INVESTMENT IDEA 07 Jan 2017

PCG RESEARCH
Parag Milk Foods
Industry CMP Recommendation Buying Range Target Time Horizon
BUY at CMP and add on
Packaged Foods Rs. 263 Rs. 263 – 233 Rs. 308 – 370 3-4 Quarters
Declines

HDFC Scrip Code PARMIL Company Background

BSE Code 539889
Parag Milk Foods Ltd (PMF) is a value‐added player in dairy Industry. The company commenced operations
NSE Code PARAGMILK in 1992 with collection and distribution of milk and have developed a dairy‐based branded consumer
Bloomberg PARAG products Company with an integrated business model. It manufactures a diverse range of products which
include cheese, Ghee, Butter, fresh milk, whey proteins, paneer, curd, yoghurt, milk powders and dairy
CMP as on 06 Jan - 17 263 based beverages targeting a wide range of consumer groups through several brands. The company’s
Equity Capital (Rs Cr) 84.2 aggregate milk processing capacity is 2mn lpd and their cheese plant has the largest production capacity at
a single location in India, with a raw cheese production capacity of 40 MT per day. 'Gowardhan' and 'Go',
Face Value (Rs) 10 their flagship brands, are among the leading ghee, cheese and other value added product brands in India.
PMF uses only cow milk and sources ~80% of it directly from farmers, village collection centres and chilling
Equity O/S (Cr) 8.4
centres. PMF has two dairy plants – one at Manchar, Pune, Maharashtra with processing capacity of 1.2mn
Market Cap (Rs cr) 2213 lpd and another at Palamaner in Andhra Pradesh, set up in 2010, with processing capacity of 0.8mn litre
per day.
Book Value (Rs) 82
Avg. 52 Week
127302
Volumes
52 Week High 357 Over the years it has developed strong relationships with the farmers in proximity to its facilities which aid
in procurement of raw milk at competitive prices. The supply chain network includes cow milk procurement
52 Week Low 202 from 29 districts across Maharashtra, Andhra Pradesh, Karnataka, and Tamil Nadu. The company procures
around 1m litres per day currently with the help of 4,300 village level collection centres, reaching
2,30,000+ farmers across its catchment areas and 114 chilling centres and bulk coolers across both its
Shareholding Pattern (%) plants. The distribution strength of Parag has improved over the years and now has an established pan-
Promoters 47.8 India distribution network of 15 depots, 104 super stockists and over 3,000+ distributors which services its
products to around 2,00,000+ retail outlets. Going forward, we expect Parag to build on this distribution
Institutions 41.0 network and expand its presence across country. It is targeting to increase direct distribution reach by
~10% per annum for next 3-5 years. Brands of Parag (Go, Gowardhan) already enjoys good awareness and
Non Institutions 11.2
equity in South and West. Management is targeting to shift the profile of brand spends towards above the
line activities. This, coupled with expanding product portfolio augurs well from top-line growth perspective.
PCG Risk Rating* Yellow
* Refer to Rating explanation

Kushal Rughani
kushal.rughani@hdfcsec.com

Private Client Group - PCG RESEARCH Page |1

Investment Rationale:
 PCG RESEARCH

Strong Branded play in the Dairy Segment; Recommend BUY

Opportunity size in Dairy is huge and in turn offers strong growth visibility for branded players. Parag Milk,
with its strengths on procurement, distribution, innovation and management bandwidth is best placed among
its peers. While most of the listed Dairy players are either regional in nature or have dominant B2B
positioning, Parag offers a pan-national branded dairy play with large B2C focus. This, coupled with
expanding product portfolio augurs well from overall growth perspective. The stock trades at 22x/16x of our
FY18E/FY19E earnings while it is available at FY18/FY19 EV/EBITDA of 11.4x/8.7x. The stock is slightly
expensive to some peers but the higher valuation is justified by lower share of institutional sales, stronger
brands, distribution reach, and strong execution history. Moreover, given the focus on innovation an
increasing distribution network, PMF is set to post revenue CAGR of 14.3%, led by 17% CAGR for value-
added products during FY16-19E. Additionally, recent IPO proceeds would not only reduce leverage but also
help meet capex requirement, thereby accelerating profitability and improvement in return ratios. We
forecast 130bps margin expansion over the same period led by operating leverage and change in products
mix. We expect company to post robust PAT cagr of 41% led by improvement in operational performance
and lower interest out go over FY16-19E; we forecast Rs16.3 EPS for FY19. PMF trades at 16x FY19E P/E,
valuations do not adequately factor in the strong long term growth prospects (EPS CAGR 41% over FY16-
19E). We recommend BUY on Parag Milk Foods (PMF) at CMP and add on dips to Rs 233 with sequential price
targets of Rs 308 and Rs 370 (based on ~23x FY19E earnings) over the next 3-4 quarters.

