RESULTS REVIEW 3QFY17 09 FEB 2017

Navkar Corporation
NEUTRAL
INDUSTRY LOGISTICS In line performance
CMP (as on 9 Feb 2017) Rs 170 Navkar Corporations (NACO) 3QFY17 revenue / Highlights of the quarter
EBITDA/APAT came in 0.1/2.4/ (4.6) % ahead of
Target Price Rs 170 estimates, respectively. 3QFY17 EBIDTA/TEU for JNPT realisations muted, EBIDTA/TEU down 6.5% YoY:
JNPT assets declined ~6.5%YoY despite higher import The ~6.5% YoY decline in EBIDTA/TEU for JNPT was a
Nifty 8,778
TEUs (610bps expansion of share of imports in mix surprise despite a favourable EXIM mix towards
Sensex 28,330
YoY). Ramp up of volumes at Vapi is lower than imports (610bps gain in imports YoY). NACO attributed
KEY STOCK DATA
expectations, with NACO handling 2,129 TEUs vs. it to higher fixed costs and change in product mix.
Bloomberg NACO IN
1225 TEUs in 2QFY17. Delay in VAPI ICD ramp up key overhang: Despite a
No. of Shares (mn) 143
The governments demonetisation drive coupled 73.8% QoQ ramp up in Vapi TEUs to 2,129, growth is
MCap (Rs bn) / ($ mn) 24/363
with muted EXIM growth and increased competition lower than expectations. Rail connectivity will be the
6m avg traded value (Rs mn) 22 in the CFS business may remain near-term next trigger. NACO may have to incur Rs 500mn capex
STOCK PERFORMANCE (%) overhangs. The DPD/DPE would continue to pose an during FY18E on trucks to meet Vapi TEUs movement.
52 Week high / low Rs 225/149 existential threat to the overall CFS business model
3M 6M 12M in the longer term. Near-term outlook: Muted EXIM growth,
Absolute (%) (10.1) (16.0) (8.0) Owing to concerns cited above, we cut our governments DPD/DPE initiative and overall
Relative (%) (14.0) (16.8) (25.9) volume/realisations over FY18-19E for JNPT/VAPI competitive intensity in the CFS business may remain
CFSs by 6-16%. This has resulted in cuts in EPS of 19- key near-term overhangs which could keep volumes
SHAREHOLDING PATTERN (%)
20% over FY18-19E. Maintain NEUTRAL and cut our and profitability under pressure. We remain cautious
Promoters 72.86
TP to Rs 170/sh (12x FY19E EV/EBITDA, at 20% on adoption of DPD by EXIM trade.
DIIs & Local MFs 15.83
premium to GDL).
FIIs 7.45
Financial Summary (Consolidated)
Public & Others 3.86
(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY16 FY17E FY18E FY19E
Source : BSE
Net Sales 902 862 4.6 878 2.7 3,473 3,630 4,841 5,653
EBITDA 355 366 (2.9) 334 6.4 1,501 1,406 1,902 2,240
APAT 195 267 (27.2) 224 (13.2) 884 857 1,193 1,397
Diluted EPS (Rs) 1.4 1.9 (27.2) 1.6 (13.2) 6.20 6.0 8.4 9.8
P/E (x) 27.4 28.3 20.3 17.4
Parikshit D Kandpal EV / EBITDA (x) 17.9 19.9 14.6 12.0
parikshitd.kandpal@hdfcsec.com RoE (%) 8.6 6.3 8.1 8.8
+91-22-6171-7317 Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 NAVKAR CORPORATION : RESULTS REVIEW 3QFY17

Quarterly Financial (Consolidated)

NACOs 2QFY17 (3QFY17)net Particulars (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) 9MFY17 9MFY16 YoY (%)
revenues/EBITDA was Net Sales 902 862 4.6 878 2.7 2,660 2,518 5.6
~0.1/2.4% above our Operating Expenses 399 361 10.5 403 (0.8) 1,195 1,046 14.2
estimates Employee Expenses 88 73 21.1 79 12.0 239 189 26.5
Other Operating Expenses 73 81 (10.7) 85 (14.4) 213 211 0.7
Operating Profits 341 346 (1.4) 311 9.5 1,013 1,072 (5.4)
EBIDTA margins contracted Other Operating Income 14 20 (29.1) 22 (36.6) 59 41 42.6
~305bps YoY. Over 9MFY17 , EBITDA 355 366 (2.9) 334 6.4 1,072 1,113 (3.7)
EBITDA margins have Depreciation 52 49 5.8 51 0.5 155 145 6.4
declined by ~389bps EBIT 304 317 (4.3) 283 7.5 918 968 (5.2)
Other Income 24 100 (75.5) 33 (25.6) 100 166 (39.9)
APAT declined 27.2% YoY and Interest Cost 86 79 9.3 66 29.7 236 260 (9.2)
came in 4.6% below FX Gains / (Loss) (25) (22) 15.6 6 (497.9) (47) (154) (69.4)
estimates PBT 217 317 (31.5) 255 (15.1) 734 720 2.0
Tax 22 49 (54.9) 31 (28.8) 81 87 (6.8)
RPAT 195 267 (27.2) 224 (13.2) 654 634 3.2
APAT 195 267 (27.2) 224 (13.2) 654 634 3.2
3QFY17 EXIM mix was 42:58
Source: Company, HDFC sec Inst Research

NACO paid Rs 120.1mn

Margin Analysis (Consolidated)
incentive to shipping lines vs
3QFY17 3QFY16 YoY (bps) 2QFY17 QoQ (bps) 9MFY17 9MFY16 YoY (bps)
Rs 105mn QoQ.
Operating Expenses % Net Sales 44.3 41.9 235.4 45.9 (157.0) 44.9 41.5 337.0
Employee Expenses % Net Sales 9.8 8.5 133.8 9.0 81.5 9.0 7.5 148.1
Other Operating Expenses % Net Sales 8.1 9.5 (138.6) 9.7 (161.0) 8.0 8.4 (38.9)
Empty container movement
stood at 4,247 TEUs. NACO Operating Margin (%) 37.8 40.1 (230.6) 35.5 236.5 38.1 42.6 (446.1)
moved 165 rakes in 3QFY17 Other Operating Income % Net Sales 1.6 2.3 (74.7) 2.5 (97.6) 2.2 1.6 57.3
contributing 14,850 TEUs EBITDA Margin (%) 39.4 42.5 (305.3) 38.0 138.9 40.3 44.2 (388.8)
Tax Rate (%) 10.2 15.6 (532.6) 12.2 (197.9) 11.0 12.0 (102.9)
Vapi Logistics Park and Rail APAT Margin (%) 21.6 31.0 (942.2) 25.5 (394.1) 24.6 25.2 (59.0)
connectivity is expected to be Source: Company, HDFC sec Inst Research
commissioned by Mar-17E.
The pending capex is Rs
1,120mn and Rs 650mn
respectively

Page | 2
 NAVKAR CORPORATION : RESULTS REVIEW 3QFY17

3QFY17 volumes for JNPT Operational Metrics (Consolidated)

