Sterlite Technologies Ltd.

Transcription

1 218 Equirus All rights reserved Rating Information Price (Rs) 336 Target Price (Rs) 41 Target Date Target Set On Implied yrs of growth (DCF) 15 Fair Value (DCF) 441 Fair Value (DDM) 99 Ind Benchmark Model Portfolio Position Stock Information 3th June'19 25th Apr'18 SPBSMIP NA Market Cap (Rs Mn) 1,34,663 Free Float (%) % 52 Wk H/L (Rs) 415/144 Avg Daily Volume (1yr) 2,44,111 Avg Daily Value (Rs Mn) 524 Equity Cap (Rs Mn) 82 Face Value (Rs) 2 Bloomberg Code SOTL IN Ownership Recent 3M 12M Promoters 54. % -.1 % -.5 % DII 11.3 % -.9 % -.1 % FII 8.5 % 1.4 % 1.5 % Public 26.2 % -.3 % -.9 % Price % 1M 3M 12M Absolute 6.8 % % 12.2 % Vs Industry -.2 % -8.4 % 16.6 % HFCL 3. % % 59.1 % Vindhya Telelinks 19.2 % 3.1 % 7.9 % Consolidated Quarterly EPS forecast Rs/Share 1Q 2Q 3Q 4Q EPS (18A) EPS (19E) Sterlite Technologies Ltd. Absolute : LONG Relative : Overweight 4QFY18 Result: Estimate ( ), TP ( ), Rating ( ) Regular Coverage 2% ATR in 14 Months Remains on track to achieve its FY2 targets maintain LONG Sterlite Technologies (SOTL) 4QFY18 revenues grew 21% yoy to ~Rs 8.5bn, coming in line with EE. Revenue growth was driven by the products business as utilization levels in optic fiber cables (OFC) improved to 9% in 4Q (~7% for FY18). SOTL recorded its highest-ever EBITDA margins of ~26% (+284bps/+188bps yoy/qoq) with the revenue mix skewed towards the higher-margin products segment, increased contribution of value-added products, and firm product realizations amid continued supply shortage of preforms globally. We tweak our FY19/FY2 EPS estimates by -9%/-2% to factor in slight delay in starting Navy contract execution and expect revenue/ebitda/eps CAGR of 33%/29%/34% over FY18-FY2E with FY19/FY2 RoEs of 36%/37%. Our Jun 19 TP of Rs 41 is set at a TTM P/E of 32x (vs. a Jun 19 TP of Rs 43 at a TTM P/E of 32x earlier). Maintain LONG. Strong order book, OF capacity expansion to keep growth momentum strong: Underlying demand for optic fiber (OF) remains strong and there are no signs of a slowdown in China. In our view, OF demand shall remain firm over the next decade as fiber is a key component of next-generation global 5G infrastructure. SOTL s OF capacity expansion is on an accelerated mode, with ~1mn fkm likely come on board by CY18-end and the remaining ~1mn fkm by Jun 19. On the OFC front, management has guided for ~9-1% capacity utilization in FY19 (FY18: ~7%). The company is currently scouting for options to expand its OFC capacity as well. Overall, we estimate the products business to clock revenue CAGR of ~26% over FY18-FY2E. Recently won ~Rs 35bn Navy order to lead services business execution: Execution of the ~Rs 35bn Indian Navy order would begin in 2QFY19 as it may take another 2-3 months to get the cabinet nod. The order would be executed over the next two years and, like any other service contract, should generate EBITDAM of ~12-14%. The NFS order, currently under execution, would be completed in FY19 post which its Annual Maintenance Contract (AMC) would begin. In addition to this order, the bid pipeline currently stands at ~Rs 7bn-8bn and would support the momentum in services business ahead. We expect the services business to grow at a CAGR of 56% over FY18-FY2E. Maintain LONG with a Jun 19 TP of Rs 41: With a strong order book and upcoming capacity expansion offering good revenue visibility, we estimate revenue CAGR of 33% over FY18-FY2E. Revenue growth in FY19 is likely to be skewed towards the lower-margin services segment, leading us to build a margin compression of 7bps yoy. Overall, we estimate an EBITDA CAGR of 29% over FY18-FY2E. We maintain LONG on the stock but revise our Jun 19 TP to Rs 41 which is set at a TTM P/E of 32x (vs. a Jun 19 TP of Rs 43 at a TTM P/E of 32x earlier). A key risk to our call is excessive supply by CY19 likely pressurizing global fiber realizations. Change in Estimates Telecom Services Rs. Mn FY19E Chg (%) FY2E Chg (%) Sales 43,55-6% 55,883 1% EBITDA 9,964-6% 12,561-1% EPS % % Consolidated Financials Rs. Mn YE Mar FY18A FY19E FY2E FY21E Sales 31,771 43,55 55,883 64,41 EBITDA 7,494 9,964 12,561 14,3 Depreciation 1,822 2,75 2,439 2,693 Interest Expense 1,38 1,11 1,131 1,71 Other Income Reported PAT 3,343 4,721 6,116 7,19 Recurring PAT 3,387 4,721 6,116 7,19 Total Equity 11,753 14,485 18,76 23,786 Gross Debt 1,933 11,933 13,933 1,433 Cash 2, ,27 3,221 Rs Per Share FY18A FY19E FY2E FY21E Earnings Book Value Dividends FCFF P/E (x) P/B (x) EV/EBITDA (x) ROE (%) 33 % 36 % 37 % 34 % Core ROIC (%) 19 % 22 % 23 % 23 % EBITDA Margin (%) 24 % 23 % 22 % 22 % Net Margin (%) 11 % 11 % 11 % 11 % April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 1 of 12 Before reading this report, you must refer to the disclaimer on the last page.

2 Earnings call takeaways Products business With every new technology, the usage of fiber is bound to increase. 3G to 4G transition led to 3x times the fiber deployment, while the 4G to 5G change may lead to 5x the fiber deployment. Management indicated that OF capacity expansion (from 3mn fkm to 5mn fkm) is on an accelerated mode and would be completed by Jun 19. Phase 1 (1mn fkm) will come on board by CY18-end. China remains more focused on 4G and FTTH deployment. 5G trials will begin at FY18-end; 5G standards are still being finalized for commercial deployment. SOTL is working towards finalizing expansion plans for the OFC division as capacity utilization has reached ~9% in 4QFY18 (~7% for FY18). Management has guided for ~9-1% capacity utilization in FY19. OFC realizations are aligned with fiber realizations. The company does not compromise on margins when acquiring new clients, with no change in pricing vis-à-vis existing clients. FY18 capex was ~Rs 5.25bn (including some part for old capex, some advances and initial payments for current phase of capex). FY19 and FY2 capex would be ~Rs 5bn. Utilization for OF capacity currently stands at ~1%. Capacity is fully booked for CY18 and partially booked for CY19, and the company has started taking orders for CY2 as well. Management believes that the global supply-demand situation for preforms would continue to be tight for the rest of CY18. Other highlights For 4QFY18, an EBIDAM improvement of +284bps/+188bps yoy/qoq was driven by: (a) products and services mix being more skewed towards products, (b) higher operating leverage in OFC as utilization levels have reached ~9%, and (c) higher contribution of newer value-added products. Capital raising exercise of Rs 2bn: This is the company's annual exercise of taking shareholders resolution. There is nothing on the cards currently. Services business Current order book for the services business (~Rs 11.28bn) does not include the recently-won Indian Navy order as it is yet to secure cabinet approval. The order would be finalized in the next 2-3 months and executed over two years once implementation begins. Operating margins for the Navy order, like any other service contract, would be ~12-14%. The NFS project is likely to be completely executed in FY19, post which its AMC would begin. After the Indian Navy order, the bid pipeline is ~7bn-8bn. April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 2 of 12

3 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Sterlite Technologies Ltd Absolute LONG Relative Overweight 2% ATR in 14 Months Global OF demand scenario to provide tailwinds Exhibit 1: Optic Fibre prices have been rising as global preform shortage continues $/fkm Europe (Low) Developing World (Low) Europe (High) Developing World (High) Global OF prices: Despite new preform capacities coming up globally in CY17, mainly in China, preform shortage has continued. Spot prices have risen sharply in the later part of CY17. Spot prices as high as ~US$ 12.75/14.5 per fkm have been recorded in developed/ developing world (vs. a high of ~$7.5/fkm in CY15). Chinese demand: Demand from China is likely to continue surging in 218 (+14% in CY17; Exhibit 2) on the back of Chinese telcos plans to deploy 5G network throughout China and start commercial 5G services by CY2. China s largest telco, China Mobile, has announced tenders to procure ~11mn fkm in 1HCY18 (vs. India s full-year demand of ~2mn fkm in CY17). FTTX is also gaining traction in China as fibre demand for FTTX installations has grown at a 19% CAGR over CY12-CY17 in the country. USA demand: In USA, all major OF players (Corning, Prysmian, OFS) have announced capacity expansion plans, buoyed by a demand pick-up (+15% in CY17 vs. ~11% in CY16). US telcos have expressed intentions to widen geographic reach of their fixed and mobile broadband networks and to offer new services such as smart cities services and IoT applications. Source: CRU International, Equirus Securities Exhibit 2: World optical fibre cable market has grown by ~12% in CY17 as China has kept up the momentum; India a net exporter of optical fibre cables 216 % Change 217 % Change ' fibre-km Q1 Q2 Q3 Q4 CY16 CY15-CY16 Q1 Q2 Q3 Q4 CY17 CY16-CY17 Shipments North America 11,24 11,797 12,536 12,886 48, % 14,27 14,242 13,571 13,123 55, % Europe 1,463 11,93 11,583 11,496 44, % 11,48 12,171 12,744 12,75 49,1 1.% China 65,245 66,168 66,168 66,36 2,63, % 7,843 7,843 78,223 75,271 2,95, % Other Asia-Pac. 14,115 14,4 13,883 14,538 56, % 15,694 15,654 15,41 16,166 62, % - India 6,84 6,13 5,642 6,149 23, % 6,85 6,77 6,353 6,923 26, % Rest of World 3,856 3,9 4, 4,6 15, % 4,482 4,52 4,631 4,77 18, % World Total 1,4,73 1,6,999 1,8,17 1,8,961 4,28, % 1,16,76 1,17,413 1,24,569 1,22,34 4,8, % Demand North America 11,556 12,496 13,269 13,567 5, % 14,831 15,59 14,484 13,999 58, % Europe 1,558 1,629 11,358 1,773 43, % 11,713 11,677 12,535 11,847 47, % China 6,246 61,11 61,12 6,984 2,43, % 66,387 66,391 73,299 7,54 2,76, % Other Asia-Pac. 13,69 13,793 13,495 14,246 55, % 14,377 14,489 14,251 15,23 58,14 5.3% - India 4,973 4,915 4,612 5,26 19, % 5,224 5,163 4,844 5,279 2,51 5.% Rest of World 8,68 8,962 9,28 9,121 35,97 7.4% 9,617 9,92 1,177 1,124 39,82 1.7% World Total 1,4,73 1,6,981 1,8,431 1,8,691 4,28, % 1,16,925 1,17,518 1,24,746 1,21,533 4,8, % Source: CRU International, Equirus Securities April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 3 of 12

4 4,45 7, 16,54 16,24 11,24 15,5 15,41 14,77 16,41 14,99 14,93 13,38 11,28 2,99 23,24 26,74 23,39 3,18 31,4 33,35 38,32 4,95 45,74 52,23 Sterlite Technologies Ltd Absolute LONG Relative Overweight 2% ATR in 14 Months Exhibit 3: Revenue growth has been strong for the past two years Net Sales (Rs. mn) Net Sales (yoy %)(RHS) 9, 53% 8, 7, 6, 27% 5, 24% 22% 21% 18% 4, 15% 3, 2, -1% 1, 5,638 5,14 6,741 7,5 7,16 7,793 8,352 8,466 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Source: Company, Equirus Securities 6% 5% 4% 3% 2% 1% % -1% Exhibit 5: Both OF and OFC volumes are consistently improving OF Volume (mn fkm) OFC Volume (mn fkm) QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Source: Company, Equirus Securities Exhibit 4: Operating margin has been expanding as OF realizations have inched up Exhibit 6: Increasing order book reflects predictable outlook for the company EBITDA (Rs. mn) EBITDAM (%)(RHS) 2,5 26.% 24.1% 23.2% 2, 2.3% 2.8% 21.9% 21.9% 19.9% 1,5 1, 5 1,142 1,17 1,45 1,624 1,571 1,73 2,17 2,23 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Source: Company, Equirus Securities 3% 25% 2% 15% 1% 5% % (Rs mn) Product Order Book Services Order Book Total Order Book 6, 5, 4, 3, 2, 1, 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 Source: Company, Equirus Securities April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 4 of 12

5 Quarterly performance, consolidated % Change 4QFY18 4QFY18E 3QFY18 4QFY17 4QFY18E 3QFY18 4QFY17 Net Sales (Rs. mn) 8,466 8,385 8,352 7,5 1% 1% 21% Comments Cost of materials consumed 3,259 3,389 3,351 2,885-4% -3% 13% Employee benefits expense % 6% 16% Other expenses 2,58 2,72 2,95 1,678-1% -2% 23% Total Expenditures 6,263 6,355 6,335 5,381-1% -1% 16% EBITDA 2,23 2,31 2,17 1,624 8% 9% 36% Depreciation % 17% 18% EBIT 1,679 1,578 1,569 1,18 6% 7% 42% Interest % -2% 4% Other Income % 155% 457% PBT 1,597 1,374 1, % 16% 65% Tax % -6% 3% PAT before MI & Associates 1, % 25% 8% Minority Interest % -26% 35% Profit from Assoc. -1-1% Recurring PAT 1, % 3% 83% Extraordinaries 44 Reported PAT 1, % 25% 77% EBITDA Margin 26.% 24.2% 24.1% 23.2% 181 bps 188 bps 284 bps EBIT Margin 2% 19% 19% 17% 1 bps 14 bps 299 bps PBT Margin 19% 16% 17% 14% 248 bps 236 bps 56 bps PAT Margin 13% 11% 11% 9% 253 bps 249 bps 419 bps Tax Rate 23% 28% 28% 29% -492 bps -54 bps -62 bps April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 5 of 12

6 Company Snapshot How we differ from Consensus EPS Sales PAT - Equirus Consensus % Diff Comment FY19E % Consensus numbers are not updated post FY2E % results FY19E 43,55 43,542 % FY2E 55,883 55,354 1 % FY19E 4,721 4,547 4 % FY2E 6,116 6,25-1 % Key Estimates: Particulars FY11 FY12 FY13 FY14E FY15E FY16E FY17 FY18 FY19E FY2E FY21E ADHO Revenue (Rs Mn) 3,432 4,443 5,771 6,381 7,27 8,397 Gross Nomark Revenue (Rs Mn) from Products (Rs. - mn) 2,18-25,684-3, , ,194 6 EBITDA (Rs Mn) 1,89 1,166 1,729 1,848 2,12 2,46 - Optic fibre volume (mn fkm) EBITDA Margin (%) 3.3% 24.6% 28.5% 27.2% 26.2% 26.3% PAT - Optic (Rs Mn) fibre cable volume 1,31 (mn fkm) 1, , , , , Revenue PAT Margin from (%) Services (Rs mn) 28.7% 25.4% 5, % 7,168 14, % 17, % 19, % Risk to Our View: Inadequate/delayed investments by telcos Delay in public projects like BharatNet and Smart Cities Increasing supply of preform and fiber which may put pressure on pricing DCF Valuations & Assumptions Rf Beta Ke Term. Growth Debt/IC in Term. Yr 6.8 % % 5. % 29.1 % - FY19E FY2E FY21-23E FY24-28E FY29-33E Sales Growth 37 % 28 % 16 % 16 % 15 % NOPAT Margin 13 % 13 % 12 % 12 % 12 % IC Turnover RoIC 22.1 % 22.7 % 23. % 23.1 % 23.3 % Years of strong growth Valuation as on date (Rs) Valuation as of June' Based on DCF, we derive a Jun 19 fair value of Rs 441. Company Description Sterlite Technologies is a pure play telecom products and services & software company, engaged in designing, building and managing smart digital networks. The company shares a common lineage with Vedanta Resources Plc globally diversified natural resources major. It is the only vertically integrated player in India s optic fibre space, which gives it unique advantage over peers. SOTL s OF and OFC production capacities currently stand at 3mn fkm and 15mn fkm respectively (including 6.5mn fkm OF capacity in China). Key Triggers Getting new Smart City and other services projects Full order booking of the upcoming 2mn fkm OF capacity and increasing utilization for OFC Comparable valuation EPS P/E BPS P/B RoE Div Yield Mkt Cap Price Target Company Reco. CMP Rs. Mn. Target Date FY18A FY19E FY2E FY18A FY19E FY2E FY18A FY19E FY18A FY19E FY2E FY18A FY19E Sterlite Technologies Ltd LONG 336 1,34, th June' % 36 % 37 %.6 %.9 % HFCL NA 26 32,348 NA NA % % - Vindhya Telelinks NA 1,185 14,43 NA NA % % - April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 6 of 12

7 Consolidated Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q18A 2Q18A 3Q18A 4Q18A 1Q19E 2Q19E 3Q19E 4Q19E 1Q2E 2Q2E 3Q2E 4Q2E FY18A FY19E FY2E FY21E Revenue 7,16 7,793 8,352 8,466 8,647 11,171 11,397 12,335 12,489 14,154 14,485 14,756 31,771 43,55 55,883 64,41 Cost of materials consumed 2,475 2,481 3,52 3,723 3,427 4,653 4,75 5,157 5,263 5,965 6,18 6,225 12,181 17,987 23,562 27,37 Purchases of stock-in-trade Change in inventories of finished goods, stock-in-trade and WIP Other expenses 1,892 2,61 2,95 2,58 2,239 2,921 2,982 3,235 3,276 3,713 3,83 3,876 8,12 11,376 14,669 16,93 Employee benefits expense ,63 1,84 1,164 1,136 1,287 1,317 1,351 3,488 4,222 5,91 5,874 EBITDA 1,571 1,73 2,17 2,23 2,69 2,534 2,581 2,78 2,813 3,188 3,256 3,34 7,494 9,964 12,561 14,3 Depreciation ,822 2,75 2,439 2,693 EBIT 1,158 1,266 1,569 1,679 1,551 2,15 2,62 2,261 2,23 2,578 2,647 2,694 5,671 7,889 1,122 11,67 Interest ,38 1,11 1,131 1,71 Other Income PBT 941 1,19 1,379 1,597 1,374 1,839 1,886 2,84 1,985 2,36 2,429 2,476 5,26 7,183 9,251 1,86 Tax ,332 2,49 2,659 3,139 PAT bef. MI & Assoc , ,313 1,345 1,479 1,418 1,682 1,729 1,761 3,694 5,134 6,591 7,721 Minority Interest Profit from Assoc Recurring PAT , ,21 1,241 1,377 1,31 1,56 1,67 1,639 3,387 4,721 6,116 7,19 Extraordinaries Reported PAT , ,21 1,241 1,377 1,31 1,56 1,67 1,639 3,343 4,721 6,116 7,19 EPS (Rs) Key Drivers Gross Revenue from Products (Rs. mn) ,684 3,691 4,766 47,194 - Optic fibre volume (mn fkm) Optic fibre cable volume (mn fkm) Revenue from Services (Rs. mn) ,168 14,655 17,387 19, Sequential Growth (%) Revenue 2 % 9 % 7 % 1 % 2 % 29 % 2 % 8 % 1 % 13 % 2 % 2 % Cost of materials consumed -39 % % 41 % 6 % -8 % 36 % 2 % 9 % 2 % 13 % 2 % 2 % EBITDA -3 % 8 % 18 % 9 % -6 % 22 % 2 % 8 % 1 % 13 % 2 % 1 % EBIT -2 % 9 % 24 % 7 % -8 % 3 % 2 % 1 % -3 % 17 % 3 % 2 % Recurring PAT -5 % 18 % 26 % 3 % -24 % 35 % 3 % 11 % -5 % 19 % 3 % 2 % EPS -5 % 18 % 26 % 3 % -24 % 35 % 3 % 11 % -5 % 19 % 3 % 2 % Yearly Growth (%) Revenue 27 % 53 % 24 % 21 % 21 % 43 % 36 % 46 % 44 % 27 % 27 % 2 % 3 % 37 % 28 % 15 % EBITDA 37 % 67 % 44 % 36 % 32 % 49 % 28 % 26 % 36 % 26 % 26 % 19 % 44 % 33 % 26 % 14 % EBIT 48 % 98 % 57 % 42 % 34 % 59 % 31 % 35 % 42 % 28 % 28 % 19 % 58 % 39 % 28 % 15 % Recurring PAT 61 % 4 % 83 % 83 % 47 % 7 % 38 % 18 % 47 % 29 % 29 % 19 % 68 % 39 % 3 % 18 % EPS 61 % 4 % 83 % 83 % 47 % 7 % 38 % 18 % 47 % 29 % 29 % 19 % 68 % 39 % 3 % 18 % Margin (%) EBITDA 22 % 22 % 24 % 26 % 24 % 23 % 23 % 23 % 23 % 23 % 22 % 22 % 24 % 23 % 22 % 22 % EBIT 16 % 16 % 19 % 2 % 18 % 18 % 18 % 18 % 18 % 18 % 18 % 18 % 18 % 18 % 18 % 18 % PBT 13 % 14 % 17 % 19 % 16 % 16 % 17 % 17 % 16 % 17 % 17 % 17 % 16 % 16 % 17 % 17 % PAT 8 % 9 % 11 % 14 % 1 % 11 % 11 % 11 % 1 % 11 % 11 % 11 % 11 % 11 % 11 % 11 % April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 7 of 12

8 Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18 Jun/18 Sep/18 Dec/18 Mar/19 Jun/19 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18 Jun/18 Sep/18 Dec/18 Mar/19 Jun/19 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18 Jun/18 Sep/18 Dec/18 Mar/19 Jun/19 Sterlite Technologies Ltd Absolute LONG Relative Overweight 2% ATR in 14 Months Consolidated Financials P&L (Rs Mn) FY18A FY19E FY2E FY21E Balance Sheet (Rs Mn) FY18A FY19E FY2E FY21E Cash Flow (Rs Mn) FY18A FY19E FY2E FY21E Revenue 31,771 43,55 55,883 64,41 Equity Capital PBT 5,26 7,183 9,251 1,86 Op. Expenditure 24,278 33,586 43,322 5,11 Reserve 1,951 13,683 17,958 22,985 Depreciation 1,822 2,75 2,439 2,693 EBITDA 7,494 9,964 12,561 14,3 Networth 11,753 14,485 18,76 23,786 Others Depreciation 1,822 2,75 2,439 2,693 Long Term Debt 1,933 11,933 13,933 1,433 Taxes Paid 1,332 2,49 2,659 3,139 EBIT 5,671 7,889 1,122 11,67 Def Tax Liability 1,2 1,2 1,2 1,2 Change in WC 1,352-2,84-2,62-1,445 Interest Expense 1,38 1,11 1,131 1,71 Minority Interest 82 1,232 1,78 2,239 Operating C/F 7,514 5,831 7,839 9,716 Other Income Account Payables 6,562 7,842 1,273 11,96 Capex -4,544-6,161-6,9-2,112 PBT 5,26 7,183 9,251 1,86 Other Curr Liabi 5,851 5,851 5,851 5,851 Change in Invest Tax 1,332 2,49 2,659 3,139 Total Liabilities & Equity 37,117 42,542 51,724 55,414 Others PAT bef. MI & Assoc. 3,694 5,134 6,591 7,721 Net Fixed Assets 12,252 18,49 21,979 22,898 Investing C/F -4,152-5,857-5,75-1,788 Minority Interest Capital WIP 3,57 1,5 1,5 Change in Debt 8 1, 2, -3,5 Profit from Assoc. -9 Others 1,733 1,733 1,733 1,733 Change in Equity Recurring PAT 3,387 4,721 6,116 7,19 Inventory 3,379 4,765 6,242 7,234 Others -2,3-2,431-2,971-3,234 Extraordinaires 44 Account Receivables 8,672 1,65 13,666 15,751 Financing C/F -1,421-2, ,734 Reported PAT 3,343 4,721 6,116 7,19 Other Current Assets 4,577 4,577 4,577 4,577 Net change in cash 1,941-2,26 1,119 1,194 FDEPS (Rs) Cash 2, ,27 3,221 RoE (%) 33 % 36 % 37 % 34 % DPS (Rs) Total Assets 37,117 42,542 51,724 55,414 RoIC (%) 18 % 2 % 21 % 22 % CEPS (Rs) Non-cash Working Capital 4,215 6,299 8,361 9,86 Core RoIC (%) 19 % 22 % 23 % 23 % FCFPS (Rs) Cash Conv Cycle Div Payout (%) 29 % 3 % 3 % 3 % BVPS (Rs) WC Turnover P/E EBITDAM (%) 24 % 23 % 22 % 22 % FA Turnover P/B PATM (%) 11 % 11 % 11 % 11 % Net D/E P/FCFF Tax Rate (%) 26 % 29 % 29 % 29 % Revenue/Capital Employed EV/EBITDA Sales Growth (%) 3 % 37 % 28 % 15 % Capital Employed/Equity EV/Sales FDEPS Growth (%) 68 % 39 % 3 % 18 % Dividend Yield (%).6 %.9 % 1.1 % 1.3 % TTM P/E vs. 2 yr forward EPS growth TTM EV/EBITDA vs. 2 yr forward EBITDA growth TTM P/B vs. 2 yr forward RoE EPS Growth 5% 45% 4% 35% 3% 25% 2% 3x 25x 2x 15x 1x EBITDA Growth 5% 45% 4% 35% 3% 25% 2% 15% 1% 5% % 15x 12x 9x 6x 3x RoE 4% 3% 2% 1% % -1% 1x 8x 6x 4x 2x April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 8 of 12

9 Historical Consolidated Financials P&L (Rs Mn) FY15A FY16A FY17A FY18A Balance Sheet (Rs Mn) FY15A FY16A FY17A FY18A Cash Flow (Rs Mn) FY15A FY16A FY17A FY18A Revenue 3,971 21,44 24,489 31,771 Equity Capital PBT 1 2,35 2,62 5,26 Op. Expenditure 26,364 16,848 19,299 24,278 Reserve 14,171 6,756 8,4 1,951 Depreciation 1,85 1,256 1,592 1,822 EBITDA 4,67 4,592 5,189 7,494 Networth 14,959 7,546 8,81 11,753 Others 2,998 1,24 1, Depreciation 1,85 1,256 1,592 1,822 Long Term Debt 53,163 1,852 1,925 1,933 Taxes Paid ,332 EBIT 2,757 3,336 3,597 5,671 Def Tax Liability 1,797 1,68 1,892 1,2 Change in WC -72-2, ,352 Interest Expense 3,269 1,192 1,229 1,38 Minority Interest Operating C/F 3,927 2,147 4,885 7,514 Other Income Account Payables 8,997 3,722 4,486 6,562 Capex -11,512-2,33-2,138-4,544 PBT 1 2,35 2,62 5,26 Other Curr Liabi 4,775 2,133 2,951 5,851 Change in Invest Tax ,332 Total Liabilities & Equity 83,922 26,245 29,57 37,117 Others PAT bef. MI & Assoc ,654 2,25 3,694 Net Fixed Assets 4,552 11,37 13,37 12,252 Investing C/F -11,718-1,555-2,323-4,152 Minority Interest Capital WIP 21,926 1, ,57 Change in Debt 9, Profit from Assoc Others 1, ,83 1,733 Change in Equity 4, Recurring PAT -27 1,537 2,14 3,387 Inventory 4,149 2,53 3,335 3,379 Others -5,884-1,645-1,913-2,3 Extraordinaires 44 Account Receivables 8,344 7,84 6,867 8,672 Financing C/F 8, ,869-1,421 Reported PAT -27 1,537 2,14 3,343 Other Current Assets 2,791 2,443 2,82 4,577 Net change in cash ,941 EPS (Rs) Cash 4, ,724 2,935 RoE (%) % 14 % 25 % 33 % DPS (Rs) Total Assets 83,922 26,245 29,56 37,117 RoIC (%) -185 % 5 % 14 % 18 % CEPS (Rs) Non-cash Working Capital 1,512 5,725 5,567 4,215 Core RoIC (%) -164 % 6 % 15 % 19 % FCFPS (Rs) Cash Conv Cycle Div Payout (%) -1,74 % 31 % 3 % 29 % BVPS (Rs) WC Turnover P/E -5, EBITDAM (%) 15 % 21 % 21 % 24 % FA Turnover P/B PATM (%) % 7 % 8 % 11 % Net D/E P/FCFF Tax Rate (%) 3,69 % 28 % 15 % 26 % Revenue/Capital Employed EV/EBITDA Sales growth (%) 21 % -31 % 14 % 3 % Capital Employed/Equity EV/Sales FDEPS growth (%) -93 % -5,9 % 31 % 68 % Dividend Yield (%).2 %.3 %.4 %.6 % April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 9 of 12

10 Equirus Securities Research Analysts Sector/Industry Equity Sales Abhishek Shindadkar IT Services Vishad Turakhia Ashutosh Tiwari Auto, Metals & Mining Subham Sinha Depesh Kashyap Mid-Caps Viral Desai Dhaval Dama FMCG, Mid-Caps Viraj Mehta Manoj Gori Consumer Durables Dealing Room Maulik Patel Oil and Gas Ashish Shah Pranav Mehta Building Materials Ilesh Savla Praful Bohra Pharmaceuticals Manoj Kejriwal Rohan Mandora Banking & Financial Services Dharmesh Mehta Associates Compliance Officer Ankit Choudhary Jay Soni Bharat Celly Corporate Communications Harshit Patel Mahdokht Bharda Hetal Bhatia Meet Chande Nishant Bagrecha Ronak Soni Samkit Shah Shreepal Doshi Varun Baxi Vikas Jain Rating & Coverage Definitions: Absolute Rating LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 2% for rest of the companies ADD: ATR >= 5% but less than Ke over investment horizon REDUCE: ATR >= negative 1% but <5% over investment horizon SHORT: ATR < negative 1% over investment horizon Relative Rating OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon BENCHMARK: likely to perform in line with the benchmark UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion. Registered Office: Equirus Securities Private Limited Unit No. 121, 12th Floor, C Wing, Marathon Futurex, N M Joshi Marg, Lower Parel, Mumbai-413. Tel. No: +91 () Fax No: +91- () Corporate Office: 3rd floor, House No. 9, Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge, S.G. Highway Ahmedabad-3854 Gujarat Tel. No: +91 () Fax No: +91 () April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 1 of 12

11 218 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited Analyst Certification I, Harshit Patel/Depesh Kashyap, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Disclosures Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH27PTC17644 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the Capital Market (Reg. No. INB ), Futures & Options Segment (Reg. No.INF ) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB ) of Bombay Stock Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 214 (Reg. No. INH1154), as a Portfolio Manager under SEBI (Portfolio Managers Regulations, 1993 (Reg. No.INP5216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP ). There are no disciplinary actions taken by any regulatory authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to merchant banking services, private equity, mergers & acquisitions and structured finance. As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ESPL has not been engaged in market making activity for the subject company. The Research Analyst engaged in preparation of this Report:- (a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company. 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This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based on this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant information contained herein. While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 11 of 12

12 research report. Thus, investors should be aware that the firm may have conflict of interest. A graph of daily closing prices of securities is available at and (Choose a company from the list on the browser and select the three years period in the price chart). Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest Research Analyst or Relatives financial interest Research Analyst or Relatives actual/beneficial ownership of 1% or more Research Analyst or Relatives material conflict of interest No No No Disclaimer for U.S. Persons ESPL/its affiliates are not a registered broker dealer under the U.S. Securities Exchange Act of 1934, as amended (the 1934 act ) and under applicable state laws in the United States. In addition Equirus is not a registered investment adviser under the U.S. Investment Advisers Act of 194, as amended (the "Advisers Act" and together with the 1934 Act, the Acts ), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition on soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules April 26, 218 Analysts: Harshit Patel ( )/Depesh Kashyap, CFA ( ) Page 12 of 12