KLRF Ltd. Q2FY11 Result Update. Enhancing investment decisions

Transcription

1 Q2FY11 Result Update Enhancing investment decisions

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. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. 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 subscriber / user assumes the entire risk of any use made of this data / Report. 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.

3 Company KLRF Ltd name Revenues Tag line and PAT exceed expectations December 6, 21 Fair Value Rs 38 CMP Rs 36 CFV MATRIX Fundamental Grade X/5 2/5 ( (Moderate fundamentals) fundamentals) Valuation Valuation Grade Grade X/5 3/5 (CMP (CMP is/has is aligned) ) Industry Industry Food products KLRF Ltd s (KLRF s) Q2FY11 revenues and profits exceeded CRISIL Equities expectations driven by (a) Exceptionally strong profits in the yarn segment (31% of revenues in Q2FY11) (b) Better performance in the castings business (47% of revenues). Hence, we have made an upward revision in our earnings outlook for FY11 and FY12. While we believe the castings business will continue to do well in the subsequent quarters, the margins for the yarn business are likely to moderate. Consequently, we have revised our earnings estimates for FY11 and FY12 upwards, but have retained the fundamental grade of 2/5. Excellent Fundamentals Fundamental Grade Poor Fundamentals Strong Downside Valuation Grade Strong Upside Q2FY11 result analysis KLRF s Q2 revenues increased 27.3% y-o-y to Rs 487 mn, due to better performance in the yarn and castings business The strong y-o-y growth of 46.2% in EBITDA (Rs 53 mn in Q2FY11 vis-àvis Rs 36 mn in Q2FY1) is also attributable to the better-than-expected performance o The yarn segment recorded an unprecedented high PBIT margin of 14.8% (5.7% in Q1FY11 and 11.3% in Q2FY1) on the back of higher yarn prices, improved utilization of spindle capacity and better management of raw material costs o The castings business recorded higher sales and profits led by the ramp up in operations and better realizations PAT has more than tripled from Rs 5.4 mn in Q2FY1 to Rs 16.8 mn in Q2FY11 due to improved operating performance Valuations: Current market price is aligned with fair value We continue to value KLRF based on the discounted cash flow method. Due to improved outlook on operating performance, our fair value estimate for KLRF is revised to Rs 38. At the current market price, this translates into a valuation grade of 3/5. KEY FORECAST FY8 FY9 FY1 FY11E FY12E Operating income 1,43 1,423 1,557 1,838 1,932 EBITDA Adj PAT 3 (43) Adj EPS-Rs 5.9 (8.7) EPS growth (%) 78.6 NM Dividend yield (%) RoCE (%) RoE (%) 15.6 (23.3) PE (x) 4.8 (1.5) P/BV (x) EV/EBITDA (x) estimate NM: Not meaningful; CMP: Current Market Price KEY STOCK STATISTICS NIFTY 5992 NSE ticker KLRF Face value (Rs per share) 1 Shares outstanding (mn) 5 Market cap /(US$ mn) 181/4 Enterprise value /(US$ mn) 845/19 52-week range (Rs) (H/L) 52.5/2.9 Beta 1.9 Free float (%) 6.8 Avg daily volumes (3-days) 22,567 Avg daily value (3-days) 1. SHAREHOLDING PATTERN 1% 9% 8% 7% 56.3% 56.% 55.9% 55.8% 6% 5% 4% 5.% 5.% 5.% 5.% 3% 2% 38.7% 39.% 39.1% 39.2% 1% % Dec-9 Mar-1 Jun-1 Sep-1 Promoter DII Others PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m KLRF -7% 2% 35% 87% NIFTY -5% 7% 19% 18% ANALYTICAL CONTACT Sudhir Nair (Head) snair@crisil.com Niyati Dave ndave@crisil.com Arun Vasu avasu@crisil.com Client servicing desk clientservicing@crisil.com CRISIL EQUITIES 1

