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IEA Report

10th May 2017


GODREJCP "HOLD" 10th May 2017
The company has reported better numbers for Q4FY17. Domestic volume grew handsomely by 5% YoY. EBITDA margin improved by 147 bps YoY
in an inflationary environment. International business EBITDA margin also improved by 150 bps YoY to 19.6%. Going forward management
indicated that they will maintain margin and also try to improve it. GODREJCP is present in less penetrated segment as compared to other FMCG
players such as Hair color and Home Insecticide. It gives GODREJCP enough room to grow further. As far as international business in concern, we
expect better revenue growth from Indonesian market going forward as company is expanding its distribution reach and launching new products
and for African business we expect 15% CAGR for next two year led by strong growth in Strength of Nature(SON). Considering all this we still hold
positive view on GODREJCP but stock has run up sharply after result so we presently recommend `HOLD rating on it.
................................................... ( Page : 2-6)

EICHERMOT "HOLD" 9th May 2017


Eicher Motors is well placed in the domestic two wheeler industry. RE volumes have grown at a 42% CAGR over last 5 years. Management is
expanding itself through only exclusive stores which reflect management's focused approach to make it a premium brand. Strong order book of
classic 350 models and capacity addition in-line with demand will give further headroom for growth for RE. In the commercial vehicle space VECV
has positioned itself as a third strong player after Tata Motors and Ashok Leyland. There are short term hiccups in the domestic market like GST
and Monsoon which may slow down the overall trucking activity in the country, however, the long term growth story remains intact backed by
strong infra-activity in the country and growing exports markets. We expect margins to expand by 160 bps to 32.5% in FY19. Currently, the stock is
trading at 8.0x FY19E P/BV. Earlier we recommended this stock at Rs.24007 for a target price of Rs.26600 and the stock has achieved our
recommended target, but considering the future growth potential, we upgrade our target to Rs. 28009 and maintain HOLD' rating on this stock.
....................................................... ( Page : 7-11)

"SUBSCRIBE"
Housing and Urban Development Corporation Ltd 8th May 2017
HUDCO is a wholly-owned Government company with more than 46 years of experience in providing loans for housing and urban infrastructure
projects in India. HUDCOs AUM stands at ~Rs 36800Cr out of which 89% is to state government and their agencies. The loan book of the company
has till date been growing at 7.5% CAGR for last 4 years which appears low considering other listed housing finance company. GNPA of the
company stands at 6.80% while NNPA at 1.51% which is again higher than its listed peers. However the company is expected to benefit hugely
from Pradhan Mantri Awas Yojna under Housing for All by 2022. As the CAR is high at 63.9%, risk of any equity dilution in the near term gets
eliminated.
The company is attractively priced at 1.4 times BV with Return on Equity at 7.6% . We recommend SUBSCRIBE.
.......................................................... (Page : 12-15)

COSMOFILMS "HOLD" 8th May 2017


In continuation with our previously "BUY" recommendation report dated 30th March 2017 ,we have our "HOLD" rating on the stock, with earlier
target price of 490/-. We believe the recently taken up project of BOPET with a capacity of 36000 MT per annum will boost company's sales
growth and protifability to new heights. This new BOPET line will start adding revenues to the topline from Q3FY19 onwards. Change of estimates
in sales and earnings to this effect, will be updated in Q4FY17 & full FY17 earning review report, soon after announcement of quarterly earning by
the company. We recommend "HOLD" on this stock. ................................. ( Page : 16-19)

MARICO "NEUTRAL" 5th May 2017


Going forward we expect deterioration in margin due to higher input cost especially copra and higher advertisement expenses which may reduce
ROE by 182 bps in FY18E. Secondly there will be some hiccups related to GST which may lead to channel realignment which in turn lead to de-
stocking in next 2 quarters. This could impact domestic volume of Marico in near term. At present company is trading at the peak of its valuation
so we see little upside from here hence recommend `Neutral at this price. ........................... ( Page : 20-24)

IOC "PART BOOK PROFIT" 4th May 2017


With the full commissioning of 15MMTPA Paradip refinery, Indian Oil Corporation is equipped to cater the growing fuel demand in the country.
Management expects 95% capacity utilization of Paradip refinery and volume growth of 3-4 MTPA going forward. Further management plans to
add 300 retail outlets every year to its existing network of 25000+ outlets. This will improve the volume of the company up-to a large extent. IOC
has equipped with BS VI standard HSD and BS VI standard motor spirit and prepared to start supply by Oct17. IOC maintains healthy dividend
payout of 33%. Currently stock is trading at 1.9x FY19 P/BV. Recently IOC rallied smartly and achieved our recommended target price of Rs 445.
We expect that the stock has discounted all the near term positives and at this price point the valuation seems little stretched, so we recommend
our short term investors to book profit at current levels but long term investors may hold this stock. ...................................................................
( Page : 25 -27)
Narnolia Securities Ltd IEA Edition No.- 1010
INDUSTRY - Con. Staples
BSE Code - 532424
NSE Code - GODREJCP
10-May-17 NIFTY - 9352

Company Data Key Highlights of the Report:


CMP 1929 GODREJCP's Q4FY17 numbers are better than our expectation. Revenue
Target Price HOLD
for Q4FY17 grew by 13%YoY to Rs 2489 cr (Vs expectation of Rs 2473
cr).
Previous Target Price Surprised us on margin front. Gross margin improved by 282 bps YoY to
Upside 58.5% (Vs expectation of 57%).EBITDA margin improved by 147 bps YoY
52wk Range H/L 1956/1286 to 22.1%(Vs expectation of 20%).
Mkt Capital (Rs Cr) 65,710 Domestic volume for this quarter grew by 5%.
Av. Volume (,000) 166 We expect better growth led by GST and see similar margin or
improvement in margin going forward as indicated by management. On
RoE & ROCE International business front we expect African business to grow at 15%
CAGR for next two year backed by strong growth in SON . We still hold
ROE ROCE
positive view on GODREJCP but as stock has run up sharply after result
35%
so we presently recommend `HOLD rating on it.
30% 25% 24% 23%
25% 21%
19%
20% 25%
22% 22%
15% 20% 21%
Financials/Valu FY15 FY16 FY17 FY18E FY19E
10%
5% ation
Net Sales 8,276 8,753 9,609 10,553 12,011
0% EBITDA 1,365 1,636 1,913 2,119 2,291
FY15 FY16 FY17 FY18E FY19E
EBIT 1,275 1,535 1,772 1,954 2,131
Shareholding patterns % PAT 907 828 1,304 1,483 1,649
4QFY17 3QFY17 2QFY17 EPS (Rs) 27 24 38 44 48
Promoters 63.3 63.3 63.3 EPS growth (%) 19% -9% 58% 14% 11%
Public 36.7 36.7 36.7 ROE (%) 21% 19% 25% 24% 23%
Total 100.0 100.0 100.0 ROCE (%) 20% 22% 21% 22% 25%
BV 127 125 156 184 208
Stock Performance % P/B (X) 15.2 15.4 12.4 10.5 9.3
1Mn 3Mn 1Yr P/E (x) 72.4 79.4 50.4 44.3 39.8
Absolute 13.6 23.4 45.5
Rel.to Nifty 12.3 17.2 25.1 Domestic business segmental growth:
Domestic Household Insecticides (HI) business grew by 4% YoY to Rs
150 GODREJCP NIFTY 665 cr impacted by erratic weather in March especially in North India.
140
Hair colour grew handsomely by 13% YoY led by double digit volume
130 growth as compared to decline of 2% in previous quarter. Godrej Expert
120 Rich Crme reaches highest ever market share on exit basis.
110
Soap business performance is better than expectation, grew by 9% YoY
100 to Rs 358 cr led by mid-single digit volume growth.
90
The company launched HIT Gel Stick with a price point of Rs 30 in this
80 quarter.

RAJEEV ANAND
rajeev.anand@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
Quarterly Performance
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Net Sales 2,207 2,123 2,439 2,486 2,489 13% 0% 8,753 9,609 10%
Other Income 11 14 17 19 26 145% 36% 84 60 -29%
COGS 979 982 1,059 1,057 1,034 6% -2% 3,867 4,133 7%
Ad & P Expenses 154 168 203 192 155 1% -19%
Employee Cost 229 249 241 256 247 8% -3% 944 988 5%
Other Expenses 313 343 391 381 403 29% 6% 1,977 2,234 13%
EBITDA 456 381 466 517 551 21% 7% 1,636 1,913 17%
Depreciation 28 33 36 36 37 30% 2% 101 142 41%
Interest 25 33 35 40 38 50% -4% 119 145 22%
PBT 418 330 412 447 497 19% 11% 1,500 1,686 12%
Tax 102 75 91 99 115 12% 16% 336 379 13%
PAT 125 244 318 352 390 212% 11% 828 1,304 58%

Better revenue growth led by better domestic business performance


Gross margin
improved by GODREJCP has reported Q4FY17 result better than our expectation. Revenue for Q4FY17 grew by
13%YoY to Rs 2489 cr whereas our expectation was Rs 2473 cr.
282 bps YoY in
Q4FY17. Surprised us at margin front. Gross margin improved by 282 bps YoY to 58.5% (Vs expectation of
57%).EBITDA margin improved by 147 bps YoY to 22.1%(Vs expectation of 20%).
Domestic volume for this quarter grew by 5% better than other FMCG players DABUR (2.4%) and
EMAMILTD(3%).
International business delivered 6% constant currency (CC) sales growth mostly driven by Africa
and Latin America in Q4FY17.
International business EBITDA margin improved by 150 bps YoY to 19.6%.
Indonesia business remained flat in CC term with Rs 389 cr revenue (Vs expectation of Rs
402 cr) in Q4FY17.
PAT without exceptional grew by 22% YoY to Rs 390 cr in Q4FY17 and for full year PAT grew by
58% to Rs 1304 cr.

3000 450 International Business Revenue(in cr.)


Sales(in cr) PAT(in cr)
400
390 1400
2500 368
352 350
1200
318
2000 300
1000
264 266
244 250
1500 235 800
222
200
600
1000 143 150
117 125 400
100
500
1029

1013

1018

1028

1086

1120

1220

1173
1078

200
1889

2060

2236

2092

1988

2197

2286

2207

2123

2439

2486

2489

889

910
920

50
0 0 0

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Margin % 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
Gross Margin 55.7% 53.8% 56.6% 57.5% 58.5% 2.8% 1.0% 55.8% 57.0% 1.2%
EBITDA Margin 20.7% 17.9% 19.1% 20.8% 22.1% 1.5% 1.3% 18.7% 19.9% 1.2%
PAT Margin 5.7% 11.5% 13.0% 14.2% 15.7% 10.0% 1.5% 9.5% 13.6% 4.1%

Gross margin for this quarter improved by 282 bps YoY to 58.5% led by lower input prices, product
mix and price hike. On yearly basis gross margin improved by 117 bps to 57%.
EBITDA margin improved by 147 bps YoY to 22.1% led by 282 bps YoY decline in COGS,76 bps YoY
decline in A&P expense and 47 bps YoY decline in employee expenses in Q4FY17 whereas other
expenses went up by 202 bps YoY.
PAT margin remained 15.7%in Q4FY17 as compared to 5.7% in Q4FY16 due to onetime exceptional
item loss of Rs 189 cr in Q4FY16.
Domestic Soap Revenue growth YoY Segments Penetration
Domestic Soap Revenue growth YoY

20% Penetration
15%
15% 13% 13% 120%
11% 100%
9% 100%
10%
3% 80%
5% 2% 2%
1%
60% 48%
0% 38%
-6% -6% 40%
-5%
-10% 20%
-10%
0%
-15% Hair colour Household Soap
Insecticides(HI)

Make balance
between Concall Highlights(Q4FY17):
capital The company will maintain margin going forward. Try to improve it further.
allocation and
Focus to improve ROCE going forward. The company will make balance between capital
Div. Payout. allocation and Dividend payout going forward.
Confident of strong growth in medium to long term .
The company has seen recovery in consumer demand in Q4FY17.
Indonesian business: competitive intensity is decreasing in insecticide business. Expect better
growth going forward. Non insecticide business grew by 9% inQ4FY17. Insecticide business
maintained market share.
For the full year working capital has been reduced. The company sees it going down further.
The company launched HIT Gel Stick with a price point of Rs 30 in this quarter.
Domestic Soap business: The Company has initiated selective price increases in soap
portfolio and is scaling back consumer and trade offers.
The company is ready to leverage acquisition of Strength of Nature to build Wet Hair Care
platform in Africa.
European business: Overall demand environment remains challenging. Adjusted EBITDA
margins increased by 590 bps YoY led by judicious marketing investments and one-time
reversal of A&P provisions in Q4FY17.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Investment Arguments:
Innovation and new product launches: The Company gets 25% to 40% of sales growth from launch
of new products historically. Going forward, the company will maintain innovation, launch new
products, intensify introduction on Lower Unit Pack (LUP) which will deliver better growth going
forward.

Lower penetration gives opportunity: GODREJCP is present in less penetrated segment as


compared to other FMCG players like Hair Colour(38%) and HI(48%). It will give it enough room to
grow further.
Relatively less impacted by Patanjali: If we see our FMCG basket, GODREJCP has minimum
overlap of products with Patanjali than any other players. Hence we expect very less impact on the
volume of GODREJCP due to expansion of Patanjali.
Expectation of better revenue from Indonesian market: Indonesian market contributes approx.
17% of companys revenue. We expect it to improve going forward as company has plans to launch
several hair care and personal care products in Indonesian market in next 6-12 months which will
improve companys volume going forward. Secondly company is planning to ramp up its distribution
reach to double in next 3-5 year which will translate into better volume growth from Indonesia going
forward.

African business (Potential growth driver): African business grew by 19% YoY in constant currency
(CC) terms and 54%YoY including Strength of Nature in Q3FY17. We expect similar growth in
Q4FY17.Although African business is facing some currency headwinds but by localizing production
facility and increasing prices company is expected to counter it.Going forward management sees
continuous margin improvement from African business in next 3-5 years.

Indonesian Market Constant Currency(CC) growth Africa Constant Currency(CC) growth

View & Valuation


The company has reported better numbers for Q4FY17. Domestic volume grew handsomely by 5%
YoY. EBITDA margin improved by 147 bps YoY in an inflationary environment. International business
EBITDA margin also improved by 150 bps YoY to 19.6%. Going forward management indicated that
they will maintain margin and also try to improve it. GODREJCP is present in less penetrated segment
as compared to other FMCG players such as Hair color and Home Insecticide. It gives GODREJCP
enough room to grow further. As far as international business in concern, we expect better revenue
growth from Indonesian market going forward as company is expanding its distribution reach and
launching new products and for African business we expect 15% CAGR for next two year led by strong
growth in Strength of Nature(SON). Considering all this we still hold positive view on GODREJCP but
stock has run up sharply after result so we presently recommend `HOLD rating on it.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Financials Snap Shot
Income Statement Rs in Crores Key Ratios
Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Revenue from Operation 8,753 9,609 10,553 12,011 ROE 19% 25% 24% 23%
Change (%) 6% 10% 10% 14% ROCE 22% 21% 22% 25%
Other Operating Income Asset Turnover 0.9 0.7 0.8 0.9
EBITDA 1,636 1,913 2,119 2,291 Debtor Days 46.62 39.08 39.08 39.08
Change (%) 20% 17% 11% 8% Inventory Days 54.5 53.7 53.7 53.7
Margin (%) 19% 20% 20% 19% Payable Days 62 65 65 65
Dep & Amortization 101 142 165 160 Interest Coverage 12.90 12.20 19.37 27.84
EBIT 1,535 1,772 1,954 2,131 P/E 44 43 38 34
Interest & other finance cost 119 145 101 77 Price / Book Value 10.3 10.2 8.9 7.9
Other Income 84 60 64 77 EV/EBITDA 32 30 27 25
EBT 1,500 1,686 1,917 2,131 FCF per Share 19 48 47 50
Exceptional Item (334) 0 - - Dividend Yield 0.4% 0.9% 1.0% 1.2%
Tax 336 379 431 479
Minority Int & P/L share of Ass. 3 5 5 5 Assumptions
Reported PAT 828 1,304 1,483 1,649 Y/E March FY16 FY17 FY18E FY19E
Adjusted PAT 1,086 1,304 1,483 1,649 Volume Growth(domestic) 10% 4% 7% 12%
Change (%) 18% 20% 14% 11% Realization Growth(domestic) -1% 1% 5% 5%
Margin(%) 12% 14% 14% 14%

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores


Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Share Capital 34 34 34 34 PBT 1,503 1,678 1,909 2,124
Reserves 4,233 5,268 6,216 7,054 (inc)/Dec in Working Capital (482) 293 (31) (49)
Networth 4,267 5,302 6,250 7,088 Non Cash Op Exp 116 142 165 160
Debt 2631 3341 2441 1541 Interest Paid (+) 100 145 101 77
Other Non Current Liab 313 1,238 327 327 Tax Paid (336) (379) (431) (479)
Total Capital Employed 6,898 8,643 8,691 8,629 others (41) - - -
Net Fixed Assets (incl CWIP) 1,831 3,524 3,453 3,364 CF from Op. Activities 839 1,873 1,766 1,836
Non Current Investments - - - - (inc)/Dec in FA & CWIP (208) (237) (173) (127)
Other Non Current Assets 4,339 4,969 4,969 4,969 Free Cashflow 631 1,636 1,592 1,709
Non Current Assets 6,259 8,814 8,423 8,334 (Pur)/Sale of Investment (330) 1,249 232 (200)
Inventory 1,307 1,413 1,551 1,766 others 43 (667) (15) (23)
Debtors 1,118 1,029 1,130 1,286 CF from Inv. Activities (495) (1,720) 123 (294)
Cash & Bank 613 895 822 1,004 inc/(dec) in NW 0 - - -
Other Current Assets 305 830 613 836 inc/(dec) in Debt 157 710 (900) (900)
Current Assets 3,494 4,217 4,117 4,891 Interest Paid (119) (145) (101) (77)
Creditors 1,485 1,724 1,893 2,155 Dividend Paid (inc tax) (225) (613) (698) (776)
Provisions 70 90 99 113 others - (9) - -
Other Current Liabilities 315 307 337 384 CF from Fin. Activities (187) (58) (1,698) (1,752)
Curr Liabilities 2,533 3,150 2,330 2,652 Inc(Dec) in Cash 157 96 190 (210)
Net Current Assets 962 1,067 1,787 2,240 Add: Opening Balance 404 613 709 899
Total Assets 9,754 13,031 12,539 13,225 Closing Balance 561 709 899 689

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
INDUSTRY - AUTOMOBILE
BSE Code - 505200
NSE Code - EICHERMOT
09-May-17 NIFTY - 9314

Company Data Key Highlights of the Report:


CMP 26910 Eicher Motors has reported one of the best quarters in terms of volume
Target Price 28009 and profitability. The company reported highest ever PAT of Rs.459 crore
Previous Target Price 26600 in 4QFY17.
Upside 4% Despite pre-buying due to BS-IV transition in 3QFY17 the company
52wk Range H/L 26999/18006 posted healthy volume growth in April 2017.
Mkt Capital (Rs Cr) 73,224 Eicher Motors volumes has grown at 42% CAGR over last 5 years well
Av. Volume (,000) 11 ahead of industry growth.

RoE to maintain over 25%


Strong positioning in the commercial vehicle segment with the partnership
of Volvo provided VECV technical edge over its peers in the domestic as
well as in the export markets.
ROE

40%
35%
Currently, the stock is trading at 8.0x FY19E P/BV. We maintain BUY'
30% with the target price of Rs. 28009 .
25%
20%
15%
10%
5%
Financials/Valu FY15 FY16 FY17 FY18E FY19E
0%
ation
Net Sales 8,738 6,173 7,033 7,923 8,915
EBITDA 1,115 1,690 2,174 2,448 2,902
EBIT 895 1,553 2,020 2,278 2,608
Shareholding patterns % PAT 615 1,338 1,667 1,872 2,148
4QFY17 3QFY17 2QFY17 EPS (Rs) 227 493 613 688 790
Promoters 50.6 50.6 50.6 EPS growth (%) 56% 117% 24% 12% 15%
Public 49.4 49.4 49.4 ROE (%) 24% 37% 31% 27% 25%
Total 100.0 100.0 100.0 ROCE (%) 36% 43% 38% 33% 30%
BV 928 1,345 1,964 2,532 3,202
Stock Performance % P/B (X) 16 14 13 11 8
1Mn 3Mn 1Yr P/E (x) 66 39 41 39 34
Absolute 4.4 12.7 33.1
Rel.to Nifty 3.1 6.5 12.7 RECENT DEVELOPMENT: Commencement of Vallam Vadagal plant
140
EICHERMOT NIFTY
Earlier the company was facing capacity constraints because of huge
demand for its classic models. But the management of the company took
130 right decision to increase the capacity in phased manner and in-line with
the demand.
120

110
The Vallam Vadagal facility is likely to commence production from August
2017 and with this expansion total capacity for two wheelers will reach to
100 825000 units per annum in FY18.

90 The company has target to take the production capacity to 900000 units
per annum by FY2018-19. Eicher Motors has planned Rs.800 crore of
80 capex in this regard in FY19.
Jul-16

Sep-16

Feb-17
Jan-17
Dec-16
Jun-16

Aug-16
May-16

May-17
Oct-16

Nov-16

Apr-17
Mar-17

Besides that the company is also working on developing refreshed


versions of popular models from its two technical centres situated in
Chennai and UK. Significant part of capex will be spent on developing
NAVEEN KUMAR DUBEY these models.
Naveen.dubey@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
Quarterly Performance
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Total Volumes ('000) 148 147 167 174 178 20% 3% 601 666 11%
Realization(Rs./ bike) 104258.2 105503.7 105121 105544.2 105935.1 2% 0% 102954 105526 2%
Net Sales 1,532 1,556 1,755 1,835 1,888 23% 3% 6,173 7,033 14%
Other Income 45 47 66 59 55 22% -7% 178 227 28%
COGS 833 831 912 969 993 19% 2% 3,435 3,704 8%
Employee Cost 77 91 100 106 106 37% 0% 350 402 15%
Other Expenses 175 164 201 183 205 17% 12% 699 753 8%
EBITDA 447 470 542 577 585 31% 1% 1,690 2,174 29%
Depreciation 37 39 36 36 43 16% 21% 137 154 13%
Interest 1 1 1 1 1 91% 14% 2 4 68%
PBT 454 477 572 599 596 31% -1% 1,729 2,244 30%
Tax 144 147 184 200 189 31% -6% 539 720 34%
PAT 343 376 413 418 459 34% 10% 1,338 1,667 25%

Strong growth momentum maintained

Net sales grew by 23%YoY to Rs.1888 crore which was in-line with our estimates (Rs.1915 crore).
Volumes grew by 21%YoY and realization have also grown by 2%YoY.
Higher sales of Classic 350 motorcycles led to this volume growth. These motorcycles have more
than 2 months of waiting period in the domestic market. Export volumes have seen sharp increase
of 41%YoY during the quarter. On the commercial vehicle front VECV reported volume growth of
20%YoY in 4QFY17. The growth was supported by higher sales of Medium and Heavy Commercial
vehicles on the back of BS-IV transition.

Reported EBITDA grew by 30.9%YoY to Rs.585 crore. Lower advertising and promotion expenses
helped company to post 31% of EBITDA margin.
Depreciation and Amortization expenses remain higher in the quarter due to operationalization of
valam vadagal facility.
PAT stood Rs.459 crore at a growth of 34%YoY due to higher other income.

Royal Enfield volume trend Royal Enfield realization trend

RE Growth YoY RE Growth YoY


85% 107,000 6%
200000 90% 5% 5%
180000 70% 80% 106,000 6%
105,000 5%
160000 60% 70% 4%
140000 56% 53% 104,000 3% 4%
49% 60% 103,000 3%
120000 46% 44%
50% 3%
100000 38% 38% 102,000 2% 3%
31% 40% 2% 1% 2%
80000 101,000 1%
20% 30% 100,000 2%
100,658

100,168

102,878

101,968

102,147

105,504
100,730

103,522

104,258

105,121

105,544

105,935

60000
106613

127611

125690

148186

147483

166941

173838

178228

20% 99,000
74131

81977

82215

92846

40000 1%
20000 10% 98,000
0 0% 97,000 0%

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Higher operating leverage leads to further margin expansion
Margin % 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
Gross Margin 46% 47% 48% 47% 47% 1.81% 0.00 44% 47% 0.03
EBITDA Margin 29% 30% 31% 31% 31% 1.81% 0.00 27% 31% 0.04
PAT Margin 22% 24% 24% 23% 24% 1.94% 0.02 22% 24% 0.02

Gross Margin improved by 180 bps YoY to 47.4% on the back of lower commodity prices and higher
realization during the quarter.
The company has been taking the advantage of high operating leverage based on the higher volumes
which led the EBITDA margin to 31% during the quarter up by 180 bps YoY.
PAT margin increased by 190 bps owning to minimal finance cost and higher other income in the
4QFY17.

EBITDA and EBITDA Margin trend PAT and PAT Margin trend

EBITDA (Rs. Crore) EBITDA Margin PAT (Rs. Crore) PAT Margin

700 31% 31% 35% 450 30%


29% 30% 24% 24%
28% 400 23%
600 26% 27% 30% 22% 22% 22% 22% 25%
350
500 25% 300 20%
400 20% 250
13% 13% 13%
14% 15%
300 15% 200
150 7% 7% 7% 8% 10%
200 10%
100
5%
157

165

195

237

285

279

376

413

418
154

343
285

305

366

286

351

358

470

542

577
303

447

100 5% 50
- 0% - 0%

Concall Highlights:
The company has robust order book for classic 350 models
Valam vadagal facility will start from August 2017 and the total capcity will reach to 825000 units p.a.
Capex Rs.800 crore
Waiting period of more than 2 months for classic 350
Exports: RE sales is higher in developed markets than developing market. (UK, Germany, Italy and
France has on around 40-60 dealers in each countries)
The company has 1 store in Bangkok, 1 in Jakarta and 4 in Columbia.
22 new exclusive stores will be added in the international market.
Currently the company has 675 dealers and the company does not have any plans for expanding
through sub-dealers.
The outlook for commercial vehcles can be subdued going ahead.
Management expects that the rollout of GST on July 1 and it will benefit the consumers tax wise and
so may incentivize them to buy more trucks.
The company will come out with refresh versions of existing Royal Enfield models the current fiscal.
Spare parts stands 5-6 percent of total revenue.
On the BS-III inventory, the management has stated that the company has left with very minimal BS-III
stocks which can be sold to export markets.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Investment Arguments:
Focus to keep RE as a Premium brand- Eicher Motors is catering niche segment in the Indian
motorcycles market. In order to make it a global premium brand the management has complete
focused approach to expand through exclusive dealers and stores. The company does not have any
plan to expand through sub dealers strategy generally used by other two wheeler manufacturers.

Capacity addition in-line with demand- Considering the 3 months waiting period the company
increased the capacity from 720000 units to 825000 units per annum looking at the demand scenario.
We expect that the Eicher Motors will enjoy the benefit of operating leverage with increasing volumes
going ahead.

Expanding footprints in export markets- RE has expanded its footprint in the exports by opening up
stores in the various export markets like; Latin America, indonesia, bangkok and Madrid. The
investments are becoming fruitful in terms of higher volumes from exports. The company has already
more than 150 RE stores in UK, Germany, Italy and France. However considering the potential in the
developing economies Royal Enfield has started looking for the big opportunity in the fast growing
Brazilian market.

VECV prepared to take advantage of recovery in the commercial vehicles space- Currently the
CV segment is going through the pain of BS-IV transition from BS-III. GST roll out and monsoon will
also keep the situation haizy for few months. However we are optimistic about the growth in the
commercial vehicle space because of growing infrastructure activity in the country. The Govt. of India
and SIAM is in talk to bring scrappage policy in the country, which will bring the huge demand for
commercial vehicles in the country.

VECV volume trend Growth in RE and VECV to drive ROE and ROCE

CV Growth YoY ROE ROCE

20000 43% 50% 45% 43%


18000 38%
40% 37% 38%
33% 40% 36%
16000 33%
35% 31%
14000 30% 30%
22% 30% 27% 27%
12000 24% 25%
10000 13% 15% 20% 25%
12% 19%
10%
8000 5%
7% 20%
6000 4% 10%
15%
10865

12128

11657

12687

15492

16071

13408

17341
11306

11784

4000 0%
9544

9217

-7% 10%
2000
0 -10% 5%
0%
FY16

FY17

FY18

FY19
CY13

CY14

View & Valuation


Eicher Motors is well placed in the domestic two wheeler industry. RE volumes have grown at a 42%
CAGR over last 5 years. Management is expanding itself through only exclusive stores which reflect
management's focused approach to make it a premium brand. Strong order book of classic 350
models and capacity addition in-line with demand will give further headroom for growth for RE. In the
commercial vehicle space VECV has positioned itself as a third strong player after Tata Motors and
Ashok Leyland. There are short term hiccups in the domestic market like GST and Monsoon which
may slow down the overall trucking activity in the country, however, the long term growth story remains
intact backed by strong infra-activity in the country and growing exports markets. We expect margins
to expand by 160 bps to 32.5% in FY19. Currently, the stock is trading at 8.0x FY19E P/BV. Earlier we
recommended this stock at Rs.24007 for a target price of Rs.26600 and the stock has achieved our
recommended target, but considering the future growth potential, we upgrade our target to Rs. 28009
and maintain HOLD' rating on this stock.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Financials Snap Shot
Income Statement Rs in Crores Key Ratios
Y/E March FY16 FY17E FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Revenue from Operation 6,173 7,033 7,923 8,915 ROE 37% 31% 27% 25%
Change (%) -29% 14% 8% 12% ROCE 43% 38% 33% 30%
Other Operating Income Asset Turnover 1.2 1.0 0.9 0.8
EBITDA 1,690 2,174 2,448 2,902 Debtor Days 1.9 2.6 2.6 2.6
Change (%) 52% 29% 13% 19% Inventory Days 18.2 17.4 17.4 17.4
Margin (%) 27% 31% 31% 33% Payable Days 42.8 43.2 43.2 43.2
Dep & Amortization 137 154 169 294 Interest Coverage 732.6 567.5 589.4 702.3
EBIT 1,553 2,020 2,278 2,608 P/E 38.9 40.7 39.1 34.1
Interest & other finance cost 2 4 4 4 Price / Book Value 14.2 12.7 10.6 8.4
Other Income 178 227 270 349 EV/EBITDA 30.8 31.2 29.9 25.2
EBT 1,729 2,244 2,545 2,953 FCF per Share 217.7 6.4 18.5 20.9
Exceptional Item Dividend Yield 0.5% 0.4% 0.4% 0.4%
Tax 539 720 817 948
Minority Int & P/L share of Ass. 148 143 143 143 Assumptions
Reported PAT 1,338 1,667 1,872 2,148 Y/E March FY16 FY17E FY18E FY19E
Adjusted PAT 1,338 1,667 1,872 2,148 Volume ('000) 6,00,946 6,66,490 7,47,887 8,33,191
Change (%) 117% 25% 12% 15% Volume Growth 99% 11% 12% 11%
Margin(%) 22% 24% 24% 24% Realization(Rs./vehicle) 1,02,954 1,05,526 1,05,935 1,06,994
Realization Growth 3% 2% 0% 1%
Capex(Rs crore) 977 223 800 500

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores


Y/E March FY16 FY17E FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Share Capital 27 27 27 27 PBT 2,099 2,244 2,545 2,953
Reserves 3,626 5,318 6,863 8,685 (inc)/Dec in Working Capital 2,460 2,587 2,862 3,394
Networth 3,653 5,345 6,890 8,712 Non Cash Op Exp 452 154 169 294
Debt 22.57 44.4 44.4 44.4 Interest Paid (+) 9 4 4 4
Other Non Current Liab 81 144 85 85 Tax Paid (634) (720) (817) (948)
Total Capital Employed 3,653 5,345 6,890 8,712 others
Net Fixed Assets (incl CWIP) 884 1,242 1,883 2,100 CF from Op. Activities 2,282 2,404 2,091 2,563
Non Current Investments 2,801 4,104 4,800 6,078 (inc)/Dec in FA & CWIP (1,070) (512) (810) (510)
Other Non Current Assets 141 232 232 232 Free Cashflow 1,212 1,892 1,280 2,053
Non Current Assets 3,890 5,610 6,947 8,442 (Pur)/Sale of Investment 207 (301) (220) (438)
Inventory 308 336 378 426 others (869) (1,303) (696) (1,278)
Debtors 33 50 56 63 CF from Inv. Activities (1,481) (2,116) (1,727) (2,226)
Cash & Bank 49 25 58 65 inc/(dec) in NW 1,137 1,692 1,545 1,822
Other Current Assets 63 77 87 98 inc/(dec) in Debt 28 22 - -
Current Assets 1,049 1,381 1,693 2,203 Interest Paid (9) (4) (4) (4)
Creditors 723 833 938 1,055 Dividend Paid (inc tax) (586) (327) (327) (327)
Provisions 26 33 37 41 others 5 - - -
Other Current Liabilities 350 430 484 545 CF from Fin. Activities (563) (307) (330) (330)
Curr Liabilities 1,182 1,457 1,621 1,804 Inc(Dec) in Cash 238 (18) 33 7
Net Current Assets (134) (76) 72 399 Add: Opening Balance 353 36 17 50
Total Assets 4,939 6,991 8,640 10,645 Closing Balance 591 17 50 57

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Housing and Urban Development "SUBSCRIBE"
Corporation Ltd 8th May 2017
IPO Note

ISSUE DETAIL : COMPANY OVERVIEW:

Type 100% Book Building Housing and Urban Development Corporation Ltd (HUDCO) incorporated in 1970,which is a
wholly-owned Government company with more than 46 years experience in providing loans for
Issue Size Rs. 1224 Crore housing and urban infrastructure projects in India. They provides long term finance for
Offer Price *Rs (56-60)/Equity Share construction of houses and to undertake housing and urban infrastructure development
Min App Size 200 Shares programs. Apart from the financing operations, Hudco offers consultancy services, promotes
research and studies and help propagate use of local building materials, cost-effective and
Issue Open 8-May-17 innovative construction technologies.
Issue Close 11-May-17
Shares Offer 20.40 Cr. HUDCO offers loans for housing projects, such as urban and rural housing, co-operative
Face Value Rs 10 housing, community toilets, slum upgradation, staff housing, repairs and renewals, private
ICICI Securities Ltd,IDBI
sector projects, land acquisition, and housing programs. They also offers take out finance for
Capital Market Services Ltd, housing and infrastructure projects to state government, public agencies, and private corporate
Nomura Financial Advisory sector agencies. Company provide loans for implementing agencies comprising state
Lead Mgrs government bodies, co-operative societies, corporate employers, and community sectors; and
And Securities (India) Pvt Ltd
, SBI Capital Markets Ltd building technology and rent to own schemes. It also provides finance for infrastructure projects
in the sectors of water supply, sewerage, drainage, solid waste management, roads and
Listing BSE, NSE transport, and electricity in the urban areas; and social infrastructure component, such as
play/primary schools, health centers, play grounds, police stations, courts, jails, crematorium,
Registrar Alankit Assignments Ltd etc. In addition, the company offers consultancy services, including URP services,
Market Cap (Post environmental engineering, and government programs and disaster mitigation services.
11210.6
Issue)

No of shares ( Post & Pre Issue) COMPANY STRATEGIES :


Noof Shares(Pre Issue) 20019,00,000 Company is focusing on housing finance loans and benfit from state govt initiatives to help build
Offer for Sale 2040,58,747 new dwellings for the LIG , EWS & rural population. Housing finance loan offers better NIM (
4.26% for Urban infrastructure ) & lower GNPA ( 3.08% for housing Vs 8.26% for urban
Fresh Issue made 0
infrastructure)
Employee Reservation 3868747 Company focus on sanctioning loans to state govtments to avoid credit risk of the private sector
No of Shares (Post Issue) 2001900000 entities . Company sanctions to state Govt and their Agencies reprent 99.93% of total sanction.
Company ceased the sanctioning of new housing finance loan to private sector.

Bid allocation pattern Company continue to participate in the implementation of govt housing and urban infrastructure
QIB 50% programme such as DAY- NULM , JNNURM & PMAY HFA among other.
Non-Institutional 15% Company is increaseing geographical footprint in smaller cities to cater to incresing financing
Retail 35% requirment in these cities.

OBJECTS OF ISSUE:

To carry out the disinvestment of 204,058,747 Equity Shares by the Selling Shareholder
Rubi Burman constituting 10.19% of the companys pre-Offer paid up Equity Share Capital

rubi.burman@narnolia.com To achieve the benefits of listing the Equity Shares on the stock exchanges

RECOMMENDATION :
HUDCO is a wholly-owned Government company with more than 46 years of experience in providing loans for housing and urban infrastructure
projects in India. HUDCOs AUM stands at ~Rs 36800Cr out of which 89% is to state government and their agencies. The loan book of the
company has till date been growing at 7.5% CAGR for last 4 years which appears low considering other listed housing finance company. GNPA
of the company stands at 6.80% while NNPA at 1.51% which is again higher than its listed peers. However the company is expected to benefit
hugely from Pradhan Mantri Awas Yojna under Housing for All by 2022. As the CAR is high at 63.9%, risk of any equity dilution in the near term
gets eliminated.
The company is attractively priced at 1.4 times BV with Return on Equity at 7.6%
We recommend SUBSCRIBE

Please refer to the Disclaimers at the end of this Report.


Housing and Urban Development
Corporation Ltd
RATINGS

India Ratings (Fitch Group), ICRA and CARE have assigned a rating of AAA to HUDCOs long-term bonds, long-
term bank facilities and fixed deposit programme

HUDDCO BORROWING OVERVIEW :

Average Maturity
Amount (INR Interests Rate
Borrowing Type Period (From date of Residual Maturity
bn) Range
allotment)
Tax Free Bonds 173.88 10-20 years 4.83-17.25 years 7.00%-9.01%
Taxable Bonds 34.4 Upto 10 years 0.75-5.50 years 6.80%-8.14%

Refinance Assistance
21.2 7-10 years 1.83-8.08 years 6.25%-8.00%
from NHB

Other Term Loans 0.61 24 years 5.50 years 0.54%


Public Deposits 9.48 12-84 months 12-24 months 7.00%-9.55%

Fixed: 2.10%
ECB 4.89 25-30 years 6.58-13.75 years Floating USD 6M
LIBOR + (18-40bps)

COMPETITIVE RISKS

If the level of non-performing assets in their outstanding loans, advances and investments in project-linked bonds
were to increase or the NHB-mandated provisioning requirements were to increase.The results of operations and
financial condition would be adversely affected.

If borrowers default on their obligations to company, they may be unable to foreclose on their loans on a timely
basis, or at all, or realise the expected value collaterals and this may have a material adverse effect on results of
operations and financial condition.

Company operations are substantially dependent upon the amount of our NII and NIM. The interest rates
company pay on their borrowings and the interest rates company charge on their loans are sensitive to many
factors, many of which are beyond our control, including the RBIs monetary policies . Volatility in interest rates
could adversely affect our business, net interest income and net interest margin, which in turn would adversely
affect our results of operations and financial condition.

Company business is dependent upon timely access to, and the costs associated with, borrowings. The debt
funding requirements historically have been primarily met from a combination of the issuance of tax-free
bonds,the issuance of unsecured taxable bonds, foreign currency loans, refinance assistance from NHB, public
deposits . Company may be unable to secure funding on commercially acceptable terms and at competitive rates,
which could adversely affect business and results of operations.

Please refer to the Disclaimers at the end of this Report.


Housing and Urban Development
Corporation Ltd

Financials Snap Shot


Balance Sheet Rs in Crores Detail of Loan Portpolio
Y/E March FY14 FY15 FY16 9MFY17 Y/E March FY14 FY15 FY16 9MFY17
Share Capital Gross Loan Portfolio
Equity Capital 2,002 2,002 2,002 2,002 Social housing 4,721 6,722 8,201 7,755
Reserves & Surplus 5,130 5,779 6,470 6,966 Residential real estate 2,445 2,561 2,876 2,898
Networth 7,132 7,781 8,472 8,968 HUDCO Niw as
Borrowings 21,305 23,468 25,609 24,843 >> Individual Retail Loans 190 166 141 132
Provisions 406 451 467 408 >> Bulk Retail Loans 520 212 479 444
Deferred Tax Liability (Net) 495.1 506.9 485.7 455.9 Housing Loans 7,875 9,661 11,696 11,228
Other Liabilities 886 908 848 1,423 Water supply 3,752 5,638 7,284 8,485
Total Liabilities 30,225 33,114 35,882 36,098 Roads and transport 6,074 6,041 6,041 6,143
Loans and Advances 28,214 31,043 33,805 34,288 Power 7,626 7,138 5,380 5,226
Investments 754 756 369 369 Emerging sectors 1,636 1,932 1,814 2,127
Cash and Bank Balances 272 285 590 387 Commercial inf rastructure and others 1,224 1,135 1,662 1,411
Fixed Assets 95 100 101 104 Social inf rastructure and area development 1,233 943 1,033 1,045
Other Assets 890 931 1,017 951 Sewerage and drainage 591 647 755 722
Total Assets 30,225 33,114 35,882 36,098 Urban Infrastructure 22136.6 23473.4 23969 25157.7
Total Loan Portfolio 30,012 33,135 35,665 36,386

Income Statement Rs in Crores Margin Metrics


Y/E March FY14 FY15 FY16 9MFY17 Yield on Earning Assets (%) 10.81% 11.01% 9.81% 10.07%
Interest on Loans 2,822 3,256 3,157 2,571 Cost of interest bearing liabilities (%) 8.43% 7.91% 7.70% 7.97%
(+) Interest on Bonds 0 0 0 0 Cost to Income Ratio 12.1% 12.9% 13.7% 13.1%
(+) Interest on Loan against Public 48
Deposits 2 55 12 Debt to Equity Ratio ( X) 2.9 2.7 3.0 2.8
(+) Interest on Fixed Deposits 477.0 19.0 554.0 124.0 Net Asset Value per Equity Share 35.3 38.6 42.0 44.5
(-) Interest Expense 1,702 1,775 1,907 1,509
Total Interest Income (1,367) (1,448) (1,531) (1,238) Assets Quality Metrics
Other Income on Loans 21 27 13 12
(+) Consultancy, Trusteeship and Consortium
6 8 4 1 Gross NPA (Rs) 2,030 2,070 2,383 2,475
(+) Other Income 52 81 97 65 Gross NPA (%) 6.76% 6.25% 6.68% 6.80%
Non-interest income (1,288) (1,332) (1,416) (1,160) Net NPA (Rs)
Net of Interest Expense 1,222 1,537 1,328 1,091 Net NPA (%) 2.52% 1.59% 2.06% 1.51%
Non-interest income (2,510) (2,868) (2,744) (2,251) Provision Coverage (%) 64.4% 75.8% 70.6% 79.0%
Employee Benef its Expense 105 161 140 115 NIM (%) 4.59% 5.18% 4.11% 4.26%
Depreciation and Amortisation 4 5 5 3 Valuation Ratio Metrics
Other Expenses 47.4 38.8 43.4 27.4 EPS (Rs) 3.7 3.8 4.0
Corporate Social Responsibilities Expenditure
11 3 5 2 Book Value per share 35.6 38.9 42.3
Operating expenses 166.9 208.8 193 148.2 P/B (X) 1.68 1.54 1.42
Pre-Provision Operating Profit (1,455) (1,541) (1,609) (1,308) P/E (X) (Upper brand ) 16.2 15.8 15.0
Provisions 9 274 129 281 P/E (X) (Lower brand ) 15.1 14.7 14.0
Exceptional Items (20) - 5 0 ROAE (%) 10.8% 10.3% 10.0%
Profit Before Tax (1,484) (1,814) (1,733) (1,588) ROAA (%) 2.6% 2.4% 2.3%
Tax Expense 371 402 315 245 Shareholders Funds as % Assets 24% 23.5% 23.6%
Profit After Tax (1,855) (2,216) (2,048) (1,833) Dividend Payout (%) 15.9% 15.7% 15.5%

Please refer to the Disclaimers at the end of this Report.


INDUSTRY - PACKAGING
BSE Code - 508814
NSE Code - COSMOFILMS
08-May-17 NIFTY - 9285

Company Data Key Highlights of the Report:


Previous Recommended Price 380 Cosmo Films to set up new production line for Speciality
CMP 450 Polyester (BOPET) Films
Target Price 490
Previous Target Price 490 Cosmo films has announced an expansion at its Aurangabad facility with
Upside 9% a view to expand its footprint in speciality film segment as guided earlier.
52wk Range H/L 468/310 To expand its product categary, company has taken up BOPET project of
Mkt Capital (Rs Cr) 872 36000 MT/annum capacity.
Av. Volume (,000) As per management, current expansion will be in speciality segment and
margin will be in range of 17-18% in BOPET films.
30.0% This BOPET project would commense its commercial operations from
Q3FY19.
20.0%
Project will add revenue in range of 300-300 cr to the topline.
10.0%

0.0% Cosmo Films Launches Low Noice Tape Film

-10.0% FY14 FY15 FY16 FY17E FY18E FY19E Cosmo films announced thr launch of a Low Noice Tape film, used in
making of low noice tapes.
Return on capital employed Return on Equity The BOPP based low noise tape film with a proprietary release surface
treatment enables easy release and generates low noise on unwinding.
Share Holding patterns % low noise tape film take significantly less release force as compared to a
3QFY17 2QFY17 1QFY17 normal tape film. The film can easily take up any adhesive be it water
Promoters 43.5 43.5 43.5 based, solvent based, rubber based or hot melt type.
Public 56.5 56.5 56.5 Value added tape film does not come at a significant incremental cost
Total 100.0 100.0 100.0 and therefore is easier to switch to. In most of the tape applications,
Stock Performance % printing on the filmtakes place on the other side of the release coating.
1Mn 3Mn 1Yr However, the release side could also be made printable.
Absolute 14.6 21.7 21.8
Rel.to Nifty 13.5 14.3 0.7 Financials/Valu FY15 FY16 FY17E FY18E FY19E
130 COSMOFILMS NIFTY
ation
Net Sales 1,647 1,621 1,715 2,276 2,461
125 EBITDA 104 191 183 285 314
120
EBIT 70 156 144 234 263
115
110
PAT 28 96 95 155 169
105 EPS (Rs) 14 50 49 80 87
100 EPS growth (%) - 248% -1% 64% 9%
95
ROE (%) 7% 21% 18% 25% 23%
90
85 ROCE (%) 11% 23% 16% 26% 28%
80 BV 196 235 269 325 381
Jul-16

Feb-17
Sep-16

Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16

Apr-17
Mar-17

P/B (X) 0.4 1.2 1.6 1.7 1.8


P/E (x) 5.4 5.6 8.8 6.1 7.9
ANURAG ARORA
Anurag.arora@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
DETAILS OF THE NEW BOPET PROJECT

Cosmo Films Ltd, a leading global speciality films company, manufacturing multiple types of Bi-axially
Oriented Polypropelene (BOPP) and Cast Polypropelene (CPP) films has announced plans to install a
new product line for Speciality-Polyester BOPET (Bixially Oriented Polyethylene Terephthalate) films by
the third quarter of 2018-19.

The new line will be commisioned at the Waluj plant site in Aurangabad, Maharashtra, India with a
capacity of 36000 MT per annum. The project for the new line will entail an investment of Rs. 250
crores and shall be funded through a mix of internal accruals and debt. As per management guidance,
Debt-Equity mix for this new project will be in the ratio of 75:25.

This plant already houses BOPP lines, extursion coating lines, chemical coating lines, metallizers and a
CPP line. The new production line will complement the existing BOPP capacity of 200000 MT per
annum and allow Cosmo Films to offer a more comprehensive speciality product basket to flexible
packaging , labeling and industrial applications.

According to Mr. Pankaj Poddar, CEO, Cosmo Films, Speciality BOPET is one of the fastest growing
substrates and we anticipate a strong demand for these films. This will enable Cosmo to do import
substitution as well as take global market share.
BOPET offr high tensile strength, chemical and dimensional stability, tranparency reflectivity, gas and
aroma barrier properties and electical insulation.

Key Competetors
In BOPET segment, Cosmo will have competetion with other packaging players Like Jindal Polyfilms,
Polyplex Corporation, Uflex and others. Jindal Poly is the largest BOPET manufacturer in India with a
total capacity of 127000 mt per annum. A big part of the Indian demand for BOPET films is fulfilled
through imports as of now.
ABOUT BOPET
BOPET- Thin
Thin( 8-36 microns) BOPET films constitute nearly
three fourth of the worlds consumption of BOPET
films and are mainly used in packaging.
BOPET- Thick Industrial
Thick (50-350- microns) PET film is suitable for
various industrial applications.
Opportunities for BOPET
Asia (excluding Japan and Korea) has emerged as
the largest market for BOPET films accounting for
nearly 50% of the world consumption.
Penetration of flexible packaging in developing
countries in Asia still is low and huge opportunity
exist for growth with increase in organized retail,
small serve packs and increasing consumerism all
Image: BOPET film roll requiring better & attractive packaging.

Narnolia Securities Ltd Please refer to the Disclaimers at the end of this Report
Details of New Product Launch

Cosmo films recently announced the launch of a low noise tape film, used in making of low noise tapes. The
BOPP based low noise tape film with a proprietary release surface treatment enables easy release and
generates low noise on unwinding. This feature becomes extremely significant in industrial settings where
multiple packing lines work in tandem and auto dispensing machines are installed and packing takes place
atrelatively higher speeds. In most developed countries, factory guidelines require manufacturers to adhere to
low decibel levels and therefore low noise tapes become significantly relevant.

The low noise tape film also take significantly less release force as compared to a normal tape film. The film can
easily take up any adhesive be it water based, solvent based, rubber based or hot melt type. The value added
tape film does not come at a significant incremental cost and therefore is easier to switch to. In most of the
tape applications, printing on the film takes place on the other side of the release coating. However, the
release side could also be made printable.

Commenting on the development, Mr. S.


Satish, Global Head- Sales & Marketing said,
We had devised the film for one of our tape
customers. However, we see huge potential
for the film going forward as we see this
feature as a great value add. The product is
available in clear and ultra-clear varieties and
could be made available in different microns.

The low noise tape is ideal for high volume


packing environments and workplaces where
minimum noise is required. These tapes are
known to provide excellent adhesion and
reliable performances especially when it
comes to sealing cartons and parcels mainly
for shipping to long distances.

View & Recommendation


In continuation with our previously "BUY" recommendation report dated 30th March 2017 ,we have our
"HOLD" rating on the stock, with earlier target price of 490/-. We believe the recently taken up project of
BOPET with a capacity of 36000 MT per annum will boost company's sales growth and protifability to new
heights. This new BOPET line will start adding revenues to the topline from Q3FY19 onwards. Change of
estimates in sales and earnings to this effect, will be updated in Q4FY17 & full FY17 earning review report, soon
after announcement of quarterly earning by the company. We recommend "HOLD" on this stock.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Financials Snap Shot
Income Statement Rs in Crores Key Ratios
Y/E March FY16 FY17E FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Revenue from Operation 1,729 1,709 2,267 2,451 ROE 21% 18% 25% 23%
Change (%) -2% 6% 33% 8% ROCE 23% 16% 26% 28%
Other Operating Income - 6 9 10 Asset Turnover 1.4 1.2 1.5 1.5
EBITDA 191 183 285 314 Debtor Days 26.45 26.00 27.00 27.00
Change (%) 83% -4% 56% 10% Inventory Days 38.7 40.0 41.0 42.0
Margin (%) 12% 11% 13% 13% Payable Days 36 35 35 35
Dep & Amortization 36 39 51 51 Interest Coverage 5.16 4.80 6.20 8.41
EBIT 156 144 234 263 P/E 6 9 7 8
Interest & other finance cost 30 30 38 31 Price / Book Value 1.2 1.6 1.7 1.8
Other Income 6 5 5 3 EV/EBITDA 4 6 4 5
EBT 124 115 202 235 FCF per Share 147 (43) 181 251
Exceptional Item 7 3 - - Dividend Yield 2.3% 2.7% 3.6% 4.4%
Tax 28 20 46 66
Minority Int & P/L share of Ass. - - - - Assumptions
Reported PAT 96 95 155 169 Y/E March FY16 FY17E FY18E FY19E
Adjusted PAT 96 95 155 169 Volume ('000) 139 142 182 193
Change (%) 248% -1% 64% 9% Volume Growth - 2% 28% 6%
Margin(%) 6% 6% 7% 7% Realization/kg 145 140 141 143
Realization Growth - -3% 1% 1%
Capex(Rs crore) 75 225 50 70

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores


Y/E March FY16 FY17E FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Share Capital 151 151 151 151 PBT 124 115 202 235
Reserves 27,598 32,595 38,323 45,573 (inc)/Dec in Working Capital 71 (15) (60) (23)
Networth 27,749 32,746 38,474 45,724 Non Cash Op Exp 39 43 51 51
Debt 237.8 684.0 684.0 684.0 Interest Paid (+) 25 30 38 31
Other Non Current Liab 900 1,213 1,085 1,085 Tax Paid 33 20 46 66
Total Capital Employed 27,987 33,430 39,158 46,408 others (3) 32 51 25
Net Fixed Assets (incl CWIP) 13,989 14,564 13,206 12,244 CF from Op. Activities 222 181 231 251
Non Current Investments 17,512 22,220 27,735 34,938 (inc)/Dec in FA & CWIP (85) (225) (51) (71)
Other Non Current Assets 9 1,862 1,862 1,862 Free Cashflow 138 (44) 180 180
Non Current Assets 32,866 38,683 42,841 49,082 (Pur)/Sale of Investment 5 3 4 2
Inventory 3,200 3,660 3,941 4,399 others 1 6 (9) 2
Debtors 1,387 1,587 1,709 1,907 CF from Inv. Activities (79) (232) (60) (69)
Cash & Bank 77 88 79 83 inc/(dec) in NW 76 66 109 108
Other Current Assets 270 1,583 1,583 1,583 inc/(dec) in Debt (79) 163 (77) (75)
Current Assets 7,404 8,980 11,422 14,058 Interest Paid 27 30 38 31
Creditors 7,127 8,152 8,779 9,798 Dividend Paid (inc tax) 26 24 39 51
Provisions 2,137 2,117 2,279 2,541 others (59) (59) (85) (92)
Other Current Liabilities 2,408 2,754 2,966 3,310 CF from Fin. Activities (138) 104 (161) (167)
Curr Liabilities 11,369 13,005 14,004 15,631 Inc(Dec) in Cash 6 53 10 15
Net Current Assets (3,965) (4,025) (2,583) (1,573) Add: Opening Balance 18 32 86 95
Total Assets 40,270 47,664 54,263 63,139 Closing Balance 25 86 95 110

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
INDUSTRY - Con. Staples
BSE Code - 531642
NSE Code - MARICO
06-May-17 NIFTY - 9360

Company Data Key Highlights of the Report:


CMP 310 Maricos result for Q4FY17 is better than expectation. Domestic volume
Target Price 330
grew by 10% led by solid 15% volume growth in Parachute rigid portfolio
Previous Target Price 330 and 10% growth in Value Added Hair Oil (VAHO).
Upside 6% PAT for this quarter grew by 26% YoY backed by lower ad expenses. Ad
52wk Range H/L 330/235 expenses went down by 413 bps YoY.
Mkt Capital (Rs Cr) 39,992 International business acted as dampener, declined by 8%YoY in value
Av. Volume (,000) 1,099 term impacted by 46% decline in MENA business in CC terms.

Maintain ROE of 33%


Going forward we expect deterioration in margin due to higher input cost
especially copra which may reduce ROE by 182 bps in FY18E. At present
company is trading at the peak of its valuation so we see little upside from
ROE
here hence recommend `Neutral at this price.
36% 35%
35% 34%

34% 33% 33%


33%
32% 31%
Financials/Valu FY15 FY16 FY17 FY18E FY19E
31%
30% ation
Net Sales 5,733 6,024 5,936 6,351 7,226
29% EBITDA 870 1,051 1,159 1,205 1,328
FY15 FY16 FY17 FY18E FY19E
EBIT 786 957 1,069 1,115 1,239
Shareholding patterns % PAT 573 723 811 847 941
4QFY17 3QFY17 2QFY17 EPS (Rs) 4 6 6 7 7
Promoters 59.7 59.7 59.7 EPS growth (%) 18% 26% 12% 4% 11%
Public 40.1 40.1 40.0 ROE (%) 31% 34% 35% 33% 33%
Others 0.2 0.2 0.3 ROCE (%) 39% 46% 46% 44% 44%
Total 100 100 100 BV 14 16 18 20 22
Stock Performance % P/B (X) 13.7 16.3 17.2 15.6 14.2
1Mn 3Mn 1Yr P/E (x) 43.5 47.1 49.3 47.2 42.5
Absolute 5.5 (4.6) 13.0
Rel.to Nifty 4.2 (11.7) (6.9) RECENT DEVELOPMENT:
The company has taken price hike in Parachute Rigid portfolio by 8% in
140 MARICO NIFTY March 2017.
130
In Bangladesh, Company has taken price hike in the coconut oil portfolio
120 by 10% and initiated price increase of 8% in VAHO portfolio in the later
110 part of Q4FY17.

100 The company has launched a new Demand Sensing model which will
improve response to within month forecasting changes thereby lowering
90
the possibility of stock-outs.
80
The company has entered into super-premium oil segment with the
launch of Saffola Aura whereas Saffola multigrain flakes introduced in
selected markets.

RAJEEV ANAND
rajeev.anand@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
Quarterly Performance
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Net Sales 1,291 1,754 1,443 1,417 1,322 2% -7% 6,024 5,936 -1%
Other Income 27.77 27.52 24.7 23.28 22.28 -20% -4% 93.33 97.31 4%
COGS 599 842 685 686 637 6% -7% 3,078 2,849 -7%
Ad & P Expenses 161 209 189 151 111 -31% -27%
Employee Cost 95 105 105 96 98 3% 2% 373 404 8%
Other Expenses 220 224 211 212 217 -1% 3% 1,522 1,523 0%
EBITDA 214 374 253 272 259 21% -5% 1,051 1,159 10%
Depreciation 31 21 21 21 27 -12% 28% 95 90 -5%
Interest 7 5 2 4 5 -30% 7% 21 17 -20%
PBT 204 375 255 270 250 22% -8% 1,029 1,150 12%
Tax 68 107 74 78 78 16% 0% 305 338 11%
PAT 136 268 181 192 171 26% -11% 723 811 12%

Reported solid volume growth after demonetization

Domestic MARICOs revenue for this quarter grew by 2%YoY to Rs1322 cr led by robust volume growth in
Parachute rigid portfolio(grew by 15% YoY) and VAHO(grew by 10%) while Suffola maintained its
business
growth of 6% in this quarter.
volume grew
by 10% YoY. Domestic business has clocked double digit volume(10%) growth after four quarters while overall
realization declined by ~4%.
International business declined by 8% YoY and 5% YoY in constant currency(CC) term impacted by
46% decline in MENA business in CC terms.
Gross margin for this quarter declined by 170 bps YoY to 51.9% due to sharp increase in copra
prices(up by 25%QoQ), Rice Bran oil(up by 20% YoY), Liquid Paraffin (LP)(up by 27% YoY) and
HDPE(up by 5% YoY).
EBITDA margin improved by 301 bps YoY to 19.6% backed by 413 bps decline in Advertisement
expenses.
PAT grew by 26% YoY to Rs171 and PAT margin improved by 237 bps YoY in Q4FY17.

Robust volume gr. of 15% YoY in Parachute Rigid PortfolioVAHO grew by 10% YoY

Parachute Rigid Volume growth YoY Value added Hair Oils volume growth YoY

20% 25% 21%


15%
20%
15% 14%
11% 13%
15% 11% 11% 11%
10% 10%
8% 8% 9%
10% 7% 7% 8%
6% 6% 10%
5% 5%
4%
5% 5%

-1% 0%
0%
-5%
-6%
-5% -12%
-10%

-10% -15%

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Margin % 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY(+/-)
Gross Margin 53.6% 52.0% 52.5% 51.6% 51.9% -0.02 0.00 49% 52% 0.03
EBITDA Margin 16.6% 21.3% 17.5% 19.2% 19.6% 0.03 0.00 17% 20% 0.02
PAT Margin 10.6% 15.3% 12.5% 13.5% 12.9% 0.02 -0.01 12% 14% 0.02

Gross margin for this quarter declined by 170 bps YoY to 51.9% due to sharp increase input prices.
On yearly basis companys gross margin improved by 309 bps to 52% from 48.9%.
EBITDA margin improved by 301 bps YoY to 19.6% backed by 413 bps decline in Ad. expenses in
Q4FY17. On yearly basis EBITDA margin improved by 208 bps to 19.5% led by lower COGS.
PAT for this quarter grew by 26% YoY to Rs 171 cr whereas PAT for FY17, grew by 12% to Rs 811 cr.
PAT margin improved by 237 bps YoY for Q4FY17 and 166 bps for FY17.

