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IT’S ALL ABOUT MONEY, HONEY!

AnalystAshutosh Narkar 5675 4478([email protected])

DealingSandeepa Arora 5669 3200Biren Patel 5677 5900

July 2005

Control Print India Ltd

Printing a success code

India Infoline Research can be also accessed on Bloomberg (Code IILL), Thomson First Call and ISI Emerging markets.

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July 22, 2005 2

Control Print India Ltd : Printing a success code

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Share Price Chart

Recommendation BUY

CMP Rs78

Target Price Rs142

52 week H/L Rs84/ 23

Market capitalization Rs558mn

3 month avg. volume 100,000

BSE code 522295

Bloomberg Code CTPI@IN

Reuters Code CONP.BO

Shareholding pattern

Share Holders % holdingPromoters 47.1Institutions 0.0FII 1.3Public and others 51.6

We are initiating coverage on Control Print India Ltd (CPIL) with a BUYrating and a price target of Rs142, an upside potential of 82% with a 15-18 month perspective. CPIL is a leading domestic supplier of coding andmarking printers. It has sole marketing rights in India with the world leaderVideojet. The company is now setting up its own production plant at Baddifor manufacturing low cost coders. This is expected to increase thecompany’s printer base resulting in higher margin consumable sales.Despite being a high ROE and ROCE business the stock is trading at FY06earnings multiple of 10.3x and FY07 multiple of 7.6x. We expect the stockto get a higher rating and recommend BUY rating on CPIL.

Production of low cost coders to give multiple benefitsCPIL is expanding its operations by manufacturing in-house developed Hot MeltInk coders. There is a huge latent demand for these coders as most playerstarget the high-end buyers. We expect the company to get multiple benefitsform this move.1. Higher sales growth: Sales growth, which has seen a moderate CAGR of11.3% over the period FY02-05 is expected to vault to a CAGR of 24% duringthe period FY05-FY07.2. Income tax benefits: Production plant at Baddi to offer sales tax, exciseduty and income tax benefits apart from a capital subsidy of 15% on plant andmachinery3. Margin expansion: Rise in printer base to give a fillip to consumable sales,which command margins of 35-40%. We expect another 200bps operatingmargin expansion by FY07.

Rising Pharmaceutical exports to help enter highend digital printer marketCPIL is expected to market the high-end digital printers costing Rs10mn toPharmaceutical companies with high export business. CPIL is in the final stagesof closing deal with few large players. This is expected to increase the printerbase further and add to consumable sales.

Flexibility and just in time benefits; a major catalyst for market expansionCPIL’s products offer flexibility to mange demand supply fluctuations forcompany’s products by allowing printing of variable information like manufacturingdate, expiry date, price according to changing production schedules. Realizingthe value proposition is leading to a fast expansion in market size.

Market leadership through superior quality and unmatched service networkCPIL has a sole marketing tie-up with the world’s leading player Videojet. Thishas helped the company offer superior quality products and gain marketleadership position with a share of almost 40%. A strong service network hasbeen the backbone of its strong service capability.

Table: Financial Snapshot

Source: Company data, India Infoline estimates

FY03 FY04 FY05 FY06E FY07ESales (Rs mn) 261 297 330 408 516Net Profit (Rs mn) 15 24 43 54 74Growth % 28.8 57.9 78.8 26.4 36.0OPM % 13.6 16.2 18.8 19.6 20.8EPS (Rs) 2.1 3.4 6.0 7.6 10.3RONW % 7.6 11.8 19.8 22.2 25.6ROCE % 13.2 19.7 27.6 29.6 34.1PE (x) 36.7 23.3 13.0 10.3 7.6EV/ EBITDA (x) 16.0 11.4 8.3 6.9 5.2

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Company BackgroundControl Print (India) Ltd (CPIL) established its operations in 1991, for marketingprinters for coding and marking. The company is the market leader in India andhas a product range of contact coders, superior touch coders, specialized metalmarking systems, sophisticated ink jet coders and also the advanced laser codersalong with necessary consumables, spare parts, service and training - all underone roof. CPIL tapped the capital market in 1993 to expand its geography ofoperations. The company has a sole marketing agreement with the world leader“Videojet” for its coding and marking printers in India.

