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DE NORA INDIA LIMITED

Result Update: Q3 CY12

BUY

CMP Target Price

201.00 228.00 Nov 19th, 2012


ISIN: INE244A01016

Stock Data Sector BSE Code Face Value 52wk. High / Low (Rs.) Volume (2wk. Avg ) Market Cap ( Rs in mn ) Years Net Sales EBITDA Net Profit EPS P/E CY11A 341.68 75.21 47.83 8.79 22.88

SYNOPSIS
Industrial Goods 590031 10.00 229.00/76.35 10194.00 1067.11 CY12E 505.69 109.64 72.41 13.64 14.74 CY13E 682.68 146.92 98.46 18.55 10.84

De Nora India Limited (DNIL) is engaged in the manufacture and coating of anode and cathode for electrolytic process for application in the chlor-alkali & chlorate plants. The company is the market leader in the Chlor-alkali & Cathodic Protection Systems business. During the quarter, the robust growth of Net Profit is increased by 669.15% to Rs. 68.07 million. De Nora India Limited has signed an order of approximately Rs.160 Million for manufacture of Chlorate Cells. De Nora India Limited has bought back 246,500 equity shares through open market transactions for an aggregate amount of Rs.22, 879, 685. During the quarter, the robust growth of Revenue is rose 401.88% to Rs. 255.81 million from Rs. 50.97 million. Net Sales and PAT of the company are expected to grow at a CAGR of 58% and 48% over 2010 to 2013E respectively.

Annual Estimated Results (A*: Actual / E*: Estimated)

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX

DE NORA INDIA LTD

Source: Company Data, Firstcall Research

Peer Groups Company Name De Nora India Ltd SKF India Ltd Ador Welding Ltd Esab India Ltd

CMP (Rs.) 201.00 600.45 135.50 431.00

Market Cap Rs. in mn. 1067.11 31663.30 1842.60 6634.40

EPS (Rs.) 8.79 37.60 15.31 23.41

P/E (x) Ratio 22.88 15.97 8.85 18.41

P/BV(x) Ratio 4.20 3.13 1.05 3.14

Dividend (%) 60.00 75.00 60.00 150.00

Investment Highlights Results updates- Q3 CY12, De Nora India Limited (DNIL) is engaged in the manufacture and coating of anode and cathode for electrolytic process for application in the chloralkali & chlorate plants, reported its financial results for the quarter ended 30th Sep, 2012. The third quarter witnesses a healthy increase in overall sales as well as profitability of the company.

Months Net Sales PAT EPS EBITDA

Sep-12 255.81 68.07 12.82 101.63

Sep-11 50.97 8.85 1.59 14.47

% Change 401.88 669.15 704.79 602.35

The companys net profit jumps to Rs. 68.07 million against Rs.8.85 million in the corresponding quarter ending of previous year, an increase of 669.15%. Revenue for the quarter rose 401.88% to Rs. 255.81 million from Rs. 50.97 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.12.82 a share during the quarter, registering 704.79% increase over previous year period. Profit before interest, depreciation and tax is Rs. 101.63 millions as against Rs. 14.47 millions in the corresponding period of the previous year.

Expenditure :

During the quarter the total expenses are increased by 299 per cent due to increase in the raw material cost. Total expenditure in Q3 CY12 was at Rs. 159.82 millions as against Rs. 40.02 million in Q3 CY11. Cost of material consumed was stood at Rs. 105.25 millions against Rs. 24.25 millions in the

corresponding period of the previous year. Other Expenditure was at Rs. 22.37 millions and Employee benefit cost was at Rs. 10.72 millions in Q3 CY12 is the primarily attributable to growth of expenditure.

Latest Updates De Nora India Limited has bought back 246,500 equity shares (135,451 equity shares during the nine months period ended 30th Sep 2012) through open market transactions for an aggregate amount of Rs.22,879,685 (Rs. 13,432,195 during the nine months period ended 30th Sep 2012). De Nora India Limited has signed an order of approximately Rs.160 Million for manufacture of Chlorate Cells.

