SUBSCRIBE to Hindustan Aeronautics Ltd. Invest with mid to long term time horizon

Transcription

1 SUBSCRIBE to Hindustan Aeronautics Ltd. Invest with mid to long term time horizon

2 14 th Mar Salient features of the IPO: Hindustan Aeronautics Ltd. (HAL) conferred with the "Navratna" Recommendation SUBSCRIBE status by the Government of India (GoI) is the largest defence PSU in Price Band (Rs.) Rs. 1,215 1,240 per Share India in terms of value of production. Face Value (Rs.) Rs. 10 Since the issue is fully OFS, the company will not receive any proceeds from it. Shares for Fresh Issue Nil (mn) Key competitive strengths: Shares for OFS (mn) 34.1mn Shares Long credible history of research, design and development, Fresh Issue Size (Rs. mn) N/A manufacturing and maintenance, repair & overhaul services Established track record in offering product life cycle support OFS Issue Size (Rs. mn) Rs. 41, ,293.3mn extending to periods beyond four decades Total Issue Size (Rs. mn) Rs. 41, ,293.3mn Strong design and development capabilities Bidding Date 16 th Mar th Mar Leadership position in the Indian aeronautical industry and strong GoI MCAP at Higher Price support Rs. 414,641mn Diversified product portfolio Band Enterprise Value at Higher Rs. 321,822mn Risk and concerns: Price Band Slow down in the economic activities and lower defence budget Book Running Lead SBI Capital Markets Ltd. and Higher dependency on single customer i.e. Ministry of Defence (MoD) Poor uptick in the export business Manager Axis Capital Ltd. Cancellation of orders Registrar Karvy Computershare Pvt. Ltd. Operating in highly regulated industry Sector/Industry Defence The President of India, acting Valuation & recommendation: At the higher price band of Rs. 1,240 per share, HAL s share is valued at a Promoters through the Ministry of P/E multiple of 15.8x (to its restated FY17 EPS of Rs. 78.5), which is at a Defence, Government of India discount to its peer average of 21x. Pre and post - issue shareholding pattern Pre Issue Post - Issue Below are few key observations of the issue: (For detailed valuation, refer to page 7 & 8 of the report) Promoter and Promoter According to Flight International, HAL is the 39 th % 89.80% largest aerospace Group company in the world in terms of revenue in The company is Public 0.00% 10.20% engaged in the design, development, manufacture, repair, overhaul, Total % % upgrade and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace Retail Application Money at Higher Cut-Off Price per Lot structures. Number of Shares per Lot 12 As of FY17, the company had 31 types of aircraft/helicopters in its Application Money Rs. 14,880 per Lot product portfolio. Out of which 17 have been indigenously designed. Over 90% of the revenue is derived from executing the Indian Employee and Retail Rs. 25 on the Offer Price defence orders and 3% from exports. Discount The company is currently manufacturing Su-30 MkI, Hawk, Dornier, Analyst Advanced light helicopter, Cheetal, Light combat aircraft Tejas and Rajnath Yadav related engines and accessories. The company is also provides repair & overhaul services for various aircraft and helicopters including Research Analyst ( ; Ext: 912) related engines and accessories being operated by the customer. rajnath.yadav@choiceindia.com As of 31 st Dec. 2017, HAL had an order book was Rs mn, which generally includes products and services to be manufactured and delivered and excludes anticipated revenues from its joint ventures and subsidiaries. Around 10% of the order book is from services and rest is the aircraft order book. The average project execution time is around months. With reference to FY17 revenue, this order book provides cash flow certainty for the next 3-4 years. Upon the initial operational clearance in 2013, the company manufactured two LCA Tejas which was accepted by the Indian Air Force. The government is expecting huge demand of the LCH Tejas (both Mark 1 and upgraded version Mark 2) from domestic as well as from the overseas market. Currently, HAL has an order book of 40 Tejas Mark-1. The government has recently issued request of proposal to HAL for the procurement of additional 83 Tejas at a cost of around Rs. 500bn. Presently, the company has a capacity to manufacture eight Tejas aircraft per annum. Anticipating higher demand, it is planning to increase the manufacturing capacity to 16 per annum. By FY18 end, the management is confident of delivering 5-6 Tejas aircrafts. Anticipating huge gap in its product portfolio and the future growth potential in the civil (passenger / transport) aircrafts, the company diversified into civil segment with Dornier Do-228 civil aircraft, which is suitable for the short-haul range inline with the regional connectivity scheme UDAN of the government. Indian civil aviation sector is among the fastest growing market and is expected to become the third largest by 2020 and largest by Thus this provides huge growth potential for the HAL in the civil aircraft market. HAL is debt free and as of FY17 end, it had a cash & cash equivalent of Rs bn. However due to share buyback process in Nov. 2017, the cash position might have declined to Rs bn, i.e. Rs. 306 per share (24.7% of the demanded MCAP). On valuation front, at higher price band, the company is demanding a P/E valuation of 15.8x (to its restated FY17 EPS of Rs. 78.5) as compared to peer average of 21x. With respect to its FY18E and FY19E earnings of Rs. 84 and 91.1 per share, respectively, it is demanding a P/E valuation of 14.8x and 13.6x, respectively, as compared to peer average of 21.1x and 18x. The issue seems to be attractive in terms of valuation, amid concerns relating to long gestation period of the defence projects and stringent regulations. Thus considering the above observations, investors can SUBSCRIBE for the issue with mid-long term investment perspective. 1

3 About the issue: HAL is coming up with an initial public offering (IPO) with 34.1mn shares (fresh issue: nil; OFS shares: 34.1mn shares) in offering. The offer represents around 10.2% of its post issue paid-up equity shares of the company. Total IPO size is Rs. 41, ,293.3mn. 0.7mn shares are reserved for eligible employees. Thus the net issue comprises of 33.4mn shares. The issue will open on 16 th Mar and close on 20 th Mar The issue is book building with a price band of Rs. 1,215 1,240 per share. The employee and retail discount is Rs. 25 on the offer price. 50% of the issue shall be allocated on a proportionate basis to qualified institutional buyers, while rest 15% and 35% is reserved for non-institutional bidders and retail investors, respectively. Since the issue is fully OFS, the company will not receive any proceeds from it. Its promoter holds 100% stake in the company and post IPO this will come down to 89.8%. Public holding will increase from current nil to 10.2%. Pre and Post Issue Shareholding Pattern (%) Pre Issue Post Issue (at higher price band) Promoter & Promoter Group (%) % 89.80% Public (%) 0.00% 10.2% Source: Company RHP Indicative IPO Process Time Line: Offer Closes on 20-Mar-2018 Unblocking of ASBA Account 27-Mar-2018 Listing on Stock Exchanges 28-Mar-2018 Offer Opens on 16-Mar-2018 Finalization of Basis of Allotment 26-Mar-2018 Credit to Demat Accounts 27-Mar

4 Company Introduction: HAL have been conferred with the "Navratna" status by the GoI in Jun and is the largest DPSU in terms of value of production. According to Flight International, it is the 39 th largest aerospace company in the world in terms of revenue in The company is engaged in the design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures. HAL s operations is organized into five complexes, namely the Bangalore complex, MiG complex, Helicopter complex, Accessories complex and Design complex, which together include 20 production divisions and 11 research and design centers located across India. It relies on indigenous research as well as enter into technology transfer and licence agreements to manufacture the products. Additionally, it has entered into 13 commercial joint ventures to grow its operations. Presently, HAL manufactures a wide range of products for military and civil use, including aircraft, helicopters, engines, avionics and other accessories. It also provides product servicing, repair, overhaul and upgrade services to its customers. Aircrafts that it presently manufacture include the Sukhoi Su-30 MKI, Dornier 228 and LCA Tejas. HAL also manufactures the Cheetal and LCH helicopters as well as variants of the Dhruv helicopter. In addition, the company manufactures engines, avionics and other accessories which are used in the assembly, servicing, repair and overhaul of its aircraft and helicopters. Its primary customers are the Indian Defence Forces, namely, the Indian Air Force, Indian Army, Indian Navy and Indian Coast Guard. Further, in India, it sells its products and provide services to central and state governments, para-military forces and corporates. The company also exports its products and services, primarily spares. Sales to the Indian Defence Services accounted for 91.4%, 93.3%, 94.2% and 92.6% of its total sales in H1 FY18, FY17, FY16 and FY15, respectively. During H1 FY18, FY17 and FY16 exports of products and services accounted for 3.0%, 2.6% and 2.7%, of the company s revenue from operations (net of excise duty) respectively. The company has a sustained track record of profitability and have paid dividends to its stakeholders every year for over four decades. As of 31 st Dec. 2017, HAL s order book stood at Rs. 684,610mn which generally includes products and services to be manufactured and delivered and excludes anticipated revenues from its joint ventures and subsidiaries. Competition: HAL s broad portfolio of products and services competes primarily with the products and services of foreign aerospace and defence companies, some of whom may be larger than it. The company often works with companies that are also its competitors, to provide customers with the best mix of capabilities to address specific requirements. The engineering and aircraft manufacturing industry globally is highly competitive. Its primary competitors in aircraft and helicopter manufacturing segment operations are companies such as Lockheed Martin, Saab, Airbus Helicopters, Bell Helicopters, Leonardo, Boeing, BAE Systems and UGMK (LET Kunovice Aircraft Industries). The company also manufactures aero-engines for its licence built aircraft and helicopters. These engines are built under licence from foreign engine OEMs. Hence, the company does not believes it face any substantial competition in this segment. Presently HAL is working on the HTFE-25 and HTSE-1200 engines of its own design. In the future, these two engines will face competition from established foreign OEMs in the aircraft and helicopter engine manufacturing segment such as Snecma, Safran Helicopter Engines, LHTEC, Pratt and Whitney, Rolls Royce, Honeywell and certain Russian manufacturers. As India's largest aerospace company, in terms of revenue, HAL believes that its experience in manufacturing products and providing customized services to its clients, industry expertise and customer relationships enable it to be a preferred equipment and services provider for the customers in India. With the change in regulations and participation of private enterprises and if the international competition becomes more intense in any of its business lines, the company may experience more pressure on its profitability. HAL s ability to maintain or further increase its revenue and profitability and market share will largely depend on its ability to achieve cost-savings and ability to differentiate itself from the competitors in terms of the quality, service and reputation of the products. The competition for foreign sales is subject to additional Government stipulations (e.g. export restrictions). International competition also may be subject to different laws or contracting practices of other governments that may affect how it structures its bid for the procurement. In many international procurements, the bilateral relationship between a purchasing country and India is an important factor in determining the outcome of a bid. 3

5 Company Introduction (Contd ): Financial performance: On the back of 31.9% CAGR rise in the business from the sales of services over FY15-17, HAL reported a 8.9% CAGR rise in consolidated operating revenue to Rs. 185,549mn in FY17. Business from the sales of the products, which formed around 75% of the consolidated revenue increased by just 0.8% CAGR over FY For the half year ended Sept. 2017, top-line stood at Rs. 52,770mn. Total operating expenses increased at 1.7% CAGR, a rate lower as compared to top-line. Operating expenditure as a percent of top-line stood at 82.5% in FY17 as compared to 94.6% in FY15. This was primarily driven by lower cost of material consumed, which as a percent of top-line declined to 45.3% in FY17 as compared to 50.3% in FY15. Employee benefit expenses as a percent of net sales too declined from 21% in FY15 to 19.2% in FY17. As a result, consolidated EBITDA increased by 95.6% CAGR to Rs. 32,561mn in FY17. EBITDA margin expanded by 12ppts over FY15-17 to 17.5% in FY17. For H1 FY18, EBITDA stood at Rs. 4,781mn with margin of 9.1%. Depreciation charges declined by 10.2% CAGR, while finance cost increased by 10.9% during the period. Other income declined by 22% CAGR, mainly due to the decline in the interest income. Other income accounted 5.6% of the top-line in FY17 as compared to 11% in FY15. Consequently, reported PAT increased by 62.5% CAGR to Rs. 26,247mn in FY17. PAT margin expanded by around 8ppts over FY15-17 to 14.1% in FY17. In H1 FY18, reported PAT stood at Rs. 3,910mn with a margin of 7.4%. Given below is the snapshot of the financial performance: FY15 FY16 FY17 H1 FY18 CAGR (%) Y-o-Y (%) Sale of Products 121, , , , % -3.9% Sales of Services 33, , , , % 42.0% Other Operating Revenues 1, , , , % 101.0% Revenue from Operations 156, , , , % 8.1% EBITDA 8, , , , % 31.9% EBIT (323.0) 16, , , % Reported PAT 9, , , , % 31.0% Restated Adjusted EPS % 31.0% Cash Flow from Operating Activities 29, ,480.0 (4,046.0) 19, % NOPLAT (192.0) 10, , , % FCF 46,169.5 (4,450.1) % RoIC (%) -0.1% 4.8% 8.0% 0.6% 805 bps 321 bps Revenue Growth Rate (%) 9.7% 8.1% EBITDA Growth Rate (%) 190.0% 31.9% EBITDA Margin (%) 5.4% 14.4% 17.5% 9.1% 1,211 bps 317 bps EBIT Growth Rate (%) % 58.4% EBIT Margin (%) -0.2% 9.4% 13.7% 4.2% 1,391 bps 435 bps Reported PAT Growth Rate (%) 101.6% 31.0% Reported PAT Margin (%) 6.4% 11.7% 14.1% 7.4% 779 bps 246 bps Inventories Turnover Ratio (x) % 16.8% Trade Receivable Turnover Ratio (x) % 30.0% Accounts Payable Turnover Ratio (x) % 27.2% Fixed Asset Turnover Ratio (x) % -1.6% Total Asset Turnover Ratio (x) % 18.6% Inventories Days % -14.4% Debtor Days % -23.0% Payable Days (52.9) (47.0) (36.9) -16.4% -21.4% Cash Conversion Cycle % -15.5% Current Ratio (x) Debt to Equity (x) RoE (%) 6.7% 18.2% 20.9% 3.0% 1,420 bps 273 bps RoA (%) 1.6% 3.5% 5.1% 0.7% 350 bps 155 bps RoCE (%) -0.1% 6.7% 9.8% 0.8% 0992 bps 308 bps Source: Company RHP 3

6 Competitive Strengths: Long credible history of research, design and development, manufacturing and maintenance, repair & overhaul services Established track record in offering product life cycle support extending to periods beyond four decades Strong design and development capabilities Leadership position in the Indian aeronautical industry and strong GoI support Diversified product portfolio Business Strategy: Expand the operations through partnerships or collaboration Diversify through expansion in new growth areas Diversify further into the civil aircraft segment for both manufacturing and servicing opportunities Develop in-house capabilities to design and develop specialized products including aero-engines Leverage existing cost advantage Optimizing operations towards becoming a lead integrator of aircraft platforms Risk and Concerns: Slow down in the economic activities and lower defence budget Higher dependency on single customer i.e. MoD Poor uptick in the export business Cancellation of orders Operating in highly regulated industry Change in the payment terms, especially advance payments CHOICE INSTITUTIONAL RESEARCH 6

7 Peer Comparison and Valuation: Company Name Face Value (Rs.) CMP (Rs.) MCAP (Rs. mn) At the higher price band of Rs. 1,240 per share, HAL s share is valued at a P/E multiple of 15.8x (to its restated FY17 EPS of Rs. 78.5), which is at a discount to its peer average of 21x. Below are few key observations of the issue: EV (Rs. mn) Stock Return (%) 1M 3M 6M 1Y Total Operating Revenue (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EBITDA Margin (%) PAT Margin (%) Hindustan Aeronautics Ltd. 10 1, , , , , , % 14.1% Bharat Electronics Ltd , , % -17.1% -16.1% 5.6% 92, , , % 16.5% Apollo Micro Systems Ltd ,877 4, % 2, % 8.1% Bharat Dynamics Ltd. * ,444 65,570 48, , , % 10.1% Average 16.5% 11.6% Company Name EPS (Rs.) BVPS (Rs.) DPS (Rs.) Debt Equity Ratio Fixed Asset Turnover Ratio RoE (%) Working Capital Cycle (Days) According to Flight International, HAL is the 39 th largest aerospace company in the world in terms of revenue in The company is engaged in the design, development, manufacture, repair, overhaul, upgrade and servicing of a wide range of products including, aircraft, helicopters, aero-engines, avionics, accessories and aerospace structures. It manufactures its products under technology transfer, licence agreement and indigenous research. HAL has a vast experience in design & development and manufacturing of a diversified range of aircraft and its systems. As of FY17, the company had 31 types of aircraft/helicopters in its product portfolio. Out of which 17 have been indigenously designed. Over 90% of the revenue is derived from executing the Indian defence orders and 3% from exports. Its R&D centers are approved and certified by Department of Scientific & Industrial Research and Center for Military Airworthiness & Certification. Its research, design and development activities are done through customer funded contracts and through its own funds. Its research & development expenses are around 7% of the revenue over the last three years. The company is currently manufacturing Su-30 MkI, Hawk, Dornier, Advanced light helicopter, Cheetal, Light combat aircraft Tejas and related engines and accessories. The company is also provides repair & overhaul services for various aircraft and helicopters including related engines and accessories being operated by the customer. As of 31 st Dec. 2017, HAL had an order book was Rs mn, which generally includes products and services to be manufactured and delivered and excludes anticipated revenues from its joint ventures and subsidiaries. Around 10% of the order book is from services and rest is the aircraft order book. The average project execution time is around months. With reference to FY17 revenue, this order book provides cash flow certainty for the next 3-4 years. Upon the initial operational clearance in 2013, the company manufactured two LCA Tejas and was accepted by the Indian Air Force. The government is expecting huge demand of the LCH Tejas (both Mark 1 and upgraded version Mark 2) from domestic as well as from the overseas market. Currently, HAL has an order book of 40 Tejas Mark-1. The government has recently issued request of proposal to HAL for the procurement of additional 83 Tejas at a cost of around Rs. 500bn. Presently, the company has a capacity to manufacture eight Tejas aircraft per annum. Anticipating higher demand, it is planning to increase the manufacturing capacity to 16 per annum. By FY18 end, the management is confident of delivering 5-6 Tejas aircrafts. RoCE (%) P / E (x) P / B (x) EV / Sales (x) EV / EBITDA (x) MCAP / Sales (x) Earning Yield (x) Hindustan Aeronautics Ltd % 10.2% % 3.7 Bharat Electronics Ltd % 16.8% % 4.4 Apollo Micro Systems Ltd % 23.6% % 0.5 Bharat Dynamics Ltd. * % 22.0% % 2.2 Average % 20.8% % 2.3 Note: FY17 financials, * Yet to be listed and data based on the higher price band; Source: Choice Broking Research Order Book / Sales (x) CHOICE INSTITUTIONAL RESEARCH 7

8 Peer Comparison and Valuation (Contd ): Anticipating huge gap in its product portfolio and the future growth potential in the civil (passenger / transport) aircrafts, the company diversified into civil segment with Dornier Do-228 civil aircraft, which is suitable for the short-haul range inline with the regional connectivity scheme UDAN of the government. In FY17, it initiated the manufacturing of two civil aircrafts and currently it is exploring potential customers for entering into the civil segment. Indian civil aviation sector is among the fastest growing market and is expected to become the third largest by 2020 and largest by Thus this provides huge growth potential for the HAL in the civil aircraft market. HAL has reported improvement in the financial performance over FY Its RoIC is in increasing trend. In FY17, RoIC stood at 8% as compared to -0.1% and 4.8% in FY15 and FY16, respectively. The company has reported 8.9% CAGR rise in the total operating revenue over FY15-17 to Rs. 185,549.0mn in FY17. EBITDA during the period increased by 95.6% CAGR. EBITDA margin expanded from 5.4% in FY15 to 17.5% in FY17. However, due to lower interest income on the surplus cash, reported PAT reported a growth of 62.5% CAGR. PAT margin expanded from 6.4% in FY15 to 14.1% in FY17. RoE increased from 6.7% in FY15 to 20.9% in FY17, while RoCE improved from -0.1% in FY15 to 9.8% in FY17. The company is debt free and as of FY17 end, it had a cash & cash equivalent of Rs bn. However due to share buyback process in Nov. 2017, the cash position might have declined to Rs bn, i.e. Rs. 306 per share (24.7% of the demanded MCAP). For the six month ended Sept. 2017, HAL reported a top-line of Rs. 52,770mn with an EBITDA and PAT margin of 9.1% and 7.4%, respectively. There is some sort of seasonality in the business. most of the defence projects are being executed in the Q4 quarter. We are anticipating a top-line of Rs. 201,349mn (a growth of 8.5% over FY17) and EPS of 84 per share (an increase of 7% over FY17) for FY18E. EBITDA and PAT margin are anticipated at 18.4% and 13.9%, respectively. In FY19, it is expected to report a top-line of Rs. 218,494.5mn and EPS of 91.1 per share. On valuation front, at higher price band, the company is demanding a P/E valuation of 15.8x (to its restated FY17 EPS of Rs. 78.5) as compared to peer average of 21x. With respect to its FY18E and FY19E earnings of Rs. 84 and 91.1 per share, respectively, it is demanding a P/E valuation of 14.8x and 13.6x, respectively, as compared to peer average of 21.1x and 18x. The issue seems to be attractive in terms of valuation, amid concerns relating to long gestation period of the defence projects and stringent regulations. Thus considering the above observations, investors can SUBSCRIBE for the issue with mid to long term investment perspective. 7 CHOICE INSTITUTIONAL RESEARCH

9 Financial Statements: Consolidated Profit and Loss Statement (Rs. mn) FY15 FY16 FY17 H1 FY18 CAGR over Annual Growth over FY15-17 (%) FY16 (%) Revenue from Operations 156, , , , % 8.1% Cost of Materials Consumed (78,671.0) (88,119.0) (84,042.0) (20,695.0) 3.4% -4.6% Purchase of Stock in Trade (10,165.0) (3,637.0) (2,907.0) (618.0) -46.5% -20.1% Changes in Inventories of Finished Goods, Work in Progress and Stock in Trade 6, ,624.0 (5,111.0) 1, % Excise Duty (5.0) (4,001.0) (6,034.0) (1,045.0) % 50.8% Employee Benefits Expenses (32,805.0) (32,743.0) (35,704.0) (17,978.0) 4.3% 9.0% Other Expenses (11,124.0) (11,759.0) (12,494.0) (6,239.0) 6.0% 6.3% Direct Input to WIP / Expenses Capitalized (4,350.0) (5,119.0) (4,657.0) (1,584.0) 3.5% -9.0% Provisions (21,972.0) (10,512.0) (8,119.0) (3,521.0) -39.2% -22.8% Expenses Relating to Capital and Other Accounts 4, , , , % 81.0% EBITDA 8, , , , % 31.9% Depreciation, Amortization Expense and Impairment Loss (8,832.0) (8,628.0) (7,129.0) (2,575.0) -10.2% -17.4% EBIT (323.0) 16, , , % Finance Costs (83.0) 0.0 (102.0) (12.0) 10.9% Other Income 17, , , , % -34.7% Share of Profit / (Loss) of Joint Ventures (7.0) % PBT 16, , , , % 11.8% Tax Expenses (6,786.0) (12,090.0) (9,670.0) (2,186.0) 19.4% -20.0% Reported PAT 9, , , , % 31.0% Consolidated Balance Sheet Statement (Rs. mn) FY15 FY16 FY17 H1 FY18 CAGR over Annual Growth FY15-17 (%) over FY16 (%) Equity Share Capital 4, , , , % 0.0% Reserves and Surplus 143, , , , % 14.3% Non Current Trade Payables , , % Other Non Current Financial Liabilities 3, , , , % -6.5% Non Current Provisions 25, , , , % -18.2% Non Current Deferred Tax Liabilities (Net) 6, , , , % 17.8% Other Non Current Liabilities 87, , , , % 7.6% Short Term Borrowings 9,500.0 Trade Payables 22, , , , % -25.4% Other Financial Liabilities 11, , , , % 12.4% Other Current Liabilities 293, , , , % -28.8% Short Term Provisions 24, , , , % 9.1% Current Tax Liabilities (Net) % Total Liabilities 624, , , , % -8.8% Property, Plant and Equipment (Net) 50, , , , % 6.2% Property, Plant and Equipment - Customer Funded (Net) Capital Work in Progress 2, , , , % 65.5% Other Intangible Assets (Net) 16, , , , % -4.5% Intangible Assets Under Development 4, , , , % 33.3% Non Current Investments - Joint Ventures / Subsidiaries 1, , , , % 7.6% Other Non Current Investments 5, , , , % 8.8% Non Current Trade Receivables % Long Term Loans % 13.3% Other Non Current Financial Assets 3, , , , % -8.4% Other Non Current Assets 13, , , , % -18.5% Inventories 249, , , , % -11.1% Trade Receivables 60, , , , % -13.0% Cash and Bank Balances 176, , , , % -16.2% Short Term Loans 1, , % 0.6% Other Current Financial Assets 19, , , , % 16.9% Current Tax Assets (Net) 1, , , % Other Currents Assets 15, , , , % -46.8% Total Assets 624, , , , % -8.8% Source: Company RHP CHOICE INSTITUTIONAL RESEARCH 7

10 Financial Statements (Contd ): Consolidated Cash Flow Statement (Rs. mn) Particulars (Rs. mn) FY15 FY16 FY17 H1 FY18 CAGR over Annual Growth FY15-17 (%) over FY16 (%) Cash Flow from Operations 29, ,480.0 (4,046.0) 19, % Cash Flow from Investing Activities (111,000.0) 13, ,144.0 (5,359.0) 123.8% Cash Flow from Financing Activities (12,637.0) (58,797.0) (1,643.0) (9,512.0) -63.9% -97.2% Net Cash Flow (94,468.0) (13,846.0) 24, , % Opening Balance of Cash and Bank Balances 111, , , , % -80.1% Closing Balance of Cash and Bank Balances 17, , , , % 710.9% Source: Company RHP Note: Pre-issue data; Source: Company RHP Consolidated Financial Ratios Particulars (Rs. mn) FY15 FY16 FY17 H1 FY18 Revenue Growth Rate (%) 9.7% 8.1% EBITDA Growth Rate (%) 190.0% 31.9% EBITDA Margin (%) 5.4% 14.4% 17.5% 9.1% EBIT Growth Rate (%) % 58.4% EBIT Margin (%) -0.2% 9.4% 13.7% 4.2% Reported PAT Growth Rate (%) 101.6% 31.0% Reported PAT Margin (%) 6.4% 11.7% 14.1% 7.4% Liquidity Ratios Current Ratio Debt Equity Ratio Net Debt to EBITDA (20.8) (5.4) (3.1) (24.5) Turnover Ratios Inventories Days Trade Receivable Days Accounts Payable Days (52.9) (47.0) (36.9) Cash Conversion Cycle Days Fixed Asset Turnover Ratio (x) Total Asset Turnover Ratio (x) Return Ratios RoE (%) 6.7% 18.2% 20.9% 3.0% RoA (%) 1.6% 3.5% 5.1% 0.7% RoCE (%) -0.1% 6.7% 9.8% 0.8% Per Share Data Restated Reported EPS (Rs.) Restated DPS (Rs.) BVPS (Rs.) Restated Operating Cash Flow Per Share (Rs.) (12.1) 57.3 Restated Free Cash Flow Per Share (Rs.) (13.3) CHOICE INSTITUTIONAL RESEARCH 7

11 Disclaimer This is solely for information of clients of Choice Broking and does not construe to be an investment advice. It is also not intended as an offer or solicitation for the purchase and sale of any financial instruments. Any action taken by you on the basis of the information contained herein is your responsibility alone and Choice Broking its subsidiaries or its employees or associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the information contained in this recommendation, but Choice Broking or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this recommendation or any action taken on basis of this information. This report is based on the fundamental analysis with a view to forecast future price. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Choice Broking has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Choice Broking makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the report are based upon publicly available information at the time of publication and are subject to change without notice. The information and any disclosures provided herein are in summary form and have been prepared for informational purposes. The recommendations and suggested price levels are intended purely for stock market investment purposes. The recommendations are valid for the day of the report and will remain valid till the target period. The information and any disclosures provided herein may be considered confidential. Any use, distribution, modification, copying, forwarding or disclosure by any person is strictly prohibited. The information and any disclosures provided herein do not constitute a solicitation or offer to purchase or sell any security or other financial product or instrument. The current performance may be unaudited. Past performance does not guarantee future returns. There can be no assurance that investments will achieve any targeted rates of return, and there is no guarantee against the loss of your entire investment. POTENTIAL CONFLICT OF INTEREST DISCLOSURE (as on date of report) Disclosure of interest statement Analyst interest of the stock /Instrument(s): - No. Firm interest of the stock / Instrument (s): - No Choice Equity Broking Pvt. Ltd. Choice House, Shree Shakambhari Corporate Park, Plot No: , J.B. Nagar, Andheri (East), Mumbai