INTERNSHIP PROJECT REPORT

ON

PEER COMPANY ANALYSIS OF CORPORATES IN ANDHRA PRADESH

BY

Pankaj Kumar Gaurav

12A1HP035

DONE AT

India Ratings & Research, Hyderabad

Institute of Management Technology, Hyderabad

(2012-2014)

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 INTERNSHIP PROJECT REPORT

ON

PEER COMPANY ANALYSIS OF CORPORATES IN ANDHRA PRADESH

BY

Pankaj Kumar Gaurav

12A1HP035

DONE AT

India Ratings & Research, Hyderabad

Project report is submitted in partial fulfilment of the requirements of

PGDM program of IMT Hyderabad.

SUBMITTED TO

Dr. Chakrapani Chaturvedula Mr. Suryanarayana Mangina

DATE OF SUBMISSION
(06/7/2013)

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 ACKNOWLEDGEMENTS

I would like to take this opportunity to express my heartiest gratitude to my company guide Mr.
Suryanarayana Mangina, Director – Business & Relationship Management, India Ratings &
Research Private Limited, Hyderabad for his exemplary guidance, monitoring and constant
encouragement throughout the internship project.

I would like to offer sincere thanks to my faculty guide Dr. Chakrapani Chaturvedula, Associate
Professor at Institute of Management Technology, Hyderabad for his cordial support and
valuable inputs which helped me in completing the project.

I would like to express my appreciation to Mr. Jitendra Kumar, Business & Relationship
Manager, India Ratings & Research Private Limited, Hyderabad for his constant support and
guidance during my internship project.

Lastly, I would like to thank the entire staff of India Ratings & Research Private Limited,
Hyderabad for their assistance during the internship project.

Pankaj Kumar Gaurav

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 CERTIFICATE
This is to certify that Mr. Pankaj Kumar Gaurav Roll No: 12A1HP035 has successfully completed
his summer internship project at India Ratings and Research Private Limited, Hyderabad under
the guidance of Mr. Suryanarayana Mangina.

The details of the project are as under:

Title of the Project: Peer company analysis of corporates in Andhra Pradesh

Tenure of the Project: 1st April, 2013 to 6th July, 2013

The project is complete in all the respects. We are satisfied with the performance of the
student during the internship program. We wish him good luck for all his future endeavors.

Mr. Suryanarayana Mangina

Director – Business & Relationship Management
India Ratings & Research Private Limited
Hyderabad

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 EXECUTIVE SUMMARY

During my summer internship, I got the opportunity to understand the fundamentals of credit
rating methodology with respect to corporate sector of India. I also got to know the
understanding of the credit profile of a company based on its financial performance, cost
structure, financial structure and investments. It could not have been possible with the inputs
and help provided by the regional head and analysts of India Ratings & Research, Hyderabad.

The internship program commenced with two weeks training on bank loan ratings and
associated terms/concepts which were important for peer company analysis and financial
statement analysis. It was followed by delivering a presentation on Indian cement
manufacturing sector. Also, mock meeting was conducted so as to get accustomed to the
meetings with bankers/corporate clients. After the completion of training, the task was to
prepare pitch book of two industry sectors and analysis of financial statements of various
companies in CMA (Credit Monitoring Arrangements) data format for working capital
assessment of company.

The next phase started with building a portfolio of various listed companies in Andhra Pradesh.
Once the portfolio of companies was finalized, respective annual reports of last 5 years were
downloaded from respective companies’ websites to perform fundamental analysis of
respective company in provided format.

In the last phase, peer company analysis was performed for companies in portfolio based on a
few financial metrics to assess how one company based in Andhra Pradesh is performing with
respect to its peers.

At India Ratings & Research, I got the fundamentals to understand the nature of industry in
Andhra Pradesh and building a perspective on respective industry outlook along with
Identification of key risks exists in respective industry.

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CONTENTS

ACKNOWLEDGEMENTS…………………………………………………………….............................3
CERTIFICATE ……………………………………………………………………………………………………...4
EXECUTIVE SUMMARAY...........................................................................................5
1. INTRODUCTION……………………………………………………………………………………………..7
1.1 PURPOSE OF THE PROJECT………………………………………………………………………8
1.2 SCOPE OF THE PROJECT…………………………………………………………………………..9
1.3 LIMITATION OF THE PROJECT………………………………………………………………….9
2. OBJECTIVES …………………………………………….......................................................10
3. LITERATURE REVIEW……………………………………………………………………………………11
4. METHODOLOGY…………………………………………………………………………………….….…13
5. INDIA RATINGS & RESEARCH: OVERVIEW…………………………………………………….18
6. BASEL II GUIDELINES……………………………………………………………………………………20
7. RATING SCALES & BENEFITS OF RATINGS………………………………………..……..…..23
8. CORPORATE RATING METHODOLOGY ………………………………………………….…….27
9. PITCH BOOK: CEMENT SECTOR……………………………………………………………………36
10.PITCH BOOK: IT SECTOR……………………………………………………………………..……….43
11.COMPANY ANALYSIS: FUNDAMENTAL ANALYSIS & PEER COMPARISON……..49
11.1. AMARA RAJA BATTERIES LIMITED………………………………………………………51
11.2. ANDHRA PETROCHEMICALS LTD……………………………………………..…………55
11.3. DIVI'S LABORATORIES LTD…………………………………………………………..……..60
11.4. NEHA INTERNATIONAL……………………………………………………………………….65
11.5. SURYALATA SPINNING MILLS LTD…………………………………………..………….69
11.6. VISAKA INDUSTRIES LIMITED……………………………………………………………..73
11.7. RAMKY INFRASTRUCTURE LIMITED……………………………………………………77
11.8. ANJANI PORTLAND CEMENT………………………………………………………………82
12. RECOMMENDATIONS……………………………………………………………………………..…86
13. CONCLUSION……………………………………………………………………………………………..87
ANNEXURE-1……………………………………………………………………………………………………88
REFERENCES……………………………………………………………………………………………….……91

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1. INTRODUCTION
Internship project of “Peer Comparison Analysis of different companies (BB+ above Rated by
other Rating agencies i.e. CRISIL /ICRA /CARE) in Andhra Pradesh” has been carried out in
following phases:

Phase I - Training and Pitch Book Preparation

Phase II - Financial Analysis of 15 Companies

of Andhra Pradesh (BB+ above rated)

Phase III - Peer Comparison Analysis, Final

Report Submission & Handover

Phase I- Training and Pitch Book Preparation: Two weeks training program has been
conducted for all summer interns which encompasses the details about India ratings &
Research and its services. We have been trained on BASEL II requirements, banking concepts
and terminologies, basics of financial statements analysis, credit rating process followed by
India Ratings and basics of credit analysis. The training was organized and included sessions
with Analyst Team and business development team of India Ratings.

The training schedule was as follows:

DATE DAY TOPICS COVERED

st
1 April Monday  India Ratings and Fitch Group Introduction
 About Credit rating and Rating Scales
 Basel-2 Norms
 Importance of Ratings
2nd April Tuesday  Different Industry Outlooks
 Presentations by each student on a sector as per the
Fitch outlook for 2013
 About RBI and SEBI
 Types of Banking

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  Rating Agencies in India
 Credit Rating Process
 Important Qualitative and Quantitative factors
Affecting Rating Process
3rd April Wednesday  Types of Funding
 Short term and Long term Lending
 Working Capital Cycle
 Balance Sheet Analysis
 Profit and Loss Statement
 Cash flow Statement
 Ratios important for Credit Rating Process
 Types of Companies
4th April Thursday  How to Plan for Meetings?
 Points to be discussed during meeting.
 How to interact with Company Officials
5th April Friday  Mock Interviews with Company Guide
 Feedback On the Mock Interviews
 Practical Case Study Practice for Balance Sheet Analysis
Table 1- Training Schedule for Internship

Pitch books for different industry sectors has been prepared to show market overview and
industry outlook.

Phase II- Financial Analysis of 15 Companies of Andhra Pradesh (BBB+ above rated): Portfolio
of 15 companies of different industry sectors has been assigned to each intern, which
encompasses companies of Andra Pradesh rated BBB+ by other Rating agencies i.e. CRISIL
/ICRA /CARE. Once assigned the list of companies, financials analysis has been done for each
company based on a given format (Annexure 2) and company dossiers have been prepared.

Phase III- Peer Comparison Analysis, Final Report Submission & Handover: Peer comparison of
different industry sectors has been done based on asset size, geography, on operating strategy,
funding strategy, earnings strength etc. Final report along with all companies’ analysis has been
submitted as a part of handover.

1.1 PURPOSE OF THE PROJECT:

This project has been untaken to make interns understand the financial statement analysis of
different companies based of annual reports of last 5 years, comparative company analysis of
different peer groups and credit rating methodology of rating agency based on financial
performance of the company.

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1.2 SCOPE OF THE PROJECT:

As a part of Peer Comparison Analysis, entire project has been carried out in 3 stages
mentioned above. Through comparative company analysis, fundamental understanding has
been established to gauge the credit profile of a firm based on its financial performance.
Further industry outlook has been ascertained up to some extent based on peer comparison
made for the peer company group.

1.3 LIMITATIONS OF THE PROJECT:

 Due to unwillingness to share annual reports by Pvt. Limited companies, company

analysis can be made for public listed companies whose annual reports are available on
its website.
 For doing business analysis, capacity utilisation information is not available in annual
reports/websites, due to which % utilisation and average realisation per unit can’t be
determined.
 Information regarding segmental revenue based on product segments or geographical
segments are not available for majority of firms in their annual reports, due to which
current order book can’t be determined.
 No information on term loan repayment schedule is made available by firms, which
makes a bit difficult to understand a firm’s credit profile.

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2. OBJECTIVES
Objectives of Peer Comparison Analysis of companies of different sectors in Andhra Pradesh are
as follows:

• To understand positioning of company within industry

• To understand the credit profile of a company based on its financial performance,

cost structure, financial structure and investments made in past 5 years

• To get a perspective on management and corporate governance of respective

companies based on shareholding pattern

• To understand key credit rating issues form rationale based on past ratings given
by other credit rating agencies in India

• To understand nature of industry in Andhra Pradesh and build a perspective on

respective industry outlook

• Identification of key risks exist in respective industry based on industry outlook

• To understand the fundamentals of credit rating methodology with respect to

corporate sector of India

• To study about India Ratings, their activities and various solutions offered by
them

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3. LITERATURE REVIEW
Various reports and Master Thesis have been referred for our project of peer comparison
analysis. A few of them are discussed below:

Article:

“Peer Group Analysis” Published by: Skillnet 1

Abstract:

Peer comparison analysis is the practice of comparing a firm's results to those of similar
companies or competitors. Performing in-depth peer analysis is essential to investment
research and market positioning. Whether for competitive analysis (questioning what is our
primary competition doing? Are their results better than ours? If so, why?) Or investment
selection, identification of the company’s true peers is fundamental. In the scope of today’s
business world, a company’s business strategy is incomplete until it is well aware of its
competition.

In a 2-step approach, a company can be analyzed with respect to relevant information about
their true peer groups.

1. Creation of custom peer groups

 Identification of relevant companies by specific criteria, such as industry/across

industry, lines of business, having similar sized portfolios, geography (local, regional,
national, and international), size of business (e. g. in terms of revenue), performance
criteria, etc.
 Providing a brief overview of the industry in which the companies operates, the entry-
exit parameters, intensity of competition in the industry, key players, market
mechanisms etc.

2. Analysing the peers

 Definition of the relevant criteria for the comparison of the peers (e. g. financial ratios,
key performance indicators of the business, set-up of business model, business strategy,
technology employed) with the client
 Comparison across selected criteria for peer group companies

1
http://skillnet.com/services/market-intelligence/peer-group-analysis.html

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 Master Thesis:
“Peer Group Benchmarking”, Cand. Merc. AEF, Institute of Finance and Accounting,
Published on 2010.

Abstract:

Peer Group Benchmarking (PGB) is a financial toolbox with a broad variety of equipment.
The most well-known purpose of PGB is forecasting financial figures for use in cash-flow or
earnings-based valuation models. The valuation models available to the analyst and investor
differ with regards to input requirements, dynamics, strengths and weaknesses, etc.

Economic value added (EVA) model is an earning based valuation model which measures
the total Value Added of a company´s operations, i.e. the cash generated in excess of
claimholders required return. One of the metric used to find ROIC.

The DU-PONT pyramid2 visualizes the valuation steps of the ROIC:

ROIC is defined as ROIC= (NOPAT *100)/INV. CAPITAL. The input required to calculate the
NOPAT for the years under consideration are as mentioned EBIT (Sales minus operating
expenses) and the company tax rate. Invested Capital is defined as INV. CAPITAL =
Operating Net Working Capital + Net Property plant & Equipment + Capitalized Operating
Leases + Other Operating Assets + Operating Intangibles – Other Operating Liabilities –
Cumulative Adjustment for Amortization of R&D.

2
Brealey, Myers, and Allen; (2005) p. 796-798.

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4. METHODOLOGY
Peer Comparison Analysis has been done using a basic framework discussed below in which
following factors have been considered for doing a company analysis and subsequent
comparative company analysis.

Basic
Shareholding Management
Company
Pattern Team
Information

Current Order Capacity Business

Book Utilisation Analysis

Industry Financial
Cost structure
Analysis Summary

Term Loan
Financial
Debtor ageing repayment
Structure
schedule

List of
Existing Rating
investments

Data collection: Project is having secondary data collection method in which companies’ annual
reports of last five years have been downloaded from listed company website.

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Various steps of project execution are drawn in below diagram which shows overall project
work carried out in 14 weeks of time:

• Selection of portfolio of 12 listed comapnies of Andhra Pradesh rated BB+ by

Step 1 other rating agencies likes of CRISIL, ICRA &CARE

• Basic Research on Company overview including products, management, plant

Step 2 and capacity

• Collections of last 5 years annual reports from companies' websites.

Step 3

• Putting the financial data in the format provided by India Ratings & Research
Step 4

• Financial analysis of the company based on filled data and comments on its
Step 5 financial stabilty ,key business risks and issues.

• Peer comparison analysis of companies based on different financial metrics

Step 6

Financial Metrics used for Peer comparison analysis:

Following financial metrics have been used to do peer comparison analysis of different
companies of respective sectors from the portfolio of 50 companies provided to all intern
students:

 Long term issuer rating

 Short term issuer rating
 Revenue
 Revenue growth %
 Operating EBITDA margin (%)
 Interest cover (x)
 Adjusted Debt/EBITDA
 Net Adjusted Debt/EBITDA
 Debt/Net worth
 Return on Capital Employed
 Debt Service coverage ratio

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Definitions of Cash Flow Measures and Financial Ratios:

EBITDA Margin: A measurement of a company's operating profitability. It is equal to earnings

before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Because
EBITDA excludes depreciation and amortization, EBITDA margin can provide an investor with a
cleaner view of a company's core profitability.

EBITDA-To-Interest Coverage Ratio: A ratio that is used to assess a company's financial durability
by examining whether it is at least profitably enough to pay off its interest expenses. A ratio
greater than 1 indicates that the company has more than enough interest coverage to pay off its
interest expenses.

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Quarterly Revenue Growth: An increase of a company's sales when compared to a previous
quarter's revenue performance. The current quarter's sales figure can be compared on a year-
over-year basis or sequentially. This helps to give analysts, investors and participants a idea of how
much a company's sales are increasing over time.

Net Debt To EBITDA Ratio: A measurement of leverage, calculated as a company's interest-

bearing liabilities minus cash or cash equivalents, divided by its EBITDA. The net debt to EBITDA
ratio is a debt ratio that shows how many years it would take for a company to pay back its debt
if net debt and EBITDA are held constant. If a company has more cash than debt, the ratio can
be negative.

Debt/Equity Ratio: A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is
using to finance its assets.

Return on Capital Employed (ROCE): A ratio that indicates the efficiency and profitability of a
company's capital investments.

Debt/Equity
Calculated as:Ratio: A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is
using to finance its assets.ROCE= (EBIT/Total Asset – Current Liability)

Debt/Equity Ratio: A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is
using to finance its assets.
Debt-Service Coverage Ratio – DSCR: In corporate finance, it is the amount of cash flow
available to meet annual interest and principal payments on debt, including sinking fund
payments.

In general, it is calculated by:

DSCR = (Net Operating Income/Total Debt Service)

Market Capitalization: The total market value of all of a company's outstanding shares. Market
capitalization is calculated by multiplying a company's shares outstanding by the current market
price of one share. The investment community uses this figure to determine a company's size, as
opposed to sales or total asset figures.

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P/E (TTM): A valuation ratio of a company's current share price compared to its per-share
earnings. The timeframe of the past 12 months used for reporting financial figures.

Calculated as: P/E=(Market Value per Share/ Earnings per Share (EPS)

Enterprise Multiple: A ratio used to determine the value of a company. The enterprise
multiple looks at a firm as a potential acquirer would, because it takes debt into account - an
item which other multiples like the P/E ratio do not include. Enterprise multiple is calculated
as:

Enterprise Multiple= Enterprise value/EBITDA

Enterprise value is calculated as market cap plus debt, minority interest and preferred
shares, minus total cash and cash equivalents.

Return On Equity - ROE: The amount of net income returned as a percentage of shareholders
equity. Return on equity measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested.

Calculated as: ROE = Net Income/ Shareholder's Equity

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5. INDIA RATINGS & RESEARCH: OVERVIEW
About India Ratings & Research
India Ratings & Research (Ind-Ra) is India's Most Respected rating agency committed to
providing the India's credit markets with accurate, timely and prospective credit opinions. Built
on a foundation of independent thinking, rigorous analytics, and an open & balanced approach
towards credit research, Ind-Ra has grown rapidly during the past decade gaining significant
market presence in India's fixed income market. Ind-Ra is a Fitch Group company and operates
as 100% owned subsidiary in India.

Ind-Ra currently maintains coverage of corporate issuers, financial institutions, which includes
banks and insurance companies, finance & leasing companies and managed funds, urban local
bodies and project finance.

Ind-Ra has six offices in India located at Mumbai, Delhi, Chennai, Bangalore, Hyderabad and
Kolkata. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of
India and National Housing Bank.

About Fitch Ratings: (Global)

Dual-headquartered in New York and London, Fitch Ratings is a global rating agency dedicated
to providing value beyond the rating through independent and prospective credit opinions,
research, and data. Offering a world of knowledge and experience behind every opinion, we
transform information to deliver meaning and utility to investors, issuers, and other market
participants. Fitch Ratings’ global expertise draws on local market knowledge and spans the
fixed-income universe. The additional context, perspective and insights we provide help
investors make important credit judgments with confidence.

Coverage
Credit rating coverage at India Ratings & Research includes following areas:

 Corporate Issuers
 Financial Institutions
 Public Finance
 Infrastructure and Project Finance
 Other Ratings (Includes MNRE/Solar Grading, IPO Grading, SSI/SME Ratings, Bank Loan
Ratings)

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 Corporate Issuers Financial Institutions
# Long term Debt # Banks/NBFCs
# Medium-Term Notes # Asset Management
# Commercial paper companies
# Preferred Stock # Insurance Companies

Coverage
Public Finance
# State owned corporations,
municipal corporations,
various other local bodies
and special purpose vehicles
incorporated for executing /
financing public
infrastructure projects
Infrastructure & Project
Finance
# Infrastructure projects
in the energy,
transportation and the
public / social utilities
sectors.

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6. BASEL II GUIDELINES
The entire practice of Credit Rating Agencies today, stands on the three pillars of BASEL II
Norms. Basel II is a revised framework on Capital Adequacy by the Basel Committee on the
Banking and Supervision. Under these system assets on the balance sheet, together with non-
funded commitments and other similar exposures, are assigned prescribed risk weights. Banks
must maintain minimum capital funds equal to a prescribed ratio of the aggregate risk weighted
assets and exposures. With a view to maintaining consistency and harmony with international
standards, RBI has decided that all commercial banks in India will adopt the Standardized
Approach for measuring credit risk under Basel II.

As per Basel II norms, external ratings may be applied in order to determine the amount of
capital required for all of a bank’s current exposures/claims (both funded and non-funded)
relating to the credit risk to which they are exposed.

RBI guidelines on Basel II norms require the banks, where they use external ratings, to use
recognized agencies such as Fitch Ratings to support the measurement of credit risk. The
ratings applied for this purpose in India need to be solicited by the borrower.

Where a bank opts not to apply external ratings for an exposure to a borrower, it has been
prescribed that all fresh sanctions and renewals of unrated exposures in excess of Rs.50 crore
will attract a risk weighting of 150% from March 31, 2008 and a similar risk weighting for all
unrated exposures in excess of Rs.10 crore from March 31, 2009. This means increased capital
costs will apply to banks for many entities that do not have their bank loans rated. In turn, this
may lead to higher borrowing costs, if these capital costs are passed on to the borrowers.

The Three Pillars:

Basel II is based on the framework of three pillars that are as follows:

PILLAR I: MINIMUM CAPITAL REQUIREMENT

Pillar I deals with the minimum capital adequacy rate. It remains 9% of the capital to risk-
weighted- assets. Hence for the calculation of credit risk there are various approaches they are
standardized approaches and IRB approaches. The standardized approach for assessing the
credit risk is done by an external credit rating agency. They have some sophisticated system
which requires both qualitative as well as quantitative data for credit risk management system.

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PILLAR II: SUPERVISORY REVIEW:
The second pillar deals with the regulatory responses to the first pillar. It gives the regulators
much-improved tools as compared to Basel I. It also deals with the other risk faced by the banks
also known as residual risk. It helps banks to review their own risk management system.

PILLAR III: MARKET DISCIPLINE:

Third pillar of Basel accord promotes greater stability in the financial system. Pillar III consist of
both qualitative and quantitative disclosure of capital adequacy as well as the market risk,
operational risk and interest rate risk of banks. This is intended to increase the transparency of
bank’s business and risk management. According to the Basel committee an investor who is
having all the information can easily differentiate between the well-managed bank and the
poor managed bank.

As per BASEL II Norms, different risk classes attract different capital adequacy by banks. Hence,
the capital saving potential of banks by adopting BASEL II can be seen below.

Table -CAPITAL SAVING POTENTIAL AS PER BASEL II NORMS

BASEL II (Standardized Approach for credit

Risk)
RATING RISK CAPITAL CAPITAL
WEIGHT REQUIRED* SAVED (Rs. in
lakhs)
AAA 20% 1.8 7.2
AA 30% 2.7 6.3
A 50% 4.5 4.5
BBB 100% 9.0 0
BB and 150% 13.5 0
below
Unrated 100% 9.0 0
*Capital Required = Loan amount X risk weight X 9%
**Capital Saved (in %) = (C1-C0)/C0*100;
Where: C0Capital Required, C1Capital Saved
Using the formulae mentioned above, the amount of capital that can be saved by banks on
adoption of BASEL II norms for a loan of Rs.100 crores has been calculated and tabulated. This

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capital saving potential if utilized by all banks helps to increase the effect money multiplier
function in the economy, thereby leading to greater funds being pumped into the banking
system in the form of investment. As per the BASEL II Accord, all Credit Rating Agencies rate
debt instruments and based on their rating, banks set aside the corresponding amount of
capital.

Impact of BASEL II:

ON CORPORATE:
 It gives bargaining power to issuer to get lower interest rate.
 An issuer can show the rating as a marketing tool to investors.
ON BANKS:
Banks capital adequacy rate is totally depend upon the credit rating of a company if a company
has higher credit rating then for them bank has to keep lower capital aside.

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7. RATING SCALES & BENEFITS OF RATINGS
India Ratings & Research (Ind-Ra) Rating Symbols
and Definitions3
The Securities and Exchange Board of India (SEBI) has, vide circular CIR/MIRSD/4/2011 dated
June 15, 2011, standardized the rating symbols and their definitions for all credit rating
agencies in India. Pursuant to the said circular, Ind-Ra has revised its rating symbols and their
definitions, which will be used for all outstanding issuer default ratings (IDR) and outstanding
instruments rated/assigned.

The revised rating symbols and their definitions are as follows:

Ind-Ra Rating Scale for Long Term Debt Instruments [the instruments with original maturity
exceeding one year]

IND AAA
Instruments with this rating are considered to have the highest degree of safety regarding
timely servicing of financial obligations. Such instruments carry lowest credit risk.

IND AA
Instruments with this rating are considered to have high degree of safety regarding timely
servicing of financial obligations. Such instruments carry very low credit risk.

IND A
Instruments with this rating are considered to have adequate degree of safety regarding timely
servicing of financial obligations. Such instruments carry low credit risk.

IND BBB
Instruments with this rating are considered to have moderate degree of safety regarding timely
servicing of financial obligations. Such instruments carry moderate credit risk.

IND BB
Instruments with this rating are considered to have moderate risk of default regarding timely
servicing of financial obligations.
IND B
Instruments with this rating are considered to have high risk of default regarding timely
servicing of financial obligations.

3
India Ratings & Research Brochure

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IND C

Instruments with this rating are considered to have very high risk of default regarding timely
servicing of financial obligations.

IND D

Instruments with this rating are in default or are expected to be in default soon.
Note: Modifiers {"+" (plus) / "-"(minus)} can be used with the rating symbols for the categories
IND AA to IND C. The modifiers reflect the comparative standing within the category.

Ind-Ra Rating Scale for Short Term Debt instruments [the instruments with original maturity
of up to one year]

IND A1
Instruments with this rating are considered to have very strong degree of safety regarding
timely payment of financial obligations. Such instruments carry lowest credit risk.

IND A2
Instruments with this rating are considered to have strong degree of safety regarding timely
payment of financial obligations. Such instruments carry low credit risk.

IND A3
Instruments with this rating are considered to have moderate degree of safety regarding timely
payment of financial obligations. Such instruments carry higher credit risk as compared to
instruments rated in the two higher categories.

IND A4
Instruments with this rating are considered to have minimal degree of safety regarding timely
payment of financial obligations. Such instruments carry very high credit risk and are
susceptible to default.

IND D
Instruments with this rating are in default or expected to be in default on maturity.
Note: Modifier {"+" (plus)} can be used with the rating symbols for the categories IND A1 to IND
A4.
The modifier reflects the comparative standing within the category.

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Table :- Risk weightage of Ratings Scales

Credit Ratings – Benefits

The benefits of a India Rating are manifold, ranging from reduction in information asymmetry in
the market at the macro level to facilitating comparative assessment of investment options,
enhancing access to investor funds, and complementing an investor's own credit analysis at the
micro level. Every segment of the market has been benefiting from India credit ratings. Some of
the benefits of India credit ratings are as follows:

For the Financial System

 Reduces information asymmetry in the market by providing quality credit information

on debt instruments to all market players
 Facilitates pricing of debt instruments.
 Provides independent peer comparison.
 Provides added liquidity.
 Facilitates access to capital markets.

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For Investors

 Facilitates comparative assessment of investment options, as ratings are designed to be

comparable across issuers in different businesses.
 Complements investors' own credit analysis.
 Facilitates asset monitoring, as ratings are kept under review until the rated instrument
is repaid.
 Broadens the investor base.

For Issuers

 Provides independent credit information from a credible third party to the community
of potential investors.
 Enhances issuer's access to investor funds.
 Helps issuer differentiate itself in the market.
 Provides a universally accepted benchmark of issuers’ credit standing.

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8. CORPORATE RATING METHODOLOGY
Key Highlights
Qualitative and Quantitative Factors: India Ratings and Research (India Ratings) corporate
ratings reflect both qualitative and quantitative factors encompassing the business and financial
risks of fixed-income issuers and their individual debt issues.

Issuer Ratings: An Issuer Rating (IR) is an assessment of an issuer’s relative vulnerability to

default on financial obligations, and is intended to be comparable across industry groups.
Issuers may often carry both Long-Term and Short-Term IRs. Because both types of IRs are
based on an issuer’s fundamental credit characteristics, a relationship exists between them.

Instrument Ratings: The rating of an individual debt security can be different from the IR
depending on the security’s priority among claims, the amount of collateral, and other aspects
of the capital structure.

Historical and Projected Profile: India Ratings’ analysis typically covers at least three years of
operating history and financial data, as well as the agency’s forecasts of future performance.
These are used in a comparative analysis, through which the agency reviews the strength of an
issuer’s business and financial risk profile relative to that of others in its industry and/or rating
category peer group.

Weighting of Factors Varies: This comparative analysis includes consideration, where

appropriate, of the potential for changes in the issuer’s operating environment or financial
strategy relative to its ratings. The weighting between individual and aggregate qualitative and
quantitative factors varies between entities in a sector as well as over time. As a general
guideline, where one factor is significantly weaker than others, this weakest element tends to
attract a greater weight in the analysis.

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Industry Profile and Operating Environment

India Ratings determines an issuer’s rating within the context of each issuer’s industry
fundamentals. Industries that are in decline, highly competitive, capital intensive, cyclical or
volatile are inherently riskier than stable industries with few competitors, high barriers to entry,
national dominance, and predictable demand levels.

Major industry developments are considered in relation to their likely effect on future
performance. The inherent riskiness and/or cyclicality of an industry may result in an absolute
ceiling for ratings within that industry. Therefore, an issuer in such an industry is unlikely to
receive the highest rating possible (‘AAA’) despite having a very conservative financial profile.

Equally, reflecting differences in financial and management profile, not all issuers in low-risk
industries can expect high ratings. Instead, many credit issues are weighed in conjunction with
the risk characteristics of the industry, to arrive at a balanced evaluation of credit quality.

Operating Environment

India Ratings explores the possible risks and opportunities in an issuer’s operating environment
resulting from social, demographic, regulatory and technological changes. The agency considers
the effects of geographical diversification and trends in industry expansion or consolidation
required to maintain a competitive position. Industry overcapacity is a key issue, because it
creates pricing pressure and, thus, can erode profitability. Also important are the stage of an
industry’s life cycle and the growth or maturity of product segments, which determine the need

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for expansion and additional capital spending. In rating cyclical companies, India Ratings’
forecasts take a view on credit-protection measures and profitability “through the cycle” — to
identify an issuer’s equilibrium or mid-cycle rating. The primary challenge in rating a cyclical
issuer is deciding when a fundamental shift in financial policy or a structural change in the
operating environment has occurred that would necessitate a rating change. Even for less
cyclical companies that are likely to suffer profit downturns in a recession, India Ratings’ analysis
focuses on the degree to which the resultant forecast of the financial profile and/or a decline in
prospects for the business model may leave an issuer fundamentally weakened by the passage
through a recession.

Company Profile
Several factors indicate an issuer’s ability to withstand competitive pressures, which can include,
for example, its position in key markets, its level of product dominance, and its ability to
influence price. Maintaining a high level of operating performance often depends on product
diversity, geographical spread of sales, diversification of major customers and suppliers, and the
comparative cost position.

Size may be a factor if it confers major advantages in terms of operating efficiency, economies of
scale, financial flexibility, and competitive position. Size may not, however, always support
higher ratings. For example, in commodity industries, size is not as important as cost position,
since the ability of one participant to influence price in a global commodity is usually not
significant.

Management Strategy and Corporate Governance

India Ratings’ consideration of management strategy focuses on operating strategy, risk
tolerance, financial policies and corporate governance. Corporate goals are evaluated, centering
upon two main factors — strategy and track record.

Key factors considered are the mix of debt and equity in funding growth, the issuer’s ability to
support higher levels of debt, and the strategic fit of new assets. The historical mode of financing
acquisitions and internal expansion provides insight into management’s risk tolerance.

India Ratings considers management’s track record in terms of its ability to create a healthy
business mix, maintain operating efficiency, and strengthen its market position. Financial
performance over time provides a useful measure of management’s ability to execute its
operational and financial strategies.

Corporate governance — effective controls for ensuring sound policies and procedures in
boardroom effectiveness, board independence, management compensation, related-party
transactions, and integrity of accounting and audit — operates as an asymmetric consideration.
Where it is deemed adequate or strong, it typically has little or no impact on the issuer’s credit
ratings, i.e. it is not an incremental positive in the rating calculus. Where a deficiency which may
diminish bondholder protection is observed, the consideration may have a negative impact on
the rating assigned.

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Ownership, Support and Group Factors

Group Structure

India Ratings also considers the relationship between parents and their subsidiaries in assigning
issuer and debt issue ratings. In most cases, separate issuers of debt within a corporate group
are typically assigned separate (though potentially identical) IRs. The Criteria Report Parent and
Subsidiary Rating Linkage - Approach to Rating Entities within a Corporate Group Structure
explains India Ratings’ linkage framework reflecting the multi-faceted relationships between
group entities. These include legal jurisdiction, corporate structures, company by-laws, loan
documentation, the degree of integration between the entities, and the strategic importance of
each subsidiary.

Where the rated entity is the holding company of the group, analysis of the group structure
determines the degree of connectivity that exists. India Ratings analyses the credit quality of
material operating entities and their contribution (up streaming dividends, parental access and
control of subsidiaries’ cash flows) to the holding company or relevant rated entities.

Where a consolidated approach is not taken – because of material minority interests or other
considerations – India Ratings typically considers the sustainability and predictability of its
income streams (including cash pooling within the group, and conditional dividends being
upstreamed) used to service its debt, including the credit qualities of relevant entities and their
contribution to the group’s financial profile.

Financial Profile

The quantitative aspect of India Ratings’ corporate ratings focuses on an issuer’s financial profile
and its ability to service its obligations from a combination of internal and external resources.
The sustainability of these credit-protection measures is evaluated over a period of time — using
both actual historical numbers but more importantly India Ratings’ near-term forecasts — to
determine the strength of an issuer’s debt-servicing capacity and funding ability.
Those credit metrics with the greatest relevance are still not used in a determinate fashion to
assign ratings, as the same ratio (if relevant) should be expected to vary among these different
sectors. For example, an industry with low earnings volatility can tolerate higher leverage for a
given credit rating than an industry with high earnings volatility. In the Sector Credit Factor
series of reports, India Ratings has published observations of financial ratios per rating category
for various sectors.

Cash Flow Focus

India Ratings’s financial analysis emphasises cash flow measures of earnings, coverage and
leverage. Sustainability of cash flow from operations provides an issuer with both internal debt

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servicing resources and a stronger likelihood of achieving and retaining access to external
sources of funding.

India Ratings regards the analysis of trends in a number of ratios as more relevant than any
individual ratio, which represents only one performance measure at a single point in time. India
Ratings’ approach attributes substantially more weight to cash flow measures than equity based
ratios such as debt-to-equity and debt-to-capital. The latter rely on book valuations, which do
not always reflect current market values or the ability of the asset base to generate cash flows to
service debt.

Cash Flow and Earnings

Key elements in determining an issuer’s overall financial health are profits and cash flow, which
affect the maintenance of operating facilities, internal growth and expansion, access to capital,
and the ability to withstand downturns in the business environment. While earnings form the
basis for cash flow, adjustments must be made for such items as non-cash provisions and
contingency reserves, asset write-downs with no effect on cash, and one-time charges. India
Ratings’ analysis focuses on the stability of earnings and continuing cash flows from the issuer’s
major business lines. Sustainable operating cash flow supports the issuer’s ability to service debt
and finance its operations and capital expansion without the reliance on external funding.

Capital Structure
India Ratings analyses capital structure to determine an issuer’s level of dependence on external
financing. Several factors are considered to assess the credit implications of an issuer’s financial
leverage, including the nature of its business environment and the principal funds flows from
operations (see Figure 4: Definitions of Cash Flow Measures and Financial Ratios). Because
industries differ significantly in their need for capital and their capacity to support high debt
levels, the financial leverage in an issuer’s capital structure is considered in the context of
industry norms.

As part of this process, an issuer’s level of debt is typically adjusted, where applicable, for a
range of off-balance-sheet liabilities by adding these to the total on-balance-sheet debt level.
Such items include the following:

 Borrowings of partly owned companies or unconsolidated subsidiaries that may

involve claims on the parent issuer;
 Disclosed debt associated with receivables securitisations, if there is recourse to the
issuer;
 In cases where material amounts of debt are described as non-recourse to the rated
entity, India Ratings typically forms a view on the economic incentives behind the
non-recourse status before excluding the debt (and associated cash flows) in its
calculations;
 Operating lease obligations.

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 In situations where specific liabilities are excluded from the debt calculation, India Ratings may
also exclude any related cash flow, income or assets. Where appropriate, the issuer’s history in
supporting off-balance-sheet investments with additional funds will also be a factor in
determining the appropriateness of including or excluding these amounts from total debt in the
absence of a formal guarantee or commitment.

Preferred stock issues with fixed dividend payments or redemption dates may be considered as
quasi-debt instruments, and may be granted a degree of “equity credit” of 50% or 100%,
depending on their terms. As India Ratings’ corporate analysis is heavily cash flow-oriented, the
level of equity credit which is granted only affects the quantum of debt in adjusted leverage
ratios, and 100% of the coupons on hybrid instruments continue to be incorporated in coverage
ratios used to measure the issuer’s debt-servicing ability. This reflects India Ratings’ view that
hybrids predominantly offer protection to senior creditors by reducing loss given default, rather
than decreasing default likelihood.

Financial Flexibility

Financial flexibility allows an issuer to meet its debt-service obligations and manage periods of
volatility without eroding credit quality. The more conservatively capitalised an issuer, the
greater its financial flexibility. In general, a commitment to maintaining debt within a certain
range allows an issuer to cope better with the effect of unexpected events on the balance sheet.

Other factors that contribute to financial flexibility are the ability to redeploy assets and revise
plans for capital spending, strong banking relationships, and the degree of access to a range of
debt and equity markets. Committed, long-dated bank lines provide additional support. A large
proportion of short-term debt in the capital structure can indicate reduced financial flexibility,
except in cases where overall gross leverage is very modest — as is the case for a small number
of very highly-rated issuers whose very moderate debt burdens are predominantly based on
Commercial Paper funding with liquidity back-up.

Contingent Liabilities and Pensions

Financial flexibility can also be diminished by significant contingent obligations such as

guarantees, collateral requirements for derivative exposures, and legal liabilities. Each of these
can cause substantial drains on cash flow, which can severely reduce or even eliminate financial
flexibility.

Accounting
India Ratings’ rating process is not and does not include an audit of an issuer’s financial
statements. The issuer’s choice of major accounting policies may inform India Ratings’ opinion
on the extent to which an issuer’s financial statements reflect its financial performance.
Relevant areas include consolidation principles, valuation policies, inventory-costing methods,
depreciation methods, income recognition and reserving practices, and treatment of off

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balance-sheet items. As part of its rating analyses, India Ratings will restate figures, where
necessary, to enhance the comparability of financial information across issuers.

Because different accounting systems can affect an issuer’s assets, liabilities and reported
income, India Ratings may on occasion make adjustments as appropriate to increase
comparability with other companies in the peer group. Such adjustments include those made for
revenue recognition, asset values, leased property, contingency reserves, and treatment of tax
and off-balance-sheet liabilities. The general principal India Ratings applies in its adjustments is
to get back to measurements of cash: cash balances, cash flow, and cash needs.

India Ratings analysts typically use audited accounts that are prepared according to Local GAAP,
International Financial Reporting Standards (IFRS) or US Generally Accepted Accounting
Principles (US GAAP). If such statements are not available, India Ratings will use other
statements provided, and published management comments to make appropriate adjustments
for comparative analysis, if appropriate and provided the quality of the auditors or other
reviewing parties employed — and disclosure — is adequate.

Limitations of Corporate Methodology

This Corporate Rating Methodology is a Master Criteria used in rating non-financial corporates.
Since non-financial corporates consist of a broad universe of entities, additional reports —
including those specific to a sector, to a class of liability, to a particular form of cross-sector risk,
or to a particular form of corporate structure — provide additional background to the
application of this Master Criteria piece. This Master Criteria identifies factors that are
considered by India Ratings in assigning ratings to a particular entity or debt instrument within
the scope of the Master Criteria. Not all rating factors in these criteria may apply to each
individual rating or rating action. Each specific rating action commentary or rating report will
discuss those factors most relevant to the individual rating action.

General Limitations

In common with other IRs, general limitations relevant to the issuer credit rating scale include:

 The ratings do not predict a specific percentage of default likelihood over any given time
period;
 The ratings do not opine on the market value of any issuer’s securities or stock, or the
likelihood that this value may change;
 The ratings do not opine on the liquidity of the issuer's securities or stock;
 The ratings do not opine on the possible loss severity on an obligation should an issuer
default;
 The ratings do not opine on the suitability of an issuer as a counterparty to trade credit.

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The ratings do not opine on any quality related to an issuer’s business, operational or financial
profile other than the agency’s opinion on its relative vulnerability to default.

Specific Limitations - “Event Risk”

“Event Risk” is a term used to describe the risk of a typically unforeseen event which, until the
event is explicit and defined, is excluded from existing ratings. Event risks can be externally
triggered — a change in law, a natural disaster, a hostile takeover bid from another entity — or
internally triggered, such as a change in policy on capital structure, a major acquisition, or a
strategic restructuring.

Merger & acquisition risk is statistically the single most common event risk, and can serve as an
example of how event risk may be included or excluded from ratings.

Factors Affecting Information Usage by India Ratings

The primary source of information behind ratings remains the public information disclosed by
the issuer, including its audited financial statements, strategic objectives, and investor
presentations. Other information reviewed includes peer group data, sector and regulatory
analyses, and forward-looking assumptions on the issuer or its industry. India Ratings, in
common with other credit rating agencies, has no power to compel information disclosure by
rated entities, nor would it seek any such power.

The exact composition of data-points required to assign and maintain ratings will vary over time.
Amongst other factors, this variation reflects that:

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  The operational and financial profiles of rated issuers evolve constantly and this
evolution may require greater or lesser emphasis on specific information elements in the
rating calculus;
 Different and fresh challenges from macroeconomic, financing or other environmental
factors will arise for rated issuers over time, which in turn each require greater or lesser
emphasis on specific information elements;
 India Ratings’ own rating criteria will evolve over time, and with them, the relative
emphasis placed on specific information elements.

In most cases, the public disclosure of a major capital markets issuer will permit, at a minimum,
that an experienced rating agency analyst, with access to significant market intelligence from the
rest of their portfolio, may reach grounded rating judgments. Where the aggregate information
level nonetheless falls below an acceptable level for any reason, India Ratings will withdraw any
affected ratings.

Direct participation from the issuer can on occasion add information to the process. The level,
quality and relevance of direct participation itself, however, vary between all issuers, and also
vary for each individual issuer over time. Information flow may dip or lapse entirely (for example
at a time of financial stress for the rated entity, or in advance of a corporate merger or
restructuring), irrespective of the nature of the relationship between India Ratings and the rated
entity.

Where the aggregate information level falls below an acceptable level for any reason, India
Ratings will withdraw any affected ratings.

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9. PITCH BOOK: CEMENT SECTOR
Outlook Report: Indian Cement Manufacturers
2013 Outlook: Fragile Recovery; Smaller Players Unlikely to Benefit
Rating Outlook: S T A B L E T O N E G A T I V E

Summary

Strengthening Bipolarization: India Ratings has revised its outlook for the Indian cement
manufacturers to stable to negative for 2013 from negative in 2012. Limited downside risk for
demand is the key driver for the outlook improvement. India Ratings expects EBITDA margins for
integrated players (essentially the top five companies) for FY13 to be in the range of 23%-24%, in
line with FY12 margins. These companies are expected to maintain stable credit profile.
However, margins of smaller players are expected to be in the range of 17%-19%, lower than
median margins of 21% in FY124. The credit profile of such small non-integrated players may
experience some pressure.

Demand Stabilization: Given the slight moderation in credit growth in the housing and
commercial real estate sector, India Ratings expects the cement demand to grow between 5%-
8% yoy in 2013.

Overall Capacity Utilisations Bottomed Out: Given the expected stabilization in demand,
capacity utilisations may have bottomed out at around 71% in FY12. This is in line with the
agency’s 2012 outlook. However, South Indian companies may continue to experience pressure
on capacity utilisations. This is due to the demand-supply gap in the region.

Impact on Credit Profiles: In FY12 and H1FY13, median EBITDA interest coverage ratio improved
for both integrated (FY12: 13x, FY11: 10x) and small players (FY12: 3.8x, FY11: 2.7x) on the back
of improved EBITDA margins. Based on H1FY13 margins, coverage ratios are unlikely to improve
significantly in FY13. Median leverage (net debt/EBITDA) for integrated players will show
marginal improvement while small players leverage is unlikely to improve in 2013.

Consolidation for the Deserving: Structural industry aspects such as overcapacity and emerging
regulatory trends may further intensify the consolidation in the industry. Consolidation targets
are more likely to be companies with at least some strength, either with respect to access to
resource (raw material and power/fuel) or proximity to relatively underserved markets.

4
Outlook Report: India Ratings & Research 2013

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What Could Change the Outlook?

Supportive Policy Action: Government policies to check fiscal deficit and support higher
incremental investment in the country may translate into higher industrial capex. A minimal rate
cut in the range of 25bp-75bp may have a limited positive impact on the housing sector and thus
on the cement demand.

Fiscal Loosening: Populist budget in 2013, driven by the 2014 general election, may impair
investment sentiment with possibly an adverse impact on Industrial capex and the infrastructure
sector. The housing sector demand may receive a short-term boost but that may fizzle out in a
couple of quarters. The overall impact would be lower-than-expected cement demand and
pressure on margins.

Key Issues

Recuperating Demand

In India Ratings’ assessment, in the absence of any significant boost in infrastructure or real
estate construction activity (which may be a result of a possible substantial reduction in interest
rate), cement growth may remain in the range of 5%-8% in 2013.

Before 2008-2009, the cement demand in India was largely driven by infrastructure activity.
However, from 2010 the demand is driven more by the activity in the housing and commercial
real estate sector (CRE). Before April 2010, the cement demand growth showed a positive
correlation (0.33-0.55) with credit growth to infrastructure, construction and roads sector, with
a lag of three to six months. However, after April 2010, the demand growth has shown a positive
correlation (0.3-0.5) with credit growth of housing and commercial real estate sector, with a lag
of six to nine months.

Cement production volume grew significantly in 2012, driven by a relatively robust activity in
housing and commercial real estate. From September 2010 to March 2012, the average growth
in credit to the housing sector was around 15% and credit growth to commercial real estate was
around 16%. However, during March-November 2012, credit growth to the housing sector
moderated to 13%, while for CRE, credit growth averaged only 4%. This may imply a moderation
in cement demand in the next six to nine months.

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India Ratings expects the pace of capacity addition to decline in 2013 since large capacity
additions in anticipation of demand growth have already taken place during FY08-FY11. Growth
in capacity additions is likely to be around 5%-6% in the next three years (FY12: around 5%). In
line with India Ratings’ 2012 outlook, overall capacity utilisation was 71% in FY12. Southern
Indian companies’ capacity utilisation (FY12: 61%, FY11: 65%) is lower than that in other regions.
The agency expects that capacity utilisation is unlikely to cross 70% tillFY15 due to the continued
demand-supply mismatch in this region. However, all India capacity utilisation is likely to
improve with slow growth in capacity additions.

Higher Input Cost and Pricing Pressure

India Ratings expects the sector’s realisation to decline by 5%-10% yoy in 2013 given the
expected moderation in demand compared with the demand surge observed in 2012

Freight cost (17%-27% of cost of production) has increased substantially compared with raw
material, power and fuel costs from FY10-FY12 due to a rise in diesel cost and high inflation.
However, actual freight rate is likely to decline in 2013 (refer 2013 Outlook: India Auto Sector,
dated 8 January 2013) in a scenario of persistent weak economic condition, providing temporary
relief to cement companies. Any increase in economic activity will however cause the freight
rates to rise again.

During FY12, increased realisation and total volume mitigated the rise in total costs. Median
realisation for 18 companies increased to INR4,080 per tonne in FY12 (FY11: INR3,615 per tonne)
while median sales volume increased to 5 million metric tonnes (4.38 million metric tonnes).
However, median growth rate in realisation and total volume is slightly lower than the median
growth rate in overall costs.

Power and fuel costs have also increased from FY08-FY12 but at a slower pace compared with
freights. The agency expects mid-large size cement companies to reduce their power and fuel
costs with the increased use of captive power while smaller cements are vulnerable to volatility

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in international coal prices and currency rates, as most of them depend on international coal of
high calorific value.
Credit Profiles

For large integrated players (essentially the top five), the agency expects EBITDA margins to
remain around the FY12 levels (ranging between 23% and 24% on an average). Under a normal
growth scenario, non-integrated players enjoy EBITDA margin 250bp-300bp below the median
margin of the top five players. This is reflective of the cost structure-related inadequacy of non-
integrated players. However, in years of stressed growth (such as FY11), the difference in
median margin between the top five and the remaining players was in excess of 900bp. Any
moderation in demand tends to have a disproportionately high and adverse impact on smaller
non-integrated players.

As per H1FY13 results, the difference between the median EBITDA margins of the top five
players and the rest is over 650bp. Although the smaller players (particularly in South India) are
likely to show marginally improved performance in H2FY13 based on the demand pattern
observed historically, their margins will range between 17% to 19%. This is lower than the
median margin of 21%, observed in FY12 for this subgroup.

Based on H1FY13 margins, coverage ratios are unlikely to improve significantly in FY13.
However, they are unlikely to deteriorate over FY12 levels. Median interest cost for group of 18
companies increased to INR796.6m in FY12 from INR581m in FY11.

Consolidation for the Deserving

India Ratings expects consolidation in the cement industry in the medium-to-long-term with
large M&A activities in the sector. The top five companies, constituting around 50% of the
industry capacity, enjoy a better cost structure driven by significant vertical integration and
locational advantage with respect to sourcing of raw materials and market access. Most other
companies, because of lack of one or more of these factors, have a weaker competitive position.
The industry economics and the regulatory actions exhibited by the Competition Commission of
India may push marginal players to consolidate.

However, not all marginal companies would be attracting acquirers. Companies with either
access to resources (raw material and power/fuel) or proximity to relatively underserved
markets or both are most likely to be targeted for consolidation.

As the Indian cement industry is the second-largest producer in the world, it attracts many
international cement companies. Many international players have already entered into the
market by acquiring small stakes in the companies which have huge raw material sources or by
aligning themselves with the companies in their future expansion plans.

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Outlook Report: EMEA Building Material5
Rating Outlook: S T A B L E

Prudent Measures Offset Conditions: Market conditions for EMEA building material companies
remain difficult, especially due to weakening demand in Europe. However, the sector outlook
remains stable because most issuers have taken cash preservation and operating cost saving
measures that should allow credit metrics to remain stable or slightly improve. Moreover, most
issuers have sufficient headroom to maintain their rating, even if there is a moderate tightening
in financial metrics.

Uneven Market Trends: Emerging markets will remain the main growth driver for building
material products in 2013, continuing the positive trend showed in 9M12. Demand is likely to
remain sustained in Asia and Latin America as a result of continued growth in Brazil, Russia, India
and China. Recovery in North America could continue at a slow pace, while the outlook in
Europe will remain sluggish, with volumes decline continuing.

Prices Support Margins: Price trends have been positive during 2012, allowing producers to pass
on production cost increases and to recover part of the profitability lost in 2011. Fitch expects
the positive price trend to continue in 2013 and margins to stabilize, despite continued cost
inflation.

Benefits from Cost Cutting: Cost-cutting programmes accelerated during 2012, with some
positive effects already visible. Major benefits will materialise in 2013, due to a combination of
higher savings, as restructuring measures are fully implemented, and lower one-off costs.

Prudent Capex Policies: Fitch expects issuers to maintain their focus on cash preservation and
forecasts capex policies to remain prudent in 2013. Maintenance capex should remain low
compared with historical levels due to lower capacity utilisation rates following sluggish volumes
sales in Europe. Expansion capex will be limited and focused on high-return investments, mainly
in emerging markets.

Limited M&A Risk: Fitch does not believes that major M&A deals will be on the cards in 2013 as
deleveraging will remain the top priority for most issuers. Some issuers could continue their
usual external growth policy, but with bolt-on deals financed by internal cash generation.
Noncash deals (ie, creation of JVs) aimed at optimising the asset base could be more likely,
especially in some markets such as southern Europe.

Liquidity Still Solid: All major issuers have maintained a prudent approach on liquidity and
maintain solid cash piles. These are usually enough to cover all short-term debt maturities.

5
Fitch Group Global Outlook Reports

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Refinancing risk therefore remains limited. Moreover, access to capital markets in 2012 has been
good, with about EUR5.8bn new bonds issued by Fitch-rated entities in the sector.

What Could Change the Outlook?

Developed-Market Macroeconomic Trends: Building material prospects remain closely

correlated to macroeconomic trends. Worse-than-expected developments in Western Europe
could affect companies’ ability to generate free cash flows and reduce debt.
Any Emerging-Market Weakness: In the cement sector the main risk is the operational trend in
emerging markets. Muted economic conditions, leading to lower demand growth and difficulties
in passing cost inflation to final prices could affect margins and cash generation.

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10. PITCH BOOK: IT SECTOR
Outlook Report: Indian IT Services
2013 Outlook: Subdued Growth but Stable Liquidity
Rating Outlook: S T A B L E

Summary

Stable Outlook for 2013: India Ratings has maintained a Stable Outlook on Indian IT companies
for 2013 on expectations of a stable credit profile during the year.

Growth to Remain Muted: Revenue growth for 20136 is likely to remain subdued, as the
exchange rate of the rupee against the US dollar stabilizes. Growth will be led by better clarity
among customers over IT spends as well as an increase in discretionary spend. Although budgets
for IT spend are expected to be small, decision making is likely to be faster resulting in improved
deal inflow.

Pressure on EBIDTA Margins: India Ratings expects EBITDA margins to remain under pressure
during 2013, due to wage inflation and factors like shorter contract lengths leading to higher
customer acquisition costs. The positive impact of a significant INR depreciation against the USD
on the EBIDTA margins of Indian IT service companies during the early part of 2012 was offset
wage hikes and lower use levels of work force. EBITDA margins for the trailing 12 months (ttm)
ended September 2012 were 70bp lower than that in the corresponding period last year.

Liquidity Not a Challenge: The liquidity of the Indian IT services companies is likely to remain
stable, with support from low debt, large cash balances and stable working capital. Liquidity is
expected to come under threat only under significant stress scenarios such as a sharp
contraction in demand, an increase in receivable days, substantially large M&A activity,
extraordinary dividends or share buy-backs.

What Could Change the Outlook?

Event Risks: Key event risks that could have a selective negative impact on ratings of IT
companies include large dividend pay-outs or share buy-backs, or debt-funded acquisitions,
which either drain liquidity or increase financial leverage. Any materially adverse regulatory
developments that try to limit the ability of the US or Europe based companies to
offshore/outsource contracts could also impact the sector’s outlook negatively.

6
India Ratings & Research: Industry Outlook Reports

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Key Issue

Muted Revenue Growth

Revenue growth of IT services companies in 2013 will remain at levels similar to 2012’s.Clients
continue to spend on ‘run the business’ projects, and discretionary spend on ‘change the
business’ projects has also seen an uptick in the December 2012 quarter. There has also been no
significant project cancellations reported till date and client additions continue happen.
However, budgets for IT spends are expected to be smaller as customers have come to terms
with the uncertainty in the economic environment. Multiple sourcing, lower ticket deals rather
than mega deals and increasing competitiveness can lead to increasing volatility in revenue
growth for a few IT companies in 2013. Revenue growth of Indian IT companies moderated
during 2012 and fell back to the below 20% levels of 2010 after a currency rate driven
improvement in 2011. On a consolidated basis, revenue for select IT companies grew 9.8% yoy
during the 12 months ended September 2012 compared with the 22.5% yoy growth in the
corresponding period last year. The strong trend towards offshoring continued in the developed
markets.

44 | P a g e
EBIDTA Margins Likely to Remain Under Pressure

EBITDA margins may remain under pressure and decline moderately during 2013. Wage inflation
is likely to be the most important pressure point for Indian IT services companies with a large
offshore workforce in India. However, an increase in resource utilisation levels and gains in
higher value-added consulting segments are likely to contribute positively to the margins.

The trend towards shorter contract lengths will also lead to higher customer attrition rates in the
year apart from impacting margins due to higher client acquisition costs than in 2012.

On the other hand, factors that can lead to a margin expansion would be an increasing
proportion of revenue coming from an expansion of consultancy and system integration
opportunities; these would be especially important for large IT companies.

On a consolidated basis EBITDA margins for the select companies declined 70 bps over ttm
ended September 2012 over the corresponding previous period due to wage inflation.

Liquidity Profiles Continue to be Stable

Liquidity for the Indian IT services companies continues to be stable and draws support from
their high cash balances, nil-to-low debt levels and positive cash flow from operations. Total
combined cash with select IT companies was INR386.1bn and INR361.1bn as of 31 March 2012
and 30 September 2012, respectively. Consolidated debt for these companies for corresponding
period was a low INR70.9bn and INR73.9bn, indicating low debt levels compared with the cash
held.

45 | P a g e
Acquisition Activity Will Continue

India Ratings expects M&A activity to continue in 2013. The M&A strategy of Indian IT services
companies focuses on acquiring targets that provide them domain expertise in select segments
and entry into new regional markets. The focus seems to be on expanding base in the European
countries as valuations have become cheaper due to difficult economic conditions. Other
preferred destinations are Middle East, Asia Pacific regions like India, Singapore and Australia.
The acquisition targets are like to be companies with offerings in solutions in analytics, cloud
computing, and mobile services. Another area of interest would be in gaining access to long-
term government outsourcing contracts in the US and targets from markets such as France,
Germany and Japan. India Ratings considers large and high-premium acquisitions that either
drain liquidity substantially or result in a material increase in leverage as negative for the credit
profiles.

2012 Review

Ratings Were Stable

India Ratings’ Outlook on the Indian IT services companies in 2012 was Stable driven by their
strong liquidity position, despite an expected moderation in revenue growth. The credit profiles
remained stable in 2012, with no rating changes. MindTree Limited’s outlook was revised to
Stable from Negative in August 2012.

Hiring Levels Slowed Down

A drop in hiring levels by Indian IT services companies was visible during 2012 following strong
hiring in 2011. Net aggregate hiring of select companies reduced by around 30% yoy in 9M12.

Major M&A Activity

Indian IT services companies continued to report significant acquisitions throughout 2012.
Infosys acquired a Swiss-based consulting firm Lodestone Technologies for USD330.0m to
expand its presence in Europe with additional clients and local workforce. Cognizant entered
into a USD330.0m multi-year deal with the US insurance business unit of The ING Group, which
also involved transfer of employees and facilities. Wipro acquired an Australia-based analytics

46 | P a g e
product company Promax Applications Group for USD35.0m. TCS made a USD34m acquisition of
a start-up in the area of high performance computing.

Outlook Report: U.S. Technology

2013 Outlook: Ratings Stable despite Numerous Negative Headwinds7
Rating Outlook: S T A B L E

Negative Growth Expected: Fitch Ratings believes the U.S. technology sector will experience
negative revenue growth in the low single digits in 2013, as a confluence of factors ranging from
the U.S. debt ceiling, Europe’s debt crisis, and China’s government changes has resulted in
excess caution from customers. The launch of Windows 8 and Windows Server 2012 and
continued long-term secular tailwinds related to security, cloud, analytics, tablets, automation,
and emerging markets should serve as mitigants to the weak macroeconomic environment.

Falling Knives: The stock prices of some of the largest technology debt issuers plunged in 2012,
as long-term growth expectations are being reset downward. Hewlett-Packard Company (HP),
Dell Inc. (Dell), Western Union Company (Western Union), and Xerox Corporation (Xerox), to
name a few, have experienced significant pressure on their stock prices. While the headline risks
for Dell and HP likely are overblown, Fitch does believe the risks related to Western Union as an
LBO candidate are viable, as the company’s enterprise value to EBITDA has declined to 6.1x. It is
questionable whether Western Union’s current market capitalization of nearly $8 billion could
be financed in this challenging environment.

2008–2009 Revisited: Fitch believes the majority of the technology sector will be able to
withstand a downturn and perform as it did in the 2008–2009 recession (reduce share buybacks,
have temporary spikes in leverage, and, for some, benefit from counter-cyclical working capital).
However, several important factors make current businesses less flexible than in 2008–2009,
including significant secular issues (printing, tablets, and new chip technologies), a fiercer
hardware competitive landscape, and higher dividend commitments.

7
Fitch Ratings: Global Outlook Reports

47 | P a g e
New Product Launches — The Great Unknown: 2013 marks an important year for the industry
with the launch of several high-profile products, such as Windows 8, Ultrabooks, and hybrid PC-
tablets. This is especially critical for Microsoft Corporation (Microsoft), Dell, HP, and Intel
Corporation (Intel), all of which have been limited participants in faster growing products over
the last two years. Fitch expects a successful uptake of Windows 8 because of consumer reliance
on the Microsoft platform and its extensive enterprise installed base. However, the timing will
not be immediate. Fitch gives it a low probability, but there is a risk of weak consumer adoption
of Windows 8 products, because of the new interface and consumers’ increasing comfort with
Apple and Android products.

48 | P a g e
11. COMPANY ANALYSIS:
FUNDAMENTAL ANALYSIS & PEER COMPARISON

49 | P a g e
Portfolio of companies

Company name Credit Rating Industry

Amara Raja CRISIL AA /CRISIL A1+ Auto Ancillaries
Batteries Limited
Andhra ICRA A-/ICRA A2+ Commodity
Petrochemicals Chemicals
Ltd
Divi's CARE AA+/CARE A1+ Pharmaceuticals
Laboratories Ltd
Neha Not rated yet Floriculture&
International Agri business
Suryalata ICRA BB+/ICRA A4+ Textile & Textile
Spinning Mills Ltd Products
Visaka Industries CARE A+/CARE A1+ Cement product
Limited
Ramky CRISIL A-/CRISIL A2+ Infrastructure,
Infrastructure Construction &
Ltd. Real Estate
Anjani Portland CARE BB/CARE A4 Cement
Cement Manufacturing

50 | P a g e
11.1 Amara Raja Batteries Limited
Amara Raja Batteries Limited (ARBL), the largest manufacturer of Standby Valve Regulated Lead
Acid (VRLA) batteries in the Indian Ocean Rim region in collaboration with Johnson Controls Inc.,
USA, brings to the discerning Indian customer a wide range of India’s most powerful
Maintenance Free batteries to choose from. The company has its fully integrated world class
manufacturing facility in the holy city of Tirupati, Andhra Pradesh. It has reached a position of
leadership in a short span of time with its innovative engineering, research and design to deliver
customer focused products targeting the actual requirements of customers.

Plant/manufacturing locations
Renigunta-Cuddapah Road, Karakambadi
Tirupati - 517520
Andhra Pradesh - India
`
CAPACITY UTILISATION
Particulars FY09 FY10 FY11
Capacity (units) 8,800,000 9,300,000 10,070,000
Utilisation (units) 5,070,387 6,424,560 8,188,533
Utilisation (%) 57.61803409 69.08129032 81.31611718
Average realisation per unit ( 0.002605788 0.002305993 0.002160129
Revenue/ units)

FINANCIAL *Amounts in
SUMMARY Millions
Particulars FY09 FY10 FY11 FY12 FY13
Revenue 13212.352 14814.990 17688.29 23809.298 29810.775
Revenue growth 12.13% 19.39% 34.60% 25.21%
Operating EBITDA 1927.831 2699.512 2651.52 3560.489 4711.956
Operating EBITDA 14.59% 18.22% 14.99% 14.95% 15.81%
MARGIN
Interest cover 8.676 33.523 73.067 76.269 -
Net worth 4055.864 5436.427 6459.27 8234.69 10598.134
Adjusted 1.944 0.716 0.783 0.376 0.288
Debt/EBITDA
Net adjusted 1.580 0.484 0.612 -0.266 -0.583
debt/EBITDA
Debt/ Net worth 0.704 0.167 0.154 0.103 0.082
ROCE 0.222 0.345 0.299 0.329 0.339
NET WORK CAP 79.12 83.79 106.60 81.270 69.379
DAYS

51 | P a g e
Financial Performance Indicators:
2.5

2 Revenue growth

1.5 Operating EBITDA MARGIN

Adjusted Debt/EBITDA
1

Net adjusted debt/EBITDA

0.5

Debt/ Net worth

0
FY09 FY10 FY11 FY12 FY13
Return on cap employed
-0.5 (EBIT/cap employed)

-1

90 120 106.60
80 73.067 76.269
100
70 79.12 83.79 81.27
60 80 69.37
50
60
40 33.523
30 40
20 20
8.676
10
0 0
FY09 FY10 FY11 FY12 FY09 FY10 FY11 FY12 FY13

Interest cover Net working capital cycle

Net working capital cycle has been decreased in last 3 years showing the companies’ operational
efficiency. The operational performance has been upgraded from previous years. ROCE in the
last 4 years is maintained at comparable levels which depicts that the company performance
and financial stability is strong. Profit reserve is increasing in last 3 years, showing the increase in
profit margin year on year. Net worth has increased, as more reserves are formed out of profit
reserve. Increased debtors show Company’s has been more engaged in credit sales.

52 | P a g e
Peer Comparison: Auto Ancillaries Industry
Company Market P/E (TTM) EV/EBIDTA ROE ROCE D/E
Cap
(Rs. in Cr.) (x) (x) (%) (%) (x)
Bosch 27,192.56 30.83 16.58 18.6 23.9 0.05
Motherson Sumi 12,304.75 26.2 13.29 27.8 24.4 0.76
Exide Inds. 10,336.00 19.77 12.66 16.3 23.1 0
Amara Raja Batt. 4,708.96 16.08 6.38 29.3 32.9 0.13
WABCO India 3,109.53 23.78 12.28 33.5 45.9 0
Amtek India 1,874.85 13.99 9.28 8 9.5 1.22
Amtek Auto 1,506.15 5.62 7.47 6.7 7.6 0.84
Bosch Chassis 1,238.98 45.81 0 7.2 9.8 0.09
Federal-Mogul Go 1,129.29 0 17.24 -2.3 3.9 0.43
Wheels India 829.77 26.03 5.47 15 21.1 1.57
INDUSTRY AVERAGE 18.781 10.065 16.01 20.21 0.509

50

Bosch
40
Motherson Sumi
Exide Inds.
30
Amara Raja Batt.
WABCO India
20
Amtek India
Amtek Auto
10
Bosch Chassis
Federal-Mogul Go
0
(x) (x) (%) (%) Wheels India

P/E (TTM) EV/EBIDTA ROE ROCE

-10

Amara raja is positioned well in Auto Ancillaries Industry in comparison to its peers with ROE &
ROCE. Its P/E (TTM) are comparable to industry averages.

53 | P a g e
Key Business Risks & Issues:
ARBL will sustain its healthy growth in business performance over the medium term, driven by
its established market position in the domestic storage battery segment, and improving revenue
and customer diversity, including from capacity being added.

Key Business risks and issues for ARBL include the following:

 Multi-tiered and highly fragmented domestic auto supplier segment: Intense

competition in the domestic storage batteries segment, especially in the automotive
aftermarket and telecommunication (telecom) battery sub-segments. Although the
company’s operations are consolidated in Andhra Pradesh (permitting economies of
scale), there are also moderate logistical disadvantages, with the consuming markets
spread across the country.
 Capex requirement for innovations in technology: Since innovations are required at
continuous basis in Auto Ancillaries Industry, there could be the case where ARBL reports
lower-than-expected revenue growth due to delays in ramping up capacity post capex,
significant decline in operating profitability, or higher-than-expected debt-funded capex,
impacting ARBL’s key credit metrics.

Financial analysis of Amara Raja Batteries Limited is attached below:

Amara Raja
Batteries.xlsx

54 | P a g e
11.2 Andhra Petrochemicals Ltd
The Andhra Petrochemicals Ltd. (APL) was promoted by The Andhra Pradesh Industrial
Development Corporation (APIDC) and The Andhra Sugars Ltd. in 1984 as joint sector
Company. Subsequently the structure of the Company has changed into an assisted sector
Company with ASL being the major share holder. M/s APL was established with a capacity to
produce 30,000 MTPA of Oxo Alcohols at Visakhapatnam, Andhra Pradesh, India. The Plant has
recently undergone an Optimization & Modernization Scheme to increase the capacity to 73,000
MTPA. The Registered Office of the Company is situated at Tanuku. The Plant employs the latest
State of Art of Technology from M/s Davy Process Technology, London, U.K., with total capital
investment of around Rs. 4970 million. The Company commenced Commercial Production in
February 1994 and after the Modernization on 1st May, 2010.

