Hydro S&S Industries Ltd

Transcription

1 Q2FY11 Result Update Enhancing investment decisions

2 Explanation of CRISIL Fundamental and Valuation (CFV) matrix The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP). CRISIL Fundamental Grade Assessment CRISIL Valuation Grade Assessment 5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (1-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-1% from CMP) 2/5 Moderate fundamentals 2/5 Downside (negative 1-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP) Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Additional Disclosure This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer: This Exchange-commissioned Report (Report) is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assumes the entire risk of any use made of this data / Report. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

3 Swinging back to profit November 2, 21 CFV MATRIX Fair Value Rs 37 CMP Rs 33 Fundamental Grade Valuation Grade 3/5 (Good fundamentals) 4/5 (CMP has upside) Excellent 5 Industry Chemicals Hydro S&S Industries Ltd s (Hydro s) Q2FY11 revenues were in line with CRISIL Equities expectations buoyed by strong growth in the domestic automobile industry, which supported demand for the company s polypropylene (PP) compounds. Our stance for the rest of the year remains stable on the back of a) positive outlook for the automobile industry and b) ramp-up in production of Tata NANO car, for which Hydro is an exclusive supplier of PP compounds. We expect these factors to continue to support higher sales and profitability. Consequently, we maintain our earnings estimates for FY11 and FY12, and our fundamental grade of 3/5. Q2FY11 result analysis Hydro s Q2FY11 revenues increased 32.7% y-o-y to Rs 34 mn driven by strong demand for PP compounds from the automobile industry. EBITDA was higher at Rs 24 mn in Q2FY11 (up 76.3%) from Rs 13.8 mn in Q2FY1, primarily on account of higher sales and improved realisations. Raw material cost as a percentage of sales declined to 81.73% in Q2FY11 from 82.19% in Q2FY1. The increased realisation and operating leverage supported expansion in margins by 177 bps y-o-y to 7.1% in 2QFY11. The improved operating performance helped Hydro report positive earnings of Rs 3.6 mn in Q2FY11 compared with a net loss of Rs 1.6 mn in Q2FY1. EPS was Rs.6 in Q2FY11 compared with negative Rs.3 in Q2FY1. Key developments During 2QFY11, Hydro completed the second phase of capacity expansion (6, MTPA) at its manufacturing facility in Pune, taking its total capacity to 31, mtpa. Hydro started supplying PP compounds to Volkswagen India for its compact Polo model. Valuations: Upside from current levels We continue to value Hydro based on the discounted cash flow (DCF) method. Our fair value for Hydro is revised to Rs 37 due to rolling forward of our estimates from FY11 to FY12. At this value, the implied P/Es are 37.5x FY11 earnings estimate and 9.6x FY12 earnings estimate.the valuation grade is revised to 4/5. KEY FORECAST Key forecast (Rs mn) FY8 FY9 FY1 FY11E FY12E Operating income 1,168 1,184 1,93 1,431 1,849 EBITDA Adj PAT 54 (18) () 6 25 Adj EPS-Rs 8.2 (2.8) (.) EPS growth (%) 82.6 (134.3) (99.6) N.M Dividend yield (%) RoCE (%) RoE (%) 22. (7.2) (.) PE (x) 7.3 (11.5) N.M P/BV (x) EV/EBITDA (x) Source: CRISIL Equities estimate N.M: Not meaningful; CMP: Current Market Price KEY STOCK STATISTICS NIFTY 6,27 NSE Ticker HYDROS&S Face value (Rs per share) 1 Shares outstanding (mn) 6.5 Market cap (Rs mn)/( $ mn) 21/4.7 Enterprise value (Rs mn) /( $ mn) 483/ week range (Rs) (H/L) 75.5/3.1 Beta 1.5 Free float (%) 33.6% Avg daily volumes (3-days) 4,775 Avg daily value (3-days) (Rs mn).2 SHAREHOLDING PATTERN 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Fundamental Grade Poor PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m Hydro -.6% -16% -16.6% N.A.* NIFTY 4% 12% 15% 18% * Hydro was listed on NSE on January 11, 21 ANALYTICAL CONTACT Chetan Majithia (Head) chetanmajithia@crisil.com Amit kawle Vishal Rampuria Client servicing desk Strong Downside Valuation Grade Strong Upside 33.6% 33.6% 33.6% 34% 66.4% 66.4% 66.4% 66.43% Dec-9 Promoter FII DII Others akawle@crisil.com vrampuria@crisil.com clientservicing@crisil.com CRISIL EQUITIES 1