Investment Rationale

Preferred Play in Dairy Theme

Parag Milk (PMF) is a branded play on the attractive dairy industry in India. The company’s large B2C mix,
well segmented brands, expanding value-added product portfolio and increasing distribution presence should
ensure 14% revenue CAGR in FY16-19E in the value-added products segment. Investments in procurement,
manufacturing, supply chain, people and branding are being front ended. This, we believe, will lay the
foundation for strong long-term profitable growth. Further, improving cash flows and the recent funding
through an IPO will ensure lower interest costs, thereby accelerating profit growth.

The India dairy industry has been represented in the listed space through a host of business models. Some
are focused on the institutional business with a low share of branded sales, while some market liquid milk
with a low share of value-added products. Further, some are plain marketers of value added products with no
back-end in place. We believe that the best model is one with strong procurement/manufacturing base at the
back-end and consumer-centric brand focused business at the front-end. Such a model brings with it the dual
advantage of cost efficiency and pricing power. PMF, with its procurement/manufacturing capabilities and
major skew to the B2C space, is the closest in the listed space to an ideal business mix.

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IPO Highlights
In May-2016, Parag Milk came out with an IPO of total 3.4 cr equity shares at Rs 215 per share which was
oversubscribed ~2x. From the IPO, PMF raised Rs 300cr through fresh equity and Rs 470cr of offer for sale
(OFS) gave partial exit to (1) two PE investors Motilal Oswal and IDFC, and (2) the promoter family. The IPO
proceeds would be used to augment its milk processing capacity at both the plants and increase production
capacity of value‐added products such as cheese, paneer, flavoured milk and whey Product. Moreover, PMF
will also set up an R&D facility and some of the funds for marketing activities. Company utilized Rs 100cr to
pay down working capital loans. Stock currently quotes at 20% premium to its IPO Price and 26% below its
all-time high price touched in July-2016. Post IPO, promoters holding came down from 62% to 48%.

Cheese – One of the key segment for Parag

Parag is one of the largest manufacturers of cheese in the country with a share of over 32% in the cheese
market (largely institutional – hotels, restaurants and caterers (HoReCa). Cheese accounted for 18% of its
top-line and has grown at CAGR of 22% in FY14-16. Parag’s cheese plant at Manchar (Pune) currently has a
capacity of 40mt/day, which will be increased to 60mt/day in the current fiscal year funded by proceeds from
the IPO. The plant is capable to producing cheese in 75 stock-keeping units under a wide range, including
cheddar, mozzarella, processed and gourmet cheese. The cheese facility runs at 80-85% capacity. Expansion
in cheese is in line with its strategy of focusing on value added and higher margin products. While Parag has
a strong presence in the institutional segment (HoReCa) wherein it supplies to McCain Foods, Jubilant
Foodworks, Sam’s Pizza, Mother Dairy, etc, the network expansion and increase in advertisement and
promotional expense should improve retail share of cheese products as well. The cheese market is
completely organized due to the product being highly capital intensive, and is currently an Rs2200cr market
in India, growing at a CAGR of ~20%. The cheese market in India is expected to grow at a similar pace for
the next three years also driven by increase of cheese usage in traditional food dishes, penetration &
premiumisation of the category and growth in the consumption of western dishes where cheese is among the
main ingredients. We expect Parag’s cheese revenue to grow at 17% CAGR over FY16-FY19 to Rs 440cr.

Ghee – Growth driven by shift from unorganized to organized

Ghee (clarified butter) is the largest consumed dairy product in India after liquid milk and curd. It is a key
ingredient in Indian recipes. As of 2016, the ghee market stood at Rs 81,100cr, growing at CAGR of 14%,
and is currently large pie is occupied by unorganized players. Amul is the largest player in the organized
ghee market. Retail accounts for 55% of the total organized market. Parag is the largest cow ghee brand in
India and is also known as the category creator. The market for ghee is expected to grow at CAGR of 14% to
Rs 1,37,500 cr by 2020. ~22% of the Ghee market is covered by organized players. We expect Parag’s ghee
revenue to grow at 12% CAGR over FY16-FY19E to Rs 500cr.

