DISA India Ltd Result Update: Q4 CY 11 C.M.P: Rs. 3663.65 Target Price: Rs. 4140.00 Date: April 10 th 2012 BUY Stock Data: Sector: Engineering Face Value Rs. 10.00 52 wk. High/Low (Rs.) 3748.00/1370.00 Volume (2 wk. Avg.) 764.00 BSE Code 500068 Market Cap (Rs in mn) 5532.11 Share Holding Pattern SYNOPSIS We initiated coverage of DISA India Ltd (DIL) and set a target price of Rs.4140.00 for Medium term Investment. DISA India is a leading Equipment Manufacturer in India, offering advanced Foundry and Surface Preparation process technology. During the quarter, the robust growth of Net Profit is increased by 45.16% to Rs. 123.65 million. 1 Year Comparative Graph DISA India Ltd has recommended a Dividend of Rs. 200/- per equity share of Rs. 10/- each. Disa India BSE SENSEX DISA enjoys 70% of market share in India in setting up the plant to the plant design to the equipment installation in India. Net Sales & PAT of the company are expected to grow at a CAGR of 26% & 27% over 2010 to 2013E respectively. Years Net sales EBITDA Net Profit EPS P/E CY 11 1542.80 369.58 226.56 150.04 24.42 CY 12E 1902.27 445.17 270.48 179.13 20.45 CY 13E 2164.79 506.18 308.15 204.07 17.95 1
Peer Group Comparison Name of the company CMP(Rs.) Market Cap. (Rs. Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) DISA India 3663.65 5532.11 150.04 24.42 12.82 0.00 Man Industries 103.00 5694.3 17.26 5.97 1.04 40.00 Cummins India 481.50 133471.8 21.31 22.60 7.39 750.00 Larsen & Turbo (L&T) 1288.60 789137.2 68.95 18.69 3.68 725.00 Investment Highlights Q4 CY11 Results Update Disa India Ltd. has reported net profit of Rs 123.65 million for the quarter ended on December 31, 2011 as against Rs. 85.18 million in the same quarter last year, an increase of 45.16%. It has reported net sales of Rs 587.51 million for the quarter ended on December 31, 2011 as against Rs 445.19 million in the same quarter last year, a rise of 31.97%. Total income grew by 31.74% to Rs 603.05 million from Rs. 457.77 million in the same quarter last year. During the quarter, it reported earnings of Rs 81.89 a share. Quarterly Results - Standalone (Rs in mn) As At Dec-11 Dec-10 %change Net sales 587.51 445.19 31.97% PAT 123.65 85.18 45.16% Basic EPS 81.89 56.41 45.16% 2
Break up of Expenditure 3
Recommends dividend DISA India Ltd has recommended a Dividend of Rs. 200/- per equity share of Rs. 10/- each (2000%) for the FY ended December 31, 2011. Company Profile DISA India is a leading Equipment Manufacturer in India, offering advanced Foundry & Surface Preparation process technology. The company was incorporated in 1984 for the manufacturing of modern foundry equipment and is head quartered in Bangalore, India. DIL is the Indian arm of the Denmark based DISA Holding A/s, which owns 74.27 % shares, while the rest is with the Indian public. DISA takes control of all the things right from setting up the plant to the plant design to the equipment installations. That is why it is very successful in India with 70 per cent of market share. DISA India supplies complete foundry systems by integrating the international DISA range of moulding machines and sand mixers with proper combination of sand plant equipment, surface preparation machines and environmental control systems. DISA has a range of Sand Moulding Equipment that caters to different needs of the foundry industry. It serves customers across the country with its sales offices located in New Delhi, Pune, Kolkata and Bangalore; and two manufacturing plants, which are located in Tumkur and Hosakote, Karnataka. DISA encompasses a team of committed and highly skilled people, who bring forth their vast industry experience and knowledge to its range of operations that support the foundry and other engineering industries. With increasing focus on its Indian Operations, the group established a fully owned R&D Facility named DISA Technologies Pvt. Ltd in 2007. This R&D Centre in Bangalore - caters to the development needs of the group companies, worldwide. In the year 2009, DISA Group - the leading name in moulding and casting technology -merged with the Wheelabrator Group - the world leader in surface preparation 4
technology - to form the world s leading metallic parts enhancement company. The combined entity is now called the Norican Group. The DISA and Wheelabrator Brands are now housed under the Norican Group umbrella. Products DISA India provide 3 ranges of products, foundry equipment like molding machines and match plate; shot blast equipment like strengthening, penning, surface finishing, air blasting; & pollution control equipment like dust cleaning & flue gas disposal. Equipment Moulding Solutions Core Technology Sand Preparation Filter Solutions Retrofit Complete Foundry DISA Shot Blast (Wheelabrator) Parts and Services Spare Parts & Upgrades Service and Maintenance DISA TOPS Training Foundry Optimisation DISA Shot Blast Parts Industry Automotive Infrastructure Domestic Appliances Machinery and Engineering Ferrous and Non-Ferrous Technology Technologies like flex technologies, reverse air filter system and match plate were actually developed at Disa, Denmark. The company is implementing the same technologies in India with further advancements. 5
Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value (Rs.in.mn) CY10 CY11 CY12E CY13E Description 12m 12m 12m 12m Net Sales 1082.42 1542.80 1902.27 2164.79 Other Income 35.49 49.76 56.73 62.40 Total Income 1117.91 1592.56 1959.00 2227.19 Expenditure -866.61-1222.98-1513.83-1721.00 Operating Profit 251.30 369.58 445.17 506.18 Interest -0.33-0.53-0.59-0.65 Gross profit 250.97 369.05 444.58 505.53 Depreciation -18.01-21.94-24.57-27.03 Profit Before Tax 232.96 347.11 420.00 478.50 Tax -81.92-120.55-149.52-170.34 Profit After Tax 151.04 226.56 270.48 308.15 Equity capital 15.10 15.10 15.10 15.10 Reserves 540.77 416.39 686.87 995.02 Face value 10.00 10.00 10.00 10.00 EPS 100.03 150.04 179.13 204.07 6
Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E Description 3m 3m 3m 3m Net sales 290.34 424.81 587.51 399.51 Other income 10.62 13.73 15.54 13.21 Total Income 300.96 438.54 603.05 412.72 Expenditure -261.55-324.95-405.16-363.55 Operating profit 39.41 113.59 197.89 49.16 Interest -0.13-0.18-0.18-0.16 Gross profit 39.28 113.41 197.71 49.00 Depreciation -4.50-4.38-8.08-9.05 Profit Before Tax 34.78 109.03 189.63 39.95 Tax -13.50-36.18-65.98-14.22 Profit After Tax 21.28 72.85 123.65 25.73 Equity capital 15.10 15.10 15.10 15.10 Face value 10.00 10.00 10.00 10.00 EPS 14.09 48.25 81.89 17.04 7
Key Ratios Particulars CY10 CY11 CY12E CY13E No. of shares (in mn) 1.51 1.51 1.51 1.51 EBITDA Margin (%) 23.22% 23.96% 23.40% 23.38% PBT Margin (%) 21.52% 22.50% 22.08% 22.10% PAT Margin (%) 13.95% 14.68% 14.22% 14.23% P/E Ratio (x) 36.63 24.42 20.45 17.95 ROE (%) 27.17% 52.51% 38.53% 30.51% ROCE (%) 48.45% 90.74% 66.92% 52.79% EV/EBITDA (x) 22.01 14.97 12.43 10.93 Book Value (Rs.) 368.13 285.75 464.88 668.96 P/BV 9.95 12.82 7.88 5.48 Charts: Net sales & PAT 8
P/E Ratio (x) EV/EBITDA(x) 9
P/BV Outlook and Conclusion At the current market price of Rs.3663.65, the stock is trading at 20.45 x CY12E and 17.95 x CY13E respectively. Earning per share (EPS) of the company for the earnings for CY12E and CY13E is seen at Rs.179.13 and Rs. 204.07 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 26% and 27% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 12.43 x for CY12E and 10.93 x for CY13E. Price to Book Value of the stock is expected to be at 7.88 x and 5.48 x respectively for CY12E and CY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.4140.00 for Medium to Long term investment. 10
Industry Overview The Indian engineering sector is the largest segment of the Indian industry and is highly driven by robust economic growth. The performance of engineering sector gets reflected in the performance of end-user industries like automobiles, chemicals, information technology (IT), aerospace etc. Indian service providers and captives employ around 200,000 engineers. There are various international organisations that make very positive comments about various segments of the engineering industry. For instance- The IEEE Standards Association (IEEE-SA), the standards development body of the Institute of Electrical and Electronics Engineers, is keen on strategic collaborations with industry leaders, academia and other standards bodies to generate awareness about smart grid and the importance of standards through events and workshops. The IEEE-SA has also set up a Standards Interest Group (SIG) recently to increase India's participation in the IEEE standards process in key areas such as smart grid. Similarly, National Association of Software and Services Companies (NASSCOM) has stated that India is ranked first in the field of Engineering Research and Development and Design (ER&D) outsourcing industry with a 22 per cent share in the revenue globally. The segment contributes 15 per cent of total US$ 60 billion Indian IT & business process outsourcing (IT-BPO) industry. Moreover, cost savings by Indian ER&D centres in FY2011 was over US$ 20 billion. Exports Engineering exports include transport equipment, capital goods, other machinery/ equipment and light engineering products like castings, forgings and fasteners. Going by the data compiled by the Engineering Export Promotion Council (EEPC), the apex body of engineering exporters, engineering exports grew by 20.9 per cent to US$ 54.5 billion over April 2011-February 2012 as against the same period in 2010-11. For January and February 2012, export consignments amounted to US$ 4.73 billion and 11
US$ 4.79 billion, respectively. EEPC anticipates engineering exports to be around US$ 62 billion for 2011-12. Key Developments and Investments The miscellaneous mechanical and engineering industries sector-wise foreign direct investments (FDI) inflows from April 2000 to January 2012 was calculated at US$ 2, 180.26 million, as per the Department of Industrial Policy and Promotion (DIPP) Indian engineering industry is keen to strengthen its presence in Japanese markets. According to Aman Chadha, Chairman, EEPC, the two countries would focus on trade liberalisation while implementing the Comprehensive Economic Partnership Agreement (CEPA) that was signed between the two nations in 2011. The agreement aims to boost bilateral trade between both the nations to US$ 25 billion by 2014 from US$10.36 billion in 2009-10. Hyderabad is increasingly emerging as a hub for the aerospace sector. Recently, B/E Aerospace, a world leader in manufacture of aircraft cabin interior products, has announced the launch of its Engineering Services Division in the city Hyderabad boasts of the presence of large defence sector, civil aviation, airport infrastructure, and training facilities pertaining to aerospace industry. The Tata- Sikorsky joint venture (JV) has also commenced production of helicopter cabins here IT companies are venturing into the new space of Cloud Computing these days. In order to develop products and platforms that would leverage technologies in the areas of cloud computing, mobility, analytics, and social media, Infosys has decided to strengthen its research and development (R&D) team from present 500 to 1, 000 by 2014. IT major Wipro is also putting high stakes on areas like cloud, analytics and mobility solutions to boost its business in the domestic markets The US-based chip designer Xilinx Inc has inaugurated its expanded research and development (R&D) facility in India. The facility, Xilinx's largest research and development centre outside the US, would continue to support all programmable technologies and devices," said Mr. Moshe Gavrielov, President and Chief Executive Officer, Xilinx Inc 12
The Finland-based ship design software company Naval Architectural Package (Napa) is keen on setting up JVs and business partnerships with Indian engineering companies to provide basic services in ship design and ship operation software in the country. The Finnish company writes software solutions for shipyards and ship operators for design and operation of ships and works on safety and energy efficiency of vessels Wipro Infrastructure Engineering division, the engineering division of Wipro Ltd, is planning to establish a hydraulic cylinder manufacturing facility in Karnataka. The new facility is proposed to be set up in the Dobbaspet Industrial Area 4th Phase with an outlay of around Rs 100 crore (US$ 19.77 million) and expects to generate employment opportunities for around 335 people Government Initiatives Due to its reasonably priced, highly-skilled manpower, India is increasingly becoming a hub for R&D outsourcing activities. Currently, the R&D spend in India is 1 per cent of gross domestic product (GDP) and Government of India is taking policy initiatives to double-up the same by 2017. The Prime Minister has executed a National Innovation Council (NInC) with a purpose to device a roadmap for innovations, with a focus on inclusive growth. Some of the proposed measures include collaborative arrangements between the Government and industry, including financial aid for undertaking R&D projects. Other measures include the guaranteed purchase of products, an assured return on investment, Government grants to secure private financial flows and support increasing innovation. Road Ahead According to a recent analysis by Research and Markets, Engineering Service Outsourcing (ESO) market in India is poised to grow at a compounded annual growth rate (CAGR) of 35.5 per cent over the period 2011-2014. India is emerging as a key center for ESO with increased investment in off-shoring activities. Also, The IEEE-SA predicts that India would emerge as the world's third largest smart grid market. 13
Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 14
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