Company Profile De Nora India Limited is a Public Limited Company with 51% equity held by De Nora. The Company is a subsidiary of the De Nora and has brought to India the latest technologies with the complete support of De Nora's technical expertise and management. In keeping with the philosophy of the De Nora, De Nora India Limited provides its valuable customers, not only a superior product, but also technical assistance, in installation and operation of their electrodes, for both, new and retrofitted cells of different technologies, through out their operating life. With his factory in Goa with state-of-the-art facilities, De Nora India meets the demands of the rapidly developing Chlor-alkali industry. This factory also provides access to the Goa port facilities for our future export commitments. This service is provided through a team of specialists, a centralized data bank and access to the vast technology resources of De Nora. It is our firm opinion, that De Nora India's strength lies in its technical expertise backed by its well trained team of specialists. Of course, there is the additional benefit of the direct technical support of De Noras highly trained engineering staff, ready to discuss the needs of any prospective client, to define the best optimized solution. The Company has got the prestigious certification for ISO 9001:2008 for Quality Management System from JASANZ on 17.08.2010 valid till 16.08.2013 for the production and trading of Titanium Anodes/ Nickel Cathodes for Chlor-alkali Industry used for NaOH/ KOH/Cl2, Electro Chlorinators for On-site Hypo, Cathodic Protection Systems, Surface Finishing Products and Electro winning Products. Products Chlor-Alkali which makes a full range of products and systems for chlorine and alkali, and sodium and potassium chlorate commodity chemical producers. Oxygen & Specialties designs, develops and manufactures electrodes, anode coatings and systems for several electrochemical applications

DNI Products - Electrochlorination Systems Seaclor Mac Solar Mac BRAVor

Financial Highlight
Balance sheet as at December 31st, 2011 (A*- Actual, E* -Estimations & Rs. In Millions) Particulars March (Rs.in.mn) 1.Shareholders Funds a) Capital b) Reserves & Surplus Total Net worth Total Liabilities (1)
1.Fixed Assets a) Gross block b) Depreciation c) Net Block d) Capital Work in Progress Total Fixed Assets 2. Investments 3. Differed Tax Assets Current Assets, Loans & Advances (A) a) Inventories b) Sundry Debtor c) Cash & Bank Balance d) Other Current Assets e) Loans & Advances f) Unbilled revenue

CY11A

CY12E

CY13E

54.44 205.91 260.35 260.35

53.09 278.33 331.42 331.42

53.09 376.79 429.88 429.88

150.69 93.91 56.78 6.70 63.48 50.22 7.34

155.21 99.54 55.67 7.91 63.57 45.20 8.07

158.31 103.03 55.29 8.85 64.14 47.46 8.48

134.39 107.77 33.31 0.82 32.72 3.73 312.74

169.33 157.30 46.63 1.11 40.90 3.80 419.08

199.81 224.35 61.56 1.37 47.44 3.86 538.39

Total Current Assets Less: Current Liabilities & Provisions (B) a) Liabilities b) Provisions 4. Net Current Assets (A-B)

126.23 47.20 139.31 260.35

154.00 50.50 214.57 331.42

175.56 53.03 309.80 429.88

Total Assets( 1+2+3+4 )

Annual Profit & Loss Statement for the period of 2010 to 2013E Value(Rs.in.mn)
Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS

CY10 12m 173.44 13.40 186.84 -146.50 40.34 -0.12 40.22 -7.09 33.13 -2.54 30.59 55.55 204.40 10.00 5.51

CY11 12m 341.68 10.91 352.59 -277.38 75.21 -0.18 75.03 -6.05 68.98 -21.15 47.83 54.44 205.92 10.00 8.79

CY12E 12m 505.69 12.55 518.23 -408.59 109.64 -0.14 109.50 -6.66 102.85 -30.44 72.41 53.09 278.33 10.00 13.64

CY13E 12m 682.68 13.80 696.48 -549.55 146.92 -0.14 146.78 -7.12 139.66 -41.20 98.46 53.09 376.79 10.00 18.55

Quarterly Profit & Loss Statement for the period of 31st Mar, 2012 to 31st Dec, 12E Value(Rs.in.mn) Description Net sales
Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face value EPS

31-Mar-12 3m 106.79 3.13 109.92 -88.50 21.42 0.00 21.42 -1.50 19.92 -6.21 13.71 54.44 10.00 2.52

30-Jun-12 3m 98.73 1.13 99.86 -65.69 34.17 -0.05 34.12 -1.60 32.52 -10.32 22.20 53.09 10.00 4.18

30-Sep-12 3m 255.81 4.01 259.82 -158.19 101.63 -0.02 101.61 -1.63 99.98 -31.91 68.07 53.09 10.00 12.82

31-Dec-12E 3m 342.79 4.21 347.00 -255.38 91.62 -0.02 91.61 -1.66 89.94 0.00 89.94 53.09 10.00 16.94

Ratio Analysis Particulars EPS (Rs.) EBITDA Margin (%) PBT Margin (%) PAT Margin (%) P/E Ratio (x) ROE (%) ROCE (%) EV/EBITDA (x) Book Value (Rs.) P/BV Charts CY10 5.51 23.26% 19.10% 17.64% 36.50 11.77% 18.25% 27.27 46.80 4.30 CY11 8.79 22.01% 20.19% 14.00% 22.88 18.37% 31.21% 14.11 47.83 4.20 CY12E 13.64 21.68% 20.34% 14.32% 14.74 21.85% 35.09% 9.31 62.43 3.22 CY13E 18.55 21.52% 20.46% 14.42% 10.84 22.90% 35.83% 6.84 80.97 2.48

Outlook and Conclusion At the current market price of Rs.201.00, the stock P/E ratio is at 14.74 x CY12E and 10.84 x CY13E respectively. Earning per share (EPS) of the company for the earnings for CY12E and CY13E is seen at Rs.13.64 and Rs.18.55 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 58% and 48% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 9.31 x for CY12E and 6.84 x for CY13E. Price to Book Value of the stock is expected to be at 3.22 x and 2.48 x respectively for CY12E and CY13E. We expect that the company surplus scenario is likely to continue for the next three years, will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.228.00 for Medium to Long term investment. Industry Overview Electricity is a cornerstone of national economy of any country and electrical industry is so robust that prosperity and development of a country banks on it. The industry has become an integral traction of the economy of a country, helps in promoting business development and expansion, and opens the flood gate of employment opportunities for people throughout the world. The electronic industry has carved a niche in the metamorphosing and globalized market. Recovery in Indias manufacturing sector is in full swing. While revival of automation projects typically one of the first indicators for any growth in the economy is already under way, an 11.3% rise in the electrical equipment industry has underscored the overall growth story in the worlds second fastest growing economy. The Rs 52,000-crore industry, which sells cables, switchgears, transformers and other large electrical products, saw a major part of its growth come in the second half of 2009-10, after liquidity improved and companies resumed expansion plans. Industry witnessed surge in imports by 100% for insulators, motors and generators According to the Indian Electrical and Electronics Manufacturers Association (IEEMA), an apex body representing the Indian electrical equipment industry, the sector grew about 20% in the second quarter, compared with 1.7% in the first half. This demand growth could likely see a two-fold increase in the next 2-3 years. Industry seeks urgent intervention from Central Government at the highest level for conducive policy initiatives while entering into 12th Plan so as to meet laid down targets of power generation capacity and related transmission & distribution capacity expansions.

