others27%

Goodyear India12%

Source: Crisil Research

Its leading position would enable JK Industries grab higher market share from incremental demand

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Replacement market: A major growth segment

JK Industries derives around 66% of its revenue from the replacement market and 14% from exports. Following chart depicts revenue contribution from various segments.

Exhibit 5: Revenue contribution

State transport

6%

OEMs7%

Exports14%

Government7%

Replacement market

66%

Source: ICICIdirect Research The replacement market is a major growth segment for any tyre player as volumes and realizations are comparatively higher here as compared with OEMs. Replacement period vary from vehicle to vehicle and the replacement cycle for various vehicles is as tabulated below.

Exhibit 6: Replacement cycle for tyres

Source: ICICIdirect Research We have considered CVs and PVs in our calculations and not accounted the likely demand from tractors, trailers and OTR due to

Vehicle type Tyres per vehicle Replacement (tyres pa)Truck and Bus 7 4.6Tractor Front 2 0.3Trctor Rear 2 0.2Tractor trailor 2 0.8LCV 5 1.6Car 5 0.8Jeep 5 0.9Motorcycles 2 0.52 and 3 Wheelers 2-3 0.6Moped 2 0.7

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lack of data. We have also ignored demand from 2- and 3 wheelers, as JK Industries does not cater to this segment.

Exhibit 7: Demand growth from CV and PV segments (Lakh nos.)

Source: ICICIdirect Research

Capacity expansion to garner higher share of incremental demand To benefit from the rising demand, J K Industries is expanding capacities. In FY07, it increased capacity from 7.6 million tyres to around 8.5 million at capital expenditure of Rs 224 crore. The company would spend another Rs 360 crore to hike its capacity to 10 million tyres by FY09 and Rs 120 crore to increase its OTR capacity for BEML. The company is also considering to increase its total capacity to 12 million tyres by FY11 and is likely to spend around Rs 700 crore for the same. Thus, total capacity would increase by around 40.5% over FY07-11E. Radial tyres provide additional mileage as well as savings in fuel. The company has major presence in PV radials and now with increasing radialisation levels in truck and bus segment, it has undertaken capacity expansion in truck and bus radials. It is also increasing PV radial capacity. The radial tyres are comparatively costlier than bias tyres, and increasing contribution from radial tyres would help the company expand its top line as well as margins.

Exhibit 8: Radialisation levels (%) Segment FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY010E Passenger cars 65 70 75 85 90 90 95 98 LCV 8 10 10 11 11 11 12 15 Truck & Buses 2 2 2 2 2 2 3 7-8 Source: CRISIL Research

Exhibit 9: Capacity expansion (Lakh nos.) Type FY07 FY08E FY09E FY10E FY11ETruck bias 25.2 25.2 25.2 25.2 25.2Truck radials 3.7 3.7 5.0 5.0 12.0PV bias 11.0 11.0 11.0 11.0 11.0PV radials 45.0 45.0 60.0 70.0 70.0Speciality tyres 0.3 0.3 0.3 0.3 1.3OTR 0.1 0.1 0.1 0.2 0.4Total 85.3 85.3 101.6 111.7 119.9Source: Company

FY05 FY06 FY07 FY08E FY09E FY10E CAGR (FY07-10E)

OEM 86.8 93.8 115.0 127.5 141.2 154.2 10.3

Growth (%)

8.1

22.6

10.9

10.7

9.2

Replacement 89.8 121.0 162.7 210.1 257.8 313.8 24.5

Growth (%)

34.7

34.5

29.1

22.7

21.7

Total 176.6 214.8

277.7

337.6

399.0

467.9 19.0

Growth (%)

21.6

29.3

21.6

18.2

17.3

JK Industries is well positioned to garner a higher market share from OEM as well as replacement market

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Arrangement with BEML JK Industries have entered through a tri-party arrangement with BEML (Bharat Earth Movers Ltd) and Apollo Tyres to manufacture OTR (off the road) tyres, according to which both JKT and Apollo Tyres would have a separate facility for manufacturing OTR for BEML. The OTR segment yields high margins on account of higher level of customizations required. The OTR project will require an investment of Rs 120 crore, of which Rs 100 crore would be infused by BEML as trade advance. The capacity would be exclusively for BEML. The benefits of these arrangements are given below.

• Assured sale committed from BEML, and therefore no risk of lower off-take.

• Likely to have better realizations as compared to automotive tyres. • OTR segment is growing at a rapid pace with capacity expansion

from user industry like construction equipment, earth moving equipment, etc.

• The success of the project will also result into capacity enhancement increasing JK Industries's share in the segment.

However, the concern is that BEML would have pricing power rather than JK Industries. The project delay would defer volume growth impacting sales and profitability. Financing of projects The total capex outlay of the project other than OTR project for BEML is Rs 360 crore and would be financed by debt equity ratio of 1:1. The company is planning a right issue of equity shares in the ratio of 1:3. Though the company has not finalised the price for the right issue, we, on the basis of funds requirements as well as recent private issue to group company at Rs 105, have assumed the price of Rs 120 per share. Thus we expect company to garner around Rs 123 crore and balance from internal accrual. Post-right issue, the equity capital of the company would be diluted to Rs 41.1 crore from Rs 30.8 crore.

Restructuring to focus on core tyre business

In the recent restructuring, the company divested its investment portfolio to Netfiler Technologies (the name changed to Netflier Finco Ltd), worth Rs 188 crore out of Rs 250 crore at an equity-swap ratio of 1:4, with equity capital of Rs 10.3 crore. Netflier Finco is listed on bourse at Rs 40. The investment value as on December was Rs 225 crore, translating into Rs 73 per share. However, discounting current market price by 20%, the value per share for JK Industries’ shareholders comes to Rs 11. (Refer valuation paragraph).

OTR plant with limited capital investments

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KEY CONCERNS Slowdown in the user industry

A slowdown in CV and PVs may adversely impact the volume growth of the company as the company enjoys the number 3 position in the industry.

Higher raw material costs

Rise in rubber, the key raw material as well as other raw material like fabric, carbon black and chemicals beyond our expectation poses threat to our EBITDA margin expansion.

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FINANCIALS

Consistently on growth path JK Industries has shown consistent top line performance for past few years. Sales increased at a 13.9% CAGR from Rs 1,673.3 crore to Rs 2,816.2 crore over FY03-07. Bottom line saw a robust 33.6% CAGR over the same period from Rs 20.9 crore to Rs Rs 66.7 crore. The year FY07 was remarkable year for the company as it managed to improve its EBITDA margins to 9%, after having consistent EBITDA margins of 5%- 7% in past few years. The fall in rubber prices and increasing contribution of radial tyres (high-price, high-margin) helped company report EBITDA margins of 9%, translating into EBITDA of Rs 254.7 crore. The company is in investment phase, resulting into higher interest outgo and depreciation provisions. The deferred tax provision of Rs 31.2 crore has also been accounted in FY07. Despite these higher costs/provisions, the company has well managed to quadruple the net profit to Rs 66.7 crore from Rs 17 crore in FY06 (Rs 22.1 crore in FY03). Steady growth in sales

Going forward, we expect a steady growth in sales due the following factors.

1. Rising demand from automobile segment backed by new launches, capacity expansion as well as rising replacement market

2. Increased volumes from capacity expansion; capacity to increase by 31%, while production to rise by 34.3%, resulting into rise in volume sales of 25.4%

3. Improved product mix Exhibit 10: Production and sales growth (Lakh nos.)

FY07E FY08E FY09E FY10E Growth (%)Inst. Cap 85.3 85.3 101.6 111.7 31.0Production 70.5 76.9 85.1 94.6 34.3Sales – Qty 75.4 76.9 85.1 94.6 25.4Source: ICICIdirect Research We expect a 13% CAGR in net sales over FY07-10E to Rs 4,065 crore. Improving product mix and the company’s efforts on cost savings would result EBITDA margins expanding from 9% to 10.7% in FY08 and to be maintained at this levels. Exhibit 11: Steady rise in sales (Rs crore)

Source: ICICIdirect Research

2609.22816.2

3314.3

3669.9

4065.0

2000

2500

3000

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4000

4500

FY06 FY07 FY08E FY09E FY10E

Changing product mix with increasing volume to bring 13% CAGR in net sales

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EBITDA margins to improve to 10.7% in FY08 and we expect the same to maintained going forward. Exhibit 12: EBITDA margins (%) movement Exhibit 13: Net profit (Rs crore) Source: ICICIdirect Research The company is planning its current and projected capex with debt equity ratio of 1:1 that would result into higher borrowing as well as expanding gross block. These would result into higher interest and depreciation costs/ provisions pressurizing bottom line growth. We expect a 23.1% CAGR in net profit to Rs 124.4 crore in FY10 from Rs 66.7 crore in FY07. Q1 performance JK Industries reported a 9.9% y-o-y growth in net sales to Rs 725.9 crore for Q1FY08. Net profit surged to Rs 21.7 crore from Rs 8.2 crore in the corresponding quarter the previous year. EBITDA margins improved 270 bps to 10.3%.

