Pitti Laminations (PITLAM) 48

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November 20, 2015

Result Update

Pain to continue in medium term…

• Pitti Laminations (Pitti) reported a dismal set of Q2FY16 numbers with EBITDA margins dropping 800 bps YoY to 5.0% in Q2FY16

• Topline for the quarter was at | 78.2 crore with corresponding EBITDA at | 3.9 crore (margin 5.0%) and PAT at negative | 2.8 crore

• Lamination sales volume in Q2FY16 was at 4738 tonne, up 3.9% YoY while realisations improved 5.3% YoY on the back of higher stator volume in the sales product mix

Reasons behind such strong downgrade

Pitti Laminations’ Q2FY16 results were a negative surprise on account of a sharp deterioration of the margin profile. This was on account of a write-down of high cost inventory and a drastic fall in scrap prices. We expect the trend to continue in Q3FY16E with the company posting reasonable EBITDA margins only in Q4FY16E. Henceforth, FY16E is expected to be a washout year for the company with almost nil profitability at the PAT level. There was also some ramp down in the volume offtake by the largest customer i.e. GE group companies, which will limit export growth and, hence, the earnings profile at Pitti. Hence, on the back of some more pain in the medium term, we revise down our estimates for Pitti.

Product profile; basic necessity of any process engineering

Pitti Laminations (Pitti) is a leading manufacturer of electrical steel laminations, motor cores, sub-assemblies, die-cast rotors and press tools. These products find application in basic capital goods products viz. motors and alternators, which are quintessentially products used in process engineering. It manufactures laminations from 50 mm to 1,250 mm outer diameter. It is an end-to-end product & service provider in the electrical lamination segment and a market leader in the special purpose motors segment. It is one of the few suppliers with tooling, laminations, casting and machining, all under one roof. The company is a pioneer in the manufacture of traction motor sub-assemblies in India and possesses an indigenously developed tool room with a portfolio of over 3,400 tools. Domestic business to pick up, exports to lag behind

Pitti manufactures electrical laminations, which constitute a healthy ~86% of its gross sales and has a strong clientele for this product both globally as well as domestically. In exports, GE group companies are their largest customer, which is realigning its delivery schedule and will limit the export growth at Pitti. They, however, stayed committed to their three year contract (CY15-17) worth | 600 crore. We expect export sales at Pitti to grow at a CAGR of 3.7% in FY15-17E to | 178 crore in FY17E. Domestically, with a new government at the helm, renewed emphasis on capacity creation, we expect sales to match up to its customer’s (Siemens, ABB, among others) growth rate. We expect domestic sales to grow at a CAGR of 12.5% in FY15-17E to | 217 crore in FY17E.

Operating margins take knock, pain to persist, downgrade to HOLD

Incorporating the muted profitability in FY16E we have revised down our estimates for Pitti. We expect sales and PAT to grow at a CAGR of 8.0% and 2.1% vs. 13.8% and 27.6%, respectively, earlier, in FY15-17E. On account of an elongated working capital cycle, debt-equity is expected to remain at ~1.2x (FY15-17E). We have valued Pitti at | 50 i.e. 14x P/E on FY17E EPS of | 3.6/share and assigned a HOLD rating to the stock. FY17E is expected to be the turnaround year for Pitti wherein the company will adjust itself to the declining commodity cycle coupled with ramp up of order by GE group companies. This will drive the overall profitability at Pitti and support our long term investment thesis on the company.

Pitti Laminations (PITLAM)

| 48

Rating matrix

Rating : Hold

Target : | 50

Target Period : 12-18 months

Potential Upside : 4%

What’s changed?

Target Changed form | 78 to | 50

EPS FY16E Profit to Loss

EPS FY17E Changed from | 5.6 to | 3.6

Rating Changed from Buy to Hold

Quarterly performance

Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%)

Revenue 78.2 71.8 9.0 85.7 -8.7

EBITDA 3.9 9.3 -58.0 9.8 -60.3

EBITDA (%) 5.0 12.9 -796 bps 11.5 -648 bps

PAT -2.8 1.0 -385.7 1.5 -289.2

Key financials

| Crore FY14 FY15 FY16E FY17E

Net Sales 248 341.1 351.5 398.1

EBITDA 32.7 40.5 29.8 43.9

Net Profit 4.2 9.3 (0.4) 9.6

EPS (|) 1.6 3.4 NA 3.6

Valuation summary

FY14 FY15 FY16E FY17E

P/E 30.6 14.0 NA 13.4 Target P/E 31.9 14.6 NA 14.0 EV / EBITDA 7.4 6.2 8.2 5.7 P/BV 1.2 1.1 1.1 1.1 RoNW 3.8 7.9 (0.4) 8.2 RoCE 10.3 9.7 6.0 11.0 Stock data Stock Data

Market Capitalization | 129.6 Crore

Total Debt (FY15) | 136.5 Crore

Cash & Investments (FY15) | 15.3 Crore

EV | 250.7 Crore

52 week H/L 82/ 18

Equity capital | 13.5 Crore

Face value | 5 MF Holding (%) -FII Holding (%) 2.9 Research Analyst Chirag J Shah [email protected] Shashank Kanodia [email protected]

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Variance analysis

Q2FY16 Q2FY16E Q2FY15 YoY (%) Q1FY16 QoQ (%) Comments

Sales 77.8 77.1 71.1 9.5 85.2 -8.7 Sales came in line with our estimates; export sales came in lower but were compensated by higher domestic sales

Other Operating Income 0.4 0.6 0.7 -44.4 0.5 -18.4 Total Operating Income 78.2 77.7 71.8 9.0 85.7 -8.7

Total Raw Material Expenses 50.7 50.5 43.9 15.6 54.0 -6.1 Raw material as a percentage of sales in Q2FY16 came in on expected lines at ~65%

Employee Cost 9.9 7.8 7.0 40.8 9.7 2.1 Employee costs came in much ahead of estimates and stood at 12.7% of sales vs. our expectation of 10.0%

Other operating expense 13.7 10.9 11.6 18.1 12.2 12.7 Other expenses came in higher-than-expected at 17.5% of sales vs. our expectation of 14.0%.

Total Expenditure 74.3 69.2 62.5 18.9 75.9 -2.0 EBITDA 3.9 8.6 9.3 -58.0 9.8 -60.3

EBITDA Margin (%) 5.0 11.0 12.9 -796 bps 11.5 -648 bps EBITDA margins came in much lower -than-expected due to higher employee costs and other operating expenses

Depreciation 3.8 3.3 3.9 -2.8 3.9 -1.6

Interest 4.6 4.2 4.2 8.7 4.0 14.1 Interest costs for the quarter include forex loss amounting to | 1 crore on account of depreciation of the rupee against US$

Exceptional item 0.0 0.0 0.0 NA 0.0 NA Other Income 0.4 0.4 0.3 17.6 0.4 8.1 PBT -4.1 1.3 1.5 -375.2 2.3 -278.3

Taxes -1.3 0.5 0.5 -354.9 0.8 -258.5 Tax rate in Q2FY16 stood at 31.7%

PAT -2.8 0.8 1.0 -385.7 1.5 -289.2 PAT came in negative on account of lower EBITDA margins and forex loss in the quarter

Key Metrics

Sales Volume (tonne) 4,738 4,824 4,558 3.9 5,108 -7.2 Sales volume of lamination sheets in Q2FY16 came in marginally lower than estimates due to lower export sales volume

Blended realisation (|/tonne) 164,204 159,815 155,880 5.3 166,758 -1.5 Blended realisations in Q2FY16 came in better-than-expected on account of presence of stator volume in Q2FY16 vs. its absence earlier. Stator is a high value product wrt to laminations at Pitti

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % Change Comments

Net Sales 397.2 351.5 -11.5 442.0 398.1 -9.9 Muted Q2FY16 coupled with a delay in pick-up industrial activity domestically and deferral of offtake by GE group companies leads us to revise downward our sales estimates for FY16E & FY17E

EBITDA 45.9 29.8 -35.0 53.2 43.9 -17.5

EBITDA Margin (%) 11.6 8.5 -311 bps 12.0 11.0 -101 bps Decline in metal prices, write-down of high cost inventory and subdued scrap prices leads us to downward revise our margin estimates for FY16E & FY17E

PAT 10.6 -0.4 PL 15.1 9.6 -36.1

EPS (|) 3.9 NA PL 5.6 3.6 -36.1 EPS reduces consequent to lower sales & margin estimates above

FY16E FY17E

Source: Company, ICICIdirect.com Research PL: Profit to Loss

Assumptions

FY14 FY15 FY16E FY17E FY16E FY17E Comments

Domestic Sales Volume (tonne) 10,747 13,528 14,285 17,136 15,075 16,200 Due to delay in pick up in industrial activity domestically we have shifted some domestic sales from FY16E to FY17E

Domestic realisation (|/tonne) 108,588 126,464 123,302 126,385 126,464 123,302 Subdued metal prices domestically leads us to downward revise our realizations estimated for FY16E & FY17E

Export Sales Volume (tonne) 4,308 7,885 8,035 8,064 9,045 10,800 Due to slower offtake by GE group companies we have downward revised our export volume estimates going forward

Export realisation (|/tonne) 192,572 210,146 215,399 220,784 215,399 220,784 We have largely maintained our export realisations estimates for FY16E & FY17E

Total Sales Volume (tonne) 15055 21413 22320 25200 24120 27000 Blended realisation (|/tonne) 145932 157278 156457 156593 159815 162295

Decrease in domestic realizations leads to downward revision of blended realizations for FY16E & FY17E

Earlier Current

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Company Analysis

Pitti Laminations (Pitti) is a leading manufacturer of electrical steel lamination, motor cores, sub-assemblies, die-cast rotors and press tools domestically. These products find application in basic capital goods products, viz. motors and alternators, which are quintessentially used in any process engineering. The company was founded in 1983 by Sharad B Pitti. Pitti’s main product i.e. laminations is sold both domestically as well as globally while motor housings are meant only for exports. The company is a pioneer of the manufacture of traction motor sub-assemblies in India and possesses an indigenously developed tool room with a portfolio of over 3,400 tools. Pitti also holds a 47% stake in Pitti Castings Pvt Ltd, which manufactures castings.

Main product: Electrical steel laminations

Exhibit 1: Pictorial description of main product of Pitti Lamination

Product being manufactures by Pitti Basic Motor

Stator; around which electrical field is generated and copper coil wounded. It is the most critical component of a motor

Single lamination Sheet

This stack is made of electrical steel and is of various forms ; It is the main product being manufactured by Pitti Laminations

This can either be sold in the form of single sheet or a stack of electrical sheets welded together

Stack of lamination sheets

Definition: Laminations are the steel portions of the stator and rotor consisting of thin lamination sheets stacked together. These laminations can be stacked "loose", welded, or bonded together depending upon application.

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Electrical steel laminations business: main revenue driver

Pitti’s sales can be broadly classified under four business heads viz. sale of electrical stampings, sale of scrap (bi-product of stamping), sale of tools & job work charges.

Exhibit 2: Revenue Bifurcation

Sales Bifurcation Units FY11 FY12 FY13 FY14 FY15

As of FY14, electrical laminations/stampings constitute a healthy ~86% of its total gross sales followed by scrap (~12%), job work (~2%) and tools (~1%).

Stamping business: Volume led growth to prevail!!

Pitti has an installed capacity of 32000 tonne/annum (TPA) of electrical stampings/laminations and 3000 motor housing/stator frames. It is currently undergoing de-bottlenecking, which will increase its electrical laminations capacity to 36000 TPA in the near term.

