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INDRAPRASTHA GAS LTD.

INDUSTRY CMP Recommend Add on dips to

Sequential Targets

Time Horizon

DATE 2nd July 2018

Utilities Rs 254 Buy at CMP and add on

declines Rs 227-231 Rs 279 and

Rs 295 3-4

Quarters

Favourable demand outlook in NCR Key beneficiary of anti-pollution drive in NCT

Augmenting capacity to scale up operations Auctioning of new geographical areas for CGD

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HDFC Scrip Code INDGASEQNR

BSE Code 532514

NSE Code IGL

Bloomberg IGL IN

CMP 29-Jun-18 254.30

Equity Capital (Rs bn) 1.40

Face Value (Rs) 2

Eq- Share O/S (bn) 0.70

Market Cap (Rs bn) 178.01

Book Value (Rs) 50.02

Avg.52 Wk Volume 18,05,000

52 Week High 344.20

52 Week Low 206.25

Shareholding Pattern % (Mar-2018)

Promoters 45.0

Institutions 42.5

Non Institutions 12.5

Total 100.0

FUNDAMENTAL ANALYST

Atul Karwa atul.karwa@hdfcsec.com

Company Profile: Incorporated in 1998, Indraprastha Gas Ltd. (IGL) is the sole city gas distribution (CGD) company for natural gas in the National Capital Territory (NCT). It was set up following a Supreme Court directive to GAIL to set up CNG infrastructure in the NCT. It caters to consumers in the domestic, transport, industrial and commercial sectors. Currently, GAIL, BPCL and Government of Delhi hold 22.5%, 22.5% and 5% respectively in the company. IGL has its operations in NCT of Delhi, Noida, Greater Noida and Ghaziabad with 446 CNG stations, 0.9mn residential consumers and 3,400 industrial / commercial customers. IGL has sizeable expansion plans both for augmenting its network in the NCT region as well as expanding its presence to other areas. Investment rationale: • Key beneficiary of anti-pollution drive in NCT region • Augmenting capacity to scale up its operations • Favourable demand outlook in NCR • Auctioning of new geographical areas for CGD to create opportunities for IGL • Natural gas - cost effective against most fuels Concerns: • Mass adoption of electric vehicles • Removal of supply priority for domestic gas • Dependent on Infrastructure connectivity • Cap on margins View and valuation: IGL is the pioneer in CGD and one of the key beneficiaries of the changing landscape in favour of natural gas. It has exclusive position in the city gas distribution (CGD) business in Delhi and infrastructure exclusivity (upto Dec-2023) for its NCT operations. Secure gas-tie up with GAIL for a large portion of current operations and favourable demand outlook for CNG and PNG segments reduces the risk for the company. IGL has fairly aggressive expansion plans entailing an outlay of ~Rs 1,470cr over FY18-FY20. We expect volume growth momentum to continue for the company as (1) Delhi state government has accepted the proposal to procure 2,000 new buses in FY19, and (2) Expansion of its pipeline network in the new areas- Karnal, Rewari and part of Gurugram will add volumes from H2FY19 onwards. CNG prices are currently at a 39-46% discount to Diesel and Petrol respectively. This should provide an adequate cushion and pricing power to IGL to maintain its EBITDA margins above Rs 6/scm over FY19-20E. PNGRB has planned to roll out CGD network in 86 Geographical Areas (GAs) that is more than double the existing authorised GAs. With rich expertise in highly technical business and strong balance sheet, IGL is a front runner in pursuing high-potential GAs. We have valued the company on SOTP basis. We feel investors could buy the stock at the CMP and add on declines to the Rs 227-231 band for sequential targets of Rs 279 and Rs 295 in 3 to 4 quarters.

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Consolidated Financial Summary

YE March (Rs bn) Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%) FY17 FY18 FY19E FY20E

Net Sales 12.33 10.02 23.1 11.84 4.1 38.1 45.9 51.4 57.4

EBITDA 2.91 2.30 26.9 2.63 10.8 9.6 11.1 12.9 14.9

APAT 1.75 1.34 30.3 1.66 5.3 5.7 6.7 7.9 9.2

Diluted EPS (Rs) 2.5 1.9 30.3 2.4 5.3 8.2 9.6 11.3 13.1

P/E (x) 31.0 26.4 22.3 19.3

EV / EBITDA (x) 17.7 15.4 13.0 11.0

RoNW (%) 21.0 20.9 21.1 21.2

Key Highlights

Landscape of CGD sector is changing rapidly and measures taken by the authorities has resulted in phenomenal growth in CNG volumes.

IGL has fairly aggressive expansion

plans entailing an outlay of ~Rs 1,470cr over FY18-FY20, funded mostly through internal accruals.

Government has put on offer 86

geographical areas which is likely to attract investments of around Rs 700bn.

CNG attracts lower taxes and works

out to be cheaper than other fuels.

(Source: Company, HDFC sec)

Company profile: Incorporated in 1998, Indraprastha Gas Ltd. (IGL) is the sole city gas distribution (CGD) company for natural gas in the National Capital Territory (NCT). It was set up following a Supreme Court directive to GAIL to set up CNG infrastructure in the NCT. It caters to consumers in the domestic, transport, industrial and commercial sectors. The company came out with an IPO in 2003-04 as an ‘offer for sale’, wherein the institutional investors sold off part of their stake resulting in a change in shareholding structure. Currently, GAIL, BPCL and Government of Delhi hold 22.5%, 22.5% and 5% respectively in the company. IGL has its operations in NCT of Delhi, Noida, Greater Noida and Ghaziabad with 446 CNG stations, 0.9mn residential consumers and 3,400 industrial / commercial customers. IGL operates in two business segments ‐ CNG and PNG. The CNG business contributed ~74% to the company's sales volumes in FY18. IGL has sizeable expansion plans both for augmenting its network in the NCT region as well as expanding its presence to contiguous areas such as the National Capital Region (Noida, Greater Noida, Ghaziabad and Gurugram) as well as other areas such as Rewari. In CY2013 the company acquired 50% equity stake in Central UP Gas Limited (CUGL) for a total consideration of Rs 0.7bn. The acquired entity CUGL is the authorised CGD operator in Bareilly, Kanpur, Unnao and Jhansi cities of Uttar Pradesh. In CY2014 the company acquired 50% equity stake in Maharashtra Natural Gas Limited (MNGL) for a total consideration of Rs 1.9bn. MNGL is the authorized CGD operator for Pune and adjoining areas in Maharashtra. The two main business objectives of the company are -

To provide safe, convenient and reliable natural gas supply to its customers in the domestic and commercial sectors. To provide a cleaner, environment-friendly alternative as auto fuel to Delhi’s residents. This will considerably bring

down the alarmingly high levels of pollution. The transport sector uses natural gas as Compressed Natural Gas (CNG), the domestic and commercial sectors use it as Piped Natural Gas (PNG) and R-LNG is being supplied to industrial establishments.

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The main area of operation for IGL is the city of Delhi where all public transport vehicles have to be necessarily run on CNG in view of the directions of the Hon. Supreme Court of India. The city is thickly populated having large number of residential & commercial complexes and hospitals etc. and the highest number of private cars compared to any other city of India. Besides Delhi, the company has expanded its operations to the following cities where there is a huge potential of growth:

Noida: Most advanced city of state of Uttar Pradesh having huge potential for CNG, PNG-Residential and commercial volumes. Greater Noida and Ghaziabad: Residential cum Industrial towns of UP having huge potential demand for PNG Residential, Commercial and Industrial. Rewari: IGL has started sale of CNG at two outlets plans to add 6 more CNG outlets and to connect 1,500 Domestic households in FY19. Gurugram: IGL has recently got entry into Gurugram to lay infrastructure; initially the permission has been given for the area between west side of Sohna Road

and NH 8 in Gurugram district. Karnal: IGL has been authorised for Karnal geographical area in the 8th round of bidding by PNGRB. Infrastructure building activity already started.

IGL has firm allocation from Govt. of India of domestic gas for the entire consumption of CNG and PNG Domestic segment. Lower prices of domestic gas makes the economics of switching to gas more attractive driving growth in CNG & PNG- Domestic segments which constitute around 80% of the total sales volumes. It has also tied up long term contract for RLNG to meet PNG Industrial & Commercial demand. If there is any shortfall, then IGL buys short term gas from the open market (Shell, IOCL, Petronet, GSPC, BPCL etc.)

Gas Consumption Mix Segment wise Sales Volume

(Source: Company, HDFC sec)

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Volume Growth has picked up in recent years (volumes LHS in mn scm and growth in % RHS)

(Source: Company, HDFC sec)

Investment rationale

Key beneficiary of anti-pollution drive The landscape of CGD sector particularly in Delhi and NCR is changing quite rapidly in a dynamic environment with evolving regulatory regime and rising customer expectations. There has been a growing concern on the pollution levels in Delhi and NCR in the past months due to which various landmark judgments have been made by Judiciary & Statutory Authorities. Various Statutory Authorities like Environment Pollution Control Authority (EPCA), Centre for Science & Environment (CSE), Delhi Pollution Control Committee (DPCC) & Uttar Pradesh Pollution Control Board (UPPCB) are working in a synchronized manner to curb the air pollution levels further in Delhi and NCR, wherein one such proposed initiative is to ban use of Furnace Oil (FO) and Petcoke by industries in Delhi and NCR. Some of the measures taken by the authorities in the recent past include: Authority Month Measure Status National Green Tribunal Dec-15 Interim ban on registration of diesel vehicles in Delhi Ban was later lifted

Supreme Court Dec-15 Ban on registration of >2,000cc diesel vehicles in NCR till 31-Mar-15 Ban extended till Apr-16 and lifted in Aug-16 in lieu of 1% green tax on such vehicles

Delhi Government Dec-15 Delhi Government decides to convert all buses to CNG buses Delhi Government Dec-15,

Jan-16 First and second iteration of odd-even rule in Delhi. CNG vehicles kept out of ban

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Central Government Jan-16 Decision taken to skip BS-V and move from BS-IV to BS-VI emission control norms by FY20

Finance Ministry (Annual Budget)

Feb-16 Levied an infrastructure cess on diesel cars of <4m length and <1,500cc engine capacity; 4% on higher powered vehicles and SUVs

National Green Tribunal (Kochi bench)

May-16 Banned registration of new diesel passenger vehicles >2000cc across the state and diesel vehicles over 10 years old from plying in six major cities

Ban on registration of >2000cc vehicles was stayed by Kerala High Court and lifted later

Supreme Court May-16 All taxis plying in Delhi to be converted to CNG. CVs registered prior to 2005 disallowed to enter NCR

Supreme Court Mar-17 Banned registration of BS-III compliant vehicles on or after 1-Apr-17 Supreme Court Oct-17 Banned use of fuel oil and petcoke in Delhi and surrounding states Some users like Cement plants given one year’s

time to switch while power plants were exempted Delhi Government Nov-17 Third iteration of odd-even rule in Delhi. CNG vehicles kept out of ban Delhi Government Mar-18 Proposed 50% waiver on registration fee on factory fitted CNG cars

(Source: Company, HDFC sec)

Delhi has remained under focus as it is India’s capital and was once touted as the most polluted city in the world. The city still struggles with pollution from the burning of nearby rice paddies, burning municipal waste, and vehicle exhaust emissions. The measures taken by the authorities has resulted in phenomenal growth in CNG volumes. The incentives being offered should result in the growth momentum being maintained.

(Source: WHO, HDFC sec)

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Augmenting capacity to scale up its operations IGL has fairly aggressive expansion plans entailing an outlay of ~Rs 1,470cr over FY18-FY20. While the large scale of the capex and the gestation period associated with build-up of sales volumes, are expected to have some moderating impact on the company’s return and credit metrics from current levels, especially considering the company’s ambitious plans to increase the penetration of the PNG (domestic) segment which is a lower margin segment, nevertheless on an absolute basis, these metrics are expected to continue being robust. The company is also looking at various prospects in the auctioning of geographical areas.

The distribution infrastructure for both CNG and PNG consumers have been growing at a faster pace in recent years indicating higher adoption of CNG. FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

CNG infrastructure CNG stations (#) 278 308 324 325 326 340 421 446

Compression capacity (mn kg/day) 5.1 6 6.4 6.6 6.8 6.9 7.4 7.6 Average CNG sale (mn kg/day) 1.7 1.9 2.1 2.1 2.2 2.3 2.5 2.8 PNG network (km)

Steel pipeline 421 574 631 658 681 707 778 919 MDPE pipeline 4,420 6,479 7,783 8,438 8,966 9,444 9,940 10,755 Total 4,841 7,053 8,414 9,096 9,647 10,151 10,718 11,674

(Source: Company, HDFC sec)

Favourable demand outlook in NCR The Delhi Government in a bid to improve the air quality, has passed a green budget for FY19. It envisages several schemes like 1) 50% discount on road tax to CNG vehicles, 2) subsidy upto Rs.0.1mn to city restaurants for switching from coal to gas based/electric tandoors, 3) introduction of ~2000 CNG buses from Feb-Jul 2019 and 4) introduction of 1000 electric buses and 900 feeder buses to provide last mile connectivity to metro stations. The heightened focus on environment would give a boost to demand for CNG.

Growing Number of CNG Vehicles PNG Users also increasing

(Source: Company, HDFC sec)

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Auctioning of new geographical areas for CGD The scenario in City Gas Distribution sector in India is changing with the allocation of Gas by Govt. of India to meet the full requirement of Gas for CNG & PNG domestic segments. CGD Industry has been given the status of public utility which would enable faster implementation of the projects. According to World Health Organization (WHO) 2016 data shows that 22 out of 50 most polluting cities in the world are based in India, out of which 18 are in North India. PM2.5 (particulate matter) level is 9-18x higher than permissible WHO limits of 10 µg/m3 in these cities. India’s Gas Infrastructure Map Most Polluted Cities

City/town PM2.5 annual mean (ug/m3)

Pollution rank globally

Gwalior 176 2 Allahabad 170 3 Patna 149 6 Raipur 144 7 Delhi 122 11 Ludhiana 122 12 Kanpur 115 15 Khanna 114 16 Firozabad 113 17 Lucknow 113 18 Amritsar 108 21 Gobindgarh 108 22 Agra 105 27 Jodhpur 101 30 Dehradun 100 31 Ahmedabad 100 32 Jaipur 100 33 Howrah 100 34 Faridabad 98 35 Dhanbad 95 38 Bhopal 93 42 Khurja 90 43

(Source: PNGRB) (Source: WHO, HDFC sec)

Due to lower pollution in use of CNG as compared to other fuels the Government of India is looking to bring CNG to more cities. In the latest ninth round of auctioning of city gas distribution (CGD) the government has put on offer 86 geographical areas which is likely to attract investments of around Rs 700bn. The 86 GAs in the new round will cover 24% of India’s area and 29% of the population. Currently, 91 GAs with 24% of the population have piped natural gas facility. The Govt. of India has set a target of connecting one crore households with PNG by 2019. This strong push by Government would add to growth of existing CGD Companies and entry of new players in the CGD sector.

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9th Round of City Gas Auction Activity Date Release of tender document (e-bidding) 12th April 2018 Pre-bid conference 14th May 2018 Bid submission by 10th July 2018 (1730 hours) Technical bid opening 12 - 18th July 2018 Financial bid evaluation To be intimated Authorisation of Gas by October 2018 (Source: PNGRB) Natural gas is cost effective against most fuels A key driver for the demand for natural gas is its cost advantage compared to alternate fuels. The price at which IGL sells natural gas is benchmarked to the price of alternate fuels as petrol, diesel, other liquid fuel and LPG. Prices of alternate fuels are linked to the price of crude oil. In the past, international crude prices had increased significantly with Brent crude reaching US$ 128.40/barrel in Mar-12. Now crude oil prices are moving up from its low of US$27.10 made in Jan-16 and trading at $75-80/barrel. The outlook on gas prices is however soft and hence this difference could result in continued demand growth for CNG/PNG apart from the other advantages such as ease of handling, no storage requirement, and credit period are favourable outlook for IGL. IGL hiked the prices of CNG/PNG on 1-Apr-18 after the government hiked the price of domestically produced natural gas. The price of CNG supplied by IGL in Delhi and other areas has been hiked by ~Re 0.9-1/kg. Similarly the price of PNG was also hiked in the range of Rs 1.15-1.20/scm. CNG prices were further increased in May-18 by Rs 1.36-1.55/kg to offset the impact of falling rupee and higher input costs. IGL has been able to pass through the rise in the price of raw material to its customers as even after the rise, the CNG/PNG are cheaper in terms of calorific value apart from the other benefits of convenience. Lower cost of CNG due to lower taxes

CNG (Rs/scm) Petrol (Rs/ltr) Diesel (Rs/ltr)

Excise Duty 4.88 19.48 15.33 State VAT - 16.41 10.05 Selling Price 40.61 75.59 67.42 Tax % 12.0% 47.5% 37.6%

Similar to CNG, domestic PNG supplied through pipes works out to be ~10% cheaper as compared to LPG cylinders in addition to reducing the hassles of booking an LPG cylinder refill, time and again. Robust financial metrics Delhi’s anti-pollution drive and favourable regulatory regime would continue to support demand for CNG and PNG in Delhi and its surrounding areas. The company is easily able to pass on the increase in costs due to the huge price differential with alternate fuels. Changing mix towards higher margin CNG and PNG volumes would drive margin expansion. IGL is a debt free company with strong cash flow generations. It can meet its capex requirement from internal accruals. It has a comfortable working capital position. ICRA Limited has reaffirmed highest credit ratings of AAA (Stable) for term loan and A1+ for short term loan.

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Q4FY18 result review IGL’s 4QFY18 revenue came in at Rs 12.33bn, up 23.1% YoY led by 11.3% YoY increase in volumes to 5.36mmscmd and 10.5% YoY increase in realisation to Rs 25.6/scm. The raw material cost has increased 1% qoq to Rs.6.8 bn (22% yoy) mainly on account of rise in domestic gas prices, RLNG prices and higher off-take. EBITDA stood at Rs 2.91bn up 26.9% YoY on account of higher gross margin, up 33bps. APAT came in at Rs 1.75 (+30.3% YoY).

CNG and PNG volumes were at 3.98 (+10.2 YoY%) and 1.38 (+14.8%) respectively. Cost of gas was Rs 14.05/scm, up 126bps YoY owing to higher LNG and RasGas prices. Opex was Rs 5.5/scm (+44bps YoY, 36.2bps QoQ). IGL’s share of net income from CUGL and MNGL was at Rs 170mn in 4Q. Company incurred a capex of Rs 1.3bn during the quarter.

Rs bn Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%) FY18 FY17 YoY (%) Operating Income 12.33 10.02 23.1 11.84 4.1 45.92 38.15 20.4 Material consumed 6.77 5.53 22.3 6.73 0.6 24.91 20.84 19.6 Employee expenses 0.28 0.19 44.8 0.27 0.9 1.06 0.92 15.6 Other expenses 2.37 2.00 18.6 2.21 7.3 8.81 6.76 30.5 EBITDA 2.91 2.30 26.9 2.63 10.8 11.13 9.64 15.5 Depreciation 0.47 0.43 10.7 0.45 3.8 1.81 1.67 8.5 EBIT 2.44 1.87 30.6 2.18 12.2 9.32 7.97 17.0 Other Income 0.27 0.21 28.0 0.33 (17.9) 1.02 0.65 56.6 Interest 0.01 0.00 32.6 0.00 69.4 0.02 0.01 39.7 PBT 2.70 2.07 30.3 2.50 8.2 10.32 8.61 20.0 Tax expenses 0.96 0.73 30.4 0.84 14.0 3.62 2.90 24.9 PAT 1.75 1.34 30.3 1.66 5.3 6.71 5.71 17.5 EPS 12.33 10.02 23.1 11.84 4.1 45.92 38.15 20.4

EBITDA (%) 23.6 22.9 7bps 22.2 141bps 24.2 25.3 -102bps PAT (%) 14.2 13.4 79bps 14.0 16bps 14.6 15.0 -36bps

Quarterly Operational Data Rs bn Q4FY18 Q4FY17 YoY (%) Q3FY18 QoQ (%) FY18 FY17 YoY (%) Total Sales Volume (mmscm) 482.0 433.0 11.3 484.0 (0.4) 1891 1676 12.8 CNG 358.0 325.0 10.2 358.0 - 1412 1269 11.3 PNG 124.0 108.0 14.8 126.0 (1.6) 479 407 17.7

Total Volume (mmscmd) 5.36 4.81 11.3 5.3 1.8 5.18 4.59 12.8 CNG 3.98 3.61 10.2 3.9 2.2 3.87 3.48 11.3 PNG 1.38 1.20 14.8 1.4 0.6 1.31 1.12 17.7

Margins (Rs/scm) bps bps bps Realisation 25.6 23.1 244.1 24.5 111.9 24.3 22.8 152.3 Gross Spread 11.5 10.4 117.8 10.6 97.2 11.1 10.3 78.0 Opex 5.5 5.1 43.5 5.1 36.2 5.2 4.6 64.3 EBITDA Spreads 6.0 5.3 74.3 5.4 61.0 5.9 5.8 13.7 PAT 3.6 3.1 52.9 3.4 19.7 3.5 3.4 14.0

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Concerns Mass adoption of electric vehicles: Although large scale production and adoption of electric vehicles (EV) is atleast a decade away in India, the Indian EV ecosystem is evolving at a fast pace with Government entities like EESL and NTPC acting as a pioneer. Earlier than expected adoption of EV vehicles could pose a risk to natural gas demand. Removal of supply priority for domestic gas: The CGD companies are prioritised over fertiliser and power companies for cheaper domestically produced gas. However, if this is removed then the cost of gas could increase significantly. Infrastructure connectivity: CGD companies are dependent on GAIL for gas transmission pipeline and on local bodies for their permission to lay their distribution network in the city. Delays in any of this could undermine its volume growth. Cap on margins: Downstream companies earn the highest margins across the gas value chain. Any changes to regulation capping the margins of CGD companies could result in de-rating of the stock. View and valuation IGL is the pioneer in CGD and one of the key beneficiaries of the changing landscape in favour of natural gas. It has exclusive position in the city gas distribution (CGD) business in Delhi and infrastructure exclusivity (upto Dec-2023) for its NCT operations. Secure gas-tie up with GAIL for a large portion of current operations and favourable demand outlook for CNG and PNG segments reduces the risk for the company. IGL has fairly aggressive expansion plans entailing an outlay of ~Rs 1,470cr over FY18-FY20. We expect volume growth momentum to continue for the company as (1) Delhi state government has accepted the proposal to procure 2,000 new buses in FY19, and (2) Expansion of its pipeline network in the new areas- Karnal, Rewari and part of Gurugram will add volumes from H2FY19 onwards. CNG prices are currently at a 39-46% discount to Diesel and Petrol respectively. This should provide an adequate cushion and pricing power to IGL to maintain its EBITDA margins above Rs 6/scm over FY19-20E. PNGRB has planned to roll out CGD network in 86 Geographical Areas (GAs) that is more than double the existing authorised GAs. With rich expertise in highly technical business and strong balance sheet, IGL is a front runner in pursuing high-potential GAs. We have valued the company on SOTP basis. We feel investors could buy the stock at the CMP and add on declines to the Rs 227-231 band for sequential targets of Rs 279 and Rs 295 in 3 to 4 quarters. SOTP Valuation

Particulars Valuation Basis Value/share Standalone Earnings (excluding Dividend income) 20x/21x FY20E EPS 254/267 MNGL 15x/17x FY20E EPS 18/20 CUGL 15x/17x FY20E EPS 7/8 Target Price 279/295

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Financial Statements - Standalone

Rs bn FY16 FY17 FY18 FY19E FY20E Income from operations 36.74 38.15 45.92 51.40 57.37 Cost of materials consumed 22.76 20.84 24.91 27.81 30.97 Employee Cost 0.78 0.92 1.06 1.15 1.26 Other expenses 5.57 6.76 8.81 9.52 10.28 EBITDA 7.63 9.64 11.13 12.93 14.86 Depreciation 1.56 1.67 1.81 1.90 2.00 EBIT 6.06 7.97 9.32 11.02 12.86 Other Income 0.30 0.65 1.02 1.12 1.15 Finance Cost 0.10 0.01 0.02 0.02 - Profit Before Tax 6.36 8.62 10.34 12.15 14.01 Tax Expenses 2.19 2.90 3.62 4.20 4.85 Profit After Tax 4.17 5.72 6.72 7.94 9.16 EPS 1.56 1.67 1.81 1.90 2.00

Rs bn FY16 FY17 FY18 FY19E FY20E Profit Before Tax 6.38 8.61 10.32 12.13 14.01 Depreciation 1.56 1.67 1.81 1.90 2.00 Others (0.20 ) (0.64 ) (1.00 ) (1.11 ) (1.15 ) Change in working capital 0.78 3.32 1.42 0.46 0.49 Tax expenses (1.81) (2.74) (3.17) (4.20) (4.85) CF from Operating activities 6.71 10.22 9.38 9.19 10.50 Net Capex (2.54) (3.50) (5.30) (4.42) (3.74) Other investing activities 0.62 0.65 1.02 1.12 1.15 CF from Investing activities (1.92) (2.85) (4.28) (3.30) (2.60) Proceeds from Eq Cap - - - - - Borrowings / (Repayments) (1.45) - 0.01 - - Dividends paid (0.82) (1.16) (2.35) (2.77) (3.20) Interest paid (0.10) (0.01) (0.02) (0.02) - CF from Financing activities (2.37) (1.17) (2.36) (2.79) (3.20) Net Cash Flow 2.42 6.20 2.74 3.10 4.71

Income Statement

Cash Flow Statement

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Rs cr FY16 FY17 FY18 FY19E FY20E EQUITY AND LIABILITIES Share Capital 1.40 1.40 1.40 1.40 1.40 Reserves and Surplus 23.76 27.87 33.73 38.88 44.82 Shareholders' Funds 25.16 29.27 35.13 40.28 46.22 Long Term borrowings - - - - - Deferred Tax Liabilities (Net) 1.65 1.81 2.25 2.25 2.25 Long Term Provisions 0.15 0.20 0.14 0.15 0.17 Non-current Liabilities 1.80 2.01 2.39 2.40 2.42 Short Term Borrowings - - - - - Trade Payables 1.61 2.74 3.39 3.78 4.21 Other Current Liabilities & Prov. 5.24 6.85 8.38 8.82 9.29 Current. Liabilities 6.85 9.59 11.76 12.60 13.50 TOTAL 33.81 40.86 49.28 55.29 62.15 ASSETS Net Block 20.19 21.17 24.32 26.38 28.12 Capital WIP 2.67 3.52 3.86 4.32 4.32 LT Loans And Advances 0.06 0.08 0.09 0.09 0.09 Total Non-current Investments 2.59 2.59 2.58 2.58 2.58 Inventories 0.58 0.52 0.52 0.59 0.65 Debtors 2.51 2.01 2.26 2.53 2.83 Cash and Cash Equivalents 4.54 10.26 14.48 17.57 22.26 Other Current Assets 0.67 0.70 1.17 1.23 1.30 Total Current Assets 8.30 13.50 18.43 21.92 27.04 TOTAL 33.81 40.86 49.28 55.29 62.15

Balance Sheet

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Particulars FY16 FY17 FY18 FY19E FY20E EPS (Rs) 6.0 8.2 9.6 11.3 13.1 Cash EPS (Rs) 8.2 10.5 12.2 14.0 15.9 BVPS (Rs) 35.9 41.8 50.2 57.5 66.0

P/E (x) 42.5 31.2 26.5 22.5 19.4 P/BV (x) 7.1 6.1 5.1 4.4 3.9 Mcap/Sales (x) 4.8 4.7 3.9 3.5 3.1 EV/EBITDA 22.7 17.4 14.7 12.4 10.5

EBITDAM (%) 20.8 25.3 24.2 25.1 25.9 EBITM (%) 16.5 20.9 20.3 21.4 22.4 PATM (%) 11.3 15.0 14.6 15.5 16.0

ROCE (%) 16.4 19.6 19.5 19.8 20.1 RONW (%) 17.7 21.0 20.9 21.1 21.2

Current Ratio (x) 1.2 1.4 1.6 1.7 2.0 Quick Ratio (x) 1.1 1.4 1.5 1.7 2.0 Net Debt-Equity (x) (0.2) (0.4) (0.4) (0.4) (0.5)

Debtor days 25 19 18 18 18 Inventory days 6 5 4 4 4 Creditor days 16 26 27 27 27

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Fundamental Research Analyst: Atul Karwa (atul.karwa@hdfcsec.com) HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Website: www.hdfcsec.com Email:hdfcsecretailresearch@hdfcsec.com. Compliance Officer: Binkle R. Oza Email: complianceofficer@hdfcsec.com Phone: (022) 3045 3600

Disclosure: I, (Atul Karwa, MMS), authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate does not have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock – No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company (ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company (ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.

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This report is intended for non-Institutional Clients only. The views and opinions expressed in this report may at times be contrary to or not in consonance with those of Institutional Research or PCG Research teams of HDFC Securities Ltd. and/or may have different time horizons

HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193