Company Report

BHARAT FORGE

Auto Ancillary
January 29, 2007
ICICIdirect Code: BHAFOR

Company Profile
Registered Office

OUTPERFORMER

Promoters

35.9

Institutional Investors

35.8

Other Investors

14.9

General Public

13.3

52-week Low (Rs)

Avg. Volume
Absolute Return 3 mth (%)
Absolute Return 12 mth (%)

7,758
22.2
485.0
221.0
141,799
10
-11.3

Sensex Return 3 mth (%)

12.6

Sensex Return 12 mth (%)

50.2

Performance Chart

Expansion and acquisition to trigger revenue growth

Contribution from non-automobile component to rise

BFL is de-risking its business by increasing its focus on non-automobile
segment. After the expanded capacities, the contribution from this segment
would be higher than the current level of 17%. The company expects to
have global market share of 30%. The margins on these products are also
higher by 2-2.5%.

Stock Data

52-week High (Rs)

Time Frame
12 mths

We expect standalone revenues to grow at a CAGR of 23.1% over FY0609 while consolidated revenues to grow at a CAGR of 18.9%. BFL expanding
its capacities of automobile forging by 20% to 2.4 lakh tonne by FY07,
crankshafts by 40% and front axle assembly by 47%. Further, the higher
utilization of acquired businesses would further add to revenues in coming
years. BFL is on the verge of signing 4 large contracts with global customers
with annual contract size of around USD50 mn each.

Shareholding Pattern as on 30/09/2006

Shares Outstanding (in crore)

Potential upside
20%

Bharat Forge (BFL), the second largest global forging player, has been on
expansion binge for past couple of years increasing its presence in global
market with its duel shore model and de-risking its business geographically
as well as business wise. We initiate a coverage on the stock with an
OUTPERFORMER rating and target price of Rs 416.

Chairman: Mr. B.N. Kalyani

Business Group: Kalyani

Market Cap (Rs crore)

Target Price
Rs 416

KEY TRIGGERS

Mundhwa
Pune Cantonment
Pune - 411036.
Maharashtra
Tel: 91-20-26702777
www.bharatforge.com

Major Holders

Current Price
Rs 349

Dual shoring model to help expand EBITDA margins

We expect consolidated margins to improve from 15.7% in FY06 to 19.3%
in FY09. EBITDA margins of acquired businesses to improve to 13-14%
from current levels of 9%. Proximity to clients and low cost advantages
would enhance margins. The change in product mix with focus on value
added products would further aid margin expansion.

VALUATIONS
At CMP of Rs 349, the stock is trading at 33x and 23x its standalone FY08E and
FY09E EPS and 23.3x and 16.8x its FY08E and FY09E consolidated EPS. Higher
domestic capacity utilization, turnaround in various global operations and
improving contribution from high margin non auto component business are
key growth triggers for the company. We rate the stock as an OUTPERFORMER
with target price of Rs 416, 20x its consolidated FY09E EPS.

Exhibit 1: Key Financials (Standalone)

Net Profit (Rs crore)
Shares in issue (in crore)

Supriya Khedkar
supriya.khedkar @icicidirect.com

ICICI Brokerage Services Limited,

2nd Floor, Stanrose House,
Appasaheb Marathe Road,
Prabhadevi, Mumbai - 400 025.

(Rs Crore)

FY05

FY06

FY07E

FY08E

FY09E

159.8

204.2

219.9

235.4

337.7

19.8

22.2

22.2

22.2

22.2

EPS (Rs)

8.0

8.6

9.3

10.6

15.2

% Growth

23.8

8.1

8.2

13.8

43.5

P/E (x)

43.9

40.6

37.6

33.0

23.0

Price / Book (x)

16.5

6.7

6.1

5.4

4.6

EBITDA Margins (%)

26.9

24.7

25.1

23.7

23.7

EV/EBITDA (x)

25.0

20.5

17.8

15.7

11.7

ROCE (%)

47.7

28.8

19.1

18.1

23.3

RoE (%)

50.6

26.0

18.0

17.2

21.6

Source: ICICIdirect Research

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COMPANY BACKGROUND
Bharat Forge (BFL) is the flagship company of the USD 1.50 billion Kalyani Group, and the second
largest forging company after the Thyssen group. Since commencement of operations in 1966, BFL
has achieved several milestones and is today among the largest and technologically most advanced
manufacturer of Forged & Machined components. With manufacturing facilities spread over 9 locations
and 6 countries two in India, three in Germany, one in Sweden, one in Scotland, one in North America
and one in China, Bharat Forge, today is a global corporation with worldclass engineering capabilities,
state-of-the-art manufacturing facilities, high levels of service and a global customer base.
BFL is among the first in the Indian automotive component industry to have adapted inorganic
growth as a means to establish a global manufacturing footprint. In 2004 BFL acquired Carl Dan
Peddinghaus (CDP), the 2nd largest forging company in Germany that is mainly engaged in the
manufacture of passenger car components, followed by CDP Aluminiumtechnik, a company in Germany
that manufactures aluminium components for automotive applications.
In 2005, BFL acquired Federal Forge now known as Bharat Forge America Inc., which provided
BFL with a manufacturing presence in USA one of its largest markets. This was followed by the
acquisition of Imatra Kilsta, AB, Sweden along with its wholly owned subsidiary Scottish Stampings,
Scotland (together called as Imatra Forging Group). Recently, in December 2005 Bharat Forge signed a
JV with FAW Corporation the largest automotive group in China. Through this new JV BFL makes a
powerful entry into the large and fast growing Chinese automotive market. The forging company of the
FAW group is the largest in the China, and by joining hands with them, BFL instantly becomes the
largest forging company in the China.
These acquisitions have provided BFL an access to customers in new geographies, enhanced
technological capabilities and an enlarged product range.