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Whey Protein – niche category with superior margin

Whey is a component of milk protein, it is the liquid which is left after the removal of casein and fat from milk
in the manufacturing of coagulated products. It is obtained as a by-product during the manufacturing of
cheese, paneer and chhana. The total whey produced in the country can be broadly classified into two
categories (i) acid whey which is inedible and accounts for 65% of the total production by volume; and (ii)
sweet whey which is edible and accounts for the remaining market 35% of production by volume. Key
players in the Indian sweet whey market include Amul, Parag Milk and Schreiber Dynamix.

Whey is a by-product of cheese which needs to be processed and refined further to be sold as a branded
product. Currently Parag sells whey only to institutional customers, (leading supplier to Nestle and UTH
Beverage Factory) but is now setting up a processing and refining facility which will cater to retail consumers.
Whey as a category is not developed in India vs. developed markets; it is currently ~Rs 350cr category and
is expected to scale up to Rs 1200cr 2020. Whey protein contributed only 3.5% of Parag’s total business in
FY16; however, it entails superior margins. We expect Parag’s whey protein revenue to grow at 58% cagr
over FY16-FY19E to Rs 230cr.

Integrated Business Model – Farm to Home “Pride of Cows”

Dairy Farming - In 2005, Parag set up Bhagyalaxmi Dairy Farms at Manchar (Pune) to educate farmers about
best practices of breeding, feeding, animal management and improving productivity. The farm houses >
2,000 Holstein breed cows, as well as a fully automated rotary milking parlor to milk cows without human
intervention and ensure that milk is not exposed to any impurities in the environment. The cows at the farm
have an average milk yield of 25-30 litres/day compared to the Indian average of 6-7 liters. The premium
fresh milk produced by the farm is sold to around 20,000 customers in Mumbai and Pune under the “Pride of
Cows” brand.

Parag currently meets a significant portion of its milk requirement (~85%) directly from farmers in 29
districts across Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The company procures ~1mn liters
of milk per day currently through 4,300 village level collection centers reaching 2.5 lakh+ farmers across its
catchment areas. It currently has 114 chilling centers and bulk coolers across both its Manchar and
Palamaner processing plants and plans to add 75 new bulk milk coolers and 100 automated milk collection
systems, which will be installed at under-penetrated villages and will thus expand the milk procurement
base.

UHT (Ultra Heat Treated) milk

High growth area UHT is a form of milk that is treated at temperature of at least 135 degree Celsius to kill
the harmful bacteria. UHT milk is an Rs 4500cr market, growing exponentially off a small base. Amul is the
largest player in UHT milk segment in India, while Parag is the largest private player. UHT milk market is
expected to grow at a CAGR of 25% to Rs 10400cr by 2020. We expect Parag’s UHT Milk revenues to post
28% revenue cagr and would reach to Rs 180cr.

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Brands Products Target consumers

Fresh milk in many variants,
Curd products, Ghee, Paneer,
Butter, Whey, Shrikhand,
Gulab Jamun mix & Milk Household consumption
powders

Cheese products, UHT milk, Children and the

Fresh milk: Go Kidz, Curd: youth, primarily
Fruit yoghurts in six flavours, for direct
Fresh cream and beverages consumption

Youth and
travellers as a
Flavoured milk in various
source of instant
Flavours
nourishment

Farm-to-home concept
targeted at household
Premium Cow Milk consumers seeking
premium quality cow‘s
milk

Source: Company, HDFC sec Research

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Q2 FY17 Update

Revenue growth impacted by decline in SMP sales

Parag Milk Foods’ net sales were up 0.7% to Rs 470cr. Revenue growth was muted as Skimmed Milk Powder
(SMP) sales declined by 31% to Rs 440mn. Excluding SMP business, net sales increased by 6% as Fresh milk
sales increased by 13% to Rs 97cr aided by 6-7% price hike while Milk product sales were up by 5% to Rs
326cr largely impacted by weakness in rural markets (25-30% of sales). While cheese business continues to
grow ahead of market growth of 16-18%, Ghee sales were impacted due to price hike and subdued demand
in rural markets. In terms of regions, demand was impacted by drought in Maharashtra and Tamil Nadu while
heavy rains impacted the sales in North eastern markets.

Improved mix led to higher gross margins

Gross margins were up by 370bps (60bps QoQ) at 30.5% aided by continued decline in low margin SMP sales
and increase in share of value added products. Moreover, company had taken price hike of 8% in Cow ghee
in the middle of the quarter, ahead of market, in order to offset the impact of increase in raw milk prices.
Employee cost increased by 10%. Other expenses increased by 31% largely on account of a) increased A&P
expense behind core brands by 100bps and b) higher milk handling cost due to lower buying of semi-finished
goods. The management has stated that A&P spends were higher in the quarter due to pre festive branding
exercise; however, overall FY17 spends will not be at the same run rate as Q2. Resultant EBITDA was down
by 9.0% with margin decline of 80bps to 8.0%.

Demonetisation won’t Impact much

Overall impact on procurement for the organised dairy sector was minimal as payments are largely executed
through banking channel. PMF makes digital payment to the chilling centres; majority of its farmer network
gets payment from village collection centres, which are also completely through banking channel.
The distributor channel was impacted for initial 8-10 days due to delayed payment from retailers. While the
retail off take in urban areas (~80% of B2C sales for PMF) is returning to normalcy, the inventory levels at
the retailer end have already started reducing. Company has extended credit period to the distributors on
selective basis and things are gradually improving.

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Intends to open > 100 Gowardhan shopees over the next 12 months

 Parag Milk Foods plans to open 120 to 150 Gowardhan shopees in 2017 and has started its pilot
in Hyderabad.

 Parag has second largest share of India's cheese market, is present in both packaged milk and milk
products. The company plans to convert its existing shops in Maharashtra to the uniform format to be
designed under Gowardhan Shopee. Company intends to develop these shopees on franchise basis.

 The company has also plans to expand the number of brands it owns from existing four to total of
seven by the end of next year. 'Milk Rich' will be the fifth brand of the company in dairy whitener
category. It will not be just re-branding of the existing Gowardhan dairy whitener.

 Parag will be launching its sixth brand in the category of whey products. Company has set up separate
factory for whey consumer products like protein mix powder which would drive revenues from FY18
onwards.

Indian Dairy Industry Outlook

In 2014, India‘s dairy industry was worth ~Rs 4,061 billion, posted CAGR of 15.4% during 2010 to 2014.
Total production of milk and dairy products in India is expected to increase from 147 Million Metric Tonne
(MMT) in 2015 to 189 MMT in 2021, and total consumption of milk and dairy products is expected to increase
from 138 MMT in 2015 to 192 MMT in 2021. India‘s dairy industry is expected to maintain growth at CAGR of
approximately 14.9% between 2015 to 2020, to reach value of Rs 9,397 billion by 2020. In India, milk
consumption mainly consists of buffalo milk at 49% followed by cow milk at 48% as on financial year 2014.
However, cow milk is growing at a faster pace than buffalo milk and is expected to account for the majority
of the total milk consumed in line with the developed markets. On a state level, Uttar Pradesh, Rajasthan and
Andhra Pradesh were the largest milk producers ‘accounted for 17.7%, 10.5% and 9.8% of total milk
production in 2014, respectively. Further, of the 35 states and union territories in India, cow milk is dominant
in 24 states and union territories. The top five cow milk producing states in India currently are Tamil Nadu,
Uttar Pradesh, Rajasthan, Maharashtra and West Bengal.

During 2010 to 2014, the organised segment recorded at a CAGR 20.7% whilst the unorganised segment
grew at 14.2% CAGR during the same period. However, the unorganised segment still dominates the Indian
dairy industry at 80% compared to the organised segment at 20% by value in 2014. The organised segment
is expected to post CAGR of 19.5% between 2015 and 2020 and would account for approximately 25.5% of
the Indian dairy industry by 2020. The unorganised segment is expected to post CAGR of 13.2% during the
same period and is expected to account for 74.5% of the total Indian dairy industry by 2020.

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Premium Valuations justified; Recommend BUY with TP of Rs 370

Branded value-added dairy products category is the most attractive category in the dairy market. This
category is not only growing at a faster pace than overall category (1.5x growth), but is also far more
profitable. PMF has a strong value-added portfolio across categories (cheese, UHT milk, yogurt, fresh cream,
dairy whitener and milk based beverages). Two thirds of PMF’s FY16 revenues came in from value-added
products. We expect PMF’s valuation discount versus F&B peers to narrow. Opportunity size in Dairy is huge
and in turn offers strong growth visibility for branded players. Parag, with its strengths on procurement,
distribution, innovation and management bandwidth is best placed among its peers. While most of the listed
Dairy players are either regional in nature or have dominant B2B positioning, Parag offers pan-national
branded dairy play with large B2C focus.

The stock trades at 22x/16x our FY18/FY19 earnings estimates and at FY18/FY19 expected EV/EBITDA of
11x/8.7x. The stock is slightly expensive to some peers but the higher valuation is justified due to lower
share of institutional sales, stronger brands, distribution reach, and strong execution history. Moreover, given
the focus on innovation an increasing distribution network, PMF is set to post revenue CAGR of 14.3%, led by
17% CAGR for value-added products during FY16-19E. Additionally, recent IPO proceeds should not only
reduce leverage but also help meet capex requirement, thereby accelerating profits and improving return
ratios. We forecast 170bps margin expansion over the same period led by operating leverage and change in
products mix. We expect company to post robust PAT cagr of 41% led by improvement in operational
performance and lower interest out go over FY16-19E; we forecast Rs16.3 EPS for FY19. PMF trades at 16x
FY19E P/E, valuations do not adequately factor in the strong long-term growth prospects (EPS CAGR of 41%
during FY16-19E). We recommend BUY on Parag Milk Foods (PMF) at CMP and add on dips to Rs 233 with
sequential price targets of Rs 308 and Rs370 (based on ~23x FY19E earnings) over the next 3-4 quarters.
We believe stock has potential to give consistent returns over the next 5-7 years.

Risks and Concerns

 Parag’s manufacturing operations are largely dependent on the supply of cow milk, which is the
primary raw material for all the dairy products. Given the seasonal nature of the dairy industry, cattle
farming patterns and no formal agreements with the farmers, availability of raw milk keeps on
fluctuating which thereby could adversely impact the running of its operations.

 Business operations are dependent on supply of large amounts of raw milk, and an inability to procure
adequate amounts of quality raw milk at competitive prices could adversely affect results of
operations. Also, volatility in milk prices can impact margins which in turn could hurt profitability.

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 Working capital of the company is stretched given the high debtor days given to distributors and the
high processing time in some of the value added products like cheese.

 Competitive intensity is high in the category with some strong regional players and few pan India
players like (Amul & Mother dairy), which may impact pricing and margins of the company. Moreover,
large market size of unorganized segment also remains key concern.

Financial Summary (Rs cr)

(Rs Cr) FY14 FY15 FY16 FY17E FY18E FY19E

Sales 1089 1444 1645 1780 2048 2453
EBITDA 83 109 149 162 200 264
Net Profit 17 28.9 49 62.9 97.6 137
EPS (Rs) 2.0 3.4 5.8 7.5 11.6 16.3
P/E 132.9 76.3 44.8 35.1 22.6 16.1
EV/EBITDA 27.7 21.1 15.5 14.2 11.5 8.7
RoE 18.6 26.2 20.3 12.0 13.3 16.3
Source: Company, HDFC sec Research

Comparison with Other Players

Presence
Dominant in Value
Divesrsified Position Added Multi Region
Company Product Portfolio in B2C Products Presence
Hatsun Yes Yes Yes No
Britannia No Yes Yes Yes
Parag Milk Yes Yes Yes Yes
Heritage Yes Yes Yes No
Kwality No No Yes Yes
Prabhat Yes No Yes No
Source: HDFC sec Research

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Valuations

Parag Milk FY19E FY21E

Revenues (Rs cr) 2453 3383
PAT (Rs cr) 137 218
EPS (Rs) 16.3 25.8
Trgt PE (x) 23 21
CMP (Rs) 263 263
Trgt Price (Rs) 370 548
Implied Upside (%) 40.7 108.5
Source: HDFC sec Research

Peer Group Valuations

Revenues (Rs cr) CMP Mcap EV/EBITDA

Company [FY19E] EBITDA PAT (Rs) (Rs cr) PE (x) (x)
Hatsun 4,990 492 195 382 5,815 29.2 13.3
Heritage 2,498 214 118 889 2,063 17.5 10.4
Parag
Milk 2,453 264 137 263 2,213 16.1 8.7
Kwality 7,380 490 282 129 3,070 11.5 8.2
Prabhat 1,715 187 78 106 1,038 13.3 6.8

Source: HDFC sec Research

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Milk Products Rev to witness 17% cagr over FY16-19E EBITDA and PAT to witness strong growth momentum
80 300
2100
1900 70
1700 250
60
1500
1300 50 200
1100
40
900 150
700 30
500 100
20
300
100 10 50
FY13 FY14 FY15 FY16 FY17E FY18E FY19E

VAP Revenue (Rs Cr) 0

FY14 FY15 FY16 FY17E FY18E FY19E
Value Added Products Rev Contribution (RHS, %)

Source: Company, HDFC sec Research

Source: Company, HDFC sec Research

FY16 Revenues Split (%) FY19E Revenues Split (%)

15
% 13 %
18 16

4 Fresh Milk Fresh Milk

9
Skimmed Milk Powder Skimmed Milk Powder
5
Ghee & Butter 9 Ghee & Butter
12 Cheese & Paneer 8 Cheese & Paneer
UHT products UHT products
Whey Products Whey Products
Others Others
25 20
24
21

Source: Company, HDFC sec Research Source: Company, HDFC sec Research

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Region wise Distributors Whey Proteins Usage

% 8 10
%
10 5

South 40 Infant Food

15 West 15
40 Health Supplements
North
Dairy
East
Mumbai Pharma

Confectionary &
Others
27 30

Source: Company, HDFC sec Research Source: Company, HDFC sec Research

Indian Dairy Industry Market Size (Rs Bn) Indian Cheese Market (Rs Bn)
8000 70
7000 59
60
6000
50 47
5000

4000 40 35
29
3000 30
22
2000 17
20
1000 12
10
0
2014 2015 2016 2017E 2018E 2019E 2020E
0
Unorganized Organized 2014 2015 2016 2017E 2018E 2019E 2020E

Source: Company, HDFC sec Research Source: Company, HDFC sec Research

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Income Statement (Consolidated) Balance Sheet (Consolidated)

(Rs Cr) FY14 FY15 FY16 FY17E FY18E FY19E (Rs Cr) FY14 FY15 FY16 FY17E^ FY18E FY19E
Net Revenue 1089 1444 1645 1780 2048 2453 SOURCE OF FUNDS
Growth (%) 12.3 32.6 13.9 8.2 15.0 19.8 Share Capital 16.0 16.0 70.4 84.2 84.2 84.2
Reserves 81 107 291 603 693 820
Operating Expenses 1006 1337 1496 1618 1848 2188
Shareholders' Funds 97 123 362 688 777 905
EBITDA 83 109 149 162 200 264
Minority Interest 0 0 0 0 0 0
Growth (%) -3 31 36 9 23 32 Long term debt 273 173 125 107 100 88
EBITDA Margin (%) 8.0 7.9 9.1 9.1 9.8 10.8 Net Deferred Taxes 4 6 11 11 11 11
Depreciation 28 28 33 42 44 47 Long Term Provisions &
Others 11 17 19 22 25 27
EBIT 57 84 118 125 163 225 Total Source of Funds 385 319 517 827 914 1031
Other Income 1 2 2 5 7 8 APPLICATION OF FUNDS
Interest 44 49 49 34 28 29 Net Block 242 292 349 352 383 371
PBT 13 34 69 92 135 196 CWIP 38 26 28 23 23 33
Investment 0 0 0 0 0 0
Tax -4 5 20 27 39 57
Long Term Loans & Advances 105 69 17 27 36 45
RPAT 17 29 49 63 98 137 Total Non Current Assets 385 387 394 402 442 449
Growth (%) -19 74 70 28 55 41 Inventories 190 212 272 317 348 403
EPS 2.0 3.4 5.8 7.5 11.6 16.3 Trade Receivables 163 171 236 263 292 336
Source: Company, HDFC sec Research Cash & Equivalents 4 6 8 98 110 181
Other Current Assets 81 148 86 92 99 108
Total Current Assets 438 537 601 770 848 1028
Trade Payables 125 180 167 220 236 269
Other Current Liab &
Provisions 313 425 307 264 253 281
Total Current Liabilities 438 605 474 483 489 550
Net Current Assets 0 -67 127 287 381 500
Total Application of Funds 385 319 517 827 914 1031
Source: Company, HDFC sec Research, ^After IPO

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Cash Flow Statement (Consolidated) Key Ratio (Consolidated)

