AmaraRaja Coverage

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52 Week High/Low INR 404/179

Bloomberg code AMRJ IN

Reuters code AMAR.BO

Issued Equity

(shares in mn) 85.41

Mkt. Cap in mn

Mkt. Cap in mn USD

INR 31,677

569.73

Avg. Daily Vol (‘000) 100.34

Avg. Daily Vol. (mn) INR 37.23/$0.67

Shareholding Dec11 Mar12 Jun12

Promoters(%) 52.06 52.06 52.06

FII (%) 6.32 6.22 6.39

DII (%) 19.61 19.65 19.42

Others (%) 22.01 22.07 22.13

Pledge (% of

promoter

holding)

0.0 0.0 16.28

Performance% 1M 3M 12M

Amara Raja 26.5 23.6 54.6

Sensex 1.8 7.2 5.2

Analyst: Rajasekhar.R +91-44-30007266 [email protected]

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Amara Raja Relative to Sensex (RHS)

Continues to charge ahead amid demand slowdown

Amara Raja Batteries (ARBL) has emerged as the second largest player in the Indian battery market with a

production capacity of 12.4 million. For FY12, the company registered 34% y-o-y revenue growth with net

sales at INR 23.67 bn & 45% PAT y-o-y growth at INR 2.15 bn. The company continues to increase

shareholder’s value with ROE ~25% & has maintained operating margins at 15% in a competitive market.

Forays into two-wheeler OEM segment to boost sales and increase market share

The company is venturing into supply of batteries to the two wheeler OEM segment and is likely to start

supplies from Q2 of FY13. The company has introduced two wheeler batteries through the Powerzone

network to further expand its reach to semi urban and rural areas. These initiatives will help the company

boost volumes & increase its market share in the two wheeler segment.

Tactical shift to automotive segment as demand in the industrial segment becomes sluggish

In the wake of low demand witnessed in industrial battery segment, the company has decided to increase

its focus on the automotive battery segment, specifically the replacement market and is targeting to derive

55% of its revenues from automotive battery segment & plans on increasing this share to 65% in the near

future.

High capex with low debt capital structure to cater to burgeoning demand will drive growth

The company has proposed to spend around INR2.2bn to set up a new plant to further expand its

production capacity. The company has no interest bearing debt and is confident of funding the project

through internal accruals.

Increased production capacity & improved capacity utilization to meet demand

ARBL's current production capacity in 4 wheeler and 2 wheeler batteries stands at 5.6 and 4.8 million

respectively. The capacities can be further stretched to 8 & 6 million with minimal capital expenditure in the

existing plant. The company can comfortably manage to meet the demand for the next one year.

Plans to strengthen distribution network to extend reach across the country

ARBL plans to double its distribution network within the next two years and will focus more on areas where

unorganized players are predominant- semi urban & rural areas.

Valuation:

At CMP of INR 373, the stock trades at P/E of 11.9x of FY13 EPS and 10.3x FY14 EPS. We initiate

coverage with a Buy rating and a target price of INR 434 based on target P/E of 12x FY14 EPS.

Risks: Rising lead prices can have an impact on the margins. Slowdown in key user segments could affect

growth. Exposure to telecom segment is considered high.

Valuation Summary

Y/E March ( INRmn) FY11 FY12 FY13E FY14E

Revenue 17,594.3 23,638.3 28,217.7 33,014.7 EBIDTA 2,651.5 3,691.8 4,554.7 5,294.7 PAT 1,480.9 2,150.6 2,667.9 3,134.14 EPS 17.3 25.2 31.2 36.2 EPS growth (%) -11.3 45.2 24.1 15.8 PE 21.4 14.7 11.9 10.3

P/ BV 4.9 3.9 3.0 2.4

EV / EBIDTA 11.4 8.2 6.7 5.8

EV / Sales 1.7 1.3 1.1 0.9

Dividend Yield (%) 1.2 1.0 1.1 1.2

ROCE (%) 32.8 39.3 39.6 39.8 ROE (%) 24.9 29.3 28.9 27.3 Net Debt / Equity 0.1 0.1 0.1 0.1

Sensex Nifty 17,381 5,259

31 August 2012

Amara Raja Batteries Ltd Sector: Auto ancillary/Mid-cap

31 August 2012 Initiating Coverage

Background: Amara Raja Batteries Ltd (ARBL), a Joint Venture between Amara Raja Group & Johnson Controls, each holding 26% stake, is the second largest

battery manufacturer in India. It is the largest manufacturer of standby valve regulated lead acid (VRLA) batteries in the Indian Ocean Rim region and manufactures

automotive batteries for all vehicle segments. With a production capacity of 12.4 mn (Automotive: 10.4 mn & Industrial – 2 mn), ARBL has built a strong pan-India

distribution network of 18000 retailers and 274 franchisees (Amaron network) & 900 retailers (Powerzone network).ARBL’s market share in different segments: 4-

wheeler (OEM-26%, Replacement -24%), 2-wheeler (Replacement – 24%), UPS (32%) and Telecom (45%).

Price: INR 373 Target Price: INR 434 BUY

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Industry Overview:

The Indian battery market is predominantly dominated by two players; Exide Industries & Amara Raja

Batteries, who control 90% of the organized market. The battery market has significant growth potential and

with the presence of only two major players, the pricing power remains fairly healthy. Amara Raja has

partnered with Johnson Controls, world’s leading manufacturer of lead acid batteries for technology expertise

in manufacturing automotive batteries under the Amaron brand. Brand Equity & access to wide distribution

service network are significant entry barriers. Delay in obtaining approvals from original equipment

manufacturers and industrial customers will deter new players in foraying into this field to a certain extent.

Amara Raja has excelled in building a strong brand identity by manufacturing & delivering batteries of high

quality & durability over the last decade. The threat of substitute products remains high as there are many

cheap alternatives from unorganized players that are readily available in the market.

Chart 1: Porters Five Forces analysis

Source: CSEC Research

According to a report published by Global Industry Analytics, the global lead acid battery (automotive) is

forecast to reach US $15.4 billion by 2015. The size of the Indian lead acid storage battery as on March 2011

is estimated to be about INR130 billion. The industrial battery segment accounts for 37% of market at INR 48

billion while the automotive battery division accounts for 63% of the market at INR 82 billion. The overall size

of the unorganized market accounts for 42% of the automotive battery market and is estimated at about INR

34 billion. Both the industrial & automotive segments were growing at a healthy 10-14% over the last few

years but the growth outlook going forward is likely to be subdued amidst adverse macroeconomic conditions.

Automotive Component Manufacturers Association (ACMA) has scaled down the revenue growth projection

for the auto component industry for FY13 between 5-7%, compared with 12 % growth in 2011-12 on the back

of slowdown in demand for cars and commercial vehicles. The growth in the automobile battery segment

primarily depends on roll out of new vehicles & replacement demand. The OEM business is driven by fresh

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vehicle demand (2 wheelers & 4 wheelers) while the replacement market is influenced by a number of factors

such as number of vehicles in use, average battery life & average vehicle age.

Chart 2: Domestic Lead acid battery market

Source: Company, CSEC Research

The number of registered vehicles (both 2 wheelers & 4 wheelers) has grown from 115 million in 2009 to 160

million in 2012. Assuming the average life expectancy for 4 wheeler batteries at 3.5 years and 2 wheeler

batteries at 2 years, the market potential for 4 wheelers is estimated to be 5 million while it hovers around 60

million for the 2 wheeler batteries segment. Based on the projected sales growth projections given by Society

of Indian Automobile Manufacturers (SIAM), the OEM market potential is expected to be around 21 million for

2013.Based on the robust growth & assumption that automotive battery has an average life expectancy of

around 2.5 years; the demand outlook looks strong for the next few years given the strong double digit sales

growth in 2010 & 2011.

Chart 3: Automobile sales trend – 2 wheelers & 4 wheelers

Source: Ministry of Road Transport & Highways (MORTH), CSEC Research

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Key Business Verticals

ARBL operates in two segments – industrial & automotive business and has a manufacturing plant located in

Karakambadi, Triupati in Andhra Pradesh. The current production capacity of the plant stands at 12.4m units.

ARBL commands a market share of 34% in the replacement market & 26% market share in the OEM segment.

The company’s recent foray into the two wheeler OEM segment is expected to boost volumes and help expand

its market share in the 2 wheeler segment as it currently caters to only the replacement market where it enjoys

a market share of 24%. In the industrial battery segment, the company enjoys 32% market share in the UPS

segment & 45% market share in the telecom space.

Table 1: ARBL – Market Share Table 2: ARBL – Production Capacity

Company Overview:

Amara Raja Batteries Limited (ARBL) is an auto ancillary company engaged in the manufacture

& distribution of batteries for industrial & automotive applications. It commenced production in 1992 with an

initial foray into industrial batteries and from thereon it has steadily diversified its product range & scaled up

its operations. From an initial capacity of 0.73 million in 2002 the company has quickly raised its capacity to

12.4 million in FY12. In the initial period, the company specialized in the manufacture of industrial batteries

& after it gained prominence in the industrial battery segment, it entered into an equal joint venture with

Johnson Controls for the manufacture of automotive batteries in 2000. The company launched two wheeler

batteries in 2008 and initially targeted the replacement market. The company expanded its total capacity at

44% CAGR in FY08-12 period and is expected to increase production & tie up with a few 2 wheeler OEMs

this year. The major milestones of the company are presented in the timeline chart given below.

Chart 4: ARBL Timeline


Current Market Share

Car Batteries

Replacement 34%

OEM 26%

Two wheeler batteries

Replacement 24%

Industrial Batteries

UPS 32%

Telecom 45% Source: Company, CSEC Research

Current production capacity

Automotive Batteries

Four wheeler batteries 5.6 mn

Two wheeler batteries 4.8 mn

Industrial Batteries

Medium VRLA batteries 2 mn

Large VRLA batteries 900 mn Ah


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The automotive product portfolio of ARBL consists of Powerzone brand to cater to the rural & semi urban

segments and Amaron brand to cater to the urban segments. Both the brands are distributed through a

strong pan-India distribution and service network, which comprises of 274 Amaron franchisees, 18,000

Amaron retailers, 900+ PowerZone retailers. As given in the chart below, the industrial battery segment is

represented by Amaron sleek, Amaron Quanta, Amaron Volt & Amaron Stack. ARBL is one of the preferred

suppliers to major telecom service providers (BSNL, MTNL, VSNL, Airtel, Vodafone & Reliance), telecom

equipment manufacturers (Alcatel, Lucent, Siemens, Nokia etc), UPS Segments (OEM & Replacement),

Indian railways and to Power, Oil & Gas among other industry segments. The company is one of the

preferred suppliers to OEMs such as Ashok Leyland, Ford India, General motors, Honda, Hyundai, Mahindra

& Mahindra, Maruti Suzuki and Tata Motors. The company’s Industrial and Automotive batteries are

exported to Asia Pacific, Africa and the Middle East.

Chart 5: ARBL Product Range


ARBL manufactures batteries for all vehicle segments (personal vehicles, tractors, commercial vehicles

& motorcycles). It is the largest manufacturer of industrial batteries & the second largest player in the

automotive battery segment. Amara Raja was the first company to introduce maintenance free 4 wheeler,

2 wheeler batteries with warranties extending up to 5 years. It pioneered the introduction of maintenance free

VRLA battery for UPS & telecom applications & is also considered the largest manufacturer of standby valve

regulated lead acid (VRLA) batteries in the Indian Ocean Rim region. ARBL is the market leader in the

telecom and UPS battery business with ~45% and ~32% market share, respectively.

ARBL Product Range

Industrial Batteries Automotive Batteries

Amaron Volt

Telecom network, data center,power station & oil and gas

Power StackTelecom network, data center,power station, oil & gasand Indian railways

QuantaUPS applications

Power SleekWireless telecom network

UPS applications

Passenger cars:

Amaron Pro, Amaron Flo, Amaron Go, Amaron Black and Amaron Fresh

Commercial Vehicles:Amaron Hi-way

Tractors:

Amaron Harvest

Two-wheelers:

Amaron Pro Bike Rider

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Investment Rationale:

Tactical shift to automotive segment as demand in the industrial segment becomes sluggish

In the wake of sluggish demand from the industrial battery buyers last year, the company has decided to alter

its automotive & industrial revenue mix to 55:45 & further plans to increase its revenue share from the

automotive segment to 65% in the next 1- 2 years. ARBL posted an impressive sales growth of 34% in FY12.

A significant portion, i.e. ~20% of revenue is obtained from the telecom sector, which has witnessed a lot of

turbulence in the recent years due to corruption issues in licensing, regulatory changes & higher competitive

intensity.

The number of telecom towers in India has increased steeply from ~85000 in 2006 to around 400,000 towers in

2012. However, most of the towers were set up before 2008. If the average life of a telecom battery is assumed

to be four years, then the replacement market is expected to be significant & will drive the demand in the

coming years. The rapid growth in mobile subscriber base, roll out of 3G and 4G services by telecom operators

and the preferred supplier status will help the company maintain its market share of ~45% in the telecom

segment.

Chart 6: ARBL Revenue break-up


High capex with low debt capital structure to cater to burgeoning demand will drive growth

As the company reached its peak capacity in the existing plant, the company is currently scouting for a new

location to set up a greenfield project with an initial capital outlay of INR 1.9 bn. The company’s debt

exposure is low and D/E stands at 0.1 in FY12. The company’s cash reserves at INR 2.29 bn will help the

company fund the expansion project without the need for debt & drive long term growth. Once the new plant

is commissioned the UPS battery capacity shall be enhanced to 3 million units from the existing 1.8 million

units.

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Better volumes, gain in market share leads to higher capacity utilization

ARBL's capacity in 4 wheeler and 2 wheeler batteries currently stands at 5.6 million and 4.8 million,

respectively. There is a significant improvement in the capacity utilization, which has now scaled up to over

80%. ARBL’s main competitor, Exide lost significant market share in the replacement segment on account of

capacity constraints & premium pricing in FY12. Amara Raja has improved its market share in the four wheeler

replacement segment from 30% in FY11 to 34% in FY12. Optimum capacity utilization levels coupled with

future expansion plans offers little or no scope for any capacity constraints in the near future.

Chart 7: ARBL Capacity Utilization trend


Plans to strengthen distribution network to extend reach across the country

Amara Raja has created a dominant distribution network (274 franchised distributors, about 18,000 retailers

in Amaron format, 900 exclusive retail partners in Power Zone format spread across semi-urban and rural

locations & around 2,000 service hubs) in the automobile battery segment in India. The company plans to

double its distribution network within the next two years and will focus more on areas where unorganized

players are predominant- semi urban & rural areas. The company, which produces UPS batteries under the

Quanta brand continues to retain dominant market share, i.e. ~32% in the UPS segment. The distribution

channel, AQuA of Quanta batteries has been increased from 75 to 100 to expand company’s reach and

thereby augment sales in the UPS segment.

Frequent Power cuts recharges Amara Raja & drives UPS revenue

Amara Raja currently enjoys ~32% market share in the UPS & inverter segment. Indian UPS market is

estimated to be $3-3.5 billion. India continues to reel under frequent power cuts with even major cities facing

power cuts for a few hours on a daily basis. India derives roughly ~67% of its power needs through thermal

power plants & the shortage of coal is causing a great deal of trouble to a majority of the power producers.

We believe that the shortage of power which leads to power cuts and frequent unannounced disruptions of

power supply to both residential & industrial consumers will act as a key growth driver & augment revenue in

the coming years. A snapshot of power shortfall in some of the major states is highlighted in the table below.

Table 3: Power shortfall is some of the states

States Power demand ( MW) Power shortfall ( MW)

Tamil Nadu 8500-12000 4000-4500

Andhra Pradesh 10500-13000 2000-2500

Karnataka 8000-9000 1000-1500

Maharashtra 15000-16500 2000-2500

Source: CEA, CSEC Research

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Unorganized players take a hit – an opportunity to increase market share

The recent hike in the excise duty on lead & lead products shall make imports expensive and will affect the

unorganized market, which still continues to enjoy 40% in the automotive aftermarket segment. Furthermore,

battery manufacturers repurchase used batteries to reduce the supply of lead to smaller battery makers.

These factors will curb the supply of unbranded batteries to a certain extent & eventually propel the demand

in the replacement market

Softening of lead prices offset by rupee depreciation: Will margins take a hit?

Lead as a key raw material constitutes ~80% of the raw material cost and lead price fluctuations can have

severe impact on margins. Exide, the main competitor of ARBL in the organized market sources most of its

lead from local smelters it had acquired in the recent past. Amara Raja continues to import 55-60% of its total

lead requirement from Australia & Korea exposing itself more to currency fluctuations whereas Exide imports

only 20-25% of its total local lead requirement. Lead prices have softened a little bit in the last 2-3 quarters but

the rupee depreciation has practically erased all the gains on lower lead prices. The management is however

confident in achieving 15% operating margins for FY13. According to a preliminary report released by

International Lead and Zinc Study Group (ILZSG), global supply of refined lead exceeded demand by 22000

tons in January-April 2012. So we expect lead prices to soften a little further in the next few quarters. However,

the benefit on price decrease primarily depends on the exchange rate.

Chart 8: Raw material cost trend Chart 9: Lead price & operating margin trend

Amara Raja to sign up OE deals for 2 wheeler batteries -Is it a rightly timed decision?

The company ventured into the two wheeler replacement segment in 2009 with an initial capacity of 1.8 million and

rapidly scaled it up to 4.8 million in FY12 and now commands a market share of over 25% in the organized

replacement battery space. The volume growth is impressive given the fact that the company doesn’t have any

presence in the two wheeler OEM segment. The company spent INR 0.8 bn last year to expand its 2 wheeler

battery production from 3.6 to 4.8 million units. The production limit of two wheeler batteries can be further

stretched to 6 million in the existing plant with minimal capital expenditure. The company is confident of

garnering more volumes with the introduction of PowerZone branded batteries in the replacement market to

cater to the rural demand.

The decision to enter the 2 wheeler OEM market may be appropriate as 76% of total vehicle sales (~13 mn

units) in FY12 are dominated by two wheelers. The OE market offers relatively lower EBIDTA margins as

opposed to the replacement market but the company believes that an overwhelming majority of the users

hardly switch brands when battery needs to be replaced. Furthermore, the industry is slowly moving from kick-

start vehicles to self start vehicles and this will continue to drive strong volumes for the next two years.







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Financials & Valuation:

The company has recorded revenue growth at 36.4% CAGR & profit growth at 44.28% CAGR during 2006-

12. This stellar performance is primarily attributed to strong demand from the automotive segment coupled

with the presence of strong fundamentals in the Indian economy. However, in the recent years, steep

increase in interest rates, fuel prices & weak consumer sentiment in the face of slowing economic growth

has hurt automotive demand. The industrial battery segment has also faced some heat as telecom

companies cut on their spending and 3G roll outs were delayed due to prolonged regulatory and legal issues

apart from poor demand for 3G. Revenue obtained from exports grew at 40% to INR 1.17 bn aided by surge

in demand through the expansion of Airtel’s network in Africa, Sri Lanka and Bangladesh.

Chart 10: Net Sales & PAT growth trend


The company managed to grow at a faster pace (~18%) than the industry growth of 15% in the UPS

segment. The UPS capacity will be enhanced to 3 million once the new plant is commissioned and this will

help the company expand its market share from the current 32% in this segment. The impact of slowdown in

both passenger vehicles & two wheeler production is mitigated to a certain extent as ARBL derives only 14%

of its total revenues through the automotive OEM market. The aftermarket automotive segment, which

contributes 41% of the revenues, will get a major boost in the coming years on the back of automobile sales

growth witnessed in 2010 & 11.

Table 4: Returns (based on FY) during FY08-12

Returns based on financial year

BSE Auto BSE Midcap Sensex Amara Raja Exide Industries

FY08 -1.0% 23.4% 25.6% 195.0% 77.1%

FY09 -31.5% -53.8% -37.9% -70.9% -39.2%

FY10 148.9% 126.0% 77.0% 327.3% 197.6%

FY11 21.2% 0.1% 9.9% 12.2% 16.2%

FY12 8.3% -9.1% -10.4% 55.2% 2.6%

Source: CSEC Research

ARBL share price has grown at a CAGR of 45% while its peer Exide Industries has grown at a CAGR of

30.7% in the last five years. Given the valuation gap that exists, Amara Raja is a better investment option

compared to Exide Industries.

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Table 5: Peer comparison estimates for FY13

FY13E

OPM(%) NPM(%) P/E P/BV EV/EBIDTA EV/Sales ROE(%) Div Yield (%)

ARBL* 14.2 8.3 11.9 3.0 6.6 1.1 28.9 1.1

Exide Industries 16.1 10.9 16.9 3.1 10.8 1.7 19.4 1.3

Source: Bloomberg, *CSEC Estimates

Raw material cost as a percentage of total cost hovers around ~80% and can have a severe impact on the

margins.. The company continues to maintain a robust balance sheet with low debt and substantial cash

reserves at INR 2.29bn. The cash reserves should be more than adequate to cover the company’s capital

expenditure requirement for FY13. This will help the company preserve its very low debt ratio of 0.11. We

expect ARBL’s revenues to grow at 16.5% CAGR & profits to grow at 14.3% CAGR in the FY12-14 period.

The company has managed to deliver ROE over 25% and is confident of maintaining 15% EBIDTA margins

going forward.

ARBL is currently trading at 12 times its one year forward earnings while Exide trades at close to 17 times its

one year forward earnings. ARBL has historically traded at around 8 times one-year estimated earnings

while Exide used to trade around 14 times its one year forward earnings. In the current scenario, the

valuation gap between the two firms has come down and is bound to come down further going forward.

Chart 11: Forward P/E band chart Chart 12: Forward P/BV band chart

At CMP of INR 373, the stock trades at P/E of 11.9x of FY13 EPS and 10.3x FY14 EPS. We initiate

coverage with a Buy rating on Amara Raja batteries with a target price of INR 434, implying an upside

potential of 16.5% based on a target P/E of 12x FY14 EPS.

Source: Company, CSEC Research Source: Company, CSEC Research

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Risks:

High Raw material cost: Lead & its alloys constitute 65-70% of the total raw material cost. If lead prices

climb, then margins would take a hit and there will be a decline in profitability. The impact on OEM market

will be minimal as the presence of pass-through agreements will alleviate the price impact to a certain extent.

However, the company may lose market share in the replacement market if the company is unable to pass

on the increase in lead prices to consumers due to competitive pressures and with the intent of protecting or

increasing its market share

Slowdown in key user segments could affect growth: The slowdown in auto sales can have a cascading

effect on auto ancillary companies as inventories can pile up due to fall in demand. According to Automotive

Component Manufacturers Association of India (ACMA), growth of auto component industry is expected to

slow down to 6-7% this year compared to 14% in 2011- 12. These projections reflect the poor demand & can

affect the OEM market more than the replacement market.

High exposure to telecom segment: In 2010, 50% of the revenues in the industrial segment, i.e. 20% were

obtained through the telecom segment. Although the revenue contribution from industrial segment has reduced

in the recent years, the dependence on telecom sector is still high given the recent slowdown in telecom

sector.

Promoter pledging of shares: In a recent development, one of the promoters of the company has pledged

3.35% of the total shares, which is almost equivalent to 17% of the promoter’s shareholding.

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Financial Summary

Income Statement (Abstract)

INR(million)

Parameters FY11 FY12 FY13E FY14E

Net Revenue 17,594.3 23,638.3 28,217.6 33,014.7

Growth (%) 20.3 37.1 19.3 17.0

Raw Material cost 11,861.3 15,833.4 19,380.3 22,856.3

Staff cost 884.6 1,002.6 1,133 1,280.3

Other expenses 382.5 392.5 412.1 432.7

EBIDTA 2,651.5 3,691.8 4,554.7 5,294.6

Growth (%) -13.2 39.2 23.3 16.4

Depreciation 417.1 464.7 581.9 630.9

Other Income 96.6 157.3 267.4 294.2

Interest 30.6 40.59 20.2 20.2

Tax Paid 722.9 1,035.8 1,284.6 1,509.2

Tax Rate (%) 32.8 32.5 32.5 32.5

Reported PAT 1,480.9 2,150.6 2,667.9 3,087.2

Adjusted PAT 1,480.9 2,150.6 2,667.9 3,087.2

Growth (%) -11.3 45.2 24.1 15.8

Balance Sheet (Abstract)

INR(million)


Share Capital 170.8 170.8 170.8 170.8

Reserves & Surplus 6,288.5 8,063.9 10.347.7 13,098.9 Shareholders' funds 6459.3 8,234.7 10,518.5 13,269.8

Current Liabilities 2,021.7 2,013.1 2,084.1 2,122.5 Non-Current Liabilities 901.1 840.8 1,328.0 1,370.6

Total Liabilities 11,159.2 13,515.2 15,916.6 18,395.0

Net Fixed Assets 3,150.9 3,545.7 3,963.8 4,532.8 Other Non Current Assets 308.3 284.7 284.7 284.7 Cash & marketable securities 451.2 2,292.2 1,971.8 3,458.1 Other Current Assets 946.7 1,182.7 1,550.4 1,814

Total Assets 11,159.2 13,515.2 15,916.6 18,395.0

Cash Flow statement (Abstract)

INR(million)


Cash flow from operations 861.2 2,962.8 587.04 3,039.8 Cash flow from investing -612.3 -696.3 -1000 -1200 Cash flow from financing -422.4 -425.5 92.5 -353.5

Free cash flow 347.5 2,366 -413 1,839.8

Net change in cash 173.5 1,841 -320.4 1486.3

Key Ratios (Consolidated)

Parameters FY11

FY12 FY13E FY14E

Dividend payout (%) 26.5 15 12.1 10.5

EBIDTA margin (%) 13.6 14.2 14.7 14.6

PBT Margin 11.3 12.2 12.7 11.8

RoCE (%) 32.8 39.3 39.7 39.8

RoE (%) 24.6 29.3 28.9 27.3

Current Ratio 1.9 2.3 2.3 2.9

Debt/Equity 0.1 0.1 0.1 0.1

Inventory Days 47 39 40 39

Debtor Days 29 18 14 13

Creditor Days 51 44 41 40

Cash Conversion Cycle 72 62 54 49

Interest Cover Ratio 73.1 79.5 196.6 230.8

DuPont Analysis (Consolidated)

Parameters

FY11

FY12 FY13E FY14E

Net Profit Margin (%) 7.6 8.3 8.6 8.7

Asset Turnover 2.9 3.2 3.1 3.0

Leverage factor 1.12 1.11 1.09 1.04

RoE (%) 24.6 29.3 28.9 27.3

Valuation Ratios (Consolidated)


P/E 21.4 14.7 11.9 10.3

P/BV 4.9 3.9 3 2.4

EV/Sales 1.7 1.3 1.1 0.9

EV/EBIDTA 11.4 8.2 6.6 5.8

Div Yield (%) 1.2 1.0 1.1 1.2

Adjusted EPS (Rs.) 17.3 25.1 31.2 36.7

Cash EPS 22.1 30.5 34.4 40.1

BV/Share (Rs.) 75.6 96.4 120.4 148.8

FCF/Share(Rs.) 40.8 278.3 147.4 138.2

DPS (Rs.) 4.6 3.8 4.2 4.6

Cholamandalam Securities Limited Member: BSE,NSE,MSE Regd. Office: Dare House,2 (Old) # 234) N.S.C Bose Road, Chennai – 600 001. Website : www.cholawealthdirect.com Email id – [email protected]

RESEARCH Singaravelu K P Head of Research +91-44 - 4505 6003 [email protected] Alagappan Ar Financial Services +91-44 - 3000 7363 [email protected] Sathyanarayanan M Consumption +91-44 - 3000 7361 [email protected] Vinayakam P Engineering +91-44 - 3000 7360 [email protected] Michel Charles C Technicals +91-44 - 3000 7353 [email protected] Rajasekhar R IT & Auto Ancillary +91-44 - 3000 7266 [email protected] Sreedevi K Associate +91-44 - 3000 7266 [email protected]

INSTITUTIONAL SALES

Venkat Chidambaram Head of FII Business & Corporate Finance +91-44 - 24473310 [email protected] Lakshmanan T S P Chennai +91 - 9840019701 [email protected] Ananthanarayan J Mumbai +91 - 9930103070 [email protected]

RETAIL SALES Chetan Dilipkumar Daxini AHMEDABAD 079 - 64500318 / 19 [email protected] Sathyanarayana N BANGLORE 080 - 41503340 / 44 [email protected] Baskaran S CHENNAI - Annanagar 044 - 26208911 / 14 [email protected] Sridharan P S CHENNAI - Adyar 044 - 2452 2111 / 2333 [email protected] Chandrasekar K COIMBATORE 0422 - 4292041 / 4204620 [email protected] Maneesh Gupta DELHI 011 - 30461161 / 62 / 63 [email protected] Murthy A S L N HYDERABAD 040 - 23316567 / 68 [email protected] Shibarjun Mukherjee KOLKATA 033 - 44103638 / 39 [email protected] Sheetal Bheda MUMBAI 022 - 22617210 / 7203 [email protected] Gowthaman G MADURAI 0452 - 2601195 / 96 [email protected] Deepak V Kshirsagar PUNE 020 - 30225432 / 33 /34 [email protected] Gangadhar M VIZAG 0891 - 6642718 [email protected]

COMPLIANCE Balaji H Compliance +91-44 - 3000 7370 [email protected]

DISCLAIMER:

This report is for private circulation and for the personal information of the authorized recipient only, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not provide individually tailor-made investment advice and has been prepared without regard to any specific investment objectives, financial situation, or any particular needs of any of the persons who receive it.

The research analyst who is primarily responsible for this report certifies that: (1) all of the views expressed in this report accurately reflect his or her personal opinions about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of Cholamandalam Securities Limited makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete.

The views expressed are those of the analyst and the Company may or may not subscribe to all the views expressed therein Cholamandalam Securities Limited reserves the right to make modifications and alterations to this statements as may be required from time to time without any prior approval. Cholamandalam Securities Limited, its affiliates, directors and employees may from time to time, effect or have effect an own account transaction in or deal as agent in or for the securities mentioned in this report. The recipient should take this into account before interpreting the report.

All investors may not find the securities discussed in this report to be suitable. Cholamandalam Securities Limited recommends that investors independently evaluate particular investments and strategies. Investors should seek the advice of a financial advisor with regard to the appropriateness of investing in any securities / investment strategies recommended in this report. The appropriateness of a particular investment or strategy will depend on an investor’s individual preference. Past performance is not necessary a guide to future performance. Estimates of future prospects are based on assumptions that may not be realized. Re-publication or redistribution in any form, in whole or in part, is prohibited.

No part of this material may be duplicated in any form and/or redistributed without Cholamandalam Securities Limited prior written consent.

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