IEA Report

3rd Jan 2017
MARUTI

"BUY"

3rd Jan 2017

We expect current demonetization issue may not be impacting much in the long run to the passenger vehicle segment because more than 75%
vehicles are financed. But this issue may be hampering sales in near future due to cash crunch in the economy. We assume volumes in the second
half may be down by 10% in comparison to the first half 2017. Higher sales of premium segment cars will further increase the realization per car,
which will in turn maintain the margins going ahead despite the rising commodity prices. Hence we have positive view on this stock and we
recommend "BUY" with a target price of Rs.6100. ..................................... ( Page : 2-4)

IRB

2nd Jan 2017

"ACCUMULATE"

Firstly EPC revenue was impacted due to heavy monsoon during Q2FY17 and secondly suspension of toll collection for the period of 24 days
because of demonetization will affect the top line of the company in FY17. We expect top line of Rs. 5627 Cr (Growth of 10% YoY) with healthy
52.7% EBITDA margin in FY17E. Significant reduction in debt post the InvIT IPO and an arbitral award will boost the bottom line of the company. At
a current price of Rs. 191 stock trades at 7.3x to FY17 expected EV/EBITDA and 1.3x to P/B. The stock has corrected nearly 18% post
demonetization announcement which makes this stock attractive at this price with present fundamentals. Hence, we revised our rating from HOLD
to ACCUMULATE with target price of Rs.235 . ............................................ ( Page : 5-8 )

BIOCON

"Neutral"

30th Dec 2016

As per the management, exports have not been impacted due to demonetization, Indian business saw lower sales in the month of November. The
dependence of the company on domestic business is ~ 31% in total revenue. Recently Biocon has Submitted Trastuzumab dossier to the United
States Food & Drug Association (USFDA) which is an important milestone for Biocon and its review process is expected to take 18-24 months. The
market size of Trastuzumab injection is valued at about $6.5 billion, according to IMS data. Crestor Generic has been approved by USFDA and
Biocon is on track to launch the product in near future. This will be a huge opportunity for Biocon to take first mover advantage with its bio-similar
products. On the contrary ongoing price control pressure in India and US and discontinuance of key products may put some uncertainties in near
term. Hence we maintain “Neutral “ rating in this stock. ( Page : 9-11)

BEL

"BUY"

29th Dec 2016

The company is having robust order intake during H1FY17 which gives decent revenue growth visibility going forward and this is expected to
remain in the range of Rs 10000cr-15000cr over the next two-three years. Currently, the defence sector is in the limelight due to the government’s
strong focus on making defence procurements central to the “Make in India” campaign. The company has ~35% market share in India’s defence
electronics segment and is likely to be one of the biggest beneficiaries of the offset clause. Based on above mentioned reasons we see strong
medium-term earnings visibility for the company, hence we recommend “BUY” at a target price of Rs 1670 (Potential upside 22%).
..................................................... ( Page : 12-15)

VOLTAS

"NEUTRAL"

28th Dec 2016

The company is cautious in taking new orders in the EMPS segment and its focus is primarily on Govt. projects i.e. smart cities, rural electrification
and water treatment wherein execution cycle is steady and payments are secured. Management expects profitability to improve after closing most
of its low-margin and loss-making legacy projects by end-FY17. Going forward we expect near-term earnings to be under pressure due to lower
sales and margin in the UCP segment and continued subdued performance in EMPS segment. Right now we are not seeing any major uptick in
demand so we revised our estimates with flat revenue growth from 5% to 0.7% in FY17E and presently we are “NEUTRAL” on this stock at a revised
target of Rs 330 (from Rs 345). ..................................... ( Page : 16-19)

ASHOKLEY

"BUY"

27th Dec 2016

Going forward, We assume that the upcoming emission norms BS-IV to BS-VI, focus towards the export markets, improvement in demand from
infrastructure segment, diminution of investments in subsidiaries will help the company to focus on its commercial vehicle business and
government's initiative to develop defence products in the country can be volume boosters for the company in FY17. The current demonetization
issue has impacted the transport sector most because a lot of transactions happen through cash. The sales may be down by 10-12% for next couple
of months but we are hopeful that the situation might improve in 4QFY17 due to pre-buying during the quarter. We expect that the company will
maintain a healthy ROE of over 20% going ahead. We maintain 'BUY' looking at the huge growth potential going ahead but considering the
uncertain demand scenario we reduce our target to Rs.110. .................... ( Page : 20-22)
Narnolia Securities Ltd

IEA Edition No.-

919

BUY
MARUTI SUZUKI INDIA LIMITED
Result Update
CMP

3-Jan-17

5466

Target Price
Previous Target Price
Upside
Change from Previous

6100
12%
-

Market Data
BSE Code
NSE Symbol

532500
MARUTI

52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume
Nifty

Maruti reported 3% growth in sales volume in the 3QFY17, despite the
current demonetisation issue. Domestic volumes grew by 4% on account of
higher sales of premium segment cars (Baleno and Brezza). Exports have
shown 1% of de-growth YoY primarily led by currency issue in various
countries and higher import duty imposition by Sri-Lankan government on
800-1000 cc cars. Realization improved on account of better product mix
and price increase during the quarter. Management has stated that the first
phase of the Gujarat plant will begin its commercial production in 4QFY17
and this plant will take care of new models and the exports. There will be
some cost pressure going ahead due to higher depreciation and fixed cost
on new plant. The management is also exploring new geogarphies to
expand it reach in Latin American and Europen market.

5972/3202
165120
52910
8,180

Stock Performance

2QFY17 Result Highlights
Maruti reported Rs.17843 crore of net sales in 2QFY17 a growth of 29%
over previous year. This was driven by 18% volume growth and 9%
realization growth YoY.

1Month

1Year

YTD

EBITDA margin improved to 17% by 150bps YoY higher steel prices and
employee cost.

7.8
6.7

-3.8
2.6

18.4
15.5

Royalty stood at Rs.1088 crore (6.1% of sales) during the quarter due to
appreciation in Yen.

Absolute
Rel.to Nifty

Maruti reported a PAT of Rs.2398 crore a growth of 60.2% YoY on account
of higher other income in the quarter.

Share Holding Pattern-%
2QFY17 1QFY17

Promoter
Public
Others
Total

56.2
43.8
-100.0

4QFY16

56.2
43.8
-100.0

56.2
43.8
-100.0

Company Vs NIFTY
140

MARUTI

NIFTY

130
120

Outlook
We expect current demonetization issue may not be impacting much in the
long run to the passenger vehicle segment because more than 75%
vehicles are financed. But this issue may be hampering sales in near future
due to cash crunch in the economy. We assume volumes in the second half
may be down by 10% in comparison to the first half 2017. Higher sales of
premium segment cars will further increase the realization per car, which will
in turn maintain the margins going ahead despite the rising commodity
prices. Hence we have positive view on this stock and we recommend
"BUY" with a target price of Rs.6100.

110

Rs. In crore
100
90

Dec-16

Oct-16

Nov-16

Sep-16

Jul-16

Aug-16

Jun-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

80

Naveen Kumar Dubey

Financials

2QFY17

1QFY17

2QFY16

QoQ

YoY

Sales
EBITDA
Net Profit
EBIDTA%
PAT %

17843
3037
2398
17.0%
13.4%

14927
2216
1486
14.8%
10.0%

13851
2245
1497
16.2%
10.8%

20%
37%
61%

29%
35%
60%

naveen.dubey@narnolia.com
Narnolia Securities Ltd,

2

MARUTI
Investment Arguments
♦ In the recent past a series of new product launches have been successful for the company. It was a strategic decision to enter
in those segments where it has very few or no products. The same way the company is planning to launch 15 new products till
2020.
♦ Maruti is onset to unleash the potential in the international business by targeting European and Latin American markets.
Recently launched and upcoming new products are technologically sound and competent to the export markets.
♦ Gujarat plant will begin its commercial production in 4QFY17 and this plant will take care of new models and the exports. It will
take 6 months to ramp up the production and there will be some cost pressure going ahead due to higher depreciation and fixed
cost on new plant.
♦ Maruti is also aggressively working towards bringing down the import content in its cars from an average 16% at the end of
FY16 to 10% as part of its vision 2.0 plan. Currently about 14 percent of imports are yen denominated. Management expects to
bring it down to 5 percent. Typically, 1% movement in yen leads to around 1% change in the operating profit of Maruti.

Management Highlights
♦ Lower double digit growth guidance for FY17 due to current demonetisation issue. 25% decline in retail sales in rural areas and
25% enquiries have been impacted in urban areas.
♦ Maximum impact on taxi part, specially Ola and Uber. They contributes to 30% of the volumes.
♦ Export may remain flat in FY17
♦ Management expects 50000 Baleno's to be exported to Japan. Apart from Japan, the vehicle is being exported to Europe,
Australia, New Zealand and Latin America.
♦ Maruti's newly launched light commercial vehicle, Super Carry, is also exported to South Africa and Tanzania and will be
exported to SAARC countries in the future.
♦ Gujarat plant is likely to be commissioned in Q4FY17. Management expects it will take 6 months to ramp up.
♦ Steel prices have started going up and its impact may be seen in second half of the year.
♦ Margins can come under pressure once the Gujarat plant becomes operational due to higher fixed cost and depreciation.
♦ Capex- Rs.4500 crore,(Rs.2000 crore for maintenace and R&D, Rs.1000 crore on marketing expenses and Rs.1500 crore on
product development.
♦ The waiting period for Brezza is 27 weeks and for Baleno 33 weeks. Maruti has increased the production for Baleno by 25% to
meet customer requirements.
♦ The company has 15 new models in the pipeline, which will come out by 2020.

Volumes Trend
Volume

Volume Growth

18%

17%
16%

2%

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

387251

4%

418,470

374182

353335

341329

7%

346712

323,911

321,898

10%

348443

13%

360402

14%

12%

299,894

450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-

3%

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%

3

MARUTI
Financials Snap Shot

FY14
Revenue (Net of Excise Duty)
44,451
Other Income
831
Total Revenue
45,281
COGS
31,853
GPM
28%
Other Expenses
5,970
EBITDA
5,204
EBITDA Margin (%)
12%
Depreciation
2,116
EBIT
3,088
Interest
185
PBT
3,734
Tax
902
Tax Rate (%)
24%
Reported PAT
2,855
Dividend Paid
424
No. of Shares
30

INCOME STATEMENT
FY15
FY16
50,801
58,612
865
472
51,666
59,084
35,615
39,318
30%
33%
6,741
8,115
6,844
9,119
13%
16%
2,515
2,867
4,329
6,252
218
94
4,976
6,630
1,185
1,999
24%
30%
3,807
4,699
884
1,237
30
30

FY17E
65,460
134
65,594
44,348
32%
8,709
10,068
15%
2,425
7,643
67
7,710
2,513
33%
5,266
1,386
30

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

FY14
151
21,345
21,496
627
1,238
596
22,124
13,673
2,640
1,489
649
5,000
873
7,561
31,411

BALANCE SHEET
FY15
FY16
151
151
24,167
27,598
24,318
27,749
278
147
53
91
484
475
24,597
27,896
14,380
13,989
1,890
1,013
1,144
1,387
43
77
5,657
7,127
1,652
2,137
(234)
(3,965)
34,479
40,270

FY17E
151
31,477
31,628
147
101
475
31,775
15,178
1,549
551
7,960
2,391
(3,850)
45,529

CASH FLOW STATEMENT
FY14
FY15
FY16
FY17E
OP/(Loss) before Tax
3,734
4,976
6,630
7,710
Depreciation
2,116
2,515
2,867
2,425
Direct Taxes Paid
(858)
(1,075)
(1,948)
(2,513)
OP before WC changes
5,111
6,779
9,089
10,271
CF from Op. Activity
4,995
6,539
8,584
8,246
(13,100) (17,354) (12,189)
(87)
Capex
(3,545)
(3,279)
(2,443)
(3,614)
CF from Inv. Activity
(4,997)
(4,581)
(7,319)
(6,328)
Repayment of Long Term Borrowings
(22)
(211)
(292)
Interest Paid
(170)
(222)
(104)
(67)
Divd Paid (incl Tax)
(283)
(424)
(909)
(1,386)
CF from Fin. Activity
(74)
(2,004)
(1,239)
(1,443)
Inc/(Dec) in Cash
(76)
(45)
26
474
Add: Opening Balance
165
89
43
77
Closing Balance
89
43
69
551

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

FY14
94
712
14.0
15%

RATIOS
FY15
FY16
126
156
805
919
29.3
41.0
23%
26%

FY17E
174
1,047
45.9
26%

24.0
3.2
0.62%

29.3
4.6
0.79%

23.9
4.0
1.10%

28.1
4.7
0.94%

13%
14%

16%
18%

17%
22%

17%
24%

1.4
12.2
20.2
41.1
0.0

1.5
8.2
27.4
40.6
0.0

1.5
8.6
29.7
44.4
0.0

1.4
8.6
32.0
44.4
0.0

4

ACCUMULATE
IRB Infrastructure Developers Ltd.
Result Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

196
235
20%
-

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume
Nifty

532947
IRB
269/177
6,888
159708
8104

Stock Performance
Absolute
Rel.to Nifty

1Month

3 Month

1Year

3.8
5.3

-24.4
-17.1

-20.0
-22.2

Share Holding Pattern-%
2QFY17

Promoters
Public

57%
43%

1QFY17 4QFY16

57%
43%

58%
42%

Company Vs NIFTY
120

IRB

NIFTY

2-Jan-17

Robust construction revenue visibility:IRB has reported strong construction revenue growth of 28% YoY in H1FY17
despite heavy monsoon. Current order book stands at Rs.11061Cr
(including Kishangarh-Glubpura project) i.e. 4x of FY16 construction
revenue. Healthy order book provides robust construction revenue visibility
going forward. Execution during the Q2FY17 was impacted due to heavy
and extended monsoon but we expect to ramp up in execution in the 2nd
half of the year. Ramp up in the execution of ongoing projects and Agra
Etawah will drive the EPC revenue growth in FY17 and 3 projects in
Rajasthan will drive the growth in FY18.
Arbitration awards:Recently, IRB Goa Tollway Pvt. Ltd. and IRB Ahmadabad-Vadodara super
express tollway Pvt. Ltd, wholly owned subsidiaries of the company, has
won an arbitral award of Rs. 241Cr and Rs. 20 Cr respectively. It will help
the company to reduce its debt.

InvIT will unlock Value:IRB has filed DRHP (Draft Red Hiring Prospectus) for its InvIT with SEBI
and company is in an advanced stage to get approval. IRB is in the process
to raise Rs. 4300 Cr through InvIT IPO. These proceed will be utilized for the
debt reduction and for the future projects.
Demonetization Impact: Toll collection on all national highways remains to suspend for 24 days due
to demonetization. As per our calculation, IRB lost around Rs. 150 Cr of toll
collection across all the projects. Revenue loss will be compensated by
NHAI in two parts (i) some portion in cash and (ii) balance portion will be
compensated by way of extension of the concession period. The company
does not witness any big dip in traffic post the commencement of tolling. we
expect little stretch in working capital on a consolidated level as toll
collection has impacted. Executions of projects remain stable as we do not
see any major challenges on that front.

110
100

In Rs. Cr

90
80
70
60
50
40

Sandip Jabuani
sandip.jabuani@narnolia.com

Financials
Sales
EBITDA
Depreciation
Interest
Net Profit
EBIDTA%
PAT %
TaX % of PBT

Q2FY16
1,149
605
203
240
149
53%
13%
22%

Q1FY17
1,517
774
221
328
182
51%
12%
29%

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

Q2FY17
1,291
709
227
340
142
55%
11%
19%

YoY%
12%
17%
12%
42%
-5%

QoQ%
-15%
-8%
3%
3%
-22%

5

Concall Highlights :-

♦ No big dip in traffic post the tolling resume on all toll plaza
♦ IRB has secured Kishangarh Udaipur project in December, after winning this
project company has completed its target of acquiring new projects of 330 km in
FY17.
♦ IRR of 16-18% on Kishangarh – Udaipur project after premium payment to NHAI
♦ IRB is pre-qualified in project worth Rs. 16600 Cr.
♦ The company aims to win 300 km project (including 230 km already won)
♦ NHAI and related State authority will compensate revenue loss by way of adjusting
premium and revenue share payment.
♦ Current Toll collection at Agra-Etwah project is 35lakh/day and likely to go up by 4550% post full completion of the project
♦ IRB has filed DRHP of InvIT and waiting for the Sebi’s replay and expect to lunch
in January
♦ The Company will have to infuse equity of Rs. 1600-1800 Cr over period of two years.
♦ Tax reversal of Rs.15-18 Cr in Q2FY17
♦ Solapur- Yedeshi and Kaithal – Rajasthan project will gets complete by H1FY18
♦ Company has received appointment date for the 1)Gulabpura- Chittorgarh and
Udaipur- Gujarat Border project and work will start from 1st april 2017

Outlook and Valuation :-

Firstly EPC revenue was impacted due to heavy monsoon during Q2FY17 and secondly
suspension of toll collection for the period of 24 days because of demonetization will
affect the top line of the company in FY17. We expect top line of Rs. 5627 Cr (Growth of
10% YoY) with healthy 52.7% EBITDA margin in FY17E. Significant reduction in debt
post the InvIT IPO and an arbitral award will boost the bottom line of the company. At a
current price of Rs. 191 stock trades at 7.3x to FY17 expected EV/EBITDA and 1.3x to
P/B. The stock has corrected nearly 18% post demonetization announcement which
makes this stock attractive at this price with present fundamentals. Hence, we revised
our rating from HOLD to ACCUMULATE with target price of Rs.235

About the Comapny :IRB Infrastructure Developers Limited is a road build–operate–transfer (BOT) operator.
The Company's principal activity is the construction and maintenance of roads. Its
business segments include Road Infrastructure Projects, which includes development
and operation of roadways; Real Estate, which includes real estate development, and
Others, which includes windmill (sale of electricity generated by windmill), hospitality and
airport infrastructure. Its construction business complements its BOT vertical by
executing engineering, procurement and construction, and operation and management
(O&M) aspects of BOT concessions. It has a portfolio of over 20 Road BOT projects. It
has in-house integrated project execution capabilities in both its business verticals,
including construction, and operation and maintenance of highways.
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

6

Order Book
Order book

Book to bill

17
15

12

10

9

9,746

17,321

11,468

12,116

12,631

12,954

11,587

11,348

11,974

7,795

8

8

8,739

11

10

14

12

11,394

12

7,030

20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-

20
18
16
15
14
12
10
8
6
4
2
-

Comapny has received
appointment date and start work
from 1st April 2017

As % of Order Book
8%

Work on Agra Ethawah project
(Rs.2133 Cr) has started from
August 2016 onwards and we
expect ramp up in H2FY17

13%

Yedeshi Aurangabad
Kaithal Rajasthan Border

6%

16%

2%

2%

Solapur Yedeshi
Sindhudurg Airport
Agra Etawah

Gulabpura -Chittorgarh
18%

18%

Udaipur -Gj Border
O & M Contracts
Goa Kundapur

17%

Revenue Mix

1,200

Construction

BOT Toll

70%

EBITDA M

60%

1,000

56%

800
600

45%

50%

59%

58%

58%

57%

50%

53%

52%

48%

51%

56%

40%
30%

400

-

755
569

913
601

978
593

808
524

703
476

613
524

516
503

510
483

477
435

606
431

598
320

591
315

20%

690
277

200

50%

10%
0%

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

7

Financials Snap Shot

Net Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY14
3732
121
3853
1650
0
148
1754
47%
477
1277
756
642
182
28%
459
194
33

INCOME STATEMENT
FY15
FY16
3847
5130
113
124
3960
5254
1306
2054
0
0
140
170
2212
2661
57%
52%
707
853
1505
1807
931
1063
686
868
144
232
21%
27%
543
636
164
164
35
35

FY14
332
3228
3561
9398
897
22
12959
13041
48
6
1501
408
289
879
15712

BALANCE SHEET
FY15
FY16
351
351
4009
4476
4361
4827
10804
12652
631
1189
19
16
15165
17479
36599
39169
80
78
5
104
1580
1559
234
305
219
169
477
510
39393
42181

FY17E
5627
128
5755
0
0
0
2965
53%
903
2062
1347
843
194
23%
647
164
35

FY17E
351
4958
5309
15117
1189
16
20427
40594
78
114
0
335
322
-1378
42088

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
Op. before WC change
CF from Op. Activity
Non Current Investment
Capex
CF from Inv. Activity
Repayment of LTB
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

RATIOS
FY15
FY16
15
18
124
137
5
5
30%
26%

FY17E
18
151
5
25%

5.66%

15
2
2.00%

10
1
2.45%

13%
9%

12%
10%

13%
10%

12%
10%

0.2
0.5
59.4
39.9
2.64

0.1
0.5
72.6
22.2
2.48

0.1
7.4
54.9
21.7
2.62

0.1
7.4
54.9
21.7
2.85

FY14
14
107
6
42%
7
1

FY14
642
477
232
1749
1656
0
3002
(2743)
888
740
194
1274
186
257
443

13
2
2.01%

CASH FLOW
FY15
FY16
686
868
707
853
216
312
2216
2719
1823
2342
1
0
2311
3161
(2295)
(3175)
794
1140
1317
1435
78
254
474
667
2
(165)
443
445
445
279

FY17E
841
903
194
3091
2116
0
2328
(2328)
0
1347
164
954
742
1559
2301

8

Neutral

BIOCON LTD

30-Dec-16

Company Update
CMP

930

Target Price
Previous Target Price
Upside
Change from Previous

880
-

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume(,000)
Nifty

532523
BIOCON
1020/431
18,604
73
8,693

0.5
2.5

3M

12M

82.8
80.6

67.4
63.1

• Small Molecules business has reported revenue of Rs 389 Cr, a growth
of 15% led by a better product-mix of differentiated APIs and a higher
contribution from statins.
• Net R&D expenditure during the quarter stood at Rs. 65 Cr, an increase
of 14% YOY. At a Gross level, R&D spends in Q2 were Rs 113 Cr.

Share Holding Pattern-%
2QFY17

Promoters
Public
Others
Total

1QFY17 4QFY16

60.7
37.4
1.9
100.0

60.7
37.5
1.8
100.0

60.7
37.4
-100.0

• Novel Biologics and Biosimilars reported a growth of 26% at Rs 96 Cr on
account of good performance in key emerging markets.
• Branded Formulations business includes our finished dosages business
in India and overseas including UAE. Q2 FY17 sales at Rs 137 Cr reported
a growth of 15%.
• Licensing Income this quarter stood at Rs 32 Cr while Other Income
reported was Rs 52 Cr.

Company Vs NIFTY
200

Q2FY17_Result Update

• EBITDA rose 45% to Rs 277 Cr; Net Profit stood at Rs 147 Cr a growth of
52% over last year.

Stock Performance
1M
Absolute
Rel.to Nifty

As per the management, exports have not been impacted due to
demonetization, Indian business saw lower sales in the month of
November. The dependence of the company on domestic business is ~
31% in total revenue. Recently Biocon has Submitted Trastuzumab dossier
to the United States Food & Drug Association (USFDA) which is an
important milestone for Biocon and its review process is expected to take
18-24 months. The market size of Trastuzumab injection is valued at about
$6.5 billion, according to IMS data. Crestor Generic has been approved by
USFDA and Biocon is on track to launch the product in near future. This
will be a huge opportunity for Biocon to take first mover advantage with its
bio-similar products. On the contrary ongoing price control pressure in
India and US and discontinuance of key products may put some
uncertainties in near term. Hence we maintain “Neutral “ rating in this
stock.

BIOCON

• Research business through Syngene reported revenue of Rs. 286 Cr (
up by 14% ) as compared to the revenue of Rs.250 Cr in the corresponding
quarter of FY16.

NIFTY

180
160
140
120

Financials

2012

2013

2014

2015

Rs,Cr
2016

100

Sales
EBITDA
Net Profit
EPS
P/E

2148
517
338
17
14.1

2538
475
509
25
10.8

2933
518
414
21
20.5

3143
617
497
25
18.9

3570
784
896
30
19.0

Dec-16

Oct-16

Nov-16

Sep-16

Aug-16

Jul-16

Jun-16

Apr-16

May-16

Feb-16

Mar-16

Jan-16

Dec-15

80

Aditya Gupta
aditya.gupta@narnolia.com

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

9

Segment Revenue

286
638

263

270
526

602

250
576

316

225
581

632

238
587

220

172
527

531

188
535

192

183
513

548

188

166
457

CRAMS(Rs in Cr)

542

140
486

155

129
463

533

122
440

BIOPHARMA(Rs in Cr)

Management Speak/ Key take aways From Conference call

• Recently Biocon and its partner Mylan announced that the results of the clinical trial study of its biosimilar trastuzumab have
been published in the Journal of the American Medical Association (JAMA).
• The company has also filed for 3 biosimilars with European Union regulator and is likely to file those with the USFDA too
• Stopping sale of Abraxane has also impacted Indian business. Some decline in branded formulation business is expected to be
reflected in books.
• Going ahead the management is expects to sustain revenue and margins at second quarter levels.
• Biocon will file insulin largine in the US in FY18.
• The company has gained traction in many emerging markets with its biosimilars.
• Going ahead management expects that speciality is the way to go and Biocon believes that there will be better returns if a
company focuses on specialty.
BUSINESS MODEL
For reporting purpose, Biocon classifies its
operations into four segments i.e. Small
Molecules, Biologics, Branded Formulations
and Research Services.
Small Molecules includes API's
,immunosuppressants & Generic formulations
business
Biologics vertical comprises Novel biologics
and Biosimilars,recombinant proteinsi ncluding
rh-insulin,insulin analogs, monoclonal
antibodies
Branded Formulations includes finished
dosages
Research Services business through Syngene
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

10

Financials Snap Shot

INCOME STATEMENT
FY13 FY14 FY15 FY16
Rev. (Net of Excise Duty)
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

2,485
53
2,538
1,045
42%
576
475
19%
179
296
8
408
98
24%
509
116
20

2,877
56
2,933
1,186
41%
707
518
18%
204
315
2
538
107
20%
414
175
20

3,090
53
3,143
1,256
41%
737
564
18%
221
343
9
519
96
18%
497
119
20

3,485
85
3,570
1,330
38%
831
688
20%
242
446
10
652
257
39%
896
119
20

FY13
EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

BALANCE SHEET
FY13 FY14 FY15 FY16
Share Capital
Reserves and surplus
Shareholders' funds
Long term Debt
Total Borrowings
Non Current liabilities
Long term provisions
Short term Provisions
Current liabilities
Total liabilities
Net Fixed Assets
Non Current Investments
Other non Current assets
Current assets
Total Assets

100
2,595
2,695
164
249
502
4
247
905
4,416
1,823
65
41
2,240
4,416

100
2,927
3,027
606
850
656
8
177
1,136
5,751
2,731
65
47
2,639
5,751

100
3,171
3,271
770
1,031
608
15
158
1,294
6,375
3,307
137
2,563
6,375

100
3,956
4,056
2,072
2,467
415
30
88
1,233
8,482
3,910
166
3,993
8,482

25
135
6
0.23

RATIOS
FY14 FY15
21
151
9
0.42

25
164
6
0.24

FY16
45
203
6
0.13

11
2
2%

21
3
2%

19
3
1%

11
2
1%

19%
10%

14%
9%

15%
8%

22%
7%

0.56
75
59
51
0

0.50
76
48
44
0

0.48
91
53
51
0

0.41
86
54
57
1

CASH FLOW STATEMENT
FY13 FY14 FY15 FY16
OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
OP before WC changes
CF from Op. Activity
Proceeds from sale of Crr.Inv
Capex
CF from Inv. Activity
Repay. of Long Term Borr.
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

610
179
(94)
758
471
1,904
(359)
(376)
(21)
(8)
(100)
(9)
87
387
474

538
204
(149)
672
561
1,642
(789)
(938)
(19)
(1)
(150)
426
49
508
557

624
221
(133)
698
211
2,943
(838)
(509)
(15)
(1)
(100)
186
(112)
574
463

1,227
242
(247)
818
526
2,784
(811)
(954)
(54)
(11)
(200)
1,087
659
468
1,127

11

BUY
BHARAT ELECTRONICS LTD.

29-Dec-16

Result Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

1374
1670
22%
-

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume
Nifty

500049
BEL
1540/1009
30,880
41373
8044

Stock Performance
Absolute
Rel.to Nifty

1Month

1Year

YTD

13.2
10.6

22.0
17.1

15.0
17.2

74.41

75.02

75.02

Public

25.59

24.98

24.98

Others

--

--

--

100

100

100

Company Vs NIFTY
130
125
120
115
110
105
100
95
90
85
80

BEL

Key Highlights:
Company has entered into strategic alliance with defence laboratories,
ordinance factory board and other global OEMs to develop products like
Surface to air sytems, air defence radars, Battlefield management system,
sonar systems, next generation night vision devices, gun upgrades/ new
gun programmes, inertial navigation systems, medium altitude long
endurance unmanned aerial vehicles (UAVs) and maintenance of aerostat
surveillance and communication systems.

1QFY17

Promoter

Total

Order inflow grew 108% YoY to Rs 41300cr, led by finalization of orders like
electronic warfare suite, advanced composite communication system, ship
data network, and annual maintenance contract for Rohini radar. For FY17
Key orders like Akash missile system, mobile cellular communication
system, Commander TI Sights, Samyukta upgrade, Long range surface to
air missile and L-band tropo upgrade are supposed to be finalized.

Company plans to set up Rs 500cr Greenfield weapon systems facility in
Andhra Pradesh which will focus on the design, development and
production of weapon systems like fire control, missile systems and other
weapon upgrade systems. Company expects the facility to be ready over the
next two years.

Share Holding Pattern-%
######## 2QFY17

Strong order book visibility

NIFTY

Outlook and Valuation
The company is having robust order intake during H1FY17 which gives
decent revenue growth visibility going forward and this is expected to remain
in the range of Rs 10000cr-15000cr over the next two-three years. Currently,
the defence sector is in the limelight due to the government’s strong focus
on making defence procurements central to the “Make in India” campaign.
The company has ~35% market share in India’s defence electronics
segment and is likely to be one of the biggest beneficiaries of the offset
clause. Based on above mentioned reasons we see strong medium-term
earnings visibility for the company, hence we recommend “BUY” at a target
price of Rs 1670 (Potential upside 22%).
Rs in Cr

Bibha Kashyap

Financials
Sales
EBITDA
Net Profit
EBIDTA%
P/E

FY12
5847
636
847
10.9%
0.1

FY13
6173
663
912
10.7%
0.1

FY14
6388
922
952
14.4%
0.1

FY15
6915
1175
1197
17.0%
0.2

FY16
7759
1538
1387
19.8%
0.2

bibha.kashyap@narnolia.com
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

12

Domestic Order book
32333 32022 32139

35000

34675

30000
22884 22077 21617
21053 21648

25000

Order inflow is expected to
remain in the range of Rs
10000cr-15000cr over the
next two-three years.

20000
12776

15000
10000
5000

827

2780

763

4127

2824

1980

541

1003

0

Domestic Orders Intake (Rs/Cr)

Domestic Orders Book (Rs/Cr)

Export Order book

1,400

1,195

1,287 1,244
1,197

1,200

1,094 1,065

1,000

794

800

701

691

600
400
200
-

Export order book (Rs/Cr)

Trend of Net Sales and PAT

Trend of Gross Margin & EBITDA Margin

Net Sales (Rs/Cr)
3,500

3,056
663

2,000
1,500

1,582

1,009

1,000

1,172

997

192

500
-

3,135
795

2,831
723

3,000

2,500

PAT (Rs/Cr)

59

1,266

1,071
272

147
26

1,5251,500
296
206

77

900
800
700
600
1,756 500
400
346
300
847
200
100
36
-

Gross Margin %

EBIDTA Margin %

60%
50%

48%

0%

19%

12%

9%
0.2%

52%

46%

19%

17%

15%

20%

53%

31%

27%

25%

30%

45%

50%

37%

36%

40%

10%

43% 45%

42%

41%

49%

1%
-4%

-5%

-10%

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

13

Investment arguments:

• Company has a strong balance sheet with zero debt and cash balance of Rs. 7553 cr (~25% of market capitalization). It is also
paying dividends consistently since 1990. Accelerated order inflow and steady performance makes it a preferred defense play.

The government notified increase in Foreign Direct Investment (FDI) limit to 49% through approval route in the defense sector,
aimed to cut imports by indigenizing defence production.

• Segments like Radar and Missile systems, Communication and Network Centric Systems, Tank Electronics, Gun upgrades &
EO systems and Electronic Warfare & Avionics systems will continue to drive the Company’s growth in the coming 4 to 5 years.

The Defence Sector is increasingly being opened up for private sector participation with evolutions of Defence Procurement
Procedure.

Company is working on new strategic areas like Electronic Ammunition Fuzes, Homeland Security Solutions, Navigational
Complex Systems and Inertial Navigation Systems in line with the emerging needs of the Customers.

BEL is also taking collaborative R&D initiatives for joint developments with reputed foreign companies and Indian MSMEs to
quickly harness specialized technologies into the new products.
Order status at the end of Q2FY17
Acquired

Electronic warfare suite (Shakti & Nayan)
Advance composite communication system
Ship data network
Ground based ELINT
Annual maintenance contract of Rohini
radar

Supply

3D technical control radar
Akash weapon system (Army)
L 70 Gun upgrade
Weapon locating radar
Hand Held thermal- imager with laser
range finder

Expected order

Akash missile system (7 Sqdn)
Mobile cellular communication system
Commander TI sights
Long range surface to Air missile
L-Band tropo upgrade
Samyukta upgrade

About the Company:

Bharat Electronics Limited is engaged in design, manufacture and supply of electronics products/systems for the defense
requirements, as well as for nondefense markets. The Company's principal products/services include weapon systems, radar and
fire control systems, and communication. Its defense products include defense communication; radars; naval systems; command,
control, communications, computers, and intelligence systems; weapon systems; telecom and broadcast systems; electronic
warfare; electro optics, and solar photovoltaic systems. Its nondefense products include turnkey system solutions; civilian radars;
e-governance systems, and homeland security. Its other range of products include electronic voting machines, communication
equipment, radar warning receiver and casings. It offers electronic manufacturing services in areas of printed circuit board
assembly and testing; precision machining and fabrication; opto electronics components and assemblies, and offsets, among
others.

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

14

Financials Snap Shot
INCOME STATEMENT

Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

FY13
6273
625
6898
3917
1
569
663
11%
136
526
1
1151
236
21%
912
178
8

FY14
6518
437
6955
3788
1
762
922
14%
150
772
4
1205
254
21%
952
186
8

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY13
80
6407
6487
0
0
0
6488
928
237
3364
5331
1174
720
5594
14851

FY14
80
7140
7220
0
0
0
7221
1153
269
4156
4605
1234
605
6192
14976

FY15
7093
507
7599
3935
1
702
1175
17%
166
1008
3
1513
316
21%
1197
239
8

RATIOS

FY16
7549
533
8082
3916
1
772
1538
20%
200
1338
6
1865
471
25%
1387
277
8

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

FY13
114
811
22
20%

FY14
119
903
23
20%

FY15
150
1015
30
20%

FY16
173
1123
35
20%

10
1
1.9%

10
1
2.0%

7
1
2.8%

8
1
2.6%

14%
8%

13%
11%

15%
12%

15%
15%

0.4
196
303
68
0.0

0.4
233
322
69
0.0

0.5
196
318
61
0.0

0.4
181
393
58
0.0

BALANCE SHEET

FY15
80
8037
8117
0
25
0
8117
1213
140
3805
6038
1184
786
7064
15726

CASH FLOW STATEMENT

FY16
240
8746
8986
0
28
0
8986
1664
224
3741
7553
1194
666
7242
18525

OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
OP before WC changes
CF from Op. Activity

FY13
1147
136
245
753
(1540)

FY14
1206
150
206
777
(570)

FY15
1513
166
356
1343
1434

FY16
1869
200
438
1714
2268

CAPEX
CF from Inv. Activity
Repayment of LTB
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

388
1753
0
1
157
(157)
56
1752
1809

375
759
(0)
4
209
(213)
(23)
1809
1786

227
(839)
0
3
220
(209)
386
1786
2171

657
(1424)
(0)
6
296
(320)
525
2171
2696

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

15

NEUTRAL
Voltas Ltd.

28-Dec-16

Result Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

Impact of Demonetisation

313
330
345
6%
-

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume
Nifty

500575
VOLTAS
406/211
10,372
1694
7947

Stock Performance
Absolute
Rel.to Nifty

1Month

1Year

YTD

7.9
5.2

14.5
9.5

1.4
3.6

Share Holding Pattern-%
2QFY17 1QFY17

4QFY16

Promoter

30.3

30.3

30.3

Public

69.7

69.7

69.7

Others

--

--

--

100

100

100

Total

Company Vs NIFTY
150

VOLTAS

NIFTY

140
130

120
110

Initial impact of demonetisation in the month of November was bit low
because people are still using the old currency notes. However,December
has seen a bigger impact especially in the Tier III and tier IV towns where it
has been impacted to the tune of more than 50 %. And in the bigger cities,
the impact of this is about 25-30% on consumer durable business.
Management believes that demonetization impact is not likely to be
substantial as it has occurred during seasonally weak quarter for UCP
segment and things are likely to stabilize in coming 2-3 months.
Key Highlights:
Voltas reoprted its 2QFY17 results which is in line with our estimates.The
Consolidated Sales/Income from Operations for the quarter ended
September 30, 2016 was Rs. 972 cr as compared to Rs. 1044 cr in the
corresponding quarter last year owing to lower revenues in International
Projects. However, Profit before tax was higher by 22%, at Rs. 125 cr as
compared to Rs.103 cr last year. Profit after tax was also higher by 15%, at
Rs. 74 cr as compared to Rs. 65 cr last year. EBITDA margin improved
84bps YoY to 7.0% on higher profitability in UC; this, coupled with higher
other incomeEMPS booked an Rs 120cr order for a water treatment plant in
Agra, taking its total order book to Rs 4250cr (+13.8% YoY). Unitary cooling
segment grew a robust 13.5% YoY, driven by inventory restocking on higher
demand during the festive season.
Outlook and Valuation

The company is cautious in taking new orders in the EMPS segment and its
focus is primarily on Govt. projects i.e. smart cities, rural electrification and
water treatment wherein execution cycle is steady and payments are
secured. Management expects profitability to improve after closing most of
its low-margin and loss-making legacy projects by end-FY17. Going forward
we expect near-term earnings to be under pressure due to lower sales and
margin in the UCP segment and continued subdued performance in EMPS
segment. Right now we are not seeing any major uptick in demand so we
revised our estimates with flat revenue growth from 5% to 0.7% in FY17E
and presently we are “NEUTRAL” on this stock at a revised target of Rs 330
(from Rs 345).
Rs in Cr

100
90
80
70

Bibha Kashyap

Financials
Sales
EBITDA
Net Profit
EBIDTA%
P/E

FY13
5531
245
207
4.4%
0.0

FY14
5266
266
245
5.0%
0.0

FY15
5183
410
384
7.9%
0.1

FY16
5857
437
386
7.5%
0.1

FY17E
5896
419
337
7.1%
0.1

bibha.kashyap@narnolia.com
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

16

Segment wise performance:
Electro-Mechanical Projects and Services: Segment Revenue for the quarter was lower at Rs. 543 cr as compared to
Rs. 635 cr in the corresponding quarter last year partly owing to slower than expected progress on certain projects.
Segment Result was Rs. 5 cr as compared to Rs. 17 cr, last year. Order Book of the Segment stood higher at Rs. 4252
cr as compared to Rs. 3736 cr in the same quarter last year. Orders booked during the quarter include Rs. 121 cr for
water treatment plant for Agra smart city.
Engineering Products and Services: Segment Revenue and Result for the quarter were Rs. 75 cr and Rs 30 cr as
compared to Rs. 96 cr and Rs 34 cr, respectively in the corresponding quarter last year. The industrial environment in
India for both, Textile and Mining businesses remains challenging for capital equipment sales, due to the weak
investment cycle.
Unitary Cooling Products for Comfort and Commercial use: Voltas continues to be the market leader for the Room Air
Conditioners in India. Segment Revenue was higher at Rs. 354 cr as compared to Rs. 312 cr in the corresponding
quarter last year, on account of improved volumes and greater festive season demand. Segment Result was also
higher at Rs. 41 cr as compared to Rs. 34 cr in the corresponding quarter last year.

Trend of Gross margin & EBITDA margin(%):

EMP order book position (Rs in Cr)

-

Order Intake

Gross Margin %
2187
2065

2032
2385

35%

35%
30%

25%

29%
24%

31%

33%

26% 27%

31%

32%
29% 28% 29%

28%

20%
10%

382

EBIDTA %
37%

15%
731

959

1879

2035

2141
1369
500

1871
1728
201

2021
2018
594

1,908
1,985
544

1,856

2,093

40%

680

2,207
1,472
395

1,629

2,160

International Order Book

694

2,023
1,589
275

2,131
240

500

785

1,000

1,524

1,500

1,815

2,088

2,000

2,261

2,500

1209

3,000

2,286

Domestic Order Book

5%

4% 4%

8% 8% 6%
6% 7%

10% 8%

6%

10% 11% 8%
4%

0%

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

17

Investment arguments:
→ Company sustained its leadership in the UCP segment(i.e. 22%) which will help to register better sales growth in the
current quarter.
→ Company sold 50000 units coolers last quarter and mabagement expects their marketing efforts to benefit volumes
going ahead and as per the management Air cooler will grow ahead of market.
→ The company has been selective in taking new orders with minimum margins of 4-5% in the international market. Its
aspirational EBIT margin target remains at 4-5% for the international market in FY17.
→ The company has cut prices selectively on few products with selective sale promotions due to the higher
competitive pressures.
→ Despite the aggressive competition, the company retained its market leadership position with 22% market share.
New efficiency norms for ACs from January
Seeking to reduce carbon emissions, the government said that a new efficiency rating system for air-conditioners,
based on Indian climatic conditions, will be made compulsory for all models starting January 2018.All air-conditioners
will need energy-saving and intelligent regulation of compressors in place of the conventional thermostat-triggered cutoffs, said the Bureau of Energy Efficiency (BEE), the standard setter for appliances. Today, ACs with this technology is
costlier by about Rs.7000-8000 a unit. But as more units adopt it, cost will come down. As per the management,
Company is ready to comply with the new guidelines set by BEE for 2018. They will continue to provide energyefficient products to their customers.
The Government’s initiatives on creating new Smart Cities and upgradation of the infrastructure of existing cities
represents an area of significant potential. The Company’s expertise at installation, testing, commissioning and
operation of sensor networks across some of the world’s largest building complexes and its existing infrastructure of
support technicians and service partners, positions it effectively to handle the complex task of managing the
maintenance of Smart City information networks.
In International front, Despite the declining oil prices, spend on infrastructure will get a boost especially in Dubai and
Qatar owing to the EXPO 2020 and FIFA world cup 2022. Voltas remains one of the few large MEP contractors with
required project qualifications and domain expertise. Voltas continues to be a preferred contractor in the Middle East,
holds the Company in good stead against competition for these mega events.
About the Company:
Voltas Limited is an India-based air-conditioning and engineering company. Its segments include Electro-mechanical
Projects and Services, Engineering Products and Services, and Unitary Cooling Products for Comfort and Commercial
use. The electro-mechanical projects and services include electrical, mechanical and refrigeration solutions and
electrical and mechanical solutions international. , Engineering products and services includes textile machinery and
mining and construction equipment. The unitary cooling products are sub-divided into: air conditioners, commercial
refrigeration and water cooler and dispensers. The Company’s operating subsidiaries include Universal Comfort
Products Limited, Auto Aircon (India) Limited, Saudi Ensas Company for Engineering Services WLL, Weathermaker
Limited and Lalbuksh Voltas Engineering Services & Trading LLC.

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

18

Financials Snap Shot

FY14
7.4
55.0
1.9
25%

RATIOS
FY15
FY16
11.6
11.7
63.5
72.4
2.2
2.6
19%
23%

FY17E
10.2
79.5
3.0
30%

21.7
2.9
1.16%

24.1
4.4
0.77%

23.6
3.8
0.96%

32.6
4.2
0.92%

13%
13%

18%
18%

16%
17%

13%
15%

1.1
92.5
85.3
112.8
0.00

1.1
94.3
88.0
108.6
0.00

1.0
81.4
79.0
108.7
0.00

1.0
89.4
84.1
108.7
0.00

INCOME STATEMENT

Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

FY14
5266
100
5366
3854
1
551
266
5%
25
241
23
318
94
30%
245
62
33

FY15
5183
109
5292
3597
1
586
410
8%
28
382
23
467
128
27%
384
72
33

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY14
33
1786
1819
5
258
2
1825
210
2
1335
282
1627
279
1487
4746

FY15
33
2069
2102
5
117
2
2107
193
4
1339
252
1541
354
1218
4888

FY16
5857
118
5975
4126
1
625
437
7%
28
409
15
511
160
31%
386
87
33

FY17E
5896
130
6025
4180
1
619
419
7%
32
387
26
490
153
31%
337
101
33

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

BALANCE SHEET

FY16
33
2362
2395
0
260
2
2395
222
0
1307
197
1745
408
1356
5599

FY17E
33
2598
2631
0
262
2
2631
227
0
1444
193
1757
424
1532
5874

OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
OP before WC changes
CF from Op. Activity
CAPEX
CF from Inv. Activity
Repayment of LTB
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

FY14
340
25
89
351
230
0
25
(285)
0
23
57
(79)
(134)
407
273

CASH FLOW STATEMENT
FY15
FY16
FY17E
514
552
490
28
28
32
104
153
153
341
505
548
311
275
284
0
0
86
34
52
37
(104)
(367)
(189)
0
0
0
23
14
0
71
88
101
(236)
36
(99)
(29)
(56)
(4)
273
243
197
243
188
193

19

"BUY"
ASHOK LEYLAND LTD.

27-Dec-16

Result Update
CMP

77

Target Price

110

Previous Target Price

120

Upside

44%

Change from Previous

-

Market Data
BSE Code

500477

NSE Symbol

ASHOKLEY

52wk Range H/L

113/74

Mkt Capital (Rs Cr)

21,799

Av. Volume

567130

Nifty

7,908

Ashok Leyland reported 6.4% decline in revenues during 2QFY17. CV
volumes contracted by 10% YoY but realization increased by 4% YoY during
the quarter. Domestic M&HCV market share increased by 220 bps QoQ to
33% in 2QFY17, due to intense competition from competitors in the form of
discounting. The country would be moving to BS-IV norms in April, 2017 and
a significant amount of pre-buying expected, especially in the fourth quarter
of FY17. Ashok Leyland is already manufacturing commercial vehicles with
EURO-IV engines in India and EURO-VI engines for export market, which is
similar to BS-IV and BS-VI norms. Management's focused approach
towards curtailing debt and concentrating in its core CV business will help
the company to gain further market share and revenue growth in domestic
and exports businesses.
2QFY17 Result Highlights
Revenue declined by 6.4% YoY to Rs.4622 crore in 2QFY17 due to 15%YoY
decline in M&HCV segment. Realisation grew by 4%YoY due to higher sales
in the exports market combined with higher revenues from spare parts.

Stock Performance
1Month

1Year

YTD

Absolute

-0.6

-12.9

-13.0

Rel.to Nifty

2.0

-13.5

-12.5

EBITDA margin contracted by 40 bps due to higher other expenses during
the quarter.
PAT margin grew by 260 bps to 6.4% due to lower interset cost and tax
expenses.

Share Holding Pattern-%
2QFY17 1QFY17

Promoter
Public
Others
Total

4QFY16

50.4

50.4

50.4

49.6
-100.0

49.6
-100.0

49.6
-100.0

Company Vs NIFTY
130

ASHOKLEY

NIFTY

125

120
115

110
105

Outlook

Going forward, We assume that the upcoming emission norms BS-IV to BSVI, focus towards the export markets, improvement in demand from
infrastructure segment, diminution of investments in subsidiaries will help
the company to focus on its commercial vehicle business and government's
initiative to develop defence products in the country can be volume boosters
for the company in FY17. The current demonetization issue has impacted
the transport sector most because a lot of transactions happen through
cash. The sales may be down by 10-12% for next couple of months but we
are hopeful that the situation might improve in 4QFY17 due to pre-buying
during the quarter. We expect that the company will maintain a healthy ROE
of over 20% going ahead. We maintain 'BUY' looking at the huge growth
potential going ahead but considering the uncertain demand scenario we
reduce our target to Rs.110.

Rs. In crore

100

95
90
85
Dec-16

Nov-16

Oct-16

Sep-16

Aug-16

Jul-16

Jun-16

May-16

Apr-16

Mar-16

Jan-16

Feb-16

Dec-15

80

Naveen Kumar Dubey
naveen.dubey@narnolia.com

Financials

2QFY17

1QFY17

2QFY16

QoQ

YoY

Sales
EBITDA
Net Profit
EBIDTA%
PAT %

4622
536
294
11.6%
6.4%

4259
476
282
11.2%
6.6%

4940
594
287
12.0%
5.8%

9%
13%
5%

-6%
-10%
3%

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

20

ASHOKLEY
Investment Arguments
♦ The country would be moving to BS-IV norms in April, 2017 and a significant amount of pre-buying expected, especially in the
fourth quarter of FY17. Ashok Leyland's subsidiary, Albonair, holds a significant potential moving forward because Albonair does
exhaust emission systems, selective catalytic reduction emission systems which are necessary for being BS-IV compliant.
♦ Export is only 12% of total volumes, therefore the company is targeting the African and Middle East countries to expand its
export contribution by setting up own assembly plants in these countries under the company's global expansion project. The
exports is an important part of Ashok Leyland's strategic intent to globalise its product portfolio and derisk itself from supplying
only into India.
♦ The management expects its defence business to log four-fold jump in revenues at over Rs 2,000 crore in next five years as it
gears up to provide an entire range of mobility solutions, including missile carrying vehicles to the armed forces. Ashok Leyland is
the largest supplier of logistics vehicles to the Indian Army.
♦ The management has focused approach towards its core commercial vehicle business. We expect that the company will be
benefitting from recovery in the M&HCV demand and its EBITDA margin will expand on account of operating leverage. The
company is also working on to reduce its debt and generate more cash to fulfill its future expansion requirements.

Management Highlights
♦ Management expects Q4 to be promising due to the implementation of BS-IV norms.
♦ If there is economic growth in the country CV industry will move ahead. Going ahead we see CV industry to grow about 12-15%
annually.
♦ 30% market share in M&HCV space and in south region overall market share is 51%.
♦ Domestic truck business contributes 50-55 percent of total revenue.
♦ Marginal impact of commodity prices but it will be passed on to the customers.
♦ Net debt stood at Rs.1870 crore.
♦ Price increase on November 1, 2016 of 1%.
♦ Ashok Leyland have acquired 100% ownership of the JVs, we will continue to be associated with Nissan for the technology of
the existing Dost, Partner, and Mitr models.
♦ The management is focusing on to improve profitability and ROCE of the company going ahead.
♦ Defence Revenue to be close to around Rs 1,500 crore by FY18.

M&HCV volume and growth trend
M&HCV

40000

71%

60%
26262

25000

10000

70%

29840

30000

15000

80%

35246

35000

20000

Growth YoY

44%
21489

14908

18207
14%

18279

64%

40%

23232
27%

34%

24025

25346

50%
40%

30%
12%

20%

10%

0%

0%
-15%

5000
0

-10%

-20%
1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

1QFY17

2QFY17

21

ASHOKLEY
Financials Snap Shot

Net Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

FY14
11,487
92
11,579
8,138
71%
1,581
422
4%
530
(108)
805
(821)
(68)
8%
(164)
266

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY14
266
3,723
3,989
5,491
1,264
411
9,480
7,087
270
1,381
113
2,592
256
400
17,534

INCOME STATEMENT
FY15
FY16
15,341
20,659
189
152
15,530
20,811
10,443
13,558
68%
66%
1,845
2,396
1,517
2,932
10%
14%
580
524
937
2,408
872
968
254
1,592
172
528
68%
33%
134
1,071
150
316
285
285

BALANCE SHEET
FY15
FY16
285
285
4,227
4,708
4,511
4,992
6,219
7,597
827
1,093
510
536
10,731
12,589
6,060
5,894
166
162
1,354
1,515
905
1,758
3,082
2,966
599
1,081
522
1,016
19,525
22,963

FY14

RATIOS
FY15
FY16
0
4
16
18
0.5
1.1
112%
30%

FY17E
23,458
171
23,630
15,365
66%
2,698
3,383
14%
519
2,865
1,194
1,842
611
33%
1,232
364
285

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

FY17E
285
5,575
5,860
7,217
938
536
13,077
5,871
162
1,721
2,094
3,213
1,147
1,222
23,951

CASH FLOW STATEMENT
FY14
FY15
FY16
FY17E
OP/(Loss) before Tax
(300)
(42)
1,627
1,842
Depreciation
530
580
524
519
Direct Taxes Paid
(97)
(112)
(545)
(611)
OP before WC changes
195
1,725
2,431
3,554
CF from Op. Activity
(104)
496
(952)
3,080
Capex
(408)
(251)
(212)
CF from Inv. Activity
(377)
(126)
552
(652)
Repayment of Long Term Borrowings
(1,586)
(1,996)
(2,362)
(380)
Interest Paid
(499)
(803)
(316)
(1,194)
Divd Paid (incl Tax)
(187)
(154)
(364)
CF from Fin. Activity
461
381
1,246
(2,092)
Inc/(Dec) in Cash
(20)
751
846
336
Add: Opening Balance
127
106
858
1,758
Closing Balance
106
858
1,718
2,094

Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

(1)
15
0%

FY17E
4
21
1.3
30%

-38.4
1.6
0.00%

73.2
2.2
1.53%

9.2
2.0
3.23%

8.0
1.7
3.71%

-4%
-1%

3%
9%

21%
19%

21%
22%

0.7
43.9
69.2
82.4
1.4

0.8
32.2
54.8
73.3
1.4

0.9
26.8
55.5
52.4
1.5

1.0
26.8
55.5
50.0
1.2

22

N arnolia Securities Ltd
201 | 2nd Floor | Marble Arch Bu ild ing | 236B-AJC Bose
Road | Kolkata-700 020 , Ph : 033-40501500
email: narnolia@narnolia.com,
w ebsite : w w w .narnolia.com

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