India Investor Conference -...

Please refer to Disclosures and Disclaimers at the end of the Research Report.

India Investor ConferenceKey Takeaways

23 September 2014PhillipCapital (India) Pvt. Ltd.

We organized ‘PhillipCapital India Investor Conference’ on September 19th at Mumbai. In the day‐long event, we hosted midsized companies from listed and unlisted space. The purpose of the conference was to present investors with investable ideas and themes across sectors. The following companies attended the event: • ABB India • Ansal Properties & Infrastructure Ltd • APL Apollo Tubes • Arvind Remedies • Aurobindo Pharma • Balaji Telefilms • Blue Dart Express Limited • Essel Propack • Future Lifestyle • Gruh Housing Finance • ICRISAT • KDDL • KEC International • Kwality Limited • Magma Fincorp • Pennar Industries Limited • Pipavav Defence • Raymond • Solar Industries • Sona Koyo • Sutlej Textiles • Swan Energy • Tata Communications • Thermax • Transstroy India • V Mart • VA Tech Wabag

India Research Team

23 September 2014 / INDIA EQUITY RESEARCH / India Investor Conference 19 Sept 2013: Key Takeaways

ABB India • ABB continues to focus on indigenization and localization of products to improve

margins and reduce cost. The company has already started for 220/400kV and is looking for 765kV GIS next

• In near term 10‐12 packages of 765kV GIS are expected to come up for bidding with each worth Rs1.5‐2bn.

• The ordering from discoms is being witnessed in states such as Rajasthan, Orissa and Karnataka while Tamil Nadu is more focussed on GIS and distribution. In FY16, tendering is expected to commence for HVDC order

• ABB continues to see strong growth in exports and in low voltage systems. • ABB sees revival in capex in oil and gas space and also in railways, mining and

automobiles.

Ansal Properties & Infrastructure Ltd • APIL is a North‐India‐based real estate developer with nearly four decades of

experience and leader in affordable housing. Its forte is integrated township development.

• APIL has land in all major cities in North India, including Gurgaon, Noida, Greater Noida, Lucknow, Sonepat, Ghaziabad, Meerut, Jaipur, Amritsar, Mohali, Ludhiana and other tier‐II cities like Panipat, Karnal, Yamuna Nagar, Agra, Jodhpur, Ajmer and Panvel (Maharashtra).

• Till FY14, the company has developed and delivered ~64.86 MSF in form of plots, low rise built‐ups, group housing, commercial and FSI sales at various locations in Delhi, UP and Haryana.

• It has a cumulative land reserves of over 9731 acres, major geography being NCR (~3615 Acres and UP (~ 4008 Acres) including two large hi‐tech townships with a combined area of >5,000 acres each at Lucknow and Greater Noida.

• APIL’s average realizations are in the range of Rs1700/SFT to Rs2000/SFT with plots contributing ~Rs 1000/SFT, low built ups at ~Rs 3000/SFT, GHS at ~Rs 2800/SFT & commercial at ~Rs 3500/SFT.

• Going forward, the average realizations may see improvement on back of better product mix (more of township development)

• APIL’s cumulative collections stands at Rs 53 Bn by FY14, In FY14, APIL did a top line of Rs 14.18 Bn Vs Rs 12.04Bn of FY13 with a PAT of Rs 59 Mn Vs Rs 48 Mn in FY13.

• Company’s mega township at Lucknow –Sushant Golf city has shown good traction in the sales with cumulative sales of Rs 55 Bn, with an outstanding collection of Rs 33 Bn.

• Other mega township at Greater Noida is also witnessing good sales with cumulative sales of Rs 16 Bn. Other major ongoing projects are Esencia, Gurgoan a 9.06 MSF township, the fern hill‐sector 91, gurgoan (1.30 MSF)

• Company is focusing on debt reduction, In FY14 it reduced debt of Rs 900Mn, with net debt outstanding at Rs 10 Bn. It reduced the interest cost substantially from Rs 720 Mn to Rs 505 Mn, thus improving the profitability. Going forward, APIL targets to reduce it further through more cash generation going in for debt reduction.

• APIL is witnessing more activity in terms of demand on its mega townships, both in Lucknow and Greater Noida with more enquires and footfalls, second half of FY15 should witness good sales.

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APL Apollo Tubes • APL operates in the steel pipe market, with a current capacity of 800,000Tn, spread

across four locations and five plants thus making APL, the market leader in the ERW pipes with a share of 10% of the organized market ahead of Tata steel, DP Jindal group and Surya Roshni Group.

• Company is targeting a top line growth of ~20% for the next couple of years, partially driven by capturing the share of unorganized market which is at present dominant in ERW segment with a total capacity of 55%.

• Management is also focusing on profitability with margin expansion (in the range of 8‐8.5%) on back of change in product mix, coupled with branding and cost optimization.

• It is also introducing innovative products like color coated pipes and pipes for door frames etc which are new to Indian markets. APL is doing concentrated efforts on branding its products with a total budget of ~Rs 100 Mn for advertisement etc. which may add to the margin expansion in medium to long run. All these efforts will result in better return ratios with ROCE around 18‐20%

• Company is done with the major capital expenditure, going forward, there is no major capex planned. It has planned around Rs550‐Rs600 Mn for FY15 & FY16 which will take the current capacity to 1Mt.

• At present, APL has ~300 dealers across the country, which is helping it to capture market share from unorganized sector, it plans to double the dealer network in next couple of years.