INVESTMENT RATIONALE
(I) Expansion, acquisition to trigger revenue growth
BFL is on expansion spree and planning to expand its capacities in various product segments. It has also chalked
out a strategy to take over small forging companies abroad to enlarge its customer base. Its global acquisition
strategy consisted of two key elements. First, it hopes to broaden its customer base by bringing in a wider portfolio
of product offerings. Secondly, these global facilities would assist BFL in working with renowned OEMs as an
engineering and development partner. It will expand capacities for automobile forging by 20% to 2,40,000 tonnes
by FY07, crankshafts by 40% and front axle assembly by 47%.
We believe the expanded capacities and higher production backed by intensified demand would drive revenue
growth in the coming years.

Exhibit 2: Capacity expansion

Product

Unit

FY05

FY06

FY07E

FY08E

FY09E

Steel Forging

Inst. Cap

Tonnes

130,000

200,000

240,000

340,000

340,000

Finished Machine Crankshafts

Inst. Cap

Nos

413,000

463,000

650,000

650,000

650,000

Front Axles Assembly & Comp.

Inst. Cap

Nos

477,600

678,000

1,000,000

1,000,000

1,012,000

Source: Company, ICICIdirect Research

BFL raised USD128 million through equity capital and USD200 million through FCCB, collecting total funds of USD
328 million (around Rs1,500 crore). These funds will be employed in financing the capacity expansion projects as
well as acquisition funding.

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Benefits of acquisitions
Procurements at competitive prices: BFL is the second largest forging company in the world with a total
capacity of 6,00,000 tpa after the Thyssen Krupp. This huge size gives it the opportunity to develop a crosscompany strategy for procuring steel at competitive prices. The global procurement scale also gives it access to
more suppliers with increased focus on quality, cost and sustained availability.
Enhanced product, client portfolio: BFL supplies chassis and engine component to the global auto industry
servicing to almost all global OEMs and Tier- 1 companies. Segmentwise, top five car and top five truck
manufacturers in the world form a part of BFLs customer base. It is continuously growing its presence in
passenger car segment. The company is on the verge of signing 4 large contracts with global customers with
annual contract size of around USD50 mn each. It is targeting 30% global market share and around 40% of the
incremental business is expected to come from these marquee customers. This indicates that the company is
expected to grow at an excellent rate in coming years.
Europe the attractive auto market: European auto industry has been traditionally stable. In 2005, new car
registration was over 14 million, though in percentage term it is meager 1.3%. This quantum of demand
coupled with the car manufacturers need for cost reductions provided BFL with significant opportunities.
Europe accounts for 44% of the groups consolidated sales in FY06. BFL India would supply products like
beams, steering knuckles and crankshafts while the passenger car segment would be addressed by CDP-BF and
BF-AT.

(II) De-risking business model

BFL is continuously de-risking its business model by improving its product mix and establishing presence in key
markets like the US, Europe and China. The purpose is to increase its presence in different business segments and
geographies.

Exhibit 3: Segment wise con. sales (FY06)

Exhibit 4: Geographic distribution of con. sales (FY06)

Source: Company

Increasing contribution from non-automobile components: The auto components segment is extremely competitive
and margins have been shrinking. BFL has identified the non-automotive segment as a potential area for growth.
The company sees huge potential in sectors like energy, hydrocarbons and aviation and has embarked on an Rs
350 crore capex programme to emerge as a key player in this segment.

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Exhibit 5: Capex schedule

Equipment capability

Type of products and

Locations

industry addressed

Annual

Estimated

capacity

commencement date

Baramati

40,000 MT

Mid 2008

Components for wind turbine,

Mudhwa,

60,000 MT

End 2008

mining and metal industry apppli-

Pune

12,000 No

End 2008

Closed Die Forging

Large components for the energy

Equipment

sector, hydrocarbon exploitation

sector including aerospace.

Open Forging Press line

cation and general engineering

applications
Machining capacity

Supply of value added products

Baramati

Source: Company

After the expanded capacities, the contribution from the segment is expected to rise further. The company plans
to earn around US$ 225 million from the segment and has targeted the global market share of 30%. As margins
from non-automotive components are higher by 2-2.5%, we believe the diversification would support margin
expansion.la

(III) Dual shore manufacturing

BFL follows a dual shore manufacturing strategy to cater to its global customers. Dual shore manufacturing means
the capacity to manufacture all key products across engine and chassis components from a minimum of two
locations. This ensures smooth supply of components under all circumstances, while providing a long-term cost
advantage. Under this strategy, the company has established more than one manufacturing location for all core
components, one close to the customer and one in a low-cost, but technologically competitive destination such as
India. Proximity to clients and low-cost advantages would enhance its margins.
BFL, with a focus on creating a position of global leadership in the engine and chassis components of passenger
cars and commercial vehicles, is offering duel shore designing, dual shore forging manufacturing, and dual shore
machining capability. Proximity to clients and low cost advantages would enhance its margins.

Exhibit 6: Global dual shore manufacturing capability

Key Products

India

Germany

USA

Sweden

UK

China JV with FAW

Passenger Vehicles
-Engine Component
-Chassis Component
M & HCV
-Engine Component
-Chassis Component
Light Truck Parts
-Engine Component
-Chassis Component
Key Services
-Design & Engineering
capability to manufacture the components

Being implemented.

Source: Company

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For private circulation only

(IV) Consolidated revenue to drive growth

Along with domestic capacity expansions, the company is focusing on increasing capacity utilization of its overseas
businesses. These companies are currently operating at around 50-60% of their total capacity. Going forward, BFL
plans to increase utilization levels to around 70-80%, which would not only spur volumes but also boost its top
line. When the overseas subsidiaries were acquired, they were operating at EBITDA margins of around 8-9%
compared to 25-27% of the standalone operations. The main reason was the higher employee costs, which is
about 14-15% of revenues against 5-6% on Indian operations.
The management is focusing on improving the operation costs, which would result in improving EBITDA margins
to 13-14% from existing 8-9%. We believe increased volumes and improvement in margins would translate into
substantial jump in consolidated revenues as well as profits. We forecast consolidated revenues to rise at a CAGR
of 18.9% to Rs 5,073.8 crore while margins would improve substantially from 15.7% in FY06 to 19.3% in FY09E.
Further, the likely improvement in standalone margins with BFLs aggressive focus on non-automotive segments
would also aid margin expansion and mitigate rising raw material and fuel cost impact.

RISKS & CONCERNS

Slowdown in automobile sector
BFLs growth is closely linked to the growth of Indian as well as global automotive industry. Overall passenger car
segment reported a growth of 18.5% in H1FY07, while the commercial vehicle segment grew 21.8%. We expect
the growth momentum to continue on the back of robust demand due to rising disposable income, improving
infrastructure and easy finance schemes. However, any decline in demand could impact BFLs future growth.
Further, the latest trend indicates that the US, one of the larger contributors to total sales, is witnessing a decline
in demand for passenger cars and CVs. BFL could be hit by this demand slowdown. However, the company has
qualitatively de-risked its business in the US with increased revenue from high-margin and high-value added
products, resulting into mitigating risk due to cyclical trends in the US market.

Exhibit 7: BFLs revenue distribution in the US (Rs crore)

Particular

H1FY07

% to total Rev.

H1FY06

% to total Rev.

Growth

Heavy Truck Chassis Component

140.8

58

120.6

85

16.7%

Heavy Duty Crankshafts (HDEP)

55.1

23

7.1

7.7x

Passenger Car Crankshafts

21.3

0.8

27x

Non-automotive

24.5

10

13.5

10

81.5%

Total

241.7

142.0

Source: Company

Delay in project completion

The company is expanding domestic capacities and also setting up new facilities for non-automotive components.
The expansion programme is expected to be completed in FY07 and FY08. Any delay in project completion would
impact our estimates for capacity utilization, affecting our revenue estimates.

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Delay or failure on client acquisitions

BFL is on the verge of acquiring 4 new contracts from global players worth US$ 50 million each by the end of
FY07. Any delay or non-execution of these contracts would also affect our revenue estimates for the company.
Failure to turnaround acquired businesses
BFL has acquired companies across the world, which are running at much lower capacity utilization and some
were making losses. The long-term strategy is to boost capacity utilization and improve EBITDA margins in next 23 years. Any delay or failure on these fronts would also adversely affect our consolidated revenue estimates.

OTHER DEVELOPMENTS
BFL has signed a memorandum of understanding (MoU) with the Maharashtra Government to jointly develop
a multi-product Special Economic Zone (SEZ) in Khed taluka of Pune district at a project cost of Rs 9,000 crore
in next 10 years. BFL would hold 74% equity in the new venture and MIDC (Maharastra Industrial Development
Corportion) would hold the balance 26%. The SEZ will attract world-class domestic and foreign companies in
automotive, machinery and equipment, machine building, general engineering industries among others. The
project is expected to attract investments of about Rs 25,000 crore and generate 1,20,000 new employment
opportunities.
The company has recently acquired steel company in Andhra Pradesh with capacity of 40,000 tonne. The
company is planning to increase its capacity to 60,000 tonnes in first phase and to 1,00,000 tonnes in second
phase, which would meet steel requirements of the expand capacity.
The company has invested around Rs 20-25 crore in the advance technology centre to develop state- of-the-art
engineering solutions for designing, focus on automotive domain products such a powertrain, steering cassis
systems and components and improve time to market. The centre would be operational by end of 2007, the
benefits of which would be accrue in FY08.

Forging Industry
The Indian Forging Industry has emerged as a major contributor to the manufacturing sector of the Indian economy.
The industry is made up of 330 players with an investment of around US$ 700 million approx. employing around
38,000 people. The total industrys production capacity is about 1 million tonne a year.

