Kandagiri Spinning Mills Ltd

Transcription

1 Q4FY11 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 Higher cotton costs impact profitability Fundamental Grade Valuation Grade Industry 2/5 (Moderate fundamentals) 5/5 (CMP has strong upside) Textiles, Apparel & Luxury Goods Kandagiri Spinning Mills Ltd s (Kandagiri s) revenues were in line with CRISIL Equities expectations on the back of strong demand in the cotton yarn segment. However, profitability was below expectations due to higher raw material costs and one-time impact of the reversal of carbon credit worth Rs 15.4 mn. We maintain the fundamental grade of 2/5. Q4FY11 result analysis Kandagiri s Q4 revenues grew by 27.9% y-o-y to Rs 49 mn driven by strong realisations in the cotton yarn segment. EBITDA margin contracted by 111 bps y-o-y and 436 bps q-o-q to 15.1%. In this quarter, the company had to bear a one-time impact of Rs 15.4 mn from the reversal of carbon credit. The management has indicated that the United Nations Framework Convention on Climate Change board rejected Kandagiri s carbon credit claims for FY1; no specific reason was given. EBITDA margin declined both y-o-y and sequentially - while higher power costs, inclusive of the one-time impact of carbon credit claims, resulted in the y-o-y decline, higher raw material expenses led to steeper q-o-q contraction. Higher revenue growth offset the impact of lower operating profitability and higher interest costs. Consequently, adjusted PAT remained flat at Q4FY1 levels of Rs 8.3 mn. Adjusted PAT margin contracted by 57 bps y-o-y to 2.% in Q4FY11. Delay in modernisation and expansion plan The management has indicated that they have postponed the capacity expansion of ~8, spindles as well as the modernisation plan due to an unfavourable industry scenario arising from the run-up in cotton prices in the past few months. Accordingly, we now expect these plans to materialise in Q2FY13 and not in Q2FY12 as earlier expected. Valuations: Current market price has strong upside We continue to use the discounted cash flow method to value Kandagiri. Due to reduction in earnings estimates owing to the delay in capex plans, our fair value estimate is revised to Rs 13 per share. The fair value implies P/E multiples of 4.7x FY12E and 4.1x FY13E. KEY FORECAST (Rs mn) FY9 FY1 FY11# FY12E FY13E Operating income 936 1,142 1,52 1,573 1,88 EBITDA Adj PAT (27) Adj EPS-Rs (7.1) EPS growth (%) (156.1) (217.3) Dividend yield(%) RoCE (%) RoE (%) (12.6) PE (x) (4.6) P/BV (x) EV/EBITDA (x) NM: Not meaningful; CMP: Current Market Price #FY11 numbers based on the abridged financials Source: Company, CRISIL Equities estimate June 3, 211 Fair Value Rs 13 CMP Rs 89 CFV MATRIX KEY STOCK STATISTICS NIFTY 555 NSE ticker KANDAGIRI Face value (Rs per share) 1 Shares outstanding (mn) 3.9 Market cap (Rs mn)/(us$ mn) 352/8 Enterprise value (Rs mn) /(US$ mn) 1,629/36 52-week range (Rs) (H/L) 147/8 Beta.51 Free float (%) 3.1% Avg daily volumes (3-days) Avg daily value (3-days) (Rs mn).1 SHAREHOLDING PATTERN 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Excellent Fundamentals Fundamental Grade Poor Fundamentals % Strong Downside PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m Kandagiri -8% 1% -22% 15% NIFTY -3% 1% -8% 11% ANALYTICAL CONTACT Sudhir Nair (Head) Neeta Khilnani Arun Vasu Valuation Grade 3.1% 3.1% 3.1% 3.1% 69.9% 69.9% 69.9% 69.9% snair@crisil.com nkhilnani@crisil.com avasu@crisil.com Strong Upside Jun-1 Sep-1 Dec-1 Promoter Others Client servicing desk clientservicing@crisil.com CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 1

4 Q4FY11 Result Summary (Rs mn) Q4FY11 Q3FY11 Q4FY1 q-o-q (%) y-o-y (%) FY11 FY1 y-o-y (%) Net sales ,52 1, Raw materials cost Raw materials cost (% of net sales) 57.1% 55% 57.% 245bps 5bps 53.3% 53.5% -1 bps Employees cost (12.6) Other expenses EBITDA (2.2) EBITDA margin 15.1% 19.4% 16.2% -436bps -111bps 21.8% 2.3% 153 bps Depreciation EBIT (27.6) Interest and finance charges Operating PBT (92.1) PBT (67.7) Tax (78.5) PAT (61.2) Adj PAT (61.2) Adj PAT margin 2.% 5.4% 2.6% -336bps -57bps 6.1% 3.2% 293 bps No of equity shares (mn) Adj EPS (Rs) (61.7) * We have used the reported numbers instead of CRISIL s adjusted numbers for FY1 for the above table to facilitate comparison with FY11 numbers Source: Company, CRISIL Equities Q4 EBITDA margins dipped so did PAT margin (Rs mn) (%) (Rs mn) (%) Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Revenues EBITDA margin (RHS) Source: Company, CRISIL Equities PAT PAT margin (RHS) Source: Company, CRISIL Equities Stock price movement Fair value movement since initiation 14 (Rs) (') Jan-8 Mar-8 May-8 Jul-8 Sep-8 Nov-8 Jan-9 Mar-9 May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 29-Oct-1 9-Nov-1 19-Nov-1 3-Nov-1 9-Dec-1 22-Dec-1 31-Dec Feb-11 1-Feb Feb Apr Apr Kandagiri -indexed to 1 NIFTY Total Traded Quantity (RHS) CRISIL Fair Value Kandagiri CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 2

5 EARNINGS ESTIMATES REVISED DOWNWARDS FY12E FY13E Particulars Unit Old New % change Old New % change Revenues (Rs mn) ,573-9% ,88-6% EBITDA (Rs mn) % % EBITDA margin % 21.5% 21.5% bps 19.8% 19.8% bps PAT (Rs mn) % % PAT margin % 7.4% 6.7% -71bps 6.9% 6.7% -2bps EPS Rs % % Source: CRISIL Equities Line item Reasons for change in FY11 and FY12 estimates Revenues Delay in capacity expansion plan - we now assume the additional 8, spindles to come on-stream in Q2FY13 and not in Q2FY12 as earlier expected. Similarly, due to the delay in implementing the modernisation plan, utilisation rates will improve post Q2FY13. EBITDA margin We maintain EBITDA margin estimates. Excluding the one-time impact of the reversal of carbon credit claims, the company would have reported EBITDA margins of 22.8% for FY11. Margins for spinners like Kandagiri are expected to dip from FY11 levels due to higher cotton cost inventory and relatively lower cotton yarn prices. PAT margins Reduction in EBITDA estimates. Higher working capital requirements led to higher debt and, consequently, higher average interest costs for FY12. CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 3

6 VALUATION We continue to use the discounted cash flow method to value Kandagiri. Due to the downward revision in earnings estimates, our fair value is revised to Rs 13 per share. At this value, the implied P/E multiples are 4.7x FY12E and 4.1x FY13E. One-year forward P/E band (Rs) One-year forward EV/EBITDA band (Rs mn) 2, 1,8 1,6 1,4 1,2 1, 8 Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Feb-11 Apr-11 Jun-11 Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Feb-11 Apr-11 Jun-11 Kandagiri 2.5x 3.x 3.5x 4x EV 4.x 5x 4.5x P/E premium/discount to NIFTY -7% P/E movement (x) % -78% std dev -82% std dev -86% 2. Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Feb-11 Apr-11 Jun-11 Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Feb-11 Apr-11 Jun-11 Premium/Discount to NIFTY MEDIAN 1yr Fwd PE (x) MEDIAN CRISIL IER reports released on Kandagiri Spinning Mills Ltd Date Nature of report Fundamental grade Fair value Valuation grade CMP (on the date of report) 29-Nov-1 Initiating coverage* 2/5 Rs 124 4/5 Rs 11 8-Feb-11 Q3FY11 result update 2/5 Rs 141 5/5 Rs 13 3-June-11 Q4FY11 result update 2/5 Rs 13 5/5 Rs 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 EQUITIES 4

