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IEA Report

7th Apr 2017


RELIANCE "HOLD" 7th Apr 2017
Jio is rapidly capturing market share by providing attractive offers to its prime members and has also promised to offer 20% more data than any
other rivals. Now Jio is targeting to boost its revenue by retaining its customers. Recently Reliance has rallied smartly and has crossed our target
price of Rs. 1408. We are still optimistic in this stock and hence we recommend HOLD rating for our long-term investors with the revised target
price of Rs. 1680. ........................................ ( Page : 2-5)

KEC "BOOK PROFIT" 6th Apr 2017

Revenue growth for 9MFY17 was subdued due to lower commodity prices and demonetization. But the operating margin continues to remain
accretive during the same period. We expect 5% and 15% revenue growth in FY17E and FY18E respectively based on the strong traction in
Transmission and railway business with strong operating margin. We recommended this stock at Rs. 148 for the target price of Rs. 217 and the
stock have achieved our recommended target price. Fundamentally we remain bullish on the stock based on strong order book position and
improving operating margin but on the valuation front, we are not comfortable at current price level (currently stock is trading at 3.2x of P/B of
FY17). Hence, we advise our investors to Book profits at the current price..................... ( PAGE : 6-10)

AUROPHARMA "HOLD" 5th Apr 2017


We expect Auropharma will be able to register growth from the US and EU business, on the back of 40-45 launches which are expected in FY18.
Apart from that management is focusing to develop dermatology, Ophthalmology segments which will help the company to diversify its portfolio in
future. Currently the stock is trading at 5 times FY17 P/B and 17 times FY17 P/E. Considering the above arguments we maintain HOLD rating in
this stock with the target price of Rs.890 . ........................................... ( Page : 11-13)

KALPATPOWER "HOLD" 3th Apr 2017


The current order win of Rs.1202 Cr further strengthen the standalone order book position, which provides strong revenue visibility (1.95x of TTM
revenue) going ahead. Advanced stage of overseas projects in transmission will help to register strong revenue growth of 20% in FY17. Considering
the railway ministries ambitious target, we see tremendous growth opportunity for the company like KAPLATPOWR. Based on the recent order win,
especially from Railway we have revised our target price to Rs.350 (Standalone business at 290 per share and Subsidiaries at 60 per share) and we
recommend HOLD on the stock. .................................................. ( Page : 14)

JKIL "BUY" 3th Apr 2017


Strong order book and execution of Mumbai metro projects boosted revenue in Q3FY17and we expect it to continue. We believe that the black
listing from BMC projects and penalty will not affect the top and bottom line of the company in bigger way as 70% of current order book is comes
from metro projects. The current downfall in stock price is irrational and we believe it is the opportunity for the investors. We continue to expect
9%, 20% and 27% revenue growth in FY17, FY18 & FY19 respectively based on the strong order book and robust execution of Mumbai metro
projects. Despite blacklisting from BMC projects we remain bullish on the stock and maintain our BUY rating on the stock with unchanged target
price of 330. ..................................................................... ( Page : 15-21)

COSMOFILMS : Initiating Coverage "BUY" 31th Mar 2017


At CMP of 380/- stock is available at 1.4x FY17, 1.15x FY18 and 1.0x FY19 expected book value. With growing and sustainable margins, we believe
company to post healthy ROE of 24+% and 23% in FY18 & FY19 respectuvely, improve significantly from 21% delivered in FY16. We believe Cosmo
is well positioned to see a major rerating once company start delivering sales from new capacity with improved margins and profotability. keeping
in mind above all positives, we initiate "BUY" on the stock with price target of 490/- and 570/- for FY18 & FY19 respectively, valuing stock at 1.5x
and 1.5x of its FY18 & FY19 respective expected book value. .................. ( Page : 22-35)

AUTOMOBILES 31th Mar 2017


We do not expect change in demand of Passenger vehicles due to lower BS-III inventory. On the 2W and Commercial vehicles front demand may
come down for next couple of months due to higher sales of BS-III vehicles. Eicher Motors have already upgraded itself to BS-IV. Hence we consider
Maruti and Eicher Motors as our best picks. ................................... ( Page : 36)

Narnolia Securities Ltd IEA Edition No.- 990


Hold
RELIANCE INDUSTRIES LTD 7-Apr-17

Company Update Recently Reliance Jio has withdrawn Jio summer surprise offer on TRAI's
CMP 1434 advice. Now to avail Jio services users have to opt for subscription plans.
We expect that this move will further boost the revenues from Jio.
Target Price 1680
According to management 72mn customers have already opted for Jio
Previous Target Price 1408 prime membership till 31 March 2017. As per the Jios management
Upside 17% estimates, EBITDA margin for Jio in FY18 will be more than 50%. Recently
Change from Previous 19% Jio has announced booster packages starting from Rs 11 going up to Rs
301 to provide additional data to its users. . On the Petro-chemicals front,
Reliance has commissioned the first phase of new Paraxylene (PX) project
Market Data at Jamnagar in Q3FY17 and with the commissioning of this plant, PX
BSE Code 500325 capacity will be more than double from 2.0 to 4.2 MTPA. Further
NSE Symbol RELIANCE management has guided for re-opening of its 1400 retail outlets, which will
52wk Range H/L boost the revenue of petrochemicals segment.
1448/925
Mkt Capital (Rs Cr) 465956 Outlook
Av. Volume(,000) 677 Jio is rapidly capturing market share by providing attractive offers to its
Nifty 9258 prime members and has also promised to offer 20% more data than any
other rivals. Now Jio is targeting to boost its revenue by retaining its
customers. Recently Reliance has rallied smartly and has crossed our target
Stock Performance price of Rs. 1408. We are still optimistic in this stock and hence we
1M 3M 12M recommend HOLD rating for our long-term investors with the revised
Absolute 8.4 36.9 39.3 target price of Rs. 1680
Rel.to Nifty 4.9 16.8 30.7 Corporate Highlights For The Quarter
Gross Refining Margin (GRM) of USD 10.8/bbl for the quarter
Share Holding Pattern-% In December 2016, RIL commissioned the first phase of new Paraxylene
3QFY17 2QFY17 1QFY17 project at Jamnagar
Promoters 46.5 46.7 46.7 Outstanding debt as on 31st December 2016 was Rs.194,381 cr
Public 53.5 53.3 53.3 compared to Rs. 180388 cr as on 31st March 2016.
Others 0.0 0.0 0.0 The capital expenditure for 3Q FY 17 was Rs. 37,791 crore.
Total 100.0 100.0 100.0 Interest cost was at Rs. 1,209 crore in 3QFY17 as against Rs. 945 crore
in corresponding period of FY16, increase is primarily on account of higher
Company Vs NIFTY average exchange rate for the quarter.
140 RELIANCE NIFTY Reliance has operated 1,151 petroleum retail outlets in the country in
130
3QFY17.

120 Exports from India operations were higher by 4.0% at Rs. 38,038 crore
110 Rs,Cr
Financials 2012 2013 2014 2015 2016
100

90
Sales 358501 397062 434460 375435 276544
EBITDA 34508 33045 34799 37364 44257
80
Net Profit 19724 20879 22493 23566 27630
Jul-16

Sep-16

Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16

Apr-17
Mar-16

Mar-17

EPS 60 65 70 73 85
Aditya Gupta P/E 12.4 12.0 13.4 11.3 12.3
aditya.gupta@narnolia.com
Narnolia Securities Ltd 2
Please refer to the Disclaimers at the end of this Report
Petrochemical business
3Q FY17 revenue from the Petrochemicals segment increased by 17.8% YoY to Rs. 22,854 crore, primarily due to increase in
prices across polymers and polyester chain.Petrochemicals segment EBIT increased sharply by 25.5% to Rs. 3,301 crore,
supported by favorable product deltas and marginal volume growth.

E&P Business
3Q FY17 revenues for the Oil & Gas segment decreased by 31.0% YoY to Rs. 1,215 crore. The decline in revenue was led by
lower upstream production and lower domestic gas price realization. The unfavorable upstream price environment impacted
segment EBIT which was at Rs. (295) crore, as against Rs. 258 crore in the corresponding period of the previous year. Domestic
production (RIL share) was at 23.1 Bcfe, down 24% YoY. For the accounting quarter, upstream production (RIL Share) in US
Shale business was 41.4 Bcfe, down 19% YoY basis.

Organised Retail:

Revenues for 3Q FY17 grew by 47.2% Y-o-Y to Rs. 8,688 crore from Rs. 5,901 crore. The increase in turnover was led by growth
across all consumption baskets. The business delivered strong PBDIT of Rs. 333 crore in 3Q FY17 as against Rs.237 crore in the
corresponding period of the previous year. During the quarter, Reliance Retail added 111 stores across various store concepts.
Trends crossed a milestone of 300 stores during the quarter. At the end of the quarter, Reliance Retail operated 3,553 stores
across 686 cities with an area of over 13.25 million square feet.

Refining and Marketing:

During 3Q FY17, revenue from the Refining and Marketing segment increased by 7.5% YoY to Rs. 61,693 crore ($ 9.1 billion).
Segment EBIT was at Rs. 6,194 crore, down 4.3% YoY on account of lower volumes and decline in GRMs. GRM for 3Q FY17
stood at $ 10.8/bbl as against $ 11.5/bbl in 3Q FY16. Reliance GRM outperformed Singapore complex margins by $ 4.1/bbl.
Reliance Jamnagar refineries processed 17.8 MMT in 3Q FY17, marginally lower on QoQ. As at the end of the quarter, Reliance
operated 1,151 petroleum retail outlets in the country.

Digital service

During the quarter, Jio announced the launch of the Jio Happy New Year Offer (JNO) effective from 4th December 2016. Under
the JNO, all the Jio subscribers are entitled to certain special benefits, which comprise of Jios Data, Voice, Video and the full
bouquet of Jio applications and content, absolutely free, up to 31st March 2017.Till 31st Dec 2016 there were 72.4 million
subscribers on the network.Jio is the only operator in India to deploy pan-India LTE on a sub-GHz band, in addition to pan-India
1800MHz and 2300MHz spectrum band.