Exhibit 8: Industry Production

Year

Production (000 tonnes)

% Growth

1996 - 1997

476

N/C

1997 - 1998

465

-2.3%

1998 - 1999

441

-5.2%

1999 - 2000

497

12.7%

2000 - 2001

435

-12.5%

2001 - 2002

382

-12.2%

2002 - 2003

440

15.2%

2003 - 2004

600

36.4%

2004 - 2005

732

22.0%

2005 - 2006

929

26.9%

Source: AIFI (Association of Indian forging industry)

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Exhibit 9: Exports (million US$)

Year

(million US$)

% Growth

1996 - 1997

50

N/C

1997 - 1998

55

10.0%

1998 - 1999

61

10.9%

1999 - 2000

80

31.1%

2000 - 2001

90

12.5%

2001 - 2002

110

22.2%

2002 - 2003

145

31.8%

2003 - 2004

178

22.8%

2004 - 2005

250

40.4%

2005 - 2006

310

24.0%

Source: AIFI

Industrys exports recorded a growth of almost 24% in 2005-06 and have reached a level of US$ 310 million.
Technological developments have also contributed to export growth. The industrys major markets are USA,
Europe and China. However, only about 30-35 manufacturing units are currently directly engaged in exports.
Inorganic growth is another strategy being used by Indian companies to expand their global footprint and establish a global presence in some of the worlds largest markets. In the past two years companies like Bharat Forge,
Sundaram Fasteners Ltd.(SFL), Amtek Group, EL Forge Ltd aquired forging companies in Europe, USA, China etc.
It is expected that Indian companies will continue to aggressively pursue inorganic growth opportunities in future.
Many large and medium forging companies also took important initiatives in capacity expansion modernization,
cost rationalization etc. Notwithstanding this, the industry had also to contend with its share of problems. It had to
bear the brunt of acute shortages and steep and frequent increases in the cost of major inputs like power and fuel,
forging quality steel etc. For a major part of the year, the industry has grappled with this issue and managed to stay
afloat under these adverse circumstances. In addition, increasing cost of other inputs like petroleum products,
power, implementation of stringent environment pollution norms etc., are challenges that the industry had to
face.

Future Outlook
The future looks encouraging for the forging industry in terms of the expected surge in global demand. As a result
of liberalization, more MNCs have entered the domestic automobile market. This has opened up more business
opportunities for the forging industry.
The future estimated demand (both domestic and global) for the auto component industry (of which the forging
industry is an important segment) are:

Size of global auto component Industry US$ 1.2 trillion.

Current global purchases of components US$ 45 billion by international vehicle manufacturers
Estimated export of auto components from US$ 225 billion
Estimated share of exports from the Indian auto 10% component industry
Targeted exports of auto component industry US$20 billion industry in absolute terms by 2015
Current exports of Indian auto component industry US$ 1 billion
Estimated exports of Indian forging industry (15% of countrys auto component exports for 2005-06) US$
360 million
Projected exports of forging industry by 2015 US$ 5 billion (15% of auto component exports)

Source: AIFI

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FINANCIALS
BFL reported a 29.4% rise in FY06 revenues to Rs 1,577.9 crore. Higher raw material and fuel costs brought
EBITDA margins under pressure, which settled at 24.7% against 26.9% in FY05. Net profit for the year was at
Rs 204.2 crore, up 27.8% despite higher interest costs and depreciation provision. The funds raised through equity
issue and FCCB were invested in mutual funds which generated other income of Rs 48.5 crore, mitigating the
impact of higher interest costs and depreciation provisions.

Financial performance for 9 months of FY07

For 9 months ended December 2006, the company reported 18.3% growth in net sales to Rs1, 348.4 crore and net
profit of Rs 181.2 crore, translating into EPS of Rs8.1 per share. EBITDA margins improved 60 bps to 25.5% mainly
on account of savings in raw material costs. However, higher interest costs and depreciation provisions restricted
net profit growth to 17.7%.
Exhibit 10: Financial performance (Rs crore)
Q3FY07

Q3FY06

% Chg.

9mFY07

9mFY06

% Chg.

Net sales

477.1

399.4

19.5

1348.4

1139.5

18.3

Raw material costs

217.5

177.6

22.4

597.7

510.3

17.1

Other op. expenses

107.9

98.0

10.1

327.7

274.0

19.6

Staff expenses

27.8

25.1

10.8

79.7

70.8

12.5

Total expenditure

353.2

300.8

17.4

1005.1

855.2

17.5

EBITDA

25.6

343.3

284.3

20.7

25.5

24.9

123.9

98.6

EBITDAM (%)

24.0

24.7

Other income

16.2

16.1

0.9

58.7

38.7

51.6

Interest

21.5

15.3

40.4

58.8

39.3

49.5

Depreciation

25.3

19.1

32.1

73.1

51.6

41.7

PBT

93.3

80.2

16.3

270.1

232.1

16.4

Prov. for Taxation

30.3

27.0

12.2

88.9

78.2

13.7

Profit after Tax.

63.0

53.3

18.2

181.2

154.0

17.7

Equity Share capital

44.5

44.1

0.8

44.5

44.1

0.8

EPS (Rs.)

2.8

2.4

17.3

8.1

7.0

16.7

CEPS (Rs.)

4.1

3.3

23.3

11.7

9.8

18.7

Source: Company

On consolidated basis, BFL reported net sales of Rs 2,976 crore as against net sales of Rs2,265.4 crore, recording
31.4% growth. EBITDA margins were at 16.3% , down 80 bps from the corresponding period. This indicates that
the subsidiaries including acquired in last one year have started contributing to EBITDA. EBITDA margins for
subsidiaries improved from 7.3% to 8.6%. Net profit surged 20.2% to Rs 224.9 crore from Rs187 crore.
Going forward, we expect...

Volume growth to support revenue momentum

We expect standalone revenues to grow at a CAGR of 23.1% over FY06-09E to Rs 2,942.6 crore driven by expanded
capacities in automotive component as well as non-automotive component business. With improvement in the
capacity utilization (assuming 10-15% y-o-y growth) of its subsidiaries, consolidated revenues are expected to
grow at a CAGR of 18.9% to Rs 5,073.8 crore in the same period.

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Consolidated margins to improve

Margins for the combined entity are expected to see a remarkable improvement from 17.5% in FY06 to 19.3% in
FY09E due to effective capacity utilization and dual shore manufacturing model with high-value added product
mix. However, higher crude prices and raw material cost pressures could impact standalone margins.
Exhibit 11: Consolidated margins to improvement

Source: ICICIdirect Research

Net profit growth higher than topline growth

Net profit on standalone basis to rise at a CAGR of 18.2% (FY06-09) to Rs337.7 crore while consolidated net profit
would grow at a CAGR of 23.2% to Rs461.6 crore. The revenue and margins improvement to contribute the
higher net profit growth in coming years.
Exhibit 12: Glimpse of consolidated earnings (Rs crore)
FY2006

FY2007E

FY2008E

FY2009E

1577.9

1854.8

2231.6

2942.6

Revenues
Standalone
Subsidiaries

1456.8

1627.1

1855.9

2131.2

Consolidated

3018.9

3481.9

4087.4

5073.8

390.2

466.0

529.7

697.0

EBITDA
Standalone
Subsidiaries

129.9

175.2

221.8

280.7

Consolidated

528.6

641.2

751.5

977.7

24.7

25.1

23.7

23.7

EBITDA Margins (%)

Standalone
Subsidiaries

8.9

10.8

12.0

13.2

Consolidated

17.5

18.4

18.4

19.3

204.2

219.9

235.4

337.7

Net Profit
Standalone
Subsidiaries

43.5

76.9

97.7

123.9

Consolidated

246.9

296.8

333.1

461.6

8.6

9.3

10.6

15.2

10.5

12.8

15.0

20.8

EPS (Rs)
Standalone
Consolidated
Source: ICICIdirect Research

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VALUATIONS
At CMP of Rs349, the stock is trading at 33x and 23x its standalone FY08E and FY09E EPS and 23.3x and 16.8x its
FY08E and FY09E consolidated EPS. Higher domestic capacity utilization, turnaround in various global operations
and improving contribution from high margin non auto component business are key growth triggers for the
company. We rate the stock as an Outperformer with target price of Rs 416, 20x its consolidated FY09E EPS.
Thyssen Krupp is the world leader in the forging with the revenues of 47,125 million Euros and profit of 1,643
million Euros. However, the company is operating on very low EBITDA margins of 6.4%. Compared with the
company, BFL consolidated EBITDA margins are much better at 17.5%. With the improvement in the capacity
utilization and effective operational management of newly acquired subsidiaries, BFLs EBITDA margin is likely to
improve to 19.3% in next 2-3 years.

Exhibit 13: Comparative valuations (FY06 basis- Rs crore)

Bharat Forge (Con.)
Thyssen Krupp

Revenues

EBITDA

EBITDAM(%)

NP

NPM(%)

EPS(Rs)

RoE (%)

RoCE(%)

P/E

3019

529

18

251

9.0

10.5

28.8

30.2

34.2

273561

17380

9538

3.5

188.1

19.3

4.6

10.7

Source: Reuters, ICICIdirect Research

Exhibit 14: P/E band

Source: ICICIdirect Research

Exhibit 15: EV/EBITDA band

Source: ICICIdirect Research

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Exhibit 16: Revenue model

units
Steel Forging

Finished Machine Crankshafts

Front Axles Assembly & Comp.

FY06

FY07E

FY08E

FY09E

Inst. Cap

MT

200000

240000

340000

340000

Production

MT

136790

180000

216000

276000

Sales - Qty

MT

78443

117093

140400

200400

Sales - Value

Rs Crore

659.3

1003.8

1227.7

1843.5

Sales Value P.U.

Rs/MT

84049.6

85730.6

87445.2

90068.5

Inst. Cap

No

463000

650000

650000

650000

Production

No

443118

463450

520000

552500

Sales - Qty

No

442085

464061

520000

552500

Sales - Value

Rs Crore

374.2

400.6

462.4

491.3

Sales Value P.U.

Rs/No

8463.5

8632.8

8891.7

8891.7

Inst. Cap

No

678000

1000000

1000000

1012000

Production

No

502043

550000

700000

860200

Sales - Qty

No

502419

550039

700000

860200

Sales - Value

Rs Crore

266.2

288.8

360.5

438.7

5299.3

5250.0

5150.0

5100.0

Others

Sales Value P.U.

Rs Crore

Rs/No

278.2

325.0

375.0

425.0

Total

Rs Crore

1577.9

2018.2

2425.6

3198.5

Source: ICICIdirect Research

11
For private circulation only

FINANCIAL SUMMARY (Standalone)

Profit and Loss Account
Sales to rise at a CAGR of
23.1% over FY06-09E

Net profit to rise at a CAGR

of 18.2% over FY06-09E

(Rs crore)

FY2009E FY2008E FY2007E FY2006 FY2005

Net Sales
2942.6
2231.6
1854.8
1577.9 1219.0
.................................................................................................................................................
% growth
31.9
20.3
17.5
29.4
46.5
.................................................................................................................................................
Raw Material
-1324.2
-1004.2
-816.1
-730.3 -529.2
.................................................................................................................................................
Staff
-166.3
-127.2
-106.6
-91.7
-69.3
.................................................................................................................................................
Op. Exp
-627.1
-472.2
-381.4
-283.6 -218.4
.................................................................................................................................................
Selling & Admin
-128.0
-98.3
-84.6
-82.1
-74.6
.................................................................................................................................................
Total
Expenditure
-2245.5
-1701.9
-1388.7
-1187.7
-891.4
.................................................................................................................................................
EBITDA
697.0
529.7
466.0
390.2
327.7
.................................................................................................................................................
%
growth
31.6
13.7
19.4
19.1
36.3
.................................................................................................................................................
EBITDA
margin
(%)
23.7
23.7
25.1
24.7
26.9
.................................................................................................................................................
Other
income
4.0
4.0
19.0
48.5
5.4
.................................................................................................................................................
Interest
-38.8
-40.2
-47.2
-54.8
-34.2
.................................................................................................................................................
Depreciation
-153.5
-138.8
-106.5
-73.0
-52.6
.................................................................................................................................................
Profit
Before
Tax
508.8
354.7
331.4
310.9
246.3
.................................................................................................................................................
Tax
-171.2
-119.3
-111.5
-107.9
-86.4
.................................................................................................................................................
Effective
tax
rate
(%)
33.6
33.6
33.6
34.7
35.1
.................................................................................................................................................
Net
Profit
337.7
235.4
219.9
203.0
159.8
.................................................................................................................................................
% growth
43.5
7.0
8.3
27.0
30.8
.................................................................................................................................................
Reported
Net
Profit
337.7
235.4
219.9
204.2
159.8
.................................................................................................................................................
EPS (Rs)
15.2
10.6
9.3
8.6
8.0
.................................................................................................................................................
% growth
43.5
13.8
8.2
8.1
23.8

Balance Sheet

(Rs crore)

FY2009E FY2008E FY2007E FY2006 FY2005

Equity
44.5
44.5
44.5
44.5
39.6
.................................................................................................................................................
Reserves
1638.1
1401.7
1239.6
1109.7
383.0
.................................................................................................................................................
Net worth
1682.5
1446.2
1283.9
1152.9
418.3
.................................................................................................................................................
Short-term
Loans
56.0
156.0
56.0
256.0
155.8
.................................................................................................................................................
Long-term
Loans
586.5
586.5
636.5
746.5
282.1
.................................................................................................................................................
Total Loans
642.5
742.5
692.5
1002.5
437.9
.................................................................................................................................................
Deferred
tax
liability
96.7
96.7
96.7
96.7
81.2
.................................................................................................................................................
Liabilities
2421.6
2285.3
2073.0
2252.0
937.3
.................................................................................................................................................
Gross Block
2460.8
2260.8
2010.8
1265.1
948.8
.................................................................................................................................................
Depreciation
888.6
735.2
596.3
489.9
421.3
.................................................................................................................................................
Net
Block
1572.2
1525.7
1414.5
775.2
527.5
.................................................................................................................................................
Capital
work-in-progress
0.0
0.0
0.0
370.7
275.9
.................................................................................................................................................
Investments
190.5
190.5
190.5
190.5
38.3
.................................................................................................................................................
Inventories
454.4
351.9
288.7
254.3
186.1
.................................................................................................................................................
Debtors
370.8
287.4
243.9
188.6
143.1
.................................................................................................................................................
Cash
183.3
151.5
136.0
505.4
28.1
.................................................................................................................................................
Other
Current
assets
779.1
664.9
561.7
840.5
427.5
.................................................................................................................................................
Total Current assets
1787.6
1455.6
1230.3
1788.8
784.8
.................................................................................................................................................
Creditors
1128.7
886.5
762.2
506.9
391.5
.................................................................................................................................................
Other
current
liabilities
0.0
0.0
0.0
366.4
297.7
.................................................................................................................................................
Total current liabilities
1128.7
886.5
762.2
873.2
689.2
.................................................................................................................................................
Net
current
assets
658.9
569.1
468.1
915.5
95.6
.................................................................................................................................................
Total Assets
2421.6
2285.3
2073.0
2252.0
937.3

12
For private circulation only

Cash Flow Statement

(Rs crore)

FY2009E FY2008E FY2007E FY2006 FY2005

EBIT
543.6
390.9
359.6
317.2
275.1
.................................................................................................................................................
(Inc.)/Dec in working capital -58.0
-85.6
153.1
-133.2 -112.5
.................................................................................................................................................
Cash flow from operations
485.6
305.3
512.7
184.0
162.6
.................................................................................................................................................
Other income
4.0
4.0
19.0
38.9
0.4
.................................................................................................................................................
Depreciation
153.5
138.8
106.5
73.0
52.6
.................................................................................................................................................
Interest paid (-)
-38.8
-40.2
-47.2
-50.5
-34.2
.................................................................................................................................................
Tax
paid
(-)
-171.2
-119.3
-111.5
-98.5
-87.3
.................................................................................................................................................
Dividends
paid
(-)
-101.3
-73.2
-90.0
-62.7
-44.9
.................................................................................................................................................
Net cash from operations
331.8
215.4
389.5
84.1
49.2
.................................................................................................................................................
Capital
Expenditure
(-)
-200.0
-250.0
-375.0
-267.5
-265.1
.................................................................................................................................................
Net cash after capex
131.8
-34.6
14.5
-183.4 -215.9
.................................................................................................................................................
Inc./(Dec.)
in
short-term
borr.
-100.0
100.0
-200.0
-1.3
116.6
.................................................................................................................................................
Inc./(dec.)
in
long-term
borr.
0.0
-50.0
-100.0
462.1
19.4
.................................................................................................................................................
Inc./(dec.)
in
borrowings
-100.0
50.0
-300.0
460.8
136.1
.................................................................................................................................................
Inc./(Dec.) in Investments
0.0
0.0
200.0
-405.7
-4.0
.................................................................................................................................................
Inc./(Dec.)
in
Pref.
Capital
0.0
0.0
-10.0
-10.0
-10.0
.................................................................................................................................................
Equity issue/(Buyback)
0.0
0.0
0.0
602.0
103.8
.................................................................................................................................................
Cash
from
Financial
Activities
-100.0
50.0
-110.0
647.1
225.9
.................................................................................................................................................
Others
0.0
0.1
-273.9
13.6
9.5
.................................................................................................................................................
Opening
cash
151.5
136.0
505.4
28.1
8.6
.................................................................................................................................................
Closing cash
183.3
151.5
136.0
505.4
28.1
.................................................................................................................................................
Change in Cash
31.8
15.5
-369.4
477.3
19.5

Ratios
FY2009E FY2008E FY2007E FY2006 FY2005
EBITDA
Margins
(%)
23.7
23.7
25.1
24.7
26.9
.................................................................................................................................................
Net
profit
Margins
(%)
11.5
10.5
11.9
14.9
13.1
.................................................................................................................................................
RoCE
(%)
23.3
18.1
19.1
28.8
47.7
.................................................................................................................................................
RoE
(%)
21.6
17.2
18.0
26.0
50.6
.................................................................................................................................................
Debt/Equity
(x)
0.4
0.5
0.5
0.9
1.0
.................................................................................................................................................
Interest
cover
(x)
14.0
9.7
7.6
5.8
8.0
.................................................................................................................................................
RM/Sales
(%)
45.0
45.0
44.0
46.3
43.4
.................................................................................................................................................
Staff/Sales (%)
5.7
5.7
5.8
5.8
5.7
.................................................................................................................................................
Others/Sales
(%)
25.7
25.6
25.1
23.2
24.0
.................................................................................................................................................
EPS (Rs)
15.2
10.6
9.3
8.6
8.0
.................................................................................................................................................
CEPS(Rs)
22.1
16.8
14.1
12.6
10.6
.................................................................................................................................................
DPS (Rs)
3.0
2.9
3.1
3.0
2.5
.................................................................................................................................................
P/E
(x)
23.0
33.0
37.6
40.6
43.9
.................................................................................................................................................
P/BV (x)
4.6
5.4
6.1
6.7
16.5
.................................................................................................................................................
P/
Sales
(x)
2.6
3.5
4.2
4.9
6.4
.................................................................................................................................................
EV/EBITDA (x)
11.7
15.7
17.8
20.5
25.0

13
For private circulation only

USERS GUIDE
Assets

Current Ratio

The resources owned by a company that is expected to provide

benefits to its business. Total assets are shown in Rupees crores
and represent the last day of the specified reporting period.

Current ration is equal to current assets divided by current liabilities

and is a measure of company's liquidity of a business, i.e. its ability
to meet its short-term obligations. Also referred to as the Liquidity
Ratio.

Asset Turnover
This figure represents how many dollars in revenue a company
has generated per dollar of assets. It is calculated by dividing total
revenues for the period by total assets for the same period. In
comparison, the industry average and S&P 500 are shown for the
most recent fiscal year. Asset turnover can give an indication of
how efficient a company is. A high asset turnover, which
expresses how many times a company sells-or turns over-its
assets in a year is a sign of high efficiency.
Balance Sheet
Balance sheet represents how much a company owns (equivalent
to its assets), how much it owes (equivalent to its liabilities) and
the difference between the two i.e. equity, which is part owned
by shareholders.
Book Value
Book value is also known as equity or net worth which is the same
as total assets minus total liabilities. Book value per share is net
worth divided by shares outstanding and shows how much of
equity is represented by each share of stock
Capital Expenditure
Capital expenditure is the money invested by the company in the
future growth of its business and includes land, plant, equipments,
intellectual property rights etc.
Cash Flow
Cash Flow shows the movement of cash in and out of a business
from day-to-day operations and other indirect effects, such as
capital expenditure, tax and dividend payments etc. Cash flow
adjusts the income figures to a cash basis after including operating
differences such as depreciation, but before adjusting for
investments (such as purchases of plants or equipment) or
financing.
Current Assets
Current assets include cash and anything that is expected to be
converted into cash within twelve months of the balance sheet
date. Current assets when used in comparison with current
liabilities is a good measure of company's short term liquidity.
Current Liabilities
Current liabilities are liabilities which the company expects to pay
within twelve months of the balance sheet date on account of
trade creditors, dividend etc. Current liabilities when used in
comparison with current assets is a good measure of company's
short term liquidity.

Debt to equity ratio

Debt/equity ratio equals company's total debt (including short term
and long term obligations) divided by shareholders equity (also
known as networth). This ratio indicates the amount of liabilities
the business has for every rupee of shareholders' equity. This
ratio is a good indicator of a business's capacity to repay its creditors
and is considered very important by most term lenders.
Depreciation
Depreciation is a non cash charge taken against company's profit
for the deterioration of its asset value over its useful life
Dividend
Portion of profits that a company distributes to its shareholders.
Dividend payout ratio indicates percentage of the earnings paid to
shareholders in cash.
Dividend Yield %
The dividends per share of the company over the trailing oneyear period as a percentage of the current stock price
Earnings per share (EPS)
EPS is the amount of profit a company earns from its continuing
operations in a given year divided by the average number of shares
outstanding.
EBIDTA
EBIDTA (Earnings before interest depreciation and amortization)
is calculated by looking at earnings before the deduction of interest,
tax, depreciation amortization expenses. EBIDTA is useful in
analysis companies that have large amounts of fixed assets which
are subject to heavy depreciation charges (such as manufacturing
companies) or in the case where a company has a large amount of
acquired intangible assets on its books and is thus subject to large
amortization charges (such as a company that has purchased a
brand or a company that has recently made a large acquisition).
Enterprise Value (EV)
EV is a measure of what the market believes a company's ongoing
operations are worth. Enterprise value is equal to (company's
market capitalization + debt - cash and cash equivalents). EV is of
significant importance to both individual investors and potential
acquirers considering a takeover of the company.
EV/EBITDA
EV/EBITDA is the enterprise value of a company divided by
earnings before interest tax depreciation and amortisation. EV/
EBITDA has an edge over P/E ratio as it is unaffected by company's

14
For private circulation only

financing structure as it compares the value of the business, free

of debt to earnings before interest. If a business has debt, a buyer
of that business clearly needs to take that debt into account in
valuing the business, which the EV reflects.
Forward P/E
A stock's current price divided by the EPS estimate for the next
fiscal year. This ratio indicates how cheap or expensive a stock is
as compared to forward earnings estimates. The lower the forward
P/E, the cheaper the stock.
Intangible assets
Intangible assets as distinguished from tangible assets includes
items like goodwill, trademark, or patent and do not have any
physical existence
Free Reserves
Free reserves are profits retained by a company in its books and is
available for distribution to shareholders. These reserves do not
include capital redemption reserve, or asset revaluation reserve.
Leverage
Leverage is company's long-term debt in relation to equity in its
capital structure. The larger the long-term debt, the higher the
leverage.
Leveraged Company
A company which has higher proportion of debt in its capital
structure.
Market Capitalization
Market capitalization represents the total market value of the
company at the current price, of the total number of equity shares
issued by a company.
Net Profit
The final profit of a company, after all deductions including interest,
depreciation and taxes. It is also knows as the bottom line.
Net profit margin
Net profit margin is a measure of a company's profitability and
efficiency and is calculated by dividing net profits by sales.
P/E Ratio (or Price-Earnings Ratio)

Quick Ratio
The quick ratio is defined as current assets minus inventories and
then divided by current liabilities. It measures the liquidity of a
company and indicates whether the company can meet its
obligations from the current assets. It is also known as the acid
test ratio.
Return on Equity (ROE) or Return on Networth (RONW)
Return on equity is an important financial ratio & indicates how
well the company firm has used reinvested earnings to generate
additional earnings.
Return on Assets (ROA)
Return on Assets is equal to the net income divided by assets and
indicates how much profit a company generates on its total assets.
Unlike ROE, ROA does not get impacted by the firm taking in
more debt.
Return on capital employed (ROCE)
ROCE is a fundamental financial performance measure and is
arrived by dividing profit before interest against the money that is
invested in the business. (profit before interest and tax/capital
employed x 100) which indicates how much profit the company
is generating at the operating level.
Revenue Growth
Revenue growth represents the rate of revenue growth over the
trailing one-year period and gives a good picture of the rate at
which companies have been able to expand their businesses.
Retained Earnings
Retained earnings are part of a company's earnings which is not
distributed as dividends but held back and accumulated for its
growth.
Share
A share is one unit of ownership of a company.
Shareholders' funds
A measure of the shareholders' total interest in the company
represented by the total share capital plus reserves.

Market price per share divided by the firm's earnings per share. It
is the most commonly used valuation tool and shows how much
investors are willing to pay for a rupee earned by the company.

Tangible Assets

PEG Ratio

Total Revenue

PEG ratio is arrived by dividing forward P/E of a stock by its

projected EPS growth. PEG ratio represents how much the
investors are paying for company's growth.

Revenue is a measure of how much money a company has brought

in within a given period. It is used in the context of revenue figures
for previous years and quarters and is a common way to measure
the size of a company.

Price/Book Ratio
Price/Book Ratio compares a stock's market value to the value of
total assets less total liabilities (book). It is also called market-tobook and still is a popular tool and measures tangible assets of the
company.

Tangible assets are assets that have a physical existence, like

cash, gold, real estate, machinery, etc.

Yield
Yield is arrived at by dividing the annual dividend per share by the
current stock price and displayed as a percentage.

15
For private circulation only

RATING RATIONALE
ICICIdirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to its stocks
according to their notional target price vs current market price and then categorises them as Outperformer,
Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and the notional target
price is defined as the analysts valuation for a stock.
Outperformer: 20% or more;
Performer: Between 10% and 20%;
Hold: +10% return;
Underperformer: -10% or more.

Harendra Kumar

Head - Research and Content

harendra.kumar@icicidirect.com

ICICIdirect Research Desk

ICICI Brokerage Services Limited,
2nd Floor, Stanrose House,
Appasaheb Marathe Road,
Prabhadevi, Mumbai - 400 025
research@icicidirect.com

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way,
transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent
of ICICI Brokerage Services Limited (IBSL). The author of the report does not hold any investment in any of the companies mentioned in this report.
IBSL may be holding a small number of shares/position in the above-referred companies as on date of release of this report. This report is based
on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy
or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer
document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes
investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own
investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This information may not be
taken in substitution for the exercise of independent judgement by any recipient. The recipient should independently evaluate the investment risks.
IBSL and affiliates will not accept any liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is not
necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. IBSL may have issued other
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restriction.

16
For private circulation only

PH/27/01/07

Disclaimer