OMKARA MANUFACTURING SMALLCASE FASTEN YOUR SEATBELTS
Disclaimer: Omkara Capital is a SEBI registered Research Analyst (SEBI Reg. no. INH000008206) and SEBI Registered Investment Adviser (SEBI Reg. No. INA000016825). This presentation, data and information presented herein are for information purposes only and does not construe to be any investment, legal or taxation advice. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Any action taken by you on the basis of the information contained herein is your responsibility alone and Omkara Capital Private Limited (“Omkara” or “Omkara Capital”) and its group companies, if any or its employees or directors, associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, but do not represent that it is accurate or complete. Omkara Capital or any of its group companies, if any or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this publication. The recipient of this report should rely on their own investigations. Omkara Capital and/or its group companies, if any and/or directors, employees or associates may have interests or positions, financial or otherwise in the securities mentioned in this report. Please do your own due diligence and consult with your financial advisor before buying/selling any company mentioned in this presentation. We may have advised the stocks mentioned herein to our client and Omkara Capital, its directors, employees or relatives of Directors or relatives may have financial interest of the Companies.
2021 = 2003?
IMPORTANT CAVEATS Markets will be volatile in coming months. Geopolitical tensions, interest rate hike, elections and weak results We will give ideas when we find them attractive as volatile markets will give ample opportunities. This is thematic fund where investment is happening ahead of the cycle. Patience will be key to make wealth Don’t invest in this Smallcase in case your horizon is less than 1 year. THIS IS NOT A QUICK MONEY KIND OF A PRODUCT
DID YOU KNOW IT exports has surpassed the gross oil import bill India 3rd largest manufacturer of pharmacy in terms of volume, but just 4% in value terms India is poised to become the world’s third largest automobile industry by 2026 Medical Devices: Market size may reach USD 50 billion by 2025
Narendra Modi KM Birla Manish Bhatnagar Prime Minister of India Chairman AB Group MD SKF India PLI to boost India’s Manufacturing by $520 Bn Predicting a Decade of Capex Mahotsav for India If I was a manufacturing guy, I would be very happy, this is going to be our DECADE KMC
Manufacturing sector can grow 2.8x by 2030 2.7 5 0.35 1 15% 17% 17% 16% 15% 13% 20% 0% 5% 10% 15% 20% 25% 0.0 1.0 2.0 3.0 4.0 5.0 6.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2030 Indian GDP in $ Tn (LHS) Manufacturing Output $ Tn (LHS) Manufacturing as a % of GDP (RHS) Manufacturing – How huge is the Opportunity? Source: World Bank
Capex Cycle – A direct play on Manufacturing Triggers for the next capex cycle Big Getting Bigger Improving Capacity Utilisation Improving Order Book of Sectors Improving Private Dynamics O/S Private Sector Capex Increasing New Company Registrations Uptick in gross credit disbursement Improving Economic Health Asset Quality Improvement Export hitting all time high Deleveraging Electronic Manufacturing Import Substitution Plays Defense Government Initiatives Industry Consolidation Changing mix of government capex Capex as a % of GDP rising Project Announcements & Execution Budget Allocation to Major Schemes Share of manufacturing in new investments is rising Reforms PLI
Industry Consolidation – Big Getting Bigger Sector Parameter Share Companies FY10 FY17 FY20 FY21 Bank Credit Credit Market Share Top 6 SBI, HDFC Bank, Kotak, ICICI, Axis, IndusInd 37% 43% 48% 49% NBFCs – Housing Finance Companies AUM Share Top 2 HDFC, LIC Housing 76% 70% 72% 73% Cement Sales Volume Top 5 Holcim, UltraTech, Shree, Dalmia, Ramco 41% 51% 58% 60% Steel Sales Volume Top 6 Tata, JSW, JSPL, Arecelor (Essar), SAIL & RINL 57% 56% 62% 68% Telecom Revenue Market Share Top 3 Jio, Airtel & Vodafone Idea 65% 66% 83% 87% Aviation Available Seat Kms Top 4 Indigo, Spicejet, GoAir & Air India 75% 77% 85% NA Real Estate Number of developers 2085 1911 1100 NA New launches share in tier-1 cities Launches Top 30 42% 49% 60% NA Ports - Share of Non-Major Ports Volume Top 7 Adani group, Pipavav, Sikka, Magadalla, 35% 43% 45% 46% Gangavaram, Kakinada, Dharamtar Power Generation - Share of Private Units JSW Energy, Torrent, tata Power 16% 38% 38% 40% Paints Profit Top 4 Asian, Berger, Kansai & Akzo 99% 100% 99% 98% Passenger Cars Volume Top 2 Maruti & Hyundai 61% 64% 68% 73% General Insurance Gross Domestic Premium - Private Sector Share 42% 47% 57% 57% Breweries Volume Top 3 United Breweries, AB InBev & Carlsberg 82% 88% 90% NA Multiplex Gross Box office collections Top 2 PVR, Inox 6% 24% 28% NA Visible Consolidation of Market Share Across Sectors Source: Spark Research
Industry Consolidation – Improving Output & Utilisation Cement FY05 FY10 FY15 FY20 FY21 Q1FY22 Capacity utilisation 84% 86% 67% 68% 67% 72% Ex-South 85% 92% 80% 77% 76% 89% Top 10 80% 77% 69% 73% 70% 72% Steel Capacity utilisation 91% 88% 81% 77% 71% 76% Top 6 100% 92% 81% 83% 78% 86% Power Thermal Power PLF 78% 64% 56% 54% 59% Overall Industry Capacity utilisation is nearing pre-Covid Levels 74 75 76 76 74 69 69 70 47 63 67 69 60 0 10 20 30 40 50 60 70 80 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Capacity Utlisation (%) Top players in Cement and Steel Industry are achieving peak utilisation levels which usually leads to further capex Capex Related Nitti-Gritty Source: Spark Research Source: RBI Source: Economic Survey
Are the Economic conditions in place to support a Capex Cycle? Improving Banking Health Uptick in credit Strengthening Balance Sheets Booming Exports
Industry Oct-20 Mar-21 Oct-21 Mining and Quarrying (incl. Coal) 4.2 4.9 16.5 Food Processing 5.1 7.8 6.5 Beverage and Tobacco 2.5 -3.6 0.5 Textiles -0.2 4.7 7 Leather and Leather Products 6.3 1.8 -3.3 Wood and Wood Products 7 8.6 6.1 Paper and Paper Products 10.2 14.7 9.9 Petroleum, Coal Products and Nuclear Fuels 14.9 -8.1 13.1 Chemicals and Chemical Products -2.3 -6.5 7.1 Rubber, Plastic and their Products 5.4 6.2 23.8 Glass and Glassware 1.4 -5.1 15.8 Cement and Cement Products -4.6 -10.1 21.5 Basic Metal and Metal Product -4.7 -6.1 16.3 All Engineering -16.8 -6.3 6.6 Vehicles, Vehicle Parts and Transport Equipment 7.1 1.3 -6.1 Gems and Jewellery -3.4 -1.6 9.2 Construction 4.1 -8.2 -6 Infrastructure 0.1 3.7 8.9 Other Industries 0.6 4.5 10.9 Total -0.7 0.5 4.1 Industry Wise Deployment of Gross Bank Credit - Variation in % (YoY) Economic Health – Uptick in Credit & Improvement in Asset Quality 2.7 3.1 3.4 2.1 1.6 3.5 3.9 4.5 2.8 2.1 0.8 1.3 1.5 1.3 1 0.3 0.3 0.2 0.2 0.2 2016 2017 2018 2019 2020 Net NPA as a % of Gross Advances Scheduled Commercial banks Public Sector Banks Private Sector Banks Foreign Banks Increasing borrowings should lead to future capex Banks have an incentive to lend as overall health of the sector Improved Source: Economic Survey Source: RBI Source: VQ Research
BSE 500 Net Debt Movement Excl RIL (Rs Bn) FY20 FY21 Agri 257 166 Specialty Chemicals 60 58 Auto Ancillaries 82 37 Auto OEM -660 -837 Building Material 7 -15 Realty 221 83 Cement 162 13 Consumer Discrretionary -22 -150 Consumer Staples -470 -445 Pharma 134 -25 Healthcare 71 48 Capital goods -61 -99 Electrical -25 -50 Infra 1656 1717 Telecom 1009 1250 Aviation -179 -165 Oil & Gas 2152 1621 Metals 2021 1468 Total 6415 4675 Economic Health – Company Leverage in the last two decades Upcycle Downcycle Consolidation leading to Deleveraging Demand>Supply leading to Releveraging (Capex) Source: Spark Research
Economic Health – Revival in Exports Post A Decade 53 64 84 103 126 163 185 179 250 306 300 314 310 262 276 304 330 313 292 400 0 50 100 150 200 250 300 350 400 450 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22E India Merchandise Exports ($ Bn) 2Y CAGR basis Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Engineering goods 7% 0% -1% -6% -18% -1% -2% 2% 12% Chemicals & related products 18% 9% 8% 3% 2% 5% 7% 6% 8% Agricultural & allied products -2% 5% -6% -4% -10% 5% 6% 10% 16% Gems & jewellery -9% 1% -6% -12% -50% -24% -4% -7% -2% Machinery & instruments 15% 11% 8% 0% -24% -4% -1% 3% 5% Pearls, precious, semiprecious stones -4% 9% -8% -21% -48% -24% 1% 0% 7% Drugs, pharmaceuticals & fine chemicals 14% 9% 10% 6% 11% 15% 16% 11% 7% Transport equipment 11% 3% -3% -4% -28% -10% -6% -11% -5% Textiles (excl readymade garments) 3% 2% 0% -3% -31% -5% 2% 4% 13% Drug formulations, biologicals 16% 9% 12% 8% 13% 16% 17% 13% 8% Yarns, fabrics, madeups 3% 1% 0% -4% -32% -7% 1% 3% 12% Readymade garments -8% 7% 6% -3% -40% -5% -3% -8% -10% Electronic goods 26% 33% 37% 25% -12% 9% 18% 20% 7% Iron and steel 27% 11% 4% 2% -3% 5% -11% -7% 13% Rice -7% 4% -11% -15% 12% 10% 3% 19% 60% Total Merchandise Exports (2Y-CAGR) 6% 3% 1% -4% -21% -5% -3% 2% 9% Decadal Breakout Engineering goods, Chemicals, Pharma, Textiles and Electronics sectors witness better growth from a 2Y CAGR basis Source: Ministry of Commerce
Private sector participation in GFCF has declined over the past decade… … As cashflows were used to deleverage the balance sheet CFO/Capex at a 2 Decade High Source: Kotak MF Gross Fixed Capital Formation Trends Source: Economic Survey A decade of pain finally getting over! Private sector ready for next capex cycle
Myths About The Capex Cycle – Interest Rates Myth - High Interest Rates will hamper the Capex Cycle Truth - Interest Rates rose to elevated levels in the last capex cycle 0 2 4 6 8 10 12 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 India 10 Year G-Sec Yield (%) Source: NSE
Myths About The Capex Cycle – Inflation Myth - Inflation will hamper the cycle Truth – Early stage inflation drives corporate profit to higher levels Source: Equirus, Spark Research
Myths About The Capex Cycle – Inflation
GOVT INITIATIVES Changing Mix of Govt Capex Rising Capex as a % of GDP Budget Allocation to Main schemes Govt Reforms
THE GOLDEN DECADE FOR INDIA IS HERE NITIN GADKARI ON INDIA’S INFRA PUSH
Particulars 2008 2009 2010 2014 2015 2016 2019 2020 2021 Total Projects 86 120 174 165 184 202 267 287 283 Ahead 5 4 9 1 2 4 7 6 6 On Schedule 46 62 52 48 62 82 142 130 103 Delayed 32 53 96 100 107 100 92 114 153 Without DOC 3 1 17 16 13 16 26 37 21 Improving Implementation of Central Projects 2.53 2.85 2.63 3.08 3.49 4.25 5.54 7.50 1.8% 1.8% 1.5% 1.6% 1.7% 2.2% 2.4% 2.9% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 2016 2017 2018 2019 2020 2021P 2022E 2023E Public Capex as % of GDP Capex (Rs Lakh crs) Capex % of GDP Govt Initiatives – Rising Public Capex with improving execution Source: Budget Source: RBI
Govt Initiatives – Changing Mix of Outstanding Govt Capex Govts Capex Focus Shifting Towards a facilitator role – Sectors that can have multiplier impact on many industries Increasing spend on Transport (Road & Airports) and Construction (Setting up new Hospitals and Education Institutes) Source: CMIE, Equirus
Govt Initiatives – Budget Allocation to Main Schemes FY19 FY20 FY21 FY22RE FY23BE FY20 FY21 FY22RE Road 1539 1673 991 1181 1991 19% 101% 69% Railway Infra 1355 1501 1093 1171 1371 -9% 25% 17% Metro & MRTS 158 202 179 395 405 100% 126% 3% Urban Rejuvenation Mission 121 95 98 139 141 48% 44% 1% Housing Projects 254 240 121 246 374 56% 209% 52% Swachh bharat Mission 154 95 58 122 95 0% 64% -22% Power Sector 896 780 473 490 515 -34% 9% 5% Defence Capex 952 1111 1343 1388 1523 37% 13% 10% Civil Aviation 145 36 40 726 105 192% 163% -86% Shipping 59 45 55 45 65 44% 18% 44% Atomic Infra 247 268 152 227 228 -15% 50% 0% Coal 165 157 174 187 214 36% 23% 14% Drinking Water 55 95 160 510 672 607% 320% 32% Centre Outlay in Major Heads & Schemes FY23BE absolute Growth compared to Budget Allocation to Major Schemes (Rs Bn) On an absolute basis, govt allocation to major schemes in FY23BE compared to the previous budget has increased drastically due to robust tax collections The heads (Road & Metro, Drinking Water, Shipping etc.) under which govt has allocated capital have a higher growth multiplier effect on the economy. Govt’s focus on Capex for economic purposes rather than socialistic purposes highlights their intention to revive growth in the nation. This is a bold decision as they face elections in key states of UP, Punjab, Uttarakhand, etc. Source: Budget
Govt Initiatives – Reforms to focus on Manufacturing Reforms Push Objective Impact PLI GOI's primary reason for introducing PLI was to boost India's manufacturing capabilities and encourage export-oriented production. 13 sectors have been targeted by GOI under PLI schemes. Repeal of Retrospective Tax Retrospective tax repealed to promote tax certainty and foreign investment. Labour Reforms The central government has rationalized 29 central labour laws into 4 labour codes which will help manufacturing companies reduce their labour, and compliance & filings with GOI. GOI increased FDI limit to 74% via the Automatic route, and up to 100% via the Government Route. This increase should positively benefit the manufacturing capabilities of Indian Defense Sector and fast track the process of Indeginzation. 68% of Defense Expenditure (in FY22) will be spent on indigeniusly produced defense products (This is a rise from 58% in FY21) Land Reforms (Sale of Surplus PSU Land) GOI has accelerated their efforts to hive off surplus land bank of PSUs to separate entities. This excess land then be utilized for Industrial Projects Single Window clearance Portal GOI has launched a single-window "Pavresh Portal" which gives all green clearances required by a manufacturing company to set up plants across the country. This portal has significantly reduced the time required for the approval of the projects Tax GOI has reduced the corporate tax rate from 25% to 15% for new manufacturing firms, bringing the corporate tax rate on par with other Southeast Asian countries. The tax rate for new manufacturing companies is one of the lowest in the world. Defense Source: Omkara Research Source: Equirus Research
Govt Initiatives – PLI Incentives PLI Bifurcation ( Rs Cr) Benefits Capex Incremental Sales (5 Years) Asset T/o Mobile & Specfied Electronic componenets 41,000 11,000 10,50,000 25 Medical Devices 2,800 900 13,500 3 Pharma 15,000 10,000 1,80,000 3 Pharma - API/KSM 6,300 5,400 81,000 3 White Goods & LED 6,200 7,900 1,18,500 3 Solar PV 4,500 17,500 1,75,000 2 Telecom 12,200 3,000 2,40,000 20 Food 10,900 6,100 1,22,000 5 Automobile & Auto components 57,000 40,000 9,60,000 4 IT Hardware 5,000 2,400 2,88,000 20 Speciality Steel 6,300 15,000 1,80,000 2 Texitle 10,700 10,000 90,000 2 Aviation (Drones) 120 - - - EV Battery 18,100 8,000 48,000 1 Total 1,96,120 1,37,200 35,46,000 Per year Manufacturing Output Incremental by FY24 7,09,200 Impact of Govt Policies on Electronic Manufacturing has set the bar for the implantation of PLI Incentives PLI Incentives Should Drive Annual Incremental Gross Value of Rs 7L crs Source: Omkara Research
Electronic Manufacturing and Defense are the new standard of Success MAKE IN INDIA
1903 2433 3173 3883 4580 5335 4974 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Electronics Production In India (Rs Bn) 382 390 400 412 619 829 FY15 FY16 FY17 FY18 FY19 FY20 Indian Electronic Exports (Rs Bn) 11 72 168 199 314 514 730 800 8 33 68 94 154 197 260 286 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 MSIPS Approved Applications and Investments Proposed Investment (Rs Bn) Number of Applications MSIPS Applications shot up by Govt This Boosted Electronic Manufacturing backed by 25% Capex Subsidy Subsequently Boosting Electronic Exports With the most impact on mobile manufacturing 267 189 540 900 1320 1700 2140 2200 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Mobile Phones Manufacturing in India (Rs Bn) 8x Electronics Manufacturing is a roaring success of Govt Policy Implementation Kenil Source: MeitY Source: MeitY
Rising Defense Exports Via Increasing Govt Policies 10 11 11 11 13 18 18 19% 19% 19% 17% 18% 25% 28% 0% 5% 10% 15% 20% 25% 30% 0 5 10 15 20 FY16 FY17 FY18 FY19 FY20 FY21 FY22RE Defense Capital Expenditure Capital expenditure ($ Bn) Capital expenditure as % of total Budget Defense Capital expenditure as % of the Total Defense Budget is rising Increasing FDI Limit, High Export Promotion, Corporatization of OFB’s will help in reaching the export target of $5 Bn by FY24. Support for increasing Indigenization from the govt will positively benefit domestic defense Industry 0.26 0.28 0.22 0.72 1.53 1.29 0.97 FY15 FY16 FY17 FY18 FY19 FY20 FY21 India Defense Exports ($ Bn) 6x Source: Budget Source: IBEF
Changing Private Sector Dynamics Changing Mix of Private Capex Announcement of Rs 8L crs Capex Govt supporting new Private manufacturing Revival of Core 8 IIP shot order book of Cap Goods Commentary from Cap Good companies Where are we in the cycle?
Notable Sectoral Capex Announcements of ~Rs 8L Crs between FY22E – FY24E IOC 1,00,000 Nayara Energy 5,000 CPCL 31,580 HPCL 64,057 Oil India 38,000 BPCL 19,737 ONGC 60,450 GAIL 40,000 Total 3,58,824 Oil & Gas (Rs Cr) Damodar Valley 4,545 NHPC 14,133 NTPC 46,190 NEEPCL 1,633 Power Grid 15,000 SJVN 13,000 Tehri Hydro 5,900 IRDEA 45,711 SECI 1,832 NLC 4,981 Total 1,52,925 Power (Rs Cr) Arcelor Mittal 50,000 JSW 28,000 Tata 36,000 Total 1,14,000 Steel (Rs Cr) Vedanta 22,500 Hindalco 8,250 Hind Copper 700 NALCO 3,300 Total 34,750 Non Ferrous (Rs Cr) BDL 140 BEL 950 HAL 3,200 Mishra Dhatu 361 HSL 105 Goa Shipyard 118 GRSE 80 Total 4,954 Defense (Rs Cr) Coal India 40,000 Fossil Fuel (Rs Cr) RIL 75,000 Adani Green 15,000 NPCIL 15,615 Total 1,05,615 Renewable (Rs Cr) SKF 525 Schaeffler 850 BHEL 449 HEG 600 CUMI 300 Elgi 100 Action Const 100 CG Power 50 Total 2,974 Capital Goods (Rs Cr) Source: Omkara Research
Changing Mix of Private Sector Capex Private Sector is making in-roads where Govt is pulling out such as chemicals , electricity and metals Source: CMIE, Equirus Mix of O/S Private Capex Outstanding Private Capex
Rising New Company Registrations, EC Grants, Govt Capex 860 713 951 1113 1076 1118 1284 4MFY16 4MFY17 4MFY18 4MFY19 4MFY20 4MFY21 4MFY22 Centre Capex 566 668 379 673 709 365 766 4MFY16 4MFY17 4MFY18 4MFY19 4MFY20 4MFY21 4MFY22 State Capex Rising New company registrations and EC Grants should be followed by Capex in the coming years Kenil Source: Spark Research 555 1120 1100 1620 3250 4250 1753 CY15 CY16 CY17 CY18 CY19 CY20 CY21 Environment Clearance
