FY18 AR Analysis: Building capacities...
Transcript of FY18 AR Analysis: Building capacities...
JM Financial Institutional Securities Limited
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After 3 consecutive years of contraction, Thermax (TMX) reported a sharp jump in order
inflows (up 45% YoY) in FY18, but management guides for a cautiously optimistic outlook
amid rising interest rates and the run up to the 2019 elections. Key takeaways from TMX’s
FY18 annual report are: a) a cautious outlook on order inflows, to be driven largely by 2
sectors: consumer-led industries (food, beverage, textiles, tyres and automobiles) and
emission norm-related capex (power and oil & gas); b) expanding its manufacturing footprint
through new facilities in Indonesia, Dahej and the acquisition of assets in Poland to counter
cyclicality in sales; c) margin decline being restricted to 70bps in FY18 as projects’ improved
credit risk profiles created a 100bps swing, even as rising commodity prices and losses in the
Chinese subsidiary led to pressure on gross margins, d) FCF jumping 260% YoY as advances
on new orders led to a sharp fall in its NWC from 26 days to 1; and e) RoE/RoCE remaining
suppressed (in single digits) due to investments in non-revenue yielding and loss-making JVs.
We maintain HOLD with a TP of INR 930, valuing the stock at 25x FY20E EPS.
Strong order book, but cautious outlook on order inflows: Revenue visibility improved
substantially in FY18 as TMX reported a 43% jump in its order book (1.3x TTM sales) and
expanded its manufacturing capacity domestically and internationally. Although TMX
targets to sustain order inflows at FY18 levels, it has a cautiously optimistic outlook due
to rising interest rates and the run up to the 2019 elections. Order inflows should largely
be driven by capacity expansion in consumer-led sectors as well as stringent emission
norms in steel, power and oil and gas industries.
Expanding manufacturing footprint for future growth: In FY18, the company
commissioned new facilities in Indonesia (heating and cooling), Dahej (chemical resins),
Savli (steam engineering) and acquired the production assets of Barite Investments in
Poland. It further plans to extend is capacity through a chiller plant in Sri City and Phase-2
of the Dahej chemicals plant, thus gearing up to increase its share in the products
segment – pegged at 24% currently – to counter cyclicality in sales.
Balance sheet strengthens, but return ratios remain grim: Doubling of customer advances
helped offset rising debtor/inventory days due to project delays, thus reducing NWC days
from 26 to 1. This led to a sharp 26% YoY jump in FCF. However, low asset turns and
poor margins led to a fall in return ratios to single digits (RoE/RoCE: 9.7%/8.8%).
Losses at international subs continue to suppress profitability: TMX reported losses in
most overseas geographies including China, Denmark and Indonesia. While Indonesia and
Denmark are expected to turn around in FY19 on improved inquiries and rising capacity
utilisation, losses in China are likely to continue until export orders break even.
Maintain HOLD: Baking in optimistic estimates, we forecast 38% EPS CAGR, led by a
strong order book and margin expansion of 150bps over FY18-20. However, we maintain
our HOLD rating with a TP of INR 930 (valuing TMX at 25x FY20E EPS), given expensive
valuations of 38x FY19 and 28x FY20E EPS.
Sandeep Tulsiyan [email protected] | Tel: (91 22) 66303085
Recommendation and Price Target
Current Reco. HOLD
Previous Reco. HOLD
Current Price Target (12M) 930
Upside/(Downside) -9.6%
Previous Price Target 930
Change 0.0%
Key Data – TMX IN
Current Market Price INR1,028
Market cap (bn) INR122.5/US$1.8
Free Float 37%
Shares in issue (mn) 119.2
Diluted share (mn) 119.2
3-mon avg daily val (mn) INR50.3/US$0.7
52-week range 1,375/834
Sensex/Nifty 36,520/11,008
INR/US$ 68.5
Price Performance % 1M 6M 12M
Absolute -8.9 -23.0 14.3
Relative* -11.2 -26.0 0.4
* To the BSE Sensex
Thermax | HOLD
17 July 2018 India | Industrials | Company Update
FY18 AR Analysis: Building capacities judiciously
Financial Summary (INR mn) Y/E March FY16A FY17A FY18A FY19E FY20E
Net Sales 51,450 44,831 44,649 51,934 62,283
Sales Growth (%) -3.0 -12.9 -0.4 16.3 19.9
EBITDA 4,291 4,330 4,009 4,802 6,519
EBITDA Margin (%) 8.3 9.7 9.0 9.2 10.5
Adjusted Net Profit 2,823 2,470 2,321 3,261 4,438
Diluted EPS (INR) 23.7 20.7 19.5 27.4 37.2
Diluted EPS Growth (%) 8.9 -12.5 -6.0 40.5 36.1
ROIC (%) 20.5 17.1 15.1 19.8 24.2
ROE (%) 12.2 10.0 8.8 11.5 14.2
P/E (x) 43.4 49.6 52.8 37.6 27.6
P/B (x) 5.1 4.8 4.5 4.2 3.7
EV/EBITDA (x) 28.3 28.1 30.4 25.4 18.4
Dividend Yield (%) 0.6 0.6 0.6 0.6 0.7
Source: Company data, JM Financial. Note: Valuations as of 17/Jul/2018
Thermax 17 July 2018
JM Financial Institutional Securities Limited Page 2
Operational performance and outlook
Sharp bounce-back in inflows improves order book position: After a 35% contraction in
TMX’s consolidated order book over FY14-17, the company reported a sharp jump in
order inflows in FY18, up 45% YoY. In addition to base orders, TMX booked several large
orders from the Dangote Group in Africa, a cement company in the UAE and from
government companies in India in chemicals and fertiliser sectors. This led to a 43% jump
in its order book position to INR 56.9bn (1.3x FY18 sales), improving revenue visibility,
which had largely been subdued over the past 4 years.
Large order wins in FY18 Exhibit 1.Date Client Particulars Value (US$ mn)
Q118 Dangote Group, Nigeria Utility boilers, HRSG and flue gas steam generators 157
Q218 Leading cement company, UAE Turnkey captive power plant - solid fuel based 43
Q318 Chemical PSU, Western India BTG Package for 2x65 MW captive plant 48
Q418 Fertiliser PSU, Haryana & Punjab Cogeneration plants – 3x20MW 73
Source: Company, JM Financial
Cautiously optimistic on future inflows; targeting specific business areas: While
management expects order inflows to sustain at FY18 levels, it guided is cautiously
optimistic amid rising interest rates, higher crude oil prices and the run up to the 2019
elections, which may slow down new project announcements. Order inflows in the near
term are likely to be driven in the areas of a) capacity expansion in consumer-led
businesses such as automobiles, textiles, food, beverages (including dairy), chemicals, tyre,
light engineering and packaging, and b) capex to adhere to stricter emission norms in
power generation (FGD systems) and oil & gas (BS-6 norms related) industries.
Order inflows and order book growth Exhibit 2.
Order inflows jump 45% YoY in FY18 Order book to TTM sales at 7 year high
Source: Company, JM Financial
Expanding manufacturing footprint to reduce cyclicality: TMX inaugurated its
manufacturing facility in Indonesia to capture a larger pie of the ASEAN region as well as
Phase-1 of its chemical factory at Dahej, which is expected to reach 70-80% utilisation in
CY18. The company also acquired assets and production activities of Barite Investments in
Poland, which should assist in expanding its operations in Eastern Europe. Over FY19-20,
the company is slated to a) commission a new manufacturing facility at Sri City for
cooling solutions, b) begin Phase-2 of the Dahej plant and c) acquire the remaining stake
in the TBW JV, which would give it access to the company’s technologies.
64 60 46 56 65 53 45 44 64
1.9
1.1
0.8
1.0
1.3
1.0
0.91.0
1.4
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
20
25
30
35
40
45
50
55
60
65
70
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Order inflow (INR bn) Book-to-bill Ratio (x)
60 64 48 49 61 57 47 40 57
1.8
1.2
0.80.9
1.2
1.1
0.9 0.9
1.3
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
20
25
30
35
40
45
50
55
60
65
70
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Order book (INR bn) Order book / TTM sales (x)
Thermax 17 July 2018
JM Financial Institutional Securities Limited Page 3
Focus on capacity building Exhibit 3.
Commissioned in Products manufactured Location Regions targeted
FY18 Standard products Krakatau, Indonesia ASEAN region
FY18 Ion exchange resins Phase-1 at Dahej, Gujarat US, Europe and South East Asia
FY18
Steam Engineering
Products under Rifox
Brand
Savli, Gujarat Global markets
FY18 Boilers and relevant
equipment Poland Eastern Europe
2QFY19E Vapour Absorption
Chillers Sri City, Andhra Pradesh Global markets
1QFY20 Ion exchange resins Phase-2 at Dahej, Gujarat US, Europe and
South East Asia
FY19/20 Emissions technology Revamp of Savli, Gujarat Both domestic and
global
Source: Company, JM Financial
Operating profitability assisted by provision reversal and tight control on site expenses: A
low starting order book, longer execution cycle and GST implementation presented
execution challenges in FY18. On the other hand, rising commodity prices, losses in
China/Denmark and lower absorption of fixed costs at newly commissioned plants in
Indonesia/Dahej exerted pressure on operating margins. However, a reduction in credit
the risk profile of projects created a 100bps swing in operating margins, thus restricting
margin contraction to 70bps YoY to 9.0%. This is typically captured under ‘provision for
impairment allowance of financial assets’ and which primarily refers to ‘expected credit
loss (ECL)’ and ‘bad debts written off‘. Excluding these non-cash items, operating margins
would have declined 170bps YoY to 8.0%. While the turnaround in Danstoker and
operating leverage benefits would improve profitability to some extent, we remain
cautious due to high commodity prices and the continuity of high fixed costs on newly
commissioned plants.
Major costs increases/decreases in FY18 Exhibit 4.Major Cost Increases / Decreases Change in bps
Site Expenses and Contract Labour Charges 225
Provision for impairment allowance of financial assets 140
Liquidated Damages 35
Legal and Professional Charges -20
Consumables and Tools -20
Miscellaneous expenses -25
Employee costs -30
Bad Debts w/off -40
Freight Outward -50
Source: Company, JM Financial
New products: The company introduced several new products and to keep abreast with
the latest technology.
New products introduced in FY18 Exhibit 5.Products Introduced Market
Energy Segment
Shellmax Global series boilers International Markets
Underfeed Stoker Technology (UFS) - Boilers Asia
Triple effect chillers India - Chemical sector
Ultra-low-pressure chillers India - F&B Sector
High COP hot water driven absorption chiller India
Source: Company, JM Financial
Jointly these items restricted
margin decline by 100 bps due
to improved credit risk profile
of projects under execution
Thermax 17 July 2018
JM Financial Institutional Securities Limited Page 4
Segmental outlook
Energy (78% of sales): This segment reported a decline in sales (-4%) as well as
contraction in margins (-80bps) due to low-margin orders in the cooling segment and
losses in its Chinese subsidiary. However, a jump in new orders improves the outlook for
the segment.
- Heating: Standard products saw a marginal improvement, but exports were lower due
to a dip in demand from Europe. In the large boilers segment, sales were flat due to a
weaker order book, but new order inflows and improved assembly capacity at Mudra
Port improved the growth outlook for the domestic and international segments. The
service business reported growth in both sales and order intake. Geographical
expansion and predictive maintenance are positive growth drivers for the future.
- Cooling: This segment recorded a dip in sales due to project delays in the international
region (Asia and Latin America); sales of chillers in China were also subdued. However,
with the launch of new products (triple effect chillers for chemicals and ultra-low-
pressure chillers for the F&B industry) and a new facility in Sri City, the segment is
poised to grow well in FY19-20. Also, the segment has created a new business unit in
Apr’18 to address the process cooling portfolio to increase its offerings globally.
- Cooling and heating services: The segment reported its best performance in both sales
and profitability in FY18. A new 22,000 sq.ft. facility for steam engineering products
was commissioned at Savli in FY18, which is slated to manufacture Rifox (Germany)
brand products in India. This segment would be merged with the respective product
segments in FY19 to enhance synergy.
- Power EPC: Sales declined in FY18 due to a low order book, several large orders in
sectors such as chemicals, fertilisers, power, and cement both internationally and
domestically improved the growth outlook for FY19-20. The company also added new
customers in O&M services and is focussing on growing its value-added services
portfolio.
- Solar business: The business continues to grow with repeat orders in the rooftop
segment. Even as module prices increased for the first time in FY18, installations
continued to grow with increasing preference for solar PV plants.
Energy segment revenue and order book Exhibit 6.
Energy segment continued to witness a decline on low opening order book Order book to TTM sales at 7 year high
Source: Company, JM Financial
Environment (14% of sales): The segment reported a decline in both sales (-1%) and
profitability (-80bps) due to rising commodity prices (mainly steel), which impacted the air
pollution control business. Order inflows were up 10% YoY.
- Air pollution control: Revenue was flat YoY in FY18 due to a poor order book and
operating margins were hit by rising commodity prices, primarily steel. The company
booked several orders from Indonesia and has seen a rise in enquiries in cement, steel,
25,7
60
43
,33
7
49
,09
0
44
,01
5
40
,57
6
43,8
36
43
,07
2
36
,24
8
34
,97
1
11.4%
9.6%
9.0%
7.8%
9.0%
7.3%
8.8% 8.9%
8.1%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
0
10,000
20,000
30,000
40,000
50,000
60,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Energy (INR mn) Margin (%)
51,3
80
51,3
80
51,3
80
51,3
80
51,3
80
51,3
80
51,3
80
51,3
80
51,3
80
2.0
1.2
1.0
1.2
1.3
1.2 1.2
1.41.5
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
0
10,000
20,000
30,000
40,000
50,000
60,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Energy OB (INR mn) OB/Sales (x)
Thermax 17 July 2018
JM Financial Institutional Securities Limited Page 5
palm oil and power due to stringent emission norms. However, given increased
competition from several players and complex bidding norms, TMX plans to participate
only in select tenders.
- Water: The segment profits turned positive in FY18 due to sustained momentum in
revenue and the company’s focus on short-cycle orders. With stringent norms
regarding the use of recycled water and discharge of effluents, ordering activity is
likely to remain strong.
Environment segment revenue and order book Exhibit 7.
Environment segment profitability suffered due to high steel prices Stringent emission norms improved order book and inflows
Source: Company, JM Financial
Chemicals (8% of sales): The segment reported growth in sales (+8%), but profits
declined (-280bps) due to high fixed costs at its newly commissioned plant at Dahej,
which is in the stabilisation phase. The segment’s order booking grew 12% YoY and the
growth in FY18 was largely driven by oil fields and construction chemicals. The new
factory at Dahej is expected to reach capacity utilisation of 70-80% in CY19 as it would
serve as a hub to supply ion exchange resins to the US, Europe and Southeast Asia.
Chemicals segment revenue and order book Exhibit 8.
