Institutional Equities V-Guard Industriesbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · Margins Daily Vol. to resume upward trajectory: Driven by better revenue

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Reuters: VGUA.BO; Bloomberg: VGRD IN

V-Guard Industries

Scalability Attained, Profitability To Follow; Reiterate Buy

V-Guard Industries (VIL) posted a revenue CAGR of 24.5% over FY11-FY15, the highest among all consumer electrical companies in India, driven by successful expansion in non-south geography, strong product positioning and healthy market share across key categories. The company has a strong product portfolio, high brand recall, healthy market share as well as the benefits of pan-India franchise and is favourably placed to reap the benefits of likely consumer demand uptick and industry shift towards the organised segment. With its augmented distribution network (three-fold increase over the past five years), asset-light business model (60% products are outsourced) and lean working capital requirement, VIL is likely to generate strong cash flow and healthy return on capital employed. Further, with a better revenue mix, benign commodity costs and improving margin in non-south region, we expect VIL to post a 160bps rise in operating margin and a 26.8% earnings CAGR over FY15-FY18E. We reiterate Buy rating on VIL with a target price of Rs1,153 based on 24xFY18E EPS.

Well positioned for future growth: VIL has a strong product portfolio comprising premium models as well as mass-market models across key product categories such as voltage stabilisers, wires & cables, water heaters, inverters, fans and pumps. With a strong product profile, thrust on branding by focused advertising, strong distribution network, high brand recall, healthy market share and continuous penetration in non-south market, we expect VIL to post 12.9%/16.9% YoY growth in revenues in FY17E/FY18E, respectively. We like the fact that VIL continues to invest strongly in its brand through higher advertisement expenditure, at 4% of sales, and is not compromising on long-term brand positioning for short-term gains.

Margins to resume upward trajectory: Driven by better revenue mix, rising profitability in non-south market (33% of 9MFY16 revenues, EBITDA margin improved to 4% in 9MFY16 from break-even in FY13) and lower raw material cost benefits, VIL posted gross margin improvement of 210bps YoY to 29.1% and EBITDA margin increase of 100bps YoY to 8.5% in 9MFY16. While these benefits will continue to get enhanced in the coming years, rising realisation per distributor, better operational efficiency, lower interest cost burden post debt repayment and convergence of non-south and south region margins will further aid profitability. We expect EBITDA margin of 8.8%/9.3% in FY17E/FY18E, respectively, translating to a 160bps expansion in operating margin over FY15-FY18E. The management aims to increase operating margin by at least 50bps every year for the next four years.

Outlook and valuation: VIL stock trades at a median P/E of 24.7x one-year forward earnings over the past three years. While we expect VIL to post a 11% revenue CAGR over FY15-FY18E, the improvement in profitability trend will lead to 18.5% EBITDA CAGR and 26.8% earnings CAGR over the same period. Further, strong operating/free cash flow of Rs3bn/Rs2bn, respectively, over FY16E-FY18E, healthy return ratios (RoCE expected to rise from 26.4% in FY15 to 32.6% in FY18E), lean working capital cycle and high fixed asset turnover (at 7x) will keep VIL in a strong financial position and support its valuation. We have valued VIL at 24xFY18E EPS (in line with its past three-year median P/E and at a discount of 10% to Havells India) with a target price of Rs1,153, up 30% from the CMP.

BUY

Sector: Consumer Electricals

CMP: Rs890

Target Price: Rs1,153

Upside: 30%

Chirag Muchhala [email protected] +91-22-3926 8092

Chitvan Oza [email protected] +91-22-3926 8175

Key Data

Current Shares O/S (mn) 30.1

Mkt Cap (Rsbn/US$mn) 26.9/403.5

52 Wk H / L (Rs) 1,135/780

Daily Vol. (3M NSE Avg.) 10,261

One -Year Indexed Stock Performance

70

80

90

100

110

Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16

V-GUARD INDUSTRIES Nifty 50

Price Performance (%)

1 M 6 M 1 Yr

V-Guard Industries 6.5 (2.3) (7.0)

Nifty Index 1.7 (6.6) (12.1)

Source: Bloomberg

Y/E March (Rsmn) FY14 FY15 FY16E FY17E FY18E

Net revenue 15,176 17,459 18,126 20,459 23,907

EBITDA 1,225 1,330 1,527 1,795 2,214

Net profit 701 707 936 1,141 1,440

EPS (Rs) 23.4 23.6 31.2 38.1 48.1

EPS growth (%) 11.4 0.8 32.4 21.9 26.2

EBITDA margin (%) 8.1 7.6 8.4 8.8 9.3

PER (x) 38.0 37.7 28.5 23.4 18.5

P/BV (x) 8.4 7.1 5.9 5.0 4.1

EV/EBITDA (x) 22.6 20.5 17.6 14.8 11.9

Dividend yield (%) 0.4 0.5 0.7 0.8 1.1

RoCE (%) 25.4 26.4 29.0 30.4 32.6

RoE (%) 24.2 20.3 22.6 23.1 24.3

Source: Company, Nirmal Bang Institutional Equities Research

6 April 2016


2 V-Guard Industries

Highest revenue growth among all consumer electrical companies over FY11-FY15

VIL posted a revenue CAGR of 24.5% over FY11-FY15, the highest among all consumer electrical companies in India, driven by successful expansion in non-south geography, strong product positioning and a healthy market share across key categories. Top-line growth has been broad-based with voltage stabilisers growing 18%, wires & cables growing 26%, fans growing 27% and water heaters growing 29%. VIL does not depend to a major extent on any product and with scale-up of non-south geography (33% of 9MFY16 sales), even geographic concentration risk is getting mitigated gradually. We expect VIL to post 12.9%/16.9% YoY growth in revenue in FY17E/FY18E, respectively, driven by pick-up in wires & cables segment, improvement in voltage stabiliser segment (new Sikkim facility to cater to additional demand), healthy growth in fans segment and traction in new products (kitchen appliances and switchgear). Continuation of penetration in non-south market, industry shift towards organised segment and pick-up in demand in Kerala (as it recovers from rubber price fall and Middle East linked fund inflows) and Tamil Nadu (post floods impact) will also boost volume growth.

