Savera Industries Ltd

Enhancing investment decisions

Q3FY11 Result Update

Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process –

Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental

grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The

valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to

grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade

Assessment CRISIL Valuation Grade

Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP)

4/5 Superior fundamentals 4/5 Upside (10-25% from CMP)

3/5 Good fundamentals 3/5 Align (+-10% from CMP)

2/5 Moderate fundamentals 2/5 Downside (- 10-25% from CMP)

1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest

that can bias the grading recommendation of the company. Additional Disclosure This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer: This Exchange-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL

(Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for

any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without

any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes

investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold

any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this

Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be

reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or

published or copied in whole or in part, for any purpose.

CRISIL EQUITIES | 1

Savera Industries Ltd F&B income boost revenue

Fundamental Grade 2/5 (Moderate fundamentals)

Valuation Grade 5/5 (CMP has strong upside) Industry Hotels Restaurant & Leisure

Fair Value Rs 73 CMP Rs 38

February 16, 2011

Savera Industries Ltd’s (Savera’s) Q3FY11 revenues and earnings were higher

than CRISIL Equities’ expectations driven primarily by higher-than-estimated

food and beverage (F&B) income. Room rent income was almost in line as

higher average room rate (ARR) was offset by a slightly lower occupancy rate

(OR). Accordingly, we have calibrated our revenue and earnings estimates

keeping in mind 9MFY11 performance. Therefore, we maintain our

fundamental grade of ‘2/5’ Q3FY11 result analysis

• Savera’s Q3 revenues grew 32.5% y-o-y to Rs 119 mn backed by higher

room rental income as well as F&B income. OR increased by 18% y-o-y to

64%. However, on sequential basis total revenues declined by 4% due to

lower occupancy in Q2FY11 as some of the rooms were under

refurbishment and also due to 9% q-o-q increase in ARR to Rs 3,464.

• EBIDTA margins increased by 347 bps y-o-y to 27.8% primarily due to

the high-margin F&B business, which comprises 57% of total revenues.

• PAT grew by 266% y-o-y to Rs 18 mn primarily due to lower interest.

Similarly, PAT margins improved by 971 bps y-o-y to 15.2%. Key development

During the quarter, the company acquired a budget hotel in Bengaluru with 63 keys on a 20-year lease with fixed rental of Rs 5 lakh per month. This property is operating with OR of 25% and ARR of Rs 1,700.

Revenue and earnings estimates revised upwards

Factoring better-than-expected improvement in F&B income and revenues from the Bengaluru property, we have raised our revenue and earnings estimates for FY11 and FY12.

Valuations: Current market price has strong upside We continue to value Savera on an EV/adjusted room basis. We have assigned a multiple of Rs 4.5 mn on EV/adj.room. Although the stock has corrected in the recent past, we maintain our fair value of Rs 73 given the inherent valuation of the property. Hence, we maintain our valuation grade of ‘5/5’.

KEY FORECAST

(Rs mn) FY09 FY10 FY11E FY12E FY13E

Operating income 397 352 475 506 538

EBITDA 117 95 140 148 160

Adj PAT 5 25 62 70 83

Adj EPS-Rs 0.4 2.1 5.2 5.9 7.0

EPS growth (%) (91.7) 435.4 144.0 13.2 17.9

Dividend yield 2.7 1.2 3.1 3.5 4.1

RoCE (%) 17.4 16.4 26.1 27.8 29.7

RoE (%) 2.1 10.7 23.4 23.6 23.1

PE (x) 53.7 23.0 7.2 6.4 5.4

P/BV (x) 1.1 2.4 1.6 1.3 1.1

EV/EBITDA (x) 4.1 8.0 4.4 3.7 3.0

CMP: Current Market Price

Source: Company, CRISIL Equities estimate,

CFV MATRIX

1 2 3 4 5

1

2

3

4

5

Valuation Grade

Fu

nd

am

en

tal G

rad

e

Poor Fundamentals

ExcellentFundamentals

Str

on

gD

ow

nsid

e

Str

on

gU

psi

de

KEY STOCK STATISTICS NIFTY 5481

NSE SAVERA

Face value (Rs per share) 10

Shares outstanding (mn) 12.2

Market cap (Rs mn)/(US$ mn) 447/10

Enterprise value (Rs mn) /(US$ mn) 624/14

52-week range (Rs) (H/L) 60/29

Beta 1.1

Free float (%) 49.8

Avg daily volumes (30-days) 16,835

Avg daily value (30-days) (Rs mn) 0.8

SHAREHOLDING PATTERN

50.3% 50.3% 50.3% 52.3%

1.0% 1.0% 0.0% 0.0%

48.8% 48.8% 49.8% 47.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mar-10 Jun-10 Sep-10 Dec-10

