NESCO THE EXHIBIT!
Initiating Coverage Institutional Equities Nesco Reuters: NSEN.BO; Bloomberg: NSE IN The Exhibit! New Standard Engineering Company (Nesco), which is sitting on 70 acres of prime land (60% yet to be monetised) at Goregaon (East), Mumbai, runs a highly profitable and sustainable niche exhibition space rental business. This is well supported by annuity income from its commercial realty division, which will be boosted further by the leasing of its new tower III space. We expect the company s operating cash flow to double to Rs3.3bn over FY12-FY15E (yield of 12% based on FY15E operating cash flow) and 25% earnings CAGR over FY13E- FY15E as the exhibition business outlook remains stable apart from gradual leasing of tower III space. We have assigned a Buy rating to the stock with a target price of Rs1,129 (20% discount to our one-year forward NAV), implying a 46% upside from the current market price. Niche and highly profitable exhibition space rental business: The Indian trade exhibition business, pegged at Rs9bn currently, has potential to grow to Rs50bn by 2020 (20% CAGR) as per UFI (the international association of exhibition organisers). Nesco, being the second-largest space provider in India with an 45,000sqm area, offers exhibitors large covered spaces (as compared to competitors who either have open space or smaller space) in Mumbai-one of the largest trade exhibition markets in India. Further, the trade exhibition business remains highly profitable as it has excellent cash flow characteristics, with stand-space deposits often paid a year in advance and also renewals are typically in the range of 65% to 85%. We believe the trade exhibition business is in a sweet spot in India as trade shows are being held regularly with the markets being opened up to foreign investors, thereby driving up the space occupancy rate, in our view. We have factored in 14% revenue CAGR over FY13E-FY15E in respect of Nesco s exhibition business driven by improvement in the occupancy rate. Strong cash flow, healthy return ratios: Nesco s exhibition business operates on negative working capital, where 50% of the money is received in advance (prior six months) from exhibition organisers. Further, its commercial realty business requires only maintenance, which comes to 10% of its total rental income. We expect Nesco to generate free cash flow of Rs2.4bn over FY12-FY15E as against Rs0.7bn (FY09-FY12), led by improvement in the occupancy rate (exhibition business) and gradual leasing of its tower III space. Further, we expect its RoE/RoCE to sustain at 25.2%/31.5%, respectively, for FY15E, higher than industry peers (Exhibit 13). Tower III to drive leasing income: Leasing of commercial space in Mumbai has been muted over the past six quarters with corporate expansion activity remaining subdued. Despite subdued commercial activity, Nesco has successfully managed to pre-lease 0.1mn sq ft (15% occupancy rate) in tower III (0.65mn sq ft) to KPMG for Rs100/sq ft/month (expected to occupy by 1QFY14). We expect rental income from the commercial space segment to post a 61% CAGR at Rs679mn over FY13E-FY15E, largely led by leasing of tower III space. We have factored in lower occupancy rates of 20%/50% for FY14E/FY15E, respectively, for tower III. Y/E March (Rsmn) FY11 FY12 FY13E FY14E FY15E Net sales 1,164 1,285 1,472 1,784 2,191 EBITDA 745 906 1,056 1,300 1,630 Net profit 686 673 812 1,006 1,268 EPS (Rs) 48.7 47.8 57.6 71.4 90.0 EPS growth (%) 24.8 (1.9) 20.7 23.8 26.1 EBITDA margin (%) 64.0 70.5 71.7 72.9 74.4 P/E (x) 15.9 16.2 13.4 10.8 8.6 P/BV (x) 4.8 3.7 3.0 2.4 2.0 EV/EBITDA (x) 12.3 9.6 7.7 5.7 4.0 EV/sales (x) 7.9 6.8 5.5 4.2 3.0 RoCE (%) 36.8 33.7 30.9 30.6 31.5 RoE (%) 35.0 26.0 24.8 24.5 25.2 8 March 2013 BUY Sector: Real Estate CMP: Rs772 Target Price: Rs1,129 Upside: 46% Param Desai param.desai@nirmalbang.com +91-22-3926 8128 Key Data Current Shares O/S (mn) 14.1 Mkt Cap (Rsbn/US$mn) 10.9/199.9 52 Wk H / L (Rs) 828/569 Daily Vol. (3M NSE Avg.) 15,607 Share holding (%) 1QFY13 2QFY13 3QFY13 Promoter 62.0 62.0 61.8 FII 2.1 2.2 2.4 DII 2.2 2.5 2.9 Corporate 8.8 8.6 8.5 General Public 24.8 24.6 24.4 One Year Indexed Stock Performance 130 120 110 100 90 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 NESCO LTD Price Performance (%) 1 M 6 M 1 Yr Nesco (2.5) 20.6 24.5 Nifty Index (0.3) 10.1 12.7 Source: Bloomberg NSE CNX NIFTY INDEX Please refer to the disclaimer towards the end of the document.
