swaraj engines (swaeng) | 2070content.icicidirect.com/mailimages/idirect_swarajengines... · 2018....

April 24, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Volumes normalise , well poised to grow…

Swaraj Engines (SEL) reported a muted Q4FY18 performance despite

robust tractor sales volumes at the industry as well as parent level

This can be attributed to normalisation of inventory at the parent

level in FY18. From a two-year perspective, Swaraj has grown in

tandem with industry growth rate with market share intact at ~17%

SEL recorded engine sales of 21,780 units in Q4FY18, up 9.8% YoY

Consequently, total operating income in Q4FY18 came in at | 185.2

crore (up 15.2% YoY). EBITDA for the quarter came in at | 28.6 crore

with corresponding EBITDA margins at 15.4% (up 41 bps YoY)

PAT in Q4FY18 was at | 17.9 crore, up 17.0% YoY

SEL announced a dividend of | 50/share for FY18, implying a healthy

dividend yield of ~2.5%

Normal monsoon forecast to aid farm mechanisation play; SEL to benefit

South West Monsoon, which accounts for ~70% of annual rainfall

domestically, has been forecast to be normal in nature (IMD at 97% of

LPA & Skymet at 100% of LPA). Normal monsoon is likely to result in an

increase in food grain production. This coupled with government

directive to ensure minimum support price (MSP) at 1.5x the cost of

production for key crops domestically and a wider e-NAM network is

likely to result in healthy farm income. It is positive for all farm

mechanisation companies, including SEL. Interestingly, it has been

observed that SEL realises greater proportion of sales in the Kharif season

(~55% of sales) which makes next six months truly crucial for SEL.

Domestic tractor industry on growth trajectory post stellar sales in FY18

The domestic tractor industry has been at the forefront of farm

mechanisation in India. The tractor industry registered record sales

volume of 711,478 units (up 22.1% YoY) after ending FY17 at 582,853

units (up 18% YoY). Tractor sales at the parent level in FY18 were at

~304,019 units (up 21.8% YoY) after rising 23% YoY in FY17 to 249,683

units thereby maintaining is commanding market share of ~43%. Going

forward, with renewed focus on the agriculture sector and pick-up in

infrastructure activities, we expect the domestic tractor industry to

witness healthy double digit volume growth (10-12% CAGR) in FY18-20E.

Strong brand image, capital efficient business model; retain BUY!

“Swaraj” tractors enjoy a strong brand image with a market share in

excess of 15%. Back-t-back normal monsoons and supportive

government measures aimed at augmenting farm income bode well for

farm mechanisation players, including SEL. The company has one of the

most capital efficient business models with RoICs in excess of 200%

largely due to negative working capital cycle and high dividend payout

ratio (~75%). Average RoCE & RoE in FY18-20E are expected at 52% &

39%, respectively. SEL is a debt free company with surplus cash on its

balance sheet (| 183 crore as of FY18). Incorporating the normalisation of

inventory at the parent level, we expect SEL to clock engine sales volume

CAGR of 10% in FY18-20E to 111,310 units in FY20E (92,022 units in

FY18). We expect sales, PAT to grow at a CAGR of 12.0%, 11.9%,

respectively, in FY18-20E. Conservatively, we build in 40 bps

improvement in EBITDA margins. We expect SEL to generate an average

CFO of ~| 112 crore over FY18-20E thereby offering a healthy CFO yield

of 4.5%. We maintain our positive stance on SEL and value it at | 2500 i.e.

30x P/E on FY20E EPS of | 82.8. We retain our BUY rating on the stock.

We also incorporate the recently concluded buyback amounting to ~| 71

crore (2.95 lakh shares @ buyback price of | 2400).

Swaraj Engines (SWAENG) | 2070 Rating matrix

Rating : Buy

Target : | 2500

Target Period : 12-18 months

Potential Upside : 21%

What’s changed?

