EMP projects in Middle East and India, engineering and cooling products in domestic market

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1 Company Template.dot (VOLT IN) Industrials BUY November 18, 2009 INITIATING COVERAGE Vantage. is a leading player in electro-mechanical projects and engineering and cooling products. We initiate coverage with a BUY rating and target price of Rs200 based on (1) a likely recovery in order inflows and industrial activity, (2) strong cash generation, (3) projects, products and services mix, (4) capability and geographical expansion. Higher crude price, sequential improvement, shelf of planned projects and orders for other contractors provide visibility on demand recovery. Sector view: Attractive Price (Rs): 177 Target price (Rs): 200 BSE-30: 17,051 EMP projects in Middle East and India, engineering and cooling products in domestic market, a part of the Tata group, has business operations organized across three business segments Electro-Mechanical Projects (EMP) in Middle East and India, engineering products and services, and Unitary Cooling Products (UCP). The EMP segment contributes about twothirds of the standalone revenues and EBIT and has a current order backlog of Rs44 bn. Higher crude price; geography and capability expansion; investment recovery to boost growth We expect order inflows to recover on the back of (1) higher crude price reinvigorating Middle East economies, (b) expansion into newer geographies such as Saudi Arabia, Singapore etc., (2) demand recovery in IT/ITES segment in India, (3) capability expansion in areas such as water, electrical and instrumentation (with Rohini) etc. Recent evidence of orders for other EPC contractors and a large shelf of planned projects point to capex recovery in the Middle East. management appears confident of 20%+ growth and % margins in EMP during FY2010E and FY2011E on the back of a Rs44 bn order book and order inflows. We believe the engineering products segment and the cooling products segment are likely to grow on the back of a pick-up in industrial investment and higher income with low penetration levels, respectively. Earnings dependence on gulf lower than perceived; led by quicker domestic execution ' earnings are less dependent on the Middle East than its order book mix appears to suggest as the domestic business has shorter execution cycles and potentially higher margins. We estimate that the Middle East is likely to contribute about 40% to ' FY2010E EBIT mix. This would be even lower in FY2011E as the engineering products and services segment recovers. Recommend BUY (target of Rs200) on back of strong cash flows and execution track record We recommend a BUY at a target price of Rs200 (18X FY2011E P/E) based on (1) likely growth in target geographies, (2) strong cash flow generation, (3) diversified mix of projects, products and services, (4) capability and geographical expansion, and (5) execution track record. Key risks are (1) slow revival of urban development and investment activity in gulf and India, (2) margin pressure led by a reliance on main contractors and a high bought-out component in EMP. Company data and valuation summary Company data Stock data High Low Price performance 1M 3M 12M Rating: BUY 52-week range (Rs) Absolute (%) Yield (%) 0.9 Rel. to BSE-30 (%) Current price (Rs) Priced at close of: November 17, Capitalization Forecasts/valuation E 2011E Market cap (Rs bn) 58 EPS (Rs) Net debt/(cash) (Rs mn) (2,756) P/E (X) Free float (%) 72.4 ROE (%) Shares outstanding (mn) 331 EV/EBITDA (X) Source: Company, Kotak Institutional Equities estimates Lokesh Garg lokesh.garg@kotak.com Mumbai: Nitij Mangal nitij.mangal@kotak.com Mumbai: Supriya Subramanian supriya.subramanian@kotak.com Mumbai: Kotak Institutional Equities Research Important disclosures appear at the back For Private Circulation Only. In the US, this document may only be distributed to QIBs (qualified institutional buyers) as defined under rule 144A of the Securities Act of This document is not for public distribution and has been furnished to you solely for your information and may not be reproduced or redistributed to any other person. The manner of circulation and distribution of this document may be restricted by law or regulation in certain countries, including the United States. Persons into whose possession this document may come are required to inform themselves of, and to observe, such restrictions.

2 Industrials TABLE OF CONTENTS Overview: BUY on likely recovery, diversified business mix and cash flows...3 BUY on likely recovery, strong cash-flow generation, diversified business mix...8 Profile: Engineering projects, products and services in Middle East and India...13 Electro-mechanical projects: Leading player in Middle East and India...20 Engineering: Pick up in investment cycle to restore growth and margins...33 Cooling products: Retain market position; growth on low penetration...37 Risks: Slower-than-expected recovery in Middle East and India...40 Financials: Strong EMP execution and engg products recovery drive growth...41 Appendix A: Key takeaway from our meeting with management...47 Appendix B: versus Blue Star...49 The prices in this report are based on the market close of November 17, KOTAK INSTITUTIONAL EQUITIES RESEARCH

3 Industrials OVERVIEW: BUY ON LIKELY RECOVERY, DIVERSIFIED BUSINESS MIX AND CASH FLOWS Exhibit 1: Forecasts and valuations, March fiscal year-ends, E Year end Revenues EBITDA Net profit EPS P/E EV/EBITDA EV/Sales P/B March (Rs mn) (Rs mn) (Rs mn) (Rs) (X) (X) (X) (X) ,267 1,280 1, ,029 2,531 1, ,259 2,831 2, E 49,381 4,248 3, E 56,982 4,818 3, E 63,962 5,423 4, Source: Company, Kotak Institutional Equities Initiate coverage with a BUY rating and target price of Rs200/share We initiate coverage on with a BUY rating and a target price of Rs200/ share based on a 18X earnings multiple to our FY2011E EPS of Rs10.8. On a DCF reverse valuation, our target price implies (1) moderate revenue growth of 10% over FY2013E-21E, (2) EBIT margins of 7.8% from FY2013E-21E, (3) WACC of 12.5% and (4) terminal growth rate of 5%. Our valuation implies EV/EBITDA multiple of 12X FY2011E EBITDA of Rs4.8 bn. We recommend BUY based on (1) likely order booking recovery in international geographies (typically the Middle East, contributing about 60% of EMP revenues) on back of recovery in oil price, additional geographies and government push for urban development (2) pick up in domestic EMP order booking and execution as IT/ITES segment demand recovers, (3) strong operational cash flow generation characteristics, (4) diversified business mix of projects, products and services, and (5) strong execution track record with no dilution or corporate governance concerns. Leading player in engineering projects, products and services, established in 1954 as a JV between Swiss firm Volkart Brothers and Tata Sons Limited, is a leading player in turnkey MEP (Mechanical, Electrical and Public health) projects and engineering and air conditioning products. Operations of the company are organized into three business segments Electro-Mechanical Projects (EMP), engineering products and services, and Unitary Cooling Products (UCP). Rohini Industrial Electricals Ltd is a recently acquired company with strong growth potential. Rohini has expertise in electrical and instrumentation projects across various industry verticals and can supplement skill sets in MEP projects. Exhibit 2: Standalone business has a presence across three key strategic business units Details of key business units of, March fiscal year-ends, Electro-Mechanical Projects (EMP) Engineering projects and services Unitary Cooling Products (UCP) Revenues EBIT EBIT margin (Rs mn) (Rs mn) (%) Description 25,464 1, Executes EPC contracts for HVAC (Heating Ventilation and Air Conditioning) and MEP (Mechanical Electrical and Public Health) 5, Marketing, installation and maintenance of machinery on behalf of its principal in 3 verticals - mining and construction, material handling, and textile 9, Manufactures and sells room AC, commercial refrigerators and water coolers. One of the pioneers of cooling appliances in India Source: Company, Kotak Institutional Equities KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

4 Industrials The EMP segment undertakes EPC contracts for HVAC and MEP projects, primarily in the Middle East and India. has executed MEP for several iconic projects, such as the F1 race track in Abu Dhabi, the Burj Dubai and Hyderabad International Airport. The engineering products and services segment provides agency services (marketing and sales, installation, service, spare parts) for the company s Indian and international principals across industry sectors such as mining and construction, material handling, and textiles. also manufactures equipment such as forklift trucks, warehousing equipment as part of this segment. Engineering products and services revenues come from four sources (1) commissions on the sale of equipment, (2) sale of manufactured equipment, (3) sale of spare parts, and (4) servicing and maintenance. The unitary cooling products segment manufactures and sells room ACs, commercial refrigerators and water coolers. is among top three players in the domestic AC market with about 17% market share. EMP segment contributes about two-thirds of standalone revenues and EBIT The EMP segment contributed 63% of the FY2009 standalone revenues of Rs40 bn. EMP share of FY2009 standalone EBIT of Rs3.3 bn stood at 59%. UCP was next with 23% revenue and 21% EBIT contribution during FY2009. Margins in the EMP and UCP business are typically lower than the engineering products and services as about 20% of the latter is agency business. EMP: Likely order inflow recovery led by oil; geography and capability expansion We highlight that EMP segment has delivered strong performance in terms of revenue growth and margins for 1HFY10 on back of execution of specific large projects in Middle East geography. However order inflows have been slow and thus international order book has declined sequentially over the last few quarters. Execution of domestic projects has also been affected by the recent slowdown in commercial space demand. EMP order book provides near-term visibility in spite of slow inflow EMP segment order book stood at Rs44 bn at end of 2QFY10, comprising Rs31 bn in the international segment and Rs13 bn in the domestic segment. This order book is about 1.5 times the estimated FY2010E revenues of EMP segment and is completely executable by end-fy2011e. A particular project, i.e. Rs7 bn Yas Retail project which is in abeyance, may be restructured, however repricing the order book on current exchange rates more than makes up for that. International order inflows in 1HFY10 have been slow and has announced new domestic orders worth Rs3.4 bn for airports and water management. We expect that execution in domestic projects, particularly IT parks, would pick up as the demand scenario for IT/ITES industry has recovered. The company is positive on the growth opportunity in water management and oil & gas, and may look for inorganic opportunities to build a water management portfolio. Domestic/International mix of EMP is more balanced versus visible order book mix We highlight that while the order book mix is about 80:20 in favor of international MEP projects, but the revenue mix is more likely to be 2/3:1/3 in favor of international projects. In terms of total EBIT the skew may be even lower as we believe that smaller domestic projects with lower outsourcing may have higher margins in percentage terms versus larger international projects with higher proportion of outsourcing. 4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

5 Industrials Recovery likely on back of crude; geography and capability expansion We believe that international order booking would pick up based on (a) large shelf of planned projects (more than US$600 bn) in target geographies of Middle East, (b) recovery in crude price which adds to surplus of governments promoting these projects, (c) evidence of order inflows for other contractors, such as Hyundai, from Middle East, (d) expansion in target geographies to include Saudi Arabia, largest economy in the region may additionally have a local JV to accelerate order booking. Capability expansion such as (a) water, (b) electrical and instrumentation projects for industrial plants with the help of Rohini, (c) bigger scope of domestic EMP jobs from just HVAC earlier and (d) inorganic growth opportunities would further augment the business prospects. We expect that execution in domestic projects, particularly IT parks, would pick up as the demand scenario for IT/ITES industry has recovered. Management confident of maintaining growth trajectory and recent high margins management seems confident of 20%+ growth and % margins in the EMP segment in FY2010E and FY2011E on the back of a Rs44 bn order book, which is completely executable by end-fy2011e. Management believes that slow orders inflows are also partly driven by being selective versus just external environment and remains confident on order inflows in the future. We believe that growth rate in FY2011E would be affected by slow order booking in FY2010E, as even if a project is won it would take time to ramp up in terms of revenue and margin contribution. We are building in 13% revenue growth and 8.8% margins versus likely 20% revenue growth in FY2010E with 9.5% segmental EBIT margins. Engineering products: Pick up in investment cycle to restore growth and margins We highlight that revenue and EBIT contribution of engineering products segment has declined by about 25% on a yoy basis during 1HFY10. We believe that as the investment cycle picks up engineering products segment would report strong revenue growth as well as margins. We believe in pick up of investment cycle based (a) sequential improvement in performance of several capital goods product companies, (b) recovery in Index of Industrial Production numbers, (c) strong financial closure data for FY2009 highlighting intention to add capacity and banking system s ability to finance it and (d) subjective commentary from several companies highlighting a recovery. Engineering products segment would additionally benefit from scale up in coal mining related to thermal power generation capacity addition. UCP: AC business to grow on low penetration and higher disposable income Room AC constitutes 75% of revenues of the UCP segment. is among the top three players in the room air conditioning market in India with about 17% market share. We estimate that Room AC business for the company will show strong growth on the back of low penetration levels of about 2% as (1) the power availability situation in the country improves and (2) cost of ownership and operation versus household income goes down. EBIT margins in the segment are also likely to expand on account of (1) changing mix of the industry towards split AC, and (2) possible realizations of benefits of manufacturing at Pantnagar plant that are yet to be achieved. Financials: Strong EMP execution and engineering products recovery drive growth We believe that consolidated revenues and earnings would grow at a CAGR of 14% and 21% respectively over FY E. Revenue growth would be led by (1) EMP order book of Rs44 bn and incremental inflows, (2) revival in engineering, and (3) growth in cooling products. Earnings growth exceed revenue growth on back of (1) low margins in FY2009, and (2) margin expansion across segments over FY2009 levels as demonstrated in 1HFY10. The company has robust financials with (1) cash position of Rs4.6 bn and low D/E, (2) low to negative working capital requirement, and (3) high quality of income (cash flow generation/net income) of about 1.1X over FY KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

6 Industrials On the consolidated basis, we estimate the EPS to grow at 21%, in line with standalone EBIT growth. Our estimates for consolidated EPS stand at Rs9.5 and Rs10.8 for FY2010E and FY2011E respectively. Strong cash position, cumulative operational cash flow exceeds reported earnings has a strong cash position of Rs4.6 bn at end-fy2009. Gross debt stood at Rs1.8 bn, which translates into a low 0.2X D/E ratio at end-fy2009. We estimate that the company will generate Rs bn cash from operations each year over FY2010E-11E. We highlight that cumulative operational cash flows of voltas exceeded cumulative reported profits after tax for the period between FY We highlight that over FY , generated cumulative profits of Rs6.85 bn and cumulative operating cash flow generation was Rs7 bn. Maintains low capital engagement philosophy with low fixed and working capital is extremely cautious of capital engagement in its businesses in the form of both fixed capital as well as working capital. has maintained negative working capital across most of the last seven-eight years apart from FY2009 when credit slowdown affected collections in the domestic market. Key risks: Slower-than-expected economic recovery in Middle East and India Key risks to performance are (1) slow revival of urban development in the Middle East and India, (2) reliance on main contractors and high bought out component in EMP may lead to low barriers to entry, and (3) longer-than-expected slowdown in industrial activity which would adversely impact engineering products. Revival of urban construction activity may slow down due to (1) volatile crude oil prices in case of the Middle East or (2) slow economic recovery, rising interest rates and volatile property prices in case of India. Other risks are (1) dependence on principals for continued business in the engineering products and services segment and (2) increasing competition in the unitary cooling products segment. Credit crisis took toll on valuation, potential upside on reversion to healthy levels We highlight that valuation premium of over Sensex has contracted in the period post credit crisis. we highlight that trading premium over Sensex has shrunk from 25% in the Oct05-Oct08 has to 9% during Oct06-Oct09. Similarly, we highlight that trading discount of over sector leaders such as BHEL and L&T has widened to 25% over last three years (Oct06-Oct09) versus an average of 11% over the three year period preceding the credit crisis i.e. Oct05-Oct-08. In our view, a discount to sector leaders is justified on account of (1) smaller sized sub-contractor player versus main EPC contractors, (2) lower entry barrier, and (3) business more vulnerable to margin pressures. However, we believe that the discount should narrow down from its current levels. Reversion of relative valuation to historical levels would deliver incremental upside. Hyderabad land likely to be monetized once real estate market picks up is likely to monetize its 32 acres of land in Santnagar, five km from the old Hyderabad airport, once the real estate market turns around. Monetization may happen sooner to fund acquisition in water management business. We estimate the value of real estate to be about Rs3.2 bn, which would imply about Rs10/ share. has already leased out extra space in its corporate complex in Mumbai to Tata Teleservices and Nielson and has been receiving rental income for the same. The Ballard Estate building has been rented out to SBI. We have arrived at an estimate of Rs3.2 bn using Rs10 mn/acre which in turn implies selling price of about Rs5, Rs/sq. ft. ( about Rs2,250/ sq. ft. land cost + construction + tax and developer margins) 6 KOTAK INSTITUTIONAL EQUITIES RESEARCH

7 Industrials Exhibit 3: Key consolidated financials and estimates for, March fiscal year-ends, E (Rs mn) E 2011E 2012E Balance sheet Shareholders funds 4,237 5,772 7,897 10,015 12,437 15,193 Minority interest Loan funds 1, , Total source of funds 5,358 6,515 9,871 10,988 13,410 16,167 Net block 1,473 1,701 2,148 2,361 2,599 2,861 CWIP Net fixed assets 1,601 1,898 2,280 2,493 2,732 2,994 Investments and goodwill 1,248 2,585 2,238 2,238 2,238 2,238 Cash balances 1,677 3,002 4,571 5,781 7,906 10,339 Net current assets excluding cash 553 (1,160) Total application of funds 5,358 6,515 9,871 10,988 13,410 16,167 Profit model Total operating income 25,267 32,029 43,259 49,381 56,982 63,962 Total operating costs (23,988) (29,499) (40,428) (45,133) (52,164) (58,539) EBITDA 1,280 2,531 2,831 4,248 4,818 5,423 Other income ,070 PBDIT 1,982 3,013 3,775 5,055 5,740 6,493 Financial charges (99) (90) (110) (82) (82) (82) Depreciation (156) (167) (210) (227) (251) (278) Pre-tax profit 1,728 2,757 3,456 4,746 5,406 6,133 Taxation (407) (997) (1,172) (1,610) (1,832) (2,077) Adjusted PAT 1,321 1,760 2,284 3,136 3,574 4,056 Minority interest & associate profits (1) 1 (31) PAT for equity holders 1,319 1,761 2,253 3,136 3,574 4,056 Extraordinary items, net of tax Reported PAT 2,017 2,076 2,545 3,136 3,574 4,056 Cash flow statement Operating profit before working capital changes 1,593 2,099 2,572 3,445 3,907 4,416 Change in working capital / other adjustments (586) 1,713 (1,718) 306 (59) (62) Cashflow from operating activites 1,007 3, ,752 3,849 4,354 Fixed assets (122) (464) (591) (440) (490) (540) Investments (786) (1,337) 347 Cash (used) / realised in investing activities (908) (1,802) (244) (440) (490) (540) Dividend paid (410) (523) (619) (1,019) (1,152) (1,299) Interest charges (99) (90) (110) (82) (82) (82) Cash (used) /realised in financing activities (375) (1,008) 700 (2,101) (1,234) (1,382) Cash generated /utilised 379 1,325 1,569 1,211 2,125 2,433 Cash at beginning of year 1,298 1,677 3,002 4,571 5,781 7,906 Cash at end of year 1,677 3,002 4,571 5,781 7,906 10,339 Key ratios (%) EBITDA margin PAT margin RoE RoCE Net debt / equity (X) EPS (Rs) Source: Company, Kotak Institutional Equities estimates KOTAK INSTITUTIONAL EQUITIES RESEARCH 7

8 Industrials BUY ON LIKELY RECOVERY, STRONG CASH-FLOW GENERATION, DIVERSIFIED BUSINESS MIX We initiate coverage on with a BUY rating and a target price of Rs200/ share based on the FY2011E earnings multiple. We ascribe a P/E multiple of 18X to our FY2011E EPS of Rs10.8 for the company. We recommend BUY based on (1) likely order booking recovery in international geographies on back of recovery in oil price, additional geographies and government push for urban development (2) pick up in domestic EMP order booking and execution as IT/ITES segment demand recovers, (3) strong operational cash flow generation characteristics, (4) diversified business mix of projects, products and services, and (5) strong execution track record with no dilution or corporate governance concerns. We value at Rs200/ share based on 18X FY2011E earnings. We have ascribed a target price of Rs200/ share based on 18X P/E multiple to FY2011E EPS of Rs10.8. Our valuation implies EV/EBITDA multiple of 12.3X to our FY2011E estimated EBITDA of Rs4.8 bn. We recommend BUY based on on (1) likely order booking recovery in international geographies on back of higher oil price, additional geographies and government push for urban development (2) pick up in domestic EMP order booking and execution as IT/ITES segment demand recovers, (3) strong operational cash flow generation characteristics, (4) diversified business mix of projects, products and services, and (5) strong execution track record with no dilution or corporate governance concerns. Reverse DCF implies moderate long term assumptions Our target price of Rs200/ share for implies (1) moderate revenue growth of 10% over FY2013E-21E, (2) EBIT margins of 7.8% from FY2013E-21E, (3) WACC of 12.5%, and (4) terminal growth rate of 5%. Exhibit 4: Target price implies 10% revenue growth and 7.8% EBIT margins over FY2013E-21E for DCF DCF valuation of, March fiscal year-ends, 2010E-21E (Rs mn) 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Revenues 49,381 56,982 63,962 70,358 77,394 85,134 93, , , , , ,819 Growth (%) EBIT (excl financial income) 4,444 5,032 5,657 5,453 5,998 6,598 7,258 7,983 8,782 9,660 10,626 11,689 Growth (%) (3.6) EBIT margins Effective tax rate EBIT*(1-tax rate) 2,937 3,326 3,741 3,599 3,959 4,355 4,790 5,269 5,796 6,376 7,013 7,714 Growth (%) (3.8) Depreciation / amortisation Change in working capital 306 (59) (62) (640) (704) (774) (851) (936) (1,030) (1,133) (1,246) (1,371) Capital expenditure (440) (490) (540) (640) (704) (774) (851) (936) (1,030) (1,133) (1,246) (1,371) Free cash flow 3,030 3,029 3,417 2,622 2,884 3,173 3,490 3,839 4,223 4,645 5,110 5,621 Growth (%) NM (0.0) 12.8 (23.3) Years discounted Discount factor Discounted cash flow 3,030 3,029 3,107 2,167 2,167 2,167 2,167 2,167 2,167 2,167 2,167 2,167 WACC calculation Terminal value Calc NPV Capital Structure Risk-free rate (Rf) 7.5% 10-year G-Sec yield Cash flow in terminal year 5,621 Net debt 18.7% Beta (B) 122.1% 2-year W. Beta against BSE 30 g 5.0% Equity 81.3% Equity risk premium 6.5% Capitalisation rate 7.5% Expected market Return (Rm) 14.0% Terminal value 78,691 Cost of Equity (Ke) 15.4% Ke = Rf + B * (Rm-Rf) Discount period (years) 10.0 Cost of Debt (Kd) (Post-tax) 8.0% Estimated gross cost of debt Discount factor 0.4 WACC 12.5% Discounted value 30,339 Calculated WACC 14.0% NPV Calc Sensitivity to growth and WACC assumptions NPV % of val % 4.5% 5.0% 5.5% 6.0% Sum of free cash flow 28, % Terminal value 30, % Enterprise value 59, % Add Investments 2, % Net debt (3,898) % Net present value-equity 65,144 Shares o/s 331 NPV /share(rs) 197 Source: Kotak Institutional Equities estimates 8 KOTAK INSTITUTIONAL EQUITIES RESEARCH

9 Industrials Historical P/E multiple shows premium to Sensex and discount to sector leaders Average premium of 9% over Sensex over the three years; premium has contracted from pre credit crisis levels and may revert back The company is currently trading at 9% premium to Sensex, which is same as its average historical premium over last three years. The average premium was in mid-20% before the sharp onset of credit crisis in October, The premium trend possibly reflects the cyclical nature of business. In our view, the company will revert closer to the premium that it used to trade before the credit crisis as the economy recovers and industrial activity picks up. We believe the premium to Sensex in a growing economy is justified due to the longevity of revenue visibility and alignment with strong investment theme. Exhibit 5: has historically traded at 9% average premium to Sensex over the past three years PE Chart of Sensex and based on 12-month rolling forward EPS, Nov-2006 to Nov (X) SENSEX Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Source: Kotak Institutional Equities Trading discount versus BHEL and L&T is likely to narrow down from current levels We highlight that over the past three years, i.e. Nov-2006 to Nov-2009, has been trading at an average discount of 25% to L&T and BHEL. Currently, the discount is broadly inline at 30% to L&T and 21% to BHEL. In our view, the discount to sector leaders is justified on account of (1) smaller sized subcontractor player versus main EPC contractors, (2) lower entry barrier, and (3) business more vulnerable to margin pressures. However, we believe that the discount should narrow down from its current levels. traded at an average discount of 17% to BHEL and L&T before the financial meltdown but trading discount widened during the slowdown period. BHEL, being a public sector company, had a much smaller contraction in its P/E multiple compared to peers during the slowdown. KOTAK INSTITUTIONAL EQUITIES RESEARCH 9

10 Industrials Exhibit 6: has traded at an average discount of 25% to sector leaders BHEL and L&T PE premium of versus L&T, BHEL and Sensex based on a 12-month rolling forward EPS, Nov06 Nov (%) Premium to L&T Premium to BHEL Premium to Sensex 50 0 (50) (100) Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Source: Bloomberg, Kotak Institutional Equities Trading at discount to historical EV/EBITDA multiple is currently trading at 11.7X rolling forward EV/EBITDA, about 11% lower than the last three-year and five year average of 13X. Exhibit 7: has historically traded at an average EV/EBITDA of 13X over the past three years EV/EBITDA chart for based on 12-month rolling forward EBITDA, Nov-2006 to Nov (X) Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Source: Kotak Institutional Equities estimates Domestic institutions hold but FII ownership is insignificant We highlight that is an over-owned stock in the institutional category of investors, particularly among MFs, which may make it susceptible to sharp corrections in case of disappointments. 10 KOTAK INSTITUTIONAL EQUITIES RESEARCH

11 Industrials Exhibit 8: Several institutions hold sizeable chunks of free float of the company Over/under ownership of of various investors versus BSE 200 benchmark % of portfolio Benchmark FIIs MFs Insurance LIC BSE Overweight/Underweight NA Source: Kotak Institutional Equities Recent outperformance underscores stock reverting to historical discount stock has outperformed the Sensex and its peers over the past 12 months. However, if we put this perspective with the relative performance over the past two years to capture the entire period of global slowdown, the stock has slightly underperformed the Sensex. Exhibit 9: has outperformed the Sensex and most peers over the last one year Absolute and relative stock price performance of and peers Absolute Relative to BSE-30 Price performance 1M 3M 12M 24M 1M 3M 12M 24M (16.3) (5.1) BHEL (9.0) (16.8) (7.4) (11.0) (7.4) (5.6) L&T (2.0) (23.4) (0.4) (12.2) CG Siemens (3.9) (41.3) (2.3) (30.1) Blue Star (12.3) (14.9) (10.8) (12.6) (3.2) (3.7) Source: Kotak Institutional Equities Better asset turnover leads to stronger RoE inspite of lower margin and leverage We highlight that has higher RoE than industrial leaders, such as BHEL and L&T on account of better asset turnover. majority of revenues come from MEP and HVAC project businesses, which require low capital employed. Asset turnover and RoE higher than industry leaders but trails Blue Star If we also compare to Blue Star, its closest competitor in terms of business mix, the latter is clearly ahead in terms of both PAT margins as well as asset turnovers. Exhibit 10: has higher RoE than industrial leaders but lower than closest competitor DuPont analysis for and its peers, March fiscal year-ends, (Rs mn) BHEL L&T CG Thermax Blue Star Sales 32,029 43, , , , ,799 68,323 87,373 35,254 35,007 22,216 25,523 PAT 1,760 2,284 28,589 31,263 22,715 29,355 4,098 5,625 2,907 2,889 1,741 1,803 Average asset 5,936 8,193 98, , , ,698 20,289 23,595 6,758 8,780 3,010 3,454 Average equity 5,005 6,835 97, ,565 96, ,856 11,353 15,664 6,747 8,760 2,383 3,153 PAT margin (%) Asset turnover (X) Leverage (X) RoE (%) l Source: Kotak Institutional Equities Monetization of Hyderabad land parcel may provide additional upside is likely to monetize its 32 acres of land in Santnagar, five km from the old Hyderabad airport, once the real estate market turns around. This would provide an additional upside to the stock. Monetization may happen sooner to fund acquisitions in the water management business. We estimate the value of real estate to be about Rs3.2 bn, which would imply about Rs10/ share. We have estimated a value of about Rs2,000 per sq. ft, i.e. Rs100 mn per acre for our calculation. has already demonstrated real estate monetization by leasing out extra space in its corporate complex in Mumbai to Tata Teleservices and Nielson and renting the Ballard Estate building to SBI. KOTAK INSTITUTIONAL EQUITIES RESEARCH 11

12 Industrials Exhibit 11: trades at discount to KIE sector average on a P/E basis valuation compared to KIE industrial sector coverage universe, March fiscal year-ends, E Shares Market Target Implied FY2011E multiples o/s Cap price P/E EV/EBIDTA P/B P/E multiple at current price (X) Rating CMP (mn) (Rs bn) (Rs) (x) (x) (x) E 2011E 2012E Electrical equipment BHEL ADD 2, ,114 2, ABB REDUCE Suzlon ADD 73 1, (30.4) Siemens ADD Crompton Greaves BUY Electrical equipment aggregate 1, Engineering & construction L&T ADD 1, , BGR Energy Systems ADD BUY Engg & construction aggregate 1, Defense Bharat Electronics ADD 1, , KIE sector aggregate 2, EV/EBIDTA (X) P/B (X) EV/sales (X) E 2011E 2012E E 2011E 2012E E 2011E 2012E Electrical equipment BHEL ABB Suzlon Siemens Crompton Greaves Electrical equipment aggregate Engineering & construction L&T BGR Energy Systems Engg & construction aggregate Defense Bharat Electronics KIE sector aggregate EPS (Rs) RoE (%) RoCE (%) E 2011E 2012E E 2011E 2012E E 2011E 2012E Electrical equipment BHEL ABB Suzlon 1.5 (2.4) (4.6) Siemens Crompton Greaves Electrical equipment aggregate Engineering & construction L&T BGR Energy Systems Engg & construction aggregate Defense Bharat Electronics KIE sector aggregate Note: (1) FY2009 refers to Y/E Dec 2008, and so on for ABB and Y/E Sep 2008, and so on for Siemens. not included in sector aggregates Source: Kotak Institutional Equities estimates 12 KOTAK INSTITUTIONAL EQUITIES RESEARCH

13 Industrials PROFILE: ENGINEERING PROJECTS, PRODUCTS AND SERVICES IN MIDDLE EAST AND INDIA, a part of the Tata group of companies, is a leading player in turnkey electro-mechanical projects, and engineering and cooling products. has three broad business segments electromechanical projects, engineering projects and services, and unitary cooling products. Rohini Industrial Electricals Ltd is a recently acquired subsidiary with expertise in electrical and instrumentation projects., established in 1954 as a JV between Swiss firm Volkart Brothers and Tata Sons Limited, is a leading player in turnkey MEP (Mechanical, Electrical and Public health) projects, and engineering and cooling products. Operations of the company are organized as three business segments Electro-Mechanical Projects (EMP), engineering products and services and Unitary Cooling Products (UCP). Exhibit 12: Standalone business across three business units ' business mix grouped under various heads Electro-Mechanical Projects (EMP) Engineering products and services Unitary Cooling Products (UCP) Others Domestic Mining and construction equipment Room airconditioners Agro and industrial products International Material handling equipment Commercial refrigerators Textile machinery Water coolers Pollution control equipment Source: Company Diversified business mix of projects, products and services The EMP segment undertakes EPC contracts for HVAC (Heating Ventilation and Air Conditioning) and MEP (Mechanical Electrical and Public health) projects, primarily in the Middle East and India. Engineering products and services segments provide agency services marketing, installation and maintenance for its Indian and international principals in three product lines mining and construction equipment, material handling equipment, and textile machinery. The unitary cooling products segment manufactures and sells room ACs, commercial refrigerators and water coolers. EMP contributes to about two-thirds of standalone revenues and EBIT The EMP segment is the main stay of the business as it contributed 63% of the FY2009 standalone revenues of Rs40 bn. The EMP share of FY2009 standalone EBIT of Rs3.3 bn stood at 59%. UCP comes next with 23% revenue and 21% EBIT contribution in FY2009. Margins in the EMP and UCP businesses are lower than those in engineering products and services as about 20% of the latter is agency business. KOTAK INSTITUTIONAL EQUITIES RESEARCH 13

14 Industrials Exhibit 13: Electromechanical projects contributed 63% to revenues and 59% to EBIT in FY2009 Segment-wise distribution of standalone revenue and EBIT, March fiscal year-ends, 2009 Unitary cooling products 23% Revenues (Rs40 bn) Others 1% Unitary cooling products 21% EBIT (Rs3.3 bn) Others 1% Engineering projects 13% Electromechanical projects 63% Engineering projects 19% Electromechanical projects 59% Source: Kotak Institutional Equities, Company 30% CAGR of standalone revenues from FY2005 to FY2009 standalone revenues have grown at 30% CAGR over FY2005 to FY2009, fuelled by 33% CAGR in EMP revenues led by the strong international business. Engineering products and services revenue grew at 36% CAGR over the same period despite the slowdown in FY2009. This segment registered 53% CAGR from FY2005 to FY2008 to constitute 19% of standalone revenue by FY2008 but shrunk to 13% of standalone revenue in FY2009 as the segment was severely hit by the economic downturn. Universal cooling products have registered 21% CAGR over the four-year period and shrunk from 30% of revenues in FY2005 to 22% of revenues in FY2009. Exhibit 14: 30% CAGR of standalone revenues over FY led by strong growth in EMP Segment-wise revenue of, March fiscal year-ends, (Rs mn) 50,000 Electromechanical projects (LHS) Unitary cooling products (LHS) Engineering products (LHS) Growth in total revenues (RHS) (%) 40 40, , ,000 10, Source: Company, Kotak Institutional Equities Revenue and EBIT mix shifted in favor of EMP as product businesses contracted In FY2009 we see a shift in the revenue mix as we see the EMP segment share of revenue going up to 63% of standalone revenue from 53% in FY2008 on the back of huge order inflows from the Middle East. The engineering products and services segment, badly hit by the economic downturn, lost about 6% in its share of contribution to standalone revenues over the same period. 14 KOTAK INSTITUTIONAL EQUITIES RESEARCH

15 Industrials Exhibit 15: Revenue mix changed in favor of EMP as product businesses contracted Segment wise distribution of standalone revenues, March fiscal year-ends, E UCP 25% FY2007 Revenues (Rs25 bn) Others 2% UCP 27% FY2008 Revenues (Rs31 bn) Others 1% FY2009 Revenues (Rs40 bn) Others 1% UCP 23% EPS 18% EMP 55% EPS 19% EMP 53% EPS 13% EMP 63% Source: Company, Kotak Institutional Equities Engineering products and services has contributed proportionately higher to the standalone EBIT compared to the revenue share of the segment in standalone revenues as bulk of this segment is an agency business. The EBIT contribution of engineering segment has come down substantially over FY2007 to FY2009 as (1) the segment contracted during the economic slowdown, and (2) profitability in EMP and UCP segments increased. Exhibit 16: EBIT mix changed sharply as engineering products revenues and margins contracted Segment wise distribution of standalone EBIT, March fiscal year-ends, E UCP 5% FY2007 EBIT (Rs1.7 bn) UCP 18% FY2008 EBIT (Rs2.9 bn) Others 1% UCP 21% FY2009 EBIT (Rs3.3 bn) Others 1% EMP 39% EMP 42% EPS 56% EPS 39% EPS 19% EMP 59% Source: Company, Kotak Institutional Equities 36% CAGR in EBIT driven by revenue growth and margin expansion in EMP The standalone EBIT of the company grew faster than revenues as the overall EBIT margins improved from 6.7% in FY2005 to 8.1% in FY2009. EMP once again led the pack with the segment EBIT growing at 46% CAGR over the same period. The UCP segment has also come to profitability since FY2007. Engineering products and services EBIT over FY2005 to FY2009 has grown at a modest 12%, primarily on account of slowdown in business in FY2009. KOTAK INSTITUTIONAL EQUITIES RESEARCH 15

16 Industrials Exhibit 17: Standalone EBIT has increased 36% over FY led by electromechanical projects Standalone segment-wise EBIT of, March fiscal year-ends, (Rs mn) (Rs mn) 4,000 Electromechanical projects Engineering products Unitary cooling products 3,000 2,000 1, (1,000) Source: Company, Kotak Institutional Equities Standalone EBIT margins have improved over time, except in engineering products standalone EBIT margins have improved from 6.7% in FY2005 to 8.1% in FY2009, primarily driven by margin improvement in EMP and UCP. EMP margins have increased on the back of a boom in construction activity in target geographies. UCP segment has been profitable since FY2007 and has shown significant margin improvement to reach 7.25% in FY2009 as the company shifted manufacturing from Dadra and Hyderabad plants to Pantnagar plant. Engineering products and services segment blended EBIT margin has declined from 25% to 12% over the same period due to a contraction in industrial activity and possibly higher contribution of in-house manufactured products to sales which is lower margin than agency business. Exhibit 18: EBIT margins are up on increasing profitability in EMP and UCP segments Standalone segment-wise EBIT margins of, March fiscal year-ends, (Rs mn) (%) Electromechanical projects Unitary cooling products Engineering products Segment (10) Source: Kotak Institutional Equities 16 KOTAK INSTITUTIONAL EQUITIES RESEARCH

17 Industrials Capital employed increased in engineering products as agency business reduced Capital employed in engineering products as percentage of sales has increased to 24% at end-fy2009 versus 14% at end-fy2008. The increase was primarily on account of increasing inventory in the mining and construction business. Capital employed in the EMP segment as percentage of EMP revenues reduced to 1% at end-fy2009 compared to 10% at end- FY2008 possibly because the company secured large international projects and related advances. Overall capital employed as percentage of revenue increased to 21% at end- FY2009 compared to 19% at end-fy2008. Exhibit 19: Capital employed has increased in engineering segment during downturn Segment-wise capital employed as % of revenues, March fiscal year-ends, (%) Electromechanical Projects Unitary Cooling Products Engineering products and services Overall Source: Company, Kotak Institutional Equities The management mentioned that they intend to operate EMP with negative capital employed. reported absolute capital employed in EMP of negative Rs841 mn at end- 1HFY10 compared to Rs370mn at end-fy2009. Management also highlighted that receivables in domestic EMP have gone up in 1HFY10 although more than compensated by international businesses. Manufacturing facilities in Pantnagar and Thane has ISO9001:2000 certified manufacturing plants in Pantnagar and Thane, and a total workforce of about 800 people in manufacturing. and its subsidiaries make room ACs, commercial refrigerators and water coolers for UCP business, and forklift trucks, cranes and warehousing equipment for engineering products business. Full scale benefits of Pantnagar plant are yet to be achieved The management explained that the main reasons for shifting the manufacturing plant to Pantnagar were (1) lower wage levels, (2) lower power tariff, (3) excise exemption, and (4) income tax benefit. While lower labor costs and income tax benefits have been realized, full potential benefits of power tariff and excise exemption are still to come. State-provided electricity cost is lower in Uttaranchal than in Andhra Pradesh, however, limited power availability forces to use alternate sources, which drives up costs. Full potential costs savings should be realized once the state supply ramps up. enjoys perpetual excise exemption on Pantnagar manufacturing. However, benefits achieved have been subdued on account of lower excise tariff after government stimulus. Incorporation of GST will potentially annul the excise benefits altogether. KOTAK INSTITUTIONAL EQUITIES RESEARCH 17

