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Housing and Urban Development Corporation Ltd "SUBSCRIBE" 8th May 2017
HUDCO is a wholly-owned Government company with more than 46 years of experience in providing loans for housing and urban infrastructure
projects in India. HUDCOs AUM stands at ~Rs 36800Cr out of which 89% is to state government and their agencies. The loan book of the company
has till date been growing at 7.5% CAGR for last 4 years which appears low considering other listed housing finance company. GNPA of the
company stands at 6.80% while NNPA at 1.51% which is again higher than its listed peers. However the company is expected to benefit hugely
from Pradhan Mantri Awas Yojna under Housing for All by 2022. As the CAR is high at 63.9%, risk of any equity dilution in the near term gets
eliminated.
The company is attractively priced at 1.4 times BV with Return on Equity at 7.6% . We recommend SUBSCRIBE.
.......................................................... (Page : 21-24)
35% 34% Rs.3800 to Rs.3575 and change our rating from BUY to NEUTRAL.
34%
33% 32%
32% 31%
31%
30%
Financials/Valu FY15 FY16 FY17 FY18E FY19E
29% ation
Net Sales 27,538 28,457 28,585 30,971 33,473
28%
EBITDA 3,497 4,398 4,576 5,206 5,926
EBIT 2,956 3,954 4,074 4,618 5,279
Shareholding patterns % PAT 2,365 3,112 3,546 3,793 4,309
4QFY17 3QFY17 2QFY17 EPS (Rs) 118 156 178 190 216
Promoters 34.6 34.6 34.6 EPS growth (%) 12% 32% 14% 7% 14%
Public 65.4 65.4 65.4 ROE (%) 36% 35% 34% 32% 31%
Total 100.0 100.0 100.0 ROCE (%) 45% 44% 39% 38% 38%
BV 328 442 517 599 692
Stock Performance % P/B (X) 8 7 6 6 5
1Mn 3Mn 1Yr P/E (x) 22 19 19 17 15
Absolute 8.2 7.4 16.9
Rel.to Nifty 6.2 0.3 (2.5) RECENT DEVELOPMENTS:
130
The Halol Plant at Gujarat has started commercial production in 4QFY17.
HEROMOTOCO NIFTY The first phase capacity of Halol plant is 12 lakh units per annum, while
125
120
overall production capacity planned is 18 lakh units. This plant will take
115
care exports also.
110
The company has planned Rs. 2500 crores of capital expenditure to be
105
spent over next two years. This will be towards new product development,
100
phase wise capacity installation & expansion at existing facilities.
95
90 The company expanded its footprint in the international markets by
85 commencing operations in two significant global markets like Argentina
80 and Nigeria.
Jul-16
Sep-16
Feb-17
Jan-17
Dec-16
Jun-16
Aug-16
May-16
May-17
Oct-16
Nov-16
Apr-17
Mar-17
The company has robust pipe line of new products in Scooter and
Premium segment motorcycles. These products will be launched in FY18
& FY19.
NAVEEN KUMAR DUBEY
Naveen.dubey@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
Quarterly Performance
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Total Volumes ('000) 1,721 1,745 1,823 1,473 1,622 -6% 10% 6,631 6,664 0%
Realization(Rs./ bike) 43,644 42,391 42,755 43,202 42,639 -2% -1% 42,912 42,895 0%
Net Sales 7,505 7,399 7,796 6,365 6,915 -8% 9% 28,457 28,585 0%
Other Income 117 120 152 132 118 1% -10% 413 522 26%
COGS 4,964 4,965 5,183 4,128 4,736 -5% 15% 19,308 19,091 -1%
Employee Cost 351 336 357 374 328 -7% -12% 1,339 1,432 7%
Other Expenses 1,001 867 887 783 893 -11% 14% 3,412 3,486 2%
EBITDA 1,189 1,230 1,369 1,080 958 -19% -11% 4,398 4,576 4%
Depreciation 115 115 119 125 135 18% 8% 443 502 13%
Interest 1 2 2 2 1 21% -3% 15 27 87%
PBT 1,190 1,234 1,400 1,085 939 -21% -13% 4,353 4,568 5%
Tax 357 351 396 313 221 -38% -29% 1,275 1,339 5%
PAT 833 883 1,004 772 718 -14% -7% 3,112 3,546 14%
Hero Motocorp reported 8%YoY decline in the net sales in 4QFY17. Total sales volumes contracted
by 6%YoY and Realization also declined by 2%YoY.