Target Unchanged

EPS FY19E Changed from | 79.6 to | 74.4

EPS FY20E Changed from | 88.2 to | 82.8

Rating Unchanged

Quarterly performance

Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%)

Revenue 185.3 160.8 15.2 183.3 1.1

EBITDA 28.6 24.1 18.4 25.7 11.0

EBITDA (%) 15.4 15.0 41 bps 14.0 138 bps

PAT 17.9 15.3 17.0 17.3 3.4

Key financials

| Crore FY17 FY18 FY19E FY20E

Net Sales 666.2 771.2 878.9 967.2

EBITDA 104.6 121.7 140.4 156.4

Net Profit 68.8 80.1 90.2 100.4

EPS (|) 55.4 66.1 74.4 82.8

Valuation summary

FY17 FY18 FY19E FY20E

P/E 37.4 31.3 27.8 25.0

Target P/E 45.1 37.8 33.6 30.2

EV / EBITDA 21.7 19.1 16.5 14.7

P/BV 9.1 11.0 10.8 10.6

RoNW 24.3 35.1 39.0 42.3

RoCE 31.2 45.9 53.1 58.3

Stock data

Stock Data | crore

Market Capitalization 2,509.9

Total Debt (FY18) 0.0

Cash & Investments (FY18) 182.8

EV 2,327.1

52 week H/L 2545 / 1551

Equity capital | 12.1 crore

Face value | 10

MF Holding (%) 13.1

FII Holding (%) 2.5

Price performance

Return % 1M 3M 6M 12M

Swaraj Engines 3.2 -0.4 0.7 37.5

Kirloskar Oil Engines -1.3 -12.3 -6.8 -13.2

Research Analyst

Chirag J Shah

[email protected]

Shashank Kanodia, CFA

[email protected]

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Standalone Numbers Q4FY18 Q4FY18E Q4FY17 YoY (%) Q3FY18 QoQ (%) Comments

Sales 185.3 247.8 160.8 15.2 183.3 1.1 Net sales for the quarter came in significantly lower largely tracking lower-

than-expected engines sales volume

Other Operating Income 0.0 0.0 0.0 0.0

Total Operating Income 185.3 247.8 160.8 15.2 183.3 1.1

Total Raw Material Expenses 138.4 184.6 120.4 14.9 137.2 0.8 RM as a percentage of sales were largely in line at ~75% of sales

Employee Cost 8.9 9.3 8.1 10.8 8.9 0.7 Employee costs came in at their usual run rate (~5% of sales)

Other operating expense 9.4 11.9 8.2 14.7 11.5 -18.2 Other operating expense came in at its usual run rate (~5% of sales)

Total Expenditure 156.7 205.8 136.6 14.7 157.6 -0.6

EBITDA 28.6 42.0 24.1 18.4 25.7 11.0

EBITDA Margin (%) 15.4 17.0 15.0 41 bps 14.0 138 bps The operating leverage benefits did not pan out as envisaged due to muted

engine sales volume growth for the quarter

Depreciation 4.2 4.2 4.2 -0.7 4.2 -0.7

Interest 1.0 0.0 0.0 0.0

Non Operating Expenses 0.0 0.0 0.0 0.0

Other Income 4.1 1.0 3.6 16.0 4.9 -15.5 Other income was higher-than-expected

PBT 27.5 38.8 23.5 17.3 26.4 4.1

Taxes 9.7 13.5 8.2 17.7 9.1 5.6 Tax rate came in at 35%

PAT 17.9 25.3 15.3 17.0 17.3 3.4

Key Metrics

Engine Sales Volume (units) 21,780 30,115 19,842 9.8 21,971 -0.9 Sales volume for the quarter came in much lower than our estimates at

21,780 units (up 9.8% YoY)

Engine Realizations (|/unit) 85,060 82,268 81,025 5.0 83,428 2.0 Realisations, however, improved both QoQ & YoY largely depicting pass

through of increase in metal prices and higher hp engine sales

Source: Company, ICICI Direct Research

Change in estimates

(| Crore) Old New % Change Old New % Change Comments

Revenues 940.5 878.9 -6.6 1,025.1 967.2 -5.7 Lowered estimates factoring in muted Q4FY18. Going forward, we expect the

industry to witness moderate growth on high base

EBITDA 154.2 140.4 -9.0 169.1 156.4 -7.6

EBITDA Margin (%) 16.4 16.0 -43 bps 16.5 16.2 -33 bps Marginally toned down operating leverage benefits to moderation of engine sales

growth (lower capacity utilisation levels)

