vesuvius 3qcy2012ru
TRANSCRIPT
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Please refer to important disclosures at the end of this report 1
EBITDA 25 25 (2.1) 22 9.1
EBITDA margin (%) 18.6 18.1 45bp 16.1 243bp
Source: Company, Angel Research
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.
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.
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.
Key financials
% chg 21.7 22.8 1.6 6.9
% chg 29.3 13.7 (7.2) 9.0
EBITDA (%) 18.7 17.4 16.6 17.0
P/E (x) 14.3 12.5 13.5 12.4
P/BV (x) 2.7 2.3 2.1 1.8
RoE (%) 20.8 20.1 16.1 15.5RoIC (%) 43.9 40.6 32.6 31.4
EV/Sales (x) 1.4 1.2 1.1 1.0
EV/EBITDA (x) 7.8 6.8 6.8 6.1
Source: Company, Angel Research
CMP `341
Target Price -
Investment Period -
Stock Info
Sector
Net Debt (` cr)
Bloomberg Code
Shareholding Pattern (%)
Promoters 55.6
MF / Banks / Indian Fls 15.7
FII / NRIs / OCBs 10.8
Indian Public / Others 17.9
Abs. (%) 3m 1yr 3yr
Sensex 7.8 6.8 16.8
VESUVIUS (6.8) (13.1) 118.8
52 Week High / Low 464/305
(22)
Cap Goods
Market Cap (` cr) 693
Beta 0.7
Avg. Daily Volume 3,363
Face Value (`) 10
BSE Sensex 18,763
Nifty 5,704
Reuters Code VESU.BO
VI@IN
+91- 22- 3935 7800 Ext: 6849
Performance Highlights
3QCY2012 Result Update | Capital Goods
November 5, 2012
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Vesuvius India | 3QCY2012 Result Update
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Exhibit 1:3QCY2012 performance
Net raw material 73 76 (5.2) 77 (5.5) 229 217 5.7(% of Sales) 54.9 55.3 55.1 55.8 54.8
Staff Costs 9 8 10.0 9 0.3 26 23 13.0
(% of Sales) 6.7 5.8 6.3 6.4 5.9
Other Expenses 26 29 (8.9) 31 (16.1) 88 80 9.6
(% of Sales) 19.9 20.8 22.5 21.4 20.2
EBITDA margin (%) 18.6 18.1 45bp 16.1 243bp 16.4 19.1 (266)bp
Interest 0 (0) 0 0 (1)
Depreciation 4 4 3.3 4 (2.6) 12 11 14.6
Other Income 0.3 0.0 0.3 1 0
(% of Sales) 15.7 15.4 13.4 13.8 16.6
Tax 7 7 (0.9) 6 11.3 18 21 (11.7)
(% of PBT) 32.5 31.8 32.5 32.5 31.6
PATM (%) 10.6 10.5 9.0 9.3 11.4
Equity capital (cr) 20 20 20 20 20
Source: Company, Angel Research
Exhibit 2:Actual vs. Angel estimates (3QCY2012)Total Income 132 140 (5.8)
EBITDA 25 24 0.7
EBITDA margin (%) 18.6 17.4 120bp
Adjusted PAT 14 14 2.3
Source: Company, Angel Research
Top-line below estimate, EBITDA margin surprises positively
For 3QCY2012, VIL reported a top-line of `132cr, 5.8% below our estimate of
`140cr owing to a weak demand scenario. However, lower-than-expected other
expenses led to expansion of EBITDA margin by 243bp qoq vis--vis our
expectation of 17.4%. As a result, the net profit for the quarter stood at `14cr
marginally higher than our expectation.
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Vesuvius India | 3QCY2012 Result Update
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Investment rationale
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.
Exhibit 3:Country-wise steel consumption estimates (WSA)
Source: WSA, Angel Research
New capacity to replace imports, but with a lag
Imports constitute 25-30% of the refractory industry wherein a majority of the
imports are from China. Stagnation in domestic consumption due to increased
refractory life cycle in the critical areas of steel making process has led to lowcapacity utilization at ~60%, thus leading to a substantial unutilized capacity. Also,
~15% additional capacities are expected to be operational by CY2012E. Besides,
VIL has also acquired 15acres of land in Visakhapatnam for setting up itsproposed fifth plant.
Exhibit 4:Capacity expansion for major players (MT)VIL 622,500 155,900 778,400
IFGL 800,000 84,000 884,000
Tata Refractories 250,760 36,000 286,760
Source: Company
(0.6
)
(1.2
)
4.0
4.1
6.
8
6.9
5.2
2.2
(5.6
)
2.5
0.8
3.8
5.5 7
.5
(8)
(6)
(4)
(2)
0
2
4
6
8
10
Japan EU China CIS Central &South
America
India NAFTA
Growth(%)
CY2012E (April 2012) CY2012E (Oct 2012)
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Vesuvius India | 3QCY2012 Result Update
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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.
Exhibit 5:Refractory import market share to reduce (India)
Source: Company, Angel Research
Strong balance sheet favors return ratios
VIL being a debt free company had a RoIC of 40.6% for CY2011. Since the
company has completed its expansion, no major capex is required in the short
term. Hence, we expect the cash reserves to increase to `87cr by CY2013E from
`54cr in CY2011. VIL is expected to have a RoIC of 31.4% in CY2013E.
29.3
42.2
24.0
28.2 27.3 26.5
15
20
25
30
35
40
45
CY08 CY09 CY10 CY11 CY12E CY13E
(%)
Refractory imports marketshare
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Financials
Exhibit 6:Key assumptionsChange in refractory volume sales (4.1) 6.2
Change in MRP of refractories 3.0 1.0
Source: Angel Research
Exhibit 7:Change in estimates
OPM (%) 16.1 17.0 16.6 17.0 49bp (5)bp
Source: Angel Research
Slowdown in steel industry to restrain revenue growth
WSAs continuous downward revision for steel demand is an indication of
slowdown in the industry. Hence, we expect a decline in demand for refractories,
thus leading to a mere 4.3% CAGR revenue growth over CY2011-13E. Revenue
for 9MCY2012 has witnessed the impact of demand slowdown with marginal sales
growth. We expect the sluggishness to continue going forward with gradual
recovery from CY2013E.
Exhibit 8: Slowdown in revenue growth in 9MCY2012
Source: Company, Angel Research
Exhibit 9:Revenue growth to improve gradually
Source: Company, Angel Research
137 138 148 139 139 132
24.1
21.723.2
1.8 0.7 1.8
(5)
0
5
10
15
20
25
30
0
40
80
120
160
2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12
(%)
(`cr)
Revenue (LH S) yoy growth ( RH S)
353 362 440 540 549 587
10.4
2.5
21.7
22.8
1.6
6.9
0
5
10
15
20
25
30
0
100
200
300
400
500
600
700
CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E
(%)
(`cr)
Revenue (LHS) Revenue growth ( RHS)
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Higher operational cost to impact EBITDA margin
Raw material cost which constitutes ~55% of the total cost was a major contributor
in impacting EBITDA margin to sub 15% levels in 4QCY2011 and 1QCY2012 in
comparison to more than 18% levels historically. However, recent fall in raw
material prices along with decrease in other expenses led to a recovery in the
EBITDA margin during the quarter. We expect raw material prices to stabilize at
these levels, but the commencement of the expanded facility has led to an increase
in employee cost. Hence, we expect the EBITDA margin to contract in CY2012E to
16.6% and recover to 17.0% in CY2013E.
Exhibit 10:Margin recovery on lower operational cost
Source: Company, Angel Research
Exhibit 11:EBITDA margin to recover in CY2013E
Source: Company, Angel Research
Net profit to rebound in CY2013E
Considering the impact of demand slowdown and margin pressure, we expect the
net profit to decline to `51cr in CY2012E and recover in CY2013E to `56cr.
Exhibit 12:Profit to recover at CY2011 level
Source: Company, Angel Research
25 25 22 20 22 25
18.318.1
14.8
14.6
16.1
18.6
13
14
15
16
17
18
19
0
5
10
15
20
25
30
2QCY11 3QCY11 4QCY11 1QCY12 2QCY12 3QCY12
(%)
(`cr)
EBITD A (LH S) EBITD A margin (RH S)
53 64 82 94 91 100
15.0
17.7
18.7
17.416.6 17.0
13
14
15
16
17
18
19
0
20
40
60
80
100
120
CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E
(%)
(`cr)
EBITDA (LHS) EBITDA margin (RHS)
32 38 49 55 51 56(3.9)
18.8
29.3
13.7
(7.2)
9.0
(10)
0
10
20
30
40
0
10
20
30
40
50
60
CY2008 CY2009 CY2010 CY2011 CY2012E CY2013E
(%)
(`cr)
PAT (LHS) PAT growth (RHS)
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Outlook and valuation
We have revised our revenue and earnings estimates for CY2012E and CY2013E
marginally downwards on the back of slowdown in steel demand which is
impacting refractory demand. At current levels, the stock is trading at a PE of 12.4x
its CY2013E earnings and P/BV of 1.8x for CY2013E.
Exhibit 13:One year forward P/E band
Source: Company, Angel Research
Exhibit 14:One year forward P/E chart
Source: Company, Angel Research
Exhibit 15:Relative valuation
IFGL Refractor TTM ended June12 651 12.1 41 12 32.3 4.0 1.3 0.2 1.8Vesuvius India TTM ended Sept12 559 16.4 51 25 16.0 13.5 2.1 1.2 7.3
Source: Company
Risks
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.
0
100
200
300
400
500
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12
(`)
Price 5x 8x 11x 14x
0
4
8
12
16
20
Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12
(x)
Median PE (5 yr) PE
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Profit & Loss Statement
Less: Excise duty 22 33 40 38 41Net Sales 362 440 540 549 587
Other operating income - - - - -
% chg 2.5 21.7 22.8 1.6 6.9
Net Raw Materials 198 242 307 308 331
Other Mfg costs 46 59 73 77 80
Personnel 21 25 30 35 36
Other 32 32 37 38 41
Total Expenditure 298 358 446 458 487
% chg 20.9 28.5 14.4 (2.9) 9.2
(% of Net Sales) 17.7 18.7 17.4 16.6 17.0
Depreciation 13 13 15 16 18
% chg 15.9 35.1 14.6 (5.6) 9.0
(% of Net Sales) 14.2 15.7 14.7 13.6 13.9
Interest & other charges 1 1 1 - -
Other Income 6 6 5 2 2
(% of Net Sales) 1.5 1.5 0.9 0.3 0.3
% chg 17.4 33.6 10.6 (7.5) 9.0
Tax 19 26 27 25 28
(% of PBT) 33 35 33 33 33
Extraordinary (Exp)/Inc. (0) 0 - - -
% chg 18.8 29.3 13.7 (7.2) 9.0
(% of Net Sales) 10.4 11.0 10.2 9.3 9.5
% chg 18.8 29.3 13.7 (7.2) 9.0
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Balance Sheet
Equity Share Capital 20 20 20 20 20Preference Capital - - - - -
Reserves& Surplus 193 233 278 317 361
Minority Interest - - - - -
Total Loans - - - - -
Deferred Tax Liability (Net) 5 6 6 6 6
Other Long Term Liabilities - - - - -
Long Term Provisions - - 177 177 177
Gross Block 161 181 207 239 262
Less: Acc. Depreciation 79 90 99 115 133
82 92 109 123 129
Capital Work-in-Progress 21 20 30 20 20
Goodwill - - - - -
Investments - - - - -
Long Term loans and adv. - - 181 184 197
Other long term assets - - 1 1 1
Cash 55 56 54 72 87
Loans & Advances 11 164 15 16 17
Inventory 29 38 48 56 63
Debtors 98 116 149 151 162
Other current assets - - 3 3 4
Current liabilities 77 226 109 105 113
Misc. Exp. not written off - - - - -
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Cash Flow Statement
Profit before tax 56 75 83 76 83
Depreciation 13 13 15 16 18Change in Working Capital 32 (31) (16) (14) (11)
Direct taxes paid (19) (26) (27) (25) (28)
Other income (6) (6) (5) (2) (2)
Others (4) 6 (4) - -
(Inc.)/Dec. in Fixed Assets (37) (19) (37) (21) (24)
(Inc.)/Dec. in Investments - - - - -
(Incr)/Decr. in L.T loans & adv - - (182) (3) (13)
Other income 6 6 5 2 2
Others 8 (8) 174 - -
Issue of Equity - - - - -
Inc./(Dec.) in loans - - - - -
Dividend Paid (Incl. Tax) (9) (9) (10) (12) (12)
Others 5 1 2 - -
Inc./(Dec.) in Cash 45 1 (2) 18 15
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Key Ratios
P/E (on FDEPS) 18.4 14.3 12.5 13.5 12.4P/CEPS 6.8 5.5 4.9 10.2 9.4
P/BV 3.2 2.7 2.3 2.1 1.8
Dividend yield (%) 1.1 1.2 1.2 1.5 1.5
EV/Sales 1.8 1.4 1.2 1.1 1.0
EV/EBITDA 10.0 7.8 6.8 6.8 6.1
EV / Total Assets 2.9 2.5 1.3 1.2 1.1
EPS (Basic) 18.5 23.9 27.2 25.2 27.5
EPS (fully diluted) 18.5 23.9 27.2 25.2 27.5
Cash EPS 24.8 30.3 34.4 33.4 36.4
DPS 3.7 4.0 4.3 5.0 5.0
Book Value 105.1 124.6 146.9 166.2 187.9
EBIT margin 14.2 15.7 14.7 13.6 13.9
Tax retention ratio 0.7 0.7 0.7 0.7 0.7
Asset turnover (x) 2.5 2.4 1.4 1.3 1.3
ROIC (Post-tax) 24.0 24.7 13.3 11.7 11.9
Cost of Debt (Post Tax) - - - - -
Leverage (x) (0.3) (0.2) (0.2) (0.2) (0.2)
Operating ROE - - - - -
ROCE (Pre-tax) 25.1 29.0 21.4 14.9 15.0
Angel ROIC (Pre-tax) 33.8 43.9 40.6 32.6 31.4
ROE 18.9 20.8 20.1 16.1 15.5
Asset Turnover 2.2 2.4 2.6 2.3 2.2
Inventory / Sales (days) 11 8 8 10 10
Receivables (days) 99 96 101 101 101
Payables (days) 95 231 89 70 70
WC (ex-cash) (days) 61 75 72 81 82
Net debt to equity (0.3) (0.2) (0.2) (0.2) (0.2)
Net debt to EBITDA (0.9) (0.7) (0.6) (0.8) (0.9)
Interest Coverage 61.0 80.5 62.4 - -
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Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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Disclosure of Interest Statement Vesuvius India Ltd.
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors