PCG RESEARCH Agriculture Sector Picks Jan 30, 2018

Outlook on Irrigation Sector

Irrigation in India promises a great scope for growth. India accounts for 7.7% of total global agricultural
output, less than 50% of the net sown area (proportion of the total area used for growing crops) has access
to irrigation. Areas with no irrigation facilities are totally dependent on unpredictable monsoons. Above all
parameters promise a great potential for irrigation facilities.

Government has stated that agriculture will be its main priority in the upcoming Budget, as there is a strong
possibility that government would like to boost sentiments on rural front in the run-up to general elections.

The government’s focus on agriculture auger well for the irrigation industry. Proper Irrigation facilities will
provide food security, minimise dependence on monsoons, improve agricultural output and create rural job
opportunities. Irrigation is the largest consumer of water in the country. The demand for water has been
consistently increasing other sectors, reducing the quantum of water available for agriculture.

India’s population stands at ~1.3bn and is estimated to rise at steady pace to reach 1.7bn by the year 2050.
(According to the World Bank estimates). Even though food grain production has increased significantly over
the years, there is a need for the production to increase at a fast clip in order to meet the ever growing
demand created with this population increase. Given this fact that land and water are limited resources, this
would require an improvement in the productivity of crops. India has 18 percent of the world’s population
with only 4 percent of the usable water resources and is expected to face the brunt of looming water scarcity
crisis. With the need to increase productivity while saving water, micro irrigation will play a key role for the
future of Indian agriculture.

The global micro irrigation system market is one of the fastest growing segments of the global agricultural
industry. This growth is fuelled by the Government encouragement for adoption of micro irrigation system as
a regular practice for future safety due to water scarcity, in order to conserve natural water resources. In
India though fragmented, the industry is in a position to aid Government programmes like Prime Minister’s
Krishi Sinchai Yojana (PMKSY). The Pradhan Mantri Krishi Sinchayee Yojana (“PMKSY”) was launched in July
2015 for a five year period with an outlay of ~Rs 50,000 crore. The major objective of the PMKSY is to
achieve convergence of investments in irrigation at the field level, expand cultivable land under assured
irrigation (Har Khet Ko Pani), improve on-farm water use efficiency to reduce wastage of water, enhance the
adoption of precision-irrigation and other water saving technologies (more crop per drop), enhance recharge
of aquifers and introduce sustainable water conservation practices by exploring the feasibility of reusing
treated municipal water for semi-urban agriculture and attract greater private investment in precision
irrigation system.

Private Client Group - PCG RESEARCH Page |1

 PCG RESEARCH

Apart from various schemes, there have also been large-scale projects taken up at the state level that have
seen success for example Gujarat Green Revolution Company (GGRC) and Andhra Pradesh Micro Irrigation
Project (APMIP). The subsidy in last few years has been declining and we expect it to be hiked in this budget.

Benefits of Micro Irrigation:

a) Increase in water efficiency – 50 to 90%

b) Energy consumption savings – ~30%
c) Fertilizer consumption savings – ~28%
d) Productivity increase, Fruit/Crops – 40%, Vegetables – ~51%
e) Irrigation cost savings – ~35%
f) New crop introduction – 30% for farmers
g) Increase in Farmers’ income – 40 to 45%

With usage of micro irrigation systems, conveyance loss is minimal. Evaporation, runoff and deep percolation
are also reduced by using micro irrigation methods. Another water saving advantage is that water source
with limited flow rates such as small water wells can be used. Micro irrigation provides significantly higher
water usage efficiency due to proximity and focused application.

Efficient water use leads to additional benefits such as increase in the area under irrigation as well as more
usage of marginal/ degraded land

Agriculture accounts for 20-25 percent electricity sold in India. On an average, use of micro-irrigation
techniques can improve power efficiency by 30.5 percent, although this varies across states. Owing to more
judicious use of fertiliser as a result of more careful application of water, micro irrigation can improve
fertiliser consumption efficiency by 28.5 as percent on an average.

The average penetration at the all India level is 5.5 percent which is much lesser compared to countries like
Israel, US and even China. Penetration of micro irrigation systems is still very low in India. With half the
cultivable land in the country still being rain-fed, there is mammoth potential for promoting micro irrigation
in India. The Government should at least target more than 2 mn ha/year with a budgetary allocation of Rs
4000 crores (US$ 624 mn) / year and increase it by 20 percent yoy in order to increase the pace of adoption.

On the occasion of India Water week, in October 2017, Union Minister Shri Nitin Gadkari declared that 27
PMKSY projects will be completed by this year 285 new irrigation projects will be taken up in 2018 to provide
irrigation for 1.88 crore hectare of land. Shri Gadkari said drip irrigation and irrigation through pipeline will
be the priority areas for the Government as this will save large amount of water and also cut down the cost
involved in acquiring land. FICCI (Federation of Indian Chambers of Commerce and Industry) has included
micro irrigation as one of its priority areas.

Private Client Group - PCG RESEARCH Page |2

 INVESTMENT IDEA PCG
30 JanRESEARCH
2018
PCG RESEARCH
Jain Irrigation

Industry CMP Recommendation Buying Range Target Time Horizon

Agrochemicals Rs. 145 BUY Rs. 128-145 Rs. 163-187 12 Months

HDFC Scrip Code JAIIRR Incorporated in 1986, Jain Irrigation (JISL) is a diversified company with key focus area into Agriculture
industry. Company is into manufacturing of multiple products having applications into irrigation such as drip
BSE Code 500219 and sprinkler irrigation systems; PVC pipe, Polyethylene pipe (HDPE, LLDPE) etc. Further, it has also
NSE Code JISLJAL entered into agro processing segment since last two decade under which the company processes
dehydrated onions & vegetables; processed fruits etc. Apart from this, the company also provides solutions
Bloomberg JI: IN for solar pumps, solar water heating systems, photovoltaic systems etc. JISL is an integrated agri-business
CMP as on 30 Jan 18 145 company with over 10,000 dealers & distributors and 30 manufacturing plants across the globe. Company is
the second largest manufacturer of MIS in the world with domestic market share of more than 50%. JISL’s
Equity Capital (Rs Cr) 95.9 product offerings include drip and sprinkler systems, PVC / LLDPE / HDPE pipes, PVC sheets, tissue culture,
Face Value (Rs) 2 solar pumps, solar water heating systems, photovoltaic systems etc. The company also sells processed
fruits and vegetables and is the biggest mango pulp processor and third largest in dehydrated onions
Equity O/S (Cr) 47.95 around the world.
Market Cap (Rs cr) 7190
Investment Highlights
Book Value (Rs) 91
Avg. 52 Week Jain has also been providing MIS solutions to international market through its subsidiaries Naandan Jain
12252313
Volumes Irrigation (~60% of Subs MIS revenue) and Jain Irrigation Delaware (~40% of Subs MIS revenue). We
believe acquisition of Agri-Valley irrigation (AVI) and Irrigation Design and Construction (IDC) could provide
52 Week High 150
decent opportunities to JISL to capture potential California MIS market going ahead, which could result into
52 Week Low 83 augmentation of US business share to the overall pie. The California market was impacted due to drought
situation in last 2 yrs, however better monsoon has improved visibility for MIS during the year. Further,
Netafim being the largest player into micro irrigation industry was supplying part of its MIS products
Shareholding Pattern (%) through AVI & IDC in California. AVI & IDC is likely to generate combined revenues of ~Rs 7-8bn in FY18.
Further, both companies have been generating average EBIT margins of around low-mid teens as against
Promoters 28.5 present subsidiaries MIS EBIT margins of 6-7% and hence incremental revenues from AVI & IDC could
Institutions 51.9 result in expansion of group MIS operational performance.