PAT 96.5 90.2 -6.5 107.0 100.4 -6.2

EPS (|) 79.6 74.4 -6.5 88.2 82.8 -6.2 Decline in sales and margin estimates lead to decline in PAT and EPS estimates

FY19E FY20E


Assumptions

FY16 FY17 FY18 FY19E FY20E FY19E FY20E Comments

Engine Sales Volume

(units)

64088 82297 92022 103065 111310 112400 121392 Lowered our engine sales volume estimates. We now expect SEL to witness

sales volume growth of 10% CAGR in FY18-20E to 1.1 lakh units in FY20E vs.

0.9 lakh units in FY18

Engine Net Sales

Realization (|/unit)

79157 78363 81732 83367 85034 81924 82743 Increase in metal price and penetration into higher hp segment leads to upward

revision in realisation estimates

EarlierCurrent



Normal monsoon forecast at 97% of LPA

South West Monsoon, which accounts for ~70% of annual rainfall

domestically, has been forecast to be normal in nature. It is forecast at

97% of the long period average (LPA) by the Indian Meteorological

Department (IMD) and 100% of LPA by private weather monitoring

agency Skymet. Absence of El Niño conditions and fading away of La

Niña over the Pacific Ocean amid neutral dipole movement in the Indian

Ocean have contributed to this normal rainfall forecast.

Exhibit 1: Skymet vs. IMD forecast

95

103

91

10295

10099 98 95 9396 97

92

106

88 86

97 95

105106

0

20

40

60

80

100

120

2012 2013 2014 2015 2016 2017 2018

% o

f LP

A

Skymet Forecast IMD Forecast Actual Rain


This bodes well for all agri-input companies and rural demand focused

consumer industries viz. FMCG & consumer durables. In the past, it has

been observed that majority of agri input companies, particularly in the

farm mechanisation segment (tractors, tillers, pumps) witness volume

growth of ~20% during years of normal monsoons.

Exhibit 2: Rainfall probability range

IMD (97% of LPA) Skymet (100% of LPA)

Forecast Probability (%) Forecast Probability (%)

Deficient 110 2 5

Monsoon Categorization

Rainfall Range

(% of LPA)


IMD has forecast monsoon 2018 to be normal to positive in nature with a

probability of 56% while the probability assigned to below normal

monsoon 2018 is pegged at 30%. Skymet forecast is more aggressive,

with 80% probability of normal to positive monsoon while probability

assigned to below normal monsoon at 20%. Interestingly, Skymet has

assigned a zero probability to monsoon 2018 being deficient in nature.

Currently, the national focus as well as political mandate is on

augmenting farm income and minimising farm distress. It is being done

through various measures like robust allocation in key government

schemes (Union Budget 2018) focusing on augmenting farm productivity.

It is also being targeted through farm loan waiver in key states like Uttar

Pradesh, Maharashtra, Punjab, etc. The most notable and effective,

however, would be the increase in MSP for key agriculture crops that is

being targeted at 1.5x the cost of production. Therefore, amid such

measures, normal to positive monsoon will act as a shot in the arm for

the domestic agriculture sector with agri GDP expected to surpass its

long period average growth rate of ~4%.

Skymet expects monsoons to start at a very robust pace with

June forecast to receive rainfall at 111% of LPA, followed by

July at 97% of LPA, August at 96% of LPA and September at

101% of LPA


Company Analysis

SEL is a joint holding of Kirloskar Industries (KIL) (17.4% stake) and a

leading tractor player (33.2% stake) with the latter the main promoter

consequent to its acquisition of Punjab Tractors in 2007-08. The

Government of India originally set up the company in 1985 for

manufacturing diesel engines for Punjab Tractors, which marketed their

products under the Swaraj brand. SEL commenced production at its

facility in Mohali in 1988 and has been a profitable entity since then. Since

inception, the company also had a technical collaboration with KIL that

also bought ~17% stake in SEL, thereby partnering with SEL in all its

technical, designing and functional needs. However, from 2005-06, the

company ended its technical collaboration with KIL and developed in-

house capability and facilities for modernisation and technological

upgradation of its products.

SEL serves the engine requirements of the Swaraj brand of tractors. The

company manufactures engines catering to tractors in the 20-50 hp

segment and caters to ~85-88% of the total engine requirement at

parent’s Swaraj tractor division. SEL has a current installed capacity to

manufacture 120,000 units of engines. SEL also manufactures hi-tech

engine components for commercial vehicles for SML Isuzu (erstwhile

Swaraj Mazda). The contribution to the topline, however, remains limited

(


Domestic tractor market on strong footing; penetration set to increase

The domestic tractor industry has been at the forefront of farm

mechanisation in India with tractor sales increasing at 7.4% CAGR in

FY10-18 to ~7.1 lakh units in FY18 (~4.0 lakh units in FY10). Within

segments, main growth was witnessed in the segment of 41-50 hp, which

has grown at 17.2% CAGR to 3.4 lakh units in FY10-18 (94,000 units in

FY10). This reflects the preference towards tractors for farming as well as

other allied services like haulage of construction material and personnel.

On the other hand, sales of small hp tractors i.e.


SEL: Expanding capacity; sales & profitability to follow

Post acquisition by parent (i.e. post FY08), SEL has always operated at

optimal capacity utilisation levels with utilisation levels at 88% (average)

in FY10-18. During the aforesaid period, the company has consistently

undertaken five expansion programmes from its first increase in capacity

from 36,000 units to 42,000 units in FY11, to finally augment its capacity

to 120,000 units in FY18.

Exhibit 7: SEL: Capacity, production & capacity utilisation trend

60000

75000

75000

75000

105000

105000

120000

120000

120000

55099

57348

74786

63994

64256

81989

92022

103065

111310

91.8

76.5

99.7

85.3

61.2

78.1 76.7

85.9

92.8

0

20000

40000

60000

80000

100000

120000

140000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E

unit

s

0

20

40

60

80

100

120

%

Capacity Production Capacity Utilization


Going forward, we expect sales volumes to grow at a CAGR of 10.0% in

FY18-20E to 111,310 units in FY20E vs. 92,022 units in FY18. The

company has successfully augmented its capacity to 120,000 units in

FY18 incurring a capex of ~| 25 crore, funded through internal accruals.

Working capital - key hallmark of SEL!

SEL, after being acquired, has drastically improved its working capital

cycle with net working capital days reducing from 42 days in FY08 to four

days in FY09. Thereafter, the net working capital has either been

marginally negative or zero, thereby implying prudent capital

management. This has resulted in strong cash flow generation for the

company with five-year average CFO: EBITDA at 1.1x in FY14-18.

Exhibit 8: SEL: Net working capital days (break-up)

36

27

3028

22

19

14 15 15 15

810

75 5 5

7 7

10 10

43

38 3836

42 42

50

45 45

0

10

20

30

40

50

60


days

Inventory Days Debtor Days Creditor Days


Exhibit 9: SEL: Net working capital days

-6

-1

-5

-9

-18

-21

-28

-20 -20

-30

-25

-20

-15

-10

-5

0


no o

f days


Going forward, we conservatively build in a negative working capital cycle

of 20 days in FY19-20E. NWC days further improved to negative 28 days

in FY18 from negative 21 days in FY17.

SEL also undertakes continuous innovation and technology

upgradation to meet the changing engine requirements at

the Swaraj division. The company is also developing

engines in the >50 hp segment that will further help

augment sales at SEL. All expenses for the aforesaid

expansion were undertaken from internal accruals.

All capacity additions were undertaken under the

supervision of the main promoter group as and when the

parent sensed the greater demand for the Swaraj brand of

tractors


Superior return ratios; high dividend payouts!

