Vesuvius India: Performance Highlights
Vesuvius India: Performance Highlights
Vesuvius India: Performance Highlights
November 5, 2012
Vesuvius India
Performance Highlights
Y/E December (` cr) Net sales EBITDA EBITDA margin (%) Adjusted PAT
Source: Company, Angel Research
NEUTRAL
CMP Target Price
% chg (yoy) (4.5) (2.1) 45bp (4.0) 2QCY12 139 22 16.1 13 % chg (qoq) (5.2) 9.1 243bp 11.3
`341 -
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others Abs. (%) Sensex VESUVIUS 3m 7.8 1yr 6.8
Cap Goods 693 (22) 0.7 464/305 3,363 10 18,763 5,704 VESU.BO VI@IN
For 3QCY2012, Vesuvius India Ltd (VIL) reported a 4.5% yoy decline in its revenue to `132cr. The EBITDA margin expanded marginally by 45bp yoy to 18.6% on account of decline in raw material expense, while on a sequential basis, the EBITDA margin expanded by 243bp from 16.1% in 2QCY2012 owing to a 16% decline in other expenses. The net profit declined a tad by 4.0% yoy to `14cr from `15cr in 3QCY2011. Demand outlook bleak, operating performance improves: We expect the company to face short-term pressures on the volume front due to weak demand. Raw material cost continues to show some relief, which coupled with decreased other expenses lead to a sequential improvement in operating performance. We expect raw material prices to remain stable at these levels; however employee expense (as percentage of net sales) is expected to increase. The net profit is expected to see a dip in CY2012E and then recover in CY2013E. Outlook and valuation: We expect VIL to post a 4.3% CAGR revenue growth over CY2011-13E due to weak demand while the EBITDA margin is expected to contract marginally by 41bp over CY2011-13E from 17.4% in CY2011 to 17.0% in CY2013E, owing to relatively higher operating expenses. The net profit is expected to decline in CY2012E to `51cr from `55cr in CY2011 and recover to `56cr by CY2013E. At the current market price, the stock is trading at a PE of 12.4x its CY2013E earnings and P/BV of 1.8x for CY2013E. Considering higher valuations, we recommend a Neutral view on the stock.
Key financials
Y/E December (` cr) Net Sales % chg Net Profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoIC (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
CY2010 440 21.7 49 29.3 18.7 23.9 14.3 2.7 20.8 43.9 1.4 7.8
CY2011 540 22.8 55 13.7 17.4 27.2 12.5 2.3 20.1 40.6 1.2 6.8
CY2012E 549 1.6 51 (7.2) 16.6 25.2 13.5 2.1 16.1 32.6 1.1 6.8
CY2013E 587 6.9 56 9.0 17.0 27.5 12.4 1.8 15.5 31.4 1.0 6.1
Shareen Batatawala
+91- 22- 3935 7800 Ext: 6849 shareen.batatawala@angelbroking.com
3QCY12 132 73 54.9 9 6.7 26 19.9 108 25 18.6 0 4 0.3 21 15.7 7 32.5 14 10.6 20 6.9
3QCY11 138 76 55.3 8 5.8 29 20.8 113 25 18.1 (0) 4 0.0 21 15.4 7 31.8 15 10.5 20 7.2
yoy chg (%) (4.5) (5.2) 10.0 (8.9) (5.0) (2.1) 45bp 3.3 (3.0) (0.9) (4.0)
2QCY12 139 77 55.1 9 6.3 31 22.5 117 22 16.1 0 4 0.3 19 13.4 6 32.5 13 9.0 20
qoq chg (%) (5.2) (5.5) 0.3 (16.1) (7.9) 9.1 243bp (2.6) 11.3 11.3 11.3
9MCY12 410 229 55.8 26 6.4 88 21.4 343 67 16.4 0 12 1 56 13.8 18 32.5 38 9.3 20
9MCY11 395 217 54.8 23 5.9 80 20.2 320 75 19.1 (1) 11 0 66 16.6 21 31.6 45 11.4 20 22.1
% chg 3.8 5.7 13.0 9.6 7.2 (10.7) (266)bp 14.6 12.6 (11.7) (15.1)
(4.0)
6.2
11.3
18.8
(15.1)
132 25 18.6 14
November 5, 2012
Investment rationale
WSA further reduces steel consumption estimates- concerns persist
About 75% of the total refractories are consumed in the iron and steel industry. Indias steel consumption reported a sluggish growth of 5.5% in CY2011 vs an estimate of 13.3% by the World Steel Association (WSA). Following this, WSA revised its consumption estimates for CY2012 to 6.9% in April 2012, which were further reduced to 5.5% in October 2012. However, WSAs steel consumption growth estimate for India still stands higher than most other developed as well as developing countries. Thus, refractory consumption is expected to grow, but at a relatively slower pace on account of reduced steel demand.
Growth (%)
2.2
2.5
(0.6)
(1.2)
(2)
Japan
EU
(5.6)
China
CIS
0.8
3.8
4.0
4.1
6.8
2010
622,500 800,000 250,760
New capacity
155,900 84,000 36,000
6.9
India
2012E
778,400 884,000 286,760 1,949,160
1,673,260
November 5, 2012
7.5
10
We expect new capacities to contribute to the industry post improvement in capacity utilization to higher levels. This would lead to a decrease in the imports market share for refractories.
42.2
30 25 20 15
29.3 24.0
28.2
27.3
26.5
CY08
CY09
CY10
CY11
CY12E
CY13E
November 5, 2012
Financials
Exhibit 6: Key assumptions
CY2012E Change in refractory volume sales Change in MRP of refractories
Source: Angel Research
(4.1) 3.0
Earlier estimates CY2012E 560 16.1 24.7 CY2013E 611 17.0 28.8
Revised estimates CY2012E 549 16.6 25.2 CY2013E 587 17.0 27.5
(` cr)
10 0.7 139 2QCY12 132 3QCY12 5 1.8 0 (5) 2QCY11 3QCY11 4QCY11 1QCY12 Revenue (LHS) yoy growth (RHS)
300 200 100 0 CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E Revenue (LHS) Revenue growth (RHS) 353 10.4 6.9 362 2.5 440 540 549 1.6 587
10 5 0
1.8
November 5, 2012
(%)
80
(` cr)
15
(%)
400
15
(` cr)
(` cr)
16.1 14.8 14.6 25 0 2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12 EBITDA (LHS) EBITDA margin (RHS) 25 22 20 22 25 13
(%)
15 10 5
16 15 14
40 20 53 0
15.0
CY2008
EBITDA (LHS)
40 29.3 18.8 30 20 13.7 9.0 10 0 32 (3.9) 38 CY2009 49 CY2010 PAT (LHS) 55 CY2011 51 (7.2) CY2012E 56 CY2013E (10)
(%)
30 20 10 0
CY2008
November 5, 2012
(%)
60
16
(`)
(x)
200 100 0 Nov-07 8 4 0 Nov-07 Nov-08 Price Nov-09 5x Nov-10 8x 11x Nov-11 14x Nov-12
Nov-08
Nov-09
Nov-10 PE
Nov-11
Nov-12
Median PE (5 yr)
PAT (` cr) 41 51
EPS (`) 12 25
Risks
Slowdown in steel industry: VIL is a manufacturer of refractories, which has major application (~75% of total production) in the iron and steel industry. Slowdown in steel demand has a direct impact on refractory demand. Underperformance in the steel industry may be a cause for declining demand of refractories, thus affecting the company.
November 5, 2012
CY2010
473 33 440 440 21.7 242 59 25 32 358 82 28.5 18.7 13 69 35.1 15.7 1 6 1.5 75 33.6 26 35 49 0 49 29.3 11.0 23.9 23.9 29.3
CY2011
581 40 540 540 22.8 307 73 30 37 446 94 14.4 17.4 15 79 14.6 14.7 1 5 0.9 83 10.6 27 33 55 55 13.7 10.2 27.2 27.2 13.7
CY2012E
587 38 549 549 1.6 308 77 35 38 458 91 (2.9) 16.6 16 75 (5.6) 13.6 2 0.3 76 (7.5) 25 33 51 51 (7.2) 9.3 25.2 25.2 (7.2)
CY2013E
628 41 587 587 6.9 331 80 36 41 487 100 9.2 17.0 18 82 9.0 13.9 2 0.3 83 9.0 28 33 56 56 9.0 9.5 27.5 27.5 9.0
November 5, 2012
Balance Sheet
Y/E December (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability (Net) Other Long Term Liabilities Long Term Provisions Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Long Term loans and adv. Other long term assets Current Assets Cash Loans & Advances Inventory Debtors Other current assets Current liabilities Net Current Assets Misc. Exp. not written off Total Assets 161 79 82 21 193 55 11 29 98 77 115 218 181 90 92 20 373 56 164 38 116 226 147 259 207 99 109 30 181 1 270 54 15 48 149 3 109 161 482 239 115 123 20 184 1 299 72 16 56 151 3 105 193 521 262 133 129 20 197 1 331 87 17 63 162 4 113 219 565 20 193 213 5 218 20 233 253 6 259 20 278 298 6 177 482 20 317 337 6 177 521 20 361 381 6 177 565 CY2009 CY2010 CY2011 CY2012E CY2013E
November 5, 2012
November 5, 2012
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Key Ratios
Y/E December Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover Inventory / Sales (days) Receivables (days) Payables (days) WC (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (0.3) (0.9) 61.0 (0.2) (0.7) 80.5 (0.2) (0.6) 62.4 (0.2) (0.8) (0.2) (0.9) 2.2 11 99 95 61 2.4 8 96 231 75 2.6 8 101 89 72 2.3 10 101 70 81 2.2 10 101 70 82 25.1 33.8 18.9 29.0 43.9 20.8 21.4 40.6 20.1 14.9 32.6 16.1 15.0 31.4 15.5 14.2 0.7 2.5 24.0 (0.3) 15.7 0.7 2.4 24.7 (0.2) 14.7 0.7 1.4 13.3 (0.2) 13.6 0.7 1.3 11.7 (0.2) 13.9 0.7 1.3 11.9 (0.2) 18.5 18.5 24.8 3.7 105.1 23.9 23.9 30.3 4.0 124.6 27.2 27.2 34.4 4.3 146.9 25.2 25.2 33.4 5.0 166.2 27.5 27.5 36.4 5.0 187.9 18.4 6.8 3.2 1.1 1.8 10.0 2.9 14.3 5.5 2.7 1.2 1.4 7.8 2.5 12.5 4.9 2.3 1.2 1.2 6.8 1.3 13.5 10.2 2.1 1.5 1.1 6.8 1.2 12.4 9.4 1.8 1.5 1.0 6.1 1.1 CY2009 CY2010 CY2011 CY2012E CY2013E
November 5, 2012
11
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Ratings (Returns):
November 5, 2012
12