J.Kumar Infraproejcts - Business...

Company Report Industry: Infrastructure

Kunal Sheth ([email protected]) +91-22-66322257

Samir Bendre ([email protected]) +91-22-66322256

J.Kumar Infraproejcts

Riding the Urban Infra wave!

April 20, 2016 2


Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to important disclosures and disclaimers at the end of the report

Contents Page No.

About the company .................................................................................................... 5

JKIL’s order book provides strong revenue visibility .................................................. 7

Mumbai Metro-3, a huge opportunity .............................................................................................. 9

Strong execution track record and industry leading margin and return ratios ....... 11

Outlook and valuation .............................................................................................. 15

Key risks .................................................................................................................... 16


Company Report April 20, 2016

Rating BUY

Price Rs287

Target Price Rs400

Implied Upside 39.4%

Sensex 25,844

Nifty 7,915

(Prices as on April 20, 2016)

Trading data

Market Cap. (Rs m) 21,755.8

Shares o/s (m) 75.8

3M Avg. Daily value (Rs m) 27.9

Major shareholders

Promoters 43.47%

Foreign 23.56%

Domestic Inst. 22.25%

Public & Other 10.72%

Stock Performance

(%) 1M 6M 12M

Absolute (1.9) (24.5) (13.8)

Relative (5.5) (18.9) (4.6)

How we differ from Consensus

EPS (Rs) PL Cons. % Diff.

2017 19.1 18.8 1.8

2018 25.4 26.7 -5.0

Price Performance (RIC: JKIP.BO, BB: JKIL IN)

Source: Bloomberg

050

100150200250300350400450

Ap

r-1

5

Jun

-15

Au

g-1

5

Oct

-15

De

c-1

5

Feb

-16

Ap

r-1

6

(Rs)

J.Kumar Infraprojects (JKIL), a specialised player in urban transportation, is

involved in the construction of metro, roads, flyovers, skywalks, buildings and

tunnels. JKIL has executed more than 81 projects with track record of timely

execution and is major player in Maharashtra and Mumbai in particular. The

company currently has over 44 ongoing projects with an order book of ~Rs38bn

(Including L1) as of Dec’ 2015 and is L1 in two packages in Mumbai Metro III (MM3)

project; the potential order could be ~Rs50bn taking the order book to ~Rs90bn.

Timely execution, large equipment bank, minimal sub-contracting and backward

integration has helped JKIL deliver industry leading margins and return ratios. We

believe that a well-funded balance sheet (after recent QIP of Rs 4.1bn, low D:E of

0.3x (as on H1F16) and strong track record will help JKIL to capitalise on huge

opportunity in urban infrastructure over the next few years. Given the strong

backlog, healthy L1 pipeline, we expect stock to deliver sales and PAT CAGR of

32%& 34%, respectively, over FY16-18E. We initiate coverage with ‘BUY’ with TP of

Rs400. We have valued the stock at PE of 16x FY18E.

Large order book provides strong revenue visibility: JKIL has an order book of

~Rs38bn (including L1) as of December 2015 (3x FY15 revenues). Out interaction

with Mumbai Metro Rail Corp. and media articles suggest the company is L1 in

two packages in MM3 project; the potential order could be ~Rs50bn, taking the

order book to ~Rs90bn. We expect the order book to grow at CAGR of 43% over

FY16-18E. We believe JKIL is likely to be the key beneficiary of huge opportunity

in urban infrastructure across states and large projects likely to come up around

the Mumbai region (Exhibit- 7).

Contd...4

Key financials (Y/e March) 2015 2016 2017E 2018E

Revenues (Rs m) 13,432 14,385 18,258 25,240

Growth (%) 13.2 7.1 26.9 38.2

EBITDA (Rs m) 2,506 2,655 3,303 4,411

PAT (Rs m) 944 1,072 1,451 1,923

EPS (Rs) 14.6 14.1 19.1 25.4

Growth (%) (3.1) (3.4) 35.4 32.5

Net DPS (Rs) 2.0 2.0 2.2 3.0

Profitability & Valuation 2015 2016 2017E 2018E

EBITDA margin (%) 18.7 18.5 18.1 17.5

RoE (%) 13.8 10.4 10.8 12.9

RoCE (%) 15.6 12.9 14.2 16.6

EV / sales (x) 1.6 1.4 1.2 0.9

EV / EBITDA (x) 8.8 7.8 6.6 5.3

PE (x) 19.6 20.3 15.0 11.3

P / BV (x) 2.3 1.7 1.5 1.4

Net dividend yield (%) 0.7 0.7 0.8 1.0

Source: Company Data; PL Research


April 20, 2016 4

Strong execution track record and industry leading margin and return ratios:

JKIL’s revenues have grown at a 22% CAGR over FY09-15, driven largely by order

book tripling to Rs41bn as of FY15 from Rs12.2bn in FY09. JKIL has seen EBITDA

and PAT growing at CAGR of 27% and 19%, respectively, over FY09-15E. JKIL has

been able to maintain above industry margins due to large equipment bank,

minimal sub-contracting, backward integration and it prefers to work in cluster

to maximize equipment utilization. Given the fast increasing backlog, we expect

revenues/EBITDA/PAT to grow at 32%/29%/34% CAGR, respectively, over FY16-

18E. With a net debt/equity of just 0.3x as of Sept-15 and recent fund raising of

Rs4.1bn (QIP), we believe it is well funded for the capex, meet incremental

working capital requirement and well positioned to bid for new projects on a

sustainable basis.

Outlook and Valuation: The last cycle saw a number of construction companies

struggling on account of a high debt burden due to entry in to BOT assets

ownership and delays in execution lower than expected traffic leading to poor

cash flows. We believe companies with good management, excellent execution

capabilities, focus on profitability, low Debt: Equity and focus on EPC will be the

big beneficiaries in the current cycle. We believe that a well-funded balance

sheet (after recent QIP of Rs 4.1bn, low D:E of 0.3x (as on H1F16) and strong

track record will help JKIL to capitalise on huge opportunity in urban

infrastructure over the next few years. Given the strong backlog, healthy L1

pipeline, we expect stock to deliver sales and PAT CAGR of 32% and 34%,

respectively over FY16-18E. We initiate coverage with ‘BUY’ with TP of Rs400,

valuing the stock at PE of 16x FY18E in line with last 2 years average one year

forward PE.


April 20, 2016 5

About the company

JKIL is involved in the construction of metro, roads, flyovers, skywalks, buildings and

tunnels. The company is a specialised player in urban transportation having executed

more than 81 projects with a proven track record of timely execution, currently

having over 44 ongoing projects mainly in Maharashtra and particularly in Mumbai.

JKIL owns large equipment bank of important machines allowing them the flexibility

and efficiency to complete projects on time. The company’s promoters have been in

the contracting business since 1980 (starting as a maintenance contractor for PWD

buildings). From being Maharashtra dominated player, the company is expanding its

operations across Western India (Gujarat/Delhi/Rajasthan). JKIL endeavours to

broaden its presence pan India.

Exhibit 1: Business Verticals

Source: Company Data, PL Research

Exhibit 2: Business wise order book break-up

Transportation

Enginerring

97.0%

Civil

construction

0.4%

Irrigation Projects

2.3%

Piling0.3%


Metro

• Roads (rigid and flexible pavement roads)

• Flyovers

• Skywalks

• Pedestrian Subways

• Bridges

• ROB and RUB

• Storm Water Drainage Systems

• Grade Separators

• Airport runways

• Tunneling work

Civil Construction

• ESIC (Hospital Cum Medical College)

• Railway Terminus/ Stations

• Commercial Buildings

• Sports Complexes

• Swimming Pools

Irrigation Works

• Earthen dams

• Minor Irrigation Tanks

• Spillways

• Canals

• Asqueducts

Others

• Piling

• RMC


April 20, 2016 6

Exhibit 3: Geographical break-up of Order book

Delhi

12.66%

Gujarat6.62%

Maharashtra80.32%

Rajasthan

0.40%


Exhibit 4: Client- wise order book break-up

Government Contracts95.11%

Private Conctracts

4.89%



April 20, 2016 7

JKIL’s order book provides strong revenue visibility

JKIL has an order book of ~Rs38bn (Including L1) as of December 2015 (3x FY15

revenues) up from Rs12.6bn in FY11. Currently, ~95% of JKIL’s order book is

concentrated in the transportation segment, with the balance coming from

irrigation, civil construction and piling projects. We expect the order book to grow at

CAGR of 43%, respectively, over FY16-18E. We believe JKIL is likely to be the key

beneficiary of huge opportunities in urban infrastructure across states and large

projects likely to come up around the Mumbai region.

Exhibit 5: Order Intake and Order flow snapshot

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

FY12 FY13 FY14 FY15 FY16E FY17E FY18E

Order Intake Order Book



April 20, 2016 8

Exhibit 6: Pipeline for Metro projects

Metro Project Length(km) Cost (Rs bn)

Project in advanced stages

Ahmedabad Gandhinagar 36 100

Nagpur 42 85

Lucknow 23 45

Mumbai-Ph-III 33 231

Mumbai-Ph-VII 18 62

Projects in planning stage

Chennai-Ph-II 63 360

Bengaluru-Ph-II 72 264

Gurgaon-Ph-II 7 21

Jaipur-Ph-II 23 66

Kochi- Ph-II 6 15

Pune 32 102

Ludhiana 29 103

Chandigarh 38 109

Bhopal 28 60

Indore 32 75

Total 463 1636

Source: Ministry of urban development, PL Research

Exhibit 7: Recent projects approved by cabinet sub-committee on infrastructure in Maharashtra

Thane-Ghodbunder Freeway 5

Mumbai-Pune Expressway Augmentation 70

Thane Creek Bridge at Vashi 8

Borivali-Thane Tunnel 30

Bhiwandi-Kalyan-Shil Phata Highway 2.3

Mumbai Nagpur Super Communication Expressway 391

Vakan-Pali-Khopoli Road Widening 5

Passenger Water Transport for Mumbai's Eastern Coast 3

27 Rail Over Bridges in Vidarbha Region 8


Exhibit 8: Few large projects in planning stage in Mumbai region

Tanshourbor link 100

Bandra- Versova sea link 60

Dahisar- Bandra elevated road 50



April 20, 2016 9

Mumbai Metro-3, a huge opportunity

Media articles and our interaction with Mumbai Metro Rail Corp. suggest JKIL is L1 in

two package in MM3 projects; the potential order could be ~Rs50bn, taking the

order book to ~Rs100bn. Winner of each package has to buy at least one TBM

requiring capex of Rs700mn per TBM.

Mumbai Metro Line 3 (MML-3) is one of the key projects aimed at improving the

transportation scenario in Mumbai catering to the Colaba-Bandra-SEEPZ corridor.

The Mumbai Metro Rail Corporation (MMRCL) is the nodal agency responsible for

the implementation of MML-3 project. It has been constituted as a JV between the

Government of India (GoI) and the Government of Maharashtra (GoM) on 50:50

sharing basis. The 33.5-km-long Mumbai Metro Line 3 with 27 stations (26

underground+1 at grade) would cater to the Colaba-Bandra-SEEPZ corridor. The

project cost of Rs238bn would be primarily funded by JICA loan and the rest would

be contributed by the Central and State government as their share of equity and

subordinate debt.


April 20, 2016 10

Exhibit 9: List of pre qualified bidders for MM3

Applicants Consortium/JV Company No. of Packages

Category

A1 AFCONS Infrastructure Ltd and Kyivmetrobud One Cat I only

A2 Continental Engineering Corporation/ITD Cementation India and Tata projects

Two Cat I and Cat II

A4 DOGUS and SOMA Two Cat I only

A5 IL&FS Engineering and Construction company and China railway 25th Bureau Group co


A6 J Kumar Infraprojects/ China Railway No.3 Engineering Group Co


A7 Larsen & Toubro/Shanghai Tunnel Engineering Co Two Cat I and Cat II

A8 IOSJC Moscow Metrostroy/Hindustan Construction company


A10 Pratibha industries Ltd/ Guandong yuantian Engineering Co.

One Cat I and Cat II

A14 Unity Infraprojects/IVRCL/China Railway Tunnel Group Co


Source: MMRDA, PL Research

Exhibit 10: Lowest cost bidders 7 packages for civil work in MM3

Packages Nature of Work

L1 Bidder Station details

Package 1

Civil Works-Tunnels & Stations

Lnt-Shanghai tunnel Eng Cuffe Parade station to Hutatama Chowk station

Package 2 OSJC Moscow-HCC CST Metro station to Grant Road Station

Package 3 DOGUS and SOMA Mumbai Central Metro Station to Worli station

Package 4 CEC-IITD_Tata Siddhi Vinayak Station to Shitaladevi Station(Paradise Cinema)

Package 5 J Kumar -China Rail 3 Dharavi Station to Santa Cruz Station

Package 6 J Kumar -China Rail 3 CSIA Domestic Airport to CSIA International Airport

Package 7 Lnt-Shanghai tunnel Eng Marol Naka station to SEEPZ station

Source: MMRDA, PL Research

Exhibit 11: Funding Plan for MML-3 project

Funding source Amount (Rs bn)

Equity by Centre 24

Equity by State 24

Sub Debt by Central Govt 10

Sub Debt by State Govt 16

Property development + impact fee 10

Stakeholder contribution (MIAL) 8

ASIDE Funding/MMRDA Grant 7

JICA loan 132

Total Project Completion Cost 231



April 20, 2016 11

Strong execution track record and industry leading margin and return ratios

JKIL’s revenues have grown at a 22% CAGR over FY09-15, driven largely by order

book tripling to Rs41bn as at FY15 from Rs12.2bn in FY09 at a CAGR of 23%. JKIL has

seen EBITDA and PAT grow at a CAGR of 27% and 19%, respectively over FY09-15E.

JKIL has stayed away from BOT and focused on EPC business and ensured efficient

capital allocation. Given the fast increasing backlog, we expect

revenues/EBITDA/PAT to grow at 32%/29%/34% CAGR, respectively, over FY16-18E.

With a net debt/equity of just 0.3x as of Sept-15 and recent fund raising of Rs4.1bn

(QIP), we believe it is well funded for the new capex, meet incremental working

capital requirement and well positioned to bid for new projects on a sustainable

basis.

Exhibit 12: Snapshot of Revenue and EBITDA Margin

93

16

10

00

7

1186

8

13

43

2

14

38

5

18

25

8

25

24

016.1

16.7

17.3

18.718.5

18.1

17.5

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

0

5000

10000

15000

20000

25000

30000


(Rs

m)

Revenue EBITDA margins % (RHS)


In order to ensure timely completion of projects, JKIL owns a number of plants and

equipments required for construction. JKIL has 15 RMC plants located across various

parts of the country. The availability of the ready mix transit mixers enables JKIL to

service multiple locations for its contracts from a single nodal point. The company

also sells ready mix concrete to third parties which helps in augmenting the

company’s revenues and use the RMCs to their optimum levels. Large equipment

bank give JKIL control over project for timely execution and better margins. JKIL has

been able to maintain above industry margins due to large equipment bank,

minimal sub-contracting, backward integration and it prefers to work in cluster to

maximize equipment utilization.

JKIL also has a work force that consists of 3,024 full-time employees, out of which,

761 consist of engineering staff. Hence, JKIL has a track record of timely project

completion and has also received bonuses for early completion in few projects.


April 20, 2016 12

Strategic edge in terms of local expertise and reduced lead time for mobilization of

man power and equipment also gives JKIL edge in strong hold Maharashtra region.

Exhibit 13: Equipment bank

Type of Equipment No. Make

Tunnel Boring Machine 4 Terratec

Hydraulic Piling Rig 22 MAIT

Poclain/Excavators 19 Tata Hitachi/Komatsu

Dumper & Tripper 69 Tata/Ashok Leyland

JCB 49 JCB 3D/3DX/4DX

Concrete Batching Plant 14 Schwing Stetter

Transit Mixers 88 Greaves Cifa/ Schwing Stetter

Concrete Pump 18 Schwing Stetter/Putzmiester

Air Compressor 8 Atlas Copco

Rock Breaker 7 Atlas Copco/Fine 22X

Dozer 2 Komatsu/D-6-8-U

Vibratory Roller 14 Greaves Bomag

Soil Compactor 21 Greaves

Roller(static) 8 Kamal & Jessop

Gantry Cranes 28 Work shopmade

Cranes 44 ACE/HYPPO/P&H 220

Generator 126 Kirloskar

Loader 15 Terex/Escort/JCB

Crusher Plant 3 Sandvik

Vibro Roller 14 Greaves

Earth Compactor 13 Volvo/JCB/Greaves


JKIL will need to incur a capex of ~Rs2.5-3bn over two years, mainly for buying TBM

for MM3. It is well-funded for the capex and working capital requirement due to

recent fund raising though QIP. We believe well funded balance sheet and low Debt:

Equity, backward integration and owned equipment will enable the company to

grow its order book meaningfully over the next few years.

Exhibit 14: Amount raised through QIP

Date Amount raised (in bn) At price

26-Oct-15 4.1 365/share

22-Jul-14 1.3 310/share


JKIL stayed away from BOT project and focused on EPC. While it bid for few BOT

project, it did not win any due to its conservative bidding (was highest bidder in

most project bid). Its focus on EPC and profitability ensured that the company did

not get into debt trap like many other players in last cycle.


April 20, 2016 13

Exhibit 15: Snapshot of Gross Debt to Equity

0.4 0.5

1.0

0.7

0.3 0.3

0.4

0.0

0.2

0.4

0.6

0.8

1.0

1.2


Gross Debt/Equity


Exhibit 16: Snapshot of ROE and ROCE

15.6

13.8

10.4 10.8

12.9

15.1 15.6

12.9 14.2

16.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

FY14 FY15 FY16E FY17E FY18E

(%)

ROE ROCE


Exhibit 17: Working capital break-up

Particulars FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Inventory 3.3 5.9 8.0 19.0 35.7 51.8 84.5 122.2 147.7 150.7

Debtors 5.8 3.3 13.8 20.0 23.4 32.7 37.4 37.1 37.9 45.2

L&A 175.3 41.4 84.5 81.0 101.1 66.3 66.0 82.6 101.8 81.3

CL 49.9 25.0 24.1 31.3 41.5 40.0 61.0 114.3 138.1 115.6

Provisions 4.5 7.2 18.1 22.6 28.6 19.7 5.9 4.7 4.4 5.1

NWC 130 18 64 66 90 91 121 123 145 156


Recent QIP of Rs4.1bn has improved D:E

position significantly

Strong execution capabilities and margins

have helped JKIL deliver above industry

average return ratios


April 20, 2016 14

Exhibit 18: Net working capital days

121 123

145 156

166 163 153

0

20

40

60

80

100

120

140

160

180


NWC days


NWC capital increased from 91 days in FY11 to 156 days in FY15 largely due to

increase in inventory days. Inventory days were up from days 52 to 150 days in FY15

due to increase in work in progresses due to back ended nature of payments in Delhi

metro contracts (increased in un billed revenues). Liability days increased to 95 days

in FY15 from 35 days in FY11 due to increase in mobilization advance due to pick up

in inflows. We expect the working capital days to trend downwards over next 2 years

as Delhi metro project is likely to get over in FY17 and increased mobilization

advance due to strong inflows.


April 20, 2016 15

Outlook and valuation

While the last cycle has seen lot of big construction firms struggling on account of

high debt burden due to their entry in BOT assets ownership, delay in execution,

lower than expected traffic, we believe companies with good management,

excellent execution capabilities, focus on profitability. Low Debt: Equity and focus on

EPC will be able to attain size in the current cycle. We believe that a well-funded

balance sheet and strong track record will help JKIL to capitalise on huge opportunity

in urban infrastructure over the next few years. We expect stock to deliver sales and

PAT CAGR of 32%& 33%, respectively, over FY16-18E. We initiate coverage with

‘BUY’ with TP of Rs400. We have valued the stock at PE of 16x FY18E.

Exhibit 19: One Year Forward Price / Earnings Band

Source: Company Data, Bloomberg, PL Research

Exhibit 20: One Year Forward Price / Earnings

Source: Company Data, Bloomberg, PL Research

Exhibit 21: Comparative Valuation

MCap

(Rs bn)

Sales (Rs bn) EBITDA Margin (%) PAT (Rs bn) RoE (%) P/E (x)

FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E

J Kumar Infraproject** 21.8 14.4 18.3 25.2 18% 18% 17% 1.1 1.5 2.0 10.1 10.4 12.4 20.3 15.0 11.3

Ahluwalia Contracts * 20.5 12.6 16.2 19.4 12% 13% 13% 0.9 1.1 1.4 22.5 23.6 23.4 24.1 18.1 14.3

KNR Construction * 15.7 8.9 12.2 15.2 16% 15% 14% 0.9 1.0 1.3 15.8 13.1 15.4 16.6 15.9 12.5

NCC * 41.8 79.3 84.9 92.9 9% 9% 9% 1.9 2.5 3.1 5.9 7.2 8.3 21.5 16.9 13.6

Sadbhav Engineering ** 31.7 32.3 36.1 45.2 10% 11% 11% 1.3 1.6 2.2 9.3 10.5 12.7 24.0 19.4 14.4

Simplex Infrastructures * 12.5 58.8 64.8 71.0 11% 11% 11% 0.8 1.1 1.7 5.3 7.8 10.8 16.3 11.0 7.4

ITD Cementation * 18.7 30.7 35.1 40.0 6% 8% 9% 0.6 0.9 1.4 11.0 15.7 19.3 28.9 20.9 13.1

Source: Company Data, Bloomberg, PL Research. * Bloomberg Estimates **PL Estimates

4.0x

9.0x

14.0x

19.0x

24.0x

0

100

200

300

400

500

Mar

-11

Au

g-1

1

Jan

-12

Jun

-12

No

v-1

2

Ap

r-1

3

Sep

-13

Feb

-14

Jul-

14

Dec

-14

May

-15

Oct

-15

Mar

-16

14.2

24.2

10.6

6.6

3.30.0

5.0

10.0

15.0

20.0

25.0

30.0

Mar

-11

Jul-

11

No

v-1

1

Mar

-12

Jul-

12

No

v-1

2

Mar

-13

Jul-

13

No

v-1

3

Mar

-14

Jul-

14

No

v-1

4

Mar

-15

Jul-

15

No

v-1

5

Mar

-16

P/E (x) Peak(x) Avg(x)Median(x) Min(x)


April 20, 2016 16

Key risks

Delay in execution

Any delay in execution of projects due to land acquisition or other regulatory

bottlenecks could adversely affect JKIL’s revenues.

Concentration in transportation

With over 90% of JKIL’s order book concentrated in the transportation segment,

significant cost competition and slowdown in orders could affect JKIL’s revenue and

margin profile in the long term.

Slowdown in government spending

Although we believe that the Government’s focus on infrastructure spending will

sustain, any decrease in spending could adversely impact order intake.


April 20, 2016 17

Income Statement (Rs m)

Y/e March 2015 2016 2017E 2018E

Net Revenue 13,432 14,385 18,258 25,240

Raw Material Expenses 9,334 9,997 12,725 17,721

Gross Profit 4,097 4,388 5,533 7,519

Employee Cost 741 822 1,043 1,442

Other Expenses 851 912 1,187 1,666

EBITDA 2,506 2,655 3,303 4,411

Depr. & Amortization 474 511 621 740

Net Interest 768 809 870 1,148

Other Income 130 290 386 391

Profit before Tax 1,395 1,624 2,198 2,913

Total Tax 451 552 747 991

Profit after Tax 944 1,072 1,451 1,923

Ex-Od items / Min. Int. — — — —

Adj. PAT 944 1,072 1,451 1,923

Avg. Shares O/S (m) 64.5 75.8 75.8 75.8

EPS (Rs.) 14.6 14.1 19.1 25.4

Cash Flow Abstract (Rs m)

Y/e March 2015 2016 2017E 2018E

C/F from Operations (52) 1,626 927 (118)

C/F from Investing (410) (760) (2,010) (1,010)

C/F from Financing 800 2,552 805 1,234

Inc. / Dec. in Cash 338 3,418 (278) 106

Opening Cash 1,212 1,548 4,967 4,689

Closing Cash 1,548 4,967 4,689 4,795

FCFF (1,167) 1,386 (454) (380)

FCFE (1,576) 84 548 1,122

Key Financial Metrics

Y/e March 2015 2016 2017E 2018E

Growth

Revenue (%) 13.2 7.1 26.9 38.2

EBITDA (%) 21.7 5.9 24.4 33.5

PAT (%) 12.3 13.6 35.4 32.5

EPS (%) (3.1) (3.4) 35.4 32.5

Profitability

EBITDA Margin (%) 18.7 18.5 18.1 17.5

PAT Margin (%) 7.0 7.5 7.9 7.6

RoCE (%) 15.6 12.9 14.2 16.6

RoE (%) 13.8 10.4 10.8 12.9

Balance Sheet

Net Debt : Equity 0.5 (0.1) — 0.1

Net Wrkng Cap. (days) 214 200 193 177

Valuation

PER (x) 19.6 20.3 15.0 11.3

P / B (x) 2.3 1.7 1.5 1.4

EV / EBITDA (x) 8.8 7.8 6.6 5.3

EV / Sales (x) 1.6 1.4 1.2 0.9

Earnings Quality

Eff. Tax Rate 32.3 34.0 34.0 34.0

Other Inc / PBT 9.4 17.8 17.6 13.4

Eff. Depr. Rate (%) 11.0 11.3 10.5 12.0

FCFE / PAT (167.0) 7.9 37.7 58.3

Source: Company Data, PL Research.

Balance Sheet Abstract (Rs m)

Y/e March 2015 2016 2017E 2018E

Shareholder's Funds 7,891 12,818 14,074 15,732

Total Debt 5,168 3,867 4,868 6,370

Other Liabilities 131 131 131 131

Total Liabilities 13,190 16,816 19,074 22,233

Net Fixed Assets 4,933 5,182 6,572 6,842

Goodwill — — — —

Investments 11 11 11 11

Net Current Assets 8,246 11,623 12,491 15,380

Cash & Equivalents 1,548 4,967 4,689 4,795

Other Current Assets 10,429 11,196 14,030 18,785

Current Liabilities 3,732 4,540 6,228 8,201

Other Assets — — — —

Total Assets 13,190 16,816 19,074 22,233

Quarterly Financials (Rs m)

Y/e March Q3FY15 Q4FY15 Q1FY16 Q2FY16

Net Revenue 3,034 4,030 3,635 3,309

EBITDA 596 679 673 606

% of revenue 19.7 16.9 18.5 18.3

Depr. & Amortization 124 126 125 127

Net Interest 160 176 165 131

Other Income 24 55 28 32

Profit before Tax 313 378 383 348

Total Tax 74 104 124 116

Profit after Tax 239 273 259 232

Adj. PAT 239 273 259 232

Source: Company Data, PL Research.


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Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage PL’s Recommendation Nomenclature

47.7%

38.7%

13.5%

0.0%0%

10%

20%

30%

40%

50%

60%

BUY Accumulate Reduce Sell

% o

f To

tal C

ove

rage

BUY : Over 15% Outperformance to Sensex over 12-months

Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months

Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month

Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

DISCLAIMER/DISCLOSURES

ANALYST CERTIFICATION

We/I, Mr. Kunal Sheth (MBA), Mr. Samir Bendre (BE,MBA), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:

Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com

This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014

PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.

PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.

PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.

PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.

PL or its associates might have received compensation from the subject company in the past twelve months.

PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.

PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months

PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.

PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.

It is confirmed that Mr. Kunal Sheth (MBA), Mr. Samir Bendre (BE,MBA), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company

Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest.

PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

DISCLAIMER/DISCLOSURES (FOR US CLIENTS)

ANALYST CERTIFICATION

The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report

Terms & conditions and other disclosures:

This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

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