Margin improvement led by lower ad expenses Lower ad expense due to postponement of new launches

EBITDA Margin% PAT Margin% Ad Expenses (% Sales)

25.0% 16.0%
23.0% 21.3% 13.1% 13.1%
14.0% 11.8%11.7% 12.5%
11.9%
21.0% 18.9% 19.2%19.6% 11.2% 11.1%
18.2% 12.0% 10.5% 10.6%
19.0% 17.5% 9.8%
16.4% 16.3% 16.6%
15.7% 15.3% 10.0% 8.4%
17.0%
13.6% 14.0% 13.4% 13.5%12.9%
15.0% 13.1% 12.5% 8.0%
13.0% 11.4% 11.0% 10.5% 10.6% 6.0%
11.0% 8.3%
9.0%
4.0%
9.0%
7.0% 2.0%
5.0% 0.0%

Concall Highlights:
More than half of the product portfolio improved market shares on 12 months MAT basis.
Bangladesh business: Momentum to continue going forward.
Going forward, the volume growth in Parachute rigid is likely to remain in the range of 5-7%.
The company expects copra prices to increase further over the next two quarters due to lower
supplies. Company will take pricing action to make balance between volume growths and
threshold margins.
The Company aims to become the volume market leader in the Amla hair oil category in FY18.
The company plans to add 14000 outlets in FY18.
Company launched Project Marval EDGE in Q1FY17 to improve efficiency and effectiveness
of current trade and marketing spends. Management expects Rs 35 cr gain from this project in
FY18.
Ad&P
expenses The Company will try maintaining international margins at ~16-17%
will remain The estimated capital expenditure in each of the years FY18 and FY19 is likely to be around
in the band Rs 100125 cr .
of 11-12%. Ad&P expenses: The Company expects to operate in a band of 11-12% in the medium term.
The expected effective tax rate during FY18 and FY19 would be around 27-28%.
Ad expenses: will move up marginally in FY18.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Investment Arguments:
GST led growth:In hair oil market, ~50% of the players are unorganized. Going forward,
we expect due to passage of GST major shift of value will happen from unorganized sector
to organized sector.Secondly some shift will happen from loose coconut oil which is
approx.30-35% of total coconut oil market to packaged form. Marico will be key beneficiary
of the gradual shift as it has strong presence and brand equity.

Innovation led growth: The Company is focusing on innovation and new products
launches going forward. The company has entered into super-premium oil segment with
the launch of Saffola Aura whereas Saffola multigrain flakes introduced in selected
markets. Parachute Advansed Aloe Vera Hair Oil was launched in the markets of Andhra
Pradesh, Telangana & Tamil Nadu in the month of November 2017. Going forward we
expect new launches will drive growth for the company.

Strong Volume growth in Q4FY17: Maricos domestic volume grew by 10% in a situation
where most of the FMCG players are struggling for volume growth. Parachute Rigid
volume grew by 15%YoY best in 18 months. VAHO grew by 10% in Q4FY17 as compared
to 12% decline in Q3FY17. Going forward management expects 8-9% overall volume
growth which is positive considering tough economic environment.

Smart come back by domestic volume Stabilization of Saffola volume

Domestic Business Volume growth


Saffola volume growth YoY
12% 11% 17%
10%
18%
10% 8% 16%
8% 8%
13%
8% 7% 14%
6% 11%
6%
6% 5% 12% 10%
9%
3% 3% 10% 8%
4%
8% 6% 6%
2% 6% 4% 4%
3%
0% 4%
2%
-2% -1%
-4% 0%
-4% -2%
-6%

View & Valuation


Going forward we expect deterioration in margin due to higher input cost especially copra
and higher advertisement expenses which may reduce ROE by 182 bps in FY18E.Secondly
there will be some hiccups related to GST which may lead to channel realignment which in
turn lead to de-stocking in next 2quarters. This could impact domestic volume of Marico in
near term. At present company is trading at the peak of its valuation so we see little upside
from here hence recommend `Neutral at this price.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Financials Snap Shot
Income Statement Rs in Crores Key Ratios
Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Revenue from Operation 6,024 5,936 6,351 7,226 ROE 34% 35% 33% 33%
Change (%) 5% -1% 7% 14% ROCE 46% 46% 44% 44%
Other Operating Income Asset Turnover 1.8 1.6 1.6 1.6
EBITDA 1,051 1,159 1,205 1,328 Debtor Days 15.03 15.03 15.03 15.03
Change (%) 21% 10% 4% 10% Inventory Days 55.1 55.1 55.1 55.1
Margin (%) 17% 20% 19% 18% Payable Days 9 9 9 9
Dep & Amortization 95 90 90 89 Interest Coverage 46.39 64.47 51.85 57.59
EBIT 957 1,069 1,115 1,239 P/E 47 49 47 42
Interest & other finance cost 21 17 22 22 Price / Book Value 16.3 17.2 15.6 14.2
Other Income 93 97 107 117 EV/EBITDA 32 34 33 30
EBT 1,029 1,150 1,201 1,334 FCF per Share 6 6 6 6
Exceptional Item - - - - Dividend Yield 0.01 0.01 0.01 0.01
Tax 305 338 353 392
Minority Int & P/L share of Ass. 1 1 1 1 Assumptions
Reported PAT 723 811 847 941 Y/E March FY16 FY17 FY18E FY19E
Adjusted PAT 723 811 847 941 Domestic Volume growth 8% 4% 8% 10%
Change (%) 26% 12% 4% 11% Domestic Pricing growth -2% -6% 2% 6%
Margin(%) 12% 14% 13% 13% Internationa Business(CC growth) 5% 1% -3% 3%

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores


Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17 FY18E FY19E
Share Capital 129 129 129 129 PBT 1,034 1,149 1,200 1,333
Reserves 1,968 2,193 2,429 2,692 (inc)/Dec in Working Capital (0) (93) (121) (144)
Networth 2,097 2,322 2,558 2,821 Non Cash Op Exp 102 90 90 89
Debt 334.18 153.2 220.0 220.0 Interest Paid (+) (20) (17) (22) (22)
Other Non Current Liab - - - - Tax Paid (246) (338) (353) (392)
Total Capital Employed 2,097 2,322 2,558 2,821 others (67) - - -
Net Fixed Assets (incl CWIP) 583 550 579 584 CF from Op. Activities 833 825 837 907
Non Current Investments 69 51 51 51 (inc)/Dec in FA & CWIP (101) (102) (125) (94)
Other Non Current Assets 58 33 33 33 Free Cashflow 732 723 712 814
Non Current Assets 1,319 1,275 1,304 1,309 (Pur)/Sale of Investment (101) (102) (125) (94)
Inventory 926 896 959 1,091 others (134) 56 6 (0)
Debtors 252 244 261 297 CF from Inv. Activities (235) (46) (119) (94)
Cash & Bank 310 583 669 783 inc/(dec) in NW 1 - - -
Other Current Assets 31 30 32 36 inc/(dec) in Debt (46) 67 - -
Current Assets 2,115 2,444 2,729 3,149 Interest Paid (20) (17) (22) (22)
Creditors 669 648 693 788 Dividend Paid (inc tax) (502) (585) (611) (679)
Provisions 103 100 107 122 others (11) 3 - -
Other Current Liabilities 375 363 388 442 CF from Fin. Activities (580) (504) (632) (700)
Curr Liabilities 1,147 1,111 1,188 1,352 Inc(Dec) in Cash 17 275 86 113
Net Current Assets 967 1,334 1,541 1,797 Add: Opening Balance 77 310 583 669
Total Assets 3,433 3,719 4,033 4,458 Closing Balance 91 585 669 783

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
INDUSTRY - OIL MARKETING
BSE Code - 530965
NSE Code - IOC
06-May-17 NIFTY - 9311

Company Data Key Highlights of the Report:


CMP 443 Management expects higher capacity utilization at 15MT Paradip refinery
Target Price in 1QFY18, will boost volume and will improve GRM of the company.
Previous Target Price IOC has various major expansion plans which will increase the IOCs
Upside refining capacity to 104 MT from existing 80.7MT by 2022.
52wk Range H/L 448/196 Management expects 60km Jharsuguda-Ranchi pipeline to be
Mkt Capital (Rs Cr) 2,15,140 commissioned in FY18 which will increase offtake from Paradip refinery.
Av. Volume (,000) 526 Considering recent rallies in the stock price, valuation seems little
expensive.
RoE to maintain over 22% in FY17E
Currently, the stock is trading at 1.9x FY19E P/BV. We recommend Book
Profit' for the short term investors and long term investors may HOLD
ROE
25.0% rating in this stock.
22.3%
20.0% 19.9%
18.1% 17.1%
15.0% 14.8%

10.0% 10.4%
7.1% 7.1% Financials/Valu FY15 FY16 FY17E FY18E FY19E
5.0%
ation
Net Sales 4,49,509 3,55,927 5,81,260 6,05,700 6,09,900
0.0%
EBITDA 10,550 23,197 38,362 38,949 39,653
EBIT 5,331 17,278 31,289 31,275 31,142
Shareholding patterns % PAT 4,912 11,219 19,778 20,133 19,539
4QFY17 3QFY17 2QFY17 EPS (Rs) 20 46 41 41 40
Promoters 57.3 58.3 58.3 EPS growth (%) -31% 128% -12% 2% -3%
Public 42.7 41.7 41.7 ROE (%) 7% 15% 22% 20% 17%
Total 100.0 100.0 100.0 ROCE (%) 5% 16% 24% 22% 20%
BV 68,832 75,994 88,501 1,01,413 1,13,930
Stock Performance % P/B (X) 1.3 1.3 2.4 2.1 1.9
1Mn 3Mn 1Yr P/E (x) 18.2 8.5 10.8 10.6 10.9
Absolute 17.6 107.4 63.3
Rel.to Nifty 16.2 88.8 54.8 RECENT DEVELOPMENT:
200 IOC NIFTY National Green Tribunal (NGT) has confirmed its order dated August 2,
2016, permitting IndianOil to go ahead with its LPG import terminal
180
project at Puthuvypeen, Kerala. This will enable the company to cater
160 growing LNG demand in future.

140
IOC plans to come up with a 15-million-tonne (MT) refinery, with an
investment of about Rs 40,000 crore, at Nagapattinam in Tamil Nadu.
120 Currently, Nagapattinam has a 1-mt plant operated by Chennai Petroleum
Corporation (CPCL), an IOC subsidiary.
100
Oil companies to bear merchant discount rate fees on debit card
80
payments for fuel. The fee is 1% on credit card transactions and 0.25-1%
Jul-16

Sep-16

Feb-17
Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16

Apr-17
Mar-17

on debit card transactions.


