Dagger Forst Tools Limited

Transcription

1 (DFTL) AVOID Issue Open: August 27,2007 Issue Close: September 03,2007 Sector : Machine Tools - Others Fixed Price Rs. 45 Issue Summary (Shares in million) Shareholding Pattern (In %) Total Equity Share in Issue 4.01 Pre-Issue Post-Issue Promoter's contribution 0.40 Promoters & PAC Net Issue To The Public 3.61 Public Shareholdings: Of Which Reserved for:- Institution - - Other than retail portion 1.80 Non - Institution Retail 1.81 Shares held by custodians Equity Share Outstanding Total Prior to the issue 4.65 Total no. of shares 4,654,935 11,986,039 After the issue DFTL has also made a right issue of 3.32mn shares at a price of Company Valuation Rs.33 per share which is closing on September 05,2007. Multiple DFTL Industry Avg. Financial Snapshot (Rs. In Million) Sales (Rs. in million) , Operating Profit (Rs. in million) FY 2007 FY 2006# Jun-05 Jun-04 ^ RONW (%) Sales OPM (%) Total Income NPM (%) Optg Profit P/E (45) Net Profit Price to Book Value ( 45 ) 2.24 EPS* Share capital Res&Surplus Networth Total Debt Book Value* *The no. of shares are of the post issue equity i.e mn shares. Objects of the issue: 1. Setting up a new plant for providing machining facility of castings at Aurangabad. 2. To repay the unsecured loan raised by DFTL for setting up the Gandhidham unit from Nirved Traders Private Limited. 3. To meet the margin money for working capital requirement for Aurangabad Project & meet the expenses of the issue. Company Snapshot - DFTL has grown at a CAGR of 8% in the topline, 6% in the EBITDA & 9% in the bottomline. - Strengths are: Highly customized production of the cutting tools; Presence in the industry since last 39 years; Monopoly in supply of gauges; One of the manufacturers of shaving cutters & hobs among the only two present in the organized sector; Competitive price due to lower cost of production particularly at Gandhidham; Established sales & technical service network in Europe, Asia as well as India. - Weakness are: Comparing to the industry, DFTL has the lowest Return on Networth & PAT margins (%); Low CAGR. - Opportunities are: Foray into castings; Export products to international markets. - Threats are: Promoters have no experience in the field of castings; Dependence on limited number of suppliers & no long term contracts for the same; Export obligation; Stiff competition. - The stock is available at a P/E of 47x at the issue price respectively. Industry Scenario - Players in the engineering and automobile industry are the major users of broaches & gear cutting tools. - A handful of organized players service 80 to 85 % market & balance need is met by small-unorganized sector & imports. Due to growth in auto sector & major growth in export of auto components, demand for these tools is expected to grow at 10 % p.a. for next 5 years. - The 2-wheeler segment is anticipated to grow to over 13 mn units a year with the turnover likely to increase four times to Rs 340 bn by 2010, implying a CAGR of 12%. - Indian passenger car industry, is expected to grow to 2.4 mn by the year 2010, against 416,000 in , which indicates a CAGR of 16%. - Exports of auto components are expected to increase to 25% of total revenue in the next 2 3 years. - The Indian foundry witnessed a robust growth in the last decade ranking sixth in the production of casting. Cumulative growth comes to 25% p.a. - Indian foundry industry is expected to have a production growth rate of approx 15% & export growth rate of 25%.

