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IEA Report

30th Dec 2016


BIOCON

"Neutral"

30th Dec 2016

As per the management, exports have not been impacted due to demonetization, Indian business saw lower sales in the month of November. The
dependence of the company on domestic business is ~ 31% in total revenue. Recently Biocon has Submitted Trastuzumab dossier to the United
States Food & Drug Association (USFDA) which is an important milestone for Biocon and its review process is expected to take 18-24 months. The
market size of Trastuzumab injection is valued at about $6.5 billion, according to IMS data. Crestor Generic has been approved by USFDA and
Biocon is on track to launch the product in near future. This will be a huge opportunity for Biocon to take first mover advantage with its bio-similar
products. On the contrary ongoing price control pressure in India and US and discontinuance of key products may put some uncertainties in near
term. Hence we maintain Neutral rating in this stock. . ( Page : 2-4)

BEL

"BUY"

29th Dec 2016

The company is having robust order intake during H1FY17 which gives decent revenue growth visibility going forward and this is expected to remain
in the range of Rs 10000cr-15000cr over the next two-three years. Currently, the defence sector is in the limelight due to the governments strong
focus on making defence procurements central to the Make in India campaign. The company has ~35% market share in Indias defence
electronics segment and is likely to be one of the biggest beneficiaries of the offset clause. Based on above mentioned reasons we see strong
medium-term earnings visibility for the company, hence we recommend BUY at a target price of Rs 1670 (Potential upside 22%).
..................................................... ( Page : 5-8)

VOLTAS

"NEUTRAL"

28th Dec 2016

The company is cautious in taking new orders in the EMPS segment and its focus is primarily on Govt. projects i.e. smart cities, rural electrification
and water treatment wherein execution cycle is steady and payments are secured. Management expects profitability to improve after closing most
of its low-margin and loss-making legacy projects by end-FY17. Going forward we expect near-term earnings to be under pressure due to lower
sales and margin in the UCP segment and continued subdued performance in EMPS segment. Right now we are not seeing any major uptick in
demand so we revised our estimates with flat revenue growth from 5% to 0.7% in FY17E and presently we are NEUTRAL on this stock at a revised
target of Rs 330 (from Rs 345). ..................................... ( Page : 9-12)

ASHOKLEY

"BUY"

27th Dec 2016

Going forward, We assume that the upcoming emission norms BS-IV to BS-VI, focus towards the export markets, improvement in demand from
infrastructure segment, diminution of investments in subsidiaries will help the company to focus on its commercial vehicle business and
government's initiative to develop defence products in the country can be volume boosters for the company in FY17. The current demonetization
issue has impacted the transport sector most because a lot of transactions happen through cash. The sales may be down by 10-12% for next couple
of months but we are hopeful that the situation might improve in 4QFY17 due to pre-buying during the quarter. We expect that the company will
maintain a healthy ROE of over 20% going ahead. We maintain 'BUY' looking at the huge growth potential going ahead but considering the
uncertain demand scenario we reduce our target to Rs.110. .................... ( Page : 13-15)

DABUR

"NEUTRAL"

26th Dec 2016

DABURs 2QFY17 result was below than our expectations. Sales for second quarter grew by 1% YoY to Rs 1981 cr on the back of sluggish growth
from international business. International business has contributed approx. 34% of companys sales in 2QFY17. International business declined by
2.3% YoY in this quarter due to geo political disturbances in the MENA region and adverse currency impact. According to Management, headwind in
international business will continue for at least 2-3 quarters going forward. Secondly, recent demonetization may negatively affect companys
domestic sales in 3QFY17E which is a cause of concern for the company in the short term. Rural demand is still stressed witnessing slight
improvement. Lastly, the company is getting tough competition from Patanjali. Patanjali is strong in north and west India from where Dabur gets
Substantial part (approx. 60% of its footprint) of its domestic business which is another concern for DABUR. Hence considering tepid international
business growth outlook, tough competition from Patanjali and stress in rural demand we maintain `Neutral rating on Dabur with no target price.
............................... ( Page : 16 -18)

SUNPHARMA

"NEUTRAL"

23th Dec 2016

Synergies from the Ranbaxy acquisition are gaining momentum and the Company is on track to achieve the targeted benefits. Post 2QFY17,
Sunpharma has further strengthened the branded ophthalmic pipeline through the acquisition of Ocular Technologies. But recent developments
are not very conducive for the company. US business is under pricing pressure due to customer consolidation. Ongoing issue in Halol plant and
inflated pricing issue on dermatology products in US will pose near term uncertainty. Though the company has maintained its guidance of 8-10%
sales growth for FY17E, we are little skeptical about it considering on-going issues. Thus, we recommend "NEUTRAL" view on this
stock......................................... ( Page : 19-21)
Narnolia Securities Ltd

IEA Edition No.-

917

Neutral

BIOCON LTD

30-Dec-16

Company Update
CMP

930

Target Price
Previous Target Price

880

Upside
Change from Previous

Market Data
BSE Code

532523

NSE Symbol

BIOCON
1020/431
18,604
73
8,693

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume(,000)
Nifty

3M

12M

Absolute

0.5

82.8

67.4

Rel.to Nifty

2.5

80.6

63.1

Small Molecules business has reported revenue of Rs 389 Cr, a growth of


15% led by a better product-mix of differentiated APIs and a higher
contribution from statins.
Net R&D expenditure during the quarter stood at Rs. 65 Cr, an increase of
14% YOY. At a Gross level, R&D spends in Q2 were Rs 113 Cr.

Share Holding Pattern-%


Promoters

1QFY17 4QFY16

60.7
37.5
1.8
100.0

Public
Others
Total

60.7

60.7

37.4
1.9
100.0

37.4

Novel Biologics and Biosimilars reported a growth of 26% at Rs 96 Cr on


account of good performance in key emerging markets.
Branded Formulations business includes our finished dosages business in
India and overseas including UAE. Q2 FY17 sales at Rs 137 Cr reported a
growth of 15%.

-100.0

Licensing Income this quarter stood at Rs 32 Cr while Other Income


reported was Rs 52 Cr.

Company Vs NIFTY
200

Q2FY17_Result Update

EBITDA rose 45% to Rs 277 Cr; Net Profit stood at Rs 147 Cr a growth of
52% over last year.

Stock Performance
1M

2QFY17

As per the management, exports have not been impacted due to


demonetization, Indian business saw lower sales in the month of November.
The dependence of the company on domestic business is ~ 31% in total
revenue. Recently Biocon has Submitted Trastuzumab dossier to the United
States Food & Drug Association (USFDA) which is an important milestone
for Biocon and its review process is expected to take 18-24 months. The
market size of Trastuzumab injection is valued at about $6.5 billion,
according to IMS data. Crestor Generic has been approved by USFDA and
Biocon is on track to launch the product in near future. This will be a huge
opportunity for Biocon to take first mover advantage with its bio-similar
products. On the contrary ongoing price control pressure in India and US
and discontinuance of key products may put some uncertainties in near
term. Hence we maintain Neutral rating in this stock.

BIOCON

Research business through Syngene reported revenue of Rs. 286 Cr (


up by 14% ) as compared to the revenue of Rs.250 Cr in the corresponding
quarter of FY16.

