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DFM Foods - Expensive ‘Rings’ CMP

Rs.1350

Target

Rs.1143

Rating

SELL

Stock performance (%)

1m 3m 12m

DFMF IN 35% 55% 322%

Sensex 8% -5% -9%

BSE FMCG 6% -6% 1%

Financial summary

Year Revenues (Rs. mn) EBITDA margin PAT (Rs. mn) EPS (Rs.) P/E(x) ROE (%)

FY15 2,893 10.6% 136 13.6 99.2 32.6%

FY16E 3,687 11.3% 213 21.3 63.2 39.3%

FY17E 4,498 11.6% 252 25.2 53.6 29.5%

FY18E 5,553 12.0% 336 33.6 40.2 30.6%

Date 30th March 2016

Market Data

Bloomberg DFMF IN

Shares o/s 10mn

Market Cap Rs. 14bn

52-wk High-Low Rs. 1,399-300

3m Avg. Daily Vol Rs. 6mn

Index member -

Latest shareholding (%)

Promoters 44.2

Institutions 10.0

Public 45.9

Initiating Coverage Usually, ‘push-led’ FMCG business models have remained under-appreciated under the conventional mould of measuring

strength of a consumer franchisee by the ‘pull factor’. However, avoiding to get into the argument of superiority of one

model over another, we can’t ignore the fact that in certain categories (mainly impulse), the distribution led strategy has

delivered both respectable scale and profitability. Further, after attaining certain scale, many of such businesses have made

timely transition in their growth stencil from being ‘distribution-led to being brand-led’.

DFM Foods (DFMF), is one such ‘regional’ name which is amply leveraging its dominance in one region (North India) and

expanding its presence in new regions (West and East India). DFMF’s revenues & operating profits have grown at a CAGR of

~32% & ~33% respectively during FY10-15. Interestingly, throughout the high growth phase of the last decade (when revenue

grew ~11x), DFMF maintained the tightest terms of trade possible (zero debtor days) and achieved the scale without any

equity dilution, thereby funding the growth through internal accruals and debt (D/E ~0.9x). This puts DFMF above many

generic push-led models in the category; led by robust category growth prospects, low base benefit, capacity & distribution

expansion and branding focus we expect DFMF’s revenue & PAT to grow at a CAGR of ~23% & ~32% respectively over FY15-

18E. However, DFMF appreciated by a whopping ~55% in last 3 months factoring all the near-medium term positives in the

price. We fail to see a further scope of rerating (except a strategic transaction) at these valuations of (~42FY18E). Hence, we

initiate coverage on DFMF with SELL rating, TP:Rs.1143 (~34x FY18E, 1.1x PEG)

Extruded snacks gaining prominence: Extruded Snacks (ES) targeting urban kids is rightly positioned to take advantage of

favourable demographics and rising propensity to spend leading to ES category outpacing growth of other impulse offerings.

Brand ‘CRAX’ cracking the snacks market: Though being in the snacks market for ~3 decades, DFM’s Crax brand began

exhibiting stupendous growth from 2009 led by better focus, capacity & distribution expansion and branding initiatives.

Humongous distribution led opportunity: DFM foods deriving majority of its revenues from North India (~80%) has begun

expanding into other regions and has tasted considerable success. While operations in West & East India are in consolidation phase,

the company also entered into select cities in South India in CY15.

Leveraging its national brand equity and A&P spend: DFM has built a considerable ‘Pull’ demand by offering ‘Toys’ as gifts and

through ‘national’ media placements, which we believe would come in handy on geographical expansion.

Working capital control with enviable terms of trade: Despite continuous necessity to drive volume growth, it is heartening that

DFM has not sacrificed terms of trade to achieve the same. Further, zero debtor days reflects its healthy working capital efficiency.

Capacity expansion to support ambitious growth plans: DFM foods has two facilities in Ghaziabad & Noida to manufacture all

their offerings. Brownfield expansions being undertaken in Noida facility is expected to deliver a healthy ~4x asset turn.

Risks & Concerns: (1) High single brand concentration (Crax ~84%) and regional concentration (North ~80%) (2) Ability to protect

gross margins in volatile RM cycles remains to be seen.

Tejash Shah

[email protected]

+91 22 4228 8155

Gnanasundaram S

[email protected]

+91 44 4344 0062

Madhav PVR

[email protected]

+91 44 4344 0060

Find Spark Research on Bloomberg (SPAK <go>),

Thomson First Call, Reuters Knowledge and Factset

Executive Summary

mailto:[email protected]




Rs.1350

Target

Rs.1143

Rating

SELL Factsheet

Corporate Factsheet

Company Background

DFM foods, a pioneer in the snack foods market in India is a household snack brand especially in North India. Having

divested its flour business in 2009, DFM has since then been focussing on its snack food brand ‘Crax’. With a vision to

emerge as the largest domestic snack food manufacturer in India. Brand ‘Crax’ is positioned as an impulse snack food

brand with kids as the target segment.

Region wise revenues (FY15) North India (~84%), West India (~9%), East India (~5%), South India (~2%)

Management depth

Mr. Mohit Jain, Chairman & Managing Director – He has been the Managing Director since 1994. He had a pivotal

role in establishing the snack food division in 1984 and has been involved in its development since then.

Mr. Rohan Jain, Dy. Managing Director - B.Sc. (Economics) from Wharton School, has been the Executive Director

of the Company since 2009. Mr. Rohan has been credited with the reinvigorated focus on Snack food.

Others: Mr. Pradeep Dinodia, Mr. S.C. Nanda, Mr. Mohit Satyanand, Ms. Hiroo Mirchandani as Non-Executive

Independent Director (Detailed profile in slide 26).

Distribution Network DFM foods reaches out to ~250,000 outlets.

Key Brands (FY15 revenue contribution) Crax – Corn Rings (~80%), Namkeens (~11%) and Natkhat (~9%)

Key SKU’s Corn Rings - 2 (Rs. 2 & Rs.5), Namkeens – 5 (Rs.2, Rs.5, Rs.10, Rs.15 and 300gms at - Rs.20, Rs.25 - depending on

variants) and Natkhat – 2 (Rs. 2 & Rs.5).

Variants

Corn Rings - 5 (Mast Cheese, Chatpata, Tangy Tomato, Masala Mania and Pudina Punc) and Namkeens – 11 (Aloo

Bhujia, Navratan, Kaju Mixture, Mast Mattar, Moong Dal, Matar Heeng Zeera, Khatta Meetha, Lacha Mixture, Corn

Flakes, Mast Moongphalli and salted peanuts.)

Manufacturing Facilities Noida and Ghaziabad.

Production Capacity The total capacity of the company is ~25308 MT per annum

Corporate Bankers Punjab & Sind Bank , Karnataka Bank Limited

Key Non- Promoter holders West Bridge Cross Over Fund LLC - ~14.95%, Jwalamukhi Investment Holdings - ~9.95% and Mr. Man Mohan Singh -

~9.96%,

Auditor Deloitte Haskins & Sells


Rs.1350

Target

Rs.1143

Rating

SELL Timeline – A brief history of DFM foods

Focus on snack foods has been sharpened in the past 6 years

Source: Company Filings & Spark Capital Research

Manufacturing locations constantly expanded to support offtakes


2011

2010

2009

2007

2005

2004

1998

1997

1983

2012

2013

2014

2015

2015

2015

2015

2016

Introduces Crax Corn rings

Smaller packs introduced for Namkeens

Crax brand bought from parent company for a consideration of Rs.23mn

Flour milling business exited

Commences wheat storage business

Some of the products manufactured were reclassified under the Central

Excise Tariff Act

Mr. Rohan Jain joins BOD as an executive director

Discontinuation of Wheat Storage business

New Facility at Greater Noida commences production with a capacity of

~10000mt/annum

Sales and distribution of products was extended to the west zone

Operations commenced in East India

Promoters sell 25% stake to Westbridge Capital for Rs. ~645mn.

Commencement of operations in South Zone

Brownfield expansion commenced in Greater Noida facility to add

~5000mt/annum.

Krunchoids withdrawn from the market

Additional capacity in Greater Noida commences production; total capacity

25308mt/annum

Announces another brown field expansion in Greater Noida to add

~10000mt/annum

GHAZIABAD

NOIDA

• The two facilities together

can produce ~25308mt per

annum.

• The facilities operating close

to 80% of capacity.

• Announces another brown

field expansion in Greater

Noida to add ~10000mt/annum


Rs.1350

Target

Rs.1143

Rating

SELL

Snapshot & Basic Financials

Page 4

Revenue has grown at a robust ~32% CAGR led by distribution

expansion


Margins have been fluctuating with DFM investing behind brands…


Revenues from Crax corn rings dominant contributing to ~80% of

FY15 revenues


…impacting overall profitability growth


Corn Rings, 80%

Namkeens, 11%

Natkhat, 9%

0.72 1.20

1.69 2.25

2.63 2.89 3.68

4.49

5.52

0

1

2

3

4

5

6

FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16E FY 17E FY 18E

In R

s.b

n

Net Sales

39.4% 36.4% 36.3% 36.7% 37.3%

39.3% 38.1% 38.0% 37.5%

10.2% 12.4% 11.8%

9.3% 8.6% 10.6% 11.3% 11.6% 12.0%

5.8% 6.9% 6.1% 2.8% 3.4% 4.7% 5.8% 5.6% 6.1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


Gross Margin EBITDA Margin PAT Margin

4 8 10

6 9

14

21 25

34

0

5

10

15

20

25

30

35

40


EPS

EPS


Rs.1350

Target

Rs.1143

Rating

SELL

Business Overview – ‘Rings’ remain the key offering

CRAX

RINGS

CRAX

NAMKEENS

CRAX

NATKHAT

Category

Source: Company filings, Spark Capital Research

Addressable market size

2010-15 category CAGR

Key Competitors

Flavors

FY15 Revenue Contribution

Key SKU’s

Extruded Snacks

Mast Cheese, Chatpata, Tangy

Tomato, Masala Mania and

Pudina Punch

Rs.5 & Rs.10

80%

~62bn

~27%

Pepsi,

ITC

Parle

Traditional Snacks

Bhujia, Navratan, Kaju, Mattar,

Moong , Zeera, Khatta, Lacha,

Flakes, Moongphalli & Peanuts.

Rs.2, Rs.5, Rs.10, Rs.15 and

300gms at - Rs.20, Rs.25 -

depending on variants

11%

~66bn

~25%

Haldiram,

Bikaji Foods,

Balaji Wafers

Extruded Snacks

Wheat Puff

Rs.2 & Rs.5

9%

~62bn

~27%

Pepsi,

ITC

Parle

2015-20E category CAGR ~22% ~20% ~22%


Rs.1350

Target

Rs.1143

Rating

SELL Key Growth drivers

#6 - Capacity

expansion to

support

ambitious

growth plans

#5 - Working

capital control

with enviable

terms of trade

#3 –

Humongous

distribution led

opportunity

#2 - Brand

‘CRAX’

cracking the

snacks market

#4 - Leveraging

its national

brand equity

and A&P spend

#1 - Extruded

snacks

segment

gaining

prominence

Source: Spark Capital Research


Rs.1350

Target

Rs.1143

Rating

SELL

#1 - Extruded snacks segment gaining prominence: Glaring opportunities

Nuts (Rs.~1.4bn)

Crisps (Rs.~58bn)

Extruded Snacks (Rs.~58bn)

2005-10 CAGR: ~24%, 2015-20 CAGR: ~22%

Popcorn (Rs.~2.1bn)

Tortilla Chips (Rs.~0.5bn)

Other Sweet and Savoury Snacks

(Rs.~67bn)

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

10% 12% 14% 16% 18% 20% 22% 24%

2010 -

15 (

10 Y

EA

R C

AG

R)

2015-20E (5 YEAR CAGR)

Category Growth

Drivers:

1. High acceptance

with kids

2. Impulse purchase

3. Affordability

4. Availability

5. Acceptability

What is Extruded Snacks:

Starch-rich materials (eg. corn, maize, wheat, rice,

potato flour) that are transformed into hot melt fluids and

then expanded or puffed via an extruder to form a snack

0.8 3.4 5.5 5.9 6.1

16.7

27.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

India China Brazil Argentina Germany USA United

Kingdom

Per capita consumption (USD)

Immense growth potential for the category given its healthy proposition (not being fried) and appeals to kids segment

Source: Industry sources, Spark Capital Research

https://www.youtube.com/watch?v=TYoGSNuYZd0


Rs.1350

Target

Rs.1143

Rating

SELL

#1 - Extruded snacks segment gaining prominence: Edge over traditional offerings

Extruded snacks at a sweet point catering to urban kids and can be extended across regions with ease

Source: Spark Capital Research

EXTRUDED

SNACKS

TRADITIONAL

OFFERINGS

Category

UNIFORM

VARIED

LOCALISATION

KIDS

ALL

AUDIENCE

MAJORLY

IMPULSE

IMPULSE &

MONTHLY

USAGE

HIGH

MEDIUM

FREQUENCY

MEDIUM

HIGH

LOYALTY

HIGH

HIGH

COMPETITION

Rs.5 & Rs.10

Larger SKU’s

POPULAR

SKUs

Targeting Adults Targeting Kids

Sn

ac

ks

O

the

r Im

pu

lse

Cream

Biscuit

Candy

Chocol-

-ate Cookies

Chewing

Gum

Rings

Scoops

Wheels

Pellets Namkee

ns Chips

Pop

Corn

Angles

Traditio

nal

snacks

Crisps

Wafers

Rolls

Nuts

Mints

Snack

bars

Cakes Glucose

biscuits

24%

22%

25%

20%

2005-15 (10 year

CAGR)

2015-20E (5 yr

CAGR)

Extruded Snacks

Other Sweet and Savoury Snacks

Extruded snacks to outgrow traditional market offerings in near to medium term given the increasing appeal in the urban centres


Rs.1350

Target

Rs.1143

Rating

SELL

#2 - Brand ‘CRAX’ cracking the snacks market: Gaining market share

Though dominated by brands owned by large conglomerates…

2015 Market share of extruded snacks, Source: Industry sources & Spark Capital Research

…DFM’s has managed to carve a niche for their offerings

Market share gain/loss from 08-15 in bps, Source: Industry & Spark Capital Research

21.5%

0.9%

1.1%

1.1%

1.6%

2.9%

3.4%

3.5%

3.9%

4.3%

11.8%

44.0%

-950

-160

-170

-170

40

0.0

100

210

140

430

280

440

Private Label

Others

Brand ‘Crax’ of DFM foods has managed to get a foothold in the cluttered market and consolidate market standing in 5 years


Rs.1350

Target

Rs.1143

Rating

SELL

The company post exiting the flour mill trading business in 2009, has grown by leaps and bounds led by clean execution strategy

Commentaries from the particular year annual report, Source: Company filings & Spark Capital Research

#2 - Brand ‘CRAX’ cracking the snacks market: Clear execution strategy

239 317 533 722

1,200

1,694

2,252 2,633

2,893

FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15

Sales (Rs.mn)

•Commencement of sales and

distribution in South Zone.

•Development of strategies for

innovative marketing, new product

development and strengthening

the sales and distribution system.

• Work on intensifying

coverage in the North zone,

stabilizing the West zone and

expanding distribution further

in the East zone was

undertaken

• The operations in the West

zone are being stabilized and

operations commenced in the

East zone during the year.

• Initiative had been taken to

institutionalize certain processes

to handle larger volumes

• Sales and distribution was

extended to west zone. A start

has been made in Maharashtra,

Gujarat, MP and Chhattisgarh

and further extension into these

states will be undertaken during

the current year.

• Efforts to expand and intensify

the sales distribution system

continued through the year as did

efforts to improve its productivity.

• Organization structures were

strengthened and marketing and

product development were taken.

• Sales distribution systems,

marketing inputs, product

development initiatives,

manufacturing capacity and

organization structures were all

strengthened and expanded

during the year.

• In order to cater to

increasing demand, an

expansion of extrusion capacity

has been undertaken

• Efforts to strengthen the

sales, marketing and factory

infrastructure are in progress

• Efforts to further increase

business volume are being

undertaken by strengthening

the existing distribution

system, expansion of markets

and introduction of new

products and variants.

Turnaround led by systematic geographic expansion coupled with incessant investments behind the brand over the past 7 years


Rs.1350

Target

Rs.1143

Rating

SELL

Given the level of differentiation that can be developed in the extruded snacks market, plenty of players with several niche offerings

Source: Company filings & Spark Capital Research

‘Crax’ affordability has also played a major role in its popularity


#2 - Brand ‘CRAX’ cracking the snacks market: Focussed offerings

Affordable

price points

Kids oriented

Advertisement

placements

Consistent

maintenance

of taste &

quality

Focus on

only ‘rings’

platform

Kids Family

consumption

Young

customers Teens Kids Youth Oriented Family Youth Kids & Youth Kids & Youth

Corn Rings,

Namkeens,

Natkhat

Extruded

Snacks

Potato Chip,

Extruded

Snacks

Potato Chips,

Namkeens,

Extruded

snacks

Potato Chips,

Namkeens,

Pellets, Rings,

Extruded

snacks

Frames,

Extruded

snacks

Namkeen,

Extruded

snacks

Extruded

Snacks

Pellets,

Extruded

snacks

Extruded

snacks

Brand ‘Crax’ has focussed majorly on corn rings enabling them to dominate that market. Brand extension opportunities promising

95% Others, 5%


Rs.1350

Target

Rs.1143

Rating

SELL

In comparison, DFM foods has plenty of distribution led opportunity


DFM operates with a formidable distribution channel…


#3 – Humongous distribution led opportunity: Penetration in North; expansion in rest

…with number of retailers being increased constantly


With competitive throughput in comparison to the industry


0.16

0.20 0.22

0.24 0.26

0.29

0.32

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

FY12 FY13 FY14 FY15 FY16e FY17e FY18e

In m

illio

n

Number of outlets reached

Increase in number of outlets and throughput per store to tap into penetration & per-capita opportunity

Manufacturing

locations C&F agent

(38+)

Distributors

(600+) Retailers

(0.25mn+)

Formal Distribution channel

Wholesalers

Smaller retail

outlets

Informal

0.24

0.50 0.58 0.60 0.60 0.60

0.80

0.0

0.2

0.4

0.6

0.8

1.0

DF

M

foods

Pra

taap

Sancks

Parle

Snacks

Sury

a

Food &

A

gro

Anm

ol

Bis

cuits

Hald

iram

Bala

ji

Wafe

rs

Mill

ions

No of retail outlets reached

12 11 11 11

19

23

13

0

5

10

15

20

25

DF

M f

oods

Pra

taap

Sancks

Parle

Snacks

Sury

a

Food &

A

gro

Anm

ol

Bis

cuits

Hald

iram

Bala

ji

Wafe

rs

Thousands

Average throughput per store (Rs.)


Rs.1350

Target

Rs.1143

Rating

SELL

CATEGORY

Extruded Snacks Industry Size: Rs.~21bn

Market Contribution Share: ~33%

2010-15 CAGR: ~28%

2015-20E CAGR: ~23%

CATEGORY

SD Industry Size: Rs.~11bn


2009-14 CAGR: ~26%

2015-20E CAGR: ~21%

CATEGORY



2009-14 CAGR: ~26%

2015-20E CAGR: ~22%

CATEGORY



2009-14 CAGR: ~26%

2015-20E CAGR: ~22%

#3 – Humongous distribution led opportunity: Fortune at the bottom

DFM FOODS

Contribution Share: ~80%

Distributor Share: ~82%

DFM FOODS



DFM FOODS



DFM FOODS



NORTH INDIA

SOUTH INDIA

NORTH EAST & EAST INDIA

WEST INDIA

With more than ~80% of revenues accruing from North

India for DFM foods, we see that there is a huge scope

for expansion into rest of India for DFM foods which

should bring in significant non-leverage growth in near

to medium term. Source: Bloomberg BI, Industry sources & Spark Capital Research


Rs.1350

Target

Rs.1143

Rating

SELL

East India

Source: Company transcripts & Spark Capital Research

#3 –Humongous distribution led opportunity: Consolidation & Expansion

DFM foods ventured into East zone in FY13 and have been consolidating

operations since then.

In the eastern zone DFM is present in West Bengal and has made a start

in Bihar, Jharkhand and Orissa, however majority of sales comes from

West Bengal where DFM is attempting to consolidate its position.

We understand that though opportunity for penetration and Crax brand

strength remains favourable, heightened competitive intensity & smaller

market for extruded snacks makes growth challenging.

The region that contributes to ~17% of value share of category is poised

to grow at 21% CAGR over the next 5 years

South India


DFM ventured into South India during 4QFY15 in key urban markets as

Chennai, Hyderabad and Bangalore.

Though initial response was lukewarm due to timing of launch (summer

months) we believe offtakes have improved since then.

South region contributes to ~2% of sales, which is currently insignificant,

DFM believes it is work in progress and express optimism from the

general response in terms of repeat demand from the outlook.

South remains one of the key market for several consumption companies

given the market’s affinity towards indulgence and experimentation.

Increasing reach and focus could turn South India to be a key market.

West India


West zone operations started in May 2011. DFM foods has accorded that

15%-20% outlet expansion in West India is realistic

In Mumbai in first couple of years DFM expanded distribution, however

over FY15 we note that efforts have been undertaken to ensure that they

service whatever outlets that they have already opened up in a manner

which is robust and effective.

We decipher that DFM foods have constrained marketing activity in West

India as they hope to invest in better economic climate.

The region that contributes to ~28% of value share of category is poised

to grow at 22% CAGR over the next 5 years

North India


Is the strongest market for brand ‘Crax’ as the brand has a phenomenal

recall in these markets given their early entry into the extruded snacks.

We understand that the management plans to leverage the reach of

brand ‘Crax’ in these markets by further expansion into smaller towns

and villages, extension into newer flavours and new product categories.

Category growth drivers of conversion from unorganized to the organized

and increase in per capita consumption to assist DFM foods too.

With the region contributing to ~33% of Industry value and poised to grow

at ~23% CAGR over the next 5 years , we believe DFM foods is rightly

positioned with North India as its strongest market

DFM’s approach to expansion is steady indicating that the company’s focus remains on making the most out of each touchpoint


Rs.1350

Target

Rs.1143

Rating

SELL

Focused national media placements targeting kids segment


A&P as a % of sales has been sustained…


#4 - Leveraging its national brand equity and A&P spend: It is about the ‘TOYS’

…in line with ‘niche’ & competing brands

Source: ROC filings, Company filings & Spark Capital Research

Toys cost included in RM costs indicate it is an ongoing phenomena


33 43 54

67

105 126 119

4.3%

5.9%

4.5% 3.9%

4.6% 4.8%

4.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

0

20

40

60

80

100

120

140

FY09 FY10 FY11 FY12 FY13 FY14 FY15

% o

f sale

s

Rs.m

n

Selling & Marketing (Includes Advertisements) % of sales

4.1%

4.0%

5.0%

7.5%

3.0%

3.0%

2.0%

0% 1% 2% 3% 4% 5% 6% 7% 8%

DFM foods

Prataap Sancks

Parle Snacks

Surya Food & Agro

Anmol Biscuits

Haldiram

Balaji Wafers

342

286

387

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

50

100

150

200

250

300

350

400

450

FY13 FY14 FY15

Toys (Rs.mn) % of Total Raw Material Cost

National media advertisement placements provide a leverage as reception in new geographies comes at a lower cost


Rs.1350

Target

Rs.1143

Rating

SELL

#4 - Leveraging its national brand equity and A&P spend

Holi Toys Campaign

Ice Age Toys

Campaign

Diwali Toys

Campaign

Radial toys Campaign Magic toys Campaign

Innovation in toys keeps the novelty factor alive for kids

https://www.youtube.com/watch?v=pnNTjaIDEzE

https://www.youtube.com/watch?v=guWqfyaEeQA

https://www.youtube.com/watch?v=5BZ83OSllzk

https://www.youtube.com/watch?v=rS6s_i_hcDg

https://www.youtube.com/watch?v=ciWZccxrQhc


Rs.1350

Target

Rs.1143

Rating

SELL

Robust terms of trade indicates higher ownership of the customers

than trade


#5- Working capital control with superior terms of trade

Best in class receivable days in comparison to peers.


0 0

0 0 0 0

20

13

29

21

21 23

37

10

18

24

18 18

0

10

20

30

40

FY10 FY11 FY12 FY13 FY14 FY15

Debtor days Inventory days Creditor days

Has the best in class working capital, reiterating the brand pull generated by Crax and lucrative distributor returns

0

1

2

4

4

6

9

12

22

27

42

57

60

61

69

0 10 20 30 40 50 60 70 80

DFM foods

Zydus Wellness

Hatsun Agro

Heritage Foods

Nestle India

Britannia Industries

Prabhat Dairy

Agro Tech Foods

Bambino Agro

GlaxoSmikhKline Consumer

LT foods

Hindustan Foods

Manpasand Beverages

Kohinoor Foods

Ruchi Soya

OCF as a % of sales higher due to limited working capital needs.


