Diwali Picks Large Cap Mid Cap & Small Cap 9 November 2020

Institutional Equities
LARGE CAP
Mumbai November 2020

DIWALI PICKS
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All stocks prices in this PPT are based 6 November 2020 closing levels.
HCL Technologies
CMP: Rs850; Rating: Buy; M-cap: US$31,381mn; TP: Rs1,053; Upside: 24%
Our view on the Indian IT services sector

In Rs Mn FY20-FY23E CAGR
y We upgraded our view to ‘neutral’ on the sector from a ‘cautious’ one held for the last many years on the back of both, higher
earnings and higher target PE multiples. The earnings uplift is coming from expectation of margin expansion over the next 2-4 Revenue 10.3%
years along with a 300-400bps pick-up in organic revenue growth over FY21-FY23. The changed view on margins has been EBIT 12.0%
driven by business model changes that the pandemic has induced, which we think are structurally positive. Higher PE
multiples are driven by a combination of valuation exuberance (irrational!?) in the enterprise technology space in the US and PAT 13.5%
constrained domestic investment choices. The demand uplift is more widespread and is a ‘rising-tide-lifting-all-boats’ kind of FDEPS 13.5%
situation. Reasons for change in customer behavior, in our view are: (1) quick and unprecedented ‘whatever-it-takes’ monetary
and fiscal actions in the US and Europe that likely eliminated tail risks to economic recovery and reduced risk aversion among Contribution to
corporates. (2) Strong need for digital transformation, not only to structurally cut costs, but also to deliver contact-less Vertical
Revenue (%)
consumer and employee experiences, driven by the nature of the pandemic. Based on the commentary from customers, Financial Services 22.1
software companies and IT services vendors, we believe that digital demand has been pulled forward from the future. Manufacturing 17.7
Stock View: Life Sciences & Healthcare 14.1
Public Services 10.7
y We believe HCL Technologies (HCLT) will be an outsized beneficiary of the digital infrastructure build out that has been Retail & CPG 10.4
catalyzed by the pandemic and which will likely be a 3-5 year opportunity. Industry believes that only 20% of Global-3000 Telecommunications, Media
7.7
infrastructure has likely moved to the cloud with another 60% likely within 3-5 years. HCLT has the highest leverage to this Publishing & Entertainment
opportunity among Indian players with what we estimate to be a 30% revenue exposure. HCLT will also benefit from a pick-up Technology & Services 17.3
in Digital transformation spends on both services (Mode-2) and products (Mode-3). This we believe will likely help HCLT Total 100
deliver growth outperformance in an industry which will likely see growth acceleration of 300-400bps after delivering 6-8% Geography Contribution to Revenue
organic growth over FY15-FY20. Americas 63.1
y 2QFY21 revenue grew by 4.5% QoQ in CC terms, outperforming its mid-quarter update of ‘at least 3.5%’. Significant traction Europe 28.4
in Digital Foundation business and advancement of demand in its Products business drove growth. HCLT recorded its highest Rest of the World 8.5
EBIT margin in 5 years at 21.6% .This was led by operational efficiencies and better margins in the Mode-2 part of the Total 100
business (up ~400bps in 2Q YoY). HCLT’s 2H margins will come off from 1H levels (~21%) as salary increases kick in. Revenue (in Revenue Mix
Mode
HCLT’s revenue growth guidance QoQ is 1.5-2.5% in CC terms for 3Q and 4Q, leading to a growth in annual FY21 revenue US$Mn) (%)
compared to expectation of a decline 3 months back. HCLT’s confidence comes from a deal pipeline that stood at an all-time Mode 1 1,587 63.3
high in 2QFY21 (up 20% QoQ) and which is broad-based. Mode 2 524 20.9
Mode 3 396 15.8
y We have a Buy rating on the stock with a target price of Rs1,053 (upside of 24%) at 18.8x target PE multiple on September 22
Total 2,507 100
EPS. We value HCLT at a target P/E of 18.8x September 2022E EPS, which is at a 25% discount to the target P/E multiple of
TCS.
Girish Pai
girish.pai@nirmalbang.com
+91-22-6273 8017
Institutional Equities 3
HCL Tech
Income Statement (Rs mn) (YE March) FY19 FY20 FY21E FY22E FY23E Cash Flow (Rs mn) (YE March) FY19 FY20 FY21E FY22E FY23E
Average INR/USD 69.9 72.2 74.2 75.2 76.8 EBIT 1,18,210 1,38,530 1,54,577 1,74,380 1,94,796
Net Sales (USD mn) 8,633 9,936 10,027 11,209 12,340 (Inc.)/Dec. in Working Capital -23,150 50,160 -44,148 -10,170 -8,138
YoY Growth (%) 10.1 15.1 0.9 11.8 10.1
INR Net Sales 6,04,280 7,06,780 7,43,703 8,43,171 9,47,230 Cash flow from Operations 95,060 1,88,690 1,10,429 1,64,211 1,86,658
YoY Growth (%) 19.5 17.0 5.2 13.4 12.3 Other Income 8,050 1,790 6,292 7,897 11,659
Cost of Sales & Services 3,92,680 4,43,080 4,45,151 5,08,847 5,76,605 Depreciation & Amortisation 21,480 28,400 37,084 37,976 38,799
Gross Margin 2,11,600 2,63,700 2,98,551 3,34,324 3,70,625 Tax Paid -25,030 -29,460 -34,606 -38,934 -44,145
% of sales 35.0 37.3 40.1 39.7 39.1
SG&A 71,910 96,770 1,06,890 1,21,967 1,37,030 Dividends Paid 20,310 19,551 37,991 43,419 43,419
% of sales 11.9 13.7 14.4 14.5 14.5 Net Cash from Operations 1,19,870 2,08,971 1,57,190 2,14,568 2,36,389
EBITDA 1,39,690 1,66,930 1,91,661 2,12,356 2,33,595
Capital Expenditure -60,536 -1,50,090 -35,139 -45,770 -46,593
% of sales 23.1 23.6 25.8 25.2 24.7
Depreciation and Amortization 21,480 28,400 37,084 37,976 38,799 Net Cash after Capex 59,334 58,881 1,22,051 1,68,798 1,89,796
Depreciation and Amortization (as % of sales) 3.6 4.0 5.0 4.5 4.1 Inc./(dec.) in Debt 35,489 35,780 -21,620 - -
EBIT 1,18,210 1,38,530 1,54,577 1,74,380 1,94,796
(Inc.)/Dec. in Investments 12,285 -58,880 -54,012 -1,07,376 -1,27,548
% of sales 19.6 19.6 20.8 20.7 20.6
Other income (net) (incl forex gain/loss) 8,050 1,790 6,292 7,897 11,659 Equity Issue/(Buyback) -40,000 - - - -
PBT 1,26,260 1,40,320 1,60,869 1,82,277 2,06,455 Cash from Financial Activities 10,292 29,301 27,453 23,628 23,006
Provision for tax 25,030 29,460 34,606 38,934 44,145
Others -27,275 -99,042 -1,56,894 -1,92,426 -2,12,802
Effective tax rate (%) 19.8 21.0 21.5 21.4 21.4
Opening Cash 16,939 59,290 48,430 41,040 41,040
Net profit 1,01,230 1,10,620 1,25,808 1,42,903 1,61,870
-Growth (%) 15.3 9.3 13.7 13.6 13.3 Closing Cash 59,290 48,430 41,040 41,040 41,040
-Net profit margin (%) 16.8 15.7 16.9 16.9 17.1 Change in Cash 42,351 (10,860) (7,390) - -
Balance Sheet (Rs mn) (YE March) FY19 FY20 FY21E FY22E FY23E Ratios (YE March) FY19 FY20 FY21E FY22E FY23E
Equity capital 1,356 1,356 1,356 1,356 1,356 Per Share (Rs)
Minority Interest 4,540 5,280 5,150 5,150 5,150 EPS 36.8 40.8 46.4 52.7 59.6
Reserves & surplus 4,16,344 5,15,514 6,23,024 7,44,231 8,84,405 FDEPS 36.8 40.8 46.4 52.7 59.6
4,22,240 5,16,870 6,24,380 7,45,587 8,85,761 Dividend Per Share 6.1 6.0 14.0 16.0 16.0
Net worth
15,380 25,480 26,725 30,858 34,165 Dividend Yield (%) 0.7 0.7 1.6 1.9 1.9
Other liabilities
Book Value 152 190 230 275 326
Total loans 39,860 50,920 31,000 31,000 31,000
Dividend Payout Ratio (excl DDT) 16.6 14.7 30.2 30.4 26.8
Lease Liabilites - 24,720 23,020 23,020 23,020
Return ratios (%)
Total liabilities 4,77,480 6,23,270 7,10,275 8,35,615 9,79,096
RoE 25.8 23.7 22.0 20.9 19.8
Intangible assets 1,76,950 2,94,210 - - -
RoCE 27.4 25.2 23.2 22.6 21.5
Net block 58,010 62,440 3,54,705 3,62,499 3,70,293
Pre Tax ROIC (%) 36.3 33.3 31.6 33.3 35.4
Investments 3,900 380 380 380 380
Tunover Ratios
Other non-Current assets 52,930 64,650 64,905 74,941 82,972
Asset Turnover Ratio 1.0 0.8 0.9 0.8 0.8
Debtors 1,46,100 1,77,720 1,71,806 1,98,372 2,19,632 Debtor Days (incl. unbilled Rev) 88 92 84 86 85
Cash & bank balance 59,290 48,430 41,040 41,040 41,040 Working Capital Cycle Days 43 11 32 33 32
Other Current assets 91,780 1,58,090 2,06,782 3,11,501 4,36,923 Valuation ratios
Right of use assets - 26,240 24,420 24,420 24,420 PER 23.1 20.9 18.3 16.1 14.2
Total Current assets 2,97,170 4,10,480 4,44,048 5,75,333 7,22,015 P/BV 5.6 4.5 3.7 3.1 2.6
Total Current liabilities 1,11,480 2,08,890 1,53,762 1,77,538 1,96,564 EV/EBITDA 16.0 13.3 11.3 9.7 8.3
Net Current assets
Total assets
1,85,690
4,77,480
2,01,590
6,23,270
2,90,286
7,10,275
3,97,796
8,35,615
5,25,451
9,79,096
EV/Sales
M-cap/Sales
3.7
3.8
3.2
3.3
2.9
3.1
2.4
2.7
2.1
2.4
Source: Company, Nirmal Bang Institutional Equities Research
HDFC Bank
CMP: Rs1,308; Rating: Buy; M-cap: US$97.3bn; TP: Rs1,484; Upside: 13.5%
y One the strongest players from the HDFC stable:

{ HDFC Bank has demonstrated consistent advances growth over the years (FY10-20: 23% CAGR). Despite low systemic credit growth, bank has continued to
deliver robust credit growth, implying market share gains.
{ PAT has grown at CAGR of 24%over FY10-20 on back of best-in-class and stable NIMs (4.4% average), tight leash on costs (C/I down 10% over FY10-20) and
superior asset quality (resulting in lower-than-industry credit costs over a cycle).
{ Deposits growth has been strong at CAGR of 21% over FY10-20. Being one of the largest and most trusted banks in India, HDFC Bank has been a large
beneficiary of recent flight-to-safety. The bank also has one of the most granular deposit profiles in the industry which has kept the liability side stable and
enabled consistent and sustainable growth in assets. Despite offering one of the lowest deposit rates, bank has seen consistent and above-industry growth in
deposits.
y Best in class asset quality due to strong internal credit policy:
{ Despite its size, HDFCB has been able to maintain superior asset quality consistently. Over a cycle (FY11-20), GNPAs/NNPAs have averaged 1.1%/0.3%.
Asset quality has been superior to peers despite having tighter more stringent NPA recognition norms and internal policies.
{ Delinquency rates for the bank have been 40% lower than the market due to proprietary risk assessment and underwriting tools that rely less on bureau scores
and lay more emphasis on internally developed scorecards.
{ As a prudent measure, witnessing stress build up in the economy, HDFCB had started tightening its credit filters 15 months ago. This should help them tide over
the anticipated asset quality stress with relative ease. In the retail portfolio, the demand resolution rates are 97-98%, reaching 99% in a few months.
{ Bank carries more than adequate covid-19 related provisions to be able to absorb the expected slippages in the near-term.
{ Various indicators show wholesale book asset quality has remained stable (average portfolio rating: AA) and that the stress in the SME segment is not as bad.
y Going forward:
{ Growth in the retail segment may be tepid over the next few quarters as customers/borrowers hold back on spending along with bank opening credit policies
only for the better rated customers. Festive treats 2.0, along with strategic initiatives in auto and healthcare space, should help retail book growth in the future.
{ Wholesale segment is expected to perform reasonably good. Focus is on relatively higher rated corporates with strong access to liquidity. In a sense, HDFCB’s
lending strategy is counter-cyclical (lending to corporates when others are not).
{ Bank aims to bring down its cost to income ratio by 300-500bps. Progress in the same direction has already started with the bank appointing a team for cost
rationalization.
{ A key overhang – finding a replacement for Aditya Puri – is behind us with Sashidhar Jagdishan’s taking over as the MD/CEO.
Raghav Garg, CFA

raghav.garg@nirmalbang.com
+91-22-6273 8192
HDFC Bank
Income Statement (Rs mn) Y/E March FY19 FY20 FY21E FY22E FY23E
Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E Growth (%)
Interest Income 9,89,721 11,48,127 12,84,516 15,14,078 17,83,780 NII growth 20.3 16.5 16.8 17.2 18.3
Pre-provision profit growth 21.8 22.6 14.8 18.8 19.3
Interest expense 5,07,288 5,86,264 6,28,502 7,45,259 8,74,517 PAT growth 20.5 24.4 12.4 29.6 22.0
Net interest income 4,82,432 5,61,863 6,56,014 7,68,819 9,09,263 Business (%)
Deposit growth 17.0 24.3 22.0 22.0 19.0
Non-interest income 1,76,259 2,32,350 2,30,136 2,74,938 3,16,179
Advance growth 24.5 21.3 14.6 18.4 15.7
Net Revenue 6,58,691 7,94,213 8,86,150 10,43,757 12,25,442 CD 88.8 86.6 81.3 79.0 76.8
Operating Expense 2,61,194 3,06,975 3,26,799 3,79,393 4,32,814 CASA 42.4 42.2 40.5 42.5 40.5
Operating efficiency (%)
-Employee Exp 77,618 95,257 1,03,827 1,16,286 1,30,241 Cost-to-income 39.7 38.7 36.9 36.3 35.3
-Other Exp 1,83,576 2,11,719 2,22,972 2,63,107 3,02,573 Cost-to-assets 2.3 2.2 2.0 1.9 1.9
Spreads (%)
Operating profit 3,97,497 4,87,238 5,59,351 6,64,364 7,92,628
Yield on advances 10.5 10.1 9.5 9.5 9.5
Provisions 75,501 1,21,424 1,65,075 1,53,774 1,69,626 Yield on investments 7.5 6.0 5.6 5.7 5.7
PBT 3,21,997 3,65,814 3,94,276 5,10,590 6,23,002 Cost of deposits 4.8 4.9 4.6 4.6 4.5
Yield on assets 8.9 8.6 8.0 8.0 8.0
Taxes 1,11,215 1,03,498 99,542 1,28,516 1,56,810
Cost of funds 5.2 5.0 4.5 4.5 4.5
PAT 2,10,782 2,62,315 2,94,734 3,82,075 4,66,193 NIMs 4.4 4.2 4.1 4.1 4.1
Capital adequacy (%)
Tier I 15.8 17.2 16.9 16.1 15.9
Balance Sheet Tier II 1.3 1.3 1.4 1.4 1.4
Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E Total CAR 17.1 18.5 18.3 17.5 17.3
Asset Quality (%)
Share capital 5,447 5,483 5,490 5,490 5,490 Gross NPA 1.4 1.3 1.6 1.4 1.3
Reserves & Surplus 14,86,617 17,04,377 19,69,637 22,75,297 26,48,251 Net NPA 0.4 0.4 0.4 0.3 0.3
Provision coverage 71.4 72.0 72.3 78.0 76.0
Shareholder's Funds 14,92,064 17,09,860 19,75,128 22,80,787 26,53,741
Slippage 2.2 2.2 1.8 1.5 1.6
Deposits 92,31,409 1,14,75,023 1,39,99,528 1,70,79,424 2,03,24,515 Credit-cost 1.0 1.3 1.5 1.2 1.2
Return (%)
Borrowings 11,70,851 14,46,285 11,57,028 9,25,623 9,25,623
ROE 16.5 16.4 16.0 18.0 18.9
Other liabilities 5,51,083 6,73,944 8,57,389 8,90,240 8,73,352 ROA 1.8 1.9 1.8 2.0 2.0
Total liabilities 1,24,45,407 1,53,05,113 1,79,89,073 2,11,76,075 2,47,77,231 RORWA 2.4 2.7 2.6 2.9 2.9
Cash/Equivalent 8,13,476 8,66,187 14,11,192 13,47,639 16,88,562 Per share
Advances 81,94,012 99,37,029 1,13,86,042 1,34,86,033 1,56,04,768 EPS 38.7 47.8 53.7 69.6 84.9
BV 273.9 311.8 359.7 415.4 483.4
Investments 29,05,879 39,18,267 45,49,847 56,36,210 67,07,090
ABV 268.0 305.4 350.5 407.9 474.6
Fixed Assets 40,300 44,319 48,751 53,626 58,989 Valuation
P/E 32.4 26.2 23.4 18.0 14.8
Other assets 4,91,740 5,39,311 5,93,242 6,52,566 7,17,823
P/BV 4.6 4.0 3.5 3.0 2.6
Total assets 1,24,45,407 1,53,05,113 1,79,89,073 2,11,76,075
6
2,47,77,231 P/ABV 4.7 4.1 3.6 3.1 2.6
Source: Company, Nirmal Bang Institutional Equities Research 6

Hindustan Unilever
CMP: Rs2,094; Rating: Buy; M-cap: US$65.8bn; TP: Rs2,555; Upside: 22%
y In the near term, the business is picking up momentum and the worst seems to be behind for Hindustan Unilever (HUVR). Although, the discretionary
and out-of-home categories remain impacted, we believe the company’s performance should only improve going forward as markets start opening up
further.
y The confidence on HUVR’s ability to deliver strong performance over the medium term is because of:
o Its rapidly improving adaptability to market requirements, exemplified by its ‘Winning In Many Indias’ (WIMI) strategy,
o Continuous innovations,
o Strong trend towards premiumization and
o Employing technology across business verticals, which is creating further entry barriers.
y Margin projections over the next few years also stays strong on the back of:
o Ability to take pricing actions for any sharp movement in input prices,
o Some moderation in ad spend intensity in FY2021,
o Aggressive productivity improvement measures in response to the Covid-19 induced pressure on topline & some cost line items,
o Fair amount of synergy benefit from GSKCH acquisition and
o Premiumization across categories.
y HUVR’s acquisition of GSKCH not only adds to its topline (evolving the Foods & Refreshment portfolio into higher growth segments) and margin but
also opens up the chemist channel for HUVR.
y Most recent acquisition of VWash brand from Glenmark also fits well as VWash liquids (Intimate hygiene category) is a nascent category, has big
potential for market development as urban penetration at low single digit (<8%), growing at double digit and will maintain that for next few years as
HUVR expands its reach for its HFD portfolio in Chemist, Pharmacy and Ecom channels.
y We believe that HUVR offers the best earnings growth visibility in large-cap Indian consumer space, justifying premium valuation even though return
ratios have dropped due to the impact of the merger. The stock currently trades at 61x/49x/43x FY21E/FY22E/FY23E EPS. We continue to have a
positive view on HUVR and have a BUY rating with a target price of Rs.2,555.
Vishal Punmiya
vishal.punmiya@nirmalbang.com
+91 6273 8064
Hindustan Unilever
Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E
Net Sales 3,82,240 3,87,850 4,58,398 5,17,199 5,61,380
Operating profit (before Tax) 85,220 90,920 1,09,080 1,35,457 1,53,539
% Growth 10.7 1.5 18.2 12.8 8.5
Depreciation 5,240 9,380 11,138 11,571 12,062
COGS 1,79,600 1,77,930 2,13,964 2,28,779 2,46,868
Staff costs 17,470 16,910 16,680 19,918 20,884 Other income 6,640 7,330 6,263 6,312 7,002
Advertising costs 45,520 46,860 43,927 51,978 54,390 (Inc.)/dec. in working capital -2,610 2,970 11,472 5,246 4,841
Other expenses 53,280 50,150 50,893 57,386 60,940 Cash flow from operations 57,280 73,050 98,215 1,13,021 1,26,024
Total expenses 2,95,870 2,91,850 3,43,262 3,75,247 4,01,486 Capital expenditure (-) -7,240 -7,130 -11,146 -6,000 -9,370
EBITDA 86,370 96,000 1,15,137 1,41,953 1,59,894
Net cash after capex 50,040 65,920 87,070 1,07,021 1,16,654
% growth 18.7 11.1 19.9 23.3 12.6
EBITDA margin (%) 22.6 24.8 25.1 27.4 28.5 Dividends paid (-) -45,460 -51,960 -90,454 -1,13,948 -1,29,219
Other income 6,640 7,330 6,263 6,312 7,002 Inc./(dec.) in investments 3,270 15,820 -7,500 -4,000 -1,000
Interest costs 280 1,060 1,181 1,237 1,295 Cash from financial activities -54,620 -66,760 -90,269 -1,13,948 -1,29,219
Depreciation 5,240 9,380 11,138 11,571 12,062 Opening cash balance 33,730 36,880 50,170 90,124 73,387
Profit before tax (before exceptional Closing cash balance 36,880 50,170 90,124 73,387 51,608
87,490 92,890 1,09,080 1,35,457 1,53,539
items)
Exceptional items -2,270 -1,970 0 0 0 Change in cash balance 3,150 13,290 39,954 -16,736 -21,779
Tax 25,650 22,020 28,393 34,178 38,711 Y/E March FY19 FY20 FY21E FY22E FY23E
Reported PAT 60,360 67,380 80,687 1,01,279 1,14,828 Per share (Rs)
Adj. PAT 60,800 67,430 80,687 1,01,279 1,14,828 EPS 28.1 31.1 34.3 43.1 48.9
PAT margin (%) 15.9 17.4 17.6 19.6 20.5 Book value 35.4 37.1 201.4 191.4 179.4
% Growth 18.4 10.9 19.7 25.5 13.4 DPS 22.0 25.0 38.5 48.5 55.0
Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E Valuation (x)
EV/sales 11.9 11.7 10.7 9.5 8.8
Share capital 2,165 2,165 2,349 2,349 2,349
EV/EBITDA 52.0 46.7 41.9 34.1 30.4
Reserves 74,430 78,150 4,70,941 4,47,388 4,19,077
P/E 74.6 67.2 61.0 48.6 42.8
Net worth 76,595 80,315 4,73,291 4,49,738 4,21,426
P/BV 59.2 56.4 10.4 10.9 11.7
Total debt 0 0 0 0 0
Return ratios (%)
Total liabilities 76,595 80,315 4,73,291 4,49,738 4,21,426 RoCE* 119.1 119.8 39.8 29.6 35.5
Gross block 79,037 95,547 1,06,566 1,12,566 1,21,566 RoE 82.5 85.9 29.1 21.9 26.4
Depreciation -35,607 -44,987 -59,260 -70,831 -82,893 RoIC* 275.9 335.8 55.4 36.7 42.4
Net block 43,430 50,560 47,306 41,736 38,673 Profitability ratios (%)
CWIP 3,730 5,130 5,256 5,256 5,626 Gross margin 53.0 54.1 53.3 55.8 56.0
Goodwill (on merger) 0 0 3,58,983 3,58,983 3,58,983 EBITDA margin 22.6 24.8 25.1 27.4 28.5
Deferred charges 3,390 2,610 3,749 3,749 3,749 EBIT margin 21.2 22.3 22.7 25.2 26.3
Investments 29,490 15,000 22,500 26,500 27,500 PAT margin 15.9 17.4 17.6 19.6 20.5
Inventories 24,220 26,360 29,911 32,016 34,771 Liquidity ratios (%)
Debtors 16,730 10,460 21,360 24,051 26,122 Current ratio 1.0 1.1 1.2 1.1 0.9
Quick ratio 0.7 0.8 1.0 0.9 0.7
Cash 36,880 50,170 90,123 73,387 51,608
Solvency ratio (%)
Other current assets 20,785 35,730 43,761 48,420 50,971
Debt to Equity ratio 0.0 0.0 0.0 0.0 0.0
Total current assets 98,615 1,22,720 1,85,155 1,77,874 1,63,472
Turnover ratios
Creditors 70,700 73,990 94,323 1,05,111 1,13,023 Total asset turnover ratio (x) 5.0 4.8 1.0 1.2 1.3
Other current liabilities & provisions 31,360 41,715 55,335 59,249 63,554 Fixed asset turnover ratio (x) 8.8 7.7 9.7 12.4 14.5
Total current liabilities 1,02,060 1,15,705 1,49,658 1,64,360 1,76,578 Debtor days 13 13 13 16 16
Net current assets
Total assets
-3,445
76,595
7,015
80,315
35,496
4,73,291
13,514
4,49,738
-13,106
4,21,426
Inventory days
Creditor days Institutional Equities
49
67
54
68
51
67
51
70
51
71
Source: Company, Nirmal Bang Institutional Equities Research; * Pre-tax
Sun Pharma
CMP: Rs509; Rating: Buy; M-cap: US$16.6bn; TP: Rs618; Upside: 21%
y The US business for SPIL (excluding Taro Pharmaceuticals and Dusa Pharmaceuticals) should start growing as 92 ANDAs (abbreviated new
drug applications) and 6 NDA’s, which are pending approval, gradually start reflecting in incremental revenues. Price erosion in base business
is unlikely to be painful as the same is now commoditised with a median competitive intensity of eight players across its marketed ANDA
portfolio. In addition to complex ANDAs, SPIL is also aggressively developing value-added generic drugs which are targeting the following
segments: 1) Patients suffering from dysphagia. 2) Dosing convenience. 3) Improved health care administration. The domestic business should
deliver a low double-digit growth and outpace the Indian pharmaceutical market driven by its large exposure to the chronic segment.
y We are optimistic about Cequa potential: Cequa, which is approved for the treatment of dry eye disease, addresses a US$1.7bn market that is currently
under-penetrated because of lack of effective treatment options. Cequa is apparently the first drug to have demonstrated statistically significant
improvement, relative to the vehicle for both conjunctival staining and unanesthetized Schirmer’s test, in addition to a reduction in corneal staining.
y Ilumya – Gaining formulary coverage in a crowded market is getting challenging, but the market is growing and will help- Ilumya clinical profile is
comparable to the widely prescribed drugs in the segment, but the ramp up so far is not encouraging. In FY20, Ilumya sales aggregated to $91mn.
Formulary coverage has been a challenge for Ilumya, but the same should improve as it adopted by physicians. Launches in other geographies (Japan,
China, MENA) should allow scale up of this opportunity. In addition in the US, we continue to witness growing adoption of biologics for Psoriasis.. We
estimate the market opportunity at $9billion in the US now and Ilumya share is only 1%.
y Building a value-added generic portfolio: SPIL is aggressively building a value-added generic portfolio which is intended to address unmet needs
relating to dysphagia and improved healthcare services (convenience, safety and less resource-intensive) by developing ready-to-administer IV bags that
replace injections which require to be reconstituted. In addition to this, it is also developing products to address compliance by lowering the dosing
frequency. SPIL currently has six NDA filings pending approval and the list should expand as it aggressively builds up intellectual property around a larger
portfolio of drugs.
y Domestic business should continue to grow on the back of strength in chronic segment: SPIL’s domestic portfolio (31% of revenues) is aligned to
cater to fast-growing segments in domestic market. Cardiology, CNS and gastroenterology represent around 47% of SPIL’s domestic sales. SPIL is also
successfully leveraging its strong presence in domestic market for authorized generic deals with large global innovator brands (Januvia, Brilinta and
Forxiga). SPIL’s domestic portfolio has a low concentration risk as its top 10 brands contribute around 18% to sales in India. To enhance sustainability,
SPIL is increasing its focus on products with technical complexity. We have factored in 11% growth for SPIL’s domestic franchise.
Vishal Manchanda
vishal.manchanda@nirmalbang.com
+91 9737437148
Sun Pharma
Income Statement (Rsmn) FY19 FY20 FY21E FY22E FY23E Balance Sheet (Rsmn) FY19 FY20 FY21E FY22E FY23E
Net sales 2,90,659 3,28,375 3,41,485 3,69,725 3,95,211 Equity 2,399 2,399 2,399 2,399 2,399
Growth (%) 9.7 13.0 4.0 8.3 6.9 Reserves 4,11,691 4,50,245 4,58,484 5,09,770 5,68,210
Raw material costs 78,690 92,305 97,505 1,05,014 1,11,751 Net worth 4,14,091 4,52,645 4,60,883 5,12,169 5,70,610
Employee expenses 59,671 63,624 68,713 73,523 78,670 Minority interest 33,135 38,602 34,906 39,397 43,708
Other expenses 89,223 1,02,549 94,345 96,232 98,157 Total Loans 1,09,238 88,655 93,597 84,550 84,074
Total expenditure 2,27,583 2,58,477 2,60,564 2,74,770 2,88,578 Deferred tax liabilities 2,312 2,602 2,602 2,602 2,602
EBITDA 63,076 69,898 80,921 94,955 1,06,633 Other non-current liabilities 10,016 12,919 12,919 12,919 12,919
Growth (%) 12.5 10.8 15.8 17.3 12.3
Total liabilities 5,68,792 5,95,423 6,04,907 6,51,636 7,13,912
EBITDA margin (%) 21.7 21.3 23.7 25.7 27.0
Fixed assets including CWIP 1,09,382 1,12,263 1,06,861 1,12,335 1,17,289
Other income 10,255 6,360 5,800 7,500 7,500
Goodwill & intangible assets 1,23,095 1,28,409 1,17,244 1,06,078 94,913
Interest costs 5,553 3,027 4,464 3,000 3,872
Long-term loans & advances 958 1,057 1,057 1,057 1,057
Gross profit 2,11,969 2,36,071 2,43,980 2,64,711 2,83,460
Other non-current assets 1,02,811 1,24,254 1,29,254 1,34,254 1,39,254
% growth 11.2 11.4 3.4 8.5 7.1
Depreciation 17,533 20,528 21,204 20,691 21,211 Inventories 78,860 78,750 86,820 93,506 99,505
Exceptional items -12,144 -2,606 -39,300 0 0 Debtors 88,842 94,212 93,557 1,01,294 1,08,277
PBT 38,102 50,096 21,753 78,764 89,050 Cash and cash equivalents 70,623 56,766 70,524 1,14,871 1,75,891
% growth 9.5 31.5 -56.6 262.1 13.1 Bank balances other than cash 2,133 8,109 35,000 35,000 35,001
Tax 6,009 8,228 7,614 13,390 16,697 Other current assets 70,234 78,704 75,704 72,704 69,704
Effective tax rate (%) 15.8 16.4 35.0 17.0 18.8 Total current assets 3,10,692 3,16,542 3,61,605 4,17,375 4,88,377
Creditors 41,479 40,937 53,427 57,542 61,234
PAT before MI 32,079 41,720 14,139 65,374 72,353
Other current liabilities/provisions 36,667 46,165 57,686 61,922 65,745
MI 5,424 4,070 -3,696 4,490 4,311
PAT 26,654 37,649 17,836 60,884 68,042 Total current liabilities 78,146 87,102 1,11,113 1,19,464 1,26,978
Growth (%) 23.0 30.1 -66.1 362.4 10.7 Net current assets 2,32,546 2,29,440 2,50,492 2,97,912 3,61,399
EPS (Rs) 11.1 15.7 7.4 25.4 28.3 Assets held for sale 0 0 0 0 0
EPS growth (%) 23.3 41.3 -52.6 241.4 11.7 Total assets 5,68,792 5,95,423 6,04,907 6,51,636 7,13,912
Cashflow Statement (Rsmn) FY19 FY20 FY21E FY22E FY23E Y/E March FY19 FY20 FY21E FY22E FY23E
PBT 38,102 50,096 61,053 78,764 89,050 Profitability & return ratios
EBITDA margin (%) 21.7 21.3 23.7 25.7 27.0
(Inc.)/dec. in working capital -26,960 8,986 5,075 -10,309 -9,290
EBIT margin (%) 19.2 17.0 19.2 22.1 23.5
Other income -6,692 -3,546 -5,800 -7,500 -7,500 Net profit margin (%) 11.0 12.8 4.1 17.7 18.3
Interest Paid 5,553 3,027 4,464 3,000 3,872 RoE (%) 14.2 14.0 17.2 16.8 16.5
Depreciation 17,533 20,528 21,204 20,691 21,211 RoCE (%) 12.7 9.6 13.1 13.6 14.4
DTL&DTA -5,581 -7,096 0 0 0 Working capital & liquidity ratios
Tax paid (-) 6,009 8,228 7,614 13,390 16,697
Receivables (days) 105 102 100 96 97
Inventory (days) 118 111 116 120 122
Net cash from operations 24,684 53,696 78,383 71,256 80,646 Payables (days) 71 58 66 74 75
Capital expenditure (-) -36,831 -28,723 -4,636 -15,000 -15,000 Working capital (days) 152 155 150 142 144
Net cash after capex -12,147 24,972 73,746 56,256 65,646 Current ratio (x) 1.8 2.0 1.9 2.2 2.5
Other investing activites 25,489 -17,001 3,800 5,500 5,500 Cash ratio (x) 0.6 0.7 0.8 1.0 1.3
Valuation ratios
Cash from Financial Activities -39,880 -15,852 -36,898 -17,409 -10,126
EV/Sales (x) 4.2 3.6 3.4 3.0 2.7
Change in Cash -26,538 -7,881 40,648 44,348 61,020
EV/EBITDA (x) 19.4 17.1 14.4 11.7 9.9
Opening cash balance
Closing cash balance
99,294
72,756
72,756
64,875
64,876
1,05,524
1,05,524
1,49,871
1,49,871
2,10,892
P/E (x)
P/BV (x)
45.9
3.0
32.5
2.7
68.6
2.7
20.1
2.4
18.0
2.1
UltraTech Cement
CMP: Rs4,556; Rating: Buy; M-cap: US$17.8bn; TP: Rs5,640; Upside: 24%
EBITDA/mt is expected to be above Rs. 1000

y True pan-India player with unmatched distribution reach: UTCEM is a truly pan-India 1,400 EBITDA/mt largely stable during the
company with overall capacity share of 23% with 114mn mt capacity in India. The company is a top 3 1,200
player in most of the states in India. With ~30,000 dealers and ~61000 retailers, it has maximum 1,000
number of touch points with its customers. It has developed a pan-India network of stockists and 800
1,318
1,237
1,179
1,161
distributors (it also has godowns and terminals), which helps it to deliver cement in the shortest possible 600
1,039
1,016
1,013
995
960
947
934
776
400
time compared to its peers. Uniform branding across outlets and marketing & advertisement support
591
200
help it to garner a premium compared to others.
-
y Better than anticipated results: UTCEM has reported great set of numbers for 2QFY21, with revenue
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020e
FY2021e
FY2022e
FY2023e
at Rs103.54bn, up by 7.7% YoY primarily due to higher volume (7.3% YoY); EBITDA at Rs26.9bn
increased 40.5% YoY due to lower operating expenses; EBITDA margin increased by 607bps YoY and EBITDA/mt (Rs)
decreased 115bps QoQ to 26%. Adj. PAT increased by 113.5% YoY to Rs12.35bn. Volume increased
by 7.3% YoY to 20.1mn mt whereas EBITDA/mt stood at Rs.1,343/mt. Source: Company, Nirmal Bang Institutional Equities Research
y Successful turnaround of recent acquisitions: Over the past 2 years, UTCEM has acquired Binani
Cement (renamed as UltraTech Nathdwara) as well as Century Textile’s Cement division. For 2QFY21, Total Debt/EBITDA is expected to come down to 1.4x
Century’s EBITDA/mt was in excess of Rs. 700 and capacity utilization at 68%. Ultratech Nathdwara’s 0.0
capacity utilization stood at 60% and EBITDA/mt at more than Rs.1,500.
1.0
y Delevraging post massive capacity additions: As of 2QFY21, gross debt and net debt stood at 1.1
2.0 1.5 1.3 1.3 1.7 1.5 1.4 1.7
1.4
Rs.208.5bn and Rs.121.3bn. During this quarter, the net debt was reduced by Rs.25bn following the 1.8
2.3
Rs.22bn reduction done in 1QFY21. The management targets to achieve net debt/EBITDA ratio of 1.0x 3.0
3.0 3.3
by end of FY21. 4.0
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020e
FY2021e
FY2023e
FY2022e
y Valuation: We are building in 5%/7%/16% CAGR in revenue/EBITDA/PAT for the company over FY20-
FY23E. We have assigned 15.0x Sep 22 EV/EBITDA as our target multiple to arrive at a target price of
Rs5,640. Total Debt/EBITDA
Mangesh Bhadang
mangesh.bhadang@nirmalbang.com
+91-22-6273 8068
UltraTech Cement
Income Statement Cash Flow -Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E
YE March, Rsmn FY19 FY20 FY21E FY22E FY23E Profit before tax 35,384 52,440 62,624 68,229 81,117
Net Sales 373,792 421,248 412,620 443,362 489,387 Add : Depreciation 21,398 27,022 27,469 28,244 29,274
Add: Interest Exp 15,486 19,857 16,539 12,936 10,981
Raw Material Consumed 65,030 62,988 65,387 72,635 80,754
CFO b4 WC 72,267 99,318 106,632 109,410 121,372
Power & Fuel Cost 84,279 84,679 78,138 87,650 98,393
Net change in Working capital (8,576) 18,200 (13,277) (5,713) (8,342)
Employee Cost 20,588 25,094 23,443 24,579 25,782
Tax paid (11,221) 5,682 6,787 7,395 8,791
Freight and Forwarding 88,467 97,254 94,415 101,796 113,174
Net cash from operations 52,470 123,200 100,142 111,091 121,822
Other expenses 47,547 58,398 51,455 54,740 58,012
Total Expenditure 305,911 328,413 312,838 341,400 376,114 Capital expenditure (63,604) (99,408) (13,000) (17,000) (21,000)
Operating profit 67,881 92,836 99,781 101,962 113,273 Sale of investments 25,256 (30,074) (18,000) (30,000) (40,000)
Operating profit margin (%) 18.2% 22.0% 24.2% 23.0% 23.1% Net cash from investing (67,984) (169,786) (14,781) (42,564) (57,366)
Other Income 4,381 6,478 6,846 7,443 8,094 Issue of shares 0 140 - - -
Interest 15,486 19,857 16,539 12,936 10,981 Increase in debt 36,486 (9,229) (47,534) (24,000) (22,000)
Depreciation 21,398 27,022 27,469 28,244 29,274 Dividends paid incl. tax (3,462) (3,462) (4,154) (4,985) (5,982)
PBT 35,378 52,435 62,619 68,224 81,112 Interest paid (15,486) (19,857) (16,539) (12,936) (10,981)
Exceptional items 5 5 5 5 5 Net cash from financing 20,395 44,907 (67,503) (41,154) (38,152)
PBT post exc items 35,384 52,440 62,624 68,229 81,117 Net Cash 4,881 (1,680) 17,858 27,372 26,304
Tax 11,221 (5,682) (6,787) (7,395) (8,791) Opening Cash 2,191 7,072 5,392 23,251 50,623
Tax rate (%) 31.7% -10.8% -10.8% -10.8% -10.8% Closing Cash 7,072 5,392 23,251 50,623 76,927
PAT 24,163 58,122 69,411 75,624 89,908
Key Ratios
EPS (Rs) 88.0 200.7 239.6 261.1 310.4
YE March FY19 FY20 FY21E FY22E FY23E
Balance Sheet Growth (%)
YE March, Rsmn FY19 FY20 FY21E FY22E FY23E Sales 20.7 12.7 (2.0) 7.5 10.4
Equity Capital 2,874 2,962 2,962 2,962 2,962 Operating Profits 10.5 36.8 7.5 2.2 11.1
Reserves and Surplus 281,137 388,269 453,525 524,164 608,091 Net Profits 8.6 140.5 19.4 9.0 18.9
Networth 284,011 391,230 456,487 527,126 611,052 Leverage (x)
Total Debt 222,755 213,526 165,992 141,992 119,992 Net Debt:Equity 0.71 0.42 0.19 0.03 (0.09)
Deferred tax liability 35,539 49,120 49,120 49,120 49,120 Interest Cover(x) 4.38 4.68 6.03 7.88 10.32
Other non current liabilities 1,725 13,039 13,763 14,530 15,341 Total Debt/EBITDA 3.28 2.30 1.66 1.39 1.06
Trade Payables 28,456 35,014 30,832 33,934 38,185 Profitability (%)
Other Current Liabilities 72,872 91,442 92,277 94,047 95,958
OPM 18.2 22.0 24.2 23.0 23.1
Total Current Liabilities 128,571 166,308 152,926 153,798 155,959
NPM 6.5 13.8 16.8 17.1 18.4
Total liabilities 645,357 793,371 808,471 860,749 929,647
ROE 8.8 17.2 16.4 15.4 15.8
ROCE 11.7 13.9 14.0 14.2 14.9
Net Block 432,887 507,299 496,925 481,680 479,406
Turnover ratios (x)
CWIP 11,221 9,196 5,101 9,101 3,101
GFAT 0.8 0.8 0.7 0.7 0.8
Investment 14,048 16,850 20,850 30,850 50,850
69,648 109,953 93,734 89,298 85,664 Debtors Turnover(x) 16 18 16 14 13
Other non current assets
Inventories 35,851 41,483 45,219 49,802 56,313 WC days 33 28 34 41 41
Sundry Debtors 25,314 22,383 30,523 34,011 38,883 Valuation (x)
Cash and Bank 7,072 5,392 23,251 50,623 76,927 P/E 44.4 15.4 18.9 17.4 14.6
Other current assets 49,315 80,816 92,870 115,383 138,504 P/B 3.8 2.3 2.9 2.5 2.1
Total Current Assets 117,552 150,074 191,862 249,819 310,626 EV/EBITDA 18.8 11.4 14.0 13.0 11.1
Total Assets 645,357 793,371 808,471 860,749 929,647 EV/mt ($) 189.2 124.5 156.6 148.6 141.0

MID & SMALL CAP
Mumbai November 2020

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Birla Corporation
CMP: Rs669; Rating: Buy; M-cap: US$697mn; TP: Rs1,235; Upside: 85%
BCORP has grown volumes at 9% CAGR over the last 10 years

y 100th AGM Highlights: The management has a vision to reach 25mn mt capacity and achieve a capacity 20 30%
utilization of over 90% by 2025. To achieve this vision, the company will complete its Mukutban expansion plan by Temporary slowdown in
15 cement volumes due to 20%
August 2021, which will increase the capacity from 15.5mn mt to 20mn mt. BCORP is committed to keep its
leverage in check despite the growth plans and its gross and net debt are not expected to exceed Rs50bn and 10 10%
Rs40bn, respectively. The management has planned and implemented several digital initiatives to improve its cost
structure and reduce shutdowns and expects the benefits from the same to flow through in the coming years. They 5 0%
also reiterated commissioning of Mukutban capex by August 2021 and mentioned that this plant is eligible for
attractive incentives. Given that this plant will add less than 10% of total capacity in the region, the ramp-up is 0 -10%
FY2016
FY2021e
FY2022e
FY2023e
FY2011
FY2012
FY2013
FY2014
FY2015
FY2017
FY2018
FY2019
FY2020
expected to be faster.
y Focus on costs resulting in improved efficiency parameters: Recently, the company was awarded 2 coal
blocks in the auction conducted by the Coal Ministry in December 2019. Development of these 2 and Sial Ghogri Cement Sales (mn mt) Growth (%)
mines will help the company to save substantial amount in power and fuel costs in the coming years. The company
had to incur additional capex to mine limestone mechanically using heavy machinery at Rajasthan post the High Source: Company, Nirmal Bang Institutional Equities Research
Court ban on blasting near the Chittorgarh fort. BCORP is probably the only company in India to mine limestone
mechanically and still has been able to control its costs. As a result, operating cost growth for BCORP has been EBITDA is expected to improve in FY23
much lower compared to the industry with only 1.1% CAGR over the last five years. Additional WHRS and solar 1,200
power coupled with railway siding in Kundanganj, Uttar Pradesh, installed in this year, will help reduce costs 1,000
further. These cost savings measures coupled with higher proportion of blended cement and premium products 800
augur well for higher EBITDA/mt going forward.
1,079
600
1,039
966
931
y Maharashtra capex to drive volume growth and return ratios: The company is setting up a 3.9mn mt 400
744
686
652
624
618
592
integrated plant in Mukutban. This plant will also have a 40MW thermal power plant and 9MW WHRS. The total
349
393
356
200
cost of the plant is Rs24.5bn, out of which the company has spent Rs10.85bn till now. The plant is expected to be -
commissioned by August 2021. Post this expansion, the company will be able to sell its products in markets of
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
FY2019
FY2020
FY2021e
FY2022e
FY2023e
Maharashtra, Karnataka, Telangana, Madhya Pradesh and Chhattisgarh. For this project, the company has tied up
loan of Rs16.25bn with a consortium of lenders for a 12-year term.
y Valuation: We are building in 7%/9%/12% CAGR in revenue/EBITDA/PAT for the company over FY20-FY23E. EBITDA/mt (Rs)
We have assigned 8.0x Sep 22 EV/EBITDA as our target multiple to arrive at a target price of Rs1,235.
Mangesh Bhadang
+91-22-6273 8068
BIRLA CORPORATION
Income Statement Cash Flow Statement
Y/E March Rsmn FY19 FY20 FY21E FY22E FY23E YE March, Rsmn FY19 FY20 FY21E FY22E FY23E
Net Sales 65,487 69,157 65,484 72,280 84,574 Profit before tax 3,174 6,815 7,591 6,627 9,769
Raw Material Consumed 9,418 9,032 8,032 9,652 11,613 Add : Depreciation 3,391 3,519 3,464 4,257 5,040
Power & Fuel Cost 14,850 13,809 12,287 13,970 16,193 Add: Interest Exp 3,705 3,877 3,694 3,451 3,218
Employee Cost 3,706 4,079 4,141 4,325 4,518 CFO b4 WC 10,271 14,211 14,748 14,335 18,027
Freight and Forwarding 13,559 13,745 12,585 14,492 16,996 Net change in Working capital 2,890 2,598 1,063 319 (541)
Other expenses 14,468 15,133 14,507 16,376 18,129 Tax paid (617) (1,763) (2,067) (1,826) (2,611)
Total Expenditure 56,001 55,797 51,552 58,816 67,448 Net cash from operations 12,543 15,045 13,745 12,829 14,875
Operating profit 9,486 13,360 13,932 13,464 17,126 Capital expenditure (3,864) (11,030) (12,990) (10,990) (5,990)
Operating profit margin (%) 14% 19% 21% 19% 20% Sale of investments (2,046) 406 - - -
Other Income 785 851 817 871 901 Net cash from investing (7,322) (10,822) (12,759) (11,131) (6,075)
Interest 3,705 3,877 3,694 3,451 3,218 Issue of shares - - - - -
Depreciation 3,391 3,519 3,464 4,257 5,040 Increase in debt (2,466) 1,042 1,492 (1,483) (2,440)
PBT 3,174 6,815 7,591 6,627 9,769 Dividends paid incl. tax (603) - - - -
Exceptional items - - - - - Interest paid (3,705) (3,877) (3,694) (3,451) (3,218)
PBT post exc items 3,174 6,815 7,591 6,627 9,769 Net cash from financing (6,030) (3,054) (1,174) (3,884) (4,582)
Tax 617 1,763 2,067 1,826 2,611 Net Cash (809) 1,169 (187) (2,186) 4,218
Tax rate (%) 19% 26% 27% 28% 27% Opening Cash 2,198 1,390 2,558 2,371 185
PAT 2,557 5,052 5,525 4,802 7,158 Closing Cash 1,390 2,558 2,371 185 4,403
EPS (Rs) 33.2 65.6 71.7 62.4 93.0
Key Ratios
Balance Sheet YE March FY19 FY20 FY21E FY22E FY23E
YE March, Rsmn FY19 FY20 FY21E FY22E FY23E Growth (%)
Equity Capital 770 770 770 770 770 Sales 14.3 5.6 (5.3) 10.4 17.0
Reserves and Surplus 44,182 47,292 53,491 58,968 66,801 Operating Profits 17.4 40.8 4.3 (3.4) 27.2
Networth 44,952 48,062 54,261 59,738 67,571 Net Profits 66.1 97.6 9.4 (13.1) 49.1
Total Debt 36,484 37,526 39,019 37,535 35,096 Leverage (x)
Deferred tax liability 7,422 8,568 8,568 8,568 8,568 Net Debt:Equity 0.65 0.59 0.55 0.51 0.35
Other non current liabilities 6,858 7,435 7,787 8,163 8,563 Interest Cover(x) 2.56 3.45 3.77 3.90 5.32
Trade Payables 6,273 5,228 5,310 5,906 6,654 Total Debt/EBITDA 3.85 2.81 2.80 2.79 2.05
Other Current Liabilities 11,326 14,937 15,714 16,939 18,328 Profitability (%)
Total Current Liabilities 17,852 21,001 21,646 23,484 25,681 OPM 14.5 19.3 21.3 18.6 20.2
Total liabilities 113,316 121,755 130,659 136,849 144,780 NPM 3.9 7.3 8.4 6.6 8.5
ROE 5.8 10.9 10.8 8.4 11.2
Net Block 72,641 73,245 77,499 97,237 99,188 ROCE 6.9 10.5 10.5 9.8 12.7
CWIP 9,119 16,020 21,310 8,310 7,310 Turnover ratios (x)
Investment 2,787 1,628 1,610 1,605 1,605 GFAT 0.8 0.8 0.7 0.7 0.7
Other non current assets 3,723 3,921 3,690 3,831 3,916 Debtors Turnover(x) 29 27 27 29 30
Inventories 7,830 7,876 7,906 8,336 9,412 WC days 38 42 47 38 34
Sundry Debtors 2,622 2,504 2,418 2,609 3,026 Valuation (x)
Cash and Bank 1,390 2,558 2,371 185 4,403 P/E 19.6 9.2 9.3 10.7 7.2
Other current assets 13,203 14,001 13,854 14,734 15,919 P/B 1.1 1.0 0.9 0.9 0.8
Total Current Assets 19,042 20,178 19,787 19,103 25,999 EV/EBITDA 8.3 5.6 5.8 6.1 4.4
Total Assets 113,316 121,755
130,659 136,849
4
144,780 EV/mt ($) 73.6 68.6 69.6 55.4 50.9
Can Fin Homes
CMP: Rs472; Rating: Buy ; M-cap: US$0.9bn; TP: Rs540; Upside: 14.4%
y Strong balance sheet and asset quality:

{ Company has a strong balance sheet with tier-1 capital ratio of 22.5% (Q2FY21). It has also been able to maintain one of the best asset quality over the years. Average GNPA/NNPA over FY12-
20 stood at 0.4%/0.1%, much lower than the industry average.
{ Having invested in collections and recoveries, in addition to conservative underwriting norms, we remain optimistic about the company’s ability to maintain its asset quality track record. FY21 could
see some slippage due to covid-19’s economic impact. Structurally, underlying customers’ ability to repay loans is very strong. Developer book for the company stands at <5bps. ~71% of the book
is to salaried customers and 29% is to self employed.
{ A qualitative aspect that is supportive of Can Fin’s stringent underwriting criteria is that they only take into account the documented income of the customers and do not give loans on the basis of
assessed income.
y Comfortable borrowing profile:
{ The company has not faced any sort of funding issues post the IL&FS episode. Even during the peak of the crisis, the company was able to rollover CPs without significant spike in CP costs and
has been able to maintain its disbursements unlike many large HFCs/NBFCs. Over the last 18-24 months (which includes the peak of IL&FS crisis), their cost of borrowings has never crossed 8%.
At the peak of IL&FS crisis (Oct-18 to Mar-19), Can Fin’s cost of borrowings was in the vicinity of 7.9% compared to SBI’s 1-year MCLR of 8.50-8.55% during the same period. Currently, the
company’s incremental cost of funds is 6.54% (down from 7% in 1QFY21).
{ Funding from banks comes at a very competitive rate. Even HDFC Bank, which has its own model for rating NBFCs/HFCs, lends to Can Fin Homes at a rate lower than their MCLR.
y Going Forward:
{ Over FY15-20, advances CAGR stood at 20%. With Karnataka market turning conducive over the last 5-6 quarters as RERA issues have subsided, growth has been better. The demand outlook
for Can Fin Homes is favorable given its ticket size and customer segment. Since the company has taken a significant rate reduction recently, the differential versus banks has reduced to70-80bps
and this should help arrest balance transfers to a large extent. We expect growth to take a backseat in FY21 due to greater focus on collections and recoveries. It should return to 10% in FY22.
{ Company’s focus on small markets helps avoid competition from banks. Additionally, low ticket sizes in such areas reduce the scope for price negotiation and are NIM accretive. Over FY16-20,
average NIM has been 3.2% and average ROE has been 20.3%.
y Focus on low ticket size properties is a key differentiating factor (versus banks and large HFCs):
{ Large HFCs (PNB HF, Indiabulls HF) and banks find it easier to finance projects from large developers where the number of units run into hundreds so that they can get higher volumes per
project; the ticket size is also relatively higher. Financing smaller projects with lower number of units and lower ticket sizes does not move the needle for large HFCs and banks and this is the
niche that Can Fin Homes serves. In tier 2/3/4 cities, the proportion of independent houses is higher which is also a key focus area for Can Fin Homes.
{ All of Can Fin’s customers have banking relationships but they prefer Can Fin Homes because of lower turnaround time and better servicing. A bank will typically take more time to complete the
whole process (for a housing loan) which works against customer value proposition. This is where Can Fin is able to serve the customer better.
{ Since Can Fin focuses on financing apartments/units in smaller projects with shorter construction duration, they are not as exposed to the project completion risk associated with financing a large
housing project (project completion risk example: Unitech, Jaypee). Can Fin usually gives home loans near project completion stage, which reduces risk significantly.
{ Typical Can Fin customer profile: 30-45 years old, earning around Rs. 50,000 per month, looking to loan Rs. 25 lacs in addition to putting his own equity of Rs. 6-7 lacs. 90% of customers are first
time home buyers and the sentimental value of owning the first home also reduces the probability of default.
Raghav Garg, CFA

raghav.garg@nirmalbang.com
+91-22-6273 8192
Can Fin Homes
Income Statement Y/E March- Ratios FY19 FY20 FY21E FY22E FY23E
Y/E March (RsMn) FY19 FY20 FY21E FY22E FY23E Growth (%)
Interest Income 17,134 20,189 21,091 22,436 24,991 Net Interest Income 6.8 24.0 17.1 3.2 12.4
Operating Profit 4.5 23.0 20.5 2.6 12.7
Interest Expense 11,693 13,442 13,190 14,281 15,825
Profit After Tax 3.7 26.8 13.9 19.7 11.6
Net Interest Income 5,441 6,747 7,901 8,154 9,166 Business (%)
Non Interest Income 179 115 121 127 134 Advance Growth 16.6 12.6 4.4 10.2 12.5
Net Revenue 5,621 6,862 8,022 8,281 9,300 Spreads (%)
Operating expenses 915 1,076 1,050 1,128 1,241 Yield on loans 10.0 10.3 10.0 10.0 10.0
Cost of Borrowings 7.6 7.5 7.0 7.2 7.2
-Employee expenses 414 542 569 609 670
Spread 2.4 2.8 3.0 2.8 2.8
-Other expenses 501 534 481 519 571
NIMs 3.2 3.4 3.7 3.6 3.6
Pre-Provisioning
4,706 5,786 6,972 7,153 8,058 Operational Effeciency (%)
Operating profit
Cost to Income 16.3 15.7 13.1 13.6 13.3
Provisions 11 603 1,248 299 407
Cost to AUM 0.5 0.6 0.5 0.5 0.5
PBT 4,695 5,183 5,724 6,854 7,651 CRAR (%)
Tax 1,728 1,422 1,441 1,725 1,926 Tier I 14.6 20.5 24.5 24.6 25.4
PAT 2,967 3,761 4,283 5,129 5,725 Tier II 1.8 1.8 2.2 2.2 2.2
Total 16.4 22.3 26.7 26.8 27.6
Asset Quality (%)
Balance Sheet
Gross NPA 0.6 0.8 1.3 1.0 1.0
Y/E March (RsMn) FY19 FY20 FY21E FY22E FY23E
Net NPA 0.4 0.5 0.8 0.6 0.6
Share capital 266 266 279 279 279 Provision Coverage 30.0 28.8 35.0 37.0 37.0
Reserves & surplus 17,556 21,234 27,662 32,380 37,648 Credit Cost 0.0 0.3 0.6 0.1 0.2
Networth 17,822 21,501 27,941 32,660 37,927 Return Ratio (%)
ROE 18.2 19.1 17.3 16.9 16.2
Borrowings 1,68,801 1,87,484 1,89,359 2,07,348 2,32,230
ROA 1.7 1.9 2.0 2.2 2.2
Other liability & provisions 672 1,451 1,946 1,530 1,554
Per Share (%)
Total liabilities 1,87,295 2,10,436 2,19,247 2,41,538 2,71,711 EPS 22.3 28.2 30.7 36.7 41.0
Cash 4,203 3,924 3,787 4,147 4,645 BV 133.8 161.5 200.0 233.7 271.4
Investments 163 243 189 207 232 ABV 127.9 153.1 187.0 223.1 259.5
Loans 1,82,342 2,05,257 2,14,219 2,36,036 2,65,580 Valuation (x)
P/E 20.7 16.4 15.1 12.6 11.3
Fixed & Other assets 588 1,011 1,051 1,148 1,254
P/BV 3.5 2.9 2.3 2.0 1.7
Total assets 1,87,295 2,10,436 2,19,247 2,41,538 2,71,711 P/ABV
6 3.6 3.0
2.5 2.1 1.8
6
CCL Products (India)
CMP: Rs252; Rating: Buy; M-cap: US$446mn; TP: Rs340; Upside: 35%
y Stable demand trends despite Covid-19: Management highlighted that overall coffee consumption has not been affected during Covid-19 outbreak
as the decline in institutional demand has been offset by rise in household consumption across the globe. We believe that with higher focus on direct
sales to brand owners, addition of packing & agglomeration capacity, higher utilization from Freeze Dried Unit (FD) and ongoing improvement of
process parameters, CCLP can deliver profitable growth in the next 3-4 years. Growth can further accelerate after the capacity expansion (~15,000
tonnes) in 2HFY23/FY24.
y USA and EU can drive higher growth: As indicated in the 4QFY20 conference call, CCLP has received an order from a USA based client which can
potentially double the volume (from 2,500 tonnes to 5,000 tonnes) in FY21. The company is working with the same client for another brand and if the
same materializes, there could be incremental demand from USA. Similar to this client, few other coffee brand owners are also considering reducing
dependence on Brazil which would mean a big opportunity for other players. CCLP has entered USA small packs market (although at a small scale)
through the recent order. Similarly, in EU, the company is dealing with 4 supermarkets and is in the process of adding 6 more by next year. We believe
that the expansion of packing unit (by ~6,500 tonnes in FY21) can drive growth faster with greater visibility from USA and EU regions in the medium
term. Also, warehouse in Switzerland will enable supply on just in time basis to retailers.
y Improved client profile: CCLP’s current revenue share of brand owners is ~50%. Revenue from top 5 clients is ~40% and top 15 clients contribute
~60% to the revenue. Strauss is the top client with ~10% revenue share. Over the last couple of years, CCLP has bagged orders from few big clients,
including JDE (world’s no 2 coffee player). We believe that CCLP’s ability to provide all types of coffee in all formats has enabled it to become the
preferred choice of the brand owners.
y Strong capacity expansion plans indicate confidence in demand: Management indicated that target is to expand capacity to 55,000 tonnes in the
next 4 years. This involves doubling of FD capacity in India (5,000 tonnes) and Vietnam spray dried unit (additional 10,500 tonnes).
y Higher operating margin is sustainable: CCLP reported the highest ever EBITDA margin of ~25% in FY20, led by the commissioning of FD plant.
Management is confident of maintaining this margin going forward, led by the expansion of packing and agglomeration unit in India, improvement in
process parameters and higher volume from the FD plant.
y Valuation: We value CCLP at ~20x PE (in-line with last 5-yr average multiple) based on Sept’22 EPS. We expect the stock to re-rate if the company is
able to maintain strong margin delivery with higher growth visibility.
Abhishek Navalgund
abhishek.navalgund@nirmalbang.com
+91-22-6273 8013
CCL Products (India)
Income Statement (Y/E Mar) (Rsmn) FY19 FY20 FY21E FY22E FY23E Balance Sheet (Y/E March) (Rsmn) FY19 FY20 FY21E FY22E FY23E
Net Sales 10,814 11,392 12,550 14,424 15,613 Share capital 266 266 266 266 266
Reserves 8,123 9,018 10,096 11,394 12,828
Growth YoY% -4.9 5.3 10.2 14.9 8.2
Net worth 8,389 9,284 10,362 11,660 13,094
COGS 5,973 5,594 6,483 7,410 8,005
Long term debt 1,927 2,495 1,651 1,107 594
Gross margin % 44.8 50.9 48.3 48.6 48.7 Short term debt 1,835 1,427 1,427 1,427 1,427
Staff costs 589 703 701 795 854 Total debt 3,761 3,922 3,078 2,534 2,021
Other expenses 1,797 2,235 2,292 2,647 2,862 Other non-current liabilities 429 553 553 553 553
EBITDA 2,455 2,859 3,073 3,573 3,893 Total Equity & Liabilities 12,579 13,759 13,993 14,748 15,668
Growth YoY% 3.3 16.5 7.5 16.2 9 Gross block 4,408 8,705 9,805 10,355 11,605
Accumulated depreciation 998 1,469 2,058 2,678 3,354
EBITDA margin % 22.7 25.1 24.5 24.8 24.9
Net Block 3,410 7,236 7,748 7,677 8,252
Depreciation 317 471 589 620 675 CWIP 4,241 1,002 971 971 971
EBIT 2,138 2,388 2,484 2,952 3,217 Other non-current assets 420 481 577 692 831
Interest 85 180 139 112 85 Investments 435 15 15 15 15
Other income 33 45 40 45 50 Trade receivables 2,352 2,681 2,661 2,766 2,994
PBT (bei) 2,086 2,253 2,385 2,886 3,182 Inventories 2,020 2,604 2,485 2,699 2,935
Cash & Cash equivalents 965 387 290 586 318
PBT 2,086 2,253 2,385 2,886 3,182
Other current assets 373 688 791 910 910
ETR 25.8 26.4 24.7 25 24.9 Total current assets 5,710 6,360 6,227 6,961 7,157
PAT 1,549 1,659 1,797 2,163 2,389 Trade payables 571 246 510 586 624
Adj PAT 1,549 1,659 1,797 2,163 2,389 Other current liabilities 1,067 1,089 1,034 983 933
Growth YoY% 5.3 7.1 8.3 20.4 10.4 Total current liabilities 1,637 1,335 1,545 1,568 1,557
Total Assets 12,579 13,759 13,993 14,748 15,668
Cash Flow Statement (Y/E March) FY19 FY20 FY21E FY22E FY23E Ratios (Y/E March) FY19 FY20 FY21E FY22E FY23E
PBT 2,086 2,253 2,385 2,886 3,182 Per share (Rs)
Adj EPS 11.6 12.5 13.5 16.3 18.0
Depreciation 317 471 589 620 675
Book value 63.1 69.8 77.9 87.6 98.4
Interest - - 139 112 85 DPS 4.3 4.3 5.4 6.5 7.2
Other adjustments 142 185 -40 -45 -50 Valuation (x)
P/Sales 3.1 2.9 2.7 2.3 2.1
Change in Working capital -359 -1,468 245 -413 -476 EV/sales 3.4 3.3 2.9 2.5 2.3
Tax paid -591 -529 -589 -722 -793 EV/EBITDA 14.8 13.0 11.8 9.9 9.0
P/E 21.6 20.2 18.7 15.5 14.0
Operating cash flow 1,616 907 2,730 2,437 2,624
P/BV 4.0 3.6 3.2 2.9 2.6
Capex -2,413 -638 -1,069 -550 -1,250 Return ratios (%)
Free cash flow -798 269 1,660 1,887 1,374 RoCE 18.9 18.8 18.6 21.4 22.0
RoE 19.6 18.8 18.3 19.6 19.3
Other investing activities 666 -246 -56 -70 -88 Profitability ratios (%)
Investing cash flow -1,748 -884 -1,125 -620 -1,338 Gross margin 44.8 50.9 48.3 48.6 48.7
EBITDA margin 22.7 25.1 24.5 24.8 24.9
Issuance of share capital - - - - -
PAT margin 14.3 14.5 14.3 15.0 15.3
Movement of Debt 1,054 526 -844 -543 -513 Liquidity ratios (%)
Dividend paid (incl DDT) -633 -898 -719 -865 -956 Current ratio 1.6 2.3 2.1 2.3 2.4
Quick ratio 1.1 1.4 1.3 1.4 1.4
Other financing activities - - -139 -112 -85 Solvency ratio (%)
Financing cash flow 421 -372 -1,701 -1,520 -1,554 Debt to Equity ratio 0.4 0.4 0.3 0.2 0.2
Turnover ratios
Net change in cash flow 290 -350 -97 296 -269
Fixed asset turnover ratio (x) 3.2 2.9 3.0 3.3 3.5
Opening C&CE 437 727 377 279 576 Debtor days 70 81 78 69 67
Inventory days 118 151 143 128 128
Closing C&CE 727 377 279 576 307
Creditor days 21 27 21 27 28
Source: Company, Nirmal Bang Institutional Equities Research Net Working capital days 167 205 200 169 168
Indoco Remedies
CMP: Rs255; Rating: Buy ; M-cap: US$319mn; TP: Rs322; Upside: 26%
Indoco Remedies (IRL), incorporated in 1947, is one of the pioneers in Indian pharmaceutical industry. IRL is primarily a domestic market-focused company, but over
the past five years it has steadily built a strong foundation for a global presence.
y Strong Growth- Revenue Growth over FY20-FY22 is expected to be 19% CAGR. EBITDA growth will exceed revenue growth and expected to be 47% CAGR.
Net earnings should grow 135% CAGR.
y Free Cash Flow Generation will be Robust- Existing manufacturing capacities are adequate to double existing sales. Annual capex requirements will be
below Rs500mn annually. The company should be repay its entire long term debt (Rs1,200mn) by end of FY22.
y Valuations Reasonable - Stock is trading at 9x FY21 and 7x FY22 EV/EBTIDA. On FY22 while PE stands at 12x FY22E EPS. 60% of Sales is from Domestic
Branded formulations.
Revenue Growth Drivers
y Domestic Sales has resumed on a growth trajectory after a slow down between FY16 – FY19. Company has formulated an incentive strategy for its field force
which seems to be delivering. In FY20 domestic sales grew 14% on a YoY basis. Low MR productivity will be gradually addressed as the chronic portfolio
wherein the company is trying to build scale attains critical mass. In FY21 though, COVID will impact sales. Growth (low to mid-teens growth) should resume
once the lockdown is lifted. Company is also incrementally building presence in chronic segment by cherry picking niche opportunities in low competition
domain to build presence. In FY21, though there will be a slow down in domestic revenues, but savings in promotion and travelling costs should offset the
impact on net earnings.
y US sales should ramp up on approvals and launches –36 ANDA are pending approval of which 24 are sterile ( 18 ophthalmic and 6 injectable filings). The
portfolio of sterile filing is relatively very large when viewed in context to their existing market cap base. Larger companies like Aurobindo pharma has base of
sterile filing of 45 and Dr. Reddy’s Labs has about 35 sterile filings. The sterile approvals will have a gross margin of > 80%. On an average, we expect IRL to
do $2mn per ANDA which is at the lower end of the range what companies generally achieve in the US ($2.5 to $5mn per ANDA). No capex required to support
growth. Manpower costs is in the cost structure. Incremental revenues should add flow down to PBT @ 50% of revenues.
y Europe Sales were impacted in FY20 due to a restricted import alert on the key facility (Goa – Unit I) that was supplying to Europe. The restricted import alert
was lifted in end of FY20. Europe sales has been reviving since then. Prior to imposition of restricted import alert, Indoco’s EU sales were Rs2,000mn
annually. The EU sales run rate in the most recent quarter was Rs. 470mn. The guidance for full year FY21 is Rs230mn which implies the run rate should
accelerate to Rs600mn per quarter going forward. The guidance comes from demand from its front end partners in EU. Recently Indoco also got EU Cgmp
approval for its manufacturing facility in Baddi which allows them to build their European revenue. Indoco looks to build their future revenues in Europe by
focussing on higher margin opportunities and also have their own filings in Europe
Vishal Manchanda
vishal.manchanda@nirmalbang.com
+91 9737437148
Indoco Remedies Ltd.
Y/E March Income Statement (Rsmn) FY 19 FY 20 FY 21E FY 22E FY 23E Y/E March Balance Sheet (Rsmn) FY 19 FY 20 FY 21E FY 22E FY 23E
Net sales 9,685 11,066 13,150 15,337 17,108 Equity 184 184 184 184 184
% growth -7.4 14.3 18.8 16.6 11.5 Reserves 6,422 6,611 7,567 9,138 10,916
Raw material expenses 3,203 3,304 4,109 4,811 5,536 Net worth 6,606 6,796 7,752 9,322 11,100
Staff costs 2,317 2,565 2,780 3,085 3,425
Provisions/ other LT liabilities 233 361 281 319 355
R&D expenses 515 497 657 767 855
Total loans 2,978 2,631 2,003 1,845 1,965
Other expenses 3,399 3,964 3,964 4,400 4,718
Liabilities 9,817 9,788 10,036 11,486 13,421
Total expenditure 8,918 9,834 10,853 12,297 13,679
EBITDA 767 1,232 2,297 3,040 3,429 Net block 4,166 5,364 5,117 4,857 4,585
% growth -43.2 60.7 86.4 32.4 12.8 Capital work-in-progress 1,412 73 73 73 73
EBITDA margin (%) 7.9 11.1 17.5 19.8 20.0 Intangible assets 510 481 481 481 481
Other income 61 24 18 61 62 LT loans &advances 13 10 10 10 10
Interest costs 205 263 170 157 167 Other LT assets 1,099 1,157 1,165 1,165 1,165
Gross profit 6,482 7,762 9,041 10,526 11,572 Inventories 1,835 2,083 2,263 2,649 3,048
% growth -6.6 19.7 16.5 16.4 9.9 Debtors 1,958 2,101 2,615 3,050 3,402
Depreciation 716 708 690 703 716 Cash 363 379 478 1,734 3,555
Profit before tax -93 286 1,454 2,241 2,608
Other current assets 1,225 1,067 1,560 1,819 2,029
% growth -119.2 -407.0 408.7 54.1 16.4
Total current assets 5,381 5,631 6,915 9,252 12,033
Tax -64 45 320 493 652
Trade payables 1,707 1,656 1,750 2,049 2,357
Net profit -29 241 1,134 1,748 1,956 Other current liabilities/provisions 1,056 1,272 1,975 2,304 2,570
% growth - - 370.1 54.1 11.9 Total current liabilities 2,764 2,928 3,725 4,353 4,927
EPS (Rs) -0.3 2.6 12.3 19.0 21.2 Net current assets 2,617 2,703 3,190 4,899 7,106
% growth - - 370.1 54.1 11.9 Total assets 9,817 9,788 10,036 11,485 13,421
Y/E March Cashflow Statement (Rsmn) FY 19 FY 20 FY 21E FY 22E FY 23E Ratios (Y/E March) FY 19 FY 20 FY 21E FY 22E FY 23E
PBT Profitability &return ratios
(93) 286 1,454 2,241 2,608
EBITDA margin (%) 7.9 11.1 17.5 19.8 20.0
(Inc.)/Dec. in working capital 556 (15) (389) -453 -386
EBIT margin (%) 0.5 4.7 12.2 15.2 15.9
Cash flow from operations 463 271 1,065 1,788 2,222 Net profit margin (%) (0.3) 2.2 8.6 11.4 11.4
Other income 178 287 (18) -61 -62 RoE (%) (0.4) 3.6 15.6 20.5 19.2
RoCE (%) 0.2 4.5 12.6 16.9 16.3
Depreciation 716 708 690 703 716
Working capital &liquidity ratios
Tax paid (-) (36) (38) (320) -493 -652 Receivables (days) 76 67 65 67 69
Net cash from operations 1,321 1,228 1,418 1,937 2,224 Inventory (days) 215 216 193 186 188
Capital expenditure (-) (930) (584) (239) -239 -239 Payables (days) 183 186 151 144 145
Working capital days 108 98 107 110 111
Net cash after capex 391 645 1,179 1,698 1,985
Current ratio (x) 1.9 1.9 1.9 2.1 2.4
Other investing activities (108) 24 (195) -144 -143 Quick ratio (x) 1.3 1.2 1.2 1.5 1.8
Cash from Financial Activities (162) (640) (885) -299 -21 Valuation ratios
Change in Cash 277 171 98 1,256 1,821 EV/Sales (x) 2.2 1.9 1.9 1.5 1.3
EV/EBITDA (x) 84.7 29.3 15.3 10.4 8.5
Opening cash balance 86 208 379 478 1,734
Closing cash balance 363 379 478 1,734 3,555
P/E (x)
P/BV (x) Institutional Equities
NA
2.8
80.0
2.8
20.8
3.0
13.5
2.5
12.1
2.1
INOX Leisure
CMP: Rs267; Rating: Buy; M-cap: US$ 335mn; TP: Rs340; Upside: 27%
y Indian Multiplex Industry: An Oligopoly with high entry barriers

{ We believe that Indian multiplex industry is an oligopoly (top four players control ~70% of screens) and will remain so as entry barriers
are quite formidable and there are no substitutes. This industry’s structure will deliver steady revenue growth, and improve margins as
well as RoIC over a long period of time. The multiplex players deserve premium valuations, considering the longevity of earnings In Rs Mn FY20-FY23E CAGR
compounding and good RoICs.
{ Over the long run, as organic growth predominates, the benefits of a better industry structure will far outweigh the price paid for the Revenue 8.6%
early expensive acquisitions. We believe the stranglehold over retail real estate (and slow pace of its expansion) to be the key driver of EBITDA 11.3%
positive industry dynamics. This will lead to a steady increase in capacity, solid pricing power and a high occupancy rate.
y Good growth across content & F&B segments: PAT 16.2%
{ While INOL is trying to lower its fixed cost structure significantly by taking salary cuts, invoking force majeure clauses in their rental FDEPS 16.2%
agreements, not renewing or renegotiating a lot of their vendor contracts, etc., we are expecting an EBITDA level loss and significant
net loss due to high depreciation.
{ We believe that Covid-19 would accelerate market share shift in the long-term from single screen and small chains to the national Revenue Breakup % of Revenue YoY Growth
chains.
o OTT challenge in our view is storm in a tea-cup: There has been considerable media speculation and investor angst about the NBOC 58% -8.6%
challenge being posed by OTT on the Indian film exhibition sector. While we are cognizant of the threat, we think it is exaggerated as F&B 25% 7.8%
the economics of taking a movie directly to OTT, for a reasonable budget movie which will find a theatrical release, is not compelling.
In case a movie goes directly to OTT it is likely to get a modest 15-20% return on the cost of production. On the other hand if it goes Advertisement 9.3% 14.8%
first through a theatrical release, OTT revenues get enhanced if the movie is a reasonable theatrical success. Other Operating
Outlook: 7.7% 46.1%
Revenues
o We believe at the current stock price level, the stock represents a very attractive bet on the Indian film exhibition industry. This is a *as on 4QFY20
consumer discretionary play where we believe there is considerable head room for growth and which is available at an attractive *all numbers are adjusted for IndAS 116
valuation from a medium term perspective. The Ministry of Home Affairs allowed cinemas to resume operations from 15th October with
50% of their seating capacity. At present, INOL is permitted to open at 123 locations with 528 screens. It was stressed on the 2QFY21
earnings call that release of fresh content is the key to driving footfall. We believe, with the opening of cinemas in Maharashtra, which
contributes a major chunk to the multiplex industry revenue, content creators would be less reluctant in coming forward for releasing
content. The commentary given by both INOL and PVR on consumer behavior during the festive season in West Bengal seems
positive. While movie exhibitors are suffering in the short term and the pace of recovery could be slow even as cinemas reopen, we
believe they will rebound and gain from pent-up demand as people seek a communal experience on return of normalcy. Covid-19
crisis may accelerate consolidation in the sector with single screens and smaller chains closing due to financial stress, making way for
national players to capture share. We give INOL an EV/EBITDA multiple of 10x. We believe the comfortable balance sheet position of
INOL with assets to raise capital a big positive in comparison with the tight spot that PVR finds itself in. We keep our ‘Buy’ rating with a
TP of Rs340 for INOL.
Girish Pai
+91-22-6273 8017
Inox Leisure
Income Statement (Y/E March)(Rs mn) FY19 FY20 FY21E FY22E FY23E Cash Flow (Y/E March) (Rs mn) FY19 FY20 FY21E FY22E FY23E
Net Sales 16,922 19,025 4,066 17,662 24,361 EBIT 2,129 2,273 -1,839 1,274 3,206
Growth (%) 25.5 12.4 (78.6) 334.4 37.9
Exhibition Cost (Distributor Share) 4,442 4,965 1,006 4,364 6,125 (Inc.)/dec. in working capital 743 1,285 -1,078 518 -458
Food & Beverages Cost 1,125 1,262 284 1,229 1,756 Cash flow from operations 2,872 3,558 -2,916 1,792 2,748
Employee Benefits Expense 1,152 1,421 934 1,312 1,977 Other income 149 171 101 29 22
Property Rent, Conducting Fees 2,494 3,464 629 3,149 3,671
CAM, Power & Fuel, R&M and Other Exp. 4,618 4,563 1,931 5,117 6,213 Depreciation & amortization 963 1,078 1,121 1,218 1,413
Total Expenses 13,831 15,674 4,783 15,170 19,742 Financial expenses 237 116 216 206 175
EBITDA 3,091 3,351 (718) 2,492 4,619 Tax paid 655 870 -491 274 763
% of sales 18.3 17.6 (17.6) 14.1 19.0
Growth (%) 46.8 8.4 PL LP 85.4 Dividends paid 0 118 0 0 0
Depreciation & Amortization 963 1,078 1,121 1,218 1,413 Net cash from operations 3,091 3,703 -1,420 2,559 3,245
EBIT 2,129 2,273 (1,839) 1,274 3,206 Capital expenditure 2,349 1,817 300 2,134 2,791
% of sales 12.6 11.9 (45.2) 7.2 13.2
Net cash after capex 742 1,886 -1,720 425 454
Impairment Loss on PPE - - - - -
Other income (net) 149 171 101 29 22 Inc./(dec.) in debt -2,041 -375 700 -300 0
Interest 237 116 216 206 175 (Inc.)/dec. in investments -6 -4 0 0 0
Exceptional Items 50.0 - - - -
Equity Issuance 1,607 0 1,014 0 0
PBT 1,991 2,328 (1,954) 1,097 3,053
PBT margin (%) 11.8 12.2 (48.1) 6.2 12.5 Cash from financial activities -440 -380 1,714 -300 0
Tax 655 870 (491) 274 763 Others -316 -1,196 -431 658 -805
Tax pertaining to earlier years Opening cash 150 137 447 10 793
Net profit 1,335 1,459 (1,464) 823 2,290 Closing cash 137 447 10 793 441
Growth (%) 16.3 9.2 (200.3) (156.2) 178.3 Change in cash -13 310 -437 783 -351
Net profit margin (%) 7.9 7.7 (36.0) 4.7 es Ratios (Y/E March)
9.4
FY19 FY20 FY21E FY22E FY23E
Balance Sheet (Y/E March) (Rs mn) FY19 FY20 FY21E FY22E FY23E
Per Share (Rs)
Equity capital 1,026 1,027 1,027 1,027 1,027 14.5 15.8 -15.9 8.9 24.8
FDEPS
Reserves & surplus 8,939 5,519 5,069 5,892 8,181 0.0 1.0 0.0 0.0 0.0
Dividend Per Share
Net worth 9,965 6,546 6,096 6,918 9,208 105 67 66 75 100
Book Value
Interest in Inox Benefit Trust (327) (327) - - - Return ratios (%)
Long term borrowings 1,240 865 1,565 1,265 1,265 RoE 16.3 18.4 -23.8 12.6 28.4
Deferred Tax Liabilities (Net) - - - - - RoCE 20.1 24.7 -24.1 15.6 33.5
Other Long-term liabilities 90 75 75 75 75 ROIC 20.5 25.5 -24.9 16.4 35.8
Lease Liabilities 25,922 25,922 25,922 25,922 Tunover Ratios
Long term provisions 127 179 179 179 179 Asset Turnover Ratio 1.5 0.6 0.1 0.5 0.7
Total liabilities 11,095 33,259 33,836 34,359 36,648 Debtor Days 19 12 28 15 13
Goodwill on consolidation 286 259 259 259 259 Working Capital Cycle Days -50 -69 -226 -63 -39
Net Fixed Assets 9,576 10,607 10,857 11,857 13,357 Solvency Ratios
Long term loans and advances 2,369 3,814 3,500 2,758 3,441 Net Debt/Equity 0.1 0.1 0.3 0.1 0.1
Long-term investments 6 2 2 2 2 Net Debt/EBITDA 0.4 0.2 -2.5 0.3 0.2
Other non-current assets 1,039 311 311 311 311 Valuation ratios (x)
Cash & cash equivalents 137 447 10 793 441 PER 18 17 -17 30 11
Right of use Assets 21,418 21,418 21,418 21,418 P/BV 2.6 4.0 4.0 3.6 2.7
Total Current assets 1,375 1,296 979 1,373 1,548 EV/EBTDA 8.4 7.5 -36.8 10.2 5.6
Total current liabilities
Net current assets
3,693
(2,318)
4,895
(3,599)
3,500
(2,521)
4,413
(3,040)
4,129
(2,582)
EV/Sales
M-cap/Sales
1.5
1.5
1.3
1.3
6.5
6.1
1.4
1.4
1.1
1.0
Total assets 11,095 33,260 33,836 34,359 36,648
Indian Hotels
CMP: Rs99; Rating: Buy; M-cap: US$1,619mn; TP: Rs116; Upside: 17%
RevPar
y Pan-India strategy focused across different segments (Rs)
o Focused on 3-star to 5-star categories, through 4 brands (Taj,SeleQtions,Vivanta,Ginger) 6,000
o Room inventory of 19,043rooms as of 2QFY21. (31% management contracts).
5,000
o Management is focused towards developing newer high margin revenue verticals under the
R.E.S.E.T initiatives. 4,000
y COVID 19 impact:
3,000
o We expect revenue to decline by 58% in FY21. EBITDA margin for FY21 is expected to be
(47.3)%. 2,000
o However, we expect a strong revival in demand in FY22. Revenue and EBITDA are expected to
1,000
grow compared to FY21.
o The company is making conscious efforts to reduce costs. -
EBDITA margins to expand from 21.7% in FY20 to 23.8% in FY23E.
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY 14
FY 16
FY 17
FY 15
y
The EBITDA is expected to witness recovery in FY23 after an expected decline in FY21. Key Margin
drivers are: RevPar
o Revenue growth drivers: ARR increase, Occupancy increase, Increase in Number of Rooms.
Revenue to grow at 2.1% CAGR (FY20-FY23E).
o EBDITA to grow at 5.3% CAGR (FY20-FY23E). Net Debt to Equity
o New higher margin revenue streams like Qmin and Hospitality@Home undertaken as a part of the
management’s R.E.S.E.T initiatives are expected to support EBITDA positively going forward.
o Cost Optimization. Cost expected to increase at 1.1% CAGR (FY20-FY23E). Strategies includes:
Cluster-based shared services (finance, accounting, etc.), Merging of the sales force across
hotels, Reduction in power and fuel costs.
y Strong in operating cashflows
o Strong recovery in earnings growth in FY22 to continue in FY23 and negative working capital is
expected to support cashflows.
o We expect the cashflows to increase from Rs4.8bn in FY20 to Rs8.5bn in FY23E.
y Monetization to improve Balance Sheet; Attractive Valuations
o Plans to raise Rs10bn over next two to three years through monetization of apartments, land
banks and sale and lease back of hotels. Monetized Rs2,110mn in FY20.
o Target Price – Rs116 based on 18x Sept FY23E EV/EBITDA
Amit Agarwal
amit.agarwal@nirmalbang.com
+91-22-6273 8033
Indian Hotels
Income Statement (Y/E March) FY19 FY20 FY21E FY22E FY23E
Balance Sheet (Y/E March) FY19 FY20 FY21E FY22E FY23E
Net sales 45,119 44,631 18,881 41,440 47,462 Share capital 1,189 1,189 1,189 1,189 1,189
Growth YoY (%) 10.0 (1.1) (57.7) 119.5 14.5 Reserves and surplus 42,291 42,379 28,809 30,082 33,622
COGS/direct expenses 4,041 3,706 853 2,574 3,378 Net worth 43,480 43,568 29,998 31,271 34,811
Operating costs 17,444 17,645 16,233 18,413 19,389 Loans 23,260 26,021 33,021 30,021 28,821
Lease Liabilities - 18,987 18,763 18,521 18,259
Other expenses 15,339 13,606 10,725 12,405 13,399
Minority interest 7,999 7,649 7,649 7,649 7,649
EBITDA 8,297 9,675 (8,930) 8,048 11,296
Provisions 1,023 1,211 1,271 1,335 1,402
EBITDA growth (%) 23.8 16.6 (192.3) (190.1) 40.4 Deferred tax liability 3,768 1,869 1,962 2,060 2,163
EBITDA margin (%) 18.4 21.7 (47.3) 19.4 23.8 Other non-current liability 1,798 2,194 2,143 2,250 2,362
Depreciation 3,279 4,042 4,434 4,524 4,699 Total capital employed 81,328 1,01,499 94,808 93,107 95,467
EBIT 5,018 5,633 (13,364) 3,524 6,597 Goodwill on Consolidation 5,835 6,146 6,146 6,146 6,146
Property, plant and equipment 59,551 61,051 56,477 55,445 56,137
EBIT (%) 11.1 12.6 (70.8) 8.5 13.9
Right to use - 15,833 15,141 14,449 13,757
Interest expense 1,901 3,411 3,411 3,411 3,411 Investments 11,239 9,904 9,904 9,904 9,904
Other income 834 1,324 1,390 1,460 1,533 Loans 157 167 167 167 167
Extra ordinary income 66 410 - - - Other non-current assets 7,469 7,710 8,096 8,500 8,926
Earnings before tax 4,017 3,955 (15,384) 1,573 4,719 Total non-current assets 84,252 1,00,810 95,929 94,610 95,036
Trade payables 3,253 3,893 2,654 3,134 3,400
Tax- total 1,571 448 (3,872) 396 1,188
Other current liabilities 9,698 8,246 8,659 9,092 9,546
Rate of tax (%) 39.1 11.3 25.2 25.2 25.2 Provisions (current) 1,476 1,545 1,622 1,703 1,788
Net profit 2,445 3,508 (11,512) 1,177 3,531 Total current liabilities 14,427 13,684 12,934 13,929 14,734
Adjusted PAT 2,868 3,544 (10,915) 1,273 3,540 Inventories 804 936 644 802 1,133
% growth 184.3% 23.6% NA NA 178.1 Investments 2,112 4,362 4,581 4,810 5,050
EPS (FD) 2.41 2.98 (9.18) 1.07 2.98 Trade receivables 3,214 2,900 1,345 2,157 3,901
Cash and bank balance 2,409 3,156 2,075 1,333 1,594
% growth 184% 24% NA NA 178.1
Loans and advances 34 48 48 48 48
Cash Flow Statement (Y/E March) FY19 FY20 FY21E FY22E FY23E Other current assets 2,930 2,971 3,119 3,275 3,439
Profit after tax after minority interest Total current assets 11,504 14,373 11,812 12,425 15,165
2,868 3,544 (10,915) 1,273 3,540 Net current assets (2,924) 689 (1,122) (1,503) 431
& share in associates & JV
Depreciation 3,279 4,042 4,434 4,524 4,699 Total capital employed 81,328 1,01,499 94,808 93,107 95,467
Finance costs 1,901 3,411 3,411 3,411 3,411 Ratios (Y/E March) FY19 FY20 FY21E FY22E FY23E
Other income 834 1,324 1,390 1,460 1,533 Profitability and return ratios
EBITDA margin (%) 18.4 21.7 (47.3) 19.4 23.8
Working capital changes 1,998 (4,836) 785 (303) (1,613)
EBIT margin (%) 11.1 12.6 (70.8) 8.5 13.9
Operating cash flow 9,211 4,838 (3,675) 7,446 8,504 Net profit margin (%) 6.4 7.9 (57.8) 3.1 7.5
Capital expenditure (4,901) (5,542) (1,600) (2,800) (4,700) RoE (%) 6.6 8.1 (36.4) 4.1 10.2
Net cash after capex 4,310 (704) (5,275) 4,646 3,804 RoCE (%) 7.5 8.1 (21.2) 5.8 10.4
Other income/(expense) 15 2,480 1,043 1,095 1,150 Working capital & liquidity ratios
Issue/(buyback of equity) (0) - - - - Receivable (days) 26 24 26 19 30
Proceeds/repayment of borrowings (1,015) 2,761 7,000 (3,000) (1,200) Inventory (days) 29 49 34 32 40
Payable (days) 116 205 140 125 120
Finance costs (1,901) (3,411) (3,411) (3,411) (3,411) Current ratio (x) 0.8 1.1 0.9 0.9 1.0
Others (1,705) 2,093 759 1,024 1,067 Valuation ratios
Cash flow from financing (4,621) 1,443 4,348 (5,387) (3,544) EV/sales (x) 3.2 3.3 8.3 3.7 3.2
Total cash generation (296) 3,219 116 353 1,410 EV/EBITDA (x) 17.7 15.3 (17.5) 19.1 10.7
Opening cash balance 2,703 2,409 3,156 2,075 1,333 P/E (x) 41.1 33.2 (10.8) 92.5 33.3
P/BV (x) 2.7 2.7 3.9 3.8 3.4
Closing cash & bank balance 2,409 3,156 2,075 1,333 1,594
Indraprastha Gas Ltd.
CMP:Rs422; Rating: Buy; M-cap: US$3.94bn; TP: Rs534; Upside: 27%
Summary DCF valuation for blended TP

IGL (Indraprastha Gas Ltd.) is a CGD company operating primarily in NCR Delhi. CNG/PNG has Fixed tarfff (20% Unregulated market
73.7%/26.3% share of its revenue. Valuation parameters
open access) pricing model
y Advocacy/competitiveness of gas key catalysts: Government policy, green laws banning polluting Cost of equity % 10.3% 10.25%
substitutes and competitiveness of gas vs petrol are key positives.. Terminal Multiple 7.0 9.4
Terminal Year growth % 5.0% 5.0%
y New GAs to sustain long term growth even as Delhi sees traction in CNG vehicle adds:
Terminal value 4,06,956 547969
y Conversion of petrol/diesel vehicles and new CNG models from OEMS including Maruti~CNG PV of terminal value 91,686 1,03,723
PV of FCFF FY20-FY29E 1,77,343 2,38,793
¾ To double from 5000/month to 10,000 by 3QFY21~implies normal growth of ~10% p.a
Enterprise Value 2,69,028 3,42,516
y IGL is investing Rs30bn over the next three years on upgrading CGD assets in Delhi/developing 4 Less Net Debt/(cash) (14,404) (14,404)
new CGD GAs awarded in the 9th &10th rounds - Meerut, Kaithal, Ajmer and Kanpur (excl. certain Equity Value 2,83,433 3,56,920
areas) Shares outstanding 700 700
¾ Rs22bn capex on new GAs over six years on ~ 306 CNG stations, 5,395kms of pipelines and 1.3mn Equity value per share C 405 510
home connections Share of blended TP % D 20% 80%
Share of blended TP Rs C x D 78 392.4
¾ We estimate the DCF-ABSED NPV of new GAs at Rs45/sh Blended Valuation before New GAs Rs 489
y The company has 50% stake each in two profit making unlisted CGD companies: - Maharashtra Valuation of new GAs 45
Natural Gas Limited (MNGL) and Central UP Gas Limited (CUGL). These two growth engines add Blended TP 534
CMP Rs 422
12% to IGL consolidated earnings.
Upside/downside from CMP % 26.5%
y Our Buy is based on: (i) the improved risk-reward at current valuations- prices in concerns over the Operating assumptions
14.3% decline in FY21E volumes/ 945bps fall in RoE due to lockdown (ii) potential long term growth
FY20 FY21E FY22E FY23E
from its new license areas (GAs), and (iii) net cash balance sheet with sustainable RoE > 18-20%
Volume
y Blended DCF-based TP of Rs534/sh: We are taking the weighted average values of the NPV of CNG (mscm) 1,738 1,373 1,882 2,058
cash flows under PNG (mscm) 619 646 677 728
¾ A- Fixed Tariff DCF model assuming 20% open access by FY25E– 20% weightage TOTAL (mscm) 2,357 2,019 2,558 2,786
¾ B- Unregulated market pricing DCF model with no open access risk over the entire life– 80% MMSCMD 6.44 5.53 7.01 7.63
weightage Rs per unit
¾ New TP = 20%X A + 80% x B
Revenue/scm 27.37 26.05 30.92 33.39
Contribution/scm 11.76 11.78 12.50 13.13
EBITDA/scm 6.30 5.53 7.04 7.52
PAT/scm 4.65 3.39 4.80 5.30
Amit Agarwal
amit.agarwal@nirmalbang.com
+91-22-6273 8033
Indraprastha Gas Ltd.
Income Statement FY19 FY20 FY21E FY22E FY23E Cash Flow Statement FY19 FY20 FY21E FY22E FY23E
Y/E March (Rsmn): Consolidated 12,693 15,565 9,442 16,426 19,734
Net Revenue 57,648 64,854 52,599 80,663 96,637
PBT 2,011 2,523 3,074 3,638 4,233
y/y 27.11 12.50 -18.90 53.35 19.80
Add depreciation -2,086 -2,759 -1,346 -1,841 -2,336
Raw Material Expenses 33,973 36,794 28,818 48,070 58,708 Other expenses/(Income ) 879 -1,720 308 -534 -7
RM/Sales % 58.9 56.7 54.8 59.6 60.8 Change in W/C 3,688 3,442 2,162 3,827 4,677
Income tax 9,809 13,608 8,700 14,930 16,961
Employee cost 1,426 1,517 1,593 1,885 2,138
Cashflow from Operations (A) 6,807 9,632 9,898 9,916 10,237
Other expenses 9,680 11,346 11,018 12,484 14,160 Capex 1,784 9,724 0 0 0
EBITDA 12,570 15,198 11,170 18,223 21,631 Purchase/(Sale) of Current Investments 3,075 -13,733 0 0 0
Purchase/(Sale) of Investments 32 36 0 0 0
y/y 12.59 20.91 -26.50 63.14 18.70
Ch in Bank deposits not considered cash 177 132 0 0 0
Depreciation 2,011 2,523 3,074 3,638 4,233
Income on Investments 313 320 1,432 1,932 2,432
EBIT 10,559 12,676 8,096 14,586 17,399 Other Income 11,208 5,207 8,466 7,984 7,805
Interest Expense 21 81 86 91 96 Total Investments -1,400 8,400 234 6,946 9,157
Free cash flow -11,208 -5,207 -8,466 -7,984 -7,805
Other Income 1,285 1,432 1,432 1,932 2,432
Cashflow from Investing (B) 1,046 0 649 714 786
PBT (adjusted) 11,823 14,026 9,442 16,426 19,734
Security deposits from vendors 716 0 0 0 0
Income Tax Expense 4,272 3,075 2,606 4,139 4,973 Payable towards PPE 0 -409 0 0 0
Ascociates inc/loss(+/-) 869.6 1,540.5 843.0 1,689.0 1,881.1 Increase/(Decrease) in DTL -1,685 -2,025 -2,949 -3,850 -5,477
Dividends (including tax) paid -4 -0 -86 -91 -96
Consolidated Net Profit Adj 8,421 12,492 7,679 13,976 16,642
Interest expense 74 -2,435 -2,386 -3,227 -4,787
EPS (Rs) 12.03 17.85 10.97 19.97 23.77 Cashflow from Financing (C) 0 0 299 0 0
y/y 16.68 48.34 -38.53 82.00 19.08 Adjustments -1,326 5,966 -1,853 3,719 4,369
Ch in Cash and Cash equiv 2,037 712 21,799 19,946 23,666
Balance Sheet FY19 FY20 FY21E FY22E FY23E
opening cash 711 6,677 19,946 23,666 28,035
Equity Share Capital 1,400 1,400 1,400 1,400 1,400
Reserves and Surplus 41,757 52,180 55,866 64,303 73,587 Ratios FY19 FY20 FY21E FY22E FY23E
Networth 43,157 53,580 57,266 65,703 74,987 Profitability & return ratios
Deferred Tax Liabilities [Net] 3,159 2,884 3,737 3,955 4,157 EBITDA margin (%) 21.8 23.4 21.2 22.6 22.4
Other Long term liab. 209 263 263 263 263 EBIT margin (%) 18.3 19.5 15.4 18.1 18.0
Trade Payables 4,885 2,250 2,270 3,763 4,521 Net profit margin (%) 14.6 19.3 14.6 17.3 17.2
Security deposits 6,493 6,493 7,142 7,857 8,642 RoE (%) 21.2 23.3 13.9 22.7 23.7
Payable towards PPE 2,958 2,958 2,958 2,958 2,958 RoCE (%) 15.7 19.0 9.8 16.4 17.3
Other Financial Liab 327 2,767 2,767 2,767 2,767 RoIC (%) 19.1 23.6 12.1 20.0 21.4
Other curr liab 645 3,288 3,288 3,288 3,288 Working capital ratios
Lease Liability 762 762 762 762 Receivables (days) 14.2 11.0 14.0 12.0 12.0
Lease Liability- Current 200 Inventory (days) 3 3 3 3 3
Total Capital And Liabilities 61,833 75,444 80,452 91,315 1,02,344 Payables (days) 26 20 20 22 22
Net Block 28,769 34,349 39,345 45,105 50,788 Cash conversion cycle -8.7 -6.2 -3.0 -7.0 -7.0
Capital Work-In-Progress 4,781 7,767 9,398 9,916 10,237 Leverage ratios
Investments under equity method 4,921 6,302 6,302 6,302 6,302 Net debt (Rsmn) -9,479 -12,349 -9,846 -12,852 -16,435
Income tax assets 150 229 229 229 229 Net Debt (cash)/Equity (X) -0.22 -0.23 -0.17 -0.20 -0.22
Long term loans and advances 115 134 134 134 134 Net Debt/EBITDA -0.75 -0.81 -0.88 -0.71 -0.76
Other Non-Current Assets 674 466 466 466 466 Valuation ratios
Current Investments 12,859 - - - - EV/sales (x) 4.96 4.40 5.43 3.54 2.96
Inventories 509 511 432 663 794
EV/EBITDA (x) 22.73 18.80 25.57 15.68 13.21
EV/FCF (x) 25.49 54.86 33.74 35.78 36.60
Trade Receivables 2,215 1,704 2,018 2,652 3,177
P/E (x) 35.05 23.63 38.44 21.12 17.74
Cash And Cash Equivalents 712 6,677 19,946 23,666 28,035
P/BV (x) 6.84 5.51 5.15 4.49 3.94
Bank balances other than cash 5,359 15,122 - - -
FCF Yield (%) -0.47 2.85 0.08 2.35 3.10
Other financial assets 444 614 614 614 614
Dividend Yield (%) 0.57 0.83 1.07 1.30 1.54
Short term loans and advances 38 20 20 20 20
Per share ratios
OtherCurrentAssets 288 329 329 329 329
EPS 12.03 17.85 10.97 19.97 23.77
Right of use asset 1,220 1,220 1,220 1,220
Cash EPS 14.90 21.45 15.36 25.16 29.82
Total Assets 61,833 75,444 80,452 91,315 1,02,344
BVPS 61.65 76.54 81.81 93.86 107.12
Source: Company, Nirmal Bang Institutional Equities Research DPS 2.40 3.50 4.50 5.50 6.5016
Persistent Systems
CMP: Rs1,146; Rating: Buy; M-cap: US$1,225mn; TP: Rs1,377; Upside: 20%
Our view on the Indian IT services sector

In Rs Mn FY20-FY23E CAGR
y We upgraded our view to ‘neutral’ on the sector from a ‘cautious’ one held for the last many years on the back of both, higher
earnings and higher target PE multiples. The earnings uplift is coming from expectation of margin expansion over the next 2-4 Revenue 13.6%
years along with a 300-400bps pick-up in organic revenue growth over FY21-FY23. The changed view on margins has been EBIT 29.7%
driven by business model changes that the pandemic has induced, which we think are structurally positive. Higher PE
multiples are driven by a combination of valuation exuberance (irrational!?) in the enterprise technology space in the US and PAT 24.5%
constrained domestic investment choices. The demand uplift is more widespread and is a ‘rising-tide-lifting-all-boats’ kind of FDEPS 24.5%
situation. Reasons for change in customer behavior, in our view are: (1) quick and unprecedented ‘whatever-it-takes’ monetary
and fiscal actions in the US and Europe that likely eliminated tail risks to economic recovery and reduced risk aversion among
corporates. (2) Strong need for digital transformation, not only to structurally cut costs, but also to deliver contact-less Vertical Contribution to Revenue (%)
consumer and employee experiences, driven by the nature of the pandemic. Based on the commentary from customers, Services 83.8
software companies and IT services vendors, we believe that digital demand has been pulled forward from the future. IP Led 16.2
Stock View: Total 100
y We see Persistent System’s (PSL) accelerating earnings at a ~25% CAGR over FY20-FY23 on the back of a ~13.5% INR
Geography Contribution to Revenue
revenue growth and an expansion in EBIT margins by ~450bps. Until 6-9 months back, PSL had been underperforming its
Americas 82.9
peers due to a rather lackluster EPS growth of just ~4% over FY15-FY20 despite a ~13.5% INR revenue CAGR as its EBIT Europe 7.6
margin compressed by 650bps (entirely gross margin driven due to higher onsite mix, likely lower margins in IP, Alliances and India 8.1
offshore services businesses). Rest of the World 1.4
y This turnaround in our view can be partly attributed to Sandeep Kalra, the new CEO, who was heading its Technology Total 100
Services business (~80% of revenues), which has delivered a robust ~3.5% CQGR since his arrival in May 2019. Much of the
new vigour has been driven by a new large deals strategy which has improved predictability of revenues. Plus we see margins Segment Contribution to Revenue (%)
improving on higher offshoring, better margins in IP and Alliance businesses and some rationalization of SGA.
Technology Services 77.3
y We are hopeful as PSL executes on its goal of becoming a US$1bn company within 4 years (an aggressive ~19% USD CAGR Alliance 22.7
including inorganic elements) with a possible better margin profile. We assume only 11% USD revenue growth (organic) over Total 100
FY20-FY23 currently. While the goal is stiff it is not impossible and would require good execution. Besides, post pandemic, the
better demand environment would help PSL.
y We have a Buy rating on the stock with a target price of Rs1,377 (upside of 20%) at 17.5x target PE multiple on September 22
EPS. Our estimates have been tweaked up on better margin expectation. We value PSL at a target P/E of 17.5x September
2022E EPS, which is at a 30% discount to the target P/E multiple of TCS.
Girish Pai
+91-22-6273 8017
Persistent Systems
Income Statement (Rs mn) (YE March) FY19 FY20 FY21E FY22E FY23E Cash Flow (Rs mn) (YE March) FY19 FY20 FY21E FY22E FY23E
Average INR/USD 70.0 71.1 74.0 75.2 76.8 EBIT 4,233 3,270 4,721 5,997 7,135
Net Sales (USD mn) 481 502 547 613 682
YoY Growth (%) 2.2 4.3 9.1 12.0 11.2 (Inc.)/dec. in working capital 362 741 (1,003) (901) (740)
Net Sales 33,659 35,658 40,587 46,127 52,322 Cash flow from operations 4,595 4,011 3,718 5,095 6,395
YoY Growth (%) 11.0 5.9 13.8 13.6 13.4
Other income 631 1,254 957 1,343 1,615
Cost of Sales & Services 21,378 23,494 26,605 30,046 34,369
Depreciation & amortisation 1,573 1,660 1,780 1,940 2,113
% of sales 63.5 65.9 65.5 65.1 65.7
Gross Margin 12,281 12,164 13,982 16,081 17,953 Tax paid (1,347) (1,121) (1,446) (1,835) (2,188)
% of sales 36.5 34.1 34.5 34.9 34.3 Dividends paid (1,059) (920) (1,269) (1,652) (1,969)
SG& A 6,476 7,234 7,481 8,144 8,705
% of sales 19.2 20.3 18.4 17.7 16.6 Net cash from operations 4,392 4,883 3,739 4,892 5,967
EBITDA 5,805 4,930 6,501 7,936 9,248 Capital expenditure 718 1,380 1,297 1,200 1,200
% of sales 17.2 13.8 16.0 17.2 17.7
Depreciation 1,573 1,660 1,780 1,940 2,113 Net cash after capex 3,675 3,503 2,442 3,692 4,767
EBIT 4,233 3,270 4,721 5,997 7,135 Inc./(dec.) in debt (5) 34 (1) - -
% of sales 12.6% 9.2% 11.6% 13.0% 13.6%
(Inc.)/dec. in investments 1,288 (2,669) (808) (4,000) (4,000)
Other income (net) 631 1,254 957 1,343 1,615
PBT 4,863 4,524 5,677 7,340 8,750 Equity issue/(buyback) (571) (1,679) - - -
-PBT margin (%) 14.4 12.7 14.0 15.9 16.7 Cash from financial activities 713 (4,314) (809) (4,000) (4,000)
Provision for tax 1,347 1,121 1,446 1,835 2,188
Others (78) (1,340) (159) (400) (400)
Net profit 3,517 3,403 4,231 5,505 6,563 Opening cash 2,414 6,724 4,572 6,047 5,339
-Growth (%) 8.9 -3.2 24.3 30.1 19.2 Closing cash 6,723 4,572 6,047 5,339 5,706
-Net Profit Margin (%) 10.4 9.5 10.4 11.9 12.5 Change in cash 4,309 (2,151) 1,475 (708) 367
Balance Sheet (Rs mn) (YE March) FY19 FY20 FY21E FY22E FY23E Ratios (YE March) FY19 FY20 FY21E FY22E FY23E
Equity capital 791 764 764 764 764 Per Share (Rs)
Reserves & surplus 22,656 23,093 25,969 29,823 34,417 EPS 44.1 44.4 55.2 71.8 85.6
Net worth 23,447 23,858 26,734 30,587 35,181 FDEPS 44.1 44.4 55.2 71.8 85.6
Deferred tax liability - - - - - Dividend Per Share 11.1 12.0 16.6 21.5 25.7
Other liabilities 253 544 988 988 988 Book Value 296 311 349 399 459
Dividend Payout Ratio (%) (inl DDT) 30 27 30 30 30
Total loans 12 46 46 46 46
Return ratios (%)
Total liabilities 23,712 24,448 27,767 31,621 36,215
RoE 15.7 14.4 16.7 19.2 20.0
Goodwill 81 89 87 87 87
RoCE 18.9 13.8 18.6 20.9 21.7
Net block (incl CWIP) 4,242 4,530 4,122 3,783 3,270 Pre Tax ROIC (%) 44.2 35.1 48.5 58.8 67.4
Investments 7,641 9,786 10,816 14,816 18,816 Tunover Ratios
Deferred tax asset 405 960 1,031 1,031 1,031 Asset Turnover Ratio 1.4 1.5 1.5 1.5 1.5
Other non-current assets 418 690 468 468 468 Debtor Days (incl. unbilled Rev) 53 61 58 59 59
Other current assets 4,122 4,373 4,680 5,492 6,158 Working Capital Cycle Days 48 39 36 39 40
Debtors 4,923 5,922 6,405 7,516 8,428 Valuation ratios (x)
Cash & bank balance 6,724 4,572 6,047 5,339 5,706 PER 26.0 25.8 20.8 16.0 13.4
Total current assets 15,769 14,867 17,132 18,346 20,292 P/BV 3.9 3.7 3.3 2.9 2.5
Total current liabilities 4,844 6,474 5,889 6,910 7,748 EV/EBTDA 14.5 16.9 12.6 10.4 8.9
Net current assets 10,924 8,393 11,243 11,436 12,543 EV/Sales 2.5 2.3 2.0 1.8 1.6
Total assets 23,712
24,448 27,767 31,621 36,215
M-cap/Sales
Dividend Yield Institutional Equities
2.7
1.0%
2.5
1.0%
2.2
1.4%
1.9
1.9%
1.7
2.2%
PNC INFRATECH
CMP: Rs164; Rating: Buy; M-cap: US$567mn; TP: Rs257; Upside: 57%
1QFY21 Orderbook does not include new orders won

y Strong orderbook to cushion the impact of weak awarding activity: PNC reported closing order
book of Rs67.9bn as on September 2020. However, this order book excludes 5 HAM, 2 EPC, 1 150.0 5.00
irrigation, and 1 water supply projects with EPC portion in excess of Rs90bn. This translates into a 4.00
book to bill ratio of more than 3x, giving ample revenue visibility. The management has set a target of 100.0
adding new orders worth Rs100bn in FY21 and has added new orders worth Rs.45bn till now. 3.00
Appointed date for the new projects are expected in 2HFY21.. So, they are likely to contribute to 50.0 2.00
revenue in FY21 itself. 1.00
y Large concentration of projects in Uttar Pradesh: PNC is Uttar Pradesh based company with its - -
headquarters in Agra. The company follows a cluster-based approach to execution and currently more
1QFY20
2QFY20
3QFY19
4QFY19
3QFY20
4QFY20
1QFY21
2QFY21
than 2/3rd of its total orderbook comprises projects from Uttar Pradesh. Moreover, the company is
doing multiple packages of large projects like the Purvanchal Expressway, Aligarh – Kanpur etc in the Orderbook (Rs bn)
state. This location advantage results in optimum utilization of resources and higher margins. It also
allows the company to bid for projects at competitive rates and still extract better margins. Given the
fact that we expect large expressway projects to be awarded in Uttar Pradesh, this location advantage
will favour the company at least in the medium term. Net Debt: Equity Ratio is expected to be constant
y Strong balance sheet offers further room to grow: PNC has one of the best leverage indicators in 0.15 0.10
the construction industry. Net cash position as on 2QFY21 stood at Rs3.65bn and working capital 0.10
0.04
days remained at 85 days. We believe that going ahead the working capital days should normalize to 0.05 0.02
75 days. -
(0.05) (0.02)
y Asset Monetization: The management is in talks with potential investor to monetize 6 HAM projects, (0.05) (0.05)
(0.10)
1 BOT project and 1 BOT-Annuity project and the details of the deal should be finalized by end-FY21.
(0.15)
Total equity invested in these projects is Rs9.4bn. (0.13)
(0.20)
y Valuation: We have valued PNC based on SOTP method. We have valued the standalone business (0.18)
FY21E
FY22E
FY23E
FY16
FY17
FY18
FY19
FY20
at 10x Sept 22 EPS and added the value of BOT and HAM assets at 1x book value. We have a Buy
rating on the stock. Net Debt:Equity (x)
Mangesh Bhadang
+91-22-6273 8068
PNC Infratech
Income Statement Cash Flow -Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E
YE March, Rsmn FY19 FY20 FY21E FY22E FY23E EBIT 4,081 7,264 6,521 7,942 9,015
Net sales 30,969 48,779 51,389 61,667 69,067 Add : Depreciation & Impairment 922 1,264 1,290 1,650 1,650
growth (%) 66.8 57.5 5.3 20.0 12.0 Cash flow from operations b4 WC 5,004 8,528 7,811 9,592 10,665
Operating expenses 26,395 41,136 44,317 52,725 59,052 Net change in Working capital 943 1,395 (1,429) (2,704) (2,168)
EBITDA 4,573 7,643 7,072 8,942 10,015
Tax paid (191) (1,517) (1,530) (1,714) (1,993)
growth (%) 43.4 67.1 -7.5 26.4 12.0
Net cash from operations 5,755 8,406 4,853 5,174 6,504
Depreciation 922 1,264 1,290 1,650 1,650
Capital expenditure (2,964) (927) (1,000) (1,000) (1,000)
EBIT 3,651 6,379 5,782 7,292 8,365
Interest paid 641 1,144 1,196 1,350 1,350 Sale of investments (1,278) (2,499) (3,000) (4,500) (4,500)
Other income 430 885 739 650 650 Net cash from investing (3,021) (3,511) (4,185) (5,704) (5,724)
Pre-tax profit 3,440 6,120 5,326 6,592 7,665 Issue of shares - - - - -
Tax 191 1,517 1,530 1,714 1,993 Increase in debt 1,181 383 (500) (500) (500)
Effective tax rate (%) 5.6 24.8 28.7 26.0 26.0 Dividends paid incl. tax (128) (257) (257) (257) (257)
Net profit 3,249 4,603 3,796 4,878 5,672
Net cash from financing (1,277) (591) (1,952) (2,107) (2,107)
Exceptional items - - - - -
Net Cash 1,458 4,304 (1,285) (2,636) (1,327)
Adjusted net profit 3,249 4,603 3,796 4,878 5,672
growth (%) 29.4 41.7 (17.5) 28.5 16.3 Opening Cash 1,061 2,519 6,822 5,538 2,901
EPS 12.7 17.9 14.8 19.0 22.1 Closing Cash 2,519 6,822 5,538 2,901 1,574
Balance Sheet Key Ratios

YE March, Rsmn FY19 FY20 FY21E FY22E FY23E YE March FY19 FY20 FY21E FY22E FY23E
Equity Capital 513 513 513 513 513 Adj EPS (Rs) 12.7 17.9 14.8 19.0 22.1
Reserves and Surplus 20,639 24,953 28,492 33,113 38,529 Adj EPS growth (%) 29.4 41.7 (17.5) 28.5 16.3
Networth 21,152 25,466 29,005 33,626 39,042 EBITDA margin (%) 14.8 15.7 13.8 14.5 14.5
Total Debt 2,837 2,238 1,738 1,238 738 Pre-tax margin (%) 11.1 12.5 10.4 10.7 11.1
Deferred tax liability - - - - - ROE (%) 16.6 19.7 13.9 15.6 15.6
Other non current liabilities 3,791 6,532 6,969 7,450 7,978 ROCE (%) 15.7 17.6 12.9 14.7 14.8
Trade Payables 4,737 4,675 4,490 5,631 6,630 Turnover & Leverage ratios (x)
Other Current Liabilities 4,638 5,191 5,701 6,706 7,608
Asset turnover (x) 1.0 1.2 1.1 1.2 1.2
Total Current Liabilities 9,376 9,866 10,191 12,337 14,238 Leverage factor (x) 1.8 1.7 1.7 1.6 1.6
Total liabilities 37,155 44,103 47,904 54,651 61,997 Net margin (%) 10.5 9.4 7.4 7.9 8.2
Net Debt/Equity (x) 0.0 (0.2) (0.1) (0.0) (0.0)
Working Capital Ratios
Net Block 6,155 5,880 5,591 4,941 4,291 Inventory days 48 20 24 27 31
CWIP 62 - - - - Receivable days 73 60 65 70 75
Investment 5,730 6,732 9,732 14,232 18,732 Payable days 56 35 32 33 35
Other non current assets 1,766 1,850 2,035 2,239 2,463 Valuations
Inventories 4,036 2,673 3,365 4,582 5,778 PER (x) 12.1 5.2 11.1 8.6 7.4
Sundry Debtors 6,154 8,035 9,169 11,848 14,215 Price/Book value (x) 1.9 0.9 1.4 1.2 1.1
Cash and Bank 2,519 6,822 5,538 2,901 1,574 PCE (x) 9.4 4.1 8.3 6.4 5.7
Other current assets 4,600 4,580 4,826 5,791 6,485 EV/Net sales (x) 1.3 0.4 0.7 0.7 0.6
Total Current Assets 19,761 24,922 25,828 28,522 31,794 EV/EBITDA (x) 8.7 2.6 5.4 4.5 4.1
Total Assets 37,155
44,103 47,904 54,651
20
61,997 Dividend Yield (%) 0.3 0.7 1.1 0.6 0.6
SRF
CMP: Rs4,868; Rating: Buy; M-cap: US$4bn; TP: Rs5,600; Upside: 15%
y In a different league: SRF is a multi-business entity with presence in Chemicals, Packaging and Technical Textiles. SRF has successfully transformed
itself from a Technical Textiles player to a leading chemical company in India. Diversification is in the DNA of SRF as the company is well diversified in
terms of geographical presence as well its products. SRF’s thrust on R&D and its ability to scale up have enabled the company to emerge as a key
player in all its verticals on a global platform. We like its capital allocation strategy with disproportionate focus on Chemicals followed by the Packaging
Films business, which are expected to deliver robust growth going forward. Taking the cognizance of future growth opportunities for Indian chemical
companies, driven by the increasing efforts of global supply chain majors towards ‘Plus One’ strategy as well as domestic demand, SRF has raised its
capex intensity significantly over the last 5 years (FY15-20 capex 2x vis-à-vis FY10-15).
y Specialty chemicals is the key growth driver: While we remain positive on the entire Chemicals business, Specialty Chemicals would be a key
growth driver for SRF, led by increased capex intensity, expertise in fluorine chemistry and strong relationships with global majors. Revenue share of
Specialty Chemicals was ~26% in FY20, which we expect to rise to ~34% by FY23. Positive outlook for its key end-user industries namely,
Agrochemicals and Pharma will enable SRF to grow rapidly as it has done in the past. In refrigerant gases, SRF is the domestic leader and we expect
very low competition from domestic players considering the strength of SRF’s product portfolio and upcoming expansion plans. Recent announcement
of prohibition on import of Air conditioners (AC) with refrigerants is positive for SRF as it has the entire HFC product portfolio which is mainly being used
in ACs. Also, SRF has doubled its HFC capacity. On the other hand, chloromethanes is an import substitution opportunity.
y Edge in Packaging: SRF has managed to do well, especially in the last 5 years, led by strategic expansion plans, higher focus on value-added
products and cost efficiency measures. It has presence in both BOPET as well as BOPP segments and has manufacturing facilities both in India as well
as abroad. Over the last 5 years, SRF has almost tripled its BOPET capacity. ~70% of the company’s revenue from Packaging Films comes from value-
added products. We are structurally positive on this business and expect SRF to deliver better-than-industry growth (~14% CAGR over FY20-23E)
y Valuation: SRF’s 5-year and 2-year average PE are ~19x and ~22x, respectively. Currently, the stock is trading above 1 SD based on 5-year average
PE. However, we believe that the stock has re-rated over the last one year on account of high capex focus and growth prospects of the Specialty
Chemicals business. We expect the company’s product mix to change significantly over the next 5 years. Accordingly, the stock deserves a premium
valuation. Average revenue share of the Chemicals business over FY15-20 was ~35% and we expect the same to rise to ~51% over FY20-25. This will
improve the overall profitability of the business and return ratios. We are building in ~25% earnings CAGR over FY20-23E. Currently, the stock is trading
at ~13x 1-year forward EV/EBITDA. We value SRF based on SOTP methodology, indicating an upside of ~14% from CMP.
Abhishek Navalgund
abhishek.navalgund@nirmalbang.com
+91-22-6273 8013
SRF
Balance Sheet (Y/E March) (Rsmn) FY19 FY20 FY21E FY22E FY23E
Income Statement (Y/E Mar) (Rsmn) FY19 FY20 FY21E FY22E FY23E
Share capital 591 585 603 603 603
Net Sales 70,996 72,094 77,712 91,865 108,089 Reserves 40,702 48,748 64,244 75,281 87,203
Growth YoY% 27.0 1.5 7.8 18.2 17.7 Net worth 41,293 49,333 64,847 75,884 87,806
COGS 39,671 36,870 39,345 46,428 54,672 Long term debt 21,613 23,116 20,805 18,724 17,788
Gross margin % 44.1 48.9 49.4 49.5 49.4 Short term debt 11,274 9,554 9,554 9,554 9,554
Total debt 32,887 32,671 30,359 28,279 27,342
Staff costs 4,608 5,419 6,090 7,185 8,267 Other non-current liabilities 3,986 3,239 3,077 3,077 2,985
Other expenses 13,747 15,256 13,701 15,318 17,142 Total Equity & Liabilities 78,166 85,243 98,282 107,239 118,133
EBITDA 12,970 14,549 18,577 22,935 28,008 Gross block 68,371 78,668 88,668 102,668 116,668
Growth YoY% 43.1 12.2 27.7 23.5 22.1 Accumulated depreciation 12,277 16,163 20,959 26,741 33,653
Net Block 56,094 62,505 67,709 75,927 83,015
EBITDA margin % 18.3 20.2 23.9 25.0 25.9
CWIP 7,536 13,933 13,933 13,933 13,933
Depreciation 3,582 3,886 4,796 5,783 6,912 Intangible and others - 1,171 1,171 1,171 1,171
EBIT 9,388 10,663 13,781 17,153 21,096 Other non-current assets 3,525 2,055 3,083 4,624 6,936
Interest 1,984 2,007 1,634 1,509 1,473 Investments 1 42 42 42 42
Other income 280 491 358 1,613 -261 Trade receivables 10,288 8,911 9,605 11,354 13,360
Inventories 12,247 12,012 12,948 15,307 18,010
PBT (bei) 7,684 9,147 12,504 17,257 19,363
Cash & Cash equivalents 11,292 10,896 12,980 16,079 18,084
PBT 7,684 9,147 12,504 17,257 19,363 Other current assets 6,194 4,899 4,899 6,369 6,369
ETR 23.0 2.9 24.9 25.2 25.1 Total current assets 31,723 29,062 36,737 38,117 41,491
PAT 5,916 9,159 9,392 12,915 14,506 Trade payables 13,824 11,117 11,983 14,166 16,667
Other current liabilities 6,889 12,408 12,408 12,408 11,788
Adj PAT 5,916 6,892 9,392 12,915 14,506
Total current liabilities 20,713 23,525 24,391 26,574 28,455
Growth YoY% 28.1 16.5 36.3 37.5 12.3
Cash Flow Statement (Y/E March) FY19 FY20 FY21E FY22E FY23E Ratios (Y/E March) FY19 FY20 FY21E FY22E FY23E
PBT 8,269 10,706 12,504 17,257 19,363 Per share (Rs)
Depreciation 3,669 3,929 4,796 5,783 6,912 Adj EPS 102.9 119.9 163.4 224.7 252.4
Book value 718.4 858.3 1,128.2 1,320.2 1,527.6
Interest 2,016 2,016 1,634 1,509 1,473 Valuation (x)
Other adjustments -330 -1,940 -358 -1,613 261 EV/EBITDA 23.9 21.3 16.7 13.5 11.1
Change in Working capital -3,165 -239 -764 -3,395 -2,827 P/E 47.3 40.6 29.8 21.7 19.3
P/BV 6.8 5.7 4.3 3.7 3.2
Tax paid -1,502 -1,427 -3,113 -4,341 -4,857 Return ratios (%)
Operating cash flow 8,956 13,044 14,700 15,199 20,324 RoCE 13.7 13.7 15.6 17.2 19.2
Capex -10,564 -13,892 -10,000 -14,000 -14,000 RoE 15.4 15.2 16.5 18.4 17.7
Profitability ratios (%)
Free cash flow -1,607 -847 4,700 1,199 6,324 Gross margin 44.1 48.9 49.4 49.5 49.4
Other investing activities 422 2,088 -2,059 -1,278 -2,573 EBITDA margin 18.3 20.2 23.9 25.0 25.9
Investing cash flow -10,142 -11,803 -12,059 -15,278 -16,573 PAT margin 8.3 9.5 12.0 13.8 13.5
Liquidity ratios (%)
Issuance of share capital 1 - 7,500 - - Current ratio 1.0 0.9 1.1 1.1 1.1
Movement of Debt 5,534 1,019 -2,312 -2,080 -936 Quick ratio 0.6 0.5 0.7 0.6 0.6
Dividend paid (incl DDT) -694 -803 -1,378 -1,878 -2,583 Solvency ratio (%)
Debt to Equity ratio 0.8 0.7 0.5 0.4 0.3
Other financing activities -2,383 -2,205 -1,796 -1,509 -1,565 Turnover ratios
Financing cash flow 2,458 -1,990 2,014 -5,468 -5,085 Fixed asset turnover ratio (x) 1.0 0.9 0.9 0.9 0.9
Net change in cash flow 1,272 -748 4,654 -5,547 -1,334 Debtor days 53 45 45 45 45
Inventory days 63 61 61 61 61
Opening C&CE 870 1,896 1,255 5,909 362 Creditor days 71 56 56 56 56
Closing C&CE 1,896 1,255 5,909 362 -972 Net Working capital days 45 50 50 50 50

V-Guard Industries
CMP: Rs169; Rating: Buy; M-cap: US$952mn; TP: Rs205; Upside: 21.3%
y Well positioned for future growth % share of revenues FY19 FY20 FY21E FY22E FY23E
o V-Guard Industries (VIL) posted FY11-FY20 revenue CAGR of 15% led by expansion in Electronics 29.6 30.4 29.4 29.4 29.0
non-south region, market share gains and addition of new product categories.
o Distribution network expansion is a key long term growth driver. VIL aims to expand its retail Electricals 44.0 42.4 43.0 43.1 43.5
touch-points by 3,000 outlets annually to its current presence in 40,000 outlets. It also plans Consumer Durables 26.4 27.2 27.6 27.5 27.5
to scale up largely untapped avenues such as canteen store department (8%-10% of
industry sales), e-commerce (2%-3% of VIL sales) and modern retail.
o Entered new high growth categories like Kitchen appliances and switchgears. Its % share of EBIT FY19 FY20 FY21E FY22E FY23E
contribution to total sales is likely to rise from 7% currently to 15% in three years. It also
launched new products in category of water purifiers, breakfast appliances, hobs and Electronics 45.1 50.5 48.8 48.3 47.7
chimneys through online channel.
Electricals 39.8 33.2 38.1 34.5 35.0
o Scale up of non-south region will aid growth, its share in total sales rose from 30% in FY14
to 41% in FY20. Consumer Durables 15.1 16.3 13.1 17.2 17.3
y Healthy improvement in margin likely
o Gross margin rose from 25.5% in FY14 to 33.2% in FY20 aided by supply chain initiatives,
better product mix and improved pricing power.
o Gross margin difference between south and non-south regions has narrowed to 1% while Shareholding (%) FY16 FY17 FY18 FY19 FY20
EBITDA margin difference is 3%-4% which VIL aims to reduce in three to four years.
o Reducing pricing difference in non-south region, better product mix, premiumization of Promoter 65.7 65.2 64.3 64.1 62.6
portfolio and operating leverage benefit are key levers of margin expansion.
y Strong financial franchisee to support valuation Source: BSE
o Asset-light business model (55% products outsourced), high fixed asset turn (7.2x in FY20)
o Healthy return ratios with RoCE/RoE of 23.5%/19.6% in FY20
o Healthy operating/free cash flow and lean working capital cycle
o FY20-FY23E revenue/earnings CAGR to be softer at 9%/11% due to COVID-19 challenges.
o Target price of Rs205 based on 38x 1HFY23E earnings
Chirag Muchhala
chirag.muchhala@nirmalbang.com
+91-22-6273 8092
V-Guard Industries
Profit & Loss Y/E March (Rs mn) FY19 FY20 FY21E FY22E FY23E Cash Flow Y/E March (Rs mn) FY19 FY20 FY21E FY22E FY23E
Net Sales 25,664 24,820 23,487 27,683 32,068 EBIT 1,976 2,252 1,848 2,539 2,986
% growth 11.0 (3.3) (5.4) 17.9 15.8 (Inc)/Dec in working capital (566) 33 203 (603) (1,195)
Cash flow from operations 1,410 2,284 2,050 1,936 1,791
Raw material cost 17,992 16,582 15,854 18,547 21,390
Other income 183 240 275 295 325
Staff cost 2,020 2,068 2,114 2,381 2,758
Depreciation 218 281 308 317 342
Other overheads 3,458 3,637 3,364 3,899 4,593 Tax paid (-) (498) (647) (490) (656) (768)
Total Expenditure 23,470 22,287 21,332 24,827 28,741 Net cash from operations 1,313 2,158 2,144 1,892 1,690
EBITDA 2,194 2,533 2,156 2,856 3,327 Capital expenditure (-) (350) (1,412) (360) (410) (310)
% growth 17.4 15.4 (14.9) 32.5 16.5 Net cash after capex 963 746 1,784 1,482 1,380
EBITDA margin (%) 8.5 10.2 9.2 10.3 10.4 Interest paid (-) (13) (37) (39) (41) (43)
Dividends paid (-) (412) (465) (300) (471) (557)
Other income 183 240 275 295 325
Interest 13 37 39 41 43 Inc./(Dec.) in short-term borrowing 100 - (100) - -
Depreciation 218 281 308 317 342 Inc./(dec.) in long-term borrowing - - - - -
Profit Before Tax 2,146 2,454 2,083 2,792 3,268 Inc./(dec.) in total borrowings 100 - (100) - -
(Inc.)/Dec. in investments (80) 471 - - -
Tax 491 603 490 656 768
Cash from Financial Activities (395) (29) (439) (512) (600)
Net Profit 1,655 1,852 1,594 2,136 2,500
Others 229 (447) - - -
PAT margin (%) 6.4 7.5 6.8 7.7 7.8
Opening cash 50 847 1,115 2,460 3,430
Reported EPS (Rs) 3.9 4.3 3.7 5.0 5.8
Closing cash 847 1,115 2,460 3,430 4,209
% growth 24.4 11.9 (13.9) 34.0 17.0 Change in cash 796 269 1,345 970 780
Balance Sheet Y/E March (Rs mn) FY19 FY20 FY21E FY22E FY23E Key Ratios Y/E March FY19 FY20 FY21E FY22E FY23E
Share capital 427 428 428 428 428 Per share (Rs)
EPS 3.9 4.3 3.7 5.0 5.8
Reserves 8,570 9,509 10,804 12,469 14,412
Book value 21.0 23.2 26.2 30.1 34.6
Net worth 8,997 9,938 11,232 12,897 14,840
Valuation (x)
Total Loans 100 100 - - - P/E 43.7 39.1 45.4 33.9 29.0
Deferred Tax Liability Net 22 (22) (22) (22) (22) P/BV 8.0 7.3 6.4 5.6 4.9
Liabilities 9,119 10,015 11,209 12,875 14,817 EV/EBITDA 32.6 28.2 32.4 24.1 20.5
Net Block 2,135 2,675 3,385 3,478 3,447 EV/Sales 2.8 2.9 3.0 2.5 2.1
Return ratio (%)
Capital work-in-progress 77 669 10 10 10
RoCE 23.7 23.5 17.4 21.1 21.6
Long-term Investments 923 451 451 451 451
RoE 20.0 19.6 15.1 17.7 18.0
Inventories 3,709 4,764 3,692 3,913 4,395 RoIC 28.2 28.5 22.1 29.4 31.2
Debtors 4,543 3,218 3,861 4,702 5,711 Profitability ratio (%)
Cash 847 1,115 2,460 3,430 4,209 EBITDA margin 8.5 10.2 9.2 10.3 10.4
Other Current Assets 1,329 1,489 1,609 1,896 2,405 EBIT margin 7.7 9.1 7.9 9.2 9.3
PAT margin 6.4 7.5 6.8 7.7 7.8
Total Current assets 10,427 10,586 11,622 13,941 16,720
Turnover ratio
Creditors 3,531 3,007 2,954 3,557 4,219
Total asset turnover ratio (x) 2.8 2.5 2.1 2.2 2.2
Other current liabilities & provisions 912 1,358 1,306 1,449 1,591 Fixed asset turnover ratio (x) 9.7 7.2 5.3 5.7 6.2
Total current liabilities 4,443 4,365 4,259 5,006 5,811 Debtor days 65 47 60 62 65
Net current assets 5,984 6,221 7,363 8,935 10,910 Inventory days 75 105 85 77 75
Creditors days 72 66 68 70 72
Total Assets 9,119 10,015 11,209 12,875 14,817
Westlife Development
CMP: Rs372; Rating: Accumulate; M-cap: US$0.8bn; TP: Rs410; Upside: 10%
• Overall operating environment are still not fully back to the pre-Covid levels but performance has been improving month on month.
Convenience channel has already reached pre-COVID levels and dine-in showing healthy recovery trend across markets where it was open in
2QFY21. With opening up of dine-in in the state of Maharashtra (WDL’s biggest sales contributor at ~50%), things are only looking better.
WLDL’s focus on value platform, superior performance of brand extensions, continuous menu innovations and high focus on customer
initiatives make us believe that the company can actually gain market share in the current environment and eventually achieve a sustainable
high single digit SSSG once the market stabilizes.
• What makes WLDL unique compared to the other QSR peer is their ‘Burger Plus/All day’ menu, which has really helped in recruiting new
consumers and driving frequency of eating out over the last few years.
• Average Unite Volume (AUV) drivers: This along with focus on value platform, customized meal offering, superior performance of brand
extensions (McCafe, McDelivery & McBreakfast) and continuous menu innovations, can help company deliver sustainable high single digit
SSSG, company is aiming 7-9% SSSG in the medium term.
• Margin levers: Robust growth in beverage portfolio (McCafe), benign raw material prices and backend supply chain integration gives enough
gross margin levers to push consumer offers. This coupled with improvement in restaurant operating margin (through better cost controls at
restaurant level – ROP 2.0) and operating leverage will lead to continuous improvement in margins beyond FY21. Company aims to
eventually get back to the previously guided trajectory of EBITDA margin band.
• Store expansion: WLDL still has long runway for store expansion from their current levels of ~311 restaurants. They had set themselves a
target of opening 400+ restaurants by FY22, with additions of 25-30 stores per year in a cluster based-approach. However, given the current
environment, WDL had taken a pause in store expansion in 1HFY21 to conserve cash and has actually closed few restaurants but it will go
back to the original annual expansion target next year.
• While there are near term growth concerns for the sector, we remain structurally positive on the stock from a medium-term to long-term
perspective. We have a Accumulate rating with a target price (TP) of Rs410 based on EV/EBITDA multiple of 25x (on Sept’ 2022 EBITDA).
• Spurious lockdowns in some key metros remains a near term risk. Higher than expected consumer preference for healthy foods is a long term
risk.
Vishal Punmiya
vishal.punmiya@nirmalbang.com
+91 6273 8064
Westlife Development
Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E
Net Sales 14,020 15,478 10,899 16,469 18,933 PAT 213 366 -244 926 1,338
% Growth 23.5 10.4 -29.6 51.1 15.0 Depreciation 797 866 993 1,085 1,222
SSG % 17.0 4.0 -30.0 44.1 10.0 Other income -84 -69 -160 -275 -266
COGS 5,116 5,382 3,883 5,303 5,902 (Inc.)/dec. in working capital -80 109 8 46 223
Staff costs 1,453 1,690 1,213 1,899 2,026
Cash flow from operations 846 1,272 597 1,781 2,517
Other expenses 6,209 6,966 5,172 7,120 8,161
Capital expenditure (-) -1,297 -1,222 -750 -1,500 -2,074
Total expenses 12,778 14,039 10,268 14,322 16,089
EBITDA 1,243 1,439 631 2,146 2,844 Net cash after capex -450 50 -153 281 442
% growth 64.5 15.8 -56.1 239.9 32.5 Inc./(dec.) in investments and other assets -280 -6,861 -498 -578 -171
EBITDA margin (%) 8.9 9.3 5.8 13.0 15.0 Cash from investing activities -1,576 -8,082 -1,248 -2,078 -2,245
Other income 84 69 160 275 266 Inc./(dec.) in total borrowings 504 -502 -137 -150 0
Interest costs 177 149 125 100 100 Others 13 7,677 -99 -375 -257
Depreciation 797 866 993 1,085 1,222 Cash from financial activities 517 7,175 -237 -525 -257
Profit before tax (before exceptional items) 352 494 -327 1,237 1,788
Others 196 -427 1,234 1,419 255
Exceptional items 0 -124 0 0 0
Opening cash balance 109 92 30 376 974
Tax 139 128 -82 311 450
PAT (before exceptional items) 213 366 -244 926 1,338 Closing cash balance 92 30 376 974 1,244
Reported PAT 213 242 -244 926 1,338 Change in cash balance -17 -62 346 598 271
PAT margin (%) 1.5 1.6 -2.2 5.5 7.0
Y/E March FY19 FY20 FY21E FY22E FY23E
% Growth 27.8 72.0 NA NA 44.5 Per share (Rs)
Y/E March (Rsmn) FY19 FY20 FY21E FY22E FY23E EPS 1.4 2.4 (1.6) 5.9 8.6
Share capital 311 311 311 311 311 Book value 37.5 37.1 35.5 41.4 50.0
Reserves 5,519 5,459 5,214 6,140 7,478 Valuation (x)
P/Sales 3.4 3.7 5.3 3.5 3.1
Net worth 5,830 5,770 5,526 6,451 7,789
EV/sales 3.5 3.8 5.3 3.5 3.0
Total debt 2,339 1,837 1,700 1,550 1,550 EV/EBITDA 39.7 40.3 91.5 26.6 20.0
Other long term liabiliies 31 7,922 7,609 7,234 6,977 P/E 226.5 158.1 (236.6) 62.5 43.2
Deferred tax liability 0 -214 0 0 0 P/BV 8.3 10.0 10.5 9.0 7.4
Total liabilities 8,200 15,316 14,835 15,235 16,316 Return ratios (%)
Gross block 10,752 12,024 12,774 14,274 16,274 RoCE 4.1 5.3 (2.0) 13.1 16.3
Depreciation 5,727 6,592 7,585 8,670 9,892 RoE 3.8 6.3 (4.3) 15.5 18.8
Net block 5,025 5,431 5,188 5,604 6,382 RoIC 8.2 5.9 (2.7) 8.3 12.5
Profitability ratios (%)
Right of use assets 0 7,714 7,097 6,387 6,260
Gross margin 63.5 65.2 64.4 67.8 68.8
CWIP & Intangibles 1,210 1,161 1,161 1,161 1,235
EBITDA margin 8.9 9.3 5.8 13.0 15.0
Investments 2,024 1,576 1,400 1,300 1,465 EBIT margin 3.2 3.7 (3.3) 6.4 8.6
Inventories 410 411 298 407 453 PAT margin 1.5 2.4 (2.2) 5.5 7.0
Debtors 98 47 45 68 78 Liquidity ratios (%)
Cash 92 30 376 974 1,244 Current ratio 0.4 0.6 0.6 0.8 0.9
Loans & advances 1,278 865 1,120 1,350 1,485 Quick ratio 0.3 0.5 0.5 0.7 0.7
Other current assets 105 181 144 157 166 Solvency ratio (%)
Total current assets 1,982 1,535 1,982 2,956 3,426 Debt to Equity ratio 0.4 0.3 0.3 0.2 0.2
Turnover ratios
Creditors 1,177 1,280 926 1,264 1,407
Total asset turnover ratio (x) 1.7 2.1 1.5 2.1 2.0
Other current liabilities & provisions 864 822 1,068 908 1,044 Fixed asset turnover ratio (x) 2.8 2.8 2.1 2.9 3.0
Total current liabilities
Net current assets
Total assets
2,041
-59
8,200
2,101
-567
15,316
1,994
-11
14,835
2,172
784
15,235
2,451
975
16,316
Inventory days
Debtors days Institutional Equities
26.6
2.1
27.8
1.7
28.0
1.6
29.0
1.7
35.0
2.0
Creditor days 80.7 83.3 84.0 85.0 95.0
DISCLAIMER
This report is published by Nirmal Bang’s Institutional Equities Research desk. Nirmal Bang has other business units with independent research teams separated by
Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorised
recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information
for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities.
We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical
information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may
be subject to change from time to time without notice.
Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of
this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons
including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any
person/s from any inadvertent error in the information contained, views and opinions expressed in this publication.
Nirmal Bang Equities Private Limited (hereinafter referred to as “NBEPL”) is a registered Member of National Stock Exchange of India Limited, Bombay Stock
Exchange Limited. NBEPL has registered with SEBI as a Research Entity in terms of SEBI (Research Analyst) Regulations, 2014. (Registration No: INH000001436
-19.08.2015 to 18.08.2020).
NBEPL or its associates including its relatives/analyst may hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst.
NBEPL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBEPL /analyst has not
served as an officer, director or employee of company covered by Analyst and has not been engaged in market-making activity of the company covered by Analyst.
The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market
conditions/risks involved before making any investment decision.
THANK YOU

Diwali Picks Large Cap Mid Cap & Small Cap 9 November 2020

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Institutional Equities

Mumbai November 2020

Our view on the Indian IT services sector

y One the strongest players from the HDFC stable:

Raghav Garg, CFA

Cash/Equivalent 8,13,476 8,66,187 14,11,192 13,47,639 16,88,562 Per share

Source: Company, Nirmal Bang Institutional Equities Research 6

EBITDA/mt is expected to be above Rs. 1000

Source: Company, Nirmal Bang Institutional Equities Research

Source: Company, Nirmal Bang Institutional Equities Research 12

MID & SMALL CAP

Mumbai November 2020

BCORP has grown volumes at 9% CAGR over the last 10 years

y Strong balance sheet and asset quality:

Raghav Garg, CFA

y Indian Multiplex Industry: An Oligopoly with high entry barriers

Summary DCF valuation for blended TP

Our view on the Indian IT services sector

1QFY21 Orderbook does not include new orders won

Balance Sheet Key Ratios

Source: Company, Nirmal Bang Institutional Equities Research

Depreciation 218 281 308 317 342 Inc./(dec.) in long-term borrowing - - - - -

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Diwali Picks Large Cap Mid Cap &amp; Small Cap 9 November 2020

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Diwali Picks Large Cap Mid Cap &amp; Small Cap 9 November 2020

Uploaded by

Copyright:

Available Formats

Institutional Equities

Mumbai November 2020

Our view on the Indian IT services sector

y One the strongest players from the HDFC stable:

Raghav Garg, CFA

Cash/Equivalent 8,13,476 8,66,187 14,11,192 13,47,639 16,88,562 Per share

Source: Company, Nirmal Bang Institutional Equities Research 6

EBITDA/mt is expected to be above Rs. 1000

Source: Company, Nirmal Bang Institutional Equities Research

Source: Company, Nirmal Bang Institutional Equities Research 12

MID & SMALL CAP

Mumbai November 2020

BCORP has grown volumes at 9% CAGR over the last 10 years

y Strong balance sheet and asset quality:

Raghav Garg, CFA

y Indian Multiplex Industry: An Oligopoly with high entry barriers

Summary DCF valuation for blended TP

Our view on the Indian IT services sector

1QFY21 Orderbook does not include new orders won

Balance Sheet Key Ratios

Source: Company, Nirmal Bang Institutional Equities Research

Depreciation 218 281 308 317 342 Inc./(dec.) in long-term borrowing - - - - -

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Diwali Picks Large Cap Mid Cap & Small Cap 9 November 2020

Diwali Picks Large Cap Mid Cap & Small Cap 9 November 2020