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Home Run
July 17, 2017
Contents
Executive summary .................................................................................................................. 2
Industry overview - Strong macro drivers in place ............................................................. 11
A) Burgeoning middle class impelling consumer durables sales .................................... 11
B) Infra, Housing/Power For All thrust burnishing growth visibility ............................... 15
C) Move towards formal economy = Advantage organised players ............................... 17
Market to double over FY17-22E to INR3.0tn ................................................................... 21
Opportunity for large players to improve profitability/market share ............................... 24
Environment getting conducive for sector consolidation .................................................. 27
Outlook & valuations: Geared for re-rating ...................................................................... 32
Portfolio snapshot............................................................................................................ 37
Industry segments ............................................................................................................ 39
Air conditioners .............................................................................................................. 39
Air coolers ....................................................................................................................... 43
Refrigerators ................................................................................................................... 47
Fans ................................................................................................................................ 50
Light ................................................................................................................................ 53
Cables & wires ................................................................................................................ 56
Since the number of companies under coverage is huge it is impossible to include all the price charts in one note. However, if a client
requests for a particular price chart we can provide the same.
Executive Summary
India’s 1.3bn strong & rising consumer story is now well
flagged and probably part of investor lore. Be it cars, homes
or staples, the consumer has moved up, businesses driving
them have done better and their investors have probably
done the best. While there’s a long way to go for India’s
broader consumer play, we believe there is one big consumer
(Click here for opportunity still left to grab. It’s still scaling up, is ready for
video clip)
acceleration and is yet to be meaningfully analysed /
appreciated / invested in by equity markets. That this opportunity is being
bolstered by India’s GST reform & shift to a more formal economy, businesses
that are improving their already high-return structures (while raising market
shares and growth levels) and could step-up with rising consolidation
opportunities, render India’s Consumer Durable sector (CSD) opportunity a
must analyse. We help you with that in this elaborate and expansive research
report, bring 14 companies to the fore (9 Rated) and believe, as you read
along, you will find reasons to cheer and invest.
Market: A doubler
India’s CSD is vast—Lighting, ACs, Air Coolers, Electricals, Cables and a burgeoning range of
household appliances & conveniences. The market is already fast growing (11% CAGR over
FY12-17) and we forecast, in great detail (segment / product wise), how it will double over
the next 5 years. We forecast key sub-market value growth rates over FY17-22—ACs (16.6%),
Air Coolers (17.7%), Lights (16.0%), Pumps (14.0%), Fans (13.0%), Cables & Wires (13.5%),
Refrigerators (12.0%) and Washing Machines (10.0%). We believe, opportunities for
innovations, new market categories and ongoing premiumisation also indicate that surprises,
if any, should be on the upside. There are only a few market segments, even in India, that
will double over the next 4-5 years—consumer durables should be one of them.
(%)
77
1,300 52 189 7.0
Refrigerator
Air Coolers
Water Heater
Switchgears
AC's
Stabilisers
Lighting
UPS
Pumps
Cab& Wire
Wash Mach
Fans
Total
Total Industry Size Growth (%)
Source: Industry, Edelweiss research
coverage (ex KEI, Bajaj & Finolex) , with the top-4 companies accounting for ~60% of FCF.
This suggests that a few players get disproportionate advantage and hence provide
substantial re-rating potential. We expect Edelweiss CSD coverage to post a strong 20% plus
FCF CAGR over FY16-19E, of which top 4 account for ~75%. We believe, strong cash
generation will not only re-rate the sector, especially leaders, but also open avenues for
brand/distribution-centric M&As. b) Their relative valuation lies in their market
benchmarks; businesses which show similar franchise (B2C), returns (high RoCE / asset light)
and growth prospects (high -20% +). We believe consumer staple & high growth housing
focused businesses are comparable: while CSD are relatively smaller businesses & earlier
stage (hence moderate franchises) – this should be offset by higher growth opportunities,
and upsides of market formalisation/consolidation. These should be their benchmarks
going forward: rather than their historic averages, or comparables.
We also see a 2-tiering within the sector’s wide valuation spread—leaders in the CSD space
trading at distinct 25-30% premium to sector averages, in sync with what has played out for
staples businesses. We also see the more B2B businesses within this space (cables)
operating with slightly more modest profitability prospects and distinctly more moderate
valuation bands (15-20x PE). A rich market opportunity and structure should be supported
by rich and returning valuations, but not every business will be there.
(%)
5
(%)
14 7 3.5
50 16.0 4
40.0 3
6
3
3
25 8.0
20.0 40 46
29
0 0.0
2004-05 2010-11 2015-16 2025-26 0.0
Middle Class Households (mn) 1990-2005 2006-2016 2017-2025
Middle class as a % population Others Education Health Apparel Housing F&B
Chart 4: Government’s higher infra push Chart 5: Formalisation of economy augurs well for large players
(INR bn)
120.0 20.0 High
56%
73%
96.0 16.0 72% 44
99 100 76%
x
72.0 12.0 75
239
13
37%
(%)
(%)
Stabilizer 107
Legend
48.0 90 94 8.0 66%
61%
Cables & wires 161
% organised
(2022)
75 83
86%
Pumps
67%
Size of
67 87% Lights organised
24.0 56 55 4.0
industry
44 89%
66
164
2022
Extent
of shift
2017 organised
0.0 0.0 54
37
81%
77
77%
% organised
(2017)
Switchgear
2001 2011 2017 2019E 47
Fans
82%
Rural Electrification UPS
100%
100% 100%
Urban Electrfication
India Electrification 129 343 285
100%
195
100%
132
100%
344
2,400 79 129
285
1,800 514
53
189
1,200 51
814
600
314
0 14 61
Refrigerators
Machines
Conditioner
Heaters
Stabilizers
Air Coolers
Lighting
Pumps
Fans
Cables &
Switchgear
Total
UPS
Washing
Water
Wires
Air
Chart 7: Asset-light business models of Con Durable (EDEL) cos… Chart 8: …along with rising premiumisation
13.0 18.0 6.0
(INR)
(INR)
(X)
Chart 9: ... to boost RoCE significantly…. Chart 10: …& generate higher FCF
40.0 40
32.4 VGRD
34
HAVLSYML
WHIRL
24.8
FY19 P/E (x)
28 CRG
(%)
17.2 VOLT
22
9.6 FNCX
16
2.0 Top picks KEI
10
FY18E
FY19E
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
(5) 5 15 25 35 45
RoCE FCF CAGR (FY16-19E) (%)
Source: Edelweiss research
30 46.0
(Units mn)
180 6.0
(INR bn)
(INR bn)
(%)
4.6 285 44.2
120 4.0 20 39.0
37
2.9 CAGR
60 132 16.3% 2.0 10 31 32.0
1.5 CAGR 13.0
CAGR 63 5.3
27.5 14.4% 15.6%
0 25.0
0 0.0
2012 2017 2022
2007 2012 2017 2022
Organised market (INR bn) (LHS)
Total market size of AC's No. of Units (mn) Organised market (% of total market)
Chart 13: Refrigerator industry to clock 12% CAGR to INR345bn Chart 14: Clear shift in focus towards premium fans
375 20.0 100.0
18.4
305 16.0 80.0
60.0
235 11.4 12.0
(Units bn)
(%)
(INR bn)
8.5 40.0
344
165 8.0
20.0
114 195
95 4.0 0.0
Crompton Orient Havells Bajaj Usha
25 0.0 Electricals
2012 2017 2022 Under Light Fans Kids Fans
Total market size of refrigerators(INR bn) Decorative Fans BEE 5 Star rated
Industry size in units (Units mn) Standard/Plain Fans
Chart 15: Lighting to post 15% CAGR (FY17-22E) led by LED Chart 16: Growth in households augurs well for cables & wires
535 75.0 400 15.0
74 13.9
13.5
435 70.0 350 13.6
67 300 12.2
(Nos mn)
335 65.0
(INR bn)
11.1
(%)
(%)
514
61 250 350 10.8
235 60.0
9.5 295
56 242 200 9.4
135 55.0 247
117 194
35 60 50.0 150 8.0
2007 2012 2017 2022 2001 2011 2016 2025
Total market size Share of organised sector No. of Households Cables & Wires growth CAGR
Source: Industry, CRISIL, Company, Edelweiss research
refrigerators & washing machines; and b) target expansion in touch points from current 18K
to 25K by FY20. While the company’s strategy has already started yielding fruits (visible in
improving profitability), we expect profitable growth momentum to sustain and full benefits
to accrue over the next 2-3 years. We initiate coverage with ‘BUY’ and TP of INR1,511,
assigning 40x FY19E P/E given robust 24% earnings CAGR over FY17-19E and reasonable
RoCE of 30%.
Non-Rated Companies
Surya Roshni (SYR) a 4 decade year old conglomerate, primarily deals in lighting and steel tube
products. It is the second-largest lighting player in terms of revenue based out of India and the
largest GI pipe manufacturer in the country. SYR has been market leader in traditional light
sources and is currently the No.2 player in LEDs with estimated market share of ~11.5%. It is the
only 100% backward integrated lighting player in India which lends it an edge over competition,
as it offers best quality products at lower rates. SYR ventured into fans and home appliances in
FY14 and FY15, respectively. In just 2 years of launch, the company’s fan segment achieved sales
of INR1.3bn. It has a pan-India distribution network of 200,000 dealers and retail outlets. SYR
plans to scale up its fans & consumer appliances businesses without incurring huge capex as it is
adopting the contract manufacturing route. ‘NOT RATED’.
TTK Prestige (TTK) is India’s largest kitchen appliances player with 40% market share in the
organised cookers segment. This bears testimony to its sound brand quality built over the
years. The company is well positioned in the INR120bn kitchen appliances market, riding on
its expanding product portfolio and innovation. TTK’s sharp focus on marketing &
distribution has resulted in significant market share and brand recall in kitchen appliances.
The company spends more than 6% of sales on ads and sales promotion, which has led to
strong brand awareness in industry. Diversification is another major growth driver for TTK.
Contribution of kitchen appliances has increased from 20% in FY10 to 30% in FY17. We
believe TTK is a strong & sustainable growth story, given its premium positioning in the
appliances segment. ‘NOT RATED’
Orient Paper (OPL) was formed post demerger of Orient cement in FY13. OPL operates
through the 2 segments of electrical consumer durable (ECD) and paper. ECD segment
comprises fans, lighting, home appliances and switchgears - contributes >70% to top line.
Paper division comprises tissue, writing and printing papers, caustic soda and its derivatives
- contributes ~27% to top line. Orient Electric is the second largest player in fan segment
after Crompton Greaves with 20% organised market share. It is the largest manufacturer
and exporter of fans from India. OPL is the third largest manufacturer of LED’s in India. It is
also present in street lighting category. OPL recorded revenue CAGR of 9% during FY13-17
and EBITDA margin improved from 2.1% in FY14 to 6.9% in FY17. ‘NOT RATED’
IFB Industries (IFB) is the market leader in front load washing machines and is well set to leverage
its market leadership position in front-load washing machines by expanding into other segments
like AC’s , refrigerators etc. The company recently commenced in-house manufacture of top-load
washing machines. This strategy has been playing out well with top loader sales spurting 47% over
FY16 to 175,000 units. IFB remains the third largest player in microwave ovens with 18% market
share. The company also enjoys 80% market share in clothes dryers and 50% in domestic
dishwashers. Recently, IFB expanded into ACs and modular kitchens. The company is also trying to
expand its distribution channel, to address this gap, IFB has chalked out plans to expand its
distribution reach to tier I, II & III cities. ‘NOT RATED’.
Johnson Controls Hitachi Air Conditioning India (JHI) is set to emerge a lead player in India's
fast-growing room AC market led by: (a) launch of innovative premium products in inverter
and 5-star ACs; (b) strengths in new-generation products, such as VRFs; and (c) global joint
venture between Johnson Controls and Hitachi, which will help JHI leverage on synergies of
Johnson Control’s (JCI) B2B product portfolio (York Chillers & HVAC) and B2C proficiency of
Hitachi Appliances. JHI currently enjoys a 11% market share in room AC’s. JHI registered a
considerable 20% YoY growth in room AC sales for FY17. ‘NOT RATED’
Industry Overview
Strong Macro Drivers in Place
A) Burgeoning middle class impelling consumer durables sales
India’s middle class population is fast expanding and set to double over FY16-26E to
547mn. In our view, this segment will fuel demand and penetration of consumer durable
goods going ahead. Burgeoning middle class households with rising disposable incomes
will be marked by higher consumption among the youth & affluent segments and propel
discretionary spending from 29% in 2015 to ~45% in 2025 (as proportion of total
spending).
Chart 17: Rising middle class households a key demand driver Chart 18: Penetration level across segment
125 40.0 50.0 47.5
100 32.0
40.2
75 24.0
30.4 27.3
(mn)
(%)
(%)
50 16.0 21.8
20.6
15.5
13.7
25 8.0 11.0 12.4
10.8 7.3
4.9 5.0
0 0.0 2.5 3.8
2004-05 2010-11 2015-16 2025-26 1.0
Middle Class Households (mn) 2005 2011 2016 2026E
Middle class as a % population Air Conditioners Washing Machine Refrigerators
Source: NCAER 2011-12, NSSO, Edelweiss research
Note: * Annual household income range of INR 2.7-13.4 lakh to be classified as middle class
As per NCAER, India’s middle class will more than double from 2015-16 levels to 113.8mn
households or 547mn individuals by 2026, entailing humungous growth opportunities for
the consumer goods sector.
(%)
14.0
11.0
8.0
1987-1996 1997-2006 2007-2016
Personal disposable income CAGR (%)
Revenue CAGR of edel coverage universe (%)
Source: CMIE, Company, Edelweiss research
Chart 20: Discretionary consumption ahead of staples Chart 21: Credit for consumption sustains even post DeMon…
30 8.5 30
24
20 6.0
18
( %YoY)
10 3.5
(%, YoY)
(%, YoY)
12
0 1.0
6
(10) (1.5)
0
May 11
May 12
May 13
May 14
May 15
May 16
May 17
(20) (4.0)
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Credit for Consumption Housing loan growth
Passenger car sales growth HUL volume growth Other loan
Source: CMIE, Edelweiss research
Korea
US
Developed markets
Thailand
Malaysia
Japan
Germany
China
South Africa
Emerging markets
Brazil
Indonesia
Russia
Mexico India's household leverage
India is lowest in the world
0 20 40 60 80 100
Household Debt to GDP as of Dec 2015 (%)
Source: Bank of International Settlement, Edelweiss research
Favourable demographics
India is set to become the world’s youngest country by 2020 with 64% of population in the
working age group. Rising education levels among the youth will lead to fall in dependency
ratio and accompanied by the desire to have a better lifestyle. This, in turn, has been fueling
higher spending on discretionary consumer durables and premium products, which we
believe is likely to jump from current 40% to 46% of household income by 2025. For India’s
economy, an expanding working population is a positive with consumer demand remaining
high versus other emerging markets.
Chart 24: Richer & younger India driving shift in consumption pattern towards discretionary consumption
500 65.0 100.0
22
31
465 61.0 80.0 45
15.5
430 57.0 60.0 15 8
(mn)
(%)
(%)
14 7 3.5
4
395 53.0 40.0 3
6
3
3
360 49.0 20.0 40 46
29
The government’s push on public infra, primarily Housing/Power For All, rail/road infra, etc.,
we believe will boost consumer durables growth. The government is targeting addition of
26mn households, apart from the normal growth in the number of households, to 350mn
households by 2025 and complete >90% electrification by 2019. This, we believe, will drive
demand for consumer durables/light electrical items. The trend is already apparent—
cables/wires and fans & lighting segments having clocked robust spurt of 13% (aggregate)
over the past 5 years, primarily led by better availability of power and improving
discretionary spending. With incremental focus on housing and sustained impetus on village
electrification, we estimate the above-mentioned segments to clock reasonable 14.5%
growth over FY17-22.
415 65,000
349.8
350 50,000
(Nos mn)
(INR)
294.9
284 35,000
246.7
154 5,000
2001 2011 2016 2025
No. of HH Con Durables Investment per HH(INR)
Source: NSSO, World Bank Database, Edelweiss research
(%)
(%)
48.0 90 94 8.0
75 83
67
24.0 56 55 4.0
44
0.0 0.0
2001 2011 2017 2019E
Rural Electrification Urban Electrfication
India Electrification Lighting Industry CAGR (RHS)
Fans Industry CAGR (RHS)
Source: Census Data, Industry, Edelweiss research
300
250
200
FY14 FY15 FY16 FY17 FY18
Central govt allocation for housing (INR bn)
Source: Union Budget, Edelweiss research
Chart 28: India has highest cash-to-GDP ratio among emerging economies
India 10.6
Thailand 9.2
China 9.1
Russia 9.0
Singapore 8.5
United States 7.4
Korea 5.6
Turkey 4.7
Indonesia 4.1
United Kingdom 3.7
Brazil 3.2
South Africa 2.5
0 2 4 6 8 10 12
(%)
Source: Kenneth S.Rogoff : “The curse of cash”, Edelweiss research
Regular supply
of electricity
Surveillance and
tracking under
GST
Deepening
distribution reach
Premiumisation
Higher sales
promotion
Thrust of
government on
housing
• Premiumisation
Organised players are at the forefront of introducing premium products with better
aesthetics and new features—dust-free fans, under-light fans, sensor fans—across
product categories. On the other hand, unorganised players do not spend much on
R&D, restricting their ability to introduce premium products. Growing preference for
premium products is driving consumers’ shift from unorganised to organised segment.
73%
72% 44
76%
59% 260
Stabilizer 107
Legend
61% % organised
66%
Cables & wires 161 (2022)
Pumps
86% 67%
Size of
87% Lights organised
industry
2022
89% Extent
164
66 of shift
2017 organised
37 77 % organised
54 (2017)
81% 77%
Switchgear
Fans
47
82%
UPS
100%
100% 100%
80 195 132
GST’s impact on the consumer durables sector is expected to remain neutral or negative,
especially for companies that enjoy tax exemption or fall under concessional tax brackets.
1,400 195
35 80
132
1,050
242
46
700 29 100
432
350
164
0 13 58
Air Coolers
Refrigerators
Machines
Switchgears
Conditioner
Heaters
Stabilisers
Lighting
UPS
Pumps
Fans
Cables &
Total
Washing
Water
Wires
Air
344
2,400 79 129
285
1,800 514
77
189
1,200 52
814
600
314
0 14 61
Refrigerator
Switchgears
Stabilisers
Air Coolers
Lighting
Pumps
Cab& Wire
Wash Mach
Fans
AC's
Total
Heater
UPS
Water
Chart 32: Air coolers, ACs & lighting to clock the highest growth over FY17-22E
Air Coolers 17.7
Rising preference for premium Air Conditioner 16.6
offerings in air coolers, ACs, Lighting 16.3
washing machines, refrigerators Pumps 13.8
and fans is likely to fuel material Fans 13.6
growth in value terms over the Cables & Wires 13.5
next few years. Refrigerators 12.0
Water Heaters 11.7
Switchgears 10.7
Washing Machines 10.0
Stabilisers 2.0
UPS 1.0
0.0 4.0 8.0 12.0 16.0 20.0
% growth FY17-22E
Source: Industry, Edelweiss research
32.4
Strong demand coupled with
brand build up has helped large
24.8
players clock solid ramp up in
(%)
FY18E
FY19E
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoCE
Chart 34: Organised market growth to be higher at 16% over FY17-22E
85.0
81.0
3.14
0.69
77.0 0.91
0.41
1.46
(%)
0.59
73.0 82
78
69.0 74
65.0
FY17 Pumps Cables & Fans Lighting ACs Others FY22
Wires
Source: Industry, Edelweiss research
Rising product realisations one of the key drivers of profitability
One of the key trends seen over the past 3-5 years has been focus on improving average
product realisation as could be seen across many products in the exhibits below. Whirlpool,
Crompton Consumer etc., have been able to generate significant revenues from premium
products, apparent in their strong product innovation pipeline & better margin profile.
Crompton now derives more than 15% of fan sales from the premium range, which was 5%
2 years ago. Also, Whirlpool has been able to improve product innovation over the past 3
years leveraging parent’s strong product technology/R&D prowess.
Chart 35: Strong uptrend in average selling price across many products over years
11,000 17,400
10,600 16,800
10,200 16,200
(INR)
(INR)
9,800 15,600
9,400 15,000
9,000 14,400
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Washing Machine - Whirlpool ASP AC - Whirlpool
18,000 1,600
17,200 1,440
16,400 1,280
(INR)
(INR)
15,600 1,120
14,800 960
14,000 800
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
ASP Refrigerator - Whirlpool ASP fans for Crompton
5,600
5,350
(INR)
5,100
4,850
4,600
2014 2015 2016 2017
Coolers - Symphony (RHS)
While most large players are commanding dominant market shares in their core business
segments, we believe the next growth initiative is to expand into new markets leveraging
strong brands and balance sheets. While there are enough recent examples of inorganic
acquisitions/tie ups, we see this trend going a long way, burnishing prospects of large
players, which will expand from big to bigger.
28.0 32.4
21.0 24.8
(%)
(%)
14.0 17.2
7.0 9.6
0.0 2.0
FY18E
FY19E
FY18E
FY19E
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoE RoCE
Source: Industry, Edelweiss research
3.0
2.6
(%)
2.1
1.7
1.2
2018E
2019E
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Ad-spend as a % of revenue
Source: Industry, Edelweiss research
Chart 39: Low penetration/distribution a potential trigger Chart 40: Distribution of key consumer durable players
1,250 100.0 40
35
32
('000 No. of distributors)
('000 No. of Distributors )
1,000 80.0 32
750 60.0 24
18
(%)
16 12
500 40.0 10
8 4 4
250 20.0
0
0 0.0
Whirlpool
Hitachi
Samsung
Havells
LG
Voltas
Daikin
Edelweiss consumer durables coverage has seen a strong 3x growth in free cash over
FY13-16 to INR21bn (much higher than top-line/PAT growth). Of this, more than 50%
was driven by 4 large players with Pan-India presence. With FCF growth likely to be
robust at ~25% CAGR from FY16-19E, we see a possible trend of strong sector
consolidation as large players expand their distribution and product portfolio.
Chart 41: Strong cash flow growth concentrated amongst a few large players
25,000
Finolex Cables J-Power systems EHV plant to manufacture Technological expertise in INR1bn investment 820
corp. 132 KV and 220 KV high voltage cables
Finolex Cables Corning Optical Fiber Technological expertise in 820 2013
optical fibres
Phillips Maya appliances Kitchen Appliances Expanding coverage into 2011
(Preethi brand) domestic appliances and
strong distribution network in
South India
KEI Technical tie-up EHV plant Technological expertise in 432 2016
with Brugg Kabel EHV
Bajaj Starlight Electricals Lighting Diverse portfolio of retrofit Exercised right to 309 2017
Electricals and non retrofit lights acquire shares
which increased
holding from 19%
to 47%
Source: News Articles, Industry, Edelweiss research
Air Coolers
Washing
Machines
Refrigerators
Lighting
Switchgears
Domestic
Appliances
Cables&Wires
Pumps
UPS
Stabilizers
Air
Conditioners
Fans
The consumer durables sector witnessed strong re-rating, especially post FY13—traded at
>50% premium to Sensex—led by: a) a solid 3x jump in FCF over 3 years (FY13-16) ;
b) improving earnings growth outlook driven by Housing For All/infra focus & input cost
benefits; c) shift to asset-light business models boosting RoCEs; and d) reasonable pricing
power and brand value benefiting industry leaders.
The market has awarded significant premium, especially to companies in the housing space
(refer to the table below). Across tiles, consumer durables, cement, etc., average premium
versus the Sensex was 50-100% plus, driven by improved growth outlook and strong
profitability.
Also, we note a strong valuation premium in consumer staples which stands at 80-100%
premium to Sensex with superior RoCE and earnings profile. However, sector leaders like
HUL, Britannia, Colgate and Asian paints command a 25-30% premium to staple PE multiple
led by solid competitive MOAT driving 55-150% RoCE levels.
We believe, the valuation premium will sustain for consumer durables given: a) favourable
demographics with rising middle class driving higher penetration; b) formalisation of the
economy boosting large organised players; and c) sector consolidation on strong cash flows
and relative advantage over unorganised sector, making a strong case for better profitability
and potential for target market expansion. With solid competitive business MOAT in place,
we expect Symphony, WPIL, Havells & Voltas to command a 25-50% premium versus
average CD PE band.
Table 5: Comparing our top picks in CD with leading consumer staple names
P/E (x) PAT CAGR (%) EBITDA Margin (%) ROCE (%)
Sector 1yr fwd Prem /Disct Avg FY17-
5 yr Avg 5 yr FY17-19 5 yr Avg 5 yr Avg FY17 FY19
for FY19 (%) to avg. 19(%)
Con Durables* 37.5 30.0 20.9 23.9 10.3 12.2 29.9 33.0 36.4
Symphony 37.3 33.3 11.1 25.5 29.6 24.3 27.2 52.6 58.7 58.6
Voltas 26.9 23.7 (21.0) 28.3 15.2 10.0 13.9 94.5 144.6 160.3
Havells 33.0 31.5 4.9 14.3 25.8 13.3 12.8 27.2 26.1 32.6
Whirlpool 40.3 30.4 1.5 20.2 24.2 9.5 13.0 34.4 35.8 34.3
Con Staples 32.6 31.4 12.0 17.2 20.9 23.0 51.3 48.6 52.8
HUL 39.0 39.5 25.9 9.8 18.5 17.3 20.2 137.9 140.8 156.6
Britania 34.3 37.6 19.9 34.7 16.1 10.3 14.5 56.8 61.6 55.3
Colgate 40.4 38.2 21.7 5.3 17.0 21.9 24.6 137.3 76.9 76.5
*Note: Ex of cable companies
8.0
0.0
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
PE of the sector Average PE
Source: Bloomberg, Industry, Edelweiss research
Chart 43: Consumer durables’ loan growth and household savings growth
Jump in consumer durable loans 45.0
by 32%/44% in FY14/15 was due
to sharp dip in CPI inflation from 32.0
10.9% in CY13 to 6.4%/5.9% in
CY14/15. 19.0
(%)
6.0
(7.0)
(20.0)
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Household saving growth (%) Consumer durables loan growth (%)
Source: CMIE, Industry, Edelweiss research
9.6
3.0
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
EBITDA margins (%) Gross margins (%)
20.0
(x)
15.0
10.0
5.0
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
VOLT
22.0
BJE
16.0 FNCX
KEI
10.0
9 14 20 25 31 36
EPS CAGR FY17-19E (%)
VGRD
34.0 HAVL
WHIRL
FY 19 PE (x)
28.0 CRG
VOLT
22.0
FNCX
16.0
KEI
10.0
0.03 0.06 0.09 0.11 0.14 0.17
FY19 FCF/Sales (x)
Source: Bloomberg, Companies, Industry, Edelweiss research
41.0
VGI HAVL
34.4
SYML
WHIRL
CRMPTN
FY 19 PE (x)
27.8
VOLT
21.2
FNCX BJE
14.6
KEI
8.0
0 5 10 15 20 25 30 35 40
EPS CAGR FY17-19E (%)
Source: Bloomberg, Companies, Industry, Edelweiss research
Portfolio Snapshot
Table 7: Weights assigned to Edelweiss coverage universe – Consumer durables
Target FY 19E P/E (x) Mkt cap (INR bn) Mkt cap by weights (%) Weights (%) CMP (INR) TP (INR) % upside
Havells India 38 298 28.8 25.0 477 575 20.5
Voltas 36 159 15.4 20.0 483 586 21.3
Finolex Cables 23 76 7.3 8.0 503 616 22.5
KEI 17 19 1.8 7.0 237 322 35.9
V Guard 33 77 7.4 3.0 182 169 (6.9)
Symphony 45 93 9.0 16.0 1,326 1,789 35.0
Whirlpool 40 145 14.0 12.0 1,141 1,511 32.5
Bajaj 23 34 3.3 0.0 339 350 3.2
Crompton Greaves 35 135 13.0 9.0 216 265 22.8
Sector Average 30
Source: Edelweiss research
Symphony
16%
Voltas
V Guard 20%
3%
KEI Finolex Cables
7% 8%
Source: Edelweiss research
Segments
Air Conditioners: Market to post 17% CAGR over 5 years
The domestic AC market is expected to clock a healthy 17% CAGR (FY17-22E) given
paltry <5% penetration and rising temperature levels. Despite the recent trend of shift
to energy-efficient inverter ACs, we expect domestic players to maintain market share
given focused brand and distribution network strategies.
Industry Overview
In 2015-16, estimated total market size of ACs in India was ~INR170bn. Of this, the market
for central ACs, including central plants, packaged/ducted systems, VRF systems and other
ancillary equipment was ~INR60bn, while that for room ACs was pegged at INR110bn. Room
ACs account for 65% of this market and have been growing at a fast pace, whereas central
ACs account for 35% of the market. India’s room AC market has grown from 2mn units in
FY09 to 4mn units in FY16, 10% CAGR. We estimate the industry to post 17% CAGR over the
next 5 years to INR285 bn by FY22. This surge will be driven primarily by rising penetration,
shift towards energy-efficient ACs, rising disposable incomes and warmer temperatures.
Voltas, LG maintain top 2 positions in the domestic AC market with 21% and 19% market
share respectively. Japanese players like Hitachi and Daikin are posting CAGR of 20% due to
preference for premium and energy efficient inverter ACs. Havells Lloyd is the most
dominant player in the low-cost segment (~5-10% cheaper than Voltas). Blue Star has
become aggressive with launch of new models, which has enhanced its market share to
11%.
Chart 52: Room AC market expected to grow 2x by FY22 Chart 53: Market share of key players
300 10.0
AC market share by company (%)
Others
240 8.1 8.0 Voltas
15%
21%
(Units mn)
180 6.0
(INR bn)
Blue Star
4.6 285
120 4.0 11%
2.9 CAGR
60 132 16.3% 2.0
1.5 CAGR Hitachi LG
CAGR 63 19%
27.5 14.4% 15.6% 11%
0 0.0
Havells
2007 2012 2017 2022
Lloyd Daikin
Total market size of ACs No. of Units (mn) 11% 12%
Source: Industry, Edelweiss research
Chart 54: India AC penetration, low at ~5% in FY17 compared to other countries, is set to rise to 13% in 2025E
16.0 100.0
60.0
10.0
(%)
(%)
40.0
7.0
5.0
20.0
3.8
4.0
2.5
0.0
Korea
Indonesia
Thailand
China
India
US
Taiwan
1.0
2005 2011 2016 2026E
Air Conditioners Penetration (%)
Source: Industry, Edelweiss research
There has been a fast shift from window ACs to spilt ACs. The market for window ACs is
dominated by Voltas, followed by Lloyd. Most foreign manufacturers (except Hitachi) have
exited window ACs and are now solely manufacturing split ACs. The price gap between a
window and split AC has reduced significantly (~5-7%).
32
( '000 No.)
24
Voltas/ Havells have one of the
highest dealer networks in the AC
16 12
segment driving dominant
10
20/11% market shares.
8 4 4
3.8
0
Voltas Blue Star Daikin Hitachi Lloyd Electric LG
Dealer Touch Points
Source: Companies, Industry, Edelweiss research
0.0
Daikin Voltas Blue Star Hitachi
% of sales from Inverter
Source: Companies, Industry, Edelweiss research
23.2
1907
1917
1927
1937
1947
1957
1967
1977
1987
1997
2007
2017
Average Annual Temperature Avg Baseline Temperature
Source: World Bank, Edelweiss research
Voltas is the market leader in room ACs with market share of 21%. Inverter ACs account for
mere 6% of its top line. Even amidst intense price competition, where LG has cut prices by
15-20% across inverter AC models, we believe Voltas has remained relatively unscathed.
Even though the company entered the inverter AC segment late, we believe its extensive
dealer network and product pipeline in inverter ACs (all Star ACs) will help maintain its
market leadership in ACs.
Of the total 247mn households in India, only ~27mn own an air cooler, a paltry ~11%
penetration. Of the 132mn Indian households that live in hot and dry climatic regions (54%
of total) and 11mn Indian households that live in temperate region, an aggregate of 143mn
households (58% of total) are potential customers for cooling solutions, which offers huge
potential for the air cooler industry to expand over the next 5-10 years.
Chart 58:Air cooler industry is likely to grow 2x over FY17-22E Chart 59: North & West India are key markets
85 18 20 27 30.0
70 15 16 24.0
(units mn, INR '000)
14
55 12
(INR bn)
12 18.0
(Nos mn)
(%)
CAGR 79
17.7 11
40 17.7% 9 8 12.0
8
CAGR
25 35 6 4 3 6.0
15.6% 2
5 6.2
10 17 3 2
0 1.1 0.0
2012 2017 2022
North East West South
Total market size of AC's (INR bn)
No. of Units (mn) HH's owning an aircooler (mn)
Avg realisation (INR '000) % Penetration of air coolers (RHS)
Source: Symphony Annual Report 2016, Industry, Edelweiss research
The organised air cooler industry is highly concentrated with the top 5 players accounting
for more than 90% of the branded market. Symphony is the leading player in the space,
followed by Kenstar (Videocon Industries). Other players include Bajaj Electricals, Khaitan,
Maharaja, Orient, Voltas, Blue Star, Havells and Usha. Symphony enjoys ~50% share of the
organised segment.
Chart 60: Despite many new entrants in past few years, Symphony maintaining lead
Others Voltas
7% 7%
While Symphony has a solid 50% Bajaj Electric
value market share in air coolers 15%
industry, Voltas, Havells & Kenstar
have gained significant ground
over the past few years given Orient Electric
huge scope for shift of market 5%
share from unorganised players.
Symphony
Kenstar 50%
16%
Growth drivers
Rising overall temperatures
Rising overall temperatures in the hot & dry regions, which account for ~55% of India’s
population, could act as potential market for air coolers. We believe air cooler industry
despite a strong 20% plus growth CAGR over past few years is still at a nascent stage as still a
large part of population in hot and dry zones are yet to get covered.
Chart 61: Air cooler penetration expected to double (12% in 2016 to 25% in 2025)
31.0
Air coolers offer largest potential for shift from unorganised to organised segment
The domestic air cooler segment is largely fragmented with ~70% sales by volume
accounted for by unorganised players. We estimate the organised industry to clock 28%
CAGR to INR 44bn by 2025E. Thus, we estimate the percentage of organised air coolers to
shift from 37% of total value sales in FY17 to ~56% by FY22. Rising focus by large players like
Havells, Voltas, etc., will lead to faster shift in market share from unorganised players.
Chart 62: Organised air coolers set to jump 3.5x to INR45bn by 2022, 28% CAGR
50 60.0
56
Air coolers is amongst the fastest 40 53.0
growing segments in the
consumer durables space. Size of 30 46.0
(INR bn)
10 31 32.0
13.0
5.3
0 25.0
2012 2017 2022
Organised market (INR bn) (LHS) Organised market (% of total market)
Source: Companies, Industry, Edelweiss research
The domestic refrigerator industry is estimated to have clocked 9% CAGR during 2006-16 to
~10.7mn units. Direct cool (DC) and frost free (FF) segments grew 5-7% during the period.
The refrigerator segment is estimated to post 10% CAGR in volume terms over the next 5
years. Rising household income levels, growth in nuclear families and relatively lower
penetration levels of ~27% (versus 51% for colour televisions) drove demand for
refrigerators in the past 10 years.
The DC segment is set to grow at a slightly better pace than the frost-free segment as DC
models occupy lesser space, are available at lower price points and preferred by consumers
in semi-urban & rural areas. Both direct cool and frost-free segments are expected to record
healthy growth with the industry expected to post 12% YoY growth in 2017.
Chart 63: Refrigerator industry to post 12% CAGR over FY17-22E Chart 64: Penetration to further deepen
375 20.0 58.0
18.4
47.5
305 16.0 48.4
38.8
(INR bn)
(%)
8.5 344
165 8.0 29.2 27.3
114 195
95 4.0 19.6 15.5
13.7
25 0.0 10.0
2012 2017 2022 2005 2011 2016 2026E
Total market size of refrigerators(INR bn)
Industry size in units (Units mn) Refrigerators
Source:Crisil, Industry, Edelweiss research
The refrigerator industry has traditionally been dominated by 5 major players with
collective market share of around 95-97%. Over the past 3-4 years, most players have been
successful in maintaining their market shares. LG has continued to remain the market leader
during the past 5 years and accounted for 26% of the refrigerator segment in 2015-16.
Samsung
19%
Videocon*
18%
Note: * Videocon brands include Videocon, Sansui, Akai & Kenstar.
Source: Crisil, Industry, Edelweiss research
Growth enablers
In refrigerators, consumer preference is moving to high-capacity models, which offer more
storage space. In the DC segment, the share of 184 litres or lower segments plunged as LG
and Samsung stopped production of these models and increased production of higher
capacity segment (185-225 litres) 2013-14 onwards. Share of the 185-225 litre segment is
estimated to have further widened and reached 65% by 2015-16 from 62% in 2012-13.
In the FF segment, change in product mix is not as sharp as in the DC segment. However, the
trend is still the same. Share of entry-level segment (225 litre or less) and the sub-270 litre
segment is declining in favour of high-capacity models. In the FF segment, consumer tilt is
towards large-capacity (350 litre and above, priced at INR35,000 and above) refrigerators.
The 226-270 litre segments was the dominant category in FF segment.
Chart 66: Product mix tilted towards higher capacity models (226L and above)
Direct Cool Product Mix Frost Free Product Mix
100.0 10 100.0
12 13 13 6 6 7 7
16 16 17 17
80.0 80.0
21 23 23 24
62 60.0
60.0 63 64 65
(%)
(%)
40.0 40.0
52 52 51 50
20.0 20.0
33 26 24 23
0.0 5 3 2 2
0.0
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
225L or less 226-270L 271-300L
184L or less 185-225L 226L and above 301-350L 351L and above
Source: Crisil, Edelweiss research
Chart 67: Segment mix shifting in favour of frost free with increasing realisations
100.0 30,000
28 28 27 28 27 29 30
80.0 24,000
60.0 18,000
(INR)
(%)
40.0 12,000
72 72 73 72 73 71 70
20.0 6,000
0.0 0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY12 FY13 FY14 FY15 FY16
Direct Cool Frost Free Direct - Cool Frost - Free Overall
Source: Crisil, Edelweiss research
Players launched products with innovative designs and flexible features to bolster their
sales. Some of the features introduced include cooling retention provided by LG & Godrej,
in-the-door ice-maker launched by LG & Samsung to increase storage space, etc. Players are
improving their reach in tier-II & III cities as well as expanding product range by launching
several stock-keeping units (SKU) offering consumers a wide range of options at lower price-
points, while brands like LG, Samsung, Bosch, Sharp, Hitachi and Whirlpool are in the higher
price bracket. Though LG leads the refrigerator market, Samsung enjoys highest share in the
FF segment.
Refrigerator sales through online retailers are low at ~1% of total sales. Sales through large
organised retailers account for 40-45% of total sales, while mom-and-pop (typically family-
owned, not franchised and open for business from a single location) stores account for 55-
58% sales.
The domestic fan industry is divided into categories which include table/pedestal, domestic
exhaust and industrial fans apart from the ceiling fans. Demand for ceiling and exhaust fans
jumped due to increase in housing construction activities, rural electrification and
replacement demand in urban areas, which is mainly driven by demand for premium
products by younger & richer India. Industrial demand for electrical fans is expected to
increase with government’s focus on manufacturing sector with schemes like Make in India.
Fans Industry
Chart 68: Fan market to reach INR188bn by FY22E Chart 69: Shift in focus towards premium fans across key players
200 30.0 100.0
(%)
(%)
80 9.6 40.0
40 2.8 20.0
0.0
0 (4.0)
Crompton Orient Havells Bajaj Usha
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22
Electricals
Market Size (INR bn) Under Light Fans Kids Fans
Decorative Fans BEE 5 Star rated
YoY growth in units produced (%) Standard/Plain Fans
80.0 45 46 49 51 50 49 47 46
53
60.0
4 3 2 2
(%)
3 2 2 2 7 7
4 9 9 8 7 7 7
40.0 9 14 14
12 12 12 13 14 14
9
12 12 10 10 10 10
20.0 11 11 10
17 18 17 18 18 19 21 21
14
0.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Crompton Orient Havells Bajaj Electricals Khaitan Other Unorganised
Source: Companies, Industry, Edelweiss research
Replacement
Demand
>>Avg life of a
fan is around 10
yrs
>>Share in total
demand is 65%
Total Demand
• Overall industry
volume growth to be
12 % from FY17-22E
• Organised market to
grow at 16% from
FY17-22E , compared to
13% for the industry
First-time
demand
>>Rural
penetration on
the rise
>>Urbanisation
The domestic electrical industry is a lead indicator of industrial capex as well as individual
household capex. It has direct links with frontline sectors of the economy such as banking,
power, roads, logistics, etc., which have enabled it to clock CAGR of 15% over FY12-17. The
growth has predominantly fuelled by rapid spurt in LEDs despite sluggish economic scenario.
The LED industry may touch INR240 bn by 2022 following the government's decision to
switch to LEDs for all street lamps and public space lighting and impetus due to EESL
programme. The LED industry is expected to grow at 20% over FY17-22E.
Chart 71: Lighting to post 15% CAGR over FY17-22E Chart 72: LED to constitute 48% of total market by FY22E
535 75.0 300 90.0
74
240 72.0
435 70.0
67 180 54.0
(INR bn)
335 65.0
(INR bn)
(%)
(%)
The industry can be classified as sources (lamps), luminaries, components and LED (including
lamps). Lighting devices can be further categorised on the basis of technology used to
produce light. These are primarily incandescent lamps (general lighting services or GLS),
fluorescent tubular lights (FTL) like T12, T8 & T5, compact fluorescent lights (CFL), high-
intensity discharge (HID) lights and LED.
Fig. 7: CFL/GLS form 45% of market; LED accounts for more than 50%
Lighting Industry
50-55%
45-50%
Growth drivers
LEDs are now replacing the CFL segment and the latter is declining at close to 45-50%.
The government has played a vital role Companies seem to be having a short term impact due to the transition, but the irony is that
in fast tracking adoption of margins have improved even though prices of LED have fallen. EESL has given orders to
technology. many manufacturers like Surya Roshni, Phillips, Bajaj Electricals, among others, to ramp up
supply and increase the pace of the UJALA programme.
Chart 74: Price of LED bulbs under EESL has plummeted >80% Chart 75: Despite this large players have managed profitabilty
372 32.0
304
26.8
235
(INR)
21.6
167
(%)
16.4
98
30 11.2
April, 2016
Feb, 2017
Mar, 2015
Jun, 2015
Aug, 2014
Nov, 2014
Nov, 2015
Jan, 2014
Jan, 2015
Another driver for this industry is government’s focus on rural electrification/power for all.
“Increase in average realisation will
Its goal of 100% rural electrification by 2019 will drive further growth. To strengthen
drive overall growth of lighting
electricity supply and availability in urban areas (non-metros and large cities), which are
industry with volume spurt likely to
currently deprived of 24x7 power supply, the government launched the Integrated Power
remain flat-to-marginally positive. This
Development Scheme (IPDS) in December 2014. Uninterrupted availability of power in
is because incandescent bulbs—
urban and rural areas will also drive demand for lighting products.
average life of 6-8 months—will be
substituted by LED bulbs with average
Chart 76: Increasing % of villages electrified
life of 8-9 years.” 120.0 20.0
96.0 16.0
99 100
93
88
72.0 12.0
(%)
(%)
48.0 90 94 8.0
75 83
67
24.0 56 55 4.0
44
0.0 0.0
2001 2011 2017 2019E
Rural Electrification Urban Electrfication
India Electrification Lighting Industry CAGR (RHS)
Source: Government Documents, Edelweiss research
Our take
Large players like Havells, Philips and Crompton, we believe, will balance between growth
and profitability and will optimise their presence in fixates/lighting solutions. In the past 6
months, despite sharp drop in LED prices, Havells and Crompton have largely sustained
profitability in the lighting business.
Cables & Wires: Improving power & housing availability to aid demand
The cables & wires industry has posted 14% CAGR over the past 5 years. With
government sharpening focus on Housing/ Power For All we expect demand to stay
healthy at 12%. For organised players, which account for ~60% of market, we estimate
higher growth of 15% over FY17-22 given potential shift from large unorganised base
(~40%).
Chart 77: Cables & wires industry is expected post 11% CAGR over FY17-22E
900
720
Given that cables has seen >15%
input price correction over the
540
(INR bn)
180
2018E
2019E
2020E
2021E
2022E
2011
2012
2013
2014
2015
2016
2017
The organised sector comprises ~60% of cables & wire industry and is expected to grow at
~12.5% comprising 66% of industry by 2022. The segment has higher share of unorganised
players, who in the new GST regime and increasing tax compliance etc., will find it difficult
to compete with large organised players, especially who are building a pan-India reach.
Main players in the organised industry are Polycab, Havells, Finolex, V-guard and KEI.
Polycab is the market leader with 17% market share (40% of organised), followed by Anchor
with 11%.
Finolex
7%
Others
50%
Polycab
17%
Anchor
11%
Source: Company, Industry, Edelweiss research
V-guard, Havells and KEI have outperformed industry growth, whereas Finolex has
underperformed. Over 2011-17, V-guard clocked 17% CAGR (albeit at a low base), Havells
has grew 14%, KEI at 13% and Finolex at 5%. In the retail segment (primarily domestic
electrical wires), which primarily caters to electrical contractors and builders who execute
electrical projects across residential & commercial segments are major end users, building
strong brands and distribution reach is essential.
Chart 80: Edelweiss cables & wire coverage YoY % vs. cables industry’s YoY growth (%)
30.0
24.0
18.0
(%)
12.0
6.0
0.0
2011 2012 2013 2014 2015 2016 2017
Cables Industry YoY % Edel cable & wire coverage YoY%
Source: IEEMA, Company, Industry, Edelweiss research
Growth enablers
• Rural Electrification and Power For All: The government’s focus on rural electrification
under the Deendayal Upadhyayaa Gram Jyoti Yojana (DDUGJY) with total outlay of
INR756bn over FY14-19 and Power For All (a joint initiative by Government of India
(GoI) and state governments with the objective to make power available to all
improved the availability of electricity across India during 2001-17 with an increase in
the number of villages electrified (as highlighted in the chart below). This has been one
of the key drivers of strong growth in the cables & wires industry.
Chart 81: Growth in households has been key demand Chart 82: Improved power availability boon for cable demand
400 15.0 120.0 15.0
13.9
13.5 99 100
350 13.6 97.4 93 14 13.8
88
13
11.1
(%)
(%)
(%)
250 350 10.8 52.2 94 11.4
11 90
9.5 83
295 75
67
200 247 9.4 29.6 56 55 10.2
44
194 10
150 8.0 7.0 9.0
2001 2011 2016 2025 2001 2011 2017 2019E
No. of Households Cables and Wires CAGR Rural Urban India Cables & Wires CAGR
Source: Census, IEEMA, Industry, Edelweiss research
intends to add ~187GW to meet the ever-growing demand for power, bulk of which is
from renewables. This will require evacuation of power through additional investment
in the T&D infrastructure.
Chart 83: Government’s focus on renewable power augers well for the cables & wire industry
200 750
700
1100
170 630
(GW/'000ckms)
980
140
510
(INR bn)
(INR bn)
860
110
740 390 370
80 620
270
50 500
160
FY2012-17 FY2017-22 150
Power Addition (GW) FY11 FY17 FY22
Transmission Lines ('000 ckms) Cables Demand wise projection
Demand for T&D equipment (INR bn)
Source: IEEMA, Industry, Edelweiss research
• Growth in residential segment: Real estate plays an important role in the Indian
economy. With various reforms such as allowing 100% FDI, tax benefits for foreign
investors, Smart Cities and Atal Mission for Rejuvenation and Urban Transformation,
the segment is likely to grow at ~11% over the next decade. The revised National
Electrical Code, which emphasizes use of certified copper electric wires, will ensure
strong demand for electrical wires & cables.
• Increased demand from renewable energy: Power generation from renewable sources
is rising, with the share of renewable energy in India’s total energy mix rising from 7.8%
in FY08 to 12.3% in FY15. Government incentives, favourable foreign investment policy
and vast untapped potential will drive renewable energy generation in India over the
next few years.
• JVs with global players for access to technology for EHV and optical fibres: Finolex has
entered into JVs with J-Power System and Corning to manufacture EHV and optic fibres
cables, respectively. KEI has also entered into a technical collaboration with Brugg
Kabel AG, the Swiss manufacturer of extra high voltage (EHV) cables above 220kV and
up to 400kV, at its manufacturing plant located at the Chopanki. This goes a long way to
expand target market reach in the huge cables & wires industry.
BAJAJ ELECTRICALS
Near-term hurdles persist
India Equity Research| Consumer Durables
Bajaj Electricals (BJE), a leading consumer appliances company, is in the EDELWEISS 4D RATINGS
midst of significant operational overhaul under its RREP (range reach Absolute Rating HOLD
expansion programme), which has had a bearing on its overall market Rating Relative to Sector Performer
positioning over the past few quarters. Our top concerns are: a) Risk Rating Relative to Sector Medium
sustaining its competitive positioning in core appliances & lighting Sector Relative to Market Overweight
businesses; and b) significant scale up by competition over the past few
quarters demands a more focused approach from BJE, which currently
MARKET DATA (R: BJEL.BO, B: BJE IN)
stands diluted between B2B and B2C businesses. Maintain ‘HOLD’ with
CMP : INR 339
revised TP of INR350 (INR250 earlier) given limited upside, valuing BJE at Target Price : INR 350
19x PE on FY19E (23x for consumer business, 20% discount to our 52-week range (INR) : 388 / 202
consumer durable sector multiple) given rising competitive challanges. Share in issue (mn) : 101.4
M cap (INR bn/USD mn) : 34 / 534
Sustaining competitive edge in key segments a key monitorable Avg. Daily Vol.BSE/NSE(‘000) : 294.5
BJE has lost substantial ground across key businesses—lighting & consumer
appliances— on account of reasonable scale up of competition. Also, relative to large SHARE HOLDING PATTERN (%)
peers, the company has clocked weaker growth and profitability in past few quarters. Current Q3FY17 Q2FY17
We believe, given the yawning gap versus large peers, it will be challenging for Promoters * 63.4 63.4 63.5
management to regain market positioning. MF's, FI's & BK’s 6.8 7.7 7.7
FII's 7.5 7.6 7.9
Widening gap with competition tempers FY18 rebound estimate Others 22.2 21.3 20.9
* Promoters pledged shares : 1.7
Management expects to conclude RREP by FY18 (currently 45-50% complete) and is (% of share in issue)
estimating 15% plus top line spurt along with margin improvement. Though growing on
a low base this could be achievable, we believe it is unlikely to yield meaningful surge PRICE PERFORMANCE (%)
in profitability and market share looks challenging as key players have moved a couple EW Capital
Stock Nifty
of notches higher w.r.t. to SKUs/branding etc., and BJE will have to revamp its overall Goods Index
positioning in key segments. 1 month (2.9) 2.8 0.2
3 months (2.4) 8.0 1.9
Outlook and valuations: Cautious; maintain ‘HOLD’ 12 months 40.7 15.4 14.0
BJE is valued at 19x FY19E PE (23x on consumer business, trades at 20% discount to
large peers). However, we believe, valuation re-rating is difficult given limited clarity on
how BJE will scale the market share ladder. Moreover, we perceive a clear trend of Amit Mahawar
+91 22 4040 7451
Crompton, HAVL, etc., grabbing substantial pie of BJE’s market share, making it difficult amit.mahawar@edelweissfin.com
for the latter to outperform industry’s top-line growth. We maintain ‘HOLD/SP’.
Swarnim Maheshwari
Financials +91 22 4040 7418
swarnim.maheshwari@edelweissfin.com
Year to March FY16 FY17 FY18E FY19E
Revenues (INR mn) 45,903 42,617 46,427 53,345 Darshika Khemka
Rev. growth (%) 7.8 (7.2) 8.9 14.9 +91 22 4063 5544
darshika.khemka @edelweissfin.com
EBITDA (INR mn) 2,642 2,428 2,852 3,622
Net profit (INR mn) 1,103 1,077 1,422 1,903 Krish Kohli
EPS (INR) 10.9 10.7 14.1 18.9 krish.kohli@edelweissfin.com
Table 1: Top line and margins of BJE, Crompton, Havells in lighting & appliances (FY16/17)—Comparison
Total revenue Revenue growth (%) EBITDA margins (%) Comments
FY16 FY17 FY16 FY17
Crompton Greaves 13.1 8.9 11.2 12.1
Bajaj Electricals* 5.5 -10.9 5.2 5.0 We believe Bajaj has lost market share in the
appliances business. Focus on premium categories
has augered well for both Havells and Crompton
which has been the missing point for Bajaj.
Havells** 8 13 23.3 25.3
Note:*Ex of EPC business, ** Ex of Cables & Switchgears Source: Company, Edelweiss research
Chart 1: BJE’s market reach versus peers Chart 2: Earnings down grade trend versus peers
8,000 19 5.7
7500
17 5.6
7,000
15 5.4
(INR)
(INR)
6,000
(Nos)
14 5.3
5,000 5000
12 5.1
4000
4,000
11 5.0
Dec-16
Aug-16
Oct-16
Apr-17
Feb-17
Jun-16
Jun-17
3,000
Havells Crompton Bajaj Electricals
Direct Dealers BJE HAVL CROMPTON (RHS)
Source: Bloomberg, Company, Edelweiss research
24.0 Average PE at
18x (FY12-17)
18.0
(x)
12.0
6.0
0.0
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
1 yr fwd P/E Average P/E
Source: Bloomberg, Edelweiss research
Bajaj
INR 0.5tn
29%
Consumer
Durables
INR
Industry 1.5tn
Change in Estimates
FY18E FY19E
New Old %change New Old %change Comments
Net Revenue 46,426 53,473 (13.2) 53,345 - 0.0 Building in lower growth in
Lighting, Appliances and EPC
business
EBITDA 2,852 3,673 (22.4) 3,622 - 0.0
EBITDA Margin 6.1 6.9 6.8 0.0
Adjusted Profit 1,422 1,796 (20.8) 1,903 - 0.0
After Tax
Net Profit 3.1 3.4 3.6 0.0
Margin
Capex 300 500 (40.0) 300 - 0.0
Company Description
Incorporated as Radio Lamp Works in July 1938, the company changed its name to Bajaj
Electricals (BJE) in October 1960. The 71-year old Bajaj Group company operates via 5
strategic business units—home appliances, fans, lighting, luminaries, and engineering &
projects. The company has 2 manufacturing facilities—1 at Chakan for fans and another at
Ranjangaon for galvanised material. The company outsources manufacture of CFL bulbs to
its associate company wherein BJE has acquired equity interest. It outsources all other home
appliances products like steam irons and toasters through dedicated manufacturers located
across India.
Investment Theme
With its consumer facing business growing steadily, BJE is now focused more on growing its
E&P division. It is the largest small appliances company in India and the leader in the small
domestic appliances market. By virtue of tie ups with global majors like Morphy Richards
(UK) and Nardi (Italy), the company competes with premium players like Philips and Kenstar,
and has been able to create a niche in the premium segment. Its products like mixers, irons,
OTG, water heaters and room coolers are leading products in their respective products
ranges. BJE, a leading consumer appliances company, is in the midst of significant
operational overhaul under its RREP (range reach expansion programme), which has had a
bearing on its overall market positioning over the past few quarters. BJE has lost substantial
market share across key businesses—lighting & consumer appliances— on account of
reasonable scale up of competition. We believe, given the yawning gap versus large peers, it
will be challenging for management to regain market positioning.
Key Risks
The market in which BJE primarily operates consists of large unorganised players with a
number of small and medium sized players. Over dependence on vendors or vendor buy out
by competition is a key risk. Further, intense competition in the consumer durables segment
can squeeze margin.
Increase in prices of key raw materials such as steel and zinc can hamper margin of the E&P
division. Greater contribution of E&P business is likely to increase debt levels in the form of
higher working capital that this business demands. Excess competition can pressurise
margin. This could go against the company’s forecasts of margin improvement.