175 218 197 262 299 388 484

10.3% 9.7%

7.5%

9.1% 8.1%

8.6% 8.8%

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0

100

200

300

400

500

600

FY 12 FY 13 FY 14 FY 15 FY 16E FY 17E FY 18E

In R

s.m

n

OCF OCF/Netsales


Rs.1350

Target

Rs.1143

Rating

SELL

Capacity expansion in line to support volume growth ambitions…


Utilization wayward due to gestation period


Gross block on the rise for the Greater Noida facility


#6 - Capacity expansion to support ambitious growth plans

…with additional brownfield capacities driving higher asset turn


7,000 7,000

17,000 17,000 17,000

20,308

25,308

35,308 35,308

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY16E FY17E FY18E

MT

PE

R A

NN

UM

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY 10 FY 11 FY 12 FY 13 FY 14 FY 15

259 340

897 1051 1066 1092

1401 1469

1796

0

200

400

600

800

1000

1200

1400

1600

1800

2000


2.4

3.3

2.6 2.3

2.8 3.0

3.3 3.1 3.1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Capacity Expansion majorly brownfield currently given their superior asset turn. Greenfield expansion under consideration


Rs.1350

Target

Rs.1143

Rating

SELL

BOD Remuneration as a % of PAT

Source: Company Filings, Spark Capital Research;

Corporate Governance

Member Remuneration-Rs.mn % of PAT Position

Mr. Mohit Jain 7.96 5.9% Managing Director

Mr. Rohan Jain 9.35 6.9% Dy. MD

Mr. Pradeep D 0.55 0.4% Independent Director

Mr. Sarath C Nanda 0.06 0.04% Independent Director

Mr.Mohit Satyanand 1.0 0.7% Independent Director

Ms.Hiroo M - - Independent Director

Mr. Sandeep S - - Executive Director

Total 18.9 14%

Board’s diversity in line with SEBI guidelines

Source: Company Filings, Spark Capital Research

Mr. Mohit Jain

Mr. Rohan Jain

Mr. Pradeep D

Mr. Sarath C

Nanda

Mr.Mohit

Satyanand

Ms.Hiroo M

Mr. Sandeep S

Audit Committee - - Chairman Member Member - -

Nomination &

Remuneration

Committee Member - Member - Chairman - Member

Stakeholders Relation.

Committee Member - - - Chairman - -

Banking & Finance

Committee Chairman Member - - - - -

Average dividend payout of ~36% over last five years

* Inclusive of dividend tax, Source: Company Filings, Spark Capital Research

41%

28%

19%

35%

29%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

FY 11 FY 12 FY 13 FY 14 FY 15

Dividend Payout


Rs.1350

Target

Rs.1143

Rating

SELL Corporate Governance

Board of

Directors

Contingent

Liabilities

Succession

Planning

2010 2011 2012 2013 2014 2015

Total No. of Directors 6 6 6 6 7 7

No. of Independent Directors 3 3 3 3 3 4

No. of changes in directors over last year 1 - - - 2 1

The second generation of the promoter family has already been active in the operations of the company with Mr. Rohan Jain being

inducted into the board of directors from 2009.

Related Party

Transactions

As on March 31

2015 2014 2013 2012

Purchase of Raw Material 3.7 31.3 13.3 6

% of cost of goods sold 0.2% 2% 1% 1%

Rent Paid 28.3 28.3 20.7 16.5

% of total income 1% 1% 1% 1%

Inter company deposits given/repaid - (190) 57.5 132.5

% of net worth - 50% 17% 44%

(In Rs.Mn) 2013 2014 2015

Contingent Liabilities outstanding as on March 31st 174.2 415.7 637.1

Contingent Liabilities as a % of Networth 52% 110% 139%

During the year, the Excise Department has raised a demand against the Company amounting to Rs.2,214 Lakhs (Previous Year Rs.2,414 Lakhs) on

account of excise duty payable on the products of the Company. The total demand outstanding as on 31.03.2015 is Rs.6,369 Lakhs (Previous year Rs.

4,155 Lakhs). As per reclassification of the products filed by the Company, Nil excise duty is leviable on its products from 01.12.2007. The Excise

Department had contested the reclassification filed by the Company. The Commissioner of Excise Duty (Appeals) had upheld the reclassification in favour

of the Company. Further, the Excise Department has filed an appeal with Custom, Excise and Service Tax Appellate Tribunal against the order of

Commissioner of Excise Duty (Appeals). Based on the favourable judgment by Commissioner (Appeals) and on legal advice, the Company has not

created any provision in the books of accounts and has treated these amounts as contingent liability. Accordingly, CENVAT credit for the year amounting

to Rs. 920 Lakhs (Previous year Rs. 842 Lakhs) has also not been claimed as a credit by the Company, but has been charged as part of purchase

cost/expense for the year. The balance unavailed CENVAT credit as on 31.03.2015 is Rs.3,328 Lakhs (Previous year Rs.2,408 Lakhs). The net liability of

the Company after availing CENVAT credit would be Rs.3,041 Lakhs (Previous Year Rs.1,747 Lakhs). FY15 annual Report


Rs.1350

Target

Rs.1143

Rating

SELL

Management and Board of Directors Profile

Mr. Rohan Jain is the Dy. Managing Director of DFM Foods Ltd. He graduated with B.Sc. in Economics with concentration in Finance from

the Wharton School, University of Pennsylvania, U.S.A. in May, 2005. After completing his studies, he had joined the promoter Company

The Delhi Flour Mills Co. Ltd. as Executive Asstt. to the Jt. Managing Director to assist him in the management of overall affairs of the

Company. Further he had been providing assistance in managing the sales and marketing affairs of the snack food business of the

Company since 2005. He has developed the necessary experience and expertise in this area and has played a major role in the growth

and development of this business.

Mr. Pradeep Dinodia is a leading Chartered Accountant and taxation expert. He is practicing as a partner of S.R. Dinodia & Co. LLP, a

Chartered Accountant firm in New Delhi. He has been associated with the Federation of Indian Chambers of Commerce & Industry

(FICCI), New Delhi, Institute of Chartered Accountants of India and International Fiscal Association, India Chapter in various capacities. He

has been on the Board of the Company since 8th March, 1994

Mr. S.C. Nanda is a renowned Advocate with more than 37 years of legal experience. In 1977, he joined Khaitan & Co., a renowned

Solicitors Firm in Delhi and during his tenure handled the litigation work in the various High Courts and the Supreme Court. Subsequently

he started doing more of non-litigation work including drafting of document, deeds, Foreign Collaborations, international business

transaction, conveyancing etc. He has vast experience in matters pertaining to real estate and development of hotels, resorts, colonies and

commercial establishments. He has been on the Board since 8th March, 1994..

Mr.Rohan Jain, Deputy

Managing Director

Mr. Pradeep Dinodia,

Non-Executive

Independent

Director

Mr. S.C. Nanda, Non-

Executive Independent

Director

Mr. Mohit Jain has been the Managing Director of the Company since 28th February, 1994 and was also appointed as Chairman of the

Company w.e.f. 27th January, 2014. Mr. Mohit Jain is a promoter Director of the Company and the Chairman & Managing Director of the

promoter Company. The Delhi Flour Mills Co. Ltd. He joined The Delhi Flour Mills Co Ltd. in 1975 and has been involved in the flour milling

industry since then. He had the pivotal role in establishing the snack food division of the Company in 1984 and has been involved in its

development since then. He has intimate knowledge of both the flour milling and snack food industry.

Mr. Mohit Jain, CMD

Mr. Mohit Satyanand is a management Consultant. He started his career with Hindustan Lever Ltd. in 1977 and served them as an Area

Sales Manager (Foods) till 1981. Then he joined The Delhi Flour Mills Co. Ltd., where he was instrumental in establishing the present

snack food business of the Company. Subsequently, he set up and ran an event management company Team Work Films Pvt. Ltd. He was

a key member of the team responsible for the success of UNCLE CHIPS. He is a promoter Director of Inlingua School of Language, New

Delhi, for language training. He has an extensive knowledge in sales and marketing of consumer goods including the snack food market.

He has been on the Board since 29th January, 2000.

Mr. Mohit Satyanand,

Non-Executive

Independent

Director

Source: Company, Spark Capital Research

Mr. Sandeep Singhal is a co-founder and Managing Director of WestBridge Capital India Advisors Pvt. Ltd. He has vast venture capital

and private equity investing experience in India. He was a Co-Founder and Managing Director of Sequoia Capital India. Earlier, he worked

at the Boston Consulting Group (BCG) where he advised several mid-market Indian Companies on their product and marketing strategies.

Prior to BCG he had worked with Hindustan Lever Ltd. where he was instrumental in eleven product launches targeting Indian consumer

segments that contributed significantly to the Company’s business. He has an MBA from IIM Ahmedabad, an MS in molecular simulation

from the University of Illinois, and a B. Tech. In Chemical Engineering from IIT Delhi. He has been on the Board since 30th January, 2014.

Mr. Sandeep Singhal,

Non-Executive Director


Rs.1350

Target

Rs.1143

Rating

SELL

Financials – Gross Margin Profile

Maize Prices have risen more than ~50% in the last four months

Source: Bloomberg, Spark Capital Research

HDPE Prices near five year lows


Laminates & toys account for ~50% of total raw material cost


Gross margins have been range bound between ~37% to ~38%


Refined Oil, 11%

Laminates, 28%

Toys, 22%

Others, 39%

900

1100

1300

1500

1700

1900

2100

2300

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

NNS Pulses Maize price INR/qtl.

1000

1100

1200

1300

1400

1500

1600

1700

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

HDPE Polymers (USD/metric tonne)

437 615

826 982

1,137 1,406

1,709 2,075

36% 36% 37% 37%

39% 38% 38%

38%

25%

27%

29%

31%

33%

35%

37%

39%

41%

0

500

1,000

1,500

2,000

2,500

FY 11 FY 12 FY 13 FY 14 FY 15 FY16E FY17E FY18E

In R

s.m

n

Gross Profit Gross Margin


Rs.1350

Target

Rs.1143

Rating

SELL

Financials – Working Capital consistency + Robust internal cash accrual on cards

Capital efficiency to improve on steady state business model


Net worth to more than double in three years led by robust profits


New capex usually funded with ~75% debt


43% 39%

20% 25%

33%

39%

29% 29%

27%

20%

13% 16%

18%

22% 19%

21%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

FY 11 FY 12 FY 13 FY 14 FY 15 FY 16E FY 17E FY 18E

ROE ROCE

0.97

0.57

1.91

1.60

0.99 0.86

0.00

0.50

1.00

1.50

2.00

2.50

FY10 FY11 FY12 FY13 FY14 FY15

Debt- Equity

Free Cash flow though under stress due to CAPEX investments


-137

-520

-133

86

-179

13

-487

-107 -11.4%

-30.7%

-5.9%

3.3%

-6.2%

0.3%

-10.9%

-1.9%

-35.0%

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

-600

-500

-400

-300

-200

-100

0

100

200


rs.m

n

FCF FCF/Net Sales

227 302 336 377

457

629

830

1,100

0

200

400

600

800

1,000

1,200


In R

s.M

n

Net Worth


Rs.1350

Target

Rs.1143

Rating

SELL

Comparison with companies in related sub-sectors

Sales FY13: 2,402mn

FY14:2,943mn

FY15: 3,597mn

FY13: 9.3%

FY14: 7.0%

FY15: 8.3%

PAT Margin

EBITDA Margin FY13: 16.1%

FY14: 15.5%

FY15: 17.8%

FY13: 61,359mn

FY14: 68,293mn

FY15: 77,751mn

FY13: 4.2%

FY14: 5.8%

FY15: 8.9%

FY13: 6.9%

FY14: 9.2%

FY15: 11.0%

FY13: 7,872mn

FY14: 7,622mn

FY15: 7,562mn

FY13: 5.3%

FY14: 5.6%

FY15: 4.9%

FY13: 8.3%

FY14: 9.2%

FY15: 8.2%

FY13: 2,250mn

FY14: 2,629mn

FY15: 2,887mn

FY13: 2.8%

FY14: 2.7%

FY15: 3.8%

FY13: 10.0%

FY14: 9.7%

FY15: 10.7%

FY13: 22,077mn

FY14: 24,617mn

FY15: 27,346mn

FY13: 2.5%

FY14: 3.2%

FY15: 2.7%

FY13: 11.1%

FY14: 10.8%

FY15: 9.7%

FY13: 6,057mn

FY14: 6,707mn

FY15: 8,195mn

FY13: 27.6%

FY14: 25.8%

FY15: 25.6%

FY13: 28.5%

FY14: 27.8%

FY15: 29.1%

Manpasand

Beverages

Britannia

Industries

Agro Tech

Foods DFM Foods LT Foods Bajaj Corp

OCF

OCF/EBITDA

FY13: 441mn

FY14: 79mn

FY15: 637mn

FY13: 114%

FY14: 12%

FY15: 60%

FY13: 10%

FY14: 21%

FY15: 14%

FY13: 3061mn

FY14: 6758mn

FY15: 6113mn

FY13: 73%

FY14: 108%

FY15: 72%

FY13: 2%

FY14: -0.4%

FY15: -2%

FY13: 217mn

FY14: 335mn

FY15: 397mn

FY13: 33%

FY14: 48%

FY15: 64%

FY13: 7%

FY14: 10%

FY15: 12%

FY13: 159mn

FY14: 154mn

FY15: 202mn

FY13: 70%

FY14: 60%

FY15: 65%

FY13: -1%

FY14: 1%

FY15: 1%

FY13: -1453mn

FY14: -39mn

FY15: -1383mn

FY13: N.A

FY14: N.A

FY15: N.A

FY13: 58%

FY14: 62%

FY15: 58%

FY13: 1232mn

FY14: 1277mn

FY15: 2074mn

FY13: 71%

FY14: 68%

FY15: 87%

FY13: 29%

FY14: 18%

FY15: 14%

WC/Sales



Rs.1350

Target

Rs.1143

Rating

SELL

Comparison with companies in related sub-sectors

Inventory FY13: 32 days

FY14: 52 days

FY15: 43 days

FY13: 28 days

FY14: 22 days

FY15: 21 days

Creditors

Debtors FY13: 49 days

FY14: 59 days

FY15: 60 days

FY13: 22 days

FY14: 22 days

FY15: 19 days

FY13: 23 days

FY14: 30 days

FY15: 33 days

FY13: 7 days

FY14: 6 days

FY15: 6 days

FY13: 27 days

FY14: 47 days

FY15: 51 days

FY13: 20 days

FY14: 19 days

FY15: 19 days

FY13: 20 days

FY14: 10 days

FY15: 12 days

FY13: 21 days

FY14: 21 days

FY15: 23 days

FY13: 24 days

FY14: 16 days

FY15: 18 days

FY13: Nil

FY14: Nil

FY15: Nil

FY13: 175 days

FY14: 200 days

FY15: 182 days

FY13: 25 days

FY14: 22 days

FY15: 13 days

FY13: 62 days

FY14: 48 days

FY15: 42 days

FY13: 22 days

FY14: 21 days

FY15: 17 days

FY13: 30 days

FY14: 22 days

FY15: 23 days

FY13: 6 days

FY14: 5 days

FY15: 5 days

Manpasand

Beverages

Britannia

Industries

Agro Tech

Foods DFM Foods LT Foods Bajaj Corp

WC Days

EV/EBITDA

FY13: 53 days

FY14: 89 days

FY15: 82 days

FY13: 3.5

FY14: 3.6

FY15: 26.8

FY13: 0.6

FY14: 0.6

FY15: 4.8

FY13: 6 days

FY14:-1 days

FY15: -8 days

FY13: 15.4

FY14: 15.9

FY15: 29.8

FY13: 1.1

FY14: 1.5

FY15: 3.3

FY13: 26 days

FY14: 38 days

FY15: 44 days

FY13: 18.4

FY14: 17.8

FY15: 25.3

FY13: 1.5

FY14: 1.6

FY15: 2.1

FY13: -3 days

FY14: 5 days

FY15: 5 days

FY13: 10.0

FY14: 13.4

FY15: 11.4

FY13: 1.0

FY14: 1.3

FY15: 1.2

FY13: 211 days

FY14: 226 days

FY15: 211 days

FY13: 6.2

FY14: 6.5

FY15: 7.4

FY13: 0.7

FY14: 0.7

FY15: 0.7

FY13: -2 days

FY14: 4 days

FY15: 0 days

FY13: 36

FY14: 33.4

FY15: 26.0

FY13: 4.4

FY14: 9.4

FY15:7.8

EV/Sales



Rs.1350

Target

Rs.1143

Rating

SELL

Risks & Concerns

DFM has contingent liabilities of Rs.637.1mn relating to excise duty payable on the products, though DFM is confident of a favourable ruling, any adversity arising from the same could impact fund position.

High leverage with Debt/Equity ratio of 0.9x in FY15 could emerge as a constraint in rising further funds if needed for capacity expansion needs

Non-availability of key raw materials as corn could impact production thereby leading to shortage of supply and subdued volume growth

Increasing safety pressure on the packaged food segment from regulators could lead to additional costs being incurred to ensure quality standards

Concentration risk exposes DFM to regional economic and product success vagaries – Crax Rings – ~84% of revenues and North India - ~80% of revenues

RISKS &

CONCERNS

Favourable ruling in excise duty case could result in one time extraordinary income as well as improvement in gross margins as provision for CENVAT credit would then be claimed by the company.

Exemplary growth in new markets leading to revenues growing faster than our assumed ~24% revenue CAGR from FY15-18.

Subdued raw material inflationary cycle that could help in sustaining gross margins against our assumptions of gross margin contraction.

Any buy-outs or stake sale at higher valuations could result in valuations rising above our assumption of 34x FY18E EPS

Risk to

Thesis


Rs.1350

Target

Rs.1143

Rating

SELL

Valuation summary

…and mean with a lot of expectation…


…on prospective growth


…way above its trading range…


DFM foods multiple rallying to an all time high…


30.0x

20.0x

10.0x

50.0x

40.0x

0

200

400

600

800

1000

1200

1400

1600

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

P/E Multiple

range

No. of days

traded % of no. of days

Cumulative no.

of days

%of Cumulative

no. of days

8 - 12x 50 3% 51 3%

12 - 16x 140 8% 191 10%

16 - 20x 358 20% 549 30%

20 - 24x 439 24% 988 54%

24 - 28x 194 11% 1182 65%

28 - 32x 217 12% 1399 76%

32 - 36x 225 12% 1624 89%

36 - 40x 156 9% 1780 97%

40 - 44x 38 2% 1818 99%

44 - 48x 1 0% 1819 99%

48 - 52x 1 0% 1820 99%

52 - 56x 11 1% 1831 100%

Avg, 25.17

+1SD, 33.17

-1SD, 17.16

+2SD, 41.18

-2SD, 9.15

-

10.00

20.00

30.00

40.00

50.00

60.00

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

Mar-

13

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Relaxo Footwear

Jubilant

Foodwork

DFM Foods

Manpasand

Beverages

Page Industries La Opala

Eicher Motors

15

20

25

30

35

40

45

20% 25% 30% 35% 40% 45% 50%

FY

18E

PE

FY15-18E EPS CAGR


Rs.1350

Target

Rs.1143

Rating

SELL

Buy Outs/Investments in Indian food space - Valuation

Date Company Investors Amount

(US$M) Stake (%) Round Stage

Company

Valuation-

Equity - Post

Money (INR Cr)