The return ratio profile of SEL has been superior with five-year average

RoCEs and RoEs at 34% and 27%, respectively, in FY14-18. Going

forward, post the blip in FY16 (volume de-growth of 1%) on the back of a

pick-up in tractor (Swaraj) demand/capacity expansion and consequent

engine sales, we expect return ratios to inch up in FY18-20E. The core

return ratio i.e. RoICs has, however, been above 100% post acquisition

with five-year average RoICs at 194% in FY14-18.

Exhibit 10: RoIC, RoCE & RoE trend

29.0

22.7 3

1.2

45.9 53.1

58.3

24.4

19.4

24.3

35.1

39.0

42.3

289

229183

84204

563

0

10

20

30

40

50

FY15 FY16 FY17 FY18 FY19E FY20E

%

0

100

200

300

400

500

600

%

RoCE RoE RoIC


Exhibit 11: EPS, DPS & dividend payout

41.7

41.2 5

5.4 66.1

74.4

82.8

33.0

33.0 43.0

50.0 60.0

65.0

78.580.7

75.777.6

80.179.2

0

10

20

30

40

50

60

70

80

90

FY15 FY16 FY17 FY18 FY19E FY20E|

/share

0

20

40

60

80

100

%

EPS DPS Payout Ratio


Dividend payout has been excellent with the company’s average dividend

payout in the last five years (FY14-18) at ~75%. SEL has increased its

dividend per share from | 33/share in FY14 to | 50/share in FY18. We

expect this healthy dividend to continue, going forward. Dividend/share is

expected at | 60/share in FY19E, | 65/share in FY20E, thereby offering an

attractive dividend yield of ~3%.

Revenues to grow at 12.0% CAGR in FY18-20E

We expect SEL to clock modest revenue growth at 12.0% CAGR in FY18-

20E to | 967.2 crore in FY20E (| 771.2 crore in FY18). We expect sales

volumes of engines to grow at a CAGR of 10.0% in FY18-20E to 111,130

units in FY20E (92,022 units in FY18). On the realisations front, we expect

realisations to grow at a CAGR of 2.0% over FY18-20E.

Exhibit 12: Sales trend

539.7 525.9

666.2

771.2

878.9

967.2

-

200

400

600

800

1,000

1,200

FY15 FY16E FY17 FY18 FY19E FY20E

| c

rore


Exhibit 13: Sales volume and realisation trend

64595

64088

82297

92022

103065

111310

8134479157

78363

81732 83367 85034

0

20000

40000

60000

80000

100000

FY15 FY16 FY17 FY18 FY19E FY20E

unit

s

74000

76000

78000

80000

82000

84000

86000

|/unit

Sales Volume Realization


For full year FY18, SEL reported volume growth of 12% at 92,022 units.

Going forward, amid the government’s thrust to augment farm income;

we expect sales volume growth of 12.0% CAGR in FY18-20E.


This would primarily be on the back of the good brand recall of Swaraj

Tractors, increasing sales of Swaraj Tractor in low tractor density regions

domestically and new product launches by parent under the Swaraj

brand.

EBITDA, PAT to grow at 13.4%, 11.9% CAGR, respectively, in FY18-20E

We expect EBITDA to grow at a CAGR of 13.4% in FY18-20E to | 156.4

crore in FY20E (| 121.7 crore in FY18), primarily on the back of sales

growth (12.0% CAGR) and improvement in EBITDA margins to the tune of

40 bps to 16.2% in FY20E (15.8% in FY18). On the PAT front, we expect

PAT to grow at a CAGR of 11.9% in FY18-20E to | 100.4 crore in FY20E

(| 80.1 crore in FY18).

Exhibit 14: EBITDA & EBITDA margins trend

74.7

73.6 104.6

121.7

140.4

156.4

13.8

14.0

15.7 15.8

16.0

16.2

-

20

40

60

80

100

120

140

160

180


| c

rore

13

13

14

14

15

15

16

16

17

%

EBITDA (| crore) EBITDA Margin (%)


Exhibit 15: PAT & EPS trend

51.8

51.2 6

8.8

80.1

90.2

100.4

41.741.2

55.4

66.1

74.4 82.8

-

20

40

60

80

100

120


| c

rore

-

10

20

30

40

50

60

70

80

90

|/share

Net Profit (| crore) EPS (|)



Outlook and valuation

“Swaraj” tractors enjoy a strong brand image with a market share in

excess of 15%. Back-to-back normal monsoon and supportive

government measures targeted towards augmenting farm income bodes

well for farm mechanisation players including SEL. Swaraj Engines has

one of the most capital efficient business models with RoICs in excess of

200% largely due to negative working capital cycle and high dividend

payout ratio (~75%). Average RoCE & RoE in FY18-20E are expected at

52% & 39%, respectively. SEL is a debt free company with surplus cash

on its balance sheet (| 183 crore as of FY18). Incorporating the

normalisation of inventory at the parent level, we expect SEL to clock

engine sales volume CAGR of 10% in FY18-20E to 111,310 units in FY20E

(92,022 units in FY18). We expect sales, PAT to grow at a CAGR of 12.0%,

11.9%, respectively, in FY18-20E. Conservatively, we build in 40 bps

improvement in EBITDA margins. We expect SEL to generate an average

CFO of ~| 112 crore over FY18-20E thereby offering a healthy CFO yield

of 4.5%. We maintain our positive stance on SEL and value it at | 2500 i.e.

30x P/E on FY20E EPS of | 82.8. We retain our BUY recommendation on

the stock. We also incorporate the recently concluded buyback

amounting to ~| 71 crore (2.95 lakh shares @ buyback price of | 2400).

Exhibit 16: Two year forward P/E (SEL currently trading at 25.0x)

0

500

1000

1500

2000

2500

3000

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

Jan-17

May-17

Sep-17

Jan-18

(|

)

Price 29x 26x 20x 17x 12x 9x 6x

Source: Reuters, ICICI Direct Research


Recommendation history vs. Consensus

0

500

1,000

1,500

2,000

2,500

3,000

Apr-18

Mar-18

Jan-18

Dec-17

Oct-17

Aug-17

Jul-17

May-17

Apr-17

Feb-17

Jan-17

Nov-16

Oct-16

Aug-16

Jun-16

May-16

Mar-16

Feb-16

Dec-15

Nov-15

Sep-15

Aug-15

Jun-15

May-15

(|

)

0

10

20

30

40

50

60

70

80

90

100

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct Research

Key events

Date/Year Event

2008 The company got indirectly acquired by Mahindra & Mahindra (M&M) on account of its acquisition of Punjab Tractors (erstwhile promoters of Swaraj Engines). M&M

also launches an open offer for minority shareholders as per the rules prescribed by Sebi

2009 Working capital drastically improves at SEL, net working capital days reduced from 42 days in FY08 to four days in FY09

2010 SEL operates at >100% capacity utilisation levels. Production in FY10 at 39254 units on a capacity of 36000 units, implying utilisation levels of 109%

2011 SEL undertakes and commissions a capacity expansion programme. Capacity increased from 36000 units annually to 42000 units. Engine production in FY11 was at

~48000 units, implying a capacity utilisation of ~114%

2012 Company further increases its capacity from 42000 units in FY11 to 60000 units in FY12. Production in FY12 was at 55099 units

2013 SEL further increases its capacity from 60000 units in FY12 to 75000 units in FY13. Production in FY13 stood at 57348 units. Judging the surplus cash on books and

good cash flow generating ability of SEL, the SEL management increases the dividend payout (75%) with absolute dividend at | 33/share

2014 Maintains higher dividend payout ratio at 65% with absolute dividend per share at | 35/share. Production in FY14 stood at 74786 units, implying capacity utilisation

levels of ~100%

2015 SEL to implement capacity expansion programme wherein the company intends to increase its current capacity from 75000 units annually to 105000 units annually.

The total capex spend would be ~ | 38 crore (to be met by internal accruals) while it is expected to be commissioned by Q2FY16

2016 SEL ends the year with 64088 units of engine sales (down 1% YoY). Monsoon 2016 season ends with rainfall at 97% of LPA thereby being normal in nature. Tractor

industry witnesses robust volume growth of 20% in H1FY17

2017 SEL out beats the industry growth rate with Engine sales in FY17 at 82297, up 28% YoY vs. the industry growth rate of 18%. The company is further augmenting its

capacity from 105,000 units to 120,000 units at an incremental capex of ~| 50 crore


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Mahindra Group 31-Dec-17 34.0 4.1 0.0

2 Kirloskar Group of Companies 31-Dec-17 17.8 2.2 0.0

3 L&T Investment Management Limited 28-Feb-18 3.9 0.5 0.0

4 DSP BlackRock Investment Managers Pvt. Ltd. 31-Dec-17 3.4 0.4 0.0

5 HDFC Asset Management Co., Ltd. 31-Mar-18 2.1 0.3 0.0

6 Jupiter Asset Management Ltd. 31-Dec-17 1.5 0.2 0.0

7 Parikh (Reeta Keyur) 31-Dec-17 1.5 0.2 0.0

8 Shah (Vikram Chinubhai) 31-Dec-17 1.5 0.2 0.0

9 SBI Funds Management Pvt. Ltd. 31-Dec-17 1.3 0.2 0.0

10 Morgan Stanley Investment Management (India) Pvt. Ltd. 30-Sep-16 1.2 0.2 0.0

(in %) Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

Promoter 50.6 50.6 50.6 50.6 50.7

FII 5.0 5.2 5.3 2.7 2.5

DII 12.1 12.2 12.5 12.3 13.1

Others 32.3 32.0 31.6 34.4 33.7


Recent Activity

Investor name Value (US$ M) Shares (M) Investor name Value (US$ M) Shares (M)

DHFL Pramerica Asset Managers Private Limited 0.1 0.0 Franklin Templeton Asset Management (India) Pvt. Ltd. -4.0 -0.1

HDFC Asset Management Co., Ltd. 0.1 0.0 L&T Investment Management Limited -0.8 0.0

Edelweiss Asset Management Ltd. -0.2 0.0

Dimensional Fund Advisors, L.P. -0.2 0.0

Buys Sells



Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18 FY19E FY20E

Net Sales 666.2 771.2 878.9 967.2

Other Operating Income 0.0 0.0 0.0 0.0

Total Operating Income 666.2 771.2 878.9 967.2

Growth (%) 26.7 15.8 14.0 10.0

Raw Material Expenses 495.6 574.3 656.9 722.8

Employee Expenses 31.0 34.8 37.8 40.6

Other Operating Expense 35.0 40.5 43.9 47.3

Total Operating Expenditure 561.6 649.6 738.5 810.8

EBITDA 104.6 121.7 140.4 156.4

Growth (%) 42.2 16.3 15.4 11.4

Depreciation 16.3 16.8 17.5 18.2

Interest 0.1 1.0 0.0 0.0

Other Income 17.2 19.0 14.9 15.1

PBT 105.4 122.8 137.7 153.2

Exceptional Item 0.0 0.0 0.0 0.0

Total Tax 36.6 42.7 47.5 52.9

PAT 68.8 80.1 90.2 100.4

Growth (%) 34.5 16.5 12.6 11.3

EPS (|) 55.4 66.1 74.4 82.8


Cash flow statement | Crore


Profit after Tax 68.8 80.1 90.2 100.4

Add: Depreciation 16.3 16.8 17.5 18.2

(Inc)/dec in Current Assets -2.9 -14.7 -13.2 -6.9

Inc/(dec) in CL and Provisions 16.9 30.7 3.8 11.8

Others 0.1 1.0 0.0 0.0

CF from operating activities 99.2 113.9 98.4 123.4

(Inc)/dec in Investments -38.5 -27.2 -10.0 -20.0

(Inc)/dec in Fixed Assets -6.4 -22.7 -5.0 -5.0

Others -1.0 -7.5 0.0 0.0

CF from investing activities -45.9 -57.4 -15.0 -25.0

Issue/(Buy back) of Equity 0.0 -0.3 0.0 0.0

Inc/(dec) in loan funds 0.0 0.0 0.0 0.0

Dividend paid & dividend tax -64.1 -72.8 -87.3 -94.6

Inc/(dec) in Share Cap 0.0 0.0 0.0 0.0

Others 15.0 -62.9 0.0 0.0

CF from financing activities -49.0 -135.9 -87.3 -94.6

Net Cash flow 4.3 -79.4 -3.9 3.8

Opening Cash 181.8 186.1 106.7 102.8

Closing Cash 186.1 106.7 102.8 106.6


Balance sheet | Crore


Liabilities

Equity Capital 12.4 12.1 12.1 12.1

Reserve and Surplus 270.9 216.4 219.3 225.1

Total Shareholders funds 283.3 228.5 231.4 237.2

Total Debt 0.0 0.0 0.0 0.0

Deferred Tax Liability 6.3 5.8 5.8 5.8

Minority Interest / Others 0.0 0.0 0.0 0.0

Total Liabilities 289.6 234.3 237.2 243.0

Assets

Gross Block 196.2 213.7 224.7 229.7

Less: Acc Depreciation 104.9 121.7 139.2 157.4

Net Block 91.3 92.0 85.4 72.3

Capital WIP 0.8 6.0 0.0 0.0

Total Fixed Assets 92.1 98.0 85.4 72.3

Investments 48.9 76.1 86.1 106.1

Inventory 26.1 31.9 36.1 39.7

Debtors 13.1 15.3 24.1 26.5

Loans and Advances 0.0 0.0 0.0 0.0

Other Current Assets 2.0 8.6 8.8 9.7

Cash 186.1 106.7 102.8 106.6

Total Current Assets 227.2 162.5 171.8 182.5

Current Liabilities 77.4 105.5 108.4 119.2

Provisions 5.2 7.7 8.7 9.5

Current Liabilities & Prov 82.5 113.2 117.0 128.8

Net Current Assets 144.7 49.3 54.7 53.7

Others Assets 3.8 10.9 10.9 10.9

Application of Funds 289.6 234.3 237.2 243.0


Key ratios


Per share data (|)

EPS 55.4 66.1 74.4 82.8

Cash EPS 68.5 79.9 88.9 97.8

BV 228.1 188.5 190.9 195.6

DPS 43.0 48.8 58.6 63.5

Cash Per Share (Incl Invst) 189.2 150.8 155.8 175.4

Operating Ratios (%)

EBITDA Margin 15.7 15.8 16.0 16.2

PAT Margin 10.3 10.4 10.3 10.4

Inventory days 14.3 15.1 15.0 15.0

Debtor days 7.2 7.2 10.0 10.0

Creditor days 42.4 49.9 45.0 45.0

Return Ratios (%)

RoE 24.3 35.1 39.0 42.3

RoCE 31.2 45.9 53.1 58.3

RoIC 216.3 263.9 330.0 637.1

Valuation Ratios (x)

P/E 37.4 31.3 27.8 25.0

EV / EBITDA 21.7 19.1 16.5 14.7

EV / Net Sales 3.4 3.0 2.6 2.4

Market Cap / Sales 3.8 3.3 2.9 2.6

Price to Book Value 9.1 11.0 10.8 10.6

Solvency Ratios

Debt/EBITDA 0.0 0.0 0.0 0.0

Debt / Equity 0.0 0.0 0.0 0.0

Current Ratio 0.5 0.5 0.6 0.6

Quick Ratio 0.2 0.2 0.3 0.3



RATING RATIONALE

ICICI Direct Research endeavours to provide objective opinions and recommendations. ICICI Direct Research

assigns ratings to its stocks according to their notional target price vs. current market price and then

categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and

the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

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Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


ICICIdirect.com Research Desk,

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Road No 7, MIDC,

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