Initiating Coverage Commercial Engineers and Body ... C Mehta...Delhi, Mumbai, Chennai and Howrah (commonly known as the Golden Quadrilateral) and its two diagonals (Delhi-Chennai

1ACMIIL I Institutional Research I CEBBCO I Initiating Coverage

Initiating Coverage

Accumulate

12th January 2012

Commercial Engineers and Body Builders Company Limited

Rajni GhildiyalE: [email protected]: +91 22 2858 3333D: +91 22 2858 3401

Carol ShahE: [email protected]: +91 22 2858 3333D: +91 22 2858 3207

F: +91 22 2857 7647

Analyst

Key Data

CMP (`) 68

Target Price (`) 72

Bloomberg Code CEBB IN

Reuters Code CEBB.BO

BSE Code 533272

NSE Code CEBBCO

Face Value (`) 10

Market Cap (`Mn) 3752

52 Week High (`) 71

52 Week Low (`) 28

Avg. Daily Volume (6m) 102,063

Beta (Sensex) 0.84

Shareholding %

Promoters 55.0

Mutual Funds / UTI / Banks 22.9

Foreign Institutional Investors 7.3

Bodies Corporate 4.5

Individuals 10.2

Other 0.2

Total 100.0

We initiate coverage on Commercial Engineers and Body Builders Company Limited (CEBBCO), which is a leading manufacturer of vehicle bodies for commercial vehicles in India. In the railways segment, CEBBCO undertakes refurbishment of wagons and |manufacturing of components for locomotives, wagons and EMU coaches. The company is expanding in this segment by foraying into the manufacturing of railway wagons and EMU coaches. It has recently established operations in the power fabrication segment. Investment Rationale:

• Opportunity in fully built commercial vehicles Many major OEMs have indicated their intention to progressively increase their CV

production in the form of FBVs. This spells a huge opportunity for CEBBCO, which is one of the few players in the organized CV body-manufacturing segment. Due to the rising FBV penetration, the share of CEBBCO in Tata Motors Ltd. (TML), which contributes ~53% to the CV revenues, has increased from 11% in FY10 to 19% in H1FY12. To capitalize on this huge opportunity, the company has planned a capex of ~ `1 bn to expand the body production capacity. This expansion will increase the capacity by ~50% from the present 2,000 bodies per month to 3,000 bodies per month. This capex will be funded through term loans of ~`600 mn and internal accruals of ~ `400 mn .

• Reducing concentration of top client Initially, CEBBCO’s entire revenue of the CV segment was garnered through TML. This

implied over dependence even though TML is the market leader in the CV segment with a market share of ~60%. The company is thereby focusing on reducing dependence on its top client. Presently, CEBBCO provides CV bodies to Ashok Leyland, Man Force, Eicher Motors, Ministry of Defence, etc. This diversification has led to a reduction in the share of TML in the CV segment revenues to 53% in H1FY12. We expect this share to remain at ~53% through FY12 but it may further reduce to 51% in FY14E.

• Foray into wagon manufacturing CEBBCO recently forayed into the manufacturing of wagons and EMU coaches, which is

an extension to the refurbishment and component manufacturing activity undertaken by the company. This was a strategic decision, as the demand for wagons is expected to shoot up once the construction of Dedicated freight corridor is completed. A dedicated facility has been set up in Deori, Jabalpur with a capacity of 1,200 wagons & 150 EMU Coaches p.a. Wagon manufacturing is a high-realization and high-profit margin segment (with operating margins in the range of 26%-28%) compared to refurbishment of wagons and the CV segment (with oper-ating margins ranging from 8-10%). From FY14E onwards, the wagon manufacturing activity is expected to contribute a larger share to the revenues of the railway segment, as CEBBCO starts bidding for the new wagon tenders. We expect the revenue contribution by the railways to increase from ~2%-3% in FY11 to ~20% in FY14E. Over the period, this will improve the overall profitability margins of the company.

