Quick take

February 7, 2018

Elantas Beck India Ltd.

BUY

CMP

`2155

Leader in liquid insulation

Target Price

`2500

Investment Period

12 Months

Elantas Beck India (Elantas) is the Indian market leader in liquid insulation

segment used in electrical equipments like motors, transformers, generators etc.

Stock Info

Part of global specialty chemicals leader ALTANA Group, the company

Sector

Chemicals

practically has no visible peer in ` 600 cr+ market in India. Elantas enjoys

Market Cap (` cr)

1,701

market leadership in both primary and secondary insulation market with over

Beta

0.3

35% market share.

Liquid insulation forms small but critical part of the equipment: Liquid insulation

52 Week High / Low

2395/1726

forms a small part of the total equipment cost (<1-2%); however, it performs a

Avg. Daily Volume

1,704

critical function. This helps the company in commanding tangible pricing power

Face Value (`)

which helped in improving margins. It has almost doubled its margin to 21%

over CY12-16, taking advantage of falling crude prices and premium pricing.

BSE Sensex

34,082

This has helped in registering 6% CAGR in revenue and 17% CAGR in PAT over

Nifty

10,476

the same period.

Reuters Code

BECK.BO

Demand from user industries likely to be robust- It derives demand from several

Bloomberg Code

EBECK IN

industries including electronic equipment's, power segment and automotive

component Industries which are expected to register 10%+ CAGR in demand in

the coming years. Elantas with strong R&D support from its global parents and

Shareholding Pattern (%)

diversified product offerings is likely to benefit from such buoyant demand.

Promoters

Deleveraged company generates healthy free cash flow: It is a debt free

MF / Banks / Indian Fls

company which generates robust free cash flows. Its robust business model also

helps in limiting its working capital cycle

~65-70 days and its capex

FII / NRIs / OCBs

requirements. This has led to liquid investments crossing `128cr in H1FY18. The

Indian Public / Others

company shares this wealth in every 2-3 years with investors in the form of rich

dividends. We expect the company to soon announce a lumpy dividend.

Abs.(%)

3m 1yr 3yr

Outlook & Valuation: Elantas is likely to post subdued CY17 mainly marred by

GST woes and poor off take from customer side. The demand to pick up from

Sensex

1.4

20.2

20.8

CY18 onwards which will boost the earnings CAGR to 17% over CY18-20.

Elantas Beck

7.5

21.7

100.2

Current valuations at 22.4x CY19 EPS, looks attractive considering its growth

potential and high return ratios. We initiate coverage on Elantas with a Buy

recommendation and Target Price of `2500 (26x CY19E EPS), indicating an

3-year price chart

upside of ~16% from the current levels.

Key Financials

2500

Y/E March ( ` cr)

CY2016

CY2017E CY2018E CY2019E

2000

Net Sales

365

373

435

508

1500

% chg

6.1

2.0

16.7

1000

500

Net Profit

% chg

30.6

1.4

18.6

16.3

OPM (%)

21.5

21.8

22.0

EPS (Rs)

68.7

69.7

82.7

96.2

P/E (x)

31.4

30.9

26.1

22.4

Source: Company, Angel Research

P/BV (x)

7.7

6.3

5.1

4.2

RoE (%)

24.6

20.2

19.6

18.8

Nidhi Agrawal

RoCE (%)

33.1

27.3

26.4

25.8

022 - 3935 7800 Ext: 6872

Source :Company, Angel Research; Note: CMP as of February 07, 2018

[email protected]

Please refer to important disclosures at the end of this report

All Prices in

Elantas Beck India| Initiating Coverage

Company Background

Incorporated in 1956 as Dr. Beck & Company India Ltd., ELANTAS is present in

India for 60+years. It was acquired by world’s leading company in Liquid

Electrical Insulation ELANTAS Gmbh, part of global specialty chemicals leader

ALTANA Group, in 2003. It is engaged in the business of manufacturing and

marketing of Electrical Insulation Systems and Electronic & Engineering Materials

having applications in Electrical Equipment, Power and Automotive Sectors. Its

manufacturing plants located at Pimpri, Pune in Maharashtra and Ankleshwar in

Gujarat with combined capacity of 24000 MT.

Product Profile

Source: Company

Outlook and Valuation

Elantas is likely to witness a subdued CY17 mainly marred by GST woes and poor

off take from customer side. We expect the demand to pick up from CY18

onwards which boost the earnings CAGR to 17% over CY18-20. We also expect

the company to announce a lumpy dividend in next few months to reduce its

burgeoning liquid investment. Current valuations at 22.4x CY19 EPS, looks

attractive considering its growth potential and high return ratios. We initiate

coverage on Elantas with a Buy recommendation and Target Price of `2500 (26x

CY19E EPS), indicating an upside of ~16% from the current levels.

February 07, 2018

All Prices in

Elantas Beck India| Initiating Coverage

Profit & Loss Statement

Y/E March (` cr)

CY2016

CY2017E

CY2018E

CY2019E

Total operating income

365

373

435

508

% chg

6.1

2.0

16.7

Total Expenditure

287

292

340

396

Raw Material

220

224

262

306

Personnel

Others Expenses

EBITDA

112

% chg

26.3

2.0

18.4

17.8

(% of Net Sales)

21.5

21.8

22.0

Depreciation& Amortisation

EBIT

73.5

105

% chg

30.4

1.6

18.4

18.5

(% of Net Sales)

20.1

20.0

20.3

20.6

Interest & other Charges

Other Income

(% of PBT)

9.4

11.8

12.0

10.3

Share in profit of Associates

Recurring PBT

80.9

100

117

% chg

31.0

4.4

18.6

16.3

Tax

(% of PBT)

34.5

Deferred tax

(1.5)

PAT (reported)

Extraordinary Items

(0)

ADJ. PAT

54.5

% chg

30.6

1.4

18.6

16.3

(% of Net Sales)

14.9

14.8

15.1

15.0

Basic EPS (Rs)

68.7

69.7

82.7

96.2

Fully Diluted EPS (Rs)

68.7

69.7

82.7

96.2

% chg

30.6

1.4

18.6

16.3

February 07, 2018

All Prices in

Elantas Beck India| Initiating Coverage

Balance Sheet

CY2016

CY2017E

CY2018E

CY2019E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

214

265

326

398

Shareholders Funds

222

273

334

406

Total Loans

Deferred Tax Liability

(1)

Other Long Term Liabilities

0.5

Long-Term Provisions

3.5

4.7

4.9

5.2

Total Liabilities

225

278

340

412

APPLICATION OF FUNDS

(4)

Gross Block

126

138

148

Less: Acc. Depreciation

Net Block

Capital Work-in-Progress

Investments

109

129

149

169

Long-Term Loans and Advances

3.6

2.6

Other non current assets

0.2

Current Assets

134

149

196

259

Inventories

Sundry Debtors

Cash

Loans & Advances

Other Assets

Current liabilities

Net Current Assets

119

169

Deferred Tax Asset

Mis. Exp. not written off

Total Assets

225

278

340

412

February 07, 2018

All Prices in

Elantas Beck India| Initiating Coverage

Cash Flow Statement

Y/E March (Rs cr)

CY2016

CY2017E CY2018E CY2019E

Profit before tax

100

117

Depreciation

Change in Working Capital

(1)

(9)

(11)

Interest / Dividend (Net)

(1)

Direct taxes paid

(26)

(29)

(35)

(40)

Others

(4)

Cash Flow from Operations

(Inc.)/ Dec. in Fixed Assets

(5)

(30)

(12)

(10)

(Inc.)/ Dec. in Investments

(45)

(20)

Other income

Cash Flow from Investing

(51)

(40)

(20)

(18)

Issue of Equity

Inc./(Dec.) in loans

Dividend Paid (Incl. Tax)

(5)

(4)

(5)

Interest / Dividend (Net)

(0)

Cash Flow from Financing

(5)

(4)

(5)

Inc./(Dec.) in Cash

Opening Cash balances

Closing Cash balances

Free cash flow

106

108

February 07, 2018

All Prices in

Elantas Beck India| Initiating Coverage

Key Ratios

Y/E March

CY2016

CY2017E

CY2018E

CY2019E

Valuation Ratio (x)

P/E (on FDEPS)

31.4

30.9

26.1

22.4

P/CEPS

28.6

28.1

23.7

20.5

P/BV

7.7

6.3

5.1

4.2

Dividend yield (%)

0.2

0.3

EV/Sales

4.3

4.2

3.5

2.8

EV/EBITDA

20.1

19.4

15.8

12.9

EV / Total Assets

7.0

5.6

4.4

3.5

Per Share Data (Rs)

EPS (Basic)

68.7

69.7

82.7

96.2

EPS (fully diluted)

68.7

69.7

82.7

96.2

Cash EPS

75.2

76.7

91.0

105.2

DPS

4.5

5.0

5.5

6.1

Book Value

279.8

344.5

421.7

511.9

Returns (%)

ROCE

33.1

27.3

26.4

25.8

Angel ROIC (Pre-tax)

77.1

64.1

67.5

72.9

ROE

24.6

20.2

19.6

18.8

Turnover ratios (x)

Asset Turnover (Gross Block)

3.8

3.0

3.1

3.4

Inventory / Sales (days)

Receivables (days)

Payables (days)

Working capital cycle (ex-cash) (days)

Source: Company Angel research, Note - Valuation done on closing price of 07/02/2018

February 07, 2018

All Prices in

Elantas Beck India| Initiating Coverage

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Disclosure of Interest Statement

Elantas Beck India

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

February 07, 2018