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Monday, July 27, 2015

SYNGENE INTERNATIONAL LTD: SUBSCRIBE THIS IPO !!!

Price Band: Rs. 240 - Rs. 250.
Retail Discount : NA . 
Face Value: Rs. 10.00. 
Minimum Lot Size: 60 Shares. 
Issue opens on: 27th July 2015, Monday. Issue closes on: 29th July 2015, Wednesday.
Listing Date on: by 14th August 2015.
Total No. of Shares offered: 2,20,00,000  shares or 11.00 %.
Biocon Shareholders Reservation: 20,00,000 shares of total issue.
Net Public Offer: 2,00,00,000 shares.
QIB Book: 1,00,00,000 shares or 50 % of issue.
Anchor Investor Portion: 60,00,000 shares of QIB
For Mutual Funds Portion: 2,00,000 shares of QIB
Balance for all QIB including Mutual Funds: 35,00,000 shares of QIB
Non – Institutional Bidders: 30,00,000 shares or 15 % of issue.
Retail Book: 70,00,000 shares or 35 % of issue.
Equity Shares outstanding prior Issue: 20,00,00,000 shares.
Equity Shares outstanding post Issue: 20,00,00,000 shares.
Total Size of the Issue: Rs. 528.00 Crs - Rs. 550.00 Cr.
IPO GRADING: Strong Fundamentals
FAIR VALUE RANGE - Rs. 320 - Rs. 340.

KEY FINANCIALS31 Mar 1131 Mar 1231 Mar 1331 Mar 1431 Mar 15
Sales (Cr)322.00417.00550.00700.00860.00
Net Profit (Cr)27.0071.00102.00135.00175.00
Net Profit Margin8.38 %17.02 %18.54 %19.28 %20.34 %
EPS (.)1.403.605.106.708.80
NAV (.)11.0014.8025.9033.0043.70
Net Worth (₹Cr)220.70296.80518.60659.30844.90
ROE (%)12.3323.9219.7020.5020.70
ROCE (%)7.4018.0019.7016.6017.50
*Thee face value of company was Rs. 5 and then it consolidated its face value to Rs. 10 on March 16, 2015.

SYNGENE INTERNATIONAL LIMITED: 
Incorporated in 1993 and headquartered in Bengaluru, Syngene International Limited is a subsidiary of Biocon Limited, a global biopharmaceutical enterprise focused on delivering affordable formulations and compounds. Biocon, owns about 85 % of Syngene, and will reduce its stake to about 74 % through the IPO. Syngene International Ltd is one of the leading Indian-based contract research organizations, offering a suite of integrated, end-to-end discovery and development services for Novel Molecular Entities (“NMEs”) across industrial sectors including pharmaceutical, biotechnology, agrochemicals, consumer health, animal health, cosmetic and nutrition companies. Company’s service offerings also support the development of biosimilar and generic molecules. In the near term, it intends to forward integrate into commercial-scale manufacturing of NMEs. As an experienced CRO with a proven track record of providing quality NME discovery, development and manufacturing services and continued focus on reliability, responsiveness and protection of client’s intellectual property, Syngene is well-positioned to benefit from the expected growth in the CRO industry The company offers services through flexible business models that are customized to their client’s requirements. During Fiscal 2015, Syngene serviced 221 clients, ranging from multinational corporations to startups, including 8 of the top 10 global pharmaceutical companies by sales for 2014. It has several long-term relationships and multi-year contracts with their clients, including three long-duration multidisciplinary partnerships, each with a dedicated research centre, with three of the world’s leading global healthcare organizations Bristol-Myers Squibb Co. (“BMS”), Abbott Laboratories (Singapore) Pte. Ltd. (“Abbott”) and Baxter International Inc. (“Baxter”).

SOME FACTS ON SYNGENE:
Syngene provides contract drug discovery, research and manufacturing services to 17 of the world's top 20 pharmaceutical companies, including Bristol Myers Squibb & Co and Abbott Laboratories Ltd. Its revenue rose 25 % in the last three years. It manages a pool of 2,122 scientists including 258 PhDs and 1,665 scientists with master’s degree, to ensure timely execution of projects, cost effectiveness and quality of the projects, confidentiality and protection of intellectual property. The company owns state-of-the-art research facilities spread over 900000 sq. ft., certified by major regulatory bodies. As an experienced CRO, Syngene is well positioned to capitalize on the advantages of its flexible business models that customizes to their client’s requirements globally. There are great opportunities for CROs from the outsourcing markets and thus increasing their share towards global R&D expenditures. The company’s increasing clientele, expanding capacities as well as capabilities, along with plans for forward integration into commercial manufacturing will enable the company to drive growth by benefiting from the opportunities in future. Syngene is well poised to cash in on growing global pharma R&D outsourcing trend. Global pharmaceutical players are facing structural issues such as profit pressures arising from impending patent cliff, drying product pipeline and rising R&D costs. Surprisingly, however, the new product approvals from the USFDA are on the rise. Hence to maintain the cost balance at one end and maintain the new product introduction at the other, these players are inclined to outsource some of the R&D budget to CROs like Syngene. The parent Biocon is looking for a demerger may be considered when Biocon is less financially dependent on Syngene.

OUTLOOK:
The global CRO market for discovery services was estimated at US$14.7 billion in 2014 and is expected to reach US$22.7 billion in 2018, reflecting a CAGR of 11.5 % (2014-18), according to the IQ4I Report. The global CRO market for development services was estimated at US$28.8 billion in 2014 and is expected to reach US$44.6 billion in 2018, reflecting a CAGR (2014- 18) of 11.6 %, according to the Frost & Sullivan Report. Contract research organisations (CROs) offer outsourced services to support discovery and development for R&D driven organisations across industrial sectors like pharmaceuticals, biotechnology, biopharmaceuticals, neutraceuticals, animal health, agro-chemicals, cosmetics and electronics. CRO services span the range of R&D activities from new molecular entity (NME) discovery, development and manufacturing. Growth in the CRO market has historically been driven by growth in R&D spending and increased outsourcing of R&D activities. CROs offer clients an opportunity to manage costs, have flexible operations and realise efficiencies in R&D and related functions. Also, the need for greater flexibility has reduced the willingness of these players to incur large fixed costs associated with large scale R&D programmes. Outsourcing allows clients to convert a portion of their R&D budgets from a fixed to a variable cost, giving them greater flexibility to shift strategic and development priorities in response to market conditions. India has offered a significant cost advantage and skilled personnel. However, as global pharma outsources more R&D functions, outsourcing to India is increasingly seen as a strategic move to garner quality and value, rather than just a tactical decision to lower costs. High recall value Due to its integrated service offerings coupled with consistent performance and high data integrity ethos, Syngene has enjoyed high recall value, which is reflected from the fact that eight out of top 10 clients have been engaged with the company for the past five years. The company has also established dedicated centre for its three major clients Bristol-Myers Squibb Co (BMS), Abbott and Baxter. BMS has also recently extended this engagement with Syngene to 2020. Syngene stands to gain from forward integration to become a Contract Manufacturing Organization (CMO). Further, Syngene’s plan to foray into CMO of novel drugs will add significant upside over the next 3-4 years. Entry into the CMO business will open up the large revenue source (like Divi’s) and make Syngene a complete turnkey solution provider amongst the Indian bourses.

VALUATION:
Syngene is likely to incur capex of US $200mn in the next 2-3 years for greenfield as well as brownfield expansion. It currently manufactures small & large molecule to support clinical trials for multiple clients. It has shown healthy financial performance in the last 5 years. During the last 4 years, revenue grew 28 % and shown PAT CAGR of 59 %. During the same period its EBITDA grew by 31 %. In FY15, the company derived 96 % of revenue from the export market. During FY15, revenue grew 23 % YoY, to Rs. 860 crore, 95 % of which came via exports, while EBITDA margin was healthy at 34 %, leading to an EBITDA of Rs. 293 crore, up 32 % YoY. Since the company enjoys many tax concessions in form of SEZ unit and additional depreciation on plant and machinery, income tax rates are very low, and stood at just 14 % for FY15. Thus, net profit of Rs. 175 crore was earned in FY15, translating into net margin and EPS of 20.3 % and Rs. 8.89 respectively. On equity of Rs. 199 crore (face value of Rs. 10 each), company has net worth of Rs. 845 crore, as of 31st March 2015. While it has total debt of Rs. 155 crore, balance sheet shows current investments and cash balance of Rs. 262 crore, indicating net cash surplus of Rs. 107 crore, or Rs. 5.36 per share. At upper band of the IPO, Enterprise value of SYNGENE comes at Rs. 5,048 Cr and at lower band it comes at Rs.4,848 Cr. 

According to me one should look for subscribing for SYNGENE INTERNATIONAL LTD IPO, the company has fixed the price band at Rs. 240-250 per share. Based on FY15 annual EPS of Rs. 8.80, SYGENE is offered at P/E range of 27.27x on price of Rs. 240 and at a PE of 28.40x on price of Rs. 250. This Ipo is fairly valued given its operational scale. Extrapolating FY15’s earnings growth rates of 30 % to FY16, company is estimated to clock net profit of Rs. 228 crore for FY16 translating into EPS of Rs. 11.45 , which indicates a PE multiple of 21 times, at upper price band. PE multiple of 22 times, based on current year earnings, is attractive for a high-growth pharma stock clocking healthy margins, with a sound balance sheet, backed by strong management team and pedigree. Since Sun Pharma Advanced Research is loss making and there are no other pure-play CRAMs players listed on Indian bourses, no listed peer is ideal for comparison. Thus, with attractive pricing & strong fundamentals with good institutional holdings the Long term investors should look into subscribing the IPO for good opportunity. Short term investor can subscribe for listing gains.

As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase(Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do have applied for the IPO.

*Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box..

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
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Thursday, July 23, 2015

KITEX GARMENTS LTD : GROWING BABY !!

Scrip Code: 521248 KITEX
CMP:  Rs. 840.10; Market Cap: Rs. 3,990.47 Cr; 52 Week High/Low: Rs. 1,074.00 / Rs. 241.50.
Total Shares: 4,75,00,000 shares; Promoters : 2,57,65,597 shares – 54.24 %; Total Public holding : 3,19,18,226 shares –14.38 %; Book Value: Rs. 55.55; Face Value: Rs. 1.00; EPS: Rs. 21.06; Dividend: 125.00 %; P/E: 39.89 times; Ind. P/E: 46.20; EV/EBITDA: 20.84.
Total Debt: Rs. 140.75 Cr; Enterprise Value: Rs. 3,931.13 Cr.