After establishing a firm footing in the industry through the biggest service networkin the country, the company is opening a new chapter, by expanding its operationsthrough manufacture of low cost coders and acting as commission agents forhigh-end digital printers.

Operational overviewCPIL specializes in providing solutions for printing variable information like BatchNumber, Manufacturing Date, Expiry date, Best before date, Maximum Retail Price(MRP), Serial number, special markings, logos, company/brand name, barcodeetc. These solutions work on-line (production line - the industry terminology isonline) at high speed and offer the most economical running cost. CPIL alsoprovides comprehensive solutions for machines, consumables, spares, and trainingand after sales service, all under one roof.

Product rangeThe company has access to Videojet’s complete range of high-end technologyproducts to market in the India. Currently the company has introduced thefollowing products in the indian market.1. Small Character Ink Jet Printers – Brand -Videojet2. Large Character Ink Jet Printers – Brand - Marsh3. Hot Melt Ink Contact Coders – Brand - Conprint4. Metal Marking Systems – Brand - Ostling

Strong list of clienteleExisting major customers by industryIndustry CustomersFMCG Coca Cola, Pepsi, P&G, HLL , Kinley, Bislery , Parley,Garden Foods,

Shaw Wallace, Dinshaw Food, Kwality Foods, Emami ltd, GodrejConsumer care.

Pharmaceuticals Cipla, Dr, Reddy, Alkem Laboratories, Burroughs Welcome,FDC, Indoco Remedies, Novartis, Vicco Labs, Wochardt, AristoPharma, Panacea Bio, Jyoti Labs, Zandu Pharma.

Automotive TVS, NRB Bearing, Rane brakes.Steel Tubes & Sheets TISCO, SAIL, Grasim, Hindalco, Bhushan Steel, Jindal Iron,

Ispat Industries.Cable and Wire Finolex, Aksh Optifibre.Chemicals & Castrol, IOC, HPCL, BASF, Savita Chemicals, JB Chemicals.PetrochemicalsPipes & Tubes Saw PipesSeeds & Agrochemicals Agro Dutch Ind, Mayahyco seeds.Electrical & Engineering BOSCH, Schneider.Source: Company data

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Product line

Small Character Ink Jet Printers – Brand –Videojet

The small characters written on the bottles(seen in the image) are printed using the SmallCharacter Ink Jet Printers.

Large Character Ink Jet Printers – Brand - Marsh

Large Character Ink Jet Printers are used forcoding for inventory tracking and management

Hot Quickcoder is the flexible high-speedcontact coding system that allows you to makea perfect print on moving products.

Hot Melt Ink Contact Coders – Brand – ConprintCPIL has indigenously developed a coder based on Hot Melt Ink Technology tocater to the Continuous Inkjet Technology and Wet Ink Contact Coder segment.Currently many customers organization find this technology expensive and notmeeting their requirements. CPIL’s product fills the void, as it is almost at 50%discount to the earlier mentioned technology products and meets clientrequirements as well.

Metal Marking Systems – Brand - Ostling

Along with Ostling, CPIL is the leader in metal-marking systems in India

Hot Quickcoders

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Industry growth factors

Regulatory requirements- The Indian packaged commodity rule requiresmanufacturers to compulsorily print many variable data like manufacturing andexpiry date, batch number etc. Online coders and printers help print the informationon the production line itself. This is a far superior process adding value to thecompany.

Product Information - Consumers & Retailers demand quality information. Sharingthis information through easily read Manufacturing Dates, Best Before, ExpirationDates projects the image of a company that values its customers and providesproducts of quality and purity.

Printing such information becomes relevant in case of perishable products. Withorganized retailing coming off age in India, packaging has assumed importance.As a result companies manufacturing such products need to use this technology.

Quality Assurance (ISO 9000 requirement) - Information like exact time, date,batch number, production line are essential for tracking products in the event oftampering or recall. Also, to comply with ISO & UL certification, a company musthave an effective product identification system in place.

Manufacturing Information - Codes provide important manufacturing informationfor identification of specific products, product batches, serial numbers, raw materials,chemicals or ingredients used in the development of a product.

Product identification - Coding on automotive components, ceramic tiles, cables,cartons, etc. can distinguish product from one another and more importantlydifferentiate spurious products from original ones and avoid duplication.

Today majority of the product companies are plagued with problems of duplicationand spurious products. While it is a known fact that duplication is rampant at thedealer level, little is in the hands of companies to avoid such a situation, unlesslosing the dealer. Online coders and markers offer an effective method of managingthis problem. With digitized printing, products are marked with invisible ink, whichcan be traced only using an ultra violet light. This way duplication can be avoided.Also with codes the company can trace the production plant from which the goodswere dispatched and catch the culprit in case of in-house delinquency.

Inventory Control - As manufacturing becomes increasingly computerised, codedinformation can guide products through distribution channels and thereby reducecosts.

Coding for Promotions - Printers can be interfaced with a computer to printmessages, contests and promotions on products.E.g, Steel sheets manufactured the world over look alike. In such a situation themanufacturer is unable to build a brand awareness and recognition. CPIL alsomarkets Metal-marking systems which can print the company’s and product nameon the steel sheet enabling brand promotion and awareness like in the case of

TISCO and SAIL Steel.

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Porter analysis of the Coding and marking industry

Source: India Infoline research

Key success factors (KSF) for the industry

Our industry analysis throws up 2 key success factors for this business.

1. Strong technology platformRelatively big companies and Indian arms of multinational companies are currentlyimplementing coding and printing technology. These companies value superiortechnology and the segment is relatively price inelastic. The second tier segment,which is relatively small, is price sensitive but still prefers quality product, as repeatpurchase takes place after almost 3-5 years.

2. Wide distribution and service networkThe printers are planted on the production line and form a part of the process.Most companies have their production plants in backward areas for tax benefits.Consequently, every customer would like the distributor to have a strong servicenetwork to minimize the reaction time incase of any printer malfunction.

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Investment highlights

Production of low cost coders to give multiple benefitsØSignificantly improved sales growthØProduction plant at Baddi to offer sales tax, excise duty and income tax benefitsØIncrease in the printer base to improve operating margins

Significantly improved sales growthCurrently, CPIL serves the high end of the market with its product range pricedbetween Rs2-5lacs. However, the costly price tag has kept the mass market awayas they find the technology expensive and other options like Wet Ink ContactCoders not meeting their requirements. CPIL with its long standing experience inthis business plans to seize the opportunity by marketing its in-house developedcoder based on Hot Melt Ink Technology “CONPRINT HRC”. The price tag is expectedto be around Rs1lac, which is approximately 40-50% discount to its importedversion. Production is expected to commence in the later half of the year and thecompany intends to sell around 250-300 in FY06 and around 500-600 annually inthe future. As a result the company, which witnessed moderate sales CAGR of11.3% over FY02-05, could see its turnover jump to a higher growth trajectory

with a CAGR of around 24%.

Chart: Turnover trend

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100

200

300

400

500

600

FY02 FY03 FY04 FY05 FY06E FY07E

(Rs

mn)


11.3% CAGR

24% CAGR

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Production plant at Baddi to offer sales tax, excise duty and income tax benefitsCPIL expects to take advantage of the location benefit of setting up the productionplant at Baddi to the fullest. First the company is expecting to get a sales taxbenefit of 8% on inter state sales. Second, the company derives a significantchunk of its sales from the FMCG segment. Baddi is house to many FMCG players’production plants. Any sales within Baddi will offer CPIL complete exemption fromsales tax liability. Third, the company would save on excise duty through a 10yrexcise duty holiday for setting up plant in Baddi. Fourth, profits from the sale ofproducts manufactured in the Baddi plant would be tax-free for the first 5 yearsand tax on only 30% of the profits for the next 5 years. Fifth, CPIL is expected toget capital subsidy of 15% from the state government on the value of plant andmachinery set up in the Baddi plant. We expect the complete benefit from this tobe around 4.5% of the post tax profits in FY06 and 4.7% in FY07.

