Morning Insight
NOVEMBER 2, 2018
% Chg News Highlights 1-Nov 1 Day 1 Mth 3 Mths Indian Indices Buoyed by a pick-up in consumption demand during the festival season, SENSEX Index 34,432 (0.0) (5.7) (8.2) collections from the goods and services tax crossed Rs 1 trillion in NIFTY Index 10,380 (0.1) (5.7) (8.5) October. (Mint) NSEBANK Index 25,324 0.7 (0.2) (8.2) The Department of Economic Affairs (DEA) fears “significant default” from NIFTY 500 Index 8,773 0.2 (4.3) (9.1) large non-banking finance companies (NBFCs) and housing finance CNXMcap Index 17,339 0.9 0.3 (8.3) BSESMCAP Index 14,356 1.1 (0.3) (13.7) companies (HFCs) in the next 6 weeks if additional liquidity support is not World Indices forthcoming. (ET) Dow Jones 25,381 1.1 (5.2) 0.2 Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to Nasdaq 7,434 1.8 (7.1) (4.7) 53.1 in October from 52.2 in September. This is the 15th month of FTSE 7,115 (0.2) (4.8) (6.1) continuous expansion. (BL) NIKKEI 21,688 (1.1) (9.5) (2.5) Hangseng 21,688 (1.1) (9.5) (2.5) The US on Thursday revoked duty-free concessions on import of at least Shanghai 25,416 1.7 (4.0) (6.0) 50 Indian products, mostly from handloom and agriculture sectors, reflecting the US Governments tough stand on international trade-related Value traded (Rs cr) 1-Nov % Chg Day Cash BSE 3,327 (25.6) issues. (ET) Cash NSE 37,169 (7.4) The Cabinet on Thursday approved promulgating an Ordinance to amend Derivatives 1,817,982 72.5 the Companies Act, to promote ease of doing business as well as ensure Net inflows (Rs cr) 31-Oct MTD YTD better compliance levels. (Mint). FII (400) (27,623) (42,685) The government’s 3% stake sale in Coal India was over-subscribed and Mutual Fund 2,076 17,971 106,226 is expected to fetch at least Rs 50 bn to the exchequer. (Mint) Nifty Gainers & Losers Price Chg Vol 1-Nov (Rs) (%) (mn) The State Bank of India has moved the National Company Law Board to Gainers withdraw insolvency proceedings against Uttam Galva Steel. (ET) Yes Bank Ltd 204 8.5 69.2 Carmakers such as Maruti Suzuki and Hyundai have been forced to Hindalco Ind 231 4.9 9.5 increase discounts ahead of festive season to beat the sombre market Axis Bank 602 3.4 16.1 and woo buyers. High fuel costs, hiked insurance rates and lending rates Losers have impacted sales at the retail level. (ET) HCL Tech 1,009 (4.4) 2.0 Dr Reddy's 2,462 (3.2) 1.4 Deepak Nitrite commenced operations at its phenol and acetone plant. Tech Mahindra 721 (3.1) 4.0 The plant has the capacity to manufacture 200,000 MTPA of phenol and Advances / Declines (BSE) 120,000 MTPA of its co-product acetone. (ET) 1-Nov A B T Total % total Supreme Court suggested that Indraprastha Gas to take over the supply Advances 295 679 59 1,033 100 of natural gas in Gurugram from Haryana City Gas Distribution Ltd. as an Declines 134 350 55 539 52 ongoing concern so that the entire dispute can be resolved amicably. (BS) Unchanged 2 20 10 32 3 Triveni Turbine board approves share buyback proposal of 66.7 lakh Commodity % Chg shares representing 2.02 percent of the paid-up equity share capital at Rs 1-Nov 1 Day 1 Mth 3 Mths Crude (US$/BBL) 72.5 (0.5) (14.5) (1.3) 150 per share, aggregating to Rs 1 bn. (BS) Gold (US$/OZ) 1,233.5 1.5 2.4 2.0 Tata Consultancy Services acquired London-based digital design studio Silver (US$/OZ) 14.7 3.5 (0.1) (4.2) ‘W12 Studios’. This deal will strengthen digital and creative design Debt / forex market 1-Nov 1 Day 1 Mth 3 Mths capabilities and will be part of TCS Interactive division. (ET) 10 yr G-Sec yield % 7.8 7.9 8.0 7.7 Hindustan Petroleum Corporation will shut its crude unit in Mumbai Re/US$ 73.5 74.0 72.9 68.4 refinery in January-March 2019 for 10 days. (ET) Nifty Inox Leisure board approved issuing 64 lakh shares equity shares on a 11,800 preferential basis to its promoter Gujarat Fluorochemicals at a floor price 11,300 Rs 241.71 per share. (BS) 10,800 What’s Inside 10,300 Result Update: GHCL, Mahindra Holidays, AIA Engineering, Blue Dart 9,800 Express Ltd, Cochin Shipyard Ltd Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, IE = Indian Express, BL = Business Line, ToI: Times of India, BSE = Bombay Stock Exchange, Source: Bloomberg MC = Moneycontrol
Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. NOVEMBER 2, 2018
Result Update GHCL
Stock Details PRICE RS.222 TARGET RS.270 BUY Market cap (Rs mn) : 21714 52-wk Hi/Lo (Rs) : 358 / 189 GHCL’s Q2FY19 numbers were above our estimates in all parameters. Soda Face Value (Rs) : 10 Ash segment continued with its strong performance, supported by higher 3M Avg. daily vol (Nos) : 182,737 volume and strong realisation. This, coupled with, sequential improvement in Shares o/s (mn) : 98 Source: Bloomberg home textile segment due to changes in customer mix and improvement in operating efficiency, resulted in outperformance. Financial Summary Y/E Mar (Rs mn) FY18 FY19E FY20E Key Highlights Revenue 29,432 32,724 35,579 The Inorganic chemical segment (excluding trading sales) reported 31.5% Growth (%) 4.7 11.2 8.7 EBITDA margin vs 31% in 1QFY19. The sequential jump in operating EBITDA 6,061 6,928 7,548 EBITDA margin (%) 20.6 21.2 21.2 performance was driven by a 15,000 tonnes jump in volume and Rs600/tonne PAT 3,564 3,561 4,030 increase in soda ash realisation. Including trading sales EBITDA margin was EPS 36.6 36.8 41.6 largely flat at 27.4%. EPS Growth (%) 12.1 10.9 11.3 Textile segment operating performance was marginally up sequentially. BV (Rs/share) 165 197 233 Dividend/share (Rs) 5.0 5.0 5.0 However, EBITDA margin expanded from 6.7% in 1QFY19 to 10.1% in 2QFY19, ROE (%) 22.1 18.7 17.9 supported by a change in customer mix in home textile and higher spreads in ROCE (%) 17.0 18.3 17.9 spinning. P/E (x) 6.1 6.0 5.3 EV/EBITDA (x) 5.7 5.0 4.5 Management expects the global soda ash market to grow at 2.5% annually P/BV (x) 1.2 1.1 1.0 and demand likely to remain strong in India (grew 11% in FY18E). Globally, in Source: Company, Kotak Securities - PCG Tukey all 5 lines are fully operational and production is fully absorbed by the market. Shareholding Pattern (%) (%) Sep-18 Jun-18 Mar-18 Valuation & outlook Promoters 18.9 19.0 19.1 GHCL is confident about the prospects for the Soda Ash segment, underpinned FII 16.4 13.9 17.0 by healthy demand from India, which is likely to sustain over the next year. Backed DII 14.9 11.5 7.0 by firm realisation, we expect soda ash business to deliver strong performance Others 48.8 55.7 57.0 going ahead as well and the recovery in textile business is expected over the Source: Company medium to long term. At CMP, the stock is trading at 6.0x/5.3x FY19E/FY20E Price Performance (%) earnings. We continue to maintain Buy rating, with a revised target price of Rs270 (%) 1M 3M 6M (earlier Rs330), valuing it at 6.5x FY20E earnings (earlier 8x). GHCL Ltd 3.0 (10.5) (19.8) Nifty (5.7) (8.5) (3.3) Quarterly performance table Source: Bloomberg Particulars (Rs Mn) 2QFY19 2QFY18 % YoY 1QFY19 % QoQ Sales 8,354 7,143 17.0 7,546 10.7 Price chart (Rs) Cost of Material consumed 3,595 3,240 3,302 360 Utility Cost 1,242 908 1,095 330 300 Man Power Cost 520 441 497 270 Other Operating Expenses 1,245 1,196 1,150 240 EBITDA 1,752 1,358 29.0 1,502 16.7 210 EBITDA % 21.0 19.0 19.9 180 Depreciation 289 250 274 Oct-17 Feb-18 Jun-18 Oct-18 EBIT 1,463 1,108 1,228 Source: Bloomberg Interest 344 347 343
Other Income 35 31 21
Profit before Tax 1,155 791 906
Tax 371 258 290 Profit After Tax 784 533 47.1 616 27.3 PAT % 9.4 7.5 8.2 Jatin Damania [email protected] Source: Company, Kotak Securities – Private Client Research +91 22 6218 6440
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NOVEMBER 2, 2018
Higher volume and realisation supported soda ash margin Soda Ash business margin during the quarter (excluding trading sales) improved to 31.5%, despite the increase in input costs. Trading sales during the quarter was Rs580 mn. In order to pass on the increase in input costs, the company took two price hikes in last six months, last one was in the month of Oct’18 and the benefit of the same would flow in 3QFY19. Realisation during the quarter was up~6% QoQ. Sales volume during the quarter stood at 2.29LT, up ~6% QoQ to 2.29LT. Both these factors led to 10.4% QoQ jump in EBITDA to Rs1.49bn, with an EBITDA margin of 27.5% (including trading sales). Management expects the domestic market to remain buoyant with a strong demand growth of 11%, while the global market is likely to grow at 2.5% annually.
Volume trend Trading sales restricted soda ash margin expansion
(LT) Volume (LT) Realisation (Rs/T) (Rs/T) 2100 39.0% 3 25,000
1700 20,000 34.0% 2 15,000 1300 29.0% 10,000 900 1 5,000 500 24.0%
0 0
EBITDA (Rs Mn) EBITDA Margin (%)
Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
Textile segment performance improved sequentially Revenue from the textile segment grew 15.1% QoQ to Rs3.05 bn, supported by the strong performance from the spinning segment and stabilization in home textile, EBITDA margin improved sequentially by 340bps to 10.1%. Going forward, thrust is on improving its product mix. Going ahead, we believe that an improvement in product mix and higher capacity utilisation, textile segment EBITDA margin is expected to remain in the range of 9%-10%. The company recently launched 8 new products in the US market, which is well accepted by the market. Management indicated that with rupee depreciation, spreads in textile segment to improve further in the coming quarters.
Textile segment EBITDA Margin (%) trend
20.0%
16.0%
12.0%
8.0%
4.0%
0.0% 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 Source: Company, Kotak Securities – Private Client Research
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Company Background
GHCL is one of the leading manufacturers of soda ash with 23% domestic market share. There are two main business verticals, i.e., Inorganic Chemicals and Textiles. Inorganic chemicals mainly produce Soda Ash which caters to detergent & glass industries whereas Textile vertical is well integrated and covers right from spinning of fiber, weaving, dyeing and printing till the finished products for exports. The company exports its product mix portfolio to US, Europe, Australia, etc. GHCL has one Soda Ash plant in Gujarat and one salt refinery in Tamil Nadu. It has three textile manufacturing plants- two in Tamil Nadu and one in Gujarat.
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Financials: Consolidated
Profit and Loss Statement (Rs mn) Balance sheet (Rsmn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Net Sales 28,105 29,432 32,724 35,579 Sources of Funds % Growth 11.1 4.7 11.2 8.7 Equity Capital 995 974 969 969 Raw Materials 11,387 12,756 14,245 15,081 Reserves and Surplus 12,471 15,135 18,098 21,561 % of Net Sales 40.5 43.3 43.5 42.4 Shareholders’ Funds 13,466 16,109 19,066 22,529 Employee Cost 1,585 1,767 1,734 1,921 Total Loan Funds 14,633 13,400 13,610 13,610 % of Net Sales 5.6 6.0 5.3 5.4 Deferred Tax Liab. 2,360 1,950 2,104 2,504 Power & Fuel 3,065 3,903 4,090 4,625 Total Liabilities 30,459 31,459 34,780 38,644 % of Net Sales 10.9 13.3 12.5 13.0 Appl. Of Funds Other Expenses 4,993 4,945 5,727 6,404 Gross Block 25,473 27,332 28,882 31,932 % of Net Sales 17.8 16.8 17.5 18.0 Accumulated Depn. 1,377 2,315 3,297 4,382 EBITDA 7,075 6,061 6,928 7,548 Net Fixed Assets 24,096 25,017 25,585 27,550 EBITDA Margin (%) 25.2 20.6 21.2 21.2 Capital WIP 260 735 3,000 3,750 Depreciation 857 1,101 982 1,086 Other Investments 88 103 203 303 EBIT 6,218 4,960 5,946 6,462 Inventories 5,843 6,367 7,083 7,701 Interest Exps. 1,368 1,266 1,361 1,293 Sundry Debtors 2,762 2,287 2,690 2,924 EBT 4,851 3,695 4,585 5,169 Cash and Bank Bal 361 268 392 1,034 Exceptional Items (30) 0 0 0 Loans and Advances 1,371 1,151 1,151 1,151 Other Income 133 379 417 459 Total Current Assets 10,338 10,073 11,316 12,811 PBT 4,953 4,074 5,002 5,628 Current Liabilities 4,578 4,822 5,677 6,123 Tax-Total 1,152 511 1,441 1,598 Net Current Assets 5,760 5,251 5,639 6,688 Profit after tax 3,801 3,564 3,561 4,030 Other Non.Curr Ass/DTA 254 353 353 353 PAT Margin (%) 13.5 12.1 10.9 11.3 Total assets 30,458 31,459 34,780 38,644 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Net profit before tax 4,953 4,074 5,002 5,628 O/s Shares (mn) 99 97 97 97 Depreciation 857 1,101 982 1,086 Per Share (Rs) Interest 1,368 1,266 1,361 1,293 EPS 38.2 36.6 36.8 41.6 Others 1,205 (451) 0 0 Cash EPS 46.8 47.9 46.9 52.8 Opt Profit before WC Chges 8,382 5,990 7,345 8,007 Book value 135.4 165.4 196.8 232.6 WC Changes (2,417) 416 (264) (407) Valuation (x) Cash Gene from Op. 5,965 6,406 7,081 7,600 P/E 5.8 6.1 6.0 5.3 Direct Taxes Paid 1,152 511 1,441 1,598 Price/Book value 1.6 1.3 1.1 1.0 Cash from Ope act 4,813 5,895 5,640 6,002 EV/EBITDA 5.1 5.7 5.0 4.5 Purchases of F.A (3,761) (2,779) (3,618) (3,435) EV/Sales 1.3 1.2 1.1 1.0 Investment 2 (15) (100) (100) Turnover Days Others 11 0 0 0 Inventory 76 79 79 79 Cash from Inv Act (3,748) (2,794) (3,718) (3,535) Receivables 36 28 30 30 Proc from Issue of Eq Shares (144) (21) (6) 0 Creditors 57 57 57 57 Net loans 1,216 (1,233) 210 0 Profit ratios (%) Interest paid (1,368) (1,266) (1,361) (1,293) RoE 28.2 22.1 18.7 17.9 Dividend paid & Others (833) (676) (642) (532) RoCE 20.8 17.0 18.3 17.9 Cash from Fin Act (1,130) (3,195) (1,798) (1,825) Margin (%) Net Increase in Cash (65) (93) 124 642 EBITDA 25.2 20.6 21.2 21.2 Cash at Beginning 426 361 268 392 EBIT 22.1 16.9 18.2 18.2 Others 0 0 0 0 PAT 13.5 12.1 10.9 11.3 Cash at End 361 268 392 1,034 Debt/ Equity 1.1 0.8 0.7 0.6 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
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Result Update MAHINDRA HOLIDAYS & RESORTS LTD (MHRIL)
Stock Details PRICE RS.227 TARGET RS.315 BUY Market cap (Rs mn) : 30383 52-wk Hi/Lo (Rs) : 389 / 190 MHRIL Q2FY19 results was below our estimates (on like to like basis under Face Value (Rs) : 10 old accounting standards) due to lower VO income and lower EBITDA 3M Avg. daily vol (Nos) : 97,068 margins. The company has adopted new accounting standard Ind AS 115 Shares o/s (mn) : 134 Source: Bloomberg from 1st April 2018, due to which actual reported Q2FY19 numbers are not comparable. The company has also reported Q2FY19 numbers under previous Financial Summary Ind AS 18 and we have analyzed results based on the same. Y/E Mar (Rs mn) FY18 FY19E FY20E Revenue 10,642 11,501 13,079 Key Highlights Growth (%) (0.8) 8.1 13.7 Standalone net revenue for the quarter grew at slower rate of 4.8% yoy to Rs EBITDA 2320 2319 2843 2.5 bn due to lower VO income and decline in resort income. One of the EBITDA margin (%) 21.8 20.2 21.7 PAT 1344 1375 1562 reasons for lower growth of 5.2% yoy in VO income is due to increased EPS 10.1 10.4 11.8 contribution from low realization product ‘Bliss’. EPS Growth (%) 2.8 2.4 13.5 EBITDA margins at 19.8% was below our estimates (of 22.2%) on account of BV (Rs/share) 58 118 124 decline in resort income due to floods in Kerala and high rain fall in Coorg Dividend/share (Rs) 4.0 4.0 5.0 which contributes large portion of room inventory for the company. ROE (%) 18.7 11.8 9.7 ROCE (%) 24.6 15.4 12.6 The new membership addition grew by 11.9% yoy to 4145 with increased P/E (x) 22.4 21.9 19.3 contribution from low tenure product (of 10 years) ‘Bliss’. The company has EV/EBITDA (x) 12.9 12.6 10.2 added new inventory in Q2FY19, and is on track to add ~450 rooms in the P/BV (x) 3.9 1.9 1.8 next two years through greenfield expansion. Source: Company, Kotak Securities - PCG
Shareholding Pattern (%) Valuation & outlook (%) Sep-18 Jun-18 Mar-18 We have cut our revenue and earnings estimates based on previous Ind AS Promoters 67.3 67.5 67.5 18 factoring in increased contribution from low realization product and lower FII 6.5 13.4 13.5 margins. However, the company would continue to generate strong cashflows DII 13.1 7.3 7.5 in the long term. Others 12.6 11.9 11.6 Source: Company The stock is presently trading at FY19E/20E PE of 21.9/19.3x based on revised EPS of Rs. 10.4/11.8 respectively. We maintain Buy on the stock with revised Price Performance (%) SOTP based target price of Rs 315 (Vs Rs 390 earlier). (%) 1M 3M 6M MHRL 6.4 (21.8) (30.4) Quarterly performance table (based on Ind AS 18) Nifty (5.7) (8.5) (3.3) Year to March (INR Mn.) Q2FY19 Q2FY18 % Chg Q1FY19 % Chg Source: Bloomberg Net Revenues 2,517 2,402 4.8 2,876 (12.5) Employee Expenses 635 547 16.1 691 (8.1) Price chart (Rs) Other Expenses 1,384 1,311 5.5 1,561 (11.3) 450 Operating Expenses 2,019 1,858 8.6 2,252 (10.3) EBITDA 498 543 (8.3) 624 (20.2) 350 EBITDA margin 19.8% 22.6% 21.7% Depreciation 132 141 (6.8) 132 (0.1) 250 Other income 127 86 47.2 78 63.2 150 Net finance expense - - - - - Oct-17 Feb-18 Jun-18 Oct-18 Profit before tax 493 488 1.1 570 (13.5)
