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IAPM Student Research

Media and Entertainment

This report is published for Educational Purposes only


as a part of Course Curriculum
Date: August 31, 2012

Prime Focus

Company Overview
Prime Focus is a global Visual Entertainment Services group. Visual
Entertainment Services is a new definition for an industry where
technology, visual delivery platforms and content are converging and
evolving. Prime Focus offers a genuine end-to-end solution from preproduction to final delivery including visual effects, creative 3D
conversion, video and audio post-production, digital content management
and distribution, Digital Intermediate, versioning and adaptation, and
equipment rental.

Recommendation: Buy

Increasing Demand for VFX and 2D to 3D Conversion

Market Profile
Ticker

PFOCUS

Price

Rs. 49.5

Price Target

Rs. 61

Market Cap

Rs.
Crore

719

Outstanding
Shares

14.89 Crore

Face Value

Rs. 1.0

52 Week H/L

65.70/33

Average Volume
1 month

170437

3 months

101995

1 years

224528

Relative Price Chart

PFL is the market leader in the 3D conversion business with a market


share of nearly 50% with few international competitors like Legend3d
and 3d Reality. The number of 3D movies being produced globally is on
the rise. Along with it the number of screens showing 3D movies is also
on the rise. Prime Focus enjoys a healthy 4o% EBITDA margins for this
vertical. Considering the strong potential of these business vertical, we
expects it to be a major growth driver for the company going forward.

Prime Focus Technologies (CLEAR Platform) to Register


Exponential Growth
PFL offers a cloud based technology platform CLEAR through its
subsidiary prime focus technologies (PFT) to the media and entertainment
industry. CLEAR is the worlds first hybrid Cloud technology platform
helps manage content, workflows, supply chain logistics, interactions, and
production and operations management tool. It has registered robust
growth of 205.3% y-o-y in FY12 (contributed 4.4% to revenues) and
stood at Rs 33.6 crore. It is expected that the platform to grow at ~100%
in FY13 to Rs 70.0 crore on account of its strong order book of US$ 12
mn executable in the next 12-18 months.

Healthy order book position to aid future revenue earning


PFLs current order book is about USD90mn, which is executable over
the next 18 months and is bifurcated into the conversion business and
CLEAR, with 2D to 3D conversion and VFX accounting for ~USD80mn
and CLEAR comprising of the remaining USD12 mn.

Valuation & Outlook


: Prime Focus
: Nifty

IAPM Student Research

We expect revenues and profitability to grow at a strong CAGR of


29.7%/33.9% to Rs 13.0 bn and Rs 1.8bn over FY12-14E driven by
strong order book in the 2D-to-3D conversion space, traction in CLEAR
platform and expansion in margins. Our DCF analysis provides an
intrinsic value of Rs. 60.91 per share, an upside of 23% over the current
market price.
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August 31, 2012

Investment Rationale

2D to 3D conversion
business is expected to be a
major growth driver for
PFL for the next 2 years
considering
the
rising
demand for 3D movies

VFX and 2D to 3D Conversion to drive Growth:


PFL is the market leader in the 3D conversion business with a market
share of nearly 50% with few international competitors like Legend3d
and 3d Reality, thus enjoying a benefit of off-shoring resulting in higher
margins of nearly 40% at EBIDTA level and is targeting a 30% growth in
FY13E and FY14E Considering the strong potential of this business
vertical, it is expected to be a major growth driver for the company going
forward. Only 68 movies in the world are available on 3D and there is
huge opportunity left in the space. The cost of converting a movie from
2D to 3D ranges between $10 to $15 mn while in return it fetches huge
cash flows due to higher ticket prices, no piracy and lower distribution
costs. Further, with rise in demand for 3D Movies, the current growth
momentum is expected to continue in the next two years.
Some of the projects undertaken by PFL in the 3D conversion space

PFLs track record of


providing various
technological offerings to
content owners through
efficient execution has led to
clients like Warner Bros,
20th Century Fox, Sony etc
become a part of its global
clientele

PFL enjoys a leadership


position in the 3D
conversion business with a
global market share of
~50%.

Clash of the Titans


Warner Bros
Harry Potter and the Half Blood Prince
Warner Bros
Cats & Dogs
Warner Bros
Harry Potter and the Deathly Hallows
Warner Bros
Green Lantern
Warner Bros
Clash of Titans 2
Warner Bros
RA.One
Red Chillies & Eros Entertainment
Shrek
DreamWorks Animation

Whats more interesting is that the preference for 3D movies is rising.


The reasons for this rise are varied. First, the ticket prices for 3D are sold
at approximately 25% premium over the 2D prices, making the
investments hugely profitable. Next is the lower distribution costs
incurred on distributing 3D movies. With the number of 3D screens
relatively low, the bargaining power of the screens is greatly reduced.
Also the 3D screens being mainly located in tier 1 city, helps reducing the
distribution cost. The last major advantage of 3D movies is the fact that
3D movies cannot be pirated. This also helps in boosting the revenues for
the movie houses.

Source: IHS Screen Digest

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The total number of digital


3D screens is expected to
comprise of ~45% of the
total expected 100,000
screens by end of FY15E.

August 31, 2012

With the rise in demand for 3D movies, the number of 3D screens


worldwide is increasing at a robust rate. The total number of digital 3D
screens is expected to comprise of ~45% of the total expected 100,000
screens by end of FY15E. In addition, PFL has estimated that there would
be at least 65 movies that will be released in 3D this year which would
result in a conversion spend of ~US$300 mn. The important point to be
noticed is that PFL has a significant advantage in the conversion space.

Source: IHS Screen Digest

Has set up 3000+ seat


capacity View D
technology center at
Goregaon and Chandigarh
locations to cater to the
outsourcing need of 3D
conversion and VFX

Similarly, the demand for VFX is on the rise in the movie industry. In
FY12, the VFX business contributed Rs 1,493 mn to the top line, which is
an 80% increase over last year and is expected to grow at ~33% in the
coming years. In order to tap the huge potential created by increasing
usage on VFX and 3D effects in movies, PFL has set up a state of the art
facility for its new technology - View D at Goregaon and Chandigarh to
cater to the outsourcing opportunity in 3D conversion and VFX with 3000
plus seat capacity. View D is a process of converting an existing 2D film
to stereoscopic 3D format. View D is a proprietary process of PFL for the
conversion of 2D moving images to stereo 3D images.

Source: Company Annual Report 2011

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PFT enjoys high EBIDTA


margins of ~40% from this
platform due to its non
linear nature.

It has registered robust


growth of 205.3% y-o-y in
FY12.

15 studios in 3 continents in
all-time zones

August 31, 2012

Prime Focus Technologies (CLEAR Platform) to Register


Exponential Growth:
PFL offers a cloud based technology platform CLEAR through its
subsidiary prime focus technologies (PFT) to the media and entertainment
industry. It helps manage content, workflows, supply chain logistics,
interactions, and production and operations management tool for clients
like Associated Press, British Films Institute, Sony Music, Netflix,
Viacom, and National Geographic Channel. Some of the prestigious
projects include digitizing 20,000 hrs of content for BCCI with revenues
of Rs. 200 mn over 3.5 years and digitizing movies for EROS
international. CLEAR is the worlds first hybrid Cloud technology
platform managing over 150,000 hours of content for Broadcasters,
Studios & brands worldwide. It has registered robust growth of 205.3% yo-y in FY12 (contributed 4.4% to revenues) and stood at Rs 336 mn.
CLEAR platform has been successful deployed for Star TV (biggest
client of PFT) and the CLEAR iPad application have helped demonstrate
true digitization of the content enterprise including the digital media
supply chain enabling creativity, better monetization & driving
efficiencies. Driven by the increased adoption of CLEAR by clients like
Sony, it is expected that this revenue momentum to continue with a very
healthy order book.
Global Network of Integrated Studios Proves Beneficial in Saving
Cost & Time:
PFL operates 15 studios in 3 continents in all-time zones which provide
complete end to end services ranging from pre production facilities to the
final delivery on a 365 day work schedule providing time and cost
benefits to the clients as work gets outsourced to different studios globally
depending on the availability of manpower and needs along with major
cost benefits as most of the work is done in India at significantly lower
cost giving Prime Focus an edge over competitors.

Company Overview
Marquee clientele include:
Warner Bros, Universal,
Paramount, 20th Century
Fox, James Cameron,
Ogilvy, JWT, BBC, Saatchi
& Saatchi, Yash Raj Films,
Dharma Productions, Red
Chillies Entertainment

IAPM Student Research

Prime Focus Limited (Prime Focus) is a leading visual entertainment


services company in Asia, and the largest in India. The company started
in 1997 in Mumbai as a post production house. Today, with a pan-India
presence in Mumbai, Delhi, Chennai, Bangalore, Hyderabad and
Chandigarh, the company has transformed itself into a one stop shop
providing CREATIVE and TECHNICAL services for the film, broadcast,
commercials, music, gaming and media industries. It is part of the global
Prime Focus group which has offices in major markets like London, New
York, Los Angeles and Vancouver. The company works with marquee
clients that include the biggest names in the industry: Warner Bros,
Universal, Paramount, 20th Century Fox, James Cameron, Ogilvy, JWT,
BBC, Saatchi & Saatchi, Yash Raj Films, Dharma Productions, Red
Chillies
Entertainment
and
many
more.
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August 31, 2012

Over the years, it has successfully acquired companies in the UK and


North America, turned them around and consolidated its position in the
global market. The company acquired VTR plc in UK for GBP 4.7 mn
and later Machine and Clarke Associates was acquired in January 2008.
All these companies operate under Prime Focus London plc and is listed
on the AIM market of the London Stock Exchange. North American
acquisitions consist of Post Logic Studios and Frantic Films for USD 43
mn which allowed Prime Focus to offer cutting edge services and
technology in Los Angeles, New York, Vancouver and Winnipeg. It has
operations in North America, UK and India and has built a state-of-the
art facility at Royal Palms, Mumbai, and Chandigarh with 3,000+ seats
to convert existing 2D films to stereoscopic 3D format. It has 15 global
facilities with total employee base of 4,500.
The company continues its aggressive foray into the Indian media and
entertainment space with a combined focus on building its resources and
introducing cutting edge new products. The company provides a unique
multi-local advantage to its customers via the use of its Global Digital
PipelineTM. The company offers a full range of products and services,
thereby reducing the need for multiple vendors and resulting in higher
efficiencies of scope, scale and size for its customers.
Some important Projects handled by PFL
Bollywood

Muder 2

Shaitan
Patiala
House

International
Star
Wars
Episode I: The
Phantom
Menace
Transformers
3: Dark of the
Moon
Green Lantern

No
One
X-Men:
Killed
Class
Jessica

Advertising
Projects

UK
Broadcast

UK
Advertising

Phillips
Grooming
Range

Great
British
Menu

Lucozade
Yes

Reliance
Digital HD
Dominos
Mexican
Wrap

First Samsung
Guru

The house
that made
me
America
the Story of
us
Stephen
Hawkings
Universe

Nokia
Happy
Navigators
Relentless
Virtues
Chanel
Gabrielle

Source: Company Annual Report FY11

Technologies and Services:


PRIME FOCUS continues to remain at the forefront in providing
innovative creative and technical services in India. It is also one of the
few players to offer its customers both width and depth across service
categories and across timezones. Spread over 3 continents and 4 timezones, the company has a skills bank of over 3,500 highly qualified
people working around the clock 365 days a year, and offers compulsive
time and cost savings to its clients. The company today handles all
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aspects of content, from pre-production tovfinal delivery. It operates at all


levels and points in the value chain: from creating, capturing, crafting,
and circulating to conserving content, thus giving flexibility and freedom
to producers.
View-DTM
View-DTM is a pioneering product in the conversion of 2D to stereo 3D
images. This product was developed in-house through a robust R&D
team. The process can be leveraged over the Global Digital PipelineTM,
allowing Prime Focus facilities in Los Angeles, Vancouver, London and
Mumbai to all contribute shots to the same project.
CLEARTM

CLEARTM is another proprietary technology developed in-house by


Prime Focus. It is a revolutionary multi-platform content operations
infrastructure that allows content owners to take full control of their
digital assets and associated business processes and manage them
throughout the entire content life-cycle : from creation to process and
distribution, to preservation. It can be deployed in weeks, rather than
months and years, thus resulting in immediate savings in costs of physical
media, transfer and delivery.
Prime Focus Limited mainly generates revenues from the following 4
verticals:

IAPM Student Research

2D to 3D Conversion: About 40% of the revenues of PFL come


from this line of business. The company uses the View-DTM
technology for the conversion process.
Visual Effects (VFX): About 20% of the revenues are generated
through this line of business. VFX is the process by which
imagery is created and/or manipulated outside the context of a live
action shoot.
Post Production: 35% of the revenues come from this vertical.
PFL is involved in the entire post production process which
includes the complete editing, color correction and the addition of
music and sound. However, PF faces stiff competition in this line
of business and the margins are therefore under pressure in this
line of business.
Content Infrastructure Management: This vertical generates
close to 5% of the revenues. For this, the company uses the
CLEARTM platform which is a cloud based service reducing the
costs by 30% and requiring no upfront capital expenditure.

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PFLs Global Facilities
India
VFX & DI facility housing ~ 80 VFX artists.
Specializes in commercials.

Hyderabad
Mumbai- Khar
Mumbai
Cloud multi platform content operations platform CLEAR.
Parel
Mumbai
Palms VFX facility and employs in excess of 180 employees.
Royal
Mumbai Film
Provides Equipment Rental services.
City
DI & VFX work with strength of 40 people in which 20 are
Chennai
VFX artists.
Bangalore
Develops and manages CLEAR.
50000 sq ft facility with a space of over 3000 artists. Works
Chandigarh
for global projects. Currently employs 850 seats at this
facility.
U.S
Los Angeles
ViewD and 2D to 3D conversion, television and advertising.
Vancouver
VFX division
New York
Post production processes
UK
London
VFX division
Source: Company Website

Sector Overview

The industry is estimated to


achieve a growth of 13
percent in 2012 to touch
INR 823 billion

Growth till 2016 at a CAGR


of 14.9%

The Indian Media & Entertainment (M&E) sector is a sunrise industry.


The momentum of spends on leisure and entertainment is higher than the
economic growth, owing to favourable demographics and rising
disposable incomes. With new media, or rather digital media, making a
rage, the Indian M&E industry is standing at a new inflection point. The
size of the Media and Entertainment sector in 2011 in India is about Rs.
750 billion. Backed by strong consumption in Tier 2 and 3 cities,
continued growth of regional media and fast increasing new media
businesses, the industry is estimated to achieve a growth of 13 percent in
2012 to touch INR 823 billion. Going forward, the sector is projected to
grow at a healthy CAGR of 14.9 percent to reach INR 1,457 billion by
2016.

Source: KPMG FICCI Indian Media and Entertainment Industry Report 2012

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The sector is primarily divide into two industries mainly Content


Providers and Media which are then subdivided into seven segments of
television, film, inter The sector is split into seven major segments
Television, Print, Film, Animation Games and VFX, Radio, Music and
Advertising.

Source: KPMG FICCI Indian Media and Entertainment Industry Report 2012

Key Themes and Trends going forward


Emergence of Digital Technology
Media on the go: Proliferation of New age User Devices
Increasingly savvy and new age customers
Regional markets bucking the recessionary trends and continuing
growth momentum
M&E still an advertising dependent industry
Awaited Regulatory Shifts
The Animation, Gaming and VFX Industry
The dreams came true for the Indian Animation, VFX and Post
Production industry which achieved estimated revenues of INR 31 billion
in 2011, a robust growth of 31 percent over 2010. Backed by a robust
business environment for animation and VFX globally, growth was
achieved on the back of increased contract work, higher VFX content in
movies, 2D/3D conversion projects which provided the impetus not
anticipated before, demand for local animated TV serials, licensing and
merchandising of popular characters, etc. The rising dollar in the second
half of the year also supported this growth.

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The AVG Industry size is shown as below:

Source: KPMG-FICCI Indian Media & Entertainment Sector 2012

As compared to a growth of 9 percent in 2010, the industry grew by 12


per cent in 2011 and is estimated to grow at a CAGR of 16 percent during
2012-16.

Financial Analysis
Revenue Growth
Revenues for FY12 stand at Rs. 771.91 Crore. The revenues have grown
at a CAGR of 20% for the past five years. This is mainly on the basis of
strong technological foundation that Prime Focus is based. Its ViewD and
CLEAR technologies are unique and have resulted in sound growth of the
company. This growth is in spite of economic turmoil that is pervading
the business scenario.
Revenues have grown at a
CAGR of 20% for the past
five years

Over the next three years, the company is poised to grow at a CAGR of
20.80%. The reasons for the same are as follows:

IAPM Student Research

Immense growth in 2D 3D conversion business. Prime Focus is the


market leader in the 2D 3D conversion space with over 50% market
share. The Industry is set to grow at a CAGR of 30%.
CLEAR Platform which is a cloud based service, which enables the
company to complete a project from multiple locations, thus saving
time and costs. Cost savings to the tune of 30% can be achieved
without any initial capital requirement
Healthy order book position aids revenue generation. The future order
book is of the size of 90 million USD executable over the next 18
months. Over the next 4 -5 years an order book of the size 150 million
USD is in the pipeline.
Outsourcing capability as it is based in India. This provides a time &
cost advantage over its peers. The company operates in 3 continents,
at 15 locations in all time zones, thus providing 365 days of service
round the clock
During periods of high economic growth the stock grows faster than
the GDP of the country. The reason being that the company is present
in the leisure and entertainment sector. As the disposable income
rises, the spending on leisure and entertainment goes up.

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Source: Capitaline Database & Projections

Earnings
The Company operates in a cyclical industry.
indust
As a result of the
recessionary and inflationary pressures felt after the aftermath of the
recession, there was a steep drop in the EBITDA margins of the company.
The company was also using the time for building up scale and capacity
in its operations As a result the year FY09 saw a steep decline in the
EBITDA margins of the company. Post FY09, the margins have since
picked up. The company is expected
e pected to operate at a healthy margin of
40% post FY12.
Working Capital
The company is a services company with lower fixed assets and higher
current assets. As a result, the working capital needs have averaged at
66% of its Net sales. A spike in FY08 has been observed on account of
the higher loans and advances made during the period.
Free Cash Flows
Fir
ir calculating Free Cash
ash Flows, we have started from sales and
subtracted the total operating expenditures, incremental CAPEX and
a
incremental Net
N Working Capital. Till FY09, the FCFs are negative and
then they turn positive barring for FY11. Free Cash Flows calculations
have been shown in Exhibit C
Earnings
The earnings for the company have grown except for a dip in FY09. This
dip was primarily due to higher operating expenses for that year. The EPS
for FY12 stands at 7.4 and is expected to grow to 11.38 in FY13.

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Earnings Trend
120.00

99.25

100.00

76.09

80.00
60.00
40.00

33.42

28.83
14.58

20.00
0.00
FY08

FY09

FY10

FY11

FY12

Source: Capitaline Database

Ratio Analysis (Exhibit G)


Current Ratio
No observed trend in the Current Ratio. In FY08 and FY11, a rise in the
loans and advances figure has lead to the spike in the current ratio in both
the years.

Current Ratio
6.00
5.00
4.00
3.00
Current Ratio

2.00
1.00
0.00
FY07

FY08

FY09

FY10

FY11

Source: Capitaline Database

Turnover Ratios
The company has a very low turnover ratio for assets. However it is
showing an improving trend. In FY11, the current ratio was 0.68. The
Accounts receivables turnover ratio is more or less constant within the
1.6x range.
Profitability ratios
All the profitability ratios are showing an upward trend due to the
increased margins. There was only one dip in FY09 in the profitability
ratios due to increase in the operating Expenditure

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Valuation and Outlook


To carry out the valuations, a DCF analysis has been carried out. The
intrinsic value of the stock has been calculated as Rs. 60.91.

WACC calculated as 13.25%

DCF Analysis (Exhibit E)


We used a combination of discounted free cash flows from operating
assets over a three year period, terminal value, and the effect of debt tax
shields to determine our intrinsic value. We created a multiple factors
model to create our three year DCF model to project free cash flows. We
used the CAPM (Exhibit D) to discount future cash flows back to the
present. The CAPM discount rate is roughly 13.25%, by using our
conservative assumptions:

Intrinsic value of the stock


has been calculated as Rs.
60.91 a 23% upside

8.5% risk-free rate


Three-year historical, un-levered 1.62 beta
95% expected market-risk premium

We assume that free cash flow grows at 4% per year after 2015. We also
included a debt tax shield benefit to compute our equity value.
Our DCF analysis provides us with an intrinsic value of Rs. 60.91 per
share which is a 23% upside from the current stock price.
Sensitivity Analysis
A sensitivity analysis, w.r.t. the terminal growth rate and the discount
factor have been carried out. The terminal growth rates have been varied
from 2% to 4%, while the range for discount rates is 11.25% - 16.25%.
The sensitivity analysis has been shown in Exhibit F

Risk Factors
Redemption of FCCBs could lead to increase in debt of Rs. 4,346 mn
In Dec 2007, the company had issued FCCBs aggregating to USD 55 mn
amounting to Rs. 216.3 crore at the exchange rate of Rs. 39.3/USD
prevailing during that period. Holders have an option to convert FCCBs
into Equity Shares at a pre-decided conversion rate of Rs. 110.9 per
equity share. In the event the holders are unable to convert the FCCBs
into equity at the set price, PFL will have to redeem these bonds at the
end of five years from the date of issue i.e on December 13th 2012 at a
premium of 143.7%. In this case the total redemption value will amount
to USD 79.0 mn (USD 55mn + premium of 143.7%) which as per the
prevailing exchange rate of Rs. 55/USD would amount to Rs. 4,346 mn.
PFL is looking at divesting some of its stake in the US Subsidiary which
is into 2D to 3D conversion business to raise funds for redemption of
FCCB. We value its US subsidiary at ~225 mn (around 2.5x P/S which is
industry average). The company is looking to dilute 30% stake in this
business to raise about US$ 68 mn which will be used to pay back the
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FCCB amount and the premium. Failing which the company will have to
raise a debt of Rs 434.6 mn to repay its FCCB, which will add an
additional interest burden of ~ Rs 300 mn on the P&L in FY13E. We
have accounted for that in our assumptions for FY 13E.
Premium on FCCB or MTM fluctuation of currency on FCCB has not
been accounted into P&L or B/S thus at the time of repayment, the
difference of Rs. 218.3 crores will be reduced from Net worth.
Visual distress
There are concerns of watching 3D content wearing special glasses. Much
is been already written in the media for health issues and remains a
concern. We expect some improvement in the technology which would
allow viewing 3D content without the glasses.
Macro Environment
Any major headwinds in the overall economy would see significant
impact in the production of movies and TV content.
Technology Obsolescence
Advent of newer technology would require timely investments by the
company.
Low Barriers of Entry
The company operates basically in the creative and technical services
sector, which does not have high entry barriers. This allows a lot of new
entrants to come and start offering same/similar services, and thereby,
increase competition.
Exchange Rate Risk
As the company has international operations and its revenues are also
received in currencies like GBP, USD and Euro, it is exposed to risks in
fluctuation of exchange rates which can affect its profitability.

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Exhibit A: Balance Sheet

Year
SOURCES OF FUNDS :
Share Capital
Reserves Total
Equity Share Warrants
Equity Application Money
Total Shareholders Funds
Minority Interest
Secured Loans
Unsecured Loans
Total Debt
Policy Holders Fund
Other Liabilities
Total Liabilities
APPLICATION OF FUNDS :
Gross Block
Less: Accumulated Depreciation
Less: Impairment of Assets
Net Block
Lease Adjustment
Capital Work in Progress
Producing Properties
Investments
Current Assets, Loans & Advances
Inventories
Sundry Debtors
Cash and Bank
Loans and Advances
Total Current Assets
Less : Current Liabilities and Provisions
Current Liabilities
Provisions
Total Current Liabilities
Net Current Assets
Miscellaneous Expenses not written off
Deferred Tax Assets
Deferred Tax Liability
Net Deferred Tax
Other Assets
Total Assets
Contingent Liabilities

IAPM Student Research

Balance Sheets
In Rs. Crores (Except where explicitly mentioned)
Mar FY07 Mar FY08 Mar FY09 Mar FY10 Mar FY11 Mar FY12E Mar FY13P Mar FY14P Mar FY15P Mar FY16P Mar FY17P
12.72
178.50
0.00
0.00
191.22
37.88
93.32
0.00
93.32
0.00
0.00
322.42

12.82
175.88
0.00
0.00
188.70
37.44
133.96
216.27
350.23
0.00
0.00
576.37

12.82
162.37
0.00
0.00
175.19
24.22
258.30
216.27
474.57
0.00
0.00
673.98

12.82
179.78
0.00
0.00
192.60
28.37
247.17
216.27
463.44
0.00
0.00
684.41

13.89
336.75
13.87
0.00
364.51
41.61
245.06
216.27
461.33
0.00
0.00
867.45

13.89
412.86
0.00
0.00
426.75
41.61
315.76
216.27
532.03
0.00
0.00
1000.39

14.89
452.22
41.61
0.00
508.72
41.61
334.59
216.27
550.86
0.00
0.00
1101.19

14.89
592.85
0.00
0.00
607.74
41.61
431.62
216.27
647.89
0.00
0.00
1297.24

14.89
712.46
0.00
0.00
727.35
41.61
548.83
216.27
765.10
0.00
0.00
1534.06

14.89
856.95
0.00
0.00
871.84
41.61
690.42
216.27
906.69
0.00
0.00
1820.14

14.89
1031.49
0.00
0.00
1046.38
41.61
861.46
216.27
1077.73
0.00
0.00
2165.72

394.57
220.38
0.00
174.19
0.00
29.22
0.00
15.16

476.18
234.66
0.00
241.52
0.00
55.04
0.00
6.98

733.96
281.07
0.00
452.89
0.00
45.21
0.00
1.76

743.16
261.55
0.00
481.61
0.00
74.06
0.00
0.20

969.35
306.53
0.00
662.82
0.00
11.64
0.00
0.28

1170.95
370.28
0.00
800.67
0.00
11.64
0.00
0.28

1210.22
382.70
0.00
827.52
0.00
11.64
0.00
0.28

1461.92
462.29
0.00
999.63
0.00
11.64
0.00
0.28

1765.97
558.44
0.00
1207.53
0.00
11.64
0.00
0.28

2133.26
674.58
0.00
1458.67
0.00
11.64
0.00
0.28

2576.93
814.88
0.00
1762.05
0.00
11.64
0.00
0.28

0.23
93.23
33.75
58.57
185.78

0.24
89.37
40.82
219.09
349.52

3.74
103.26
61.36
85.09
253.45

2.02
123.04
21.24
96.06
242.36

0.27
177.96
29.92
116.72
324.87

2.16
218.25
29.92
116.72
367.05

2.61
263.64
29.92
116.72
412.89

3.16
318.47
29.92
116.72
468.27

3.81
384.70
29.92
116.72
535.16

4.61
464.71
29.92
116.72
615.96

5.57
561.36
29.92
116.72
713.57

64.43
14.48
78.91
106.87
8.70
0.00
11.72
-11.72
0.00
322.42
77.34

64.12
2.07
66.19
283.33
0.00
3.32
13.82
-10.50
0.00
576.37
82.49

71.66
0.13
71.79
181.66
0.07
10.26
17.87
-7.61
0.00
673.98
113.65

103.92
0.15
104.07
138.29
0.06
7.96
17.77
-9.81
0.00
684.41
123.55

113.08
0.27
113.35
211.52
0.07
5.53
24.41
-18.88
0.00
867.45
135.81

154.90
1.55
156.44
210.61
0.07
6.68
29.49
-22.81
0.00
1000.39
135.81

187.11
1.87
188.98
223.91
0.07
8.07
35.62
-27.55
0.00
1035.80
135.81

226.03
2.26
228.29
239.98
0.07
9.75
43.03
-33.28
0.00
1218.25
135.81

273.03
2.73
275.76
259.39
0.07
11.78
51.98
-40.20
0.00
1438.64
135.81

329.82
3.30
333.12
282.84
0.07
14.22
62.79
-48.56
0.00
1704.87
135.81

398.41
3.98
402.40
311.17
0.07
17.18
75.84
-58.66
0.00
2026.48
135.81

Page 14

IAPM Student Research

August 31, 2012

Exhibit B: Income Statement

Year
INCOME :
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
EXPENDITURE :
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Selling and Administration Expenses
Miscellaneous Expenses
Less: Pre-operative Expenses Capitalised
Total Expenditure
Operating Profit
Interest
Gross Profit
Depreciation
Minority Interest (before tax)
Profit Before Tax
Tax
Fringe Benefit Tax
Deferred Tax
Net Profit
Minority Interest (after tax)
Profit/Loss of Associate Company
Net Profit after Minority Interest & P/L Asso.Co.
Less Extraordinary Items
Adjusted Net Profit
Adjst. below Net Profit
P & L Balance brought forward
Statutory Appropriations
Appropriations
P & L Balance carried down
Dividend
Preference Dividend
Equity Dividend (%)
EPS before Minority Interest (Unit Curr.)
EPS before Minority Interest (Adj) (Unit Curr.)
EPS after Minority Interest (Unit Curr.)
EPS after Minority Interest (Adj) (Unit Curr.)
Book Value (Unit Curr.)

IAPM Student Research

INCOME STATEMENT
In Rs. Crores (Except where explicitly mentioned)
Mar FY07 Mar FY08 Mar FY09 Mar FY10 Mar FY11 Mar FY12E Mar FY13P Mar FY14P Mar FY15P

Mar FY16P

Mar FY17P

195.54
0.00
195.54
8.13
0.00
203.67

222.13
0.00
222.13
9.43
0.00
231.56

354.37
0.00
354.37
24.90
0.00
379.27

452.78
0.00
452.78
23.37
0.00
476.15

502.96
0.00
502.96
14.98
0.00
517.94

607.57
0.00
607.57
20.15
0.00
627.71

733.93
0.00
733.93
27.10
0.00
761.03

886.57
0.00
886.57
36.45
0.00
923.02

1070.96
0.00
1070.96
49.02
0.00
1119.98

1293.69
0.00
1293.69
65.93
0.00
1359.63

1562.75
0.00
1562.75
88.68
0.00
1651.43

0.00
4.75
81.96
18.64
29.38
7.17
0.00
141.90
61.77
6.71
55.06
23.25
0.00
31.81
6.89
0.14
2.26
22.52
1.15
0.00
21.37
0.15
21.22
0.00
30.56
0.00
0.00
51.93
0.00
0.00
0.00
17.70
0.00
16.80
0.00
150.33

0.00
4.92
83.48
19.28
42.43
9.58
0.00
159.69
71.87
10.97
60.90
28.92
0.00
31.98
-0.30
0.20
0.32
31.76
2.22
0.00
29.54
-4.86
34.40
0.06
51.93
0.00
3.57
77.96
1.91
0.00
15.00
24.72
0.00
22.97
0.00
148.27

0.00
10.13
111.00
115.28
44.20
25.14
0.00
305.75
73.52
21.00
52.52
37.91
0.00
14.61
0.01
0.17
-1.33
15.76
1.18
0.00
14.58
9.37
5.21
-17.45
77.96
0.00
0.00
75.09
0.00
0.00
0.00
12.29
0.00
11.37
0.00
136.65

0.00
9.32
109.71
143.53
53.77
45.13
0.00
361.46
114.69
21.83
92.86
42.59
0.00
50.27
8.52
0.00
2.36
39.39
5.97
0.00
33.42
-10.11
43.53
0.00
75.10
0.00
0.00
108.52
0.00
0.00
0.00
3.07
0.00
2.61
0.00
15.02

0.00
11.44
110.53
116.15
65.56
39.20
0.00
342.88
175.06
26.30
148.76
54.56
0.00
94.20
0.00
0.00
6.01
88.19
12.10
0.00
76.09
-7.02
83.11
0.00
108.52
0.00
0.00
184.61
0.00
0.00
0.00
6.35
1.77
5.48
1.77
25.24

0.00
14.38
121.51
127.59
85.06
42.53
0.00
391.07
236.64
30.33
206.31
63.75
0.00
142.56
30.88
0.00
6.01
105.67
16.78
0.00
88.89
-7.02
95.91
0.00
184.61
0.00
0.00
273.50
0.00
0.00
0.00
7.61
0.00
6.90
0.00
30.72

0.00
17.37
146.79
154.12
102.75
51.37
0.00
472.41
288.62
31.40
257.21
12.42
0.00
244.80
53.02
0.00
6.01
185.76
23.28
0.00
162.49
-7.02
169.51
0.00
273.50
0.00
0.00
435.98
0.00
0.00
0.00
12.48
0.00
11.38
0.00
31.37

0.00
20.99
177.31
186.18
124.12
62.06
0.00
570.66
352.36
36.94
315.42
79.59
0.00
235.83
51.08
0.00
6.01
178.74
32.29
0.00
146.45
-7.02
153.47
0.00
435.98
0.00
0.00
582.43
0.00
0.00
0.00
12.00
0.00
10.31
0.00
40.82

0.00
25.35
214.19
224.90
149.93
74.97
0.00
689.34
430.63
43.62
387.02
96.15
0.00
290.87
63.00
0.00
6.01
221.86
44.78
0.00
177.07
-7.02
184.09
0.00
582.43
0.00
0.00
759.51
0.00
0.00
0.00
14.90
0.00
12.36
0.00
48.85

0.00
30.62
258.74
271.68
181.12
90.56
0.00
832.71
526.91
51.69
475.22
116.14
0.00
359.08
77.78
0.00
6.01
275.29
62.12
0.00
213.18
-7.02
220.20
0.00
759.51
0.00
0.00
972.69
0.00
0.00
0.00
18.49
0.00
14.79
0.00
58.55

0.00
36.99
312.55
328.18
218.79
109.39
0.00
1005.90
645.53
61.44
584.09
140.30
0.00
443.79
96.13
0.00
6.01
341.66
86.16
0.00
255.50
-7.02
262.52
0.00
972.69
0.00
0.00
1228.19
0.00
0.00
0.00
22.95
0.00
17.63
0.00
70.27

Page 15

IAPM Student Research

August 31, 2012

Exhibit C: Free Cash Flows

Free Cash Flows


Net Sales
Less Operating Expenditure
Less Investments
Change in Net Capex
Change in Net Working Capital
FCF

IAPM Student Research

FY07
FY08
FY09
195.54 222.13 354.37
141.90 159.69 305.75
15.16
6.98
1.76
67.33 211.37
106.87 176.46 -101.67
-68.39 -188.33

FY10
452.78
361.46
0.20
28.72
-43.37

FY11
502.96
342.88
0.28
181.21
73.23

-62.84 105.77 -94.64

FY12E FY13P FY14P FY15P Terminal Value


607.57 733.93 886.57 1070.96
391.07 472.41 570.66 689.34
0.28
0.28
0.28
0.28
137.85 26.85 172.11 207.90
-0.91 13.30
16.07
19.41
79.27 221.09

127.45

154.02

1593.61

Page 16

IAPM Student Research

August 31, 2012

Exhibit D: WACC Calculation

WACC
Debt Weightage
Equity Weightage
WACC

IAPM Student Research

Interest Rate
Tax Rate
Cost of Debt

I
T
Kd=I*(1-T/100)

Risk Free Rate

Rf

8.50

Risk Premium
Beta
Cost of Equity

Rm

9.00
1.74
24.13

FY12
0.55
0.45
13.22

B
Ke=Rf+B*Rm

FY13
0.52
0.48
13.91

FY14
0.52
0.48
13.99

5.70
21.66
4.47

FY15
0.51
0.49
14.05

FY16
0.51
0.49
14.11

FY17
0.51
0.49
14.15

Page 17

IAPM Student Research

August 31, 2012

Exhibit E: DCF
Free Cash Flows
Net Sales
Less Operating Expenditure
Less Investments
Change in Net Capex
Change in Net Working Capital
FCF
DCF
WACC
Enterprise Value
Debt
Fair EV
Outstanding Shares
Fair Value

FY07
FY08
FY09
195.54 222.13 354.37
141.90 159.69 305.75
15.16
6.98
1.76
67.33 211.37
106.87 176.46 -101.67
-68.39 -188.33

FY10
452.78
361.46
0.20
28.72
-43.37

FY11
502.96
342.88
0.28
181.21
73.23

-62.84 105.77 -94.64

FY12E FY13P FY14P FY15P Terminal Value


607.57 733.93 886.57 1070.96
391.07 472.41 570.66 689.34
0.28
0.28
0.28
0.28
137.85 26.85 172.11 207.90
-0.91 13.30
16.07
19.41
79.27 221.09
70.02 170.39
13.22 13.91

127.45 154.02
86.06 1032.88
13.99
14.05

1593.61

1359.35
461.33
898.02
14.89
60.31

Terminal Growth Rate assumed at 4%

IAPM Student Research

Page 18

IAPM Student Research

August 31, 2012

Exhibit F: Sensitivity Analysis

D is co u n t R ate
(% )

Sensitivity Analysis
11.25
12.25
13.25
14.25
16.25

TV
Rs. Crore
1698.35
1532.66
1396.42
1282.43
1102.44

2
EV
FV/Share
TV
Rs. Crore
Rs.
Rs. Crore
1551.74 73.23 1804.20
1398.60 62.95 1619.16
1272.67 54.49 1468.54
1167.30 47.41 1343.55
1000.90 36.24 1148.13

IAPM Student Research

Growth Rates (%)


2.5
3
EV
FV/Share
TV
EV
FV/Share
Rs. Crore
Rs.
Rs. Crore Rs. Crore
Rs.
1620.84 77.87 1922.88 1698.32 83.07
1453.08 66.60 1715.00 1513.45 70.66
1316.51 57.43 1547.69 1364.63 60.66
1203.17 49.82 1410.11 1242.24 52.44
1025.91 37.92 1197.27 1052.82 39.72

TV
Rs. Crore
2056.88
1821.80
1634.95
1482.86
1250.26

3.5
EV
FV/Share
TV
Rs. Crore
Rs.
Rs. Crore
1785.79 88.95 2209.35
1580.72 75.18 1941.55
1417.68 64.23 1731.65
1284.93 55.31 1562.71
1081.84 41.67 1307.57

4
EV
FV/Share
Rs. Crore
Rs.
1885.33 95.63
1656.15 80.24
1476.46 68.18
1331.80 58.46
1113.22 43.78

Page 19

IAPM Student Research

August 31, 2012

Exhibit G: Ratio Analysis


Key Ratios
Debt-Equity Ratio
Long Term Debt-Equity
Ratio
Current Ratio

Mar-11 Mar-10 Mar-09 Mar-08 Mar-07


Solvency
1.33
1.82
1.85
1.06
0.34

CPM (%)
APATM (%)
ROCE (%)
RONW (%)

1.13
1.36
2.18
1.4
Turnover Ratios
0.5
0.43
0
0
1.41
1.49
2.59
2.55
Operating
44.16 53.35
26.49 33.04
33.93 40.38
Profitability
32.25 33.67
14.58 13.36
5.82
5.44
7.48
6.19

ROE Analysis
PBIDT/Sales(%)
Sales/Net Assets
PBDIT/Net Assets
PAT/PBIDT(%)
Net Assets/Net Worth
ROE(%)

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11


73.55 60.07 56.36 53.35 44.16
0.23
0.16
0.16
0.16
0.21
0.17
0.1
0.09
0.09
0.09
49.49 51.74
26
25.04
33
1.28
2.81
2.9
2.74
2.06
15.43 14.17
6.94
6.19
7.48

Fixed Assets
Inventory
Debtors
Interest Cover Ratio
PBIDTM (%)
PBITM (%)
PBDTM (%)

1.36
1.9

0.84
2.94

0.29
2.21

0.47
0
1.72
2.35

0.67
0
1.9
4.88

0.68
0
1.85
9.43

56.36
36.38
40.89

60.07
41.36
51.59

73.55
59.52
67.24

34.63
14.65
6.03
6.94

49.79
31.08
9.28
14.17

50.44
36.4
19.42
15.43

Dupont Analysis:

IAPM Student Research

Page 20

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