B D E (BDE) : LUE ART Xpress
B D E (BDE) : LUE ART Xpress
B D E (BDE) : LUE ART Xpress
Employee cost was reported at Rs 1.18 bn (+11% QoQ and +18% YoY) which
dented the margins of the company at 6.9% (-200 bps QoQ). The company
hired a total of 600 employees in FY17 (highest ever) and Q1FY18 employee
cost included hikes and bonuses.
Subdued revenue growth (+7% YoY) coupled with BDE’s fixed cost model led
to a sharp decline in EBIDTA margins (down 550bps YoY). However, we view
this as a one-off event and expect healthy earnings growth going forward.
Depreciation and interest cost and other income continue to be stable for the
company.
Consequently PAT was reported at Rs 211 mn vs. our expectation of Rs 314 mn
We do not extrapolate BDE’s Q1FY18 performance to the whole of FY18, since
we believe this was due to a one-off event (transition to GST). We maintain our
earnings estimate for FY18 and FY19.
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16.0
14.0
12.0
10.0
8.0
6.0
Source: Company
Healthy outlook
As per various agencies, air cargo traffic is estimated to grow at 10% CAGR and
surface cargo traffic at 8% CAGR over the next 5 years which bodes well for
companies like BDE. These above coupled with implementation of GST is further
healthy for BDE.
BDE already have a robust brand name, systems and infra in place to capture the
above growth. BDE currently has a fleet of 6 aircraft (5 Boeing 757), 9185 vehicles,
582 facilities, 20 ground hubs and a dedicated skilled staff of 10000+ employees
who work around the clock to yield results for the company. The above mentioned
infrastructure is unparalleled in the courier industry which helps BDE to deliver
safely, on time and differentiate itself from other players.
Current infrastructure of BDE
Infrastructure No’s Remark
Aircraft 6 1850 tonnes per day
Air network station 7
Vehicles 9185 5 lakh shipments per day
Facilities 582 Retail Outlets
Blue darters 10000+ Dedicated and trained
Ground hubs 20 Hub and spoke model
Network routes 166 Centipede model
Countries served 220+
Source: Company
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We maintain BUY on Blue Dart BDE trades expensively on near-term earnings (41x FY19E EPS) considering the
Express with a price target of transition phase to GST, tough environment for the B2B segment and
Rs.5150 consolidation in the e-com industry. However, we think investors would focus on
its track record and creditability of the company, market share, and most
importantly, superior return ratios across the business cycle. The stock remain as
one of the key stocks to invest in the courier space which is expected to benefit
from formalization of the sector and the boom of the ecommerce segment.
Effective implementation of the Mckinsey strategy is expected to add further value
to the stock further. Maintain BUY with an unchanged TP of Rs 5150 at 50x FY19E.
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Segmental Revenues
(Rs mn) 1QFY18 1QFY17 YoY (%) 4QFY17 QoQ (%)
Agri Machinery 9,421 8,592 9.7 8,018 17.5
Auto Ancillary - 216 (100.0) 16 (100.0)
Railway Equipment 652 579 12.8 666 (2.0)
Construction Equipment 1,646 1,371 20.0 1,840 (10.6)
Source: Company
Volumes
in units 1QFY18 1QFY17 YoY (%) 4QFY17 QoQ (%)
Tractor 17561 16363 7.3 14978 17.2
CE 886 739 19.9 1,037 (14.6)
Source: Company
Result highlights
Revenue during the quarter increased from Rs10.3bn in 1QFY17 to Rs11.4bn
and was in line with our estimate of Rs11.5bn.
Escorts Agri Machinery (EAM) segment revenues grew by 9.7% YoY on the
back of 7.3% increase in tractor volumes and 2.2% rise in average selling price
(ASP). On a QoQ basis, volume growth was high on account of seasonal
demand for tractors.
Construction Equipment (CE) segment revenues during the quarter grew by
20% YoY to Rs1.65bn. Revenue growth was completely driven by volume
increase as ASP remained flat YoY. Sequentially, CE volume declined due to
seasonal factor.
In the railway equipment division (RED) division, revenue was Rs652mn, 13%
higher YoY. RED revenue was down by 2% QoQ.
Gross margin performance in the quarter was mixed with 40bps decline YoY
and 40bps increase QoQ. Price hike and cost material reduction efforts
supported gross margins YoY, despite increase in commodity prices.
Employee cost increased on account of annual increments. Other expenses in
1QFY18 were on the higher due to higher spend on R&D and sales promotion.
EBITDA during the quarter was up by 8% YoY at Rs975mn (our estimate was
Rs1bn). EBITDA margin for the quarter was 8.5% as against 8.7% in 1QFY17
and 7.3% in 4QFY17.
Segmental margins
(Rs mn) 1QFY18 1QFY17 4QFY17
Agri Machinery 10.8 11.3 10.1
Auto Ancillary - (12.1) 22.8
Railway Equipment 9.9 16.3 10.8
Construction Equipments (2.1) (5.8) 2.1
Source: Company
EAM segment EBIT margin declined YoY from 11.3% to 10.8%. Rise in input
cost and adverse forex mix impacted margins in this segment.
CE business EBIT losses came down YoY as volumes improved by 20% and
steps taken on saving cost. However, on a QoQ basis, 15% volume decline led
to EBIT loss as against EBIT profit in 4QFY17.
Railway equipment division EBIT margin was lower YoY and QoQ on account
of product mix.
Other income for the quarter was high as it included Rs40mn exceptional
income from helicopter sale.
Adjusted for exceptional items, PAT for the quarter grew by 11% YoY. 1QFY18
PAT of Rs626mn was in line with our estimate of Rs624mn.
Conference Call Highlights
Management expects the domestic tractor industry volumes in FY18 to grow
by 10-15%. In 1QFY18, domestic industry grew by 8.5% YoY to 177,028 units.
In 2QFY18, the management expects the industry to grow by 18-20%, driven
by good monsoon, early onset of festive season and wholesale dispatches
deferment from 1QFY18 to 2QFY18 (dealer inventory reduced ahead of GST).
Escorts wholesale domestic volumes in 1QFY18 grew by 6.2% as against 9%
growth in retail volumes. During the quarter, Escorts market share decline by
20bps YoY to 9.7%.
During 1QFY18, industry volumes in Escorts strong markets (North and Central
region) grew by 18%, whereas opportunity market (West and South) witnessed
3% decline. Management expects similar trend to continue in 2QFY18.
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On the back of various new products introduced, tractor exports will witness
strong growth in the coming years.
In the CE segment, company expects 12% volume CAGR over the next few
years. Demand in this segment is generally strong in second half (Oct-Mar) as
compared with first half (April-Sep). Company expects this segment to be EBIT
positive in FY18 (full year basis).
Railway Equipment Division has order book of Rs1.4bn to be executed over the
next 6-7 months. Management expects this business revenue to grow at 15-
20% CAGR for the next three years.
Due to GST, the company will be compensating dealers on stock at dealer end
and will also bear one-time cost on stock at its own depots. As of 30th June
2017, ~7,000 units was lying in stock at dealer / company depot (with dealer
being at 4,000-5,000 tractors). Company will have bear cost equivalent to ~7-
8% of the selling price of tractor. On this count, there could be one-time loss
of ~250mn to the company in 2QFY18.
Company is looking to launch VRS in 2QFY18. If launched, company expects
100-200 employees would opt for VRS. Company may have to incur VRS cost
of Rs250-500mn (Rs2.5mn cost per employee). In three years, Escorts plans to
incur Rs1.4-1.5bn towards offering VRS to 400-500 employees.
In FY18, company aims to achieve EBIT margin of 11.5-12% in EAM business,
EBIT positive in CE business and 13-14% in RED.
In the tractor segment, company did not take any price hike in 1QFY18. Even
post GST, company did not take any pricing action. Last pricing action of 1.2%
was taken in March 2017.
Tax rate in FY18 will be 30-31%.
Gross debt as on end quarter was Rs1.79bn (Rs940 long term debt and Rs850
working capital). Debt is down from Rs2.63bn as of end FY17.
Outlook
Backed by good monsoon, tractor industry is expected to grow at healthy rate
for second consecutive year. For FY19, while monsoons will be critical, we
expect some positive impact of two good monsoons and government focus on
improving farmer’s income.
Strong government focus on infrastructure segment will drive demand in the
construction equipment segment.
In the railway equipment division, the company expects to grow its revenues at
15-20% CAGR over the next three years.
EBITDA margin is expected to improve further from cost cutting initiatives
across segments, employee cost saving from VRS, higher capacity utilization,
turnaround at construction equipment division and product mix change.
Company expects strong volume growth for the industry in 2QFY18. Escorts
We retain ACCUMULATE rating on
Escorts Ltd with a price target of would further benefit from robust demand in its strong markets. However,
2QFY17 results could include couple of exceptional losses – loss on tractor
Rs.710
inventory at dealer end / company depot due to GST and possible VRS
implementation.
We retain ACCUMUALTE rating on the stock with unchanged price target of
Rs710. We value the stock at 20x FY19E earnings.
Key risk
Lower than expected tractor sales growth can have substantial impact on our
earnings estimates and target price.
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MORNING INSIGHT July 31, 2017
Summary table
At current market price of Rs 202, stock is trading at 8.2x and 7.0x EV/EBITDA on
(Rs mn) FY17 FY18E FY19E
FY18 and FY19 estimates respectively. We continue to remain positive on the
company despite results coming lower than expectations as we believe that post
Sales 50,669 54,400 60,275
amalgamation, company has realigned its business verticals which would enable it
Growth (%) 19.9 7.4 10.8
EBITDA 8,613 9,500 10,775 to clean its balance sheet and reduce the loans and advances. Reduced leverage,
EBITDA margin (%) 17.0 17.5 17.9 improved working capital and enhanced capacity coupled with expected
PBT 2,602 3,607 5,010 improvement in demand in southern region are likely to provide a re-rating to the
Net profit 1,736 2,416 3,357 stock. We maintain our price target of Rs 234 based on average of 8x EV/EBITDA
EPS (Rs) 5.5 7.8 10.9
and $80 per tonne on FY19 estimates. Maintain BUY.
Growth (%) 22.0 43.8 38.9
CEPS (Rs) 13.8 16.9 20.1
Financial highlights
Book value (Rs/share) 165.8 173.7 184.5
Dividend per share (Rs) 0.0 0.0 0.0 (Rs mn) Q1FY18 Q1FY17 YoY (%)
ROE (%) 3.3 4.6 6.1 Net Sales (adj with excise) 12,818 10,521 22%
ROCE (%) 7.7 8.5 9.9
Expenditure 10,962 8,507
Net cash (debt) (29,147) (27,299) (24,635)
NW Capital (Days) 52 63 63
Inc/Dec in trade 199 0
EV/Sales (x) 1.6 1.4 1.2 RM 2,071 1,777
EV/EBITDA (x) 9.2 8.2 7.0
As a % of net sales 16.2 16.9
P/E (x) 37.0 25.8 18.5
Staff cost 1,147 793
P/BV (x) 1.2 1.2 1.1
As a % of net sales 8.9 7.5
Source: Company, Kotak Securities – Private Client
Research Power and fuel 2,858 2,019
As a % of net sales 22.3 19.2
Transportation & Handling 2,847 2,325
As a % of net sales 22.2 22.1
Other expenditure 1,840 1,593
As a % of net sales 14.4 15.1
Operating Profit 1,856 2,014 -8%
Operating Profit Margin 14.5 19.1
Depreciation 630 511
EBIT 1,226 1,503 -18%
Interest 874 825
EBT (exc other income) 353 678
Other Income 52 32
EBT 405 710
Tax 140 271
Tax Rate (%) 34.6 38.1
PAT 265 440 -40%
Net Profit 265 440
NPM (%) 2.1% 4.2%
Equity Capital 3,081.5 3,071.8
EPS (Rs) 0.9 1.4
Source: Company
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During the quarter, company fulfilled nearly 83% of coal requirement via pet coke
with average price of around $90 per tonne and Q4FY17 average was $85 per
tonne. Current prevailing prices are around $90 per tonne. So this can result in
power and fuel cost per tonne remaining at similar levels going forward for the
company.
The staff cost has also moved up during the quarter due to provisioning of ESOP
cost on the basis of difference between grant value and market value as at the end
of the quarter. Company would continue to make provisions for ESOPs every
quarter as per the norms of accounting standard.
We maintain our estimates and expect some moderation in raw material costs
going forward while freight and power and fuel costs per tonne are likely to remain
at similar levels. Further uptrend in cement prices is likely to provide margin
improvement going forward.
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Earnings estimates
(Rs mn) Reported Estimated Comments
Revenue 239,897 238,905 In-line execution
EBITDA (%) 8.6 8.7 Minor miss in EBITDA margins
PAT 8,925 8,255 Higher than expected PAT led by higher other income
Source: Company, Kotak Securities – Private Client Research
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Order backlog at Rs 2.6 trn, up marginally on a y-o-y with the domestic market
accounting for 74% of order backlog.
The company sees an order pipeline of Rs 6.0 trn. Some of the major orders in
the pipeline include 1) Landing Platform Docks – Rs 200 bn, 2) Mumbai
Transharbour – Rs 150 bn, 3) Bandra-Versova Sea Link – Rs 75 bn, 4) Mumbai
Coastal Road 5) Mumbai-Nagpur Expressway – Rs 250 bn 6) Zojilla Tunnel – Rs
80 bn 7) Anti-submarine guns Rs 80-100 bn, 8) Artillery guns – Rs 65 bn.
We maintain ACCUMULATE on We value the stock at 21x FY19 earnings and arrive at a price target of Rs 1274
Larsen & Toubro Ltd with a price (unchanged).
target of Rs.1274 Due to moderate upside, we maintain “ACCUMULATE”, thereby advising
clients to buy on declines.
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Revenue break up
(Rs mn) 1QFY18
Skills & Career 741.00
Schools 263.00
Corporate 1095.00
Source: Company
Concerns
A slower-than-expected recovery in the global economy could impact revenue
growth of NIIT.
Steep rupee appreciation v/s major global currencies may impact the financials
of NIIT.
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RATING SCALE
Definitions of ratings
BUY – We expect the stock to deliver more than 12% returns over the next 9 months
ACCUMULATE – We expect the stock to deliver 5% - 12% returns over the next 9 months
REDUCE – We expect the stock to deliver 0% - 5% returns over the next 9 months
SELL – We expect the stock to deliver negative returns over the next 9 months
NR – Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for
information purposes only.
RS – Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there
is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing,
an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock
and should not be relied upon.
NA – Not Available or Not Applicable. The information is not available for display or is not applicable
NM – Not Meaningful. The information is not meaningful and is therefore excluded.
NOTE – Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark.
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