Non Institutions 19.6 Maharashtra makes drip irrigation mandatory for sugar cane cultivation

PCG Risk Rating* Yellow In Jul 2017, Maharashtra government had decided to make drip irrigation mandatory for sugar cane
cultivation over 3.05 lakh hectares in the state. Farmers who opt for drip irrigation will be given loans at
* Refer to Rating explanation 2% rate of interest with a cap of Rs 85,000 per hectare.

Kushal Rughani The decision follows concerns raised by environmentalists and irrigation experts about over-exploitation of
kushal.rughani@hdfcsec.com water.
Private Client Group - PCG RESEARCH Page |3
 PCG RESEARCH

Currently, sugar cane is grown over 9.42 lakh hectares in Maharashtra (2017-18) and only 2.25 lakh
hectares is covered by drip irrigation. The remaining area under sugar cane cultivation uses flood, canal, and
sprinkler irrigation systems that consumer more water as compared to drip irrigation.

In terms of the potential opportunity for domestic MIS market, the govt. has identified area of 69.5 mn
hectare for MIS (Drip: 27mn, Sprinkler: 42.5mn). The country has been witnessing capacity addition of
around 1 mn hectares per annum, which validates nation to require more than 50 years to achieve the
overall target and hence, we believe imposition of certain policies to make MIS usage mandatory could drive
robust growth for the micro irrigation industry. Maharashtra being one of the largest manufacturer of
sugarcane has come up with mandate to use MIS solution across the sugarcane cultivated land area. It is
estimated that Maharashtra has 1 million hectares of cultivated land for Sugarcane of which govt. has been
planning to add 300,000 hectares by FY19 under MIS, while it will be mandatory for farmers to add
incremental sugarcane cultivated area over the next few years under phased manner. Further, 1 hectare of
MIS solutions could cost to the tune of Rs 50,000-80,000. Hence, potential MIS opportunity in Maharashtra is
pegged at Rs 15-20bn over the period of next 2 years. Jain has around 60% market share in the state and
hence any progress could lift JISL’s MIS performance further.

Apart from this, Uttar Pradesh (UP) is considered as the largest producing state for sugarcane with
cultivatable land area of 2.2 million hectares (~43% of India’s sugarcane land area). Further, despite UP
holds highest share in terms of sugarcane cultivable land area, yield/hectare is lowest against other
sugarcane producing states (Note: UP’s yield ~62 tons/hectare against average of ~80-90 tons/hectare).
This could be primarily owing to conventional way of irrigation and hence validates the argument that the
state govt. has to adopt micro irrigation solution to improve acreages. Any positive development in the state
could unlock further potential opportunity of around Rs 200bn in medium to long term (no mandatory MIS
plans are underway by the state govt. presently). Jain has market share of 50% in domestic MIS segment
and hence, this itself provides potential market opportunity of ~Rs 100bn over long term.

Robust industry growth owing to govt. initiatives to assist strong growth from PVC and HDPE
segments in long run

With govt’s focus to add at least 1 million hectares under micro irrigation every year, we expect the demand
for PVC pipe is likely to augment in the coming future given the PVC constitutes 15% of overall MIS cost.
This could result into sizable potential opportunity. Moreover the govt. has also planned to build ~120 mn
toilets by 2020 in rural India. This provides robust growth opportunity for PVC polymer industry in the years
to come and JISL with a market share of ~19% of organized PVC pie is expected to garner potential
opportunity in medium to long run. We expect PVC business to record revenue growth of 7.5% over FY17-
20E as against ~1% CAGR over FY14-17.

HDPE pipe has usage into sewage treatment plants, water supply, desalination plants,
telecommunication/gas sector etc. Jain has been supplying HDPE pipes largely to institutions such as govt for
projects related to water supply and sewage. The growth will be supported by robust govt initiatives for

Private Client Group - PCG RESEARCH Page |4

 PCG RESEARCH

‘Smart cities’ and ‘Affordable housing’. This could translate robust demand for natural gas supplies and in
turn HDPE pipes demand. JISL has total capacity of 44,000 MT for HDPE with market share of ~20%.

Expand the retail product portfolio through JFFL

The Company's subsidiary Jain Farm Fresh Foods Ltd. (JFFL) intends to expand the retail product portfolio of
agro-processed products in order to capture opportunities to produce value added products.

It intends to commence the production of processed fruit snacks in India under an in-house brand. Company
intends to use the processed fruit pulps that it produces as raw materials for the manufacturing of such value
added processed fruit snacks. In addition, Jain Farm Fresh Foods Ltd. is currently conducting trials for the
introduction of retail fruit juice vending machines with leading fast-moving consumer goods Jain Farm Fresh
Foods Ltd. Again Jain Farm Fresh Foods Ltd. intends to use the processed fruit pulps that it produces as raw
material for the manufacturing of such fruit juice. JFFL also intends to introduce additional retail processed
fruit products, such as frozen fruit puree made from jamun, strawberry and guava as well as ready-blend
spices.

Key Triggers

 Continued interest cost savings

 Rebound in MIS growth in H2 FY18 and FY19

 Timely MIS subsidy disbursals outside

 Maharashtra, resulting in reduced working capital

 Continued strong growth in agro processing

 Rationalized capital expenditure program

 Elevated prices for key crops like sugarcane and cotton

 AVI & IDC acquisition to aid International MIS business operational performance

Private Client Group - PCG RESEARCH Page |5

 PCG RESEARCH

Business Segments

Jain Irrigation has an extensive range of product portfolio and a global geographical presence provides it with
a diversified revenue base. It operates through four business segments which offer an extensive product
portfolio. Company’s hi-tech agri input products segment comprises of MIS products, solar pumping systems,
integrated irrigation projects, cultivated tissue culture plants, precision farming products and advisory
services. Its Plastic Products segment comprises of Piping systems, PVC sheets and Turnkey services. The
Company’s Agro-Processing products segment comprises of Dehydrated Onion and Vegetable products,
Processed Fruit products and Biogas Power generation. Solar segment provides solar pumps, solar PV
module, solar power, solar thermal systems and solar appliances. Company believes its extensive product
portfolio has allowed it to maintain well balanced operating revenue stream without excessive reliance on
single product.

Hi-tech Agri inputs Products

Revenue from solar pump, tissue culture and micro irrigation systems is included under this segment. In
terms of market penetration, it provides solar pump and tissue culture solutions only to domestic market,
while MIS products have been catered to both domestic and international market. Hi-tech contributed 46% to
the overall revenue in FY17, of which MIS comprised 96% share and the rest came from tissue culture.
Company includes solar pump revenue in MIS segment. The revenue from hi-tech has posted 6% CAGR over
FY14-17 to Rs 32.2bn with minor improvement in EBIT margins to 17.4% in FY17.

Micro Irrigation System (MIS)

JISL provides drip and sprinkler irrigation solution under MIS segment. Revenue from solar pumps is also
included under MIS. The company has manufacturing capacity of 15,000 solar pump located at Jalgaon. The
manufactured pumps are upto 5 HP, while higher than 5 HP pumps are outsourced. In terms of Micro
irrigation, the company has manufacturing facility across Jalgaon, Israel (Subsidiary: Naandan Jain
Irrigation) and US (Subsidiary: Jain Irrigation Delaware), which produce entire range of products used in
drip/sprinkle irrigation such as drip lines, drip tapes, drip tubes, drippers, spray heads/jets/foggers, filters,
valves and other fittings accessories. The subsidiaries such as Naandan caters to Israel, Europe and part of
Africa market, while Jain Irrigation Delaware provides solution to US market. In the beginning of FY18, Jain
acquired IDC & AVI, which are considered as the largest distributors for MIS solutions in California and hence
provides strong revenue visibility in the coming years. Apart from this, the company has also been providing
solutions for precision farming such as green house, poly house etc, which we believe are largely supplied to
international markets. Further, the company has in house R&D team, which helps company to increment its
product basket every year. MIS segment has recorded revenue CAGR of ~5% over FY14-17 to ~Rs 31bn, of
which standalone MIS constitute ~61% of overall MIS revenue.

Private Client Group - PCG RESEARCH Page |6

 PCG RESEARCH

Plastics and PE Pipes

The revenue from PVC, PE pipe and PVC sheet is included under this segment. JISL manufactures different
sizes of PVC pipes, which finds application in agriculture industry with key set of customers are farmers.
Apart from this, the company has also been gaining traction among institution sales for PVC. Moreover, it
also produces PE pipes, which are largely used in sewage, water & gas distribution, chemical & cable
conveyance etc. In terms of product portfolio for PE pipes, JISL is one of the largest manufacturers of 1600
mm PE pipes. Further, in house R&D team has assisted company to add 2200 mm PE pipe under its product
portfolio recently.

PVC sheet finds application in advertising signs, exhibition stands, interior designs, bathroom fittings, panels
& cabins etc. JISL has two manufacturing facility for PVC sheet i.e. India and Ireland while PVC & PE pipes
are manufactured at Jalgaon. Company has installed capacity of 389,000 MT for both PVC & PE pipe including
fittings, while around 27,150 MT for PVC sheet. In terms of market dominance, JISL holds around ~19%
market share for PVC, while 20% market share for PE pipes in domestic market.

Revenue for plastic division remained subdued in last 2-3 years given the deficient monsoon resulting into
lower demand for PVC products into agriculture industry. The revenue for the segment grew by mere ~3%
CAGR over FY14-17 to ~Rs 18bn. However, we believe better monsoon during last year has outpaced
historical growth and assisted company to register ~7% YoY growth for FY17. We expect segment revenue to
revive in the coming years on the back of good monsoon.

Agro Processing Division

JISL has formed different subsidiary called JFFFL (Jain farm fresh foods limited) at the end of FY16, who
carries out operations for agro processing business in domestic and overseas market. The subsidiaries such
as Cascade Speciality US and Sleaford UK have been into parental structure of JFFFL, which are focused for
different overseas markets. The standalone revenue (under brand named Jain Farm Fresh) comprises
revenues from fruit and dehydrated onion, of which fruit constitutes 65-70% of JFFFL – India revenue and
the rest from dehydrated onion. The fruit revenue is largely driven by mango pulp, of which 45% (~Rs 2.5-
3bn) is led by Coca-Cola for its Mazza brand and the rest is supplied to various key customers such as
Manpasand Beverages and others. Apart from mango pulp, the company also offers other fruit variants such
as guava, jamun, strawberries to various customers, which are also comprised in the overall fruit revenue
(revenue contribution is low presently from other fruit variants). In terms of subsidiaries, Sleaford UK is
considered as trading subsidiary, which sells products like dehydrated potatoes / onion / garlic / vegetables,
herbs &spices, canned products (vegetables and fruits), fruit purees etc, while Cascade manufactures
products such as frozen food (bell pepper / tomatoes/ mushrooms / black olives etc) and dehydrated onions.
All of these has placed JISL to become one of the largest agro processing company in the global market.
JFFFL conducts its operations through 6 manufacturing plants with 4 plants located in India (each in
Maharashtra / Gujarat and 2 in Andhra Pradesh) and remaining two in UK and US each. Its domestic
manufacturing capacity for dehydrated onion and vegetable products stands at 33,148 MT and processed

Private Client Group - PCG RESEARCH Page |7

 PCG RESEARCH

fruit products at 159,000 MT. Additionally, the company also manufactures dehydrated onion and vegetable
products at global level with installed capacity to stand at 38,937MT. JFFFL has also forayed into retail
segment last year by introducing new variants of strawberry and jamun pulp in addition to Aamrus
(introductory product) under afore mentioned brand named, “Jain Farm Fresh”. JFFFL is further planning to
introduce more innovative products for the retail consumer market which will further drive the growth for
food processing division. In terms of financial performance, the revenue from segment increased at CAGR of
9% over FY14-17 to ~Rs16bn.

GST rates cut to 12% in Jan 2018

The GST on Drip irrigation systems including laterals. Sprinklers products has been reduced from 18% to
12% as per the decision taken at the 25th GST Council Meeting held in Jan, 2018. The new GST rates shall
be effective from 25th Jan, 2018. The Company has decided to pass on this benefit of 6% directly to the
customers/farmers. This is a positive step taken by the Government to encourage farmers to invest in
efficient irrigation systems which saves water and improves productivity. We believe that this action will have
a positive impact in the upcoming monsoon season for our Drip Irrigation Division.

Recent Order wins

In Oct 2017, company’s subsidiary Naandaan Jain got an order worth US $ 24mn from the ministry of
Honduras. This project will be completed in 18-20 months. Another order from domestic business worth
Rs.178cr was awarded to JISL in the Pipes segment and Rs.85cr order from Bhusawal water supply under
AMRUT scheme.

In Nov 2017, company bagged an order worth Rs.183cr for AMRUT water supply project. This project is for
Jalgaon city water supply scheme. Project will be completed in the next 24 months. Another order worth
Rs.126cr was awarded for “Har Khet Ko Pani” project in Maharashtra.

Private Client Group - PCG RESEARCH Page |8

 PCG RESEARCH

Micro Irrigation Systems and Equipment

Plastic Products

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH Page |9

 PCG RESEARCH

Jain Farm Fresh Foods Ltd (JFFL)

Source: Company, HDFC sec Research

Q2FY18: Key highlights

1) Hi-tech agri input segment: Consolidated revenue increased 18% YoY to Rs 810cr driven by
additional revenues from the US acquisition, growth in overseas market and higher exports to Africa.
Retail business declined 20% YoY to Rs 230cr because of a sluggish rural demand and GST impact; 2)
Agro processing division: India operations (Jain Farm Fresh) grew strong 17% YoY driven by
domestic performance. However, because of weak international subsidiaries (impacted by currency
appreciation), the overall growth was once again muted, rising only 2% YoY 3) Plastic division:
Reported 8% YoY revenue growth driven by PE pipes and plastic sheet division.

Food processing business

 Business in India grew 17% YoY driven by domestic market.

 Spice plant will commence operations in Q3 FY18, but FY19 will be the first full year of operation.
 It has signed an MoU with Coco Cola and Government of Maharashtra for an orange juice processing
unit.
 The company is building distribution in the retail segment. Aims to expand distribution reach to
100,000 locations.
 Company targets food revenue of around Rs 1800cr for FY18 with EBITDA of ~Rs 300cr.

Private Client Group - PCG RESEARCH P a g e | 10

 PCG RESEARCH

Debt:

 Repaid one FCCB of US$ 40mn, including premium on redemption was US$ 45mn. FCCB was held by
IFC. Only US$ 10mn is due. This will be due in April next year.
 JISL targets debt/EBITDA of 3.0x from ~c.3.8x.
 Company had debt of ~Rs 4000cr as on H1 FY18 vs. ~Rs 3400cr in FY17. Debt increased primarily
due to higher inventories. Most of the interest reduction benefits will come from Q4 FY18.

Q2FY18 conference call: Key highlights

GST:
 GST has not impacted the piping and food divisions.

Micro Irrigation System (MIS)

 In case of MIS, tax rate earlier was 0%, but in the initial GST announcement came in at 18%.
 Also, state governments took a lot of time in approving projects due to this increase in rates.
 Even the revision to 12%, which came in later, was only on sprinklers and drippers. Therefore as of
Jan 2018, the Government has reduced the GST rates to 12%.
 Retail was negative due to GST disruption and also due to rural distress.
 Demonetization impacted performance as rural co-operatives were short of funds to lend
 Expectation for AP and Gujarat receivables has come down.

Sugar cane

 Project business remains robust and based on that JISL is confident of achieving its growth guidance.
 Retail business has also picked up in the past couple of months.

International MIS

 Revenue was US$ 26mn from the US acquisition

 One entity had in line performance on EBITDA (~10% margin). EBITDA for both entities considered
together was around 7-7.5%.
 Expects benefit from this business to flow from next year.

Piping:

 Piping business was driven by the PE pipes segment.

 Retail pipes segment continued to remain muted.
 Management expects the PE business to grow at 15% plus in FY18; grew 17% in H1FY18.
 PVC pipes utilization has been only 60% due to subdued demand.

Private Client Group - PCG RESEARCH P a g e | 11

 PCG RESEARCH

Acquisitions in 2017

Jain Irrigation Systems Ltd (JISL), the country’s largest micro-irrigation firm, has acquired Australian agri-
tech firm Observant Pty Ltd, marking its fourth reported acquisition in the overseas market. Company has
paid Rs 13cr for the deal all in cash.

The deal will enable Jain Irrigation to support Indian farmers using Observant’s broad field monitoring and
control technology. Observant is known globally for its in-field hardware and cloud based applications for
precision farm water management.

Jain Irrigation acquired two US firms for US $48.5 mn in Apr 2017

Jain Irrigation has acquired two irrigation and distribution companies – Agri-Valley Irrigation Inc and
Irrigation Design and Construction Inc — in the US for US $48.5 million (about Rs 315 cr).

The company through its wholly-owned US subsidiary Jain Irrigation Inc acquired 80 percent stake in both
the US irrigation distribution companies. With a combined revenue of US $120 million and an EBITDA margin
of 7-7.5% on combined Entity, AVI and IDC will enable Jain Irrigation to distribute its leading portfolio of
Agriculture Technologies such as observant, puresense and gavish at 13 locations in California, besides
taking over 225 employees on its payrolls. Jain Irrigation has retained the existing management of AVI and
IDC to drive future growth.

View & Valuations

Jain irrigation is considered to be one of the most renowned player in Agriculture industry with core focus
area of ‘Micro irrigation solutions’ provider. However with management’s constant focus to diversify the
presence across different businesses, JISL has strengthened their existence into other verticals such as PVC
& PE pipe, Agro processing, Tissue culture, etc. Further, vast distribution reach with over 5,000 dealers has
also assisted the company to mark their presence across different touch points, which in turn helped JISL to
hold between 20-50% market share across different business segments. MIS market share at ~45% while
PVC fittings at ~20%. We believe increasing budget outlay by central govt. to improvise ‘Agriculture’ and
‘Infrastructure’ position into the country could augur well for the players like JISL in medium to long term
given the fact that it holds a dominant presence into the concentrated areas. Apart from this, inorganic
growth (AVI & IDC) along with organic growth through expansion into agro processing business (Spices,
Oranges) could stimulate financial performance growth further in the years to come. We believe the key
factor affecting MIS growth prospects in the past was less capital outlay from central govt., however
increasing outlay post new govt. coming into radar has resulted an improvement in the outlook for MIS
industry during recent times.

Private Client Group - PCG RESEARCH P a g e | 12

 PCG RESEARCH

Jain Irrigation has posted 6% revenue and 7% EBITDA cagr over FY14-17. PAT was up by ~7% CAGR over
FY13-17 with average NPM of ~2.2%. The subdued net margin is largely on account of higher financing
costs. We have assumed 12% revenue cagr from MIS segment while plastics and Agro division would post
7% and 8% revenue cagr over FY17-20E respectively. At the same time, from net loss in FY14, it has posted
Rs 176cr PAT for FY17. We expect 10% revenue and 17% EBITDA cagr over FY17-20E. We have estimated
230bps margin expansion over the same period. Strong revenue growth coupled with a robust margin
expansion and controlled finance costs would lead to 41% PAT cagr over FY17-20E. The stock trades at 13x
FY20E EPS and ~7x EV/EBITDA. We recommend investors to buy the stock at CMP of Rs 145 and add on
declines to Rs 128 with sequential targets of Rs 163 and Rs 187 (based upon ~18x FY20E EPS).

We believe the key factor affected MIS growth prospects in the past was less capital outlay from central
govt., however increasing outlay post new govt. coming into radar has resulted an improvement in the
outlook for MIS industry during recent times.

Key Risks

 Withdrawal of subsidies for micro irrigation is a key risk that could impact JISL’s growth

 Poor monsoon, seasonality and cyclical nature of agriculture could impact the company’s agro-
processing division by hitting the availability as well as prices of agro commodities. Though poor
monsoon is unlikely to impact MIS in the short term, in case of recurring monsoon failure, the
segment’s growth may slow down.

 Most of JISL’s activities are working capital intensive, which may constrain the company from
achieving targeted growth.

 USD/INR volatility may impact export revenues as well as margins. As the company is having high
D/E, interest rate tightening may impact profitability.

Private Client Group - PCG RESEARCH P a g e | 13

 PCG RESEARCH

Revenues to witness strong ~16% cagr over FY17-20E EBITDA trend over FY17-20E

Source: Company, HDFC sec Research

Source: Company, HDFC sec Research
Return Ratios (%)
EBITDA Margin (%)

Source: Company, HDFC sec Research

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH P a g e | 14

 PCG RESEARCH

MIS revenue to see ~12% cagr

Source: Company, HDFC sec Research

FY20E Revenue Split (%)

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH P a g e | 15

 PCG RESEARCH

Income Statement (Consolidated) Balance Sheet

FY15 FY16 FY17 FY18E FY19E FY20E
(Rs Cr) FY15 FY16 FY17 FY18E FY19E FY20E
SOURCE OF FUNDS
Net Revenue 6153 6486 6939 7561 8548 9429
Share Capital 92.5 95.3 95.9 95.9 95.9 95.9
Other Income 41 33 61 68 73 89
Reserves 3475 3969 4062 4262 4564 5015
Total Income 6194 6519 7000 7628 8621 9518
Shareholders' Funds 3568 4064 4158 4358 4660 5111
Growth (%) 5.6 5.4 7.0 9.0 13.1 10.3
Long Term Debt 1657 1620 2220 2450 2315 2204
Operating Expenses 5373 5668 6000 6495 7297 7978
Net Deferred Taxes 449 480 488 506 529 547
EBITDA 821 851 1000 1134 1324 1539
Long Term Provisions & Others 145 125 127 144 174 201
Growth (%) 1.2 4.9 14.7 13.6 17.3 16.0
Minority Interest 0 102 109 109 109 109
EBITDA Margin (%) 12.7 12.6 13.5 14.1 14.6 15.4
Total Source of Funds 5819 6391 7102 7567 7787 8173
Depreciation 244 297 301 328 345 357
APPLICATION OF FUNDS
EBIT 577 554 699 805 978 1182
Net Block (incl CWIP) 4566 4559 4488 4410 4414 4457
Interest expenses 469 491 459 454 472 460
Deferred Tax Assets (net) 172 206 188 205 215 225
PBT 108 63 240 350 505 720
Long Term Loans & Advances 633 644 687 716 749 806
Tax -24 18 67 98 142 201
Total Non Current Assets 5371 5409 5363 5330 5378 5488
RPAT 131 45 173 238 349 498
Current Investments 0 35 0 50 88 140
Growth (%) -233.6 -16.7 280.4 45.5 45.2 41.9
Inventories 1830 1875 2258 2424 2693 2919
EPS 1.2 1.0 3.7 5.0 7.3 10.4
Source: Company, HDFC sec Research Trade Receivables 1940 2174 2283 2527 2787 3022
Short term Loans & Advances 21 20 26 36 62 80
Cash & Equivalents 304 380 367 782 627 603
Other Current Assets 858 865 833 929 1012 1154
Total Current Assets 4953 5349 5767 6748 7269 7919
Short-Term Borrowings 2314 2132 1235 1614 1664 1783
Trade Payables 1355 1341 1538 1662 1891 2056
Other Current Liab & Provisions 835 884 1239 1214 1275 1313
Short-Term Provisions 19 22 25 30 39 47
Total Current Liabilities 4507 4365 4033 4516 4864 5224
Net Current Assets 446 984 1734 2232 2405 2694
Total Application of Funds 5819 6391 7102 7567 7787 8173
Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH P a g e | 16

 PCG RESEARCH

Cash Flow Statement

(Rs Cr) FY15 FY16 FY17 FY18E FY19E FY20E Key Ratios
Reported PBT 31 63 240 349 507 719 (Rs Cr) FY15 FY16 FY17 FY18E FY19E FY20E
Non-operating & EO items -41 -33 -61 -68 -73 -89 EBITDA Margin 12.7 12.6 13.5 14.1 14.6 15.4
Interest Expenses 469 491 459 454 472 460 EBIT Margin 9.4 8.5 10.1 10.6 11.4 12.5
Depreciation 244 297 301 328 345 357 APAT Margin 0.9 0.7 2.5 3.3 4.3 5.5
Working Capital Change 139 -464 -773 -83 -327 -345 RoE 1.9 1.3 4.3 5.6 7.7 10.2
Tax Paid 24 -18 -67 -98 -142 -201 RoCE 9.9 8.7 9.8 10.6 12.6 14.4
OPERATING CASH FLOW ( a ) 866 336 99 883 782 902 Solvency Ratio
Capex -2,192 -233 -230 -250 -350 -400 Net Debt/EBITDA (x) 4.7 4.1 3.3 3.0 2.6 2.2
Free Cash Flow -1,327 103 -131 633 432 502 D/E 1.1 0.9 0.8 0.9 0.9 0.8
Investments 26 -42 12 -46 -43 -38 Net D/E 1.0 0.8 0.7 0.7 0.7 0.6
Non-operating income 41 33 61 68 73 89 PER SHARE DATA
INVESTING CASH FLOW ( b ) -2,126 -242 -157 -228 -320 -349 EPS 1.2 1.0 3.7 5.0 7.3 10.4
Debt Issuance / (Repaid) 606 -26 610 265 -82 -66 CEPS 6.5 7.3 9.9 11.8 14.5 17.8
Interest Expenses -469 -491 -459 -454 -472 -460 BV 77 85 87 91 97 107
FCFE -1,190 -414 20 444 -122 -24 Dividend 0.5 0.5 0.8 0.9 1.1 1.3
Share Capital Issuance 0 105 8 0 0 0 Turnover Ratios (days)
Dividend -28 -29 -43 -51 -63 -74 Debtor days 115 122 120 122 119 117
FINANCING CASH FLOW ( c ) 109 -441 116 -241 -616 -600 Inventory days 109 104 109 117 115 113
NET CASH FLOW (a+b+c) -1,152 -347 58 415 -154 -48 Creditors days 107 104 107 105 109 108
Source: Company, HDFC sec Research VALUATION
P/E 122.5 136.9 38.5 28.4 19.4 13.6
P/BV 1.8 1.7 1.6 1.6 1.5 1.3
EV/EBITDA 13.0 12.4 10.8 9.5 8.1 7.0
EV / Revenues 1.6 1.6 1.5 1.3 1.2 1.1
Dividend Yield (%) 0.4 0.4 0.5 0.6 0.8 0.9
Dividend Payout 43.4 48.5 20.5 18.1 15.1 12.5
Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH P a g e | 17

 PCG RESEARCH

Price Chart

RECOMMENDATION HISTORY

Date Reco Price Reco Targets

18 Sep - 2015 Rs 60 Buy Rs. 119

02 Jun - 2017 Rs 102 Buy Rs. 122

29 Jan - 2018 Rs 145 Buy Rs 163-187

Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year.

Sell: Stock is expected to decline by 10% or more in the next 1 Year.

Private Client Group - PCG RESEARCH P a g e | 18

 INVESTMENT IDEA PCG RESEARCH
30 Jan 2018
PCG RESEARCH
EPC Industries
Industry CMP Recommendation Buying Range Target Time Horizon
Plastic Products Rs. 189 BUY Rs. 168-179 Rs. 219 - 257 12 Months

HDFC Scrip Code EPCIND EPC Industrie provides micro irrigation systems (MIS), including drip and sprinklers, agricultural pumps,
BSE Code 523754 greenhouses and land scape products. The Company provides solution for agriculture with a focus on micro-
irrigation, pumps and inter-related requirements of fertigation and agronomic support. Its products consist of
NSE Code N.A. drip irrigation system, including online drip irrigation, inline drip irrigation and drip irrigation components;
Bloomberg EPC: IN sprinkler irrigation system, including rain gun and nozzle; pumps, including bore well, open well submersible
pumps; pipes, including high-density polyethylene (HDPE) pipe coils and pipes, and landscape and turf
CMP as on 30 Jan’18 189 irrigation, including valves, nozzles, rotors and spay bodies for commercial landscaping, residential
Equity Capital (Rs Cr) 27.6 landscaping and play grounds. Its services include agronomy support services and agri helpline for crop and
farm advisory services. Company operates Agri Showroom, which offers various agri input products and
Face Value (Rs) 10 services.
Equity O/S (Cr) 2.76
Investment Highlights
Market Cap (Rs cr) 534
Maharashtra ban revocation bodes well
Book Value (Rs) 51
Avg. 52 Week EPC Industrie (EPC) is recognised micro-irrigation player in the state of Maharashtra for a period of 5 years
108120
Volumes (up to Sep 2022). The said order supersedes the ban imposed on the company dated July 2016 and now
52 Week High 215 makes it eligible to participate in the state government administered micro irrigation subsidy scheme.

52 Week Low 132 The move is in tandem with the management guidance. Given the Maharashtra’s state government thrust on
making drip irrigation mandatory for sugarcane cultivation in the state and the consequent incremental
opportunity size (~Rs 9000 crore), order bodes well for the company. EPC will now be able to address this
Shareholding Pattern (%) incremental opportunity given its stronghold in the state prior to imposition of ban. Maharashtra accounted
Promoters 54.7 for a significant share of revenues for EPC (amounting to ~15%).

Institutions
Non Institutions
PCG Risk Rating*
* Refer to Rating explanation
Kushal Rughani
kushal.rughani@hdfcsec.com
2.7 EPC, a Mahindra & Mahindra (M&M) subsidiary, is a micro-irrigation system (MIS) and component
42.6 manufacturer based out of Nashik, Maharashtra. The company was acquired by M&M in February 2011 and
has been well capitalised over the years by M&M. EPC commands ~5% market share (sales Rs 200cr in
FY17) out of the total industry size of ~Rs 4000 crore as of FY17. The company recently ventured into the
Red greenhouse farming & agri pumps segment with the aim of becoming total agri solutions player domestically.
As of FY17, EPC is registered in 15 states under subsidy programme in India. The company has more than
900 channel partners and 18 regional offices.
Vanillin to be the key growth driver

Private Client Group - PCG RESEARCH P a g e | 19

 PCG RESEARCH

EPC Industries is a Mahindra group company with just Rs 520 crore market cap which on standalone basis
cannot reach to entire rural India while Mahindra & Mahindra (M&M) has a robust distribution network, so this
company can ride on parent’s distribution network and spread itself across rural India. Moreover, water
scarcity is the serious issue so, EPC has all the ingredients to deliver robust growth and to become a multi-
bagger.

MIS and growth outlook

Micro irrigation system (MIS) is essentially an irrigation technique wherein regulated quantum of water is
applied to the most critical part of the plant i.e. roots. It is implemented through the drip & sprinkler irrigation
techniques. Drip is used for widely placed crops like sugarcane, watermelon, onion, cotton, banana,
vegetables, etc, while sprinkler is used for closely placed crops like wheat, groundnut, maize, bajra, etc. The
benefits of MIS vis-à-vis traditional method of irrigation include: increase in crop yield (~20-30%) and savings
of labour (~30-50%), water (~30-40%) & power (~20-40%).

Farmer centric Budget 2017-18; focused to double farm income by 2022 Union Budget 2017-18 delivered on
its expectations with a clear focus on achieving its vision to double farm income by 2022. Due emphasis was
given to both productivity and farm realisations. Total allocation towards agriculture & farmer welfare was
increased 16% YoY to Rs 41,855 crore in FY18E. Notably, a sizable increase in allocation to the insurance
scheme to Rs 9000 crore (up 64% YoY) and irrigation scheme (PMKSY) to Rs 7377 crore (up 28% YoY) was
encouraging. Moreover, the government increased allocation towards subsidy under farm mechanisation to Rs
525 crore in FY18E (vs. Rs 358 crore in FY17).

Currently, state governments are also giving a strong thrust to MIS with Maharashtra making it mandatory for
all cane producers to switch to drip irrigation in the next two years post which their produce would not be
procured for crushing if it is not produced using drip technique. Tamil Nadu government also promotes MIS
through 100% subsidy to farmers opting for it. The only dampener for the MIS Industry in India is the low
farmer awareness and delay in subsidy release by the state governments. However, given the benefits arising
out of usage of MIS and low penetration, the industry is poised for an exciting growth journey ahead.

Capacity Utilization to improve substantially

EPC is running at ~50% capacity utilization. They may require capital in FY19 when it will reach work 80%
capacity utilization, the company will go for fresh capex which will lead to some dilution or debt on the books.
The company has guided for minimum capex till they achieve 80% of utilization levels. Currently they are
building some inventory on anticipation of strong sales from FY18 onwards.

The Company is focusing on project business (51% of overall revenue) from selective states with good
payment track record (Focusing on states like Gujarat, AP, Telangana and MP). The company is not focusing
on states like Punjab, Rajasthan, Orissa and Haryana), where the certainty of receiving payments is relatively

Private Client Group - PCG RESEARCH P a g e | 20

 PCG RESEARCH

higher. But having said that focusing on project business will increase their working capital requirement going
forward.

EPC Industries has vision to be a large organisation. They are offering facilities like "Help Line" for farmers,
setting up samrudhi bazaar etc. They have tied up with IOC to set up 100 Samrudhi Bazaar at IOC fuel
stations by franchisee where they will be selling products of company which will enhance its presence to its
customers. They have invested heavily in setting up live projects also where demo of MIS given to farmers,
however due to these efforts the employee & Personal cost to sales is higher at 11% viz - a - viz 5-6% of
peers.

We expect EPC industry to benefit from parentage of Mahindra group and likely to derive significant synergies
from its parentage and group companies. The company has been well capitalized and supported by parent in
last few years. We believe Mahindra Agri Solutions (unlisted company) (MASL), which is wholly owned
subsidiary of Mahindra group has been made flagship company where all Agri business of Mahindra Group has
been consolidated except EPC Industries. We believe MASL can be merged with EPC irrigation in next few
years once MASL will be profitable and promoters will increase their stake in EPC irrigation via merger.

EPC is currently fourth largest Irrigation player in the country. They are aiming to be in top 3 in the next 3
years. We expect company to be benefitted by favorable budgetary allocation in MIS on the back of
government thrust.

Key Highlights

 M&M is the promoter of EPC Industries. Company was acquired by M&M in February 2011 and has
been well capitalised over the years by M&M. EPC commands market share of ~5% (sales of Rs 201cr
in FY17) out of the total industry size pegged at around Rs 4000 crore.

 EPC Industrie (EPC) is a micro-irrigation system (MIS) player manufacturing drip and sprinkler
irrigation system domestically.

 We are expecting EPC industry to benefit from parentage of Mahindra group and likely to derive
significant synergies from its parentage and group companies. The company has been well capitalized
and supported by parent in last few years.

 FY14-17 has been largely muted for EPC given distress in the rural economy amid deficient monsoons
in 2014 & 2015 and change in subsidy disbursal mechanisms by various state governments.

 Going forward, with the government’s thrust on augmenting penetration of water conservation and
efficiency driven MIS domestically we believe the industry is likely to witness high double digit growth
in next two-three years which would benefit players like EPC Industries.

Private Client Group - PCG RESEARCH P a g e | 21

 PCG RESEARCH

 For FY17, net sales were at Rs 201 crore, flat YoY with EBITDA and PAT at Rs 14.2 crore, Rs 9.9 crore,
respectively.

 We expect EPC to clock strong revenue and robust earnings growth over FY17-20E primarily on pick-
up in MIS activity domestically. Company has started production from its Baroda Unit from Dec 2017
which would also drive growth.

 Micro-irrigation is essentially an efficient way of irrigating the farmlands and is core to the
government’s vision of doubling farm income by 2022. EPC Industries remains debt free as on FY17.
We expect strong sales and robust earnings growth over the next two-three years on the back of pick-
up in MIS activity domestically.

View & Valuation

EPC Industries has posted subdued growth over the last three years with 5% revenue and 9% PAT cagr over
FY14-17. We estimate 13% revenue and 32% PAT cagr for FY17-20E led by higher capacity utilizations and
govt.’s thrust on MIS projects. EPC trades at ~21x of FY20E earnings and 1.7x EV/Revenues. We have valued
EPC Industries at ~29x FY20E earnings and ~2.4x EV/Revenues. The company is a pure play on the MIS
theme that can create wealth from longer time frame, given trajectory of farmer awareness on MIS &
subsequent capitalisation of opportunity for the company. We recommend buy on EPC at cmp of Rs 189 and
add on dips of Rs 168-179 with sequential targets of Rs 219 and 257.

Key Risks

 Micro Irrigation industry has threats such as uneven distribution of rainfall, competition from
unorganized sector, government policies and a constant fluctuation in polymer prices.

 Seasonality is also another major concern for all irrigation companies as major business originates from
non-monsoon months. However, this concern gets addressed through the company’s well spread
operations in different states where monsoon months vary.

Private Client Group - PCG RESEARCH P a g e | 22

 PCG RESEARCH

Revenues to witness strong ~13% cagr over FY17-20E EBITDA trend over FY17-20E

Source: Company, HDFC sec Research

Source: Company, HDFC sec Research

EBITDA Margin (%)

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH P a g e | 23

 PCG RESEARCH

Income Statement Balance Sheet

(Rs Cr) FY15 FY16 FY17 FY18E FY19E FY20E FY15 FY16 FY17 FY18E FY19E FY20E
Net Revenue 169 203 201 198 237 291 SOURCE OF FUNDS
Other Income 3 2 2 2 3 4 Share Capital 27.6 27.6 27.6 27.6 27.6 27.6
Total Income 172 205 203 200 240 295 Reserves 87 96 107 113 126 152
Growth (%) -3.1 19.9 -1.0 -1.5 19.7 22.8 Shareholders' Funds 114 124 134 140 154 180
Operating Expenses 165 192 188 186 216 261 Long Term Debt 1 1 1 5 7 10
EBITDA 7 14 15 14 24 33 Net Deferred Taxes 0 3 2 3 6 9
Growth (%) -60.6 173.2 13.4 -7.1 76.2 43.2 Long Term Provisions & Others 2 1 1 4 9 12
EBITDA Margin (%) 2.4 5.5 6.3 6.0 8.8 10.2 Total Source of Funds 117 129 138 153 174 211
Depreciation 3 3 3 4 4 4 APPLICATION OF FUNDS
EBIT 4 11 12 10 20 29 Net Block (incl CWIP) 30 27 26 32 36 47
Interest expenses 1 0 2 1 1 1 Deferred Tax Assets (net) 0 3 4 4 4 4
PBT 3 10 10 9 17 26 Long Term Loans & Advances 7 9 10 13 18 22
Tax 1 2 0 3 3 5 Total Non Current Assets 37 39 39 49 58 73
RPAT 2 9 10 6 17 25 Current Investments 0 0 0 0 0 0
Growth (%) -76.7 384.6 13.6 -37.8 144.5 49.0 Inventories 28 28 33 31 38 42
EPS 0.7 3.2 3.6 2.3 6.2 8.9 Trade Receivables 57 76 91 90 106 120
Source: Company, HDFC sec Research Short term Loans & Advances 2 1 1 1 2 5
Cash & Equivalents 27 24 12 32 38 57
Other Current Assets 2 3 3 6 8 12
Total Current Assets 116 131 140 159 192 235
Short-Term Borrowings 0 0 0 11 21 13
Trade Payables 24 26 35 35 41 51
Other Current Liab & Provisions 11 10 6 7 9 12
Short-Term Provisions 1 2 2 4 6 8
Total Current Liabilities 36 38 43 57 77 83
Net Current Assets 80 94 97 102 115 151
Total Application of Funds 117 129 138 153 175 211
Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH P a g e | 24

 PCG RESEARCH

Key Ratios
Cash Flow Statement (Rs Cr) FY15 FY16 FY17 FY18E FY19E FY20E
(Rs Cr) FY15 FY16 FY17 FY18E FY19E FY20E EBITDA Margin 2.4 5.5 6.3 6.0 8.8 10.2
Reported PBT 3 10 10 10 19 28 EBIT Margin 2.4 5.3 5.7 5.2 8.4 10.0
Non-operating & EO items -3 -2 -2 -2 -3 -4 APAT Margin 1.1 4.3 5.0 3.1 6.4 7.8
Interest Expenses 1 0 2 1 1 1 RoE 1.6 7.4 7.8 4.5 11.6 14.7
Depreciation 3 3 3 4 4 4 RoCE 3.4 8.4 8.4 6.7 11.3 13.8
Working Capital Change 0 -17 -15 15 -7 -14 Solvency Ratio
Tax Paid -1 -2 0 -3 -3 -5 Net Debt/EBITDA (x) -6.3 -2.0 -0.9 -1.3 -0.5 -1.1
OPERATING CASH FLOW ( a ) 3 -8 -2 23 10 11 D/E 0.0 0.0 0.0 0.1 0.2 0.1
Capex -1 1 -2 -10 -8 -15 Net D/E -0.2 -0.2 -0.1 -0.1 -0.1 -0.2
Free Cash Flow 2 -6 -4 13 2 -8 PER SHARE DATA
Investments -1 -5 -1 -3 -5 -4 EPS 0.7 3.2 3.6 2.3 6.2 8.9
Non-operating income 3 2 2 2 3 4 CEPS 1.6 4.2 4.7 3.6 7.5 10.5
INVESTING CASH FLOW ( b ) 1 -2 -1 -11 -10 -15 BV 41 45 49 51 56 65
Debt Issuance / (Repaid) 0 2 -1 8 10 9 Dividend 0.0 0.0 0.0 0.0 0.5 1.0
Interest Expenses -1 0 -2 -1 -1 -1 Turnover Ratios (days)
FCFE 1 -5 -6 21 11 0 Debtor days 123 136 166 165 163 151
Share Capital Issuance 0 0 0 0 0 0 Inventory days 69 51 55 57 59 53
Dividend 0 0 0 0 -2 -4 Creditors days 65 59 79 82 83 88
FINANCING CASH FLOW ( c ) -1 2 -2 7 7 4 VALUATION
NET CASH FLOW (a+b+c) 3 -8 -6 20 6 0 P/E 288.5 59.5 52.4 84.2 30.8 21.4
Source: Company, HDFC sec Research
P/BV 4.6 4.2 3.9 3.7 3.4 2.9
EV/EBITDA 122.6 44.9 39.6 42.6 24.2 16.9
EV / Revenues 3.0 2.5 2.5 2.5 2.1 1.7
Dividend Yield (%) 0.0 0.0 0.0 0.0 0.3 0.5
Dividend Payout 0.0 0.0 0.0 0.0 8.1 11.3
Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH P a g e | 25

 PCG RESEARCH

Price Chart

Rating Definition:

Buy: Stock is expected to gain by 10% or more in the next 1 Year.

Sell: Stock is expected to decline by 10% or more in the next 1 Year.

Private Client Group - PCG RESEARCH P a g e | 26

 PCG RESEARCH

Rating Chart

R
E HIGH
T
U
MEDIUM
R
N
LOW
LOW MEDIUM HIGH
RISK

Ratings Explanation:

RATING Risk - Return BEAR CASE BASE CASE BULL CASE

IF RISKS MANIFEST
IF INVESTMENT
IF RISKS MANIFEST PRICE CAN FALL 15% &
LOW RISK - LOW RATIONALE FRUCTFIES
BLUE PRICE CAN FALL 20% IF INVESTMENT
RETURN STOCKS PRICE CAN RISE BY
OR MORE RATIONALE FRUCTFIES
20% OR MORE
PRICE CAN RISE BY 15%
IF RISKS MANIFEST
IF INVESTMENT
MEDIUM RISK - IF RISKS MANIFEST PRICE CAN FALL 20% &
RATIONALE FRUCTFIES
YELLOW HIGH RETURN PRICE CAN FALL 35% IF INVESTMENT
PRICE CAN RISE BY
STOCKS OR MORE RATIONALE FRUCTFIES
35% OR MORE
PRICE CAN RISE BY 30%
IF RISKS MANIFEST
IF INVESTMENT
IF RISKS MANIFEST PRICE CAN FALL 30% &
HIGH RISK - HIGH RATIONALE FRUCTFIES
RED PRICE CAN FALL 50% IF INVESTMENT
RETURN STOCKS PRICE CAN RISE BY
OR MORE RATIONALE FRUCTFIES
50% OR MORE
PRICE CAN RISE BY 30%

Private Client Group - PCG RESEARCH P a g e | 27

 PCG RESEARCH

Disclosure:
I, Kushal Rughani, MBA, author and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL
has no material adverse disciplinary history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.
Research Analyst or his relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial
ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its
associate does not have any material conflict of interest.
Any holding in stocks – No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.

Disclaimer:
This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon
information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its
accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their
securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or
other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement
within such jurisdiction.
If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced,
distributed or published for any purposes without prior written approval of HSL.
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition,
investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail
and/or its attachments.
HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in
any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or
lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.
HSL, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report,
including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other
deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.

HSL or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve
months.
HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t date of this report for services in respect of managing or
co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction in the normal course of business.
HSL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither HSL nor
Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or
brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any
compensation/benefits from the subject company or third party in connection with the Research Report.
HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF
C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193
Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022)
2496 5066
Compliance Officer: Binkle R. Oza Email: complianceofficer@hdfcsec.com Phone: (022) 3045 3600

Private Client Group - PCG RESEARCH P a g e | 28