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IEA Report

6th Dec 2016


EICHERMOT

"NEUTRAL"

6th Dec 2016

Going forward, we expect capacity addition in line with demand(RE), seventh pay commission payout, expectation of pre-buying on new emission
norms and improving infrastructure activities in the country may be next growth drivers for the company. But in the near term we see some stress
in demand due to demonetisation and see some tapering of growth due to higher base in previous year. Presently, we are 'Neutral' on this stock
considering lateset demonetisation and confusion regarding the demand scenario, with a target price of Rs. 26000. Earlier, we recommended 'BUY'
on this stock at Rs.19753, and 'Booked Profit' at Rs.24777, an upside of 25%. ......... ( Page : 2-4)

SADBHAV

"BUY"

5th Dec 2016

Though the execution in Q2FY17 was slow due to heavy monsoon, we expect full fledged execution in H2FY17 will help SADBHAV to register robust
revenue growth. Reduced working capital from Irrigation project and repayment of loan from SIPL will strengthen companys balance sheet
position. SADBHAV is better placed to grab opportunities from upcoming government spending to boost infrastructure. We are keeping our
positive stance on stock. We maintain Buy rating for a target price of 315/- .......... ( Page :5-8)

BANKBARODA

"BUY"

2nd Dec 2016

Focus of the management on profitability has resulted in steady quarter this time. BoB has shown a sign of improvement in its profitability. In the
clean up exercise, BoB has recognised huge stress assets in its balance sheet. Going forward we expect the stress assets to decline significantly thus
resulting in credit cost to decline. However BoB needs to come out of the consolidation of advances and should grow its loan portfolio to further
support the operating profitability. Strong capitalization of 12.9% CRAR (Tier 1 at 10.6%) will help the bank to grow further without any near term
dilution. We recommend BUY with the target price of Rs 188. ....... ( Page : 9-13)

ASIANPAINT

"NEUTRAL"

1st Dec 2016

Management remained silent on volume growth improvement (which indicates lower double digit volume growth going ahead) but did hint at
margin pressures. We do not see significant improvement in volume growth, margin risks (due to high input cost) and peak valuations (trades at
FY18 P/E of 45x) make the risk-reward unfavorable. We see downside risks to our estimates due to an unfavorable H2FY17 base with top line and
gross margins peaking out.It also expects paint companies to register flat growth in sales during Q3FY17 compared Q3FY16, following the
government's move to scrap old Rs 500 and 1,000 notes. While the month of October saw significant jump in sales during festive season,
November has seen a significant fall on account of the demonetization announcement.
While the paint industry is 80-85 per cent cash-driven with the paint retailers accepting only cash payments for the sales, is now shifting over to
digitized payments to keep the business going. We maintain Neutral rating with a target price of Rs.1015. ......................................................... (
Page : 14-15)

KEC

"HOLD"

30th Nov 2016

Efficient working capital management boosted earnings and strengthened balance sheet position and we expect it to continue going forward.
Considering the ramp up in execution of substation (T&D) project, healthy SAE order book & margin level and huge potential in railway business
will help KEC to perform better in H2FY17. But considering the current macroeconomic condition we recommend HOLD on the stock with
unchanged target price of Rs. 164/-. ................................................ ( Page : 16-17)

KNRCON

"HOLD"

29th Nov 2016

Going forward, we expect KNR to perform better based on strong execution of orders received in the last year and huge opportunities in terms of
new order intake. Considering a) companys strategic decision to exit from BOT assets and focus on EPC project to keep balance sheet assets light,
b) strong bid pipeline of 20 projects and robust order inflow during the H1FY17 will help KNR to register strong growth. Considering the current
uncertain macroeconomics we recommend HOLD on the stock with unchanged target price of Rs. 815/share.
......................................................... ( Page : 18-21)

BEML

"HOLD"

28th Nov 2016

As the company is having healthy order book worth Rs 6500 cr, so going forward we expect the company to register decent topline as well as
bottom line. Increased road construction activity, Railway projects and work on dedicated freight corridors will drive demand growth in FY17E.
With respect to defense verticals the business will be back on track. Company guided Rs 3300 cr topline for FY17E but after seeing 1st and 2nd
quarter results we revised our revenue estimate from Rs 2900 cr to Rs 2500 cr and We expect decent growth in rest of the two quarters. We have
positive view on this stock in long term but due to below expected sales number this quarter we maintain our HOLD rating to the stock. We will
review target price post further clarity from management on near term business condition. ........................................................... ( Page : 22-25
Narnolia Securities Ltd

IEA Edition No.-

898

NEUTRAL
6-Dec-16

Eicher Motors Limited


Result Update
CMP

22742

Target Price
Previous Target Price
Upside
Change from Previous

26000
14%
-

Market Data
BSE Code
NSE Symbol

505200

EICHERMOT

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume
Nifty

26602/14818
61,855
7067
8087

1Year

YTD

-7.6
-2.9

38.9
36.9

34.7
32.9

Absolute
Rel.to Nifty

Gross Margin increased by 460 bps YoY to 48.1% majorly due to better
product mix and lower commodity cost.

Share Holding Pattern-%


2QFY17 1QFY17

Promoter
Public
Others
Total

50.6
49.4
-100.0

4QFY16

50.7
49.3
-100.0

54.9
45.1
-100.0

Company Vs NIFTY
160

EICHERMOT

2QFY17 Result Update


Revenue grew by 35% YoY to Rs.1755 crore in 1QFY17. The motorcycle
sales grew by 31%YoY and the commercial vehicle segment grew by 15%
YoY.

Stock Performance
1Month

Eicher Motors have reported Rs.1755 crore of revenue, a growth of 35%


YoY in 2QFY17. The motorcycle volumes clocked 33% growth YoY in
2QFY17 on account of higher RE Classic 350 sales. The realization also
improved by 3% YoY, because of price hike during the quarter. The waiting
period for Classic350' models remain 3 months and for other models it is 1415 days. The company has scaled up the capacity to 675000 units in FY17,
looking at the growing demand for premium motorcycles. On
commencement of Vallam Vadagal facility the total production capacity will
reach to 900000 units in FY19.This facility will commence production in 3
phases starting from 2QFY18. Market share in top-20 cities in the premium
segment stands at 20%. The commercial Vehicle segment reported sales of
3176 units, a degrowth of 13% YoY. The demand from fleet owners may
remain sluggish due to the cash crunch in the economy. CV segment
market share has improved from 11% to 13% in the current fiscal. The
management has stated that the business outlook continues to be strong in
the long run for both RE and VECV.

NIFTY

150
140
130

EBITDA Margin expanded by 390 bps YoY to 30.9% driven by benefit of


operating leverage. PAT Margin expanded by 170 bps YoY to 23.5%.
Outlook and Valuation
Going forward, we expect capacity addition in line with demand(RE),
seventh pay commission payout, expectation of pre-buying on new emission
norms and improving infrastructure activities in the country may be next
growth drivers for the company. But in the near term we see some stress in
demand due to demonetisation and see some tapering of growth due to
higher base in previous year. Presently, we are 'Neutral' on this stock
considering lateset demonetisation and confusion regarding the demand
scenario, with a target price of Rs. 26000. Earlier, we recommended 'BUY'
on this stock at Rs.19753, and 'Booked Profit' at Rs.24777, an upside of
25%.

120

Rs. In crore

110
100

Financials

2QFY17

1QFY17

2QFY16

QoQ

YoY

90

Sales
EBITDA
Net Profit
EBIDTA%
PAT %

1755
542
413
31%
24%

1556
470
376
30%
24%

1300
351
285
27%
22%

13%
15%
10%

35%
55%
45%

Oct-16

Nov-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Feb-16

Mar-16

Jan-16

Dec-15

Nov-15

80

Naveen Kumar Dubey


naveen.dubey@narnolia.com

(Source: Company/Eastwind)

Narnolia Securities Ltd,

EICHERMOT
Investment Argument
>> The user segment has changed drastically for RE and 90% of the customers have bought these bikes for daily use. The
penetration in the premium segment is very low, so we assume that there is a lot of potential exist for Royal Enfield going ahead.
>> Royal Enfield's R&D centre in the UK is developing a 600-650cc twin-cylinder motorcycle, designed to serve cruiser riders of
the US and Europe. The bike is likely to be launched next year.
>> RE has expanded its footprint in the exports by opening up stores in the various export markets like; Latin America, Paris,
London, indonesia, bangkok and Madrid.
>> On the commercial vehicle front, the transportation sector has been affected mostly by the cash crunch and monthly run-rate
would be 10-20% lower in second half than the first of the current fiscal. We anticipate that this could be deferral of sales only in
near term, because around 80-85 percent commercial vehicles are financed.