Exhibit 1: Revenue CAGR over FY11-FY15 Exhibit 2: Revenue trend of consumer electrical companies

24.5 24.4

16.7 16.1 16.1

12.5 11.6 11.3 11.2

4.7

0

5

10

15

20

25

30

V-G

ua

rd

Bu

tte

rfly

Ga

nd

him

ath

i

Orie

nt P

ap

er

Ha

vells

Ind

ia

TT

K P

rest

ige

Cro

mp

ton

Gre

ave

s

Ha

wki

ns

Co

oke

rs

Su

rya

Ro

shn

i

Ba

jaj E

lect

rica

ls

Fin

ole

x C

ab

les

(%)

-

10,000

20,000

30,000

40,000

50,000

FY11 FY12 FY13 FY14 FY15

Hawkins Cookers Butterfly Gandhimathi Surya Roshni Orient Paper

TTK Prestige V-Guard Finolex Cables Bajaj Electricals

Crompton Greaves Havells India

(Rsmn)

Note: Only consumer products business across companies has been considered for like-to-like comparison

Source: Respective companies, Nirmal Bang Institutional Equities Research

Note: Only consumer products business across companies has been considered for like-to-like comparison


Strong product portfolio, brand recall and market share

VIL has a strong product portfolio comprising premium models as well as mass-market models across key product categories such as voltage stabilisers, wires & cables, water heaters, inverters, fans and pumps. Voltage stabiliser is the most important and profitable product category for VIL, which has instant consumer connect with V-Guard brand. VIL has garnered a healthy market share (refer Exhibit 3) in the highly competitive consumer electrical industry of India and has established itself as a pan-India player over the past 10 years (till 2006, 100% of its revenues were from south region). We like the fact that VIL continues to invest strongly in its brand through higher advertisement expenditure at 4% of sales – much above industry peers (refer Exhibits 5 and 6), and is not compromising on long-term brand positioning for short-term gains.

Exhibit 3: Product portfolio of VIL

Product

Market size (Rsbn) V-Guard’s organised

market share

Segment share in V-Guard

revenues (FY15)

Competitors Organised Unorganised Total

Organised as a % of total

Voltage stabilisers 6 9 15 40.0 59% 18.7% Bluebird, Capri, Logicstat, Premier, Everest

Pumps 9 11 20 45.0 23% 10.8% Crompton Greaves, Kirloskar, CRI, Texmo

House-wiring cables 40 30 70 57.1 9% 30.3% Havells, Finolex

Power cables 43 30 73 58.9 2% 3.1% Havells, Finolex, Polycab, KEI

Electric water heaters 6.5 5.5 12 54.2 17% 10.1% A.O. Smith, Racold, Bajaj, Venus, Crompton

Solar water heaters 4.2 2.2 6.5 65.4 8% 2.8% Emmvee, Tata BP Solar, Anu Solar

UPS 1.6 2.4 4 40.0 30% 1.5% Numeric, APC, Emerson

Fans 35 15 50 70.0 2% 7.9% Crompton, Usha, Bajaj, Havells, Orient

Digital UPS (inverter) 65 10 75 86.7 3% 11.3% Microtek, Luminous, Su-Kam

Source: Company, Industry, Nirmal Bang Institutional Equities Research



Exhibit 4: Segment-wise revenue composition of VIL

23 20 17 18 19 20 20 20

7 12 16 12 13 10 10 10

17 15 1513 11 11 11 11

34 35 3336 33 32 32 33

11 11 10 11 13 13 13 13

7 7 6 7 8 9 10 10

0 0 1 1 1 2 2 2

0

20

40

60

80

100

FY

11

FY

12

FY

13

FY

14

FY

15

FY

16

E

FY

17

E

FY

18

E

Stabilisers UPS Pumps Cables Water heaters Fan Kitchen appliances Switchgears

(%)


Exhibit 5: Trend in VIL’s advertising expenditure Exhibit 6: Advertising expenditure as a percentage of sales

159 162 231 270 410 580 600 690 607

5.7 5.1

5.1

4.0 4.2 4.3

3.9 4.0

4.5

0

1

2

3

4

5

6

-

100

200

300

400

500

600

700

800

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 9MFY16

Ad spends % of sales

(Rsmn) (%)

5.7

5.1 5.1

4.0 4.2 4.3

3.9 4.0

2.6 2.3

3.5

2.5

3.1 3.4

2.4

3.0

0.5 0.3

0.4 0.4 0.5 0.5 0.4 0.7

1.8

1.9

1.4 0.9

2.2 2.7

2.6 2.5

2.1

1.9 2.2

1.9 1.8 1.6

2.2 1.9

0

1

2

3

4

5

6

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

V Guard Havells India Finolex Cables Crompton Greaves Bajaj Electricals

(%)

Source: Company, Nirmal Bang Institutional Equities Research Note: For Crompton Greaves and Bajaj Electricals, entire advertisement

expenditure is assumed to be attributed to only consumer products business


Successful expansion in non-south geography

VIL has successfully expanded in non-south geography over the past 10 years and created a strong brand image for itself, unlike many of its southern consumer electrical peers who are yet to establish themselves in pan-India market. VIL posted a strong 69.5% revenue CAGR over FY08-FY15 in non-south market from a small revenue base of Rs145mn in FY08 to Rs5.8bn in FY15, while the management wants to scale it up further to Rs10bn in the near term. The non-south market now accounts for 33% of total revenues of VIL. Strong product profile, thrust on branding by focused advertising, enhanced consumer connect and expansion in distribution network helped VIL to grow in pan-India market. In southern region, Kerala continues to be the key state, accounting for 25% of total revenues followed by Karnataka, Tamil Nadu and Andhra Pradesh which also continue to do well. In non-south market, key states for VIL are Uttar Pradesh, Orissa, Maharashtra, Rajasthan, Madhya Pradesh and Bihar. In non-south market, VIL sells only five product categories, namely voltage stabilisers, cables & wires, electric water heaters, pumps and inverters. The new product categories of kitchen appliances (current revenues of Rs450mn) and switchgears (current revenues of Rs250mn) has been launched only in south region and once they garner sales of Rs1bn and Rs400mn, respectively, VIL plans to introduce them on pan-India basis, thereby providing a further fillip to non-south market.



Exhibit 7: South and non-south revenue share break-up Exhibit 8: Non-south market’s revenue growth trend

95 9185

78 79 75 70 67 67

5 915

22 21 25 30 33 33

0

20

40

60

80

100

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 9MFY16

South Non-south

(%)

-

97.0

150.6

127.1

32.4

58.9

33.7

27.4

-

20

40

60

80

100

120

140

160

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


Non-south YoY growth %

(Rsmn) (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Augmenting distribution network

VIL has placed strong emphasis on strengthening its distribution network across geographies as well as sales channels like consumer home appliance shops, electrical shops, hardware shops as well as sanitary and bathroom fitting shops where various products of VIL are sold. From FY08 to FY15, VIL has expanded its network in south region from 78 to 208 and in non-south region from 34 to 328. Currently, it has over 530 distributors as well as over 5,000 dealers and over 25,000 retailers across India - a three-fold expansion of channel partners over the past five years. Most of the distributors of VIL in south region are exclusive and keep inventory for a period of 20-21 days. The average revenue per distributor increased from Rs35.2mn in FY08 to Rs56.5mn in FY15 in south region and Rs4.3mn in FY08 to Rs17.7mn in FY15 in non-south region. Overall, on a pan-India basis, average revenue per distributor rose from Rs25.8mn in FY08 to Rs49.1mn in FY12, after which VIL did aggressive network expansion from 205 distributors in FY12 to 536 distributors in FY15. While this resulted in average revenue per distributor moderating to Rs32.8mn in FY15, it also implies vast scope for future growth.

Exhibit 9: Growth in distributor network Exhibit 10: Trend in average revenue per distributor

78 90 100 103 110 134187 20834 29

77 97 95

167

220

328

0

100

200

300

400

500

600


South Non-south

(Nos.)

35.2 33.1 39.1

55.9

72.0 77.7

57.8 56.5

4.3 9.8 9.3

16.7 22.6 20.4 20.7

17.7

25.8 27.4 26.1

36.9

49.1 45.9

37.8 32.8

0

10

20

30

40

50

60

70

80

90


South Non-south Total

(Rsmn)




Asset-light business model

VIL follows an asset-light business model with 40% of the products being manufactured in-house and 60% being outsourced. Given the quick lead time in consumer products, its outsourced operations helps in generating impressive returns on capital employed, optimising capex & working capital requirement and quickly introducing new product lines as per changing trends and preferences of customers. Wires & cables and water heaters are two key products which are fully produced in-house by VIL. For pumps and fans, VIL has in-house manufacturing facility, but 90% of both these products are outsourced. The manufacture of voltage stabilisers is fully outsourced to 63 different small-scale industries, mostly located in south region, which get excise duty exemption as their turnover is below Rs50mn. However, implementation of Goods and Services Tax (GST) can take away this benefit and hence VIL is setting up an in-house manufacturing plant for voltage stabilisers at Sikkim which has a 10-year tax and excise duty exemption. For outsourced products, VIL keeps complete control over supply chain ecosystem, provides support to vendors’ technical teams, helps procure raw materials for vendors by negotiating prices with suppliers and also owns all the designs and moulds of products. VIL also posts its quality assurance officials at vendor’s production units to ensure the maintenance of desired quality.

Exhibit 11: Demand driver, production source and distribution channel strategy

Product Demand driver Production model Distribution channel strategy

Voltage stabilisers Sale of white goods (TVs, refrigerators washing machines) 100% Outsourced Consumer durable stores, electrical and hardware stores

Pumps Summer season, ground water level, construction activity 90% Outsourced Electrical and hardware stores, pump and pipe fitting stores

House wiring cables Housing construction and infrastructure capex 100% In-house Electrical and hardware stores

Power cables Industrial capex 100% In-house Electrical and hardware stores, direct marketing channel

Electric water heaters

Housing construction, replacement demand, winter season 90% Outsourced Consumer durable stores , electrical and hardware stores

Solar water heaters Rising focus on solar usage, Central and State government subsidies

100% In-house Direct marketing channel

UPS Desktop computers Outsourced Consumer durable stores

Fans Housing construction, replacement demand, summer season

90% Outsourced Consumer durable stores, electrical and hardware stores

Digital UPS (Inverter) Power outage Outsourced Consumer durable stores, electrical and hardware stores, battery retail stores


Exhibit 12: Share of in-house manufacturing and outsourcing

27 32 37 40 41 40 43 40

73 68 63 60 59 60 57 60

0

20

40

60

80

100


In house manufacturing Outsourcing

(%)




Exhibit 13: Owned and outsourced manufacturing facilities

Product No of units Location

Own manufacturing units

PVC wiring cables 2 Coimbatore (Tamil Nadu) and Kashipur (Uttarakhand)

LT cables 1 Coimbatore (Tamil Nadu)

Pumps and motors 1 Coimbatore (Tamil Nadu)

Fans 1 Kala Amb (Himachal Pradesh)

Electric water heaters 1 Kala Amb (Himachal Pradesh)

Solar water heaters 1 Perundhurai (Tamil Nadu)

Voltage stabilisers 1 Sikkim

Outsourced production facilities

Voltage stabilisers 63 Across India

Pumps 20 Across India

Fans 6 Across India

UPS 12 Across India

Electric water heaters 7 Across India


Performance and outlook of key product segments

Voltage stabiliser

The brand V-Guard is synonymous with product category of voltage stabiliser where VIL has a dominant market share of 60%. Sales of voltage stabilisers posted a 18% CAGR over FY11-FY15 to Rs3.2bn and accounted for 19% of VIL’s FY15 revenues, the second-largest product category for the company. Voltage stabiliser is the most profitable product for VIL with a gross margin of 35% to 40% and EBITDA margin profile of 17%-18%. VIL enjoys strong pricing power in voltage stabiliser segment. Last year, VIL went for a 2%-3% price hike in a falling commodity price scenario, and thus gross margin expanded 5%-6%. The demand for voltage stabilisers is linked with the sale of white goods, primarily air-conditioners (AC), refrigerators and TVs which account for 50%, 30% and 20% share of demand for voltage stabilisers, respectively. The healthy growth in demand for voltage stabilisers is expected to continue for at least the next five to seven years as the core issue of fluctuation of power (voltage) is unlikely to abate. We expect a 14% revenue CAGR for VIL in voltage stabiliser segment over FY15-FY18E, driven by expectation of a healthy growth in demand for ACs, refrigerators and TVs. (Inverter ACs also need voltage stabilisers and therefore the shift in AC industry towards inverter ACs will not affect demand for voltage stablisers).

VIL sells voltage stabilisers directly via B2C segment and is not affiliated to any OEM. Five years ago, white goods OEMs like Whirlpool of India, Hitachi and Bajaj Electricals had entered the voltage stabiliser segment but could not succeed and subsequently had to withdraw their products from the market. VIL primarily competes with brands like Blue Bird, Premier, Everest and Capri, but none of these brands have sales of more than Rs600mn (less than one-fifth the size of VIL) in an industry size of Rs15bn, of which only Rs6bn is in organised segment. The manufacture of voltage stabilisers is fully outsourced to 63 different small-scale industries, all exclusive to VIL and mostly located in south region which get excise duty exemption as their turnover is below Rs50mn. However, implementation of GST can take away this benefit and therefore VIL is setting up an in-house manufacturing plant at Sikkim which has a 10-year income tax and excise duty exemption. The facility will be set up on 20,000sqft leased land with a capex of Rs400mn to Rs500mn which can generate additional revenues of Rs1bn for VIL over the next two years.



Exhibit 14: Revenue trend of voltage stabilisers

1,668 1,925 2,378 2,664 3,268 3,595 4,134 4,837

36.6

15.4

23.5

12.0

22.7

10.015.0

17.0

0

5

10

15

20

25

30

35

40

-

1,000

2,000

3,000

4,000

5,000

6,000

FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Stabilisers YoY growth %

(Rsmn) (%)


Wires and cables

Wires and cable is the largest product segment for VIL, accounting for 33% of total revenues in FY15. VIL primarily operates in house-wire cable segment (Rs5.3bn top-line in FY15, 26% CAGR over FY11-FY15) while its sales of LT cables is low (Rs545mn in FY15) because its focus is on high-margin residential B2C segment. VIL enjoys 17%-18% gross margin in wires & cables. The pricing of wires & cables is similar nation-wide and depends heavily on copper prices, which have declined significantly over the past one year and, as a result, is the only segment where VIL has passed on the full benefit of commodity price decline. Over 9MFY16, while volume grew 12% YoY, realisation was down 14% YoY following the fall in copper prices. However, over the past three months (January-March 2016) copper prices have been on an uptrend (refer Exhibit 17) which is likely to result in distributors again stocking up cables and thereby leading to higher off-take and better realisation in value terms.

The industry size of house-wire cables is Rs70bn, of which Rs40bn is in organised segment where VIL has a market share of 9%. The industry size of power cables is Rs73bn, of which Rs43bn is in organised segment where VIL’s market share is only 2%. Havells India and Finolex are key players while Polycab recently entered the residential B2C segment (it was earlier present only in institutional B2B segment). The key source of demand is housing construction, infrastructure capex and industrial capex.

Exhibit 15: House-wire cable revenue trend Exhibit 16: LT cable revenue trend

2,078 2,779

3,735

4,757 5,292 5,398

6,046

7,255 70.8

33.7 34.4

27.4

11.2

2.0

12.0

20.0

0

10

20

30

40

50

60

70

80

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


Housing wire cables YoY growth %

(Rsmn) (%)

418

580

728 709

545 491 481

529

167.6

38.8 25.5

(2.6)

(23.1)(10.0)

(2.0)

10.0

(50)

0

50

100

150

200

-

100

200

300

400

500

600

700

800


LT cables YoY growth %

(Rsmn) (%)




Exhibit 17: LME copper price trend in the past one year

4,000

4,500

5,000

5,500

6,000

6,500

Ap

r-1

5

Ap

r-1

5

Ma

y-1

5

Jun

-15

Jul-1

5

Au

g-1

5

Au

g-1

5

Se

p-1

5

Oct

-15

No

v-1

5

De

c-1

5

Jan

-16

Jan

-16

Fe

b-1

6

Ma

r-1

6

(US$/tn)

Stocking up of cables by distributors likely with uptrend in copper price

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Fan

VIL is quickly scaling up fans business with a top-line of Rs1.4bn in FY15, accounting for 8% of total revenues, and registered a revenue CAGR of 27% over FY11-FY15 after having forayed in electric fan segment in FY07. Along with volume growth, the profitability is also on the rise as VIL’s gross margin in fans improved from 10% a few years ago to 15% currently and it expects a further expansion in gross margin driven by economies of scale. The market size of fans is Rs50bn, of which Rs35bn is in organised segment. Fan business is dominated by legacy brands with Crompton Greaves being the market leader (26% market share) followed by Usha, Havells India, Bajaj Electricals and Orient. Further, a couple of old brands like Khaitan and Polar are downsizing. VIL has garnered a 2% market share. A major portion of revenues from fans for VIL comes from south region while it recently forayed in non-south region. VIL outsources fans from six different vendors while it has also started its own in-house fan manufacturing facility at Kala Amb, Himachal Pradesh, with an installed capacity of 600,000 fans. We expect the fan segment to report a 19% revenue CAGR over FY15-FY18E driven by industry growth, penetration in non-south region and rising product portfolio of high-end premium fans.

Exhibit 18: Revenue trend of fans

533 633

797

1,024

1,375

1,650

1,947

2,297 108.3

18.7 25.9 28.5

34.3

20.0 18.0 18.0

0

20

40

60

80

100

120

-

500

1,000

1,500

2,000

2,500


Fans YoY growth %

(Rsmn) (%)




Water heater

Water heater segment accounted for 13% of VIL’s FY15 revenues, posting a CAGR of 29% over FY11-FY15 - from Rs816mn in FY11 to Rs2.2bn in FY15. Water heater segment is further divided into electric (Rs1.8bn sales in FY15, 30% YoY growth) and solar (Rs481mn sales in FY15, 28% YoY growth) categories. VIL enjoys a 28% gross margin in water heater segment, which rose from its earlier level of 20%-25%. The market size of electric water heater is Rs12bn, of which Rs6.5bn is in organised segment where VIL has a market share of 17%. Other key players include AO Smith, Racold, Bajaj Electricals, Venus and Crompton Greaves. 90% of VIL’s electric water heater production is outsourced to seven vendors across India. The industry size of solar water heater is Rs6.5bn, of which Rs4.2bn is in organised segment. VIL has a market share of 8% whereas Emmvee is the market leader. Tata BP solar, who has 9% market share, is believed to be exiting the market. VIL sources entire solar water heater requirement from its in-house production facility at Kala Amb, Himachal Pradesh.

Water heater is a winter season-based product, with key drivers being housing construction and replacement demand. Further, for solar water heaters, rising focus on solar usage and Central & State government subsidies also play a role in demand. VIL’s high-end water heater model named Pebble has been very successful with sales amounting to Rs400mn in FY15 and likely sales of Rs600mn in FY16E. VIL is planning to launch a premium range named Terrano, to be placed above Pebble in FY17, and expects to get further pricing power and margin improvement for the category.

Exhibit 19: Revenue trend in water heaters

816

1,089 1,428

1,734

2,251 2,409

2,698

3,102 52.7

33.5 31.1

21.4

29.8

7.0 12.0

15.0

0

10

20

30

40

50

60

-

500

1,000

1,500

2,000

2,500

3,000

3,500


Water heater (electric + solar) YoY growth %

(Rsmn) (%)


Pump

Pump segment accounted for 11% of VIL’s FY15 revenues with sales amounting to Rs1.9bn, registering a revenue CAGR of 12% over FY11-FY15. VIL enjoys gross margin of 20% in pump segment. The industry size of pumps is Rs20bn, of which Rs9bn is in organised segment where VIL has a market share of 23%. The key competitors are Crompton Greaves, Kirloskar, CRI and Texmo. Pump is a summer season-oriented product with ground water level and construction activity being key drivers of demand. While the demand for pumps was affected last year because of borewell problem in Karnataka and Kerala (together accounting for 40% of pump revenues for VIL), the market has rebounded and is witnessing good growth. VIL is focusing on large pumps and expansion in new states to achieve higher growth. We are factoring in a revenue CAGR of 11% over FY15-FY18E.



Exhibit 20: Revenue trend in pumps

1,212 1,467

2,053

2,022 1,890

2,041

2,286

2,606 41.8

21.1

39.9

(1.5)

(6.5)

8.0 12.0

14.0

(10)

0

10

20

30

40

50

-

500

1,000

1,500

2,000

2,500

3,000


Pumps YoY growth %

(Rsmn) (%)


Digital UPS

Digital UPS (also known as inverters) accounted for 11% of VIL’s FY15 revenues. The segment grew at a strong pace of 74% CAGR from Rs216mn in FY11 to Rs1.9bn in FY15. VIL enjoys gross margin of only 10% in digital UPS, primarily because the battery used along with the inverter is a bought-out product for VIL. The total market size of inverters is Rs75bn of which Rs65bn is in organised segment with major players being Microtech, Luminous and Su-kam while VIL has a market share of 3% with production fully outsourced. The key driver for inverter sales is household demand because of lack of power availability. While the power availability situation has improved in a few states, regular power outage still occurs in many parts of the country. However, we are factoring in only a 3% revenue CAGR for the segment over FY15-FY18E as reducing the power deficit is likely to affect inverter sales. The fact that inverter is not an in-house manufactured product for VIL and is completely outsourced is comforting as the company can easily downsize this segment, as per industry trend.

Exhibit 21: Revenue trend of digital UPS

216

727

1,733

1,477

1,967

1,633

1,878

2,178

146.4

236.3

138.5

(14.8)

33.2

(17.0)

15.0 16.0

(50)

0

50

100

150

200

250

-

500

1,000

1,500

2,000

2,500


Digital UPS YoY growth %

(Rsmn) (%)




Margins expected to resume upward trajectory

Over the past five years, VIL’s gross margin declined from 30.1% in FY11 to 26.1% in FY15 and EBITDA margin fell from 10.1% in FY11 to 7.6% in FY15 as VIL was in investment mode for expanding its foot-print in non-south market. After establishing its brand name and successfully penetrating in many product categories in non-south market, VIL is ready to reap the fruits with its margins resuming their upward trajectory from FY16. In 9MFY16, gross margin improved 210bps YoY to 29.1% while operating margin improved 100bps YoY to 8.5% driven by better revenue mix, rising profitability in non-south market and lower raw material cost benefits. These benefits will continue to get enhanced in the upcoming years and the management aims to increase operating margin by at least 50bps every year for the next four years.

Non-south market’s profitability on the rise

As an entry strategy to gain foothold in non-south market, VIL offered discounts to customers and higher incentives to dealers and distributors compared to south region. This led to a difference in average price realisation between south and non-south regions of 8%-9% in the initial years of non-south region entry. Having established itself, VIL has been able to gradually narrow down the pricing differential to 3%-4% currently and expects to attain parity in the next three to four years by having unified pricing at national level (pan-India unified pricing already achieved in wires & cables segment). Also, inventory and debtor days are higher in non-south region by 7 to 8 days each, which the management aims to normalise in the next three to four years. EBITDA margin in non-south region achieved break-even in FY13 and already touched 4% in 9MFY16 (refer Exhibit 22) with break-even level in PBT. Currently, south region is operating with EBITDA margin of 11% while non-south region is operating with 4%, leading to blended EBITDA margin of 8.5%. The rising revenue contribution from non-south region (33% of 9MFY16 revenue) and improved profitability trend augurs well for overall margin improvement as the management aims to make margins of both the regions to converge in four years.

Exhibit 22: Operating margin trend of non-south region

(0.4)

0.2

0.7

2.5

4.0

(1.0)

(0.5)

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

FY12 FY13 FY14 FY15 9MFY16

(%)


Better revenue mix and benign commodity costs to aid margins

Rising revenue contribution from product categories like voltage stabilisers (35%-40% gross margin) and water heaters (27%-28% gross margin), improved revenue outlook from pumps (20% gross margin) and scale-up in fans (rise in gross margin to 15% from 10% earlier with further scope to expand) will lead to an improvement in revenue mix, thereby driving profitability. With healthy pricing power and priority given to margin expansion over volume growth, VIL has not fully passed on the benefits of commodity price decline to consumers. The prices of copper (30% of raw materials) have declined sharply (refer Exhibit 24), where VIL has retained partial benefit (except in wires & cables segment). Similarly, with the fall in crude oil prices, the cost of plastic (15% to 20% of total costs) declined (refer Exhibit 25) which has benefitted VIL. Consequently, in 9MFY16, VIL posted a 17.2% YoY growth in EBITDA despite revenue growing only 3.4% YoY. With the recovery in revenue growth expected over the next two years coupled with margin improvement, we expect VIL to register gross margin expansion of 340bps and EBITDA margin increase of 160bps (as advertisement costs as a percentage of sales will remain elevated) over FY15-FY18E.



Exhibit 23: Operating margin trend of electronics and electrical segments

16.2

18.2

16.415.4

11.612.9

10.5

13.0 13.3 13.6

5.3 5.6 6.1 5.9 5.7 5.8 5.6 5.5 5.8 6.4

0

2

4

6

8

10

12

14

16

18

20

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Electronics Electrical

(%)

Note: Electronics segment includes stabilisers, UPS and inverters while the remaining product categories are part of electrical segment.


Exhibit 24: Five-year trend of LME copper prices

2,000

4,000

6,000

8,000

10,000

Jan

-11

Ap

r-1

1

Jul-1

1

Oct

-11

Jan

-12

Ap

r-1

2

Jul-1

2

Oct

-12

Fe

b-1

3

Ma

y-1

3

Au

g-1

3

No

v-1

3

Fe

b-1

4

Ma

y-1

4

Au

g-1

4

No

v-1

4

Ma

r-1

5

Jun

-15

Se

p-1

5

De

c-1

5

Ma

r-1

6

(US$/tn)

Source: Bloomberg, Nirmal Bang Institutional Equities Research

Exhibit 25: Plastic resins – US producer price index Exhibit 26: Brent crude oil price chart

200

210

220

230

240

250

260

270

Ap

r-1

1

Au

g-1

1

De

c-1

1

Ma

r-1

2

Jul-1

2

No

v-1

2

Ma

r-1

3

Jun

-13

Oct

-13

Fe

b-1

4

Ma

y-1

4

Se

p-1

4

Jan

-15

Ap

r-1

5

Au

g-1

5

De

c-1

5

Ma

r-1

6

0

20

40

60

80

100

120

140

Jan

-11

Ap

r-1

1

Au

g-1

1

De

c-1

1

Ma

r-1

2

Jul-1

2

No

v-1

2

Fe

b-1

3

Jun

-13

Oct

-13

Jan

-14

Ma

y-1

4

Se

p-1

4

De

c-1

4

Ap

r-1

5

Au

g-1

5

No

v-1

5

Ma

r-1

6

(US$/barrel)

Source: Bloomberg, Nirmal Bang Institutional Equities Research Source: Bloomberg, Nirmal Bang Institutional Equities Research



Financials

11% revenue CAGR and 160bps EBITDA margin expansion likely over FY15-FY18E

VIL has posted a revenue CAGR of 24.5% over FY11-FY15, the highest among all consumer electrical companies in India, driven by successful expansion in non-south geography, strong product positioning and healthy market share across key categories. Top-line growth has been broad-based with voltage stabilisers growing 18%, wires & cables growing 26%, fans growing 27% and water heaters growing 29%. VIL does not depend to a major extent on any product and with scale-up of non-south geography (33% of 9MFY16 sales), even geographic concentration risk is getting mitigated gradually. As FY16 is muted for the entire industry, VIL posted a growth of only 3.4% in 9MFY16 because of soft summer season (many products of VIL are skewed towards summer demand) and lower commodity prices which affects realisation in value terms (for example,. wires & cables segment, accounting for 33% of VIL’s FY15 revenue, posted a 12% volume growth but registered a 14% decline in realisation due to copper price correction). We expect VIL to post 12.9%/16.9% YoY growth in revenues for FY17E/FY18E, respectively, driven by pick-up in cable division, traction in new products (kitchen appliances and switchgear), improvement in voltage stabiliser segment (because of new Sikkim facility which can cater to additional demand) and a healthy growth in fans segment. Continuation of penetration in non-south region and pick-up in demand in Kerala (as it revives from the fall in rubber prices and Middle East-linked fund flows) and Tamil Nadu (post Chennai floods impact) will also boost volume growth.

In 9MFY16, gross margin improved 210bps YoY to 29.1% while operating margin rose 100bps YoY to 8.5% despite revenue growth of only 3.4% YoY. The management expects at least 50bps margin expansion every year from FY17 for the next four to five years driven by economies of scale, improved operational efficiency and lower input prices. Rising profitability in non-south region and better product mix will also aid margins. We expect EBITDA margin of 8.8%/9.3% in FY17E/FY18E, respectively, translating to a 160bps expansion in operating margin over FY15-FY18E. We like the fact that VIL continues to invest strongly in its brand with a high advertisement expenditure at 4% of sales, and is not compromising on long-term brand positioning for short-term gains.

Exhibit 27: Revenue trend Exhibit 28: Margin trend

7,266

9,646

13,602 15,176

17,459 18,126

20,459

23,907

60.0

32.8

41.0

11.6

15.0

3.8

12.916.9

0

10

20

30

40

50

60

70

-

5,000

10,000

15,000

20,000

25,000

30,000


Revenue YoY growth %

(Rsmn) (%)

30.1

27.225.5 25.5 26.1

28.8 29.2 29.5

10.1 9.78.1 8.1 7.6 8.4 8.8 9.3

5.9 5.3 4.6 4.6 4.15.2 5.6 6.0

0

5

10

15

20

25

30

35


Gross margin EBITDA margin PAT margin

(%)




Healthy return ratios and fixed asset turnover

Capex-light business model with a higher proportion of outsourced manufacturing and low leverage ensures healthy return ratios and fixed asset turnover for VIL. Rising profitability and further reduction in debt (by Rs600mn over FY15-FY18E) will boost return ratios with its RoCE expected to rise from 26.4% in FY15 to 32.6% in FY18E and RoE likely to increase from 20.3% in FY15 to 24.3% in FY18E. With healthy cash flows and completion of debt repayment by FY18E, we expect cash on books to rise from Rs22mn in FY15 to Rs341mn in FY18E, thereby improving RoIC from 26.5% in FY15 to 34.4% in FY18E.

As 60% of manufacturing is outsourced, the fixed asset turnover is healthy. While gross block posted a 13% CAGR over FY11-FY15, revenues registered a 24.5% CAGR over the same period, leading fixed asset turnover to rise from 5x in FY11 to 7.3x in FY15. With planned capex of Rs500mn for greenfield voltage stabiliser manufacturing facility in Sikkim, we expect VIL to undertake total capex of Rs900mn in FY17E and FY18E compared to likely total capex outlay of Rs254mn in FY15 and FY16E. While this will marginally moderate fixed asset turnover, we expect it to still remain strong at 7x in FY18E as the benefit of rising revenue per distributor kicks in.

Exhibit 29: Trend in return ratios Exhibit 30: Trend in fixed asset turnover

23.9

26.1 26.025.4 26.4

29.030.4

32.627.2

26.6 26.724.2

20.322.6 23.1

24.324.7

26.6 26.6 25.9 26.5

29.731.9

34.4

0

5

10

15

20

25

30

35

40


RoCE RoE RoIC

(%)

1,462 1,625

1,888

2,280 2,407 2,519

2,969

3,419

5.0

5.9

7.26.7

7.3 7.26.9

7.0

0

1

2

3

4

5

6

7

8

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


Gross block Fixed asset turnover

(Rsmn) (%)


Strong cash flow generation amid declining leverage

With strong revenue growth, healthy profitability and a lean working capital cycle, VIL witnessed strong cash flow generation in FY14 and FY15. Cash generation has been effectively used to pare down debt with the debt-equity ratio declining from 0.8x in FY11 to 0.2x in FY15. Debt reduced from Rs1.4bn in FY11 to Rs678mn in FY15. We expect a further reduction in debt by Rs600mn over FY15-FY18E, thereby driving profitability through reduced interest cost burden. We expect VIL to generate total operating cash flow of Rs2bn in FY17E and FY18E as the benefit of improved working capital cycle amid rising profitability kicks in. Despite higher capex (Rs900mn in FY17E and FY18E) and further debt repayment, we expect VIL to generate total free cash flow of Rs1.1bn in FY17E and FY18E.

With healthy free cash flow at disposal, VIL is scouting for inorganic growth via acquisition in the range of Rs1bn-Rs2bn. VIL’s aim is not to acquire a brand but to look for adjacent growth categories like small appliances, kitchen appliances, switchgears etc which can be sold through its consumer durable and electric hardware distribution network. Availability of a product that can shorten VIL’s product development timeline is key driver behind proposed inorganic growth.



Exhibit 31: Trend in operating/free cash flow Exhibit 32: Trend in leverage position

(358)

842

121

1,134

814

959 990 1,041

(443)

561

(121)

786 720 809

540 591

(600)

(400)

(200)

-

200

400

600

800

1,000

1,200

1,400


Operating cash flow Free cash flow

(Rsmn)

0.8

0.5

0.6

0.3

0.2

0.10.0

0.0 0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


Net worth Debt Debt-equity ratio

(Rsmn) (x)


Lean working capital cycle to continue

VIL has strongly focused on reducing its working capital cycle by tightening inventory norms and collection period. It started project Udaan with four objectives: (a) Integrating supply chain planning (b) Consolidation of product and raw material sourcing, (c) Inventory tracking, and (d) New product development system. VIL has been successful in reducing its inventory days significantly from 102 in FY11 to 74 in FY15. Debtor days also reduced from 62 in FY11 to 51 in FY15. VIL has tightened its terms of trade in non-south region after establishing its foothold and is even walking away from distributors who are likely to face cash flow issues in future. VIL also improved creditor days through bill discounting scheme. Consequently, ex-cash net working capital posted a 10% CAGR over FY11-FY15 compared to a 24.5% CAGR rise in revenues, thereby aiding healthy operating cash flow generation. We expect the current lean working capital cycle benefit to sustain.

Exhibit 33: Trend in working capital cycle Exhibit 34: Trend in ex-cash net working capital position

62 56

53 51 51

50 49 48

102

82 90

81 74

67 65 65

38

50

59 57 55

45 43 42

-

20

40

60

80

100

120


Debtor days Inventory days Creditors days

(%)

98

71 73

63 60 63 63 63

-

20

40

60

80

100

120

-

5,000

10,000

15,000

20,000

25,000

30,000


Ex-cash net working capital Revenue Ex-cash NWC in days

(Rsmn) (Days)




9MFY16 performance

Exhibit 35: VIL’s 9MFY16 performance

Y/E March (Rsmn) 3QFY15 2QFY16 3QFY16 YoY (%) QoQ (%) 9MFY15 9MFY16 YoY (%)

Net sales 3,954 4,334 4,163 5.3 (4.0) 13,043 13,490 3.4

Raw material costs 2,880 3,090 2,876 (0.1) (6.9) 9,519 9,566 0.5

% of sales 72.8 71.3 69.1 - - 73.0 70.9 -

Employee costs 274 312 287 4.7 (8.1) 803 901 12.2

% of sales 6.9 7.2 6.9 - - 6.2 6.7 -

Other expenses 583 567 654 12.1 15.2 1,744 1,877 7.6

% of sales 14.8 13.1 15.7 - - 13.4 13.9 -

Operating profit 217 365 346 59.6 (5.1) 978 1,146 17.2

OPM (%) 5.5 8.4 8.3 - - 7.5 8.5 -

Interest costs 53 22 15 (72.3) (34.4) 160 77 (51.9)

Depreciation 39 38 38 (1.5) (0.2) 114 115 1.2

Other income 12 17 18 57.9 5.3 29 51 78.6

PBT 136 321 311 128.5 (3.0) 733 1,005 37.1

Provision for tax 44 90 97 121.3 6.6 226 308 36.2

Effective tax rate (%) 32.0 28.2 31.0 - - 30.8 30.6 -

PAT 93 231 215 131.9 (6.8) 507 697 37.5

NPM (%) 2.3 5.3 5.2 - - 3.9 5.2 -

EPS (Rs) 3.1 7.7 7.2 131.9 (6.8) 17.0 23.3 37.5


FY16 has been a modest year for consumer electrical industry. Consequently, VIL posted top-line growth of only 3.4% YoY in 9MFY16. Sales have been impacted by soft summer season (as demand for many VIL products like voltage stabilisers, fans and pumps is skewed towards summer season), slowdown in Kerala’s economy (due to rubber price decline and dependence on Middle East economy), floods in Chennai and other parts of Tamil Nadu and overall modest demand in India owing to lack of discretionary spending. The fall in commodity prices also negatively impacted realisation in value terms (for example, wires & cables segment, accounting for 33% of VIL’s FY15 revenue, posted a 12% volume growth but a 14% decline in realization because of the fall in copper prices).

However, gross margin improved 210bps YoY to 29.1% while operating margin improved 100bps YoY to 8.5% owing to rising profitability in non-south region, lower input prices and better operational efficiency. Consequently, EBITDA grew 17.2% YoY in 9MFY16. A 52% YoY decline in interest costs following reduction in debt led to a 130bps YoY expansion in net profit margin, thereby translating to a strong 37.5% YoY rise in PAT in 9MFY16.



Valuation

VIL stock trades at a median P/E of 24.7x one-year forward earnings over the past three years. The company has a strong product portfolio, high brand recall, healthy market share as well as benefits of a pan-India franchise and is favourably placed to reap the benefits of likely consumer demand uptick and industry shift towards the organised segment with its augmented distribution network. While we expect VIL to post 11% revenue CAGR over FY15-FY18E, rising profitability trend will lead to a 18.5% EBITDA CAGR and 26.8% earnings CAGR over the same period. Further, strong operating/free cash flow generation of Rs3bn/Rs2bn, respectively, over FY16E-FY18E, healthy return ratios (RoCE rising from 26.4% in FY15 to 32.6% in FY18E), lean working capital cycle and high fixed asset turnover (at 7x) will keep VIL in a strong financial position and support its valuation. We have valued VIL at 24xFY18E EPS (in line with its past three years’ median P/E and at a discount of 10% to Havells India) with a target price of Rs1,153, up 30% from the CMP.

