CRISIL maintains valuation grade of 5/5 to Innoventive Ind
CRISIL Research has come out with its report on Innoventive Industries. The research firm has reduced earnings estimates of the company by 15 percent and 6 percent for FY14 and FY15, respectively, and consequently the fair value has revised to Rs 140 per share.
June 18, 2013 / 18:26 IST
CRISIL Research's report on Innoventive Industries
Innoventive Industries' Q4FY13 and FY13 results were below CRISIL Research's expectations as weak demand led to lower sales across product segments. Consolidated revenues in Q4FY13 declined 12 percent y-o-y led by 11 percent y-o-y decline in tubes and products division, 5 percent y-o-y decline in motor vehicle parts division and 47 percent y-o-y decline in oil & gas products division. FY13 consolidated revenues grew 7 percent whereas EBITDA margin dipped 74 bps leading to 4 percent growth in EBITDA. However, 58 percent increase in depreciation (due to commissioning of the new capacity) and 20 percent increase in reported interest costs (due to higher working capital loans) led to adjusted net profit declining 20 percent to Rs 640 mn. While the immediate outlook on demand remains weak, we believe superior product profile (margins in key products mostly maintained) and high operating leverage position the company well for demand recovery. We maintain our fundamental grade of 4/5. However, management of working capital is a key monitorable.Demand remains weak
Auto sales growth is expected to remain tepid (but better than FY13) on the back of high interest rates and weak buyer sentiment, and could affect the growth in motor vehicle parts, and tubes and products divisions. Outlook on the membrane strip division remains bleak on account of execution slowdown in power projects. The management has, however, indicated that demand for oil & gas products is expected to improve on account of planned increase in volumes by Innoventive's customers.Sharp increase in inventory levels led to higher interest costs; it is a monitorable
Innoventive's inventory days increased sharply from 154 days in FY12 to 210 days in FY13 on account of a sharp decline in demand in Q4FY13. While inventory in the standalone entity (motor vehicle parts and tubes products) increased by 43 percent, that in subsidiaries (mainly attributable to oil & gas product manufacturing subsidiary) increased 44 percent. The increase in inventory combined with lower credit from the supplier led to higher working capital and, consequently, higher interest costs. We expect inventory to liquidate gradually over H1FY14 and the same is a monitorable.New product development continues; to support growth and margins
The management has indicated that they have applied for two more product/process patents and will commercialise few indigenously developed products in H2FY13. We expect the new product launches to support growth and margins over the long term.Reducing earnings expectations and valuation
We have reduced earnings estimates by 15 percent and 6 percent for FY14 and FY15, respectively, and consequently the fair value is revised to Rs 140 per share. At the current market price of Rs 86, our valuation grade is 5/5. Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
Read More
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
