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EQUITYRESEARCH

ANALYSIS

DEBOJYOTI MUKHERJEENIDHI SHARMAPRAVEEN KUMARRISHAV DHANDANIASHASHANK UNERCAT

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INTRODUCTION FUTURE EXPANSION AND RISK

ASSOCIATED SWOT ANALYSIS INDUSTRY ANALYSIS TRENDS

PROFIT AND LOSS BALANCE SHEET WACC AND DUPONT ANALYSIS RECOMENDATION

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Established in 1979 at Ahmedabad, India Chairman :- Rajendra S. Shah Managing Director:- Bhadresh K. Shah Subsidiary Companies :-

- Welcast Steel Ltd (72% holdings)

Manufacturer inBangalore

- DCPL Foundries Pvt Ltd (70% Holdings)-Manufacturer in Tamil Nadu

- Vega Industries Ltd (100% holdings)

Marketing inUK , US , China etc Niche Manufacturer of high chrome casting with

rated capacity of 200000 metric tons per annum. Metallurgy Process Technology followed.

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Global Leader Mining to be the main focus.

Capacity of 300000 metric tons planned by2015

Greenfield and Brownfield Expansion Utilization of 90% to be achieved Foreign Currency Fluctuations is risky Mining Sector in India has a negative growth.

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STRENGTHS:o DIVERSIFIED CLIENT BASEo OLIGOPOLISTIC INDUSTRY STRUCTURE

WEAKNESSo REVENUE EXPOSED TO FOREX LOSSES

OPPORTUNITIESSTRONG PROMOTER HOLDING

THREATSDECLINE IN CEMENT SECTOR

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PORTER FIVE FORCES:1. THREATS OF NEW ENTRY

2. THREATS OF SUBSTITUTES3. COMPETITIVE RIVALARY4. BARGAINING POWER OF SUPPLIERS5. BARGAINING POWER OF CUSTOMERS

Industry PE is 16x.

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0

1000

2000

3000

4000

5000

6000

7000

AIA CL NIFTY CL

6.77

22.15

17.9219.23

14.22

0

5

10

15

20

25

2009 2010 2011 2012 2013

P/E

AIA VS NIFTY PE RATIO

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134.21

174.15 171.1183.59 181.2

211.62

2008 2009 2010 2011 2012 2013

PAT Linear (PAT)

771.38

1085.59986.8

1217.81

1478.87

1837

2008 2009 2010 2011 2012 2013

Gross Sales

Linear (Gross Sales)

4

2.5 2.53 3

4

2008 2009 2010 2011 2012 2013

Dividend

20.4318.79

15.84 15.95

2010 2011 2012 2013

ROE

PAT GROSS SALES

DIVIDEND HISTORY ROE

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2012-13 2013-14 2014-15 2015-16 2016-17

existing capacity 200000 198500 198500 198500 198500

ex capacity utilisation 80.00% 85.00% 90.00% 80.00% 80.00%

sales 160000 168725 178650 158800 158800

new capacity 0 60000 60000 240000

new capacity utilisati 0.00% 60.00% 70.00% 80%,60%,40% 90%,80%,60%

sales 0 36000 42000 136000 178000

total sales 160000 204725 220650 294800 336800

realisations/mt 110000 121000 133100 110000 110000

total sales 17600000000 24771725000 2.94E+10 32428000000 37048000000

total sales (cr) 1760 2477.1725 2936.852 3242.8 3704.8

Excise 4.37% 4.37% 4.37% 4.37% 4.37%

Excise 76.912 108.2524383 128.3404 141.71036 161.89976

SALES ESTIMATION

INVENTORY AND DEBTOR

Sales 949.7 1136.42 1416.67 1751.31 2368.920062 2808.511089

Debtor turnover 4.452852836 3.171699693 3.811064 5.149825757 4.802631579 4.802631579

Debtor days 81.96992208 115.080252 95.77378 70.8761844 76 76

Inventory Turnover 6.199693181 4.800145303 4.705158 4.345882961 5.447761194 5.447761194

Inventory days 58.87388123 76.03936485 77.57444 83.98753562 67 67

INVENTORY AND DEBTOR ESTIMATION

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Sales Averaged out on geographicalsegments and its capacity

External debt of 1 bn in 2014 and 3 bn in 2015 Expenditures in the same trend as previous Better Product mix and cost reduction

strategy

Straight Line method of Depreciation Dividend Payout ratio to be the same . Increase in net worth leading to increase in

EPS.

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Profit And Loss Consolidated Estimated Estimated

Description Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

No of Months 12 12 12 12 12 12 12

INCOME

Gross Sales 1085.59 986.8 1194.97 1478.87 1837 2477.173 2936.852

Less: Excise 62.3 37.1 57.15 62.2 85.69 108.252 128.340

Net Sales 1023.29 949.7 1136.42 1416.67 1751.31 2368.920 2808.511

EXPENDITURE

Increase/Decrease in Stock -13.98 7.87 -70.45 -37.58 -31.63 -45.702 -51.130

Raw Materials Consumed 418.66 346.88 556.39 580.01 685.93 991.038 1174.941

Power & Fuel Cost 85.77 89.41 112.55 149.36 176.1 236.399 280.267

Employee Cost 41.06 43.33 52.26 64.89 80.89 108.736 128.914

Other Manufacturing Expenses 145.36 126.16 173.59 215.33 290.15 357.273 423.570

General and Administration Expenses 30.66 29.62 29.63 39.01 46.69 66.009 78.258

Selling and Distribution Expenses 43.46 42.94 52.35 68.93 108.74 119.646 141.849

Miscellaneous Expenses 23.36 32.74 2.81 59.65 80.89 74.171 87.935

total expenditure 774.35 718.95 909.13 1139.6 1437.76 1907.571 2264.603

Operating Profit (Excl OI) 248.95 230.77 251.53 277.07 313.55 461.349 543.908

Other Income 24.93 32.24 24.72 13.27 21.32 0.000 0.000

Operating Profit 273.88 263.01 276.26 290.35 334.87 461.349 543.908

Interest 4.3 3.29 4.35 8.17 8.81 11.810 17.810

PBDT 269.58 259.71 271.91 282.18 326.06 449.539 526.098

Depreciation 20.25 0 0 0 0 39.000 49.100

Profit Before Taxation & Exceptional Items 249.33 237.01 246.51 252.74 291.57 410.539 476.998Exceptional Income / Expenses 0 0 0 0 0 0.000 0.000

Profit Before Tax 249.33 237.01 246.51 252.74 291.57 410.539 476.998

Provision for Tax 75.18 65.91 62.93 71.53 79.95 111.913 130.030

PAT 174.15 171.1 183.59 181.2 211.62 298.626 346.968

Minority Interest -0.69 -0.36 -0.19 -0.75 -0.8 -0.800 -0.800

Appropriations 444.83 595.81 740.37 874.77 1037.78 0.000 0.000

Dividend(%) 125 125 150 150 200 200 200

EPS 18.46 18.1 19.44 19.13 22.35 31.66768451 36.79407307

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Capex increased to 2.2x Debtors days to be constant at 76 days and 67

days calculated accordingly with the sales. Plant shutdown and addition in 2014. Accumulated depreciation increased in

proportion with the assets. Total Reserves increased with increase in profit. Assets like current investments , intangible

assets , Long term investment and other currentassets are kept constant.

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Common Size Statement

DESCRIPTION Mar-10 Mar-11 Mar-12 Mar-13 Average

Raw Material Consumed 37.35% 42.76% 38.29% 37.36% 38.94%

Power & Fuel Cost 9.41% 9.90% 10.54% 10.06% 9.98%

Employee Cost 4.56% 4.60% 4.58% 4.62% 4.59%

Other Manufacturing Expenses 13.28% 15.28% 15.20% 16.57% 15.08%

General and Administration Expenses 3.12% 2.61% 2.75% 2.67% 2.79%

Selling and Distribution Expenses 4.52% 4.61% 4.87% 6.21% 5.05%

Miscellaneous Expenses 3.45% 0.25% 4.21% 4.62% 3.13%

Operating Profit (Excl OI) 24.30% 22.13% 19.56% 17.90% 20.97%

Operating Profit 27.69% 24.31% 20.50% 19.12% 22.91%

Interest 0.35% 0.38% 0.58% 0.50% 0.45%

PBDT 27.35% 23.93% 19.92% 18.62% 22.45%

Depreciation 2.39% 2.24% 2.08% 1.97% 2.17%

Profit Before Taxation & Exceptional Items 24.96% 21.69% 2.43% 16.65% 16.43%

Exceptional Income / Expenses 0.00% 0.00% 0.00% 0.00% 0.00%

Profit Before Tax 24.96% 21.69% 17.84% 16.65% 20.28%

Provision for Tax 6.94% 5.54% 5.05% 4.57% 5.52%

Profit After Tax 18.02% 16.16% 12.79% 12.08% 14.76%

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Ratios for projections Mar-10 Mar-11 Mar-12 Mar-13Depreciation/Net block 10.44% 9.46% 8.66% 9.56%

Depreciation/gross block 7.08% 6.41% 5.94% 6.29%

pure working capital - Inventories 16.13% 20.83% 21.25% 23.01%

debtors 22.46% 31.53% 26.24% 19.42%

creditors 2.35% 11.68% 6.96% 6.43%

Creditors/RMC & power 5.12% 19.85% 13.52% 13.07%

effectivee tax rate 27.81% 25.53% 28.30% 27.42%

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YOY

DESCRIPTION Mar-10 Mar-11 Mar-12 Mar-13Net Sales -7.19% 19.66% 24.66% 23.62%

Raw Material Consumed -29.67% 11.38% -18.91% -10.29%

Power & Fuel Cost 4.24% 25.88% 32.71% 17.90%Employee Cost 5.53% 20.61% 24.17% 24.66%

Other Manufacturing Expenses -13.21% 37.60% 24.05% 34.75%

General and Administration Expenses -3.39% 0.03% 31.66% 19.69%

Selling and Distribution Expenses -1.20% 21.91% 31.67% 57.75%

Miscellaneous Expenses 40.15% -91.42% 2022.78% 35.61%

Total Expenditure -7.15% 26.45% 25.35% 26.16%

Operating Profit (Excl OI) -7.30% 9.00% 10.15% 13.17%

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External Debts are added to the secured loans. Short term liability is also increased in the

proportion of the expenditure.

Short term provisions are with slight increase asit just includes the employee benefits. Total Debts is calculated upon the incremental

assets. The tax is taken out proportionately on the basis

of the previous year trends Net Worth drives the book value to increase and

the contingent liability is kept to be constant.

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(Indian Rupee .in Crores)

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

EQUITY AND LIABILITIES

Share Capital 18.8641 18.8641 18.8641 18.8641 18.8641 18.8641

Total Reserves (Incl Revaluation) 883.22 1033.259 1216.649 1398.938 1697.564 2044.532

Revaluation reserve 0.152 0.14 0.1289 0.1171 0.1171 0.1171

Shareholder's Funds 902.0841 1052.123 1235.513 1417.802 1716.428 2063.396

Minority Interest 6.02 6.467 4.3796 8.0841 8.0841 8.0841

Long-Term Borrowings 8.202 21.152 7.125 106.3266 116.3266 121.3266

Secured Loans 6.567 16.908 3.01 102.39 252.39 252.39

Unsecured Loans 1.635 4.244 4.115 3.9366 3.9366 3.9366Deferred Tax Assets / Liabilities 11.686 15.237 15.7698 13.2079 13.2079 13.2079

Other Long Term Liabilities

Long Term Trade Payables

Long Term Provisions 0 0 4.3014 5.9011 5.9011 5.9011

Total Non-Current Liabilities 19.888 36.389 27.1962 125.4356 135.4356 140.4356

Current Liabilities

Trade Payables 22.345 132.7872 98.6427 112.6358 152.3216 180.5873

Other Current Liabilities 54.678 2.93 35.5844 53.2305 53.2305 53.2305

Short Term Borrowings 15.575 16.9668 38.5995 52.4333 62.4333 67.4333

Short Term Provisions 275.291 345.021 50.3256 75.0359 75.0359 75.0359

Total Current Liabilities 367.889 497.705 223.1522 293.3355 343.0213 376.287

Total Liabilities 1295.881 1592.684 1490.241 1844.657 2202.969 2588.203

ASSETSNon-Current Assets

Gross Block 320.973 396.251 495.2143 548.3423 657.9489 861.2489

Less: Accumulated Depreciation 103.374 127.884 155.4278 187.8489 226.8489 275.9489

Less: Impairment of Assets 0 0 0 0 0 0

Net Block 217.599 268.367 339.7865 360.4934 431.1 585.3

Lease Adjustment A/c 0 0 0 0 0 0

Capital Work in Progress 11.2 15.164 18.0849 31.5744 150 150

Intangible assets 13.944 13.961 16.2816 16.6692 16.6692 16.6692

Pre-operative Expenses pending 0 0 0 0 0 0

Assets in transit 0 0 0 0 0 0

Long Term Investment 0.001 0.001 0.001 7.3963 7.3963 7.3963

Long Term Loans & Advances 0 0 17.9827 16.4592 16.4592 16.4592

Other Non Current Assets 0 0 6.1908 3.7338 3.7338 3.7338

Total Non-Current Assets 242.744 297.493 398.3275 436.3263 625.3585 779.5585

Current Assets Loans & Advances

Currents Investments 141.46 150.133 140.2583 186.7035 186.7035 186.7035

Inventories 153.185 236.747 301.0887 402.9814 434.8429 515.5349

Trade Receivables 213.279 358.3 371.7256 340.0717 493.2546 584.7859

Cash and Bank 209.305 153.059 149.6417 279.1356 371.0259 351.66

Other Current Assets 0.963 0.077 3.3622 0.8062 0.8062 0.8062

Short Term Loans and Advances 334.945 396.875 125.8363 198.6292 198.6292 198.6292

Total Current Assets 1053.137 1295.191 1091.913 1408.328 1685.262 1838.12

Total Assets 1295.881 1592.684 1490.24 1844.654 2310.621 2617.678

Contingent Liabilities 83.179 109.292 154.5007 225.4896 225.4896 225.4896

Total Debt 927.9921 1094.979 1267.089 1551.322 1765.058 2396.401

Book Value 95.62 111.53 130.98 150.31 181.0398 181.0398

Adjusted Book Value 95.62 111.53 130.98 150.31 181.9792 218.7655

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WACC

CAPM MODEL

Market Beta (Calculated) Government bond Rate (Observed) Market Return

0.236343933 8.74% 13.67%

Rate ( Calculated) Cost of Debt K(d) wacc

9.90% 13% 9.6262%Total Debt Market Cap Weight of Debt Weight of equity

1551.3217 2997.797 34.10% 65.8984%

Total4549.1187

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Tax rate 0.3463

ROE 15.95 ROE 15.84

3 Stage Dupont Analysis 31/03/2013 3 Stage Dupont Analysis 31/03/2012

Net Profit Margin 12.08352605 Net Profit Margin 12.79055814

Asset Turnover Ratio 1.050295512 Asset Turnover Ratio 0.919044283

Equity Multiplier 1.25687687 Equity Multiplier 1.347646353

3 Stage Dupont Analysis ROE 15.95 3 Stage Dupont Analysis ROE 15.84170327

5 Stage Dupont Analysis 31/03/2013 5 Stage Dupont Analysis 31/03/2012

ebit/sale 19.12111505 ebit/sale 20.49524589

sale/asset 1.050295512 sale/asset 0.919044283

asset/avg equity 1.25687687 asset/avg equity 1.347646353

pat/ebt 0.725794835 pat/ebt 0.716942312

ebt/ebit 0.870696091 ebt/ebit 0.870466678ROE 15.9513677 ROE 15.84170327

DUPONT ANALYSIS

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Expected Return

Date Rate (Calculated)3/31/2013 13.73%

3/31/2012 13.28%

3/31/2011 13.33%

3/31/2010 13.09%

3/31/2009 14.47%Expected Return 13.58%

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WACC is 9.62%, which represents the minimumrate of return at which company produces valuefor its investors.

The company expected return is more thanWACC which indicates that investor shall puttheir money into the stock and vice versa.

Net profit margin has decreased. Quite efficient Financial Leverage Risk has decreased Tax burden has increased Interest rate burden is almost same Operating Profit Margin has decreased

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CURRENT MARKET PRICE (AS ON 1STFEB2014): RS. 511.50

TARGET PRICE: RS 588 RECOMMENDATION: BUY

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ECONOMIC TIMES BUSINESS STANDARD

ANNUAL REPORT OF THE COMPANY MONEY CONTROL

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