Reduction in the total sales volumes was the after effect of demonetization during the 3QFY17. 2
Wheeler sector was one of the most affected sectors due to currency ban. The company witnessed
slow recovery during January and February months in the rural segment, where Hero has more
than 50% exposure. 2 Wheeler sales increased in March on account of destocking of BS-III
inventory.
Heavy discounts of up to Rs.10000 per vehicle because of higher BS-III inventory resulted in lower
realization for the quarter.
EBITDA declined by 19% YoY to Rs.958 crore in 4QFY17 due to increased commodity prices and
higher other expenses.
Depreciation for the quarter stood at Rs.135 crore, higher 18%YoY because of the production at
Halol Plant has started in 4QFY17.
Profit after tax also declined by 14% YoY to Rs.718 crore during the quarter.
-6% -2%
1,645,867
-7%
1,574,861
1,690,354
1,721,240
1,745,389
1,823,498
1,621,805
600,000 -5% 0%
43,414
43,155
43,644
42,391
43,202
42,639
42,259
42,755
Gross Margin contracted by 230 bps YoY to 32% due to higher commodity prices. Transition from BS-
III to BS-IV has also put the margins under pressure. Full impact of increased commodity prices have
not yet factored in 4QFY17 results and thus margins will also be under pressure in 1QFY18.
EBITDA Margin declined by 200 bps YoY to 13.8% in 4QFY17 impacted by higher other expenses.
Lower tax expenses during the quarter supported PAT and restricted the further decline in the PAT
Margins.
EBITDA and EBITDA Margin trend PAT and PAT Margin trend
EBITDA (Rs. Crore) EBITDA Margin PAT (Rs. Crore) PAT Margin
1,004
4%
1,048
1,083
1,131
1,189
1,080
1,230
1,369
200
750
772
793
833
883
772
718
2%
958
200 2%
- 0% - 0%
Concall Highlights:
High single digit growth for industry in FY18.
Double digit growth for Hero in FY18.
EBITDA Margin would be in the range of 14-15%.
There will be cost pressure in 1QFY18 also.
Advertising & Promotion expenses will be 2.5% of sales in FY18.
Depreciation will be high because of commencement of production in Halol Plant.
Scooter segment growth will be higher than industry.
Rural market is expected to post good growth backed by good monsoon and marriage season.
Capex guidance of Rs.2500 crore to be spent on R&D (new product development) and Andhra plant.
Inventory level stood at 5-6 weeks.
The tax benefit for plants in Rajasthan and Gujarat will last for 7 years; and the benefit is restricted to
the extent of investment
Management expects benefit from LEAP program to be around 50-60 bps and additional 25-30 bps
from other initiatives.
Export market outlook remain sluggisg for next couple of months.
The management is also focusing on developing electric vehicles considering the government focus
towards Mission Electric by 2020.
Higher Depreciation may affect the bottom-line- The commercial production at Halol plant has started in
4QFY17. Considering the demand scenario we expect that it will take at least 6-8 months to ramp up and till
then the company has to incur higher other expenses and depreciation on the plant.
Uncertainty regarding tax regime- GST will come in effect from 1st July 2017 and the tax rates are still not
certain which keeps the auto industry to on its toes. All the auto manufacturers will refrain from keeping
higher inventory with them. The meeting has been scheduled on 19th May to decide the tax rates.
Rural Demand to drive growth- Hero Motocorp has more than 55% exposure in rural segment.
Expectation of good monsoon in the current fiscal may drive the demand going ahead. Marriage season in
the North region will be key growth driver for the company in FY18.
New product launch in the scooter and premium segment- The company has huge capex plan of
Rs.2500 crore over next two years. The launches will be in the fast growing scooter segment and premium
segment motorcycles. Hero Motorcorp has very minimal presence in the premium segment where peers like
Bajaj Auto, TVS Motors and Yamaha has captured more than 80% market share.