18 Industrials Key subsidiaries are RIEL, UCPL and Weathermaker Exhibit 20: RIEL is the most significant subsidiary in terms of revenue and PAT contribution Revenue breakup of among various entities, March fiscal year-end, 2009 Rohini Industrial Electricals (RIEL) Univeral Comfort Products (UCPL) Revenues PAT Owned (Rs mn) (Rs mn) Country (%) Description 1, India 67.3 Executes electrical & instrumentation contracts for power, process, industrial and commercial projects 1,527 (177) India Manufactures window and split AC for, was a 50:50 joint venture company between and Fedders International Provides air distribution systems, manufactures Galvanised Iron, Aluminium, Black Mild Steel and Stainless Steel ductwork Trades in mechanical and industrial machinery, engineering goods and allied products Investment in overseas ventures, undertaking turnkey projects and trading activities. Incorporated in 1999 for investment in overseas ventures, undertaking turnkey projects and trading activities. 149 (146) Saudi Arabia Execution and operations / maintenance of electro mechanical installations in KSA Weathermaker (WML) Isle of Man Metrovol FZE UAE VIL Overseas (VOEBV) Netherlands Voice Antilles NV (VANV) Netherlands Saudi Ensas Company for Engg Services (SECL) Simto Investment 7 7 India 95.5 Investment company hold equity of various listed companies Source: Company, Kotak Institutional Equities acquired 51% stake in Rohini Industrial Electricals Limited (RIEL) in Sept-2008, and later increased it to 67% in Aug-2009 for a total cost of Rs866 mn. RIEL, incorporated in 1983, executes turnkey electrical and instrumentation contracts. Scope of electrical work includes supply, installation, testing and commissioning of EHV/HV switchyards, interior and street lightning, CCTV and access control systems, and telephone and data cabling. Instrumentation work includes temperature, flow/level, and process control instruments. RIEL revenues have grown at a CAGR of 40% over the past five years to reach Rs1,910 mn in FY2009. RIEL reported FY2009 PBT of Rs181 mn and PAT of Rs118 mn. Exhibit 21: RIEL revenues have grown at a CAGR of 40% over FY Revenue of Rohini Industrial Electricals Limited, March fiscal year-ends, (Rs mn) (Rs mn) 2,500 Revenue (LHS) Growth in total revenues (RHS) (%) 70 2, , , Source: Company, Kotak Institutional Equities UCPL AC manufacturing arm of UCPL manufactures window and split ACs for. Dadra manufacturing plant was closed in Dec-2008 on account of high input costs. Pantanagar is now the manufacturing hub for cooling appliances. UCPL reported net loss of Rs177 mn for FY2009 which includes exceptional items of Rs100 mn related to the closure of Dadra plant. 18 KOTAK INSTITUTIONAL EQUITIES RESEARCH

19 Industrials Recent changes in subsidiary holdings RIEL, UCPL, chemical trading business sold its chemical business in March-2009 to DKSH India Pvt. Ltd for Rs159 mn. According to the management, the chemical business was not in line with the core focus of the company and hence they divested. Exhibit 22: has acquired 67% stake in RIEL and sold its chemical trading business Recent changes in subsidiary holdings for Acquired Post-deal stake Deal value (%) (%) (Rs mn) Date Description REIL Aug-2009 Purchased 0.3 mn shares of RIEL to increase stake from 51% to 67.3%. Deal values RIEL at Rs1.4 bn. Chemicals trading business (100.0) Mar-2009 sold its chemicals trading business to DKSH India Pvt. Ltd. SECL Feb-2009 Local partner transferrd 51.0% stake to. had earlier provided finance to SECL of Rs134.8 mn UCPL Jun-2008 Fedders (JV partner) transferred 50% stake to. Source: Company, Kotak Institutional Equities Diversified holding; promoter group owns 28% of shareholding The promoter group owns 28% of the total shareholding, followed by individuals who own 22%. 20% of the shares are held by individuals with up to 100,000 shares each. Insurance companies come in next with 16% holding while mutual funds/uti hold 13% of the total shares. In September 2008, ranked top in the Business Today s list of India s Most Investor-Friendly Companies, which is an indicator of the company s policies and practices towards investors. Exhibit 23: Diversified shareholding, promoter group owns 28% shareholding pattern as on Sept 30, 2009 Individuals 22% Others 1% Promoter and promoter group 28% Corporate bodies 9% Insurance companies 16% FIIs 11% Mutual funds / UTI, FIs and banks 13% Source: Company, NSE Exhibit 24: List of public shareholders having greater than 1% holding in as on Sep 30, 2009 # of shares as % of Name of the shareholder (mn) total LIC of India ICICI Prudential Life Insurance Company Ltd General Insurance Corporation Of India LIC of India Market Plus- I PCA India Infrastructure Equity Open Limited The New India Assurance Company Limited Tata Trustee Co Pvt Ltd A/C Tata Mutual Fund Tata Infrastructure Fund Blackrock India Equities Fund (Mauritius) Ltd The Oreintal Insurance Company Limited Total l Source: NSE KOTAK INSTITUTIONAL EQUITIES RESEARCH 19

20 Industrials ELECTRO-MECHANICAL PROJECTS: LEADING PLAYER IN MIDDLE EAST AND INDIA undertakes detailed engineering, procurement, installation, testing and commissioning of a variety of equipment for HVAC (Heating Ventilation and Air Conditioning) / MEP (Mechanical Electrical and Public health), integrated building management and other specialized systems. In MEP package, mechanical works include heating, ventilation, air-conditioning, refrigeration and lifts, electrical works include the total electrification package and public works include drainage, sanitation and plumbing. The key customers are developers of closed spaces buildings, airports, hotels, retail establishments, malls, entertainment complexes, BPOs, IT/ITES etc. A bulk of the EMP business is based in India and the Middle East, primarily Abu Dhabi, Qatar, Dubai and Bahrain. The company has also executed a couple of projects in Singapore and Hong Kong. The scope of the work varies amongst geographies. Most overseas projects have been turnkey MEP packages. In India, the projects used to be primarily HVAC but there is a trend in the industry to move towards integrated MEP to drive down costs. Exhibit 25: Map of Middle East Source: Kotak Institutional Equities High growth in construction activity in company s target geographies has fuelled 33% revenue CAGR over FY2005 through FY2009. Segment EBIT margins have also improved from 5.3% to 7.6% over the same period. 20 KOTAK INSTITUTIONAL EQUITIES RESEARCH