Exhibit 36: P/E trend

0

200

400

600

800

1,000

1,200

1,400

1,600

Ap

r-1

3

Jul-1

3

No

v-1

3

Ma

r-1

4

Jul-1

4

No

v-1

4

Ma

r-1

5

Jul-1

5

No

v-1

5

Ma

r-1

6

(Rs)

20x

10x

30x

15x

25x

35x

0

5

10

15

20

25

30

35

40

45

Ap

r-1

3

Jul-1

3

No

v-1

3

Ma

r-1

4

Jul-1

4

No

v-1

4

Ma

r-1

5

Jul-1

5

No

v-1

5

Ma

r-1

6

(x)

Median P/E = 24.7x

Source: Bombay Stock Exchange, Nirmal Bang Institutional Equities Research

Exhibit 37: Peer comparison

Finolex Cables

Havells IndiaTTK Prestige

V Guard

Bajaj Electricals

-

5

10

15

20

25

30

0 5 10 15 20 25 30

(PE, x)

(FY18E EPS growth YoY, %)

Finolex Cables

Havells IndiaTTK Prestige

V Guard

Bajaj Electricals

-

5

10

15

20

25

30

0 5 10 15 20 25 30

(PE, x)

(FY18E RoE, %)

Source: Nirmal Bang Institutional Equities Research



Financials

Exhibit 1: Exhibit 38: Income statement


Net sales 15,176 17,459 18,126 20,459 23,907

% growth 11.6 15.0 3.8 12.9 16.9

Raw material costs 11,310 12,901 12,906 14,485 16,855

Staff costs 859 1,097 1,196 1,371 1,626

Other overheads 1,781 2,131 2,497 2,809 3,213

Total expenditure 13,950 16,129 16,599 18,665 21,693

EBITDA 1,225 1,330 1,527 1,795 2,214

% growth 11.5 8.5 14.8 17.5 23.4

EBITDA margin (%) 8.1 7.6 8.4 8.8 9.3

Other income 48 45 63 69 75

Interest costs 211 206 106 61 31

Depreciation 120 154 148 173 201

Profit before tax 943 1,014 1,337 1,631 2,058

Tax 241 307 401 489 617

Net profit 701 707 936 1,141 1,440

PAT margin (%) 4.6 4.1 5.2 5.6 6.0

EPS (Rs) 23.4 23.6 31.2 38.1 48.1

% growth 11.4 0.8 32.4 21.9 26.2


Exhibit 2: Exhibit 40: Balance sheet


Share capital 298 300 300 300 300

Reserves 2,886 3,478 4,204 5,082 6,172

Net worth 3,184 3,778 4,503 5,382 6,471

Short-term loans 773 466 216 116 16

Long-term loans 310 212 162 112 62

Total loans 1,083 678 378 228 78

Deferred tax liability 95 92 92 92 92

Total liabilities 4,363 4,548 4,973 5,702 6,642

Gross block 2,280 2,407 2,519 2,969 3,419

Depreciation 618 783 931 1,104 1,305

Net block 1,662 1,624 1,588 1,865 2,114

Capital work-in-progress 35 12 50 50 50

Investments - - - - -

Inventories 2,525 2,609 2,369 2,580 3,001

Debtors 2,121 2,437 2,483 2,747 3,144

Cash 28 22 215 281 341

Loans & advances 415 544 671 757 885

Total current assets 5,090 5,614 5,738 6,365 7,371

Creditors 1,753 1,934 1,591 1,706 1,939

Other current liabilities & provisions 671 768 811 871 954

Total current liabilities 2,423 2,702 2,402 2,578 2,894

Net current assets 2,667 2,912 3,335 3,787 4,478

Total assets 4,363 4,548 4,973 5,702 6,642


Exhibit 3: Exhibit 39: Cash flow


EBIT 1,105 1,176 1,379 1,622 2,013

(Inc.)/dec. in working capital 85 (251) (231) (385) (631)

Cash flow from operations 1,190 925 1,149 1,237 1,382

Other income 48 45 63 69 75

Depreciation 120 154 148 173 201

Tax paid (-) (225) (310) (401) (489) (617)

Net cash from operations 1,134 814 959 990 1,041

Capital expenditure (-) (347) (94) (150) (450) (450)

Net cash after capex 786 720 809 540 591

Interest paid (-) (211) (206) (106) (61) (31)

Dividends paid (-) (130) (162) (210) (263) (351)

Inc./(dec.) in short-term borrowing (557) (308) (250) (100) (100)

Inc./(dec.) in long-term borrowing (10) (98) (50) (50) (50)

Inc./(dec.) in total borrowings (567) (406) (300) (150) (150)

Inc./(dec.) in investments - - - - -

Cash from financial activities (908) (773) (616) (474) (531)

Others - 47 - - -

Opening cash balance 150 28 22 215 281

Closing cash balance 28 22 215 281 341

Change in cash balance (122) (5) 193 66 60


Exhibit 4: Exhibit 41: Key ratios

Y/E March FY14 FY15 FY16E FY17E FY18E

Per share (Rs)

EPS 23.4 23.6 31.2 38.1 48.1

Book value 106.2 126.0 150.2 179.6 215.9

Valuation (x)

P/E 38.0 37.7 28.5 23.4 18.5

P/BV 8.4 7.1 5.9 5.0 4.1

EV/EBITDA 22.6 20.5 17.6 14.8 11.9

EV/sales 1.8 1.6 1.5 1.3 1.1

Return ratios (%)

RoCE 25.4 26.4 29.0 30.4 32.6

RoE 24.2 20.3 22.6 23.1 24.3

RoIC 25.9 26.5 29.7 31.9 34.3

Profitability ratios (%)

EBITDA margin 8.1 7.6 8.4 8.8 9.3

EBIT margin 7.3 6.7 7.6 7.9 8.4

PAT margin 4.6 4.1 5.2 5.6 6.0

Turnover ratios

Total asset turnover ratio (x) 3.5 3.8 3.6 3.6 3.6

Fixed asset turnover ratio (x) 6.7 7.3 7.2 6.9 7.0

Debtor days 51 51 50 49 48

Inventory days 81 74 67 65 65

Creditor days 57 55 45 43 42

Solvency ratio (x)

Debt-equity 0.3 0.2 0.1 0.04 0.01




Rating track Date Rating Market price Target price (Rs)

10 July 2014 Buy 640 915

30 July 2014 Buy 728 915

5 November 2014 Buy 904 1,109

19 January 2015 Buy 1,143 1,315

13 April 2015 Buy 1,021 1,315

6 May 2015 Buy 983 1,175

10 July 2015 Buy 915 1,175

5 August 2015 Buy 977 1,125

13 October 2015 Buy 910 1,125

16 October 2015 Buy 926 1,125

2 February 2016 Buy 918 1,190

6 April 2016* Buy 890 1,153

Note: * Coverage transferred to Chirag Muchhala



Disclaimer

Stock Ratings Absolute Returns

BUY > 15%

ACCUMULATE -5% to15%

SELL < -5%

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