Key Operating Metrics:


3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
GRM($/bbl) 7.6 7.6 7.6 7.6 7.6 7.6 7.6 7.6 7.6 7.6 7.6 7.6 7.6
Singapore GRM 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3 4.3
Premium 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3
Exchange rate 62 62 62 62 62 62 62 62 62 62 62 62 62
GRM(Rs/bbl) 472 472 472 472 472 472 472 472 472 472 472 472 472
Crude Refined(MT) 17 17 17 17 17 17 17 17 17 17 17 17 17
Crude Oil Price(USD/bbl) 111 111 111 111 111 111 111 111 111 111 111 111 111
Crude Revenue(Rs Cr/MMT) 230,691 230,691 230,691 230,691 230,691 230,691 230,691 230,691 230,691 230,691 230,691 230,691 230,691
Trend of Crude revenue 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Narnolia Securities Ltd 3
Please refer to the Disclaimers at the end of this Report
Refining Business
2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Refining Revenue 110,045 107,676 96,668 98,081 103,590 81,777 56,442 68,729 60,768 57,385 48,064 56,568 60,527 61,693
Refining EBIT 3,243 3,240 3,962 3,814 3,844 3,267 4,902 5,252 5,461 6,491 6,394 6,593 5,975 6,194
Refining EBIT Margin 3% 3% 4% 4% 4% 4% 9% 8% 9% 11% 13% 12% 10% 10%
Petrochemicals

2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Petrochemicals Revenue 27,128 27,121 26,541 25,398 26,651 23,001 21,754 20,858 21,239 19,398 20,915 20,718 22,422 22,854
Petrochemicals EBIT 2,381 2,115 2,150 1,863 2,361 2,064 2,003 2,338 2,531 2,639 2,713 2,806 3,417 3,301
Petrochemicals EBIT Margin 9% 8% 8% 7% 9% 9% 9% 11% 12% 14% 13% 14% 15% 14%
Exploration & Production

2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Oil and Gas Revenue 2,682 2,926 2,798 3,178 3,002 2,841 2,513 2,057 2,067 1,765 1,638 1,340 1,327 1,215
Oil and Gas EBIT 956 607 762 1,042 818 832 489 32 242 90 14 (312) (491) (295)
Oil and Gas EBIT Margin 36% 21% 27% 33% 27% 29% 19% 2% 12% 5% 1% -23% -37% -24%
Retail

2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
Organized Retail Revenue 3,470 3,941 3,653 3,999 4,167 4,686 4,788 4,698 5,091 6,042 5,781 6,666 8,079 8,688
Organized Retail EBIT 70 38 24 81 99 133 104 111 117 147 131 148 162 231
Organized Retail EBIT Margin 2% 1% 1% 2% 2% 3% 2% 2% 2% 2% 2% 2% 2% 3%
Investment Rationale
Massive Capex programme coming onstream: RIL has spent ~70% of the planned USD1850Cr capex (this number was
USD1650Cr earlier) on its four key projects (petcoke gasification, polyester expansion, off-gas cracker and ethane sourcing).
We believe that the three expansion projects: petcoke gasifier, refinery off-gas cracker, and ethane intake facilities will be
fully operational by FY17E.The companys massive capex programme will push future earnings.
Telecom launch in FY18: The commercial launch will give us better visibility on execution, business outlook, and earnings.

About the Company

RIL is the largest private player in the refining, petrochemical and E&P sectors in India.The petrochemicals segment includes
production and marketing operations of petrochemical products which include, polyethylene, polypropylene, polyvinyl chloride, poly
butadiene rubber, polyester yarn, polyester fibre, purified terephthalic acid, paraxylene, ethylene glycol, olefins, aromatics, linear
alkyl benzene, butadiene, acrylonitrile, caustic soda and polyethylene terephthalate. The refining segment includes production and
marketing operations of the petroleum products. The oil and gas segment includes exploration, development and production of
crude oil and natural gas. RIL has made significant investments in US shale gas. In terms of EBIT, Refining contribute 60% and
Petrochemicals 30%. RIL is also expanding its presence in the areas of consumer retailing and telecom.

Narnolia Securities Ltd 4


Please refer to the Disclaimers at the end of this Report
Financials Snap Shot
INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue (Net of Excise Duty)
397062 434460 375435 276544 EPS 65 70 73 85
Other Income 7867 9001 8613 7612 Book Value 564 615 675 752
Total Revenue 404929 443461 384048 284156 DPS 9 10 10 12
COGS 332250 363022 294046 189054 Payout (incl. Div. Tax.) 14% 14% 14% 14%
GPM 84% 84% 78% 68% Valuation(x)
Other Expenses 26588 31067 37763 35509 P/E 12 13 11 12
EBITDA 33045 34799 37364 44257 Price / Book Value 1.4 1.5 1.2 1.4
EBITDA Margin (%) 8% 8% 10% 16% Dividend Yield (%) 1% 1% 1% 1%
Depreciation 11232 11201 11547 12916 Profitability Ratios
EBIT 21813 23598 25817 31341 RoE 11% 11% 11% 11%
Interest 3463 3836 3316 3608 RoCE 9% 8% 8% 8%
PBT 26217 28763 31114 35345 Turnover Ratios
Tax 5331 6215 7474 8264 Asset Turnover (x) 1.1 1.0 0.7 0.5
Tax Rate (%) 20% 22% 24% 23% Debtors (No. of Days) 9 8 5 6
Reported PAT 20879 22493 23566 27630 Inventory (No. of Days) 50 48 52 62
Dividend Paid 2949 3123 3268 3791 Creditors (No. of Days) 46 51 58 81
No. of Shares 323 323 324 324 Net Debt/Equity (x) 0.4 0.5 0.6 0.6

BALANCE SHEET CASH FLOW STATEMENT


FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 2936 2940 2943 2948 OP/(Loss) before Tax 26217 28763 31114 35345
Reserves and surplus 179094 195730 215539 240695 Depreciation 13393 11201 11547 12916
Shareholders' funds 182030 198670 218482 243643 Direct Taxes Paid 4824 6213 6435 8264
Long term Debt 70960 101016 120777 142000 Operating profit before WCchanges
34373 38444 38994 52000
Total Borrowings 89322 133808 148742 165954 CF from Op. Activity 36918 43261 34374 104743
Non Current liabilities 12119 13025 23619 31439 Movement in Loans& Advances -2610 -426 -232 1917
Long term provisions 531 290 1554 1869 Capex -30726 -60087 -63364 -101199
Short term Provisions 4557 4446 5392 1636 CF from Inv. Activity -27650 -73070 -64898 -99282
Current liabilities 77912 82364 110588 161916 Repayment of LTB 19182 28215 29413 21223
Total liabilities 362357 428843 504486 606214 Interest Paid -4626 -5619 -6149 -3316
Net Fixed Assets 183439 232911 318523 419722 Divd Paid (incl Tax) -2949 -3123 -3268 -3790.92
Non Current Investments 13979 26867 25437 37005 CF from Fin. Activity 408 13713 8444 10105.1
Current investments 28869 33735 51014 39928 Inc/(Dec) in Cash 9676 -16096 -22080 15566.1
Current assets 155914 151069 136577 126587 Add: Opening Balance 40780 50456 34552 12545
Total Assets 362357 428843 504486 606214 Closing Balance 50456 34360 12472 28111.1

Narnolia Securities Ltd 5

Please refer to the Disclaimers at the end of this Report.


BOOK PROFIT
KEC International 5-Apr-17

Result Update Recent Development:-


CMP 219
Target Price NA KEC has received Rs. 1781 Cr worth of Orders in Transmission and cable on
Previous Target Price 4th April 2017. KEC has secured 1270 Cr transmission orders from
Upside international market (Middle East, Africa, Sri Lanka and Americas), Rs. 432
Change from Previous Cr from India market and Rs. 79 Cr of order for EHV cable supply.
Companys efforts on growing in EPC business in Brazil is clearly paying off.
In last one month, KEC has received orders worth of Rs.2494 Cr from
Market Data
international market which has strengthened the international order book.
BSE Code 532714 Current order book stands at Rs.11628 Cr which implies strong revenue
NSE Symbol KEC visibilities of 1.26x of TTM revenue with improving operating margin.
52wk Range H/L 222/111 Fundamentally we remain bullish on the stock but valuation is little stretched.
Mkt Capital (Rs Cr) 5,639
Av. Volume 259102
Healthy Order Book:-
Nifty 9265
Current order book stands at Rs. 11175 Cr i.e. 1.3x of the trailing twelve
Stock Performance months revenue with Rs. 3800 Cr of orders in L1 position. Order intake
1Month 3 Month 1Year during the 9 months stood at Rs. 8634 Cr, up by 26% YoY. Management
Absolute 31.4 57.2 72.4 expects healthy orders from SEBs and railways which will provide robust
revenue visibility going ahead. Currently, SEA plant (Brazil) is running at
Rel.to Nifty 27.8 43.9 53.0
100% capacity utilization with 2 years orders in hand.

Share Holding Pattern-%


Operating Margin continues to be strong:-
3QFY17 2QFY17 1QFY17
Promoters 51% 51% 51% EBITDA margin in Q3FY17 has improved by 135 bps YoY to 9.3%. The
Public 49% 49% 49% Improvement in EBITDA margin was attributable to strong performance by
Others 0% 0% 0% SAE (500 bps up YoY), railway business (negative in Q3FY16) and cable
Total 100% 100% 100% business (negative in Q3FY16). Management is working on cost front in
cable business to improve margin and we expect margin improvement in
railway business as the revenue increase. Management has guided 9%
Company Vs NIFTY EBITDA margin in FY17 and improves further in FY18. KEC has bring down
180 KEC NIFTY account receivables days from 246 days in FY16 to 218 days at the end of
160 the Q3FY17 and we anticipate it to improve further based on retention money
140 release from Saudi project which result into improvement in bottom line going
120 forward.
100
In Rs. Cr.
80
Financials Q3FY17 Q2FY17 Q3FY16 YoY % QoQ %
60
Sales 1965 2121 2101 -7% -7%
40
EBITDA 182 185 167 9% -2%
Net Profit* 47 72 23 102% -35%
EBIDTA% 9.3% 8.7% 8.0% 130 bps 60 bps
Sandip Jabuani PAT 3.2% 3.1% 1.2% 200 bps 10 bps
sandip.jabuani@narnolia.com * Net profit is excluding other comprehensive income

Narnolia Securities Ltd 6


Please refer to the Disclaimers at the end of this Report
Railway :- Potential Revenue growth driver
Management has cut down the revenue growth to 5% in FY17. But maintain the railway top line guidance of 450-500 Cr in FY17
and Rs.1000 Cr for the FY18E based on the huge opportunity in railway electrification project. Railway Ministry has set target to
award 2000 Km, 4000 Km and 6000 km of overhead electrification orders in FY17, FY18 and FY19 respectively. In railways, KEC
commands 20% market share, which may translate into approx.2400 Cr of expected new orders in FY18E. Railway ministrys focus
on execution helps contractor to execute project smoothly and timely. We expect improvement in EBITDA margin based on
incremental volume and speedy execution.

Result Highlights of Q3FY17

Net sales de grew by the 6.5% YoY to Rs. 1965 Cr in Q3FY17 as compared to Rs. 2101 Cr in Q3FY16
EBITDA margin has improved by 135 bsp to Rs. 182 Cr as against Rs 167 Cr on account of 10% plus margin in T&D and
improved performance of railway and SAE business.
KEC has reported 102% YoY growth in PAT with 200 bps improvement on back of higher EBITDA
During the quarter KEC has secured Rs.2706 Cr of new orders in Q3FY17 (up by 20% YoY) and Rs. 8634 Cr in 9 months of
FY17, which is up by 26% YoY
Order book as on 31st December stands at Rs.11175 Cr, ie. 1.3x of TTM revenue.

Managment / Concall Update

Demonetization, delay in conversation of L1 orders into firm order and land acquisition issue at Jammu and Kashmir project led
to de growth in revenue
Management has guided 5% and 10-15% revenue growth in FY17 and FY18 respectively.
EBITDA margin in FY17 will be 9% and it will improve further in FY18
EBITDA margin of SAE tower was 8-9% in Q3FY17
Faced some serious issue in logistic in November and December month due to demonization but now situation is under control.
Losses in Cable segment has come down significantly on YoY
Revenue loss of 50-60 Cr due to demonization
Maintain revenue guidance in railway segment of Rs. 450-500 Cr and Rs.1000 cr in FY18
Interest cost as % of sales will be 2.7% in FY18
Significant improvement in solar business from next year as the KEC is in L1 position of large project. EBITDA margin is slightly
below than normal margin but cash generating on PBT level
Expect to bring down AR collection days to 180 from 218 days based on the release of retention money from Saudi projects
Land acquisition issue at Jammu and Kashmir project has been resolved
Expect more orders from SEBs compare to PGCIL

Outlook and Valuation:-


Revenue growth for 9MFY17 was subdued due to lower commodity prices and demonetization. But the operating margin continues
to remain accretive during the same period. We expect 5% and 15% revenue growth in FY17E and FY18E respectively based on
the strong traction in Transmission and railway business with strong operating margin. We recommended this stock at Rs. 148 for
the target price of Rs. 217 and the stock have achieved our recommended target price. Fundamentally we remain bullish on the
stock based on strong order book position and improving operating margin but on the valuation front, we are not
comfortable at current price level (currently stock is trading at 3.2x of P/B of FY17). Hence, we advise our investors to
Book profits at the current price.

