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CarborundumUniversal(CUMI)apartoftheMurugappaGroup - isengagedinthebusinessof

manufacturingabrasives(45%ofrevenues),ceramicsincludesindustrialceramics&refractories

(20%ofrevenues)&electrominerals(35%ofrevenues).

LeadershippositioninAbrasives

Abrasivesareindustrialconsumableswhichfindwideapplicationinmetals,auto,construction,

fabrication

&

various

machining

industries.

CUMI

is

a

leading

player

in

the

Abrasives

market

with a dominant market share of about 35%. It has managed to maintain & enhance its

leadershippositioncompeting againstGlobal leaderSaint Gobains IndiansubsidiaryGrindwel

Norton(GNL).TheIndianabrasivesmarkethasbeengrowingatabout10%annuallyandCUMI&

GNL together account for 70% of the market. CUMI has managed to maintain its leadership

positioninindustrymainlyduetoitslowcostefficientoperatingstructureand itsrelativecost

advantage over their competitors due to backward integration for sourcing raw materials

throughitsinternationalsubsidiaries.CUMIhasalsorealigneditsproductmixinthissegmentto

address high value and better margin products. With Revenues of Rs.6.9 bn in FY11, this

segment comprises of 42% of its Revenues, with the overall EBIT margins of ~13.7%. Going

ahead, we believe CUMIs leadership position & customized products along with the strong

demandforabrasivesintheindustrywoulddrivestrongrevenuegrowthinthissegment.

Focusonhighmarginproducts

CUMI is moving up the value chain by focusing and expanding the niche businesses viz.

Metallised(Metz)cylinders(partofCeramicsbusiness)andSiliconCarbide(SiC)microgrit(part

of Electrominerals business). These are value added products which enjoys high margins. In

Metzcylinders,CUMIisdoublingitscapacityfrom0.35mn.pcsto0.75mnpcs.Furthermorein

SiCmicrogrit,CUMIhascapacityof4,800tonsandisaddingfurther7,200tonsbyFY12.Going

ahead, we believe that these niche businesses will help CUMI maintain high margins of ~18

19.5%inCeramicBusinessand~20%inElectromineralsbusiness.

Aggressivelyexpandingacrosstheworld,especiallytosourcecriticalrawmaterials

CUMIhasinvestedaggressivelytoaugmentcapacitiesthroughbothorganicandinorganicroute,

which is helping to capitalize on growth opportunities in domestic as well as global markets.

CUMIhas

substantial

operations

outside

India

and

derives

almost

45%

of

total

revenues

from

its

internationaloperations.CUMIhasoptedforbackward integrationforsourcing itscriticalraw

materialsthroughinternationalacquisitionviz.VolzhskyAbrasiveWorksRussia(97%stake)(raw

material for Abrassives)and ANFFoskarZirconia,SouthAfrica (51% stake) the worlds largest

manufacturerofZirconia(rawmaterialforSuperRefactories).

OUTLOOK&VALUATIONTheIndianabrasivesindustryhasbeenhighlyconcentrated,butmanyglobalplayershave

entered the Indian market due to slowdown in Europe & the US. CUMI continues to

maintain leadership position (35% market share) despite heavy competition in the

changing domestic market scenario. During FY11, CUMIs consolidated revenues grew

26%(7%valuegrowth&18%volumegrowth)toRs.16.4bn.ItsEBIDTAgrewby31%to

Rs.3.1

bn,

while

its

EBIDTA

margins

increased

by

80

bps

to

18.8%.

Its

APAT

grew

46%

to

Rs.1.5bnanditregisteredAEPSofRs.15.8forFY11.

We believe that CUMI is wellplaced to capitalize on the growth opportunitiesdomestically,asthedemandcontinuestoberobust.Internationallyalso,itssubsidiariesshould perform well, as the demand begins to recover in Europe, US & Russia. Goingforward,weexpectitsCon.Revenuestogrowby14.7%&19.7%inFY12&FY13,whileitsAPATtogrowby14.1%&20.3%inFY12&FY13respectively.WeinitiateourcoverageontheCompanywithanACCUMULATEratingandatargetpriceofRs.325(15xFY13EEPSofRs.21.6).

KEYFINANCIALS

Y/EMarch

(Consol)

Revenue

(Rsmn)

APAT

(Rsmn)

APAT

(%Ch.)

AEPS

(Rs.)

