Shankara Building Products Ltd. Absolute : ADD Relative ...bsmedia.business-standard.com/_media/bs/data/market-reports/equity... · Shankara Building Products Ltd. Absolute – ADD

February 1, 2018 Analyst: Maulik Patel [email protected] (+91-8128694110) Page 1 of 14

Before reading this report, you must refer to the disclaimer on the last page.

Shankara Building Products Ltd. Absolute : ADD

Relative : Benchmark

3QFY18 Results: Estimates (), TP (), Rating () Regular Coverage 5% ATR in 20 Months

Strong retail performance; maintain ADD Plastics

© 2017 Equirus All rights reserved

Rating Information

Price (Rs) 1,720

Target Price (Rs) 1,859

Target Date 30th Sep'19

Target Set On 31st Jan'18

Implied yrs of growth (DCF) 20

Fair Value (DCF) 984

Fair Value (DDM) 248

Ind Benchmark BSETCG

Model Portfolio Position NA

Stock Information

Market Cap (RsMn) 33,610

Free Float (%) 43.80 %

52 Wk H/L (Rs) 1574.6/545

Avg Daily Volume (1yr) 604,406

Avg Daily Value (RsMn) 636

Equity Cap (RsMn) 228

Face Value (Rs) 10

Bloomberg Code SHANKARA IN

Ownership Recent 3M 12M

Promoters 56.2 % 0.0 % -

DII 9.9 % -3.8 % -

FII 14.3 % 3.6 % -

Public 19.7 % 0.2 % -

Price % 1M 3M 12M

Absolute -10.8 % 6.5 % -

Vs Industry -8.8 % 1.3 % -

APL Apollo 8.9 % 15.9 % 106.5 %

DMART 1.2 % 4.8 % -

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (18E) 7.5 7.6 7.7 11.7

EPS (19E) 11.4 11.4 11.4 11.4

Shankara Building Products (Shankara) reported a 16% yoy growth in its 3QFY18 revenues

to Rs 6.3bn driven by strong retail growth of 32% yoy. EBITDA growth at 13% yoy was

driven by margin improvement in the retail segment. After a few sluggish quarters,

retail growth has rebounded on higher store addition, better SSSg and acquisition of

Vaigai Sanitation stores. Growth should improve further as construction activity picks up

and liquidity improves. Revenue mix changes towards high-margin retail and an

improvement in the processing segment should support (a) margin expansion, (b)

16%/30% EBITDA/PAT CAGR over FY17-FY20E, and (c) a ~400bps RoE expansion to 22%.

We roll over to a Sep’19 TP of Rs 1,859 (from a Mar’19 TP of Rs 1,564 earlier). Strong retail growth of 32% yoy: Retail revenues for the quarter stood at Rs 3bn, up

22% yoy driven by (1) a weak base, (2) strong store addition, (3) healthy SSSg led by a

recovery in construction activities, and (4) additional revenue (~Rs 90mn) from

acquisition of Vaigai Sanitation in Chennai. Retail EBITM improved ~240bps to 10.4%,

leading to strong EBITDA growth of 72%. The company added six new stores during the

quarter, taking the store count to 124. We expect 20% revenue CAGR over FY17-FY20E

led by (a) 15-20 store additions every year supported by 13%/15% SSSg in FY18E/FY19E,

(b) addition of home improvement categories, (c) upgrades of existing stores, (d)

acquisition of local stores and (e) unorganized to organized shift led by GST. Channel segment revenues flat on weak base: A conscious decision to reduce

channel segment sales led to just 1% growth in segment revenues to Rs 1.2bn.

Enterprise segment grew 5% yoy due to a pick-up in industrial/construction activities.

EBIT for channel & enterprise segment declined 36% yoy with margins contracting

~340bps yoy due to exceptionally high margins in the year-ago quarter. Acquisition of JP Sanitation stores to enhance presence in Bangalore: Shankara

acquired three stores of JP Sanitation (JP), an established brand in Bangalore. With

more than 30 years of operations, JP has built a significant connect with home

owners, architects, builders and home suppliers. Synergies to Shankara should flow in

the form of increasing revenues in Home Improvement categories with cross-selling of

products to customers. EBITDA expands on lower other expense, PAT up 29% yoy: Other expenses declined

10% yoy while employee expenses increased 31% yoy, leading to a 13% growth in

EBITDA to Rs 408mn. Strong EBITDA growth coupled with a decline in interest costs

(-16% yoy) to Rs 110mn pushed up PAT by 29% yoy Rs 177mn, 9% below EE.

Changes in estimates

FY18E %

Change FY19E %

Change

Sales 24,601 0% 26,453 0%

EBITDA 1,731 1% 2,033 3%

EBIT 1,602 1% 1,889 4%

PAT 791 2% 1,040 4%

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 23,101 24,601 26,453 29,314

EBITDA 1,544 1,731 2,033 2,401

Depreciation 114 129 144 155

Interest Expense 508 403 313 240

Other Income 3 5 0 0

Reported PAT 603 791 1,040 1,323

Recurring PAT 603 791 1,040 1,323

Total Equity 3,937 4,618 5,439 6,488

Gross Debt 2,236 1,736 1,236 836

Cash 662 6 -50 92

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 26.4 34.6 45.5 57.9

Book Value 172 202 238 284

Dividends 0.0 4.1 8.2 10.3

FCFF 45.4 -24.4 38.1 42.6

P/E (x) 65.2 49.7 37.8 29.7

P/B (x) 10.0 8.5 7.2 6.1

EV/EBITDA (x) 22.9 21.0 17.6 14.7

ROE (%) 18 % 18 % 21 % 22 %

Core ROIC (%) 16 % 16 % 17 % 19 %

EBITDA Margin (%)

7 % 7 % 8 % 8 %

Net Margin (%) 3 % 3 % 4 % 5 %

Shankara Building Products Ltd. Absolute – ADD Relative – Benchmark 5% ATR in 20 Months


Exhibit 1: Retail revenues grew 32% yoy, channel & enterprise revenues 1%/5% yoy

Source: Company, Equirus Securities

Exhibit 2: Retail margins improved on better product mix, operational efficiencies


Exhibit 3: Retail revenues grew by strong 32% yoy on low base


Exhibit 4: Adjusted for excise duty, overall revenues grew 30% yoy


2,232 2,664

2,261 2,650 2,700 2,729 2,989

1,932 1,855

1,914 1,893 1,906 1,770

2,012

1,506 1,501

1,232 1,460 1,310

1,217

1,245

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Retail (In Rs Mn) Enterprise (In Rs Mn) Channel (In Rs Mn)

215 292

180 270 300 287 310

219 89 277

251 184 164 177

-126

-38

-122 -92

-120 -70

-108 -200

-100

0

100

200

300

400

500

600

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Retail EBIT(In Rs Mn) Channel & Enterprise EBIT(In Rs Mn) Corporate Overhead Exp.

2,232

2,664

2,261

2,650 2,700 2,729

2,989 19%

-15%

17%

2% 1%

10%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Retail revenues (In Rs Mn) YoY Growth



Exhibit 5: Retail revenues to grow at a strong pace in overall sales mix


Exhibit 6: ~15-20 new stores to be added every year resulting in rise in total sq. ft.


Exhibit 7: SSSg to decline in FY18 amid tough conditions, to pick up in FY19E


Exhibit 8: Increasing share of retail in overall sales mix


8.1

2.2 2.7 2.3 2.7 2.7 2.7

11.6 13.8

16.8

5.7

1.5 1.5 1.2 1.5 1.3 1.2

5.0 4.0

3.2 6.6

1.9 1.9 1.9 1.9 1.9 1.8

8.0 8.6

9.3 20.4

5.7 6.0 5.4 6.0 5.9 5.7

24.6 26.5

29.3

0

5

10

15

20

25

30

35

FY16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

FY18E

FY19E

FY20E

Retail (In Rs Bn) Channel (In Rs Bn) Enterprise

96 97 100 103 106 112

118 129

148

166

323 344

365 373 381 401

441

508

612

711

200

300

400

500

600

700

800

0

20

40

60

80

100

120

140

160

180

FY16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 FY18E FY19E FY20E

Store Counts Square feet (In 000)

13%

24%

28%

19%

13% 15%

18%

0%

5%

10%

15%

20%

25%

30%

FY14 FY15 FY16 FY17 FY18E FY19E FY20E

SSG

2.9 3.8 4.6 6.2 8.1 9.8 11.6 13.8

16.8 6.4

7.6 7.6 6.8

5.7 5.7

5.0 4.0

3.2

4.8

6.2 7.1 6.8 6.6

7.6 8.0

8.6

9.3

14

18 19 20 20

23 25

26

29

0

5

10

15

20

25

30

35

0

5

10

15

20

25

30

35

FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

Retail Channel Enterprise



Exhibit 9: Conscious decline in processing revenues a part of strategy


Exhibit 10: Expect EBITDA/PAT CAGR of 16%/30% over FY17-FY20E


Exhibit 11: Return rations to improve by ~300bps over next 2 years


3.0 4.9 6.4 8.8 10.0 12.5 13.8 15.5 17.2

21%

28%

33%

45% 49%

54% 56%

58% 59%

0%

10%

20%

30%

40%

50%

60%

70%

0

2

4

6

8

10

12

14

16

18

20


Processing Revenue as % of sales

704 871 886 895

1,196

1,544 1,731

2,033

2,401

316 318 286 226 407

603 791

1,040

1,323

0

500

1,000

1,500

2,000

2,500

3,000


EBITDA (Rs Mn) PAT (Rs Mn)

21%

18%

13%

9%

15%

18% 18%

21% 22%

16%

13% 11%

10% 13%

16% 15% 17%

19%

0%

5%

10%

15%

20%

25%


RoE RoCE



Quarterly performance

Rs Mn 3QFY18 3QFY18E 2QFY18 3QFY17 % Change

Comments 3QFY18E 2QFY18 3QFY17

Net Sales 6,246 6,149 5,716 5,408 2% 9% 16%

Cost of RM 5,364 5,258 4,787 4,573 2% 12% 17%

Employee Benefit Expenses 161 146 149 123 10% 7% 31%

Other Expenses 313 316 368 349 -1% -15% -10%

Total Expenditures 5,838 5,720 5,305 5,046 2% 10% 16%

EBITDA 408 430 411 362 -5% -1% 13%

Depreciation 33 34 31 28 -2% 6% 16%

EBIT 375 396 380 333 -5% -1% 13%

Interest 110 101 118 131 9% -7% -16%

Other Income 2 0 2 1 - 30% 101%

PBT 268 295 264 204 -9% 1% 32%

Tax 91 100 91 67 -9% 1% 37%

Recurring PAT 177 195 173 137 -9% 2% 29%

Extraordinaries 0 0 0 0

Reported PAT 177 195 173 137 -9% 2% 29%

EPS (Rs) 7.7 8.5 7.6 6.0 -9% 2% 29%

EBITDA Margin 6.5% 7.0% 7.2% 6.7% -45 bps -66 bps -15 bps

EBIT Margin 6.0% 6.4% 6.6% 6.2% -43 bps -64 bps -16 bps

PBT Margin 4.3% 4.8% 4.6% 3.8% -51 bps -33 bps 52 bps

PAT Margin 2.8% 3.2% 3.0% 2.5% -34 bps -20 bps 30 bps

Tax Rate 34.0% 34.0% 34.4% 32.7% 3 bps -33 bps 132 bps

Retail Revenue 2,989 - 2,729 2,261 - 10% 32%

Retail EBIT 310 - 287 180 - 8% 72%

Channel & Enterprise Revenue 3,257 - 2,987 3,146 - 9% 4%

Channel & Enterprise EBIT 177 - 164 277 - 8% -36%



Earnings call takeaways

Acquisition update

In Q3FY18, Shankara acquired JP Sanitation, which operates three stores in

Bengaluru city and specialized in categories of plumbing, sanitary ware and flooring

tiles. Over 30 years of operations, it has built significant connect with home owners,

architects, builders and leading suppliers. Synergies to Shankara should flow in the

form of increasing revenues in home improvement categories with cross-selling of

products to customers.

Last quarter, Shankara took over retail chain operations of Vaigai Sanitation, and is

currently working on bringing down its cost levels and turning around operations. It

has also started cross-selling products to Vaigai Sanitation customers.

With increased presence, Shankara gets significant traction in dealing with larger

players in the form of discounts and a better product portfolio, differentiating it

from competition. It has also prompted players in other product categories to look at

Shankara for selling its products.

The company expects EBITDA margins of close to 10-15% from such business going

ahead. It is also looking at increasing its revenue share from ~10% of retail revenues

currently to ~30% going ahead.

JP Sanitation is expected to clock ~Rs 550mn-600mn in FY18 revenues with EBITDA

margins above 10%. Acquisition was done at Rs 150mn, which includes inventory of

Rs 80mn.

Vaigai Sanitation sales for Nov-Dec stood at Rs 90mn with EBITDA-level breakeven.

Omni channel presence

In 3QFY18, Shankara launched a new Omni-channel website, www.buildpro.store,

which will cater to demand in plumbing, baths & faucets, construction material,

electrical & appliances, kitchen and walls & flooring segments.

It will aid product discovery process in digital mode and complement display stocks

in physical stores. This in turn would enhance Shankara’s brand equity.

Only certain product categories will be supplied through the Omni channel currently,

but would be scaled up later and supplied on a pin-code basis.

Segment-wise performance

Retail

Revenues grew 32% yoy on lower GST rates, increased penetration levels and

improved sentiments.

Contribution of retail to total revenues stood at 47.9%.

SSSg stood at 37.3% for Q3FY18 and 20.8% for 9MFY18 on a weak Q3FY17 base due to

demonetization.

Avg. rental costs for stores on lease stood at Rs 70.6 per sq. ft/per month. As of

today, the company has 124 stores (excluding 3 stores of JP sanitation), of which 109

stores are on lease basis. In total, Shankara operated in 4.7lakh sq ft of retail stores

with an average store size of 3800 sq. ft.

Of the total stores, 39% of stores are in tier I, 25% in tier II and 36% in tier III cities.

The avg. ticket size per transaction stood at ~Rs 24,400.

The company upgraded 45 stores in 9MQFY18 (vs. 20 stores in 9MFY17) and added 6

stores (from acquisition) to its store count.

Of total retail sales, construction material sales constitute ~64%, inter-exterior ~20%,

new product categories ~11% and agricultural products ~5%.

Enterprise segment

Sales grew 5% yoy and contributed 32% to consolidated revenues.

Company plans to increase its revenue share in C&E business as it has better margins

as compared to channel business.

Channel segment

Sales were up by a marginal 1% yoy. In line with the company’s strategy to reduce

the segment’s revenue share, the channel segment now contributes 20% of consol

revenues.

Processing: 12 facilities worked at ~90% capacity utilization levels in 3QFY18.

Other highlights and guidance

Shankara had a weak October due to the festive season and a strong monsoon in

South India. Market stabilized to a great extent post new GST rates introduced from

mid-November, resulting in strong December sales.

Top-10 customers contributed 10% of revenues.

Management is looking at opening 15-20 stores every year. The company has already

achieved this number for FY18.

Shankara incurred ~Rs 300mn of capex for 9MFY18. It is looking at Rs 300mn-310mn

of capex for FY19, including for new store rollout (~Rs 50-60mn).

Debt levels stood at Rs 3.1bn as of 31 Dec’17 vs. Rs 2.86bn as on 31 Mar’17.

Demand that was held back in a hope of rates cuts has now returned. The GST effect

has been waning and demand has normalized.



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 34.6 33.5 3 % Largely in-line with consensus

FY19E 45.5 43.7 4 %

Sales FY18E 24,601 24,542 0 %

FY19E 26,453 27,596 -4 %

PAT FY18E 791 760 4 %

FY19E 1,040 992 5 %

Key Investment Arguments:

Presence across value chain – from retailing, channel, and enterprise segments to

processing.

Retail business on a strong footing – expect 25-30% store-level ROCE

Overall financial profile to strengthen - 30% PAT CAGR and ~300bps RoE expansion likely

over FY17-FY20E

Key Assumptions:

FY17 FY18E FY19E FY20E

Processing Volume (In MT) 303,963 326,048 353,648 381,248

New Store Additions 10 23 19 18

Retail SSG 19% 13% 15% 18%

Channel Growth 0% -12% -20% -20%

Enterprise Growth 16% 5% 8% 8%

Risk to Our View

Volatility in steel prices, non-ability to diversify revenues from Steel to other products.

Key Triggers

Strong retail revenue growth

Improvement in store level margin and stable working capital

Reduction in legacy channel segment

Sensitivity to Key Variables % Change % Impact on EPS

SSG $10/MT 4 %

Production Volume 5 % 2 %

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

7.3 % 1.0 13.3 % 4.0 % 4.1 %

- FY18E FY19E FY20-22E FY23-27E FY28-37E

Sales Growth 6 % 8 % 7 % 8 % 9 %

NOPAT Margin 4 % 5 % 5 % 6 % 6 %

IC Turnover 3.37 3.47 3.46 3.69 4.44

RoIC 15.5 % 16.7 % 18.1 % 19.8 % 23.7 %

Years of strong growth 1 2 5 10 20

Valuation as on date (Rs) 219 281 404 552 799

Valuation as of Sep'19 269 346 498 679 984

Based on DCF, assuming 20 years of 9% CAGR growth and 24% average ROIC, we derive

current fair value of Rs 799 and a Sep’19 fair value of Rs 984.

Company Description:

Shankara is one of the leading organized retailers of home improvement and building

products in India based on number of stores, operating under the trade name Shankara

Buildpro. Retail store contribution in revenue mix is 42% and is fastest growing segment

for Shankara. It also caters large end users, OEMs and contractors through its enterprise

segment. In channel segment, it caters retailers & dealers through branch network.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

Shankara ADD 1,720 33,610 1,859 30th Sep'19 26.4 34.6 45.5 65.2 49.7 37.8 172.3 8.5 18 % 18 % 21 % 0.0 % 0.2 %

APL Apollo NA 2,161 51,280 NA NA 62.0 74.7 98.3 34.8 28.9 22.0 305.3 6.0 23 % 22 % 24 % 0.6 % 0.6 %

DMART NA 1,195 745,906 NA NA 8.5 12.9 17.4 140.8 92.8 68.8 61.6 16.2 18 % 19 % 21 % 0.0 % 0.2 %



Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18A 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Revenue 5,669 6,021 5,408 6,004 5,916 5,716 6,246 6,722 6,613 6,613 6,613 6,613 23,101 24,601 26,453 29,314 Raw Materials Consumed 4,876 5,266 4,573 5,078 5,072 4,787 5,364 5,811 5,621 5,621 5,621 5,621 19,794 21,034 22,485 24,771

Employee Cost 99 145 123 126 128 149 161 145 168 168 168 168 494 583 670 771

Other Exp 362 237 349 342 324 368 313 247 316 316 316 316 1,270 1,253 1,264 1,372

- - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - EBITDA 331 374 362 457 392 411 408 520 508 508 508 508 1,544 1,731 2,033 2,401 Depreciation 25 31 28 29 29 31 33 36 36 36 36 36 114 129 144 155 EBIT 305 342 333 428 363 380 375 483 472 472 472 472 1,430 1,602 1,889 2,246 Interest 119 129 131 127 98 118 110 77 78 78 78 78 508 403 313 240 Other Income 3 1 1 2 1 2 2 0 0 0 0 0 3 5 0 0 PBT 190 214 204 302 266 264 268 407 394 394 394 394 925 1,204 1,576 2,005 Tax 60 79 67 111 93 91 91 138 134 134 134 134 322 414 536 682 PAT bef. MI & Assoc. 130 135 137 191 173 173 177 268 260 260 260 260 603 791 1,040 1,323 Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Recurring PAT 130 135 137 191 173 173 177 268 260 260 260 260 603 791 1,040 1,323 Extraordinaries 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Reported PAT 130 135 137 191 173 173 177 268 260 260 260 260 603 791 1,040 1,323

EPS (Rs) 5.7 5.9 6.0 8.4 7.5 7.6 7.7 11.7 11.4 11.4 11.4 11.4 26.4 34.6 45.5 57.9

Key Drivers

Production Volume (In MT) - - - - - - - - - - - - 303,963 326,048 353,648 381,248 New Store Additions - - - - - - - - - - - - 16 23 25 27 SSG - - - - - - - - - - - - 19 % 13 % 15 % 18 % Retail Margin - - - - - - - - - - - - 10 % 11 % 11 % 11 % - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - -

Sequential Growth (%)

Revenue -1 % - -10 % 11 % -1 % -3 % 9 % 8 % -2 % 0 % 0 % 0 % - - - - Raw Materials Consumed 0 % - -13 % 11 % 0 % -6 % 12 % 8 % -3 % 0 % 0 % 0 % - - - - EBITDA -20 % - -3 % 26 % -14 % 5 % -1 % 27 % -2 % 0 % 0 % 0 % - - - - EBIT -21 % - -3 % 28 % -15 % 5 % -1 % 29 % -2 % 0 % 0 % 0 % - - - - Recurring PAT -25 % - 1 % 39 % -10 % 0 % 2 % 52 % -3 % 0 % 0 % 0 % - - - -

EPS -25 % - 1 % 39 % -10 % 0 % 2 % 52 % -3 % 0 % 0 % 0 % - - - -

Yearly Growth (%)

Revenue - - - 5 % 4 % -5 % 16 % 12 % 12 % 16 % 6 % -2 % 13 % 6 % 8 % 11 % EBITDA - - - 10 % 18 % 10 % 13 % 14 % 30 % 24 % 24 % -2 % 29 % 12 % 17 % 18 % EBIT - - - 10 % 19 % 11 % 13 % 13 % 30 % 24 % 26 % -2 % 30 % 12 % 18 % 19 % Recurring PAT - - - 11 % 33 % 28 % 29 % 41 % 51 % 50 % 47 % -3 % 51 % 31 % 32 % 27 %

EPS - - - 11 % 33 % 28 % 29 % 41 % 51 % 50 % 47 % -3 % 42 % 31 % 32 % 27 %

Margin (%)

EBITDA 6 % 6 % 7 % 8 % 7 % 7 % 7 % 8 % 8 % 8 % 8 % 8 % 7 % 7 % 8 % 8 % EBIT 5 % 6 % 6 % 7 % 6 % 7 % 6 % 7 % 7 % 7 % 7 % 7 % 6 % 7 % 7 % 8 % PBT 3 % 4 % 4 % 5 % 4 % 5 % 4 % 6 % 6 % 6 % 6 % 6 % 4 % 5 % 6 % 7 %

PAT 2 % 2 % 3 % 3 % 3 % 3 % 3 % 4 % 4 % 4 % 4 % 4 % 3 % 3 % 4 % 5 %



Consolidated Financials

P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 23,101 24,601 26,453 29,314 Equity Capital 229 229 229 229 PBT 925 1,204 1,576 2,005

Op. Expenditure 21,558 22,870 24,419 26,914 Reserve 3,708 4,389 5,211 6,260 Depreciation 114 129 144 155

EBITDA 1,544 1,731 2,033 2,401 Networth 3,937 4,618 5,439 6,488 Others 501 0 0 0

Depreciation 114 129 144 155 Long Term Debt 2,236 1,736 1,236 836 Taxes Paid 236 414 536 682

EBIT 1,430 1,602 1,889 2,246 Def Tax Liability 170 944 944 944 Change in WC -239 -1,193 -271 -413

Interest Expense 508 403 313 240 Minority Interest 0 0 0 0 Operating C/F 1,066 -273 914 1,066

Other Income 3 5 0 0 Account Payables 2,610 2,766 2,957 3,258 Capex -372 -548 -250 -250

PBT 925 1,204 1,576 2,005 Other Curr Liabi 528 472 507 562 Change in Invest 0 0 0 0

Tax 322 414 536 682 Total Liabilities & Equity 9,481 10,536 11,084 12,088 Others 2 0 0 0

PAT bef. MI & Assoc. 603 791 1,040 1,323 Net Fixed Assets 2,450 2,671 2,776 2,871 Investing C/F -370 -548 -250 -250

Minority Interest 0 0 0 0 Capital WIP 0 0 0 0 Change in Debt 9 -500 -500 -400

Profit from Assoc. 0 0 0 0 Others 140 339 339 339 Change in Equity 423 0 0 0

Recurring PAT 603 791 1,040 1,323

Inventory 2,795 3,033 3,406 3,855 Others -1,120 665 -219 -274

Extraordinaires 0 0 0 0 Account Receivables 3,123 3,235 3,334 3,614 Financing C/F -688 165 -719 -674

Reported PAT 603 791 1,040 1,323 Other Current Assets 311 1,253 1,278 1,317 Net change in cash 8 -656 -56 141

FDEPS (Rs) 26.4 34.6 45.5 57.9 Cash 662 6 -50 92 RoE (%) 18 % 18 % 21 % 22 %

DPS (Rs) 0.0 4.1 8.2 10.3 Total Assets 9,481 10,536 11,083 12,088

RoIC (%) 16 % 15 % 17 % 19 %

CEPS (Rs) 31.7 40.3 51.8 64.7 Non-cash Working Capital 3,091 4,283 4,554 4,967

Core RoIC (%) 16 % 16 % 17 % 19 %

FCFPS (Rs) 45.4 -24.4 38.1 42.6 Cash Conv Cycle 48.8 63.5 62.8 61.8 Div Payout (%) 5 % 14 % 21 % 21 %

BVPS (Rs) 172.3 202.1 238.0 283.9 WC Turnover 7.5 5.7 5.8 5.9 P/E 65.2 49.7 37.8 29.7

EBITDAM (%) 7 % 7 % 8 % 8 % FA Turnover 9.4 9.2 9.5 10.2 P/B 10.0 8.5 7.2 6.1

PATM (%) 3 % 3 % 4 % 5 % Net D/E 0.4 0.4 0.2 0.1 P/FCFF 37.9 -70.6 45.2 40.3

Tax Rate (%) 35 % 34 % 34 % 34 % Revenue/Capital Employed 4.3 4.5 4.6 4.3 EV/EBITDA 22.9 21.0 17.6 14.7

Sales Growth (%) 13 % 6 % 8 % 11 %

Capital Employed/Equity 2.2 2.0 1.7 1.6

EV/Sales 1.5 1.5 1.4 1.2

FDEPS Growth (%) 42 % 31 % 32 % 27 %

Dividend Yield (%) 0.0 % 0.2 % 0.5 % 0.6 %

TTM P/E vs. 2 yr forward EPS growth

TTM EV/EBITDA vs. 2 yr forward EBITDA growth

TTM P/B vs. 2 yr forward RoE

10x

20x

40x

60x

80x

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

500

1000

1500

2000

2500

3000

3500

4000

Mar

/16

May

/16

Jul/

16

Sep/

16

Nov/

16

Jan/

17

Mar

/17

May

/17

Jul/

17

Sep/

17

Nov/

17

Jan/

18

Mar

/18

May

/18

Jul/

18

Sep/

18

Nov/

18

Jan/

19

Mar

/19

EPS Growth

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Mar

/16

May

/16

Jul/

16

Sep/

16

Nov/

16

Jan/

17

Mar

/17

May

/17

Jul/

17

Sep/

17

Nov/

17

Jan/

18

Mar

/18

May

/18

Jul/

18

Sep/

18

Nov/

18

Jan/

19

Mar

/19

4x

11x

18x

25x

33x

EBITDA Growth

1x0%

5%

10%

15%

20%

25%

30%

35%

40%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Mar

/16

May

/16

Jul/

16

Sep/

16

Nov/

16

Jan/

17

Mar

/17

May

/17

Jul/

17

Sep/

17

Nov/

17

Jan/

18

Mar

/18

May

/18

Jul/

18

Sep/

18

Nov/

18

Jan/

19

Mar

/19

RoE

3x

6x

9x

12x



Historical Consolidated Financials

P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 19,271 19,788 20,359 23,101 Equity Capital 219 219 219 229 PBT 420 346 647 925

Op. Expenditure 18,385 18,893 19,163 21,558 Reserve 2,116 2,316 2,692 3,708 Depreciation 58 88 95 114

EBITDA 886 896 1,196 1,544 Networth 2,335 2,535 2,911 3,937 Others 411 470 456 501

Depreciation 58 88 95 114 Long Term Debt 2,837 2,932 2,227 2,236 Taxes Paid 127 67 120 236

EBIT 828 807 1,101 1,430 Def Tax Liability 85 105 137 170 Change in WC -119 -43 517 -239

Interest Expense 416 470 460 508 Minority Interest 0 0 0 0 Operating C/F 643 795 1,595 1,066

Other Income 8 8 7 3 Account Payables 1,211 1,381 2,338 2,610 Capex -293 -396 -381 -372

PBT 420 346 647 925 Other Curr Liabi 299 302 378 528 Change in Invest -105 0 0 0

Tax 134 119 240 322 Total Liabilities & Equity 6,766 7,255 7,992 9,481 Others 2 0 3 2

PAT bef. MI & Assoc. 286 226 407 603 Net Fixed Assets 1,602 1,907 2,193 2,450 Investing C/F -396 -395 -378 -370

Minority Interest 0 0 0 0 Capital WIP 0 0 0 0 Change in Debt 160 93 -707 9

Profit from Assoc. 0 0 0 0 Others 150 140 140 140 Change in Equity 0 0 0 423

Recurring PAT 286 226 407 603 Inventory 2,212 2,321 2,559 2,795 Others -416 -496 -509 -1,120

Extraordinaires 0 0 0 0 Account Receivables 2,497 2,598 2,810 3,123 Financing C/F -256 -403 -1,216 -688

Reported PAT 286 226 407 603 Other Current Assets 279 265 266 311 Net change in cash -9 -4 1 8

EPS (Rs) 13.1 10.3 18.6 26.4 Cash 28 24 24 662

RoE (%) 13 % 9 % 15 % 18 %

DPS (Rs) 0.0 0.0 0.0 0.0

Total Assets 6,766 7,254 7,992 9,481

RoIC (%) 11 % 10 % 13 % 16 %

CEPS (Rs) 15.7 14.4 23.0 31.7 Non-cash Working Capital 3,477 3,501 2,919 3,091 Core RoIC (%) 11 % 10 % 13 % 16 %

FCFPS (Rs) 24.3 32.3 68.9 45.4 Cash Conv Cycle 65.9 64.6 52.3 48.8 Div Payout (%) 8 % 10 % 8 % 5 %

BVPS (Rs) 106.6 115.9 133.1 172.3 WC Turnover 5.5 5.7 7.0 7.5

P/E 131.6 166.2 92.5 65.2

EBITDAM (%) 5 % 5 % 6 % 7 % FA Turnover 12.0 10.4 9.3 9.4 P/B 16.1 14.8 12.9 10.0

PATM (%) 1 % 1 % 2 % 3 % Net D/E 1.2 1.1 0.8 0.4 P/FCFF 70.8 53.2 25.0 37.9

Tax Rate (%) 32 % 35 % 37 % 35 % Revenue/Capital Employed 6.5 4.7 4.0 4.3 EV/EBITDA 41.3 41.0 30.2 22.9

Sales growth (%) 9 % 3 % 3 % 13 %

Capital Employed/Equity 2.0 2.4 2.3 2.2

EV/Sales 1.9 1.9 1.8 1.5

FDEPS growth (%) -13 % -21 % 80 % 42 %

Dividend Yield (%) 0.0 % 0.0 % 0.0 % 0.0 %



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 VishadTurakhia [email protected] 91-22-43320633

AshutoshTiwari Auto, Metals & Mining [email protected] 91-79-61909517 SubhamSinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 Sweta Sheth [email protected] 91-22-43320634

Devam Modi Power & Infrastructure [email protected] 91-79-61909516 Viral Desai [email protected] 91-22-43320635

Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Rushabh Shah [email protected] 91-22-43320632

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Dealing Room E-mail

Maulik Patel Oil and Gas [email protected] 91-79-61909519 Ashish Shah [email protected] 91-22-43320662

PrafulBohra Pharmaceuticals [email protected] 91-79-61909532 IleshSavla [email protected] 91-22-43320666

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Manoj Kejriwal [email protected] 91-22-43320663

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Harshit Patel [email protected] 91-79-61909522 Jay Soni [email protected] 91-79-61909561

Meet Chande [email protected] 91-79-61909513 Corporate Communications E-mail

Nishant Bagrecha [email protected] 91-79-61909526 Mahdokht Bharda [email protected] 91-22-43320647 Parva Soni [email protected] 91-79-61909521

Pranav Mehta [email protected] 91-79-61909514

Ronak Soni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

Shreepal Doshi [email protected] 91-79-61909541

VarunBaxi [email protected] 91-79-61909527

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

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I, Maulik Patel, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also

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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

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