Post on 12-Oct-2020
Please refer to important disclosures at the end of this report
Equity Research April 23, 2020
BSE Sensex: 31863
ICICI Securities Limited is the author and distributor of this report
Sector update
Top picks
Siemens (BUY)
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Engineering and Capital Goods
Covid-19 to accelerate adoption of automated solutions
Research Analysts:
Renjith Sivaram renjith.sivaram@icicisecurities.com +91 22 6637 7340
Vipin Goel vipin.goel@icicisecurities.com +91 22 6637 7397
The impact of Covid-19 pandemic is expected to accelerate the adoption of
automation and digitalisation solutions by domestic industry. This can act as a
catalyst towards spending on factory automation and digital solutions. Given
its presence across the whole automation and digitisation spectrum, we
believe Siemens India will be a major beneficiary of the opportunity. Though
there can be near-term challenges due to the current pandemic, we believe,
long-term opportunities in automation and digitalisation will open up new
vistas for growth. We maintain Siemens as our top pick in the sector as a play
on domestic automation opportunities.
Shift towards more automation and digitalisation solutions: The impact of
Covid-19 pandemic will force companies to minimise human contact as much as
possible. There will be a renewed vigour towards spending on factory
automation by domestic companies and will usher in new opportunities for
companies that provide such solutions. This, we believe, will be beneficial for
companies like Siemens, ABB and Honeywell Automation.
Investment towards mechanisation of projects: Given the recent stress in
project execution due to uncertainty regarding migrant labour, we believe,
companies will invest more in project automation equipment like drone, large
machines with higher mechanisation etc. Siemens, ABB, Cummins will be the
indirect beneficiaries due to the same.
Home and office automation solutions to gain prominence: Having gone
through a phase of quarantine, companies as well as homes will have a
propensity to invest more towards automation solutions. This can be as trivial as
an Amazon Alexa-controlled home automation to setting up of cloud-based office
data suites with encrypted controls for official work. Data centres and cloud-
based IoT solutions can witness strong traction in terms of demand.
Domestic penetration is still at nascent levels: Globally, industrial automation
market has doubled to US$68bn in the last five years at 16% CAGR. Malaysia
and China are among the fastest growing nations, while Germany and Japan
have reached maturity. India is significantly underpenetrated. The only way for
domestic market to become globally competitive in terms of quality, productivity
and consistency is through rapid adoption of latest technology. Hence, we
believe, the sector is set to witness strong winds of change.
Robotic usage penetration in India at entry level versus China – As per the
International Federation of Robotics (IFR) data, annual sales of robots stood at
US$16.5bn in 2018, with a volume of 422,000 units. China is the largest market
with 36% of total installations accounting for 154,000 units. Around 74% of
global installations in 2018 were accounted by China, Japan, Korea, US and
Germany, while India’s installation is ~4,000 units per annum. Hence, the only
way the domestic market can keep pace with global technology is through
increased adaptation of robotics and automation.
INDIA
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Industrial automation
Industrial automation encompasses several classes of equipment across many
industries. Products are oriented along three categories:
Process – Continuous process control applications as in chemical, oil and gas,
power generation and waste water management etc.
Discrete – Job work and batch production applications as in automotive industry,
electronics, fabricated metals, plastics and packaging etc.
Power transmission and distribution control system works in multiple layers of
sensors from SCADA to ERP.
Industrial automation products largely include programmable logic controllers-human
machine interface (PLC-HMI), supervisory control and data acquisition (SCADA),
distributed control system (DCS), and electrical drives (AC, DC and servo drives)
among others.
Key players in domestic automation market are
Process automation – Emerson, Honeywell Automation India, ABB India, Endress + Hauser, Yokogawa, Siemens India.
Discrete automation – Siemens India, Rockwell Automation, B&R Automation
(unlisted subsidiary of ABB global), Beckhoff, Mitsubishi Electric.
Table 1: Industry classification
Process Industries Hybrid Industries Discrete Industries
Oil and Gas Glass Automotive Chemicals Pharma Electronics Water and wastewater Food and Beverages Packaging machinery Cement Pulp & Paper Machine building Metals and Mining Fiber Additive manufacturing Power Generation Tire Robotics Refineries Batteries Machine tools Material handling equipment Aerospace Textile machinery
Source: I-Sec research
Table 2: Industrial automation equipment
Motor & Motor Automation Equipment Control Equipment
Motors & Generators Discrete Controllers & Visualization
Process Control
Fractional AC Motors Computer Numerical Controllers Distributed Controller Fractional Brushed DC Motors I/O Modules Process & Temperature Controllers Fractional Brushless DC Motors PLCs Process Instrumentation Devices Integral AC Motors (LV) Embedded Computer Process Safety Equipment Integral DC Motors (LV) Boards, Modules & Systems Low power Generators Networking Infrastructure Devices Switchgear Medium power Generators Industrial PCs MCB & RCDs High Power Generators Operator Terminals Electro-Mechanical Relays Medium Voltage Motors Position Control Hardware Solid State Relays Servo Motors Remote Terminal Units Electronic Control Relays Stepper DC Motors Machine Vision Hardware Industrial Pushbuttons Discrete Safety Equipment Air Circuit Breakers & Motor Controls Moulded Case Circuit Breakers AC Drives (LV) Brushed DC Drives Brushless DC Drives Medium Voltage Drives Servo Drives Stepper DC Drives Soft Starters & MCCs
Source: IHS Markit, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Process automation
Process automation reduces the need for plant operators to physically monitor
performance values and the quality of outputs to determine the best settings on
which the production equipment can run.
Process automation involves using sensors, actuators, computer technology and
software engineering to help power plants and factories in oil & gas, chemicals,
paper, mining and cement operate more efficiently and safely.
Sensors are installed around the plant that collect data on variables such as
temperatures, pressures, flows, liquid analysis and gas analysis.
Chart 1: Yokogawa – Flow meter and vibration sensor
Chart 2: F&B sensor of Endress & Hauser
Chart 3: O&G sensors by Endress & Hauser
Source: Automation expo, I-Sec research
The information is stored and analysed and the entire plant or each piece of
production equipment can be monitored from a control room. A computer program
uses measurements to show not only how the plant is working but to simulate
different operating modes and find the optimal strategy for the plant.
The controls are done using PLC, SCADA or DCS and communication is done
either through wire or using wireless.
PLM software is used to automate the management of product-related data and
integrate the data with other business processes such as enterprise resource
planning (ERP) and manufacturing execution system (MES)
Indian public sector companies like to store data in their own servers rather than a
cloud given data protection-related risks.
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Discrete automation
Discrete automation is used for the process in which the finished component can be
measured and each process creates a quantifiable or countable part. It focuses on
assembling high-quality engineered components (sub-assemblies) into a more-
efficient final product. Materials are often moved manually in such a ‘high touch’ labour
environment. The main task in a continuous plant is process regulation, while for
discrete plants the main task is represented by plant command.
At the control level, different types of controllers/supervisors (such as IPCs or PLCs)
are connected together and the underlying sensor level provides the link with
individual devices.
As per independent analysis of certain consultants, the adaptation of smart factory in
the domestic market has increased from 48% in 2018 to 68% in 2019.
Chart 4: Discrete automation process to create a cellphone
Source: I-Sec research
Chart 5: Discrete factory automation using Siemens components and mindsphere by Addverb Technologies
Chart 6: Discrete factory automation employing Siemens solutions conceptualised by Addverb Technologies used in logistics
Source: Elecrama, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Chart 7: Home/Factory automation flow chart of Siemens
Source: Elecrama, I-Sec research
Chart 8: B&R factory automation chart Chart 9: B&R factory automation products
Source: Automation expo, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Digital twin
Digital twin is the precise virtual model of a product or a production plant. It displays
their development throughout the entire lifecycle and allows operators to predict
behaviour, optimise performance and implement insights from previous design and
production experiences.
Chart 10: Real machine setup replicated on a virtual model using digital twin
Source: I-Sec research
Digital twin application based on Siemens product portfolio
a. Planning the production – With Line Designer, the entire production line can
be planned by selecting the production equipment like robots and conveyor
belts. Plant simulation enables to simulate and optimise material and energy
flows, while Tecnomatix Process Simulate allows simulating and optimising
of production process. With SIMOVE automatic guided vehicle (AGVs) can be
managed in order to set up a modular and more flexible production.
b. Validating and executing production – To engineer the production, PLC
code can be generated and transferred directly from the digital twin to the
Totally Integrated Automation (TIA) Portal. The overall result can then be
validated holistically by virtual commissioning in Tecnomatix Process Simulate.
c. Testing and commencing production – The virtual SIMATIC controller
PLCSIM Advanced can be utilised to test the production cell or machine in a
completely virtual environment. The real production can then be commenced
based on the observations.
Chart 11: Digital twin model-based approach by Siemens
Source: Siemens, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Chart 12: Simulation using digital twin reduces time to market for a project
Source: B&R, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Robotics
Indian market is currently ~4,000 units of robots per annum, of this, ~20% is the
market share of ABB India. ABB India robots, that are used, are imported from their
Chinese factory.
~50% of the demand for robots in the domestic market is driven by the auto sector.
The major players in domestic market are ABB India, Kuka, Fanuc, Brabo (a Tata
company).
Impact from Covid-19 pandemic requires companies to minimise human contact which
means improving the collaboration between man and machine by means of increasing
the flexibility of people and automation systems. Hence, we foresee an increased
demand for collaborative robots which shares the same work space with human, either
continuously or intermittently. While this unlocks new applications, balancing safety
with the need for productivity becomes crucial.
Different robots and safety strategy for different collaborative
application needs
Robots with low degree of collaboration (Co-existence) – Fenceless robot, no
workspace sharing
Robots with medium degree of collaboration (Intermittent Collaboration) –
Infrequent sharing of workspace
Robots with high degree of collaboration (Cooperation) – Continuous sharing of
workspace
Chart 13: Safety strategy based on robot type
Source: ABB, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Chart 14: Industrial robot fulfilling one or more below safety concepts can be a collaborative robot
Source: ABB, I-Sec research
Chart 15: Brabo - Tata company (Made in India robot)
Chart 16: KEBA controllers used in Brabo
Chart 17: ABB force limiting robot – YuMi IRB14050
Source: Automation expo, company data, I-Sec research
Tata, in association with Melior Motion for Gears and Keba (German company) for controllers, is the first Indian company to manufacture robots. They target MSME market by supplying robots that are cost-competitive. With the adaptation of robotics by suppliers, the quality of automobiles manufactured by Tata Motors has improved.
Siemens India is not present in the manufacturing of robots; however, it is present in the supply of servo motors, drives and controllers. Hence, Siemens’ robotics solutions are agnostic to robot manufacturers.
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Penetration of drives to improve energy efficiency
Drives is another segment of the market witnessing strong penetration not only in the new motor, pump and fan installations, but also in older products. Energy consumption is expected to reduce by ~25% with the usage of drives as most of the power consumption in any factory is done by utilities like fans, motors, pumps, compressors etc. ABB, Siemens and Danfoss dominate the domestic drives market.
Chart 18: Siemens compact drive with remote monitoring using cloud-based IoT
Chart 19: The most compact IGBT based MV driver by Siemens (reduces space by 20-25% vs competitors)
Source: Elecrama, I-Sec research Chart 20: Display of LV drives by Siemens at Elecrama Jan’2020
Source: Elecrama, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Building automation
Building automation largely includes electronic security & safety, heating ventilation and air conditioning (HVAC) and lighting control equipment, home comfort solutions and fire safety. The market can be segmented in four categories: i) Building automation & control system (BACS), ii) heating ventilation and air conditioning (HVAC), iii) lighting control solutions and iv) home control solutions.
A building automation & control system (BACS) plays a vital role in integrated building planning. The system provides energy savings, greater comfort, safety and better operational efficiency. In India, the rising concern for greenhouse gases along with rapidly increasing power demand-supply gap are contributing to the growing adoption of the automation & control systems in the buildings. The demand for BACS is majorly driven by commercial building segment, due to increasing number of shopping malls, office buildings, educational institutes, hotels, hospitals, etc. The market is further supported by mandatory regulation of energy efficiency in commercial buildings in cities such as Delhi. The policy & regulatory support such as building codes, incentive schemes and labeling schemes such as LEED rating scheme and BEE star rating scheme are expected to continue driving the BACS market over the next five years. In HVAC building automation & control systems market, thermostat, zone and climate control, sensors and keypads are spurring the demand for HVAC building automation systems, while emerging carbon dioxide & combine sensors segment is projected to further boost market growth over the next five years. The lighting control building automation & control systems market in India is witnessing increasing demand for relay systems, controllable breakers, dimming systems, switching solutions and sensors. Key players in domestic automation market are – Siemens India, Honeywell Automation India, Johnson Controls, Carrier.
Chart 21: Yokogawa’s thermal sensors used in building automation
Source: Elecrama, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Siemens (BUY – TP: Rs1,383)
Siemens is the global leader in digitalisation and automation segment. Leveraging on
the global knowledge pool, the customisation towards domestic needs will place
Siemens India as a key player in the domestic automation market. The outlook on
large orders and private capex remains challenging in the near term, and we believe
Siemens will be able to tide over with its focus on short cycle and digitisation orders.
We marginally raise FY21E earnings by 2.6% and maintain BUY with a revised target
price of Rs1,383 (previously: Rs1,343).
We value the company’s core earnings at 50x FY21E P/E, assume 20x FY21E
multiple for the C&S Electric business, and add back the cash. This works out to an
SoTP-based target price of Rs1,383. The stock currently trades at 36.4x FY21E P/E,
lower than (-1) standard deviation, providing comfort from a valuation perspective.
Given the benign valuation, we maintain BUY with a target price of Rs1,383. Focus on
margins, predictable cashflows from digitisation and short-cycle demand is expected
to support medium- to long-term growth.
Siemens has provided clarity regarding the restructuring of its mobility and mechanical
drives business: (i) Currently, it will not sell its mobility business and the wholly-owned
subsidiary, Siemens Rail Automation Private Limited, to Siemens AG or its global
subsidiary; (ii) currently, the company has also withheld the decision to sell its
mechanical drives business (included in POC) to Siemens AG or its global
subsidiaries. Management will also try not to sever its gas & power segment mirroring
what the parent is doing as they are relatively self-sustaining in terms of operations.
Hence, we don’t foresee any near- to medium-term risks from restructuring.
Chart 22: One-year forward P/E chart
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Source: I-Sec research
Table 3: Change in estimates (consolidated)
(Rs mn)
Rs mn
FY20E FY21E
Earlier Revised YoY (%) Earlier Revised YoY (%)
Revenue 1,19,227 1,19,227 0.0 1,24,743 1,28,943 3.4 EBIDTA 12,300 12,300 0.0 13,983 14,385 2.9 PAT 10,068 10,068 0.0 11,445 11,746 2.6
Source: I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Table 4: Valuation summary
FY17 FY18 FY19 FY20E FY21E
PAT 7,079 8,939 10,869 10,068 11,746 Tax rate 32.1 32.0 33.8 25.2 25.2 Other income 2,547 2,800 3,946 3,791 4,170 Operating PAT 5,349 7,035 8,256 7,233 8,627
P/E (x)
50 Value
4,31,337
Cash & Cash Equivalent (excl DDT)
42,365 Gross value
4,73,702
Value per share
1,330 C&S electric PAT
948
P/E (x)
20 Value
18,963
Value per share (Rs) 53 Total Value per share (Rs)
1,383
Source: I-Sec research
Table 5: Segment-wise revenue estimates
September ending (Rs mn) FY18 FY19 FY20E FY21E
Gas and Power 48,258 50,559 41,964 44,062 YoY Growth (%)
4.8 -17.0 5.0
Smart Infrastructure 37,962 37,950 34,155 37,571 YoY Growth (%)
-0.0 -10.0 10.0
Mobility 9,814 11,203 10,643 11,175 YoY Growth (%)
14.2 -5.0 5.0
Digital Industries 23,699 26,874 24,187 27,089 YoY Growth (%)
13.4 -10.0 12.0
Portfolio of Companies 9,335 12,042 9,634 10,597 YoY Growth (%)
29.0 -20.0 10.0
Others 1,336 1,191 1,203 1,215 YoY Growth (%)
-10.9 1.0 1.0
Total Segmental 1,30,404 1,39,819 1,21,785 1,31,709 YoY Growth (%)
7.2 -12.9 8.1
Less : Inter segment revenue 3,153 2,981 2,557 2,766 as % of total Segmental 2.4 2.1 2.1 2.1
Total Income from operations 1,27,251 1,36,838 1,19,227 1,28,943 YoY Growth (%)
7.5 -12.9 8.1
Source: Company data, I-Sec research
Table 6: Segment-wise order intake
(Rs mn) FY18 FY19 FY20E FY21E
Gas and Power 42,200 45,100 31,570 37,884 YoY Growth (%)
6.9 -30.0 20.0
Smart Infrastructure 36,500 39,200 23,520 30,576 YoY Growth (%)
7.4 -40.0 30.0
Mobility 14,900 8,600 5,160 6,863 YoY Growth (%)
-42.3 -40.0 33.0
Digital Industries 24,000 26,500 23,850 31,005 YoY Growth (%)
10.4 -10.0 30.0
Portfolio of Companies 9,900 13,000 10,400 13,000 YoY Growth (%)
31.3 -20.0 25.0
Total Order Intake 1,27,500 1,32,400 94,500 1,19,328 YoY Growth (%)
3.8 -28.6 26.3
Source: Company data, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Table 7: Division wise portfolio
GP – Gas & Power (36% of Revenue) SI - Smart Infrastructure (27% of Revenue)
Power Generation Operations Regional Solutions & Services Service & Digital Digital Grid Power Generation Distribution Systems Transmission Medium Voltage & Systems, Low Voltage Products EPC Projects Control Products HV Products Building Products DI - Digital Industries (19% of Revenue) POC - Portfolio of Companies (9% of Revenue)
Factory Automation Mechanical Drives Process Automation Large Drives Customer Services Process Solutions Motion Control
MO – Mobility (8% of Revenue)
Mobility Management Turnkey Projects & Electrification Rolling Stocks Customer Services
Source: Company data, I-Sec research
Table 8: Siemens’ automation product portfolio
Application Product type Product name
Automation Systems
Industrial Automation Systems SIMATIC
Motion control system SIMOTION
System cabling for control cabinet - SIMATIC TOP connect
CNC automation system SINUMERIK ONE
Industrial identification Systems
RFID SIMATIC RF
Optical identification SIMATIC MV
Industrial Communication
Ethernet, IoT gateways, routers, data storage media,
AS-interface, Communications processors
SCALANCE, SIMATIC series,
Networking software SINEMA, SOFTNET, SINEC
Industrial Controls
Circuit breakers, starters, Load feeders, contractors
and assemblies, relays, switching devices,
Signalling lamps
SIRIUS series
Industrial Software
Automation Software TIA portal, SIMATIC Mindapps, SCADA
software
PLM NX, Temcentre, Simcenter, Opcenter,
Tecnomatix
Manufacturing Operations Management (MOM) Opcenter
Simulation platform SIMIT
Plant Engineering software COSMOS
Others PlantSight, XHQ, CNC Shopfloor mgmt.
s/w
Operator Control and Monitoring
Systems
Human machine interface (HMI) software SIMATIC HMI, SIMATIC WinCC
PC-based automation
Rack PCs, BOX PCs, Panel PCs, Tablet PCs,
Industrial IoT Gateway, Software Controllers
SIMATIC series
Power supplies
Power supply, UPS modules, DC/DC convertors SITOP
Process Instrumentation
Sensors, transmitters, flow systems, verificators,
load cells, level switches, Pressure Measurement,
Temperature Measurement, Flow Measurement,
Level Measurement, Positioners, Weight
Measurement
SITRAN, SIPART, PIA Life Cycle Portal
Process Control System
Distributed Control System SIMATIC PCS 7, SIMATIC PCS neo
Source: Company data, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Chart 23: Revenue share of digital industries to increase from 19% in FY19 to 21% in FY21E
Chart 24: Segment wise order intake (Rs bn)
37.0 36.2 34.5 33.5
29.1 27.1 28.0 28.5
7.5 8.0 8.7 8.5
18.2 19.2 19.9 20.6
7.2 8.6 7.9 8.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
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80.0
90.0
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FY18 FY19 FY20E FY21E
PoC DI Mobility SI GP
42.2 45.131.6 37.9
36.539.2
23.5
30.6
14.9 8.6
5.2
6.9
24.0 26.5
23.9
31.0
9.9 13.0
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127.4132.4
94.5
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40.0
60.0
80.0
100.0
120.0
140.0
FY18 FY19 FY20E FY21E
PoC DI Mobility SI GP
Note: Gas and Power – GP, Smart Infrastructure – SI, Digital Industries – DI, Portfolio of Companies – PoC Source: Company data, I-Sec research
Chart 25: Momentum from base orders to support overall orderbook
Chart 26: Revenue and order intake projection for digital industries segment
103 101 107 136 127 132 95 119
-5.8-1.8
5.4
27.1
-6.1
3.9
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(40)
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(20)
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(%)
(Rs b
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Order intake (Rs bn) - LHS Growth YoY (%) - RHS
24 27 24 2724 27 24 31
6.46.1
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(%)
(Rs b
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Revenue - LHS Order Intake - LHS
EBIT Margin (%) - RHS
Chart 27: Revenues supported by base order execution
Chart 28: EBITDA margin to improve gradually
105 103 108 111 123 133 119 129
-6.1
-1.7
5.1
2.3
11.1
8.4
-10.5
8.1
(15)
(10)
(5)
0
5
10
15
0
20
40
60
80
100
120
140
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
FY
21E
(%)
(Rs b
n)
Revenues (LHS) Growth YoY (%) - RHS
5.9 9.7 10.2 10.5 13.2 14.8 12.3 14.4
5.6
9.3 9.4 9.3
10.310.8
10.311.2
0
2
4
6
8
10
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FY
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(%)
(Rs b
n)
EBITDA (LHS) EBITDA Margin (%) - RHS
Source: Company data, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
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Financial summary
Table 9: Profit & loss statement
(Rs mn, year ending Sep 30)
FY18 FY19 FY20E FY21E
Total Income 1,27,251 1,36,838 1,19,227 1,28,943 Operating Expenses 1,14,090 1,22,081 1,06,927 1,14,557 EBITDA 13,161 14,757 12,300 14,385 % margins 10.3 10.8 10.3 11.2 Depreciation & Amortisation 1,967 2,173 2,510 2,752 EBIT 11,194 12,584 9,790 11,633 Gross Interest 82 114 120 100 Other Income 2,800 3,946 3,791 4,170 PBT before exceptionals 13,912 16,416 13,460 15,703 Add: Extraordinaries/Exceptionals - - - - Add: Share in associates - - - - PBT 13,912 16,416 13,460 15,703 Less: Taxes 4,973 5,547 3,392 3,957 Less: Minority Interests - - - - Net Income (Reported) 8,939 10,869 10,068 11,746 Adjusted Net Income 8,939 10,869 10,068 11,746