JNPT CFSs Vapi ICD
assets declined ~0.6/0.9% Particulars
3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
YoY/QoQ to 80,343 TEUs Volumes ('000 TEU) 80,343 80,815 (0.6) 81,105 (0.9) 2,129 NA NA 1,225 73.8
Realisations (Rs/TEU) 10,678 10,667 0.1 10,461 2.1 20,567 NA NA 24,128 (14.8)
EBITDA /TEU 4,284 4,582 (6.5) 4,129 3.7 5,266 NA NA (829) (735.0)
3QFY17 EBIDTA/TEU for JNPT
assets declined ~6.5%YoY
despite higher import TEUs Change in Operational Estimates
(610bps expansion in share of FY17E FY18E FY19E
Particulars
imports in mix YoY) New Old % Change New Old % Change New Old % Change
JNPT CFSs Volumes ('000 TEUs) 323.7 337.8 (4.2) 349.1 371.6 (6.1) 371.6 377.2 (1.5)
Capacity Utilisations (%) 57.5 60.0 62.0 66.0 66.0 67.0
JNPT CFSs Realisations
10,690 10,690 - 10,049 10,369 (3.1) 9,546 10,058 (5.1)
Vapi ramp up is slow despite (Rs/TEU)
73.8% QoQ growth on low Vapi ICD Volumes ('000 TEUs) 6.9 9.5 (27.5) 47.4 71.1 (33.3) 83.0 99.5 (16.7)
base Capacity Utilisations (%) 1.5 2.0 10.0 15.0 17.5 21.0
Vapi ICD Realisations (Rs/TEU) 21,800 23,500 (7.2) 21,364 22,795 (6.3) 20,296 22,111 (8.2)
Cut FY17/18/19E Vapi ICD Source: Company, HDFC sec Inst Research
volume estimates by
~27.5/33.3/16.7% Change in Estimates
FY17E FY18E FY19E
Particulars
New Old % Change New Old % Change New Old % Change
Cut JNPT realisations by Revenues (Rs mn) 3,630 3,854 (5.8) 4,841 5,794 (16.5) 5,653 6,417 (11.9)
3.1/5.1% for FY18/19E on EBITDA (Rs mn) 1,406 1,493 (5.8) 1,902 2,278 (16.5) 2,240 2,544 (11.9)
account of reduction in dwell EBITDA (%) 38.7 38.7 (1.2) 39.3 39.3 (2.6) 39.6 39.6 (1.6)
time APAT (Rs mn) 857 876 (2.1) 1,193 1,507 (20.9) 1,397 1,736 (19.5)
EPS (Rs) 6.0 6.1 (2.1) 8.4 10.6 (20.9) 9.8 12.2 (19.5)
Source: Company, HDFC sec Inst Research
Cut FY17/FY18/FY19E APAT
est. by ~2.1/20.9/19.5%

Page | 3

Outlook and valuation
Reduce TP to Rs 170/sh
We value NACO at Rs 170/sh
(12x one-year forward NACO is trading at 20x/15x/12x FY17/18/19E
FY19E EBITDA) EV/EBITDA (28x/20x/17x FY17/18/19E P/E). We have
valued it on EV/EBITDA basis at a 20% premium to
Gateway Distriparks (CFS business) ascribing a one-
year forward multiple of 12x. This is justified in view
of (1) NACOs higher market share of 6.9% at JNPT vs.
We value NACO at 20%
GDLs 4.7%, (2) robust volume growth of ~13.7% vs.
premium to GDL
GDLs -0.6% at JNPT over FY12-16, (3) higher EBITDA
margins of ~39.3% vs. ~33.1% for GDL and (4) better
EBITDA/TEU of Rs 4,865 vs. GDLs Rs 2,940.
Despite the premium over GDL, we remain
We rate NACO as NEUTRAL
conservative on NACO on account of (1) slower-than-
with EV/EBITDA-based target expected recovery in India container traffic growth,
price of Rs 170/sh (2) persistent loss of JNPTs market share, especially
in the north-bound cargo, (3) long gestation for
under-construction capacities at JNPT and (4) its
percolating impact on NACO volume growth. The
delayed ramp-up of upcoming capacities, especially
the Vapi ICD further curtails our estimates of
revenues growth.
Valuation
Valuation FY19E EBITDA
Multiple
Methodology (Rs mn)
EV/EBITDA 2,240 12
Source : HDFC sec Inst Research
NAVKAR CORPORATION : RESULTS REVIEW 3QFY17
We expect the full impact of the Vapi assets, coupled
with the overall EXIM recovery and pickup in JNPT
container volumes post commissioning of 1st phase
of 4th terminal to be visible from FY19E onwards.
Further DPD, DPE and government resolve to cut
logistics cost leakages from port to hinterland may
result in correction in realisations. DPD and DPE may
further reduce the dwell time for containers and
impact the overall CFS realisations. This may be partly
met by gains in volumes from the JNPT expansions
though growth may remain compromised resulting in
narrow scope for valuation multiple expansion going
forward.
Consolidation amongst CFS operators may be the way
forward, but will be expensive and bring stress to the
balance sheet.
We cut our TP to Rs 170/sh and maintain a NEUTRAL
on NACO, assigning an EV/EBITDA multiple of 12x to
FY19E EBITDA of Rs 2.2bn, i.e. a 20% premium to
GDLs CFS business valuation.
Valuation Net Debt Implied market Value per share
(Rs mn) (Rs mn) cap (Rs mn) (Rs)
26,841 (2,598) 24,282 170
Page | 4
 NAVKAR CORPORATION : RESULTS REVIEW 3QFY17

Key model assumptions and estimates

(Rs mn) FY16 FY17E FY18E FY19E Comments
Volumes at JNPT CFSs
309 324 349 372 We expect a ~7.1% volume CAGR over FY17-19E
('000 TEUs)
Expect decrease in realisations as NACO could adopt aggressive pricing in
Realisation/TEU 10,964 10,690 10,049 9,546 order to gain volume share in the absence of healthy volume growth. DPD
may also impact profitability as CFS dwell time reduces
Volumes at Vapi ICD Expect 1.5/10/17.5% utilsation for FY17/18/19E on account slower than
- 7 47 83
('000 TEUs) expected ramp-up in volumes
Realisation/TEU - 21,800 21,364 20,296 Predatory pricing to gain Vapi TEUs
Total Volumes 309 331 396 455 Expect ~17.3% CAGR over FY17-19E
Net Revenues 3,473 3,630 4,841 5,653 Expect ~24.8% CAGR over FY17-19E
Growth (%) 4.5 33.3 16.8
EBIDTA 1,501 1,406 1,902 2,240 Expect ~26.2% CAGR over FY17-19E
EBIDTA Margins expansion of 90.4bps over FY17-19E as VAPI EBIDTA/TEU
EBIDTA margins (%) 43.2 38.7 39.3 39.6
will be higher than Panvel CFS
Expect ~7.6% CAGR over FY17-19E. NACO to maintain its industry best
EBITDA/TEU 4,865 4,252 4,797 4,928
EBITDA/TEU
Depreciation 193 221 243 253
EBIT 1,308 1,185 1,659 1,987 Expect ~29.5% CAGR over FY17-19E
EBIT margins (%) 37.7 32.6 34.3 35.1
Financial Charges 231 325 310 266
Other Income 66 130 143 144
PBT 1,143 990 1,492 1,865 Expect ~37.3% CAGR over FY17-19E
PBT margin (%) 32.9 27.3 30.8 33.0
Tax 191 133 300 468
Tax rate (%) 16.7 13.4 20.1 25.1 Expect expansion as MAT benefit tapers
EO Items (67.6) - - -
APAT 884 857 1,193 1,397 Expect ~27.6% CAGR over FY17-19E
APAT margin (%) 25.5 23.6 24.6 24.7 Expect ~109bps expansion in APAT margins
Net D/E ratio (x) 0.20 0.27 0.23 0.16 Expect debt repayment of Rs 1.5bn over FY18-19E
Net working capital
97.0 126.5 123.0 120.0 Assumed at current levels
cycle (days)

Page | 5
 NAVKAR CORPORATION : RESULTS REVIEW 3QFY17

(Rs mn) FY16 FY17E FY18E FY19E Comments

Expect to improve from FY18 onwards, as the new capacities start
ROE (%) 8.6 6.3 8.1 8.8
contributing significantly to revenues and profitability.
Expect to improve from FY18 onwards, as the new capacities start
ROIC (%) 6.7 5.6 6.9 7.5
contributing significantly to revenues and profitability.
Cash flow from Operating cash flows to improve on account of increased profitability and
2,243 938 1,229 1,545
operations NWC ease
Capex (4,049) (1,910) (819) (500) Expect lower capex of Rs 1.3bn over FY18-19E
Free cash flows to
(1,805) (972) 411 1,045 FCF positive by FY18E
firm
Debt repayment /
(155) - (500) (1,000) Expect debt repayment of Rs 1.5bn over FY17-19E
issued
Free cash flow to
(2,188) (1,296) (399) (221)
equity
Source : HDFC sec Inst Research

Page | 6
 NAVKAR CORPORATION : RESULTS REVIEW 3QFY17

Income Statement Balance Sheet

Year ending March (Rs mn) FY15 FY16 FY17E FY18E FY19E Year ending March (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 3,288 3,473 3,630 4,841 5,653 SOURCES OF FUNDS
Growth (%) (5.9) 5.6 4.5 33.3 16.8 Share Capital - Equity 1,097 1,426 1,426 1,426 1,426
Operating Expenses 1,383 1,437 1,619 2,137 2,467 Share Capital - Preference 23 23 23 23 23
Employee Expenses 222 248 290 378 441 Reserves 6,320 11,758 12,616 13,808 15,205
Other Operating Expenses 343 287 315 424 505 Total Shareholders Funds 7,440 13,207 14,065 15,257 16,654
EBIDTA 1,339 1,501 1,406 1,902 2,240 Minority Interest 10 10 10 10 10
EBIDTA (%) 40.7 43.2 38.7 39.3 39.6 Long Term Debt 4,304 4,184 4,184 3,684 2,684
EBIDTA Growth (%) 8.0 12.1 (6.3) 35.3 17.8 Short Term Debt 1,248 1,318 1,318 1,318 1,318
Depreciation 152 193 221 243 253 Total Debt 5,552 5,502 5,502 5,002 4,002
EBIT 1,187 1,308 1,185 1,659 1,987 Deferred Taxes 319 403 403 403 403
Other Income (Incl EO Items) (122) 66 130 143 144 Long Term Provisions & Others 26 33 35 46 62
Interest 264 231 325 310 266 TOTAL SOURCES OF FUNDS 13,348 19,155 20,014 20,718 21,131
PBT 802 1,143 990 1,492 1,865 APPLICATION OF FUNDS
Tax 117 191 133 300 468 Net Block 10,735 12,181 16,984 17,560 17,806
RPAT 685 952 857 1,193 1,397 CWIP 686 3,114 - - -
EO Items (7) (68) - - - Investments, LT Loans & Advances 894 974 895 1,167 1,285
APAT 678 884 857 1,193 1,397 Total Non-current Assets 12,314 16,269 17,879 18,727 19,092
APAT Growth (%) (23.6) 30.3 (3.0) 39.1 17.1 Inventories 16 40 40 53 62
EPS 4.8 6.2 6.0 8.4 9.8 Debtors 775 480 497 676 774
EPS Growth (%) (23.6) 30.3 (3.0) 39.1 17.1 Cash & Equivalents 11 2,903 1,737 1,481 1,404
Source: Company, HDFC sec Inst Research ST Loans & Advances 243 131 139 159 186
Other Current Assets 233 191 149 199 294
Total Current Assets 1,278 3,745 2,563 2,568 2,720
Creditors 116 717 249 332 387
Other Current Liabilities & Provns 130 143 179 245 294
Total Current Liabilities & Provns 246 860 428 577 681
Net Current Assets 1,032 2,885 2,135 1,992 2,039
TOTAL APPLICATION OF FUNDS 13,348 19,155 20,014 20,718 21,131
Source: Company, HDFC sec Inst Research

