YEARS

Butterfly Gandhimathi Appliances Ltd

Good quarter; order from TN government is a key monitorable
Fundamental Grade Valuation Grade Industry 3/5 (Good fundamentals) 4/5 (CMP has upside) Household Durables

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August 22, 2012 Fair Value CMP CFV MATRIX

Excellent Fundamentals

Rs 405 Rs 325

Fundamental Grade

Butterfly Gandhimathi Appliances Ltds (Gandhimathis) Q1FY13 results were better than CRISIL Researchs expectations. Revenues grew 74% y-o-y to Rs 1,101 mn driven by the sale of products worth Rs 350 mn to Tamil Nadu (TN) government and 25% y-o-y growth in non-government sales because of underlying consumer spending supported by promotional activity. EBITDA margin expanded 25 bps y-o-y due to lower other expenses. PAT grew by 69% y-o-y to Rs 56 mn from Rs 33 mn. While we view Q1FY13 results as positive, we maintain our estimates 1) because of lack of visibility into TN governments order and 2) because we are cautious about the impact of deficient monsoon and the persisting high inflationary conditions on consumer spending. We maintain our fundamental grade of 3/5. TN government order is a key monitorable The company has qualified on technical parameters required under the tender that the TN government has floated and has submitted its quotations for the financial bid. We believe that Gandhimathi is well placed to get the TN order given its adequate production capacity and financial strength; however it is a major variable to our FY13 growth estimate. For FY13, we have estimated a revenue contribution of Rs 3.0 bn from the TN government order out of which the company has already achieved Rs 350 m in Q1FY13. Deficient monsoon can moderate growth in non-government sales While we are positive on the Q1FY13 y-o-y growth of 25% in non-government sales, we remain cautious on the sustainability of +20% y-o-y growth going ahead because of the impact of deficient monsoon and persistent high inflationary condition on consumer spending. We have estimated a non-government sales growth of 16% y-o-y for FY13. Given that Gandhimathi derives nearly 80% of its sales from South India and, Karnataka, one of its key markets, is reeling under drought conditions, we believe that rural consumption can be impacted. As a result, we remain conservative and maintain our sales growth estimates. Margins improve but weaker rupee likely to play a spoil-sport Gandhimathi Q1FY13 EBITDA margins have been better than our estimates; however, we expect the margins to remain under incremental pressure in 2HFY13 because of the weak rupee. CRISIL Research expects that in FY13, the average rupee/US$ will be 55 as against 52 expected earlier. The company imports raw materials (ABS plastics, motors and others) from China to service the TN government order in the second half of the fiscal year. Maintain our estimates and fair value estimate of Rs 405 per share We maintain our FY13 and FY14 revenue estimate of Rs 6.7 bn and Rs 7.6 bn, respectively, and EPS estimate of Rs 20.9 and Rs 25.9, respectively. We continue to use DCF to value Gandhimathi and reiterate our fair value estimate of Rs 405. At the current market price of Rs 325, our valuation grade is 4/5.

5 4 3 2 1
Poor Fundamentals

Valuation Grade
Strong Downside Strong Upside

KEY STOCK STATISTICS

NIFTY/SENSEX NSE/BSE ticker Face value (Rs per share) Shares outstanding (mn) Market cap (Rs mn)/(US$ mn) Enterprise value (Rs mn)/(US$ mn) 52-week range (Rs)/(H/L) Beta Free float (%) Avg daily volumes (30-days) Avg daily value (30-days) (Rs mn) 5439/17821 BFLYGANDHI 10 17.9 6,158/112 7,000/127 420/129 1.1 35% 4,706 1.6

SHAREHOLDING PATTERN
100% 90% 80% 70% 60% 50% 40% 30% 20% 64.9% 77.8% 64.7% 64.7% 35.1% 0.02% 22.2% 0.02% 19.6% 16% 19.7% 16%

KEY FORECAST
(Rs mn) Operating income EBITDA Adj net income Adj EPS-Rs EPS growth (%) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) # Based on abridged financials Source: Company, CRISIL Research estimates FY10 2,551 303 169 11.7 145.7 33.2 57.8 29.9 22.9 19.7 FY11 2,057 223 96 13.3 13.8 0.3 27.9 37.4 26.3 4.9 13.4 FY12# 5,946 620 190 12.4 (7.1) 0.7 40.9 32.6 28.3 7.1 10.1 FY13E 6,675 695 372 20.9 68.6 0.8 28.1 26.3 16.8 3.0 9.4 FY14E 7,649 831 462 25.9 24.2 1.3 25.9 20.5 13.5 2.6 7.7

10% 0% Sep-11 Pro moter Dec-11 DII Mar-12 Jun-12 Others

PERFORMANCE VIS--VIS MARKET

Returns 1-m Gandhimathi NIFTY 7% 3% 3-m -8% 10% 6-m -9% -1% 12-m 14% 6%

ANALYTICAL CONTACT
Mohit Modi (Director) Abhijeet Singh Bhaskar Bukrediwala Client servicing desk +91 22 3342 3561 clientservicing@crisil.com mohit.modi@crisil.com Abhijeet.singh@crisil.com bhaskar.bukrediwala@crisil.com

NM: Not meaningful; CMP: Current market price

For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters.