LKP. Buy. Balkrishna Industries Ltd. Carving a niche in a growing space. Valuation. Risks & Concern. December 13, 2010

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1 December 13, 2010 Buy Balkrishna Industries Ltd LKP Since 1948 Industry: Auto and Auto Components Industry View: Overweight Initiating Coverage Carving a niche in a growing space Balkrishna Industries ( BKT) is the flagship company of the Siyaram Poddar Group, engaged in manufacturing speciality tyres used by the agriculture and Off The Road (OTR) segments. BKT earns 9 of its topline from exports with Europe and US being the highest contributors. It has a 3% global market share, ~1800 SKUs (Stock Keeping Units) and 3 plant locations across India, fourth one in pipeline coming up at Bhuj in the state of Gujarat and expected to go on stream in FY13E. BKT has an achievable capacity at 75% of installed capacity due to the high variety-low volume nature of the business. With volume growth from its Greenfield expansion at Bhuj commencing from FY 13, rising growth from global infrastructure and mechanization of agricultural equipments is expected to provide a fillip to the top line (29% revenue CAGR between FY 10-FY 13E). The top line will also get traction from the price increase being undertaken, as BKT s prices are at 3 discount to its global peers. BKT is in an investment phase and is expanding capacities by a mammoth 75% (best ever in its history) which would double its debt to equity, though we believe the company s strong cash flows will provide the growth momentum. BKT with EBITDA margins in the range of 2 (highest among tyre manufacturing companies across the globe) would in our view be a key beneficiary of increasing radialization in its key markets going forward. We expect competition to be benign in the speciality tyre segment which has high entry barriers and existing companies are shifting their focus to the high growth auto segment. Valuation BKT with strong return ratios trades at 4.3x FY 13E earnings. We value BKT at a P/E multiple of 6.5x FY13E EPS of `160, which is in line with its 3 year average trailing P/E multiple, considering the stock s outperformance on top-line as well as margins. We arrive at a target price of `1,039, which gives an upside of 5 from current levels. We recommend a BUY. Risks & Concern Higher than expected increase in raw material prices- especially natural rubber prices Delay in planned capacity outlay may add to pressure on volumes Any drastic slowdown in demand especially in the OTR segment may lead to subdued demand Stock Data Current Market Price (`) Month Target Price (`) 1,039 Potential upside (%) 50 Reuters Bloomberg Key Data Market Cap (`.bn ) Week Range(`) 808 / 410 Avg. Daily Trading Value (`mn) 1.25 Promoters (%) 54 FII Holding (%) 15 DII Holding (%) 16 Public & Others Holding (%) 15 YE Mar FY 10 FY11E FY 12E FY13E Revenues (`mn) 15,637 21,215 25,832 33,359 EBITDA (%) PAT(%) 13.9% 9.3% 9.3% 9.2% EPS(`) EPS growth (%) P/E(x) P/B(x) EV/EBITDA(x) ROCE(%) ROE(%) Dividend yield (%) Relative price performance Dec-09 M ar-10 Jun-10 Sep-10 Dec-10 BKT B SE Sensex BLKI.BO BIL IN One Year Indexed ( % ) 1 Month 3 Months 12 Months Absolute (10) (8) 73 BSE Relative (7) (11) 58 Ashwin Patil ashwin_patil@lkpsec.com Disclaimer: The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true and is for general guidance only. While every effort is made to ensure the accuracy and completeness of information contained, the company makes no guarantee and assumes no liability for any errors or omissions of the information. No one can use the information as the basis for any claim, demand or cause of action. LKP Securities Ltd., and affiliates, including the analyst who have issued this report, may, on the date of this report, and from time to time, have long or short positions in, and buy or sell the securities of the companies mentioned herein or engage in any other transaction involving such securities and earn brokerage or compensation or act as advisor or have other potential conflict of interest with respect to company/ies mentioned herein or inconsistent with any recommendation and related information and opinions. LKP Securities Ltd., and affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.

2 Company profile BKT is the flagship company of the Mumbai based Siyaram Poddar Group manufacturing and selling OTR (Off the Road) and agricultural tyres to foreign markets. It has 3 plant locations in India with an installed capacity of 1,60,000 MT per annum and revenues of `1564cr. It has a wide portfolio of 1800 Stock Keeping Units (SKU) and has market presence in more than 120 countries through a vast network of 200 dealers with an overall market share of 3%. The company has posted revenue CAGR of 36% over last five years. The company has two subsidiaries Balkrishna Papers Ltd and Balkrishna Synthetics in paper and textile businesses respectively. Revenue break-up By geography FY 2006 FY 2010 ROW, 11% ROW, 13% Asia, 1 Asia, 17% Europe, 51% US, 15% Europe, 64% US, 19% By application Others, 1 Others (Lawn, terrain etc), 3% OEMs, 35% OTR (Industrial, Construction, mining), 27% Replacement, 55% Agriculture, 7 2

3 Investment Argument Strong business model with presence in the niche non auto businesses BKT is a speciality tyre manufacturer, whose 9 of revenues are derived from export markets and has presence in the niche non auto businesses like agricultural tyres (tractor tyres) and off the road (construction equipment) tyres business. The company has presence in the US, Europe, Middle East, ANZ and Asia Pacific markets. The company earns 1 of its revenues from India. With management s expectation of a five- fold increase in Indian earthmoving and construction equipment industry from $2.3bn to $12-13 bn by 2015, we believe BKT to be one of the major beneficiaries as it targets Indian revenues to increase from current levels of 1 to 2 as a % of sales in the next three years. The company has three plants in India 2 in Rajasthan and 1 in Maharashtra operating at 8-85% of achievable capacity and is setting up an additional 75% new capacity in a matter of 2 years at Bhuj, Gujarat. BKT has Stock Keeping Units (SKU) of a huge variety of tyres which provides a timely on-demand delivery to BKT s clients. The company also benefits from the waiver of 2 import duty under the advance licensing scheme as BKT sells 9 of its products in exports. Also, BKT has booked forward hedges on its biggest raw material - natural rubber at prices at considerable discount to the market price thus restoring its margin performance. BKT aspires to be a `50bn company by FY Capacity expansion to provide traction from FY 13E BKT has an installed capacity of 1,60,000 MT spread over its 3 capacities Chopanki and Bhiwadi in Rajasthan and Waluj in Maharashtra. The break-up of the capacities is as follows Plants and installed capacities Waluj, Aurangabad, Maharashtra 40,000 Alwar, Rajasthan ( Bhiwadi + Chopanki) 120,070 Total 160,070 Source: Company All these plants are functioning at an achievable capacity (~ 1,20,000 MT), which operate at 75% of the installed capacities. This is due to high variety and low volume of tyres produced by the company, being a vendor to a whole host of non-auto businesses such as tractors, farm equipments, forestry, trailers, industrial, construction & earthmovers, articulate dump trucks, loaders, underground mines, port application, golf cart, lawn and garden tyres, puncture resistance tyres for terrain vehicles etc. In FY 12E, the company is expecting the Waluj plant to add 10,000 MT to its achievable capacity taking the overall achievable capacity close to 1,30,000 units as a part of their debottlenecking program for a capex of `200cr. However, the major expansion program is coming in the second quarter of FY 13E, through setting up a Greenfield plant at Bhuj, Gujarat with an installed capacity of 1,20,000 (achievable capacity of 90,000 i.e. 75% of installed capacity) for a capex of ` 1,200 cr thus expanding the installed capacity by 75%. The capex also includes a 20MW coal generation plant over there. BKT expects the ramp up to full capacity to happen in a matter of three years from FY 13E. Hence, in FY 13E, the company expects to add ~ 30,000 MT and thereon increase by a similar number in the following two years. This will cater to the increasing agri demand in the international markets and also help the company to increase their revenue contribution from the Indian markets. Also through this capacity expansion, the company targets a market share of 6.5-7% by FY 2015 from the current levels of 3%. 3

4 Volumes to excel in FY 11E, post lower growth in FY 12E and jump in FY 13E As far as volumes in FY 11E are concerned, we expect 28% growth in tonnage volumes sold to 1,08,000 MT, in line with the company s expectations of 1,05,000 to 1,10,000 MT. This will be basically due to strong demand in the western markets mainly in the agri domain. In the first half of the year FY 11, the company sold 53,134 MT. In FY 12E, we expect the volumes to grow at a lower rate of 18% due to capacity constraints, while we expect it to pick up pace at 25% in FY 13 on capacity expansion at Bhuj. Quarterly volumes (MT) & Realization trend (`/kg) 30,000 25,000 20,000 15, ,0 00 5,000 0 Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2 FY Volumes (M T) Realization Yearly volumes (MT) & Realization trend (`/kg) 180, , , , ,000 80,000 60,000 40,000 20,000 - FY06 FY07 FY08 FY09 FY10 FY 11E FY 12E FY 13E Volumes (M T) Realization Global demand drivers Europe America Asia-Pacific Large & mechanised farms Agriculture and mining sector Agri and infra booming growing Large replacement markets Large farm equipment trrends Moving from traditional to large sized equipments Fast growing economies in South America Source: Company 4

5 Strong clientele provides a solid boost to the business profile The company caters to a whole host of global clients which includes Clientele Volvo John Deere CNH Class Escorts BOMAG SAME Ferrari JCB M&M L&T Case Source: Company With any of these companies expanding capacities or gaining strong demand momentum, BKT in our view would benefit. For instance with M&M expanding its tractor capacities in South India, BKT will be one of the beneficiaries. Ample scope to increase prices and thereby raise the top-line and margin performance BKT s realizations are currently at a 3 discount to its global peers like Michelin, Bridgestone, Continental and Goodyear leaving BKT with an ample scope for increasing its prices, given that BKT is improving its brand image. As a result of this, the company is commanding better realizations from its customers, which can be seen by this discount reducing from 35% three years ago. In FY 11, it has increased prices by 11% and is planning to further raise the prices by 8-1 in the January quarter thus taking the overall price increase to 13-14% for the full year FY 11E. This will help the company mitigate the impact of raw material costs, maintain margin performance at 19% for FY11E and improve its top-line performance. Going forward, we expect the company to take 8-1 hike per year in realizations over the next two years. Forward hedges on natural rubber insulates from spurt in its prices, protecting margins BKT has entered into a six month forward contract on natural rubber (42% of total RM costs in FY 10) prices at $3500 per tonne in Q2 FY11 till March This contract will be revised on a rolling 6 month basis. Currently the rubber prices are ranging close to $4100-$4200 per tonne, which indicates that BKT has insulated its NR prices at a significant 16-17% discount to the market price. This is a USP of BKT because of which its margins are not falling as steeply as compared to its peers and is able to maintain best margins in the entire pack of tyre companies globally as well as domestically. Management expects the rubber prices to move up to $4500 per tonne in short term due to tapping issues in Kerala and other issues in global rubber producing countries. Hence, the company will take a look at rubber prices post March and then decide whether they would buy NR on spot basis or enter into a forward hedge again. Management believes that the current spurt in NR prices is not sustainable and hence expects NR prices to reduce Q4 FY11 onwards, thus assisting the company to improve their margins to early 2s in FY 12E from expected 19% in FY11E. We expect the company to end the full year FY 11E with a margin of 18.1%, 19% in FY 12E and 20.4% in FY 13E, factoring BKT s volume growth and hedging strategy mitigating the impact of higher NR prices as globally demand is surpassing supply to a good extent. Furthermore, the company imports about 5 of its RM and has hence taken 10 foreign currency hedges mainly for dollar and euro at `47 and `64 respectively, which shields the profitability from any unexpected currency fluctuations. 5

6 RM break up (volume wise ) RM break up (value wise) Chemicals, 16% Others, 3% Natural rubber, 32% Chemicals, 13% Others, 1% Natural rubber, 42% Tyre cord/fabric, 6% Tyre cord/fabric, 14% Carbon Black, 27% Synthetic rubber, 16% Carbon Black, 15% Synthetic rubber, 14% Rubber Price trend (` per 100kg) 25,000 20,000 15,000 10,000 5,000 - Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Source: Rubber Board, Radialization to assist further margin growth BKT has 3 of its tyres radialized. Agri business has a strong demand for radial tyres, while mining sector is boosting demand for radialized tyres. Management expects the current contribution of radialization to the total tyre volumes to move up to 4 within the next 4-5 years. Radial tyres attract 10-15% higher prices as compared to cross ply tyres. Furthermore, radialization is more prevalent in Europe than US, and with BKT increasing its contribution to 19% of revenues from US (15% in FY 2006), we believe that there is a very good scope for radialization to pick up in the US, thus benefitting BKT to good extent. With this, the company stands a strong chance to improve its margins. Though radialization may elongate the replacement cycle and hence associated demand, we are not overly concerned about it as BKT significantly caters to OEMs (12-15% directly and 15-2 indirectly through distributors) as well which will take care of the slight demand fall in the replacement market. Competitive intensity to remain benign in medium to long term BKT s presence in the niche agri and OTR segment is a big positive for the company as far as competition is concerned. With growing automobile industry worldwide, companies in the OTR tyre space are concentrating more on the auto tyre segment. Some players have also reduced their production in OTR segment and are rather concentrating on CV and PV segments. Chinese players are mainly present in the CV 6

7 segment and are hence no direct competition to BKT. It is also extremely difficult for a new entrant to make a break-through in these segments as designing flexible capacities for an array of various tyres required in OTR segment requires expertise, experience and enough time duration. Also, it is not possible for a player in this business to function at 10 installed capacity as it is a low volume-high variety business. This is not economically feasible for new entrants. Hence, we believe BKT stands a fair chance to gain significant market share in the coming years. Capacity expansion to push up debt to equity close 1x, management comfortable with it In order to set up a Greenfield operation at Bhuj, BKT is incurring capex of `12bn out of which it will raise ECB worth $ mn at 3.5% interest rate. This will be raised at one go and is to be repaid within three years after a three year moratorium ending FY 14. With this, the debt to equity ratio will move up to 1x, from current levels of 0.5x, which we believe is comfortable and can be repaid after 3 years through expected strong cash flows on improved business profile. Furthermore, since the company is raising debt through the ECB route which has low interest rate, the company will not witness a huge surge in its interest expenses as well. BKT also has FCCBs worth $22mn coming up for maturity in December 2010, priced at `1,375, which we believe will not get converted to equity given the steep discount the stock is currently trading at. In spite of this, the net debt to equity will not move above 1x. Net debt / Equity FY 06 FY 07 FY 08 FY 09 FY 10 FY 11E FY 12E FY 13E Net debt/equity 7

8 Robust return ratios BKT has high return ratios of 32% ROE and 47% ROCE in FY 10, which will be in the region of 25% and 3 respectively for the next three years on strong business performance on both margin and volume front. Return ratios 5 45% 4 35% 3 25% 2 15% 1 5% FY 06 FY 07 FY 08 FY 09 FY 10 FY 11E FY 12E FY 13E ROE (%) ROCE (%) Stock split is on the anvil The company has announced a stock split of one equity share of `10 each in five equity shares of 2 each, fully paid up. This is expected to take effect from 21 December This move we believe would improve liquidity in the stock. Subsidiary performance to remain subdued BKT has got two subsidiaries in the paper and textile businesses - namely Balkrishna Paper Mills and Balkrishna Synthetics Ltd respectively. Management has guided for a subdued performance by these subsidiaries as they believe these two businesses are fairly mature businesses and hence there is no significant uptick expected. BKT has projected FY 11E combined revenues at `200cr (Paper business ` cr and Textile business `30-35cr). This translates into a growth of 13% in FY 11E after which we have assumed a 5% growth every year based on management s outlook. BKT also expects an 8-9% margin in FY 11E and expects it to remain there for at least the next two years. We expect ~` 5-6 addition to EPS from subsidiaries to the stand alone EPS over the next 3 years. Sensitivity Analysis 1 change in FY 13E EBITDA margin(bps) FY 13E EPS (%) Realization (560 bps) -47.8% Natural Rubber (250 bps) -17.3% Synthetic Rubber (80 bps) -5.4% Carbon Black (80 bps) -5.4% Tyre chord/fabric (70 bps) -4.8% Source: 8

9 Peer group comparison Since there is no exact comparison of BKT to its peers as none of the players in India or abroad are directly competing with BKT in its all the businesses we compare the top performing market leaders with BKT in global and domestic tyre markets Michelin and Apollo Tyres. Through this exercise, we would like to emphasize via various parameters the positives which BKT derives viz-a-viz competition. Employee costs as a % of sales for BKT has been in the range of just 2.5% to 3%. This is because low volume- high variety model of the company and absence in the labor intensive Truck/Bus/Passenger car segment, which produces high volumes associated with high demand and huge growth in the auto segment (average of ~9% for Apollo Tyres over past five years). For Michelin, it has been huge at ~3. This is because of the company s higher emphasis on Truck/Bus segment and its global presence where employee cost is significant. Speciality tyres i.e. the OTR and agri tyres contribute a small portion of Michelin s revenues (~12-14%) and of Apollo Tyres revenues. Employee cost ( % of sales) 35% 3 25% 2 15% 1 5% FY 06 FY 07 FY 08 FY 09 FY 10 Michelin* BKT Apollo Tyres * Speciality tyres., Bloomberg As a result of low employee costs, superior strategy on raw material hedging, BKT has always attracted higher EBITDA margins in the entire global tyre industry. EBITDA Margins (%) 3 25% 2 15% 1 5% FY 06 FY 07 FY 08 FY 09 FY 10 Michelin* BKT Apollo Tyres * Speciality tyres., Bloomberg 9

10 Also low freight cost as a % of sales is aiding BKT to improve margins. Globally, freight rates have fallen, due to which BKT s freight cost as a % of sales has fallen from 7% to 5% and is expected to fall further, thus boosting margins. Freight cost (% of sales) 8% 7% 6% 5% 4% 3% 2% 1% FY 06 FY 07 FY 08 FY 09 FY 10 BKT Michelin* * Speciality tyres., Bloomberg Furthermore, significant discount in realizations to global peers provides BKT with enough scope for improvement in prices going forward. In CY 2010, the company has taken a price hike of 11%, highest by any other global tyre company and is further expected to raise prices by 8-1, thus taking the full year price hike to 13-14%, while. Other global peers have announced a 6-8% price hike going forward in the December quarter, a few of which are already taken. Price increases taken in CY10 Michelin Bridgestone Continental Titan Trelleborg BKT 4.5% in May and 3.5% in August 4% in April and 2-7% in September 4.5% in March 6% in May 5% in Feb and 5% in March 11% spread over the full year On the back of such a strong growth in realizations and volumes, BKT has posted very strong yoy revenue growths in the past quarters. YoY topline growths (%) Q1 FY09 Q2 FY09 Q3 FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY 11 Q2 FY11 BKT Michelin (Speciality Tyres) Apollo Tyres 10

11 BKT is expanding its capacities by 75% which will provide the required boost to the topline. The competitive capacity additions are in the T&B radial segment, while BKT is expanding in its core OTR and agri segments. Capacty expansion plans Current capacity Planned capacity increase (%) Period Capex BKT 1,60,000 MT p.a. 75% FY ~`12bn Ceat 4.7 mn tyres p.a. 4 FY ~`7bn Apollo Tyres* 3,30,000 MT p.a. 35% FY ~ `14bn JK Tyre 9.1 mn tyres p.a. 3 FY 12 ~`15bn MRF 28.4 mn tyres p.a. ~20-25% FY ~`30bn * Global capacities, Michelin is doubling its passenger car and light truck capacity by 2012 and increase its truck capacity by 4 during the same period. This will happen in India, China and Brazil for a capex of $2.6bn. Peer group valuation Mcap P/E (x) EV/EBITDA (x) ROE (%) $bn CY 10E CY 11E CY 12E CY 13E CY 10E CY 11E CY 12E CY 13E CY 10E CY 11E CY 12E CY 13E BKT* Michelin Continental Goodyear Apollo * * March ending,,bloomberg Hence, in a nutshell, we would like to emphasize that BKT has got one of the superior metris in the entire tyre industry. 11

12 Financial performance Revenues BKT s revenues have grown at a CAGR of 26% in the period between FY 06 and FY 10 and are expected to grow at a CAGR of 29% in the coming three years (FY 10 FY 13). On a quarterly basis, the first two quarters of FY 11 have posted robust yoy growth to the tune of ~5 and the full year is expected to post 36% growth on strong volumes coming from robust demand and higher realizations. Yearly Net Sales (`mn) & % YoY growth 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - FY 06 FY 07 FY 08 FY 09 FY 10 FY 11E FY 12E FY 13E 45% 4 35% 3 25% 2 15% 1 5% Net Sales % YoY Growth Quartely Net Sales (`mn) & % YoY growth 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY Net sales % yoy grow th 12

13 EBITDA and EBITDA margins BKT has posted very strong margins in the past years. In FY 10, it posted 24.6% EBITDA margins which have now come down to 19% in the first two quarters of the year. This is due to the hike in natural rubber prices, though the fall was arrested to a good extent due to the forward contracts the company does on natural rubber. Going forward, we expect margins to remain in the range of 18-19% in FY 10 and then improve as rubber prices may not post a sharp rise and the company increases its capacity in FY 13E. Yearly EBITDA (` mn) & Margins(%) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - FY 06 FY 07 FY 08 FY 09 FY 10 FY 11E FY 12E FY 13E EBITDA Margins % 3 25% 2 15% 1 5% Quarterly EBITDA (`mn) & Margins(%) 1,200 1, Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 35% 3 25% 2 15% 1 5% EBITDA Margins (%) PAT and PAT margins BKT s PAT has jumped by 193% in FY 10 on weak FY 09 and return of auto demand in FY 10. Going forward, we expect a slight fall in FY 11E profits on higher RM costs and a strong growth on FY 13E as capacities come into play. We expect 9-1 profit margins going forward. 13

14 Yearly PAT (`mn) & Margins(%) 3,500 3,000 2,500 2,000 1,500 1, FY 06 FY 07 FY 08 FY 09 FY 10 FY 11E FY 12E FY 13E PAT Margins % Quarterly PAT (`mn) & Margins(%) Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY % 16% 14% 12% 1 8% 6% 4% 2% PA T Margins (%) Key risks Higher than expected increase in raw material prices especially natural rubber prices will lead to margin pressure if BKT is not able to increase tyre prices Any delay in planned capacity outlay may add to pressure on volumes Any drastic slowdown in demand especially in the OTR segment may lead to subdued demand In spite of 10 hedging of receivables, any drastic change in foreign currencies like dollar and Euro against the Rupee will likely lead to margin erosion Increase in freight rates also may lead to some pressure on margins 14

15 Outlook and valuation Considering its robust business model, strong capacity expansion plans, and a better margin performance, we initiate coverage on BKT with a BUY rating and a target price of `1,039 (5 upside), at which the stock will trade at 6.5x times ( in line with the trailing three year average of 7x) FY13E EPS of `160. At current levels, the stock is trading at 4.3x FY 13E EPS. P/E band 1,600 1,400 1,200 1, x 10x 8x 6x 4x Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Source: Bloomberg,Source: 15

16 Financial Summary (Consolidated) Income statement YE Mar (`mn) FY 10 FY 11E FY 12E FY 13E Total Revenues 15,637 21,215 25,832 33,359 Raw Material Cost 7,828 12,066 14,674 18,694 Employee Cost ,089 Other Exp 3,478 4,687 5,382 6,768 EBITDA 3,846 3,842 4,917 6,809 EBITDA Margin(%) 24.6% 18.1% % Depreciation ,089 1,875 Other income EBIT 3,460 3,173 3,968 5,073 EBIT Margin(%) 22.1% % 15.2% Interest PBT 3,266 2,944 3,564 4,602 PBT Margin(%) 20.9% 13.9% 13.8% 13.8% Tax 1, ,174 1,517 PAT 2,169 1,974 2,390 3,085 PAT Margins (%) 13.9% 9.3% 9.3% 9.2% Key Ratios YE Mar FY 10 FY 11E FY 12E FY 13E Per Share Data (`) Adj. EPS CEPS BVPS DPS Growth Ratios(%) Total revenues 11.7% 35.7% 21.8% 29.1% EBITDA 88.6% -0.1% % PAT 193.1% % 29.1% EPS Growth 193.1% % 29.1% Valuation Ratios (X) PE P/CEPS P/BV EV/Sales EV/EBITDA Operating Ratios Inventory days Recievable Days Payables day Net Debt/Equity (x) Profitability Ratios (%) ROCE 46.7% 28.5% 28.3% 35.2% ROE 31.8% 23.8% 23.6% 24.5% Dividend payout 7.3% Dividend yield 1.2% 1.5% 1.8% 2.3% Balance sheet YE Mar (`mn) FY 10 FY 11E FY 12E FY 13E SOURCES OF FUNDS Equity Share Capital Reserves & Surplus 6,621 8,097 9,948 12,425 Total Networth 6,814 8,291 10,142 12,618 Total debt 4,777 8,839 11,290 11,575 Total Liabilities 11,591 17,131 21,432 24,194 APPLICATION OF FUNDS Net block 6,465 7,657 8,567 11,692 Capital WIP 687 4,687 6,687 2,487 Investments Current Assets Cash and Bank ,113 Inventories 2,177 2,325 2,689 3,382 Sundry Debtors 2,532 3,023 3,681 5,028 Loans & Advances 3,822 5,231 6,653 9,231 Current Liab & Prov Current liabilities 1,330 1,918 2,406 3,199 Provisions 2,858 4,069 5,025 6,581 Net Current Assets 4,398 4,745 6,137 9,974 Deferred tax liabilities Total Assets 11,591 17,131 21,432 24,194 Cash Flow YE Mar (`mn) FY 10 FY 11E FY 12E FY 13E PBT 3,264 2,944 3,564 4,602 Depreciation ,089 1,875 Interest Chng in working capital (807) (248) (999) (2,269) Tax paid (1,048) (970) (1,174) (1,517) Other oper activities (190) (300) (300) (300) CF from operations (a)2,099 2,463 2,584 2,863 Capital expenditure (1,419) (6,000) (4,000) (800) Chng in investments (578) Other investing activities CF from investing (b) (1,964) (6,000) (4,000) (800) Free cash flow (a+b) 135 (3,537) (1,416) 2,063 Inc/dec in borrowings 139 4,062 2, Dividend paid (incl. tax) (135) (197) (239) (309) Interest paid (202) (229) (403) (471) CF from financing (c) (198) 3,636 1,808 (494) Net chng in cash (a+b+c) (63) ,568 Closing cash & cash equi ,113 16

17 LKP Research Team S. Ranganathan Head of Research Pharmaceuticals, Agriculture Ashwin Patil Research Analyst Automobiles & Telecom Chaitra Bhat Research Analyst Banking & Financial Services Ami Shah Research Analyst Cement & Sugar Deepak Darisi Research Analyst Energy Institutional Equities Pratik Doshi Director pratik_doshi@lkpsec.com Hardik Mehta Sales hardik_mehta@lkpsec.com Varsha Jhaveri Sales varsha_jhaveri@lkpsec.com Hitesh Doshi Sales hitesh_doshi72@lkpsec.com Sunil Shah Sales sunil_shah@lkpsec.com Kalpesh Vakharia Dealing kalpesh_vakharia@lkpsec.com Gurdarshan Singh Dealing gurdarshan_singh@lkpsec.com LKP Securites Ltd,10th floor, Nariman Bhavan, Nariman Point, Mumbai Tel Fax