Chemicals segment saw a jump in sales as new facility comes on stream Order book inflows jumped as addressable market expands
Source: Company, JM Financial
8,5
74
11,6
84
13,0
50
11,6
49
10,8
68
10,7
08
7,2
08
6,9
97
6,9
38
14.1%
12.5%12.0%
10.0%
5.9%
7.4%
2.5%
5.4%
4.2%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Environment (INR mn) Margin (%)
8,2
80
10,0
60
9,8
70
10,8
90
8,0
00
8,1
30
6,2
60
5,6
70
6,1
20
1.0
0.9
0.8
0.9
0.70.8
0.9
0.8
0.9
0.5
0.6
0.6
0.7
0.7
0.8
0.8
0.9
0.9
1.0
1.0
0
2,000
4,000
6,000
8,000
10,000
12,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Environment OB (INR mn) OB/Sales (x)
3,2
76
3,3
19
3,6
10
15.7%
17.8%
15.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
18.5%
3,100
3,200
3,300
3,400
3,500
3,600
3,700
FY16 FY17 FY18
Chemicals (INR mn) Margin (%)
180
350
0.1
0.1
0.0
0.0
0.0
0.1
0.1
0.1
0.1
0
50
100
150
200
250
300
350
400
FY17 FY18
Chemicals OB (INR mn) OB/Sales (x)
Thermax 17 July 2018
JM Financial Institutional Securities Limited Page 6
Balance sheet analysis
Free cash flows jumps as customer advance reduce NWC: Muted sales growth and delays
in project execution led to an increase in debtor days (+15 days) and inventory (+7days).
However, a sharp 45% jump in order inflows led to a 100% YoY a quantum jump in
customer advances (+100% YoY), leading to an increase in other liabilities (+48 days).
Overall, the NWC days declined from 26 to 1, thus leading to a jump in free cash flows by
260% YoY.
Cash flows improved as healthy order inflows led to increase in customer advances Exhibit 9.
Free cash flows were up 260% YoY NWC days slumped to 1 day vs. 26
Source: Company, JM Financial
Muted return ratios dip further: RoE/RoCE declined from to 9.7%/8.8% in FY18 as asset
turns declined due to low utilisation at newly commissioned facilities, higher current
investments (+52% YoY) and losses in TMX’s overseas subsidiaries in Denmark and
China. While increasing capacity utilisations at new plants and reducing losses at
Danstoker would improve profitability, we believe the continuity of higher fixed costs at
new manufacturing plants and high commodity prices would continue to keep return
ratios low at 11-14% over FY19-20.
Return ratios Exhibit 10.
Source: Company, JM Financial
Investments made in FY18:
- Thermax acquired assets and production activities of Barite Invesments in Poland for a
consideration of INR 219mn, paid in cash
- Thermax acquired additional 21.33% stake in First Energy for a consideration of INR
10mn, thus increasing its stake to 76%
-1,485-2,420
1,033
8,440
1,646 1,164
4,201
8652,729
-0.3
0.1
0.2
-0.1
0.0 0.0 0.0 0.0
-0.1
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
FCF (INR mn) Net debt to equity (x)
2,861 2,322 2,415 2,719 3,194 150 2,190 3,595
19
17 17
19
26
1
15
21
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
NWC (INR mn) NWC/Sales (days)
22.3
14.0
10.19.1
13.712.0
9.711.3
13.8
27.4
18.3
14.4
12.2 12.2
10.08.8
11.5
14.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
RoCE (%) RoE (%)
Thermax 17 July 2018
JM Financial Institutional Securities Limited Page 7
Subsidiaries/JV performance
Domestic subsidiaries/JVs: Report substantial improvement as losses reduce in TBW
Thermax Engineering Construction Company Limited (TECC) – undertakes engineering
construction projects for the B&H division. It reported a severe decline in revenue (down
57% YoY) due to a lower opening order book but reported a profit of INR 73mn
compared with a break-even performance last year. Its order pipeline is lower and hence
revenues would decline in FY19.
Thermax Instrumentation Limited (TIL) – is a wholly-owned subsidiary, engaged in
construction and commissioning of captive power plants. It reported a decline of 12%
YoY in revenues but managed to grow margins by 250bps.
Thermax Onsite Energy Solutions Limited (TOESL) –is engaged in the BOO business of
providing sustainable solutions by supplying utilities such as steam and heat to its
customers. Its revenue rose 9.7% YoY as rising oil prices are driving a shift towards
biomass, along with a growing preference for outsourcing.