Increase in the printer base to improve operating marginsCPIL’s revenues consist of two components namely, printers sales and consumablesales. The company earns a steady stream of revenues from consumable saleson the printers sold. Consumables consist of ink refills, ink rollers, spare parts andfurther revenue from annual maintenance charge (AMC). Consumable sales andAMC charges account for almost 40% of the total sales. Consumable sales areheavily dependent on the printer base of the company in the market. Also, only90% of the printer sales are operationally active. As a result, consumable saleshave a direct correlation to the printer base.

Second major advantage of improving printer base is high operating margins.Realizing the dependence on high printer base for higher consumable sales, CPILhas been targeting at expanding the printer base through low margins. As aresult, printer sales, despite being high-end technology product were beingmarketed at a low 10% operating margin. However, the company more than madefor it through increased consumable sales, as they attract higher margins in therange of 30-35%. CPIL currently has a printer base of around 2,200 and has seenan average addition of 350-400 printers annually. With the addition of low costcoders we expect the printer base to increase significantly by almost 85% overthe next 2 years. As a result the cumulative margins of printer and consumablesales are expected to expand further from 18.8% to around 21% in FY07.

Chart: Positive correlation between printer base and operating margins

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Printer base (Lhs) Operating Margins (Rhs)


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Rising Pharma exports to help enter the high-end digital printer segmentThe second part of the growth story is expected to come from marketing of high-end digital printers. This is a high-end product with a price tag of almost Rs10mn.In India, presently the market for these printers is pharmaceutical companieswith export business. The digital printers are used to print variable information onthe Aluminum foil packaging of pharmaceutical tablet strip or on the packaginglabel. The digital printers grant greater flexibility in printing the variable informationin different languages as per the export country language, which sometimes is abig nuisance. However, apart from printing this variable information, these printersprint an invisible code on the same cover, which can be seen only with the help ofultra violet light torch. This helps the pharmaceutical company in two ways. First,printing and coding its products for the regular benefits earlier mentioned andsecond in avoiding duplication of products.

We feel the market for these printers could be potentially huge. First Pharmaceuticalcompanies have a larger proportion of production lines compared to other sectors.Second, we have seen a steady growth in major Pharma companies. Third, exportsales as a proportion of total revenues have been on the rise for most of thecompanies except few. Our Pharmaceutical analyst expects the major growth areasfor Pharma companies over the next few years to come from export segment. Thisis expected to benefit CPIL if it manages to clinch orders from top Pharma companies

for the high-end digital printers.

Cipla (Exports 45%) Ranbaxy (Exports 68%)

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(10.0)

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Dr Reddy’s (Exports 65%) Wockhardt (Exports 25%)

(10.0)

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Domestic growth (Lhs) Exports growth (Lhs)

Export proportion (Rhs)

Source: Company data

Most pharma companies have grown theirdepends on export sales for furture growth

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The company has been testing this product with few major pharmaceuticalcompanies like Cipla and Dr. Reddy’s and is in the final stage of clinching theorders. The company is hoping to sell around 4-5 printers in FY06, and around 10-12 from FY07 onwards. However, unlike assembling the imported machine andthen marketing it, in this case the company would act as a clearing and forwardingagent. CPIL would derive only the commission on the price tag of the printer. Thiswould be done as the pharmaceutical companies, importing the machine forproduction of export goods is exempt from custom duty. In the initial years thecompany intends to sell these printers at a lower margin to create a market forthem. A rising base would increase consumable business and help improveoperating margins as only the commission (around 10-12%) would get recordedin the turnover, while consumable sales would be almost 6-7% of the printer cost,but almost 65-70% of the commission booked. With minimal incremental cost, theoperating margin in this business could range between 50-75% depending onthe printer costing.

Table: Margin decomposition

Proportion Operating Proportion Operatingof sales margin of sales margin

Printers 60 10 51 10Consumables 40 35 47 32Digital printer 0 0 2 50Cumulative margin 100 19~ 100 21~


FY05 FY07

Flexibility and just in time benefits, a major catalyst for market expansionThe Indian coding and printing industry is at a nascent stage and in the testingphase. The early adopters have been big multinational companies, who have afair experience of using this technology in their home country. E.g. Coca Cola,HLL, Pepsi, P&G etc. Majority of the Indian clients are big companies who areready to invest in technology. The market potential can be gauged from the factthat average annual sales for such coding and marking printers is around 12,000in the US, 7,000 in China and a mere 900 in India.

Chart: Annual market size

Annual unit sales12,000

7,000

900

U S China India

Source: Industry estimates

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However, with the customers deriving value from their investments, CPIL has seena demand building up for its products. One of the major factors for the improvedattitude of corporates is the flexibility in managing demand supply variations offeredby online coding and marking machines. E.g. Companies set production targets atthe beginning of the year and accordingly inventory in planned. The companyorders for the labels based on its production plan. However, in case of change indemand supply situation, the company might have to alter the production scheduleand cut down or increase the production of some products. This would render thepackaging labels useless. Online coding and marking machines help avoid thissituation. The company can enjoy the flexibility of just in time labeling. The companyhas to order the packaging labels excluding the variable information like batchnumber, manufacturing date, expiry date, price, disocunt etc. This information isprinted directly on the label or on the product itself. (See earlier section “productapplication” for a visual representation of our explanation).

E.g. HLL having diverse product lines is able to manage the production and pricingof its products efficiently. The company just has to change the program in theprinter to alter the price of its products in case of price rise or fall in prices in caseit offers discounts. E.g. Coca Cola, prints its manufacturing, expiry and price onthe bottle itself. CPIL helps it configure the ink quality so that after the bottles arewashed this variable information is wiped off, but such information would not ruboff in case of normal wiping by the customer with water or cloth.

This flexibility has helped companies look at this technology not as a cost centre,but as a profit centre. Companies with multiple production lines can decide on thenumber of lines the product has to be installed. The company has flexibility to shiftthe product from one production line to another without any hassles. This wouldallow companies to manage their resources optimally, as they would deploy theseprinters at high margin products, which would justify the investments. This hasbeen the current situation in the Indian market. However, we expect the situationis gradually changing and companies would employ these machines at majority ofthe production lines, as it understands the value proposition.

Strong balance sheet, expansion to be financed by internal accrualsCPIL at the end of FY05 had a debt of Rs19mn on its books, which comprisedworking capital facilities from banks. Debt equity ratio for CPIL stood at 0.08%and majority of its assets comprise of land and building and in the current yearthe company is expected to invest in manufacturing assets for low cost coders.The company has estimated the capital expenditure to be around Rs50mn. Thecompany is expected to finance this through internal accruals as it had a strongbalance sheet position as on March 05 with a debt equity ratio of 0.08. While netprofit for FY05 stood at Rs43mn, cash profits stood at 47mn. CPIL has around4.7lakh forfeited shares, which it intends to reissue in the near future. At thecurrent market price this would help them mop up around Rs29-30mn. Meeting

the capex and working capital requirements should not be a problem for the

company.

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Established brand and proven technology leading to market leadershipWith the coding and marking machines being of high-end technology, customerstend to favor the known brands with established track record of quality. Videojetis world’s leading brand in the coding and marking industry with a strong world-wide brand recall. The company also has partnerships with other global majorslike Markem Corporation for touch dry contact coders, Korthofah of the Nether-lands for hot quickcoders and Ostling of Germany for Metal marking systems. Awide product line with superior technology has helped CPIL achieve a marketleadership in its operating segments.

The market is highly organized, with the top three players capturing almost 90%of the share. Videojet of US, Domino of UK and Imaje of France are the majorplayers in the market. While Domino and Imaje run the business in India throughwholly owned subsidiaries, Videojet has a marketing agreement with CPIL. Videojetis the leader in both the Indian as well as the world market. CPIL has the solemarketing and distribution rights for Videojet in India. Videojet is expected tocontinue the agreement as it considers the Indian market very small and wouldemploy more resources at a later stage of the industry life cycle.

Table: Market share statistics

Source: Industry, Company data

Wide distribution and service networkSince the printers are fitted on the production lines any breakdown could lead tostoppage of the production cycle. This necessitates prompt service delivery.Understanding this, the company has invested in building a strong service networkin important locations of industrial production. As a result reaction time for CPILengineers is vety quick. This quick action model has helped CPIL win repeat and

new orders.

Chart: CPIL Service network

Source: Company data

Market share (%) India Rest of the World

Videojet (CPIL in India) 35-40~ 37

Domino 50-55~ 43

Imaje

Others 10~ 20

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High divided payout – a cushioning factorThe company has been maintaining a high dividend payout of above 50% andreflects a shareholder friendly attitude. We assume the high payout was a reasonof the lower capital intensity of the business. However, we feel that although thedividend per share would continue to grow with the company’s strong futurefinancial forecasts, dividend payout ratio would come down as the company wouldutilize more cash for its manufacturing operations. Dividend yield at the currentmarket price stood at 3%.

Experienced promoter managementThe company was promoted by Mr Basant Kabra and Ashok Joshi as a partnershipfirm. While Mr Kabra is a chemical engineer, Mr Joshi is a Chartered accountant. MrJoshi over the past year has exited the promoter group by selling his stake in theopen market. Mr Basant Kabra is the majority shareholder of the company witharound 41% of the issued shares. He has more than a decade of experience inthe coding and marking industry. Mr Kabra has recently inducted his son Mr ShivKabra in the management team after his completion of postgraduate studies fromINSEAD (France).

Investment concerns

Entry of new players could heat up competitionThe market for marking and coding printers has been growing rapidly and as aresult has seen competition intensifying. Currently the CPIL’s major competitorsinclude wholly owned subsidiaries of two global majors Domino of UK and Imajeof France. However, with the market set to expand rapidly, we could expect entryof many other players in the market. This could intensify competition and putpressure on margins.

Delay by companies in employing the technology could reduce growth targetsWhile the company has been growing its sales at a rate of around 10-15% for thepast two years. We have estimated a faster growth rate based on our assumptionsof the low cost machines reaching the production stage in FY06 and the high-enddigital machines being marketed from FY07. While CPIL is already in talks withmany large companies for the digital printers, the low cost machine sales woulddepend on its ability to market the product efficiently. While we believe, companieswould sooner or later opt for the digital printers; a delay in the orders beingclinched could postpone the revenue stream.

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Valuation rationaleCPIL with a sound business model is the market leader in its operational segment.The company has a strong track record of profits for the past three years mostlydriven by margin expansion through increasing printer base. The expectedexpansion in its product line through manufacturing of low cost coders is expectedto improve CPIL’s profitability. However, the story is expected to unfold in a bigway from FY07. On a valuation perspective, the company has a high ROE of 19.8%and ROCE of 27.6%, which are expected to expand further to 25.6% and 34.1%respectively by FY07. The company also has a high dividend payout of above38%. Such strong fundamentals, attractive growth forecasts and experiencedmanagement are expected to command a premium in the market.

CPIL is in a relatively new industry with huge growth potential. It is also the onlylisted company in this segment. This makes comparing valuations difficult. However,CPIL derives majority of its revenues from FMCG, Pharmaceutical and the Autosector. Since CPIL is dependent on these sectors, it ought to get valuations closerto other sectors dependant on the above mentioned three sectors. We haveanalysed valuations of the auto ancillary as a dependant sector for Auto, Packagingas a dependant on FMCG sector. For pharmaceutical ancillary companies haveanalysed only Opto circuits. (Please refer the comparison table on the followingpage)

We belive earnings multiple is a function of the company’s ROE and this is evidentin the comparison. As a result all the three major sectors namely FMCG, Auto andPharma command higher earnings multiple. Among the dependent sectors,companies with higher ROE get a better valuation.