Plant/manufacturing locations
Opp. Naval Dockyard Manufactur
Post Box No. 1401 e of Oxo-
Visakhapatnam - 530 014 Alcohols
Andhra Pradesh

Product Segment

FINANCIAL SUMMARY *Amounts in

Millions

Particulars FY10 FY11 FY12 FY13

Revenue 1437.587 4594.894 6056.059 5627.6

Revenue growth 219.63% 31.80% -7.07%

Operating EBITDA 11.50% 11.22% 4.06% 18.39%

MARGIN

Interest cover 3.342 1.698 0.160 10.433

Net worth 1618.725 1876.321 2127.09 2158.277

Adjusted Debt/EBITDA 9.476 2.893 3.168 0.612

Net adjusted 8.872 1.785 3.0480 0.484

debt/EBITDA

Debt/ Net worth 0.886 0.777 0.299 0.293

55 | P a g e
Financial Performance Indicators:
10
9
8 Adjusted Debt/EBITDA
7
6 Net adjusted
5 debt/EBITDA
4 Debt/ Net worth
3
2 Return on cap employed
1 (EBIT/cap employed)

0
FY10 FY11 FY12 FY13

12 10.433 100
10 78.073
80
8
60
6 41.213
40 35.099 35.167
4 3.342
1.698 20
2
0.160
0 0
FY10 FY11 FY12 FY13 FY10 FY11 FY12 FY13
Interest cover Net working capital cycle

EBITDA margin is increasing year on year showing strong financial performance of the company
(except 2012). The operational performance has been downgraded from previous years. ROCE is
improved in last 3 years which depicts that the company performance and financial stability is
strong. Profit reserve is increasing in last 3 years, showing the increase in profit margin year on
year. Net worth has increased as other reserves increased year on year along with profit reserve.
Increased debtors show Company’s has been more engaged in credit sales. But it drastically
decreased in 2013 showing company is leaving the current practice of credit sales.

56 | P a g e
Peer Comparison: Commodity Chemicals Industry
Company Market Cap P/E (TTM) EV/EBIDTA ROE ROCE D/E
(Rs. in Cr.) (x) (x) (%) (%) (x)
Castrol India 16,169.64 36.05 20.39 71.4 104.3 0
Pidilite Inds. 13,783.81 30.21 19.58 29.7 36.6 0.1
Godrej Inds. 10,592.32 277.19 28.98 10 10.5 0.46
Guj Fluorochem 3,074.45 7.72 7.96 32.8 38.4 0.37
BASF India 2,367.75 19.65 11.06 10 12.9 0.16
Linde India 2,251.39 104.35 15.35 4.1 4 0.75
Gulf Oil Corpn. 784.77 15.74 7.7 10.5 9.1 0.57
Balaji Amines 108.54 3.49 3.71 27.5 24.3 1.33
Oriental Carbon 106.14 3.88 3.6 23 23.7 0.63
Sah Petroleum 104.28 0 3.75 0.2 23.3 0
Panama Petrochem 102.36 8.62 0.37 16.9 24.8 0.05
Andhra Petrochem 97.29 15.68 3.24 15 18.7 0.52
INDUSTRY AVERAGE 14.104 10.474167 14.69 20.57273 0.411667

120

Castrol India
100
Pidilite Inds.
Godrej Inds.
80
Guj Fluorochem
BASF India
60
Linde India
Gulf Oil Corpn.
40
Balaji Amines
Oriental Carbon
20 Sah Petroleums
Panama Petrochem
0 Andhra Petrochem
(x) (%) (%)
EV/EBIDTA ROE ROCE

57 | P a g e
 1.4
Castrol India
1.2 Pidilite Inds.
Godrej Inds.
1
Guj Fluorochem

0.8 BASF India

Linde India
0.6 Gulf Oil Corpn.
Balaji Amines
0.4
Oriental Carbon
Sah Petroleums
0.2
Panama Petrochem

0 Andhra Petrochem
D/E

300
Castrol India
Pidilite Inds.
250
Godrej Inds.

200 Guj Fluorochem

BASF India

150 Linde India

Gulf Oil Corpn.
100 Balaji Amines
Oriental Carbon
50 Sah Petroleums
Panama Petrochem
0 Andhra Petrochem
P/E (TTM)

Though Andhra Petrochemicals Limited is small enterprise in Commodity Chemicals, it is

performing well with respect to its peers as far as financial metrics like P/E (TTM), ROE, ROCE
and D/E are concerned. Its performance is at par with industry averages in above metrics.

58 | P a g e
Key Business Risks & Issues:
Key Business risks and issues for Andhra Petrochemicals Limited include the following:

 Weakening profitability of the company on account of intermittent high feedstock prices

and weak global demand leading to pricing pressures in the domestic market.

 The company will face high power costs in the near term on account of lower availability
of power from the grid leading to purchase of power at merchant rates, thereby putting
further pressure on profitability.

 The credit profile might be constrained by the lack of integration benefits, being a
standalone petrochemical producer; dependence of margins on spreads between the
oxo-alcohols and the feedstock, leading to volatility and cyclicality of profitability; import
duty differentials and Rupee-US Dollar parity levels; threat of cheaper imports from
regions / countries like the Middle East, South East Asia, South Africa and Russia, where
the players enjoy the benefit of lower cost of feedstock either due to backward
integration of refineries or due to usage of natural gas; and high concentration risks due
to dependence on a single feedstock supplier, which exposes the company to force
majeure risks.

Financial analysis of Andhra Petrochemicals Limited is attached below:

Andhra
Petrochemicals Ltd.xlsx

59 | P a g e
11.3 Divi's Laboratories Ltd

Established in the year 1990, with Research & Development as its prime fundamental, Divis
Laboratories focused on developing new processes for the production of Active Pharma
Ingredients (APIs) & Intermediates. The company in a matter of short time expanded its breadth
of operations to provide complete turnkey solutions to the domestic Indian pharmaceutical
industry.

Plant/manufacturing Capacity (in

locations m3)

Choutuppal Unit: 1425

Lingojigudem Village,
Choutuppal Mandal
Nalgonda Dist. (A.P.),
Pin Code - 508 252. Generic API’s
Divi’s Pharma SEZ : 1413
Chippada Village
Bheemunipatnam Mandal Intermediates
Visakhapatnam Dist.(A.P.)
Pin Code - 531 163
Peptide
100% EOU-Chippada : 1820 Building Blocks
Chippada Village
Bheemunipatnam Mandal
Visakhapatnam Dist. (A.P.)
Product Segment
Pin Code - 531 163

4. DSN SEZ Unit : 2000

Chippada Village
Bheemunipatnam Mandal,
Visakhapatnam Dist. (A.P.)
Pin Code - 531 163

60 | P a g e
FINANCIAL *Amounts in
SUMMARY Millions

Particulars FY09 FY10 FY11 FY12 FY13

Revenue 12,025 9759.46 13436.634 19200.806 21896.498

revenue growth -18.84% 37.68% 42.90% 14.04%

Operating EBITDA 41.86% 45.04% 39.03% 39.03% 39.27%

MARGIN

interest cover 62.884 139.636 310.591 183.599 440.764

Net adjusted 0.135 0.137 0.095 0.104 0.036

debt/EBITDA

Debt/ net worth 0.0424 0.0216 0.0181 0.0289 0.0132

ROCE 0.34 0.24 0.25 0.31 0.30

net working capital 224.18 320.41 299.12 256.14 270.70

cycle( days)

Financial Performance Indicators:

0.5

0.4 revenue growth

0.3
Operating EBITDA
0.2 MARGIN
Net adjusted debt/EBITDA
0.1

0 debt/ net worth

FY09 FY10 FY11 FY12 FY13
-0.1
return on cap employed
-0.2 (EBIT/cap employed)

-0.3

61 | P a g e
 500 440.764 350 320.41
299.12
400
300 256.14 270.70
310.591 250 224.18
300 200
183.599 150
200 139.636
100
100 62.884
50
0 0
FY09 FY10 FY11 FY12 FY13 FY09 FY10 FY11 FY12 FY13
Interest cover Net working capital cycle( Days)

Majority of order book is coming from American & European Countries. Domestic order is
growing at a very slow rate. Overall revenue is export driven. EBITDA is increasing with every
year which indicates that the company's operational performance is good and improving.
Adjusted debt has increased which had been spent on purchasing Fixed Assets as there is a
increase in fixed assets and current assets. Net working capital cycle is at comparable level in last
3 years. ROCE is increasing in last 5 years showing strong operational and financial performance.
Total debt is decreased in FY13 as term loan was serviced.

Peer Comparison: Pharmaceuticals Industry

Company Market Cap P/E (TTM) EV/EBIDTA ROE ROCE D/E

(Rs. in Cr.) (x) (x) (%) (%) (x)

Lupin 38,090.09 30.22 21.23 23.4 22.7 0.3
Divi's Lab. 12,796.44 20.93 13.41 27.3 34.1 0.02
Jubilant Life 1,970.54 25.04 21.18 3.1 6.4 1.43
Hikal 695.99 27.28 5.65 22.4 18.2 1.53
Elder Pharma 690.45 7.5 6.59 12.9 13 1.25
Shilpa Medicare 631.98 13.73 9.34 16.3 18 0.19
Vinati Organics 491.53 7.16 5.63 33.2 31.3 0.75
Dishman Pharma. 443.04 7.01 5.44 6.8 10.2 0.8
Shasun Pharma. 352.05 14.43 7.48 14 8.9 1.05
Orchid Chemicals 343.8 0 7.67 9.7 8.3 1.75
Marksans Pharma 333.28 8.4 0 0 0 0
Nectar Lifesci. 320.75 3.74 6.25 9.7 11.2 1.22
Suven Life Scie. 277.98 9.02 10.21 11.3 9.1 0.64
Granules India 262.25 8.69 4.12 11.7 15.2 0.57
INDUSTRY AVERAGE 13.0821429 8.871429 14.41429 14.75714 0.821429

62 | P a g e
 40
Lupin
35 Divi's Lab.
Jubilant Life
30
Hikal
25 Elder Pharma
Shilpa Medicare
20
Vinati Organics

15 Dishman Pharma.
Shasun Pharma.
10 Orchid Chemicals
Marksans Pharma
5
Nectar Lifesci.
0 Suven Life Scie.
(x) (x) (%) (%)
Granules India
P/E (TTM) EV/EBIDTA ROE ROCE

2
Lupin
1.8
Divi's Lab.
1.6 Jubilant Life

1.4 Hikal
Elder Pharma
1.2
Shilpa Medicare

1 Vinati Organics
Dishman Pharma.
0.8
Shasun Pharma.
0.6 Orchid Chemicals
Marksans Pharma
0.4
Nectar Lifesci.
0.2 Suven Life Scie.

0 Granules India
D/E

Divis Lab is performing exceptionally well with respect to its peers as far as industry averages for
P/E (TTM), EV/EBIDTA, ROE and ROCE are concerned.

63 | P a g e
Key Business Risks & Issues:
Key Business risks and issues for Divi's Laboratories Ltd include the following:

 Product concentration risk

 Moderate customer concentration
 Forex risk related to the exports
 Long working capital cycle
 Ability of the company to diversify the customers and products base and maintaining the
profitability levels

Financial analysis of Divi's Laboratories Ltd is attached below:

DIVIS_LAB.xlsx

64 | P a g e
11.4 Neha International
A premium grower of cut roses, NEHA brings in 19 years of rich experience in the field of
floriculture. The company's innovative, eco-friendly farming practices helped harness the
excellent climatic and fertile land opportunities in Eastern Africa. Neha is credited for being one
of the top four growers in highland cultivation. Neha International group floriculture companies
produce some of the best possible hybrid roses and sell them at auction houses like Flora
Holland in Netherlands. Neha decided to make this foray utilizing its rich experience in
floriculture to tap into the agribusiness segment. Neha's products are exported to countries like
the UK and Netherlands in Europe, Japan in Asia, the Middle Eastern markets like Saudi Arabia,
Qatar, and UAE.

Cut Flowers
Plant/manufacturing
locations
Machinery Addis Ababa
(Ethiopia)

Trading Sales

Product Segment

FINANCIAL SUMMARY *Amounts in

Millions
Particulars FY10 FY11 FY12
Revenue growth 57.54% -11.02%
Operating EBITDA MARGIN 30.36% 26.65% 14.75%
Interest cover 4.893 7.478 2.883
Net worth 574.988 1683.069 2246.655
Adjusted Debt/EBITDA 1.0103 0.898 2.507
Net adjusted debt/EBITDA 0.485 -1.113 2.117
Debt/ Net worth 0.298 0.125 0.129
Net working capital cycle 44.83 31.26 138.587
ROCE 0.413 0.113 0.042

65 | P a g e
Financial Performance Indicators:
80.00%
60.00%
Revenue growth
40.00%
20.00% Operating EBITDA
MARGIN
0.00%
FY10 FY11 FY12
-20.00%

3 Adjusted Debt/EBITDA
2
Net adjusted debt/EBITDA
1

0 Debt/ Net worth

FY10 FY11 FY12
-1
Return on cap employed
-2 (EBIT/cap employed)

8 7.478 150 138.58

6 4.893
100
4 2.883
44.83
50 31.26
2
0 0
FY10 FY11 FY12 FY10 FY11 FY12
Interest cover Net working capital cycle

EBITDA has been decreased drastically in FY12 due to macroeconomic factors affecting the
floriculture business resulted in decreased revenue in FY12 by 11%. Adjusted debt has increased
which might have been spent on purchasing Fixed Assets as there is a increase in fixed assets
and current assets. Net working capital cycle is not maintained in stable manner. The
operational performance has been degraded from previous years, due to delays in cash flows
and low sales. Further the drastically decreased ROCE in the last 3 years depicts that the
company performance and financial stability is getting weak. Net worth has increased, as more
reserves are formed out of other reserves (foreign currency exchange reserve and capital
reserve)

66 | P a g e
Peer Comparison: Floriculture and Agriculture
Company Market Cap P/E (TTM) EV/EBIDTA ROE ROCE D/E
(Rs. in Cr.) (x) (x) (%) (%) (x)
JVL Agro Indus 168.57 2.79 0.74 20.1 20.7 0.6
Genera Agri 68.40 6.39 0 42 39.3 0.07
Neha Intl. 20.23 23 31.32 0.5 4.21 0.07
Pion. Agro Extr. 7.53 0 5.6 9.8 13.5 1.53
Elegant Floricul 8.56 142.67 34.26 0.1 0.3 0.03
Gemini Agritech 4.87 0 51.5 0 0 1.56
Naisargik Agri 3.97 325 0 0.4 0.5 0
German Gardens 3.77 6.65 0 12.6 7.7 2.24
INDUSTRY 6.471 15.427 4.68 6.701 0.762
AVERAGE

350
300 JVL Agro Indus

250 Genera Agri

200 Neha Intl.

150 Pion. Agro Extr.
100 Elegant Floricul
50 Gemini Agritech
0 Naisargik Agri
(x) (x) (%)
German Gardens
P/E (TTM) EV/EBIDTA ROE

2.5 45
JVL Agro Indus 40 JVL Agro
2 Indus
Genera Agri 35
Genera Agri
Neha Intl. 30
1.5
25
Pion. Agro Extr. Neha Intl.
20
1 Elegant Floricul
15
Gemini Agritech Pion. Agro
0.5 10 Extr.
Naisargik Agri 5
Elegant
0 German Gardens 0 Floricul
D/E ROCE

Being a small player in floriculture industry, Neha International’s performance is at moderate

level with respect to its peers with regard to industry averages for enterprise multiple and
ROCE.

67 | P a g e
Key Business Risks & Issues:
Key Business risks and issues for Neha international include the following:

 Trade environment, infrastructure and marketing issues such as high import tariff vis-a-
vis African countries, low availability of dedicated perishable carriers, higher freight rates,
inadequate support infrastructure and inadequate cold chain management constraint in
achieving economies of scale.
 Challenges mostly related to availability of basic inputs, including quality seeds and
planting materials, quality irrigation and skilled manpower, and ageing plantations.
 Low level of product diversification and differentiation, vertical integration and
innovation, and challenges associated with quality and environmental issues.

Financial analysis of Neha International is attached below:

Neha_international.x
lsx

68 | P a g e
11.5 Suryalata Spinning Mills Ltd

Suryalata Spinning Mills Limited is one of the largest producers of Yarn. It is basically into
manufacturing of Synthetic blended yarns of Polyester / Viscose, 100% Polyester and 100%
Viscose with counts ranging from 20s to 40s.

Plant/manufacturing
locations

i) Marchala Village ii) Urukondapet

Kalwakurthy Mandal Village, Midjil Mandal Textiles- spinning
Kalwakurthy- Kalwakurthy Mandal Synthetic/Blended
Mahabubnagar Road Kalwakurthy-
Mahabubnagar District Mahabubnagar Road
Andhra Pradesh Mahabubnagar District
Pin: 509 320 Andhra Pradesh
Pin: 509 320

Product Segment

FINANCIAL SUMMARY *Amounts in

Millions

Particulars FY09 FY10 FY11 FY12 FY13

Revenue growth 7.36% 45.89% 5.82% 8.89%

Operating EBITDA 8.41% 11.64% 20.11% 7.43% 11.39%

MARGIN

Interest cover -3.7462 -4.0747 1.2924 -3.8822 -3.5985

Net worth 202.218 245.439 425.612 499.157 567.2

Net adjusted debt/EBITDA 5.9105 4.52683 1.9361 4.92437 3.76347

Debt/ Net worth 3.8803 3.5878 2.1548 1.8296 2.1736

ROCE 0.078 0.120 0.412 0.124 0.171

Net working capital cycle 52.92 53.18 82.68 54.06 68.61

69 | P a g e
Financial Performance Indicators:
8

4
Revenue growth

2 Operating EBITDA MARGIN

Interest cover
0 Net adjusted debt/EBITDA
FY09 FY10 FY11 FY12 FY13
Debt/ Net worth
-2

-4

-6

0.5 100
0.412 82.682
0.4 80 68.616
0.3 52.92 53.180 54.063
60
0.2 0.171
0.120 0.124 40
0.078
0.1
20
0
FY09 FY10 FY11 FY12 FY13 0
FY09 FY10 FY11 FY12 FY13
Return on cap employed (EBIT/cap
employed) Net working capital cycle

EBITDA margin is decreasing in last 3 years showing weak financial performance of the company,
though in FY13 it recovered significantly. Net working capital cycle is decreased in last 3 years
showing the companies’ operational efficiency. ROCE in the last 4 years is maintained at
comparable levels which depicts that the company performance and financial stability is
moderate. Profit reserve is decreasing in last 3 years, showing the decrease in profit margin year
on year. Net worth has increased, as more reserves are formed out of other reserve.

70 | P a g e
Peer Comparison: Textile & Textile product
Company Market P/E (TTM) EV/EBIDTA ROE ROCE D/E
Cap
(Rs. in Cr.) (x) (x) (%) (%) (x)
RSWM Ltd 298.52 4.4 9.07 -7.3 4.7 4.07
Sangam India 131.27 2.54 5.6 8.9 10.3 2.93
Winsome Textile 88.6 4.6 9.95 -9.6 6.1 2.43
Banswara Syntex 56.05 4.65 5.72 8.9 11.5 3.74
Jindal Cotex Ltd 41.72 9.46 29.78 -5.7 0.7 0.55
Deepak Spinners 18.03 1.39 2.94 14.1 15.8 1.1
Suryalata Spg. 17.98 1.62 5.34 9.4 10 1.88
Samrat Spinners 15 0 0 16.6 12.3 1.37
East Ind.Syntex 13.32 0 0 6.1 -14.3 0
Rel. Chemotex 11.3 1.79 5.51 7.5 14.3 1.62
INDUSTRY AVERAGE 2.332222 4.8275 4.89 7.14 1.969

35

30
RSWM Ltd
25
Sangam India
20
Winsome Textile
15 Banswara Syntex
10 Jindal Cotex Ltd
5 Deepak Spinners

0 Suryalata Spg.
(x) (x) (%) (%) (x) Samrat Spinners
-5
P/E (TTM) EV/EBIDTA ROE ROCE D/E East Ind.Syntex
-10
Rel. Chemotex
-15

-20

Being a small player in textile & textile product industry, Suryalata Spinning Mills’ performance
is at moderate level with respect to its peers with regard to industry averages for enterprise
multiple and ROCE.

71 | P a g e
Key Business Risks & Issues:
Key Business risks and issues for Suryalata Spinning Mills include the following:

 Subdued demand scenario which shall keep the financial profile of the company modest
despite the significant improvement witnessed during the financial year 2010-11.
 There is a proposed debt funded capacity expansion which shall strain the financial
profile of the company, given the rising interest rates and modest profitability.
 Production disruptions due to the ongoing Telangana agitation could impact the sales
and consequently stretch the liquidity in the near term.

Financial analysis of Suryalata Spinning Mills is attached below:

Suryalata Spinning
Mills Ltd.xlsx

72 | P a g e
11.6 Visaka Industries Limited

Visaka Industries was established in 1981 to

manufacture corrugated cement fiber
sheets. With the initial production capacity
of 36,000 tons per year, the first factory in Building Products
Patancheru, Andhra Pradesh commenced
the commercial production of the cement
sheets in 1985. The company diversified into
textile yarn manufacturing in 1992. Visaka
Synthetic Yarn
took the unknown Airjet spinning
technology as a challenge & successfully
established the factory in Nagpur to
produce about 2000 tons of man-made fibre
yarns per annum.
Product Segment

Particulars *Amounts in
Millions
Revenue based on FY09 FY10 FY11 FY12 FY13
product segments
Building Products 4565.928 4846.555 5070.169 6072.592 7447.41
Synthetic Yarn 1173.47 1195.919 1432.788 1374.563 1649.32

FINANCIAL *Amounts in
SUMMARY Millions
Particulars FY09 FY10 FY11 FY12 FY13
Revenue growth 4.65% 7.90% 14.25% 21.58%
Operating EBITDA 21.96% 6.43% 13.00% 9.84% 11.90%
MARGIN
Interest cover 6.574 1.924 7.119 3.998 5.972
Net worth 1877.945 2357.282 2613.512 2864.76 3260.466
Net adjusted 0.965 3.247 1.886 1.608 2.636
debt/EBITDA
Debt/ Net worth 0.898 0.687 0.722 0.510 0.895
Net working capital 59.32 72.51 103.94 89.79 132.41
cycle (Days)
ROCE 0.304 0.051 0.226 0.168 0.222

73 | P a g e
Financial Performance Indicators:

8
7
6 Revenue growth
5 Operating EBITDA MARGIN
4 Interest cover

3 Adjusted Debt/EBITDA
Net adjusted debt/EBITDA
2
Debt/ Net worth
1
0
FY09 FY10 FY11 FY12 FY13

140 132.419 0.35

0.304
120 0.3
103.949
89.793 0.25 0.2266 0.2222
100
80 72.510 0.2 0.1689
59.320 0.15
60
0.1
40 0.0513
0.05
20
0
0 FY09 FY10 FY11 FY12 FY13
FY09 FY10 FY11 FY12 FY13
Return on cap employed (EBIT/cap
Net working capital cycle employed)

Primary business segment is Building products. EBITDA margin is not maintained in stable
manner. Net working capital cycle is increased in last 3 years showing the companies’
operational inefficiency. The operational performance has been downgraded from previous
years. Profit reserve is decreasing in last 3 years, showing the decrease in profit margin year on
year.

74 | P a g e
Peer Comparison: Cement - Products/Building Materials
Company Market Cap P/E (TTM) EV/EBIDTA ROE ROCE D/E

(Rs. in Cr.) (x) (x) (%) (%) (x)

Ramco Inds. 382.35 7.09 4.63 15.4 14.9 0.59

Hil Ltd 263.26 4.34 2.94 19.2 23 0.3

Everest Inds. 256.18 4.88 4.02 19.5 20.9 0.47

Visaka Inds. 128.47 2.53 3.65 16.6 16.5 0.71

Sahyadri Inds. 36.09 1.85 4.05 10.1 13.3 1.64

Siporex India 12.18 4.91 0 21.9 18.8 0.95

Vardhman Concr. 8.57 0 66.91 0 0 0

Sanghvi Asbestos 4.88 80 0 -1.7 3 0.46

U.P.Asbestos 3.5 0.93 0 8.7 11.5 1.86

Roofit Inds. 2.88 0.31 5.27 33.6 21.4 1.92

INDUSTRY 10.684 2.728 14.33 14.33 0.89

AVERAGE

80
70 Ramco Inds.

60 Hil Ltd
Everest Inds.
50
Visaka Inds.
40
Sahyadri Inds.
30 Siporex India
20 Vardhman Concr.
10 Sanghvi Asbestos

0 U.P.Asbestos
(x) (%) (%) Roofit Inds.
-10
EV/EBIDTA ROE ROCE

75 | P a g e
 2.5

Ramco Inds.
2 Hil Ltd
Everest Inds.
1.5 Visaka Inds.
Sahyadri Inds.

1 Siporex India
Vardhman Concr.
Sanghvi Asbestos
0.5
U.P.Asbestos
Roofit Inds.
0
D/E

Being a small player in cement product industry, Visaka Industries’ performance is at moderate
level with respect to its peers with regard to industry averages for enterprise multiple and ROCE.

Key Business Risks & Issues:

Key Business risks and issues for Visaka Industries include the following:

 VIL’s limited bargaining power with the customers

 Limited suppliers of asbestos fibre
 Susceptibility of profitability margins to the prices of the key raw material
 Regulatory and environmental issues surrounding use of asbestos
 Long-term supply of raw materials at reasonable prices to sustain or improve profitability

Financial analysis of Visaka Industries is attached below:

Visaka Industries
Limited.xlsx

76 | P a g e
11.7 Ramky Infrastructure Limited
Ramky Infra, the flagship company of the was thereafter reconstituted as a public
Ramky group, was originally incorporated as limited company with its current name.
Ramky Engineers Pvt. Ltd in 1994 to provide
civil and environmental engineering
consultancy services. In 1998, it diversified Construction
into construction and began to undertake business
civil and environmental engineering,
Developer
procurement, and construction projects,
business
primarily in the water and waste-water
sector. Subsequently, it expanded into
roads, buildings, irrigation, and industrial Others
construction. In 2003, the company was
renamed Ramky Infrastructure Pvt. Ltd, and
Product Segment

SEGMENTAL *Amounts in
REVENUE Millions
Particulars
Revenue based on FY10 FY11 FY12
product segments
Construction 18612.6 28463.3 33660.8
business
Developer Business 3832.1 5204.3 6481.1
Others 0 13.7 323.8

FINANCIAL SUMMARY *Amounts

in Millions
Particulars FY10 FY11 FY12 FY13
Revenue growth 53.28% 22.77% -4.97
Operating EBITDA MARGIN 14.74% -7.71% -10.50% 14.67%
Interest cover 2.760 -1.945 -1.929 1.677
Net worth 5549.1 10647 12581.8 15587.718
Adjusted Debt/EBITDA 6.274 -10.239 -8.850 7.515
Net adjusted debt/EBITDA 5.735 -9.319 -8.563 7.312
Debt/ Net worth 1.823 1.221 1.697 1.671
Net working capital cycle( Days) 122.038 112.705 130.644 150.122
ROCE 0.171 -0.140 -0.173 0.141

77 | P a g e
Financial Performance Indicator:
10
Interest cover
5
Adjusted Debt/EBITDA
0
FY10 FY11 FY12 FY13
-5 Net adjusted
debt/EBITDA
-10 Debt/ Net worth

-15

60.00%
50.00%
40.00%
30.00% Revenue growth

20.00%
Operating EBITDA
10.00% MARGIN
0.00%
FY10 FY11 FY12 FY13
-10.00%
-20.00%

160 150.122 0.2 0.171

130.644 0.141
140 122.038
120 112.705 0.1
100
80 0
60 FY10 FY11 FY12 FY13
40 -0.1
20
-
0 -0.2
0.1403 -0.173
FY10 FY11 FY12 FY13
Return on cap employed
Net working capital cycle (EBIT/cap employed)

78 | P a g e
The Group has engaged in their business primarily within India. The conditions prevailing in India
being uniform, no separate geographical disclosure is considered necessary. EBITDA margin is
decreasing year on year showing weak financial performance of the company. Net working
capital cycle is increased in last 3 years showing the companies’ operational efficiency in
decreasing. The operational performance has been degraded from previous years. ROCE in the
last 4 years is diminished which depicts that the company performance and financial stability is
weak.