Order Book (Rs Cr) Q4FY19 Q2FY22 BDL 7,258 11,400 HLE 280 Praj 928 2,235 BEML 9,125 11,211 Kirloskar Brothers 1,696 1,618 ION 1,760 2,500 Va tech wabag 9,291 10,040 Thermax 5,370 6,463 L&T 2,30,100 2,58,400 Power Mech 7,407 15,809 ISGEC 8,000 7,510 HAL 58,588 79,467 Total 3,39,523 4,06,933 Cap goods - Non Electrical Order Book (Rs cr) Q4FY19 Q2FY22 Siemens 13142 13520 ABB 4726 4765 CG Power 4540 2844 BHEL 107806 107058 KEC 20307 24401 Suzlon 7749 5170 Triveni Turbine 720 828 Kalpataru Power 14068 18700 GE T&D 6400 8573 Inox Wind 7025 7917 Apar Industries 3020 1846 Schneider Electric 755 3087 Transformers &Rectifiers 787 910 Total 1,90,258 1,98,710 Cap goods - Electrical 20% jump in order book from precovid levels to post covid 4.4% jump in order book from precovid levels to post covid Revival in Core 8 Industries Shot up Order Book For Capital Good Companies Notable Revival in Core 8 Industries from Pre-Covid Levels Source: Economic Survey, Omkara Research
Bullish Commentary from Capital Good Companies Global Companies Domestic Companies Source: Spark Research Source: Omkara Research
2021 is the new 2003
Inferences From The Last Cycle
How did the last cycle look like? Source: VQ Research
How did the last cycle look like for Capital Goods? Kenil 26,239 91,367 1,58,320 1,58,970 0 50,000 1,00,000 1,50,000 2,00,000 2,50,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Revenue (Rs Cr) 1,556 9,048 13,077 18,022 9,644 PAT (Rs Cr) 2,654 11,831 19,260 28,372 12,573 0 5,000 10,000 15,000 20,000 25,000 30,000 EBITDA (Rs Cr) 4.5x 3.5x 5.8x Source: Omkara Research (Exc- Suzlon) 2,908 6,802 5,283 19,836 0 5,000 10,000 15,000 20,000 25,000 OCF (Rs Cr) 2.3x
FY12-21 - GB goes 2x, asset turns dropped, more cash on BS, decadal low ROCE Kenil 0.34 0.20 0.51 0.50 0.30 0.32 0.22 0.00 0.10 0.20 0.30 0.40 0.50 0.60 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM Total Debt/Equity(x) 2.06 3.61 3.30 2.19 2.52 1.74 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 Asset Turnover 17.13 35.40 18.25 23.80 13.98 19.21 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 ROCE (%) 12,709 26,690 47,946 91,281 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 1,00,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Gross Block – INDAS Adj (Rs Cr) Source: Omkara Research (Exc- Suzlon)
TTM Valuations 7.5 34.7 25.7 12.1 26.4 19.6 44.6 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM P/E 1.0 8.3 5.2 1.8 2.5 2.0 5.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM P/B 4.5 17.8 9.4 12.3 27.5 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM EV/EBITDA 0.5 3.0 0.8 1.3 3.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM EV/Sales Kenil Source: Omkara Research (Exc- Suzlon)
17% 10% 12% 9% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% DII Holding (%) 6% 12% 9% 0% 2% 4% 6% 8% 10% 12% 14% FII Holding (%) 1.6% 6.7% 2.3% 2.3% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Cap Goods Mcap as % of Total NSE Mcap Cap Goods as % of Total Mcap Cap Goods remains an under-owned sector Source: Omkara Research
Case Studies of Past Cycle - Siemens 1,793 9,417 12920 14264 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM Sales 7.20x 168 640586 1324 834 1516 0 200 400 600 800 1000 1200 1400 1600 1800 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM EBITDA 4.96x 166 540 868 343 624 1046 0 200 400 600 800 1000 1200 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM PAT 5.23x 1496 13424 24,135 75,741 87,513 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM MCAP 16.63x 9 38 70 69 84 0 20 40 60 80 100 120 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM P/E 7.80x 44 64 46 7 16 0 10 20 30 40 50 60 70 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM ROCE(%)
Case Studies of Past Cycle – SKF India 467 1620 2228 2671 3474 0 500 1000 1500 2000 2500 3000 3500 4000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 TTM Sales (Rs Cr) 60 198 258 420 545 0 100 200 300 400 500 600 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 TTM EBITDA (Rs Cr) 4.33x 32 128 190 298 391 0 50 100 150 200 250 300 350 400 450 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 TTM PAT (Rs Cr) 5.90x 192 1,571 3,645 11,121 17,223 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 TTM MCAP (Rs Cr) 18.97x 6 12 19 37 44 0 5 10 15 20 25 30 35 40 45 50 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 TTM P/E 3.23x 21 51 26 25 0 10 20 30 40 50 60 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 TTM ROCE(%) 4.77x
Case Studies of Past Cycle - Thermax 698 3433 6091 4791 5711 0 1000 2000 3000 4000 5000 6000 7000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM Sales (Rs Cr) 8.72x 60 373 602 355 426 0 100 200 300 400 500 600 700 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM EBITDA (Rs Cr) 9.95x 59 291 392 207 317 0 50 100 150 200 250 300 350 400 450 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM PAT (Rs Cr) 6.70x 329 7,160 5,533 16,038 22,523 0 5,000 10,000 15,000 20,000 25,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM MCAP (Rs Cr) 16.83x 6 25 36 14 78 71 0 10 20 30 40 50 60 70 80 90 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM P/E 9.33x 22 68 29 37 9 11 0 10 20 30 40 50 60 70 80 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM ROCE(%)
Case Studies of Past Cycle – ABB India 1468 6837 7565 6934 0 2000 4000 6000 8000 10000 12000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales (Rs Cr) 5.10x 142 789 355 544 0 100 200 300 400 500 600 700 800 900 1000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 EBITDA (Rs Cr) 2.51x 124 547 141 429 0 100 200 300 400 500 600 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 PAT (Rs Cr) 4.41x 2,855 9,609 14,841 47,300 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 MCAP (Rs Cr) 5.59x 23 65 18 105 110 0 20 40 60 80 100 120 140 160 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 P/E 4.58x 39 47 10 21 16 0 5 10 15 20 25 30 35 40 45 50 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 ROCE(%)
Case Studies of Past Cycle – AIA Engineering 166 691 1417 2881 3333 0 500 1000 1500 2000 2500 3000 3500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM Sales (Rs Cr) 28 249 277 659664 0 100 200 300 400 500 600 700 800 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM EBITDA (Rs Cr) 10.04x 18 134 181 566 0 100 200 300 400 500 600 700 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM PAT (Rs Cr) 10.30x 196 1,006 3,438 19,316 16,830 0 5,000 10,000 15,000 20,000 25,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM MCAP (Rs Cr) 35.07x 35.07x 6 7 19 34 30 0 5 10 15 20 25 30 35 40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM P/E 3.40x 27 32 22 18 0 5 10 15 20 25 30 35 40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 TTM ROCE(%) 8.54x
Source: Spark Research Capex Cycle – it fuels growth in a multitude of sectors and drives employment
OMKARA MANUFATURING SMALLCASE Invest in leaders with track record of execution & very strong balance sheet ROCE may look lower and PE may look high on TTM basis as you investing ahead of the cycle Next 1 or 2 quarters commodity inflation will remain & margins have to be watched very carefully Cap Goods, Engineering, Industrials, Autos/ Auto Anc = major focus sectors We will NOT invest in infra, financials, technology, EPC cos in this Smallcase
OMKARA MANUFACTURING SMALLCASE: PRICING Fees - 6 months fees = Rs 5000 + GST
THANKS FROM TEAM OMKARA