Arvind Remedies • Arvind Remedies, incorporated in 1988, is one amongst the leading formulation

players in the domestic institutional market. It markets branded as well as generic formulations to Institutional clients like Public Hospitals, ESI, Defence, Railways, hospitals with PSUs etc. Also it has currently selective state business presence in India in the branded retail segment, wherein the company is strategically enhancing its focus for future growth.

• With about 25% contribution from branded institutional sales and 35% from generic institutional sales, the institutional business is currently the flagship segment of the company. Led by strong growth in branded institutional portion, the overall institutional sales saw 28% CAGR to Rs 5810mn in FY14.

• With sales CAGR of 48% over FY11‐FY14 to Rs 2830mn, the branded retail accounts 29% of total sales. CRAMS (contract manufacturing) and Exports account 10% and 1% of sales respectively.

• Enhanced focus on branded retail and that too chronic segment to drive value growth for the company: The growth in branded retail business of the company was led by the increased geographic penetration from 6 southern states of India to 10 states in FY14. Targeting Pan‐India retail presence in 3 years time and moving up the value chain, the company expects to launch a chronic division by December 2014 with incremental field force of 450 people (currently 550 MRs).

• So far as manufacturing infrastructure of Arvind Remedies is concerned, it has 3 formulation manufacturing facilities based in Tamilnadu and are equipped to manufacture all type of dosages. While all three units are certified with WHO CGMP, one unit is compliant with USFDA, EU GMP, UK MHRA etc. The overall utilization of its plants is at 60% level and the management expects to see 75% in a year time led by expanded branded retail operation.

• Guides to double the revenues in 3 years time: Arvind remedies delivered healthy operating performance during FY11‐FY14, with 36% sales CAGR to Rs 9116mn and

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margin expansion of 800bps to 19%, resulting in earning CAGR of 52% to Rs 589mn in FY14. Going ahead, the management expects consolidated revenue worth Rs 20bn (including 15% sales from CRAMS from current contribution of 10%) with EBITDA margin of 20‐22%. It expects no major capex over the said period.

• Success in Phytopharma discovery research could surprise positively: Currently Arvind Remedies, in collaboration with Government and Universities, is developing few Phytopharmaceutical drugs (best known as, “pharmaceutical agent of plant origin”)and completed Phase II trials for four of those in India so far. The management expects to commercialize couple of Phytopharmaceutical drugs in next 12‐18 months time in India and each product has revenue potential of about Rs 2bn in India itself (primarily due to the superior safety profile of these products compared to chemical based drugs). Any success in the novel Phytopharmaceutical drugs could surprise the revenue and profits of the company in the medium term.

Aurobindo Pharma • Guides for revenues worth $3bn in FY17: Aurobindo pharma, after delivering strong

38% jump in consolidated revenues to Rs 81bn (i.e. 1.35bn) in FY14, guides for revenues worth $2bn in FY15 and $3bn in FY17. In fact, the continued growth momentum in US generics and successful integration of acquired operation in EU to really drive growth.

• US generics to maintain sustained growth: Aurobindo management expects sustained growth in US generic business led by ramp up in the injectables launches, incremental business flowing from Aurolife and steady market share improvement in its old/matured product basket. The company expects sales about $1bn from US in FY17 against sales of $564mn in FY14.

• Injectables being the key driver: Aurobindo has developed a healthy basket of over 60 (total 78 filling) pending injectable ANDAs and expects to file 2 penem NADAs, 8 steroid ANDAs and 15 oncology ANDAs over next 18‐24 month period. Hence, the company expects strong growth in injectable sales led by ramp up in injectable approval in near‐medium term and by complex injectables over long term. Thus, the management guides for an injectable revenue of $200mn by 2016 from the expected $37mn in FY14.

• Expects value progress in EU operation: Aurobindo Pharma has already reduced its EBITDA loss guidance by 50% to Euro 10mn (against earlier guided Euro 20mn) in FY15 for its acquired EU operation in Q1FY15. Since the company is currently rationalizing the low margin products and optimizing its distribution strength, it target consolidated EU sales/margin of $520mn/‐3% in FY15, $560mn/+3% in FY16. But Auro pharma expects strong revenue growth of over 20% in FY17 with EBITDA margin in 8‐10%, resulting a strong value growth in the medium term.

• Company to remain CAPEX focused during FY14‐16: In order to fulfill its growth plan in US and Europe, Aurobindo Pharma guides for a CAPEX plan of $200mn in over FY14‐16. The CAPEX plan includes ‐ green field formulation as well as API facility to cater EU requirement, expansion in Auro Life/Unit IV/Unit VII, setting up of Oncology/hormone facility, etc.

• Continued focus on financial deleveraging: With the improved free cash flow in FY15, Aurobindo has already repaid debt worth $ 89mn (out of gross ~$ 620mn) in Q1FY5 and expects to payback $17mn more in subsequent quarters.


Balaji Telefilms We hosted Mr. Sanjay Dwivedi, Chief Financial Officer of Balaji Telefilms (BT). Following are key takeaways from the investor interactions: • TV Content production business stabilizing – BT’s TV content business comprises

production of commissioned programs for broadcasters such as Colors, Sony, Star TV, Zee TV etc. Currently the company produces fiction content for Hindi GEC’s, youth GEC’s such as Channel V, MTV etc. The company plans to expand its offerings to regional GECs – Marathi & Bengali and other genres (non‐fiction/youth etc). The company did 208 hours of programming during Q1FY15 and two of its shows for Zee TV, ‘Kumkum Bhagya’ & ‘Jodha Akbar’ are the two most watched shows on Indian television (highest rated as per TAM data). Average hourly realizations are around Rs 2mn/hour.

• Movie business – FY14: a year of learning’s, focus shifts to mid‐budget releases: o BT produced & released six movies in FY14 with budgets from Rs 50‐1000mn. In

FY14, the company incurred a loss of Rs 262mn as it wrote‐off its movie inventory from the balance sheet & incurred losses on its high budget release ‘Once Upon a Time in Mumbai Dobaraa’.

o The company’s key learning’s from FY14’s unprofitable movie foray include 1) focus on medium budget & unique script relying on Ms. Ekta Kapoor’s talent while limiting bets to Rs 400‐500mn/movie, 2) it will now change its approach to work on good scripts and will look to launch new talent (as opposed to relying on stardom which comes a steep price), 3) the company is also looking to own distribution, starting with Delhi & Mumbai so as to save on the distributors margin of 10‐15% of box office proceeds.

o 25 movie projects are now in discussion which the company intends to execute in 3 years with its current cash & liquid investments (~Rs 2bn). The board has approval of deployment of Rs 1250mn and a contingent funding of Rs 250mn.

o The company believes that theatrical rights will be the key driver of revenue as satellite rights are seeing a lull on account of lower competition among the Hindi GEC players. During the hyper‐competitive era in film procurement among Hindi GECs, satellite rights used to contribute to 45‐50% of movie revenue; but now the same is only 30‐35%.

• Outlook: o The company produces shows in six of ten prime time Hindi GEC’s and can scale

up significantly in the TV content business. Management has indicated that studio production capacity isn’t a constraint and programming hours can increase to ~300‐350 hours/quarter; from 208 in Q1FY15.

o The company mentioned that FY15 is likely to be a TV‐centric year while FY16 will see movies as well as TV content investments bear fruit.

o BT has Rs 2bn cash on its balance sheet which will be used for the movie business. Management believes that the business is in a position to generate stable cash flows and has indicated that a dividend policy could evolve by next year.

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Blue Dart Express Limited • Blue Dart Express (BDEL) is leading express service provider in India with more than

30 years of operational experience. The company has domestic network covering 33,739 locations and more than 220 countries and territories providing reach and access to customers.

• It is first and only scheduled cargo airline with dedicated fleet of freighters and infrastructure support. Its infrastructure comprises a fleet of five Boeing 737 and one Boeing 757 freighters offering a revenue payload of over 370 tones per night.

• The company is a dominant leader in the domestic air express industry and commands a 49% market share in the organized air express market while it has market share of 13.3% in the express ground segment.

• The company derives ~80% revenue from air express segment while ground segment revenue account for remaining 20%. E‐commerce revenue contributes ~ 18 to revenue and promises high growth considering industry growth of 50‐60% over next 5 years.

• The company enjoys EBITDA margins of ~11‐13% with limited capital expenditure need. The margins in e‐commerce are higher (15‐17%) and expect to improve profitability going ahead with increased revenue share.

• The express industry growth has strong co‐relation with GDP growth (2‐2.5x) and the company expect overall revenue growth of 11‐14% going ahead.

• The implementation of GST is would impact positively for organized logistic players with increased 3PL activities.

• We believe Blue Dart with strong customer relationship, network and technology support would be major beneficiary of growing express business and particularly e‐commerce.

Essel Propack • EP is market leader in Oral Care Tubes with 33% global market share. It offers

customized solutions through continuous innovations in materials, technology and processes.

• EP has 25 state‐of‐the‐art facilities in 11 countries across all continents. • The Company’s product range includes tube laminates, laminated tube, plastic tubes

caps & closures and specility/flexible packaging. • The Company operates in Oral Care, Home Care, Food, Pharmaceutical and Beauty &

Cosmetics segments. • The Company has divided entire range of operations in four regions 1/ America

(USA, Columbia, Mexico) 2/ AMESA (Africa, Middle East & South Asia (India, Egypt) 3/ Europe (UK, Germany, Poland, Russia) 4/ East Asia Pacific (China, Philippines, Indonesia).

• Major clients include Unilever, P&G, Colgate Palmolive, Novartis, Tesco, Dabur, Emami, Marico, Godrej Consumer Products.

Key financial details • Revenue increased at CAGR of 15% from Rs. 1.4 bn in FY11 to Rs. 2.1 bn in FY14. • EBITDA increased by CAGR of 12% from Rs. 249 mn in FY11 to Rs. 354 mn in FY14.

EBITDA margin stood at 16.7% in FY14. • PAT increased by CAGR of 31% from Rs. 249 mn in FY11 to Rs. 354 mn in FY14. PAT

margin stood at 5.1% in FY14. Significant improvement in PAT was on account of asset productivity and reduction in interest cost.

• ROE increased from 6% in FY11 to 13% in FY14.


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• Currently, EP has debt of around Rs. 10 bn. • Debt/Equity declined from 1.9 in FY11 to 1.5 in FY14. Interest coverage ratio

increased from 2.0 in FY11 to 3.1 in FY14. Future plan: • It aims to be the Global Supplier of Choice by providing value added, innovative &

sustainable packaging solutions to a range of market sectors with customer service second to none.

• It plans to develop of new generation laminated tubes which offer superior value proposition v/s plastic and aluminium tubes

• The Company plans to grow revenue in Americas and Europe by converting plastic tubes with specialized laminated tubes for Cosmetic and Beauty care market and in India and China by converting aluminum tubes with laminated tubes for Pharma and Healthcare market

• It aims to increase the share of non‐oral Care Revenue to 50% in next 3 years and revenue growth @ 15% CAGR and PAT Growth @ 20% over the next 5 years

• It also plans to improve Asset Turnover through High Value Tubes resulting in improved margin and return ratios.

Future Lifestyle • Fashion is the largest category with revenue‐mix of 80% followed by Footwear 8‐9%

and then Cosmetics and perfumes. • Company is looking for 10‐12% of LTL growth in next couple of years. • Bangalore and Hyderabad contributes ~30% of Central sales. • Arvind and Madura are strongest in men’s wear and FLF is strong in women’s wear

which is more profitable. • Company is looking to add 0.7mn sqft. It will add 4‐5 stores in Central and 5‐7 stores

in brand factory. • 17‐18% of the company’s revenue comes from discounted sales. • 60% of the Central’s inventory is on sales or return basis and 40% in case of Brand

factory. • Hyderabad Central is amongst the highest sales of Rs 1750mn and incase of Brand

factory Bangalore is amongst the highest Rs 850mn at Marthahalli. • Company has strategy in place to make Lee cooper as Rs 10bn brand. Lee cooper

already has 300 point of sale today. Till the brand achieve the gross margins of 60‐65%, its not viable to open EBOs.

Gruh Housing Finance • Addressing the need for affordable housing has become focal agenda for most states

government and hence abundant opportunity for affordable housing financiers. Approximately 40% of the disbursements by Gruh take place under various affordable housing schemes of government.

• Disbursement growth to remain in high teen level in FY15 driven by improvement in average ticket size and LTVs.

• Target to enter new geography like Uttar Pradesh, Bihar and Jharkhand as penetration in Maharashtra and Gujarat has deepened enough to cover more than 90% of talukas. Branch in Lucknow to be operational by January 2015. Annual branch additional to be in the range of 12‐15 branches.


• NIMs to remain under pressure owing to margin cap on NHB refinance. NIMs have come‐off from 4.64% in FY12 to 4.21% in FY14.

• Merger with group entity not likely as Gruh business model of affordable housing is based on customized pricing and product where as the offering by group entities are largely customized product and standard pricing.

• Deferred tax liability is negative for housing sector as it would compress the return ratios.

• Asset quality continues to remain strong and do not see any disappointment.

ICRISAT • Cotton acreage has increased by over 10% in the current season and India has

already surpassed China in cotton production and this trend is expected to sustain. The cumulative economic benefit of a move to biotech crops particularly cotton would be key to government’s further policy making with regard to biotech crops

• The rapid adoption of biotech crops world over, in the initial 18 years of commercialization is in itself a testimony to BT crops as safe for human health. It also confirms the economic and health benefits to the farmers and society. As cotton/maize is widely adopted in 15/17countries respectively, it is logical to expect that India will also adopt maize technology at some point in the near future

• As Monsanto has been a pioneer in innovation technologies for increasing crop productivity for farmers globally, it is expected to have huge edge over competition should India approve GM in food crops. Monsanto GM corn is currently in the final stage of GEAC approval and on approval it shall take atleast 2‐3 years for Monsanto to commercially launch it. JK Seeds and DCM Shriram have good germplasm base and research thrust is better than the industry. Kaveri has good distribution strength and successful brands such as Jadoo, Jackpot and ATM

• The Supreme Court is holding back research and field trials of new GM crops, limiting growth prospects at the moment. India is the second largest producer of eggplant and BT eggplant seed (when approved) should help increase the size of the vegetable seed segment (currently estimated at around US$ 190 mn). Brinjal is very pest‐prone crop and normally requires upto 30 sprays of insecticides. It is estimated that insecticide consumption in brinjal can fall by 70% and improve yields 2‐fold if BT brinjal is used. As Bangladesh is commercially growing BT brinjal, so there is a high chance that it may slip into India and much likely that India can open up this segment too

KDDL • India is the cheapest place to buy Swiss watches. Brands considered India as the next

big market for watches. In China, the watch market grew at 40% CAGR over 2000‐2010.

• Average ticket size for the lead generated through Internet Rs 96000 and offline is Rs 45000.

• Company has 27 consultants in Chandigarh who track online buyers. They are trained in soft skills and product knowledge. Company has customer management platform when leads are generated.

• Company has 7 months of inventory in line with the norm across the world. Margins are lower in India (~30%) as compared to China (~40%).

• Indian luxury market above Rs 0.2mn is Rs 6bn. Between Rs 20000‐200000 would be Rs 15bn.

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• Average investment in opening an ETHOS store Rs 70mn. Store capex Rs 5mn and Rs 60‐80mn in inventory.

• Company’s manufacturing operations contribute Rs 1100mn. Company deals in three segments. Watch hands, Dial and precision engineering & stamping. Watch hands are the most profitable and has strong position in swiss model.

• In Dial business, the market share in Titan is now 30% from 70% as reduced focus on low end segment of Sonata. Dials business has Ebitda margin of 18%.

• Company has plans to add 4‐5 stores in ETHOS.

KEC International • KEC expects margins in transmission Business at 9‐10% and has guided for 100bps

margin expansion during FY15 and FY16E • Also competition in international market such as Africa continues to be intense. • The company maintains that significant proportion of slow moving order will be

executed over 2 quarters with large impact likely to be visible during 2QFY15 • KEC has tied up with private developers such as Sterlite Transmission and expect

competitive based bidding projects to contribute to order flow. • Apart from PGCIL, KEC has seen good traction from state discoms such as TN,

Karnataka. Margin profile in these orders stood at 9‐10%. The company maintains that in FY14, market share in PGCIL order was 17% up from 2% in FY10. In 1HFY15, ordering from PGCIl has relatively been muted.

