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RESULTS REVIEW 4QFY16 31 MAY 2016

PNC InfratechBUY

Robust executionPNC Infratech (PNC) reported strong 4QFY16numbers, led by 12.9% higher-than-expected

revenue. Adjusting for multiple one-offs/exceptional

items, APAT grew 122% YoY.

PNCs cumulative FY16, NHAI/MORTH EPC order

inflow value is 2.2% higher than the NHAIs project

cost. For the sector as a whole, FY16 order inflow

value is 7.9% lower than the NHAI/MORTH cost. PNC

stacks amongst top players in the list, with thehighest positive difference vs. project cost. This gives

us comfort on EBIDTA margin guidance of 13-13.5%.

The early-completion bonus for the Agra-Lucknow

Expressway may add Rs 1bn to PBT in FY18E.

PNC bagged new orders of Rs 39.7bn during FY16 and

guided for Rs 50bn of inflows in FY17E. With a strong

state/NHAI roads pipeline, PNC is well placed to

achieve this guidance. Maintain BUY. Increase TP to

Rs 660/sh (vs. Rs 625/sh earlier).

Highlights of the Quarter

Strong balance sheet, net D/E at -0.07x: Despitean uptick in the execution cycle, FY16 debtorsreduced to 68days (vs. 86 in FY15) and inventoryto 43 days vs. 52 in FY15. This resulted in a cashconversion cycle of 135 days for FY16 vs. 153 as ofend-FY15. The balance sheet was healthy with net

D/E of -0.07x end-FY16 and net cash of Rs 910mn.

Robust BOT traffic growth, value at 1.6x P/BV:PNCs FY16 BOT toll collections grew 42% YoY inthe Gwalior-Bhind project and 20% YoY in theKanpur-Ayodhya OMT project. We have upgradedthe value of BOTs to Rs 146/sh (vs. Rs 130/sh).

This is largely on account of high traffic growth.

Near-term outlook: With (1) A strong orderingpotential in its home location, (2) Ramp-up in BOTtraffic, (3) A healthy B/S, and (4) Better-than-peersEBIDTA margins, PNC is well placed to ride the

cyclical recovery.We remain positive.

Financial Summary (Standalone)

Year Ending March (Rs mn) 4QFY16 4QFY15 YoY (%) 3QFY16 QoQ (%) FY15 FY16 FY17E FY18E

Net Sales 5,887 4,643 26.8 5,215 12.9 15,610 20,142 22,692 27,798

EBITDA 768 611 25.7 679 13.1 2,166 2,660 3,014 3,661

APAT 728 328 121.9 325 124.3 954 1,618 1,596 1,760

Diluted EPS (Rs) 14.2 6.4 121.9 6.3 124.3 18.6 31.5 31.1 34.3

P/E (x) 30.5 18.0 18.3 16.6

EV / EBITDA (x) 15.0 10.6 9.9 8.6

RoE (%) 14.2 15.6 11.1 11.0Source: Company, HDFC sec Inst Research

INDUSTRY INFRASTRUCTURECMP (as on 31 May 16) Rs 568

Target Price Rs 660

Nifty 8,160

Sensex 26,668

KEY STOCK DATA

Bloomberg PNCL IN

No. of Shares (mn) 51

MCap (Rs bn) / ($ mn) 29/4346m avg traded value (Rs mn) 16

STOCK PERFORMANCE (%)

52 Week high / low Rs 613/352

3M 6M 12M

Absolute (%) 19.1 7.0 42.1

Relative (%) 3.2 5.0 46.2

SHAREHOLDING PATTERN (%)

Promoters 56.07

FIs & Local MFs 15.70

FIIs 13.01

Public & Others 15.22

Source : BSE

Parikshit D Kandpal

[email protected]

+91-22-6171-7317

Prabhat [email protected]

+91-22-6171-7319

HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters

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PNC INFRATECH : RESULTS REVIEW 4QFY16

Standalone Quarterly Financial

Particulars (Rs mn) 4QFY16 4QFY15 YoY (%) 3QFY16 QoQ (%) FY16 FY15 YoY (%)

Net Sales 5,887 4,643 26.8 5,215 12.9 20,142 15,610 29.0

Material Expenses (4,176) (3,420) 22.1 (3,861) 8.2 (14,683) (11,355) 29.3

Employee Expenses (214) (236) (9.6) (219) (2.5) (836) (737) 13.4

Other Operating Expenses (729) (375) 94.2 (456) 60.0 (1,963) (1,352) 45.2EBITDA 768 611 25.7 679 13.1 2,660 2,166 22.8

Depreciation (144) (106) 35.4 (139) 3.5 (525) (364) 44.3

EBIT 625 505 23.7 540 15.6 2,135 1,803 18.4

Other Income (Incl EO Items) 924 76 1,120.2 35 2,504.1 1,011 138 631.6

Interest Cost (89) (109) (19.1) (81) 9.5 (332) (462) (28.1)

PBT 1,460 471 209.8 495 195.0 2,814 1,478 90.3

Tax 77 (143) (153.9) (170) (145.3) (386) (475) (18.6)

Reported PAT 1,537 328 368.8 325 373.7 2,427 1,004 141.9

EO Items (810) - - - - (810) (49) -

APAT 728 328 121.9 325 124.3 1,618 954 69.5

Source: Company, HDFC sec Inst Research

Margin Analysis

4QFY16 4QFY15 YoY (bps) 3QFY16 QoQ (bps) FY16 FY15 YoY (bps)

Material Expenses % Net Sales 70.9 73.7 (272) 74.0 (310) 72.9 72.7 16

Employee Expenses % Net Sales 3.6 5.1 (146) 4.2 (57) 4.1 4.7 (57)

Other Operating Expenses % Net

Sales12.4 8.1 430 8.7 365 9.7 8.7 109

EBITDA Margin (%) 13.0 13.2 (11) 13.0 3 13.2 13.9 (67)

Tax Rate (%) (5.3) 30.4 (3,571) 34.4 (3,972) 13.7 32.1 (1,839)APAT Margin (%) 12.4 7.1 530 6.2 614 8.0 6.1 192


PNC 4QFY16 net

revenues/EBITDA/APAT was

12.9/9.7/124% above our

estimates

APAT was aided by MAT

reversal and higher other

income (profit through sale

of Jaora Nayagaon - ~Rs

97.3mn)

EBITDA margins remained

stable at ~13%

FY16 order inflows stood at

Rs 39.7bn and FY16-end

order book is Rs 55.4bn

excluding L1 of Rs 2.6bn

On a standalone basis, PNC

has become net debt-free

with gross debt of Rs 60mn

and cash of Rs 9.7bn

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We expect PNCs order book

to multiply 2x over FY16-18E

Roads EPC and HAM will be

the key drivers for order-

book growth

PNC is looking to bid for Rs

80bn HAM, Rs 200bn EPC in

FY17E

The management has

guided for Rs 50bn order

intake in FY17E

EBITDA and PAT margins to

remain at 13-13.5% and 6-

6.5% over FY16-18E

Expect PNC to add debt over

FY16-18E to fund its HAM

portfolio. However, FY18E-

end net debt is estimated at

Rs 2.3bn and net D/E ratio of

0.13x

Expect FY18E net working

capital cycle of 163 days and

cash flow from operations to

improve to Rs 343mn

Order Book To Multiply 2x Over FY16-18E EBIDTA Margins To Remains Stable At 13.2%

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

Expect FY18E Net D/E Ratio Of 0.13x Expect FY18E NWC Cycle Of 163 days

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

0

1

2

3

4

5,000

25,000

45,000

65,000

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

Order book (Rs mn) Revenues (Rs mn)

Book-to-bill ratio (x) - RHS

Rs mn

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

E BITDA Marg ins ( %) PAT Ma rg ins ( %) - R H S

Rs mnRs mn

(0.20)

(0.10)

-

0.10

0.20

0.30

0.40

0.50

0.60

500

1,000

1,500

2,000

2,500

3,000

3,500

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

Net Debt (Rs mn) Net D/E Ratio (x) - R HS

0

20

40

60

80

100

120

140

160

180

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

Cash f low from operations -LHS NWC Cycle -RHS

Rs mn Rs mn

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Strong BOT portfolio Value BOTs at Rs 146/sh (1.6x P/BV)

PNCs FY16 BOT toll collections grew 42% YoY in

the Gwalior-Bhind project and 20% YoY in the

Kanpur-Ayodhya OMT project. PNC has recorded

FY16 toll revenue of Rs 3.8bn vs. our estimate of

Rs 3.6bn.

Aligarh-Ghaziabad project has been one of the

key pain points in PNCs BOT portfolio. Against Rs

9mn/day of tolling estimate, the actual 4QFY16

collection stood at Rs 0.4mn/day. The shortfall in

is expected to contract after the installation of the

Weigh Bridge. Collection of overloading charges,

expected to start by mid-June-16, would add

about another Rs 0.8mn/day.

Full COD (currently tolling is for 103/126km) isexpected by Jul-16E, which is likely to add another

Rs 1.2mn/day in collection. This will take the total

collection/day to Rs 6-6.5mn/day. Breakeven

interest cost is Rs 5mn/day collections.

Raebareli-Jaunpur annuity project: PNC received

COD for the Raebareli-Jaunpur BOT project on

March 8, 2016. The project has achieved COD

three months ahead of the June-16E deadline. The

management expects to receive three monthspartial semi-annuity of Rs 340mn as bonus by Dec-

16E, along with semi annuity.

Bareli-Almora project: Tolling started in 3QFY16.

At present, the collection is Rs 1.1mn/day vs. Rs

1.4mn/day estimates. PNC expects to charge

overloading and traffic leakage by 2QFY17E. This

may result in collections reaching Rs 1.4mn/day.

Other BOTs:The collections at PNCs other BOTs

Kanpur-Kabrai, Kanpur-Ayodhya and Gwalior-Bhind - are higher than estimates. We have

valued PNCs BOT portfolio at Rs 146/share

(previous Rs 130/share). The increase is on

account of a valuation upgrade for the above

projects.

ProjectPNC Stake

(%)WACC (%)

PNC Equity

Invested

(INR mn)

Project

Value (Rs

mn)

NPV (PNCL

Share) INR

mn

Per share

value

(Rs/sh)

Implied P/B

(x)

Bareilly-Almora-Bagheshwar 100.0 13.5 750 1,038 1,038 20 1.4

Kanpur-Kabrai 100.0 13.5 675 2,238 2,238 44 3.3

Gwalior Bhind 100.0 13.5 780 1,134 1,134 22 1.5

Aligarh-Ghaziabad 35.0 13.5 679 1,645 576 11 0.8

Raebareli-Jaunpur 100.0 13.5 1,395 646 646 13 0.5

Narela Industrial Estate 100.0 13.5 350 789 789 15 2.3

Kanpur-Ayodhya 100.0 13.5 - 1,056 1,056 21 -

Total 4,629 8,546 7,477 146 1.6


PNC has achieved Rs 3.8bn

toll revenue for FY16 vs. our

estimate of Rs 3.6bn

The Aligarh-Ghaziabad

project toll collection has

been sharply lower (Rs 4mn)

vs. estimates (Rs 9mn). Post-

overloading charge

collection and achievement

of full COD, toll collection

may improve to Rs

6.5mn/day by Jul-16E

There is no pending equity

to be invested in the

projects. Total equity

invested is Rs 4.6bn (PNC

share)

PNC has monetized 8.5%

stake in Jaora Nayagaon for

a consideration of Rs

341.5mn. PNC recorded Rs

97.3mn PBT during 4QFY16

PNCs total asset portfolio is

valued at Rs 146/sh (vs.

earlier value of Rs 130/sh)

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Key Assumptions And Estimates (Standalone)

Key Assumptions (Rs mn) FY15 FY16E FY17E FY18E Comments

Closing Order Book 35,642 55,370 79,833 109,808We expect 40.8% FY16-18E order backlog CAGR on back of strong

NHAI & State EPC roads/irrigation pipeline

Order Book Growth (%) 27.5 55.4 44.2 37.5

New Order Booking 18,490 39,720 47,156 57,773Book-to-bill Ratio 2.3 2.7 3.5 4.0 Book-to-bill ratio to improve on new orders wins

Total Revenue 15,610 20,142 22,692 27,798Strong order book accretion to result in FY16-18E revenue CAGR of

17.5%

Growth (%) 35.5 29.0 12.7 22.5

EBIDTA 2,166 2,660 3,014 3,661 FY16-18E EBIDTA CAGR of 17.3%

EBIDTA Margin (%) 13.9 13.2 13.3 13.2 Margins to remain in the 13-13.5% range

Depreciation 364 525 589 695

Financial Charges 462 332 407 428 Borrowing cost to grow in line with revenue at 13.5% FY16-18E CAGR

Other Income (inc EO) 138 1,011 135 143

PBT 1,478 2,814 2,152 2,681 FY16-18E PBT CAGR of -2.4%. This de-growth on account of higherother income during FY16

PBT Margin (%) 9.5 14.0 9.5 9.6 PBT margins to remain stable

Tax 475 386 517 884.6

Tax Rate (%) 32.1 13.7 24.0 33.0PNC to move to full taxation from FY18E as MAT benefit expires for

projects won after 1 April 2017

APAT 954 1,618 1,596 1,760 FY16-18E APAT CAGR of 4.3%

Net margin (%) 6.1 8.0 7.0 6.3 Net margins to remain stable

Gross Block Turnover 4.7 4.9 4.7 4.8 Improvement on account of new order inflow

Debtor Days 86 68 90 90May marginally deteriorate on account of NHAI new orders being

milestone payment based

CFO a 632 517 (235) 343

CFI b (1,648) (904) (1,050) (1,500)

We have assumed PNC to take one hybrid annuity project of Rs 10bn

in FY17E. Total outgo on equity will be Rs 1.8bn, cumulative can be

met by internal accruals

FCF - a+b (1,016) (386) (1,285) (1,157)

CFF c 229 592 2,385 122

Total Change In Cash -

a+b+c(788) 206 1,100 (1,035) Net cash position doesnt change debt materially

Source : HDFC sec Inst Research

We expect 40.8% FY16-18E

order backlog CAGR

FY16-18E revenue CAGR

17.5%, EBIDTA CAGR 17.3%

EBIDTA margins to bemaintained in the 13-14%

range

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Key Assumptions And Estimates (Consolidated)

Key Assumptions (Rs mn) FY15 FY16P FY17E FY18E Comments

Income

Toll Revenue 2,394 3,808 5,668 6,314

Toll revenue excludes Aligarh-Ghaziabad. Full-year revenue impact of

toll & annuity projects to reflect from FY17E, with all the projects

being operational. FY16-18E CAGR of 28.8%

Construction Revenue 16,215 20,138 22,692 27,798Expect execution to materially pick up during FY16-18E, with revenue

CAGR of 17.5%

Total Revenue 18,609 23,946 28,360 34,112 Overall FY16-18E revenue CAGR of 19.4%

Growth (%) 36.8 28.7 18.4 20.3

EBIDTA (Toll) 633 1,414 3,051 3,449 FY16-18E Toll EBIDTA CAGR of 56.2%

EBIDTA (Construction) 2,166 2,660 3,014 3,661 FY16-18E EBIDTA CAGR of 17.3%

EBIDTA Margin Toll (%) 26.4 37.1 53.8 54.6 BOT margins to improve as traffic volume pick up

EBIDTA Margin Construction

(%)13.4 13.2 13.3 13.2

Total EBIDTA 2,799.0 4,073.4 6,065.3 7,109.9 Overall FY16-18E EBIDTA CAGR of 32.1%

EBIDTA Margin 15.0 17.0 21.4 20.8 Improvement owing to higher toll revenue

Depreciation 603 1,091 1,773 2,047 Growth in line with BOT assets capitilisation

Financial Charges 925 1,287 2,293 2,264 Interest expense largely driven by BOT projects

PBT 1,392 2,676 2,134 2,942 FY16-18E PBT CAGR of 4.9%

PBT Margin (%) 7.5 11.2 7.5 8.6 Expansion owing to faster toll revenue growth

Tax 479 384 590 988

Tax Rate (%) 34.4 14.3 27.6 33.6

Minority/Profit from Asso/EO. 0.0 (944.7) (22.8) 45.4

APAT 913 1,347 1,522 2,000 FY16-18E PAT CAGR of 21.8%

Net Margin (%) 4.9 5.6 5.4 5.9

Gross Block Turnover 2.2 1.4 1.0 1.1

Impacted by BOT project capitilisation. Since these are concession

projects, the asset turn is low as revenue is realised over the life of

the project

Debtor Days 52 63 79 79 Stable debtor days

CFO a 2,468 799 3,167 4,744Higher revenue growth and full impact of high margin BOTs to result

in higher positive cash flow from operations

CFI b (9,749) (2,334) (3,445) (850)No incremental BOT project requirement. Capex to be largely

standalone business driven

FCF - a+b (7,281) (1,535) (278) 3,894

CFF c 6,536 2,430 (15) (2,673)

Total change in cash - a+b+c (745) 895 (294) 1,222 Net cash position to remain strongSource : HDFC sec Inst Research, P Project segment EBIDTA

FY16-18E revenue CAGR of

19.4%

This will be driven by toll

revenue CAGR of 28.8% and

EPC revenue CAGR of 17.5%

FY16-18E EBIDTA CAGR of

32.1% largely driven by toll

EBIDTA CAGR of 56.2% and

EPC EBIDTA CAGR of 17.3%

With most of the BOT

projects turning profitable

from FY18E, FY16-18E net

profit is expected to multiply

1.5x

Net cash position to remain

strong

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Change Un Estimates (Standalone)

Rs mnFY17E

New

FY17E

Old

%

Change

FY18E

New

FY18E

Old

%

ChangeComments

Revenues 22,692 22,692 - 27,798 26,893 3.4

We have changed the FY18E revenue

on account of strong book accretion

during FY17-18E

EBIDTA 3,014 3,014 - 3,661 3,583 2.2

EBIDTA Margins (%) 13.3 13.3 - 13.2 13.3 (15.1)EBIDTA margins largely stable in the

13-13.5% band

APAT 1,596 1,425 12.0 1,760 1,696 3.7

Higher other income and increase in

revenue estimate to result in higher

APAT

Adj. EPS (INR) 31.1 27.8 12.0 34.3 33.1 3.7


Change in Estimates (Consolidated)Rs mn

FY17E

Old

FY17E

New% Change

FY18E

Old

FY18E

New% Change Comments

Revenues 28,360 28,249 0.4 34,112 33,079 3.1

Change in EPC revenue estimate,

coupled with better traffic on MP

highway, Kanpur-Kabrai and Kanpur

OMT

EBIDTA 6,065 5,954 1.9 7,110 6,904 3.0

EBIDTA Margins (%) 21.4 21.1 31.0 20.8 20.9 (2.8)

APAT 1,522 1,256 21.1 2,000 1,834 9.0

Better profitability in BOT assets and

upgrade of EPC revenue results in

increase in APATAdj. EPS (INR) 29.66 24.48 21.1 38.98 35.75 9.0


With improvement in order

intake we have upgraded

our FY18E EPS by 3.8%.

FY17E upgrade of 12% on

account of lower taxes

(MAT)

With robust growth in MP

highway, Kanpur OMT and

Kanpur-Kabrai project, we

have upgraded our toll

revenue estimates. This,along with EPC revenue

upgrade, results in 9% FY18E

EPS upgrade. FY17E upgrade

of 21.1% on account of

lower taxes (MAT)

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Outlook and valuation

Target price of Rs 660/sh implies ~16.2% upside

We have valued PNC standalone on P/E basis

inline with it road EPC peers, namely KNR/J

Kumar/Sadbhav, at 15x one-year forward. Our

rationale is (1) A robust order book with ~2x

increase over the FY16-18E period to Rs 109.9bn,

(2) A strong balance sheet (FY16 standalone net

D/E at -0.07x, (3) Fully invested BOT portfolio, and

(4) High share of NHAI EPC roads in the order book

will result in lower working capital demand, as

these projects have 10% interest-free client

advance. PNC has 68 days (FY16) of debtor - one

of the best in the industry.

Higher-than-estimated order intake may result infurther stock re-rating as PNC has (1) A diversified

presence in roads and a dedicated freight corridor,

the biggest beneficiary of government spending,

(2) Strong execution capability, which provides

scope for earning early completion bonus (3-6% of

project cost) leading to EBIDTA margin expansion,

and (3) Likely support from the captive order book

in lieu of any contraction in future roads EPC

orders.

While the NHAI pipeline remains strong at about

Rs 900bn annually, PNCs home state Uttar

Pradesh is coming up with Rs 250bn of road

projects to be awarded over the next two years. A

strong setup in UP provides strong order intake

tailwinds for the company.

We have valued PNCs toll projects using 13.5%

discount rate for arriving at NPV of the projects.

We value the BOT business at Rs 146/sh (1.6x of

PNC invested equity). We remain cautious on the

traffic pick-up in the Aligarh-Ghaziabad BOT

project, as current collections are about 50%

lower than estimate. Even with overloading andfull COD, the collections may remain ~30% below

estimates.

We rate PNC as a BUY with SOTP of Rs 660/share.

We value the (1) Standalone EPC business at Rs

515/share (15x one-year forward Mar-18 EPS),

and (2) BOT projects at Rs 146/share.

SOTP Valuation

SegmentValuation

Methodology

FY18

Adjusted PATMultiple

Valuation (INR

mn)

NEW

Value per Share

(INR)

OLD

Value per Share

(INR)

Standalone construction - EPC FY18 P/E 1,760 15 26,399 515 496

BOT Value FCFE Mar-17 7,477 146 130

SOTP Value 33,876 660 625

Source: HDFC sec Inst Research

We value standalone EPC

business at Rs 515/share

(15x one-year forward

Mar-18E EPS)

We value PNCs BOT

portfolio at Rs 146/share

(1.6x invested equity)

Our target standalone P/E

multiple is in line with road

EPC peers, such as KNR

Construction and J Kumar

Infra

We rate PNC as a BUY with

an SOTP-based target price

of Rs 660/sh

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Income Statement (Standalone)

Year ending March (Rs mn) FY14 FY15 FY16 FY17E FY18E

Net Revenues 11,521 15,610 20,142 22,692 27,798

Growth (%) (11.6) 35.5 29.0 12.7 22.5

Material Expenses 3,814 5,717 14,683 8,010 9,813

Employee Expenses 577 737 836 1,071 1,231Other Operating Expenses 5,712 6,990 1,963 10,597 13,093

EBITDA 1,418 2,166 2,660 3,014 3,661

EBITDA Margin (%) 12.3 13.9 13.2 13.3 13.2

EBITDA Growth (%) (11.7) 52.7 22.8 13.3 21.5

Depreciation 248 364 525 589 695

EBIT 1,170 1,803 2,135 2,425 2,966

Other Income (Including EO Items) 106 138 1,011 135 143

Interest 234 462 332 407 428

PBT 1,042 1,478 2,814 2,152 2,681

Tax (Incl Deferred) 341 475 386 517 885RPAT 701 1,004 2,427 1,636 1,796

EO (Loss) / Profit (Net Of Tax) (44) (49) (810) (39) (36)

APAT 657 954 1,618 1,596 1,760

APAT Growth (%) (14.9) 45.3 69.5 (1.3) 10.2

Adjusted EPS (Rs) 12.81 18.60 31.5 31.1 34.3

EPS Growth (%) (14.9) 45.3 69.5 (1.3) 10.2


Balance Sheet (Standalone)


SOURCES OF FUNDS

Share Capital - Equity 398 398 513 513 513

Reserves 5,892 6,786 13,110 14,653 16,356

Total Shareholders Funds 6,290 7,184 13,623 15,166 16,869Long-term Debt 553 528 60 60 60

Short-term Debt 2,193 3,003 - 2,750 3,250

Total Debt 2,747 3,530 60 2,810 3,310

Net Deferred Taxes 27 4 (30) (30) (30)

Long-term Provisions & Others 1,775 2,499 1,598 1,520 1,445

TOTAL SOURCES OF FUNDS 10,839 13,218 15,251 19,466 21,595

APPLICATION OF FUNDS

Net Block 1,528 2,105 2,144 2,555 2,710

CWIP 16 70 - - -

Investments 3,510 4,235 4,644 4,694 5,344Total Non-current Assets 5,054 6,410 6,788 7,249 8,054

Inventories 1,048 2,225 2,364 2,798 3,427

Debtors 3,436 3,667 3,763 5,595 6,854

Other Current Assets 2,262 3,263 4,988 5,609 6,947

Cash & Equivalents 999 212 971 2,070 1,035

Total Current Assets 7,745 9,367 12,085 16,072 18,263

Creditors 700 1,081 1,062 1,243 1,523

Other Current Liabilities & Provns 1,261 1,478 2,560 2,611 3,199

Total Current Liabilities 1,960 2,559 3,621 3,855 4,722

Net Current Assets 5,785 6,808 8,464 12,217 13,541

TOTAL APPLICATION OF FUNDS 10,839 13,218 15,251 19,466 21,595


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Cash Flow (Standalone)


Reported PBT 1,042 1,478 2,814 2,152 2,681

Non-operating & EO items 8 9 - - -

Interest Expenses 172 373 (679) 273 285

Depreciation 248 364 525 589 695Working Capital Change 514 (1,094) (1,756) (2,732) (2,434)

Tax Paid (331) (498) (386) (517) (885)

OPERATING CASH FLOW ( a ) 1,653 632 517 (235) 343

Capex (535) (1,012) (495) (1,000) (850)

Free cash flow (FCF) 1,118 (380) 22 (1,235) (507)

Investments (478) (636) (408) (50) (650)

INVESTING CASH FLOW ( b ) (1,013) (1,648) (904) (1,050) (1,500)

Debt Issuance/(Repaid) 211 784 (3,470) 2,750 500

Interest Expenses (234) (462) (131) (273) (285)

FCFE 1,095 (58) (3,579) 1,242 (293)Share Capital Issuance - - 4,347 (0) 0

Dividend - (93) (154) (93) (93)

FINANCING CASH FLOW ( c ) (23) 229 592 2,385 122

NET CASH FLOW (a+b+c) 617 (788) 206 1,100 (1,035)


Key Ratios (Standalone)

FY14 FY15 FY16 FY17E FY18E

PROFITABILITY (%)

GPM 66.9 63.4 27.1 64.7 64.7

EBITDA Margin 12.3 13.9 13.2 13.3 13.2

APAT Margin 5.7 6.1 8.0 7.0 6.3RoE 11.0 14.2 15.6 11.1 11.0

RoIC (or Core RoCE) 12.4 14.0 19.1 14.5 13.1

RoCE 8.6 11.0 19.1 11.2 10.1

EFFICIENCY

Tax Rate (%) 32.7 32.1 13.7 24.0 33.0

Fixed Asset Turnover (x) 4.0 4.1 4.6 4.2 4.5

Inventory (days) 33.2 52.0 42.8 45.0 45.0

Debtors (days) 108.8 85.8 68.2 90.0 90.0

Other Current Assets (days) 71.7 76.3 90.4 90.2 91.2

Payables (days) 22.2 25.3 19.2 20.0 20.0Other Curr Liab/Provns (days) 41.1 35.5 46.9 42.0 42.0

Cash Conversion Cycle (days) 150.4 153.3 135.3 163.2 164.2

Debt/EBITDA (x) 1.9 1.6 0.0 0.9 0.9

Net D/E (x) 0.28 0.46 (0.07) 0.05 0.13

Interest Coverage (x) 5.0 3.9 6.4 6.0 6.9

PER SHARE DATA (Rs)

EPS 12.8 18.6 31.5 31.1 34.3

CEPS 18.5 26.6 57.5 43.4 48.6

Dividend 0.6 1.5 2.5 1.5 1.5

Book Value 122.6 140.0 265.5 295.6 328.8

VALUATION

P/E (x) 44.4 30.5 18.0 18.3 16.6

P/BV (x) 4.6 4.1 2.1 1.9 1.7

EV/EBITDA (x) 21.8 15.0 10.6 9.9 8.6

EV/Revenues (x) 2.7 2.1 1.4 1.3 1.1

OCF/EV (%) 5.4 1.9 1.8 (0.8) 1.1

FCF/EV (%) 3.6 (1.2) 0.1 (4.1) (1.6)

FCFE/Mkt Cap (%) 3.8 (0.2) (12.3) 4.3 (1.0)

Dividend Yield (%) 0.1 0.3 0.4 0.3 0.3Source: Company, HDFC sec Inst Research

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Income Statement (Consolidated)


Net Revenues 13,600 18,609 23,946 28,360 34,112

Growth (%) 4.2 36.8 28.7 18.4 20.3

Material Expenses 4,309 6,174 14,798 10,627 12,678

Employee Expenses 619 814 953 1,071 1,231Other Operating Expenses 6,918 8,823 4,122 10,597 13,093

EBITDA 1,754 2,799 4,073 6,065 7,110

EBITDA Margin (%) 12.9 15.0 17.0 21.4 20.8

EBITDA Growth (%) 12.3 59.5 45.5 48.9 17.2

Depreciation 402 603 1,091 1,773 2,047

EBIT 1,353 2,196 2,983 4,293 5,063

Other Income (Including EO Items) 108 121 980 135 143

Interest 609 925 1,287 2,293 2,264

PBT 852 1,392 2,676 2,134 2,942

Tax (Incl Deferred) 346 479 384 590 988RPAT 506 913 2,292 1,544 1,954

Minority Interest 45 (0) 0 - -

Profit/Loss from Associates - - (131) (23) 45

EO Items - - (814) - -

APAT 552 913 1,347 1,522 2,000

APAT Growth (%) (26.1) 65.5 47.5 13.0 31.4

Adjusted EPS (Rs) 10.8 17.8 26.3 29.7 39.0

EPS Growth (%) (26.1) 65.5 47.5 13.0 31.4


Balance Sheet (Consolidated)


SOURCES OF FUNDS

Share Capital - Equity 398 398 513 513 513

Reserves 6,699 8,313 12,584 14,046 15,986

Total Shareholders Funds 7,097 8,711 13,097 14,559 16,499Minority Interest 1 1 1 1 1

Long Term Debt 7,431 13,066 16,440 15,893 14,901

Short Term Debt 2,819 3,859 60 2,810 3,310

Total Debt 10,250 16,924 16,500 18,703 18,211

Net Deferred Taxes 31 10 (32) (32) (32)

Long Term Provisions & Others 1,030 2,587 1,612 1,909 2,297

TOTAL SOURCES OF FUNDS 18,409 28,232 31,178 35,140 36,975

APPLICATION OF FUNDS

Net Block 6,489 6,833 22,899 24,571 23,374

CWIP 5,926 14,822 - - -Investments 1,051 938 656 633 678

Total Non-current Assets 13,466 22,593 23,555 25,204 24,052

Inventories 1,048 2,225 2,364 2,856 3,538

Debtors 1,917 2,644 4,121 6,100 7,411

Other Current Assets 2,619 3,101 4,768 5,768 6,668

Cash & Equivalents 1,156 411 1,066 772 1,994

Total Current Assets 6,740 8,381 12,319 15,496 19,611

Creditors 875 1,111 2,046 2,423 2,915

Other Current Liabilities & Provns 922 1,631 2,648 3,137 3,773

Total Current Liabilities 1,797 2,742 4,695 5,560 6,688

Net Current Assets 4,943 5,639 7,624 9,936 12,923

TOTAL APPLICATION OF FUNDS 18,409 28,232 31,178 35,140 36,975


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Cash Flow (Consolidated)


Reported PBT 852 1,392 2,676 2,134 2,942

Non-operating & EO items (58) (60) (1,806) (135) (143)

Interest expenses 609 925 1,287 2,293 2,264

Depreciation 402 603 1,091 1,773 2,047Working Capital Change (84) 107 (2,304) (2,309) (1,378)

Tax Paid (333) (500) (384) (590) (988)

OPERATING CASH FLOW ( a ) 1,388 2,468 559 3,167 4,744

Capex (5,419) (9,862) (2,334) (3,445) (850)

Free cash flow (FCF) (4,032) (7,394) (1,775) (278) 3,894

Investments (128) 114

INVESTING CASH FLOW ( b ) (5,547) (9,749) (2,334) (3,445) (850)

Debt Issuance/(Repaid) 5,157 7,484 (424) 2,203 (492)

Interest Expenses (542) (855) (1,121) (2,158) (2,121)

FCFE 583 (766) (3,320) (234) 1,282

Share Capital Issuance - - 4,035 - -

Dividend (35) (93) (60) (60) (60)

FINANCING CASH FLOW ( c ) 4,580 6,536 2,430 (15) (2,673)

NET CASH FLOW (a+b+c) 420 (745) 655 (294) 1,222

Closing Cash & Equivalents 1,156 411 1,066 772 1,994


Key Ratios (Consolidated)

FY14 FY15 FY16 FY17E FY18E

PROFITABILITY (%)

GPM 68.3 66.8 38.2 62.5 62.8

EBITDA Margin 12.9 15.0 17.0 21.4 20.8

APAT Margin 3.7 4.9 9.6 5.4 5.7RoE 7.8 11.6 21.0 11.2 12.6

RoIC (or Core RoCE) 5.0 5.4 8.7 9.2 9.8

RoCE 5.7 6.5 11.4 9.7 9.6

EFFICIENCY

Tax Rate (%) 40.6 34.4 14.3 27.6 33.6

Fixed Asset Turnover (x) 1.7 2.1 0.9 1.0 1.1

Inventory (days) 28.1 43.6 36.0 36.8 37.9

Debtors (days) 51.5 51.9 62.8 78.5 79.3

Other Current Assets (days) 70.3 60.8 72.7 74.2 71.4

Payables (days) 23.5 21.8 31.2 31.2 31.2

Other Curnt Liab & Provns (days) 24.7 32.0 40.4 40.4 40.4

Cash Conversion Cycle (days) 101.7 102.6 100.0 117.9 116.9

Debt/EBITDA (x) 5.8 6.0 4.1 3.1 2.6

Net D/E (x) 1.3 1.9 1.2 1.2 1.0

Interest Coverage (x) 2.2 2.4 2.3 1.9 2.2

PER SHARE DATA (Rs)

EPS 10.8 17.8 26.3 29.7 39.0

CEPS 18.6 29.6 47.5 64.2 78.9

Dividend 0.6 1.0 1.0 1.0 1.0

Book Value 138.3 169.8 255.3 283.8 321.6

VALUATION

P/E (x) 52.8 31.9 21.6 19.2 14.6

P/BV (x) 4.1 3.3 2.2 2.0 1.8

EV/EBITDA (x) 21.8 16.3 10.9 7.8 6.4

EV/Revenues (x) 2.8 2.5 1.9 1.7 1.3

OCF/EV (%) 3.6 5.4 1.3 6.7 10.5

FCF/EV (%) (10.5) (16.2) (4.0) (0.6) 8.6

FCFE/Mkt Cap (%) 2.0 (2.6) (11.4) (0.8) 4.4

Dividend Yield (%) 0.1 0.2 0.2 0.2 0.2Source: Company, HDFC sec Inst Research

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Rating Definitions

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period

SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target

30-Mar-16 496 BUY 625

31-May-16 568 BUY 660

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RECOMMENDATION HISTORY

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Disclosure:We, Parikshit Kandpal, MBA, & Prabhat Anantharaman, MS (Finance) authors and the names subscribed to this report, hereby certify that all of the views expressed in this research reportaccurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specificrecommendation(s) or view(s) in this report.Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or itsAssociate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. FurtherResearch Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.

Any holding in stock No

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