Ess Dee Aluminium Ltd – BUY

EDA IN Rs486 Metal 1 November 2010 Initiating coverage

Packaged growth 12-mth TP (Rs) 668 (37%)

Ess Dee Aluminium is India’s leading provider of aluminium packaging solutions. It sells 85% of Market cap (US$ m) 304
its volumes to pharma companies, and the rest to foods and FMCG players. The aluminium 52Wk High/Low (Rs) 537/301
packaging industry is set for sustained growth, driven by strong volume growth in user Diluted o/s shares (m) 29
industries. Ess Dee’s volumes have grown eight-fold over FY06-10, and its business model is Daily volume (US$ m) 1
Dividend yield FY11ii (%) 0.5
such that its margins are relatively unaffected by fluctuations in aluminium prices. We forecast
Free float (%) 43.9
earnings CAGR of 33% over FY10-13ii, driven primarily by volume growth. We initiate coverage
with a BUY and a target price of Rs668 (11x FY12ii EPS). Shareholding pattern (%)
Promoters 56.1
Strong volume growth; Ess Dee well-placed to capitalise: Over 55% of aluminium packaging used in FIIs 23.7
India is imported, and a further 35% is sold by small-scale unorganised producers. Ess Dee’s has ~10% Domestic MFs 10.3
Others 10.0
share of the market. Its share of this growing industry is set to increase further, with customer
accreditations in place, ready facilities, and financial wherewithal to make upfront investments. We estimate Price performance (%)
Ess Dee’s volumes will grow at 30% annually over FY10-13ii. 1M 3M 1Y
Ess Dee -0.9 -6.3 31.0
High earnings visibility, volume-driven growth: Ess Dee’s business model is de-risked, as cost of its Rel. to Sensex -0.8 -18.2 7.6
key raw material, aluminium, is a pass-through item. Low variation in demand from user industries and Essel Propack 11.3 6.8 21.9
Bilcare 7.7 59.0 93.5
relatively little pricing pressure lends high visibility to Ess Dee’s earnings. We expect the company’s EBIDTA
margin to remain stable in the years ahead, and earnings will be primarily driven by volumes.
A multi-year growth story, attractive valuations: We believe the aluminium packaging industry is in a Stock movement
secular growth phase, driven by estimated 16% volume growth in the Indian pharma industry. Further, the Volume (LHS)
increasing popularity of penetration of packaged foods is likely to aid to the growth. These factors would Price (RHS)
1,000 600
drive volume growth beyond FY13. At a PER of 10.2x on FY11ii and 8.0 on FY12ii, the stock’s valuation is 800 500
attractive in view of the 33% earnings CAGR over FY10-13ii. We initiate with BUY and target price of Rs668. 600
400
300
400
200
30% volume CAGR over FY10-13ii Financial Summary 200 100
Y/e 31 Mar FY09A FY10A FY11ii FY12ii FY13ii 0 0
54,000

Jun-10
Jan-10

Aug-10
Oct-09

Oct-10
Apr-10
Feb-10
Mar-10

May-10

Jul-10

Sep-10
Nov-09
Dec-09
47,050 Revenues (Rs m) 4,515 5,885 7,504 9,769 12,392
(tonnes)
45,000 EBITDA Margins (%) 25.7 26.8 29.4 28.0 28.2
36,460 Pre-Exceptional PAT (Rs m) 849 1,006 1,536 1,945 2,447
36,000 Reported PAT (Rs m) -240 1,022 1,536 1,945 2,447
27,200 Adjusted EPS (Rs) 30.5 36.2 48.0 60.8 76.5
27,000 20,612 Growth (%) 15.5 18.6 32.8 26.6 25.8
16,706 Bijal Shah
PER (x) 15.9 13.4 10.1 8.0 6.4 bijal@iiflcap.com
18,000
ROE (%) -7.2 23.8 19.8 20.2 20.4 91 22 4646 4645
9,000 Debt/Equity (x) 0.4 0.4 0.2 0.2 0.1
EV/EBITDA (x) 12.6 9.6 7.5 6.1 4.6 Akash Chattopadhyay
0 Price/Book (x) 4.1 3.1 2.0 1.6 1.3 akash.chattopadhyay@iiflcap.com
FY09 FY10 FY11ii FY12ii FY13ii 91 22 4646 4668
Price as at close of business on 28 October 2010
Source: IIFL Company, Research
 Ess Dee Aluminium Ltd – BUY

Company snapshot Company background

Ess Dee Aluminium was incorporated in February 2004 and commenced
operations of cold-rolling aluminium foils at Daman. The company is
Business description promoted by Sudip Dutta, a first-generation entrepreneur with 19 years’
Ess Dee Aluminium is the leading manufacturer of primary packaging experience in the packaging business. In the year 2006, the company
material in India, catering principally to pharmaceutical, food and FMCG acquired a promoter-owned company, Atlanta Vinyl, which makes poly-
sectors. The company’s main business activity is cold-rolling 300-micron vinyl film used in pharmaceutical packaging. In the same year, Ess Dee
aluminium foil into thinner gauges (6–50 microns). Its end products acquired another group company, FAFPL, which was engaged in printing
include strip foils, blister-pack foils, PVC films, and alu-alu packaging. aluminium-based packaging products. After these acquisitions, it raised
Over a period of time, through brownfield expansion and acquisition of money through an IPO. In 2008, Ess Dee acquired a majority stake in
India Foils Ltd (IFL), the company’s rolling capacity has increased from IFL, making it a subsidiary. India Foils has been recently merged with
3,600tpa in 2006 to 39,000tpa, which is sufficient to meet its growth Ess Dee as per BIFR order.
requirements till FY12. It has poly-vinyl films manufacturing capacity of
4,200tpa. The recently completed Rs860m QIB, coupled with internal Figure 3: Key management personnel
accruals, will enable it meet growth requirements beyond FY13. Name Designation Management description / remark
Sudip Dutta CMD Mr Dutta is promoter and managing director of the company. He is
Figure 1: Ess Dee Aluminium’s key products responsible for overall operations and management of the company.
Product Remark Debdeep Executive Mr Bhattacharya is responsible for sales and marketing. He has over
Bhattacharya Director 20 years’ experience in this business. Prior to joining Ess Dee, he
Used for drugs, which are highly sensitive to vapour and moisture, and have
Aluminium strip foil was employed with Bilcare and Indian Aluminium Company.
longer shelf life.
Rajib Director - Mr Mukhopadhyay is a Chartered Accountant, with 15 years of
Aluminium blister-pack In a blister pack, the cavity is formed of thermo-coated PVC, and the lid is
Mukhopadhyay Finance experience. Prior to joining Ess Dee he was CFO of WSG.
foil made of aluminium.
Soumitra Barari Director - Mr Soumitra Barari looks after operations of India Foils. He has 33
PVC film / PVdc coated PVC film is used for its thermoform ability, high flexural strength, and chemical
India Foils years’ experience in the packaging industry. Prior to joining Ess Dee,
PVC film resistance. PVdc is most common coating on PVC.
he was with Hindalco Industries Ltd.
Alu-alu packaging includes a layer of nylon (for support), a layer of aluminium Source: IIFL Research
Alu-alu laminates
(for barrier) and a layer of PVC (for sealing) .
Packaging for food and
Used to protect products from vapour and moisture.
FMCG applications
Source: Company, IIFL Research

Figure 2: Ess Dee Aluminium’s key production facilities

Location Key activity Capacity
Daman Cold-rolling of aluminium foil 18,000tpa
Kamarhati Cold-rolling of aluminium foil 11,000tpa
Hoera Cold-rolling of aluminium foil 9,000tpa
Goa Manufacturing of PVC films 4,200tpa
Goa; Thane; Daman; Baddi; Burdang Printing and slitting NA
Source: Company, IIFL Research

bijal@iiflcap.com 2
 Ess Dee Aluminium Ltd – BUY

Ess Dee Aluminium – packaged growth Figure 4: Ess Dee revenue break-down by industry

Leader in aluminium packaging solutions

Ess Dee Aluminium has an integrated business model, providing end-to-
end packaging solutions for the pharmaceutical and FMCG sectors. The
company has a hub-and-spoke manufacturing model: its cold-rolling
facilities are at Daman, Kamarhati and Hoera, and printing facilities are
Pharmaceutical
located close to customers in Goa, Baddi, Burdang, Daman and Thane,
(85%)
which are pharmaceutical production hubs. It is one of the leading
FMCG
players in the segment, with volumes having risen 8x since FY06 to
(15%)
20,000 tonnes in FY10. The company enjoys ~10% market share by
volume in pharmaceutical packaging, and is the sole the largest Indian
player providing aluminium packaging solutions.

Source: Company, IIFL Research

Industry in a secular growth phase

Ess Dee’s key customer industry, pharmaceuticals, is expected to
sustain its strong volume growth. The Indian pharma industry is highly
fragmented, with over 10,000 players. Of these, the top 500 customers
account for 50% of industry volumes. The aluminium packaging
industry’s volumes are estimated at 240,000tpa. On aggregate, the top
500 customers’ volumes are growing at mid-teen rates and those of the
rest at ~10%, yielding overall industry growth of over 12-13%.
Similarly, demand from customers in the FMCG industry is expected to
remain strong, driven by sustained volume growth. In the FMCG
segment, a large part of Ess Dee’s sales volumes come from the food
segment. Here, increasing sales of packaged food are likely to add to
Ess Dee’s overall growth.

bijal@iiflcap.com 3
 Ess Dee Aluminium Ltd – BUY

Figure 5: Ess Dee’s volumes have grown 8x in the last four years Figure 6: Long gestation period for new entrants

25,000 75
(tonnes) (months)
20,612
60
20,000
16,706
45
15,000
30

10,000 8,217 15

4,874 0

Ramp-up
Customer

Total
Sampling
5,000

Regulatory
construction

approval
2,377

approval
Facility
0
FY06 FY07 FY08 FY09 FY10

Source: Company, IIFL Research Source: Company, IIFL Research

• Limited technology provider: There are only two technology

Presence of large number of unorganised players
The pharma-packaging industry, like the pharma industry, is highly
fragmented, with over 5,000 small-scale manufacturers. These small
players are scattered throughout the country, and cater mainly to small-
scale pharma firms in their areas. The larger pharma companies either
import their packaging material, or buy it from Ess Dee. We estimate
Ess Dee’s volume market share in this specialised segment at ~16%.
High barriers to entry
The aluminium packaging industry has high barriers to entry. A new
entrant in the industry would take four years to start supplying
packaging products to a large pharma firm. After commissioning of
supply, it will take over a year to ramp up sales volumes.
service providers—Achenbach and Fata Hunter. These players take
more than 24-30 months to set-up a new facility to manufacture
aluminium packaging solutions.
• Approval process: After a facility is built, it has to get US FDA
approval, as a number of Indian pharma companies supply products
to the US and other regulated markets. An approved packaging
facility helps expedite the filing and approval process for new drugs.
Ess Dee’s products are accredited to US FDA DMF Type III
(pharmaceutical packaging). Approval from FDA takes 12 months or
more.
• Customer approval process: After receiving approval from the
FDA, the facility needs to be approved by customers. Customer
approval takes 9-12 months in the best case. It could take longer if
all the requirements of the customers are not met in the initial audit.
Obtaining approval from tens of customers would be an uphill task.

• Sampling: The last step in the process is to supply sample products

to customers. It is only after this that customers start placing
commercial orders.

bijal@iiflcap.com 4

Post-sampling, it often takes over a year before customers start placing
large orders. Note that for a plant to achieve reasonable capacity
utilisation, it needs to obtain customer approval from several
customers. Hence, even after getting US FDA approval, a plant will take
a couple of years in the best case to ramp up its production. Ess Dee,
with ready capacity, established product and approvals in place, is best
placed to capitalize on the expected strong growth in the industry.
Figure 7: Aluminium packaging industry structure
Import
55%
Unorganised Ess Dee
players 10%
35%
Source: Company, IIFL Research
Ess Dee is best placed to capitalize on strong growth
Ess Dee has registered 70% volume CAGR over the last four years in an
industry growing at 12-15% annually. Though Ess Dee’s volume growth
is likely to moderate in years ahead on the larger base, it is still likely to
handsomely beat industry growth. We expect Ess Dee to deliver 30%
annualised volume growth over FY10-13, as:
• Ess Dee offers a significant advantage over imports, as it cuts down
on the lead time. Its hub-and-spoke model enables it to deliver
material to customers faster as compared to imports. Further, it
reduces inventory days for its customers.
• The industry is made up largely of unorganized players having
limited scale and product development capability. Ess Dee, which is
bijal@iiflcap.com
Ess Dee Aluminium Ltd – BUY
well-equipped to provide end-to-end solutions, is likely to continue
to gain market share.
• A well-funded balance sheet enables Ess Dee to make upfront
investments in building capacities and product development. This
feature distinguishes it from other unorganized players who are
capital-constrained.
De-risked business model
Contrary to general perception, Ess Dee is not a play on aluminium
prices. Aluminium cost is largely a pass-through item for the company.
In the medium term, its profitability hinges on conversion premium and
costs. Pricing arrangements with customers are worked out in two
stages: 1) determination of an annual pricing multiple; and 2)
determination of a quarterly reference aluminium price. The company
does not enter into a long-term contract with Gulf Aluminium Rolling Mill
Company (GARMCO), but foil price for a quarter is fixed.
• 1. Determination of annual pricing multiple: Ess Dee enters into
annual pricing agreements with most of its customers. At the
beginning of each year, Ess Dee and its customers agree on a
pricing multiple, based on prevailing aluminium prices. For example,
if the agreed multiple is 3x, the per-tonne pricing of aluminium
packaging product would be 3 times the price of aluminium. This
multiple is agreed for the entire year.
• Determination of reference aluminium price: Though the pricing
multiple is agreed for the full year, the reference aluminium price for
these contracts changes every quarter.
Raw-material cost hedged by GARMACO
Aluminium foil stock is the key raw material for the company, and is
primarily imported from GARMCO, Bahrain. The company does not enter
into long-term agreements with GARMCO, but has a quarterly pricing
arrangement for foils supplied by GARMCO. GARMACO hedges agreed
upon quantity on behalf of Ess Dee. GARMACO supplies aluminium to
Ess Dee at the price at which it has secured hedges. This price is used
as a reference for applying the pricing multiple agreed on with
customers. This makes the LME rate a pass-through item for Ess Dee.
5
 Ess Dee Aluminium Ltd – BUY

This pricing mechanism makes earnings in the short run dependent on India Foils – a good match
aluminium prices, to an extent. Under this arrangement, an increase in
LME prices in any given year—other things being equal—would translate Acquired controlling stake in FY09
to an increase in per-tonne profitability. However, the practice of setting Ess Dee aluminium acquired a controlling stake in India Foils (IFL) in
an annual pricing multiple will not allow profitability to fluctuate with November 2008, as per a scheme sanctioned by the Board of Industrial
aluminium price beyond a year. As the chart below shows, the and Financial Reconstruction (BIFR). IFL was incorporated in 1960 and
company’s gross margins have remained more or less stable, despite is listed on BSE, NSE and CSE. The company is engaged in
fluctuations in aluminium prices. This shows that its profitability is not manufacturing aluminium foil and foil products of all kinds, including
dependent on aluminium price. painting and preparing the same for packaging, industrial and other
uses, casting, drawing and rolling aluminium. At the time of the
Figure 8: Stable gross margins despite volatility in aluminium prices
acquisition, Ess Dee had invested Rs1.08bn into IFL. In addition, the
Aluminium price Gross margins (RHS) promoter, in his personal capacity, had subscribed to redeemable non-
3,000 42.0 convertible preference shares of Rs1.39bn.
(US$ / tonne) (%)
Figure 9: equity and preference share subscription at India foils on takeover
2,500 40.0
Particulars Amount (Rs m)
By Ess Dee
2,000 38.0 - In equity shares 14
- Convertible preference shares 125
- Non-convertible preference shares 963
1,500 36.0
Total 1,101
By promoter – in non-convertible preference shares 1,395
1,000 34.0 Total 2,497
FY06 FY07 FY08 FY09 FY10 Source: Company, IIFL research

Source: Company, IIFL Research

Low customer concentration
Ess Dee’s volumes are sparsely dispersed over a large number of
customers. In the previous year, Ess Dee’s largest customer accounted
for less than 5% of its volumes, and its top ten customers, for 35%.
This keeps its business free from the risk of customer concentration.
Low-cost capacity expansion
Ess Dee has paid Rs1.3bn for its 86% stake in India Foils. The company
will issue an additional 2.51m shares at the time of the merger to buy
out the remaining shareholders and preference shares. Accordingly, the
total acquisition cost for Ess Dee will be Rs2.5bn. India Foils has
aluminium cold-rolling capacity of 11,000tpa at Kamarhati and 8,000tpa
at Hoera. In addition to its cold-rolling facilities, it also has an 11,000-
tpa ingots-to-sheet caster. On merger of India Foils, Ess Dee will be
able to offset carried-forward losses of India Foils. We estimate Ess
Dee’s tax shield from this at ~Rs1.1bn.

bijal@iiflcap.com 6

The total acquisition cost of Rs2.5bn compares favorably with the
alternative, organic capacity expansion. The replacement cost of the
rolling facilities itself would be higher than acquisition cost. This number
does not include capex for the ingot-to-foil conversion facility and the
tax shield available on carried-forward losses of India Foils.
Production ramp-up encouraging; ingot-to-sheet facility could
provide marginal upside
The production ramp-up at India Foil’s cold rolling facilities is in line with
Ess Dee’s expectations. Its facility at Karamati is now operating at 80%
utilization. The company recently commissioned its second rolling
facility at Hoera, where production is expected to ramp up over the next
couple of quarters. India Foils’s ingot-to-sheet conversion facility is not
yet operational. The company is likely to commission trial runs on this
facility. At present, Ess Dee imports its entire foil requirements from
GARMCO. A successful commissioning of this facility could cut down its
dependence on imports. The company will also have an option to sell
rolled sheet in the market. Our estimates do not build in any upside
from the ingot-to-sheet facility as we await satisfactory commissioning
of this facility.
Figure 10: Ingot-to-sheet facility could add 4% to EBIDTA
Capacity (tpa) 11,000
Aluminium ingot cost (Rs/tonne) 93,450
Conversion cost (Rs/tonne) 16,000
Total cost of aluminium sheet (Rs/tonne) 109,450
Cost of imported sheet from GARMCO (Rs/tonne) 117,450
Savings (Rs/tonne) 8,000
Total saving assuming 50% utilisation (Rs m) 88
As % of EBIDTA 4.1
Source: Company, IIFL Research
bijal@iiflcap.com
Ess Dee Aluminium Ltd – BUY
Capacity sufficient to meet requirement till FY12…
We expect Ess Dee’s sales volumes to grow from 20,000 tonnes in FY10
to 36,000 tonnes in FY12. Its current capacity of 39,000tpa is sufficient
to meet this requirement. Growth from thereon will come from ramp-up
of production at India Foils’s rolling facilities.
… well funded for growth beyond that
The company has kick-started the next phase of a capacity expansion.
It is increasing its rolling capacity by 15,000tonnes and has placed order
for the same on Fata Hunter. This project will entail a capex of Rs2.5bn
and commercial production from this rolling mill will start in FY1HFY13.
For this expansion Ess Dee has already raised Rs860m through a QIP
issue at the beginning of the year. This coupled with internal accruals
would be sufficient to meet its funding requirement for the proposed
expansion. This capacity expansion will enable it to meet volume growth
till FY16. Beyond that, its internal accruals would be sufficient to fund
capacity expansion for growth.
Earnings – volume-driven growth
Expect volumes to grow at 31% annually over FY10-13ii
We expect Ess Dee’s sales volumes to grow at 31% annually over FY10-
13—significantly faster than the industry projected growth rate of 12%.
This growth will be driven primarily by the pharma industry. Our volume
assumption for FY13 is conservative, as we are factoring in slower
ramp-up for the new 15,000tpa facility. A faster-than-expected ramp-up
could translate into a positive surprise. Furthermore, we believe Ess
Dee’s volume growth will remain strong beyond FY13 as well, as its
dependence on imports reduces. Further, organized players like Ess Dee
benefit from pharma companies’ increased focus on safety.
7
 Ess Dee Aluminium Ltd – BUY

Figure 11: Strong volume growth ahead Figure 12: Stable margins – EBIDTA to grow in line with volumes
EBIDTA EBIDTA margins (RHS)
54,000 4,000 33.0
47,050 (Rs m) (%)
(tonnes)
45,000 30.0
36,460 3,000
36,000 27.0
27,200
27,000 2,000 24.0
20,612
16,706
18,000 21.0
1,000
9,000 18.0

0 0 15.0
FY09 FY10 FY11ii FY12ii FY13ii FY08 FY09 FY10 FY11ii FY12ii FY13ii

Source: Company, IIFL Research Source: Company, IIFL Research

EBIDTA margins to remain stable Valuations – set for a re-rating

We expect Ess Dee’s EBIDTA margin to remain stable. Its business is
mainly conversion of aluminium sheets into packaged foils—a business
that is more or less immune from fluctuations in aluminium prices. We
do not foresee any pricing pressure, as there is little competition, and
barriers to entry are high. We expect Ess Dee’s EBIDTA to grow at 30%
annually over FY10-13ii. A faster-than-expected ramp-up of the new
facility in FY13 and commissioning of the ingot-to-sheet facility pose an
upside risk to earnings.
Profit to grow at 33%; debt to come down
Strong volume growth and stable EBIDTA margins are likely to translate
into 33% earnings CAGR. Capital expenditure for expansion can be
largely met from the recently-concluded QIB and internal accruals. We
expect debt to come down from Rs1.8bn as at end-FY10 to Rs1bn in
FY13.
Ess Dee Aluminium is trading at a PER of 10.2x on FY11 and 8x on
FY12. We believe that stock would see a re-rating as Ess Dee’s secular
volume growth story and high earnings visibility is better appreciated by
the market. In our view, current valuations do not factor in numerous
positives:
• Ess Dee’s profitability is not impacted by fluctuation in aluminium
prices as that a pass-through cost item.
• It does not face any client concentration risk, as its largest customer
contributes ~5% of its sales volumes.
• Demand for its packaging products is relatively stable, as demand
variation in consumer industry is low.
• The industry is in a secular growth phase, and Ess Dee with its
strong product offering, established brand name, and ability to make
upfront investments, is particularly well-positioned.