(Rs Cr) FY14 FY15 FY16 FY17E FY18E FY19E Key Ratios (%) FY14 FY15 FY16 FY17E FY18E FY19E
Reported PBT 13 34 69 92 135 196 EBITDA Margin 8.0 7.9 9.1 9.1 9.8 10.8
Non-operating & EO items -1 -2 -2 -5 -7 -8 EBIT Margin 5.5 6.1 7.2 7.0 8.0 9.2
Interest Expenses 44 49 49 34 28 29 APAT Margin 1.6 2.1 3.0 3.5 4.8 5.6
Depreciation 28 28 33 42 44 47 RoE 18.6 26.2 20.3 12.0 13.3 16.3
Working Capital Change -21 69 -192 -69 -61 -48 RoCE 20.6 20.0 20.1 13.3 13.3 16.4
Tax Paid 4 -5 -20 -27 -39 -57 Solvency Ratio
OPERATING CASH FLOW ( a ) 46 370 -1 66 100 160 Net Debt/EBITDA (x) 6.7 4.9 2.6 1.1 0.7 0.2
Capex -25 -77 -90 -45 -75 -35 Net D/E 5.7 4.4 1.1 0.3 0.2 0.1
Free Cash Flow 21 293 -91 21 25 125 Interest Coverage 1.3 1.7 2.4 3.7 5.8 7.8
Investments -10 36 52 -9 -9 -9 PER SHARE DATA
Non-operating income 1 2 2 5 7 8 EPS 2.0 3.4 5.8 7.5 11.6 16.3
INVESTING CASH FLOW ( b ) -34 -39 -36 -49 -77 -36 CEPS 27.6 35.3 11.7 12.5 16.8 21.9
Debt Issuance / (Repaid) 43 -91 -35 -15 -3 -10 BV 61 77 51 82 92 107
Interest Expenses -44 -49 -49 -34 -28 -29 Dividend 0.0 0.0 0.0 0.0 1.2 2.0
FCFE 21 152 -176 -27 -6 86 VALUATION (x)
Share Capital Issuance 0 0 54 14 0 0 P/E 132.9 76.3 44.8 35.1 22.6 16.1
Dividend -5 0 0 0 -12 -20 P/BV 4.3 3.4 5.1 3.2 2.8 2.4
FINANCING CASH FLOW ( c ) -6 -140 -30 -35 -43 -58 EV/EBITDA 27.7 21.1 15.5 14.2 11.5 8.7
NET CASH FLOW (a+b+c) 7 190 -68 -18 -20 65 EV / Revenues 2.3 1.7 1.4 1.1 1.0 0.8
Source: Company, HDFC sec Research Source: Company, HDFC sec Research

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 PCG RESEARCH

Price Chart

400

350

300

250

200

150

100

50

Sep-16
May-16

Nov-16
Jul-16
Jun-16

Oct-16

Dec-16
Aug-16
Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year.

Sell: Stock is expected to decline by 10% or more in the next 1 Year.

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 PCG RESEARCH

Rating Chart

R HIGH
E
T
MEDIUM
U
R
N LOW
LOW MEDIUM HIGH
RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

IF RISKS MANIFEST
IF INVESTMENT
IF RISKS MANIFEST PRICE CAN FALL 15% &
LOW RISK - LOW RATIONALE FRUCTFIES
BLUE PRICE CAN FALL 20% IF INVESTMENT
RETURN STOCKS PRICE CAN RISE BY
OR MORE RATIONALE FRUCTFIES
20% OR MORE
PRICE CAN RISE BY 15%
IF RISKS MANIFEST
IF INVESTMENT
MEDIUM RISK - IF RISKS MANIFEST PRICE CAN FALL 20% &
RATIONALE FRUCTFIES
YELLOW HIGH RETURN PRICE CAN FALL 35% IF INVESTMENT
PRICE CAN RISE BY
STOCKS OR MORE RATIONALE FRUCTFIES
35% OR MORE
PRICE CAN RISE BY 30%
IF RISKS MANIFEST
IF INVESTMENT
IF RISKS MANIFEST PRICE CAN FALL 30% &
HIGH RISK - HIGH RATIONALE FRUCTFIES
RED PRICE CAN FALL 50% IF INVESTMENT
RETURN STOCKS PRICE CAN RISE BY
OR MORE RATIONALE FRUCTFIES
50% OR MORE
PRICE CAN RISE BY 30%

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 PCG RESEARCH

I, Kushal Rughani, MBA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
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Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock – No

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Private Client Group - PCG RESEARCH P a g e | 17