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Edelweiss Investment Research

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Emerging Investment Ideas


Edelweiss GWAM – Professional Investors Theme Day 2018

About the Event:


We at Edelweiss Investment Research hosted 17 companies in our mid year event ‘Edelweiss GWAM Emerging Ideas Theme
Day’ on 14th June, 2018 for our professional investors. We hosted 17 companies across different sectors like infrastructure,
real estate, chemicals and pipes evaluating their growth potential and understanding their unique business model. We
received an overwhelming response with more than 40 family offices, investment managers and proprietary funds having
participated in the single day event leading to more than 700 meetings.

This event gave platfom for the professional investors to interact with the top management representatives of the
companies having in-dept understanding in their respective sectors and sharing their views on business as well as industry
growth outlook. For example Mr D. Ram Reddy (MD - Balalji Amines Ltd) guided about strong demand outook in his
product offerings, Mr Vijay Mansukhani (MD – Mirc Electronics) shared strategy on increasing rural penetration for his
products and contract manufacturing will drive growth going forward, while Mr Ashok Soni (CFO – Maharashtra Seamless
Ltd) believes healthy domestic infrastructure development along with rise in demand from global Oil and Gas industry will
be beneficial for the company, Ms Bina Engineer (Executive Director and CFO – Sanghi Industries Ltd) guided cost
efficiency for the company to further improve through strategic expansion in near term, Mr Rattan Agarwal (CFO – CMI
Ltd) sights industry tailwinds to drive operating leverage for the company going ahead.

Such detailed interaction not only helps in identifying exciting investment opportunities but also benefits in clearing the
doubts on company’s growth prospects, especially in current environment when there are lot of uncertainities which are
threightning the healthy economic growth outlook of the country.

CMP Mkt Cap EV/EBITDA (X) /


S.No Stock Name P/E (X) ROACE (%)/RoA
(INR) (INR Crs) Price/BV
FY18 FY19E FY18 FY19E FY18 FY19E
1 Apollo Pipes Ltd 530 612 28.5 NA 20.3 NA 10.9 NA
2 Balalji Amines Ltd 598 1,930 17.3 13.9 10.8 8.2 28.7 31.8
3 Beta Drugs Ltd 112 104 16.8 NA 10.8 NA 24.9 NA
4 Bodal Chemicals Ltd 143 1,749 14.3 NA 10.0 NA 25.4 NA
5 CMI Ltd 257 384 14.9 9.2 7.6 6.5 16.3 17.7
6 Cords Cable Industries Ltd 73 96 15.0 NA 4.0 NA 15.5 NA
7 Dollar Industries Ltd 340 1,908 30.4 NA 17.3 NA 23.7 NA
8 IRB Infrastructure Developers Ltd 240 8,365 9.0 NA 15.2 NA 5.0 NA
9 Jindal Saw Ltd 93 3,090 NA NA 8.4 NA 5.8 NA
10 JK Paper Ltd 129 2,259 8.8 7.9 5.3 4.6 14.8 14.4
11 Magma Fincorp Ltd 170 4,622 17.0 NA 2.3 NA 1.7 NA
12 Maharastra Seamless Ltd 437 2,936 24.5 11.5 9.7 5.7 6.3 9.4
13 Mirc Electronics Ltd 35 805 35.2 NA 20.5 NA 10.4 NA
14 Prozone Intu Properties Ltd 43 662 NA NA 25.0 NA 1.7 NA
15 Quick Heal Technologies Ltd 301 2,039 28.8 22.9 15.2 12.8 18.0 19.0
16 Sanghi Industries Ltd 87 2,140 20.5 19.4 11.6 8.6 7.1 6.1
17 Waterbase Ltd 203 829 27.8 NA 14.5 NA 28.6 NA

1 Edelweiss Investment Research


Edelweiss Investment Research

Apollo Pipes Ltd. CMP INR: 530

Rating: Not Rated


Emerging as Formidable player…

We hosted the management of Apollo Pipes Ltd. (Apollo), is among the top 10 leading Praveen Sahay
PVC pipe manufacturers in India, in our ‘Edelweiss GWAM Emerging Ideas Theme Day” on Research Analyst
14th June, 2018. The company has total capacity of 70,000 MTPA and a diversified basket Praveen.sahay@edelweissfin.com

of 1,000+ products which includes uPVC pipes & fittings, CPVC pipes & fittings and HDPE
piping system (ranging from 15mm to 400mm) catering to sectors like Agriculture, Water
Management & Infrastructure..

Key takeaways
 Apollo continues to deliver healthy growth in sales volume on account of capacity
addition and geographical penetration.
 Company is targeting total installed capacity of 155,000 MTPA (2.2x of current installed
capacity) by FY20E which includes increasing Dadri capacity to 80,000 MTPA, 25,000
MTPA capacity in Ahmedabad and Bengaluru greenfield capacity of initially 25,000
MTPA in FY19 and eventually 50,000 MTPA capacity by FY20E.
 The company has target to double its sales volume in next couple of years to ~70,000
MT.
 The company is selling at lower price (~5-10% lower) to competition to establish its
market across India.
 The company expected to maintain its 12% EBITDA margin in coming years even after
increase in capacity and geographical penetration.
Bloomberg: APOLP:IN
 The company is utilizing APL Apollo distribution network, however, expected to build
new channels with increase in capacity and geography going forwrd. Apollo currently 52-week
724.80 / 268.85
has ~150 distributors and expected to reach to 200 by FY19, mostly from Gujarat. range (INR):

 The CPVC pipe contribution is currently ~5% of total sales volume of Apollo and Share in issue (cr): 1
expected to improve to 6-7% in near future.
M cap (INR cr): 612
 The company is focus on agriculture pipe segment, which contributes >75% of its sales
volume. Avg. Daily Vol.
44
BSE/NSE :(‘000):
 The advertisement and promotion expense was 1% of sales in FY18 and management
expected to increase it to ~2% of sales in coming years. Promoter
37.16
Holding (%)
 The increase in raw material (PVC resin) prices is near term challenge for the company,
however, industry pass on prices so as Apollo.
 Return ratios RoCE and RoE are at ~11% and ~20%, respectively, and expected to
improve in coming years.

Valuation
The company reported decent 18% growth in sales in FY18 was majorly on account of 16%
volume growth in the pipe & fitting segment. We believe that the company to continue
healthy volume growth in coming years with the capacity addition and geographical
penetration. The company is trading at P/E of 28.5x FY18 earnings.

Year to March FY16 FY17 FY18


Revenues (INR Cr) 208 241 284
Rev growth (%) 107.0 15.7 18.0
EBITDA (INR Cr) 24 31 33
PAT (INR Cr) 10 16 22
P/E (x) 27.8 40.3 28.5
EV/EBITDA (x) 9.8 6.9 5.5
Date: 15th June 2018
RoACE (%) 22.2 25.1 10.9
RoAE (%) 38.9 25.9 21.5

2 GWM
Apollo Pipes Ltd.
Financials
Income statement (Standalone) Balance sheet (Standalone) (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 208 241 284 Equity share capital 5 11 11
Direct costs 160 176 203 Preference Share Capital 0 0 0
Employee costs 7 9 14 Reserv es & surplus 24 80 102
Other expenses 25 35 49 Shareholders funds 29 91 113
Total operating expenses 184 211 252 Secured loans 13 12 151
EBITDA 24 31 33 Unsecured loans 21 11 92
Depreciation and amortisation 4 5 7 Borrowings 34 23 244
EBIT 20 26 26 Minority interest 26 0 0
Interest expenses 5 3 3 Sources of funds 89 114 357
Other income 0 2 8 Gross block 65 94 110
Profit before tax 16 24 31 Depreciation 20 25 32
Prov ision for tax 5 8 9 Net block 45 70 79
Core profit 10 16 22 Capital work in progress 0 0 15
Extraordinary items -0 -0 0 Total fixed assets 45 70 93
Profit after tax 10 16 22 Unrealised profit 0 0 0
Minority Interest 0 0 0 Inv estments 0 0 0
Share from associates 0 0 0 Inv entories 14 23 44
Adjusted net profit 10 16 22 Sundry debtors 30 34 39
Cash and equiv alents 2 1 205
Equity shares outstanding (mn) 1 1 1
Loans and adv ances 4 11 17
EPS (INR) basic 20.5 14.1 20.0
Other current assets 0 0 0
Diluted shares (Cr) 0.5 1.1 1.1
Total current assets 49 69 305
EPS (INR) fully diluted 20.5 14.1 20.0
Sundry creditors and others 13 25 41
Div idend per share 0.0 0.0 0.0
Prov isions 2 0 1
Div idend payout (%) 0.0 0.0 0.0
Total CL & prov isions 15 26 42
Net current assets 34 43 263
Common size metrics- as % of net revenues
Net Deferred tax -2 -2 -2
Year to March FY16 FY17 FY18
Misc expenditure 11 2 2
Operating expenses 88.5 87.3 88.4
Depreciation 2.0 1.9 2.4 Uses of funds 89 114 357
Book v alue per share (INR) 58 83 103
Interest expenditure 2.3 1.4 1.0
0 -0 0
EBITDA margins 11.6 12.7 11.6
Net profit margins 4.9 6.5 7.8 Cash flow statement
Year to March FY16 FY17 FY18
Net profit 10 16 22
Growth metrics (%)
Add: Depreciation 4 5 7
Year to March FY16 FY17 FY18
Add: Misc expenses written off -0 9 0
Rev enues 107.0 15.7 18.0
Add: Deferred tax 1 0 0
EBITDA 37.9 26.4 7.5
Add: Others 0 0 0
PBT (29.8) 52.4 30.5
Gross cash flow 15 29 29
Net profit (51.7) 51.6 41.5
Less: Changes in W . C. -7 10 16
EPS 28.5 (31.2) 41.6
Operating cash flow 22 19 13
Less: Capex 12 29 31
Free cash flow 10 -10 -18
Ratios
Year to March FY16 FY17 FY18
ROAE (%) 38.9 25.9 21.5
ROACE (%) 22.2 25.1 10.9
Debtors (days) 52 52 49
Current ratio 3.3 2.7 7.3
Debt/Equity 1.2 0.2 2.1
Inv entory (days) 24 34 57
Payable (days) 22 38 53
Cash conv ersion cycle (days) 53 48 53
Debt/EBITDA 1.4 0.7 7.4
Adjusted debt/Equity 1.1 0.2 0.3

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) 20.5 14.1 20.0
Y-o-Y growth (%) 28.5 (31.2) 41.6
CEPS (INR) 28.8 18.4 26.3
Diluted P/E (x) 27.8 40.3 28.5
Price/BV(x) 9.8 6.9 5.5
EV/Sales (x) 1.5 2.7 2.3
EV/EBITDA (x) 13.1 21.3 20.3
Diluted shares O/S 0.5 1.1 1.1
Basic EPS 20.5 14.1 20.0
Basic PE (x) 27.8 40.3 28.5
Div idend yield (%) 0.0 0.0 0.0

3 GWM
Edelweiss Investment Research

CMP INR: 598


Balaji Amines Ltd Rating: BUY
Target Price INR: 797
Strong demand for existing products with multiple capex to fuel growth Upside: 33%

We hosted the management of Balaji Amines (BAL), India’s leading player in the Neha Agarwal
methylamines segment, in our ‘Edelweiss GWAM Emerging Ideas Theme Day” on 14 th June, Research Analyst
2018. Balaji Amines (BAL) has steadily built up capacity in methylamines and other specialty nehap.agarwal@edelweissfin.com
chemicals between FY10-FY14 riding on the strong demand potential from its key end-user
industries — pharmaceuticals and agrochemicals. With its existing capacities nearling full
utilisation levels, the company is undertaking multiple capex in view of strong medium term
growth.

Key takeaways
 BAL’s INR 66 cr investment in Balaji Specialty chemicals (BSC) is expected to start
contributing from H2FY19. The project is progressing as expected with the company having
already obtained the environmental clearance for its key products EthyleneDiAmine (EDA)
and its co-products.
 Currently EDA is fully imported in India with a market size of nearly INR 350 cr giving BSC
Bloomberg: BLA:IN
a ready import substitution market with quick ramp-up ability.
 The project of ~INR 200 crore has also got a ‘MEGA Project’ status for 5 years entitling 52-week
782 / 271
the company for 50% GST refund, stamp-duty exemption, among other benefits. range (INR):
 With all major consumers of EDA looking for capacity expansion, the market is expected Share in issue
to see significant expansion. 3.24
(cr):

 Among its specialty products, demand for Morpholine has being growing rapidly. M cap (INR cr): 1,819

 BAL, being one among the only three players (ex-China) globally manufacturing the Avg. Daily Vol.
product, has expanded its capacity from 3,000 MTPA to 10,000 MTPA. 35
BSE/NSE :(‘000):
 In FY19 year to date, it has also been exporting the product to China with prospects of
Promoter
long-term supply agreements. 54.55
Holding (%)
 BAL expects to start work on its ‘Mega Project’ planed in MIDC, Chincholi by Q3FY19. The
project will be carried out by the company in two phases with nearly INR 300 cr investment
outlay in the 1st phase funded through a combination of debt and equity.
 The 1st phase will have Monoisopropyl Amine (MIPA) (15,000 MTPA), Isopropyl Alcohol
(IPA) (50,000 MTPA) and additional quantities of methylamines (30,000 MTPA) and
ethylamines (15,000 MTPA). Commercialisation of the first phase is expected to be by
H2FY20.
 Complete ramp-up of this facility may take nearly 3-4 years with asset-turnover potential
of 1.6-1.8 times.

Valuation
Our base earnings estimates per share for FY19/FY20 are INR 43/45 respectively. Additionally,
we have valued earnings from Balaji Specialty Chemicals for FY19/FY20 at INR 1.0/4.7 per
share. Overall, we value the company at 16x FY20 earnings estimate of INR 49.8/share and
re-iterate our ‘BUY’ recommendation with a target of INR 797/share.

Year to March FY16 FY17E FY18 FY19E FY20E


Revenues (INR Cr) 643 670 863 1,064 1,226
Rev growth (%) 3.9 4.2 28.7 23.3 15.2
EBITDA (INR Cr) 127 153 189 245 261
PAT (INR Cr) 58 81 112 140 146
EPS (INR) 18 25 35 43 45
EPS growth (%) 73.8 39.9 38.8 24.8 4.7
P/E (x) 33.6 24.0 17.3 13.9 13.2
EV/EBITDA (x) 16.6 13.3 10.8 8.2 7.5
Date: 15th June 2018
RoACE (%) 20.8 26.2 28.7 31.8 30.3
RoAE (%) 22.7 26.0 27.4 26.3 22.0

4 GWM
Balaji Amines Ltd.
Financials
Income statement (INR crs) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 FY19E FY20E As on 31st March FY16 FY17 FY18 FY19E FY20E
Income from operations 643 670 863 1064 1226 Equity share capital 6 6 6 6 6
Direct costs 419 400 541 665 773 Preference Share Capital 0 0 0 0 0
Employee costs 22 24 45 50 56 Reserv es & surplus 274 347 461 590 725
Other expenses 98 118 133 154 193 Shareholders funds 280 354 467 597 732
Total operating expenses 516 518 674 819 965 Secured loans 162 99 133 123 123
EBITDA 127 153 189 245 261 Unsecured loans 10 6 9 8 8
Depreciation and amortisation 19 20 19 24 30 Borrowings 173 105 141 131 131
EBIT 107 133 170 222 231 Minority interest 0 0 18 18 18
Interest expenses 22 13 9 10 10 Sources of funds 453 459 626 746 881
Profit before tax 88 126 165 212 222 Gross block 469 473 483 683 783
Prov ision for tax 30 43 53 72 75 Depreciation 128 147 167 190 220
Core profit 58 82 113 140 146 Net block 341 325 316 493 563
Extraordinary items 0 -2 -1 0 0 Capital work in progress 16 25 124 0 0
Profit after tax 58 81 112 140 146 Total fixed assets 357 351 440 493 563
Adjusted net profit 58 81 112 140 146 Unrealised profit 0 0 0 0 0
Equity shares outstanding (mn) 3 3 3 3 3 Inv estments 0 0 0 0 0
EPS (INR) basic 18 25 35 43 45 Inv entories 78 99 89 110 127
Diluted shares (Cr) 3 3 3 3 3 Sundry debtors 124 124 173 213 245
EPS (INR) fully diluted 18 25 35 43 45 Cash and equiv alents 9 6 31 63 109
Div idend per share 2 2 3 3 3 Loans and adv ances 34 55 111 111 111
Div idend payout (%) 11 9 7 7 7 Other current assets 0 0 0 0 0
Total current assets 245 284 404 498 593
Common size metrics- as % of net revenues (INR crs) Sundry creditors and others 55 68 100 123 142
Year to March FY16 FY17 FY18 FY19E FY20E Prov isions 34 52 72 75 79
Operating expenses 80.3 77.2 78.0 77.0 78.7 Total CL & prov isions 89 120 171 198 221
Depreciation 3.0 2.9 2.2 2.2 2.4 Net current assets 156 165 233 299 372
Interest expenditure 3.4 1.9 1.0 0.9 0.8 Net Deferred tax -50 -51 -50 -50 -50
EBITDA margins 19.7 22.8 22.0 23.04 21.3 Misc expenditure -10 -3 4 4 4
Net profit margins 9.0 12.0 12.97 13.13 11.93 Uses of funds 453 461 626 746 889
Book v alue per share (INR) 86 109 144 184 226

Growth metrics (%)


Cash flow statement (INR crs)
Year to March FY16 FY17 FY18 FY19E FY20E
Year to March FY16 FY17 FY18 FY19E FY20E
Rev enues 3.9 4.2 28.7 23.3 15.2
Net profit 58 84 113 140 146
EBITDA 24.6 20.5 24.1 29.4 6.4
Add: Depreciation 19 20 19 24 30
PBT 72.4 42.9 31.4 28.2 4.7
Add: Misc expenses written off -4 -6 -7 0 0
Net profit 73.7 42.9 36.6 24.2 4.7
Add: Deferred tax 5 0 -1 0 0
EPS 73.8 39.9 38.8 24.8 4.7
Gross cash flow 78 98 125 163 176
Less: Changes in W . C. -46 11 43 34 27
Ratios Operating cash flow 124 86 82 129 149
Year to March FY16 FY17 FY18 FY19E FY20E Less: Capex 32 13 108 76 100
ROAE (%) 22.7 26.0 27.4 26.3 22.0 Free cash flow 92 73 -27 53 49
ROACE (%) 20.8 26.2 28.7 31.8 30.3
Debtors (days) 71 68 73 73 73
Current ratio 2.7 2.4 2.4 2.5 2.7
Debt/Equity 0.6 0.3 0.3 0.2 0.2
Inv entory (days) 44 54 38 38 38
Payable (days) 31 37 42 42 42
Cash conv ersion cycle (days) 84 85 69 69 69
Debt/EBITDA 1.4 0.7 0.7 0.5 0.5
Adjusted debt/Equity 0.6 0.3 0.2 0.1 0.0

Valuation parameters
Year to March FY16 FY17 FY18 FY19E FY20E
Diluted EPS (INR) 17.8 24.9 34.5 43.1 45.1
Y-o-Y growth (%) 73.8 39.9 38.8 24.8 4.7
CEPS (INR) 24 32 41 50 54
Diluted P/E (x) 33.6 24.0 17.3 13.9 13.2
Price/BV(x) 6.9 5.5 4.1 3.2 2.6
EV/Sales (x) 3.3 3.0 2.4 1.9 1.6
EV/EBITDA (x) 16.6 13.3 10.8 8.2 7.5
Diluted shares O/S 3.2 3.2 3.2 3.2 3.2
Basic EPS 17.8 24.9 34.5 43.1 45.1
Basic PE (x) 33.6 24.0 17.3 13.9 13.2
Div idend yield (%) 0.3 0.4 0.4 0.5 0.6

5 GWM
Edelweiss Investment Research

Beta Drugs Ltd. CMP INR: 112

Rating: Not Rated


A budding specialist in oncology

We hosted the management of BETA Drugs, an emerging player in Oncology drugs , in our Neha Agarwal
‘Edelweiss GWAM Emerging Ideas Theme Day” on 14th June, 2018. Beta Drugs is a part of Research Analyst
Nehap.agarwal@edelweissfin.com
the Adley Group that has decades of experience in the domestic pharmaceutical
industry. It has a dedicated custom manufacturing facility for anti-cancer cytotoxins
including sterile liquid ampoules/vials, dry powder facilities, and a tablets and capsules
unit in Baddi, Himachal Pradesh. The company is focused on new and emerging
technologies like development of nano-albumin-bound–paclitaxel, pegylated liposomal
drugs and major nano-tech anti-cancer formulations. Whilst nearly 70% of its revenues
arise from contract manufacturing, no single client exposure is more than 10%, creating a
balanced client concentration. Armed with the strong ‘Adley’ brand and technological
knowhow, the company is poised for a steep growth-oriented outlook.

Key takeaways
 Sales has grown from INR 42 cr in FY17 to INR 51 cr in FY18, driven by growth in both
branded formulation and OEM business. The company expects growth momentum
will continue along with improvement in margin.

 Domestic branded formulation has grown from INR 3 cr in FY16 to INR 14 cr in FY18,
while OEM business grew from INR 24 cr in FY16 to INR 36 cr in FY18. Export sales were
INR 1 cr during the year FY18. Bloomberg: BETADR:IN

 Margin improved 140 bps YoY basis and management expects further improvement 52-week
217/ 88.00
on account of better product mix in favour of Branded formulation and Export range (INR):
business.
Share in issue (cr): 1

 Currently, company has a portfolio of 60 products and would like to add 3-4 high M cap (INR cr): 104
value / complex products every year. 70% business comes from Injectables and
complex drug, while the remaining are from oral solids. Avg. Daily Vol.
189
BSE/NSE :(‘000):
 Key growth driver for the company would be Export business. As of now, company is Promoter
supplying in semi regulated markets in Africa and SAARC countries. Going forward in Holding (%)
73.0
H2FY19, it expects inspection from EU/UK MHRA with commercialization opportunity
from FY20 itself.

Valuation
At CMP of INR 115, company is trading at 17x FY18 earnings.

Year to March FY16 FY17 FY18


Revenues (INR Cr) 26 42 51
Rev growth (%) NA 57.9 21.4
EBITDA (INR Cr) 3 7 8
Net Profit (INR Cr) 1 4 6
P/E (x) NA 26.5 16.8
EV/EBITDA (x) 40.2 16.5 10.8
RoACE (%) 21.7 49.9 24.9
RoAE (%) 69.7 103.2 29.6

Date: 15th June 2018

6 GWM
Beta Drugs Ltd.
Financials
Income statement (INR crs) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 26 42 51 Equity share capital 1 1 9
Direct costs 15 24 28 Preference Share Capital 0 0 0
Employee costs 3 4 6 Reserves & surplus 1 5 24
Other expenses 8 11 14 Shareholders funds 2 6 33
Total operating expenses 23 34 42 Secured loans 5 4 3
EBITDA 3 7 8 Unsecured loans 3 4 4
Depreciation and amortisation 1 1 2 Borrowings 8 8 6
EBIT 2 6 7 Minority interest 0 0 0
Interest expenses 1 1 1 Sources of funds 11 14 39
Other income 0 0 0 Gross block 9 11 18
Profit before tax 1 5 6 Depreciation 2 3 5
Provision for tax 0 1 0 Net block 7 8 13
Core profit 1 4 6 Capital work in progress 0 0 1
Extraordinary items 0 0 0 Total fixed assets 7 8 15
Profit after tax 1 4 6 Unrealised profit 0 0 0
Minority Interest 0 0 0 Investments 0 0 0
Share from associates 0 0 0 Inventories 3 2 3
Adjusted net profit 1 4 6 Sundry debtors 4 11 14
Equity shares outstanding (mn) 1 1 1 Cash and equivalents 0 0 12
EPS (INR) basic 1.1 4.2 6.7 Loans and advances 0 2 1
Diluted shares (Cr) 1.0 1 1 Other current assets 0 0 0
EPS (INR) fully diluted 1.1 4.2 6.7 Total current assets 8 15 31
Dividend per share 0.0 0 0 Sundry creditors and others 5 9 10
Dividend payout (%) 0.0 0.0 0.0 Provisions 0 1 0
Total CL & provisions 5 10 10
Common size metrics- as % of net revenues Net current assets 3 5 21
Year to March FY16 FY17 FY18 Net Deferred tax 0 -0 -0
Operating expenses 88.6 82.5 83.3 Misc expenditure 0 0 4
Depreciation 4.7 3.0 3.7 Uses of funds 11 14 39
Interest expenditure 2.5 2.0 2.0 Book value per share (INR) 2 6 38
EBITDA margins 11.4 17.5 16.7
Net profit margins 4.3 10.2 11.4 Cash flow statement
Year to March FY16 FY17 FY18
Growth metrics (%) Net profit 1 4 6
Year to March FY16 FY17 FY18 Add: Depreciation 1 1 2
Revenues NA 57.9 21.4 Add: Misc expenses written off/Other Assets 0 -0 -4
EBITDA NA 141.1 16.1 Add: Deferred tax 0 0 0
PBT NA 360.6 11.1 Add: Others 0 0 0
Net profit NA 274.5 35.0 Gross cash flow 2 5 4
EPS NA 274.5 57.6 Less: Changes in W. C. 4 2 4
Operating cash flow -1 3 0
Less: Capex 2 2 8
Ratios
Free cash flow -3 1 -8
Year to March FY16 FY17 FY18
ROAE (%) 69.7 103.2 29.6
ROACE (%) 21.7 49.9 24.9
Debtors (days) 61 92.1 104.2
Current ratio 1.7 1.6 3.1
Debt/Equity 3.8 1.2 0.2
Inventory (days) 40 21.0 20.2
Payable (days) 63 76.1 69.5
Cash conversion cycle (days) 37 37.0 54.9
Debt/EBITDA 2.8 1.0 0.7
Adjusted debt/Equity 3.7 1.2 (0.2)

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) 1.1 4.2 6.7
Y-o-Y growth (%) NA 274.5 57.6
CEPS (INR) 2.4 5.5 8.8
Diluted P/E (x) NA 26.5 16.8
Price/BV(x) 51.4 18.6 2.9
EV/Sales (x) 4.6 2.9 1.8
EV/EBITDA (x) 40.2 16.5 10.8
Diluted shares O/S 1.0 1.0 0.9
Basic EPS 1.1 4.2 6.7
Basic PE (x) NA 26.5 16.8
Dividend yield (%) 0.0 0.0 0.9

7 GWM
Edelweiss Investment Research
CMP INR: 143
Bodal Chemicals Ltd. (BCL) Not Rated

Dyestuff ramp-up to drive volumes


We hosted the management of Bodal Chemicals Ltd. (BCL), India’s leading player in the Neha Agarwal
dye intermediates and dye stuff segment, in our ‘Edelweiss GWAM Emerging Ideas Theme Research Analyst
nehap.agarwal@edelweissfin.com
Day” on 14th June, 2018. BCL is India’s largest producer of dye intermediates with a market
share of ~21% in terms of capacity and one of the leading dyestuff producers in India with
~13% market share in term s of capacity.

Key takeaways
 BCL is one of the leading integrated player in the dyestuff value chain with 33,000 MT
of dye intermediates capacity forward integrated into 29,000 MT of dyestuff capacity
(inclusive of the recently commissioned 12,000 MT dyestuff capacity) and backward
integrated into 1,90,000 MT of Basic Chemicals capacity
 As per the management, the newly commissioned capacity of 12,000 MT of dyestuff
is likely to contribute ~INR 130 cr at 50% utilization in FY19. However, it will also reduce
sales of dye intermediates by INR 60 cr as some of the dye intermediates produced
Bloomberg: BLA:IN
will be used for internal consumption for manufacturing of dyes
 The management has also highlighted that the Vinyl Sulphone (VS) expansion at its 52-week
193.75 / 109.85
subsidiary is likely to be completed by end of Q2FY19 and likely to contribute ~INR 45 range (INR):
cr for FY19 and ~INR 90 cr for FY20 on a blended basis. The company’s Thionyl Chloride
Share in issue (cr): 12.22
(TC) project also remains on track and serves as a integration between the SO 3 and
Vinyl Sulphone and is also expected to be margin accretive M cap (INR cr): 1,749
 The TC expansion coupled with commissioning of the captive power plant is likely to
Avg. Daily Vol.
be margin accretive to the tune of 250-300 bps resulting in the management 798
BSE/NSE :(‘000):
reiterating its guidance of 18% normalized EBITDA margin for FY20
Promoter
 The recent shutdown of Hubei Chuyuan (one of the leading producers of dye 54.93
Holding (%)
intermediates in the world) has lead to a spike in VS and H-Acid prices from INR 240 to
INR 325 and INR 370 to INR 700 for VS and H-Acid respectively. The management
expects the benefits from the price spikes from Q2FY19
 Ramp up of liquid dyestuffs and TCCA is likely to be weak due to delay in approvals
and higher raw material prices respectively
 Capex of FY19 is expected to be around INR 60 cr. The company expects to spend
INR 400-500 cr for a specialty chemical complex at its newly acquired land in Dahej
for the next 4-5 years which is likely to drive growth over the longer term. The capex is
expected to be in a different segment compared to dyestuffs and dye intermediates
although product /chemistry specific details are not finalized yet

Valuation
At CMP of INR 143, company trades at 14x FY20E P/E.

Year to March FY16 FY17 FY18


Revenues (INR Cr) 910 1,234 1,142
Rev growth (%) (13.0) 35.7 (7.5)
EBITDA (INR Cr) 157 226 194
Net Profit (INR Cr) 81 133 125
P/E (x) 19.2 11.7 14.3
EV/EBITDA (x) 10.9 7.5 10.0
RoACE (%) 33.2 43.1 25.4
RoAE (%) 42.0 44.4 24.0

Date: 15th June 2018

8 GWM
Bodal Chemicals
Financials
Income statement (INR cr) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 910 1234 1142 Equity share capital 22 22 24
Total operating expenses 753 1008 948 Preference Share Capital 0 0 0
EBITDA 157 226 194 Reserv es & surplus 213 341 673
Depreciation and amortisation 26 29 12 Shareholders funds 235 363 697
EBIT 131 197 182 Secured loans 140 151 188
Interest expenses 12 9 5 Unsecured loans 3 4 4
Other income 12 11 9 Borrowings 143 154 193
Profit before tax 131 199 186 Minority interest 0 2 1
Prov ision for tax 45 71 62 Sources of funds 378 519 891
Core profit 86 128 125 Gross block 431 490 717
Extraordinary items -5 5 0 Depreciation 239 268 281
Profit after tax 81 133 125 Net block 192 221 437
Adjusted net profit 81 133 125 Capital work in progress 0 9 19
Equity shares outstanding (mn) 11 11 12 Total fixed assets 192 231 455
EPS (INR) basic 7 12 10 Unrealised profit 0 0 0
Diluted shares (Cr) 11 11 12 Inv estments 2 17 17
EPS (INR) fully diluted 7 12 10 Inv entories 90 131 113
Div idend per share 1 2 1 Sundry debtors 167 230 347
Div idend payout (%) 17 14 14 Cash and equiv alents 4 17 6
Loans and adv ances 47 44 101
Common size metrics- as % of net revenues Other current assets 0 0 0
Year to March FY16 FY17 FY18 Total current assets 307 422 567
Operating expenses 82.8 81.7 83.0 Sundry creditors and others 113 164 154
Depreciation 2.8 2.3 1.1 Prov isions 4 0 1
Interest expenditure 1.3 0.7 0.5 Total CL & prov isions 117 164 155
EBITDA margins 17.2 18.3 17.0 Net current assets 190 258 413
Net profit margins 9.0 10.8 10.9 Net Deferred tax -15 -24 -26
Misc expenditure 9 37 32
Uses of funds 378 519 891
Growth metrics (%)
Book v alue per share (INR) 22 33 57
Year to March FY16 FY17 FY18
Rev enues (13.0) 35.7 (7.5)
Cash flow statement
EBITDA (15.0) 44.4 (14.0)
Year to March FY16 FY17 FY18
PBT (6.3) 52.4 (6.3)
Net profit 91 123 125
Net profit (6.3) 49.0 (2.8)
Add: Depreciation 26 29 12
EPS 90.3 63.1 (18.2)
Add: Misc expenses written off 8 -28 4
Add: Deferred tax 3 8 3
Gross cash flow 127 132 144
Ratios
Less: Changes in W . C. -2 54 166
Year to March FY16 FY17 FY18
ROAE (%) 42.0 44.4 24.0 Operating cash flow 129 78 -22
ROACE (%) 33.2 43.1 25.4 Less: Capex 25 67 237
Debtors (days) 67 68 111 Free cash flow 104 10 -259
Current ratio 2.6 2.6 3.7
Debt/Equity 0.6 0.4 0.3
Inv entory (days) 36 39 36
Payable (days) 45 48 49
Cash conv ersion cycle (days) 58 58 98
Debt/EBITDA 0.9 0.7 1.0
Adjusted debt/Equity 0.6 0.4 0.3

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) 7.5 12.2 10.0
Y-o-Y growth (%) 90.3 63.1 (18.2)
CEPS (INR) 10 14 11
Diluted P/E (x) 19.2 11.7 14.3
Price/BV(x) 6.7 4.3 2.5
EV/Sales (x) 1.9 1.4 1.7
EV/EBITDA (x) 10.9 7.5 10.0
Diluted shares O/S 10.9 10.9 12.2
Basic EPS 7.5 12.2 10.0
Basic PE (x) 19.2 11.7 14.3
Div idend yield (%) 1.0 1.1 1.1

9 GWM
Edelweiss Investment Research

CMI Ltd. CMP INR: 252


Rating: TACTICAL BUY
Target Price INR: 463
Operating leverage poised to accelerate. Upside: 82%

We hosted the management of CMI Ltd a fast growing company in the domestic cable Salil Utagi
and wire industry. CMI sports expertise in the B2B cables industry particularly in areas of Research Analyst
control & instrumentation, railways and HT/EHV power cables up to 33kV. CMI also has salil.utagi@edelweissfin.com

capability to manufacture copper/aluminium based EHV cables up to 132kV. CMI


primarily supplies to state electricity boards (SEBs), Indian Railways, Metro Railway, solar,
thermal power producers, and other process industries. The management continues to
guide for revenue and net profits CAGR of minimum 30% between FY18-20E. Operating
leverage from Baddi plant is expected to keep EBIDTA margins above 14% for the next
two years.

Key Takeaways
Baddi plant ramping up well
CMI had acquired the Baddi plant from General Cables in Feb 2016, having turnover
potential of INR 1000cr. In its first full year of operation in FY17, the plant did turnover of INR
70cr, which in FY18 has jumped to INR 220cr. At the current monthly run rate of production,
the management is guiding for INR 440cr of net revenues from Baddi plant in FY19E. in
FY18, CMI processed multiple orders at Baddi which were actually received in Faridabad
plant, hence proving capability of Baddi plant, the company continues to maintain same
state of modus operandi till it receives final approval from railways. The management is
fairly confident of receiving Category 2 approval from Indian Railways for Baddi plant in
June 2018 and approvals from NTPC/PGCIL by end of FY19. The company is also exploring
exports opportunity where the company is targeting to achieve 5-10% of plant’s turnover
from exports.
Bloomberg: CMI:IN
Working capital remains elevated, debt being tied up
52-week
Major part of CMI’s business is directly with public sector entities resulting in working capital 372/184
days above 150 days. CMI has been funding the business through the combination of range (INR):

internal accruals and debt. We believe the company’s debt levels are likely to increase in Share in issue (cr): 1.5
proportion of increase in revenues, which is likely to be tied by end of June 18CMI is taking
various steps to control the WC days through better inventory management, also getting M cap (INR cr): 387
helping hand from Railways/BHEL who are taking steps to facilitate easier WC conditions
for vendors. The management is confident of arranging required working capital limits to Avg. Daily Vol.
13/79
fund the growth in the next two years. BSE/NSE :(‘000):

Promoter
Operating leverage to accelerate in next 2 years 43.6
Holding (%)
Baddi plant can be ramped up to turnover of INR 1000cr with a capex of only INR 20cr in
FY19. Limited capex requirement and buoyant demand for cables is likely to maintain
growth traction for CMI in the next two years. Operating leverage in Baddi plant would
accelerate in FY19 and FY20 as capacity utilisation increases. The management continues
to guide for EBIDTA margins of above 14% for FY19/20.

Valuation – Remains attractive, maintain BUY rating


At a price of INR 252, the company is trading at a PE of 6.6x on FY20E basis. We continue
to maintain our ‘Tactical BUY ‘recommendation with a target price of INR 463, valuing the
stock at 12x on FY20E basis.

Year to March FY16 FY17 FY18 FY19E FY20E


Revenues (INR Cr) 240 378 560 749 935
Rev growth (%) 76.9 57.3 48.2 33.7 24.8
EBITDA (INR Cr) 32 49 76 99 126
Net Profit (INR Cr) 16 16 26 42 58
P/E (x) 22.9 23.9 14.9 9.2 6.7
EV/EBITDA (x) 13.7 10.8 7.6 6.5 5.2
RoACE (%) 18.6 12.4 16.3 17.7 19.6 Date: 15h June 2018
RoAE (%) 14.9 8.3 11.7 16.4 19.4

10 GWM
CMI Ltd.
Financials
Income statement (Consolidated) (INR cr) Balance sheet (Consolidated) (INR Cr)
Year to March FY16 FY17 FY18 FY19E FY20E As on 31st March FY16 FY17 FY18 FY19E FY20E
Income from operations 240 378 560 749 935 Equity share capital 14.1 14.8 15.0 15.0 15.0
Direct costs 192 291 434 577 718 Preference Share Capital 0 0 0 0 0
Employee costs 3 11 16 21 25 Reserv es & surplus 161 192 223 257 310
Other expenses 13 27 34 52 65 Shareholders funds 175 207 238 272 325
Total operating expenses 208 329 484 650 809 Long term borrowings 54 52 45 37 29
EBITDA 32 49 76 99 126 Short term borrowings 33 99 166 225 281
Depreciation and amortisation 1 10 10 12 12 Total borrowings 87 151 210 261 309
EBIT 31 38 66 87 114 others 0 0 1 0 0
Interest expenses 9 21 30 37 45 Sources of funds 262 358 449 533 635
Other income 13 5 3 3 3 Gross block 201 209 214 234 243
Profit before tax 34 23 39 52 72 Depreciation 35 45 52 64 76
Prov ision for tax 8 -7 13 10 14 Net block 166 164 161 169 166
Core profit 27 30 26 42 58 Capital work in progress 7 5 4 0 0
Extraordinary items 79 14 0 0 0 Total fixed assets 173 169 166 169 166
Adjusted net profit 16 16 26 42 58 Unrealised profit 0 0 0 0 0
Equity shares outstanding (Cr) 1.4 1.5 1.5 1.5 1.5 Inv estments 0 0 0 0 0
EPS (INR) basic 11.2 10.7 17.3 27.9 38.5 Inv entories 45 100 128 215 269
Diluted shares (Cr) 1.4 1.5 1.5 1.5 1.5 Sundry debtors 51 161 227 267 333
EPS (INR) fully diluted 11.2 10.7 17.3 27.9 38.5 Cash and equiv alents 7 9 12 10 39
Div idend per share 1.0 1.0 1.0 1.0 1.0 Loans and adv ances 42 7 15 17 20
Div idend payout (%) 1.3 3.3 5.7 3.5 2.6 Other current assets 2.0 33.3 31.0 31.0 31.0
Total current assets 147 311 412 540 692
Common size metrics- as % of net revenues (INR cr) Sundry creditors and others 51 139 145 192 239
Year to March FY16 FY17 FY18 FY19E FY20E Prov isions 9 1 1 1 2
Operating expenses 87 87 86 87 87 Total CL & prov isions 60 140 146 193 241
Depreciation 0.5 2.7 1.9 1.6 1.3 Net current assets 87 171 267 347 451
Interest expenditure 3.8 5.4 5.3 5.0 4.8 Net Deferred tax 2 18 16 16 16
EBITDA margins 13.4 12.8 13.6 13.2 13.5 Others 0 1 0 0 1
Net profit margins 6.6 4.2 4.6 5.6 6.2 Uses of funds 262 358 449 533 635
Book v alue per share (INR) 125 140 158 181 217
Growth metrics (%)
Year to March FY16 FY17 FY18 FY19E FY20E Cash flow statement
Rev enues 76.9 57.3 48.2 33.7 24.8 Year to March FY16 FY17 FY18 FY19E FY20E
EBITDA 123.8 50.7 57.4 29.2 27.9 Net profit 106 30 26 42 58
PBT 277.2 (34.3) 73.8 33.0 38.1 Add: Depreciation 1 10 10 12 12
Net profit 327.3 11.6 (13.6) 61.2 38.1 Add: Misc expenses written off 0 0 0 0 0
EPS 104 -4 61 61 38 Add: Deferred tax 0 0 0 0 0
Add: Others -70 18 27 34 42
Gross cash flow 37 59 63 88 112
Ratios Less: Changes in W . C. -41 -53 -87 -83 -75
Year to March FY16 FY17 FY18 FY19E FY20E Operating cash flow -4 6 -24 5 37
ROAE (%) 14.9 8.3 11.7 16.4 19.4 Less: Capex 6 5 4 16 9
ROACE (%) 18.6 12.4 16.3 17.7 19.6 Free cash flow -10 1 -28 -10 28
Debtors (days) 77 155 148 130 130
Current ratio 2.4 2.2 2.8 2.8 2.9
Debt/Equity 0.5 0.7 0.9 1.0 1.0
Inv entory (days) 69 97 83 105 105
Payable (days) 67 128 76 76 76
Cash conv ersion cycle (days) 79 124 154 159 159
Debt/EBITDA 2.7 3.1 2.8 2.6 2.4
Adjusted debt/Equity 0.5 0.7 0.9 1.0 1.0

Valuation parameters
Year to March FY16 FY17 FY18 FY19E FY20E
Diluted EPS (INR) 11.2 10.7 17.3 27.9 38.5
Y-o-Y growth (%) 104.1 (4.5) 61.0 61.2 38.1
CEPS (INR) 12.1 17.6 24.3 35.8 46.5
Diluted P/E (x) 22.9 23.9 14.9 9.2 6.7
Price/BV(x) 2.1 1.8 1.6 1.4 1.2
EV/Sales (x) 1.8 1.4 1.0 0.9 0.7
EV/EBITDA (x) 13.7 10.8 7.6 6.5 5.2
Diluted shares O/S 1.4 1.5 1.5 1.5 1.5
Basic EPS 11.2 10.7 17.3 27.9 38.5
Basic PE (x) 22.9 23.9 14.9 9.2 6.7
Div idend yield (%) 0.4 0.4 0.4 0.4 0.4

11 GWM
Edelweiss Investment Research

Cords Cables Industries Ltd. CMP INR: 73

Rating: Not Rated


Niche player of Control & Instrumentation cables.

We hosted the management of Cords Cable Industries, a New Delhi based manufacturer Salil Utagi
of Control and Instrumentation Cables (C&I) which are primarily used as data signal Research Analyst
cables in process industries, Metros, Refineries, Capital Goods,etc. With a manufacturing Salil.utagi@edelweissfin.com

capacity of ~65,000 KM per annum at Bhiwadi (Installed capacity of 30,000 Kms) and
Kahrani (Installed capacity of 35,000 kms), both located in Rajasthan, the company
provides comprehensive customized solution in the field of C&I Cables to various
industries. The company’s 86% of the revenues comes from C&I Cables, while balance is
from Power Cables, which is manufactured for the requirements of its C&I cable
customers.

Key takeaways:

 Significant demand growth from infrastructure and process sector to support the
growth along with steadily increasing client base.
 Company has added new clients in FY18 which includes names such as Bombardier,
Welspun, GE, ABB Global, Alstom Transport etc. and it has also been able to maintain
its relationship and garner regular business from existing clients like L&T, Siemens, EIL,
NTPC, BHEL, SAIL, JSPL, Haldia Petrochemicals Ltd, etc.
 The company has a highly diversified business model, both in terms of client
concentration as well as the sectors it services. No client accounts for more than 20-
22% of the revenues.
 Earlier, Cords Cable Industries used to source copper only from the Tuticorin facility of Bloomberg: CORD:IN
the Vedanta Group, which was high risk in case of supply disruption. Copper
accounts for ~50% of net sales, while the balance 10-15% of net sales is PVC Resin etc. 52-week
153.95 / 65.80
The company has diversified sourcing of raw materials, particularly copper and now range (INR):
sources it from Vedanta, Hindalco, Lykos and imports from other smaller companies.
Share in issue (cr): 1.29
 Price variation clause exists in all government contracts while private sector orders are
on fixed price basis. M cap (INR cr): 96

 Total order book of the company stands at INR 114 crs as on FY18, to be executed in Avg. Daily Vol.
5/27
the next 3-4 months with over 95% of the products as per customer specification. BSE/NSE :(‘000):

 Currently, the company is running at capacity utilisation of 65% which can go up to Promoter
51.4
90%. The company doesn’t need to incur capex for capacity expansion for the next 2 Holding (%)
years.
 The company is confident of maintaining at least 15% CAGR in volumes between
FY18-20.

Valuation
At a price of INR 73, the company is trading at a PE of 15x on FY18 EPS.

Year to March FY16 FY17 FY18


Revenues (INR Cr) 283 323 365
Rev growth (%) 6.9 14.2 13.0
EBITDA (INR Cr) 29 33 35
Net Profit (INR Cr) 3 5 6
P/E (x) 31.4 18.5 15.0
EV/EBITDA (x) 4.5 4.1 4.0
RoACE (%) 13.8 15.3 15.5
RoAE (%) 2.6 4.2 5.0
Date: 15h June 2018

12 GWM
Cords Cables Industries Ltd.
Financials
Income statement (INR cr) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 283 323 365 Equity share capital 12.9 12.9 12.9
Direct costs 222 259 296 Preference Share Capital 1.6 1.6 1.6
Employee costs 15 14 16 Equity Share W arrants - - -
Other expenses 17 18 18 Reserv es & surplus 104 108 114
Total operating expenses 254 290 330 Shareholders funds 118 123 129
EBITDA 29 33 35 Long term borrowings 3 11 15
Depreciation and amortisation 5 6 5 Short term borrowings 52 53 61
EBIT 24 28 30 Total Borrowings 56 64 76
Interest expenses 21 22 23 Other Long Term Liabilities 2 2 0
Other income 2 2 2 Deferred Tax Liabilities 8 8 8
Profit before tax 5 8 9 Sources of funds 183 196 213
Prov ision for tax 2 3 3 Gross block 138 139 146
Core profit 3 5 6 Depreciation 44 49 54
Extraordinary items - - - Net block 94 90 92
Profit after tax 3 5 6 Capital work in progress 1 1 -
Share from associates - - - Total fixed assets 95 90 92
Adjusted net profit (incl share of asso.) 3 5 6 Other non current assets - - -
Equity shares outstanding (mn) 1.3 1.3 1.3 Inv estments 0 0 0
EPS (INR) basic 2.3 4.0 4.9 Inv entories 48 48 54
Diluted shares (Cr) 1.3 1.3 1.3 Sundry debtors 95 93 102
EPS (INR) fully diluted 2.3 4.0 4.9 Cash and equiv alents 19 24 28
Div idend per share - - - Loans and adv ances 21 20 12
Div idend payout (%) - - - Other current assets 5 4 -
Total current assets 188 189 195
Common size metrics- as % of net revenues Sundry creditors and others 98 80 72
Year to March FY16 FY17 FY18 Prov isions 2 3 3
Operating expenses 89.7 89.8 90.3 Total CL & prov isions 100 83 75
Depreciation 1.9 1.7 1.4 Net current assets 88 106 120
Interest expenditure 7.4 6.8 6.3 Net Deferred tax
EBITDA margins 10.3 10.2 9.7 Misc expenditure - - -
Net profit margins 1.1 1.6 1.7 Uses of funds 183 196 213
Book v alue per share (INR) 91 95 100
Growth metrics (%)
Year to March FY16 FY17 FY18 Cash flow statement
Rev enues 6.9 14.2 13.0 Year to March FY16 FY17 FY18
EBITDA 6.6 13.0 7.4 Net profit 3 5 6
PBT 23.1 NA 19.7 Add: Depreciation 5 6 5
Net profit 7.1 NA 22.8 Add: Misc expenses written off 0 0 0
EPS (5.3) NA 22.8 Add: Deferred tax -0 0 -0
Gross cash flow 8 11 11
Less: Changes in W . C. -5 -13 -3
Ratios Operating cash flow 13 23 14
Year to March FY16 FY17 FY18 Less: Capex -1 -0 -7
ROAE (%) 2.6 4.2 5.0 Free cash flow 14 23 21
ROACE (%) 13.8 15.3 15.5
ROACE (%) (ex -cash) 15.5 17.4 17.9
Debtors (days) 126 112 108
Current ratio 0.9 1.0 1.0
Debt/Equity 0.5 0.5 0.6
Inv entory (days) 83 73 72
Payable (days) 149 108 88
Cash conv ersion cycle (days) 60 78 91
Debt/EBITDA 1.9 1.9 2.1
Adjusted debt/Equity 0.3 0.3 0.4

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) 2.3 4.0 4.9
Y-o-Y growth (%) (5.3) NA 22.8
CEPS (INR) 6.5 8.2 8.8
Diluted P/E (x) 31.4 18.5 15.0
Price/BV(x) 0.8 0.8 0.7
EV/Sales (x) 0.5 0.4 0.4
EV/EBITDA (x) 4.5 4.1 4.0
Diluted shares O/S 1.3 1.3 1.3
Basic EPS 2.3 4.0 4.9
Basic PE (x) 31.4 18.5 15.0
Div idend yield (%) - - -

13 GWM
Edelweiss Investment Research

Dollar Industries Ltd. CMP INR: 340

Rating: Not Rated


One of the leading innerwear companies in India

We hosted the management of Dollar Industries Ltd. (Dollar), one of India’s leading players Kshitij Kaji
in the branded innerwear segment, at our ‘Edelweiss GWAM Emerging Ideas Theme Day” Research Analyst
on 14th June, 2018. The brand achieved popularity with the launch of “Dollar Big Boss” in Kshitij.kaji@edelweissfin.com
2008. Dollar has expanded across product categories and price points over the last few
years and has also set up a robust distribution network in India. Praveen Sahay
Research Analyst
Praveen.sahay@edelweissfin.com
Key takeaways
 Dollar was pre-dominantly a men’s innerwear brand with close to 97% of its revenues
from this vertical around 5 years ago. However the company has created brand
extensions in thermal wear, kids’ innerwear, women’s innerwear and outerwear over
the last few years which has brought down the share of men’s innerwear in total
revenues to 86%. The focus area of sales are Tier 2 and 3 towns (Tier 1 accounts for only
20% of revenues).

 The women’s wear brand Missy has done well and is already INR 60 Cr (6% of revenues).
Dollar expects Missy to generate INR 180 Cr in 3 years. Missy is currently absent in lingerie
segment (as this requires technical knowhow and size and fit are key) but they expect
to have some presence organically or inorganically. The premium brand Force Next
which was launched recently is also expected to garner INR 80 Cr in 2-3 year.
Advertisement spends of INR 86 Cr in FY18 are likely to be maintained to promote Missy
and Force Next. Bloomberg: DOLLAR:IN

52-week
 Dollar has also done a 50:50 JV with Pepe Jeans where both will initially invest INR 36 514.75 / 315.00
range (INR):
crore each to sell premium range fashion innerwear, loungewear, gym wear. Total
investment in the JV will be INR 200 Cr and Dollar hopes to achieve an INR 600 Cr topline Share in issue (cr): 4
by the 10th year of the operation. The JV will leverage Pepe Jean’s 217 EBOs and about
1000 MBOs. Royalty will be initially 2% of revenues and will increase till the 5th year where M cap (INR cr): 1,907
it will be fixed at 5% of revenues.
Avg. Daily Vol.
10
BSE/NSE :(‘000):
 Dollar first appoints agents for each state who then appoint distributors who further sell
it to wholesalers or retailers. The company has 915 distributors and a presence 95,000 Promoter
56.85
plus MBOs in FY18. The company is expanding its presence in large format stores (LFS) Holding (%)
from 300 in FY18 to 1000 in FY19E and also will push its presence on e-commerce (These
channels accounted for INR 35 Cr in FY18). The company also tried the EBO approach
but found it unviable.

 Dollar has 4 manufacturing facilities across Delhi (socks), Ludhiana (thermal), Kolkata
(pseudo-captive as yarn is procured and rest of the processes are job work) and Tirupur
(full-fledged plant - spinning unit of 22,000 spindles, knitting, 400 TPM processing, 5 lac
pieces per day cutting and 10 lac metres per month elastic). Stitching is mainly
outsourced except for premium products. Overall only 30% of all manufacturing
processes are in house and this share is likely to reduce.

Valuation
At a price of INR 345, the company is trading at a PE of 30x on FY18 EPS.
Year to March FY16 FY17 FY18
Revenues (INR Cr) 822 897 983
Rev growth (%) 13.5 9.2 9.6
EBITDA (INR Cr) 67 93 125
Net Profit (INR Cr) 26 43 65
P/E (x) 51.5 43.6 30.4
EV/EBITDA (x) 23.7 22.5 17.3
Date: 15th June 2018
RoACE (%) 15.4 20.1 23.7
RoAE (%) 19.8 26.6 24.4

14 GWM
Dollar Industries Ltd.
Financials
Income statement (INR cr) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 822 897 983 Equity share capital 8 11 11
Direct costs 368 400 406 Preference Share Capital 0 0 0
Employee costs 9 19 26 Reserv es & surplus 138 170 341
Other expenses 387 404 426 Shareholders funds 145 181 352
Total operating expenses 755 804 858 Secured loans 138 152 153
EBITDA 67 93 125 Unsecured loans 95 64 47
Depreciation and amortisation 14 15 12 Borrowings 233 216 200
EBIT 53 79 113 Minority interest 0 0 0
Interest expenses 20 21 18 Sources of funds 379 397 552
Other income 8 9 2 Gross block 145 151 157
Profit before tax 41 67 97 Depreciation 62 77 89
Prov ision for tax 15 23 32 Net block 84 75 68
Core profit 26 43 65 Capital work in progress 1 0 2
Extraordinary items -0 0 0 Total fixed assets 84 75 70
Profit after tax 26 43 65 Unrealised profit 0 0 0
Minority Interest 0 0 0 Inv estments 0 0 5
Share from associates 0 0 0 Inv entories 208 205 283
Sundry debtors 193 227 271
Adjusted net profit 26 43 65
Cash and equiv alents 10 10 20
Equity shares outstanding (mn) 4 5 6
Loans and adv ances 15 13 24
EPS (INR) basic 6.8 8.0 12
Other current assets 0 0 0
Diluted shares (Cr) 3.9 5 6
Total current assets 427 454 598
EPS (INR) fully diluted 6.8 8.0 12
Sundry creditors and others 122 108 112
Prov isions 6 15 9
Common size metrics- as % of net revenues (INR crs)
Total CL & prov isions 129 123 121
Year to March FY16 FY17 FY18
Net current assets 298 331 477
Operating expenses 91.9 89.6 87.3
Net Deferred tax -4 -2 -0
Depreciation 1.7 1.6 1.2
Misc expenditure 0 -7 0
Interest expenditure 2.5 2.3 1.8
EBITDA margins 8.1 10.4 12.7 Uses of funds 379 397 552
Book v alue per share (INR) 38 33 62
Net profit margins 3.2 4.8 6.6

Cash flow statement


Growth metrics (%)
Year to March FY16 FY17 FY18
Year to March FY16 FY17 FY18
Net profit 26 43 65
Rev enues 13.5 9.2 9.6
Add: Depreciation 14 15 12
EBITDA 19.0 40.5 33.7
Add: Misc expenses written off/Other Assets -0 7 -7
PBT 32.8 63.3 45.3
Add: Deferred tax -0 -2 -2
Net profit 35.4 65.1 49.5
Add: Others 0 0 0
EPS 35.3 18.1 43.4
Gross cash flow 39 64 68
Less: Changes in W . C. 77 34 135
Operating cash flow -38 30 -67
Ratios
Less: Capex 12 5 8
Year to March FY16 FY17 FY18
ROAE (%) 19.8 26.6 24 Free cash flow -50 24 -75
ROACE (%) 15.4 20.1 24
Debtors (days) 85.8 92.1 101
Current ratio 3.3 3.7 5
Debt/Equity 1.6 1.2 1
Inv entory (days) 92.6 83.3 105
Payable (days) 54.3 43.8 42
Cash conv ersion cycle (days) 124.1 131.7 164
Debt/EBITDA 3.5 2.3 2
Adjusted debt/Equity 1.5 1.1 0.5

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) 7 8 12
Y-o-Y growth (%) 35 18 43
CEPS (INR) 10 11 14
Diluted P/E (x) 51.5 43.6 30
Price/BV(x) 9 10 6
EV/Sales (x) 2 2 2
EV/EBITDA (x) 23.7 22.5 17
Diluted shares O/S 3.9 5.4 6
Basic EPS 6.8 8.0 12
Basic PE (x) 51.5 43.6 30
Div idend yield (%) 0.1 0.3 0.4

15 GWM
Edelweiss Investment Research

IRB Infrastructure Ltd. CMP INR: 240

Strong end to FY18; best yet to come Rating: Not Rated

We hosted the management of IRB Infrastructure Ltd and IRB InvIT Fund, one of the largest Debashish Mazumdar
infrastructure developing company in Indian road BOT Space, at our ‘Edelweiss GWAM Research Analyst
debashish.mazumdar@edelweissfin.com
Emerging Ideas Theme Day” on 14th June, 2018. IRB’s new strategy is to bid for HAM road
assets, to rebuild its order book to grow its EPC business has paid off well. The company
in FY18 accumulated order book worth ~INR 15,080 cr, 51% higher than FY17, which was
majorly supported by winning of three large HAM projects worth INR 5,500 cr. In case of
existing BOT road assets, core traffic recovered quickly to 6%-7% YoY post the GST and
demonetization hit. Strong toll revenue at its flagship Mumbai–Pune e-way (up 32% YoY in
FY18) led to improvement in overall toll revenue.

Key takeaways
 The management has guided for INR 10,000 cr top line and INR 1,000 cr bottom line
on a consolidated basis for FY20E.

 The concession agreements with NHAI for the recently won HAM projects, are signed Bloomberg: ABFRL:IN
and financial closure for the same is expected to be done by October’18.
52-week
286.20 / 193.50
range (INR):
 The project of 8 lane Vadodara Kim expressway, which the company won on HAM
basis, is being sub-contracted to L&T. Share in issue (cr): 12

 With strong order inflows worth INR 8,800 cr in FY18, IRB’s order book stands at INR M cap (INR cr): 8,259
15,080 cr -- this translates into a healthy order book-to-sales ratio of ~3.8x trailing
Avg. Daily Vol.
construction revenues. IRB has changed its stance with regard to bidding of projects. 31
BSE/NSE :(‘000):
With a slowdown in awarding of BOT projects in FY18, the company has decided to
bid for HAM as well as EPC projects. Consequently, it won three HAM projects worth Promoter
57.37
INR 5,500 cr. IRB has a strong bidding pipeline of orders and is looking to win orders Holding (%)
worth INR 7,000-9,000 cr in FY19E.

 The company has witnessed an average traffic growth of 6-7% on like-to-like basis
across its key BOT projects.

 The management has indicated that the company would entail an equity
requirement of INR 2,600 cr over the next 2-3 years for the construction activity for it’s
under construction projects. We believe this would be funded through internal
accruals.

 The company is aiming to monetize its HAM assets as soon as the construction of the
said projects get over through IRB InvIT Fund. This is expected to be beneficial for IRB
InvIT fund as well, because a fully constructed HAM project is an AAA rated class of
asset having fixed annuity payments from NHAI.

Valuation
At CMP of INR 167, company trades at 59x FY19E P/E.

Year to March FY15 FY16 FY17 FY18E FY19E


Revenues (INR Cr) 1,851 6,060 6,633 7,549 8,697
Rev growth (%) 11% NA 9% 14% 15%
EBITDA (INR Cr) 87 397 438 521 635
Net Profit (INR Cr) (228) (104) 54 122 217
P/E (x) NA NA 239.7 105.8 59.3
EV/EBITDA (x) 103.6 37.0 33.5 28.2 23.1
RoACE (%) NA 3 7 9 12
RoAE (%) NA NA 6 12 18 Date: 15th June 2018

16 GWM
IRB Infrastructure Ltd.
Financials
Income statement (INR cr) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 5,128 5,846 5,694 Equity share capital 351 351 351
Direct costs 2,054 2,287 2,397 W arrants 0 0 0
Employee costs 247 273 291 Reserv es & surplus 4,485 4,920 5,341
Other expenses 167 238 327 Shareholders funds 4,836 5,272 5,693
Total operating expenses 2,468 2,798 3,015 Secured loans 14,434 13,032 11,831
EBITDA 2,660 3,048 2,679 Unsecured loans 1,192 931 1,164
Depreciation and amortisation 853 855 544 Borrowings 15,626 13,963 12,996
EBIT 1,807 2,193 2,135 Premium Obligation to NHAI 20,549 13,705 15,581
Interest expenses 1,064 1,333 967 Other Long Term Liabilities 62 2,171 5,115
Other income 127 123 169 Minority interest 36 0 0
Profit before tax 870 984 1,337 Sources of funds 41,109 35,110 39,385
Prov ision for tax 231 269 544 Gross block 35,934 25,093 31,071
Core profit 640 715 793 Depreciation 785 705 0
Extraordinary items 0 0 127 Net block 35,149 24,388 31,071
Profit after tax 640 715 920 Capital work in progress 4,020 6,806 5,648
Minority Interest 0 -0 0 Total fixed assets 39,169 31,194 36,719
Share from associates 0 0 0 Goodwill 0 0 0
Adjusted net profit 640 715 920 Inv estments 36 146 946
Equity shares outstanding (Crore) 35.1 35.1 35.1 Inv entories 309 353 487
EPS (INR) basic 18.2 20.4 26.2 Sundry debtors 9 70 133
Diluted shares (mn) 351.5 351.5 351.5 Cash and equiv alents 1,501 1,308 1,268
EPS (INR) fully diluted 1.8 2.0 2.6 Loans and adv ances 805 13,185 516
Div idend per share 4.0 5.0 0.0 Other current assets 0 0 0
Div idend payout (%) 1% 1% 0% Total current assets 2,623 14,915 2,404
Sundry creditors and others 885 11,389 922
Prov isions 167 142 82
Common size metrics- as % of net revenues
Total CL & prov isions 1,052 11,531 1,004
Year to March FY16 FY17 FY18
Operating expenses 48.1 47.9 52.9 Net current assets 1,571 3,385 1,399
Depreciation 16.6 14.6 9.6 Net Deferred tax 334 385 321
Interest expenditure 20.7 22.8 17.0 Misc expenditure 0 0 0
EBITDA margins 51.9 52.1 47.1 Uses of funds 41,109 35,110 39,385
Net profit margins 12.5 12.2 16.2 Book v alue per share (INR) 138 150 162

Growth metrics (%)


Year to March FY16 FY17 FY18
Rev enues 33.2 14.0 (2.6)
EBITDA 19.9 14.6 (12.1)
PBT 26.8 13.1 35.9
Net profit after MI 17.8 11.8 28.6
EPS 17.8 11.8 28.6

Profit & Efficiency Ratios


Year to March FY16 FY17 FY18
ROAE (%) 13% 14% 16%
ROACE (%) 4% 6% 5%
Debtors (days) 1 4 9
Current ratio 2.5 1.3 2.4
Debt/Equity 3.2 2.6 2.3
Inv entory (days) 22 22 31
Payable (days) 22 46 26
Cash conv ersion cycle (days) 0 -20 14
Debt/EBITDA 6 5 5
Adjusted debt/Equity 3.2 2.6 2.3

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) 18.2 20.4 26.2
Y-o-Y growth (%) 18.0 12.0 28.5
CEPS (INR) 42.5 44.7 41.6
Diluted P/E (x) 13.0 11.6 9.0
Price/BV(x) 1.7 1.6 1.5
EV/Sales (x) 8.4 6.3 7.2
EV/EBITDA (x) 16.2 12.1 15.2
Diluted shares O/S 35.1 35.1 35.1
Basic EPS 18.2 20.4 26.2
Basic PE (x) 13.0 11.6 9.0

17 GWM
Edelweiss Investment Research

Jindal Saw Ltd. CMP INR: 93

Rating: Not Rated


Order book and execution continues to improve.

We hosted the management of Jindal Saw(JSAW) Ltd, a leading manufacturer of SAW Salil Utagi
pipes used for water & oil/gas transportation sector with customers spreading all over the Research Analyst
globe, especially from the Oil & Gas majors from MENA, North America, and Scandinavian Salil.utagi@edelweissfin.com

region. Along with SAW pipes, company is a leading supplier of Ductile Iron pipes used in
water supply and sewage/waste/water transportation. JSAW is a 2nd largest manufacturer
of carbon seamless tubes in volumes catering to oil & gas exploration companies and
process industries. JSAW also operates an iron ore mine along with a 1.5 mn TPA
pelletisation plant in Rajasthan. The company’s plants are located in western and northern
parts of India at multiple locations: Kosi Kalan, Mathura, Sinnar, Mundra, Bellary and
Bhilwara, benefiting from the supply chain logistics. JSAW is positioned perfectly to benefit
from ongoing capex by ONGC, oil refineries and state water utilities. Healthy demand for
pellets is also benefitting company’s pellets operations.

Key takeaways
● JSAW has order book of ~1.3mn MT equivalent to ~USD 1 bn Out of the total order
book, approx. 32% order-book is exports, mainly to Middle East, Gulf region and South
East Asia and Far East.
● SAW pipes orders has execution time period of 3-4 years, ductile iron pipes of 2-3
years, seamless tubes of 3-6 months while pellets are sold on cash basis.
● Across the segments, the company is running at utilisation of 80%. The management
has guided for 12-15% volume growth across the product lines for FY19.
● The company has sold off all the loss making subsidiaries during FY18 and they are Bloomberg: JSAW:IN
focusing entirely on the core business productivity. The remaining subsidiaries which
52-week
are in operation and contributing positively, includes Italian subsidiary (DI Pipe 182/73
range (INR):
capacity of 80,000 MTPA), DI Pipes Abu Dhabi plant of 300,000 MT, and US Coating
business. These subsidiaries are expected to turn into black in the ongoing year owing Share in issue (cr): 31.9
to higher order book.
M cap (INR cr): 3,108
● Jindal ITF water business has been discontinued and ships have been sold for INR250
cr. Under the current arbitration with NTPC, the company has received INR 350cr Avg. Daily Vol.
186/1252
already. The company has total claim of around INR 2000cr BSE/NSE :(‘000):

● Currently, company has net debt of (at consolidated level) approx. INR 5,300 crs, long Promoter
53.59
term debt accounting for INR 2200cr. Scheduled repayment per annum is close to INR Holding (%)
250cr. JSAW is likely to retain short term debt in proportion to the revenues.

Valuation
At a price of INR 93, the company is trading at an EV/EBITDA of 8.4x on FY18 basis.

Year to March FY16 FY17 FY18


Revenues (INR Cr) 7703 7095 8478
Rev growth (%) -7.1 -7.9 19.5
EBITDA (INR Cr) 608 651 1016
Net Profit (INR Cr) -40 114 -10
P/E (x) -70.9 26.2 -290.8
EV/EBITDA (x) 15.8 12.6 8.4
RoACE (%) 2.2 2.6 5.8
RoAE (%) -0.8 2.2 -0.2
Date: 15h June 2018

18 GWM
Jindal Saw Ltd.
Financials
Income statement (Consolidated) (INR cr) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 7703 7095 8478 Share capital 60.9 64.0 64.0
Direct costs 4659 4176 5295 Equity Share W arrants - - -
Employee costs 789 779 757 Reserv es & surplus 5,061 5,322 5,432
Other expenses 1647 1489 1409 Shareholders funds 5,122 5,386 5,496
Total operating expenses 7095 6443 7462 Long term borrowings 4,047 3,302 3,311
EBITDA 608 651 1016 Short term borrowings 2,932 2,198 2,726
Depreciation and amortisation 328 347 363 Total Borrowings 6,980 5,500 6,037
EBIT 280 304 653 Minority Interest (6) (127) (296)
Interest expenses 679 569 579 Other Long Term Liabilities 185 145 147
Other income 273 272 156 Deferred Tax Liabilities 153 191 169
Profit before tax -126 7 230 Sources of funds 12,433 11,096 11,553
Prov ision for tax -68 21 133 Gross block 8,713 8,490 8,511
Core profit -58 -15 97 Depreciation 736 1,036 1,399
Extraordinary items -22 62 -91 Net block 7,977 7,455 7,113
Profit after tax -80 47 6 Capital work in progress 254 102 126
Minority Interest 40 75 0 Total fixed assets 8,232 7,557 7,239
Share from associates 0 -9 -5 Other non current assets 143 125 235
Profit/(Loss) from Discontinued operations 0 0 -11 Inv estments 154 119 110
Adjusted net profit (incl share of asso.) -40 114 -10 Inv entories 2,466 2,310 2,463
Sundry debtors 1,746 1,370 1,930
Equity shares outstanding (mn) 30.5 32.0 32.0
Cash and equiv alents 208 133 144
EPS (INR) basic -1.3 3.6 -0.3
Loans and adv ances 705 764 573
Diluted shares (Cr) 30.5 32.0 32.0
Other current assets 693 479 503
EPS (INR) fully diluted -1.3 3.6 -0.3
Total current assets 5,971 5,175 5,723
Div idend per share 1.0 1.0 1.0
Sundry creditors and others 1,829 1,660 1,499
Div idend payout (%) -76.1 28.1 -312.2
Prov isions 84 100 144
Total CL & prov isions 1,913 1,760 1,644
Common size metrics- as % of net revenues
Net current assets 4,058 3,415 4,079
Year to March FY16 FY17 FY18
Net Deferred tax
Operating expenses 92.1 90.8 88.0
Misc expenditure - - -
Depreciation 4.3 4.9 4.3
Interest expenditure 8.8 8.0 6.8 Uses of funds 12,433 11,096 11,553
Book v alue per share (INR) 168 168 172
EBITDA margins 7.9 9.2 12.0
Net profit margins (0.5) 1.6 (0.1)
Cash flow statement
Year to March FY16 FY17 FY18
Growth metrics (%)
Net profit -58 -15 97
Year to March FY16 FY17 FY18 328 347 363
Add: Depreciation
Rev enues (7.1) (7.9) 19.5
Add: Misc expenses written off 0 0 0
EBITDA (28.8) 7.2 56.1
Add: Deferred tax 77 -38 22
PBT (206.2) NA 3,333.4
Gross cash flow 346 295 483
Net profit (2,266.7) NA (763.8)
Less: Changes in W . C. 325 516 -171
EPS 164.6 NA (109.0)
Operating cash flow 22 -221 654
Ratios Less: Capex -483 -286 -46
Year to March FY16 FY17 FY18 Free cash flow 505 65 699
ROAE (%) (0.8) 2.2 (0.2)
ROACE (%) 2.2 2.6 5.8
ROACE (%) (ex -cash) 2.3 2.7 5.9
Debtors (days) 80 68 90
Current ratio 0.7 0.8 0.8
Debt/Equity 1.4 1.0 1.1
Inv entory (days) 211 208 206
Payable (days) 47 41 52
Cash conv ersion cycle (days) 244 234 245
Debt/EBITDA 11.5 8.4 5.9
Adjusted debt/Equity 1.3 1.0 1.1

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) (1.3) 3.6 (0.3)
Y-o-Y growth (%) 164.6 NA (109.0)
CEPS (INR) 10.2 12.5 13.9
Diluted P/E (x) (70.9) 26.2 (290.8)
Price/BV(x) 0.6 0.6 0.5
EV/Sales (x) 1.3 1.2 1.0
EV/EBITDA (x) 15.8 12.6 8.4
Diluted shares O/S 30.5 32.0 32.0
Basic EPS (1.3) 3.6 (0.3)
Basic PE (x) (70.9) 26.2 (290.8)
Div idend yield (%) 1.1 1.1 1.1

19 GWM
Edelweiss Investment Research

JK Paper Ltd. CMP INR: 129


Rating: Tactical Buy
Target Price: INR 195
Attractive valuation with strong growth potential Upside: 51%

We hosted the management of JK Paper Ltd (JKP), India’s fourth largest paper Utkarsh Nopany
manufacturer, in our ‘Edelweiss GWAM Emerging Ideas Theme Day” on 14th June, 2018. It Research Analyst
has recently announced to acquire a sick paper company based in Telengana, Sirpur utkarsh.nopany@edelweissfin.com

Paper Mill (having 135 ktpa capacity) at a cost of INR 750 crore and brownfield expansion Praveen Sahay
of paperboard capacity by 150-200 ktpa at a cost of INR 1,450 crore. Research Analyst
Praveen.sahay@edelweissfin.com
Key takeaways
 Update on current realization: JKP has taken price hike in each paper segments in the
past few months. Current realization of packaging paper is INR 60/kg (vs ~INR 57.3/kg
in Q4FY18), coated paper is INR 55/kg (vs INR 51.5/kg in Q4FY18) and copier paper is
INR 57/kg (vs INR 56.6/kg in Q4FY18).
 Update on current wood cost: JKP wood procurement cost has declined by nearly
10% y-o-y to around INR 8000/t in FY18 mainly due to procurement of higher
proportion of wood from nearby regions (less than 200 km). The company has not
reduced the farm gate prices of wood. Currently, the farmers income on planting
wood is far superior compared to other alternative crops. As a result, domestic wood
prices are expected to remain stable in the near-future.
 Update on proposed acquisition of Sirpur Paper Mill (SPM): The acquisition cost is
estimated to be ~INR 750 crore (including working capital). The cost of setting up
similar size paper facility is estimated to be INR 1,350 crore excluding the cost of land.
SPM plant is spread over 550 acres of land. The government has assured to supply Bloomberg: JKPAPER:IN
150,000 MTPA of hardwood for a period of 10 years and the balance wood is
52-week
expected to be procured from the domestic market. JKP plans to have a 88.7/ 169.9
management control on SPM and proposes to invest INR 150 crore for the said range (INR):

acquisition. The exact modalities of deal structure (i.e. JKP economic interest in SPM) Share in issue (cr): 17.82
will be shared post the NCLT approval, which is expected to come by July 2018.
M cap (INR cr): 2,299
 Update on packaging board expansion: Despite packaging board segment is
commanding lower operating margin in comparison to coated and uncoated paper Avg. Daily Vol.
segments, JKP intends to expand its paperboard capacity due to a) fast rate of 60/479
BSE/NSE :(‘000):
demand growth in the domestic market (13% in comparison to high-single-digit for
copier and coated paper), b) low competitive pressure from imports on the back of Promoter
49.17
requirement of small quantities of paperboard by converters over a quick time period, Holding (%)

and c) segment margin to improve over the medium-term. The company is


evaluating the optimal size of machine (i.e. 150-200 ktpa) and expects to complete
the project within 2.5 years. The company plans to procure the additional hardwood
quantity required for its paperboard unit from the domestic market and will continue
to rely on imported softwood pulp due to unavailability of such quality of wood in the
domestic market (as it requires extreme cold conditions to grow such wood).
 Update on debt protection metrics: The company expects debt-equity to remain
below unity even after considering the entire debt related to proposed capex.

Valuation
At CMP of INR 129, the company trades at 3.9x FY20 EBITDA estimate.

Year to March FY16 FY17 FY18 FY19E FY20E


Revenues (INR Cr) 2,437 2,629 2,844 2979 3,125
Rev growth (%) 12.9 7.9 8.2 4.7 4.9
EBITDA (INR Cr) 391 512 613 638 662
Net Profit (INR Cr) 61 163 260 290 320
P/E (x) 31.4 14.1 8.8 7.9 7.2
EV/EBITDA (x) 6.3 5.6 5.3 4.6 3.9 Date: 15th June 2018

RoACE (%) 8.5 12.0 14.8 14.4 13.7


RoAE (%) 5.8 13.4 17.5 16.5 16.0

20 GWM
JK Paper Ltd.
Financials
Income statement (INR cr) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 FY19E FY20E As on 31st March FY16 FY17 FY18 FY19E FY20E
Income from operations 2,437 2,629 2,844 2,979 3,125 Equity share capital 149 156 176 178 178
Total operating expenses 2,046 2,116 2,231 2,341 2,463 Preference Share Capital 0 0 0 0 0
EBITDA 391 512 613 638 662 Reserv es & surplus 963 1,166 1,470 1,696 1,941
Depreciation and amortisation 117 120 121 125 128 Shareholders funds 1,111 1,322 1,646 1,874 2,119
EBIT 274 393 492 512 534 Total Debt 1,892 1,698 1,308 1,261 1,381
Interest expenses 195 188 143 107 90 Borrowings 1,892 1,698 1,308 1,261 1,381
Profit before tax 89 232 375 419 462 Sources of funds 3,003 3,019 2,953 3,135 3,501
Prov ision for tax 28 69 115 128 142 Gross block 2,866 2,812 2,900 2,950 3,000
Core profit 61 163 260 290 320 Depreciation 115 177 297 425 553
Extraordinary items 0 -7 0 0 0 Net block 2,751 2,636 2,603 2,525 2,447
Profit after tax 61 156 260 290 320 Capital work in progress 20 16 34 300 750
Adjusted net profit 61 156 260 290 320 Total fixed assets 2,771 2,651 2,637 2,825 3,197
Equity shares outstanding (mn) 15 16 18 18 18 Inv estments 41 271 181 37 37
EPS (INR) basic 4.3 10.3 14.8 16.3 18.0 Other non-current assets 17 15 6 6 6
Diluted shares (Cr) 17.8 17.8 17.8 17.8 17.8 Inv entories 335 383 394 413 433
EPS (INR) fully diluted 4.1 9.1 14.6 16.3 18.0 Sundry debtors 139 111 109 114 120
Div idend per share 0.5 1.5 2.5 3.0 3.5 Cash and equiv alents 15 27 122 300 330
Div idend payout (%) 12.2 16.4 17.1 18.4 19.5 Loans and adv ances 61 57 53 53 53
Other current assets 108 79 105 107 117
Common size metrics- as % of net revenues Total current assets 658 657 784 987 1,053
Year to March FY16 FY17 FY18 FY19E FY20E Sundry creditors and others 396 463 503 527 553
Operating expenses 84.0 80.5 78.4 78.6 78.8 Prov isions 9 14 12 13 13
Depreciation 4.8 4.5 4.3 4.2 4.1 Total CL & prov isions 405 477 515 539 566
Interest expenditure 8.0 7.1 5.0 3.6 2.9 Net current assets 253 180 268 448 488
EBITDA margins 16.0 19.5 21.6 21.4 21.2 Net Deferred tax -78 -98 -139 -181 -227
Net profit margins 2.5 5.9 9.1 9.7 10.3 Uses of funds 3,003 3,019 2,953 3,135 3,501
Book v alue per share (INR) 75 85 94 105 119
Growth metrics (%)
Year to March FY16 FY17 FY18 FY19E FY20E Cash flow statement
Rev enues 12.9 7.9 8.2 4.7 4.9 Year to March FY16 FY17 FY18 FY19E FY20E
EBITDA 53.8 31.0 19.7 4.0 3.8 Net profit 61 163 260 290 320
PBT NM 159.7 61.9 11.6 10.3 Add: Depreciation 117 120 121 125 128
Net profit NM 167.5 59.8 11.6 10.3 Add: Deferred tax 4 20 41 42 46
EPS NM 122.2 59.9 11.6 10.3 Gross cash flow 182 302 422 458 494
Less: Changes in W . C. -32 -87 -15 2 10
Operating cash flow 214 390 437 456 485
Ratios Less: Capex 96 0 107 314 500
Year to March FY16 FY17 FY18 FY19E FY20E Free cash flow 118 390 330 142 -15
ROAE (%) 5.8 13.4 17.5 16.5 16.0
ROACE (%) 8.5 12.0 14.8 14.4 13.7
Debtors (days) 21 15 14 14 14
Current ratio 0.7 0.7 0.9 1.2 1.0
Debt/Equity 1.7 1.3 0.8 0.7 0.7
Inv entory (days) 50 53 51 51 51
Payable (days) 28 32 33 33 33
Cash conv ersion cycle (days) 43 36 32 32 32
Debt/EBITDA 4.8 3.3 2.1 2.0 2.1
Adjusted debt/Equity 1.7 1.1 0.6 0.5 0.5

Valuation parameters
Year to March FY16 FY17 FY18 FY19E FY20E
Diluted EPS (INR) 4.1 9.1 14.6 16.3 18.0
Y-o-Y growth (%) NM 122.2 59.9 11.6 10.3
CEPS (INR) 12.0 18.1 21.7 23.3 25.2
Diluted P/E (x) 31.4 14.1 8.8 7.9 7.2
Price/BV(x) 1.7 1.5 1.4 1.2 1.1
EV/Sales (x) 1.0 1.1 1.2 1.1 1.1
EV/EBITDA (x) 6.3 5.6 5.3 4.6 3.9
Diluted shares O/S 14.9 15.6 17.6 17.8 17.8
Basic EPS 4.1 9.1 14.6 16.3 18.0
Basic PE (x) 31.4 14.1 8.8 7.9 7.2
Div idend yield (%) 0.0 0.0 1.9 2.3 2.7

21 GWM
Edelweiss Investment Research

Magma Fincorp Ltd. CMP INR: 170

Rating: Not Rated


Business revamp strategy to drive overall growth…

We hosted the management of Magma Fincorp Ltd. (Magma), is a niche NBFC player with Raj Jha
significant presence in ‘Rurban’ (Rural & Semi Urban region) and AUM of ~INR 155bn in our Research Analyst
“Edelweiss GWAM Emerging Ideas Theme Day” on 14th June 2018. Company provides Raj.jha@edelweissfin.com

bouquet of financial products like Asset Backed Financing (CV Financing), Agri Financing, Nikhil Shah
Mortgage / Home Loan and SME Loan as well as general insurance. The company is on the Research Analyst
growth trajectory with an aim to achieve sustainable AUM growth at 15%-17% and also the Nikhil.shah@edelweissfin.com
improvement asset quality.

Key Takeaways
 Magma, a promoter managed company has turned to professionally managed
company. The promoter has hired professionals for different verticals of the business to
head their respective segments. The management has come out with restructure
business strategy to drive growth in AUM and achieve a sustainable RoA of >2%.
 Magma’s AUM de-grew in last three years on back of restructuring business strategy.
The AUM from peak of INR 19,567cr in FY15 came down to INR 15,555cr in FY18.
However, the revamping business and new strategies of the management has resulted
2% increase in AUM for Q4FY18 after 12 quarters of consequent degrowth in AUM. The
management expects the AUM to grow in range of 15-17% in FY19/20E.
 Magma has gradually shifted its focus towards high yield products like used vehicles,
tractor and SME Loan which is likely to maintain the yields on loan and drive NIM of the
company. The management expects to product mix for AUM to be tilted towards high
RoA generating segment like used CV under ABF to be around 28%, Agri business
around 15%, Mortgage/Home Loan around 20% and SME around 15%. Bloomberg: MGMA:IN

 The NIM for FY18 improved by 90bps Y-o-Y to 7.3% as against 6.4% in FY17. The 52-week
management has also taken several initiatives on technology front which is likely to 193.90 / 126.00
range (INR):
bring down the Opex cost and maintain the margins for the company.
Share in issue (cr): 24
 Magma has focus on underserved ‘Rurban’ India with almost 80% of the branches
present in Rural (30%) and Semi Urban (50%) regions as a consequent the company is M cap (INR cr): 4,630
dependent on rural economy.
Avg. Daily Vol.
 The C/I ratio in FY15 was 59.4% which has decreased to 50.3% in FY18 and is expected 553
BSE/NSE :(‘000):
to reduce further on back of setting up asset light branches and improving productivity.
Promoter
 The management has set up robust collection process and highly trained employees 24.42
to keep control on the asset quality. Therefore, the company’s GNPA has improved to Holding (%)

from 8.8% in FY17 to 7% in FY18 on 90dpd and expect further improvement in asset
quality.

Valuation
At a price of INR 170, the company is trading at a P/ABV of 2.3x on FY18 adjusted book
value and 17x on earnings.

(INR cr) FY16 FY17 FY18


NII 1,141 1,105 1,162
Net Revenue 1,315 1,274 1,393
Pre-Provision Profit 681 654 692
PAT 212 21 230
EPS 9.0 0.6 9.7
Adj Book Value per share 53.3 63.4 71.4
RoA 1.4% 0.1% 1.7%
RoAE 10.8% 0.6% 10.3%
Date: 15th June 2018

22 GWM
Magma Fincorp Ltd.
Financials
Income statement (INR cr) Balance Sheet (INR cr)
Year to March FY16 FY17 FY18 Year to March FY16 FY17 FY18
Interest income 2332 2230 2068 Paid Capital 47.4 47.4 47.4
Interest charges 1191 1125 905 Reserv e & Surplus 2117 2125 2272
Net interest income 1141 1105 1162 Shareholder's Fund 2164 2172 2319
Fee & other income 174 169 231 Total Borrowings 11902 10096 9829
Net rev enues 1315 1274 1393 Other Liabilities 1458 1327 1423
Operating expense 634 620 701 Total Liabilities 15525 13595 13572
- Employee exp 317 293 369
- Depreciation 39 49 49 Cash & Bank Balance 408 353 418
- Other opex 277 279 283 Inv estment 400 546 649
Preprov ision profit 681 654 692 Loan & Adv ances 14099 11968 12040
Prov isions 375 607 374 Net Fixed Assets 278 285 200
PBT 306 47 318 Other assets 339 442 265
Taxes 92 34 88 Total Assets 15525 13595 13572
PAT 214 13 230 AUM 18183 16101 15555
Minority Interest 2 -8 0
Reported PAT 212 21 230 Balance sheet ratios (%)
Basic number of shares 24 24 24 Year to March FY16 FY17 FY18
Basic EPS (INR) 8.9 0.9 9.7 Loan growth -7% -11% -3%
Diluted number of shares 24 24 24 EA growth 4% -14% 2%
Diluted EPS (INR) 8.9 0.9 9.7 Disbursement growth -29% -6% 9%
DPS (INR) 0.8 0 0.8 Gross NPA ratio 8.1% 6.7% 7.0%
Payout ratio (%) 9% 0% 8% Net NPA ratio 6% 6% 5%
Prov ision cov erage 21% 16% 26%
CAR
Growth ratios (%)
Year to March FY16 FY17 FY18 RoE decomposition (%)
NII growth 17% -3% 5% Year to March FY16 FY17 FY18
Net rev enues growth 14% -3% 9% Net interest income/Assets 7.5% 7.6% 8.6%
Opex growth -7% -2% 13% Other Income/Assets 1.1% 1.2% 1.7%
PPP growth 46% -4% 6% Net rev enues/Assets 8.7% 8.8% 10.3%
Prov isions growth 53% 62% -38%
Operating expense/Assets 4.2% 4.3% 5.2%
PAT growth 14% -94% 1627%
Prov isions/Assets 2.5% 4.2% 2.8%
Taxes/Assets 0.6% 0.2% 0.6%
Operating ratios (%)
Total costs/Assets 7.2% 8.7% 8.6%
Year to March FY16 FY17 FY18
ROA 1.4% 0.1% 1.7%
Yield on assets 16.0% 16.1% 15.9%
Equity/Assets 14.8% 15.6% 17.9%
Yield on Adv . (On Book) 16.9% 16.5% 16.1%
ROAE 10.8% 0.6% 10.3%
Yield on Adv . (Off Book) 0.4% 2.1% 3.5%
Cost of funds 10.2% 10.2% 9.1%
Valuation metrics
Spread 6.7% 6.2% 7.0%
Year to March FY16 FY17 FY18
Net interest margins 6.0% 6.4% 7.3%
Diluted EPS (INR) 9 1 10
Cost-to-income 48.2% 48.6% 50.3%
EPS growth (%) -8% -94% 1627%
Tax rate 30.1% 71.9% 27.6%
Adjusted BV per share 53 63 71
Diluted P/E (x) 18 293 17
Price/Adj. Book Value(x) 3.1 2.6 2.3
Basic EPS (INR) 9 1 10
Price/ Earning (x) 18 293 17

23 GWM
Edelweiss Investment Research

Maharashtra Seamless Ltd. CMP INR: 437


Rating: TACTICAL BUY
Target Price: 580
Demand buoyancy turning into numbers. Upside: 33%

We hosted the management of Maharashtra Seamless Ltd (MSL), the largest carbon steel Salil Utagi
seamless tube manufacturer in India. The company is well positioned to capture the Research Analyst
ongoing capex momentum in oil and gas exploration in India and North America. Salil.utagi@edelweissfin.com

Weakened competition in India owing to the anti-dumping duty on Chinese carbon steel
seamless pipes and over leveraged balance sheets of competitors is expected to be a
windfall for the largest player, MSL. Moreover, the capex related to the national gas grid
and water pipelines undertaken in various states is expected to revive volumes for ERW
pipes as well. The management guided for minimum volume CAGR of 15-18% in both
seamless and ERW pipes over next 2 years. The management is also confident of
maintaining EBIDTA/ton above INR 12,000/ton for seamless and closer to INR 4,000/ton for
ERW pipes in FY19E.
Well positioned to benefit from recovery in increasing capex in domestic hydrocarbon
industry
Based on exploration activities in hand, ONGC and OIL are expected to raise capex per
year to INR 55,000cr for FY19E compared to INR 25,000-35,000crs in FY14-18.
Correspondingly, demand for carbon/alloys (OCTG) seamless pipes used in drilling oil and
gas is expected to be closer to 8-9 lakh tpa compared to 6-7 lakh tpa during FY13-16.
Demand for carbon seamless pipes will also be buoyed by capex momentum in refineries,
nuclear, chemicals, and thermal power (maintenance).

Strong revenue growth will be backed up by higher margins and profitability


The company management guided for volume growth 15% CAGR in seamless tubes for
FY18-20E. Limited competition and buoyant demand conditions are boosting EBIDTA per
Bloomberg: MHS:IN
ton consistently above INR 12,000/ton against our assumption of INR 10,500/ton for FY19E.
MSL is also exploring exports opportunities in USA and Middle East. Right now, exports 52-week
550/3380
constitute around 15% share in company’s seamless tubes volumes. ERW pipes segment is range (INR):
set to cross volumes of 60,000 tons in FY19E as the company has invested in improving
efficiency and hiring manpower. MSL’s renewable assets should continue to generate Share in issue (cr): 6.69
EBIDTA of above INR 30cr for FY19E.
M cap (INR cr): 2,928

Oil rigs – hoping to deploy 2 rigs in upcoming tenders Avg. Daily Vol.
Currently, company has 3 oil rigs deployed, 2 under associate companies and 1 rig 10/89
BSE/NSE :(‘000):
owned by subsidiary. Under upcoming tenders of 9 rigs, MSL management is confident of
Promoter
deploying both the remaining rigs in subsidiaries with ONGC. Current charter rates are 60.58
Holding (%)
around $45,000-50,000/day which should result in incremental EBIDTA of INR 30cr per rig for
the whole year. MSL is still negotiating with the lenders of iron ore mine located in Brazil.
The company is bargaining for 100% shareholding to be vested in 2 years with MSL from
current 32%.

Valuation
At a price of INR 440, the company is trading at an EV/EBITDA of 9.7x on FY18 basis and
4.8x EV/EBITDA on FY20E basis. We continue to maintain our bullish stance on the
company with a target price of INR 580sharee.

Year to March FY16 FY17 FY18 FY19E FY20E


Revenues (INR Cr) 1019 1434 2150 2499 2776
Rev growth (%) (24.8) 40.8 49.9 16.3 11.1
EBITDA (INR Cr) 38 225 264 449 511
Net Profit (INR Cr) -24 116 119 255 295
P/E (x) (123.0) 25.3 24.5 11.5 9.9
EV/EBITDA (x) 57.2 12.6 9.7 5.7 4.7
RoACE (%) (0.9) 4.3 6.3 9.4 10.4
RoAE (%) 0.3 4.1 4.3 8.4 9.1
Date: 15h June 2018

24 GWM
Maharashtra Seamless Ltd.
Financials
Income statement (Consolidated) (INR cr) Balance sheet (INR Cr)
Year to March FY16 FY17 FY18 FY19E FY20E As on 31st March FY16 FY17 FY18 FY19E FY20E
Income from operations 1019 1434 2150 2499 2776 Equity share capital 34 34 34 34 34
Direct costs 740 921 1458 1590 1759 Preference Share Capital 63 63 0 0 0
Employee costs 47 53 63 87 97 Reserv es & surplus 2,549 2,650 2,896 3,104 3,346
Other expenses 241 288 427 460 507 Shareholders funds 2,646 2,746 2,930 3,138 3,379
Total operating expenses 980 1209 1885 2050 2265 Long term borrowings 272 180 472 425 383
EBITDA 38 225 264 449 511 Short term borrowings 299 460 154 170 187
Depreciation and amortisation 71 71 76 80 82 Total Borrowings 571 640 626 595 569
EBIT -33 154 188 369 429 Deferred Tax Liabilities & other long term 265 252 291 291 291
Other income 90 76 65 65 65 Sources of funds 3,481 3,639 3,848 4,024 4,240
Interest expenses 26 34 42 42 40 Gross block 1,724 1,769 1,984 2,031 2,061
Profit before tax 31 196 211 392 454 Depreciation 603 674 750 830 912
Prov ision for tax 23 81 92 137 159 Net block 1,121 1,095 1,234 1,201 1,149
Core profit 8 116 119 255 295 Capital work in progress 31 119 17 0 0
Extraordinary items -32 0 0 0 0 Total fixed assets 1,152 1,214 1,251 1,201 1,149
Profit after tax -24 116 119 255 295 Other non current assets 48 34 32 32 32
Adjusted net profit -24 116 119 255 295 Inv estments 84 272 150 150 150
Equity shares outstanding (mn) 6.7 6.7 6.7 6.7 6.7 Equity inv estments in associates 964 898 1,137 1,137 1,137
EPS (INR) basic -3.6 17.3 17.8 38.1 44.0 Current Inv estments 396 359 174 174 174
Diluted shares (Cr) 6.7 6.7 6.7 6.7 6.7 Inv entories 499 484 510 658 734
EPS (INR) fully diluted -3.6 17.3 17.8 38.1 44.0 Sundry debtors 267 309 398 478 542
Div idend per share 2.5 3.5 6.0 7.0 8.0 Cash and equiv alents 6 7 17 16 122
Div idend payout (%) 204.3 20.0 20.0 20.0 20.0 Loans and adv ances 173 240 283 350 397
Other current assets 95 39 93 93 93
Common size metrics- as % of net revenues (INR cr) Total current assets 1,436 1,437 1,475 1,769 2,063
Year to March FY16 FY17 FY18 FY19E FY20E Sundry creditors and others 166 178 174 228 249
Operating expenses 96.2 84.3 87.7 82.0 81.6 Prov isions 37 40 25 37 42
Depreciation 7.0 4.9 3.5 3.2 2.9 Total CL & prov isions 203 218 199 265 291
Interest expenditure 2.6 2.4 1.9 1.7 1.4 Net current assets 1,233 1,219 1,276 1,504 1,772
EBITDA margins 3.8 15.7 12.3 18.0 18.4 Uses of funds 3,481 3,638 3,846 4,024 4,240
Net profit margins (2.3) 8.1 5.6 10.2 10.6 Book v alue per share (INR) 520 543 574 601 633

Cash flow statement (INR Cr)


Growth metrics (%)
Year to March FY16 FY17 FY18 FY19E FY20E
Year to March FY16 FY17 FY18 FY19E FY20E
Net profit 40 116 119 255 295
Rev enues (24.8) 40.8 49.9 16.3 11.1
Add: Depreciation 71 71 76 80 82
EBITDA (63.6) 485.3 17.5 70.0 13.7
Add: Misc expenses written off -11 15 0 0 0
PBT NA 533.3 7.6 85.6 15.8
Add: Deferred tax 7 147 21 0 0
Net profit NA 1,313.0 3.0 113.5 15.8
Gross cash flow 108 349 217 335 377
EPS NA (586.8) 3.0 113.5 15.8
Less: Changes in W . C. -50 -1 177 229 162
Operating cash flow 158 351 40 106 215
Less: Capex -0 343 93 30 30
Ratios
Free cash flow 158 8 -53 76 185
Year to March FY16 FY17 FY18 FY19E FY20E
ROAE (%) 0.3 4.1 4.3 8.4 9.1
ROACE (%) (0.9) 4.3 6.3 9.4 10.4
RoCE( ex cash and inv estments) -1.4 6.9 9.6 14.1 15.6
Debtors (days) 96 96 96 96 96
Current ratio 4.7 4.8 6.1 5.7 6.2
Debt/Equity 0.3 0.3 0.3 0.2 0.2
Inv entory (days) 178 178 178 178 178
Payable (days) 74 74 74 74 74
Cash conv ersion cycle (days) 199 199 199 199 199
Debt/EBITDA 19.4 3.6 3.0 1.7 1.5
Adjusted debt/Equity 0.2 0.3 0.3 0.2 0.2

Valuation parameters
Year to March FY16 FY17 FY18 FY19E FY20E
Diluted EPS (INR) (3.6) 17.3 17.8 38.1 44.0
Y-o-Y growth (%) NA (586.8) 3.0 113.5 15.8
CEPS (INR) 12 28 29 50 56
Diluted P/E (x) (123.0) 25.3 24.5 11.5 9.9
Price/BV(x) 1.0 1.1 1.0 0.9 0.9
EV/Sales (x) 2.2 2.0 1.2 1.0 0.9
EV/EBITDA (x) 57.2 12.6 9.7 5.7 4.7
Diluted shares O/S 6.7 6.7 6.7 6.7 6.7
Basic EPS (3.6) 17.3 17.8 38.1 44.0
Basic PE (x) NA 25.3 24.5 11.5 9.9
Div idend yield (%) 0.6 0.8 1.0 2.2 2.5

25 GWM
Edelweiss Investment Research

MIRC Electronics Ltd. CMP INR: 35

Rating: Not Rated


Business restructuring can lead to turn around

We hosted the management of Mirc Electronics Ltd. (Mirc), manufacturer of color TVs, ACs, Kshitij Kaji
washing machines, and microwave ovens. Its products are marketed under the ‘ONIDA’ Research Analyst
Brand. Mirc’s assembling unit of LCD/LED’s (with 4 lakh annual capacity) and washing Kshitij.kaji@edelweissfin.com

machines (with 2.4 lakh annual capacity) is located at Wada, Maharashtra and Roorkee, Praveen Sahay
Uttarakhand, respectively. Research Analyst
Praveen.sahay@edelweissfin.com
Key takeaways
 MIRC has undergone restructuring over the last 2-3 years in an effort to regain lost share
in the consumer durables space. Post fund raising of INR 95 Cr from Benette Coleman
and Lucky Securities, the debt has gone down from INR 187 crore in FY16 to INR 66 crore
in FY18. Warrant conversion and partial sale of INR 100 Cr of non-core assets
(warehouses not required due to GST implementation, land parcels, etc) is expected in
FY19E which will make the company debt free. A golden handshake with 180
employees and increased operating efficiencies by automating the
assembling/production process has led to mid-single digit EBITDA margin for the first
time in the past five years at 5.7% in FY18.
 The current revenue break-up is ACs (40%), Panel (40%), Washing machine (20%) and
Microwave/owen (5%). Washing machine is likely to witness the strongest growth of 80-
90% on account of low base and ramp up of production facility which will make this
segment profitable. The panel assembling facility will grow 25%, TV will grow 20% and
ACs is likely to grow 10% (total company level growth of 10%). Gross margins are also
likely to improve with expected margins of 32% for panels, 30% for washing machine
and 28% for ACs. Mirc will also manufacture micro-processors. Mirc is targeting INR 900
Cr of sales in FY19E along with a 7% EBITDA margin and 5.5% PAT margin.
 Mirc’s focus is going to be on good products, targeting the rural segment and brand Bloomberg: MIRC:IN
and team building. To create technologically advanced products which are high on
52-week
quality, the software is key and Mirc has a team of 100 people in R&D (50 in mechanical 64.70 / 11.50
range (INR):
and 50 in electronics). Mirc has hired the services of Taproot (marketing agency) to re-
build its brand. It has also hired senior level people from Whirlpool and Videocon. Mirc Share in issue (cr): 23.1
wants to target the rural segment where there is limited competition and current
revenue share is only 20%. M cap (INR cr): 805

 The management also plans to enter into a strategic alliance with global brands to use Avg. Daily Vol.
48/733
its own manufacturing facility & distribution network for marketing the global brand for BSE/NSE :(‘000):
a certain stake. Contract manufacturing is dependant heavily on economies of scale
Promoter
and Mirc believes that it can be a successful player in this area. Total sales from non- 52.91
Holding (%)
captive are expected to 14% of total revenues in FY19E.

Valuation
At current price, the company is trading at P/E multiple of 35x based on FY18 P/E.

Year to March FY16 FY17 FY18


Revenues (INR Cr) 772 729 728
Rev growth (%) (28.1) (5.6) (0.1)
EBITDA (INR Cr) -3 34 41
Net Profit (INR Cr) -38 29 23
P/E (x) NM 25.2 35.2
EV/EBITDA (x) NM 27.0 20.5
RoACE (%) (4.3) 7.1 10.4
RoAE (%) (13.7) 3.5 13.1
Date: 15th June 2018

26 GWM
MIRC Electronics Ltd.
Financials
Income statement (Standalone) (INR cr) Balance sheet (Standalone) (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 772 729 728 Equity share capital 20 21 23
Direct costs 582 534 521 Preference Share Capital 0 0 0
Employee costs 71 72 70 Reserves & surplus 112 103 196
Other expenses 193 161 166 Shareholders funds 132 124 219
Total operating expenses 775 695 687 Secured loans 199 181 63
EBITDA -3 34 41 Unsecured loans 1 5 3
Depreciation and amortisation 12 10 9 Borrowings 200 187 66
EBIT -15 23 32 Minority interest 0 0 0
Interest expenses 30 21 14 Sources of funds 332 311 285
Other income 22 2 5 Gross block 400 400 402
Profit before tax -23 4 22 Depreciation 276 287 296
Provision for tax -4 0 0 Net block 124 114 106
Core profit -19 4 22 Capital work in progress 0 0 1
Extraordinary items -19 25 0 Total fixed assets 124 114 107
Profit after tax -38 29 23 Unrealised profit 0 0 0
Minority Interest 0 0 0 Investments 0 2 3
Share from associates 0 0 0 Inventories 242 206 225
Adjusted net profit -38 29 23 Sundry debtors 132 125 134
Equity shares outstanding (mn) 20 21 23 Cash and equivalents 18 19 24
EPS (INR) basic (1.9) 1.4 1.0 Loans and advances 31 19 23
Diluted shares (Cr) 19.6 21.2 23.1 Other current assets 0 0 0
EPS (INR) fully diluted (1.9) 1.4 1.0 Total current assets 423 369 406
Dividend per share 0.0 0.0 0.0 Sundry creditors and others 243 196 227
Dividend payout (%) 0.0 0.0 0.0 Provisions 5 6 7
Total CL & provisions 249 202 234
Common size metrics- as % of net revenues Net current assets 174 167 172
Year to March FY16 FY17 FY18 Net Deferred tax 0 0 0
Operating expenses 100.4 95.4 94.3 Misc expenditure 39 28 21
Depreciation 1.6 1.4 1.3 Uses of funds 338 311 303
Interest expenditure 3.8 2.8 1.9 Book value per share (INR) 7 6 9
EBITDA margins (0.4) 4.6 5.7 6 -0 18
Net profit margins (4.9) 4.0 3.1 Cash flow statement
Year to March FY16 FY17 FY18
Growth metrics (%) Net profit -1 -20 22
Year to March FY16 FY17 FY18 Add: Depreciation 12 10 9
Revenues (28.1) (5.6) (0.1) Add: Misc expenses written off -5 11 7
EBITDA (107.8) (1,263.5) 23.3 Add: Deferred tax 0 0 0
PBT 1,098.4 (119.4) 400.9 Add: Others 0 0 0
Net profit 325.6 (123.1) 400.9 Gross cash flow 7 2 38
EPS 231.6 (171.1) (28.2) Less: Changes in W. C. -20 -8 -0
Operating cash flow 27 10 38
Less: Capex -3 0 2
Ratios Free cash flow 29 9 36
Year to March FY16 FY17 FY18
ROAE (%) (13.7) 3.5 13.1
ROACE (%) (4.3) 7.1 10.4
Debtors (days) 63 63 67
Current ratio 1.7 1.8 1.7
Debt/Equity 1.5 1.5 0.3
Inventory (days) 114 103 113
Payable (days) 115 98 114
Cash conversion cycle (days) 62 68 66
Debt/EBITDA NM 5.6 1.6
Adjusted debt/Equity 1.4 1.4 0.2