Higher valuations to auto ancillary is a result of the better return ratios and highergrowth opportunities from multiple segments like domestic auto companies,replacement market and exports. We feel CPIL is also staring at a big opportunity,as it derives revenue from multiple sectors thus reducing its dependence on oneparticular sector. As a result stability in earnings is high. Profit visibility is alsoexpected to improve as its printer base continues to grow over the next fewyears resulting in high consumable sales. Considering this we feel the companyshould get valuation lower than the core sector and closer to the dependantsectors. As CPIL is in a relatively new industry and comparatively lower returnratios, being conservative we have valued CPIL at an average of the 25% discountto the earnings multiple of Auto ancillary and Packaging sector. This gives us atarget multiple of 13.8x implying a fair price of Rs142 considering the FY07 earningsper share of Rs10.3 implying a potential upside of 82% from the current levels.

We recommend a Buy rating on the stock.

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Figures for FY05 CMP (Rs) EPS (Rs) PE (x) ROE% ROCE% OPM% EV/EBITDAFMCG HLL 162 5.4 29.7 56.6 44.2 14.5 20.7Colgate 241 8.3 28.9 45.4 73.7 18.0 15.1ITC 1,704 88.3 19.3 30.6 37.0 36.6 14.0Dabur India 143 5.2 27.6 48.8 48.7 14.3 22.1Group Composite 23.4

Packaging Essel Propack 344 13.5 25.5 11.8 13.5 27.1 6.9Flex Industries 59 6.1 9.7 8.4 14.9 12.6 5.7Group Composite 19.0 Auto Bajaj Auto 1,407 75.6 18.6 19.1 21.6 15.4 8.3Hero Honda 634 40.6 15.6 56.4 67.0 15.6 8.7Maruti udyog 456 29.6 15.4 19.6 25.0 12.8 6.2Tata motors 466 34.4 13.6 25.3 32.8 12.1 5.7Group Composite 15.6 Auto Ancillary MICO 2,045 117.0 17.5 36.5 49.1 25.2 11.0Bharat gears 85 6.6 12.9 32.0 16.0 13.9 5.2Suprajit Industries 122 8.2 15.0 32.5 34.5 19.2 4.4Asahi India 189 9.7 19.4 48.3 17.2 16.5 14.9Group Composite 17.7 Pharma CIPL 334 13.6 24.6 26.5 27.0 18.0 13.7Dr. Reddy’s 759 8.6 88.7 2.3 3.2 4.8 38.9Ranbaxy 1,054 29.5 35.8 24.2 21.2 17.8 28.2Wockhardt 438 18.4 23.8 16.6 34.6 21.9 19.1Group Composite 32.8 Pharma Ancillary Opto circuit 246 10.3 24.0 40.5 32.2 28.1 12.5 Control Print (I) Ltd 72 6.0 12.0 19.8 27.6 18.8 7.7

Table: Comparative valuations

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Income statement

Projected Balance Sheet

Period to FY03 FY04 FY05 FY06E FY07P(Rs in mn) (12) (12) (12) (12) (12)Net Sales 261 297 330 408 516Operating expenses (225) (249) (268) (328) (409)Operating profit 36 48 62 80 107Other income 1 2 7 4 4PBIDT 36 50 69 83 111Depreciation (6) (6) (4) (6) (7)PBIT 31 45 65 78 104Interest (5) (4) (3) (3) (4)Profit before tax (PBT) 25 40 62 74 101Tax (10) (16) (19) (20) (27)Profit after tax (PAT) 15 24 43 54 74Extraordinary / prior period items - - - - -Adjusted profit after tax (APAT) 15 24 43 54 74PAT growth 28.8 57.9 78.8 26.4 36.0Tax rate 40.7 32.4 30.8 26.9 26.7

FY03 FY04 FY05E FY06E FY07E (12) (12) (12) (12) (12)SourcesShare Capital 72 72 72 72 72Reserves 130 135 154 190 242Net Worth 202 207 226 262 313Loan Funds 25 18 19 18 18Def Tax liability 8 12 10 10 10Total 235 236 255 290 341

UsesGross Block 109 112 118 138 143Accd Depreciation (26) (31) (35) (41) (48)Net Block 83 81 83 97 95Capital WIP - - - 2 2Total Fixed Assets 83 81 83 99 97Investments 20 23 20 15 13Total Current Assets 181 179 203 234 302Total Current Liabilities (52) (48) (51) (58) (71)Net Working Capital 130 131 153 176 231Miscellaneous expenditure 3 1 - - -Def Tax assets - - - - -Total 235 236 255 290 341

July 22, 2005 17


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Important Ratios

Cash Flow StatementYear to (Rs m) FY03 FY04 FY05 FY06E FY07E

(12) (12) (12) (12) (12)Cash from operations 28 39 41 63 84Working capital changes 26 (17) (11) (24) (40)Net cash from operations 54 22 30 39 43Net cash from financing (38) (20) (35) (21) (39)Net Cash from investing (15) (6) 5 (17) (3)

Net increase in cash 1 (3) 1 1 1Cash at start of the year 3 5 2 3 4Cash at end of the year 4 2 3 4 5

FY03 FY04 FY05E FY06E FY07E (12) (12) (12) (12) (12)Per share ratios EPS (Rs) 2.1 3.4 6.0 7.6 10.3Div per share 1.4 1.7 2.0 2.3 2.8Book value per share 28.2 28.8 31.5 36.6 43.8 Valuation ratios P/E 36.7 23.3 13.0 10.3 7.6P/BV 2.8 2.7 2.5 2.1 1.8EV/sales 2.2 1.9 1.7 1.4 1.1EV/ PBIT 18.9 12.9 8.9 7.4 5.5EV/PBIDT 16.0 11.4 8.3 6.9 5.2 Profitability ratios OPM (%) 13.6 16.2 18.8 19.6 20.8PAT % 5.8 8.1 13.0 13.3 14.3ROCE % 13.2 19.7 27.6 29.6 34.1RONW % 7.6 11.8 19.8 22.2 25.6 Liquidity ratios Current ratio 3.5 3.7 4.0 4.0 4.3Debtors days 91.7 99.0 99.0 99.0 100.0Inventory days 66.8 56.8 56.0 56.0 55.0Creditors days 34.5 36.9 34.0 34.0 34.0 Leverage ratios Debt / Total equity 0.13 0.09 0.08 0.07 0.06 Component ratios Raw material 62.9 61.6 60.2 58.6 57.4Staff cost 10.0 9.9 10.2 10.4 10.5Other expenditure 13.4 12.3 10.8 11.4 11.3 Payout ratios Dividend Payout Ratio 71.2 58.3 37.7 33.5 30.1

Published in July 2005. All rights reserved. © India Infoline Ltd 2005-6.This report is for information purposes only and does not construe to be any investment, legal or taxation advice. It is not intendedas an offer or solicitation for the purchase and sale of any financial instrument. Any action taken by you on the basis of theinformation contained herein is your responsibility alone and India Infoline Ltd (hereinafter referred as IIL) and its subsidiaries orits employees or directors, associates will not be liable in any manner for the consequences of such action taken by you.We have exercised due diligence in checking the correctness and authenticity of the information contained herein, but do notrepresent that it is accurate or complete. IIL or any of its subsidiaries or associates or employees shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in thispublication. The recipients of this report should rely on their own investigations. IIL and/or its subsidiaries and/or directors,employees or associates may have interests or positions, financial or otherwise in the securities mentioned in this report.India Infoline Ltd, 24 Nirlon Complex, Off Western Exp. Highway, Goregaon(E). Mumbai -63. Tel 5677 5900. Fax 2685 0451

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