KEC International (KECIN) 138

Result Update Rating matrix Rating : Buy Target : 174 Target Period : 12 months Potential Upside : 26% What s changed? Target Unchnaged EPS FY16E Changed from 9.2 to 9.3 EPS FY17E Changed from 11.6 to 11.7 Rating Unchanged Quarterly performance Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%) Revenue 2,2.9 2,172.7-7. 1,878. 7.6 EBITDA 154.8 12.8 28.1 14.7 1. EBITDA (%) 7.7 5.6 21 bps 7.5 17 bps PAT 44.1 11.6 282.1 3.4 45.2 Key financials Crore FY14 FY15 FY16E FY17E Net Sales 7,786.6 8,346.3 9,26.3 1,539.9 EBITDA 493.3 511.8 734.5 846.7 Net Profit 89.4 192.4 239.2 31.9 EPS ( ) 3.5 7.5 9.3 11.7 Valuation summary FY14 FY15 FY16E FY17E P/E 41 19.2 15.5 12.3 Target P/E 5.7 23.5 18.9 15. EV / EBITDA 11. 1.9 7.8 7.1 P/BV 3. 2.6 2.3 2. RoNW (%) 7 13.6 14.7 15.9 RoCE (%) 13.2 12.8 16.1 17.4 Stock data Particular Amount Market Capitalization 372.2 Crore Total Debt (FY15) 2214.1 Crore Cash and Investments (FY15) 332 Crore EV 5584.3 Crore 52 week H/L 155/ 5 Equity capital 51.4 Crore Face value 2 Price performance 1M 3M 6M 12M KEC International Ltd.5 (6.3) (11.1) 78.6 Jyoti Structure (14.2) (25.) (21.5) 32.9 Kalpataru Power 1. 37.1 48.4 225.7 Research Analyst Chirag Shah shah.chiragi@icicisecurities.com On sound footing October 3, 215 KEC International (KECIN) 138 KEC reported a reasonable Q2FY15 performance as consistent margins and containment of interest costs were key highlights of the quarter. Revenues declined 7% YoY owing to a translation loss in Brazil revenues while PVC orders in domestic markets led to lower revenues at 22 crore EBITDA margins at 7.7% were ahead of expectations owing to better execution of high margin international orders, which are fixed price contracts and aid margin in a low commodity environment. The management now expects to end FY16E at the higher end of 7.5-8% margins. In terms of revenue, KEC expects to end at the lower end of the 1-15% guidance range Order inflows for YTDFY16 were at 52 crore while the order backlog for Q2FY16 was at 9872 crore. KEC is currently L1 in 3 crore worth of orders, which is expected to be awarded in Q3FY16E. The management expects to garner 1-11 crore in FY16E Diversity: Helps KEC tap opportunity/cushion uncertainties across cycles Sensing fierce competition in Power Grid (PGCIL) orders, KEC diversified into international markets like MENA, Americas and CIS countries in FY11-12. As a result, as of FY14, international revenues share was at 59% whereas international order backlog share was at 56%. Hence, timely diversification helped KEC clock revenue CAGR of 2% in FY1-14 compared to domestic companies that faced a challenging economic environment. However, with PGCIL rationalising competition, KEC started bidding for PGCIL order as well and the share rose from low of 12% in FY11 and 6% in FY12 to 2% in FY14, 15% in FY15 and 2%+ in YTDFY16. Going ahead, we expect a reasonable backlog of 9872 crore to ensure revenue CAGR of 11.6% in FY15-17E to 154 crore. Margin recovery encouraging with more gains still in offing, going ahead An entry level strategy in business segments coupled with cost overruns in some projects saw margins falling to a historical low of 4.1% in Q4FY13. Overall, FY13 saw lowest ever margins of 5.5%. Post that, as per management guidance, margins have been on the mend as Q4FY14 saw margins improving 29 bps to 7%. Hence, FY14, as a whole, saw margin gains of 7 bps to 6.2%. Margins staged a smart recovery at 7.3% in Q4FY15, 7.5% in Q1FY16 and 7.7% in Q2FY16. Hence, we expect KEC to report margins of 7.8%, 8% in FY16E, FY17E, respectively, given management has guided for 7.5-8% margins in FY16E. Debt reduction/efficiency in working capital to strengthen balance sheet KEC s gross debt has increased remained contained QoQ at 24 crore in Q2FY16, owing to monetization of land and telecom tower assets and improvement in working capital cycle, which management expects to bring it between 9-1 days. Furthermore, containment of debt in FY15-17E and declining interest rates will lead to flattish interest by FY17E. Management walking the talk as reflected in performance; maintain BUY We expect KEC to deliver across variables i.e. order inflows ( 1 crore), 1% revenue and 8% margin guidance. This, we believe, will result in 25% PAT CAGR in FY15-17E, leading to a strong recovery in RoEs from 7.4% in FY14 to 15.9% in FY17E. We vale the stock at 15x FY17E EPS to arrive at a fair value of 174. Key risks include a slowdown in power T&D in international markets and rise in working capital requirements, which can impact revenue visibility and profitability. ICICI Securities Ltd Retail Equity Research

Variance analysis Q2FY16 Q2FY16E Q2FY15oY (Chg %) Q1FY16oQ (Chg %) Comments Revenue 2,2.9 2,211.7 2,172.7-7. 1,878. 7.6 Sales miss on account of PVC orders in domestic markets Other Income 3.7 4. 1.1 238.5 3.2 15.3 Employee Expenses 16.8 157.3 149.2 7.8 157.8 1.9 Raw Material Expenses 1,24.3 1,256.2 1,291.9-2.7 883.3 16. Other Operating Expenses 259.6 229.4 225.2 15.3 197.3 31.5 Erecting and Contracting Expenses 421.5 44.2 385.5 9.3 498.8-15.5 EBITDA 154.8 164.6 12.8 28.1 14.7 1. EBITDA Margin (%) 7.7 7.4 5.6 21 bps 7.5 17 bps Margins were higher than 21 bps on on account of higher execution of international orders Depreciation 21.1 2.1 22.2-5.1 22.6-6.5 Interest 68.5 73.9 91. -24.7 71. -3.5 Relatively better working capital cycle and equal mix of foreign currency loans and lower interest costs led to 25% YoY decline Less: Exceptional Items.... PBT 68.9 75. 8.7 689.3 5.4 36.8 Total Tax 24.8 26.1-2.8-978.7 2. NM PAT 44.1 48.5 11.6 282.1 3.4 45.2 Strong margins and lower interest costs lead to PAT beat Key Metrics Order inflows 3,85. 2,225. 1,892. 63.1 3,8. -18.8 Order inflows ahead of expectations Order backlog 1537 1 1325 2 13 2.3 Backlog and execution cycle ensures reasonable visibility, going ahead Change in estimates FY16E FY17E ( Crore) Old New % Change Old New % Change Comments Revenue 9,321.5 9,26.3-1.2 1,463. 1,539.9.7 Owing to better inflows and shorter execution cycle, we estimate FY17E revenues will grow 14.5% YoY EBITDA 732.7 734.5.2 842.2 846.7.5 EBITDA Margin (%) 7.9 7.9 2 bps 8. 7.9-11 bps We expect management to meet its gudiance of margins of 8% PAT 235.4 239.2 1.6 299. 31.9 1. EPS ( ) 9.2 9.3 1.1 11.6 11.7 1.2 Assumptions Current Earlier Comments FY14 FY15 FY16E FY17E FY16E FY17E Order Inflow growth 13.3-3.3 31.5 3.4 31.5 3.4 We belive the company will book orders in excess of 1 crore in FY16E Order Backlog growth 7.7 1. 5.5 5.6 4.6 6.4 Revenue growth 13.2 7.2 9.2 14. 1.3 12. EBITDA Margins 6.2 6. 7.9 7.9 7.8 8. ICICI Securities Ltd Retail Equity Research Page 2

Company Analysis International markets to compensate for flip flops in domestic markets KEC International (KEC) is one leading EPC player in the transmission and distribution (T&D) market with a capacity of 3112 MT. KEC currently commands an order backlog of 9872 crore (Q2FY16), which is expected to grow at a CAGR of 5.6% in FY1-17E to 11477 crore. KEC has also diversified into other newer business segments like railways, cables and water (currently form 15% of the current backlog). One of the key highlights of KEC s business strategy over the last few years has been diversification across geographies and business segments. In Indian markets, the T&D segment has been an underinvested segment as the investment ratio between generation capex and T&D capex has been lagging at.46x in the Eleventh Plan against an ideal ratio of 1:1. Though this ratio is expected to improve to.76x and.79x in the Twelfth and Thirteenth Plan, respectively, execution of the same is more critical as planned targets are way above the targets finally realised. This is reiterated by the fact that the capex cycle owing to policy decisions has almost come to a standstill over the last couple of years. Though there are hurdles in the short to medium term, we believe there exists a case for T&D equipment players like KEC in the long run. This is given that most of the ordering of the Twelfth Plan is over (PGCIL estimates that 85% of the Twelfth Plan ordering is completed). Hence, we expect the Thirteenth Plan ordering to commence from FY16E-17E, thereby proving an opportunity of 2 crore for T&D equipment players like KEC. One key silver lining for the rest of the Twelfth Plan (FY15-FY17) is that SEB ordering may pick up gradually post the bailout package offered by the government. Exhibit 1: T&D capex trends in Twelfth and Thirteenth Plans 14 12 1 8 6 4 2 125 11248 726 6386 7 4796 362 35 123 1 18 2 11th Plan 12th Plan 13th Plan Generation Transmisison Distribution Total PGCIL is one of the key sources of orders for KEC as PGCIL s capex forms 5% of transmission capex planned in the Twelfth and Thirteenth Plans. Till now, capex done by PGCIL was at 44 crore while average ordering for PGCIL in the Twelfth plan was pegged at 225 crore per annum. KEC can be a key beneficiary of the commencement of the Thirteenth Plan ordering as KEC has gained market share from 6% in FY12 to 31% and 2% in FY13 and FY14, respectively. KEC had diverted into international markets as competition in PGCIL orders had destroyed pricing discipline. Hence, over time, with a correction of bidding rules by PGCIL, competition has somewhat reduced recently. To reiterate our point, number of bidders in tower packages was at 15 in FY9, which went up to 22 players in FY12. Recently, in FY13 it has come down to 13. ICICI Securities Ltd Retail Equity Research Page 3

Exhibit 2: Break up of Twelfth plan capex of Power Grid (PGCIL) Exhibit 3: Trend in PGCIL s five year plan capex 23 225 22 215 21 25 2 195 19 185 222 225 225 225 21 FY13 FY14 FY15E FY16E FY17E 12 1 8 6 4 2 52 8th Plan 85 9th Plan 189 1th Plan 553 11th Plan 11 12th Plan 1 13th Plan Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Exhibit 4: Trend of market share in PGCIL s ordering (%) 35 3 25 2 (%) 15 1 5 16 2 12 6 31 2 25 2 15 1 5 FY9 FY1 FY11 FY12 FY13 FY14 Market Share No of Bidders In order to diversify, KEC ventured into global T&D markets, which helped the company to avoid competition in PGCIL orders and combat a weak domestic ordering environment. The strategy also resulted in an acquisition wherein KEC acquired SAE Towers (1 tonne capacity) in FY11 for $95 million. Since then, KEC s revenues have grown at a CAGR of 2% in FY11-14 albeit amid weak domestic macros. This was on the back of order backlog getting tilted towards international market. As of Q2FY15, 63% of the backlog comes from international markets. Even going ahead, we expect the trend to continue in FY14-16E. Our confidence stems from the fact that the global T&D market opportunity is expected to require investments of over $3 trillion spread across 21-2. Key markets that are expected to throw up opportunities are Asia ($1.4 trillion), North America (~$6 billion) and Middle East & Africa ($173 billion) wherein KEC has created a reasonable presence over the last couple of years. ICICI Securities Ltd Retail Equity Research Page 4

Exhibit 5: Global opportunity in T&D space ($ Billion) 18 16 14 12 1 8 6 4 2 1526 975 694 585 472 363 332 211 252 169 11 91 156 144 129 19 149 43 29 59 28 57 45 93 North America Europe Pacific East Europe Asia MEA Africa Latin America Generation Transmission Distribution Exhibit 6: KEC exhibits strong order inflow trends Going ahead, with a presence in both domestic and international markets, we expect KEC to report order inflows of 1785 crore and 1115 crore, respectively. This will lead to an order backlog CAGR of 5.6% in FY15-17E to 11463 crore. The current backlog of 9872 crore provides a reasonable visibility of 1.2x (TTM sales) book to bill ratio. This, we believe, will lead to 11.6% revenue CAGR over the same period. Exhibit 7: thereby adding to order backlog and visibility 12 1785 1115 1 6716586.22 7484 8482 824 8 6 4 35.653234 2 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E 12 1 8 6 4 2-2 14 12 1 8 6 4 2 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E 4 35 3 25 2 15 1 5 (%) Order Inflow YoY growth (%) Order backlog YoY growth (%) Exhibit 8: Geographical break-up of order backlog of KEC Exhibit 9: Trend in revenues over FY14-17E 1% 8% 6% 4% 2% % 3% 1% 15% 12% 3% 3% 4% 12% 3% 2% 24% 2% 18% 17% 13% 13% 11% 11% 11% 12% 15% 2% 27% 25% 21% 13% 15% 2% 17% 21% 11% 9% 9% % % 16% 11% 11% 1% 5% 5% 47% 44% 54% 55% 55% 48% 54% 51% FY9 FY1 FY11 FY12 FY13 FY14 Q1FY15Q2FY15Q3FY15Q4FY15 12 1 8 6 4 2 154 9248 792 8468 6979 5814 3427 396 4474 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E 35 3 25 2 15 1 5 South Asia America Middle East Africa Others Revenues YoY growth (%) ICICI Securities Ltd Retail Equity Research Page 5

New business segments may be meaningful contributor in long run KEC, in order to diversify business risks, started focusing on scaling up other non T&D business segments like Railways, telecom and water. The focus started gaining traction from H2FY12 onwards as the share of these segments in the overall backlog was at 5%, which has grown 3x to 15% by the end of FY14. As of Q4FY15, the current backlog from these segments was at 1555 crore. In terms of revenues, the share for FY13 and FY14 was at 13% and 11%, respectively, while in the current quarter, the share was at 15% owing to 55% YoY growth in cable segment revenues. Going ahead, we expect these segments to be scalable in terms of revenues (huge infrastructure investment in Twelfth and Thirteenth economic plans) and profitability. The key monitorable for these non-t&d segments would be consistency in profitability as in order to gain pre qualifications (PQs) and resultant new orders from the customers, KEC had adopted entry level pricing strategy into segments like Railways, water and telecom. This led to significant EBITDA margin erosion of KEC (lowest ever margin of 5.5% in FY13, implying a decline of 26 bps YoY). However, the management has clearly indicated that incremental orders in this segment will entail margins in the range of 8-9%. Also, a foray into solar power EPC business can be a positive catalyst over the next two or three years given KEC commands a backlog of 111 crore as of Q2FY16. Exhibit 1: Segmental break up of consolidated revenues 1% 95% 9% 85% 8% % 7% 2% 5% 2% 4% 13% 2% 93% 91% 85% 7% 5% 1% 85% 6% 4% 2% 88% 2% 1% 5% 5% 4% 3% 3% 5% 12% 3% 3% 6% 89% 89% 85% 85% 75% FY1 FY11 FY12 FY13 FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 T &D Cables Railways Telecom & Waters Exhibit 11: Trend in revenues of non T&D business segments 7 6 5 4 3 2 1 631 571 552 27 237 254 198 164 169 127 131 217 19 23 32 29 3 22 32 58 38 FY12 FY13 FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Cables Railways Water ICICI Securities Ltd Retail Equity Research Page 6

Exhibit 12: Trend in segmental EBITDA margins EBIDTA margins back on track; to further improve albeit gradually Entry level strategy in new business segments coupled with cost overruns in some projects led margins to fall to a historical low of 4.1% in Q4FY13. Overall, FY13 recorded lowest ever margins of 5.5%. Post that, as per management guidance, margins have been on the mend as Q4FY14 saw margins improving 29 bps to 7%. Hence, FY14, on the whole, witnessed margin gains of 7 bps to 6.2%. Going ahead, management commentary suggests further margin gains in FY15E. In Q2FY15 and Q3FY15, KEC reported EBITDA margins of 5.6% and 5.1%, respectively, on the back of booking of losses in legacy orders. The same has shown an improvement as Q1FY16 and Q2FY16 recorded margins of 7.5% and 7.7%, respectively. However, the management maintains that to attain higher end, its EBIDTA margin guidance is 7.5-8% in FY16E Hence, we expect KEC to report margins of 7.9% and 8% in FY16E and FY17E, respectively, on an individual basis. We expect the transmission business to produce margins in the range of 8-1% while that of SAE Towers will be hovering in low single digits. These two segments constitute about 85% of the overall backlog while the rest is catching up in terms of generating profitability, which we believe will be gradual and reflect by way of 18 bps YoY improvement in margins over FY17E. 12 1 8 (%) 6 4 2 8.8 1.4 1.4 8.1 7.6 5.1 5.8 4.1 5.5 5. 6.3 6.4 7. 6.2 5.9 5.9 5.1 7.3 6. 7.5 7.7 7.9 7.9 FY9 FY1 FY11 FY12 Q1FY13Q2FY13Q3FY13Q4FY13 FY13 Q1FY14Q2FY14Q3FY14Q4FY14 FY14 Q1FY15Q2FY15Q3FY15Q4FY15 FY15 Q1FY16Q2FY16 FY16E FY17E Margin expansion to drive robust PAT CAGR of 25% (FY15-FY17E) Going ahead, the real kicker for 25% CAGR in profitability over FY15- FY17E will mainly be contributed by 29% CAGR in EBITDA whereas revenue CAGR is expected at 11.6% over the same period. We expect the EBITDA to grow to 846.7 crore by FY17E from 512 crore in FY15. This we believe, coupled with lower tax rates (35% for FY16E & FY17E vs. 55% in FY13-FY14), would lead to PAT of 239 crore and 32 crore in FY16E and FY17E, respectively.. ICICI Securities Ltd Retail Equity Research Page 7

Exhibit 13: PAT to rise sharply on back of strong margins recovery 35 3 25 2 15 1 5 32 239 189 25 29 192 117 73 17 FY9 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E RoE profile to improve materially on margin recovery/decline in leverage Given the erosion of EBITDA margins from 1.4% and 8.1% in FY11 and FY12, respectively, to 5.5% in FY13 coupled with 34% CAGR in interest costs negatively impacted RoE of KEC. As a result, RoE declined from 21.7% and 18.7% in FY11 and FY12, respectively to 6.4% and 5.5% in FY13 and FY14, respectively. However, with a recovery in margins and resultant 28% CAGR in PAT in FY15-17E will help KEC to improve its RoE to 14.7% and 15.9% in FY16E and FY17E, respectively. Exhibit 14: Return ratios to bounce back strongly 3 (%) 25 2 15 1 5 2.5 23.6 21.7 18.7 6.4 7.2 13.6 14.7 FY1 FY11 FY12 FY13 FY14 FY15 FY16E FY17E ROE ROCE ICICI Securities Ltd Retail Equity Research Page 8

Outlook and Valuation We expect KEC to deliver across variables i.e. order inflows ( 1 crore), 1% revenue and 8% margin guidance. This, we believe, will result in 25% PAT CAGR in FY15-17E, leading to a strong recovery in RoEs from 7.4% in FY14 to 15.9% in FY17E. We value the stock at 15x FY17E EPS to arrive at a fair value of 174. Key risks include a slowdown in power T&D in international markets and rise in working capital requirements, which can impact revenue visibility and profitability. Exhibit 15: Interest/EBITDA ratio to improve going ahead 7 6 5 4 (%) 3 2 51. 53.4 6.3 38.7 35.6 1 FY13 FY14 FY15 FY16E FY17E ICICI Securities Ltd Retail Equity Research Page 9

Company snapshot 16 14 Target price: 119 12 1 8 6 4 2 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Dec-1 Tower testing station of 1,2 kv inaugurated in Nagpur and 12 kv tower tested Mar-11 KEC closes FY11 with highest ever growth rate of 36% YoY in its order backlog to 78 crore Mar-12 KEC revenue crosses 5 crore for the first time with higehest ever PAT of 29 crore in its operating history Dec-12 KEC's order backlog crosses 1 crore mark in its operating history Mar-13 Market share in PGCIL ordering at 31% in FY13. Number of contracts won stood at 1 worth 2152 crore Mar-13 With execution of low margin orders of new SBUs, KEC's EBITDA margins fall to record lows to 4.1% in Q4FY13 Sep-13 Margins do recover to 6.3% in Q2FY14 after dismal perfomance of Q4FY13. However, going ahead, consistency is the key Nov-13 Market share in PGCIL ordering at 16% in YTDFY14. Number of contracts won stood at 1 worth 2152 crore Apr-14 Overall market share in PGCIL orders stood at 2% while for the whole of FY14, KEC reported 14% YoY growth in order flows. The key highlight was the recovery of EBITDA margins to 6.2% in FY14 from 5.5% in FY13. The company has guided for further improvement in margins and reduction in leverage Dec-14 Q3FY15 perfromance was dissapointing owing to higher than expected margins on the back of execution of low margins legacy orders Apr-15 Improvement in Q4FY15 performance across all parameters and mangament sets out strong guidance for FY16E Top 1 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m) (in %) Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 1 RPG Enterprises 31-Mar-15 47.1 121..3 Promoter 49.41 5.1 5.1 5.13 5.41 2 HDFC Asset Management Co., Ltd. 31-Mar-15 9. 23.1. FII 2.66 4.88 4.78 4.66 4.73 3 Reliance Capital Asset Management Ltd. 31-Mar-15 4.9 12.6 -.1 DII 33.17 3.15 29.88 26.18 25.49 4 UTI Asset Management Co. Ltd. 31-Mar-15 3.7 9.6.9 Others 14.76 14.96 15.33 19.3 19.37 5 Life Insurance Corporation of India 31-Mar-15 3.2 8.2. 6 Goenka (Harsh Vardhan) 31-Mar-15 2.6 6.7. 7 FIL Investment Management (Hong Kong) Limited 31-Mar-15 2.6 6.6. 8 SBI Funds Management Pvt. Ltd. 31-Mar-15 2.5 6.4-1.6 9 Dimensional Fund Advisors, L.P. 31-Aug-15 1.1 2.9. 1 Stellar Energy Trust 8-Jan-14 1.1 2.8.5 Source: Reuters, ICICIdirect.com Research Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares UTI Asset Management Co. Ltd. 1.13m.88m Birla Sun Life Asset Management Company Ltd. -3.34m -2.24m Stellar Energy Trust.64m.51m Sundaram Asset Management Company Limited -2.83m -1.9m Morgan Stanley Investment Management (India) Pvt. Ltd..43m.5m SBI Funds Management Pvt. Ltd. -2.2m -1.57m RPG Enterprises.39m.3m BlackRock Asset Management North Asia Limited -1.44m -1.3m Dimensional Fund Advisors, L.P..38m.3m DSP BlackRock Investment Managers Pvt. Ltd. -1.21m -1.9m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 1

Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15 FY16E FY17E Total operating Income 7,786.6 8,346.3 9,4. 1,243.6 Growth (%) 13.6 7.2 8.3 13.3 Raw Material Expenses 4,99. 4,566.4 4,666.2 5,265.2 Employee Expenses 566.1 586.5 637.2 779.6 Erecting and Contracting Expenses 1,86.4 1,886.3 2,1.8 2,39.7 Administrative Expenses 883.1 916.8 1,24. 1,96.5 Total Operating Expenditure 7,48.6 7,956. 8,428.2 9,532.1 EBITDA 493.3 511.8 722.8 829.5 Growth (%) 29.3 3.8 41.2 14.8 Depreciation 47.9 47.9 91.6 96.5 Interest 263.3 38.9 284.3 31.8 Other Income 13.8 11.6 13.9 16. Exceptional Item 18.2-134.7.. PBT 177.7 31.3 36.9 447.3 Total Tax 88.3 18.8 129.3 156.6 PAT 89.4 192.4 231.5 29.7 Adjusted PAT 89.4 21.4 231.5 29.7 Growth (%) 22.1 135.5 1. 25.6 EPS ( ) 3.5 7.5 9. 11.3 Cash flow statement Crore (Year-end March) FY14 FY15 FY16E FY17E Profit after Tax 89.4 192.4 231.5 29.7 Add: Depreciation 47.9 47.9 91.6 96.5 (Inc)/dec in Current Assets -1,15.4-369.8-597.5-1,182.9 Inc/(dec) in CL and Provisions 44.9 12.3 312.3 591.9 Others 3.3 3. 5. 5. CF from operating activities -572.3-9.2 37.9-23.8 (Inc)/dec in Investments.... (Inc)/dec in Fixed Assets -143.9-17. -1. -8. Others.... CF from investing activities -143.9-17. -1. -8. Issue/(Buy back) of Equity.... Inc/(dec) in loan funds 68.5 77.7 15. 5. Dividend paid & dividend tax -18. -27.2-3.1-3.1 Inc/(dec) in Sec. premium.... Others. 7.6.. CF from financing activities 693.2 5.4 119.9 19.9 Net Cash flow -23. -65.8 57.8-263.8 Opening Cash 42.8 397.8 332. 389.8 Closing Cash 397.8 332. 389.8 126. Balance sheet Crore (Year-end March) FY14 FY15 FY16E FY17E Liabilities Equity Capital 51.4 51.4 51.4 51.4 Reserve and Surplus 1,198. 1,363.2 1,564.6 1,825.3 Total Shareholders funds 1,249.4 1,414.6 1,616. 1,876.7 Total Debt 2,136.4 2,214.1 2,364.1 2,414.1 Deferred Tax Liability.... Minority Interest / Others.... Total Liabilities 3,385.8 3,628.7 3,98.1 4,29.8 Assets Gross Block 1,18.9 1,336.8 1,43.3 1,483.3 Less: Acc Depreciation 254.3 337.5 429. 525.5 Net Block 926.6 999.4 974.3 957.8 Capital WIP 3.1 16.4 5. 5. Total Fixed Assets 956.7 1,15.8 1,24.3 1,7.8 Investments.... Inventory 55.2 476.4 514.3 72.6 Debtors 3,87.8 3,852.9 4,86.6 4,63.7 Loans and Advances 71.6 95.7 1,128.5 1,33. Other Current Assets 852. 965.5 1,113.7 1,344.8 Cash 397.8 332. 389.8 126. Total Current Assets 6,273.5 6,577.5 7,232.9 8,151.9 Creditors 3,213.1 3,324.8 3,591.2 4,69.4 Provisions 125.1 121.9 179.6 23.5 Total Current Liabilities 4,1.3 4,13.6 4,442.9 5,34.8 Net Current Assets 2,263.2 2,447. 2,79. 3,117.1 Others Assets.... Application of Funds 3,385.8 3,628.7 3,98.1 4,29.8 Key ratios (Year-end March) FY14 FY15 FY16E FY17E Per share data ( ) EPS 3.5 7.5 9. 11.3 Cash EPS 5.3 9.3 12.6 15.1 BV 48.6 55. 62.9 73. DPS.6.9 1. 1. Cash Per Share 15.5 12.9 15.2 4.9 Operating Ratios (%) EBITDA Margin 6.2 6. 7.9 8. PBT / Total Operating income 2.3 3.6 4. 4.4 PAT Margin 1.1 2.3 2.5 2.8 Inventory days 21.1 21.5 2. 22. Debtor days 178.5 168.5 165. 165. Creditor days 15.6 145.4 145. 145. Return Ratios (%) RoE 7.2 13.6 14.3 15.5 RoCE 13.2 12.8 15.9 17.1 RoIC 15.1 14.1 17.8 17.8 Valuation Ratios (x) P/E 39.7 18.4 15.3 12.2 EV / EBITDA 1.7 1.6 7.6 7. EV / Net Sales.7.7.6.6 Market Cap / Sales.5.4.4.3 Price to Book Value 2.8 2.5 2.2 1.9 Solvency Ratios Debt/EBITDA 4.3 4.3 3.3 2.9 Debt / Equity 1.7 1.6 1.5 1.3 Current Ratio 1.6 1.6 1.6 1.6 Quick Ratio 1.5 1.5 1.5 1.6. ICICI Securities Ltd Retail Equity Research Page 11

ICICIdirect.com coverage universe (Capital Goods) CMP M Cap ( ) TP( ) Rating ( Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E AIA Engineering 972 15 Hold 8942 34.5 43.7 44. 3.3 23.9 23.7 24.8 22.8 21.6 18.7 19.8 17.4 Thermax (THERMA) 845 856 Hold 198 32.3 27.6 36.4 35.3 41.4 31.3 19.7 15.6 18.6 17. 12.6 14.9 KEC International (KECIN) 138 174 Buy 3881 7.5 9.2 11.6 18.4 15.1 11.9 12.8 16.1 17.3 13.6 14.5 15.8 Kalpataru Power(KPP) 27 318 Buy 4145 1.9 11.8 15.6 24.8 22.9 17.3 12.7 12.1 13.5 8.6 8.5 1.3 L&T (LARTOU) 148 1957 Buy 13616 51.3 54.9 65. 28.8 27. 22.8 11.9 12.3 13.7 13.6 13.4 14.4 Greaves Cotton (GREAVE) 122 18 Buy 2977 3.5 7.5 8.9 34.5 16.2 13.6 18. 12.6 14.5 1.5 19.6 2.3 SKF 128 144 Hold 7767 31.6 42.4 5. 46.6 34.8 29.5 16.6 18.9 2.2 13.1 15.9 16.7 VaTech Wabag 68 83 Buy 3959 25. 31.1 37.7 27.3 21.8 18. 17.4 19.8 21.2 15. 16.8 18.4 NRB Bearing 144 122 Hold 1398 5.5 5.7 7.6 26.3 25.2 18.9 16.3 17.2 2.5 2.9 19. 21.7 Timken India 594 74 Buy 441 11.9 15.9 2.8 5.1 37.4 28.6 28.1 32.4 3.2 18.4 22.3 23.1 Grindwell Norton 778 9 Buy 438 18.6 22.6 3. 41.7 34.4 26. 24.1 25.6 29.3 16.8 17.9 2.2 EPS ( ) P/E (x) RoCE (%) RoE (%) ICICI Securities Ltd Retail Equity Research Page 12

RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 13

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ICICI Securities Ltd Retail Equity Research Page 14