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) (1.9) 1.4 1.0
Y-o-Y growth (%) NM NM (28.2)
CEPS (INR) NM 0.7 1.4
Diluted P/E (x) NM 25.2 35.2
Price/BV(x) 5.2 5.9 3.7
EV/Sales (x) 1.1 1.2 1.2
EV/EBITDA (x) NM 27.0 20.5
Diluted shares O/S 19.6 21.2 23.1
Basic EPS (1.9) 1.4 1.0
Basic PE (x) NM 25.2 35.2
Dividend yield (%) 0.0 0.0 0.0

27 GWM
Edelweiss Investment Research

Prozone Intu Properties Ltd. CMP INR: 43

Focus on retail malls in Tier-2 cities and industry tailwinds to Rating: Not Rated

drive growth…
We hosted the management of Prozone Intu Properties Ltd in our ‘Edelweiss GWAM Emerging Nimit Gala
Ideas Theme Day” on 14th June, 2018. Prozone Intu Properties Ltd. was demerged from Provogue Research Analyst
in 2012 and is a joint venture between Provogue (31.05% stake) and Intu Properties PLC (32.38% nimit.gala@edelweissfin.com
stake), set up to develop and manage shopping centers and mixed-use development across
India. The company has predominantly focused on developing large-scale land parcels for
mixed use development and aims to use 75% of the land bank for residential and commercial
development under ‘Build & Sell’ model, while 25% of the land bank for retail malls under ‘Build &
Lease model’. The strategy is to use cash flows from ‘Build & Sell’ model to develop ‘Build & Lease’
assets, thereby creating debt-free annuity assets and facilitate free cash for future developments.
Over the last few years, company has focused on stabilization of recently launched Coimbatore
mall, monetization of Indore land and execution of Nagpur residential project.

Key highlights
 The company owns land banks (~169 acres) in the strategic locations in six cities;
Aurangabad, Nagpur, Indore, Coimbatore, Jaipur and Mysore.
 The response for the newly launched Coimbatore mall has been strong and the mall
is expected to contribute stabilized income from FY19 onwards.
 The residential project in Coimbatore has gone through a soft launch in which 86 units
were sold and based on current progress in tendering, the construction of residential
towers is expected to start by 2Q19.
 The Aurangabad Mall is seeing good traction in leasing activity; and major brands are
under fit-outs/leased stage with over ~100,000 sq. ft. The company has applied for OC
for its commercial project in Aurangabad. Bloomberg: PROZONE:IN

 To focus on faster monetization, the company has changed its strategy for Indore land 52-week
78.35 / 34.60
and will now retain ~25% for residential developments, while the remaining will be used range (INR):
for plotted developments.
Share in issue (cr): 15.3
 The company has set up Alternate Investment Fund in which it will own 50% stake and
has received necessary approval from SEBI for AIF formation. The company is M cap (INR cr): 662
evaluating acquisition opportunities and will invite subscription once deal is finalized.
Avg. Daily Vol.
289
 The company expects annuity income to increase significantly from FY19 onwards with BSE/NSE :(‘000):
Aurangabad and Coimbatore malls being leased currently at 80% and 87%
Promoter
respectively. 31.05
Holding (%)

Valuation
At a price of INR 43, the company is trading at a PB of 1.2x on FY18 book value and 25x EV/EBITDA.

Year to March FY16 FY17 FY18


Revenues (INR Cr) 86 63 96
Rev growth (%) 49.3 (26.7) 52.0
EBITDA (INR Cr) 24 5 37
Net Profit (INR Cr) 7 1 -7
P/E (x) 153.7 400.6 (90.4)
EV/EBITDA (x) 26.4 154.1 25.0
RoACE (%) 1.8 0.3 1.7
RoAE (%) 0.8 0.3 (1.3)

Date: 15th June 2018

28 GWM
Prozone Intu Properties Ltd.
Financials
Income Statement (INR cr) Balance sheet (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 86 63 96 Equity share capital 31 31 31
Direct costs 50 36 32 Reserv es & surplus 520 502 493
Employee costs 4 3 4 Shareholders funds 551 533 536
Other expenses 12 22 27 Secured loans 213 0 0
Total operating expenses 63 58 59 Unsecured loans 26 37 0
EBITDA 24 5 37 Borrowings 239 274 331
Depreciation and amortisation 13 12 27 Minority interest 303 340 342
EBIT 10 -7 11 Sources of funds 1,105 1,255 1,315
Interest expenses 11 10 27 Gross block 613 493 759
Other income 8 11 12 Depreciation 119 131 133
Profit before tax 8 -6 -5 Net block 494 362 626
Prov ision for tax 4 -7 2 Capital work in progress 193 253 108
Core profit 4 1 -7 Total fixed assets 687 615 734
Extraordinary items 0 0 0 Goodwill 0 91 91
Profit after tax 4 1 -7 Inv estments 72 73 64
Minority Interest -3 0 0 Inv entories 177 190 146
Adjusted net profit 7 1 -7 Sundry debtors 89 84 65
Equity shares outstanding 15.3 15.3 15.3 Cash and equiv alents 21 22 5.4
EPS (INR) basic 0.3 0.1 -0.38 Loans and adv ances 51 21 34
Diluted shares 15.3 15.3 15.3 Other current assets 70 84 102
EPS (INR) fully diluted 0.3 0.1 -0.38 Total current assets 407 401 352
Div idend per share 0.0 0.0 0 Current liabilites 58 85 85
Div idend payout (%) 0.0 0.0 0 Prov isions 3 1 0.9
Total CL & prov isions 61 86 86
Net current assets 346 315 267
Common size metrics- as % of net revenues
Net Deferred tax 371 74 76
Year to March FY16 FY17 FY18
Misc expenditure 0 0 0
Operating expenses 72.7 92.2 60.9
Uses of funds 1,104 1,254 1,317
Depreciation 15.3 18.5 39.1
Book v alue per share (INR) 36 36 34
Interest expenditure 12.6 15.5 27.7
Contingent Liabilities 722 784
EBITDA margins 27.3 7.8 11.4
other liabilities 11.8 22 32
Net profit margins 8.6 1.9 28.6

Growth metrics (%) Cash flow statement


Year to March FY16 FY17 FY18 Year to March FY16 FY17 FY18
Rev enues 49.3 (26.7) 52.0 Net profit 8 1 -7
EBITDA 44.9 (79.1) 662.0 Add: Depreciation 13 12 27
PBT (165.8) (173.8) (13.4) Add: Misc expenses written off 0 0 0
Net profit after minority interest (213.5) (83.3) (698.4) Add: Deferred tax 0 -0 0
EPS (133.8) (70.7) (575.0) Add: Others -3 0 0
Gross cash flow 18 13 20
Less: Changes in W . C. -370 -341 -342
Profit & Efficiency Ratios Operating cash flow 388 354 362
Year to March FY16 FY17 FY18 Less: Capex 75 63 0
ROAE (%) 0.8 0.3 (1.3) Free cash flow 313 291 362
ROACE (%) 1.8 0.3 1.7
Debtors (days) 377 510 0 Cash flow metrics
Current ratio 6.7 7.0 7.5 Year to March FY16 FY17 FY18
Debt/Equity 0.4 0.5 0.6 Operating cash flow 388 354 358
Inv entory (days) 748 1,098 555 Financing cash flow (265) (691) (591)
Payable (days) 246 324 175 Inv esting cash flow (245) 2 6
Cash conv ersion cycle (days) 879 1,284 380 Net cash flow (122) (335) (227)
Debt/EBITDA 10.2 55.7 8.8 Capex 75 63 95
Adjusted debt/Equity 0.4 0.5 0.6 Div idend paid - - -

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) 0.3 0.1 (0.5)
Y-o-Y growth (%) (133.8) (61.6) (543.0)
CEPS (INR) 1.1 0.9 1.2
Diluted P/E (x) 153.7 400.6 (90.4)
Price/BV(x) 1.2 1.2 1.2
EV/Sales (x) 7.2 12.0 9.8
EV/EBITDA (x) 26.4 154.1 25.0
Diluted shares O/S 15.3 15.3 15.5
Basic EPS 0.3 0.1 (0.5)
Basic PE (x) 153.7 400.6 (90.4)
Div idend yield (%) 0.0% 0.0% 0.0%

29 GWM
Edelweiss Investment Research

Quick Heal Technologies Ltd. CMP INR: 301


Rating: BUY
Target Price INR: 390
Securely Moving Ahead… Upside: 30%

Quick Heal Technologies Ltd (Quick Heal) is one of India’s largest domestic internet security Debashish Mazumdar
companies. Over the years, it has achieved market leadership in the retail segment through its across Research Analyst
the value chain product portfolio and extensive distribution network. It plans on replicating the same debashish.mazumdar@edelweissfin.com
success in the enterprise and mobile security space. Even though FY17 and FY18 were challenging
years for the company because of demonetization and GST implementation–the company came
back strongly in the second half of FY18. The company’s topline is expected to grow at 16% CAGR
over FY18-20E. With higher growth in topline and significant cost control measure implemented by the
management, the net profit is expected to grow at 20% CAGR over FY18-20E and net profit margin is
expected to improve 400 bps to 29% during the same period. We believe the underlying strength of
the business remains strong and reiterate our ‘BUY’ recommendation with a revised target price of INR
390.

Key takeaways
 The management has guided for 12-14% of top line growth and 20% of bottom line
growth for FY19E.
 The management has taken significant initiatives to reposition the consumer securities Bloomberg: QUICKHEA:IN
business by restructuring the distributor driven model and spend more money on
brand building over the last few quarters. 52-week
404.00 / 172.20
range (INR):
 Going forward, management is more confident of growing the B2B business to reach
50% of the overall top line in next three years as compared to 17% in FY17. QHTL’s Share in issue (cr): 7.0

enterprise segment is expected to grow at 30% CAGR over FY18-20E to reach INR
M cap (INR cr): 2,087
107cr in FY20E.
 Core RoCE (without considering the cash balance), after three consecutive years of Avg. Daily Vol.
443
continuous fall, came back to 30% levels in FY18. Going forward, core RoCE is BSE/NSE :(‘000):

expected to reach to 34% in FY20E mainly due to growth in profitability and Promoter
72.50
improvement in working capital cycle. Holding (%)

 In the retail segment, the company is now having 21,401 channel partners selling
products at different parts of India. In the enterprise segment, the company currently
has 527 enterprise partners.
 In the enterprise segment, the company added 5000 new clients in FY18 and currently
has 30,000 active clients. The company added more than 100 new customers where
average users are more than 500.

Underlying Strength of the business remains intact; Reiterate BUY


At the current market price of INR 301, QHTL is trading at 19x of FY20E expected EPS of INR 17. We
reiterate our ‘BUY’ rating with a target price of INR 390.

Year to March FY16 FY17 FY18E FY19E FY20E


Revenues (INR Cr) 302 299 316 359 416
Rev growth (%) 14.5 (1.0) 5.8 13.4 16.1
EBITDA (INR Cr) 102 97 124 147 175
Net Profit (INR Cr) 58 64 86 99 120
P/E (x) 39.2 38.4 28.8 22.9 18.9
EV/EBITDA (x) 18.5 19.4 15.2 12.8 10.8
RoACE (%) 19% 14% 18% 19% 20%
RoAE (%) 12% 8% 12% 13% 14%

Date: 15th June 2018

30 GWM
Quick Heal Technologies Ltd.
Financials
Income statement (INR cr) Balance sheet (INR cr)
Year to March FY16 FY17E FY18E FY19E FY20E As on 31st March FY16 FY17E FY18E FY19E FY20E
Income from operations 302 299 316 359 416 Equity share capital 70 70 70 70 70
Direct Expenses 28 22 16 19 22 W arrants 0 0 0 0 0
R&D Expenses 59 64 57 60 69 Reserv es & surplus 537 592 653 727 822
SG&A Expenses 113 117 119 133 151 Shareholders funds 607 662 724 798 892
Total operating expenses 200 202 192 212 242 Borrowings 0 2 2 2 2
EBITDA 102 97 124 147 175 Minority interest 0 0 0 0 0
Depreciation and amortisation 24 31 27 30 32 Sources of funds 607 664 726 800 895
EBIT 78 66 97 117 143 Gross block 206 277 331 371 401
Interest expenses 0 0 0 0 0 Depreciation 64 92 119 149 181
Other income 10 28 30 31 37 Net block 142 185 212 222 220
Profit before tax 88 94 127 148 179 Capital work in progress 55 14 14 14 14
Prov ision for tax 30 31 40 49 59 Total fixed assets 197 198 226 236 234
Core profit 58 64 86 99 120 Goodwill 0 0 0 0 0
Extraordinary items 0 0 0 0 0 Non Current Assets 29 41 15 15 15
Profit after tax 58 64 86 99 120 Current Inv estments 108 175 451 501 551
Minority Interest 0 0 0 0 0 Sundry debtors 95 97 103 109 126
Share from associates 0 0 0 0 0 Cash and equiv alents 269 209 12 14 41
Adjusted net profit 58 64 86 99 120 Loans and adv ances 9 1 1 12 24
Equity shares outstanding (Crs) 7.0 7.0 7.0 7.0 7.0 Other current assets 9 12 12 14 15
EPS (INR) basic 8.3 9.1 12.3 14.1 17.1 Total current assets 490 495 579 650 756
Diluted shares (Crs) 7.0 7.0 7.0 7.0 7.0 Sundry creditors and others 68 70 55 62 72
EPS (INR) fully diluted 8.3 9.1 12.3 14.1 17.1 Prov isions 41 0 0 0 0
Div idend per share 2.5 2.5 2.5 3.0 3.0 Total CL & prov isions 108 70 55 62 72
Div idend payout (%) 0.3 0.3 0.2 0.2 0.2 Net current assets 382 425 524 588 685
Net Deferred tax 0 0 0 0 0
Common size metrics- as % of net revenues Misc expenditure 0 0 0 0 0
Year to March FY16 FY17E FY18E FY19E FY20E Uses of funds 607 664 726 800 895
Operating expenses 66.3 67.5 60.9 59.0 58.0 Book v alue per share (INR) 87 95 103 114 127
Depreciation 7.8 10.3 8.5 8.3 7.7
Interest expenditure 0.0 0.0 0.0 0.0 0.0 Cash flow statement (INR cr)
EBITDA margins 33.7 32.5 39.1 41.0 42.0 Year to March FY16 FY17E FY18E FY19E FY20E
Net profit margins 19.2 21.3 27.3 27.7 28.8 Net profit 58 64 86 99 120
Add: Depreciation 24 31 27 30 32
Growth metrics (%) Add: Misc expenses written off 0 0 0 0 0
Year to March FY16 FY17E FY18E FY19E FY20E Add: Deferred tax -2 0 0 0 0
Rev enues 14.5 (1.0) 5.8 13.4 16.1 Add: Others -9 0 0 0 0
EBITDA 11.0 (4.6) 27.2 18.7 18.9 Gross cash flow 70 94 113 129 152
PBT 10.4 6.8 34.6 16.8 21.0 Less: Changes in W . C. 22 36 21 11 20
Operating cash flow 48 58 93 117 132
Net profit after minority interest 7.7 9.7 35.9 14.8 21.0
Less: Capex 36 30 55 40 30
EPS (6.1) 9.6 35.3 14.8 21.0
Free cash flow 12 28 38 77 102
Profit & Efficiency Ratios
Year to March FY16 FY17E FY18E FY19E FY20E
ROAE (%) 12% 8% 12% 13% 14%
ROACE (%) 19% 14% 18% 19% 20%
Debtors (days) 103 116 118 114 111
Current ratio 4.5 7.1 10.6 10.5 10.5
Debt/Equity 0.0 0.0 0.0 0.0 0.0
Inv entory (days) 8 10 6 7 7
Payable (days) 64 50 38 35 35
Cash conv ersion cycle (days) 47 76 87 86 83
Debt/EBITDA 0.0 0.0 0.0 0.0 0.0
Adjusted debt/Equity 0.0 0.0 0.0 0.0 0.0

Valuation parameters
Year to March FY16 FY17E FY18E FY19E FY20E
Diluted EPS (INR) 8.3 8.4 11.3 14.2 17.1
Y-o-Y growth (%) 7.7 2.1 33.3 25.8 21.0
CEPS (INR) 11.7 12.9 15.1 18.4 21.7
Diluted P/E (x) 39.2 38.4 28.8 22.9 18.9
Price/BV(x) 3.7 3.4 3.1 2.7 2.4
EV/Sales (x) 6.2 6.3 6.0 5.3 4.5
EV/EBITDA (x) 18.5 19.4 15.2 12.8 10.8
Diluted shares O/S 7.0 7.0 7.0 7.0 7.0
Basic EPS 8.3 9.1 12.3 14.1 17.1
Basic PE (x) 39.2 38.4 28.8 22.9 18.9
Div idend yield (%) 1% 1% 1% 1% 1%

31 GWM
Edelweiss Investment Research

Sanghi Industries Limited CMP INR: 87


Target INR: 133
Upside: 53%
Strengthening geographical presence to boost profitability Rating: BUY

We hosted the management of Sanghi Industries (SNGI) “one of lowest cost producers in West” in Raj Jha
our ‘Edelweiss GWAM Emerging Ideas Theme Day” on 14th June, 2018. Sanghi Industries (SNGI) is a Research Analyst
well integrated cement manufacturing player based in Gujarat with an installed grinding capacity raj.jha@edelweissfin.com
of 4.1MTPA, clinker capacity of 3.6MTPA and a 60MW multi-fuel power plant. Easy access to
excellent quality of raw material lends it the distinction of being the lowest cost cement producer
in the state and also leads to production of the best quality cement, which commands a price
premium in the Gujarat market. Moreover, the company is undertaking a comprehensive capacity
expansion plan which will take total capacity of grinding to 8.1mt, clinker to 6.6mt and power to
126MW. Additionally, in order to make inroads in the high realisation Mumbai market, SNGI has set
up terminals at Navlakhi in Gujarat & Dharamtar in Maharashtra and also bought 2 ships to cater to
the market via the coastal route. Shipment via the sea route will prune transportation cost by 35%
and also boost realisation.

Key Highlights Bloomberg: SNGI:IN


 The capacity expansion is on track and has already placed 70% of the new machine orders.
The plant is expected to be completed by March 2020. 52-week
143.90 / 72.50
range (INR):
 Company expects the next phase of capex will require INR ~12-12.5bn for doubling the
grinding, clinker and power capacity. Share in issue
25.1
(cr):
 Management has successfully raised INR 400cr through QIP and remaining capital is expected
to be from internal accruals. Management categorically said that there would be no equity M cap (INR cr): 2,140
dilution. Post expansion, gross debt to equity is expected to remain <1, which is very positive for
further expansion. Avg. Daily Vol.
1000
BSE/NSE :(‘000):
 The cement sales volume is expected to remain very healthy on account of a) cement sales
volume during election is generally very high; b) cement sales volume in Mumbai market Promoter
65.72
started picking the pace post delivery of two ships and c) increasing the cement sales volume Holding (%)
in other geographies such as Cochin, Mumbai, Rajasthan (Border of Gujarat) and MP.
 In FY18, SNGI generated an EBITDA margin of 21% and our FY19E projection is 21.3%.
Management guided to improve EBITDA margin from current level on account of P&F cost is
expected to come down as the proportion of lignite increases significantly recently, which is
cheaper source of power generation
 The F&F cost is expected to remain moderate as company bought two ships and hence the
transportation cost to Mumbai market is expected to come down.
 WHRS installation process has completed and has been commissioned in Q4FY18 which will
reduce the P&F cost by INR 45-50crs. As a consequence of this, the margin will improve going
forward.

Valuation
SNGI is currently trading at 6.6x FY20E EV/EBITDA and an EV/tonne of USD 80. Based on 10.0x FY20E
EV/EBITDA, we arrive at a target price of INR133 per share which entails 53% upside. At CMP, we
continue our recommendation to “BUY” with a target price of INR 133 per share.

Year to March FY16 FY17 FY18 FY19E FY20E


Revenues (INR
777 998 1,026 1,254 1,433
Cr)
Rev growth (%) 11.1 -3.7 2.9 22.2 14.2
EBITDA (INR Cr) 141 198 216 268 319
Net Profit (INR Cr) 1.52 63 93 112 137
P/E (x) 1250.9 30.4 20.5 19.4 16.0
EV/EBITDA (x) 16.8 12.5 11.6 8.6 6.6
RoACE (%) 5.7 7.6 7.1 6.1 5.6
Date: 15th June 2018
RoAE (%) 0.2 5.8 6.9 6.8 7.7

32 GWM
Sanghi Industries Limited.
Financials
Income Statement (INR cr) Balance Sheet (INR cr)
Year to March FY16* FY17 FY18 FY19E FY20E As on 31st March FY16 FY17 FY18 FY19E FY20E
Net rev enue 777 998 1,026 1,254 1,433 Equity capital 220 220 251 251 251
Materials costs 52 71 73 81 91 Preference Share Capital 0 0 0 0 0
Gross profit 724 927 953 1,173 1,342 Reserv es & surplus 831 894 1347 1459 1596
Power & Fuel Cost 160 231 243 297 342 Borrowings 536 587 738 1538 1538
Freight Cost 212 296 298 357 393 Deferred Tax Liabilities (Net) -59 -59 -79 -79 -79
Other Cost 211 201 196 251 288 Sources of funds 1529 1642 2257 3170 3306
EBITDA 141 198 216 268 319 Net Fixed Assets 1561 1619 1802 2423 2891
Depreciation & Amortization 54 73 72 79 82 Inv estments 0 0 0 0 0
EBIT 87 125 143 188 237 Inv entories 138 187 147 217 245
Other income 3 2 22 14 12 Sundry debtors 18 24 32 26 30
Interest expenses 27 64 72 77 74 Cash & Bank Balances 83 16 428 644 286
Profit before tax before EI 62 63 93 125 175 Other Current assets 134 120 157 125 100
Exceptional Items (60) - - - - Loans and adv ances 27 42 0 48 54
PBT 2 63 93 125 175 Total current assets 318 372 337 416 430
Prov ision for tax 0 - - 12 39 Sundry creditors and others 144 142 133 113 115
Reported PAT 1.52 63 93 112 137 Prov isions 289 223 177 201 186
Adjustment in PAT 60.4 (0) - - - Total current liabilities & prov isions 433 365 310 314 301
Adj Net Profit 62 63 93 112 137 Net current assets -115 7 27 103 129
Basic shares outstanding (crs) 22 22 25 25 25 Uses of funds 1529 1642 2257 3170 3306
EPS (Rs.) 2.8 2.9 3.7 4.5 5.4
Div idend per share (Rs.) - - - - - Free cash flow
Div idend payout (%) 0.00 0.00 0.00 0.00 0.00 Year to March FY16 FY17 FY18 FY19E FY20E
Net profit 62 63 93 112 137
Common Size Add : Depreciation 54 73 72 79 82
Year to March (%) FY16 FY17 FY18 FY19E FY20E Adjustment -258 247 -30 0 0
Gross profit margin 93.3 92.9 92.8 93.5 93.7 Operating profit (before W C changes) -142 384 136 192 218
Power & fuel 20.7 23.2 23.7 23.7 23.9 Less: Changes in W C -202 122 20 76 26
Freight & forwarding 27.3 29.7 29.1 28.5 27.4 Operating cash flow 60 262 116 116 192
Other manufacturing cost 27.2 20.1 19.1 20.0 20.1 Less: Capex 274 131 256 700 550
EBITDA margin 18.1 19.9 21.0 21.3 22.3 Free cash flow -214 131 -139 -584 -358
Depreciation 7.0 7.3 7.1 6.3 5.7
Interest expenses 3.5 6.4 7.0 6.2 5.2 Cash Flow Statement
Tax rate 0.6 0.0 0.0 10.0 22.0 Year to March FY16 FY17 FY18 FY19E FY20E
Net profit margins 0.2 6.3 9.1 9.0 9.5 Cash flow from operations 318 14 146 116 192
Cash Flow from inv esting activ ities -274 -131 -256 -700 -550
Growth Ratios Cash Flow from financing activ ities 44 50 551 800 0
Year to March (%) FY16** FY17 FY18 FY19E FY20E Capex -274 -131 -256 -700 -550
Rev enues 11.1 -3.7 2.9 22.2 14.2
EBITDA 19.2 5.6 8.9 24.1 19.1
PBT -91.7 2379.3 47.8 33.8 40.5
Adj. Net profit 169.5 -23.7 48.2 20.4 21.8

Profitability & Efficiency Ratios


Year to March FY16 FY17 FY18 FY19E FY20E
ROAE (%) 0.2 5.8 6.9 6.8 7.7
ROACE (%) 5.7 7.6 7.1 6.1 5.6
Inv entory day 79.5 85.2 66.4 80.3 80.3
Debtors days 8.7 8.8 11.4 7.7 7.7
Payable days 82.6 64.9 59.8 41.8 37.6
Cash conv ersion cycle (days) 5.5 29.1 18.1 46.2 50.4
Current ratio 1.5 2.4 2.0 1.7 1.0
Gross debt/equity 0.5 0.5 0.5 0.9 0.8
Adjusted debt/Equity 0.4 0.5 0.2 0.5 0.7
Interest cov erage ratio 3.2 1.9 2.0 2.4 3.2

Valuation Parameters
Y e (Mar) FY16** FY17 FY18 FY19E FY20E
Adjusted Diluted EPS (INR) 0.1 2.9 4.2 4.5 5.4
Y-o-Y growth (%) -93.3 2986.8 48.2 5.5 21.8
Adjusted Cash EPS (INR) 2.5 6.2 7.5 8.7 9.9
Diluted P/E (x) 1250.9 30.4 20.5 19.4 16.0
P/BV (x) 1.8 1.7 1.4 1.3 1.2
EV/tonne (USD/tonne) 90 95 95 87 80
EV/sales (x) 3.0 2.5 2.4 1.8 1.5
EV/EBITDA (x) 16.8 12.5 11.6 8.6 6.6
EV/EBITDA (x), 1 yr fwd. 11.9 11.5 9.3 7.2 5.6

33 GWM
Edelweiss Investment Research

Waterbase Ltd. CMP INR: 203

Rating: Not Rated


Completely Integrated

We hosted the management of Waterbase Ltd, India’s leading player in the aquaculture Nitin Awasthi
segment, in our ‘Edelweiss GWAM Emerging Ideas Theme Day” on 14th June, 2018. Research Analyst
Waterbase Ltd is a completely integrated shrimp aquaculture company, from having a Nitin.Awasthi@edelweissfin.com

Hatchery business going all the way up to shrimp processing. The company’s main source Praveen Sahay
of revenue comes from its Feeds business. The company has recently launched “Raw Research Analyst
shrimps” and “Pasteurized Crab meat” under the brand name ‘Prize Catch’ in Chennai, Praveen.Sahay@edelweissfin.com
Bangalore and Goa.

Key takeaways

 Waterbase has rapidly expanded its feed business in Gujarat and has gained
substantial market share of ~15% within a short span.

 The company believes that the largely unorganised Hatchery business will become an
organised industry in the coming years, as farmers demand better quality shrimp
larvae. The company has re-entered the Hatchery business and expects to start
commercial operations by Q2FY19.

 The company is investing in R&D to create an array of innovative farm care products.
The company believes that the same distribution network can be further utilised to
extend into farm care products.

 The company has signed a MoU with CIBA (Central Institute of Brackish water
Aquaculture) to develop superior quality of feed. Through this agreement, the
company will have access to CIBA’s technology. Bloomberg: WB:IN

 The company has forayed into retail of shrimps and crab meat. The company hopes 52-week
417.50 / 84.35
to acquire institutional clientele for the same. range (INR):

Share in issue (cr): 4.14


 The Feeds business remains the core segment of the company. The company has
launched a marketing campaign to brand its feeds, so that it stands out among other
M cap (INR cr): 752
homogeneous products.
Avg. Daily Vol.
150
 The company has 7% market share in shrimp feeds in India and is aiming to take this BSE/NSE :(‘000):
even higher by growing at 20% within the current fiscal.
Promoter
62.72
Holding (%)

Valuation
At a price of INR 203, the company is trading at a PE of 28x on FY18 EPS.

Year to March FY16 FY17 FY18


Revenues (INR Cr) 300 322 343
Rev growth (%) 8.0 7.3 6.7
EBITDA (INR Cr) 9 30 57
Net Profit (INR Cr) 5 12 30
P/E (x) 142.5 66.2 27.8
EV/EBITDA (x) 136.9 40.3 21.8
RoACE (%) 3.5 13.7 28.6
RoAE (%) 2.0 9.7 21.6

Date: 15th June 2018

34 GWM
Waterbase Ltd.
Financials
Income statement (Standalone) (INR crs) Balance sheet (Standalone) (INR cr)
Year to March FY16 FY17 FY18 As on 31st March FY16 FY17 FY18
Income from operations 300 322 343 Equity share capital 39 39 41
Direct costs 225 245 217 Preference Share Capital 0 0 0
Employee costs 15 16 19 Reserv es & surplus 75 86 108
Other expenses 66 46 68 Shareholders funds 113 125 150
Total operating expenses 291 291 286 Secured loans 53 66 13
EBITDA 9 30 57 Unsecured loans 0 0 0
Depreciation and amortisation 4 5 6 Borrowings 53 66 13
EBIT 5 25 51 Minority interest 0 0 0
Interest expenses 4 9 4 Sources of funds 166 191 163
Other income 2 2 2 Gross block 63 71 77
Profit before tax 3 18 48 Depreciation 4 9 15
Prov ision for tax 0 6 19 Net block 60 62 61
Core profit 2 12 30 Capital work in progress 3 3 9
Extraordinary items 3 0 0 Total fixed assets 63 65 70
Profit after tax 5 12 30 Unrealised profit 0 0 0
Minority Interest 0 0 0 Inv estments 0 0 0
Share from associates 0 0 0 Inv entories 36 71 83
Sundry debtors 69 82 90
Adjusted net profit 5 12 30
Cash and equiv alents 24 11 7
Equity shares outstanding (mn) 4 4 4
Loans and adv ances 12 13 0
EPS (INR) basic 1.4 3.0 7.2
Other current assets 0 0 0
Diluted shares (Cr) 3.9 4 4
Total current assets 142 177 181
EPS (INR) fully diluted 1.4 3.0 7.2
Sundry creditors and others 37 49 90
Div idend per share 0.0 0 1.5
Prov isions 1 0 2
Div idend payout (%) 0.0 0.0 21.3
Total CL & prov isions 38 49 93
Net current assets 104 128 88
Common size metrics- as % of net revenues
Net Deferred tax -1 -3 -2
Year to March FY16 FY17 FY18
Misc expenditure 0 0 7
Operating expenses 97.1 90.6 83.3
Uses of funds 166 191 163
Depreciation 1.2 1.7 1.8
Book v alue per share (INR) 29 32 36
Interest expenditure 1.4 2.7 1.3
EBITDA margins 2.9 9.4 16.7
Cash flow statement
Net profit margins 1.8 3.6 8.6
Year to March FY16 FY17 FY18
Net profit -1 12 30
Growth metrics (%)
Add: Depreciation 4 5 6
Year to March FY16 FY17 FY18
Add: Misc expenses written off/Other 0 -0 -7
Rev enues 8.0 7.3 6.7
Add: Deferred tax 0 1 -1
EBITDA (72.0) 247.4 90.3
Add: Others 0 0 0
PBT (91.4) 588.5 170.1
Gross cash flow 3 18 28
Net profit (88.9) 432.7 156.4
Less: Changes in W . C. 15 37 -36
EPS (72.4) 115.4 138.0
Operating cash flow -12 -18 64
Less: Capex 49 8 11
Free cash flow -61 -26 53
Ratios
Year to March FY16 FY17 FY18
ROAE (%) 2.0 9.7 21.6
ROACE (%) 3.5 13.7 28.6
Debtors (days) 84 92.6 96.1
Current ratio 3.7 3.6 1.9
Debt/Equity 0.5 0.5 0.1
Inv entory (days) 44 80.1 88.2
Payable (days) 45 55.4 96.2
Cash conv ersion cycle (days) 83 117.3 88.0
Debt/EBITDA 6.1 2.2 0.2
Adjusted debt/Equity 0.3 0.4 0.0

Valuation parameters
Year to March FY16 FY17 FY18
Diluted EPS (INR) 1.4 3.0 7.2
Y-o-Y growth (%) (72.4) 115.4 138.0
CEPS (INR) 1.5 4.4 8.6
Diluted P/E (x) 214.8 99.7 41.9
Price/BV(x) 10.2 9.3 8.3
EV/Sales (x) 4.0 3.8 3.6
EV/EBITDA (x) 136.9 40.3 21.8
Diluted shares O/S 3.9 3.9 4.1
Basic EPS 1.4 3.0 7.2
Basic PE (x) 214.8 99.7 41.9
Div idend yield (%) 0.0 0.0 0.0

35 GWM
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A graph of daily closing prices of the securities is also available at www.nseindia.com

Analyst Certification:
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their
securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

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Disclaimer
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Disclosures under the provisions of SEBI (Research Analysts) Regulations 2014 (Regulations)
Edelweiss Broking Limited ("EBL" or "Research Entity") is regulated by the Securities and Exchange Board of India ("SEBI") and is licensed to carry on the business of broking, depository
services and related activities. The business of EBL and its associates are organized around five broad business groups – Credit including Housing and SME Finance, Commodities,
Financial Markets, Asset Management and Life Insurance. There were no instances of non-compliance by EBL on any matter related to the capital markets, resulting in significant and
material disciplinary action during the last three years. This research report has been prepared and distributed by Edelweiss Broking Limited ("Edelweiss") in the capacity of a Research
Analyst as per Regulation 22(1) of SEBI (Research Analysts) Regulations 2014 having SEBI Registration No.INH000000172.

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