7 FINANCIALS Income statement Balance Sheet (Rs mn) FY9 FY1 FY11# FY12E FY13E (Rs mn) FY9 FY1 FY11# FY12E FY13E Operating income 936 1,142 1,52 1,573 1,88 Liabilities EBITDA Equity share capital EBITDA margin 13.9% 18.6% 21.8% 21.5% 19.8% Reserves Depreciation Minorities EBIT Net worth Interest Convertible debt Operating PBT (41) Other debt 1,121 1,149 1,339 1,239 1,164 Other income Total debt 1,121 1,149 1,339 1,239 1,164 Exceptional inc/(exp) () () Deferred tax liability (net) PBT (39) Total liabilities 1,457 1,532 1,844 1,836 1,87 Tax provision (12) Assets Minority interest Net fixed assets 1,158 1,92 1,42 1,43 1,41 PAT (reported) (28) Capital WIP Less: Exceptionals () () Total fixed assets 1,158 1,92 1,42 1,43 1,41 Adjusted PAT (27) Investments Current assets Ratios Inventory FY9 FY1 FY11# FY12E FY13E Sundry debtors Growth Loans and advances Operating income (%) Cash & bank balance EBITDA (%) (24.9) Marketable securities Adj PAT (%) (227.3) (217.4) Total current assets ,46 Adj EPS (%) (227.3) (217.4) Total current liabilities Net current assets Profitability Intangibles/misc. expenditure EBITDA margin (%) Total assets 1,457 1,532 1,844 1,836 1,87 Adj PAT margin (%) (2.9) RoE (%) (12.6) Cash flow RoCE (%) (Rs mn) FY9 FY1 FY11# FY12E FY13E RoIC (%) Pre-tax profit (39) Total tax paid (1) - (52) (6) Valuations Depreciation Price-earnings (x) (4.6) Working capital changes 2 (144) (32) 15 (85) Price-book (x) Net cash from operations 54 (21) (12) EV/EBITDA (x) Cash from investments EV/sales (x) Capital expenditure (65) (13) (28) (8) (8) Dividend payout ratio (%) Investments and others Dividend yield (%) Net cash from investments (65) (13) (28) (8) (8) Cash from financing B/S ratios Equity raised/(repaid) Inventory days Debt raised/(repaid) (1) (75) Creditors days Dividend (incl. tax) - - (18) (14) (14) Debtor days Others (incl extraordinaries) Working capital days Net cash from financing (114) (89) Gross asset turnover (x) Change in cash position 12 (3) 42 6 (5) Net asset turnover (x) Closing cash Sales/operating assets (x) Current ratio (x) Quarterly financials Debt-equity (x) (Rs mn) Q4FY1 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Net debt/equity (x) Net sales Interest coverage Change (q-o-q) 23% 6% 13% 5% 2.9% EBITDA Per share Change (q-o-q) -12% 69% 31% -26% -2.1% FY9 FY1 FY11# FY12E FY13E EBITDA margin 14.9% 23.6% 27.4% 19.4% 15.1% Adj EPS (Rs) (7.1) PAT CEPS Adj PAT Book value Change (q-o-q) 34% 22% 51% -44% -61.% Dividend (Rs) Adj PAT margin 2.6% 7.5% 1.% 5.4% 2.% Actual o/s shares (mn) Adj EPS #FY11 numbers based on the abridged financials Source: Company, CRISIL Equities estimate CRISIL Limited. All Rights Reserved. CRISIL EQUITIES 5

8 CRISIL Independent Equity Research Team Mukesh Agarwal Senior Director +91 (22) Tarun Bhatia Director, Capital Markets +91 (22) Chetan Majithia Head, Equities +91 (22) Sudhir Nair Head, Equities +91 (22) Prasad Koparkar Head, Research +91 (22) Ajay D'Souza Head, Research +91 (22) Aparna Joshi Head, Research +91 (22) Manoj Mohta Head, Research +91 (22) Sridhar C Head, Research +91 (22) sridharc@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 CRISINFAC Industry research on over 6 industries and Economic Analysis Customised Research on Market sizing, Demand modelling and Entry strategies Customised research content for Information Memorandum and Offer documents CRISIL Limited. All Rights Reserved.

9 About CRISIL Limited CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations. About CRISIL Research CRISIL Research is the country s largest independent and integrated research house with strong domain expertise on Indian economy, industries and capital markets. We leverage our unique research platform and capabilities to deliver superior perspectives and insights to over 12 domestic and global clients, through a range of research reports, analytical tools, subscription products and customised solutions. To know more about CRISIL IER, please contact our team members: Vinaya Dongre Head, Business Development vdongre@crisil.com I Phone : Ashish Sethi Head, Business Development asethi@crisil.com I Phone : Sagar Sawarkar Senior Manager, Business Development ssawarkar@crisil.com I Phone : Regional Contacts: Ahmedabad / Mumbai / Pune Vishal Shah - Manager, Business Development vishah@crisil.com I Phone : Bengaluru / Chennai Anand Krishnamoorthy - Manager, Business Development ankrishnamoorthy@crisil.com I Phone : Hyderabad Kaliprasad Ponnuru - Manager, Business Development kponnuru@crisil.com I Phone : Kolkata / Delhi Priyanka Agarwal - Manager, Business Development priyagarwal@crisil.com I Phone : Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai Phone : CRISIL Limited. All Rights Reserved. Web: Download reports from: