February 2, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Recommend HOLD on margin headwinds…

Bharat Electronics (BEL) reported weak Q3FY18 numbers, which were

below estimates on the EBITDA and PAT front. These were mostly on

account of a weak operational performance and lower other income

for the quarter

The company reported revenues of | 2513 crore up 14.7% YoY (our

estimates | 2387 crore for the quarter)

EBITDA came in at | 445.2 crore, down 7.8% YoY. We estimated

EBITDA of | 524 crore for the quarter. EBITDA margins came in at

17.7% vs. our estimate of 22% crore for the quarter. We believe lower

EBITDA margins were on account of order booking low margin orders

during the quarter. As a result, gross margins for the quarter declined

to 42.2% from 50.7% YoY

PAT came in | 302.8 crore, down 19.5% YoY, due to a weak

operational performance and lower other income. Other income

declined 36.6% YoY due to lower cash balance on account of buyback

and dividend. We expected other income of | 60 crore for the quarter

The company has also declared an interim dividend of | 1.60 per share

and a buyback of 2,03,97,780 equity shares (0.83% of equity). Outgo

due to buyback is likely to be | 372.3 crore at | 182.5 per share

Continues strong execution, albeit on lower margin orders

BEL continued its strong execution for the quarter, albeit on lower margin

orders like Battlefield Surveillance system (BSS), Integrated Air command

and control system (IACCS), etc. The quarter also witnessed some

execution of orders like Akash weapon system (Army), weapon locating

radar, etc. Order inflows for Q3FY18 were at ~ | 1,146 crore. This has

taken the BEL order backlog to 40,469 crore as on January 1, 2018. The

export order book was also healthy at $96.9 million.

New opportunities, healthy capex, focus on exports

BEL has forayed into new opportunities like homeland security, cyber

security and smart cities. We believe these new areas will act as new

growth triggers, going forward. BEL has already received some orders in

this area. The same has potential to contribute ~20% to the topline albeit

with lower margins over the next three to five years. With a planned

capex of ~| 1500 crore in FY17-20E, BEL is well placed to capitalise on

the emerging defence sector. BEL spends ~9% of sales on R&D for

developing new products. New products have historically helped BEL

achieve up to 25% of its turnover. With R&D spend likely to rise to 12% of

sales, new product development is likely to gain further momentum.

Exports for BEL came in at ~| 425 crore for FY17 (~5.1% of turnover).

BEL has also set up a dedicated business unit to become key supply chain

partner of global defence contractors. This is likely to increase exports

contribution to 10% of topline by FY20E. BEL also has a strong balance

sheet with near nil debt and cash balance of over | 2000 crore.

Recommend HOLD on margin softening over FY17-20E

Going forward, BEL is likely to execute large orders like IACCS, VVPAT

and Akash. We believe these orders will help BEL clock double digit

revenue growth in FY17-20E. However, we expect margins to moderate

going forward as some of the large integration projects have a margin

profile of 5-15%. Thus, we expect BEL to deliver revenue, EBITDA and

PAT CAGR of 16.7%, 12.5% and 5.9%, respectively, in FY17-20E. We

value the company at 19x P/E on FY20E EPS of | 8.2 to arrive at a target

price of | 155 per share. We have a HOLD recommendation on the stock.

Bharat Electronics (BHAELE) | 151

Rating matrix

Rating Matrix

Rating : Hold

Target : | 155

Target Period : 12 - 15 months

Potential Upside : 4%

What’s changed?

Target Changed from | 215 to | 155

EPS FY19E Changed from | 7.9 to | 7.4

EPS FY20E Changed from | 8.6 to | 8.2

Rating Unchanged

Quarterly performance

Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%)

Revenue 2,512.8 2,191.3 14.7 2,476.2 1.5

EBITDA 445.2 482.8 -7.8 595.0 -25.2

EBITDA (%) 17.7 22.0 -430 bps 24.0 -630 bps

PAT 302.8 376.2 -19.5 412.4 -26.6

Key financials

| Crore FY17 FY18E FY19E FY20E

Revenue 8,612 10,833 12,545 14,465

EBITDA 1,762 2,034 2,224 2,508

EBITDA (%) 20.5 18.8 17.7 17.3

Net Profit 1,548 1,453 1,650 1,838

EPS (|) 6.9 6.5 7.4 8.2

Valuation summary

(x) FY17 FY18E FY19E FY20E

P/E 21.8 23.2 20.4 18.3

Target P/E 22.4 23.8 21.0 18.8

EV / EBITDA 17.0 15.2 13.7 12.2

P/BV 4.5 4.0 3.5 3.2

RoNW (%) 21 17.2 17.4 17.2

RoCE (%) 27.1 23.8 23.1 22.9

Stock data

Stock Data

Average Volumes (shares) 894000

Market Capitalization | 33727.8 Crore

Total Debt (FY18E) | 26.9 Crore

Cash and Investments (FY18E) | 2858.4 crore

EV (FY18E) | 30896.3 Crore

52 week H/L (|) 1624 / 1009

Equity capital | 223.4 Crore

Face value | 1

MF Holding (%) 16.5

FII Holding (%) 8.6

Promoter Holding (%) 66.7

Price performance

Return (%) 1M 3M 6M 12M

Bharat Electronics (11.0) (13.1) (1.8) 13.3

Astra Microwave 2.9 4.1 1.1 5.1

Centum Electronics (5.4) (5.0) (16.1) (5.0)

Research Analyst

Chirag J Shah

shah.chirag@icicisecurities.com

Sagar K Gandhi

sagar.gandhi@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis

Q3FY18 Q3FY18E Q3FY17 YoY (%) Q2FY18 QoQ (%) Comments

Operating Income 2,513 2,387 2,191.3 14.7 2,476 1.5

Strong revenue growth due to booking of orders like Battlefield Surveillance system,

IACCS, etc.

Other income 49 60 77.6 -36.6 51 -3.5

Reduced other income due to lower cash balance on account of buyback and

dividend

Total Revenue 2,562 2,447 2,268.9 12.9 2,527.2 1.4

Raw materials costs 1,416 1,190 1,029.9 37.5 1,144 23.8

Employees Expenses 456 420 343.2 33.0 472 -3.3

Other Expenses 195 252 335.5 -41.9 265 -26.5

Total Expenditure 2,068 1,863 1,708.5 21.0 1,881 9.9

EBITDA 445.2 524.0 482.8 -7.8 595.0 -25.2

EBITDA margins (%) 17.7 22.0 22.0 -432 bps 24.0 -631 bps

Interest 0.0 0.0 10.6 0.0

Depreciation 59.4 55.0 45.5 30.6 59.0 0.7

Tax 132.2 121.7 128.0 3.2 174.6 -24.3

Other Income 49.2 60.0 77.6 -36.6 51.0 -3.5

PAT 302.8 407.3 376.2 -19.5 412.4 -26.6

Source: Company, ICICIdirect.com Research

Change in estimates

FY17 FY18E FY19E FY20E

(| Crore) Old New % Change Old New % Change Old New % Change

Revenue 8,612 10,848 10,833 -0.1 12,174 12,545 3.0 14,025.0 14,465 3.1

EBITDA 1,762 1,964 2,034 3.6 2,158 2,224 3.1 2,431.0 2,508 3.2

EBITDA Margin (%) 20.5 18.1 18.8 67 bps 17.7 17.7 3 bps 17.3 17.3 4 bps

PAT 1,548 1,489 1,453 -2.4 1,765 1,650 -6.5 1,917.0 1,838 -4.1

EPS (|) 6.9 6.7 6.5 -2.9 7.9 7.4 -6.5 8.6 8.2 -4.3

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 3

Key takeaways for Q3FY18

Strong order book: Order book at the end of Q3FY18 was at | 40,469

crore. Orders received during the quarter were at | 1,146 crore

Major orders acquired in Q3FY18:

Akash Weapon System

GE Medical Systems

Spares for THD 1955 radar

Radar Finger Printing system

Battery and Battery Pack

The export order book as on January 1, 2017 was at US$96.9 million.

Export turnover for Q3FY18 was US$6.3 million.

Major supplies during Q3FY18:

Homeland Security

Hand held thermal imager - MKII,

L 70 gun upgrade,

Weapon locating radar

Integrated air command and control system

Mobile communication terminal

Electronic voting machine – Voter verifiable paper audit trail

(VVPAT)

Ship borne EW system

Major orders expected in FY18

Akash missile system (seven squadron),

Long range surface to air missile (LRSAM) for P17A,

ICICI Securities Ltd | Retail Equity Research Page 4

Annual report takeaways FY16-17

For BEL, R&D has been the main focus area, which helped the

company increase indigenisation and value addition in its

products/systems. For FY17, total investment in R&D as a percentage

of turnover during the year was 8.81%, which is one of the highest

among defence PSUs. Efforts in this direction helped it achieve 87%

of turnover from indigenous products

Defence being the mainstay of the company, contributed to 88% of

sales revenue, with the balance 12% coming from the civilian sector

Some of the major products/systems introduced during FY17 include

Akash Missile System (seven squadron),

Weapon Locating Radar

BFSR-XR (Extended Range)

IFF MK XII

USHUS-2

HUMSA NG for P15B

Gigabit Ethernet based Integrated Communication System for P15

ACCS for Indigenous Aircraft Carrier

Missile two way Data link for QRSAM

RRF upgradation (High band)

BEACON MKIII for Army

CIDSS phase 2 (Build 2- Software)

Air traffic control software

SoTM

Dual Frequency IP Modem

2KW SSPA (for Tropo Communication)

Modern EW system (noncom) (Varuna)

VVPAT MKII

Point of Sale (POS) device

Border Surveillance System (BoSS)

High Resolution TI for Directed Energy Weapon

IACCS Beta version

VCCS for IACCS

RCWS

Pressurised container

BEL received orders worth | 16,300 crore during 2016-17. The order

book of the company as on April 1, 2017 was | 40,242 crore. The

order book comprises mainly major programs like integrated air

command control system, long range surface to air missile,

battlefield surveillance system, weapon locating radar, EW suite,

hand held thermal imager with laser range finder, advance

composite communication system, ground based mobile ELNIT,

command information decision support system, electronic voting

machine, fire control system, gun/tank upgrades communication

sets, new generation radars, sonars, etc

Major orders received during the year include

Long Range Surface to Air Missile (LR-SAM) with MFSTAR

Advanced Composite Communication System for P17

Electronic Voting Machine

Static Tropo Upgrade

Electronic Warfare Suite for Naval application

Giga Bit Ethernet based Ship Data Network for P17

Hand Held Thermal Imager

Low Intensity Con ict EW System

Homeland Security

ALG Communication

ICICI Securities Ltd | Retail Equity Research Page 5

On the export front, the order book as on April 1, 2017 was US$85

Million including offset orders of US$17 million. BEL has submitted

proposals for various products/systems to countries like Myanmar,

Vietnam, Sri Lanka, Malaysia, and Egypt. Accordingly, the company is

envisaging strong growth from this segment going forward. (As

highlighted in our earlier updates, the company is targeting revenues

of $100 mn by FY19E)

In the civil segment BEL is pursuing opportunities in the field of solar

energy, homeland security, smart city elements, smart cards, cyber

security, telecom and space electronics.

On the working capital front, the company continued to maintain 180

days of receivables at the end of March 2017

New addressable opportunities which BEL plans to capitalise on:

Homeland Security Solutions: BEL is planning to address the

Border Management solution requirements as part of the

Homeland Security business

Solar: BEL is setting up utility scale solar power plants for captive

consumption in the estates of ordnance Factories at 17 locations

spread across eight states for a total capacity of 150 MW. The

commissioning of first solar power plant of 15 MW capacity is

expected to happen soon at ordnance factory, Medak. In the near

future, this sector is expected to contribute significantly to BEL’s

business

Space: BEL is exploring collaboration with Isro leveraging their

technological capabilities in design and development of various

products/systems for possible use in defence applications

ICICI Securities Ltd | Retail Equity Research Page 6

Company Analysis

Order inflows, strong execution to drive revenue growth of 16.7% CAGR

in FY17-20E

We expect standalone revenues to increase from | 8612 crore in FY17 to

| 14465 crore in FY20E mainly on the back of strong order inflows and

execution of backlog orders over the next two years. Order backlog as on

FY17 was at | 40,242 crore. We expect order inflows of ~| 12000 crore, |

11000 crore and ~| 11000 in FY18E, FY19E and FY20E, respectively.

Assuming, execution rate of ~30% for backlog orders and ~12%

execution rate for current year order inflows, we estimate BEL will post

revenues of | 12545 crore in FY19E and | 14465 crore in FY20E.

Exhibit 1: Revenue trend

7,295

8,612

10,833

12,545

14,465

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

FY16 FY17 FY18E FY19E FY20E

| c

rore

Source: Company, ICICIdirect.com Research

Order book growth to keep ticking

Exhibit 2: Order backlog trend

21617

32022

40000 4077539365

36054

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

FY15 FY16 FY17 FY18E FY19E FY20E

| c

rore

Order Backlog

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 7

Strong order inflows over next five to seven years

BEL is expected to receive significant number of orders over the next five

to seven year. Major orders are expected to be finalised in FY17-19E

including orders Akash Missile (~| 4700 crore), Samyukta upgrade,

mobile cellular communication system, L- band Tropo upgrade, low level

lightweight radar, integrated sonar suite, passive night vision devices, etc.

Apart from the above-mentioned orders the company is also a contender

for large orders like battlefield management system (BMS), the order size

of which is | 35,000 crore. Also, with Hindustan Aeronautics (HAL)

commencing its production line for indigenous aircraft Tejas, BEL is

expected to receive significant orders for its electronic components and

systems. Thus, we expect the order pipeline for BEL to remain strong in

FY17-20E. For FY18E, FY19E and FY20E, we have estimated order inflows

of | 12,000 crore, 11,000 crore & | 11,000 crore, respectively.

Exhibit 3: Order inflows robust over FY17-19E

5260

1709416300

12000

11000 11000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

FY15 FY16 FY17 FY18E FY19E FY20E

| cro

re

Orders Inflows

Source: Company, ICICIdirect.com Research

EBIDTA margins to stabilise to 17.3% in FY20E

BEL reported strong EBITDA margins of 20.5% for FY17. A sharp increase

in margins was due to an overall reduction in material consumption

mainly because of commodity correction and indigenisation initiatives of

the company. However, we believe the same is unsustainable, going

forward. Also, BEL has got transformed from a pure product-selling

company to one that takes the contract as a system integrator. For

instance, BEL used to win 25-30% of the contract for Akash missiles to

supply its radars and related electronics. However, now BEL receives

turnkey orders to supply Akash missiles. From just supplying the product,

it now purchases equipment i.e. missiles from HAL and launchers from

L&T, assembles the product and then supplies it to the air force. Though

this has increased revenues and order inflows for the company, margins

are expected to come off as the profitability on purchased equipment is

not as high as its own product.

EBITDA has grown at 28.7% CAGR in FY13-17. Going ahead, we expect

growth rates to soften on account moderation in margins from 20.5% in

FY17 to 17.3% in FY20E. Accordingly, we expect EBITDA to grow 12.5%

over FY17-20E.

ICICI Securities Ltd | Retail Equity Research Page 8

Exhibit 4: EBITDA and EBITDA margin trend

7,2

95

8,6

12

10,8

33

12,5

45

14,4

65

1,4

61

1,7

62

2,0

34

2,2

24

2,5

08

20.0

20.5

18.817.7

17.3

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

FY16 FY17 FY18E FY19E FY20E

| cro

re

15

16

17

18

19

20

21

%

Revenues EBITDA EBITDA margin (%)

Source: Company, ICICIdirect.com Research

PAT to grow at 5.9% CAGR in FY17-20E

In FY13-17, PAT grew at 14.8% CAGR. This was mostly due to healthy

topline growth and improvement in execution in FY16 and FY17. Going

forward, we expect the bottomline to grow at 5.9% CAGR in FY17-20E.

Exhibit 5: PAT trend

1,3

58

1,5

48

1,4

53

1,6

50

1,8

38

18.6

18.0

13.413.1

12.7

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

FY16 FY17 FY18E FY19E FY20E

| c

rore

10

11

12

13

14

15

16

17

18

19

20

%

Net Profit Margins (%)

Source: Company, ICICIdirect.com Research

RoE, RoCE of 17.7% and 23.5% in FY20E

With moderate capex plans (| 1500 crore over FY18E-20E) and demand

growth revival, capacity utilisation levels are expected to improve leading

to stable return ratios. BEL has been a consistent debt-free company with

a cash balance of over ~| 2000 crore in FY18E (even after the buy-back of

~| 2100 crore in H1FY17 and a proposed buyback of | 372 crore in

H2FY18). However, due to dilution of operating margins, we expect RoE

and RoCE to marginally head southwards. Accordingly, we expect RoE

and RoCE to drop from 20.6% and 27.1% in FY17 to 17.2% and 22.9%,

respectively, in FY20E.

ICICI Securities Ltd | Retail Equity Research Page 9

Exhibit 6: RoE, RoCE trend

20.3

27.1

23.823.1 22.9

15.1

20.6

17.2 17.4 17.2

-

5

10

15

20

25

30

FY16 FY17 FY18E FY19E FY20E

%RoCE (%) RoE (%)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 10

Outlook and valuation

BEL is among the few defence PSUs that has strong financials and a long

history of efficient capital allocation. The company has delivered a topline

and bottomline CAGR of ~6% and 7.3% over the past 15 years (FY01-16),

with average RoCEs and RoEs of 21% and 18.8%, respectively. The

company is characterised by consistent dividend payout of 20%, clean

corporate governance, efficient working capital management, adequate

R&D spend, ability to absorb latest technologies, timely execution of large

projects, strong cash flow generation and prudent capital allocation.

With large participation of private sector players kicking in the defence

space, there have been apprehensions about BEL’s ability to bag large

orders in this space. However, we believe the same is not a major threat

as BEL has proactively taken major steps including technology tie-ups

with foreign majors to bid for the upcoming platform-based orders.

Going forward, BEL is likely to execute large orders like IACCS, VVPAT

and Akash. We believe these orders will help BEL clock double digit

revenue growth over FY17-20E. However, we expect margins to

moderate, going forward, as some of the large integration projects have a

margin profile of 5-15%. Thus, we expect BEL deliver revenue, EBITDA

and PAT CAGR of 16.7%, 12.5% and 5.9% over FY17-20E. We value the

company at 19x P/E on FY20E EPS of | 8.2 to arrive at a target price of |

155 per share. We recommend HOLD on the stock.

BEL is among the few defence PSUs that has strong

financials and a long history of efficient capital allocation.

The company has delivered a topline and bottomline CAGR

of ~6% and 7.3% over the past 15 years (FY01-16), with

average RoCEs and RoEs of 21% and 18.8%, respectively.

The company is characterised by consistent dividend

payout of 20%, clean corporate governance, efficient

working capital management, adequate R&D spend, ability

to absorb latest technologies, timely execution of large

projects, strong cash flow generation and prudent capital

allocation

ICICI Securities Ltd | Retail Equity Research Page 11

Recommendation history vs. consensus

0

10

20

30

40

50

60

70

80

90

0

50

100

150

200

250

Feb-18Nov-17Sep-17Jun-17Apr-17Feb-17Nov-16Sep-16Jun-16Apr-16Jan-16Nov-15Aug-15Jun-15Apr-15Jan-15

(%

)

(|)

Series1 Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research, Initiated coverage on 27th Jan 2016

Key events

Date/Year Event

Dec-12 BEL signs an MoU with Israel Aerospace Industries (IAI) for cooperation on future Long Range Surface to Air Missile (LRSAM) Ship-defence Systems

Sep-14 BEL establishes a Joint Venture Company (JVC) with M/s. Thales Air Systems SA, France and M/s. Thales India Pvt. Ltd in Radar Business Area.

Nov-15 BEL delivers L70 upgraded guns to Indian Army

Feb-15 Ministry of Defence selects BEL - Rolta consortium as a Development Agency for the Battlefield Management System Project

Mar-15 BEL issues bonus shares in the ratio of 2:1

Oct-15 BEL signs | 8000 crore IACCS (Integrated Air Command and Control System) deal with Indian Air Force

Mar-16 BEL, Rosoboronexport sign defence offset partnership agreement

May-16 BEL and HAL sign deal to co-develop avionics

May-16 BEL registers highest-ever order inflow of | 17,094 for FY16.

May-16 BEL inaugurates 8.4 MW wind energy power plant at Harappanahalli, Karnataka. With this wind energy plant, 90% of BEL's energy requirement will be met through

renewable energy resources.

Jan-17 BEL announces split, new face value at | 1 per share, from existing | 10 per share

Feb-17 BEL order book touches all-time of | 40000 crore

Source: Company, ICICIdirect.com Research

Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date O/S Position Position Change

1 Government of India 30-09-2017 61.76% 1,517.46M -157.89M

2 Life Insurance Corporation of India 30-09-2017 3.45% 84.84M -8.48M

3 HDFC Asset Management Co., Ltd. 30-11-2017 1.80% 44.27M 0

4 Aditya Birla Sun Life AMC Limited 31-12-2017 1.42% 34.88M +0.36M

5 SBI Funds Management Pvt. Ltd. 30-11-2017 1.29% 31.74M -1.07M

6 ICICI Prudential Asset Management Co. Ltd. 31-12-2017 1.23% 30.18M +0.76M

7 The Vanguard Group, Inc. 30-11-2017 0.87% 21.37M 0

8 Kotak Mahindra Asset Management Company Ltd. 30-11-2017 0.75% 18.47M -0.56M

9 DSP BlackRock Investment Managers Pvt. Ltd. 30-11-2017 0.75% 18.42M -0.93M

10 UTI Asset Management Co. Ltd. 30-11-2017 0.53% 12.91M -0.37M

(in %) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17

Promoter 74.4 68.2 68.2 67.9 66.7

FII 4.3 6.7 7.6 8.1 8.6

DII 15.8 17.7 16.8 16.1 16.5

Others 5.6 7.4 7.4 7.8 8.2

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Morgan Stanley Investment Management Inc. (US) +10.31M +3.58M Government of India -393.60M -157.89M

CI Investments Inc. +4.48M +1.80M Life Insurance Corporation of India -21.15M -8.48M

Grantham Mayo Van Otterloo & Co LLC +2.84M +1.05M Reliance Nippon Life Asset Management Limited -14.42M -5.00M

William Blair Investment Management, LLC +2.82M +0.98M Goldman Sachs Asset Management (US) -5.11M -2.02M

William Blair & Company, L.L.C. (Research) +2.21M +0.97M Goldman Sachs Asset Management International -3.59M -1.42M

Buys Sells

Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 12

.

Financial summary (Standalone)

Profit and loss statement | Crore

(| Crore) FY17 FY18E FY19E FY20E

Net Sales 8,296 10,615 12,287 14,167

Other operating income 316 219 258 298

Revenue 8,612 10,833 12,545 14,465

% Growth 25.9 25.8 15.8 15.3

Other income 471.0 220.0 240.0 250.0

Total Revenue 9,109 11,079 12,545 14,465

% Growth 24.4 21.6 13.2 15.3

Total Raw Material Costs 4,413 5,647 6,672 7,735

Employee Expenses 1,548 2,017 2,334 2,692

other expenses 889 1,136 1,315 1,530

Total Operating Expenditure 6,850 8,800 10,321 11,957

Operating Profit (EBITDA) 1,762 2,034 2,224 2,508

% Growth 54.1 15.4 9.3 12.8

Interest 12 25 30 35

PBDT 2,221 2,229 2,434 2,723

Depreciation 192 238 263 304

PBT before Exceptional Items 2,029 1,990 2,170 2,419

Total Tax 482 537 521 581

PAT before MI 1,548 1,453 1,650 1,838

Minority Interest - - - -

PAT 1,548 1,453 1,650 1,838

% Growth 32.6 (6.1) 13.5 11.4

EPS 6.9 6.5 7.4 8.2

Source: Company, ICICIdirect.com Research

Cash flow statement | Crore

(| Crore) FY14 FY17 FY18E FY19E FY20E

Profit after Tax 1,548 1,548 1,650 1,838

Depreciation 192 192 263 304

Interest 12 12 30 35

Cash Flow before WC changes 1,751 1,751 1,943 2,177

Changes in inventory (737) (734) (891) (999)

Changes in debtors (643) (1,136) (867) (973)

Changes in loans & Advances 519 (786) (137) (154)

Changes in other current assets (549) 521 (14) (15)

Net Increase in Current Assets (1,781) (2,135) (1,909) (2,141)

Changes in creditors 185 345 267 300

Changes in provisions 139 (1,131) 27 30

Net Inc in Current Liabilities 314 432 1,492 950

Net CF from Operating activities 285 47 1,526 986

Changes in deferred tax assets (160) - - -

(Purchase)/Sale of Fixed Assets (546) (450) (450) (450)

Net CF from Investing activities (903) (450) (450) (450)

Dividend and Dividend Tax (741) (490) (556) (620)

Net CF from Financing Activities (3,016) (529) (619) (692)

Net Cash flow (3,634) (932) 457 (156)

Opening Cash/Cash Equivalent 7,424 3,790 2,858 3,315

Closing Cash/ Cash Equivalent 3,790 2,858 3,315 3,160

Source: Company, ICICIdirect.com Research

Balance sheet | Crore

(| Crore) FY17 FY18E FY19E FY20E

Equity Capital 223.4 223.4 223.4 223.4

Reserve and Surplus 7,285 8,219 9,280 10,461

Total Shareholders funds 7,509 8,443 9,503 10,685

Minority Interest - - - -

Other Non Current Liabilities 14.7 14.7 14.7 14.7

Total Debt 25 27 27 27

Total Liabilities 7,549 8,485 9,545 10,727

Gross Block 1,616 2,222 2,672 3,122

Acc: Depreciation 361 599 863 1,166

Net Block 1,255 1,623 1,810 1,956

Capital WIP 657 500 500 500

Total Fixed Assets 1,912 2,123 2,310 2,456

Non Current Assets 677 677 677 677

Inventory 4,905 5,639 6,530 7,530

Debtors 4,355 5,491 6,358 7,331

Loans and Advances 81 867 1,004 1,157

Other Current Assets 608 87 100 116

Cash 3,790 2,858 3,315 3,160

Total Current Assets 14,108 15,312 17,678 19,663

Current Liabilities 1,347 1,692 1,959 2,259

Provisions 1,300 169 196 226

Net Current Assets 4,501 5,273 6,147 7,182

Total Assets 7,549 8,485 9,545 10,727

Source: Company, ICICIdirect.com Research

Key ratios

(Year-end March) FY17 FY18E FY19E FY20E

Per Share Data

EPS 6.9 6.5 7.4 8.2

Cash per Share 17.0 12.8 14.8 14.1

BV 33.6 37.8 42.5 47.8

Dividend per share 2.8 1.8 2.1 2.3

Dividend payout ratio 0.4 0.3 0.3 0.3

Operating Ratios

EBITDA Margin 20.5 18.8 17.7 17.3

PAT Margin 18.7 13.7 13.4 13.0

Return Ratios

RoE 20.6 17.2 17.4 17.2

RoCE 27.1 23.8 23.1 22.9

RoIC 41.9 32.0 31.5 29.2

Valuation Ratios

EV / EBITDA 17.0 15.2 13.7 12.2

P/E 21.8 23.2 20.4 18.3

EV / Net Sales 3.5 2.9 2.4 2.1

Sales / Equity 1.1 1.3 1.3 1.4

Market Cap / Sales 3.9 3.1 2.7 2.3

Price to Book Value 4.5 4.0 3.5 3.2

Turnover Ratios

Asset turnover 1.1 1.3 1.3 1.4

Debtors Turnover Ratio 2.1 2.2 2.1 2.1

Creditors Turnover Ratio 6.9 7.1 6.9 6.9

Solvency Ratios

Debt / Equity 0.0 0.0 0.0 0.0

Current Ratio 3.1 4.9 5.1 5.2

Quick Ratio 1.6 2.6 2.7 2.8

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 13

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research Page 14

Disclaimer

ANALYST CERTIFICATION

We /I, Chirag Shah PGDBM; Sagar Gandhi MBA (Finance), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject

issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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