Trend in Segment Mix Share of Scooters & 125 cc segment increasing gardually
Vijaya bank is trading at its higher Financials/Valuation FY15 FY16 FY17 FY18E FY19E
range of P/B NII 2,292 2,761 3,506 4,054 4,701
1.20
PPP 1,912 2,086 2,737 2,784 3,127
1.00
PAT 439 382 750 904 1,338
0.80 NIM % 1.8 2.1 2.5 2.7 2.8
0.60 EPS (Rs) 5.1 4.1 7.5 8.2 12.2
0.40 EPS growth (%) 26.4% -20.0% 83.5% 9.5% 48.0%
0.20
ROE (%) 7.5 6.1 11.1 11.7 15.0
ROA (%) 0.3 0.3 0.5 0.6 0.8
-
BV 69 70 70 77 86
4QFY16
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
1QFY17
2QFY17
3QFY17
4QFY17
FY07
FY08
FY10
FY11
FY12
FY13
FY09
Profitability Metrix 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY %
C/I Ratio % 66.6 54.9 53.1 53.6 51.2 -15.44 -2.44 57.4 53.1 -4.33
Cost to Empl. Cost/ Tot. Exp. % 58.5 61.0 63.8 64.4 65.6 7.02 1.20 59.8 63.9 4.09
Income Other Exp/Tot. Exp.% 41.5 39.0 36.2 35.6 34.4 -7.02 -1.20 40.2 36.1 -4.09
remained at
Provision/PPP % 207.8 58.4 68.3 60.6 61.5 -146.4 0.89 89.8 62.2 -27.55
higher side. A
Tax Rate % 121.2 15.3 14.6 15.2 24.7 -96.46 9.56 -141.1 17.9 159.03
lot of scope
form Int Exp./Int Inc. (%) 77.4 74.4 73.5 71.1 67.6 -9.78 -3.50 77.2 71.7 -5.48
improvement. Other Inc./Net Inc. % 29.0 23.1 31.9 38.9 31.3 2.28 -7.64 24.0 32.0 7.97
PAT/ Net Income % 7.6 15.9 12.7 15.5 14.2 6.54 -1.35 10.5 14.6 4.05
PAT Growth % -27.3 13.4 34.1 337.7 183.9 211.2 -153.8 -13.1 96.6 109.67
NII Growth % (YoY) 6.9 18.2 19.5 22.9 48.0 41.16 25.17 20.4 27.0 6.57
Operating Profit Growth 0.0 16.8 43.1 55.5 123.7 123.73 68.24 23.0 56.3 33.30
YoY
RoE %
% 6.1 9.8 9.1 13.2 11.6 5.47 -1.60 6.1 11.1 4.97
RoA % 0.3 0.5 0.4 0.6 0.5 0.23 -0.08 0.3 0.5 0.25
Concall Highlights :
Slippages were due to demonetization which got deferment during 3Q FY17 on account of
dispensation scheme of RBI. However management said that they saw good recovery in MSME
accounts from mid of April. There was only one large account from S4A which slipped to the tune of
Rs 60 to 70 Cr.
Steel and Iron advances is Rs3711 Cr and NPA in this Rs 2000 Cr which constitute 31% of total
GNPA. Engineering constitute 8.3% of GNPA, Power is 9.65%, textile is 4.8%, Road is 5.7% of total
GNPA.
Expect 9%-10% credit growth on the back of retail, agri and MSME sector in FY18.NIM target is 2.8%-
3%. Expect to cross PCR of 65% in FY18.
Management expects slippages run rate of Rs 250-300 Cr per quarter in FY18.
S4A exposure is Rs 836 Cr, SDR is Rs 222 Cr (4 a/c) of which Rs 192 is NPA, 5/25 is Rs 1972 Cr of
which Rs 982 Cr is already NPA.
One account to the tune of Rs 400 Cr from electronic company is showing stress.
Restructured book reduced due to conversion of discom exposure of Rs 400 Cr from Tamil Nadu and
Telengana.
View and Valuation
Focus of management on retail banking has helped the operating profitability to improve significantly.
The balance sheet has tilted towards more on retail banking both on assets side as well as liability
side. Focus on CASA deposits and shedding the bulk deposits has helped the cost of fund to decline
significantly. We expect NIM to improve further in FY18 to 2.75%. Focus of management is growing
retail book going forward hence we expect 8 to 10 percent credit growth in FY18. Assets quality is
likely to continue to improve going forward but we are cautious for the whole scenario of assets quality
in PSU banking. With the Tier 1 ratio at 9.96% and CRAR at 12.73% management plans to Raise Rs
1000 Cr core capital in FY18. With this we expect RoE and RoA of 11.7% and 0.6% respectively in
FY18.
We initiated this stock at the price of Rs 48 which has almost doubled till now. The stock is
currently trading at (1.3x/1.2x PV FY17/FY18E) and valuation has got stretched which leaves us
with little upside, hence we recommend to partly book profit on this stock and hold for the rest
with the target price of Rs 98.
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
Non-Performing Assets
4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY(+/-) QoQ(+/-) FY16 FY17 YoY %
GNPA (Rs) 6,027 6,589 6,490 6,305 6,382 5.9% 1.2% 6,027 6,382 5.9%
GNPA % 6.6 7.3 7.1 7.0 6.6 -0.05 -0.39 6.6 6.6 -0.05
NNPA (Rs) 4,277 4,793 4,587 4,182 4,118 -3.7% -1.5% 4,277 4,118 -3.7%
NNPA % 4.8 5.4 5.1 4.7 4.4 -0.45 -0.38 4.8 4.4 -0.45
Slippages (Rs) 3,016 1,244 736 200 713 -76.4% 256.5% 5,836 2,893 -50.4%
Restructured Ast.(Rs) 2,155 9,670 2,285 1,969 1,524 -631.00 -445.00 2,155 1,524 -631.00
PCR % 50.1 48.6 51.3 55.4 58.2 8.07 2.71 50.1 58.2 8.07
Advances Performance
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Gross Adv. (Rs in Cr) 87,692 84,800 87,026 89,696 90,765 90,199 91,821 90,290 96,821
Adv. Growth YoY % 6.4 10.0 10.8 13.3 3.5 6.4 5.5 0.7 6.7
>> Growth QoQ % 10.8 -3.3 2.6 3.1 1.2 -0.6 1.8 -1.7 7.2
Deposits Performance
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17
Deposits (Rs in Cr) 126343 127640 123286 125475 125441 120477 127785 128299 133012
Growth YoY % 1.6 7.6 0.1 1.1 -0.7 -5.6 3.6 2.3 6.0
>> Growth QoQ % 1.8 1.0 -3.4 1.8 0.0 -4.0 6.1 0.4 3.7
CASA (Rs) 25,721 24,285 25,311 25,992 29,125 27,975 28,953 36,816 37,373
>>CASA Growth YoY % 12.5 6.9 8.4 9.8 13.2 15.2 14.4 41.6 28.3
>> Growth QoQ % 8.7 -5.6 4.2 2.7 12.1 -3.9 3.5 27.2 1.5
CASA % 20.4 19.0 20.5 20.7 23.2 23.2 22.7 28.7 28.1
CA % 5.3 4.2 4.6 4.9 5.3 5.0 4.6 6.3 6.4
SA % 15.1 14.8 15.9 15.9 17.9 18.2 18.0 22.4 21.7
Credit Deposit Ratio 69.4 66.4 70.6 71.5 72.4 74.9 71.9 70.4 72.8
RAJEEV ANAND
rajeev.anand@narnolia.com
Please refer to the Disclaimers at the end of this Report
Narnolia Securities Ltd
Quarterly Performance
Financials 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 YoY % QoQ% FY16 FY17 YoY %
Net Sales 2,207 2,123 2,439 2,486 2,489 13% 0% 8,753 9,609 10%
Other Income 11 14 17 19 26 145% 36% 84 60 -29%
COGS 979 982 1,059 1,057 1,034 6% -2% 3,867 4,133 7%
Ad & P Expenses 154 168 203 192 155 1% -19%
Employee Cost 229 249 241 256 247 8% -3% 944 988 5%
Other Expenses 313 343 391 381 403 29% 6% 1,977 2,234 13%
EBITDA 456 381 466 517 551 21% 7% 1,636 1,913 17%
Depreciation 28 33 36 36 37 30% 2% 101 142 41%
Interest 25 33 35 40 38 50% -4% 119 145 22%
PBT 418 330 412 447 497 19% 11% 1,500 1,686 12%
Tax 102 75 91 99 115 12% 16% 336 379 13%
PAT 125 244 318 352 390 212% 11% 828 1,304 58%
1013
1018
1028
1086
1120
1220
1173
1078
200
1889
2060
2236
2092
1988
2197
2286
2207
2123
2439
2486
2489
889
910
920
50
0 0 0
Gross margin for this quarter improved by 282 bps YoY to 58.5% led by lower input prices, product
mix and price hike. On yearly basis gross margin improved by 117 bps to 57%.
EBITDA margin improved by 147 bps YoY to 22.1% led by 282 bps YoY decline in COGS,76 bps YoY
decline in A&P expense and 47 bps YoY decline in employee expenses in Q4FY17 whereas other
expenses went up by 202 bps YoY.
PAT margin remained 15.7%in Q4FY17 as compared to 5.7% in Q4FY16 due to onetime exceptional
item loss of Rs 189 cr in Q4FY16.