Provision for taxes 174 171 1.9 202 (13.8) Source: Bloomberg Reported net profit 319 317 0.6 368 (13.3)
As % of net revenues
Employee cost 25.2 22.8 24.0
Other Expenses 55.0 54.6 54.3
Operating expenses 80.2 77.4 78.3
Reported net profit 12.7 13.2 12.8 Pankaj Kumar Tax rate (% of PBT) 35.5 35.5 35.5 [email protected] Source: Company +91 22 6218 6434
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Quarterly performance table (under new accounting standard Ind AS 115) Year to March (INR Mn.) Q2FY19 Q2FY18* %Change Q1FY19 %Change Net Revenues 2,094 2,402 (12.8) 2,345 (10.7) Employee Expenses 586 547 7.2 623 (5.8) Other Expenses 1,277 1,311 (2.6) 1,453 (12.1) Operating Expenses 1,863 1,858 0.3 2,076 (10.2) EBITDA 231 543 (57.5) 270 (14.5) EBITDA margin 11.0% 22.6% 11.5% Depreciation 132 141 (6.8) 132 (0.1) Other income 127 86 47.2 78 63.2 Net finance expense 0 - - 0 - Profit before tax 226 488 (53.7) 216 4.8 Provision for taxes 81 171 (52.4) 78 3.8 Reported net profit 145 317 (54.4) 137 5.3 As % of net revenues Employee cost 28.0 22.8 26.5 Other Expenses 61.0 54.6 62.0 Operating expenses 89.0 77.4 88.5 Reported net profit 6.9 13.2 5.9 Tax rate (% of PBT) 36.0 35.0 36.4 Source: Company; *Q2FY18 as per old AS
Reported lower VO income and decline in resort income Net revenue for the quarter grew by 4.9% yoy to Rs 2.5 bn due to lower growth rate of 5.2% in VO income (below our estimates) due to increased share of low tenure product Bliss. The resort income for the quarter declined by 8.4% yoy to Rs 425 mn due to Floods in Kerala and high rainfall in Coorg affecting occupancy rate and room revenue. These two locations contributes high share (~30%) of room inventory for the company. MHRIL reported 8.3% yoy decline in EBITDA with lower EBITDA margins of 19.8%, declined by 280 bps yoy, and was below our estimates of 22.2% for the quarter. The margin was lower on account of decline in resort income. PAT for the quarter was at Rs 319 mn as against our estimates of Rs 343 mn, grew by 0.6% yoy due to lower EBITDA.
Revenue Breakup Q2FY19 Q2FY18 YoY Grth% Q1FY19 QoQ Grth% VO Income 1210 1150 5.2% 1450 -16.6% ASF Income 592 542 9.3% 550 7.7% Resorts Income 425 464 -8.4% 640 -33.7% Interest & Others 290 246 17.7% 230 26.0% Others (non operating income) 127 86 47.3% 78 63.2% Source: Company
New member addition continued to grow In the quarter, the net membership additions stood at 4,145, up 11.9% yoy which took the cumulative membership base to 244,514. The new product Bliss with lower membership tenure (for higher age group) helped the company in growing its membership base. The growth in membership was affected in Q2FY18 and Q3FY18 as MHRIL adopted corrective measures such as 1) targeting members of the right profile, 2) encouraging higher down payments with increased share of members who are paying 50% down payment and 3) stopped 48 EMIs in its Blue Studio product. Now, the company is focusing on adding right kind of members. The company’s focus on adding right quality members will positively impact its margins and cash flows in the longer run.
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Cumulative membership base (nos) Net Membership addition (nos)
300000 7000
250000 6000
5000 200000 4000 150000 3000 100000 2000
50000 1000
0 0
Source: Company
Inventory addition on track MHRIL has added three new resorts at Darjeeling, Jodhpur and Orlando (USA, through inventory arrangements). As a result of this, the total number of resorts increased to 58 with its total room inventory stood at 3520 at the end of Q2FY19. As part of its greenfield capex plans, MHRIL is adding over ~450 new units at three location with capex of ~Rs 5 bn. The expansion at three properties at Asanora, (Goa, ~240 rooms), Ashtamudi (Kerala, ~50 rooms) are on track. Regarding Kandaghat (Himachal Pradesh, ~140 rooms), the company is awaiting certain approvals. These all greenfield projects would be delivered in the next two years. Apart from these, the company is exploring expansions at new and existing location through lease model. The addition of new inventory is expected to drive growth in membership in coming years.
Change in Accounting Standard The company has adopted new accounting standard Ind AS 115 retrospectively on total membership base under which VO income is recognized over the tenure of membership as against previous accounting standard (Ind AS 18) under which 60% of new membership fee was accounted upfront and balance was deferred over the membership tenure. This 60% upfront booking was covering entire membership cost. Under the new AS, only direct expenses related to membership acquisition (like certain commission, incentives, etc) can be deferred over the membership period. The new AS will reduce total reported revenue and EBITDA margin, but it will not affect overall profits over the membership tenure, operating cash flows and free cashflows in the long term.
Table Head Ind AS 18 (previous) Ind AS 115 (new) VO Income 60% non refundable admission fee Recognized over the tenure of recognized upfront, 40% deferred membership over the tenure of membership Cost Costs are allocated to P&L as and ONLY incremental costs to obtain the when incurred contract are amortized over the tenure of membership Source: Company
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Other highlights The average realization in 25 years membership product is ~ Rs 0.33-0.34 mn while in 10 years tenure product ‘Bliss’ it is in the range of Rs 0.18-0.19 mn.
The company has taken 7-8% hike in membership fee across products for 25 years membership product in the third week of October 2018.
The company is focusing on high potential new markets for growing membership base. It is also focusing on tier 2 and tier 3 cities.
The company plans to add inventory at new locations through leased model or acquisition of resorts. In past few years, 35% of the inventory addition took place through leased resorts. This also helped company to meet members to room ratio at optimum level and also help it in expanding reach at locations where greenfield projects may take longer time.
The company has revalued its freehold land across resorts. As a result, the gross block net of deferred tax increased by Rs 7.3 bn and the same amount has also been credited to revaluation reserve (in other equity).
Outlook and valuation We have cut our revenue, EBITDA margins and earnings estimates based on previous Ind AS 18. We have assumed 14%-15% lower realization for FY19E-20E in our assumption and lower growth in resort income for FY19E. Our assumption on lower realization is based on new membership addition mix where Bliss has witnessed higher growth in the recent quarters. We have maintained our growth estimates for cumulative membership base at 8% per annum. We have also reduced our EBITDA margins estimates based on lower growth assumption in resort income and lower realization. Based on revised estimates, we expect MHRIL’s revenue and PAT to grow at a CAGR of 10.9% (Vs 15.4% earlier) and 8% CAGR (vs 20.5% earlier) respectively in FY18-20E. We have given our projection based on old Ind old AS 18 (as company has provided P&L and balance sheet number for H1FY19) due to like to like comparison. We believe that the change in AS has no impact on business fundamentals, profits over membership tenure, operating and free cash flows, etc. We believe that the company will continue to generate strong cash flows in the longer run. The stock is presently trading at FY19E/20E PE of 21.9x/19.3x based on revised EPS of Rs.10.4/11.8 respectively. We maintain Buy on the stock with revised SOTP based target price of Rs 315 (vs Rs 390 earlier).
Revision in estimates Particulars Previous Revised Change % Rs mn FY19E FY20E FY19E FY20E FY19E FY20E Revenue 12443 14166 11501 13079 -7.6 -7.7 EBITDA 2877 3302 2319 2843 -19.4 -13.9 EBITDA Margin% 23.1 23.3 20.2 21.7 -295 bps -158 bps Adj PAT 1703 1952 1375 1562 -19.2 -20.0 Adj EPS (Rs) 12.1 14.7 10.4 11.8 -14.4 -20.0 Source: Kotak Securities – Private Client Research
SOTP valuation Segment Parameter Value Per Share Mahindra Holidays DCF 37347 281 Holiday Club Resort BV of equity 4450 34 Equity value 41797 315 Source: Kotak Private Client Research
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Company background Mahindra Holidays & Resorts India Limited (MHRIL), part of Mahindra group and founded in 1996, is a leading player in the leisure hospitality industry operating under brand name ‘Club Mahindra’. The company is the market leader in the vacation ownership (VO) business in India with over 20 years of track record. MHRIL has built a membership base of over 2 lakh members, offering them holidays across 50+ resorts across India. In FY15, MHRIL acquired Finnish vacation ownership player ‘Holiday Club Resorts”, a leading vacation ownership company in Europe. MHRIL initially acquired 18% stake in Holiday Club Resorts Oy (HCR) which subsequently increased to around 95%. With this acquisition, MHRIL has become the largest vacation ownership company outside US with a bouquet of 81 resorts across Thailand, Malaysia, Dubai, Finland, Sweden and Spain. Further, its members can choose to access a range of resorts globally through its RCI affiliation. The company delivers quality family holidays experience at its properties by offering various activities such as sports, adventure, fun, dance, etc. Its resorts are located at different terrain such as beaches, hill stations, jungle, deserts, etc giving bouquet of experiences.
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Financials: Standalone
Profit and Loss Statement (Rs mn) Balance sheet (Rsmn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 10,732 10,642 11,501 13,079 Equity 6,744 7,644 15,729 16,514 % change yoy 12.8 (0.8) 8.1 13.7 Equity Share Capital 882 1,328 1,328 1,328 Employees expenses 2,253 2,428 2,671 2,938 Other Equity 5,862 6,317 14,401 15,186 Material Consumed 342 339 366 417 Liabilities 23,120 25,233 26,772 29,148 Other SG&A Expenses 5,850 5,908 6,144 6,882 Non-current liabilities 18,876 20,543 21,945 23,658 Total Expenditure 8,289 8,322 9,182 10,237 Financial Liabilities & Prov. 96 101 101 101 Other non-current liabilities 18,780 20,442 21,844 23,557 EBITDA 2,443 2,320 2,319 2,843 Current liabilities 4,244 4,690 4,828 5,490 % change yoy 7.6 (5.0) (0.0) 22.6 Financial Liabilities 1,929 1,997 2,122 2,413 Depreciation 605 548 521 810 Provisions 16 34 27 31 EBIT 1,838 1,772 1,799 2,033 Other current liabilities 2,298 2,660 2,679 3,047 Other Income 172 300 318 334 Total Equities & Liabilities 29,864 32,878 42,501 45,662 Interest 0 0 0 0 Non-current assets 17,414 17,692 26,439 28,570 Profit Before Tax 2,009 2,072 2,116 2,366 Property, Plant and Equipment 8,786 8,485 17,173 18,752 % change yoy 19.5 3.1 2.2 11.8 Capital work-in-progress 596 1,085 1,085 1,085 Tax 703 728 741 804 Intangible assets 181 107 117 127 as % of EBT 35.0 35.1 35.0 34.0 Financial Assets 6,349 6,349 6,398 6,940 PAT 1,307 1,344 1,375 1,562 Deferred Tax Assets (Net) 207 135 135 135 % change yoy 15.0 2.8 2.4 13.5 Other non-current tax assets (Net) 1,078 1,178 1,178 1,178 Shares outstanding (mn) 88 133 133 133 Current assets 12,450 15,185 16,062 17,091 Inventories 59 63 85 96 EPS (Rs) 9.8 10.1 10.4 11.8 Financial Assets 12,086 14,767 15,598 16,563 DPS (Rs) 5.0 4.0 4.0 5.0 Cash & Equivalent 2,518 4,686 5,348 5,638 CEPS (Rs) 14.4 14.2 14.3 17.9 Other current assets 305 355 380 432 BVPS (Rs) 50.8 57.6 118.5 124.4 Total Assets 29,864 32,878 42,501 45,662 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Pre-Tax Profit 2,009 2,072 2,116 2,366 Profitability Ratios Depreciation 605 548 521 810 EBITDA margin (%) 22.8 21.8 20.2 21.7 Change in WC 589 1,692 1,275 1,094 EBIT margin (%) 17.1 16.7 15.6 15.5 Other operating activities (546) (993) (729) (804) Net profit margin (%) 12.2 12.6 12.0 11.9 Operating Cash Flow 2,658 3,318 3,184 3,467 Balance Sheet Ratios: Receivables (days) 295 321 310 290 Capex (728) (781) (1,900) (2,400) Inventory (days) 3 3 3 3 Free Cash Flow 1,927 2,536 1,284 1,067 Payable (days) 44 44 44 44 Chg in Investments & Others (105) (3,369) - - Working capital (days) 209 218 208 187 Investment cash flow (833) (4,150) (1,900) (2,400) Asset Turnover 0.4 0.4 0.3 0.3 Net Debt/ Equity (0.4) (0.6) (0.3) (0.3) Equity Raised - 59 - - Return Ratios: Debt Raised - - - - RoCE (%) 29.1 24.6 15.4 12.6 Dividend & others (534) (535) (622) (777) RoE (%) 20.7 18.7 11.8 9.7 CF from Financing (534) (477) (622) (777) Valuation Ratios: P/E (x) 23.1 22.4 21.9 19.3 Change in Cash 1,291 (1,308) 662 290 P/BV (x) 4.5 3.9 1.9 1.8 Opening Cash 256 1,547 239 901 EV/EBITDA (x) 7.5 12.9 12.6 10.2 Closing Cash 1,547 239 901 1,191 EV/Sales (x) 1.7 2.8 2.5 2.2 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
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Result Update AIA ENGINEERING LTD (AIA)
Stock Details PRICE RS.1705 TARGET RS.1700 SELL Market cap (Rs mn) : 158977 52-wk Hi/Lo (Rs) : 1887 / 1321 AIA reported Q2FY19 revenues in line with our estimate driven by the mining Face Value (Rs) : 2 division. Improved realizations and increased volumes helped maintaining 3M Avg. daily vol (Nos) : 47,965 operating margin in the quarter. Shares o/s (mn) : 94 Source: Bloomberg Key Highlights
Financial Summary AIA reported net revenue at Rs 7.4 Bn (+32.5% y/y) driven by over 18.3% Y/E Mar (Rs mn) FY18 FY19E FY20E volume growth in mining division. Revenue 24,452 28,610 34,904 Growth (%) 8.9 17.0 22.0 Operating margin maintained at 20% in the quarter despite 55% y/y increase EBITDA 5,357 6,294 8,901 in raw material expense. EBITDA margin (%) 23.5 22.0 25.5 PAT 4,436 4,537 6,419 Valuation & Outlook EPS 47.0 48.1 68.1 We value AIA Engineering at PER 25x FY20 earnings and arrive at a target price EPS Growth (%) (3.0) 2.3 41.5 of Rs 1700 (unchanged). In view of downside to our unchanged target price, we BV (Rs/share) 319 360 420 maintain ‘SELL’ recommendation on company’s stock. Dividend/share (Rs) 5.6 6.8 8.1 ROE (%) 15.5 14.2 17.4 ROCE (%) 10.7 9.8 13.0 Consolidated Financials Q2FY19 P/E (x) 36.2 35.4 25.0 (Rs mn) Q2FY19 Q2FY18E YoY (%) Q1FY19 QoQ (%) EV/EBITDA (x) 29.8 25.3 17.9 Net Sales 7,406 5,591 32.5 7,152 3.5 P/BV (x) 5.3 4.7 4.1 Inc/dec in stock (467) (128) (478) Source: Company, Kotak Securities - PCG Raw materials 3,544 2,280 55.4 3,344 6.0
Shareholding Pattern (%) Staff cost 310 285 8.7 308 0.5 Other exp. 2,541 2,028 25.3 2,423 4.9 (%) Sep-18 Jun-18 Mar-18 Total exp. 5,928 4,465 32.8 5,597 5.9 Promoters 58.5 58.5 61.7 EBIDTA 1,478 1,126 31.3 1,556 (5.0) FII 22.5 23.0 23.0 DII 13.7 13.3 10.1 Other income 482 217 122.3 202 139.1 Others 5.1 5.0 5.3 Depreciation 181 160 12.8 166 9.1 Source: Company EBIT 1,780 1,183 50.4 1,592 11.8 Interest 17 16 6.3 18 (7.1) Price Performance (%) PBT 1,763 1,167 51.1 1,574 12.0 (%) 1M 3M 6M Tax & deferred tax 547 299 83.1 526 4.2 AIA Engineering (3.1) 0.2 16.7 PAT 1,215 868 40.0 1,048 16.0 Nifty (5.7) (8.5) (3.3) Adj EPS 12.9 9.2 40.0 11.1 16.0 Source: Bloomberg Raw Materials / Sales (%) 41.5 38.5 40.1 EBITDA (%) 20.0 20.1 21.8 Price chart (Rs) Tax (%) 31.1 25.6 33.4 1,900 Source: Company 1,700 In Q2FY19, AIA Engineering Ltd reported volume sale of 61695 MT against 54252 MT in Q2FY18 and 64211 MT of mill internals in Q1FY19. Growth in the quarter 1,500 was driven by mining division (+18.3% y/y), reported at 40007 MT. Company 1,300 reported net revenue at Rs 7.4 Bn (+32.5% y/y). Oct-17 Feb-18 Jun-18 Oct-18 Operating margin, reported 20% y/y in the quarter was driven by higher volumes Source: Bloomberg and pricing in minerals division. Input prices increased substantially by 55.4% y/y. Ferro chrome prices have remained firm on y/y basis. Employee cost in Q2FY19 stabilized at Rs 309 mn in the quarter. We note that the company will continue to report increased overheads for creating new markets in mining space over the Ruchir Khare next few quarters. [email protected]
+91 22 6218 6431
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We believe that the company is well poised to benefit from the growth in the high chrome mill internals mining space. This when viewed in light of the fact that the company has been incurring additional costs to capture new market in the mining space, makes us more confident about out FY19/20 projections getting achieved. AIA has commissioned phase I of the capex plan increasing capacity to 34000 MT. Phase II shall incur through FY19. Management maintained capex guidance at Rs 5 Bn in FY19 and Rs 3 Bn in FY20. Higher tax rate in Q2FY19 (tax expense at Rs 547 mn in Q2FY19) resulted in the PAT of Rs 1.2 Bn in the quarter.
Financials We believe that company would potentially expand margin in FY20 driven by operating leverage. We also believe that the promotional prices in mining to gain market share and increase in input prices would incur downside pressure on margins in near term. We expect sales to grow at 19% CAGR between FY18-20 from Rs 24 Bn in FY18 to Rs 34.9 Bn in FY20. In our projections, we build EBITDA margin improvement from 23.5% in FY18 to 25.5% in FY20.
EBITDA margin
40000 Sales (LHS, Rs mn) EBITDA % (RHS) 35.0
30.0 30000
25.0 20000 20.0
10000 15.0
0 10.0 FY16 FY17 FY18 FY19E FY20E Source: Kotak Securities – Private Client Research
Valuation and Recommendation We value AIA Engineering at PER 25x FY20 earnings and arrive at a target price of Rs 1700 (unchanged). In view of downside to our unchanged target price, we maintain ‘SELL’ recommendation on company’s stock.
Company background AIA Engineering is Ahmedabad based company, specializes in design, development, manufacturing and servicing of high chrome wear, corrosion and abrasion resistant casting used in cement, mining and thermal power generation industries. Company has successfully build market in the mining space over the period of last ten years and currently has presence in over 40 countries.
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Financials: Consolidated
Profit and Loss Statement (Rs mn) Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 22,460 24,452 28,610 34,904 Cash and cash equivalents 2,478 2,650 2,746 4,468 % change yoy 7.0 8.9 17.0 22.0 Accounts receivable 4,961 6,014 7,055 8,607 EBITDA 6,347 5,357 6,294 8,901 Inventories 5,341 5,534 6,271 7,650 % change yoy 8.7 (1.5) 17.9 22.0 Other current assets 1,698 1,829 2,352 2,869 Depreciation 725 656 890 950 Current Assets 11,999 13,377 15,677 19,126 EBIT 5,622 4,701 5,404 7,951 Net fixed assets 6,949 7,505 8,505 9,505 % change yoy 3.3 (16.4) 15.0 47.1 Investments 9,596 10,919 10,919 10,919 Net Interest 45 69 47 48 Goodwill (intangible assets) 218 219 219 219 Earnings Before Tax 6,622 5,850 6,575 9,303 Other non-current assets 3139 3566 3281 5003 % change yoy 3.4 (16.9) 15.7 47.5 Total Assets 31,901 35,586 38,601 44,772 Tax 2,048 1,414 2,038 2,884 as % of EBT 30.9 24.2 31.0 31.0 Debt 1,158 1,231 1,231 1,231 Recurring PAT 4,574 4,436 4,537 6,419 Equity & reserves 27,173 30,093 33,993 39,646 % change yoy (1.4) (3.0) 2.3 41.5 Other liabilities 961 1,026 1,026 1,026 Shares outstanding (m) 94.3 94.3 94.3 94.3 Current Liabilities 2,609 3,236 2,352 2,869 EPS (Rs) 48.5 47.0 48.1 68.1 Total Liabilities 31,901 35,586 38,601 44,772 DPS (Rs) 4.7 5.6 6.8 8.1 CEPS 56.1 53.9 57.4 78.0 BVPS (Rs) 288 319 360 420 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E PBT 6,622 5,850 6,575 9,303 EBITDA margin (%) 28.3 23.5 22.0 25.5 Depreciation 725 656 890 950 EBIT margin (%) 25.0 19.2 18.9 22.8 Current liabilities incl provisions 1,202 626 (884) 517 Net profit margin (%) 20.4 18.1 15.9 18.4 inc in inventory (3,256) (193) (737) (1,380) inc in sundry Debtors (948) (1,053) (1,041) (1,552) Receivables (days) 81 90 90 90 inc in advances (31) (4) 30 - Inventory (days) 87 83 80 80 Tax Paid (2,048) (1,414) (2,038) (2,884) Sales / Net Fixed Assets (x) 0.8 0.8 0.9 1.0 Other Adjustments 2,236 (1,019) (142) (517) Interest coverage (x) 125 68 115 166 Net cash from operations 4,532 3,453 2,624 4,437 Debt/ equity ratio 0.0 0.0 0.0 0.0
Purchase of fixed Assets (1,128) (671) (1,890) (1,950) ROE (%) 19.2 15.5 14.2 17.4 Net investments 1,347 1,564 - - ROCE (%) 13.8 10.7 9.8 13.0 Net cash from investing (2,167) (2,676) (1,890) (1,950) EV/ Sales 7.1 6.5 5.6 4.6 Change in Borrowings 205 (74) - - EV/EBITDA 25.1 29.8 25.3 17.9 Dividend Paid (443) (531) (638) (765) Net Cash from financing (238) (605) (638) (765) Price to earnings (P/E) 35.1 36.2 35.4 25.0 Net Cash Flow 2,128 172 96 1,722 Price to book value (P/B) 5.9 5.3 4.7 4.1 Cash at the end of year 2,477 2,650 2,746 4,468 Price to cash earnings 30.4 31.6 29.7 21.8 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
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Result Update BLUEDART EXPRESS LTD (BLUEDART)
Stock Details PRICE RS.2730 TARGET RS.2875 ACCUMULATE Market cap (Rs mn) : 64777 52-wk Hi/Lo (Rs) : 4824 / 2620 Bluedart has reported mix set of numbers for Q2FY19, with strong topline Face Value (Rs) : 10 growth, but weak EBIDTA margin. Revival in B2B segment, healthy B2C 3M Avg. daily vol (Nos) : 6,057 segment and strong growth in the E-com segment led to double digit YoY Shares o/s (mn) : 24 Source: Bloomberg volume growth. While aggressive PAN India expansion and rising fuel cost dented the margins, Financial Summary Y/E Mar (Rs mn) FY18 FY19E FY20E Key Highlights Revenue 27,908 30,920 33,858 Sales was ahead of expectation at Rs 7.98 bn (+13.5% YoY) with double digit Growth (%) 3.9 10.8 9.5 YoY volume growth achieved by the company with 1) Rapid expansion of EBITDA 2,599 2,612 2,893 EBITDA margin (%) 9.3 8.4 8.5 operations PAN India (from 7000 pin codes to 18000 pin codes in one year) PAT 1,422 1,544 1,801 2) Hint of recovery in the key B2B segment for BDE and 3) Strong growth in EPS 59.7 64.9 75.7 the E-COM segment. EPS Growth (%) -2.5 8.6 16.7 However, operational performance of the company was under pressure on BV (Rs/share) 330.1 381.7 445.0 Dividend/share (Rs) 12.5 15.0 15.0 account of increase in Freight (including fuel). Freight and handling cost was ROE (%) 19.6 18.2 18.3 high for the company during the quarter at Rs 5.39bn (+21.8% YoY) primarily ROCE (%) 22.5 23.1 25.2 due to increasing fuel prices, which we believe the company was not able to P/E (x) 45.6 42.0 36.0 pass on to customers completely. The employee cost and other cost were also EV/EBITDA (x) 23.5 22.4 20.4 higher during the quarter at Rs 1.39 bn (+23% YoY) and Rs 801 mn (+12.8% P/BV (x) 8.3 7.1 6.1 YoY) respectively as the company is expanding PAN India which involves Source: Company, Kotak Securities - PCG manpower and administrative cost. The company now have
Shareholding Pattern (%) offices/agents/franchises in 18000 pin codes PAN India (vs.7000 pin codes (%) Sep-18 Jun-18 Mar-18 YoY in Tier 1 and Tier 2 cities) Promoters 75.0 75.0 75.0 Other income/depreciation cost and interest cost were stable for the FII 5.6 6.7 7.3 company. Lower tax provisioning net of tax adjustment of prior period DII 6.5 5.9 4.7 supported the PAT. Consequently, company reported PAT of Rs 210 mn (- Others 12.8 12.4 13.0 35.7% YoY) which was below our expectation of Rs 292 mn. Source: Company
Price Performance (%) Valuation and Outlook (%) 1M 3M 6M Bluedart is an undisputed market leader in the air express segment, with a Blue Dart Exp (7.2) (25.5) (26.0) dominant market share of ~50%. It is also a strong player in the ground express Nifty (5.7) (8.5) (3.3) cargo segment with a market share of ~13%. A fresh strategy under the Source: Bloomberg observation of Mckinsey, expansion of operations PAN India and strong growth in the ecommerce segment are expected to keep the growth momentum healthy Price chart (Rs) for BLUEDART. However, competition has restrained the company’s ability to 5,550 increase courier charges in a high fuel price environment which has been
4,550 impacting the operational performance of the company. We believe that, the company would find it difficult to pass on the increase in fuel 3,550 prices and other cost and charge a significant premium for its services to other 2,550 courier companies. We have also seen a slowing trend of business flow from e- Oct-17 Feb-18 Jun-18 Oct-18 commerce companies to private courier companies (expect stable growth). PAN Source: Bloomberg India expansion should help the company report strong topline growth with correction in EBIDTA margins over FY18 to FY20E.
In lieu of this developments, we have increased our topline assumption, decreased earnings estimate and maintain our multiple accorded to Bluedart. Amit Agarwal Post correction of 26% since our last update, we upgrade the stock to [email protected] “Accumulate” from Sell with a reduced target price of Rs 2875 (from Rs 3215) at +91 22 6218 6439 38 x FY20 earnings.
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Quarterly Performance (Rs mn) Q2FY18 Q1FY19 Q2FY19 YoY (%) QoQ (%) Sales 7,028 7,328 7,979 13.5 8.9 Freight and Handling cost 4,420 4,855 5,385 21.8 10.9 Employee 1,131 1,317 1,391 23.0 5.6 Other cost 710 711 801 12.8 12.7 Operating cost 6,261 6,883 7,577 21.0 10.1 EBIDTA 767 445 402 -47.6 -9.7 EBIDTA % 10.9 6.1 5.0 -53.8 -17.0 Depreciation 114 112 111 -2.6 -0.9 Other income 58 45 47 -19.0 4.4 Interest 79 39 39 -50.6 0.0 PBT 632 339 299 -52.7 -11.8 Taxes 219 119 89 -59.4 -25.2 ETR 34.7 35.1 29.8 PAT 413 220 210 -49.2 -4.5 Equity 239 239 239 EPS (Rs) 17.3 9.2 8.8 -49.2 -4.5 Source: Company
Current quarter’s performance was influenced by the following factors:
Strong growth in the e-commerce segment Increasing internet penetration, rising disposable income and desire for convenience and discount on product is shifting more and more Indian customers towards online shopping leading to strong growth of the E-Com segment. E-Com now contributes approximately 18/19% of the revenues for BDE and is growing at 20 to 25% CAGR.
Improving prospects in the B2B segment In the B2B segment, Bluedart caters to companies in sectors like BFSI, Pharma, electronics, Auto and E-Commerce. Management indicated that the segment contributes almost 90% to the revenues and has been stagnated for the last many quarters. However, the management indicated that this segment has shown signs of improvement, which is positive for the company.
Rising fuel prices impacting margins For BDE. 35% of the operating cost is fuel cost and another 35% is ground handling cost which is fixed in nature. From this cost break-up we can interpret that, crude prices and volumes dictate the margins of the company. Volumes have started improving for the company, but crude (diesel and ATF) have increased in the last 2 quarters impacting the margins of the company negatively. Freight cost at 71.1% in Q2FY19 of the overall operating cost is the highest for the company in the last many quarters. Higher operating cost coupled with the company’s ability to increase tariffs due to competition is impacting the margins of the company.
Freight and handling cost for Bluedart Rs mn Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Sales 6,822 6,666 7,028 7,046 7,168 7,328 7,979 Total Operating cost 6,214 6,207 6,261 6,241 6,600 6,883 7,577 Freight and handling cost 4,292 4,300 4,420 4,420 4,659 4,855 5,385 % of sales 62.9 64.5 62.9 62.7 65.0 66.3 67.5 % of Operating cost 69.1 69.3 70.6 70.8 70.6 70.5 71.1 Source: Company
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Company is expanding PAN India BLUEDART had hired Mckinsey & Company and spent a total of Rs 350 mn in FY18 to prepare a strategy for BLUEDART for developing new products, reduce operating cost, and improve utilization level of assets, geographical expansion and to face competition. As part of the strategy company has expanded from 7000 pin codes in Tier 1 and Tier 2 cities to 18000 pin codes PAN India. To implement the same, company has made a capex of Rs 500 mn in H1FY18. This has also increased the offices/agents/franchisee and employee cost of the company. This is one strong reason we believe has impacted the performance in Q2FY19. We expect the company to spend similar amount as capex in FY20E and increase the reach of the company to 19000 Pincodes (maximum for India). The expansion is also estimated to increase the employee cost and administrative cost for the company in FY19 and FY20E without commensurate increase in revenues, impacting the PAT of the company. However, we estimate this to yield superior results in the Long term.
Outlook and Valuation We believe that the company is in a transitory phase where the company is expanding its operations. We believe that the expansion may put near term pressure on the operational performance, but would do well for the company in the long run. Considering the expansion and competition, we have increased our topline assumption, decreased earnings estimate and maintain our multiple accorded to Bluedart. Post correction of 26% since our last update, we upgrade the stock to “Accumulate” from Sell with a reduced target price of Rs 2875 (from Rs 3215) at 38 x FY20 earnings.
Change in estimates FY19 FY20 Rs mn Old New % Chge Old New % Chge Sales 29,133 30,920 6.1 31,231 33,858 8.4 EBIDTA 3,054 2,612 -14.5 3,346 2,893 -13.5 PAT 1,754 1,544 -12.0 2,014 1,801 -10.6 Source: Kotak Securities – Private Client Research
Company background Bluedart is South Asia's premier courier, and integrated express package Distribution Company. The company has the most extensive domestic network covering over 35,000 locations, and service more than 220 countries and territories worldwide through group company DHL, the premier global brand name in express distribution services. The company has the most advanced communications systems and is strongly positioned to offer a consistent, premium, standardized quality of service. The company also has a dedicated aviation system which is focused on carriage of packages as its prime business, rather than as a by-product of a passenger airline. The company also has its own bonded warehouses, ground handling and maintenance capability.
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Financials: Consolidated
Profit and Loss Statement (Rs mn) Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 26,870 27,908 30,920 33,858 Cash 2,248 1,810 1,514 970 % change YoY 5.2 3.9 10.8 9.5 Debtors 3,493 3,628 4,020 4,401 Freight&handling 18,125 19,235 21,514 23,533 Inventory 50 100 100 100 Employee cost 3,625 3,796 4,246 4,645 Other current assets 4,031 4,186 4,638 5,079 Other expenses 2,417 2,278 2,548 2,787 Total current assets 7,574 7,914 8,758 9,580 Total Operating expd 24,166 25,309 28,308 30,965 LT investments 250 144 200 200 EBITDA 2,704 2,599 2,612 2,893 Net fixed assets 4,743 5,374 5,724 5,864 Depreciation 439 450 450 460 Total assets 14,814 15,242 16,197 16,615 EBIT 2,265 2,149 2,162 2,433 Other income 280 227 350 360 Creditors 3,142 3,290 3,680 4,025 Interest expense 312 257 208 104 Provisions 483 506 566 619 Profit before tax 2,233 2,119 2,304 2,689 Other current liabilities 725 759 849 929 Tax 775 697 760 887 Total current liabilities 4,350 4,556 5,095 5,574 ETR (%) 34.7 32.9 33.0 33.0 LT debt 3,779 2,831 2,016 450 Profit after tax 1,458 1,422 1,544 1,801 Minority Interest 0 0 0 0 Minorities& Associates 0 0 0 0 Equity Capital 238 238 238 238 Net income 1,458 1,422 1,544 1,801 Reserves 6,448 7,617 8,847 10,353 % change YoY -23.2 -2.5 8.6 16.7 Networth 6,686 7,855 9,085 10,592 Shares outstanding (m) 24 24 24 24 Total liabilities 14,814 15,242 16,197 16,615 EPS 61.3 59.7 64.9 75.7 BVPS (Rs) 280.9 330.1 381.7 445.0 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E PAT 1,458 1,422 1,544 1,801 EBITDA margin (%) 10.1 9.3 8.4 8.5 Depreciation +DTL 555 555 564 593 EBIT margin (%) 8.4 7.7 7.0 7.2 Change in working capital (558) (135) (304) (344) Net profit margin (%) 5.4 5.1 5.0 5.3 Cash flow from operations 1,456 1,842 1,804 2,050 ROE (%) 23.9 19.6 18.2 18.3 ROCE (%) 25.4 22.5 23.1 25.2 Capex (2,772) (1,081) (800) (600) DPS 15.0 12.5 15.0 15.0 Investments (22) 106 (56) - Dividend payout (%) 29.4 25.1 27.8 23.8 Cash flow from investments (2,794) (975) (856) (600) Working capital turnover (days) 40.0 43.0 41.4 41.3 Equity issuance - - - - Debt Equity (x) 0.6 0.4 0.2 0.0 Debt raised (253) (948) (816) (1,566) Dividend Paid (428) (357) (428) (428) PER (x) 44.5 45.6 42.0 36.0 Miscellanous items - - - - P/C (x) 32.2 32.8 30.8 27.1 Cash flow from financing (682) (1,305) (1,244) (1,994) Dividend yield (%) 0.6 0.5 0.6 0.6
Net cash flow (2,020) (438) (296) (544) P/B (x) 9.7 8.3 7.1 6.1 Opening cash 4,268 2,248 1,810 1,514 EV/Sales (x) 2.5 2.4 2.1 2.0 Closing cash 2,248 1,810 1,514 970 EV/ EBITDA (x) 22.2 23.5 22.4 20.4 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
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Result Update COCHIN SHIPYARD LTD (COSH)
Stock Details PRICE RS.390 TARGET RS.520 BUY Market cap (Rs mn) : 52981 52-wk Hi/Lo (Rs) : 599 / 356 Stable performance in the shipbuilding segment, strong performance in the Face Value (Rs) : 10 ship-repair segment and improving outlook were the highlights of the 3M Avg. daily vol (Nos) : 153,011 performance of CSL in Q2FY19 Shares o/s (mn) : 136 Source: Bloomberg Key Highlights
Financial Summary Total sales was reported at Rs 8 Bn (+21.4% QoQ and +30.8% YoY) with Y/E Mar (Rs mn) FY18 FY19E FY20E increased contribution of high margin ship-repair business in the total Revenue 23,922 26,514 27,921 revenues which is healthy for the company. Share of ship-repair was reported Growth (%) 16.2 16.2 10.8 at 42% in total revenues (from 27.6% YoY) EBITDA 4,979 5,437 5,959 EBITDA margin (%) 20.8 20.5 21.3 Execution remains stable in the shipbuilding segment, while the ship-repair PAT 3,998 4,025 4,263 business remains strong with over 100% utilization of the current facilities. EPS 29.4 30.6 32.4 EPS Growth (%) 28.1 0.7 5.9 The company has reported its highest ever EBIDTA margin of 23.5% (+350 BV (Rs/share) 235.4 246.5 267.1 bps YoY) Dividend/share (Rs) 12.0 10.0 10.0 ROE (%) 12.5 12.4 12.1 Depreciation and interest cost remains low for the company. Both these ROCE (%) 13.5 14.2 14.0 elements of cost are estimated to increase as CSL constructs a new shipyard P/E (x) 13.3 12.8 12.0 and an international ship-repair center. EV/EBITDA (x) 4.7 4.5 4.2 Consequently PAT was reported at Rs 1.48 bn (vs. expectation of 1.02 bn). We P/BV (x) 1.7 1.6 1.5 interpret the results as strong and expect the strong performance to continue Source: Company, Kotak Securities - PCG in future quarters as well. Shareholding Pattern (%) (%) Sep-18 Jun-18 Mar-18 Valuation & outlook Promoters 75.0 75.0 75.0 We believe that CSL is well placed and is ahead of the curve to exploit the massive FII 2.7 3.5 3.5 opportunity that India's defense sector offers in the next few years. Commercial DII 10.8 11.1 9.8 shipbuilding, offshore vessels and ship-repair helps the company beat the Others 11.5 10.4 11.7 cyclicality associated with any one sector. It also has the requisite and best-in- Source: Company class tie-ups. Also, CSL offers the only credible shipyard for investors to India's Price Performance (%) defense business. Maintain BUY rating with an unchanged TP of Rs 520. (%) 1M 3M 6M Quarterly performance Cochin Shipyard 0.5 (14.2) (26.6) Nifty (5.7) (8.5) (3.3) Rs mn Q2FY18 Q1FY19 Q2FY19 QoQ (%) YoY (%) Source: Bloomberg Sales 6112 6587 7994 21.4 30.8 Raw Material 3174 4423 4891 10.6 54.1 Price chart (Rs) Employee cost 622 659 701 6.4 12.7 630 Other expenditure 1092 353 521 47.6 -52.3 560 Total expense 4888 5435 6113 12.5 25.1 490 EBIDTA 1,224 1,152 1,881 63.3 53.7 EBIDTA % 20.0 17.5 23.5 420 Depreciation 96 84 84 0.0 -12.5 350 Interest 32 32 32 0.0 0.0 Oct-17 Feb-18 Jun-18 Oct-18 Other income 372 576 558 -3.1 50.0 Source: Bloomberg PBT 1,468 1,612 2,323 44.1 58.2 Taxes 466 549 847 81.8 PAT 1,002 1,063 1,476 38.9 47.3
Equity 1360 1360 1360
EPS (Rs) 7.4 7.8 10.9 38.9 47.3
Source: Company Amit Agarwal [email protected] +91 22 6218 6439
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NOVEMBER 2, 2018
Segmental performance Revenue (Rs mn) Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Shipbuilding 4224 4077 5035 4544 4621 Ship repair 1609 2073 971 2043 3373 Total 5833 6150 6006 6587 7994 EBIT (Rs mn) Shipbuilding 497 1319 1361 775 795 Ship repair 630 287 175 438 1351 Source; Company, Kotak
Order-book situation is not healthy Cosh currently has a shipbuilding order book of Rs 19.62 bn which gives investors revenue visibility of only one year. Almost 80% of the order-book involves complex work refurbishment of an aircraft carrier, which is a high margin business, estimated to be completed by December 2020. The company is also a L1 bidder for an order worth Rs 54 bn for 8 Anti-Submarine Warfare- Shallow water vessel from the Indian navy. Management of Cosh expects to convert this L1 bid to actual orders within FY19 post completion of formalities with the Indian Navy. This would give revenue visibility upto FY22 for Cosh. We estimate any additional flow of fresh orders, especially from the Navy and Coast guard to come to Cosh post the general elections in CY19. We believe this to be a political risk for the company.
Current order book Segment Rs bn Confirmed shipbuilding order book 19.6 Ship-repair order book 3.5 L1 Bid 54.0 Source: Company
Focus on Ship-repair segment Cosh currently has an order-book of Rs 3.5 bn in the ship-repair segment. The company intends to expand in ship-repair segment with an international ship- repair center and increased geographical reach. It has signed up MOUs with various port trust for creation of captive ship-repair facilities in the respective ports with a revenue potential of Rs 16 bn.
MOUs signed by COSH Partner Location For Investment Revenue potential by COSH per annum Mumbai Port trust Mumbai Ship-repair Rs 750 mn Rs 5 bn Andaman and Nicobar Andaman Ship-repair Rs 1000 mn Rs 10 bn administration Hooghly Dock & Port Kolkata Ship-repair Rs 250 mn Rs 1 bn Source: Company. Kotak Securities – Private Client Research
Current capacity to double in 3 years COSH currently has two docks – dock number one, primarily used for ship repair (Ship Repair Dock) and dock number two, primarily used for shipbuilding (Shipbuilding Dock). The Ship Repair Dock is one of the largest in India and is capable of accommodating vessels with a maximum capacity of 125,000 DWT. While the Shipbuilding Dock can accommodate vessels with a maximum capacity of 110,000 DWT.
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The company had raised Rs 9.8 bn through fresh issue of shares leading to 17% dilution. The company would be ramping up its capacity with a third dry-dock (measuring 310 x 75 x 13 Meters) and an international ship-repair center at Kochi. The capacity addition will enable the company to construct bigger and complex vessels as well as undertake repairs of vessels like LNG carriers, semi- submersibles, jack up rigs, and drill ships. We estimate the new facilities to come- up in the 3 to 5 years and double the capacity of the company. We have drawn a capex plan of Rs 13 bn for the company over FY18 to FY20E for the same. We estimate the balance capex to spill-over beyond FY20E.
CSL completes buyback of stock worth Rs 2 bn CSL has just completed a buyback of 3.23% of its equity or 43.96 lakh shares at a price of 455 per share aggregating Rs 2 bn, in which the government of India also participated (record date was 31st October 2018). We believe that this buyback was to support the disinvestment programme of the government and not as a stock price supportive event for investors.
Outlook and valuation CSL is one of the best companies to invest to play in the India’s defence sector. We estimate company to report sales CAGR of 8.1% over FY18 to FY20E to Rs 27.9 bn and report earnings CAGR of 3.3% over the same period to Rs 4.26 bn. However, we are concerned with the high bureaucracy/slowness in awarding defense orders. For instance, CSL is still L1 for eight anti-submarine shallow water craft ships worth Rs 54 bn (since October 2017) and still awaiting final confirmation on the order from the government. Diversified offering, recurring orders from the defence, focus on ship repair segment and strong BS gives us comfort with the stock. Recommend BUY with an unchanged TP of Rs 520. Upside to the stock would come from conversion of L1 order and fresh orders.
Company background Cochin Shipyard (CSL) is wholly-owned Government company, incorporated on March 29, 1972 and were conferred the 'Miniratna' status in 2008, by the Department of Public Enterprise. It is the largest public sector shipyard in India in terms of dock capacity. The company caters to clients engaged in the defence sector in India and clients engaged in the commercial sector worldwide. In addition to shipbuilding and ship repair, CSL also offer marine engineering training.
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Financials: Consolidated
Profit and Loss Statement (Rs mn) Balance sheet (Rs mn) (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E Revenues 20,594 23,922 26,514 27,921 Cash 21,523 28,379 24,208 21,871 % change YoY 3.5 16.2 10.8 5.3 Debtors 3,611 5,020 5,564 5,538 Raw material cost 13,141 11,907 16,240 17,032 Inventory 1,865 3,178 3,004 3,134 Employee cost 2,167 2,714 2,784 2,792 Other current assets 5 5 5 5 Other expenses 1,485 4,322 2,054 2,138 Total current assets 5,481 8,203 8,572 8,677 Total Operating expd 16,793 18,943 21,078 21,962 LT investments 2,327 2,500 2,500 2,500 EBITDA 3,801 4,979 5,437 5,959 Net fixed assets 4,245 8,783 15,152 20,306 Depreciation 385 462 631 846 Total assets 33,576 47,866 50,433 53,354 EBIT 3,416 4,517 4,805 5,113 Other income 1,490 1,600 1,350 1,400 Creditors 1,613 2,326 2,484 2,506 Interest expense 105 95 93 93 Provisions 2,496 3,150 3,274 3,503 Profit before tax 4,801 6,021 6,062 6,420 Other current liabilties 7,665 8,914 10,743 10,703 Tax 1,680 2,023 2,037 2,157 Total current liabilities 11,774 14,391 16,501 16,712 ETR (%) 35.0 33.6 33.6 33.6 LT debt 1,491 1,467 1,495 1,496 Profit after tax 3,121 3,998 4,025 4,263 Minority Interest 0 0 0 0 Minorities& Associates 0 0 0 0 Equity Capital 1,133 1,360 1,316 1,316 Net income 3,121 3,998 4,025 4,263 Reserves 19,177 30,648 31,120 33,830 % change YoY 7.0 28.1 0.7 5.9 Networth 20,310 32,008 32,436 35,146 Shares outstanding (m) 113 136 132 132 Total liabilities 33,576 47,866 50,433 53,354 EPS (Rs) 27.5 29.4 30.6 32.4 BVPS (Rs) 179.3 235.4 246.5 267.1 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
Cash flow Statement (Rs mn) Ratio Analysis (Year-end Mar) FY17 FY18 FY19E FY20E (Year-end Mar) FY17 FY18 FY19E FY20E PAT 3,121 3,998 4,025 4,263 EBITDA margin (%) 18.5 20.8 20.5 21.3 Depreciation+DTL 385 462 631 846 EBIT margin (%) 16.6 18.9 18.1 18.3 Change in working capital (328) (106) 1,741 107 Net profit margin (%) 15.2 16.7 15.2 15.3 Cash flow from operations 3,178 4,355 6,397 5,216 ROE (%) 15.4 12.5 12.4 12.1 ROCE (%) 15.7 13.5 14.2 14.0 Capex (686) (5,000) (7,000) (6,000) DPS 9.0 12.0 10.0 10.0 Investments 521 (173) - - Dividend payout (%) 38.4 48.2 38.6 36.4 Cash flow from investments (165) (5,173) (7,000) (6,000) Working cap turnover (days) (114.5) (95.2) (97.2) (104.3) Equity issuance - 9,625 (2,044) - Debt Equity (x) 0.1 0.0 0.0 0.0 Debt raised - (24) 28 0 Dividend Paid (1,199) (1,926) (1,553) (1,553) PER (x) 14.2 13.3 12.8 12.0 Miscellanous items - - - - P/C (x) 12.6 11.9 11.0 10.0 Cash flow from financing (1,199) 7,675 (3,569) (1,552) Dividend yield (%) 2.3 3.1 2.6 2.6
Net cash flow 1,813 6,856 (4,171) (2,337) P/B (x) 2.2 1.7 1.6 1.5 Opening cash 19,710 21,523 28,379 24,208 EV/Sales (x) 1.5 1.3 1.2 1.1 Closing cash 21,523 28,379 24,208 21,871 EV/ EBITDA (x) 5.8 4.7 4.5 4.2 Source: Company, Kotak Securities – Private Client Research Source: Company, Kotak Securities – Private Client Research
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RATING SCALE Definitions of ratings BUY – We expect the stock to deliver more than 12% returns over the next 12 months ACCUMULATE – We expect the stock to deliver 5% - 12% returns over the next 12 months REDUCE – We expect the stock to deliver 0% - 5% returns over the next 12 months SELL – We expect the stock to deliver negative returns over the next 12 months NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. SUBSCRIBE - We advise investor to subscribe to the IPO. RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA – Not Available or Not Applicable. The information is not available for display or is not applicable NM – Not Meaningful. The information is not meaningful and is therefore excluded. NOTE – Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark.
FUNDAMENTAL RESEARCH TEAM
Rusmik Oza Arun Agarwal Amit Agarwal Nipun Gupta Deval Shah Head of Research Auto & Auto Ancillary Transportation, Paints, FMCG Information Tech, Midcap Research Associate [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6441 +91 22 6218 6443 +91 22 6218 6439 +91 22 6218 6433 +91 22 6218 6423
Sanjeev Zarbade Ruchir Khare Jatin Damania Cyndrella Carvalho Ledo Padinjarathala Cap. Goods & Cons. Durables Cap. Goods & Cons. Durables Metals & Mining, Midcap Pharmaceuticals Research Associate [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6424 +91 22 6218 6431 +91 22 6218 6440 +91 22 6218 6426 +91 22 6218 7021
Teena Virmani Sumit Pokharna Pankaj Kumar Jayesh Kumar Krishna Nain Construction, Cement, Buildg Mat Oil and Gas, Information Tech Midcap Economist M&A, Corporate actions [email protected] [email protected] [email protected] [email protected] [email protected] +91 22 6218 6432 +91 22 6218 6438 +91 22 6218 6434 +91 22 6218 5373 +91 22 6218 7907
K. Kathirvelu Support Executive [email protected] +91 22 6218 6427
TECHNICAL RESEARCH TEAM
Shrikant Chouhan Amol Athawale [email protected] [email protected] +91 22 6218 5408 +91 20 6620 3350
DERIVATIVES RESEARCH TEAM
Sahaj Agrawal Malay Gandhi Prashanth Lalu Prasenjit Biswas, CMT, CFTe [email protected] [email protected] [email protected] [email protected] +91 79 6607 2231 +91 22 6218 6420 +91 22 6218 5497 +91 33 6625 9810
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Disclosure/Disclaimer Kotak Securities Limited established in 1994, is a subsidiary of Kotak Mahindra Bank Limited. Kotak Securities is one of India's largest brokerage and distribution house. Kotak Securities Limited is a corporate trading and clearing member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), Metropolitan Stock Exchange of India Limited (MSE). Our businesses include stock broking, services rendered in connection with distribution of primary market issues and financial products like mutual funds and fixed deposits, depository services and Portfolio Management. Kotak Securities Limited is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). Kotak Securities Limited is also registered with Insurance Regulatory and Development Authority as Corporate Agent for Kotak Mahindra Old Mutual Life Insurance Limited and is also a Mutual Fund Advisor registered with Association of Mutual Funds in India (AMFI). We are registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years. However SEBI, Exchanges and Depositories have conducted the routine inspection and based on their observations have issued advise/warning/deficiency letters/ or levied minor penalty on KSL for certain operational deviations. We have not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at any point of time. We offer our research services to clients as well as our prospects. 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