4 Q2FY11 Result Summary Q2FY11 Q1FY11 Q2FY1 q-o-q (%) y-o-y (%) Net sales Raw materials cost Raw materials cost (% of net sales) 66.5% 68.2% 71.2% (168) bps (469) bps Employees cost Other expenses EBITDA EBITDA margin 1.9% 8.9% 9.5% 21 bps 142 bps Depreciation (4.2) EBIT Interest and finance charges Operating PBT Other Income n.m. n.m. PBT Tax 5 n.m. n.m. PAT Adj PAT Adj PAT margin 3.4% 2.2% 1.4% 127 bps 22 bps No of equity shares (mn) Adj EPS (Rs) Yarn and castings segments prop sales EBITDA margins higher by 142 bps y-o-y Segmental revenues up y-o-y Q1FY1 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Flour-milling Yarn Engineering Yarn and castings business key profit drivers Q1FY1 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Flour-milling Yarn Engineering Total PBIT Sales up 27.3% y-o-y, EBITDA margins improve 6 1.9% 15% 9.5% 9.9% 8.9% 5 9.2% 1% 4.6% 4 5% -7.4% -9.1% 3 % 2-5% 1-1% % Q3FY9 Q4FY9 Q1FY1 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Quarterly Sales EBITDA Margin (RHS) PAT triples on better operating performance Q3FY9-7.5% Q4FY9 Yarn and castings business impacted by demand slump 5.6% -11.8% PAT Q1FY1 2.7% -11.1% -.9% Q2FY1 Better utilisation and higher realisations in yarn as well as castings busiiness 7.3% Q3FY1 Q4FY1 Losses in castings business due to low level of operations, yarn business records lower profits 4.4% Q1FY11 Q2FY11 Continued losses in castings business due to high pig iron prices PAT margin (RHS) 1.% 5.%.% -5.% -1.% -15.% CRISIL EQUITIES 2

5 Share price movement Fair value movement since initiation (Rs) (') Nov-7 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 Jul-1 Sep-1 Nov-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 -Indexed to 1 KLRF Ltd Source: NSE, CRISIL Equities. NIFTY Total Traded Quantity(RHS) KLRF CRISIL Fair Value Source: NSE, CRISIL Equities. EARNINGS ESTIMATES REVISED UPWARDS FY11E FY12E Particulars Unit Old New % change Old New % change Revenue 1,677 1, % 1,785 1, % EBITDA % % EBITDA margin % bps bps PAT % % PAT margin % bps bps EPS Rs % % CRISIL EQUITIES 3

6 VALUATION We continue to value KLRF based on the discounted cash flow method. Our revised fair value estimate for KLRF is Rs 38. At this value, the implied P/E multiples are 4.7x FY11 earnings estimate and 4.4x FY12 earnings estimate. One-year forward PE Band (Rs) One-year forward EV/EBITDA Band Feb-1 Mar-1 Apr-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Feb-1 Mar-1 Apr-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 KLRF Ltd 3x 4x 5x 6x Source: NSE, CRISIL Equities EV 4x 5x Source: NSE, CRISIL Equities P/E-premium/discount to NIFTY -4% -45% -5% -55% -6% -65% -7% -75% -8% -85% -9% P/E movement std dev -1 std dev Mar-1 Apr-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Mar-1 Apr-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Premium/Discount to NIFTY Median 1yr Fwd PE (x) Median PE Source: NSE, CRISIL Equities Source: NSE, CRISIL Equities CRISIL IER reports released on KLRF Ltd Date Nature of report Fundamental grade Fair value Valuation grade CMP (on the date of report) 21- Initiating coverage* 2/5 Rs 35 3/5 Rs 32 1-Jun-1 Q4FY1 result update 2/5 Rs 31 4/5 Rs 27 1-Aug-1 Q1FY11 result update 2/5 Rs 35 4/5 Rs 29 6-Dec-1 Q2FY11 result update 2/5 Rs 38 3/5 Rs 36 * For detailed initiating coverage report please visit: CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters. CRISIL EQUITIES 4

