Kirloskar Oil Engines | Capital Goods
April 12, 2014
Kirloskar Oil Engines
BUY
CMP
`197
Geared up for brighter future
Target Price
`244
Kirloskar Oil Engines (KOEL) is the flagship company of the Kirloskar group, one
Investment Period
12 months
of India’s largest engineering conglomerates. It is one of the world’s largest
generating set (genset) manufacturers, operating at a capacity utilization level of
Stock Info
55%, manufacturing both air-cooled and water-cooled engines and diesel gensets
Sector
Capital Goods
Market Cap (` cr)
2,846
across a wide range of power output from 5kVA to 3000kVA. With capacity
Net debt (` cr)
(801)
already in place and minimum capex requirement in near future, we expect that
Beta
0.6
once the operating leverage starts paying off, it will directly shoot up the bottom-
52 Week High / Low
214/ 141
line of the company. On account of positive long term growth outlook and
Avg. Daily Volume
26,711
attractive valuation, we initiate coverage on the company with a Buy
Face Value (`)
2
recommendation and target price of `244.
BSE Sensex
22,629
Nifty
6,776
Long term prospects intact on account of operating leverage: In the near term, we
Reuters Code
KIRO.BO
expect the company to grow at a moderate pace on account of slowdown in
Bloomberg Code
KOEL IN
economy and dampened demand. However, we are bullish on KOEL from a long
term perspective based on the operating leverage. With capacity expansion
already in place, the company is in a comfortable position to cater to the expected
Shareholding Pattern (%)
demand for gensets, engines and pumps. Once the demand scenario improves and
Promoters
72.7
operating leverage starts paying off, the bottom-line of the company will shoot up.
MF / Banks / Indian Fls
6.6
FII / NRIs / OCBs
10.4
Increasing promoters’ stake and cash rich position: In the past two years the
Indian Public / Others
10.3
company’s promoters have raised their stake from 66.9% in December 2011 to
72.7% in December 2013, thus inspiring confidence in the company’s future. In
addition, negligible debt on books, minimum capex requirement leading to flat
Abs.(%)
3m 1yr
3yr
depreciation, and with subsidy earned on the Kagal plant, the company is
Sensex
7.1
22.0
17.5
expected to become cash rich with `383cr of cash in books by FY2016E.
KOEL
21.9
16.3
29.3
Outlook and Valuation: We expect KOEL’s revenue to grow to `2,603cr with an
operating margin of 13.2% in FY2016E. Moreover, KOEL is expected to become
a debt-free company by FY2016E, thus strengthening its balance sheet. With
minimum capex plans in pipeline and cash on books expected to be at `383cr in
FY2016E, we expect the company’s bottom-line to grow to `235cr in FY2016E.
KOEL is currently trading at a PE of 12.1x its FY2016E earnings. We initiate
coverage on the company with a Buy recommendation and target price of `244
on a target PE of 15.0x FY2016E earnings.
Key financials
Y/E March (` cr)
FY2012 FY2013 FY2014E
FY2015E
FY2016E
Net Sales
2,276
2,319
2,272
2,377
2,603
% chg
(3.7)
1.9
(2.0)
4.6
9.5
Adj. Net Profit
192
199
184
210
235
% chg
10.4
3.7
(7.4)
14.2
12.1
OPM (%)
11.1
13.3
12.3
13.2
13.2
EPS (`)
13.3
13.7
12.7
14.5
16.3
P/E (x)
14.8
14.3
15.5
13.5
12.1
P/BV (x)
2.8
2.5
2.3
2.1
1.9
RoE (%)
20.0
18.2
15.5
16.4
16.4
RoCE (%)
14.0
18.0
14.7
15.9
16.2
Tejashwini Kumari
EV/Sales (x)
1.0
1.0
1.1
0.9
0.8
022-39357800 Ext: 6856
EV/EBITDA (x)
9.4
7.8
8.6
7.2
5.9
[email protected]
Source: Company, Angel Research, Note: CMP as of April 11, 2014
Please refer to important disclosures at the end of this report
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Kirloskar oil Engines | Initiating Coverage
Investment arguments
Long term prospects intact on account of operating leverage
Revival in economy and operating
We expect the company to grow at a moderate pace in the near term on account
leverage to turnaround fortunes of
of slowdown in economy and dampened demand. However, KOEL poses to be a
KOEL
bullish long term growth story based on its operating leverage. With a capacity of
213,525 engines and 8,959 gensets (reported as of FY2011), the company is in a
comfortable position to cater to the anticipated demand for gensets and engines.
The company’s capacity for engines has grown by 12.0% CAGR over FY2007-11;
however its sales have increased only by half the capacity growth rate, ie at 5.9%
over the same period.
The turnaround story of ‘Swaraj Engines’ is the most relevant to look at with
respect to KOEL’s present status.
Turnaround story of Swaraj Engines - A perspective
Swaraj Engines was formed as a JV between Punjab Tractors (PTL; 33.16%) and
Kirloskar Oil Engines (17.39%). In 2007, Mahindra & Mahindra (M&M) acquired a
majority stake in PTL, and in February 2009, it was merged into M&M as the
Swaraj division. Swaraj Engines increased its installed capacity of engines to
36,000 units in FY2000; however the sales growth was visible only after the
merger with M&M in FY2009. After the merger, the operating leverage came into
play when the net sales for the company grew by a whopping 66.1% in FY2009 to
`208cr and by 35.7% in FY2010 to `282cr with a profit of `21cr in FY2009 and
`37cr in FY2010 without any additional cost.
Exhibit 1: Swaraj Engines’ story of operating leverage
(` cr)
FY2007
FY2008
FY2009
FY2010
Installed capacity (Unit)
36,000
36,000
36,000
36,000
Sales (unit)
17,702
16,408
28,539
39,143
% growth
0.4
(7.3)
73.9
37.2
Gross block
68
70
71
72
% growth
1.2
3.8
1.7
0.9
Net sales
129
125
208
282
% growth
0.6
(2.8)
66.1
35.7
Adj. Net Profit
15
14
21
37
% growth
4.9
(2.4)
48.5
71.7
Source: Company, Angel Research
We expect the same story to showcase in case of KOEL. With capacity expansion
already in place and minimum capex requirement in coming years, we expect that
once the operating leverage starts paying off and demand increases with
economic revival, it will directly shoot up the bottom-line of the company. Though
we are conservative in our estimates looking at the slow growth of economy, we
remain bullish on the company from a longer term perspective.
We consider three cases for the company based on the demand scenario for
FY2016E. Though we have taken the base case in our estimates being
conservative, however, if the bull case happens, we expect a 19.2% growth in the
company’s sales with a PATM of 9.4% in FY2016E. In that case we may expect a
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
46% upside in the value of the stock from the current levels with an expected target
price of `288. In the worst case scenario also, when the company witnesses a
mere 4.7% growth in sales, the stock may give a return of 12%.
Exhibit 2: Three cases for FY2016E
(` cr)
Bear case
Base case
Bull case
Net sales
2,419
2,603
2,965
% growth
4.7
9.5
19.2
PAT
213
235
277
PATM (%)
8.8
9.0
9.4
Current PE
13.4
12.1
10.3
Target PE (x)
15.0
15.0
15.0
Expected value
3,197
3,532
4,159
Expected CMP (`)
221
244
288
Upside (%)
12
24
46
Source: Company, Angel Research
Debt free and cash rich company
KOEL has offloaded most of its debt in this fiscal (ie FY2014), and we expect it to
become a debt free company by the end of this year, thus strengthening its
balance sheet. Further, with all expansion plans in place, the capex requirement
for the company in the coming years would be negligible. We expect the
depreciation charges to be flat on account of minimum capex requirement in the
near future, which would add directly to the bottom-line.
Company expected to have cash
In addition, the manufacturing unit at Kagal has been granted ‘Mega Project’
of `383cr by FY2016E
status by the Government of Maharashtra and is therefore eligible for Industrial
Promotion Subsidy (IPS). The subsidy is equivalent to 100% of eligible investments
or amount of MVAT and CST payable to the State Government (before adjustment
of Set-off) on sales made from the Kagal plant, less the amount of benefits availed
by way of electricity duty exemption and stamp duty exemption, whichever is lower,
for a period of 9 years (from April 1, 2008 to March 31, 2017). This subsidy gets
credited in the capital reserve and thus increases cash subject to approval for
disbursal by the competent authority.
With minimum capex requirement as capacity is already in place, the company is
expected to become a cash rich company with `383cr cash in books in FY2016E
leading to higher other income generation. On account of above mentioned
factors, we expect the company’s bottom-line to grow at a CAGR of 5.8% over
FY2013-16E at `235cr with `383cr of cash.
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
Increasing promoters’ stake to boost investors’ confidence
The promoters are continuously increasing their stake in the company which shows
their confidence in the company’s future. In the past two years the stake has
increased from 66.9% in December 2011 to 72.7% in December 2013.
Increasing promoters’ stake to boost
Exhibit 3: Increasing promoters' stake
confidence
74.0
72.7
72.0
70.0
66.9
68.0
66.0
64.0
62.0
62.4
60.0
58.0
56.0
Source: Company, Angel Research
Revival in the economy to drive growth
In the past 12-18 months, the industrial and infrastructure segment witnessed
persistent headwinds such as inflationary pressures, slow order inflows, high
interest rates and policy paralysis, which resulted in execution slowdown and led to
dip in demand for gensets. This affected the company’s performance as gensets
constitute a major proportion in the company’s revenue (36% in 9MFY2014).
However, on expectation of stable government which is expected to undertake
policy action to remove bottlenecks, we expect growth in industrial and
infrastructure sector which will push demand for gensets. With the revival, we
expect the company to post a revenue growth of 4.6% and 9.5% to `2,377cr and
`2,603cr in FY2015E and FY2016E respectively.
Exhibit 4: Improvement in the economic scenario to aid revenue growth
GDP growth
Sales growth
12.0
9.3
9.5
10.0
8.6
8.0
6.2
5.4
6.4
5.0
6.0
4.4
6.6
4.0
4.6
2.0
0.0
1.9
0.5
(2.0)
(2.0)
(4.0)
(3.7)
(6.0)
FY2010
FY2011
FY2012
FY2013
FY2014E FY2015E FY2016E
Source: IMF, Company
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
New CPCB-II norms are positive for the company
New CPCB-II (Central Pollution Control Board) norms are soon expected to be
introduced in India. These apply to power gensets below 800KVA range and are
meant to cut down specific pollutants by 29%- 62% from current standards. The
price of CPCB-II compliant engines are expected to be 15-20% higher than the
ones available currently. Backed by strong technical capability, R&D set up,
operating scale and strong channel partners, KOEL is geared to deliver engines
meeting these stringent norms. Also, it is expected that the company may gain
market share from smaller players for whom meeting these requirements will not
be easy. KOEL has already produced CPCB-II compliant engines and DG sets and
is planning to ramp up production much before the due date which was scheduled
to be April 1, 2014. The date has been supposedly revised.
Increasing focus on exports - a long term growth driver
In order to balance out any slowdown in domestic economy, the company is now
focusing on the export market. The company’s major export markets are Saudi
Arabia, South Africa, Nigeria, Sri Lanka, Zambia, Kenya, Tanzania, and Nepal.
Export contributed ~8-10% to the total revenue of the company in FY2013, driven
mainly by Africa and the Middle East. The company is upping its focus on exports
and plans to enter new markets through focused efforts and initiatives, including
working closely with distributors. As per the company’s plans, the new focus will be
on countries in South East Asia, Europe and North America in the coming years. It
is also exploring exports of Agri engines to Myanmar. The company’s reach and
competitive position coupled with rupee depreciation are estimated to drive its
exports.
Diversified business model lowers risk for the company
KOEL enjoys a diversified business model, thus helping in minimizing risks arising
from any slowdown in any particular vertical.
Exhibit 5: Segmental contribution to revenue (FY2013)
Large Engines,
7.3
Customer
PowerGen
Support, 16.7
(Private &
Cellular), 41.5
Industrial, 16.4
Agricultural, 18.2
Source: Company, Angel Research
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
PowerGen segment: In FY2013, KOEL derived major revenue from its PowerGen
segment which constitutes the private and cellular segments. Going forward we
expect the revenue from the private segment to improve as the economy shows
signs of recovery; however, the cellular segment is expected to continue to be slow
because growth in the telecom sector is bottoming out. KOEL has a market share
of 32% in this segment.
Agri segment: Following the PowerGen segment is the contribution from the agri
segment, which contributed 18.2% to the revenue. Though the share of agriculture
and allied sector in India’s GDP declined to about 13.6% during FY2013 on
account of higher growth in non-farm sectors, the increase in area under irrigation
and non-availability of power are expected to provide a boost to demand for
engine driven pump-sets. Also, the company is aggressive on retailer appointments
and focused on prospect-based marketing, which are expected to aid growth in
the segment.
Industrial segment: The Industrial segment constituted 16.4% to total revenues in
FY2013. Due to the overall slump in the economy, the revenue from the segment
dropped by 23% in FY2013. However, with the expected thrust on deferred
infrastructure projects across the country, we expect growth in the segment. In
9MFY2014, the revenue from the segment increased by 6.4%.
Customer Support: KOEL is known for its commitment to provide quality service to
all its customers. It has a strong network of 450 well equipped service outlets and
more than 4,500 trained service engineers. The company has come up with a free
10 year service promise on purchase of all new Kirloskar Green Diesel Generator
Sets above 15 KVA capacity, which is expected to drive volumes. Under this service
arrangement, the labor cost is free, but the required spares would be charged.
Large Engines: The company received an order of `396cr from the Nuclear Power
Corporation of India (NPCIL) in FY2012 for the supply, erection and
commissioning of 16 emergency DG sets. Out of 16, two DG sets were supplied in
FY2013. In 9MFY2014, seven of them have been already manufactured and two
more are expected to be through by the end of FY2014. The remaining five are
expected to be completed in the coming year - FY2015E.
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
Financials
Exhibit 6: Key assumptions
FY2011
FY2012
FY2013
FY2014E FY2015E FY2016E
GDP growth (%)
9.3
6.2
5.0
4.4
5.4
6.4
Total operating Income
2,364
2,276
2,319
2,272
2,377
2,603
Growth (%)
6.6
(3.7)
1.9
(2.0)
4.6
9.5
Source: Company, Angel Research
Expected economy revival and operating leverage to turnaround
fortunes
KOEL witnessed a slowdown in revenue growth due to the fragile global economic
environment and overall poor investor sentiments on account of continuing delays
from government in ensuring timely project clearances, availability of funds for
various infrastructure projects and the various irregularities in the telecom and
mining sectors in the domestic market. However, we expect the global as well as
domestic scenario to improve going forward. With elections around the corner in
India, we are expecting that growth will benefit from a change in political
leadership which will positivity help in recovery of the economy and improve
investment prospects. On account of the expected revival in the economy we
expect the revenue for the company to bounce back in FY2015E to `2,377cr and
`2,603cr in FY2016E.
Exhibit 7: Revenue growth to improve going forward
Exhibit 8: Both EBITDA and PAT margin to expand
2,700
20
16.0
14.0
13.3
13.2
13.2
14.0
12.3
2,600
11.9
11.1
9.5
12.0
2,500
6.6
10
10.0
4.6
2,400
1.9
8.0
8.8
9.0
8.4
8.6
8.1
(3.7)
(2.0)
6.0
2,300
0
7.4
7.3
4.0
2,200
2.0
2,100
(10)
0.0
FY2011
FY2012
FY2013
FY2014E FY2015E FY2016E
FY2010
FY2011
FY2012
FY2013
FY2014E FY2015E FY2016E
Revenue (LHS)
Revenue growth (RHS)
EBITDAM
PATM
Source: Company, Angel Research
Source: Company, Angel Research
KOEL plans to invest `100cr in capacity building and technology upgradation as it
aims to become an end-to-end products provider and plans to enter new
geographies over the next two years. We expect the operating margin of the
company to dip to 12.3% for FY2014E on account to decline in sales and higher
employee cost. However, backed by cost optimization and efficiency improvement
programs, we expect the company to post an operating margin of 13.2% in
FY2016E. We also believe that with zero debt on the books and minimum capex
requirement, the company will become cash rich with `383cr of cash on its book
by FY2016E leading to a higher other income generation.
We expect all this to aid the company’s profit to clock a 5.8% CAGR over
FY2013-16E to `235cr.
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
Exhibit 9: Relative valuation (Trailing twelve months)
Mcap
Sales
OPM
PAT
EPS
RoE
P/E
P/BV EV/EBITDA
EV/ Sales
Company
(` cr)
(` cr)
(%)
(` cr)
(`)
(%)
(x)
(x)
(x)
(x)
KOEL
2,846
2,305
13.6
207
14.3
25.5
13.7
2.2
7.8
1.1
Cummins India
15,835
4,475
18.7
720
26.0
40.7
22.0
5.6
17.9
3.3
Greaves Cotton
2,005
1,823
10.1
154
6.3
21.1
13.0
2.5
10.3
1.0
Source: Company, Angel Research
Outlook and valuation: We expect KOEL’s revenue to grow by 4.6% and 9.5% to
`2,377cr and `2,603cr in FY2015E and FY2016E respectively on account of
revival in the economy. Backed by cost optimization, efficiency improvement
programs and operating leverage, we expect the company to post an operating
margin of 13.2% in FY2016E. Consequently the profit is expected to grow to
`235cr in FY2016E.
Given that the company’s capacity expansion is already in place and with
minimum capex requirement in near future, we are positive on the company from
a long term perspective. A revival in the economy coupled with operating leverage
will be strong driving factors for the company’s growth.
At the CMP, the company is trading at a PE of 12.1x FY2016E earnings. On
account of positive long term growth outlook and attractive valuation, we initiate
coverage on the company with a Buy recommendation and a target price of `244
at a target PE of 15.0x FY2016E earnings.
Exhibit 10: One-year forward P/E band
250
200
150
100
50
Price (`)
10x
12x
14x
16x
Source: Company, Angel Research
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
Concerns
Delay in CPCB-II norms: The delay in CPCB-II norms may provide other small
players enough time to meet the norms and thus hinder the chances of KOEL to
gain market share.
Continued slowdown in the economy: Our main rationale behind the improvement
in the company’s revenue growth is the improvement in the domestic economy.
Any continued slowdown will adversely affect the company’s performance.
Surplus electricity scenario: Contracting demand supply gap will be an adverse
situation for the company to some extent. The major usage of genset is stand-by
application to the extent of 85%, hence, even if power surplus happens still standby
demand will be there to the extent of 50% compared to original 85%. Thus, only
below 35KVA, which is mainly for the domestic use, will be affected in case of
power surplus.
Fluctuations in Steel price: Any substantial fluctuation in the steel price can lead to
margin compression of the company.
Exhibit 11: Steel price
50,000
45,000
41,000
40,000
35,000
30,000
25,000
20,000
Source: Angel Research, Bloomberg
Increasing imports from China: Low cost Chinese imports will continue to pose a
threat for the company.
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
Company background
KOEL is a flagship company of the Kirloskar group, one of India’s largest
engineering conglomerates. It is one of the world’s largest generating set
manufacturers, operating at capacity utilization level of 55%, specialising in
manufacturing of both air-cooled and water-cooled engines and diesel generating
sets across a wide range of power output from 5kVA to 3000kVA. It has four
manufacturing plants - at Kagal, Pune, Nashik and Rajkot. It has a strong
customer-focused approach and enjoys a network of 450 well equipped service
outlets and more than 4,500 trained service engineers ensuring that no customer
is more than 80km away from a service outlet anywhere in the country. In
addition, it has a 24 X 7 customer care centre equipped with more than 45
relationship managers.
The company has recently introduced a 10 years free service promise on purchase
of all new Kirloskar Green Diesel Generator Sets above 15 KVA capacity, under
which it will take care of labor services for routine maintenance and incidental
breakdown services for 10 years from the date of sales.
The company also has an established name in international markets with offices in
Dubai, South Africa, and Kenya, and representatives in Nigeria. It also has strong
distribution network throughout the Middle East and Africa.
Moreover, the Kirloskar Green Genset is amongst the market leaders and most
preferred brand among customers in the power generation industry in India
currently.
Exhibit 12: Segment description
Segments
Air-cooled and water-cooled engines/ diesel generating sets with power
Power Generation
output from 5kVA to 3000kVA.
Diesel engines in the range of 2400 hp to 11000 hp catering to DG sets
Large Engine
from 1.7 MW to 7.1 MW for stationary power plants
Agriculture
Diesel engines and pump-sets in the range of 3hp to 130hp
Off Highway
Diesel engines from 20hp to 800hp in the Off Highway space globally
Source: Company, Angel Research
Genset Industry in India
The diesel generator set market in India is well organized and highly competitive. It
can be broadly classified as small diesel generators (15-75 kVA), medium diesel
generators (75.1 - 375 kVA) and large diesel generators (375.1 - 2000 kVA).
Customer segments include - industrial, commercial, infrastructure and residential.
TechNavio forecasts that the diesel gensets market in India will grow at a CAGR of
12.4% over FY2013-18.
April 12, 2014
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Kirloskar oil Engines | Initiating Coverage
Profit and loss statement
Y/E March (` cr)
FY2012
FY2013
FY2014E
FY2015E
FY2016E
Sale of products
2,347
2,434
2,386
2,505
2,755
Less: Excise duty
170
201
196
205
226
Net sale of products
2,177
2,233
2,190
2,300
2,530
Sale of services
98
86
82
78
74
Total operating income
2,276
2,319
2,272
2,377
2,603
% chg
(3.7)
1.9
(2.0)
4.6
9.5
Net Raw Materials
1391
1444
1415
1460
1598
% chg
(2.4)
3.8
(2.0)
3.2
9.5
Power and Fuel
27
23
23
24
26
% chg
6.6
(17.7)
0.7
4.6
9.5
Personnel
175
154
170
178
195
% chg
(2.0)
(12.0)
10.4
4.6
9.5
Other
429
391
384
402
440
% chg
(5.3)
(8.9)
(1.7)
4.6
9.5
Total Expenditure
2022
2011
1992
2064
2259
EBITDA
253
308
280
314
344
% chg
(9.9)
21.7
(9.3)
12.1
9.7
(% of Net Sales)
11.1
13.3
12.3
13.2
13.2
Depreciation
91
93
98
101
104
EBIT
162
216
182
213
240
% chg
(17.4)
33.2
(15.8)
17.1
12.9
(% of Net Sales)
6.9
8.9
7.6
8.5
8.7
Interest & other Charges
16
3
1
0
0
Other Income
87
77
68
71
78
(% of Net Sales)
3.7
3.2
2.9
2.8
2.8
Recurring PBT
146
213
181
213
240
% chg
(17.2)
45.7
(15.1)
17.7
12.9
PBT (reported)
233
290
249
284
318
Tax
89
72
65
74
83
(% of PBT)
38.2
24.8
26.0
26.0
26.0
PAT (reported)
144
218
184
210
235
Extraordinary Expense/(Inc.)
47.7
(19.1)
0.0
0.0
0.0
ADJ. PAT
192
199
184
210
235
% chg
10.4
3.7
(7.4)
14.2
12.1
(% of Net Sales)
8.2
8.2
7.7
8.4
8.5
Basic EPS (`)
13.3
13.7
12.7
14.5
16.3
Fully Diluted EPS (`)
13.3
13.7
12.7
14.5
16.3
% chg
10.4
3.7
(7.4)
14.2
12.1
April 12, 2014
11
Kirloskar oil Engines | Initiating Coverage
Balance sheet
Y/E Mar. (` cr)
FY2012
FY2013
FY2014E
FY2015E
FY2016E
SOURCES OF FUNDS
Equity Share Capital
29
29
29
29
29
Reserves& Surplus
1,004
1,125
1,189
1,321
1,487
Shareholders’ Funds
1,033
1,154
1,218
1,350
1,516
Total Loans
87
-
-
-
-
Other Long Term Liabilities
46
30
30
30
30
Long Term Provisions
31
22
22
22
22
Deferred Tax (Net)
38
34
34
34
34
Total liabilities
1,234
1,240
1,304
1,435
1,602
APPLICATION OF FUNDS
Gross Block
1,155
1,263
1,345
1,385
1,427
Less: Acc. Depreciation
579
671
769
871
975
Net Block
576
591
575
515
452
Capital Work-in-Progress
16
27
27
29
31
Goodwill
-
-
-
-
-
Investments
527
418
418
418
418
Long Term Loans and adv.
72
66
91
95
104
Other Non-current asset
10
26
34
36
39
Current Assets
566
615
639
852
1,115
Cash
27
25
16
183
383
Loans & Advances
57
93
109
119
130
Inventory
132
189
209
233
255
Debtors
299
289
280
293
321
Other current assets
51
21
25
25
25
Current liabilities
533
504
480
509
557
Net Current Assets
33
112
158
344
558
Misc. Exp. not written off
-
-
-
-
-
Total Assets
1,234
1,240
1,304
1,435
1,602
April 12, 2014
12
Kirloskar oil Engines | Initiating Coverage
Cash flow statement
Y/E Mar. (` cr)
FY2012 FY2013 FY2014E FY2015E FY2016E
Profit before tax
233
290
249
284
318
Depreciation
91
93
98
101
104
Change in Working Capital
118
(81)
(55)
(18)
(14)
Direct taxes paid
(89)
(72)
(65)
(74)
(83)
Others
20
(13)
(70)
(30)
(23)
Cash Flow from Operations
373
216
157
263
303
(Inc.)/Dec. in Fixed Assets
(83)
(120)
(82)
(42)
(44)
(Inc.)/Dec. in Investments
(230)
110
-
-
-
(Incr)/Decr In LT loans & adv.
31
(9)
(33)
(6)
(12)
Others
85
50
34
36
39
Cash Flow from Investing
(198)
31
(81)
(12)
(18)
Issue of Equity
-
(0)
-
-
-
Inc./(Dec.) in loans
(82)
(87)
-
-
-
Dividend Paid (Incl. Tax)
(68)
(85)
(85)
(85)
(85)
Others
(21)
(78)
-
-
-
Cash Flow from Financing
(171)
(250)
(85)
(85)
(85)
Inc./(Dec.) in Cash
4
(3)
(9)
167
200
Opening Cash balances
23
27
25
16
183
Closing Cash balances
27
25
16
183
383
April 12, 2014
13
Kirloskar oil Engines | Initiating Coverage
Key ratios
Y/E Mar.
FY2012
FY2013
FY2014E
FY2015E
FY2016E
Valuation Ratio (x)
P/E (on FDEPS)
14.8
14.3
15.5
13.5
12.1
P/CEPS
10.1
9.8
10.1
9.1
8.4
P/BV
2.8
2.5
2.3
2.1
1.9
EV/Net sales
1.0
1.0
1.1
0.9
0.8
EV/EBITDA
9.4
7.8
8.6
7.2
5.9
EV / Total Assets
2.0
2.0
1.9
1.6
1.3
Per Share Data (`)
EPS (Basic)
13.3
13.7
12.7
14.5
16.3
EPS (fully diluted)
13.3
13.7
12.7
14.5
16.3
Cash EPS
19.6
20.1
19.5
21.5
23.5
DPS
4.0
5.0
5.0
5.0
5.0
Book Value
71.4
79.8
84.2
93.3
104.8
DuPont Analysis
EBIT margin
7.1
9.3
8.0
8.9
9.2
Tax retention ratio
0.6
0.8
0.7
0.7
0.7
Asset turnover (x)
3.2
3.4
2.9
3.0
3.5
ROIC (Post-tax)
14.1
23.8
17.4
19.9
23.6
Cost of Debt (Post Tax)
7.7
5.2
-
-
-
Leverage (x)
(0.5)
(0.4)
(0.4)
(0.4)
(0.5)
Operating ROE
11.2
16.7
-
-
-
Returns (%)
ROCE (Pre-tax)
14.0
18.0
14.7
15.9
16.2
Angel ROIC (Pre-tax)
22.8
31.7
23.5
26.9
31.9
ROE
20.0
18.2
15.5
16.4
16.4
Turnover ratios (x)
Asset TO (Gross Block)
2.0
1.9
1.7
1.7
1.9
Inventory / Net sales (days)
22
25
32
34
34
Receivables (days)
55
46
45
45
45
Payables (days)
100
94
88
90
90
WC cycle (ex-cash) (days)
10
7
18
23
23
Solvency ratios (x)
Net debt to equity
(0.5)
(0.4)
(0.4)
(0.4)
(0.5)
Net debt to EBITDA
(1.8)
(1.4)
(1.6)
(1.9)
(2.3)
Int. Coverage (EBIT/ Int.)
10.1
72.6
178.0
-
-
April 12, 2014
14
Kirloskar oil Engines | Initiating Coverage
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
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the merits and risks of such an investment.
Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
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sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
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While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
KOEL
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
Reduce (-5% to -15%)
Sell (< -15%)
April 12, 2014
15
Kirloskar oil Engines | Initiating Coverage
6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team
Fundamental:
Sarabjit Kour Nangra
VP-Research, Pharmaceutical
[email protected]
Vaibhav Agrawal
VP-Research, Banking
[email protected]
Bhavesh Chauhan
Sr. Analyst (Metals & Mining)
[email protected]
V Srinivasan
Analyst (Cement, FMCG)
[email protected]
Yaresh Kothari
Analyst (Automobile)
[email protected]
Ankita Somani
Analyst (IT, Telecom)
[email protected]
Bhupali Gursale
Economist
[email protected]
Vinay Rachh
Research Associate
[email protected]
Amit Patil
Research Associate
[email protected]
Twinkle Gosar
Research Associate
[email protected]
Tejashwini Kumari
Research Associate
[email protected]
Harshal Patkar
Research Associate
[email protected]
Nishant Sharma
Research Associate
[email protected]
Technicals and Derivatives:
Siddarth Bhamre
Head - Technical & Derivatives
[email protected]
Sameet Chavan
Technical Analyst
[email protected]
Nagesh Arekar
Executive
[email protected]
Sneha Seth
Associates (Derivatives)
[email protected]
Institutional Sales Team:
Mayuresh Joshi
VP - Institutional Sales
[email protected]
Meenakshi Chavan
Dealer
[email protected]
Gaurang Tisani
Dealer
[email protected]
Production Team:
Tejas Vahalia
Research Editor
[email protected]
Dilip Patel
Production Incharge
[email protected]
CSO & Registered Office: G-1, Ackruti Trade Centre, Road No. 7, MIDC, Andheri (E), Mumbai - 93. Tel: (022) 3083 7700. Angel Broking Pvt. Ltd: BSE Cash: INB010996539 / BSE F&O: INF010996539, CDSL Regn. No.: IN - DP - CDSL - 234 - 2004, PMS Regn. Code: PM/INP000001546, NSE Cash: INB231279838 /
NSE F&O: INF231279838 / NSE Currency: INE231279838, MCX Stock Exchange Ltd: INE261279838 / Member ID: 10500. Angel Commodities Broking (P) Ltd.: MCX Member ID: 12685 / FMC Regn. No.: MCX / TCM / CORP / 0037 NCDEX: Member ID 00220 / FMC Regn. No.: NCDEX / TCM / CORP / 0302.
April 12, 2014
16