3QCY2012 Result Update | Capital Goods

November 5, 2012

Vesuvius India
Performance Highlights
Y/E December (` cr) Net sales EBITDA EBITDA margin (%) Adjusted PAT
Source: Company, Angel Research

NEUTRAL
CMP Target Price
% chg (yoy) (4.5) (2.1) 45bp (4.0) 2QCY12 139 22 16.1 13 % chg (qoq) (5.2) 9.1 243bp 11.3

`341 -

3QCY12 132 25 18.6 14

3QCY11 138 25 18.1 15

Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex VESUVIUS 3m 7.8 1yr 6.8

Cap Goods 693 (22) 0.7 464/305 3,363 10 18,763 5,704 VESU.BO VI@IN

For 3QCY2012, Vesuvius India Ltd (VIL) reported a 4.5% yoy decline in its revenue to `132cr. The EBITDA margin expanded marginally by 45bp yoy to 18.6% on account of decline in raw material expense, while on a sequential basis, the EBITDA margin expanded by 243bp from 16.1% in 2QCY2012 owing to a 16% decline in other expenses. The net profit declined a tad by 4.0% yoy to `14cr from `15cr in 3QCY2011. Demand outlook bleak, operating performance improves: We expect the company to face short-term pressures on the volume front due to weak demand. Raw material cost continues to show some relief, which coupled with decreased other expenses lead to a sequential improvement in operating performance. We expect raw material prices to remain stable at these levels; however employee expense (as percentage of net sales) is expected to increase. The net profit is expected to see a dip in CY2012E and then recover in CY2013E. Outlook and valuation: We expect VIL to post a 4.3% CAGR revenue growth over CY2011-13E due to weak demand while the EBITDA margin is expected to contract marginally by 41bp over CY2011-13E from 17.4% in CY2011 to 17.0% in CY2013E, owing to relatively higher operating expenses. The net profit is expected to decline in CY2012E to `51cr from `55cr in CY2011 and recover to `56cr by CY2013E. At the current market price, the stock is trading at a PE of 12.4x its CY2013E earnings and P/BV of 1.8x for CY2013E. Considering higher valuations, we recommend a Neutral view on the stock.

55.6 15.7 10.8 17.9 3yr 16.8

(6.8) (13.1) 118.8

Key financials
Y/E December (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoIC (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

CY2010 440 21.7 49 29.3 18.7 23.9 14.3 2.7 20.8 43.9 1.4 7.8

CY2011 540 22.8 55 13.7 17.4 27.2 12.5 2.3 20.1 40.6 1.2 6.8

CY2012E 549 1.6 51 (7.2) 16.6 25.2 13.5 2.1 16.1 32.6 1.1 6.8

CY2013E 587 6.9 56 9.0 17.0 27.5 12.4 1.8 15.5 31.4 1.0 6.1

Shareen Batatawala
+91- 22- 3935 7800 Ext: 6849 shareen.batatawala@angelbroking.com

Please refer to important disclosures at the end of this report

Vesuvius India | 3QCY2012 Result Update

Exhibit 1: 3QCY2012 performance

Y/E December (` cr) Net Sales Net raw material (% of Sales) Staff Costs (% of Sales) Other Expenses (% of Sales) Total Expenditure EBITDA EBITDA margin (%) Interest Depreciation Other Income PBT (% of Sales) Tax (% of PBT) Reported PAT PATM (%) Equity capital (cr) EPS (`)
Source: Company, Angel Research

3QCY12 132 73 54.9 9 6.7 26 19.9 108 25 18.6 0 4 0.3 21 15.7 7 32.5 14 10.6 20 6.9

3QCY11 138 76 55.3 8 5.8 29 20.8 113 25 18.1 (0) 4 0.0 21 15.4 7 31.8 15 10.5 20 7.2

yoy chg (%) (4.5) (5.2) 10.0 (8.9) (5.0) (2.1) 45bp 3.3 (3.0) (0.9) (4.0)

2QCY12 139 77 55.1 9 6.3 31 22.5 117 22 16.1 0 4 0.3 19 13.4 6 32.5 13 9.0 20

qoq chg (%) (5.2) (5.5) 0.3 (16.1) (7.9) 9.1 243bp (2.6) 11.3 11.3 11.3

9MCY12 410 229 55.8 26 6.4 88 21.4 343 67 16.4 0 12 1 56 13.8 18 32.5 38 9.3 20

9MCY11 395 217 54.8 23 5.9 80 20.2 320 75 19.1 (1) 11 0 66 16.6 21 31.6 45 11.4 20 22.1

% chg 3.8 5.7 13.0 9.6 7.2 (10.7) (266)bp 14.6 12.6 (11.7) (15.1)

(4.0)

6.2

11.3

18.8

(15.1)

Exhibit 2: Actual vs. Angel estimates (3QCY2012)

Actual (` cr) Total Income EBITDA EBITDA margin (%) Adjusted PAT
Source: Company, Angel Research

Estimate (` cr) 140 24 17.4 14

Var (%) (5.8) 0.7 120bp 2.3

132 25 18.6 14

Top-line below estimate, EBITDA margin surprises positively

For 3QCY2012, VIL reported a top-line of `132cr, 5.8% below our estimate of `140cr owing to a weak demand scenario. However, lower-than-expected other expenses led to expansion of EBITDA margin by 243bp qoq vis--vis our expectation of 17.4%. As a result, the net profit for the quarter stood at `14cr marginally higher than our expectation.

November 5, 2012

Vesuvius India | 3QCY2012 Result Update

Investment rationale
WSA further reduces steel consumption estimates- concerns persist
About 75% of the total refractories are consumed in the iron and steel industry. Indias steel consumption reported a sluggish growth of 5.5% in CY2011 vs an estimate of 13.3% by the World Steel Association (WSA). Following this, WSA revised its consumption estimates for CY2012 to 6.9% in April 2012, which were further reduced to 5.5% in October 2012. However, WSAs steel consumption growth estimate for India still stands higher than most other developed as well as developing countries. Thus, refractory consumption is expected to grow, but at a relatively slower pace on account of reduced steel demand.

Exhibit 3: Country-wise steel consumption estimates (WSA)

5.5 5.2
NAFTA 8 4 2 0

Growth (%)

2.2

2.5

(0.6)

(4) (6) (8)

(1.2)

(2)

Japan

EU

(5.6)

China

CIS

0.8

Central & South America

3.8

4.0

4.1

6.8

CY2012E (April 2012)

Source: WSA, Angel Research

CY2012E (Oct 2012)

New capacity to replace imports, but with a lag

Imports constitute 25-30% of the refractory industry wherein a majority of the imports are from China. Stagnation in domestic consumption due to increased refractory life cycle in the critical areas of steel making process has led to low capacity utilization at ~60%, thus leading to a substantial unutilized capacity. Also, ~15% additional capacities are expected to be operational by CY2012E. Besides, VIL has also acquired 15acres of land in Visakhapatnam for setting up its proposed fifth plant.

Exhibit 4: Capacity expansion for major players (MT)

Expansion
VIL IFGL Tata Refractories Total capacity
Source: Company

2010
622,500 800,000 250,760

New capacity
155,900 84,000 36,000

6.9

India

2012E
778,400 884,000 286,760 1,949,160

1,673,260

November 5, 2012

7.5

10

Vesuvius India | 3QCY2012 Result Update

We expect new capacities to contribute to the industry post improvement in capacity utilization to higher levels. This would lead to a decrease in the imports market share for refractories.

Exhibit 5: Refractory import market share to reduce (India)

45 40 35
(%)

42.2

30 25 20 15

29.3 24.0

28.2

27.3

26.5

CY08

CY09

CY10

CY11

CY12E

CY13E

Refractory imports marketshare

Source: Company, Angel Research

Strong balance sheet favors return ratios

VIL being a debt free company had a RoIC of 40.6% for CY2011. Since the company has completed its expansion, no major capex is required in the short term. Hence, we expect the cash reserves to increase to `87cr by CY2013E from `54cr in CY2011. VIL is expected to have a RoIC of 31.4% in CY2013E.

November 5, 2012

Vesuvius India | 3QCY2012 Result Update

Financials
Exhibit 6: Key assumptions
CY2012E Change in refractory volume sales Change in MRP of refractories
Source: Angel Research

CY2013E 6.2 1.0

(4.1) 3.0

Exhibit 7: Change in estimates

Y/E March Net sales (` cr) OPM (%) EPS (`)
Source: Angel Research

Earlier estimates CY2012E 560 16.1 24.7 CY2013E 611 17.0 28.8

Revised estimates CY2012E 549 16.6 25.2 CY2013E 587 17.0 27.5

% chg CY2012E (2.0) 49bp 2.3 CY2013E (3.9) (5)bp (4.3)

Slowdown in steel industry to restrain revenue growth

WSAs continuous downward revision for steel demand is an indication of slowdown in the industry. Hence, we expect a decline in demand for refractories, thus leading to a mere 4.3% CAGR revenue growth over CY2011-13E. Revenue for 9MCY2012 has witnessed the impact of demand slowdown with marginal sales growth. We expect the sluggishness to continue going forward with gradual recovery from CY2013E.

Exhibit 8: Slowdown in revenue growth in 9MCY2012

160 24.1 120 21.7 23.2 30 25 20

Exhibit 9: Revenue growth to improve gradually

700 600 500 21.7 22.8 30 25 20

(` cr)

10 0.7 139 2QCY12 132 3QCY12 5 1.8 0 (5) 2QCY11 3QCY11 4QCY11 1QCY12 Revenue (LHS) yoy growth (RHS)

300 200 100 0 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E Revenue (LHS) Revenue growth (RHS) 353 10.4 6.9 362 2.5 440 540 549 1.6 587

40 137 0 138 148 139

10 5 0

1.8

Source: Company, Angel Research

Source: Company, Angel Research

November 5, 2012

(%)

80

(` cr)

15

(%)

400

15

Vesuvius India | 3QCY2012 Result Update

Higher operational cost to impact EBITDA margin

Raw material cost which constitutes ~55% of the total cost was a major contributor in impacting EBITDA margin to sub 15% levels in 4QCY2011 and 1QCY2012 in comparison to more than 18% levels historically. However, recent fall in raw material prices along with decrease in other expenses led to a recovery in the EBITDA margin during the quarter. We expect raw material prices to stabilize at these levels, but the commencement of the expanded facility has led to an increase in employee cost. Hence, we expect the EBITDA margin to contract in CY2012E to 16.6% and recover to 17.0% in CY2013E.

Exhibit 10: Margin recovery on lower operational cost

30 25 20 18.3 18.1 18.6 19 18 17

Exhibit 11: EBITDA margin to recover in CY2013E

120 100 80 18.7 17.7 17.4 16.6 19 18 17.0 17

(` cr)

(` cr)

16.1 14.8 14.6 25 0 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 EBITDA (LHS) EBITDA margin (RHS) 25 22 20 22 25 13

(%)

15 10 5

16 15 14

40 20 53 0

15.0

15 14 64 CY2009 82 CY2010 94 CY2011 91 CY2012E 100 13 CY2013E

CY2008

EBITDA (LHS)

EBITDA margin (RHS)

Source: Company, Angel Research

Source: Company, Angel Research

Net profit to rebound in CY2013E

Considering the impact of demand slowdown and margin pressure, we expect the net profit to decline to `51cr in CY2012E and recover in CY2013E to `56cr.

Exhibit 12: Profit to recover at CY2011 level

60 50 40
(` cr)

40 29.3 18.8 30 20 13.7 9.0 10 0 32 (3.9) 38 CY2009 49 CY2010 PAT (LHS) 55 CY2011 51 (7.2) CY2012E 56 CY2013E (10)
(%)

30 20 10 0

CY2008

PAT growth (RHS)

Source: Company, Angel Research

November 5, 2012

(%)

60

16

Vesuvius India | 3QCY2012 Result Update

Outlook and valuation

We have revised our revenue and earnings estimates for CY2012E and CY2013E marginally downwards on the back of slowdown in steel demand which is impacting refractory demand. At current levels, the stock is trading at a PE of 12.4x its CY2013E earnings and P/BV of 1.8x for CY2013E. Given the higher valuations and weak demand in steel industry, we recommend a Neutral view on the stock.

Exhibit 13: One year forward P/E band

500 400 300

Exhibit 14: One year forward P/E chart

20 16 12

(`)

(x)
200 100 0 Nov-07 8 4 0 Nov-07 Nov-08 Price Nov-09 5x Nov-10 8x 11x Nov-11 14x Nov-12

Nov-08

Nov-09

Nov-10 PE

Nov-11

Nov-12

Median PE (5 yr)

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 15: Relative valuation

Year end IFGL Refractor Vesuvius India
Source: Company

TTM ended June12 TTM ended Sept12

Sales (` cr) 651 559

OPM (%) 12.1 16.4

PAT (` cr) 41 51

EPS (`) 12 25

ROE (%) 32.3 16.0

P/E (x) 4.0 13.5

P/BV (x) 1.3 2.1

EV/ Sales (x) 0.2 1.2

EV/ EBITDA (x) 1.8 7.3

Risks
Slowdown in steel industry: VIL is a manufacturer of refractories, which has major application (~75% of total production) in the iron and steel industry. Slowdown in steel demand has a direct impact on refractory demand. Underperformance in the steel industry may be a cause for declining demand of refractories, thus affecting the company.

November 5, 2012

Vesuvius India | 3QCY2012 Result Update

Profit & Loss Statement

Y/E December (` cr) Gross sales Less: Excise duty Net Sales Other operating income Total operating income % chg Net Raw Materials Other Mfg costs Personnel Other Total Expenditure EBITDA % chg (% of Net Sales) Depreciation EBIT % chg (% of Net Sales) Interest & other charges Other Income (% of Net Sales) PBT % chg Tax (% of PBT) PAT (reported) Extraordinary (Exp)/Inc. ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg CY2009
384 22 362 362 2.5 198 46 21 32 298 64 20.9 17.7 13 51 15.9 14.2 1 6 1.5 56 17.4 19 33 37 (0) 38 18.8 10.4 18.5 18.5 18.8

CY2010
473 33 440 440 21.7 242 59 25 32 358 82 28.5 18.7 13 69 35.1 15.7 1 6 1.5 75 33.6 26 35 49 0 49 29.3 11.0 23.9 23.9 29.3

CY2011
581 40 540 540 22.8 307 73 30 37 446 94 14.4 17.4 15 79 14.6 14.7 1 5 0.9 83 10.6 27 33 55 55 13.7 10.2 27.2 27.2 13.7

CY2012E
587 38 549 549 1.6 308 77 35 38 458 91 (2.9) 16.6 16 75 (5.6) 13.6 2 0.3 76 (7.5) 25 33 51 51 (7.2) 9.3 25.2 25.2 (7.2)

CY2013E
628 41 587 587 6.9 331 80 36 41 487 100 9.2 17.0 18 82 9.0 13.9 2 0.3 83 9.0 28 33 56 56 9.0 9.5 27.5 27.5 9.0

November 5, 2012

Vesuvius India | 3QCY2012 Result Update

Balance Sheet
Y/E December (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability (Net) Other Long Term Liabilities Long Term Provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long Term loans and adv. Other long term assets Current Assets Cash Loans & Advances Inventory Debtors Other current assets Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 161 79 82 21 193 55 11 29 98 77 115 218 181 90 92 20 373 56 164 38 116 226 147 259 207 99 109 30 181 1 270 54 15 48 149 3 109 161 482 239 115 123 20 184 1 299 72 16 56 151 3 105 193 521 262 133 129 20 197 1 331 87 17 63 162 4 113 219 565 20 193 213 5 218 20 233 253 6 259 20 278 298 6 177 482 20 317 337 6 177 521 20 361 381 6 177 565 CY2009 CY2010 CY2011 CY2012E CY2013E

November 5, 2012

Vesuvius India | 3QCY2012 Result Update

Cash Flow Statement

Y/E December (` cr) Profit before tax Depreciation Change in Working Capital Direct taxes paid Other income Others Cash Flow from Operations (Inc.)/Dec. in Fixed Assets (Inc.)/Dec. in Investments (Incr)/Decr. in L.T loans & adv Other income Others Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances CY2009 56 13 32 (19) (6) (4) 73 (37) 6 8 (23) (9) 5 (4) 45 9 55 CY2010 75 13 (31) (26) (6) 6 31 (19) 6 (8) (21) (9) 1 (9) 1 55 56 CY2011 83 15 (16) (27) (5) (4) 45 (37) (182) 5 174 (40) (10) 2 (8) (2) 56 54 CY2012E 76 16 (14) (25) (2) 52 (21) (3) 2 (22) (12) (12) 18 54 72 CY2013E 83 18 (11) (28) (2) 61 (24) (13) 2 (35) (12) (12) 15 72 87

November 5, 2012

10

Vesuvius India | 3QCY2012 Result Update

Key Ratios
Y/E December Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover Inventory / Sales (days) Receivables (days) Payables (days) WC (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (0.3) (0.9) 61.0 (0.2) (0.7) 80.5 (0.2) (0.6) 62.4 (0.2) (0.8) (0.2) (0.9) 2.2 11 99 95 61 2.4 8 96 231 75 2.6 8 101 89 72 2.3 10 101 70 81 2.2 10 101 70 82 25.1 33.8 18.9 29.0 43.9 20.8 21.4 40.6 20.1 14.9 32.6 16.1 15.0 31.4 15.5 14.2 0.7 2.5 24.0 (0.3) 15.7 0.7 2.4 24.7 (0.2) 14.7 0.7 1.4 13.3 (0.2) 13.6 0.7 1.3 11.7 (0.2) 13.9 0.7 1.3 11.9 (0.2) 18.5 18.5 24.8 3.7 105.1 23.9 23.9 30.3 4.0 124.6 27.2 27.2 34.4 4.3 146.9 25.2 25.2 33.4 5.0 166.2 27.5 27.5 36.4 5.0 187.9 18.4 6.8 3.2 1.1 1.8 10.0 2.9 14.3 5.5 2.7 1.2 1.4 7.8 2.5 12.5 4.9 2.3 1.2 1.2 6.8 1.3 13.5 10.2 2.1 1.5 1.1 6.8 1.2 12.4 9.4 1.8 1.5 1.0 6.1 1.1 CY2009 CY2010 CY2011 CY2012E CY2013E

November 5, 2012

11

Vesuvius India | 3QCY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Vesuvius India Ltd. No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

November 5, 2012

12