Financial Statements
Key Assumptions Income statement (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macro Income from operations 45,903 42,617 46,427 53,345
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Materials costs 30,882 27,573 29,773 34,133
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee costs 2,851 3,289 3,509 3,817
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other mfg expenses 9,528 9,328 10,292 11,773
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 43,261 40,190 43,574 49,723
Company EBITDA 2,642 2,428 2,852 3,622
Revenue Growth (%) Depreciation 274 299 328 346
Consumer Durable Segment 6 (11) 8 18 EBIT 2,369 2,129 2,524 3,276
Lighting 17.3 (35.0) 15.0 15.0 Add: Other income 480.8 355.9 344.00 352.00
Fans 5.6 (8.0) 16.5 18.4 Less: Interest Expense 1,081 804 713 745
Appliances 1.7 (15.0) 16.4 18.4 Profit Before Tax 1,769 1,680 2,155 2,883
E&P segment 52 (2) 10 11 Less: Provision for Tax 665 604 733 980
EBIT Margins - % Reported Profit 1,103 1,077 1,422 1,903
Consumer Durable Segment 3.4 4.6 6.2 6.2 Adjusted Profit 1,103 1,077 1,422 1,903
E&P segment 4.7 7.2 6.4 6.4 Shares o /s (mn) 101 101 101 101
Tax rate (%) 37.6 35.9 34.0 34.0 Diluted shares o/s (mn) 101 101 101 101
Net borrowings (INR mn) 4,340 (2,754) 500 500 Adjusted Diluted EPS 10.9 10.7 14.1 18.9
Capex (INR mn) 459 536 300 300 Adjusted Cash EPS 13.6 13.6 17.3 22.3
Dep. (% gross block) 6.2 6.2 6.0 6.0 Dividend per share (DPS) 2.8 3.5 3.5 3.5
Dividend Payout Ratio(%) 30.7 39.3 29.8 22.3
Additional Data
Directors Data
Shekhar Bajaj Chairman R P Singh Independent Non-Executive Director
V B Haribhakti Independent Non-Executive Director Harsh Vardhan Goenka Independent Non-Executive Director
Ajit Gulabchand Independent Non-Executive Director Indu Shahani Independent Non-Executive Director
Ashok Jalan Independent Non-Executive Director Anant Bajaj Joint Managing Director
Madhur Bajaj Madhur Bajaj Promoter & Non-Executive Director
Holding – Top10
Perc. Holding Perc. Holding
Jamnalal sons pvt lt 19.6 Bajaj holdings and i 16.47
Bajaj shekhar 7.12 Bajaj anant 4.47
Bajaj kiran 4.24 Bajaj niraj ramkrish 2.15
Bajaj madhur 2.1 Reliance capital tru 1.94
Caisse de dep et adv 1.48 Musafir agency ltd 1.24
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
16 Mar 2017 SIDDHARTHA KANODIA Sell 25000.00
15 Mar 2017 ANANT MARTAND PURANDARE Sell 20000.00
CROMPTON CONSUMER
Untapped potential
India Equity Research| Consumer Durables
Fortunes of Crompton Consumer (Crompton), the largest player in fans & EDELWEISS 4D RATINGS
residential pumps, are set to change with the new management reversing Absolute Rating BUY
the trend of years of under-investment in brands. Our conviction in the Rating Relative to Sector Outperform
company is anchored by: a) new management’s focus on value creation in Risk Rating Relative to Sector Low
existing products; b) huge untapped market opportunities; and Sector Relative to Market Overweight
c) potential to generate 45%/48% RoCE/RoE, respectively, with ~INR5bn
free cash flow by FY19. Initiate coverage with ‘BUY’ and TP of INR265
MARKET DATA (R: NA, B: CROMPTON IN)
(17% premium to sector average) given strong earnings CAGR of 27% and
CMP : INR 217
superior free cash flow growth of 60% over FY17-19E & potential for Target Price : INR 265
shareholder value creation in unexplored white goods market. 52-week range (INR) : 246 / 135
Share in issue (mn) : 626.7
Sharpening focus on improved value addition in core products M cap (INR bn/USD mn) : 136 / 2,111
Avg. Daily Vol.BSE/NSE(‘000) : 1,171.8
Crompton’s sharpened focus on core products is amply reflected in robust spurt in the
share of premium fans from 10% of sales in FY16 to 16% in FY17. Also, despite sharp
SHARE HOLDING PATTERN (%)
drop in LED prices, the company’s lighting segment clocked 150bps margin
improvement led by cost saving initiatives, a testimony to management’s focus on Current Q3FY17 Q2FY17
driving top line as well as bottom line. Promoters * 34.4 34.4 34.4
MF's, FI's & BK’s 19.6 14.9 16.2
Potential for huge brand leverage FII's 29.1 26.5 23.3
Others 16.9 24.2 26.1
We believe, Crompton, with a focused management and clear growth strategy in place,
* Promoters pledged shares : 22.34%
is now well geared to leverage its premium brand image and massive distribution (% of share in issue)
network (4,000 dealers) to drive profitable long-term growth. With sharpening focus
on agri pumps and huge untapped potential in white goods—still virgin territory for the PRICE PERFORMANCE (%)
company—we believe, the company could significantly expand its target market over Stock over
Sensex Stock
the next 3-5 years, enhancing growth visibility substantially versus current level. Sensex
Crompton has one of the best profitability/cash flow generation capabilities in the 12 months 14.7 55.5 40.8
entire white goods/light electrical space with strong RoE/RoCE and 1.6x growth in free
cash over FY17-19E. While the company is successfully executing all the new
initiatives/strategies leading to industry-leading top line/bottom line, the bigger delta
or re-rating event here on, in our view, will be its entry in the larger white goods space,
which could add substantially to the current addressable market opportunity. Initiate
with ‘BUY/SO’. Amit Mahawar
+91 22 4040 7451
amit.mahawar@edelweissfin.com
Financials (INR mn)
Year to March FY16 FY17 FY18E FY19E Darshika Khemka
Revenues (INR mn) 18,117 39,759 46,724 55,150 +91 22 4063 5544
darshika.khemka @edelweissfin.com
EBITDA (INR mn) 2,095 4,902 6,002 7,356
Net profit (INR mn) 1,190 2,932 3,712 4,729 Krish Kohli
EPS (INR) 3.8 4.7 5.9 7.5 krish.kohli@edelweissfin.com
Investment Rationale
Higher share of premium offerings, new launches spurring profitability
Crompton is the leader in fans and residential pumps with 27% and 28% market shares,
respectively, wherein it is positioned as a premium products player anchored by a robust
distribution network. The company, post takeover by new management (private equity
investors), has clocked better-than-industry growth of 12% in fans led by robust 16% spurt
in premium fans (share jumped from 10% to 16% over FY16-17), outpacing industry’s 8%
growth. We believe, this was driven by strong product pull, well complemented by more
than 15 SKUs launched in the premium fans category within the past 12 months. This has
helped Crompton narrow the gap with Havells (has largest SKUs in premium fans).
Likewise, focus on higher range in residential pumps and better cost control in lighting
(mainly LEDs) have helped the company post better top line growth of 10% in FY17 with a
much better EBITDA growth of 17% YoY (Crompton’s FY16 numbers are annualised).
While FY17 profitability sprung a positive surprise for the Street (~20% earnings upgrade in
past 2 quarters), we expect the improvement to sustain given the humungous scope to
enhance the share of premium products (fans, lighting, appliances, etc). This, we believe,
the company will achieve by unwavering focus on product innovation/branding. We note
that a considerable ramp up in new launches over the past 2 quarters has been key reason
for reasonable 10% YoY spurt despite demonetisation.
255 6.0
Crompton witnessed
strong re-rating post 231 5.7
ownership shift led by
earnings upgrade. 207 5.4
(INR)
(INR)
183 5.1
159 4.8
135 4.5
Apr-17
Apr-17
Feb-17
Feb-17
Mar-17
Mar-17
Mar-17
Jun-17
Jun-17
Dec-16
Dec-16
Oct-16
Oct-16
Nov-16
Nov-16
May-17
May-17
Jan-17
Jan-17
Price Leading EPS 2018
Source: Bloomberg,Edelweiss research
Chart 2: Rising share of premium fans in revenue Chart 3: Introduced >50 new fan models
8,500 15.0 400
Post-demerger in FY16 CGCEL
Pre- Post- Pre- introduced 50 new models & 55
6,800 demerger demerger 12.0 330 demerger new models in FY17
275
5,100 9.0
(INR mn)
260
(%)
(No.s)
209
3,400 6.0
190
144
1,700 3.0
120 94
0 0.0
FY11 FY16 FY17 FY19E 50
FY11 FY16 FY17 FY19E
Premium Fans Revenue % of the total Revenue No. of models's
Source: Company, Edelweiss research
150 26
27
(No.s)
(No.s)
110
94
100 82 18
74
50 9
0 0
Crompton Bajaj Orient Havells Usha Crompton Havells Orient Usha
Number of Fan Models No. of SKU's for super premium and premium fans
Source:Company Website,Company Annual Report, Edelweiss research
Also, in the pumps segment, leveraging its dominance in residential pumps, Crompton has
sharpened focus on agri pumps. This is amply reflected in product innovation/launches over
the past 6-8 months where it introduced 3 SKUs during FY17 (2 in FY16). Agri pumps, with a
large base of regional/unorganised players which cumulatively account for 50% (~INR20-
25bn), in our view is a great potential opportunity to add 2-3x revenue over FY17-19.
Table 2: Leading player in fans, lighting, residential pumps—Expanding presence in agri pumps, appliances
Segments Revenues Organised Market Organised Segments Revenues Market Market Market
FY17 (INR bn) Market Rank Market Size FY19E (INR Share Rank Size
Share (INR bn) bn) (INR bn)
Fans 18.0 ~25% #1 75 Fans 25.5 ~27% #1 95
Lighting 11.6 7% #3/4 160 Lighting 16.0 ~8% #3 210
Pumps - Residential ~5.5 >20% #1 30 Pumps - Residential ~7.5 >25% #1 40
Pumps - Agri ~3.0 ~5% #6/7 45 Pumps - Agri ~3.5 ~6.0% #4/5 60
Appliances 3.0 4% #5/6 60 Appliances ~4 5% #4/5 70
Source:Company,Industry,Edelweiss research
Chart 6: INR110bn total pump market size Chart 7: Market share of Crompton in agri pumps
Industrial 30.0
Pumps >25.0
20%
24.0
>20.0
18.0
Agriculture
(%)
Pumps
12.0
45%
5.0 6.0
6.0
Domestic 0.0
Pumps Market share agri pumps Market share domestic
35% Pumps
FY17 FY19E
Source: Company, Industry, Edelweiss research
Crompton is one of the strongest brands in the Indian consumer durables/light electrical
space with dominance in fans, household pumps and a growing presence in lighting &
consumer appliances. Post transfer of ownership to a PE firm, the new management has
been able to move up the profitability curve, amply reflected in FY17 numbers. We like
Crompton’s growth story, which is focused on taking the next leap towards building a strong
consumer/product pull.
We initiate coverage with ‘BUY/SO’ and target price of INR265 (ascribing 1 year forward P/E
of 35x), which is at a 17% premium to our coverage universe’s average valuation of 30x.
This, we believe, is justified given Crompton’s robust cash flow generation of ~INR5bn (60%
growth over FY17-19E) and superior profitability—~45% RoCE.
41.0
37.0
(x)
33.0
29.0
25.0
Dec-16
Aug-16
Oct-16
Apr-17
Nov-16
May-17
Jan-17
Sep-16
Feb-17
Mar-17
Jun-16
Jun-17
Jul-16
1 yr fwrd PE
Source:Bloomberg, Edelweiss research
3.6
3.2
(x)
2.8
2.4
2.0
Dec-16
Aug-16
Oct-16
Apr-17
Nov-16
Nov-16
May-17
Sep-16
Sep-16
Jan-17
Jan-17
Feb-17
Jun-16
Mar-17
Mar-17
Jun-17
Jul-16
Jul-16
1 year forward EV/Sales
Source: Bloomberg, Edelweiss research
4.8
(INR bn)
3.2
1.6
0.0
Havells Voltas Whirlpool Bajaj Crompton
FY16 FY19E
Crompton
INR 0.6tn
39%
Consumer
Durables
INR
Industry 1.5tn
Key Risks
Competition
Rising competitive intensity especially from local peers, we believe could be a risk to our
growth and profitability estimates.
Company Description
Overview
Crompton was set up in 1878 as REB Crompton to manufacture electrical equipment. Later,
it was merged with F&A Parkinson to form Crompton Parkinson. The latter was bought in
1947 by the Thapar family and in 1966 restructured into Crompton Greaves. Compton was
in multiple sectors including electrical goods. In October 2015, the electrical and lighting
business was demerged into Crompton Greaves Consumer Electricals. The Thapars sold their
stake to 2 private equity firms, Advent International and Temasek Holdings, in 2016. The
company broadly has 4 business segments—fans, lightings, pumps and electrical
appliances. Crompton is a market leader in the fans and residential pumps segments, with
over 25% market share in each.
Product profile
Crompton is the consumer products business of Consumer Greaves, which has now been
demerged and is a separate entity. It is a well established manufacturer of household
electrical products and appliances. For over 20 years, the company has been the market
leader in fans and residential pumps. A significant portion of total revenue comes from
lighting products (31%). It also manufactures a range of appliances which have a relatively
lower market share. With market share growing in other segments and brand expansion
strategy working, Crompton intends to expand its reach in the home appliances segment as
well.
Product Profile
Source: Company
1) Lighting products: The LED category has been Crompton’s focus for product launches
especially in FY17 as visible in a healthy double digit growth. Prices of LED lamps fell
further on back of lower input costs while LED lighting value growth jumped 50% in
FY17 replacing CFL and HID. Research & Development efforts have helped the company
provide the “best in industry” solutions to customers for various projects of national
significance and win major orders from Energy Efficiency Services (with a total supply
worth INR770mn), airports, auto & power sectors and street lighting projects. LED
lamps’ revenue tripled with trade volumes growing over 350% in FY17 over FY16. LED
panels and have doubled in value and more than 4x in volume.
a) Fans: Crompton remains the market leader in fans and the only player in India to
have sold over 1 crore fans annually for 5 consecutive years. Focus on value
addition is reflected in the innovations introduced in the market. These include
auto temperature controlled fans and fans with anti-dust coating to reduce
cleanliness hassles. The innovations were well received in market with sale of more
than 4.5 lakh anti-dust fans post introduction in H2FY16. Apart from this, the
company has been instrumental in developing many unique fans models like the
new super energy efficient ceiling fan which saves more than 50% energy, new
eSense range of ceiling fans with automatic temperature control and radio
frequency based remote functions.
Aura Prime - Anti Dust Attracts 50% less dust compared to regular fan.
Avancer e sense A radio frequency-enabled remote and temperature sensing smart ceiling
fan
Titanis Exquisitely designed shanks and blades for superior air flow
Triton Painted Aerodynamically designed blades for high speed and air delivery
Source: Company
b) Pumps: Crompton is the market leader in the residential pumps segment and
enjoys a strong overall market presence. The agricultural segment has been
identified as a focus area for growth; it posted double digit growth with strong
focus to expand market reach. Markets with a strong brand presence were
identified as priority for agricultural pumps. Within the energy efficient segment,
the company has been able to bag a prestigious EESL order for 5-star borewell
submersible pumps.
Modern retail
In modern retail, the emphasis has been on establishing strong visibility in stores. In order to
increase secondary sales and deliver consistent brand experience, focus has been on
maximising shelf space, branding at stores and educating customers about benefits of
products. Crompton has expanded presence to ~1,100 stores across formats. With focus on
expanding distribution to new geographies and deepening retail reach in smaller towns,
presence in channels like e-commerce and modern retail was stepped up. Exclusive online
brand outlets were launched on Paytm, Snapdeal and Flipkart. Products like LEDs, geysers,
coolers and mixer grinders are the best sellers in organised retail/online.
Fans
Lighting
Pumps
Baroda (Gujarat)
Ahmednagar
(Maharashtra)
Bethora &
Kundaim
(Goa)
Source:Company
Crompton has pan-India presence, with its products selling in close to 1,50,000 stores across
the country. It also has 500 service centers and has organised over 144 free service camps.
The company maintains a strong dealer network and continues to expand it every year. It
also manages to keep its customers satisfied by completing almost 90% service requests
within 2 days of complaint.
Key personnel
Mr. Shantanu Khosla, Managing Director
Mr. Shantanu Khosla joined the company in January 2016. Prior to that, he was the MD &
CEO of Procter & Gamble India from July 2002 to June 2015. He is a Bachelor of Technology
in Mechanical Engineering from the Indian Institute of Technology, Mumbai. Mr. Khosla has
also completed his Masters in Business Administration from the Indian Institute of
Management, Calcutta.
Mr. Mathew Job has been the Chief Executive Officer of Crompton Greaves since January 1,
2016. Prior to that, he was with Philips Electronics India from June 1994 to October 2009,
where he held several key positions. Mr. Job has also served as Managing Director of Racold
Thermo. He is a Bachelor of Technology (Electrical & Electronics) and an alumnus of the
Indian Institute of Management, Calcutta.
Mr. Sandeep Batra, B. Com, CA, CS, has been the Chief Financial Officer of Crompton
Greaves Consumer since January 1, 2016, and served as its Compliance Officer and Company
Secretary from February 12, 2016 to May 18, 2016. Prior to his stint with Crompton
Greaves, he served as the Chief Financial Officer, Executive Vice President and Company
Secretary of ICICI Prudential Life Insurance Company. Mr. Batra is a Chartered Accountant
from ICAI and CS from ICSI. He is an alumnus of the prestigious St. Xavier's College, Calcutta.
Mr. P M Murty has graduated from the Indian Institute of Management, Calcutta. He has
more than 42 years’ experience with Asian Paints, wherein he held various senior positions
including that of Managing Director from 2009-12.
Mr. Hemant Nerurkar has experience of over 35 years in Tata Steel in various positions. He
joined Tata Steel in 1972 and rose to Managing Director in-charge of India and South East
Asia Operations. He is Chairman of Board of Directors in TRL Krosaki Refractories. Mr.
Nerurkar is a Bachelor of Technology in metallurgical engineering from the College of
Engineering, Pune University.
Ms. Shweta Jalan is the Managing Director of Advent India PE Advisors. She joined Advent in
2009. Prior to which she worked for almost a decade at ICICI Venture, which at the time was
the largest private equity firm in India. She has experience in sourcing and negotiating
transactions and advising on the management and successful exiting of investments through
both sale to strategic buyers and listing of companies. Ms. Jalan has experience of working
across a wide range of sectors including healthcare, FIG, consumer and IT/BPO. Before
joining ICICI Venture, she was working for a year at Ernst & Young in the corporate finance
division.
Mr. Promeet Ghosh joined Temasek in 2012 and is currently Managing Director, India, at
Temasek Holdings Advisors India. Prior to that, he spent 20 years as an investment banker.
He was involved as a partner in setting up an entrepreneurial venture to provide M&A and
advisory services to mid-sized corporates in India. Mr. Ghosh was also a Managing Director
at DSP Merrill Lynch, the investment banking arm of Bank of America in India. Since 2008,
he has also been responsible for senior relationships with large conglomerates. He holds an
MBA from the Indian Institute of Management, Calcutta, and a Bachelor of Engineering from
Regional Engineering College Trichy, India.
Mr. Ravi Narain currently serves as the Non-Executive Vice Chairman of National Stock
Exchange of India, apart from being on the boards of several Companies viz., HDFC Standard
Life Insurance Company, National Securities Depository, National Securities Clearing
Corporation and Indostar Capital Finance, among others. Mr. Narain holds an M.A.
(Economics) and a Masters in Business Administration.
Financial Outlook
Premiumisation, appliances & agri pumps focus to fuel revenue spurt
Management’s focus on premium fans and appliances (majorly water heaters) along with
agri pumps, where it has low market share, is estimated to drive ~18% revenue CAGR over
FY17-19E. Premium fans, which are high-value appliances, in FY16 accounted for 4% of total
revenue and contributed 7% in FY17 (CAGR of ~30% over FY11-16); their contribution is
likely to jump to ~11% by FY19 (CAGR of 50% over FY17-19E). The lighting business is not
expected to grow as fast as other segments due to the LED pricing impact. Over FY10-17,
Crompton’s consumer durables segment clocked ~13% CAGR and is expected to post ~19%
CAGR over FY17-19 led by focus on expanding premium products and cost control measures
well complemented by rising brand building & product innovation.
Chart 11: 18% top line CAGR over FY17-19E Chart 12: Lighting/appliances segment to post 19/14% CAGR
60.0 40.0
48.0 32.0
36.0 24.0
(INR bn)
(INR bn)
24.0 16.0
12.0 8.0
0.0 0.0
FY10
FY11
FY12
FY13
FY14
FY18E
FY19E
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY15
FY16
FY17
Chart 13: Fans and lighting to clock 19% CAGR over FY17-19E
70.0
56.0
42.0
(INR bn)
28.0
14.0
0.0
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY10
Chart 14: EBITDA to outpace revenue growth over FY17-19 Chart 15: Margin to expand ~170bps
30.0 15.0
21.0 14.0
12.0 13.0
(%)
(%)
3.0 12.0
(6.0) 11.0
(15.0) 10.0
FY11
FY12
FY13
FY14
FY11
FY12
FY13
FY14
FY18E
FY19E
FY15
FY16
FY17
FY18E
FY19E
FY15
FY16
FY17
Revenue growth EBITDA growth EBITDA margins
Chart 17: Strong cash flow growth for Crompton ahead Chart 18: RoE to decline post demerger to 30% by FY19E
6,000 126.0
98.5
4,756
4,800 107.2
94.0
3,546
3,600 88.4
2,956 89.5
(mn)
(%)
(%)
0 76.0 32.0
FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E
FCF FCF/OCF RoE
Source: Company, Edelweiss research
Financial Statements
Key assumptions Income statement (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macros Income from operations 18,117 39,759 46,724 55,150
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct costs 12,702 27,349 32,052 37,722
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee costs 1,005 2,252 2,548 2,957
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other expenses 2,315 5,257 6,121 7,114
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 16,022 34,857 40,721 47,794
Key financial assumptions EBITDA 2,095 4,902 6,002 7,356
Industry Growth Rate (%) Depreciation &amortisation 63 110 112 114
A) Fans 9.8 9.8 13.0 13.3 EBIT 2,032 4,792 5,890 7,242
B) Lighting 15.0 15.5 16.0 16.3 Interest expenses 355 655 650 650
C) Pumps 7.0 7.0 13.0 13.5 Other income 39 195 300 466
D) Appliances 3.0 4.2 8.0 10.0 Profit before tax 1,715 4,331 5,540 7,058
Crompton's growth rate (%) Provision for tax 525 1,399 1,828 2,329
A) Fans 8.2 12.5 19.0 19.2 Core profit 1,190 2,932 3,712 4,729
B) Lighting 17.6 0.1 18.7 18.6 Extraordinary items (139) (25) - -
C) Pumps 10.1 15.0 15.8 15.7 PAT after extraordinaries 1,051 2,907 3,712 4,729
D) Appliances 11.9 32.4 13.6 15.0 Adjusted net profit 1,190 2,932 3,712 4,729
Depriciation as a % of FA 1.3 1.1 1.1 1.1 Basic shares outstanding (mn) 313 627 627 627
Tax rate (%) 33.3 32.5 33.0 33.0 EPS (INR) basic 3.8 4.7 5.9 7.5
Diluted equity shares (mn) 313 627 627 627
EPS (INR) fully diluted 3.8 4.7 5.9 7.5
CEPS (INR) 4.0 4.9 6.1 7.7
FY16 & 17 nos. are not comparable. As FY16 Nos. are two quarters
FY16 & 17 nos. are not comparable. As FY16 Nos. are two quarters
Additional Data
Directors Data
Mr. Shantanu Khosla Managing Director Mr. Mathew Job Chief Executive Officer
Mr. Sandeep Batra CFO Mr. P. M. Murty Independent Director
Mr. D. Sundaram Independent Director Mr. Hemant Madhusudan Nerurkar Independent Director
Ms. Shweta Jalan Independent Director Mr. Promeet Ghosh Independent Director
Mr. Ravi Narain Independent Director
Holding – Top10
Perc. Holding Perc. Holding
Amalfiaco Limited 22.34 Macritchie Invs Pte Ltd. 12.03
Life Insurance Corporation of India 4.78 Capital Group Companies Inc. 4.73
Birla Sun Life Asset Management 3.78 HDFC Asset Management Co. Ltd. 2.48
Goldman Sachs Group Inc. 2.46 Tiaa Cref Eq. Fund 2.43
Franklin Resources 1.99 Vanguard Group 1.93
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
26 Sep 2016 HSBC Global Investment Funds Mauritius Ltd. Sell 6659688 157.00
26 Sep 2016 HSBC Global Investment Funds Indian Equity Buy 6659688 157.00
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
24 Aug 2016 Avantha Holdings Buy 10725000
26 Jul 2016 Avantha Holdings Buy 129313000
*in last one year
FINOLEX CABLES
Sustaining niche in commoditised space
India Equity Research| Consumer Durables
Finolex Cables (FCL) is one of the largest players in the ~INR200bn EDELWEISS 4D RATINGS
domestic electrical cables & wires industry with ~12% market share. Our Absolute Rating BUY
conviction on FCL is based on: a) its well diversified cables/wires business Rating Relative to Sector Outperform
with backward integration which will help sustain its niche, despite being Risk Rating Relative to Sector Low
in a commoditised industry; and b) potential infra/urban growth, new Sector Relative to Market Overweight
segments & geographical reach that will drive strong growth over the
next 3-5 years. A robust business model with strong tailwinds—GST,
MARKET DATA (R: FNXC, B: FNXC IN)
government's push on Housing/Power For All—we believe will help drive
CMP : INR 503
23%/25% earnings growth/RoCE over FY17-19E, which convinces us to Target Price : INR 616
initiate with ‘BUY’ and target price of INR616, ascribing 23x PE(25% 52-week range (INR) : 571 / 362
discount to 1 yr fwd sector PE) given lower profitability. Share in issue (mn) : 152.9
M cap (INR bn/USD mn) : 77 / 1,189
Government thrust on infra/new segments key earnings drivers Avg. Daily Vol.BSE/NSE(‘000) : 83.7
Government’s thrust on infra/Housing For All is a potent growth catalyst for FCL.
SHARE HOLDING PATTERN (%)
Tailwinds from key regulations like formalisation of economy, etc., will bolster growth
of organised sector, of which FCL will be key beneficiary. We expect cables business to Current Q3FY17 Q2FY17
Promoters * 37.3 37.3 37.3
clock 18% CAGR (FY17-19E), while new businesses like fans, switchgears/power cables
to post higher 46% CAGR, driving reasonable top-line/bottom-line CAGR of 17%/23% MF's, FI's & BK’s 19.0 17.4 16.7
over FY17-19, with reasonable RoE/RoCE of 18%/25%. FII's 6.2 7.9 7.9
Others 37.5 37.4 38.1
* Promoters pledged shares : NIL
Strong franchise in cables with robust/diversified business (% of share in issue)
in market share (4-12% over FY06-16) led to reasonable 13% top-line CAGR over the Stock over
Sensex Stock
Sensex
period. We believe, focused strategy to have pan-India distribution will enable FCL
sustain its industry-leading growth over the ensuing 3-5 years. 1 month 2.8 0.3 (2.5)
3 months 8.7 (5.8) (14.5)
Outlook and valuation: Exciting growth course; initiate with ‘BUY’ 12 months 14.7 34.7 20.0
Amit Mahawar
Financials (SA) +91 22 4040 7451
amit.mahawar@edelweissfin.com
Year to March FY16 FY17 FY18E FY19E
Revenues( INR mn) 25,747 26,707 31,236 36,829 Darshika Khemka
Growth (%) 5.1 3.7 17.0 17.9 +91 22 4063 5544
darshika.khemka @edelweissfin.com
EBITDA (INR mn) 3,389 3,714 4,393 5,247
Adjusted profit (INR mn) 2,488 2,759 3,429 4,178 Krish Kohli
Diluted EPS ( INR) 16.3 18.1 22.5 27.4 krish.kohli@edelweissfin.com
Investment Rationale
Its advantage cables: Government’s infra/rural push key catalyst
Improving power availability, housing for all to propel cables & wires growth
The government’s focus on rural electrification under the Deendayal Upadhyayaa Gram
Jyoti Yojana (GGUGJY) with total outlay of INR756bn over FY14-19 and Power For All (a joint
initiative by Government of India (GoI) and state governments) with the objective to make
power available to all improved the availability of electricity across India during 2001-17
with increase in the number of villages electrified (refer exhibit below). This has been one of
the key drivers for strong growth in the cables & wires industry.
We expect the cables & wires industry to grow ~15% over FY17-22 with total market size
touching INR813bn, of which, organised players’ share is likely to improve to 72% in FY22
from 61% in FY17 mainly led by shift in market share. We expect FCL to post 18% top-line
CAGR over FY17-19 given its leadership in the domestic cables & wires industry. The
company has one of the best product portfolios and a strong distribution network of 3,500
plus dealers, mainly focused in South/West India.
(%)
achieve Power for All
by FY19, we expect 69.0 11.4
11 99 100
demand for cables to 90 94
88 83
jump and estimate the 75
cables market to post 52.0 93 67 10.2
13% CAGR over FY17- 10 56 55
44
19. 35.0 9.0
2001 2011 2017 2019E
300 12.2
(Nos mn)
11.1
(%)
250 349.8 10.8
9.5 294.9
200 246.7 9.4
193.6
150 8.0
2001 2011 2016 2025
No. of Households Cables & Wires CAGR
Source: Census 2011, Industry, Edelweiss research
Chart 3: Cables Industry to post 13% CAGR over FY17-22E in value terms
900
Cables industry is likely to
post strong 14% value
growth over FY17-22E led 720
by robust infra focus, and
540
(INR bn)
0 2018E
2019E
2020E
2021E
2022E
2011
2012
2013
2014
2015
2016
2017
Chart 4: Strong position in South/West India Chart5: FCL plans to enhance North focus with Roorkee plant
45.0 Electrical cables
Communication Cables
Copper Rods
Electrical Switches
37.0 Lamps
Roorkee (Uttarakhand)
29.0
(%)
21.0
Urse(Pune)
Pimpri (Pune)
13.0
Goa
5.0
South North West East
Revenue
Source: Company Annual Report, Edelweiss research
(INR mn)
CAGR over FY14-16.
1,300
900
500
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Corning Finolex Optical Fibre Private Limited revenue
Source: Company, Edelweiss research
Product diversification
Plans are also afoot to diversify FCL’s product portfolio beyond cables to include fans and
switchgears (constituted ~2-3% of FY16 revenues), which are sold through its EWC products
distribution channel. The company had launched CFL lamps in FY08-09, but LED lamps have
fast replaced CFLs making it almost extinct. Currently, FCL is not focused on its lighting
business. We expect it to post increasing revenues from its switchgear segment as it can
easily leverage its existing dealer network.
Management plans to expand its product basket to improve its ‘channel sweating’. With
envisaged capex of INR700mn, FCL is all set to manufacture fans (capacity of 2.4mn fans p.a)
from FY18. The company proposes to simultaneously ramp up existing sales of outsourced
products like LED lighting products, switchgears and lighting fixtures in a phased manner.
Given that FCL’s new focus areas include fans, switch gears and geysers which can
essentially be sold through its existing dealer network, we believe the company will be able
to reasonably penetrate these segments over next 3-5 years and take the share of these
items to 6-7% of revenues by FY19E from 2% in FY16.
Finolex
INR 0.8tn
52%
Consumer
Durables
INR
Industry 1.5tn
Valuation
FCL has come a long way from bearing a massive derivative loss in FY09 to recording
sustainable improvement in profitability and cash flows. Leveraging its strong brand and
dealer network, the company posted healthy 17/25% CAGR in EBITDA/PAT during FY10-17,
driven by an impressive 640bps improvement in margin. We expect the company to post
18/23% CAGR in revenue/PAT over FY17-19, following pick up in constructions & infra well
complemented by high growth in consumer segment, which will move from 2-6% of sales
over FY17-19E.
24.0
18.0
(x)
6.0
0.0
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Chart 8: EV/Sales re-rating over FY12-17 led by OPM scale up Chart 9: RoCE to remain strong with surge in FCF
3.5 3.0 30.0
1.4
0.6 12.0
0.7
(0.2) 6.0
0.0
(1.0) 0.0
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Key Risks
Cyclical risk
FCL operates in cyclical businesses and thus its revenues are subject to volatility in interest
rate and capex cycles.
Competition risk
Cables & wires business is a commoditized business & hence is exposed to higher
competition given low entry barriers. FCL also faces competition from a large unorganised
sector, which manufactures cheap but inferior products in terms of quality.
Company Description
Overview
Finolex Cables (FCL), the flagship company of the Finolex Group, incorporated in 1956, as a
small scale industrial unit to manufacture PVC insulated cables for the automobile industry,
is now one of the most diversified and largest manufacturers of electrical and
telecommunication cables in the country. FCL has the widest range cable products in the
electrical and communication cables segment and is recognised as the “Total Cable
Solutions” company that can provide cable solutions for every need being the only cable
company to hold super brand status. Apart from cables, FCL has expanded into product
segments that are complementary to the electrical cables market like CFL’s, LED lamps and
electrical switches and fans. The company is technically superior to its competitors and also
enjoys cost advantage through its venture into materials like CCC rods, PVC compounds,
optical fibre and fibre rods, thus enabling backward integration.
Lamps Retrofit & non-retrofit CFL lamps as well Domestic lighting, hotels, shops, offices, corridors
as T5 tube lights, fittings and LED base and industrial lighting
lighting switches
Source: Company
Power and Control Cables: FCL manufactures high-voltage 1.1kV to 66 kV cables. These
cables are designed for carrying out various constructions depending on their application,
though they are meant for underground usage. The company manufactures only insulated
power cables and meets international standards. Power and control cables, up to 3.3kV
rating, are used for connecting user points to the main supply of power. Power cables above
3.3kV rating are meant for use in underground applications for intra-city electricity
distribution network.
Flexible cables: These single core cables have higher flexibility due to larger number of
strands in the conductors and are used for wiring of control panels, machines and various
electrical installations in small, medium and large industries where bending radius is low.
Auto
15%
Source: Company
Source: Company
Communication
Cables
14%
Electrical Cables
68%
Manufacturing units
• Pimpri, Pune
• Urse, Pune
• Goa
• Roorkee, Uttarakhand
Roorkee (Uttarakhand)
Urse(Pune)
Pimpri (Pune)
Goa
Key personnel
Mr. D K Chhabria – Executive Chairman
Mr. Deepak K Chhabria, the MD and Chairman of FCL finished his Bachelor’s Degree of
Science in Engineering Management from University of Evansville, Indiana, USA. Mr.
Chhabria was actively involved in setting up 9 different manufacturing plants across 4
locations in India. Under his able guidance, the company now produces a variety of electrical
and communication cable products, copper rods, electrical switches, compact fluorescent
lamps and PVC Sheets.
Financial Outlook
Growth in top-line driven by electrical cables & wires expansion
FCL grew at 12% CAGR during FY06-17. Going ahead, we estimate the company to grow at
17% CAGR over FY17-19, primarily led by expanding operations that would capitalise on
stable demand for the company’s products. FCL is focused on its core electrical cables
business, which contributes ~70% of revenues. During FY06-17, this segment registered
production CAGR of 8% & is further expected to post a CAGR of ~10% over FY17-19E in
volume terms.
Chart 12: FCL to post revenue CAGR of 18% (FY17-19E) Chart 13: Electrical cables to clock ~9-10% CAGR (FY17-19E)
30 CAGR ~17% 95,000
CAGR ~13.7%
24 80,000
CAGR 9%
18 65,000
(INR bn)
(MT)
12 50,000
CAGR 8%
6 35,000
0 20,000
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Revenue (INR bn) Production (MT)
Source: Company, Edelweiss research
(%)
(%)
(%)
2,800 5.4 71.0 Marigns dipped to 5.4
FCL margin increased -0.7% due to forex
despite rise in 68.0 losses when material 2.2
2,400 copper prices 2.2
cost increased to 77%
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17 Material cost as % of revenue EBITDA margins RHS
MCX Copper Prices EBITDA margins RHS
Chart 15: Electric cables’ EBIT margin hit all-time high in FY17 Chart 16: RoE and RoCE to remain stable
20.0 29.0
18.0 21.8
16.0 14.6
(%)
(%)
14.0 7.4
12.0 0.2
10.0 (7.0)
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Financial Statements
Financial Statements
Key assumptions Income statement (standalone) 17% 25% (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macros Income from operations 25,747 26,707 31,236 36,829
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct cost 19,354 19,528 22,833 26,922
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee cost 1,072 1,192 1,386 1,603
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other expenses 1,933 2,273 2,624 3,057
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 22,359 22,993 26,842 31,582
Key financial assumptions EBITDA 3,389 3,714 4,393 5,247
Capacity Utilisations (%) Depreciation and amortisation 580 480 499 552
A) Electrical Cables 65.0 69.5 77.0 85.0 EBIT 2,809 3,234 3,894 4,696
B) Metal Communication Cables 20.0 18.0 20.0 23.0 Interest expense 90 43 45 48
C) Optical Fibre Communication Cables 65.0 80.0 85.0 93.0 Other income 644 602 817 1,036
D) Copper Rods 57.3 57.5 57.8 60.0 Add: Exceptional items - - - -
Realisations (INR) Profit before tax 3,364 3,793 4,665 5,684
A) Electrical Cables (INR mn/CKM) 1.4 1.3 1.4 1.5 Provision for tax 875 1,034 1,236 1,506
B) Metal Comm. Cables (INR '000/CKM) 140 133 140 147 Reported profit 2,488 2,759 3,429 4,178
C) Optical Fibre Comm. Cables (INR mn/KM) 6.5 6.5 6.7 7.1 Less: Exceptional Items (Net of Tax) - - - -
D) Copper Rods (INR '000/MT) 16 16 16 17 Adjusted Profit 2,488 2,759 3,429 4,178
Depreciation as a % of FA 5.2 4.2 4.2 4.5 Equity shares outstanding (mn) 153 153 153 153
Tax rate (%) 26.0 24.7 26.5 26.5 EPS (INR) basic 16.3 18.1 22.5 27.4
Capex (INR mn) 148 307 400 375 Diluted shares (mn) 153 153 153 153
Adjusted Diluted EPS 16.3 18.1 22.5 27.4
Adjusted Cash EPS 20.1 21.2 25.7 31.0
DPS 2.5 3.0 3.4 4.1
Dividend payout (%) 9.9 10.7 10.3 9.8
0.2 0.2
Common size metrics- as % of net revenues
Year to March FY16 FY17 FY18E FY19E
Direct cost 75.2 73.1 73.1 73.1
Employee cost 4.2 4.5 4.4 4.4
Other expenses 7.5 8.5 8.4 8.3
Operating expenses 86.8 86.1 85.9 85.8
Depreciation and amortisation 2.3 1.8 1.6 1.5
Interest expenditure 0.3 0.2 0.1 0.1
EBITDA margins 13.2 13.9 14.1 14.2
Net profit margins (adjusted) 9.7 10.3 11.0 11.3
6.43
Growth metrics (%) 3.30
Year to March FY16 FY17 FY18E FY19E
Revenues 5.1 3.7 17.0 17.9
EBITDA 30.5 9.6 18.3 19.4
PBT 27.8 12.8 23.0 21.8
Adjusted Profit 41.3 10.9 24.3 21.8
EPS 9.2 11.1 24.3 21.8
Additional Data
Directors Data
Mr. D.K.Chhabria Executive Chairman Mr.Mahesh Viswanathan Executive Director & CFO
Dr. H.S.Vachha Director Mr. Atul C Choksey Director
Mr. Sanjay K. Asher Director Mr. P.G.Pawar Director
Mr.S.B.(Ravi) Pandit Director Mr. Pradeep R.Rathi Director
Mr.Adi J. Engineer Director Mrs. Namita V.Thapar Director
Holding – Top10
Perc. Holding Perc. Holding
Orbit Electricals Pvt. Ltd. 30.70 Finolex Industries 14.51
Templeton Asset Management 5.40 DSP Blackrock Investment Manager 5.02
Chhabria Anil R 3.11 Katara Aruna Mukesh 1.84
Tata Asset Management 1.81 Dimensional Fund Advisors 1.51
Birla Sun Life Asset Management 1.45 SBI Funds Management 1.36
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
16-Feb-17 SBI Mutual Fund Buy 935587 437
16-Feb-17 Armor Capital Partners LP Sell 935587 437
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year
HAVELLS INDIA
Ready to ride new growth phase
India Equity Research| Consumer Durables
Havells India (HAVL) is one of the strongest brands in the consumer EDELWEISS 4D RATINGS
electrical space with dominant market share across all key segments—
Absolute Rating BUY
cables/wires, switchgears, lighting, etc. HAVL is embarking on an exciting
Rating Relative to Sector Outperformer
journey with recent addition of the Lloyds brand to its kitty as: a) HAVL can Risk Rating Relative to Sector Low
leverage Lloyds’ strong 10,000 touch points to market its products; and b) Sector Relative to Market Overweight
humungous scope to scale up profitability of Lloyds’ business which is
currently much below industry average. Additionally, multiple growth
levers—GST, Housing For All etc.,—brighten prospects over the next 3-5 MARKET DATA (R: HVEL.BO, B: HAVL IN)
years, which, in our view, have been key value drivers over the past 12 CMP : INR 477
months. Our TP of INR575, implying 38x FY19E P/E, seems sustainable Target Price : INR 575
52-week range (INR) : 526 / 303
given: (a) structural drivers—profitability ramp up in AC business over 2-3
Share in issue (mn) : 625.1
years & renewed business positioning post Lloyds acquisition; and (b)
M cap (INR bn/USD mn) : 298 / 4,627
improving growth potential with Housing/Power For All, market share shift Avg. Daily Vol.BSE/NSE(‘000) : 1,504.7
from unorganised to organised segment, etc. Maintain ‘BUY’.
SHARE HOLDING PATTERN (%)
Lloyds acquisition: A potent value driver
Current Q3FY17 Q2FY17
The Lloyds acquisition gives HAVL: a) access to a powerful consumer durable brand,
Promoters * 61.6 61.6 61.6
especially in the economy range; and b) immediate access to 10,000 plus touch points.
MF's, FI's & BK’s 2.7 2.7 2.9
However, in our view, medium-term value driver remains potential improvement in
FII's 26.5 26.2 26.7
Lloyds’ operating margin from industry bottom level currently given HAVL’s track
Others 9.2 9.5 8.8
record of successfully repositioning businesses/brands acquired earlier. * Promoters pledged shares : NIL
(% of share in issue)
Multiple tailwinds to propel existing business
The government’s focus on Housing/Power For All are significant tailwinds for PRICE PERFORMANCE (%)
switchgears, lighting and cables & wires, which account for ~75% of HAVL’s business. EW Capital
Stock Nifty
Goods Index
Moreover, rising demand for premium products and shift in market share from the
unorganised to organised segment, especially in switchgears, cables & wires, lighting 1 month (3.2) 2.8 0.2
etc., will propel the company to clock 26% earnings CAGR over FY17-19E. 3 months (1.9) 8.0 1.9
12 months 32.9 15.4 14.0
Outlook and valuations: Robust growth potential; maintain ‘BUY’
We believe, entry in white goods via Lloyds acquisition entails potential of HAVL
emerging one of the largest conglomerates with dominant market share in the white Amit Mahawar
goods/light electrical space over the next 3- 5 years underpinned by its robust dealer +91 22 4040 7451
network and increasing demand for premium products. We maintain ‘BUY/SP’. amit.mahawar@edelweissfin.com
There are no synergies between HAVL’s existing dealer network and Lloyds. The latter began
its journey from tier 2/3 and cities and is now getting into metros. Brand availability and
awareness is in place at the pan-India level, which will help Havells penetrate further.
15.0
11.8
8.6
(%)
5.4
2.2
Havells
Consumer
Durables
INR INR 1.5tn
Industry 1.5tn 96%
Potential areas that could drive operational improvement in Lloyds’ business portfolio:
• Lloyds has no presence in modern retail. Focus on expanding in new channels will
propel growth.
• Margin below industry average: Lloyds’ margin at around 5-6% leaves enough scope
for improvement versus India average of 8-10%. HAVL believes that in the initial phase,
margin will be lower due to higher ad spends and brand building.
• Improve Lloyds brand: While HAVL will be working on improving operating margin of
Lloyds’ current portfolio, there is greater merit in nurturing the brand to gradually
penetrate premium AC segments given the shift in market trend to premium products.
However it looks challenging considering positioning of global giants like Daikin, Hitachi
etc, would remain a key monitorable.
Portion unorganised
Electrical
Consumer Cables &
40%
Durables Wires
23% 40%
25%
Lighting &
Fixtures
16% 35%
Switchgears
21% 20%
Chart 3: 1 year forward P/E band Chart 4: 1 year forward P/E band & RoCE trend till FY19E
45.0 50.0
76.0
(FY12-17)
(%)
(x)
31.0 18.0 32.0
1.0
0.0 20.0
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
1 yr fwd PE band for HAVL Average P/E Avg 1 yr fwd PE for HAVL RoCE (RHS)
Source: Bloomberg, Company, Edelweiss research
49.2
40.4
(%)
31.6
22.8
14.0
FY18E
FY19E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoCE (RHS) ROE
Source: Company, Edelweiss research
Company Description
Incorporated in 1983, HAVL is one of the largest and fastest growing manufacturers of
electrical components and systems in India. It is the market leader in light-duty power
distribution products. Its offerings include electrical products like circuit protection
equipment (domestic and industrial switchgears), cables and wires, and consumer durables
like fans, CFLs, and lighting fixtures.
Investment Theme
We expect Havells to continue to grow its domestic business on the back of strong product
portfolio. The company is currently one of the fastest growing fan brands in the Indian
market with market share at ~15%. In the switchgear market, HAVL is the market leader in
the low voltage segment with ~28% share. In India, the company has a network of ~7,000
distributors spread across the four regions servicing ~100,000 retailers/ touch points. HAVL
has been highly successful in bolstering market share of existing products along with
launching new products, which have received good response, driven by high brand visibility.
Recent buyout of Lloyd brand imparts access to a high growth larger white good market
adding USD2-5bn new market. Recent buyout of Lloyd brand imparts access to a high
growth larger white good market adding USD2-5bn new market.
Key Risks
Slowdown in domestic business; increased competition could put pressure on margin
Slowdown in key consumer segments of construction and industrial capex could impact the
domestic business.
Slowdown in power T&D could impact the demand for its cables and wires business.
Slower than expected revenue growth and profitability turnaround in Lloyd's consumer
business poses risk to estimates and valuations.
Financial Statements
Key Assumptions Income statement (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macro Income from operations 53,783 61,353 98,236 115,217
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Materials costs 31,735 36,485 60,785 71,355
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee costs 3,708 5,004 7,402 8,534
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other mfg expenses 10,791 11,623 17,985 20,764
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 46,234 53,111 86,172 100,653
Company (Growth % YoY) EBITDA 7,549 8,241 12,063 14,563
Cables & Wires 0.8 20.4 19.9 18.3 Depreciation 1,049 1,196 1,473 1,613
Switchgears 0.6 10.5 23.6 10.5 EBIT 6,500 7,045 10,590 12,951
Lighting & Fixtures 8.2 32.5 20.9 11.1 Add: Other income 693.5 1,342.8 416.87 612.62
Consumer durables 11.0 30.9 29.5 27.3 Less: Interest Expense 127 122 254 252
Depreciation 7.1 6.5 7.5 7.5 Add: Exceptional items 2,024 (578) - -
Tax rate (%) 21.7 27.5 29.0 29.0 Profit Before Tax 9,090 7,688 10,753 13,312
Capex (INR mn) 1,766 1,340 2,000 2,000 Less: Provision for Tax 1,970 2,298 3,118 3,860
Reported Profit 7,120 5,390 7,634 9,452
Exceptional Items 2,024 (578) - -
Adjusted Profit 5,096 5,969 7,634 9,452
Shares o /s (mn) 624 624 624 624
Diluted shares o/s (mn) 624 624 624 624
Adjusted Diluted EPS 8.2 9.6 12.2 15.2
Adjusted Cash EPS 9.9 11.5 14.6 17.7
Dividend per share (DPS) 6.0 3.5 4.3 6.1
Dividend Payout Ratio(%) 88.1 43.3 42.0 48.0
Additional Data
Directors Data
Rajesh Gupta Whole-Time Director Finance and Group CFO Puneet Bhatia Non-Independent & Non-Executive Director
Surjit Gupta Non-Independent & Non-Executive Director S B Mathur Independent Non-Executive Director
S K Tuteja Independent Non-Executive Director V K Chopra Independent Non-Executive Director
AP Gandhi Independent Non-Executive Director Adarsh Kishore Independent Non-Executive Director
Anil Gupta Chairman & Managing Director Pratima Ram Independent Non-Executive Director
Ameet Kumar Gupta Whole Time Director T.V.Mohandas Pai Non-Independent & Non-Executive Director
Holding – Top10
Perc. Holding Perc. Holding
Qrg enterprises ltd 30.37 Qrg investments 11
Gupta vinod 6.31 Nalanda india equity 5.29
Gupta surjit 5.22 Gupta anil rai 4.9
Max new york life in 3.21 Capital group compan 3.15
Norges bank 2.88 Government pension f 2.67
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
29 Mar 2017 Guptajee & Company Sell 18862400 450.00
29 Mar 2017 Arg Family Trust Buy 18862400 450.00
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
29 Mar 2017 Anil Rai Gupta as Managing Trustee of ARG Family Trust Buy 18862400.00
29 Mar 2017 Vinod Gupta on behalf of Guptajee & Co. Sell 13320000.00
29 Mar 2017 Anil Rai Gupta on behalf of Guptajee & Co. Sell 5542400.00
*in last one year
KEI INDUSTRIES
Burnished prospects
India Equity Research| Consumer Durables
KEI Industries (KEI) has leveraged its cables business to tap wider EDELWEISS 4D RATINGS
opportunities across consumer, B2B and EPC businesses. Our conviction Absolute Rating BUY
on the company is driven by: a) strong government focus on Housing/ Rating Relative to Sector Outperform
Power For All initiatives driving healthy demand for cables; and b) Risk Rating Relative to Sector Low
management’s initiative to forward integrate to EPC across voltage class Sector Relative to Market Overweight
& expand consumer business. These, we believe, will help optimise
operations, driving commendable 21% earnings CAGR (FY17-19E) with
MARKET DATA (R: KEIN; B: KEII IN)
healthy RoE and RoCE of 22% and 27%, respectively, by FY19E. Initiate
CMP : INR 238
coverage with ‘BUY’ and TP of INR322, assigning 17x P/E on FY19E EPS Target Price : INR 322
(40% discount to CDS PE given cyclical nature of business) given healthy 52-week range (INR) : 248 / 99
earnings /FCF growth driven by an expanding consumer segment and pick Share in issue (mn) : 77.8
up in infra. M cap (INR bn/USD mn) : 19 / 287
Avg. Daily Vol.BSE/NSE(‘000) : 353.2
Forward integration to drive strong operational performance
Post entry in the EPC business, leveraging its cables manufacturing capacity to expand SHARE HOLDING PATTERN (%)
market reach, KEI has been able to grow at a higher rate of (9x earning growth in 3 Current Q3FY17 Q2FY17
years) with improving margin given higher product pull through. With entry in the EHV Promoters * 46.6 46.6 46.6
category, we believe, the company is poised to clock robust operating performance MF's, FI's & BK’s 18.7 17.6 16.2
driving commendable 32% and 27% earnings and free cash CAGR, respectively, over FII's 4.3 5.3 23.3
FY16-19E. Others 30.4 30.5 13.9
* Promoters pledged shares : NIL
(% of share in issue)
Housing/Power For All: Potent driver of cables industry
More than 187GW power generation addition led by strong push to renewable coupled PRICE PERFORMANCE (%)
with expected addition of 50mn households over FY17-22E (26mn from government’s
Stock over
Housing For All initiative) could lead to ~15% annual growth in the cables & wires Sensex Stock
Sensex
industry over FY17-22E, implying total market size of INR800bn plus by FY22E.
1 month 2.8 12.4 9.6
3 months 8.7 21.9 13.2
Outlook and valuations: On high growth road; initiate with ‘BUY’ 12 months 14.7 94.2 79.5
Multiple growth levers—government’s infra push, KEI’s focus on B2B/B2C businesses—
in our view could lead to strong earnings momentum over 3-5 years. Strong track
record of execution reflected in superior earnings and cash flows instills confidence
w.r.t. potential upside to our modeled earnings case for KEI. We initiate coverage with
‘BUY/SO’.
Amit Mahawar
Financials (SA) +91 22 4040 7451
Year to March FY16 FY17 FY18E FY19E amit.mahawar@edelweissfin.com
Investment Rationale
Government’s infra push: Potent demand catalyst
Housing For All & improving power availability, in our view, will be key drivers of the
domestic cables & wires industry. Over the next 3-5 years, more than 50mn households are
likely to be added, of which ~25mn will be a result of the government’s Housing For All
initiative. Also, strong renewable focus implies 187GW addition to total installed capacity
over FY17-22E (85GW from solar alone). This, we believe, will drive strong growth in the
domestic cables & wires industry.
Table 1: Housing/Power For All key demand drivers of cables & wires industry
Sector Demand
Power GOI plans to add ~187GW (85 GW from solar) of power by FY22 (vs 126
Sector GW over FY12-17) with total fund requirement of INR8.6tn over FY17-22,
thus creating demand for cables & wires worth ~INR 700 bn by FY22
Housing GOI as part of its Housing For All programme will entail completion of
Sector atleast 26mn houses by 2022, thus creating demand for cables & wires
worth ~INR310bn
EPC Consumption of cables in a turkey EPC power project accounts for nearly
70% of the total project cost
Industry Cables form an integral part of every industrial capex where cable
requirement accrues only after 50% of the industrial project is complete
and demand is picking up with gradual recovery in expansion plans
Source: Company Presentation, Industry, Edelweiss research
With the government sharpening focus on power generation, transmission and distribution,
demand for cables as part of T&D equipment is expected to expand significantly. KEI’s
expertise in EPC projects and excellent track record has rendered it the preferred candidate
for such projects.
Chart 1: Government planning 187GW of power and 110,000ckms of transmission lines by FY22
200 750
700
1100
170 630
(GW/'000ckms)
980
140
510
(INR bn)
(INR bn)
860
110
740 390 370
80 620
270
50 500
160
FY2012-17 FY2017-22 150
Power Addition (GW) Size in FY11 Size in FY17 Size in FY22
Transmission Lines ('000 ckms) Cables demand wise projection
Demand for T&D equipment (INR bn)(RHS)
Source: IEEMA journal, CEA, Industry, Edelweiss research
GoI is eyeing addition of ~187GW of
power under the 13th Five Year Plan, Moreover, as a strong and established player in the domestic cables sector, KEI has
which requires 110,000 ckms of successfully secured a decent share of the export market, selling to more than 47 countries.
transmission lines. This is estimated to Management, during Q4FY17 earnings conference call, had stated that the company is
trigger INR1075bn demand for T&D planning to grow exports revenue going forward.
equipment by FY22, of which the
cables industry comprises ~25-28%,
thus expanding KEI’s target market.
Chart 2: Excellent project execution abroad will lead to sustained spurt in export revenue
Country Name Client Name 7.5 Excellent project execution track record abroad 20.0
Abu Dhabi Areva will lead to sustained export revenue growth of
6.0 ~10-15% over FY18 & 19E contributing ~13% of 17.0
Cyprus Cyprus Telecom revenues.
Dubai NPCC 4.5 14.0
(INR bn)
(%)
Kenya ARM 3.0 11.0
Malaysia BHEL
1.5 8.0
Mauritius CEB
Nigeria Nigeria Cement
0.0 5.0
Sharjah Alstom
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
(%)
increase the same by
~15% yearly targeting 600 20.0
40-45% of sales to
come from retail
300 10.0
business by FY19
0 0.0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
No. of dealers Retail revenue as % of total sales
Source: Company, Edelweiss research
(INR mn)
(%)
enhance presence in the
retail space. 100 34.0
50 17.0
- -
FY18E
FY19E
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Ad spend % growth in retail sales
5.7 11.0
4.4 7.0
(INR bn)
(%)
3.1 3.0
1.8 (1.0)
0.5 (5.0)
FY12 FY13 FY14 FY15 FY16 FY17
Revenue - Annual ROCE % EBIT Margin %
Source: Company Annual Report, Edelweiss research
WF & HW
Installed capacity (000' Kms) 100 100 250 250 250 270 270 270 270 280 280 375 677 677 677
Capacity utilisation (%) 17.8 20.3 8.9 16.4 19.1 41.5 38.3 50.0 65.0 52.0 67.0 79.0 50.0 58.0 64.5
Sales (INR mn) 97 296 499 1,044 764 1,237 1,573 2,114 2,665 2,941 3,366 3,770 4,290 5,300 6,542
YoY growth(%) 205.8 68.4 109.3 (26.8) 61.8 27.2 34.4 26.1 10.4 14.5 12.0 13.8 23.5 23.4
Source: Company Annual Report, Edelweiss research
Chart 6: KEI has achieved reasonable revenue diversification Chart 7: Gradual ramp up in retail sales
45.0 100.0
36.0 80.0
27.0 69 69 69 68 66
76
(INR bn)
60.0
88 89 88 88 89 84
(%)
18.0
40.0
9.0
20.0
31 31 31 32 34
24
0.0 12 11 12 12 11 16
0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Pure Household Industrial Utility Retail Sales B2B Sales
Utilities segment (includes EPC & EHV revenues; started We estimate retail/pure household segment to clock ~30%
recently) is expected to grow riding KEI’s strategic technical CAGR over FY17-19 (~26% CAGR over FY08-17) led by
collaboration with Switzerland-based Brugg Kabel which puts KEI sharpening focus on the segment via advertising campaigns and
in an advantageous position. The industrials segment is multiplying dealer network.
estimated to post stable growth of ~15% over FY17-19 (CAGR of
~6-8% over FY08-16) by leveraging existing client base in the B2B
segment.
Source: Company Annual Report, Edelweiss research
Valuation
KEI’s strong growth over the past 3 years with sales/PAT CAGR of 20%/104%, respectively,
was led by robust spurt in consumer & B2B businesses. The company further leveraged its
prowess in cables to expand into the EPC business with focus on profitability as well as cash
flow. This triggered massive re-rating with the stock returning 10x in the past 3 years
primarily led by sharp earnings jump—9x over FY14-17.
We believe, growth in the EPC business will sustain on account of governments strong infra
focus with initiatives like Housing/Power For All, focus on T&D, apart from KEI’s focus on
expanding exports.
rating to continue.
12.0
6.0
0.0
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
1 yr fwrd PE Average P/E
Source: Bloomberg, Edelweiss research
1,600
700
(INR mn)
(200)
(1,100)
(2,000)
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FCF
Source: Company, Edelweiss research
KEI
INR 0.4tn
27%
Consumer
Durables
INR
Industry 1.5tn
Key Risks
Cyclical nature of business
KEI’s products are used primarily by power utilities, infrastructure, real estate and industrial
segments. Any slowdown in these sectors can significantly impact demand for KEI’s products.
High competition
A majority of KEI’s products are highly competitive in nature and face strong threat from
other players.
Currency fluctuation
With exports being a key contributor to the company’s revenue, excessive volatility in
currency rates can significantly impact profitability. KEI also imports raw material and
extreme currency fluctuations can adversely affect costs of the same, in turn denting
profitability.
Company Description
Overview
KEI was established in 1968 as a partnership firm Krishna Electrical Industries with prime
business of manufacturing house wiring rubber cables. It was converted into a public limited
company with the corporate name KEI Industries in December 1992. In 1996, KEI acquired
Matchless, a company under same management, which manufactured stainless steel wires.
KEI has, over the years, invested in building flexible manufacturing facilities and expanded
capacities.
The company manufactures and supplies power and other industrial cables. Its product
portfolio includes low tension, high tension and extra high voltage, control &
instrumentation cables, specialty cables, elastomeric cables, rubber cables, submersible
cables, flexible & house wires, winding wires and stainless steel wires. The company
operates through 3 segments—cables, stainless steel wires and turnkey projects. It also
focuses on EPC business.
Product portfolio
KEI operates through 3 segments:
• Cables
• Turnkey projects
Cables: This segment consists of extra high voltage (EHV), low tension (LT) and high tension
(HT) power cables, control & instrumentation cables, winding wires and flexible & house
wires.
The company ventured into manufacture of EHV cables up to 220kV in FY10 in collaboration
with Brugg Kabel AG, a century-old Swiss company. Through EHV cables, the company is
geared to service mega power plants, transmission companies and metro cities.
Stainless steel wires: This segment offers rubber cables, elastomeric cables, single/ multi-
core flexible wires, submersible cables, braided cables and zero halogen cables for sectors
such as power, oil refineries, railways, automobiles, cement, steel, fertilizers, textile and real
estate.
Turnkey projects: In this segment, KEI provides integrated turnkey solutions. Services
include providing integrated design, engineering, material procurement, field services,
construction and project management services.
R&D strength
KEI’s R&D capabilities are focused on development of products customised to specific
requirements of clients. The company has in place a NABL accredited state-of-the-art in-
house R&D facility & laboratory. To ensure high quality standards, third party inspection of
products by an inspector appointed by the client is carried out before supply. KEI
continuously invests in upgrading R&D capabilities to deliver excellence in all its offerings.
Manufacturing prowess
KEI has a strong manufacturing base with plants located at Bhiwadi & Chopanki (Rajasthan)
and Silvassa (Dadra & Nagar Haveli). It has, over the years, invested in building flexible
manufacturing facilities, followed by expansion of capacities to address growing
opportunities in power, core infrastructure, industrial, building and construction segments
across India.
• 75,00km of HT cables.
• 84,000km of LT cables, control cables and instrumentation cables
Source: Company
Source: Company
Key personnel
Mr. Anil Gupta, Chairman & Managing Director
Mr. Anil Gupta has been the Chairman of the Board and Managing Director of KEI since
February 2005 and 1993, respectively, and also serves as its Chief Executive Officer. He has
been Director at KEI since December 31, 1992. He holds M.Com. degree from Delhi
University.
Financial Outlook
KEI’s technical collaboration agreement with Brugg Kabel along with addition of a new
400kV line at the company’s EHV cables unit at Chopanki will boost capacity utilisation to
55-60% from FY18.
Chart 10: Spurt in cables and housing wires to boost revenue Chart 11: Turnkey revenues to contribute ~28% by FY19E
40 100.0
32 80.0
24 60.0
(mn)
16 (%) 40.0
8 20.0
0.0
0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
(INR mn)
potential for reduction
(%)
in interest cost
700 2.4
350 1.2
0 0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
PAT PAT margins
Source: Company Annual Report, Edelweiss research
24.0
18.0
(%)
12.0
6.0
0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoE RoCE
Source: Company, Edelweiss research
Financial Statements
Key assumptions Income statement (standalone) (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macros Income from operations 22,929 26,312 31,352 37,536
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct cost 16,743 18,855 22,651 27,056
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee cost 828 1,109 1,257 1,464
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other expenses 2,935 3,604 4,107 4,955
USD/INR (Avg) 65.0 67.5 67.0 67 Total operating expenses 20,506 23,569 28,015 33,475
Key financial assumptions EBITDA 2,423 2,743 3,337 4,062
Capacity utilisations (%) Depreciation and amortisation 253 280 325 341
A) Cables 75.0 77.0 82.0 85.5 EBIT 2,170 2,463 3,011 3,721
B) Stainless steel wires 90.0 84.0 87.0 89.7 Interest expense 1,270 1,229 1,428 1,641
C) Winding Housing & Flexible Wires 79.0 50.0 58.0 64.5 Other income 53 104 45 75
Realisation (INR) Add: Exceptional items
A) Cables (INR mn/km) 33.3 25.1 27.6 31.0 Profit before tax 953 1,338 1,628 2,154
B) Stainless steel wires (INR '000/kg) 23.7 20.6 22.9 25.7 Provision for tax 331 351 521 711
C) Winding Hsg & Flex. Wires (INR mn/km) 1.3 1.3 1.3 1.5 Reported profit 622 986 1,107 1,444
Order Intake for Turnkey Projects (INR bn) 6.5 17.0 15.0 14.0 Less: Excep. Items (Net of Tax) - - - -
Depriciation as a % of FA 5.4 5.1 5.1 5.1 Adjusted Profit 622 986 1,107 1,444
Tax rate (%) 34.8 26.3 32.0 33.0 Equity shares outstanding (mn) 77 77 77 77
EPS (INR) basic 8.1 12.8 14.3 18.7
Diluted shares (mn) 77 77 77 77
Adjusted Diluted EPS 8.1 12.8 14.3 18.7
Adjusted Cash EPS 11.3 16.4 18.5 23.1
DPS 0.5 0.6 0.7 0.9
Dividend payout (%) 6.2 4.7 5.0 5.0
Additional Data
Directors Data
Mr. Anil Gupta Chairman & Managing Director Mrs. Archana Gupta Director
Mr. Akshit Diviaj Gupta Director Mr. Pawan Bholusaria Director
Mr. K.G. Somani Director Mr. Vijay Bhushan Director
Mr. Vikram Bhartia Director Mr. Rajeev Gupta Executive Director (Finance) & CFO
Holding – Top10
Perc. Holding Perc. Holding
Projection Fin & Mgmt Con 10.15 Templeton Asset Management 6.62
Subhlaxmi Motels & Inns 4.47 Soubhagya Agency 4.02
HSBC Global Inv Mauritius 3.40 HSBC 3.31
Mirae Asset Global Investment 2.83 Mirae Asset Global Inv India 2.66
L&T Mutual Fund 2.50 L&T Investment Management Ltd. 2.09
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
17 Feb 2017 Anil Gupta Sell 900000 172.59
16 Dec 2016 HSBC Global Investment Funds Buy 3451330 120.35
16 Dec 2016 Maryada Commercial Enterprises & Investment Co. Ltd. Sell 3451330 120.35
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
17 Feb 2017 Gupta Anil Rai Sell 2800000
20 Oct 2016 Rajeev Gupta Buy 192000
*in last one year
SYMPHONY
Thriving on sustainable competitive MOAT
India Equity Research| Consumer Durables
Symphony has commendably captured 50% value market of the air cooler EDELWEISS 4D RATINGS
segment driven by its ‘one product, many markets strategy’ and a strong Absolute Rating BUY
innovation DNA. Our conviction in the company’s bright prospects is Rating Relative to Sector Outperform
anchored by: a) sustainable product innovation/R&D, which lend it an Risk Rating Relative to Sector Low
edge over competition; b) asset- light business model with 2.7x FCF Sector Relative to Market Overweight
growth potential (FY16-FY19E); and c) lower working capital requirement.
Moreover, we estimate the organised air cooler industry to post 26%
MARKET DATA (R: SYMP, B: SYML IN)
CAGR to INR21bn over FY17-19 led by rising penetration and shift from
CMP : INR 1,325
unorganised to organised segment, which is likely to benefit segment Target Price : INR 1,789
leader Symphony. Initiate with ‘BUY’ and TP of INR1,789 assigning 50% 52-week range (INR) : 1,571 / 1,075
premium to sector PE valuation of 30x given strong 30% earnings CAGR Share in issue (mn) : 70.0
(FY17-19E)/RoCE of 58% and sustainable competitive edge vs peers. M cap (INR bn/USD mn) : 93 / 1,438
Avg. Daily Vol.BSE/NSE(‘000) : 48.6
Low penetration, shift to organised players to boost industry
We envisage humungous growth potential and estimate the organised air cooler SHARE HOLDING PATTERN (%)
market to clock 25% CAGR over the next few years riding: (a) paltry ~11% penetration Current Q3FY17 Q2FY17
in India; and (b) ongoing shift from unorganised (accounts for 70% volume share) to Promoters * 75.0 75.0 75.0
organised segment. We estimate organised volumes to jump ~1.5x over FY17-19 (20% MF's, FI's & BK’s 5.4 4.9 4.1
CAGR), driving 24/31% top line/PAT CAGR for Symphony with 58%/43% RoCE/RoE. FII's 7.5 6.25 2.8
Others 12.2 13.5 18.1
* Promoters pledged shares : NIL
Sustainable innovation and R&D: Key business MOAT (% of share in issue)
Symphony’s USP has been its ability to execute product innovation and R&D much
ahead of competition, which has been the bedrock of its solid franchise, driving best RELATIVE PERFORMANCE (%)
OPMs across durables segments. Moreover, by focusing on the ‘one product, many Stock over
Sensex Stock
markets strategy’, the company has optimised its asset-light business model to Sensex
generate maximum shareholder value over the years, enhancing market share from 1 month 2.8 0.9 (1.9)
45% of organised market in FY10 to 50% currently despite intense competition. 3 months 8.7 (10.5) (19.2)
12 months 14.7 8.0 (6.7)
Outlook and valuations: On growth curve; initiate with ‘BUY’
The company has sustained premium stature in an industry perceived to be low end by
virtue of its ability to innovate, further complemented by a prudent asset-light model.
Despite entry of large players in the market, we believe Symphony’s market positioning
will sustain given single product focus & innovation/R&D track record. We initiate
coverage with ‘BUY/SO’ and INR1,788 TP.
Amit Mahawar
Financials (Consol) +91 22 4040 7451
Year to March FY16 FY17 FY18E FY19E amit.mahawar@edelweissfin.com
Revenues (INR mn) 5,940 7,680 9,370 11,772
Darshika Khemka
Growth (%) 13.0 29.3 22.0 25.6 +91 22 4063 5544
EBITDA (INR mn) 1,632 1,976 2,574 3,360 darshika.khemka @edelweissfin.com
Adjusted profit (INR mn) 1,351 1,656 2,178 2,779
Krish Kohli
Diluted EPS ( INR) 19.3 23.7 31.1 39.7 krish.kohli@edelweissfin.com
Growth (%) 16.5 22.6 31.5 27.6
Diluted p/e (x) 68.7 56.0 42.6 33.4
ROAE ( %) 90.2 68.7 56.1 57.1 July 14, 2017
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Consumer Durables
Investment Rationale
Under penetration, high unorganised share entail growth potential
The domestic air cooler market is largely fragmented with unorganised players accounting for
about 70% of volume and 63% value share. The branded air cooler industry is highly
concentrated with the top 5 players accounting for more than ~90% market share. Symphony
is a leading player in the space—50% share by value—followed by Kenstar (Videocon
Industries). Other players include Bajaj Electricals, Havells, Khaitan, Usha and Voltas.
Of the 246.4mn households in India, mere ~28.0mn own air coolers, implying paltry 11%
penetration. This entails humungous growth potential. We envisage penetration to increase
to 25% by 2026 due to warmer temperatures, increase in the middle class and formalisation
of the economy. Moreover, of all the consumer durable sectors, air coolers have one of the
highest growth potential due to higher proportion of the unorganised segment.
11.6
12.0
6.5
6.0 3.9
0.0
2005 2011 2016 2026E
Air Coolers
Source: Company, Industry, Edelweiss research
Chart 2: Air coolers recorded highest growth over FY12-17 Chart 3: Air coolers’ penetration to sustain high growth
Air Conditioner 15.9 Air Coolers 17.7
Air Coolers 15.6 Air Conditioner 16.6
Lighting 15.6 Lighting 16.3
Cables & Wires 13.9 Pumps 13.8
Refrigerators 11.3 Fans 13.6
Pumps 10.3 Cables & Wires 13.5
Fans 9.8 Refrigerators 12.0
Water Heaters 9.7 Water Heaters 11.7
Washing Machines 9.1 Switchgears 10.7
Switchgears 8.2 Washing Machines 10.0
Stabilisers (4.5) Stabilisers 2.0
UPS(6.0) UPS 1.0
(7.0) (2.0) 3.0 8.0 13.0 18.0 0.0 4.0 8.0 12.0 16.0 20.0
% growth FY12-17 % growth FY17-22E
Source: Edelweiss research
Unorganis
Unorga ed
Unorganised 56%
nised
80% 70%
The company has a global R&D centre recognised by the Government of India and has 108
trademarks, 49 registered designs, 7 copyrights and 8 patents—the largest in the
international air coolers industry. Due to its product pull and brand, Symphony is able to
garner dealer advances well ahead of the summer season—perhaps one of the few
companies to do so.
1993 20
00
17
20
Winter Air Cooler
(2004) with four
200
side cooling pads
Cloud Air Cooler (2016)
201 6
world’s first wall mounted
4
air cooler with automatic
water refill
20 0
2
4
HiCool (2004) with
01
power saver
2
Storm Air Cooler technology, full
(2012) with LCD panel,
20 function remote &
09 empty water tank
On/off timer & Cool
flow dispenser for
2010 alarm
better cooling
Source: Company
Asset-light model with good cash conversion cycle
Symphony’s outsourced asset-light business model has liberated the company from
investing in fixed assets (which, in turn, has resulted in a relatively light balance sheet). The
company also enjoys significant trade advantage—it accepts dealer advances before the
season begins with product delivery at a much later date. This arrangement leads to a lower
cash conversion cycle, thereby generating higher cash flow. Strong brand value and
negotiation power drive robust cash & carry model and higher supplier days, helping
Symphony maintain lower working capital throughout the season.
980 (40)
480 (87)
(20) (134)
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
(x)
10.0
5.0
0.0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Fixed Asset Turnover
Source: Edelweiss research
Valuations
Symphony has been able to sustain premium stature in an industry perceived to be low end
by virtue of its ability to innovate, further complemented by the right business model (asset
light). While the number of players entering the air coolers market has grown substantially,
especially over the past 2-3 years, the company has been able to maintain lead share with
sustained profitability, driven by its single product focus and innovation.
The company enjoys 2 key advantages, which in our view are instrumental for its best-in-
class fundamentals and substantial market share edge: a) asset-light business model
implying lower working capital & b) In-house R&D/product innovation track-record. We
note a substantial expansion in gross margin over FY06-08—from 16% to 55%—was driven
by strong value engineering initiatives, change in business model from manufacturing to
outsourcing, which has sustained till date. Also, Symphony has much lower working capital
versus peers in the same (coolers) as well as any other segment, which we believe is on
account of strong brand and robust launch pipeline which has higher acceptance in the
market.
Organised air coolers market witnessed a strong shift over FY14-17 from 20% to >30%,
which helped the industry grow 20% plus to INR12bn. We estimate the organised air cooler
industry to clock 25% CAGR over FY17-19 led by: a) further rise in air cooler penetration
from 11% to 22% by FY26, implying organised market of ~INR21bn in FY19 (INR12 bn in
FY17); and b) shift of market share in favour of large organised players expedited by
formalisation of the economy.
We estimate Symphony to post robust 30% earnings CAGR over FY17-19 with RoE and RoCE
of 43% and 57%, respectively, led by strong growth in the industry, sustained operating
margin and low working capital.
Hence, we initiate with ‘BUY/SO’ and target price of INR1,789, ascribing 45x FY19E P/E.
60.0 120.0
30.0 60.0
15.0 30.0
0.0 0.0
Oct-16
Oct-10
Oct-12
Oct-14
Oct-06
Oct-08
Feb-14
Feb-16
Feb-10
Feb-12
Feb-06
Feb-08
Jun-17
Jun-13
Jun-15
Jun-07
Jun-09
Jun-11
FY18E
FY19E
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Chart 9: EV/Sales
Symphony witnessed strong re-rating 12.0
in past 3 years at a time when
organised market for air coolers 9.6
posted strong growth.
7.2
(x)
4.8
2.4
0.0
Apr-12
Feb-11
Sep-11
Dec-09
Jun-06
Mar-08
Jun-13
Mar-15
Dec-16
Jul-10
Aug-07
Oct-08
Aug-14
Oct-15
May-09
Nov-12
May-16
Jan-07
Jan-14
1 year forward EV/Sales
24.0
16.0
(%)
8.0
0.0
(8.0)
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FCF/Sales
125.0
85.0
(%)
45.0
5.0
(35.0)
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FCF/ PAT
Source: Edelweiss estimates
Key Risks
• While Symphony has maintained its lead market share with sustained profitability,
rising presence of large players like Voltas & Havells led by strong potential for
market expansion could impact profitability given that Symphony has the highest
absolute OPM levels across consumer durables industry.
• Uneven summer could impact the growth in the air coolers industry thereby
impacting our growth assumptions for Symphony.
Company Description
Symphony was established in 1988 with a portfolio comprising 1 air cooler model. Within 2-
3 years, the company was able to match large multi-product competitors such as Crompton
Greaves, Usha and Polar in the air-cooler category. Then, it decided to diversify into ACs,
washing machines and other durables, but these products failed to attract consumers. By
2001, investors lost faith in the company, its net worth eroded and the stock became a
penny stock. The company was referred to the Board for Industrial and Financial
Reconstruction (BIFR) with debt of over INR500mn. However, post-2005, Symphony
restructured its philosophy into ’One Product–Many Markets’ and scaled up its international
presence in 2009 when it acquired IMPCO (North America). In 2011, it started offering
central air cooling solutions in India and established a foothold in all formats of modern
retail in 2013. In 2015, the company acquired Munters Keruilai (China). In 2016, it launched
the world’s first wall mounted air cooler.
Orient Electric
5%
Symphony
Kenstar 50%
16%
Product portfolio
Symphony’s product portfolio is divided into 4 segments—portable coolers, touch coolers,
window coolers and tower coolers. This has helped the company capture a larger market pie
by addressing unmet needs of customers. Its products offer intelligent features like dura
pump technology, full-function remote control, feather-touch digital control panel with LCD,
system restore function, on/off timer and other features like cool flow dispenser, all
weather plastic body in the window cooler segment, high efficiency cooling pads, among
others.
Currently, Impco contributes ~13% to Symphony’s consolidated top line with a major chunk
of revenue (65% of overall sales) coming from centralised and heavy duty air coolers and
balance (~35% of sales) from room coolers. Symphony started leveraging enduring
relationships established by Impco with large format stores like Wal-Mart, Sears, Home
Depot, Lowes, Famsa and Costco, among others, to widen its presence in North, South and
Central America.
Symphony’s central cooling solutions cater to factories, offices, schools, malls, assembly
halls, warehouses and metro stations. The company, being India’s largest branded player in
this segment, stands to gain the most from the significantly large untapped opportunity in
the central air cooling solutions business.
1,050 15.0
(%)
700 10.0
350 5.0
0 0.0
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16* FY 17 FY 18E FY 19E
IMPCO as a % of revenues *9M FY16
Source: Company, Edelweiss estimates
Note: *FY 16 annualized
Symphony
INR 0.04tn
2%
Consumer
Durables
INR
Industry 1.5tn
Management Overview
Financial Outlook
Healthy growth in organised market to drive 24% top-line CAGR
We estimate Symphony’s revenue to jump to INR11.73bn by FY19 from INR7.6bn in FY17,
24% CAGR. This will be primarily driven by new product innovation, largest potential for
shift in air coolers from unorganised to organised segment and low penetration of air
coolers in India (~11%). The organised industry, which currently accounts for 30% of total air
cooler sales by volume, is estimated to post 24% CAGR and will account for 40% of the total
air cooler market by 2022.
9,000
6,000
3,000
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Revenues
Source: Company, Edelweiss research
Chart 15: 30% EBITDA CAGR over FY17-19E led by robust market outlook, healthy OPMs
Symphony’s premium positioning 4,000 36.0
and robust business model augur
well for profitability in light of 3,200 30.0
strong market share shift
potential for large organised 2,400 24.0
(%)
segment.
(mn)
1,600 18.0
800 12.0
0 6.0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
EBITDA EBITDA margins
Source: Edelweiss research
140.0
105.0
(%)
70.0
35.0
0.0 FY18E
FY19E
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoE RoCE
Source: Edelweiss research
Financial Statements
Key assumptions Income statement 1.46048 (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macros Income from operations 5,940 7,680 9,370 11,772
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct cost 2,667 3,644 4,333 5,421
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee cost 537 687 833 998
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other expenses 1,105 1,373 1,630 1,993
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 4,309 5,704 6,796 8,412
Key financial assumptions EBITDA 1,632 1,976 2,574 3,360
Residential Air cooler organised grwth( 20.3 16.2 25.8 26.2 Depreciation & amort. 54 71 76 83
Symphony's sh. in organised mkt (%) 49.7 50.0 50.1 50.2 EBIT 1,577 1,905 2,498 3,277
Other income 307 432 551 614
Depriciation as a % of FA 4.3 5.0 4.1 4.5 Profit before tax 1,883 2,338 3,049 3,891
Tax rate (%) 26.5 29.1 28.5 28.5 Provision for tax 532 681 869 1,109
Capex (INR mn) 24 106 200 201 Reported profit 1,351 1,656 2,180 2,782
Adjusted Profit 1,475 1,656 2,180 2,782
Equity shares outstand.(mn) 70 70 70 70
EPS (INR) basic 19.3 23.7 31.2 39.8
Diluted shares (mn) 70 70 70 70
Adjusted Diluted EPS 19.3 23.7 31.2 39.8
Adjusted Cash EPS 21.9 24.7 32.3 41.0
DPS 17.5 4.2 12.5 15.9
Dividend payout (%) 90.6 17.8 40.0 40.0
Additional Data
Directors Data
Mr. Achal Bakeri Chairman and Managing Director Naishadh Parikh Independent Director
Nrupesh Shah Executive Director Darshan Patel Independent Director
Jonaki Bakeri Non Executive Director
Dipak Palkar Independent Director
Satyen Kothari Independent Director
Holding – Top10
Perc. Holding Perc. Holding
Achal Bakeri 10.14 Axis Asset Management 3.29
Oras Investments Pvt. Ltd 9.21 Rowenta Networks 2.85
Paratam Investments 8.63 Anil Pavan Bakeri 1.72
Mattews Intl Capital Management 3.4 UTI Asset Management 1.01
Mattews International Capital 3.4 Vanguard Group 0.63
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
18 Jan 2017 Axis Long Term Equity fund Sell 1926196 1183.00
18 Jan 2017 Axis Long Term Equity fund Buy 1926196 1183.00
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
27 Feb 2017 Nabab Consultants Sell 100,000
1 Mar 2017 Nabab Consultants Sell 100,000
*in last one year
V GUARD
Building on impressive track record
India Equity Research| Consumer Durables
V Guard (VGI) has made commendable transition from a stabiliser player EDELWEISS 4D RATINGS
with southern presence to a multi-product company with reasonable Absolute Rating HOLD
pan-India penetration. Our conviction on the company is anchored by: Rating Relative to Sector Performer
a) revenue diversification bolstered by a well rounded product basket; Risk Rating Relative to Sector Low
and b) focus on product branding & marketing and an asset-light model Sector Relative to Market Overweight
are key differentiators driving industry-leading profitability. In our view,
efficient working capital & profitability focus, a balanced approach to
MARKET DATA (R: VGUA, B: VGRD IN)
ramp up in non-South regions and a thoughtful product rollout strategy
CMP : INR 182
will drive reasonable 19% earnings CAGR (FY17-19E) supported by robust Target Price : INR 169
RoE and RoCE of 25% and 32%, respectively, by FY19E. However, the 52-week range (INR) : 220 / 98
stock at 36x FY19E seems fairly valued and is already factoring reasonable Share in issue (mn) : 424.7
growth. Hence, we initiate with ‘HOLD’ with TP of INR169 valuing it at 33x M cap (INR bn/USD mn) : 77 / 1,196
(10% premium to sector valuations). Avg. Daily Vol.BSE/NSE(‘000) : 969.3
Well rounded product basket bolsters market lead SHARE HOLDING PATTERN (%)
VGI, predominantly a stabiliser player earlier, is now a diversified play with share of Current Q3FY17 Q2FY17
cables rising to ~30% of revenue in FY17 and that of stabilisers declining to 20% from Promoters * 65.2 65.2 65.2
peak of 46% in FY06. Moreover, it is planning to further improve revenue mix by MF's, FI's & BK’s 10.1 10.1 10.1
enhancing share of electrical segment to ~70% by FY20E (~65% in FY17) by leveraging FII's 12.5 12.5 12.5
its existing 5,500 plus dealer network. A well rounded product basket has helped VGI Others 12.2 12.2 12.2
* Promoters pledged shares : NIL
emerge market leader in South and propelled 26%/29% sales/ PAT CAGR (FY06-17).
(% of share in issue)
Investment Rationale
Electronics segment
• Stabilisers Well rounded product basket bolsters market lead
• UPS (Standalone + Digital)
Over the years, VGI has augmented its product portfolio with pumps, water heaters, cables
and UPS from primarily manufacturing & selling stabilisers. Earlier, the company’s revenue
Electricals segment
• Pumps mix was majorly skewed towards stabilizers (contributed 46% to revenue in FY06, cables
• Cables & wires (PVC+LT) contributed 18%). However, now it is a diversified play with the share of cables rising to
• Water heaters ~30% of revenue in FY17, share of water heaters rising from 9% to 14% and fans
• Fans contribution rising from 4% to 10% over FY06-17. Despite reduced contribution, the
company has managed to sustain its market share in stabilisers at ~55-58%.
New products
• Induction cook tops VGI is planning to further improve its revenue mix by increasing the share of electrical
• Mixers segment to ~70% by FY19E (~65% in FY17) by leveraging its existing network of 676
• Switchgears distributors and 5,975 channel partners. Apart from regularly upgrading its products, the
company launches new products to capture higher wallet share of household electricals. A
well rounded product basket has helped VGI emerge as one of the market leaders in South
India and has translated into consistent revenue growth over the years.
Chart 1: Diversified revenue mix with electrical segment accounting for ~70%
100.0 32.0
80.0
24.0
60.0
(%)
(INR bn)
40.0 16.0
20.0
8.0
0.0
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
0.0
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Stabiliers UPS
Pumps Cables & Wires
Water Heaters Fans Electronics Segment Electricals Segment
Kitchen Appliances Switchgears New Products Segment
Source: Company, Edelweiss research
Expansion VGI plans to improve its products to suit the taste of the
strategy in Homogeneity
non-South market for the reason that not all the products
they operate in are homogenous. VGI is therefore working
of products on products that will help it get into stores
Non-South
India
In non-South markets, the company does have a good presence (in larger towns and cities).
However, it is looking to widen penetration and ramp up current low market share in these
markets.
0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
South Non-South
Source: Industry, Company, Edelweiss research
Chart 3: Widening dealers’ network in non-South areas… Chart 4: …but revenue/dealer remains low versus South
750 77 35.0
600 64 22.0
(INR mn)
450 51 9.0
(%)
(No.s)
38 (4.0)
300
25 (17.0)
150
12 (30.0)
0 FY11 FY12 FY13 FY14 FY15 FY16 FY17
FY11 FY12 FY13 FY14 FY15 FY16 FY17
South Non-South
South Non-South Total Growth in South Growth in Non-South
Source: Company, Edelweiss research
The company has also increased outlay for advertising and marketing to enhance brand
visibility and undertake pan-India expansion with focus on non-South markets. VGI’s
advertisement strategy entails spending ~75% on mass media ads—70% on television and
balance ~5% on print. Balance 25-30% is incurred on below-the-line activities like retailer
engagements, shop branding, hoardings and other incentives for retailers. We expect VGI to
maintain ad spend with special emphasis on non-South markets.
1,000 5.0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
800 4.6 Bajaj 2.6 2.2 2.8 2.8 3.6 4.2 4.2 4.3
400 3.8 V Guard 5.1 3.8 4.2 4.3 3.9 4.0 4.3 4.5
200 3.4
0 3.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Ad-Spends % of Sales
VGI’s ad spends jumped to 4.4% of revenue in Source: Industry, Company, Edelweiss research
FY17 versus industry average of ~2-4%
28 14.0
25
22
21 11.5
(INR bn)
(x)
14 14 9.0
11
9 10
8
7 6 6.5
4 12 12
3 7 7 7 8
2 2 2 3 4 5
0 1
0 1 1 1 2 4.0
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Valuation
VGI has maintained leadership led by strong franchise in electrical products (stabilisers/UPS,
etc) with high market share of 34%. As a result, the company posted impressive top line/PAT
CAGR of 27/26% over past 10 years. Its 2-pronged strategy: a) increasing market share in
non-South regions for existing businesses; and b) penetrating new scalable businesses
(pumps, water heaters and cables & wires) has incrementally impelled growth for the
company. Following the high growth base of FY17 for stabilisers and UPS (up 19% YoY), we
expect incremental growth in future to be driven by water heaters, cables & wires and
pumps, which coupled with geographical expansion will aid 19% earnings CAGR over FY17-
19E.
We initiate coverage with ‘HOLD/SP’ and target price of INR169 (valuing the stock at 33x
which is at 15% premium to Edelweiss Consumer Durables’ average P/E. Given VGI’s
substantial re-rating over past 12-15 months, we believe the stock at 36x does not offer any
material upside & broadly captures potential earnings growth.
