Professional Documents
Culture Documents
Manoj Bahety
+91 22 6623 3362
manoj.bahety@edelweissfin.com
Nilesh Aiya
+91 22 4040 7575
nilesh.aiya@edelweissfin.com
Ankit Dangayach
+91 22 6620 3077
ankit.dangayach@edelweissfin.com
Introduction
Introduction
Annual report analysis (ARA) provides vital information on companies overall
performance and helps develop an outlook on them based on historical events. It
highlights true economic profits as against the companies reported profits as well as the
health of balance sheets.
To analyse the annual reports, we covered the following aspects:
Non-operational risks
Capital structure/allocation
Key Highlights
Automobile
Ashok Leyland (AL)
Net worth rose by INR5.2bn in FY15, primarily led by QIP proceeds. 87% of net
worth represented by goodwill, revaluation reserve, forex losses capitalised and
investments in loss-making subsidiaries/fellow subsidiaries (Hinduja Foundries/
Energy/ John Deere). Analysis of Hinduja Foundaries (AL exposure INR3.4bn)
financials shows negative net worth to the tune of INR4.2bn and debt of INR5.5bn.
Royal Enfield (RE) posted record high volumes and margins leading to consolidated
EBITDA margin surging by 580bps YoY to 24.2%. VECVs performance remained
subdued, though consistent market share gains continued. Cash flow generation
(adjusted for acceptances) stood robust and adjusted working capital cycle
improved YoY to (7) days in CY14.
R&D expenditure capitalised under product designs and prototypes (including under
development) stood at INR1.2bn. However, R&D capitalisation ratio has been
declining over the years - from 73% in CY11 to 59% in CY13 (CY14 - not available).
Related party transactions have increased since FY13 with purchases from related
parties jumping to INR22.6bn, 11.4% of raw material (RM) cost (FY14: INR19.2bn,
FY13: INR9.1bn).
HML impaired INR1.5bn investment in Erik Buell Racing (EBR49% associate) which
filed winding up petition in FY15. HML infused INR1.7bn in financing arm, Hero
FinCorp (48% stake FY14: 40%), and total investment stood at INR2.7bn in FY15.
Contents
Mahindra & Mahindra (M&M)
Consolidated RoCE (ex M&M Financial Services) stood lower at ~12% (FY14: ~18%)
versus standalone adjusted RoCE of 28% (FY14: 38%).
MSS reported robust improvement in profitability, operating cash flows and return
ratios primarily led by subsidiaries.
Trade working capital fell to 2.8% of sales in FY15 versus 6.1% in FY14, led by
increase in trade payables and customer advances/unearned income. During FY12
15, trade payables and customer advances catapulted ~INR25bn, offsetting
increase in inventory and receivables, which jumped ~INR16bn, leading to release of
working capital of INR9bn, despite rise in sales.
While SMRP BV (hold co of SMR and SMP) enjoys negative cash conversion cycle of
11 days (FY14: positive 5 days), that of competitors ranges between 17- 28 days.
Standalone business continued to be a major profit spinner (~60% of consolidated
PAT), despite contributing mere 15% to overall revenue.
TAMOs net worth accretion was significantly impacted in FY15 led by: i) forex losses
on debt worth INR48bn charged directly to reserves (FCMITDA); ii) INR117bn
hedging losses; and iii) INR42bn translation losses. Our calculation suggests
outstanding derivative hedge book of GBP14.16bn INR1.4trillion.
Our calculation suggests adjusted net debt was higher by INR241bn adjusted for
pension deficit and implied debt on discounting charges.
Payables remain a major source of cash flow as JLR consistently reported negative
working capital cycle owing to significantly higher payable days vis--vis peers.
TAMO had cash balance of INR462bn and debt of INR736bn. Average borrowing
cost of 8.5% and average yield on cash of 2.1%, led to negative carry. Restricted
cash in China in FY13 stood at GBP524mn (FY14 and 15: Nil).
Pension actuarial losses charged to reserves stood at INR27.9bn in FY15 and TAMO
continues to capitalise 80-85% of product development expenditure versus global
peers average of 20-35%.
Robust volumes led to higher revenues and profitability; however EBITDA margins
remained flat at 5.8%. EBITDA/unit has been consistently lower for TVS in the past 5
years versus peers owing to higher operating and employee cost per unit.
Debt rose by INR3.9bn to INR11.2bn in FY15 (D/E ratio up from 0.6x to 0.8x), and
adjusted for off-balance sheet liabilities (bills discounted, LCs, credit agreements INR4.5bn) debt stood at INR15.7bn (adjusted D/E ratio up from 1.1x in FY14 to
1.3x).
Loans and advances rose from INR4.3bn to INR7.7bn, 58% of net worth led by VAT
receivables and excise account. Related party transactions included purchases
worth INR4.6bn (6.2% of raw material (RM) cost) from parent, Sundaram Clayton.
Standalone revenue surged 34% and EBITDA margin inched up to 29.2% (FY14:
25.4%). European subsidiaries profitability remained subdued at INR28mn (FY14:
INR735mn).
Consolidated free cash flows remained negative owing to higher capex of INR7.1bn
(FY14: INR5.8bn) led by standalone and Alstom JV.
Adjusted for bills discounted and acceptances: (1) cash conversion cycle stood at 92
days (FY14: 96 days) versus reported cycle of 42 days (FY14: 54 days); (2) adjusted
net debt stood at INR24.8bn versus reported debt of INR14.1bn.
Subsidiary losses continue to be funded from standalone entity. Aggregate cash and
non-cash exposure in overseas subsidiaries stood at 77% of net worth.
Standalone cash conversion cycle jumped to 56 days (FY14: 36 days), led by higher
receivables, unbilled revenues and lower customer advances and payable days.
Overdue receivables (>6 months) jumped 56% YoY to INR3.6bn.
Contents
Havells India (Havells)
IRBs construction margins stood at 30% (FY12-15 average : 33%) vis--vis peers
10-14% (FY12-15 average: 10-14%). While IRB reported superior construction
margin, return ratios of most SPVs remained subdued (RoCE < 10%).
Till FY14, annual fixed premium on operational projects were reduced from toll
collections in income statement. However, in FY15, entire outstanding premium
liability (~INR218bn) has been capitalised in fixed asset. Had there been no change
in accounting policy, toll revenues (including EBITDA) and PBT would have been
lower by INR3bn and INR1.7bn, respectively.
Standalone core working capital surged to 20% of sales (FY14: 18%, FY13: 13.5%) led
by steep increase in unbilled revenue, though partially offset by higher trade
payables and customer advances. ~63% of cash profits generated during FY11-15
was invested in working capital.
L&T (standalone) contributed ~76% to consolidated EBIT, despite only ~31% share in
capital employed. Standalone RoCE declined to 25.3% (FY14: 28%).
L&T Infotech & Technology Services accounts for ~4% of total capital employed, but
contributed ~16% to consolidated EBIT. Other operational subsidiaries in power,
roads, hydrocarbon, ship building, forging and boiler & turbines, etc., accounted for
~31% of capital employed, but contributed nil to consolidated EBIT.
L&T's (consolidated) profit for FY15 includes unrealised profit (PBT) of INR3.2bn
(12% margin) (FY11-15: INR17bn, 13% margin) from road and Hyderabad Metro
construction, undertaken for its subsidiaries.
Information Technology
Tech Mahindra (TML)
ESOP cost rose from INR1.3bn to INR2.3bn YoY (largely to key management).
Remuneration to KMPs stood at INR3.0bn (largely stock options).
Merger accounting leads to lower net worth and higher RoE/RoCE. Adjusted RoE/
RoCE stood at 15%/22% versus reported 28%/36%. Goodwill rose to INR17.3bn,
16% of net worth (FY14: INR5.6bn, 7%), led by acquisitions (largely LCC & Softgen).
FCF stood negative, led by higher capex due to higher subscriber additions along
with increase in churn ratio to 12.3% (FY14: 4.7%; FY11-15 average: 11.6%).
Churned out customers represents 42% of gross subscribers added over past 5
years, the cost of which is akin to maintenance capex.
Trailing EV/EBITDA multiple adjusted for customer churn stood at 25x versus 13x
based on reported EBITDA (28x including regulatory dues and creditors for capex)
(Based on March 31, 2015 price of INR82/share).
Dish changed its accounting policy in FY14 and started upfront recognition of activation
fee, the impact of which is higher revenue recognition during FY15 by INR2bn, 7% of
revenue (our estimate). ARPU has consistently risen over the past 5 years, of which in
the past 2 years it could be due to change in revenue recognition policy.
PBT stood at INR74mn, and adjusted for capitalised forex losses of INR340mn stood
at negative INR(266)mn. Cumulative forex losses over last 3 years stood at INR3.3bn
(28% of capital employed).
EBITDA margin is optically higher by 120bps due to change in accounting policy for
subscription management fees from gross to net
As highlighted in our past annual report analysis, higher inventory spend in previous
years coupled with amortisation policy of 60 months had led to mismatch in profits
and cash flows.
Investments in overseas funds, infra NCDs, ICDs and other advances increased by
INR2.7bn to INR15.5bn in FY15, 44% of adjusted net worth. Average yield on cash
stood at 8.0-9.1% and other income constituted 14-16% of PBT in past 3 years.
Operating costs include media content purchased from Zee Media Corp. worth
INR1.2bn (FY14: INR1.2bn) and others at INR812mn (Dish TV, Siti Cable, etc).
Use of lower cost forex loans, superior treasury yields coupled with accounting
policy of exchange rate capitalisation led to superior reported profits. Since FY06,
cumulative forex losses capitalised and revalued assets, net of depreciation stood at
INR479bn, 22% of net worth.
Edelweiss Securities Limited
Contents
Capital allocation analysis shows that only 36% of capital employed in refining and
petrochemical segment delivers superior returns, whereas 64% of capital employed
remains a drag on overall return ratios. RILs 44% of capital employed is under
CWIP. With most of the projects nearing commissioning, RIL expects decline in
capex and improvement in return ratios.
Pharmaceuticals/ Healthcare
Apollo Hospitals Enterprise (AHEL)
Cash conversion cycle, ex-acquisitions deteriorated from 178 days to 194 days in
FY15 (versus 166 days reported). OCF ex-acquisition stood negative at INR2.4bn.
Cipla
Subsidiaries contribute 11% to consolidated revenues, which grew 69% YoY. South
African subsidiaries turned profitable with INR818mn PAT (FY14: INR41mn loss).
Goodwill (related to Medpro and other acquisitions) stood at INR25.6bn, 24% of net
worth. Exposure to subsidiaries/ JVs/ associates at the standalone level (including
investments, loans and net receivables) stood at INR48.7bn, 44% of standalone net
worth (FY14: INR39bn, 39%).
High cost structure continue to weigh on EBITDA margin, which declined 200bps
YoY primarily led by employee costs. Return ratios have declined over past 2 years
led by acquisitions and capex.
Net worth accretion to PAT ratio has dipped significantly during FY15 (only 4% of
profits translated to net worth; 55% cumulatively over past 5 years)
Cash tax paid has remained consistently higher than P&L tax expense over the past
5 years. Taxes charged to P&L is 44% of cash taxes paid.
SUNPs net worth and goodwill stood lower by INR301.7bn due to Ranbaxy merger
accounting under Pooling of Interest method (permitted under Indian GAAP but
prohibited internationally). Consequently, reported RoE/RoCE stood higher at
21.5%/25.9% versus adjusted 12.8%/16.8%.
Demerger of unit from Sun Pharma Global FZE (SPG) to SUNP standalone in FY14 led
to transfer of all assets and liabilities (including USD550mn Protonix drug litigation
claim) from tax free entity (SPG, UAE) to tax paying entity.
P&L tax rate stood at 14.3% versus cash tax rate of 27.2% led by DTA credit (total
DTA at INR22.3bn, 8.7% of net worth). Contingent liabilities include income tax
demands rising to INR26.7bn (FY14: INR12.1bn; FY11: INR2.7bn).
Our calculation suggests that Ranbaxy consolidated revenue declined by 16% YoY
in FY15 and SUNP consolidated revenue, ex-Ranbaxy grew 1.5% YoY. Recurring OCF
post interest declined 18% YoY to INR53.1bn.
Loans to employees and others rose to INR11.7bn (FY14: INR5.8bn) and total
loans/advances rose to INR48.7bn, 19% of net worth (FY14: INR23.0bn, 12.4%).
FY15 witnessed robust growth in revenue and profitability owing to healthy surge
(28%) in cargo volumes at Mundra and other ports.
Contents
Aggregate cash and non-cash exposure to related parties (ex subsidiaries and JV)
stood at INR34.3bn (FY14: INR35.2bn) and INR30.2bn (FY14: INR48bn), respectively,
representing ~60% of net worth.
APSEZ resorted to bill discounting of INR4.5bn, as at March 2015, adjusted for which
receivable days increased to 107 (FY14: 84).
Retail
Titan Company
Debt declined by INR7.1bn however, gold lease payables (akin to debt) rose by
INR10.8bn as the company has resumed its gold lease model. Total liabilities (debt +
payables) surged 22% YoY. Internationally, jewellery companies classify gold lease
as debt.
Off-balance sheet commitments include non-fund based facility, which rose from
INR1.5bn in FY14 to INR11.3bn in FY15 pertaining to gold lease.
Core RoCE (including payables and deposits schemes advance) has been declining
since FY11 (26% to 19%), but it improved in FY15 to 23%. RoE has been consistently
declining since FY11 from 49% to 29%.
Telecom
Bharti Airtel (Bharti)
Bharti infused ~INR69bn in its African operations, taking the cumulative cash
exposure to INR239bn. Guarantees by the parent on behalf of group companies
rose by ~INR99bn to INR840bn (~107% of net worth). As highlighted in our previous
years (FY11-14) annual report analysis, interest cost on forex loans at Bharti Airtel
International (Netherlands) B.V. (BAIN) continues to be cushioned owing to choice
of USD as a functional currency.
D/E ratio, adjusted for deferred spectrum liability and equipment supply payables,
stood at 1.9x versus 1.3x reported.
Cash paid (net) for capex (tangible assets) in FY15 was INR144bn (versus INR194bn
capex in FY15). Consequently, payables for equipment supplies increased to
INR104bn (FY14: INR65bn), which may come for payment in FY16 and may increase
net debt.
Automobiles
Retail
Information Technologies
Telecommunication
10
Whats on track?
M&HCV volumes surged a robust 28% YoY and export volumes too jumped 31.8% YoY
including defence vehicles. Consequently, EBITDA margin catapulted 620bps YoY. Gross
debt (ex-vehicle finance business) declined INR13.3bn to INR42.4bn in FY15.
Market Data
52-week range (INR)
: 77 / 29
: 2,845.9
: 199 / 3,113
: 38.8
: 12.1
FIIs
: 20.4
Others
: 28.7
: 4.9
12
While overall commercial vehicle volumes declined 2.8% over the previous year,
M&HCV segments volumes increased by 16%. ALs market share improved from 26.1%
in FY14 to 28.6% in FY15 in the M&HCV segment facilitated by appropriate product mix,
a sustained focus on meeting customer requirements and network expansion initiatives.
M&HCV export volumes grew by 31.7% to 11,218 units from 8,511 units in FY14,
enabled by growth in target export markets.
In the LCV segment, industry volumes contracted 13.4%. However, AL was able to
sustain market share in the small CV (2.0-3.5T) segment supported by sustained
product improvements and variants of DOST, the second largest player in the segment.
The new PARTNER range of products has also achieved significant market share in the
6.0-7.5T segment, its first full year post launch.
The CAPTAIN series of next generation Heavy Commercial Vehicles (HCV) has been
launched in select markets. The product has established new benchmarks in reliability,
performance and ride comfort. With economic activity picking up in iron ore and coal
mining, the CAPTAIN range is strategically positioned to exploit growth in these sectors.
The companys defence business gained momentum in FY15 with rise in the number of
domestic kits dispatched as well as substantial export volumes. AL has also won major
tenders from defence establishments with new products this year.
Ashok Leyland
Profitability analysis
Table 1: Profitability analysis
(INR mn)
Standalone
Particulars
Sales
Raw Materials Consumed
Operating and Admin expenses
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
Add: Other income
PBT before exceptional items
Exceptional items
PBT
Tax Expense/(gain)
PAT
Attributable to Minority interest
Profit from associates
PAT
FY14
99,434
76,026
11,746
9,997
1,666
3,770
(2,105)
4,529
665
(5,969)
5,057
(912)
(1,206)
294
%
FY15
100.0 135,622
76.5
99,652
11.8
13,863
10.1
11,840
1.7
10,266
3.8
4,163
(2.1)
6,103
4.6
3,935
0.7
1,245
(6.0)
3,413
5.1
1,009
(0.9)
4,422
(1.2)
1,074
0.3
3,348
294
0.3
3,348
Subsidiary (Derived)
%
100.0
73.5
10.2
8.7
7.6
3.1
4.5
2.9
0.9
2.5
0.7
3.3
0.8
2.5
FY14
15,433
5,359
4,060
3,459
2,555
1,529
1,025
3,526
259
(2,241)
151
(2,090)
521
(2,611)
%
FY15
100.0 17,787.0
34.7
4,774.1
26.3
4,586.9
22.4
3,521.1
16.6
4,905.0
9.9
1,635.8
6.6
3,269.3
22.8
4,787.9
1.7
643.6
(14.5)
(875.0)
1.0 (3,962.5)
(13.5) (4,837.5)
3.4
650.3
(16.9) (5,487.8)
2.5
(2,611)
(16.9)
(5,487.8)
Consolidated
%
FY14
100.0 114,867
26.8
81,385
25.8
15,806
19.8
13,456
27.6
4,220
9.2
5,300
18.4
(1,079)
26.9
8,055
3.6
924
(4.9)
(8,210)
(22.3)
5,208
(27.2)
(3,002)
3.7
(685)
(30.9)
(2,317)
(577)
99
(30.9)
(1,641)
%
FY15
100.0 153,409
70.9 104,426
13.8
18,450
11.7
15,361
3.7
15,171
4.6
5,799
(0.9)
9,372
7.0
8,723
0.8
1,888
(7.1)
2,538
4.5
(2,953)
(2.6)
(416)
(0.6)
1,724
(2.0)
(2,140)
(0.5)
(3,386)
0.1
92
(1.4)
1,339
%
100.0
68.1
12.0
10.0
9.9
3.8
6.1
5.7
1.2
1.7
(1.9)
(0.3)
1.1
(1.4)
(2.2)
0.1
0.9
ALs revenue jumped 34% YoY and EBITDA margin catapulted 620bps YoY in FY15 leading to
INR11.0bn EBITDA surge. However, the company continued to post loss at the PAT level
(before minority), although it reduced YoY led by write offs/ impairments. Significant
amount of loss after tax was attributable to minority interest (INR3.4bn) leading to reported
PAT of INR1.4bn in FY15.
Exceptional loss in FY15 stood at INR3.0bn led by a) INR6.1bn provision (includes fixed
assets, non-moving inventory and tax liability) for certain products of subsidiaries (largely
pertains to AL Nissan Vehicles), offset by b) INR3.1bn gain on sale of property, including
revalued portion of gain worth INR1.4bn recorded in earlier years. Receivables outstanding
towards sale of property stood at INR2.0bn as at FY15 end.
Forex loss capitalised in fixed assets stood at INR707.8mn, 53% of PAT. Share issue expenses
were charged through securities premium under reserves of INR148mn, 11% of PAT.
(INR mn)
FY12
FY13
FY14
FY15
1,543
1,067
1,032
1,641
15,404
14,254
12,423
19,090
10.0
7.5
8.3
8.6
Source: Company annual report, Edelweiss research
13
(INR mn)
Subsidiary company
Hinduja Leyland Finance
Ashok Leyland Nissan
Vehicle #
Hinduja Tech
Optare UK
Optare Group
Optare plc
Avia Ashok Leyland
Motors s.r.o
Albonair GmbH
Global TVS Bus Body
Builders
Others
Total
58
51
8,042
4,411
5,962
812
10,522 (1,745)
7,785
3,729
23.8
11.4
9,171
(3,131)
62
0
0
75
-
(136)
(1,193)
(1,473)
2,513
1,387
1,187
354
5,373
297
100
67
294
214
700
908
54-100
2,513
16,573
8,143 1,112
10,304 (7,912)
7,785
1,959
19.0
4.8
(85)
(30)
(359)
(18)
(842)
1,154
2,008
645
3.5
6.1
2.0
641
(2,166)
-
1,389
5,835
-
(78)
(300)
-
1,213
1,971
-
3.0
4.8
-
(694)
(36)
3,828
37
11.7
0.1
67
295
1,832
1,423
405
81
3,873
145
9.5
0.4
4,210
(129)
29,511 (3,126)
1,366
20,552
4.2
62.8
349
5,226
3,914
(10)
32,841 (6,702)
567
17,512
1.4
42.7
(INR mn)
Proportion Investments
of interest- as at FY14
end
FY15 (%)
49.0
740.5
50.0
260.5
Amt
FY14 (Loss)
Infused in
in JV
FY14
5.1
(49.8)
5.5
(141.6)
Co's share
of (loss)
(24.4)
(70.8)
Amt
Investments
FY15 Co's share
as at FY15 Infused in
(Loss) in JV
of (loss)
FY15
end
740.5
(62.9)
(30.8)
260.5
(195.7)
(97.8)
50.0
1,535.7
432.0
(391.3)
(195.6)
1,860.7
325.0
(591.1)
(295.5)
50.0
-
280.7
15.0
150.0
(99.0)
-
(49.5)
-
355.7
15.0
75.0
(109.9)
-
(54.9)
-
2,832.4
592.5
(681.7)
(340.3)
3,232.4
400.0
(959.5)
(479.1)
14
Ashok Leyland
Table 5: Fresh investments in subsidiaries/JVs/associates
(INR mn)
FY15
Stake (%)
Infusion during
the year
Total Exposure
62
51
67
92
394
370
16
44
1,213
1,959
145
176
(78)
(7,912)
81
13
100
257
3,873
405
50
50
325
75
1,480
1,861
356
9,582
(296)
(55)
15
Investment /
Loans
(INR mn)
FY14
Total Exposure to SA
Networth (%)
Investment /
Loans
FY15
Total Exposure to SA
Networth (%)
Investments in subsidiaries
Hinduja Tech (formerly Defiance Technologies)
1,154
3.5
1,213
3.0
3,729
11.4
1,959
4.8
129
0.4
145
0.4
780
2.4
2,008
6.1
1,971
4.8
494
1.5
355
0.9
8,294
25.3
5,642
13.8
645
2.0
3,616
11.0
3,873
9.5
211
0.6
211
0.5
4,473
13.7
4,085
10.0
541
1.7
541
1.3
Investment in Associates
Ashok Leyland (UAE) LLC
Others
Total (C)
68
0.2
50
0.1
609
1.9
591
1.4
1,536
4.7
1,861
4.5
Investments in JVs
Ashok Leyland John Deere Construction Equipment
Nissan Ashok Leyland Powertrain Ltd
740
2.3
740
1.8
Others
606
1.9
637
1.6
Total (D)
2,883
8.8
3,238
7.9
Other investments
Hinduja Foundries (earlier fellow subsidiary) - Preference Equity
Investment
Hinduja Foundries - equity investment
3,217
9.8
3,217
7.9
242
0.7
242
0.6
1,871
5.7
1,871
4.6
29
0.1
76
0.2
5,359
16.4
5,406
13.2
21,618
66.0
18,962
46.3
Others
Total (E)
Grand Total (A+B+C+D+E)
AL continued to classify Albonair as subsidiary held for sale. In FY15, AL sold its subsidiary
Avia Ashok Leyland (classified as held for sale) to its associate company Ashok Leyland (UAE)
LLC for enterprise value of INR686.5mn (USD11mn), of which INR18.8mn was towards
equity and balance towards loan taken over by AL (UAE) LLC.
The company divested its 48.5% in Ashok Leyland Wind Energy; ergo, the latter has ceased
to be a subsidiary. AL continued to hold balance 11.5% stake in the company.
16
Ashok Leyland
Table 7:Hinduja Foundries performance analysis
Particulars
Mar 11
Sep 12
(12 mth) (18 mth)
Revenue from operations
5,512
10,317
Total expenditure
4,900
11,503
Operating profit
612
(1,186)
Other income
88
51
Interest exp
373
1,158
Depreciation
242
517
Exceptional loss/(gain)
0
204
PBT
84
(3,014)
Provision for tax
10
(100)
PAT
75
(2,913)
Particulars
Net worth-Reported
Less: Redeemable
cumulative Preference
shares
Less: Revaluation reserve
Adjusted Net worth
(INR mn)
Mar 13
Sep 14 Q1&Q2'15
(6 mth) (18 mth)
(6 mth)
3,067
9,991
2,662
3,466
10,788
2,841
(399)
(797)
(180)
12
69
37
401
1,061
407
203
722
287
0
113
162
(991)
(2,624)
(999)
47
0
0
(1,038)
(2,624)
(999)
Mar 11
Sep 12
Mar 13
(12 mth)
4,085
(18 mth)
1,852
(6 mth)
3,073
Total Debt
217
1,888
(1,020)
5,706
Sep 14 Q1&Q2'15
(18 mth)
1,887
(6 mth)
864
967
1,886
(3,251)
3,217
1,886
(2,029)
3,217
1,884
(3,214)
3,217
1,884
(4,237)
6,734
5,758
5,983
5,481
Further, above analysis does not include cumulative dividend payable (largely @ 9%p.a on
INR3.0bn worth preference shares) which may further reduce the net worth.
(INR mn)
Additions/ Amortisation/
FY15 (C)
FY13 FY14 (C)
adjustments
adjustments
368
1,178
278
1,082
142
(173)
(133)
462
1,627
1,263
4,898
15.5
4,898
15.5
1,625
2,301
264
5,550
19.7
7,817
13,367
47.5
10
71
239
462
(269)
(365)
(940)
462
246
949
1,366
2,007
503
5,071
14.5
(961) 6,857
(1,901) 11,927
34.2
17
(INR mn)
FY15
39,892
1,339
7,998
1,521
810
148
82
1,541
14
9,337
4,116
45,113
Net worth rose by INR7.9bn led by equity proceeds, however declined by INR2.8bn due to
dividend, adjustments to revaluation reserve and forex losses booked in hedging reserve/
FCMITDA.
Outstanding revaluation reserves stood at INR10.2bn, 22.6% of reported net worth (FY14:
INR11.7bn, 29.4%). Reserves were further adjusted by INR810mn in FY15 led by change in
the groups interest due to dilution in Hinduja Leyland Finance.
18
Ashok Leyland
Table 10: Adjusted net worth analysis
(INR bn)
Particulars
Reported Consolidated Networth (NW) --------------------A
Adjustments to NW:
Revaluation reserve
Goodwill (considering most subsidiaries are loss making)
Forex loss capitalised since FY 08 (net of average depreciation) **
Adustments to NW ----------B
Adustments as % of NW
Adjusted NW (A-B)---------------C
Intangibles and investments in loss making entities
Intangibles (software, technical knowhow)
Subsidiaries held for sale-not consolidated (Albonair & Avia)
Investments in loss making sub (net off GW considered above)- excludes
Hinduja L Finance
Financial guarantees for associates & Sub
Others (Hinduja Foundaries/Hinduja Energy, John Deere)
Intangibles and investments in loss making entities-----D
Intangible & investements in loss making entities as % of Adj. NW
Not adjusted in above
Carrying value of MAT (assuming recoverable in future)
MTM Gains on Indusind Bank shares
QIP proceeds
Potential upside on 57.5% stake in Hinduja Leyland Finance @ carrying cost of
INR 7.8bn (Book value @ INR9.2bn for 100%)
Net addition to NW on account of above
FY14
Amount
39.9
FY15
Amount
45.1
D/E
1.4
11.7
7.8
5.6
D/E
0.9
10.2
6.9
5.7
25.1
63%
14.8
22.8
51%
22.3
3.8
5.5
4.5
5.1
4.1
0.5
1.8
8.2
1.6
8.6
20.5
139%
19.3
87%
3.3
2.5
6.7
4.3
4.5
-
12.5
1.9
8.8
(INR mn)
Standalone
Particulars
Profit before tax
Non-operating expense
Non-cash adjustments
Direct taxes paid
Cash profit after tax
(Increase)/Decrease in trade and other
receivables
(Increase)/Decrease in inventories
(Increase)/Decrease in loans and advance
(Increase)/Decrease in other assets
Increase/(Decrease) in liabilities and
provisions
Increase in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post
interest
Less: Capex (other than exceptional items)
Free cash flow
FY14
FY15
(912)
(1,236)
3,842
(297)
4,422
373
6,425
(502)
1,396
1,168
10,718
440
Subsidiary (derived)
Consolidated
FY14
FY15
FY14
FY15
(2,090)
(4,838)
(3,002)
(416)
177
4,598
(1,059)
4,971
1,700
6,270
5,542
12,695
(669)
(614)
(966)
(1,115)
(882)
5,417
514
16,135
1,455
(152)
2,623
288
7,073
(845)
147
(2,098)
(1,929)
(272)
(501)
(3,188)
(885)
983
(19,452)
1,453
6,572
(4,033)
(737)
(1,116)
(21,381)
1,182
(3,376)
10,806
(2,603)
(958)
(5,978)
9,848
4,168
5,564
(4,358)
6,948
17,666
(4,056)
(5,722)
(6,604)
(631)
(18,126)
(12,709)
(3,975)
(1,554)
(1,040)
(4,988)
(11,179)
4,956
(8,031)
1,206
13,609
(7,235)
(16,684)
(6,028)
(3,075)
(2,071)
(864)
(2,059)
11,551
(1,831)
(9,066)
(274)
(16,958)
(3,902)
(9,930)
(2,333)
(5,408)
19
FY13
75
42
5
(98)
23
FY14 (C)
68
44
8
(114)
(5)
1
FY15 (C)
54
32
5
(106)
(7)
(22)
Trade payables of INR30.8bn at the consolidated level include acceptances, which in our
view are in the nature of debt. Acceptances stood at INR7.9bn in FY15 (FY14: INR6.6bn) for
which bill discounting charges of INR525mn were charged to the P&L in FY15 versus
INR303.6mn in FY14.
Standalone
FY14
FY15
871
2,414
12,119
10,163
12,990
12,577
6.7
19.2
(INR mn)
Consolidated
FY14
FY15
919
2,531
12,892
11,007
13,811
13,538
6.7
18.7
FY14
1,420
1,135
4,741
3,367
437
1,770
4,011
(145)
16,737
59
(INR mn)
FY15
868
2,052
4,578
4,289
107
1,417
6,925
(598)
19,639
56
20
Ashok Leyland
Provisions include write off pertaining to balances with customs and excise authorities
worth INR594mn as on FY15 versus INR143mn in FY14.
MAT credit rose from INR3.4bn (12% of adjusted net worth) in FY14 to INR4.3bn (12%)
in FY15.
Particulars
Loan funds
Interest expense
Interest capitalized
Total interest
Exchange losses capitalized
Interest + Exch. Loss capitalized
Borrowing cost (%)*
Borrowing cost incl exch loss (%)*
(INR mn)
Consolidated (ex-financing business)
FY14 (C)
FY15 (C)
55,663
42,429
4,581
4,046
138
4
4,719
4,051
2,257
708
6,976
4,758
8.5
9.5
12.5
11.2
FY14 (C)
8,227
1,168
917
16
246
10,573
28,153
37.6
(INR mn)
FY15 (C)
435
2,215
978
17
393
4,038
34,895
11.6
21
(INR mn)
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
RoE (%)
RoCE (%)
Depreciation
Financial costs
Net profit
Equity shareholders' funds
Loan funds
Net Debt
Net fixed assets (excl CWIP)
CWIP
Goodwill on consolidation
Current assets loans and advances
Current liabilities and provisions
Net current assets
Cash and cash equivalent
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital investments
FY11
111,771
112,216
12,137
10.9
16.6
16.0
2,674
1,889
6,313
39,630
25,683
23,887
46,338
3,580
38,042
35,397
2,645
1,795
5,914
(9,177)
(136)
(3,400)
(3,526)
(4,914)
22
FY12
129,043
129,447
12,561
9.7
13.8
13.6
3,528
2,553
5,660
42,123
30,979
30,653
49,135
5,482
42,713
40,386
2,327
326
11,473
(10,575)
(2,411)
(1,513)
(6,978)
218
FY13
124,812
125,436
8,765
7.0
3.9
6.9
3,808
3,769
4,337
44,551
43,554
43,415
52,819
6,889
42,826
36,785
6,041
139
7,283
(11,643)
4,170
(190)
(6,492)
(485)
FY14 (S)
FY14 (C)
FY15 (S)
FY15 (C)
99,434
114,867
135,622
153,409
100,596
115,792
136,867
155,297
1,169
4,220
10,266
15,171
1.2
3.7
7.6
9.9
(6.8)
(12.2)
5.61
7.8
(1.6)
(0.1)
8.3
8.6
3,770
5,300
4,163
5,799
4,529
8,055
3,935
8,723
294
(1,641)
3,348
1,339
44,479
39,892
51,187
45,113
46,903
85,000
33,497
90,699
46,786
83,865
25,984
81,648
52,556
58,434
56,599
67,909
1,815
2,965
1,201
2,161
7,817
6,857
38,554
58,758
39,417
66,626
31,928
38,452
42,521
50,222
6,626
20,306
(3,104)
16,404
117
1,134
7,513
9,051
5,564
(1,040)
17,666
4,956
(1,101)
(3,773)
1,117
(1,257)
(4,486)
4,613
(11,792)
3,807
(23)
(200)
6,991
7,506
(2,071)
(3,902)
(2,059)
(2,333)
4,168
(1,554)
6,948
(11,179)
Source: Company annual report, Edelweiss research
Whats on track?
Standalone (RE) business continued to log robust operating performance. RE volumes
surged 70% YoY to record high of more than 3lakh units, led by capacity expansion and
stronger demand. Operating profit and margin surged as well to record high of 24.2% in
CY14. The RE business is likely to continue to surge spurred by further capacity expansion
plans and if the robust demand persists.
Working capital cycle improved YoY from (17) days in CY13 to (25) days in CY14, largely
led by improvement in inventory and receivable days. Acceptances supported working
capital cycle, adjusted for which cash conversion cycle improved to (7) days in CY14
(CY13: 1 day).
Market Data
52-week range (INR)
: 17,200 / 5,460
: 27.1
: 435 / 6,939
Promoters*
: 55.0
: 4.7
FIIs
: 19.5
Others
: 20.8
: Nil
(% of share in issue)
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1 First Call, Reuters and Factset.
Bloomberg EDEL <GO>, Thomson
MAT credit outstanding rose to INR1.9bn in CY14, 8% of net worth (CY13: INR1.4bn).
Effective tax rate jumped from 22% in CY13 to 29% in CY14.
Contingent liabilities increased to INR4.0bn, 16% of net worth (CY13: INR2.1bn, 10%),
largely led by sales tax matters.
Eicher clocked its highest ever revenue and operating profit. The companys EBIT
margin, at 10.2%, was also the highest ever. At 22.5%, REs EBIT margin is better than
any other motorcycle company in the world and possibly the highest compared to any
automotive brand globally as well.
With over 95% market share in this market in India, which is growing at more than 50%
each year, RE has created this category in India. Plan is to reach a capacity of 4,50,000
units in FY15 and over 6,00,000 in FY16 from current manufacturing facilities.
RE added nearly 100 new dealerships, taking the total dealership network close to 400.
It is planning to continue to expand its distribution network over the next few years.
Company has commenced strategic entry into international markets where it has been
selling motorcycles for decades, but with considerably low support from our side.
Markets such as US, UK and Europe are highly influential, and success therein is crucial
for the company to gain currency and credibility as it works towards achieving global
leadership in the mid-sized segment.
VECVs EBIT margin at 3.7% was the best amongst Indian CV companies in 2014 and its
lean business model lends it the distinction of being the only CV company to remain
profitable in every quarter during the longest downturn in recent decades for the
Indian commercial vehicle industry.
50:50 joint venture with Polaris Industries, Eicher Polaris Private (EPPL), is in advanced
stages of project completion, with the launch of the four-wheeled personal vehicle
planned for the second half of this year.
Profitability analysis
Table 1: Standalone versus consolidated profitability
Particulars
Sales
Raw Materials Consumed
Operating and
Administrative expense
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
Other income
EBT
CY13
17,025
Standalone
%
CY14
100.0 30,312
(INR mn)
%
100.0
Subsidiary/JV (Derived)
CY13
%
CY14
%
51,073 100.0 57,071 100.0
CY13
68,098
Consolidated
%
CY14
100.0 87,383
%
100.0
10,598
62.3
18,076
59.6
35,789
70.1
39,583
69.4
46,387
68.1
57,660
66.0
2,180
12.8
3,291
10.9
7,066
13.8
8,688
15.2
9,246
13.6
11,979
13.7
1,109
3,137
304
2,833
3
801
3,632
6.5
18.4
1.8
16.6
0.0
4.7
21.3
1,609
7,336
502
6,834
17
1,163
7,980
5.3
24.2
1.7
22.5
0.1
3.8
26.3
4,224
3,995
996
2,998
76
152
3,074
8.3
7.8
2.0
5.9
0.1
0.3
6.0
24
4,987
8.7
5,333
7.8
6,596
7.5
3,812
6.7
7,132
10.5 11,148
12.8
1,697
3.0
1,300
1.9
2,198
2.5
2,116
3.7
5,831
8.6
8,950
10.2
79
0.1
98
0.1
81
0.1
(89)
(0.2)
953
1.4
1,074
1.2
1,946
3.4
6,706
9.8
9,926
11.4
Source: Company annual report, Edelweiss research
Eicher Motors
Robust volume growth RE segment led to surge in revenue and profitability. RE volumes
catapulted 70% YoY to 302,592 including exports, which jumped 46% YoY to 6,221.
Higher demand and capacity expansion led to significant increase in revenue. Standalone
(RE) EBITDA margin expanded 580bps to an all time high of 24.2% due to significant
operating leverage kicking in.
VECVs performance remained subdued with EBITDA margin declining 110bps YoY. Although
raw material cost as proportion to sales declined YoY, operating and employee expenses
dented EBITDA margin YoY.
15.0
48,000
13.2
36,000
11.4
24,000
9.6
12,000
7.8
(%)
(Volumes)
CY08
CY09
CY10
CY11
CY12
6.0
CY13
(INR mn)
Standalone
Subsidiary (derived)
Consolidated
CY13
CY14
CY13
CY14
CY13
CY14
3,632
7,980
3,074
1,946
6,706
9,926
(790)
(1,096)
(41)
237
(831)
(860)
304
502
996
1,697
1,300
2,198
(780)
(2,255)
(724)
(555)
(1,504)
(2,810)
2,366
5,131
3,305
3,324
5,671
8,455
(59)
14
(607)
(511)
(666)
(497)
(684)
(613)
305
(574)
(380)
(1,187)
(254)
(298)
(98)
(1,010)
(351)
(1,308)
1,157
1,387
667
1,129
1,824
2,516
869
937
(347)
862
522
1,799
1,029
1,428
(80)
(105)
948
1,323
282
1,311
3,676
(3)
301
1,729
6,860
(17)
261
181
3,486
(77)
396
291
3,615
(81)
543
1,491
7,162
(80)
697
2,020
10,475
(98)
3,673
6,843
3,409
3,534
7,082
10,377
(1,388)
2,286
(3,699)
3,144
(5,667)
(2,258)
(5,983)
(2,449)
(7,054)
28
(9,682)
695
CY11
31
19
(65)
(3)
3
(14)
16
2
CY12
34
23
(65)
(5)
5
(8)
17
9
CY13
37
26
(78)
(7)
5
(17)
18
1
CY14
34
24
(79)
(8)
4
(25)
18
(7)
CY12
4,921
5,050
3,243
822
1,366
2,698
187
92
CY13
7,082
6,540
3,939
1,300
953
4,287
153
92
(INR mn)
CY14
10,377
9,680
6,154
2,198
1,074
7,277
133
87
(%)
80.0
40.0
0.0
CY11
CY12
CY13
CY14
OCF to EBIDTA - Adjusted
Eicher Motors
R&D spends
Table 5: R&D expenditure - Consolidated
Particulars
CY11
R&D - capitalised
1,789
R&D - revenue
672
Total R&D expense
2,460
Revenue
56,844
Total R&D as % of revenue
4.3
% of R&D capitalised
73
CY12
1,373
908
2,282
63,899
3.6
60
CY13
1,298
907
2,204
68,098
3.2
59
(INR mn)
CY14
Not
available
Total expenditure capitalised as product designs and prototypes under intangibles (incl
under development) stood at INR1.2bn in CY14.
CY12
40
168
207
10,493
2.0
81
CY13
109
209
318
17,025
1.9
66
(INR mn)
CY14
148
193
340
30,312
1.1
57
27
CY11
CY12
CY13
(INR mn)
CY14
0.0%
26.2
1.5%
42.3
1.2%
75.4
0.9%
207.0
3.1%
253.2
4.2%
245.1
3.7%
269.4
2.7%
Related party transactions include brand fee payments to Eicher Goodearth (EGPL, a
promoter entity) of INR75.4mn (CY13: INR42.3mn) at the standalone level. On consolidated
level, payments stood at INR269.4mn, 2.7% of PBT (CY13: INR245.1mn, 3.7% of PBT).
Capital allocation
Table 9: Capital allocation
Particulars
Sales
EBITDA
EBITDA margin (%)
ROE (%)
ROCE (%)
Net fixed assets (Ex CWIP)
CWIP
Fixed asset turnover ratio (x)
Equity shareholders' funds (A)
Loan funds (B)
Total capital employed (A+B)
Debt Equity Ratio (x)
CY10
43,971
3,569
8.1
16.4
33.9
3,844
703
11.4
12,321
956
13,278
0.1
CY11
56,844
5,894
10.4
22.7
46.6
5,044
3,523
11.3
14,931
432
15,364
0.0
CY12
63,899
5,490
8.6
20.0
36.2
9,918
5,044
6.4
17,549
389
17,938
0.0
CY13
68,098
7,132
10.5
20.7
34.5
16,561
4,636
4.1
20,554
839
21,393
0.0
(INR mn)
CY14
87,383
11,148
12.8
26.9
42.5
23,093
4,188
3.8
25,159
584
25,742
0.0
30
40.0
24
30.0
18
20.0
12
10.0
(%)
50.0
0.0
CY10
CY11
CY12
CY13
CY14
ROE (%)
(INR bn)
ROCE (%)
28
Eicher Motors
Chart 4: RoCE de-composed
90.0
72.0
(RoCE %)
54.0
36.0
18.0
0.0
CY10
CY11
CY12
VECV ROCE
CY13
CY14
Consolidated ROCE
CY10
43,971
45,247
3,569
8.1
33.9
16.4
573
95
1,889
12,321
956
4,547
20,500
9,332
11,168
3,360
(1,921)
(689)
750
(1,315)
374
CY11
56,844
58,269
5,894
10.4
46.6
22.7
640
77
3,088
14,931
432
8,567
2,233
26,819
12,846
13,973
4,050
(3,380)
(1,137)
(467)
(4,173)
(219)
CY12
63,899
65,265
5,490
8.6
36.2
20.0
822
38
3,243
17,549
389
14,962
2,791
26,386
15,323
11,063
4,825
(7,732)
(974)
(3,880)
(7,820)
391
(INR mn)
CY13
CY14
68,098
87,383
69,051
88,458
7,132
11,148
10.5
12.8
34.5
42.5
20.7
26.9
1,300
2,198
79
98
3,939
6,154
20,554
25,159
839
584
21,197
27,281
1,253
2,363
29,113
30,331
19,037
24,192
10,075
6,139
7,162
10,475
(7,898) (10,872)
(474) (1,622)
(1,209) (2,020)
(7,054) (9,682)
1,491
2,020
29
Market Data
: 3,271 / 2,252
: 199.7
: 478 / 7,277
Promoters*
: 34.6
: 13.4
FIIs
: 38.5
Others
: 13.5
: Nil
(% of share in issue)
Whats on track?
Healthy improvement of 6% YoY in volume (FY14: 3%, FY13: -3%) led to 9% revenue
growth in FY15.
31
Hero MotoCorp
Profitability analysis
Table 1: Consolidated profitability
Particulars
Sales
Raw Materials Consumed
Operating and admin expense
Personnel cost
EBITDA
Royalty to honda
EBIDTA post royalty cost
Depreciation (ex-amortisation of
royalty to Honda)
EBIT
Financial Charges
Other income
EBT
Exceptional items
EBT (after exceptional items)
Tax expense
PAT
(INR bn)
FY14
252.8
182.3
25.8
9.3
35.4
8.1
27.3
Consolidated
%
FY15
100.0
275.4
72.1
197.2
10.2
31.5
3.7
11.8
14.0
35.0
3.2
2.0
10.8
33.0
%
100.0
71.6
11.4
4.3
12.7
0.7
12.0
2.9
1.2
3.4
1.2
24.3
0.1
4.4
28.6
28.6
7.6
21.1
9.6
0.0
1.8
11.3
11.3
3.0
8.3
29.6
0.1
4.9
34.4
1.4
32.9
9.4
23.5
10.7
0.0
1.8
12.5
0.5
12.0
3.4
8.5
Depreciation declined sharply from INR11.1bn in FY14 to INR5.4bn in FY15, primarily due to
lower amortisation of intangibles (technical knowhow/ export licences amortisation for
FY15 at INR2.0bn FY14: INR8.1bn). HML amortised technical knowhow / export licences on
straight line basis upto June 30, 2014 (42 months). During FY15, entire block of technical
knowhow was depreciated. The company had agreed to pay INR25.6bn in FY11 (over 42
months) as per the licence agreement entered into with erstwhile JV partner Honda, as
explained under.
Promoter Group and Honda Motor, Japan (Honda), entered into a Share Transfer
Agreement on January 22, 2011, wherein Honda had agreed to transfer its 26% stake in
HML to the Promoter Group, ending the JV. The acquisition was completed on March 22,
2011. In addition, a License Agreement was entered into on January 1, 2011, wherein Honda
gave HML the right and licence to manufacture, assemble, sell and distribute certain
products/parts and export licence for certain products and their service parts under the IPR
at total cost of INR25.6bn
FY14
0.4
1.4
1.0
(%)
FY15
0.5
1.4
1.1
HMLs R&D cost charged to P&L stood at INR1.3bn in FY15, 0.5% of sales (FY14: INR892mn,
0.4%).
32
FY14
18
1,554
1,572
1,572
56,226
2.8
(INR mn)
FY15
764
129
1,554
2,447
(1,550)
896
65,400
1.4
EBRs losses led to the erosion of HMCLs (subsidiary) net worth and hence the company
recorded a provision of INR1.5bn under exceptional items towards diminution in value of
investment.
Other investments at the consolidated level include investment in financing arm Hero
FinCorp (48% stake) of INR2.7bn in FY15 (FY14: INR900.3mn).
FY14
4,442
28,641
15.5
42,150
10.8
(INR mn)
FY15
4,921
34,367
14.3
30,629
13.0
(INR bn)
Consolidated
FY13
FY14
FY15
25.3
28.6
32.9
(3.8)
(4.1)
(4.4)
11.4
11.1
6.9
(6.1)
(6.5)
(10.0)
26.8
29.1
25.4
(3.9)
(2.6)
(4.5)
0.4
(0.3)
(1.9)
0.2
(1.5)
(2.7)
33
Hero MotoCorp
Receivables rose by INR4.5bn in FY15 to INR13.7bn, 5% of revenue. Trade payables jumped
by INR5.6bn supporting the working capital.
Hero Moto
FY13
FY14
7
11
13
12
(41)
(38)
(2)
(2)
(23)
(17)
(23)
(17)
FY15
15
13
(43)
(2)
(17)
(17)
Bajaj Auto
FY13
FY14
10
14
16
16
(48)
(51)
(4)
(6)
(25)
(27)
(25)
(27)
FY15
13
17
(45)
(8)
(23)
(23)
FY13
13
44
(51)
(1)
5
13
18
TVS
FY14
15
39
(55)
(2)
(3)
14
11
FY15
14
41
(55)
(3)
(3)
15
12
Cash conversion cycle stood at negative 17 days, as increase in receivables was offset by
similar rise in payable days. HMLs working capital is in line with that of Bajaj Auto.
Sources
Cash / liquid
investments
16%
(INR mn)
Royalty to
Honda (for
technical
know-how)
17.4%
Net
borrowings
1%
Application
Capex
24.9%
Investment
in
associates
2.4%
Operating
cash flow
(OCF)
83%
Dividend
55.2%
Source: Company annual report, Edelweiss research
34
27
28
27
29
28
27
30
31
28
29
31
27
6.2
18.9
11.8
5.8
18.2
10.2
5.9
20.6
10.8
5.8
18.5
12.0
5
11
5
5
13
6
5
11
8
6
10
11
6
11
9
ROE (%)
TVS
Bajaj Auto
Hero Moto Corp
20
92
62
19
56
66
15
44
46
17
37
40
23
28
41
Particulars
ROCE (%)
TVS
Bajaj Auto
Hero Moto Corp
FY11
FY12
FY13
FY14
FY15
14
78
58
17
73
52
14
59
44
19
51
50
21
40
55
3,796
32,235
23,385
3,456
22,171
18,785
3,226
35,009
29,512
(392)
21,073
21,738
(1,453)
(614) 2,369
18,743 28,847 17,289
19,113 18,351 12,781
489
32,469
20,138
(3,825)
18,124
9,436
EBITDA margins for HML are lower than Bajaj Auto, but higher than TVS. Asset turnover has
been improving over the past 5 years, though declined YoY.
RoE/ RoCE have been declining significantly for Bajaj Auto over the past 5 years versus peers.
HML clocked the highest RoE/ RoCE amongst peers in FY15, while Bajaj Auto had highest
return ratios before FY13.
Though HMLs OCF and FCF have been lower over the past 2 years, earnings to cash
conversion ratio has improved in FY14 and FY15.
35
Hero MotoCorp
Major related party transactions
FY13
FY14
(INR mn)
FY15
5,723
1,197
2,156
9,075
6,800
12,370
7,078
15,416
19,170
22,493
(128.0)
33.5
51.8
37.5
19.8
60.5
117.8
3.6
16.7
43.4
63.7
8.5
9,136
5.3
3.0
19,163
10.5
4.0
22,561
11.4
18.3
P&L exposure to related parties rose primarily due to increase in purchases of raw material
from Rockman Industries (enterprise with significant influence of KMPs).
(INR mn)
FY15
(24)
(1,038)
10
(2,729)
(3,782)
36
FY14
FY15
51.9
7.2
7.2
53.8
6.9
7.8
(12.3)
(0.3)
15.7
36.2
(13.3)
(0.3)
14.9
38.9
39.6
0.1
40.6
13.3
0.1
36.0
(%)
24.0
53.8
40.4
12.0
0.0
RNOA
Return from
leverage
ROAE
37
Hero MotoCorp
Table 11: Summary financials
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
Depreciation
Financial costs
Net profit
ROE (%)
ROCE (%)
Equity shareholders' funds
Loan funds
Net cash
Net fixed assets (Ex CWIP)
CWIP
Current assets loans and advances
Current liabilities and provisions
Net current assets
Cash and cash equivalents
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital investments
FY11
193,979
196,876
26,125
13.5
4,024
152
19,279
62.0
57.8
29,561
21,644
(30,524)
40,803
500
5,550
53,234
(47,683)
52,168
22,542
(13,223)
(9,552)
(234)
3,610
1,847
FY12
235,790
239,436
36,188
15.3
10,973
213
23,781
65.6
51.8
42,898
17,308
(24,268)
37,855
388
6,733
36,220
(29,487)
41,576
23,598
928
(24,582)
(56)
5,034
(6,906)
FY13
237,681
241,665
32,845
13.8
11,418
119
21,182
45.6
43.6
50,062
6,416
(33,470)
30,710
621
10,891
35,291
(24,401)
39,886
18,904
(7,329)
(10,563)
1,012
6,004
(7,872)
FY14
252,755
257,197
35,391
14.0
11,074
118
21,027
39.6
49.8
56,226
2,843
(39,307)
22,473
8,547
13,433
41,394
(27,960)
42,150
29,630
(16,178)
(14,137)
(685)
9,374
551
(INR mn)
FY15
275,380
280,301
34,967
12.7
5,405
117
23,647
40.6
55.0
65,400
1,000
(29,629)
29,523
7,192
23,168
38,982
(15,814)
30,629
21,855
314
(21,311)
858
12,302
(3,553)
38
Whats on track?
Market Data
: 1,421 / 1,106
: 621.1
: 818 / 12,779
: 25.6
: 22.7
FIIs
: 33.0
Others
: 18.7
: 1.4
(% of share in issue)
Company maintained its position as the 3rd largest passenger Vehicle Company and 2nd
largest commercial vehicle company in India.
Other highlights
Mahindra Engineering Services (MESL), a subsidiary, was amalgamated with Tech Mahindra
(TML), an associate, as per court approved scheme. Excess (INR3bn) of fair value of TML
shares received over the carrying cost of investments in MESL has been recorded as an
exceptional item. However, TML recognises the amalgamation at cost of shares issued,
whereas M&M recognises the same at fair value of shares received.
Of the 25.6% holding classified under the promoter category, 8.4% are treasury shares held
by the M&M Benefit Trust formed on amalgamation of Punjab Tractors and 5.1% held by
various employee welfare trusts. Thus, the promoters actual effective economic ownership
is 12.1%.
Guarantees given by the company on behalf of other companies (presumably subsidiaries)
stood at ~INR13.4bn (March 2014: INR9bn). Amount outstanding against these guarantees
stood at INR12.8bn (March14: INR8.3bn).
MD&A
Company signed a definitive agreement to acquire 33% voting stake in Japan based
Mitsubishi Agriculture Machinery Co Ltd. This will help both companies to jointly develop
products in the tractor and agri-machinery space.
Companys wholly owned subsidiary Mahindra Vehicle Manufacturers Ltd signed an MOU
with the Maharashtra government to invest an additional INR 40bn over a 7 year period.
40
FY11
234.6
34.3
33.0
30.7
14.6
29.7
52.2
30.7
5.3
FY12
318.5
37.5
34.3
26.2
11.8
25.8
49.3
40.9
5.7
FY13
404.4
46.9
42.9
24.8
11.6
26.9
49.8
47.7
5.0
FY14
405.1
47.2
42.0
27.3
11.7
23.5
38.0
57.3
3.9
3.0
4.3
5.5
9.8
(INR bn)
FY15
389.5
41.7
36.0
28.2
10.7
18.5
27.8
58.2
7.6
15.3
8.1
8.9
9.1
7.7
6.7
(16.2)
(7.1) (12.1)
(9.7)
(8.9)
103.1 121.0 146.6 167.9 192.6
24.0
35.8
34.9
40.5
37.3
127.2 156.9 181.5 208.4 229.8
60.1
78.9
93.5 127.8 131.6
0.2
0.3
0.2
0.2
0.2
* Adjusted for income from subsidiaries, J.V.'s & Associate
# Adjusted for investment/ loans & advances in subsidiaries, J.V.'s & associates and acceptances
Of the total INR14.3bn (FY14: INR 11.3bn) R&D expense (ex depreciation and amortisation)
incurred during FY15 at the standalone level, INR7.5bn (~50% of total cost; FY14: INR6.4bn; 55%)
was recognised in profit and loss.
Development expenditure (balance R&D cost) of INR6.8bn (FY14: INR4.9bn) was capitalised in
intangible assets of which INR 5.9 bn is under intangible assets under development (FY14:
INR4.5bn).
100% =
INR165.6bn
Others
4%
Cash
profits
89%
Investment
in
subsidiarie
s/
Associate
29%
Others
2%
Capex
39%
Purchase
of
Investment
(Net)
9%
Source: Company annual report, Edelweiss research
41
FY11
1,594
147
458
2,200
1,120
(INR mn)
FY12
3,543
2,260
577
150
598
7,128
1,010
FY13
3,450
968
800
500
120
643
6,482
800
FY14
2,962
630
800
730
818
512
6,451
800
FY15
7,486
1,800
1,000
400
531
583
11,800
1,202
Total investment as
at March15
18,621
4,393
4,918
3,802
1,919
2,899
36,552
5,683
* Net investment made during FY14, # Capital infusion in FY15 includes share application money pending allotment
During FY14, the company had invested ~INR4bn in SMC, taking cumulative equity
investment to INR21.3bn. Since SMC redeemed bonds of INR4.6bn subscribed by the
company, there was no incremental cash infusion in SMC in FY14.
During FY14, the company acquired stake in Mahindra Sanyo Steel from Mahindra
Ugine Steel Company Ltd.
Mahindra Engineering and Chemicals Products (MECP) is the holding company for the
retail business of M&M. Capital infusion in MECP by M&M is utilised towards
investment in Mahindra Retail Private Ltd (MRPL) either directly or through Retail
Initiative Holdings Ltd. Aggregate capital infusion in MRPL stood at INR 5,683mn.
FY13
Revenue
38,947
96,810
4,223
7,159
149,746
296,886
FY14
FY15
PAT Revenue
PAT Revenue
PAT
8,827
49,530
8,872
55,847
8,318
2,838
69,682
2,167
61,605
1,530
975
4,213
777
7,600
2,333
1,070
7,989
945
8,076
790
(5,092) 202,407
736 182,710
(7,095)
8,618 333,822 13,498 315,838
5,876
# considered as part of core standalone business
Source: Company annual report, Edelweiss research
Aggregate economic interest (adjusted for minority stake) in losses (net) of these
subsidiaries (not considered in SOTP) increased to ~INR 7bn (FY14: INR6bn; 16%),
representing ~21% of standalone PAT.
42
(INR mn)
FY12
FY13
FY14
(INR mn)
FY15
(209)
(56)
(151)
(648)
(830)
(267)
(2,383)
39
(4,505)
(3,660)
(396)
(87)
(241)
(619)
(1,141)
(319)
(380)
(2,639)
(520)
(6,342)
(5,233)
(386)
(175)
(427)
(578)
(1,140)
(805)
(683)
(4,593)
(212)
(8,998)
(7,515)
(401)
(438)
(541)
(534)
(1,189)
(941)
(633)
(5,289)
(533)
(10,497)
(8,720)
151
182
140
5
705
108
1,292
1,254
(3,213)
(2,406)
(8.4)
155
189
140
389
567
244
1,685
1,645
(4,658)
(3,588)
(10.7)
213
204
136
(9)
644
366
1,554
1,459
(7,444)
(6,056)
(16.1)
289
215
138
152
722
411
1,927
1,790
(8,570)
(6,930)
(20.9)
(INR bn)
FY13
100
86
14
%
FY14
100
95
5
FY15
100
91
9
42
40
61
23
(51)
7
(58)
11
0
(69)
16
(52)
4
(56)
5
0
(61)
17
(69)
6
(75)
5
0
(80)
43
Operating and admin expenses at MTW stood higher at INR4bn (FY14: INR3bn) led by
higher marketing expenses (FY15: INR2.2bn, FY14: INR1.6bn) and assets written off
(FY15: INR 0.3bn, FY14: nil).
During the year, MTW acquired 51% stake in Peugeot Motorcycles for EUR28.2mn. As
at March 2015, MTW had paid EUR16.9mn up-front and balance EUR11.3mn is payable
by June 2016. Further, as per the terms of the agreement with Peugeot SA (PSA), MTW
has committed to acquire balance stake (49%) at the end of 7 years at fair market value
(determined as per agreement). In this regard, M&M also provided corporate
guarantees of EUR 70mn (~INR4.7bn) to PSA.
Particulars
Sales
Raw Materials Consumed
Gross margin
Operating and admin
expense
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
Other income
PBT
FY13
2.0
1.2
0.8
Amount
FY14
2.1
1.2
0.9
(INR bn)
FY15
2.1
1.3
0.8
FY13
100
59
41
%
FY14
100
59
41
FY15
100
60
40
1.2
1.3
1.3
62
62
62
0.4
(0.8)
0.2
(1.0)
0.1
0.0
(1.1)
0.4
(0.8)
0.2
(1.0)
0.1
0.0
(1.1)
0.4
(0.9)
0.2
(1.1)
0.1
0.0
(1.2)
22
(43)
9
(52)
6
0
(58)
20
(40)
9
(49)
7
0
(55)
21
(43)
9
(52)
5
0
(57)
(INR bn)
Standalone
FY14
FY15
43.2
38.3
(6.7)
(6.8)
9.2
10.1
(8.9)
(8.5)
2.7
2.7
39.4
35.9
(2.7)
3.7
(4.5)
(1.8)
Particulars
(5.5)
1.7
Subsidiary (derived)
FY14
FY15
11.9
2.0
10.1
9.0
13.3
11.9
(3.8)
(8.5)
(2.7)
(2.7)
28.7
11.6
1.9
(4.3)
(18.1)
(3.9)
5.9
(1.3)
(2.0)
33.9
(2.4)
31.5
(20.2)
11.3
11.3
17.2
0.2
(11.5)
17.2
(3.2)
13.9
(19.3)
(5.4)
(58.1)
(63.5)
9.2
20.8
(2.5)
18.4
(26.9)
(8.6)
(42.3)
(50.9)
Consolidated
FY14
FY15
55.0
40.4
3.3
2.2
22.5
22.0
(12.7)
(17.0)
68.1
47.5
(0.8)
(22.6)
(0.6)
(5.8)
10.9
(1.1)
11.7
1.9
(13.5)
54.6
(5.8)
48.8
(36.1)
12.7
(58.1)
(45.4)
7.2
54.7
(4.9)
49.9
(47.2)
2.7
(42.3)
(39.6)
44
Standalone adjusted free cash flow declined to INR11.3bn (FY14: INR18.1bn) led by
higher capex and lower cash profits. Cash conversion cycle remained in narrow range of
-9 days to -11 days during FY13-15.
Consolidated cash flows from operating activities (post interest) increased marginally to
~INR50bn in FY15. However, due to steep increase in capex (FY15: INR47bn, FY14:
INR36bn), free cash flows (ex movement in loan against assets) declined to INR2.7bn.
Standalone
FY13 FY14 FY15
28
32
34
19
22
24
(62)
(72)
(74)
(2)
(2)
(2)
(17)
(20)
(19)
7
9
9
(9)
(11)
(10)
(1.1)
(0.7)
(0.2)
(days)
Consolidated
FY13 FY14 FY15
61
61
64
32
31
33
(87)
(88)
(88)
(7)
(7)
(8)
(1)
(3)
0
18
20
21
17
17
21
5.2
5.8
6.2
(days)
Hyundia Motors
CY12
CY13
CY14
37
37
38
16
15
15
(38)
(36)
(36)
15
16
17
4.3
4.4
4.6
CY12
43
19
(66)
(5)
(0.3)
Kia Motors
CY13
42
17
(58)
1
2.5
CY14
50
17
(54)
14
5.5
45
In comparison to peers in the South Korean market, SMC had a favourable cash
conversion cycle predominantly on account of higher trade credit enjoyed by the
company.
FY13
FY14
(INR bn)
FY15
416.2
138.0
40.9
91.9
686.9
447.0
168.6
52.8
71.7
740.0
432.1
159.1
60.4
67.9
719.5
23.3
18.3
12.8
3.5
58.0
23.6
24.8
14.6
0.0
63.0
13.2
19.7
13.9
(0.4)
46.4
5.6
13.2
31.4
3.9
8.4
5.3
14.7
27.7
0.0
8.5
3.1
12.4
23.1
(0.6)
6.5
113.4
33.7
40.6
66.5
254.2
125.1
44.9
45.9
71.8
287.7
21.3
55.4
39.0
5.6
24.4
19.8
63.1
33.8
0.0
23.3
135.6
44.2
51.5
68.6
299.8
10.1
44.2
28.6
(0.6)
15.8
46
(INR bn)
FY15
8.9
17.6
26.5
10.2
(INR bn)
FY11
Unfunded
FY12
FY13
FY14
0.1
0.0
(0.0)
0.0
0.1
1.1
0.4
0.8
(0.0)
2.3
1.3
0.3
1.3
0.1
(0.5)
2.5
1.8
0.3
(0.0)
2.1
9.0
(9.0)
10.2
(10.2)
8.6
(8.6)
11.6
(11.6)
FY15
FY11
Funded
FY12
FY13
2.1
0.5
1.8
1.7
6.1
0.3
0.3
0.2
0.0
(0.2)
0.6
0.3
0.3
0.1
0.0
(0.2)
0.6
0.4
0.4
0.1
0.0
(0.3)
0.7
FY14
FY15
0.5
0.4
0.2
0.0
(0.3)
0.8
0.5
0.6
0.4
(0.3)
1.1
17.1
4.4
5.0
5.7
6.4
7.8
3.4
3.8
4.3
4.5
5.0
(17.1)
(1.0)
(1.2)
(1.4)
(1.9)
(2.8)
Source: Company annual report, Edelweiss research
Aggregate unfunded gratuity liability increased by 47% to INR20bn (FY14: INR13.5bn) led by
higher actuarial losses (FY15: INR2.2bn, FY14: INR0.2bn) and past service cost (FY15:
INR1.7bn, FY14: Nil) recognised during the year (mainly in SMC).
During the year, gratuity deficit in the company (standalone) increased to INR2.3bn (March
2014: INR1.8bn).
Dec-11
9.7
(0.2)
9.6
Dec-12
8.5
(0.1)
8.4
4.8
5.3
3.9
5.3
(INR bn)
Dec-13 Dec-14
10.1
14.3
(0.1)
(0.1)
10.0
14.2
4.4
5.3
3.4
5.3
SMCs gratuity liability (unfunded) stood at INR14.2bn (December 2013: INR10bn). Steep
increase in the liability during FY15 was led by higher past service cost and actuarial losses.
47
FY11
368.6
371.8
54.4
14.7
24.0
9.7
4.7
30.8
142.8
170.5
313.3
127.5
14.1
19.5
174.2
112.5
61.7
37.7
132.8
31.7
(17.5)
14.4
22.9
10.0
FY12
594.0
597.4
62.4
10.5
19.9
18.0
6.6
31.3
167.0
231.2
398.2
151.1
14.9
20.9
235.4
147.9
87.4
54.1
177.2
54.9
(30.8)
42.6
30.8
(5.7)
FY13
686.9
690.8
74.5
10.8
20.7
20.8
6.3
41.0
199.6
287.1
486.7
163.1
16.3
20.0
274.5
172.5
101.9
67.5
219.6
58.3
(27.9)
45.1
32.3
0.5
(INR bn)
FY14
FY15
740.0 719.5
745.1 724.7
79.3
63.0
10.7
8.8
20.5
12.0
21.7
21.2
7.7
6.6
46.7
31.4
233.1 258.6
351.7 379.1
584.7 637.7
170.4 182.8
21.9
30.3
13.4
7.6
308.4 327.1
178.8 181.5
129.6 145.6
87.5
70.4
264.1 308.7
55.7
52.8
(44.9) (44.4)
55.8
16.7
36.1
47.2
12.4
(5.3)
48
Market Data
: 395 / 217
: 881.9
: 223 / 3,452
Promoters*
: 65.6
: 5.2
FIIs
: 18.6
Others
: 10.6
: 5.04
(% of share in issue)
Key Highlights
Revenues of SMR and SMP jumped ~14% and ~16% in EUR terms and their EBITDA
margins inched up to 9.8% (FY14: 9.6%) and 6.2% (FY14: 5.4%), respectively.
SMRP BV enjoys payable days of 88 (FY14:74), much higher compared to global peers
average of 56-68 days. Payables were major source of operating cash flow and key
contributors to improvement in return ratios.
SMPs subsidiaries in Mexico, Brazil and Spain continued to incur losses (although they
have declined) during FY15.
MSSL Wiring Systems (acquired wiring harness business of Stoneridge) and its
subsidiaries reported loss of ~INR 320mn during the year.
Exceptional losses during FY15 include expenses incurred in relation to issue of senior
secured notes (INR1.2bn), representing 3.7% of the value of funds raised.
Net cash flows from borrowings stood at INR11.4bn during FY15. However, owing to
depreciation (~18%) of EUR against INR during the year, gross debt rose by mere
INR2.9bn to INR51.3bn. Net debt fell by ~INR7bn to INR32.4bn. Net debt/equity ratio
improved to 1.0x (FY14: 1.3x).
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
During the year, MSS (via subsidiaries) paid INR7.1bn (FY14: nil) towards acquisition of
subsidiariesINR4.3bn for wiring harness business of Stoneridge and INR2.8bn for
acquisition of German and Mexican businesses of the Scherer & Trier Group.
During FY15, the group (SMRP BV) paid INR3.3bn towards acquiring minority
shareholding in subsidiaries to consolidate its shareholding in SMP to 100% and in SMR
to 98.5% (MSS economic interest in SMRP BV stood at 51%).
MSS incurred INR2.0bn (FY14: INR1.5bn) and INR18.4bn (FY14: INR13.5bn) towards
capital expenditure at standalone and consolidated levels, respectively. Capex incurred
by SMR and SMP increased to EUR56mn (FY14: EUR38mn) and EUR161mn (EUR43mn),
respectively.
Other assets at SMR and SMP jumped to EUR84mn (FY14: EUR41mn) and EUR158mn
(FY14: EUR79mn), respectively. Details on nature of these assets are not available.
50
The company has decided to transfer its stake in JV, Calsonic Kansei Motherson Auto
Products, to SMIL (company holding 36.9% in MSS) at a price determined through fair
valuation.
During the year, SMRP BV (subsidiary) issued 7-year bonds of EUR500mn carrying
coupon rate of 4.125% to refinance its debts as well as to fund its capital expenditure.
This borrowing has not only reduced the companys borrowing cost, but has also
provided long-term financing to SMR and SMP.
During FY15, MSS launched its fifth five-year plan termed Vision 2020. Key objectives
which company aims to achieve in 2020 include USD18bn revenue, RoCE of 40% and
dividend payout of 40%.
Motherson Sumi
Cash flow analysis
Table 1: Adjusted cash flow analysis
(INR bn)
Particulars
Profit before tax
Non-operating expense
Unrealised foreign exchange loss (net)
Non-cash adjustments
Direct taxes paid
Cash profit after tax
Increase in trade and other receivables
Increase in inventories
Increase in trade & other payables
(Increase)/decrease in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post interest
Capex/acquisitions
Free cash flow
(0.5)
0.7
1.5
(2.1)
(0.3)
(0.2)
0.1
Standalone
Subsidiaries (Derived)
Consolidated
FY14
FY15
FY14
FY15
FY14
FY15
7.6
7.3
8.4
10.8
16.0
18.2
(0.3)
3.2
3.2
2.7
- 2.9
0.2
2.4
(3.3)
3.0
(3.0)
2.2
7.0
7.2
8.4
- 9.4
(2.4)
(3.5)
(3.8)
(5.6)
- (6.2)
7.0
7.1
17.5
14.2
24.5
21.2
1.2
(4.6)
3.1
(4.9)
4.3
(0.5)
(6.6)
(1.2)
(6.8)
(1.7)
0.4
13.9
9.7
14.1
10.1
(0.4)
1.1
2.8
11.5
2.4
12.7
6.7
8.2
20.3
25.7
27.0
33.9
(0.4)
(0.3)
(2.5)
(2.7)
(2.9)
(3.0)
6.3
7.9
17.8
23.0
24.1
30.9
(1.5)
(2.0)
(12.1)
(23.5)
(13.5)
(25.5)
4.8
5.9
5.7
(0.5)
10.6
5.4
Source: Company annual report, Edelweiss research
Operating cash flows (post interest) increased to ~INR31bn (FY14: ~INR24bn) due to decline
in working capital (led by increase in trade payables & decrease in trade receivables).
Cash conversion days declined to
4 (FY14: 15) aided by rise in
payable days and customer
advances
Free cash flow declined to INR5.4bn (FY14: INR10.6bn) led by steep rise in capex, which
stood at INR18.4bn (FY14: INR13.5bn) and acquisitions (INR7.1bn, FY14: nil).
FY13
26.0
30.5
31.8
4.9
19.7
52
44
67
10
19
7.6
FY14
32.8
33.9
40.9
7.0
18.8
53
38
66
11
15
6.1
(INR bn)
FY15
37.5
32.2
48.6
11.3
9.7
57
34
73
15
4
2.8
51
Mar-13
35
56
75
17
4.6
Mar-14
SMR
33
51
73
11
3.0
Mar-15
Mar-13
32
40
92
(20)
(5.6)
34
34
77
(9)
(2.5)
Mar-14
SMP
38
27
87
(22)
(6.1)
Mar-15
47
28
100
(25)
(6.8)
# In the absence of details of trade payables, entire liabilities (other than loans) considered for cash conversion cycle in SMR and SMP;
Trade payables considered for cash conversion cycle computation in SMRP BV
Other assets at SMR and SMP jumped to EUR84mn (FY14: EUR41mn) and EUR158mn (FY14:
EUR79mn), respectively. Nature of items included in other assets is not available and thus
has not been considered in the above cash conversion cycle.
Profitability analysis
Table 5: Standalone versus consolidated profitability analysis
Sales
Raw Materials Consumed
Gross margin
Operating and administrative expense
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
EBT
Other Income *
PBT (before exceptional items)
Exceptional losses (net)
PBT (after exceptional items)
Tax expense
PAT
Minority interest
PAT (after MI)
FY14
45.2
25.1
20.1
6.7
5.0
8.4
1.5
6.9
0.4
6.5
0.5
7.0
7.0
2.2
4.8
4.8
52
Standalone
% FY15
100.0
49.9
55.6
28.0
44.4
21.9
14.8
7.1
11.0
6.0
18.7
8.8
3.4
2.1
15.3
6.7
0.9
0.3
14.4
6.4
1.2
0.7
15.6
7.2
15.6
7.2
4.9
2.1
10.6
5.1
10.6
5.1
%
100.0
56.1
43.9
14.2
12.1
17.6
4.2
13.4
0.6
12.8
1.4
14.5
14.5
4.2
10.3
10.3
(INR bn)
Subsidiary/JV share (Derived)
Consolidated
FY14
% FY15
% FY14
% FY15
%
259.0 100.0 296.0 100.0 304.3 100.0 345.9 100.0
168.5
65.0 188.3
63.6 193.6
63.6 216.3
62.5
90.6
35.0 107.7
36.4 110.7
36.4 129.5
37.5
29.0
11.2
31.2
10.6
35.6
11.7
38.3
11.1
46.1
17.8
57.6
19.5
51.1
16.8
63.7
18.4
15.5
6.0
18.8
6.4
24.0
7.9
27.6
8.0
6.6
2.6
7.1
2.4
8.2
2.7
9.2
2.7
5.3
18.4
8.9
3.4
11.7
3.9
15.8
5.2
2.5
1.0
2.9
1.0
2.9
1.0
3.2
0.9
6.4
2.5
8.8
3.0
12.9
4.2
15.2
4.4
2.6
1.0
4.0
1.3
3.1
1.0
4.6
1.3
8.9
3.4
12.8
4.3
16.0
5.2
19.8
5.7
1.6
0.6
1.6
0.5
8.9
3.4
11.1
3.8
16.0
5.2
18.2
5.3
2.8
1.1
3.2
1.1
5.0
1.6
5.3
1.5
7.8
2.6
11.0
3.6
12.9
3.7
6.2
2.4
3.3
1.3
4.3
1.5
3.3
1.1
4.3
1.2
2.8
1.1
3.5
1.2
7.7
2.5
8.6
2.5
Source: Company annual report, Edelweiss research
* Other income adjusted for dividend income from subsidiaries
Edelweiss Securities Limited
Motherson Sumi
Standalone revenue jumped 10% led by ~7% and ~18% surge in wiring harness and polymer
components segments, respectively.
Exceptional losses comprise fund raising (senior secured notes) cost of INR1.2bn and
acquisition cost of wiring harness business of Stoneridge of INR0.4bn.
Other income includes proceeds from insurance claim of INR1.6bn. Corresponding losses of
INR1.2bn incurred due to fire is included in operating and admin expenses.
Net loss on foreign currency transactions declined to INR114mn (FY14: INR1,881mn).
FY13
FY14
(INR mn)
FY15
1,129
1,038
74
940
1,375
1,110
198
640
1,435
1,239
420
692
n.a.
141
406
559
194
476
400
382
367
Consolidated
SMRP BV
Audi
21%
Others
25%
Daimler
5%
Ford
5%
Maruti
Renault/Ni
Suzuki
BMW
ssan
5%
6%
5%
Audi
VW
Hyundai
BMW
Maruti Suzuki
Ford
Others
VW
12%
Seat
8%
Hyundai
6%
Seat
Renault/Nissan
Daimler
Ford
Diamler 4%
5%
Porsche
5%
Others
13%
Audi
28%
Renault/Ni
ssan
5% Hyundai/K
ia
BMW
Seat
8%
8%
10%
Audi
VW
BMW
Hyundai/Kia
Porsche
Diamler
Others
VW
14%
Seat
Renault/Nissan
Ford
Volkswagen account for 12% and 14% of total sales at consolidated and SMRP BV level
53
FY15
1,276
125
31
94
56
14.0
9.8
7.4
30.3
FY13
1,826
69
47
22
60
n.a.
3.8
1.2
5.3
FY14
SMP
1,917
104
48
56
43
5.0
5.4
2.9
14.1
(EUR mn)
FY15
2,222
137
50
87
161
15.9
6.2
3.9
18.0
#excludes foreign exchange fluctuations loss/ (gain) on long term loans & exceptional items
Source: Company annual report, Edelweiss research
(INR mn)
FY15
PAT
1,601
994
269
1,429
484
(271)
36
93
655
(193)
5,097
PAT (%)
7.5
3.9
2.7
9.2
8.0
(8.6)
0.7
2.6
17.8
(16.7)
5.4
(INR mn)
FY15
PAT
2,494
2,187
144
(266)
(1,096)
(567)
2,896
PAT (%)
3.4
14.1
2.6
(8.0)
(20.3)
(1.3)
2.0
54
Motherson Sumi
Table 10: Other subsidiaries/JVs profitability
(INR mn)
% holdings
Revenue
FY14
PAT
PAT (%)
Revenue
FY15
PAT
Subsidiaries
MSSL Mideast (FZE)
MSSL Global RSA Module Engineering Ltd.
Motherson Electrical Wires Lanka (Pvt) Ltd.
MSSL GB Ltd.
MSSL Japan Ltd.
MSSL Advanced Polymers s.r.o
MSSL Wiring systems Inc *
100
100
100
100
100
100
100
3,309
2,295
1,517
1,392
1,363
890
10,766
674.1
203.6
278.3
75.5
51.8
(23.6)
1,260
20.4
8.9
18.3
5.4
3.8
(2.6)
0.0
11.7
2,687
2,177
1,334
1,293
1,040
1,754
10,220
20,505
670
8
231
78
26
(16)
(414)
583
24.93
0.37
17.32
6.03
2.50
(0.91)
(4.05)
2.84
Joint Venture
Kyungshin Industrial Motherson
Calsonic Kansei Motherson Auto Products
50
49
8,241
3,240
11,481
555
(71)
484
6.7
(2.2)
4.2
9,638
4,057
13,695
1,091
(289)
802
11.32
(7.12)
5.86
PAT (%)
* Represents wiring harness business of Stoneridge Inc acquired during FY15. MSSL Wiring Systems Inc has 3 subsidiaries.
Joint venture and subsidiaries of SMR and SMP group and other small subsidiaries has not been considered in the above table
Source: Company annual report, Edelweiss research
FY13
FY14
(INR bn)
FY15
33.2
0.0
2.2
35.5
35.3
0.7
2.3
38.3
7.9
0.4
1.3
33.5
43.1
10.7
2.8
13.5
49.0
(5.9)
43.1
2.5
n.a.
7.6
2.5
10.1
48.4
(9.1)
39.3
2.9
6.0
7.6
0.7
8.2
51.3
(18.9)
32.4
3.1
6.1
55
FY13
253.1
14.8
5.8
21.4
14.9
5.1
4.0
52.8
3.9
14.4
22.9
49.0
2.1
71.9
FY14
304.3
24.0
7.9
29.2
23.4
5.4
4.5
59.2
6.5
9.6
29.6
48.4
1.6
78.0
90
28.0
72
21.0
54
14.0
36
7.0
18
0.0
0
FY11
FY12
ROE (%)
FY13
ROCE (%)
FY14
(INR bn)
FY11
82.5
7.7
9.3
28.2
26.1
5.1
3.8
17.6
3.9
5.6
16.1
12.6
0.8
28.7
(INR bn)
FY15
345.9
27.6
8.0
31.2
25.5
5.7
5.3
61.3
9.6
1.0
33.2
51.3
1.5
84.5
(%)
FY15
Total capital employed (A+B)
56
Motherson Sumi
Balance sheet overview
Chart 3: Major sources and application in FY15
Loans &
advances
14%
CWIP
14%
Current
liabilities
and
provisions
54%
Borrowings
13%
Inventories
7%
Trade
Receivable
s 20%
Cash
43%
Cash &
Cash
equivalent
s
11%
Others
6%
Net fixed
assets
36%
Inventories
19%
Debt funds
30%
Minority
interest
6%
Trade
receivables
22%
CWIP
6%
100% =
INR169bn
57
FY11
82.5
84.2
7.7
2.5
0.6
3.9
37.6
9.3
28.2
26.1
16.1
12.6
2.3
17.6
3.9
24.5
18.9
5.6
3.5
9.1
4.1
(8.1)
4.0
0.1
(7.9)
(3.1)
FY12
147.8
149.2
8.9
3.8
1.6
2.6
35.4
6.0
17.1
13.1
18.7
46.0
5.0
46.9
4.5
59.8
46.5
13.3
4.6
41.5
5.9
(20.7)
13.8
(1.0)
(10.8)
(3.4)
FY13
253.1
256.3
14.8
7.1
2.5
4.4
34.9
5.8
21.4
14.9
22.9
49.0
4.0
52.8
3.9
61.2
46.8
14.4
5.9
43.1
14.9
(10.8)
(2.6)
1.5
(11.4)
(1.0)
FY14
304.3
307.4
24.0
8.2
2.9
7.7
36.4
7.9
29.2
23.4
29.6
48.4
7.9
59.2
6.5
71.5
61.9
9.6
9.1
39.3
27.0
(13.7)
(10.8)
2.4
(14.1)
2.4
(INR bn)
FY15
345.9
350.5
27.6
9.2
3.2
8.6
37.5
8.0
31.2
25.5
33.2
51.3
10.1
61.3
9.6
75.3
74.3
1.0
18.9
32.4
33.9
(28.5)
4.9
10.3
(18.4)
12.7
58
Market Data
: 605 / 366
: 2,887.2
: 1,070 / 16,707
: 34.3
: 16.4
FIIs
: 20.5
Others
: 28.7
: 2.1
(% of share in issue)
Whats on track?
JLRs performance continues to be robust with revenue growth of 13% YoY in GBP terms
and 16% in INR terms.
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
(INR bn)
Particulars
Opening shareholders' fund
Profit for the year
Dividend (incl dividend tax)
Other adjustments:
Actuarial losses and movement in pension assets
Forex gains/ (losses):
Capitalised under FCMITDA
On translation
On hedges (net of deferred tax)
Premium on shares issued on conversion of
FCCN net of share issue expenses
Others
Closing shareholders' fund
17.1
68.9
69.8
FY14
376.4
139.9
(7.7)
508.6
FY15
656.0
139.9
(0.6)
795.3
(13.4)
(27.9)
155.8
(48.0)
(41.9)
(117.3)
(207.2)
3.5
1.3
1.5
656.0
1.2
562.6
Net worth declined in FY15 by INR93bn versus PAT (ex-dividend) of INR139bn, primarily
impacted by significant forex and pension losses charged to reserves as explained below:
60
INR57bn forex losses were charged directly through FCMITDA account (as permitted by
amended AS-11) and INR9.0bn was amortised to P&L.
MTM losses on derivatives worth INR117.3bn (net of deferred tax of INR29.3bn) were
recorded under hedging reserves, as the company followed hedge accounting
permitted under AS-30.
Translation of overseas subsidiaries led to forex loss of INR41.9bn for the year.
Pension losses rose to INR28.0bn (net of deferred tax of INR7.0bn) in FY15 (FY14:
INR13.4bn)
Tata Motors
Profitability analysis
Table 2: Consolidated versus standalone - Profitability analysis
Particulars
Sales
Raw Materials Consumed
Operating & Admin. Exp.
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
Other income
Exceptional exp/ (gain)
PBT
Tax expense
PAT
FY14
342.9
259.1
63.9
28.8
(9.0)
20.7
(29.7)
13.5
38.3
5.4
(10.3)
(13.6)
3.3
Standalone
%
FY15
100.0
362.9
75.6
270.4
18.6
74.0
8.4
30.9
(2.6)
(12.4)
6.0
26.0
(8.6)
(38.4)
3.9
16.1
11.2
18.8
1.6
4.0
(3.0)
(39.7)
(4.0)
7.6
1.0
(47.4)
%
100.0
74.5
20.4
8.5
(3.4)
7.2
(10.6)
4.4
5.2
1.1
(11.0)
2.1
(13.1)
(INR bn)
Subsidiary (Derived)
FY14
%
FY15
1,985.5
100.0
2,265.0
1,176.7
59.3
1,328.8
264.5
13.3
306.9
186.8
9.4
224.6
357.5
18.0
404.8
90.1
4.5
107.9
267.4
13.5
296.9
34.0
1.7
32.5
(30.0)
(1.5)
(9.8)
4.5
0.2
(2.2)
198.9
10.0
256.8
61.3
3.1
68.8
137.7
6.9
188.0
%
100.0
58.7
13.5
9.9
17.9
4.8
13.1
1.4
(0.4)
(0.1)
11.3
3.0
8.3
FY14
2,328.3
1,435.9
328.4
215.6
348.5
110.8
237.8
47.5
8.3
9.9
188.7
47.6
141.0
Consolidated
%
FY15
100.0 2,628.0
61.7 1,599.2
14.1
380.9
9.3
255.5
15.0
392.4
4.8
133.9
10.2
258.5
2.0
48.6
0.4
9.0
0.4
1.8
8.1
217.0
2.0
76.4
6.1
140.6
%
100.0
60.9
14.5
9.7
14.9
5.1
9.8
1.8
0.3
0.1
8.3
2.9
5.4
Standalone revenue growth stood lower at 6% YoY, while standalone EBITDA margin further
dipped from negative -2.6% in FY14 to -3.4% in FY15.
Consolidated revenue grew a robust 13% YoY, primarily driven by strong subsidiaries
revenue, mainly JLR. Revenue at JLR grew 13% YoY in GBP terms, while currency
depreciation led to INR revenue growth of 16% YoY.
(INR bn)
Particulars
FY13
Reported EBITDA
Less: Adjustments
65% of Product development cost *
Adjusted EBITDA
61
89
64
3.2
3.8
2.4
185
9.8
259
11.1
328
12.5
Source: Company annual report, Edelweiss research
* Assuming 35% capitalisation rate in line with global peers
FY13
63.1
5.3
52.9
Standalone
FY14
74.4
7.3
63.1
FY15
79.4
11.1
74.4
Subsidiary (Derived)
FY13
FY14
FY15
218.2
330.9
361.4
26.3
43.9
51.4
160.0
218.2
330.9
(INR bn)
Consolidated
FY13
FY14
FY15
281.4
405.2
440.8
31.6
51.2
62.5
212.9
281.4
405.2
15.5
0.0
15.5
4.3
18.5
0.0
18.5
4.3
16.1
0.0
16.1
4.4
84.6
4.2
88.8
16.0
156.5
(24.1)
132.4
21.4
81.9
16.4
98.3
24.4
100.1
4.2
104.2
20.2
175.0
(24.1)
150.9
25.7
98.1
16.4
114.5
28.8
19.7
78
22.8
81
20.5
79
104.7
85
153.8
86
122.7
80
124.4
84
176.6
85
143.2
80
61
CY11
CY12
(%)
CY13
CY14
21
27
30
30
26
26
24
20
29
28
36
33
83
85
83
81
Source: Company annual report, Edelweiss research
Capitalisation ratio marginally declined from 83% in FY14 to 81% in FY15 at JLR, while from
85% to 80% at consolidated level.
(INR bn)
Particulars
Discounting charges in P&L (A)
Adjustment to Debt:
Avg borrowing cost (%) - Avg 12m EUR LIBOR +
300bps for JLR (B)
Implied debt on discounting charges (A/B*100)
Pension deficit (as per annual report)
Total - C
Standalone
FY13
FY14
FY15
3.4
3.4
4.6
Subsidiary (derived)
FY13
FY14
FY15
3.6
3.1
3.6
Consol
FY13
FY14
7.0
6.6
FY15
8.2
8.2
9.7
8.5
3.8
3.5
3.4
41
35
41
35
54
54
95
54
149
90
67
157
105
82
187
136
54
190
125
67
192
159
82
241
168
209
151
186
211
266
368
517
456
613
525
712
536
726
606
798
736
977
163
204
148
184
202
256
86
235
65
222
72
259
249
440
214
406
274
515
TAMO paid discounting charges worth INR8.2bn in FY15 of which INR3.6bn related to
subsidiaries, primarily JLR. Adjusted for implied debt (derived from discounting cost
incurred) and pension deficit, consolidated gross debt stood at INR977bn in FY15 versus
INR736bn reported.
Note: We have used LIBOR + 300bps for JLR and average cost of borrowing for standalone
entity.
62
Tata Motors
Table 7: Average yield and borrowing cost Consolidated and JLR*
Particulars
Cash & Investment:
Current account and deposits
Mutual fund and others
Total
FY11
FY15
FY11
FY15
2430
2430
2847
2847
3459
3459
4263
4263
16.0
0.9
34.0
1.3
38.0
1.2
**
**
111
15
126
179
78
258
206
81
287
293
100
393
318
144
462
1,028
1,028
4.2
3.8
5.7
3.0
8.1
3.0
8.3
2.4
8.9
2.1
9.7
1.1
Gross Debt
Net Debt / (cash)
328
202
471
214
536
249
606
214
736
274
1,382
353
1,974
(456)
2,167
(680)
2,010
(1,449)
2,537
(1,726)
22.3
6.6
31.8
8.0
41.3
8.2
55.7
9.7
57.0
8.5
84.0
3.8
166.1
9.9
176.2
8.5
257.0
12.3
230.0
10.1
6.5
11.2
11.0
6.8
17.1
3.8
9.9
8.5
12.3
10.1
18.1
2.8
26.1
5.0
33.2
5.2
47.4
7.3
48.0
6.4
74.3
2.7
150.1
9.0
142.2
7.2
219.0
11.1
**
**
Gross debt of INR736bn (8.5% interest cost) and cash of INR462bn (average yield of 2.1%)
led to net interest cost of INR48bn and negative carry of 6.4% in FY15.
Debt pertaining to Tata Motors Finance (captive financing arm) stood at INR122.3bn, as per
our estimate.
Average borrowing cost, at consolidated level, stood at 8.5%. However, significant forex
losses capitalised under reserves led to increase in adjusted borrowing cost at 17.1%.
Average borrowing cost at JLR remained elevated at 10.1%, though it declined YoY.
Average yield on investments remained lower and dropped to 2.1% in FY15, as significant
amount of cash and investments are with overseas entities (primarily JLR).
63
(INR bn)
Particulars
Profit before tax
Non-operating expenses
Non-cash adjustments
Direct taxes paid
Cash profit after tax
Interest expenses paid
Interest cost on NCD / FCCB charged through reserves
Pension cash contribution charged through reserves
Product Development capitalised
Adj cash profit post product development
Capex done (Ex product development)
Adj cash profit after tax post interest and capex
Working capital changes (Reported)
Less: Acceptances
Adj FCF post interest before finance receivables &
Add: Rise in Finance Receivables
Adj FCF post interest & finance receivables
Standalone
FY14
FY15
(10.3)
(39.7)
(24.8)
0.4
29.4
29.7
(0.6)
(0.8)
(6.2)
(10.5)
(17.5)
(18.4)
(1.1)
(1.1)
(18.5)
(16.1)
(43.3)
(46.1)
(12.4)
(10.9)
(55.7)
(57.1)
34.6
(15.2)
(8.6)
(8.6)
(29.7)
(80.8)
(0.2)
(0.0)
(29.9)
(80.8)
Subsidiary (Derived)
Consolidated
FY14
FY15
FY14
FY15
197.8
256.0
187.6
216.3
63.3
41.8
38.6
42.2
107.5
142.3
136.9
172.0
(42.5)
(41.2)
(43.1)
(41.9)
326.1
399.0
319.9
388.5
(44.2)
(44.6)
(61.7)
(63.1)
1.1
(1.1)
(11.4)
(13.9)
(11.4)
(13.9)
(132.4)
(98.3)
(150.9)
(114.5)
138.2
243.2
94.8
197.1
(105.9)
(190.0)
(118.3)
(200.9)
32.2
53.2
(23.5)
(3.8)
7.0
(21.5)
41.6
(36.7)
16.3
(2.3)
7.7
(10.9)
55.5
29.4
25.8
(51.4)
24.9
1.7
24.8
1.7
80.4
31.1
50.6
(49.7)
Source: Company annual report, Edelweiss research
Cash profit for the year stood robust at INR388.5bn versus INR319.9bn in previous year.
Free cash flow, adjusted for capex, product development spends and acceptances declined
from INR25.8bn in FY14 to negative INR(51.4)bn in FY15.
Capex spend rose from INR269bn in FY14 to INR315bn in FY15 and the company plans to
spend additional INR388bn in FY16.
Working capital requirement rose to INR36.7bn versus inflow of INR41.6bn last year,
primarily led by increase in receivables by INR30.1bn (FY14: decline of INR18.6bn). Trade
payables rose by INR36bn in FY15 versus INR46.9bn in FY14.
FY12
53
15
(110)
(41)
23
(19)
FY13
52
17
(98)
(29)
12
(17)
FY14
60
17
(109)
(32)
10
(22)
FY15
63
16
(109)
(30)
9
(21)
Receivable days stood steady at 16 days and absolute receivables rose from INR105.7bn to
INR125.8bn in FY15. Receivables due for >6 months rose from INR9.5bn to INR10.0bn in
FY15.
64
Tata Motors
Table 10: Average cash conversion cycle (days) Gobal peers
Particulars
CY11
15
59
(33)
41
BMW
Audi
Daimler
Jaguar Land Rover
CY12 CY13 CY14 CY11 CY12 CY13 CY14 CY11 CY12 CY13 CY14 FY11 FY12 FY13 FY14
14
12
10
21
20
20
23
26
25
24
23
23
17
18
17
58
58
60
39
41
40
39
71
72
69
69
64
55
61
61
(35) (42) (44) (39) (40) (42) (45) (39) (38) (35) (35) (93) (88) (99) (97)
36
28
26
21
21
17
17
58
58
57
57
(7) (16) (20) (20)
Source: Company annual report, Edelweiss research
JLR enjoys higher payables at 97 days as compared to its global peers average of 35-45 days.
(INR bn)
FY11
167
(25)
(14)
4
132
(17)
115
FY12
224
(34)
(18)
5
178
34
212
FY13
244
(47)
(22)
8
183
25
208
33
(13)
(1)
135
1
124
(3)
334
0
64
0
272
FY14
363
(62)
(43)
7
265
42
307
34
(2)
339
FY15
430
(63)
(42)
8
333
(37)
297
122
(2)
417
Total
1,429
(230)
(139)
32
1,092
46
1,139
Application
Capex (ex-product development)
Product development capitalised
Dividend
Change in finance receivable
Net cash(FDs, Mutual funds)
34
331
(7)
1,496 Total
FY11
28
53
10
24
20
FY12
47
91
15
57
125
FY13
88
100
16
25
43
FY14
94
175
7
1
62
FY15
217
98
7
95
135
334
272
339
417
Total
475
517
55
106
344
1,497
Debt rose by INR331bn over past 5 years and total cash and investments rose by INR344bn
over the same period.
Sources
Equity
issuances
(GDS and
QIPs)
2%
OCF post
interest
75%
Applications
Net cash
(FDs, Mutu
Change in al funds)
23%
finance
receivable
7%
Capex (exproduct
developme
nt)
32%
Dividend
4%
Product
developme
nt
capitalised
34%
Source: Company annual report, Edelweiss research
Cumulatively, over past 5 years, operating cash flow contributed 75% of cash generation
and borrowings contributed 22%. Significant cash deployment was towards product
development (34%) and capex (32%).
65
(INR bn)
Particulars
Cummulative
since FY10
FY10
FY11
FY12
FY13
FY14
FY15
4.8
15.6
(13.1)
0.1
7.3
4.0
6.8
7.5
15.3
(17.1)
0.3
6.1
15.5
20.7
7.8
18.3
(18.3)
1.1
8.9
17.6
26.5
10.1
21.8
(19.2)
0.5
13.2
14.4
53.9
16.3
25.9
(22.0)
0.6
20.7
32.0
67.1
15.8
27.7
(23.4)
0.0
20.2
34.1
81.9
76.3
117.6
75.1
5.6
(1.7)
29.4
23.3
23.4
14.5
41.8
28.6
45.2
24.5
48.9
28.7
192.7
116.4
Cash contribution continues to be significantly higher versus P&L charge annually led by
actuarial losses accounted under reserves as per IFRS. Cumulatively, since FY10, cash
contributions and increase in liability stood at INR192.7bn versus P&L charge of INR76.3bn.
Particulars
Equity securities (%)
Debt securities (%)
Other (%)
Net fair value of plan assets
Present value of defined benefit obligation
FY10
5.50- 5.60
6.5
FY11
5.19- 5.50
5.75-6.57
FY10
39-53
39-56
1-23
259.1
263.4
FY11
20-40
40-63
2.4-20
298.2
307.2
FY12
4.38-5.1
4.85-6.34
FY13
3.69-4.40
4.75-6.34
FY14
3.71-4.59
2.07-3.94
FY15
2.45-3.37
3.37
FY12
FY13
FY14
FY15
19-38.4
17-38
10-37
8-20
38.4-67
38-68
35-69
49-70
8-23.2
15-24
19-27
18-31
383.7
440.5
535.8
646.9
400.7
494.3
602.5
728.7
Source: Company annual report, Edelweiss research
Pension deficit rose from INR66.7bn in FY14 to INR81.8bn in FY15, partly led by decline in
the discount rate. Expected return on assets has been consistently falling in past 5 years
along with the discount rate due to lower interest rates in the European region.
66
Tata Motors
Capital allocation analysis
Table 14: Capital allocation and return ratios
(INR bn)
Particulars
Sales
EBITDA
EBITDA margin (%)
Depreciation
Net profit
ROE (%)
ROCE (%)
Asset turnover (ex-CWIP and
intangibles under development)
FY11
1,221
168
14
47
93
67
26
FY12
1,657
223
13
56
135
52
26
FY13
1,888
245
13
76
99
29
21
FY14
2,328
349
15
111
140
29
23
FY15
2,628
392
15
134
140
23
21
3.5
3.7
3.4
3.4
3.0
Capital employed
Equity shareholders' funds (A)
Loan funds (B)
520
192
328
798
327
471
912
376
536
1,262
656
606
1,299
563
736
1,120
48.0
840
32.0
560
16.0
280
(%)
64.0
0.0
(INR bn)
1,400
0
FY11
FY12
FY13
FY14
FY15
ROE (%)
ROCE (%)
Source: Company annual report, Edelweiss research
67
Particulars
Fixed assets:
Net fixed assets (ex CWIP)
CWIP
Intangibles (ex-Goodwill)
Intangibles under development
Goodwill
Total assets - A
Working capital - ex Cash
Inventories
Receivables
Other assets
Payables
Other liabilities
Net working capital (ex-cash) - B
Cash and cash equivalents - C
Others - D
Total (A+B+C+D)
(INR bn)
FY11
FY12
FY13
FY14
FY15
228
22
90
92
36
468
271
31
131
128
41
603
324
43
187
141
41
736
407
101
234
231
50
1,024
523
93
315
193
47
1,171
141
65
89
(279)
(211)
(196)
126
121
520
182
82
122
(367)
(284)
(264)
258
202
798
210
109
134
(448)
(340)
(334)
287
224
912
273
106
187
(573)
(364)
(372)
393
218
1,262
293
126
137
(574)
(514)
(532)
462
198
1,299
Other liabilities include provisions for product warranties (rose from INR202bn to INR212bn),
derivative contract liabilities (net) (up from INR(68)bn asset to INR123bn liabilities) and
others (largely capex payables, advance from customers and tax related liabilities).
Particulars
Liabilities:
Debt
Trade payables
Sub-total (A)
Derivative liablities/(asset) net
Provisions (largely product
warranties and provisions)
Other liablities (tax, capex
payables and others)
Sub-total (B)
Total liablitlies (A+B)
Net worth (Asset - liabilities)
D/E ratio
Total liabilities to equity ratio
FY11
(INR bn)
FY12
FY13
FY14
FY15
328
279
607
(3)
471
367
838
6
536
448
984
26
606
573
1,180
(68)
736
574
1,310
123
100
130
161
202
212
115
148
154
230
179
211
818
284
1,122
340
1,324
364
1,544
514
1,824
192
1.7
3.2
327
1.4
2.6
376
1.4
2.6
656
0.9
1.8
563
1.3
2.3
FY15 annual report (page 94) highlighted that in Fiscal 2014, TAMO breached financial
covenants relating to the ratio of total outstanding liabilities to tangible net worth, and to
the debt service coverage ratio in various financing agreements. The company requested
and obtained waivers of its obligations from the lenders and guarantors to pay additional
costs as a consequence of such breaches. These breaches have not resulted in an event of
default in the companys financing agreements or the payment of penalties.
In Fiscal 2015, the company has prepaid the above borrowings and hence there has not
been any breach of financial covenants.
68
Tata Motors
Table 17: Product warranty expenses
Particulars
Opening balance
Add: Provision for the year (net)
Less: Payments / debits
Foreign currency translation
Closing balance
Provision for the year as % of sales
(INR bn)
FY12
41.8
34.3
(28.6)
5.6
53.0
2.1
FY13
53.0
42.0
(27.6)
(0.3)
67.2
2.2
FY14
67.2
62.1
(47.6)
13.2
94.8
2.7
FY15
94.8
59.1
(41.5)
(8.8)
103.6
2.2
Cumulative
41.8
197.5
(145.3)
9.6
103.6
(INR bn)
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
RoCE
RoE
Depreciation
Financial costs
Net profit
Equity shareholders' funds
Loan funds
Net debt
Net fixed assets (Ex-CWIP)
CWIP
Current assets loans and advances (Ex-cash)
Current liabilities and provisions
Net current assets (Ex-cash)
Cash and cash equivalent
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital investments (as per Cash flow)
69
FY11
1,221
1,226
168
13.8
26.3
67.3
47
24
93
192
328
202
353
115
295
396
(101)
126
112
(73)
(14)
26
(81)
(40)
FY12
FY13
FY14
FY15
1,657
1,888
2,328
2,628
1,663
1,896
2,337
2,637
223
245
349
392
13.5
13.0
15.0
14.9
26.3
20.8
22.6
20.9
52.1
29.4
28.5
23.2
56
76
111
134
30
36
47
49
135
99
140
140
327
376
656
563
471
536
606
736
214
249
214
274
444
552
691
885
159
184
333
286
387
454
566
555
541
648
770
827
(154)
(195)
(204)
(272)
258
287
393
462
184
221
362
352
(205)
(234)
(299)
(345)
66
(17)
(39)
52
44
(30)
24
59
(139)
(188)
(269)
(315)
(23)
(1)
42
(37)
Source: Company annual report, Edelweiss research
TVS Motor Companys (TVS) FY15 annual report analysis highlights robust
volume growth leading to revenue and PBT growth (before exceptional
items) of 23% and 33% YoY, respectively. EBIDTA margin however
remained flat at 5.8%. EBITDA/unit has been consistently lower for TVS in
the past 5 years versus peers owing to higher operating and employee cost
per unit. Subsidiaries continue to record losses, largely led by Indonesia
operations. Aggregate exposure to subsidiaries stood at INR6.6bn, 40% of
standalone net worth (including guarantees and credit facilities - INR8.1bn,
49%). Operating cash flows declined sharply following increase in
inventories and loans/advances. Debt rose by INR3.9bn to INR11.2bn in
FY15 (D/E 0.8x), and adjusted for off-balance sheet liabilities (bills
discounted, LCs, credit agreements) stood at INR15.7bn (adjusted* D/E
1.3x). Investments (other than subsidiaries) stood at INR5.4bn, 41% of net
worth. Related party transactions included purchases worth INR4.6bn
(6.2% of raw material (RM) cost) from parent, Sundaram Clayton.
*also adjusted for revaluation reserve
Whats on track?
Market Data
52-week range (INR)
: 322 / 201
: 475.0
: 110 / 1,660
Promoters*
: 57.4
: 14.3
FIIs
: 12.7
Others
: 15.6
: Nil
(% of share in issue)
Robust volume growth at 21% YoY, led by strong demand and new launches. Revenue
grew 23% to INR103.1bn.
Other highlights
Foreign currency translation reserve stood at negative INR275.9mn versus credit of
INR750.2mn in FY14, owing to losses on translation of overseas subsidiaries (primarily
Indonesia and Singapore) as INR appreciated against the IDR and SGD.
Derivatives outstanding (net sell position) rose to INR7.8bn (FY14: INR4.8bn) and net
unhedged receivables rose from INR285mn in FY14 to INR708.5mn in FY15.
Standalone R&D expenses stood at INR2.0bn, 1.9% of sales (FY14: INR1.3bn, 1.7%). TVS
capitalised INR183.8mn (4% of standalone PBT) as design development and knowhow
under Intangible assets (FY14: INR191.1mn, 5% of PBT).
71
Subsidiary (Derived)
FY14
% FY15
%
4.2 100.0
2.1 100.0
2.3
55.2
0.1
6.3
1.1
27.1
1.3
59.9
0.6
15.5
0.7
34.4
0.1
2.2
(0.0) (0.6)
0.2
4.1
0.3
11.8
(0.1) (1.9) (0.3) (12.5)
0.5
13.1
0.3
16.3
(0.0) (0.8) (0.1) (4.2)
(0.7) (15.9) (0.7) (32.9)
0.2
5.0
0.6
27.3
(0.3) (7.0) (0.2) (7.3)
(0.7) (17.9) (0.3) (12.9)
(INR bn)
Consolidated
FY14
% FY15
%
83.8 100.0 103.1 100.0
59.0
70.4
73.1
70.9
14.5
17.3
17.4
16.9
5.4
6.5
6.6
6.4
4.9
5.9
6.0
5.8
1.5
1.8
1.8
1.7
3.4
4.1
4.2
4.1
0.6
0.6
0.8
1.0
0.3
0.3
0.2
0.2
2.9
3.4
3.9
3.7
0.2
0.2
0.6
0.6
(1.2)
(1.4)
(1.2)
(1.2)
1.9
2.2
3.2
3.1
TVS reported robust 21% volume growth leading to significant improvement in consolidated
revenue and profitability (PBT before exceptional items) growth at 23% and 33%,
respectively.
EBITDA grew 23% YoY, but margins have remained at 6% levels since past 4 years, despite
significant improvement in volume growth primarily due to higher employee cost and
operating expenses.
FY11
FY12
FY13
FY14
FY15
2.0
3.8
5.4
2.2
4.3
6.2
2.0
4.2
6.1
2.1
3.9
6.2
65.4
164.3
192.5
74.4
195.9
235.8
75.1
200.4
237.7
27
28
27
27
28
27
5.5
19.2
12.8
6.2
18.9
15.3
2.5
3.8
6.6
Particulars
Revenue per unit
TVS
Bajaj Auto
Hero Moto Corp
32,026
42,964
35,623
33,997
45,416
37,816
36,744
47,301
39,121
40,442
52,088
40,467
40,952
56,712
41,524
83.8
201.6
252.8
103.1
216.1
275.4
1,748
8,260
4,554
2,099
8,599
5,804
2,145
8,611
5,406
2,371
10,737
5,666
2,394
10,496
5,273
29
28
27
30
31
28
29
31
27
1,968
1,275
1,180
2,318
1,534
1,351
2,610
1,891
1,490
2,617
2,357
1,777
5.8
18.2
13.8
5.9
20.6
14.0
5.8
18.5
12.7
72
FY11
FY12
FY13
FY14
FY15
TVS
FY14
3,392
3,243
2,640
2,914
893
606
486
305
14,479
FY15
4,588
4,317
3,084
2,693
1,076
660
623
352
17,393
% of sales
FY14 FY15
4.0
4.4
3.9
4.2
3.1
3.0
3.5
2.6
1.1
1.0
0.7
0.6
0.6
0.6
0.4
0.3
17.3 16.9
(INR mn)
Bajaj Auto
% of sales
Hero Moto Corp.
% of sales
FY14
FY15 FY14 FY15
FY14
FY15
FY14 FY15
3,229
3,932
1.6
1.8
7,294
8,557
2.9
3.1
1,919
2,484
1.0
1.1
5,867
7,513
2.3
2.7
241
298
0.1
0.1
2,623
3,215
1.3
1.5
4,935
6,787
2.0
2.5
1,064
1,148
0.5
0.5
1,375
1,585
0.5
0.6
1,448
1,998
0.7
0.9
1,337
1,388
0.5
0.5
1,250
1,317
0.6
0.6
989
1,070
0.4
0.4
1,167
1,214
0.5
0.4
2,755
3,720
1.4
1.7
2,798
3,360
1.1
1.2
14,530 18,112
7.2
8.4 25,761 31,473 10.2 11.4
Source: Company annual report, Edelweiss research
High operating expenses were partly due to higher ad spends and marketing expenses at
2.6% and 3% of sales, respectively (total 5.6%), versus peers range of 2-2.5%.
Further, packing & freight expenses, power cost and miscellaneous expenses stood higher
for TVS versus peers. Miscellaneous expenses largely include travelling, communication,
R&D, legal/ professional and admin expenses. Aggregate packing & freight, power, misc. and
other expenses stood at 10% versus 5.2% for Bajaj Auto and 7.6% for Hero MotoCorp.
High cost structure (as explained above) led to lower EBITA margin at 5.8% versus 19% for
Bajaj Auto and 12.7% for Hero MotoCorp.
Other highlights
Exceptional income of INR583mn pertained to gain from sale of revalued land, of which
INR574mn was reduced from revaluation reserves as it was revalued in earlier years.
In FY14, the company divested its stake in TVS Energy (including step-down subsidiaries) and
recorded exceptional gain from sale of the energy business worth INR179.5mn.
Consequently, gross block of fixed assets in FY14 fell by INR3.7bn (net block INR3.3bn).
Revenues include other operating income, which rose to INR1.8bn (FY14: INR1.1bn). Finance
costs declined YoY on lower forex losses and other processing charges.
Effective tax rate declined from 39% in FY14 to 28% in FY15 due to MAT credit of
INR236.6mn and lower YoY deferred tax expense of INR269mn (FY14: INR516.5mn). Total
outstanding MAT credit stood at INR280mn.
73
(INR mn)
% shareholding
as on FY15
Sundaram Auto Components Ltd.
100.00
PT. TVS Motor Company Indonesia
100.00
TVS Motor Company (Europe) B.V
100.00
TVS Housing Ltd.
100.00
TVS Motor (Singapore) Pte. Ltd.
100.00
Sundaram Business Development
100.00
Consulting (Shanghai) Co. Ltd.
Total
PAT Margin (%)
Networth
943.9
1,152.8
237.0
0.7
1,964.0
FY14
Turnover
PAT
18,770.6
106.8
965.0 (1,398.8)
75.6
(253.9)
0.4
0.2
(0.4)
9.1
17.9
4,307.5
19,829.5
0.8
(1,545.3)
(7.8)
Networth
1,111.6
562.0
35.1
3.4
1,952.2
1.7
3,666.0
FY15
Turnover
21,373.4
1,166.5
0.5
114.4
43.6
PAT
253.7
(392.3)
(3.5)
2.7
(7.4)
(7.7)
22,698.4
(154.5)
(0.7)
Subsidiaries continued to record losses at aggregate level, though the extent of losses
lowered in FY15, led by Indonesia and Europe operations. PT TVS Indonesia has equity of
INR5.6bn against which accumulated losses were INR5.0bn, as at FY15.
Auto component subsidiary, Sundaram Autos performance stood robust with 14% YoY
revenue growth. However, we believe this was primarily led by inter-company transactions,
as derived (consol. minus standalone) subsidiary revenue growth was negative 49% YoY.
Aggregate cash exposure to subsidiaries stood at INR6.6bn, 40% of standalone net worth,
including guarantees and credit facilitating agreements exposure stood at INR8.1bn, 49% of
standalone net worth (FY14: INR7.4bn, 45%).
(INR mn)
Standalone
Particulars
FY14
Profit before tax
3,525
Non-operating expense
(22)
Non-cash adjustments
1,396
Direct taxes paid
(1,275)
Cash profit after tax
3,625
(Increase)/ decrease in receivables
(173)
(Increase)/ decrease in inventories
(385)
(Increase)/ decrease in other current assets
(266)
(Increase)/ decrease in loans and advances
(601)
Increase/ (decrease) in trade and other payables 1,903
Increase/ (decrease) in other current liabilities
1,135
(Increase)/ decrease in working capital
1,613
Less: Bill discounted/ LCs/ Credit arrangements
77
Adjusted working capital (Increase)/ decrease
1,691
Net cash from operating activities
5,315
Interest expenses paid
(230)
Net cash from operating activities post interest
5,086
Capital expenditure
(2,580)
Free cash flows
2,506
FY15
4,562
(22)
1,566
(1,407)
4,699
(1,697)
(2,715)
123
(2,635)
2,657
417
(3,851)
58
(3,793)
907
(285)
622
(4,052)
(3,430)
Subsidiary (derived)
Consolidated
FY14
FY15
FY14
FY15
(455)
(120)
3,071
4,442
61
(316)
39
(338)
152
245
1,548
1,811
(68)
(187)
(1,343)
(1,593)
(310)
(378)
3,315
4,321
(169)
1,079
(342)
(618)
82
(796)
(303)
(3,511)
146
(44)
(120)
79
59
(94)
(542)
(2,729)
(87)
(46)
1,816
2,612
(256)
258
880
675
(225)
358
1,388
(3,493)
926
706
1,004
764
701
1,063
385
(4,258)
(1,616)
(843)
3,699
64
(244)
(171)
(474)
(455)
(392)
(1,860)
(1,013)
3,226
(157)
618
(2,737)
(3,434)
(2,018)
(396)
489
(3,825)
Operating cash flow post interest declined significantly from INR3.2bn in FY14 to
INR(392)mn in FY15 following significant working capital investments. Inventories and loans
74
Receivable days
Inventory days
Payable days
Advance from customer days
Cash conversion cycle
Bill discounted/ LCs/ Credit arrangements
Adjusted cash conversion cycle
TVS
FY14
15
39
(55)
(2)
(3)
14
11
FY15
14
41
(55)
(3)
(3)
15
12
FY13
10
16
(48)
(4)
(25)
(25)
Bajaj Auto
Hero Moto
FY14
FY15
FY13
FY14
FY15
14
13
7
11
15
16
17
13
12
13
(51)
(45)
(41)
(39)
(44)
(6)
(8)
(2)
(1)
(1)
(27)
(23)
(23)
(17)
(17)
(27)
(23)
(23)
(17)
(17)
Source: Company annual report, Edelweiss research
Cash conversion cycle stood at negative 3 days YoY, and adjusted for bill discounting, LCs
and credit facilitating agreements stood at 12 days.
Inventory days for TVS are the highest versus peers, which along with bills discounting/LCs
led to higher cash conversion cycle for TVS versus negative cash conversion cycle for peers.
FY13
3,456
1,975
1,756
242
3,490
99
FY14
3,226
1,863
1,490
267
3,086
105
(INR mn)
FY15
(392)
3,283
1,786
237
4,832
(8)
FY14
105
122
107
FY15
(8)
78
90
FY11
1,302
1,279
1,336
258
2,358
55
FY12
3,796
1,323
1,583
144
2,762
137
75
(%)
80.0
40.0
0.0
(40.0)
FY11
FY12
TVS
FY13
FY14
Baja Auto
FY15
Despite robust growth in revenues and profits, earnings to cash conversion ratio declined on
account of significant investment in working capital, as explained in above sections.
(INR mn)
FY11
(1,453)
18,743
19,113
FY15
(3,825)
18,124
9,436
Table 10: Cumulative cash flow generation and utilization (past 5 years)
Sources
Operating profit
Less: Interest
Less: Taxes
Cash Profits
Working capital changes
Cash Profits after working capital
Off-Balance sheet liabilities
Adjusted OCF
Net borrowings
Reduction in net cash/
investments
Others
Total
FY11 FY12
3,485 4,273
(875) (832)
(832) (739)
1,777 2,701
(467) 1,334
1,310 4,036
(502) (240)
808 3,796
(2,033) 1,066
3,855
566
3,196
(179) (1,210)
389
5,072
(INR mn)
FY13
FY14
FY15
Total Application
FY11 FY12 FY13 FY14 FY15
Total
5,338 4,658 5,915 23,668 Capex
2,780 4,409 1,130 2,737 3,434 14,491
(931)
(474)
(455) (3,568) Dividend
416
663
718
695
844 3,335
(648) (1,343) (1,593) (5,156)
3,759 2,841 3,866 14,945
(120) 1,388 (3,493) (1,357)
3,639 4,230
373 13,587
(245) (1,004)
(764) (2,755)
3,394 3,226
(392) 10,832
(618)
(996) 3,914 1,333
282
1,848
(53)
1,255
3,432
547
209
4,278
2,959
2,703
17,826 Total
3,196
5,072
1,848
3,432
4,278
17,826
76
Application
Sources
Others
11%
Dividend
19%
Off-Balance
sheet
liabilities
15%
Sale of
subsidiaries
6%
OCF post
interest
61%
Borrowings
7%
Capex
81%
Source: Company annual report, Edelweiss research
Operating cash flows represented 66% of cash generation during past 5 years, with 15%
contributed by off-balance sheet liabilities. Major cash utlisation was towards capex and
dividend.
Debt
Add: Off balance sheet items (bills
discounted, LCs, credit agreements)
Adjusted Debt
D/E
Adjusted D/E
FY14
11,608
1,450
10,158
(INR mn)
FY15
13,246
932
12,314
10,681
7,277
11,191
2,726
3,730
4,494
13,407
1.2
1.5
11,007
0.6
1.1
15,685
0.8
1.3
FY13
8,983
8,983
Debt rose from INR7.3bn in FY14 to INR11.2bn in FY15, and including off-balance sheet
items debt rose from INR11.bn to INR15.7bn. Consequently, adjusted D/E ratio rose from
1.1x to 1.3x in FY15. Debt includes sales tax deferral loan from the Karnataka government
worth INR2.3bn (FY14: INR2.3bn) and soft loan from state-owned corporations worth
INR1.6bn (FY14: INR1.5bn).
In FY14, one of the subsidiaries revalued its land leading to increase in net worth and
revaluation reserve by INR1.5bn. In FY15, the company sold part of the land in Indonesia
and recognised the gain from the sale of INR582.7mn as exceptional income. Revaluation
reserve declined by INR574.1mn in FY15 pertaining to land sold.
77
FY12
74,352
4,591
6.2
19
17
19
15
14,722
1,857
7,222
15,526
22,748
FY13
75,105
4,383
5.8
16
14
16
13
15,930
362
8,983
13,407
22,390
FY14
83,836
4,915
5.9
17
19
18
17
15,172
482
10,158
11,007
21,165
(INR mn)
FY15
103,117
6,029
5.8
23
21
25
18
16,367
929
12,314
15,685
27,999
24
17.2
18
14.8
12
12.4
(%)
19.6
10.0
(INR bn)
30
0
FY11
FY12
FY13
FY14
FY15
FY13
5
11
8
FY14
6
10
11
(x)
FY15
6
11
9
78
(INR mn)
FY14
FY15
FY13
400
4
24
428
400
4
33
67
503
400
4
33
147
583
2,710
2,710
319
20
3,477
39
3,460
117
3,577
307
4,387
38
4,460
117
4,577
233
5,393
41
As at end of FY14, TVS holds 85% of the Non-cumulative Redeemable Preference shares
(NCRP) of TVS Motor Services. Preference shares issued are redeemable at 70% premium at
the end of 9th year (as per disclosure in TVS Motor Services financials filed with ROC
Registrar of companies).
Equity holding of TVS stood at 19% of the total equity share capital of TVS Motor Services
while remaining 81% was held by TVS Motor Foundation (as at end of FY14).
FY13
FY14
(INR mn)
FY15
796
319
194
106
125
1,540
985
307
182
101
73
1,647
278
233
231
109
30
882
168
1
169
9.6
207
27
233
14.6
192
2
194
15.3
5.8
7.6
4.4
Other income stood at INR236.6bn, of which INR194mn pertained to interest income and
profit on sale of investments.
79
FY13
233
1,173
634
382
606
3,028
34%
FY14
830
1,328
1,182
276
630
4,246
37%
(INR mn)
FY15
1,322
2,189
2,877
610
669
7,666
58%
80
FY11
65,430
65,688
17,952
27
3,571
5.5
1,336
708
1,279
20
14
6,827
10,407
12,938
576
11,664
10,215
1,449
552
9,855
2,653
(1,111)
(3,182)
(1,639)
2,756
(90)
FY12
74,352
74,496
20,326
27
4,591
6.2
1,583
883
1,323
19
17
7,222
13,044
14,722
1,857
11,740
11,754
(14)
1,375
11,669
4,868
(5,071)
(355)
(559)
4,409
(1,334)
FY13
75,105
75,346
21,629
29
4,383
5.8
1,756
1,034
1,975
15
14
8,983
10,681
15,930
362
12,850
12,696
154
796
9,885
4,705
(1,343)
(2,196)
1,166
1,130
120
FY14
83,836
84,103
24,804
30
4,915
5.9
1,490
801
1,863
17
19
11,608
7,277
15,172
482
14,850
15,472
(622)
985
6,292
4,703
(2,350)
(2,160)
193
2,737
(1,388)
(INR mn)
FY15
103,117
103,353
30,011
29
6,029
5.8
1,786
621
3,283
23
21
13,246
11,191
16,367
929
21,702
19,122
2,581
278
10,913
828
(4,149)
2,610
(711)
3,434
3,493
81
Bharat Forges (BF) FY15 annual report analysis highlights robust operating
performance at standalone level as revenue surged 34% and EBITDA margin
inched up to 29.2% (FY14: 25.4%). Free cash flows, though improved,
remained negative owing to higher capex of INR7.1bn (FY14: INR5.8bn) led by
standalone (INR2.9bn) and Alstom JV (~INR3bn). Capital commitments
jumped to INR5.8bn (FY14: INR2.1bn). Net debt, adjusted for acceptances and
bill discounting, increased by INR2.8bn to INR24.8bn (versus reported debt of
INR14.1bn). Cash conversion cycle, adjusted for bills discounted and
acceptances, stood at 92 days (FY14: 96) versus reported cycle of 42 days
(FY14: 54). Adjusted RoCE stood at 18.5% (FY14: 13.7%) versus reported
21.6% (FY14: 15.5%). Derivatives exposure to hedge expected sales
catapulted 53% to INR49bn (FY14: INR32bn, FY13: INR8.5bn), representing
~1.8x FY15 exports revenue, as the company has increased hedging for
anticipated revenues. Derivative gains recognised in balance sheet increased
to INR5.1bn (FY14: INR1.8bn).
Market Data
: 1,362 / 713
: 232.8
: 219 / 3,290
Promoters*
: 46.7
: 16.8
FIIs
: 15.3
Others
: 21.2
Whats on track?
: Nil
(% of share in issue)
Standalone adjusted cash conversion cycle declined to 136 days (FY14: 158) on lower
inventory days at 74 (FY14: 88) and higher payable days (adjusted for acceptances) at
60 (FY14:52).
BF capitalised MTM forex loss, net of amortisation, of INR0.2bn (2.1% of PBT) versus
INR1.1bn (17.2% of PBT) in FY14.
Purchase of goods (at standalone level) from related parties stood at INR15bn, ~84% of
raw material purchases (FY14: INR12.6bn, 89%).
During the year, the company purchased shares of KPIT Technologies for INR100mn.
These shares were classified under noncurrent investments.
During the year, Kalyani Alstom Power Ltd (subsidiary) was merged with Alstom Bharat
Forge Power Ltd (Alstom JV). Subsequently, BF infused additional ~INR0.7bn as equity
in the Alstom JV.
During the year, BF infused ~INR 290mn as equity in CDP Bharat Forge Gmbh (CDP),
taking cumulative investment in the company to ~INR 4bn, representing ~11.5% of BF
standalone net worth.
During FY15, CDB acquired 100% stake in Mcanique Gnrale Langroise (MGL), a
company focused on precision machining and other high value added processes for
EUR 11.8mn.
(INR bn)
Particulars
Sales
Raw materials consumed
Gross margin
Operating and admin expense
Personnel cost
EBITDA
Depreciation
EBIT
Financial charges
Other Income
PBT
FY14
34.0
13.7
20.3
8.8
2.8
8.6
2.5
6.2
1.5
1.1
5.8
Standalone
%
FY15
100.0
45.5
40.4
17.4
59.6
28.1
26.0
11.5
8.2
3.3
25.4
13.3
7.2
2.5
18.2
10.8
4.4
1.1
3.4
0.9
17.2
10.6
%
100.0
38.3
61.7
25.2
7.3
29.2
5.5
23.7
2.5
2.1
23.3
Subsidiary (Derived)
Consolidated
FY14
%
FY15
%
FY14
%
FY15
%
33.2 100.0
30.8 100.0
67.2 100.0
76.2 100.0
18.5
55.8
16.4
53.3
32.2
48.0
33.8
44.3
14.7
44.2
14.4
46.7
34.9
52.0
42.4
55.7
7.9
23.8
7.5
24.4
16.7
24.9
19.0
24.9
5.1
15.4
5.7
18.6
7.9
11.7
9.1
11.9
1.7
5.0
1.1
3.6
10.3
15.3
14.4
18.9
1.1
3.4
1.1
3.6
3.6
5.3
3.6
4.8
0.5
1.6
(0.0)
(0.0)
6.7
10.0
10.8
14.1
0.2
0.6
0.2
0.8
1.7
2.5
1.4
1.8
0.1
0.3
0.4
1.4
1.2
1.9
1.4
1.8
0.5
1.4
0.2
0.6
6.3
9.4
10.8
14.2
Source: Companys Annual Report, Edelweiss research
Revenues of overseas subsidiaries (primarily European) grew mere 2% and their profits
plummeted 96% to INR28mn (FY14: INR735mn). While CDB Bharat Forges profit
declined 50%, losses of Bharat Forge Kilsta AB jumped to INR422mn (FY14: INR122mn).
Bharat Forge
Table 2: Key subsidiaries and JV profitability analysis
Particulars
(INR mn)
Stake (%)
Overseas subsidiaries
CDP Bharat Forge GmbH
Bharat Forge International Ltd.
Bharat Forge Kilsta AB
Bharat Forge Aluminiumtechnik Gmbh & Co
100
100
100
100
Domestic subsidiaries
BF Infrastructure Ltd
BF Infrastructure Ventures Limited
Analogic Controls India Ltd.
100
100
60
Joint ventures
Alstom Bharat Forge Power Limited
49
Networth
7,384
283
371
1,159
189
396
(113)
1,631
FY14
Turnover
PAT
FY15
Turnover
PAT
13,402
8,955
7,110
3,513
32,980
577
114
(122)
166
735
13,109
10,870
6,046
3,466
33,490
291
127
(422)
33
28
3,900
109
4,009
(226)
(4)
(24)
(253)
392
34
426
1
(0)
(71)
(70)
4,006
40,994
154
635
5,473
39,389
130
89
(INR bn)
Particulars
Profit before tax
Non-operating expense
Non-cash adjustments
Others
Direct taxes paid
Cash profit after tax
(Increase)/Decrease in loans and advances
(Increase)/Decrease in inventories
(Increase)/Decrease in trade receivables
Adj for (Increase)/Decrease in bill discounted
Acceptances
Change in working capital on disposal of subsidiary
(Increase)/Decrease in other assets
Increase/(Decrease) in trade payables
Increase/(Decrease) in other liabilities & provisions
Increase in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post interest
Less: Capex
Free cash flow
84
Standalone
FY14
FY15
6.0
10.6
0.7
1.2
2.4
2.2
(1.4)
(3.6)
7.6
10.4
(0.0)
(1.3)
(0.3)
(0.3)
(0.3)
(0.6)
(1.5)
(4.6)
(1.6)
2.2
(1.0)
(0.1)
1.3
0.8
0.3
0.1
(3.1)
(3.8)
4.5
6.6
(1.5)
(1.2)
3.0
5.4
(1.6)
(2.9)
1.4
2.5
Subsidiary (derived)
Consolidated
FY14
FY15
FY14
FY15
1.4
0.6
7.3
11.2
(0.4)
(0.2)
0.3
1.0
1.1
1.2
3.5
3.4
(0.2)
(0.0)
(0.2)
(0.0)
(0.7)
(0.5)
(2.1)
(4.1)
1.2
1.2
8.8
11.5
(0.5)
0.9
(0.5)
(0.4)
(0.9)
0.3
(1.3)
0.0
(1.7)
0.4
(2.0)
(0.2)
(0.2)
0.0
(1.7)
(4.6)
(1.6)
2.2
1.0
0.0
1.0
0.0
(0.1)
(0.2)
(1.2)
(0.3)
2.7
(0.1)
4.1
0.7
(2.1)
(1.2)
(1.8)
(1.1)
(1.8)
0.1
(4.9)
(3.6)
(0.7)
1.3
3.9
7.9
(0.2)
(0.2)
(1.7)
(1.5)
(0.8)
1.0
2.2
6.4
(4.2)
(4.2)
(5.8)
(7.1)
(5.1)
(3.2)
(3.7)
(0.7)
Source: Companys Annual Report, Edelweiss research
Standalone adjusted operating cash flows (post interest) jumped to INR5.4bn (FY14:
INR3bn) led by sharp increase in exports (leading to higher profitability). Bill
discounting increased from INR7.0bn in FY14 to INR11.7bn in FY15.
Consolidated adjusted operating cash flows (post interest) surged to INR6.4bn (FY14:
INR2.2bn) led by higher profits and lower incremental investment in working capital.
Standalone
FY13
FY14
FY15
89
88
74
53
51
42
(100)
(89)
(84)
(2)
(1)
(1)
3
6
8
44
56
38
30
37
25
71
65
73
145
158
136
36.5
41.9
36.9
Consolidated
FY13
FY14
FY15
112
99
84
51
53
43
(91) (101)
(89)
(15)
(8)
(2)
10
11
6
66
54
42
18
17
14
39
25
37
123
96
92
27.9
25.3
24.7
Tax and duty credit receivables (not considered in cash conversion above) catapulted to
INR 3.2bn (FY14: INR1.7bn).
FY12
62.8
7.8
10.0
53.6
15.9
20.0
15.1
26.4
5.2
21.1
10.4
2.5
3.4
21.9
36.9
58.7
FY13
51.7
5.8
7.9
55.9
15.3
12.6
10.2
29.1
6.3
17.4
9.4
1.9
2.7
22.6
32.8
55.4
FY14
67.2
8.0
10.3
52.0
15.3
18.3
13.7
25.3
5.8
16.0
11.9
2.5
4.0
26.8
33.9
60.7
(INR bn)
FY15
76.2
12.2
14.4
55.7
18.9
24.1
18.5
26.3
8.6
19.4
11.4
3.0
4.3
34.4
36.1
70.6
85
Bharat Forge
Table 6: Borrowings analysis
(INR bn)
Particulars
Long Term borrowings
Short Term borrowings
Current maturities of long-term borrowings
Less: Cash & Liquid investments
Reported net debt
Add: Bills discounted
Add: Acceptances
Adjusted net debt
D/E ratio (reported)
D/E ratio (adjusted)
FY12
16.0
0.8
3.0
(9.3)
10.6
7.2
2.0
19.8
0.5
0.9
Standalone
FY13
FY14
14.5
13.6
0.4
1.1
3.9
5.3
(6.6)
(10.2)
12.1
9.7
5.6
7.1
1.2
2.9
18.9
19.7
0.5
0.4
0.8
0.7
FY15
15.7
0.8
1.4
(10.5)
7.5
11.7
0.6
19.9
0.2
0.6
FY12
19.2
5.0
3.4
(10.4)
17.2
7.2
2.0
26.5
0.8
1.2
Consolidated
FY13
FY14
18.3
15.2
5.1
4.9
4.5
5.5
(9.4)
(11.9)
18.4
13.7
3.7
5.4
1.2
2.9
23.4
21.9
0.8
0.5
1.0
0.8
FY15
19.8
3.8
1.8
(11.4)
14.1
10.1
0.6
24.8
0.4
0.7
While management highlighted decline in long term borrowings during the year, adjusted
net debt increased at standalone and consolidated levels. However, D/E ratio (adjusted)
improved at standalone and consolidated levels.
Consolidated adjusted net debt increased to INR24.8bn (FY14: INR21.9bn), led mainly by
Alstom JV. However, D/E ratio declined to 0.7x (FY14: 0.8x).
Management stated the company has increased hedges for anticipated revenues. Further, a
substantial portion (~80%) of hedges, as at March15, was taken against sales expected to
be clocked within 18 months from year end.
FY13
613.5
FY14
576.3
(INR mn)
FY15
226.6
278.4
892.0
(143.7)
748.3
4,169.1
17.9
692.1
1,268.4
(185.6)
1,082.8
6,285.4
17.2
248.2
474.8
(253.3)
221.4
10,795.3
2.1
86
FY13
FY14
(INR mn)
FY15
11,507
1,457
165
245
12,579
1,605
143
315
14,928
2,032
146
417
1,463
404
N.A.
200
88
798
509
770
210
149
2,706
585
845
210
234
Note: Transactions with Alstom group companies are excluded in the above table
Source: Companys Annual Report, Edelweiss research
Purchases (at standalone level) from related parties (Kalyani Carpenter Special Steels and
Kalyani Steel Steels) constituted ~84% (FY14: 89%) of raw material purchases. Payable to
related parties catapulted 239% to INR2.7bn and supported working capital during FY15.
Payable days to related parties increased to 43 (FY14: 33) versus 142 (FY14: 177) from other
suppliers.
RoE analyser
RoE analyser analyses profitability on the scale of operating and capital allocation efficiency
(detailed concept explained in Annexure A). We have analysed BFs profitability for FY13,
FY14 and FY15, results and key findings of which are given below:
FY13
FY14
7.8
1.2
6.7
FY15
11.9
1.5
7.9
4.1
1.0
3.5
4.3
1.7
10.4
5.8
0.8
4.4
7.5
0.8
12.7
17.8
6.2
0.5
4.8
13.0
0.6
18.3
0.1
24.1
87
Bharat Forge
Chart 1: RoE tree
30.0
0.1
24.0
6.2
(%)
18.0
12.0
24.1
17.8
6.0
0.0
RNOA
Return from
leverage
ROAE
FY11
50.9
51.5
26.6
52.3
7.9
15.4
17.3
15.8
2.6
1.5
2.9
19.5
19.0
12.6
24.6
2.0
0.0
23.9
14.5
9.3
6.4
3.4
(4.0)
(1.4)
(2.0)
4.2
4.1
FY12
62.8
63.7
33.7
53.6
10.0
15.9
20.0
17.8
3.0
1.8
4.1
21.9
27.6
17.2
26.4
5.2
0.0
32.0
20.1
11.9
10.4
7.0
(10.5)
6.3
2.8
8.0
1.5
FY13
51.7
52.8
28.9
55.9
7.9
15.3
12.6
11.7
3.2
1.7
2.5
22.6
27.8
18.4
29.1
6.3
0.0
33.8
21.1
12.7
9.4
7.3
(2.1)
(3.3)
1.9
5.6
0.2
FY14
67.2
68.4
34.9
52.0
10.3
15.3
18.3
15.5
3.6
1.7
5.0
26.8
25.6
13.7
25.3
5.8
0.1
29.3
19.7
9.6
11.9
7.2
(1.9)
(6.4)
(1.1)
5.9
1.6
(INR bn)
FY15
76.2
77.6
42.4
55.7
14.4
18.9
24.1
21.6
3.6
1.4
7.6
34.4
25.5
14.1
25.7
8.6
0.5
33.1
19.0
14.0
11.4
10.3
(4.6)
(3.6)
2.1
7.1
1.2
Note: Above numbers are on reported basis. For adjusted numbers refer earlier pages of the report.
Source: Companys Annual Report, Edelweiss research
88
Market Data
: 231 / 153
: 626.7
: 119 / 1,876
: 34.4
: 31.2
FIIs
: 15.7
Others
: 18.7
: 22.8
(% of share in issue)
Whats on track?
CRG is in the process of divesting its loss making/low margins overseas operations and
has been evaluating non-binding proposals submitted by bidders.
Consumer products business reported 13% and 10% growth in PAT and operating cash
flows YoY respectively.
Other Highlights
Avantha Power and Infrastructure ceased to be an associate company with effect from
April 1, 2014 due to decline in CRGs stake to below 20%. The carrying cost of the
companys investment in Avantha Power stood at ~INR 2.5bn, ~6.5% of net worth.
Unfunded defined benefit obligations including leave encashment and post retirement
benefit plans stood at INR 530mn.
Expenses (including employee benefits and other expenses) capitalised during the year
stood at INR 473mn (FY14: INR 437mn).
As at March 2015, CRG had recognised deferred tax asset of INR 1.6bn (~4.2% of net
worth) (March 2014: INR 2.1bn) in respect of carried forward tax losses/depreciation of
subsidiaries.
During the year, CRG sold a portion (8 acres) of land at Kanjurmarg, Mumbai at a profit
of INR 2.8bn. Cash flows from sale of fixed assets stood at INR 3.4bn in FY15, which we
believe is towards part consideration.
CRG received non-binding proposals from reputed international entities for acquiring
European, North American and Indonesian activities of CG Power.
Further, the company also received firm offers for the Canadian power facility, and the
US transportation automation businesses, formerly known as QEI Inc.
90
Crompton Greaves
Earnings analysis
Table 1: Standalone/subsidiary profitability analysis
Particulars
Sales
Raw Materials Consumed
Gross Profit
Other expense
Personnel cost
Reported EBITDA
Operating expenses classified as
exceptional expenses and Prior period
item
Exchange gain / (loss)
Adjusted EBITDA
Depreciation
Adjusted EBIT
Financial Charges
Other income
Adjusted PBT
Consumer products business PBT
PBT (ex consumer products)
Tax expense (ex consumer products)
PAT (ex consumer products) (before
exceptional items)
Exceptional exp/ (gain)
PAT (ex consumer products) (after
exceptional items)
(INR bn)
Standalone
FY14
% FY15
%
75.7 100.0
78.4 100.0
56.0
73.9
58.2
74.3
19.7
26.1
20.1
25.7
8.8
11.6
8.4
10.7
4.8
6.3
5.2
6.7
6.2
8.1
6.5
8.3
Subsidiary (Derived)
Consolidated
FY14
%
FY15
% FY14
% FY15
%
60.6 100.0
61.8 100.0 136.3 100.0 140.1 100.0
35.4
58.4
37.1
60.0
91.4
67.0
95.3
68.0
25.2
41.6
24.7
40.0
45.0
33.0
44.8
32.0
10.5
17.4
10.1
16.3
19.3
14.2
18.5
13.2
14.8
24.3
14.7
23.8
19.5
14.3
19.9
14.2
(0.0)
(0.1)
(0.1)
(0.2)
6.1
4.5
6.4
4.6
0.0
0.0
0.0
0.0
0.0
0.0
(1.7)
(2.7)
0.0
0.0
(1.7)
(1.2)
0.9
7.1
0.9
6.2
0.4
1.0
6.8
3.3
3.5
1.0
1.2
9.4
1.2
8.2
0.5
1.3
9.0
(0.5)
6.1
1.0
5.1
0.5
1.3
5.9
4.0
2.0
0.4
(0.6)
7.7
1.2
6.5
0.6
1.7
10.9
0.0
(0.0)
1.7
(1.8)
1.0
0.9
(1.8)
(1.8)
0.4
0.0
(0.1)
2.9
(2.9)
1.6
1.5
(3.0)
0.0
(1.8)
1.7
(3.4)
0.9
0.3
(4.0)
(0.0)
(4.0)
0.5
0.0
(2.8)
2.7
(5.5)
1.5
0.5
(6.9)
0.9
7.0
2.6
4.4
1.4
1.9
4.9
3.3
1.6
1.4
0.7
5.2
1.9
3.2
1.0
1.4
3.6
(0.5)
4.3
2.6
1.7
1.4
1.7
1.9
3.9
(2.0)
1.0
(0.3)
3.1
1.9
1.2
1.0
1.2
3.1
2.5
1.6
(2.6)
2.5
4.2
(2.3)
(4.6)
0.2
(2.3)
(4.8)
0.2
(3.0)
(2.4)
0.2
(0.6)
Note: Interest income on loans to subsidiaries are excluded while computing standalone profitability
Source: Company annual report, Edelweiss research
During FY15, CRG classified certain expenses as exceptional and prior period items.
These include certain normal business expenses which, we have adjusted while
arriving at adjusted EBITDA.
91
(INR mn)
Amount
2,782
Treatment
Exceptional gain
in FY15
(181)
Exceptional loss
in FY15
(821)
Adjusted from
EBITDA in FY15
(223)
Exceptional loss
in FY15
(652)
Adjusted from
EBITDA in FY15
904
177
Adjusted from
EBITDA in FY15
1,081
Consolidated finance cost stood at INR 1.4bn, implying average borrowings cost of
~5% on borrowings (gross) of INR 31.3bn (including acceptances). Considering low
cost of overseas borrowings the impact of deleveraging will be minimal on
reported profitability
Other income includes miscellaneous income of INR 0.9bn (FY14: INR 1bn), in
consolidated financial statements for which details regarding nature of income are
unavailable.
50,000
20.0
40,000
16.0
30,000
12.0
20,000
8.0
10,000
4.0
FY11
FY12
FY13
FY14
FY15
(%)
(INR mn)
0.0
92
Crompton Greaves
Consumer products business
PAT margin of consumer
products business was stable at
~8.3%
(INR mn)
FY15
%
32,327 100.0
28,355
87.7
3,971
12.3
1,277
3.9
2,694
8.3
6,809
12,401
3,851
36
6,895
(INR bn)
Standalone
Particulars
Profit before tax
Non-operating (profit)/loss
Non-cash adjustments
Operating profit before working capital changes
(Increase) / Decrease in trade and other receivables
(Increase) / Decrease in loans and advances to subsidiaries
FY14
7.1
(1.0)
1.1
7.2
(1.6)
(1.5)
-
FY15
9.0
(2.5)
1.2
7.7
(7.8)
(3.0)
Subsidiary (Derived)
FY14
FY15
(2.2)
(4.7)
1.6
0.7
1.6
1.9
1.1
(2.1)
(4.7)
1.0
1.5
3.0
(0.1)
(0.1)
0.2
(0.8)
(0.1)
0.3
(1.8)
(0.1)
(0.2)
0.6
(0.3)
3.9
0.2
(0.0)
-
(4.1)
(1.9)
1.2
(3.5)
(2.3)
(0.4)
(2.7)
(1.2)
(3.9)
(2.4)
(11.9)
(2.2)
(6.4)
(3.9)
(10.3)
(0.4)
(10.7)
0.6
0.0
(0.2)
(0.5)
1.0
1.0
(0.9)
0.0
(0.8)
(11.6)
(8.5)
(1.4)
(1.4)
-
1.8
(4.0)
0.4
(0.1)
-
Consolidated
FY14
FY15
4.9
0.5
(1.8)
2.8
3.1
8.3
(6.3)
(6.8)
(0.0)
(0.0)
(0.3)
3.8
0.3
(0.9)
(0.1)
2.2
(5.7)
0.4
(0.4)
0.6
2.2
0.0
0.0
(0.3)
(0.2)
(0.2)
(1.0)
(1.2)
(3.5)
0.0
(0.2)
(2.4)
2.2
(3.5)
(1.3)
(1.3)
(2.7)
(1.3)
(2.4)
-
(2.6)
(5.3)
-
4.3
5.6
-
(9.8)
0.0
0.0
(2.5)
(6.6)
(3.9)
(10.5)
(1.4)
(11.9)
(2.1)
(14.0)
-
93
Cash flow from operating activities declined from INR 2.2bn in FY14 to INR(6.6)bn in
FY15 led by lower operating profitability and higher working capital.
Operating cash flows of consumer products business was robust at INR 3.9bn (FY14:
INR3.5bn).
Standalone
Consolidated
FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15
55
60
64
58
32
33
35
33
92
95
90
95
91
91
90
97
2
4
6
9
1
2
(25) (21)
(18) (16)
(7)
(0) (25) (27)
(1)
(2)
(3)
(3)
(1)
(1)
(1)
(1)
(85) (90) (98) (91) (91) (96) (101) (98)
33
35
32
40
20
18
21
39
7
9
12
13
7
8
11
13
3
3
2
2
5
4
4
3
43
47
45
55
36
56
31
32
13.2 10.9 16.0 20.9 15.3 15.4 15.5 19.4
Source: Company annual report, Edelweiss research
Since working capital requirement of consumer business is lower, cash conversion cycle
will increase post demerger of consumer business.
Total
22.6
19.1
18.4
17.4
Consolidated
< 6 Months > 6 Months
32.7
4.7
32.7
3.2
27.9
3.7
28.4
3.0
(INR bn)
Total
37.3
35.9
31.6
31.4
94
Crompton Greaves
Capital allocation- Standalone business
Table 7: Standalone- RoCE
Particulars
Equity shareholders' funds
Loan funds
Capital employed
Investment in subsidiaries/Associates etc
Advances to subsidiaries/associates etc
Advances from subsidiaries/Associates etc
Adjusted capital employed- standalone
Represented by
Fixed & intangible assets (Incl CWIP)
Inventory
Trade receivables
Trade payables
Core working capital
Other current assets(inc loans and advances)
Cash and Current investments
Non- current loans & advances
Non-current investments
Other non-current liabilities
Other current liabilities and provisions
(INR bn)
FY11 FY12 FY13 FY14 FY15
23.0
27.0
30.6
33.6
40.1
0.1
0.1
0.1
0.3
7.2
23.2
27.1
30.7
33.9
47.3
(3.8) (5.5) (5.5) (8.1) (10.0)
(1.0) (0.9) (5.2) (6.7) (9.7)
0.0
0.4
0.3
0.1
0.1
18.4
21.0
20.2
19.2
27.6
9.2
6.8
7.8
8.2
7.9
4.1
4.5
5.5
5.6
5.2
15.1
17.4
18.4
19.1
22.6
(11.0) (11.7) (15.1) (15.6) (14.3)
8.2
10.1
8.7
9.0
13.6
2.0
2.2
2.2
3.2
6.8
5.5
8.2
7.9
4.6
4.6
0.2
0.2
0.2
0.4
0.2
0.0
0.0
0.0
0.0
0.0
(1.5) (1.0) (1.2) (1.2) (1.2)
(5.2) (5.6) (5.4) (5.0) (4.3)
18.4
21.0
20.2
19.2
27.6
(0.8) (0.9) (1.1) (1.2) (1.4)
17.6
20.1
19.1
18.0
26.2
16.2
19.7
20.6
19.7
23.4
15.5
18.8
19.6
18.6
22.1
9.4
6.9
6.0
6.8
6.0
2.9
2.6
2.7
3.3
4.0
6.6
4.3
3.3
3.5
2.0
58.3
35.0
29.1
34.7
25.6
42.3
23.0
16.7
18.9
9.1
FY11
9.9
(0.2)
FY12
7.6
(0.3)
FY13
6.3
(0.3)
FY14
7.2
(0.4)
FY15
7.7
(0.4)
Less: Taxes
(3.0)
(2.1)
(1.1)
(1.9)
(2.2)
0.2
6.9
(3.5)
3.4
0.1
4.0
(0.8)
(0.1)
6.6
0.2
5.4
(2.0)
3.5
0.2
(0.8)
(0.1)
2.8
0.5
5.4
0.9
6.4
0.3
0.2
0.1
7.0
0.6
5.5
(1.5)
4.1
(0.1)
4.9
0.2
9.0
0.7
5.8
(9.3)
(3.5)
(0.1)
1.4
(1.4)
6.9
3.4
(INR bn)
Total Application
38.7 Capex
(1.6) Dividend Paid
Investment/ loans to
(10.3)
subsidiaries
2.2 Buyback of shares
29.1 Net increase in cash and ban
(15.2)
13.9
0.1
5.7
2.1
6.9
28.8 Total
FY11
4.4
1.2
0.9
-
FY12
(1.6)
1.2
1.6
-
FY13
1.7
0.9
4.4
-
FY14
1.0
0.9
4.2
FY15
(2.6)
0.9
5.1
1.7
1.3
1.5
6.6
2.8
7.0
9.0
3.4
Total
3.0
5.1
16.2
1.3
3.2
28.8
95
Borrowings were key source of cash during FY15 as owing to steep increase in
working capital, cash profits were negative.
Total investment (including loans & advances) in subsidiaries stood at INR 16.2bn,
~56% of available cash during FY11-15.
Working capital rose steeply in FY15, highest in past 5 years, leading to negative
cash profits.
(INR bn)
Particulars
Equity shareholders' funds
Loan funds
Capital employed
Represented by
Fixed assets(Incl CWIP & excl Goodwill)
Intangible assets(excl Goodwill)
Goodwill
Inventory
Trade receivables
Trade payables
Core working capital
Other current assets including loans and advances
Cash and Current investments
Non- current loans & advances
Non-current investments
Other non-current assets
Other non-current liabilities
Other current liabilities and provisions
FY12
36.1
10.4
46.5
FY13
35.6
20.3
55.9
FY14
36.4
23.9
60.4
FY15
38.2
27.4
65.6
12.9
15.2
16.6
15.4
3.9
5.7
6.4
5.1
5.8
9.8
11.6
9.5
12.2
16.4
16.7
14.6
31.4
31.6
35.9
37.3
(21.1) (24.6) (27.7) (25.3)
22.6
23.4
24.9
26.6
6.4
5.8
7.9
13.5
10.0
10.8
8.4
8.5
0.3
0.2
0.5
0.2
2.9
2.9
2.8
2.8
0.5
1.7
1.5
1.1
(2.9) (2.3) (1.5) (1.4)
(15.8) (17.3) (18.6) (15.7)
46.5
55.9
60.4
65.6
(0.9) (1.1) (1.2) (1.4)
45.6
54.8
59.2
64.2
42.0
51.2
58.1
63.0
41.1
50.2
57.0
61.7
6.1
2.8
6.2
3.4
n.a.
n.a.
3.3
3.9
n.a.
n.a.
2.8
(0.6)
14.6
5.5
10.6
5.3
n.a.
n.a.
5.0
(0.9)
96
Crompton Greaves
Segment and subsidiary performance analysis
Segment RoCE (ex consumer) at
standalone level declined from
~31% in FY14 to ~20% in FY15
FY12
FY13
FY14
25.5
14.1
0.2
39.8
20.2
(0.5)
59.5
27.5
15.2
1.3
44.0
21.3
(0.5)
64.9
27.2
15.0
3.8
46.0
25.9
(0.6)
71.4
28.4
15.0
3.8
47.3
29.0
(0.5)
75.7
27.3
15.0
4.1
46.5
32.3
(0.4)
78.4
4.6
2.6
0.0
7.3
2.9
10.2
0.9
9.3
0.0
-
3.2
2.3
(0.1)
5.4
2.6
8.0
1.2
6.8
0.0
-
2.3
2.1
0.1
4.5
2.8
7.3
1.6
5.8
0.2
-
2.6
1.5
0.0
4.1
3.4
7.5
1.5
6.0
0.2
(0.9)
2.2
1.5
(0.4)
3.4
4.1
7.4
0.8
6.6
0.2
0.5
6.8
5.6
6.7
5.9
11.6
14.8
12.2
8.5
14.2
9.9
9.1
10.2
8.7
8.1
10.1
7.2
42.4
61.5
47.6
28.5
53.8
36.5
31.7
38.8
30.9
21.4
37.8
20.3
FY14
0.9
3.5
4.1
(1.5)
(INR bn)
FY15
FY11
(INR bn)
FY15 Particulars
Segment capital employed (ex consumer) as per
3.4
segment disclosure (a)
(0.8) Unallocable segment assets (net) not considered in
segment capital employed in (a) above
(0.5) Others
2.0 Adjusted capital employed (ex consumer business) in
table 7
FY14
FY15
14.4
18.7
4.4
8.2
(0.8)
(0.7)
18.0
26.2
97
(INR mn)
Standalone
FY13
FY14
27,250 28,430
2,600
2,960
2,310
2,590
7,800
8,520
28.6
31.7
8.5
9.1
33,300 31,080
Net Sales
EBIDTA (including other income, OI)
EBIT
Capital Employed
RoCE (%)
EBIT (%)
Unexecuted Order Book
Overseas
Overall
FY15
FY13
FY14
FY15
FY13
FY14
FY15
27,340 47,530 58,400 58,980 73,360 85,360 85,740
2,660 (2,440)
900
120
340
4,290
3,280
2,230 (3,520)
(600) (1,320) (1,100) 2,340
1,350
12,250 25,140 28,220 26,130 33,820 38,990 40,860
21.5
(16.4)
(2.2)
(4.9)
(3.7)
6.4
3.4
8.2
(7.4)
(1.0)
(2.2)
(1.5)
2.7
1.6
29,670 51,950 55,300 39,490 85,250 86,380 69,160
Source: Company annual report, Edelweiss research
The company has received non-binding proposals from reputed international entities
for acquiring European, North American and Indonesian activities of CG Power.
FY13
936
(42)
7
16
23
(74)
(22)
(96)
7
(16)
(87)
(87)
(USD mn)
FY14
FY15
1,029
1,023
(6)
13
9
19
20
27
26
(33)
(43)
(28)
(3)
(33)
(74)
4
3
(40)
(3)
(43)
4
5
(83)
(1)
(84)
98
Crompton Greaves
Table 14: Major subsidiaries analysis
(INR mn)
FY14
FY15
Revenue
PAT Net Worth Revenue
CG International B.V
1,608
165
8,230
1,354
CG Holdings Belgium N.V.
8,404
496
17,146
6,948
CG Power Systems Belgium N.V
12,513 (1,186)
7,098
9,974
CG Power Systems Ireland Limited 5,912
49
2,540
4,664
CG Power Systems Canada Inc.
3,844
(727)
(945)
3,802
PT. CG Power Systems Indonesia
7,384
640
5,747
8,106
CG Electric Systems Hungary Zrt.
7,918
(803)
(1,403)
3,676
CG Power USA Inc.
11,174
311
2,047 11,746
CG Power Solutions UK Limited
2,669
(445)
(313)
1,684
CG Power Systems Brazil Ltda
899
(371)
(974)
453
CG Middle East FZE
2,165
(535)
97
1,058
Others
1,347
(406)
6,485
1,308
Total (A)
65,836 (2,812)
45,755 54,773
Emotron Group subsidiaries
CG Drives and Automation
Sweden AB
2,732
492
1,789
1,694
Netherlands B.V.
574
11
169
512
Germany GmbH
1,296
19
60
1,017
Total (B)
4,602
522
2,018
3,223
ZIV Group subsidiaries
ZIV Aplicaciones y Tecnologia S.L.
1,418
459
958
292
ZIV Metering Solutions S.L.
3,269
253
1,441
4,868
ZIV Grid Automation S.L.
1,923
(38)
922
952
Others
1,168
(159)
39
1,091
Total (C)
7,778
514
3,361
7,204
Grand Total (A)+(B)+(C)
78,216 (1,776)
51,134 65,199
Name of the Subsidiary Company
PAT
(1)
317
(1,512)
103
(258)
576
(2,542)
(78)
(740)
(443)
520
(310)
(4,369)
177
30
10
217
33
169
(109)
18
111
(4,041)
FY11
0.2
0.5
7.5
2.9
6.8
FY12
0.7
1.0
17.6
3.8
5.6
FY13
0.7
1.7
12.6
5.3
13.4
FY14
1.3
2.6
11.0
11.5
23.3
(INR bn)
FY15
1.2
4.1
16.1
7.5
25.7
99
(%)
18.0
12.0
6.0
0.0
FY11
FY12
FY13
FY14
FY15
100
Crompton Greaves
Intangibles
Although intangible assets declined
to INR14.5bn during the year, they
still constitute 38% of net worth
FY11
2.9
0.3
0.2
0.3
0.4
0.7
4.9
0.1
4.9
15.0
FY12
5.9
0.4
0.5
0.3
1.1
1.2
9.3
0.4
9.7
27.0
FY13
9.8
0.6
0.4
0.3
0.9
2.5
14.4
1.0
15.5
43.4
FY14
11.6
0.6
0.4
0.2
1.3
2.7
16.7
1.3
18.0
49.3
(INR bn)
FY15
9.5
0.6
0.4
0.1
1.5
2.0
14.0
0.5
14.5
38.1
Research & development costs are amortised over 3-15 years based on expected useful life.
Brand names and customer lists are amortised over 10 years. Goodwill arising on
consolidation is not amortized but tested for impairment annually.
Total exposure to
subsidiaries/associates stood at
INR33.2bn, 83% of standalone
net worth
23,141
75.7
FY14
5,596
2,356
100
6,594
14,646.1
43.6
14,565
43.4
29,211
87.0
(INR mn)
FY15
7,688
2,356
9,622
19,666.2
49.0
13,586
33.9
33,252
82.9
101
Avantha Power and Infrastructure ceased to be an associate company with effect from
April 1, 2014, due to decline in CRGs shareholding to below 20%. The carrying cost of
~INR 2.5bn pertaining to Avantha Power which was accounted under equity method till
FY14, has been reclassified under investment in others.
(INR mn)
FY15
120
192
FY13
105
113
FY14
112
215
139
189
91
69
51
115
20
20
20
784
16
135
676
16
172
702
63
142
FY11
100,051
101,184
13,438
13.4
37.3
31.7
37.4
1,936
343
8,887
32,747
4,703
(2,309)
15,381
1,098
2,934
42,068
31,379
10,690
7,012
5,669
(7,560)
(1,813)
(3,704)
(7,461)
(5,070)
FY12
112,486
113,113
8,036
7.1
31.7
10.9
14.4
2,600
567
3,736
36,109
10,440
453
15,201
1,493
5,882
50,039
36,877
13,162
9,987
4,133
(4,623)
2,482
1,992
(3,724)
(2,277)
FY13
120,944
121,944
3,832
3.2
31.0
1.2
5.5
2,029
955
(361)
35,615
20,270
9,429
18,907
1,965
9,792
53,728
41,896
11,832
10,841
4,449
(11,367)
7,776
858
(3,724)
2,480
FY14
136,315
138,205
6,120
4.5
33.0
5.1
9.3
2,621
1,366
2,443
36,446
23,936
15,578
20,820
2,184
11,588
60,520
46,185
14,335
8,358
3,196
(978)
99
2,316
(2,620)
(2,513)
(INR mn)
FY15
140,131
141,802
6,424
4.6
32.0
5.2
8.7
2,620
1,443
2,094
38,159
27,438
18,937
19,167
1,267
9,468
65,355
40,933
24,422
8,501
(6,801)
4,284
1,260
(1,257)
1,310
(9,983)
102
Havells Indias (Havells) FY15 annual report analysis highlights subdued (5 year
low) revenue and EBITDA growth at standalone level. Standalone tax rate rose to
28% due to lapse of tax holiday period of certain units and management expects
tax rate to increase further. Consolidated profits were aided by recognition of
deferred tax asset (DTA) of INR378mn (~6.7% of PBT) (FY14: nil) in respect of
unabsorbed losses pertaining to certain Sylvania subsidiaries. Higher actuarial
loss on defined benefits obligations led to slippage in Sylvanias EBITDA and its
losses surged to EUR11.5mn in FY15 (FY14: EUR4mn). Sylvanias net pension
liability rose to INR3.9bn (EUR58.1mn) as at March 2015 (March 2014: INR3.6bn;
EUR43.7mn). Goodwill on Sylvania consolidation stood at INR3.6bn (March 2014:
INR4.4bn), representing ~20% of consolidated net worth. During FY15, Havells
infused INR1.3bn (FY14: INR0.8bn) in Sylvania, taking its cumulative investment in
the company to INR9.8bn (~40% of standalone net worth).
Market Data
52-week range (INR)
: 346 / 222
: 624.5
: 176 / 2,751
Promoters*
: 61.6
: 2.6
Whats on track?
FIIs
: 26.0
Others
: 9.8
: NIL
Standalone effective tax rate jumped from ~20% in FY13 and FY14 to ~28% in FY15 due
to lapse of tax holiday period for a few units. Management expects tax rate to further
increase to ~30% in FY16.
During Q1FY16, the company acquired 51% stake in Promptec Renewable Energy
Solution (Promptec) for INR 291mn. The latter markets and manufactures LED products,
including street, office and solar lighting.
DTA has not been recognised in respect of losses amounting to ~INR16.9bn (March
2014: INR24bn) due to absence of virtual certainty supported by convincing evidences
that sufficient future taxable income will be available against which such deferred tax
assets can be realised.
The company has settled claims with one of its customers related to supply of
switchgear products. Aggregate settlement amount payable was ~INR700mn, of which
INR420mn was recognised as expense in FY14 and balance ~INR280mn in FY15.
The companys JV (50% stake), Jiangsu Havells Sylvania Lighting Co, reported sales of
~USD20mn (FY14: USD17.4mn) and net profit margin of 4% in FY15 (FY14: Loss of 1.4%).
Sylvanias European operations remained stable during the year despite difficult market
conditions. Even in the face of volatile forex scenario, the company retained
unwavering focus on profitability, cash generation and debt reduction.
Earnings analysis
Table 1: Standalone / Subsidiary analysis
FY14
Sales
47,197
Raw Materials Consumed 29,017
Gross margin
18,180
Operating & Admin. Exp.
9,289
Personnel cost
2,475
EBITDA
6,416
Depreciation
636
EBIT
5,780
Financial Charges
269
Other Income
441
PBT
5,951
Standalone
%
FY15
100.0 52,387
61.5 31,784
38.5 20,603
19.7 10,484
5.2
3,127
13.6
6,991
1.3
875
12.2
6,116
0.6
176
0.9
522
12.6
6,463
104
(INR mn)
Subsidiary/JV (Derived)
Consolidated
%
FY14
%
FY15
%
FY14
%
FY15
%
100.0 34,661
100.0 33,307
100.0 81,858
100.0 85,694
100.0
60.7 17,380
50.1 16,508
49.6 46,398
56.7 48,292
56.4
39.3 17,281
49.9 16,800
50.4 35,461
43.3 37,403
43.6
20.0
7,878
22.7
7,832
23.5 17,167
21.0 18,316
21.4
6.0
8,394
24.2
8,748
26.3 10,869
13.3 11,875
13.9
13.3
1,009
2.9
220
0.7
7,425
9.1
7,211
8.4
1.7
519
1.5
512
1.5
1,155
1.4
1,387
1.6
11.7
490
1.4
(291)
(0.9) 6,270
7.7
5,825
6.8
0.3
472
1.4
464
1.4
741
0.9
640
0.7
1.0
(28)
(0.1)
(18)
(0.1)
413
0.5
505
0.6
12.3
(10)
(0.0)
(773)
(2.3) 5,941
7.3
5,690
6.6
Source: Company annual report, Edelweiss research
Havells India
Revenue and EBITDA growth at
standalone level remained muted
at 11% and 9%, respectively
During FY15, standalone revenue grew only 11% led by sluggish growth in switchgear
and lighting & fixture, which clocked growth of 5% and 3%, respectively.
EBITDA margin declined to 13.3% (FY14: 13.6%) owing to higher personnel cost.
Depreciation expense during the year was higher as it was computed based on
estimated useful life of assets, as prescribed in the Companies Act 2013.
During FY15, Sylvanias personnel cost included actuarial loss of INR1.1bn (FY14:
INR0.5bn) on DBO due to significant reduction in interest/discount rates in Europe
(primarily Germany).
Segmental result
Switchgears
Cables
Lighting and fixtures
Electrical consumable durables
Less: Unallocated exp. net of income
Operating Profit
Finance Costs
Profit before Tax
Income Tax expense
Profit after tax
Segmental EBIT margins
Switchgears
Cables
Lighting and fixtures
Electrical consumable durables
FY12
FY13
(INR mn)
FY14
FY15
8,962
15,930
5,544
5,721
36,156
10,781
16,925
6,652
7,893
42,250
12,192
19,264
7,207
8,534
47,197
12,790
21,904
7,410
10,283
52,387
3,234
1,259
1,318
1,610
7,421
(3,239)
4,182
(444)
3,738
(684)
3,054
3,653
1,541
1,568
1,978
8,740
(3,883)
4,857
(286)
4,572
(858)
3,714
4,032
2,110
1,787
2,304
10,233
(4,012)
6,220
(269)
5,951
(1,164)
4,787
4,390
2,657
1,969
2,580
11,595
(4,957)
6,638
(176)
6,463
(1,813)
4,649
36.1
7.9
23.8
28.1
20.5
33.9
9.1
23.6
25.1
20.7
33.1
11.0
24.8
27.0
21.7
34.3
12.1
26.6
25.1
22.1
105
Unallocated expenses in the above segment wise profitability analysis increased from
INR 4bn in FY14 to INR5bn in FY15.
FY12
4,182
9,618
FY13
4,857
11,871
FY14
6,220
14,429
(INR mn)
FY15
6,638
14,475
8,604
10,745
13,150
14,452
48.6
45.2
47.3
45.9
(EUR mn)
FY15
443.10
6.30
6.50
5.80
7.00
1.10
-
FY14
440.10
16.50
6.40
5.20
6.00
0.90
-
29.90
(0.60)
30.50
(0.20)
3.80
(4.00)
(11.90)
(0.40)
(11.50)
5.11%
6.80%
0.05%
3.75%
-0.05%
0.68%
1.42%
-2.69%
2.8
Germany
47.0
2.1
44.9
Others
8.0
8.0
(EUR mn)
Total
139.6
81.5
58.1
33.9
7.0
43.7
Net pension liability as at March 2015 end was EUR58mn, of which Germany accounted for
~80%. Since pension obligation (PBO) in Germany is not backed by plan assets, net liability
catapulted significantly during FY15 owing to fall in German bond yields.
Management expects pension outgo to be in the EUR1.40-1.50mn p.a. range in Sylvania for
the next 8-10 years.
106
Havells India
Table 6: SylvaniaPrincipal actuarial assumptions
Particulars
2012
Discount rate
1.40% - 5.00%
Future salary increases
2.50% - 3.00%
Inflation rate
2.00%
Future pension increases
2.00%
Expected return on plan assets
4.50% - 5.60%
2013
3.75% - 4.70%
2.50% - 6.50%
2.00% - 2.20%
2.00% - 2.20%
4.50% - 5.50%
2014
3.25% - 4.50%
2.50% - 5.00%
1.75% - 2.20%
1.75% - 2.20%
3.75% - 4.70%
2015
1.50% - 3.80%
2.50% - 5.00%
1.75% - 1.90%
1.75% - 1.90%
3.75% - 4.50%
(INR mn)
Particulars
Standalone
Subsidiary/JV (derived)
FY14
FY15
(10.1)
(772.8)
527.3
(566.9)
1,248.9
1,765.3
(36.3)
(146.8)
FY14
FY15
Profit before tax
5,951.0
6,462.5
Non-operating expense
601.2
841.6
Non-cash adjustments
15.6
(193.8)
Foreign currency translation
reserve
Direct taxes paid
(1,117.6)
(1,504.7)
(217.9)
Cash profit after tax
5,450.2
5,605.6
(Increase)/Decrease in trade and
(86.4)
48.8
(1,459.5)
other receivables
(Increase)/Decrease in inventories
(196.8)
(70.1)
(1,554.0)
(Increase)/Decrease in loans,
advance and other assets
Increase/(Decrease) in trade
payables
Increase/(Decrease) in other
liabilities and provisions
Increase in working capital
Net cash from operating activities
Adj: Bills discounted
Adj: Acceptances
Adj net cash from operating
activities
Interest expenses paid
Adj net cash from operating
activities post interest
Capex
Adj free cash flow
(410.3)
1,511.9
Consolidated
FY14
FY15
5,940.9
1,128.5
1,264.5
(36.3)
(1,335.5)
(131.5)
5,689.7
274.7
1,571.5
(146.8)
(1,915.0)
6,962.1
5,474.1
3,636.9
(1,545.9)
3,685.7
1,341.6
(1,750.8)
1,271.5
(62.4)
(153.0)
(98.7)
349.3
(161.1)
196.3
432.9
(551.5)
2,237.2
(1,010.4)
2,670.1
(1,561.9)
1,518.9
(564.7)
2,506.7
559.9
987.8
1,124.6
1,075.1
6,525.3
(304.3)
(226.5)
5,994.5
398.8
6,004.4
(932.7)
(31.8)
5,039.9
643.9
2,155.8
(1,553.9)
2,155.8
3,752.7
3,621.2
(1,764.1)
(58.5)
1,798.6
1,719.0
8,681.1
(304.3)
(1,780.4)
6,596.4
4,151.5
9,625.6
(2,696.8)
(90.3)
6,838.5
(82.8)
5,911.7
(170.9)
4,869.0
(440.7)
1,715.1
(435.7)
1,362.9
(523.5)
6,072.9
(606.6)
6,231.9
(900.9)
5,010.8
(1,674.7)
3,194.3
(832.0)
883.1
(48.8)
1,314.1
(1,732.9)
4,340.0
(1,723.5)
4,508.4
Free cash flows (adjusted for acceptances and bills discounted) at the standalone level
declined ~36% to INR3.2bn (FY14: INR5bn) led by higher capex and increased working
capital requirement.
Subsidiary/JV adjusted free cash flows jumped to ~INR1.3bn in FY15 (FY14: INR0.9bn)
led primarily by steep decline in capex. During the year, Sylvania has started receivable
financing on a non-recourse basis in its European operations, which resulted in
reduction in receivables of INR 1,764mn (EUR26mn) as at March 2015. This also
resulted in reduction in debt without corresponding increase in contingent liabilities.
Sylvanias core working capital (excluding acceptances) declined by ~9% and ~25% in
EUR and INR terms, respectively, in FY15. Decline in core working capital was steeper in
INR terms due to EUR depreciation (March 2015: EUR=INR67.8; March 2014:
EUR=INR82.5).
107
FY12
83
13
(72)
(4)
2
23
24
43
90
24.8
Inventory days
Add: Trade Receivable days
Less: Trade Payable days
Less: Advance from customer days
Add: Advance to supplier days
Cash conversion cycle
Add: Acceptance days
Add: Bills discounted days
Adjusted Cash conversion cycle
Adjusted working capital as % to revenues
Standalone
FY13
FY14
84
79
12
10
(60)
(50)
(4)
(2)
2
1
34
38
13
1
48
49
94
89
22.7
21.7
Consolidated
FY15
FY12
FY13
FY14
FY15
73
117
112
105
102
9
45
42
40
33
(45)
(90)
(83)
(80)
(81)
(1)
(2)
(2)
(1)
(0)
1
4
5
5
4
37
74
74
69
58
3
25
17
9
15
49
24
29
29
34
89
124
119
107
108
22.4
31.0
26.1
26.4
24.4
Source: Company annual report, Edelweiss research
FY12
106.7
106.2
(75.5)
-
FY13
107.1
92.6
(76.9)
-
FY14
106.4
98.6
(95.1)
-
(Euro mn)
FY15
75.3
100.6
(101.5)
26
137.4
30.7
122.8
27.9
109.9
25.0
100.4
22.7
108
Havells India
Related party transactions
Managerial remuneration
increased 57% to INR248mn (6.5%
of PAT).
FY12
FY13
FY14
(INR mn)
FY15
193.4
379.2
2.6
0.1
193.4
422.5
0.1
0.3
193.4
405.6
0.2
193.4
400.0
-
56.4
65.9
68.9
76.4
60.0
45.0
25.0
55.0
1.0
2.1
1.1
157.4
851.6
14.3%
2.5
247.8
975.1
17.1%
98.8
791.5
16.6%
116.2
845.5
12.7%
Standalone
FY13
FY14
FY15
638
868
1,063
(INR mn)
Consolidated
FY13
FY14
FY15
638
868
1,063
705
1,431
1,008
-
460
-
705
-
1,008
-
1,228
1,035
1,300
1,491
1,082
528
4,761
21,299
22.4
217
3,322
23,758
14.0
679
3,077
14,420
21.3
611
3,675
16,660
22.1
217
3,369
18,182
18.5
109
FY12
65,182
65,596
6,573
44.2
10.1
46.0
32.2
949
1,281
3,699
9,556
10,271
10,284
663
3,625
2,336
7,934
24,379
18,894
5,486
4,519
(1,053)
(2,470)
996
1,716
1,234
FY13
FY14
72,479 81,858
72,813 82,271
6,689
7,425
42.6
43.3
9.2
9.1
34.3
28.7
26.9
26.0
1,097
1,155
1,232
741
5,814
4,463
14,420 16,660
9,815 10,535
11,306 11,624
249
444
3,694
4,380
4,736
8,819
5,079
1,716
23,984 27,251
16,452 21,427
7,533
5,824
6,377
8,681
(1,433) (3,762)
(2,521) (3,097)
2,423
1,822
1,750
1,764
1,419
(1,719)
(INR mn)
FY15
85,694
86,199
7,211
43.6
8.4
22.12
25.5
1,387
640
3,854
18,182
4,239
11,829
383
3,581
9,525
(5,286)
21,837
20,919
918
9,626
(4,864)
(7,538)
(2,776)
1,739
(4,152)
110
Key highlights
IRB has changed its accounting policy with respect to annual fixed premium payable to
NHAI for BOT projects. Till FY14, such annual premiums on operational projects were
reduced from toll collections in income statement. During FY15, entire outstanding
premium liability (~INR218bn) has been capitalised in fixed asset, which will be
amortised over the life of the project based on traffic projections.
Market Data
52-week range (INR)
: 289 / 197
: 351.5
: 89 / 1,375
: 57.8
: 8.5
FIIs
: 27.4
Others
: 6.3
: 0.4
(% of share in issue)
The companys construction margin on captive EPC contracts stood at 30% (FY12-15
average: 33%) vis--vis peers 10-14% (FY12-15 average: 10-14%). While IRB reported
superior construction margin, return ratios of most SPVs remained subdued (RoCE <
10%).
During the year, the company received NHAI approval for premium deferral on 2 road
projects. Deferred premium obligation on these projects stood at INR3.3bn on which
interest is payable at bank rate+2%.
Aryan Infra Investment (AIIPL) (IRB holds 66% stake), which is engaged in real estate
development, had extended INR2bn mobilisation advance to Aryan Construction (a
proprietary concern of promoter) in 2007 and 2008. This advance continues to remain
outstanding as at FY15 end.
Guarantees given by IRB (standalone) on behalf of subsidiaries stood at ~INR112bn
(~5.2x standalone net worth; FY14:~INR92bn).
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients on
various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss Research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
112
Revenue/ profitability on
construction activities are booked
partially in the standalone entity
and the balance in Modern Road
Makers
FY11
16.0
8.2
8.2
24.2
10.9
10.9
5.8
5.8
44.9
23.8
FY12
21.7
9.5
9.5
31.2
13.7
13.7
6.5
6.5
28.8
43.9
20.9
(INR bn)
FY 13
26.3
10.5
10.5
36.8
16.3
16.3
7.1
7.1
17.8
44.4
19.2
FY14
25.5
11.8
11.8
37.2
17.5
17.5
6.4
6.4
1.3
47.1
17.2
FY15
20.0
18.4
(3.0)
15.4
35.4
22.1
(3.0)
19.1
6.9
(1.7)
5.2
(4.9)
54.0
14.5
#Adjustment for change in accounting policy for fixed premium payments to NHAI.
Revenue from sale of electricity is not considered in above table
Source: Company annual report, Edelweiss research
IRB has changed its accounting policy for fixed premium payable to NHAI for BOT projects.
Till FY14, such annual premiums were reduced from toll collections (and thereby impact the
EBITDA), but from FY15 entire outstanding premium liability has been capitalised in fixed
asset, which will be amortised over the life of the project.
IRB (standalone) and its EPC arm (Modern Road Makers) recognise revenues and profits on
construction activities undertaken for subsidiary companies (road SPVs). These profits are
not eliminated in the consolidated financials and remain included in cost of assets.
FY12
21.6
6.8
31.4
IRB
FY13 FY14
26.3 25.5
8.8
9.4
33.5 36.8
FY15
20.0
6.0
29.9
Sadbhav Engineering
FY12 FY13 FY14 FY15
18.1
7.7
6.5 14.2
2.3
1.0
1.2
2.0
12.9 13.2 18.5 14.2
Ashoka Buildcon
FY12 FY13 FY14 FY15
11.4 14.9 14.1 17.6
1.4
1.8
2.0
2.3
11.9 12.3 14.0 13.3
(INR bn)
PNC Infra
FY14 FY15
12.1 16.0
1.1
1.6
9.1 10.1
While IRB discloses construction and BOT business as one reportable segment, its peers
disclose the same as 2 separate reportable segments in segment information presented in
annual reports.
113
(INR bn)
Particulars
Revenue
EBITDA
EBIT
EBITDA (%)
EBIT(%)
FY15
18.5
4.1
3.6
22.3
19.2
FY15
19.6
2.3
2.3
11.8
11.8
Note: Employee and other expenses of INR 307mn (FY14:INR403mn) in IRB (standalone) are not
considered for EBITDA and EBIT computation as these expenses are primarily corporate overheads
Source: Company annual report, Edelweiss research
Our computation indicates that IRB (standalone) and Modern Road Makers recognised EBIT
margins of ~29% (FY12-15: 27%) on captive EPC computation.
Table 4: Profitability of key road SPVs
Particulars
Mumbai-Pune BOT
Surat Dahisar BOT
Tumkur Chitradura BOT #
Bharuch Surat BOT
Thane Bhiwandi Bypass BOT
Thane Ghodbunder BOT
Recently commissioned
Ahmedabad Vadodara BOT #
Jaipur Deoli BOT
Talegaon-Amravati BOT
(INR mn)
Commissioning
date
Prior to FY11
Prior to FY11
FY12
Prior to FY11
Prior to FY11
Prior to FY11
FY13
FY14
FY14
Capital employed
FY14
FY15
13,332
14,698
19,096
17,342
12,155
12,347
12,039
11,075
5,461
5,464
2,047
1,887
27,297
15,056
6,827
43,147
15,036
6,530
Revenue
FY14
FY15
4,377
5,673
2,961
3,204
93
1,843
1,681
1,863
1,521
1,646
344
396
198
363
331
1,848
1,027
480
EBITDA
FY14
FY15
3,773
5,034
2,648
2,530
23
1,666
1,484
1,509
553
640
277
325
(86)
319
251
1,452
872
359
PAT
FY14
FY15
1,969
3,049
(503)
(702)
(709)
(61)
108
83
364
418
(63)
7
(86)
(73)
11
RoCE (%)
FY14
FY15
21.4
26.5
4.4
3.0
0.6
6.4
5.4
5.3
11.6
12.2
5.0
10.1
758
(130)
(148)
n.a.
2.0
3.6
2.2
5.0
4.3
# FY14 and FY15 numbers are not fully comparable due to change in accounting policy for fixed
premium payments to NHAI.
RoCE is computed on closing capital employed
Source: Company annual report, Edelweiss research
Reported EBITDA
Adjustment for premium deferment
Adjusted EBITDA
Reported Depreciation
Depreciation on premium capitalised(b)
Adjusted Depreciation
Impact of policy change on PBT (a-b)
23
23
1,666
(1,625)
41
911
(774)
137
(851)
1
-
(86)
(86)
0
0
-
1,452
(1,263)
189
484
(473)
11
(790)
114
FY11
10.9
3.3
1.5
0.4
6.6
1.3
7.9
17.3
25.2
FY12 FY13
13.5 16.4
5.6
6.2
1.6
2.4
1.2
1.4
7.5
9.1
(0.8)
0.5
6.7
9.6
24.5
14.4
31.2 24.0
FY14
17.5
10.9
2.3
1.2
5.5
1.4
6.9
22.1
29.0
FY15
22.2
13.2
2.2
1.1
7.9
(1.8)
6.1
14.5
4.2
24.8
Total
80.4
39.1
10.0
5.2
36.6
0.7
37.2
92.7
4.2
134.1
(INR bn)
Application
Capex (mainly toll collection rights)
Net cash and investments
Dividend Paid (inc taxes)
Others
Total
116.1
10.5
6.0
1.6
Total
25.2
134.1
31.2
24.0
29.0
24.8
FY12
FY13
FY14
(INR bn)
FY15
6.7
42.6
2.5
1.1
52.8
17.9
70.7
(18.3)
52.4
1.8
8.0
57.6
8.5
1.0
75.0
12.7
87.8
(15.3)
72.4
2.2
10.4
71.7
19.0
0.7
101.9
9.0
110.8
(15.1)
95.7
2.7
10.8
86.2
19.4
2.9
119.3
6.3
125.6
(16.1)
109.4
2.5
115
FY11
24,381
25,026
10,883
44.6
20.23
15.44
2,254
3,515
4,524
24,326
46,242
33,622
25,074
6,325
5,402
922
12,537
10,689
(23,728)
13,411
372
17,550
(1,222)
FY12
31,330
32,582
13,694
43.7
18.76
14.10
2,970
5,464
4,960
28,566
70,722
55,542
24,452
6,640
3,716
2,923
18,334
11,103
(26,729)
17,579
1,953
24,201
779
FY13
36,872
38,220
16,333
44.3
18.22
12.08
4,415
6,200
5,567
32,547
87,761
55,088
49,160
8,042
5,885
2,156
15,317
14,453
(22,473)
6,994
(1,026)
24,766
(519)
FY14
37,319
38,533
17,537
47.0
13.47
10.48
4,771
7,562
4,591
35,607
1,10,841
85,544
44,867
8,466
6,923
1,543
15,143
16,555
(23,945)
9,254
1,864
27,187
(1,389)
(INR mn)
FY15
38,475
39,605
22,117
57.5
13.71
10.24
7,071
9,312
5,429
43,609
1,25,762
3,17,638
48,353
7,906
7,614
293
16,133
18,235
(22,955)
4,735
16
23,076
1,766
116
Larsen & Toubros (L&T) FY15 annual report highlights marginal increase
in standalone revenue, decline in EBITDA margin and higher working
capital leading to dip in adjusted RoCE to 25.3% (FY14: 28%, FY13: 30.3%).
Standalone core working capital jumped to 20% of sales (FY14: ~18%,
FY13: 13.5%) primarily due to steep rise in unbilled revenue, partially
offset by higher trade payables and customer advances. Though
standalone capital employed constituted ~31% of overall capital
employed*, it contributed 76% to consolidated EBIT*.
While L&T Infotech & Technology Services reported robust profitability,
the companys operating subsidiaries continued to report subdued
profits/losses and dragged consolidated return ratios (adjusted RoCE (ex
CWIP): FY15: 11.4%, FY14: 15.6%). While these subsidiaries accounted for
~31% of capital employed (INR270bn), they did not contribute anything to
consolidated EBIT in FY15. L&T follows fair value/BOT accounting wherein
unrealised profits recognised from inter-group projects do not get
eliminated. Aggregate revenues that accrued to L&T from these projects
during FY15 and cumulatively over FY11-15 stood at INR 33bn and
INR198bn, respectively.
Market Data
: 1,892 / 1,400
: 930.3
: 1,433 / 21,730
Promoters*
: 0.0
: 39.5
FIIs
: 16.2
Others
: 44.3
: Nil
(% of share in issue)
Key highlights
Unbilled revenue (standalone) rose to INR183bn (FY14: INR152bn), representing ~37%
(FY14:32%) of revenue from construction and project related activity. Trade receivables
stood at INR231bn (40% of revenue; FY14: INR215bn, 38%) and included overdue
receivables (>6 months) of INR28bn (FY14: INR24.3bn) and receivables not
contractually due of INR151bn (FY14:~INR148bn).
L&Ts operating subsidiaries in power, roads, hydrocarbons, ship building, forging and
boiler & turbines etc., accounted for ~31% of capital employed (INR270bn), but
contributed nil to consolidated EBIT in FY15. Ship building, forging and turbine
generator subsidiaries required continued financial support from L&Tcapital infusion
during FY14 and FY15 stood at INR12bn.
L&Ts (consolidated) profit includes unrealised profit (PBT) of INR3.2bn (12% margin)
(FY11-15: INR17bn, 13% margin) from road and Hyderabad Metro construction,
undertaken for its subsidiaries. Similarly, the company also recognises profits from
construction activities undertaken for Nabha Power, details of which are not disclosed
separately. These unrealised profits form part of asset cost and have been charged as
depreciation over life of the asset.
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
(INR bn)
Capital employed
FY14
FY15
%
249.8
272.8
31.5
82.9
102.8
11.9
76.3
71.1
8.2
34.3
38.1
4.4
15.3
15.4
1.8
25.5
19.0
2.2
15.8
21.4
2.5
5.3
12.1
1.4
14.4
13.9
1.6
10.1
10.1
1.2
Revenue
FY14
FY15
566.0
570.2
N.A.
25.7
8.6
9.8
5.5
5.9
0.6
1.0
87.4
57.5
42.8
47.4
1.3
25.6
8.0
6.1
12.5
12.3
37.2
27.2
16.2
175.0
785.2
426.8
1,212
0.0
0.1
67.8
800.7
50.6
851
Capital employed in
L&T(standalone) and L&T
Infotech (inc technology services)
constituted ~35% of total capital
employed, but contributed ~92%
to consolidated EBIT
118
65.1
30.4
24.0
169.5
865.7
499.3
1,365
7.5
3.5
2.8
19.6
PAT
FY14
54.9
N.A.
(2.9)
(6.5)
(3.3)
1.1
6.0
0.1
(0.9)
1.0
FY15
50.6
2.0
(4.8)
(6.7)
(2.8)
(6.5)
7.7
3.2
(1.3)
1.2
EBIT
FY14
66.9
N.A.
4.3
(3.7)
(2.1)
2.0
N.A.
0.1
0.6
2.2
FY15
66.2
8.2
3.4
(3.7)
(1.3)
(9.0)
9.5
3.8
0.1
2.4
RoCE
FY14
26.8
N.A.
5.7
N.A.
N.A.
8.0
N.A.
N.A.
4.1
21.8
0.1
1.1
0.0
95.3
858.1
62.0
920
FY15
24.2
8.0
4.8
N.A.
N.A.
N.A.
44.5
31.5
0.7
24.0
(0.0)
(0.1)
N.A.
N.A.
N.A.
N.A.
0.1
(0.0)
N.A.
N.A.
N.A.
N.A.
(0.0)
(0.0)
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
42.7
40.8
94.4
86.9
12.0
10.0
6.0
8.5
8.3
10.3
N.A.
N.A.
48.6
49.4
103
97
N.A.
N.A.
# RoCE is computed based on year end capital employed
*Road projects which are operational for more than a year are considered
@Company recognised construction cost of plant & machinery as financial lease and thus no
depreciation is charged to income statement. Revenue and profitability of power generation
business is considered.
^ Profit from continuing operations are considered
L&T Finance EBIT is after considering interest expense
Source: Company annual report, Edelweiss research
EBIT
Capital employed
Others
(derived)
20%
L&T(Standal
one)
31%
Subsidiaries
(Projects
under
developme
nt)
14%
L&T
Infotech
(inc
Technology
services)
16%
L&T
Infotech
(inc
Technology
services)
4%
Operational
subsidiaries
31%
Others
(derived)
8%
L&T(Stand
alone)
76%
Source: Company annual report, Edelweiss research
Development projects
Nabha Powers construction (fixed asset) cost stood at ~INR92bn (~INR65mn/MW) and its
RoCE stood lower at ~8%. The companys core working capital stood at ~INR7.5bn,
representing working capital cycle of ~105 days.
Revenue of the companys 10 operational road projects (comparable) increased by 14% in
FY15. EBITDA margin grew to 68% (FY14: 60%). However, owing to high interest cost and
depreciation, losses stood at INR4.8bn (FY14: INR2.9bn). RoCE of operational road projects
stood at meagre 4.8% (FY14: 5.7%). In FY15, only 2 road projects (of 10) clocked RoCE in
excess of 10%.
Revenue
EBITDA
FY14 FY15 FY14 FY15
243
248
137
151
519
580
247
437
1,060 1,291
636
772
504
561
100
324
864
864
570
546
2,489 2,775 1,609 2,353
693
857
444
517
770
688
472
306
1,132 1,193
798
785
371
786
200
506
8,644 9,845 5,213 6,697
(INR mn)
EBIT
PAT
RoCE
FY14 FY15
FY14
FY15 FY14 FY15
555
267
246
112 23.6 11.6
(186)
(0.5)
(466)
(268) N.A. N.A.
139
280
(267)
(106) 4.3
9.1
(87)
141
(358)
(125) N.A.
6.1
249
176
8
(44) 5.0
3.6
468 1,206
(850)
1
5.4 15.6
894
353
(125)
(712) 9.1
3.8
963
154
(269) (1,157) 7.8
1.3
1,001
476
(453)
(991) 6.8
3.5
336
328
(324) (1,536) 2.1
2.1
4,331 3,380 (2,857) (4,826) 5.7
4.8
119
Ship building
L&T Shipbuildings losses stood at INR6.7bn (FY14: INR6.5bn). Operating cash flows (post
interest) stood at INR(6.2)bn (FY14: INR(7.2)bn).
Management stated losses were primarily due to time and cost overruns and under
recovery of overheads due to low capacity utilisation. However, the companys business
prospects may improve going forward led by governments Make in India push and higher
port traffic post receipt of approvals.
L&T infused INR4.2bn in L&T Shipbuilding during FY15, taking cumulative investments to
~INR17.7bn. It also extended corporate guarantee of INR28.8bn with respect to borrowings
in the ship building business.
Heavy forging
L&T Special Steel and Heavy Forging incurred loss of INR2.8bn (FY14: INR3.3bn loss).
Operating cash flows (post interest) stood at INR(1.8)bn (FY14: INR(1.8)bn). L&T infused
INR2.8bn (FY14: INR2.1bn) during FY15, taking cumulative investments to ~INR10bn.
Management stated that the company faced fierce competition from global players owing
to excess global capacity and low demand. However, with commencement of project
awards in the nuclear power sector, management expects improvement in business
prospects in the medium term.
Hydrocarbon
L&T Hydrocarbon Engineering reported ~34% decline in revenue to INR57bn, led primarily
by ~56% fall in overseas revenues. The company incurred loss of INR8bn at the EBITDA level
against gain of ~INR3bn in FY14. Further, the company also recognised deferred tax asset of
INR3.5bn on losses and accumulated depreciation.
120
The company highlighted that the losses were led by low domestic order book and drop in
international revenue as most of the existing international projects reached close out stage.
Loss incurred during the year was primarily on certain stressed international projects,
primarily in GCC countries. The company is in advanced stages of commissioning and closeout of these stressed projects.
FY13
0.0
0.3
0.2
(INRbn)
PAT
FY14 FY15
(0.0) (2.0)
(0.7) (1.8)
(0.5) (1.2)
Other businesses
L&T InfoTechs EBITDA margin dipped ~280bps to 20% in FY15, primarily due to increase in
employee and other administrative costs. Working capital (% to sales) increased to 19.4% in
FY15 (FY14: 17%) following 21% increase in receivables and ~35% rise in unbilled revenue.
L&T Technology Services receivable days stood at ~95 and unbilled revenue days at ~24.
Further, core working capital (adjusted for related parties) stood at ~30% of revenue.
Capital infusion in L&T Sea Woods during FY15 stood at INR15.3bn, taking cumulative capital
infusion to INR30.4bn. In FY15, Sea Woods recognised revenue of mere INR1.1bn (mainly
from sale of floor space), of which INR0.8bn remained unbilled.
L&T-MHPS Turbine Generator incurred loss of INR1.3bn (FY14: INR0.9bn) owing to high
interest cost. RoCE stood at mere 0.7% (FY14: 4%).
The company (through its subsidiaries) is executing capital-intensive businesses in metro
(Hyderabad Metro) and transit oriented development (Sea Woods), etc. RoCE of these
businesses (post commencement of operations) will be key driver of consolidated RoCE
going forward.
121
(INR bn)
Standalone
Subsidiary-Derived (Ex-L&T
Finance Holdings)
FY14
% FY15
% FY14
% FY15
%
Sales
566.0 100.0 570.2 100.0 234.7 100.0 287.9 100.0
Raw Materials Consumed
433.5
76.6 444.0
77.9
53.8
22.9
67.2
23.3
Operating and Administrative 19.2
3.4
19.8
3.5 125.5
53.4 147.9
51.4
expense
Personnel cost
46.6
8.2
41.5
7.3
22.0
9.4
34.2
11.9
EBITDA
66.7
11.8
64.9
11.4
33.4
14.2
38.6
13.4
Depreciation
7.9
1.4
10.1
1.8
5.7
2.4
15.2
5.3
58.7
10.4
54.8
9.6
27.7
11.8
23.4
8.1
EBIT
Financial Charges
10.8
1.9
14.2
2.5
20.6
8.8
14.3
5.0
Other income
18.8
3.3
22.8
4.0 (10.8) (4.6) (14.2) (4.9)
PBT
66.8
11.8
63.4
11.1
(3.8) (1.6) (5.1) (1.8)
5.4
14.3
1.6
12.7
3.6
16.3
Consolidated
FY15
% FY14
% FY15
%
62.0 100.0 851.3 100.0 920.0 100.0
487.4
57.3 511.2
55.6
48.6
78.4 185.3
21.8 216.3
23.5
3.5
9.9
1.0
8.9
1.4
10.3
5.7
15.9
1.5
14.4
2.3
16.6
71.4
107.3
14.5
92.8
31.4
9.8
71.3
8.4
12.6
1.7
10.9
3.7
1.2
8.4
79.2
113.4
26.2
87.1
28.5
10.1
68.7
8.6
12.3
2.9
9.5
3.1
1.1
7.5
Note: FY15 numbers are not fully comparable to FY14 at standalone level as technology services business was demerged from standalone
business from FY15.
122
FY11
FY12
FY13
(INR bn)
FY14 FY15
16
4
20
21
31
24
37
13
27
7
1.4
n.a.
2.9
n.a.
3.6
n.a.
5.9
n.a.
3.2
n.a.
8.9
n.a.
14.4
n.a.
11.8
n.a.
15.7
n.a.
12.2
n.a.
Note: BOT/DBFOT projects mainly pertain to road projects and Hyderabad Metro. Profits (on
construction activities undertaken by L&T (standalone) for Nabha power and other subsidiaries (if
any) not disclosed in annual report
Source: Companys Annual Report, Edelweiss research
L&T (Standalone) recognise revenues and profits on construction activities undertaken for
subsidiary companies mainly road SPVs, Nabha Power and Hyderabad metro. However,
these profits are not eliminated in the consolidated financial statements and remain
included in cost of assets. Aggregate revenues that accrued to L&T from these companies
stood at INR198bn during FY11-15.
FY12
107
78
(67)
(17)
101
15
(127)
1
(11)
7.4
FY13
146
83
(66)
(26)
138
17
(148)
3
10
13.5
FY14
142
87
(55)
(28)
147
17
(140)
3
27
17.9
FY15
143
108
(55)
(27)
168
17
(145)
1
41
20.1
Advance recoverable in cash or kind (not part of cash conversion cycle presented above)
increased from INR42.6bn (7.4% of sales) in FY14 to INR48.4bn in FY15 (8.4% of sales).
123
FY13
434
44
117
27
10
(INR bn)
Standalone
FY14
479
41
152
32
9
Consolidated
FY13
FY14
559
616
45
46
194
234
35
38
8
7
FY15
495
40
183
37
8
FY15
607
45
227
37
7
FY13
117
63
1
12
194
FY14
152
43
21
5
13
234
(INR bn)
FY15
183
4
12
8
20
227
(INR bn)
2
42
2
25
1
38
1
30
9
177 Total
43
42
25
38
30 177
Source: Company annual report, Edelweiss research
Total cash generated from core operations during FY11-15 stood at INR83bn, capex (net)
incurred during the period stood at INR59bn.
124
FY13
291
88
380
(105)
(47)
228
(INR bn)
FY14 FY15
337
371
115
129
451
500
(151) (176)
(50)
(51)
250
273
89
63
42
70
7
0
1
(10)
(34)
228
219
66.5
30.3
82
101
45
58
7
0
1
(8)
(36)
250
239
66.9
28.0
80
113
48
69
7
0
1
(8)
(38)
273
261
66.2
25.3
Note: Above numbers are not fully comparable as hydrocarbon, valves and integrated
engineering business were demerged and transferred to subsidiaries during FY14 and FY15
Source: Company annual report, Edelweiss research
L&T Shipbuilding
L&T Special Steels and Heavy Forgings
L&T General Insurance Company
L&T MHPS Turbine Generators
Total
Year
FY13
FY13
FY12
FY09
FY13
3,880
666
900
462
5,908
FY14
197
800
204
1,201
FY15
1,250
1,683
2,933
(INR mn)
Loans & advances and
Preference
Aggregate exposure
Equity
FY13 FY14 FY15
900 4,210
8,187
458 1,902 2,792
4,193
6,200
3,624
458 2,802 7,002 22,204
Loans &
Total
others
9,486 17,673
5,640
9,833
6,200
3,624
15,126 37,330
Capital infusion in key loss-making subsidiaries during FY15 stood at INR10bn (FY14: INR4bn).
125
Borrowings denominated in
foreign currency (including FCCB)
constitute ~50% of total
borrowings at standalone level
(INR bn)
FY15
FY13
FY14
19.5
15.6
27.1
10.9
50.6
80.9
12.0
48.3
75.8
12.5
51.9
91.4
7.3
7.3
88.3
30.6
8.1
38.8
114.6
27.5
10.4
37.9
129.4
*Current portion of long term debt of INR 6bn (FY14: INR21bn) is included in long term borrowings
Source: Companys Annual Report, Edelweiss research
During FY15, the company refinanced USD200mn foreign currency loan through foreign
currency convertible bonds (FCCB) of equivalent amount. These bonds carry coupon rate of
0.675% and are convertible into equity shares, at the option of investors (up to October 15,
2019) at the conversion price of INR1,916.5 per share.
Details of unhedged borrowings (USD denominated) at standalone level is not available.
Further details of borrowings (if any) in foreign currency at consolidated level is also not
available.
Mar-14
114.6
93.5
60.1
33.6
8.8
11.4
6.2
8.6
0.3
1.1
25.7
110.5
474.4
(INR bn)
Mar-15
129.4
91.0
74.1
35.6
14.2
11.3
5.1
5.2
1.6
2.2
45.4
98.9
513.9
126
Particulars
Claims not acknowledged as debts
Sales-tax liability
Excise duty/Service Tax
Income-Tax liability
Contingent liabilities (ex guarantees)
Contingent liabilities (ex guarantees) as %
to NW
Corporate guarantees for subsidiary debt
Performance guarantees- subsidiary
(INR bn)
Standalone
Consolidated
FY13 FY14 FY15 FY13 FY14 FY15
1.8
1.8
8.8
3.2
3.5 16.0
1.1
1.2
1.7
1.2
1.6
2.2
0.4
0.4
0.6
0.5
2.1
2.3
3.9
4.6
8.3
5.4
7.6 11.7
7.2
8.1 19.4 10.3 14.9 32.1
2.5
2.4
5.2
3.1
4.0
7.8
34.9
9.3
37.7
56.3
87.2
92.0
FY13
706
92
9
16
13.0
15.0
19.5
293
168
113
624
511
FY14
801
100
8
20
12.5
12.8
15.6
312
215
140
755
614
(INR bn)
FY15
858
104
9
25
12.1
9.3
11.4
336
184
154
836
682
Note: FY15 RoCE is adjusted for profit of INR 12.7bn on stake sale in Dhamra port; FY14 RoCE
and depreciation is adjusted for reversal of accumulated amortisation of toll collection rights of
INR 6.6bn due to change in accounting policy.
*excluding cash and current investments
Source: Companys Annual Report, Edelweiss research
127
FY11
520.4
530.1
76.8
14.8
13.6
18.6
13.2
8.0
44.6
250.5
372.2
156.2
123.6
412.2
305.8
106.4
113.6
(16.2)
(59.3)
78.7
3.2
68.7
69.8
FY12
643.1
651.4
88.8
13.8
11.4
17.1
15.8
12.2
46.9
293.9
511.0
194.0
149.1
538.0
357.0
181.0
106.0
(62.3)
(58.6)
119.7
(1.2)
71.0
128.0
FY13
745.0
755.5
99.3
13.3
10.4
15.6
16.4
21.2
52.1
338.6
661.5
303.9
113.5
645.4
385.7
259.7
111.1
(43.5)
(69.2)
114.3
1.5
74.4
121.6
FY14
851.3
861.1
107.5
12.6
9.3
13.1
14.5
31.4
49.0
377.1
833.0
324.0
141.8
744.8
429.6
315.2
107.7
(71.4)
(55.1)
131.4
4.8
66.8
153.8
(INR bn)
FY15
920.0
930.1
113.4
12.3
7.6
11.5
26.2
28.5
47.6
409.1
934.8
347.4
155.2
812.7
524.1
288.5
137.2
(6.7)
(54.6)
78.9
17.6
67.7
78.8
128
Whats on track?
Market Data
: 749 / 458
: 961.5
: 459 / 7,229
: 36.7
: 13.9
FIIs
: 34.2
Others
: 15.2
: Nil
(% of share in issue)
Revenue grew a healthy 20% in FY15 (organic growth 17% YoY). Dollar revenue jumped
19% YoY to USD3.7bn (organic growth 16%).
Profitability analysis
Table 1: Profitability analysis
(INR bn)
Particulars
Sales
Subcontracting expenses
Operating and Administrative
expense
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
Other income
PBT before exceptional items
FY14
163.0
34.0
23.6
69.7
35.6
4.3
31.3
0.9
0.7
31.2
Standalone
%
FY15
100.0
191.6
20.9
64.2
14.5
23.2
42.8
21.9
2.6
19.2
0.5
0.4
19.1
72.0
32.3
4.7
27.5
0.1
1.2
28.7
%
100.0
33.5
12.1
37.6
16.8
2.5
14.4
0.0
0.6
15.0
Subsidiary/ JV (Derived)
FY14
%
FY15
%
25.4
100.0
34.6
100.0
(16.9)
(66.6)
(35.8) (103.6)
8.4
33.1
14.0
40.6
27.6
6.2
1.0
5.3
(0.1)
0.4
5.8
109.0
24.5
3.8
20.8
(0.3)
1.7
22.7
47.1
9.3
1.4
7.9
0.2
(0.2)
7.5
136.3
26.8
4.0
22.8
0.6
(0.5)
21.7
FY14
188.3
17.1
32.0
97.4
41.8
5.2
36.6
0.8
1.1
36.9
Consolidated
%
FY15
100.0
226.2
9.1
28.3
17.0
37.2
51.7
22.2
2.8
19.4
0.4
0.6
19.6
119.1
41.5
6.1
35.4
0.3
1.1
36.2
%
100.0
12.5
16.4
52.7
18.4
2.7
15.7
0.1
0.5
16.0
Though revenue jumped 20% YoY, previous years numbers are not comparable due to
acquisitions made by TML during the year. FY15 revenue, in USD terms, grew 19% YoY to
USD3,686mn and included USD100mn from LLC and Softgen (excluding acquisitions, USD
revenue grew 16% YoY).
130
Tech Mahindra
Table 2: Sub-contracting cost
(INR mn)
Particulars
Subcontracting expenses
Revenues
Subcontracting as % of revenues
FY13
FY14
FY15
6,615
17,114
28,343
68,731
188,314
226,213
9.6
9.1
12.5
Source: Company annual report, Edelweiss research
(%)
Particulars
Tech Mahindra
Infosys
TCS
HCL Tech (December year end)
FY13
9.6
3.6
6.0
11.5
FY14
9.1
3.9
6.0
11.1
FY15
12.5
4.1
6.6
13.1
FY15 saw significant increase in sub-contracting cost at 12.5% of revenue, leading to EBITDA
margin contraction YoY from 22.2% to 18.4%.
FY12
2,124
3.9
153
0.3
FY13
2,376
3.5
117
0.2
FY14
10,709
5.7
1,421
0.8
(INR mn)
FY15
19,425
8.6
1,260
0.6
Other highlights:
TML incurred INR6.6bn, 3% of revenue in FY15 (FY14: INR5.6bn, 3%), on software, hardware
and project specific expenses. These costs are reimbursed by the customers as part of
contract and are accounted on gross basis.
Employee cost included ESOP cost, which rose from INR1.3bn to INR2.3bn YoY (largely to
key management personnel). TML accounted ESOPs on intrinsic value, as permitted by
SEBIs ESOP regulations. Had the company followed the fair value method, net profit would
have been lower by INR398mn, 1.5% of PAT (FY14: INR254mn, 0.8%).
131
(INR bn)
Standalone
FY14
FY15
31.2
28.7
(0.3)
(0.0)
5.4
5.5
(8.8)
(6.8)
27.5
27.4
Particulars
Profit before tax
Non-operating expense
Non-cash adjustments
Direct taxes paid
Cash profit after tax
(Increase)/Decrease in trade and other receivables
Increase/(Decrease) in Trade payables
Increase/(Decrease) in other liabilities & provisions
(derived)
Increase in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post interest
Less: Capex
Less: Cash paid for acquisitions
Less: Additional investment in subsidiaries (net)
Adjusted free cash flow
(18.7)
6.1
(8.9)
4.2
(1.9)
(2.1)
(14.5)
12.9
(1.0)
11.9
(7.7)
(1.1)
3.1
Subsidiary (derived)
FY14
FY15
5.8
7.5
0.3
0.1
0.8
1.5
(2.2)
(4.0)
4.7
5.1
Consolidated
FY14
FY15
36.9
36.2
(0.0)
0.1
6.2
7.0
(10.9)
(10.7)
32.1
32.6
(1.7)
(2.1)
(20.4)
3.9
0.3
1.5
2.2
(6.8)
20.7
(0.4)
20.3
(9.0)
(1.5)
(11.4)
(1.6)
(3.6)
(1.6)
3.0
0.1
3.1
(1.5)
(0.4)
0.5
1.8
(8.5)
5.7
0.3
(1.7)
3.4
(0.3)
3.1
(2.1)
(11.2)
10.3
0.1
(5.7)
(16.1)
16.0
(1.0)
15.0
(9.1)
(0.4)
(0.5)
5.0
(8.5)
24.1
(0.6)
23.4
(11.1)
(12.7)
(1.1)
(1.4)
Operating cash flow (OCF), post interest improved YoY from INR15.0bn to INR23.4bn
primarily led by lower working capital investment YoY. Receivables grew by INR8.5bn in
FY15 versus INR20.4bn in FY14. The rise in payables was offset by fall in other liabilities and
provisions (primarily led by reduction in liability towards derivatives contracts).
Free cash flows adjusted for capex, acquisitions and incremental investment in subsidiaries
declined from INR5.0bn in FY14 to INR(1.4)bn in FY15.
Particulars
Trade receivable days
Unbilled revenue days
Inventory days
Advance from customer/unearned
revenue days
Trade payable days
Supplier credit days
Conversion cycle
(5)
FY15
88
31
(3)
Infosys
FY14
FY15
61
66
20
19
(11)
(8)
TCS
FY14
81
18
(5)
FY15
79
15
(5)
HCL Tech
CY13
CY14
64
65
24
23
13
5
(10)
(1)
(94)
(109)
(5)
(7)
(88)
(83)
(40)
(19)
20
34
6
7
66
70
7
6
71
108
* Conversion cycle is calculated on closing basis for like to like comparison between peers.
Source: Company annual report, Edelweiss research
Unbilled revenue rose significantly in FY15 from 21 to 31 days and payable days rose to 109
in FY15, partly led by acquisitions. Receivables, unbilled and payable days are the highest for
TML amongst peers.
During FY15, TML for the first time started availing the bill discounting facility and amount
outstanding as at FY15 stood at INR2.7bn. Receivable days calculated above are adjusted for
bills discounted.
132
Tech Mahindra
Total receivables rose from INR43.5bn in FY14 to INR52.1bn in FY15 and unbilled revenue
rose from INR10.7bn to INR19.4bn over the same period.
Payables catapulted from INR9.5bn in FY14 to INR15.2bn in FY15 of which INR3.5bn was led
by acquisitions.
(INR mn)
Particulars
Receivables > 1 year
Receivables > 6 months
Total
Less: Provision for doubtful receivables
Net receivables >6 months
Others
Total
FY13
FY14
FY15
151
3,604
3,343
1,787
5,330
6,292
1,938
8,934
9,635
(820)
(6,965)
(6,990)
1,118
1,969
2,645
15,918
41,517
49,414
17,036
43,486
52,059
Source: Company annual report, Edelweiss research
Receivables more than 6 months and 1 year stood higher at INR9.6bn. However, the
company has already provided INR7.0bn towards doubtful receivables.
(INR mn)
Particulars
Operating cash flow post interest (A)
Profit after tax (PAT)
Depreciation
Other income
PAT + Depreciation - Other income (B)
Earnings to cash conversion ratio (A/B*100)
FY11
7,715
6,442
1,435
1,288
6,589
117
FY12
6,206
10,955
1,613
982
11,586
54
FY13
FY14
FY15
14,988
14,988
23,448
12,878
30,288
26,277
2,000
5,222
6,114
(747)
1,130
1,065
15,625
34,380
31,326
96
44
75
Source: Company annual report, Edelweiss research
(%)
90.0
70.0
50.0
30.0
FY11
FY12
FY13
FY14
FY15
133
TML
FY14
15.0
30.3
5.2
1.1
34.4
44
FY15
23.4
26.3
6.1
1.1
31.3
75
(INR bn)
Infosys
TCS
HCL tech
FY14
FY15
FY14
FY15
FY13
FY15
98.3
83.5
147.1
192.6
44.2
64.0
106.6
123.7
191.6
198.5
40.4
65.1
13.2
10.2
13.5
18.0
6.4
6.8
26.6
34.3
16.4
32.3
3.5
6.8
93.1
99.6
188.8
184.2
43.3
65.1
106
84
78
105
102
98
Source: Company annual report, Edelweiss research
Earning to cash flow conversion ratio improved in FY15, although it remains low vis--vis
peers.
Merger accounting
During FY15, TML merged Mahindra Engineering Services (MESL) with itself and issued 5
shares for every 12 shares of MESL in December 2014, aggregating to 4,259,011 shares
(1.8% of outstanding shares). The merger was accounted under the pooling of interest
method and led to increase in net worth by INR2.1bn.
Table 9: MESL mergerIncrease in net worth if shares were issued at market price
Particulars
Shares issued to acquire Mahindra Engineering Services Ltd.
Net worth increased on account of merger as per pooling of
Total increase in net worth (A)
Value of 4.26mn shares issued on merger at 1 month average
Increase in net worth had the company issued shares at market
price or followed purchase method of accounting (B-A)
Net worth stood lower by
INR39.0bn due to merger as per
pooling of interest method
No of shares
(mn)
4.26
INR mn
43
2,058
2,101
6,975
4,874
Had the company followed the purchase method of accounting, FY15 net worth would
have been higher by INR4.9bn.
Particulars
Cash paid for acquiring 42.6% stake in FY10 (A)
Value of 79.4mn shares issued on merger at 1 month average
price of INR606.8 each pre-merger (B)
Total cost of investment in Mahindra Satyam (A+B)
Net worth increased on account of merger as per pooling of
interest method (C)
Increase in net worth had the company issued shares at market
price or followed purchase method of accounting (B-C)
79.4
INR mn
29,695
48,184
77,879
14,096
34,088
In FY14, the company had merged Mahindra Satyam and other subsidiaries/ associates with
itself which led to increase in net worth by INR16.8bn (INR14.1bn pertaining to Mahindra
Satyam).
134
Tech Mahindra
Cumulatively, net worth is lower by INR39.0bn due to merger accounting as per
aforementioned analysis. Consequently, RoE/ RoCE are higher as explained under:
Reported
Particulars
ROE (%)
ROCE (%)
Book value per share (INR)
FY14
44
50
342
FY15
28
36
115
Adjusted#
Before goodwill
After goodwill
amortisation
amortisation
FY14
FY15
FY14
FY15
28
20
22
15
34
26
29
22
567
173
530
164
# Adjusted for treasury shares and net worth adjustment as per above Table
Source: Company annual report, Edelweiss research
Treasury shares
TML continues to hold 10% of equity in the form of treasury shares on merger of Mahindra
Satyam. To that extent, effective voting rights of minority shareholders are lower than the
economic interest.
(Figures in mn)
Notional amount
FY14
FCY
Particulars
GBP/EUR to USD contracts
Forward
Options
Total
As % of revenues
FY15
FCY
GBP 157
EUR 30
15,676
2,477
18,154
GBP 183
EUR 155
USD 933
EUR 12
GBP 10
USD 79
56,073
991
998
4,748
62,810
33
USD 1,470
EUR 4
GBP 1
USD 180
Total
USD/ GBP/ EUR to INR contracts
Forward
INR
INR
16,920
10,464
27,384
(795)
(1,375)
(2,170)
92,008
5,211
1,368
270
60
(39)
92
103
(1)
11,266
(77)
25
103,637
5,297
1,353
46
Source: Company annual report, Edelweiss research
135
(INR mn)
FY13
157.0
1,189.0
1,346.0
(1,049.0)
297.0
FY14
FY15
98.0
2,007.0
2,105.0
3,072.0
5,177.0
2,234.0
2,234.0
(6,294.0)
(4,060.0)
(INR mn)
FY13
FY14
FY15
3,535.0
2,486.0
5,558.0
(585.0)
4,084.0
(6,294.0)
464.0
843.0
(169.0)
2,486.0
5,558.0
(736.0)
Source: Company annual report, Edelweiss research
Forex losses charged to P&L stood at INR2.2bn in FY15 and TML recorded forex gain of
INR6.3bn in hedging reserve.
(INR mn)
FY14
FY15
16,492
22,170
2,697
28,209
30,548
2,140
16,506
1,212
1,228
Total
48,053
73,149
Net worth
79,749
110,418
60.3
66.2
% of net worth
136
Tech Mahindra
Table 16: Summary financials
(INR mn)
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
RoCE (%)
RoE (%)
Depreciation
Financial costs
Net profit
Equity shareholders' funds*
Loan funds
Net Debt
Net fixed assets (Ex CWIP and goodwill on consolidation)
CWIP
Goodwill on consolidation
Current assets loans and advances
Current liabilities and provisions
Net current assets (ex-cash)
Cash and cash equivalent
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital (investments)/inflow
FY11
51,402
52,690
10,034
19.5
22.4
20.7
1,435
1,113
6,442
33,514
12,227
9,183
6,137
608
33
17,246
9,278
7,968
3,044
4,637
(1,334)
(2,867)
436
(1,534)
(2,743)
FY12
54,897
55,879
9,194
16.7
17.6
31.0
1,613
1,026
10,955
40,509
11,266
7,243
6,792
1,671
33
18,019
11,235
6,784
4,023
7,117
(4,203)
(3,174)
(260)
(2,958)
226
FY13
68,731
67,984
14,242
20.7
19.2
27.2
2,000
1,030
12,878
54,256
13,804
6,701
9,039
343
3,407
23,809
16,377
7,432
7,103
9,597
(7,072)
(3,481)
(956)
(4,382)
3,195
FY14
188,314
189,444
41,838
22.2
49.9
43.8
5,222
799
30,288
79,749
3,589
(32,085)
20,304
2,662
5,640
69,745
42,350
27,395
35,674
15,962
(1,896)
(9,723)
4,343
(9,138)
(16,148)
FY15
226,213
227,278
41,529
18.4
36.4
27.6
6,114
299
26,277
110,418
6,838
(25,252)
23,046
5,677
17,283
90,436
50,708
39,728
32,090
24,087
(20,922)
(7,898)
(4,733)
(11,132)
(8,498)
137
Dish TV's (Dish) FY15 annual report analysis highlights rise in capex due to
higher subscriber additions along with increase in churn ratio to 12.3%
(FY14: 4.7%; FY11-15 average: 11.6%), which led to negative FCF (post
interest) of INR(144)mn (FY14: INR3.4bn). Average annual capex during
past 5 years stood at INR6.6bn, of which INR2.8bn was towards
replenishing churned out subscribers representing 42% of gross
subscribers added. In our view, cost incurred towards replenishing
churned out subscribers should be considered as maintenance capex
(capex required to maintain current revenue stream); hence, it should be
deducted from EBITDA while deriving valuation based on EV/ EBITDA
multiple. Trailing EV/EBITDA multiple adjusted for above stood at 25x
versus 13x based on reported EBITDA (28x including regulatory dues and
creditors for capex). Dish turned profitable in FY15 (posted losses in
previous years) led by improved operating performance. The company
changed its accounting policy in FY14 and started upfront recognition of
activation fee, the impact of which is higher revenue recognition during
FY15 by INR2bn, 7% of revenue (our estimate). Gross debt rose 5% YoY to
INR14.8bn (of which unhedged forex loans are INR7.6bn, 51% of debt).
Regulatory dues rose by INR2.1bn to INR10.5bn, adjusted for which net
debt/EBITDA stood at 2.9x.
Market Data
: 121 / 52
: 1,065.7
: 124 / 1,888
Promoters*
: 64.5
: 4.0
FIIs
: 18.6
Others
: 12.9
: 19.5
(% of share in issue)
FY11
10.4
8.5
3.5
2.8
0.7
12.3
49.1
140
Net subscriber addition stood at a robust 1.5mn versus 0.7mn in FY14, 13.2% YoY growth.
However, the churn rate also increased YoY to 12.3%. ARPU has consistently increased over
past 5 years and rose to 174 in FY15. Like-to-like ARPU for FY14 (adjusted for accounting
changes) stood at 162 versus 171 reported.
ARPU includes entertainment tax, as the company follows gross accounting and
entertainment tax is included in the revenue.
139
Dish TV
EBITDA
EBITDA post maintanence capex
2,380
370
4,960
1,579
5,794
2,152
6,240
4,996
7,331
3,924
5,341
2,564
EV/ EBITDA multiple on trailing basis stood at 13x while adjusted for maintenance capex, it
stood at 25x.
Note: Our EV calculation (based on INR82 per share as on 31 March 2015) does not include
regulatory dues of INR10.5bn and creditors for capex of INR2.0bn, adjusted for which EV/
EBITDA multiple stood at 28x (trailing).
Profitability analysis
Table 3: Consolidated profitability analysis
Particulars
Sales
RM, operating & administrative exps.
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
Other income
PBT before exceptional
Exceptional/ priod period items
PBT
Forex losses capitalised
Adjusted PBT
FY11
14,367
11,225
761
2,380
3,996
(1,615)
1,534
1,226
(1,923)
(1,923)
*
(1,923)
(INR mn)
Consolidated (INR mn)
FY12
FY13
FY14
FY15
19,579 21,668 25,090 27,816
13,871 15,052 17,958 19,468
748
822
892
1,018
4,960
5,794
6,240
7,331
5,219
6,276
5,974
6,138
(259)
(482)
267
1,193
1,973
1,284
1,328
1,754
900
511
649
635
74
(1,331) (1,254)
(412)
594 (1,164)
(1,331)
(660) (1,576)
74
* (1,252) (1,723)
(340)
(1,331) (1,912) (3,298)
(266)
FY11
100
78.1
5.3
16.6
27.8
(11.2)
10.7
8.5
(13.4)
(13.4)
*
(13.4)
% of Revenue
FY12 FY13 FY14 FY15
100
100
100
100
70.8
69.5
71.6
70.0
3.8
3.8
3.6
3.7
25.3
26.7
24.9
26.4
26.7
29.0
23.8
22.1
(1.3) (2.2)
1.1
4.3
10.1
5.9
5.3
6.3
4.6
2.4
2.6
2.3
(6.8) (5.8) (1.6)
0.3
(4.1)
8.1
(9.3) (4.6) (11.0)
0.5
*
(5.8) (6.9) (1.2)
(6.8) (8.8) (13.1) (1.0)
Revenue grew 11% YoY to INR27.8bn and EBITDA rose to INR7.3bn, up 17% YoY leading to
expansion in EBITDA margin by 150bps. The company turned PAT positive in FY15 vis--vis
losses in past 4 years. PBT stood at INR74mn, though adjusted for forex losses capitalised,
stood at INR(266)mn. Cumulative forex losses capitalised over past 3 years stood at
INR3.3bn.
140
FY11
2,034
3,853
5,887
14,367
41.0
FY12
1,770
3,015
4,785
19,579
24.4
FY13
1,501
2,946
4,448
21,668
20.5
(INR mn)
FY14
FY15
918
3,390
4,308
25,090
17.2
183
3,443
3,626
27,816
13.0
(INR mn)
FY12
(1,331)
1,186
5,219
16
5,088
(60)
Consolidated
FY13
FY14
(660)
(1,576)
(78)
460
6,388
6,267
(82)
(60)
5,569
5,091
(18)
(111)
11
1,349
FY15
74
945
6,351
(99)
7,270
(222)
(24)
85
(17)
(1,447)
(24)
(367)
(978)
2,008
714
1,017
(977)
4,111
(784)
3,328
526
6,095
(691)
5,404
1,964
7,055
(625)
6,429
404
7,675
(761)
6,914
(6,038)
(2,710)
(6,980)
(1,577)
(2,986)
3,443
(7,057)
(144)
FCF stood negative in FY15 at INR(144)mn led by INR7.1bn capex. Creditors for capex rose
by INR1.4bn to INR2.0b n in FY15.
141
Dish TV
Net trade payables and other liabilities (largely advance income) declined by INR1.8bn in
FY15. However, cash flow statement showed an increase of INR1.1bn.
(INR mn)
Outstanding balances
Particulars
FY 12
FY 13
FY 14
FY 15
Inventory
69
86
75
99
Trade Receivables
286
304
415
642
Trade payables
(1,275) (2,138) (1,357) (1,268)
Advance to vendors
336
522
555 1,573
Unearned Income (advance income) (4,785) (4,448) (4,308) (3,626)
Net working capital
(5,369) (5,674) (4,620) (2,581)
As % of revenue
27.4
26.2
18.4
9.3
Change from
FY12 - FY15
30
356
7
1,236
1,159
2,788
FY11
469
261
1,411
545
2,687
9.9
24.1
FY12
870
336
973
147
2,326
8.8
17.8
FY13
1,022
522
1,360
802
3,706
11.7
25.1
FY14
1,745
555
921
569
3,790
13.7
34.6
(INR mn)
FY15
1,316
1,573
1,291
569
4,748
15.0
40.6
Particulars
Gross debt
Creditor for capex
Bank overdraft , accrued interest
Total Debt (A)
Regulatory dues - Short term
provisions (B)
Cash and liquid investment (C)
Net adjusted debt (A+B-C)
Net cash reqd to meet short term
liability (Current maturities - cash)
Add:
Trade payables (D)
Total adjusted liabilities (A+B-C+D)
Ratios:
Reported Debt/ EBITDA
Net adjusted Debt/ EBITDA
Total adjusted liabilities/ EBITDA
FY11
10.8
2.2
0.1
13.2
3.2
FY12
14.0
0.8
0.3
15.1
4.9
(INR bn)
% change
YoY
5
212
35
14
26
FY13
16.3
1.8
0.2
18.4
6.5
FY14
14.1
0.6
0.2
14.9
8.4
FY15
14.8
2.0
0.3
17.1
10.5
5.4
5.5
6.6
10.9 14.5 18.3
(1.1) (3.6) 1.0
5.5
17.8
0.1
6.5
21.1
7.9
17
19
2.5
13.4
1.3
15.8
2.1
20.5
1.4
19.1
1.3
22.4
(7)
17
2.3
4.6
5.6
1.7
2.9
3.2
1.7
3.2
3.5
1.4
2.8
3.1
1.1
2.9
3.1
142
1,028
10.2
10.2
(INR mn)
FY14
FY15
575
825
FY12
1,497
FY13
602
703
1,252
1,723
340
2,200
12.1
17.8
1,854
4.0
12.2
120
2,298
3.8
15.1
181
1,165
5.7
8.1
FY13
13,859
1,508
0
FY14
10,074
326
5
(INR mn)
FY15
7,576
1,461
6
2,227
10
22
13,109
2,544
222
99
7,539
2,757
304
276
5,705
FY15
14,839
10,505
3,626
1,984
3,844
34,796
Change
744
2,149
(683)
1,347
411
3,969
Application
Fixed assets
Loans/ advances
Cash/ investments
Net worth (negative)
Others
Total
FY14
17,797
3,790
5,505
3,126
610
30,828
FY15
19,510
4,748
6,459
3,134
945
34,796
(INR mn)
Change
1,714
958
954
8
335
3,969
143
Dish TV
Chart 1: Movement during the year
Debt
16%
Creditors
for capex
28%
Others
4%
Advance
income
decline
15%
Regulatory
dues
45%
Fixed assets
36%
Cash/
investments
20%
Inventories/
receivables
5%
Loans &
advances
20%
100% = INR4.7bn
100% = INR4.7bn
Sources as at FY15
Creditors
for capex
6%
Application as at FY15
Others
11%
Net worth
(negative)
9%
Debt
43%
Advance
income
10%
Others
3%
Cash/
investments
18%
Fixed assets
56%
Regularoty
dues
30%
Loans/
advances
14%
100% = INR34.8bn
100% = INR34.8bn
144
(INR mn)
FY14
Receivable Payable Purchase Sale
235
3,027 44
14
108 181
166 43
470 760 89
8
90 118
133
300
4,620 299
26
Loans/adv.
39
1,277
1,316
34
FY15
Receivable Payable Purchase Sale
1,065 73
13
8 192
216 129
1,370 20
852 58
6
99 153
130
168
3,610 345
19
Source: Company annual report, Edelweiss research
FY11
14,367
15,593
2,380
16.6
(92.8)
(3.2)
3,996
1,534
(1,920)
370
10,763
5,357
14,437
4,421
5,650
13,951
(8,301)
5,406
3,948
(6,429)
655
(1,825)
(10,050)
1,602
FY12
19,579
20,479
4,960
25.3
(468.3)
5.3
5,219
1,973
(1,331)
(939)
14,003
8,510
14,204
3,884
6,335
11,373
(5,038)
5,493
4,111
(5,002)
1,424
534
(6,038)
(978)
FY13
21,668
22,179
5,794
26.7
(85.1)
0.2
6,276
1,284
(660)
(1,556)
16,330
9,762
14,340
6,535
9,929
15,142
(5,213)
6,568
6,095
(7,869)
1,222
(553)
(6,980)
526
FY14
25,090
25,739
6,240
24.9
(33.7)
7.1
5,974
1,328
(1,576)
(3,126)
14,095
8,590
13,571
4,226
7,451
15,673
(8,222)
5,505
7,055
(2,984)
(4,610)
(539)
(2,986)
1,964
(INR mn)
FY15
27,816
28,451
7,331
26.4
1.0
16.1
6,138
1,754
31
(3,134)
14,839
8,380
14,539
4,972
9,147
19,709
(10,563)
6,459
7,675
(6,699)
(362)
614
(7,057)
404
145
Market Data
52-week range (INR)
: 401 / 265
: 960.4
: 355 / 5,580
: 43.1
: 2.2
FIIs
: 50.0
Others
: 4.8
: 16.2
Whats on track?
Zee has been reporting healthy net profit margin of ~20% since 4 consecutive years,
despite several challenges faced by industry.
The company has been focusing on new launches for future growth and successfully
launched &TV and Zindagi in FY15. In light of its 2020 Vision, it continues to expand its
international operations.
July 3, 2015
Edelweiss Securities Limited
Other highlights
FY15 onwards the company has changed its accounting policy for expenses incurred on
development of new channels wherein it will be recognised under intangibles, until the
channel is ready for commercial launch. In FY15, INR133mn was recognised as
intangibles of which INR6mn was amortised during the year.
Net un-hedged receivables at standalone level (largely forex loans to subsidiaries) stood
at INR6.8bn, 15% of standalone net worth (FY14: INR6.6bn, 17%). Details at
consolidated level are not available.
MD&A highlights
Mission - To become the worlds leading global company from emerging markets.
Zee is a global media brand with strong presence in over 169 countries, total viewership
of over 959mn people around the world and more than 36 international channels. It
also has an extensive library with over 2,10,678 hours of television content, rights to
more than 3,500 movie titles and a rich bouquet of 33 popular domestic channels.
Digitisation in Phase I and II cities is complete, rollout of digitisation process in Phase III
and IV cities undertaken during the year signified a positive development for industry
and is expected to boost subscription revenues going ahead.
Major acquisitions during the year included renewal of rights with the Pakistan Cricket
Board, WWE and UEFA Champions League. Ten Sports also bagged the rights for
MotoGP for the next 5 years.
The company expanded its international operations by forming a step-down whollyowned subsidiary of Asia TV Ltd, UK in Ontario, Canada in the name of Asia Multimedia
Distribution Inc., for facilitating distribution of television channels.
The company is setting up infrastructure to rapidly scale up in high-growth, highpotential markets such as Latin America, Japan and China.
147
FY14
Standalone
% FY15
(INR bn)
%
Subsidiary (Derived)
FY14
% FY15
30.8
100.0
34.3
100.0
11.1
13.1
2.2
5.1
10.3
0.3
10.0
0.1
1.8
11.8
4.0
7.7
0.1
7.6
42.6
7.2
16.6
33.5
1.1
32.4
0.2
6.0
38.2
13.1
25.1
0.3
24.8
13.5
2.8
7.5
10.4
0.6
9.9
0.0
2.3
12.1
3.8
8.3
1.5
6.9
39.4
8.2
21.9
30.5
1.7
28.8
0.1
6.6
35.4
11.1
24.3
4.2
20.0
5.2
1.7
2.5
1.7
0.2
1.6
0.1
(0.0)
1.4
0.3
0.0
1.2
1.2
100.0
47.1
15.0
22.3
15.6
1.5
14.1
0.8
(0.3)
13.0
2.4
0.2
10.8
10.8
14.6
FY14
100.0
41.9
Consolidated
% FY15
100.0
48.8
100.0
7.9
54.2
18.3
43.8 21.4
43.8
1.7
11.5
3.9
9.3
4.5
9.2
18.1 10.4
21.3
2.9
19.9
7.6
2.1
14.3
12.0
28.8 12.5
25.7
0.1
0.6
0.5
1.2
0.7
1.4
2.0
13.7
11.5
27.6 11.9
24.3
0.1
0.6
0.2
0.4
0.1
0.2
0.0
0.0
1.8
4.3
2.3
4.7
1.9
13.2
13.2
31.5 14.0
28.7
0.5
3.3
4.3
10.3
4.3
8.8
0.0
0.1
0.0
0.1
0.0
0.0
10.0
8.9
21.3
9.8
20.0
1.5
0.1
0.2
1.5
3.0
1.5
10.0
8.8
21.1
8.3
17.0
Source: Company annual report, Edelweiss research
Revenues (ex-subscription management cost) rose 17% YoY, which included sale of media
content spurted from INR1.7bn (3.9% of sales) in FY14 to INR3.7bn (7.7% of sales) in FY15.
Content sale included syndication deals, a large part of which included one-time sports deals
and were bottom-line neutral.
EBITDA margins declined from 28.8% in FY14 to 25.7% impacted by rise in other expenses,
primarily led by: i) higher ad expenditure which increased from INR2.5bn in FY14to INR3.7bn
in FY15 (up 50% YoY); and ii) marketing, distribution/promotion expenses increased from
INR1.9bn in FY14 to INR3.0bn (up 53% YoY). This rise in costs was predominantly on account
of the new channel launches during the year.
EBITDA margins however, stood optically higher by 120bps at 25.7% due to change in
accounting for subscription management fees, from gross to net. Consequently, subscription
management fees fell from INR2.4bn in FY14 to INR28mn in FY15. Operating cost also
included media content impairment worth INR668mn in FY15 (FY14: INR447mn).
Other income stood higher at INR2.3bn in FY15 and contributed 16% to PBT (FY14: 14%).
Adjusted for preference share, dividend profit available to equity shareholders declined YoY
from INR8.8bn in FY14 to INR8.3bn in FY15.
FY13
4
36,996
0.0
FY14
752
44,217
1.7
(INR mn)
FY15
1,143
48,837
2.3
148
(INR mn)
Standalone
Particulars
Profit before tax
Non operating expenses
Non cash adjustments
Direct taxes paid
Cash profit after tax
(Increase)/Decrease in trade and
other receivables
(Increase)/Decrease in inventories
Increase/ (Decrease) trade and other
payables
(Increase)/ Decrease in working capital
Net cash from operating activities
Interest expenses paid
Preference share dividend
Net Cash from operating activities
post interest
Capex
Free Cash Flow
FY14
FY15
11,750
12,122
(1,184)
(1,755)
404
214
(3,619)
(3,575)
7,351
7,006
(1,465)
(1,617)
(1,228)
(869)
161
Subsidary/JV derived
Consolidated
FY14
FY15
FY14
FY15
1,441
1,918
13,191
14,040
202
200
(982)
(1,555)
362
510
766
724
(623)
(589)
(4,242)
(4,164)
1,382
2,039
8,733
9,045
(999)
(1,374)
1,714
(1,465)
727
390
(2,464)
(2,991)
(1,115)
(2,693)
(142)
551
599
(2,921)
4,430
(22)
(101)
(383)
6,623
(64)
(1,453)
(1,983)
(601)
(4)
-
(1,853)
186
(7)
-
(4,904)
3,829
(26)
(101)
(2,236)
6,809
(71)
(1,453)
4,307
(1,384)
2,923
5,106
(935)
4,171
(605)
(81)
(686)
179
(156)
23
3,702
(1,465)
2,237
5,285
(1,091)
4,194
8.0
6.8
4.0
0.0
Payables
OCF
0.0
Inventories
2.0
Receivables
2.0
( 3.0 )
8.7
0.6
3.8
OCF
9.0
Payables
4.0
6.0
Inventories
6.0
( 2.5 )
Cash profit
after tax
0.6
( 0.1 )
(INR bn)
( 2.7 )
Cash profit
after tax
(INR bn)
8.0
10.0
Receivables
10.0
Despite lower profitability growth during FY15 (6% YoY PBT growth), the company reported
robust 43% YoY growth in operating cash flows (post interest and preference dividend),
primarily led by inventories which rose by INR142mn in FY15 versus INR3.0bn in FY14.
149
FY10
6,770
6,344
285
1,220
5,410
125
FY11
5,662
6,369
289
882
5,776
98
FY12
4,068
5,891
323
1,384
4,830
84
FY13
3,837
7,196
399
1,461
6,134
63
FY14
3,703
8,820
501
1,807
7,514
49
(INR mn)
FY15
5,285
8,322
673
2,278
6,717
79
(%)
90
70
50
30
FY10
FY11
FY12
FY13
FY14
FY15
Earnings to cash flow conversion improved in FY15 after declining in past 5 years, mainly
due to lower acquisition of movie rights. The improvement was also owing to the companys
accounting policy of amortisation of inventory over 60 months, thus creating a mismatch in
profitability and cash flows.
FY13
195
87
(95)
188
FY14
204
79
(90)
193
FY15
202
77
(79)
200
Cash conversion cycle rose primarily due to the decline in payable days. Trade payables fell
from INR5.1bn in FY14 to INR4.2bn in FY15.
Total inventories stood at INR11.9bn in FY15 versus INR11.7bn in FY14 and includes rights
worth INR1.5bn (FY14: INR1.2bn), which will commence at future date.
150
FY14
FY15
Film rights are amortised on a straight-line basis over the licensed period or 60 months from the commencement of rights,
whichever is shorter.
Film produced and/ or acquired for distribution:
FY13 Change
YoY
FY14 Change
YoY
(INR mn)
FY15
633
954
981
350
2,918
(602)
1,287
96
(350)
431
31
2,241
1,077
3,349
(31)
(2,241)
(1,077)
3,775
426
3,775
3,775
1,250
237
420
1,907
1,250
237
420
1,907
(237)
(237)
1,250
420
1,670
88
1,750
3,361
5,199
(44)
1,700
695
2,351
44
3,450
4,056
7,550
411
800
1,254
2,465
455
4,250
5,310
10,015
Total (A+B+C)
As % of adjusted net worth
8,117
21
4,689
12,806
47
2,654
15,460
44
4,347
625
4,972
(2,347)
100
(2,247)
2,000
725
2,725
1,245
1,245
3,245
725
3,970
13,089
2,442
15,531
3,899
19,430
Total (A+B+C+D)
151
(INR mn)
FY15
1,626
19,207
9.1
FY14
1,232
16,502
8.0
1,461
13.9
1,807
13.7
2,278
16.2
FY11
30.1
8.2
27.3
18.4
25.0
31.5
8.1
0.0
3.7
31.0
0.0
31.0
0.0
FY12
30.4
7.4
24.3
18.0
25.9
33.0
9.2
0.2
3.3
34.4
0.0
34.4
0.0
FY13
37.0
9.5
25.8
19.6
28.9
37.3
9.9
0.1
3.7
39.1
0.0
39.1
0.0
FY14
44.2
12.0
27.2
26.6
30.8
39.8
10.7
1.0
4.1
27.2
20.2
47.4
0.7
(INR bn)
FY15
48.8
12.5
25.7
26.6
27.5
34.9
11.4
0.9
4.3
35.3
20.2
55.5
0.6
45.0
60.0
36.0
48.0
27.0
36.0
18.0
24.0
9.0
12.0
0.0
FY11
FY12
FY13
FY14
FY15
(INR bn)
(%)
0.0
152
FY11
11.1
6.1
17.2
55.5
FY12
11.4
6.9
18.3
53.1
FY13
13.1
7.1
20.2
51.6
FY14
15.5
7.6
23.2
48.8
(INR bn)
FY15
19.4
7.9
27.3
49.2
49% of the capital employed represents goodwill, loans and non-operating investments.
(INR mn)
% shareholding
as on FY15
Networth
100
7,457
100
247
100
270
100
100
51-100
(251)
4,464
1,432
13,619
FY14
Turnover
6,455
7,152
571
58
86
5,586
19,908
PAT Networth
665
8,788
268
68
71
767
460
(44)
(381)
75
4,754
231
883
1,266
15,339
6.4
FY15
Turnover
6,311
5,080
2,071
1,717
45
3,437
18,661
PAT
960
(186)
498
129
(161)
79
(190)
1,129
6.1
FY14
(INR mn)
FY15
12,366
1,396
492
3,684
11,049
791
539
6,474
624
18,562
68
631
19,484
55
FY14
19,568
FY15
34,555
155
404
20,127
394
392
35,341
153
FY14
2
576
44
622.0
(INR mn)
FY15
3
749
455
1,207.0
(522)
(522)
(459)
(22)
(481)
100
0.4
726
2.1
Revenue from related parties rose to INR1.9bn in FY15, largely led by sales to Dish TV at
INR1.2bn (FY14: INR560mn) and Siti Cable at INR491mn (FY14: INR41mn).
Operating costs include media content purchased from Zee Media Corp. worth INR1.2bn
(FY14: INR1.2bn), Dish TV at INR203mn, Siti Cable at INR315mn and Essel Corporate
Resources P.Ltd. at INR294mn.
154
FY11
30,088
30,970
8,220
27
18
25
289
88
6,369
30,982
30,982
17
(10,180)
(10,180)
8,098
8
28,457
7,670
20,787
10,197
5,725
(4,989)
(2,951)
(2,215)
(376)
886
FY12
30,405
31,789
7,395
24
18
26
323
50
5,891
34,354
34,354
21
(10,586)
(10,586)
9,199
201
31,011
8,592
22,419
10,607
4,078
(164)
(4,488)
(574)
(797)
(1,612)
FY13
36,996
38,457
9,543
26
20
29
399
86
7,196
39,115
39,115
28
(12,553)
(12,553)
9,906
69
37,009
11,099
25,910
12,581
3,867
452
(2,287)
2,032
(709)
(2,348)
FY14
44,217
46,024
12,043
27
21
31
501
158
8,921
47,377
27,207
29
(10,964)
9,206
10,733
997
42,116
12,203
29,913
10,993
3,830
(2,059)
(1,444)
327
(1,465)
(4,904)
(INR mn)
FY15
48,837
51,115
12,538
26
19
27
673
103
9,775
55,498
35,306
22
(15,634)
4,558
11,376
878
49,802
13,776
36,026
15,656
6,809
(3,661)
(3,427)
(279)
(1,091)
(2,236)
155
Market Data
52-week range (INR)
: 1,132 / 796
: 3,235.7
: 2,838 / 44,514
Promoters*
: 45.2
: 12.6
FIIs
: 18.8
Others
: 23.4
: NIL
Whats on track?
Refining and petchem segments EBIT margins and return on net assets have improved
over past 3 years. Retail segment delivered robust performance. Oil & gas segment
margins and returns have however declined over the years.
Consolidated RoCE (ex-telecom) improved marginally YoY, however other nonoperational business ventures remained a drag on consolidated RoE/RoCE. Most
upcoming projects are on track and expected to commence operations during
FY16/Q1FY17, which will lead to improvement in return ratios.
Other highlights
RIL acquired control of Network18 Media & Investments (including its subsidiary TV18
Broadcast) via Independent Media Trust (IMT), of which RIL is the sole beneficiary.
Since acquisition, Network18s revenues stood at INR27.5bn and EBIT at INR1.4bn.
Efforts by RIL to provide 4G services across the country is gathering momentum. During
the year, based on acquisition of additional spectrum, RIL emerged as the largest
holder of liberalised spectrum in India.
The company was successful in acquiring rights to use spectrum in 800 MHz or 1800
MHz bands or both in 13 key circles across India. With this, Reliance Jio Infocomm (RJIL)
has spectrum in either 800 MHz or 1800 MHz or both in 20 out of 22 circles in the
country. This is in addition to the pan-India spectrum in the 2300 MHz band.
Over 300 fuel retailing outlets were commissioned, with plans to re-commission the
entire network of 1,400 outlets by end of FY16. RILs focus is to ensure consistent and
superior customer experience through several technology-enabled initiatives.
157
Reliance Industries
implying 26% YoY growth. The business delivered EBIT of USD402mn, an increase of
36.3% YoY.
Retail business, over past five years, has sustained its growth momentum growing at
31% CAGR to generate record revenues of INR176.4bn. RIL also enhanced its presence
with 2,621 stores (12.5mn sq ft) spread across 200 cities. Net store addition in FY15
stood at 930, at almost 18 new stores every week.
Profitability analysis
Table 1: Standalone versus consolidated profitability
Particulars
Sales
Raw Materials Consumed
Other Exp.
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
EBT
Other Income
PBT
FY14
3,901
3,302
256
34
309
88
221
32
189
89
278
Standalone
%
FY15
100.0 3,291
84.7 2,651
6.6
287
0.9
37
7.9
316
2.3
85
5.7
231
0.8
24
4.8
207
2.3
87
7.1
295
(INR bn)
%
100.0
80.6
8.7
1.1
9.6
2.6
7.0
0.7
6.3
2.7
9.0
Subsidiary (Derived)
Consolidated
FY14
%
FY15
%
FY14
%
FY15
%
443 100.0
464 100.0 4,345 100.0 3,754 100.0
328
73.9
290
62.5 3,630
83.6 2,940
78.3
54
12.3
91
19.5
311
7.2
378
10.1
22
5.0
26
5.6
56
1.3
63
1.7
8.8
58
12.4
348
8.0
374
10.0
39
24
5.4
31
6.6
112
2.6
115
3.1
15
3.4
27
5.8
236
5.4
258
6.9
6
1.4
9
2.0
38
0.9
33
0.9
198
4.5
225
6.0
2.0
18
3.8
9
1
0.1
(1)
(0.2)
90
2.1
86
2.3
9
2.1
16
3.6
288
6.6
311
8.3
Source: Company annual report, Edelweiss research
Revenues declined 14% YoY to INR3.8tn in FY15, impacted by the sharp dip in
crude oil prices in second half of the year. EBITDA, however, rose by 7% YoY and
EBITDA margins expanded by 200bps.
Interest cost declined to INR33bn, though adjusted for interest capitalised worth
INR44.1bn (FY14: INR17.6bn), rose 38% YoY to INR77.3bn versus INR55.9bn in
FY14.
Depreciation capitalised and not included in P&L stood at INR2.5bn in FY15 (FY14:
INR1.9bn).
Forex loss capitalised during the year stood at INR68.7bn, 22% of PBT. As per our
estimates, cumulative forex losses (net of depreciation) worth INR294.7bn is
capitalised in fixed assets, constituting 13.5% of net worth as detailed below:
FY05-09 FY10
105.7 (53.1)
2.2
6.5
104.0
44.4
3.2
FY11
(0.4)
4.2
39.8
2.6
FY12
79.2
6.8
112.2
6.6
FY13
59.5
12.0
159.7
8.8
FY14
106.8
17.9
248.6
12.5
(INR bn)
FY15 Total
68.7 366.3
22.6
72.1
294.7
13.5
158
(INR bn)
FY14
Networth
Turnover
FY15
PAT Networth
Turnover
PAT
230.4
1.3
0.2
0.0
-
(0.1)
(0.0)
(0.0)
300.7
4.1
1.0
0.0
0.0
-
(0.2)
(0.1)
(0.1)
94.5
94.4
60.0
52.5
127.5
(0.0)
2.7
60.0
51.9
162.0
(0.0)
2.7
100
100
100
100
100
14.1
38.6
6.1
8.1
4.6
40.1
2.3
3.4
(0.0)
10.7
2.0
(1.5)
(1.0)
14.4
55.6
5.0
8.0
3.9
49.0
3.1
8.9
4.1
(0.0)
16.2
2.5
(8.9)
(15.0)
100
100
100
0.6
61.3
41.7
266.9
0.0
0.5
0.0
1.8
61.3
41.7
176.4
0.0
1.1
(0.0)
(0.0)
100
100
100
100
34.2
28.6
32.4
27.1
0.0
40.4
0.0
0.0
0.1
(2.9)
(0.0)
34.2
28.2
27.6
27.1
0.0
67.6
0.0
(0.0)
0.1
(5.4)
-
100
100
100
100
26.1
26.0
24.3
20.6
0.0
0.3
1.6
0.0
0.0
0.6
(0.1)
26.0
26.0
25.9
21.5
0.0
0.6
2.6
0.0
(0.0)
0.0
1.6
(0.1)
100
100
100
100
17.4
14.4
11.9
12.2
0.0
0.0
0.5
9.6
(0.2)
0.1
0.2
0.1
19.2
14.3
12.6
12.5
0.0
0.0
2.5
11.0
(0.3)
(0.2)
0.7
0.0
100
76
15.4
5.1
64.9
880.1
67.1
98.8
127.2
785.8
(1.6)
0.0
(0.4)
9.2
11.2
5.4
64.2
965.2
65.8
128.6
67.2
749.5
(2.7)
0.4
0.0
(7.4)
Aggregate profitability of subsidiaries fell from INR9.2bn profit to INR7.4bn loss. Reliance
Retail and Reliance Eagleford Midstream (shale gas business) performed well, however
losses in Reliance Marcellus (shale gas) and Reliance Holdings, USA, increased.
159
Reliance Industries
Cash flow analysis
Table 4: Cash flows analysis
(INR bn)
Standalone
FY14
FY15
Profit before tax
278.2
294.7
Non-operating expense
(29.2)
(49.0)
Non-cash adjustments
88.1
84.9
Direct taxes paid
(60.7)
(60.8)
Cash profit after tax
276.5
269.7
Changes in trade and other receivables
4.1
54.6
Changes in inventories
(2.0)
63.8
Changes in trade and other payables
143.1
(35.3)
(Increase)/ Decrease in working capital
145.2
83.2
Net cash from operating activities
421.6
352.9
Interest expenses paid
(40.5)
(33.7)
Net cash from operating activities post interest
381.1
319.2
Capital expenditure
(324.0)
(426.3)
Free cash flows
57.1
(107.2)
Particulars
Subsidiary (derived)
Consolidated
FY14
FY15
FY14
FY15
9.4
16.5
287.6
311.2
14.6
13.2
(14.6)
(35.9)
23.3
29.8
111.4
114.7
(1.5)
(3.5)
(62.1)
(64.4)
45.8
55.9
322.3
325.6
(23.3)
(43.7)
(19.1)
11.0
(11.9)
(29.1)
(14.0)
34.7
0.3
7.7
143.4
(27.5)
(34.9)
(65.0)
110.3
18.2
11.0
(9.1)
432.6
343.8
(15.7)
(27.8)
(56.2)
(61.5)
(4.7)
(36.9)
376.4
282.3
(275.4)
(203.3)
(599.4)
(629.6)
(280.1)
(240.2)
(223.0)
(347.4)
Operating cash flow post interest declined 25% YoY to INR282.3bn, primarily on account of
the dip in trade payables by INR27.5bn (versus increase of INR143.4bn last year). Inventories
and receivables dropped YoY and aided working capital (versus decline in FY14).
Capex rose substantially during the year by INR1.0tn as per annual report. However, cash
flow statement reflected INR630bn as cash payments towards capex. We believe remaining
INR370bn cost, could come for payment in FY16 and may increase net debt to that extent.
Other payables, under current liabilities, jumped from INR113bn to INR325bn, which could
partly be due to creditors for capex.
Consolidated
FY13
FY14
FY15
53
53
63
12
8
7
(47)
(53)
(70)
18
8
1
Inventory days stood higher at 63, though offset by the increase in payable days from 53 to
70. Receivable days continued to decline and receivables during FY15 stood at INR53bn
(versus INR94bn last year). Trade payables stood at INR594bn (FY14: INR608.6bn).
CY12
30
27
(34)
24
BP
CY13
32
27
(33)
26
160
CY14
28
25
(31)
23
Exxon Mobil
CY12 CY13 CY14
18
20
22
24
24
21
(41)
(41)
(38)
1
2
5
CY12
28
35
(40)
22
Shell
CY13
29
32
(40)
21
CY14
25
29
(38)
17
CY12
13
34
(50)
(3)
Chevron
CY13
14
35
(52)
(3)
CY14
16
35
(53)
(2)
Dow Chemical
CY12 CY13 CY14
17
18
17
9
9
8
(10)
(10)
(10)
15
16
16
CY12
17
13
(8)
22
BASF
CY13
18
14
(9)
23
Valero Energy
Petroleos Mexicanos
CY14 CY12 CY13 CY14 CY12 CY13 CY14
19
5
5
5
6
7
6
14
6
6
6
9
8
7
(9)
(7)
(8)
(7)
(7)
(10)
(13)
24
3
3
4
8
5
1
Source: Bloomberg, Company annual report, Edelweiss research
Capital allocation
Table 7: Capital allocation
Particulars
Sales
EBITDA
EBITDA margin (%)
ROE (%)
ROCE (%)
ROCE (%) - ex telecom
Net fixed assets (Ex CWIP)
CWIP
Fixed asset turnover ratio (Ex CWIP)
Equity shareholders' funds (A)
Loan funds (B)
Total capital employed (A+B)
Debt Equity Ratio
FY11
2,658
380
14.3
13.1
11.9
11.9
1,597
282
1.7
1,541
841
2,382
0.5
FY12
3,585
345
9.6
12.2
11.3
11.3
1,388
254
2.6
1,694
924
2,619
0.5
FY13
3,971
330
8.3
11.9
10.8
10.8
1,335
500
3.0
1,821
1,072
2,893
0.6
FY14
4,345
348
8.0
11.8
10.4
11.2
1,414
915
3.1
1,987
1,388
3,374
0.7
(INR bn)
FY15
3,754
374
10.0
11.3
9.6
11.6
1,565
1,665
2.4
2,185
1,609
3,794
0.7
FY15 witnessed significant increase in net fixed assets and CWIP by INR150bn and INR750bn,
respectively. CWIP included Intangibles under development, which rose by INR174bn.
Reliance Industries
Chart 1: Capital allocation
15.0
3,500
11.0
3,000
9.0
2,500
7.0
2,000
(%)
13.0
5.0
(INR bn)
4,000
1,500
FY11
FY12
FY13
Total capital employed (A+B)
ROCE (%)
FY14
FY15
EBITDA margin (%)
ROCE (%) - ex telecom
Significant amount of forex losses capitalised in cost of fixed assets and revaluation of assets
(cumulatively 22% of net worth) has led to subdued RoE and RoCE over the years.
Particulars
EBIT Margins:
Refining
Petrochemical
Oil&Gas
Retail
Others
Return on Net Assets (RONA):
Refining
Petrochemical
Oil&Gas
Retail
Proportion of capital employed:
Refining
Petrochemical
Oil&Gas
Retail
Telecom*
Others and unallocable (including
surplus cash and investments)
FY13
FY14
FY15
3.5
8.2
33.3
#
2.3
3.3
8.7
26.3
0.8
15.1
4.7
9.3
28.1
2.4
10.1
18.1
18.6
8.2
#
19.8
18.7
5.0
4.0
19.8
17.6
4.7
6.9
22
14
16
-
19
14
18
2
-
23
12
18
2
13
48
48
33
162
FY12
61.9
254.1
24
FY13
78.7
262.2
30
FY14
90.0
287.6
31
(INR bn)
FY15
86.1
311.1
28
Other income contributes significant proportion of PBT although the proportion declined in
FY15 from 31% to 28%
FY12
58.9
FY13
77.2
FY14
85.8
(INR bn)
FY15
83.4
407.3
271.7
71.5
504.6
288.7
94.8
379.8
344.6
220.1
125.5
510.1
202.6
750.5
9.5
888.1
9.4
944.5
9.4
838.2
9.4
FY12
924.5
3.3
FY13
1,072.2
3.5
FY14
1,387.6
3.1
13.6
10.3
10.7
7.3
13.2
10.1
(INR bn)
FY15
1,608.6
2.2
9.7
7.5
Average borrowing cost charged to P&L fell to 2.2%, and adjusted for interest and forex loss
capitalised, borrowing cost declined from 13.2% in FY14 to 9.7% which is due to lower MTM
forex loss during FY15 vs FY14.
Gross debt increased 16% YoY to INR1,609bn, of which INR364bn pertained to US shale gas
business, INR223bn towards telecom (RJIL) and balance towards standalone and other
businesses.
FY11
363
46
282
317
1,007
FY12
341
42
251
252
886
FY13
332
44
23
896
1,296
FY14
337
28
24
767
1,157
(INR bn)
FY15
700
24
65
959
1,748
Reliance Industries
Derivatives exposure jumped 51% YoY to INR1.75tn in FY15, primarily on account of the
increase in interest rate swaps and forward contracts.
Unhedged exposure rose 31% YoY at INR858bn in FY15, 39% of net worth versus INR656bn
in FY14, 33% of net worth.
(INR bn)
Particulars
Opening value of revalued assets
Add: Accreation on revaluation of assets
Depreciation charged through revaluation
reserve
Depreciation charged through General /
Capital reserve
Closing value of revalued assets carried in
the books
Closing value of revalued assets in excess of
revaluation reserve (A)
Networth (B)
Revalued assets (in excess of revaluation
reserve) as % of networth (A/B)
FY06
27.3
225.0
(14.6)
FY07
237.7
(20.0)
FY08
217.7
(17.8)
FY09
199.9
130.6
(20.2)
FY10
310.2
2.3
(30.4)
FY11
282.1
0.1
(26.4)
FY12
255.8
0.1
(23.5)
FY13
232.4
(20.8)
FY14
210.8
3.5
(11.6)
FY15
193.9
(0.2)
(0.8)
(8.8)
(0.9)
237.7
217.7
199.9
310.2
282.1
255.8
232.4
210.8
193.9
192.8
187.9
187.9
187.9
187.9
187.9
195.0
195.0
194.2
185.4
184.6
510.3
36.8
682.2
27.5
855.1
22.0
1,212.6
15.5
1,410.0
13.3
1,541.0
12.7
1,694.5
11.5
1,820.6
10.7
1,986.9
9.3
2,185.0
8.4
RIL charged depreciation on revalued assets from general/capital reserves in past 3 years,
although in FY15 the amount was significantly lower than FY14. As per our estimates, assets
revalued since FY06 for which no revaluation reserves exist stood at INR184.6bn, 8.4% of
net worth.
164
FY11
28.0
0.5
0.5
6.3
0.2
2.9
6.5
-
FY12
28.4
0.8
0.4
7.7
0.3
3.7
2.4
-
FY13
31.9
0.7
0.7
0.4
13.3
2.0
2.6
45.0
43.6
51.5
FY14
32.6
1.1
0.7
0.3
14.7
1.9
2.7
15.8
69.8
(INR bn)
FY15
32.9
1.1
0.8
0.5
15.8
1.9
2.8
10.5
66.4
Net outstanding exposure (investments, loans and advances) towards related parties stood
at INR67bn (FY14: INR63bn), and including guarantees of INR14.3bn stood at INR81bn, 3.7%
of net worth (FY14: INR78bn, 3.9%).
FY11
2,658
2,684
380
14.3
13.1
11.9
141
24
193
1,541
841
367
1,597
282
627
574
406
333
(320)
149
162
(336)
(10)
FY12
3,585
3,647
345
9.6
12.2
11.3
124
29
197
1,694
924
202
1,388
254
769
525
244
245
(63)
(76)
106
69
(67)
FY13
3,971
4,049
330
8.3
11.9
10.8
112
35
209
1,821
1,072
218
1,335
500
766
600
166
369
(277)
4
97
(286)
74
FY14
4,345
4,435
348
8.0
11.8
10.4
112
38
225
1,987
1,388
479
1,414
915
794
774
19
433
(731)
137
(161)
(599)
110
(INR bn)
FY15
3,754
3,840
374
10.0
11.3
9.6
115
33
236
2,185
1,609
792
1,565
1,665
730
985
(254)
344
(649)
84
(221)
(630)
18
165
Whats on track?
Apollo Munich Health Insurances EBITDA and PAT improved to INR96mn (FY14: loss of
INR290mn) and INR7mn (FY14: loss of INR370mn), respectively.
Market Data
: 1,515 / 1,022
: 139.1
: 206 / 3,155
Promoters*
: 34.3
: 2.3
FIIs
: 43.8
Others
: 19.6
: 21.9
(% of share in issue)
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
October 8, 2015
Edelweiss Securities Limited
Other matters
During FY15, Alliance Medicorp (AHELs subsidiary with 51% stake) sold part of its stake in
subsidiary Alliance Dental Care (ADC). Consequently, AHEL ceased to consolidate ADC in its
financials. Since AHEL continues to hold its stake (FY14: ~23.8%, FY15: n.a.) in ADC, it
discloses it under investments with carrying value of INR178mn (FY14: nil) in consolidated
financials. AHEL has also given corporate guarantee of INR475mn on behalf of ADC.
Further, AHEL discloses ADC as an entity in which key managerial personnel or their relatives
are able to exercise significant influence.
Trademarks and concept rights (intangibles) addition during the year stood at INR274mn.
These include payments made to doctors in acquired Nova Specialty Hospitals and amount
paid for acquisition of Akeso Healthcare.
Corporate guarantees increased to INR1,505mn (INR475mn in FY14). This predominantly
includes comfort letters of INR1,020mn and INR450mn given on behalf of AHLL and Apollo
Rajshree Hospital, respectively.
(INR mn)
Particulars
FY14
Sales
38,616
Raw Materials Consumed
20,019
Gross margin
18,597
Operating and Administrative expense 6,357
Personnel cost
6,102
EBITDA
6,139
Depreciation
1,291
EBIT
4,848
Financial Charges
871
Other Income
175
Interest/dividend income #
49
PBT before exceptional items
4,202
Standalone
%
FY15
100.0 45,928
51.8 24,240
48.2 21,688
16.5
7,698
15.8
7,210
15.9
6,781
3.3
1,580
12.6
5,200
2.3
833
0.5
330
0.1
123
10.9
4,820
Subsidiary (Derived)
%
FY14
%
FY15
100.0 5,226 100.0 5,857
52.8 1,482
28.4 1,572
47.2 3,744
71.6 4,284
16.8 1,986
38.0 2,328
15.7 1,172
22.4 1,391
14.8
586
11.2
566
3.4
387
7.4
536
11.3
198
3.8
30
1.8
323
6.2
346
0.7
39
(0.2)
37
0.3
10.5
(86)
(2.6) (278)
%
FY14
100.0 43,842
26.8 21,501
73.2 22,341
39.7
8,342
23.7
7,274
9.7
6,724
9.2
1,678
0.5
5,046
5.9
1,194
(1.5)
215
(6.8) 4,067
Consolidated
%
FY15
100.0 51,785
49.0 25,812
51.0 25,973
19.0 10,026
16.6
8,600
15.3
7,347
3.8
2,117
11.5
5,230
2.7
1,179
0.5
368
9.3
4,419
%
100.0
49.8
50.2
19.4
16.6
14.2
4.1
10.1
2.3
0.7
8.5
Operating and administrative expenses include bad debts written off and donations, which
increased to INR259mn (FY14: INR179mn) and INR103mn (FY14: INR17mn), respectively.
Consolidated rent expenses spurted to ~INR1.7bn (FY14: ~INR1.3bn) following increase in
number of pharmacies and new hospitals coming up on leased premises.
Standalone depreciation charge stood higher by INR104mn due to revision in useful life in
accordance with the Companies Act 2013.
167
Apollo Hospitals
Table 2: Segment profitability analysis (Consolidated)
Revenue
Particulars
FY13
FY14
Existing
25,545
28,312
New
28
531
Healthcare services
25,573
28,843
Standalone pharmacy
11,017
13,648
Apollo Munich insurance #
497
607
AHLL (incl. Cradle)
601
743
Total
37,688
43,841
Particulars
Existing
New
Healthcare services
Standalone pharmacy
Apollo Munich insurance
AHLL (incl. Cradle)
Total
(INR mn)
FY15
30,483
1,767
32,250
17,726
735
1,074
51,785
FY13
5,930
(54)
5,876
293
(1)
(86)
6,082
EBITDA
FY14
6,688
(210)
6,478
449
(30)
(172)
6,725
FY15
7,124
(75)
7,049
580
10
(292)
7,347
FY13
4,686
(65)
4,621
200
(10)
(152)
4,659
EBIT
FY14
5,330
(333)
4,997
343
(37)
(257)
5,046
FY15
5,574
(300)
5,274
390
2
(435)
5,231
FY13
23.2
(192.9)
23.0
2.7
(0.2)
(14.3)
16.1
EBITDA (%)
FY14
23.6
(39.5)
22.5
3.3
(4.9)
(23.1)
15.3
FY15
23.4
(4.2)
21.9
3.3
1.4
(27.2)
14.2
FY13
18.3
(232.1)
18.1
1.8
(2.0)
(25.3)
12.4
EBIT (%)
FY14
18.8
(62.7)
17.3
2.5
(6.1)
(34.6)
11.5
FY15
18.3
(17.0)
16.4
2.2
0.3
(40.5)
10.1
Healthcare services
Existing hospitals revenues
surged 7.7%, while EBITDA
margin stood at ~23.5%
Addition of new hospitals coupled with maturity of hospitals opened in FY13, led to
revenues of new hospitals surging to INR1.8bn (FY14: INR0.5bn).
Revenues of Vanagaram and Jayanagar hospitals (opened in FY13) increased to INR1,320mn
(FY14: INR470mn). Other new hospitals (opened in FY14 and FY15) reported revenues of
INR440mn.
New hospitals reported EBITDA loss of INR75mn (FY14: INR210mn). While Vanagaram and
Jayanagar hospitals reported positive EBITDA of INR68mn, other newly opened hospitals
reported EBITDA loss of INR143mn.
FY11
5,842
2,875
8,717
4,767
1.74
265,000
4.79
1.27
73.0
18,474
FY12
5,888
2,338
8,226
5,153
1.88
281,000
4.78
1.34
71.4
20,455
FY13
6,382
2,038
8,420
5,549
2.03
313,000
4.65
1.46
71.9
21,724
FY14
6,684
1,933
8,617
5,811
2.12
332,000
4.54
1.51
71.1
23,684
FY15
7,207
2,008
9,215
6,321
2.31
354,000
4.43
1.57
68.0
25,381
168
Chennai cluster
FY13
FY14
FY15
1,237
1,264
1491
73.5
71.6
66.7
(INR mn)
Hyderabad cluster
FY13
FY14
FY15
930
930
930
66.2
67.5
63.4
FY13
1,416
72.0
Others
FY14
1,585
68.1
FY15
1821
63.4
Subsidiary/JV/Associate
FY13
FY14
FY15
1,966
2,032
2079
73.7
74.5
74.8
Operating beds
Bed occupancy
Volumes
Inpatient
72,608 75,931 81,920 49,362 51,048 51,877 71,988 78,757 87,834 1,19,390 1,25,942 1,31,916
Outpatient
3,28,991 3,51,195 3,81,931 1,43,806 1,52,495 1,61,717 1,94,244 2,31,102 2,57,174 3,94,486 3,97,826 4,43,370
Revenues
Inpatient
7,619
8,372
9,273
3,405
3,763
4,066
3,697
4,573
5,364 10,840 11,901 13,063
Outpatient
2,400
2,717
3,161
713
820
905
633
810
944
1,907
2,237
2,537
ARPOB / (INR/Day)
30,174 33,561 34,266 18,280 20,002 23,081 11,603 13,662 14,953 24,055 25,590 27,506
Inpatient ALOS
4.6
4.4
4.4
4.6
4.5
4.2
5.2
5.0
4.8
4.4
4.4
4.3
Growth- Volumes
Inpatient
N.A.
4.6%
7.9%
N.A.
3.4%
1.6%
N.A.
9.4%
11.5%
N.A.
5.5%
4.7%
Outpatient
N.A.
6.7%
8.8%
N.A.
6.0%
6.0%
N.A.
19.0%
11.3%
N.A.
0.8%
11.4%
Growth- ARPOB
N.A.
11.2%
2.1%
N.A.
9.4%
15.4%
N.A.
17.7%
9.4%
N.A.
6.4%
7.5%
Pharmacies
Pharmacy EBIT margins
declined to 2.2% (FY14: 2.5%)
owing to the steep increase in
depreciation to INR190mn
(FY14: INR106mn)
Pharmacies (standalone) revenues surged ~30%, led by 12% (net) increase in store count
and ~16% rise in revenue per store. EBITDA margins improved for stores opened till FY10,
but overall remained unchanged at ~3.3%.
Pharmacy loyalty discounts increased to INR495mn (FY14: INR271mn), representing 2.8%
(FY14: 2%) of pharmacy sales. Management highlighted the increase in discounts was led by
the new stores.
During FY15, 190 (net) stores were added, taking the total store count to 1,822. Stores (321)
acquired as part of the Hetero acquisition were integrated from Q1FY16, taking total store
count to over 2,100 during the quarter.
169
Apollo Hospitals
Table 5: Pharmacies - Key operating parameters
Stores count
Particulars
FY13
FY14
FY15
Upto FY08 Batch
455
434
425
FY09 Batch
201
193
189
FY10 Batch
189
184
175
FY11 & onwards Batch
658
821
1,033
1,503
1,632
1,822
Upto FY08 Batch
FY09 Batch
FY10 Batch
FY11 & onwards Batch
Overall
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
N.A.
(INR mn)
Revenue
FY13
FY14
FY15
4,700
5,047
5,653
1,763
1,974
2,319
1,491
1,680
1,916
3,063
4,942
7,749
11,017 13,644 17,637
Average revenue per store
10.3
11.6
13.3
8.8
10.2
12.3
7.9
9.1
11.0
4.7
6.0
7.5
7.3
8.4
9.7
EBITDA
FY13
FY14
FY15
250
286
332
42
58
87
43
70
88
(35)
26
77
301
441
583
EBITDA margins (%)
5.3
5.6
5.9
2.4
2.9
3.7
2.9
4.2
4.6
(1.2)
0.5
1.0
2.7
3.3
3.3
Pharmacy stores opened till FY08 stood at 425 and accounts for ~23% of total stores.
However, these stores contributed ~57% to total EBITDA of the segment.
Others
Apollo Munich Health Insurance (AHEL stake at 10.2%) reported 24% increase in gross
written premium to INR8.6bn. Its EBITDA and PAT improved to INR96mn (FY14: loss of
INR290mn) and INR7mn (FY14: Loss of INR370mn), respectively.
Nature of transaction
Purchase of drugs & medicines
Biomedical Engineering Services
Catering Services
Housekeeping services
Purchase of drugs & medicines
n.a.
Remuneration
FY13
3,199
244
2
18
30
366
3,860
FY14
3,699
296
220
46
37
356
4,654
(INR mn)
FY15
4,828
480
460
60
992
54
352
7,226
170
(INR mn)
FY14
FY15
Business
% Holding Net Worth Revenue
PAT Revenue
PAT
Hospital-Indore
58
218
140
(96)
Hospital-Bengaluru
90
469
1,469
52
1,672
47
Hospital-Kakinada
100
228
280
3
283
5
Primary healthcare
100
447
1,149
(327)
1,664
(272)
Poly Clinics, diagnostic centres
100
(109)
205
(109)
Maternity services, chil care
81
134
151
(34)
226
(35)
Diabetes clinics
80
691
44
(51)
Source: Company annual report, Edelweiss research
* Subsidiary of Apollo health and lifestyle(AHLL)
During FY15, the company acquired 11 day care and short stay surgery centres from Nova
Specialty Hospitals. Of the 11 centers which were acquired, 2 have been remodeled as
Cradle, while the remaining 9 centers have been rebranded as Apollo Spectra Hospitals.
AHLLs consolidated losses at EBITDA and PAT level for FY14 stood at INR181mn (FY13:
INR95mn) and INR324mn (FY13: INR155mn) respectively. Consolidated revenue and
profitability of AHLL for FY15 is not available.
AHLL (standalone) losses declined to INR272mn (FY14: INR327mn). The company requires
continued financial support from AHEL to sustain its loss-making operations and fund its
growth plans (including acquisitions). AHEL infused INR1bn in AHLL during FY15, taking
cumulative cash exposure to INR2.1bn. Management highlighted that AHLL has plans to
raise money from private equity to fund its growth plans.
(INR mn)
Standalone
FY14
Particulars
Subsidiary (derived)
FY14
FY15
FY15
4,202
4,673
(135)
(119)
Profit before tax
683
592
343
(223)
Non-operating expense
1,452
1,796
433
591
Non-cash adjustments
(1,060)
(936)
(43)
(66)
Direct taxes paid
5,276
6,125
598
183
Cash profit after tax
(579)
(1,026)
(114)
(315)
Increase in trade/other receivables
(596)
(675)
(4)
(46)
Increase in inventories
724
714
(205)
595
Increase in trade payables
(1,794)
(1,246)
427
393
Change in Others
(2,246)
(2,234)
105
626
Increase in working capital
3,031
3,891
703
809
Net cash from operating activities
(871)
(833)
(333)
(343)
Interest expenses paid
Net cash from operating activities post interest
2,160
3,058
370
466
Capital expenditure
(5,373)
(6,847)
(585)
(1,807)
Free cash flows
(3,213)
(3,790)
(215)
(1,341)
Consolidated
FY14
4,067
1,026
1,885
(1,104)
FY15
4,554
369
2,387
(1,003)
5,874
(693)
(599)
519
(1,367)
6,308
(1,341)
(722)
1,308
(853)
(2,140)
3,734
(1,204)
(1,608)
4,699
(1,176)
2,530
(5,958)
3,524
(8,655)
(3,428)
(5,131)
Operating cash flow improved YoY, but FCF stood negative at INR5.1bn in FY15 (FY14:
INR(3.4)bn) due to higher capex of INR8.7bn in FY15 (FY14:INR6bn).
171
Apollo Hospitals
FY12
38
40
(53)
4
29
10.3
FY13
37
42
(47)
1
32
11.0
FY14
39
41
(47)
1
34
10.7
FY15
41
40
(49)
3
35
10.9
Other advances (not considered in above cash conversion cycle) increased by 71% to
INR3.5bn (FY14: INR2.1bn).
FY11
FY12
4,252
5,357
780
891
675
627
115
272
2,911
4,110
(1,042)
(873)
1,869
3,237
107
4,159
1,562 (1,446)
3,537
5,951
FY13
FY14
FY15
Total
6,256
6,978
7,311 30,153
1,033
1,204
1,176
5,084
927
1,104
1,003
4,336
283
98
113
880
4,579
4,769
5,245 21,613
(901) (2,140) (1,608) (6,565)
3,678
2,628
3,636 15,049
1,631
72
417
6,387
3,688
1,262
5,481 10,547
63
282
345
9,060
3,962
9,817 32,327
(INRmn)
Application
Capex
Dividend
Purchase of investment
Net increase in cash
Total
FY11
FY12
3,157 3,867
432
468
1,307 1,071
(1,359)
545
FY13
FY14
FY15
Total
6,600 5,958 8,655 28,237
557
765
800
3,022
1,071 (2,302) (670)
478
832
(459) 1,032
591
3,537
9,060
5,951
3,962
9,817
32,327
AHEL incurred capex of INR28bn during FY11-15, which represented ~87% of the application
of funds primarily funded by operating cash flow, borrowings and equity.
Particulars
Claims not acknowledged as debt
EPCG obligation
Indirect tax liabilities
Direct tax liabilities
Guarantees
Bank guarantees
Corporate guarantees
Standalone
FY14
FY15
438
592
1,525
922
130
121
337
395
2,430
2,031
(INR mn)
Consolidated
FY14
FY15
698
803
1,525
922
154
165
401
397
2,778
2,287
263
475
5,598
264
475
6,294
262
1,505
5,828
312
1,505
6,391
172
FY11
26,054
4,190
16.1
10.4
18.8
n.a.
n.a.
14,619
3,610
677
1,616
18,989
9,574
28,563
FY12
31,475
5,131
16.3
10.0
20.2
1.9
16.5
18,762
2,093
1,350
2,195
25,068
8,167
33,235
FY13
37,687
6,082
16.1
11.6
20.7
1.9
15.2
21,953
4,034
1,453
2,762
27,468
12,132
39,600
FY14
43,842
6,724
15.3
11.1
19.1
1.9
13.0
25,313
4,913
1,499
3,965
29,767
13,444
43,210
(INR mn)
FY15
51,785
7,347
14.2
10.6
17.7
1.8
10.4
30,789
5,326
1,652
6,038
31,713
19,923
51,636
16.0
13.6
40,000
12.8
30,000
9.6
9.2
7.2
20,000
10,000
6.4
(%)
(INR mn)
11.5
3.2
0.0
FY14
FY15
RoNA - Hospitals
173
Apollo Hospitals
Table 13: Summary financials
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
RoCE
ROE
Depreciation
Financial costs
Net profit
Equity shareholders' funds
Loan funds
Net fixed assets (Ex-CWIP & Goodwill)
CWIP
Goodwill
Curr. assets loans & advances (Ex- cash & Liquid investment)
Current liabilities and provisions
Net current assets
Cash & Liquid investment
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital investments
FY11
26,054
26,202
4,190
16.1
18.8
10.4
948
778
1,839
18,989
9,574
14,619
3,610
677
5,848
4,232
1,616
2,940
2,588
(4,415)
467
(1,359)
3,157
1,042
FY12
31,475
31,734
5,131
16.3
20.2
10.0
1,239
891
2,193
25,068
8,167
18,762
2,093
1,350
7,036
4,842
2,195
3,588
3,871
(4,680)
1,354
545
3,867
873
FY13
37,687
38,052
6,082
16.1
20.7
11.6
1,423
1,033
3,044
27,468
12,132
21,953
4,034
1,453
8,759
5,997
2,762
6,988
4,428
(7,325)
3,730
832
6,600
901
FY14
43,842
44,057
6,724
15.3
19.1
11.1
1,678
1,194
3,167
29,767
13,444
25,313
4,913
1,499
10,712
6,748
3,965
4,296
3,734
(3,558)
(635)
(459)
5,958
2,140
(INR mn)
FY15
51,785
52,152
7,347
14.2
17.7
10.6
2,117
1,179
3,399
31,713
19,923
30,789
5,326
1,652
14,160
8,121
6,038
5,229
4,699
(7,591)
3,923
1,032
8,655
1,608
174
Whats on track?
Revenue jumped 50% YoY led by acquisition of Actavis and Natrol Groups. Organic
revenue growth was robust at 19% YoY.
Net unhedged payables continued to decline and stood at INR5.3bn, 10% of net worth in
FY15 (FY14: INR8.5bn, 23%; FY13: INR12.5bn, 48%) led by increasing forex receivables
being natural hedge against forex loans.
Market Data
52-week range (INR)
: 796 / 382
: 292.0
: 228 / 3,507
: 53.9
: 6.3
FIIs
: 29.5
Others
: 10.3
: 2.9
(% of share in issue)
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Profitability analysis
Table 1: Standalone versus consolidated profitability
(INR bn)
Standalone
%
FY15
100.0
81.0
49.0
37.8
51.0
43.2
16.8
14.0
7.2
6.7
27.0
22.5
2.6
2.5
24.4
20.1
4.1
1.3
20.3
18.7
1.1
0.7
21.4
19.4
4.9
4.2
16.5
15.2
Subsidiary (Derived)
Consolidated
FY14
%
FY15
%
FY14
%
FY15
%
9.9 100.0
40.3 100.0
81.0 100.0
121.2 100.0
1.2
12.4
17.3
42.9
36.1
44.5
55.1
45.4
8.7
87.6
23.0
57.1
44.9
55.5
66.1
54.6
3.6
36.8
13.5
33.5
15.6
19.2
27.5
22.7
29.1
6.3
15.7
8.0
9.9
13.0
10.7
2.9
2.1
21.7
3.1
7.8
21.3
26.3
25.6
21.2
1.3
12.8
0.9
2.2
3.1
3.9
3.3
2.7
0.9
8.9
2.3
5.6
18.2
22.5
22.3
18.4
3.1
3.8
1.6
1.3
2.2
0.3
0.7
0.2
0.7
6.7
2.0
4.9
15.1
18.7
20.7
17.1
(0.5)
(5.4)
0.3
0.7
0.2
0.3
1.0
0.8
0.1
1.3
2.3
5.7
15.3
18.9
21.7
17.9
3.6
4.5
6.0
4.9
0.2
1.6
1.7
4.3
(0.0)
(0.3)
0.5
1.4
11.7
14.4
15.7
13.0
Source: Company annual report, Edelweiss research
Particulars
Sales
Raw Materials Consumed
Gross margin
Operating & admin. Expenses
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
EBT
Other Income
PBT before exceptional items
Tax expense
PAT
FY14
71.1
34.8
36.3
11.9
5.1
19.2
1.9
17.3
2.9
14.4
0.7
15.2
3.5
11.7
%
100.0
46.7
53.3
17.3
8.3
27.8
3.0
24.8
1.6
23.1
0.8
24.0
5.2
18.7
Revenue catapulted 50% YoY partly led by acquisition of Actavis and Natrol in FY15;
excluding which, organic revenue growth was 19% YoY. While Natrol was acquired and
consolidated effective December 2014, Actavis acquisition was w.e.f. April 1, 2014, for full
year.
176
Aurobindo Pharma
34,274
44,054
56.2
1,787 36,060
(26) 44,938
(1.5)
56.1
38,530
55,472
59.0
16,526
9,610
36.8
55,056
66,149
55.1
Traded goods gross margin stood at 36.8%, while finished goods gross margin improved
from 56% to 59% YoY.
Actavis and Natrol acquisition analysis
Actavis Groups aggregate revenue and profit stood at INR22.6bn and INR6.3bn, respectively,
with PAT margin at 28%. Natrol performance in FY15 was muted with revenue of INR1.9bn
and PAT margin of 4%.
Actavis Group
22,574
16,271
6,302
27.9
(INR mn)
Natrol LLC
8,344
3,651
4,693
Natrol LLC
1,881
1,799
82
4.4
Post acquisition, Actavis Groups trade payables declined by INR7.0bn and other liabilities at
consolidated level (largely statutory dues of Actavis) have gone up by INR4.5bn in FY15.
(INR mn)
PAT
(41)
(51)
0
280
4
(133)
(151)
(466)
(557)
177
FY12
722
2.5
(INR mn)
Cumulative
2,662
FY13
685
1.8
FY14
555
1.0
FY15
700
1.1
FY12
FY13
FY14
FY15
1,468
1,468
6.3
155
1,854
2,008
7.7
163
2,076
2,239
6.0
285
2,515
2,800
5.4
Outstanding export claims/ incentives continued to rise and stood at INR2.8bn, 5.4% of net
worth. Cumulatively, over past 4 years, export incentive income of INR2.7bn was
outstanding and receivable as at FY15 end.
(INR mn)
FY12
45,855
2,324
1,349
373
469
106
212
672
818
110
3,706
10,138
%
100.0
5.1
2.9
0.8
1.0
0.2
0.5
1.5
1.8
0.2
8.1
22.1
FY13
58,434
3,247
1,752
880
508
600
357
665
824
122
4,448
13,403
Consolidated
%
FY14
100.0 79,921
5.6
3,498
3.0
2,336
1.5
798
0.9
684
1.0
738
0.6
521
1.1
841
1.4
956
0.2
465
7.6
4,739
22.9 15,577
%
100.0
4.4
2.9
1.0
0.9
0.9
0.7
1.1
1.2
0.6
5.9
19.5
FY15
95,522
3,596
4,611
3,609
2,217
1,452
574
1,234
1,222
1,083
7,892
27,490
%
100.0
3.8
4.8
3.8
2.3
1.5
0.6
1.3
1.3
1.1
8.3
28.8
Aurobindo Pharma
Selling, carriage expenses and legal & professional costs rose in past 4 years led by upswing
in revenue. However, FY15 saw a significant increase in these costs. Power and fuel costs
stood flattish in absolute terms YoY and declined as proportion to revenue.
(INR bn)
Particulars
Profit before tax
Non-operating expense
Non-cash adjustments
Direct taxes paid
Cash profit after tax
(Increase)/Decrease in receivables
Adj for (Increase)/Decrease in bill discounted
(Increase)/Decrease in inventories
(Increase)/Decrease in other current assets
Increase/(Decrease) in trade payables
Increase/(Decrease) in other liabilities/ provision
(Increase)/Decrease in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post interest
Capital expenditure
Free cash flows
Acquisitions/ investment in subsidiaries
Adjusted free cash flows
2.5
1.7
(3.4)
(12.9)
2.2
(2.8)
(0.5)
3.5
0.0
Standalone
FY14
FY15
15.2
19.4
1.3
2.5
(4.3)
16.0
18.9
(6.7)
0.1
(4.3)
(1.2)
(1.0)
0.2
(10.5)
(12.9)
5.5
6.0
(0.7)
(0.6)
4.8
5.4
(1.4)
(5.4)
3.4
0.0
(2.5)
(1.9)
0.9
(1.9)
(0.5)
1.5
(0.0)
1.8
(1.9)
(1.6)
(0.0)
0.4
1.5
Subsidiary (derived)
Consolidated
FY14
FY15
FY14
FY15
0.1
2.3
15.3
21.7
(0.6)
2.0
0.7
0.9
3.2
3.4
(0.7)
(3.4)
(5.0)
1.1
1.9
17.1
20.8
4.4
(11.0)
(2.3)
0.1
0.3
0.3
(1.4)
(4.4)
(5.7)
2.2
(0.5)
1.0
(4.0)
3.8
(5.1)
3.5
1.5
3.7
0.1
4.7
(10.3)
(8.2)
1.2
6.6
6.7
12.6
(0.2)
(0.1)
(0.9)
(0.7)
1.0
6.5
5.8
11.9
(2.4)
(2.0)
(3.7)
(7.5)
(1.4)
4.4
2.0
4.4
2.2
(4.9)
(0.2)
(6.9)
0.9
(0.5)
1.8
(2.4)
Source: Company annual report, Edelweiss research
PBT grew 41% YoY and OCF post interest doubled led by robust profitability and partly due
to lower pace of increase in receivables. FCF post acquisitions stood negative at INR2.4bn.
179
Inventory days
Receivable days
Payable days
Cash conversion cycle
173
88
(81)
181
180
95
(97)
178
170
93
(97)
166
FY15 (exacquisitions)
190
109
(105)
194
200
190
(Days)
Particulars
180
170
160
150
FY12
FY13
FY14
FY15
Cash conversion cycle improved YoY. However, adjusted for acquisitions, it deteriorated YoY
primarily led by inventory days.
FY12
76
198
(74)
200
200
Cipla
FY13 FY14
67
56
209
213
(75) (73)
201
196
201
196
FY15
55
248
(95)
208
208
FY12
68
290
(111)
248
248
SunPharma
FY13 FY14 FY15*
70
52
296
272
(115) (104)
251
220
1
252
220
-
FY12
78
158
(123)
113
24
137
Lupin
FY13 FY14
75
76
149
150
(113) (112)
110
115
19
17
130
132
FY12
58
167
(84)
141
141
Cadila
FY13 FY14
54
52
151
147
(67)
(80)
139
119
139
119
FY12
108
216
(173)
151
151
Glenmark
FY13 FY14 FY15*
105
116
161
153
(151) (173)
115
96
115
96
-
FY15
56
138
(90)
105
105
FY15
74
154
(115)
113
17
129
Note: * Detailed information is not available, as FY15 annual report is not yet released
Source: Company annual report, Edelweiss research
180
Aurobindo Pharma
Receivables days for Aurobindo and Glenmark are highest within peers while inventory days
for Cipla and Sun Pharma are highest. Overall core working capital (receivables and
inventory) of Lupin and Cadila is lowest amongst peers.
(INR bn)
Application
FY11 FY12 FY13 FY14 FY15 Total
Capex
7.1 5.7 2.7 3.7
7.5 26.6
Dividend
0.5 0.3 0.7 0.6
1.8
3.9
Acquisitions
(0.8) 4.2
6.9 10.3
Net cash/ investments 1.2 (1.2) 1.2 (0.3) (0.8) 0.1
(FDs, Mutual funds)
Total
Utilisation
Sources
Net
borrowings
40%
Acquisition
s
25%
Operating
cash flow
60%
Dividend
10%
Net cash/
investment
s
0%
Capex
65%
While OCF contributed 60% to overall cash generation, debt was 40%. APL utilised 65% of
funds for capex, 25% for acquisitions and 10% towards dividend.
Cumulatively, over the past 5 years, APL generated OCF post interest of INR24.5bn and
capex stood at INR26.6bn, leading to negative FCF of INR2.1bn.
Table 13: Cumulative free cash flow generation over past 5 years APL versus peers
Cumulative from FY11 to FY15
Particulars
Aurobindo
Cipla
Dr. Reddys
Cumulative Operating Cash Flow (A)
24.5
67.9
80.6
Cumulative Capex (B)
26.6
32.0
53.2
Free cash flow (A)-(B)
(2.1)
35.9
27.4
Capex as % of OCF (B/A*100)
108.7
47.1
66.0
(INR bn)
Cumulative from FY10 to FY14
Cadila#
Glenmark# Sun Pharma#
29.6
33.6
134.2
31.9
15.5
31.0
(2.2)
18.1
103.2
107.5
46.1
23.1
181
Interest cost
Forex loss/ (gains)
Total borrowing cost
Average borrowing cost (%)
Gross Debt
Cash and investments
Net debt
FY13
FY14
FY15
1,313
1,353
2,666
8.2
1,079
2,022
3,102
8.6
843
756
1,599
3.9
34,355
2,085
32,270
37,691
1,786
35,905
44,511
4,888
39,623
(INR mn)
Change
YoY (%)
(22)
(63)
(48)
(55)
18
174
10
Gross debt rose by INR6.8bn, while cash rose by INR3.1bn partly led by acquisitions. Net
debt rose 10% YoY to INR39.6bn as at FY15. Cash and liquid investments of INR4.9bn include
INR4.3 lying in current account.
FY14
774
105
223
150
260.6
1,514
4.0
(INR mn)
FY15
723
309
772
150
1,954
3.8
1,682
4,135
182
Aurobindo Pharma
Table 17: Major related party transactions
Related party
(INR mn)
FY13
1,080
337
299
128
75
246
2,165
7.2
Purchases
FY14
1,389
390
558
384
100
243
3,063
8.5
FY15
1,589
308
1,203
447
309
156
122
321
4,455
8.1
Sales
FY14
0.5
892
0
26
918
1.1
FY13
0.4
219
61
280
0.5
FY15
0.2
77
555
25
658
0.5
Purchases from related parties rose to INR4.5bn, 8.1% of total raw material cost in FY15,
while sales to these parties declined from INR918mn in FY14 to INR658mn in FY15.
RoE analyser
RoE analyser analysis profitability on the scale of operating and capital allocation efficiency
(detailed concept explained in Annexure A). We have analysed APLs profitability for FY14
and FY15, results and key findings of which are given below:
FY14
FY15
21.6
1.2
17.3
20.3
1.5
13.7
15.1
1.0
7.1
14.5
14.9
0.8
2.8
17.5
0.2
36.9
0.2
35.4
183
32.0
14.9
(%)
24.0
35.4
16.0
8.0
0.0
20.3
RNOA
Return from
leverage
ROAE
(INR mn)
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
ROE (%)
ROCE (%)
Depreciation
Financial costs
Net profit
Equity shareholders' funds
Loan funds
Net Debt
Net fixed assets
CWIP
Current assets loans and advances (Excl Cash
& liquid investment)
Current liabilities and provisions
Net current assets (Ex-Cash)
Cash and cash equivalent
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital investments
184
FY11
43,815
44,529
9,633
22.0
26.4
19.5
1,715
647
5,635
24,448
24,143
22,275
17,386
6,574
FY12
46,274
46,521
5,613
12.1
3.3
7.5
2,005
2,772
(1,235)
23,397
30,959
30,064
21,947
6,454
FY13
58,553
58,839
8,610
14.7
11.9
11.2
2,487
2,666
2,939
26,058
34,355
32,270
26,389
2,185
FY14
80,998
81,214
21,336
26.3
36.9
27.2
3,125
3,102
11,729
37,502
37,691
35,905
27,217
3,097
FY15
121,205
122,172
25,636
21.2
35.4
27.2
3,326
1,599
15,758
51,559
44,511
39,623
37,056
4,196
31,344
31,745
39,283
54,526
78,100
8,776
22,568
1,868
2,446
(5,697)
4,431
1,180
(5,137)
4,216
7,837
23,908
895
3,263
(5,632)
1,189
(1,181)
(5,666)
(1,283)
11,436
17,303
30,468
27,846
37,223
47,632
2,085
1,786
4,888
2,749
6,463
12,368
(2,463)
(8,187)
(14,085)
1,081
1,176
932
1,366
(548)
(785)
(2,676)
(3,741)
(7,459)
(4,216)
(10,574)
(8,417)
Source: Company annual report, Edelweiss research
Whats on track?
Revenue growth remained robust in FY15 with standalone business growing 7% YoY.
Significant improvement in revenue of subsidiaries led to consolidated revenue growth of
12% YoY. Subsidiaries contribute 11% to consolidated revenue, which grew 69% YoY.
Market Data
: 752 / 491
: 803.1
: 510 / 7,663
: 36.8
: 16.0
FIIs
: 18.3
Others
: 28.9
: Nil
(% of share in issue)
Medpro acquisition in FY14 helped Cipla strengthen its position in South Africa. During
FY15, South African subsidiaries turned profitable with INR818mn PAT versus INR41mn
loss in FY14 (as per sec129 (3) statement of subsidiaries).
On an aggregate, performance of subsidiaries improved and profit margin increased from
2.2% in FY14 to 4.9% in FY15, led by improvement in South African subsidiaries.
Cipla successfully launched generic drug Sofosbuvir in India for the treatment of
hepatitis-C under the brand name HepCvir.
Europe business contributed 4% to overall revenue, declining 24% YoY. The drop was
driven by a one-off event in the previous year due to decline in partner based business
and some supply-related issues.
Cipla Europe NV inked a distribution agreement with Serum Institute of India (SII) to
market pediatric vaccines in Europe and expects to commence filings in the near future.
In Q4FY15, Teva Pharma announced FDA approval of the first generic equivalent to
Nexium in the US. Cipla is the supplier of the finished formulation to Teva.
Cipla manufactures metered dose inhalers (pMDIs), dry powder inhalers (DPIs), nasal
sprays, nebulisers and a range of inhalation accessory devices. The company has 5
manufacturing facilities dedicated to respiratory products and is currently the third
largest manufacturer of pMDIs in the world.
During the year, Cipla acquired 60% stake in Jay Precision Pharma, a leading respiratory
device manufacturer. As Cipla is targeting a strong entry in overseas markets, derisking
respiratory devices supply through backward integration is key to strengthen the
foundation.
Profitability analysis
Table 1: Standalone vs. consolidated profitability
Particulars
Sales
Raw Materials Consumed
Gross profit
Operating and Admn exps
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
Other income
EBT
FY14
94,569
37,606
56,963
24,220
12,848
19,895
3,236
16,659
1,279
2,803
18,183
Standalone
%
FY15
100.0 101,318
39.8
39,811
60.2
61,507
25.6
26,838
13.6
15,056
21.0
19,613
3.4
4,332
17.6
15,281
1.4
1,361
3.0
1,479
19.2
15,400
(INR mn)
%
100.0
39.3
60.7
26.5
14.9
19.4
4.3
15.1
1.3
1.5
15.2
Subsidiary (Derived)
FY14
%
FY15
%
7,165 100.0 12,137 100.0
1,142
15.9
2,086
17.2
6,023
84.1 10,051
82.8
2,006
28.0
3,366
27.7
2,582
36.0
4,681
38.6
1,435
20.0
2,004
16.5
490
6.8
715
5.9
945
13.2
1,289
10.6
179
2.5
322
2.7
(149)
(2.1)
176
1.5
617
8.6
1,143
9.4
FY14
101,734
38,748
62,986
26,226
15,430
21,331
3,726
17,604
1,457
2,654
18,800
Consolidated
%
FY15
100.0 113,454
38.1
41,897
61.9
71,557
25.8
30,204
15.2
19,737
21.0
21,617
3.7
5,047
17.3
16,570
1.4
1,683
2.6
1,656
18.5
16,543
%
100.0
36.9
63.1
26.6
17.4
19.1
4.4
14.6
1.5
1.5
14.6
Cipla
Consolidated revenue grew 12% YoY led by robust 69% YoY surge in revenue of subsidiaries.
Standalone business grew 7% YoY. Gross margin expanded 120bps YoY; however, higher
employee cost and operating expenditure (largely marketing, sales promotions and
miscellaneous expenses) led to 200bps decline in EBITDA margin, which was further
aggravated by higher depreciation cost.
Depreciation increased 35% to INR5.04bn in FY15 (FY14: INR3.7bn) and employee cost
increased 28% to INR19.7bn in FY15 (FY14: INR15.4bn). Employee cost included ESOP cost,
which doubled YoY to INR510.7mn in FY15 (FY14: INR223.6mn). ESOPs were granted largely
to employees other than key managerial persons (KMPs). No ESOPs were granted to
executive directors in FY15.
Other income declined YoY from 2.6% of sales in FY14 to 1.5% in FY15, leading to further
lower PBT margin.
(INR mn)
Currency
ZAR
ZAR
ZAR
ZAR
UGX
INR
Country
South Africa
South Africa
South Africa
South Africa
Uganda
India
YR
INR
INR
EUR
INR
INR
USD
USD
Yemen
India
India
Belgium
India
India
Mauritius
Mauritius
% shareholding
as on FY14
100
100
100
100
51
100
50
100
60
100
100
100
100
100
Total
Margin (%)
Networth
3,876
3,501
2,527
1,388
1,102
2,296
FY14
Turnover
16,389
1,086
603
220
2,899
2,502
823
670
219
280
1,179
291
(59)
(104)
4,306
28,967
(11)
(4)
293
639
2.2
3,352
86
2,272
22680
FY15
PAT
Networth Turnover
(89)
3,928
11,871
(599)
3,046
936
272
2,579
466
177
1,327
100
357
1,682
2,445
188
2,478
2,264
344
1,116
399
(240)
1,486
1,385
3,403
1,372
5,435
29740
1,179
1,094
778
575
532
8
5,057
27,305
PAT
418
(125)
290
70
704
184
261
292
172
(669)
98
(145)
(94)
33
(164)
1,326
4.9
187
(INR bn)
Particulars
Profit before tax
Non-operating expense
Non-cash adjustments
Direct taxes paid
Cash profit after tax
(Increase)/Decrease in trade and other
receivables
(Increase)/Decrease in inventories
Increase/(Decrease) in trade payables and
other liabilities
(Increase)/Decrease in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post interest
Less: Capex
Free Cash Flows
Standalone
FY14
18.2
0.2
1.1
3.5
4.4
(2.9)
(3.5)
19.1
FY15
15.4
17.4
Subsidiary (derived)
FY14
FY15
0.6
1.1
1.4
0.0
0.4
0.8
(0.2)
(0.4)
2.2
1.5
Consolidated
FY14
FY15
18.8
16.5
1.6
1.1
4.0
5.2
(3.1)
(3.9)
21.2
18.9
(1.8)
(5.0)
(0.7)
0.6
(2.5)
(4.4)
(1.7)
(7.8)
(0.1)
(0.5)
(1.7)
(8.3)
2.5
5.9
(3.9)
(0.3)
(1.4)
5.6
(0.9)
18.1
(1.0)
17.1
(5.0)
12.1
(6.9)
10.5
(1.4)
9.2
(5.2)
3.9
(4.7)
(0.3)
(5.6)
(7.2)
(2.5)
1.2
15.6
11.7
(0.2)
(0.3)
(1.2)
(1.7)
(2.7)
0.9
14.4
10.1
(0.7)
(1.0)
(5.7)
(6.3)
(3.3)
(0.1)
8.8
3.8
Source: Company annual report, Edelweiss research
OCF, post interest, declined to INR10.1bn in FY15 from INR14.4bn in FY14 primarily on
account of lower profitability and increase in inventories and receivables. Payables rose by
INR5.6bn, which supported cash flows.
FY13
67
209
(75)
201
FY14
56
213
(73)
196
FY15
55
248
(95)
208
Inventory days increased significantly to 248 days in FY15 from 213 days in FY14 leading to
higher cash conversion cycle of 208 days (FY14: 196 days) partially offset by an increase in
payable daysto 95 days in FY15 from 73 days in FY14.
Higher inventory days are for supporting distribution network due to front ends in various
markets, including emerging markets. Inventory is also used for in-house consumption.
Table 5: Average cash conversion cycle (days) Peer comparison Large cap companies
Summary
Cash conversion cycle
Receivable days
Inventory days
Payable days
Cash Conversion cycle
Acceptances days
Adjusted Cash Conversion cycle
Dr Reddys
FY12
80
202
(73)
209
209
FY13
88
179
(72)
194
194
FY14
89
197
(80)
206
206
FY15
90
191
(67)
214
214
SunPharma
Lupin
Cipla
Table 6: Average cash conversion cycle (days) Peer comparison Midcap companies
Summary
Cadila
FY12
58
167
(84)
141
141
FY13
54
151
(67)
139
139
FY14
52
147
(80)
119
119
Glenmark
FY15
56
138
(90)
105
105
Aurobindo
FY12
97
179
(86)
191
191
FY13
88
173
(81)
181
181
FY14
95
180
(97)
178
178
FY15
93
170
(97)
166
166
Inventory days for Cipla and Sun Pharma are highest in industry, while receivables and
payable days are largely in line with peers, except in case of Glenmark wherein payable days
are significantly higher.
Overall core working capital (receivables and inventory) of Lupin and Cadila is lowest
amongst peers.
(INR bn)
FY11
14.5
0.2
2.6
11.7
(1.6)
10.1
2.0
0.2
12.2
FY12
18.4
0.2
3.3
14.9
2.0
16.9
(5.4)
0.5
12.0
Total
103.9
3.6
17.6
82.7
(17.6)
65.1
11.0
3.0
79.0
Application
Ca pex
Acqui s i ti on
Di vi dend
Net ca s h a nd i nves tments
Total
12.2
12.0
23.4
15.8 15.6
79.0
OCF, post
interest
82%
Capex
40%
Acquisition
39%
Source: Company annual report, Edelweiss research
82% of cash generation was through OCF while 40% cash was spent on capex and 39% on
acquisitions.
189
FY13
83
22
26.5
18.5
23.7
36
4
12
90
10
100
0.1
FY14
102
21
21.0
14.6
19.0
65
4
32
101
12
113
0.1
(INR bn)
FY15
113
22
19.1
11.3
15.3
68
6
37
108
17
125
0.2
140
33.0
124
26.0
108
19.0
92
12.0
76
5.0
FY11
EBITDA margin (%)
FY12
FY13
ROE (%)
FY14
ROCE (%)
FY15
(INR bn)
FY12
70
17
23.6
16.0
19.9
32
4
21
76
0
77
0.0
(%)
60
190
Cipla
FY14
(INR mn)
FY15
1,561
1,020
820
93
132
3,627
3.6
1,330
1,101
1,118
493
216
4,259
3.9
2,033
7,542
3,885
10,059
17,685
17,685
267
27,526
267
31,896
Contingent liabilities rose from INR3.6bn in FY14 to INR4.3bn in FY15, 4% of net worth,
primarily led by guarantees, excise duty and sales tax matters. LCs rose from INR93mn in
FY14 to INR493mn in FY15.
Other claims included INR17.7bn pertaining to case pending since 2003 with NPPA for
overcharging of drugs. Cipla believes there is no probability of this demand materialising
and hence no provision is warranted.
FY12
4,171
3,795
376
0.5
FY13
4,102
4,011
91
0.1
FY14
3,279
4,579
(1,300)
1.3
(INR mn)
FY15
8,990
5,756
8,438
(5,204)
4.8
Derivative position stood stable at INR4.9bn in FY15 (net sell position) versus INR4.3bn in
FY14.
191
FY11
63,238
64,155
35,487
56.1
13,692
21.7
14.8
2,733
251
9,896
66,661
5,719
33,795
39,000
11,446
27,554
3,196
2,523
10,251
(9,084)
(828)
339
(6,979)
(1,620)
FY12
70,207
71,602
42,814
61.0
16,589
23.6
16.0
19.9
3,122
383
11,442
76,389
292
35,867
34,499
13,873
20,626
6,664
(6,372)
17,128
(9,651)
(7,532)
(55)
(5,565)
1,998
FY13
82,793
85,015
53,267
64.3
21,979
26.5
18.5
23.7
3,305
339
15,449
90,187
9,671
39,878
25,149
13,111
12,038
22,598
(12,927)
13,977
(20,629)
7,178
525
(7,517)
(5,198)
FY14
101,734
104,388
62,986
61.9
21,331
21.0
14.6
19.0
3,726
1,457
13,884
100,504
12,479
69,383
48,534
16,335
32,198
4,872
7,607
15,633
(12,499)
(2,656)
478
(5,666)
(5,613)
(INR mn)
FY15
113,454
115,110
71,557
63.1
21,617
19.1
11.3
15.3
5,047
1,683
11,808
108,015
17,033
74,105
62,471
24,996
37,476
9,543
7,491
11,734
(9,412)
1,648
3,971
(6,256)
(7,186)
192
Market Data
52-week range (INR)
: 1,261 / 677
: 282.0
: 301 / 4,545
Promoters*
: 46.4
: 6.8
FIIs
: 35.9
Others
: 10.9
: Nil
(% of share in issue)
Key highlights
Revenue grew 10% YoY; however, EBITDA margin declined 270bps in FY15 to 15.4%
(FY14: 18.2%) led by forex loss of INR1.6bn and INR1.6bn paid for settlement of litigation
to State of Texas. Excluding these, margin dipped 180bps to 20.1%.
In FY15, while PAT (post dividend) stood at INR4.2bn, net worth stood flattish at
INR30.0bn led by significant forex translation loss, due to adverse movement in Emerging
Market currencies. The INR depreciated against USD by average 1.1% in FY15 (FY14:
11.1%) and 62% of net worth of subsidiaries is USD denominated. Translation losses have
continued since FY11, despite all major subsidiaries recording positive net worth.
OCF, post interest, declined to INR4.9bn (FY14: INR7.2bn). Adjusted for cash translation
loss of INR1.7bn, OCF dipped to INR3.2bn (FY14: INR5.2bn). Cumulatively, in the past 5
years, currency translation loss adjustment in cash flow statement stood at INR5.4bn.
Cash tax paid stood at INR3.2bn in FY15 (53% of PBT) versus P&L tax expense of INR1.2bn
(20% of PBT) led by deferred tax and MAT credit. Cumulative cash taxes paid during the
past 5 years stood at INR9.7bn (32% of PBT) versus P&L charge of INR4.3bn (14% of PBT).
Net deferred tax assets continued to rise led by unused tax losses and MAT credit. Total
deferred tax assets stood at INR9.7bn in FY15, 32% of net worth.
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
194
Glenmark Pharmaceuticals
Profitability analysis
Table 1: Standalone versus consolidated profitability
(INR mn)
Standalone
%
FY15
100.0 50,856
27.1 16,683
33.0 12,900
17.2
6,623
Particulars
FY14
Sales
23,009
Raw Materials Consumed
6,226
Other expenses (ex-litigation claim)
7,591
3,954
Personnel cost
EBITDA, before exceptional items and
5,238
forex loss
Forex loss/ (gain)
278
Exceptional items/ Litigation claims
EBITDA
4,960
Depreciation
302
EBIT
4,658
Financial Charges
310
Other income
671
PBT
5,019
Tax
681
PAT
4,338
Adjusted in other comprehensive income:
Actuarial losses (net of tax)
Exchange loss on translation
Total Comprehensive income
%
100.0
32.8
25.4
13.0
Subsidiary (Derived)
FY14
%
FY15
%
37,043
100.0 15,442
100.0
12,504
33.8
2,661
17.2
10,290
27.8
8,678
56.2
6,308
17.0
5,402
35.0
Consolidated
%
FY15
100.0 66,298
31.2 19,344
29.8 21,578
17.1 12,024
FY14
60,052
18,730
17,881
10,261
%
100.0
29.2
32.5
18.1
22.8
14,650
28.8
7,941
21.4
(1,299)
(8.4) 13,179
21.9
13,351
20.1
1.2
21.6
1.3
20.2
1.3
2.9
21.8
3.0
18.9
(211)
1,687
13,173
1,195
11,979
302
639
12,315
2,240
10,075
(0.4)
3.3
25.9
2.3
23.6
0.6
1.3
24.2
4.4
19.8
(182)
2,175
5,948
1,866
4,082
1,576
(557)
1,950
832
1,118
(0.5) 1,774
5.9
(125)
16.1 (2,948)
5.0
1,405
11.0 (4,353)
4.3
1,600
(1.5)
(420)
5.3 (6,373)
2.2 (1,050)
3.0 (5,323)
11.5
96
(0.8) 2,175
(19.1) 10,908
9.1
2,168
(28.2) 8,740
10.4
1,886
(2.7)
115
(41.3) 6,969
(6.8) 1,513
(34.5) 5,456
0.2
3.6
18.2
3.6
14.6
3.1
0.2
11.6
2.5
9.1
1,563
1,562
10,225
2,600
7,625
1,902
219
5,943
1,190
4,752
2.4
2.4
15.4
3.9
11.5
2.9
0.3
9.0
1.8
7.2
29
2,244
3,182
0.0
3.7
5.3
105
3,615
1,033
0.2
5.5
1.6
In FY15, though revenue grew 10% YoY, EBITDA margin declined 270bps YoY to 15.4% led by
forex loss of INR1.6bn and INR1.6bn paid for settlement of litigation to State of Texas
(USD25mn payable in 16 equal quarterly installments). Excluding the above items, EBIDTA
declined from 21.9% to 20.1% YoY.
Standalone figures are not comparable YoY as Glenmark merged one of its subsidiaries
Glenmark Genericswith the standalone entity in FY15. Glenmark Generics manufactures
and distributes generic formulations and bulk drugs. The merger led to increase in
standalone net worth by INR14.1bn, 48% of standalone net worth.
FY13
50.1
(INR bn)
FY11
29.5
FY12
40.2
FY14
60.1
FY15
66.3
4.5
15.4
4.6
11.4
6.1
12.3
5.4
9.0
4.8
7.2
3.3
4.0
4.7
3.2
1.0
11.3
9.8
9.5
5.3
1.6
20.0
7.5
16.0
6.0
12.0
4.5
8.0
4.0
4.5
3.3
4.6
4.0
FY11
FY12
6.1
4.7
5.4
3.2
3.0
(INR bn)
Particulars
Revenues
Net profit
Net profit margin (%)
Total comprehensive
income (TCI)
TCI margin (%)
(%)
4.8
1.0
1.5
0.0
0.0
Net profit
Net profit margin (%)
FY13
FY14
FY15
TCI
TCI margin (%)
195
Particulars
Opening shareholders' fund
PAT (net of dividend)
FCTR
Others
Acquisition of non controlling
interest
Closing shareholders' fund
(INR mn)
FY11
17,257
4,406
(1,249)
144
FY12
20,372
4,477
(684)
87
FY13
24,016
5,558
(1,492)
(77)
FY14
27,630
4,789
(2,244)
91
(185)
(236)
(375)
(433)
20,372
FY15 Cumulative
29,833
17,257
4,118
23,348
(3,615)
(9,284)
(60)
184
(273)
(1,503)
Cumulatively, over the past 5 years, net worth rose by INR12.7bn versus profit (post
dividend) of INR23.3bn. 55% of profit accrued to net worth and balance 45% largely
represented currency translation losses.
Acquisition of non-controlling interest charged to reserves stood at INR273mn in FY15
versus INR433mn in FY14 pertaining to ESOPs granted to Glenmark Generics employees.
Management highlighted that FY15 is the last year of payment towards acquisition of ESOPs
led by merger of Glenmark Generics. In FY15, most employees opted to encash their ESOPs
and remaining employees were issued shares of Glenmark.
0.8
(INR bn)
71%
65%
3.6
1.2
5.6
4.4
3.1
4.5
3.6
0.6
46%
4.1
4.8
3.6
2.2
0.0
FY11
FY12
Currency
FY13
FY14
0.4
0.2
4%
0.2 0.0
FY15
(%)
4.8
2.4
USD
EUR
GBP
CHF
BRL
RUB
VEF (official
rate)
45
63
74
49
27
1.6
49
66
78
55
29
1.7
54
71
83
58
28
1.8
62
85
103
70
26
1.7
62
69
95
65
22
1.0
YoY
change (%)
0.1%
-18.5%
-7.6%
-7.0%
-18.2%
-41.1%
10.5
11.4
8.7
9.8
9.8
-0.3%
YTD
64
70
100
67
19
1.1
10.2
Net worth to PAT (ex-dividend) ratio plunged to 4% in FY15 led by significant translation
losses charged to reserves (other comprehensive income).
196
Glenmark Pharmaceuticals
Table 5: Currency translation losses (FCTR)Peer analysis
Change in FCTR balance YoY
Particulars
FY12
FY13
FY14
Glenmark
(684)
(1,492)
(2,244)
Cipla
152
228
(1,625)
Lupin
983
(28)
829
Aurobindo
522
223
703
DrReddys
775
137
(37)
Sunpharma
5,957
3,767
7,572
(INR mn)
FY15
(3,615)
(2,580)
(1,121)
(736)
(1)
NA
FY15
(60.8)
(15.6)
(3.3)
(3.4)
(0.0)
NA
NA: Data for Sun Pharma is not available, loss in FY12 for Aurobindo
Subsidiaries analysis
Table 6: Performance of major subsidiaries
(INR mn)
Subsidiary company
% shareholding
as on FY15
Glenmark Generics Ltd. (Merged in FY15 with parent)
99.3
Glenmark Pharmaceuticals Inc., USA
100
Glenmark Holding S.A.
100
Glenmark Impex L.L.C.
100
Glenmark Farmaceutica Ltda.
100
Glenmark Pharmaceuticals Venezuela, CA
100
Glenmark Generics Finance S.A.
100
Glenmark Pharmaceuticals SRO
100
Glenmark Pharmaceuticals S.A., Switzerland
100
Glenmark Uruguay SA
100
Glenmark Pharmaceuticals (Europe) Ltd.
100
Glenmark Generics (Europe) Ltd.
100
Glenmark Generics S.A. Argentina
100
Glenmark Pharmaceuticals S.R.L.
100
Glenmark Pharmaceuticals Mexico, SA DE CV
100
Glenmark Pharmaceuticals South Africa (Pty) Ltd.
100
Others
100
Total
PAT margin (%)
Currency
INR
USD
USD
RUB
BRL
VEF
USD
CZK
USD
USD
GBP
GBP
ARS
RON
MXN
ZAR
Networth
19,619
5,053
5,168
326
155
40
23,119
5,931
59,410
Turnover
19,134
20,849
5,222
2,228
1,010
2,355
366
375
2,513
391
1,323
186
503
2,893
59,346
Networth
7,549
6,392
2,590
3,617
2,286
7,502
551
320
628
1,061
1,377
208
403
(374)
1,853
35,963
Turnover
21,449
2,911
2,345
4,291
468
2,317
324
0
3,255
521
771
384
492
5,623
45,153
FY15
PAT
825
(1,191)
(871)
(1,119)
1,164
(236)
(953)
(1,191)
(10)
42
(317)
(104)
(178)
(122)
(79)
(4,339)
(9.6)
FY14 includes Glenmark Generics, which was merged in FY15 with the standalone entity. ExGlenmark Generics, performance of subsidiaries deteriorated during the year and losses
increased to INR4.4bn in FY15 versus INR864mn loss in FY14.
Currency
USD
BRL
RUB
VEF
GBP
EUR
INR
Others
Total
Networth
23,119
6,447
6,381
5,168
5,053
326
3,779
1,692
1,525
1,446
155
1,093
1,083
362
237
(229)
1,773
59,410
FY14
PAT
3,950
1,858
(793)
977
(852)
118
937
(191)
(2,403)
(1)
26
139
(326)
93
(194)
(166)
(84)
3,086
5.2
FY14
Turnover
21,379
2,228
5,222
1,010
375
734
19,134
9,266
59,346
197
PAT
(389)
(852)
977
118
26
19
3,950
(762)
3,086
(INR mn)
Networth
22,347
3,617
2,590
2,286
1,239
59
3,825
35,963
Glenmark follows IFRS which requires conversion of all the assets and liabilities of overseas
subsidiaries including goodwill at the closing rate with the resultant difference captured in
FCTR. Considering positive networth of overseas subsidiaries, the conversion should result in
gain in depreciating INR scenario and vice versa loss in appreciating INR scenario.
(INR mn)
Particulars
FY11
FY12
FY13
FY14
FY15
Equity investment
Glenmark Generics (merged in FY15)
8,100
8,427
8,913
9,494
Glenmark Generics Finance (Switzerland)
9,069
Others
2,128
2,221
3,846
4,413
7,351
Loans and advances
Glenmark Generics (merged in FY15)
5,356
4,736
4,683
Glenmark Holding S.A., Switzerland
8,993
4,164
3,471
4,065
3,238
Others
889
380
154
177
694
Total cash exposure (A)
17,366 11,500 12,154
8,656 20,352
As % of standalone net worth
87.7
52.6
48.2
29.8
41.1
Letter of comfort on behalf of subsidairies - 5,687 15,926 24,287 32,046 52,131
mainly to switzerland subsidiares) - B
Total cash + non cash exposure (A+B)
23,054 27,426 36,441 40,702 72,483
As % of standalone net worth
116.4
125.5
144.4
140.1
146.4
Source: Company annual report, Edelweiss research
Equity investment and loans to Glenmark Generics declined led by merger with parent.
Consequently, investment and loans to Switzerland subsidiary increased in FY15 at the
standalone level, which we believe were earlier part of Glenmark Generics balance sheet.
198
Glenmark Pharmaceuticals
Deferred taxes and effective tax rate analysis
Table 9: Deferred tax assets
(INR mn)
Particulars
Deferred tax assets
Unused tax losses
MAT Credit
Others
Total
As % of net worth
Deferred tax liabilities
Property, plant and equipment
Others
Total
Net deferred tax asset
As % of net worth
FY11
FY12
FY13
FY14
FY15
1,358
1,057
142
2,558
12.6
2,365
1,586
223
4,174
17.4
2,269
3,086
217
5,571
20.2
2,810
3,622
781
7,213
24.2
4,263
4,183
1,285
9,731
32.4
1,451
25
1,476
1,081
5.3
1,457
43
1,500
2,674
11.1
1,673
96
1,768
3,803
13.8
1,895
176
2,071
5,142
18.6
2,205
593
2,798
6,933
23.2
Particulars
Tax as per P&L
Cash Tax
Difference
Effective tax rate (%)
Effective cash tax rate (%)
199
FY11
237
938
(701)
4.9
19.5
(INR mn)
FY12
FY13
FY14
FY15 Cumulative
238
1,107
1,513
1,190
4,285
1,330
1,650
2,629
3,178
9,724
(1,092)
(543) (1,116) (1,988)
(5,439)
4.9
15.1
21.7
20.0
14.3
27.2
22.5
37.7
53.5
32.5
Source: Company annual report, Edelweiss research
(INR bn)
Particulars
Profit before tax
Non-operating expense
Non-cash adjustments (mainly provisions)
Direct taxes paid
Cash profit after tax
(Increase)/Decrease in trade and other receivables
(Increase)/Decrease in inventories
(Increase)/Decrease in other assets
(Increase)/Decrease in other receivables
Increase/(Decrease) in trade payables & other liabilities
Increase in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post interest
Increase/(Decrease) in acceptances
Net cash from operating activities post interest (Adj
for acceptances)
Currency translation losses
Adjusted cash flows post currency translation losses
Standalone
FY14
FY15
5.0
12.3
1.1
(0.6)
0.3
1.7
(0.8)
(2.4)
5.6
11.0
(5.8)
(9.7)
(0.2)
(1.6)
0.2
(1.1)
1.3
2.9
(4.5)
(9.5)
1.1
1.5
(0.3)
(0.3)
0.8
1.1
(0.8)
1.9
0.0
3.0
0.1
(0.0)
Subsidiary (Derived)
FY14
FY15
1.9
(6.4)
1.5
2.1
4.2
1.5
(1.9)
(0.8)
5.8
(3.5)
1.2
5.7
(0.3)
(2.0)
(2.2)
0.9
1.1
3.1
1.2
1.8
6.8
7.6
3.4
(1.6)
(1.5)
6.0
1.9
1.3
7.4
1.9
0.0
3.0
1.9
5.4
Consolidated
FY14
FY15
7.0
5.9
2.6
1.5
4.5
3.2
(2.6)
(3.2)
11.4
7.5
(4.6)
(4.0)
(0.5)
(3.5)
(2.2)
0.9
4.4
4.0
(2.9)
(2.7)
8.5
4.8
(1.9)
(1.8)
6.6
3.0
0.6
1.9
7.2
4.9
1.7
0.2
2.0
5.2
1.7
3.2
OCF, post interest, declined from INR7.2bn in FY14 to INR4.9bn in FY15 led by lower
profitability and currency translation losses which impacted cash flows by INR1.7bn during
the year. Adjusted for these losses, OCF declined to INR3.2bn. Cumulatively, over FY11-15,
currency translation losses worth INR5.4bn were adjusted in cash flow statement.
FY13
FY14
FY15
134
124
188
105
115
128
(150)
(168)
(270)
25
28
38
113
99
83
45
41
28
158
140
111
Source: Company annual report, Edelweiss research
Particulars
Inventory days
Receivable days
Payable days
Advances to vendors days
Cash conversion cycle
Add: Acceptance days
Adj cash conversion cycle
(INR bn)
Particulars
FY11
FY12
FY13
FY14
FY15
Receivables
Inventories
Less: Trade payables
Net working capital
Revenue
As % of revenue
11.3
8.1
(6.6)
12.8
29.5
43
12.4
7.9
(7.9)
12.4
40.2
31
16.4
8.4
(10.4)
14.4
50.1
29
21.6
9.3
(13.6)
17.3
60.1
29
25.1
12.7
(18.0)
19.8
66.3
30
Change from
FY11-15
13.8
4.6
(11.5)
7.0
36.8
200
Glenmark Pharmaceuticals
Table 14: Receivables analysis
Particulars
Receivables
O/s for more than 6 months
Others
Less: Provision for doubtful debts
Total receivables
Receivables as % of revenue
(INR bn)
Standalone
FY13
FY14
2.0
3.7
(0.2)
5.6
29
3.4
8.2
(0.2)
11.4
49
FY15
Subsidiary (Derived)
FY13
FY14
FY15
3.3
21.7
(0.5)
24.4
48
0.7
10.2
(0.1)
10.8
35
Consolidated
FY13
FY14
FY15
(0.5)
(0.6)
2.8
2.8
2.7
10.8
1.4
13.9
19.0
23.1
(0.1)
(0.1)
(0.3)
(0.3)
(0.6)
10.2
0.7
16.4
21.6
25.1
28
5
33
36
38
Source: Company annual report, Edelweiss research
Receivables rose to INR25.1bn in FY15, 38% of revenue. Glenmark has converted receivables
of USD1.3mn (INR79.3mn) from the Venezuelan subsidiary into investment (8,266,347
equity shares) at exchange rate of VEF6.30 per USD1.0. Total exposure to Venezuela
subsidiary (equity investment) stood at INR627mn in FY15 (FY14: INR515mn).
Outstanding receivables from Venezuela subsidiary at the standalone level stood at
INR1.5bn in FY15 (FY14: INR540mn). In FY15, the Venezuela economy was adversely
impacted by significant decline in crude oil prices, leading to higher inflation rates and
significantly delayed approvals for import payments. Consequently, the currency
depreciated significantly in the new exchange rate mechanism (known as SIMADI rate)
wherein the exchange rate surged to VEF193 vis--vis government declared VEF6.3/ USD.
Extracts from Dr. Reddys FY15 annual report
In February 2015, the Venezuelan government launched an overhaul of the exchange rate
system and introduced a new exchange rate mechanism. The Marginal Currency System
(SIMADI) is the third mechanism in the new three-tier exchange rate regime and allows for
legal trading of the Venezuelan Bolivar for foreign currency with fewer restrictions than
other mechanisms in Venezuela (CENCOEX and SICAD).
As on March 31, 2015, exchange rates in all the three tiers are as follows:
Table 15: Dr. ReddysExchange losses on Venezuela monetary assets/ liabilities (INR mn)
Monetary assets equal to
VEF245mn imports of pharma
products are eligible for VEF6.3/
USD exchange rate
Dr. Reddy in FY15 recognised
losses on remaining net monetary
assets of VEF88mn at rate of
VEF193/ USD
Consequently, INR843mn forex
loss was booked in FY15 P&L
Particulars
VEF mn
201
(INR mn)
Particulars
Adjusted cash flows post
currency translation losses (A)
FY11
7,483
FY12
4,516
FY13
3,203
FY14
5,194
FY15
3,221
4,532
947
1,444
4,035
4,603
979
182
5,401
6,147
1,270
107
7,310
5,423
2,168
115
7,476
4,753
2,600
219
7,134
185
84
44
69
45
230.0
190.0
185
(%)
150.0
110.0
84
70.0
69
45
44
30.0
FY11
FY12
FY13
FY14
FY15
Earnings to cash translation ratio consistently declined over FY11-15, except for a marginal
uptick in FY14, primarily led by currency translation losses charged to reserves and working
capital investments.
FY11
FY12
4,316
6,760
2,443
1,357
(2,580) (1,565)
80
4,259
102
FY13
7,699
FY14
7,515
FY15
3,979
3,106
4,396
4,023
4,475
2,046
4,807
107
192
44
Total
Application
Receivables &
30,270
inventories
15,326 Capex
Others (Dividend,
7,184
net cash etc)
524
53,304 Total
(INR mn)
FY11
FY12
FY13
FY14
(1,088)
1,705
5,791
7,297
3,708
2,829
4,677
3,728
5,380 20,322
1,638
2,120
4,920
3,125
778 12,581
4,259
FY15
Total
6,696 20,401
202
Glenmark Pharmaceuticals
Chart 2: Sources and utilisation of fundsCumulative 5 years (FY11 to FY15)
Sources
Debt
13%
Utilisation
Others
(Dividend,
net cash
etc)
24%
Equity and
others
1%
Receivables
&
inventories
38%
OCF before
w.cap (post
tax, interest
and fx
losses)
57%
Payables
29%
Capex
38%
Source: Company annual report, Edelweiss research
FY11
29,491
5,923
20
4,532
21
15
3,329
15
20,342
1,781
20,372
20,973
41,345
1.0
(INR mn)
FY12
40,206
7,144
18
4,603
21
14
3,959
18
22,228
2,629
24,016
22,445
46,461
0.9
FY13
50,123
10,100
20
6,147
24
18
4,738
18
24,063
4,223
27,630
27,649
55,279
1.0
FY14
60,052
10,908
18
5,423
19
15
3,182
11
28,897
2,062
29,833
32,670
62,503
1.1
FY15
66,298
10,225
15
4,753
16
12
1,033
3
28,362
4,923
30,003
37,999
68,003
1.3
203
64
16.2
52
10.8
40
5.4
28
(%)
21.6
0.0
FY11
FY12
Equity
FY13
Debt
FY14
16
FY15
ROE (%)
(INR bn)
76
(INR mn)
Sources
Shareholders funds
Debt
Trade payables
Others
FY14
29,833
32,670
13,635
10,198
FY15
30,003
37,999
20,530
8,342
Change
171
5,330
6,895
(1,856)
Total
86,336
96,875
10,539
Application
Tangible assets (Incl CWIP)
Intangible assets (Incl Goodwill)
Trade receivables
Inventories
Cash
Deferred tax assets
Loans/ advances
Others
Total
FY14
17,628
13,331
21,563
9,329
8,007
7,213
5,264
4,002
86,336
FY15
20,569
12,715
25,118
12,690
7,681
9,731
3,290
5,081
96,875
Change
2,941
(616)
3,554
3,362
(325)
2,518
(1,974)
1,079
10,539
Retained
earnings
1%
Cash
2%
Others
20%
Debt
36%
Deferred
tax assets
17%
Trade
payables
47%
Tangible
and
Intangible
assets
16%
100% = INR14.7bn
Trade
receivables
and
inventories
47%
100% = INR14.7bn
Glenmark Pharmaceuticals
Chart 5: Balance sheet at the end of the year
Application as at FY15
Sources as at FY15
Others
9%
Shareholders
funds
31%
Trade
payables
21%
Loans/
advances
4%
Deferred
tax assets
10%
Others
5%
Cash
8%
Intangible
assets (Incl
Goodwill)
13%
Inventories
13%
Debt
39%
Trade
receivables
26%
100% = INR96.9bn
Tangible
assets (Incl
CWIP)
21%
100% = INR96.9bn
As at FY15 end, debt & trade payables represent 60% of liabilities, while equity shareholders
funds stood at 31%. Tangible & intangible assets contributed 34% to assets, receivables &
inventories represented 39%, while deferred tax assets were at 10%.
R&D expenditure
Sales
R&D as % of sales
(INR mn)
FY12
2,916
40,206
7.3
R&D expenditure
FY13
FY14
4,116
5,998
50,123
60,052
8.2
10.0
FY15
6,014
66,298
9.1
R&D capitalisation under product development/ brands during FY15 stood at INR965mn,
while translation adjustment stood at negative INR(768)mn.
Particulars
Sun Pharma
Lupin Ltd.
Dr. Reddys Labs
Cipla Ltd.
Aurobindo Pharma
Glenmark Pharma
FY12
5.1
7.1
6.3
4.4
3.5
7.3
FY13
5.9
7.1
6.9
4.4
4.0
8.2
(%)
FY14
6.2
7.7
9.4
5.0
3.4
10.0
FY15
n.a.
7.8
11.2
6.3
2.9
9.1
205
Particulars
Intangibles assets:
Computer software
Product development/ Brands
Goodwill
Intangibles under development
Total
As % of net worth
(INR mn)
FY11
FY12
FY13
FY14
FY15
147
9,252
606
324
10,329
51
166
10,942
609
145
11,862
49
198
11,876
604
62
12,739
46
266
12,410
602
53
13,331
45
237
11,564
580
333
12,715
42
Intangibles include assets with indefinite useful lives worth INR3.8bn in FY15 (FY14:
INR5.2bn) which are tested for impairment annually.
Glenmark has recorded an impairment charge towards these intangibles. No further details
are available in this regard.
Contingent liabilities at
consolidated level rose from
INR1.3bn in FY14 to INR4.1bn in
FY15, primarily led by indemnity
bond for customs
Particulars
Bank guarantees
Letters of credit issued by bankers
Guarantees given to third party for office
Indemnity bond for customs
Corporate guarantees
Disputed Income tax/Excise duty/Sales tax
Others
Total
As % of net worth
(INR mn)
FY11
69
323
9
260
1,206
47
0.2
1,914
9.4
FY12
39
764
11
288
FY13
66
524
11
375
FY14
72
661
13
394
FY15
74
838
13
2,775
212
1,314
5.5
203
0.1
1,179
4.3
155
0.1
1,294
4.3
224
145
4,069
13.6
206
Glenmark Pharmaceuticals
Table 24: Summary financials
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
RoE (%)
RoCE (%)
Depreciation
Financial costs
Net profit
Total comprehensive income for the year
Equity shareholders' funds
Loan funds
Net fixed assets
CWIP
Current assets loans and advances
Current liabilities and provisions
Net current assets
Cash and cash equivalents
Net Debt
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital investments
FY11
29,491
30,935
5,922
20
21
15
947
1,605
4,532
3,329
20,372
21,085
20,666
1,457
24,029
7,677
16,353
1,958
19,126
9,306
(3,673)
(4,356)
1,277
(4,012)
3,531
FY12
40,206
40,388
7,144
18
21
14
979
1,466
4,603
3,959
24,016
22,445
22,373
2,483
26,252
9,697
16,555
3,219
19,226
8,044
(2,778)
(3,614)
1,652
(2,854)
(348)
FY13
50,123
50,231
10,100
20
24
18
1,270
1,600
6,147
4,738
27,630
27,649
24,125
4,161
31,195
13,359
17,836
6,073
21,576
6,479
(4,641)
1,952
3,791
(4,710)
(2,685)
FY14
60,052
60,167
10,908
18
19
15
2,168
1,886
5,423
3,182
29,833
32,670
28,950
2,009
39,620
21,109
18,512
8,007
24,663
8,537
(3,681)
(980)
3,876
(3,728)
(2,901)
(INR mn)
FY15
66,298
66,516
10,225
15
16
12
2,600
1,902
4,753
1,033
30,003
37,999
28,695
4,589
45,551
24,857
20,694
7,681
30,318
4,817
(5,400)
1,992
1,409
(5,380)
(2,673)
207
Market Data
52-week range (INR)
: 1,200 / 792
: 2,406.4
: 2,127/32,668
: 54.7
: 7.7
FIIs
: 23.8
Others
: 13.8
: 0.8
(% of share in issue)
Note: YoY numbers are not comparable due to Ranbaxy being merged in FY15
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Long-term equity investments declined to INR1.5bn from INR4.3bn in FY14, partially led
by impairment of INR1.7bn in an associate. We believe it pertained to associate,
Zenotech Laboratories (Zenotech), which incurred loss of INR143.2mn (SUNPs share).
Total Investment in Zenotech stood at INR2.5bn, as at FY15.
209
Sun Pharmaceuticals
Pooling of Interest accounting led to higher RoE/RoCE
INR mn
335.0
331,507
29,857
301,650
21.5
25.9
12.8
16.8
Source: Company annual report, Edelweiss research
SUNP, on April 10, 2015, announced swap ratio of 0.8x to 1 on merger of Ranbaxy and
issued 335mn shares to erstwhile Ranbaxy shareholders. The company followed Pooling of
Interest method of accounting in accordance with Accounting Standard (AS) 14 for Ranbaxy
merger as permitted under Indian GAAP. Internationally, under IFRS and USGAAP, Pooling
of Interest method is prohibited.
Under Pooling of Interest method, all assets and liabilities are recorded at book value and
any excess/ shortfall of investments over net assets are adjusted in reserves.
Had the company followed the Purchase method, net worth and goodwill would have been
higher by INR301.7bn each and RoE/RoCE would have been 12.8%/16.8% versus reported
21.5%/25.9%. Ranbaxy in FY14 reported RoCE of 7.2% and RoE stood negative.
(INR bn)
FY13
78.8
Standalone
FY14
77.9
FY15
74.1
Consolidated
FY13
FY14
FY15
122.4
149.9
185.2
5.2
5.2
28.1
28.1
165.3
10.6
1.3
177.2
29.8
3.8
33.6
31.4
7.6
39.0
45.4
3.3
29.9
1.2
79.8
6.1
6.1
77.9
3.6
28.3
31.9
74.1
8.7
14.7
23.4
227.9
6.1
6.1
149.9
3.6
3.6
185.2
8.7
8.7
256.4
210
Post merger of SPGs unit, the company settled the Protonix litigation liability of USD550mn
and entered into an agreement with a third party, wherein the said party will bear part of
the liability of USD400mn and SUNP has agreed to supply products at a discounted price.
Consequently, discount/incidental expenses (akin to finance costs in our view) of
USD16.5mn (equivalent to INR1.0bn) were charged to P&L in FY15 (FY14: USD38.5mn
INR2.3bn).
(INR mn)
FY15
26,312.2
817.0
2,223.6
(2,101.3)
1,069.5
28,321.0
Total provisions stood at INR28.3bn of which 79% is long term and remaining INR5.9bn is
recognised as short term.
211
Sun Pharmaceuticals
Profitability analysis
Though revenue ex-Ranbaxy is not disclosed separately, we have tried to derive the same,
based on annual report disclosures. Our calculations suggest 1.5% YoY revenue growth for
SUNP ex-Ranbaxy as explained below.
(INR mn)
Ranbaxy revenues
FY14
FY15
(Reported) (Derived)**
68,649
55,867
98,662
87,761
(20,256)
(20,516)
1,47,056
(14,371)
1,32,685
1,23,112
YoY
(%)
(19)
(11)
Consol
274,334
(111,081)
163,254
160,804
1.5
(INR mn)
Standalone
80,172
(55,867)
24,305
28,288
(14.1)
(16)
(12,031)#
1,11,081
(16)
Ranbaxys standalone revenues declined 19% YoY, while consolidated (derived) revenues
fell 16% YoY, which could partially be attributable to companys emerging market exposure.
SUNPs consolidated (ex-Ranbaxy) revenues grew by 1.5% YoY as per our calculation.
Standalone revenue (ex-Ranbaxy) declined 14% YoY. While in FY15, standalone entity also
included impact of merger of Sun Pharma Global Inc (SPI), a wholly-owned subsidiary, we
believe there will be no impact on revenue, as SPG was a holding company incorporated in
BVI, and in FY14 SPG reported nil revenues.
Ranbaxy
SunP
42,554
29,884
60,246
132,685
97,844
44,927
19,084
161,855
Total
140,398
74,811
79,330
294,540
FY15
Merged
entity
137,195
77,868
60,646
275,709
(INR mn)
Revenue proportion (%)
YOY (%)
(2.3)
4.1
(23.6)
(6.4)
49.8
28.2
22.0
100.0
Rest of the World (RoW) segment revenues declined 24% YoY, primarily due to exposure to
emerging markets like Russia, Brazil, etc.
212
FY14
28.3
10.7
14.7
Standalone
%
FY15
100.0
80.2
37.7
35.1
51.9
35.8
2.8
9.9
0.2
0.6
1.0
3.6
(0.8)
(3.0)
(0.8)
(3.0)
1.6
5.6
0.7
2.6
(28.8) (101.7)
(28.0) (99.0)
0.3
1.0
(28.3) (100.0)
14.9
(5.6)
6.6
(12.2)
5.5
(17.7)
2.1
(15.6)
(15.6)
(0.8)
(14.7)
%
100.0
43.8
44.6
18.5
(7.0)
8.2
(15.2)
6.9
(22.1)
2.6
(19.4)
(19.4)
(1.1)
(18.4)
(INR bn)
Subsidiary (Derived)
FY14
%
FY15
%
132.5 100.0 194.2 100.0
17.1
12.9
32.3
16.6
27.6
20.8
48.2
24.8
17.9
69.8
3.1
66.8
0.4
66.3
3.9
70.3
3.6
73.8
6.7
67.1
FY14
160.8
27.8
42.2
Consolidated
%
FY15
100.0 274.3
17.3
67.4
26.3
84.0
%
100.0
24.6
30.6
13.5
52.7
2.3
50.4
0.3
50.1
3.0
53.0
2.7
55.7
5.1
50.6
29.4
15.2
20.7
12.9
44.3
16.1
84.3
43.4
70.0
43.5
78.7
28.7
5.3
2.8
4.1
2.5
11.9
4.4
78.9
40.6
65.9
41.0
66.7
24.3
0.3
0.1
0.4
0.3
5.8
2.1
78.6
40.5
65.5
40.7
60.9
22.2
3.4
1.7
5.5
3.4
5.5
2.0
82.0
42.2
71.0
44.2
66.4
24.2
(2.4)
(1.2) (25.2) (15.7)
(2.4)
(0.9)
79.6
41.0
45.8
28.5
64.0
23.3
10.0
5.1
7.0
4.4
9.1
3.3
69.6
35.9
38.8
24.1
54.9
20.0
Source: Company annual report, Edelweiss research
Note: FY15 numbers are not comparable YoY due to Ranbaxy and SPI merger
Gross margins declined by 700bps YoY while EBITDA margins dipped by 15% YoY to 29%, led
by increase in raw material costs and higher operating and employee expenses partially due
to higher expenses related to Ranbaxy merger. Profitability also got impacted due to
alignment of Ranbaxys policy (largely depreciation). Legal and professional expenses rose
to INR14.2bn, 5% of sales (FY14: INR4.8bn, 3%).
Effective tax rate declined from 15.3% in FY14 to 14.3% in FY15 led by deferred tax credit.
FY13
43,149
8,456
19.6
10,735
24.9
FY14
45,812
7,022
15.3
7,889
17.2
(INR mn)
FY15
64,029
9,147
14.3
17,404
27.2
(INR mn)
FY15
FY11
FY12
FY13
FY14
1,819
1,233
1,857
502
5,410
5.7
4,061
1,257
1,016
653
6,987
5.7
4,409
1,415
1,622
1,806
9,252
6.2
5,901
3,137
52
2,712
11,801
6.4
9,116
3,283
2,917
6,956
22,272
8.7
1,758
1,476
3,934
4.1
1,704
1,500
5,487
4.5
2,130
1,768
7,484
5.0
2,691
2,071
9,730
5.3
4,756
2,798
19,474
7.6
Sun Pharmaceuticals
FY11
2,562
3,922
6,484
7
FY12
5,092
1,778
6,869
6
FY13
7,624
2,318
9,942
7
FY14
12,115
4,347
16,461
9
(INR mn)
FY15
26,707
9,211
35,918
14
Commitments (over and above contingent liabilities) included INR11.3bn (FY14: INR4.2bn)
towards derivatives related commitments (towards forward contracts).
(INR mn)
FY14
Shareholding
% Networth Revenues
Particulars
Sun Pharma subsidiaries
Taro Pharmaceuticals U.S.A.,Inc.
Sun Pharma Laboratories Ltd. (SPLL)
Sun Pharmaceutical Industries Inc. (Previously
Caraco Pharmaceutical Laboratories Ltd)
Taro Pharmaceutical Industries Ltd.(TARO)
Sun Pharma Global (FZE)
Taro Pharmaceuticals Inc.
Dusa Pharmaceuticals Inc.
Mutual Pharmaceutical Company Inc.
Taro Pharmaceuticals North America, Inc.
Chattem Chemicals Inc
Pharmalucence Inc.
Alkaloida Chemical Company Zrt.
Sun Pharma Holdings
Taro Hungary Intellectual Property Licensing LLC .
URL Pharma Inc.
Sun Pharma Global Inc.
Others
Total (A)
Ranbaxy subsidiaries
Ranbaxy Pharmaceutical, Inc.,
Ohm Laboratories Inc.,
Ranbaxy Laboratories Inc.,
S.C Terapia S.A. ,
Ranbaxy, Inc.,
Ranbaxy USA, Inc,
Ranbaxy (Netherlands) B.V.
Others
Total (B)
Grand total
68.9
100.0
1,863
186,334
39,773
39,469
907
2,466
100.0
6,164
46,675
502
68.9
100.0
68.9
100.0
100.0
68.9
100.0
100.0
100.0
100.0
68.9
100.0
100.0
65-100
60,936
69,090
31,774
147
11,776
7,374
3,169
18,709
31,621
19,168
4,232
17,699
6,709
1,810
10,079
31,668
10,335
237
6,048
4,796
203
6,493
970
1,066
6,103
5,268
206,470
214,718
817,678
8,518
235,354
132
150,815
1,440
220,693
100.0
100.0
100.0
96.7
100.0
100.0
100.0
65-100
817,678
214
PAT
FY15
Networth Revenues
(799)
186,107
PAT
48,107
43,726
1,155
(227)
5,183
43,230
(1,237)
88,232
81,850
40,731
1,143
11,829
15,750
3,465
5,264
35,309
214,150
6,358
5,487
214,922
109
915,091
23,609
22,106
19,285
6,898
6,051
5,170
1,826
1,144
799
173
7,537
229,661
30,266
11,326
12,046
1,372
(124)
3,074
164
(196)
(1,201)
170
42
(3)
(1,209)
55,417
6,138
20,309
(155)
5,293
17,135
(332)
6,106
12,999
3,576
7,178
8,064
1,222
14,870
1,874
(109)
9,796
2
49,765
(4,310)
7,373
27,380
(1,251)
106,519
87,761
(1,358)
235,354 220,693 1,021,610 317,422
54,059
Source: Company annual report, Edelweiss research
(INR bn)
Particulars
Profit before tax
Non-operating expense
Non-cash adjustments
Direct taxes paid
Cash profit after tax
(Increase)/Decrease in inventories
(Increase)/Decrease in Trade Receivables
(Increase)/Decrease in loans & adv
(Increase)/Decrease in other assets
Increase/(Decrease) in trade payables
Increase/(Decrease) in provisions and others
(Increase)/Decrease in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post interest
Add: exceptional loss
Adjusted recurring operating cash flow (OCF)
Less: Capex
Free cash flow
Standalone
FY14
FY15
(28.0)
(15.6)
(0.7)
(1.6)
1.1
7.4
(1.5)
(1.9)
(29.1)
(11.7)
(0.5)
4.2
3.4
2.8
(0.9)
(0.5)
(24.4)
28.4
0.2
1.2
27.3
(22.9)
5.0
13.2
(24.1)
1.5
(0.2)
(3.3)
(24.2)
(1.8)
28.8
4.5
(1.8)
(4.3)
(10.1)
0.2
(12.0)
Subsidiary (Derived)
Consolidated
FY14
FY15
FY14
FY15
73.8
79.6
45.8
64.0
(4.0)
(4.9)
(4.6)
(6.5)
3.1
6.1
4.2
13.5
(6.4)
(15.5)
(7.9)
(17.4)
66.6
65.3
37.5
53.6
(5.0)
(2.3)
(5.5)
1.9
(1.2)
(13.3)
2.2
(10.5)
4.3
(1.4)
3.4
(1.9)
(0.0)
(28.8)
(24.4)
(0.4)
2.5
2.2
2.7
3.4
(3.7)
30.0
23.6
7.1
(2.9)
(13.6)
2.1
(0.4)
63.6
51.7
39.6
53.2
(0.0)
0.8
(0.2)
(2.5)
63.6
52.5
39.4
50.7
(3.6)
2.4
25.2
2.4
60.0
54.9
64.5
53.1
(4.6)
(13.0)
(9.0)
(23.2)
55.4
41.9
55.6
29.9
Source: Company annual report, Edelweiss research
Operating cash flow rose from INR39.6bn in FY14 to INR53.2bn. However, adjusted for
exceptional items, (mainly pertaining to one-off Protonix drug litigation costs in FY14)
recurring OCF declined 18% YoY from INR64.5bn in FY14 to INR53.1bn in FY15.
Receivables increased at subsidiaries level leading to consolidated receivables rising by
INR10.5bn in FY15.
FY15
56
180
(115)
122
Consolidated
FY13
FY14
78
50
327
298
(126)
(114)
279
234
FY15
70
237
(124)
183
FY13
65
180
(30)
214
TARO
FY14
42
183
(31)
194
FY15
89
174
(24)
239
Cash conversion cycle, at consolidated level, improved from 234 days in FY14 to 183 days in
FY15, led by lower inventory days and higher payable days. Taro receivable days rose from
215
Sun Pharmaceuticals
42 to 89 days in FY15. Receivables for Taro are net of charge-backs/reserves for sales
deductions.
Working capital, as a proportion to revenue, rose from 26% in FY14 to 29% in FY15.
FY14
301.2
(USD mn)
FY15
459.8
183.4
237.3
117.8
40
16
222.4
53
26
216
FY12
4,393
13.1
FY13
3,511
8.1
FY14
4,977
10.9
(INR mn)
FY15
4,642
7.3
3,421
5,578
39,714
57,517
58,462
65,031
69,708
91,516
61,883
70,608
109,422
149,034
4.2
5.3
5.5
3.6
FY11
57.3
60.4
42.7
74.5
20.0
35.0
21.0
23.6
2.0
0.7
18.2
94.8
4.3
32.9
2.4
76.4
15.1
61.3
44.3
40.1
23.9
(21.5)
(7.7)
(5.3)
(4.5)
5.5
FY12
80.2
84.9
63.8
79.6
32.0
40.0
24.5
30.1
2.9
0.3
26.6
122.4
3.2
39.5
3.4
102.9
24.5
78.4
55.8
52.6
22.3
(8.6)
(5.4)
8.3
(7.1)
(10.1)
FY13
113.0
116.9
92.3
81.7
49.0
43.3
25.4
35.6
3.4
0.4
29.8
149.9
2.6
56.5
5.6
102.0
27.0
75.0
64.7
62.1
33.6
(26.4)
(6.6)
0.6
(8.3)
(0.4)
FY14
160.8
166.3
133.0
82.7
70.0
43.5
31.5
39.3
4.1
0.4
31.4
185.2
25.6
68.2
8.4
166.9
34.8
132.1
103.8
78.2
39.6
(23.7)
5.1
21.0
(9.0)
2.1
(INR bn)
FY15
274.3
279.8
206.9
75.4
78.7
28.7
21.5
25.9
11.9
5.8
45.4
256.4
89.9
131.9
15.3
270.0
87.3
182.8
137.1
47.2
53.2
(26.7)
(10.9)
15.6
(23.2)
(0.4)
217
Adani Ports SEZs (APSEZ) FY15 annual report highlights robust growth in
revenue and profitability owing to healthy surge (28%) in cargo volumes
at Mundra and other ports. The company resorted to bill discounting of
INR4.5bn as at March 2015, adjusted for which receivable days increased
to 107 (FY14: 84). Aggregate cash and non-cash exposure to related
parties (ex subsidiaries and JV) stood at INR34.3bn (FY14: INR35.2bn) and
INR30.2bn (FY14: INR48bn), respectively, representing ~60% of net worth.
Aggregate unhedged forex exposure stood at INR111.7bn (FY14:
INR116.8bn). Management stated that ~30-35% of income (~INR20bn25bn) is USD denominated and will act as hedge for USD denominated
borrowings.
Whats on track
Market Data
52-week range (INR)
: 357 / 244
: 2,071.0
: 667 / 10,281
Promoters*
: 56.3
: 12.3
Consolidated revenue (adjusted) surged ~38% and EBITDA margin inched up to 63.4%
(FY14: 61.9%) led by robust growth in cargo volumes at Mundra and other ports.
FIIs
: 24.9
Others
: 6.5
Consolidated operating cash flows post interest (adjusted for bill discounted) spurted to
~INR20.9bn in FY15 (FY14: INR6.5bn) led by higher profitability and lower incremental
investment in working capital.
: 16.9
(% of share in issue)
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Other highlights
During the year, loan/ICD of INR 12.5bn was given to Adani Enterprises which was
subsequently received back, resulting in no change in yearend balance.
Cash tax paid stood at INR4.9bn (FY14: INR5.2bn) vis--vis P&L charge of INR1.8bn
(FY14: INR2.3bn). The difference was primarily on account of MAT credit entitlement of
INR5.3bn (FY14: INR3.9bn) recognised in FY15, taking total MAT credit entitlement to
INR15.2bn.
The Income Tax Department has filed appeals with ITAT on the ground that interest
income on loans given to existing and potential associates is not a business income and
hence cannot be netted off against interest expense while computing deduction u/s
80IAB. Considering the CIT (Appeals) order upholding the companys claim in similar
matter in the past and based on expert advice, no tax provision is made in the books
against such income. Based on this, APSEZ has accounted higher MAT credit of
INR1.4bn during the year (including INR0.6bn of earlier years).
The company proposed to acquire balance 24% stake in Adani Murmugao Port from
AEL and is in the process of obtaining regulatory approval.
APSEZ has obtained the Government approval to set up another multi-product at the
Mundra port (on ~1,856 hectares of land), adjacent to the existing multi-product SEZ.
219
(INR bn)
%
100.0
29.3
4.0
66.7
12.5
54.2
18.1
12.6
48.7
Subsidiary (Derived)
FY14
% FY15
%
8.4 100.0
22.4 100.0
4.6
0.4
3.4
1.9
1.4
2.2
1.2
0.4
54.9
5.3
39.9
23.0
16.8
26.5
14.6
4.9
8.7
0.8
12.9
4.2
8.7
4.7
1.9
6.0
38.7
3.5
57.7
18.9
38.9
20.8
8.5
26.6
FY14
44.7
3.6
15.4
2.1
1.6
29.2
6.5
22.7
9.8
6.8
19.8
Consolidated
% FY15
100.0
61.5
34.5
3.6
61.9
14.5
47.4
21.9
15.3
40.8
%
100.0
-
20.1
2.4
39.0
9.1
29.9
11.8
6.9
25.0
32.7
3.9
63.4
14.8
48.6
19.1
11.1
40.7
Note: % presented in above table is after adjustment of revenue and cost from CT-3
sales; Intercompany interest income is adjusted in above table
Source: Company annual report, Edelweiss research
Standalone
Consolidated
Finance cost surged to INR11.8bn (FY14: INR9.8bn) led by 25% increase in average
borrowings. This was partly offset by gains on derivatives of INR0.7bn (FY14: Loss of
INR2.1bn) recognised in finance cost.
During FY15, based on preliminary agreement, APSEZ recognised revenue (INR2bn) and
cost towards land reclamation based on activities completed and land being made
available for setting up of Mundra LNG project. Consequently, accrued revenue
increased from INR1bn in FY14 to INR3bn in FY15.
Other income includes interest income of INR3.9bn (FY14: INR2.4bn) due from related
party.
Other income also includes unclaimed liabilities/excess provision written back and
miscellaneous income of INR423mn and INR311mn, respectively.
FY13
1,310
1,258
14
63
2,644
FY14
5,578
1,104
64
102
6,848
(INR mn)
FY15
6,123
423
311
6,856
220
% holding
Subsidiary
The Dhamra Port Company Limited
Adani Logistics Limited
Adani Hazira Port Private Limited
Adani Petronet (Dahej) Port Private Limited
MPSEZ Utilities Private Limited
Karnavati Aviation Private Limited
Adani Murmugao Port Terminal Private Limited
Adani Vizag Coal Terminal Private Limited
Total
PAT Margin (%)
Joint Venture
Adani International Container Terminal Private Ltd.
Adani CMA Mundra Terminal Private Limited
Standalone
investment
(INR bn)
FY15
FY14
Networth
100%
100%
100%
74%
100%
100%
74%
100%
27.4
3.3
7.2
2.6
0.5
0.5
0.9
1.0
43.2
2.8
3.5
7.6
4.8
0.8
0.0
0.9
0.8
50%
50%
3.1
0.3
2.6
0.3
Turnover
5.4
2.7
3.0
0.9
0.5
12.4
1.1
-
PAT Turnover
PAT
0.3
0.2
0.1
0.0
(0.2)
(0.0)
(0.0)
0.6
4.5
7.2
6.3
4.9
4.8
1.2
0.5
0.2
0.2
25.4
1.0
0.5
0.7
0.9
0.1
(0.1)
(0.3)
(0.2)
2.6
10.3
(0.3)
-
1.8
0.0
(0.3)
0.0
(INR bn)
Particulars
Standalone
Subsidiary (derived)
Consolidated
FY14
FY15
FY14
FY15
FY14
FY15
22.1
21.5
(2.3)
3.5
19.8
25.0
0.6
1.9
5.5
3.4
6.2
4.4
2.0
4.0
6.0
8.3
(4.3)
(0.3)
(0.6)
(5.2)
(4.9)
22.8
22.2 1.3 12.5 24.1 34.7
1.0
(1.6)
(0.4)
(6.3)
0.5
(0.4)
(0.2)
(0.3)
(0.7)
(0.7)
(3.5)
1.0
(0.8)
(2.6)
(4.3)
(0.3)
0.1
(0.4)
0.9
(0.6)
Consolidated operating cash flows post interest (adjusted for bill discounted) spurted to
~INR20.9bn in FY15 (FY14: INR7bn) led by higher profitability and lower incremental
investment in working capital.
Despite steep increase in operating cash flows, free cash flows only improved
moderately to INR3.1bn (FY14: INR(4.1bn)) due to higher capex undertaken by the
companys subsidiaries.
FY12
8
46
7
3
(36)
27
27
FY13
9
61
6
7
(29)
53
53
FY14
10
84
5
7
(17)
90
90
FY15
13
94
7
11
(18)
106
13
120
FY12
3.0
1.0
2.0
0.9
3.9
FY13
7.2
0.8
6.4
0.8
8.0
FY14
9.2
3.4
5.9
5.0
14.3
(INR bn)
FY15
12.9
5.2
7.7
4.4
17.3
0.0
3.9
1.1
0.3
7.7
3.6
3.4
4.4
7.8
6.5
54.7
4.9
3.6
8.5
8.8
49.1
222
Operating Revenues
Related party revenue as % to total operating rev.
Interest Income on ICDs/deferred income
Adani Agri Fresh Ltd.
Adani Enterprises Ltd.
Adani Power Ltd.
Adani Infra (India) Ltd.
Others
(INR bn)
FY14
FY15
FY12
FY13
1.4
2.4
0.0
0.6
2.9
3.8
0.1
0.2
0.7
2.9
4.6
0.5
0.3
0.7
3.5
5.3
1.0
1.0
0.7
0.4
0.1
0.1
0.0
4.8
17.9
7.9
22.0
9.2
19.0
11.6
18.9
0.3
0.1
0.4
0.6
1.6
0.3
2.4
1.2
0.4
0.9
1.2
0.2
3.9
1.8
0.3
0.2
2.3
0.9
0.0
0.0
0.9
1.6
0.7
0.0
2.3
1.1
0.1
0.0
1.2
1.1
0.0
0.0
0.0
0.6
0.0
0.0
0.0
0.0
0.2
0.1
0.0
1,193
12.1
Adani
Enterprises
2,502
12,530
(12,530)
2,502
2,502
(INR mn)
Adani Infra
(India)
8,929
2,793
(1,033)
10,689
9,809
364
14.5
1,222
12.5
223
FY12
FY13
FY14
FY15
0.3
0.0
0.1
0.5
1.5
0.1
0.5
2.0
5.7
0.5
1.1
7.3
6.3
0.8
1.0
8.2
0.0
0.4
0.4
2.5
0.0
1.3
3.8
8.9
9.0
2.5
2.5
1.9
0.1
25.0
10.7
10.6
2.5
0.0
0.1
23.9
13.3
0.2
13.5
0.9
0.5
1.0
0.7
3.1
0.8
1.0
0.5
0.3
2.6
0.0
0.0
0.1
0.1
0.1
0.1
(INR bn)
0.0
0.0
0.1
0.1
0.2
0.3
0.1
0.2
0.3
0.1
0.7
19.2
35.2
34.3
Source: Company annual report, Edelweiss research
(INR bn)
FY15 FY13-15
FY13
FY14
3.6
7.3
1.3
12.1
0.7
4.2
0.3
4.5
27.0
0.1
0.4
1.8
9.0
(0.5)
8.5
43.0
0.6
2.9
0.8
2.0
(0.6)
1.4
5.8
0.7
2.9
3.2
15.3
(0.8)
14.5
23.5
1.4
2.2
224
FY13
68.5
5.6
0.3
0.3
74.8
FY14
81.9
7.6
0.1
0.5
90.2
15.9
13.3
77.3
54.3
27.6
0.9
116.8
59.9
(INR bn)
FY15
79.2
5.7
0.2
0.5
85.7
27.1
1.1
111.7
62.5
FY14
FY15
USD
460.9
434.2
Forward Contracts
USD
20.3
Forward Contracts
Euro
4.7
USD
5.0
INR
1,045
225
Particulars
Equity shareholders' funds
Loan funds
Minority interest
Capital employed
Net exposure in RP
Inter corporate deposits (ex RP)
Capital employed (ex RP & ICD)
FY13
64.0
115.9
1.4
181.2
19.2
12.1
149.9
181.2
Amount
FY14
87.7
129.3
1.4
218.5
35.2
16.7
166.6
218.5
FY15
107.7
177.3
1.6
286.6
34.3
12.6
239.7
286.6
(INR bn)
% to total capital employed
FY13
FY14
FY15
35.3
40.1
37.6
63.9
59.2
61.9
0.8
0.7
0.6
100.0
100.0 100.0
10.6
16.1
12.0
6.7
7.6
4.4
82.7
76.3
83.6
100.0
100.0 100.0
As at March 2015, APSEZ has given inter corporate deposits aggregating INR12.6bn
(FY14: 16.7bn) to various parties (ex RP) at prevailing market interest. No further
details available regarding the terms of deposits.
Increase in borrowed funds during FY15 was led by acquisition of Dhamra, which had a
debt of ~INR33bn at the time of acquisition.
FY13
73.1
20.5
14.8
2.5
FY14
81.9
19.9
19.7
2.3
(INR bn)
FY15
79.5
41.4
39.1
11.5
4.9
115.8
5.5
129.3
5.7
177.3
5.4
2.4
7.8
10.9
0.7
11.6
5.3
13.3
9.8
0.5
10.3
7.3
1.8
9.0
8.4
15.8
11.8
1.3
13.1
1.3
0.8
2.0
8.5
9.8
226
FY11
20.0
21.1
13.0
65.0
24.0
15.6
2.4
1.7
9.2
41.9
35.9
63.5
0.4
17.2
5.5
6.4
(0.8)
2.3
33.6
12.1
(9.7)
(5.3)
(2.9)
(18.3)
0.3
FY12
27.0
27.5
17.5
64.8
24.8
9.8
3.2
2.8
11.0
48.2
175.6
173.2
11.1
36.4
8.7
11.3
(2.6)
11.2
164.5
12.0
(138.8)
129.8
3.0
(45.5)
(5.4)
FY13
35.8
38.4
23.8
66.4
27.5
11.0
4.2
5.4
16.2
64.0
115.9
113.4
0.4
29.5
41.2
16.9
24.3
9.8
106.1
13.8
(46.9)
42.1
9.0
(38.3)
(6.3)
FY14
48.3
55.1
29.2
60.4
22.9
14.9
6.5
9.8
17.4
87.7
129.3
131.2
0.4
20.2
49.3
10.5
38.7
5.2
124.1
11.3
(25.1)
7.7
(6.1)
(11.0)
(12.7)
(INR bn)
FY15
61.5
68.4
39.0
63.4
23.7
14.6
9.1
11.8
23.1
107.7
177.3
179.3
26.0
12.8
59.5
15.5
44.0
8.4
168.9
30.7
(24.9)
(2.4)
3.4
(16.3)
(4.0)
227
Whats on track?
Revenues grew by 9% YoY despite decline in average gold prices by 5.6% in FY15, as
volume growth was robust.
Market Data
: 448 / 321
: 887.8
: 301 / 4,716
: 53.1
: 4.7
FIIs
: 20.1
Others
: 22.2
: Nil
(% of share in issue)
Analysis beyond Consensus (ABC) is our initiative to provide a differentiated perspective to our clients
on various non-routine and intricate issues. This unit of research works independent of the sector/stock
research team and views expressed in this report may vary with that of respective sector/stock analyst.
Edelweiss research is also available on www.edelresearch.com,
1
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Other highlights
Gold futures contracts dropped from INR17.5bn in FY14 to INR11.6bn in FY15, as the
company reduced its hedging activity following lifting of the ban on gold lease.
R&D spend stood higher at INR174mn in FY15 (2.1% PAT) versus INR35-55mn over past
4 years.
Raw material imports, as a % of total raw material cost, consistently declined from 70%
in FY12 to 7% in FY15, led by the government measures to curb gold imports into the
country.
(INR bn)
48.0
36.0
0.0
12
1
3
2
3
1
5
2
4
2
5
2
6
3
5
1
7
12
1
10
FY11
18
16
20
1
15
0.8
0.6
1
0.4
0
15
13
5
24.0
12.0
1.0
25
31
D/E (x)
0.2
0.0
FY12 FY13 FY14 FY15
Debt
Advance under deposit schemes
Gross debt declined and was converted back into payables in FY15 as the ban on gold on
lease was lifted. Deposit scheme advance was hit by discontinuance of the Golden Harvest
and other schemes not being in line with the new Companies Act. The new scheme
launched in FY15, in compliance with regulations (IRR @ 9.7% 11.6% p.a approximately), is
yet to pick up.
229
Titan Company
Net worth accretion continues to be robust with INR5.6bn increase in FY15, led by healthy
profit generation.
FY11
680
15,262
15,942
96
FY12
113
17,529
17,642
99
FY13
60
20,980
21,040
100
FY14
8,068
8,594
16,663
52
(INR mn)
FY15
998
19,396
20,394
95
FY14
8,068
8,594
16,663
52
86,274
10
FY15
998
19,396
20,394
95
94,206
21
FY14
568
338
906
37
19,215
2
FY15
1,713
218
1,931
11
15,923
1
FY15
15,089
840
15,929
5
74,050
1
FY14
1,004
342
1,346
25
3,717
9
FY15
1,117
318
1,435
22
3,930
8
Internationally, jewellery
companies classify gold lease as
debt
Hong Kong-based jewelers, Luk Fook and Chow Tai Fook report gold loans separately as debt
in their balance sheets. As for Tiffany, no separate disclosure is made, but the payables are
not very high.
RoCE decomposition
14.0
15
0
18
0
19
1
22
20
3
26
23
22
19
13
1
14.0
23
7.0
0.0
0.0
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Core ROCE
Other income
Gold lease and deposit schemes
ROE (%)
1 yr Fwd PE (RHS)
96.0
(RoCE %)
(%)
28.0
21.0
23
20
28.0
(No.of times x)
42.0
35.0
75
86
35.0
28.0
78
72.0
21.0
48
48.0
30
42
25
35
24.0
0.0
14.0
(No.of times x)
7.0
14
16
22
25
23
23
23
27
0.0
Consolidated reported RoCE continued its downward trend in FY15. Adjusted RoCE
(including payables and deposits schemes advance) has been declining since FY11, but
improved in FY15. RoE consistently fell in past 5 years.
230
70.0
6.9
6.8
5.9
6.4
4.8
3.3
3.2
2.3
1.6
0.0
42.0
3.9
3.7
1.2
1.4
1.4
FY08
FY09
FY10
EBIT
28.0
2.1
1.9
1.9
(ROCE %)
(INR bn)
56.0
5.2
2.0
1.8
14.0
FY11
FY12
FY13
FY14
Capital employed
FY15
0.0
ROCE % (RHS)
Watches segment RoCE stabilised at 31% in FY15 after having consistently declined over
past 5 years. EBIT growth remained muted in past 5 years. Titan added 29 World of Titan
stores in FY15 and shut down 7 stores each of Fastrack and Helios.
588
390
1,050
754
746
700
350
0
260
693
191
83
206
260
2010
2011
916
543
539
2012
2013
(No.of stores)
520
1,400
(INR mn)
650
130
324
2014
2015
Watches - Capex
Jewellery - Capex
231
Titan Company
Table 3: Per store capex analysis
(INR mn)
Jewellery segment
FY13
FY14
16
19
746
693
Particulars
Store addition p.a.
Capex (INR mn)
Less: New plant capex
Capex (INR mn) for stores
Per store capex
Area (in sq. ft.) addition
Avg per store area (in sq. ft.) addition
46.6
141,562
8,848
36.5
118,207
6,221
Watches segment**
FY13
FY14
91
50
539
324
FY15
11
588
53.5
85,717
7,792
539
5.9
85,227
937
324
6.5
37,966
759
FY15
29
916
(750)
166
5.7
15,698
541
Jewellery capex per store increased in FY15, but was largely in line with earlier years.
Watches capex rose from INR324mn in FY14 to INR916mn in FY15, largely towards new
manufacturing plant and renovation of stores. Capex include INR750mn spent towards first
phase of investment for new stainless steel case manufacturing plant at Coimbatore which
commenced commercial production on 3rd March 2015.
During the year, World of Titan chain commenced renovations at more than 40 stores. A
total of 151 stores now carry the new retail identity. In case of multi brand outlets (MBOs),
the new look Shop-in-Shops, were invested in and given to 120 outlets during the year. With
this, a total of 250 MBOs are now in the new look Shop-in-Shops mould.
Profitability analysis
Table 4: Profitability analysis
Particulars
Sales
Raw Materials Consumed
Operating and Administrative expense
Personnel cost
EBITDA
Depreciation
EBIT
Financial Charges
Other income
EBT
(INR mn)
FY14
109,274
80,519
12,908
5,404
10,443
675
9,768
871
1,202
10,099
Consolidated
%
FY15
100.0 119,134
73.7
87,515
11.8
13,811
4.9
6,325
9.6
11,484
0.6
896
8.9
10,588
0.8
807
1.1
708
9.2
10,489
%
100.0
73.5
11.6
5.3
9.6
0.8
8.9
0.7
0.6
8.8
232
26
14
21
34
22
22
2
(10)
30
24%
25
5
29
30%
20
17
(2)
12
15
(5)
(6)
15
Price growth
Average gold price (RHS)
10
12%
(CAGR %)
(YoY % growth)
38
35
(INR '000)
50
18%
9%
12%
6%
14%
9%
12%
2%
0%
8 yr CAGR
5 yr CAGR
3 yr CAGR
Gold price increase contributed significantly to revenues until FY13 and Titan reported
double-digit revenue growth during the period. In FY14 and FY15, gold prices remained
subdued and declined leading to single-digit revenue growth, but volume growth remained
robust.
60.0
54
36
18
19
54
13
31
45.0
35
42
12
Imported RM
2012
2013
Local RM cost
30.0
15.0
32
0
2011
73
(%)
(INR bn)
75.0
2014
0.0
2015
RM imports declined substantially in past 5 years from INR31bn in FY11 to INR5bn in FY15,
primarily owing to regulatory hurdles as government measures curbed gold imports.
However, in later part of FY15 the import regulations (80:20 rule) were relaxed.
Other highlights
In FY15, INR164.4mn provision was made towards customer loyalty programme. Total
provision stood at INR828.9mn, as at end FY15 (FY14: INR664.5mn). Titan runs a scheme of
reward points which can be redeemed for future purchases by customers.
233
Titan Company
Finance cost includes gold on lease charges of INR286mn (FY14: INR434mn) and CP
discounting charges of INR289.5mn (FY14: INR118.2mn). Titan redeemed all the outstanding
CPs and no amount was outstanding as at FY15.
Other income dropped to INR708mn in FY15 as cash and cash equivalents declined to
INR2.1bn in FY15. Cash balance slipped in FY15 after a run-rate of INR9.0bn-INR11.0bn in
past 4-5 years.
Effective tax rate declined from 27% in FY14 to 22% in FY15 due to ramp up at the
Pantnagar (Uttarakhand) plant and tax benefits available thereon.
(INR mn)
Consolidated
Cumulative FY13
FY14
FY15
5 years
10,065
10,099
10,489
45,090
(475)
(295)
204
(1,155)
459
682
934
3,147
(2,757)
(2,852)
(2,449)
(12,367)
7,292
7,635
9,178
34,715
(19)
117
(393)
(1,015)
(7,983)
(1,891)
(1,800)
(27,039)
(269)
(62)
(710)
(1,540)
2,224
(12,386)
10,787
12,863
4,285
1,039
(12,036)
(847)
(1,763)
(13,182)
(4,152)
(17,579)
5,530
(5,547)
5,026
17,136
(506)
(871)
(807)
(3,010)
5,023
(6,418)
4,219
14,126
(2,224)
12,386
(10,787)
(12,863)
(3,841)
(580)
12,306
2,673
(1,041)
5,388
5,738
3,936
(1,650)
(2,111)
(2,070)
(7,937)
(2,691)
3,276
3,667
(4,001)
Source: Company annual report, Edelweiss research
* Gold lease payables have been assumed to be the changes in trade payables as reflected in cash
flow statement in absence of specific information.
Particulars
Profit before tax
Non-operating expense
Non-cash adjustments
Direct taxes paid
Cash profit after tax
(Increase)/ decrease in trade receivables
(Increase)/ decrease in inventories
(Increase)/ decrease in loans and advances
Increase/ (decrease) in trade payables
Increase/ (decrease) in other liab. & provisions
(Increase)/ decrease in working capital
Net cash from operating activities
Interest expenses paid
Net cash from operating activities post interest
Change in Gold on lease payables*
Change in advance towards deposit schemes
Adjusted operating cash flows
Capex
Free cash flow
FY11
6,032
(189)
376
(1,740)
4,479
(229)
(6,527)
(207)
10,262
2,755
6,055
10,533
(343)
10,190
(10,262)
(2,524)
(2,596)
(643)
(3,239)
FY12
8,405
(401)
696
(2,568)
6,132
(492)
(8,839)
(292)
1,976
3,109
(4,537)
1,595
(482)
1,113
(1,976)
(2,688)
(3,552)
(1,463)
(5,015)
Operating cash flow (OCF), post interest improved to INR4.2bn in FY15 versus cash loss in
previous year. Adjusted for gold on lease and advances towards customer incentive scheme,
OCF rose to INR5.7bn in FY15
Cumulatively over past 5 years FCF adjusted for gold on lease and golden harvest scheme
stood negative at INR4.0bn. During FY15 Increase in trade payables on account of gold on
lease was offset by the decline in advance from customers as the Golden Harvest scheme
was discontinued and the new scheme has yet to pick up.
Titan invested in ICDs worth INR480mn in FY15 and total outstanding investments in ICDs
stood at INR2.4bn, as at end FY15, 7.7% of net worth (FY14: INR1.9bn, 7.5%)
234
FY13
158
6
0
(96)
(42)
26
80
42
149
FY14
169
5
0
(66)
(47)
62
50
47
159
FY15
162
5
1
(57)
(24)
87
41
24
153
FY13
114
(34)
80
1,578
1,658
4.8
FY14
172
(35)
137
1,404
1,541
8.9
(INR mn)
FY15
245
(89)
156
1,741
1,897
8.2
Contingent liabilities/commitments
FY13
FY14
(INR mn)
FY15
170
32
1,494
404
41
2,141
11
250
32
1,516
491
46
2,336
9
256
47
1,935
685
57
2,979
10
Other Commitments:
Non fund based facility
Capital commitments
Revenue commitments
Claims not acknowledged (Excise demands)
Total
2,513
514
17
1,470
4,513
1,477
986
37
2,134
4,634
11,290
1,627
64
3,482
16,463
235
Titan Company
Table 9: Summary financials
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
ROE (%)
ROCE (%)
Depreciation
Financial costs
Net profit
Equity shareholders' funds
Loan funds
Net debt/ (cash)
Adjusted debt (including trade payables)
Net fixed assets (Ex CWIP)
CWIP
Current assets loans and advances
Current liabilities and provisions
Net current assets - ex cash and cash equivalents
Cash and cash equivalents
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital investments
FY11
65,331
65,899
6,161
9.4
49.0
66.8
351
345
4,331
10,356
680
(10,419)
15,942
3,051
166
22,194
26,599
(4,405)
11,099
1,595
(699)
(2,349)
(1,453)
1,463
(6,058)
FY12
88,484
89,429
8,354
9.4
48.2
68.7
456
437
6,014
14,609
113
(9,558)
17,642
4,088
249
32,059
31,729
330
9,671
10,533
(250)
(1,168)
9,115
643
(6,055)
FY13
101,233
102,242
10,125
10.0
42.3
61.3
562
506
7,254
19,699
60
(11,330)
21,040
4,639
418
40,550
38,431
2,120
11,390
5,530
(1,417)
(2,356)
1,756
1,650
12,806
FY14
109,274
110,476
10,443
9.6
32.7
41.4
675
871
7,349
25,227
8,068
(858)
16,663
6,142
329
43,547
27,072
16,474
8,927
(5,547)
(2,717)
4,974
(3,290)
2,111
13,188
(INR mn)
FY15
119,134
119,842
11,484
9.6
29.1
37.3
896
807
8,163
30,839
998
(1,140)
20,394
6,991
552
46,336
25,938
20,398
2,138
5,026
(1,187)
(10,047)
(6,207)
2,070
4,152
236
Whats on track?
Bharti (standalone) clocked revenue growth of 11.2% YoY coupled with improvement in
EBIDTA margin to 35% (versus 32.7% in FY14). Operating cash flow (post interest)
increased to INR173.4bn (FY14: INR 149bn).
Market Data
52-week range (INR)
: 452 / 336
: 3,997.4
: 1,579/24,244
Promoters*
: 65.4
: 9.5
FIIs
: 16.3
Others
: 8.8
: nil
(% of share in issue)
Other highlights
The company was required to spend INR1,400mn for CSR during FY15, of which it
spent only INR411mn which is charged directly from reserves in standalone financials.
Africa revenues (in constant currency terms) surged by 6.2% to USD4,407mn. EBITDA
margins declined to 22.7% (FY14: 26.2%), owing to investments in network and higher
marketing spends.
African economy faced headwinds during the year led by sharp decline in crude and
other commodity prices, which triggered sharp depreciation in currencies across
countries.
The company has invested INR681bn in spectrum since 2010. This will put exert
pressure on RoCE. Hence, it is imperative to generate healthy revenue growth.
During Q1FY15, agreement for sale of tower assets in Tanzania, Chad and Democratic
Republic of Congo lapsed and therefore stands terminated thereby. Accordingly,
assets and related liabilities amounting to INR12.2bn and INR1.4bn, respectively, have
been re-classified from held for sale.
238
Bharti Airtel
Earnings analysis
Table 1: Standalone/subsidiary profitability analysis
Particulars
Sales
Operating and admin exp
Personnel cost
EBITDA
Depreciation & amortisation
EBIT
Financial Charges
Other income
PBT before exceptional items
Exceptional items
PBT
Tax Expense
PAT
Share of profit of JV/associate
PAT (inc profit of JV/associates
FY14
499
320
16
163
72
91
13
4
81
(2)
79
18
61
61
Standalone
(%)
FY15
(%)
100.0
555 100.0
64.0
344 61.9
3.3
17
3.0
32.7
194 35.0
14.5
76 13.6
18.2
119 21.4
2.7
14
2.5
0.8
5
1.0
16.3
110 19.8
(0.4)
33
5.9
15.9
143 25.7
3.6
25
4.4
12.3
118 21.3
118
(INR bn)
Bharti Infratel (Standalone) Other Subsidiaries/JV (Derived)
Consolidated
FY14
(%) FY15
(%)
FY14
(%)
FY15
(%) FY14
(%) FY15
50 100.0
54 100.0
309 100.0
312 100.0
859 100.0
921
26 52.7
27 49.9
189 60.9
191 61.2
535 62.3
562
2
4.3
2
4.5
28
8.9
28
8.9
46
5.4
47
22 43.0
25 45.5
93 30.1
93 29.9
278 32.4
312
12 23.5
12 21.9
72 23.4
68 21.7
156 18.2
155
10 19.5
13 23.6
21
6.7
25
8.2
121 14.1
157
0
0.2
(0) (0.1)
45 14.6
59 19.0
59
6.8
73
3
6.2
4
6.6
3
1.1
16
5.0
10
1.2
25
13 25.5
16 30.3
(21) (6.8)
(18) (5.8)
73
8.5
108
0.0
0.0
3
0.8
(9) (2.7)
1
0.1
(9)
13 25.5
16 30.3
(19) (7.7)
(27) (3.0)
73
8.6
100
4
8.1
5 10.2
27
8.6
24
7.7
48
5.6
54
9 17.4
11 20.1
(45) (16.3)
(51) (10.7)
25
2.9
46
5
7
0
0.1
(0) (0.0)
5
0.6
7
14
18
(45)
(51)
30
53
(%)
100.0
61.0
5.1
33.9
16.9
17.0
8.0
2.7
11.8
(0.9)
10.8
5.9
5.0
0.8
Notes: Standalone and Infratel profit and loss is as per Indian GAAPs; consolidated financials are in IFRS
Dividend income from subsidiaries and JVs are adjusted in above table.
Share of profit of Indus Tower (JV) is included in Bharti Infratel as separate line item
Source: Company annual report, Edelweiss research
Average borrowing cost (including forex losses) recognised in standalone and consolidated
profitability stood at 9.5% (FY14:10.9%) and 9.7% (FY14:8.6%), respectively.
Exceptional items (net) of INR8.5bn at consolidated level, primarily includes charge of
INR4.4bn on account of restructuring activities, INR2.6bn on settlement of disputes and
INR2bn on one-time translation impact of certain foreign currency liabilities in Nigeria.
239
(USD mn)
FY12
FY13
FY14
FY15
4,137
4,417
4,491
4,407
1,097
1,158
1,175
1,002
291
284
280
193
1,514
724
635
1,073
(417)
434
540
(71)
Source: Company annual report, Edelweiss research
Bharti Airtel-Standalone
Bharti Infratel-Consolidated
Bharti Hexacom
Other subsidiaries (derived)
Bharti Airtel-Consolidated
(INR bn)
PBT
64.5
15.3
8.1
(43.6)
44.3
FY13
Tax
13.6
5.3
2.3
4.1
25.2
ETR
21.0
34.5
28.0
N.A.
56.8
PBT
83.8
23.2
8.3
(41.9)
73.4
FY14
Tax
17.8
8.1
2.3
20.3
48.4
ETR
21.2
34.7
27.6
N.A.
66.0
PBT
156.6
30.5
16.1
(103.3)
99.9
FY15
Tax
24.5
10.6
5.3
13.6
54.0
ETR
15.7
34.7
33.1
N.A.
54.1
Note: ERT is effective tax rate in above table; PBT is adjusted for share of profit in JV/associate
Source: Company annual report, Edelweiss research
The consolidated income tax expense (ex tax on exceptional items) for FY15 stood at
INR53bn (versus INR44.5bn for FY14). The effective tax rate in India (standalone, Infratel,
Hexacom and others) for FY15 stood lower at 26.5% (FY14: 31.2%). Reduction in the
underlying effective tax rate in India was due to improved performance in the loss-making
subsidiaries and lower forex losses in relation to borrowings.
During FY15, African operations reported EBIT of USD193mn (FY14: USD280mn), against
which tax charge stood at USD203mn (FY14: USD273mn).
Effective tax rate in Africa was higher as tax expense is computed at entity level, whereby
profit of one entity cannot be adjusted against losses of another entity for tax computation
purposes. Further, owing to uncertainty, deferred tax cannot be recognised by loss-making
subsidiaries. This leads to higher effective tax rate at consolidated Africa level.
Tax losses
Unused tax credits and losses increased to INR230bn (FY14: INR176bn) on which
deferred tax asset (DTA) has not been recorded. Of the above, INR143.3bn (FY14:
INR66.7bn) has an indefinite carry forward period, while the balance amount will expire
as under:
FY13
NA
11.8
7.9
7.6
13.1
5.6
NA
NA
44.4
54.4
144.8
FY14
NA
NA
8.2
6.2
7.8
10.0
6.9
NA
70.2
66.7
176.0
(INR bn)
FY15
NA
NA
NA
6.0
5.6
8.7
8.9
3.9
53.5
143.3
229.9
240
Bharti Airtel
Net worth analysis
Table 5: Net worth accretion
Particulars
Note
Opening shareholders' fund
Add
Profit for the year
FCTR
Gain / (Loss) on effective portion 1
on hedge of net investment
Gain / (Loss) on cash flow hedge
Issue of shares
Transactions with NCI
2
3
FY13
506.1
22.8
(26.5)
-
FY14
503.2
27.6
15.8
51.9
(68.2)
32.9
68.0
(5.1)
(4.2)
0.2
25.5
(3.8)
Less
Dividend and tax thereon
Others
Closing shareholders' fund
4.4
(5.3)
(INR bn)
FY15
597.6
106.3
4.4
7.5
(0.9)
503.2
38.2
16.0
0.2
11.9
597.6
16.2
619.6
During the year, the group formally designated certain Euro borrowings as a hedge
against net investments in subsidiaries (in Francophone countries local currency is
pegged to the Euro). Foreign exchange gain of INR32.9bn on these hedge instruments
has been recognised in other comprehensive income.
In FY15, the group designated some of its foreign currency borrowings as a cash flow
hedge of the currency risk, arising from the expected sale consideration from highly
probable transactions relating to the sale of telecom towers. Consequently, foreign
exchange loss of INR4.2bn is recognised in other comprehensive income.
Transactions with non-controlling interest (NCI) during FY15 mainly pertained to profit
on sale of the 7.4% stake in Bharati Infratel.
FY11 FY12
418
448
9.4
8.8
44.7
51.2
(0.5)
6.5
(4.6) 57.0
FY13
459
8.5
54.1
3.0
25.1
FY14
423
7.0
60.1
6.0
42.1
FY15
352
5.6
62.6
2.5
14.0
(INR bn)
Total
133.6
Forex loss on USD denominated borrowings (ex standalone) based on FY15 closing debt
stood at INR14bn and cumulatively over 5 years at INR133.6bn.
241
UGS
15.4
4.5
3.5
(1.8)
16.8
Similarly, depreciation if computed based on average rates was 8.2%, primarily caused
by depreciation in Ghana Cedi (GHS) by 49.1%, Zambian Kwacha (ZMK) by 16.8%,
Nigerian Naira (NGN) by 8.5% and CFA by 6.0%.
(INR bn)
(1.0)
Standalone
FY14
FY15
83.8
156.6
(36.0)
75.6
(28.1)
145.5
168.0
(15.5)
0.0
15.4
0.3
(0.1)
27.3
0.1
7.9
72.3
(18.5)
0.3
0.0
-
(0.2)
0.5
2.2
10.5
(14.2)
Consolidated
FY14
73.4
50.4
155.3
(46.1)
240.0
(11.1)
0.1
(13.4)
1.0
(0.1)
(0.1)
16.8
2.5
10.5
(0.0)
14.2
1.1
(0.1)
(5.7)
(14.2)
(5.7)
FY15
99.9
259.5
14.8
160.2
(11.0)
149.2
11.8
179.4
(6.4)
173.0
0.2
18.2
(0.0)
18.2
(1.0)
17.2
(0.0)
17.2
2.6
79.2
(26.6)
52.6
(12.4)
61.2
(27.5)
33.7
17.5
257.5
(37.6)
219.9
(1.6)
257.8
(33.9)
223.9
(107.8)
41.4
(76.5)
96.5
(6.7)
11.4
(9.4)
7.8
(60.2)
(7.6)
(123.8)
(90.1)
(174.7)
45.3
(209.8)
14.2
Consolidated operating cash flows post interest grew marginally to ~INR224bn in FY15.
Capex increased in FY15, led by higher investment in tangible assets (FY15: INR144bn, FY14:
INR110bn).
Cash outflows attributable to purchase of intangible assets marginally increased to
~INR66bn (FY14: INR 65bn).
242
Bharti Airtel
Borrowings analysis
Table 9: Standalone and consolidated adjusted debt
Particulars
Long term debts
Deffered Payment liabities towards spectrum
Long term borrowings (a)
Short term borrowings (b)
Total reported debt (a+b)
Deffered Payment liabities towards spectrum #
Equipment supply payables
Adjusted debt
Reported D/E
Adjusted D/E
FY12
94.1
94.1
59.0
153.0
25.8
178.9
0.3
0.4
(INR bn)
Standalone
Consolidated
FY13
FY14
FY15
FY12
FY13
FY14
FY15
110.8
90.1
66.3
611.2
601.5
661.5
577.0
1.0
143.2
1.0
143.2
110.8
91.1
209.4
611.2
601.5
662.5
720.2
31.4
12.5
6.3
79.1
65.9
97.5
86.7
142.2
103.7
215.7
690.2
667.4
760.0
806.8
129.1
244.0
129.1
244.0
40.7
32.9
54.1
66.0
59.8
64.7
103.7
182.9
265.7
513.8
756.3
727.2
953.8 1,154.6
0.3
0.2
0.3
1.4
1.3
1.3
1.3
0.3
0.4
0.7
1.5
1.4
1.6
1.9
# classified under capital commitment as spectrum was not allocated
Source: Company annual report, Edelweiss research
Till March15, the companys subsidiary paid advance of INR47.2bn towards purchase
of spectrum (2 circles) in auctions conducted in FY15.
(INR bn)
Standalone
FY13
FY14
14.9
10.2
0.8
1.5
0.3
16.0
11.7
0.8
1.6
16.82
13.36
142
104
10.8
9.6
11.4
10.9
FY15
10.7
1.7
1.1
13.4
1.7
15.17
216
8.4
9.5
FY12
30.6
5.0
1.6
37.2
5.2
42.39
690
5.7
6.5
Consolidated
FY13
FY14
36.9
36.4
5.0
6.7
2.6
2.3
44.5
45.4
3.2
15.7
47.75
61.05
667
760
6.6
6.4
7.0
8.6
FY15
37.0
6.1
2.8
45.9
30.2
76.06
807
5.9
9.7
Note: Forex loss considered above exclude losses on forex loans recognised in reserves.
Cumulative forex losses recognised in reserves since FY11 stood at ~INR 134bn
Source: Company annual report, Edelweiss research
243
Consolidated average borrowing cost (ex forex losses) declined to 5.9% (FY14: 6.4%).
However, owing to high forex losses, borrowing cost (Inc forex losses) increased by
110bps to 9.7%.
FY13
481.7
0.0
158.8
60.5
0.0
10.5
0.0
6.1
15.1
732.7
86.1
13.9
FY14
460.9
111.9
64.9
70.5
23.8
12.1
8.3
8.4
7.1
767.8
70.0
30.0
(INR bn)
FY15
403.9
135.8
35.2
31.9
22.5
11.1
10.3
7.7
6.2
664.6
50.0
50.0
Floating rate borrowings continued its declining trajectory, dipping from ~90% in FY12 to
~50% in FY15.
FY12
4,805
994
444
73
FY13
4,770
1,423
582
75
FY14
4,338
995
649
705
55
(INR mn)
FY15
3,629
757
352
314
32
Note: above sensitivity is computed for 1% change in interest rate on floating rate
portion of loans and borrowings after considering the impact of swaps
Source: Company annual report, Edelweiss research
244
Bharti Airtel
Investments in/loans to subsidiaries
Table 13: Exposure to African operations
Company
Equity Investment in select subsidiary
Bharti Airtel International (Netherlands) BV
Bharti Airtel International (Mauritius)
Bharti International (Singapore) Pte
Total (A)
Loans o/s to select subsidiaries
Bharti Airtel International (Netherlands) BV
Bharti Airtel International (Mauritius)
Bharti International (Singapore) Pte
Total (B)
Cash Exposure (A) + (B)
Corporate guarantees
Bharti Airtel International (Netherlands) BV
Bharti International (Singapore) Pte
Non-cash exposure
Cash Exposure as % to networth
Non cash Exposure as % to networth
FY12
FY13
FY14
(INR bn)
FY15
0.0
4.8
0.9
5.7
67.4
48.1
33.0
148.5
67.4
57.6
33.0
158.0
67.4
97.6
33.0
198.0
51.2
9.2
25.2
85.6
91.3
148.5
9.8
2.5
12.3
170.3
32.2
8.9
41.1
239.1
391.1
82.4
473.5
18.5
95.8
431.0
96.3
527.3
27.4
97.4
684.3
56.5
740.8
25.5
111.0
814.4
25.2
839.6
30.5
107.3
Goodwill
FY13
368.6
31.2
7.4
4.9
0.3
412.4
82.0
FY14
415.7
39.5
8.2
5.4
0.3
469.1
78.5
(INR bn)
FY15
360.9
39.5
8.5
5.6
0.3
414.8
67.0
Decline in goodwill during FY15 was on account of steep depreciation of functional currency
of African nations against the USD.
245
FY13
Africa CGU - Fair value exceeds the
carrying value by 11.5%
All other CGU - No reasonable changes
in assumptions will cause carrying
value to exceed the fair value
FY14
Africa CGU - Fair value exceeds the
carrying value by 10%
All other CGU - No reasonable changes
in assumptions will cause carrying
value to exceed the fair value
FY15
Africa CGU - Fair value exceeds the
carrying value by 8.7%
All other CGU - No reasonable changes
in assumptions will cause carrying
value to exceed the fair value
(INR mn)
FY14
Turnover
PAT
FY15
Turnover
% holding
Networth
PAT
71.9
70.0
95.0
170,200
52,287
(35,393)
112,754
40,687
20,771
174,212
15,179
6,036
(5,185)
16,030
121,906
47,003
24,759
193,668
19,924
10,792
(1,906)
28,810
79.06
60.00
100.00
96.36
90.00
90.00
100.00
100.00
100.00
100.00
75.00
100.00
90.00
98.50
(1,099)
(9,217)
(4,684)
2,573
5,360
447
1,313
(19,376)
(1,055)
833
(21,410)
(6,162)
(3,647)
(20,415)
86,001
16,766
11,915
15,819
12,790
16,808
13,810
10,708
8,705
6,028
11,292
911
11,907
22,115
245,575
(8,019)
(3,073)
1,230
3,127
2,632
1,715
2,593
(4,069)
(144)
(807)
(4,808)
(2,477)
(1,220)
(8,064)
(21,384)
75,131
17,222
14,656
13,281
12,741
11,836
11,449
10,358
7,955
7,674
8,295
1,213
9,947
20,702
222,460
(10,401)
(5,291)
(1,252)
574
1,788
(1,312)
618
(4,806)
(1,459)
1,487
(8,377)
(2,391)
(2,802)
(20,462)
(54,086)
100.00
100.00
(12,980)
(2,148)
13,258
4,033
17,291
(4,121)
(2,103)
(6,224)
11,838
4,171
16,009
(6,746)
(2,119)
(8,865)
246
Bharti Airtel
Profitability of all the key operating subsidiaries in Africa and South Asia has
deteriorated during FY15.
Most of key operating subsidiaries in Africa and South Asia have negative net worth.
Burkina Faso- Regulator is contemplating cost plus based pricing. This will
negatively impact business freedom to price competitively.
The Regulator is also considering imposition of fixed-line obligations on operators;
efforts are being made to persuade the Regulator to accept wireless fixed services
instead of wire line fixed services, in view of the huge financial outlay that will be
required for cabling and wiring.
FY13
FY14
(INR bn)
FY15
58.0
17.1
18.8
5.5
5.5
4.3
109.1
58.2
22.3
20.7
6.1
6.0
3.3
116.5
60.5
38.2
20.1
6.1
7.0
3.6
135.6
4.9
3.6
8.6
1.8
119.5
6.2
6.4
12.6
10.9
140.1
7.4
5.7
13.1
9.1
157.8
247
FY11
277
102
201
99
1,957
1,358
9.7
19.8
138
51
(INR bn)
FY12
150
134
237
103
1,897
1,279
8.0
18.3
63
56
FY13
130
148
233
84
1,692
1,108
7.3
20.0
56
64
FY14
175
156
278
121
1,880
1,275
6.8
15.5
63
56
FY15
210
155
312
157
2,243
1,575
7.2
14.3
67
50
Cumulative
942
696
1,260
565
N.A.
N.A.
75
55
Cash
Profits
after
working
capital
88%
Application
Loans and
advances
to
subsidiarie
s
25%
Investmen
ts in
subsidiarie
s/associat
es/JVs
12%
Dividend
4%
Capex Tangibles
31%
Capex Intangible
s
28%
*100%= INR833bn
Source: Company annual report, Edelweiss research
~59% and 37% of total cash available at the standalone level during FY11-15 was
utilised towards capex and investment (including loans) in subsidiaries respectively.
Consequently, very low proportion (4%) of available cash was used for dividend
payment.
248
Bharti Airtel
Table 19: Summary financials
Particulars
Sales
Total income
EBITDA
EBITDA margin (%)
RoE
RoCE
Depreciation
Financial costs
Net profit
Equity shareholders' funds
Loan funds
Net fixed assets
CWIP
Current assets loans and advances
Current liabilities and provisions
Net current assets
Cash and cash equivalents
Net debt
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Net cash flows
CAPEX
Working capital investments
FY11
596
600
201
34
13
13
102
25
59
488
617
1,241
48
96
285
(189)
16
601
189
(604)
397
(19)
(277)
10
FY12
715
718
237
33
9
9
134
41
43
506
690
1,292
44
110
296
(186)
38
652
225
(184)
(40)
2
(150)
15
FY13
769
775
233
30
4
8
148
45
23
503
667
1,257
30
115
322
(207)
82
586
228
(187)
(46)
(5)
(130)
20
FY14
859
869
278
32
5
10
156
59
30
598
759
1,275
131
112
359
(247)
112
647
262
(250)
28
40
(175)
18
(INR bn)
FY15
921
946
312
34
10
14
155
73
53
620
664
1,286
216
158
418
(260)
105
559
276
(220)
(97)
(41)
(210)
(2)
249
ANNEXURES
250
Annexure
Annexure A ROE analyzer
ROE analyser analyses profitability on the scale of operating efficiency and capital allocation
efficiency. While operating efficiency is a measure of how efficiently the company is making
use of operating assets, capital efficiency is the measure of balance sheet efficiency.
The above analysis involves:
1.
a.
b.
2.
Reformulation of balance sheet, wherein we have regrouped assets and liabilities into
operating and financing categories (against traditional current and non-current
categorisation).
3.
251
252
Disclaimer
DISCLAIMER
Edelweiss Securities Limited (ESL or Research Entity) is regulated by the Securities and Exchange Board of India (SEBI) and is
licensed to carry on the business of broking, depository services and related activities. The business of ESL and its Associates (list
available on www.edelweissfin.com) are organized around five broad business groups Credit including Housing and SME
Finance, Commodities, Financial Markets, Asset Management and Life Insurance.
This Report has been prepared by Edelweiss Securities Limited in the capacity of a Research Analyst having SEBI Registration
No.INH200000121 and distributed as per SEBI (Research Analysts) Regulations 2014. This report does not constitute an offer or
solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Securities as
defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 includes Financial Instruments and Currency
Derivatives. The information contained herein is from publicly available data or other sources believed to be reliable. This report is
provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The
user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it
deems necessary to arrive at an independent evaluation of an investment in Securities referred to in this document (including the
merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. The
investment discussed or views expressed may not be suitable for all investors.
This information is strictly confidential and is being furnished to you solely for your information. This information should not be
reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in
part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or
resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use
would be contrary to law, regulation or which would subject ESL and associates / group companies to any registration or licensing
requirements within such jurisdiction. The distribution of this report in certain jurisdictions may be restricted by law, and persons
in whose possession this report comes, should observe, any such restrictions. The information given in this report is as of the date
of this report and there can be no assurance that future results or events will be consistent with this information. This information
is subject to change without any prior notice. ESL reserves the right to make modifications and alterations to this statement as
may be required from time to time. ESL or any of its associates / group companies shall not be in any way responsible for any loss
or damage that may arise to any person from any inadvertent error in the information contained in this report. ESL is committed
to providing independent and transparent recommendation to its clients. Neither ESL nor any of its associates, group companies,
directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential
including loss of revenue or lost profits that may arise from or in connection with the use of the information. Our proprietary
trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed
herein. Past performance is not necessarily a guide to future performance .The disclosures of interest statements incorporated in
this report are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in
the report. The information provided in these reports remains, unless otherwise stated, the copyright of ESL. All layout, design,
original artwork, concepts and other Intellectual Properties, remains the property and copyright of ESL and may not be used in
any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.
ESL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including
network (Internet) reasons or snags in the system, break down of the system or any other equipment, server breakdown,
maintenance shutdown, breakdown of communication services or inability of the ESL to present the data. In no event shall ESL be
liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses or
expenses arising in connection with the data presented by the ESL through this report.
We offer our research services to clients as well as our prospects. Though this report is disseminated to all the customers
simultaneously, not all customers may receive this report at the same time. We will not treat recipients as customers by virtue of
their receiving this report.
ESL and its associates, officer, directors, and employees, research analyst (including relatives) worldwide may: (a) from time to
time, have long or short positions in, and buy or sell the Securities, mentioned herein or (b) be engaged in any other transaction
involving such Securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
subject company/company(ies) discussed herein or act as advisor or lender/borrower to such company(ies) or have other
potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of
publication of research report or at the time of public appearance. ESL may have proprietary long/short position in the above
mentioned scrip(s) and therefore should be considered as interested. The views provided herein are general in nature and do not
consider risk appetite or investment objective of any particular investor; readers are requested to take independent professional
advice before investing. This should not be construed as invitation or solicitation to do business with ESL.
253
254
Disclaimer
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC
in order to conduct certain business with Major Institutional Investors, Edelweiss Securities Limited has entered into an
agreement with a U.S. registered broker-dealer, Edelweiss Financial Services Inc. ("EFSI"). Transactions in securities discussed in
this research report should be effected through Edelweiss Financial Services Inc.
Disclaimer for U.K. Persons
The contents of this research report have not been approved by an authorised person within the meaning of the Financial
Services and Markets Act 2000 ("FSMA").
In the United Kingdom, this research report is being distributed only to and is directed only at (a) persons who have professional
experience in matters relating to investments falling within Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the
Order); (b) persons falling within Article 49(2)(a) to (d) of the Order (including high net worth companies and unincorporated
associations); and (c) any other persons to whom it may otherwise lawfully be communicated (all such persons together being
referred to as relevant persons).
This research report must not be acted on or relied on by persons who are not relevant persons. Any investment or investment
activity to which this research report relates is available only to relevant persons and will be engaged in only with relevant
persons. Any person who is not a relevant person should not act or rely on this research report or any of its contents. This
research report must not be distributed, published, reproduced or disclosed (in whole or in part) by recipients to any other
person.
Disclaimer for Canadian Persons
This research report is a product of Edelweiss Securities Limited ("ESL"), which is the employer of the research analysts who have
prepared the research report. The research analysts preparing the research report are resident outside the Canada and are not
associated persons of any Canadian registered adviser and/or dealer and, therefore, the analysts are not subject to supervision by
a Canadian registered adviser and/or dealer, and are not required to satisfy the regulatory licensing requirements of the Ontario
Securities Commission, other Canadian provincial securities regulators, the Investment Industry Regulatory Organization of
Canada and are not required to otherwise comply with Canadian rules or regulations regarding, among other things, the research
analysts' business or relationship with a subject company or trading of securities by a research analyst.
This report is intended for distribution by ESL only to "Permitted Clients" (as defined in National Instrument 31-103 ("NI 31-103"))
who are resident in the Province of Ontario, Canada (an "Ontario Permitted Client"). If the recipient of this report is not an
Ontario Permitted Client, as specified above, then the recipient should not act upon this report and should return the report to
the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any Canadian person.
ESL is relying on an exemption from the adviser and/or dealer registration requirements under NI 31-103 available to certain
international advisers and/or dealers. Please be advised that (i) ESL is not registered in the Province of Ontario to trade in
securities nor is it registered in the Province of Ontario to provide advice with respect to securities; (ii) ESL's head office or
principal place of business is located in India; (iii) all or substantially all of ESL's assets may be situated outside of Canada; (iv)
there may be difficulty enforcing legal rights against ESL because of the above; and (v) the name and address of the ESL's agent for
service of process in the Province of Ontario is: Bamac Services Inc., 181 Bay Street, Suite 2100, Toronto, Ontario M5J 2T3 Canada.
Disclaimer for Singapore Persons
In Singapore, this report is being distributed by Edelweiss Investment Advisors Private Limited ("EIAPL") (Co. Reg. No.
201016306H) which is a holder of a capital markets services license and an exempt financial adviser in Singapore and (ii) solely to
persons who qualify as "institutional investors" or "accredited investors" as defined in section 4A(1) of the Securities and Futures
Act, Chapter 289 of Singapore ("the SFA"). Pursuant to regulations 33, 34, 35 and 36 of the Financial Advisers Regulations ("FAR"),
sections 25, 27 and 36 of the Financial Advisers Act, Chapter 110 of Singapore shall not apply to EIAPL when providing any
financial advisory services to an accredited investor (as defined in regulation 36 of the FAR. Persons in Singapore should contact
EIAPL in respect of any matter arising from, or in connection with this publication/communication. This report is not suitable for
private investors.
Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098
Tel: +91 22 4009 4400. Email: research@edelweissfin.com