Exhibit 3: Stampings volume & realisation trend

20 27 0 25 02 2 19 69 3 15 05 5 ₂₁41 3 22 32 0 25 20 0 117780 147502 ₁₄₄₃₆₆ 145932 157278 156457 156593 0 5000 10000 15000 20000 25000 30000

FY11 FY12 FY13 FY14 FY15 FY16E FY17E

to nne 0 50000 100000 150000 200000 |/ to nne

Total Volume Blended Realization

Domestic vs. export sales volume & realisation

Exhibit 4: Domestic sales volume to grow @ 12.5% CAGR in FY15-17E

1347 0 1319 4 1305 6 10747 1352 8 142 85 ₁₇136 79465 85630 96791108588 126464123302 126385 0 5000 10000 15000 20000

to nne 0 40000 80000 120000 160000 |/ to nne

Domestic Volume Domestic Realization

Exhibit 5: Export sales volume to grow @ 1.1% CAGR in FY15-17E

6800 118 28 6637 4308 7885 8035 8064 159353181620180639 192572210146215399 220784 0 2000 4000 6000 8000 10000 12000 14000

tonne 0 50000 100000 150000 200000 250000 |/ to nne

Export Volume Export Realization

In FY15, Pitti recorded sales of 21413 tonne of laminations while blended realisations at | 157278/tonne. Export sales during FY15 were at 7885 tonne with corresponding realisations at | 210146/tonne. Domestic sales during FY15 were at 13528 tonne with corresponding realisations at | 126464/tonne

Going forward, total sales volumes are expected to grow at a CAGR of 8.5% in FY15-17E. Domestic sales volume are expected to grow at a CAGR of 12.5% in FY15-17E to 17136 tonne while export sales volume are expected to grow at a CAGR of 1.1% in FY15-17E to 8064 tonne in FY17E

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Strong clientele both domestically, globally

Pitti by virtue of supplying specialised custom made quality product has a very strong clientele with most clients sticking with Pitti for a fairly long time. Domestically, in the laminations segment, Pitti’s clients include ABB, Alstom and Ritz Hydro, Bhel, Crompton Greaves, Cummins, L&T, ReGen Powertech, Siemens and Voith among others. On the global front, GE group entities mainly GE Transportation Systems (GETS) and GE Consumer & Industrial (GECI) constitute the major chunk of its exports. Products of Pitti’s customers are used in power generation, transportation, mining, industrial motors, locomotives, aerospace, automobile, oil & gas, earth moving and mining.

Stretched working capital - here to stay!

By virtue of importing raw material for orders from GE group companies and shipping the final product to GE entities through sea, the company has elongated working capital needs with net working capital days (NWCD) at 146 days as of FY14. The company is shifting some of its manufacturing capacity from Hyderabad to Pune, which should help in cutting down the lead time. However, conservatively we have built in NWCD at 130 days in FY16E and FY17E, going forward.

Exhibit 6: Net working capital days (NWCD)

113 123 167 146 121 130 130 0 20 40 60 80 100 120 140 160 180

da

ys

Net WC days

Debt to remain at elevated levels, working capital loans to prevail!!

By virtue of having an elongated working capital cycle, Pitti has a considerable amount of debt on its books (FY15 total debt at | 136 crore, debt: equity 1.2x). However, majority of the debt is in the form of short-term borrowing, thereby catering to working capital needs. Going forward, the debt at Pitti is expected to remain at same levels with consequent debt to equity at ~1.2x in FY16E & FY17E.

Exhibit 7: Equity, debt, debt: equity

67 10 1 109 112 117 113 118 96 153 150 121 136 131 136 1.4 1.5 _1.4 1.1 1.2 1.2 1.2 0 20 40 60 80 100 120 140 160 180

| cr or e 0.0 0.5 1.0 1.5 2.0 x

Equity (LHS) Debt (LHS) Debt:Equity (RHS)

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Revenues to grow at 8.0% CAGR in FY15-17E

We expect Pitti to clock revenue growth of 8.0% CAGR in FY15-17E to | 398.1 crore in FY17E (| 341.1 crore in FY15) primarily on the back of a pick-up in volumes domestically and almost flat realisations on a blended basis (domestic + exports). Laminations sales volume is expected to grow at a CAGR of 8.5% in FY15-17E to 25200 tonne in FY17 (21413 tonne in FY15) while blended realisations are expected to remain at ~| 157000/tonne (157278 |/tonne in FY15).

Exhibit 8: Revenue trend

310.4 247.8 341.1 351.5 398.1 -100 200 300 400 500

FY13 FY14 FY15 FY16E FY17E

| cr

or

e

Exhibit 9: Revenue bifurcation- Domestic vs. Exports

149 ₁₄₀ 171 175 217 158 103 166 173 178 0 50 100 150 200 250

| cr

or

e

Domestic Exports

Domestic sales turnover is expected to grow at a CAGR of 12.5% in FY15-17E to | 217 crore while exports turnover is expected to grow at a CAGR of 3.7% in FY15-17E to | 178 crore.

EBITDA & PAT to grow at 4.1% & 2.1% CAGR respectively in FY15-17E

We expect EBITDA to grow at a CAGR of 4.1% in FY15-17E to | 43.9 crore in FY17E (| 40.5 crore in FY15) primarily on the back of an increase in sales (8.0% CAGR) and a decline in margin profile. PAT is expected to grow at a CAGR of 2.1% CAGR in FY15-17E to | 9.6 crore in FY17E (| 9.3 crore in FY15).

Exhibit 10: EBITDA & EBITDA margins trend

40 .8 32. 7 40.5 29. 8 43 .9 13.2 13.2 11.9 8.5 11.0 -5 10 15 20 25 30 35 40 45 50

| c ro re -2 4 6 8 10 12 14 %

EBITDA EBITDA Margin

Exhibit 11: PAT trend

9.8 4.2 9.3 9.6 (0.4) (4) -4 8 12

| c

ro

re

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Outlook and valuation

Incorporating muted profitability in FY16E, we have downward revised our estimates. We expect sales, PAT to grow at a CAGR of 8.0%, 2.1%vs. 13.8% and 27.6%, respectively, earlier in FY15-17E. On account of an elongated working capital cycle, debt-equity is expected to remain at ~1.2x (FY15-17E). We have valued Pitti at | 50 i.e. 14x P/E on FY17E EPS of | 3.6/share and assigned a HOLD rating to the stock. FY17E is expected to be a turnaround year for Pitti wherein the company will adjust itself to the declining commodity cycle coupled with ramp up of order by GE group companies, driving overall profitability at Pitti. This supports our long term investment thesis on the company.

The company is a net exporter but also has account receivables outstanding against its exports for a period of ~180 days, thereby making itself susceptible to losses on account of domestic currency (rupee) depreciation.

In the recent company presentation, the company also expressed its long term vision wherein it plans to reach a topline of ~| 1000 crore by FY18E. This will involve some amount of corporate restructuring (merger of group entity Pitti Castings) and inorganic expansion (acquisition of some motor company; forward integration). Pitti intends to realise ~57% of the targeted revenues in FY18E form the current laminations business, ~18% from Pitti Castings and ~25% from the motors business. Since the plan is on the drawing board, we await clarity on this matter and have not factored this in our target price calculation.

Exhibit 12: What’s changed

Particulars

Old New % Change Old New % Change

Revenue 397.2 351.5 (11.5) 442.0 398.1 (9.9) EBITDA 45.9 29.8 (35.0) 53.2 43.9 (17.5) EBITDA Margin % 11.6 8.5 -311 bps 12.0 11.0 -101 bps PAT 10.6 -0.4 PL 15.1 9.6 (36.1) EPS 3.9 NA NA 5.6 3.6 (36.2) FY16E FY17E

PL: Profit to Loss

Exhibit 13: Valuation matrix

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE (| cr) (%) (|) (%) (x) (x) (%) (%)

FY14 243.4 -20.8 1.6 57.1 30.6 7.4 3.8 10.3

FY15 336.8 38.4 3.4 NM 14.0 6.2 7.9 9.7

FY16E 348.1 3.3 NA NA 0.0 8.2 -0.4 6.0

FY17E 394.6 13.4 3.6 NM 13.4 5.7 8.2 11.0

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Company snapshot Target Price: 50 0 20 40 60 80 100 Ja n-08 Ma y-08 Se p-08 Ja n-09 Ma y-09 Se p-09 Ja n-10 Ma y-10 Se p-10 Ja n-11 Ma y-11 Se p-11 Ja n-12 Ma y-12 Se p-12 Ja n-13 Ma y-13 Se p-13 Ja n-14 Ma y-14 Se p-14 Ja n-15 Ma y-15 Se p-15 Ja n-16 Ma y-16 Se p-16

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date/Year Event

2008 Records capacity utilisation of 68% on its new expanded capacity of 25000 tonne (production volume at 17085 tonne) 2009 Promoters pledge 25.9% of their stake in the company

2011 Appoints G Vijay Kumar as Chief Financial Officer (CFO)

2012 Expands its capacity from 25000 tonne to 32000 tonne (production in FY12; 25022 tonne, capacity utilisation 78%) 2012 Buys assets of Andhra foundry unit

2014 Gets awarded a firm three year contract from GE group companies for supplying laminations worth | 600 crore over CY15-17E 2015 Board of directors of company approve stock split of company's shares in the ratio of 1:2

2015 Sets April 17, 2015 as the record date of stock split

Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Position Change (m)

1 Pitti Electrical Equipment Pvt. Ltd. 30-Jun-15 25.9 7.0 0.0

2 Pitti (Sharad B) 30-Jun-15 15.9 4.3 0.0

3 Pitti (Akshay S) 30-Jun-15 11.7 3.2 0.0

4 Pitti (Madhuri S) 30-Jun-15 5.8 1.6 0.0

5 Lalita Steel Industries Pvt. Ltd. 30-Jun-15 1.7 0.5 -0.1

6 Barclays Wealth 30-Jun-15 1.7 0.5 0.0

7 Shah (Dhiren Shevantilal) 30-Jun-15 1.5 0.4 0.0

8 Shah (Sharad Kanayalal) 30-Jun-15 1.4 0.4 0.0

9 Pitti (Shanti B) 30-Jun-15 0.7 0.2 0.0

(in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15

Promoter 60.0 60.0 60.0 60.0 60.0

FII 0.0 0.0 0.0 0.0 2.9

DII 0.2 0.8 2.5 2.9 0.0

Others 39.8 39.2 37.5 37.1 37.1

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Lalita Steel Industries Pvt. Ltd. -0.14m -0.14m

Buys Sells

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Financial summary (Consolidated)

Profit and loss statement | Crore

(Year-end March) FY14 FY15 FY16E FY17E

Net Sales 243.4 336.8 348.1 394.6

Other Operating Income 4.4 4.3 3.4 3.5

Total Operating Income 247.8 341.1 351.5 398.1

Growth (%) -20.2 37.6 3.1 13.3

Raw Material Expenses 152.7 223.3 226.6 258.8

Employee Expenses 25.7 31.2 38.4 43.7

Other Operating Expense 36.7 46.2 56.7 51.8

Total Operating Expenditure 215.1 300.6 321.7 354.2

EBITDA 32.7 40.5 29.8 43.9 Growth (%) -19.8 23.6 -26.3 47.2 Depreciation 8.8 15.8 15.2 16.0 Interest 19.2 11.3 16.7 14.7 Other Income 2.0 1.7 1.6 1.4 PBT 6.8 15.1 -0.5 14.6 Exceptional Item 0.0 0.0 0.0 0.0 Total Tax 2.6 5.8 0.0 5.0 PAT 4.2 9.3 -0.4 9.6 Growth (%) NM NM NM NM EPS (|) 1.6 3.4 -0.2 3.6

Cash flow statement | Crore

Profit after Tax 4.2 9.3 -0.4 9.6

Add: Depreciation 8.8 15.8 15.2 16.0

(Inc)/dec in Current Assets 24.2 -37.7 2.7 -31.7

Inc/(dec) in CL and Provisions 12.4 39.0 -2.3 14.2

Others 19.2 11.3 16.7 14.7

CF from operating activities 68.7 37.7 31.8 22.8

(Inc)/dec in Investments 0.0 -12.3 0.0 0.0

(Inc)/dec in Fixed Assets -16.8 -19.2 -4.2 -10.0

Others 1.5 -1.4 0.0 0.0

CF from investing activities -15.3 -32.9 -4.2 -10.0

Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds -29.4 15.9 -5.0 5.0

Dividend paid & dividend tax -1.6 -3.2 -3.2 -4.9

Inc/(dec) in Share Cap 0.0 -0.3 -0.2 0.0

Interest Paid -19.2 -11.3 -16.7 -14.7

CF from financing activities -50.1 1.1 -25.1 -14.6

Net Cash flow 3.3 5.9 2.5 -1.8

Opening Cash 6.2 9.5 15.3 17.9

Closing Cash 9.5 15.3 17.9 16.1

Balance sheet | Crore

Liabilities

Equity Capital 13.5 13.5 13.5 13.5

Reserve and Surplus 98.1 103.8 99.9 104.7

Total Shareholders funds 111.6 117.3 113.4 118.2

Total Debt 120.6 136.5 131.5 136.5

Deferred Tax Liability 7.2 5.8 5.8 5.8

Minority Interest / Others 0.0 0.0 0.0 0.0

Total Liabilities 239.3 259.5 250.7 260.5

Assets

Gross Block 143.2 162.4 172.4 182.4

Less: Acc Depreciation 55.9 71.7 86.9 102.9

Net Block 87.3 90.7 85.5 79.5

Capital WIP 5.8 5.8 0.0 0.0

Total Fixed Assets 93.1 96.5 85.5 79.5

Investments 4.1 16.4 16.4 16.4

Inventory 96.8 105.9 114.4 129.7

Debtors 64.2 102.6 104.9 118.9

Loans and Advances 39.4 26.6 17.4 19.7

Other Current Assets 1.4 4.3 0.0 0.0

Cash 9.5 15.3 17.9 16.1

Total Current Assets 211.3 254.8 254.6 284.5

Current Liabilities 63.9 97.0 95.4 108.1

Provisions 5.3 11.2 10.5 11.9

Current Liabilities & Prov 69.2 108.2 105.8 120.0

Net Current Assets 142.1 146.6 148.7 164.5

Others Assets 0.0 0.0 0.0 0.0

Application of Funds 239.3 259.5 250.7 260.5

Key ratios

Per share data (|)

EPS 1.6 3.4 -0.2 3.6

Cash EPS 4.8 9.3 5.5 9.5

BV 41.3 43.4 42.0 43.8

DPS 1.0 1.2 1.0 1.5

Cash Per Share (Incl Invst) 5.0 11.8 12.7 12.0

Operating Ratios (%) EBITDA Margin 13.2 11.9 8.5 11.0 PAT Margin 1.7 2.7 -0.1 2.4 Inventory days 145.1 114.8 120.0 120.0 Debtor days 96.3 111.2 110.0 110.0 Creditor days 95.8 105.1 100.0 100.0 Return Ratios (%) RoE 3.8 7.9 -0.4 8.2 RoCE 10.3 9.7 6.0 11.0 RoIC 10.7 10.4 6.3 11.4 Valuation Ratios (x) P/E 30.6 14.0 NM 13.4 EV / EBITDA 7.4 6.2 8.2 5.7 EV / Net Sales 1.0 0.7 0.7 0.6

Market Cap / Sales 0.5 0.4 0.4 0.3

Price to Book Value 1.2 1.1 1.1 1.1

Solvency Ratios

Debt/EBITDA 3.7 3.4 4.4 3.1

Debt / Equity 1.1 1.2 1.2 1.2

Current Ratio 3.1 2.4 2.4 2.4

Quick Ratio 1.7 1.4 1.3 1.3

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RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited,

1st Floor, Akruti Trade Centre, Road No 7, MIDC,

Andheri (East) Mumbai – 400 093

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ANALYST CERTIFICATION

We /I, Chirag Shah PGDBM; Shashank Kanodia MBA (Capital Markets), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report.

It is confirmed that Chirag Shah PGDBM; Shashank Kanodia MBA (Capital Markets), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

It is confirmed that Chirag Shah PGDBM; Shashank Kanodia MBA (Capital Markets), Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.