• Power: a new feather in the cap The company has recently ventured in the manufacturing of structurals for boilers and

Electrostatic Precipitators (ESPs) required by power generation projects. CEBBCO has executed orders issued by L&T and is an approved supplier to BHEL. The order book for the power segment stands at ~`250 mn as on 30th September 2011. The profitability margins of the power segment are higher compared to the CV segment. Contribution from the power segment is expected to enhance profitability.

Valuation & RecommendationAt the Current price of `68, the stock is trading at 9.5x its FY12E EPS of `7.2 and 7.1x its FY13E EPS of `9.6. However, considering the recent rally, we believe the stock is currently trading near its fair value. Therefore, with a long term perspective, we recommend the investors to ‘ACCUMULATE’ the stock with a target price of `72, 7.5x FY13E EPS.

INR Mn FY11 FY12E FY13E FY14E

Net Sales 2,121.6 4,377.7 6,045.0 6,933.2

Operating Profit 129.6 593.2 882.6 1,105.8

OPM 6.1 13.6 14.6 16.0

PAT 57.0 393.9 528.9 688.2

PAT Margin 2.7 9.0 8.7 9.5

EPS (INR) 1.0 7.2 9.6 11.9

Source: Company, ACMIIL Research


Industry

Commercial Vehicles

The Commercial Vehicles (CV) industry is broadly categorized into Light Commercial Vehicles (LCV) and Medium to Heavy Commercial Vehicles (M&HCV). Over the years, there has been a significant shift in the composition of the CV industry. The share of LCV goods segment has increased significantly over last few years. The LCV goods segment share in the overall volumes has increased from 31.4% in FY05 to 49.7% in FY11. Similarly, the industry has witnessed a decline in the share of the M&HCV goods segment (from 54.3% in FY05 to 36% in FY11). The share of passenger vehiclesegment has been stable at 14% of the overall industry volumes.

Source: SIAM

The CV industry in India is dominated by Tata Motors Ltd. (TML), enjoying a market share of ~60. Ashok Leyland Ltd. and Eicher Motors Ltd. follow TML in terms of market share. The top players have more or less maintained their market share over the years but are expected to be impacted by increasing intensity of competition from the foreign as well as domestic players.

Sources: SIAM and ACMIIL Research

Some of the long-term drivers for the industry remain favourable:

• The share of roads in the total freight transportation has increased over the years following the construction of new highways that have reduced the vehicle turnaround time. Roadways now account for 59.8% of the goods transported as against 54.8% in FY01. While competition from the railways (especially for the transportation of commodities) has increased over the last few years, on an overall basis CVs continue to offer more convenient services in many routes.

• With substantial investments being made in the power sector, the demand for coal mining is likely to remain strong, thereby facilitating the demand for high-end tippers.

• The demand for new trucks is likely to be replacement-led, considering the fact that 30% of the total truck fleet at present is estimated to be over 12 years old. The replacement demand is likely to pick up considering the increasing regulatory pressure on banning trucks older than 15 years.

• The CV replacement cycle is becoming shorter following the launch of technologically advanced vehicles (that offer higher mileage and reliability). The tipper segment, which has shorter replacement cycles of four to five years, is witnessing a strong replacement demand.

After registering a strong 30% growth over the past two fiscals, the growth in the CV sector appears to be slowing down, in line with the trends being witnessed by the broader automobile sector. During April-May 2011, the domestic CV sector posted a modest 12% growth on YoY basis compared to 27% in FY11. Rising interest rates, slowing industrial output, substantial increase in vehicle prices coupled with high-base effect of the previous years are the main factors affecting growth in the sector.


Source: SIAM

Over the past six months, Original Equipment Manufacturers (OEMs) have taken successive price increases to pass on the impact of changes in emission norms and increase in commodity prices. The rising diesel prices have also impacted the operating economics, as diesel is a major part of a freight operators’ cost structure. This coupled with higher interest rates has led to a substantial increase in the cost of vehicle ownership for fleet operators. At the same time, freight rates on major routes have remained relatively stagnant, thereby indicating that fleet operator’s profitability and cash flows are coming under pressure.

Source: Bloomberg

Growth in the CV segment is closely related to the growth in freight transport by road and in turn with the industrial output. Though the IIP data has been highly volatile, the trend points to a slowdown in the economic activity. This in turn indicates a potential slowdown in the demand for M&HCVs going forward. Additionally, the subdued demand from the construction segment and mining ban in some regions has also impacted the demand for tippers in some markets.

Source: ICRA, ACMIIL Research

Given the current scenario, the growth in the CV segment in FY12 is expected to moderate to 13-14%. The M&HCV segment, which tends to be more vulnerable to a slowdown, is likely to experience a much lower growth, while the LCV segment could continue to witness a relatively better growth.


Railways

Indian Railways (IR) makes 70% of its revenues and most of its profits from the freight sector by carrying goods ranging from mineral ores, fertilizers and petrochemicals, agricultural produce, iron & steel, etc. Freight revenue and traffic of the IR has witnessed a high growth rate since the begining of this decade. The IR recorded freight traffic growth of 6.9% CAGR in the last decade and has registered CAGR of 6.1% during FY07 (final year of X Plan) to FY11. The growth in railway freight has in turn increased the demand for railway wagons.

Source: Indian Railways

The IR has decided to expand its wagon and coach capacity in the coming years to increase the freight transportation through railways. For this, the IR has planned to set up Dedicated Rail Freight Corridors (DRFC) on specific routes. The IRs’ quadrilateral linking the four metropolitan cities of Delhi, Mumbai, Chennai and Howrah (commonly known as the Golden Quadrilateral) and its two diagonals (Delhi-Chennai and Mumbai-Howrah), carry more than 55% of the revenue earning freight traffic. The existing trunk routes of Howrah-Delhi on the Eastern Corridor and Mumbai-Delhi on the Western Corridor are highly saturated with the line capacity utilization varying between 115-150%. The surging power needs requiring heavy coal movement, booming infrastructure construction and growing international trade has led to the conception of the DRFC along the Eastern and Western Routes (See Annexure 1). This marks a strategic inflexion point in the history of the IR that has essentially run mixed traffic across its network.

Source: Indian Railways, Vision 2020.

The freight loading growth target and the DRFC are expected to raise demand for railway wagons. The IR needs to induct at least 20,000 new wagons every year to facilitate the projected freight. Presently, the IR has about 2.5 lakh wagons in its fleet out of which 4,500 wagons are being scrapped every year, as wagons have a shelf life of 25 years . Also, ideally wagons need to be refurbished in 10-12 years. But due to overloading practices in India, wagons require refurbishment in 6-7 years. As more wagons are procured, the refurbishment requirement is also expected to rise.

(In Nos) As per 10th plan FY02-07

As per 11th plan FY08-12

IR Vision 2020 FY11-12

IR Vision 2020 FY13-20

Investment FY11-20 (` Bn)

New wagons 65,000 62,000 33,909 255,227 867.4

Coaches 9,160 17,500 5,322 33,855 NA

EMU 1,965 3,619 1,175 7,475 NA

DEMU 750 1,381 415 2,638 NA

Total coaches 11,875 22,500 6,912 43,968 825.2



The IR sources wagons from public as well as private players. Among the private players, Texmaco Rail & Engineering Ltd. and Titagarh Wagons Ltd. are the largest manufacturers of railway wagons, with both companies together accounting for ~40% of the market share.

Delays in orders due to slowdown

Growth in freight traffic is witnessing a downward trend since past three years on account of the overall slowdown in the Indian economy and the same has impacted the new wagon manufacturing industry as well. The IR has not placed any wagon manufacturing orders in FY12. Similarly, there have been no major orders for refurbishment since two fiscals. The IR is also expected to prune the FY13 wagon orders from the current 18,000 to 12,000.

Company Background

The Company was incorporated on September 28, 1979 as Commercial Engineers on Body Builders Co. Private Limited. on March 25, 2010, it was renamed as Commercial Engineers and Body Builders Co. Limited (CEBBCO), following a change in the constitution of the company from private limited to public limited . CEBBCO is one of the leading manufacturers of vehicle bodies for commercial vehicles in India. CEBBCO operates in three segments, viz. commercial vehicles, railways and power.

In the commercial vehicles segment, they are mainly involved in manufacturing bodies for tippers and load bodies in the domestic defence sector. In the railways segment, CEBBCO undertakes refurbishment of wagons and manufacturing of components for locomotives, wagons and EMU coaches. The company is expanding in this segment by foraying into the manufacturing of railway wagons and EMU coaches. It has recently established operations in the power fabrication segment.

The Company has a total of five manufacturing facilities (located in Madhya Pradesh and Jamshedpur) and caters to Tata Motors Ltd., Ashok Leyland Ltd., Man Force Trucks Pvt. Ltd., Ministry of Defence, Indian Railways, etc.

Business Model

Source: Company

CV Product portfolio

Application CV ProductsMining and road construction Tippers and tankers.

Goods transportation Load cargo bodies, refrigerated bodies and containers and trailers.

Solid water management Skip loaders and garbage bin collectors.

Municipal applications Water tanker bodies, light recovery vehicles and garbage tippers.

Defence sector Troop carrier vehicle bodies, prison van bodies and water bowser bodies.

Railways Refurbishment and components.

Source: Company

CEBBCO

CommercialVehicles Power Railways

TippersLoad Bodies

& Tankers

DefenseBodies &

Components

Trailers & Refrigerated

Vans

Refurbishmentof Wagons Components

New Wagons&

EMU Coaches

Structurals for ESPs


Investment Rationale

Opportunity in fully built commercial vehicles

Traditionally, CVs have been sold as chassis and the bodies of the CVs were built by small enterprises in the unorganized sector. On the contrary, the fleet operators have now started to increasingly adapt to the fully built vehicles (FBVs). Generally, FBVs are preferred over chassis as finance can be availed on the entire vehicle. Also, this ensures quality and guarantees a long shelf life. Currently, only 25% of the total CVs sold are FBVs (Source: Company). Many major OEMs have indicated their intention to progressively increase their CV production in the form of FBVs. This spells a huge op-portunity for CEBBCO, which is one of the few players in the organized CV body-manufacturing segment. Due to the rising FBV penetration, the share of CEBBCO in Tata Motors, which contributes ~53% to the CV revenues, has increased from 11% in FY10 to 19% in H1FY12.

Source: ACMIIL Research

To capitalize on this huge opportunity, the company has planned a capex of ~ `1 bn to expand the body production capacity. This expansion will increase the capacity by ~50% from the present 2,000 bodies per month to 3,000 bodies per month. This capex will be funded through term loans of ~`600 mn and internal accruals of ~ `400 mn .

Location advantages

Source: Company


Plants Location Commencement of production ProductsRichhai Plant I Madhya Pradesh 1979 Tippers, load cargo bodies, recovery van bodiesand tankers.

Richhai Plant II Madhya Pradesh 2009 Tippers, load cargo bodies, refrigerated vans and locomotive components and long hood structures.

Mandla Plant Madhya Pradesh Jun-05 Tippers, load cargo bodies and trailers.

Indore Plant Madhya Pradesh Nov-08 Tippers, load cargo bodies and trailers.

Plant V Jamshepur Dec-09 Tippers and load cargo bodies

Source: Company

The manufacturing facilities of CEBBCO are located in Madhya Pradesh (except one in Jamshedpur). Jabalpur serves as a central location to major OEMs across India, providing proximity to the fully built vehicle business of Tata Motors established in Lucknow, Vehicle Factory in Jabalpur, Indore plant of Eicher Motors, etc. This proximity to the clients helps CEBBCO reduce transportation and lead time costs. Major raw material for CEBBCO is steel. Its plants are located close to Orissa and Jharkhand from where it sources steel. Steel prices have witnessed an upmove over couple of months and this cost is completely passed on to the clients by CEBBCO. Apart from this, other overheads such as labour costs, administrative costs, local transport costs are also lower in these locations.

Source: Company

Reducing concentration of top client

Initially, CEBBCO’s entire revenue of the CV segment was garnered through TML. This implied over dependence even though TML is the mar-ket leader in the CV segment with a market share of ~60%. The company is thereby focusing on reducing dependence on its top client. This is evident from the below chart. Presently, CEBBCO provides CV bodies to Ashok Leyland, Man Force, Eicher Motors, Ministry of Defence, etc. This diversification has led to a reduction in the share of TML in the CV segment revenues to 53% in H1FY12. We expect this share to remain at ~53% through FY12 but it may further reduce to 51% in FY14E.



MOU with Disaster Response Solution (DRS) Inc.

Recently, CEBBCO tied up with Disaster Response Solution (DRS), Inc. an Ohio based corporation that is the leading supplier to Homeland Security of the USA . DRS is entering India and is desirous of providing its products and services. Under the terms of the MOU, CEBBCO will have an exclu-sive right over the supplies CV bodies to all the vehicles that would be made by DRS in India. The estimated requirement for vehicles is around 1,000 units (Source: Company). This MOU will help CEBBCO to further diversify its CV client base. The company has not yet received any orders through the tie up. Hence, we have not factored any revenue from the tie up in our estimates. As and when the orders are received, they will be an addition to our current estimates.

Source: Company

Foray into wagon manufacturing

CEBBCO recently forayed into the manufacturing of wagons and EMU coaches, which is an extension to the refurbishment and component manufac-turing activity undertaken by the company. This was a strategic decision, as the demand for wagons is expected to shoot up once the construction of DRFC is completed. A dedicated facility has been set up in Deori, Jabalpur with a capacity of 1,200 wagons & 150 EMU Coaches p.a.

The management expects to get an approval from the Railway Design and Standards Organisation (RDSO) for the commencement of wagon manufacturing by the end of FY13E, post the completion of 500 wagon to be manufatured on trial basis. This will enable the company to bid for the tenders floated by the IR.

CEBBCO is a relatively new player in a segment that is dominated by the top two players i.e. Texmaco and Titagarh Wagons. The two major players constitute 40% of the wagon manufacturing market share. CEBBCO expects to build credentials on the basis of the cost advantages it enjoys. The RDSO approval will enable the company to bid for 25% of the newly floated tenders, where the winner would be the one quoting the lowest bid price (See Annexure 2). Wagon manufacturing is a high-realization and high-profit margin segment (with operating margins in the range of 26%-28%) compared to refurbishment of wagons and the CV segment (with operating margins ranging from 8-10%). From FY14E onwards, the wagon manufacturing activity is expected to contribute a larger share to the revenues of the railway segment, as CEBBCO starts bidding for the new wagon tenders. We expect the revenue contribution by the railways to increase from ~2%-3% in FY11 to ~20% in FY14E. Over the period, this will improve the overall profitability margins of the company. No orders for EMU Coaches are expected for one and half years as the tenders are floated only once in two years.


Recently, the company bagged an order worth ~`400 mn from Braithwaite & Co, Ministry of Railways for the fabrication and assembly of 247 wagons. The railway order book as on 30th September 2011 stands at ~`200 mn (excluding the order from Braithwaite & Co.). The IR has not issued any new major orders for wagon refurbishment in the last two fiscals. Also, the order book does not comprise any pending refurbishment orders. Hence, we have not factored in any revenue from refurbishment in our estimates and the orders as and when received will be an addition to our current estimates.

CV Clients

Tata Motors Ltd. Ashok Leyland Ltd. Reliance Ind. LtdReliance

Petroleum Ltd.Ashok MotorWorks Ltd.

Man Force Trucks Pvt. Ltd.

Ministryof Defence

Hino Motors Sales India Pvt.

Ltd.


Power: A new feather in the cap

The company has recently ventured in the manufacturing of structurals for boilers and Electrostatic Precipitators (ESPs) required by power generation projects. These are manufactured at the existing facilities and no major capital expenditure has been incurred. CEBBCO has executed orders issued by L&T and is an approved supplier to BHEL. The company expects to leverage its relationship with its clients for prospective tie-ups. It may also expand capacities as and when required. The current order book for the power segment stands at ~`250 mn. The profitability margins of the power segment are higher compared to the CV segment. Contribution from the power segment is expected to enhance profitability.

Key Concerns

Slowdown in the commercial vehicles segment

The growth in the CV sector appears to be slowing down in line with the trends being witnessed by the broader automobile sector. Rising interest rates, slowing industrial output, substantial increase in vehicle prices coupled with high-base effect of the previous years are the main factors affecting growth in the sector. Given the slowdown in the CV segment, SIAM had forecatesd a moderate growth of 13%-15% for FY12E. But recently, SIAM has relooked at its estimates and revised the growth forecast to 18%-20% for FY12E and 12%-14% for FY13E. However, CEBBCO is expected to be least-affected by this slowdown on the back of increasing penetration of FBVs. We expect, CV sales in the industry to register CAGR of ~15% during FY11-FY14E and CEBCCO to register CAGR of ~36% during the said period.

Source: SIAM, ACMIIL Research

Non-receipt or delay in orders from the Indian Railways

After entering the railway segment through refurbishment of old wagons, CEBBCO is now planning to enter the wagon and coach manufacturing business. Orders in this line of business are procured through bidding for tenders and the existing players with their performance track records are likely to get a greater share of the orders from the Indian Railways. CEBBCO being a new entrant to this segment, though procuring orders in the initial period would be a challenging task but as the company is strategically located at Jabalpur, it enjoys comparetively lower labour costs.

Moreover, due to economic slowdown, the IR has not yet released any orders for new wagons in FY12 as guided by the railway budget. The IR has also deterred from issuing any major refurbishing orders for almost two fiscals. Delay or lack of orders is likely to affect the company’s future growth prospects.

Increase in Raw Material prices

Steel is a major raw material in the production of CVs and wagons. Steel prices have gradually increased in the recent past. Rise in steel prices are passed on to the clients by CEBBCO. So, it will not impact the profit margins but will impact the overall demand for CVs and thus the volumes.

Source: Bloomberg


Financials

Revenue Growth

We expect CEBBCO to register net sales of ~` 4380 mn, growth of 106% YoY. This growth is expected to come from an increase in CEBBCO’s offerings to TML and growth in the CV segment following the rising demand of FBVs. Also, the railways segment which contributed a mere 2%-3% to the FY11 revenues is expected to contribute ~ 13% in FY12E on the execution of orders for new wagons and components. The power segment has also started to contribute to the revenues.


Expansioninprofitmargins

We expect the operating margins of the company to improve with an increase in the contribution from the high margin railway and power segments. These segments enjoy better operating margins (~26% and ~18% respectively) compared to the CV segment (8-10%). We expect the operating margin to improve from ~6% in FY11 to ~16% FY14E.


EnjoyingtaxbenifitsfromFY11onwards

The company is eligible for MAT rate from FY11 onwards. Therefore, the tax rate has substantially come down for the company from ~34% in FY10 to ~22% in FY11. CEBBCO is expected to pay taxes at 19%-20% from the current fiscal. The company has a MAT credit worth ~`70 lakhs as on 30th September 2011.



Valuation and Recommendation

Considering the increasing demand for FBVs in the CV segment and the capacity expansion, foray into manufacturing of wagons, diversification into the power sector and the loactional advantages that CEBBCO enjoys over its counter parts, we expect CEBBCO’s topline and bottomline to grow at 48% and 126% CAGR respectively during FY11-14E. At the CMP of `68, the stock is trading at 9.5x its FY12E EPS of ` 7.2 and 7.1x its FY13E EPS of `9.6. However, considering the recent rally, we believe the stock is currently trading near its fair value. Therefore, with a long term perspective, we recommend the investors to ‘ACCUMULATE’ the stock with a target price of `72, 7.5x FY13E EPS.



Financials

Profit and Loss Account (in ` mn)

Particulars FY10 FY11 FY12E FY13E FY14E

Net Sales 1,828.6 2,121.6 4,377.7 6,045.0 6,933.2

Cost of Goods Sold 1,297.9 1,763.8 3,377.4 4,557.9 5,106.3

Gross Profit 530.8 357.9 1,000.3 1,487.1 1,826.9

Employee Cost 73.9 105.2 144.5 229.7 277.3

Selling & Adminitration Expenses 92.1 123.0 262.7 374.8 443.7

Operating Profit 364.8 129.6 593.2 882.6 1,105.8

Other Income 47.9 74.3 35.0 48.4 55.5

EBITDA 412.7 203.9 628.2 930.9 1,161.3

Depreciation and Ammortization 36.4 38.5 64.7 108.0 125.3

EBIT 376.3 165.4 563.5 822.9 1,036.0

Interest Expense 68.3 92.7 71.2 161.8 217.0

PBT 308.0 72.7 492.4 661.1 819.0

Tax Paid 105.0 15.7 98.5 132.2 163.8

PAT 203.0 57.0 393.9 528.9 655.2


Balance Sheet (in ` mn)


SOURCES OF FUNDS:

Share Capital 429.0 549.4 549.4 549.4 549.4

Securities Premium 0.0 1,283.8 1,283.8 1,283.8 1,283.8

Reserves & Surplus 282.8 339.7 733.6 1,262.5 1,917.7

Shareholder's Fund 711.7 2,173.0 2,566.9 3,095.8 3,751.0

Short Term Loan 547.7 461.2 931.5 1,282.7 1,463.2

Long Term Loan 0.0 0.0 0.0 600.0 600.0

Loan Funds 547.7 461.2 931.5 1,882.7 2,063.2

Deferred Tax Liability 6.0 11.5 21.9 30.2 34.7

Funds Employed 1,265.4 2,645.7 3,520.2 5,008.7 5,848.8

APPLICATION OF FUNDS:

Gross Block 364.8 578.0 1,078.0 1,878.0 2,278.0

Less : Accum. Depreciation 114.7 151.5 216.2 324.2 449.5

Net Block 250.1 426.5 861.8 1,553.8 1,828.6

Capital Work in Progress 199.5 764.6 264.6 464.6 64.6

Investments 6.3 383.7 383.7 383.7 383.7

Net Current Assets 809.4 1,070.9 2,010.1 2,606.5 3,571.9

Funds Deployed 1,265.4 2,645.7 3,520.2 5,008.7 5,848.8



Cash Flow Statement (in ` mn


Profit Before Tax 308.0 72.7 492.4 661.1 819.0

Working Capital Changes -560.7 55.4 -882.4 -638.6 -328.2

Cash Flow from Operations -154.6 235.4 -289.2 244.0 777.7

(-) Tax Paid 56.8 80.5 98.5 132.2 163.8

Cash flow from Operating Activities -211.4 154.9 -387.7 111.7 613.9

Cash Flow from Investing Activities -198.4 -1,155.0 35.0 -951.6 55.5

Cash Flow from Financing Activities 407.6 1,225.0 409.5 797.8 -32.1

Increase/Decrease in cash and cash equivalents -2.3 224.9 56.8 -42.1 637.3

Opening Cash Balance 37.4 35.2 260.1 316.9 274.8

Closing Cash Balance 35.2 260.1 316.9 274.8 912.1


Ratios


Profitability Ratios (%)

Gross Profit Margin 29.0 16.9 22.9 24.6 26.4

Operating Profit margin 20.0 6.1 13.6 14.6 16.0

EBITDA Margin 22.6 9.6 14.4 15.4 16.8

PBIT Margin 20.6 7.8 12.9 13.6 14.9

PBT Margin 16.8 3.4 11.2 10.9 11.8

PAT Margin 11.1 2.7 9.0 8.7 9.5

RONW 28.5 2.6 15.3 17.1 17.5

ROCE 24.3 2.7 14.0 13.2 14.0

Per Share (`)

Earnings 3.7 1.0 7.2 9.6 11.9

Cash Earnings 4.4 1.7 8.3 11.6 14.2

Cash 0.6 4.7 5.8 5.0 16.6

Capital Structure Ratios

Debt/Equity 0.8 0.2 0.4 0.6 0.6

Current Ratio 2.2 2.7 2.9 2.8 3.2

Turnover Ratios (x)

Debtors Turnover (x) 31.4 69.2 66.5 66.4 66.4

Fixed Asset Turnover (x) 5.0 3.7 4.1 3.2 3.0

Growth Ratios (%)

Revenue 63.2 16.0 106.3 38.1 14.7

Operating profit 152.6 -64.5 357.6 48.8 25.3

Net profit 235.0 -71.9 591.1 34.3 23.9

Valuation Ratios (x)

EV/ EBITDA 10.3 19.3 6.9 5.7 4.2

PE 18.4 65.6 9.5 7.1 5.7



Annexure 1

Dedicated Rail Freight Corridor

The Indian Railways’ quadrilateral linking the four metropolitan cities of Delhi, Mumbai, Chennai and Howrah(commonly known as the Golden Quad-rilateral) and its two diagonals (Delhi-Chennai and Mumbai-Howrah), carry more than 55% of the revenue earning freight traffic.. The existing trunk routes of Howrah-Delhi on the Eastern Corridor and Mumbai-Delhi on the Western Corridor are highly saturated with the line capacity utilization vary-ing between 115-150%. The surging power needs requiring heavy coal movement, booming infrastructure construction and growing international trade has led to the conception of the Dedicated Rail Freight Corridors (DRFC) along the Eastern and Western Routes.

In the first phase, Dedicated Freight Corridor Corporation of India (DFCCIL) will be constructing two corridors – the Western DFC and Eastern DFC- spanning a total length of about 3300-route km. The Eastern Corridor, starting from Delhi to Kolkata and the Western Corridor will traverse the distance from Delhi to Mumbai. This project is expected to be completed by 2016-17.

WESTERN DRCF EASTERN DRCF

Source: DFCCIL


*All players have to execute the contracts at lowest bidding price (L1)

Annexure 2

Wagon procurement process - IR



Institutional Sales:

Prakash Diwan I D: 91 22 2858 3400

Aditya Mehta I D: +91 22 2858 3004

E: [email protected]

Institutional Dealing:

Kirti Bagri I D: +91 22 2858 3730

E: [email protected]

Disclaimer:This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in the report. ACMIIL and/or Promoters of ACMIIL and/or the relatives of promoters and/or employees of ACMIIL may have interest/position, financial or otherwise in the securities mentioned in this report. To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views expressed in the report

Disclosure of Interest CEBBCO

1. Analyst ownership of the stock NO

2. Broking Relationship with the company covered NO

3. Investment Banking relationship with the company covered NO

4. Discretionary Portfolio Management Services NO

This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may from time to time have positions in and buy and sell securities referred to herein. SEBI Regn No: BSE INB 010607233 (Cash); INF 010607233 (F&O), NSE INB 230607239 (Cash); INF 230607239 (F&O

Bloomberg page : ACMI

Documents

Initiating Coverage Commercial Engineers and Body ... C Mehta...Delhi, Mumbai, Chennai and Howrah (commonly known as the Golden Quadrilateral) and its two diagonals (Delhi-Chennai