Promoter FII DII Others

PERFORMANCE VIS-À-VIS MARKET

Returns

1-m 3-m 6-m 12-m

SAVERA -21% -42% 10% naNIFTY -28% -34% -24% 13%

ANALYTICAL CONTACT Sudhir Nair (Head) snair@crisil.com

Sandeep Panchal sapanchal@crisil.com

Bhaskar Bukrediwala bsbukrediwala@crisil.com

Client servicing desk

+91 22 3342 3561 clientservicing@crisil.com

CRISIL EQUITIES | 2

Savera Industries Ltd

Q3FY11 Result Summary (Rs mn) Q3FY11 Q2FY11 Q3FY10 q-o-q (%) y-o-y (%)

Net sales 118.85 123.60 89.73 (3.8) 32.5

Raw materials cost 15 19 14 (21.6) 9.2

Raw materials cost (% of net

sales) 12.6% 15.5% 15.3% -286bps -269bps

Employees cost 23 23 18 (0.9) 26.0

Other expenses 48 42 36 12.6 33.2

EBITDA 33 39 22 (14.8) 51.3

EBITDA margin 27.8% 31.4% 24.4% -359bps 347bps

Depreciation 6 5 6 13.4 3.5

EBIT 27.0 33.5 16.0 (19.4) 69.0

Interest and finance charges 6 6 7 (1.0) (12.7)

Operating PBT 21 28 9 (23.3) 126.8

Other Income - - - - -

Extraordinary Income/(expense) - - - - -

PBT 21 28 9 (23.3) 126.8

Tax 3 9 4 (63.6) (29.2)

PAT 18 19 5 (5.1) 265.9

Adj PAT 18 19 5 (5.1) 265.9

Adj PAT margin 15.2% 15.4% 5.5% -19bps 971bps

No of equity shares (Mn) 12 6 8 100.0 48.8

Adj EPS (Rs) 1.5 3.2 0.6 (52.5) 145.8

Source: Company, CRISIL Equ it ies

Seasonality impacts revenue growth Stable EBIDTA margin

85 7587 90

100 106124 119

-13%-12%

15%

3%

11%

6%

16%

-4%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

0

20

40

60

80

100

120

140

Mar

-09

Jun-

09

Sep-

09

Dec-

09

Mar

-10

Jun-

10

Sep-

10

Dec-

10

(Rs mn)

Net Sales Sales Growth

99

21 13 27 22 29 32 39

25%

17%

31%

24%

29%30% 31%

28%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0

20

40

60

80

100

120

Mar

-09

Jun-

09

Sep-

09

Dec-

09

Mar

-10

Jun-

10

Sep-

10

Dec-

10

(Rs mn)

EBITDA EBITDA Margin (RHS) Source: Company, CRISIL Equ it ies Source: Company, CRISIL Equ it ies

Sequential decline in OR.... ...though ARR has increased

44% 46%

32%

46% 46%

64% 66%

73%

64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Q3F

Y09

Q4F

Y09

Q1F

Y10

Q2F

Y10

Q3F

Y10

Q4F

Y10

Q1F

Y11

Q2F

Y11

Q3F

Y11

OR (%)

4,25

4

3,97

3

3,67

6

3,3

88

3,3

47

3,2

91

3,1

98

3,1

82

3,46

4

500

1,500

2,500

3,500

4,500

Q3FY

09

Q4FY

09

Q1FY

10

Q2FY

10

Q3FY

10

Q4FY

10

Q1FY

11

Q2FY

11

Q3FY

11

(Rs/Day)

ARR Source: Company, CRISIL Equ it ies Source: Company, CRISIL Equ it ies

Increased F&B

income boosted

revenues growth

Lower interest

and tax outgo

improved the

bottom line

marign

CRISIL EQUITIES | 3

Savera Industries Ltd

Share price movement Fair value movement since initiation

0

50

100

150

200

250

Jun-

10

Jul-

10

Jul-

10

Aug-

10

Aug-

10

Se p

-10

Sep

-10

Oct

-10

Oct

-10

Nov-1

0

Nov-1

0

Dec-

10

Dec-

10

Dec-

10

Jan-1

1

Jan-1

1

Feb-

11

Savera NIFTY -Indexed to 100

0

20,000

40,000

60,000

80,000

100,000

120,000

0

10

20

30

40

50

60

70

80

Nov

-10

Nov

-10

Nov

-10

Dec-

10

Dec-

10

Dec-

10

Dec-

10

Dec-

10

Jan-1

1

Jan-1

1

Jan-1

1

Jan-1

1

Feb-1

1

Feb-1

1

(Rs)

Traded Quantity (RHS) CRISIL Fair Value Savera

Source: NSE, CRISIL Equ ities Source: NSE, CRISIL Equ ities

CRISIL EQUITIES | 4

Savera Industries Ltd

EARNINGS ESTIMATES REVISED UPWARDS We raised our revenue estimates by 13.6% to Rs 475 mn for FY11 given the

strong F&B income during 9MFY11 and also due to revenues from the

Bengaluru property. Since F&B business is a high-margin business, we have

raised our EBIDTA margin estimates by 122 bps to 29.4% for FY11. Accordingly,

EPS estimates have been raised by 30.9% and 22.8% to Rs 5.2 for FY11 and to

Rs 5.9 for FY12, respectively.

Particulars FY11E

FY12E

FY13E

Unit Old New % change Old New % change

Revenue (Rs mn) 418 475 13.6% 442 506 15% 538

EBITDA (Rs mn) 118 140 18.5% 129 148 15% 160

EBITDA margin % 28.2% 29.4% 122bps 29.2% 29.2% - 29.7%

PAT (Rs mn) 47 62 30.9% 57 71 25% 83

PAT margin % 11.3% 13.1% 174bps 12.9% 13.9% 94bps 15.4%

EPS (Rs) Rs 4.0 5.2 30.9% 4.8 5.9 22.8% 7.0

Source: CRISIL Equ it ies

CRISIL EQUITIES | 5

Savera Industries Ltd

VALUATION

We continue to value Savera based on an EV/adj.room basis. We have assigned

a multiple of Rs 4.5 mn on EV/adj.room. Although the stock has corrected in the

recent past, we maintain our fair value of Rs 73 given the inherent valuation of

the property and the strong outlook for the hospitality sector. Consequently, we

maintain our valuation grade of ‘5/5’.

One-year forward P/E band One-year forward EV/EBITDA band

0

20

40

60

80

100

120

Jun-

10

Jul-

10

Jul-

10

Aug

-10

Aug

-10

Sep-

10

Sep-

10

Oct

-10

Oct

-10

Nov

-10

Nov

-10

Dec-

10

Dec-

10

Dec-

10

Jan-1

1

Jan-1

1

(Rs)

Savera 10x 15x 20x 25x

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jun-

10

Jul-

10

Jul-

10

Aug

-10

Aug

-10

Sep-

10

Sep-

10

Oct

-10

Oct

-10

Nov

-10

Nov

-10

Dec-

10

Dec-

10

Dec-

10

Jan-1

1

Jan-1

1

(Rs mn)

EV 3x 5x 7x Source: NSE, CRISIL Equ ities Source: NSE, CRISIL Equ ities

P/E – premium/discount to NIFTY P/E movement

-60%

-40%

-20%

0%

20%

40%

60%

Jun-

10

Jul-

10

Jul-

10

Aug-

10

Aug-

10

Sep

-10

Sep

-10

Oct

-10

Oct

-10

Nov-1

0

Nov-1

0

Dec-

10

Dec-

10

Dec-

10

Jan-1

1

Jan-1

1

Premium/Discount to NIFTY Median

0

5

10

15

20

25

30

Jun-

10

Jul-

10

Jul-

10

Aug

-10

Aug

-10

Sep-

10

Sep-

10

Oct

-10

Oct

-10

Nov

-10

Nov

-10

Dec-

10

Dec-

10

Dec-

10

Jan-1

1

Jan-1

1

(Times)

1yr Fwd PE (x) Median PE

-1 std dev

+1 std dev

Source: NSE, CRISIL Equ ities Source: NSE, CRISIL Equ ities

CRISIL IER reports released on Savera Industries Ltd

Date Nature of report Fundamental

grade

Fair value Valuation

grade

CMP

(on the date of report)

11-Nov-10 Initiating coverage* 2/5 Rs 73 5/5 Rs 55

16-Feb-11 Q3FY11 result update 2/5 Rs 73 5/5 Rs 38

* For detailed initiating coverage report please visit: www.ier.co.in

CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.

CRISIL EQUITIES | 6

Savera Industries Ltd

FINANCIALS Income statement Balance Sheet(Rs mn) FY09 FY10 FY11E FY12E FY13E (Rs mn) FY09 FY10 FY11E FY12E FY13EOperating income 397 352 475 506 538 LiabilitiesEBITDA 117 95 140 148 160 Equity share capital 60 60 119 119 119 EBITDA margin 29.5% 26.9% 29.4% 29.2% 29.7% Reserves 173 185 165 217 278 Depreciation 30 21 22 22 23 Minorities - - - - - EBIT 88 73 118 126 137 Net worth 232 245 285 336 397 Interest 51 25 23 19 13 Convertible debt - - - - - Operating PBT 37 48 95 106 124 Other debt 231 186 186 132 78 Other income (8) (3) 1 2 2 Total debt 231 186 186 132 78 Exceptional inc/(exp) - - - - - Deferred tax liability (net) 4 4 4 4 4 PBT 29 45 95 108 127 Total liabilities 468 435 475 472 479 Tax provision 24 19 33 38 44 AssetsMinority interest - - - - - Net fixed assets 440 431 434 422 409 PAT (Reported) 5 25 62 70 83 Capital WIP - - - - - Less: Exceptionals - - - - - Total fixed assets 440 431 434 422 409 Adjusted PAT 5 25 62 70 83 Investments 0 4 2 2 2

Current assetsRatios Inventory 8 9 12 13 14

FY09 FY10 FY11E FY12E FY13E Sundry debtors 17 13 17 18 19 Growth Loans and advances 36 27 35 37 39 Operating income (%) (13.3) (11.3) 34.9 6.7 6.3 Cash & bank balance 7 9 24 34 52 EBITDA (%) (25.1) (19.0) 47.3 6.0 8.1 Marketable securities - - - - - Adj PAT (%) (91.6) 435.4 144.1 13.2 17.9 Total current assets 69 58 89 102 124 Adj EPS (%) (91.6) 435.4 144.1 13.2 17.9 Total current liabilities 52 65 50 53 56

Net current assets 17 (7) 39 49 68 Profitability Intangibles/Misc. expenditure 11 7 - - - EBITDA margin (%) 29.5 26.9 29.4 29.2 29.7 Total assets 468 435 475 472 479 Adj PAT Margin (%) 1.2 7.2 13.1 13.9 15.4 RoE (%) 2.1 10.7 23.4 22.6 22.6 Cash flowRoCE (%) 17.4 16.4 26.1 26.7 29.1 (Rs mn) FY09 FY10 FY11E FY12E FY13ERoIC (%) 9.6 10.9 19.8 20.8 23.0 Pre-tax profit 29 45 95 108 127

Total tax paid (24) (19) (33) (38) (44) Valuations Depreciation 30 21 22 22 23 Price-earnings (x) 53.7 23.0 7.2 6.4 5.4 Working capital changes (13) 26 (31) (0) (1) Price-book (x) 1.1 2.4 1.6 1.3 1.1 Net cash from operations 22 73 53 92 104 EV/EBITDA (x) 4.1 8.0 4.4 3.7 3.0 Cash from investmentsEV/Sales (x) 1.3 2.3 1.3 1.1 0.9 Capital expenditure 60 (9) (18) (10) (10) Dividend payout ratio (%) 146.9 28.1 22.3 22.3 22.1 Investments and others - (4) 2 - - Dividend yield (%) 2.7 1.2 3.1 3.5 4.1 Net cash from investments 60 (13) (16) (10) (10)

Cash from financingB/S ratios Equity raised/(repaid) - - 60 - - Inventory days 12 14 14 14 14.4 Debt raised/(repaid) (84) (45) (0) (54) (54) C reditors days 36 64 25 25 25.3 Dividend (incl. tax) (7) (7) (16) (18) (21) Debtor days 18 15 15 15 14.8 Others (incl extraordinaries) 10 (6) (66) (0) (1) Working capital days 3 (4) (1) 10 10.3 Net cash from financing (81) (58) (22) (73) (76) Gross asset turnover (x) 0.6 0.5 0.7 0.7 0.8 Change in cash position 1 1 16 10 18 Net asset turnover (x) 0.8 0.8 1.1 1.2 1.3 C losing cash 7 9 24 34 52 Sales/operating assets (x) 0.8 0.8 1.1 1.2 1.3 Current ratio (x) 1.3 0.9 1.8 1.9 2.2 Quarterly financialsDebt-equity (x) 1.0 0.8 0.7 0.4 0.2 (Rs mn) Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11Net debt/equity (x) 1.0 0.7 0.6 0.3 0.1 Net Sales 90 100 106 124 118.8 Interest coverage 1.7 2.9 5.2 6.5 10.7 Change (q-o-q) 3.4% 11% 6% 16% -4%

EBITDA 22 29 32 39 33.1 Per share Change (q-o-q) -20% 31% 12% 21% -15%

FY09 FY10 FY11E FY12E FY13E EBITDA margin 24.4% 28.8% 30.2% 31.4% 27.8%Adj EPS (Rs) 0.4 2.1 5.2 5.9 7.0 PAT 2 9 9 19 18.1 CEPS 2.9 3.9 7.1 7.8 8.8 Adj PAT 2 9 13 19 18.1 Book value 19.5 20.5 23.9 28.2 33.3 Change (q-o-q) -83% 301% 41% 51% -5%Dividend (Rs) 0.6 0.6 1.2 1.3 1.5 Adj PAT margin 2.5% 9.0% 11.9% 15.4% 15.2%Actual o/s shares (mn) 11.9 11.9 11.9 11.9 11.9 Adj EPS 0.4 1.5 1.1 3.2 1.5 Note: All ratios are computed on Adj PAT

Source: Company, CRISIL Equ it ies est imate

CRISIL Independent Equity Research Team

Mukesh Agarwal Director +91 (22) 3342 3035 magarwal@crisil.com

Tarun Bhatia Director, Capital Markets +91 (22) 3342 3226 tbhatia@crisil.com

Chetan Majithia Head, Equities +91 (22) 3342 4148 chetanmajithia@crisil.com

Sudhir Nair Head, Equities +91 (22) 3342 3526 snair@crisil.com

Nagarajan Narasimhan Director, Research +91 (22) 3342 3536 nnarasimhan@crisil.com

Ajay D'Souza Head, Research +91 (22) 3342 3567 adsouza@crisil.com

Aparna Joshi Head, Research +91 (22) 3342 3540 apjoshi@crisil.com

Manoj Mohta Head, Research +91 (22) 3342 3554 mmohta@crisil.com

Sridhar C Head, Research +91 (22) 3342 3546 sridharc@crisil.com CRISIL’s Equity Offerings The Equity Group at CRISIL Research provides a wide range of services including:

Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate

Other Services by the Research group include

CRISINFAC Industry research on over 60 industries and Economic Analysis Customised Research on Market sizing, Demand modelling and Entry strategies Customised research content for Information Memorandum and Offer documents

About CRISIL

CRISIL is India's leading Ratings, Research, Risk and Policy Advisory Company.

About CRISIL Research CRISIL Research is India's largest independent, integrated research house. We leverage our unique, integrated

research platform and capabilities spanning the entire economy-industry-company spectrum to deliver superior

perspectives and insights to over 750 domestic and global clients, through a range of subscription products and

customised solutions.

To know more about CRISIL IER, please contact our team members:

Sagar Sawarkar – Senior Manager, Business Development

Email : ssawarkar@crisil.com I Phone : 9821638322

Mumbai Supriya Tapase - Manager, Business Development Email : stapase@crisil.com I Phone : 9820745668 New Delhi Vipin Saboo - Manager, Business Development Email : vsaboo@crisil.com I Phone : 9820779873

Regional Contacts:

Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai - 400 076 Phone : 91-22-3342 3000 Web: www.crisil.com Download reports from: www.ier.co.in

Ashish Sethi – Head, Business Development Email : asethi@crisil.com I Phone : 9920807575

Bengaluru / Chennai Anand Krishnamoorthy - Manager, Business Development Email : ankrishnamoorthy@crisil.com I Phone : 9884704111 Hyderabad Kaliprasad Ponnuru - Manager, Business Development Email : kponnuru@crisil.com I Phone : 9642004668 Kolkata Priyanka Agarwal - Manager, Business Development Email : priyagarwal@crisil.com I Phone : 9903060685

Vinaya Dongre – Head, Business Development Email : vdongre@crisil.com I Phone : 9920225174