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Index
w Stock Update >>Ashok Leyland
w Stock Update >>Bajaj Auto
w Stock Update >>Info Edge (India)
w Stock Update >>Bajaj Finserv
w Stock Update >>Finolex Cables
w Stock Update >> Kewal Kiran Clothing
w Stock Update >>Thermax
wViewpoint >> Cummins India
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Key points
w Q4FY2016 results broadly in line; exceptional item drags PAT: For Q4FY2016, AshokLeyland Ltd (ALL)s top line at Rs5,955.3 crore was up 32% YoY, driven primarily bya strong volume growth of 34% in the MHCV segment. Realisation per vehicle grewmarginally by 2% led by price hikes. The EBITDA margin at 12.6% improved sharply by250BPS YoY owing to soft commodity prices and lower employee cost and was broadlyin line with estimates. However, exceptional loss of Rs379.2 crore (Rs420.9-crore loss onprovision for dimunition in value of investments in JV/subsidiaries and Rs41.6-crore gainon sale of long-term investment) dragged the protability. Adjusting for the exceptionalloss, the PAT at Rs456 crore was in line with our estimate of Rs449 crore.
w Robust double-digit volume growth to sustain:The MHCV segment exhibited a buoyanttrend in FY2016 and the momentum is expected to continue over the next one to twoyears. Improved eet operator economics (due to soft fuel prices and interest rates),pick-up in the mining and infrastructure projects are likely to aid volume expansion
for MHCVs. Despite the strong growth in the last two years, the industry is still belowthe peak volume levels reported in FY2011 indicating sustained double-digit demandover the medium term. Further, ALLs dealer network expansion in non-south regionsand new launches in the intermediate commercial vehicle (ICV) segment would aidmarket-share gains for the company as well. Also, ALL has been gaining traction in thedefence business with the company recently winning 11 out of the 12 orders it bid for.ALL has identied defence as the core business area and is aiming to increase the shareof defence from the current 4% to 10% over the next four to ve years. We expect ALLsrevenues to grow at 16% CAGR over FY2016-18E.
w Margins to expand given the operating leverage:ALLs margins are likely to expandover the next two years given the operating leverage due to robust double-digit MHCVgrowth. With the raw material prices inching up, the input costs would go up whichwould be more than offset by operating leverage due to robust double-digit volumegrowth and the ability to take price increases. The OPM is expected to expand by120BPS over the next two years.
w Maintain Buy with an unchanged PT of Rs120:ALLs industry leading volume growthin the MHCV segment has enabled it to garner 4.2% incremental market share inFY2016. Strong visibility on the top-line growth due to positive outlook for the MHCVindustry coupled with ALLs efforts to expand network in the non-south region and newproduct launches in the ICV segment augur well for ALL. Favourable product mix andoperating leverage would enable ALL to improve its margins. Further, a major impactof provisioning for diminution in value of investments in subsidiaries/JV has been donein FY2016 and no major write-offs are expected in the near future which would cleanup the balance sheet and improve the return ratios. Though ALL has taken an enablingresolution for issue of fresh equity, however there are no rm plans for fund raisinggiven the healthy cash ow generation, low capex requirement and comfortable debt/equity ratio, thus restricting any dilution. We have broadly maintained our estimates forFY2017 and FY2018 and re-iterated our Buy rating on the stock with an unchanged pricetarget of Rs120.
Results Rs cr
Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)Net sales 5,955.3 4,505.7 32.2 4,085.3 45.8
Operating prot 753.1 457.1 64.8 429.7 75.3
OPM (%) 12.6 10.1 BPS 10.5 BPS
Depreciation 117.7 110.1 6.9 108.7 8.3
Interest 60.2 88.2 -31.7 66.6 -9.5
Other income 32.0 37.2 -14.2 25.9 23.5
PBT 607.1 296.1 105.1 280.3 116.6
Tax 150.8 58.0 159.9 75.2 100.6
Adjusted PAT 456.3 238.0 91.7 205.1 122.4
Exceptional items -379.3 -8.0 - 0.0 -
Reported PAT 77.0 230.0 -66.5 198.6 -61.2
Recurring EPS 1.6 0.8 0.7
Company details
Price target: Rs120
Market cap: Rs29,640 cr
52-week high/low: Rs112/63
NSE volume:(No of shares)
1.1 cr
BSE code: 500477
NSE code: ASHOKLEY
Sharekhan code: ASHOKLEY
Free oat:(No of shares)
141.2 cr
Shareholding pattern
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -8.0 9.0 6.2 41.3
Relativeto Sensex
-6.1 1.9 8.2 53.2
Ashok Leyland Reco: Buy
Stock Update
Robust volume growth to sustain; maintain Buy with an unchanged PT Rs120 CMP: Rs104
Promoters50%
Institutions10% Corporate
Bodies4%
Foreign25%
Public andOthers
11%
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Domestic MHCV grows 30% in FY2016; double-digit
growth likely for FY2017 as well:Buoyed by lowered
fuel prices and rm freight, rates the domestic medium
and heavy commercial vehicle (MHCV) truck segment
posted a strong volume growth of 32% for FY2016 while
the MHCV bus segment grew by 19% for FY2016. With the
key economic indicators (industrial activities) expected
to remain positive for the next one to two years coupled
with pick-up in mining and infrastructure projects, the
demand is likely to remain buoyant in FY2017. In addition
to this, the benign interest rate scenario and soft fuel
prices would aid volume growth in the future. Further,
governments proposal to scrap vehicles older than 10
years (so to curb pollution levels) could signicantly
boost the MHCV segments volumes, if approved by
the cabinet. Consequently, the MHCV segment is likely
to sustain a strong demand and register a double-digit
growth in FY2017.
ALLs volume growth
MHCV industry growth
ALLs segmental market share
(30)
(20)
(10)
0
10
20
30
40
50
60
0
10,000
20,000
30,000
40,000
50,000
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Overall Volumes YoY chg %
-10%
0%
10%
20%
30%
40%
50%
0
20000
40000
60000
80000
100000
Q1FY
15
Q2FY
15
Q3FY
15
Q4FY
15
Q1FY
16
Q2FY
16
Q3FY
16
Q4FY
16
MHCV Truck Vo lumes (LHS) % Ch an ge Yo Y (RHS)
0%
10%
20%
30%
40%
50%
60%
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
MHCV Truck Bus
Visibility on top-line growth provides comfort: ALL
reported a sharp improvement of 41% year on year (YoY)
in the MHCV volumes for FY2016 leading to a market-
share gain of 4.2%. New product launches and higher
dealer penetration particularly in the non-south regions
has helped ALL register a strong overall performance.
Going ahead the demand undercurrent for the MHCV
segment is likely to remain buoyant given the pick-
up in the mining activity and rm industrial activities
coupled with pre-buying due to implementation of the
new emission standards effective from April 1, 2017.
Likely introduction of the scrappage policy for vehicles
older than 10 years could be an inection point for ALLs
revenue growth. We expect the revenues to grow at a
compounded annual growth rate (CAGR) of 16% over
FY2016-18E.
Defence to be the next growth opportunity:ALL has
been gaining traction in the defence business with thecompany recently winning 11 out of 12 orders it bid
for. The company is enhancing the product offerings for
defence by introducing ammunition carrying vehicles as
well. ALL has identied defence as the core business area
and is aiming to increase the share of defence from the
current 4% to 10% of the revenues over the next four to
ve years.
Operating leverage to aid margins expansion: Benign
raw material cost scenario across FY2016 helped ALL
to post a record improvement in the margins with the
operating prot margin (OPM) at 11.5%. The raw material
cycle particularly of steel prices have begun to inch up
pointing at a reversal of the commodity prices, thus
leading to increase cost. However, a strong growth
in the top line due to a positive demand outlook and
ability to take price increase (ALL indicated it could
take 1-3% to price increases which would pass on the
entired commodity price increase) would lead to margin
improvement. We expect ALLs OPM to expand by 120
basis points (BPS) between FY2016-18.
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Valuation
ALLs industry leading volume growth in the MHCV
segment has enabled it to garner 4.2% incremental
market share in FY2016. Strong visibility on the top-line
growth due to positive outlook for the MHCV industry
coupled with ALLs efforts to expand network in the
non-south regions and new product launches in the ICV
segment augur well for ALL. Favourable product mix
and operating leverage would enable ALL to improve
its margins. Further, a major impact of provisioning for
diminution in value of investments in subsidiaries/JV has
been done with in FY2016 and no major write-offs are
expected in the near future which would clean up the
balance sheet and improve the return ratios. Though ALL
has taken an enabling resolution for issue of fresh equity,
however there are no rm plans for fund raising given the
healthy cash ow generation, low capital expenditure
(capex) requirement and comfortable debt/equity ratio,
thus restricting any dilution. We have broadly maintained
our estimates for FY2017 and FY2018 and re-iterated our
Buy rating on the stock with an unchanged price target
of Rs120.
Valuations Rs cr
Particulars FY14 FY15 FY16 FY17E FY18E
Net sales 9,943.4 13,562.2 18,821.6 22,006.4 25,621.0
Growth (%) -20.3 36.4 38.8 16.9 16.4
EBIDTA 116.9 1,026.6 2,166.0 2,672.3 3,250.2
OPM (%) 1.2 7.6 11.5 12.1 12.7
Adj PAT -476.3 233.9 1,112.7 1,497.8 1,917.2
Growth (%) -421.5 NA 375.8 34.6 28.0
FD EPS (Rs) -1.8 0.8 3.9 5.3 6.7
P/E (x) NA 126.6 26.6 19.8 15.4
P/BV (x) 6.2 5.8 5.3 4.8 4.4
EV/EBITDA (x) 269.9 30.6 14.6 11.7 9.5
RoCE (%) -3.0 7.4 20.7 25.2 29.5
RoE (%) -10.7 4.6 19.9 24.5 28.2
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
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Key points
w Operationally in-line quarter; lower other income leads to prot miss:For Q4FY2016,Bajaj Auto Ltd (BAL)s results were in line with our estimates on the operating front.Revenues grew by 14% YoY to Rs5,411 crore primarily led by a 12% volume growth. A robust24% volume growth in the domestic motorcycle segment led by new launches more thanoffset the weakness in motorcycle exports which declined by 3%. Further, realisationper vehicle grew by 2% led by favourable currency realisation (BAL realised Rs67.5 perdollar in Q4FY2016 as against Rs65.5 per dollar in Q4FY2015 on exports) and richerproduct mix (increased proportion of premium bikes). The EBIDTA margin improved by360BPS YoY to 21.3% (in line with our estimates of 21.9%) led by soft commodity pricesand richer product mix. The EBIDTA at Rs1,152 crore met our expectation. However,lower other income at Rs124 crore (declined by 20% YoY) led to a miss on the protfront. The net prot at Rs803 crore was below our estimate of Rs879 crore.
w Domestic motorcycle industry to recover in FY2017; new launches to lead to market-share gains:After a at motorcycle industry in FY2016 due to poor rural sentiments,the domestic motorcycle industry is poised for a recovery in FY2017. A good monsoon
forecast has led to improvement in the rural sentiments. The industry is likely to recorda 6-7% growth in FY2017. Also, BAL is likely to outgrow the motorcycle industry giventhe new launches. FY2017 is likely to see the full impact of recent launches (Avengerand CT 100). Also, BAL plans to introduce a new Platina(targeting the entry segment)and a new 400cc Pulsar(sport segment). It also plans to launch a refreshed version ofPulsarwhich is likely to lead to market-share gains for BAL. We expect BAL to register a15% growth in the domestic motorcycle industry in FY2017.
w Exports market weak; have guided for almost double-digit decline in FY2017:BALexports volumes (forming about 45% of the overall volumes) are likely to remain underpressure. The weakness in the oil prices have led to the currency depreciation of keymarkets of BAL (Africa, Egypt, Argentina) making the imports costlier. Further, thecountries are also plagued with lack of availability of dollar given the deterioratingbalance of payments position. Also, demand in another key market, Sri Lanka, has beenaffected by increase in the import duties which has signicantly increased the vehicleprices thereby affecting the demand. The above markets are likely to remain underpressure in the near term with BAL guiding for lower export volumes of 1.6 million inFY2017 as against 1.74 million export units in FY2016.
w FY2016 margins at peak; margins to come under pressure given the increasedcommodity prices, higher marketing expenses and expiry of incentives at Pantnagar:BALs FY2016 margins at 21.1% were at multi-year high gaining from favourable exchangerate movement and downtrend in the commodity prices. However, going ahead themargins are expected to come down given the uptrend in the commodity prices. Also,BALs marketing expenses are likely to inch up given the new product launches andincreased competition. Further, the expiry of incentives at the Pantnagar plant inFY2018 would also exert pressure on the margins going ahead. We expect BALs marginsto come down by 130BPS over the next two years to 19.8% in FY2018.
w Outlook and valuation:BAL is likely to register a healthy double-digit growth in thedomestic motorcycle industry given the improved industry prospects and market-sharegain on the back of new launches. However, the export markets contributing abouthalf of the volumes are likely to decline in double digits given the sharp currencydepreciation in the key overseas markets. Further, margins would also come underpressure given the increase in commodity prices, increased marketing expenses andexpiry of incentives at the Pantnagar plant. We have reduced our FY2017 earningsestimates by 7% to factor in weak exports and margin decline. We have also introducedFY2018E earnings assumptions in our note. We have maintained our Hold rating on the
stock with an unchanged price target of Rs2,600.Results Rs cr
Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)
Total income 5,411.4 4,739.3 14.2 5,564.9 -2.8
EBIDTA 1,151.5 837.8 37.4 1,171.3 -1.7
EBIDTA margins (%) 21.3 17.7 360BPS 21.0 30BPS
Depreciation 76.1 63.8 19.3 74.6 2.0
Interest 0.1 6.3 -99.0 0.1 -14.3
Other income 124.1 154.3 -19.5 199.7 -37.8
PBT 1,199.5 922.0 30.1 1,296.2 -7.5
Tax 396.5 300.4 32.0 394.7 0.4
Recurring PAT 803.1 621.6 29.2 901.5 -10.9
EPS 27.8 23.0 20.6 31.2 -10.9
Company details
Price target: Rs2,600
Market cap: Rs72,490 cr
52-week high/low: Rs2,655/2,133
NSE volume:(No of shares)
2.6 lakh
BSE code: 532977
NSE code: BAJAJ-AUTO
Sharekhan code: BAJAJ-AUTO
Free oat:(No of shares)
14.6 cr
Shareholding pattern
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -3.2 2.1 1.2 18.9
Relativeto Sensex
-1.1 -4.6 3.1 28.8
Promoters49%
Institutions9% Corporate
Bodies7%
Foreign18%
Public andOthers
17%
Bajaj Auto Reco: Hold
Stock Update
Exports outlook weak; maintain Hold CMP: Rs2,505
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Valuations Rs cr
Particulars FY14 FY15 FY16 FY17E FY18E
Income 20,149.5 21,612.0 22,687.6 24,434.1 27,805.0
Growth (%) 0.8 7.3 5.0 7.7 13.8
EBIDTA (Rs cr) 4,105.7 4,116.6 4,779.6 4,883.1 5,514.2
OPM (%) 20.4 19.0 21.1 20.0 19.8
PAT (Rs cr) 3,243.3 2,813.7 3,652.4 3,840.7 4,349.3Growth (%) 6.6 -13.2 29.8 5.2 13.2
FD EPS (Rs) 112.1 107.2 126.3 132.8 150.4
P/E (x) 22.4 23.4 19.9 18.9 16.7
P/B (x) 7.8 7.0 6.0 5.2 4.6
EV/EBIDTA (x) 15.7 15.5 13.2 12.3 10.6
RoE (%) 34.8 27.0 30.1 27.5 27.6
RoCE (%) 46.8 40.3 42.5 39.0 39.3
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
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Key points
w Strong Q4:For Q4FY2016, Info Edge delivered a higher-than-expected revenue growth of18% YoY to Rs204.2 crore, driven by 18.9% growth in the recruitment business (Naukri.com)and 5.6% in 99acres.com. The operating prot margin (OPM) for the quarter improved by833BPS QoQ and was down by 86BPS YoY to 30.5% (ahead of our estimates). The sequentialimprovement in margin was attributed to lower advertising spends (especially in 99acres,due to lower competitive intensity) and improvement in the OPM (280BPS) for Naukri.Excluding exceptional income of Rs29.2 crore in Q4FY2015, the adjusted net income forthe quarter was up by 7.8% YoY to Rs57.2 crore on the back of lower tax provisioning at25.4% (vs 31.1% in Q4FY2015). On consolidated basis, the adjusted net loss was Rs101 crorein FY2016 as compared with adjusted net prot of Rs29.6 crore in FY2015, owing to hugeoperating loss of Rs440 crore for Zomato (before depreciation and tax expenses), thoughthings have started improving at Zomato, as burn rate has come down to less than $2million from $9 million earlier.
w Growth momentum likely to continue for stand-alone business: (1) Recruitment(Naukri)s business sentiment remained stable and its newly launched SaaS-based productcareer site manager has been embraced by the customers. Expect recruitment tosustain the growth momentum in FY2017 on the back of favourable IT markets (~40% ofthe total recruitment revenues) and the overall gross domestic product (GDP) growth;(2) Demand for new homes continued to witness slowdown in the NCR region (50-55%of 99acres revenue) and Hyderabad, while Mumbai and Bengaluru markets remainedslightly better. Though the revenue growth for 99acres.com is expected to be better thanQ4 growth rate (YoY), the management foresees no near-term revival in the advertisingspends in the NCR region. Further, prevailing lower competitive intensity in the northernregion is positive in terms of protability; (3) Operating loss for Jeevensathi increasedto Rs13 crore in FY2016 against Rs4.4-crore loss in FY2015 owing to higher ad spends.However, the management indicated that Jeevansathi reached nearly break-even level inQ4FY2016. Similarly, Shiksha reported a turnaround at its operating level in Q4FY2016 andthe management guided the losses will decline further in FY2017.
w Zomato revenue to double in FY2017, to achieve break-even:Although Zomato reporteda revenue of Rs185 crore (up 91%YoY) in FY2016, its operation loss sharply swelled morethan 3x reaching Rs440.9 crore. The management anticipates the revenue for Zomato willbe in the range of Rs300-350 crore, a growth of ~60-95% YoY. Further, the managementbelieves Zomato will achieve break-even at the end of FY2017 as the current cash burnper month falls in the range of $1.6-1.7 million from earlier $9 million. Zomatos currentcash balance stands at $35 million (more details in Zomato con-call highlights).
w Maintain Buy with a price target of Rs1,000:Given the lower competitive intensity inreal estate space, we expect the overall stand-alone margins to improve further in thenear term, additionally in Naukri, we expect gradual improvement in revenues with astable outlook in overall GDP and job market. Further, improvement in overall nancialsof Zomato after recent restructuring exercise will result in lower cash burns. We havetweaked our overall estimates by 2-3% for FY2017 on the back of strong performancereported in Q4FY2016 and introduced FY2018 estimates. We have maintained our Buyrating on the stock with an SOTP-based price target of Rs1,000.
Results (stand-alone) Rs cr
Particulars Q4FY16 Q4FY15 Q3FY16 YoY (%) QoQ (%)
Net sales 204.2 173.1 173.4 18.0 17.8Network, internet and other direct charges 6.0 5.6 5.9 7.7 2.1
Employee benets expense 89.0 68.7 80.4 29.6 10.6Gross prot 109.3 99.1 87.1 10.2 25.4Advertising and promotion cost 21.2 21.9 27.1 -3.4 -21.9Other expenses 25.8 22.8 21.5 12.9 19.6Operating prot 62.3 54.4 38.5 14.6 62.0Depreciation and amortisation 6.0 3.6 5.4 68.1 10.0EBIT 56.4 50.8 33.0 10.8 70.6Other income 20.3 26.9 21.6 -24.6 -5.9Provision of tax 19.5 23.9 21.4 -18.6 -9.1Adjusted net income 57.2 53.0 33.2 7.8 72.3Exceptional item 0.0 -29.2 11.5Reported net income 57.2 82.2 21.7 -30.4 163.1Adjusted EPS (Rs) 4.7 4.4 2.7Margin (%) (BPS) (BPS)
OPM 30.5 31.4 22.2 -86 833
NPM 28.0 30.6 19.1 -259 886
Company details
Price target: Rs1,000
Market cap: Rs9,585 cr
52-week high/low: Rs935/690
NSE volume:(No of shares)
0.93 lakh
BSE code: 532777
NSE code: NAUKRI
Sharekhan code: NAUKRI
Free oat:(No of shares)
6.9 cr
Shareholding pattern
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -6.2 2.9 -8.0 -1.2
Relativeto Sensex
-4.2 -3.9 -6.3 7.1
Info Edge (India) Reco: Buy
Stock Update
Good quarter, Zomato restructuring will drive lower cash burns CMP: Rs793
Promoters43.1%
Institutions10.1%
CorporateBodies
0.4%Foreign35.8%
Public andOthers
10.7%
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Valuations (stand-alone) Rs cr
Particulars FY15 FY16 FY17E FY18E
Total revenue 611.6 723.5 854.5 1,024.9
EBITDA margin (%) 29.8 21.8 28.5 31.0
Adjusted net prot 164.7 153.0 209.6 261.1
Adjusted EPS (Rs) 13.6 12.7 17.3 21.6
PER (x) 59.1 63.6 46.4 37.3P/BV 5.8 5.5 5.0 4.5
EV/EBITDA 46.7 55.4 35.7 27.1
RoE (%) 9.9 8.7 10.8 12.0
RoCE (%) 14.5 12.5 15.5 17.2
Dividend yield (%) 0.4 0.1 0.2 0.3
SOTP valuation:
Business segment Stake % Valuation methodology/rational Per share value (Rs)
Recruitment business 100 EV/EBITDA 569.5
99 Acres 100 EV/Sales 58.9
Jeevansathi.com 100 EV/Sales 13.5Stand-alone business (per share) 641.9
Zomato Media Pvt Ltd 46 Based on latest funding, valued at$1bn in the last round of funding
243.5
Other investee company 20.9
Cash Per share 94.2
Total per share 1,000
Highlights of Zomato conference call
Zomato has cut down its business from 23 countries
to 14 countries to reduce the cash burns in these highrisk geographies. The company primarily pulled out its
business from the countries, such as the USA, the UK,
Ireland, Sri Lanka, etc.
The cash burn has reduced to $1.6-1.7 million per month
as compared with $9 million per month early last scal
year
Around 70,000 restaurants are currently listed with
Zomato in India, out of which 6% are paid clients
Currently, the average number of orders stands in the
range of 25,000-26,000 per week. 80% of the total
orders are automated, while 20% orders are placed
through call centers
Management expects the overall online ordering
business will hit protability when the average will
touch 40,000 orders a day
80% of its total orders are being delivered to customers
by the restaurants, while the remaining orders are beingdelivered to customers by Zomato through its logistic
partners
Online delivery business in India contributes 20% of
total Indias revenue, while online delivery business
across the globe contributes 7% of its total revenue; the
company has recently started delivery business in the
Philippines
Food delivery business is currently growing at 30%
month on month (MoM), while advertising revenue is
growing at 10% MoM
The cash & cash equivalents stood at $35 million as of
March 31, 2016
Zomato has 1,900 employees worldwide, out of which
1,250 are in India
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Operating metrics
Particulars Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16
Naukri.com
Number of resumes (m) 38 39 40 41 42 44 45 46
Avg resumes added daily (000s) 12 13 9 10 13 13 11 13
Average no. of resumes modieddaily (000s)
116 135 124 133 166 185 163 195
Number of unique customers (000s) 31 31 31 33 34 34 34 36
Vertical breakup of Naukri.com (%)
IT/ITeS 28 29 28 31 29 29 30 31
BFSI 5 5 5 5 5 5 4 5
Infrastructure 17 17 17 16 16 15 15 14
Jeevansathi.com
Number of proles ever loaded (m) 6.3 6.5 6.6 6.8 7 7.2 7.4 7.6
Avg proles acquired daily 1,486 1,849 1,872 2,050 2,131 2,455 2,241 1,925
99acres.com
Number of listings 772 834 852 964 900 1,042 1,095 1098
Number of paid listings 603 609 588 663 623 728 748 747
Number of paid transactions 18.2 21 19.2 20.7 17.6 24.6 23.7 22.4
Segmental revenues (In cr)
Net sales 145.4 147.5 145.7 172.9 171.8 174.1 173.4 204.2
Recruitment solutions 104.1 107.2 108.4 125.2 124.7 128.2 129.4 148.9
99acres for real estate 22.6 24.5 23.0 30.3 25.3 27.8 25.9 31.7
Other verticals 18.3 15.8 14.3 17.8 21.8 18.1 18.1 23.6
PBIT (in cr) 48.7 40.4 34.3 58.3 24.3 32.7 32.7 64.7
Recruitment solutions 53.8 53.8 53.4 69.5 63.9 68.2 64.1 78.9
99acres for real estate -4.8 -10.5 -15.0 -7.6 -36.1 -27.2 -21.3 -13.4
Others (including Jeevansathi) -0.3 -2.9 -4.1 -3.6 -3.5 -8.3 -4.8 -0.9
PBIT margins (%) 33.5 27.4 23.5 33.7 14.1 18.8 18.9 31.7
Recruitment solutions 51.7 50.2 49.3 55.5 51.2 53.2 49.5 53.0
99acres for real estate -20.9 -42.9 -65.2 -25.4 -142.7 -97.8 -82.2 -42.3
Others (including Jeevansathi) -1.6 -18.4 -28.7 -20.2 -16.1 -45.9 -26.5 -3.8
Headcount 3,406 3,681 3,701 3,817 4,049 4,124 4,082 4,220
Deferred revenues (in cr) 150 147 143 175 187 175 173 206
Source: Company, Sharekhan research
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Key points
w Consolidated prot down 26.8% YoY due to change in accounting practices:
Bajaj Finserv reported a 26.8% Y-o-Y decline in its net prot owing to change
in its accounting practices. Earlier till FY2015 the prots from policyholders
account to shareholders account were transferred on an annual basis which
is now done on a quarterly basis. Hence, the sum transferred to shareholders
account was higher than in Q4FY2016 leading to a decline in the overall prot.
The total income however reported a healthy growth of 28.7% YoY.
w General insurance and lending business report healthy performance: Bajaj
Allianz General Insurance Company (BAGIC) posted a good set of numbers as
gross written premium (GWP) was up by 18.1% YoY while the prot growth stood
at 44.4% YoY. Bajaj Finance Ltd (BFL) also reported a strong performance as loan
book growth stood at 37.0% YoY driven by consumer durable nance, personal
and business loans. Bajaj Allianz Life Insurance Company (BALIC) reported
a 58.5% decline in its prot due to change in accounting practices however
shareholders prot excluding transfer from policy holders account grew by
87.3% YoY. The asset under management (AUM) growth was at (up 1.3%) owing
to lack of bancassurance.
w Valuation and outlook: BAGIC has shown good performance after a downfall in
Q3FY2016 owing to Chennai oods and remains one of the top companies in the
general insurance space owing to its strong distribution network, while BALICcould see improvement as the company is looking out for tie-ups with various
banks for bancassurance and revival in life insurance industry could augment its
growth. The lending business, ie BFL, continues to remain robust and we expect
it to be the key driver for overall earnings growth. We have maintained our Buy
rating on the stock with an unchanged SOTP-based price target of Rs2,290.
Results Rs cr
Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)
Income from operations 2,467.6 1,917.9 28.7 2,395.2 3.0
Transfer from policy holders account 99.46 487.89 (79.61) 48.64 104.5Other income 0.2 0.8 -81.9 0.0 650.0
Total income 2,567.2 2,406.7 6.7 2,443.9 5.0
Expenses 750.7 603.0 24.5 755.9 -0.7
Operating prot 1,816.5 1,803.7 0.7 1,688.0 7.6
Interest 789.5 602.8 31.0 733.8 7.6
Prot before tax 1,026.9 1,200.9 -14.5 954.2 7.6
Tax 260.1 227.0 14.6 276.0 -5.8
Prot from ordinary activities 766.8 973.9 -21.3 678.2 13.1
Less minority interest 248.9 266.8 -6.7 240.9 3.3
Net prot 518.0 707.1 -26.8 437.3 18.4
Company details
Price target: Rs2,290
Market cap: Rs28,484 cr
52-week high/low: Rs2,160/1,446
NSE volume:(No of shares)
0.5 lakh
BSE code: 532978
NSE code: BAJAJFINSV
Sharekhan code: BAJAJFINSV
Free oat:(No of shares)
6.63 cr
Shareholding pattern
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -4.1 8.0 -6.6 24.7
Relativeto Sensex
-2.0 0.9 -4.9 35.1
Bajaj Finserv Reco: Buy
Stock Update
General insurance and BFL post good performance CMP: Rs1,789
Promoter58%
Public42%
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BALICMuted business growth: For Q4FY2016, BALIC
showed a muted performance as the GWP growth
remained at at 1.7% year on year (YoY). However, the
new business premium was up by 7.6% YoY, while renewal
premium during the quarter declined by 3.7% YoY owing
to lapsation of limited pay products hence the base to
generate premiums was lower. However, the company
is looking out to approach banks for bancassurance tie-
ups which were the primary reasons for its lacklustre
growth along with overall sluggish life insurance
business environment. The company also expects public
sector banks (PSBs) would go for multiple tie-ups since
Insurance Regulatory and Development Authority (IRDA)
has increased the limit for banks to tie-up with insurers
from three to nine. The company would now focus more
on the individual segment in order to revive its life
insurance business. It has started various activities to
improve its life insurance business like revamping the
agency channel, improving the ticket size and targetingtop 20 to 30 cities where its presence is weak. The net
prot for the quarter was down by 58.5% YoY owing to
change in accounting practices while the AUM growth
stood at 1.3% YoY.
Bajaj Allianz Life Insurance Company
Particulars Q4FY16
Q4FY15
YoY(%)
Q3FY16
QoQ(%)
Gross writtenpremium
2,419.0 2,379.1 1.7 1,225.2 97.4
New business
premium
1,213.0 1,127.0 7.6 538.0 125.5
Renewalpremium
1,206.0 1,252.0 -3.7 687.0 75.5
Policyholderssurplus
99.0 488.0 -79.7 49.0 102.0
Shareholdersprot
133.0 71.0 87.3 191.0 -30.4
Prot/(Loss) forthe year
232.0 559.0 -58.5 142.0 63.4
AUM 44,107.5 43,553.7 1.3 43,361.0 1.7
BAGICProtability and operating metrics improve:
During Q4FY2016, BAGIC reported a good set of numbersafter subdued performance in the previous quarter owing
to Chennai oods. The GWP increased by 18.1% YoY while
net earned premium growth stood at 12.6%, and interest
and dividend income also reported a strong growth of
56.5% YoY. The AUM growth underwriting prot grew by
50% YoY to Rs30 crore after a loss of Rs116 crore due to
higher claims in Q3FY2016. Claim ratio was down by ~1%
for Q4FY2016 while the combined ratio improved to 94.3%
from 95.14% YoY and 108.7% YoY. BAGIC saw a decline in
its operating expense (opex) ratio as the overall growth
picked up while some part of the expense was shared by
its reinsurance counterpart. The management feels the
market for general insurance is still under penetrated
and there is a lot of opportunity for growth. BAGIC is
one of the top general insurers especially in the retail
category with best operating metrics. Any uptick in the
economic activity and vehicle sales would only enhance
the growth prospectus for BAGIC.
Bajaj Allianz General Insurance Company
Particulars Q4FY16
Q4FY15
YoY(%)
Q3FY16
QoQ(%)
Gross writtenpremium
1,730.0 1,465.0 18.1 1,348.4 28.3
Net earnedpremium
1,126.0 999.8 12.6 1,037.0 8.6
Interest anddividend income
277.0 177.0 56.5 211.0 31.3
Prot before tax 257.0 197.0 30.5 95.0 170.5
Prot after tax 208.0 144.0 44.4 68.0 205.9
BFLStrong performance continues: BFL reported
a healthy 36.4% year-on-year (Y-o-Y) growth in its net
prot driven by a strong 37.0% jump in its loan book.
The loan book was driven by various segments like
consumer durable nance, personal and business loans.
The relatively new products like lifestyle nancing,
digital products lending and rural nancing also reported
a robust growth (small book size). The company has the
ability to launch new products, strong risk management
and has unique customer acquisition strategy which
would continue to drive the business growth. The overallasset quality has improved during the quarter as gross
non-performing asset (GNPA) ratio declined to 1.23%
from 1.29% quarter on quarter (QoQ).
Particulars Q4FY16
Q4FY15
YoY(%)
Q3FY16
QoQ(%)
Net interestincome
1,015.3 741.4 37.0 1,222.4 -16.9
Non-interestincome
136.3 91.9 48.4 97.9 39.2
Net totalincome
1,151.6 833.2 38.2 1,320.3 -12.8
Operatingexpenses
506.1 374.9 35.0 549.0 -7.8
Pre-provisioningprot
645.5 458.3 40.9 771.4 -16.3
Provisions 156.5 113.8 37.6 146.2 7.1
Prot beforetax
489.0 344.6 41.9 625.2 -21.8
Tax 174.0 113.6 53.2 216.7 -19.7
Prot after tax 315.0 231.0 36.4 408.5 -22.9
Advances 42,756 31,199 37.0 41,760 2.4
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Valuation and outlook: BAGIC has shown good
performance after a downfall in Q3FY2016 owing to
Chennai oods and remains one of the top companies
in the general insurance space owing to its strong
distribution network, while BALIC could see improvement
as the company is looking out for tie-ups with various
banks for bancassurance and revival in the life insurance
industry could augment its growth. The lending business,
ie BFL, continues to remain robust and we expect it to
be the key driver for overall earnings growth. We have
maintained our Buy rating on the stock with an unchanged
sum-of-the-parts (SOTP)-based price target of Rs2,290.
Valuation
Particulars Stake(%)
Value per share
Life Insurance (1.3x FY16 EV) 74 615
General Insurance (2.8x FY17 BV) 74 505
Bajaj Finance ( 3.7x FY18 BV) 58 1150
Investments 20
Total 2,290
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Key points
w Stellar performance; earnings more than doubled, much ahead of estimates:Finolex Cables Ltd (FCL) reported a whooping Rs83 crore of PAT in Q4FY2016 ascompared with Rs32 crore in Q4FY2015. This was also substantially better thanour as well as Street estimate. In line with our estimate, the revenue remainedat (YoY) at Rs681 crore due to lower realisations (copper price correction hasbeen passed on to consumers) but it witnessed a strong volume growth in bothelectrical (up 12%) and communications (up 20%) segments. The OPM expandedby spectacular 700BPS YoY and the operating prot jumped by 82% YoY to Rs112crore in Q4FY2016. Consequently, PAT jumped by a whopping 160% YoY in thecurrent quarter, also on annual basis earnings grew by more than 40% to Rs249crore.
w Existing business on track but delay in new product lines:During FY2016,the performance of communication business jumped substantially (with
government order in hand) over last year which propelled the overall growth,though the electrical cables business continued a very healthy volume drivengrowth momentum. The prudent working capital management helped thecompany to generate close to Rs300-crore cash from operation which will beinstrumental in further strengthening its already debt-free balance sheet. Whilethe existing business is doing fairly well, recently the company launched fansin the market which could bring incremental revenue marginally in FY2017 andmeaningfully in FY2018. However, the company is still waiting for the approvalof its switchgear facility.
w Revised upward earnings estimate and price target; re-iterate Buy: FCLreported an impressive result in this quarter, which surprised us positively andthe stock could react strongly in the next trading session. We like the sustainedstrong cash ow generation by the company and the ability to deliver a veryhealthy returns ratio. Moreover, the management is fairly condent of healthyvolume growth in future and expects the new product lines like fans andswitchgears will add substantial revenue stream in future. On this backdrop,we have revised upward our earnings estimates by roughly 15-20% for FY2017and FY2018 each and raised our price target to Rs360 (earlier Rs310). We alsore-iterate our Buy rating on the stock.
Results Rs cr
Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)
Revenue 681 658 3.4 587 16.0
Operating prot 112 61 82.2 78 42.4
Other income 18 9 95.4 10 84.7Interest 1 3 -57.7 2 -32.3
Depreciation 18 22 -18.5 13 31.5
PBT 111 46 141.6 73 51.9
Tax 27 21 27.7 20 36.5
EO - 23 -
Reported PAT 83 47 77.7 53 57.8
Adjusted PAT 83 32 160.7 53 57.8
Adjusted EPS 5.4 2.1 160.7 3.4 57.8
Margin BPS BPS
OPM (%) 16.4 9.3 708.6 13.4 303.3
NPM (%) 12.2 4.8 736.9 9.0 323.5
Tax rate 24.8 46.9 (2,211.0) 27.6 (280.4)
Company details
Price target: Rs360
Market cap: Rs4,669 cr
52-week high/low: Rs314/201
NSE volume:(No of shares)
79,963
BSE code: 500144
NSE code: FINCABLES
Sharekhan code: FINCABLES
Free oat:(No of shares)
9.6 cr
Shareholding pattern
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -2.1 19.5 6.9 15.7
Relativeto Sensex
0.0 11.7 8.9 25.4
Finolex Cables Reco: Buy
Stock Update
Stellar performance; PT revised to Rs360 CMP: Rs305
Promoters37%
FII
5%DIIs20%
Others38%
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Valuations Rs cr
Particulars FY14 FY15 FY16 FY17E FY18E
Net sales 2,359.0 2,449.1 2,461.1 2,682.0 3,036.4
Y-o-Y growth (%) 3.9 3.8 0.5 9.0 13.2
Operating prot 248.2 258.8 338.5 364.8 409.4
OPM (%) 10.5 10.6 13.8 13.6 13.5
Net prot 189.9 175.8 248.8 270.6 301.9Adjusted EPS (Rs) 12.4 11.5 16.3 17.7 19.7
Y-o-Y growth (%) 18.3 (7.4) 41.6 8.8 11.6
PER (x) 24.6 26.6 18.8 17.3 15.5
P/B (x) 4.2 3.7 3.2 2.8 2.4
EV/EBIDTA (x) 14.8 13.8 10.5 9.3 8.2
Div yield (%) 0.5 0.6 0.8 0.9 1.0
RoCE (%) 22.0 19.7 24.5 23.3 22.6
Core RoE (%) 26.9 20.0 28.6 23.2 22.8
RoIC (%) 33.9 34.5 51.3 50.8 48.1
Stellar performance; beats estimates: FCL beat theestimates with a whooping Rs83-crore adjusted prot
after tax (PAT) in Q4FY2016 as compared with Rs32-
crore adjusted PAT in Q4FY2015. The revenue remained
at year on year (YoY) at Rs681 crore due to lower
realisations as the copper price correction has been
passed on to consumers. The strong volume growth
in both electrical (12%) and communications (20%)
segments surprised us positively. The gross prot margin
(GPM) expanded by 930 basis points (BPS) in Q4FY2016
as the company was successful in harvesting the benet
of commodity price correction. The volume growth along
with GPM expansion has driven the protability of thecompany. The operating prot margin (OPM) expanded
by spectacular 700BPS year on year (YoY) to 16.4% in
Q4FY2016 and consequently operating prot jumped to
Rs112 crore in Q4FY2016 as compared with Rs61 crore
in Q4FY2015. The strong operating performance trickled
down to prot after tax (PAT) level which more than
doubled in the current quarter.
On segmental basis, the electrical cables revenue was
at at Rs545 crore in spite of lower copper prices, on the
back of a strong 12% volume growth. With a strong volumegrowth, the prot before interest and tax (PBIT) margin
of the segment expanded by 281BPS to 18% and PBIT
stood at Rs98 crore, 17% higher YoY. The communications
cables segments revenue grew by 18% again on the back
of strong 20% volume growth. Consequently, the PBIT
margin expanded by 600BPS to 14.5% and PBIT more than
doubled YoY to Rs17 crore, on a low base.
Segmental Rs crParticulars Q4
FY16Q4
FY15YoY(%)
Q3FY16
QoQ(%)
Electric cablesRevenue 545.4 551.98 -1 521.1 5Contribution (%) 83 85 90PBIT 98.2 83.8 17 82.3 19Contribution (%) 88 108 (1,935)
BPS
95 (628)
BPSPBITM (%) 18.0 15.2 281 15.8 219CommunicationcablesRevenue 119.0 73.8 61 62.2 91Contribution (%) 18 11 11PBIT 17.23 6.21 177 4.73 264Contribution (%) 15 8 752 5 1,006PBITM (%) 14.5 8.4 607 7.6 687OthersRevenue 26.0 48.7 -47 6.5 303Contribution (%) 4 8 1PBIT -4.65 -13.14 NA -0.64 NAContribution NA NA NAPBITM (%) -17.9 -27.0 NA -9.9 NA
FY2016 performance: During FY2016, the company
benetted from a sharp correction in the commodity
prices and favourable product mix thus delivering a solid
operating and consequently earnings numbers. The top
line however was attish at Rs2,461 crore as volume
growth was off-set by drop in realisation. The OPM of
the company expanded by 320BPS YoY to 13.8% and
the operating prot stood at Rs338 crore, 30% up YoY.
Consequently, the adjusted PAT of the company grew by
42% YoY to Rs249 crore. On the balance sheet side, the
company has repaid around Rs25-crore debt in FY2016and now the total debt on the companys balance sheet
stands at Rs26 crore. The company also managed to
improve its net working capital cycle to 33 days in FY2016
from 42 days in FY2015. Consequently, the company has
generated around Rs300-crore cash ow from operations.
Revised upward earnings estimate and price target;
re-iterate Buy:FCL reported an impressive result in this
quarter, which surprised us positively and the stock could
react strongly in the next trading session. We like the
sustained strong cash ow generation by the company
and the ability to deliver a very healthy returns ratio.Moreover, the management is fairly condent of healthy
volume growth in future and expects the new product
lines like fans and switchgears could add substantial
revenue stream in future. On this backdrop, we have
revised upward our earnings estimate by roughly 15-20%
for FY2017 and FY2018 and raised our price target to
Rs360 (earlier Rs310). We also re-iterate Buy rating on
the stock.
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Key points
w Q4FY2016 result synopsis; Strong performance: For Q4FY2016, driven bystrong volume growth of 17% YoY, Kewal Kiran Clothing Ltd (KKCL) posted arobust 20.9% top-line growth. Despite a sharp increase in overheads (contractualemployee cost, and advertisement & sales promotion), the benign raw materialprices resulted in margin sustenance at 27% for the quarter, while the operatingprot grew by 21% YoY. Lower other income, coupled with increased tax anddepreciation affected the net earnings that grew by 1.8% on a Y-o-Y basis.
w Management remains condent of double-digit revenue growth: In ourinteraction with the management, it sounded condent of the demandenvironment and has started witnessing double-digit growth across regions and
categories. Its strategy of staying away from rampant discounting in the marketplace has started yielding results. It has guided us for a revenue growth ofaround 15% for FY2017, while it expects the revenue growth momentum inmedium term in the range of 15-18%. The company would continue to nurtureand invest in its brands and hence advertisement and promotion expenseswould continue to remain elevated, and hence it expects the annual margin toremain at the current level of 23-24%.
w Strong business, robust balance sheet; maintain Buy: We expect KKCL topost 13.2% revenue CAGR over FY2016-18, with net earnings growing at 19.6%over the same period. The company has robust balance sheet with an overallcash and cash equivalents of Rs183 crore as on March 31, 2016, this constitutesaround 8.5% of its current market cap. We believe that the company with strong
pedigree of brands, transparent management and a robust balance sheet,would continue to trade at premium valuations. Thus, we have maintained ourBuy rating on the stock with a revised price target of Rs2,360.
Results Rs cr
Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)Net revenues 126.7 104.7 20.9 95.4 32.7COGS 52.8 46.9 12.8 41.8 26.5Sales (%) 41.7 44.7 43.8Staff cost 11.6 11.9 (2.2) 12.9 (9.9)Sales (%) 9.2 11.3 13.5 (32.1)Selling & administrativeexpenses
15.8 10.6 49.5 15.3 3.2
Sales (%) 12.5 10.1 16.0Other expenses 12.4 7.3 69.1 9.1 36.6Sales (%) 9.8 7.0 9.5 3.0Operating prot 34.0 28.1 21.0 17.2 98.3Interest expenses (net) 0.9 0.5 78.4 0.8 8.3Depreciation & amortization 1.2 0.9 27.5 1.0 16.0PBT 33.6 30.5 10.5 16.2 107.7Tax 11.9 9.0 31.1 5.5 114.3Adjusted PAT 21.8 21.4 1.8 10.7 104.2PAT margin 17.2 20.4 0.1Extra-ordinary item - - -Reported PAT 21.8 21.4 1.8 10.7 104.2EPS 17.7 17.4 1.8 8.7 104.2Gross prot margin 58.3 55.3 302 56.2 206
OPM (%) 26.9 26.9 1 18.0 888
Company details
Price target: Rs2,360
Market cap: Rs2,158 cr
52-week high/low: Rs2,300/1,603
NSE volume:(No of shares)
1,691
BSE code: 532732
NSE code: KKCL
Sharekhan code: KKCL
Free oat:(No of shares)
0.3 cr
Shareholding pattern
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -0.6 4.0 -8.5 -16.0
Relativeto Sensex
1.5 -2.8 -6.8 -9.0
Foreign13%
Institutions9%
Non-promotercorporate
1%
Promoters
77%
Kewal Kiran Clothing Reco: Buy
Stock Update
Robust business; maintain Buy with PT revised to Rs2,360 CMP: Rs1,750
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Valuations Rs cr
Particulars FY14 FY15 FY16 FY17E FY18E
Net sales 367.2 405.1 457.4 517.0 585.8
Growth (%) 21.2 10.3 12.9 13.0 13.3
Adj net prot 67.0 66.3 68.0 84.9 97.3
Yoy change 26.5 (1.1) 2.6 25.0 14.6
EPS 54.4 53.7 55.1 68.9 78.9P/E (x) 32.2 32.6 31.8 25.4 22.2
Book value 235.5 261.9 291.3 328.1 370.2
P/BV 7.4 6.7 6.0 5.3 4.7
EV/EBITDA (x) 18.8 18.6 17.3 13.7 11.8
RoE 24.6 21.6 19.9 22.2 22.6
RoCE 30.9 28.9 28.1 28.4 28.8
Key result highlights
Volume growth drives top-line performance:KKCL
posted a strong 21% growth in the top line, led by
double-digit volume growth for the quarter. Thecompany posted a 17% volume growth while the
blended realisation grew by 3.7% year on year (YoY).
The realisation growth was a combination of excise
duty hike passed on to consumers (imposed in Budget
2016), along with a product mix change.
Brand-wise Lawman posted a stellar 50% year-on-
year (Y-o-Y) growth (albeit at a low base), followed
by Integriti (+21.5% YoY), and Easies (+14.6% YoY).
Brand Killer that constitutes around 48-50% to the
top line grew at a modest 11.4% YoY. Going forward,
the management expects around 15% growth fromthe overall portfolio of brands. Distribution-wise,
MBO continues to be the main distribution mode
(constituting around 51% to the revenue), which grew
at 17.4% YoY. Growth from the e-commerce and large
format stores was strong at 3x and 54% respectively.
GPM improves: Aided by lower commodity prices
(predominately cotton), as Q4 being a summer-led
quarter, the usage of blends reduces and cotton andlinen are largely used as raw materials. Thus, KKCL
witnessed a 302-basis point gross prot margin (GPM)expansion for the quarter from 55.3% in Q4FY2015 to58.3% in Q4FY2016.
Margins sustain despite increase in overheads:Though GPM improved, increase in other xedoverheads (increase in minimum wages for contractualemployees accounted in other expenses), alongwith increase in advertisement spent (to improvebrand reach and salience), nullied the impact ofGPM expansion, thus resulting in at margins on aY-o-Y basis. The operating prot margin (OPM) forQ4FY2016 was at 26.9%, and the overall operating
prot grew by 21% YoY.
Balance sheet remains robust: KKCL continuesto leverage on its brand strength and consumerpull strategy, thus it continues to sell on outrightpurchase method, thereby de-risking itself frominventory risk. The company has a sleek 90 days cashconversion cycle. The company is cash surplus withRs183 crore. The business generates enviable returnshovering around 28% for return on capital employed(RoCE) and 20% return on equity (RoE).
Investments parked in xed maturity paper: The
company has parked its cash and investment intoxed maturity papers, with an annual yield of 9%,with three years maturity. It has parked aroundRs150 crore into this papers, which as per the newaccounting policy would be recognised only on receiptbasis (earlier the same was recognised on accrualbasis). Thus, for the last 24 months there has been noaccounting on other income into the nancials of thecompany. A part of the same investment (around Rs80crore) would mature in Q2 and Q3FY2017 (around that
would provide boost to the earnings in FY2017, while
the rest (around Rs70 crore) would mature in FY2018.
Q4FY2016- Brand-wise revenue mix
Q4FY2016- Channel-wise revenue mix
Killer, 54%
Integriti, 20%
Page 3Lawman, 20%
Easies, 3%Others, 3%
K-Lounge, 24%
MBO, 57%
Large formatstores, 9%
Factory outlet, 3%
Exports, 6%
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
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Key points
w Weak result in Q4; slippage in revenue affects earnings: For Q4FY2016,Thermax (stand-alone) reported another quarter of weak result, below ourestimate. The earnings declined by 16% YoY to Rs111 crore mainly on account oflower revenue (15% drop YoY) and OPM contraction of 120BPS. The company isgoing through a phase of subdued order inow, given the slower-than-expectedinvestment cycle revival. Though Thermax managed to improve its gross protmargin (GPM) in this quarter, higher other expenses (includes write-off of baddebts to the tune of Rs14 crore) weighed on the OPM in a weak revenue scenario.Consequently, the operating prot declined by 25% but with a sharp drop ininterest cost, the net prot decline was restricted at 16% YoY in Q4FY2016.
w Recovery elusive; softer outlook to continue:During FY2016, the earnings ofThermax declined by 9% YoY, on account of 7% decline in revenue and 109BPSof OPM contraction. However, due to prudent working capital management,it has generated substantially higher cash ow and debts in the subsidiariesare paid off. Further, the management expects loss from subsidiaries to shrinkgoing forward, with better balance sheet. While the efforts by the company arevisible in numbers, the environment remains challenging as investment cyclerecovery is yet to pick up. Consequently, the outlook is likely to remain softerfor some time.
w Revised down earnings estimate, subsequently PT revised down to Rs800but retain Hold:Thermax started the year with a 16% lower order book, butmanaged to close the year with a 7% decline in revenue with better execution.Now, again FY2017 is starting with a 15% lower order book position at Rs3,747
crore. Therefore, we expect weak revenue for FY2017 again, unless the companywins substantially higher orders in the year. On this backdrop, we have reviseddown our earnings estimate by roughly 15% and subsequently revised down theprice target. We believe muted outlook would be an overhang for the stockespecially being at a high valuation. Nevertheless, the company is prepared towithstand the phase and building its base for future growth, backed by strongbalance sheet and technology advantage. Hence, we have retained our Holdrating on the stock with price target revised down to Rs800 (earlier Rs900).
Results Rs cr
Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)Net sales 1,293 1,521 -15.0 1,039 24Net raw material 791 1,011 -21.8 640 24
Employee expenses 123 126 -2.6 118 4Other expenses 262 226 15.6 182 43Operating prot 118 157 -24.8 99 20Other income 48 63 -24.0 13 266Interest 0.1 12.4 -99.4 0.2 -60Depreciation 13 15 -12.0 16 -16PBT 152 192 -20.8 96 59Tax 41 60 -31.3 28 48Adjusted PAT 111 132 -16.0 68 64Rep PAT 111 132 -16.0 68 64EPS 9.3 11.1 -16.0 5.7 64Margin (%) BPS BPSOPM 9.1 10.3 (120) 9.5 (37)PATM 8.6 8.7 (11) 6.5 207
Tax rate 27.1 31.2 (416) 29.1 (203)
Company details
Price target: Rs800
Market cap: Rs12,368 cr
52-week high/low: Rs1,144/700
NSE volume:(No of shares)
46,911
BSE code: 500411
NSE code: THERMAX
Sharekhan code: THERMAX
Free oat:(No of shares)
4.5 cr
Shareholding pattern
Price chart
Price performance
(%) 1m 3m 6m 12m
Absolute -9.8 -9.3 -20.0 -31.4
Relativeto Sensex
-7.9 -15.2 -18.5 -25.6
Thermax Reco: Hold
Stock Update
Another weak quarter; PT revised down to Rs800 CMP: Rs740
Promoters38.9%
FII
16.0%
DII7.8%
Others14.2%
650
750
850
950
1050
1150
May-15
Sep-15
Jan-16
May-16
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Valuations Rs cr
Particulars FY14 FY15 FY16 FY17E FY18E
Net sales 4,302 4,697 4,352 4,066 4,328
Y-o-Y growth (%) (8.3) 9.2 (7.4) (6.6) 6.4
Operating prot 409 471 389 379 412
OPM (%) 9.5 10.0 8.9 9.3 9.5
Adj Net Prot 220 336 306 291 319Adj EPS 18.5 28.2 25.6 24.4 26.8
Y-o-Y growth (%) (37.0) 52.6 (9.2) (4.7) 9.8
PER 56.1 36.8 40.5 42.5 38.7
P/B 6.1 5.5 5.0 4.6 4.2
EV/EBIDTA 23.5 18.8 21.6 21.0 18.9
RoCE (%) 20.3 22.9 17.9 16.2 16.7
RoNW (%) 11.4 15.8 12.9 11.3 11.4
Div yield (%) 0.8 0.9 0.8 0.8 0.8
Q4FY2016 result-Another weak quarter: The weak
order inow scenario in the past has led to a 15% year-on-year (Y-o-Y) decline in stand-alone revenues, which stood
at Rs1,293 crore. Both energy and environment segments
declined by 17% year on year (YoY) however the other
operating income (consists of foreign exchange [forex]
uctuations) grew substantially thus partially arresting
the fall in revenues. On the positive side, the subsidiaries
continued the high revenue growth momentum (up 77%
YoY), on a low base. Thus, subsidiaries managed to mask
the poor performance of stand-alone entity and on the
consolidated basis, Thermaxs revenue was down only 5%
YoY at Rs1,620 crore.
On a consolidated basis, with better revenue traction
in subsidiaries (up 77% YoY), the most of the loss-
making subsidiaries have reduced the losses and have
become earnings before interest, tax, depreciation
and amortisation (EBITDA) positive. The total loss of
subsidiaries amounted to Rs23 crore in Q4FY2016 as
compared with a loss of Rs35 crore in Q4FY2016. As a
mixed bag result of poor performance in stand-alone
entity and better performance of subsidiaries, the
consolidated prot for the company declined by 10%
to Rs88 crore. To sum it up, the weak performance
of the stand-alone entity was partially offset by the
improvement in subsidiaries.
On the stand-alone basis, the gross prot margin (GPM)
improved due to low commodity prices. However, the
other expenses grew substantially due to bad debt write-
offs. Therefore, despite GPM expansion by 500 basis points
(BPS) YoY, the operating prot margin (OPM) contracted
by 120 basis points (BPS) YoY and led to decline in the
operating prot of 25% YoY to Rs118 crore in Q4FY2016.
Below the operating line, the lower interest & tax outgo
restricted prot after tax (PAT) to decline by 16% only toRs111 crore on a stand-alone basis.
Trend in top line
-
20
40
60
80
100
120
140
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Standalone PAT Group PAT
Stand-alone and group performance
FY2016 performance and earnings revision: The stand-
alone FY2016 performance is lower than FY2015 both attop line as well as at the adjusted prot after tax (PAT)
level. The OPM has contracted by 100BPS to 8.9%. Even
the order book scenario has also deteriorated, given a 9%
Y-o-Y drop in order inow. Consequently, at the end of
FY2016, the order backlog is 15% lower on a Y-o-Y basis at
Rs3,747 crore. On the balance sheet side, the company
continues to remain debt free and it also managed to
maintain its net working capital days at 65. On the
consolidated basis, the scenario was better as most of
the subsidiaries which were making losses have now
turning EBITDA positive. Consequently, the consolidated
revenues of the company were up by 4% YoY at Rs5,501
crore and the operating prot margin was also stable at
8.2%. The repayment of debt, reduced nance expenses
and led to an adjusted prot of Rs243 crore, up 21% YoY.
Conference call highlights:
Weak order inow in Q4; likely to remain soft
for some time:Due to the delay in the pick-up of
domestic capital exchange (capex) cycle, the order
book scenario of the company is subdued for past
several quarters and now the stand-alone order book
stands at Rs3,747 crore, down 15% YoY. On segmental
5,699
5,389
5,206
5,016
5,097
4,396
4,275
4,006
3,830
3,747
-3%-6%
-3%
14% 13%10%
19%
-11% -9%-15%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
-
1,000
2,000
3,000
4,000
5,000
6,000
Q
3FY14
Q
4FY14
Q
1FY15
Q
2FY15
Q
3FY15
Q
4FY15
Q
1FY16
Q
2FY16
Q
3FY16
Q
4FY16
Order Backlog -Standalone Revenue growth Standalone%
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Sharekhan May 26, 2016 Home Next19
basis, the energy segments order inows and order
backlog stood at Rs961 crore and Rs3,125 crore
respectively, while for the environment segment it
is Rs216 crore and Rs622 crore respectively. Also, the
management does not see any material changes on
the large-ticket ordering activity. However, small-
and medium-sized order momentum continues to
remain strong and the company is doing quite well
in the space.
Improvement in performance of subsidiaries
continues:The revenue of the subsidiaries has jumped
more than 77% to Rs327 crore and consequently the
overall subsidiaries net loss has also reduced to Rs23
crore in Q4FY2016 from Rs35 crore in Q4FY2015. The
management has guided that, all the subsidiaries
except China are prot before tax (PBT) positive and
even the China subsidiary is EBITDA positive now.
Consequently, the management expects that forFY2017 the total subsidiaries should be contributing
to protability positively.
Revised down earnings estimate, subsequently PT
revised down to Rs800 but retain Hold:Thermax had
started the year with a 16% lower order book, but it
managed to close the year with 7% decline in revenue
with better execution. Now, again FY2017 is starting
with a 15% lower order book position at Rs3,747
crore. Therefore, we expect weak revenue for FY2017
again, since it seems unlikely that the company wins
substantially higher orders in the year. On this backdrop,
we have revised down our earnings estimate by roughly
15% and subsequently revised down the price target.
We believe muted outlook would be an overhang for the
stock especially being at a high valuation. Nevertheless,
the company is prepared to withstand the phase and
building its base for future growth, backed by strong
balance sheet and technology advantage. Hence, we
have retained our Hold rating on the stock with a price
target revised down to Rs800 (earlier Rs900).
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
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Key points
w Sharp drop in export business lead to weak result in Q4:Cummins India Ltd (CIL) reported a weak set of numbers
in Q4FY2016. The earnings declined by 14% YoY to Rs164 crore due to subdued revenue and drop in other income.
The revenue declined by 6% YoY as the export business dropped by around 30%. However, the domestic business
is relatively stable. For FY2016, the revenue grew by 7%, backed by 13% increase in the domestic business while
export business declined by 3%. The annual operating performance turned weaker in H2FY2016, though it started
on a strong note at the beginning of FY2016.
w Export outlook turned hazy and rising concern related to change in policy for new products: In addition to
weak Q4, the guidance for FY2017 is also not encouraging. The management indicated that the domestic business
is likely to grow by 8-10% in FY2017 but export business is expected to be at-to-negative next year. Consequently,
FY2017 revenue is likely to grow in mid-to-high single digit only. Whats more, the company indicated that all newexport models would be introduced through its unlisted subsidiary in India (and not the listed Cummins India) and
the listed entity would only earn marketing margins on the new products. This is an unfavourable development for
the listed company (CIL) and negative for minority shareholders.
w Muted earnings outlook and unfavourable policy changes; Exit; removing it from the Wealth Creator Folio
also:Given the muted growth guidance and unfavourable policy changes, CIL would no longer command premium
valuations associated with its pedigree and technological prowess in engines segment. Moreover, the arrangement
to just earn marketing margins on new products would eventually dent its margin prole and return ratios. Hence,
we expect the stock to languish and underperform. We recommend investors to Exit. We are also removing the
stock from the Wealth Creator Portfolio with immediate effect (would recommend a replacement during the
monthly review next week).
w Risk to our call:In case of resistance from minority shareholders, the management might reconsider its policy of
introducing new products through its unlisted subsidiary in India. In the past also, some of the companies have
relented to shareholder pressure and policy reversed decision detrimental to the interest of minority shareholders.
Result Rs cr
Particulars Q4FY16 Q4FY15 YoY (%) Q3FY16 QoQ (%)
Net sales 1,065 1,134 -6.0 1147 -7.1
Net raw material 655 716 -8.6 729 -10.2
Employee Expenses 104 100 4.1 108 -3.9
Other Expenses 136 143 -4.5 139 -1.8
Operating prot 171 175 -2.5 171 -0.1Other Income 51 66 -22.4 57 -9.3
Interest 0.2 0.3 -12.0 0.2 4.8
Depreciation 20.6 19.1 7.8 20.2 2.1
PBT 201.3 222.0 -9.3 207.2 -2.8
Tax 37 32 17.8 29 28.9
Adjusted PAT 164 190 -13.8 178 -8.0
Rep PAT 164 190 -13.8 178 -8.0
EPS 5.9 6.9 -13.8 6.4 -8.0
Margin (%) BPS BPS
OPM 16.0 15.5 57 14.9 112
PATM 15.4 16.8 (139) 15.6 (14)
Tax rate 18.5 14.2 425 13.9 454
Cummins India
Viewpoint
Weak result; concern rising on change in policy for new products CMP: Rs808
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