Peer Comparison: Infrastructure, Construction & Real Estate

Company Market Cap P/E EV/EBIDTA ROE ROCE D/E
(TTM)

(Rs. in Cr.) (x) (x) (%) (%) (x)

DLF 31,796.13 63.35 16.41 6 8.2 1.3

JP Associates 11,627.82 23.19 9.94 9.6 9.4 2

Unitech 5,507.31 29.65 14.93 3.1 4.8 0.43

Prestige Estates 5,456.50 19.76 14.86 6.2 7.9 0.52

Godrej Propert. 4,107.79 33.49 31.59 5.9 7.2 0.88

Phoenix Mills 3,566.93 26.65 17.89 6.5 8.5 0.1

Jaypee Infratec. 3,513.99 5.06 8.15 24.5 13.8 1.28

Mahindra Life. 1,722.41 17.67 13.02 8.4 9.8 0.25

HDIL 1,608.96 2.83 7.08 3.9 7.2 0.4

Punj Lloyd 1,074.34 54.83 7.28 1.6 8.4 1.06

IVRCL Assets 735.98 0 50.79 -2 1.3 0.27

IL&FS Engg. 285.98 0 10.1 -28.1 2.3 2.22

Ramky Infra 274.27 4.58 5.86 15.5 18.2 0.88

Gammon India 264.13 0 5 4.5 11.6 1.25

INDUSTRY AVERAGE 12.939 11.410 5.766 8.471 0.917

79 | P a g e
80

DLF
JP Associates
60
Unitech
Prestige Estates
40 Godrej Propert.
Phoenix Mills
Jaypee Infratec.
20
Mahindra Life.
HDIL
0 Punj Lloyd
(x) (x) (%) (%) IVRCL Assets
P/E (TTM) EV/EBIDTA ROE ROCE IL&FS Engg.
-20
Ramky Infra
Gammon India

-40

2.5
DLF
JP Associates
2 Unitech
Prestige Estates
Godrej Propert.
1.5 Phoenix Mills
Jaypee Infratec.
Mahindra Life.
1
HDIL
Punj Lloyd

0.5 IVRCL Assets

IL&FS Engg.
Ramky Infra
0 Gammon India
D/E

80 | P a g e
Being a small player in Infrastructure, Construction & Real Estate industry, Ramky Infrastructure
Limited performance is at good level (Above Industry average) with respect to its peers for
industry averages for ROE, ROCE and D/E.

Key Business Risks & Issues:

Key Business risks and issues for Ramky Infrastructure Limited include the following:

 Ramky Infra group’s financial risk profile, including its liquidity, will remain constrained
over the medium term because of the sustained stretch in the group’s working capital
cycle and its large equity commitments towards its BOT projects.
 There is a stretch in the group’s working capital cycle is driven by a substantial increase in
its work-in-progress levels; this is because of delayed approval of bills by the group’s
clients and its slow-moving real-estate and property development projects.
 Ramky’s liquidity position might get weak due to its large equity commitments towards
its BOT projects.
 Ramky’s higher reliance on debt specifically its total short-term debt is affecting its
financial risk profile which shows signs of deterioration.

Financial analysis Ramky Infra is attached below:

Ramky Infra.xlsx

81 | P a g e
11.8 Anjani Portland Cement

Anjani Cement is a popular brand in south Manufacture of

Cement
India for its quality and commitment to
service. The Company, which came to be
Gas based power
Anjani Portland Cement Ltd. in 1999, before
generation
the completion of a decade of production,
has been awarded the ‘Fastest Growing
Cement Company’ at Construction World Security Printing
Annual Awards in 2009.

Product Segment

FINANCIAL
SUMMARY

Particulars FY09 FY10 FY11 FY12 FY13

Revenue growth 0.41% 37.29% 61.52% -3.71%

Operating EBITDA 31.29% 20.66% 21.56% 22.58% 17.96%

MARGIN

Interest cover 5.599 3.812 1.054 1.643

Adjusted 1.256 6.783 5.910 3.726 3.946

Debt/EBITDA

Net adjusted 1.193 6.694 5.844 3.645 3.870

debt/EBITDA

Debt/ Net worth 1.002 3.166 3.995 3.486 2.717

Net working 34.18 38.325 105.117 54.384 67.983

capital cycle(Days)

ROCE 0.351 0.086 0.110 0.203 0.157

82 | P a g e
Financial Performance Indicators:
8 Revenue growth
7
Operating EBITDA
6
MARGIN
5
Interest cover
4
3 Adjusted Debt/EBITDA
2
Net adjusted
1
debt/EBITDA
0 Debt/ Net worth
-1 FY09 FY10 FY11 FY12 FY13

120 0.4 0.351

105.117
0.35
100
0.3
80 67.983 0.25 0.203
54.384 0.2 0.157
60
0.15 0.110
40 34.181 38.325 0.1
0.0861
0.05
20
0
0 FY09 FY10 FY11 FY12 FY13
FY09 FY10 FY11 FY12 FY13
Return on cap employed (EBIT/cap
Net working capital cycle employed)

Company's main product segment’s revenue comes from cement whose figures got more than
doubled from FY10 to FY12. Revenue in FY13 in cement sector remained constant wrt to FY12,
showing demand is not increasing. EBITDA has been decreased drastically in FY13 due to
macroeconomic factors affecting the cement manufacturing business resulted in decreased
revenue in FY13 by 23%. Net working capital cycle is not maintained in stable manner. The
operational performance has been degraded from previous years, due to delays in cash flows
and low sales. Further the drastically decreased ROCE in the last 3 years depicts that the
company performance and financial stability is getting weak.

83 | P a g e
Peer Comparison: Cement Manufacturing Industry
Company Market Cap P/E (TTM) EV/EBIDTA ROE ROCE D/E

(Rs. in Cr.) (x) (x) (%) (%) (x)

Madras Cement 5,069.40 12.89 8.21 18.3 14.6 1.22

Chettinad Cement 2,710.48 19.7 4.68 18.7 17 0.99

India Cements 1,724.82 9.77 6.66 8.2 10.5 0.72

KCP 358.99 10.35 4.76 18.1 17.3 0.99

Sagar Cements 327.71 37.32 3.92 18.4 20.5 0.93

Andhra Cements 184.04 0 17.01 5 6.5 1.61

Deccan Cements 133.77 18.3 2.74 24.3 19.2 1.45

NCL Inds. 89.1 0 3.07 25.5 21.4 1.6

Anjani Portland 29.42 9.52 4.26 22.3 17.8 3.38

Raasi Cement 22.29 0 0 0 0 0

Bheema Cements 19.94 0 23.87 0 0 1.17

INDUSTRY AVERAGE 8.053 5.531 14.43636 13.16364 1.278182

40
Madras Cement
35
Chettinad Cement
30 India Cements
25 KCP
20 Sagar Cements

15 Andhra Cements
Deccan Cements
10
NCL Inds.
5
Anjani Portland
0
Raasi Cement
(x) (x) (%) (%)
Bheema Cements
P/E (TTM) EV/EBIDTA ROE ROCE

84 | P a g e
 4
Madras Cement
3.5 Chettinad Cement
3 India Cements
KCP
2.5
Sagar Cements
2
Andhra Cements
1.5 Deccan Cements
1 NCL Inds.
Anjani Portland
0.5
Raasi Cement
0
Bheema Cements
D/E

Though Anjani Portland Cement is a small player in cement manufacturing industry segment, it is
performing well with respect to its peers as far as industry averages regarding P/E (TTM),
EV/EBIDTA, ROE, ROCE and D/E are concerned.

Key Business Risks & Issues:

Key Business risks and issues for Anjani Portland Cement include the following:

 Deterioration in financial performance & stretched liquidity position during 9MFY13

 Weak capital structure along with debt funded capital expenditure plans underway
 High exposure to group companies and moderate industry outlook

Financial analysis Anjani Portland Cement is attached below:

Anjani Portland
Cement.xlsx

85 | P a g e
 12. RECOMMENDATIONS
 Other financial reports apart from annual reports should be analyzed for fundamental analysis and
comparative company analysis.
 Trend analysis should be done for peer comparison of last 10 years trends to come up better
findings.
 A well devised mathematical model should be framed for better findings at peer comparison.
 Non-listed companies should be covered to get better perspective. Non-listed companies
financials should be sourced from ROC if they are unwilling to share it.
 Various aspects related to corporate governance of the company should be considered thoroughly
to come up better perspective for companies’ fundamental analysis.
 There should be more accurate valuation based approach to the selection of comparable firm for
performing peer group analysis.

86 | P a g e
13. CONCLUSION
This project examines the performance of various companies from different industry sector in
Andhra Pradesh. It helps to make a perspective of following aspects of various companies and
their respective industry sector.

• Understanding of the credit profile of a company based on its financial performance,

cost structure, financial structure and investments made in past 5 years

• Understanding of key credit rating issues form rationale based on past ratings given
by other credit rating agencies in India

• Understanding of the nature of industry in Andhra Pradesh and building a

perspective on respective industry outlook

• Identification of key risks exist in respective industry based on industry outlook

• Understanding of the fundamentals of credit rating methodology with respect to

corporate sector of India

87 | P a g e
 ANNEXURE -1

Format for write up for companies:

Name of company
Industry
Legal Status Private/Public Unlisted/ Public Listed/Partnership Firm/Other
Bankers
Statutory Auditors (Mention if there is any
change in the last 3 years)

Shareholding Pattern

Board of Directors/ Management Team

Business Analysis
Description of the Business Please provide a brief write up
Key products/segments Please provide a brief write up on each product or segment
Plant/Site/Works/ Manufacturing Locations Please provide key locations and also capacity at each location.

Capacity Utilisation
Particulars FY09 FY10 FY11 FY12
Capacity (units)
Utilisation (units)
Utilisation (%)
Average realisation per unit

Current Order Book –

Segmental revenue
Particulars FY09 FY10 FY11 FY12
Revenue based on Product segments
Segment 1
Segment 2
…..
Revenue based on Geographical segments
Segment 1
Segment 2
…..

Cost structure
% of sales FY09 FY10 FY11 FY12
Raw material cost
Manufacturing Cost
Personnel Expenses
Admin and selling expenses
EBITDA margin

Industry Analysis
Nature of industry monopolistic/concentrated/highly competitive/fragmented
Positioning of company within industry
Industry Outlook by India Ratings
Key risks identified in outlook report

88 | P a g e
Financial Summary (all figures in INRm) – Pls fill up table after preparing the spreads
Particulars FY09 FY10 FY11 FY12 Provisional
FY13
Revenue
Revenue growth (%)
Operating EBITDA
Operating EBITDA margin (%)
Interest expense
Interest cover (x)
Net Profit

Balance Sheet Debt (1)

Corporate Guarantees (2)
Adjusted Debt (1 + 2)
Cash and equivalents
Net worth
Adjusted Debt/EBITDA
Net Adjusted Debt/EBITDA
Debt/Net worth

Receivable days
Inventory days
Payable days
Net working capital cycle

Funds Flow from Operations

Cash Flow from Operations
Return on Capital Employed
(EBIT/Capital Employed)

Financial Structure
Particulars FY09 FY10 FY11 FY12 Provisional
FY13
Equity capital
Preference share capital
Share premium
Profit reserves
Other reserves (pls list)
Total net worth
Working capital debt
Term loans
Equipment loans
Debentures
Other loans (pls list)
Total Debt

Term Loan repayment schedule

Particulars FY13 FY14 FY15 FY16 FY17
Loan
Debenture
------

Debtor ageing
Particulars FY09 FY10 FY11 FY12
Due for more than six months
Due for less than six months

89 | P a g e
List of investments
Name of subsidiary/JV Nature of business Amount invested till FY12
Company 1
Company 2
…………

Financial Summary of significant investee companies (if available; format in Page 2)

Existing Rating:

Facilities rated:

Recent rating actions:

Key Rating Issues from rationale:

90 | P a g e
 REFERENCES

Articles & Papers

Michael Lauritz (2010); “Peer group benchmarking”

Darren J. Kisgen (2006); “Credit Ratings and Capital Structure” The Journal of Finance

Sanjeev Bhojraj and Charles M. C. Lee (2002); “Who Is My Peer? A Valuation-Based Approach to
the Selection of Comparable Firm”; Journal of Accounting Research, Vol. 40, No. 2, Studies on
Accounting, Entrepreneurship and E-Commerce (May, 2002), pp. 407-439.

Books:

Fridson, M., Alvarez, F.; “Financial statement Analysis”; Wiley Finance; 3rd edition

Web pages:

http://indiaratings.co.in
http://www.careratings.com
http://crisil.com
http://www.icra.in
http://www.moneycontrol.com
http://www.indiainfoline.com
http://www.amararaja.co.in
http://www.andhrapetrochemicals.com
http://www.divislabs.com
http://www.nehainternational.com
http://www.suryalata.com
http://www.visaka.biz
http://www.ramkyinfrastructure.com
http://anjanicement.com
http://floriculturetoday.in
http://skillnet.com/services/market-intelligence/peer-group-analysis.html

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