Outlook and valuation Nesco has monetised only 25 acres of land so far out of its 70 acres. We believe the company is likely to get value on operational assets rather than its entire land parcel. Hence, we have valued the stock on the basis of operational assets, i.e. 0.45mn sq ft of exhibition space and 0.9mn sq ft of commercial assets, as per the NAV method. Faster monetisation of its remaining land bank could act as a positive trigger for the stock. Further, we expect Nesco s cash and liquid investments to top Rs4.3bn in FY15E (Rs304/share, 40% of current market capitalisation), providing valuation support to the stock and also lead to higher dividend pay-out. At the CMP, the stock trades at a 45% discount to our one-year forward NAV of Rs1,411/share. We have assigned a Buy rating to the stock with a target price of Rs1,129, which is at a 20% discount to our NAV. We have assigned 15% cost of equity, 11% capitalisation rate and a tax rate of 30% from FY13E, while arriving at our NAV. The ongoing rate for land parcels in and around the vicinity of Nesco is in the range of ~Rs400- Rs500mn/acre, which translates into Rs35bn for the company s 70-acre property. This works out to 3.5x its current market capitalisation after excluding cash, thereby providing enough margin of safety and limiting the downside from the CMP, in our view. Exhibit 1: Valuation summary One-year forward NAV (Rs per share) Exhibition business 809 Commercial space segment 503 Total 1,312 Add: Net cash 282 Less: Tax (183) NAV/share (Rs) 1,411 Target price (20% discount to NAV) 1,129 Source: Nirmal Bang Institutional Equities Research Exhibit 2: 1-year forward average P/BV (x) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5-3/7/2009 3/7/2010 3/7/2011 3/7/2012 3/7/2013 Source: Bloomberg, Nirmal Bang Institutional Equities Research Four years' average is 2.8x 2 Nesco
Investment Arguments Niche and highly profitable trade exhibition business The US$27bn global trade exhibition market remains highly fragmented with no player managing to breach the market share level of 5%. However, the business is attractive because of high profitability, excellent cash flow characteristics with stand-space deposits often paid a year in advance and also a higher degree of revenue integrity with the renewals for exhibitors being typically in the range of 65% to 85%. Further, the fragmented nature of the trade exhibition business offers considerable opportunities for consolidation. The sustained need for face-to-face interaction between buyers and sellers will ensure sustained growth in the trade exhibition business over the medium term. As per AMR International (a leading global consulting firm), the global trade exhibition market is likely to post a 5% CAGR over the next five years. Exhibit 3: US$27bn global trade exhibition market 86.0 Source: AMR International, Nirmal Bang Institutional Equities Research 4.4 2.4 1.5 1.4 1.3 1.1 1.0 Reed Exhbitions UBM Messe Frankfurt Messe Hannover Messe Dusseldorf Comexposium ITE GL Events Others 0.9 Exhibit 4: Revenue trend of two large global exhibitors (Euro mn) 800 700 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2011 UBM Reed exhbition Indian trade exhibition market to be US$10bn business by 2020 UBM, the second-largest global player in the trade exhibition business, remains firmly anchored in pursuit of growth in key emerging markets such as China, India, Brazil, Malaysia, Vietnam and Turkey. The proportion of UBM s revenue from events in emerging markets in 2011 stood at 39.5% (2010-38.7%) versus the 16.1% share of global events market that these countries represent. The Indian trade exhibition industry is in a modernisation mode and is growing at a rapid pace. Trade shows are being held regularly, new exhibition centres are being constructed, and the markets are being opened up to foreign investors. Despite this growth, the country needs massive investments in exhibition space. India is far behind China, whose exhibition space is eight times larger and where the number of exhibitions held is also three times higher. The inadequate infrastructure is obstructing rapid growth of India s trade exhibition business. Nevertheless, India s trade exhibition market, as per AMR International, is likely to post a CAGR of 10% (highest globally) over the next five years. UFI- the international association of exhibition organisers - pegs India s trade exhibition industry at US$160mn with a potential to grow to US$10bn by 2020 (20% CAGR). Exhibit 5: India leads projections on global trade exhibition market growth Country 2010-15 CAGR (%) India 9.7 Brazil 9.7 China 8.9 Turkey 7.6 Hong Kong 5.5 US 4.7 France 4.0 UK 3.4 Italy 2.1 Germany 1.3 Source: AMR International, Nirmal Bang Institutional Equities Research 3 Nesco
Exhibit 6: Major exhibition centres in India Nesco to be major beneficiary Nesco set up an exhibition centre in 1992 called Bombay Exhibition Centre (BEC) which in turn provides space to exhibition organisers like UBM India, Reed Exhibitions, Messe Frankfurt etc. Currently, there are only 14 purpose-built exhibition centres in India providing total indoor exhibition space of ~255,000sq.m. New Delhi and Mumbai alone account for 60% of the nation s dedicated trade exhibition space capacity. Of these, only three (BEC, Pragati Maidan, and Bangalore International Exhibition Centre) have space exceeding 20,000sq.m. Nesco is the only private player and the second-largest space provider for exhibitors with a total leasable area of 45,000sqm, having hosted over 500 exhibitions since inception. Venue Location Area (mn sq ft) Owners Bombay Exhibition Centre Mumbai 450,000 NESCO Pragati Maidan Delhi 612,900 India Trade Promotion Organisation (ITPO) Chennai Trade & Convention Centre Chennai 105,600 Joint venture between ITPO & Tamil Nadu Trade Promotion Organisation Bangalore International Exhibition Centre Bangalore 400,000 Indian Machine Tool Manufacturers' Association Hitex Exhibition Centre Hyderabad 112,980 JV between Larsen &Toubro and Andhra Pradesh government Source: Industry, Nirmal Bang Institutional Equities Research Monopoly status of BEC BEC s strategic location and scarcity of open space in Mumbai resulted in Nesco enjoying a monopoly status in the trade exhibition business. Competitors like Mumbai Metropolitan Region Development Authority (MMRDA) have open space unlike covered space in the case of BEC. On the other hand, places like Nehru Centre and World Trade Centre in Mumbai offer space in the range of 2,000sqm to 3,000sqm (6% of the space offered by BEC). City and Industrial Development Corporation of Maharashtra (CIDCO) is coming up with a new trade exhibition centre at Vashi, Navi Mumbai, by December 2013 with a space of 21,500sqm, 50% of BEC s current capacity. We believe this will have a minimal impact on the exhibition space business of Nesco as the exhibition pie itself is growing at a faster pace, apart from the locational advantage enjoyed by BEC. Also, BEC is ideally situated along the Western Express Highway in Goregaon, within 15 minutes from the international airport, walking distance from railway stations. There are numerous hotels, entertainment, retail shopping and sight-seeing spots in close proximity of BEC. Exhibit 7: Location chart Note: A- Chhatrapati International Airport, B-70 acres of Nesco land, C- Westin Hotel, D- Goregaon railway station Source: Nirmal Bang Institutional Equities Research 4 Nesco