IOC keen to buy 26% stake in GSPC's Mundra LNG terminal. With a view
ADITYA GUPTA to expand its gas business, IOC invests Rs. 4500 Cr in Mundra project.
aditya.gupta@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
Quarterly Performance
Financials 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY % QoQ% FY15 FY16 YoY %
Petroleum products 93,261 93,276 1,02,802 95,732 1,11,212 19% 16% 4,19,264 3,32,270 -21%
Petrochemicals 4205 5172 4683 4474 4714 12% 5% 20264 16992 -16%
Other business activities 2,758 2,925 2,247 2,836 2,940 7% 4% 17,176 13,651 -21%
Net Sales 82,676 78,401 86,081 80,370 93,117 13% 16% 4,49,509 3,55,927 -21%
Other Income 648 722 470 854 793 22% -7% 4,204 2,246 -47%
COGS 69,055 64,134 63,701 66,330 73,872 7% 11% 3,99,121 2,89,225 -28%
Employee Cost 1,716 1,288 1,772 1,872 1,813 6% -3% 7,662 8,228 7%
Other Expenses 6,550 8,230 6,925 6,397 9,483 45% 48% 32,175 35,277 10%
EBITDA 5,355 4,750 13,684 5,772 7,949 48% 38% 10,550 23,197 120%
Depreciation 1,191 1,439 1,435 1,505 1,554 30% 3% 5,219 5,919 13%
Interest 641 1,085 680 615 997 56% 62% 4,175 3,630 -13%
PBT 4,172 2,948 12,039 4,507 6,191 48% 37% 5,346 15,894 197%
Tax 1,549 1,255 3,770 1,385 2,196 42% 59% 2,143 5,653 164%
PAT 3,096 1,685 8,269 3,122 3,995 29% 28% 4,912 11,219 128%

Robust PAT growth in 3QFY17:


Profit after tax has increased by 29% to Rs. 3995 Cr in 3QFY17 as compared to Rs. 3096 Cr in the
same quarter in FY16.
Revenue from sale of Petroleum products has increased from Rs. 93261 Cr to Rs. 111212 Cr in
3QFY17.
Revenue from sale of Petrochemicals has increased from Rs. 4205 Cr to Rs. 4714 Cr in 3QFY17.
Revenue from Other business activities has increased from Rs. 2758 Cr to Rs. 2940 Cr in 3QFY17.

EBITDA(Rs. Cr.) EBITDA Margin PAT(Rs. Cr.) PAT Margin


16,000 18% 9,000 12%
16%
14,000 16% 8,000 10%
10%
14% 7,000
12,000
6,000 7% 6% 8%
10% 12%
10,000 10%
5,000
9% 6%
8,269

10% 4%
4%
13,684

8,000 7% 4,000 4%
6,591
6,285

6% 6% 8% 4%
10,287

6,000 3,000 2%
3,995
9,284

6%
3,122
3,096
7,949

2,000 2%
1,685

4,000
5,772

4%
5,355

4,750

1,000 -1%
1% 0%
666

2,000 2% -
(450)

- 0% (1,000) -2%

Concall Highlights:
Management expecting a volume growth of between 3- 4 million tonne(MT) going forward.
IOC's management indicated merger with Chennai Petro,but no timeline yet
All units of Paradip refinery are fully commissioned with capacity utilization of 80% in
3QFY17.Management expects 95% capacity utilization by March 2017.
Management has guided for provisioning of Rs. 20000 Cr for the Entry tax. Out of which provision of
Rs. 10000 Cr already made.
Capex guidance for FY18 is Rs. 19600 Cr and FY19 is ~ Rs. 25000 Cr.
Anticipated VAT for Paradip refinery is Rs. 150 Cr per month.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Investment Arguments:
Stabilization of Paradip refinery- All units of Paradip refinery are fully commissioned with capacity
utilization of 80% in Dec16. Management expects 95% capacity utilization in 1QFY18. It will improve
the refining volume by 13MTPA and will improve GRM in FY18.
Growth in Pipeline volume Evacuation through the Paradip- Jharsuguda-Raipur-Ranchi pipeline
has been started in the month of Jan17. Jharsuguda-Ranchi pipeline of 60Km is yet to be
commissioned. Management is optimistic to commission this pipeline in FY18. This will increase the
pipeline throughput by 3-4% to 21 MMT

Growth in Gasoline volume - Management indicated that volume growth of gasoline is gaining
traction from March17.Liquefied Petroleum Gas (LPG) volume is also growing at double digits. But,
diesel growth has remained flat.
Upcoming Projects- IOCL is investing Rs 34,000 Cr. on the petrochemical complex. The entire
petrochemical complex is expected to be commissioned by 2021. The polypropylene unit would have a
capacity of 7,000 kilo tonne per annum (KTPA) would be integrated with the oil refinery.
High Operational Efficiency- Paradip is expected to achieve GRM of USD 12/BBL post 95% capacity
utilisation. This will improve core GRM to USD 8/BBL.
LPG pipeline- The company is on track to construct 710km Paradip-Haldia-Durgapur LPG pipeline,
which will facilitate LPG transportation from Paradip and Haldia to the LPG bottling plants at Balasore,
Budge-Budge, Kalyani and Durgapur.
Volume Trend GRM Trend

Marketing Volume(MMT) Refinery Throughput(MMT) IOC GRM Singapore GRM


25 12.0
10.8
21 21 20 20 10.0
19 20 19 20 10.0
20 19 8.88.6
16 16 8.0 8.0 7.7 7.7
16 8.0
14 14 14 14 14 6.7
15 14 6.3 6.0
6.0 5.0 5.1
10 4.3
4.0 3.0
5
2.0 0.9
- -

View & Valuation


With the full commissioning of 15MMTPA Paradip refinery, Indian Oil Corporation is equipped to cater
the growing fuel demand in the country. Management expects 95% capacity utilization of Paradip
refinery and volume growth of 3-4 MTPA going forward. Further management plans to add 300 retail
outlets every year to its existing network of 25000+ outlets. This will improve the volume of the
company up-to a large extent. IOC has equipped with BS VI standard HSD and BS VI standard motor
spirit and prepared to start supply by Oct17. IOC maintains healthy dividend payout of 33%. Currently
stock is trading at 1.9x FY19 P/BV. Recently IOC rallied smartly and achieved our recommended target
price of Rs 445. We expect that the stock has discounted all the near term positives and at this price
point the valuation seems little stretched, so we recommend our short term investors to book profit at
current levels but long term investors may hold this stock.

Please refer to the Disclaimers at the end of this Report


Narnolia Securities Ltd
Financials Snap Shot
Income Statement in Rs Crores Cash Flow Statement in Rs Crores
Y/E March FY16 FY17E FY18E FY19E Y/E March FY16 FY17E FY18E FY19E
Revenue from Operation 3,55,927 5,81,260 6,05,700 6,09,900 PBT 17,259 30,596 30,493 29,621
Change (%) -21% 63% 4% 1% (inc)/Dec in Working Capital 26,295 41,326 42,211 42,176
EBITDA 23,197 38,362 38,949 39,653 Non Cash Op Exp 5,865.2 7,073.2 7,674.1 8,511.2
Change (%) 120% 65% 2% 2% Int Paid (+) 3,629.71 4,043.85 4,043.85 4,043.85
Margin (%) 7% 7% 6% 7% Tax Paid 3,249.9 10,431.3 10,360.0 10,082.4
Depr & Amor. 5,919 7,073 7,674 8,511 others 7,724 (380) 1,251 2,209
EBIT 17,278 31,289 31,275 31,142 CF from Op. Activities 27,020 28,780 32,623 33,778
Int. & other fin. Cost 3,630 4,044 4,044 4,044 (inc)/Dec in FA & CWIP (4,244) (16,460) (20,666) (26,066)
Other Income 2,246 3,350 3,261 2,523 Free Cashflow 22,776.2 12,319.2 11,957.3 7,712.3
EBT 15,894 30,596 30,493 29,621 (Pur)/Sale of Inv 629 - - -
Exp Item 1,364 - - - others (10,190) (6,333) 1,000 4,000
Tax 5,653 10,431 10,360 10,082 CF from Inv. Activities (13,805) (22,794) (19,666) (22,066)
Minority Int & P/L share of Ass. 387 387 - - inc/(dec) in NW
Reported PAT 11,219 19,778 20,133 19,539 inc/(dec) in Debt (4,175.5) 5,861.1 - -
Adjusted PAT 10,340 19,778 20,133 19,539 Div Paid (inc tax) (3,590.0) (7,270.9) (7,220.1) (7,022.6)
Change (%) 128% 76% 2% -3% others (4,661) (4,044) (4,044) (4,044)
Margin(%) 3% 3% 3% 3% CF from Fin. Activities (12,426) (5,454) (11,264) (11,066)
Inc(Dec) in Cash 789 532 1,693 646
Add: Opening Balance 1,225 2,014 2,514 3,654
Balance Sheet in Rs Crores Closing Balance 2,014 2,546 4,207 4,300

Y/E March FY16 FY17E FY18E FY19E


Share Capital 2,428 2,428 2,428 2,428
Reserves 73,566 86,073 98,985 1,11,502 Key Ratios
Networth 75,994 88,501 1,01,413 1,13,930 FY16 FY17E FY18E FY19E
Debt 50,850 56,711 56,711 56,711 ROE 15% 22% 20% 17%
Other Non Cur Liab 18,020 18,020 18,020 18,020 ROCE 16% 24% 22% 20%
Total Capital Employed 1,26,844 1,45,212 1,58,124 1,70,640 Asset Turnover 1.5 2.1 2.1 2.0
Net Fixed Assets (incl CWIP) 1,28,434 1,37,821 1,50,813 1,68,368 Debtor Days 8 8 8 8
Non Cur Investments 8,667 15,000 14,000 10,000 Inv Days 40 40 40 40
Other Non Cur Asst 146 146 146 146 Payable Days 23 23 23 23
Non Curr Assets 1,47,550 1,63,271 1,75,262 1,88,817 Int Coverage 5 8 8 8
Inventory 42,095 50,372 52,654 55,160 P/E 9 11 11 11
Debtors 8,660 10,396 10,874 11,400 Price / Book Value 1.3 2.4 2.1 1.9
Cash & Bank 2,014 2,514 3,654 3,600 EV/EBITDA 5 7 7 6
Other Curr Assets 2,902 3,844 4,104 4,389 FCF per Share 47 25 25 16
Curr Assets 94,474 1,14,532 1,19,708 1,23,250 Div Yield 2% 3% 3% 3%
Creditors 24,921 29,767 31,103 32,570
Provisons 32,109 38,462 40,214 42,137 Key Assumptions
Other Curr Liab 29,060 35,303 37,024 38,914 FY16 FY17E FY18E FY19E
Curr Liabilities 83,614 1,01,056 1,05,865 1,11,145 Refinery Throughput (MT) 56 65 70 70
Net Curr Assets 10,860 13,476 13,843 12,105 Pipeline Throughput (MMT) 80 85 91 99
Total Assets 2,42,024 2,77,802 2,94,971 3,12,067 Marketing Volume(MT) 80 80 84 88

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