KITEX GARMENTS LIMITED: Incorporated on 1991 and is based in Kochi, India. Kitex Garments Ltd (Kitex) is engaged in manufacture and export of readymade garments (RMG) and fabrics for men, women and children. Kitex Garments Limited also manufactures and sells infant wear and fabrics primarily in India. The company offers body suits, sleepwear, rompers, burps, bibs, and training pants. It came with the Initial Public Offer (IPO) in 1995; the shares of the company are listed on BSE. Kitex has an in-house manufacturing facility at Kizhakkambalam, Kochi, with an installed capacity of producing 1.1 million units of garments per day. The company derives majority of its revenue from export sales, with exports to international markets contributing 71 % to sales revenue in FY12. It exports its products to the United States and Europe. With unmatched global connections, this company caters to prominent and renowned conglomerates in USA and Europe. The company currently employs over 7000 people at its facility, and has been a business provider to many satellite businesses in the state. Kitex has state of the art manufacturing units. Its vertical set-up is with Knitting & Processing of fabrics, until finished garments are done in-house. A 240 meters long and 70 meters wide process house that covers an area of 180,768 sq. ft, is one of the largest in the world under one roof, makes fabrics for its garmenting units. Its units are equipped with digital dispenser system for error-free, automatic and computer-controlled preparation of colour recipes, high quality knitting machines, most modern dyeing, printing and finishing machines that use cutting-edge technology, the plant produces 50,000 Kilograms of knitted fabrics that are of exceptional quality, and is well appreciated and recognized by reputed children’s wear apparel brands in the United States and Europe. Its garmenting unit uses latest machinery for pattern CAD, plotting and grading. Automatic spreader machines enhance the speed of spreading. Automated cutting machines enable faster & precision cutting. Latest sewing machinery ensures stain-free, quality sewing. Most modern embroidery machines are on hand. Needle detector machines ensure safety of products before shipping. State-of-the-art spectrophotometer ensures electronic colour reading & transmission. Kitex Garments Limited is locally compared with Kewal Kiran Clothing, Zodiac Clothing, Page Industries, Indian Terrain Fashions Ltd, Goenka Business, Garware-wall Ropes, Welspun India, Siyaram Silk Mills, Voith Paper Fabrics, Lambodhara Textiles, Binny Mills, Rajapalayam Mills, Shri Dinesh Mills, Gini Silk Mills, RSWM LTD, Amarjothi Spg. Mills, Future Lifestyle, Cantabil Retail, Mafatlal Industries, Century Enka, Aarvee Denims & Exports, Nandan Denim, Maxwell Industries, Kamadgiri Fashions, Birla Cotsyn, Arvind Mills, Digjam, Alok Industries, Vandana Knitwear, Bombay Rayon Fashion, Raymond, Morarjee Textiles, Welspun Syntex, Mandhana Industries, Spl Industries Ltd, lovable lingerie, Rupa & Co, Monte Carlo Fashions and globally compared with Yamaki Co., Ltd of Japan, American Apparel Inc of USA, Carters Inc of USA, Columbia Sportswear Co of USA, Delta Appareal Inc of USA, Nike Inc of USA, Arab Cotton Ginning of UAE, Delta-Galil Industries of UAE, Square Textiles Ltd of UAE, Adidas Ag of USA, Burberry Group Plc of London, PUMA SE of Germany, Prada S.P.A of Italy .

Investment Rationale:
Kitex Garments is leader in Kids wear. It is a part of the renowned Anna-Kitex group of companies, founded by the legendary Late Shri M. C. Jacob, Kitex Garments Ltd is the largest employer in private sector in the state of Kerala. It is located near Kochi and has easy access to sea and air ports. The company had started with Rs. 1.8 Crores turnover in the year 1995-96, now has grown to a turnover of over Rs. 524 Crores in 2014-15. The company is currently the second largest producer of children's apparel in the world, and is now in the process of setting up operations in the United States of America. Indian textile industry largely depends on textile manufacturing and export. It also plays a major role in the economy of the country. India earns about 27 % of its total foreign exchange through textile exports. Furthermore, it contributes about 14 % to industrial production, 4 % to the gross domestic product (GDP) of India, and 17 % to the country's export earnings. The sector is the second-largest provider of employment after agriculture. It not only generates jobs in its own industry, but also opens up scopes for other ancillary sectors. The industry currently generates employment to more than 3.5 Cr people. The fibre and yarn produced in India is comparable with the best in the world. Indian fabrics are known for their excellent workmanship, colours and durability. Due to heavy investments in world-class manufacturing plants, continuous innovation, new product mix, and strategic market expansion, Indian man-made fibres (MMF) are all set to take centre stage in the global arena. The potential size of the Indian textile and apparel industry is expected to reach US$ 221 billion by 2021. The big business houses in the USA and Europe manufacturing and dealing in textiles and garments depend upon India and China and the other neighbouring countries as the availability of the raw materials and these countires have skilled labour at lower prices, this helps to get the required output at the lowest possible cost. KITEX is taking all efforts to improve the quality and productivity to get more orders at competitive rates. Due to the own processing plant the company is able to quote better rates and maintain high quality & productivity in the finished goods manufactured. Barring unforeseen circumstances the company is confident of achieving better results in the current year. KGL is now eyeing for next phase of growth by acquiring licenses of few private labels in US and also through launching of its own brand in US for which company has already got the necessary clearances and approvals from US government. Company is already negotiating with few private labels for acquiring its licenses and expects to finalise couple of private labels by this fiscal year. The sales from licenses of these private labels will start from FY16E onwards. It has also registered its merchandising company “Kitex USA LLC” in US and expects sales to start kicking in from FY16E from its own brand. Both these initiatives will boost companies EBITDA margins significantly. Company is expecting to do $1.5 Cr sales in CY16E and by 2020 they expect to clock in $10 Cr sales from these two initiatives. Management expects to reach 50 % plus margins in next few years with these initiatives which are an improvement of 17 % improvement in its FY15 margins of 33 %. This will significantly increase company’s bottom line going forward. KGL has outlined minimal capital expenditures of Rs. 10 Cr to Rs. 15 Cr a year for next three years as major capital expenditure of Rs. 75 Cr was undertaken in FY14 to replace the old machines with the new ones. These will help in improving productivity and reducing wastage. Also the recently replaced sewing machines will have increased speed from 6,000 stitches per hour to 9,000 stitches per hour. All these efforts will lead to increased output thereby increasing the top line. Management expects company to post Rs. 1000 Cr to Rs. 1200 Cr in top line in next three years with these initiatives which would result is Sales CAGR of 25 %. Management plans to merge the unlisted entity KCL with itself in FY16E. It has already appointed E&Y as an internal auditor for the merger. The company wants to merge both the companies together because it desires to be a larger player in infant wear company in the world. As clients of both the companies are more or less same and when both operates in same line of business i.e. infant wear manufacturer this merger makes sense. Capacity and margins of both the companies are somewhat similar so merger will help. KCL holds 15 % plus stake in KGL. The swap ratio of the merger is unknown, but this merger can lead to substantial equity dilution in the listed Kitex garments thereby dragging its EPS lower and stretching the valuations higher, but this would be an short term phenomenon. But due to Kitex's ability and management quality, the company would perform better and can give better returns in coming years. 

Outlook and Valuation:
Kitex Garments Ltd (KTG) is based in Kochi, India. Kitex Garments Ltd has presence in the highly niche market of infant-wear clothing segment which currently accounts for US$20 billion in sales globally. Kitex is the 3rd largest Vendor for infant wear globally. India has etched its name amongst the topmost promising markets for apparel due to the burgeoning economic activities taking place here and the ever widening consumer base. Kids wear is not a small business anymore. Driven by huge demand from brand conscious children, the Indian kidswear retail market is expected to touch Rs. 58,000 crore by 2017. At present, the size of kidswear market in India is estimated at about Rs 38,000 crore which accounts for 25 % of the total Indian apparel category. Growing at the rate of 17 %, this is one of the most attractive categories. The increased media exposure, double-income parents and peer pressure as the reasons for children becoming more fashion and brand conscious. Brands are also realising the potential of this market and are increasing their presence in this segment. In April 2009, the Mahindra Group launched Mom & Me stores to tap into this segment. Exclusive children's brands, such as Gini & Jony, Lilliput and Catmoss, have also expanded their presence exponentially in the last two to three years. These brands are developing categories such as infant wear, kids' formal wear, kids' ethnic wear, swim wear and casual wear, along with a wide range of other merchandise for children. Even international brands like Reebok, which focused on adults till now, have recently launched the 'Reebok Juniors' concept store to tap into this segment. It has started offering apparel, footwear, accessories and sports equipment for children in the age group of four to 14 years. Gini & Jony started their Freedom Fashions stores, which offer licensed products from brands like Reebok and Levi's, along with their own products. Even premium brands, such as Tommy Hilfiger, Allen Solly and Puma, are not far behind and are now including more kids' product and accessories. Childrens' fashion shows, organised by these brands, is not a new concept. Lilliput started this trend and Catmoss roped in Darsheel Safary, of Taare Zameen Par-fame, to walk the ramp for its collection. KTG is in the business of manufacturing and exporting infant garments. Company derives 80 % of its revenue from the sale of infant garments and the balance 20 % from the sale of fabric to Kitex Childrenwear. Company has major concentration in US markets, where Customers generally demand bulk deliveries. KTG is in the final stages of a tie-up with an US brand and the first shipment will begin in October. Commercials for the brand will only be based on royalty and management guides that there will be no upfront investment. From a two to three-year perspective, KTG will look at having two to three private labels and an own brand. Given the popularity of the private label (well-known toys brand in the US), management believes KTG will not have to invest significantly in brand promotion. Management has hired designers for private label business who are currently, free lancers working for other prominent brands like Toys R Us. With regards marketing, management believes they’re well placed as KTG’s marketing head has 17 years’ work experience with Toys R Us and is working with KTG since 4 years. KTG will not have to invest heavily in brand promotion. Business from existing clients will stay constant and it expects additional capacities to be devoted exclusively towards private label and the own brand. In five years’ time, management targets to have 100 % of revenue from direct sales, thus transitioning it into a complete B2C player. Management expects to double sales in 3 years, showing around 20 % to 25 % sales growth for FY16, around 30 % to 35 % sales growth in FY17 and around 35 % to 40 % sales growth in FY18. With regards to capacity, they are not intending to add any new machines, besides Rs. 5 Cr to Rs. 10 Cr annual capex will be required, and around Rs. 30 Cr to Rs. 50 Cr maximum aggregate capex seen over next 3 years. Management believes market demand is not a concern as far as growth is concerned; key constraint is managing higher production scale. Lack of skilled labour, need for continuous training is key factors that limit quick scalability. Management is targeting higher use of technology with same labour strength to drive capacities higher and incremental growth to come from higher technology investments. Management highlighted that wastage reduction and use of better technology are key driving factors which are leading margins higher. KTG has agreement with buyers with predefined formulas and hence raw material inflation or deflation will not affect margins. Management re-iterated that margins are certainly sustainable at current levels. With new foreign trade policy, even if incentives go down, KTG will be able to sustain margins due to agreements with clients. Other operating income includes duty drawbacks of around 7.5 % incentive. There’s a merger with Kitex Children Wear Ltd and will be concluded by FY16. Kitex Children wear Ltd has revenues of Rs. 250 Cr; however its profitability is lower than KTG, and its debt free on net basis. This merger will increase authorized share capital, and management is considering various alternatives including bonus share issue. With India’s growing competitiveness against erstwhile low-cost countries like China which is 52 % market share it can be safely assume that the long term opportunity for KTG is large. KTG is the largest exporter of infant-wear clothing out of India and commands a 70 % market share for all infant-wear clothing exports out of India. Adhering to stringent safety measures, maintaining high quality standards, higher degree of complexity due to involvement of small sizes, need for greater variety, smaller batch size orders and high labour requirements are some of the key entry barriers that support superior profitability for the company. KTG commands strong, industry leading return ratios of ROCE of 45.1 % and ROE of 44.9 %, with its business model generating robust free cash generation of Rs. 300 Cr over FY15-17. KTG stands out amongst listed textile exporters with most of them present in capital intensive, low RoCE businesses of yarn and fabric manufacturing which averages around 10 % ROCE. It is expected that KTG can capture a larger pie of the infant-wear value chain through its forward integration with its launch of own brand in the US market as well as licensing of private labels in the US market. Forward integration holds high significance for the company as margins in its own brand will be double of the current business with margins improving from current 30 % to 60 %, along with higher realisatioisn. The company declared its quarterly results and first quarter for textile field is always slow and Q2 will be better and Q3 will be further better and in Q4 they will make maxium in result. Kitex Garments has reported a standalone total income from operations of Rs. 109.08 crore and a net profit of Rs. 15.97 crore for the quarter ended Jun '15. Other income for the quarter was Rs. 12.25 crore. For the quarter ended Jun 2014 the standalone total income from operations was Rs. 102.76 crore and net profit was Rs. 14.44 crore, and other income Rs. 6.58 crore. Profit before tax was Rs. 25.82 Cr as against Rs. 21.04 cr in June 2014. And Management expects to do about Rs. 600 to Rs. 650 Cr of revenues in FY16. Kitex export book for FY16 is fully booked. Kitex have more demand than their capacity and so this year Company lans for 15 % to 20 % increase in revenues and within 3 years company plans to double their capacity i.e 100 % growth, so slowly they will be adding the production and that is already planned and orders have been already taken for that. SO the planned capex would be around Rs. 10 to Rs. 15 cr this year. Company have already invested huge on processing side and so the investment is very marginal but substantialy the revenue will be much higer. At current market price of Rs. 840.10 KGL is trading at a PE of 31.00 times its FY16E EPS of Rs. 27.10 and 21.7 times its FY17E EPS of Rs. 38.70 and PE of 14.79 on the EPS of Rs. 56.80 in FY18E. Which is a attractive valuation with growth of 25 % CAGR in sales and growth of 40 % CAGR in PAT from FY15 to FY18E. Kitex would be debt free company by FY18E with strong improvement in margins along with sales from its own brand and licensing of private labels and strong return ratios of 40 % plus the stock can trade at PE of 30 times its FY18E EPS. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.   

KEY FINANCIALSFY15FY16EFY17EFY18E
SALES ( Crs)511.10613.30766.701,000.00
NET PROFIT (₹ Cr)98.50128.80184.00270.00
EPS ()20.7027.1038.7056.80
PE (x)44.1033.7023.6016.10
P/BV (x)17.8011.808.205.80
EV/EBITDA (x)33.0018.0013.509.80
ROE (%)37.3039.1041.2043.50
ROCE (%)37.2045.1050.9058.10

 As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase(Why Strict stop loss of 8 % ?) - Click Here


*As the author of this blog I disclose that I do not hold KITEX GARMENTS Ltd in my any of the portfolios.

*Reader Friends, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !!

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Disclaimer
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
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*Dear Reader friend, if you enjoyed this article, please do share it with your Friends and Colleagues through Facebook and Twitter, and drop in your valuable thoughts in comment box..

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

Monday, July 13, 2015

INOX WIND LTD: FLY HIGH WITH GUST !!!

