Initiating coverage

BUY

(Wholly owned subsidiary of Bank of Baroda)

$Com panyName$

Sector: PLASTIC PRODUCT

EPC Industrie Ltd. (Mahindra & Mahindra Group Co.)

6th July, 2015

91

Bloomberg Code

Reuters Code

EPC. IN

EPCI.BO.

Share Holding (%)

As on 31st Mar, 2015

Promoters

54.78

FII

1.64

DIIs

1.28

Stock Data
Nifty

8,485

Sensex

28,093

52 week high/low

237/128

Maket Cap (Rs. bn)

4.52

Face value

10

Price performance (%)

1M

3M

6M

1Y

Absolute

25.7

0.5

7.4

-23.9

Relative to Sensex

21.5

2.7

4.1

-31.2

Relative Performance
250
200

150
100

BSE Sensex

Source:-Bloomberg

Valuation: At CMP of Rs 164, the stock trades at PE of 37.8x/20.8x/10x of

FY16/17/18e respectively. We initiate the stock with a BUY rating and a target
price of Rs 313. (20x of FY18e).
Exhibit 1: Financial summary (Rs mn)
Year end: March
Net sales
Growth (%)
Operating margin (%)
PAT
Adjusted PAT
EPS (Rs)
Growth (%)
P/E(x)
ROE (%)
ROCE (%)
Debt/equity (x)
P/Bv (x)

FY13
1,614
29.1
4.7
53
53
1.9
-19.8
64.9
6.5
7.5
0.12
3.3

FY14
1,747
8.3
5.9
77
77
2.8
44.3
36.8
7.1
8.4
0.01
2.5

FY15
1,683
-3.7
1.9
9
9
0.3
-88.4
499.5
0.8
1.3
0.00
3.9

FY16e
2,289
36.0
7.3
115
115
4.2
1182.1
39.5
8.8
9.4
0.00
3.1

FY17e
3,548
55.0
8.2
209
209
7.5
81.9
21.7
13.4
13.8
0.00
2.7

FY18e
5,890
66.0
10.0
433
433
15.7
107.6
10.5
23.1
23.3
0.00
2.2

Source: Company, BOBCAPSe

Vaishali Parkar Kumar | vaishali.parkar@bobcaps.in | +91 22 6138 9381

Jun-11

Apr-11

EPC Industries

May-11

Mar-11

Mar-11

Jan-11

Feb-11

Dec-10

Nov-10

Oct-10

50
Nov-10

Consumers reach through strong network of channel partners: EPC

currently has ~2600 channel partners spread in ~17 states. MIS sales are driven
by strong demand in states like Gujarat, Rajasthan, Madhya Pradesh Maharashtra,
Karnataka, Andhra Pradesh, Tamil Nadu, Rajasthan and Haryana. The strong
network with the help of parent company M&M can help EPC to expand its reach
pan India level.

Rs. 313

Up/Down (%)

* Listed on BSE only

Sep-10

Higher Scope for expansion in market share, profitability: At present Jain

Irrigation is a market leader with ~55% market share followed by private player
Netafim India (~20% market share). We believe, going forward EPC can easily
expand its market share (~5.5% to ~15%) and profitability (~ led by 1) strong
support from the parent company (M&M), 2) EPC can also use M&Ms agri
business network for its own expansion, 3) EPS has better debtors days and Debt
to Equity ratios than its peers, we further believe, EPC can improve upon its
margin once economies of scale take place. (Market leader Jain Irrigation
enjoys~12% EBITDA margins.)

Rs. 164

Jul-10

Huge opportunities laying; as Govt launches mega irrigation scheme of

Rs 500bn under PMKSY: The union cabinet under the Pradhan Mantri Krishi
Sinchayi Yojana (PMKSY) launched mega irrigation scheme worth Rs 500bn (spent
over next five years; for FY16 the allocation is of Rs 53bn). This scheme will focus
on improving irrigation in non-rain-fed areas as well as strive to improve water
efficiency through the country. India is a second largest country under crop
cultivation (~142 mn ha.). Even though ~60% of the cultivated land is still
dependent on the monsoons for the cultivation. The PMKSY aims to ensure access
to some means of protective irrigation to all agricultural farms in the country, to
produce 'per drop more crop'.

Price Target

Aug-10

The government under the Pradhan Mantri Krishi Sinchayi Yojana

(PMKSY) launched mega irrigation scheme worth Rs 500bn which will
give a boost to irrigation sector as a whole. EPC Industrie (EPC)
presently has 5.5% market share in the micro irrigation space. We
initiate coverage on EPC with a BUY rating and a price target of Rs 313
implying 91% upside. We expect EPCs revenue/earnings to grow at a
CAGR of ~52%/264% respectively over FY15-18e led by 1) PMKSY
scheme of Rs 500bn over five years, 2) ~2600 dealers network spread
over 17 states 3) strong parentage of M&M, 4) well established product
portfolio.

Price

Jul-10

If there is any company which can benefit out of

Pradhan Mantri Krishi Sinchhayi Yojana (PMKSY) then
its Mahindras EPC; initiate with BUY

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Industry outlook
Scope of Irrigation industry in India
India being the 2nd largest land under cultivation (~142 mn ha) has a huge scope especially

when the 65% of cultivated land is dependent on monsoons. Irrigation can help to 1)reduce
over dependence on monsoons, 2) advanced agricultural productivity, 3) bringing more land
under cultivation, 4) reducing instability in output levels, 5) creation of job opportunities, 6)
electricity and transport facilities, 7)control of floods and prevention of droughts.
The Task Force on Micro Irrigation set up by the Central Government has stated that more

areas can be brought under irrigation if modern methods of irrigation are adopted. It
estimates the total potential in India to be around 69.5 Million Hectares. Only around ~10%
of this potential has been tapped so far in India. Hence there is tremendous opportunity for
micro irrigation business in the years to come. The Indian Micro Irrigation Industry had been
growing at a CAGR of ~20% prior to FY13.

Scarcity of water; may create problems for highly populated

country like India
Water is becoming increasingly scarce in many parts of the world and thereby limiting

agricultural development. The capacity of large countries like India to efficiently develop and
manage water resources is likely to be a key determinant for global food security in 21st
century.
Indias annual precipitation (rainfall & snowfall) is around 4000 BCM (Billion Cubic Meters) (or

4000 lakh crore litres). Out of this, close to 80% either gets washed away into the sea or is
subject to evaporation and percolation in the ground. Only about 20% or 800 BCM is currently
available for use. 80% of this usable water is utilized for Agriculture. India is currently on the
verge of being water stressed (< 1500 Cu m per capita) and it is estimated that by the year
2050,led by growing population and the pressure that it puts on agriculture, India will be on
the brink of becoming a water scarce country (< 1000 Cu m per capita).
Since agriculture is the major water-consuming sector in India, demand management in

agriculture is crucial to reduce the demand for water to match the available future supplies. A
number of demand management strategies and programmes have been introduced to save
water and increase the existing water use efficiency in Indian agriculture. One such method
introduced in Indian agriculture is micro-irrigation, which includes both drip and sprinkler
method of irrigation.

Billion Cubic Meter

(BCM)/Annum

Exhibit 2: Water availability in India

1,200
1,000
800

690

600
403

400
200

433

231

202

Present use

Available

Utilizable

287

Ground water

Surface water

Source: BOBCAPSe, Government of India (PMKSY presentation)

| Equity research |

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Micro-irrigation - todays requirement

Micro-irrigation (MI) has proved to be an efficient method in saving water and increasing

water use efficiency as compared to the conventional surface method of irrigation. Microirrigation was introduced primarily to save water and increase the water use efficiency in
agriculture. However, it also delivers many other economic and social benefits.
Reduction in water consumption due to drip irrigation systems over the surface irrigation

varies from 30 to 70% for different crops. Productivity gain due to use of micro-irrigation is
estimated to be in the range of 20 to 90% for different crops. It also reduces weed problems,
soil erosion and cost of cultivation substantially, especially in labour-intensive operations. The
reduction in water consumption in micro-irrigation also reduces the energy use (electricity)
that is required to lift water from irrigation wells. Micro-irrigation can also be adopted in all
kind of lands, which is not generally possible through flood irrigation method.
Research suggests that Drip Irrigation systems are not only suitable for those areas that are

presently under cultivation, but can also be operated efficiently in undulating terrain, rolling
topography, hilly areas, barren land and areas which have shallow soils. Given the population
growth and increasing requirement of agricultural commodities, there is a need to increase
the area under cultivation. Micro-irrigation can be one of the viable options for expanding area
under cultivation. Investment in Micro Irrigation also appears to be economically viable, even
without availing State subsidy.
Exhibit 3: Reasons for Micro Irrigation System

Higher productivity
Long term cost reduction

Access to credit
Reduced labour dependency
Subsidy
0% 10% 20% 30% 40% 50% 60% 70%
Source: BOBCAPSe, Company

| Equity research |

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Investment rationale
The government under the Pradhan Mantri Krishi Sinchayi Yojana (PMKSY) launched
mega irrigation scheme worth Rs 500bn (spent over next five years; for FY16 the
allocation is of Rs 53bn), which will give a boost to irrigation sector as a whole. EPC
presently has 5.5% market share in the micro irrigation space. Since, business is in
pretty nascent stages, the profitability is low and benefits of operating leverage will
take a while to play out.
We believe EPC with the PMSKY project and strong parentage of M&M can achieve
market share upwards of 15-20% with EBITDA margins of 15%+ over next 2-3-5
years.
We are quite confident that over next 5 years, EPC will grow at a CAGR of 51% We
feel the way application of agro chemicals is increasing , limited cultivable land and
importance of water usage increasing, growth in micro irrigation business can be
quite exponential in the times to come.

Huge opportunities laying; as Govt launches mega irrigation

scheme of Rs 500bn under PMKSY
The union cabinet under the Pradhan Mantri Krishi Sinchayi Yojana (PMKSY) launched mega

irrigation scheme worth Rs 500bn. This scheme will focus on improving irrigation in non-rainfed areas as well as strive to improve water efficiency through the country.
India is a second largest country under crop cultivation (~142 mn ha.). Even though ~65% of

the cultivated land is still dependent on the monsoons for the cultivation. The PMKSY aims to
ensure access to some means of protective irrigation to all agricultural farms in the country,
to produce 'per drop more crop'. This initiative of the Government will help to boost
productivity, improve crop quality and help farmers upgrade to modern methods of farming.
This scheme will give boost to irrigation manufacturers; we believe EPC with strong product
portfolio and strong support from M&M will be the highest beneficiary going forward.
Exhibit 4: Governments policy under PMSKY project

Need for Gap Filling

Water
Sources
Accelerated
Irrigation Benefit
Programme (AIBP)
Integrated
Watershed
Management
Programme
(IWMP),
MGNREGS, NMSA

Distribution

Command Area
Development
(CAD)

Management

National Mission
for Sustainable
Agriculture
(NMSA) : Dripsprinkler irrigation,
Moisture
conservation

Fragmented approach rather than end to end solution

Source: BOBCAPSe, Government of India (PMKSY presentation)

| Equity research |

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Strong parentage of Mahindra & Mahindra Group

Mahindra & Mahindra acquired EPC in 2011. Mahindra & Mahindra has presence in the tractor
and farm equipment business and the agriculture domain through Mahindra Samriddhi centers
across the country. Mahindra & Mahindra group has strong desires in Agriculture space. It is clear
that as the agricultural business vertical of Mahindra and Mahindra complements EPCs business,
it provides scope for exploiting synergies to create value for both businesses. Mahindras Farm
Equipment sectors management bandwidth and competence in marketing and operations will
augur well for EPC.

7,000
6,000
5,000
4,000
3,000
2,000
1,000
-

80
40
20

(%)

60

Revenue

FY18e

FY17e

FY16e

FY15

FY14

FY13

-20
FY12

Rs. Mn

Exhibit 5: Revenue growth trend after M&Ms acquisition

Growth %

Source: BOBCAPSe, Company

Synergy with M&M finance can work wonders

M&M finance is the subsidiary of M&M which is working in the NBFC space ( with a vision to

transform rural and semi-urban India into a self-reliant), along with ~1,000 branches. M&M
can use synergy between EPC and M&M finance to expand EPCs network under PMKSY
scheme.

The way business can happen between M&M Financials and EPC can be better understood
with the help of following example based on Gujarat model:

Farmer desires to buy the irrigation equipment of ~Rs25,000

EPC approaches farmers who has desires to buy irrigation equipment
Farmers puts Rs 5,000 to buy the irrigation equipment
M&M Finance can give loan upto Rs 20,000
Product purchase from EPC Industrie worth Rs 25,000
Farmers apply to govt. for subsidy through DBT (Direct Bank Transfer)
Govt. Transfer subsidy ~Rs 20,000 to ESCROW A/c through farmer to M&M
M&M Finance receives money
Farmer is debt free
M&M is in sweet spot having an agri NBFC, Irrigation company+ strong dealers network

across state, due to PMKSY scheme, this model can work wonders for EPC

| Equity research |

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Higher Scope for expansion in market share, profitability

India has a second largest land under cultivation (~142mn. Ha) out of which ~60% cultivable

land is still dependent on the monsoon. So far ~70mn ha land has got covered under
irrigation system, out of which only ~6mn land is under MIS (Micro-irrigation system). The
government of India is also giving the importance for micro- irrigation under PMKSY scheme.
We believe EPC has a huge potential to grow under this scheme along with its ~2600 dealers
spread across 17states, which they can further expand through M&Ms agri business network.

10,767

6,250

Potential

1,850

22%

1,038

1,084

547

28%

12%

51%

Andhra Pradesh

1,864

Wst Bengal

26%

Karnataka

9%

Bhira

2,008

0.7%

Haryana

2,983

Maharashtra

3,354

Gujarat

13%

Punjab

2.2%

4,922

Rajasthan

0.20%

MP

12,000
10,000
8,000
6,000
4,000
2,000
-

Uttar Pradesh

Area (x 1000 Ha)

Exhibit 6: Industry size and opportunity for EPC to grow

Penetration

Source: BOBCAPSe, Companys 4QFY15 presentation

At present Jain Irrigation is a market leader with ~55% market share followed by private

player Netafim India (~20% market share). We believe, going forward EPC can easily expand
its market share and profitability led by 1) strong support from the parent company (M&M), 2)
EPC can also use M&Ms agri business network for its own expansion, 3) EPS is a zero debt
and better debtors days company than its peers, we further believe, EPC can improve upon its
margin once economies of scale take place (Market leader Jain Irrigation enjoys ~12%
EBITDA margins).
Exhibit 7: Market share distribution in irrigation sector
Others, 20%

EPC
Industries,
5.5%

Jain Irrigation,
55%

Netafim India,
20%

Source: BOBCAPSe, Company

Exhibit 8: Peer comparison

Jai Irrigation

Netafim IndiaEPC Industrie

Dealers Network

4000

1500

2600

Market Share

55%

20%

5.5%

60508

7588*

1683

EBITDA margin

12%

5.4%*

1.9%

Debtors Day (Avg. 3 years)

Debt to Equity ratio

143
1.21

113*
0.54*

107
0.004

Rvenue (Rs Mn)

Source: BOBCAPSe, Company

*(Netafim Indias nos. based on FY14)

| Equity research |

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Well established brand with superior quality

EPC has been in the business of manufacturing MIS for over 30 years (since 1986). It has
developed technical expertise for providing reliable and quality products. This quality of the
hardware delivered to the farmer is the most crucial aspect in determining the performance of
the MIS as regards to the yield of the crop, quantity of water applied, quantity of fertilizers
delivered to the plant, energy consumption etc. EPC is considered to be one among the very few
quality brands in MIS.
Exhibit 9: EPCs Product Portfolio
Product Portfolio: Drip irrigation

Online Drippers

Round Inline drippers

Flat Inline drippers

Irrigation laterals

Drip Fittings

Drip filters

Fertigation Equipment
Product Portfolio: Sprinkler Irrigation

Sprinkler Irrigation pipes

Pipe fittings

Sprinkler Nozzles
Source: BOBCAPSe, Company

| Equity research |

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Consumers reach through strong network of channel partners

EPC currently has ~2600 channel partners spread in ~17 states. MIS sales are driven by

strong demand in states like Gujarat, Rajasthan, Madhya Pradesh Maharashtra, Karnataka,
Andhra Pradesh, Tamil Nadu, Rajasthan and Haryana in India. Being a Mahindra group
company, EPC has presence in most of these states through a network of sales/branch offices
supported by its channel partners which can help EPC to expand its reach pan India level.
EPC has ~5.5% market share with ~2600 dealers network which is near to the competitors,

which gives us comfort that EPC can easily increase its revenue. Also with the strong
parentage like M&M and its agriculture network will work as a booster for the expansion in
revenue.

Rs Mn

Exhibit 10: Peer comparison; Revenue vs Dealers network

70,000
60,000
50,000
40,000
30,000
20,000
10,000
-

Jain Irrigation

Netafim
EPC Industries

1,000

2,000

3,000

4,000

5,000

No. of Dealers
*Netafim Revenue based on FY14 and Jain Irrigation and EPC Industrie revenue based on FY15
Source: BOBCAPSe, Company

| Equity research |

(Wholly owned subsidiary of Bank of Baroda)

EPC Industrie Ltd. | 7 July 2015

Key risk
Raw Material price risk The major raw material for EPC is high, medium and linear low density
polyethylene. Naturally it is exposed to fluctuations in the price of raw material for the
manufacture of MIS products. The manufacture of these raw materials is dependent on crude oil
and the price of crude oil globally determinates the prices of these raw materials. Any fluctuation
in the price of crude oil have significant implications on the financials of the company.
Governments subsidy scheme a major influencing factor. EPCs MIS products are
significantly dependent on the government policies regarding subsidies. Delay in receipt of the
subsidy component would adversely impact its margins. Since the product is subsidized
government withdrawing or reducing subsidy to the farmers and the horticulturists, would
discourage them as they may not be in a position to afford micro irrigation systems.
Growth dependant on Government policies Government is the main force behind this
industry growth so far. Any reduction in government budgetary outlays for agriculture or
irrigation could impact the sector. However with the current policy under PMKSY has opened up
huge opportunity for this sector. MI has gained traction among the farmer community due to the
proven benefits like Water savings and crop yield improvements when compared to traditional
irrigation methods.
Competition Presently the market is dominated by Jain irrigation followed by Netafim. There
are other players like finolex and recently Godrej industries have made a foray in to the market.
While this augurs well for the growth of the sector, it also poses a threat to the margins of
established players. No corporate governance issue with company unlike its established
competitors.

| Equity research |

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Valuation:
We believe with the PMKSY project, the government is planning to open an
opportunity of Rs 500bn for irrigation sector. Even though EPC retain its current
market share of 5.5% can get an opportunity of Rs 27.5bn which is a huge potential
for the company.
At CMP of Rs 164, the stock trades at PE of 37.8x/20.8x/10x of FY16/17/18e
respectively. We initiate the stock with a BUY rating and a target price of Rs 313.
(20x of FY18e).

5-Apr-15

5-Jul-14

5-Apr-14

5-Jan-14

5-Oct-13

5-Jul-13

5-Apr-13

5-Jan-13

5-Oct-12

5-Jul-12

5-Apr-12

5-Jan-12

5-Oct-11

5-Jul-11

5-Apr-11

5-Jan-11

5-Oct-10

PE(x)

5-Jan-15

Current = 17x

6 yr mean = 58.2x

5-Oct-14

300
250
200
150
100
50
0

5-Jul-10

(x)

Exhibit 11: One year forward PE

Avg

Source: BOBCAPSe, Bloomberg

Exhibit 12: Peer comparison- key financials and margins

Companies

Sales

PAT

Rs (mn) Rs (mn)

EBITDA margin (%)

EPS

FY15

FY16e

FY17e

FY15

FY16e

FY17e

Jain Irrigation

60508

55

12.77

13.63

13.99

1.21

4.36

6.83

EPC Industrie

1,683

1.9

7.3

8.2

0.3

4.2

7.5

Source: BOBCAPSe, Bloomberg

Exhibit 13: Peer comparison key valuation metrics

Companies
Jain Irrigation
EPC Industrie

Price Mkt. cap

PE (x)

ROE (%)

Rs/share

Rs (bn)

FY15

FY16e

FY17e

FY15

FY16e

FY17e

71

6.6

58.8

16.3

10.4

2.6

8.6

12.4

163

4.5

503.2

39.3

21.6

0.8

8.8

13.4

Source: BOBCAPSe, Bloomberg

| Equity research |

10

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Financial Summary
Revenue boost possible with PMKSY scheme: EPC has grew by ~18% CAGR over FY09FY15. EPC currently enjoy market share of ~5.5% in irrigation sector. With the PMKSY (Pradhan
Mantri Krishi Sinchai Yojana) scheme the government has allocated Rs 500bn over five years.
This scheme will give huge potential to the companies under irrigation sector. Even though we
maintain EPCs current market share of ~5.5%, the potential only to EPC works out to be Rs
27.5bn over next 5 years. However, we expect EPCs revenue to grow at a CAGR of 52% over
FY15-18e.

7,000
6,000
5,000
4,000
3,000
2,000
1,000
-

80
40
20

(%)

60

Revenue

FY18e

FY17e

FY16e

FY15

FY14

FY13

(20)

FY12

Rs. Mn

Exhibit 14: Revenue growth expected at ~52 % CAGR over FY15-18e

Growth %

Source: Company, BOBCAPSe

500

8.0

400

6.0

300

4.0

200

(%)

Rs. Mn

Exhibit 15: PAT and PAT margins to improve over economies of scale

2.0

100

0.0
FY13

FY14
PAT

FY15

FY16e

FY17e

FY18e

PAT margin%

Source: Company, BOBCAPSe

| Equity research |

11

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

EBITDA margins to expand by 661bps: EPC posted ~1.9% EBITDA margin in FY15 (down
by ~400 bps over FY14) led by change from NMMI (National Mission on Micro Irrigation) to
NMSA (National Mission for Substantial Agriculture) which had a lack of policy clarity across many
states. However, with the PMKSY initiative by the government, we expect EPC to expand its
margin by ~661bps over FY15-18e (Market leader Jain Irrigation enjoys ~12% EBITDA
margins).
Exhibit 16: Margin expansion by ~661 bps over FY15-18e

12
10
8

(%)

Rs. Mn

700
600
500
400
300
200
100
0

4
2
0
FY13

FY14

FY15

EBITDA

FY16e

FY17e

FY18e

EBITDA margin %

Source: Company, BOBCAPSe

Return ratios to improve: We expect return ratios to improve to 20% led by

revenue/earnings to grow at a CAGR ~51%/245% respectively over FY15-18e.
Exhibit 17: Improving ROE & ROCE

25

20
15
10
5
0
ROE

ROCE

Source: Company, BOBCAPSe

| Equity research |

12

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

WCC to remain high due to nature of business: EPCs WCC was high in FY15 to 120 days
led by change from NMMI (National Mission on Micro Irrigation) to NMSA (National Mission for
Substantial Agriculture) which had a lack of policy clarity across many states. However, EPCs
average WCC remained high (avg. 91 days over FY10-15) as the company works closely with
farmers and the state government. We believe, going forward EPCs WCC will remain in the range
of 80 day due to nature of business.
Exhibit 18: WCC to remain high due to nature of business

140

No fo Days

110
80
50
20
-10

FY13

Debtors Days

FY14

FY15

Inventory Days

FY16e

FY17e

Creditors Days

FY18e
WCC

Source: Company, BOBCAPSe

| Equity research |

13

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Company Profile
EPC Industrie is one the pioneers in the Micro Irrigation industry in India backed by the strong
parent M&M Ltd., (M&M acquired 38% equity stake in EPC Industrie in February 2011 and in
June 2012 it raised its stake to 54.8%). EPC is in to manufacturing and sales of Micro Irrigation
System (MIS) consisting of Drip Irrigation System (online drippers, inline drip laterals, plain
laterals, drip fittings, filters, and fertigation equipments) and Sprinkler Irrigation System
(sprinkler irrigation pipes, pipe fittings and sprinkler nozzles. As part of project market sales it
undertakes supply, installation and provision of agronomical services to farmers) It also
manufactures specialized pipes for water and gas distribution as well as pipes required for
industrial and agricultural purposes with complete fitting and installation tools. EPC has 2600
channel partners. It is registered in 17 states of India as approved manufacturer of MIS with
respective state government authorities under the National Mission on Micro Irrigation and Micro
Irrigation Scheme.
EPC s business model is manly categorized into two division 1) open market 2)
project market sales
Open market sales: Sales through open market secures receipt of a majority of the sale
proceeds of MIS upfront from the (intermediaries) channel partners. The channel partners in turn
sell the MIS to the customer/ farmer whereby subsidy disbursement exposure is taken by the
channel partners or the customers. Consequently, a majority of inventory costs and working
capital requirements is funded by its channel partners under the open market sales model.
Project market sales: EPC operates under the project market model in the states of Gujarat,
Andhra Pradesh and Tamil Nadu. As per the requirement of nodal agencies in the states of
Gujarat, Andhra Pradesh and Tamil Nadu, EPC enters into an agreement with the farmers, nodal
agencies and with banks, wherever applicable. After the loan tie ups and subsidy eligibility is
approved by the nodal agency in these states, EPC installs MIS and submit its claim for payment
to the nodal agency. Consequently, in the project market, the exposure of subsidy disbursement
is taken by EPC.
Exhibit 19: Key Management
Subhash Modak

COO

He holds a bachelors degree in mechanical engineering

from College of Engineering, University of Pune. He is on
deputation since September, 2011 and is responsible for
supervision
over
manufacturing,
supply
chain
management, product development, sourcing, industrial
relations and quality control. He has vast experience of
over 33 years

Sunil Johnson

VP, sales and

marketing

He holds a bachelors degree in agriculture technology

from University of Allahabad in 1986 and Diploma in
Marketing from All India Management Association in
1998. He has experience of over 25 years and is
responsible for domestic and international sales, channel
development and agronomical services.

Anant Kshirsagar

Head- Finance, He holds Masters degree in commerce from University of

Accounts and IT Pune. He is also a fellow member of the Institute of
Chartered Accountants of India. He has experience of
over 32 years and in finance and accounts functions

Source: Company, BOBCAPSe

| Equity research |

14

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Exhibit 20: Income Statement

Y/E Mar (Rsmn)
Net sales

growth (%)
COGS

FY13

F14

F15

F16e

F17e

F18e

1,614

1,747

1,683

2,289

3,548

5,890

29.1

8.3

(3.7)

36.0

55.0

66.0

1,057

1,143

1,075

1,442

2,217

3,592

Staff Cost

151

181

197

268

416

691

R&D Cost

330

320

380

412

625

1,019

76

103

31

167

290

588

SG&A Cost
EBITDA

growth (%)

(23)

36

(69)

430

74

103

Depreciation

25

28

27

29

31

32

EBIT

50

75

137

260

556

Other income

28

26

26

28

31

34

25

24

12

13

13

13

53

77

18

153

278

578

Tax

38

70

144

Minority interest

53

77

115

209

433

Interest paid
Extraordinary/Exceptional
items
PBT

PAT
Non-recurring items
Adjusted PAT

growth (%)

53

77

115

209

433

(20)

44

(88)

1,182

82

108

Exhibit 21: Balance Sheet

Y/E Mar (Rsmn)

FY13

F14

F15

F16e

F17e

F18e

Cash & Bank balances

381

242

270

527

513

336

Other Current assets

692

1,003

891

1,009

1,407

2,310

Investments
Net fixed assets
Goodwill

314

322

302

297

292

285

88

95

61

59

59

59

1,475

1,662

1,524

1,893

2,270

2,990

Current liabilities

253

481

359

420

587

872

Borrowings
Other non-current
liabilities
Total liabilities

130

37

43

16

18

20

22

420

532

380

442

611

898

276

276

276

276

276

276

Other non-current assets

Total assets

Share capital

779

854

868

1,174

1,382

1,815

Shareholders' funds

Reserves & surplus

1,056

1,130

1,144

1,451

1,659

2,092

Total liabilities

1,475

1,662

1,524

1,893

2,270

2,990

Source: Company, BOBCAPSe

| Equity research |

15

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Exhibit 22: Cash Flow Statement

Y/E Mar (Rsmn)

FY13

F14

Profit after tax

53

Depreciation

27

Chg in working capital

Total tax paid
Cash flow from
operations
Capital expenditure
Change in investments
Cash flow from
investments
Free cash flow

F15

F16e

F17e

F18e

77

115

209

433

30

27

29

31

32

(104)

(84)

(2)

(53)

(229)

(616)

(24)

23

34

91

11

(151)

(52)

(38)

(8)

(25)

(25)

(25)

(52)

(38)

(8)

(25)

(25)

(25)

(76)

(15)

26

66

(14)

(176)

Issue of shares

104

Net inc/dec in debt

(99)

(122)

(4)

Dividend (incl. tax)

(1)

(1)

(1)

300

(2)

192

305

(124)

192

(0)

(0)

229

(139)

28

257

(15)

(176)

FY13

F14

F15

F16e

F17e

F18e

EPS

1.9

2.8

0.3

4.2

7.5

15.7

CEPS

2.9

3.8

1.3

5.2

8.7

16.8

Other financing activities

Cash flow from
financing
Inc/(Dec) in Cash &
Bank bal.

Exhibit 23: Ratio analysis

Y/E Mar
Per share data (Rs)

DPS
BV

0.0

0.0

0.0

38.2

40.9

41.4

52.5

60.0

75.7

Profitability ratios (%)

Gross margins

25.2

24.2

24.4

25.3

25.8

27.3

Operating margins

4.7

5.9

1.9

7.3

8.2

10.0

Net margins

3.3

4.4

0.5

5.0

5.9

7.4

64.9

36.8

499.5

39.5

21.7

10.5

Valuation ratios (x)

PE
P/BV

3.3

2.5

3.9

3.1

2.7

2.2

42.4

25.3

133.7

24.0

13.9

7.1

EV/Sales

2.0

1.5

2.5

1.7

1.1

0.7

RoE

6.5

7.1

0.8

8.8

13.4

23.1

RoCE

7.5

8.4

1.3

9.4

13.8

23.3

RoIC

(0)

10

18

28

EV/EBITDA

Source: Company, BOBCAPSe

| Equity research |

16

EPC Industrie Ltd. | 7 July 2015

(Wholly owned subsidiary of Bank of Baroda)

Sales and Dealing Team

Purvesh Shelatkar Senior Vice President & Head Equity

+91-22-6138 9330

purveshshelatkar@bobcaps.in

Anil Pawar Senior Manager Dealing

+91-22-6138 9325

anil@bobcaps.in

Sachin Sambare Manager Dealing

+91-22-61389331/33

sachin.sambare@bobcaps.in

Ashwin Patil Executive Dealing

+91-22-6138 9326

ashwin@bobcaps.in

Research Team

Sectors

Vaishali Parkar Kumar Analyst

Agri, Auto, Defence

+91-22-6138 9382

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Auto Ancillary, Infra, Midcap

+91-22-6138 9381

padmaja.ambekar@bobcaps.in

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Footwear, FMCG

+91-22-6138 9383

akanksha.tripathi@bobcaps.in

+91-22-6138 9384

rishabh.mehta@bobcaps.in

Kshitij Kelkar

+91-22-61389386

kshitij@bobcaps.in

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+91-22-61389385

kiran@bobcaps.in

Mohan Shinde

+91-22-61389386

mohan.shinde@bobcaps.in

+91-22-61389336

minaxi.tiwari@bobcaps.in

Rishabh Mehta Associate

Retail Research Team

Debt Dealing Team

Minaxi Tiwari

UTI Tower, 3rd Floor, South Wing, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051. India.
Ph.: +91.22.6138.9300 || Fax: +91.22.6671.8535 ||
Email: research@bobcaps.in|| Web: www.bobcaps.in
NSE SEBI No. (CASH): INB231304537
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Disclaimer
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| Equity research |

17