BEC capacity expected at 1mn sq ft by 2018 Nesco intends to expand the capacity of its trade exhibition business by 0.55mn sq ft over the next three years, starting from 2015. The management has given guidance of capex of Rs1.7bn for capacity expansion. It intends to expand 0.15mn sq ft each year, beginning from 2015. The incremental capacity of 0.55mn sq ft can add Rs1.3bn of revenue and Rs1.0bn of operating profit each year, assuming an occupancy rate of 30%. We have not factored in incremental capacity expansion while arriving at our NAV. Enough headroom for absorption of the rise in rentals BEC charges Rs220/sqm/day to exhibition organisers for providing them with air-conditioned halls. The rates are broadly in a similar range across space providers in India with the exception of Pragati Maidan whose charges are Rs310/sqm/day during the peak season. BEC increases rentals once in three years, which is a general industry practice. However, exhibition organisers like Reed Exhibitions and UBM charge exhibitors Rs9,000/sqm if they are Indian participants and Rs16,000/sqm if they are international participants for a typical three-day event. The rates for exhibitors are applied on the actual space occupied. Given that 40% of the space is used for common areas like corridors etc, the effective rate charged by exhibition companies to exhibitors comes to Rs5,400 per sq m to Rs9,000 per sq m. This indicates that the rentals charged by Nesco are only 10-12% of the costs for the exhibitor and provides enough comfort for absorption of any hike in rentals by Nesco. Exhibit 8: Exhibition rentals Exhibition venues Bombay Exhibition Centre Pragati Maidan* Chennai Trade & Convention Centre Bangalore International Exhibition Centre Hitex Exhibition Centre Note: Charges for the peak period from November-February Source: Industry, Nirmal Bang Institutional Equities Research Exhibition space rental business to drive 14% top-line growth Rent/day Rs 220/sq m Rs 310/sq m Rs 127/sq m Rs 200/sq m Rs 200/sq m We are factoring in 13.7% revenue CAGR for Nesco s exhibition space business driven by improvement in the occupancy rate. Trade shows are being held regularly with the markets being opened up to foreign investors, driving up the occupancy rate, in our view. Further, our revenue growth estimate for Nesco s exhibition space business is in line with the projections of global consultants like UFI and AMR for the Indian market. We have not factored in any increase in rentals over FY13E-FY15E. Exhibit 9: Expect 14% revenue CAGR from trade exhibition business (Rsmn) 1,400 1,200 1,000 800 600 400 200 - FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E 5 Nesco
Powai CBD Vashi SBD Worli Lower Parel Institutional Equities Malad/Goregaon Andheri- Kurla Thane-Belapur Thane Commercial space of 1.9mn sq ft likely to be ready for leasing by FY16E Nesco has generated Rs267mn of rental income from the commercial realty segment, with total area under lease at 0.24mn sq ft in FY12. The 0.24mn sq ft (two towers) area has been leased out to various information technology/information technology-enabled companies like Tata Consultancy Services, Sodexo, Intelenet, Schlumberger, Vodafone etc, which fetch an average realisation of Rs100/sq ft/month. The management has indicated that almost all its existing tenants have gone for renewal, which gives visibility of stable rental income for atleast next three years with a 5% escalation every year. Recently, the company constructed 0.8mn sq ft of commercial space (tower III) having a leasable area of 0.65mn sq ft, which is ready for fit-outs. Cost of construction for the same was around Rs1,250mn, and the construction work was outsourced to Larsen & Toubro. Going forward, the company intends to construct tower IV which will have leasable area of 1mn sq ft. The excavation work has started and the outsourcing of construction work will be finalised over the next three months. The capex for tower IV is likely to be Rs2.5bn, which will be funded through internal accruals. All this will take the total leasable area to 1.9mn sq ft by FY16E. Pre-leasing activity slower in tower III Activity in the commercial realty segment in Mumbai has been muted over the past four-six quarters as corporate expansion remained subdued. Despite subdued commercial activity, Nesco successfully managed to pre-lease 0.1mn sq ft (15% occupancy rate) in tower III (0.65mn sq ft) to KPMG for Rs100/sq ft/month. The management has indicated that KPMG is likely to occupy the space from 1QFY14. Oberoi