2QCY17 Result Update July 20, 2017 Market Cap. (Rs bn) 309 Free Float (%) 25 Shares O/S (mn) 212 Well-placed in Power T&D Hi-tech Space; Order Book Remains Robust India s revenue rose by 6.0% YoY to Rs23.3bn matching our estimate of Rs23.1bn in 2QCY17 owing to better execution in Electrification Products (+20% YoY). However, other business segments i.e. Industrial Automation, Robotics & Motion and Power Grids remained reported flat YoY growth. Though its PAT grew by 34.9% YoY to Rs0.75bn in 2QCY17 (lower than our estimates due to one-off expenses) operating margins improved owing to several cost saving initiatives. Outperforming the BSE Capital Goods Index, India has gained 30% since our initiation report on January 12, 2017. However, we continue to remain positive on the stock as the fundamentals are improving. was among the earliest players to tap solar opportunity in India via range of solar inverters (50% market share) and power evacuation solutions. In T&D space, high technology products i.e. HVDC, Static Compensators, FACTS and GIS are its key focus areas. Urban infrastructure including Metros and Real Estate are the key business segments, where is sees growth opportunities in next few years. Hence, we change our recommendation to from HOLD with an unrevised Target Price of Rs1607. High Growth in Electrification Products aided Revenue Growth On the back of better execution in Electrification Products (+20% YoY) division, India s revenue rose by 6.0% YoY to Rs23.3bn in 2QCY17 matching our estimate of Rs23.1bn. However, its other business segments i.e. Industrial Automation, Robotics & Motion and Power Grids reported flat growth on YoY comparison. Operating Margin Improved by 110bps YoY India continues to report steady improvement in margins led by operational efficiencies and focus on products. Though its EBITDA margin rose by 110bps YoY to 6.1%, EBITDA margins were impacted due to one-off rise in other expenses towards product development. Initiatives undertaken in past 3-4 years in terms of increased localization, rationalization of supply chain, improving efficiency, better project management and lower input prices aided to report steady improvement in margins. Further, customized offerings, continued focus on cost, differentiated portfolio in line with India s vision of growth through digital technologies supported YoY improvement in net working capital position. PBIT margins for Robotics & Motion rose by 420bps, while PBIT margins for Power Grid improved by 250bps in 2QCY17. Outlook & Valuation We expect to deliver 34.5% CAGR in earnings through CY16-18E, while RoE is expected to improve to 15.4% in CY18E from 11.5% in CY16. On the back of strong presence in power T&D space, we believe would continue to command higher multiple, going forward. Valuing at 50x CY18E (15% discount to its mean multiple of 60x (2005-15) earnings of Rs32.1/share, we change our recommendation on the stock to from HOLD with an unrevised Target Price of Rs1,607. Share price (%) 1 mth 3 mth 12 mth Absolute performance (3.6) 3.7 12.3 Relative to Nifty (6.0) (4.5) (3.7) Shareholding Pattern (%) Mar'17 Jun'17 Promoter 75 75 Public 25 25 1 Year Stock Price Performance 1660 1560 1460 1360 1260 1160 1060 960 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Note: * CMP as on July 20, 2017 Key Financials (Rs mn) CY15 CY16 CY17E CY18E Net sales 81,403 86,484 99,418 111,954 PAT 2,999 3,763 5,243 6,810 EPS (Rs) 14.2 17.8 24.7 32.1 PE (x) 103 82.1 58.9 45.4 EV/EBITDA (x) 42.9 40.6 31.1 25.0 P/BV (x) 103 9.4 8.2 7.0 ROCE (%) 16.3 17.4 19.8 21.8 RONW (%) 10.0 11.5 13.9 15.4 Research Analyst : Rupesh Sankhe Contact : (022) 33201606 Email : rupesh.sankhe@relianceada.com 1
Strong Order Backlog Intact s order book grew by 13% in 2QCY17 and 20% in H1CY17. Base orders were the key contributor with industry turning to improving operational efficiencies through technology and digital upgrades including robotics automation. Focus on 24x7 reliable Power to All resulted in continued focus on state utility infrastructure including a wider reach to remote locations, while balancing burgeoning renewable inputs. Notably, strategic leveraging of extensive installed base sustained strong growth in service orders. Export orders continued the uptrend in the year with a focus on power networks and industrial efficiency. Further, an order backlog of Rs120bn (20% YoY) offers a strong revenue visibility. Risks to view ff Lower-than-expected order intake. ff Increase in competitive intensity in T&D segment. Exhibit 1: Quarterly Performance (Rs mn) 2QCY17 2QCY16 YoY(%) 1QCY17 QoQ (%) Net Sales 23,293 21,982 6.0 22,935 1.6 Other op income 322 280 15.1 228 Operating Costs 22,142 21,127 4.8 21,554 2.7 EBIDTA 1,473 1,136 29.7 1,609 (8.4 ) EBIDTA Margin (%) 6.2 5.1 1.1 6.9 Other Income 326 299 9.0 318 2.3 Interest 231 197 17.0 212 8.9 Depreciation 383 357 7.4 376 1.9 Profit Before Tax 1,185 881 34.6 1,339 (11.5 ) Tax 435 324 34.0 440 (1.1 ) Tax Rate (%) 36.7 36.8 32.8 Reported PAT 751 556 34.9 900 (16.6 ) Exhibit 2: Segmental revenue (Rs mn) 2QCY17 2QCY16 YoY(%) 1QCY17 QoQ (%) Segment Revenues Robotics and Motion 4,588 4,591 (0.1 ) 4,993 (8.1 ) Electrification Products 6,446 5,373 20.0 6,910 (6.7 ) Industrial Automation 3,535 3,562 (0.8 ) 3,067 15.2 Power Grids 9,601 9,630 (0.3 ) 8,648 11.0 Total revenue 24,169 23,156 4.4 23,618 2.3 PBIT Robotics and Motion 307 113 172.5 381 (54.7 ) Electrification Products 646 583 10.8 782 (98.6 ) Industrial Automation 316 288 9.6 114 (91.5 ) Power Grids 696 450 54.5 550 (90.1 ) Total PBIT 1,965 1,434 37.0 1,826 (98.0 ) PBIT (%) Robotics and Motion 6.7 2.5 7.6 Electrification Products 10.0 10.8 11.3 Industrial Automation 8.9 8.1 3.7 Power Grids 7.2 4.7 6.4 2
Profit & Loss Statement Net sales 81,403 86,484 99,418 111,954 % yoy change 5.3 6.2 15.0 12.6 Raw materials 48,822 50,430 64,028 73,108 Employee expenses 7,499 7,678 9,125 10,522 Other expenses 18,355 20,243 17,025 16,903 Total operating expenditure 74,190 79,017 89,586 99,763 EBITDA 7,213 7,467 9,833 12,191 EBITDA margin (%) 8.9 8.6 9.9 10.9 Depreciation 1,542 1,510 1,575 1,630 EBIT 5,670 5,957 8,258 10,561 Other income 138 653 455 485 Interest costs 1,062 849 828 805 PBT 4,746 5,761 7,885 10,241 Taxes 1,747 1,998 2,641 3,431 Tax rate (%) 36.8 34.7 33.5 33.5 Reported PAT 2,999 3,763 5,243 6,810 % yoy change 31.2 25.5 39.4 29.9 Balance Sheet Liabilities Share capital 424 424 424 424 Reserves & Surplus 29,662 32,404 37,351 43,843 Total shareholder's funds 30,086 32,828 37,774 44,267 Secured loans 6,000 6,000 6,900 7,100 Other long term liabilities 43 39 45 49 Deferred tax liability (490) (784) (784) (784) Capital employed 35,639 38,084 43,936 50,632 Assets Gross Block 20,267 21,286 22,486 23,586 Accumulated Depreciation 7,283 8,737 10,312 11,942 Net Block 12,984 12,549 12,174 11,644 Capital Work in Progress 443 678 225 135 Investments (non current) 163 162 162 162 Current invetsment 1 1 1 1 Inventories 9,396 9,403 10,175 11,696 Sundry Debtors 33,909 30,633 34,282 37,318 Cash and Bank 5,736 11,892 9,670 11,193 Loans and Advances 21,264 7,114 9,942 11,755 Other Current Assets 5,174 4,074 4,224 4,344 Total Current Assets 75,480 63,116 68,294 76,308 Current liabilities 33,697 33,945 32,219 32,682 Provision 21,752 4,476 4,700 4,935 Total current liabilities 55,448 38,422 36,919 37,617 Net Current Assets 20,032 24,695 31,375 38,691 Other non-current assets 2,017 - Capital Deployed 35,639 38,084 43,936 50,632 3
Cash Flow Statement PBT 4,746 5,761 7,885 10,241 Depreciation 1,542 1,510 1,575 1,630 Interest provided 1,062 849 828 805 Other non-cash adjustments (803) (1,073) - - Operating CF before WC 6,548 7,046 10,288 12,676 Change in working capital 4,806 (3,506) 8,896 5,789 Tax Paid 1,747 1,998 2,641 3,431 Operating cash flow (5) 8,554 (1,250) 3,456 FCF (677) 7,300 (1,997) 2,446 Capex 672 1,254 747 1,010 Investments (1) (1) - - Investing cash flow (671) (1,253) (747) (1,010) Issue/repayment of debt 6,000-900 200 Dividends paid 784 297 297 318 Interest paid (1,062) (849) (828) (805) Financing cash flow 4,154 (1,146) (225) (923) Opening cash balance 2,259 5,736 11,892 9,670 Net change in cash 3,477 6,155 (2,222) 1,523 Closing cash balance 5,736 11,892 9,670 11,193 Key Ratios Y/E Dec CY15 CY16 CY17E CY18E EBITDA margin (%) 8.9 8.6 9.9 10.9 PBT margin (%) 7.0 6.9 8.3 9.4 PAT margin (%) 3.7 4.4 5.3 6.1 Tax Rate (%) 36.8 34.7 33.5 33.5 Asset Turnover 4.0 4.1 4.4 4.7 Debtor days 152.0 146.0 125.9 121.7 ROCE (%) 16.3 17.4 19.8 21.8 RONW (%) 10.0 11.5 13.9 15.4 Debt/Equity Ratio 0.2 0.2 0.2 0.2 4
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