21 Industrials Numerous prestigious MEP and HVAC orders under its belt Exhibit 26: Iconic international MEP projects executed by Burj Dubai Ferrari Theme Park, Abu Dhabi F1 Race Track, Abu Dhabi Changi Water Treatment Plant, Singapore Source: Company, Kotak Institutional Equities has secured and executed numerous prestigious orders in the EMP segment both in India and abroad. Prominent international orders include MEP for Burj Dubai (US$85 mn), MEP for Bahrain City Center (US$106 mn), EM work for Formula-1 race track in Abu Dhabi (US$80 mn) and MEP for Changi Water Reclamation Plant in Singapore (US$68 mn). KOTAK INSTITUTIONAL EQUITIES RESEARCH 21

22 Industrials Exhibit 27: Key large international orders secured by Projects size Client (US$ mn) Burj Tower 85 Bahrain City Centre 106 Sidra Medical and Research Center NA Movenpick Deira Hotel and Centre Residence NA Ferrari Experience theme park 90 Etihad Towers NA Formula 1 Race Track 80 Emirates Palace Hotel 101 Changi Water Reclamation Plant 68 Jumeirah Beach Residence 45 New Hong Kong International Airport 40 Wafi Hotel & Mall 28 Abu Dhabi Shopping Mall 18 Villaggio Shopping Mall 17 Cyberport 13 Marina Mall Extension 13 Etisalat Building 12 KCRC Metro Rail Stations 11 Mall of the Emirates 8 Science Park Building 5 Male International Airport 4 Source: Kotak Institutional Equities, Company Key domestic projects include Rajiv Gandhi International Airport in Hyderabad, Chennai International Airport, Magrapatta Cybercity in Pune, and TCS office complexes in Chennai and Hyderabad. Exhibit 28: Key HVAC orders secured in India by Client City Client City INOX Leisure Ltd Ahemdabad Sahara Ganj Lucknow Dell Whitefield Bangalore Saifee Hospital Mumbai Dell Chandigarh ITC Mumbai Chennai International Airport Chennai Shoppers Stop Mumbai TCS IT Park Chennai Crossroads Shopping Mall Mumbai Ambi Mall Delhi IL&FS Head Office Mumbai Scope Twin Towers Delhi Cinemax Mumbai Fortis Hospital Delhi Galleria Mall Mumbai Indira Gandhi Indoor Stadium Complex Delhi Mumbai Airport Mumbai TCS Office Complex Hyderabad Lodha Excellus Mumbai Hyderabad International Airport Hyderabad Naptune Mall Mumbai IMAX 3D Theatre Hyderabad INOX Leisure Ltd Pune NSCB International Airport Kolkata Magarpatta Cybercity Pune Source: Kotak Institutional Equities, Company has established its reputation in MEP space in the Middle East market ' overseas MEP business received two key awards: for 'MEP Project Manager of the Year' and 'Health & Safety' at the MEP Middle East Awards 2008, underscoring the company s strong reputation in the MEP business in its target geography. 22 KOTAK INSTITUTIONAL EQUITIES RESEARCH

23 Industrials Exhibit 29: has established its reputation in MEP space in Middle East received MEP Project Manager of the Year award in MEP Middle East Awards 2008 Source: MEP Middle East Awards has executed several iconic projects in the region, such as Burj Dubai, F1 race track and Ferrari theme park in Abu Dhabi, which has established the company among the top MEP contractors in the region. Exhibit 30: is among the leading MEP contractors in Middle East and has executed several iconic projects Leading MEP contractors in Middle East Company Middle-East employees World-wide employees Countries of operation in Middle-East Recent projects Emirates Trading Agency (ETA) Burj Dubai; Dubai Light Rail; Ethihad Airport 18,000 20,000 UAE, Qatar, Kuwait, India M&E Terminal, Abu Dhabi; Delhi airport Thermo 16,000 16,000 UAE, Qatar Dubai International airport; Jebel Ali airport Drake & Scull International 7,000 7,000 Dubai, Abu Dhabi Infinity Tower and Tiara Towers in Dubai; Tiara Residences and Hotel (Palm Jumeirah) State Group International 6,000 NA UAE, Qatar, Kuwait, India Palm Island and Discovery Gardens in Dubai 5,000 10,000 Bader Al Mulla & Bros 4,400 NM Dubai, Kuwait Dubai, Abhu Dhabi, Qatar, Saudi Arabia Al Habtoor 3,000 3,500 Dubai, Abu Dhabi Cansult Maunsell 3,000 35,000 Most Middle-East countries Atkins 2,500 18,000 Most Middle-East countries Burj Dubai; Ferrari Theme Park and F1 Race Track in Abu Dhabi Sky Gardens and DIFC (Dubai); Avenues Mall and Al Maidan Hospital (Kuwait) Movenpick Hotel (Dubai); Palm Jumeirah (Dubai); Sadiyaat Island (Abu Dhabi) Etihad Towers, Abu Dhabi; Barwa City Development, Qatar Bahrain World Trade Centre; DIFC, Dubai; Durrat al Bahrain Rotary International 1,450 8,000 Dubai, Abu Dhabi, Qatar Ibis and Atlantis (Dubai) Hyder Consulting 1,400 4,500 Abu Dhabi, Bahrain, Qatar Burj Dubai and City of Arabia, Dubai; Lusail and Education City, Qatar Source: Construction weekly online July 2008, Kotak Institutional Equities Order book of Rs44 bn provides 1.5 years visibility, inflows slow in FY2010 EMP segment order book stood at Rs44 bn, as at end of 2QFY10, down Rs12 bn yoy and Rs3.5 bn from end-fy2009. The current order book is made up of Rs31 bn in the international segment and Rs13 bn in the domestic segment. This order book is about 1.5 times the estimated FY2010E revenues of EMP segment and is completely executable by end- FY2011E. This provides some level of comfort for revenue visibility and the ability of the company to sustain as the Indian and Middle Eastern economies recover. KOTAK INSTITUTIONAL EQUITIES RESEARCH 23