P/E

(x)

ROCE

(%)

ROE

(%)

P/BV

(x)FY10 13066.7 1010.3 34.8 10.8 25.4 12.6 19.3 4.3

FY11E 16442.5 1473.0 45.8 15.8 17.4 15.6 21.5 3.4

FY12E 18864.6 1680.8 14.1 18.0 15.3 15.5 20.6 2.9

FY13E 22585.8 2022.9 20.3 21.6 12.7 16.7 20.7 2.5

Pleaserefertoimportantdisclosuresattheendofthereport ForprivateCirculationOnly.

SushilFinancialServicesPrivateLimited Member:BSEL,SEBIRegn.No.INB/F010982338|NSEIL,SEBIRegn.No.INB/F230607435.Office:12,HomjiStreet,Fort,Mumbai400001. Phone:+912240936000Fax:+912222665758Email:[email protected]

June17,2011 ACCUMULATE MEDIUMRISK PRICERs.275 TARGETRs.325

InitiatingCoverage

CarborundumUniversal Limited

ENGINEERING

SHAREHOLDING(%)

Promoters

42.2

FII 14.4

FI 15.5

BodyCorporates 3.6

Public&Others 24.3

STOCKDATA

ReutersCode

BloombergCode

CRBR.BO

CUIN

BSECode

NSESymbol

513375

CARBORUNIV

Market

Capitalization*

Rs.25671mn

US$570mn

Shares

Outstanding*93.35mn

52Weeks(H/L) Rs.280/194

Avg.Daily

Volume (6m)10,259Shares

PricePerformance(%)

1M 3M 6M

7 25 10

200Days

EMA:

Rs.239

*Onfullydilutedequityshares

ANALYST

BhavikaShah|+912240935054

[email protected]

SALES:

DevangShah|+912240936060/61

[email protected]

NishitShah|+912240935074

[email protected]


2/12

June17,2011 2

CarborundumUniversalLtd.

COMPANYOVERVIEWCarborundum Universal (CUMI) was incorporated in 1954 as a Joint Venture (JV)

between Carborundum Company (USA), Universal Grinding Wheel Company (UK) and

MurugappaGroup(India).CUMIisengagedinthebusinessofmanufacturingabrasives,

industrialceramics,

refractories

and

electro

minerals.

CUMI

is

afully

integrated

player

which manufactures raw material like silicon carbide, brown and white fused alumina

and zirconia which are used as raw material for manufacturing abrasives as well as

refractories. WiththeacquisitionofFoskorZirconia(FZL),CUMIisnowtheworldsthird

largestproducerofzirconiaandsecond largestproducerofsiliconcarbidegrainsafter

theacquisitionofVolzhskyAbrasiveWorks(VAW),Russia.

. BUSINESSOVERVIEW

CUMI JVs&SubsidiariesCUMIhassubstantialoperationsoutside India. Itderives45%oftotalrevenuefrom its

internationaloperations.VAW,FZLandCUMIAustraliaareoneofthemost important

subsidiaries.JingRiCUMISuperHardMaterialsCompany,Chinawasdemergedintotwo

separatedivisions

i.e.

Abrasives

and

Diamond

Tool.

The

abrasives

business

was

taken

overbyCACCL(asubsidiary)fromDec09andtheDiamondToolbusinesswastakenover

bytheotherJVpartner.CUMIconsistsof11subsidiaries,4JVsand1associate.

SUBSIDIARIESCUMIAmericaInc. 100%

CUMIAustraliaPty.Ltd. ~52%

FoskarZirconiaPteLtd.SouthAfrica ~51%

SterlingAbrassivesLtd, Ahmedabad 60%

NetAccessIndiaPrivateLimited 100%

CUMIMiddleEast 100%

CUMI

Canada

Inc 100%SouthernEnergyDev.Corp.Ltd.("SEDCO") 85%

CUMIInternationalLtd. 100%

CUMIAbrasives&CeramicsCompanyLtd.(CACCL) 100%

VolzhkyAbrasiveWorks,Russia ~98%

JOINTVENTURESWendt(India)Limited 40%

MurugappaMorganThermalCeramicsLtd.("MMTCL") 49%

CiriaIndiaLimited("CiriaIndia") 30%

JINGRI CUMISuperHardMetalCompanyLtd. 45%

AssociateLaserwords

Pvt.

Ltd. 44%

CarborundumUniversal(CUMI)

AbrasiveBusiness

(45%ofRevenues)

CeramicBusiness

(IndustrialCeramics&

SuperRefactories)

(20%ofRevenues)

Electrominerals

(35%ofRevenues)


3/12

June17,2011 3


ABRASIVESAbrasives are industrial consumables, which find application in material removal,

polishing and finishing. Enduser industries include: metals, auto, construction,

fabrication and various machining industries. CUMI manufactures all three types of

abrasives

i.e.

bonded,

coated

and

super

abrasives

and

has

a

dominant

share

withGrindwel Norton being its only competitor. CUMI and Grindwell hold close to 70%

marketshareinabrasive.ThesizeofglobalbondedabrasivemarketisclosetoUS$5bn,

whilethemarketsizeforcoatedabrasivestandsatUS$4bn.

CUMI has a capacity of 20,000 tonne capacity in India of bonded abrasives which is

runningatfullcapacity,about3,200tonnesinChinarunningataround70%ofcapacity

utilisation and about 26,000 tonees in Russia running at about 40% of capacity

utilisation. Bonded abrasives are used in diverse applications like floor polishing,

fabrication,polishing,offhandtoolgrindingandprecisiongrindingofdiverseproducts

likecrankshaft,ballsandrazorbladeacrossawidespectrumofindustriesrangingfrom

automobile,construction,fabrication,steel,bearingetc.

CUMIhas

acapacity

of

17.8

mn

square

meter

in

coated

abrasives

(standalone).

Coated

abrasives areused in light polishing applications in automobile, auto ancillaries,white

goods, hand and power tools, sanitary ware, furniture, fabrication, and construction

industry.

AlmostonethirdoftheabrasivesmanufacturedbyCUMI iscustomizedandmeetsthe

demandofindustrieslikeauto,autoancillary,bearingetc.Therealizationandmarginis

higherincustomizedproductsascomparedtothestandardproductsinabrasives.

Siliconcarbideandaluminaarethetwokeyrawmaterialsforabrasives,whilezirconiais

used inhighendabrasivesandceramics.CUMIhasoptedforbackward integrationfor

thecriticalrawmaterialsthroughinternationalacquisitionviz.VolzhskyAbrasiveWorks

Russia and South Africabased Foskar Zirconia (FZL), worlds largest manufacturer of

Zirconia.

Postacquisition

of

FZL,

CUMI

has

become

worlds

3rd

largest

producer

of

zirconiaand2nd

largestproducerofsiliconcarbidegrainsaftertheacquisitionofVAW.

To get access to alumina, CUMI hasentered into a JV with GMDC to set upa brown

fusedaluminaplantinGujarat.

BondedAbrasives CoatedAbrasives SuperAbrasives


4/12

June17,2011 4


CERAMICSThissegmentconsistsofsuperrefractoriesand industrialgradeceramics,whichcaters

to a wide variety of industries including metals, healthcare, food processing, cement,

electricitytransmission,etc. ThesizeoftheglobalceramicsmarketisaroundUS$2bn.

Giventhe

capital

and

technology

intensity

of

the

business,

CUMI

is

the

only

established

domesticplayer.Theproductsaredirectlysoldtothecustomers.

Industrial Ceramics: The Ceramics product group offers products, which harness theheatresistance/containment,wearresistanceandinsulationpropertiesofceramicsand

alsocorrosionresistancepropertiesofvariousmaterials.Industrialceramicmaterialsare

nonmetallic, inorganic compounds mostly made of high alumina. They have high

meltingpoints, low wear resistance, and awide rangeof electrical properties. CUMI's

rangeofindustrialceramicscompriseswearandcorrosionlimitingproductsandgrinding

media.CUMIalsoofferscertainvalueaddedindustrialceramicproductsviz.engineered

ceramics, metalized ceramics and ceramic lined equipment. These products caters to

critical and demanding applications in thermal power plants, material handling, coal

washeries,

cement,

steel,

floor

and

wall

tiles,

paints,

food

processing,

mineral

processing,electricalandelectronicindustries.

TheindustrialceramicsmanufacturingoperationispredominantlybasedinIndia.Ithasa

capacityof5,900tonneinwearresistantlinerandengineeredceramicsandanother0.4

mnpieces inMetzcylinders.34%ofthetotalceramicsales(instandalone)comefrom

exports.TheaveragerealizationforwearresistantlinerisaroundRs.150,000pertonne.

MetzcylinderrealizationisaroundRs.600650percylinder.TheMetzcylinderisusedin

vacuum interrupters/bottles, which are used in the power plants transmission

equipment.TheCompanyistargetingacapacityexpansionfromcurrent0.4mnto0.75

mnpieces.

ThissegmentfacesstiffcompetitionfromABB,CromptonGreaves,Areva,Siemens,etc.

In India, CUMI is a major player in this field for almost two decades and the only

manufacturerofmetalizedceramics.ApartfromCUMI,JyothiCeramicsandBHELarethe

othermanufacturersofindustrialceramics.

In Australia, CUMI has a sizeable share of themarket for lined equipment through its

subsidiary. Here, CUMI has a strong position in coal washery industry. Of late, the

Australianoperationfacedstiffcompetitionfromimports,whichledtopricingpressure.

CUMIisnowfocusingonconsolidationofthestrongmarketpositionitenjoysinsupply

ofproductstocoalwasheriesandalsoexpandingcustomerbasebyaddingclientsfrom

otherminingsectors.

WearResistantProducts MetzCylinders EngineeredCeramics


5/12

June17,2011 5


Super Refractories: CUMI is a market leader in the manufacture of super refractoryproductsinIndiasince1965withtechnicalknowhowfromCarborundumCompanyUSA.

The acquisition of VAW, Russia has given CUMI a foothold in the Russian market for

refractories. The acquisition has also given CUMI access to advanced technology. Iron

and

steel

industries

account

for

80%

of

Indias

refractory

usage.

CUMmanufactured Super Refractories are in two forms: fired refractories and

monolithic. CUMI has a capacity of 39,000 tonne, which includes 20,000 tonne of

monolithic,6,000tonneoffiredrefractories(addinganother3,000tonnesbyFY13)and

10,000 tonne of anticorrosive products. Realization of fired refractories is around Rs.

95,000pertonne,whileanticorrosiveproductsareclosetoRs.Rs.48,000pertonneand

monolithicisRs.24,000pertonne.CUMIislookingtoexpanditscapacityinmonolithic.

Refractories are consumables, which require replacement frequently. So, the business

opportunityarisesattwostages: first,atthesettingupoftheprojectandsecond, for

regularmaintenanceofrefractories.

SuperRefractories


6/12

June17,2011 6


ELECTROMINERALS

ElectroMineralsDivisionofCUMIisinthebusinessofbrownfusedAlumina,whitefused

Alumina, Silicon Carbide, and High Quality Micro Grits. The Division also offers other

FusedandSinteredproductsforvariousapplications

Electro minerals are used as basic raw material in the manufacture of abrasives and

refractories. They are also used for surface preparation in tile and paint industries.

Siliconcarbide

is

also

used

as

an

input

in

metallurgical

industries.

The

global

market

size

for electro minerals is estimated at around US$2.5 bn. The acquisition of Volzhsky

Abrasive Works, Russia has positioned CUMI as the 2nd

largest producer of silicon

carbide in the world. Apart from CUMI, the major players in this industry are Saint

Gobain,Treibacher,WashingtonMills,KolloandafewChinesemanufacturers.

In India, CUMI is one of the leading players in aluminium oxide grains. In Electro

minerals, the current capacity in India is close to 27,740 tonne, which includes silicon

carbide macros4,000 tonne, brown and whitefused alumina macrogrit18,940 tonne

andSiCmicrogrit4,800tonne.ThecapacityofsiliconcarbideinRussiaiscloseto70,000

tonne, while South Africa has a capacity of 4,500 tonne of Zirconia. The average

realization for SiC macros is around Rs. 55,000 per tone running at full capacity

utilisationand

alumina

Rs.

45,000

per

tonne

in

India.

The

average

realization

in

Russia

andSouthAfricaisRs.47,000pertonneandRs.190,000pertonne,respectively.

The company is focusing on manufacturing silicon carbide microgrit. These are value

addedproductswhicharepredominantlysupplied to thephotovoltaic industry. In the

photovoltaic, poly silicon and monocrystalline silicon are used to make the wafers

which are used finally to make the cells and then the panels for the photovoltaic

electricity generation. The current capacity stands at 4,800 tonne. The capacity is

expectedto increase2.5timesto12,000tonnebyFY12.Thiswouldrequireacapexof

approximately Rs. 360 mn. The realization for SiC microgrit is around Rs. 150,000 per

tonne.


7/12

June17,2011 7


INVESTMENTRATIONALELeadershippositioninabrasivesAbrasives contribute 45% of CUMIs revenues, industrial ceramics & refractories

contribute20%,andelectromineralscontribute35%ofitsrevenues.TheCompanyhas

a diverse customer base, and 65% of its revenues are from international markets

including Russia, Australia, South Africa, China, North America, and Europe. With a

marketshareofnearly35%,CUMIisastrongplayerintheIndianabrasivesindustry.The

acquisitionsof theRussiabasedVAW in2007,andof51%stake inSouthAfricabased

FZLin2008,establishedCUMIamongahandfulofglobalplayerswithproductofferings

acrosstheelectromineralsvaluechain.SomeofthesectorswhereCUMIsAbrasivesare

used include bearings, automobile andauto ancillary, alloy steel, foundry and forging,

fabricationandgeneralengineering industries.All theabovebeing thecoresectorsof

theeconomy,thedemandinthesesectorsisexpectedtoremainstrongoverthecoming

years.

Abrasives are industrial consumables which find wide application in metals, auto,

construction,fabrication

&

various

machining

industries.

CUMI

is

aleading

player

in

the

Abrasives market with a dominant market share of about 35%. It has managed to

maintain & enhance its leadership position competing against Global leader Saint

GobainsIndiansubsidiaryGrindwelNorton(GNL).TheIndianabrasivesmarkethasbeen

growing at about 10% annually and CUMI & GNL together account for 70% of the

market.

TheIndianabrasivesmarketisexpectedtogrowat810%annually.Growthindemand

forbondedabrasivesislikelytobeabout12%andthatincoatedabrasivesislikelytobe

about1012%.

ThesizeofglobalbondedabrasivemarketisclosetoUS$5bn,whilethemarketsizefor

coated

abrasive

stands

at

US$4

bn.

The

major

players

are:

Norton,

Baystate

and

3MfromtheUSA,TyrolitandTreibacherfromAustria,andNoritakefromJapan.

WithRevenuesofRs.6.9bninFY11,thissegmentcomprisesof42%ofitsRevenues,with

theoverallEBITmarginsof~13.7%.

CUMIhasmanagedtomaintainitsleadershippositioninindustrymainlyduetoitslow

costefficientoperatingstructureanditsrelativecostadvantageovertheircompetitors

due to backward integration for sourcing raw materials through its international

subsidiaries. CUMI has also realigned its product mix in this segment to address high

valueandbettermarginproducts.CUMIisfocusingmoreoncustomizedproductswhich

yield high realization and better margin than the standard products. 1/3rd of the

abrasives sold by CUMI are customized. Going ahead, we believe CUMIs leadership

position

&

customized

products

along

with

the

strong

demand

for

abrasives

in

the

industrywoulddrivestrongrevenuegrowthinthissegment.

FocusonhighmarginproductsCUMI ismovingupthevaluechainbyfocusingandexpandingthenichebusinessesviz.

Metz cylinders (part of Ceramics business) and SiC microgrit (part of Electrominerals

business).Thesearevalueaddedproductswhichenjoyshighmargins.

The Company is establishing a new facility for metalized cylinders at its existing

manufacturingcomplex inHosuronthebackofhugepotentialandprospects forsuch

cylinders in the power industry. The Metz cylinders are used in vacuum

interrupters/bottles, which are used in the power plants transmission equipment.

Countries

such

as

China,

Japan

and

Korea

are

among

the

potential

international

markets


8/12

June17,2011 8


forsuchproducts.CUMI istargetingacapacityexpansionfromcurrent0.4mnto0.75

mnpieces.

Furthermore,CUMIisalsoexpandingthecapacityofSiCmicrogritsatitsKeralaplantto

cater to the growing demand in Photovoltaic industry. The current capacity stands at

4,800tonne.

The

capacity

is

expected

to

increase

2.5

times

to

12,000

tonne

by

FY12.

ThiswouldrequireacapexofRs.360mn.TherealizationforSiCmicrogritisaroundRs.

1.8lakhpertonne. Goingahead,webelievethatthesenichebusinesseswillhelpCUMI

maintain high margins of ~1819.5% in Ceramic Business and ~20% in Electrominerals

business.

Aggressively expanding across the world, especially to source critical raw

materialsCUMI has invested aggressively to augment capacities through both organic and

inorganic route, which is helping to capitalize on growth opportunities in domestic as

wellasglobalmarkets.CUMIhassubstantialoperationsoutsideIndiaandderivesalmost

45%oftotalrevenues from its internationaloperations.CUMIhasopted forbackward

integration

for

sourcing

its

critical

raw

materials

through

international

acquisition

viz.

Volzhsky Abrasive Works Russia (97% stake) (raw material for Abrassives) and ANF

Foskar Zirconia, South Africa (51% stake) the worlds largest manufacturer of Zirconia

(rawmaterialforSuperRefactories).

RISKS&CONCERNS

AvailabilityofRawMaterials:Escalationininternationalpricesofcalcinedaluminaand

brownfused alumina, which are key inputs for the industrial ceramics and abrasives

business, is one of the major concerns. In India, the Gujarat Government tweaked its

mineralpolicyandallowedprivateplayerstoexportbauxite.Allthishasposedsupply

side issues for alumina. To mitigate this risk, CUMI has signed a Memorandum of

Understanding(MoU)

with

GMDC

to

set

up

abrown

fused

alumina

facility.

Increase in Fuel Prices: Fuel and power cost is one of the major components of the

overallcoststructureconstituting1213%of thesales,soany increase in thecostwill

affectthemargins.

ExchangeRateFluctuations:Around18%ofCompanysrevenuecomesfromexport.So

appreciationofIndianRupeewillreducethecompetitivenessaswellastheprofitability

of the business. Also, Ruble (RUB Russian currency)) appreciation impacts themargin

negatively as Russian SiC is exported to Europe. CUMI Australia is also impacted by

weakeningofdollarasimportsbecomecheaper.

Slowdownintheworldeconomy:Theslowdownintheworldeconomymayimpactthe

workingof

the

Company,

especially

its

export

business

and

its

international

operations.


9/12

June17,2011 9


FINANCIALOUTLOOK

SalestogrowatCAGRof17%overFY11FY13CUMIs consolidated net sales have grown at a 22% CAGR of the past three years

(FY07

FY10).

The

Company

is

well

positioned

to

encash

the

growth

as

it

enjoys

higherbrandequity.WeexpectitssalestogrowataCAGRof17%overFY11FY13.

Source:Company&SushilFinanceResearchestimates

EBITDAtogrowataCAGRof18%overFY1113WebelievethattheCompanywillbeabletomaintainitsmarginsof18%,mainlydue

continuous improvement in itsoperationalefficienciesandbackward integrated for

the

critical

raw

materials

through

international

acquisitions.


9093

1218013067

16443

18865

22586

0

5000

10000

15000

20000

25000

FY08 FY09 FY10 FY11 FY12 FY13

Sales(Rs.mn)

0

4

8

12

16

20

0

1000

2000

3000

4000

5000


EBIDTA(Rs.mn) EBITAMargins(%)

EBIDTA&EBIDTAMargins


10/12

June17,2011 10


APATtogrowatCAGRof16%overFY11FY13


OUTLOOK&VALUATIONThe Indianabrasives industryhasbeenhighlyconcentrated,butmanyglobalplayers

haveenteredtheIndianmarketduetoslowdowninEurope&theUS.CUMIcontinues

tomaintain leadershipposition(35%marketshare)despiteheavycompetition inthe

changingdomesticmarketscenario.DuringFY11,CUMIsconsolidatedrevenuesgrew

26%(7%valuegrowth&18%volumegrowth)toRs.16.4bn.ItsEBIDTAgrewby31%

toRs.3.1bn,while itsEBIDTAmargins increasedby80bpsto18.8%. ItsAPATgrew

46%

to

Rs.

1.5

bn

and

it

registered

AEPS

of

Rs.

15.8

for

FY11.

We believe that CUMI is wellplaced to capitalize on the growth opportunities

domestically, as the demand continues to be robust. Internationally also, its

subsidiaries should perform well, as the demand begins to recover in Europe, US &

Russia.Goingforward,weexpectitsCon.Revenuestogrowby14.7%&19.7%inFY12

&FY13, while itsAPAT to growby14.1%&20.3% inFY12&FY13 respectively. We

initiate our coverage on the Company with an ACCUMULATE rating and a target

priceofRs.325(15xFY13EEPSofRs.21.6).

621750

1010

14731681

2023

0

500

1000

1500

2000

2500


APAT(Rs.mn)


11/12

June17,2011 11


PROFIT&LOSSSTATEMENT(Consol) Rs.mn

Y/EMarch FY10 FY11 FY12E FY13E

TotalSales 13066.7 16442.5 18864.6 22585.8

Total

Raw

Mat.

Cost

3901.6

4936.5

5659.4

7001.6

StaffCost 1714.2 2401.4 2833.7 3343.7

OtherExpenditure 5096.2 6017.6 6860.1 7957.7

EBITDA 2354.7 3087.0 3511.5 4282.8

Interest 307.5 271.0 315.7 394.6

Depreciation 412.7 504.5 567.6 692.4

OtherIncome 72.8 33.9 40.7 50.9

PBTinclOI 1707.3 2345.4 2668.9 3246.6

Tax 560.4 741.7 854.1 1086.3

APAT 1146.9 1603.7 1814.9 2160.3

MinorityInterest 139.5 128.6 131.8 135.1

Sh.ofP/Lintheasscos 2.9 (2.1) (2.2) (2.3)

CONAPAT 1010.3 1473.0 1680.8 2022.9

ExtraordinaryExp./(Inc) (7.0) (234.9) 0.0 0

RPAT 1017.3 1707.9 1680.8 2022.9

BALANCESHEETSTATEMENT(Consol) Rs.mn

Ason31stMarch FY10 FY11E FY12E FY13E

ShareCapital 186.7 186.9 186.9 186.9

CapResonConsol 20.6 20.6 20.6 20.6

Reserves

5721.4

7247.9

8600.7

10240.9

ShareholdersFunds 5928.7 7455.4 8808.2 10448.4

MinorityInterest 490.0 594.3 594.3 594.3

TotalDebt 4390.8 4084.7 4601.7 3996.1

TotalLiabilities 10809.4 12134.4 14004.2 15038.8

FixedAssets 5315.6 5524.5 6674.6 6832.2

Goodwillon

Consolidation848.5 832.3 832.3 832.3

Investments 779.0 749.0 749.0 749.0

SundryDebtors 2800.3 3290.4 3775.1 4519.8

CashandBank 469.3 697.9 713.3 620.3

LoansandAdv. 608.9 683.8 784.5 939.3

Inventory 2351.8 3107.7 3565.5 4268.8

CurrentAssets 6230.3 7779.8 8838.4 10348.2

CurrentLiabilities 1703.9 2171.2 2472.0 3052.1

Provisions 210.7 103.3 117.6 145.2

CurrentLiabilities 1914.6 2274.5 2589.6 3197.3

NetCurrentAssets 4315.7 5505.3 6248.8 7150.9

Def.TaxAssets(Net) (449.4) (476.7) (500.5) (525.6)

TotalAssets 10809.4 12134.4 14004.2 15038.8

CASHFLOWSTATEMENT(Consol) Rs.mn

Y/EMarch FY10 FY11E FY12E FY13E

RPAT 1017.3 1707.9 1680.8 2022.9

Depreciation 336.5 504.5 567.6 692.4

ChginDeferredtax 38.0 27.3 23.8 25.0

ChginWorkingcap (183.2) (960.9) (728.1) (995.0)

Cashflowfrom

operations1208.6 1278.8 1544.1 1745.3

ChginGrossPPE (362.1) (920.5) (1800.0) (800.0)

ChginWIP (117.3) 207.1 82.3 (50.0)

ChginInvestments (169.1) 30.0 0.0 0.0

ChginGoodwillon

Consol

187.8 16.2 0.0 0.0

Cashflowfrom

investing(460.8) (667.2) (1717.7) (850.0)

Chgindebt (759.7) (306.1) 517.0 (605.6)

ChginNetWorth 83.3 92.1 (0.0) 0.0

ChginMinorityInterst 4.4 104.3 0.0 0.0

Dividend (210.7) (273.3) (328.0) (382.7)

Cashflowfrom

financing(882.6) (383.0) 189.0 (988.3)

Chgincash (134.8) 228.6 15.4 (93.0)

Cash

at

start

604.1

469.3

697.9

713.3

Cashatend 469.3 697.9 713.3 620.3

FINANCIALRATIOSTATEMENT(Consol)

Y/EMarch FY10 FY11E FY12E FY13E

Growth(%)

NetSales 7.3 25.8 14.7 19.7

APAT 50.4 39.8 13.2 19.0

EBITDA 23.6 31.1 13.8 22.0

Profitability(%)

EBITDAMargin 18.0 18.8 18.6 19.0

Adj.PATMargin 8.8 9.8 9.6 9.6

ROCE 12.6 15.6 15.5 16.7

ROE 19.3 21.5 20.6 20.7

PerShareData(Rs.)

Adj.EPS 10.8 15.8 18.0 21.6

Adj.CEPS

15.3

23.7

24.1

29.1

BVPS 63.5 79.8 94.3 111.8

Valuations(X)

PER 25.4 17.4 15.3 12.7

PEG 0.7 0.4 1.1 0.6

P/BV 4.3 3.4 2.9 2.5

EV/EBITDA 12.6 9.5 8.5 6.8

EV/Netsales 2.3 1.8 1.6 1.3

TurnoverDays

Debtorsdays 78 73 73 73

Creditorsdays 48 48 48 49

GearingRatio

TotalDebt

to

Equity

0.7

0.5

0.5

0.4

Source:Company,SushilFinanceResearchEstimates


12/12

June17,2011 12


RatingScale

This is a guide to the rating system used by our Equity Research Team. Our rating system

comprisesofsixratingcategories,withacorrespondingriskrating.

RiskRating

RiskDescription PredictabilityofEarnings/Dividends;PriceVolatility

LowRisk Highpredictability/Lowvolatility

MediumRisk Moderatepredictability/volatility

HighRisk Lowpredictability/Highvolatility

TotalExpectedReturnMatrix

Rating LowRisk MediumRisk HighRisk

Buy

Over15

%

Over

20%

Over

25%

Accumulate 10%to15% 15%to20% 20%to25%

Hold 0%to10% 0%to15% 0%to20%

Sell NegativeReturns NegativeReturns NegativeReturns

Neutral NotApplicable NotApplicable NotApplicable

NotRated NotApplicable NotApplicable NotApplicable

PleaseNote

RecommendationswithNeutralRatingimplyreversalofourearlieropinion(i.e.BookProfits/Losses).

** Indicates that thestock is illiquid Witha view to combat the higheracquisition cost for illiquidstocks, we

haveenhancedourreturncriteriaforsuchstocksbyfivepercentagepoints.

Additionalinformationwithrespecttoanysecuritiesreferredtohereinwillbeavailableuponrequest.

This report is prepared for the exclusive use of Sushil Group clients only and should not be reproduced, re

circulated,publishedinanymedia,websiteorotherwise, inanyformor manner, inpartorasawhole,without

the express consent in writing of Sushil Financial Services Private Limited. Any unauthorized use, disclosure or

publicdissemination

of

information

contained

herein

is

prohibited.

This

report

is

to

be

used

only

by

the

original

recipienttowhomitissent.

Thisisforprivatecirculationonlyandthesaiddocumentdoesnotconstituteanoffertobuyorsellanysecurities

mentioned herein. While utmost care has been taken in preparing the above, we claim no responsibility for its

accuracy.Weshallnotbeliableforanydirectorindirectlossesarisingfromtheusethereofandtheinvestorsare

requestedtousetheinformationcontainedhereinattheirownrisk.

Thisreporthasbeenpreparedforinformationpurposesonlyandisnotasolicitation,oranoffer,tobuyorsellany

security.Itdoesnotpurporttobeacompletedescriptionofthesecurities,marketsordevelopmentsreferredtoin

thematerial.Theinformation,onwhichthereportisbased,hasbeenobtainedfromsources,whichwebelieveto

bereliable,butwehavenotindependentlyverifiedsuchinformationandwedonotguaranteethatitisaccurateor

complete.Allexpressionsofopinionaresubjecttochangewithoutnotice.

SushilFinancialServicesPrivateLimitedanditsconnectedcompanies,andtheirrespectivedirectors,officersand

employees (to be collectively known as SFSPL), may, from time to time, have a long or short position in the

securities

mentioned

and

may

sell

or

buy

such

securities.

SFSPL

may

act

upon

or

make

use

of

informationcontainedhereinpriortothepublicationthereof.

Int Carbo Sushil 17 July 2011 Nopw

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