Date: April 15, 2019 PCG - Pick-of-the-Week... · Hikal was incorporated on July 8, 1988 as a private limited company with the name Hikal Chemicals Industries Private Limited. It

Date: April 15, 2019

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Equity Research

Pick of the Week – PCG Research

Deals with marquee MNCs since long

New products along with ramp up in existing products to lead

growth

Facilities comply with various regulatory authorities; Five

successful US FDA audits for Bengaluru facility

Hikal

INDUSTRY

CMP

RECOMMEND edeedede

ed

ADD ON DIPS TO

TARGET

TIME HORIZON ed

Chemicals/Pharmaceuticals

Rs 175.2

Buy at CMP and add on declines

Rs 161 – 175

Rs 218 Rs 139

4 quarters

Key Highlights

Expertise in APIs to drive Pharma segment growth

Estimate 17% revenue and 27% EPS CAGR over FY18-21E

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Equity Research


HDFC Scrip Code HIKLTD

BSE Code 524735

NSE Code HIKAL

Bloomberg HKCL IN

CMP Apr 12, 2019 175.2

Equity Capital (cr) 24.7

Face Value (Rs) 2

Eq- Share O/S (cr) 12.4

Market Cap (Rs cr) 2161

Book Value (Rs) 61.8

Avg.52 Wk Volume 319381

52 Week High 207

52 Week Low 135

Red Flag Level 139

PCG Risk Rating * Yellow

Shareholding Pattern % (Dec 31, 2018)

Promoters 68.8

Institutions 06.0

Non Institutions 25.2

Total 100

FUNDAMENTAL ANALYST

Kushal Rughani [email protected]

Company Profile: Hikal was incorporated on July 8, 1988 as a private limited company with the name Hikal Chemicals Industries Private Limited. It was started by the Hiremath family and Surajmukhi Investments & Finance, a wholly-owned subsidiary of Kalyani Steels as the shareholders. The company got listed in 1995 and subsequently in 2000, the name was changed to Hikal. It started commercial production in 1991 at Mahad (Maharashtra) facility. Further, it started manufacturing intermediates for dyes, pharmaceuticals and agrochemicals. The plant at Taloja (Maharashtra) was built in technical collaboration with Merck and is a fully-integrated plant to produce Thiabendazole in the world. Hikal is engaged in the manufacturing of various Chemical Intermediates, Specialty Chemicals, Active Pharmaceutical Ingredients (APIs) and Contract Research Activities. Its segments include Crop Protection and Pharmaceuticals. It offers agrochemicals, including active ingredients, such as Ammonium dithiocarbamate, Amitrole Tech, Diuron Tech, Ethion Tech, Imazalil Tech, Isoproturon Tech, Meta Chloro Aniline (MCA) and intermediates while specialty chemicals includes Phenyl-2-(phenylthio)-phenyl carbamate, 4-(Benzyloxy) Aniline Hydrochloride, N-Benzylpiperidine-4-carboxaldehyde, 3-Chloroaniline and 4 Aminobenzylamine. Its APIs include Gabapentin, Pregabalin, Quetiapine Fumarate, Memantine Hydrochloride, Venlafaxine Hydrochloride and Donepezil Hydrochloride. The company operates in geographical areas, including India, Europe, the United States, Canada and South East Asia. The company derived 60% revenues from Pharmaceuticals and 40% from Crop Protection Chemicals. In terms of EBIT, Pharma contributed 52% while Crop segment at 48%.

Investment Rationale For years, the company has been dealing with marquee MNCs like Merck & Co, Bayer, Syngenta, BASF, Pfizer to name a few. With proven capabilities and management pedigree, we believe Hikal offers a compelling value proposition . It continues to expand in both Pharma and Crop Protection segments with separate focus and a calibrated approach. This augurs well in the current scenario when Chinese supply disturbances are likely to create opportunities for Indian players both in APIs and crop protection Contract Development and Manufacturing Organization(CDMO). The company has spent ~Rs 500 crore over the last five years to augment capacities. After years of volatility in growth, Hikal has been witnessing a relatively stable growth trajectory. The company has been able to pass through US FDA audits for its Bengaluru facility with zero observations five times in a row, which indicates high level of quality and compliance levels from the company. Hikal is engaged in manufacturing of various active ingredients, intermediates and R&D services to Global Pharmaceuticals, Animal Health, Crop Protection and Specialty Chemicals companies. The key segments include: Crop Protection and Pharmaceuticals, which accounted for 58% and 42% respectively, of operating revenues in FY18. The Pharma business currently is divided almost equally between generic Active Pharma Ingredients (APIs) and Contract Research & Manufacturing (CRAMS) businesses. Animal health business accounts for 8-10% of overall pharma revenues. In agrochem, 70% of revenues are derived from CRAMS with the remainder from proprietary products. Hikal owns five manufacturing facilities: Taloja, Mahad (Maharashtra), Panoli (Gujarat) Jigani (Karnataka) and an R&D centre in Pune. More than 70% of revenues are derived from export markets, mainly Europe, US and Japan. Hikal is one the largest supplier of Gabapentin (CNS) in Pharma and one of the biggest player in Thiabendazole (Crop Protection). We expect revenue to post 10.5% CAGR led by continuous robust growth momentum from its premium & above segment. As revenues from P&A grows faster, we believe margin would expand further. In 9M FY19, the company has already posted 250 bps surge to 17.6%. Strong sales coupled with operating margin expansion and lower finance costs would ensure

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Key Highlights

Hikal is engaged in the manufacturing of

various chemical intermediates, specialty chemicals, active pharmaceutical ingredients (APIs) and contract research activities. Its segments include Crop Protection and Pharmaceuticals.

The company derived 60% revenues from Pharmaceuticals and 40% from Crop Protection Chemicals. In terms of EBIT, Pharma contributed 52% while Crop segment at 48%.

For years, the company has been dealing

with marquee MNC names like Merck & Co, Bayer, Syngenta, BASF, Pfizer to name a few. With proven capabilities and management pedigree, we believe Hikal offers a compelling value proposition as it continues to expand in both Pharma and Crop Protection segments with separate focus and a calibrated approach.

Company is one the largest supplier of Gabapentin (CNS) in Pharma and one of the biggest player in Thiabendazole (Crop Protection). Company had filed Pregabalin (CNS) DMF in 2014, which would also start adding revenues in FY20E.

We estimate revenues may grow 17%

coupled with 50bps expansion over FY19-21E. PAT is expected to see 27% CAGR led by strong revenues and lower finance costs.

Company Profile & its Key Segments Pharmaceutical Business: Favourable demand from existing products and new introductions to drive growth The Pharmaceutical business is mainly export-oriented with ~55% of sales derived from the US, 30% from Europe and the balance from the rest of the world (RoW). During FY15-18, Pharma segment grew at ~12% CAGR due to 1) timely addition of capacity, 2) new products launches, 3) improved market share in existing products, 4) windfall on account of API supply constraints from China and 5) favourable currency. The company ’s primary focus is on Central Nervous System (CNS) and anti-diabetic segments. The Jigani (Karnataka) facility manufactures key APIs for the pharmaceutical industry and has been approved by the US FDA, PMDA (Japan) and the European Union Authorities. The segment revenue is equally divided into CRAMS and Active Pharma Ingredients (API) business. In the CRAMS segment, the company offers early-stage R&D services such as synthesis, scale-up, API development, stability studies and method development all the way through manufacturing services, ranging from preclinical R&D material for clinical trial purposes and commercial production, Phases I through IV. As part of the proprietary portfolio, the company had filed 3 DMFs in FY18 and guided for 4 to 6 DMF filings in FY19. It also plans to file 5 to 6 DMFs each year. Hikal has filled > 25 DMFs including Pregabalin which is used for neuropathic pain, Sitagliptin which is an anti-diabetic, Quetiapine which is an antipsychotic, Venlafaxine which is an anti-depressant and Vildagliptin which is an oral anti-diabetic. We expect Pregabalin API to add revenues in FY20E for the company and thereafter can grow at a healthy pace. The company is the world’s largest supplier of Gabapentin (CNS) API with > 30% market share. Gabapentin contributed around 35-40% of the pharmaceutical segment revenue in FY18. The molecule has shown steady volume growth, despite being off-patent and has been instrumental in the growth of the company. Going forward, further growth is projected for this API with expected capacity expansion owing to increasing demand from customers. We expect the pharmaceutical business revenue to clock CAGR of 18.7% over FY18-21E. This is better than ~12% CAGR over FY14-18, on the back of expected commercialisation of 5-6 products and strong volume growth in existing products led by health demand. On the margin front, we expect introduction of high margin products and several cost rationalisation initiatives taken at pharmaceutical manufacturing plants to result in margin improvement. Hikal spends 3-4% of total revenues in R&D filing and developing own proprietary products in both Pharma and Crop Protection segments. Company has also developed a new API for Pregabalin (CNS) using an enzymatic process that is both cost-effective and environmental friendly, which would start adding revenues from FY20E. Largest supplier of Gabapentin API The company is world’s largest supplier of Gabapentin, an API for Neuropathic use. A market leader in the product, Gabapentin is used with other medications to prevent and control seizures. It is also used to relieve nerve pain following shingles (a painful rash due to herpes zoster infection) in adults. Gabapentin is known as an anticonvulsant or antiepileptic drug. It may also be used to treat other nerve pain conditions (such as diabetic neuropathy, peripheral neuropathy, trigeminal neuralgia).

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Hikal has a long-term contract manufacturing agreement(s) with a European innovator client to commercially manufacture molecules which is gaining momentum. The molecules are performing well in the market and volumes have increased substantially. These products are expect ed to grow in the future according to the positive indications received from the clients.

Animal healthcare segment to post significant growth The three-pronged strategy for API development (already generic, to be generic and future generic) will help generate revenues in the short-term, as well as build a pipeline from a long-term perspective. Hikal continues to work on implementing new technologies and develop innovative processes that will differentiate the company from other API suppliers. Going forward, Hikal will file DMFs with novel processes having identified 6-8 new products for generic development. Furthermore, it intends to file 4-6 DMFs to develop a healthy pipeline of commercial APls every year. The products selected will be a combination of client requirements and niche molecules where the company has a definitive technology edge, to gain market share backed by expertise in advanced chemistry and backward integration. Animal healthcare also remains in focus, though it is not reported as a separate segment yet (products are reported under their respective segments currently). The Segment revenue is approximately 8% of overall pharma revenue and the management expects it to grow at a better rate than the company’s growth. Flexibility of the facility and chemistry competency’s (through R&D) are suitable for value based services in this fast growing market. The company has been investing in its Animal Health business since the last few years and plans to do so in the coming years as well. As part of the future strategy, the company also plans to treat this business as a separate unit, as it requires a focused effort. It started off with four clients that rank among the top 8 global animal health companies in the world, and are in active discussions with the remaining. We believe, the company w ill continue to add new clients and develop a pipeline in the coming years. Crop Protection segment: Stability in performance is visible Crop protection business is split between Contract Research and Manufacturing Services (CRAMS) for Global Innovators which makes up around 70% of the revenue and the Proprietary segment which accounts for the remaining 30%. This segment is dominated only by a few large companies resulting in high concentration. Along with building its own portfolio of products, Hikal also enjoys global and exclusive supplier status for some molecules. As per the management, competition in this segment is lower than pharma, largely due to fewer players and consolidation among large players. The company has enhanced focus on its own products vs. entire focus on CRAMS earlier and is beginning to develop some innovative agrochem products as well. For crop protection, Hikal has a pipeline of 3-4 products/year, of which 1-2 products would be its own. Sales of Thiabendazole, one of the legacy crop protection products showed stable growth in the recent years. The product is extremely versatile. It is used in both crop protection to control mould and other fungal diseases in fruits and vegetables, as well as an anti -parasitic to control roundworms. It is also used in the materials protection industry to prevent fungal growth. We expect sales of Thiabendazole to grow marginally in th e near future. On the specialty chemicals front, Hikal is working on the development of two-three products with wide usage in the chemical industry. These products have a wide range of applications, including that of an antiseptic disinfectant. As a part of future strategy, the company is progressing towards more value added products and opening newer and emerging geographies like Japan, Russia, Latin America and others where they are gaining traction. New product commercialisation will help company to reduce client and product concentration. We expect that crop protection business is set to post 14% revenue CAGR in FY18-21E.

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Key Milestones

Year Milestone 2004 US FDA approval of Bangalore Pharmaceutical manufacturing site

2005 Signs long term supply agreement with multinational Crop Protection company

2008 IFC invests 8.3% equity into the company 2008 Second successful US FDA Audit of Bangalore facility

2011 Bangalore clears its 3rd successful US FDA audit 2012 Panoli certified by the US FDA Panoli & Bangalore sites receive Japan regulatory (PMDA) approval

2013 Panoli & Bangalore Pharma Sites are EU Audited

2014 Successfully completed EDQM (European Directorate for Quality of Medicines) Audit at Bangalore site. 4th Successful US FDA audit for Bangalore facility

2017 Successfully passed US FDA Audit (Fifth) of API facility at Bengaluru with Zero 483

2017 Commissions new Mahad plant for leading global crop protection innovator company Source: Company, HDFC Sec Research Chinese players in trouble provides opportunity for Indian companies The once unparalleled Chinese bulk manufacturing capability and capability in APIs i s facing headwinds. Day by day, many facilities are getting closed, which presents a very good opportunity for Indian players to step in. What can be termed as a new opportunity for Indian players is the strategic shift of global players from single sourcing to multiple sourcing of APIs and intermediates to counter uncertainties of the future. India can be a perfect strategic fit due to dual sourcing for global customers, mainly on legacy adherence to stringent compliance and zero-discharge compliance adopted by most players at the behest of state governments besides technical capability and local sourcing. Intermediate contracts Hikal has supplied an intermediate to a US-based biotechnology company, which, in turn will supply the same as food additive f or a global FMCG conglomerate. Hikal delivered another intermediate to a leading US company for one of its APls under development. Apart from this, the company expects a repeat order of two intermediates going into a new generation API to be launched in Japan. It will supply an intermediate going into Phase-I of the oncology product used for treatment of breast cancer and investigation for different types of cancer developed by a biotech company. The company has also entered into a contract with a US-based company for process development services of a food ingredient.

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Pick of the Week – PCG Research Other Key Highlights • Last year, the company did Rs 100 cr capex, going forward, will do ~Rs 150 cr capex every year. Half of it will be financed by internal accruals, and the rest by debt. Debt won’t build up because it will also make repayments. • Chinese peers have started setting up newer facilities but the Chinese Government has become very stringent now. It won’t give any environmental leeway, unlike earlier times. This makes setting newer plants in China costlier. Hence, earlier cheaper product prices would be unlik ely. • Opportunity size for Indian players would be huge even if some capacity in China goes online again. The Indian pie of the opportunity has increased. Now customers are also laying more focus on environmental clearances, in addition to quality checks. • Bangalore facility had Japanese regulatory Authority inspection, Pharmaceuticals and Medical Devices Agency (PMDA) and the company got best ratings. The company foresees higher growth in the Japanese market as the base is currently small there. Margins in the Japanese marke t are much more lucrative. • Contract manufacturing is done usually for a five- year tenure, but as the company ensures quality, it has not lost a single client in the last 30 years. It has 75-80 percent utilisation levels on a consolidated basis. It will need to debottleneck for further increasing utilisation. • The company will follow a 10/10 strategy; not more than 10% of revenues from a single client and not more than 10% revenue from a single product. In the contract manufacturing business, margins are protected from RM fluctuations and currency volatility. • China shutdown is positive for Indian players. China is taking longer than expected to bounce and restart production. Most of the clients importing from China have burnt their hands. It lost the shine at least as of now. • No major long-term issues to the company after China shutdowns, raw material that they import always follow a dual sourcing approach. So, procuring supplies from local and Europe has lowered dependence on China. • Company is doing backward integration so that raw materials won’t be in short supply. Only key RM would be manufactured, rest would be sourced. The company has already procured the required land for capex. It would be half pharma and half crop-protection. • Company management indicates that they don’t want to be 15% margin and Rs 5000 cr revenue, rather would prefer to be 20% margins and Rs 3000 cr revenues. 9M FY19 Highlights For 9M FY19, Hikal has registered strong growth across the board. Revenues have increased 24.4% led by 26% growth from Pharma Segment and 22% from Crop Protection. PAT increased 34% to Rs 60cr due to strong revenues and stable EBITDA margin.

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Pick of the Week – PCG Research View & Valuation For more than 50% of the overall business (Pharma CDMO + Crop Protection CDMO), the company manages to pass on fluctuations in raw material prices. To mitigate the risk for the remaining pie, the company is planning to source from local vendors and make raw materials in-house through backward integration. Thus, it won’t be a risk for the company when it comes to significant rise in RM prices. For years, the company has been dealing with high profile MNCs like Merck & Co, Bayer, Syngenta, BASF, Pfizer to name a few. The company has spent ~Rs 500 crore over the last five years to augment capacity. After years of volatility in growth, Hikal is witnessing a relatively stable growth trajectory. The management has guides for around 15% growth on the back of volume gain in existing products, new launches, new client addition and geographical expansion. Continuance of China induced opportunities will also be a major factor. We estimate revenues may grow 17% coupled with 50bps expansion over FY19-21E. The pharma segment is expected to post ~16% CAGR in FY19-21E on the back of new offerings and repeat business from CDMO players. Crop protection is expected to post 12.5% CAGR in FY19-21E on the back of expansion of base business along with new launches on the back of new client’s addition and capacity addition. PAT is expected to see 27% CAGR led by strong revenues and lower finance costs. Hikal trades at ~14x FY21E earnings and 6.7x EV/EBITDA. The stock is not trading at cheap valuations however, strong revenues and earnings, a track record of continuous successful US FDA inspections and healthy return ratios give confidence. We have valued the stock at 17x FY21E earnings and arrive to TP of Rs 218. We recommend buy on Hikal at Rs 175 and add on dips to Rs 161 with TP of Rs 218 over the next 4 quarters. Key Risks & Concerns Regulatory risk Issues raised by the US FDA and other global regulatory authorities can have a detrimental impact on the company’s revenue and profitability. Any changes in the law or regulation made by the government or regulatory authorities can substantially increase the cost of operations and reduce profitability. However, strong historical track record on compliance gives comfort on the regulatory front. Foreign exchange risk The company profitability is exposed to adverse movement in foreign exchange as more than 70% of the revenues are derived from exports. Hikal enjoys some natural hedge from its imports (~50% of raw materials) as well as foreign currency debt, though it still remains exposed to adverse movement in currency. Product and Client concentration The crop protection and pharmaceuticals business are based on loan term contracts with clients. Hikal derives ~40% of pharma revenues from Gabapentin and around 15% of crop protection revenues from Thiabendazole. Although, the company expects the dependency of single product to come down to less than 10% of total revenues in the coming years, any adverse impact on any of these products in the near term could impact future growth. Exposed to adverse raw material price movement Hikal’s operations remain exposed to adverse movement in raw material movement as the contracts are generally of fixed price nature with the raw material escalation clause beyond the agreed levels. The company also started backward integration in few products to keep it insulated from supply side disruptions.

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Revenues Trend

Source: Company, HDFC Sec Research

9261014

1296

1558

1780

2071

6

10

28

20

1416

5

10

15

20

25

30

35

500

1000

1500

2000

2500

FY16 FY17 FY18 FY19E FY20E FY21E

Revenue Growth (%)

Margins would Continue to Improve


181199

242

296

342

40419.5 19.6

18.7

19.0

19.2

19.5

18.0

19.0

20.0

100

200

300

400

500


EBITDA EBITDA Margin (%)

PAT Trend over FY16-21E


41

6877

100

127

158

4

64

14

29 27 25

0

10

20

30

40

50

60

70

20

60

100

140

180


PAT Growth (%)

Exports Revenues Contribution


691 732661

905

1082

1263

149879 79

65 70

6971

72

20

40

60

80

300

600

900

1200

1500

FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Revenues Contribution

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Pharmaceutical Revenues


475538 569 611

753

933

1073

1258

0

200

400

600

800

1000

1200

1400

FY14 FY15 FY16 FY17E FY18E FY19E FY20E FY21E

Crop Protection Revenues


354 334 357

423

547

625

707

811

0

100

200

300

400

500

600

700

800

900

FY14 FY15 FY16 FY17E FY18E FY19E FY20E FY21E

R&D Expenses Trend


34.5 34.7 36.240

53

67

794.24.0 3.9

3.13.4

3.8 3.8

1.0

2.0

3.0

4.0

5.0

20

40

60

80

100

FY15 FY16 FY17 FY18 FY19E FY20E FY21E

Rs Cr % of Revenues

Segment Mix (%)


60.1

39.9

52.347.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Pharmaceuticals Crop Science

Revenues EBIT

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Balance Sheet As at March FY17 FY18 FY19E FY20E FY21E

SOURCE OF FUNDS

Share Capital 16.4 16.4 24.7 24.7 24.7

Reserves 589 653 738 840 967

Shareholders' Funds 605 669 762 865 992

Long Term Debt 320 297 288 294 285

Net Deferred Taxes 3 7 8 12 15

Long Term Provisions & Others 14 18 21 26 29

Total Source of Funds 942 991 1079 1196 1321

APPLICATION OF FUNDS

Net Block 668 630 698 755 812

CWIP 62 116 77 63 52

Long Term Loans & Advances 62 100 109 121 138

Total Non-Current Assets 792 846 884 939 1002

Inventories 264 303 364 419 484

Trade Receivables 256 287 363 415 475

Short term Loans & Advances 6 8 13 18 26

Cash & Equivalents 17 27 40 75 127

Other Current Assets 34 64 72 86 104

Total Current Assets 577 689 852 1014 1216

Short-Term Borrowings 230 277 302 287 272

Trade Payables 131 164 208 231 267

Other Current Liab & Provisions 72 108 117 128 137

Short-Term Provisions 2 4 7 9 11

Total Current Liabilities 435 553 657 714 797

Net Current Assets 142 136 194 300 420

Total Application of Funds 942 991 1079 1196 1321 Source: Company, HDFC Sec Research

Income Statement (Rs Cr) FY17 FY18 FY19E FY20E FY21E

Net Revenue 1014 1296 1558 1780 2071

Other Income 4 5 4 5 7

Total Income 1018 1301 1562 1785 2078

Growth (%) 9.6 27.8 20.2 14.2 16.3

Operating Expenses 815 1054 1262 1438 1667

EBITDA 199 242 296 342 404

Growth (%) 9.9 21.8 22.4 15.4 18.2

EBITDA Margin (%) 19.6 18.7 19.0 19.2 19.5

Depreciation 69 86 94 106 127

EBIT 133 160 206 241 284

Interest 48 49 60 58 55

Exceptional(s) -4 0 0 0 0

PBT 80 111 146 183 229

Tax 13 34 46 58 73

PAT 68 77 100 127 158

Growth (%) 64.4 14.2 29.0 27.0 24.6

EPS 5.5 6.3 8.1 10.3 12.8 Source: Company, HDFC Sec Research

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Cash Flow Statement (Rs Cr) FY17 FY18 FY19E FY20E FY21E

Reported PBT 80 111 146 182 228

Non-operating & EO items -4 -5 -4 -5 -7

Interest Expenses 48 49 60 58 55

Depreciation 69 86 94 106 127

Working Capital Change -55 16 -70 -75 -100

Tax Paid -13 -34 -46 -58 -73

OPERATING CASH FLOW ( a ) 127 224 180 214 229

Capex -114 -47 -90 -130 -60

Free Cash Flow 13 177 90 67 169

Investments 11 -38 -9 -12 -17

Non-operating income 4 5 4 5 7

INVESTING CASH FLOW ( b ) -100 -81 -96 -137 -69

Debt Issuance / (Repaid) 37 -15 -5 14 -3

Interest Expenses -48 -49 -60 -58 -55

FCFE 2 112 25 23 111

Share Capital Issuance 0 0 8 0 0

Dividend -12 -13 -15 -21 -27

FINANCING CASH FLOW ( c ) -23 -77 -72 -65 -85

NET CASH FLOW (a+b+c) 4 66 13 22 74 Source: Company, HDFC Sec Research

Key Ratios (Rs Cr) FY17 FY18 FY19E FY20E FY21E

EBITDA Margin 19.6 18.7 19.0 19.2 19.5

EBIT Margin 12.8 12.0 13.0 13.2 13.4

APAT Margin 6.7 5.9 6.4 7.0 7.5

RoE 11.7 12.1 13.9 15.6 17.0

RoCE 13.8 12.4 14.6 15.9 17.4

Solvency Ratio

Net Debt/EBITDA (x) 2.7 2.3 1.9 1.5 1.1

D/E 0.9 0.9 0.8 0.7 0.6

Net D/E 0.9 0.8 0.7 0.6 0.4

PER SHARE DATA

EPS 5.5 6.3 8.1 10.3 12.8

CEPS 16.7 19.9 15.7 18.9 23.1

BV 49.1 54.3 61.8 70.1 80.5

Dividend 1.2 0.9 1.0 1.4 1.8

Turnover Ratios (days)

Debtor days 92 81 85 85 84

Inventory days 100 80 85 86 85

Creditors days 68 65 68 68 67

VALUATION

P/E 31.9 28 22 17 13.7

P/BV 3.5 3.1 2.8 2.4 2.1

EV/EBITDA 13.4 11.0 9.0 7.8 6.6

EV / Revenues 2.6 2.1 1.7 1.5 1.3

Dividend Yield (%) 0.7 0.5 0.6 0.8 1.1

Dividend Payout 21.9 14.4 12.4 13.6 14.1 Source: Company, HDFC Sec Research

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Ratings Chart

R E T U R N

HIGH

MEDIUM

LOW

LOW MEDIUM HIGH

RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

BLUE LOW RISK - LOW RETURN STOCKS

IF RISKS MANIFEST, PRICE CAN FALL 20%

OR MORE

IF RISKS MANIFEST, PRICE CAN FALL 15% &

IF INVESTMENT

RATIONALE FRUCTFIES, PRICE CAN RISE BY 15%

IF INVESTMENT RATIONALE

FRUCTFIES, PRICE CAN

RISE BY 20% OR MORE

YELLOW MEDIUM RISK - HIGH RETURN

STOCKS


OR MORE


IF INVESTMENT




RISE BY 35% OR MORE

RED HIGH RISK - HIGH RETURN STOCKS


OR MORE


IF INVESTMENT




RISE BY 50% OR MORE

# Explanation of Red-flag Price level: If stock prices starts sustaining below red-flag level, the premise of the investment needs to be reviewed. Risk averse

investors should exit the stock and preserve capital. The downside of following red-flag level is that if the price decline turns out to be temporary and if

it recovers, subsequently one won’t be able to participate in the gains.

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Price Chart

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Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year Sell: Stock is expected to decline by 10% or more in the next 1 Year

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Equity Research


Research Analyst: Kushal Rughani ([email protected])

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) 30 75 3400 Fax: (022) 3075 3450 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 SEBI Registration No.: INZ000186937 (NSE, BSE, MSEI, MCX) |NSE Trading Member Code: 11094 | BSE Clearing Number: 393 | MSEI Trading Member Code: 30000 | MCX Member Code: 56015 | AMFI Reg No. ARN -13549, PFRDA Reg. No - POP 04102015, IRDA Corporate Agent Licence No.-HDF2806925/HDF C000222657, Research Analyst Reg. No. INH000002475, CIN-U67120MH2000PLC152193. Disclosure: I, (Kushal Rughani, MBA), 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 ou r compensation was, is, or will be directly or indirectly related to the specific recommendatio n(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. Als o 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 Re port. 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 warran ty, 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 secur ities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicit ation 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.

HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merge r or specific transaction in the normal course of business. HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third pa rty in connection with preparation of the research report. Accordingly, neither HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is no t based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this repor t. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. 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. Disclaimer : HDFC securities Ltd is a financial services intermediary and is engaged as a distributor of financial products & services like Corporate FDs & Bonds, Insurance, MF, NPS, Real Estate services, Loans, NCDs & IPOs in strategic distribution partnerships. Investment in securities market are subjec t to market risks, read all the related documents carefully before investing. Customers need to check products &features before investing since the contours of the product rates may change from time to time. HDFC securities Ltd is not liable for any loss o r damage of any kind arising out of investments in these products. Investments in Equity, Currency, Futures & Options are subject to market risk. Clients should read the Risk Disclosure Document issued by SEBI & relevant exchanges & the T&C on www.hdfcsec. com before investing. Equity SIP is not an approved product of Exchange and any dispute related to this will not be dealt at Exchange platform.

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Date: April 15, 2019 PCG - Pick-of-the-Week... · Hikal was incorporated on July 8, 1988 as a private limited company with the name Hikal Chemicals Industries Private Limited. It