TV TODAY NETWORKS LTD : SAABSE TEJJ !!!

Scrip Code: 532515 / TVTODAY

CMP:  Rs. 227.80; Buy at current levels.

Short term Target: Rs. 260.00; Medium to Long term Target: Rs. 300; STOP LOSS – Rs. 209.50; Market Cap: Rs. 1,356.50 Cr; 52 Week High/Low: Rs. 243.85 / Rs. 73.25; Total Shares: 5,95,48,115 shares; Promoters : 3,42,50,171 shares – 57.52 %; Total Public holding : 2,52,97,944 shares – 42.48 %; Book Value: Rs. 63.66; Face Value: Rs. 5.00; EPS: Rs. 13.79; Dividend: 20.00 % ; P/E: 16.51 times; Ind. P/E: 32.68; EV/EBITDA: 8.48.

Total Debt:  ZERO Cr; Enterprise Value: Rs. 1,301.58 Cr.

TV TODAY NETWORKS LIMITED: TV Today Network Ltd was incorporated in December, 1999 and is based in Noida, India. The company is a subsidiary of Living Media India Limited. TV Today Network Limited is engaged in television and radio broadcasting business in India. It operates news channels, including Aaj Tak, a news channel; Headlines Today, a 24 hours English news channel; Tez, a Hindi news channel; and Dilli Aaj Tak, a metro centric channel. The company came out with an IPO of about 1,45,00,000 lakh shares of Rs. 5 each in December 2003 at Rs. 95 per share raising Rs. 137.75 Cr. The company, TV Today is in the business of TV Broadcasting and Radio Broadcasting. TV Today Network (TV Today) is a part of the India Today Group and a leading news broadcaster in India. It operates as a subsidiary of Living Media, the holding company of the India Today group of publications. Aroon Purie is the Chairman of Living Media. He has been associated with the news business for the past three decades and consistently maintained the company as a leader owing to his vast experience. TV Today is one of the leading news broadcasters in India with four channels viz. Aaj Tak, Headlines Today, Delhi Aaj Tak and Tez distributed by MSM Discovery. TV Today is the first Indian broadcaster to uplink a 24 hour Hindi news channel from India. The company has an undisputed leadership position in the Hindi news segment through Aaj Tak. In addition, Radio Today Broadcasting Ltd, a fellow subsidiary, merged with the company extending the presence of TV Today to the radio segment under the brand Oye 104.8 FM. Its subsidiaries are T.V Today Network (Business) Ltd, Thomson Press India, Today Merchandise Pvt Ltd, Radio Today Broadcasting Ltd, and Mail Today Newspapers Pvt Ltd, Integrated Databases India Ltd. TV Today Networks Ltd can be locally be compared with Zee Entertainment Media Ltd, Zee Media Corporation Ltd, Broadcast Initiatives Ltd, Hinduja Ventures Ltd (parent), Balaji Telefilms Ltd, B.A.G Films & Media Ltd, New Delhi Television Ltd, Sri Adhikari Bros Tele Network, Sun TV Network Ltd, Network 18 Media & Investment Ltd and TV18 Broadcasts Limited, Raj Television Networks Ltd, and Globally with New Media Investment Group Inc of USA, Starz Group of USA, Dreamworks Animation SKG of USA, Cairo Communication S.p. A of Italy, Chime Communications Plc of UK, Constantin Medien AG of Germany, Sony Corp of Japan, CTC Media Inc of Russia, Mediaset Espana Comunicacion, S.A of Spain, Alibaba Pictures Group Ltd of Hong Kong, Asian Pay Television of Singapore, Fairfax Media Ltd of Australia, Hong Kong Television Network of Hong Kong, Times Media Group Ltd of South Africa, Naspers Ltd of South Africa, Caxton and CTP Publishers and Printers Ltd of South Africa.

Investment Rationale:

TV Today Network Ltd is just 15 year young company owning India’s four prestigious TV channels -AAJ TAK, HEADLINES TODAY, TEZ and DILLI AAJ TAK. There is also one radio broadcasting division of this company. Company also has a trade investment comprising of equity shares worth Rs. 45 Cr in an associate company called Mail Today Newspapers Pvt Ltd. TV Today Network Ltd is promoted by the media baron Aroon Purie, better known as the owner of Living Media, the publisher of India Today and a host of other publications bearing the suffix 'Today'. Living Media India Ltd, the holding company owns 57.1 % of the equity stake. Reliance Capital is the second largest shareholder with a holding of 13.6 %. TV Today operates as a subsidiary of Living Media, the holding company of the India Today group of publications and also the Aditya Birla group holds a 27.5 % stake in Living Media currently. There are reportedly some around 720 media channels on air today offering their channels in India. News channel garners revenues mainly from advertisements, while the cost of transmission is their major expenses. TV Today with its flagship channel Aaj Tak has been able to maintain its dominant position in the fiercely competitive in Hindi news segment for over a decade. Its news segment, targets directly on the “decision makers” in the family, and also the company enjoys a good portion of the advertisement share, which is expected to rise even further as literacy and income levels rises. With digitisation in phase III and IV cities are in progress, TV Today would be able to monetise better its reach as it enjoys a far stronger position in the smaller cities and towns in the Hindi speaking belt. The News segment forms just 7 % of TV viewership, which garners 21 % of total TV advertisement. TV Today, being a leadership position in the Hindi news segment, commands 10.9 % of total TV news advertisement. The television industry according to the Ficci KPMG report 2014, witnessed a growth of 12 % CAGR in CY08-13 despite the economic slowdown and the industry is expected to grow at 16.2 % CAGR in FY13-18E, rising from Rs. 417 crore at the end of 2013 to Rs. 885 crore by the end of 2018E. The number of television households in India is also expected to increase to 19.1 Cr from 16.1 Cr currently. The television industry dominates the domestic media & entertainment industry forming 45 % of the total industry. The increase in the channel carrying capacity to over 1000’s of television sets owing to digitisation and revision of minimum channels to be broadcasted to 500 is expected to bring in additional subscription revenues to broadcasters. With increasing literacy rates and improving living standards, the need and desire to stay aware has increased. Share of the total news domain (composite of English, Hindi and regional news) in the overall break-up has increased from 6.2 % in 2012 to 7.0 % in 2013. This shows the growing popularity of the news domain among masses. Several new channels have started operations, helping the segment to proliferate further. There are about 392 news and current affairs channels out of a total 792 channels currently operational in the country. In the Hindi news genre, Aaj Tak, ABP News, India TV and Zee News dominate the segment. The interesting point to note is that despite the news segment accounting for 7 % of the viewership share it commands 21.7% ad revenue share. Hindi news channels have a strong ad revenue share of 8.6 %. News channels have a focused target audience and are a cheaper advertisement avenue than Hindi GECs, which makes them preferable to advertisers. Digitisation is expected to be the key contributor to growth in the media industry. Phases I and II are nearly complete in terms of set top box seeding while the focus is expected to now shift to phase III and IV cities. The full benefits are expected to start flowing in once package wise billing commences and there is a shift to the gross billing regime. As the full subscriber universe becomes addressable and leakages are plugged, broadcasters would be the biggest beneficiaries in the entire value chain, realising the highest operating leverage without incurring incremental capex. News being non-proprietary and largely non-exclusive in nature, the content is largely similar among various news channels. In such a case, the ability to break the news first or give detailed coverage of the event by sending a team to the source becomes the differentiating point. In such a case, where the content is highly homogeneous, usually the top one or two players are key beneficiaries. On those lines, Aaj Tak has been able to maintain a leadership position in the last decade. The presence of Aaj Tak in the Hindi news genre dates back to 1995 when it used to broadcast a 20-minute news programme on government controlled channel Doordarshan. Aaj Tak gained immense popularity through Doordarshan. Hence, it launched its own 24 hour news channel in 2000. Owing to its news credibility, quality live feeds and the ability to bring news at the earliest, it was soon dominated the Hindi news genre. Aaj Tak has remained the No. 1 channel in the Hindi news category ever since its launch. Other news channels like ABP News and India News are its key competitors. However, there are market share differences between the No. 1 player and the second and third players.

Outlook and Valuation: 