Source: Company data, I-Sec research
Table 10: Balance sheet
(Rs mn, year ending Sep 30)
FY18 FY19 FY20E FY21E
Assets Total Current Assets 1,10,744 1,24,089 1,27,352 1,19,378 of which cash & cash eqv. 36,457 48,913 48,956 42,365 Total Current Liabilities & Provisions 59,438 61,668 58,241 63,426 Net Current Assets 14,849 13,508 20,156 13,586 Investments 1,042 1 1 20,001 Other Non-Current Assets 17,610 15,528 14,169 15,128 Net Fixed Assets 13,096 12,486 12,723 12,171 Goodwill - - - - Total Assets 83,054 90,436 96,005 1,03,251 Liabilities Borrowings - - - - Deferred Tax Liability - - - - Minority Interest - - - - Equity Share Capital 712 712 712 712 Face Value per share (Rs) 2.00 2.00 2.00 2.00 Reserves & Surplus 82,342 89,724 95,293 1,02,539 Net Worth 83,054 90,436 96,005 1,03,251 Total Liabilities 83,054 90,436 96,005 1,03,251
Source: Company data, I-Sec research
Table 11: Cashflow statement
(Rs mn, year ending Sep 30)
FY18 FY19 FY20E FY21E
Operating Cashflow 7,965 9,465 8,908 10,428 Working Capital Changes (7,274) 983 (6,648) 6,569 Capital Commitments (1,368) (1,563) (2,747) (2,200) Free Cashflow (677) 8,885 (487) 14,797 Cashflow from Investing Activities (144) 4,802 5,149 (16,789) Issue of Share Capital - - - - Buyback of shares - - - - Inc (Dec) in Borrowings - - - - Interest paid (82) (114) (120) (100) Dividend paid (2,493) (2,493) (3,739) (3,739) Extraordinary Items/Others (860) 1,376 (760) (760) Chg. in Cash & Bank balance (4,256) 12,456 43 (6,591)
Source: Company data, I-Sec research
Table 12: Key ratios
(Year ending Sep 30)
FY18 FY19 FY20E FY21E
Per Share Data (in Rs.) Diluted adjusted EPS 25.1 30.5 28.3 33.0 Recurring Cash EPS 30.6 36.6 35.3 40.7 Dividend per share (DPS) 7.0 7.0 10.5 10.5 Book Value per share (BV) 233.2 253.9 269.6 289.9 Growth Ratios (%) Operating Income 12.1 7.5 (12.9) 8.1 EBITDA 25.2 12.1 (16.6) 17.0 Recurring Net Income 26.3 21.6 (7.4) 16.7 Diluted adjusted EPS 26.3 21.6 (7.4) 16.7 Diluted Recurring CEPS 20.6 19.6 (3.6) 15.3 Valuation Ratios P/E 47.8 39.3 42.4 36.4 P/CEPS 39.2 32.8 34.0 29.5 P/BV 5.1 4.7 4.5 4.1 EV / EBITDA 29.7 25.6 30.8 26.8 EV / Operating Income 3.2 2.8 3.2 3.0 EV / Operating FCF (pre -Capex) 926.3 30.8 167.4 22.6 Operating Ratios Raw Material/Sales (%) 67.5 68.1 68.0 68.0 SG&A/Sales (%) 10.8 9.4 8.7 8.2 Other Income / PBT (%) 20.1 24.0 28.2 26.6 Effective Tax Rate (%) 35.7 33.8 25.2 25.2 NWC / Total Assets (%) 12.4 10.9 15.1 10.0 Inventory Turnover (days) 32.7 29.2 40.0 38.0 Receivables (days) 104.7 101.6 120.0 115.0 Payables (days) 96.9 98.3 94.8 99.1 Net D/E Ratio (x) (0.4) (0.5) (0.5) (0.4) Return/Profitability Ratios (%) Recurring Net Income Margins 7.0 7.9 8.4 9.1 RoCE 11.2 12.6 10.9 11.9 RoNW 11.2 12.5 10.8 11.8 Dividend Payout Ratio 0.3 0.2 0.4 0.3 Dividend Yield (%) 0.6 0.6 0.9 0.9 EBITDA Margins 10.3 10.8 10.3 11.2
Source: Company data, I-Sec research
Engineering and Capital Goods, April 23, 2020 ICICI Securities
17
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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise)
BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return
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