2 Company Background:- The company was incorporated in the year DFTL is a part of Yashovardhan Birla Group engaged in the manufacturing of highly specialized cutting tools viz. broaches, hobs, shaper cutters & shaving cutters (gear cutting tools). DFTL has manufacturing facilities at: Thane - Broach manufacturing plant; Aurangabad - Broach manufacturing plant; Aurangabad - Gauges manufacturing plant; Aurangabad - built-in hobs manufacturing plant; Aurangabad - Shaving cutters manufacturing plant & Gandhidhan - Manufacturing plant for existing products viz. broaches, gear hobs, shaving cutters etc. DFTL has had collaborations with : Technical collaboration with Oswald Forst GmbH, Germany; Technical collaboration with W. Forst Engineers, U.K.; Technical collaboration with Klingelnberg Sohne, Germany; Technical & commercial collaboration with Samputensili S.p.a. The promoter of DFTL is Mr. Yashovardhan Birla. Details of promoter being a company: Nirved Traders Private Limited; Birla Bombay Pvt. Limited; Asian Distributors Limited; Godavari Corporations Pvt. Limited; Shearson Investment & Trading Company Pvt. Limited & Birla Cotsyn (India) Ltd. (Formerly known as Birla Agro Private Limited). The products manufactured by DFTL are predominantly used in automobile & auto components, engineering & defense industries. Company Snapshot:- - DFTL has grown at a CAGR of 8% in the topline, 6% in the EBITDA & 9% in the bottomline. On a Y-o-Y basis, it has grown by 57% in the topline, 37% in EBITDA & 8% in the bottomline. - Strengths are: Highly customized production of the cutting tools; Presence in the industry since last 39 years; Monopoly in supply of gauges; One of the manufacturers of shaving cutters & hobs among the only two present in the organized sector; Competitive price due to lower cost of production particularly at Gandhidham; Established sales & technical service network in Europe, Asia as well as India. - Weakness are: Comparing to the industry, DFTL has the lowest Return on Networth & PAT margins (%); Low CAGR. - Opportunities are: Foray into castings; Export products to international markets. - Threats are: Promoters have no experience in the field of castings; Dependence on limited number of suppliers & no long term contracts for the same; Export obligation; Stiff competition. - The clientele in different segments that DFTL caters to includes: Automobile industry - Maruti Udyog, Mahindra & Mahindra, Tata Motors, Hyundai Motors, Toyota, Honda, Bajaj Auto, Hero Honda, L&T John Deere, Etc; Defence/Government Vehicle Undertakings - Factory, Jabalpur; MTPF, Ambernath; Nuclear Power Corpn; Heavy Vehicle Factory, Avadi; Ordinance Factory, BHEL, etc; Railways - DCW, DLW; Export Customers - Germany, U.K., Italy, South Korea, Taiwan, Australia, etc; Major Customers : General Electric, Graziono, Forst Tech, Forst Cardinal, Hyundai, TRW. - The business strategy of DFTL are: (a) Domestic Market: With the considerable uptrend in the domestic market for various automobile sectors & defense & power sectors, DFTL has an adequate order book and expects a similar trend in the future. (b) Exports: The potential in the major five countries being focused i.e. Germany, U.K., Korea, Iran & China, is very large. In comparison to their potential, the target set by DFTL for exports is not even 3%-5% of their total market requirements for its products. Thus, it is less difficult to achieve this market growth. - The shares of DFTL are already listed at BSE & NSE. The BSE code for the same is The NSE code is DAGERFORST. DFTL had come out with it's first IPO in the year 1985.

3 Industry Scenario:- + Players in the engineering and automobile industry are the major users of broaches & gear cutting tools. + A handful of organized players service 80 to 85 % market & balance need is met by small-unorganized sector & imports. Due to growth in auto sector & major growth in export of auto components, demand for these tools is expected to grow at 10 % p.a. for next 5 years. + The 2-wheeler segment is anticipated to grow to over 13 mn units a year with the turnover likely to increase four times to Rs 340 bn by 2010, implying a CAGR of 12%. + Indian passenger car industry, is expected to grow to 2.4 mn by the year 2010, against 416,000 in , which indicates a CAGR of 16%. Further, the entry of foreign players like Hyundai, Ford, Mitsubishi, etc. has increased the demand potential for quality tools & components,. More international players, such as Toyota, Honda Motors, etc. are also investing heavily in India, boosting the tooling requirement. + In addition, the auto component export is also growing substantially as many plants are shifting from US/UK to India for manufacture of components. Examples are DANA Spicer, Fairfield etc. These have considerably boosted broach & gear cutting tool requirement. The Auto Component export in is expected to be $ 1 bn & increase to $ 5 bn by the year Exports of auto components are expected to increase to 25% of total revenue in the next 2 3 years. + The Indian foundry witnessed a robust growth in the last decade ranking sixth in the production of casting. In , India produced 4.03 mn tones of grey iron, ductile iron, steel & non ferrous Casting. Grey iron casting production increased from 2.1 mn tones in to 2.84 mn tones in (+35%). During the same period ductile iron casting increased from 225,000 tones to 363,400 tones (+61.5%). Production of non ferrous casting rose from 210,000 tones to 340,400 tones (+62.05). In total turnover of foundries amounted to Rs 16,000Cr & value of exports was Rs 2000Cr. Cumulative growth comes to 25% p.a. + Main consumer of the foundries: 1. Indian automobile industry: Young with high growth rate.15% CAGR (last 3 years); 2. Europe / USA automobile industry: Matured growth rate. Nil to 1%. 3. Indian auto component industry: Vibrant with High growth 22% CAGR; 4. Auto component exports from India: CAGR 22%. About US $ 1.8 bn in ; 5. Major International Sourcing Bigwigs: Setting up and expanding production base in India. GM, Ford, Delphi, Cummins, Visetion, Carraro, etc. Toyota, Suzuki, Spicer, Fairfield, Gertrag. + Current & future prospects (growth rate) : 1. Automobile Industry Quite positive indications due to: (a) Good overall economy. (b) Thrust on infrastructure by Government. (c) Rationalization of VAT throughout India; 2. Auto component industry: Existing CAGR expected to continue as: (a) Present base still relatively small compared to global requirements. Volume in China about 3 to 4 times bigger. (b) Most European / US component manufacturers want to shift base to reduce cost. (i) Should be Shell Molding Casting size range for Automobile (i) Size range: 350 x 250 x 100 (ii) Weight : 0.2 ~ 8 Kg. (ii) Focus on high precision products with DF inputs for higher value. (iii) To cover more products with broaching / gear cutting which give higher value addition. Company* Multiple (Times) EPS Share Price Dividend/ Share EV/EBITDA P/E MCAP/SALES MTBV (Rs.) (Rs.) (Rs.) DFTL at Rs.45 FIXED Shanthi Gears Limited Lokesh Machines Batliboi Limited Kulkarni Power Tools Wendt India Limited *Source : Based on annualised figure of FY07 from RHP & Capitaline.

4 Income Statement Rs, mn Net Sales Inc/Dec in stocks Raw Materials Staff Costs Other Manufacturing Expenses Administrative Expenses Selling & Distribution Expenses Operating Expenditure Operating Income Other Income Gross Profits Interest charges Depreciation Profit Before Tax Tax Profit After Tax Extraordinary Items Net Profit FY 2007 FY 2006# Jun-05 Jun-04 ^ (4.20) (12.97) Cash Flow Statement Rs, mn FY 2007 FY 2006# Jun-05 Jun-04 ^ Cash flow from operations Cash for working capital Taxes paid Net Operating Cash Flow - A Purchase of fixed assets Proceeds from sale of assets Interest Received Net Cash Flow From Investing - B Proceeds / (Repayment) from borrowings Proceeds / (Repayment) from other borrowings Proceeds / (Repayments) inter corporate deposits Interest & Dividend payments Net Cash Flow From Financing - C Net Cash Flow (A+B+C) Opening Cash Closing Cash (55.89) 1.17 (14.25) (0.03) (6.01) (0.55) (0.54) (40.11) (199.05) (28.09) (6.52) (39.44) (197.31) (25.82) (5.67) (7.06) (8.76) (24.00) (29.70) (12.03) (30.65) (24.71) (22.05) (47.15)

5 Balance Sheet Rs, mn Sources of Funds FY 2007 FY 2006# Jun-05 Jun-04 ^ Equity Share Capital Reserves & Surplus Miscellaneous expenditure (written off) Networth Secured Loan Unsecured Loan Loan Funds Deferred Tax Liability, net Total Liability Application of Funds Gross Block Less: Accumulated Depreciation Net Block Capital work in progress Net Fixed Assets Investments Current Assets Inventories Sundry Debtors Cash & Bank Loans & Advances Less: Current Liabilities & Porvisions Net Current Assets Total Assets ^ Represents figures for 15 months. # Represents figures for 9 months. RONW OPM NPM FY 2007 FY 2006 FY 2005 FY % 4.52% 0.67% 3.87% 17.18% 19.62% 19.37% 18.21% 3.21% 4.66% 0.56% 3.13%

6 Objects of The Issue:- Sr. No. I. II. III. IV. Sr. No Particulars Setting up a new plant for providing machining facility of castings at Aurangabad. Repay the unsecured loan raised by DFTL for setting up the Gandhidham project from Nirved Traders Private Limited, promoter company. Margin money for working capital requirement for Aurangabad project. To meet the expenses of the issue. Total Particulars Rights issue of equity shares. Public issue of equity shares. Promoter's contribution in the public issue. Total Amount (INR,mn) Amount (INR,mn) The objects of the issue has not been appraised by any bank or any financial institution or an independent organization. Abhishek Kothari Research Associate abhishek.kothari@spasecurities.com SPA CAPITAL SERVICES LIMITED SPA MERCHANT BANKERS LTD. SPA SECURITIES LTD. SPA COMTRADE PRIVATE LIMITED SPA INSURANCE SERVICES LTD. Investment Advisory services, AMFI Reg. No. ARN-0007 SEBI registered Category-1 Merchant Bankers SEBI Regn. No. INM Member NSE-Capital Market & Wholesale Debt Markets,SEBI Regn.no. INB ,F&O Market,SEBI Regn.no. INF Member BSE-Capital Market,SEBI Regn.no.INB Member of NCDEX & MCX. NCDEX TMID-00729, NCDEX FMC no.ncdex/tcm/corp/0714 Direct Broker for Life and General Insurance broking IRDA Lic. Code No. DB053/03 NEW DELHI 25, C-Block Community Centre, Janak Puri, New Delhi Tel: (011) , , Fax: (011) B- 1A- 132, Sector-51, Noida Ph: Fax: , Qutab Plaza, DLF City, Phase- I, Gurgaon Ph: Fax: MUMBAI 101, 10th Floor, Mittal Court - 'A' Wing, Nariman Point, Mumbai Tel: (022) / Fax: (022) / KOLKATA Diamond Chambers, Room no. 8-O, 8th Floor, 4 Chowringhee Lane, Kolkata Tel: (033) Fax: (033) BANGALORE 703 & 704, 7th Floor, Brigade Tower, 135, Brigade Road, Corporation Division no. 61, Bangalore Ph: JAIPUR UL-15, Amber Tower, Sansar Chand Road, Jaipur Tel: (0141) / Fax: CHENNAI 3H, 3rd floor, East Coast Chambers, 92/34, G.N.Chetty, T. Nagar, Chennai Tel: (044) Fax: AHMEDABAD 407, Anand Mangal Complex - I, Behind Omkar House, C.G.Road, Navrangpura, Ahmedabad Tel: (079) Disclaimer: This information is for general purpose only, without regard to any specific objectives, financial situations and needs of any particular person. The information contained herein does not constitute an offer or an invitation for an offer to invest. These materials summarise certain points relating to the Offer and are not a comprehensive summary. Please note that this information is based on the disclosures made in the Red Herring Prospectus. Investors are requested to refer to the Red Herring Prospectus for risk factors, details about the issue and issuer company before taking any investment decision. SPA and/or its representatives do not accept any liability whatsoever direct or indirect that may arise from the use of the information contained herein. Inst. Dealing Desk : 101, 10th Floor, Mittal Court-'A' Wing, Nariman Point, Mumbai T e l. No. : , Fax No / E m a i l : cms@spacapital.com