Management Highlight
>> Management said that the out look for RE is strong backed by healthy order book.
>> CV space looks challenging going ahead due to cash cruch in the economy.
>> Higher growth potential international markets are Latin America and South East Asia.
>> Production is 50000 units per month and average waiting period is 3 months for classic models.
>> Currently RE dealer count is 500 and it will reach more than 600 by FY17.
>> Capex is Rs.600 crore for RE and Rs.400 crore for VECV towards setting up technical centers and capacity enhancement.
>> Multix- Plant in Jaipur, produced 650 units till december 2015. Target customers for Multix are Independent businessmen.
>> No plans for setting up plants in overseas market in near future.
>> The company plans to increase its capacity in the Pithampur facility from 5500 to 7500 units per month going forward.

About The Company


Incorporated in 1982, Eicher Motors Limited is the flagship company of the Eicher Group in India and a leading player of the Indian
automobile industry. The company is mainly engaged in the business of high end motorcycles (350cc & above) under the brand 'Royal
Enfield' and Commercial Vehicles business segment under 'Volvo Eicher Commercial Vehicles'.

EML Business Details

Eicher Motors Ltd.


(EML)

Eicher Polaris (50%)

Royal Enfield
(100%)

VECV (54.4%)

Key Risks
>> Company have plans to increase its capacity to 9 Lakh units per annum by the end of 2018. Rise in demand may increase the
waiting period for the bikes in short term, which is 3-4 months.
>> In the US market the company can face stiff competition from Harley Davidson.
>> Bajaj Auto's Avenger can be potential threat for Royal Enfield in Indian market.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

EICHERMOT

Financials Snap Shot

CY13
146
760
35
24%

RATIOS
CY14
FY16
227
470
928
1275
59
117
26%
25%

FY17
581
1715
145
25%

34
7
0.7%

66
16
0.4%

41
15
0.6%

43
15
0.6%

19%
27%

24%
36%

37%
58%

34%
42%

1.3
27
41
64
0.04

1.4
23
41
63
0.00

1.9
19
37
58
0.00

0.9
19
37
58
0.00

INCOME STATEMENT

CY13
Revenue (Net of Excise Duty)
6810
Other Income
95
Total Revenue
6905
COGS
4639
GPM
32%
Other Expenses
925
EBITDA
713
EBITDA Margin (%)
10%
Depreciation
130
EBIT
583
Interest
8
PBT
671
Tax
145
Tax Rate (%)
22%
Reported PAT
394
Dividend Paid
95
No. of Shares
3

CY14
8738
107
8846
5766
34%
1198
1115
13%
220
895
10
993
291
29%
615
159
3

FY16
15689
112
15801
10121
35%
2063
2447
16%
452
1996
9
2099
647
31%
1278
318
3

FY17
6778
203
6981
3561
47%
746
2082
31%
147
1935
3
2135
657
31%
1575
392
3

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

Souce: Eastwind/Company

Souce: Eastwind/Company

BALANCE SHEET

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

CY13
27
2028
2055
84
84
180
2139
2120
125
513
683
1191
170
1008
5337

CY14
27
2489
2516
0
58
239
2516
2728
236
562
380
1513
265
614
6408

FY16
27
3437
3464
0
86
338
3464
3314
118
834
476
2509
99
353
8479

CASH FLOW

FY17
27
4620
4648
0
37
338
4648
3724
118
360
596
1084
52
813
7663

CY13
CY14
FY16
FY17
OP/(Loss) before Tax
671
993
2099
2135
Depreciation
130
220
452
147
Direct Taxes Paid
(150)
(281)
(634)
(657)
Operating profit before working
718capital changes
1126
2460
2285
CF from Op. Activity
716
1047
2282
656
0
(150)
(869)
0
Capital expenditure on fixed assets
(712) including
(972)capital (1070)
advances and
(558)
capital work-in-p
CF from Inv. Activity
(790)
(1087)
(1481)
(593)
Repayment of Long Term Borrowings
(1)
0
0
0
Interest Paid
(8)
(10)
(9)
(3)
Divd Paid (incl Tax)
(88)
(115)
(486)
(335)
CF from Fin. Activity
(47)
(162)
(563)
(444)
Inc/(Dec) in Cash
(121)
(202)
238
(380)
Add: Opening Balance
804
683
353
591
Closing Balance
683
481
591
211

Souce: Eastwind/Company

Narnolia Securities Ltd,


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

Souce: Eastwind/Company

BUY
2-Dec-16

SADBHAV ENG.
Result Update
CMP

277
315
14%
-

Target Price
Previous Target Price
Upside
Change from Previous
Market Data
BSE Code

532710

NSE Symbol

SADBHAV
369/198
4,753
4923
8087

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume
Nifty
Stock Performance
Absolute
Rel.to Nifty

1Month

3 Month

1Year

3.1
8.1

-4.3
3.9

-21.9
-23.5

Share Holding Pattern-%


4QFY16

Promoters
Public

3QFY16 4QFY15

47%
53%

47%
53%

47%
53%

Sadbhav reported subdued numbers for the Q2FY17 due to heavy monsoon
and project related issues. The company suffered Rs. 70 Cr of revenue loss
on Irrigation project in MP on account of heavy monsoon,Rs.30 Cr of
revenue loss on two road project in Karnataka due to Kaveri Water dispute
and around Rs. 35 Cr of revenue loss in BCCL (Mining) project because of
service tax related issues. Top line de grew by the 17.5% YoY to Rs. 616 Cr
as compared to Rs. 746 Cr in 2QFY16. EBITDA for the quarter stood at Rs.
65 Cr as against Rs. 81 Cr in 2QFY16, 19% down YoY with similar margin.
PAT de grew by 33% YoY to Rs. 19 Cr vs Rs.28 Cr in same period last year.
Higher 80 IA benefit led to NIL effective tax rate for the quarter and it will be
continue for the next 3 quarters based on higher revenue contribution from
road EPC and irrigation projects. Current order book stands at Rs. 9363 Cr
(including Orders won after September) which provides strong revenue
visibility going forward.

Highway & Road drives the revenue growth:Currently 5 EPC projects are under execution and another 4 HAM project
will come under execution by January. 4 out of 5 projects have achieved
financial closure and expecting to get appointment date by January, 2017.
The company has already started working on these projects before getting
appointment date and expects to book Rs.300 Cr (approx.) revenue in
Q4FY17.Irrigation projects in MP lost one and half month due to heavy
monsoon but now all the projects are on track and management is confident
to complete it quickly. Blocked working capital will be released and it will be
used to fund working capital requirements on ongoing EPC projects.
Management is in talk with BCCL to settle down services tax issues in
mining and expects Rs. 350 Cr of annual revenue from mining. EPC (Road
& Irrigation) dominated revenue in H2FY17 will boost the bottom line by way
of 80 IA tax benefit.
Outlook and Valuation

Company Vs NIFTY
120

SADBHAV

NIFTY

110
100
90
80

Though the execution in Q2FY17 was slow due to heavy monsoon, we


expect full fledged execution in H2FY17 will help SADBHAV to register
robust revenue growth. Reduced working capital from Irrigation project and
repayment of loan from SIPL will strengthen companys balance sheet
position. SADBHAV is better placed to grab opportunities from upcoming
government spending to boost infrastructure. We are keeping our positive
stance on stock. We maintain Buy rating for a target price of 315/-

70

In Rs. Cr

60
50
40

Sandip Jabuani

Financials

FY13

FY14

FY15

FY16

FY17E

Sales
EBITDA
Net Profit
EBIDTA%
P/E

2160
394
7
18.2%
313.2

2733
436
44
15.9%
53.1

3447
580
-175
16.8%
-15.2

3878
803
-47
20.7%
-56.9

4487
929
67
20.7%
75.1

(Source: Company/Eastwind)

sandip.jabuani@narnolia.com
Narnolia Securities Ltd,

Demonetization impact on execution: NOT A MATERIAL ONE


Demonetization will not have any material impact on Sadbhavs standalone working is concerned. In concall, management has
clarified that from the raw material procurement to wages of labour and other related expense are channelized directly through
banking system. Though this currency clean up drive will surely have impact on different economic activities with different degree
in near term moving forward, management has indicated that Sadbhavs BOT business will not be spared from this, as traffic
growth may hamper.

Concall Update : Current Order stands at 9363 Cr (3128 Cr received after September)
Maintain Order intake of Rs. 5000-7000 Cr in FY17
Revenue loss of Rs.100 Cr due to heavy monsoon and 30 Cr on BCCL services tax issue
Growth will led by highway & construction segment for the next 2-3 years
Debtors will come down (1000 cr approx. on standalone books)as the money release from EPC project
Loan outstanding to SIPL is Rs. 280 cr and mgmt expecting to come down below 100 Cr
Rs. 320 Cr of mobilization advance on HAM project yet to receive
Achieved financial closure of 4 HAM projects and expect to get appointment date in December and commencement of work in
January.
Maintain revenue guidance of Rs. 3600-3700 Cr for FY17
Services tax issue at BCCL project will settle down by December.
No impact of demonetization on execution of the project
Tax rate will be NIL for next 3 quarter because of higher revenue from road EPC project. (all EPC project is eligible for 80 IA
benefit)
Segmental Order Book
BOT

EPC

Irrigation

Minning

10,000
9,000
2,153

8,000
7,000

2,269

2,724

2,728

2,392

2,273

6,000
5,000
4,000
3,000

1,872
1,345

1,919

2,226

1,136

2,061
1,975

1,733
2,015

1,097

1,982

2,193

1,811

1,749

3,021

1,442

2,851

2,567

2QFY15

3QFY15

Order book
9,500

4QFY15

1,836

3,995

1,187

3,837

3,477

3,054

1,404

990

573

233

174

156

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

1QFY15

1,276

4,430

2,000
1,000

1,902

1,644

Book to Bill

3.79

4.00
3.50

9,000
8,941

2.76

3.00
2.35

8,500
8,000

2.50
2.00

8,200

Maintain order Intake guidence of


Rs. 5000-7000 Cr

1.50

7,500
7,487
7,000

1.00
0.50

6,500

FY14

FY15

FY16

Narnolia Securities Ltd,


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

Segmental Revenue
BOT

EPC

Irrigation

Minning

Power Generation

1,200
1,000

1
1

800

166

2
600

1
68

400
200

138
72

35
147

199

100

31
132

100
132

461

428

204

168

160

470

374

407

424

402
111

33

1QFY17

2QFY17

1QFY15

2
90

449

300

280

201

189

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

Toll Collection

Toll Collection
250
200
150

155

139

139

147

1QFY15

2QFY15

3QFY15

165

162

1QFY16

2QFY16

214

200

208

4QFY16

1QFY17

Managment Expecting
toll revenue will grow
25-30% CAGR

173

100
50
4QFY15

3QFY16

EBITDA

2QFY17

EBITDA M

120

11%
11%

11%

11%

11%

11%

100
10%

11%

80
10%

10%

10%

60

10%
10%

9%

40

9%

20
72

60

78

96

89

1QFY15

2QFY15

3QFY15

4QFY15

81

74

81

87

65

4QFY16

1QFY17

2QFY17

9%
1QFY16 2QFY16 3QFY16
Narnolia Securities Ltd,

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

Financials Snap Shot

FY14
2.9
82.4
0.7
24%

RATIOS
FY15
FY16
-10.2
-2.7
89.6
104.8
0.8
0.8
-8%
-30%

FY17E
3.9
107.9
0.8
21%

53.1
1.9
0.45%

-15.2
1.7
0.53%

-56.9
1.5
0.53%

75.1
2.7
0.28%

4%
5%

-11%
4%

-3%
5%

4%
6%

0.3
76.9
29.0
51.8
3.88

0.3
72.4
30.2
50.1
4.07

0.2
77.4
18.9
37.5
4.49

0.3
77.0
18.9
38.0
4.25

INCOME STATEMENT

FY14
Revenue (Net of Excise Duty)2733
Other Income
30
Total Revenue
2762
COGS
2064
GPM
1
Other Expenses
153
EBITDA
436
EBITDA Margin (%)
16%
Depreciation
127
EBIT
309
Interest
449
PBT
-110
Tax
-14
Tax Rate (%)
13%
Reported PAT
44
Dividend Paid
11
No. of Shares
15

FY15
3447
44
3491
2576
1
164
580
17%
219
361
615
-210
34
-16%
-175
14
17

FY16
3878
45
3922
2730
1
192
803
21%
287
516
726
-165
17
-10%
-47
14
17

FY17E
4487
45
4532
0
0
0
929
21%
304
625
581
89
21
24%
67
0
0

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

Souce: Eastwind/Company

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

FY14
15
1235
1250
4848
468
36
6098
6007
1
576
128
388
174
548
7871

FY15
17
1520
1537
6256
411
24
7793
9598
1
684
205
473
271
760
11933

FY16
17
1781
1798
8069
601
23
9867
13527
0
822
126
399
357
477
15809

FY17E
17
1848
1865
7869
601
23
9734
11805
1
951
0
461
332
435
14132

Souce: Eastwind/Company

FY14
FY15
FY16E
FY17E
OP/(Loss) before Tax
26
-233
-165
89
Depreciation
130
223
287
304
Direct Taxes Paid
56
68
17
21
Operating profit before working
469capital changes
596
890
974
CF from Op. Activity
786
385
2130
657
0
0
20
0
Capital expenditure on fixed assets
225 including
158 capital 7300
advances and
1417
capital work-in-p
CF from Inv. Activity
(1441)
(1357)
9330
1417
Repayment of Long Term Borrowings
0
0
0
0
Interest Paid
455
615
726
581
Divd Paid (incl Tax)
11
13
14
0
CF from Fin. Activity
706
1037
1580
(781)
Inc/(Dec) in Cash
52
64
13041
1294
Add: Opening Balance
58
110
205
126
Closing Balance
110
174
13245
1420

Souce: Eastwind/Company
Souce: Eastwind/Company

Narnolia Securities Ltd,


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

BUY
2-Dec-16

BANK OF BARODA
Steady Quarter, Focus on Profitability

Result Update
CMP

162

Target Price
Previous Target Price
Upside
Change from Previous

188
16%

Market Data
BSE Code
NSE Symbol

532134
BANKBARODA
179/104.
37235

52wk Range H/L


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

1461
8192

Stock Performance
1Month

Absolute
Rel.to Nifty

9.6
13.0

3 Month

(3.4)
(7.8)

1Year

4.8
1.3

Share Holding Pattern-%


2QFY17

Promoters
Public
Others
Total

1QFY17 4QFY16

59.2
40.8

59.2
40.8

59.2
40.8

100.0

100.0

100.0

Company Vs NIFTY
120

BANKBARODA

NIFTY

115
110
105
100
95
90
85

Operating Profit grew by 15% YoY on the back of Net Interest Income
turning positive and registering the growth of 6% YoY. Operating expenses
grew by 12% YoY which led the C/I ratio to stable at 46% YoY. Other
income grew by 36% YoY backed by treasury income. Core fee income
picked up by 13% YoY.
NIM improved by 21 bps YoY to 2.29% largely led by improvement in both
domestic as well as overseas NIM of 16 bps and 13 bps YoY respectively.
This improvement in NIM was backed by decline in cost of fund which was
supported by healthy CASA and shedding of high cost of deposits.
Overseas NIM improved on the back of focus on high yielding assets.
Management has targeted the domestic NIM of 3% and overseas NIM more
than 1%.
Stress Assets Decline
Slippages were restricted to Rs 2861 Cr against Rs 6096 Cr on 1Q FY17
giving a sign of improvement from this quarter. Healthy recovery & upgradation has also helped to decline the net NPA at Rs 42949 Cr against Rs
42992 Cr QoQ. Recovery & Up-gradation increased by 8% QoQ. The GNPA
and NNPA of the bank stand at 11.35% and 5.46% against 11.15% and
5.73% in previous quarter. PCR improved to 63% against 60% QoQ.
Standard restructured assets now stands at Rs 13860 Cr which declined by
25 QoQ. This quarter management invoked an SDR of Rs 2370 Cr and
there was no 5/25 refinance. These all give us comfort on stress assets
which seems to improve further going forward. However management has
maintained their stance on the earlier guidance of GNPA at RS 45000 Cr to
Rs 50000 Cr in FY17.
Advances Consolidate
As the focus of the management is on profitability, balance sheet continues
to be on consolidation phase. Thus, resulting decline in advances by 15%
YoY. Domestic advances declined by 11% and overseas advances declined
by 22% YoY. As a strategy on overseas portfolio, management has shifted
focused towards higher yielding assets i,e. local credit and syndicated
loans. Buyers credit which comprise low yield will decline further. Corporate
portfolio declined by 10% YoY. Home loan portfolio increased by 12% YoY.
However the loan growth must pick up for the further improvement in
operating profitability.

80

DEEPAK KUMAR
Deepak.kumar@narnolia.com
Narnolia Securities Ltd,

BANKBARODA
Concall Highlights:
>> Deacceleration of international portfolio was due to shed in low yield assets.
>> Out of Rs 45000 Cr high cost of deposits, 90% is already shed and rest will be done in 3Q FY17.
>> International cost of deposits has gone up due to LIBOR effect.
>> Efforts are to remix the portfolio towards higher yielded assets in overseas market. Focus on local credit and syndicated
loans which gives yield of 3.6% as compared to 1.2% on buyers credit. Buyers credit are consistently deacreasing.
>> In 2 days following the demonitization BoB has collected Rs 11500 Cr of which Rs 9500 Cr has gone into CASA.
>> Management holds the earlier guidance of slippages. Target the NNPA of less than 2% in FY19-20.
>> Due RBI guidelines on ratings of corporate exposure of above Rs 100 Cr, management expects deceleration in capital.
>> Targeting domestic NIM of 3% and overseas NIM of 1%- 1.2%.
>> CASA target of 35%.
>> Target to grow at a CAGR of 12%-15% from FY14 numbers over the 3 years period.

(Rs in Crore)

Quarterly Performance

Financials
Interest Inc.
Interest Exp.
NII
Other Income
Total Income
Ope Exp.
PPP
Provisions
PBT
Tax
Net Profit

2QFY15
10826
7425
3401
992
4393
1990
2403
888
1515
411
1104

3QFY15
10718
7432
3286
1090
4376
2037
2339
1262
1077
743
334

4QFY15
10762
7590
3172
1295
4467
1774
2694
1818
876
278
598

1QFY16
11276
7817
3460
967
4427
2225
2202
600
1602
550
1052

2QFY16
11156
7912
3244
1144
4389
2051
2337
1892
445
321
124

3QFY16
10614
7909
2705
1113
3818
2114
1704
6165
-4460
-1118
-3342

4QFY16
11014
7684
3330
1775
5105
2533
2572
6858
-4285
-1055
-3230

1QFY17
10434
7062
3371
1444
4815
2146
2669
2004
665
242
424

2QFY17
10485
7059
3426
1561
4988
2297
2690
1796
894
342
552

YoY %
-6%
-11%
6%
36%
14%
12%
15%
-5%
101%
7%
344%

QoQ%
0%
0%
2%
8%
4%
7%
1%
-10%
34%
42%
30%

Profitability Metrix
Ratios

Yield On Advances
Cost of Deposits
NIM% (Overall)
NIM% (Domestic)
NIM% (Overseas)
NII Growth %
C/I Ratio
Other Inc./Net Inc. %
Tax %
PAT to Total Income%

2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 YoY(bps) QoQ(bps)
8.4
8.1
7.7
7.9
7.6
7.0
6.9
7.2
7.3
(0.35)
0.03
5.2
5.2
5.2
5.1
5.1
5.0
5.0
4.7
4.8
(0.26)
0.11
2.4
2.2
2.2
2.3
2.1
1.7
2.2
2.2
2.3
0.21
0.06
3.0
2.9
2.8
2.9
2.7
2.1
2.7
2.8
2.9
0.16
0.05
1.2
0.9
1.0
0.9
0.9
0.9
0.9
1.0
1.0
0.13
17.5
7.5
1.5
3.9
(4.6)
(17.7)
5.0
(2.6)
5.6
10.20
8.16
45.3
46.6
39.7
50.3
46.7
55.4
49.6
44.6
46.1
(0.69)
1.50
22.6
24.9
29.0
21.8
26.1
29.1
34.8
30.0
31.3
5.24
1.31
27.1
69.0
31.7
34.3
72.0
25.1
24.6
36.3
38.3
(33.78)
1.93
25.1
7.6
13.4
23.8
2.8
(87.5)
(63.3)
8.8
11.1
8.23
2.27
10
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

BANKBARODA
Outlook & Valuation:
Focus of the management on profitability has resulted in steady quarter this time. BoB has shown a sign of improvement in its
profitability. In the clean up exercise, BoB has recognised huge stress assets in its balance sheet. Going forward we expect the
stress assets to decline significantly thus resulting in credit cost to decline. However BoB needs to come out of the
consolidation of advances and should grow its loan portfolio to further support the operating profitability. Strong capitalization of
12.9% CRAR (Tier 1 at 10.6%) will help the bank to grow further without any near term dilution. We recommend BUY with the
target price of Rs 188.
Other income Break Up
>>Commission, Exchange,
Brokerage
>>Incidental Charges
>>Other Miscellaneous
Income
>>FX
Profits (Treasury)
Total Fee-Based Income
Trading Gains
Recovery from PWO
Total Other Income

(Rs in Crore)

2QFY15
333
104
93
252
782
179
31
992

Yield On Advances

3QFY15
373
79
106
253
811
244
36
1090

4QFY15
429
100
101
244
874
360
61
1295

Cost of Deposits

1QFY16
346
79
94
278
797
157
13
967

2QFY16
361
95
131
253
841
224
79
1144

3QFY16
339
91
128
241
799
289
24
1112

NIM

4QFY16
454
116
111
481
1162
509
104
1775

1QFY17
339
106
139
264
848
557
39
1444

NII Growth %

10.0

20.0

8.0

15.0

6.0

10.0

4.0

5.0

2.0

(5.0)

2QFY17
372
148
155
273
948
546
68
1562

YoY%
3%
55%
18%
8%
13%
144%
-14%
37%

QoQ%
10%
40%
12%
3%
12%
-2%
74%
8%

C/I Ratio
60.0
50.0
40.0
30.0
20.0

(10.0)
(15.0)
(20.0)

Narnolia Securities Ltd,

10.0
-

BANKBARODA
Assets Quality Performance
GNPA (Rs)
GNPA %
NNPA (Rs)
NNPA %
Slippages (Rs)
Recovery & Upgradation
Gross Restr. Assets (Rs)
PCR %

2QFY15
13058
3.32
6705

3QFY15
15492
3.85
8291

4QFY15
16261
3.72
8069

1QFY16
17274
4.13
8470

2QFY16
23710
5.56
12798

3QFY16
38934
9.68
21806

4QFY16
40521
9.99
19406

1QFY17
42992
11.15
20783

2QFY17
42949
11.35
19342

YoY%
81%
1.04
51%

QoQ%
0%
0.02
-7%

1.74
1853
513
23371
65

2.11
2852
380
23100
62

1.89
1789
354
31572
65

2.07
1908
827
31257
65

3.08
6962
414
30170
58

5.67
15785
325
30716
53

5.06
5932
3200
29004
60

5.73
6096
2482
29809
60

5.46
2861
2687
28464
63

0.77
-59%
550%
-6%
0.08

-0.05
-53%
8%
-5%
0.05

Specific PCR %

GNPA %

NNPA %
70
60
50
40
30
20
10
-

12.00
10.00
8.00
6.00
4.00
2.00
-

Advances
Net Advances (Rs in Cr)
Advances Growth YoY %
>> Growth QoQ %

2QFY15
385766
13.51
1.05

3QFY15
393630
11.69
2.04

4QFY15
428065
7.82
8.75

1QFY16
408388
6.97
-4.60

2QFY16
414900
7.55
1.59

3QFY16
384272
-2.38
-7.38

4QFY16
383770
-10.35
-0.13

1QFY17
362766
-11.17
-5.47

2QFY17
354150
-14.64
-2.38

Advances Break Up %
>>Domestic
>>International

2QFY15
67.08
32.92

3QFY15
66.28
33.72

4QFY15
68.18
31.82

1QFY16
67.54
32.46

2QFY16
66.92
33.08

3QFY16
67.45
32.55

4QFY16
68.60
31.40

1QFY17
69.09
30.91

2QFY17
69.60
30.40

Deposits
Deposits (Rs in Cr)
>> Growth YoY %
>> Growth QoQ %
CASA % (Domestic)
CASA Growth YoY %
>> Growth QoQ %
Credit Deposit Ratio

2QFY15
566926
16.91
2.77
31.89
15.91
6.78
68.05

3QFY15
564600
12.07
-0.41
32.42
12.93
0.75
69.72

4QFY15
617560
8.55
9.38
33.01
11.25
9.27
69.32

1QFY16
593087
7.51
-3.96
31.89
10.76
-5.78
68.86

2QFY16
612458
8.03
3.27
31.95
4.11
0.37
67.74

3QFY16
589687
4.44
-3.72
29.97
-5.11
-8.17
65.17

4QFY16
574038
-7.05
-2.65
33.57
-7.14
6.93
66.85

1QFY17
562174
-5.21
-2.07
33.83
-1.16
0.29
64.53

2QFY17
567531
-7.34
0.95
34.23
1.72
3.29
62.40

Narnolia Securities Ltd,


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

12

BANKBARODA
Financials Snap Shot
(Rs in Crore) RATIOS
FY15
FY16 Business Ratios

INCOME STATEMENT (Consolidated)

FY13

FY13

FY14

FY15

FY16

26,611

28,657

31,669

30,700

Credit-Deposit(%)

69.3

69.8

69.3

66.9

Income on Investments

7,888

9,294

10,604

11,334

CASA % (Domestic)

30.4

31.8

33.0

33.6

Intt. on bal.with RBI & other inter-bank Funds

1,538

1,671

1,718

1,470

Efficiency Ratios

Interest / discount on advances / bills

Others

FY14

404

841

924

2,295

Employ. Cost as a % of Total Inco. (%)

22.0

23.5

22.6

26.4

Total Interest Income

36,442

40,463

44,915

45,799

Other Exp./Total Inco. (%)

16.3

17.7

20.8

24.2

Total Interest expended

24,486

27,604

30,547

32,107

Cost Income Ratio (%)

38.3

41.2

43.4

50.6

Net Interest Income

11,956

12,858

14,368

13,692

Spread Analysis As Calculated


Yield on Advances (%)

8.4

7.7

7.5

7.3

Yield on Investments (%)

7.3

7.3

8.1

9.0

7.5

6.8

6.6

6.8

Other Income

4,511

5,555

5,449

5,992

Total Income

16,466

18,414

19,818

19,684

6,306

7,592

8,604

9,962

Yield on Earning Assets (%)


Cost of Deposits (%)

5.2

4.8

4.7

4.9

Cost of Fund (%)

5.3

4.9

4.7

5.0

Total Operating Expenses


Pre Provisioning Profit

10,160

10,821

11,213

9,721

Provisions (other than tax) and Contingencies

4,965

4,825

5,230

15,954

Profit Before Tax

5,195

5,996

5,983

(6,233) Interest Spread (%)

2.3

1.9

1.9

1.9

444

1,065

2,151

(1,180) NIM (%)

2.4

2.1

2.0

2.0

4,804

5,001

3,912

(5,068)

RoE %

16.1

14.4

9.7

-15.3

RoA %

0.9

0.8

0.5

-0.8

67.2

68.2

68.0

70.1

Provisions/PPP (%)

95.6

80.5

87.4

-256.0

Other Income/Net Income (%)

27.4

30.2

27.5

30.4

Tax Rate (%)

8.6

17.8

35.9

18.9

Tax
Net Profit attributable to the group

Souce: Eastwind/Company

BALANCE SHEET (Consolidated)

Profitability Ratio

(Rs in Crore) Interest Expended / Interest Earned (%)

FY13

FY14

FY15

FY16

423

431

444

462

Reserves & Surplus

32859

37416

41574

42041

Deposits

482639

579997

629981

586690

Asset Quality Ratio

Borrowings

26553

36976

35502

33845

GNPA (%)

2.40

2.94

3.72

9.99

Other Liabilities & Provisions

16805

21136

26290

27947

GNPA(Rs)

7,983

11,876

16,261

40,521

Total Capital & Liabilities

559388

676114

733977

691179

NNPA (%)

1.28

1.52

1.89

5.06

NNPA (Rs)

4,192

6,035

8,069

19,406

68.24

Capital

Cash & Balances with Reserve Bank of India

14151

19445

23557

22811

PCR (%)

Balances with Banks and Money at Call & Short Notice73551

114911

128074

114188

Gross Restr. Assets (Rs)

Investments

125617

122113

130246

128894

Advances

333625

403715

435415

391486

Fixed Assets

2550

2849

2978

6359

Capital Adequacy Ratio (%)

Other Assets

9894

13081

13706

27441

Tier I Capital (%)

Total Assets

559388

676114

733977

691179

Tier II Capital (%)

65.45

64.99

60.06

22,553

31,572

29,004

13.3

12.3

12.6

13.2

10.1

9.3

9.9

10.8

3.2

3.0

2.7

2.4

Capital Adequacy Ratio

Souce: Eastwind/Company

Narnolia Securities Ltd,


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

Souce: Eastwind/Company

13

Neutral
Asian Paints Ltd.

1-Dec-16
View & Valuations :

Company Update
CMP

970

Target Price

1015

Previous Target Price

1100

Upside

5%

Change from Previous

NA

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

500820
ASIANPAINT
1230/825
93,027
140.4

Av. Volume(,000)
Nifty

8224.5

Management remained silent on volume growth improvement (which


indicates lower double digit volume growth going ahead) but did hint at
margin pressures. We do not see significant improvement in volume growth,
margin risks (due to high input cost) and peak valuations (trades at FY18 P/E
of 45x) make the risk-reward unfavourable. We see downside risks to our
estimates due to an unfavourable H2FY17 base with topline and gross
margins peaking out.It also expects paint companies to register flat growth in
sales during Q3FY17 compared Q3FY16, following the government's move to
scrap old Rs 500 and 1,000 notes. While the month of October saw significant
jump in sales during festive season, November has seen a significant fall on
account of the demonetization announcement.
While the paint industry is 80-85 per cent cash-driven with the paint retailers
accepting only cash payments for the sales, is now shifting over to digitized
payments to keep the business going. We maintain Neutral rating with a
target price of Rs.1100.

Stock Performance
1Month

1Year

YTD

Absolute

-8.7

12.6

17.9

Rel.to Nifty

-5.3

8.2

13.0

Q2FY17 Result Update :

Share Holding Pattern-%


Q2FY17 Q1FY17 4QFY16

Promoter

52.8

52.8

52.8

Public
Others
Total

47.2

47.2

47.2

100.0

100.0

100.0

Company Vs NIFTY
150

ASIANPAINT

NIFTY

140
130
120
110
100
90

Oct-16

Nov-16

Sep-16

Jul-16

Aug-16

Jun-16

Apr-16

May-16

Mar-16

Jan-16

Feb-16

Dec-15

Nov-15

80

Bhabani Prasad Dehury

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


consolidated income from operations rose 10.2% to Rs4,232 Cr YoY.
Consolidated EBIDTA margins improved by more than 100bps to 16.85% YoY,
but on a sequential basis, gross margins declined. 271bps QoQ dip in gross
margin was purely owing to increase in raw material cost not due to a change
in the product mix. We see further drop in margins as crude price is
bottoming out.
Investment Rationals :
Double digit volume growth in decorative business in Q2FY17, but, a
prolonged monsoon did affect demand in West and Central India.
No price revision for this quarter. Asian Paints will closely monitor
movement of input prices and GST rate before deciding on price revision, if
any.
In the standalone business, the company will incur capex of INR6bn in FY17
for its Mysore and Vizag facilities. Of this, capitalisation will be INR2bn in
FY17. Full Vizag and Mysore plants will be capitalised in FY18.
Financials
Q2FY17
Q1FY17
Q2FY16
QoQ
YoY
Sales
4232
4082
3779
3.7%
12.0%
EBITDA
713
820
621
-13.1%
14.8%
Net Profit
507
622
399
-18.5%
27.0%
Gross %
51%
53%
46%
(231Bps)
444.87
EBIDTA %
17%
20%
16%
-324.84
41.95
PAT %
12%
15%
11%
-325.86
141.80
(Source: Company/Eastwind)

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

14

Brief Highlights Q4FY16 Results :


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

Q2FY16

Q3FY16

Q4FY16

3779
58
3837
2032
247

4160
36
4196
2200
247

3971
34
4005
2027
277

880
3159
621
71
550
9
598
184
415

912
3359
801
73
728
8
756
229
527

964
3268
704
75
628
15
648
225
422

Q2FY16

16.4%
14.6%
11.0%
Q2FY16

53.8%
6.5%
0.0%
23.3%
1QFY15

Q3FY16

19.2%
17.5%
12.7%
Q3FY16

52.9%
5.9%
0.0%
21.9%
2QFY15

Q4FY16

17.7%
15.8%
10.6%
Q4FY16

51.0%
7.0%
0.0%
24.3%
3QFY15

Q1FY17

Q2FY17

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

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

20.1%
18.0%
13.2%
Q1FY17

YoY

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

12.0%
37.6%
12.4%
2.7%
13.3%

14183
170
14353
7971
907

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

3069
11947
2235
266
1969
35
2104
650
1395

QoQ

YoY

16.8% (325 Bps)


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

47.0%
6.8%
10.9%
15.2%
4QFY15

QoQ

49.3%
6.6%
11.1%
16.1%
1QFY16

QoQ

42 Bps
30 Bps
39 Bps
YoY

231 Bps (445 Bps)


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

Q3FY16

FY15

FY15

15.8%
13.9%
9.8%
FY15

56.2%
6.4%
0.0%
21.6%
Q4FY16

FY16

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

17.5%
15.7%
11.2%
FY16

YoY

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

172 Bps
185 Bps
139 Bps
YoY

50.8% (540 Bps)


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

Q2FY17

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

15

HOLD
30-Nov-16

KEC International
Result Update
CMP

124

Target Price
Previous Target Price
Upside
Change from Previous

165
33%
-

Market Data
BSE Code
NSE Symbol

532714
KEC
164/97
3,597
142197
7966

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume
Nifty
Stock Performance
Absolute
Rel.to Nifty

1Month

3 Month

1Year

6.8
-7.5

-1.0
-7.7

-17.0
1.5

Share Holding Pattern-%


2QFY17

Promoters
Public

KEC reported mix set of numbers in Q2FY17. The company posted


moderate revenue growth of 5% YoY but healthy improvement in EBITDA
margin. Revenue remains flat in H1FY17 compared to H1FY16. EBITDA
margin improved by 100 bps YoY to 8.7% on account of continued better
performance of SAE and Railway business. SAE reported healthy EBITDA
margin of 14.2% in Q2FY17. PAT grew by the 47% YoY to Rs. 72 Cr as
against Rs. 44 Cr in corresponding period. Lower interest outgo helped to
post handsome growth in PAT. KEC witnessed strong order intake of Rs.
3103 Cr. Current order book stands at Rs. 10785 Cr with 3800 Cr plus L1
orders.

51%
49%

1QFY17 4QFY16

51%
49%

51%
49%

In Q2FY17 railway segment has shown strong revenue growth of 30% and
order intake increased around 6 times compared to Q2FY16 with increased
margin. Margin will further improve as the quantum of revenue increases.
We expect continuing healthy ordering activity from SEBs (Karnataka,
Tamilnadu, Rajasthan, West Bengal, Andhra Pradesh and Telenga).EHV
cable and solar cable is key growth drivers for the cable business going
forward. KEC is well on track to achieve its revenue guidance based on
ramp up in execution of back ended substation project worth Rs. 1500-1700
Cr during H2FY17.

Reduction in Debt through efficient working capital management:KEC has reduced gross debt by Rs. 300 cr with the help of better AR
management (reduction of Rs 485 Cr). Working capital days improved to
229 days from 246 days. Management expects to release retention money
from project in Saudi as project gets completed in next 2-3 months. Hence,
it will lead to further reduction in working capital days. Company aims to
bring it down to 180 days by the year end.
Outlook and Valuation

Company Vs NIFTY
120

KEC

NIFTY

110
100
90
80

Efficient working capital management boosted earnings and strengthened


balance sheet position and we expect it to continue going forward.
Considering the ramp up in execution of substation (T&D) project, healthy
SAE order book & margin level and huge potential in railway business will
help KEC to perform better in H2FY17. But considering the current
macroeconomic condition we recommend HOLD on the stock with
unchanged target price of Rs. 164/-

70
In Rs. Cr

60
50
40

Sandip Jabuani

Financials

FY13

FY14

FY15

FY16

FY17E

Sales
EBITDA
Net Profit
EBIDTA%
EV/EBITDA

6979
381
65
5.5%
5.4

7902
493
67
6.2%
4.5

8468
512
161
6.0%
5.1

8516
679
192
8.0%
5.4

9369
796
287
8.5%

(Source: Company/Eastwind)

sandip.jabuani@narnolia.com
Narnolia Securities Ltd,

16

Result Highlights Q2FY17 & H2FY17


Revenue grew by 5% YoY and de-grew by 1% YoY in Q2FY1 and H1FY17 respectively. Delay in conversation of L1 order into
firm orders, back ended execution project and weak execution led to muted revenue growth in Q2FY17 and H1FY17.
EBITDA grew by 49% YoY and 13% to Rs. 185 cr and Rs. 335 Cr in Q2FY17 and H1FY17 respectively. Strong double digit and
increased EBITDA margin of SEA and railway business respectively support the EBITDA margin.
PAT margin reported robust growth of 47% YoY and 96% YoY to 72 Cr , 119 Cr in Q2FY17 and H1FY17 respectively. Lower
interest out go, strong performance at revenue and EBITDA level helped to grew higher.
SAE revenue grew by 30% YoY to Rs. 261 cr as compared to Rs. 201 Cr in same period last year with strong double digit
EBITDA marin. SAE business current order book stands at Rs. 1510 Cr (1.8x of FY16 revenue) and expect huge demand going
forward.
Railway business reported robust revenue growth of 94% YoY to Rs. 66 Cr as against Rs. 34 Cr in same period last year.
Railways current order book stands at Rs. 1186 Cr (7x of FY16 Revenue) and management expects to close order book around
Rs. 1200 Cr by year end.
Managment / Concall Update
KEC maintain 10% revenue growth and 8.5% EBITDA margin for the FY17
Current Order book stands at Rs. 10785 Cr with 3800 cr plus L1 orders.
KEC managed to collect Rs.1000 Cr of debtors from Saudi Arabia in Q2FY17 and it overall reduced debtors by Rs. 500 Cr and
gross debt by Rs. 150 Cr. Expect to complete 3-4 projects in Saudi in coming quarter.
Working capital days reduce to 229 days from 246 days and it will further reduce to 180 days by year end. Expect to release
retention money from Saudi project. This will reduce working capital requirement.
SAE reported double digit EBITDA margin. Current order stands at Rs. 1500 Cr executable over next 2 years.
Cable Business: - Positive on EBITDA level but still negative on PBT level due to high depreciation. Management expects to
turn positive on PBT level by year and EBITDA margin will be accretive from next year. EHV and Solar cable is key driver for the
future growth.
International Orders:- Rs. 2500 Cr out of 3800 cr of L1 orders belongs to international market.
T &D:- Management see huge opportunity in domestic T&D market. Growth will driven by Karnataka, Tamilnadu, Rajasthan,
West Bengal and Telengana SEBs.
Normal tax rate in FY17 (35%-36%)
Interest cost will be 3% of sales in FY17 and 2.7% of sales in FY18
Order Book

Order Intake
Book to bill

1500

1000

500

-5%

-13%
-37%

-7%

-8%
-33%

Narnolia Securities Ltd,


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

3103

10785

10,403

9,487

9,351

9,872

10,537

9,508

8,770

9,320

10,325

37%

2000

2825

3
4,000

42%

1877

63%
2500

2246

6,000

3000

1506

106%

3085

Growth YoY%

3500

2423

8,000

1100

10,000

2,000

Order Intake

1892

12,000

2808

Order Book

120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%

17

Segmental Revenue

Maintain 10% revenue


growth and 8.5%
EBITDA margin for the
FY17

EBITDA margin
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%

8.7%
7.3%
5.9%

5.6%

7.5%

7.7%

7.8%

8.4%

8.7%

Managment guided
8.5% EBIDTA margin
for the FY17

5.1%

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

Finance Cost As % of Sales


5%
4%

4%
4%

4%

4%

4%
3%

4%

3%

3%

3%

2.8%

3%

3%

Finance cost will be 3%


and 2.7% of sales in
Fy17 & FY18
respectively.

2%
2%
1%
1%
0%
1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

About the Company


KEC International Limited is an India-based company, engaged in infrastructure engineering,
procurement and construction (EPC). The Company is also a manufacturer of power cables and
telecom cables in India. The Company operates in four business verticals, which include power
transmission and distribution, cables, railways and water. The Company is also a provider of turnkey
solution in the railway infrastructure EPC space. The Company has powered infrastructure
development across 50 countries in developed, developing and emerging economies of South Asia,
the Middle East, Africa, Central Asia, the United States and South East Asia. The Company has eight
manufacturing facilities for lattice towers, monopoles, hardware and cables. The Companys
manufacturing facilities located at Vadodara (Gujarat), Mysore (Karnataka) and Silvassa (Union
Territory) in India.
Narnolia Securities Ltd,
Please refer to the Disclaimers at the end of this Report.

18

Financials Snap Shot

FY13
2.5
44.6
1.4
55%

RATIOS
FY14
FY15
2.6
6.3
46.3
51.7
0.6
0.7
23%
11%

FY16
7.4
58.8
2.2
30%

23.3
1.3
2.38%

26.0
1.5
0.87%

12.8
1.5
0.88%

16.4
2.1
1.82%

6%
18%

6%
24%

12%
20%

13%
28%

1.1
151.0
37.7
129.0
0.62

1.1
175.9
45.0
148.4
0.51

1.1
166.1
38.1
143.3
0.55

1.0
192.6
37.8
126.0
0.40

INCOME STATEMENT

FY13
Revenue (Net of Excise Duty)6979
Other Income
16
Total Revenue
6996
COGS
3836
GPM
1
Other Expenses
785
EBITDA
381
EBITDA Margin (%)
5%
Depreciation
56
EBIT
325
Interest
194
PBT
147
Tax
82
Tax Rate (%)
56%
Reported PAT
65
Dividend Paid
36
No. of Shares
26

FY14
7902
14
7916
4099
1
883
493
6%
71
423
263
173
88
51%
67
15
26

FY15
8468
146
8614
4566
1
917
512
6%
88
424
309
261
100
38%
161
18
26

FY16
8516
10
8527
4148
0
975
679
8%
88
592
277
325
133
41%
192
57
26

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

Souce: Eastwind/Company
Balance Sheet

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

FY13
51
1096
1147
708
748
80
1855
1008
30
2887
156
2467
89
1101
6253

FY14
51
1140
1192
603
1207
73
1794
992
18
3808
144
3213
125
1374
7411

FY15
51
1278
1330
737
1308
70
2067
881
16
3853
206
3325
122
1668
7745

FY16
51
1460
1512
602
1723
66
2114
860
12
4495
111
2939
114
2151
8138

Souce: Eastwind/Company

Cash Flow Statement


FY13
FY14
FY15
OP/(Loss) before Tax
147
155
261
Depreciation
56
71
88
Direct Taxes Paid
98
113
122
Operating profit before working
402capital changes
499
596
CF from Op. Activity
(87)
(9)
153

FY16
325
88
135
853
(51)

Capital expenditure on fixed assets


150 including
161 capital advances
90
and
78capital work-in
CF from Inv. Activity
(122)
(136)
125
18
Repayment of Long Term Borrowings
125
305
640
264
Interest Paid
194
263
309
277
Divd Paid (incl Tax)
36
15
17
58
CF from Fin. Activity
161
132
(216)
(63)
Inc/(Dec) in Cash
(48)
(14)
62
(96)
Add: Opening Balance
194
146
132
194
Closing Balance
146
132
194
98

Souce: Eastwind/Company
Souce: Eastwind/Company

Narnolia Securities Ltd,


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

19

HOLD
29-Nov-16

KNR Construction
Result Update
CMP

720

Target Price
Previous Target Price
Upside
Change from Previous

815
640
13%
27%

Market Data
BSE Code
NSE Symbol

532942
KNRCON
819/408
2025
6937
8126

52wk Range H/L


Mkt Capital (Rs Cr)
Av. Volume
Nifty
Stock Performance

Absolute
Rel.to Nifty

1Month

1Year

YTD

-10.3
-2.7

2.6
10.3

13.9
12.4

Share Holding Pattern-%


2QFY17

Promoters
Public

1QFY17 4QFY16

58%
42%

61%
39%

61%
39%

Strong Execution drove Revenue and Profitability


KNR reported robust revenue growth of 72% YoY to Rs.373 Cr as compare
to Rs. 178 Cr. Revenue growth has mainly driven by the execution of the
orders received last year, is now contributing to the top line. Currently KNR
order book is Rs. 4579 Cr (5x of FY16 revenue) which provide strong
revenue visibilities and management expecting another Rs.1000-1500 Cr of
new orders in next 4-5 months. This will boost the earning and profitability of
FY17E/FY18E. Management maintains 1200 Cr plus revenue guidance for
FY17E.
KNR and its JV partner (Patel Engineering) has signed a share purchase
agreement with Essel group to sell their entire equity share in Patel KNR
infrastructure Ltd. and Patel KNR heavy infrastructure Ltd., BOT project for
enterprise value of Rs. 850 Cr put to together. KNR holds minority stake of
40% in both project. Post the deal around Rs.300 cr of debt likely to come
down on consolidated books. Sales of BOT project is part of the strategy to
focus on EPC project.
Q2FY17 Result Update : KNR reported robust revenue growth of 72% YoY to Rs.373 cr as against
Rs.217Cr. Growth driven by execution of the orders received in last year is
now contributing to the top line.
EBITDA of the company clocked 43.2% of growth to Rs.56 cr as against
Rs.39Cr in corresponding period last year led by higher revenue growth.
However EBITDA M decline by 300 bps YoY to 15% on account of high
base.
Adjusted Profit after tax grew by the 29% YoY to Rs. 39 (after adjusting
MAT credit) Cr compare to Rs. 30 Cr (after adjusting prior period item).
KNR infuse 90 cr & 130 Cr as equity in walayar BOT project respectively
in Q2FY17 and H1FY17. Out of this promoters put 40 cr and balance part is
funded by the parent company.
Outlook and Valuation

Company Vs NIFTY
160

KNRCON

NIFTY

140
120
100
80
60
40

Sandip Jabuani
sandip.jabuani@narnolia.com

Going forward, we expect KNR to perform better based on strong execution


of orders received in the last year and huge opportunities in terms of new
order intake. Considering a) companys strategic decision to exit from BOT
assets and focus on EPC project to keep balance sheet assets light, b)
strong bid pipeline of 20 projects and robust order inflow during the H1FY17
will help KNR to register strong growth. Considering the current uncertain
macroeconomics we recommend HOLD on the stock with unchanged
target price of Rs. 815/share.