Revenue

Multiple(based

on Equity

Value/Market

Cap)

EBITDA

Multiple(based

on Equity

Value)

Dec-15 Adinath Agro Carpediem Capital Partners,

Others 2.54 28.35 Late 56.44 1.25 12.54

May-15 Manna Foods Fulcrum Venture India, Others 5 34 1 Late 88.24 2.38 15.96

Aug-14 Manpasand

Beverages SAIF, Aditya Birla PE 11.78 8.82 2 Pre-IPO 807.99 2.74 17.66

Mar-14 Bikaji Foods Lighthouse 15 12.5 1 Late 720 1.79 16.11

Mar-14 Himadri Foods SEAF 3.24 27.63 1 Late 72.38 1.92 13.33

Jan-14 (DFM Foods) WestBridge 10.3 24.9 Open Market PIPE 259 0.98 10.79

Jan-13 Globus Spirits Templeton Strategic Emerging

Markets Fund 13 17.1

Preferential

Allotment PIPE 412.46 0.66 5.32

Aug-11 Manpasand

Beverages SAIF 10 26.47 Late 170 1.97 11.82

May-11 Tropilite Foods SEAF 1.5 10.83 1 Late 60 2.09 14.33

Nov-10 Sula Vineyards Verlinvest 15 19.5 3 Late 350 3.37 18.09

Sep-10 Cremica Motilal Oswal 10.67 22.44 2 Late 213.9 0.57 7.53

Feb-10 Capital Foods Future Ventures 10 40.81 2 Late 110.26 1.47 17.5

Oct-07 ADF Foods Schroders 4.7 15 Preferential


Jul-07 Sula Vineyards Everstone, Others 11 24.57 2 Growth 186 3.67 15.62

Dec-06 Asian Health And

Nutri Foods SAIF 8 35 1 Late 97.17 0.9 11.36

Apr-06 Capital Foods Everstone 3 33 1 Growth 40.26 2.68 23.54

Apr-05 Indage Vintners Reliance Capital 1.71 9.93 Preferential


Source: Venture Intelligence, Spark Capital Research


Rs.1350

Target

Rs.1143

Rating

SELL

Financial Summary

Abridged Financial Statements Key Metrics

Rs.mn FY15 FY16E FY17E FY18E FY15 FY16E FY17E FY18E

Profit & Loss Growth Ratios (%)

Revenue 2,893 3,687 4,498 5,533 Revenues 10% 27% 22% 23%

EBIDTA 307 415 524 663 EBIDTA 36% 35% 26% 27%

Other Income 22 22 33 43 PAT 54% 57% 18% 33%

Depreciation 59 67 82 96 Margins (%)

EBIT 270 371 474 611 Gross 39.3% 38.1% 38.0% 37.5%

Interest 57 52 98 109 EBIDTA 10.6% 11.3% 11.6% 12.0%

PBT 172 319 376 502 PAT 4.7% 5.8% 5.6% 6.1%

Tax 62 105 124 166 Return Ratios (%)

Normalised PAT 136 213 252 336 RoCE 18.2% 21.8% 19.2% 21.7%

EPS (Rs.) 13.6 21.3 25.2 33.6 RoE 32.6% 39.3% 29.5% 30.6%

Balance Sheet Total Asset Turnover (x) 2.9 2.9 2.5 2.9

Net Worth 457 629 830 1,100 Leverage Ratios (x)

Loan Funds 392 476 826 626 Debt to Equity 0.86 0.76 1.00 0.57

Deferred Tax & Long Term Provisions 160 160 160 160 Current Ratio 0.49 1.23 1.45 1.44

Sources of Funds 1,009 1,265 1,816 1,886 Working Capital Ratios

Net Block 882 935 1,273 1,226 Debtor Days 0 0 0 0

Intangible Assets 0 0 0 0 Inventory days 23 23 23 23

Investments 335 225 325 425 Creditor Days 18 18 18 18

Total Current Assets 200 552 706 772 Per Share

Total Current Liabilities 409 447 487 538 Face Value 10.0 10.0 10.0 10.0

Net Current Assets -208 105 218 234 Dividend 2.5 3.5 4.2 5.5

Application of Funds 1,009 1,265 1,816 1,886 Valuation Metrics

Cash Flow Shares Outstanding (mn) 10 10 10 10

Cash Flow from Pre-Working Cap 289 415 524 663 Market Cap. (Rs. mn) 13,502 13,502 13,502 13,502

Working Capital 33 -11 -11 -14 Enterprise Value (Rs. mn) 13,550 13,443 13,591 13,289

Cash Flow from Operations 262 299 388 484 EV /Sales (x) 4.7 3.6 3.0 2.4

Capex 38 120 420 50 Price/Earnings (x) 99.2 63.2 53.6 40.2

Cash Flow from Investments -179 13 -487 -107 Price/Book (x) 29.5 21.5 16.3 12.3

Free Cash Flow 227 179 -32 434 EV/EBIDTA (x) 44.1 32.4 26.0 20.0

Cash Flow from Financing -98 -10 202 -375 FCF Yield (%) 1.7% 1.3% -0.2% 3.3%

Closing Cash Balance 9 310 413 415 Dividend Yield 0.2% 0.3% 0.3% 0.4%


Rs.1350

Target

Rs.1143

Rating

SELL Disclaimer

Spark Disclaimer

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Absolute

Rating

Interpretation

BUY Stock expected to provide positive returns of >15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% – -10% over a 1-year

horizon

ADD Stock expected to provide positive returns of >5% – <15% over a 1-year

horizon SELL Stock expected to fall >10% over a 1-year horizon


Rs.1350

Target

Rs.1143

Rating

SELL Disclaimer (Cont’d)

Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,

Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:

Disclosure of interest statement DFMF

Analyst financial interest in the company No

Group/directors ownership of the subject company covered No

Investment banking relationship with the company covered No

Spark Capital’s ownership/any other financial interest in the company covered No

Associates of Spark Capital’s ownership more than 1% in the company covered No

Any other material conflict of interest at the time of publishing the research report No

Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:

Managing/co-managing public offering of securities

Investment banking/merchant banking/brokerage services

products or services other than those above

in connection with research report

No

Whether Research Analyst has served as an officer, director or employee of the subject company covered No

Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; No

Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research

analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.

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