Scrip Code: 539083 INOXWIND
CMP:  Rs. 451.95; Market Cap: Rs. 10,029.59 Cr; 52 Week High/Low: Rs. 494.40 / Rs. 325.00.
Total Shares: 22,19,18,226 shares; Promoters : 19,00,00,000 shares –85.62 %; Total Public holding : 3,19,18,226 shares –14.38 %; Book Value: Rs. 21.85; Face Value: Rs. 10.00; EPS: Rs. 7.21; Dividend: 0.00 %; P/E: 62.68 times; Ind. P/E: 69.22; EV/EBITDA: 51.67.
Total Debt: Rs. 480.40 Cr; Enterprise Value: Rs. 10,509.00 Cr.

INOX WIND LIMITED: Incorporated on April 9, 2009 and is based in Noida, India. Inox Wind Ltd is a subsidiary of Gujarat Fluoro chemicals Limited. Inox Wind Limited manufactures and sells wind turbine generators and components in India. The company came out with an IPO on March 18 2015 offering 3,19,18,226 equity shares of Rs. 10 each for Rs. 325 per share raising Rs. 1,037.34 Cr, retail investor were given a discount of Rs. 15 per share. It got listed on April 9, 2015 at Rs. 400 making a high of Rs. 427.40 on listing day. The object of offer for sale was to invest in new equipment at the Una (Himachal Pradesh) unit to optimise the capacity of the nacelle and hub manufacturing facility, for expansion and up-gradation of existing manufacturing facilities, for long term working capital requirements, for investment in their subsidiary Inox Wind Infrastructure Services Ltd for the purpose of development of power evacuation infrastructure and other infrastructure developments and for other general corporate purposes. Inox Wind Ltd provides turnkey solutions for wind farm projects & offers services including wind resource assessment, site acquisition, infrastructure development, erections and commissioning, and also long term operations and maintenance of wind power projects. Company manufacture the components of wind turbine generators in-house with a view to ensuring high quality, advanced technology and reliability and maintaining cost competitiveness. Company has facilities dedicated to manufacturing nacelles, hubs, rotor blade sets and towers. Inox Wind have a perpetual license from AMSC Austria GmbH (formerly Windtec GmbH), or AMSC, a leading wind energy technology company based in Austria, to manufacture 2 MW WTGs in India based on AMSC’s proprietary technology. Inox Wind has a fully integrated state-of-the-art manufacturing plants at Una (Himachal Pradesh) for Hubs and Nacelles and Rohika, near Ahmedabad (Gujarat) for Blades and Tubular Towers. Inox Wind manufactures the key components of the Wind Turbine Generator (WTG) to ensure high quality based on the most advanced technology, reliability of performance, and cost competitiveness. Inox WTGs are designed for low wind speed sites such as those in India. Inox Wind is an ISO 9001:2008 certified company. In addition, IWL’s manufacturing units are awarded with ISO 14001:2004, OHSAS 18001:2007 and ISO 3834-2 (tower manufacturing facility). Inox Wind turbines are type certified by TUV SUD according to “The Guidelines for the Certification of Wind Turbines issued by Germanischer Lloyd” and are duly enlisted in RLMM by C-WET. Inox Wind manufacturers two different WTG models 2 MW rating: Rotor diameter of 93 meters with hub height of 80 meters Rotor Diameter of 100 meters with hub height of 80 to 92 meters. Inox Wind owns a 100 % subsidiary, Inox Wind Infrastructure Services, which does the project development in respect of wind power projects, including wind studies, energy assessments, land acquisition, site infrastructure development, power evacuation, statutory approvals, erection and commissioning and long term operation and maintenance of the wind farms. Company produced and sold 60 turbine generators and in FY 2013; 60 turbine generators of 2 MW each. INOX WIND Limited is locally compared with Suzlon Energy Ltd, Honda Siel Power Products Ltd, Triveni Turbine Ltd, TD Power System Ltd, BHEL, Siemens Ltd, Crompton Greaves Ltd, Thermax Ltd, ABB India Ltd, Alstom India Ltd, KEC International Ltd, Gamesa Wind Turbines Pvt Ltd, GE India Industrial Pvt Ltd, Vestas Wind Technology India Private ltd, Sinovel DB India Pvt Ltd and globally compared with  AZZ Inc of USA, Ametek Inc of USA, Babcock & Wilcox Enterpr of USA, Broadwind Energy Inc of USA, Enersys of USA, Franklin Electric Co Inc of USA, Areva of France, Alstom of France,  Gamesa Corp Technologica S.A. of Spain, Vestas Wind Systems A/s of Germany, Schneider Electric S.E.of France, PNE WIND AG of Germany.

Investment Rationale:
Inox Wind Ltd, an Inox Group company, is India’s fourth-largest wind turbine generator (WTG) manufacturer and commands market share of 7 % in FY14. The Inox Group is operational from 1923 in India and currently operates in industrial gases, engineering plastics, refrigerants, chemicals, cryogenic engineering, renewable energy and entertainment sectors. The Group has two publicly-listed companies – Gujarat Fluorochemicals and Inox Leisure. Inox Wind Ltd is the subsidiary of Gujarat Fluorochemicals. Inox Wind Ltd commenced its operations in March 2010, and is into manufacturing of key components of Wind Turbine Generators and other parts like nacelles, hubs, rotor blade sets, and towers used to generate electricity from wind power. It provides turnkey solutions for wind farm projects through its wholly-owned subsidiaries, and has a project site pipeline of 4GW. Inox Wind Limited has two 2 business models: Turnkey Solution provider: In this model, Inox takes care of all the aspects related to development of wind power project from concept to commissioning including operation and maintenance. This includes wind studies, energy assessment, land acquisition, site infrastructure development, power evacuation, statutory approvals, and supplies of WTG, erection and commissioning and long term operation and maintenance of the wind farms and its Second model is of Equipment Supply: In this model, Inox Wind supplies the WTG and other associated equipment’s to customers for erection on sites owned by them. The rest of the project development work, which includes wind studies, energy assessment, land acquisition, site infrastructure development, power evacuation, statutory approvals, etc., is onto the customers’ while erection of tower and commissioning and long term operation and maintenance of the wind farms is onto Inox. Civil works could either be on Inox or on customer, on a case to case basis. India has significant untapped wind potential. According to the Centre for Wind Energy Technology, India has the potential to install over 100,000 MW of wind turbines at 80 meters hub height, implying an untapped wind power potential of 78GW. Based on C-WET estimates, India has explored only 22 % of its wind power potential. This indicates strong long term business opportunity for domestic WTG manufacturers. India has set a target of achieving overall wind energy installed capacity of 27,300 MW by 2017 and 38,500 MW by 2022. As per NOVONOUS estimates, this creates an US$ 31.25 billion opportunity in the wind energy market in India till 2022. The wind energy market in India has been growing since the last many years. The total installed capacity of the Indian Wind Energy market is 21,136.20 MW. India stands at the 5th Rank in terms of the total installed wind power capacity just behind China, USA, Germany and Spain. But the potential is far from being utilized. The wind energy sector in India had witnessed a sharp fall in capacity addition from 3.2GW in FY12 to 1.2GW in FY13, led by withdrawal of accelerated depreciation (AD) and generation-based incentives (GBI) in March 2012. However, renewable energy is now a key focus area for the new government, which has ambitious plans to set up an installed capacity base of 60GW in the wind energy segment by 2022 vs 23GW as at end FY15. There are multiple tailwinds that will help drive the size of the Indian wind energy market from 2.3GW in FY15 to 4-5GW in medium term. Inox Wind’s order book as at December 2014 stood at 1,258MW, and cumulative installations or supplies stood at 1,044MW including 312MW yet to be erected INXW has a 100 % subsidiary, Inox Wind Infrastructure Services, which does project development and operation and maintenance (O&M) of wind farms. Currently, IWL has an installed capacity of 550 nacelles and hubs at Una, Himachal Pradesh, 400 rotor blade sets, and a capacity of 300 towers at Rohika, Ahmedabad, Gujarat. The company is setting up a new integrated capacity of 400 nacelles and hubs, 400 rotor blade sets, and 300 towers at Barwani, Madhya Pradesh. This would take the total nacelles and hubs capacity to 950 units, rotor blades capacity to 800 sets, and tower capacity to 600 units. The projected cost of construction of the proposed unit is around Rs. 200 crore. The facility is expected to commence production during FY16. Post the expansion, the total production capacity is expected at reach 950 nacelles and hubs, 800 rotor blade sets and 600 towers. Hence, the production capacity will effectively double from 800 MW to 1600 MW by FY16. IWL has acquired access to certain project sites in Rajasthan, Gujarat, Andhra Pradesh and Madhya Pradesh. The company expects to gain access to wind sites under acquisition in Rajasthan, Gujarat, Andhra Pradesh and Madhya Pradesh, which is estimated for the installation of an aggregate 4,052 MW capacity. There are many initiatives taken by the new government like several states such as Rajasthan, Madhya Pradesh, Gujarat, Andhra Pradesh, Telangana, Maharashtra and Karnataka have provided preferential tariff over and above MNRE’s GBI of Rs. 0.5 per kilowatt-hour to attract investment. Some have also increased wind power tariffs by 2-15 % to attract investments. These states are expected to witness traction and will play a critical role to achieve the aggregate target of 4-5 GW per annum. Several states including Tamil Nadu, Karnataka, Maharashtra and Gujarat have policies that eliminate or reduce value-added tax (VAT) for wind turbine components. The Maharashtra Energy Development Agency (MEDA) has created a green cess (tax) fund. A part of this fund is used to create infrastructure for grid connectivity with proposed wind farms. Strong evacuation infrastructure promotes investments in wind power. State governments like Rajasthan, Madhya Pradesh and Gujarat have formalized land facilitation policies to expedite wind energy projects. Major projects get delayed mainly on account of delays in land acquisition.