• KEC has also tied up with railways to undertake EPC work. It expects traction in order flow from railways with pick up in DFCC.

• KEC expects cable business to operate at full capacity during FY15 • The working capital situation continues to be comfortable with timely payment of

dues from PGCIL. The receivables pertains to delay in recovery of dues in non‐PGCIL projects.

Kwality Limited About Indian Dairy Industry • India is the largest milk producing nation in the world with production of 132 mn

tones in FY13. Milk production grew at CAGR of 3.8% in FY01‐FY13. • Around 80% of milk produced handled by the unorganized sector and only the

remaining 20% is equally shared by Co‐operatives and private dairies. • The demand for dairy products is on the rise due to high economic growth, poverty

alleviation, growth in population, increasing health consciousness, increasing disposable incomes and higher proportion of income being spent on processed milk products.

• Growth drivers for the industry are shift from unorganized to organized sector, entry of private sector players, strong co‐operative movement, increasing urbanization and rising disposable income and government initiatives.

About Kwality India • Kwality produces a range of quality milk and milk products. It operates in Punjab,

Rajasthan, Uttar Pradesh and Haryana. However, it has developed PAN India distribution network comprising of super stockiest and distributors.

• The Company has also setup 100% owned subsidiary in Dubai to cater to international markets.


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• Major revenue contributors were milk (c. 59%), curd (c. 9%), butter/cream/ghee(16%) and other processed products(16%).

• Revenue – branded products(36%) and unbranded products (64%) • Revenue from Customers – Corporate (11%), Dealer/Distributors (67%), Retail (18%),

Exports (4%) • The Company sources 85% of milk from large contractors and rest from its own

procurement network. • In the last three years, the Company has rebranded itself and has launched new

products targeting the retail consumers like Pure Ghee, pouched milk and curd, Low Cholesterol Ghee.

• Company’s institutional customers include Hindustan Unilever, ITC, Britannia, Café Coffee day.

Key financial details • Revenue increased at CAGR of 44% from Rs. 10.5 bn in FY10 to Rs. 45.8 bn in FY14. • Gross profit increased by CAGR of 57% from Rs. 0.6 bn in FY10 to Rs. 4.0 bn in FY14.

Gross margin stood at 8.7% in FY14. • EBITDA increased by CAGR of 51% from Rs. 0.5 bn in FY10 to Rs. 2.7 bn in FY14.

EBITDA margin stood at 5.9% in FY14. • PAT increased by CAGR of 63% from Rs. 0.3 bn in FY10 to Rs. 1.3 bn in FY14. PAT

margin stood at 2.8% in FY14. Future plan: • Indian dairy market is expected to grow at CAGR of 13%‐15% till FY20. The Company

plans to exploit the unorganized market (c. 80%) and emerge as one of the largest organized private sector players in dairy market.

• The Company has started trial of value added products like flavored milk, ice‐cream, flavored lassi, and yogurt.

• The Company plans to increase capacities of existing plants and also add capabilities for new value added products like cheese, table butter, and cream. It also plans to launch an entire range of premium dairy products.

• Currently, the Company has 22 milk chilling centers (MCC). It has started the process of setting up Company owned MCC having capacities of more than 50000 LPD. Recently, the Company also acquired two milk processing plants on lease.

Magma Fincorp • Disbursement in auto space (UV/Cars, CV, CE) continues to remain under stress

whereas Mortgage, tractors and SME continues to remain main driver. Management expects disbursement and balance sheet growth of 10%‐15% in FY15 and ~20% in FY16.

• No improvement witnessed in collection efficiency. Zero DPD collection still takes more effort than what it is normally. Utilization of commercial vehicle remains low.

• Effort is to push more of used vehicle; SME and tractor business and improve overall yield and NIMs. Expects margin improvement of 80bps to 6.5% over 2‐3 years driven by improvement in yield on assets

• Credit cost has escalated to 1.1% from normalized level of 0.5%. The same is expected to settle down to ~0.75% (improvement of 35bps), more the historic median due to change in loan mix towards more risky segment.

• The improvement in business movement to increase efficiency translating into a ~30bps savings in opex. Overall, the management targets to improve its ROA by 1.2%‐1.5% over next 2‐3 years.

• Plan to raise equity in H2FY15 amounting to Rs3.5bn‐4bn.


Pennar Industries Limited • Pennar is diversified manufacturing company with presence in 1) Steel products ‐

38% revenue 2) Pre Engineered Building Systems, PEBS – 32% revenue 3) Tube – 12% revenue 4) Systems and Projects ‐11% 5) Industrial components ‐5% of revenue.

• It has annual production capacity of 350,000 mtpa and manufacture precision engineering products such as: Cold Rolled Steel Strips, Precision Tubes, Railway wagons / Coaches, Pre‐Engineered Building Systems, Sheet Metal Components, Road Safety Systems.

• The company’s products have a significant presence in sectors like Infrastructure, Automobiles, Power, General Engineering and Building & Construction and Railways. Pennar also offers solutions for various types of Storage systems which could see demand going ahead with investment in logistics and cold storage.

• It has a pan‐India presence with six manufacturing facilities situated across the country including laser cutting, plasma cutting, transfer presses and CNC machines.

• Pennar Engineered Building Systems Ltd. (PEBS Pennar) is subsidiary of company (70% holding) involved in the design, fabrication, supply & erection of Pre‐engineered steel buildings, Solar Structures, Cold Formed Buildings, Industrial Racking Systems, Hi‐rise Buildings & Structural Steel.

• Pennar Enviro Limited (PEL) subsidiary deals with Water and Environment Infrastructure business to provide turnkey solutions viz., Water Treatment Plants (WTPs), Sewage Treatment Plants (STPs), Effluent Treatment Plants (ETPs), Effluent Recycling Plants (ERPs), Zero Liquid Discharge Plants (ZLDPs) etc.

• The standalone business is growing at 15‐20%, PEBS is at ~25‐30% while PEL is growing at ~100% on low base. Overall, consolidated revenue is expected to increase by 20‐25% in FY15.

Pipavav Defence • Pipavav Defence highlighted growing opportunity in defence sector driven by new

governments’ initiatives to focus on indigineous defence manufacturing. • The company highlighted partnership with SAAB that would entail access to

technology transfer for manufacturing of Missile Systems, Underwater Systems and Aerostructure for fighter jets.

• Under “Buy and Make Indian” defence procurement policy, the present Offset opportunity is estimated at USD 5bn and is expected to rise to USD 12bn over next 3 years. Also order pipeline from Indian Navy is expected at USD 92bn

• Pipavav bagged USD 500mn order for design, manufacture and supply of 5 Naval Offshore Supply Vessels for Indian Coast Guard. Also Pipavav bagged USD 168mn for supply of 14 Fast Patrol Vessels.

• Further Pipavav has entered into JV with Mazgaon Dock for building warships. The JV will participate in bids to co‐build the existing contract at MDL for faster execution.

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Raymond • Company is looking at 15‐16% growth in next couple of years. Target EBITDA

margins in this segment 11% for next 3 years. Branded Apparel inventory days have been reduced to 90‐95 days from the peak of 150days earlier. Company has the policy of writing off inventory of more than 3 years.

• Average bill size has increased, however footfall has not pick‐up. • In FY13, 30‐35% of sales come from discounted sales. • Raymond brand is considered premium at every price point. Buyer comes with a

budget not necessarily a type of fabric in mind. • ROCE of lifestyle business is 14.5%. • Market size for shirting fabric is much larger than trouser fabric. Q2FY15 seeing

traction in shirting fabric. Getting shirt stitched is 25% cheaper than ready‐made shirt purchased from the end of season sale price.

• Ready to wear and stitched both are growing. Ready to wear is growing faster than stitched.

• Make to Measure( MTM) ‐ logically can taken online as long the measurements remain unchanged MTM ‐ average ticket size Shirts ‐Rs4000 and Jackets ‐ Rs10,000.

• Auto Components and Files¬‐ Company is not investing significantly in either of the businesses. There is no cross subsidization. Improvements are expected once industrial activity picks up.

Solar Industries • Solar Industries (Solar) is the market leader with ~30% share in domestic explosives

market amounting to Rs 32bn. The market is expected to grow at 7% p.a. Coal accounts for 70% of total demand.

• Solar majorly caters to mining and infrastructure sector and has recently diversified into defence. The company has received industrial license for HMX, propellants and new generation explosives. It is the 1st private sector company to set up HMX plant in India. The plant has a capacity of 50 tonnes annually and has commenced operations. The company is looking at expanding this capacity.

• Solar is looking at 25% CAGR in its revenues from the base business over the next 3 years primarily by expanding into different regions and minerals. The company is setting up new facilities in Barbil (Orissa), Kota (Rajasthan) and Kothagudem (AP) to cater to the demand from iron ore mining and cement sectors.

• Revenues from Defence segment is expected to start from FY15 onwards (nominal) and is expected to be ramped up gradually. The segment is expected to be a longer term growth driver for the company.

• The company plans to spend Rs1bn each in FY15 and FY16 towards expanding its capacities both in the core business as well as defence. The company has an asset turnover of 4x.

• Margins are expected to improve sequentially as the company has discontinued trading of Ammonium Nitrate from Jan 2014 onwards (low margin business) and the share of high margin defence business increases.

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Sona Koyo • Sona Koya is the largest passenger vehicle steering gears manufacturer in India with

~50% market share. Company’s top customer is Maruti Suzuki with ~45% revenue coming Maruti. M&M is the second largest customer with ~15% share.

• Company is expecting >15% Topline growth over the next few years, backed by electric power steering gears, hydraulic power steering segments.

• Company is expecting big jump in revenue its innovated product (EPAM – Electric power assist module) for off‐roader and tractor segment. Revenue from the product is ~Rs400mn in FY14, which it expects to go upto ~Rs700mn in FY15. Company expects this product growth would be >50% over the next few years due to orders and acceptability from John Deere. Product trials for Escorts tractors are also underway.

• Company expects there blended EBITDA margin can reach ~13.5% on higher capacity utilization (from ~65% currently to 90%) due to operating leverage.

• Company is excited about new launches from Maruti (Ciaz) and M&M (New Scorpio) as this can improve their top‐line meaningfully.

• Company has ~Rs2.5bn of debt which it can retire through monetisation of the Gurgaon plant land as it will be shifting the operation of this plant to the new plant set‐up ~30km away.

Sutlej Textiles • Company specializes in value‐added niche segment i.e. dying cotton mélange. On an

average company is pre‐sold for 2 months. • Recent expansion of additional value added cotton mélange yarn spindles is already

pre‐sold for 1 month. • Customers profile includes, Aditya Nuvo, Shriram, Page Industries, Arvind, Raymond

etc. • Dyeing operations has hazards challenges and therefore it’s not very easy to

replicate and has entry barriers. • Company sold Melange at Rs 250‐350/kg and man‐made fibre: ‐ Rs 190‐220/kg. • In dyeing Melange category, Vardaman has the capacity of 20 Looms, followed by

RSWL:‐ 40+25 Looms . Sutlej has 85 looms capacity. • With the falling cotton prices, the company would have inventory losses for 4

months. Generally company has bookings for inventory (6 months) for cotton. • Company has ROE of 28% and Debt/Equity of 0.6:1 in FY14. • Home textile is ~3% revenue. J&K Expansion would have incremental revenue of Rs

1.4bn. Expansion from 32 to 100 looms. Project cost Rs 1bn. With interest cost 1.06%.

Swan Energy • Swan Energy, erstwhile Swan Mills ltd, was incorporated in 1909. The company was

taken over by current management (Mr. Navinbhai Dave and Mr. Nikhil Merchant) from Goenka group in 1991 Swan energy currently operates in 2 business segments viz. – textiles, Real Estate and plans to build LNG port terminal with FSRU.

• Textile: Company operates a textile facility with capacity of 1 lakh meters per day established in 2010. Revenues in the segment has grown from Rs 459mn to Rs 2987mn (over FY11‐FY14)

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• Real Estate: Company forayed in real estate segment (2004) to monetise the land available post shutdown of textile unit in Mumbai (2002). Upcoming real estate projects of Swan Energy are – Bondel – Mangalore (completion by 2016), BTM Layout Bangalore (completion by 2016), HMT Layout Bangalore (completion by 2016), IT Park Hyderabad (completion by 2014) and Kovilambakkam –Chennai (completion by 2017). Company holds a lank band of 106 acres near Goa Airport, 105 acre land bank in Bangalore and 207 acre land bank in Mysore.

• LNG port terminal with FSRU: Company is developing India’s first floating storage and regasification unit (FSRU) project in Jafrabad (Gujarat) with total capacity of 5MMTPA( expandable to 10MMTPA). All required approval for the construction of the terminal has been received in December, 2013. The terminal will work on the tolling basis. Management intends to tie‐up 3MMTPA volumes (term sheet for take‐or‐pay of 1.5MMTPA signed with GSPC group). For the balance 1.5MMTPA, company is in discussion with various companies (IOCL, HPCL, BPCL, ONGC and Oil India). Financial closure of the project is likely to take place once 3MMTPA volumes are contracted.

• FSRU terminal established with a cost of Rs50bn (Debt to Equity of 70:30) is expected to get commissioned in December 2017. The amount of US$ 325 mn will be spent of the total capex on the ship, while the balance amount will be spent on marine facilities and Breakwater. As marine facilities will be built to handle 10MMTPA, the incremental capex for expanding the terminal to 10MMTPA at a later stage is likely to be less.

• Swan will hold 51% stake in terminal, Teekay (a global LNG carrier operating company) will hold 38% stake, while the balance 11% stake will be held by GSPC group. Teekay is expected to operate the terminal. The ship for the FSRU is likely to be built in Korea.

• Swan intends to earn equity IRR of 20%+ from the terminal.

Tata Communications We hosted Mr. Mahesh Singh, Head – Investor Relations, Tata Communications (TCom). Following are key takeaways from the investor interactions: • Voice business; $100mn stable cash generation prospects – TCom mentioned that

the voice business remains a steady free cash flow generator for the company. He reiterated the low capex, low maintenance nature of the business and reiterated that the business can steadily generate free cash flow of US$ 100mn per annum.

• Data business EBITDA margins to improve – Tcom’s data business EBITDA margin stood at 18.3% in Q1FY15. The company mentioned that it continues to gain traction in the data business and EBITDA margins will improve with continued revenue growth. The company continues to indicate that it is well on course to achieve its previous guidance of 20% EBITDA margin in the data business.

• New investments driving the data business – Tcom currently has ~1,600 white label ATMs (WLA). The company will rollout nearly 5,000 ATM’s per year for the next three years as part of its ATM licence. By FY15‐end the company should have rolled out 3,000 WLAs.

• Government taking concrete steps for monetizing excess land – TCom mentioned that the government in the current budget has allotted Rs 10mn for divesting the VSNL’s surplus land. Further, the company has appointed a chairman of Hemisphere properties, the vehicle which will sell the

• Neotel deal on‐track: TCom & Vodacom have agreed on the price for the divestment of Neotel & the deal continues to wait for regulatory clearances. Management estimates the deal to get completed by H1FY16.

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• Deleveraging to continue: Management reiterated a capex guidance of US$ 250‐300mn in the core business. This cash spend will enable the company to manage its maintenance as well as new product/client expansions. Post‐Neotel cash inflow and further deleveraging initiatives by the company, the net debt position can reduce to US$ 1.2bn, from ~US$ 2bn currently.

Thermax • The execution of Reliance Order continues to be on track. The company expects

large part (60‐70%) of project to be completed this year; Q215 is weak on account of the monsoons but will catch up. Also, Instrumentation is expected to see strong growth.

• The large size orders such as Captive boilers continue to be weak due to fuel issues with generators. In near term very few greenfield capacity on anvil and significant focus is on brownfield capacity and debottlenecking.

• Thermax believes resolution of fuel issues and of captive coal block would lead to renewed orders from the industrial sector such as cement, steel etc.

• Thermax expects Danstoker to be profitable but Omnical would lead to loss on account of the Russia ‐ Ukraine situation.

• Off the product business, heating products contribute to 25% of topline with significant revenue driven by exports

• Thermax requires 1GW ‐ 2GW order for B&W to be able to breakeven.

Transstroy India • Transstroy India is a fast growing Infrastructure and Civil Engineering Construction

Company based in Andhra Pradesh, its main objective is to carry on the business of contractors, Engineers, Architects, Consultants, Promoters and Developers of Road, bridges, highways, runways, tramways, railways, sidings of reservoirs, dams, etc.

• The Company over the last few years has evolved from taking sole‐contracting from major players in the industry to bidding independently/with partners for major road and irrigation projects.

• Presently, the company is executing projects for several renowned clients like NHAI and various State Governments Authorities, with focus mainly on road, power and irrigation projects.

• At present the Company has strengthened order book position with 14 nos. of BOT projects and 9 EPC projects from NHAI, AP Irrigation, MPRDC, APPDCL, individually and by forming JV with M/s. Corporation Transstroy, OJSC, and Russia.

• Out of the portfolio of 14 projects, 4 are MPRDC road projects, 6 are NHAI Road projects, and 3 are Tuticorin Port Projects & 1 being Hydro Power project.

• Transstroy is the EPC contractor for all the BOT projects and apart from the above projects Transstroy has also captured 9 EPC (cash) contracts project.

• Company has recently got one of the most prestigious Indira Sagar Polavaram Project which has been accorded national project status by the central government.

• The Company has achieved turnover of Rs.45.23 Bn for FY14 and Net Profit of Rs.2840 Mn. Its present order book position and balance works on hand / under execution amounting to around Rs.163 Bn.

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V Mart • Company has strategy in place with respect to opening of new stores roll‐out. The

distant between the two stores are not more than 150km. • Company on an average does sales/sqft of Rs 800/month, capex of Rs 1400/sqft and

carries an inventory of Rs 1500‐1600/sqft (approx 90 days). It has appointed APL logistics to outsource the warehousing activities which will help in reducing the inventory days and bring operating efficiencies.

• Company’s target customers are mid‐income group with salary between Rs 10000‐100000lakh. It targets the cities with the population >2mn in tier‐2, 3 cities. Company’s product offering is providing fashion at reasonable price.

• It plans to roll‐out 25 new stores on gross basis and target the growth of 30‐35% annually.

• Company’s best performing stores: Gorakhpur with sales/sqft/month:‐ Rs 1200+ followed by Dhumka, Jharkhand and Srinagar.

• Next 2 year Northern and Eastern would remain the focus for the company. • It has 35 merchandise team and is expanding very rapidly. • Stores in operations for more than 5 years LTL growth in this segment start tapering‐

off. • Company always target to keep its Rent as % of sales under 5% of sales on annual

basis. All the rent agreements are on fixed rentals.

VA Tech Wabag • VA Tech Wabag intends to bid for projects with higher technology work and in line

with its asset light model would stay away from projects with higher degree of civil works. VA Tech maintains that its technology superiority will help it to maintain margins despite increase in competition from players such as L&T, Voltas.

• VA Tech continues to outsource significant portion of civil work • The EBITDA margins in India stood at 13.5% in India and international business at 8‐

9% • The current order book comprises of 60% Indian and 40% international order. The

company expects Nemelli expansion plant and Ramnathpuram desalinisation plant and Tuticorin desalination plant to be placed for bidding in FY16. Further sewage treatment plant in Ghatkopar (Rs 5bn) and Bhandup (Rs 3.65bn) is expected to be ordered in near term.

• VA Tech has guided for Rs 32‐34bn order inflow. • With focus on projects from financially healthy municipal bodies and projects

funded by multilateral agencies, VA Tech does not see receivables as such a grave issues.


Management

(91 22) 2300 2999(91 22) 6667 9735

Research Engineering, Capital Goods Pharma

Dhawal Doshi (9122) 6667 9769 Ankur Sharma (9122) 6667 9759 Surya Patra (9122) 6667 9768Priya Ranjan (9122) 6667 9965 Hrishikesh Bhagat (9122) 6667 9986

Retail, Real EstateInfrastructure & IT Services Abhishek Ranganathan, CFA (9122) 6667 9952

Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Neha Garg (9122) 6667 9996Paresh Jain (9122) 6667 9948 Varun Vijayan (9122) 6667 9992

TechnicalsConsumer, Media, Telecom Midcap Subodh Gupta, CMT (9122) 6667 9762Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Vikram Suryavanshi (9122) 6667 9951Vivekanand Subbaraman (9122) 6667 9766 Production ManagerManish Pushkar, CFA (9122) 6667 9764 Metals Ganesh Deorukhkar (9122) 6667 9966

Dhawal Doshi (9122) 6667 9769Cement Database ManagerVaibhav Agarwal (9122) 6667 9967 Oil&Gas, Agri Inputs Vishal Randive (9122) 6667 9944

Gauri Anand (9122) 6667 9943Economics Deepak Pareek (9122) 6667 9950 Sr. Manager – Equities SupportAnjali Verma (9122) 6667 9969 Rosie Ferns (9122) 6667 9971

Sales & Distribution Kinshuk Bharti Tiwari (9122) 6667 9946 Dipesh Sohani (9122) 6667 9756 Zarine Damania (9122) 6667 9976Ashvin Patil (9122) 6667 9991 Sales TraderShubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Sidharth Agrawal (9122) 6667 9934 ExecutionBhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)Jignesh Shah (Head – Equity Derivatives)

Automobiles

Banking, NBFCs

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