14 th May, 2013 STRONG BUY TARGET Rs. 650 A Winning Candidate for Long Term Portfolios Sector : Commodity Chemicals Investment Rationale CMP : Rs. 472/share 1 Year TP : Rs. 650/share Elantas Beck India Ltd. (EBIL), a 5-decade old company, is the SENSEX : 19,698 Indian arm of Elantas GmbH, which has a 78.65% stake in SENSEX P/E : 17.10 EBIL. EBIL is the market leader in all the segments of liquid NIFTY : 5,985 insulation in India. NIFTY P/E :17.79 EBIL Industry EBIL manufactures a wide range of specialty chemicals for P/E 13.74 10.2 electrical insulation and construction industries. EBIL caters to 3 major business segments of Primary Insulation, Secondary Scrip Details Insulation and electronic and engineering materials. Its market Market Cap : Rs. 378 crs share in the Primary and Secondary Insulation segment is a Nominal Value : Rs. 10/Share whopping 38.4% and 41% respectively, makingitthemarket Share Capital : Rs. 8 crs leader in the liquid insulation segment in India. 52 Week H/L : Rs 2,139/ Rs 485 BSE Code : 500123 ELANTAS GmbH, the promoter company, diluted its stake from NSE Code : DRBECK 88.55% to 78.65% in February 2013, selling 7,85,198 shares at a premium of Rs. 645. EBIL s promoters stake is to be further Shareholding Pattern (%) diluted to 75% to comply with the Minimum Public Categories Mar 13 Dec 12 Shareholding norms of SEBI. Promoters 78.65 88.55 FII 2.59 1.24 DII 3.52 0.01 Others 15.24 10.20 TOTAL 100.00 100.00 Script Performance vs Broader Indices The company has declared a normal dividend of Rs. 4.50/share and a special dividend of Rs. 87.50/share in February 2013. This takes the total dividend up to Rs. 92/share, which, we believe is a bonanza for equity investors. EBIL hit a high of Rs. 2,599 with a market cap of Rs. 2,079 crs on 25 th April, 2012. Currently trading at a CMP of Rs. 472/share and a market cap of Rs. 378 crs, EBIL is currently available at one-fifth of its all time high Market Cap. Coupled with decent earnings, we expect EBIL to provide steady capital appreciation to long term portfolios. We recommend a STRONG BUY on EBIL with a 12 months Target Price of Rs. 650 /share. Q1FY13 Financial Performance (March 2013) (Rs. In Crs.) Particulars Quarter Ended % Change Nine Months Ended Q1FY13 Q4FY12 Q1FY12 Q o Q Y o Y Sept'12 Sept'11 %Chg Total Income 79 72 71 10% 11% 213 205 4% EBIDTA 11 6 8 83% 38% 25 27 7% PAT 9 6 10 50% 10% 21 19 11% EPS (Rs.) 11.69 8.13 12.05 26.66 24.12 Operating Margin (%) 14% 8% 11% 12% 13% PAT Margin (%) 11% 8% 14% 10% 9% Eq Sh. Cap 8 8 Reserves 120 177
EBIL Company Profile EBIL is the Indian arm of Elantas GmbH, and is the market leader in all the segments of liquid insulation in India. It was promoted by M&M Ltd., in collaboration with Dr. Beck & Co. Ltd., A.G. West Germany, and incorporated in 1956 as Dr. Beck & Company India Ltd. Present in India for 56+ years, itwasacquired by world s leading company in Liquid Electrical Insulation ELANTAS Gmbh, part of global specialty chemicals leader ALTANA Group, in 2003. It changed its name to ELANTAS Beck India in 2007. EBIL has impressive and well-equipped manufacturing and R&D facilities at Ankleshwar, Maharashtra and Pimpri, Gujarat, and boasts of a wide range of specialty chemicals for electrical insulation and construction industries (EIC) in 3 major business segments. EBIL s core business, which contributes to a huge 84% of its revenues, is the Electrical Insulation Systems (EIS) business, comprising the business lines Primary Insulation and Secondary Insulation. EBIL has leveraged upon the ALTANA Group s established global position and technological supremacy to establish a leadership position in Primary and Secondary Insulation. Its market share in the Primary and Secondary Insulation segment is a whopping 38.4% and 41% respectively, making it the market leader in the liquid insulation segment. ELANTAS GmbH The Parent Company ELANTAS GmbH is an established and leading Electrical Insulation Company that produces insulating materials for the electrical and electronics industry. It is a part of ELANTAS, the Electrical Insulation Division within the ALTANA Group. ELANTAS has production facilities around the world, and has established a leading international position for itself and is the world's leading manufacturer of wire enamels and impregnating resins. It is the supplier of choice for the electrical insulation industry. Hence international, renowned technology leaders are amongst the top customer base. It has 9 independent manufacturing companies in all major regions worldwide. In 2012, ELANTAS achieved sales of 412.5 million. The ALTANA Group The Holding Company ALTANA is a global specialty chemicals company with 41 production facilities and 48 service and research laboratories worldwide. The ALTANA Group is a 100 year old+ company founded by a young entrepreneur Heinrich Byk back in 1873. Starting with a chemical factory in Berlin, and later taking shape as a corporate group, it was finally listed in 1977 as ALANTA. Today, the ALANTA Group of companies operate in manyregions of the world, with interests t in Coatings and Sealants, Additives and Instruments, Effect Pigments and Electrical Insulation.
EBIL Business Segments and Product Profile Primary Insulation Wire enamels is the primary insulation of magnet wire Products: Polyestremide, Modified d PE Polyester, Polyurethane, among others Secondary Insulation Insulation after mounting wire on a device (eg.: generator) Epoxy resins, Varnishes, Insulation fluids among others Electronic And Engineering Materials Electronic and electrical compounds, specialty resins, construction chemicals Epoxy and polyurethane compounds EBIL s core business, which contributes to a huge 84% of its revenues, is the Electrical Insulation Systems (EIS) business, comprising the business lines Primary Insulation and Secondary Insulation. EBIL is the market leader in both the segments, having a 38.4% share and 41% share in the Pi Primary segment and the Secondary segment respectively. The Electronic and Engineering Materials business has a 15.4% share in the Indian Market. There is a high potential for these products. 51 110 Revenue Segmentation (in Rs. Crs) 106 Primary Insulation Secondary Insulation Electronic and Engineering Equipment EBIL Installed Plant Capacities (FY12) Apart from the manufacturing facilities, 2 new research laboratories became functional at Ankleshwar and Pimrpi in FY12.
Investment Triggers Sale of Promoter s shares ELANTAS GmbH, the promoter company, diluted its stake from 88.55% to 78.65% in February 2013, selling 7,85,198 shares at a premium of Rs. 645. EBIL s promoters stake is to be further diluted to 75% to comply with the Minimum Public Shareholding norms of SEBI. * (*The stake of the promoters is currently 78.65%, and 3.65% is to be diluted further on or before June 3 rd, 2013 to get the promoters stake down to 75%.) We believe, in any good time, the stock price of EBIL to rebound to Rs. 650/share, thus offering a steady upside potential to equity investors of EBIL. Declaration of Normal and Special Dividend The company has declared a normal dividend of Rs. 4.50/share and a special dividend of Rs. 87.50/share in February 2013. This takes the total dividend up to Rs. 92/share, which, we believe is a bonanza for equity investors. Setting up of New Laboratories and Research EBIL has an impressive and strong R&D setup with dedicated labs and well-equipped laboratories, with manufacturing facilities at Ankleshwar in Gujarat, and Pimpri in Maharashtra. EBIL saw a tremendous jump in its R&D expenditure from Rs. 395 crs to Rs. 498 crs (26%) in FY12, when 2 new high-end research labs became operational in FY12 at Ankleshwar and Pimpri. This shows EBIL s emphasis on and commitment to excellence in research and manufacture of innovative products. Profitability EBIL posted a decent Q1FY13 performance, having seen a jump over the last quarter Q4FY12. PAT has grown by 50% for Q1FY13 (QoQ), with the PAT margins growing. The EBITDA grew by a spectacular 83% (QoQ). The net sales for EBIL increased by 10% for Q1FY13 (QoQ).
Past 3 years Financial Performance (Rs. In Crs.) Particulars FY2012 FY2011 FY2010 Revenue 285 275 258 EBIDTA 31 35 51 PAT 27 25 32 EPS 35 31 41 DPS 92 4.5 4.5 EBIDTA Margin (%) 11% 13% 20% PAT Margin (%) 9% 9% 12% FV 10 10 10 Eq. Sh. Cap 8 8 8 Reserves 120 177 157 Stock Price 1170 1438 840 MCAP 936 1150 672 BV 160 231 206 P/BV 7.3 6.2 4.1 P/E 33.6 46.1 20.6 MCAP/Rev 3.3 4.2 2.6 MCAP/EBIDTA 30.2 32.9 13.2 PAT/MCAP 3% 2% 5% EBIL s EBITDA and PAT margins have been steady for the past 3 years, which were challenging years for the industry. High inflation, expensive crude oil, rising raw material prices and restricted credit availability collectively resulted in slow demand, slowing down industrial production as well. However, EBIL s performance has proved to be an exception in these difficult times. On the background of this landscape, EBIL has maintained a steady performance in terms of revenue realization and PAT margins. The company performed better in FY12 as revenues increased by 3.6% to Rs. 285 crs in FY12 whereas EBITDA has fallenby7%tors.31crs in FY12 as the margins were slightly under pressure. PAT, however increased by 11.5% to Rs. 27 crs, which augers in a positive outlook for EBIL going forward. Recommendation EBIL hit a high of Rs. 2,599 with a market cap of Rs. 2,079 crs on 19 th March, 2012. Currently trading at a CMP of Rs. 472/share and a market cap of Rs. 378 crs, EBIL is currently available at one-fifth of its all time high Market Cap. Coupled with decent earnings, and a total dividend of Rs. 92/share, we expect EBIL to provide steady capital appreciation to long term portfolios. We recommend a STRONG BUY on EBIL with a 12 months Target Price of Rs. 650 /share.
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