Outlook and Valuation: 
Inox Wind Ltd provides turnkey solutions for wind farm projects & offers services including wind resource assessment, site acquisition, infrastructure development, erections and commissioning, and also long term operations and maintenance of wind power projects. Company manufacture the components of wind turbine generators in-house with a view to ensuring high quality, advanced technology and reliability and maintaining cost competitiveness. Company has facilities dedicated to manufacturing nacelles, hubs, rotor blade sets and towers. Inox Wind have a perpetual license from AMSC Austria GmbH (formerly Windtec GmbH), or AMSC, a leading wind energy technology company based in Austria, to manufacture 2 MW WTGs in India based on AMSC’s proprietary technology. In August 2014, Inox Wind and AMSC amended the agreement to cover all 2 MW WTGs with rotor diameters between 85 meters and 120 meters. In addition, Inox Wind has a non-exclusive license to manufacture 2 MW WTGs worldwide based on AMSC’s proprietary technology. Globally, over 15 GW of aggregate production capacity operates on AMSC technology. As per the terms of license from AMSC, Inox Wind is required to purchase Electronic Control System manufactured by AMSC or its affiliates. Inox Wind has a non-exclusive perpetual license from WINDnovation Engineering Solutions GmbH, Germany for the technology on manufacturing Rotor blade sets. Inox Wind procures gearboxes from DHHI (China) and Wikov Industry a.s. (Czech Republic), and generators from Emerson Industrial Automation and ABB India for its gearboxes and generators. In the equipment supply business, Inox Wind's is among the top-2 players in India; while the size of this segment is 15 % for the WTG industry, it is targeted to contribute 30 % to Inox Wind’s revenue in FY16. The major Wind Turbine Manufactures in India are Chiranjjeevi Wind Energy, Elecon Engineering, Garuda Vaayu Shakti, Ghodawat Energy, Inox Wind, NEPC India, Pioneer Wincon,PowerWind, Regen Power Tech, RRB Energy, Siva Windturbine, Southern Wind Farm, SRC Green Power, SUZLON


Inox Wind manufactures the key components for WTGs in-house, which ensures cost competitiveness, cost-effective logistics, and attractive margins. It has split its manufacturing activities to ensure cost-efficiency. The existing rotor blade and tower manufacturing facilities are located at Rohika in Gujarat, adjacent to a highway to facilitate easier handling during transportation to wind sites and sea ports. This location is also close to states like Rajasthan, Gujarat, Maharashtra and Madhya Pradesh, where there is good potential for wind energy production. The more easily transportable nacelles and hubs are manufactured in Himachal Pradesh, which gives Inox Wind certain tax incentives. Inox Wind has entered into technology tie-ups with global players to source key components of the WTG equipment. Technology tie-ups ensure that Inox Wind has access to latest technology and also saves on R&D cost, which helps to keep its cost structure lean. Inox Wind outsources raw material and components that it does not manufacture inhouse. It sources a portion of the towers required for WTGs from Fedders Lloyd Corporation. Inox Wind gets warranties from component and raw material suppliers against deficient performance and resultant liabilities, this arrangement eliminates provisioning for this raw materials procured. The average wind installation size in India has been increasing with the shift in customer base from individuals (AD market) to IPPs (GBI market). The average project size has increased from 2 MW in 2009 to 7 MW in 2013. Project size of 50 MW and above is becoming the norm for IPPs in India. This customer profile shift augurs well for Inox Wind, as its business model is focused on the IPP segment rather than the accelerated depreciation (AD) market. It is the preferred partner for 8 of the top-10 IPPs in India. Focus on IPPs and timely project execution has helped Inox Wind to develop strong relationships with the IPPs. Encouraged by enabling government policies, several IPPs have firmed-up strong capacity addition plans. Given Inox Wind’s relationships with the IPPs, provides Inox Wind with a sweet spot. In India, 80 % of the wind energy projects are executed on turnkey basis, as wind power developers do not have in-house capabilities to undertake project development on a large scale. Inox Wind’s business model, however, is equally focused on turnkey solutions and WTG supplies. While turnkey solutions contribute 48 % of its order book, WTG supplies constitute 52 %. Its balanced business model helps Inox Wind to optimally utilize its organizational resources. Inox Wind provides turnkey solutions together with its wholly-owned subsidiaries, Inox Wind Infrastructure Services Limited (IWISL) and Maruti-Shakti India Limited (MSEIL). Its services include wind resource assessment, site acquisition, infrastructure development, erection and commissioning, and long-term operation and maintenance of wind power projects. As of March 2015, Inox Wind’s order book stood at 1,178 MW, comprising 614 MW for the supply and erection of WTGs and 564 MW for the supply of WTGs. The order book includes executed binding contracts for 825 MW and term sheets or letters of intent for 432 MW. Robust order book and ready pipeline of project sites provides comfort on the revenue visibility front. INXW can to deliver 825 MW in FY16 and 950 MW in FY17. Given its cumulative supplies of 1,044 MW, operation and maintenance (O&M) provides interesting opportunities. It is expected that the contribution of O&M to increase meaningfully post the two-year warranty. The equipment supplier retains O&M on 100 % of the projects and the business has gross margins of 50 % to 55 %. The typical cost for O&M stands at Rs. 10 lakh per MW per annum. Backed by strong revenue and earnings growth and robust return ratios with RoE of 28 % and RoCE of 32 % in FY17. At the CMP of Rs. 451.90, the stock is trading at its all-time high P/E of 16.98x FY16E, 14.30x FY17E. The company can post EPS of Rs. 26.60 for FY16E and Rs. 31.60 for FY17E.

KEY FINANCIALSFY14FY15FY16EFY17E
SALES ( Crs)1,567.002,710.004,980.005,943.00
NET PROFIT (₹ Cr)132.00296.00590.00701.00
EPS ()6.6013.4026.6031.60
PE (x)66.5032.9016.5013.90
P/BV (x)20.206.904.803.60
EV/EBITDA (x)51.6021.3012.209.60
ROE (%)36.6032.6035.0030.00
ROCE (%)20.8027.6032.0031.50

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*As the author of this blog I disclose that I do not hold INOX WIND India Ltd in my any of the portfolios.

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