20.0
10.0
0.0
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
1 yr fwrd PE band Average P/E
V-guard
INR 0.9tn
57%
Consumer
Durables
INR
Industry 1.5tn
Source: Company, Industry, Edelweiss research
Key Risks
• Seasonality in revenues since sales of a few product categories are dependent on
summer/ winter season.
Company Description
VGI, incorporated in 1977, is a leading player in household electrical and electro mechanical
products (wires, cables, stabilisers, geysers) with dominance in tier 2, 3 and 4 cities in South
India. It has a hybrid model, where it manufactures one third products it sells, while balance
are outsourced. The company grew rapidly to become a name synonymous with voltage
stabilisers across South India. It soon extended its range of products to voltage stabilisers,
digital UPS, inverters & inverter batteries, electric water heaters, solar water heaters,
domestic pumps, agricultural pumps, industrial motors, domestic switch gears, distribution
boards, wiring cables, industrial cables, induction cooktops, mixer grinders and fans.
Table 3: VGI—Timeline
Year Milestones
Mr. K Chittilappilly set up the business of manufacturing and selling
1977
stabilisers under the brand V Guard
Added special quality stabilisers for Air Conditioners to its product
1980
portfolio
Diversified range of products and accommodated high-quality pumps into
1992
it
V Guard was incorporated as a Public Ltd company and launched electric
1996
water heaters
Added wire cables to the portfolio and soon won recognition as provider
1997
of a specialised range of house wires
1998 Launched UPS (Online & Offline)
A cable manufacturing unit was setup in Coimbatore to increase the
1999
manufacturing capacity. Launched digital stabilisers
Received ISO certification for manufacture of PVC insulated cables and
2000
designing and manufacturing of solar water heaters
V Guard was converted as a Private Ltd company and launched
2001
compressor pumps
2002 Launched solar water heaters
Added an exquisite array of electric fans. Issued bonus shares to its
2006
members in the ratio of 1:6
2007 Opened new branches and strengthened non-South market operations
2008 Came up with a Initial Pubic Offer with listing on BSE & NSE
An LT cable factory at Coimbatore, a wires & cables factory at Kashipur
2009 and water heaters and fans factory at Kala Amb were launched. DUPS,
Inverters were added to V-Guard's product portfolio.
2010 Launched a smart array of domestic switch gears
Total turnover hit INR10bn mark. A premium range of induction cook tops
2012
were added to the portfolio
2014 Total turnover hit INR15bn mark
Source: Company
Polycab, Havells,
PVC Cables 100% In-House Electrical and hardware stores Finloex, RR Cables, 55000 40000 95000
Anchor
Crompton Greaves,
Electrical and hardware stores,
Pumps 90% Outsourced Kirloskar, CRI, 50000 50000 100000
Pump and Pipe fittings stores
Electricals Texmo
Segment A.O. Smith, Racold,
Electric Water Consumer Durable stores ,
55% Outsourced Bajaj, Venus, 13250 7000 20250
Heaters Electrical and hardware stores
Crompton Greaves
Crompton, Bajaj
Consumer Durable stores,
Fans 90% Outsourced Electricals, 50000 15000 65000
Electrical and hardware stores
Havells, Orient
Prestige, Bajaj,
Cooktop 100% In-House Electrical and hardware stores 4000 2500 6500
Preethi, Butterfly
Source: Company
Manufacturing units
VGI has an asset-light model wherein ~60% products are sourced from SSI units/ small
manufactures across South India. The company inks contracts with third parties for the
manufacture of voltage stabilisers, pumps, UPS, electric water heaters and electric fans
which are manufactured according to its specifications.
Key personnel
Mr. Kochouseph Chittilappilly, Chairman
Mr. Kochouseph Chittilappilly is a post graduate in Science, majoring in Physics from Calicut
University. He started his career as a supervisor in an electronics company, where he
worked for 3 years. He has been the Managing Director of the company since inception.
Financial Outlook
Revenue CAGR of 15% driven by electrical segment
Revenue posted 25% CAGR during FY07-17 and is estimated to clock 15% CAGR over FY17-
19E. The decline will primarily be on account of higher proportion of stabilisers and UPS in
the revenue mix. Over the years, revenue visibility for these segments has shrunk
significantly due to better availability of uninterrupted power and shift to energy-efficient
ACs. As a result, stabilisers’ revenue as a % of sales has dipped from peak of 35% in FY06 to
17% in FY17 and is expected to fall further. UPS revenue, as a % of sales, has also declined
from a peak of 15% in FY13 to 11% in FY20. Pump, heater & cables are potential earnings
growth drivers for the company given huge scale up potential as VGI expands market share.
We expect these segments to post a reasonable 17% CAGR over FY17-19E accounting for
~68% of top line.
Chart 10: Revenue to post 15% CAGR over FY17-19E Chart 11: Stabiliser/UPS revenue to fall to 17%/9% of sales
30 50.0
24 40.0
18 30.0
(INR bn)
(%)
12 20.0
10.0
6
0.0
0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
(days)
(INR mn)
700
45
300
(100) 20
(500) (5)
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
CFO WC days
Source: Company, Edelweiss research
3.5 15
2.8 12
(INR bn)
2.1 9
(%)
1.4 6
0.7 3
0.0 0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
48.0
36.0
(%)
24.0
12.0
0.0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoE RoCE
Source: Company, Edelweiss research
Financial Statements
Key assumptions Income statement (standalone) (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macros Income from operations 18,623 21,506 24,622 28,255
GDP(Y-o-Y %) 7.4 7.9 8.3 8.3 Direct cost 13,123 14,780 16,891 19,355
Inflation (Avg) 4.8 5.0 5.2 5.2 Employee cost 1,108 1,375 1,543 1,740
Repo rate (exit rate) 6.8 6.0 6.0 6.0 Other expenses 2,611 3,201 3,619 4,153
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 16,843 19,356 22,053 25,248
Industry Growth Rate (%) EBITDA 1,780 2,150 2,569 3,007
A) Stabilizers 1.4 2.0 2.0 2.0 Depreciation and amortisation 154 162 187 208
B) UPS (Digital + Standalone) (8.0) (6.5) 1.0 1.0 EBIT 1,626 1,988 2,382 2,800
C) Pumps 7.0 7.0 13.0 13.5 Interest expense 89 21 31 34
D) Cables & Wires 19.0 10.0 13.0 13.5 Other income 72 135 177 235
E) Water Heaters (Electric+Solar) 12.4 12.0 12.0 11.5 Add: Exceptional items
F) Fans 9.8 9.8 13.0 13.3 Profit before tax 1,610 2,102 2,528 3,000
G) Kitchen Appliances (Cooktops+Mixers) - 1.5 2.2 2.8 Provision for tax 493 584 708 840
H) Switchgears 20.7 10.0 10.3 10.5 Reported profit 1,117 1,518 1,820 2,160
Market Share of V guard (%) Less: Except. Items (Net of Tax) - - - -
A) Stabilizers 29.5 34.2 36.0 37.0 Adjusted Profit 1,117 1,518 1,820 2,160
B) UPS (Digital + Standalone) 3.9 3.3 4.0 4.2 Equity shares outstanding (mn) 326 425 425 425
C) Pumps 1.4 1.6 1.8 1.9 EPS (INR) basic 3.4 3.6 4.3 5.1
D) Cables & Wires 1.5 1.5 1.5 1.6 Diluted shares (mn) 326 425 425 425
E) Water Heaters (Electric+Solar) 9.7 9.7 10.0 10.7 Adjusted Diluted EPS 3.4 3.6 4.3 5.1
F) Fans 1.9 2.1 2.2 2.4 Adjusted Cash EPS 3.9 4.0 4.7 5.6
G) Kitchen Appliances (Cooktops+Mixers) 5.5 6.7 6.7 6.7 DPS 0.7 0.9 0.9 1.0
H) Switchgears 0.8 1.1 1.4 1.7 Dividend payout (%) 20.4 24.0 20.0 20.0
Depriciation as a % of FA 6.2 6.0 6.0 6.0
Tax rate (%) 30.6 27.8 28.0 28.0 Common size metrics- as % of net revenues
Capex (INR mn) 140 430 350 350 Year to March FY16 FY17 FY18E FY19E
Direct cost 70.5 68.7 68.6 68.5
Employee cost 6.0 6.4 6.3 6.2
Other expenses 14.0 14.9 14.7 14.7
Operating expenses 90.4 90.0 89.6 89.4
Depreciation and amortisation 0.8 0.8 0.8 0.7
Interest expenditure 0.5 0.1 0.1 0.1
EBITDA margins 9.6 10.0 10.4 10.6
Net profit margins (adjusted) 6.0 7.1 7.4 7.6
Additional Data
Directors Data
Shri. Kochouseph Chittilappilly Chairman Shri. A K Nair Managing Director
Shri. Cherian N Punnoose Vice Chairman Shri. Ullas K. Kamath Managing Director
Shri. Mithun K Chittilappilly Managing Director Smt. Joshna Johnson Thomas Managing Director
Shri. Ramachandran V Director & Chief Operating Officer
Shri. C J George Managing Director
Holding – Top10
Perc. Holding Perc. Holding
K Arun Chittilapilly 13.1 Axis Asset Management 1.67
Sheela Kochouseph 10.95 Sundaram Asset Management 1.61
K Chittilapilly trust 4.9 India Midcap MAU 1.33
DSP Blackrock Investment Manager 4.39 Birla Sun Life Asset Management 1.07
Nalanda India Equity fund 4.3 Norges Bank 0.75
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
No Bulk Deal record
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
28 Nov 16 Venkata Rao Gandrapu Sell 25900
23 Mar 17 Nandagopal Nair Sell 46570
28 Mar 17 Abie Abraham Sell 31150
31 Mar 17 Kochouseph Chittilappily Sell 20,808,000
3 Apr 17 Kochouseph Chittilappily Sell 20,808,000
5 Apr 17 Kochouseph Chittilappily Sell 20,808,000
5 Jun 17 Deepak Augustine Sell 33,380
8 Jun 17 Robin Joy A Sell 26,000
12 Jun 17 Robin Joy A Sell 26,000
13 Jun 17 Robin Joy A Sell 26,000
11 Jul 17 Sumit Jha Sell 23,000
*in last one year
VOLTAS
Raising a toast to new beginnings
India Equity Research| Consumer Durables
Voltas (VOLT) has strengthened its key segments—projects & cooling EDELWEISS 4D RATINGS
products—reflected in robust FY17 performance easily navigating margin Absolute Rating BUY
/market share concerns in this business. That said, a landscape changing Rating Relative to Sector Outperformer
development could be the company’s decision to enter the white goods Risk Rating Relative to Sector Low
business in a 50:50 JV with Arcelik. It’s a big market (INR350bn, 3x VOLT’s Sector Relative to Market Overweight
current AC market), fast growing (10-15%), dominated by MNCs
(technology edge; so it needs the tie up) and one where its brand &
MARKET DATA (R: VOLT.BO, B: VOLT IN)
distribution can quickly enable VOLT establish itself. While it’s still early
CMP : INR 483
days to gauge business upside, our initial assessment suggests new
Target Price : INR 586
business to add 8-10% to VOLT’s earnings in FY20, apart from synergies. 52-week range (INR) : 515 / 287
That this business is profitable and well valued (average 30% RoCE, 30x Share in issue (mn) : 330.9
PE) should augur well for the stock. Enthused by this, we believe our TP M cap (INR bn/USD mn) : 160 / 2,484
of INR586, implying 36x FY19E P/E to consumer business, is well justified Avg. Daily Vol.BSE/NSE(‘000) : 1,739.9
given scope for earnings improvement as VOLT leverages its strong 12K
dealer/touch points to roll out the Voltas-Beko range. Maintain ‘BUY’. SHARE HOLDING PATTERN (%)
Current Q3FY17 Q2FY17
JV with Arcelik: Strong synergies to explore USD5bn new market Promoters * 30.3 30.3 30.3
While many investors have questioned the rationale behind VOLT’s JV with Arcelik, in MF's, FI's & BK’s 26.5 27.1 27.2
our view, the JV makes sense: a) as it gets access to Arcelik’s wide range of white FII's 20.7 22.4 22.4
goods; and b) armed with one of the best distribution networks (>12K dealers), VOLT is Others 22.5 20.2 20.1
* Promoters pledged shares : NIL
best positioned to capture the ~USD5bn white goods market.
(% of share in issue)
The JV, under the Voltas Beko brand, will launch refrigerators, washing machines,
microwaves and other white goods / domestic appliances in India. A manufacturing facility
will be set up in the country (for refrigerators) and the JV will also source other products
from Arcelik’s global manufacturing facilities and vendor base.
(%)
sells ACs with strong
market share. 16 13.0
12 12 12
11 11 10 10
8 9.0
3.8 4 4
0 5.0
LG Voltas Blue Star Daikin Hitachi Havells Samsung
No. of Dealers Market share in AC's
Source: Company, Industry, Edelweiss research
Chart 2: Market size for washing machines Chart 3: Market size for refrigerators
150 10.0 375 20.0
18.4
7.9
125 8.0 305 16.0
11.4
(Units mn)
100 5.4 6.0 235 12.0
(Units bn)
(INR bn)
(INR bn)
JV’s targets for the next 10 years (as per Arcelik’s latest presentation)
• Sales of USD1bn.
• Plant capacity of 3mn units.
• Cumulative capex of USD155mn.
• Profitability at par with Arcelik’s current OPMs.
• Market share of 10%.
• They together plan to bring Beko brand to India under the Voltas– Beko.
• The products will be imported initially. However, the company is planning to set up a
manufacturing unit soon, details of which will be decided by Arcelik and VOLT mutually.
• VOLT is planning to widen its scope in the consumer durables white goods industry and
Arcelik brings a lot of strength to the table—product range, technological excellence
and relevant customer connect.
• The JV will start with VOLT’s distribution channel, but it will be extended going forward.
• VOLT is planning to launch the Voltas–Beko brand during the FY18 diwali season. The
range of products includes refrigerators, washing machines, microwaves and
dishwashers. Initially, some products will be manufactured and some will be imported.
• The JV will have a phased investment of INR6.8bn with 50:50 share. The investment can
increase based on future demand.
Highlights
• FY17 tax rate fell to 28% due to refund from previous adjustments.
• In FY17, VOLT’s room AC volumes grew 33% versus industry’s 31%.
Consumer durables industry: The domestic consumer durables industry was pegged at
INR350bn in FY17 with volume of 20mn units. It is expected to grow at 10-15% in coming
years wherein VOLT has 10-12% market share.
EMPS segment
• There have been some green shoots and positive sentiment across India. Opportunity
in the domestic market may be as good/large as in the international market.
• VOLT will concentrate on profitability and will only bid for projects with better cash
realisations.
• Strategy is to pick up right projects and complete them with right execution.
• Margins have jumped to 5.7% and expected to sustain in FY18 at this level.
• Earlier, VOLT had a lot of legacy orders which were not being executed due to disputes
or lack of money. Bulk of such projects has been completed.
UCP segment
• It’s been a hot summer so VOLT grew extremely well.
• Management perceives shift in market towards inverter ACs, which now constitute 14%
of the market compared to 10% in FY16.
• VOLT believes there is a tactical strategy in remaining in window ACs, even though
competitors have exited the segment.
• Competition has become more intense in the room AC market in the past 6 months.
• The company has decided not to participate in the EESL tender due to the cost
structure, but has participated in other schemes for ACs of Tata Power and BSES.
However, going forward, it may participate in EESL tenders.
o Aim is to maintain EBITDA margin at 14%, which is way higher than industry
average of 11%. The company will have to invest more in advertisements to
maintain this.
GST
• Tax rates on products post GST:
o AC -28%.
o Air coolers – 18%.
o All other services industry projects – 18%.
• For VOLT, the tax rate on AC was 25-26% including import duty before GST; post GST, it
will be 30-33% including import duty.
• Prices of products may be increased post the increase in taxes. Management is
currently not sure about the quantum of increase in prices.
• Transition to GST is an industry-wide issue and VOLT has started work on it a few
months ago. There may be some teething problems initially, but will manage issues in
the best possible manner to ensure a seamless and effective transition.
Air coolers
• VOLT’s target is to be among the top 3 players.
• Air cooling volumes stood at 170,000 units for FY17, implying a 6-7% market share.
• It has 22 SKUs and has expanded its distribution channel.
VOLT currently has a target market of INR125bn in ACs, where it already has ~20% value
market share. As the company rolls out products in a strong INR350bn new market with its
strong distribution franchise, we perceive significant potential for earnings growth over the
next 3-5 years, which could drive strong P/E re-rating at par with current MNC peers. Our
current TP of INR586, implies 36x FY19E PE, at par with MNC peers as we expect it to gain
significant market share (>5%) over the next 3-5 years leveraging its strong reach and brand
franchise.
Table 2: Expansion of target market for VOLT offers huge growth potential
FY17 FY18 FY19 FY20
Industry size (INR bn) Existing target market - AC's 132 153 178 207
New Target Industry 350 394 443 498
Total Target Industry size 482 547 621 706
Market Share (%) Existing -AC 20.4 20.5 20.6 20.6
VOLT JV 0.8 3.0 5.0
Revenues (INR bn) Existing 26.9 31.4 36.7 42.7
VOLT JV 0.0 3.2 13.3 24.9
Total Revenues 26.9 34.5 50.0 67.6
Source: Edelweiss research
Change in Estimates
FY18E FY19E
New Old % change New Old % change Comments
Net Revenue 68,449 68,449 0.0 77,360 77,360 0.0
EBITDA 7,132 7,132 0.0 8,259 8,105 1.9
EBITDA Margin 10.4 10.4 10.7 10.5
Adjusted Profit 5,981 5,518 8.4 6,738 6,078 10.9 Adjustment in other income and tax
After Tax rate
Net Profit Margin 8.8 8.1 8.8 7.9
Capex 827 827 0.0 526 526 0.0
Fig. 1: With Beko JV, VILT has recently added INR5bn to its target market
Voltas
INR 0.4tn
28%
Consumer
Durables
INR
Industry 1.5tn
Company Description
Voltas Limited, part of the TATA group which holds 30.3% stake, is a leading air conditioning
and engineering services provider. Founded in 1954, It offers engineering solutions through
its three business segments in areas such as heating, ventilation and air conditioning,
refrigeration, climate control, electromechanical projects, textile machinery, machine tools,
mining and construction, material handling, water management, building management
systems, pollution control and chemicals. Voltas has a higher market share of ~21% in the
residential AC market. Voltas has one of the highest distribution touch-points (over 11,000
touch-points/7000 dealers), which can compare well with lots of mid-size local FMCG
companies. Unitary Cooling Product and Engineering& Mechanical Project Segment
contributes to ~90% topline of the company, while the former contributes more than 60%
of the profits of the company.
Investment Theme
Low cost power availability driving up AC sales: A new phenomenon as India increases rural
penetration for electricity. What would buy other than cement/fans/ac companies?
Low Penetration of ACs gives us comfort on long term sales growth: AC penetration in India
stands at <5% vs ~25% in China and ~50% in Korea. Various industry participants indicate
that AC sales should see a strong 10-15% growth for the next 3-5 years, given the current
low penetration levels.
We estimate an EPS CAGR of 24% assuming 10% AC revenue growth in line with average of
last eight years. EPS for AC division is estimated at 20% CAGR. ROE for AC business > 50-60%
over the cycle. We see a bigger growth story now with Voltas’s entry into US$5-7bn white
goods market which is growing at 15% CAGR.
Key Risks
Any slowdown in capex spending in West Asia and in economic activity with respect to
infrastructure creation in India will dry up EMPS division’s incremental order intake.
Further, margins and lead time for delivery in the EMPS segment can come under pressure
with local players strengthening their operations and the entry of new global players.
De-rating following a slowdown in AC demand: As per the trading bands the stock is
currently trading at upper quartile of last twenty year trading band. if AC sales were to slow
down to less than 5%, the AC business starts getting a multiple closer to 20x, resulting in 12-
15% downside in the stock.
Any major slowdown in consumer discretionary spend might affect the white goods market.
Financial Statements
Key Assumptions Income statement (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macro Income from operations 57,198 60,328 68,449 77,360
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct costs 40,871 42,359 47,306 53,581
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee costs 6,351 6,184 6,838 7,568
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other Expenses 5,646 5,994 7,173 7,952
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 52,869 54,537 61,317 69,101
Company EBITDA 4,330 5,791 7,132 8,259
EMP revenue growth (%) 28.1 (6.1) 8.4 11.0 Depreciation 264 245 338 368
Eng. rev growth (%) 2.8 (10.5) 7.2 10.7 EBIT 4,066 5,546 6,793 7,891
Unitary Cooling product 1.8 19.2 15.1 15.2 Add: Other income 1,367.1 1,998.2 2,310.5 2,402.67
Room AC ( Qnty) 934,338 1,093,176 1,202,493 1,370,842 Less: Interest Expense 158 160 165 188
NSR (INR) 20,732 21,686 22,120 22,562 Add: Exceptional items 289 11 - -
Order inflow (INR bn) 22.9 27.9 30.0 31.5 Profit Before Tax 5,565 7,395 8,939 10,106
Tax rate (%) 27.7 28.2 30.5 31.0 Less: Provision for Tax 1,696 2,089 2,726 3,133
Total no. of employees 9,740 8,990 9,476 9,987 Less: Minority Interest 60 24 31 35
Employee cost per head 687,303 687,303 721,668 757,752 Associate profit share 62 (193) (200) (200)
Capex (INR mn) 95 39 827 526 Reported Profit 3,871 5,090 5,981 6,739
Dep. (% gross block) 1.9 5.6 5.5 5.5 Exceptional Items 289 11 - -
Adjusted Profit 3,582 5,079 5,981 6,739
Shares o /s (mn) 331 331 331 331
Adjusted Basic EPS 10.8 15.4 18.1 20.4
Diluted shares o/s (mn) 331 331 331 331
Adjusted Diluted EPS 10.8 15.4 18.1 20.4
Adjusted Cash EPS 11.6 16.1 19.1 21.5
Dividend per share (DPS) 2.6 3.3 3.9 4.4
Dividend Payout Ratio (%) 28.9 25.9 26.0 26.0
Additional Data
Directors Data
Ishaat Hussain Chairman Sanjay Johri Managing Director
N N Tata Non Independent & Non Executive Director Vinayak Deshpande Non Independent & Non Executive Director
J S Bilimoria Independent Non-Executive Director R N Mukhija Independent Non-Executive Director
S N Menon Independent Non-Executive Director Nani Javeri Independent Non-Executive Director
Nasser Munjee Independent Non-Executive Director
Holding – Top10
Perc. Holding Perc. Holding
Tata sons ltd 26.64 Franklin resources 13.06
Life insurance corp 6.9 Hdfc asset managemen 5.06
Templeton asset mgmt 3.35 Tata investment corp 3.01
Sbi funds management 1.86 Prazim trading and i 1.6
Idfc mutual fund 1.59 Standard life pacifi 1.42
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year
WHIRLPOOL OF INDIA
Upping the competitive ante
India Equity Research| Consumer Durables
Whirlpool of India (WPIL) is one of the leading players in the INR250bn EDELWEISS 4D RATINGS
domestic refrigerator/washing machine segment. We like WPIL owing to: Absolute Rating BUY
a) parent’s comprehensive business strategy to augment product Rating Relative to Sector Outperform
portfolio to plug key gaps, especially in core products like refrigerators & Risk Rating Relative to Sector Low
washing machines; and b) expansion in touch points from current 18K to Sector Relative to Market Overweight
25K by FY20E. While the company’s strategy has already started yielding
fruits (visible in improving profitability), we expect profitable growth
MARKET DATA (R: WHIR BO, B: WHIRL IN)
momentum to sustain and full benefits to accrue over the next 2-3 years. CMP : INR 1,150
Initiate coverage with ‘BUY’ and TP of INR1,511 (33% upside), assigning Target Price : INR 1,511
PE of 40x given strong 24% earnings CAGR over FY17-19E and reasonable 52-week range (INR) : 1,289 / 826
RoCE of 30%, apart from a 1.6x FCF growth to INR4bn Share in issue (mn) : 145.8
M cap (INR bn/USD mn) : 168 / 2,602
Gaining ground on renewed expansion strategy Avg. Daily Vol.BSE/NSE(‘000) : 74.3
Parent’s target to achieve 2x revenue over FY16-20 implies 17% revenue CAGR for
SHARE HOLDING PATTERN (%)
WPIL, which we believe is achievable given the ramp up in past 2 years in top line led
by new product launches. Robust SKUs and potential increase (50%) in touch points by Current Q3FY17 Q2FY17
FY20, we believe, will help WPIL achieve industry-leading growth over next 2-3 years. Promoters * 75.0 75.0 75.0
MF's, FI's & BK’s 8.4 8.6 8.6
Sprucing up competitive profile; scope to improve profitability FII's 6.5 6.5 6.5
Others 10.1 9.9 9.9
As WPIL bridges the gap with top peers—LG and Samsung—in product offerings and :
* Promoters pledged shares NIL
dealers, we expect the company to clock profitable growth led by better cost (% of share in issue)
management and constant endeavour to command higher ASP for products. This
leaves scope for OPM improvement; margin to improve 100bps over FY17-19E. RELATIVE PERFORMANCE (%)
Stock over
Sensex Stock
Outlook and valuations: Re-rating ongoing; initiate with ‘BUY’ Sensex
We believe, WPIL is the best positioned MNC in the high-end white goods space, given 1 month 2.8 2.6 (0.2)
reasonable ramp up potential in core segments. The company has clearly improved its 3 months 8.7 (4.2) (12.9)
competitive profile versus large peers and is likely to sustain strong improvement in 12 months 14.7 34.7 20.0
top line and OPM, posing an upside risk to our growth estimates. At CMP, the stock
trades at 30x FY19E. We initiate coverage with ‘BUY/SO’ and target price of INR1,514,
valuing it at 40x FY19E.
Investment Rationale
Shift in parent‘s strategy, a key growth driver
There is a clear shift in the parent’s focus to double Whirlpool India’s top-line in next 4 years,
implying 17% revenue CAGR over FY17-19E. Earlier, WPIL laid emphasis on margin
expansion and cash generation at the expense of market share, which eventually failed to
materialise. In past 2 years, the company shifted focus with a comprehensive plan to boost
its product portfolio—addressing key gaps—thereby expanding its offerings in refrigerators,
washing machines and ACs which helped it gain back its margins & cash flows. Consequently,
there has been a major ramp up in SKUs across segments in past 2 years, which has helped
it bridge the gaps with large peers like LG and Samsung.
Also, WPIL has embarked on an aggressive programme to expand its touch points from
current 18-19K to more than 27K over FY15-20, which will help it achieve third highest touch
points.
Product launch
frequency
Refrigerator 46 20 66
Washing
machine 20 9 29
ACs 19 15 34
is clearly visible in the sharp rise in trade discounts in past 2 years, which has increased from
13% to 18% levels. Despite the sharp rise in trade discounts and sustained focus on ad spend,
WPIL managed to increase its profitability, which we believe was led by better cost
management and focus on average realisations.
Chart 1: Revenue growth & EBITDA margin Chart 2: Trade discounts moved up substantially
45 17.0 24.0
36 14.2 20.4
27 11.4 16.8
(INR bn)
(%)
(%)
18 8.6 13.2
9 5.8 9.6
0 3.0 6.0
FY 09
FY 11
FY 12
FY 13
FY 14
FY 15
FY 16
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY 10
Ad expense as % of sales
Revenues EBITDA Margin Trade discounts as % of sales
Source: Company, Edelweiss research
32
24
18
16 12
10
8 4 4
0
Havells
LG
WHIRL
Voltas
Samsung
Hitachi
Daikin
64,000
48,000
(INR mn)
32,000
16,000
0
FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18E FY 19E
Refrigerators Washing Machines ACs Kitchen Appliances Services
Source: Company, Edelweiss research
Whirlpool
INR 0.5tn
31%
Consumer
Durables
INR
Industry 1.5tn
7,200 47.2
5,400 42.4
(mn)
(%)
3,600 37.6
1,800 32.8
0 28.0
FY 18E
FY 19E
FY08
FY09
FY10
FY11
FY12
FY 13
FY 14
FY 15
FY 16
FY 17
Chart 6: EV/ sales re-rating led by improving product offerings versus large peers
3.5
2.8
2.1
(x)
1.4
0.7
0.0
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
1 year forward EV/Sales
40.0
20.0
10.0
0.0
Oct-08
Oct-10
Oct-12
Oct-14
Oct-16
Feb-08
Feb-10
Feb-12
Feb-14
Feb-16
Jun-07
Jun-09
Jun-11
Jun-13
Jun-15
Jun-17
Chart 8: Free cash profile to improve substantially with stable RoE
5,000 50.0
4,000 40.0
2,000 20.0
1,000 10.0
0 0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FCF RoE
Source: Bloomberg, Company, Edelweiss research
Competition
Rising competitive intensity especially from growing local peers, we believe could be a risk
to our growth and profitability estimates.
Company Description
WPIL, right since inception in 1911 as the first commercial manufacturer of motorised
washers to its current market position of being the world's number one manufacturer and
marketer of major home appliances, has always set industry milestones and benchmarks.