Page | 7
 NAVKAR CORPORATION : RESULTS REVIEW 3QFY17

Cash Flow Key Ratios

Year ending March (Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 802 1,143 990 1,492 1,865 PROFITABILITY (%)
Non-operating & EO items 170 (119) (130) (143) (144) GPM 57.9 58.6 55.4 55.9 56.4
PAT from Operations 971 1,024 860 1,349 1,721 EBITDA Margin 40.7 43.2 38.7 39.3 39.6
Interest expenses 264 231 325 310 266 EBIT Margin 36.1 37.7 32.6 34.3 35.1
Depreciation 152 193 221 243 253 APAT Margin 20.6 25.5 23.6 24.6 24.7
Working Capital Change 68 1,036 (335) (373) (227) RoE 11.5 8.6 6.3 8.1 8.8
Tax Paid (223) (241) (133) (300) (468) Core RoCE 7.6 6.7 5.6 6.9 7.5
OPERATING CASH FLOW ( a ) 1,231 2,243 938 1,229 1,545 RoCE 8.1 6.6 5.8 7.1 7.6
Capex (2,038) (4,049) (1,910) (819) (500) EFFICIENCY
Free cash flow (FCF) (807) (1,805) (972) 411 1,045 Tax Rate (%) 14.5 16.7 13.4 20.1 25.1
Investments & Non-op Items 102 (2,589) 130 143 144 Asset Turnover (x) 0.3 0.3 0.2 0.3 0.3
INVESTING CASH FLOW ( b ) (1,937) (6,638) (1,780) (676) (356) Inventory (days) 1.8 4.2 4.0 4.0 4.0
Debt Issuance 972 (155) 0 (500) (1,000) Debtors (days) 86.0 50.5 50.0 51.0 50.0
Interest expenses (268) (228) (325) (310) (266) Other Current Assets (days) 146.5 136.2 119.0 115.0 114.0
Free cash flow to Equity (FCFE) (103) (2,188) (1,296) (399) (221) Payables (days) 12.9 75.4 25.0 25.0 25.0
Fresh equity issuance - 4,816 - - - Other Current Liab & Provns (days) 17.3 18.5 21.5 22.0 23.0
FINANCING CASH FLOW ( c ) 704 4,433 (325) (810) (1,266) Cash Conversion Cycle (days) 204.2 97.0 126.5 123.0 120.0
NET CASH FLOW (a+b+c) (1) 39 (1,166) (256) (77) Debt/EBITDA (x) 4.1 3.7 3.9 2.6 1.8
Closing Cash & Equivalents 10 49 1,737 1,481 1,404 Net D/E 0.74 0.20 0.27 0.23 0.16
Source: Company, HDFC sec Inst Research Interest Coverage 4.5 5.7 3.6 5.4 7.5
PER SHARE DATA
EPS (Rs/sh) 4.8 6.2 6.0 8.4 9.8
CEPS (Rs/sh) 5.8 7.6 7.6 10.1 11.6
BV (Rs/sh) 52.2 92.6 98.6 107.0 116.8
VALUATION
P/E 35.7 27.4 28.3 20.3 17.4
P/BV 3.3 1.8 1.7 1.6 1.5
EV/EBITDA 22.2 17.9 19.9 14.6 12.0
EV/Revenues 9.1 7.7 7.7 5.7 4.7
OCF/EV (%) 4.1 8.4 3.4 4.4 5.8
FCF/EV (%) (2.7) (6.7) (3.5) 1.5 3.9
FCFE/Market Cap (%) (0.4) (9.0) (5.3) (1.6) (0.9)
Source: Company, HDFC sec Inst Research

Page | 8
 NAVKAR CORPORATION : RESULTS REVIEW 3QFY17

RECOMMENDATION HISTORY
Navkar TP Date CMP Reco Target
260 18-Oct-16 200 NEU 214
240
29-Nov-16 172 NEU 188
220
200
9-Feb-17 170 NEU 170
180
160
140
120
Rating Definitions
100 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Aug-16
Apr-16

Jan-17
Feb-16

Jul-16

Sep-16

Feb-17
Nov-16
Jun-16
May-16

Dec-16
Mar-16

Oct-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 9
 NAVKAR CORPORATION : RESULTS REVIEW 3QFY17

Disclosure:
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report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is
not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report.
Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We
have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst
having registration no. INH000002475

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