5.8

9.0

10.7 10.5 10.6

4

5

6

7

8

9

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11

FY06 FY07 FY08E FY09E FY10E

16.9

66.7

95.9104.7

124.4

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120

140

FY06 FY07 FY08E FY09E FY10E

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Right issue announced The company has announced capex of Rs 360 crore for capacity expansion, which would be financed by debt equity ratio of 1:1. To finance this project, the company has announced the right issue in the ratio of 1:3. We have assumed the price of Rs 120, considering its one-year pricing history as well as financing need to be met from internal accruals. With this right issue, the company would garner around Rs 123.2 crore, increasing equity from Rs 30.8 crore to Rs 41.1 crore. Loan funds continues to be higher Ongoing capex to require higher debts however improving profits would keep company’s leverage ratio in the range of 1.7 – 1.5x.

Exhibit 14 : Debt-equity ratio (x)

Source: ICICIdirect Research

Return ratios to be maintained Despite higher leveraging, the improving profits would help company to maintain its return ratios at 12-13% in coming years. Exhibit 15: RoCE and RoE movement (%)

Source: ICICIdirect Research

6.3

11.3

12.9 12.513.1

4.5

12.9 12.811.6

12.4

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FY06 FY07 FY08E FY09E FY10E

2.4

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1.7

1.41.5

1.0

1.4

1.8

2.2

2.6

FY06 FY07 FY08E FY09E FY10E

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VALUATIONS The share is currently trading at 5.7x and 5.3x its FY08E and FY09E EPS. On an EV/EBITDA basis, it is trading at 5.2x and 4.5x FY08E and FY09E. Given the strong growth outlook and improving return ratios, we feel the stock deserves a higher valuation. We have underplayed the threat of a slowdown in CV sales (major contribution to sales) as well as price fluctuations in key raw materials. We have valued the company on a conservative basis at 5.5x its FY09 EV/ EBITDA to arrive price of Rs 183 for its core business (on post-diluted equity by around 33%). The recently divested Netflier Finco is listed on bourses, and discounting it by 20% to the current price of Rs 40, we value the same at Rs 11 per share. A SOTP valuation gives us a target price of Rs 194.

Exhibit 16 : Peer comparison FY09E basis

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6

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7

Sep-

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Nov

-07

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4

6

8

10

Source: ICICIdirect Research

Exhibit 17: Peer Comparison (FY09E basis) Net sales NP EBITDA Margins (%) PE RoCE(%) RoE(%) EV/EBITDA (X)

Apollo Tyres 4,300.8 224.5 12.6 10.3 19.4 16.6 4.7JK Industries 3,669.9 104.7 10.5 5.3 12.5 11.6 4.5Ceat * 2,545.6 81.7 7.8 9.2 18.5 17.5 5.3

Source: ICICIdirect Research * CEAT on consensus basis

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FINANCIAL SUMMARY

Profit and Loss

Balance Sheet Year ending Sept FY06 FY07E FY08E FY09E FY10E Equity 30.8 30.8 41.1 41.1 41.1 Reserves 560.9 618.2 814.4 907.3 1020.0 Net worth 582.6 645.4 853.6 948.4 1061.1 Short-term Loans 254.5 334.5 384.5 344.5 344.5 Long-term Loans 689.4 839.4 1039.4 989.4 1239.4 Total Loans 943.9 1173.9 1423.9 1333.9 1583.9 Deferred tax liability -1.6 29.5 29.5 29.5 29.5 Total liabilities 1,524.8 1,848.9 2,307.0 2,311.8 2,674.5 Gross Block 2,084.2 2,308.2 2,788.2 2,888.2 3,338.2 Depreciation 860.0 935.5 1,024.7 1,124.0 1,233.0 Net Block 1,224.2 1,372.8 1,763.6 1,764.2 2,105.3 CWIP 22.5 0.0 0.0 0.0 0.0 Investments 61.5 61.5 61.5 61.5 61.5 Inventories 368.6 378.3 430.9 470.8 519.8 Debtors 478.1 493.8 572.1 623.4 679.3 Cash 39.3 28.6 51.0 25.4 10.2 Other Current assets 127.5 131.2 145.3 150.8 155.9 Total Current assets 1,013.5 1,031.9 1,199.3 1,270.3 1,365.3 Total current liab. 796.9 617.2 717.3 784.3 857.5 Net current assets 216.7 414.6 481.9 486.1 507.8 Total assets 1,524.8 1,848.8 2,307.0 2,311.8 2,674.5

Year ending Sept FY06 FY07E FY08E FY09E FY10ENet Sales 2609.2 2816.2 3314.28 3669.91 4065.0% growth 25.5 7.9 17.7 10.7 10.8Raw material 1821.2 1874.9 2174.0 2412.4 2658.2Staff 155.7 176.7 205.5 231.2 264.2Op. Exp 325.7 352.0 404.3 451.4 504.0Selling & admin 155.4 157.8 177.3 190.8 207.4Total expenditure 2457.9 2561.4 2961.2 3285.8 3633.8EBITDA 151.3 254.7 353.1 384.1 431.1% growth 31.4 68.4 38.6 8.8 12.2EBITDA margin (%) 5.8 9.0 10.7 10.5 10.6Other income 14.9 10.5 4.6 4.61 4.6Interest 79.1 89.0 123.4 131.0 138.6Gross Profit 87.1 176.2 234.3 257.7 297.1% growth 48.4 102.3 33.0 10.0 15.3Depreciation 70.9 75.4 89.2 99.3 108.9Profit before tax 16.2 100.7 145.1 158.4 188.2% growth 424.9 523.8 44.1 9.1 18.8Tax 4.8 34.0 49.2 53.7 63.8Effective tax rate (%) 29.4 33.8 33.9 33.9 33.9Net Profit 11.4 66.7 95.9 104.7 124.4% growth 36.5 485.3 43.8 9.1 18.8EPS (Rs) 3.7 21.7 23.4 25.5 30.3

Higher EBITDA margins to expand bottom line at a 23.1% CAGR

Volume expansion and changing product mix to result in 13% CAGR in net sales

EBITDA margins to sustain

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Cash Flow Yr end Sept FY06 FY07E FY08E FY09E FY10EEBIT 80.34 179.28 263.92 284.78 322.16(Inc.)/Dec in working capital -115.90 31.64 -44.92 -29.79 -36.85Cash flow from operations -35.56 210.92 219.00 254.99 285.31Other income 3.28 10.50 4.61 4.61 4.61Depreciation 70.93 75.44 89.19 99.34 108.96Interest paid (-) -79.06 -89.04 -123.39 -130.99 -138.59Tax paid (-) -5.14 -2.87 -49.20 -53.70 -63.79Dividends paid (-) -8.56 -9.48 -12.66 -11.73 -11.69Net cash from operations -54.11 195.47 127.54 162.52 184.81Capital Expenditure (-) -111.45 -201.49 -480.00 -100.00 -450.00Net cash after capex -165.56 -6.02 -352.46 62.52 -265.19Inc./(dec.) in borrowings 29.89 230.00 250.00 -90.00 250.00Inc./(Dec.) in Investments 5.87 0.00 0.00 0.00 0.00Equity issue/(Buyback) 37.80 0.00 123.18 0.00 0.00Cash from Financial Activities 73.56 230.00 373.18 -90.00 250.00Others 95.21 -234.66 1.66 1.83 0.06Opening cash 36.11 39.32 28.65 51.02 25.38Closing cash 39.32 28.65 51.02 25.38 10.25Change in Cash 3.21 -10.67 22.38 -25.64 -15.13

Ratio Analysis Year ending September FY06 FY07E FY08E FY09E FY10EPer share ratios EPS (Rs) 5.5 21.7 23.4 25.5 30.3DPS (Rs) 2.5 2.7 2.7 2.5 2.5Sales per share (Rs) 847.4 914.5 807.2 893.8 990.0BV (Rs) 126.9 209.6 207.9 231.0 258.4Profitability ratios EBITDA Margins (%) 5.8 9.0 10.7 10.5 10.6NPM (%) 0.6 2.4 2.9 2.9 3.1RoCE (%) 6.3 11.3 12.9 12.5 13.1RoE (%) 4.5 12.9 12.8 11.6 12.4

Valuation ratios

P/E (x) 24.2 6.2 5.7 5.3 4.4

P/Bv (x) 1.1 0.6 0.6 0.6 0.5

P/ Sales (x) 0.2 0.1 0.2 0.1 0.1

EV/EBITDA (x) 9.0 6.2 5.2 4.5 4.6Debt/ Equity (x) 2.4 1.8 1.7 1.4 1.5Other ratios Interest Coverage (x) 1.2 2.1 2.2 2.2 2.4Div. yield (%) 1.9 2.0 2.0 1.9 1.9Asset Turnover (x) 1.3 1.3 1.3 1.3 1.3Dupont Analysis PAT/PBT 0.8 0.7 0.7 0.7 0.7PBT/PBIT 0.2 0.5 0.5 0.5 0.6PBIT/Sales 0.03 0.1 0.1 0.1 0.1Sales/ Assets 1.7 1.7 1.6 1.6 1.6Assets/Net Worth 4.0 3.2 2.8 2.6 2.5

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Outperformer: 20% or more; Performer: Between 10% and 20%; Hold: +10% return; Underperformer: -10% or more.

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Harendra Kumar Head - Research & Advisory harendra.kumar@icicidirect.com ICICIdirect Research Desk, ICICI Securities Limited, Gr Floor, Mafatlal House, H. T. Parekh Marg, Back Bay Reclamation Mumbai – 400 020 research@icicidirect.com

RATING RATIONALE ICICIDirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to its stocks according to their notional target price vs current market price and then categorises them as Outperformer, Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and the notional target price is defined as the analysts' valuation for a stock.