EISEC - Grauer and Weil (India) Ltd - IC

Institutional Research

September 25, 2014

Initiating Coverage - Grauer and Weil (India) Ltd 1Awanish Chandra [email protected] 022-22721083

Pushkaraj Jamsandekar [email protected] 022-22722364

Grauer and Weil (India) Ltd

Market Leader in Surface Treatment embedded with high value Hard Assets


September 25, 2014

Initiating Coverage - Grauer and Weil (India) Ltd 2

Contents

Executive Summary ........................................................................................................................................................................... 4

Grauer and Weil (India) Ltd - A brief .................................................................................................................................................. 5

One stop shop for all surface protections with extensive dealer's network ..................................................................................... 6

Very strong revenue visibility ............................................................................................................................................................ 7

New technical collaboration improve exports further ...................................................................................................................... 9

Growel's 101 - High assets valuation with potential to propel the margins ................................................................................... 10

Relocation of paint manufacturing plant would help improve the margins .................................................................................... 11

Strong research and development .................................................................................................................................................. 11

All set to become zero debt company ............................................................................................................................................. 12

Valuation and Concerns ...................................................................................................................................................................... 12

Industry Overview ............................................................................................................................................................................ 13

SWOT Analysis ................................................................................................................................................................................... 14

Financial Summary ........................................................................................................................................................................... 15


September 25, 2014


Grauer & Weil (India) Ltd (GWIL), incorporated in 1957, is a market leader in Rs 7000 mn electroplating chemical industry with

38% market share. GWIL is the only company in India and one of few in the world, which offers as wide an array of surface

treatment products and solutions under one roof - Chemicals, Equipments, Paints & Lubricants. GWIL had a large tract of 10

acres Surplus land in Mumbai's western suburb Kandivali, which has been developed into a Mall - Growel’s 101, which is a highly

valuable asset generating significant cash flows for the company. This will grow significantly over next couple of years as they

utilize the balance development potential (only 60% of the development potential utilized till now). Over the years, the company

has paid most of the debt that was taken to develop the mall and GWIL is all set to become a debt free company by FY16.

GWIL's sales & profits have grown, 14% CAGR and 17% CAGR during FY10-FY14 despite slowdown in the economy. Low gearing

& no major capex required in next 2 to 3 years coupled with the recovering economic condition and good growth in auto and

auto ancillary companies (main drivers of chemical business), GWIL is all set to generate healthy free cash flow in next couple of

years. Revenues from real estate business will also see a sharp jump as renewal of ~ 40% of lease, due next year, and is likely to

happen at ~75% increment We initiate coverage on Grauer and Weil India Ltd (GWIL) with BUY rating and DCF valuation based

price target of Rs 28 (11.2x to FY16 EPS).

Investment Rationale

• Economic recovery and good growth in auto and auto ancillaries companies, (drives 73% of the total revenues), will boost

revenue from surface treatment business at a CAGR of 19% over a period of FY14-FY16.

• Renewal of old lease agreement will propel overall rental income from real estate segment at a CAGR of 20% over a period

of FY14-FY16.

• Shifting of paint manufacturing plant from Mumbai to other plants located in Vapi, Barotiwala (H.P.) and Dadra would help

improve margins further.

• GWIL is focusing on the Industrial paint & Engineering business as the future growth drivers as their market share is low in

these segments providing enough room for growth.

Risk & Concern

• Low cost products from Chinese market are the major concern in chemical business.

• Online shopping and heavy discount on products via e-shopping may change the dynamics of mall business unfavorably.

Grauer and Weil (India) Ltd BUYMarket Leader in Surface Treatment embedded with high value Hard Assets

Pushkaraj Jamsandekar

[email protected]

022-22722364

Recommendation

CMP Rs. 15

Target Rs 28

Upside(%) 82%

Share Holding (%)

Promoter 68.68

Public 31.30

FII -

DII 0.02

Key Data

Average Vol ( 6m) in '000 262.5

FV 1

Beta 1.2

Mcap (Rs Mn) 3,455.0

52 week H/L 16.6 / 4.3

Bloomberg / Reuters GW IN / GRWN.BO

Group B

Sensex/Nifty 26,745 / 8,022

Stock Performance (%)

Abs(%) Sensex GWIL

3M 6.9 82.6

1Y 34.5 245.9

Analysts:

Awanish Chandra

[email protected]

022-22721083

Year Revenue (Rs Mn) EBIDTA margin (%) PAT (Rs Mn) EPS PE PBV EV/EBIDTA ROCE % ROE %

FY12 3,332 16.7% 232 1.0 14.9 2.2 8.2 22.2 16.1

FY13 3,350 15.0% 198 0.9 17.4 2.0 8.8 18.3 12.2

FY14 3,859 14.8% 308 1.4 11.2 1.8 7.3 21.2 16.8

FY15E 4,599 15.1% 417 1.8 8.3 1.5 5.6 24.7 19.5

FY16E 5,474 15.4% 559 2.5 6.2 1.2 4.2 27.6 21.8


September 25, 2014


Executive SummaryInvestment RationalOne-stop-shop for various surface protection solutions with extensive dealernetwork

• GWIL manufactures more than 600 chemicals which includes pre treatmentchemicals, general plating, conversion coating, speciality chemicals and basicchemicals. GWIL offer wide array of chemical products which make themunique in electroplating industry.

• The Company has well organized dealer network and strong distribution

system in multiple locations in India which covers the major states such asMaharashtra, Gujarat, Madhya Pradesh, Uttar Pradesh, Haryana, Rajasthanand west Bengal. Together these states contribute 85% of business.

• The wide array of surface treatment products with well organized dealernetworks and strong distribution system in multiple locations, GWIL enjoysadvantageous geographical and customer mix which reduce the risk of highdependency on limited buyers and improve the pricing power of organization.

• All these help the company not only grow its business but also do the businessin a profitable manner.

Very strong revenue visibility

• Stable economic condition and good growth in auto and auto ancillary

companies which are the main drivers of chemical business, are expected toboost the segment revenue at a CAGR of 19% over a period of FY14-FY16.

• The order book at the Engineering Division is reasonably encouraging stood

at Rs 420 mn, out of which 95% would be executed during this fiscal. Also, theenquiries under discussion hold lot of promises.

• The renewal of old lease agreement would propel rental income from Growel's

101 Mall at a CAGR of 20% over the period FY14-FY16.

• On the consolidated basis, we expect top-line and bottom-line numbers togrow at a CAGR of 19% and 35% respectively, over the same period.

Growel's 101 - high asset valuations with potential to propel the Margins

• Under the real estate segment company owns and manages the 10 acres of

land with 0.47 mn Sqft of Mall (Usable area ~ 0.28 mn Sqft) & a developmentpotential to construct additional 0.25 mn usable area. At present the leasablearea is 0.25mn Sqft of which 85% is occupied.

• The renewal of its 9 year old lease agreement with Big Bazaar & Cinemax, duenext year, should happen at ~75% increment.

• Recovery in economy & consumer sentiment should improve the occupancy

ratio which would further improve the margins.

Relocation of paint manufacturing plant would help improve the margins

• The existing paint manufacturing plant in Mumbai, has heavy octroi dutywhich increases the cost of materials. Plus, the labor charges at Mumbaiplant are also higher which adversely impact the margins.

• Shifting of paint manufacturing plant from Mumbai to J&K would improvethe margins on account of absence of octroi duty and low labor charges.

• The company will get some more benefits like tax exemption, low cost of

power, free water availability etc in new location.

• All this would help the company increase its profitability in the long run.

New technical collaboration should improve the export further

• The company enjoys several foreign technical collaborations.

• Foreign collaborations not only help the company to gain more technical

know-hows but also help increase its footprints in the overseas markets.

• We believe that several strong collaborations would continue to help thecompany grow its business in domestic as well as overseas markets.

All set to become zero debt company

• GWIL had taken debt to fund their Mall expansion projects few years backwhich will be fully repaid within next 2-3 years.

• The management has strong focus on repayment of debt which wouldcontinue to improve the PAT margin.

• Repayment of debt and strong cash positions in the coming years would

lessen the financial risk in the business.

Outlook & ValuationRecovery in the economy and early good signs from auto industry definitely bodewell for GWIL. Its market leadership position in the surface protection businessputs the company on the strong footing to capitalize on the improving businessscenario. The mall business is doing well and going to be stronger in the future.Hence, we find the company's growth prospect very sound in the coming years.We initiate coverage on GWIL with BUY rating, having DCF valuation based pricetarget of Rs.28 per share (11.2x to FY16 EPS) over a period of 15 to 18 months,representing the potential upside 82%.

Risk & Concern• Low cost products from Chinese market are the major concern in chemical

business. This may hurt the margin profile of the company.

• Online shopping and heavy discount on products while doing e-shoppingmay hurt the growth prospect of the mall business.


September 25, 2014


Grauer and Weil (India) Ltd - A briefAbout company

• A group of entrepreneurs comprising two traders of long standing repute

in the plating industry and a financer, joined hands together to form a

young company in collaboration with Grauer & Weil of UK, thus creating

Grauer & Weil (India) (G&W) in 1957.

• Promoted by Ramanlal Shah and Kanchanlal Shah, as a private limited

company, Grauer & Weil (India) Ltd was converted into a public limited

company in Feb'61.

• GWIL is one of the very few metal finishing houses the world over, capable

of offering an integrated package of chemicals, plants, effluent treatment

systems and waste recovery techniques from spent solutions - truly a

One-Stop-Shop for end-to-end solutions.

• GWIL manufactures metal finishing paints, equipment chemicals, buffing

and finishing compounds, mops, wheels and brushes.

• Its engineering division sets up various types of plants and equipment

for other industries such as aerated soft drinks, heat-treatment systems

and other chemical plants.

• The company also manages the 10 acres of land with 0.47 mn Sqft of

Mall (Usable area ~ 0.28 mn Sqft) & a development potential to construct

additional 0.25 mn usable area.

Business segments

• Chemical Segment

GWIL continues to maintain its leadership position in the segment of

surface treatment chemicals, their intermediates and other specialty

chemicals. The competition from international companies is intensifying;

however, GWIL was able to effectively counter the competitive pressure.

New products introduced by the company met with good success. The

Company continued to focus on excellence. All its plants manufacturing

finished formulations are certified under IMS and ISO 14000.

Source: Company, EISEC Research

Electro Plating Rust Preventives Growl's Mall

Filteration systems Cutting Oils 470000 Sqft

Phosphating Hydraulic Oils

Dacrotizing Lubricating Oils

Effuent Treatment Spindle Oils

Industrial Degreasing Circulating Oils

Spare Parts Ms & Steel Wire Drawing Oil

Gear Oil

Vanish & Deep Draw Oils

Edm Oil

Heat Treatment

Cu Tube Drawing Fluids

Cu Wire Drawing Fluids

Al Wire Drawing Oil

Blanking Oil

Continuous Plating Chem

Process Sequence

Glass Grinding Fluids

Conversion Coating

General Plating

Electronics

Basic Chemicals

Precious Metal

Lacquers

Speciality Chemicals

Strippers

Grauer & weil (I) ltd.

Chemical Products

Pre Treatment

Engineering Produ & Serv. Paint & Lub and Oil Entertainment

• Engineering Segment

This division supplies customized turnkey solutions for Electroplating

Plants and their components, Effluent and Waste Water Treatment Plants

and other engineering products, from its plant located at Alandi, Pune.

• Paint & Lubrication Segment

The Company's diversification into oils & lubricants is now poised for a

significant push. The Joint Venture with SIDASA of Spain has converted

into a Technology Licensing arrangement. This business segment offers

an attractive long term opportunity.

• Real Estate Segment (Growel’s 101 Mall)

Under the entertainment segment company owns and manages a 10

acres of land with 4,70,000 Sqft of Mall in the heart of the western

Mumbai, at kandiwali.


September 25, 2014


Plant Locations

GWIL constructed six well developed manufacturing plants for formulation of

chemicals which are widely demanded in various surface finishing industries.

These manufacturing plants are well equipped with technologically advanced

machines.

Plant Facility Capacity

Dadra Plant Chemicals, Lubricants and Paints 25200 MT

Barotiwala Plant Chemicals and Lubricants 4200 MT

Vapi Plant Chemical Intermediates, Lubricants and Paints 2400 MT

Samba Plant Chemicals 6800 MT

Alandi Plant Engineering NA

Bombay paint Plant Paints 5900 MT

Growel's 101 Mall 470000 Sqft


Technical Collaboration

• In association with its international partners like Nippon Denro

Shamrock., Sidasa and such other international renowned

manufacturers, the company has established a position of undisputed

leadership in India with many 'firsts' in the metal finishing industry,

academically, as well as, in applied sciences.

• Recently, GWIL signed a Technology License Agreement with SIDASA,

Division of Cromogenia Units SA, Spain under which SIDASA will make

available its technical expertise in the area of industrial oils and

lubricants.

One stop shop for all surface protections with extensive dealernetwork

• GWIL is a leading player in the electroplating industry. It manufactures

more than 600 chemicals which includes pre treatment chemicals,

general plating, conversion coating, speciality chemicals and basic

chemicals. GWIL offer wide array of chemical product which make them

unique in electroplating industry.

• More than 7 decade of experience in electroplating industry make the

GWIL capable to build such a huge array of surface treatment products

under one roof.

• The major strength of the GWIL is well organized dealer networks and

strong distribution system in multiple locations across India which

covered the major states such as Maharashtra, Gujarat, Madhya Pradesh,

Uttar Pradesh, Haryana, Rajasthan and west Bengal. Together these

states contribute 85% of business.

Pre Treatment Conversion Coating Precious Metal

Cleaners Blackening Gold Plating

Pickling Agents/Additives Chromatization Gold Stripper / Recovery

Phospating Nickel Free technology

General Plating Post Treatment Silver Plating

Brass Nano Ceramic Coating

Cadmium Strippers

Chrome Electronics Electroless Nickel Stripper

Copper Ammonical Etchant Nickel Stripper

Electroless Nickel Electroless Nickel Tin Lead Stripper

Nickel Emmension Gold

Plating on Aluminium Multi PCB Lacquers

Plating on Plastic Pattern Plating Speciality Chemicals

Tin & Tin Alloys Thru-Hole Plating Basic Chemicals

Zinc & Zinc Alloys Tin/Lead strippers Continuous Plating Chem

Process Sequence

Major chemical Products



September 25, 2014


• The wide array of surface treatment products with well organized dealer

networks and strong distribution system in multiple locations, GWIL

enjoys advantageous geographical and customer mix which reduce the

risk of high dependency on limited buyers and improve the pricing power

of organization.

• All these help the company not only grow its business but also do the

business in a profitable manner.

Strong Geographic Presence


Very strong revenue visibility

• The order book at the Engineering Division is reasonably encouraging

stood at Rs 420 mn, out of which 95% would be executed during this

fiscal. Also, the enquiries under discussion hold lot of promises.

• Despite of slowdown in the economy the revenue of engineering division

has grown, at a CAGR of 11% during FY11-FY14 respectively.

Engineering Revenue (Rs mn)

• Stable economic condition and good growth in auto and auto ancillary

companies which are the main drivers of chemical business, are expected

to boost the segment revenue at a CAGR of 19% over a period of FY14-

FY16.


418 408484

580

678

17%

-2%

19%20%

17%

-8%

0%

8%

16%

24%

0

200

400

600

800

FY12 FY13 FY14 FY15E FY16E

Engineering Growth (%)

Cochin

Coimbotorai

Bangalore

Madhurai Chennai

Trichy Secundarabad

Salem Pune

Nasik Aurangabad

Jaipur Indore

Lucknow Ahemadabad

Allahabad Kolkata

Mathura Noida

Varanasi Ludhiana

Kanpur

Aligarh

Agra Location

Faridabad 25200 MT

Morahabad 6800 MT

Delhi 4200 MT

Gurgaon 2400 MT

Meerut NA

Vchandighar 5900 MTPaints Plant Chembur, Mumbai

Barotiwala Plant Barotiwala, HP

Vapi Plant Vapi, Gujarat

Engineering Plant Pune

Jammu Plant Samba, Jammu

Maj

or

tech

serv

ise

s

Plant Location

Dadra Plant Dadra & Nagar

Bra

nch

off

ice

Growel's 101 Mall

Mumbai In Mumbai at Kandiwali

Head office


September 25, 2014


Total Chemical Revenue (Rs mn)



Electroplating Chemical Revenue (Rs mn)

2624 26573174

3766

447013%

1%

16% 16% 16%

0%

6%

12%

18%

0

1500

3000

4500

6000


Gross Chemical % Growth

2315 2315

2821

3373

4035

14%

0%

18%16% 16%

0%

6%

12%

18%

24%

0

1200

2400

3600

4800


Electroplating Chemical % Growth

• The renewal of old lease agreement would propel rental income from

entertainment segment (Growel's 101 Mall) at a CAGR of 20% over the

period FY14-FY16.

