GENUS POWER INFRASTRUCTURES LTD (GPIL)

Transcription

1 Sanjeev Zarbade Stock details BSE code : Market cap (Rs mn) : Free float (%) : 49% 52-wk High/Low (Rs) : 62.5/32.6 Avg. daily volume (mn) : 0.25 Shares o/s (mn) : 257 Summary table (Rs mn) FY17 FY18E FY19E Sales 6,424 8,380 9,680 Growth (%) (25.1) EBITDA 866 1,136 1,375 EBITDA margin (%) PBT ,235 PAT EPS (Rs) Growth (%) (23.8) CEPS Book value (Rs/share) Dividend per share (Rs) ROE (%) ROCE (%) Net cash (debt) (2,040) (2,064) (1,999) NW Capital (Days) EV/Sales (x) EV/EBITDA (x) P/E (x) P/Cash Earnings P/BV (x) Source: Company, Kotak Securities Private Client Research Share holding pattern Public 42% Foreign 1% Source: Capitaline MFs 6% One-year performance (Rel to Sensex) Promo ters 51% PRIVATE CLIENT RESEARCH AUGUST 29, 2017 GENUS POWER INFRASTRUCTURES LTD (GPIL) PRICE: RS.53 RECOMMENDATION: BUY TARGET PRICE: RS.75 FY19E PE: 14.9X GPIL is a focused play on the growth of meters and smart meters in India. It enjoys a leadership position in the electric meters industry with a share of 27%. The company also has a strong presence in the smart meters market, which is currently modest in size but has significant future growth potential in view of the advantages like remote on/off capability coupled with communication features. This apart, the market for conventional meters is also looking up after slump in previous fiscal. We see potential upsides to our margins if delivery of smart meters (higher realisations) picks up from Q3FY18 onwards. Over the past two years, the company has further strengthened its balance sheet aided by monetization of treasury shares and cash flow from operations. We recommend BUY with a DCF based target of Rs 75, implying a target multiple of 21x FY19 earnings. Key Investment argument After a temporary blip in FY17, tendering for meters has gained momentum The market for electric meters declined from Rs bn in FY16 to Rs18-20 bn in FY17 due to uncertainty related to mode of procurement of meters. This situation is improving and we understand from the company that the volume of tendering has increased by 20%. Smart metering, significant medium to long term opportunity - India has 200 million legacy meters and there are plans to install up to 130 million smart meters by Immediate opportunity for smart meters can come from the new power distribution franchisee licenses being allotted in various cities (Bharatpur, Kota). EESL is coming out with a tender of 5 mn smart meters for the states of UP and Haryana. Plan to ramp-up exports - GPIL plans to ramp-up its exports of meters from the current level of ~ Rs 120 mn in FY17 to Rs 1250 mn by end of FY19. The company has recently won a smart meter order from a prestigious overseas electric utility, which is being looked as a major breakthrough. Upside in margins - EBITDA margins in FY17 dipped due to decline in revenue in meters as well as EPC divisions. However, with the recovery in offtake of meters by state utilities, we believe margins should recover in FY19. Additionally, we believe that margins can inch further up on increase in the contribution of smart meters in the sales mix. We believe margins can potentially surpass our forecasts in FY19 Balance sheet stronger as compared to peers - As of FY17, the company s net debt to equity stands reduced to 0.15x as compared to 0.64x at the end of FY15. The company scores over its peers like KEC, Kalpataru Transmission and HPL Electric on this count. Outlook and Valuations We project earnings to grow at a CAGR of 26% between FY Although, the ROE of the company is subdued, its core ROCE is projected to be healthy level of 17% in FY19E. The stock is trading at 17.9x and 14.9x FY18E and FY19E earnings respectively. The company has treasury shares of 20 mn on balance sheet. Adjusted for this, the stock is trading at 16.0x and 13.3x FY18E and FY19E earnings respectively. We ascribe target price of Rs 75, based on DCF, which values the stock at 21x FY19 earnings. We recommend BUY with time horizon of nine months. Source: Capitaline Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited.