Thermax Babcock and Wilcox Energy Solutions Pvt. Ltd (TBWES) – is engaged in the
manufacture and supply of supercritical boilers at its facility in Shirwal. Over the recent
years, after the COP-21 Paris agreement for climate change, prospects for thermal power
have diminished globally while GoI investments in thermal power plants have reduced,
eventually leading to absence of orders, affecting revenues drastically (down 54% YoY).
TMX has signed a definitive agreement to acquire the 49% stake of Babcock & Wilcox in
the TBWES JV as it will provide it access to the modern manufacturing facility of TBWES
and also to a few B&W technologies.
International subsidiaries: Continue to be a drag on profits
Danstoker A/S, Denmark – is engaged in the business of design, production and sale of
boilers and relevant equipment to the energy market, including rebuilding and servicing
of boilers. A delay in decision-making by clients led to a revenue decline of 14% in INR
terms. Signs of improvement in the EU economy, rising oil prices and commitment to
COP-21 have improved enquires to Danstoker as focus shifts to biomass-based projects.
Boilerworks A/S – is engaged in the business of designing, production and supply of high
pressure components to power plants, waste and biomass combustion plants, industrial
and petrochemical plants. In local currency revenues were up 22% and 36% in INR terms.
Boilerworks turned break-even in FY18 and the outlook for FY19 remains positive.
Thermax Zhejiang, China – is engaged in the manufacture, sales and service of vapour
absorption systems. Revenues grew 17.5% in local currency and 11% in INR terms to INR
640mn but losses further extended to INR 106mn. Management has decided to recognise
diminution in the value of investment in the subsidiary and will discontinue from selling in
China, using the facility primarily as a feeder factory for exports.
Thermax Inc, USA – is a step-down subsidiary engaged in the sale of absorption chillers
and ion exchange resins. Recovery in the US markets led to revenue/profit growth of 9%
and 27% respectively.
Thermax Europe Limited, UK – is engaged in the sales and service of vapour absorption
chillers. Revenues were down 17.5% in local currency and 9% in INR terms, while profit
margins were down by 300bps to 5.1%.
Thermax 17 July 2018
JM Financial Institutional Securities Limited Page 8
Major Subsidiaries and JVs performance Exhibit 11.
FY15 FY16 FY17 FY18
INR mn Sales PAT Sales PAT Sales PAT Sales PAT
Thermax Engineering Construction Co. Ltd 2,059 58 3,383 14 2,364 3 1,007 73
Thermax Instrumentation Ltd 1,002 37 1,316 90 1,215 111 1,068 124
Thermax Onsite Energy Solutions Ltd 411 11 523 22 521 74 571 101
Thermax Europe Ltd. (U.K.) 873 50 585 45 672 55 631 32
Thermax Inc. (U.S.A.) 935 53 871 38 992 42 1,078 54
Thermax (Zhejiang) Cooling & Heating Engineering Co. Ltd. (China) 788 -10 728 -31 577 -86 640 -106
Danstoker A/S 1,678 -423 1,729 31 1,722 60 1,475 -132
Boilerworks A/S 652 -21 960 2 1,091 -20 1,482 1
Boilerworks properties 0 13 0 14 0 14 21 17
Rifox Richter 240 4 281 10 206 -26 270 3
PT Thermax International Indonesia 0 -1 0 -58 0 -76 17 -125