Source: G&WILManagement, EISEC Research

Basic Chemical Revenue (Rs mn)


Intermediatory Chemical Revenue (Rs mn)

199 193 201227

258

10%

-3%

4%

12% 12%

-5%

0%

5%

10%

15%

0

75

150

225

300


Basic Chemical % Growth

110

149 153165

178

2%

26%

2%

8% 8%

0%

7%

14%

21%

28%

0

60

120

180

240


Intermediatory Chemical % GrowthIntermediatory Chemical


September 25, 2014


Revenue (In mn) FY12 FY13 FY14 FY15E FY16E

Chemical Division

Electroplating Chemicals 2315 2315 2821 3373 4035

Basic Chemicals 199 193 201 227 258

Intermediatory Chemicals 110 149 153 165 178

Segment Revenue

Total Chemical 2624 2657 3174 3766 4470

Engineering 418 408 484 580 678

Paints and Oil 597 494 567 684 818

Other 97 239 99 138 164

Growel mall 101 177 193 219 252 316

Segment EBITDA

Chemical, Engineering & Paint 430 351 405 495 585

Mall 126 150 166 198 260

Total EBITDA 556 501 571 693 845

EBIT 457 391 456 573 719

Post Tax Income 232 198 308 417 559


Segment Revenue (%)


2%

70%

11%

12%

5%

FY14

Total Chemical

Engineering

Paints and Oil

Other

Growel mall 101

69%

10%

13%

3%

5%

FY16E

Total Chemical

Engineering

Paints and Oil

Other

Growel mall 101

• On the consolidated basis, we expect top-line and bottom-line numbers

to grow at a CAGR of 15% and 23% respectively, over the same period.

Financial Performance (In mn)


New technical collaboration should improve the export further

• The company has already several technical collaborations with many

overseas companies.

• Recently, GWIL signed a Technology License Agreement with SIDASA,

Division of Cromogenia Units SA, Spain under which SIDASA will make

available its technical expertise in the area of industrial oils and

lubricants.

• Foreign collaborations not only help the company to gain more technical

know-hows but also help increase its footprints in the overseas markets.

• The GWIL has been placing a higher emphasis on exports for the last

few years. Its export sales grew by approximately 29% during the year.

• We believe that several strong collaborations would continue to help

the company grow its business in domestic as well as overseas markets.

3332 3350

3859

4599

5474

556 501 571 693845

232 198 308 417559

15%

1%

13%

16%16%16.7%

15.0% 14.8%

15.1% 15.4%

7.0%5.9%

8.0%

9.1%

10.2%

0%

5%

10%

15%

20%

0

1500

3000

4500

6000


Net Sales EBITDA PAT % Growth % EBITDA Margin % PAT Margin


September 25, 2014


Growel's 101 - high asset valuation with potential to propel theMargins

• Under the real estate segment company owns and manages the 10 acres

of land with 0.47mn Sqft of Mall (Usable area ~ 0.28mn Sqft) & a

development potential to construct additional 0.25mn usable area. At

present the leasable area is 0.25mn Sqft of which 85% is occupied.

• The renewal of its 9 year old lease agreement with Big Bazaar & Cinemax,

due next year, should happen at ~75% increment.

• Recovery in economy & consumer sentiment should improve the

occupancy ratio which would further improve the margins.

Real Estate Revenue & EBITDA (In mn)


177193 219

252

316

126150

166198

260

13% 13% 14% 15%26%

72% 78% 76% 79%

82%

0%

25%

50%

75%

100%

125%

0

90

180

270

360

FY12 FY13 FY14A FY15E FY16E

Mall Segment EBITDA % Growth % EBITDA Margin

• The mall is well classified into two major verticals, Golden Petal Banquets

hall having the capacity of house 500 guests with the strategically

designed to transform itself from a board meeting venue to an intimate

round table dinner gathering. And the balance leasable area is leased to

the major leading brand which gives the strong confidence of sturdy

rental income.

Average Rent (Per Sqft a Month In Rs)


7683 88 94

11919%

8%

6%7%

20%

0%

6%

12%

18%

24%

0

40

80

120

160


Average Rent (Per Sqft a Month) % Growth

Pantaloon Books & Gifts Mcdonald

Celio Crossword SubWay

Arrow Karigar acosta Coffee

Provogue US Pizza

BlackBerrys Wellness KFC

Basics Life Enrich Café Bolltwood

Planet Fashion Café Coffee Day

Unitede Colors Electronics Kailash Parbat

Cotton Culture Reliance Digital Bistro

Ethnicity APEX Pizza Hut

AND Universal Ele Swirl's

Jashn Chyna

Bombay high Kids

Globaldesi Barbie

Peter england United Colors

Kazo

Globus Entertainment

Spykar Cine Max

Timezone

Hypermarket

BIG Bazaar

Fash

ion

Ca

fé&

rest

au

ran

ts

Accessories

Foresight Optical

ESBEDA

Navanya

Office Linc

Nike

Rhysetta

Sports & Foodwear

Mochi Kiosk

Puma Juice World


Leading Brands in Growel 101


September 25, 2014


Relocation of paint manufacturing plant would help improve themargins

• The performance of the company's paint division has been subdued on

many accounts.

• The existing paint manufacturing plant is in Mumbai, has heavy octroi

duty which increases the cost of materials. The labor charges at Mumbai

plant is also higher which adversely impact the margins

• Shifting of paint manufacturing plant from Mumbai to other plants

located in Vapi, Barotiwala (H.P.) and Dadra would improve the margins

on account of absence of octroi duty and low labor charges in that state.

• The company will get some more benefits like tax exemption, low cost

of power, free water availability etc.in new location. All this would help

the company increase its profitability in the long run.

Paint Revenue (In mn)

Strong research and development

• Along with various technological collaborations, the company lays a

strong emphasis on R&D division.

• The Company's R&D facility at Mumbai is approved by the Department

of Science & Technology, Government of India.

• During the fiscal 2013-14 company introduce 19 new products in

domestic market. This kind of introduction of new products would help

the company to win consumers and maintain its growth trajectory.

Addition during the year 2013-14


Ginplate Ni 414 A (ABS)

Ginplate Ni 414 B (ABS)

Ginplate Ni 414 Stabilizer (ABS)

Highly stable.

Designed primarily for platig on plastics.

Very econmical to operate.

Nic

kelP

rod

uct

s

25th Dec, 2013

Zinc Products Introduced

Ginbond 814 SPL

Highly efficient mild alkaline cleaner.

No attacked on the surface even after longer

contact time.

Easy to operate.

Better gloss at LCD areas.

Stable performance with broad working window –

frequency between carbon treatments could be

25th Dec, 2013

Designed to provide excellent brightness and

leveling.

No harmful breakdown products.

Application for plating on artificial jewellary is

found very suitable.

25

thD

ec,

20

13

Co

pp

er

Pro

du

cts

Intr

od

uce

d

Cuprobrite 2702

Cuprobrite 2703

Cuprobrite 3008 Part A

Cuprobrite 3008 Part B

Cuprobrite 3008 Make up

Copper Products

Cuprobrite 3008 Make up

Cuprobrite 2703

Cuprobrite 2702

Better gloss at LCD areas.

Stable performance with broad working window

– frequency between carbon treatments could

be enhanced.

7th

Au

g,2

01

3

Aquazinc WS 910 R

1) Fully aqueous.

2) Brightener system

3) Lower in consumption.

Production proven at automatic plating

installations for bigger / longer components.

Surfix Zn 602 B

Gibonol B 39

Heavy duty zinc phosphating chemical which

produces uniform, dense, crystalline zinc

phosphate coating on metal surface.

Application of rust preventive oil enhances the

protection against corrosion.

Ph

osp

hat

ing

Pro

du

cts in replenishment additive in satin tin

plating process.

Satin Tin Replinisher Salt

4th Jan, 2014

Zinc Products

16

thJa

n,2

01

4

4th

Jan

,2

01

4

Tin

Pro

du

cts

Aquazinc WS 910 M

Surseal SS 715

Organic acid based passivation chemical suitable

for passivation of Stainless steel.


597

494567

684

818

15%

-17%

15%

21% 20%

-30%

-15%

0%

15%

30%

0

250

500

750

1000


Paint Growth (%)


September 25, 2014


All set to become zero debt company

• GWIL has taken debt to fund their Mall expansion projects few years

back which will be fully repaid within next 2-3 years. By FY16, net of

cash, the company would be almost debt free.

• The management has strong focus on repayment of debt which would

continue to improve the PAT margin.

• Repayment of debt and strong cash positions in the coming years would

lessen the financial risk in the business. It will also help the company get

cheaper loans in future, in case they need.

Total Debt & Interest Cost (In mn)

Valuation and Concerns

Outlook & Valuation

Recovery in the economy and early good signs from auto industry definitely

bodes well for the company. Its market leadership position in the surface

protection business puts the company on the strong footing to capitalize on

the improving business scenario. The mall business is doing well and going to

be stronger in the future. Hence, we find the company's growth prospect very

sound in the coming years.

We initiate coverage on GWIL with BUY rating, having DCF valuation base price

target of Rs.28 (11.2x to FY16 EPS) over a period of 15 to 18 months, representing

the potential upside 82%.

Source: Company, EISEC Research0

7

14

21

28

35

Ap

r-0

7

Se

p-0

7

Feb

-08

Jul-

08

De

c-0

8

Ma

y-0

9

Oct

-09

Ma

r-1

0

Au

g-1

0

Jan

-11

Jun

-11

No

v-1

1

Ap

r-1

2

Se

p-1

2

Feb

-13

Jul-

13

De

c-1

3

Ma

y-1

4

PE Band Chart

15x

12x

9x

6x

3x

Risk & Concern

• Low cost products from chine's market are the major concern in chemical

business. This many hurt the margin profile of the company.

• Online shopping and heavy discount on products while doing e-shopping

may change the behavior of Indian customer as far as mall visits are

concerned. This may hurt the growth prospect of the mall business.

1146992

771

611476

183174

132

8365

0

50

100

150

200

0

400

800

1200

1600


Debt Interest Cost


September 25, 2014


Industry Overview

Electroplating Industry Overview

Based on different applications, the Electroplating industry can be categorized

into two categories (I) Primary User and Original Equipment Manufacturers

(OEM) who carry out electroplating as one of their overall manufacturing

activities, and (II) job work units, which are responsible for the plating of a

large variety of components meant for both domestic and export purposes.

The industry has a diversified product base and a majority of the electroplating

units are small and medium enterprises (SMEs). Approximately the market size

of the industry is Rs 7000 mn.

Four wheeler

Defense

Electroplating Industry

Automobile & Ancillary Furniture & Fixtures Cold Forming

Bicycle

Auto ancillaries

Two wheeler

Wire

Tube drawing

Extrusion

Forging

Marine & AviationRailways


Mall Industry Overview

• According to the global consultancy, Cushman & Wakefield, the total

fresh mall supply by the end of 2014, is projected to be approximately

14 million Sqft in the top eight cities of India, of which 13.6 million sq ft

is under construction. This is nearly 2 times more than the supply

received in 2013. Approximately 60 per cent or 8.2 million Sqft of fresh

mall supply is expected to be received by the National Capital Region

(NCR) followed by Bangalore at 2.86 million Sqft.

• However, the total mall supply received in Q1 2014 (January-March,

2014) was merely 22 per cent of the total expected in this quarter,

registered a year-on-year drop of 65 per cent in the total mall supply in

Q1 2014, over the same time last year. Fresh mall supply of 350,000 sqft

became operational, all of which was received by Pune. The rest of the

cities saw no new mall development activity.

• Developers are cautious in entering into new locations. Thus, no new

project is created or even announced before a thorough study of the

potential of the location is done. With retail FDI in place, developers are

expecting demand from foreign brands to start pointing northwards.

Mumbai

Steady demand for retail space in suburban locations like Andheri, Malad,

Goregaon, Ghatkopar, Thane and Vashi, resulted in stable mall rentals.

Meanwhile, enquiry levels from apparels and F&B retailers for mall space in

the western suburbs, remained high but limited churn resulted in transaction

activity remaining low in these malls. Overall mall vacancy remained stable

during this year and expected to be maintained at a level of 15.3%.

Current scenario of Mall Industry

• Despite the absence of new mall supply during the Q2 2014 (April -

June 2014), overall mall vacancy increased by 0.1 percentage point to

15.4% at the end of the second quarter. Vacancy levels increased in a

few poor quality malls at Andheri, where existing vacancy levels were

already high due to exits and low preference by other retailers.

• Declining availabilities and high demand for space by domestic and

international retailers in quality malls at Goregaon and Vashi led to

rentals appreciating by 10% and 5% respectively during the 2014 (April

- June 2014).


September 25, 2014



SWOT Analysis

Strength

• Well diversified in chemical, engineering and real estate segment

• Market leader in Rs 7000 mn electroplating chemical industry with 38%

market share

• Manufacturing more than 600 chemicals under one roof

• Well organised dealer networks & strong distribution system in multiple

locations across India

• By FY16, net of cash, the company would be almost debt free

• Strong R&D with innovation and addition in product

Weakness

• Small size of mall with single location

• Slow down in economy will adversely impact chemical as well as mall

business

Opportunity

• Has potential to construct additional 0.25 mn usable area in Growel’s

101 mall

• New technical collaboration should improve the export further

Threat

• Online shopping and heavy discount on products via e-shopping may

change the dynamics of mall business unfavorably

• Low cost products from Chinese market are the major concern in

chemical business


September 25, 2014


Financial Summary

Income statement, Rs mn FY12 FY13 FY14 FY15E FY16E

Total revenues 3332 3350 3859 4599 5474

% growth 18% 1% 15% 19% 19%

Operating expenses 2776 2849 3287 3906 4629

EBITDA 556 501 571 693 845

% growth 41% -10% 14% 21% 22%

Depreciation 99 110 115 120 126

EBIT 457 391 456 573 719

Interest 183 174 132 83 65

Other Income 29 21 34 39 54

Exceptional items 0 1 2 3 4

PBT 302 239 358 528 708

Tax 70 40 51 111 149

PAT 232 198 308 417 559

% growth 61% -15% 55% 36% 34%

EPS 1.02 0.87 1.36 1.84 2.47

Cash flow, Rs mn FY12 FY13 FY14 FY15E FY16E

PBT 302 239 358 528 708

Tax 70 40 51 111 149

Depreciation 99 110 115 120 126

Chg. W.C. -132 98 -54 -23 -80

Other 180 170 116 0 0

OCF 379 576 485 515 605

Capex -101 -187 -96 -164 -181

Investment -23 -8 0 -1 0

Other 34 16 40 0 0

CFI -90 -179 -56 -165 -181

Net Debt -83 -154 -220 -160 -135

Net Equity 0 0 0 0 0

Dividend Payout -40 -32 -42 -55 -76

Other -215 -199 -163 0 0

CFF -337 -385 -425 -215 -211

Increase/(Decrease) in Cash -49 12 4 135 213

Opening Cash 90 38 57 62 197

Closing Cash 38 57 62 197 410

Balance Sheet, Rs mn FY12 FY13 FY14 FY15E FY16E

Share Capital 227 227 227 227 227

Reserves & Surplus 1312 1473 1733 2096 2579

Total Neworth 1538 1700 1960 2322 2806

Prefernce Capital 0 0 0 0 0

Total Debt 1146 992 771 611 476

Deferred tax liabilities 144 169 178 178 178

Other non-current liabilities 161 198 226 251 281

Current Liabilities & Prov 896 1080 1121 1287 1513

Total Liabilities 3886 4138 4257 4650 5254

Gross Block 2697 2896 2950 3083 3222

Net Fixed Assets 2242 2310 2264 2275 2288

Investments 39 48 47 48 48

Other non-current assets 150 160 187 220 262

Total current assets 1454 1621 1759 2107 2657

Total Assets 3886 4138 4257 4650 5254

Ratio analysis (%) FY12 FY13 FY14 FY15E FY16E

EBIDTA margin 16.7 15.0 14.8 15.1 15.4

PAT margin 7.0 5.9 8.0 9.1 10.2

ROCE 22.2 18.3 21.2 24.7 27.6

ROE 16.1 12.2 16.8 19.5 21.8

Inventory (days) 46 50 49 49 49

Payable (days) 54 60 59 59 59

Receivables (days) 63 70 69 69 69

Debt to equity 0.75 0.58 0.39 0.26 0.17

Net debt to equity 0.72 0.55 0.36 0.18 0.02

Valuation parameters FY12 FY13 FY14 FY15E FY16E

EPS 1.0 0.9 1.4 1.8 2.5

P/E (x) 14.9 17.4 11.2 8.3 6.2

EV/ EBIDTA (x) 8.2 8.8 7.3 5.6 4.2

P/BV 2.2 2.0 1.8 1.5 1.2


September 25, 2014


Corporate Office : 701, 7th Floor, Ruby Crescent Business Boulevard, Ashok Nagar, Kandivali (East), Mumbai - 400 101. Tel: +91 22 2272 1083

Head Office : DA-14, Salt Lake City, Sector-I, Kolkata-700064 Tel: +91 33 40205901

Web: www.eisec.com

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Stock rating (1 year target scale)

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