-
India Mid-Caps - September 2011Gautam ChhaochhariaAnalyst, Head
of Indian Mid-Cap [email protected] /+91 22 6155
6080
Ajay NandanwarAnalyst; [email protected] /+91 22 6155
6079
Ruchi VoraAnalyst; [email protected] /+91 22 6155 6078
Nupur AgarwalAnalyst; [email protected] /+91 22 6155
6054
Deepa MirchandaniAssociate Analyst; [email protected]
/+91 22 6155 6051
This document has been prepared by UBS Securities India Private
Ltd
UBS does and seeks to do business with companies covered in its
research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
Date: September 2011
UBS Investment Research
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON SLIDE
79
www.ubs.com/investmentresearch
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1
Table of ContentsMid-cap valuation 11
Apollo Hospitals (Buy, PT Rs 650) 13
Apollo Tyres (Buy, PT Rs 84) 14
Blue Star (Buy, PT Rs 430) 17
Carborundum (Buy, PT Rs 360) 18
Cholamandalam (Buy, PT Rs 215) 21
Coromandel International (Buy, PT Rs 416) 26
DB Corp (Buy, PT Rs 310) 29
Dish TV (Buy, PT Rs 110) 31
EID (Buy, PT Rs 368) 33
Emami (Neutral, PT Rs550) 34
Exide (Buy, PT Rs 200) 36
Essar Ports (Buy, PT Rs 135) 39
Fortis Healthcare (Neutral, PT Rs 170) 41
Hathway Cable (Buy, PT Rs 130) 42
Havells (Buy, PT Rs 510) 43
HT Media (Buy, PT Rs 195) 46
TVN18 (Buy, PT Rs 130) 47
Indraprastha Gas (NA) 49
Jagran Prakashan (Buy, PT Rs145) 51
Jai Balaji (Buy, PT Rs 450) 52
Jindal Saw (Buy, PT Rs 205) 54
Monnet Ispat (Buy, PT Rs 730) 55
Motherson Sumi (Buy, PT Rs 280) 56
Page Industries (NA) 58
Petronet LNG (Sell, PT Rs 135) 61
Pidilite Industries (Buy, PT Rs 200) 63
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2
Table of ContentsSintex Industries (Buy, PT Rs240) 66
Tube Investments (Buy, PT Rs200) 68
Triveni Engineering (Buy, PT Rs 85) 71
Tata Chemicals (Buy, PT Rs 450) 74
United Phosphorus (Buy, PT Rs 210) 75
VIP Industries (Buy, PT Rs1010) 76
Voltas (Buy, PT Rs225) 78
Welspun (Buy, PT Rs 250) 79
Disclosures 83
Prices and data as at 29 Aug 2011 unless otherwise stated
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3
Mid-Cap Coverage: Snapshot
Source: UBS estimates. Note: Prices as of 29 Aug 2011.
Bloom berg M kt Cap Price Price Up/down Avg daily traded Com
pany Ticker Sector Rating (IUSD m ) Close (Rs) Target (Rs) side (%
) Value -6M (US$)
Secular them es / Market leadersApollo Hospita ls Enterprise
APHS IB Healthcare Providers Buy 1,430 532.0 650.0 22.2 0.97Corom
andel Internationa l CRIN IB Agriculture Buy 1,934 315.5 416.0 31.9
1.53Carborundum Universal CU IB Industria l, D iversified Buy 596
293.0 360.0 22.9 0.23Cholam andalam Investm ent & F inance CIFC
IB D iversified Financia l Buy 393 151.6 215.0 41.8 0.26DB Corp
DBCL IB M edia Buy 930 235.4 310.0 31.7 0.52D ish TV India D ITV IB
M edia Buy 1,768 76.4 110.0 44.0 6.54Em am i Ltd HM N IB Household
P roducts, Non-Durab le Neutra l 1,515 460.0 550.0 19.6 0.74Exide
Industries EXID IB Auto Parts Buy 2,752 148.8 200.0 34.4
5.66Havells India HAVL IB Electric Com ponents & Equipm ent Buy
879 323.8 510.0 57.5 3.90HT M edia HTM L IB M edia Buy 752 147.5
195.0 32.2 0.47Jagran Prakashan JAG P IB M edia Buy 672 102.6 145.0
41.4 0.39M otherson Sum i System s M SS IB Auto Parts Buy 1,612
191.2 280.0 46.4 1.40P idilite Industries PID I IB Consum er Buy
1,743 158.3 200.0 26.3 0.74VIP Industries VIP IB Household P
roducts, Non-Durab le Buy 506 822.2 1,010.0 22.8 21.20Short-term /
CyclicalApollo Tyres APTY IB Tires Buy 616 56.2 84.0 49.5 6.16B lue
Star BLSTR IB Consum er E lectronics Buy 534 250.9 430.0 71.4
0.34Jindal Saw JSAW IB Steel Buy 704 117.2 205.0 75.0 1.72S intex
Industries SINT IB Industria l, D iversified Buy 857 144.4 240.0
66.3 5.78Tata Chem icals TTCH IB Chem icals, Specia lty Buy (CBE)
1,690 331.8 450.0 35.6 3.11United Phosphorus Lim ited UNTP IB Chem
icals, Specia lty Buy 1,334 139.5 210.0 50.5 4.21Voltas L td VOLT
IB Consum er E lectronics Buy 819 113.8 225.0 97.8 2.95W elspun
Corp W LCO IB Steel Buy 543 122.0 250.0 105.0 2.30Special situation
/ Deep valueCholam andalam Investm ent & F inance CIFC IB D
iversified Financia l Buy 393 151.6 215.0 41.8 0.26EID Parry
(India) EID IB Industria l, D iversified Buy 927 246.2 368.0 49.5
0.65Essar Ports ESRS IB Transport services Buy 641 71.8 135.0 88.2
0.21Hathway Cable & Datacom HATH IB M edia Buy 269 86.6 130.0
50.2 0.83Jai Bala ji Industries JBIL IB Steel Buy 171 123.4 450.0
264.7 0.44M onnet Ispat M ISP IB Industria l, D iversified Buy 549
483.0 730.0 51.1 0.98Petronet LNG PLNG IB O il Com panies,
Secondary Sell 2,796 171.3 135.0 -21.2 7.99Tube Investm ents of
India TI IB Auto Parts Buy 566 140.8 200.0 42.1 0.40Triveni
Engineering & Industries TRE IB Industria l Services Buy 122
21.7 85.0 291.7 0.91TV18 Broadcast TV18 IB M edia Buy 215 41.7
130.0 212.1 0.28Triveni Engineering & Industries TRE IB
Industria l Services Buy 122 21.7 85.0 291.7 0.91
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4
How do we pick stocks ?
Our approach is to keep screening about 150-200 stocks top down
on fundamental/valuation parameters, meet companies and then pick
up bottom up ideas. These ideas can be:
1. Secular themes in agri, consumption, healthcare,
industrials.
2. Market leaders in small industries, sometimes with strong
brands
3. Special Situations - Turnaround stories, value unlocking,
regulatory catalysts, SOTP
4. Short-term positions where we see industry cycle bottoming
out and stocks cheap
5. Huge resources like coal and cheap stocks
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5
Stick with winners•Which companies displayed earnings resilience
in the last downcycle?
We analyzed the financials of our 33-stock mid-cap coverage
during the last macro downcycle (Q3 FY09-Q2 FY10). We find the most
resilient earnings for companies which are: 1) market leaders with
a strong/niche brand (Exide, Havells, Emami); 2) exposed to
non-cyclical demand like agri/healthcare/city-gas (Coromandel,
Apollo Hospitals); and 3) present in nascent high-growth markets
like Dish TV.
•How did our coverage mid-cap stocks perform in the last
downcycle?
Most of the companies displaying earnings resilience
outperformed the Sensex and BSE Mid-Cap Index over September 2008
to March 2009. However, all these stocks were down on an absolute
basis; the Sensex/BSE Mid-Cap Index was down 33%/49%.
•2011 YTD performance of our mid-cap stocks selectively
impressive
2011 YTD stock price performance also continues to be above
trend, arguably also because of some macro uncertainty. The index
of our mid-cap stocks coverage has outperformed the Sensex/BSE
Mid-cap Index by 8%/12% but performance has been much
dispersed.
•Conclusion—continue to stick with winners
We prefer to stick with winners who have displayed resilience in
earnings and stock price in the last downcycle and have continued
to do so recently.
—Top 10 mid-cap ideas: Coromandel, Exide, Havells, VIP, Triveni,
Motherson, Emami, Dish TV, DB Corp, Pidilite.
— Other ideas: Carborundum, Chola Finance, Tube Investments, Jai
Balaji
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6
Mid-cap coverage: Conclusion summary
Source: UBS research. Note: * Performance is relative to BSE
Sensex over 15 Sep 2008-1 April 2009 period.
Impact evident on both revenues and margins-33.4HT Media
Impact limited to just one quarter (exception - one time impact
from sharing inventory losses faced by distributors), else revenues
growth and margins unaffected. This is ex Sylvania numbers. Stock
reacted more to Sylvania linked issues.
-36.9
Havells India
Revenues growth impacted (due to OEM sales slowing) but earnings
growth remained on track - reflecting high margins and stable
aftermarket business-12.1Exide Industries
Impact muted due to niche consumer products2.6Emami LtdMore
impacted by the sugar cycle-4.8EID Parry (India)
Not enough details as was unlisted. Impact was more immediate
but recovered within a quarterNADB Corp
No impact on growth, was at very early stage of penetration
though5.5Dish TV India
Was facing brunt of losses in unsecured personal loans business,
which it has now stopped-59.0Cholamandalam
Revenues declined marginally but margins impact
minimal-17.0Carborundum Universal
Slight impact on margins, drivers more local weather and farm
output volumes/prices-21.2Coromandel International
Sales declined, but lower commodity costs helped margins. Old
order book protects numbers in short-term-41.1Blue Star
Strongly impacted, but recovery was also sharp-32.0Apollo
Tyres
Not even marginally impacted!12.8Apollo Hospitals
EnterpriseComments
Relative performance *
Least impacted
Moderately impacted
Strongly impactedCompanies
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7
Mid-cap coverage: Conclusion summary (Cont.)
Historical order book helped protecting immediate numbers, but
high leverage led to sharply lower earnings-61.9Welspun Corp
Impacted as it was still in early stages of getting its
manufacturing and product positioning right-25.2VIP Industries
Sales declined, but lower commodity costs helped margins. Old
order book protects numbers in short-term-44.8Voltas Ltd
More linked to agri cycle and thus impact was muted-9.1United
Phosphorus Limited
--27.4Tata Chemicals
--30.0Triveni Engineering & Industries
Though impact was only for couple of quarters, it was severe in
terms of margins and growth. Recovery was sharp too-14.0Tube
Investments of India
Moderately impacted due to revenues growth coming off sharply,
though margins impact muted-49.5Sintex Industries
-3.0Petronet LNG
Revenues growth impacted but margins impact muted, reflecting
pricing power for its consumer business-13.8Pidilite Industries
Not even marginally impacted!13.7Page Industries--52.9Monnet
IspatImpact on numbers more due to SMR acquisition-1.7Motherson
Sumi SystemsImpact on revenues and earnings short-lived5.9Jagran
PrakashanHistorical order book helped protecting immediate
numbers-58.4Jindal SawImpacted adversely as it was less integrated
and more leveraged then-41.4Jai Balaji Industries
CommentsRelative
performance *Least
impactedModerately impacted
Strongly impactedCompanies
Source: UBS research. Note: * Performance is relative to BSE
Sensex over 15 Sep 2008-1 April 2009 period.
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8
What are companies saying ?
•We hosted senior management of 27 companies in meetings with
about 100 investors at UBS’s first India Mid-Cap Conference.
•Most popular company meetings (in terms of number of investors
met) were Coromandel, Exide, Havells, Motherson, Pidilite, Apollo
Tyres, Triveni, TI, Chola.
•Barring one, all companies’ management exuded a confident
outlook for FY12 as well as over the medium term, despite concerns
on macro environment.
•They remain confident on maintaining margins in FY12, despite
input price pressures, indicating confidence in pricing power.
•Expansion projects are on track, so is turnaround/restructuring
in some cases
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9
Mid-Cap coverage: Stock performance
Source: UBS. Note: Prices as at 29 Aug 2011, the table is sorted
by best 3M relative performers
Company 1M 3M 6M 12M YTD 1M 3M 6M 12M YTD3M relative
outperfomersPage Industries 14.4 51.8 61.2 108.9 68.0 26.8 68.6
75.0 129.0 109.9Petronet LNG (0.5) 28.1 55.7 57.4 37.1 10.3 42.2
69.0 72.6 71.3Indraprastha Gas 3.1 26.5 45.0 28.2 22.6 14.2 40.4
57.4 40.5 53.1EID Parry (India) (8.5) 18.9 25.2 23.0 (11.5) 1.5
32.0 35.9 34.8 10.6Carborundum Universal (4.7) 11.7 22.0 44.7 16.2
5.6 24.1 32.5 58.6 45.1Apollo Hospitals Enterprise 0.6 10.7 14.5
32.3 17.1 11.6 22.9 24.3 45.0 46.3Tube Investments of India (11.5)
8.7 13.2 6.6 (6.4) (1.9) 20.7 22.9 16.9 16.9VIP Industries 1.4 7.5
58.7 73.5 23.5 12.4 19.4 72.3 90.2 54.3Emami Ltd (6.8) 6.3 29.1 5.4
14.2 3.3 18.1 40.1 15.6 42.6Pidilite Industries (8.2) 5.0 14.4 14.3
4.4 1.8 16.6 24.2 25.3 30.4Dish TV India (9.9) 1.1 30.2 53.7 7.5
(0.1) 12.3 41.3 68.5 34.2Cholamandalam Investment & Finance
(10.5) 0.4 (2.0) 0.1 (20.1) (0.7) 11.5 6.4 9.7 (0.2)Coromandel
International (3.6) 0.1 23.6 19.2 (0.4) 6.8 11.1 34.2 30.7 24.5DB
Corp (5.1) (0.2) (0.3) (9.0) (11.2) 5.2 10.8 8.3 (0.2) 11.0Monnet
Ispat (1.9) (2.2) (14.1) (2.5) (14.1) 8.7 8.7 (6.7) 6.9 7.4HT Media
(7.3) (5.4) 11.7 (13.3) 1.4 2.7 5.0 21.3 (4.9) 26.6Exide Industries
(4.0) (6.6) 9.2 1.3 (10.8) 6.4 3.7 18.6 11.0 11.4Fortis Healthcare
(9.2) (6.8) 3.5 (1.2) 3.2 0.6 3.5 12.4 8.3 29.03M relative
underperformersTata Chemicals (7.0) (10.9) 3.7 (13.0) (15.8) 3.1
(1.1) 12.6 (4.6) 5.2United Phosphorus Limited (16.0) (11.8) 2.8
(24.3) (19.4) (6.9) (2.1) 11.7 (17.0) 0.7Motherson Sumi Systems
(16.9) (16.0) (2.9) 4.8 5.1 (7.8) (6.7) 5.4 14.9 31.4Jagran
Prakashan (9.6) (16.9) (8.0) (17.3) (22.2) 0.2 (7.7) (0.1) (9.3)
(2.8)Apollo Tyres (23.2) (18.2) 7.7 (21.8) (15.7) (14.8) (9.1) 16.9
(14.2) 5.3Blue Star (12.4) (20.8) (22.3) (41.6) (42.6) (2.9) (12.1)
(15.7) (35.9) (28.3)Havells India (10.8) (20.9) 2.5 (20.4) (18.3)
(1.1) (12.2) 11.3 (12.7) 2.1Hathway Cable & Datacom (22.5)
(23.1) (27.3) (57.3) (48.2) (14.1) (14.6) (21.1) (53.2)
(35.3)Sintex Industries (18.0) (23.8) (1.5) (18.4) (20.8) (9.1)
(15.3) 6.9 (10.5) (1.0)Jindal Saw (23.3) (25.6) (41.0) (41.7)
(35.9) (14.9) (17.4) (35.9) (36.0) (20.0)Welspun Corp (18.5) (31.0)
(35.9) (48.2) (28.1) (9.7) (23.4) (30.4) (43.2) (10.2)Voltas Ltd
(17.5) (32.0) (30.9) (43.9) (47.8) (8.5) (24.5) (25.0) (38.5)
(34.8)Jai Balaji Industries (31.1) (34.2) (29.8) (53.9) (53.5)
(23.6) (26.9) (23.8) (49.5) (41.9)Triveni Engineering &
Industries (35.5) (40.2) (39.4) (44.8) (51.1) (28.5) (33.6) (34.3)
(39.5) (38.9)Essar Ports (22.1) (49.6) (34.7) (50.8) (56.0) (13.7)
(44.1) (29.1) (46.0) (45.0)TV18 Broadcast (39.4) (52.9) (54.9)
(66.5) (53.2) (32.8) (47.7) (51.0) (63.3) (41.5)
Absolute performance (%) Relative performance versus Sensex
(%)
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10
Mid-Cap coverage index performance
Source: UBS, Datastream. Prices as at 29 August 2011.
UBS India mid-cap index (market cap weighted) performance versus
Sensex and BSE mid-cap since Nov 2010
UBS India mid-cap index (market cap weighted) performance versus
Sensex and BSE mid-cap since Jan 2011
BSE Mid-Cap and Small-Cap index performance vs. Sensex
70
75
80
85
90
95
100
105
110
Nov-
10
Dec-
10
Jan-
11
Feb-
11
Mar-1
1
Apr-1
1
May
-11
Jun-
11
Jul-1
1
Aug-
11
UBS India mid-cap index (market cap wtd.) Sensex BSE Mid-Cap
75
80
85
90
95
100
105
Jan-
11
Feb-
11
Mar-1
1
Apr-1
1
May-1
1
Jun-
11
Jul-1
1
Aug-
11
UBS India Mid cap index (market cap wtd.) Sensex BSE Mid-Cap
70
75
80
85
90
95
100
105
Jan-
11
Feb-
11
Mar-1
1
Apr-1
1
May
-11
Jun-
11
Jul-1
1
Aug-
11Sensex BSE Mid-Cap BSE Small-Cap
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11
"UBSINMID Index" available on Bloomberg
Source: UBS, Bloomberg. Prices as at 29 August 2011. Please note
that the UBSINMID Index data is not available for the period from 6
Jul’11 to 20 Jul’11.
UBSINMID Index composition
Name % Weight
Coromandel International Ltd 16.7Dish TV India Ltd 17.1Emami Ltd
13.0Exide Industries Ltd 24.0Havells India Ltd 8.4Motherson Sumi
Systems Ltd 14.9Triveni Engineering & Industries Ltd 1.8VIP
Industries Ltd 4.1
UBSINMID Index performance versus Sensex and BSE Mid-cap since
Jan 2011
70
75
80
85
90
95
100
105
110
Jan-
11
Feb-
11
Mar-1
1
Apr-1
1
May-1
1
Jun-
11
Jul-1
1
Aug-
11
UBSINMID Index SENSEX Index BSEMDCAP Index
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12Source: UBS estimates. Note: Prices as of 29 Aug 2011.
Mid-Cap Coverage: Valuation MetricsIndian Mid Cap Companies
Valuation
Price EPS CAGR Debt/EquityCompany Rating Target (Rs) 11-13E
FY12E FY13E FY12E FY13E FY12E FY13E FY12E (%) FY12E FY13E FY12E
FY13E
Apollo Hospitals Enterprise Buy 650.0 28.2% 28.3x 22.3x 3.2x
2.9x 13.4x 11.0x 30.6 17.5 19.2 11.9 13.4Apollo Tyres Buy 84.0 8.9%
6.8x 5.4x 1.0x 0.9x 4.5x 3.6x 77.4 17.0 19.0 16.1 17.1Blue Star Buy
430.0 20.9% 12.1x 9.6x 3.3x 2.7x 8.1x 6.6x -18.3 44.4 53.2 27.4
28.4Coromandel International Buy 416.0 33.0% 12.8x 10.0x 3.7x 3.0x
8.1x 6.0x -14.9 50.3 66.3 31.7 33.0Carborundum Universal Buy 360.0
24.9% 13.9x 11.4x 3.0x 2.5x 8.4x 7.0x 36.8 26.9 27.4 23.8
23.9Cholamandalam Investment & Finance Buy 215.0 68.5% 8.9x
6.9x 1.5x 1.3x NM NM NA NM NM 18.2 20.3Dish TV India Buy 110.0 NM
NM 45.6x 106.9x 32.0x 15.2x 10.7x 1034.1 13.2 36.1 NM 107.9DB Corp
Buy 310.0 10.4% 16.7x 13.7x 4.3x 3.6x 10.1x 8.2x 0.7 40.4 45.7 28.0
28.5EID Parry (India) Buy 368.0 74.0% 24.9x 22.6x 3.4x 3.2x 17.7x
16.7x 39.1 9.0 9.9 14.3 14.6Emami Ltd Neutral 550.0 23.8% 24.9x
19.9x 7.8x 6.1x 23.1x 18.4x -11.0 38.4 43.4 35.3 34.5Exide
Industries Buy 200.0 24.9% 17.0x 12.8x 3.7x 3.0x 9.1x 6.7x -27.3
75.5 87.0 24.3 25.7Essar Ports Buy 135.0 193.0% 19.2x 9.5x 1.1x
0.9x 9.2x 7.9x 208.1 8.2 9.7 6.3 10.5Fortis Healthcare Neutral
170.0 68.0% 49.0x 30.6x 1.7x 1.6x 22.4x 16.4x 6.0 5.0 6.8 3.6
5.4Havells India Buy 510.0 24.1% 12.7x 10.3x 2.4x 1.9x 7.8x 6.2x
-12.1 45.5 46.5 20.4 20.6Hathway Cable & Datacom Buy 130.0 NM
277.7x 39.5x 1.4x 1.4x 8.3x 6.5x 18.4 2.9 5.9 0.5 3.6HT Media Buy
195.0 19.0% 15.8x 13.5x 2.3x 2.0x 7.9x 6.2x -7.2 32.5 37.9 15.6
16.1TV18 Broadcast Buy 130.0 148.5% 17.4x 8.8x 0.7x 0.7x 6.4x 3.9x
15.0 7.0 11.3 4.2 7.8Indraprastha Gas NA NA 17.8% 19.3x 16.3x 5.1x
4.3x 9.0x 7.4x 41.9 34.1 33.4 28.5 28.5Jai Balaji Industries Buy
450.0 56.6% 3.4x 2.6x 0.6x 0.5x 3.8x 3.0x 209.2 15.3 16.3 17.8
19.2Jindal Saw Buy 205.0 18.5% 8.0x 5.3x 0.9x 0.7x 4.5x 3.4x 41.7
12.9 18.0 10.4 15.3Jagran Prakashan Buy 145.0 14.4% 14.2x 11.8x
4.0x 3.5x 7.7x 6.4x 21.1 45.7 49.0 30.4 31.9Motherson Sumi Systems
Buy 280.0 25.3% 15.6x 12.1x 4.1x 3.3x 8.9x 7.0x 48.4 24.2 28.2 28.5
30.3Monnet Ispat Buy 730.0 28.2% 6.7x 6.9x 1.3x 1.1x 6.5x 7.8x
254.1 12.5 10.0 20.7 17.0Page Industries NA NA 38.2% 35.9x 25.6x
17.9x 13.6x 23.0x 16.6x 62.2 47.4 57.2 56.2 60.4Pidilite Industries
Buy 200.0 24.5% 21.0x 16.6x 6.0x 5.0x 14.4x 11.7x 8.8 41.3 46.2
31.4 32.8Petronet LNG Sell 135.0 11.1% 18.0x 16.8x 4.0x 3.4x 10.4x
9.3x 125.5 24.1 21.6 24.3 21.9Sintex Industries Buy 240.0 19.4%
7.1x 6.8x 1.3x 0.9x 5.5x 3.7x 50.3 19.3 21.0 20.7 17.7Tube
Investments of India Buy 200.0 23.5% 14.0x 11.0x 2.2x 1.9x 6.3x
5.2x 86.8 30.5 28.6 16.9 18.3Triveni Engineering & Industries
Buy 85.0 69.7% 4.2x 2.7x 0.5x 0.4x 3.3x 2.2x 41.7 14.2 18.9 12.1
16.7Tata Chemicals Buy (CBE) 450.0 16.7% 9.8x 8.6x 1.5x 1.4x 5.5x
5.2x 70.6 17.3 18.8 16.1 16.7United Phosphorus Limited Buy 210.0
28.6% 7.7x 6.7x 1.4x 1.2x 4.6x 4.0x 21.0 26.8 27.1 19.9 19.3Voltas
Ltd Buy 225.0 19.5% 10.1x 8.3x 2.2x 1.8x 6.4x 5.2x -28.4 56.5 57.6
24.3 24.2VIP Industries Buy 1,010.0 21.9% 22.0x 17.2x 7.7x 5.8x
14.2x 11.1x 10.8 46.8 55.2 40.3 38.6Welspun Corp Buy 250.0 12.9%
3.4x 3.3x 0.7x 0.5x 2.5x 1.7x 62.7 27.2 29.6 21.4 18.6
29-Aug-11EBIT RoIC pre-tax (%) ROE (%)EV/EBITDAP/E P/B
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13
Apollo Hospital Enterprise (APLH.BO, Buy, PT Rs 650, 22%
upside)
• Leading healthcare service which manages 3,800 owned beds and
1,500 managed beds and a chain of 1,100 Apollo Pharmacy stores in
India.
• Stable revenue profile. From Q1 FY09 to Q4 FY11, it reported
sequential revenue growth every quarter (average of 5%).
• Brand, leadership in healthcare technology, and scale are
critical in healthcare services; APLH ranks high on all these
counts.
• New hospitals launched within last 2 years progressing well.
Bhubaneswar and Karimnagar are EBITDA positive within second year
of operation.
• Apollo Hospitals needs Rs9bn over next two years to fund
expansion. It has raised Rs3bn as equity and plans to raise another
Rs6bn through debt and internal accruals.
• Shareholding: Promoter - 32%.• Valuation: DCF using VCAM
(assume WACC of 11.85%
and terminal sales growth of 5.6%). Implied FY13E EV/EBITDA
13.3x; and Rs 25 for value of associates.
Investment Thesis
Key assumptions
• Revenue per bed day to continue to grow at 10%+ driven by
inflation, reduction in length of stay, and improvement in case
mix.
• Continued margin improvement in individual hospital cluster
driven by maturing hospitals and higher utilization.
•Apollo Hospitals adds 2300 beds FY11-FY15E.
Stock performance
Source: UBS estimates, Datastream, Company
1 yr forward EV/EBITDA
0.01.02.03.04.05.06.07.08.09.0
Apr-0
6
Dec-0
6
Aug-
07
Apr-0
8
Dec-0
8
Aug-
09
Apr-1
0
Dec-1
0
Aug-
11
EV/EBITDA Mean Std+1 std-1
0
100
200
300
400
500
600
700
Aug-
09
Oct-0
9
Dec-
09
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-
10
Feb-
11
Apr-1
1
Jun-
11
Aug-
11-20
0
20
40
60
80
100
120
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
16,142 20,265 25,662 30,239 36,437EBITDA (Rs Mn) 2,227 3,006 4,193
5,132 6,302Net profit (Rs Mn) 827 1,264 1,832 2,380 3,013EPS (Rs)
NA 10.20 14.48 18.81 23.81Revenues Growth (%) 32.7 25.5 26.6 17.8
20.5EPS Growth (%) NA NA 42.0 29.9 26.6EBITDA Margin (%) 13.8 14.8
16.3 17.0 17.3Net Margin (%) 5.1 6.2 7.1 7.9 8.3
Shareholders' equity (Rs Mn) 14,689 16,535 18,743 21,321
23,558Net debt / (cash) (Rs Mn) 6,233 6,522 7,376 6,591 8,794Net
fixed assets (Rs Mn) 12,884 16,257 18,505 19,545 22,964Net Working
Capital (Rs Mn) 2,835 3,412 4,225 4,979 5,999Investments (Rs Mn)
5,915 4,166 4,166 4,166 4,166Net debt /equity (%) 42 39 39 31
37EBIT ROIC (pre-tax) (%) 11.9 13.1 15.6 17.5 19.2ROE (%) 6.0 8.1
10.4 11.9 13.4
Operating cash flow (Rs Mn) 2,065 2,803 3,936 4,830 5,938Capex
(Rs Mn) 3,644 3,913 3,212 2,139 4,691EV/EBITDA (x) 11.8 12.3 16.4
13.4 11.0P/E (x) 32.2 27.4 36.7 28.3 22.3P/BV (x) 1.8 2.1 3.6 3.2
2.9Dividend Yield (%) 1.5 1.2 0.8 0.9 1.0Source: Company, UBS
estimates. Note: Valuation ratios are based on historical prices
for FY08-11 .
Apollo Hospitals Enterprise ( APLH.BO, Buy, CMP Rs532, PT Rs650,
22% upside)
-
14
Apollo Tyres (APLO.BO, Buy, PT Rs 84, 49% upside)
• Leading tyre manufacturer in India with the highest market
share in truck tyres. In FY04-FY10, it achieved a 39% higher
EBITDA/MT than its competitors.
•In rising raw material cost scenario, Apollo Tyres protected
its contribution margin and its EBITDA margins decline was far less
severe compared to its competitors.•Radial tyre industry in India
likely to be capacity constrained even with modest growth in CV
tyre volumes.
• Apollo Tyres has made profitable, EPS accretive acquisition,
even at the peak of credit crisis.
• Key assumptions: 1) Raw material costs stabilize after steep
appreciative over last one year – we expect that natural rubber and
synthetic rubber costs stabilize at current levels, and 2) Domestic
volumes assumed to grow at modest 5% CAGR over FY10-FY15E.
• Shareholding: Promoter - 44%.Valuation: Multiple based
approach; valuing Indian business at
4.5x EV/EBITDA and international business at 5.5x EV/EBITDA on
Sept 2012 financials. Implied PE at target price – 8.7x.
Investment Thesis
Stock performance1 yr forward P/E
0.0
5.0
10.0
15.0
20.0
Apr-0
6
Dec-
06
Aug-
07
Apr-0
8
Dec-
08
Aug-
09
Apr-1
0
Dec-
10
Aug-
11
PE Mean Std+1 std-1
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
49,841 81,207 89,079 118,332 137,513EBITDA (Rs Mn) 4,223 11,721
9,778 11,394 13,290Net profit (Rs Mn) 1,307 5,467 4,408 4,190
5,223EPS (Rs) 2.63 10.85 8.75 8.31 10.36Revenues Growth (%) 6.2
62.9 9.7 32.8 16.2EPS Growth (%) NM 311.7 -19.4 -4.9 24.7EBITDA
Margin (%) 8.5 14.4 11.0 9.6 9.7Net Margin (%) 2.6 6.7 4.9 3.5
3.8
Shareholders' equity (Rs Mn) 13,495 19,678 24,125 28,029
32,905Net debt / (cash) (Rs Mn) 6,283 15,206 24,683 21,688
17,018Net fixed assets (Rs Mn) 17,068 30,961 40,221 42,602
41,748Net Working Capital (Rs Mn) 4,604 6,379 11,638 10,362
11,669Investments (Rs Mn) 48 59 112 112 112Net debt /equity (%) 47
77 102 77 52EBIT ROIC (pre-tax) (%) 16.3 33.6 16.9 17.0 19.0ROE (%)
10.4 33.2 20.1 16.1 17.1
Operating cash flow (Rs Mn) 3,575 10,167 7,898 9,378 11,198Capex
(Rs Mn) 5,053 10,444 11,978 5,436 3,000EV/EBITDA (x) 4.8 2.8 5.6
4.5 3.6P/E (x) 11.2 4.0 7.9 6.8 5.4P/BV (x) 1.1 1.1 1.5 1.0
0.9Dividend Yield (%) 1.5 1.7 0.7 0.8 1.1Source: Company, UBS
estimates. Note: Valuation ratios are based on historical prices
for FY08-11 .
Apollo Tyres ( APLO.BO, Buy, CMP Rs56, PT Rs84, 49% upside)
0
20
40
60
80
100
Aug-
09
Oct-0
9
Dec-
09
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-
10
Feb-
11
Apr-1
1
Jun-
11
Aug-
11-20
0
20
40
60
80
100
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
SOTP valuation
Rs mn EBITDA EV/ EBITDA EV per shareIndia business 9,159 4.5
41,216 82 International business 4,131 5.5 22,720 45 Consolidated
net (debt) (21,722) (43)
42,214 84 P/E at target price on March 13 EPS 8.1
Source: UBS estimates, Datastream, Company
-
15
Apollo Tyres– Indian tyre industry
Source: UBS estimates, Company
EBITDA/MT for Tyre Industry – grew over time
-2,000
2,000
6,000
10,000
14,000
18,000
22,000
26,000
FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11
Apollo Tyres JK Tyres CEAT Tyres Birla Tyres MRF
99
7265
52
2718
69
0
25
50
75
100
W Europe +NA
Africa / ME SouthAmerica
Asia EasternEurope
India WorldAverage
Radial penetration rate (%) in CV tyres – India is below world
average
Indian Tyre industry market shares – Truck and Bus, Light CV and
Car tyre segments
VendorCapex (Rs
bn)Commissioning
date
Radial capacity
(TPD)Michelin (2) 25 Dec-13 500 Bridgestone (2) 25 Dec-13 500
Apollo tyres 23 Dec-12 500 JK Tyre (1) 9 Dec-12 175 Birla Tyre 10
Jun-11 175 MRF 9 Jun-12 150 Ceat 7 Dec-11 125 Import substitution
by Michelin and Bridgestone (1,000) Incremental Tyre supply -- TPD
1,125
(1) Expansion of TBR capacity from 0.4 mio tpa to 0.8 mio tpa
has already commissioned.(2) Michelin and Bridgestone have
announced 7-10 year plans. We have taken data
suggested by industry participants(3) Michelin and Bridgestone
-- currently import 350,000 MT of TBR tyres per year.
Indian Tyre Industry supply assumptions
-
16
Apollo Tyres– better managed
Source: UBS estimates, Company
Most efficient tyre manufacturer in India – EBITDA margins and
ROAE Apollo tyres – gained market share
Apollo tyres – managed leverage better
Apollo tyres – gained market share
-
17
Blue Star (BLUS.BO, Buy, PT Rs430, 71% upside)
• An Indian MEP contractor and manufacturer of AC and commercial
refrigeration systems. It is a beneficiary of long-term structural
story, growing infrastructure spending in India (US$500bn total)
and rapid 25-30% growth in consumer AC volumes
• Pick-up in domestic capex could support a re-rating of stock,
given their high elasticity to GDP growth (EPS CAGR of 42% in
FY06-10). We estimate an EPS CAGR of 21% in FY11-13 and 44% ROIC in
FY12
• Asset-light business model, broad based exposure, integrated
project execution ability, higher returns and low leverage; Rs21bn
order book supports c1 year visibility in MEP business
• Focus on the infrastructure and industrial segments to
facilitate order book growth
• Shareholding: Promoter - 40%
• Valuation: DCF using UBS’s VCAM tool (assume WACC of 12.2% and
terminal sales growth of 1.7%). Implied FY13E PE of 16.5x
Investment Thesis
Segment Revenues (Rs mn) Stock performance 1 yr forward P/E
Segment Revenues FY09 FY10 FY11E FY12E FY13EElectromechanical
Projects and Packaged ACs 17,331 17,940 18,119 19,207 23,048Cooling
Products 5,975 5,830 7,462 9,253 11,288Professional Electronics and
Industrial Systems 1,721 1,480 1,895 2,273 2,728Total segment
revenue (Rs mn) 25,026 25,250 27,476 30,733 37,064Segment
ResultsElectromechanical Projects and Packaged ACs 2,182 2,126
1,540 1,729 2,190Cooling Products 754 835 821 1,064
1,129Professional Electronics and Industrial Systems 383 457 464
591 682Total segment results (Rs mn) 3,319 3,418 2,825 3,384
4,000
0
100
200
300
400
500
600
Aug-
09
Oct-0
9
Dec-
09
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-
10
Feb-
11
Apr-1
1
Jun-
11
Aug-
11
-40
-30
-20
-10
0
10
20
30
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
25,026 25,250 27,476 30,733 37,064EBITDA (Rs Mn) 2,596 2,747 2,473
3,012 3,706Net profit (Rs Mn) 1,803 1,975 1,606 1,864 2,349EPS (Rs)
20.05 21.96 17.86 20.73 26.12Revenues Growth (%) 12.7 0.9 8.8 11.9
20.6EPS Growth (%) 3.6 9.6 -18.7 16.1 26.0EBITDA Margin (%) 10.4
10.9 9.0 9.8 10.0Net Margin (%) 7.2 7.8 5.8 6.1 6.3
Shareholders' equity (Rs Mn) 3,671 4,917 6,148 7,469 9,051Net
debt / (cash) (Rs Mn) 181 -43 80 -1,369 -2,280Net fixed assets (Rs
Mn) 2,124 1,992 2,048 2,105 2,243Net Working Capital (Rs Mn) 1,685
2,825 4,013 3,776 4,244Investments (Rs Mn) 50 57 167 219 285Net
debt /equity (%) 5 -1 1 -18 -25EBIT ROIC (pre-tax) (%) 69.4 55.5
39.3 44.4 53.2ROE (%) 57.2 49.3 29.0 27.4 28.4
Operating cash flow (Rs Mn) 2,296 2,650 2,298 2,812 3,456Capex
(Rs Mn) 851 239 374 380 480EV/EBITDA (x) 10.3 11.7 9.9 8.1 6.6P/E
(x) 14.0 14.9 14.0 12.1 9.6P/BV (x) 7.5 6.5 4.0 3.3 2.7Dividend
Yield (%) 2.5 2.4 1.7 2.4 3.4Source: Company, UBS estimates. Note:
Valuation ratios are based on historical prices for FY08-11 .
Blue Star ( BLUS.BO, Buy, CMP Rs251, PT Rs430, 71% upside)
Source: UBS estimates, Datastream, Company
0
5
10
15
20
25
30
Apr-0
6
Dec-0
6
Aug-
07
Apr-0
8
Dec-0
8
Aug-
09
Apr-1
0
Dec-1
0
Aug-
11
PE Mean Std+1 std-1
-
18
Carborundum (CRBR.BO, Buy, PT Rs 360, 23% upside)
• Market leader in abrasives and ceramics
• CUMI strategy to increase focus on electro minerals (raw
materials for abrasives and ceramics, strategic and scarce minerals
used in high-end applications)
- 36%/40% of its revenue/EBIT in FY11
- higher margins (18%) and ROCE (32%)
- 4 new expansion projects
• 19% EPS CAGR over FY11-13E, 24% revenue CAGR and higher
margins. Higher capacity utilization in abrasives and ceramics =
ROCE back to 25%+
• Market Cap US$0.6bn, ADV
-
19
Carborundum – Snapshot
Source: UBS, Company
Business Products Capacity
CUMI consolidated sales (US$m)
Global industry
sales (US$m) End user industries Major players
Abrasives 155 9,500 Global - Saint Gobain, Tyrolit, Winterthur,
Sia Abrasives and
3M India - Grindwell Norton Ltd. John Oakey & Mohan and SAK
abrasives
Bonded abrasives (including super abrasives). 50,000 tons
Automobile, construction, fabrication, and steel industry
Coated abrasives 18 mil sq mts Automobile, furniture,
fabrication and construction industry
Metal working fluids Grinding applications
Power tools Metal working, wood working and construction
industry
Synthetic diamonds Machinery, metallurgy, geology, petroleum and
electronic fields
Ceramics
Fired Refractories 7,500 tons Ceramic, chemical processing,
power, iron & steel industry India - CUMI, ACE refractories,
Maithan ceramics
Castables 24,000 tons 46 5,000
Industrial Ceramics 5,000 tons 32 2,100 Food processing, mineral
processing, cement , steel and electronic industries India - CUMI,
Jyothi ceramics and BHEL
Metallized cylinders 0.75mn
Bio Ceramic products Healthcare industry
Anticorrosion products 10,000 tons Petrochemicals, zinc
refineries, paper and pulp, and fertilizer industry
Electrominerals 123 3,500
Brown fused and white fused alumina 20,000 tons
SiC Microgrits 4,800 tons
SiC Macrogrits 5,000 tons
Fused zirconia 5,000 tons
SiC Russia 70,000 tons
Refractory, abrasives, semi conductor, metallurgical, Plasma
spray, Photovoltaic industries
Global - Saint Gobain, Treibacher, Washington Mills, Kollo India
- Grindwell Norton, Orient Abrasives and SNAM Abrasives
-
20
Carborundum – Strongly placed, EMD key driver
Source: UBS estimates, Company. * Capex required for
de-bottlenecking and achieving higher capacity utilization in
Russia.
CUMI – EMD expansion plans
74% stake by CUMI and 26% by GMDC Rs1.5bn Rs1bn
Earliest by end-FY13
Brown-fused alumina JV with GMDC
100,000t capacity in three phases. MOU signed, power and land in
place.
Rs5bn Rs3.5bn, Rs 1.5bn in Phase 11st phase by March 2012SiC
greenfield in Russia
Double its capacity. Rs1.25bn Rs0.4bn By FY12Zirconia—Foskor
Expand 4,800t capacity to 12,000t in three phases. Phase 2 (2400
tons) to get commissioned by July 2011.
Rs2.5bn An additional Rs360m By FY12 Microgrits for
photovoltaics (PV)
Comments Revenue potential Amount Time Project
21.80%18.10%26.50%ROCE (%)
86%80%69%Utilization 21,50019,50019,000Alumina - Brown / White
(Tonne)
90%70%-Utilization 5,0005,000
Zirconia - South Africa (Tonne)
97%91%69%Utilization 79,10076,6004,800SiC - Russia / India
(Tonne) 10-1109-1005-06Electro minerals
87%66%71%Utilization 31,20030,0009,000Refractories (Tonne)
100%94%82%Utilization
457,500360,00041,100Metallized Ceramics (Nos)
86%69%67%Utilization
5,1005,1003,200Industrial Ceramics (Tonne) Ceramics
52%51%89%Utilization 17.817.810.8Coated (Million Sq. Meter)
56%*44%96%Utilization 48,00048,00011,750Bonded (Tonne)
Abrasives
FY11FY10FY06
CUMI – capacity utilisation
22.0%22.0%22.0%18.4%21.5%17.9%Electrominerals
20.0%20.0%20.0%17.6%19.4%20.3%Ceramics
13.5%13.5%13.5%13.7%9.4%9.8%Abrasives
EBIT margins
1.6%1.7%2.0%1.9%3.2%2.6%Others
49.0%50.2%45.8%40.5%49.5%42.9%Electrominerals
21.4%20.6%22.1%22.5%22.2%25.3%Ceramics
28.1%27.5%30.1%35.2%25.1%29.2%Abrasives
EBIT mix
0.3%0.3%0.3%1.6%0.5%0.6%Others
41.3%42.6%38.3%35.8%36.3%35.9%Electrominerals
19.9%19.2%20.3%20.8%19.2%18.8%Ceramics
38.6%38.0%41.0%41.8%44.0%44.7%Abrasives
Revenue mix
FY14EFY13EFY12EFY11FY10FY09
CUMI – segments summaryCaptive External
SiC India 65% 35%SiC VAW Russia 15% 85%Zirconia Almost
100%Brown-fused alumina (pre GMDC) 40% 60%White-fused alumina 20%
80%
CUMI – current EMD sales mix
-
21
Cholamandalam (CHLA.BO, Buy, PT Rs 215, 42% upside)
• Turnaround story – exited from unsecured personal finance,
focus back on asset/secured financing
• CV financing focus (67% of book): FY11-13E book CAGR 28%.
Within this, focus on LCVs (less cyclical than MHCVs) and
profitable niche with low-cost model, focus on rural/semi-urban and
micro / small enterprises, nationwide distribution with 90% of its
226 branches in growing tier II and tier III Indian cities
• Home Equity and Business Finance: secured book with low
NPL
- HE: 24% of book, FY10 NPL 1%, FY11-13E book CAGR 19%
- BF: 9% of book, 0% NPL, FY11-13E book CAGR 10%
• Strong earnings growth outlook for FY12 - provisioning for
personal finance done and strong underlying numbers of asset
finance businesses now gets reflected. FY11-13E earnings CAGR of
76% and ROE of 20% in FY13E
• Market Cap US$445mn, ADV
-
22
Cholamandalam – Turnaround done, ready to grow
Source: UBS estimates, Company
Cholamandalam - loan book mix (%)
Cholamandalam vehicle finance pyramid business model and
positioning
Cholamandalam - nil personal loan provisions from FY12 (Rs
M)
0%
20%
40%
60%
80%
100%
FY09 FY10 FY11E FY12E FY13E FY14E
Vehicle Finance Home EquityBusiness Finance Personal loan
0
1,000
2,000
3,000
4,000
5,000
FY09 FY10 FY11 FY12E FY13E FY14E
Reported PBT Non-PL PBT Provisions for PL
Cholamandalam – personal loan portfolio
0
5
10
15
20
25
30
1QFY
09
2QFY
09
3QFY
09
4QFY
09
1QFY
10
2QFY
10
3QFY
10
4QFY
10
1QFY
11
2QFY
11
3QFY
11
4QFY
11
Managed assets net of provisions (Rs bn)
-
23
Cholamandalam-focus on less cyclical LCV, strong
distribution
Source: UBS estimates, Company
LCV vs MHCV sales in India
Cholamandalam - Vehicle finance—disbursements and AUM (Rs m)
Cholamandalam - Branch distribution
Cholamandalam – CV financing disbursements mix
South36%
Union Territory1%
West26%
North21%
East16%
LCV36%
Mini LCV14%
MUV4%
Cars & 3-W3%
Used CV's27%
HCV16%
0
100,000
200,000
300,000
400,000
500,000
600,000FY
00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
E
FY12
E
FY13
E
-40%-30%-20%-10%0%10%20%30%40%50%
LCV vol (units) MHCV vol (units) LCV vol growth MHCV vol.
growth
0
20,000
40,000
60,000
80,000
100,000
FY08
FY09
FY10
FY11
FY12
E
FY13
E
-60%-40%-20%0%20%40%60%80%100%
Disbursements (Rs m) AUM (Rs m)Disbursements growth (%) AUM
growth (%)
-
24
Cholamandalam – Valuation
Source: UBS estimates, Company
• We derive our price target from a residual income model which
is the sum of BVPS for FY13E and the present value of income
generated over and above the cost of equity . We assume a discount
rate of 13.5% (a risk-free rate of 8%, beta of 1.1x and a risk
premium of 5%) and terminal growth of 7.5%.
215Valuation (Current BVPS + PV of residual income) (Rs)
116.2PV of residual income (Rs)98.9ABVPS current year (Rs)
20.317.87.913.520.820.317.49.310.9Avg RoE (%)
55 7.46.53.9-3.4-1.8PV of residual income
(Rs)27.892.6-212.793.1-88.6Growth (%)
170974-3-2Residual income (Rs) = (c) = (a) -
(b)62171513119Re*BVPS (Rs) (b)
18.818.31.443.2-0.5Growth
(%)18.714.1-3.6540139.0117.098.997.668.2BVPS (Rs)
4.03.32.61.61.0DPS7.521.728.5120.84.2-335.8Growth (%)
16.142.6-1.97326.721.917.17.77.4EPS (Rs) (a)
EPS CAGR FY15-
20E
EPS CAGR FY11-
15E
EPS CAGR
FY05-10Terminal(FY21E)FY14EFY13EFY12EFY11FY10
-
25
Cholamandalam – Financials
Source: UBS estimates, Company
Cholamandalam – Segments summary
12.512.512.511.912.618.1Yield on average loans (%)
21.422.423.823.821.312.2% of net managed assets
18.018.020.038.7114.844.9Loan book growth rate (%)
31,36126,57722,52318,76913,5306,297Loan book (Rs mn)
Home Equity
12.012.012.011.311.918.8Yield on average loans (%)
6.16.87.88.57.56.0% of net managed assets
10.010.010.067.893.7-61.0Loan book growth rate (%)
9,1358,3047,5496,8634,0892,111Loan book (Rs mn)
Business finance
15.815.815.815.315.815.7Yield on average loans (%)
72.670.768.466.057.151.0% of net managed assets
23.026.030.084.357.30.4Loan book growth rate (%)
114,24492,88173,71556,70430,76219,561Loan book (Rs mn)
Vehicle finance
FY14EFY13EFY12EFY11FY10FY09
20.820.318.29.37.2-3.0ROE
9.89.69.28.99.010.2Average assets/average equity
2.122.111.971.050.80-0.30ROA
70.070.070.068.975.639.4(1- tax rate)
3.03.02.81.51.1-0.8PBT
2.92.92.93.23.45.4Operating expenses
1.11.11.03.13.03.8Loan loss provisions
7.07.06.87.87.58.4Total income
1.82.02.43.64.14.1Net other income
5.24.94.34.43.14.4NIM overall
0.00.00.00.60.80.7Securitization income/Assets
5.24.94.44.22.74.6NIM (BS)
2014E2013E2012E201120102009Year ending March
Cholamandalam – DuPont Analysis (%)
Cholamandalam – ALM statements as at 31st March 2011
Period Outflows Inflows Mismatch Cum Mismatch 1-14 days 2,359
9,089 6,730 6,73015-30/31days 2,187 4,069 1,883 8,613Over 1 to 2
months 4,755 4,780 25 8,638Over 2 to 3 months 507 1,890 1,384
10,022Over 3 to 6 months 7,374 7,478 104 10,126Over 6 months to
1year 8,683 8,479 (204) 9,922Over 1 to 3 years 47,697 34,831
(12,867) (2,944)Over 3 to 5 years 5,232 7,782 2,550 (395)Over 5
years to 20 years 4,310 15,092 10,781 10,387Over 20 years 11,029
642 (10,387) -Total 94,132 94,132 - -
-
26
Coromandel (Buy, PT Rs 416, 32% upside)
• Best play on agri inputs in India – robust business model
- Lowest cost manufacturer of phosphatic and complex fertilizers
in India with flexible manufacturing for any combination at short
notice
- Raw material security – 14% stake in FOSKOR and 15% stake in
TIFERT Tunisia
- First-mover advantage in specialty nutrients and organic
compost, and 423 rural retail stores for distribution
• Increased share of non-subsidy businesses (higher margins and
lesser regulatory risks) from 30% of contribution to 50% in 3-4
years underpins management strategy
• FY11-13E - 33% EPS CAGR, ROEs of 29-34%, net-cash balance
sheet. Differential in growth / ROEs (historical and forecast) and
a more robust business model = CIL premium valuation to peers
• Market Cap US$2.2bn. Shareholding - Promoter 64%
• Valuation: DCF using UBS’s VCAM tool (assume WACC at 12.85%
and terminal sales growth of 1.7%). Implied FY12E EV/EBITDA 8.1x
and PE of 13.2x
Investment Thesis
Stock performance 1 yr forward P/E
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
95,336 63,947 75,279 98,825 122,491EBITDA (Rs Mn) 10,612 6,744
7,557 10,723 13,510Net profit (Rs Mn) 7,251 4,541 5,026 6,911
8,894EPS (Rs) 25.87 16.04 17.70 24.34 31.33Revenues Growth (%)
153.7 NM 17.7 31.3 23.9EPS Growth (%) 282.9 NM 10.4 37.5 28.7EBITDA
Margin (%) 11.1 10.5 10.0 10.9 11.0Net Margin (%) 7.6 7.1 6.7 7.0
7.3
Shareholders' equity (Rs Mn) 12,120 15,015 19,567 24,052
29,824Net debt / (cash) (Rs Mn) 4,651 1,898 2,272 -3,581 -8,934Net
fixed assets (Rs Mn) 7,966 9,576 11,430 14,372 15,823Net Working
Capital (Rs Mn) 7,392 6,866 9,980 5,168 4,085Investments (Rs Mn)
2,207 1,325 1,244 1,705 1,705Net debt /equity (%) 38 13 12 -15
-30EBIT ROIC (pre-tax) (%) 70.9 40.8 38.3 50.3 66.3ROE (%) 55.7
34.5 40.1 31.7 33.0
Operating cash flow (Rs Mn) 10,370 6,483 7,286 10,377
13,117Capex (Rs Mn) 1,165 2,218 2,455 3,775 2,375EV/EBITDA (x) 1.9
4.6 9.8 8.1 6.0P/E (x) 2.4 6.5 14.6 12.8 10.0P/BV (x) 1.4 1.9 3.8
3.7 3.0Dividend Yield (%) 8.2 4.7 2.7 2.3 3.0Source: Company, UBS
estimates. Note: Valuation ratios are based on historical prices
for FY08-11 .
Coromandel International ( CORF.BO, Buy, CMP Rs316, PT Rs416,
32% upside)
050
100150200250300350400
Aug-
09
Oct-0
9
Dec-
09
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-
10
Feb-
11
Apr-1
1
Jun-
11
Aug-
11
0
50
100
150
200
250
300
350
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
CIL adjusted gross margins/ton
0
1,000
2,000
3,000
4,000
5,000
6,000
FY06
E
FY07
E
FY08
E
FY09
E
FY10
E
FY11
E
FY12
E
FY13
E
Source: UBS estimates, Datastream, Company
0.02.04.06.08.0
10.012.014.016.0
Apr-0
6
Dec-0
6
Aug-
07
Apr-0
8
Dec-0
8
Aug-
09
Apr-1
0
Dec-1
0
Aug-
11
PE Mean Std. Dev.+1 Std. Dev.-1
-
27
Coromandel – Indian agri nutrient outlook positive
Source: UBS estimates, Company
Nutrient consumption among Asian Countries (Kg/Ha)
India’s NPK demand
106 120135
170
333
0
50
100
150
200
250
300
350
Sri Lanka India PaIistan Bangladesh China
Crop productivity (Mt/Ha)
0
50
100
150
200
250
300
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10 (
P)20
10-1
1 (P)
2011
-12 (
P)
Food Grains (Million MT) Nutrient Consumption (Million MT)
-2.04.06.08.0
10.012.014.016.018.0
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
-
0.5
1.0
1.5
2.0
2.5
3.0
N (LHS) P2O5 (LHS) K2O (RHS)
India’s Food Production and Nutrient Consumption
W orld IndiaSugarcane 74 67W heat 3 2.8R ice 4.2 2.3C orn 5
2.2Soybean 2.2 0.9R apeseed 1.9 1.1Peanut 1.6 0.9
DAP as a % of CIL fertilizer sales volumes - not so
significant
0%
5%
10%
15%
20%
25%
30%
FY 08 FY 09 FY10 FY11
-
28
Coromandel – Non-subsidy business growth driver
Source: Bloomberg, Fertecon, UBS analysis.
Coromandel - Segments summary
35%31%27%25%25%As a % of gross margin
16%15%14%12%6%As a % of total revenues
Non-subsidy business
65%69%73%75%75%As a % of gross margin
84%85%83%88%97%As a % of total revenues
3,2003,2003,2913,4274,454Adjusted gross margin (Rs/ton)
17%24%-2%34%-0.7%Growth (%)
4,1503,5602,8622,9142,167Volumes (k mt)
22%35%11%-38%170%Growth (%)
103,49884,55662,47556,06190,515Adjusted revenues (Rs m)
Subsidy business
FY13EFY12EFY11EFY10EFY09E
Coromandel – capacity summaryPlant Volume (Mn MT) ProductVisak
1.3 28:28:00
14:35:1420:20:0010:26:26
Kakinada 1.5 10:26:2612:32:1614:35:15
DAPRanipet 0.12 SSPEnnore 0.33 20:20:00
16:20:00Total 3.25
002271SPIC
0013229FACT
11400.108PPL
19027133ZUARI
191815167IFFCO
1036161462Coromandel
MHORKNTNAPCompany
Coromandel- market share in FY10
Coromandel- agreements for raw materialsProducts Company
Capacity (m mt)Ammonia Mitsui, Japan 0.53MOP Canpotex, Canada
0.50Phosphoric acid Foskor, South Africa 0.25Phosphoric acid
TIFERT, Tunisia 0.20Rock phosphate Israel, Togo & Algeria
0.90Sulphur Mitsui, Japan 0.30Urea Arab, Gulf 0.25WSF and MAP SQM,
Chile -
0
1,000
2,000
3,000
4,000
5,000
6,000
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
E
FY13
E
-150-100-50050100150200250
CRIN adjusted gross margin (Rs/MT) (LHS)Conversion margin with
phos acid (U$/MT) (RHS)
0
1,000
2,000
3,000
4,000
5,000
6,000
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
E
FY13
E
0
50
100
150
200
250
CRIN adjusted gross margin (Rs/MT) (LHS)conversion margin with
rock phosphate (U$/MT) (RHS)
Note: Different pricing/subsidy regime till FY08 – so margins/t
before that are not comparable to current regimes, especially to
regime post NBS from FY11.
CIL adjusted gross margins versus DAP conversion margins from
phosphoric acid/rock phosphate
-
29
DB Corp (DBCL.BO, Buy, PT Rs310, 32% upside)
• Largest print media company in India in terms of total daily
readership share of all its newspapers; flagship newspaper ‘Dainik
Bhaskar’ second-most widely-read Hindi newspaper
• Well-diversified geographical reach, strong management vision
and superior execution track record
• The company to benefit the most from India’s rapidly-growing
regional print sector; to expand into new geographies
• Strong leadership position in multiple states, allows it to
command premium ad rates over its peers
• Forecast a print ad revenue CAGR of 14.5% for the next four
years
• Successfully launched Dainik Divya Marathi – a daily newspaper
in Marathi language – in Aurangabad and Nasik. Likely to launch a
Hindi daily in Bihar in FY13E
• Shareholding - Promoter 86%
Valuation: Value at FY13E P/E multiple of 18.0x
Investment Thesis
Revenue Breakup (Rs mn) Stock performance1 yr forward P/E
FY09 FY10 FY11 FY12E FY13EPrint 8,989 9,894 11,704 13,482 15,330
- Advertising 6,979 7,776 9,561 11,310 13,095 - Circulation 2,009
2,118 2,144 2,173 2,235 Radio 271 350 469 615 787 Event management
105 148 175 190 207 Others 273 278 321 331 340 Total revenue 9,638
10,670 12,671 14,618 16,665 Eliminations (28) (40) (18) (19) (20)
Reported revenue 9,610 10,630 12,652 14,599 16,645
0
100
200
300
400
500
Jan-
10
Mar-1
0
May
-10
Jul-1
0
Sep-
10
Nov-
10
Jan-
11
Mar-1
1
May
-11
Jul-1
1-35
-30
-25
-20
-15
-10
-5
0
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
9,610 10,630 12,652 14,599 16,732EBITDA (Rs Mn) 1,473 3,429 4,031
4,190 5,023Net profit (Rs Mn) 476 1,828 2,584 2,578 3,153EPS (Rs)
2.82 10.61 14.10 14.06 17.20Revenues Growth (%) 11.4 10.6 19.0 15.4
14.6EPS Growth (%) -37.3 275.9 33.0 -0.3 22.3EBITDA Margin (%) 15.3
32.3 31.9 28.7 30.0Net Margin (%) 5.0 17.2 20.4 17.7 18.8
Shareholders' equity (Rs Mn) 2,577 6,487 8,288 10,109 12,000Net
debt / (cash) (Rs Mn) 5,179 1,257 641 70 -715Net fixed assets (Rs
Mn) 6,471 6,475 7,358 7,715 7,882Net Working Capital (Rs Mn) 1,347
1,591 1,998 2,390 2,829Investments (Rs Mn) 454 331 273 773 1,273Net
debt /equity (%) 192 19 8 1 -6EBIT ROIC (pre-tax) (%) 18.7 40.1
44.0 40.4 45.7ROE (%) 20.0 40.3 35.0 28.0 28.5
Operating cash flow (Rs Mn) NA 2,591 2,310 2,950 3,887Capex (Rs
Mn) 2,954 596 1,316 850 700EV/EBITDA (x) NA 13.9 10.8 10.1 8.2P/E
(x) NA 23.1 16.7 16.7 13.7P/BV (x) NA 6.9 5.2 4.3 3.6Dividend Yield
(%) NA 1.0 1.7 1.8 2.9Source: Company, UBS estimates. Note:
Valuation ratios are based on historical prices for FY08-11 .
DB Corp ( DBCL.BO, Buy, CMP Rs235, PT Rs310, 32% upside)
Source: UBS estimates, Datastream, Company
14.015.016.017.018.019.020.021.0
Jan-
10
Mar-1
0
May-1
0
Jul-1
0
Sep-
10
Nov-1
0
Jan-
11
Mar-1
1
May-1
1
Jul-1
1
PE Mean Std+1 std-1
-
30
DB Corp
Source: UBS estimates, Company
1 implies higher geographic diversification221Geographic
diversification
1 implies lowest sensitivity to a decline in advertising
rates312Sensitivity to decline in advertising rates
1 implies highest reliance on advertisingThis has been measured
as % of revenue contributed by advertising
132Reliance on advertising
1 implies lowest sensitivity to increase in newsprint
price312Sensitivity to increase in newsprint prices
1 implies lowest sensitivity to cover price cut221Sensitivity to
cover price cut
1 implies highest focus on circulationThis has been measured as
% of revenue contributed by circulation
312Focus on circulationCommentsHT MediaJagranDB Corp
69 85100 108 110 126
143 162183 208
23648
5460 64 65
6768
7071
7274
0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F
2015FAdvertising Circulation
69 85100 108 110 126
143 162183 208
23648
5460 64 65
6768
7071
7274
0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F
69 85100 108 110 126
143 162183 208
23648
5460 64 65
6768
7071
7274
0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F
2015FAdvertising CirculationAdvertising Circulation
Print media revenue break down (Rs bn)Overall media industry
revenue breakdown
Comparison on key parameters
24.3%25.4%26.5%27.7%28.6%29.6%29.8%29.8%31.1%31.4%30.4%%
contributed by print media
14.3%1,276.01,103.0958.0834.0737.0653.0587.0578.0514.0441.6384.7Total
Size12.0%30.027.024.022.019.017.014.016.014.011.710.0Outdoor29.2%36.028.022.018.013.010.08.06.04.02.02.0Digital
advertising30.6%38.031.023.017.013.010.08.07.04.03.02.2Gaming18.5%56.047.040.033.028.024.020.017.014.012.010.0Animation16.1%19.016.013.011.09.09.08.07.07.07.88.3Music20.1%25.021.018.015.012.010.08.08.07.06.04.9Radio9.7%132.0120.0109.098.091.083.089.0104.093.078.066.9Film9.9%310.0280.0254.0231.0211.0193.0175.0172.0160.0138.6117.1Print
16.2%630.0533.0455.0389.0341.0297.0257.0241.0211.0182.5163.3TelevisionCAGR2015F2014F2013F2012F2011F201020092008200720062005M&E
Industry (Rs bn)
AIR (000) for top 3 newspaper dailies in India
Source: FICCI-KPMG Indian Media and Entertainment Industry,
2011Source: FICCI-KPMG Indian Media and Entertainment Industry,
2011
3.1%11,81011,45210,839 10,143 9,916 HT Media, Hindustan Media
VenturesHindustan
0.2%14,01613,99213,488 13,303 13,330 DB CorpDainik Bhaskar
-1.0%15,91016,06615,950 15,925 16,315 Jagran PrakashanDainik
Jagran
% change2011 Q12010 Q42010 Q32010 Q22010 Q1CompanyNewspaper
Source: IRS
-
31
Dish TV (DSTV.BO, Buy, PT Rs110, 44% upside)
• First and largest satellite TV operator in India with 8.9m net
subs base (as at June 2011) and ~31% market share. Only listed pure
play with strong brand presence, broad distribution network and
significant scale benefits
• Likely to achieve net profit and free cash flow break-even in
FY12E
• Beneficiary of fast-growing DTH subscriber base; subscriber
base to grow led by - rising income levels, increasing awareness of
better quality DTH platform, sports-heavy calendar in 2011, and
lower prices for new connections; Implementation of mandatory
digitalization in the medium term
• ARPU likely to pick up from current levels, content costs to
decline as percentage of sales in FY12E - fixed contracts for
content with most large broadcasters; Only one contract to get
renewed in FY12
• Shareholding - Promoter 65%• Valuation: DCF based methodology
using UBS’s VCAM tool
(assume WACC of 12.6% and terminal sales growth of 4%). Implied
FY13E EV/EBITDA - 15x
Investment Thesis
Key assumptions
1 yr forward EV/EBITDA
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
7,381 10,850 14,367 21,922 28,784EBITDA (Rs Mn) -1,233 1,117 2,380
5,833 8,199Net profit (Rs Mn) -4,807 -2,622 -1,920 390 1,781EPS
(Rs) -5.08 -2.47 -1.81 0.37 1.67Revenues Growth (%) 78.8 47.0 32.4
52.6 31.3EPS Growth (%) NM -51.5 -26.8 -120.3 356.1EBITDA Margin
(%) -16.7 10.3 16.6 26.6 28.5Net Margin (%) -65.1 -24.2 -13.4 1.8
6.2
Shareholders' equity (Rs Mn) -6,475 3,768 370 760 2,541Net debt
/ (cash) (Rs Mn) 10,692 3,808 7,378 7,863 4,913Net fixed assets (Rs
Mn) 13,345 14,587 19,017 21,084 22,435Net Working Capital (Rs Mn)
-9,127 -8,572 -13,269 -14,460 -16,981Investments (Rs Mn) 0 1,561
2,000 2,000 2,000Net debt /equity (%) -165 101 1994 1034 193EBIT
ROIC (pre-tax) (%) -158.3 -41.3 -27.5 13.2 36.1ROE (%) 86.0 193.8
-92.8 69.1 107.9
Operating cash flow (Rs Mn) -6,703 -3,979 -7,670 -1,248 828Capex
(Rs Mn) 5,470 5,095 10,050 7,081 7,371EV/EBITDA (x) -21.0 40.9 24.9
15.2 10.7P/E (x) -6.0 -16.5 -29.6 208.1 45.6P/BV (x) -4.5 10.2
153.8 106.9 32.0Source: Company, UBS estimates. Note: Valuation
ratios are based on historical prices for FY08-11 .
Dish TV India ( DSTV.BO, Buy, CMP Rs76, PT Rs110, 44%
upside)
10.0
12.0
14.0
16.0
18.0
20.0
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-
10
Feb-
11
Apr-1
1
Jun-
11
Aug-
11
EV/EBITDA Mean Std+1 std-1
FY09 FY10 FY11 FY12E FY13ERevenue (Rs m) 7,381 10,850 14,367
21,907 28,770 Net subscriber (m) 4.3 5.7 8.5 11.2 13.8 Monthly
churn (%) 0.6% 0.6% 0.7% 0.7% 0.7%Subscription ARPU (Rs) 145 140
140 159 167 Programming costs (% of sales) 47.1% 40.3% 35.1% 28.5%
31.0%SAC (Rs/sub) 2,680 2,575 2,282 2,501 2,597 EBITDA margin
-16.7% 10.3% 16.6% 26.6% 28.5%Capex as % to sales 76.6% 45.5% 56.4%
32.3% 25.6%
Stock performance
0
20
40
60
80
100
Aug-
09
Oct-0
9
Dec-
09
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-
10
Feb-
11
Apr-1
1
Jun-
11
Aug-
11
-60-40-20020406080100
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
Source: UBS estimates, Datastream, Company
-
32
Dish TV
Source: UBS estimates, Company
68 67 66 64 60 56
5 6 8 12 18 2628 38
48 5664 711
11
22
3
0
40
80
120
160
2010 2011E 2012E 2013E 2014E 2015E
Analog Digital DTH IPTV
Pay TV household estimates in India (m subscribers)
Source: FICCI-KPMG report 2011
31-Dec-1431-Dec-1331-Mar-1531-Dec-13Rest of IndiaPhase IV
30-Sep-1431-Dec-1330-Nov-1431-Dec-12All urban areasPhase III
31-Mar-1331-Dec-1231-Mar-1331-Dec-11Cities with 1m+
populationPhase II
31-Mar-1231-Dec-1131-Mar-1231-Mar-11MetrosPhase IFinalised by
MIBRevised TRAI recosAs proposed by MIBInitial TRAI recosAreas
coveredPhase
Mandatory digitisation imminent in India
Source: TRAI
HigherLowerMarginal operating costs
HigherLowerNetwork operating costs
LowerHigherChannel capacity
√XStandardised customer care
√XGeographical reach
X√Triple play
X√Ability to offer localised content
X√Two-way communication
DTHDigital cableFeatures
Dish TV31%
Sun Direct16%Big TV (RCOM)
9%
Digital TV (Bharti)17%
Tata Sky19%
D2H (Videocon)8%
DTH and digital cable: a comparison DTH subscriber market share
(March 2011)
6.910.4
13.917.5
20.9
0
5
10
15
20
25
FY10
FY11
FY12
E
FY13
E
FY14
E
Source: Company Source: UBS estimates, Company
Dish TV gross subs base
-
33
EID Parry (EIDP.BO, Buy, PT Rs368, 50% upside)
• A leading Indian agricultural conglomerate with sugar, co-gen,
distillation, bio-products and agri-input operations.
• Well positioned to take advantage of the sugar cycle, Sugar: -
South based: high yield, less sensitive politically - Expansion and
integration (cogen and distillery) - Refining JV with Cargill:
benefit from domestic/global trade disparity
• FY12E - first full year of operations for the subsidiaries’
and JV’s investments
• 63% stake in Coromandel International (CIL) - Benefit from
growing demand for agricultural nutrients and potential sector
deregulation
• Shareholding - Promoter 46%• Valuation: SOTP method; value
sugar business at Rs 113 per
share and CIL stake at Rs 255/share. Implied FY13E PE –
33.7x
Investment Thesis
Stock performance 1 yr forward P/E
15.0
20.0
25.0
30.0
35.0
40.0
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-1
0
Feb-
11
Apr-1
1
Jun-
11
Aug-
11
PE Mean Std+1 std-1
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
7,852 11,473 12,557 13,803 14,686EBITDA (Rs Mn) 729 2,059 37 1,921
2,119Net profit (Rs Mn) 1,968 1,990 624 1,710 1,888EPS (Rs) 11.07
11.45 3.60 9.86 10.88Revenues Growth (%) 20.6 46.1 9.4 9.9 6.4EPS
Growth (%) NM 3.5 -68.6 174.1 10.4EBITDA Margin (%) 9.3 17.9 0.3
13.9 14.4Net Margin (%) 25.1 17.3 5.0 12.4 12.9
Shareholders' equity (Rs Mn) 9,693 10,963 11,503 12,377
13,428Net debt / (cash) (Rs Mn) 5,385 5,755 6,538 4,841 5,122Net
fixed assets (Rs Mn) 8,652 8,522 8,154 8,105 8,326Net Working
Capital (Rs Mn) 2,659 2,756 6,814 6,190 7,471Investments (Rs Mn)
4,856 6,828 4,341 4,341 4,341Net debt /equity (%) 56 52 57 39
38EBIT ROIC (pre-tax) (%) 2.4 13.6 -5.9 9.0 9.9ROE (%) 93.4 19.9
7.1 14.3 14.6
Operating cash flow (Rs Mn) 264 1,868 -1,515 2,252 2,131Capex
(Rs Mn) 2,824 422 345 675 1,000EV/EBITDA (x) 8.0 6.9 714.3 17.7
16.7P/E (x) 8.0 13.0 59.2 24.9 22.6P/BV (x) 1.6 2.4 3.2 3.4
3.2Dividend Yield (%) 3.3 1.3 0.9 0.8 0.8Source: Company, UBS
estimates. Note: Valuation ratios are based on historical prices
for FY08-11 .
EID Parry (India) ( EIDP.BO, Buy, CMP Rs246, PT Rs368, 50%
upside)
0
50
100
150
200
250
300
Aug-
09
Oct-0
9
Dec-
09
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-
10
Feb-
11
Apr-1
1
Jun-
11
Aug-
11-20-100102030405060
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
FY13 EBITDA for standalone business (Rs mn)# 2,279FY13 EBITDA
for associates/JV business (Rs mn)* 1,799Total EBITDA of the sugar
business (Rs mn) 4,079Debt in the standalone business (Rs mn)
3,202Debt in the associates/JV business (Rs mn) 3,242Total
estimated debt in the sugar business (Rs mn) 6,445Peer EV/EBITDA
target multiple (x) 6EV of the sugar business (Rs mn)
23,656Investments + cash (Rs mn) 2,346Estimated equity value of the
sugar business (Rs mn) 19,557No of shares (mn) 173Equity value per
share of sugar business (Rs/share) 113UBS Coromandel target price
(Rs/share) 416UBS Coromandel equity value (Rs mn) 117229EID Parry
stake in Coromandel (%) 62.94%Value of Coromandel stake (Rs mn)
73784Holding company discount (%) 40%Value of Coromandel stake,
after holding co. disc (Rs mn) 44270Value of CIL stake, after
holding co. disc. (Rs/share) 255SOTP target price (Rs/share)
368
EID SOTP valuation
Source: UBS estimates, Datastream, Company
-
34
Emami (EMAM.BO, Buy, PT Rs550, 20% upside)
• One of India’s fastest-growing FMCG player (22.1% EPS CAGR
through FY11-13E)
• Niche ayurvedic/herbal product portfolio – health focus ensure
high brand loyalty; market leader in key brands (60% of sales)
• Presence in under-penetrated categories with limited MNC
competition supports higher gross margins (59-65%) than peers
• Focused advertising, star power and brand development
supported by highest advertising spend (c18% of sales)
• Success in developing new categories and product variants –
2-3 products/year
• Scale up of Zandu acquisition and over-the-counter (OTC)
products, international sales and new products to support earnings
growth
• Shareholding - Promoter 73%• Valuation: DCF using UBS’s VCAM
tool (assume WACC of
11.3% and terminal sales growth rate of 5%). Implied FY13PE of
23.8x
Investment Thesis
Gross Margins – Emami vs. Peers Stock performance 1 yr forward
P/E
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
FY07 FY08 FY09 FY10 FY11
Emami Dabur India Marico GCPL Hindustan Unilever
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
FY07 FY08 FY09 FY10 FY11
Emami Dabur India Marico GCPL Hindustan Unilever
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
FY07 FY08 FY09 FY10 FY11
Emami Dabur India Marico GCPL Hindustan Unilever
5
10
15
20
25
30
Apr-0
6
Dec-
06
Aug-
07
Apr-0
8
Dec-
08
Aug-
09
Apr-1
0
Dec-
10
Aug-
11
PE Mean Std+1 std-1
0
100
200
300
400
500
600
Aug-
09
Oct-0
9
Dec-0
9
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-1
0
Feb-
11
Apr-1
1
Jun-
11
Aug-
110
50
100
150
200
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
7,662 10,380 12,778 15,686 19,065EBITDA (Rs Mn) 1,290 2,452 2,534
3,027 3,794Net profit (Rs Mn) 919 1,819 2,287 2,791 3,506EPS (Rs)
7.00 12.02 15.12 18.44 23.17Revenues Growth (%) 32.4 35.5 23.1 22.8
21.5EPS Growth (%) -3.6 71.8 25.8 22.0 25.6EBITDA Margin (%) 16.8
23.6 19.8 19.3 19.9Net Margin (%) 12.0 17.5 17.9 17.8 18.4
Shareholders' equity (Rs Mn) 3,013 6,254 6,899 8,908 11,433Net
debt / (cash) (Rs Mn) 4,341 976 189 -980 -2,584Net fixed assets (Rs
Mn) 6,495 5,673 4,917 5,436 5,807Net Working Capital (Rs Mn) 492
1,025 2,242 2,564 3,113Investments (Rs Mn) 426 616 66 66 66Net debt
/equity (%) 144 16 3 -11 -23EBIT ROIC (pre-tax) (%) 24.4 33.8 35.1
38.4 43.4ROE (%) 31.3 36.6 34.8 35.3 34.5
Operating cash flow (Rs Mn) 1,261 2,438 2,526 3,011 3,779Capex
(Rs Mn) 1,413 254 344 685 550EV/EBITDA (x) 11.5 12.0 24.2 23.1
18.4P/E (x) 17.4 17.5 27.0 24.9 19.9P/BV (x) 4.9 4.9 8.9 7.8
6.1Dividend Yield (%) 2.1 1.4 0.9 1.0 1.2Source: Company, UBS
estimates. Note: Valuation ratios are based on historical prices
for FY08-11 .
Emami Ltd ( EMAM.BO, Neutral, CMP Rs460, PT Rs550, 20%
upside)
Source: UBS estimates, Datastream, Company
-
35
Emami
Source: UBS estimates, Company
18%4900NA- Amrutanjan- Tiger Balm
Unique formulation using ‘nilgiri’ and ‘lavang’, provides relief
from colds, coughs, backaches, sprains, and muscular aches
OTC productHeadache balm
Ointment for headaches
4-5%Mentho Plus
60%210017.1%- Fair & Lovely Menz Active (HUL)- Fair One Man
(Shehnaaz Hussain, Elder Pharma)- Nivea for Men Whitening (Nivea)-
Set Wet Get Fair (Paras Pharma)
Emami actually created this category.Designed specifically for
male skin.
Skin careFairness cream
Male fairness cream
10%Fair and Handsome
40%4900NA- Amrutanjan-Tiger Balm
Unique formulation, provides relief from colds, coughs,
backaches, sprains and muscular aches
OTC productBalmOintment for headaches
14-15%Zandu Balm
75%26001.7% in antiseptic cream and 1.3% in cold cream
- Boroline (GD Pharma); BoronaturalPreventive and curative
cream, an antiseptic, and also protects against dry weather
Skin careCreamAntiseptic and protective cream
15%BoroplusAntiseptic Cream
49%580074.2%- Himgange- Rahat Rooh
Relaxing, nourishing, hair protectionHair careOilTherapeutic
cooling oil
20%Navratna Oil
2010 market
share
2010 market size
(Rs m)Category penetrationCompetitionKey selling/differentiation
factorsCategorySub-segmentPositioning
FY11 revenue shareKey brands
Key brands and categories—market size and share
95.6% 92.3% 88.6%74.2%
64.3%55.7% 51.6%
17.1%
1.7% 1.3%0%
10%20%30%40%50%60%70%80%90%
100%
Toilet Soap WashingPowder
Detergent Bar Hair Oil Toothpaste Shampoo TalcumPowder
FairnessCream
AntisepticCream
Cold Cream
95.6% 92.3% 88.6%74.2%
64.3%55.7% 51.6%
17.1%
1.7% 1.3%0%
10%20%30%40%50%60%70%80%90%
100%
Toilet Soap WashingPowder
Detergent Bar Hair Oil Toothpaste Shampoo TalcumPowder
FairnessCream
AntisepticCream
Cold Cream
Product Penetration Growth in India’s addressable market
(2010-20E)
5%5%
7%7%7%
7%8%8%8%8%8%
9%9%
10%10%
11%12%12%
12%12%
13%13%
15%17%17%
18%
-1%
-5% 0% 5% 10% 15% 20%
Computers (Home)Mobile
Gold/diamond JewelleryTV
Washing detergent/cakeFridges
ToothpasteTea
FootwearMilk
CoffeeAC
Cars (New)Movies
Washing Machines2 Wheelers
Leisure TravelFast FoodShampoo
Sanitary PadsEducation (Vocational IT)
Skin CreamSoft Drinks (including Juices)
LiquorLife Insurance
DiapersWhite Cigarettes
No. of people/households Revenue potential
5%5%
7%7%7%
7%8%8%8%8%8%
9%9%
10%10%
11%12%12%
12%12%
13%13%
15%17%17%
18%
-1%
-5% 0% 5% 10% 15% 20%
Computers (Home)Mobile
Gold/diamond JewelleryTV
Washing detergent/cakeFridges
ToothpasteTea
FootwearMilk
CoffeeAC
Cars (New)Movies
Washing Machines2 Wheelers
Leisure TravelFast FoodShampoo
Sanitary PadsEducation (Vocational IT)
Skin CreamSoft Drinks (including Juices)
LiquorLife Insurance
DiapersWhite Cigarettes
No. of people/households Revenue potential
-
36
Exide Industries (EXID.BO, Buy, PT Rs 200, 34% upside)
• Lead acid storage battery manufacturer in India - auto and
industrial battery market share of 72% and 45%. Duopoly market
• Consumer business characteristics - >80% of earnings from
the auto aftermarket and home inverter - segments where branding
and distribution are critical
• Strong FY11-13E earnings CAGR of 25%, attractive FY12E core
ROCE/ROE of 75%/44%, net cash B/S
• Drivers - Back-to-trend aftermarket:OEM mix (1.6x), strong
outlook for replacement demand and power backup segment
• Negligible earnings sensitivity to lower FY12-13E OEM auto
sales
• Recycle lead from captive smelters – cost advantage
• Market Cap US$3bn, ADV ~US$6mn; Shareholding: promoters –
46%
• Valuation: SOTP – FY13E PE of 16x for core battery
business
Investment Thesis
Stock performance 1 yr forward P/EExide – FY11 sales mix
Auto64%
Industrial35%
Submarine1%
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
33,930 37,940 45,536 64,678 82,494EBITDA (Rs Mn) 5,448 8,894 8,788
12,028 15,579Net profit (Rs Mn) 2,844 5,371 6,331 7,455 9,876EPS
(Rs) 3.55 6.69 7.45 8.77 11.62Revenues Growth (%) 19.3 11.8 20.0
42.0 27.5EPS Growth (%) NM 88.2 11.3 17.8 32.5EBITDA Margin (%)
16.1 23.4 19.3 18.6 18.9Net Margin (%) 8.4 14.2 13.9 11.5 12.0
Shareholders' equity (Rs Mn) 12,504 22,197 27,425 34,023
42,763Net debt / (cash) (Rs Mn) 2,282 -5,158 -5,669 -9,279
-15,108Net fixed assets (Rs Mn) 6,853 7,144 9,018 11,643 12,881Net
Working Capital (Rs Mn) 2,212 3,161 5,175 4,786 5,786Investments
(Rs Mn) 6,132 7,324 8,237 9,237 10,237Net debt /equity (%) 18 -23
-21 -27 -35EBIT ROIC (pre-tax) (%) 55.4 88.1 68.5 75.5 87.0ROE (%)
25.0 31.0 26.9 24.3 25.7
Operating cash flow (Rs Mn) 4,899 8,266 8,119 11,225 14,590Capex
(Rs Mn) 1,739 1,076 2,708 3,700 2,500EV/EBITDA (x) 7.3 6.7 12.2 9.1
6.7P/E (x) 16.1 13.5 19.1 17.0 12.8P/BV (x) 3.4 3.5 4.4 3.7
3.0Dividend Yield (%) 0.3 0.5 1.1 0.6 0.8Source: Company, UBS
estimates. Note: Valuation ratios are based on historical prices
for FY08-11 .
Exide Industries ( EXID.BO, Buy, CMP Rs149, PT Rs200, 34%
upside)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Apr-0
6
Dec-
06
Aug-
07
Apr-0
8
Dec-
08
Aug-
09
Apr-1
0
Dec-
10
Aug-
11
PE Mean Std. Dev.+1 Std. Dev.-1
0
50
100
150
200
Aug-
09
Oct-0
9
Dec-0
9
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-1
0
Feb-
11
Apr-1
1
Jun-
11
Aug-
11
-20
0
20
40
60
80
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)
Source: UBS estimates, Datastream, Company
-
37
Exide Industries – 2W the next frontier
Source: UBS estimates, Company
India’s domestic two wheeler market
0
5,000
10,000
15,000
20,000
25,000
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
-10%
0%
10%
20%
30%
Volumes-2W YoY growth (%)
0
5,000
10,000
15,000
20,000
25,000
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
-10%
0%
10%
20%
30%
Volumes-2W YoY growth (%)
0
5,000
10,000
15,000
20,000
25,000
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
-10%
0%
10%
20%
30%
Volumes-2W YoY growth (%)
Exide - 2W push start sales and EBITDA
05,000
10,00015,00020,00025,00030,00035,00040,000
FY11E FY12E FY13E FY14E FY15E0%
50%
100%
150%
200%
Sales (Rs mn) EBITDA (Rs mn)Sales growth (%) EBITDA growth
(%)
Exide - 2W push start sales and EBITDA
0%
10%
20%
30%
40%
FY11E FY12E FY13E FY14E FY15E% of total automotive revenues % of
total automotive EBITDA
Exide —capacity expansion to meet rising demand India’s power
demand/supply – still a deficit
OEM28%
Others2%
Aftermarket70%
Exide – auto segment sales mix
Exide – industrial segment sales mix
Exports7%
Infrastructure
22%
Traction4%
Others3%
Power back-Up
64%
FY11 FY12E FY13EAuto battery capacity (mn units)4-W 9.7 12
12.52-W 16.6 21.3 21.8Industrial battery capacity (Ma 2260 2420
2420
-
38
Exide Industries- Key assumptions
Source: UBS estimates, Company
Exide - Segment assumptions
200Price target (Rs)
91P/BV multipleInsurance business (50% stake)
58Trailing PE Lead smelting subsidiaries (100% stake)
18616FY13E PECore battery business
Price (Rs)Multiple (x)Valuation methodologySegments
We derive our price target from SOTP methodology - 16x FY12E PE
for the company’s core battery business, lead smelting subsidiaries
is valued at 6x trailing PE and insurance business at a 50% premium
to book value.
16.0%16.0%16.0%16.0%16.0%EBITDA
margin15.0%15.0%15.0%20.0%12.0%Volume growth
Industrial batteries
1.21.10.80.7Replacement:OEM mix
15.8%15.0%12.8%12.1%9.0%EBITDA
margin21.0%31.9%27.4%42.8%21.5%Volume growth
2W
1.31.31.31.2Replacement:OEM mix
17.4%17.5%17.3%17.0%16.3%EBITDA margin (OEM +
Replacement)11.3%13.8%17.7%18.9%17.5%Volume growth
4W
Automotive batteriesFY15EFY14EFY13EFY12EFY11E
Exide- Sum-of-the-parts valuation
-
39
Essar Ports (Buy, PT Rs 135, 88% upside)
• EPL is India’s second-largest private port operator and the
largest captive port operator in terms of volume.
• We believe EPL is well-positioned to benefit from its planned
capacity expansion, which is also in line with the expansion plans
of its anchor customers (Essar Group companies). It has long-term
take-or-pay contracts with anchor customers, which provide
stability and visibility to its earnings.
• EPL is also looking to increase its higher margin third-party
revenue (the co. aims to increase the proportion of third-party
sales to 25% in the next three years; its current proportion is
negligible).
• We forecast EPL’s volume to grow 37%/34% YoY in FY12/13 and
estimate YoY revenue growth of 63%/29% and earnings growth of
209%/109% in FY12/13.
• Shareholding: promoters – 84%• Valuation: SOTP valuation
(value each port separately using DCF).
Implied 1.7x FY13E P/BV and 10.7x FY13E EV/EBITDA. We do not
ascribe any value to the Hazira II, Paradip II and Salaya ports (as
regulatory clearance is pending). We think they could be worth
Rs41/share and offer potential upside to our valuation.
Investment Thesis
Stock performance 1 yr forward EV/EBITDA
Year ending March FY10 FY11 FY12E FY13ERevenues (Rs Mn) 4,218
7,056 11,524 14,917EBITDA (Rs Mn) 3,282 5,073 8,552 11,221Net
profit (Rs Mn) -363 361 1,535 3,096EPS (Rs) -0.88 0.88 3.74
7.54Revenues Growth (%) #N/A 67.3 63.3 29.5EPS Growth (%) #N/A
-199.4 325.7 101.6EBITDA Margin (%) 77.8 71.9 74.2 75.2Net Margin
(%) -8.6 5.1 13.3 20.8
Shareholders' equity (Rs Mn) 8,040 21,811 26,601 32,120Net debt
/ (cash) (Rs Mn) 28,022 43,792 55,554 64,184Net fixed assets (Rs
Mn) 46,111 67,444 82,508 96,482Net Working Capital (Rs Mn) -9,462
-2,394 -938 -718Investments (Rs Mn) 0 678 678 678Net debt /equity
(%) 325 200 208 199EBIT ROIC (pre-tax) (%) #N/A 6.7 8.2 9.7ROE (%)
#N/A 2.4 6.3 10.5
Operating cash flow (Rs Mn) 3,235 4,968 8,396 11,029Capex (Rs
Mn) 9,036 11,543 17,635 16,562EV/EBITDA (x) #N/A 18.8 9.2 7.9P/E
(x) -109.3 165.2 19.2 9.5P/BV (x) 4.9 2.7 1.1 0.9Dividend Yield (%)
0.0 0.0 0.0 0.0Source: Company, UBS estimates. Note: Valuation
ratios are based on historical prices for FY08-11 .
Essar Ports ( ESRS.BO, Buy, CMP Rs72, PT Rs135, 88% upside)
8.0
11.0
14.0
17.0
20.0
23.0
26.0
Apr-0
9
Aug-
09
Dec-
09
Apr-1
0
Aug-
10
Dec-
10
Apr-1
1
Aug-
11
EV/EBITDA Mean Std. Dev.+1 Std. Dev.-1
0
50
100
150
200
250
Aug-
09
Oct-0
9
Dec-0
9
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-1
0
Feb-
11
Apr-1
1
Jun-
11
Aug-
11
-60-40-20020406080100
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)Source: UBS
estimates, Datastream, Company
85% 86%
63% 59% 58%
14% 13%
9% 9% 9%
1% 1%
28% 32% 34%
0%
20%
40%
60%
80%
100%
FY12E FY13E FY14E FY15E FY16ECaptive take-or-pay Captive
Variable Third Party
85% 86%
63% 59% 58%
14% 13%
9% 9% 9%
1% 1%
28% 32% 34%
0%
20%
40%
60%
80%
100%
FY12E FY13E FY14E FY15E FY16E
85% 86%
63% 59% 58%
14% 13%
9% 9% 9%
1% 1%
28% 32% 34%
0%
20%
40%
60%
80%
100%
FY12E FY13E FY14E FY15E FY16ECaptive take-or-pay Captive
Variable Third PartyCaptive take-or-pay Captive Variable Third
Party
Take-or-pay revenue should make up the bulk of EPL’s income
-
40
Essar PortsSOTP valuation
Source: UBS estimates, Company
Assets summary
Vadinar 79% 13.00% 21,847 100% 53 Higher-margin petroleum, oil,
and lubricants (POL) handled in Vadinar, value till end of
concession period in FY27
Hazira I 74% 13.00% 32,355 99%* 78 Higher value than Vadinar due
to longer concession period till FY35, and lower debt
Paradip I 60% 13.00% 5,649 62% 9 Lower-margin coal handled,
concession period expiring FY26Total 140Corporate level debt
-4Price target 135
StakeEquity value
(Rs) CommentsEBITDA marginCost of equity
(COE)Equity value
(Rs m)
Port Capacity (mt) Berth (m) Draft (m) Customer Cargo Status /
operational byVadinar-I 46 305 20 Essar Oil Crude + petroleum
OperationalVadinar-II 12 300 16 Essar Oil Petroleum
OperationalHazira-I 30 550 14 Essar Steel + merchant Coal +iron
ore+ break bulk OperationalHazira-II 20 700 16 Essar Steel +
merchant Coal + container+ break bulk Mar-13Salaya 20 385 14 Essar
Power + merchant Pet coke Mar-13Paradip-I 16 270 14 Essar Steel
Iron ore Oct-11Paradip-II 14 370 17 Merchant Coal Mar-13
Approval status by project
Note: (1) MOU signed with Gujarat Maritime Board (GMB), (2)
Essar Engineering Services (EESL) is carrying out basic and
detailed engineering, (3) Land is demarcated for the project, but
handing over the land is pending from Paradip Port Trust (PPT), (4)
Approval by the GMB on case-by-case basis for up to 50% of volume
of Essar Steel Cargo and (5) Third-party cargo can be handled with
prior permission from Kandla Port Trust (KPT)
ProjectsCapacity
(MTPA) Land
OperationalVadinar I + II 58 NAHazira I 30 (4)Under
constructionSalaya 20 ΧHazira II 20 Χ Χ NA (1) Χ (4)Paradip I 16
Under developmentParadip II 14 (3) NA NA Vadinar III 0 (2) Χ Χ Χ
(5)
Financial closure
Approval for third party
businessEPC
awardedEnvironment
clearanceLong term
take or pay
Port authority approval
-
41
Fortis Healthcare (FOHE.BO, Neutral, PT Rs 170, 12% upside)
• Fortis is the second largest hospital operator which operates
39 hospitals with 2,317 operating beds and 911 beds under
management as of September 2010.
• FOHE has demonstrated an ability to exploit market
opportunities; it acquired Escorts (a 90% stake in 2005), Malar (a
50% stake in 2007) and Wockhardt (acquired in December 2009)
• Over FY06-10, its revenue and operating profit recorded a 34%
and a 57% CAGR, respectively.
• We expect FOHE to maintain double-digit revenue growth over
FY11-15. With higher revenue and an improving EBITDA margin (we
estimate 14% in FY11 to 18% in FY15) and a rising net income margin
(we estimate 5% in FY11 to 10% in FY15), we forecast a net income
CAGR of 38% over FY10-15.
• Shareholding: promoters – 82%
• Valuation: DCF based methodology using UBS’s VCAM tool (assume
WACC of 12.18% and terminal sales growth rate of 5.8%).Implied
FY13E PE of 34.4x
Investment Thesis
Key assumptionsStock performance 1 yr forward EV/EBITDA
Fortis adds 2000+ beds over FY11-FY15E
Year ending March FY09 FY10 FY11 FY12E FY13ERevenues (Rs Mn)
6,419 9,558 15,174 20,058 25,207EBITDA (Rs Mn) 858 1,413 2,131
2,961 4,054Net profit (Rs Mn) 213 679 716 1,263 2,020EPS (Rs) 0.94
2.14 1.75 3.09 4.94Revenues Growth (%) 20.1 48.9 58.8 32.2 25.7EPS
Growth (%) NM 127.4 -18.1 76.5 59.9EBITDA Margin (%) 13.4 14.8 14.0
14.8 16.1Net Margin (%) 3.3 7.1 4.7 6.3 8.0
Shareholders' equity (Rs Mn) 11,138 19,559 34,353 35,666
39,626Net debt / (cash) (Rs Mn) 4,211 41,593 -438 2,126 1,845Net
fixed assets (Rs Mn) 12,169 21,019 28,213 32,930 35,531Net Working
Capital (Rs Mn) 586 263 163 215 270Investments (Rs Mn) 2,378 39,526
5,165 4,223 5,165Net debt /equity (%) 39 216 -1 6 5EBIT ROIC
(pre-tax) (%) 2.5 4.0 4.1 5.0 6.8ROE (%) 2.6 5.1 2.7 3.6 5.4
Operating cash flow (Rs Mn) 794 1,317 1,980 2,760 3,802Capex (Rs
Mn) 1,396 10,440 6,866 5,038 3,178EV/EBITDA (x) 24.5 3.2 31.1 22.4
16.4P/E (x) 72.5 52.9 86.4 49.0 30.6P/BV (x) 1.4 1.8 1.8 1.7
1.6Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0Source: Company, UBS
estimates. Note: Valuation ratios are based on historical prices
for FY08-11
Fortis Healthcare ( FOHE.BO, Neutral, CMP Rs151, PT Rs170, 12%
upside)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Jan-
08
Aug-
08
Mar-0
9
Oct-0
9
May-1
0
Dec-1
0
Jul-1
1
EV/EBITDA Mean Std+1 std-1
0
50
100
150
200
Aug-
09
Oct-0
9
Dec-0
9
Feb-
10
Apr-1
0
Jun-
10
Aug-
10
Oct-1
0
Dec-1
0
Feb-
11
Apr-1
1
Jun-
11
Aug-
11
-30
-15
0
15
30
45
60
Stock price (Rs) (LHS) Relative to Sensex (%) (RHS)Source: UBS
estimates, Datastream, Company
-
42
Hathway Cable (HAWY.BO, Buy, PT Rs130, 50% upside)
• One of the largest cable multiple system operator (MSO) in
India with ~8.7m cable homes reached; offers digital cable and
cable broadband
• Long-term growth story and a theme play on cable
digitization
• Increase in digital cable subscriber base led by rising income
levels and likely implementation of mandatory digitalization in
medium term
• Estimate 415,000 digital subscriber additions in FY12; expect
analogue subs to increasingly upgrade to the better quality digital
platform
• Expect Hathway to add 20,000 primary subscribers every year
during FY12-14
• Execution in terms of digital and paying subscriber additions
is the key for stock price re-rating; likely to be net profit
break-even in FY12
• Shareholding: promoters – 67%• Valuation: EV/EBITDA - value at
8.5x FY13E EV/EBITDA
Investment Thesis
Key assumptions1 yr forward EV/EBITDA
Key assumptions FY09A FY10A FY11A FY12E FY13EKey financial
metric (Rs m)Revenue 5,357 6,091 7,554 8,246 9,342 - Subscription
r