Some of the companies in this sector are Siemens, L&T, ABB, Crompton Greaves, Havells, Schneider Electric and WS Industries. Coming after a lull of two years, the growth in electrical will strengthen policy measures as the government is working to restrict Chinese power equipment makers. Since spends on automation and electrical in any project are equal, it was expected that growth in automation would also give a boost to the electrical sector. Also as prices of electrical equipment are typically stable unlike that of the automation sector, higher electrical sales implies that projects have been revived. The industry has posted a 30% growth in the fourth quarter in sales of rotating machines, switchgear and cables as a recovery in real estate and infrastructure pushed up the demand for such products. The growth in demand mainly came from industries such as power, textile, steel and cement. Analysts and industry experts said the growth will be sustained as most of the transmission and distribution projects are likely to begin in the next fiscal year, mainly by the Power Grid Corporation. The Indian Electrical and Electronics Manufacturers Association (IEEMA), the apex Indian industry association of manufacturers of electrical, industrial electronics and allied equipment today released the Q1 FY13 performance of the US$25 billion Indian electrical equipment industry. For the first time in 10 years, the Indian electrical equipment industry has seen a negative growth of 2.4% in the first quarter (Q1) of the current fiscal (2012-13) compared to the corresponding period of Q1 FY12 (13.82 %) and sequential quarter Q4 FY12 (14.10%). Demand for power equipment is expected to rise as India is targeting at least 9% GDP growth for the year ahead. India has historically faced a demand-supply gap and this will feed the electrical industry. However, most of the orders would be through EPC route with more new players entering the business and subcontracting the same to existing contractors. It is expected that competition would be intense. The government plans to add about 12,000 mw of capacity by the end of this fiscal, including from renewable sources. The Central Electricity Authority has set a target to add more than 21,000 mw capacity by the end of 2012. The government has also taken policy initiatives to speed up power sector development, such as the Rajiv Gandhi Gramin Vidyutikaran Yojana. The power sector reforms if implemented as scheduled will create large business for power sector equipment manufacturers and service providers. Growth Drivers: The Companys position as the market leader is due to its persistent efforts and emphasis in the following areas: Product quality Continuous product improvement Introduction of new products through in-house developments

Creating customer preferences Competitive pricing and extremely competitive cost structure Dynamic approach to situations Strong and dependable distribution channel spread all over the Country.

Business Environment Electrical Cables

Electrical cables are the main focus area of business for the Company. It accounted for 82% of total sales for the year under review. Growth during the year under review was driven by the improvement shown by the construction and automobile sectors. The long term out look for this sector remains positive since the economic growth for the country depends on industrial and infrastructural developments. Communication cables

The communication cables comprise of state of art, new generation communication cables and traditional telephone cables. The communication cables segment (including optic fiber) recorded sales of Rs.1,420 million for the year under review against Rs.2,042 million for the earlier year. The uncertainties that have plagued the telecom sector over the past two years have had an impact on Companys revenues from this segment. Full fledged introduction of value added service has been delayed by telecom service providers. Uncertainties over spectrum usage and licensing also acted as a dampener in this business. BSNL after several years came out with a tender for JFTC cables, the order for a part of which Company secured and serviced during the year. The economic development requires inter-alia, a strong, dependable and sustainable communication network. The Companys communication cables meet with the requirement of local as well as international standards and therefore, find ready acceptance with domestic customers as well as in the exports market. Copper Rods

Copper rod is the feed stock for copper based electrical and communications cables. The copper rod production is mainly for in-house consumption. The Companys steps to set up new plants for cables as well as to expand the cable capacity at the existing plants will boost up the captive consumption of copper rods. During the year under review, the CCC rods division recorded a production volume of 21,288 metric tones as against 33,496 metric tones for the earlier year. The sales were Rs.9,504 million (previous year Rs.13,815 million) of which Rs.2,051 million were sales to third parties (previous year Rs.5,106 million) and balance was inter-divisional transfers.

Electrical Switches and CFLs

The manufacture and sale of these electrical products act as a logical extension of the cables business. On its part to contain the effects of global warming, the Government is promoting use of CFLs. Keeping in mind the expected growth in CFL demand the Company has built capacity in T3 and T4 type CFLs and has also launched the latest T5 tube lights and fittings in the market. Road Ahead As the country marches ahead towards attaining the status of being a developed nation, it is natural that the demand for the products produced and marketed by Company would grow. With the focus being on supplying products of superior quality at a price that is attractive to the customer, backed by the distribution reach that the Company has it is but a logical conclusion that the future holds vast promise. The Company has resources available at its disposal to implement and realize its business goals.

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 its 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.

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