SHEMAROO ENTERTAINMENT LTD: ENTERTAINING AT ITS BEST !!!

Scrip Code: 538685 / SHEMAROO

CMP:  Rs. 374.30; Market Cap: Rs. 1,017.43 Cr; 52 Week High/Low: Rs. 422.00 / Rs. 221.10

Total Shares: 2,71,82,239 shares; Promoters : 1,78,91,920 shares – 65.82 %; Total Public holding :  92,90,319 shares – 34.18 %; Book Value: Rs. 134.24; Face Value: Rs. 10.00; EPS: Rs. 21.52; Dividend: 14.00 %; P/E: 17.39 times; Ind. P/E: 34.80; EV/EBITDA: 9.36x

Total Debt: Rs. 212.39; Enterprise Value: Rs. 1,228.75 Cr.

SHEMAROO ENTERTAINMENT LIMITED: The Company was incorporated in 1962, Shemaroo Entertainment Ltd is Mumbai based integrated media content house with activities across content acquisition, value addition to content and content distribution. Shemaroo distribute entertainment content through television such as satellite, terrestrial and cable television; mobile, internet, direct to home and other ways. Shemaroo is also an official channel partner for Google and managing 32 channels. Shemaroo's content library consists of over 1000 titles across new Hindi films, Hindi films classics, and titles in other regional languages like Marathi, Gujarati, Punjabi, Bengali etc. and a variety of non-film content. The company came out with an IPO on September 16, 2014 offering 77,41,885  equity shares of Rs. 10 each for Rs. 170 per share with retail discount of Rs. 10 per share at Rs. 153 raising Rs. 131.62 Cr. The shares of the company got listed on October 1, 2014 at Rs. 180 making a high of Rs. 181 and low of Rs. 171.00 on listing day. The object of the issue was to fund working capital requirements, to fund expenditure for general corporate purposes, and listing of its equity shares will enhance visibility and brand name among existing and potential customers and business. Shemaroo Entertainment Limited is a holding company. The Company is an entertainment company engaged in the business of motion picture, video and television program distribution activities. Its business activities include content library; distribution platforms, including broadcast syndication, new media, home entertainment and other distribution platforms; content licensing, and other business activities. Its Content Library consists of over 3,400 titles spanning various Hindi films. The Company also has non-film content and titles in various other regional languages, such as Marathi, Gujarati, Punjabi and Bengali, among others. Its content is distributed over various Internet video platforms, such as YouTube, Hooq, Hotstar, Apple iTunes, Google Play and Spuul. Shemaroo Entertainment Ltd is locally compared to EROS International, ZEE Media Corporation Ltd, TV Today Network ltd, NDTV Ltd, TV 18 Broadcast Ltd, Sahara One Media, BAG Films, Raj Television, Diksat Transworld, Sun Tv Network, Sri Adikari Bros, Jain Studios, PVR Ltd, Prime Focus ltd, Reliance Broadcast Network Ltd, Balaji Telefilms ltd, Media Matrix Worldwide Ltd, Shree Ashtavinayak Cine Vision Ltd, Tips Industries Ltd and globally compared with Walt Disney Co of US California, Time Warner Inc of USA, IG Port Incorporated of Japan, Twenty First Century Fox, Inc of New York, Lions Gate Entertainment Corp of California, UTV Media PLC of UK, Dreamworks Animation Skg Inc of California.  

Investment Rationale: 

Shemaroo Entertainment was incorporated in October 29, 1962 as a book library, Shemaroo Entertainment Ltd (Shemaroo) is a Mumbai based integrated media content house. It is involved in content aggregation, content acquisition, value addition to content and content distribution. Shemaroo's content library consists of over 1000 titles across new Hindi films, classic Hindi films, titles in other regional languages such as Marathi, Gujarati, Punjabi and Bengali, and a variety of non-film content. It has three subsidiaries, of which two are foreign companies. Together with film based copyrights and other entertainment rights, the brand "Shemaroo" is synonymous with quality entertainment. In 1979, they set up India's first video rental business and thereafter in 1987, they forayed into distribution of content through the home video segment in the video home system (“VHS”) format. Over the years, this Company has successfully adapted to changing content consumption patterns by expanding into content aggregation and distribution for broadcasting on television platforms. Shemaroo’s  content library consists of more than 2,800 titles spanning new Hindi films like The Dirty Picture, Kahaani, OMG: Oh My God!, Black, Ishqiya, Slumdog Millionaire, Ajab Prem Ki Ghazab Kahani, Omkara, Dil Toh Baccha Hai, Chandni Chowk to China, Bheja Fry 2, amongst others. Hindi films classics like Zanjeer, Beta, Dil, Disco Dancer, Mughal-e-Azam, Amar Akbar Anthony, Namak Halaal, Kaalia, Madhumati etc., titles in various other regional languages like Marathi, Gujarati, Punjabi, Bengali among others as well as non-film content. Shemaroo is also India’s one of the largest independent content aggregators in Bollywood. Currently, Shemaroo distribute content over which they have either complete ownership rights or limited ownership rights. Titles over which we have complete ownership rights are referred to as “Perpetual Rights”, which allows Shemaroo to distribute content worldwide for a perpetual period across all mediums. Titles over which they have limited ownership rights are referred to as “Aggregation Rights”. Aggregation Rights are restricted by either period of usage, distribution platforms, medium and geography or combination thereof. Titles where Shemaroo have Perpetual Rights or Aggregation Rights are known as our “Content Library”. Shemaroo also distribute their content through various mediums such as television such as satellite, terrestrial and cable television; new media platforms consisting of mobile, internet, direct to home (“DTH”) and other applications; home entertainment; and other media. The Indian media and entertainment industry is estimated at Rs 1.10 trillion as of 2016. Television and print (primarily newspapers) account for more than 70 % of the industry's revenue. Shemaroo’s recent initiatives include tying up as an official channel partner for Google Inc.’s You Tube where it is managing 32 channels. It is also moving beyond providing just content, to providing content management solutions to partners including Reliance Communications Re 1 WAP store and Airtel digital television in connection with an interactive devotional service, namely “iDarshan”. The Indian Media and Entertainment (M&E) industry is projected to grow at a CAGR of 15 % between 2012 and 2017 to reach Rs 1.66 trillion. This industry has been on a steady growth trajectory over the past five years barring 2009 due to an economic slowdown. Continuous expansion into different segments, steady growth in television and print, and emergence and rapid expansion of new segments such as digital have been key growth drivers. The industry’s revenue is expected to grow at 13 % CAGR over the next five years. Growth would be driven by a revival in advertising spends. Advertising revenue is estimated to increase 13 to 14 % in 2015, as companies hike spends across major advertising channels. The film industry’s revenue is projected to record 11 % CAGR, driven by increasing number of multiplexes, higher average ticket prices and expansion into tier II and tier III cities. While radio could see steady revenue growth, the much awaited FM Phase III auctions would provide a fillip. The number of Cable and Satellite (C&S) households in India base is expected to grow to 17.3 Cr by 2017, representing 91 % of TV households. With the mandatory Digital Access System (DAS) getting implemented in the four metros of Delhi, Mumbai, Kolkata and Chennai is seen as a revolutionary step in the media industry. The Subscription revenue for broadcasters is estimated to grow at a CAGR of 26 % by 2017. Increase in the declared subscriber base and aggregation of distribution on behalf of broadcasters is expected to drive up the share of subscription to total broadcaster revenue from 36 % in 2012 to 48 % in 2017. Hindi and regional General Entertainment Channels (GECs) account for major portion of the total viewership for over 50 % of the total viewership. GECs are the key drivers of television viewership, accounting for 65 % to 75 % of Hindi and regional markets. Hindi GEC and Hindi movie genres consolidated their position with a viewership share of 30 % and 11.9 % in 2016, compared to 26.5 % in 2014. Movie acquisition costs continued to soar as broadcasters retained their strategy in using block-buster movies to sustain viewer interest and buzz. Star Network is reported to have invested approximately Rs. 300 Cr on movie acquisitions in the past year. Zee Entertainment on the other hand is reported to have invested Rs. 200 Cr to acquire 10 movies during the year. New media continues its growth trajectory in 2016, with growth in advertising revenues of close to 40 % over last year. Coming in at approximately Rs. 2200 Cr in revenue in 2016, digital ad spends reached approximately 6.7 % of the total M&E industry advertising revenue. As expected, mobile and wireless connections continued to drive the growth of internet penetration in India. By the end of 2016 there were 14.4 Cr internet connections in India, a rise of 41 % over last year. Online streaming is a major growth engine for the music industry, both globally and in India. According to Strategy Analytics, globally, online streaming revenues will grow at nearly 5 times the rate of growth for download revenues in 2015, at 40 % versus 8.5 %. Until recently there were few legal sources for buying media content in India. In 2012 the Indian digital music industry saw the debut of Flipkart’s Flyte and Apple’s iTunes stores featuring comprehensive selection of local and international music from all the major labels and thousands of independent labels. Shemaroo Entertainment (Shemaroo) is India’s leading media content house. Shemaroo sports a content library of 3,011 titles, with 781 perpetual (complete) rights and 2,230 aggregated (limited) rights. The company benefits from the strong relationships with producers and the expertise and brand name associated with high consumer recall and media visibility. On the distribution side, Shemaroo is aligned with big names such as SONY, Star, Colors, etc. On the New Media side, it sells its movies to media platforms such as YouTube, Hooq, Apple iTunes, Hotstar through their pacts with telecom operators like Airtel, BSNL, Vodafone, RCom, Tata Teleservices etc. These business relationships are enabling Shemaroo to cash in on the developing trends in technology. Post the first stage of film cycle Shemaroo enters into the fray due to which the risk related with the success of the film reduces significantly, due to higher visibility of performance vis-à-vis the first cycle of launch. It has been observed that the subsequent stages of film cycle are growing at a good rate due to increasing advertisement spends and onset of digitization. The risk of piracy also reduces to a great extent as maximum piracy occurs in the first cycle of films. Increasing internet penetration, proliferation of smartphones, and 4G roll out, National Optical Fibre rollout programme may benefit Shemaroo along with the advent of new global media platforms like Netflix coming to India. As SEL generates revenues from distribution of content, diverse and wealthy content library bodes well for its top line growth. Shemaroo’s flagship business has been to buy content from production houses, producers etc and to sell this content to broadcasting channels, cable TV companies, home entertainment purpose. Indian television industry has six genres and movies genre is the second largest genre after General Entertainment Channels (GEC). Furthermore, the company continuously reported increase in its inventory levels, which represents ongoing addition of content to support the future growth opportunities. SEL’s rich content library is complemented by its presence across the traditional and new distribution platforms. During the past several years, the company has invested heavily to further enrich its content library. With a strong foothold in Indian media space, possession of some of the well-known movie titles, and rich content library, Shemaroo is an eminent brand in the Indian media space.  

Outlook and Valuation:

Shemaroo Entertainment Limited, is today an established integrated media content house in India with activities across content acquisition, value addition to content and content distribution. Over the years, the Company has successfully adapted to changing content consumption patterns by expanding into content aggregation and distribution for broadcasting on television platforms. It is continuing its expansion into New Media platforms. Shemaroo acquires content only after the movie is released from its first copyright holders (usually TV broadcasters). So essentially, Shemaroo is a trading company which buys content, re-packages and markets it to various Exhibitors. Besides this Shemaroo has other smaller business like the Home Entertainment Business which has a product presence of 1,300 titles across over 2,000 retail stores across India like Planet M, Music World, Crossword etc. This business sells DVDs and Blue Ray Discs in line with the emerging industry trend of shifting from physical to digital formats. Other Media business includes media platforms like Airborne rights for in-flight entertainment, international film festivals and overseas markets such as USA, UK, Singapore, Fiji, UAE, Australia, East Europe and North Africa. The company has launched a first of its kind movie premiere service named ‘Miniplex’ on Airtel Digital TV and Tata Sky. Miniplex is an ad-free, subscription based service which would premiere one movie every week for the first time on Indian television. Miniplex is a cross platform service and in addition to DTH it will be launched across various other platforms like digital, cable etc in phased manner. In line with this recently Shemaroo entered into an agreement with Dish TV based on the subscription fee model. The Miniplex will premiere latest blockbuster movies every Friday. So, in this manner Shemaroo makes a mark on the digital TVbusiness. The subscription fees are fixed at Rs. 60 per month while the service will give a theatre like feeling to customers at home. This business is actually at a nascent stage. As the company moves ahead with more tie-ups, the Miniplex business may attract a huge potential to become a substantial revenue stream for Shemaroo. Very recently the company has secured a new tie-up with Dish TV which is expected to build-up in a big way. Management aims to buy 75 to 100 titles per annum hereon and enhance its movie library. The company benefits from the strong relationships with producers like RK Films, Tips Industries, Red Chillies Entertainment etc. and the expertise and brand name associated with high consumer recall and media visibility. On the distribution side, the company is aligned with big names such as SONY, Star, Colors, etc who regularly buy movies from Shemaroo. On the New Media side, the company sells its movies to media platforms such as YouTube, Hooq, Apple iTunes, Hotstar through their pacts with telecom operators like Airtel, BSNL, Vodafone, RCom, Tata Teleservices etc. These business relationships are enabling Shemaroo to cash in on the developing trends in technology. The company acquires forward content rights, with either complete ownership (perpetual rights) or limited ownership (aggregate rights), which are then sold on a forward rights basis for a period of 5-7 years to broadcasters. In the life span of a movie release, majority revenues like is 90 % to 95 % are generated through domestic and overseas theatricals and television release. The first cycle is typically 5 to 7 years, post which Shemaroo enters the fray. Subsequent movie cycles are typically of 5 year duration. Since Shemaroo is absent in the first cycle, the risk reduces somewhat, due to higher visibility of performance vis-à-vis the first cycle of launch. It has been observed that the subsequent stages of film cycle are growing at a good rate due to increasing advertisement spends and onset of digitization. Shemaroo takes utmost care and due diligence while buying a content depending on its success in the first phase of film cycle. The company strives to buy the perpetual rights of a film wherever possible but also tries to strike a balance by spreading its acquisition to aggregate titles too with cost of perpetual rights is 3x to 4x the cost of aggregate rights. Shemaroo’s absence in the first phase of film cycle reduces the risks associated with piracy too. The company intends to monetize their movie content across all media platforms within the digital ambit. As mentioned above, Shemaroo has tie up with almost all of the media platforms be it YouTube, Hooq, Spool etc. More than 50 % to 55 % of the digital media revenues for Shemaroo come from the advertising revenues from YouTube channels. In a way, more the number of media platforms, more will Shemaroo benefit out of it. This is it shelf signifies that Shemaroo is a platform agnostic company. The entry of Netflix in India through a tie-up with Shemaroo in a subscription based model will mean a lot for the company. Netflix would get access to the vast movie library of Shemaroo and in return offer Shemaroo with another huge platform for distributing and monetizing its content. Shemaroo implements different types of business models while dealing with various platforms depending upon the frequency of usage, costing etc. With Google Play, it is a subscription model, wherein users can rent or purchase movie for a fee. Shemaroo is currently showcasing 10 movies on this platform and many more are in the pipeline. Tie-up with Facebook entails pay per download model. There are already five movies live on FB from Shemaroo’s stable and there are four more to hit this platform shortly. Both these tie-ups are based on revenue sharing models. The tie-up with Apple iTunes is also a revenue sharing model in which Apple keep 30 %of the fee while its partner like Shemaroo in the case of this tie-up gains 70 %. While, for every dollar Google Play is making, Shemaroo makes almost 50 to 55 cents out of it. Shemaroo being the only listed player in second stage of film cycle stands an advantage on the back of its expertise, strong relationships with industry players and a wide variety of movie library. The company’s business risk is minimized due to its absence in theatrical release phase thus relatively insulating it from issues like piracy and high competitive intensity. The company has showed consistent performance for the quarter with revenue growing at 20 % YoY and 18 % sequentially on standalone front. On consolidated front the revenue grew by 21.4 % YoY and by 18.4 % sequentially. Revenue from digital media continued the upward curve with 52 % growth rate when compared to corresponding quarter of previous year. On sequential basis the revenue from digital media division grew by 19 %. Share of new media to revenue improved to 21.2 % vs. 17.0 % in corresponding quarter of previous year and stood steady sequentially. Traditional media too continued to grow at a healthy growth rate of 15 % YoY for the quarter under review and sequentially the revenue grew by 19 %. Share in revenue for traditional media stood at 78.8 % vs. 83.1 % YoY and stood steady sequentially. The improving share of digital media continued to drive up the operating margins for the company. EBITDA margin inclined to 29.8 % for the quarter under review against 25.2% in the corresponding quarter of the previous year. However margins stood flat sequentially. Higher operating margins of the company lead to improving profitability. Net profit for the quarter under review came in at Rs 16.9 Cr vs. Rs 11.4 Cr in the corresponding quarter of the previous year climbing by 48 % YoY. However, on sequential basis it was down by 1.8%. On consolidated front net profit grew by 35.5 % YoY to Rs 15.2 Cr and by 8 % sequentially. Higher advertising revenues from platforms like YouTube will lead to a rich pricing mix for the company. Availability of Shemaroo content over all the major digital platforms and quick monetization also leads to better margins. Furthermore, advent of Netflix in India will further enhance margins as it will be based on subscription model and Shemaroo will be paid according to international standards. The company targets 18 % Internal Rate of Return at the portfolio level, thus helping it to decide the cost of content acquisition. This augurs well for the margin growth. 4G rollout and entry of global companies like Netflix will lend a better bargaining power at the market leaders like Shemaroo’s hands thus increasing sales along with margins. Management has guided us for a northward movement in margins from here given the operating leverage they will be getting from the New Media Business with new players entering India and better pricing scenario. On the Traditional Media Business, the company expects margins to remain stable. At the current market price of Rs. 374.3, the stock is trading at a PE of 14.91 x FY17E and 11.80 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 25.10 in FY17E and Rs. 31.70 in FY17E. 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 FINANCIALS	FY16	FY17E	FY18E	FY19E
SALES (₹ Crs)	374.90	438.60	517.90	613.60
NET PROFIT (₹ Cr)	52.10	68.00	86.00	106.20
EPS (₹)	22.10	25.10	31.70	39.20
PE (x)	14.90	13.10	10.30	8.40
P/BV (x)	2.40	2.10	1.70	1.40
EV/EBITDA (x)	8.40	7.10	6.00	5.00
ROE (%)	15.30	17.10	18.20	18.70
ROCE (%)	29.50	29.40	29.40	29.50