Financials

FY13

FY14

FY15

FY16E

FY17E

Sales
EBITDA
Net Profit
EBIDTA%
P/E

765
117
49
15.2%
5.1

895
131
60
14.7%
4.0

931
127
70
13.6%
17.1

995
174
126
17.5%
9.5

1521
234
24
15.4%

(Source: Company/Eastwind)

Narnolia Securities Ltd,

20

Investment Argument : The ministry and NHAI has set a target of 25000 Km of road for FY17 on awarding
site and in terms of construction, NHAI is targeting to construction 8000 Km while the
Ministry is targeting 7000 Km
Company has taken strategic decision to exit from BOT asset to focus on EPC
projects, which will help company to keep balance sheet assets light. Post the recent
deal KNR debt on consolidated book will come down by 300 Cr.
Concall/ Managment Intreviwe Update :-

NHAI set to award 25000 km road project in FY17 as compare to 10000 km in FY16
KNR aims to take 1000-1500 cr of new road project in next 4-5 months
Marginal impact of demonization of currency on companys operation
Debt will be come down by Rs. 300 Cr on consolidated books post deal with Essel.
KNR infuse Rs.90 cr and Rs. 130 Cr in walayar project respectively in Q2FY17 and
H1FY17. Out of this promoter put Rs. 40 Cr and balance part was funded by parent
company.

Management maintains revenue guidance of Rs. 1200 Cr plus with 13.5-14.5% of EBITDA
Tax rate for the FY17 will be 8-10%
Company continues to have 80IA benefit on project received in FY17.Hence, FY18 tax
rate will be in range of 10-30% depending on composition of execution.
About the Company:KNR constructions Limited ( from know written as "KNRCL" ) is an ISO 9001:2000
Certified company and listed in Bombay StockExchange Limited (BSE) and National
Stock Exchange of India Limited (NSE). KNRCL is a multidomain infrastructure project
development company providing (EPC) engineering, procurement and construction
services across various fast growing sectors namely roads & highways, irrigation and
urban water infrastructure management. Our project execution strength primarily is in
road transportation engineering projects namely construction and maintenance of roads,
highways, flyovers and bridges wherever integral to the projects undertaken.

Significant experience and Strong track record in timely execution of Projects:-

Timely completion
capabilities will help
KNR construction to
grow higher in
competitive
scenario, comapny
earn bonus of 6Cr on
early completation of
Penchalakona
Yerpedu project.

Narnolia Securities Ltd,


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

21

Strong order book gives good Revenue visibility

(In Rs.

Road Sector

Irrigation

4,500
3,899

4,000

3,479

3,605

3,412

3,500

3,407

3,528

3,000
2,500
2,000
1,500

1,256

1,141

1,123

730

1,000
500

72

59

62

62

60

59

680

57

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

EBIDTA %
30%

PAT %
25%

25%
20%

21%
18%
14%

14%

10%

9%

4QFY15

1QFY16

14%
15%
10%

8%

20%

18%

15%

15%

14%

15%

10%

10%

1QFY17

2QFY17

7%

5%
0%
2QFY15

3QFY15

2QFY16

3QFY16

4QFY16

Walayar BOT peoject


Provisional Completion Certificate for 100% of Project length has been issued for
the project on 31st
October
Caters 2015
to commercial traffic towards Kochi Port and Kochi International

Container Transshipment Terminal. The project road serves as an arterial link to


most of the important southern cities such as Salem, Erode, Coimbatore, Trissur,
Palakkad, Kochi, Alappuzha, Kollam, Thiruvananthapuram and Nagercoil

KNR infuse Rs.90 cr and Rs. 130 Cr


in walayar project respectively in
Q2FY17 and H1FY17. Out of this
promoter put Rs. 40 Cr and
balance part was funded by parent
company

Current Debt is Rs.309 Cr and Toll collection in Q1FY17 is Rs.9.57 Cr


Muzaffarpur - Barauni BOT peoject

Provisional Completion Certificate for 75% of Project length has been issued for the
project on 3rd June
2016
Muzaffarpur is an important place for wholesale cloth trade and the largest city of
northern Bihar while Barauni city is situated on holy river Ganga and also an
important industrial city of Bihar having major industrial units such as IOC refinery,
Barauni Thermal Power Plant, Hindustan Fertilizers Corporation and Barauni Dairy

Narnolia Securities Ltd,


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

Current Toll collection is 6lakh/day.


KNR will receive 100% COD in next
3-4 months and daily collection
likely to go upto 10lakh/day

22

Financials Snap Shot

FY13
17.4
164.9
1.2
7%

RATIOS
FY14
FY14
21.5
24.8
217.2
280.4
1.2
1.2
5%
5%

FY16
44.9
247.8
1.2
3%

5.1
0.5
1.31%

4.0
0.4
1.38%

17.1
1.5
0.28%

11.3
2.0
0.23%

11%
10%

10%
7%

9%
5%

18%
9%

0.7
55.3
28.7
53.3
0.56

0.6
30.8
27.4
31.8
0.85

0.5
43.2
28.1
29.6
0.91

0.5
49.4
34.0
43.6
0.82

INCOME STATEMENT

FY13
Revenue (Net of Excise Duty)765
Other Income
18
Total Revenue
783
COGS
601
GPM
1
Other Expenses
18
EBITDA
117
EBITDA Margin (%)
15%
Depreciation
56
EBIT
61
Interest
12
PBT
67
Tax
16
Tax Rate (%)
23%
Reported PAT
49
Dividend Paid
3
No. of Shares
3

FY14
895
17
912
707
1
21
131
15%
59
73
18
72
7
9%
60
3
3

FY14
931
13
944
723
1
43
127
14%
55
72
13
71
0
0%
70
3
3

FY16
995
42
1038
663
1
111
174
18%
48
126
56
112
-21
-19%
126
3
3

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

Souce: Eastwind/Company

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

FY13
28
436
464
80
64
0
544
406
5
116
23
112
115
220
1125

FY14
28
583
611
343
50
0
954
858
2
75
57
78
57
117
1454

FY14
28
760
788
672
88
0
1460
1343
4
110
44
75
42
174
2012

FY16
28
669
697
631
106
0
1328
1263
0
135
45
119
71
260
2051

Souce: Eastwind/Company

FY13
FY14
OP/(Loss) before Tax
67
72
Depreciation
56
59
Direct Taxes Paid
31
24
Operating profit before working capital changes
CF from Op. Activity
3
239

FY14
71
55
33

FY16
112
48
21

66

285

Capital expenditure on fixed assets


149 including
512 capital 548
advances and
32capital work-in
CF from Inv. Activity
(100)
(485)
(549)
32
Repayment of Long Term Borrowings
89
278
342
(41)
Interest Paid
12
18
14
56
Divd Paid (incl Tax)
3
3
3
3
CF from Fin. Activity
109
276
462
(83)
Inc/(Dec) in Cash
13
31
(21)
234
Add: Opening Balance
7
19
50
44
Closing Balance
19
50
29
278

Souce: Eastwind/Company
Souce: Eastwind/Company

Narnolia Securities Ltd,


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

23

Narnolia Securities Ltd


201 | 2nd Floor | Marble Arch Building | 236B-AJC Bose
Road | Kolkata-700 020 , Ph : 033-40501500
email: narnolia@narnolia.com,
website : www.narnolia.com

Risk Disclosure & Disclaimer: This report/message is for the personal information of
the authorized recipient and does not construe to be any investment, legal or taxation
advice to you. Narnolia Securities Ltd. (Hereinafter referred as NSL) is not soliciting any
action based upon it. This report/message is not for public distribution and has been
furnished to you solely for your information and should not be reproduced or
redistributed to any other person in any from. The report/message is based upon publicly
available information, findings of our research wing East wind & information that we
consider reliable, but we do not represent that it is accurate or complete and we do not
provide any express or implied warranty of any kind, and also these are subject to change
without notice. The recipients of this report should rely on their own investigations,
should use their own judgment for taking any investment decisions keeping in mind that
past performance is not necessarily a guide to future performance & that the the value of
any investment or income are subject to market and other risks. Further it will be safe to
assume that NSL and /or its Group or associate Companies, their Directors, affiliates
and/or employees may have interests/ positions, financial or otherwise, individually or
otherwise in the recommended/mentioned securities/mutual funds/ model funds and
other investment products which may be added or disposed including & other mentioned
in this report/message.

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