Realty (ORL) has 0.7mn sq ft of commercial space (Commerz tower II) ready for fit-outs, which is located just opposite Nesco s tower III. However, ORL is offering its Commerz tower II at rentals above Rs125/sq ft/month i.e. 25% more than the ongoing rate in similar vicinity and has not secured leasing deals so far for its Commerz tower II. We believe that with higher vacancy rate in the vicinity, high prospects of ORL lowering its rentals and weak demand will keep leasing activity subdued in the near term for Nesco. Exhibit 10: Commercial space vacancy level high in Mumbai (%) 35 30 25 20 15 10 5 0 Source: Cushman & Wakefield, Company Rental income from commercial space to grow 2.5x over FY13E-FY15E We expect rental income from commercial realty segment to show a 61% CAGR over FY13E-FY15E at Rs679mn, largely led by leasing of its tower III space. As per Cushman & Wakefield, space absorption in the vicinity of Malad-Goregaon was 0.4mn sq ft in CY12. Hence, we have factored in incremental absorption of 0.22mn sq ft in the next 15-18 months from tower III of Nesco, thereby leading to 20% and 50% occupancy rates for FY14E and FY15E, respectively, from tower III, given the weakness in the Mumbai office leasing market. We have assumed rentals of Rs100/sq ft/month with a 5% escalation every year for tower I and tower II each and no increase for tower III until FY16E. 6 Nesco
Exhibit 11: Leasing of tower III space to drive rental income (Rsmn) 800 700 600 500 400 300 200 100 Engineering division 0 FY11 FY12 FY13E FY14E FY15E Nesco s engineering division is a pioneer in tool manufacturing, providing equipment such as forging hammers and presses, blowroom lines and high production cards for the textile industry, and sucker rod pumps for on-shore oil recovery and shot blasting/peening machinery. Its clients include Bharat Heavy Electricals, Bharat Earth movers, National Aluminium Company, Cochin Shipyard, Indian Railways and Hindustan Aeronautics. The engineering division, which contributed Rs237mn to revenue in FY12 (18% of total revenue), enjoys lower operating margin (~10%) compared to the company s annuity business. The slowdown in overall private capex will keep growth rate of the engineering division moderate in the near term, in our view. Consequently, we have factored in 5% revenue CAGR for the engineering division at Rs290mn over FY13E-FY15E. Exhibit 12: Revenue from engineering division to moderate (Rsmn) 300 250 200 150 100 50 0 FY11 FY12 FY13E FY14E FY15E 7 Nesco
Strong cash flow generation, healthy return ratios Nesco s exhibition space business operates on negative working capital where 50% of the money is received in advance (prior six months) from the organisers. Further, the commercial realty business involves only maintenance costs which are 10% of total rental income. We expect the company s operating cash flow to almost double to Rs3.3bn over FY12-FY15E (operating cash flow yield of 12%) as the exhibition space business outlook remains stable apart from gradual leasing of tower III space. The company intends to incur capex of Rs2.4bn over the next four years (from FY14 onwards) for construction of tower IV having 1.2mn sq ft of developable area. Hence, we expect Nesco to generate free cash flow (after accounting for capex) of Rs2.4bn over FY12-FY15E as against Rs0.7bn over FY09-FY12. Further, we expect sustainability of its RoE/RoCE at 25.2%/31.2%, respectively, for FY15E, significantly higher than industry peers. If the company goes for aggressive dividend pay-out, it will provide an upside risk to our return ratios assumption. Exhibit 13 : RoE comparison with peers RoE (%) FY14E FY15E Exhibit 14: Healthy cash flow from operations (Rsmn) 1,600 DLF 5.3 8.6 Godrej Properties 13.9 17.6 Oberoi Realty 18.7 21.9 Prestige Estates Projects 12.8 17.1 Sobha Developers 14.2 15.7 Nesco 24.5 25.2 1,400 1,200 1,000 800 600 400 200 - FY11 FY12 FY13E FY14E FY15E Earnings likely to post a CAGR of 25% over FY13E-FY15E Nesco enjoys higher operating margin of over 80% in its exhibition space and annuity businesses. We expect contribution from both these segments to increase from 81.6% in FY13E to 86.1% in FY15E, largely led by improving occupancy rate in the exhibition space business and from leasing of its tower III space. Consequently, we expect improvement in operating margin, from 71.7% in FY13 to 74.4% in FY15E. Further, we expect an increase in cash balance from Rs2.7bn in FY13E to Rs4.3bn in FY15E, thereby leading to a 25% CAGR in other income at Rs240mn in FY15E. Hence, we expect Nesco's net profit to post a CAGR of 25%, from Rs812mn. to Rs1,268mn, over FY13E-FY15E. Exhibit 15: Earnings trend (Rsmn) 1,400 1,200 1,000 800 600 400 200 0 FY11 FY12 FY13E FY14E FY15E 8 Nesco
Key risks Terror attacks can impact exhibition business Historically, it has been noticed that any terror attack in Mumbai impacts the exhibition business adversely. After the December 2008 terrorist attack in Mumbai, Nesco s exhibition business declined 30% YoY in FY09 as the organisers delayed holding their events. Any such terror attack in future can adversely impact our estimates. Opening of new exhibition centers in Mumbai BEC has a monopoly status in the exhibition space business in Mumbai owing to its large space - over 40,000 sqm (second-largest in India). The next best player in Mumbai offers space to exhibition organisers in the range of 2,000sqm-3,000sqm i.e. 7%-8% of total space provided by BEC. Although CIDCO is coming up with its new exhibition centre at Vashi by December 2013 with 20,000sqm, we believe BEC enjoys a locational advantage unlike the upcoming Vashi exhibition centre by having proximity to the airport, major railway stations and entertainment hubs. Though open space land availability in such areas is limited in cities like Mumbai, opening up of new exhibition centers in prime locations can be a threat to BEC s monopoly exhibition business Weak economic environment can delay leasing of tower III space Activity in the commercial realty segment in Mumbai has been muted over the past four-six quarters with corporate expansion remaining subdued. This has resulted in a challenging task for Nesco in leasing out its tower III space. We have factored in 20% and 50% occupancy rates (15% already achieved so far) for FY14E and FY15E, respectively. Any prolonged slowdown in the economy can impact corporate expansion plans in the medium term and thereby affect Nesco s leasing of tower III space. 9 Nesco
Company background Nesco was established in 1939 as The New Standard Engineering Company, a pioneer in the tool manufacturing segment, bringing into India world class processes and designs for the manufacture of a number of engineering products. In order to reflect on the various new avenues that the company was entering into, the promoters decided to change its name to Nesco. This is reflected in the company's transformation from a pure-play engineering company to that of a diversified one, whose diversification entailed it to be a player in the services segment. While the company originally operated from Byculla (Mumbai) it set up two more plants at Parel and Santacruz (both in Mumbai). In 1959, it consolidated all these three operations and moved to a 70-acre estate on the Western Express Highway at Goregaon, Mumbai. In 1986, it diversified into the realty business by developing and providing customised built-up space for multinational companies and leading corporates at Goregaon. In 1992, the company set up an exhibition centre - Bombay Exhibition Centre - at its complex on the Western Express Highway at Goregaon with a hall area of 2,00,000 sq ft, which has now been expanded to over 5,00,000 sq ft. This venue holds the distinction of being the largest exhibition centre promoted by the private sector in India and has witnessed over 500 national and international exhibitions, trade fairs, and events since inception. This venue, unlike others, has various permanently air-conditioned halls having an area in the range of 2,000sqm to 20,000sqm. Exhibit 16: Key management personnel Name Designation Brief Profile Sumant Patel Chairman & Managing Director (CMD) 50 years of experience in exhibition and real estate industry Krishna Patel Executive Director Member of board since 2008 Ram Tarneja Independent Director Holds M.A., Ph. D, Member of board since 1976 Bharat Patel Independent Director Holds MBA and M.A. in Economics, Member of board since 2005 Mahendra. K.Chauhan Independent Director Holds B Sc, MBA(Finance),Member of board since 2005 Source: Company 10 Nesco
Financials Exhibit 17: Income statement Y/E March (Rsmn) FY11 FY12 FY13E FY14E FY15E Net sales 1,164 1,285 1,472 1,784 2,191 % growth 14.3 10.4 14.6 21.2 22.8 Raw material costs 114 123 132 143 149 Staff costs 49 62 66 78 99 Other expenses 257 194 218 262 313 Total expenditure 419 378 416 484 561 EBITDA 745 906 1,056 1,300 1,630 % growth 15.8 21.7 16.5 23.1 25.3 EBITDA margin (%) 64.0 70.5 71.7 72.9 74.4 Other income 106 110 156 190 240 Interest 6 14 10 10 10 Depreciation 23 34 41 44 48 Profit before tax 822 968 1,160 1,437 1,811 % growth 4.5 17.8 19.8 23.8 26.1 Tax 314 295 348 431 543 Effective tax rate (%) 38.2 30.5 30.0 30.0 30.0 Net profit 509 673 812 1,006 1,268 % growth (9.2) 32.4 20.6 23.8 26.1 E.O. items 178 (0) 0 0 0 Reported net profit 686 673 812 1,006 1,268 PAT margin 59.0 52.4 55.2 56.4 57.9 % growth 24.8 (2) 20.7 23.8 26.1 DPS (Rs) 2.5 3.0 3.5 7.0 20.0 Payout (%) 5.4 7.3 6.9 11.2 25.3 Exhibit 19: Balance sheet Y/E March (Rsmn) FY11 FY12 FY13E FY14E FY15E Equity 141 141 141 141 141 Reserves 2,137 2,761 3,517 4,410 5,356 Net worth 2,278 2,901 3,658 4,551 5,497 Total loans - - - - - Deferred tax liability 9 8 8 8 8 Liabilities 2,286 2,910 3,666 4,559 5,506 Gross block 635 764 908 1,268 1,665 Depreciation 293 325 366 410 458 Net block 342 439 542 859 1,207 Capital work-in-progress 791 1,037 1,037 1,037 1,037 Inventories 46 44 45 46 47 Debtors 95 81 85 90 94 Cash 102 42 694 1,352 2,184 Liquid investments 1,586 2,102 2,102 2,102 2,102 Other current assets 174 64 100 105 111 Total current assets 2,003 2,334 3,027 3,694 4,537 Creditors 78 79 83 87 92 Customer advances 533 575 603 634 665 Other 239 247 254 310 519 Total current liabilities 849 901 941 1,031 1,276 Net current assets 1,153 1,433 2,086 2,663 3,261 Total assets 2,286 2,910 3,666 4,559 5,506 Exhibit 18:Cash flow Y/E March (Rsmn) FY11 FY12 FY13E FY14E FY15E EBIT 722 872 1,015 1,257 1,581 (Inc.)/dec. in working capital 202 177 (8) 24 25 Cash flow from operations 924 1,049 1,007 1,281 1,607 Other income 106 110 156 190 240 Depreciation 23 34 41 44 48 Interest paid (-) (6) (14) (10) (10) (10) Tax paid (-) (314) (295) (348) (431) (543) Dividends paid (-) (53) (49) (49) (56) (112) Net cash from operations 680 835 796 1,017 1,229 Capital expenditure (-) (529) (377) (144) (360) (397) Net cash after capex 151 458 652 657 832 (Inc.)/dec. in investments (249) (516) 0 0 0 Cash from financial activities (249) (516) 0 0 0 Others 178 (1) Opening cash 22 102 42 694 1,352 Closing cash 102 42 694 1,352 2,184 Change in cash 80 (59) 652 657 832 Exhibit 20: Key ratios Y/E March FY11 FY12 FY13E FY14E FY15E Per share (Rs) EPS 48.7 47.8 57.6 71.4 90.0 Cash EPS 50.3 50.2 60.6 74.5 93.4 DPS 2.5 3.0 3.5 7.0 20.0 Book value 162 206 260 323 390 DuPont analysis Profit margin 59.0 52.4 55.2 56.4 57.9 Financial leverage 1.4 1.3 1.3 1.2 1.2 Asset turnover (x) 0.4 0.4 0.3 0.3 0.4 RoE 35.0 26.0 24.8 24.5 25.2 Returns (%) RoE 35.0 26.0 24.8 24.5 25.2 RoCE 36.8 33.7 30.9 30.6 31.5 Dividend payout 5.4 7.3 6.9 11.2 25.3 Valuation ratios (x) P/E 15.9 16.2 13.4 10.8 8.6 P/E (cash EPS) 15.3 15.4 12.7 10.4 8.3 P/BV 4.8 3.7 3.0 2.4 2.0 EV / EBITDA 12.3 9.6 7.7 5.7 4.0 EV/sales 7.9 6.8 5.5 4.2 3.0 Turnover ratios (x) Asset turnover ratio 0.4 0.4 0.3 0.3 0.4 Debtor days 37 25 21 18 15 Inventory days 13 13 11 9 8 Creditor days 64 76 71 64 58 Solvency ratio(x) Debt-equity - - - - - 11 Nesco
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