Dynamatic Technologies Ltd

Transcription

1 Q2FY12 Result Update Enhancing investment decisions CRISIL Limited. All Rights Reserved.

2 Explanation of CRISIL Fundamental and Valuation (CFV) matrix The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP). CRISIL Fundamental Grade Assessment CRISIL Valuation Grade Assessment 5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (1-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-1% from CMP) 2/5 Moderate fundamentals 2/5 Downside (- 1-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP) Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Additional Disclosure This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer: This Exchange-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose. CRISIL Limited. All Rights Reserved.

3 Depreciation and interest costs to dent FY12 PAT Fundamental Grade Valuation Grade Industry 4/5 (Superior fundamentals) 3/5 (CMP is aligned) Auto component Dynamatic Technologies Ltd s (Dynamatic s) Q2FY12 revenues grew by 6.7% q-o-q, higher than CRISIL Research s expectations. The auto components business grew by ~4% q-o-q against our expectation of flat revenues. While EBITDA margin improved q-o-q, it was lower than expected. The domestic auto component segment continued to report loss at the EBITDA level, as in Q1FY12. Depreciation and interest costs were much higher than expected resulting in lower-than-expected PAT. We have revised our FY12 earnings estimate downwards after factoring in lower EBITDA margin, higher depreciation and interest costs. We maintain FY13 estimates and the fundamental grade of 4/5. However, given the large acquisition by Dynamatic in April 211, there will be (a) integration risks, (b) higher susceptibility to global economic downturn, (c) currency risks, and (d) higher gearing, which could impact the fundamental grade. Q2FY12 result analysis Dynamatic s Q2FY12 revenues were up 6.7% q-o-q to Rs 3,85 mn due to strong growth in the hydraulics segment (~17% q-o-q growth, ~21% of gross revenues). On a y-o-y basis, revenues were up mainly due to the acquisition of Germany s Eisenwerk Erla GmbH (Eisenwerk) in April 211. EBITDA margin improved by 188 bps q-o-q to 1.1%. Of this improvement, ~16 bps came from a decline in raw material cost as percentage of revenue. Impacted by lower margins of Eisenwerk, EBITDA margin continued to be lower y-o-y (~55 bps decline in Q2FY12). PAT margin was impacted by an 8.2% q-o-q increase in depreciation and 26.7% q-o-q increase in interest cost due to the debt taken for the Eisenwerk acquisition. While PAT margin increased by 7 bps q-o-q, it declined by 24 bps y-o-y to 1.8%. Adjusted EPS of Rs 12.6 was up 75.3% q-o-q and 31.1% y-o-y. Earnings estimates revised downwards We have raised FY12 revenue estimate by 5.3% to Rs 14.9 bn after factoring in higher growth in the auto components business. After factoring in lower profitability in the domestic auto component segment, we have lowered FY12 EBITDA margin estimate by ~5 bps to 9.9%. After factoring in higher depreciation and interest costs, we have cut PAT estimate for FY12 by ~32% to Rs 259 mn (EPS of Rs 47.8). FY13 estimates are unchanged. Valuations: Current market price is aligned We continue to use the discounted cash flow method to value Dynamatic. We remain positive on the long-term growth in Dynamatic s cash flows and maintain the fair value of Rs 1,131 per share. KEY FORECAST (Rs mn) FY9 FY1 FY11 FY12E FY13E Operating income 4,126 4,447 5,16 14,98 15,88 EBITDA ,471 1,99 Adj PAT Adj EPS-Rs EPS growth (%) (92.3) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) NM: Not meaningful; CMP: Current market price estimate November 29, 211 Fair Value Rs 1131 CMP Rs 189 CFV MATRIX KEY STOCK STATISTICS NIFTY 4851 NSE DYNAMATECH Face value (Rs per share) 1 Shares outstanding (mn) 5.4 Market cap (Rs mn)/(us$ mn) 5,897/113 Enterprise value (Rs mn) /(US$ mn) 9,63/ week range (Rs) (H/L) 1,594/944 Beta 1.1 Free float (%) 45.4% Avg daily volumes (3-days) 1295 Avg daily value (3-days) (Rs mn) 1.53 SHAREHOLDING PATTERN 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Excellent Fundamentals Fundamental Grade PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m DYNAMATIC -9% 9% -16% 4% NIFTY -1% 2% -11% -16% ANALYTICAL CONTACT Chetan Majithia (Head) Urmil Shah Suresh Guruprasad Poor Fundamentals Strong Downside Valuation Grade 23.1% 21.6% 2.7% 21.2%.2%.2%.2%.2% 21.5% 23.4% 23.9% 23.5% 55.2% 54.8% 55.2% 55.1% Strong Upside Dec-1 Mar-11 Jun-11 Sep-11 Promoter FII DII Others chetanmajithia@crisil.com udshah@crisil.com sguruprasad@crisil.com Client servicing desk clientservicing@crisil.com CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 1

4 Q2FY12 Result Summary (Rs mn) Q2FY12 Q1FY12 Q2FY11 q-o-q (%) y-o-y (%) H1FY12 H1FY11 y-o-y (%) Net sales 3,85 3,566 1, ,37 2, Consumption of Raw Materials 2,416 2, ,743 1, (Increase) / Decrease in stock in trade (8) (12) (2) (36.5) (6.7) (2) (3) (33.4) Raw material as a % of sales 63.3% 64.9% 5.1% (159) bps 1,318 bps 64% 49% 1,471 bps Other expenses Employees Cost , EBITDA EBITDA margin 1.1% 8.2% 15.6% 188 bps (551) bps 9.2% 14.8% (56) bps Depreciation EBIT Interest and finance charges Operating PBT Other Income (7.5) 8 16 (52.5) Extraordinary Income/(expense) NM NM - 15 NM PBT Tax (1.1) PAT Adj PAT Adj PAT margin 1.8% 1.1% 4.2% 7 bps (24) bps 1.5% 3.1% (166) bps No of equity shares (mn) Adj EPS (Rs) Revenue break-down trend (Rs mn) Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Hydraulics y-o-y growth 17.2% 1.% 43.9% -1.5% -5.% 32.5% 19.% 29.6% q-o-q growth 6.2% -22.% 1.6% 7.5% 2.4% 8.9% -.7% 17.1% Aerospace y-o-y growth na 639.3% 28.9% 24.% 3.6% 39.5% 22.6% 5.9% q-o-q growth 5.% 13.5%.6% 3.3% 1.6% 21.2% -11.6% 27.2% Auto ,694 2,84 y-o-y growth 44.8% 8.3% -1.6% 16.1% -17.9% 11.8% 563.3% 484.3% q-o-q growth 22.5% -14.6% -6.% 18.1% -13.4% 16.2% 457.9% 4.1% Inter-segment (198) (14) (96) (121) (98) (128) (121) (189) Net Revenues 1,23 1,186 1,137 1,239 1,238 1,389 3,566 3,85 CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 2

5 Q2 revenue growth driven by growth in hydraulics and aerospace segments (Rs mn) 4, 3,5 3, 2,5 2, 1,5 1, % 14.6% 1,44 Q2FY1 1,23 Q3FY1 14.4% 1,186 Q4FY1 13.9% 1,137 Q1FY % 1,239 Q2FY % 16.5% 1,238 1,389 Q3FY11 Q4FY11 1.1% 8.2% 3,566 3,85 Q1FY12 Q2FY12 18% 16% 14% 12% 1% 8% 6% 4% 2% % 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 42.1% 36.4% 35.7% 38.7% 33.6% 34.8% 75.5% 73.7% 15.9% 19.% 19.9% 18.9% 21.% 22.6% 57.9% 45.8% 52.8% 52.1% 53.4% 51.8% 7.8% 9.3% 2.% 22.% Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Net Sales EBITDA Margin (RHS) Hydraulics Aerospace Auto EBIT margin up q-o-q across all segments, aerospace being the best performer PAT margin continued to be impacted by depreciation and interest costs 4% 35% 3% 25% 2% 24.1% 32.1% 31.8% 28.8% 3.6% 35.8% 27.7% (Rs mn) % 5.4% 3.6% 6.% 7% 6% 5% 4% 15% 1% 5% % -5% -1% 8.6% 7.6% 9.1% 7.8% 6.9% 4.4% 5.1% 6.% 8.6% 6.3% 5.1% 2.8% -5.9% 3.% 3.6% 2.5%.% 3QFY1 4QFY1 1QFY11 2QFY11 3QFY11 4QFY11 Q1FY12 Q2FY % 9 41 Q2FY1 Q3FY1 2.3% 1.9% 1.8% 1.1% Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 3% 2% 1% % Hydraulics Aerospace Auto Share price movement PAT PAT Margin (RHS) Fair value movement since initiation 4 (Rs) (') ,75 1,5 1,25 1, Feb-9 Apr-9 Jul-9 Sep-9 Dec-9 Feb-1 May-1 Jul-1 Oct-1 Dec-1 Mar-11 Jun-11 Aug-11 Nov Nov-1 2-Dec-1 17-Jan Feb Mar Apr May Jun Jul-11 8-Aug-11 8-Sep-11 7-Oct-11 8-Nov-11 -indexed to 1 Dynamatic NIFTY Total Traded Quantity (RHS) CRISIL Fair Value Dynamatic CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 3

6 EARNINGS ESTIMATES REVISED DOWNWARDS Particulars Unit FY12E FY13E Old New % change Old New % change Revenue (Rs mn) 14,158 14,98 5.3% 15,88 15,88.% EBITDA (Rs mn) 1,471 1,471.% 1,99 1,99.% EBITDA margin % bps bps Depreciation (Rs mn) % % Interest cost (Rs mn) % 7 7.% Other income (Rs mn) % 2 2.% PAT (Rs mn) % % PAT margin % bps bps EPS Rs % % Source: CRISIL Research Reasons for change in estimates Line item FY12 FY13 Revenues Increased revenue estimate for Eisenwerk, thereby for Dynamtic s auto components No change segment. This has resulted in 5.3% increase in the overall revenue forecast. EBITDA margins The domestic auto component business is expected to continue to report loss at the No change EBITDA level in Q3FY12 (as in H1FY12) and profit in Q4FY12. EBITDA margin of 35.8%, highest in past eight quarters, in the aerospace segment is expected to moderate to 3% in H2FY12. PAT margins Dynamatic has published its consolidated balance sheet as of end-q2fy12. We have got No change more clarity on the fixed assets and debt compared to Q1FY12 results, when the company did not publish the balance sheet. Depreciation has been increased by 24.4% on the back of higher-than-expected addition to gross and net fixed assets. Interest cost has been increased by 22.2% on the back of higher average debt assumed for FY11. CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 4

7 VALUATION We continue to use the discounted cash flow method to value Dynamatic and maintain our fair value of Rs 1,131. The stock is currently trading at Rs 1,89. At the current market price, our valuation grade is 3/5. One-year forward P/E band (Rs) 3, 2,5 2, 1,5 1, 5 One-year forward EV/EBITDA band (Rs mn) 3, 25, 2, 15, 1, 5, Mar-7 Aug-7 Jan-8 Jun-8 Nov-8 Apr-9 Sep-9 Mar-1 Aug-1 Jan-11 Jun-11 Nov-11 Mar-7 Aug-7 Jan-8 Jun-8 Nov-8 Apr-9 Sep-9 Mar-1 Aug-1 Jan-11 Jun-11 Nov-11 Dynamatic 15x 18x 21x 24x 27x P/E premium/discount to NIFTY P/E movement Dynamatic 8x 1x 12x 14x 7% 6% 5% 4% 3% 2% 1% % -1% (Times) std dev -1 std dev Mar-7 Aug-7 Jan-8 Jun-8 Nov-8 Apr-9 Sep-9 Mar-1 Aug-1 Jan-11 Jun-11 Nov-11 Mar-7 Aug-7 Jan-8 Jun-8 Nov-8 Apr-9 Sep-9 Mar-1 Aug-1 Jan-11 Jun-11 Nov-11 Premium/Discount to NIFTY Median premium/discount to NIFTY 1yr Fwd PE (x) Median PE CRISIL IER reports released on Dynamatic Technologies Ltd Date Nature of report Fundamental grade Fair value Valuation grade CMP (on the date of report) 19-Nov-1 Initiating coverage* 4/5 Rs 1,241 3/5 Rs 1,182 8-Mar-11 Q3FY11 result update 4/5 Rs 1,241 4/5 Rs 1,1 9-June-11 Q4FY11 result update 4/5 Rs 1,241 3/5 Rs 1,35 3-Sep-11 Q1FY12 result update 4/5 Rs 1,131 3/5 Rs 1,1 24-Nov-11 Q2FY12 result update 4/5 Rs 1,131 3/5 Rs 1,89 * For detailed initiating coverage report please visit: CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters. CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 5

8 FINANCIALS Income statement Balance Sheet (Rs mn) FY9 FY1 FY11 FY12E FY13E (Rs mn) FY9 FY1 FY11 FY12E FY13E Operating income 4,126 4,447 5,16 14,98 15,88 Liabilities EBITDA ,471 1,99 Equity share capital EBITDA margin 12.3% 15.2% 16.4% 9.9% 12.% Reserves 988 1,128 1,289 1,472 1,891 Depreciation Minorities EBIT ,58 1,468 Net worth 1,42 1,182 1,343 1,526 1,945 Interest Convertible debt Operating PBT Other debt 2,834 2,526 3,322 7,76 7,456 Other income Total debt 2,834 2,526 3,322 7,76 7,456 Exceptional inc/(exp) (98) 1 (6) - - Deferred tax liability (net) PBT (28) Total liabilities 4,94 3,948 4,935 9,532 9,73 Tax provision Assets Minority interest Net fixed assets 2,225 2,342 2,697 5,284 5,293 PAT (Reported) (8) Capital WIP Less: Exceptionals (98) 1 (6) - - Total fixed assets 2,535 2,448 3,236 5,823 5,832 Adjusted PAT Investments Current assets Ratios Inventory ,26 2,262 FY9 FY1 FY11 FY12E FY13E Sundry debtors ,171 2,859 3,45 Growth Loans and advances Operating income (%) C ash & bank balance EBITDA (%) (7.4) Marketable securities Adj PAT (%) (91.4) Total current assets 2,83 2,36 2,497 5,796 6,188 Adj EPS (%) (92.3) Total current liabilities ,24 3,23 3,432 Net current assets 1,14 1,72 1,257 2,566 2,756 Profitability Intangibles/Misc. expenditure ,142 1,142 EBITDA margin (%) Total assets 4,94 3,948 4,935 9,532 9,73 Adj PAT Margin (%) RoE (%) Cash flow RoCE (%) (Rs mn) FY9 FY1 FY11 FY12E FY13E RoIC (%) Pre-tax profit Total tax paid 12 (32) (57) (13) (238) Valuations Depreciation Price-earnings (x) Working capital changes (92) 39 (271) (1,955) (75) Price-book (x) Net cash from operations (618) (1,254) 916 EV/EBITDA (x) Cash from investments EV/Sales (x) C apital expenditure (974) (138) (1,39) (3,) (45) Dividend payout ratio (%) (31.6) Investments and others Dividend yield (%) Net cash from investments (974) (138) (1,39) (3,) (45) Cash from financing B/S ratios Equity raised/(repaid) Inventory days Debt raised/(repaid) 1,192 (37) 796 4,384 (25) Creditors days Dividend (incl. tax) (25) (48) (63) (78) (14) Debtor days Others (incl extraordinaries) (317) Working capital days Net cash from financing 1,586 (271) 734 4,38 (351) Gross asset turnover (x) C hange in cash position (6) (2) (72) Net asset turnover (x) C losing cash Sales/operating assets (x) Current ratio (x) Quarterly financials Debt-equity (x) (Rs mn) Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Net debt/equity (x) Net Sales 1,239 1,238 1,389 3,566 3,85 Interest coverage C hange (y-o-y) 18.7% 2.9% 17.1% 213.5% 27.1% EBITDA Per share Change (y-o-y) 49.2% 15.8% 34.3% 85.4% 98.5% FY9 FY1 FY11 FY12E FY13E EBITDA margin 15.6% 16.5% 16.5% 8.2% 1.1% Adj EPS (Rs) PAT C EPS Adj PAT Book value Change (y-o-y) 138.2% 19.7% 45.2% 77.% 31.1% Dividend (Rs) Adj PAT margin 4.2% 3.9% 6.% 1.1% 1.8% Actual o/s shares (mn) Adj EPS Note: All ratios are computed on Adj PAT estimate CRISIL Limited. All Rights Reserved. CRISIL RESEARCH 6

9 CRISIL Research Team Senior Director Mukesh Agarwal +91 (22) Analytical Contacts Tarun Bhatia Director, Capital Markets +91 (22) Prasad Koparkar Head, Industry & Customised Research +91 (22) Chetan Majithia Head, Equities +91 (22) Jiju Vidyadharan Head, Funds & Fixed Income Research +91 (22) Ajay D'Souza Head, Industry Research +91 (22) Ajay Srinivasan Head, Industry Research +91 (22) Sridhar C Head, Industry Research +91 (22) sridharc@crisil.com Manoj Mohta Head, Customised Research +91 (22) mmohta@crisil.com Sudhir Nair Head, Customised Research +91 (22) snair@crisil.com Business Development Vinaya Dongre Head, Industry & Customised Research +91 (22) vdongre@crisil.com Ashish Sethi Head, Capital Markets +91 (22) asethi@crisil.com CRISIL s Equity Offerings The Equity Group at CRISIL Research provides a wide range of services including: Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate Other services by the Research group include Funds & Fixed Income Research Mutual fund rankings Wealth Tracking and Financial Planning tools for asset managers, wealth managers and IFAs Valuation for all debt instruments Developing and maintaining debt and hybrid indices Consultancy and research support to retirement funds Industry & Customized Research Provide comprehensive research coverage across 65 sectors Customised research on market sizing, demand modelling and entry strategies Customised research content for Information Memorandum and Offer Documents CRISIL Limited. All Rights Reserved.

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