NIFTY

180
160
140
120

Financials

2012

2013

2014

2015

Rs,Cr
2016

100

Sales
EBITDA
Net Profit
EPS
P/E

2148
517
338
17
14.1

2538
475
509
25
10.8

2933
518
414
21
20.5

3143
617
497
25
18.9

3570
784
896
30
19.0

Dec-16

Oct-16

Nov-16

Sep-16

Aug-16

Jul-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

80

Aditya Gupta
aditya.gupta@narnolia.com

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

Segment Revenue

286
638

263

270
526

602

250
576

316

225
581

632

238
587

220

172
527

531

188
535

192

183
513

548

188

166
457

CRAMS(Rs in Cr)

542

140
486

155

129
463

533

122
440

BIOPHARMA(Rs in Cr)

Management Speak/ Key take aways From Conference call


Recently Biocon and its partner Mylan announced that the results of the clinical trial study of its biosimilar trastuzumab have been
published in the Journal of the American Medical Association (JAMA).
The company has also filed for 3 biosimilars with European Union regulator and is likely to file those with the USFDA too
Stopping sale of Abraxane has also impacted Indian business. Some decline in branded formulation business is expected to be
reflected in books.
Going ahead the management is expects to sustain revenue and margins at second quarter levels.
Biocon will file insulin largine in the US in FY18.
The company has gained traction in many emerging markets with its biosimilars.
Going ahead management expects that speciality is the way to go and Biocon believes that there will be better returns if a company
focuses on specialty.
BUSINESS MODEL
For reporting purpose, Biocon classifies its
operations into four segments i.e. Small
Molecules, Biologics, Branded Formulations
and Research Services.

Small Molecules includes API's


,immunosuppressants & Generic formulations
business
Biologics vertical comprises Novel biologics
and Biosimilars,recombinant proteinsi ncluding
rh-insulin,insulin analogs, monoclonal
antibodies
Branded Formulations includes finished
dosages
Research Services business through Syngene
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

Financials Snap Shot


INCOME STATEMENT
FY13 FY14 FY15 FY16
Rev. (Net of Excise Duty)
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

2,485
53
2,538
1,045
42%
576
475
19%
179
296
8
408
98
24%
509
116
20

FY13
Share Capital
Reserves and surplus
Shareholders' funds
Long term Debt
Total Borrowings
Non Current liabilities
Long term provisions
Short term Provisions
Current liabilities
Total liabilities
Net Fixed Assets
Non Current Investments
Other non Current assets
Current assets
Total Assets

100
2,595
2,695
164
249
502
4
247
905
4,416
1,823
65
41
2,240
4,416

2,877
56
2,933
1,186
41%
707
518
18%
204
315
2
538
107
20%
414
175
20

3,090
53
3,143
1,256
41%
737
564
18%
221
343
9
519
96
18%
497
119
20

3,485
85
3,570
1,330
38%
831
688
20%
242
446
10
652
257
39%
896
119
20

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

BALANCE SHEET
FY14 FY15 FY16
100
2,927
3,027
606
850
656
8
177
1,136
5,751
2,731
65
47
2,639
5,751

100
3,171
3,271
770
1,031
608
15
158
1,294
6,375
3,307
137
2,563
6,375

100
3,956
4,056
2,072
2,467
415
30
88
1,233
8,482
3,910
166
3,993
8,482

FY13
25
135
6
0.23

RATIOS
FY14 FY15
21
151
9
0.42

25
164
6
0.24

FY16
45
203
6
0.13

11
2
2%

21
3
2%

19
3
1%

11
2
1%

19%
10%

14%
9%

15%
8%

22%
7%

0.56
75
59
51
0

0.50
76
48
44
0

0.48
91
53
51
0

0.41
86
54
57
1

CASH FLOW STATEMENT


FY13 FY14 FY15 FY16
OP/(Loss) before Tax
Depreciation
Direct Taxes Paid
OP before WC changes
CF from Op. Activity
Proceeds from sale of Crr.Inv
Capex
CF from Inv. Activity
Repay. of Long Term Borr.
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

610
179
(94)
758
471
1,904
(359)
(376)
(21)
(8)
(100)
(9)
87
387
474

538
204
(149)
672
561
1,642
(789)
(938)
(19)
(1)
(150)
426
49
508
557

624
221
(133)
698
211
2,943
(838)
(509)
(15)
(1)
(100)
186
(112)
574
463

1,227
242
(247)
818
526
2,784
(811)
(954)
(54)
(11)
(200)
1,087
659
468
1,127

BUY
BHARAT ELECTRONICS LTD.

29-Dec-16

Result Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

1374
1670
22%
-

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume
Nifty

500049
BEL
1540/1009
30,880
41373
8044

Stock Performance
Absolute
Rel.to Nifty

1Month

1Year

YTD

13.2
10.6

22.0
17.1

15.0
17.2

1QFY17

Promoter

74.41

75.02

75.02

Public

25.59

24.98

24.98

--

--

--

100

100

100

Others
Total

Company Vs NIFTY
130
125
120
115
110
105
100
95
90
85
80

BEL

Order inflow grew 108% YoY to Rs 41300cr, led by finalization of orders like
electronic warfare suite, advanced composite communication system, ship
data network, and annual maintenance contract for Rohini radar. For FY17
Key orders like Akash missile system, mobile cellular communication system,
Commander TI Sights, Samyukta upgrade, Long range surface to air missile
and L-band tropo upgrade are supposed to be finalized.

Key Highlights:
Company has entered into strategic alliance with defence laboratories,
ordinance factory board and other global OEMs to develop products like
Surface to air sytems, air defence radars, Battlefield management system,
sonar systems, next generation night vision devices, gun upgrades/ new gun
programmes, inertial navigation systems, medium altitude long endurance
unmanned aerial vehicles (UAVs) and maintenance of aerostat surveillance
and communication systems.
Company plans to set up Rs 500cr Greenfield weapon systems facility in
Andhra Pradesh which will focus on the design, development and production
of weapon systems like fire control, missile systems and other weapon
upgrade systems. Company expects the facility to be ready over the next two
years.

Share Holding Pattern-%


4-Nov-16 2QFY17

Strong order book visibility

NIFTY

Outlook and Valuation


The company is having robust order intake during H1FY17 which gives
decent revenue growth visibility going forward and this is expected to remain
in the range of Rs 10000cr-15000cr over the next two-three years. Currently,
the defence sector is in the limelight due to the governments strong focus on
making defence procurements central to the Make in India campaign. The
company has ~35% market share in Indias defence electronics segment and
is likely to be one of the biggest beneficiaries of the offset clause. Based on
above mentioned reasons we see strong medium-term earnings visibility for
the company, hence we recommend BUY at a target price of Rs 1670
(Potential upside 22%).
Rs in Cr

Bibha Kashyap

Financials
Sales
EBITDA
Net Profit
EBIDTA%
P/E

FY12
5847
636
847
10.9%
0.1

FY13
6173
663
912
10.7%
0.1

FY14
6388
922
952
14.4%
0.1

FY15
6915
1175
1197
17.0%
0.2

FY16
7759
1538
1387
19.8%
0.2

bibha.kashyap@narnolia.com
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

Domestic Order book


32333 32022 32139

35000

34675

30000
22884 22077 21617
21053 21648

25000

Order inflow is expected to


remain in the range of Rs
10000cr-15000cr over the
next two-three years.

20000
12776

15000
10000
5000

827

2780

763

4127

2824

1980

541

1003

Domestic Orders Intake (Rs/Cr)

Domestic Orders Book (Rs/Cr)

Export Order book

1,400

1,195

1,287 1,244
1,197

1,200

1,094 1,065

1,000

794

800

701

691

600
400
200
-

Export order book (Rs/Cr)

Trend of Net Sales and PAT

Trend of Gross Margin & EBITDA Margin

Net Sales (Rs/Cr)


3,500

3,056
663

2,000
1,500

1,582

1,009

1,000

1,172

997

192

500
-

3,135
795

2,831
723

3,000

2,500

PAT (Rs/Cr)

59

1,266

1,071
272

147
26

1,5251,500
296
206

77

900
800
700
600
1,756 500
400
346
300
847
200
100
36
-

Gross Margin %

EBIDTA Margin %

60%
50%

48%

42%

41%

53%

52%

46%
31%

19%

17%

19%

12%

9%
0.2%

50%

27%

15%

20%

45%
37%

25%

30%

0%

49%

36%

40%

10%

43% 45%

1%
-4%

-5%

-10%

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

Investment arguments:

Company has a strong balance sheet with zero debt and cash balance of Rs. 7553 cr (~25% of market capitalization). It is also
paying dividends consistently since 1990. Accelerated order inflow and steady performance makes it a preferred defense play.

The government notified increase in Foreign Direct Investment (FDI) limit to 49% through approval route in the defense sector,
aimed to cut imports by indigenizing defence production.

Segments like Radar and Missile systems, Communication and Network Centric Systems, Tank Electronics, Gun upgrades & EO
systems and Electronic Warfare & Avionics systems will continue to drive the Companys growth in the coming 4 to 5 years.

The Defence Sector is increasingly being opened up for private sector participation with evolutions of Defence Procurement
Procedure.

Company is working on new strategic areas like Electronic Ammunition Fuzes, Homeland Security Solutions, Navigational
Complex Systems and Inertial Navigation Systems in line with the emerging needs of the Customers.

BEL is also taking collaborative R&D initiatives for joint developments with reputed foreign companies and Indian MSMEs to
quickly harness specialized technologies into the new products.
Order status at the end of Q2FY17
Acquired

Electronic warfare suite (Shakti & Nayan)


Advance composite communication system
Ship data network
Ground based ELINT
Annual maintenance contract of Rohini
radar

Supply

3D technical control radar


Akash weapon system (Army)
L 70 Gun upgrade
Weapon locating radar
Hand Held thermal- imager with laser
range finder

Expected order

Akash missile system (7 Sqdn)


Mobile cellular communication system
Commander TI sights
Long range surface to Air missile
L-Band tropo upgrade
Samyukta upgrade

About the Company:


Bharat Electronics Limited is engaged in design, manufacture and supply of electronics products/systems for the defense
requirements, as well as for nondefense markets. The Company's principal products/services include weapon systems, radar and
fire control systems, and communication. Its defense products include defense communication; radars; naval systems; command,
control, communications, computers, and intelligence systems; weapon systems; telecom and broadcast systems; electronic
warfare; electro optics, and solar photovoltaic systems. Its nondefense products include turnkey system solutions; civilian radars; egovernance systems, and homeland security. Its other range of products include electronic voting machines, communication
equipment, radar warning receiver and casings. It offers electronic manufacturing services in areas of printed circuit board
assembly and testing; precision machining and fabrication; opto electronics components and assemblies, and offsets, among
others.

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

Financials Snap Shot


INCOME STATEMENT

Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

FY13
6273
625
6898
3917
1
569
663
11%
136
526
1
1151
236
21%
912
178
8

FY14
6518
437
6955
3788
1
762
922
14%
150
772
4
1205
254
21%
952
186
8

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY13
80
6407
6487
0
0
0
6488
928
237
3364
5331
1174
720
5594
14851

FY14
80
7140
7220
0
0
0
7221
1153
269
4156
4605
1234
605
6192
14976

FY15
7093
507
7599
3935
1
702
1175
17%
166
1008
3
1513
316
21%
1197
239
8

RATIOS

FY16
7549
533
8082
3916
1
772
1538
20%
200
1338
6
1865
471
25%
1387
277
8

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

FY13
114
811
22
20%

FY14
119
903
23
20%

FY15
150
1015
30
20%

FY16
173
1123
35
20%

10
1
1.9%

10
1
2.0%

7
1
2.8%

8
1
2.6%

14%
8%

13%
11%

15%
12%

15%
15%

0.4
196
303
68
0.0

0.4
233
322
69
0.0

0.5
196
318
61
0.0

0.4
181
393
58
0.0

BALANCE SHEET

FY15
80
8037
8117
0
25
0
8117
1213
140
3805
6038
1184
786
7064
15726

CASH FLOW STATEMENT

FY16
240
8746
8986
0
28
0
8986
1664
224
3741
7553
1194
666
7242
18525

OP/(Loss) before Tax


Depreciation
Direct Taxes Paid
OP before WC changes
CF from Op. Activity

FY13
1147
136
245
753
(1540)

FY14
1206
150
206
777
(570)

FY15
1513
166
356
1343
1434

FY16
1869
200
438
1714
2268

CAPEX
CF from Inv. Activity
Repayment of LTB
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

388
1753
0
1
157
(157)
56
1752
1809

375
759
(0)
4
209
(213)
(23)
1809
1786

227
(839)
0
3
220
(209)
386
1786
2171

657
(1424)
(0)
6
296
(320)
525
2171
2696

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

NEUTRAL
Voltas Ltd.

28-Dec-16

Result Update
CMP
Target Price
Previous Target Price
Upside
Change from Previous

Impact of Demonetisation
313
330
345
6%
-

Market Data
BSE Code
NSE Symbol
52wk Range H/L
Mkt Capital (Rs Cr)
Av. Volume
Nifty

500575
VOLTAS
406/211
10,372
1694
7947

Stock Performance
Absolute
Rel.to Nifty

1Month

1Year

YTD

7.9
5.2

14.5
9.5

1.4
3.6

Share Holding Pattern-%


2QFY17 1QFY17

4QFY16

Promoter

30.3

30.3

30.3

Public

69.7

69.7

69.7

Others
Total

--

--

--

100

100

100

Company Vs NIFTY
150

VOLTAS

NIFTY

140
130

120
110
100
90
80
70

Bibha Kashyap

Initial impact of demonetisation in the month of November was bit low


because people are still using the old currency notes. However,December
has seen a bigger impact especially in the Tier III and tier IV towns where it
has been impacted to the tune of more than 50 %. And in the bigger cities,
the impact of this is about 25-30% on consumer durable business.
Management believes that demonetization impact is not likely to be
substantial as it has occurred during seasonally weak quarter for UCP
segment and things are likely to stabilize in coming 2-3 months.

Key Highlights:
Voltas reoprted its 2QFY17 results which is in line with our estimates.The
Consolidated Sales/Income from Operations for the quarter ended
September 30, 2016 was Rs. 972 cr as compared to Rs. 1044 cr in the
corresponding quarter last year owing to lower revenues in International
Projects. However, Profit before tax was higher by 22%, at Rs. 125 cr as
compared to Rs.103 cr last year. Profit after tax was also higher by 15%, at
Rs. 74 cr as compared to Rs. 65 cr last year. EBITDA margin improved
84bps YoY to 7.0% on higher profitability in UC; this, coupled with higher
other incomeEMPS booked an Rs 120cr order for a water treatment plant in
Agra, taking its total order book to Rs 4250cr (+13.8% YoY). Unitary cooling
segment grew a robust 13.5% YoY, driven by inventory restocking on higher
demand during the festive season.

Outlook and Valuation


The company is cautious in taking new orders in the EMPS segment and its
focus is primarily on Govt. projects i.e. smart cities, rural electrification and
water treatment wherein execution cycle is steady and payments are
secured. Management expects profitability to improve after closing most of its
low-margin and loss-making legacy projects by end-FY17. Going forward we
expect near-term earnings to be under pressure due to lower sales and
margin in the UCP segment and continued subdued performance in EMPS
segment. Right now we are not seeing any major uptick in demand so we
revised our estimates with flat revenue growth from 5% to 0.7% in FY17E
and presently we are NEUTRAL on this stock at a revised target of Rs 330
(from Rs 345).
Rs in Cr
Financials
FY13
FY14
FY15
FY16
FY17E
Sales
5531
5266
5183
5857
5896
EBITDA
245
266
410
437
419
Net Profit
207
245
384
386
337
EBIDTA%
4.4%
5.0%
7.9%
7.5%
7.1%
P/E
0.0
0.0
0.1
0.1
0.1

bibha.kashyap@narnolia.com
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

Segment wise performance:


Electro-Mechanical Projects and Services: Segment Revenue for the quarter was lower at Rs. 543 cr as compared to
Rs. 635 cr in the corresponding quarter last year partly owing to slower than expected progress on certain projects.
Segment Result was Rs. 5 cr as compared to Rs. 17 cr, last year. Order Book of the Segment stood higher at Rs. 4252
cr as compared to Rs. 3736 cr in the same quarter last year. Orders booked during the quarter include Rs. 121 cr for
water treatment plant for Agra smart city.
Engineering Products and Services: Segment Revenue and Result for the quarter were Rs. 75 cr and Rs 30 cr as
compared to Rs. 96 cr and Rs 34 cr, respectively in the corresponding quarter last year. The industrial environment in
India for both, Textile and Mining businesses remains challenging for capital equipment sales, due to the weak
investment cycle.
Unitary Cooling Products for Comfort and Commercial use: Voltas continues to be the market leader for the Room Air
Conditioners in India. Segment Revenue was higher at Rs. 354 cr as compared to Rs. 312 cr in the corresponding
quarter last year, on account of improved volumes and greater festive season demand. Segment Result was also higher
at Rs. 41 cr as compared to Rs. 34 cr in the corresponding quarter last year.

Trend of Gross margin & EBITDA margin(%):

EMP order book position (Rs in Cr)

Order Intake

Gross Margin %
2187
2065

2032
2385

2035
1879

35%

35%
30%

25%

29%
24%

31%

26% 27%

31%

32%
29% 28% 29%

28%

20%
10%

731

959

EBIDTA %
37%

33%

15%

382

2141
1369
500

1871
1728
201

2021
2018
594

1,908
1,985
544

1,856

2,093

40%

680

2,207
1,472
395

1,629

2,160

International Order Book

694

2,023
1,589
275

2,131
240

500

785

1,000

1,524

1,500

1,815

2,088

2,000

2,261

2,500

1209

3,000

2,286

Domestic Order Book

5%

4% 4%

8% 8% 6%
6% 7%

10% 8%

6%

10% 11% 8%
4%

0%

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

10

Investment arguments:
Company sustained its leadership in the UCP segment(i.e. 22%) which will help to register better sales growth in the
current quarter.
Company sold 50000 units coolers last quarter and mabagement expects their marketing efforts to benefit volumes
going ahead and as per the management Air cooler will grow ahead of market.
The company has been selective in taking new orders with minimum margins of 4-5% in the international market. Its
aspirational EBIT margin target remains at 4-5% for the international market in FY17.
The company has cut prices selectively on few products with selective sale promotions due to the higher competitive
pressures.
Despite the aggressive competition, the company retained its market leadership position with 22% market share.
New efficiency norms for ACs from January
Seeking to reduce carbon emissions, the government said that a new efficiency rating system for air-conditioners, based
on Indian climatic conditions, will be made compulsory for all models starting January 2018.All air-conditioners will need
energy-saving and intelligent regulation of compressors in place of the conventional thermostat-triggered cut-offs, said
the Bureau of Energy Efficiency (BEE), the standard setter for appliances. Today, ACs with this technology is costlier by
about Rs.7000-8000 a unit. But as more units adopt it, cost will come down. As per the management, Company is ready
to comply with the new guidelines set by BEE for 2018. They will continue to provide energy-efficient products to their
customers.
The Governments initiatives on creating new Smart Cities and upgradation of the infrastructure of existing cities
represents an area of significant potential. The Companys expertise at installation, testing, commissioning and
operation of sensor networks across some of the worlds largest building complexes and its existing infrastructure of
support technicians and service partners, positions it effectively to handle the complex task of managing the
maintenance of Smart City information networks.
In International front, Despite the declining oil prices, spend on infrastructure will get a boost especially in Dubai and
Qatar owing to the EXPO 2020 and FIFA world cup 2022. Voltas remains one of the few large MEP contractors with
required project qualifications and domain expertise. Voltas continues to be a preferred contractor in the Middle East,
holds the Company in good stead against competition for these mega events.

About the Company:


Voltas Limited is an India-based air-conditioning and engineering company. Its segments include Electro-mechanical
Projects and Services, Engineering Products and Services, and Unitary Cooling Products for Comfort and Commercial
use. The electro-mechanical projects and services include electrical, mechanical and refrigeration solutions and
electrical and mechanical solutions international. , Engineering products and services includes textile machinery and
mining and construction equipment. The unitary cooling products are sub-divided into: air conditioners, commercial
refrigeration and water cooler and dispensers. The Companys operating subsidiaries include Universal Comfort
Products Limited, Auto Aircon (India) Limited, Saudi Ensas Company for Engineering Services WLL, Weathermaker
Limited and Lalbuksh Voltas Engineering Services & Trading LLC.

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

11

Financials Snap Shot

FY14
7.4
55.0
1.9
25%

RATIOS
FY15
FY16
11.6
11.7
63.5
72.4
2.2
2.6
19%
23%

FY17E
10.2
79.5
3.0
30%

21.7
2.9
1.16%

24.1
4.4
0.77%

23.6
3.8
0.96%

32.6
4.2
0.92%

13%
13%

18%
18%

16%
17%

13%
15%

1.1
92.5
85.3
112.8
0.00

1.1
94.3
88.0
108.6
0.00

1.0
81.4
79.0
108.7
0.00

1.0
89.4
84.1
108.7
0.00

INCOME STATEMENT

Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

FY14
5266
100
5366
3854
1
551
266
5%
25
241
23
318
94
30%
245
62
33

FY15
5183
109
5292
3597
1
586
410
8%
28
382
23
467
128
27%
384
72
33

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY14
33
1786
1819
5
258
2
1825
210
2
1335
282
1627
279
1487
4746

FY15
33
2069
2102
5
117
2
2107
193
4
1339
252
1541
354
1218
4888

FY16
5857
118
5975
4126
1
625
437
7%
28
409
15
511
160
31%
386
87
33

FY17E
5896
130
6025
4180
1
619
419
7%
32
387
26
490
153
31%
337
101
33

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

BALANCE SHEET

FY16
33
2362
2395
0
260
2
2395
222
0
1307
197
1745
408
1356
5599

FY17E
33
2598
2631
0
262
2
2631
227
0
1444
193
1757
424
1532
5874

OP/(Loss) before Tax


Depreciation
Direct Taxes Paid
OP before WC changes
CF from Op. Activity
CAPEX
CF from Inv. Activity
Repayment of LTB
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

FY14
340
25
89
351
230
0
25
(285)
0
23
57
(79)
(134)
407
273

CASH FLOW STATEMENT


FY15
FY16
FY17E
514
552
490
28
28
32
104
153
153
341
505
548
311
275
284
0
0
86
34
52
37
(104)
(367)
(189)
0
0
0
23
14
0
71
88
101
(236)
36
(99)
(29)
(56)
(4)
273
243
197
243
188
193

12

"BUY"
ASHOK LEYLAND LTD.

27-Dec-16

Result Update
CMP

77

Target Price

110

Previous Target Price

120

Upside

44%

Change from Previous

Market Data
BSE Code

500477

NSE Symbol

ASHOKLEY

52wk Range H/L

113/74

Mkt Capital (Rs Cr)

21,799

Av. Volume

567130

Nifty

7,908

Ashok Leyland reported 6.4% decline in revenues during 2QFY17. CV


volumes contracted by 10% YoY but realization increased by 4% YoY during
the quarter. Domestic M&HCV market share increased by 220 bps QoQ to
33% in 2QFY17, due to intense competition from competitors in the form of
discounting. The country would be moving to BS-IV norms in April, 2017 and a
significant amount of pre-buying expected, especially in the fourth quarter of
FY17. Ashok Leyland is already manufacturing commercial vehicles with
EURO-IV engines in India and EURO-VI engines for export market, which is
similar to BS-IV and BS-VI norms. Management's focused approach towards
curtailing debt and concentrating in its core CV business will help the
company to gain further market share and revenue growth in domestic and
exports businesses.

2QFY17 Result Highlights


Revenue declined by 6.4% YoY to Rs.4622 crore in 2QFY17 due to 15%YoY
decline in M&HCV segment. Realisation grew by 4%YoY due to higher sales
in the exports market combined with higher revenues from spare parts.

Stock Performance
1Month

1Year

YTD

Absolute

-0.6

-12.9

-13.0

Rel.to Nifty

2.0

-13.5

-12.5

EBITDA margin contracted by 40 bps due to higher other expenses during the
quarter.
PAT margin grew by 260 bps to 6.4% due to lower interset cost and tax
expenses.

Share Holding Pattern-%


2QFY17 1QFY17

Promoter
Public
Others
Total

4QFY16

50.4

50.4

50.4

49.6
-100.0

49.6
-100.0

49.6
-100.0

Company Vs NIFTY
130

ASHOKLEY

NIFTY

125

120
115

110
105

Outlook
Going forward, We assume that the upcoming emission norms BS-IV to BSVI, focus towards the export markets, improvement in demand from
infrastructure segment, diminution of investments in subsidiaries will help the
company to focus on its commercial vehicle business and government's
initiative to develop defence products in the country can be volume boosters
for the company in FY17. The current demonetization issue has impacted the
transport sector most because a lot of transactions happen through cash. The
sales may be down by 10-12% for next couple of months but we are hopeful
that the situation might improve in 4QFY17 due to pre-buying during the
quarter. We expect that the company will maintain a healthy ROE of over
20% going ahead. We maintain 'BUY' looking at the huge growth potential
going ahead but considering the uncertain demand scenario we reduce our
target to Rs.110.

Rs. In crore

100

95
90
85
Dec-16

Nov-16

Oct-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

80

Naveen Kumar Dubey


naveen.dubey@narnolia.com

Financials

2QFY17

1QFY17

2QFY16

QoQ

YoY

Sales
EBITDA
Net Profit
EBIDTA%
PAT %

4622
536
294
11.6%
6.4%

4259
476
282
11.2%
6.6%

4940
594
287
12.0%
5.8%

9%
13%
5%

-6%
-10%
3%

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

13

ASHOKLEY
Investment Arguments
The country would be moving to BS-IV norms in April, 2017 and a significant amount of pre-buying expected, especially in the
fourth quarter of FY17. Ashok Leyland's subsidiary, Albonair, holds a significant potential moving forward because Albonair does
exhaust emission systems, selective catalytic reduction emission systems which are necessary for being BS-IV compliant.
Export is only 12% of total volumes, therefore the company is targeting the African and Middle East countries to expand its export
contribution by setting up own assembly plants in these countries under the company's global expansion project. The exports is an
important part of Ashok Leyland's strategic intent to globalise its product portfolio and derisk itself from supplying only into India.
The management expects its defence business to log four-fold jump in revenues at over Rs 2,000 crore in next five years as it
gears up to provide an entire range of mobility solutions, including missile carrying vehicles to the armed forces. Ashok Leyland is
the largest supplier of logistics vehicles to the Indian Army.
The management has focused approach towards its core commercial vehicle business. We expect that the company will be
benefitting from recovery in the M&HCV demand and its EBITDA margin will expand on account of operating leverage. The
company is also working on to reduce its debt and generate more cash to fulfill its future expansion requirements.

Management Highlights
Management expects Q4 to be promising due to the implementation of BS-IV norms.
If there is economic growth in the country CV industry will move ahead. Going ahead we see CV industry to grow about 12-15%
annually.
30% market share in M&HCV space and in south region overall market share is 51%.
Domestic truck business contributes 50-55 percent of total revenue.
Marginal impact of commodity prices but it will be passed on to the customers.
Net debt stood at Rs.1870 crore.
Price increase on November 1, 2016 of 1%.
Ashok Leyland have acquired 100% ownership of the JVs, we will continue to be associated with Nissan for the technology of the
existing Dost, Partner, and Mitr models.
The management is focusing on to improve profitability and ROCE of the company going ahead.
Defence Revenue to be close to around Rs 1,500 crore by FY18.

M&HCV volume and growth trend


M&HCV

40000

71%

60%
26262

25000

10000

70%

29840

30000

15000

80%

35246

35000

20000

Growth YoY

44%
21489

14908

18207
14%

18279

64%

40%

23232
27%

34%

24025

25346

50%
40%

30%
12%

20%

10%

0%

0%
-15%

5000
0

-10%

-20%
1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

1QFY17

2QFY17

14

ASHOKLEY
Financials Snap Shot

Net Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

FY14
11,487
92
11,579
8,138
71%
1,581
422
4%
530
(108)
805
(821)
(68)
8%
(164)
266

INCOME STATEMENT
FY15
FY16
15,341
20,659
189
152
15,530
20,811
10,443
13,558
68%
66%
1,845
2,396
1,517
2,932
10%
14%
580
524
937
2,408
872
968
254
1,592
172
528
68%
33%
134
1,071
150
316
285
285

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Total Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY14
266
3,723
3,989
5,491
1,264
411
9,480
7,087
270
1,381
113
2,592
256
400
17,534

BALANCE SHEET
FY15
FY16
285
285
4,227
4,708
4,511
4,992
6,219
7,597
827
1,093
510
536
10,731
12,589
6,060
5,894
166
162
1,354
1,515
905
1,758
3,082
2,966
599
1,081
522
1,016
19,525
22,963

FY17E
23,458
171
23,630
15,365
66%
2,698
3,383
14%
519
2,865
1,194
1,842
611
33%
1,232
364
285

EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
Dividend Yield (%)
Profitability Ratios
RoE
RoCE
Turnover Ratios
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Net Debt/Equity (x)

FY14

FY17E
285
5,575
5,860
7,217
938
536
13,077
5,871
162
1,721
2,094
3,213
1,147
1,222
23,951

FY14
OP/(Loss) before Tax
(300)
Depreciation
530
Direct Taxes Paid
(97)
OP before WC changes
195
CF from Op. Activity
(104)
Capex
(408)
CF from Inv. Activity
(377)
Repayment of Long Term Borrowings
(1,586)
Interest Paid
(499)
Divd Paid (incl Tax)
(187)
CF from Fin. Activity
461
Inc/(Dec) in Cash
(20)
Add: Opening Balance
127
Closing Balance
106

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

(1)
15
0%

RATIOS
FY15
FY16
0
4
16
18
0.5
1.1
112%
30%

FY17E
4
21
1.3
30%

-38.4
1.6
0.00%

73.2
2.2
1.53%

9.2
2.0
3.23%

8.0
1.7
3.71%

-4%
-1%

3%
9%

21%
19%

21%
22%

0.7
43.9
69.2
82.4
1.4

0.8
32.2
54.8
73.3
1.4

0.9
26.8
55.5
52.4
1.5

1.0
26.8
55.5
50.0
1.2

CASH FLOW STATEMENT


FY15
FY16
FY17E
(42)
1,627
1,842
580
524
519
(112)
(545)
(611)
1,725
2,431
3,554
496
(952)
3,080
(251)
(212)
(126)
552
(652)
(1,996)
(2,362)
(380)
(803)
(316)
(1,194)
(154)
(364)
381
1,246
(2,092)
751
846
336
106
858
1,758
858
1,718
2,094

15

Neutral

DABUR INDIA LTD

26-Dec-16

Company Update
CMP

263

Target Price

NA

Previous Target Price

NA

Upside

NA

Change from Previous

NA

Market Data
BSE Code

500096

NSE Symbol

DABUR
320/231
46,240
1040
7,986

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume(,000)
Nifty

DABURs 2QFY17 result was below than our expectations. Sales for second quarter
grew by 1% YoY to Rs 1981 cr on the back of sluggish growth from international
business. International business has contributed approx. 34% of companys sales in
2QFY17. International business declined by 2.3% YoY in this quarter due to geo
political disturbances in the MENA region and adverse currency impact. According to
Management, headwind in international business will continue for at least 2-3
quarters going forward. Secondly, recent demonetization may negatively affect
companys domestic sales in 3QFY17E which is a cause of concern for the company
in the short term. Rural demand is still stressed witnessing slight improvement.
Lastly, the company is getting tough competition from Patanjali. Patanjali is strong in
north and west India from where Dabur gets Substantial part (approx. 60% of its
footprint) of its domestic business which is another concern for DABUR. Hence
considering tepid international business growth outlook, tough competition
from Patanjali and stress in rural demand we maintain `Neutral rating on Dabur
with no target price.

Q2FY17_Result Update

Stock Performance
1M

3M

12M

Absolute

-4.8

-8.2

-5.5

Rel.to Nifty

-4.6

1.7

-7.4

Share Holding Pattern-%


2QFY17

1QFY17 4QFY16

Promoters

68.0

68.0

68.1

Public

32.0

32.0

31.9

Others

0.0

0.0

0.0

100.0

100.0

100.0

Total

Company Vs NIFTY
120

DABUR

NIFTY

115
110

105
100

Sales for this quarter grew by 1% YoY to Rs 1981 cr led by sluggish growth from
international business. EBITDA margin declined by 4 bps YoY to 20.6% due to higher
employee and COGS.Ad expenses for Q2FY17 declined by 92Bps. International
business operating margin declined by 250Bps YoY. PAT margin improved by 64Bps
YoY led by higher other income (Rs 89Cr in Q2FY17 Vs Rs 56Cr in Q2FY16). PAT
grew by 5% YoY to Rs 357Cr in Q2FY17. Oral Care, Hair Care, Home Care and Skin
Care reported volume growth of 6% while growth in value terms was 1.6%. Oral care
category including toothpowder was flattish in value terms. Home care category
reported good growth of 20% in value terms led by strong double digit growth in
Odomos and Odonil. Honey was flattish in volume terms on a high base of 32.5%
growth during Q2FY16.

Concall Highlights:
Rural demand is severely stressed. Good monsoon and seventh pay commission
pay out would not be sufficient.
The company will continue with promotion for next 2 quarters. After that company
will try to reduce promotion and think of increase in price.
It gained market share in Almond hair oil segment. Presently it is below than 10%.
Indian business witnessed some deflation in this quarter.

95
90
85
80

Financials

2013

2014

2015

2016

Rs,Cr
2017E

Sales

6169
988
763
4
36.4%

7075
1160
914
5
34.4%

7827
1316
1066
6
31.8%

8454
1520
1253
7
30.1%

7903
1598
1349
8
27.3%

EBITDA
Net Profit

Rajeev Anand
rajeev.anand@narnolia.com

EPS
ROE

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

16

DABUR

Gross Margin and EBITDA Margin


65%

55%

51%

54%

51%

52%

51%

53%

52%

57%

55%

54%

54%

55%

51%

51%

45%
35%
25%

15%

19%

16%

17%

14%

18%

17%

18%

19%

16%

19%

18%

18%

21%

We expect 51.2% Gross


, 20.2% EBITDA and 17.1%
PAT margin for DABUR in
FY17E.

15%
Gross Margin %

5%

EBITDA margin %

-5%

Net Sales and PAT (in cr.)


2500

400
Net Sales(in cr)

PAT(in cr)
341

2000
287 283 285
250 243
235

1500

300
250
200

150

1975

1924

2157

2122

2092

2064

1945

2074

1924

1864

1769

1904

1749

100

1651

500

293
261

211

186

1000

358
350

332

319

We expect Sales of Rs 7903


cr and PAT of Rs1349 cr for
Dabur in FY17E. This
estimate can be negatively
affected if demonetization
will persist for longer
duration than expected.

50

Employee ,Other and Ad Expenses(% of Sales)


20%

Employee Expence

18%
16%

15%

14%
12%

13%

10%
8%

6%

8%

9%

12%

8%

13%
14%

9%

14%

13%
13%
8%

12%
9%

13%

13%

13%

13%

13%

13%
13%

9%

9%

10%

10%

9%

12%
9%

Ad Expenses
16%

16%

15%

15%

15%
13%
13%

Other expenses

12%10% 12%
11%
11%
8%

4%
2%
0%

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

17

DABUR

Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

Financials Snap Shot


INCOME STATEMENT
FY14
FY15
FY16
FY17E
7075
7827
8454
7903
EPS
128
158
219
292
Book Value
7203
7985
8673
8195
DPS
3400
3720
3797
3858
Payout (incl. Div. Tax.)
51.9%
52.5%
55.1%
51.2%
Valuation(x)
1908
2101
2342
1584
P/E
1160
1316
1520
1598
Price / Book Value
16%
17%
18%
20%
Dividend Yield (%)
97
115
134
143
Profitability Ratios
1062
1201
1386
1455
RoE
54
40
48
63
RoCE
1136
1319
1557
1684
Turnover Ratios
219
251
302
332
Asset Turnover (x)
19%
19%
19%
20%
Debtors (No. of Days)
914
1066
1253
1349
Inventory (No. of Days)
326
462
422
566
Creditors (No. of Days)
174
176
176
176
Net Debt/Equity (x)

Share Capital
Reserves
Net Worth
Long term Debt
Short term Debt
Deferred Tax
Capital Employed
Net Fixed Assets
Capital WIP
Debtors
Cash & Bank Balances
Trade payables
Total Provisions
Net Current Assets
Total Assets

FY14
174
2482
2656
260
448
45
2916
1789
22
675
519
1097
311
1142
5312

BALANCE SHEET
FY15
FY16
176
176
3178
3984
3354
4160
211
341
523
450
59
77
3565
4502
1927
1995
50
0
711
810
276
220
1096
1330
302
384
835
1271
6106
7120

FY17E
176
4766
4942
341
450
77
5284
2098
50
736
263
1148
426
1604
7734

OP/(Loss) before Tax


Depreciation
Direct Taxes Paid
O.profit befo. WC changes
CF from Op. Activity
Capital expenditure
CF from Inv. Activity
Repayment of LT Borrow.
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

FY14
5.2
15.2
1.9
36%

RATIOS
FY15
FY16
6.1
7.1
19.1
23.6
2.6
2.4
43%
34%

FY17E
7.7
28.1
3.2
42%

34
11.8
1.0%

32
10.2
1.4%

39
11.7
0.9%

34
9.4
1.2%

34%
36%

32%
34%

30%
31%

27%
28%

1.3
35
104
57
0.1

1.3
33
95
51
0.1

1.2
35
105
57
0.1

1.0
34
103
53
0.1

FY14
1136
97
-186
1202
1098
-215
-107
-280
-34
-326
-804
187
123
313

CASH FLOW STATEMENT


FY15
FY16
FY17E
1319
1557
1681
115
134
143
-230
-278
-332
1395
1602
1888
1047
1083
1419
-267
-217
-189
-876
-618
-746
-50
131
0
-26
-47
-63
-462
-422
-566
-417
-395
-630
-246
69
42
313
68
220
68
137
263

18

Neutral

SUN PHARMACEUTICAL INDUSTRIES LTD


Company Update
CMP

611

Target Price

NA

Previous Target Price

870

Upside

NA

Change from Previous

NA

Market Data
BSE Code

524715

NSE Symbol

SUNPHARMA
898/571
146723
421.82
8607.5

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume(,000)
Nifty

Stock Performance
1M

3M

12M

Absolute

-10.1

-23.4

-23.3

Rel.to Nifty

-11.3

-26.2

-29.3

Q2FY17_Result Update

EBITDA margin of the company has improved by 1110 bps to 38.3% in


2QFY17 from 27.2% in 2QFY16.
PAT has increased by 90% to Rs. 2471 Cr in the last quarter from Rs.
1299 Cr. in 2QFY16.

Sales from the US formulations business has increased by 9% to ~ Rs.


3774 Cr. in 2QFY17 which accounts for 48% of total revenue. Sales for
1HFY17 were boosted due to the benefit of 180-day exclusivity for Imatinib
which commenced from 01-Feb- 2016.
R&D expense for Q2FY17 was Rs. 570 crores

1QFY17 4QFY16

Promoters

55.0

55.0

55.0

Public

45.0

45.0

45.0

Others

0.01

Company Vs NIFTY
120

Sunpharma has posted robust growth in revenue of 20% to Rs. 8265


Cr in 2QFY17 vs Rs. 6873 Cr. in the same period of FY16. In 2QFY17,
company has filed 3 ANDAs received approval for 6 ANDAs.
Additionally, the pipeline includes 37 approved NDAs while 4 NDAs
await US FDA approval, of which 2 ANDAs were filed in H1FY17.
Ranbaxy integration is gaining momentum and company is on track to
achieve revenue guidance of Rs. 2000 Cr in FY18.Company has
undergone an inspection by USFDA on Dec 7,2016 and post that the
health regulator issued a Form-483 observation letter for Halol Plant.
Management has guided to commercialize Tildrakizumab in near term,
company is waiting for USFDA approval.

Revenue from branded formulations in India increased by 11% on YoY to


Rs. 2009 Cr in 2QFY17 which accounts for 26% of total revenue.

Share Holding Pattern-%


2QFY17

23rd December2016

SUNPHARMA

NIFTY

115
110
105
100

Outlook

Synergies from the Ranbaxy acquisition are gaining momentum and the
Company is on track to achieve the targeted benefits. Post 2QFY17,
Sunpharma has further strengthened the branded ophthalmic pipeline
through the acquisition of Ocular Technologies. But recent developments
are not very conducive for the company. US business is under pricing
pressure due to customer consolidation. Ongoing issue in Halol plant and
inflated pricing issue on dermatology products in US will pose near term
uncertainty. Though the company has maintained its guidance of 8-10%
sales growth for FY17E, we are little skeptical about it considering on-going
issues. Thus, we recommend "NEUTRAL" view on this stock.

90

Financials

2012

2013

2014

2015

Rs,Cr
2016

85

Sales
EBITDA
Net Profit
EPS
ROE

8019
3204
2657
26
22%

11300
4896
2983
29
20%

16080
7002
3141
15
17%

27433
8064
4541
22
17%

27219
7431
3665
18
12%

95

Dec-16

Nov-16

Oct-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

80

Aditya Gupta
aditya.gupta@narnolia.com

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

19

Segmental Revenue

Latest Events
16 Dec 2016- The necessary formalities for closure of acquisition transaction have been concluded and we have successfully
completed the acquisition of Ocular Technologies.
12 dec 2016- Sun Pharma, Moebius Medical ink pact to develop pain management product.Moebius Medical will conduct requisite
pre-clinical studies and will assume responsibility for product development and manufacturing through the end of Phase-II studies,
as per the pact
7 Dec 2016- Company has undergone an inspection by USFDA recently and post that the health regulator issued a Form-483
observation letter For Halol Plant. The company is in the process of responding to the letter.

Financial Performance

EBITDA
50%

46%

44%

44%

45%

41%

44%

44%

46%

EBITDA Margins

44%

44%

46%

3000
2500

40%

31%

35%

27%

30%

28%

31%

33%
26%

27%

25%

1500

20%

14%

1000

1873

1768

2520

2169

1934

1850

892

2165

2180

1733

1801

2001

1843

1551

1275

1275

1175

5%

1242

15%
10%

2000

0%

500
0

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17

About the Company


Sun Pharmaceuticals (SUNP) is one of the fastest growing companies in India as well as globally. It has a highly impressive track
record of organic and inorganic growth. Various US acquisitions augment SUNPs pipeline with differentiated products, and SUNP
has turned around business in a highly profitable manner Taro/ TDPL/ Natcos brands/ etc. It has one of the highest margins/
return ratios amongst global peers. In Apr 14, SUNP announced its biggest M&A deal ever Ranbaxy (RBXY). SUNP currently is
the second largest player in the domestic market, while the merged entity will become the largest player. Its API business footprint
is strengthened through 11 world class API manufacturing facilities across the globe. Sun Pharma fosters excellence through
innovation supported by strong R&D capabilities comprising about 1800 scientists and R&D investments of over 7% of annual
revenues.

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

20

Revenue
Other Income
Total Revenue
COGS
GPM
Other Expenses
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
PBT
Tax
Tax Rate (%)
Reported PAT
Dividend Paid
No. of Shares

Financials Snap Shot


INCOME STATEMENT
FY13
FY14
FY15
FY16
11300
16080 27433
27219 EPS
388
552
452
459 Book Value
11688
16633 27885
27678 DPS
2,073
2,779
6,739
6,483 Payout (incl. Div. Tax.)
18%
17%
25%
24% Valuation(x)
2,796
4,225
8,201
8,508 P/E
4896
7002
8064
7431 Price / Book Value
43%
44%
29%
27% Dividend Yield (%)
336
409
1295
1014 Profitability Ratios
4,560
6,592
6,769
6,417 RoE
43
44
579
477 RoCE
4,905
7,101
6,642
6,399 Turnover Ratios
846
702
915
935 Asset Turnover (x)
17%
10%
14%
15% Debtors (No. of Days)
2983
3141
4541
3665 Inventory (No. of Days)
512
606
363
363 Creditors (No. of Days)
104
207
207
207 Net Debt/Equity (x)

Share Capital
Reserves and surplus
Shareholders' funds
Long term Debt
Total Borrowings
Non Current liabilities
Long term provisions
Short term Provisions
Current liabilities
Total liabilities
Net Fixed Assets
Non Current Investments
Other non Current assets
Current assets
Total Assets

FY13
104
14,886
14,990
115
198
1,001
787
1,482
2,758
20,583
5,077
1,106
8
11,503
20,583

BALANCE SHEET
FY14
FY15
207
207
18,318 26,252
18,525 26,459
49
1,368
2,489
7,596
2,886
2,817
2,602
2,532
1,961
3,336
3,549
9,256
29,371 49,028
5,824 11,020
788
599
0
55
18,686 29,122
29,371 49,028

FY16
241
31,164
31,404
3,117
8,338
2,365
2,080
3,417
8,026
54,220
13,361
593
96
30,865
54,220

FY13
29
145
5
17%

RATIOS
FY14
FY15
15
22
89
128
3
2
19%
8%

FY16
18
152
2
10%

14
3
1%

38
6
1%

47
8
0%

58
7
0%

20%
30%

17%
35%

17%
24%

12%
19%

1
78
83
34
0.0

1
50
71
30
0.0

1
71
75
42
0.1

1
91
86
47
0.1

CASH FLOW STATEMENT


FY13
FY14
FY15
FY16
OP/(Loss) before Tax
4,315
4,581
6,403
6,765
Depreciation
336
409
1,195
1,014
Direct Taxes Paid
1,073
789
1,740
1,988
Operating profit before working
4,475
capital changes
4,541
7,101
8,492
CF from Op. Activity
3,357
3,959
5,322
6,769
Purchase of Non Current investments
(15,672) (28,265) (28,802) (40,089)
Capital expenditure on fixed assets
(845) including
(906)capital
(2,366)
advances(3,382)
and capital
CF from Inv. Activity
(2,635)
(2,367)
(2,671)
(4,455)
Repayment of Long Term Borrowings
(111)
(89)
(6,662)
(9,076)
Interest Paid
38
23
251
300
Divd Paid (incl Tax)
512
606
363
869
CF from Fin. Activity
(665)
507
(1,087)
(1,924)
Inc/(Dec) in Cash
57
2,099
1,563
390
Add: Opening Balance
2,013
2,260
4,479
7,729
Closing Balance
2,069
4,359
7,286
8,120

Narnolia Securities Ltd


Please refer to the Disclaimers at the end of this Report

21

Neutral

Asian Paints Ltd.

22-Dec-16
View & Valuations :

Company Update
CMP

866

Target Price

1015

Previous Target Price

1100

Upside

NA

Change from Previous

NA

Market Data
BSE Code

500820

NSE Symbol

ASIANPAINT
1230/825

52wk Range H/L


Mkt Capital (Rs Cr)

83,095

Av. Volume(,000)

128.0

Nifty

8061

Management remained silent on volume growth improvement (which indicates


lower double digit volume growth going ahead) but did hint at margin
pressures. We do not see significant improvement in volume growth, margin
risks (due to high input cost) and peak valuations (trades at FY18 P/E of 45x)
make the risk-reward unfavourable. We see downside risks to our estimates
due to an unfavourable H2FY17 base with topline and gross margins peaking
out.It also expects paint companies to register flat growth in sales during
Q3FY17 compared Q3FY16, following the government's move to scrap old Rs
500 and 1,000 notes. While the month of October saw significant jump in sales
during festive season, November has seen a significant fall on account of the
demonetization announcement.
While the paint industry is 80-85 per cent cash-driven with the paint retailers
accepting only cash payments for the sales, is now shifting over to digitized
payments to keep the business going. We maintain Neutral rating with a target
price of Rs.1015.

Stock Performance
1Month

1Year

YTD

Absolute

-7.6

-1.0

1.2

Rel.to Nifty

-8.8

-3.8

-4.8

Q2FY17 Result Update :

Share Holding Pattern-%


Q2FY17 Q1FY17 4QFY16

Promoter

52.8

52.8

52.8

Public
Others
Total

47.2

47.2

47.2

100.0

100.0

100.0

Company Vs NIFTY
140

ASIANPAINT

NIFTY

130
120
110
100
90

Dec-16

Oct-16

Nov-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

80

Bhabani Prasad Dehury

Consolidated net profit grew 18.1% to Rs494.76 Cr YoY in Q2FY17, while


consolidated income from operations rose 10.2% to Rs4,232 Cr YoY.
Consolidated EBIDTA margins improved by more than 100bps to 16.85% YoY,
but on a sequential basis, gross margins declined. 271bps QoQ dip in gross
margin was purely owing to increase in raw material cost not due to a change
in the product mix. We see further drop in margins as crude price is bottoming
out.
Investment Rationals :

Double digit volume growth in decorative business in Q2FY17, but, a


prolonged monsoon did affect demand in West and Central India.
No price revision for this quarter. Asian Paints will closely monitor movement
of input prices and GST rate before deciding on price revision, if any.
In the standalone business, the company will incur capex of INR6bn in FY17
for its Mysore and Vizag facilities. Of this, capitalisation will be INR2bn in FY17.
Full Vizag and Mysore plants will be capitalised in FY18.
Financials
Q2FY17
Q1FY17
Q2FY16
QoQ
YoY
Sales
4232
4082
3779
3.7%
12.0%
EBITDA
713
820
621
-13.1%
14.8%
Net Profit
507
622
399
-18.5%
27.0%
Gross %
51%
53%
46%
(231Bps)
444.87
EBIDTA %
17%
20%
16%
-324.84
41.95
PAT %
12%
15%
11%
-325.86
141.80

bhabani.dehury@narnolia.com
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

22

Brief Highlights Q4FY16 Results :


Net Sales from Operations
Other Income
Total Income
COGS
Employee Benefit Expenses
Excise Duty
Other Expenses
Expenditure
EBITDA
Depreciation
EBIT
Interest
PROFIT BEFORE TAX
Tax
PROFIT AFTER TAX
Margin %
EBIDTA %
EBIT %
PAT %
Cost Calculation % to Sales
COGS Cost % to Sales
Employee Cost % to Sales
Excise Duty % to Sales
Other expenses % to Sales

Q2FY16

Q3FY16

Q4FY16

3779
58
3837
2032
247

4160
36
4196
2200
247

3971
34
4005
2027
277

880
3159
621
71
550
9
598
184
415

912
3359
801
73
728
8
756
229
527

964
3268
704
75
628
15
648
225
422

Q2FY16

16.4%
14.6%
11.0%
Q2FY16

53.8%
6.5%
0.0%
23.3%
1QFY15

Q3FY16

19.2%
17.5%
12.7%
Q3FY16

52.9%
5.9%
0.0%
21.9%
2QFY15

Q4FY16

17.7%
15.8%
10.6%
Q4FY16

51.0%
7.0%
0.0%
24.3%
3QFY15

Q1FY17

4082
72
4154
1919
277
445
621
3262
820
85
735
6
800
260
540
Q1FY17

20.1%
18.0%
13.2%
Q1FY17

47.0%
6.8%
10.9%
15.2%
4QFY15

Q2FY17

4232
79
4312
2088
279
469
683
3519
713
84
629
6
702
221
481
Q2FY17

QoQ

YoY

3.7%
10.0%
3.8%
8.8%
0.7%
5.5%
10.1%
7.9%
-13.1%
-1.3%
-14.4%
-5.0%
-12.3%
-15.2%
-10.9%

12.0%
37.6%
12.4%
2.7%
13.3%

14183
170
14353
7971
907

-22.3%
11.4%
14.8%
19.0%
14.3%
-34.5%
17.3%
20.2%
16.0%

3069
11947
2235
266
1969
35
2104
650
1395

QoQ

YoY

16.8% (325 Bps)


14.9% (315 Bps)
11.4% (186 Bps)
Q2FY17

49.3%
6.6%
11.1%
16.1%
1QFY16

QoQ

42 Bps
30 Bps
39 Bps
YoY

231 Bps (445 Bps)


(20 Bps)
7 Bps
19 Bps 1108 Bps
94 Bps (713 Bps)
Q2FY16

Q3FY16

FY15

FY15

15.8%
13.9%
9.8%
FY15

56.2%
6.4%
0.0%
21.6%
Q4FY16

FY16

15843
213
16056
8049
990
1571
2463
13074
2769
276
2494
41
2666
844
1779
FY16

17.5%
15.7%
11.2%
FY16

YoY

11.7%
25.7%
11.9%
1.0%
9.1%
-19.7%
9.4%
23.9%
3.6%
26.6%
17.0%
26.7%
30.0%
27.5%
YoY

172 Bps
185 Bps
139 Bps
YoY

50.8% (540 Bps)


6.2% (15 Bps)
9.9% 992 Bps
15.5% (609 Bps)
Q1FY17

Q2FY17

Volume Growth ( % )
11%
10%
3%
4%
12%
5%
15%
13%
11%
12%
Realization Growth (%)
7%
6%
3%
3%
-4%
-1%
-1%
-1%
1%
0%
Sales Growth (%)
18%
17%
6%
7%
8%
4%
14%
12%
13%
12%
Crude Price in USD
109.8
102.1
76.0
54.0
62.1
50.0
43.4
34.4
45.5
45.8
Key Conference call Highlights :
Double digit volume growth in decorative business in Q2FY17, but, a prolonged monsoon did affect demand in West and Central
India.
Rural India still continues to grow faster than urban India. South India, post floods, has picked up. Hence, North and South have been
growing at similar pace. Overall retail demand has improved after monsoon eased out.
No price revision this quarter. Asian Paints will closely monitor movement of input prices and GST rate before deciding on price
revision, if any.
271bps QoQ dip in gross margin was purely owing to increase in raw material cost.
Good demand in auto OEM and general industrial business segment led to improved performance of automotive coatings JV. In the
industrial coatings JV, the industrial liquid paints segment continued to grow well.
Home improvement delivered good top line due to network expansion and new product launches. Good improvement in Ess Ess and
Sleek business. New products launches under Ess Ess have resulted in better traction.
International business performed well aided by good growth in markets like Nepal, UAE and Fiji. Moderate improvement in Ethiopia
too, but it was affected by adverse forex fluctuations.
In the standalone business, the company will incur capex of INR6bn in FY17 for its Mysore and Vizag facilities. Of this, capitalisation
will be INR2bn in FY17. Full Vizag and Mysore plants will be capitalised in FY18.
Narnolia Securities Ltd
Please refer to the Disclaimers at the end of this Report

23

Narnolia Securities Ltd


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email: narnolia@narnolia.com, website
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