We initiate coverage with a BUY and target price of Rs668 (11x FY12ii
EPS).

bijal@iiflcap.com 8
 Ess Dee Aluminium Ltd – BUY

Financial summary
Income statement summary (Rs m) Balance sheet summary (Rs m)
Y/e 31 Mar FY09A FY10A FY11ii FY12ii FY13ii Y/e 31 Mar FY09A FY10A FY11ii FY12ii FY13ii
Revenue 4,515 5,885 7,504 9,769 12,392 Cash & cash equivalents 124 158 332 295 547
EBITDA 1,160 1,576 2,204 2,739 3,496 Sundry debtors 2,744 3,501 4,465 5,812 7,373
EBIT 1,057 1,402 1,898 2,385 3,018 Trade Inventories 436 546 671 898 1,141
Interest expense 153 200 125 134 89 Other current assets 684 955 1,105 1,255 1,405
Exceptional items -1,089 16 0 0 0 Fixed assets 2,616 3,784 4,590 5,486 5,808
Others items 44 140 100 120 130 Intangible assets 1,385 1,385 1,385 1,385 1,385
Profit before tax -141 1,358 1,873 2,371 3,059 Total assets 7,989 10,330 12,548 15,131 17,658
Tax expense 256 338 337 427 612 Sundry creditors 742 1,280 1,574 2,088 2,642
Extraordinary items 158 2 0 0 0 Other current liabilities 1,096 1,361 1,461 1,561 1,661
Net Profit -240 1,022 1,536 1,945 2,447 Long-term debt/Convertibles 1,268 1,787 1,387 1,487 987
Other long-term liabilities 299 353 353 353 353
Cashflow summary (Rs m) Minorities/other Equity 1,255 1,253 0 0 0
Y/e 31 Mar FY09A FY10A FY11ii FY12ii FY13ii Networth 3,328 4,296 7,773 9,642 12,015
Profit before tax -141 1,358 1,873 2,371 3,059 Total liabilities & equity 7,989 10,330 12,548 15,131 17,657
Depreciation & Amortization 104 174 306 354 478
Tax paid -213 -284 -337 -427 -612 Ratio Analysis
Working capital change 666 -336 -844 -1,111 -1,299 Y/e 31 Mar FY09A FY10A FY11ii FY12ii FY13ii
Other operating items 152 11 -98 0 0 Revenue growth (%) 42.5 30.3 27.5 30.2 26.9
Operating Cash-flow 568 924 900 1,188 1,627 Op Ebitda growth (%) 31.2 35.8 39.8 24.3 27.6
Capital expenditure -1,161 -1,342 -1,112 -1,250 -800 Op Ebit growth (%) 24.5 32.7 35.4 25.7 26.5
Free cash flow -593 -418 -212 -62 827 Op Ebitda margin (%) 25.7 26.8 29.4 28.0 28.2
Equity raised 0 0 860 0 0 Op Ebit margin (%) 23.4 23.8 25.3 24.4 24.4
Investments 318 0 0 0 0 Net profit margin (%) 18.8 17.1 20.5 19.9 19.7
Debt financing/disposal 269 518 -400 100 -500 Tax rate (%) -181.7 24.9 18.0 18.0 20.0
Dividends paid -65 -65 -75 -75 -75 Net debt/equity (%) 34.4 37.9 13.6 12.4 3.7
Net change in Cash & cash Return on equity (%) -7.2 23.8 19.8 20.2 20.4
-71 35 174 -37 252
equivalents Return on assets (%) 10.6 9.7 12.2 12.9 13.9
Source: Company data, IIFL Research
Source: Company data, IIFL Research

bijal@iiflcap.com 9
 Ess Dee Aluminium Ltd – BUY

Key to our recommendation structure

BUY - Absolute - Stock expected to give a positive return of over 20% over a 1-year horizon.
SELL - Absolute - Stock expected to fall by more than 10% over a 1-year horizon.

In addition, Add and Reduce recommendations are based on expected returns relative to a hurdle rate. Investment horizon for Add and Reduce recommendations is up to a year. We
assume the current hurdle rate at 10%, this being the average return on a debt instrument available for investment.

Add - Stock expected to give a return of 0-10% over the hurdle rate, ie a positive return of 10%+.
Reduce - Stock expected to return less than the hurdle rate, ie return of less than 10%.

Published in 2010. © India Infoline Ltd 2010

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bijal@iiflcap.com 10