Thermax Babcock & Wilcox energy solutions 364 -1,237 3,488 -701 3,137 -1,250 1,440 -416
Source: Company, JM Financial
Thermax 17 July 2018
JM Financial Institutional Securities Limited Page 9
Financial Tables (Consolidated)
Income Statement (INR mn)
Y/E March FY16A FY17A FY18A FY19E FY20E
Net Sales 51,450 44,831 44,649 51,934 62,283
Sales Growth -3.0% -12.9% -0.4% 16.3% 19.9%
Other Operating Income 0 0 0 0 0
Total Revenue 51,450 44,831 44,649 51,934 62,283
Cost of Goods Sold/Op. Exp 27,398 22,642 23,493 27,525 33,010
Personnel Cost 6,597 6,864 6,966 7,662 8,428
Other Expenses 13,163 10,995 10,180 11,945 14,325
EBITDA 4,291 4,330 4,009 4,802 6,519
EBITDA Margin 8.3% 9.7% 9.0% 9.2% 10.5%
EBITDA Growth -7.0% 0.9% -7.4% 19.8% 35.8%
Depn. & Amort. 722 819 824 844 896
EBIT 3,569 3,511 3,185 3,958 5,623
Other Income 1,224 1,141 1,164 1,222 1,283
Finance Cost 122 97 129 164 164
PBT before Excep. & Forex 4,671 4,554 4,220 5,017 6,743
Excep. & Forex Inc./Loss(-) 0 -178 0 0 0
PBT 4,671 4,376 4,220 5,017 6,743
Taxes 1,439 1,560 1,658 1,756 2,360
Extraordinary Inc./Loss(-) 0 0 0 0 0
Assoc. Profit/Min. Int.(-) 409 586 242 0 -55
Reported Net Profit 2,823 2,230 2,321 3,261 4,438
Adjusted Net Profit 2,823 2,470 2,321 3,261 4,438
Net Margin 5.5% 5.5% 5.2% 6.3% 7.1%
Diluted Share Cap. (mn) 119.2 119.2 119.2 119.2 119.2
Diluted EPS (INR) 23.7 20.7 19.5 27.4 37.2
Diluted EPS Growth 8.9% -12.5% -6.0% 40.5% 36.1%
Total Dividend + Tax 959 848 824 920 1,000
Dividend Per Share (INR) 6.6 5.7 5.7 6.5 7.0
Source: Company, JM Financial
Cash Flow Statement (INR mn)
Y/E March FY16A FY17A FY18A FY19E FY20E
Profit before Tax 4,671 4,554 4,220 5,017 6,743
Depn. & Amort. 655 942 639 844 896
Net Interest Exp. / Inc. (-) 0 0 0 0 0
Inc (-) / Dec in WCap. -303 -475 3,044 -2,040 -1,405
Others -409 -764 -242 0 55
Taxes Paid -1,860 -1,504 -1,581 -1,756 -2,360
Operating Cash Flow 2,754 2,752 6,080 2,065 3,929
Capex -1,108 -1,589 -1,879 -1,200 -1,200
Free Cash Flow 1,646 1,164 4,201 865 2,729
Inc (-) / Dec in Investments -1,589 -332 -3,887 0 0
Others 0 0 0 0 0
Investing Cash Flow -2,696 -1,921 -5,766 -1,200 -1,200
Inc / Dec (-) in Capital 0 0 0 0 0
Dividend + Tax thereon -958 -824 -824 -940 -1,013
Inc / Dec (-) in Loans -37 -596 980 0 0
Others 221 -178 260 0 -55
Financing Cash Flow -774 -1,598 416 -941 -1,068
Inc / Dec (-) in Cash -717 -767 730 -76 1,662
Opening Cash Balance 3,693 2,976 2,210 2,940 2,864
Closing Cash Balance 2,977 2,209 2,940 2,864 4,526
Source: Company, JM Financial
Balance Sheet (INR mn)
Y/E March FY16A FY17A FY18A FY19E FY20E
Shareholders’ Fund 24,162 25,376 27,147 29,468 32,893
Share Capital 225 225 225 225 225
Reserves & Surplus 23,936 25,151 26,922 29,243 32,668
Preference Share Capital 0 0 0 0 0
Minority Interest 0 14 0 0 -55
Total Loans 1,954 1,357 2,337 2,337 2,337
Def. Tax Liab. / Assets (-) -1,049 -993 -917 -917 -917
Total - Equity & Liab. 25,066 25,754 28,567 30,888 34,258
Net Fixed Assets 8,873 9,520 10,761 11,117 11,420
Gross Fixed Assets 14,701 15,183 17,413 19,646 20,846
Intangible Assets 0 0 0 0 0
Less: Depn. & Amort. 6,105 7,047 7,686 8,530 9,426
Capital WIP 278 1,385 1,034 0 0
Investments 10,498 10,830 14,717 14,717 14,717
Current Assets 30,708 28,929 32,761 37,297 44,967
Inventories 2,903 2,833 3,666 4,269 5,119
Sundry Debtors 13,870 11,178 12,992 15,651 17,917
Cash & Bank Balances 2,976 2,210 2,940 2,864 4,526
Loans & Advances 309 265 226 285 341
Other Current Assets 10,650 12,444 12,937 14,229 17,064
Current Liab. & Prov. 25,013 23,526 29,672 32,243 36,847
Current Liabilities 9,964 10,516 10,605 12,806 15,357
Provisions & Others 15,049 13,009 19,067 19,437 21,489
Net Current Assets 5,695 5,403 3,090 5,054 8,121
Total – Assets 25,066 25,754 28,568 30,888 34,258
Source: Company, JM Financial
Dupont Analysis
Y/E March FY16A FY17A FY18A FY19E FY20E
Net Margin 5.5% 5.5% 5.2% 6.3% 7.1%
Asset Turnover (x) 2.1 1.8 1.6 1.7 1.9
Leverage Factor (x) 1.0 1.0 1.0 1.1 1.0
RoE 12.2% 10.0% 8.8% 11.5% 14.2%
Key Ratios
Y/E March FY16A FY17A FY18A FY19E FY20E
BV/Share (INR) 202.8 213.0 227.8 247.3 276.1
ROIC 20.5% 17.1% 15.1% 19.8% 24.2%
ROE 12.2% 10.0% 8.8% 11.5% 14.2%
Net Debt/Equity (x) 0.0 0.0 0.0 0.0 -0.1
P/E (x) 43.4 49.6 52.8 37.6 27.6
P/B (x) 5.1 4.8 4.5 4.2 3.7
EV/EBITDA (x) 28.3 28.1 30.4 25.4 18.4
EV/Sales (x) 2.4 2.7 2.7 2.3 1.9
Debtor days 98 91 106 110 105
Inventory days 21 23 30 30 30
Creditor days 77 95 95 99 101
Source: Company, JM Financial
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History of Earnings Estimate and Target Price
Date Recommendation Target Price % Chg.
30-Jul-15 Hold 932
29-Oct-15 Hold 884 -5.1
1-Feb-16 Hold 814 -8.0
27-May-16 Hold 648 -20.4
12-Aug-16 Hold 750 15.8
15-Nov-16 Hold 729 -2.8
10-Feb-17 Hold 835 14.5
9-Aug-17 Hold 820 -1.8
9-Nov-17 Hold 860 4.9
7-Feb-18 Hold 975 13.4
21-May-18 Hold 930 -4.6
Recommendation History
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APPENDIX I
JM F inancia l Inst itut ional Secur it ies Limited ( fo rmer l y known as JM F inanc ia l Secur i t i e s L im i ted)
Corporate Identity Number: U67100MH2017PLC296081 Member of BSE Ltd., National Stock Exchange of India Ltd. and Metropolitan Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst – INH000000610 Registered Office: 7th Floor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India.
Board: +9122 6630 3030 | Fax: +91 22 6630 3488 | Email: [email protected] | www.jmfl.com
Compliance Officer: Mr. Sunny Shah | Tel: +91 22 6630 3383 | Email: [email protected]
Definition of ratings
Rating Meaning
Buy Total expected returns of more than 15%. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 15% upside from the current market price.
Sell Price expected to move downwards by more than 10%
Research Analyst(s) Certification The Research Analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Important Disclosures This research report has been prepared by JM Financial Institutional Securities Limited (JM Financial Institutional Securities) to provide information about the
company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its associates solely for the purpose of information of the select
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This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision.
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JM Financial Institutional Securities Limited Page 12
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