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*As the author of this blog I disclose that I do not hold  SHEMAROO ENTERTAINMENT LTD in my any of the portfolios.

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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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RETURN ON CAPITAL

SANGHVI MOVERS LTD : MOVING AHEAD !!!

Scrip Code: 530073 / SANGHVIMOV

CMP:  Rs. 220.70; Market Cap: Rs. 955.63 Cr; 52 Week High/Low: Rs. 376.00 / Rs. 197.00. Total Shares: 4,32,88,000 shares; Promoters : 2,02,95,129 shares –46.88 %; Total Public holding : 2,29,92,871 shares – 53.12 %; Book Value: Rs. 173.22; Face Value: Rs. 2.00; EPS: Rs. 23.98; Dividend: 150.00 % ; P/E: 9.20 times; Ind. P/E: 24.76; EV/EBITDA: 4.29 times. Total Debt: Rs. 607.02 Cr; Enterprise Value: Rs. 1,548. 18 Cr.

SANGHVI MOVERS LTD: The Company was founded on November 3, 1989 and is based in Pune, India. Sanghvi Movers Limited operates as a crane rental services company. It’s a major player in Equipment rental & leasing sector in India and other parts of Asia. It provides heavy lift, plant erection and maintenance services for various large scale projects. The company gave last split in the face value of its shares from Rs. 10 to Rs. 2 on 29 May 2007 and has not announced any bonus so far. The company also offers over dimensional, heavy, and bulk cargo transportation services. It operates a fleet of 400 medium to large size hydraulic truck mounted telescopic and lattice boom cranes and crawler cranes with lifting capacity ranging from 20 MT to 800 MT; and 132 hydraulic multi axle modular trailers. In addition, the company also engages in the generation of power from windmills. It primarily serves power, cement, steel, refinery, metros, windmill, and metal sectors. The Company operates in two business segments: Operations of Cranes and Power Generation. It earns regular revenue from the business of power generation from windmills commissioned in Jaisalmer, Rajasthan and Chitradurga, Karnataka. The Company's clients include ACC Ltd, BGR Energy Systems Ltd, Birla Corporation Ltd, Electrosteels Ltd, Furnace Fabrica (India) Ltd, Jindal Steel & Power Ltd, Leitner Shriram Mfg Ltd, Neelachal ISPAT Nigam Ltd, Suzlon, Aditya Birla Group, TOYO, BHEL, Reliance, Vedanta Group, Siemens, Tata Steel, Enron power, Samsung and Gujarat Ambuja. Sanghvi Movers ltd is locally compared with Crown lifters, Sancia Global infrastructure Ltd, globally compared with Nippon Pallet Pool Company Ltd of Japan, Han Kook Capital Company Ltd of South Korea and with Nippan Rental Company Ltd of Japan.

Investment Rationale:

Sanghvi Movers is the 3rd largest crane services company in Asia and ranked seventh largest in the world. The company has a robust fleet of over 400 cranes, majority of which are above the 100 tonne category. Sanghvi Movers has an overall market share of about 45 % and more than 80 % market share in the 100 tonnes and above category. The company undertakes the implementation of turnkey projects and caters to 75 % of the traditional power sector and 65 % of the windmill sector’s crane requirement. The company has Crawler and truck mounted cranes and also has Hydraulic Multi Axle Modular Trailer. The company claims to have 98 % guaranteed machine availability with a timely deployment. The company has its owned state of the art Sanghvi Training Academy which provides high skills crane training programmes and produces highly skilled crane operators. Sanghvi Movers has 12 depots across the country to ensure timely deployment of cranes. The performance of the Sanghvi is dependent on the Indian Economy, more particularly investments in infrastructure and core sector of the economy both by private as well as public sector undertakings. According to the provisional estimates released by the Ministry of Statistics, the Annual growth rate for financial year 2014-15 of Gross Domestic Product (GDP) was seen to improve to 7.3 % as against 4.9 % in the previous year. It is projected to reach 8 % growth rate in the next fiscal year (2015-16), soon it is also expected that the India's growth rate will outpace that of China, Japan and Germany combined as projected by International Monetary Fund (IMF). Control on price rise continued and remarkable downfall in inflation was noted, with wholesale price index (WPI) falling at five year low of 0.11 in December 2014 in contrast to 6.40 in December 2013. The Central Government's emphasis on the renewable energy more particularly on wind power generation and solar energy will bound to increase the demand for the crane rental business. In view of the increased investments in the renewable energy sector and upcoming projects in refinery and gas, cement, power and steel sector, the company expects increase in demand and rental for the cranes. Sanghvi Movers Limited has been providing heavy lift, plant erection and maintenance services to various large scale projects. The Company has maintained a good track record in terms of effective deployment of cranes at competitive rates with due regard to time schedule as well as safety and efficiency in operations. The growth of crane rental business is constrained due to higher capital cost may result in availability of suitable cranes as per market demand. There is a concern for safety of cranes at work sites. The introduction of GST may result into simplified tax regime. The Company's operations may get affected on account of increase in competition in crane hiring business, delay in receivables. The Company has concentrated its fleet of cranes more on heavy duty cranes i.e. cranes above 100 Tons. At present more than 90 % of gross block of cranes is in 100 MT & above. Obviously, more than 90 % of the Company's turnover is contributed by higher tonnage cranes. The current order book position for the company stands at Rs. 250 Cr and the company is expecting that the fleet utilization would be around 80-82 % during H2FY17E. It has planned for capex to the tune of Rs. 189.2 Cr during FY17E and has placed a purchase order for import of 5 Nos. New Terex Cranes with Capacity of 650 MT, some Derrick attachments and boom inserts for cranes. These cranes have been bought under trade in agreement with Terex Global GmbH which will buy 5 Nos. used Terex Demag CC 2400-1 Cranes from the company at an aggregate value of Rs. 53.33 Cr. Hence, the net capex for Cranes and allied attachments would be around Rs. 136 Cr. In addition to this, the company has already bought office premises in BKC, Mumbai for a sum of Rs. 17 Cr. Hence, the total capex for FY17E would be Rs. 153 Cr. Company’s 2QFY17 financial performance was impacted by the seasonal spillover caused on account of the de-hiring of cranes getting pushed to 2QFY17. While this impacted the utilisation rates at 66 % in 2QFY17 vs. 79 % in 1QFY17, the gross block yields remained stable at 2.77 % vs. 2.80 % for 1QFY17. With a residual order book position of Rs. 2.5 bn for the next 6 months and already receiving work orders for its new +650MT, it is expected that Sanghvi mover’s fleet utilisation rates will improve to 82 % to 83 % in 2HFY17, with its gross block yields remaining healthy at 2.75 % 2.80 %. Despite the 1HFY17 disappointment, the management continues to see good traction in the wind power space and expects a conservative 3,500-4,000MW of wind asset creation over FY17-19E. Additionally, it is also optimistic about pick-up in ordering activity from the thermal power space. Despite the tepid financial performance it is expected that Sanghvi movers to report FCF of Rs. 2.2bn in FY19E. With no major capex plans, company plans to utilise the cash generated from operations to retire its debt, which would consequently lead to interest cost saving. Company will repay Rs. 3.3 bn of debt over FY17-19E. Incrementally, company could also reward its shareholders in the form of higher dividends or share buybacks.

Outlook and Valuation:

Sanghvi Movers has a near monopolistic position in the high tonnage crane rental market in India. Company is a great proxy play to the improvement in Indian Infrastructure industry. Sanghvi Movers Limited is the Largest Crane Hiring Company in India and 6^th Largest in the World, as per rankings from Cranes International. The company is led by a strong entrepreneur C. Sanghvi and his professional team, company has been able to maintain its competitive advantages. Company has its Economic Moat (A competitive advantage that one company has over the other companies in the same industry – by Warren Buffett) expanding moats which is a very strong sign of a future Multi-bagger stock. Logistics is responsible for all the movement that takes place within the organization whether it is inbound logistics of incoming, raw materials or movement within the company or the physical distribution of finished goods, logistics encompasses all of these. A typical logistics framework mainly consists of physical supply, internal operations and physical distribution of goods and services. To put it more simple manner, the material supply logistics starts from the base level of “generation of the demand”, through the “process of purchase” and “supply of material from the vendor” right through to “final acceptance” and “payments to the supplier” and “issue to the indenter” and has to be considered as a “one whole activity” with each stage having an impact on price/cost of material supply. Logistics is, in itself, a system; it is a network of related activities with the purpose of managing the orderly flow of material and personnel within the logistics channel. On financial side, Sanghvi reported revenue growth of 7.5 % registering Rs. 249.7 Cr during H1FY17 compared to H1FY16 of Rs. 232.2 Cr. Wind Mill continued to be the major revenue contributor and stood at 63 % followed by power at 15 %, refinery & gas at 11 %, Steel & metal at 4 %, Cement at 2 % & Others at 5 %. EBITDA stood at Rs. 153.2 Cr in H1FY17 compared to Rs. 151.4 Cr in H1FY16, with EBITDA margins at 61.4 % in H1FY17 a drop of -3.84 % when compared to 65.2 % in H1FY16. The drop in EBITDA margins was mainly on account of increased freight & carrier charges during H1FY17. Increase in other income for H1FY17 includes gain of Rs. 1.5 Cr on investment in equity shares of Suzlon Energy Limited. It also includes a sum of Rs. 1.9 Cr towards the interest received on GJ RTO Tax refund and a sum of Rs. 70 lakhs towards profit on 3 cranes sold during the six months. PAT for H1FY17 stood at Rs. 37.8 Cr compared to Rs. 45.00 Cr in H1FY16 witnessing a drop in the PAT margins from 15.1 % in H1FY17 by 4.26 % compared to 19.4 % in H1FY16. With a capped capex cycle, mostly in the wind power space, which would drive SGM’s tepid revenue CAGR of around 6.6 % over FY16-19E, Utilisation rates and average yields on gross block to remain between 75 % to 78 % and 2.75 % to 2.85 % over FY17-19E, Improving Net Working Capital cycle from 265 days in FY14 to 108 in FY18E, Strong FCF generation of Rs. 2.2bn in FY19E, which will largely be utilised towards debt repayment and FCF yield of 19.3 % in FY19E Sanghvi movers can gain premium in valuation. Also with increasing focus on optimum utilsation, strong working capital management and ace promoter acumen, Sanghvi Movers is well positioned to withstand any cyclical slowdown in the crane hiring business. At the current market price of Rs. 220.70, the stock is trading at a PE of 7.11 x FY17E and 6.14 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 31.00 in FY17E and Rs. 35.90 in FY18E. 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 FINANCIALS	FY15	FY16	FY17E	FY18E
SALES (₹ Crs)	308.20	531.50	628.00	676.60
NET PROFIT (₹ Cr)	8.10	116.90	134.10	155.20
EPS (₹)	1.90	27.00	31.00	35.90
PE (x)	146.50	10.60	7.10	6.10
P/BV (x)	1.80	1.60	1.10	0.90
EV/EBITDA (x)	8.30	5.20	3.60	3.20
ROE (%)	1.20	16.70	16.60	16.50
ROCE (%)	2.20	12.90	12.60	12.90

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

READ MY PREVIOUS POSTS ON SANGHVI MOVERS - HERE

*As the author of this blog I disclose that I do not hold  SANGHVI MOVERS LTD in my any of the portfolios.

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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. 

As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article. 

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INOX WIND LTD: WINDS WILL CHANGE !!!

Scrip Code: 539083 / INOXWIND

CMP:  Rs. 185.85; Market Cap: Rs. 4,124.35 Cr; 52 Week High/Low: Rs. 378.50 / Rs. 163.00.

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. 83.03; Face Value: Rs. 10.00; EPS: Rs. 17.14; Dividend: 0.00 %; P/E: 10.84 times; Ind. P/E: 24.11; EV/EBITDA: 8.25.

Total Debt: Rs. 1,467.17 Cr; Enterprise Value: Rs. 5,524.30 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 made 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 IWISL 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 FY15. 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. We live in the modern era of clean energy growth that can fuel a future of opportunity and greater prosperity for every person on the planet. Renewable energy, so far considered to be an alternative to the conventional fuel source has now progressed into becoming a regular energy source. This shift is driven by the improved cost efficiency of renewable energy sources with the help of advancements in technology combined with an increasing focus on climate change which is leading people, companies and countries to consume energy from more efficient sources. There is heightened awareness about disciplining the emitters of greenhouse gases. Governments, businesses and investors around the world are realizing that the evolution to low-emission, climate-resilient growth is imminent beneficial and already under way Now that the Paris Agreement is coming into force, countries need to get serious about what they committed to last December. Meeting the Paris targets means a completely decarbonized electricity supply well before 2050 and wind power will play the major role in getting us there. The mainstream position of renewables is evidenced in the global installations during 2015 which stood at 64 GW of wind energy and 57 GW of solar energy. Leading the passage from fossils fuels to renewable sources are the developing nations including India and China, among others. The renewable industry recorded a growth of 18 % CAGR in 2015 and is expected to attract US$5.86 trillion worth of investment till 2035. This poses massive growth potential for the sector in India. With the government’s Commitment made at COP21 to install 175 GW of renewable energy by 2022, and to reduce carbon emissions by 30- 35 % and increase renewables to 40 % of the energy mix by 2030, India is set to truly expand its renewable energy portfolio. The production is getting marked boost through the ‘Make in India’ initiative. The government has also strived to facilitate the growth of renewable energy through the establishment of a positive policy and business environment. As a result, the sector witnessed annual installations of 3,415 MW in FY15-16, higher than ever before and 48 % higher than the 2308 Mw of the previous year. A major portion of this capacity addition was accounted for by new projects in MP where more than a third of the capacity a 1290 MW was added, Rajasthan added 688 MW, Gujarat added 388 MW and AP added 363 MW, arising out of the substantial reduction in preferential tariff for new wind energy. The Indian wind energy industry is expected to grow at a rate of 30 % annually, and may even surpass this on the back of the positive policies. The Supreme Court supported Renewable Purchase Obligation (RPO) compliance, the renewable Generation Obligation (RGO), Green Corridor, interstate transmission charges waiver, inclusion of renewable energy in the priority lending sector, UDAY scheme which gives state utilities stronger credibility to invest in renewable energy and approval of National Off-shore Policy which has opened up 7,600 km of coastline for off shore wind energy generation projects have all positively affected the environment and established a US$200 billion opportunity. Foreign investment in the industry is also surging. The incremental wind based energy capacity requirement by FY22 is estimated at about 35 GW as against the current installed capacity of 27.4 GW. This is assuming annual energy demand to continue to grow at 6 %, Renewable Purchase Obligation at 12 % by FY22 and wind as a renewable energy resource contributing to a dominant share of 75 % in meeting the non-solar RPO requirement on an all India basis. The RPO norms continue to vary across the states in terms of both quantum of RPO varying from 2 % to 12.5 % in FY17 across the states and the period of RPO trajectory with only six states stipulating RPO norms till FY22. According to IRENA (International Renewable Energy Agency), technology innovation will be a significant driver of the offshore wind boom. It highlights upcoming innovations that will enable sector development, including next generation wind turbines with larger blades, and floating turbines, which will open up new markets in deeper water. These advancements, combined with other sector developments, will reduce average costs for electricity generated by offshore wind farms by 57 % over time from $170 per Mwh in 2015 to $74 per Mwh in 2045. Inox Wind Ltd is one of the largest land bank owners in this sector in the country with more than 4500 MW capacity. Inox will be one of the biggest beneficiaries of the hybrid policy for both solar and wind. Inox Wind plans to install solar panels in winds parks where it already has the common infrastructure commissioned and constructed. Since both technologies are complementary, Inox will be one of the lowest suppliers of hybrid service as well, especially when it comes to installing solar panels. Inox Wind is seeing a lot of traction as far as cash collection is concerned. With the support and encouragement received from government for wind sector, certain initiatives has been taken Non Solar Renewable Purchase Obligation - Guidelines issued from 8.75 % in FY17 to up to 10.25 % in FY19 to increase the demand from states with more wind supply, Gujarat state will have tariff at Rs. 4.19 for 5 years, Solar & Wind Hybrid Policy is been drafted for better & optimization utilization of capacity, UDAY scheme to ensure stricter enforcement of RPO with currently 16 states has joined in the scheme, lastly 1000 MW transmission utility to be connected which will facilitate supply of wind power to non-windy states. 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 4-5GW 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 which is seen getting smoothen off. Inox wind is surely a good pick from the renewable setor on back the developments and financials improvements.

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, INXW and AMSC amended the agreement to cover all 2MW WTGs with rotor diameters between 85 meters and 120 meters. In addition, INXW has a non-exclusive license to manufacture 2MW WTGs worldwide based on AMSC’s proprietary technology. Globally, over 15GW of aggregate production capacity operates on AMSC technology. As per the terms of license from AMSC, INXW is required to purchase Electronic Control System manufactured by AMSC or its affiliates. INXW has a non-exclusive perpetual license from WINDnovation Engineering Solutions GmbH, Germany for the technology on manufacturing Rotor blade sets. INXW 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, INXW 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 INXW’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. INXW manufactures the key components for WTGs in-house, which ensures cost competitiveness, cost-effective logistics, and attractive margins. The long term future for wind is underpinned mainly by its order of competence and cost effectiveness in comparison with other conventional fossil fuels. New products are being introduced with a notably improved yield curve and also to yoke wind energy from low wind sites. Today India only gets 8.7 % of its power from wind energy. Thus, there exists a credible prospect for growth of wind turbine industry in India. The long term outlook of wind market continues to remain strong with rationalization of tariff structure to ensure only players with superior technology and execution capabilities across wind rich states would be emerging as the winners. The growth of the wind energy sector in India for the years to come will be sustained by the unexploited resource availability. Upbeat on the improved regulatory and financial environment, investors are expected to pour over $15 billion into India’s wind energy sector by 2020, a report by ratings and research firm CRISIL. The Indian government has pledged the continuance of significant incentives for the wind energy sector, such as accelerated depreciation and generation-based incentive. However, the wind energy sector might take a major hit, with the Budget capping the accelerated depreciation tax benefit at a maximum of 40% from April 2017. The government is also planning to launch the National Wind Energy Mission which would accelerate the development of wind energy projects and open the offshore wind energy sector as well. However this industry is still the focus of those customers who are ready to incur higher capital cost to generate higher returns. Larger rotor blades and higher hub heights offer superior PLF (plant load factor), compensating for lower tariffs and still generating attractive Internal Rate of Returns. In 2015, India announced plans to increase its renewable energy output to 175 GW by the year 2022, with 60 GW coming from wind power alone. With an installed capacity of 26,904 MW as of March 2016 of wind energy, renewable energy sources excluding large hydro, currently accounts for sub 15 % to 16 % of India’s overall installed power capacity. Wind energy holds the major portion of 65.09 % of 37,010 MW total renewable energy capacity as on Aug, 15 and continues as the largest supplier of clean energy. 70 % of wind generation happens during the five months duration from May to September coinciding with southwest monsoon duration. Fiscal 2016 saw the highest ever annual installation of 3,472 MW. This has increased the installed WTG base to 27,000 MW 15 % y-o-y growth. Inox Wind has a permanent exclusive license from AMSC (American Superconductors) to manufacture 2 MW WTGs, using its proprietary know-how. Under the authorized agreement, IWL is required to purchase all ECS (Electronic Control Systems) from AMSC. There are more than 7,000 turbines with an aggregate capacity of more than 15,000 MW profitably operating across the globe based on AMSC technology. IWL’s WTGs are equipped with DFIG (Double Fed Induction Generator) technology. IWL has entered into two strategic long term technological agreements with AMSC. This alliance has not only helped in reducing the R&D expenditure but also gives it a technological advancement edge. The other agreement provides access to custom-made rotor blade-sets design through WIND Innovation. Enhanced supply chain management coupled with cost saving due to indigenization will help in reducing the foreign exchange exposure of IWL if IWL chooses to manufacture in future. Association of IWL and AMSC for the development of 3MW WTG for India will improve efficiency at a lower cost of generation providing it with cutting edge WTG technology. IWL also has a license from Romax Technology, UK, which is a global provider of integrated software and services, for their gear box designs. With the launch of new 113 meter rotor diameter with a hub height of 120 meters which is 20 % more efficient, 40 % of the future orders are expected to consist of this product itself. The descent of IWL in unexplored southern states like Kerela, Karnataka and Tamil Nadu, is an attempt by the company to stay ahead of its competitors and to maintain a growth rate with is higher than that of the industry as it has done in the past. A decreasing current ratio, increasing leverage and falling interest coverage underpins the rising debt of the company. The total debt of the company rose by a startling 57.1 % in FY15 and 68.7% in FY16. With an increase in sales, the company had to purchase more and more components, the payment period of which is 3-6 months, depending on the credit period given by the suppliers. The company also has a huge trade receivable component sitting on its Balance Sheet as on FY16. The trade receivables in turn have risen by 69 % in FY16 which is almost in line with the growth in revenues for FY16 of 63 % which is evident by a roughly stable debtors’ turnover ratio. Less than 10 % of the receivables are more than 6 months old. The 65 % increase (y-o-y) in short term loans and advances in FY16 y-o-y is mainly due to inter corporate loans given to subsidiaries, IWSL (Inox wind Infrastructure Services Ltd.) and IRL (Inox Renewables Ltd.), at an interest rate of 10 % p.a. With the new additions to its already diversified and reputed clientele, like the Adani’s first order in the wind sector, the company boasts of a current order book of 1,104 MW as on March, 2016. Incremental orders are expected to be undertaken in the first quarter of the current fiscal as well. Winning new orders and more crucially, winning additional business from existing clients is believed to be more important than hunting for big contracts. This belief is further strengthened by Inox’s client mining skills. It has maintained optimism about future order inflows, on the back of government’s focus on renewable sector and also IWLs strong market positioning and capex pipeline of independent power producers (IPPs). The sector is expected to grow at a CAGR of 15 % over the next five years and Inox plans to grab a larger market share as it moves forward. Continuing from Q1, production in last quarter was further geared towards clearing the inventory backlog and improving the working capital cycle of the company. One of the key reasons of working capital blockage was mismatch in manufacturing capacities and therefore to this extent, last quarter Inox again focused on correcting that mismatch. The company has deliberately focused more on the production of blades and towers relative to the production of nacelles and hubs. For the first half of the current fiscal year, 162 MW of nacelles and the hubs were produced versus 332 MW last year, 366 MW of blades were produced versus 280 MW last year and 286 MW of towers were produced versus 332 MW last year 194 MW was commissioned in the first half of the current year versus 216 MW in the first half last year In terms of cost analysis for the first half of the current fiscal, raw material and EPC cost which were at 74.90% of the overall sale price in H1 last year is now down to 70.4 % which is a cost of saving of almost 4.50 %. Other variable cost was at about 3.5% last year versus 3.6% this year. Fixed overheads went up from 7.3% to 14.2 % largely because of lower production of nacelles and the hubs. Last quarter there has been a lot of logistics movement of inventory to south such as AP and karnataka, where Inox is building new projects. Logistics costs in blades and towers are almost two or three times the logistics cost of a nacelle and since the company has dispatched huge amounts of blades and towers as opposed to nacelles to overcome the inventory mismatch which was prevalent in the last few quarters. Recently, IWL expanded its Turbine capacity to 113m from the earlier 100m. As a result, management expects 5 % increase in the costs, but efficiency is expected to increase by 20 %. Further, realization of large rotor blades would increase. Considering shift in business mix where high capacity Turbines would contribute more to the financials, it is expected that the efficiency of IWL to improve. As a result, it is expected that the Adj. EBITDA margins to improve from 15.4 % in FY2016 to 16.4 % in FY2018E. The Adj. PAT margin expansion during FY2016-18E could remain around 10.6 %. Considering the 4QFY2016 Order Book, and expected strong order inflow trends, IWL stock is trading at attractive valuations. Post the 17 % correction in the IWL stock after 4QFY2016 results were announced, the stock at the current market price of Rs. 185.85, the stock is trading at a PE of 9.11x FY17E and 8.00 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 20.40 in FY17E and Rs. 23.00 in FY18E. 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 FINANCIALS	FY15	FY16	FY17E	FY18E
SALES (₹ Crs)	2,702.27	4,406.50	4,710.20	5,053.80
NET PROFIT (₹ Cr)	327.40	421.20	453.50	509.80
EPS (₹)	14.80	19.00	20.40	23.00
PE (x)	17.60	20.50	16.90	13.60
P/BV (x)	14.40	11.20	10.40	9.30
EV/EBITDA (x)	10.00	8.60	7.70	6.30
ROE (%)	36.00	26.00	21.90	20.00
ROCE (%)	30.30	24.80	21.00	21.00

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  INOX WIND LTD in my any of the portfolios.

**Dear Reader Friends, if you enjoyed this article then please do share it with your friends & colleagues through Facebook and Twitter, also do drop in your valubale thoughts in comment box...
So, 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 !! 

-------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------
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. 

As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article. 

---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------

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

VIEW THE POWER POINT PRESENTATION ON

RETURN ON CAPITAL