7 FINANCIALS Income statement Balance Sheet FY8 FY9 FY1 FY11E FY12E FY8 FY9 FY1 FY11E FY12E Operating income 1,43 1,423 1,557 1,838 1,932 Liabilities EBITDA Equity share capital EBITDA margin 8.8% 4.9% 8.8% 9.2% 9.4% Reserves Depreciation Minorities EBIT Net worth Interest Convertible debt Operating PBT 28 (53) Other debt Other income Total debt Exceptional inc/(exp) () Deffered tax liability (net) (2) (1) (8) (8) (8) PBT 33 (5) Total liabilities Tax provision 3 (7) Assets Minority interest Net fixed assets PAT (Reported) 3 (43) Capital WIP Less: Exceptionals () Total fixed assets Adjusted PAT 3 (43) Investments Current assets Ratios Inventory FY8 FY9 FY1 FY11E FY12E Sundry debtors Growth Loans and advances Operating income (%) Cash & bank balance EBITDA (%) 14. (43.4) Marketable securities Adj PAT (%) 79.4 NM NM Total current assets Adj EPS (%) 79.4 NM NM Total current liabilities Net current assets Profitability Intangibles/Misc. expenditure EBITDA margin (%) Total assets Adj PAT Margin (%) 2.1 (3.1) RoE (%) 15.6 (23.3) Cash flow RoCE (%) FY8 FY9 FY1 FY11E FY12E RoIC (%) Pre-tax profit 33 (5) Total tax paid (2) (1) (13) (21) Valuations Depreciation Price-earnings (x) 4.8 (1.5) Working capital changes (197) 78 (44) (75) (17) Price-book (x) Net cash from operations (124) EV/EBITDA (x) Cash from investments EV/Sales (x) Capital expenditure (142) (59) (43) (37) (4) Dividend payout ratio (%) 39.6 Investments and others Dividend yield (%) 8.2 Net cash from investments (142) (59) (43) (37) (4) Cash from financing B/S ratios Equity raised/(repaid) 1 Inventory days Debt raised/(repaid) 256 (27) (32) Creditors days Dividend (incl. tax) (12) Debtor days Others (incl extraordinaries) () Working capital days Net cash from financing 244 (27) (32) Gross asset turnover (x) Change in cash posiiton (23) (6) 3 5 Net asset turnover (x) Closing cash Sales/operating assets (x) Current ratio (x) Quarterly financials Debt-equity (x) Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Net debt/equity (x) Net Sales Interest coverage Change (q-o-q) 19% 7% 6% 1% 11% EBITDA Per share Change (q-o-q) 22% 11% -51% 96% 37% FY8 FY9 FY1 FY11E FY12E EBITDA margin 9.5% 9.9% 4.6% 8.9% 1.9% Adj EPS (Rs) 5.9 (8.7) PAT 5 11 (2) 9 17 CEPS Adj PAT 5 11 (2) 9 17 Book value Change (q-o-q) n.m. 96% n.m. n.m. 77% Dividend (Rs) 2.3 Adj PAT margin 1.4% 2.6% -.4% 2.2% 3.4% Actual o/s shares (mn) Adj EPS (.4) estimate Note: All ratios are computed on Adj PAT CRISIL EQUITIES 5

8 CRISIL Independent Equity Research Team Mukesh Agarwal Director +91 (22) Tarun Bhatia Director, Capital Markets +91 (22) Chetan Majithia Head, Equities +91 (22) Sudhir Nair Head, Equities +91 (22) Nagarajan Narasimhan Director, Research +91 (22) Ajay D'Souza Head, Research +91 (22) Manoj Mohta Head, Research +91 (22) Sachin Mathur 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

9 About CRISIL CRISIL is India's leading Ratings, Research, Risk and Policy Advisory Company. About CRISIL Research CRISIL Research is India's largest independent, integrated research house. We leverage our unique, integrated research platform and capabilities spanning the entire economy-industry-company spectrum to deliver superior perspectives and insights to over 75 domestic and global clients, through a range of 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 : Sagar Sawarkar Senior Manager, Business Development ssawarkar@crisil.com I Phone : Regional Contacts: Ahmedabad / Mumbai / Pune Salil Srivastava - Manager, Business Development spsrivastava@crisil.com I Phone : Bengaluru / Chennai Anand Krishnamoorthy - Manager, Business Development akrishnamoorthy@crisil.com I Phone : Hyderabad Kaliprasad Ponnuru - Manager, Business Development kponnuru@crisil.com I Phone : Kolkata Priyanka Agarwal - Manager, Business Development priyagarwal@crisil.com I Phone : Mumbai Supriya Tapase - Manager, Business Development stapase@crisil.com I Phone : New Delhi Vipin Saboo - Manager, Business Development vsaboo@crisil.com I Phone : Head Office: CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai Phone : Web: Download reports from: