himani.singh@icicidir ect.com Nicholas Piramal (NICPIR) Lucrative ...

August 27, 2007 | Pharmaceuticals
Initiating Coverage
Nicholas Piramal (NICPIR)
Lucrative formulation
Nicholas Piramal (India) Ltd (NPIL) has created a growth canvass for itself
by buying depressed assets and turning them around. We believe the
company would follow a similar strategy to grow. It has a long track
record of successful collaboration with innovator companies and is today
among the largest CRAMS players in India. We initiate coverage on the
company with an OUTPERFORMER rating.
Custom manufacturing from Indian assets gaining traction
We expect revenues from custom manufacturing operations (CMO) to
increase significantly on the back of new orders. We expect CMO
revenues from Indian assets to grow at a CAGR of 130% to Rs 237.83
crore over FY06-09E (included in total CRAMS revenue of Rs 911 crore).
Raghvendra Kumar
raghvendra.kumar@icicidirect.com
himani.singh@icicidir
ect.com
Avecia operations seen contributing this fiscal
Avecia, NPIL’s UK subsidiary, was a drag on its financials due to its
negative EBIDTA. We see this trend reversing with Avecia turning the
corner on the back of increased sourcing from India. We expect its
revenues to grow at a CAGR of 42% over FY06-09E to Rs 289 crore.
In-licensing of molecules in pre-clinical stage
NPIL’s deal with Eli Lilly is a pointer to the potential gain from this
segment. We expect a fast scale-up in revenues from the current US$100
million.
Valuations
At the current price of Rs 237, the P/E multiple works out to 14x FY09
EPS. A DCF valuation gives us a value of Rs 362 per share. Factoring in
product-specific risks we arrive at a target price of Rs 318. We believe the
stock deserves a higher P/E multiple due to the superior growth in its
CMO revenues and turnaround of Avecia. At the target price, the stock
will trade at 17.73x FY09E EPS of Rs 17.93. We rate the company
OUTPERFORMER with a 12-15 month timeframe.
Exhibit 1: Key Financials
Year to March 31 FY06 FY07 FY08E FY09E
Net Profit (Rs crore) 131.12 228.33 283.18 375.60
Shares in issue (Crore) 20.90 20.90 20.90 20.90
Consolidated EPS (Rs) 6.27 10.83 13.52 17.93
% Growth -20% 73% 25% 33%
PE (x) 37.62 21.79 17.46 13.16
Price / Book (x) 5.13 4.71 3.70 3.00
EV/EBIDTA (x) 25.93 16.57 12.02 9.62
RoE (%) 14% 22% 21% 23%
RoCE (%) 14% 17% 18% 21%
Source: ICICIdirect Research
ICICIdirect | Equity Research
375
325
275
225
175
Aug-06
Sep-06
Sales & EPS trend
Sales (Rs, Crore)
3500
3000
2500
2000
1500
1000
500
0
Current Potential Potential price upside upside 13% Target 13% price
Rs 237 Potential Time frame upside 12 13% Rs 318
Time frame 12
Potential upside Time Frame
34% Potential Time frame upside 12-15 12 13% months
Potential Time frame Time
Time frame
upside 12 frame months 12
12 months
13%
OUTPERFORMER
FY '04 FY '05 FY '06 FY '07E FY '08E FY09E
Stock metrics
Promoters holding 49.97%
Market Cap Rs 5044 crore
52 Week H/L Rs 320 /195
Sensex 14,842
Average volume 1,56,320
Comparative return metrics
Stock return 3M 6M 12M
Nicholas Piramal -8% 0.6% 17%
Dishman Pharma 34% 33% 73%
Divi’s Lab 68% 83% 246%
Jubilant Organosys 23% 18% 51%
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Absolute sell
Target price
Absolute buy
Mar-07
Apr-07
1 | P age
May-07
Jun-07
20
15
10
5
0
EPS (Rs)
Jul-07
Aug-07

COMPANY BACKGROUND
Nicholas Piramal (India) Ltd (NPIL) is one of the
country’s largest pharmaceutical companies. The
company is currently ranked 4th in the Indian market
with a diverse product portfolio spanning nine
therapeutic areas. The company has R&D capabilities in
custom chemical synthesis, process innovation, NDDS
and basic research. It has world-class US FDAapproved
formulations and API facilities. NPIL has a
long track record of successful collaboration with
innovator companies. Since 2003, the company has
made significant investments to become a global
contract manufacturing organization (CMO) for large
and medium-sized innovator companies. NPIL has a
track record of buying depressed assets (See Exhibit 2)
and turning them around. It bought loss making Avecia
in 2005 and Pfizer’s Morpeth facility in 2006. NPIL
provides CMO from assets in India (Pithampur in
Madhya Pradesh and Digwal near Hyderabad) and
abroad. The Avecia and Morpeth facilities in UK also
provide CMO. The acquisition of Morpeth plant from
Pfizer helped the company to secure an order worth
US$350 million spread over 5 years.
Exhibit 3: Business Model
Shareholding pattern
Shareholder Percentage holding (%)
Promoters 49.97
Institutional investors 23.39
Other investors 26.64
General public 11.50
Exhibit 2: Chronology of NPIL’s buyouts
Nicholas Piramal: Rs 2472 crore in FY07
Domestic: Rs 1407 crore (57%) Overseas: Rs 1065 crore (43%)
Formulation: Rs 1174 crore (83%)
Contract Mfg: Rs 8 crore (0.5%)
Path Labs: Rs 69.50 crore (5%)
Others: Rs 81 crore (6%)
Year Acquired company Rationale
1988 Nicholas
Laboratories
Pharma sector entry
1993 Roche Products
Portfolio expansion,
access to new products
1996 Boehringer
Mannheim India
New business line -
Diagnostics
2000 Rhone Poulenc India
Size; Portfolio expansion
with new therapy areas
2002
ICI India - Pharma
business
Strong presence in
Cardiovascular therapy
area
2003
Sarabhai Piramal
Pharmaceuticals
Therapy area leadership
in CNS, pain management
& respiratory
2005
Rhodia, UK,
Inhalation
Anesthetics
Entry into niche, global
branded generics market
Expansion of global
2005 Avecia, UK
footprint, new capabilities
& technologies
Manufacturing Key relationship with
2006 facility of Pfizer in Pfizer, world class facility
UK
of patented products
PDS: Rs 146 crore (14%)
PMS: Rs 665 crore (62%)
MMBB: Rs 227 crore (21%)
Others: Rs 27 crore (3%)
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INVESTMENT RATIONALE
Emerging as a leading global CMO player
Since its foray into the custom manufacturing operations (CMO) in 2003, NPIL
has been rapidly scaling up its capabilities. The acquisition of Avecia
Pharmaceuticals in December 2005 and Pfizer’s Morepeth facility in the UK in
June 2006 has put the company at the top of the league among Indian contract
manufacturers. NPIL is uniquely positioned to address outsourcing
opportunities for large MNCs through its close association with innovators,
capabilities to provide entire bouquet of services and non-infringing business
model.
NPIL provides contract-manufacturing services from its facilities both in India
as well as overseas. The newly acquired Avecia and Morpeth facilities are used
for CMO. For CMO contracted to Indian assets, the company is sitting on an
order book which can generate peak sales of US$105 million per annum with
EBIDTA margin of 25%. We expect consolidated revenues from CMO to grow
at a CAGR of 105% over FY06-09E to Rs 911 crore in FY09E from Rs 106 crore
in FY06 on the back of acquisition of Morpeth operations and new contracts.
This would add to the bottom line more aggressively as Avecia, which was a
drag on the bottom line, turned around in Q407.
Exhibit 4: CMO revenues to grow at a CAGR of 105%
Sales (Rs crore)
1000
800
600
400
200
0
Source: Company, ICICIdirect Research
FY06 FY07 FY08E FY09E
NPIL also uses part of the capacity of its units at Pithampur (Madhya Pradesh)
and Digwal (near Hyderabad) for CMO. The company has the opportunity to
increasing production at the Morpeth facility, which is operating at only 50%
capacity and at an EBIDTA of 15%. We are confident that NPIL would exploit
Morpeth’s distribution network to boost utilization of surplus capacity.
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CMO from Indian assets gathering momentum
Custom manufacturing operations from Indian assets are gathering
momentum and the company is likely to rake in Rs 237.83 crore over FY06-
09E on account of more contracts. The company is sitting on an order
book, which can generate peak sales of US$105 million per annum at an
EBIDTA margin of 25%.
Exhibit 5: CMO from Indian assets rising
Sales (Rs Crore)
70
60
50
40
30
20
10
0
Q2FY06
Q3FY06
Q4FY06
Q1FY07
Q2FY07
Source: Company, ICICIdirect Research
Q3FY07
Q4FY07
Avecia operations turned around in Q4FY07E
NPIL had acquired the loss-making Avecia in Europe for UK£9.5 million
pound to consolidate its contract manufacturing business. Avecia’s
operations have now reached an inflection point due to increased sales
and enhanced sourcing from Indian assets. We expect its revenues to
grow at a CAGR of 42% over FY06-09E to Rs 289 crore. The company
turned around in Q4FY07 and we believe the acquisition would be
earnings accretive for NPIL from FY08E.
Exhibit 6: Avecia acquisition paying-off
Sales (Rs Crore)
90
80
70
60
50
40
30
20
10
0
Q1FY07
Q2FY07
Q3FY07
Q4FY07
Source: Company, ICICIdirect Research
Q 1FY08E
Q 2FY08E
Q1FY08E
Q 3FY08E
Q2FY08E
Q3FY08E
Q 4FY08E
Q4FY08E
Q 1FY09E
Q1FY09E
Q 2FY09E
Q2FY09E
Q 3FY09E
Q3FY09E
Q4FY09E
Q 4FY09E
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Major player in domestic market
Domestic business to recover lost ground
We expect the domestic formulations business to recover after the
temporary blip over the Phensedyl controversy and post a CAGR of 11%
over FY06-09E to Rs 1,432.40 crore on the back of new launches.
Exhibit 7: Up-trend in domestic sales
Sales (Rs Crore)
1600
1400
1200
1000
800
600
400
200
0
FY05 FY06 FY07 FY08E FY09E
Source: Company, ICICIdirect Research
Growth in domestic sales is likely to come on the back of robust growth rate
from the therapeutic segments. We believe the Phensedyl brand would
regain its former sales, though we have not factored such growth in our
earnings model. Loss of sales from Vah and Valto is likely to be
compensated by new launches.
Exhibit 8: Therapeutic segment growth assumptions (in Rs crore)
FY06 FY07 FY08E FY09E
Respiratory 198.38 234.88 265.66 294.88
Growth (%) -6 18 11 11
Anti-Infective 139.80 148.88 159.78 172.08
Growth (%) 20 6.5 8 8
Cardiovascular 128.11 146.82 166.48 190.37
Growth (%) 26 15 14 14
CNS 126.51 133.59 148.90 169.71
Growth (%) 28 6 14 14
Nutritionals 88.58 100.49 107.97 120.61
Growth (%) 34 13 11 12
Biotek 13.65 16.61 18.88 21.10
Growth (%) 19 22 12 12
Anti-Diabetic 60.20 69.78 75.31 84.46
Growth (%) 34 16 12 12
Gastro-intestinal 44.25 51.12 57.35 64.80
Growth (%) 24 15.5 14 13
Dermatalogy 39.64 47.58 55.36 65.57
Growth (%) 14 20 18 18
NSAIDs 53.98 61.96 70.24 79.48
Growth (%) -8 5 14 13
Total 1042.80 1174.13 1282.45 1432.40
Growth (%) 14 11.9 11 12
Source: Company, ICICIdirect Research
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NPIL lost a huge turnover due to formulations portfolio disturbance events.
Three major factors impacted domestic formulations business. Sales of
Phensedyl, a leading brand of the company, were adversely affected during
FY06 due to a controversy. As Phensedyl contains codeine derived from a
narcotics origin, the Narcotics Control Bureau (NCB) initiated investigation into
the sale of the product. In July 2005, the NCB initiated wide spread
investigations of stockists and chemists across the country. This resulted in
disruption of retail stocking and off-take of the brand. NPIL contested the
action of NCB in the courts and was successful in establishing that Phensedyl
is not a narcotic drug under the NDPS Act. Valdecoxib was globally advised to
be withdrawn, including from India. NPIL had 2 nd ranking in Valdecoxib
through Vah and Valto brands. Following this, the company discontinued the
brands in July 05, which resulted in annual sales loss of Rs 11.40 crore in FY06.
The third reason for sales loss was business restructuring. The company
divested Carex division to a distributor. This division had two main product
groups, Hospital products (annual sales: Rs 9.30 crore) and Inhalation
Anesthetics (annual sales: Rs 6.10 crore). Hospital products were generating
paper-thin margin and were not fitting into the business of the company. For
Inhalation Anesthetics, NPIL has global model to sell through distributors.
Diversified therapeutic exposure
NPIL has one of the most diversified exposures among therapeutic
segments in the domestic market. Its offerings are in the eight therapeutic
segments, which accounts for 90% of the domestic market. This de-risks
the company from any slowdown in any one therapeutic segment.
Additionally, we believe that NPIL will be the biggest beneficiary of any
market expansion in the domestic market.
Exhibit 9: Diversified product portfolio
Biotech
1%
Nutritional
8%
NSAID
5%
Dermatology
4%
others
13%
GI
4%
Anti-diabetic
6%
Source: Company, ICICIdirect Research
Ophthalmology -
Allergan
4%
CNS
12%
Respiratory
18%
CVS
12%
Anti-infective
13%
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In-licensing – an opportunity to grow in the domestic market
We believe in-licensing presents NPIL a huge growth opportunity with pharms
MNCs introducing new-patented products in the domestic markets. The
company has decided to adhere to the strategy of respecting Intellectual
Property Rights (IPR) and not to get into the generics business (patent
challenges). Instead, it aspires to complement the businesses of MNC pharma
companies by in licensing new products for the Indian markets and by
providing the contract manufacturing services in addition to a robust sales
channel. The company has already entered into alliance with Biogen Idec and
Chiesi Farmaceutici, Italy for few products. With a large field force of over
3,000 and one of the deepest penetrations into the domestic markets, NPIL is a
suitable candidate for medium-sized innovator companies looking to market
their drugs in India through the out-licensing route.
Strong discovery pipeline would fortify future cash flows
NPIL has very strong pipeline in discovery research of 13 new chemical
entities (NCEs) in the therapeutic segments of oncology, inflammation,
diabetic/metabolic disorder and infectious diseases. Out of these, two
molecules are in phases II and one in phase I/II of clinical trials in the
therapeutic segments of oncology, inflammation and anti-infective.
Exhibit 10: Discovery research pipeline
Oncolog
Oncolog
Oncolog
Oncolog
Oncolog
Inflamat
Inflamat
Inflamat
Inflamat
Inflamat
Diabete
Anti-infe
Anti-infe
Source: Source: Company
In-licensing of pre-clinical candidates – a new paradigm in drug discovery
NPIL signed a drug development agreement with Eli Lilly to develop a
select group of Lilly’s pre-clinical drug candidates in multiple therapeutic
areas. Under this agreement, NPIL will be responsible for the execution of
the global clinical development program, including investigational new
drug (IND-enabling) non-clinical studies and human clinical trials up to
Phase III. NPIL would receive milestone payments up to US$100 million
on completion of different phases of studies. In case of a call back, the
company would receive the call back payment and the IPR related to the
molecule will be held be NPIL. In addition, NPIL would receive royalties on
sales upon successful launch of the first compound and may get certain
geographic region to market the product.
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FINANCIALS
Exhibit 11: Revenue mix and growth assumptions
FY06 FY07 FY08E FY09E
Net sales 1582 2472 2665 2994
Revenue growth (%) 21 55 15 12
Exports:
Total CMO 106 665 784 911
Business Mix (%) 7 27 29 30
Revenue growth (%) 636 43 16
PDS 16 146 176 194
Business Mix (%) 1 6 7 6
Revenue growth (%) 253 20 10
MMBB 183 227 230 239
Business Mix (%) 12 9 9 8
Revenue growth (%) 20 6 4
Domestic:
India - Formulation sales 1043 1174 1282 1432
Business Mix (%) 66 47 48 48
Revenue growth (%) 12 11 12
Pathlabs 45 70 83 108
Business Mix (%) 3 3 3 4
Revenue growth (%) 55 30 30
Source: Company, ICICIdirect Research
Top line to grow at a CAGR of 23% over FY06-09E
We expect consolidated net sales to grow at a CAGR of over 23% over
FY06-09E to Rs 2994 crore on the back of acquisition of Morpeth
operations and increasing traction in CMO. CMO revenue is expected to
grow at a CAGR of 105% over FY06-09E to Rs 911 crore in FY09E.
Exhibit 12: Robust growth in net sales
Sales (Rs crore)
3500
3000
2500
2000
1500
1000
500
0
FY '05 FY '06 FY '07 FY '08E FY09E
Source: Company, ICICIdirect Research
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Strong margin expansion likely in ensuing quarters
NPIL is likely to witness strong margin expansion going forward on
account of higher sourcing from Baddi plant in Himachal Pradesh,
turnaround in Avecia operations and traction in CMO business from
Indian assets. Its operating margin is likely to improve from 12.49% in
FY06 to 17.66% in FY09E by 517 bps. NPIL sources 60-65% of domestic
sales of high-value products from its Baddi plant and expects to save
major excise duty.
Exhibit 13: Margins to improve progressively
OPM & NPM (%)
20%
18%
16%
14%
12%
10%
8%
6%
4%
Source: Company, ICICIdirect Research
FY '05 FY '06 FY '07 FY '08E FY09E
OPM (%) NPM (% )
Consolidated net profits to grow at a CAGR of 42% over FY06-09E
Margin expansion is likely to result in net profit growing at a CAGR of
42%. NPIL is not likely to undertake any major capex project. However, its
regular capex of around Rs 100 crore per year will be financed through
internal accruals. With lower depreciation and interest cost, the increase
in margins at operating level is likely to boost net margin as well.
Exhibit 14: Net profits to surge
Net Profit (Rs crore)
400
350
300
250
200
150
100
50
0
FY '06 FY '07 FY '08E FY09E
Source: Company, ICICIdirect Research
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Return ratios to improve
NPIL would continue to invest in inorganic acquisitions. The capex for
Baddi and the Pithampur plant is complete and the facility is being utilized
for the CMO for international business. The investments made in plants
would now start generating revenue, boosting RoCE from 14% in FY06 to
22.6% in FY09E. The redemption of preference shares by FY08 would
leave more earnings for the equity shareholders, which is likely to boost
the RoNW from 14% in FY06 to 23% in FY09E.
Exhibit 15: Improvement in return ratios
RoNW & RoCE (%)
25%
20%
15%
10%
5%
0%
Source: Company, ICICIdirect Research
RISKS & CONCERNS
FY '06 FY '07 FY '08E FY09E
RoNW (%) RoCE (%)
Revenues from domestic markets have been impacted due to the
Phensedyl controversy, a large brand with annual sales of around Rs 120
crore. Similar issues with other large product could impact the sales and
profits of the company.
We have assumed that the CMO from Indian assets would start as
scheduled. Any delay due to regulatory approvals or other issues may
impact the sales and net profit of the company.
We have assumed that the company would not make any sizeable capex.
However, if the company does undertake a major capex, which requires
lots of cash and necessitate the sale of investments, the EPS will get
impacted as we have assumed a 9% yield from the cash parked in
investments.
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VALUATION
We believe a robust growth in NPIL’s CMO business from Indian assets is the
main earnings multiplier for the company as this segment offers the highest
EBIDTA margin of 25%. The company’s bottom line will be positively impacted
by increased visibility on the revenue from this business. Avecia turned the
corner in Q4FY07 and will no longer be a drag on the company’s margins. On
the domestic pharma business front, increasing sourcing from a tax incentive
zone of Baddi would further boost its margins.
At the current price of Rs 237, the P/E multiple works out to 14x FY09 EPS. On
an EV/EBIDTA basis, the stock trades at 9.62x FY07E earnings and 12.02x
FY08E earnings. We believe the stock deserves a higher P/E multiple due to
the superior growth in its CMO revenues and turnaround of Avecia. A DCF
valuation gives us a value of Rs 362 per share. At the target price, the stock will
trade at 17.73x its FY09E EPS of Rs 17.93.
P/E band
Historically the stock has traded around 30x one-year forward EPS till
December 2005. Declining sales due to Phensedyl problem, discontinuance of
Valdecoxib and Carex divisions led the stock to correct. Acquisition of loss
making Avecia (having EBIDTA of –12%) depressed the stock price to below a
P/E multiple of 20x one-year forward EPS. The stock has been trading between
the P/E band of 15-20x since January 2006. With Avecia turning around and
CMO from Indian assets gathering momentum, we believe a re-rating would
happen.
Exhibit 16: P/E band
600
500
400
300
200
100
0
Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07
Source: ICICIdirect Research
30x
20x
15x
10x
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Peer group valuation
Among peers, the company compares favorably. The EPS of NPIL is likely to
grow at a CAGR of 42% over FY06-09E and it is trading at 17.73x FY09E EPS of
Rs 17.93. A DCF valuation gives us a fair value of Rs 362.
Exhibit 17: Peer group comparison
EPS (Rs) P/E (x) PEG Price (Rs)
Jubilant Organosys FY06 9.17 31.62
FY07 12.10 23.97
0.55 290
FY08E 16.10 18.01
Dishman Pharma FY06 6.71 41.43
FY07 10.80 25.74
0.31 278
FY08E 16.15 17.21
Divi's Lab FY06 53.94 96.96
FY07 94.40 55.40
0.69 5230
FY08E 133.06 39.31
Nicholas Piramal FY06 6.27 37.62
FY07
FY08E
10.83
13.52
21.79
17.46
0.37 237
FY09E 17.93 13.16
Source: ICICIdirect Research, Company & Consensus estimates
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Profit and Loss Statement (Rs crore)
(Year-end March) FY05 FY06 FY07 FY08E FY09E
Sales 1308.18 1582.49 2420.18 2664.50 2993.87
% Growth -16.38% 20.97% 52.93% 10.09% 12.36%
Op Profit 169.38 197.64 331.72 458.65 553.59
% Growth -39.69% 16.68% 67.84% 38.26% 20.70%
Other Income 33.47 40.13 52.14 17.94 29.19
Depreciation 52.44 68.81 81.82 100.14 100.84
EBIT 150.41 168.96 302.04 376.45 481.93
% Growth 97.00% 12.33% 78.76% 24.64% 28.02%
Interest 19.21 17.30 30.51 44.32 39.52
Profit before Tax 131.20 151.66 271.53 332.13 442.41
% Growth 0.34% 15.59% 79.04% 22.32% 33.20%
Taxation 46.48 23.81 38.89 48.95 66.81
Tax as % of PBT 28.28 18.16 16.00 14.00 15.00
Net Profit before minority
interest 164.34 131.12 228.33 283.18 375.60
Minority interest 0.29 0.39 0.08 0.63 0.92
Net Profit after minority
interest 164.05 130.73 228.25 282.55 374.68
% Change YoY -20.31% 74.60% 23.79% 32.61%
Shares O/S 20.90 20.90 20.90 20.90 20.90
EPS (Rs) 7.86 6.27 10.83 13.52 17.93
CEPS (Rs) 10.36 9.55 14.84 18.31 22.75
DPS 2.73 2.73 3.39 3.45 3.45
Balance Sheet (Rs crore)
(Year-end March) FY05 FY06 FY07 FY08E FY09E
Sources of Funds
Share Capital 38.00 41.80 41.80 41.80 41.80
Preference capital 53.37 53.37 38.37 0.00 0.00
Reserves & Surplus 461.95 919.18 1006.03 1292.44 1602.60
Minority Interest 4.11 3.02 0.50 1.13 2.05
Secured Loans 309.53 271.79 421.63 513.47 462.41
Unsecured Loans 58.47 39.65 217.59 231.92 231.92
Deferred Tax Liability 59.60 83.59 89.32 60.00 60.00
Current Liabilities &
Provisions 312.11 437.31 486.60 464.25 514.56
Liability 1297.14 1849.71 2301.84 2605.01 2915.34
Application of Funds
Net Block 622.65 864.98 1170.50 1123.61 1122.77
Capital Work-in-progress 105.18 176.79 53.25 100.00 100.00
Investments 3.73 28.73 28.73 200.00 350.00
Cash 15.51 95.29 50.59 6.38 20.45
Trade Receivables 146.02 242.93 367.34 393.37 441.99
Loans & Advances 133.55 160.12 191.24 276.11 310.25
Inventory- Other 270.50 280.87 440.19 505.53 569.88
Total Asset 1297.14 1849.71 2301.84 2605.01 2915.34
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Cash Flow Statement (Rs crore)
(Year-end March) FY05 FY06 FY07 FY08E FY09E
Profit after Tax 164.34 131.12 228.33 283.18 375.60
Misc. exp w/o 0.00 0.00 0.00 0.00 0.00
Dividend Paid -57.01 -57.01 -70.89 -72.11 -72.11
Depreciation 52.44 68.81 81.82 100.14 100.84
Provision for deferred tax 21.73 23.99 5.73 -29.32 0.00
Cash Flow before Working
capital Changes 181.50 166.91 244.99 281.89 404.34
Net Increase in Current
Liabilities -1.05 125.20 49.29 -22.35 50.31
Net Increase in Current
Assets 16.04 133.85 314.85 176.24 147.11
Cash Flow from operating
activities 164.41 158.26 -20.57 83.30 307.54
Purchase of Fixed Assets 212.62 382.75 263.80 100.00 100.00
Cash flow from Investing
Activities 212.62 382.75 263.80 100.00 100.00
(Increase) / Decrease in
Investment -1.47 25.00 0.00 171.27 150.00
Increase / (Decrease) in
Loan Funds 10.66 -56.56 327.78 106.17 -51.06
Increase / (Decrease) in
Equity Capital 26.20 386.92 -85.59 36.97 6.67
Cash flow from Financing
Activities 35.39 355.36 242.19 314.41 105.60
Opening cash balance 25.37 15.51 95.29 50.59 6.38
Closing Cash balance 15.51 95.29 50.59 6.38 20.45
Ratio Analysis
(Year-end March) FY05 FY06 FY07 FY08E FY09E
EPS 7.86 6.27 10.83 13.52 17.93
Cash EPS 10.36 9.55 14.84 18.31 22.75
Book Value 26.31 45.98 50.14 63.84 78.68
Operating Margin (%) 12.95% 12.49% 13.71% 17.21% 18.49%
Gross Profit Margin (%) 13.69% 13.59% 14.29% 16.11% 17.97%
Net Profit Margin (%) 12.25% 8.08% 9.24% 10.56% 12.42%
RONW 32.87% 13.64% 21.79% 21.22% 22.84%
ROCE 17.09% 13.67% 17.14% 18.45% 20.95%
Debt Equity 0.74 0.32 0.61 0.56 0.42
Fixed Assets Turnover
Ratio 2.01 1.61 1.98 2.18 2.45
Enterprise Value 5281.91 5125.57 5498.05 5511.40 5326.28
EV/Sales 4.04 3.24 2.27 2.07 1.78
EV/EBIDTA 31.18 25.93 16.57 12.02 9.62
Market Cap 4932.40 4932.40 4932.40 4932.40 4932.40
Market Cap to sales 3.77 3.12 2.04 1.85 1.65
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RATING RATIONALE
ICICIDirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to its
stocks according to their notional target price vs current market price and then categorises them as
Outperformer, Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and
the notional target price is defined as the analysts' valuation for a stock.
Outperformer: 20% or more;
Performer: Between 10% and 20%;
Hold: +10% return;
Underperformer: -10% or more.
Harendra Kumar Head - Research & Advisory harendra.kumar@icicidirect.com
ICICIdirect Research Desk,
ICICI Securities Limited,
2 nd Floor, Stanrose House,
Appasaheb Marathe Marg,
Prabhadevi, Mumbai – 400 025
research@icicidirect.com
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15 | P age