2 Risks and Concerns Execution risk in project business. If there is a delay in the execution of the EPC projects, the company would have to face lower profitability on account of higher interest cost and also incur Liquidated damages. Increasing working capital requirement. As the business grows, GPIL s working capital requirement will also increase in line with the growth in its revenues. Any inability on the company s part to raise funds at the right time and at a reasonable cost will limit its ability to grow. Loans and Advances to related parties. The company has a history of providing loans and advances to companies owned by promoter entities. The company is also providing corporate guarantees for its promoter owned entities. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 2

3 INVESTMENT POSITIVES One of the market leaders in a consolidated industry GPIL is one of the market leaders in the metering solutions business with an installed base of 38 mn units of meters in India and abroad. The company s manufacturing infrastructure and R&D facility enables it to come out with efficient and robust products that meet the requirement of Indian conditions. The metering industry is largely B to B in nature with utilities being the prime customers. GPIL has over the years established strong credentials and relationships with various power utilities. Industry structure is favourable with limited presence of imports and unorganized sector. Strong demand drivers in place The government s Ujwal Discom Assurance Yojana (UDAY) scheme s memorandum of understanding (MoU) envisages all state discoms turning around by fiscal 2019 or This will require interventions at three broad levels 1) Operational improvement for meeting AT&C milestones, 2) Cost reflective tariffs, 3) Continued state support for funding. For operational efficiency improvement, identification of areas where AT&C losses are high is critical so that corrective measures can be taken. Thus, the role of feeder metering, distribution & transformer (DT) metering, and feeder segregation become paramount. Herein, while most states have achieved a high level of feeder metering, the five top loss making state utilities (Raj, UP, Bihar, J&K and Jharkhand) lag behind in feeder separation and distribution transformer metering. With these five states signing up for UDAY scheme, we expect momentum on rolling out the requisite infrastructure relating to loss reduction in the coming years. In addition to this, there are government programmes like DDUGJY and IPDS that aim at strengthening the subtransmission and distribution sector through feeder metering and IT infrastructure. Information provided by the Ministry of Power indicates that combined losses of state-run power utilities in 26 states and union territory of Puducherry declined by 21.5% from a year ago to Rs bn, mainly on account of efforts under UDAY scheme. Losses incurred by state run power distribution firms Rs bn States % reduction Punjab % Maharashtra % UP % MP % J&K % TN % Rajasthan % Source: Uday.gov.in Meters are key for reduction in AT&C losses Meters play a vital role in reduction of AT&C Losses through Replacement of defective meters by tamper proof electronic meters / smart meters Automatic Metering Infrastructure/ Smart metering provides ease of billing and collection. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 3

4 Significant smart metering opportunity Smart meters have significant potential in the medium to long term as government rolls out smart city programme across India. India has 200 million legacy meters and there are plans to install up to 130 million smart meters by 2021 (Source: Company presentation and Ministry of Power). Recently, CESC has won smart power franchise contract in the city of Bharatpur and Kota. We understand from the management of GPIL, that CESC is considering going for massive application of smart metering solutions in these cities. GIPL is expects to win sizeable business from these cities (~ Rs 1.0 bn, 0.3 mn smart meter opportunity). Deliveries is expected to start from H2FY18 onwards. Since the realization on smart meters is higher (Rs per unit vs Rs per unit for electronic meters), this should also have a positive rub-off on margins. Improving balance sheet strength With the divestment of the Power back-up business in 2015, the company is now a focused play on the metering and to lesser extent on the Power EPC business. Despite being in a working capital intensive business, the company has managed to keep its borrowings in check. The company now has gross debt of Rs 1.8 bn in Q1FY18, down from Rs 2.2 bn in FY17. It also has sizeable cash and treasury investments. After liquidating 20 mn of treasury shares in FY16 to institutional investors, the company still has treasury shares of 27.5 mn in balance sheet, which can be liquidated in the future. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 4

5 EARNINGS AND FINANCIAL ANALYSIS After a temporary blip in FY17, tendering for meters gained momentum The sale of meters in volume terms has grown at a CAGR 21% between However, there was a temporary blip in offtake of meters by state utilities in FY17, as the Power ministry contemplated on central procurement of meters (in line with LEDs) in bulk with a view to optimize purchase cost. This resulted in some uncertainty, thereby leading to state utilities deferring their procurement programmes until further clarity. However, this issue has been resolved and procurement by state utilities is back on track. GIPL Meter sales (mn units) FY12 FY13 FY14 FY15 FY16 FY17 Source: Company Revenues (Rs bn) FY14 FY15 FY16 FY17 FY18E FY19E Source: Company and Kotak PCG Stable margins outlook EBITDA margins had expanded from 12.9% in FY14 to 14.5% in FY16 on the back of 1) divestment of loss making Power back-up business and 2) higher share of meters (EBITDA margins of 16%) vs EPC (EBITDA margins of 10-11%) in overall revenue pie. However, margins dipped in FY17 due to 1) lower meter sales on account of the disagreement between the state and central government on the procurement policy 2) Lower revenue booking in EPC division. The company has begun to see a reversal in this situation due to improved traction of orders from power utilities. We therefore expect the margins to recover in FY The main raw material for meter are the electronic components like ICs, PCB and Plastic dana which are largely imported (Imports accounted for 52% of material cost was imported). To that extent, foreign exchange fluctuation could cause variations in margins. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 5

6 EBITDA (%) 15.0% 14.5% 14.0% 13.5% 13.0% 12.5% FY14 FY15 FY16 FY17 FY18E FY19E Source: Company and Kotak PCG Capex and Cash flow Cash from operating activities has remained healthy for the last three fiscals. With the commissioning of its third unit in Assam, the company has adequate room for production ramp-up and does not foresee need for major capex in the near-term. Cash flow Rs mn FY11 FY12 FY13 FY14 FY15 FY16 FY17 Cashflow from operating activites Capex Free cash flow Source: Company Repaid sizeable borrowings in FY16 GPIL liquidated 20 mn shares from treasury shares in FY16 at a price of Rs 50 to raise ~ Rs 1.0 bn from institutional investors. The funds were largely utilised to repay borrowings of Rs 1.2 bn. This, in addition to the cash flow in FY17, has resulted in further reduction in indebtedness. As a result, the company s net debt to equity now stands reduced to 0.15x in FY17 as compared to 0.64x at the end of FY15. Cash and Treasury investments At the end of FY17, the company had cash and equivalent of Rs 1.25 bn and treasury shares of 27.5 mn. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 6

7 VALUATION We like Genus on account of Established and focused play on the meters industry with products like prepaid meters, panel meters, smart meters and gas meters. Further, the industry is fairly consolidated, which reduces the risk of fresh entrant spoiling the market through price undercutting. Government focus on reduction in T&D losses to aid demand for metering solutions. In addition to this, smart meters (Automated Metering Infra) has significant long term potential. Strengthening balance sheet which makes it well positioned to invest in product innovation and further market share gains. The stock is trading at 17.9x and 14.9x FY18 and FY19 earnings respectively. On an EV/EBITDA basis, the stock is trading at 10.3x based on FY19 numbers. Peer Valuations PE (x) EV/EBITDA (x) D/E FY18 FY19 FY18 FY19 KEC Kalpataru Transmission HPL Genus Source: Companies; Kotak Securities Private Client Research Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 7

8 RISKS AND CONCERNS Execution risk in project business If there is a delay in the execution of the EPC projects, the company would have to face lower profitability on account of higher interest cost and also incur Liquidated damages. Increasing working capital requirement As the business grows, GPIL s working capital requirement will also increase in line with the growth in its revenues. Any inability on the company s part to raise funds at the right time and at a reasonable cost will limit its ability to grow. Loans and Advances to related parties The company has a history of providing loans and advances to companies owned by promoter entities. The company is also providing corporate guarantees for its promoter owned entities. Loans and advances to related entities (Rs mn) FY13 FY14 FY15 FY16 L&A to related parties as % of capital employed 1.5% 1.2% 3.4% 3.6% Source: Company GPIL Free Cash Flow to Firm 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E PAT ,159 1,374 1,623 1,801 1,984 2,100 2,211 Depreciation Int Capex (250) (250) (263) (276) (289) (304) (319) (335) (352) NWC change (594) (629) (803) (841) (976) (990) (968) (723) (339) FCFF ,112 1,464 1,951 Discounted Value Source: Company and Kotak Securities Private Client Research Assumptions PV of FCF 19,871 Net cash (580) Shareholders' Value 19,291 Value per share 75 Beta 1.00 Risk Free Rate (%) 6.5 Market Risk Premium (%) 5.0 Cost of Equity (%) 11.5 Cost of Debt (%) 8.0 Debt 2300 Equity WACC (%) Terminal growth rate (%) 5 Source: Kotak Securities Private Client Research Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 8

9 Forward PE band 75 5x 10x 15x 20x CMP median Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Source: Kotak Securities Private Client Research Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 9

10 ANNEXURE Background Genus is the flagship company of the USD 400 million Kailash group. The company primarily manufactures and distributes Electronic Energy Meters (EEMs) and hybrid microcircuits as well as executes power distribution management projects in India and across the world. It manufactures the entire range of EEMs, ie from transformer meters to household and industrial meters. The company also has a rich clientele that includes the state electricity boards (SEBs) as well as private utility firms like Reliance Energy, the Torrent Group, Tata Power and JSW Energy. Milestone Year Event FY09 Fire at IOC tank in Jaipur damaged factory FY14 Demerger of non power infrastructure business into Genus paper & boards FY15 Divestment of power back-up solutions for Rs 491 mn, advance received Rs 190 mn in FY15 FY15 Commissioned plant at Ramchandrapura in Jaipur FY16 Sale of treasury shares to raise Rs 1.0 bn Source: Company Management Mr Ishwar Chand Agarwal, aged 66 years, is the founder of Kailash Group and the executive chairperson of the Company. He holds a bachelor s degree in commerce and been in business for over 4 decades. He brings with him an extensive experience in varied businesses such as Coke, Coal, Sugar, Finance & Leasing, Cement, Paper, Power, Electronics, Apparels, Agro processing etc. For the past 22 years, Mr. I.C. Agarwal has been leading the Company and has been instrumental not only in developing the line of business but also is responsible for the organic and inorganic growth of the Company. He is also a director on the board of Kailash Industries Limited, Genus Electrotech Limited, Genus Paper & Boards Limited, Genus International Commodities Limited, Yajur Commodities Limited, Godavari Commodities Limited, Virtuous Mining Limited, and Greentech Mega Food Park Private Limited. Mr. Kailash Chandra Agarwal, aged 46 years, is non-executive vice chairman of the Company. He is a science graduate having rich experience of over two decades in Coal, Sugar, Apparels, Paper and Boards businesses. He has experience and proficiency in finance, banking, mergers & acquisitions, strategic planning, restructuring operations, investor relations, collaborations and joint ventures. He holds the key managerial position in Genus Paper & Boards Limited, and Yajur Commodities Limited. He also holds directorship in Kailash Coal And Coke Company Limited, and Genus Apparels Limited Mr. Rajendra Kumar Agarwal, aged 41 years, is the managing director and chief executive officer of the Company. He is an electronics engineer by profession and has over two decades of experience across power sector verticals such as smart grid, transmission & distribution infrastructures, energy management control & automation and smart metering solutions. Mr. Jitendra Kumar Agarwal, aged 39 years, is the joint managing director of the Company. He holds a master's degree in business administration (MBA) specialised in marketing. At Genus, he is responsible for marketing, branding and sales functions. The board of directors consist of 10 members, out of which four belong to the promoter family and the rest are independent. The Chairman has been attending the AGM and important boards meetings. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 10

11 Manufacturing facilities Genus has State of the Art lean manufacturing facilities and has achieved substantial forward and backward integration. The company employs an integrated manufacturing approach based on surface mount technology (SMT) for manufacture of meters. Circuit card assemblies (CCA), integral to products, are made using automatic pick and place and automatic optical inspection machines for testing coupled with functional testing. This is followed by product integration, testing and calibration and packing. An in-house plastic moulding facility ensures that the plastic components are moulded to world class standards. Manufacturing location Product Capacity mn units Jaipur I Meters 1.3 Jaipur II Meters 7.2 Haridwar Meters 1.5 Assam Meters NA Source: Company Genus has an In-house R & D Center recognized by Department of Science & Industrial Research - India, under Ministry of Science & Technology, Govt. of India in which houses over 200 technocrats for developing innovative and efficient products & solutions. The R&D center is equipped with world class designing equipments and advanced software NABL Accredited test laboratory as per national & international standards ( BIS/IEC) Integrated design & development facilities for PCB, firmware/software, mechanical components and mold developments. R&D Expenditure (Rs mn) FY13 FY14 FY15 FY16 Capex na na Revenue Total as % of Revenue 1.0% 1.1% 1.2% 1.3% Source: Company Products Focussed on meters Meters typically include (a) a metering device, which is used to measure the flow of electric power, (b) a display, which is used for displaying readings of the parameters that are being metered and (c) communication, which is present in modern electricity meters, which is used for one-way or two-way communication of information with the billing utility. Electricity energy meters can broadly be classified into (a) tariff meters, (b) panel meters, (c) prepayment meters and (d) smart meters. (a) Tariff meters: used mainly for billing and revenue collection and are further classified into electronic, trivector meters and availability based tariff meters. (b) Panel Meters: used for monitoring and automation for a larger set-up, which involves an integration of heavy and light machinery and are classified as KWH meters, dual source meters, and multi-function meters. The primary applications of panel meters include energy monitoring and billing and revenue generation. Further, they are increasingly being used as part of energy management solutions, where the meter is used to measure energy consumption, to monitor and improve energy efficiency. (c) Prepayment meters: they are usually a tariff meter with add-on features of code validation and alert system. Such meters require upfront payment for electricity and help utilities in ensuring steady cash flows against the electricity delivered by them. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 11

12 (d) Smart meters: comprise first-generation smart meters or AMR (Automatic meter reading) meters and second-generation meters or Advanced Metering Infrastructure (AMI) meters. AMR meters provide for self-health check of the meter, data communication using secure and open standard protocols, periodic upgrade of meter software remotely over the transmission network, multi utility metering capabilities, consumption data acquisition and demand management and control. Comparatively, AMI meters provide for effecting utilisation and management of metering data, automatic management of meters, two-way communication with meters, demand response capabilities and further provides data to implement energy efficiency practices. GPIL s product offerings Meters Residential Meters (Single Phase / Poly Phase) Smart Meters /Net Meters Grid & Sub-station ABT Compliant Meters Distribution Transformer Metering Smart Group Metering Solution (LVDS & HVDS) Prepayment Meters AMR Technologies (RF, PLCC, GSM, GPRS) Reference Meters Smart Street Light Management System Meters with APFC Gas Meters Meter Data Acquisition Software Web based Prepayment Software Source: Company EPC Switchyard / Sub Stations up to 400 kv Transmission & Distribution Lines up to 400 kv Rural Electrification Distribution Lines & HVDS Process Industry Plant Electrification Market Overview The market for meters in India was estimated to be Rs 32 bn in fiscal 2016 but declined appreciably in FY17 due to uncertainty in the mode of procurement of meters by the utilities. The market is dominated by organised players contributing to over 80% of the total market. There has been a continued and visible shift from demand for traditional meters to demand for metering solutions, which helps in energy management as compared to mere monitoring and billing functionalities. Major consumer segments for meters in India are (a) public and private power utilities for residential and grid metering; (b) conventional and non-conventional captive power plants; and (c) industries and commercial establishments. Public and private power utilities are mostly consumers of tariff meters, captive power plants consume panel meters, and industries and commercial establishments consume panel and smart meters, based on their requirement. Few developers of residential buildings, however, provide prepaid meters residents, which are directly purchased by developers and installed at such residential buildings. Demand for electronic meters dominates the market for meters and will continue due to replacement market for electrochemical and old meters and orders from power utilities. Of this, power utilities account for nearly 90% of the revenue generated from sale of tariff meters. The industrial segment is the largest consumer of panel meters. With increasing focus on reliability and accuracy, the contribution from these segments is likely to witness an upward trend. Prepayment meters have recently seen steady growth as more power utilities are installing them to increase consumer visibility in terms of load patterns and to reduce the percentage of under-recovered revenue. While in developed countries prepayment meters are considered to be tariff meters, in the India they are considered as smart meters and are considered as the first step towards establishment of smart cities and smart grid projects. Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 12

13 Meter type Market share Tariff 78% Prepaid 0.23% Smart 0.03% Panel 21% Source: Frost and Sullivan Market segmenttation by end users (%) Utilities 73% Industries 17% Infrastructure 8% Others 4% Source: Company Demand Drivers Government initiatives: Initiatives of the Government such the Deen Dayal Upadhaya Gram Jyoti Yojna (DDUGJY) and Integrated Power Development Scheme (IPDS)are expected to give impetus to the meter market. Further, the UDAY scheme is expected to aid growth in the power sector. The scope of work under these initiatives includes rural electrification, monitoring of distribution transformers, setting up of new grid and substations and setting up of metering infrastructure. GoI s Make in India campaign and growth in renewables: Growth of the industrial segment is expected to drive demand for power, thereby increasing demand for panel meters. Further, the increase in renewable energy generation has created a market for net meters and availability based tariff meters. Additionally, advent of energy trading and feed-in tariff of renewable energy (currently at a nascent stage) is also expected to create an additional market for meters in India. Demand Drivers Modernisation of infrastructure Modernization drive for existing electricity grid infrastructure includes substation metering schemes, rural electrification programs, street lighting and smart metering. Growth in renewable energy Increase in renewable energy generation has created a market for net meters and availability based tariff meters Affordable housing Housing for all initiative plans building of 20mn homes for the economically weaker sections in India by This initiative will put a major thrust over the electrical equipment industry including meters. 100 Smart Cities Investment of Rs 3.0 trn to improve infrastructure of 100 selected cities would require variety of LT electric equipment including meters Source: Company presentation Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 13

14 Planned Investments Deendayal Upadhyay Integrated Power Ujwal Discom Gram Jyoti Yojana Development Scheme Assurance Yojna (IPDS) (UDAY) Outlay of Rs326bn including Outlay of Rs326bn including Discoms accumulated GoI budgetary support of GoI budgetary support of losses Rs. 3.8 trn & debt Rs. 254bn Rs. 254bn of Rs. 4.3 trn Electrification to all villages. Strengthening of sub To improve operational Feeder separation (rural transmission network to efficiency of discoms, households & agricultural) reduce AT&C losses smart metering, transformers up gradation, meters etc Strengthening of sub transmission Metering & implementation States shall take over & distribution infrastructure of IT application to reduce 75% of DISCOM debt Including metering at all commercial losses would improve levels (input points, feeders and financial health of distribution transformers) discoms. Lower operating cost and interest expense would provide extra financial for capex Source: Company presentation Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 14

15 FINANCIALS Profit and Loss Statement (Rs mn) FY16 FY17 FY18E FY19E Revenues % change yoy (6.3) (25.1) EBITDA % change yoy 1.2 (30.3) Depreciation EBIT % change yoy 3.4 (35.4) Net Interest Other Income Earnings Before Tax % change yoy 11.3 (26.3) Tax as % of EBT Net Income adj % change yoy 11.7 (23.8) Exceptional items Reported Net Income Shares outstanding (m) EPS (Rs) DPS (Rs) CEPS Source: Company, Kotak Securities - Private Client Research Cash Flow Statement (Rs mn) (Rs mn) FY16 FY17 FY18E FY19E PBDIT 1, ,136 1,375 Tax and adjustments (454) (125) (236) (321) Cash flow from operations ,054 Net Change in Working Capital (594) (629) Net Cash from Operations 817 1, Capital Expenditure (318) (250) (250) (250) Cash from investing 1,244 (1,218) Net Cash from Investing 926 (1,468) (8) 10 Interest paid (289) (249) (214) (215) Issue of Shares Dividends Paid (62) (77) (108) (154) Debt Raised (1,271) (27) (135) - Net cash from financing (1,621) (353) (457) (369) Net change in cash 121 (359) (160) 66 Free cash flow 499 1, cash at end Source: Company, Kotak Securities - Private Client Research Balance Sheet (Rs mn) FY16 FY17 FY18E FY19E Cash and cash equivalents Accounts receivable 4,146 3,305 4,018 4,641 Stocks 1,176 1,160 1,148 1,326 Loans and Advances Others Current Assets 6,190 5,003 5,515 6,382 LT investments 1,549 2,873 2,873 2,873 Net fixed assets 1,374 1,467 1,549 1,614 Intangible assets CWIP Other non current assets Non current receivables Long term loans and advances 1,233 1,236 1,236 1,236 Total Assets 10,763 11,131 11,725 12,657 Payables 1,394 1,274 1,341 1,513 Provisions Current liabilities 1,593 1,516 1,640 1,812 LT debt 2,327 2,300 2,165 2,165 Other liabilities Equity & reserves 6,598 7,071 7,675 8,436 Total Liabilities 10,763 11,131 11,725 12,657 Source: Company, Kotak Securities - Private Client Research Ratio Analysis (Rs mn) FY16 FY17 FY18E FY19E EBITDA margin (%) EBIT margin (%) Net profit margin (%) Adjusted EPS growth (%) Receivables (days) Inventory (days) Sales / Net Fixed Assets (x) ROE (%) ROCE (%) EV/ Sales EV/EBITDA Price to earnings (P/E) Price to book value (P/B) Price to cash earnings Source: Company, Kotak Securities - Private Client Research Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 15

16 RATING SCALE Definitions of ratings BUY We expect the stock to deliver more than 12% returns over the next 9 months ACCUMULATE We expect the stock to deliver 5% - 12% returns over the next 9 months REDUCE We expect the stock to deliver 0% - 5% returns over the next 9 months SELL We expect the stock to deliver negative returns over the next 9 months NR Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. RS Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA Not Available or Not Applicable. The information is not available for display or is not applicable NM Not Meaningful. The information is not meaningful and is therefore excluded. NOTE Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark. FUNDAMENTAL RESEARCH TEAM Sanjeev Zarbade Ruchir Khare Amit Agarwal Nipun Gupta K. Kathirvelu Capital Goods, Engineering Capital Goods, Engineering Logistics, Paints, Transportation Information Technology Production sanjeev.zarbade@kotak.com ruchir.khare@kotak.com agarwal.amit@kotak.com nipun.gupta@kotak.com k.kathirvelu@kotak.com Teena Virmani Ritwik Rai Jatin Damania Jayesh Kumar Construction, Cement FMCG, Media Metals & Mining Economy teena.virmani@kotak.com ritwik.rai@kotak.com jatin.damania@kotak.com kumar.jayesh@kotak.com Arun Agarwal Sumit Pokharna Pankaj Kumar Ashini Shah Auto & Auto Ancillary Oil and Gas Midcap Midcap arun.agarwal@kotak.com sumit.pokharna@kotak.com pankajr.kumar@kotak.com ashini.shah@kotak.com TECHNICAL RESEARCH TEAM Shrikant Chouhan Amol Athawale shrikant.chouhan@kotak.com amol.athawale@kotak.com DERIVATIVES RESEARCH TEAM Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas sahaj.agrawal@kotak.com malay.gandhi@kotak.com prashanth.lalu@kotak.com prasenjit.biswas@kotak.com Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 16

17 Disclosure/Disclaimer Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to clients as well as our prospects. This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein. Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. We and our affiliates/associates, officers, directors, and employees, Research Analyst(including relatives) worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of Research Report or at the time of public appearance. Kotak Securities Limited (KSL) may have proprietary long/short position in the above mentioned scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to do business with KSL. Kotak Securities Limited is also a Portfolio Manager. Portfolio Management Team (PMS) takes its investment decisions independent of the PCG research and accordingly PMS may have positions contrary to the PCG research recommendation. Kotak Securities Limited does not provide any promise or assurance of favourable view for a particular industry or sector or business group in any manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional advice before investing. The analyst 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. No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent. Details of Associates are available on our website ie Research Analyst has served as an officer, director or employee of subject company(ies): No We or our associates may have received compensation from the subject company(ies) in the past 12 months. We or our associates have managed or co-managed public offering of securities for the subject company(ies) in the past 12 months: No We or our associates may have received compensation for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received compensation or other benefits from the subject company(ies) or third party in connection with the research report. Our associates may have financial interest in the subject company(ies). Research Analyst or his/her relative's financial interest in the subject company(ies): No Kotak Securities Limited has financial interest in the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report - No Our associates may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No. Kotak Securities Limited has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of publication of Research Report: No Subject company(ies) may have been client during twelve months preceding the date of distribution of the research report. "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" icon in the price chart)." Kotak Securities Limited. Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai CIN: U99999MH1994PLC134051, Telephone No.: , Fax No.: Website: Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai Telephone No: SEBI Registration No: NSE INB/INF/INE , BSE INB /INF , MSE INE /INB /INF , AMFI ARN 0164, PMS INP and Research Analyst INH NSDL/CDSL: IN-DP-NSDL Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts. Compliance Officer Details: Mr. Manoj Agarwal. Call: , or ks.compliance@kotak.com. Level 1: For Trading related queries, contact our customer service at 'service.securities@kotak.com' and for demat account related queries contact us at ks.demat@kotak.com or call us on: Online Customers (by using your city STD code as a prefix) or Toll free numbers / , Offline Customers Level 2: If you do not receive a satisfactory response at Level 1 within 3 working days, you may write to us at ks.escalation@kotak.com or call us on and if you feel you are still unheard, write to our customer service HOD at ks.servicehead@kotak.com or call us on Level 3: If you still have not received a satisfactory response at Level 2 within 3 working days, you may contact our Compliance Officer (Mr. Manoj Agarwal ) at ks.compliance@kotak.com or call on 91- (022) Kotak Securities Private Client Research Please see the Disclosure/Disclaimer on the last page For Private Circulation 17 Level 4: If you have not received a satisfactory response at Level 3 within 7 working days, you may also approach CEO (Mr. Kamlesh Rao) at ceo.ks@kotak.com or call on 91- (022)