NOCIL (NOCIL IN) Set for a smooth ride. Rating: BUY CMP: Rs169 TP: Rs270. Avishek Datta

Transcription

1 (NOCIL IN) Rating: BUY CMP: Rs169 TP: Rs270 Set for a smooth ride Avishek Datta avishekdatta@plindia.com

2 Contents Page No. Rubber chemicals- Poised for growth... 4 Rubber chemicals to ride on increased Tyre usage... 4 Tyre industry in a sweet spot... 4 Nocil s performance against global peers... 7 Nocil At an inflexion point Valuation Key risk to our call Story in charts November 29,

3 November 29, 2018 Company Initiation NOCIL (NOCIL IN) Rating: BUY CMP: Rs169 TP: Rs270 Set for a smooth ride Key Financials(Standalone) FY18 FY19E FY20E FY21E Sales (Rs. m) 9,676 11,176 14,669 18,483 EBITDA (Rs. m) 2,629 3,018 3,667 4,621 Margin (%) PAT (Rs. m) 1,689 1,808 2,371 2,968 EPS (Rs.) Gr. (%) DPS (Rs.) Yield (%) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) PE (x) P/BV (x) Key Data NOCI.BO NOCIL IN 52-W High / Low Rs. 236 / Rs. 139 Sensex / Nifty 36,170 / 10,859 Market Cap Rs. 28 bn / $ 401 m Shares Outstanding 165m 3M Avg. Daily Value Rs m Shareholding Pattern (%) Promoter s Foreign 4.71 Domestic Institution 6.00 Public & Others Promoter Pledge (Rs bn) 1.21 Stock Performance (%) 1M 6M 12M Absolute 11.0 (11.7) (4.0) Relative 4.5 (14.7) (10.8) Avishek Datta avishekdatta@plindia.com We initiate coverage on Nocil with a BUY and a PT of Rs277, based on P/E of 15x FY21E or 8.0x EV/EBIDTA FY21E. Nocil is India s largest manufacturer of rubber chemicals, with over four decades of experience. The company s technical capabilities and reliability has helped develop deep relationship with leading global and domestic tyre players. Nocil s earnings have increased 7x over FY14-18 led by 1) steady demand growth of 12.5% CAGR 2) higher share of specialty grade chemicals 3) benefit from Anti-Dumping Duty. Nocil remains well placed to capitalize on supply disruptions in China which accounts for 70% of global rubber chemicals supplies. Going forward, Nocil plans to double its capacities by H2FY20E to capitalize on domestic tyre industry capex (Rs250bn over the next five years) and global opportunities from disruption in China. Also, US has imposed 10% duty on rubber chemicals imports from China and will add another 15% duty from January This will open new opportunities for Nocil even though some Chinese supplies might be diverted to India. Timely capex to support growth: Nocil remains well placed to capitalize on domestic and international opportunities. Domestic tyre manufacturers have lined up capex of Rs250bn over the next five years (Source: ICRA), given improved demand traction. Anti-dumping duty (ADD) imposed on imports of TBR tyres from China for five years will spur domestic tyre demand. In the international markets, disruption in Chinese supplies will make the company better placed to capitalize on export markets (US$22bn capex by global tyre players by CY21; Source Notch). Accordingly, Nocil s timely capex of Rs4.3bn will double its capacity in stages through H2FY20 and revenues can potentially double in FY21E, given the asset turn of 2x. Tougher environment norms to lift cost structure: China has progressively tightened environment norms over the last few years. This has disrupted supplies for highly polluting chemical industries as they account for over 70% global rubber chemicals. Tightened environment norms have also increased the cost structure; China Sunsine s CY17 environmental protection expense was up 50%YoY to RMB99mn or 3.6% of revenues. We believe the higher cost structure of rubber chemical players is structural and will ease competitive pressure on players like Nocil, going ahead. Closing the gap to global leaders: Nocil s EBITDA margins have increased 17% over FY14-18 led by 1) cost rationalization 2) backward integration post start of new facility at Dahej in FY13 3) higher share of speciality grade chemicals and 4)imposition of anti-dumping duty (ADD) protection (~4% of sales). However, our analysis of Nocil s operating performance vis-à-vis China Sunsine (CS), one of the world s largest rubber chemicals players, suggest that Nocil s operating matrix has steadily improved due to cost optimization and better raw material sourcing and is better placed to compete with global majors. Initiate with a BUY and PT of Rs277. Nocil remains well placed to capitalise on strong downstream demand from tyre markets. Timely capacity, addition, along with healthy margins, will drive earnings at 22% CAGR over FY18-21E. Initiate with BUY and PT of Rs277 based on 15xPER FY21E. Net cash of Rs7.7bn for FY21E and healthy ROEs of 20% provide downside support. November 29,

4 '000 tons NOCIL Rubber chemicals- Poised for growth Rubber chemicals to ride on increased Tyre usage The rubber processing chemicals industry is a play on growth in downstream demand, especially for Tyres. The global rubber markets consumption in CY17 was expected at 28mn MT and has registered a CAGR 3% over CY12-17 (Source: Rubber Statistical Bulletin). Growth of the rubber industry is directly linked to automobile sector as the Tyre industry accounts for 65% of total rubber usage. Other uses of rubber are latex, footwear, conveyor belt, flooring, cycle tubes, medical gloves etc. Tyre industry in a sweet spot Tyres account for two-thirds of rubber chemicals demand. Overall Indian tyre demand has registered CAGR of 5.2% over FY13-18 led by demand in OEMs and replacement segment. For FY18, according to SIAM (Society of Indian Automobile Manufacturers), demand for passenger vehicles increased 7.9%, while commercial vehicles and three-wheelers were up 19.9% and 24.2%, respectively. For FY18, two-wheelers volume was up 14.8%. Growth is, however, set to accelerate to CAGR of 8.3% over FY18-23E, 1) given the strong government focus on infrastructure 2) rising and vehicle demand due to increased consumerism and 3) imposition of anti-dumping duty (ADD) on radial tyre imports from China for five years. Government has proposed ADD on import of radial tyres for trucks and buses from China to provide a level-playing field to domestic manufacturers. The duties range between US$ /ton for a period of five years. Indian tyre demand to grow at 8.3% CAGR over FY18-23 Replacement OEM FY13 FY14 FY15 FY16 FY17 FY18 FY23F Source: Notch, Crisil, PL November 29,

5 Global tyre demand to accelerate Tyre demand is expected to accelerate globally across segments - passenger and trucks and buses due to favourable demand traction. Overall global demand is also likely to accelerate to 3.3% over CY16-21E against 2.2% over CY Also, global capital expenditure is pegged at US$21.8bn during CY16-21E, given improved demand environment Global tyre demand to accelerate Passenger Trucks & Buses Total CY06-16 CY16-21 Global tyre industry capex at US22bn Asia 9,869 North America 6,319 Europe 3,550 Africa/ME 1,934 South America 150 World 21,822 Source: Notch, Crisil, PL Source: Notch, Crisil, PL Rising environmental cost in China augurs well for rubber chemicals China has progressively tightened environment norms over the last few years. This has resulted in major disruption in supplies for highly polluting chemical industries as they account for over 70% global rubber chemicals. Increased compliance audits have, led to closure of smaller/unorganized units. This has led to disruption in supplies, which in turn, has wide ramifications for downstream users globally. Rising compliance costs among Chinese players has also increased the cost structure. Our analysis of CS (one of the largest rubber chemicals company based out of China) financials suggests that environmental protection expenses for CY17 was up 50%YoY to RMB99mn. This translated to 3.6% of CY17 revenues, up from RMB66mn in CY16 or 3.2% of CY16 revenues. This has meant that companies like Nocil, which are compliant with respect to environmental norms have benefitted immensely-nocil s operating profits more than doubled over FY15 to Rs2.6bn in FY18. Anti-dumping duty on rubber chemicals - an added support Government has levied anti-dumping duty (ADD) on six products out of twenty manufactured by Nocil, which will be effective until July According to Nocil s management, duty protection accounts for 4% of sales and ~35% revenues are exposed to duty protection. With significant over capacity in China, the management is hopeful of ADD duty extension as there is a scope of significant injury to domestic industry from cheaper imports. However, effects of duty protection are overstated as competitors cut prices to compete with domestic players. Accordingly, we have factored in 2% EBITDA margin compression in FY20E to 25% against 27% factored in FY19E. Our sensitivity analysis suggests that if the EBIDTA margins were to erode by 4% (vs 2% in base case), Nocil s FY20E earnings impact will be 8% (pls see the later pages on sensitivity analysis for details). November 29,

6 US imposition of import duty on Chinese imports will open new market US has recently imposed 10% import duty on Chinese rubber chemicals and will add another 15% effective 1 st January US and European markets account for ~22% share and any restrictions on Chinese imports will open up opportunities for other including Nocil. While some of the Chinese supplies might be diverted to India (5% of global market), entry into US will be a high growth opportunity for Nocil. Winds of change blowing across rubber chemicals Rubber chemicals are important additives, which are needed to make simple rubber polymer commercially useful for final applications. By weight, they account for 6%, while they account for 3% of value of rubber. Global rubber chemicals demand is estimated at ~1.2MTPA. There are wide range of rubber-processing chemicals like anti-degradants, accelerators and other processing aids. Anti-degradants: Anti-degradants are chemicals used to develop rubber s resistance to heat, oxidation, sunlight and mechanical stress. It ensures that rubber doesn t split or destroys from friction with road. Accelerators: Accelerators are chemical compounds that speed the process of vulcanization. Vulcanization is one of the major activities on raw rubber to eliminate its sticky nature. Vulcanization process generally takes 45 hours; however, with use of accelerators, the process can be completed in 1 hour. Processing aids: Processing aids act as agents to improve manufacturing process of rubber-based products. Rubber chemicals usage Accelerators 1.7% Vulcanizing agents 2.0% Anti-oxidants 2.2% Source: PL, Industry Rubber 94.1% November 29,

7 Nocil s performance against global peers Given that there are very few listed pure rubber chemicals players globally, we compared Nocil s financials with China Sunsine (one of the world s largest rubber chemicals manufacturers; Mkt cap USD470m). Our detailed comparative analysis over last decade shows many interesting data points which augurs well for Nocil. Sales volume growth: Over the last decade, CS volume has registered CAGR growth of 18% to 140,476MT against 7% CAGR for Nocil. This higher growth rate was supported by rapid expansion in Chinese vehicle population over last decade. However, the company s volume traction has overtaken CS over the last five years, partly out of low base effect and increased capacities to 13% CAGR against 9% for CS. China Sunsine volume growth over Nocil has come off over last five years Nocil China Sunsine 160, , , ,000 80,000 60,000 40,000 20, , , , ,572 98,345 81,371 60,907 54,275 45,420 30,787 30,932 32,169 21,542 23,413 24,171 24,413 23,436 24,960 36,190 40,714 CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12 CY12/FY13 CY13/FY14 CY14/FY15 CY15/FY16 CY16/FY17 CY17/FY18 Raw material cost share has come down: Raw material intensity has come down for the industry globally. For CS, raw material share has come down to 60% of sales over CY14-18 against over 70% during CY For Nocil, RMC share has come down to less than 50% over FY15-18 against ~60% over FY Raw material intensity has come down for the sector given benign raw material prices Nocil China sunsine 100% 80% 60% 76% 76% 77% 78% 70% 65% 59% 58% 58% 61% 64% 59% 61% 54% 60% 60% 56% 50% 48% 46% 40% 20% 0% CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12 CY12/FY13 CY13/FY14 CY14/FY15 CY15/FY16 CY16/FY17 CY17/FY18 Source: Company, Company, PL November 29,

8 Operating costs have diverged: Operating cost structure has increased sharply for CS to average 22% of sales over CY13-18 against ~10% over CY Against that, Nocil s cost has averaged at ~30% over last decade and has come down to 27% for FY18. Rising environmental compliance cost will also push the cost structure of the Chinese peers, thereby, reducing the competitive intensity for Nocil. Operating costs for China Sunsine has doubled, while for Nocil it has come off Nocil China sunsine 35% 30% 25% 20% 15% 30% 14% 31% 31% 32% 31% 31% 30% 30% 30% 25% 25% 19% 21% 13% 27% 19% 10% 5% 6% 8% 8% 0% CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12 CY12/FY13 CY13/FY14 CY14/FY15 CY15/FY16 CY16/FY17 CY17/FY18, Nocil s operating profit margins increased significantly: Nocil s OPM has increased 170bps over FY14-18 led by better product mix, operational efficiency and higher volumes and has overtaken its Chinese peers in FY18. However, CS margins have historically been higher and have averaged ~20% over last four years. Nocil s operating margins have improved significantly over last four years Nocil China sunsine 30% 27% 25% 20% 15% 10% 5% 16% 17% 16% 15% 11% 11% 11% 7% 4% 9% 12% 10% 21% 20% 19% 19% 19% 16% 21% 0% CY08/FY09 CY09/FY10 CY10/FY11 CY11/FY12 CY12/FY13 CY13/FY14 CY14/FY15 CY15/FY16 CY16/FY17 CY17/FY18, PL November 29,

9 ROE-improving trend: CS historically reported better ROE profile against Nocil. However, improving profitability trend has bridged the gap between players. Nocil ROE has been on an uptrend supported by improving financials Nocil China Sunsine CY09/FY10 CY10/FY11 CY11/FY12 CY12/FY13 CY13/FY14 CY14/FY15 CY15/FY16 CY16/FY17 CY17/FY18 November 29,

10 MT NOCIL Nocil At an inflexion point Nocil is part of Arvind Mafatlal Group companies which is India s largest rubber chemicals company offering one of the largest range of rubber chemicals. The company manufactures accelerators, antioxidants, pre-vulcanize inhibitor and post vulcanise inhibitor. While the accelerators and anitoxidants account for ~45% of product slate, while pre and post vulcanizing inhibitors account for ~10%. Nocil has two plants in Navi Mumbai and Dahej with a rated capacity of 55,000 MT. Led by improved market fundamentals, Nocil is on track to double its capacity by H1FY20. The company caters to all the major customers like Continental, Yokohama, Apollo Tyres, Ceat, MRF etc. Nocil is one of the few companies to stay put in the rubber chemicals business despite intense competition from the Chinese players. The company s business fortune got a significant lift post FY14 led by 1) start of modern complex at Dahej 2) imposition of ADD on certain rubber chemicals and 3) tightening environmental norms in China. Timely capacity expansion to meet rising demand Nocil is currently operating at near-rated capacity and plans to spend Rs4.25bn to double its capacity at both the facilities in Navi Mumbai (42,000 tons) and Dahej (11,000 tons). Capacity expansion will be funded largely through internal accruals and all three phases will come on stream by H1FY20E. The first phase of expansion has already come on stream in Q1FY19. With asset turn of 2x, management expects revenues to double post completion of these expansion projects. Nocil capacity to double in stages by H1FY20E 1,20,000 1,10,000 1,00,000 80,000 60,000 55,000 59,400 75,900 80,300 40,000 20,000 - Existing capacity Q1FY19 Q3FY19 Q4FY19 Q2FY20 However, we have factored in gradual ramp up in volumes to factor in delay in stabilization of new capacities. November 29,

11 We have factored in gradual ramp-up of new capacities Rated capacity (MT) Production (MT) 120, , , ,000 80,000 73,315 68,705 82,446 60,000 40,000 55,000 55,000 49,967 44,415 54,964 20,000 - FY17 FY18 FY19 FY20 FY21 Sales growth to ride on higher volumes and increased realization Over FY14-18, Nocil s revenue growth CAGR of 12.9% has tracked the volume growth of 12.5%. This is because; realizations growth has been muted due to drop in crude oil prices. Going forward, we have factored in CAGR 5% realization growth over FY19-21E as crude prices have recovered from lows. This is in-line with crude inflationary realization growth over FY Also, supported by capacity additions coming on stream, we expect 24% CAGR revenue growth over FY18-21E. Have factored in net realization growth of 5% over FY18-21E Realisation (Rs/ton) Rs/ton FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Domestic market will continue to remain the bedrock Nocil s domestic share of sales has steadily increased to 74% in FY18 against 60% in FY10. This is on the back of intensely competitive export market in light of aggressive exports by Chinese players. However, recent clampdown on Chinese production capacities due to environmental factors will mean Nocil is better placed to cater to the export market. US has recently imposed 10% duty on imports from China and will impose another 15% from January This will open up opportunities for domestic players like Nocil to better target export market. Accordingly, we expect export share will increase to 31% in FY21E. However, domestic market will continue to remain the bedrock as domestic sales have increased at 18% CAGR over FY November 29,

12 Sales to increase at CAGR of 24% over FY18-21E (Rs mn) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Domestic Exports Others FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E Raw material cost intensity has come down Nocil s raw material price intensity has come down steadily over the years due to benign raw material prices and benefits of higher value added products. Accordingly, gross margins have expanded to 54.5% in FY18 against FY14 levels of 41.5%. We have factored in gross margins to remain stable at 54% for FY20/21E. Raw material prices have been benign for rubber chemicals players Source: China Sunsine, PL November 29,

13 Operating margins likely to remain elevated Nocil s operating profit margins have been on an uptrend led by product mix change, cost rationalization and operating leverage from improved volumes. Buoyed by margin improvement, operating profit margins have improved to 27.2% in FY18 against 21.3% in FY17 and 10.2% in FY14. With spreads likely to sustain in the medium term, we have factored in OPM of ~27% for FY19E; H1FY %. However, we have reduced our margins to 25% for FY20E to factor in removal of duty protection benefits by July Profits on an upswing Supported by healthy demand trend and margin expansion, Nocil s earnings have increased 3x to Rs1.7bn in FY18. With demand trend likely to remain robust, coupled with healthy operating leverage from new capacities, we expect Nocil s earnings to increase 21% over FY18-21E. Nocil s return ratios are likely to stay healthy supported by improved operating performance and lower finance charges. We calculate ROEs of ~17-20% over FY18-21E. Strong balance sheet - an added strength Nocil has a healthy balance sheet with net cash of Rs2.5bn as on FY18. Also, despite capex plans of Rs4.3bn over FY18-20E, steady cash flow from operations will mean a lean balance sheet. Nocil key assumptions FY15 FY16 FY17 FY18 FY19E FY20E FY21E Rubber chemicals sales (tons) 30,932 32,169 36,190 40,714 44,785 55,982 67,178 Realisation (Rs/ton) Sales (Rs m) 7,190 7,152 7,422 9,676 11,176 14,669 18,483 Gross profit (Rs m) 3,304 3,557 3,826 5,270 6,370 7,921 9,981 Gross profit (%) 46% 50% 52% 54% 57% 54% 54% EBIDTA 1,119 1,382 1,580 2,629 3,018 3,667 4,621 EBIDTA (%) 16% 19% 21% 27% 27% 25% 25% PAT ,165 1,689 1,808 2,371 2,968, Company, PL Nocil earnings sensitivity to realization and volume changes Base case Sensitivity FY20E earnings sensitivity (Rs m) Base case PAT Revised PAT % change 2% drop in EBIDTA margin due to anti-dumping Duty abolition Anti-Dumping Duty abolition of 4% 2,371 2,172-8% 5% increase in realization Zero increase in realization 2,371 2,260-5% FY20E volume growth of 25% FY20E volume growth of 15% 2,371 2,184-8% November 29,

14 Valuation Nocil s is expected to report 21% CAGR in earnings growth over FY18-21E led by 1) higher volumes post commissioning of new capacity 2) higher realisation and 3) benign raw material pricing. We have valued Nocil at 15x P/E FY21E which translates to EV/E of 8.0x FY21E. Chemicals Peer comparison valuation Price M Cap (USDm) P/E (x) EV/EBIDTA (x) RoE (%) FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E AARTI INDUSTRIES LIMITED 1,455 1, ATUL LTD 3,486 1, SRF LTD 2,132 1, VINATI ORGANICS LTD 1,448 1, NAVIN FLUORINE CHINA SUNSINE na NOCIL AEKYUNG PETROCHEMICAL CO LTD 8, I.G. PETROCHEMICALS LTD Source: Bloomberg, PL Nocil's FY20E earnings sensitivity to margin changes Base case Nocil earnings sensitivity to margins 15% 20% 25% 30% 35% FY20E EPS Nocil earnings sensitivity to realization and volume changes Base case Sensitivity FY20E earnings sensitivity (Rs m) Base case PAT Revised PAT % change 2% drop in EBIDTA margin due to anti Dumping Duty abolition Anti Dumping Duty abolition of 4% 2,371 2,172-8% 5% increase in realization Zero increase in realization 2,371 2,260-5% FY20E volume growth of 25% FY20E volume growth of 15% 2,371 2,184-8% November 29,

15 Key risk to our call Threat of US-China trade war: In the event of flare up in US-China trade war, there is a possibility of Chinese volumes being diverted to India as US is world s second largest rubber chemical player after China. Delay in ramp up of new capacity: Nocil plans to double its capacity by H2FY20E, however, any delay in start and ramp up of new capacity will impact earnings. Sensitivity to lower production Base case Sensitivity Base case PAT(Rs m) Revised PAT(Rs m) % change FY20E production volume of ~69,000MT 20% lower volumes 2,371 1,903-20% Removal of anti-dumping duty: The anti-dumping duty imposed on rubber chemicals imports will end in July Duty protection adds to ~4% of operating profits. Management remains hopeful of extension of duty protection as Chinese companies with ~70% of global capacity and ~33% of usage has potential to injure domestic players. In the event of complete removal of duty protection, FY20E earnigs will be impacted by ~8% against our base case. November 29,

16 Story in charts Operating margins have steadily increased with H1FY19 margin of 29.5% Improving trends in operating margins EBIDTA EBIDTA margin (Rs mn) 5,000 4,000 3,000 2,000 1,000-27% 27% 25% 25% 21% 19% 1,382 1,580 2,629 3,018 3,667 4,621 FY16 FY17 FY18 FY19E FY20E FY21E 30% 25% 20% 15% 10% 5% 0% We expect FY18-21E PAT CAGR of 22% 3,500 3,000 Profit momentum is likely to remain robust 2,968 2,500 2,371 (Rs mn) 2,000 1,500 1,165 1,689 1,808 1, FY16 FY17 FY18 FY19E FY20E FY21E Source: Company Data, PL Return ratios to steadily increase for the company with rising profitability Return ratios are likely to remain robust ROE ROCE FY16 FY17 FY18 FY19E FY20E FY21E November 29,

17 Financials Income Statement (Rs m) Y/e Mar FY18 FY19E FY20E FY21E Net Revenues 9,676 11,176 14,669 18,483 YoY gr. (%) Cost of Goods Sold 4,406 4,806 6,748 8,502 Gross Profit 5,270 6,370 7,921 9,981 Margin (%) Employee Cost ,174 1,479 Other Expenses 1,968 2,459 3,080 3,881 EBITDA 2,629 3,018 3,667 4,621 YoY gr. (%) Margin (%) Depreciation and Amortization Balance Sheet Abstract (Rs m) Y/e Mar FY18 FY19E FY20E FY21E Non-Current Assets Gross Block 6,569 6,569 10,819 10,919 Tangibles 6,569 6,569 10,819 10,919 Intangibles Acc: Dep / Amortization 1,576 1,803 2,105 2,528 Tangibles 1,576 1,803 2,105 2,528 Intangibles Net fixed assets 4,994 4,766 8,715 8,391 Tangibles 4,994 4,766 8,715 8,391 Intangibles EBIT 2,400 2,790 3,366 4,197 Margin (%) Net Interest Other Income Capital Work In Progress 392 2, Goodwill Non-Current Investments Net Deferred tax assets (1,003) (1,277) (1,636) (2,086) Other Non-Current Assets Profit Before Tax 2,531 2,740 3,593 4,497 Margin (%) Total Tax ,222 1,529 Effective tax rate (%) Profit after tax 1,686 1,808 2,371 2,968 Minority interest Share Profit from Associate Adjusted PAT 1,689 1,808 2,371 2,968 YoY gr. (%) Margin (%) Extra Ord. Income / (Exp) Reported PAT 1,689 1,808 2,371 2,968 YoY gr. (%) Margin (%) Other Comprehensive Income Total Comprehensive Income 1,689 1,808 2,371 2,968 Equity Shares O/s (m) EPS (Rs) Source: Company Data, PL Research Current Assets Investments 2,245 2,245 2,245 2,245 Inventories 1,550 1,790 2,350 2,960 Trade receivables 2,434 2,811 3,689 4,648 Cash & Bank Balance Other Current Assets Total Assets 13,317 16,488 19,052 20,196 Equity Equity Share Capital 1,645 1,645 1,645 1,645 Other Equity 8,730 10,098 11,892 14,137 Total Networth 10,374 11,742 13,536 15,782 Non-Current Liabilities Long Term borrowings - 2,000 2,000 - Provisions Other non current liabilities Current Liabilities ST Debt / Current of LT Debt Trade payables 1,139 1,315 1,726 2,175 Other current liabilities Total Equity & Liabilities 13,322 16,488 19,052 20,196 Source: Company Data, PL Research November 29,

18 Cash Flow (Rs m) Y/e Mar FY18 FY19E FY20E FY21E Key Financial Metrics Year Y/e Mar FY18 FY19E FY20E FY21E PBT 2,531 2,740 3,593 4,497 Per Share(Rs) Add. Depreciation EPS Add. Interest CEPS Less Financial Other Income BVPS Add. Other (110) 640 (387) (460) FCF (3.0) 11.9 Op. profit before WC changes 2,685 3,608 3,507 4,461 DPS Net Changes-WC (899) (141) (1,027) (1,121) Return Ratio(%) Direct tax (802) (932) (1,222) (1,529) RoCE Net cash from Op. activities 984 2,535 1,259 1,810 ROIC Capital expenditures (276) (2,495) (1,750) 142 RoE Interest / Dividend Income Balance Sheet Others (1,133) Net Debt : Equity (x) (0.2) (0.1) 0.0 (0.2) Net Cash from Invt. activities (1,379) (1,544) (959) 1,118 Net Working Capital (Days) Issue of share cap. / premium Valuation(x) Debt changes (100) 2,000 - (2,000) PER Dividend paid (350) (526) (690) (864) P/B Interest paid (13) P/CEPS Others EV/EBITDA Net cash from Fin. activities (422) 1,474 (690) (2,864) EV/Sales Net change in cash (816) 2,465 (390) 64 Dividend Yield (%) Free Cash Flow (491) 1,952 Source: Company Data, PL Research Source: Company Data, PL Research Quarterly Financials (Rs m) Y/e Mar Q3FY18 Q4FY18 Q1FY19 Q2FY19 Net Revenue 2,493 2,759 2,681 2,720 YoY gr. (%) Raw Material Expenses 1,148 1,220 1,190 1,194 Gross Profit 1,344 1,539 1,491 1,526 Margin (%) EBITDA YoY gr. (%) (5.1) (1.7) Margin (%) Depreciation / Depletion EBIT Margin (%) Net Interest Other Income Profit before Tax Margin (%) Total Tax Effective tax rate (%) Profit after Tax Minority interest Share Profit from Associates Adjusted PAT YoY gr. (%) (9.7) 38.8 Margin (%) Extra Ord. Income / (Exp) Reported PAT YoY gr. (%) (9.7) 38.8 Margin (%) Other Comprehensive Income Total Comprehensive Income Avg. Shares O/s (m) EPS (Rs) Source: Company Data, PL Research November 29,

19 Analyst Coverage Universe NOCIL Sr. No. Company Name Rating TP (Rs) Share Price (Rs) 1 Bharat Petroleum Corporation Accumulate GAIL (India) BUY Hindustan Petroleum Corporation Hold I.G. Petrochemicals BUY Indian Oil Corporation Accumulate Indraprastha Gas BUY Mahanagar Gas BUY 1, NOCIL NR Oil & Natural Gas Corporation BUY Oil India Accumulate Petronet LNG BUY Reliance Industries Accumulate 1,152 1,122 PL s Recommendation Nomenclature (Absolute Performance) Buy : > 15% Accumulate : 5% to 15% Hold : +5% to -5% Reduce : -5% to -15% Sell : < -15% Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly November 29,

20 ANALYST CERTIFICATION (Indian Clients) We/I, Mr. Avishek Datta- MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately 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 specific recommendation(s) or view(s) in this report. (US Clients) The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report. DISCLAIMER Indian Clients Prabhudas Lilladher Pvt. 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