Domestic Soap Revenue growth YoY Segments Penetration
Domestic Soap Revenue growth YoY
20% Penetration
15%
15% 13% 13% 120%
11% 100%
9% 100%
10%
3% 80%
5% 2% 2%
1%
60% 48%
0% 38%
-6% -6% 40%
-5%
-10% 20%
-10%
0%
-15% Hair colour Household Soap
Insecticides(HI)
Make balance
between Concall Highlights(Q4FY17):
capital The company will maintain margin going forward. Try to improve it further.
allocation and
Focus to improve ROCE going forward. The company will make balance between capital
Div. Payout. allocation and Dividend payout going forward.
Confident of strong growth in medium to long term .
The company has seen recovery in consumer demand in Q4FY17.
Indonesian business: competitive intensity is decreasing in insecticide business. Expect better
growth going forward. Non insecticide business grew by 9% inQ4FY17. Insecticide business
maintained market share.
For the full year working capital has been reduced. The company sees it going down further.
The company launched HIT Gel Stick with a price point of Rs 30 in this quarter.
Domestic Soap business: The Company has initiated selective price increases in soap
portfolio and is scaling back consumer and trade offers.
The company is ready to leverage acquisition of Strength of Nature to build Wet Hair Care
platform in Africa.
European business: Overall demand environment remains challenging. Adjusted EBITDA
margins increased by 590 bps YoY led by judicious marketing investments and one-time
reversal of A&P provisions in Q4FY17.
African business (Potential growth driver): African business grew by 19% YoY in constant currency
(CC) terms and 54%YoY including Strength of Nature in Q3FY17. We expect similar growth in
Q4FY17.Although African business is facing some currency headwinds but by localizing production
facility and increasing prices company is expected to counter it.Going forward management sees
continuous margin improvement from African business in next 3-5 years.
25% 75%
80%
21%
70% 61%
20% 54%
19% 60% 52%
50%
15% 15% 36%
13% 40% 32% 33%
26%
30% 23%
10%
15% 16%
8% 20% 12%
7%
6%
5% 10%
3% 3%
0%
0% 0% 0%
-2%
-5%
40%
35%
Currently, the stock is trading at 8.0x FY19E P/BV. We maintain BUY'
30% with the target price of Rs. 28009 .
25%
20%
15%
10%
5%
Financials/Valu FY15 FY16 FY17 FY18E FY19E
0%
ation
Net Sales 8,738 6,173 7,033 7,923 8,915
EBITDA 1,115 1,690 2,174 2,448 2,902
EBIT 895 1,553 2,020 2,278 2,608
Shareholding patterns % PAT 615 1,338 1,667 1,872 2,148
4QFY17 3QFY17 2QFY17 EPS (Rs) 227 493 613 688 790
Promoters 50.6 50.6 50.6 EPS growth (%) 56% 117% 24% 12% 15%
Public 49.4 49.4 49.4 ROE (%) 24% 37% 31% 27% 25%
Total 100.0 100.0 100.0 ROCE (%) 36% 43% 38% 33% 30%
BV 928 1,345 1,964 2,532 3,202
Stock Performance % P/B (X) 16 14 13 11 8
1Mn 3Mn 1Yr P/E (x) 66 39 41 39 34
Absolute 4.4 12.7 33.1
Rel.to Nifty 3.1 6.5 12.7 RECENT DEVELOPMENT: Commencement of Vallam Vadagal plant
140
EICHERMOT NIFTY
Earlier the company was facing capacity constraints because of huge
demand for its classic models. But the management of the company took
130 right decision to increase the capacity in phased manner and in-line with
the demand.
120
110
The Vallam Vadagal facility is likely to commence production from August
2017 and with this expansion total capacity for two wheelers will reach to
100 825000 units per annum in FY18.
90 The company has target to take the production capacity to 900000 units
per annum by FY2018-19. Eicher Motors has planned Rs.800 crore of
80 capex in this regard in FY19.
Jul-16
Sep-16
Feb-17
Jan-17
Dec-16
Jun-16
Aug-16
May-16
May-17
Oct-16
Nov-16
Apr-17
Mar-17
Net sales grew by 23%YoY to Rs.1888 crore which was in-line with our estimates (Rs.1915 crore).
Volumes grew by 21%YoY and realization have also grown by 2%YoY.
Higher sales of Classic 350 motorcycles led to this volume growth. These motorcycles have more
than 2 months of waiting period in the domestic market. Export volumes have seen sharp increase
of 41%YoY during the quarter. On the commercial vehicle front VECV reported volume growth of
20%YoY in 4QFY17. The growth was supported by higher sales of Medium and Heavy Commercial
vehicles on the back of BS-IV transition.
Reported EBITDA grew by 30.9%YoY to Rs.585 crore. Lower advertising and promotion expenses
helped company to post 31% of EBITDA margin.
Depreciation and Amortization expenses remain higher in the quarter due to operationalization of
valam vadagal facility.
PAT stood Rs.459 crore at a growth of 34%YoY due to higher other income.
100,168
102,878
101,968
102,147
105,504
100,730
103,522
104,258
105,121
105,544
105,935
60000
106613
127611
125690
148186
147483
166941
173838
178228
20% 99,000
74131
81977
82215
92846
40000 1%
20000 10% 98,000
0 0% 97,000 0%
Gross Margin improved by 180 bps YoY to 47.4% on the back of lower commodity prices and higher
realization during the quarter.
The company has been taking the advantage of high operating leverage based on the higher volumes
which led the EBITDA margin to 31% during the quarter up by 180 bps YoY.
PAT margin increased by 190 bps owning to minimal finance cost and higher other income in the
4QFY17.
EBITDA and EBITDA Margin trend PAT and PAT Margin trend
EBITDA (Rs. Crore) EBITDA Margin PAT (Rs. Crore) PAT Margin
165
195
237
285
279
376
413
418
154
343
285
305
366
286
351
358
470
542
577
303
447
100 5% 50
- 0% - 0%
Concall Highlights:
The company has robust order book for classic 350 models
Valam vadagal facility will start from August 2017 and the total capcity will reach to 825000 units p.a.
Capex Rs.800 crore
Waiting period of more than 2 months for classic 350
Exports: RE sales is higher in developed markets than developing market. (UK, Germany, Italy and
France has on around 40-60 dealers in each countries)
The company has 1 store in Bangkok, 1 in Jakarta and 4 in Columbia.
22 new exclusive stores will be added in the international market.
Currently the company has 675 dealers and the company does not have any plans for expanding
through sub-dealers.
The outlook for commercial vehcles can be subdued going ahead.
Management expects that the rollout of GST on July 1 and it will benefit the consumers tax wise and
so may incentivize them to buy more trucks.
The company will come out with refresh versions of existing Royal Enfield models the current fiscal.
Spare parts stands 5-6 percent of total revenue.
On the BS-III inventory, the management has stated that the company has left with very minimal BS-III
stocks which can be sold to export markets.
Capacity addition in-line with demand- Considering the 3 months waiting period the company
increased the capacity from 720000 units to 825000 units per annum looking at the demand scenario.
We expect that the Eicher Motors will enjoy the benefit of operating leverage with increasing volumes
going ahead.
Expanding footprints in export markets- RE has expanded its footprint in the exports by opening up
stores in the various export markets like; Latin America, indonesia, bangkok and Madrid. The
investments are becoming fruitful in terms of higher volumes from exports. The company has already
more than 150 RE stores in UK, Germany, Italy and France. However considering the potential in the
developing economies Royal Enfield has started looking for the big opportunity in the fast growing
Brazilian market.
VECV prepared to take advantage of recovery in the commercial vehicles space- Currently the
CV segment is going through the pain of BS-IV transition from BS-III. GST roll out and monsoon will
also keep the situation haizy for few months. However we are optimistic about the growth in the
commercial vehicle space because of growing infrastructure activity in the country. The Govt. of India
and SIAM is in talk to bring scrappage policy in the country, which will bring the huge demand for
commercial vehicles in the country.
VECV volume trend Growth in RE and VECV to drive ROE and ROCE
12128
11657
12687
15492
16071
13408
17341
11306
11784
4000 0%
9544
9217
-7% 10%
2000
0 -10% 5%
0%
FY16
FY17
FY18
FY19
CY13
CY14
Type 100% Book Building Housing and Urban Development Corporation Ltd (HUDCO) incorporated in 1970,which is a
wholly-owned Government company with more than 46 years experience in providing loans for
Issue Size Rs. 1224 Crore housing and urban infrastructure projects in India. They provides long term finance for
Offer Price *Rs (56-60)/Equity Share construction of houses and to undertake housing and urban infrastructure development
Min App Size 200 Shares programs. Apart from the financing operations, Hudco offers consultancy services, promotes
research and studies and help propagate use of local building materials, cost-effective and
Issue Open 8-May-17 innovative construction technologies.
Issue Close 11-May-17
Shares Offer 20.40 Cr. HUDCO offers loans for housing projects, such as urban and rural housing, co-operative
Face Value Rs 10 housing, community toilets, slum upgradation, staff housing, repairs and renewals, private
ICICI Securities Ltd,IDBI
sector projects, land acquisition, and housing programs. They also offers take out finance for
Capital Market Services Ltd, housing and infrastructure projects to state government, public agencies, and private corporate
Nomura Financial Advisory sector agencies. Company provide loans for implementing agencies comprising state
Lead Mgrs government bodies, co-operative societies, corporate employers, and community sectors; and
And Securities (India) Pvt Ltd
, SBI Capital Markets Ltd building technology and rent to own schemes. It also provides finance for infrastructure projects
in the sectors of water supply, sewerage, drainage, solid waste management, roads and
Listing BSE, NSE transport, and electricity in the urban areas; and social infrastructure component, such as
play/primary schools, health centers, play grounds, police stations, courts, jails, crematorium,
Registrar Alankit Assignments Ltd etc. In addition, the company offers consultancy services, including URP services,
Market Cap (Post environmental engineering, and government programs and disaster mitigation services.
11210.6
Issue)
Bid allocation pattern Company continue to participate in the implementation of govt housing and urban infrastructure
QIB 50% programme such as DAY- NULM , JNNURM & PMAY HFA among other.
Non-Institutional 15% Company is increaseing geographical footprint in smaller cities to cater to incresing financing
Retail 35% requirment in these cities.
OBJECTS OF ISSUE:
To carry out the disinvestment of 204,058,747 Equity Shares by the Selling Shareholder
Rubi Burman constituting 10.19% of the companys pre-Offer paid up Equity Share Capital
rubi.burman@narnolia.com To achieve the benefits of listing the Equity Shares on the stock exchanges
RECOMMENDATION :
HUDCO is a wholly-owned Government company with more than 46 years of experience in providing loans for housing and urban infrastructure
projects in India. HUDCOs AUM stands at ~Rs 36800Cr out of which 89% is to state government and their agencies. The loan book of the
company has till date been growing at 7.5% CAGR for last 4 years which appears low considering other listed housing finance company. GNPA
of the company stands at 6.80% while NNPA at 1.51% which is again higher than its listed peers. However the company is expected to benefit
hugely from Pradhan Mantri Awas Yojna under Housing for All by 2022. As the CAR is high at 63.9%, risk of any equity dilution in the near term
gets eliminated.
The company is attractively priced at 1.4 times BV with Return on Equity at 7.6%
We recommend SUBSCRIBE
India Ratings (Fitch Group), ICRA and CARE have assigned a rating of AAA to HUDCOs long-term bonds, long-
term bank facilities and fixed deposit programme
Average Maturity
Amount (INR Interests Rate
Borrowing Type Period (From date of Residual Maturity
bn) Range
allotment)
Tax Free Bonds 173.88 10-20 years 4.83-17.25 years 7.00%-9.01%
Taxable Bonds 34.4 Upto 10 years 0.75-5.50 years 6.80%-8.14%
Refinance Assistance
21.2 7-10 years 1.83-8.08 years 6.25%-8.00%
from NHB
Fixed: 2.10%
ECB 4.89 25-30 years 6.58-13.75 years Floating USD 6M
LIBOR + (18-40bps)
COMPETITIVE RISKS
If the level of non-performing assets in their outstanding loans, advances and investments in project-linked bonds
were to increase or the NHB-mandated provisioning requirements were to increase.The results of operations and
financial condition would be adversely affected.
If borrowers default on their obligations to company, they may be unable to foreclose on their loans on a timely
basis, or at all, or realise the expected value collaterals and this may have a material adverse effect on results of
operations and financial condition.
Company operations are substantially dependent upon the amount of our NII and NIM. The interest rates
company pay on their borrowings and the interest rates company charge on their loans are sensitive to many
factors, many of which are beyond our control, including the RBIs monetary policies . Volatility in interest rates
could adversely affect our business, net interest income and net interest margin, which in turn would adversely
affect our results of operations and financial condition.
Company business is dependent upon timely access to, and the costs associated with, borrowings. The debt
funding requirements historically have been primarily met from a combination of the issuance of tax-free
bonds,the issuance of unsecured taxable bonds, foreign currency loans, refinance assistance from NHB, public
deposits . Company may be unable to secure funding on commercially acceptable terms and at competitive rates,
which could adversely affect business and results of operations.
-10.0% FY14 FY15 FY16 FY17E FY18E FY19E Cosmo films announced thr launch of a Low Noice Tape film, used in
making of low noice tapes.
Return on capital employed Return on Equity The BOPP based low noise tape film with a proprietary release surface
treatment enables easy release and generates low noise on unwinding.
Share Holding patterns % low noise tape film take significantly less release force as compared to a
3QFY17 2QFY17 1QFY17 normal tape film. The film can easily take up any adhesive be it water
Promoters 43.5 43.5 43.5 based, solvent based, rubber based or hot melt type.
Public 56.5 56.5 56.5 Value added tape film does not come at a significant incremental cost
Total 100.0 100.0 100.0 and therefore is easier to switch to. In most of the tape applications,
Stock Performance % printing on the filmtakes place on the other side of the release coating.
1Mn 3Mn 1Yr However, the release side could also be made printable.
Absolute 14.6 21.7 21.8
Rel.to Nifty 13.5 14.3 0.7 Financials/Valu FY15 FY16 FY17E FY18E FY19E
130 COSMOFILMS NIFTY
ation
Net Sales 1,647 1,621 1,715 2,276 2,461
125 EBITDA 104 191 183 285 314
120
EBIT 70 156 144 234 263
115
110
PAT 28 96 95 155 169
105 EPS (Rs) 14 50 49 80 87
100 EPS growth (%) - 248% -1% 64% 9%
95
ROE (%) 7% 21% 18% 25% 23%
90
85 ROCE (%) 11% 23% 16% 26% 28%
80 BV 196 235 269 325 381
Jul-16
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Mar-17
Cosmo Films Ltd, a leading global speciality films company, manufacturing multiple types of Bi-axially
Oriented Polypropelene (BOPP) and Cast Polypropelene (CPP) films has announced plans to install a
new product line for Speciality-Polyester BOPET (Bixially Oriented Polyethylene Terephthalate) films by
the third quarter of 2018-19.
The new line will be commisioned at the Waluj plant site in Aurangabad, Maharashtra, India with a
capacity of 36000 MT per annum. The project for the new line will entail an investment of Rs. 250
crores and shall be funded through a mix of internal accruals and debt. As per management guidance,
Debt-Equity mix for this new project will be in the ratio of 75:25.
This plant already houses BOPP lines, extursion coating lines, chemical coating lines, metallizers and a
CPP line. The new production line will complement the existing BOPP capacity of 200000 MT per
annum and allow Cosmo Films to offer a more comprehensive speciality product basket to flexible
packaging , labeling and industrial applications.
According to Mr. Pankaj Poddar, CEO, Cosmo Films, Speciality BOPET is one of the fastest growing
substrates and we anticipate a strong demand for these films. This will enable Cosmo to do import
substitution as well as take global market share.
BOPET offr high tensile strength, chemical and dimensional stability, tranparency reflectivity, gas and
aroma barrier properties and electical insulation.
Key Competetors
In BOPET segment, Cosmo will have competetion with other packaging players Like Jindal Polyfilms,
Polyplex Corporation, Uflex and others. Jindal Poly is the largest BOPET manufacturer in India with a
total capacity of 127000 mt per annum. A big part of the Indian demand for BOPET films is fulfilled
through imports as of now.
ABOUT BOPET
BOPET- Thin
Thin( 8-36 microns) BOPET films constitute nearly
three fourth of the worlds consumption of BOPET
films and are mainly used in packaging.
BOPET- Thick Industrial
Thick (50-350- microns) PET film is suitable for
various industrial applications.
Opportunities for BOPET
Asia (excluding Japan and Korea) has emerged as
the largest market for BOPET films accounting for
nearly 50% of the world consumption.
Penetration of flexible packaging in developing
countries in Asia still is low and huge opportunity
exist for growth with increase in organized retail,
small serve packs and increasing consumerism all
Image: BOPET film roll requiring better & attractive packaging.
Narnolia Securities Ltd Please refer to the Disclaimers at the end of this Report
Details of New Product Launch
Cosmo films recently announced the launch of a low noise tape film, used in making of low noise tapes. The
BOPP based low noise tape film with a proprietary release surface treatment enables easy release and
generates low noise on unwinding. This feature becomes extremely significant in industrial settings where
multiple packing lines work in tandem and auto dispensing machines are installed and packing takes place
atrelatively higher speeds. In most developed countries, factory guidelines require manufacturers to adhere to
low decibel levels and therefore low noise tapes become significantly relevant.
The low noise tape film also take significantly less release force as compared to a normal tape film. The film can
easily take up any adhesive be it water based, solvent based, rubber based or hot melt type. The value added
tape film does not come at a significant incremental cost and therefore is easier to switch to. In most of the
tape applications, printing on the film takes place on the other side of the release coating. However, the
release side could also be made printable.
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