4 Q2FY11 Result Summary (Rs mn) Q2FY11 Q1FY11 Q2FY1 q-o-q(%) y-o-y(%) Net sales Raw materials cost Raw materials cost (% of net sales) 81.7% 84.2% 82.2% -248bps -46bps Employees cost Other expenses EBITDA EBITDA margin 7.1% 5.5% 5.4% 165 bps 177 bps Depreciation EBIT Interest and finance charges Operating PBT 4.4 (.8) (4.4) nm nm Other Income nm nm PBT 4.4 (.7) (4.2) nm nm Tax.9. (2.6) nm nm Minority Interest PAT 3.6 (.7) (1.6) nm nm Adj PAT 3.6 (.7) (1.6) Adj PAT margin 1.1% -.2% -.6% 128bps 169bps No of equity shares (Mn) Adj EPS (Rs) nm nm Source: Company, CRISIL Equities Improved sales realisation support margin expansion Cars and utility vehicles production on the rise Units in Thousands 8 6% 5% 6 4% 3% 4 2% 1% 2 % -1% % Strong automobile industry drive revenues Rs mn % 15% % -15% -3% -45% -6% Q2FY9 Q3FY9 Q4FY9 Q1FY1 Q2FY1 Q3FY1 cars and utility vehicles production Q4FY1 Q1FY11 Q2FY11 y-o-y growth (RHS) Q2FY9 Q3FY9 Q4FY9 Q1FY1 Q2FY1 Revenues [LHS] Q3FY1 Q4FY1 Q1FY11 Q2FY11 q-o-q growth [RHS] Source: Company, CRISIL Equities Source: Company, CRISIL Equities Revenues and EBITDA margins moving up Rs mn (%) Improvement in profitability Rs mn 3 5.4% 1% 2 1.3% 1.4% 1.1% -.2% 1 -.6% % % -2.9% % -1% % Q2FY9 Q3FY9 Q4FY9 Q1FY1 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q2FY9 Q3FY9 Q4FY9 Q1FY1 Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Revenues EBITDA Margins (%) (RHS) PAT PAT Margins (%) (RHS) Source: Company, CRISIL Equities CRISIL EQUITIES 2

5 Share price movement Fair value movement since initiation (Rs) (in ') Hydro S&S NIFTY Total Traded Quantity(RHS) SharePrice(LHS) Fair Value -Indexed to 1 Source: NSE Source: NSE VALUATION We continue to value Hydro based on the discounted cash flow method. Our fair value for Hydro is revised to Rs 37 due to rolling forward of our estimates from FY11 to FY12. At this value, the implied P/Es are 37.5x FY11 earnings estimate and 9.6x FY12 earnings estimate. One-year forward P/E band (Rs) One-year forward EV/EBITDA band (Rs) Hydro S&S 5x 7x 9x 1x 11x EV 3x 4x 5x 6x Source: CRISIL Equities P/E premium/discount to NIFTY 35% 3% 25% 2% 15% 1% 5% % Source: CRISIL Equities P/E movement (x) Premium/Discount to NIFTY Median 1yr Fwd PE (x) Average PE +1 std dev -1 std dev Source: CRISIL Equities Source: CRISIL Equities CRISIL EQUITIES 3

6 CRISIL IER reports released on Hydro S&S Industries Ltd Date Nature of report Fundamental grade Fair value Valuation grade CMP (on the date of report) 13- Initiating coverage* 3/5 Rs /5 Rs Q1FY11 result update 3/5 Rs /5 Rs Nov-1 Q2FY11 result update 3/5 Rs 37 4/5 Rs 33 * For detailed initiating coverage report please visit: CRISIL Equity research is also available on Bloomberg (CRI <go>) and Thomson Reuters. CRISIL EQUITIES 4

7 FINANCIALS Income statement Balance Sheet (Rs mn) FY 28 FY 29 FY 21 FY 211 FY 212 (Rs mn) FY 28 FY 29 FY 21 FY 211 FY 212 Operating income 1, ,184. 1,93.2 1, ,848.7 Liabilities EBITDA Equity share capital EBITDA margin Reserves Depreciation Minorities EBIT Net worth Interest Convertible debt Operating PBT 78.4 (28.7) (11.1) Other debt Other income Total debt Exceptional inc/(exp) Deffered tax liability (net) 43 PBT 8.8 (25.9) (4.6) Total liabilities Tax provision 27.2 (7.6) (4.5) Assets Minority interest Net fixed assets PAT (Reported) 53.6 (18.3) (.1) Capital WIP Less: Exceptionals Total fixed assets Adjusted PAT 53.6 (18.3) (.1) Investments Current assets Ratios Inventory FY 28 FY 29 FY 21 FY 211 FY 212 Sundry debtors Growth Loans and advances Operating income (%) (7.7) Cash & bank balance EBITDA (%) 74.9 (68.2) Marketable securities Adj PAT (%) 82.6 nm nm nm Total current assets Adj EPS (%) 82.6 nm nm nm Total current liabilities Net current assets Profitability Intangibles/Misc. expenditure EBITDA margin (%) Total assets Adj PAT Margin (%) 4.6 (1.5) (.) RoE (%) 22. (7.2) (.) Cash flow RoCE (%) (Rs Mn) FY 28 FY 29 FY 21 FY 211 FY 212 RoIC (%) Pre-tax profit 81 (26) (5) 1 38 Total tax paid (23) (1) 4 (3) (12) Valuations Depreciation Price-earnings (x) 7.3 (11.5) nm Working capital changes (66) (73) (91) Price-book (x) Net cash from operations (38) (38) EV/EBITDA (x) Cash from investments EV/Sales (x) Capital expenditure (63) (115) () (35) (5) Dividend payout ratio (%) Investments and others () (8) Dividend yield (%) Net cash from investments (64) (123) () (35) (5) Cash from financing B/S ratios Equity raised/(repaid) () () Inventory days Debt raised/(repaid) (2) 3 5 Creditors days Dividend (incl. tax) (9) - - (8) (8) Debtor days Others (incl extraordinaries) Working capital days Net cash from financing (2) Gross asset turnover (x) Change in cash posiiton () 2 47 (51) () Net asset turnover (x) Closing cash Sales/operating assets (x) Current ratio (x) Quarterly financials Debt-equity (x) (Rs Mn) Q2FY1 Q3FY1 Q4FY1 Q1FY11 Q2FY11 Net debt/equity (x) Net Sales Interest coverage Change (q-o-q) 12% 14% 9% -3% 1% EBITDA Per share Change (q-o-q) 46% 55% 11% -28% 41.5% FY 28 FY 29 FY 21 FY 211 FY 212 EBITDA margin 5.5% 7.4% 7.5% 5.6% 7.1% Adj EPS (Rs) 8.2 (2.8) (.) PAT (1.6) (.7) 3.6 CEPS Adj PAT (1.6) (.7) 3.6 Book value Change (q-o-q) -14% nm 16% -116% nm Dividend (Rs) Adj PAT margin -.6% 1.3% 1.4% -.2% 1.1% Actual o/s shares (mn) Adj EPS (.3).6.7 (.1).6 Note: All ratios are computed on Adj PAT; nm= Not Meaningful Source: Company, CRISIL Equities estimate CRISIL EQUITIES 5

8 CRISIL Independent Equity Research Team Mukesh Agarwal Director +91 (22) Tarun Bhatia Director, Capital Markets +91 (22) Chetan Majithia Head, Equities +91 (22) Sudhir Nair Head, Equities +91 (22) Nagarajan Narasimhan Director, Research +91 (22) Ajay D'Souza Head, Research +91 (22) Manoj Mohta Head, Research +91 (22) Sachin Mathur Head, Research +91 (22) Sridhar C Head, Research +91 (22) sridharc@crisil.com CRISIL s Equity Offerings The Equity Group at CRISIL Research provides a wide range of services including: Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate Other Services by the Research group include CRISINFAC Industry research on over 6 industries and Economic Analysis Customised Research on Market sizing, Demand modelling and Entry strategies Customised research content for Information Memorandum and Offer documents

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