TV Today Network Ltd is the parent company of India’s very well-known Hindi News Channel AAJ TAK. The company enjoys greater market share in terms of viewership as well as in terms of ad revenue in Hindi language news channel. Owing to its strong presence and a viewership share of 18.5 %, Aaj Tak has been able to constantly take price hikes and dictate terms with advertisers. The company has seen an increase in inventory from 16 minutes to over 20 minutes as demand for advertisements rose in its platform. As of now, the company is maintaining its inventory at 18 minutes per hour. With a viewership share of 18.5 % in the Hindi news segment and 8.7 % of the overall news segment, Aaj Tak commands an impressive 23 % in FY13 of Hindi news and 9.2 % of overall news advertisement revenues. This signifies advertiser’s preference for Aaj Tak in a fiercely competitive segment populated with 392 news & current affair channels. According to Census 2011, around 41.0 % of the Indian population speaks Hindi, followed by Bengali (8.1%), Telugu (7.2%), Marathi (7%) and Tamil (5.9%). The demographic set-up augurs well for TV Today with its offerings in terms of Hindi news channels, which is also reflected in its higher share of advertisement revenue. Once the industry fully shifts to the cost per subscriber (CPS) model, TV Today is expected to witness an exponential growth in subscription revenue. Nonetheless, it will still take a while before higher subscription revenue starts accruing as digitisation is delayed. With digitisation, there has been an unprecedented increase in the channel carrying capacity of distributors with the total number of channels increasing from about 80 in analogue cable to over 1000 channels in digital. The increase in carrying capacity has brought a reduction in carriage costs for all broadcasters. This reduction in carriage fees is critical for news broadcasters, as for them carriage payouts are significantly higher than subscription revenues. News broadcasters shell out about 25-30 % of their total revenue in the form of carriage and placement fees. English news channels spend approximately 70 % of their distribution costs as carriage in the metros and are yet to receive an equivalent benefit in terms of subscription from the metros. Other channels such as Delhi Aaj Tak, Tez and Headlines Today form a very small part of TV Today’s topline as of now. Some of them are free to air (FTA) channels and the company plans to gradually monetise all of them. Even the channel Delhi Aaj Tak, which is a Delhi centric channel, is gaining momentum. Company’s Radio business, Radio Today Broadcasting Ltd, a fellow subsidiary, got merged with the company extending its presence of TV Today in the radio segment under the brand Oye 104.8 FM and has a presence in the six cities of Mumbai, Delhi, Kolkata, Amritsar, Jodhpur and Patiala. However, the company has been unable to keep pace with its peers in the radio segment and has been experimenting with different formats. It started off as Meow 104.8 FM for women in 2007. However, since the strategy did not click with listeners, the company re-branded itself to Oye 104.8 FM based on the “filmy” format Radio’s current contribution to the overall revenues of the company is minuscule at 4 %. Though the radio industry is expected to grow at 18.1 % CAGR in FY13-18E, company’s radio business is expected to do well. Moreover, once the regulator allows the broadcast of live news on radio, Aaj Tak may be able to leverage its dominance in the Hindi news content on radio. India is likely to witness a data and Internet revolution in the coming future, which holds good opportunity for all content rich businesses. The delivery platforms would be amplified creating more demand for the content. Mobiles, wireless internet users (mobile + dongle) have already reached about 23.26 Cr users at the end of March 2014 and the number is expected to go up dramatically. Also, when compared to the global level, India imported the highest number of smart phones. With the launch of several OTT applications and mobile applications, people can conveniently watch videos on their cell phones. This opens up more avenues for the delivery of content. TV Today’s news would also reach such additional platforms, which would open up new avenues for revenue growth. TV Today posted 24.6 % revenue growth in FY14, partly aided by higher government spending in an election year. Moreover, it already clocked in 54.1 % revenue growth in Q1FY15 on account of higher share of advertisement on news channels in the backdrop of general elections in May. As election euphoria has settled and the economy started to turn around, its revenues are expected to grow at a moderate pace and expected to clock a CAGR of 15.5 % (FY14-FY16E). Revenue growth would be primarily led by improving ad yields in the flagship channel coupled with improving utilisation in other channels. While advertisement revenues are expected to grow in tandem with the economy, subscription revenues would be directly correlated to the progress in digitisation. Advertisement revenues and subscription revenues are expected to grow at 16.4 % in FY15E and 7.5 % FY16E. The radio segment is also expected to grow at 26.5 % CAGR over FY14- 16E. Moreover, the company also plans to participate in Phase III auctions and further augment its radio footprint. This extended presence would also drive its revenues, going ahead. The company is expected to be cash flow positive and, hence, would be able to fund its capex requirements internally. The dividend payout by TV Today has ranged between 38 % and 45 % in FY11 to FY13, respectively. FY14 has been an inflection point for the company with the company’s profits nearly quadrupling from the year ago period. Consequent to this, the return ratios, RoCE and RoNW, have reached 22.4 % and 16.2 % in FY14 from 4.0 % and 3.8 % in FY13, respectively. Going ahead, with improving operating leverage and lower capex outlay, the return ratios are further expected to improve. TV today continues to enjoy best operating metrics. TV Today had been trading at an average 18x one year forward P/E during economic upturn cycle in FY04-09. The stock has traded at an average one year forward multiple of 20.3x, over the last 10 years, which covers both high and low economic cycles. However, with the economy still in the earlier phase of revival, and valuing the company at 15x FY16E which will be 25 % discount to the 10 year average P/E which gives the a target price of Rs. 300. At the current market price of Rs. 227.80, the stock P/E ratio is at 13.89 x FY15E and 11.39 x FY16E respectively. Company can post Earning per share (EPS) of Rs. 16.40 for FY15E and Rs. 20.00. One can buy this stock with a target price of Rs. 260.00 and for Medium to Long term investment it should be Rs. 300.

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	312.70	389.40	475.70	519.30
NET PROFIT (₹ Cr)	12.20	61.30	97.80	119.00
EPS (₹)	2.10	10.30	16.40	20.00
PE (x)	102.90	20.50	12.80	10.60
P/BV (x)	3.90	3.30	2.80	2.30
EV/EBITDA (x)	35.90	11.00	6.80	5.30
ROE (%)	3.80	16.20	21.50	21.60
ROCE (%)	4.00	22.40	30.40	30.30

I would buy TV TODAY NETWORKS LTD for Medium to Long term for target of Rs. 300.00 and for the shorter term the target would be Rs. 260.00. 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 ₹ 209.50 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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RETURN ON CAPITAL

GREENPLY INDUSTRIES LTD : A GOOD BUSINESS !!!

Scrip Code: 526797 / GREENPLY

CMP:  Rs. 1001.90; Buy at current levels & at dips.

Short Term Target: Rs. 1050.00; Medium to Long term Target: Rs. 1100; STOP LOSS – Rs. 920.00; Market Cap: Rs. 2,418.22 Cr; 52 Week High/Low: Rs. 1040.00 / Rs. 301.00

Total Shares: 2,41,36,374 shares; Promoters : 1,32,75,000 shares – 55.00 %; Total Public holding : 1,08,61,374 shares – 55.00 %; Book Value: Rs. 241.60; Face Value: Rs. 5.00; EPS: Rs. 50.60; Dividend: 60.00 % ; P/E: 19.80 times; Ind. P/E: 24.90; EV/EBITDA: 10.75.

Total Debt:  549.50 Cr; Enterprise Value: Rs. 2,964.390 Cr.

GREENPLY INDUSTRIES LIMITED: Greenply Industries Ltd was established on August 9, 1984 and incorporated in 1990 and is based in Kolkata, India. The company was earlier known as Mittal Laminates Private Ltd and changed to Greeply Industries Ltd in 1995. The company came out with an IPO of about 10 lakh shares in April 1995 at par. The company, in May 2005, declared split in its face value from Rs. 10 to Rs. 5. Greenply Industries Limited, an interior infrastructure company, manufactures, markets, and distributes plywood, laminates, particleboards, and allied products primarily in India. Its interior infrastructure products include decorative veneers and laminates, plywood, block boards, flush doors, medium density fiberboards, and restroom cubicles, laminated flooring and UV coated panels, and others. The company offers its products under the Greenlam, Greenply Plywood, Green Club Premium Ply, Greenlam Laminates, Green Decowood, Ecotec, and Green Panelmax brand names. The Company’s flagship decorative laminate brand is very well known ‘Greenply,’ is exported to more than 50 countries. Currently, Greenply has become the largest laminate company in Asia and the fifth largest globally in terms of capacity. The Company has 7 manufacturing facilities located across India at Tizit (Nagaland), Kriparampur (West Bengal), Nalagarh (Himachal Pradesh) and 2 units at Pantnagar (Uttarakhand). Company has 46 marketing offices and a network of approximately 15,000 distributors, dealers, sub-dealers, and retailers. Greenply Industries Limited also exports its products to North America, Latin America, Europe, the Middle East, and the Asia Pacific. Greenply Industries Ltd. Greenply Industries Limited is locally compared with Centryply Ltd, Archidply Industries Ltd, Uniply Industries, Mangalam Timber Products ltd, Novopan Industries Ltd, Mayur ply Industries Ltd, Sarda Plywood Industries and globally compared with Boise Cascade Company USA, Deltic Timber Corporation of Arkansas, Louisiana-Pacific Corporation from Tennessee, Seven Industries Co., Ltd of Japan, Nankai Plywood Co., Ltd of Japan, Eksons Corporation Berhad of Malaysia, UPM-Kymmene Oyji from Finland, Stora Enso Oyj-R shs of Finland, Munksjo Oyj of Sweden, Ence Energia y Celulsa S.A of Spain, Shandong Chenming Holding of China, Nine Dragons Holdings of China, Indah Kait Pulp & Pare Tbk of Indonesia, Sappi Limited of South Africa.

Investment Rationale:

Greenply Industries Ltd is the leading plywood manufacturer in India. It has more than 46 marketing offices across all state capitals and major cities of India. It has a strong network of more than 15,000 distributors, dealers, sub-dealers and retailers. The Company holds almost 30 % market share in India’s organized plywood market and around 18 % of India’s organized laminates market. Greenply Industries Ltd has started commercial production of 'laminated wooden flooring' at the Company's existing MDF Unit at Pantnagar situated in Uttarakhand. India is one of the largest markets globally for different types of furniture. It is estimated that the furniture market in India is likely to witness a CAGR of about 30 % over the next three years. In fact, an independent industry research institute and consulting firm, CSIL Milano has classified India as one of the 14 largest furniture markets in the world. This is due to the rising purchasing power of the more than 40 Cr strong middle-class segment. India’s organised furniture industry is estimated at around US$ 800 Cr and is expected to grow at a CAGR of about 25 % to 30 % annually. The modular furniture market in India was estimated to be about US$ 16 Cr by the Index Media Consulting report. The size of the international range of premium furniture was estimated at about US$ 2 Cr and largely serviced by foreign players and imports. Furniture consumption in India recorded about 10 % average annual growth over the last decade, reaching about US$ 15 billion in 2013 at retail prices. India’s organised furniture sector is marked by about 5,000 companies and nearly 10,500 importers. India imports are around US$ 15 Cr worth of furniture, catering primarily to urban affluent households. India’s interior decor industry is heading towards high-end, low maintenance, quickly installable and customisable products. Branded furniture accounts for a 30 % market share in India. Recently, IKEA announced its intentions of investing Rs.10,500 Cr (1.2 billion euro) following the recent policy change, which permitted 100 % foreign direct investment (FDI) in single-brand retail, which can potentially widen this sector. India’s median age of 24 make India a young country with a large productive workforce. India’s per capital income was projected to increase 10.4 % to Rs. 74,920 in 2013-14 as the country becomes a $1.7 trillion economy, driving consumption in the country. India has the highest urban population rate of change among BRIC nations. The country’s urban population accounted for 31.6 % of its total population. By 2015, the country’s urban population is expected to grow 2.5 % above the 1.3 % growth in the total population. At this rate, it is estimated that around 84.3 Cr people will live in Indian cities by 2050, offering growing opportunities for its real estate and furniture sector. The Indian office furniture segment is estimated at around US$ 1.6 billion, with 40% of that is generated through the provision for desks. The modular furniture market in India, estimated to be about Rs. 800 crore, and is dominated by bigger players. The market size of the international range of premium furniture is estimated to be worth about Rs. 100 crore, and is primarily catered to by foreign players. It is expected to grow at the rate of 10-15 % over the next three or four years driven by demand from modern work spaces. The Indian interior infrastructure sector is growing at a CAGR of 5-7 %. The plywood and laminates is a highly fragmented industry. The share of the unorganized sector is about 78 % in plywood and about 45 % in laminates. The growth registered by organised sector is 15-20 %, in comparison to overall industry growth of 5 %, indicates a shift of customer preferences from unbranded to branded goods. India’s wood panel market grew at a CAGR of 6-8 % over FY08-FY12 in volume terms. Currently, 30-35 % of the MDF demand is met through imports. It is expected to grow in line with growth of wood panel market. Organised players have increased their presence on account of rising aspirations and brand consciousness.  

Outlook and Valuation:

Greenply Industries Ltd is a leader in the manufacturing and marketing of a wide range of interior infrastructure products. India’s rapidly expanding economy is seeing growing affluence, both in urban and rural areas. The tremendous penetration of the mass media has also resulted in millions of middle-class Indians aspiring for more lavish lifestyles. Furniture-makers are catering to the unmet urban middle-class need for stylish homes in compact apartments. With the Indian economy and the real estate sector continuing to grow at a phenomenal pace, demand for office and home furniture is expected to expand even further. The entry of a number of international players and the rapid emergence of domestic brands is transforming the industry, offering Indian consumer a wide range of home and office furniture to choose from. The furniture industry market size is expected to touch Rs. 12,000 crore by 2015. Greenply being leading this sector is a clear winner and beneficiary with this mid class boom. On financial side, Greenlam Exports business has grown at a CAGR of 24 % over last 5 years. 47 % business contribution of laminates comes from international market, making Greenply the largest exporter of decorative laminates from India and that also for last four consecutive years. Company’s Exports grew by 23.57 % in laminates business of Rs. 315.87 crores and contributed 14.64 % of the net revenue for the year 2014. Exports contribute 48 % and 47 % respectively in volume & value terms to the laminates business. The company Commenced production of Laminated Flooring and launched its new products to expand its presence in the economic plywood segment which is valued at more than Rs 12,0000 Cr. Company’s Green Panelmax Plain, Pre-Laminated and Veneered Medium Density Fibreboards (MDF) Boards are approved for use in defence works by the Military Engineering Services is added advantage to the company. Greenply Industries Ltd’s Laminates Segment has increased its production to 10.76 mn sheets in FY 2014 from 10.37 mn sheets in FY 2013 and has achieved capacity utilisation of 104 %. Company recently incorporated Greenply Industries (Myanmar) Pvt. Ltd. as a wholly-owned subsidiary for setting up of a Veneer or Veneer-cum-Plywood Unit in Myanmar. Greenply Industries (Myanmar) Pvt. Ltd has obtained approval of the Myanmar investment commission to set up the unit and has completed commissioning of Veneering Line and has started trial Production of Commercial Veneers. Additionally, Greenply is venturing into Lumber business (Teak Sawn Timber in FY 2015) and Plywood (FY 2016). On Financial side, Company’s Revenue for the quarter rose by 7.55 % to Rs. 517.08 Cr. The company’s net profit jumped to Rs. 30.22 Cr in 1st quarter of FY 2014-15 as against Rs. 22.56 Cr in the corresponding quarter ending of previous year, an increase of 33.95 %. Profit before interest, depreciation and tax is Rs. 68.87 Cr as against Rs. 58.43 Cr in the corresponding period of the previous year. With the proven track record it is expected that Greenply’s net sales and PAT can post a growth of 9 % each CAGR over 2013 to 2016E respectively. At the current market price of Rs. 1001.90, the stock is trading at its all-time high P/E of 18.10x FY15E, 16.23x FY16E. The company can post EPS of Rs. 55.34 for FY15E and Rs. 61.53 for FY16E. One can buy GREENPLY INDUSTRIES LIMITED with a target price of Rs. 1100.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 1050.00.

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	2,000.81	2,159.51	2,365.75	2,578.67
NET PROFIT (₹ Cr)	114.16	114.46	133.56	148.50
EPS (₹)	47.30	47.43	55.34	61.53
PE (x)	18.38	18.33	15.71	14.13
P/BV (x)	4.40	3.60	2.96	2.52
EV/EBITDA (x)	10.16	9.88	8.90	8.07
ROE (%)	23.94	19.64	18.85	17.81
ROCE (%)	29.33	28.93	28.80	28.88

I would buy GREENPLY INDUSTRIES LTD for Medium to Long term for target of Rs. 1100.00 and for the shorter term the target would be Rs. 1050.00. 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 ₹ 920.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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RETURN ON CAPITAL

DHANUKA AGRITECH LTD : A GOOD BUY !!!

Scrip Code: 507717 / DHANUKA

CMP:  Rs. 432.55; Buy at current levels.
Medium to Long term Target: Rs. 687; STOP LOSS – Rs. 398.00; Market Cap: Rs. 2,163.59 Cr; 52 Week High/Low: Rs. 468.95 / Rs. 127.30

Total Shares: 5,00,19,500 shares; Promoters : 3,75,09,175 shares –74.99 %; Total Public holding : 1,25,10,325 shares – 25.01 %; Book Value: Rs. 71.15; Face Value: Rs. 2.00; EPS: Rs. 19.24; Dividend: 140.00 % ; P/E: 22.40 times; Ind. P/E: 23.93; EV/EBITDA: 17.07.

Total Debt:  33.01 Cr; Enterprise Value: Rs. 2190.39 Cr.

DHANUKA AGRITECH LIMITED:  Dhanuka Agritech Ltd was incorporated in 1985 and is based in Gurgaon, India. The company was earlier known as Dhanuka Pesticides Ltd and changed to Dhanuka Agritech Ltd in 2007. The company, in April 2010, declared split in its face value from Rs. 10 to Rs. 2. Dhanuka Agritech Limited is engaged in manufacturing, marketing, and trading various types of pesticides. It offers herbicides/weedicides, insecticides, fungicides, miticides, and plant growth regulators/stimulants in various forms, such as liquid, dust, powder, and granules. The company also generates electricity through wind mills, as well as provides seeds. It serves farmers, planters, and pest control operators. Dhanuka Agritech manufactures a wide range of Agro-chemicals like herbicides, insecticides, fungicides, miticides, plant growth regulators in various forms- liquid, dust, powered and granules. The company has pan-India presence through its marketing offices in all major states in India. It has a network of more than 7,000 distributors/dealers selling to over 75,000 retailers across India and reaching out to more than 1 crore farmers. The company has technical tie-ups with 4 American, 5 Japanese & 2 European Companies. Dhanuka’s target customers are primarily farmers. Dhanuka Agritech Limited is locally compared with Monsanto India Ltd, Sabero Organics Gujarat Ltd, Insecticides (India) Ltd, Advanta Ltd, Camson Bio-Technologies ltd, Dhanuka Agritech Ltd, Kaveri Seeds Co Ltd, Sabero Organics Gujarat Ltd, Excel Industries Ltd, Punjab Chemicals and Crop Protection ltd, Rallis India Ltd, Insecticides India Ltd, Bayer CropScience India ltd, UPL Ltd, Bharat Rasayan Ltd, Meghmani Organics ltd and Globally compared with Monsanto Co of USA, Du Pont (E.I.) De Nemours (DD) of Delaware, FMC Corporation of Pennsylvania, Sumitomo Chemical Co Ltd of Japan, Syngenta AG of Switzerland, Vilmorin & Cie of Paris, Bayer Aktiengesellschaft of Germany, KWS SAAT AG of Germany, Sakata Seed Corporation of Japan, Yukiguni Maitake Co Ltd of Japan, Akikawa Foods & Farms Co Ltd of Japan, Hob Co Ltd of Japan, Hokuto Corporation of Japan, Kaneko Seeds Co ltd of Japan.

Investment Rationale:

Dhanuka Agritech Ltd (DAL) is a leading player in the agrochemical sector. Dhanuka Agritech Ltd is engaged in the businesses of Agro-Chemicals & Seeds producing under Dhanuka Agritech Ltd and its pharmaceutical ingredients are produced under its Dhanuka Laboratories Ltd. Dhanuka’s target customers are primarily farmers. In April 2014, company announced the receipt of approvals for its innovative product registered under the section 9(3) of the Insecticide Act of India, these approvals gives DAL the exclusive rights to sell the products in Indian markets. These products will be launched in this kharif season. The management has also filed for licenses for 6 new products and is confident of launching at least 2 products each year in the coming 3 years. Of these 6 products 3 will be of herbicide, which is a fast growing category in the agrochemical space. Specialty products contribute two‐third of the revenue while generic products contribute one‐third of its revenue. The company have received the approvals for two products under section 9 (3) – Mortar which is insecticides for paddy, vegetables and is produced in-house, & second product is Sakura herbicides for soybean produced by tie up with Nissan. Mortar would be launched in this month of Aug’14 and Sakura in Rabi season. There is one product more under section 9(3) of the Insecticide Act of India herbicides for sugarcane which produced in association with Nissan which is likely to be launched in second half of FY15. During the year, Company is in process of launching few products under section 9(4) of the Insecticide Act of India. Pager a insecticides for cotton and vegetables was launched in July’14 and Jackal insecticides for multiple crops will be launched in Sept’14. All above products are likely to drive the growth in second half of the year. According to the estimates from Crop Care Federation of India (CCFI), 85 % of annual crop losses are due to pest infestation, diseases and weeds. Pesticide penetration in India is very low, about 0.6 kg per hector as against its global peers of 5‐17 kg per hector. With the government’s focus on increasing the MSP (minimum support prices) for key crops like rice, wheat, maize, sugarcane etc. will lead to higher farm income and will provide an incentive for farmers to use more pesticides to improve their farm yields. Dhanuka Agritech’s has long standing tie ups with leading chemical companies of the world such as Nissan, Sumitomo, Chemtura, DuPont, FMC etc. Technical sources and expertise from these MNC’s along with their formulations will help the company to develop its own manufacturing plants. These products command higher margins and this is reflected from the company’s superior EBITDA margins which are about 16 % as compared to industry average of 14 %. For MNCs, DAL comes as a preferred choice due to its profound understanding of the Indian agrochemical market, its nationwide distribution network and strong farmer contact. So far DAL, its 25 products from its partners out of which 6 are among the top 10 revenue contributors. Majority of the new products in the pipeline will be coming from such tie‐ups. DAL’s asset light business model has enabled it to achieve superior asset turnover ratio as well as return ratio’s compared to its peers. The more capital intensive technical manufacturing process has been consciously avoided. Management’s priority still remains on leveraging its marketing and distribution network which is one of the largest in the country. It has also built a robust team of sales and marketing workforce which has fostered strong relationship with the farmers. Last year, it had roped in superstar Amitabh Bachchan as its brand ambassador. This marketing exercise has improved DAL’s brand visibility, increased brand recognition and had a positive influence on the target audience. Over the last few years management has taken measures to reduce the working capital which has resulted in strong operating cash flow making company nearly Debt free on balance sheet. Company’s higher profitability gives the flexibility to invest its cash back into the business for further expansion or development of new products. Company’s RoCE has consistently been maintained above 30 % which is higher than its peers in the industry. Tax rate for FY15 is expect to be under MAT however it would increase in FY16 as company is exhausting its MAT credits. Company’s management has more than 40 years of experience in this field. These all factors augers well for Dhanuka Agritech Ltd.

Outlook and Valuation:

Dhanuka Agritech Ltd bagged itself a place in the prestigious ‘Forbes Asia – 200 Best under a Billion lists’ for the third time in last four years in Asia – Pacific region. The Company is actively taking up the cause of Food security & Farmers interest in various forums & industry bodies like CII, ASSOCHAM and FICCI. Company's marketing team has taken many initiatives to strengthen the Brand image by signing Shri Amitabh Bachchan as Brand Ambassador. Globally, the Agro-chemical Industry is dominated by MNCs such as Syngenta, Bayer, Monsanto, BASF, Dow and Dupont which accounts for nearly 75 % by value of the overall $4,200 Cr Industry. These Companies are the principal innovators in this industry, and have invested heavily in R&D with an aim of reaping the rewards from it in form of patent protection. Dhanuka Agritech Ltd, currently has production facilities at Gurgaon, Sanand and Udhampur, with cumulative capacity of over 35,900 tonnes of solids & granules and over 11,000 kilo liters of liquids. Company is currently planning its capacity expansion at Gurgaon and Udhampur units, involving capex outlay of around Rs. 7 crores. Company has bought 10 acres (4,35,600 sq.ft)) of land at Keshwana in Rajasthan for setting up its new manufacturing unit, which will be of International standards with maximum automation. The expected capex will be around Rs. 45 to Rs. 50 crores. This unit is expected to be operational by the end of 2014 and this will triple its existing manufacturing capacity. Agro Chemicals sector is vital for the food and nutritional requirement of any nation, and so this sector remains the principal source of livelihood for more than 55 % of the population in India. In comparison to the other countries, India faces a greater challenge, since we have only 2.3 % share in world's total land area; India has to ensure food security for all of its population, which is about 17.5 % of world population (world population as on 2013 estimates was 718.4 cr and India was 126 Cr). India has the 2nd largest area under agriculture (179.9 million hectares) in the world with major crops such as paddy and wheat. India has achieved five-fold increase in food grains production from mere 50.8 million tonnes in 1950-51 to an all-time record production of 257.4 million tonnes in 2011-12. However, the food security and sustainability concerns have become much more severe today due to many challenges like fast rising population, diminishing arable land, rising cost of inputs, limited technology reach, increasing losses caused by insect pests and weeds and so on. Agro Chemicals play an vital role in this. Agro-chemical business is divided in two parts - 'Technical' manufacturing and 'Formulation' manufacturing. a) 'Technical' or 'Active Ingredients' manufacturers: These are essentially the manufacturers of raw materials for making Agro-chemicals, very similar to API manufacturers in Pharmaceutical Industry. This is quite asset intensive business and requires significant capital expenditure and serves mostly B2B segment. b) 'Formulation' manufacturers: These are manufacturers of final product from technical grade pesticides (the usable form of pesticides). This is quite an asset light model and serves mostly B2C segment. Domestic Agro-chemical Industry is expected to have a bright future due to favourable macro factors mainly due to increasing minimum support price (minimum price of agri-commodities set by Government of India); lower current penetration of Agro-chemicals in India, and MNREGA led labour shortage leading to increased herbicide usage. The Government of India is also launching several programmes, including 100 % seed treatment campaign, increasing food grains production, special focus on enhancing production of fruits and vegetables. The National Food Security Mission, National Horticulture Mission, Bringing Green Revolution in Eastern India and such other programmes are likely to increase the demand for Agrochemicals. The Rashtriya Krishi Vikas Yojna is having a provision for giving subsidy to farmers for appropriate plant protection measures. The Government policy for Minimum Support Price (MSP) and Fair & Remunerative Price (FRP) as in sugarcane is a good incentive for saving crop losses due to pests to have assured economic return. The MSP and FRP have been increased year after year. And Dhanuka Agritech Ltd gains out of it. The company's inherent strength lies in its asset light business model which has led to higher Return On Asset than the industry. The management’s focus on building strong distribution network along with collaboration with major global chemical players and introducing high‐margin specialty products, has paid rich dividends to the company and this will continue in the years to come. Company will keep on adding new products every year through its collaborations and is continuously on the look out to bring the latest technology to Indian farmers. With nearly Debt free balance sheet, sound financial backing and experienced management team, with healthy revenue visibility, sustainable margins and ability to monetize innovative products due to strong relationships with global giants given its huge distribution network makes Dhanuka Agritech an attractive buy. At the CMP of Rs. 432.55, the stock is trading at its all-time high P/E of 19.22 x FY15E, 16.38 x FY16E. The company can post EPS of Rs. 22.50 for FY15E and Rs. 26.40 for FY17E. One can buy DHANUKA AGRITECH LIMITED with a LONG TERM target price of Rs. 600.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 500.00 

KEY FINANCIALS	FY14	FY15E	FY16E	FY17E
SALES (₹ Crs)	739.50	887.40	1,082.60	1,487.70
NET PROFIT (₹ Cr)	93.10	112.40	132.10	180.60
EPS (₹)	18.60	22.50	26.40	36.10
PE (x)	22.60	18.80	16.00	11.10
P/BV (x)	6.30	5.10	4.10	3.00
EV/EBITDA (x)	17.70	14.50	11.50	8.10
ROE (%)	31.30	30.00	28.30	30.05
ROCE (%)	34.60	33.60	34.90	37.7

I would buy DHANUKA AGRITECH LTD for Medium to Long term for target of Rs. 600.00 and for the Shorter term the target would be Rs. 500.00. 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 ₹ 398.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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