The parent company is headquartered at Benton Harbor, Michigan, USA with global
presence in over 170 countries and manufacturing operations in 13 countries with 11 major
brand names, such as, Whirlpool, KitchenAid, Roper, Estate, Bauknecht, Laden and Ignis. The
company came to India in the late 1980s under a joint venture with TVS group and
established its first manufacturing facility in Pondicherry. Today, WPIL headquartered in
Gurugram, is the most recognised brand in home appliances in India and enjoys market
share of over 25% with a product portfolio that comprises washing machines, refrigerators,
microwave ovens and ACs.
Table 2: Milestones
Year Description
1987 Whirlpool tied–up with Sundaram Clayton of India to form TVS Whirlpool
1995 Whirlpool Corp. acquired majority of stake in the TVS Whirlpool The DC manufacturing facility of Kelvinator India was
also acquired
1996 Whirlpool Washing Machines and Kelvinator India merged to form Whirlpool of India (WIL)
1999 WIL crossed the milestone of 1 million sales of appliances
2001 WIL registered profit & sold 1.2 million appliances. It also achieved the No.1 position in DC & FA
2002 The Aircon range was successfully launched and WIL acquired 6% market share
2009 WIL was voted Product of the Year and received the award for the 'Best Innovative Product' in the popular refrigerators
category. This was based on 40,000 consumers across 36 towns in India voting Whirlpool Frost Free Refrigerators with
6th sense as the Best Innovation in the Popular Refrigerator Category
2010 WIL launches its Jet Chef and Family Chef Collection of Microwaves, launches the all new Whirlpool ACE washstation and
launches new brandshops in Amritsar and Jalandhar
2012 WIL launches a new range of domestic products
2014 WIL launched Protton 3–door refrigerators and 3D climate control dual fan air conditioner
2017 Launches of new range of Inverter Acs
Source: Company
Manufacturing facilities
WPIL owns 3 state-of-the-art manufacturing facilities at Faridabad, Pondicherry and Pune.
Each of these units have infrastructure that reflects the company’s commitment to
consumer interests and advanced technology. Each of these units is supported by a Global
Product Development Center located in India where engineers and technicians work round
the clock and develop product designs not only suitable for local requirements, but for the
entire Whirlpool world as well.
Refrigerators and washing machines are fully manufactured in-house whereas air
conditioners are outsourced to different ODM’s. Capacity utilisation across its 3 factories
stands at >70% currently.
Key Personnel
Mr. Arvind Uppal – Chairman and Executive Director
Mr. Arvind Uppal was appointed as Chairman of Whirlpool India effective from January 27,
2010. Mr. Uppal is a B.Tech from IIT Delhi and a Management post graduate from the
Faculty of Management Studies, Delhi. He has over 25 years of experience in Business
Development, International Marketing and General Management. Prior to joining WIL, he
was with Nestle, both India and overseas.
Mr. Anil Berrera – Executive Director – Finance & Chief Financial Officer
Mr. Anil Berrera is whole-time director of the company and a key managerial person
designated as Executive Director – Finance & Chief Financial Officer. He is a Bachelor in
Commerce and Chartered Accountant with over 30 years of rich working experience in
finance, accounts, treasury, taxation and general management. He has extensive experience
in the development and implementation of strategic business plans. He joined WIL in March
2007 as Chief Financial Officer for India Operations and was promoted as Chief Financial
Officer & Vice President (Asia South). He has held several key positions in finance and
accounts in many organisations including Price Water House Coopers, Gillette and Becton
Dickinson
Financial Outlook
Better reach/product expansion to drive 17% top-line CAGR (FY17-19E)
Parent’s new initiative for India set out in FY15 helped WPIL post strong 10% CAGR in core
segments (refrigerators and washing machines) during FY15-17. As touch points reach 25K
(+50% versus current levels) by FY19-20, we expect the company to see further 17% YoY
growth in top line led by 17% & 10% growth in washing machines and refrigerators segments.
Share of other segments (ACs, microwaves, services) is likely to move from 11% to ~20% by
FY19E, implying 55% CAGR on a low base.
55
Shift of focus to market share &
reach has put WPIL back on growth
44
(INR bn)
23
13
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Revenues
40.0
30.0
(%)
20.0
10.0
0.0
FY 18E
FY 19E
FY08
FY09
FY10
FY11
FY12
FY 13
FY 14
FY 15
FY 16
FY 17
Gross Margin EBITDA Margin
Source: Company, Edelweiss research
17,600 10,400
16,700 10,050
(INR )
(INR)
15,800 9,700
14,900 9,350
14,000 9,000
FY12 FY13 FY14 FY15 FY16 FY17
WPIL launched a front load fully In 2017, WPIL launched a bottom WPIL launched a top load washing
automatic washing machine in 2016 mounted refrigerator with active fresh machine with technologies like 6th sense
with 6th sense soft move technology technology which keeps vegetables and tumble care
which offers 50 different washing fruits fresh for longer
combinations
Source: Company, Edelweiss research
Financial Statements
Key assumptions Income statement (standalone) (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macros Income from operations 34,399 39,408 45,323 53,184
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct cost 20,365 23,101 26,514 31,113
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee cost 3,827 4,116 4,586 5,079
Repo rate (exit rate) 6.8 6.3 6.3 6.25 Other expenses 6,373 7,302 8,339 9,786
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 30,564 34,519 39,440 45,978
Key financial assumptions EBITDA 3,835 4,888 5,883 7,206
Refrigerators Depreciation and amortisation 769 875 930 1,038
Refrigerators market growth rat 5.4 10.2 12.0 12.0 EBIT 3,066 4,014 4,954 6,168
Refrigerators Market Share 15.0 16.0 16.5 17.5 Interest expense 52 59 55 52
Washing Machines Other income 553 730 962 1,088
Qty Sold by WHIRL ('000 units) 896 959 1,026 1,098 Add: Exceptional items
Avg realisaion/unit (INR) 10,122 10,476 10,790 11,114 Profit before tax 3,567 4,685 5,861 7,204
Air Conditioners Provision for tax 1,159 1,580 1,963 2,413
Qty Sold by WHIRL ('000 units) 238.5 279.5 327.3 381.9 Reported profit 2,408 3,105 3,897 4,790
Avg realisaion/unit (INR) 16,873 17,281 17,770 18,210 Less: Excep. Items (Net of Tax) (8) - - -
Depriciation as a % of FA 6.8 7.4 6.8 6.8 Adjusted Profit 2,400 3,105 3,897 4,790
Tax rate (%) 32.6 33.7 33.5 33.5 Equity shares outstanding (mn) 127 127 127 127
Capex (INR mn) 739 940 1,410 1,600 EPS (INR) basic 19.0 24.5 30.7 37.8
Diluted shares (mn) 126.8 126.8 126.8 126.8
Adjusted Diluted EPS 19.0 24.5 30.7 37.8
Adjusted Cash EPS 25.0 31.4 38.1 46.0
DPS - - - -
Dividend payout (%) - - - -
Additional Data
Directors Data
Mr. Arvind Uppal Chairman & Executive Director Mr. Sanjiv Verma Non-Executive & Independent Director
Mr. Sunil D’Souza Managing Director Mr. Simon J.Scarff Non-Executive, Independent Director
Mr. Anil Berera Executive Director & CFO Mrs. Sonu Bhasin Non-Executive, Independent Director
Mr. Vikas Singhal Executive Director
Mr. Anand Bhatia Non –Executive & Independent Director
Holding – Top10
Perc. Holding Perc. Holding
WHIRLPOOL FINANCIAL MAUR 75 Goldman Sachs Group 0.69
Templeton Asset Mgmt 2.84 Vanguard Group 0.67
Kotak Mahindra 0.87 Birla Sun Life Asset Management 0.65
Jupiter investment management ltd 0.76 Sundaram Asset Management 0.65
HDFC Asset Management 0.42 ICICI Prudential Asset Management Co. 0.59
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year
IFB INDUSTRIES
Expanding market coverage
India Equity Research| Consumer Durables
IFB Industries (IFB) is the market leader in front load washing machines EDELWEISS RATINGS
and is well set to leverage its market leadership position in front-load
Absolute Rating NOT RATED
washing machines by expanding into other segments like AC’s ,
refrigerators etc. The company recently commenced in-house
manufacture of top-load washing machines. This strategy has been
playing out well with top loader sales spurting 47% over FY16 to 175,000
units. IFB remains the third largest player in microwave ovens with 18%
market share. The company also enjoys 80% market share in clothes MARKET DATA (R: IFBI.BO, B: IFBI IN)
CMP : INR 729
dryers and 50% in domestic dishwashers. Recently, IFB expanded into ACs
Target Price : NA
and modular kitchens. The company is also trying to expand its
52-week range (INR) : 791 / 351
distribution channel, to address this gap, IFB has chalked out plans to
Share in issue (mn) : 40.5
expand its distribution reach to tier I, II & III cities. ‘NOT RATED’. M cap (INR bn/USD mn) : 29 / 457
Avg. Daily Vol.BSE/NSE(‘000) : 38.6
Leveraging leadership in front-loads to expand reach
IFB is market leader in front-load washing machines with 45% market share. The SHARE HOLDING PATTERN (%)
company is known for the durability of its products, strong product offerings and Current Q3FY15 Q2FY15
aggressive price points. Leveraging its success in front-load, IFB has starting Promoters % 75.0 75.0 75.0
manufacturing top-load machines and in a span of few years managed to capture 15% MF's, FI's & 9.0 9.0 9.0
BK’
market share in the segment. Recently, it also ventured into ACs and modular kitchens. FII's 1.7 1.7 1.7
others 14.4 14.4 14.4
* Promoters pledged shares : NIL1
Focused on expanding dealer network (% of share in issue)
IFB has a weak distribution reach. Hence, it is gearing to expand its distribution
network and service centres. IFB currently has a 5,000 dealers’ network across India RELATIVE PERFORMANCE (%)
versus Samsung’s and LG’s 30,000 plus network. IFB’s phase 1 plan (mid FY18) entails Stock over
Sensex Stock
having 7,000 dealers over next 2 quarters and 10,000 dealers by end of FY19. Sensex
8,000
6,000
(INR mn)
4,000
2,000
0
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY17
Front Loader WM sales
Source: Company
3,200
2,400
(INR mn)
1,600
800
0
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY17
Top Loader Sales
Source: Company
IFB points are exclusive company-owned/franchise-run retail stores which was started to
ramp up sales. Through these points, the company markets its products and caters to tier 1,
2 and 3 cities. IFB also has 380 exclusive IFB stores out of which 90 are company owned and
company operated and the remaining 290 are franchisee stores. These stores account for
25% of volume sales. Management is targeting 500 plus stores in first phase of its expansion
plan.
Source: Company
Company Description
IFB Industries, originally known as Indian Fine Blanks, was founded in Kolkatta, India in 1974
by Mr. Bijon Nag in collaboration with Hienrich Schmid AG of Switzerland. The product
range includes fine blanked components, aundry products (residential and commercial),
kitchen appliances and air conditioners. IFB is the premier fine blanker in India having fine
blanking presses, ranging in size from 90T to 800T. The company has a total of 9 fine
Blanking Presses.
IFB sells its appliances through multiple channels with almost 70% coming from multi-brand
stores. Some sales are made through IFB exclusive stores and its website as well. The
company had over 350 stores, as of Sept 2016, of which 85 are Company owned Company
operated (CoCo) stores. The company’s aim is to have 500 plus stores, including additional
CoCo stores. Their products are also sold in defence canteens and different institutions. Only
11% of its total sales come from its distributors. IFB is working on expanding its distribution
network and on growing its channel reach.
Manufacturing Locations
The company has 6 plants located in West Bengal, Goa, Bangalore and Bhopal. The
Engineering divisions are located at Kolkata & Bangalore. Apart from Fine Blanked
components, the Bangalore unit also manufactures motors for White goods as well as
Automotive applications.
Product portfolio
IFB has a wide range of products in 2 segments - Engineering Products/Fine Blanked
Components and Home/Commercial Appliances.
Fine blanking technologies has simplified metal shaping processes and has created
significant demand across various industries. It has an exclusive position in the automotive
industry for producing many high precision parts.
AC Washing
9% Machines
54%
Fine Blanked
Components
15%
Source: Company Annual Report
Key Personnel
Mr. Bijon Nag – Chairman
Mr. Bijon Nag is the promoter and Executive Chairman of the company. He is a mechanical
engineer and a prominent industrialist having over 3 decades of experience in machine tool
and engineering industries. He is also the Chairman of IFB Agro Industries and Director of IFB
Automotive Private Limited and Maruti Insurance Broking.
Mr. Bikram Nag, a BBA from Richmond College, London, serves as the Managing Director
and Joint Executive Chairman of IFB. Mr. Nag has been Joint Executive Chairman at IFB Agro
Industries since May 21, 2009 and has been serving as Whole Time Director since October
14, 1997. Mr. Nag has more than 12 years of experience in Marketing and Business
Management. He has made several significant contributions to IFB Agro Industries’ growth
and implementation of investment plans and business strategies.
Financial Statements
Income statement (standalone) (INR mn) Balance sheet (INR mn)
Year to March FY14 FY15 FY16 FY17 As on 31st March FY14 FY15 FY16 FY17
Income from operations 12,181 15,262 15,009 17,407 Equity capital 413 413 413 413
Direct cost 7,139 8,679 8,607 10,054 Reserves & surplus 2,960 3,457 3,771 4,263
Employee cost 979 1,224 1,556 1,659 Shareholders funds 3,372 3,870 4,183 4,676
Other expenses 1,630 1,838 4,152 4,720 Long term borrowings - - 82 276
Total operating expenses 9,749 11,741 14,315 16,433 Short term borrowings 478 345 154 35
EBITDA 2,432 3,521 694 974 Total Borrowings 478 345 236 311
Depreciation &amortisation 226 406 454 436 Long Term Lia.& Provisions 323 348 293 300
EBIT 2,206 3,115 241 538 Deferred Tax (Net) 233 259 258 288
Interest expense 22 25 22 32 Sources of funds 4,406 4,821 4,970 5,575
Other income 82 151 133 112 Gross block 4,328 5,141 5,541 6,288
Profit before tax 2,266 3,240 352 618 Depreciation 2,071 2,411 2,802 3,238
Provision for tax 77 95 38 108 Net block 2,258 2,730 2,739 3,050
Reported profit 2,189 3,145 314 510 Capital work in progress 146 57 238 139
Adjusted Profit 2,189 3,145 314 510 Non Current Investments - - - 120
Eq. shares outstanding (mn) 41 41 41 41 Inventories 1,555 2,231 2,144 2,349
EPS (INR) basic 53 76 8 12 Sundry debtors 723 907 1,155 1,382
Diluted shares (mn) 41 41 41 41 Cash and cash equivalents 682 445 482 464
Adjusted Diluted EPS 53 76 8 12 Loans and advances 668 820 981 1,102
Adjusted Cash EPS 58 86 19 23 Other current assets 381 519 8 6
DPS - - - - Total current assets (ex cash) 4,008 4,922 4,769 5,303
Dividend payout (%) - - - - Trade payable 1,954 2,834 2,886 3,468
Other CL& Short Term Provision 52 54 59 60
Common size metrics- as % of net revenues Total current lia. & provisions 2,006 2,889 2,944 3,528
Year to March FY14 FY15 FY16 FY17 Net Current Assets (ex cash) 2,003 2,033 1,825 1,775
Direct cost 58.6 56.9 57.3 57.8 Uses of funds 4,406 4,821 4,802 5,084
Employee cost 8.0 8.0 10.4 9.5 Book value per share (INR) 82 94 101 113
Other expenses 13.4 12.0 27.7 27.1
Depreciation & amortisation 1.9 2.7 3.0 2.5 Free cash flow
Interest expenditure 0.2 0.2 0.1 0.2 Year to March FY14 FY15 FY16 FY17
EBITDA margins 20.0 23.1 4.6 5.6 Reported Profit 2,189 3,145 314 510
Net profit margins (adjusted) 18.0 20.6 2.1 2.9 Add: Depreciation 226 406 454 436
Interest (Net of Tax) 21 25 20 26
Growth metrics (%) Add: Others (2,005) (2,818) (134) (75)
Year to March FY14 FY15 FY16 FY17 Less:Changes in wor. capital 220 (66) 165 (29)
Revenues 13 25 (2) 16 Opertaing cash flow 210 824 487 926
EBITDA 12 45 (80) 40 Less: Capex 578 815 658 626
PBT 8 43 (89) 76 Free cash flow (368) 8 (171) 300
Adjusted Profit 11 44 (90) 63
EPS 583 44 (90) 63
JOHNSON CONTROLS-HITACHI
On accelerated growth path
India Equity Research| Consumer Durables
Johnson Controls Hitachi Air Conditioning India (JHI) is set to emerge a EDELWEISS RATINGS
lead player in India's fast-growing room AC market led by: (a) launch of Absolute Rating NOT RATED
innovative premium products in inverter and 5-star ACs; (b) strengths in
new-generation products, such as VRFs; and (c) global joint venture
between Johnson Controls and Hitachi, which will help JHI leverage on
synergies of Johnson Control’s (JCI) B2B product portfolio (York Chillers &
HVAC) and B2C proficiency of Hitachi Appliances. JHI currently enjoys a
MARKET DATA (R: JCHA.BO, B: JCHAC IN)
11% market share in room AC’s . JHI registered a considerable 20% YoY
CMP : INR 1,988
growth in room AC sales for FY17. ‘NOT RATED’
Target Price : NA
52-week range (INR) : 2,300 / 1,157
Johnson Controls JV to bring synergistic benefits Share in issue (mn) : 27.2
M cap (INR bn/USD mn) : 54 / 836
Sharpening focus on capturing the No. 2 spot in India and burgeoning demand and
Avg. Daily Vol.BSE/NSE(‘000) : 14.7
penetration of ACs, we believe will help JHI achieve its target of doubling India revenue
by 2020. Moreover, its portfolio of energy-efficient and 5-star/inverter ACs (65% of
SHARE HOLDING PATTERN (%)
total models) positions the company ideally to cash in on the shift in demand for
premium and energy-efficient cooling products. Also, its JV with JCI builds on the Current Q3FY15 Q2FY15
latter’s strength in the HVAC market and Hitachi’s prowess in room ACs, VRF and chiller Promoters % 74.3 74.3 74.3
segments, which will yield synergistic benefits. MF's, FI's & 13.9 9.8 9.6
BK’
FII's 1.4 1.3 1.3
Expanding footprint through wider distribution network others 10.4 14.6 14.8
* Promoters pledged shares : NIL
JHI has a strong nation-wide distribution network consisting of 5 regional offices, 20 (% of share in issue)
branch offices, 203 exclusive sales & service dealers and over 4,000 sales points. The
company plans to expand its dealer network to 11,000 by 2020 in order to widen its RELATIVE PERFORMANCE (%)
reach pan India, with special focus on South, which contributes lower revenue Stock over
Sensex Stock
currently. At present, JHI has 33 exclusive showrooms, and plans to augment it to 150 Sensex
in near future. 1 month 2.8 (1.4) (4.2)
3 months 8.7 11.7 3.0
Outlook and valuations: To reap synergistic gains; NOT RATED 12 months 14.7 46.5 31.8
With the AC industry at inflection point, JHI could emerge a big beneficiary from the
shift from fixed speed to inverter ACs on account of enjoying first mover advantage in
latter. In our view, JHI is well poised to tap the growth arising from the synergistic
benefits of the JV that will lead to exponential growth in both the B2B & B2C business.
The stock currently trades at PE of 67x FY17. ’NOT RATED’.
Financials(SA) (INR mn) Amit Mahawar
+91 22 4040 7451
Year to March FY14 FY15 FY16 FY17
amit.mahawar@edelweissfin.com
Revenues( INR mn) 10,997 15,728 16,405 19,716
Growth (%) 18.3 43.0 4.3 20.2 Darshika Khemka
+91 22 4063 5544
EBITDA (INR mn) 473 1,379 1,227 1,671 darshika.khemka @edelweissfin.com
Adjusted profit (INR mn) 80 778 500 810
Diluted EPS ( INR) 3.0 28.6 18.4 29.8 Krish Kohli
krish.kohli@edelweissfin.com
Growth (%) (55.6) 866.2 (35.7) 62.2
Diluted P/E (x) 675.3 69.9 108.8 67.1
ROAE ( %) 3.8 28.1 14.9 20.3 July 14, 2017
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Consumer Durables
Moreover, the company has established brand equity by presciently identifying market
trend of shift to energy-efficient ACs and has hence focused on 5-star/inverter ACs (65% of
its models; earns ~40% revenue from inverter category). Currently, the company has India’s
most energy efficient AC range out of which 36% of its inverter ACs carry BEE 5 star rating—
highest in the industry. Over the next 5 years, as growth in inverter AC picks up, JHI will be
among the biggest beneficiaries of this trend.
Company Description
Hitachi Home and Life Solutions (India) Ltd., established in 1984 in India with a manufacturing
plant in Gujarat, is amongst the top AC players in the country. The company manufactures a
wide range of products—room ACs (split & window), commercial ACs including Chiller,
Ductable ACs, Telecom ACs and VRF system. In 2015 Hitachi appliances, Japan, entered into JV
with Johnson Controls (JCI) to provide global customers with full range of AC products, in
which JCI holds 60% and Hitachi the balance 40% to be called Johnson Controls - Hitachi Air
Conditioning India Ltd. JHI has a total installed capacity of 600,000 room ACs per annum (in a
single shift). In addition, JHI also has the capacity to manufacture 120,000tonne Ductable units,
9,000 VRFs ODU and 300 Chillers per annum. It has a robust pan-India distribution network
comprising 5 regional offices, 20 branch offices, 203 exclusive sales & service dealers, over
4,000 sales points and 33 exclusive showrooms.
Source: Company
Product Portfolio
JHI operates in 4 segments:
i) Room ACs
The room AC segment contributes lion’s share to JHI’s business and is one of the company’s
major focus areas. It has a wide range of split ACs comprising around 80 models which
Hitachi I-clean Plus include 2, 3, 4 and 5 star-rated and tropical inverter technology products. Its window range
>5 star rating comprises 11 models with 2, 3 and 5 star rating.
>Auto filter cleaning technology
AC range
1) Kashikoi: This range lends it technical edge in split ACs.
2) i-See, i-Sense and i-Clean technologies designed to meet needs of Indian consumers.
3) Smart i-Connect range with Wi-Fi connectivity can be operated from any Android or iOS
Smart Phone.
4) Toushi range caters to the replacement market targeting customers interested in the
Hitachi Kampa Split AC
>5 star rating JHI brand at a value price.
>Silent cooling & selectable fan 5) Hot and cold range of products in split and window.
speeds
6) Logicool range: The company has significantly increased the number of key accounts
year-on-year. With spurt in institutional sales, this business is expected to grow strongly.
iv)Home appliances
JHI has created a niche in the home appliances category which has helped the brand
substantially and is strategically important as it allows continuous engagement with channel
partners during lean seasons. The company is operating in the over 253ltr frost-free
refrigerators market and has also launched a new range of air purifiers catering to rising
demand in Delhi and other Metros. Currently, the base of air purifiers is minuscule;
however, the company anticipates good growth in this segment.
Source: Company
Key Personnel
Mr. Franz Cerwinka, Chairman
Mr. Franz Cerwinka has served in a variety of operations, commercial and finance leadership
positions within Automotive Experience and Building Efficiency during his tenure with JCI.
During his 20-year tenure with the company, Mr. Cerwinka has spearheaded significant
changes across multiple regions and cultures.
Key Risks
High competitive intensity: With multiple players in the industry, there is intense
competition in the industry with all players trying to gain market share.
Slowdown in capex spending: Any slowdown in capex spending and economic activity in
India with respect to infrastructure creation could dent the commercial division’s
incremental order intake.
Financial Statements
Income statement (standalone) (INR mn) Balance sheet (INR mn) (INR mn)
Year to March FY14 FY15 FY16 FY17 As on 31st March FY14 FY15 FY16 FY17
Income Erom operations 10,997 15,728 16,405 19,716 Equity capital 272 272 272 272
Direct cost 7,399 10,200 10,128 12,074 Reserves & surplus 2,128 2,857 3,308 4,118
Employee cost 818 1,138 1,110 1,225 Shareholders funds 2,400 3,129 3,579 4,390
Other expenses 2,307 3,012 3,940 4,746 Long term borrowings 276 276 0 0
Total operating expenses 10,524 14,350 15,178 18,045 Short term borrowings 697 1,119 1,328 600
EBITDA 473 1,379 1,227 1,671 Total Borrowings 973 1,395 1,328 600
Depreciation and amortisation 300 359 455 508 Long Term Liabilities & Provision 277 326 355 371
EBIT 172 1,019 772 1,163 Deferred Tax (Net) -6 15 -45 -88
Interest expense 120 83 101 41 Sources of funds 3,645 4,865 5,218 5,273
Other income 60 73 18 57 Gross block 3,052 3,811 4,457 4,876
Profit before tax 113 1,010 688 1,179 Depreciation 1,097 1,381 1,796 2,304
Provision for tax 33 233 189 368 Net block 1,955 2,430 2,661 2,572
Reported profit 80 778 500 810 Capital work in progress 22 26 0 0
Adjusted Profit 80 778 500 810 Inventories 2,905 4,903 4,944 4,600
Equity shares outstanding (mn) 27 27 27 27 Sundry debtors 1,884 2,838 2,800 2,831
EPS (INR) basic 3.0 28.6 18.4 29.8 Cash and cash equivalents 220 57 42 236
Diluted shares (mn) 27 27 27 27 Loans and advances 599 489 562 546
Adjusted Diluted EPS 3.0 28.6 18.4 29.8 Other current assets 14 39 43 149
Adjusted Cash EPS 14.0 41.8 35.1 48.5 Total current assets (ex cash) 5,622 8,327 8,389 8,362
DPS 1.5 1.5 1.5 1.5 Trade payable 3,853 5,805 5,643 5,505
Dividend payout (%) 50.7 5.2 8.2 5.0 Other Current Liabilities & Short 100 113 190 155
Total current liabilities & provis 3,953 5,918 5,832 5,660
Common size metrics- as % of net revenues Net Current Assets (ex cash) 1,668 2,409 2,557 2,701
Year to March FY14 FY15 FY16 FY17 Uses of funds 3,645 4,865 5,218 5,273
Direct cost 67.3 64.9 61.7 61.2 Book value per share (BV) (INR) 88 115 132 161
Employee cost 7.4 7.2 6.8 6.2
Other expenses 21.0 19.1 24.0 24.1 Free cash flow
Depreciation and amortisation 2.7 2.3 2.8 2.6 Year to March FY14 FY15 FY16 FY17
Interest expenditure 1.1 0.5 0.6 0.2 Reported Profit 80 778 500 810
EBITDA margins 4.3 8.8 7.5 8.5 Add: Depreciation 300 359 455 508
Net profit margins (adjusted) 0.7 4.9 3.0 4.1 Interest (Net of Tax) 84.9 63.6 73.5 30.0
Add: Others (178.30) (888.78) 263.86 856.85
Growth metrics (%) Less:Changes in working capital -293 -235 677 370
Year to March FY14 FY15 FY16 FY17 Opertaing cash flow 580 547 616 1,835
Revenues 18.3 43.0 4.3 20.2 Less: Capex 1,141 556 762 695
EBITDA 1.8 191.6 (11.0) 36.1 Free cash flow -561 -9 -146 1,140
PBT (45.2) 792.0 (31.9) 71.2
Adjusted Profit (47.4) 866.2 (35.7) 62.2 Cash flow metrics
EPS (55.6) 866.2 (35.7) 62.2 Year to March FY14 FY15 FY16 FY17
Operating cash flow 580 547 616 1,835
Financing cash flow 1,143 (558) 3 62
Investing cash flow (1,132) (717) (512) (695)
NET CASH FLOW 591 (729) 107 1,203
Capex (1,141) (556) (762) (695)
Dividend paid 47 47 49 49
ORIENT PAPER
Value unlocking potential
India Equity Research| Consumer Durables
Orient Paper (OPL) was formed post demerger of Orient cement in FY13. EDELWEISS RATINGS
OPL operates through the 2 segments of electrical consumer durable Absolute Rating NOT RATED
(ECD) and paper. ECD segment comprises fans, lighting, home appliances
and switchgears - contributes >70% to top line. Paper division comprises
tissue, writing and printing papers, caustic soda and its derivatives -
contributes ~27% to top line. Orient Electric is the second largest player MARKET DATA (R: ORPP.BO, B: OPI IN)
in fan segment after Crompton Greaves with 20% organised market CMP : INR 84
share. It is the largest manufacturer and exporter of fans from India. OPL Target Price : NA
is the third largest manufacturer of LED’s in India. It is also present in 52-week range (INR) : 96 / 53
street lighting category. OPL recorded revenue CAGR of 9% during FY13- Share in issue (mn) : 212.2
17 and EBITDA margin improved from 2.1% in FY14 to 6.9% in FY17. ‘NOT M cap (INR bn/USD mn) : 18 / 278
Company Description
Orient Electric is a division of Orient Paper and Industries Limited (OPIL), which was
incorporated as Orient Paper Mills Ltd. in 1939. A global market leader in the electrical
industry, Orient Electric offers diverse selection of consumer electrical solutions including
Fans, Home appliances, Lighting and Switchgear. The company has 5 manufacturing facilities
located in Noida, Kolkatta and Faridabad.
Orient Electric operates in over 35 countries and is the largest manufacturer and exporter of
fans in India. The company has a strong pan India presence with more than 100,000 retail
outlets, 3500 retailers and distributors, and 153 service centres across the nation.
Table 1: Milestones
Year Description
1939 Orient Electric incorporated by C K Birla Group
1990 Developed & Patented Peak Speed Performance Output Technology.
Equipped its manufacturing plants at Faridabad and Kolkata
2008 Enters into Lighting Business. Forayed into a range of new electrical
products. Set up an advanced manufacturing unit at Faridabad dedicated to
manufacturing of CFLs and FTLs.
2011 Forayed into Home Appliances Business with a wide range of products
including Electric Kettle, Coolers, Induction Cooker, Geysers and Water
2014 Changed its brand name and identity from 'Orient Electricals' to 'Orient
Electric' and consolidated its business verticals of Fans, Lighting and Home
Appliances. The company aimed to revamp its identity as a one-stop home
solutions provider. Also entered the LED Lighting segment.
2015 Ventured into Switchgear Business. Manufacturing facility for the same is
located in Noida.
Source: Company Website
Electric Fans
Appliances - 52%
Traded
4%
Lights &
Luminaries
17%
Source: Company Annual Report
Home Appliances Worked on consolidating and rationalizing the product portfolio. Sold
over 1 lac air-coolers, indicating product acceptability and strong
distribution network. Launched a new range of four-way cooling air-
coolers
Key Personnel
Mr. C.K. Birla – Chairman
Mr. CK Birla (60) is the chairman of the CK Birla Group, a conglomerate operating across home
and building products, automotive and technology, and healthcare and education. The Group
has strategic alliances with some of the world’s leading companies including Caterpillar, Ford
and Daimler. Other Group companies and organisations include Birlasoft, GMMCO, the Birla
Institute of Technology, the BM Birla Heart Research Centre, the Calcutta Medical Research
Institute, and Modern High School for Girls, and the Rukmani Birla Modern High School.
Financial Statements
Income statement (standalone) (INR mn) Balance sheet (INR mn)
Year to March FY14 FY15 FY16 FY17 As on 31st March FY14 FY15 FY16 FY17
Income from operations 16,194 17,198 18,690 18,752 Equity capital 205 205 205 212
Direct cost 11,670 12,088 12,681 12,280 Reserves & surplus 4,125 3,789 3,937 4,861
Employee cost 1,455 1,652 1,829 2,132 Shareholders funds 4,329 3,994 4,142 5,073
Other expenses 2,730 2,819 2,814 3,037 Long term borrowings 400 874 1,549 1,173
Total operating expenses 15,855 16,559 17,323 17,449 Short term borrowings 2,872 2,652 2,582 2,436
EBITDA 339 638 1,367 1,303 Total Borrowings 3,272 3,525 4,130 3,610
Depreciation and amortisation 468 437 443 438 Long Term Liabilities & Provision 524 533 430 445
EBIT (129) 201 924 865 Deferred Tax (Net) 74 0 3 173
Interest expense 371 438 512 443 Sources of funds 8,199 8,052 8,706 9,301
Other income 515 324 288 253 Gross block 9,070 9,473 9,885 10,833
Add: Exceptional items Depreciation 3,885 4,327 4,770 5,208
Profit before tax 15 88 700 675 Net block 5,185 5,146 5,115 5,626
Provision for tax (28) (135) 3 169 Capital work in progress 17 28 0 0
Reported profit 42 222 697 506 Total Fixed Assets
Less: Exceptional Items (Net of Ta - - - - Non Current Investments 89 87 193 190
Adjusted Profit 42 222 697 506 Inventories 1,629 2,287 2,296 2,563
Equity shares outstanding (mn) 202 202 205 212 Sundry debtors 4,233 3,629 3,835 3,854
EPS (INR) basic 0.2 1.1 3.4 2.4 Cash and cash equivalents 253 277 591 333
Diluted shares (mn) 202 202 205 212 Loans and advances 668 638 878 880
Adjusted Diluted EPS 0.2 1.1 3.4 2.4 Other current assets 94 133 152 106
Adjusted Cash EPS 2.5 3.3 5.6 4.4 Total current assets (ex cash) 6,878 6,964 7,752 7,736
DPS 0.1 0.1 0.3 1.0 Trade payable 3,788 4,005 3,893 3,949
Dividend payout (%) 47.6 9.1 7.4 41.9 Other Current Liabilities & Short 189 179 395 302
Total current liabilities & provisi 3,977 4,184 4,289 4,251
Common size metrics- as % of net revenues Net Current Assets (ex cash) 2,901 2,780 3,464 3,485
Year to March FY14 FY15 FY16 FY17 Miscelleneous expenditure 0 11 0 0
Direct cost 72.1 70.3 67.8 65.5 Uses of funds 8,192 8,052 8,772 9,301
Employee cost 9.0 9.6 9.8 11.4 Book value per share (BV) (INR) 21 (25) 20 24
Other expenses 16.9 16.4 15.1 16.2 Contingent Liabilities (7.13) 0.02 66.74 0.13
Operating expenses
Depreciation and amortisation 2.9 2.5 2.4 2.3 Free cash flow
Interest expenditure 2.3 2.5 2.7 2.4 Year to March FY14 FY15 FY16 FY17
EBITDA margins 2.1 3.7 7.3 6.9 Reported Profit 42 222 697 506
Net profit margins (adjusted) 0.3 1.3 3.7 2.7 Add: Depreciation 468 437 443 438
Interest (Net of Tax) 1,077.4 1,111.5 509.5 332.0
Growth metrics (%) Add: Others 339.24 388.18 461.51 183.20
Year to March FY14 FY15 FY16 FY17 Less:Changes in working capital 365 86 328 447
Revenues 23.4 6.2 8.7 0.3 Opertaing cash flow 1,562 2,073 1,783 1,012
EBITDA (314.8) 88.3 114.1 (4.7) Less: Capex 289 361 513 450
PBT (103.2) 500.3 698.6 (3.5) Free cash flow 1,273 1,712 1,270 562
Adjusted Profit (113.1) 425.1 213.1 (27.4)
EPS (113.4) 425.1 208.3 (29.9)
SURYA ROSHNI
Glowing bright
Surya Roshni (SYR), a 4 decade year old conglomerate, primarily deals in EDELWEISS RATINGS
lighting and steel tube products. It is the second-largest lighting player in Absolute Rating NOT RATED
terms of revenue based out of India and the largest GI pipe manufacturer
in the country. SYR has been market leader in traditional light sources and
is currently the No.2 player in LEDs with estimated market share of ~11.5%.
It is the only 100% backward integrated lighting player in India which lends
it an edge over competition, as it offers best quality products at lower
rates. SYR ventured into fans and home appliances in FY14 and FY15, MARKET DATA (R: SURR.BO, B: SYR IN)
CMP : INR 280
respectively. In just 2 years of launch, the company’s fan segment achieved
Target Price : NA
sales of INR1.3bn. It has a pan-India distribution network of 200,000
52-week range (INR) : 306 / 160
dealers and retail outlets. SYR plans to scale up its fans & consumer Share in issue (mn) : 43.8
appliances businesses without incurring huge capex as it is adopting the M cap (INR bn/USD mn) : 12 / 193
contract manufacturing route. ‘NOT RATED’. Avg. Daily Vol.BSE/NSE(‘000) : 308.7
Higher LED revenue to offset decline in FTL, CFL and GLS SHARE HOLDING PATTERN (%)
SYR has been a large player in traditional products like FTL, CFL and GLS. The company has Current Q3FY17 Q2FY17
managed the structural shift in the lighting industry well. SYR is one of the only 100% Promoters % 63.3 63.3 63.3
backward integrated lighting player in India, which lends it competitive edge. This has also MF's, FI's & 1.5 1.5 1.2
helped it sustain higher volumes in lighting by offering good quality products at cheaper BK’
FII's 2.8 2.8 1.4
rates. The company manufactures LED products at its fully integrated plants in Kashipur and others 32.4 32.4 34.1
Malanpur. It has also been an active particiapnt in the government’s EESL programme and * Promoters pledged shares : 22.6
won orders worth INR1,550 mn for supply of LED bulbs and street lights. (% of share in issue)
Adjusted profit (INR mn) 1,226 541 638 662 Krish Kohli
Diluted EPS ( INR) 12.2 12.3 14.6 15.1 krish.kohli@edelweissfin.com
Growth (%) (23.0) 1.4 18.0 3.7
Diluted P/E (x) 23.8 23.4 19.9 19.1
ROAE ( %) 16.3 6.8 8.5 9.2 July 14, 2017
Increase in LED revenues will offset the decline in FTL, CFL and GLS
SYR has traditionally been known for its light sources (bulbs, CFL, tube lights) portfolio. With
a market share of ~11.5% in the lighting industry, its presence in smaller counters is higher
than peers, which should enable it to post good LED sales.
Chart 1: LED segment has grown at 165% CAGR from FY14 to FY17
17,500
14,000
10,500
(INR mn)
7,000
3,500
0
FY 13 FY 14 FY 15 FY 16 FY17
Despite being a late entrant in the fans industry, SYR commendably clocked INR1,300mn
revenue in the second year of operations itself, implying market share of ~3%.
Revenue mix
While steel pipes still contribute 60% to total revenue, we expect contribution of lighting
products & new verticals to increase going forward mainly driven by the shift to LED and the
fast growing home appliances industry.
Lighting
Products
40%
Steel Products
60%
Company Description
Incorporated in 1973 as Prakash Tubes, the company commenced operations as a steel pipe
manufacturer in Haryana. A decade later, it diversified into lighting products. Currently, SYR
manufactures steel pipe products for agriculture, infrastructure, oil & gas and construction
sectors, of which its offerings for oil & gas sector are approved by API (American Petroleum
Institute). It is one of the largest conglomerates in the steel segment (largest GI
manufacturer) and second largest in lighting in India. Both the products are marketed under
the Surya brand. With 11.6%, SYR Is the No.2 player in the domestic lighting market. The
company has now expanded and diversified into kitchen appliances and fans as well. The
company has a large distribution network comprising over 2,000 distributors and 2 lakh
country-wide retailers. It exports to over 50 countries, across the Middle East, Europe, Africa
and Asia.
Steel Division 1) Square and rectangular section (hollow) pipes which are used
for civil structures, furniture and transmission towers.
2) M.S.Black - Mild steel that can easily be welded
3) GI Pipes - Galvanised Pipes to avoid corrosion. These pipes are
generally for water lines
All its LED products are manufactured in-house at fully integrated plants in Kashipur
(Uttarakhand) and Gwalior (MP), supported by Surya Technology & Innovation Centre (STIC)
at Noida—an advanced state-of-the-art lighting laboratory and research centre with specific
focus on energy-efficient lighting products such as LED and luminaires. YSR is the only
lighting company in India with 100% backward integration.
The company’s ERW steel pipe manufacturing plant and a large cold rolling strip mill are
located in Bahadurgarh (NCR), Bhuj (Gujarat) and Gwalior (MP). It has a production capacity
of about 700,000mt per annum of plain, GI and spiral pipes.
The Hindupur plant, which commenced operations recently, has an additional production
capacity of 100,000mt pa and has been set up to produce square and rectangular sections
and GI pipes. It will lead to logistic cost savings and help further leverage its presence in the
premium South India market, leading to a larger and stronger steel pipes business with
economies of scale. As this plant has been set up in a notified backward area, it enjoys
certain tax benefits.
Key Risks
• Predatory pricing by new entrants could lead to market share loss, which could dent
volume.
Key Personnel
Financial Statements
Income statement (standalone) (INR mn) Balance sheet (INR mn)
Year to March FY14 FY15 FY16 FY17 As on 31st March FY14 FY15 FY16 FY17
Income from operations 31,002 28,571 29,642 31,455 Equity capital 438 438 438 438
Direct cost 23,898 21,925 21,733 23,506 Reserves & surplus 7,301 7,672 6,476 7,055
Employee cost 1,511 1,564 1,857 1,996 Shareholders funds 7,739 8,110 6,915 7,494
Other expenses 2,565 2,851 3,629 3,654 Long term borrowings 4,010 3,643 3,406 3,145
Total operating expenses 27,973 26,340 27,218 29,156 Short term borrowings 5,501 5,155 5,132 5,460
EBITDA 3,028 2,231 2,424 2,298 Total Borrowings 9,511 8,798 8,538 8,605
Depreciation and amortisation 556 560 610 559 Long Term Liab. & Provisions 229 262 234 317
EBIT 2,472 1,670 1,814 1,739 Deferred Tax (Net) 483 513 524 523
Interest expense 1,145 1,090 964 877 Sources of funds 17,963 17,684 16,210 16,939
Other income 36 37 19 8 Gross block 14,698 15,531 14,970 15,864
Add: Exceptional items Depreciation 5,579 6,167 7,435 7,995
Profit before tax 1,363 618 868 869 Net block 9,119 9,365 7,534 7,869
Provision for tax 138 77 230 207 Capital work in progress 537 264 184 151
Reported profit 1,226 541 638 662 Total Fixed Assets
Less: Excep. Items (Net of Tax) - - - - Non Current Investments 500 500 500 500
Adjusted Profit 1,226 541 638 662 Inventories 4,331 3,895 4,699 5,409
Equity shares outstanding (mn) 101 44 44 44 Sundry debtors 4,966 5,242 5,257 5,421
EPS (INR) basic 12 12 15 15 Cash and cash equivalents 247 264 273 192
Diluted shares (mn) 101 44 44 44 Loans and advances 1,008 799 - -
Adjusted Diluted EPS 12.2 12.3 14.6 15.1 Other current assets - 355 1,323 1,458
Adjusted Cash EPS 17.7 25.1 28.5 27.9 Total current assets (ex cash) 10,552 10,555 11,551 12,480
DPS 1.0 1.0 1.0 1.5 Trade payable 2,536 2,928 3,463 3,865
Dividend payout (%) 8.2 8.1 6.9 9.9 Other Current Liabilities & Short T 209 72 97 197
Total current liabilities & provisio 2,744 3,000 3,560 4,062
Common size metrics- as % of net revenues Net Current Assets (ex cash) 7,807 7,555 7,992 8,419
Year to March FY14 FY15 FY16 FY17 Miscelleneous expenditure - - - -
Direct cost 77.1 76.7 73.3 74.7 Uses of funds 17,963 17,684 16,210 16,939
Employee cost 4.9 5.5 6.3 6.3 Book value per share (BV) (INR) 77 185 158 171
Other expenses 8.3 10.0 12.2 11.6
Depreciation and amortisation 1.8 2.0 2.1 1.8 Free cash flow (INR mn)
Interest expenditure 3.7 3.8 3.3 2.8 Year to March FY14 FY15 FY16 FY17
EBITDA margins 9.8 7.8 8.2 7.3 Reported Profit 1,226 541 638 662
Net profit margins (adjusted) 4.0 1.9 2.2 2.1 Add: Depreciation 556 560 610 559
Interest (Net of Tax) 1,029 954 709 668
Growth metrics (%) Add: Others (606) 87 284 (153)
Year to March FY14 FY15 FY16 FY17 Less:Changes in working capital 1,302 (537) 184 447
Revenues 1.6 (7.8) 3.7 6.1 Opertaing cash flow 903 2,680 2,057 1,290
EBITDA (7.9) (26.3) 8.6 (5.2) Less: Capex 1,472 627 511 450
PBT (17.0) (54.7) 40.5 0.2 Free cash flow (569) 2,053 1,546 840
Adjusted Profit (24.1) (55.9) 18.0 3.7
EPS (23.0) 1.4 18.0 3.7
TTK PRESTIGE
Quality, innovation, strong growth levers
India Equity Research| Consumer Durables
TTK Prestige (TTK) is India’s largest kitchen appliances player with 40% EDELWEISS RATINGS
market share in the organised cookers segment. This bears testimony to
Absolute Rating NOT RATED
its sound brand quality built over the years. The company is well
positioned in the INR120bn kitchen appliances market, riding on its
expanding product portfolio and innovation. TTK’s sharp focus on
marketing & distribution has resulted in significant market share and
brand recall in kitchen appliances. The company spends more than 6% of
sales on ads and sales promotion, which has led to strong brand MARKET DATA (R: TTKL.BO, B: TTKPT IN)
awareness in industry. Diversification is another major growth driver for CMP : INR 6,365
Target Price : NA
TTK. Contribution of kitchen appliances has increased from 20% in FY10
52-week range (INR) : 6,824 / 4,651
to 30% in FY17. We believe TTK is a strong & sustainable growth story,
Share in issue (mn) : 11.7
given its premium positioning in the appliances segment. ‘NOT RATED’ M cap (INR bn/USD mn) : 74 / 1,150
Avg. Daily Vol.BSE/NSE(‘000) : 11.3
Leveraging on brands to expand product reach in appliances
Clearly, TTK boasts of a sustainable products innovation track record in pressure SHARE HOLDING PATTERN (%)
cookers (40% market share), which has provided it a strong platform to roll out other Current Q3FY15 Q2FY15
innovative products like cook-tops, appliances and cleaning solutions thereby Promoters % 70.3 70.3 70.3
expanding its target market. The company has one of the highest SKUs in the MF's, FI's & 6.3 4.9 5.4
appliances segment. TTK spends more than 6% of sales on ads and sales promotion BK’
FII's 13.3 15.6 15.3
activities, which has helped in creating solid brand awareness. others 10.1 9.2 9.0
* Promoters pledged shares : 0.9
Focused on new segments (% of share in issue)
TTK recorded 18% revenue CAGR during FY10-17, mainly led by growth in gas stoves
RELATIVE PERFORMANCE (%)
and kitchen appliances, which grew by 23% and 28% respectively. Mgt is targeting 3x
Stock over
sales over FY17-22 to INR50bn, of which INR15bn will be from inorganic/exports. A Sensex Stock
Sensex
step in this direction was the acquisition of Horwood, a UK-based kitchen appliances
1 month 2.8 (5.4) (8.2)
company. It has also introduced innovative SKU’s in the cleaning solutions segment.
3 months 8.7 (0.5) (9.2)
12 months 14.7 34.1 19.4
Outlook and Valuation: Back on growth track; ‘NOT RATED’
Management’s new focus areas along with strong brands could see TTK emerge a big
beneficiary of the shift from unorganised to organised. We expect the company
leverage its sound brands to launch new products and move towards achieving its
revenue target of INR50bn by FY22. At CMP, the stock trades at PE of 53x FY17. ‘NOT
RATED’.
Financials(SA) (INR mn) Amit Mahawar
+91 22 4040 7451
Year to March FY14 FY15 FY16 FY17 amit.mahawar@edelweissfin.com
Revenues( INR mn) 12,938 13,883 14,879 16,036
Growth (%) (4.8) 7.3 7.2 7.8 Darshika Khemka
+91 22 4063 5544
EBITDA (INR mn) 1,652 1,527 1,829 1,949 darshika.khemka @edelweissfin.com
Adjusted profit (INR mn) 1,118 923 1,156 1,430
Krish Kohli
Diluted EPS ( INR) 90.1 77.2 102.5 121.2 krish.kohli@edelweissfin.com
Growth (%) (23.3) (14.3) 32.7 18.3
Diluted P/E (x) 70.6 82.3 62.0 52.4
ROAE ( %) 22.8 15.0 16.9 18.1 July 14, 2017
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Consumer Durables
Chart 2: Increasing share of Kitchen Appliances augurs well for the company
100%
40%
47%
41% 37% 37% 36%
37% 37%
20%
(INR mn)
provider lead by product
innovation
7,000
3,500
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Gross Revenues
TTK has always focused on understanding the consumer need which has helped it in
identifying pain points and offering solutions in the form of designing new and innovative
products. As a result, it has a strong connect with the consumer because of which its brand
enjoys a good market share in India. It has also entered into new premium categories like
the home cleaning segment, which has huge growth opportunity. Its brand ‘Prestige’ has a
strong consumer recall. A wide distribution network and a strong brand have helped TTK
create a pan-India presence with south India comprising the biggest share.
67 68
60
60
30
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17E
New SKU's added
Source: Company, Edelweiss research
360
(Nos)
240
Traditional
Modern Trade 120
Format 58%
21% 0
FY 07
FY 08
FY 09
FY 10
FY 11
FY 12
FY 13
FY 14
FY 15
FY 16
Company Description
TTK Prestige was founded in 1928 as a distribution agency for food and personal care
products, now manufactures a wide range of products, grossing over Rs 1500cr. Their
products range from cookers to kitchen appliances to providing kitchen solutions for homes.
Majority of their sales are domestic. Exports are less than 5% of Total Sales. Exports are
mainly to Japan, Europe and USA, and intend to significantly increase its exports after
acquiring Horwood Homeware, a UK based company. As of FY15, the capacity utilization was
not more than 50%-60%.
The company is now planning on introducing products outside the kitchen, mainly Cleaning
Solutions and Home products. In FY16, they launched their first product under this segment;
LED Lantern. It is a power saving, high efficiency light that is light-weight and can be taken to
any place of darkness once charged. Targeting power cut prone areas. By the end of FY17
they intend on launching at least 30 SKU’s in the new segment.
Product Portfolio
For 6 decades TTK has stood tall as the market leaders in kitchen appliances and has an
extensive range of products and adds around 100 new SKU’s every year under its various
product lines. They believe it is important to change with time and are recognizing the
growth and shift in demand from pressure cookers to electrical appliances.
Prestige was the first manufacturer of pressure cookers in India. With time, the company
has introduced new products and continuously expanded the scale of their production
along with their productivity. The company that started off as a distributor now has a
massive national presence
2001 Gas Stoves & Electrical Appliances - TTK's users pushed TTK to innovate and provide them with all their needs since
they now had established trust with the Prestige product family. Our customers desire propelled our R & D
Department to develop Gas Stoves and the entire range of Electrical Appliances like mixers, grinders, toasters,
ovens, grills and more.
2015 Pressure Cookware (Clip on) - Pressure cooking and Prestige are synonymous to Indian consumers and that's what
inspires TTK to push their boundaries. TTK realised how important a part pressure cooking was in the daily cooking
regime of the Indian homes and thus was born the idea of Clipon pressure cookware - with a completely new
universal lid interface which can make any cookware in its series into a pressure cooker. Now you can have a
common lid for a saucepan, kadai, and handi and use the same vessels for Frying, deep frying, sauteing, cooking
and pressure cooking. It is India’s first modular pressure cooking system.
2016 Clean Home Solutions - ‘Chasing new frontiers’ is the guiding principle at Prestige. Conquering the Indian Kitchen
prompted them to widen their horizons and thus, Prestige took its plunge into the Cleaning Solutions Business.
Prestige has launched cleaning solutions products under the brand “CleanHome”.
Source: Company Website
TTK has pioneered the pressure cooker in India through constant product innovations and
design. It initially manufactured outer-lid pressure cookers and gradually entered into
manufacturing inner-lid cookers. The outer-lid cookers are favoured in South India, which
accounts for ~65% of revenue. The foray into inner-lid cookers gave it a wider geographical
coverage which led to very high growth from FY10 to FY13 where its revenues from this
segment more than doubled from INR 2406 mn to 5106 mn. Keeping up the same
momentum of product innovations it has recently launched the clip-on pressure cooker
which can be used to Saute’, fry, boil, steam and pressure cook.
2010 – Launch of
Apple Pressure
Cookers
1990’s – Launch of
Manttra Brand
Manufacturing Locations
It has 5 plants across India and plans on setting up 1 more in Gujarat. The company has a
huge presence in the South, with 3 plants in Tamil Nadu and 1 in Coimbatore. The
management believes that 60% of their total domestic revenue comes from the South and
the 40% from the rest of India (as of FY15). However, with increasing online sales, it is tough
to judge the exact percentage of sales that come from the South.
All the plants have become increasingly efficient and capacity of the plants has risen
significantly since a decade ago. Total Productive Maintenance (TPM) systems have been
implemented and continuous employee training and enhanced productivity. The
Coimbatore plant started in 2006 with a capacity of 3 lakh pressure cookers and today, it
can produce close to 30 lakh units.
Key Risks
Volatility in input prices: The steep fall in prices of raw materials (aluminum, copper, steel,
and zinc) could raise profitability.
Currency fluctuation: As some products are imported from China, an appreciating rupee
against the dollar could lead to expanded margins.
Key Personnel
Mr. T.T. Jagannathan – Chairman
Mr. TT Jagannathan is a Gold Medalist from IIT, Chennai and holds a Masters in Operations
Research from Cornell University, USA. He has been on the Board of TTK Prestige Limited for
the last 39 years
Financial Statements
Income statement (standalone) (INR mn) Balance sheet (INR mn)
Year to March FY14 FY15 FY16 FY17 As on 31st March FY14 FY15 FY16 FY17
Income from operations 12,938 13,883 14,879 16,036 Equity capital 117 117 117 117
Direct cost 7,744 8,441 8,872 9,581 Reserves & surplus 5,737 6,343 7,114 8,454
Employee cost 910 1,036 1,102 1,205 Shareholders funds 5,853 6,460 7,231 8,571
Other expenses 2,633 2,879 3,076 3,301 Long term borrowings 4 0 0 0
Total operating expenses 11,287 12,356 13,050 14,087 Short term borrowings 254 0 0 0
EBITDA 1,652 1,527 1,829 1,949 Total Borrowings 258 0 0 0
Depreciation and amortisatio 148 190 209 253 Long Term Liabilities & Provis 91 85 68 63
EBIT 1,504 1,337 1,620 1,696 Deferred Tax (Net) 205 260 292 380
Interest expense 135 79 18 51 Sources of funds 6,408 6,805 7,590 9,014
Other income 79 51 104 67 Gross block 4,125 4,297 4,439 5,098
Profit before tax 1,448 1,309 1,705 1,712 Depreciation 729 931 1,139 1,392
Provision for tax 400 410 512 300 Net block 3,396 3,365 3,300 3,706
Reported profit 1,048 899 1,194 1,412 Capital work in progress 243 26 31 15
Less: Exceptional Items (Net o 70 24 (37) 18 Non Current Investments 0 238 682 1,956
Adjusted Profit 1,118 923 1,156 1,430 Inventories 2,668 2,747 3,247 3,247
Equity shares outstanding (m 12 12 12 12 Sundry debtors 1,491 1,593 1,753 1,990
EPS (INR) basic 90.1 77.2 102.5 121.2 Cash and cash equivalents 296 295 312 418
Diluted shares (mn) 12 12 12 12 Loans and advances 494 601 263 16
Adjusted Diluted EPS 90.1 77.2 102.5 121.2 Other current assets 129 93 381 307
Adjusted Cash EPS 108.7 95.6 117.2 144.5 Total current assets (ex cash) 5,079 5,330 5,956 5,978
DPS 20.0 22.0 27.0 27.0 Trade payable 1,997 1,819 2,347 2,495
Dividend payout (%) 22.2 28.5 26.4 22.3 Other Current Liabilities & Sh 313 335 31 146
Total current liabilities & pro 2,310 2,154 2,378 2,641
Common size metrics- as % of net revenues Net Current Assets (ex cash) 2,768 3,175 3,578 3,337
Year to March FY14 FY15 FY16 FY17 Uses of funds 6,408 6,805 7,590 9,014
Direct cost 59.9 60.8 59.6 59.7 Book value per share (BV) (INR 503 555 621 736
Employee cost 7.0 7.5 7.4 7.5
Other expenses 20.3 20.7 20.7 20.6 Free cash flow
Depreciation and amortisatio 1.1 1.4 1.4 1.6 Year to March FY14 FY15 FY16 FY17
Interest expenditure 1.0 0.6 0.1 0.3 Reported Profit 1,048 899 1,194 1,412
EBITDA margins 12.8 11.0 12.3 12.2 Add: Depreciation 148 190 209 253
Net profit margins (adjusted) 8.1 6.5 8.0 8.8 Interest (Net of Tax) 99.2 54.8 12.8 42.4
Add: Others 23.36 (2.00) (59.40) (16.10)
Growth metrics (%) Less:Changes in working capi 367 474 226 (232)
Year to March FY14 FY15 FY16 FY17 Opertaing cash flow 951 668 1,130 1,924
Revenues (4.8) 7.3 7.2 7.8 Less: Capex 705 193 172 659
EBITDA (21.2) (7.6) 19.8 6.6 Free cash flow 246 475 958 1,265
PBT (21.8) (9.6) 30.3 0.4
Adjusted Profit (21.2) (14.3) 32.8 18.3
EPS (23.3) (14.3) 32.7 18.3
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Sector return is market cap weighted average return for the coverage universe
within the sector
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
ADITYA
Digitally signed by ADITYA NARAIN
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Aditya Narain LIMITED, ou=HEAD RESEARCH, cn=ADITYA
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Head of Research 0f20bf0213f69235fc3f1bcd0fa1c30092792c
NARAIN
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Date: 2017.07.20 14:56:34 +05'30'
Recent Research
Date Company Title Price (INR) Recos
Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11
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