Narnolia Securities Ltd 7

Please refer to the Disclaimers at the end of this Report


Quartely Performance 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Net Sales 2,140 2,021 2,491 1,903 1,998 2,076 2,530 1,763 2,098 1,935 -7% -8%
Other Operating Income 33 32 30 20 23 25 29 22 23 30 19% 27%
Net Sales 2,173 2,053 2,521 1,923 2,021 2,101 2,559 1,785 2,121 1,965 -7% -7%
Change in Invenotry 16 41 76 (13) (1) (39) 74 (49) 8 (11)
RM Cost 1,276 1,053 1,243 900 1,025 924 1,282 870 1,014 854 -8% -16%
COGS 1,292 1,094 1,318 887 1,024 885 1,356 821 1,022 843 -5% -18%
Employee Expenses 149 145 144 158 161 155 168 173 187 186 19% -1%
Other Expenses 225 225 275 203 260 243 279 215 238 243 0% 2%
Erection & Subcontracting 386 485 599 489 421 609 533 390 441 459 -25% 4%
Excise Duty 45 41 36 47 52 27% 11%
Total Expenditure 2,052 1,949 2,336 1,782 1,866 1,934 2,336 1,635 1,936 1,783 -8% -8%
EBITDA 121 105 185 141 155 167 223 150 185 182 9% -2%
Depreciation 22 23 22 29 21 31 22 29 31 30 -5% -4%
EBIT 99 82 162 112 134 136 201 121 154 152 12% -2%
Intreset 91 81 71 71 68 69 71 72 60 58 -16% -2%
PBT 9 136 100 44 69 69 132 54 100 101 46% 0%
Tax (12) 70 37 27 25 43 52 23 35 38 -11% 8%
PAT 20 66 63 17 44 26 80 31 65 63 139% -4%

Margin Profile YoY (+/-) QoQ (+/-)


Gross Margin 40.5% 46.7% 47.7% 53.9% 49.3% 57.0% 47.0% 54.0% 51.8% 57.1% 10 530
EBIDTA 5.6% 5.1% 7.3% 7.3% 7.7% 7.8% 8.7% 8.4% 8.7% 9.3% 150 60
EBIT 4.5% 4.0% 6.4% 5.8% 6.6% 6.7% 7.9% 6.8% 7.3% 7.7% 100 40
PAT 0.9% 3.2% 2.5% 0.9% 2.2% 1.8% 3.1% 1.7% 3.1% 3.2% 140 10

Order Book 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Transmission 7,356 6,921 7,131 7,903 7,207 7,028 7,087 7,334 7,442 8,054 15% 8%
SAE 931 876 951 948 1,086 937 1,134 1,769 1,510 1,342 43% -11%
Cables 279 263 570 632 592 469 472 104 216 224 -52% 4%
Railways 279 263 475 738 691 562 567 936 1,186 1,342 139% 13%
Water 466 438 380 316 - 281 189 208 216 112 -60% -48%
Solar 9 9 - - 296 75 38 52 183 101 34% -45%
Total 9,320 8,770 9,508 10,537 9,872 9,351 9,487 10,403 10,753 11,175 20% 4%

Order Intake
Transmission 583 1,478 1,909 2,375 1,024 1,595 1,370 1,469 1,738 1,651 4% -5%
SAE 231 485 421 123 181 247 206 678 465 298 20% -36%
Cables 253 412 393 309 181 270 206 198 279 244 -10% -13%
Railways - 48 84 278 90 90 56 424 528 460 412% -13%
Water - - - - - - - - - -
Solar 11 5 3 - 30 45 38 57 93 54 20% -42%
Total 1,078 2,428 2,811 3,085 1,506 2,246 1,877 2,825 3,103 2,706 20% -13%

8
Narnolia Securities Ltd

Please refer to the Disclaimers at the end of this Report


Segment Revenue 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Transmission-Rest 1,692 1,531 1,976 1,355 1,506 1,557 1,887 1,184 1,529 1,273 -18% -17%
Transmission SAE 184 214 222 187 201 177 266 255 261 227 28% -13%
Total Transmission 1,876 1,745 2,198 1,542 1,707 1,734 2,153 1,439 1,790 1,500 -13% -16%
Cables 237 254 217 259 262 230 292 245 228 278 21% 22%
Railway 29 22 58 45 34 81 50 70 66 105 30% 59%
Water 30 32 38 32 21 13 37 18 19 20 54% 5%
Solar 9 0 - 40 52 14 26 59 48% 127%
Total 2,172 2,053 2,520 1,878 2,024 2,098 2,584 1,786 2,129 1,962 -6% -8%

Order Book Order Intake

Order Book Book to bill Order Intake Growth YoY%


12,000 2.00 10000 0.3
1.80 9000
10,000 0.25
1.60 8000
8,000 1.40 7000 0.2
1.20 6000 0.15
6,000 1.00 5000
0.80 4000 0.1
4,000 0.60 3000 0.05
2,000 0.40 2000
0.20 0
1000
- - 0 -0.05
FY12 FY13 FY14 FY15 FY16 Till FY12 FY13 FY14 FY15 FY16 Till
Q3FY17 Q3FY17

Strong Growth in Railway Segment :- Margin Trend :-

Railway Order Book Growth YoY%


EBITDA M % PAT M %
1,600 160%
1342 140% 10%
1,400
1,186 120% 9%
1,200 8%
100%
1,000 936 7%
80%
800 738 691 60% 6%
562 567 40% 5%
600 475
20% 4%
400 279 263 3%
0%
200 2%
-20%
1%
- -40%
0%
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17
2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17

Narnolia Securities Ltd 9

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About the Company :-

KEC International Limited is an India-based company, engaged in infrastructure engineering, procurement and construction (EPC).
The Company is also a manufacturer of power cables and telecom cables in India. The Company operates in four business
verticals, which include power transmission and distribution, cables, railways and water. The Company is also a provider of turnkey
solution in the railway infrastructure EPC space. The Company has powered infrastructure development across 50 countries in
developed, developing and emerging economies of South Asia, the Middle East, Africa, Central Asia, the United States and South
East Asia. The Company has eight manufacturing facilities for lattice towers, monopoles, hardware and cables.

Power Transmission
Cabels Railways Water
& Distribution

Transmission Lines Substations Power Cabels


Civil & Track Work Water Resource
LT/HT/EHV
Managment
Lattice Distribution Platforms &
Network Telecom Cabel : Buildings
Towers/Poles
Optical Fiber and Water & Waste
Telecom/Tower/ Jelly filled Signalings Water Treatment
Hardware EPC/OPGE

Electrification

Supply EPC

Manufacturing Facilities

Tower Manufacturing
India, Brazil and Vadodara (Gujarat)
Mexico Mysore (Karnataka)
(SAE Annual Silvassa (Union
production capacity Territory)
100000 MTs)

Narnolia Securities Ltd 10

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Financials Snap Shot
INCOME STATEMENT RATIOS
FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Revenue 7902 8468 8516 8943 EPS 2.6 6.3 7.4 11.5
Other Income 14 146 10 10 Book Value 46.3 51.7 58.8 66.9
Total Revenue 7916 8614 8527 8954 DPS 0.6 0.7 2.2 3.4
EBITDA 493 512 679 760 Payout (incl. Div. Tax.) 23% 11% 30% 30%
EBITDA Margin (%) 6% 6% 8% 9% Valuation(x)
Depreciation 71 88 88 84 P/E 26.0 12.8 16.4 16.0
EBIT 423 424 592 676 Price / Book Value 1.5 1.5 2.1 2.8
Interest 263 309 277 274 Dividend Yield (%) 0.87% 0.88% 1.82% 1.86%
PBT 173 261 325 412 Profitability Ratios
Tax 88 100 133 144 RoE 6% 12% 13% 17%
Tax Rate (%) 1 0 0 0 RoCE 24% 20% 28% 31%
Reported PAT 67 161 192 268 Turnover Ratios
Dividend Paid 15 18 57 80 Asset Turnover (x) 1.1 1.1 1.0 1.1
No. of Shares 26 26 26 26 Debtors (No. of Days) 176 166 193 193
Inventory (No. of Days) 45 38 38 38
Creditors (No. of Days) 148 143 126 126
Net Debt/Equity (x) 0.51 0.55 0.40 0.35

BALANCE SHEET CASH FLOW


FY14 FY15 FY16 FY17E FY14 FY15 FY16 FY17E
Share Capital 51 51 51 51 OP/(Loss) before Tax 155 261 325 412
Reserves 1140 1278 1460 1648 Depreciation 71 88 88 84
Net Worth 1192 1330 1512 1700 Direct Taxes Paid 113 122 135 144
Long term Debt 603 737 602 602 Op. before WC Change 499 596 853 770
Short term Debt 1207 1308 1723 1723 CF from Op. Activity (9) 153 (51) 478
Deferred Tax 73 70 66 66 Capex 161 90 78 0
Total Capital Employed 1794 2067 2114 2302 CF from Inv. Activity (136) 125 18 0
Net Fixed Assets 992 881 860 860 Repayment of LTB 305 640 264 0
Capital WIP 18 16 12 0 Interest Paid 263 309 277 274
Debtors 3808 3853 4495 4729 Divd Paid (incl Tax) 15 17 58 80
Cash & Bank Balances 144 206 111 0 CF from Fin. Activity 132 (216) (63) (354)
Trade payables 3213 3325 2939 3087 Inc/(Dec) in Cash (14) 62 (96) 124
Total Provisions 125 122 114 114 Add: Opening Balance 146 132 194 111
Net Current Assets 1374 1668 2151 2187 Closing Balance 132 194 98 235
Total Assets 7411 7745 8138 8322

Narnolia Securities Ltd 11

Please refer to the Disclaimers at the end of this Report


HOLD
AUROBINDO PHARMA LTD 5-Apr-17

Company Update Aurobindo Pharma clears USFDA inspection for Unit-11 in Srikakulam,
CMP 681 Andhra Pradesh with zero observations. The Unit-11 plant produces non-
antibiotic active ingredients,which is used for both the captive purpose of
Target Price 890
Aurobindos formulation manufacturing and for supplies to external
Previous Target Price 890 customers. The US formulation business contributes 45 percent of
Upside 31% Aurobindos total revenue Rs.13,890 cr. The acquired business(Agile
Change from Previous 0% Pharma) continues to see profitable during Q3FY17. As on 31 Dec 2016,
Auro pharma has transferred manufacturing of 60 products from Europe to
Vizag facility in India. Management expects supply from this facility to EU
Market Data markets from FY18E. The estimated sales revenue from this facility is Rs.
BSE Code 524804 1300 Cr. per annum. Apart from that recent approvals from USFDA in
NSE Symbol AUROPHARMA various segment will enable the company to launch multiple products in
52wk Range H/L FY18E
895/622
Mkt Capital (Rs Cr) 39900 Outlook
Av. Volume(,000) 232924
Nifty 9237 We expect Auropharma will be able to register growth from the US and EU
business, on the back of 40-45 launches which are expected in FY18. Apart
from that management is focusing to develop dermatology, Ophthalmology
Stock Performance
segments which will help the company to diversify its portfolio in future.
1M 3M 12M
Currently the stock is trading at 5 times FY17 P/B and 17 times FY17 P/E.
Absolute -0.3 0.9 -9.0 Considering the above arguments we maintain HOLD rating in this stock
Rel.to Nifty -3.6 -12.3 -27.6 with the target price of Rs.890

Share Holding Pattern-% Recent developments


3QFY17 2QFY17 1QFY17
Promoters 51.94 53.79 53.9 Aurobindo Pharma recalls of 47,040 bottles of Venlafaxine
Public 48.06 46.21 46.1 hydrochloride capsules (an anti-depressant)
DII Aurobindo Pharma gets US FDA nod for Etomidate injectable (used for
Total 100 100 100 induction of general anaesthesia & sedation)
Aurobindo Pharma gets final USFDA approval for Guaifenesin and
Company Vs NIFTY Dextromethorphan Hydrobromide extended-release tablets
125 AUROPHARMA NIFTY Aurobindo Pharma gets USFDA nod for HIV drug. It has an estimated
120 market size of USD 388 million for the 12 months ended December 2016
115
110 51 products are pending in pipeline.
105 ARBP is going to launch 39 products going ahead.
100
95 Rs,Cr
90 Financials 2012 2013 2014 2015 2016
85
80 Sales 4627 5855 8100 12121 13896
EBITDA 561 861 2132 2564 3206
Net Profit -124 294 1173 1576 1982
Aditya Gupta EPS -4 10 40 54 34
aditya.gupta@narnolia.com ROCE 11% 16% 36% 34% 36%

Narnolia Securities Ltd 12


Please refer to the Disclaimers at the end of this Report
Financials Snap Shot
INCOME STATEMENT RATIOS
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Revenue 5855 8100 12121 13896 EPS 10 40 54 69
Other Income 29 23 97 68 Book Value 89 129 12 11
Total Revenue 5884 8123 12217 13964 DPS 2 2 76 84
COGS 2,991 3,606 5,506 6,158 Payout (incl. Div. Tax.) 0 0 2 0
GM 49% 55% 55% 56% P/E 14.46 12.71 22.64 17.81
Other Expenses 1,340 1,530 2,749 2,982 Valuation(x) 15 12
EBITDA 861 2132 2564 3206 Price / Book Value 2 4 7 5
EBITDA Margin (%) 15% 26% 21% 23% Dividend Yield (%) 2% 0% 1% 0%
Depreciation 249 313 333 393 RoE 11% 31% 31% 29%
EBIT 612 1,819 2,231 2,813 Profitability Ratios
Interest 267 310 160 159 RoCE 16% 36% 34% 34%
PBT 374 1,533 2,168 2,722 Asset Turnover (x) 1 1 1 1
Tax 83 363 597 744 Turnover Ratios
Tax Rate (%) 22% 24% 28% 27% Debtors (No. of Days) 100 119 107 107
Reported PAT 294 1173 1576 1982 Inventory (No. of Days) 120 107 109 109
Dividend Paid 67 60 179 359 Creditors (No. of Days) 60 61 62 63
No. of Shares 29 29 29 58 Net Debt/Equity (x) 0.44 0.34 0.26 0.20

BALANCE SHEET CASH FLOW STATEMENT


FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
Share Capital 29 29 29 29 OP/(Loss) before Tax 374 1,533 2,168 2,670
Reserves and surplus 2,577 3,721 5,127 6,958 Depreciation 249 313 333 427
Shareholders' funds 2,606 3,750 5,156 6,987 Direct Taxes Paid 119 344 597 667
Long term Debt 1,148 1,279 1,361 1,368 Operating profit before 819 2,047 2,644 3,290
Total Borrowings 3,384 3,634 3,864 3,883 working
CF capital
from Op. Activity 275 646 1,797 871
Non Current liabilities 77 215 235 242 Capital expenditure on (273) (390) (1,362) (481)
Long term provisions 9 9 24 31 fixed
CF assets
from including
Inv. Activity (246) (819) (1,426) (481)
Short term Provisions 80 127 218 240 Proceeds from long- 180 147 82 7
Current liabilities 1,195 1,865 3,634 3,543 term borrowings
Repayment of Long Term Borrowings
(523) (51) - -
Total liabilities 7,273 9,490 12,914 14,681 Interest Paid (112) (94) (144) (193)
Net Fixed Assets 2,857 3,031 4,061 4,115 Divd Paid (incl Tax) (67) (60) (179) (171)
Non Current 22 20 0 0 CF from Fin. Activity 108 118 (94) (345)
Investments
Other non Current assets 19 18 30 30 Inc/(Dec) in Cash 137 (55) 277 46
Current assets 4,137 5,631 8,299 10,035 Add: Opening Balance 66 203 179 469
Total Assets 7,273 9,490 12,914 14,681 Closing Balance 203 148 455 515

Narnolia Securities Ltd 13

Please refer to the Disclaimers at the end of this Report


HOLD
Kalpatru Power Transmission Ltd. 3-Apr-17

Result Update
CMP 322 Recent Development :-
Target Price 350 Recently, KALPATPOWR has received orders worth of Rs. 1202 Cr in
Previous Target Price 320 Transmission and Railway segment. Company has secured 738 Cr worth of
Upside 9% transmission projects in Telengana (Rs.402 Cr) and Abu Dhabi (Rs.336 Cr)
Change from Previous 9% and big ticket size order worth of Rs.464 Cr in key Railway segment from
Railway Vikas Nigam Limited. With this order win KALPATPOWR standalone
order book stands at Rs.9502 Cr, which gives strong revenue visibility (1.95x
Market Data
of TTM revenue) going forward. Managements has reiterated 15-20%
BSE Code 522287 revenue growth in FY 18 based on the current order book and company will
NSE Symbol KALPATPOWER continue to build portfolio of projects in Railway EPC sector, which will be key
52wk Range H/L 333/202 growth driver going forward. Companys real estate arm JMC has also won
Mkt Capital (Rs Cr) 4,942 orders in Residential and commercial building worth of Rs.1058 Cr.
Av. Volume 23737
Nifty 9174
Strong Opportunity in Infra Segment :-
Stock Performance Currently, Infra segment (Pipeline and Railway) contributes only 10% of the
1Month 3 Month 1Year Order book but we see huge opportunity going forward especially in Railway
Absolute 14.5 29.9 57.4 segment. KALAPTPOWER has strong order pipeline of 3000 Cr and 1500 Cr
Rel.to Nifty 12.0 17.8 38.8 in Railway and Pipeline business respectively. Railway Ministry has set a
target to award 2000 Km, 4000 Km and 6000 km of overhead electrification
orders in FY17, FY18 and FY19 respectively which provides huge opportunity
Share Holding Pattern-%
going forward. Shri Shubham logistics business remained muted in Q3FY17
3QFY17 2QFY17 1QFY17 due to demonization and we do not expect significant improvement in it
Promoters 59% 59% 59% inFY17
Public 41% 41% 41%
Others 0% 0% 0%
Outlook & Valuation:-
Total 100% 100% 100%
The current order win of Rs.1202 Cr further strengthen the standalone order
Company Vs NIFTY book position, which provides strong revenue visibility (1.95x of TTM
155 revenue) going ahead. Advanced stage of overseas projects in transmission
KALPATPOWR NIFTY
will help to register strong revenue growth of 20% in FY17. Considering the
145 railway ministries ambitious target, we see tremendous growth opportunity for
135 the company like KAPLATPOWR. Based on the recent order win, especially
from Railway we have revised our target price to Rs.350 (Standalone
125
business at 290 per share and Subsidiaries at 60 per share) and we
115 recommend HOLD on the stock.
105
Financials Q3FY17 Q2FY17 Q3FY16 YoY % QoQ %
95 Sales 1158 1143 899 29% 1%
Dec-16
Jun-16

Oct-16
Nov-16
Jul-16
Apr-16

Sep-16

Feb-17
Mar-16

Mar-17

EBITDA
Jan-17
Aug-16

119 122 90 32% -2%


May-16

Net Profit 47 58 28 68% -19%


Sandip Jabuani EBIDTA% 10.3% 10.7% 10.0% 30 bps (40 bps)
sandip.jabuani@narnolia.com PAT 4.1% 5.1% 3.1% 100 bps (100 bps)
Narnolia Securities Ltd 14
Please refer to the Disclaimers at the end of this Report
BUY
J.Kumar Infraprojects Limited 3-Apr-17

Result Update BMC Blacklisting will not hurt Revenue and Profitability
CMP 260 BMC has issued show cause notice to JKIL for irregularities in execution of
Target Price 330 three projects namely I) W 266 -concreting of various roads in western
Previous Target Price suburbs II) W 277 improvement of side strips of linking roads in mastic
Upside 27% asphalt in H/W and K/W wards in western suburbs III) AW 90- improvement
of various roads in Asphalt in P/N ward in western sunburns. These projects
Change from Previous
were awarded by Municipal Corporation of Greater Mumbai (MCGM) to the
Joint Venture of J Kumar and KR construction. If the liabilities are crystallized
Market Data than JV has to pay penalty of 19 Cr, 1Cr and 1 Cr respectively and
BSE Code 532940 cumulatively J Kumars share will be 10 Cr. Further the same can be
NSE Symbol JKIL recovered from the sub-agencies to whom work has been given for the
52wk Range H/L 303/105 execution. So we assume there could be minimal impact on bottom line.
Mkt Capital (Rs Cr) 1,967 Around 70% of the current order book contribute by Metro projects and rest
Av. Volume 172674 from Road projects but very minimal orders from BMC. So we believe it will
Nifty 9174 not impact execution and order inflow going ahead. So we remain bullish on
the stock despite BMC issue.
Stock Performance
1Month 3 Month 1Year Key Growth Driver:- Mumbai Metro projects
Absolute 15.8 26.8 -5.1 Mumbai metro projects are continue to be a growth driver for the JKIL for
Rel.to Nifty 13.3 14.7 -23.6 next 3-4 years. The unexecuted work on all 3 Mumbai metro projects
contributes nearly 67% to current order book. All the initial ground work is
Share Holding Pattern-% completed and we expect full swing in execution and management is
confident to complete significant portion of line 2A and 7 by FY19.We expect
3QFY17 2QFY17 1QFY17
Rs. 1275 Cr of revenue from 3 Mumbai metro projects in FY18, around
Promoters 44% 44% 43%
Rs.1000 Cr revenue from line 3 only in FY19 and Rs.770 Cr of revenue from
Public 56% 56% 57% line 2A & 7 in FY19. This will not only support the better revenue growth but
Others 0% 0% 0% also strengthen the operating margin as the metro projects have better
Total 100% 100% 100% margin compare to normal road projects.

Company Vs NIFTY
Strong Order Pipeline :-
130 JKIL NIFTY
Around Rs. 10000 Cr of new metro projects in state of Maharashtra will be
110
bided out in next 1-2 years. JKIL will bid for the Mumbai metro line 2B and 4,
90 total of 10 packages of 500 Cr each, tunnel work of Mumbai- Pune
70 expressway, Mumbai- Nasik expressway, Vijayawada and Bangalore metro
projects. But JKIL will go slow in terms of new order acquisition in order to
50
focus on execution.
30
Financials Q3FY17 Q2FY17 Q3FY16 YoY % QoQ %
10 Sales 369 310 310 19% 19%
Jul-16

Sep-16

Feb-17
Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16
Mar-16

Mar-17

EBITDA 63 56 57 11% 13%


Net Profit 27 23 24 13% 17%
Sandip Jabuani EBIDTA% 17.1% 18.2% 18.3% (120 bps) (110 bps)
sandip.jabuani@narnolia.com PAT 7.2% 7.4% 7.7% (50 bps) (20 bps)
Narnolia Securities Ltd 15
Please refer to the Disclaimers at the end of this Report
Mangment/ Concall Highlights:-

Will Maintain top line of 1600 Cr in FY17 and Rs. 2000 Cr in FY18
Employee expense has gone during the quarter as the JKIL has started metro project in big way and full fledge revenue yet to
come
Preliminary work has completed on Mumbai metro project and work is in full swing
Debtors of 563 Cr at the end of the Q3FY17, but has come down to 440 Cr in Feb
Inventory at the end of Q3FY17: - 106 Cr of RM, 280 Cr of WIP
Protest by localized people against tree cutting but its awarding authority concern and it will not hamper execution.
Advances of 125 Cr has taken from line 3 & 7 and in month time advances will receive from line 2A
Payment cycle for Mumbai metro project is 45 days from date of bill raised
No significant revenue during the Q3FY17 from JNPT project due to utility work is going on
Mgt. expects 200-250 Cr of revenue from Mumbai metro, 200 Cr from other road and flyover projects
Pending work on Delhi metro is tune of 250 Cr at the end of the Q3FY17
Unexecuted portion of JNPT road project is 1050 Cr
Utility revenue of 30 Cr was booked from JNPT road project in Q3FY17
480 Cr of Debt as on 31st Dec 2016
FY18 Top line :- 1300-1400 Cr from Mumbai metro, 400 Cr from JNPT, 200 cr from others
Will maintain 17-18% EBITDA margin going forward
Debt FY17:- 350-400 Cr, FY18 :- 500-550 Cr
Current Working capital days is 174 and expect to bring down to 160 days
1000 Cr of revenue from Line 3, 700-800 Cr of revenue from line 2A &7 in FY19

View and Valuation::-

Strong order book and execution of Mumbai metro projects boosted revenue in Q3FY17and we expect it to continue. We believe
that the black listing from BMC projects and penalty will not affect the top and bottom line of the company in bigger way as 70% of
current order book is comes from metro projects. The current downfall in stock price is irrational and we believe it is the opportunity
for the investors. We continue to expect 9%, 20% and 27% revenue growth in FY17, FY18 & FY19 respectively based on the strong
order book and robust execution of Mumbai metro projects. Despite blacklisting from BMC projects we remain bullish on the
stock and maintain our BUY rating on the stock with unchanged target price of 330.

Mumbai Metro Projects Details


Metro projects Lenghts(Km) Value Strech Execution Period Type Agency
Line 2A 18.6 1350 Dahisar to DN Nagar 30 Months Elevated DMRC
Line 3 9.2 5001 Dharavi - International Airport 54 Months Underground MMRD
Line 7 5.9 360 Andheri (E) - Dahisar (E) 30 Months Elevated MMRD

Narnolia Securities Ltd 16

Please refer to the Disclaimers at the end of this Report


About the Company :-

J. Kumar Infraprojects Limited is engaged in construction activities. The Company designs and constructs roads, bridges, flyovers,
subways, over bridges, skywalks and railway terminus/stations, among others. The Company's offerings in civil construction
segment include office/commercial buildings, sports complexes and swimming pools. In Irrigation Projects segment, the Company
builds dams, canals, aqueducts and irrigation tanks, and spillways. The Company has approximately 20 hydraulic piling rigs, which
are used to build pile foundations for buildings and flyovers, marine structures and offshore platforms. Its Piling segment caters to
various real estate and infrastructure companies. The Company's projects include Underground Metro CC-24, Delhi Metro Tunnel,
Ahmedabad Metro, Balewadi Bridge and Dhankawadi Flyover. Its other projects include Kapurbawadi Flyover, Kherwadi Flyover,
Amarmahal Flyover, Amarmahal Flyover, Thakur Flyover, Bhivandi Flyover and Aurangabad Flyover.

JKIL

Transporation Eng. Civil Construction Irrigation Others

Roads Terminus/Stations Earthen Dams Micro Pillings


Flyover Buildings Minor Irrigation Tank Micro Tunneling
Bridges Sports Complexes Spillways Ready Mix Concrete
Skywalk Swiming Pools Canals
GradeSeparator Aqueducts
Pedstrain Subways
ROBs/RUBs
Strom water drainage

Key Clinets

Vidharbh Irrigation
DMRC,MEGA, UPRNN, MCX, Development,
PWDs, Indian Pimpari Irrigation HCC,HDIL, Punj
MSRDC, MMRD, M
railway Division, Bambla Lloyd, JSW, LANCO
CMG
Canal Division

Narnolia Securities Ltd 17

Please refer to the Disclaimers at the end of this Report


Quartely Performance 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY% QoQ%
Net Sales 296 297 393 355 322 299 390 391 303 363 21% 20%
Other Operating Income 5 7 10 9 9 11 13 13 7 6 -41% -2%
Net Sales 300 303 403 364 331 310 404 403 310 369 19% 19%
Change in Invenotry 5 17 7 26 18 12 (1) 32 6 23 1 3
RM Cost 169 156 240 218 196 171 247 246 190 220 28% 16%
COGS 173 173 246 244 215 183 247 279 195 243 33% 24%
Employee Expenses 17 18 23 17 18 21 24 19 22 31 49% 38%
Other Expenses 26 27 40 20 21 33 44 21 23 20 -39% -13%
Labour Exp 22 26 26 16 17 16 26 17 13 12 -25% -6%
Total Expenditure 238 244 335 296 271 253 341 335 253 306 21% 21%
EBITDA 62 60 68 67 60 57 63 68 56 63 11% 12%
Depreciation 12 12 13 12 13 13 13 13 13 14 12% 8%
EBIT 50 47 55 55 47 44 50 55 43 49 11% 13%
Intreset 18 18 23 19 16 13 14 18 17 15 21% -11%
PBT 35 31 38 38 34 34 45 43 32 40 15% 25%
Tax 15 7 10 12 12 11 16 13 9 13 24% 49%
PAT 20 24 27 26 22 24 29 30 23 27 11% 15%

Margin Profile 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 YoY (+/-) QoQ (+/-)
Gross Margin 42.3% 43.0% 38.8% 33.0% 35.1% 40.9% 38.9% 30.9% 37.0% 34.2% (670 bps) (280 bps)
EBIDTA 20.8% 19.7% 16.9% 18.5% 18.1% 18.3% 15.7% 16.9% 18.2% 17.1% (120 bps) (110 bps)
EBIT 16.7% 15.6% 13.7% 15.1% 14.3% 14.2% 12.4% 13.6% 13.9% 13.2% (100 bps) (70 bps)
PAT 6.7% 7.9% 6.8% 7.1% 6.6% 7.7% 7.1% 7.3% 7.4% 7.2% (50 bps) (20 bps)

Growth YoY
Sales Growth 27% 11% -11% 8% 10% 2% 0% 11% -6% 19%
EBIDTA Growth 45% 19% -7% 11% -4% -5% -7% 1% -6% 11%
EBIT Growth 44% 14% -10% 9% -6% -7% -9% 0% -9% 11%
PAT Growth 15% 21% -13% 13% 8% 0% 5% 14% 5% 11%

Operating Matrix FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 YoY% Q3FY16 Q3FY17 YoY%
Opening Order Book 737 1219 1480 1266 2512 3661 3122 3024 -3% 3658 10000 173%
Revenue Booking 365 723 878 879 955 1146 1285 1328 3% 310 369 19%
Order Intake 847 984 664 2125 2104 607 1187 1518 28% 32 0 -100%
Closing Order Book 1219 1480 1266 2512 3661 3122 3024 3214 6% 3380 9700 187%

Strong revenue growth of 19% in Q3FY17 was on account of work commencement on Mumbai metro projects.
JKIL will slow and selective in terms of new order intake in order to focus on execution. Management has guided for Rs.2000 Cr
of new order inflow for the next year to maintain 10000 Cr + order book.

We anticipate healthy operating margin in range of 16-18%, margin depend on revenue mix (tunnel work has better margin comparatively)

Narnolia Securities Ltd 18

Please refer to the Disclaimers at the end of this Report


Robust Order book :-

Order Book Growth %


JKIL will go slow in terms of

10,000

9,700
12000 2.5

8,646
10000 2 new order intake to focus
8000 1.5 more on execution. Avg.
order intake will be in

3658.3
6000 1

3,380
2915.4

3,214
3198
3100

3024
4000 0.5 range of Rs.2000 Cr in
2000 0
order to maintain 10000 Cr
0 -0.5
plus Order book

Quarterly Sales Trend :-

Sales Growth %

450 30%
393 390 391
400 355 369 25%
350 322 20%
296 297 299 303
300 15%
250 10%
200 5%
Mumbai metro projects
150 0%
100 -5% will drive the revenue
50 -10% growth going ahead
- -15%

Order Book Break up:-


Line 3

Line2 A

1,506 Line 7

449 Delhi Metro


324
NH-348 and Amra Marg
372 (JNPT Road )
4,852
Gavanphata interchange
284 (JNPT Road)
Karalphata interchange
254
(JNPT Road)
338 Kurla to Vakola flyover
1,301
Others

Healthy Debt to Equity position with strong Intreset covarge ratio:-


D/E Intreset Coverage Ratio

4.00
3.58 3.52
3.50 3.23
2.97
3.00 2.65
2.50 D/E will remain strong
2.00 in range of 0.25 to 0.38
1.50
1.00 0.80
0.55
0.33 0.42
0.50 0.25
-
FY12 FY13 FY14 FY15 FY16

Narnolia Securities Ltd 19

Please refer to the Disclaimers at the end of this Report


Financials Snap Shot
INCOME STATEMENT RATIOS
FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Revenue 1409 1537 1866 2372 EPS 14 15 17 25
Other Income 18 29 23 23 Book Value 170 182 195 216
Total Revenue 1426 1566 1889 2395 DPS 2.0 2.2 2.4 3.6
EBITDA 248 267 341 438 Payout (incl. Div. Tax.) 15% 15% 15% 15%
EBITDA Margin (%) 18% 17% 18% 18% Valuation(x)
Depreciation 51 60 89 85 P/E 20.2 20.1 21.5 18.6
EBIT 197 207 252 353 Price / Book Value 1.6 1.6 1.8 2.1
Interest 61 69 88 99 Dividend Yield 1% 1% 1% 1%
PBT 154 167 187 276 Profitability Ratios
Tax 51 55 62 91 RoE 8% 8% 8% 11%
Tax Rate (%) 33% 33% 33% 33% RoCE 12% 12% 12% 16%
Reported PAT 103 112 125 185 Turnover Ratios
Dividend Paid 15 16 18 27 Asset Turnover (x) 0.7 0.7 0.8 0.9
No. of Shares 8 8 8 8 Debtors (No. of Days) 77 102 102 102
Inventory (No. of Days) 126 100 100 100
Creditors (No. of Days) 30 30 30 30
Net Debt/Equity (x) 0.25 0.29 0.37 0.38

BALANCE SHEET CASH FLOW


FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Share Capital 38 38 38 38 OP/(Loss) before Tax 154 167 187 276
Reserves 1245 1338 1441 1594 Depreciation 51 60 89 85
Net Worth 1283 1376 1479 1632 Direct Taxes Paid 43 55 62 91
Long term Debt 29 13 73 73 Op. befor WC Change 249 267 341 438
Short term Debt 294 380 470 550 CF from Op. Activity 64 164 141 161
Deferred Tax 17 17 17 17 Non Current investments 0 0 0 0
Total Capital Employed 1312 1389 1552 1705 Capex 55 75 300 60
Net Fixed Assets 497 512 724 698 CF from Inv. Activity (226) (122) (252) (38)
Capital WIP 68 68 68 68 Repayment of LTB (75) (16) 60 0
Debtors 296 430 522 664 Interest Paid 61 69 88 99
Cash & Bank Balances 174 185 116 113 Divd Paid (incl Tax) 16 20 22 33
Trade payables 114 124 151 192 CF from Fin. Activity 171 (18) 40 (52)
Total Provisions 25 25 29 63 Inc/(Dec) in Cash 9 23 (71) 71
Net Current Assets 762 827 896 1079 Add: Opening Balance 20 174 185 116
Total Assets 1965 2144 2477 2783 Closing Balance 29 197 114 187

Narnolia Securities Ltd 20

Please refer to the Disclaimers at the end of this Report


Initiating Coverage 30 March 2017
Sector: Packaging Films

Advance Strategy. Simple Solutions COSMO FILMS LTD

LEADING THE GROWTH

Narnolia Securities Ltd 17


COSMO FILMS LTD

Contents : Cosmo Films Limited

Ready for a New Growth Phase: Key Growth Drivers...3

Outlook & Recommendation......4

Capacity Expansion in BOPP to push growth...5

Focus on growing share of Speciality films : Era of Innovations......5

New BOPP Line a cost effective one: To Boost Margins..6

Improving Financial Picture and Return Ratios: A Futuristic picture.......6

Fair Pricing power with almost no commodity risk..7

Well Diversified product portfolio and markets...7

Healthy Dividend Yield with consistant payout....7

Expected turnaround in US business......7

Industry Structure & Demand Scenario : Global & Domestic......8

Cosmo's Business Matrix....10

Financials & Valuations.12

Comparison with Key Industry Players14

Key Risks to Earning Projections..15

Disclaimer..15

Narnolia Securities Ltd


18
Initiating Coverage/Packaging Films 31-Mar-17
COSMO FILMS LIMITED CMP : 377 BUY TP: 490 (+29%)

Target Price
Cosmo is a leading manufacturer of BOPP ( Biaxially Oriented
CMP 380 Polypropylene) films in India with a 20% market share. It provides cost-
Target Price 490 effective innovative packaging solutions to leading FMCG & global brands.
Previous Target Price - Company was first to manufacturer BOPP film in India. Now its products
encompass newer categories of valued added products viz: Thermal,
Upside 29%
Coating, Metalizing films besides the traditional BOPP films. Cosmo is the
Change from Previous - larget manufacturer of value added thermal films in the world with 15%
market share. It has diversified portfolio of marquee clients which like
Market Data Britannia, Cadbury, Colgate, Cipla, ITC, Parle, UB, Uniliver etc. Cosmo has
wide manufacturing footprint with 4 state of the art mfg. units in India and 2
BSE Code 508814
outside,one is situated in US and another in South Korea. Cosmo's
NSE Symbol COSMOFILMS consistent efforts towards itroducing innovative products has put it in a
52wk Range H/L 431/262 different categary of film maker with highest margins among industry peers
Mkt Capital (Rs Cr) with commanding industry size.
740
Av. Volume READY FOR A NEW GROWTH PHASE ... Key Growth Drivers
69931
Nifty 9,144 Cosmo has expanded its capacity in BOPP films by 60000 mt from 136000
mt/annum to 196000 mt/annum (44% increase), which is going to be the next
Stock Performance growth driver for the company.
1Month 1Year YTD Current positioning of BOPP film indust players augurs well, as there is no
Absolute 5.2 15.4 40.4 overcapacity in the industry at present and almost all the capacities in India
running at 100% utilisation level. Increasing demand of BOPP to boost
Rel.to Nifty 3.5 2.8 23.2
growth in the industry as demand for BOPP is expected to grow at 15% p.a.
Share Holding Pattern-%
3QFY17 2QFY17 1QFY17 In recent years, with launch of value added newer and speciality products
Promoter 43.5 43.5 43.5 through innovations, Cosmo has positioned itself as a leader among its peers
through growth in sales with sustainable high margins vs peers..
Public 56.5 56.5 56.5
Others -- -- --
Total 100.0 100.0 100.0 New BOPP line which has commisioned from Feb 2017, to boost margins
in BOPP film segment as new line is cost effective through higher production
Company Vs NIFTY with lesser manufacturing cost vs its existing line..
160 COSMOFILMS NIFTY Cosmo's focus to increase share of value added films in its total product
160
150 COSMOFILMS NIFTY portfolio will augur well for the company in long run. By FY16 end, share of
150
140 value added films in total reveue was 49%, improved from 40% in FY14. In
140
130 volume terms speciality films contributed 40% in FY16. Management has
120
130 targeted 50% volume from speciality films in long run.
110
120
100
Cosmo has been working upon to improve its balance sheet and financial
110
dynamaics in the past, which has given favourable results. Cosmo has
90
100
positioned itself best financially structured player among its peer which will
80
90
offer benifits in future and comfortable investment opportunity for investors.
Jul-16Jul-16

Sep-16

Feb-17
Jan-17Jan-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16
Apr-16
Mar-16

Mar-17

80
Sep-16

Feb-17
Dec-16
Jun-16

Aug-16
May-16

Oct-16
Nov-16

Cosmo is well poised to grow its sales and profitablity with changing
Apr-16
Mar-16

Mar-17

consumption pattern and increasing demand for flexible packaging, which will
enhance capacity utilisation in Speciality and new added BOPP line, thus
benefit of operating leverage will arise.
Anurag Arora
anurag.arora@narnolia.com
Narnolia Securities Ltd3 19
o the Disclaimers at the end of this Report

OUTLOOK & RECOMMENDATION


Rs. In crore
Financials FY15 FY16 FY17E FY18E FY19E
Commisioning of new added BOPP capacity will
Sales 1647 1621 1715 2276 2461 boost much awaited sales growth for the company.
EBITDA 104 191 183 285 314 Also added capacity will give company cost
EBIT 70 156 144 234 263 advantage from the new line which is more efficient
PAT 28 96 95 155 169 and productive vs older line, which will add to
EBIDTA% 6.3% 11.8% 10.7% 12.5% 12.7% margins. Though initially in coming 3-4 quarters there
PAT % 1.7% 5.9% 5.5% 6.8% 6.9% will be contraction in margins, largely due to higher
revenue share of BOPP films with lesser margins vs
speciality films which has higher margins, according
Ratios FY15 FY16 FY17E FY18E FY19E
to management. We believe margins within BOPP
film and overall profitability of company will see major
EPS 14 50 49 80 87 boost with the enhanced sales from the new capacity.
BV/Share 196 235 269 325 381 Cosmo's focused strategic target of maintaining
P/E 5 6 9 7 8 revenue share of speciality films at 50% will augur
P/B 0.4 1.2 1.6 1.7 1.8 well in the longer term.
EV/EBITDA 3.5 3.8 6.1 4.4 4.5
At CMP of 380/- stock is available at 1.4x FY17,
EV/SALES 0.22 0.45 0.65 0.55 0.57
1.15x FY18 and 1.0x FY19 expected book value.
ROE 7.3% 21.1% 18.2% 25% 23% With growing and sustainable margins, we believe
ROCE 11.3% 22.9% 16.3% 26.1% 28.4% company to post healthy ROE of 24+% and 23% in
ROA 2.6% 8.4% 6.7% 10.1% 10.4% FY18 & FY19 respectuvely, improve significantly from
D/E 1.1 0.8 1.0 0.7 0.5 21% delivered in FY16. We believe Cosmo is well
ATO 1.5 1.4 1.2 1.5 1.5 positioned to see a major rerating once company start
Sales/WC 9.5 11.4 11.3 12.5 12.7 delivering sales from new capacity with improved
Payout 25% 20% 25% 25% 30% margins and profotability. keeping in mind above all
positives, we initiate "BUY" on the stock with price
target of 490/- and 570/- for FY18 & FY19
respectively, valuing stock at 1.5x and 1.5x of its
FY18 & FY19 respective expected book value.

INVESTMENT RATIONALE: KEY POINTS

CAPACITY EXPANSION IN BOPP TO PUSH THE GROWTH FORWARD

To cater to the growing demand of BOPP film, Cosmo has undertaken capacity expansion in its BOPP line situated at Baroda
plant. Cosmo has enhanced its BOPP capacity from 136000 mt /annum to 196000 mt /anuum, an increase of 44% and 60000
mt/annum. Currently company's BOPP capacity was running at full utilisation. Now with this new BOPP line, which has been
commisioned now from Feb 2017, Cosmo is set to realise next level of growth through sales from new BOPP line. As per
management, at full utilisation level, new line will add upto 600 cr to the topline, which is a significant revenue increase. Also
Cosmo has increased its metalised films capacvity by 7200 MTPA, which will increase revenue in speciality film segment.

Narnolia Securities Ltd 20


As management has indicated, this line may get upto 100% utilisation level within 5-6 months of its commisioning. Though FY17,
will not see any big upmove in sales, FY18 onwards company to see big jump In sales its BOPP film segment, which In our view
may see 30%+ growth in FY18 and 8-9% revenue growth in FY19. This expansion will give major boost to company's aspiration to
become $1bn company by 2020, targeted by management. With this new expanded capacity, Cosmo has become neck to neck
player with the existed largest player in BOPP segment, which has capacity of 210000 mt/annum, giving Cosmo enough
competetive edge in terms of capacity.
FOCUS ON GROWING SHARE OF SPECIALITY FILMS IN PRODUCT PORTFOLIO- "ERA OF INNOVATION"

Cosmo films has not only grown as a Key BOPP Player within the
country with 20% market share and became the largest exporter of
BOPP film from India, also it has been able to sustain as a value
added player with launching new innovative packaging film
products through focus on R&D and technology. Now Cosmo's
value added films contribute 49% to its revenue in FY16, grown
from 40% in FY14. In value terms, speciality films now contribute
almost 40% to the total volume. In traditional commodity (BOPP)
films, industry is competetive and one could not enjoy edge over
others as prices are largely dependent on prices of homopolymer,
(key raw material) ,a derivative of crude oil; However unlike other
BOPP players, Cosmo has been able to position and prove itself
as a value added high margin packaging film player, through
consistant innovations and R&D, providing Cosmo, big comfort on
margins, generating above normal returns on shareholder's equity.

HIGH MARGINS IN VALUE ADDED SPECIALITY FILMS

70%
Continious focus on R&D and introduction of value added
speciality films has helped company to position itself from a
60%
commodity film maker to value added industry player, which has
been helping company to sustain its gross margin to higher level
50%
Speciality Vs. its industry peers.. Gross margins of the company has
films improved consistantly over years and company has been able to
40%
sustain its margins even in the adverse quarters at much higher
BOPP levels through increasing revenue share of speciality films.
30%

20% GM %
According to management, value addition in normal BOPP films is
Rs.25-50 on PPE (Raw material) prices, whereas in Speciality
10%
films, value addition is upto Rs.90-100, which improves overall
0% margins significantly.

FY14 FY15 FY16 FY17E Due to higher share of value added films, Cosmo's gross margins
has seen significant jump from 30-32% to 38-40% from FY13 to
FY16.

Cosmo's consistent focus on R&D is giving it space to grow higher vs its peers and a reason for outperformance in adverse and
difficult times when industry is depressed.. It is evident from the fact that Cosmo has been able to deliver above average industry
margins in after FY12, when industry was going through the phase of overcapacity, low demand and adverse commodity cycle.

Though management has indicated for comparatively lower gross margins initially after commisioning of new BOPP line, they are
also confident of achieving 50% revenue contribution back from speciality films, and 50% volume (slightly longer term target),
which will give boost ROEs of company in longer term. Till date, Speciality films capacity is running at 60% utilisation on name
plate capacity and they according to them, this is enough for next one year. After achieving 70% utilisation on name plate
capacity.(considered 100% when 70% on name plate capacity).

Narnolia Securities Ltd


21

NEW BOPP LINE A COST EFFICIENT ONE: TO BOOST MARGINS

The new BOPP line added by Cosmo at its Vadodara Plant with the cost of INR 2 bn (80% finance by debt and 20% by internal
accruals) has started commercial production from Feb 2017. Based on the management guidance, this new line at its peak
production will add approx. 6 bn to the topline. Also management is confident of achieving full utilisation within 5-6 months from
start of commercial operations.

Sales gross Profit EBITDA Gross % EBITDA% This new line will have 10.4 mtr width line. Currently, maximum 8.6
mtr width line is available in Indian films industry. On account of
3000 45% higher width line, management has indicated there will be
42% 41% 42%
40% substantial reduction in per unit power consumtion and also
2500 37%
35% wastage during production process. Management expects
32% electricity consumption of new line to be 30% lower as compared
2000 30% 30%
to the current most efficient line of Cosmo Films. The new line is
25%
1500 likely to reduce cost of production by Rs. 3./kg from the cost it
20% currently incurs. Around 1 cr. savings on the electricity side could
1000 15% be seen with this new line, every quarter. Management expects the
12% 13% 13% new line will play critical role in improvement in EBITDA margins.
11% 10%
500 7% 6% 5%
We strongly believe, with this line Cosmo will not only be able to
0 0%
achieve sales growth, also it will be able to command and sustain
FY14 FY15 FY16 FY17E FY18E FY19E higher gross and EBITDA margins, outperforming industry.

IMPROVING FINANCIAL PICTRURE & RETURN RATIOS: A HEALTY FUTURISTIC PICTURE

On the back of strong product portfolio consisting high magin speciality films, higher bargain power, Cosmo has been able to
generate healthy operating cash flows, resultant recuction in gross debt level over year. Cosmo has stengthened its financial
health through improved balance sheet. Continious reuction in Debtor, Inventory days lead to overall reduction in working capital
requirement. This had an effect of generating higher FCFF, Return on equity and Return on capital employed, resultant value
creation for business and investors.
14.0 60

12.0
50
10.0
40
8.0

30
6.0

4.0 20

2.0 10

0.0
0
FY15 FY16 FY17E FY18E FY19E
FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Interest Coverage Ratio Working Capital Turnover Ratio Debt/Equity Debtors Days Investory Days Payable Days

30.0% Cosmo's Interest Coverage Ratio has improved significantly from


20.0% 1.8 in FY15 to 5.2 in FY16 and expected to be 8.4 till by FY19 end.
It's Debt to equity to improve from 0.75 in FY16 to 0.48 by FY19
10.0% end. Working Capital to turnover ratio has improved from 9.5 in
0.0% FY15 to 11.4 by FY16 and expected to imptove further to 12.7 by
FY19. Cosmo's ROCE & ROE to show the same picture of
-10.0% FY14 FY15 FY16 FY17E FY18E FY19E
improvement from FY15 continiously over long term as shown in
Return on capital employed Return on Equity graph.

Narnolia Securities Ltd


Narnolia Securities Ltd
22

450 10.0
400 9.0 Cosmo's improved financial health has helped
8.8
7.9 8.0 creating value for investor by enhancing its book
350
6.9 7.0 value per share, which was 196 and 235 in FY15 &
300
6.0 FY16 respectively, and further expected to reach
250 5.4 5.6
5.0 380+by FY19, thus registering CAGR of 18%.
200
4.0
150 3.0
100 2.0 On the back of improved CFO, ROE, ROCE and
1.6 1.7 1.8
50 1.2 1.0 Asset Turnover Ratio, We strongly believe the stock
0 0.4 0.0 to rerate going forward. Its P/B ratio and Price
Earning ratio is expetced to rerate going forward as
FY15 FY16 FY17E FY18E FY19E
shown in the chart.
Book Value Price/Book Price/Earning

FAIR PRICING POWER WITH ALMOST NO COMMODITY RISK

Polypropelene which is by product of petrochemical industry is a key raw material for the company with a strong co-relation with
crude prices. The relationship is not leniear with less volatility, however the trend in the price movement of PPE is similar too that
of the crude prices. There are about 4-5 domestic suppliers of PPE, and largest is Reliance Industries. Management commented
that sourcing of this raw material is mainly done through a major private Oil & Gas refinery company. Nominal rebate and
favourable terms are offered to the buyers of PPE who buy PPE in bulk form these suppliers.

Also there is transparent index globally known as PLATT index, which releases prices of PPE every fortnightly. Suppliers of PPE
use this data for price identification and post this they supply PPE to domestic BOPP film producers with applicable rebate
structure as discussed with each BOPP manufacturer. Cosmo films in turn revise its price list on the same day for all its
cusotmers. THis practice is followed by the entire BOPP industry in India. This there is no or minimal commodity pricing risk for
the companies and any fluctuations in te prices of PPE is fully passed-on to the customers.
WELL DIVERSIFIED PRODUCT PORTFOLIO AND MARKETS

Cosmo is fairly immune to the risk related to mamcro-economic environment of a particular country as it has strategically
diversified its presence into 80 countries across the world. It does not have exposure of more than 4% of total turnover to a
particular country except for US. Company will face minimal impact from Brexit, either directly or indirectly (through forex
fluctuations) owing to raw material imports, which nullify and provies a natural hedge for the same, as Cosmo's valu added films
contributes almost 50% of the total turnover till FY17.
HEALTHY DIVIDEND YIELD WITH CONSISTENCY IN PAYOUT

Cosmo has long history of sharing its profits with the investors in form of dividend. Cosmo has been sustaining its dividend payout
in the range of 20-30% depending on the capital which company needs from time to time for expansion and other capital needs.
At CMP Cosmo's stock price offering 3% dividend yield as distributed by the company for FY16, providing investment opportunity
with healthy dividend yield on the invested capital.

EXPECTED TURNAROUND IN US SUBSIDIARY TO HELP AVHIEVING BETTER CONSOLISATED RESULTS

In FY15, Cosmo incurred a loss of $5mn in its US subsidiary and this got reduced to $2.2 mn in FY16. Of this loss in FY16, 50%
was booked in only Q1FY16. Though the whole picture of US operations is not very rosy in FY17 despite serious steps taken by
the company for turning it around through restructuring of business and launching of newer value added products epciality for US
markets, Management has guided for much better numbers and break even of US business by FY18. Cosmo is working for
making US business cost efficient through manufacturing new value added producs in US. In past, US business loss was mainly
attributed from forex losses incurred by the US Subsidiary. We believe US break even will give major boost to company's
consolidated performance which has been a drag on stock price since long, leading to rerating of stock in near future.

Narnolia Securities Ltd


Narnolia Securities Ltd

23

INDUSTRY STRUCTURE & DEMAND POSITIONING: GLOBAL & DOMESTIC

The Size of global packaging industry is $700 bn and that of India is at $ 32bn. Te size of global packaging industry is expected to
see a CAGR of 7.5% to $ 1tn over FY15-20. Indian packaigng industry is expected to reach $73bn, to be more double over the
same period.
Both organised and unorganised industry are established in Indian Packaging industry, and also giving intense competetion to
each other.
Indian Packaging industry is divided into rigid and flexible packaging. Rigid is expected to grow at 15% whereas flexible
packaging is expected to grow at 25% annually, thereby gaining share from rigid packaging.
Growing consumption of packaged food, FMCG, personal care and other packaged products in level in Tier II and tier II cities
leading to uge demand and growth for flexible packaging. The continious improvement in lifestyle and per capital income level will
aid significant benifit to flexible packaging industry over medium to long term.
FLEXIBLE PACKAGING TAKING ON RIGID PACKAGING: BOPP EDGE

EXCELLENT CLARITY LOWEST DENSITY

Better Aesthetic Hig Gloss Higher Yield


CHEMICAL INERT BARRIER TO MOISTURE
LOW MELTING POINT &

Better Shelf Life(perishable goods) Fully Recyclable


Suitable for Food & Pharma

250000 DOMESTIC INDUSTRY SIZE

200000
Currently Indian BOPP Industry total production capacity is 560000
MTPA. Jindal Polyfilms is the largest player with total production
150000
capacity of 210000 MTPA. After recent expansion with total
196000 MTPA capacity, Cosmo has become neck to neck player
100000 with JindalPoly.
There is balance prevailing amongst players unlike 2011-2012,
50000 where there was sudden increase in supply on account of
substantial capacity expansions by all major players in industry at
same time.
0
With the growing demand of BOPP films over years, these excess
Jindal Poly Cosmo Max Polyplex Nahar Poly SRF
Films Speciality Polyster capacities of those time got absorbed now and almost all the
BOPP players are running at 100% utilisation currently.
DOMESTIC DEMAND SCENARIO FOR FLEXIBLE PACKAGING

The Indian Food & Beverage industry has nearly 25% yearly growth and major application of plastics in food products is in
packaging. Thus growth in food and beverage sector highlights the growth potential for plastics in packaging. Similarly, personal
care sector, which is growing at nearly 15%, will also drive demand for rigid plastics, as it is the most used material for packaging
of personal care products. Other industrial sectors such as, pharmaceutical that is proposed to grow at 13-15% over next five
years, retail industry, that is currently witnessing the shift from unorganized to organized retail; will also stimulate the demand of
plastic in packaging material. Government's current campaign on "Make in India" which aims to turn the country into a global
manufactruing hug will have positive impact on the growth packaging industry.

Narnolia Securities Ltd


24
KEY GROWTH DRIVERS FOR FLEXIBLE PACKAGING INDUSTRY

CHANGING PACKAGING PATTERN FOR PRODUCTS TO BOOST INDUSTRY GROWTH

Products to be packed Conventional Packaging Current Packaging Trend


Milk Glass Flexible Pouches, Tetra packs
Beverage Glass, tinplate, aluminium PET Bottle, cans
Pharmaceuticals Paper, glass, aluminium, tinplate PVC, HDPE, blister, aluminium foils
Toothpaste Aluminium tubes Laminated tube, co-extruded tube
Soap Paper cartons Laminated carbons, BOPP/PE, PET/PE
Cosmetics Metal, paper HDPE, PP, Laminated tube
Shampoo Plastic bottle HDPE container, sachets
Fertilizer Jute Woven sacks
Shopping carry bags Paper, jute LDPE, HDPE
Edible Oils Tinplate containers Flexible pouch, laminates, co-extruded
Rice Jute bags BOPP coated bags
source: IBEF
Above changing packaging trend provides enough growth opportunities to expand and grow for BOPP and flexible packaging
industry in future.
STRONG GROWTH IN INDIAN FMCG SECTOR

Key Growth Drivers


Shift to Organised market
Rising income driving purchase
Greater awareness of products and brands
Increasing consumer demand
Availability of online grocery stores
Strong distribution channels
Growth of Modern Trade
Growing Rural markets
New Product launches
Evoliving consumer lifestyle
Desire to experiment with brands
Government reforms to encourage FDI inlow
Increase in penetration

KEY POINTS
Packaging is one of the fastest growing industries stands at $700
bn globally. It has grown higher than GDP in most of countries. In
developing countries like India, it grew at a CAGR of 16% in last
five years and touched $32bn in FY15.

The Indian Packaging contributes 4% of the global packaging


industry. The per capita packaging comsumption in India is low at
4.3 kg compared to developed countries like Germany and Taiwan
where it is 42 kg and 19 kg respectively. However in the coming
years Indian packaging industry is expected to grow at 18% p.a. ,
thus providing visibility and enough growth opportunities for the
industry. Within Packaging Flexible packaging will grow almost
twice the rate of rigid packaging. BOPP players will largely be
benifitted with the growing trend of flexible packaging.
industry. Within Packaging Flexible packaging will grow almost
twice the rate of rigid packaging. BOPP players will largely be
benifitted with the growing trend of flexible packaging.

COSMO'S BUSINESS MATRIX : STRENGTHS & WEAKNESSES

PRODUCT PORTFOLIO

PACKAGING FILMS LAMINATION FILMS LABEL FILMS INDUSTRIAL FILMS

1. Printing & Pouching Films 1.Dry Thermal Lam.Films 1.Pressure Sensitive Label stock 1. Pressure Sensitive films
2. Barrier Films 2.Wet Print Lam. Films Films 2. Tape & textile Films
3. Overwrap Films 2. Direct Thermal Printable Film
3. In-mould films
4. Wrap around label films
REVENUE SHARE AMONG PRODUCT CATEGARIES

70%
Chart showing export share over years Cosmo Films Limited is Pioneer of BOPP Industry in
60%
India and one of the global leaders and
50% manufacturers of BOPP Films. Company is also the
40% largest BOPP film exporter from India.
30%

20% Cosmo's healthy export share in overall topline is


evident of its product quality and strength. Company
10%
exports its products to more than 80 countries
0% worldwide.
FY12 FY13 FY14 FY15 FY16
Cosmo operates form its units in India, Korea and
Domestic share Exports share US. Korea facility completely caters to Japanese
market. Cosmo is in process of restructuring its US
subsidiary business by launching new products there.
Domestic share Exports share US. Korea facility completely caters to Japanese
market. Cosmo is in process of restructuring its US
subsidiary business by launching new products there.

SUBSIDIARIES(WHOLLY OWNED) INFORMATION CORPORATE GOVERNANCE: BOARD

CF Global Holdings Limited GK (CGHG) (Japan) Cosmo has fairly large Board with 3/4th number of
Cosmo Films (Netherlands) Cooperatief U.A independent directors on the Board with persons
CF (Netherlands) Holdings Limited B.V. having decent qualification and rich experience in
Cosmo Films Japan, GK different industry working..
Cosmo Films Singapore Pte Limited Mr. Ashok Jaipuria, Chairman & MD
Cosmo Films Korea Limited Mr. A.K Jain, Whole time Director
Cosmo Films Inc Mr. H.K Aggarwal, Independent Director
CF Investment Holding Private (Thailand) Company Mr. Rajeev Gupta, Independent Director
Cosmo Films Inc. (US) Ms. Alpana, Non Ecex. Non Independent Director
Mr. Ashish Kumar Guha, Independent Director
Mr. Pratip Chaudhary, Independent Director
Mr. H.N. Sinor, Independent Director
COSMO FILMS: HOW COMPANY OPERATES

Purchases Homopolymer (derivative of petrochemicals) as Source


Source from Reliance Industries, which updates
raw material for processing of BOPP & Speciality Films prices of homopolymer every fortnight or whenever
any sharp movement seen in crude oil.

Plants Manufacturing process across 6 plants. 4 situated in


Valur addition of Rs. 25-50 in making BOPP film India of which one located at Shendra (Aurangabad)
Value addition of Rs. 80-100 in making Speciality films is 100% export oriented Unit. One plant is in US and
one is in Korea.

Pricing Transparent pricing through Global PLATT Index


Sale of BOPP & Speciality products according to quality and which updates PPE Prices fortnightly, accordingly
pricing Cosmo pass on the price increase or decrease to
customers (Industry Practice)

Britannia, Cadbury, Parle, Cipla, Colgate, Conagra,


Clients
Garnier, ITC, Microsoft, Nokia, Nestle, Mars, Perfetti,
60% sales to domestic clients to well known brands and UB, Unilover, Reckitt Benckiser, Huhtamaki, Altea,
marquee clients Amcor, Printpack, Contanstia etc.

US business is done through Cosmo Films Inc. (US),


Subsy
40% sales goes to more than 80 countries worldwide with a wholly owned subsidiary.
major contribution from US and JAPAN. Not more than 4% Films manufactured in Cosmo Films Korea
sales comes from a single country expect US. Ltd(Korean Subsy)) get sold to Japan by CF Global
Holdings,GK, Japan (japanese Subsy)
METHODOLOGY OF CHECKING CAPACITY UTILISATION
`

In BOPP Industry in India and across globe, name plate ( a unit measurement) capacity is calculated based on 25 micron film
under standard 24 hour unit of production for 365 days. Based on customer requirements, Cosmo can produce different micron
films. If a company produces 70% of total name plate capacity, it is considered as 100% utilisation. In FY16, Cosmo has produced
100000 MT on a name plate installed capacity of 136000 MT. p.a., thereby implying a 100% capacity utilisation. Currently Cosmo
is operating at 72-73% utilisation on name plate capacity which is more than 100%, as guided by management.
In BOPP Industry in India and across globe, name plate ( a unit measurement) capacity is calculated based on 25 micron film
under standard 24 hour unit of production for 365 days. Based on customer requirements, Cosmo can produce different micron
films. If a company produces 70% of total name plate capacity, it is considered as 100% utilisation. In FY16, Cosmo has produced
100000 MT on a name plate installed capacity of 136000 MT. p.a., thereby implying a 100% capacity utilisation. Currently Cosmo
is operating at 72-73% utilisation on name plate capacity which is more than 100%, as guided by management.

FINANCIALS & VALUATIONS

Narnolia Securities Ltd


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28

Ratios

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29

COMPARISON WITH KEY INDUSTRY PEERS

35
25.0
Return on equity 30 EV/EBITDA comparison
20.0
25

15.0 20

15
10.0
10
5.0
5

0.0 0
201209
201212
201303
201306
201309
201312
201403
201406
201409
201412
201503
201506
201509
201512
201603
201606
201609

-5.0

Jindal Poly Cosmo Polyplex


Jindal Poly Cosmo Polyplex

1.4
1.8
Asset Turnover 1.2
1.6
Price/Book
1.4 1
1.2 0.8
1
0.6
0.8
0.4
0.6
0.4 0.2

0.2 0
0 FY13 FY14 FY15 FY16
1 2 3 4 5
Jindal Poly Polyplex Cosmo Jindal Poly Polyplex Cosmo

9
A quick look into comparison between Cosmo ans its
Return on Assets nearest listed industry peers suggest that Cosmo will
8
be able to command higher valutation vis a vis its
7 peers such as JindalPoly (Highest Capacity in BOPP)
6 and Polyplex.
5 Cosmo has highest ROE, Assets Turnover, ROCE,
4 Return on Assets and Book value in comparison to
Jindal Poly Films and Polyplex Corp. as shown here
3
in the respective charts, however its stock price
2 quoting at approx. similar valuations on EV/EBITDA,
1 EV/Sales and oter valuations parameters.
0
-1 FY13 FY14 FY15 FY16 With ROE to enhance further in FY18&FY19, with
Jindal Poly Polyplex operating leverage to come in play and higher
Cosmo margins management intent of consistently growing
share of value added films in total portfolio, We
-1 FY13 FY14 FY15 FY16 With ROE to enhance further in FY18&FY19, with
Jindal Poly Polyplex operating leverage to come in play and higher
Cosmo margins management intent of consistently growing
share of value added films in total portfolio, We
strongly believe Cosmo will be able to command
premium valutations in future.

RECENT DEVELOPMENTS TOWARDS FUTURE GROWTH

Cosmo Has recently acquired 34 acres of adjoining land available for sale close to its Waluj plant. Cosmo has entered into a
definite agreement to purchase this land, for which advance has been paid and deal will be concluded by FY17 end. This land is
acquired to target future growth plans of Cosmo. Management has guided that whatever the growth plans will be, it will be in
direction to create value addition in current portfolio. New land will only be used to either to add speciality film capacity or any
related value added project complementary to packaging business, of which company Cosmo possess knowledge.
KEY RISKS TO OUR EARNING PROJECTIONS

FOREX FLUCTUATIONS
Cosmo's almost 40% sales comes from the export markets. Cosmo has been incurring huge losses in the past due to adverse
currency movements. Cosmo is being exposed to USD/INR and USD/YEN . It sells its products in US and is exposed to USD/INR
fluctuation risk. Also It sells it products manufactured in Korean plant to Japanese local markets in yen and pays to Korean
Subsidiary in USD, thus exposed to cross currency fluctiation risk. Any future adverse movement may impact Cosmo's earnings.

THREAT OF NEW CAPACITY AND INCREASED COMPETETION


Though Cosmo's new capsacity addition will easily be get absorbed as Indian markets need 50000 MTPA additional BOPP film.
Also it takes 12-15 months for any additional capacity to come in the market and there is no expansion announced by any other
player in India till date, as per management, However any new capacity going forward may impact future sales growth in future.

PRICING RISK
As per management there is no raw material commodity risk as far as product pricing is concerned as any increase or decrease in
raw material is passed on to customers every time whenever PPE prices are updated through Global PLATT Index, however lots
of economic conditions play role in product pricing. Thus any delay in pass on of raw material price hike may hamper gross
margins for the short duration.
DELAY IN RAMP UP OF NEWLY EXPANDED CAPACITY
As per management , within 5-6 months of the commercial production start in new capacity, Company is hopeful of achieving
100% utilisation, however any delay in ramp up of utilisation may adversly impact our revenue and profit projections.

DELAY IN TURN AROUND OF US SUBSIDIARY


Management has guided for break even in US subsidiary's business by FY18 end, however any delay in earning turnaround in US
business may impact consolidated earnings in future.

Narnolia Securities Ltd

35
Country moves to Bharat Stage-IV Expected BS-III inventory

The Supreme Court has banned the sale of BS-III compliant


vehicles from 1st April 2017 and it has put public health over
potential commercial losses to companies. According to the
data submitted by Society of Indian Automobile Manufacturers
(SIAM), to the Apex court which states that companies were
holding a stock of around 8,20,000 such vehicles which
included 96,000 commercial vehicles, 6,70,000 two wheelers,
40,000 three wheelers and 16,000 cars. The combined value of
the stock is around Rs.12000 crore. The cost of upgrading
these vehicles to BS IV emission standards was estimated at
between Rs 1,500 crore and Rs 2,000 crore. The decision has
left the Auto manufacturers under serious pressure to minimize
their inventory within two days. The OEMs who have strong
hold on exports could have minimal impact but it would be
severe for those who does not have or very less presence in
the export market.

Major impact on 2Ws & CVs...

Commercial Vehicles industry will get impacted most because it


Within two wheeler industry the hit will be more on Hero has highest inventory value wise. Majority of the OEMs have
Motocorp and Honda Motorcycles because these two players
upgraded themselves to BS-IV but they have not stopped
combined holds around 80% of the total two wheeler
production of BS-III vehicles. The management of Ashok
inventories. Bajaj Auto has an inventory of around 80000 units
Leyland has stated that the majority of the vehicles in pipeline
but considering the 50% contribution from exports it will not get have been sold and left over stock will be exported to other
impacted. TVS Motors does not have much BS-III inventory
markets where they have significance presence.
and it has also started selling & manufacturing BS-IV vehicles.

2Ws BS-III Inventory CV BS-III Inventory


HEROMOTOCO BAJAJ-AUTO HMSI Others M&M ASHOKLEY TATAMOTORS Others
6%

45% 21% 21%


37%
32% 26%
12%

Our View Our Top Picks

We expect that it will take huge effort and time to get rid of this We do not expect change in demand of Passenger vehicles
pile up BS-III stock for all the OEMs. The dealers are proposing due to lower BS-III inventory. On the 2W and Commercial
higher discounts to minimize the inventory losses. Discounts vehicles front demand may come down for next couple of
will lead to lower realization and margins for companies with months due to higher sales of BS-III vehicles. Eicher Motors
higher inventories The companies with good export exposure have already upgraded itself to BS-IV. Hence we consider
may not have much impact but it can put auto industry under Maruti and Eicher Motors as our best picks.
stress for short term depending on the corrective measures
taken by the individual OEMs.
Narnolia Securities Ltd 36
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
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Kolkata-700 020 , Ph : 033-40501500
email: narnolia@narnolia.com, website
: www.narnolia.com

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