28/01/2008

Salora International Ltd.

Initiating with a BUY 12mth Price Target: Rs 260

We are initiating coverage on Salora International Ltd (SIL) with a 12-month price
target of Rs.260
Lalitha.M.R
(lalitha@ascilonline.com) Investment Highlights
Research Head

P Jayamurugan
Latest quarter performance: The Company’s top line stood at Rs.
(jayamurugan@ascilonline.com) 284.21 crs for the quarter ended Sep 2007, an increase of 16.1% on a YoY
Research Analyst basis. The company’s bottom line stood at Rs. 6.85 Crs for the sep
quarter 2007, an increase of 35.4% on a YoY basis.
Industry: Electronics
Price Data Rupee appreciation to facilitate lower input cost: Majority of
Current Price (Rs) 207.95 company’s import is from US, and all the company’s dealing is in US
52 wk range (Rs) 296 - 72 dollars. Rupee appreciation will facilitate the company to lower its input
Price Movement Chart cost and increase its margins.
300000 300
Raising equity helps in expansion of business. SIL is in talks to
225000 225 raise funds of Rs 50 crore by issue of equity shares / equity linked
instruments for expansion of its business. This expansion plan would
150000 150
bring additional business and enhance the company’s topline.
75000 75

0 0
Tie up with Nachtmann Stores will boost the topline SIL plans to
Jan-07 Apr-07 Jun-07 Sep-07 Dec-07 foray into the lifestyle product domain in association with Nachtmann, a
Germany-based crystal company. The tie up will help SIL to boost its
Stock Performance topline and bottomline by retailing its life style products in ‘Nachtmann’
1M 3M 6M stores that is to be built in leading India metros.
Absolute % (22) 16 73 .
Financial Performance
Stock Data Consolidated figures (Rs Crs)
Mkt Cap (Rs Cr) 183.66 Particulars FY05 FY06 FY07
Last traded qty (NSE) 1099
No. of shares o/s(Cr) 0.881 Net Sales 494.38 584.27 883.36
Free float (%) 33 Adj PAT 14.19 10.44 14.58
Share holding pattern chart Adj PAT Margin (%) 2.87% 1.79% 1.65%
Shareholding Pattern as on Mar07 EPS (Rs.) 16.11 11.85 16.55
15%
5% P/E 12.91 17.54 12.56
4% Mcap/Sales 0.37 0.31 0.21

9% 67% Net sales were Rs. 883.36 Crs for FY07 representing a growth of 51.1%. The Net
profits of the company grew by 39.6 % in FY07.
Promoter Non Promoter
Institutions Public
NRI Valuation
Key Indicators
We expect a stronger topline and bottomline growth on the back of company’s
EPS 1H Annualised (Rs) 27
expansion plans, stronger demand for mobile products and its recent tie ups
BV per share (Rs) 132.8
would further boost the company’s business. At the CMP of Rs. 207.90, Salora
PAT Margin (%) 1.65
International Ltd is trading at 8.7x its TTM earnings. Compared to the industry
average PE of 10.8x, the stock is under valued. We recommend a BUY on the
Code
stock with a 12M-price target of Rs.260.
NSE SALORAINTL
BSE 500370
Reuter SALI.BO
Bloomberg SLI IN
 Industry Profile

“Emerging Rural Mobile Market in India” shows that mobile users are
expected to cross from 220 million to 500 million by 2010. This will add
advantage to the company since major revenue for the company comes
from distribution of mobile products.

ORG data for the five-month period January to May 2007shows that the
total CTV sales touched the 42,54,700-units (growth of 70%) in terms of
volume and the Rs 3,975.48-crore (growth of 49%) in terms of value.

The overall consumer durables industry in India had grown 13 %, and this
trend is likely to continue with the industry estimated to clock a growth
of 12 per cent this fiscal.

In the month of Oct’07, the consumer goods grew by about 12.5%,

consumer durables at 9%, which is the largest index number that
consumer durables has clocked over the last few years.

Company Profile
SIL’s Revenue Break Up
Salora International Limited is the flagship company of Jiwarajka Group, formed in
8.2%
6.7% 0.1%
the year 1968.

SIL operates through four divisions: Infocom, Component, Consumer Electronics, and
Wind Energy. The Infocom division contributing 85% of FY07 revenues distributes
mobile handsets, MP3 players, laptops, desktops, thin film transistors and liquid
85.0% crystal display projectors, car audio systems, and USB drives. The Component
Infocom Components division manufactures television components, such as fly back transformers,
Consumer Electronics Wind Energy deflection yokes, and loud speakers. The Consumer Electronics division offers
television sets, video compact discs, digital versatile discs, and sub-assemblies. The
Wind Energy division engages in the generation and distribution of wind power.

SIL is the global service partners for Sony Ericsson and nationwide distributor for
Sony Ericssson, BenQ, Acer, I River, Moser Baer, Fusion, and Fujitsu.

SIL’s Gross Sales (Rs. Cr) SIL has a pan-India presence with 30 offices and 300 after-sales service centers to
Gross Sales meet customers’ expectations in telecom and consumer electronics.
1,000

800 The manufacturing facilities are located at the company’s complex in Noida and
600 awarded with ISO 9001:2000, IEC65 & ISO 14000 compliant.
Rs. Cr.

400

200

-
FY05 FY06 FY07
 Investment Rationale
The rapidly growing mobile users and the rise in the spending of the middle
SIL’s Fund Holdings Pattern class assures demand for the company’s distributing products such as mobile
phones, computers and IT peripherals. Further the Company is
No. of % of pd
strengthening its infrastructure, manpower and geographical coverage to
Fund Name Month shares up cater to the growing demand. This will enable the company to enhance its
(in lakhs) capital topline.
Birla Dividend
Yield Fund G Dec-07 0.26 0.30% SIL has developed a low cost framework based on Ultimate One Chip
DSP ML Micro Processor for Color TV, which has been extended to pull cost version to
cap Fund RP G Dec-07 3.09 3.51%
cater to the rural areas. This has resulted in better competitiveness in the
market, higher realization and has reduced reliance on foreign technology
for low cost products. This will have impact on forth coming results.

SIL had made Technical collaboration and Licence Agreement with Tokyo-
based company TEAC CORPORATION, a leader in the professional audio
industry. With this agreement SIL manufactures and markets TEAC brand of
televisions, DVD players, and audio systems in Delhi and National Capital
Region and would be expanding the operations regionally and have a PAN
India presence within couple of months. This would strengthen SIL’s
Consumer Electronics Division, which is a loss-making segment and thereby
improve its margins going forward.

The Company has installed the Wind Power plants of 6.25 MW at Dhulia in
Maharashtra in July 2006 and made a Power Purchase Agreement for 13
years with Maharashtra State Electricity Distribution Company Ltd and has
also signed operation and maintenance agreement with the equipment
supplier. The Company besides earning from sale of power will also be
entitled to Carbon Credits and substantial tax benefits.
Peer comparison
Name of the M Cap* Price* Face Value Net Sales PAT Mcap/ EPS P/E
Company (Rs Cr) (Rs) (Rs) TTM (Rs Cr) TTM (Rs Cr) Sales (Rs)
Salora Internationa 183.16 207.90 10.00 1042.57 21.21 0.18 24.07 8.64
MIRC Electronics 428.84 30.00 1.00 1574.39 35.91 0.27 2.30 13.04

Figures represent Trailing Twelve Months

Investment Concern

Any fluctuation in currency rates could affect the company adversely in

cross currency remittances and receivables.

Any fluctuation in the excise and custom duties or change in government

and its policies affects the business of the company.

Shift towards LCD technology can impact the sales and profitability of
components and consumer electronics segment of the company.
Technical outlook
The stock has touched its all time high of 296 and currently trading above its 200
days moving average, which limits the down side risk. It touched its major
support level 200 indicating strong bullish pattern with S1 186, S2 173, R1 223
and R2 246 in six-month period.
Consolidated Financial Statements

Income Statement
(Rs Cr)
Particulars FY05 FY06 FY07 1 H FY08
Sales 494.38 584.27 883.36 529.07
Total Expenses 468.04 563.48 854.87 503.24
Gross profit 26.34 20.79 28.49 25.83
Other income 2.09 1.80 3.47 0.90
Depreciation 4.63 5.13 5.35 2.63
PBIT 23.80 17.46 26.61 24.10
Interest 1.74 1.14 1.89 6.50
PBT 22.06 16.32 24.72 17.60
Tax 7.87 5.55 8.45 6.26
PAT before Minority interest 14.19 10.77 16.27 11.34
Minority interest - - - -
Reported PAT 14.19 10.77 16.27 11.34
Extraordinary items - 0.33 1.69 (0.57)
Adjusted PAT 14.19 10.44 14.58 11.91

Ratio Analysis
Profitability Ratios
Gross profit margin 5.33% 3.56% 3.23% 4.88%
EBIT/sales 4.81% 2.99% 3.01% 4.56%
Other Inc/Sales 0.42% 0.31% 0.39% 0.17%
Net profit margin 2.87% 1.79% 1.65% 2.25%
Tax Rate 35.68% 34.01% 34.18% 35.57%
Valuation Ratios
EPS 16.11 11.85 16.55 27.04
BV per share 111.37 119.07 132.89 159.89
Mcap/Sales 0.37 0.31 0.21 0.17
P/E 12.91 17.47 12.51 7.69
Price/BV 1.87 1.74 1.56 1.30
ROE(%) 14% 10% 12% 17%
 Balance Sheet
(Rs Cr)
Particulars FY05 FY06 FY07
SOURCES OF FUNDS
Share Capital 8.82 8.82 8.82
Equity 8.82 8.82 8.82
Preference - - -
Reserves and Surplus 89.30 96.08 108.26
Minority Interest 0.26 0.36 0.41
Secured Loans 24.06 10.07 43.43
Unsecured Loans 0.71 1.25 2.19

TOTAL LIABILITIES 123.15 116.58 163.11

APPLICATION OF FUNDS
Gross Block 67.42 69.57 98.55
Less: Accumulated Depreciation 34.13 38.89 41.59
Net Block 33.29 30.68 56.96
Capital Work in Progress - 0.75 -
Investments 7.51 5.16 11.30
Current Assets, Loans and Advances
Inventories 85.54 63.17 91.71
Sundry Debtors 36.91 52.31 95.17
Loans and Advances 9.89 15.74 18.00
Cash and Bank Balances 3.65 6.15 13.40
Total Current Assets 136.75 137.57 221.00
Current Liabilities
Sundry Creditors 43.99 48.11 101.79
Other liabilities 1.40 1.94 4.13
Provisions 2.74 3.07 5.11
Total Current Liabilities 49.64 54.35 113.01
Miscs Expe (not written off) - - -
Deffered Tax Asset 0.58 0.57 0.49
Deffered Tax Liability 4.59 3.61 10.92
Net Deferred tax (4.01) (3.04) (10.43)
TOTAL ASSETS 123.15 116.58 163.11

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directors or employees are responsible for any errors inadvertent or otherwise, and for any investment or divestment decision taken based on
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