Consumer Durables

Consumer Durables
Home Run
July 17, 2017
1992 2007 2017 2022

Amit Mahawar Darshika Khemka Krish Kohli
+91 22 4040 7451 +91 22 4063 5544 krish.kohli@edelweissfin.com Edelweiss Securities Limited
amit.mahawar@edelweissfin.com darshika.khemka@edelweissfin.com
Consumer Durables
Contents
Executive summary .................................................................................................................. 2
Industry overview - Strong macro drivers in place ............................................................. 11
A) Burgeoning middle class impelling consumer durables sales .................................... 11
B) Infra, Housing/Power For All thrust burnishing growth visibility ............................... 15
C) Move towards formal economy = Advantage organised players ............................... 17
Market to double over FY17-22E to INR3.0tn ................................................................... 21
Opportunity for large players to improve profitability/market share ............................... 24
Environment getting conducive for sector consolidation .................................................. 27
Outlook & valuations: Geared for re-rating ...................................................................... 32
Portfolio snapshot............................................................................................................ 37
Industry segments ............................................................................................................ 39
Air conditioners .............................................................................................................. 39
Air coolers ....................................................................................................................... 43
Refrigerators ................................................................................................................... 47
Fans ................................................................................................................................ 50
Light ................................................................................................................................ 53
Cables & wires ................................................................................................................ 56
Edelweiss Consumer Durables coverage

Bajaj Electricals ..................................................................................................................... 61
Crompton Consumer.............................................................................................................. 69
Finolex Cables ........................................................................................................................ 89
Havells India ........................................................................................................................ 109
KEI Industries ....................................................................................................................... 119
Symphony ............................................................................................................................ 139
V-Guard ................................................................................................................................ 157
Voltas ................................................................................................................................... 177
Whirlpool of India ................................................................................................................ 189
Companies (Not Rated)

IFB Industries ....................................................................................................................... 207
Johnson-Hitachi ................................................................................................................... 217
Orient Paper......................................................................................................................... 221
Surya Roshni ........................................................................................................................ 233
TTK Prestige ......................................................................................................................... 243
Since the number of companies under coverage is huge it is impossible to include all the price charts in one note. However, if a client
requests for a particular price chart we can provide the same.
1 Edelweiss Securities Limited

Consumer Durables
Executive Summary
India’s 1.3bn strong & rising consumer story is now well
flagged and probably part of investor lore. Be it cars, homes
or staples, the consumer has moved up, businesses driving
them have done better and their investors have probably
done the best. While there’s a long way to go for India’s
broader consumer play, we believe there is one big consumer
(Click here for opportunity still left to grab. It’s still scaling up, is ready for
video clip)
acceleration and is yet to be meaningfully analysed /
appreciated / invested in by equity markets. That this opportunity is being
bolstered by India’s GST reform & shift to a more formal economy, businesses
that are improving their already high-return structures (while raising market
shares and growth levels) and could step-up with rising consolidation
opportunities, render India’s Consumer Durable sector (CSD) opportunity a
must analyse. We help you with that in this elaborate and expansive research
report, bring 14 companies to the fore (9 Rated) and believe, as you read
along, you will find reasons to cheer and invest.
Drivers: Consumer plus story

India’s basic consumer demand drivers need little retelling—there’s the sheer size, its rising
middle class income status and the demographics. But, there’s more for the CSD sector, and
some of it is new. We believe, governments’ big push to ‘Housing For All’ over 2-4 years will
build on changes in life style—more independent and self sufficient living (nuclearisation)—
rising reach & availability of electricity and expanding product line should only add to an
already firm secular demand trend. That this step-up is being bolstered by GST and an
acceleration of formalisation of the economy will only add to what is a formidable demand
mix. We argue the depth and width of the sector’s drivers, a Consumer Plus story.
Market: A doubler
India’s CSD is vast—Lighting, ACs, Air Coolers, Electricals, Cables and a burgeoning range of
household appliances & conveniences. The market is already fast growing (11% CAGR over
FY12-17) and we forecast, in great detail (segment / product wise), how it will double over
the next 5 years. We forecast key sub-market value growth rates over FY17-22—ACs (16.6%),
Air Coolers (17.7%), Lights (16.0%), Pumps (14.0%), Fans (13.0%), Cables & Wires (13.5%),
Refrigerators (12.0%) and Washing Machines (10.0%). We believe, opportunities for
innovations, new market categories and ongoing premiumisation also indicate that surprises,
if any, should be on the upside. There are only a few market segments, even in India, that
will double over the next 4-5 years—consumer durables should be one of them.

Consumer Durables
Chart 1: Consumer durables industry size & growth

3,250 19.0
Industry size - 2022 (INR bn)

18
16 17
2,600 344 15.0
14 13 14 79 129
12 285 12
1,950 11 514 11.0
10
(%)
77
1,300 52 189 7.0
650 814 3.0

2
1 314
0 14 61 (1.0)
Refrigerator
Air Coolers
Water Heater
Switchgears
AC's
Stabilisers
Lighting
UPS
Pumps
Cab& Wire
Wash Mach
Fans
Total
Total Industry Size Growth (%)
Source: Industry, Edelweiss research
Business model: High return, asset light

CSD is not the first market segment that has started growing rapidly. But, it is one of the few,
if any, that has at an early stage been accompanied by rising returns (RoE moved 22-29%
over FY12-17) and margin (10-12% over same period) business models that have become
capital light even as they have accelerated and brands that have been established and more
entrenched, even as spends have been controlled. We believe, these trends, amongst
leaders and those we believe will win, will further entrench themselves. We expect this
mix—high growth, strong profitability, rising capital efficiency and brand consolidation—to
drive profitable leadership for some. The opportunity goes well beyond the market.
Trends: Consolidation & market leadership

High growth and relatively early stage markets typically witness rise in competition,
dissipation in profitability and erosion in market shares. India’s CSD market is going the
other way around—leaders are building market shares in different sub-segments and
consolidation activity is on the rise. And, with the unorganised sector likely to get squeezed
further (brands, GST, formalisation) this will only accelerate. While there are a mix of brands
and businesses, large local and a few dominant MNCs (and ready to invest), it will be
competitive, with a still large unorganised market (26% in FY17), the leaders will only widen
the gap (unorganised market to fall to 18% in FY22E). That should throw up M&A
opportunities, should grow some businesses even faster than the market and structurally
support the sector’s profitability.
Valuations & returns: Rich

India CSD stocks have done well—19% CAGR over 5 years versus 13% CAGR for BSE Sensex
(49% outperformance)—and they are expensive in conventional valuation terms (30x
average PE). We argue valuations will get richer still—a mix of absolute and relative
benchmarks. a) Their absolute valuation driver lie in: high growth (~23% over FY17-19E),
high returns (32-36% RoCE & 28-30% RoE over FY17-19E and rising), rising market shares,
asset-light models and organic / inorganic market consolidation. Most of the valuation re-
rating happened during FY13-16, which saw 3.4x jump in free cash for Edelweiss CSD

Consumer Durables
coverage (ex KEI, Bajaj & Finolex) , with the top-4 companies accounting for ~60% of FCF.
This suggests that a few players get disproportionate advantage and hence provide
substantial re-rating potential. We expect Edelweiss CSD coverage to post a strong 20% plus
FCF CAGR over FY16-19E, of which top 4 account for ~75%. We believe, strong cash
generation will not only re-rate the sector, especially leaders, but also open avenues for
brand/distribution-centric M&As. b) Their relative valuation lies in their market
benchmarks; businesses which show similar franchise (B2C), returns (high RoCE / asset light)
and growth prospects (high -20% +). We believe consumer staple & high growth housing
focused businesses are comparable: while CSD are relatively smaller businesses & earlier
stage (hence moderate franchises) – this should be offset by higher growth opportunities,
and upsides of market formalisation/consolidation. These should be their benchmarks
going forward: rather than their historic averages, or comparables.
We also see a 2-tiering within the sector’s wide valuation spread—leaders in the CSD space
trading at distinct 25-30% premium to sector averages, in sync with what has played out for
staples businesses. We also see the more B2B businesses within this space (cables)
operating with slightly more modest profitability prospects and distinctly more moderate
valuation bands (15-20x PE). A rich market opportunity and structure should be supported
by rich and returning valuations, but not every business will be there.
Risks: Modest.. early days, disruptions

A great space, and good players, but there’s always risk—we see these in valuation
frameworks, but also in the fact that this is a growing and evolving market. There can be
disruptions in the competitive landscape, over aggressive acquisitions and or some
technology/product innovations. That said, demand / regulatory risks are low and downsides
will lie more within businesses and equity market expectations rather than the external
environment.
Stocks: Our preferred picks

 Symphony - Thriving on sustainable competitive MOAT
 KEI - Burnished prospects
 Voltas - Raising a toast to new beginnings
 Havells - Ready to ride new growth phase
 WPIL - Upping the competitive ante
Table 1: Edelweiss consumer durables coverage snapshot

Reco/ CMP TP Revenue (INR bn) EBITDA (INR bn) EBITDA margins (%) EPS (INR) P/E (x)
Company Rating (INR) (INR) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Top Picks
Symphony Buy 1,326 1,789 7.7 9.4 11.8 2.0 2.6 3.4 25.7 27.5 28.5 23.7 31.2 39.8 56 43 33
KEI Buy 237 322 26.3 31.4 37.5 2.7 3.3 4.1 10.4 10.6 10.8 12.8 14.3 18.7 19 17 13
Voltas* Buy 483 586 30.2 35.6 40.2 4.1 5.0 5.8 13.4 14.0 14.4 10.7 11.8 13.2 31 27 24
Havells India Buy 477 575 61.4 98.2 115.2 8.2 12.1 14.6 13.4 12.3 12.6 9.6 12.2 15.2 50 39 31
Whirlpool Buy 1,141 1,511 39.4 45.3 53.2 4.9 5.9 7.2 12.4 13.0 13.5 24.5 30.7 37.8 47 37 30
Others
Finolex Cables Buy 503 616 26.7 31.2 36.8 3.7 4.4 5.2 13.9 14.1 14.2 18.1 22.5 27.4 28 22 18
Crompton consumer Buy 216 265 39.8 46.7 55.1 4.9 6.0 7.4 12.3 12.8 13.3 4.7 5.9 7.5 46 36 29
V Guard Hold 182 169 21.5 24.6 28.3 2.2 2.6 3.0 10.0 10.4 10.6 3.6 4.3 5.1 51 42 36
Bajaj Hold 339 350 42.6 46.4 53.3 2.4 2.9 3.6 5.7 6.1 6.8 10.7 14.1 18.9 32 24 18
Sector 295.5 368.9 431.5 35.1 44.7 54.2 11.9 12.1 12.6 46 36 30
*Note: Voltas numbers are just for the Consumer Durables segment

Consumer Durables
The Demand Factor

Chart 2: Rising middle class population… Chart 3:.. & changing consumption patterns
125 40.0 100.0
22
100 32.0 31
80.0 45
15.5
75 24.0 15
60.0 8
(mn)
(%)
5
(%)
14 7 3.5
50 16.0 4
40.0 3
6
3
3
25 8.0
20.0 40 46
29
0 0.0
2004-05 2010-11 2015-16 2025-26 0.0
Middle Class Households (mn) 1990-2005 2006-2016 2017-2025
Middle class as a % population Others Education Health Apparel Housing F&B
Chart 4: Government’s higher infra push Chart 5: Formalisation of economy augurs well for large players
(INR bn)
120.0 20.0 High
56%
73%
96.0 16.0 72% 44
99 100 76%
88 93 102 586 74%
x
72.0 12.0 75
239
13
37%
(%)
(%)
380 Air Cooler

59% 260
Exent of unorganised-FY17-22E
Stabilizer 107
Legend
48.0 90 94 8.0 66%
61%
Cables & wires 161
% organised
(2022)
75 83
86%
Pumps
67%
Size of
67 87% Lights organised
24.0 56 55 4.0
industry
44 89%
66
164
2022
Extent
of shift
2017 organised
0.0 0.0 54
37
81%
77
77%
% organised
(2017)
Switchgear
2001 2011 2017 2019E 47
Fans
82%
Rural Electrification UPS
100%
100% 100%
Urban Electrfication
India Electrification 129 343 285
Lighting Industry CAGR (RHS) 80
100%
195
100%
132
100%
Fans Industry CAGR (RHS) Washing Machine Refrigerator

Growth opportunity - FY17-22E
AC
High
Chart 6: Industry to double to INR3.0tn over FY17-22E

3,000
344
2,400 79 129
285
1,800 514
53
189
1,200 51
814
600
314
0 14 61
Refrigerators
Machines
Conditioner
Heaters
Stabilizers
Air Coolers
Lighting
Pumps
Fans
Cables &
Switchgear
Total
UPS
Washing
Water
Wires
Air

Consumer Durables
Interesting Business Models
Chart 7: Asset-light business models of Con Durable (EDEL) cos… Chart 8: …along with rising premiumisation
13.0 18.0 6.0
11.0 17.4 5.0
9.0 16.8 4.0
(INR)
(INR)
(X)
7.0 16.2 3.0
5.0 15.6 2.0
3.0 15.0 1.0

FY18E 2014 2015 2016 2017
FY19E
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
AC - Whirlpool Refrigerator - Whirlpool

FA Turnover Coolers - Symphony (RHS)
Chart 9: ... to boost RoCE significantly…. Chart 10: …& generate higher FCF
40.0 40
32.4 VGRD
34
HAVLSYML
WHIRL
24.8
FY19 P/E (x)
28 CRG
(%)
17.2 VOLT
22
9.6 FNCX
16
2.0 Top picks KEI
10
FY18E
FY19E
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
(5) 5 15 25 35 45
RoCE FCF CAGR (FY16-19E) (%)
Source: Edelweiss research

Consumer Durables
Not Every Segment Will Grow At Similar Pace

Chart 11: Room AC sales estimated to jump >2x over FY16-22E Chart 12: Organised air coolers to rise 3.5x to INR45bn by FY22E
300 10.0 50 60.0
56
240 8.1 8.0 40 53.0
30 46.0
(Units mn)
180 6.0
(INR bn)
(INR bn)
(%)
4.6 285 44.2
120 4.0 20 39.0
37
2.9 CAGR
60 132 16.3% 2.0 10 31 32.0
1.5 CAGR 13.0
CAGR 63 5.3
27.5 14.4% 15.6%
0 25.0
0 0.0
2012 2017 2022
2007 2012 2017 2022
Organised market (INR bn) (LHS)
Total market size of AC's No. of Units (mn) Organised market (% of total market)
Chart 13: Refrigerator industry to clock 12% CAGR to INR345bn Chart 14: Clear shift in focus towards premium fans
375 20.0 100.0
18.4
305 16.0 80.0
60.0
235 11.4 12.0
(Units bn)
(%)
(INR bn)
8.5 40.0
344
165 8.0
20.0
114 195
95 4.0 0.0
Crompton Orient Havells Bajaj Usha
25 0.0 Electricals
2012 2017 2022 Under Light Fans Kids Fans
Total market size of refrigerators(INR bn) Decorative Fans BEE 5 Star rated
Industry size in units (Units mn) Standard/Plain Fans
Chart 15: Lighting to post 15% CAGR (FY17-22E) led by LED Chart 16: Growth in households augurs well for cables & wires
535 75.0 400 15.0
74 13.9
13.5
435 70.0 350 13.6
67 300 12.2
(Nos mn)
335 65.0
(INR bn)
11.1
(%)
(%)
514
61 250 350 10.8
235 60.0
9.5 295
56 242 200 9.4
135 55.0 247
117 194
35 60 50.0 150 8.0
2007 2012 2017 2022 2001 2011 2016 2025
Total market size Share of organised sector No. of Households Cables & Wires growth CAGR
Source: Industry, CRISIL, Company, Edelweiss research

Consumer Durables
Edelweiss Coverage Universe: Consumer Durables

SYML IN - MCap: INR93bn; BUY/SO; TP INR1,788 (upside 35%); FY19E PE at 34x
Symphony has commendably captured 50% value market of the air cooler segment driven
by its ‘one product, many markets strategy’ and a strong innovation DNA. Our conviction in
the company’s bright prospects is anchored by: a) sustainable product innovation/R&D
which lend it an edge over competition; b) asset-light business model with INR2.5bn free
cash flow generation potential by FY19; and c) lower working capital requirement. Initiate
with ‘BUY’ and TP of INR1,788 assigning premium valuation of 45x as we estimate the
company to clock 30% EPS CAGR(FY17-19E) and 57% RoCE in FY19.
VOLT IN - MCap: INR160bn; BUY/SO; TP INR583 (upside 21%); FY19E PE at 26x

Voltas (VOLT) has strengthened its key segments—projects & cooling products—reflected in
robust FY17 performance easily navigating margin /market share concerns in this business.
That said, a landscape changing development could be the company’s decision to enter the
white goods business in a 50:50 JV with Arcelik. It’s a big market (INR350bn, 3x VOLT’s
current AC market), fast growing (10-15%), dominated by MNCs (technology edge; so it
needs the tie up) and one where its brand & distribution can quickly enable VOLT establish
itself. Enthused by this, we believe our TP of INR583, implying 36x P/E to consumer business,
is well justified given scope for earnings improvement as the company leverages its strong
12K dealer/touch points to roll out the Voltas-Beko range. Maintain ‘BUY’.
KEII IN - MCap: INR18bn; BUY/SO; TP INR322 (upside 36%); FY19E PE at 13x

KEI Industries (KEI) has leveraged its cables business to tap wider opportunities across
consumer, B2B and has also, over the past 2-3 years, scaled up the EPC business. Our
conviction on the company is driven by: a) sharpening government focus on Housing/ Power
For All initiatives driving healthy cables demand; and b) management’s initiative to forward
integrate to EPC across voltage class & expand consumer business. These, we believe, will
help optimise operations, driving a commendable 20% earnings CAGR (FY17-19E) with
healthy RoE/RoCE of 23%/27%, respectively, by FY19E. Initiate coverage with ‘BUY’ and TP
of INR322, assigning 17x P/E on FY19E EPS given healthy earnings and free cash growth of
32% and 27% (FY16-19E), respectively.
HAVL IN - MCap: INR297bn; BUY/SO; TP INR575 (upside 21%); FY19E PE at 31x

Havells India (HAVL) is one of the strongest brands in the consumer electrical space with
dominant market share across all key segments—cables & wires, switchgears, lighting, etc. The
company is embarking on an exciting journey with the recent addition of the Lloyds brand to
its kitty as: a) HAVL can leverage Lloyds’ strong 10,000 touch points to market its products; and
b) humungous scope to scale up profitability of Lloyds’ business from industry bottom levels.
Additionally, multiple growth levers—GST, Housing For All etc.,—brighten prospects over the
next 3-5 years, which, in our view, will be key value drivers over the next 12-24 months. Our TP
of INR575, implying 38x FY19E P/E, seems sustainable given: (a) structural drivers—profitability
ramp up in AC business over 2-3 years; and (b) pick up in core cables/switchgears business with
an upside risk to growth estimates given strong structural tailwinds/government push to infra.
WHIRL IN - MCap: INR145bn; BUY/SO; TP INR1,511 (upside 32%); FY19E PE 30x

Whirlpool of India (WPIL) is one of the leading players in the INR250bn domestic
refrigerator/washing machine segment. We like WPIL owing to: a) parent’s comprehensive
business strategy to augment product portfolio to plug key gaps, especially in core products

Consumer Durables
refrigerators & washing machines; and b) target expansion in touch points from current 18K
to 25K by FY20. While the company’s strategy has already started yielding fruits (visible in
improving profitability), we expect profitable growth momentum to sustain and full benefits
to accrue over the next 2-3 years. We initiate coverage with ‘BUY’ and TP of INR1,511,
assigning 40x FY19E P/E given robust 24% earnings CAGR over FY17-19E and reasonable
RoCE of 30%.
FNXC IN - MCap: INR77bn; BUY/SO; TP INR616 (upside 25%); FY19E PE 18x

Finolex Cables (FCL) is one of the largest players in the INR430bn domestic electrical cables
& wires industry with 12% market share. Our conviction on the company is based on: a) its
well diversified cables & wires business with backward integration aiding superior OPM
despite being in a commoditised industry; and b) potential infra/urban growth &
geographical reach will drive strong growth over the next 3-5 years. A robust business model
with strong tailwinds—GST, government's push on Housing/Power For All—we believe will
drive 23%/25% earnings growth/RoCE over FY17-19E, which convinces us to initiate with
‘BUY’ and TP of INR616, ascribing 23x FY19E PE.
CROMPTON - MCap: INR135bn; BUY/SO; TP INR265 (upside 23%); FY19E PE 29x

Fortunes of Crompton Consumer (Crompton), the largest player in fans & residential pumps,
are set to change with the new management reversing the trend of years of under-
investment in brands. Our conviction in the company is anchored by: a) new management’s
focus on value creation in existing products; b) huge untapped market opportunities; and c)
potential to generate 45% and 48% RoCE and RoE, respectively, with INR5bn free cash flow
by FY19. Initiate coverage with ‘BUY’ and TP of INR265 (35x FY19E PE) given strong earnings
CAGR of 58% over FY16-19E and superior free cash flow growth.
VGRD IN - MCap: INR77bn; HOLD/SP; TP INR169 (downside 6%); FY19E PE at 36x

V Guard (VGI) has made commendable transition from being a stabiliser player with
southern presence to a multi-product company with reasonable pan-India penetration. Our
conviction on the company is anchored by: a) revenue diversification bolstered by a well
rounded product basket; and b) focus on product branding & marketing and an asset-light
model are key differentiators driving industry-leading profitability. In our view, efficient
working capital & profitability focus, a balanced approach to ramp up in non-South regions
and a thoughtful product rollout strategy will drive robust 19% earnings CAGR supported by
a reasonable RoE/RoCE of 25%/32% by FY19E. However, we initiate with ‘HOLD’ as at our TP
of INR169 (33x FY19E PE, 11% premium to sector) the stock seems fairly valued.
BJE IN - MCap: INR34bn; HOLD/SP; TP INR350 (upside 3%); FY19E PE at 18x

Bajaj Electricals (BJE), a leading consumer appliances company, is in the midst of significant
operational overhaul under its RREP (range reach expansion programme), which has had a
bearing on its overall market positioning over the past few quarters. Our top concerns are:
a) sustainability of market share in core appliances & lighting businesses; and b) significant
scale up by competition over the past few quarters warrants a more focused approach from
BJE, which currently stands diluted between B2B and B2C businesses. We maintain ‘HOLD’
with TP of INR350 given limited upside, valuing BJE at 19x FY19E PE (23x for consumer
business, 20% discount to our CSD multiples) given rising competitive challenges.

Consumer Durables
Non-Rated Companies
Surya Roshni (SYR) a 4 decade year old conglomerate, primarily deals in lighting and steel tube
products. It is the second-largest lighting player in terms of revenue based out of India and the
largest GI pipe manufacturer in the country. SYR has been market leader in traditional light
sources and is currently the No.2 player in LEDs with estimated market share of ~11.5%. It is the
only 100% backward integrated lighting player in India which lends it an edge over competition,
as it offers best quality products at lower rates. SYR ventured into fans and home appliances in
FY14 and FY15, respectively. In just 2 years of launch, the company’s fan segment achieved sales
of INR1.3bn. It has a pan-India distribution network of 200,000 dealers and retail outlets. SYR
plans to scale up its fans & consumer appliances businesses without incurring huge capex as it is
adopting the contract manufacturing route. ‘NOT RATED’.
TTK Prestige (TTK) is India’s largest kitchen appliances player with 40% market share in the
organised cookers segment. This bears testimony to its sound brand quality built over the
years. The company is well positioned in the INR120bn kitchen appliances market, riding on
its expanding product portfolio and innovation. TTK’s sharp focus on marketing &
distribution has resulted in significant market share and brand recall in kitchen appliances.
The company spends more than 6% of sales on ads and sales promotion, which has led to
strong brand awareness in industry. Diversification is another major growth driver for TTK.
Contribution of kitchen appliances has increased from 20% in FY10 to 30% in FY17. We
believe TTK is a strong & sustainable growth story, given its premium positioning in the
appliances segment. ‘NOT RATED’
Orient Paper (OPL) was formed post demerger of Orient cement in FY13. OPL operates
through the 2 segments of electrical consumer durable (ECD) and paper. ECD segment
comprises fans, lighting, home appliances and switchgears - contributes >70% to top line.
Paper division comprises tissue, writing and printing papers, caustic soda and its derivatives
- contributes ~27% to top line. Orient Electric is the second largest player in fan segment
after Crompton Greaves with 20% organised market share. It is the largest manufacturer
and exporter of fans from India. OPL is the third largest manufacturer of LED’s in India. It is
also present in street lighting category. OPL recorded revenue CAGR of 9% during FY13-17
and EBITDA margin improved from 2.1% in FY14 to 6.9% in FY17. ‘NOT RATED’
IFB Industries (IFB) is the market leader in front load washing machines and is well set to leverage
its market leadership position in front-load washing machines by expanding into other segments
like AC’s , refrigerators etc. The company recently commenced in-house manufacture of top-load
washing machines. This strategy has been playing out well with top loader sales spurting 47% over
FY16 to 175,000 units. IFB remains the third largest player in microwave ovens with 18% market
share. The company also enjoys 80% market share in clothes dryers and 50% in domestic
dishwashers. Recently, IFB expanded into ACs and modular kitchens. The company is also trying to
expand its distribution channel, to address this gap, IFB has chalked out plans to expand its
distribution reach to tier I, II & III cities. ‘NOT RATED’.
Johnson Controls Hitachi Air Conditioning India (JHI) is set to emerge a lead player in India's
fast-growing room AC market led by: (a) launch of innovative premium products in inverter
and 5-star ACs; (b) strengths in new-generation products, such as VRFs; and (c) global joint
venture between Johnson Controls and Hitachi, which will help JHI leverage on synergies of
Johnson Control’s (JCI) B2B product portfolio (York Chillers & HVAC) and B2C proficiency of
Hitachi Appliances. JHI currently enjoys a 11% market share in room AC’s. JHI registered a
considerable 20% YoY growth in room AC sales for FY17. ‘NOT RATED’

Consumer Durables
Industry Overview
Strong Macro Drivers in Place
A) Burgeoning middle class impelling consumer durables sales
India’s middle class population is fast expanding and set to double over FY16-26E to
547mn. In our view, this segment will fuel demand and penetration of consumer durable
goods going ahead. Burgeoning middle class households with rising disposable incomes
will be marked by higher consumption among the youth & affluent segments and propel
discretionary spending from 29% in 2015 to ~45% in 2025 (as proportion of total
spending).
Expanding middle class: Key growth catalyst

Domestic consumption is a vital driver of India’s growth engine, primarily owing to the
country’s large population and an expanding middle class—key driver of consumer goods
demand. A rising middle class with higher disposable incomes, aided by favourable
demographics, burnish the consumer goods industry’s prospects significantly.
Chart 17: Rising middle class households a key demand driver Chart 18: Penetration level across segment
125 40.0 50.0 47.5
100 32.0
40.2
75 24.0
30.4 27.3
(mn)
(%)
(%)
50 16.0 21.8
20.6
15.5
13.7
25 8.0 11.0 12.4
10.8 7.3
4.9 5.0
0 0.0 2.5 3.8
2004-05 2010-11 2015-16 2025-26 1.0
Middle Class Households (mn) 2005 2011 2016 2026E
Middle class as a % population Air Conditioners Washing Machine Refrigerators
Source: NCAER 2011-12, NSSO, Edelweiss research
Note: * Annual household income range of INR 2.7-13.4 lakh to be classified as middle class
As per NCAER, India’s middle class will more than double from 2015-16 levels to 113.8mn
households or 547mn individuals by 2026, entailing humungous growth opportunities for
the consumer goods sector.
Rising disposable incomes

The significant spurt in discretionary income along with easy financing schemes have led to
truncated product replacement cycles and evolving lifestyles where consumer durables like
ACs and LCD TVs are perceived as utility items rather than luxury possessions.

Consumer Durables
Chart 19: Rising disposable incomes boosting consumer durables demand

Historically, strong correlation 23.0
between top-line growth of
consumer durable players and 20.0
disposable income growth
17.0
(%)
14.0
11.0
8.0
1987-1996 1997-2006 2007-2016
Personal disposable income CAGR (%)
Revenue CAGR of edel coverage universe (%)
Source: CMIE, Company, Edelweiss research
Household leverage is expected to sustain high consumption levels.
Chart 20: Discretionary consumption ahead of staples Chart 21: Credit for consumption sustains even post DeMon…
30 8.5 30
24
20 6.0
18
( %YoY)
10 3.5
(%, YoY)
(%, YoY)
12
0 1.0
6
(10) (1.5)
0
May 11
May 12
May 13
May 14
May 15
May 16
May 17
(20) (4.0)
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Credit for Consumption Housing loan growth
Passenger car sales growth HUL volume growth Other loan
Source: CMIE, Edelweiss research

Consumer Durables
Chart 22: …credit to retail slackening, but healthy

20.0
• It is not so much household incomes, but the

16.0
leverage which is supporting consumption of
goods
12.0
(%, YoY)
• This leveraging of the household sector can last

for long as current level of indebtedness is low in
8.0 India
• Also, after the experience of lending aggressively
4.0 to businesses in the previous cycle, banks are
more keen to lend to retail
0.0
May-13 May-14 May-15 May-16 May-17
Corporate bank credit Personal loans
Source: CMIE, Edelweiss research
Chart 23: India’s household leverage very low
Korea
US
Developed markets
Thailand
Malaysia
Japan
Germany
China
South Africa
Emerging markets
Brazil
Indonesia
Russia
Mexico India's household leverage
India is lowest in the world
0 20 40 60 80 100
Household Debt to GDP as of Dec 2015 (%)
Source: Bank of International Settlement, Edelweiss research
Favourable demographics
India is set to become the world’s youngest country by 2020 with 64% of population in the
working age group. Rising education levels among the youth will lead to fall in dependency
ratio and accompanied by the desire to have a better lifestyle. This, in turn, has been fueling
higher spending on discretionary consumer durables and premium products, which we
believe is likely to jump from current 40% to 46% of household income by 2025. For India’s
economy, an expanding working population is a positive with consumer demand remaining
high versus other emerging markets.

Consumer Durables
Chart 24: Richer & younger India driving shift in consumption pattern towards discretionary consumption
500 65.0 100.0
22
31
465 61.0 80.0 45
15.5
430 57.0 60.0 15 8
(mn)
(%)
(%)
14 7 3.5
4
395 53.0 40.0 3
6
3
3
360 49.0 20.0 40 46
29
325 45.0 0.0

2000 2005 2015 2025 1990-2005 2006-2016 2017-2025
Youth Population Dependency Ratio Others Education Health Apparel Housing F&B
Source: Mckinsey, World Bank Database, Edelweiss research

Consumer Durables
B) Infra, Housing/Power For All thrust burnishing growth visibility

We envisage sharpening government focus on improving infrastructure, predominantly
Housing & Power For All, to be key drivers of consumer durables/light electricals.
Robust surge in households by ~50mn to 350mn by 2025 and target to enhance overall
power availability from 83% to >90% by 2019 are potent growth catalysts.
The government’s push on public infra, primarily Housing/Power For All, rail/road infra, etc.,
we believe will boost consumer durables growth. The government is targeting addition of
26mn households, apart from the normal growth in the number of households, to 350mn
households by 2025 and complete >90% electrification by 2019. This, we believe, will drive
demand for consumer durables/light electrical items. The trend is already apparent—
cables/wires and fans & lighting segments having clocked robust spurt of 13% (aggregate)
over the past 5 years, primarily led by better availability of power and improving
discretionary spending. With incremental focus on housing and sustained impetus on village
electrification, we estimate the above-mentioned segments to clock reasonable 14.5%
growth over FY17-22.
Chart 25: Investment in housing on the rise

480 80,000
415 65,000
349.8
350 50,000
(Nos mn)
(INR)
294.9
284 35,000
246.7
219 193.6 20,000
154 5,000
2001 2011 2016 2025
No. of HH Con Durables Investment per HH(INR)
Source: NSSO, World Bank Database, Edelweiss research

Consumer Durables
Chart 26: Increasing % of villages electrified

120.0 20.0
Electricity availability has been 96.0 16.0

one of the key facilitators of 99 100
93
demand growth for consumer 88
72.0 12.0
durable & light electrical industry.
(%)
(%)
48.0 90 94 8.0
75 83
67
24.0 56 55 4.0
44
0.0 0.0
2001 2011 2017 2019E
Rural Electrification Urban Electrfication
India Electrification Lighting Industry CAGR (RHS)
Fans Industry CAGR (RHS)
Source: Census Data, Industry, Edelweiss research
Chart 27: Rising central government allocation for housing segment

450
Modi government has a strong
focus on mass housing, amply
reflected in central government’s 400
allocation.
350
(INR bn)
300
250
200
FY14 FY15 FY16 FY17 FY18
Central govt allocation for housing (INR bn)
Source: Union Budget, Edelweiss research

Consumer Durables
C) Move towards formal economy = Advantage organised players
As we move towards cashless/formal economy, there will be greater surveillance/tax

compliance, leading to rising costs, especially for unorganised players. This, we believe,
will directionally lead to a shift of market share to large organised players given rising
trend of premium products/sector consolidation.
Demonetisation: The right step

The government’s demonetisation drive encouraged higher credit and digital payments
instead of cash. India still has one of the highest cash-to-GDP ratios among emerging and
developed countries. However, as more people get formally registered, credit and digital
payments will make transactions easier and create records for tax authorities. This should
bolster the government’s tax revenue, enabling it to eventually lower tax rates and benefit
companies, particularly in the organised sector, by way of ushering in a level playing field.
Chart 28: India has highest cash-to-GDP ratio among emerging economies
India 10.6
Thailand 9.2
China 9.1
Russia 9.0
Singapore 8.5
United States 7.4
Korea 5.6
Turkey 4.7
Indonesia 4.1
United Kingdom 3.7
Brazil 3.2
South Africa 2.5
0 2 4 6 8 10 12
(%)
Source: Kenneth S.Rogoff : “The curse of cash”, Edelweiss research
Leading the way to GST

The efforts to bludgeon the black economy and rein-in tax evasion cannot end with
demonetisation. The Goods and Services Tax (GST) is the next logical step which will work
against tax evasion in an institutionalised manner by creating inter-locking incentives to pay
taxes. This, in turn, is likely to create a level playing field for companies. Pertinently,
businesses will have to register and report all transactions to the government, thereby
increasing transparency. GST will also change the way businesses are conducted and
recorded in India. Companies will take business decisions gauging where and how the best
results can be achieved on the operational front rather than preferential tax treatment. This
will enhance efficiency in the economy. As informal businesses get registered and start
paying taxes, it will be easier for them to access loans.

Consumer Durables
Fig. 1: Why organised players will gain market share
Regular supply
of electricity
Surveillance and
tracking under
GST
Deepening
distribution reach
Premiumisation
Higher sales
promotion
Thrust of
government on
housing
• Surveillance and tracking of movement of goods under GST

A stringent surveillance and tracking system will be a deterrent for tax evasion and
escalate costs for unorganised players. This will narrow the pricing gap between
organised and unorganised sectors, strengthening the former’s competitiveness.
Further, reduction in tax threshold to INR1.0-1.5mn under GST from INR15.0mn under
excise will bring small players under the ambit of GST.
• Uninterrupted power supply

Low per capita consumption of electricity along with frequent power outages
discourages consumers from buying quality products manufactured by organised
players. Instead, consumers prefer low-priced, but inferior quality products
manufactured by unorganised players. However, government’s initiatives to improve
power generation & transmission and electrification of rural areas are envisaged to
accelerate demand for electrical products manufactured by organised players.
• Sharpened focus on branding/marketing and innovation

Organised players have been spending aggressively on advertisements and marketing
to create awareness among customers and spruce up their brand image. Organised
players, such as Havells India, V-Guard and Bajaj Electricals spend ~2-4% of revenue
towards sales promotion and marketing.
• Premiumisation
Organised players are at the forefront of introducing premium products with better
aesthetics and new features—dust-free fans, under-light fans, sensor fans—across
product categories. On the other hand, unorganised players do not spend much on
R&D, restricting their ability to introduce premium products. Growing preference for
premium products is driving consumers’ shift from unorganised to organised segment.

Consumer Durables
• Pan-India distribution reach

Organised players are increasingly focusing on expanding their distribution network,
which is likely to help companies gain market share. While unorganised players lack
pan-India reach, companies like Crompton Consumer, Bajaj Electricals and Havells boast
of robust distribution networks.
• Compulsory registration: Formal corporate sector stands to benefit

The government’s plan to formalise the economy will throw up winners as well as
losers. Currently, unorganised players hold market share due to cost advantages,
especially on the tax front. However, in the future, formal businesses are expected to
benefit as a level playing field is created. Potential impact of the change, however, will
not be uniform across industries.
Fig. 2: Sectors with highest shift potential and growth opportunity

(INR bn)
56%
High
73%
72% 44
76%
102 586 74%

13
239
37%
75 380 Air Cooler
Exent of unorganised-FY17-22E
59% 260
Stabilizer 107
Legend
61% % organised
66%
Cables & wires 161 (2022)
Pumps
86% 67%
Size of
87% Lights organised
industry
2022
89% Extent
164
66 of shift
2017 organised
37 77 % organised
54 (2017)
81% 77%
Switchgear
Fans
47
82%
UPS
100%
100% 100%
129 343 285
80 195 132
100% 100% 100%

Washing Machine Refrigerator AC
Growth opportunity - FY17-22E High
GST: Implications for industry

The consumer durables sector currently attracts tax rate in the 7-28% range. GST will
benefit companies: 1) which have not availed tax exemptions in the past; 2) it will narrow
the price gap between organised & unorganised players; and 3) logistics costs across
operational & non-operational segments will decline. These, in turn, will improve
operational profitability of large organised players by almost 300-400bps over coming years.

Consumer Durables
GST’s impact on the consumer durables sector is expected to remain neutral or negative,
especially for companies that enjoy tax exemption or fall under concessional tax brackets.
Table 2: Tax rates for consumer durable goods

Product New Rates as per GST Old Rates Effect
Stabilizers 18% 18%
UPS 18% 18%
Pumps 12% 12%
Cables & Wires 28% 19%
Fans 28% 20/26%
Cooktops 28% 19%
Domestic Appliances 28% 26%
LED Lighting 12% 15%
Air Conditioners 28% 26%
Air Coolers 28% 24%
Washing Machines 28% 26%
Refrigerators 28% 26%
Solar Water Heater 5% 0%
Water Heaters 28% 26%
Source: Ministry of Finance, Edelweiss research

Consumer Durables
Market to double over FY17-22E to INR3.0tn

Aggregate consumer durables/light electricals market clocked a healthy 11% CAGR over
FY12-17 to INR1.4tn led by rising penetration and demand for premium products (ACs,
air coolers, lighting, fans, etc., posted high growth in value terms). We estimate the
industry to double over FY17-22 to INR3.0tn (13% CAGR) driven by: (a) sustained
penetration and rising premiumisaion; and (b) government’s thrust on Housing/Power
For All. Consequently, large organised players in our coverage universe are estimated to
log higher 15% growth led by market share gains from unorganised players—a fallout of
the ongoing shift towards formal economy.
AC, air cooler, lighting spearheaded industry spurt over FY12-17

Over FY12-17, ACs, air coolers, lighting, etc., clocked a robust 15-25% spurt, driving a
healthy top-line growth for large organised players. However, lower commodity prices
impacted value growth (6-8%) of cables & wires, pumps etc., over the past 2-3 years. While
low penetration of 4%/ 11% and strong summer season over FY12-17 were key drivers of
ACs/air coolers, respectively, shift to LED (~40% of total market currently) led to a strong
growth in the lighting segment.
Chart 29: Consumer durable/light electrical industry size (FY17)

1,750
1,400 195
35 80
132
1,050
242
46
700 29 100
432
350
164
0 13 58
Air Coolers
Refrigerators
Machines
Switchgears
Conditioner
Heaters
Stabilisers
Lighting
UPS
Pumps
Fans
Cables &
Total
Washing
Water
Wires
Air

Consumer Durables
Chart 30: Growth rates of various sectors over FY12-17

Air Conditioner 15.9
Air Coolers 15.6
Lighting 15.6
Cables & Wires 13.9
Refrigerators 11.3
Pumps 10.3
Fans 9.8
Water Heaters 9.7
Washing Machines 9.1
Switchgears 8.2
Stabilisers -4.5
UPS-6.0
(7.0) (2.0) 3.0 8.0 13.0 18.0

% growth FY12-17
Multiple growth drivers to catapult market to INR3.0tn over FY17-22E

Low penetration—5-30% across key segments—remains a prime driver for consumer
durables/light electrical sector. Moreover, changing consumption pattern with rising
preference for premium/value-added products and formalisation of the economy, we
believe, will drive higher value growth as customers upgrade to premium products—a trend
currently underway. We estimate the market opportunity to move from current INR1.4tn to
~INR3.0tn over FY17-22 with ACs, air coolers, lighting and pumps spearheading the surge.
Chart 31: Industry—2x growth to INR 3.0 tn over FY17-22E

3,000
344
2,400 79 129
285
1,800 514
77
189
1,200 52
814
600
314
0 14 61
Refrigerator
Switchgears
Stabilisers
Air Coolers
Lighting
Pumps
Cab& Wire
Wash Mach
Fans
AC's
Total
Heater
UPS
Water

Consumer Durables
Chart 32: Air coolers, ACs & lighting to clock the highest growth over FY17-22E
Air Coolers 17.7
Rising preference for premium Air Conditioner 16.6
offerings in air coolers, ACs, Lighting 16.3
washing machines, refrigerators Pumps 13.8
and fans is likely to fuel material Fans 13.6
growth in value terms over the Cables & Wires 13.5
next few years. Refrigerators 12.0
Water Heaters 11.7
Switchgears 10.7
Washing Machines 10.0
Stabilisers 2.0
UPS 1.0
0.0 4.0 8.0 12.0 16.0 20.0
% growth FY17-22E

Consumer Durables
Opportunity for large players to improve profitability/market share

Business models of most large players are getting asset light with sharpening focus on
brand building/distribution over the past few years. We perceive significant scope for
improvement in profitability of industry leaders as they capture higher market share,
especially from unorganised players, in existing as well as new segments.
Profitability of large players could see reasonable upside

RoE and RoCE of Edelweiss consumer durables/light electricals coverage universe are set to
improve led by market share gains in existing product segments from large base of
unorganised players. Segments like cables & wires, air coolers, lighting, pumps etc., has
higher share of unorganized players and will see a shift in market share to large organized
players as economy moves towards formalization. This in turn will drive product innovation
and premiumisation, boosting profitability for large players. We also envisage significant
scope for growth as players enter new segments, which we believe could see jump in overall
target market.
Chart 33: RoCE trend for large players
40.0
32.4
Strong demand coupled with
brand build up has helped large
24.8
players clock solid ramp up in
(%)
RoCE. As players target to bolster

17.2
their pan-India franchise across
key product categories leveraging
strong balance sheets, we expect 9.6
a further up move in their
profitability. 2.0
FY18E
FY19E
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoCE
Chart 34: Organised market growth to be higher at 16% over FY17-22E
85.0
81.0
3.14
0.69
77.0 0.91
0.41
1.46
(%)
0.59
73.0 82
78
69.0 74
65.0
FY17 Pumps Cables & Fans Lighting ACs Others FY22
Wires
Rising product realisations one of the key drivers of profitability

Consumer Durables
One of the key trends seen over the past 3-5 years has been focus on improving average
product realisation as could be seen across many products in the exhibits below. Whirlpool,
Crompton Consumer etc., have been able to generate significant revenues from premium
products, apparent in their strong product innovation pipeline & better margin profile.
Crompton now derives more than 15% of fan sales from the premium range, which was 5%
2 years ago. Also, Whirlpool has been able to improve product innovation over the past 3
years leveraging parent’s strong product technology/R&D prowess.
Chart 35: Strong uptrend in average selling price across many products over years
11,000 17,400
10,600 16,800
10,200 16,200
(INR)
(INR)
9,800 15,600
9,400 15,000
9,000 14,400
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Washing Machine - Whirlpool ASP AC - Whirlpool
18,000 1,600
17,200 1,440
16,400 1,280
(INR)
(INR)
15,600 1,120
14,800 960
14,000 800
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
ASP Refrigerator - Whirlpool ASP fans for Crompton

Consumer Durables
Chart 36: Symphony has seen a stable rise in realizations

5,850
5,600
5,350
(INR)
5,100
4,850
4,600
2014 2015 2016 2017
Coolers - Symphony (RHS)

Consumer Durables
Environment getting conducive for sector consolidation
While most large players are commanding dominant market shares in their core business
segments, we believe the next growth initiative is to expand into new markets leveraging
strong brands and balance sheets. While there are enough recent examples of inorganic
acquisitions/tie ups, we see this trend going a long way, burnishing prospects of large
players, which will expand from big to bigger.
a) Asset-light models, sharpening marketing focus: Profitability boosters

Consumer durables/light electrical (Edelweiss coverage) companies, over the years,
have consciously transitioned to asset-light business models with manufacturing
focusing on core products (barring Symphony and Voltas which have completely
outsourced models). Moreover, there has been a perceptible shift in focus on
strengthening the distribution/brand franchise. Ad spends over the past 3-4 years have
improved for industry leaders (refer Chart below) with reduction in overall capex.
We expect significant improvement in RoE, RoCE over FY17-22 versus FY12-17 as

companies incrementally sustain focus on marketing/branding initiatives with select
focus on manufacturing. While in-house manufacturing currently stands at 50%,
balance is outsourced on aggregate basis, which is directionally on a declining trend
with rising proportion of white goods portfolio/appliances, most of which may be
outsourced incrementally.
Chart 37: Sector’s profitability on strong growth track

35.0 40.0
28.0 32.4
21.0 24.8
(%)
(%)
14.0 17.2
7.0 9.6
0.0 2.0
FY18E
FY19E
FY18E
FY19E
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoE RoCE

Consumer Durables
Chart 38: Marketing focus on the rise

3.5
3.0
2.6
(%)
2.1
1.7
1.2
2018E
2019E
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Ad-spend as a % of revenue
Distribution network strong growth driver

In discretionary products—primarily cell phones, paints and white goods—distribution
reach and penetration levels are key variables driving overall sector growth. White
goods compared to other segments are one of the most under penetrated segments at
less than 20% with scope for significant expansion potential (refer exhibit below). With
significant structural tail winds getting in place—formalisation of economy, rising
preference for premium products—large consumer durables players are positioning
themselves to build a pan-India distribution network, apparent from recent M&A
activities.
Chart 39: Low penetration/distribution a potential trigger Chart 40: Distribution of key consumer durable players
1,250 100.0 40
35
32
('000 No. of distributors)
('000 No. of Distributors )
1,000 80.0 32
750 60.0 24
18
(%)
16 12
500 40.0 10
8 4 4
250 20.0
0
0 0.0
Whirlpool
Hitachi
Samsung
Havells
LG
Voltas
Daikin
Mobile Paints White Goods

Phones
Distribution Penetration (%) Retail Touch points

Consumer Durables
b) Big getting bigger ….

Asset-light business models and strong brand pull, especially in past 3-4 years, have
strongly contributed to strong cash flows of large players with Pan-India presence. This,
coupled with immense potential in untapped segments and strong potential for shift in
market share to large organized players, we believe, will continue to drive sector
consolidation, in turn, significantly augmenting market share/reach incrementally.
Edelweiss consumer durables coverage has seen a strong 3x growth in free cash over
FY13-16 to INR21bn (much higher than top-line/PAT growth). Of this, more than 50%
was driven by 4 large players with Pan-India presence. With FCF growth likely to be
robust at ~25% CAGR from FY16-19E, we see a possible trend of strong sector
consolidation as large players expand their distribution and product portfolio.
Chart 41: Strong cash flow growth concentrated amongst a few large players
25,000
Free cash flow for our

20,000
coverage universe
jumped 3x in 3 years
led by pan-India players 15,000
(INR mn)
like Voltas, Crompton,

Havells, Whirlpool etc.
10,000
Hence, large players
have enjoyed
disproportionate 5,000
benefits versus rest of
the industry.
0
Voltas Havells Whirlpool Sector
FY13 FY16 FY19E


Consumer Durables
Table 3: Key M&A/tie ups in sector in past several years

Current Target
Company Acquisition / JV Sector Rationale Comments Year
Market (bn) Market (bn)
Havells Lloyd Consumer Durables Expanding coverage into INR15bn 1,097 1,504 2017
(Refrigerators, ACs) white goods acquisition
V-Guard Guts Electro-mech Switchgear Expansion to Switchgear 74% stake 845 891 2017
Voltas Arcelik Consumer Durables Product portfolio and 50:50 JV with USD 167 442 2017
(Refrigerators, washing R&D/Innovation 100 mn each
machines & microwaves)
Symphony IMPCO Mexico Industrial Air Coolers Expanding coverage into 35 70 2011
centralized cooling solutions
and geographical presence in
North America
Bajaj Morphy Richards Consumer Appliances Premium brand Trademark 309 2017
Electricals extended till 2022 (extended
trademark)
Havells Promptec LED and Solar Lighting Expertise in solar lighting 51% stake 1,097 2015
Finolex Cables J-Power systems EHV plant to manufacture Technological expertise in INR1bn investment 820
corp. 132 KV and 220 KV high voltage cables
Finolex Cables Corning Optical Fiber Technological expertise in 820 2013
optical fibres
Phillips Maya appliances Kitchen Appliances Expanding coverage into 2011
(Preethi brand) domestic appliances and
strong distribution network in
South India
KEI Technical tie-up EHV plant Technological expertise in 432 2016
with Brugg Kabel EHV
Bajaj Starlight Electricals Lighting Diverse portfolio of retrofit Exercised right to 309 2017
Electricals and non retrofit lights acquire shares
which increased
holding from 19%
to 47%
Source: News Articles, Industry, Edelweiss research

Consumer Durables
Fig. 3: Product coverage for key players
Havells V-guard Crompton Finolex Whirlpool Voltas Symphony Bajaj KEI

Consumer
Air Coolers
Washing
Machines
Refrigerators
Lighting
Switchgears
Domestic
Appliances
Cables&Wires
Pumps
UPS
Stabilizers
Air
Conditioners
Fans
Source: Company, Edelweiss research

Consumer Durables
Outlook & Valuations: Geared for re-rating

Consumption-facing sectors are trading at a significant 80-100% premium to benchmark
Sensex given better growth and profitability visibility. Again, within the consumer
sector, industry leaders with strong competitive MOAT trade at 25-30% premium to
sector valuations given superior growth visibility. We expect valuations to further
improve for leaders in the consumer durables space like Havells, Voltas, Symphony and
Whirlpool as these companies offer better profitability & growth visibility and hence
are positioned to command 25-50% premium versus sector valuations.
The consumer durables sector witnessed strong re-rating, especially post FY13—traded at
>50% premium to Sensex—led by: a) a solid 3x jump in FCF over 3 years (FY13-16) ;
b) improving earnings growth outlook driven by Housing For All/infra focus & input cost
benefits; c) shift to asset-light business models boosting RoCEs; and d) reasonable pricing
power and brand value benefiting industry leaders.
The market has awarded significant premium, especially to companies in the housing space
(refer to the table below). Across tiles, consumer durables, cement, etc., average premium
versus the Sensex was 50-100% plus, driven by improved growth outlook and strong
profitability.
Also, we note a strong valuation premium in consumer staples which stands at 80-100%
premium to Sensex with superior RoCE and earnings profile. However, sector leaders like
HUL, Britannia, Colgate and Asian paints command a 25-30% premium to staple PE multiple
led by solid competitive MOAT driving 55-150% RoCE levels.
We believe, the valuation premium will sustain for consumer durables given: a) favourable
demographics with rising middle class driving higher penetration; b) formalisation of the
economy boosting large organised players; and c) sector consolidation on strong cash flows
and relative advantage over unorganised sector, making a strong case for better profitability
and potential for target market expansion. With solid competitive business MOAT in place,
we expect Symphony, WPIL, Havells & Voltas to command a 25-50% premium versus
average CD PE band.
Table 4: Performance of various consumer-facing sectors

P/E (X) Earnings CAGR (%) ROCE (%)
Premium to
Sector 10 yr 10 yr 1yr fwd for
10 yr Avg sensex (%) 10 yr Avg FY17-19 FY17 FY19
Highest lowest FY19
SENSEX 16.5 19.7 12.5 15.5 NA 7.0 22.0 7.1 NA
Cement 20.7 38.2 6.2 23.3 50.1 3.2 35.0 12.2 17.6
Housing Finance 16.3 22.9 8.7 15.2 (2.1) 18.6 17.8 19.5 20.3
Con Durables* 31.2 54.7 6.9 30.0 93.2 24.2 23.1 33.0 36.2
Asian Paints 31.0 83.0 53.7 42.1 171.6 20.8 19.9 44.6 49.4
Tiles 13.5 34.1 4.9 25.7 65.6 36.0 26.4 27.0 31.0
Con Durables 31.2 54.7 6.9 30.0 93.2 24.2 23.1 33.0 36.2
Con Staples 29.2 44.7 17.1 31.4 102.1 29.4 17.2 48.6 52.8
*Note: Ex of cable companies Source: Industry, Edelweiss research

Consumer Durables
Table 5: Comparing our top picks in CD with leading consumer staple names
P/E (x) PAT CAGR (%) EBITDA Margin (%) ROCE (%)
Sector 1yr fwd Prem /Disct Avg FY17-
5 yr Avg 5 yr FY17-19 5 yr Avg 5 yr Avg FY17 FY19
for FY19 (%) to avg. 19(%)
Con Durables* 37.5 30.0 20.9 23.9 10.3 12.2 29.9 33.0 36.4
Symphony 37.3 33.3 11.1 25.5 29.6 24.3 27.2 52.6 58.7 58.6
Voltas 26.9 23.7 (21.0) 28.3 15.2 10.0 13.9 94.5 144.6 160.3
Havells 33.0 31.5 4.9 14.3 25.8 13.3 12.8 27.2 26.1 32.6
Whirlpool 40.3 30.4 1.5 20.2 24.2 9.5 13.0 34.4 35.8 34.3
Con Staples 32.6 31.4 12.0 17.2 20.9 23.0 51.3 48.6 52.8
HUL 39.0 39.5 25.9 9.8 18.5 17.3 20.2 137.9 140.8 156.6
Britania 34.3 37.6 19.9 34.7 16.1 10.3 14.5 56.8 61.6 55.3
Colgate 40.4 38.2 21.7 5.3 17.0 21.9 24.6 137.3 76.9 76.5
*Note: Ex of cable companies
Chart 42: Sector PE band

40.0
Market rewarded CD industry 32.0

with significant re-rating over
FY13-16 led by 3x jump in FCF Average P/E 24.1x
24.0
P/E (x)
and strong RoCE FY 12-17

16.0
8.0
0.0
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
PE of the sector Average PE
Source: Bloomberg, Industry, Edelweiss research
Table 6: Edelweiss coverage snapshot

Premium/
Reco/ CMP TP Upside EBITDA growth (%) EPS growth (%) ROCE (%) P/E Target P/E Disct (%) over
Company Rating (INR) (INR) (%) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY19E (x) FY19E Sector Avg PE
Top Picks
Symphony Buy 1,326 1,789 35.0 21.1 30.3 30.5 12.3 31.6 27.6 58.7 57.0 58.6 33 45 50
KEI Buy 237 322 35.9 13.2 21.6 21.7 58.6 12.3 30.4 26.6 25.7 28.2 13 17 (43)
Voltas Buy 483 586 21.3 33.8 23.2 15.8 40.1 17.8 12.7 145 161 160 24 36 20
Havells India Buy 477 575 20.5 9.2 46.4 20.7 17.1 27.9 23.8 26.1 29.8 32.6 31 38 27
Whirlpool Buy 1,141 1,511 32.5 27.5 20.4 22.5 29.4 25.5 22.9 35.8 35.3 34.3 30 40 33
Others
Finolex Cables Buy 503 616 22.5 9.6 18.3 19.4 10.9 24.3 21.8 22.1 23.3 24.6 18 23 (25)
Crompton Buy 216 265 22.8 15.9 22.5 22.6 146.3 26.6 27.4 51.5 46.9 47.4 29 35 17
V Guard Hold 182 169 (6.9) 20.8 19.5 17.1 35.9 19.9 18.7 37.6 35.4 34.7 36 33 11
Bajaj Hold 339 350 3.2 (8.1) 17.5 27.0 (2.4) 32.1 33.8 16.6 19.2 21.6 18 23 (25)
Sector 15.0 27.3 21.4 31 25 23 33.0 34.8 36.4 30
Source: Company, Industry, Edelweiss research
Note: Voltas numbers are just for Consumer Durable segment

Consumer Durables
Chart 43: Consumer durables’ loan growth and household savings growth
Jump in consumer durable loans 45.0
by 32%/44% in FY14/15 was due
to sharp dip in CPI inflation from 32.0
10.9% in CY13 to 6.4%/5.9% in
CY14/15. 19.0
(%)
6.0
(7.0)
(20.0)
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Household saving growth (%) Consumer durables loan growth (%)
Source: CMIE, Industry, Edelweiss research
Chart 44: Consumer durables gross and EBITDA margins

36.0
The decline in global commodity 29.4

prices by 25-30% over FY14/15
led to 200bps jump in gross 22.8
margin, in turn boosting EBITDA
(%)
margin 150bps. 16.2
9.6
3.0
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
EBITDA margins (%) Gross margins (%)
Chart 45: Sensex versus consumer durables’ annual average PE

Premium versus Sensex expanded
30.0
for consumer durables led by
strong uptick in profitability
(RoE/RoCE), especially post FY13. 25.0
20.0
(x)
15.0
10.0
5.0
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Consumer durable PE Sensex P/E

Source: Bloomberg, Companies, Industry, Edelweiss research

Consumer Durables
Chart 46: FCF and PE

40
Companies with robust pan-
VGRD
India brand image & asset light 34
business models like Symphony, HAVL SYML
WHIRL
FY19 P/E (x)

Voltas, Havells etc., generate 28 CRG
strong cash flows and command VOLT
premium valuations.
22
FNCX
16
KEI
10
-5 5 15 25 35 45
FCF CAGR (FY16-19E) (%)
Voltas and Crompton Consumer
clearly stand out in terms of Chart 47: PE and EPS CAGR
cash flows. While Voltas thrives
on asset-light model with solid 40.0
brand leverage, Crompton
enjoys strong market positioning VGRD
34.0 SYML
in fans & pumps. HAVL
28.0 WHIRL CRG
FY19 PE (x)
VOLT
22.0
BJE
16.0 FNCX
KEI
10.0
9 14 20 25 31 36
EPS CAGR FY17-19E (%)
Chart 48: PE and FCF/sales

40.0
VGRD
34.0 HAVL
WHIRL
FY 19 PE (x)
28.0 CRG
VOLT
22.0
FNCX
16.0
KEI
10.0
0.03 0.06 0.09 0.11 0.14 0.17
FY19 FCF/Sales (x)

Consumer Durables
Chart 49: PE and EPS CAGR and target market coverage
41.0
VGI HAVL
34.4
SYML
WHIRL
CRMPTN
FY 19 PE (x)
27.8
VOLT
21.2
FNCX BJE
14.6
KEI
8.0
0 5 10 15 20 25 30 35 40
EPS CAGR FY17-19E (%)

Consumer Durables
Portfolio Snapshot
Table 7: Weights assigned to Edelweiss coverage universe – Consumer durables
Target FY 19E P/E (x) Mkt cap (INR bn) Mkt cap by weights (%) Weights (%) CMP (INR) TP (INR) % upside
Havells India 38 298 28.8 25.0 477 575 20.5
Voltas 36 159 15.4 20.0 483 586 21.3
Finolex Cables 23 76 7.3 8.0 503 616 22.5
KEI 17 19 1.8 7.0 237 322 35.9
V Guard 33 77 7.4 3.0 182 169 (6.9)
Symphony 45 93 9.0 16.0 1,326 1,789 35.0
Whirlpool 40 145 14.0 12.0 1,141 1,511 32.5
Bajaj 23 34 3.3 0.0 339 350 3.2
Crompton Greaves 35 135 13.0 9.0 216 265 22.8
Sector Average 30
Chart 50: Portfolio weights for companies

Crompton
Bajaj Greaves
0% 9%
Whirlpool Havells India
12% 25%
Symphony
16%
Voltas
V Guard 20%
3%
KEI Finolex Cables
7% 8%

Consumer Durables
Table 8: Weights assigned to a capital goods based portfolio

FY 19E P/E Mkt cap Mkt cap by Weights CMP Free float Reco/
Company TP (INR) % upside
(x) (INR bn) weights (%) (%) (INR) (INR bn) Rating
BHEL 22.7 344 6.5 8.0 141 180 28.1 122.7 Buy
Thermax 27.4 109 2.0 0.0 911 630 (30.8) 42.3 Reduce
ABB India 49.1 311 5.8 7.0 1,464 1,850 26.4 77.0 Buy
Siemens 42.1 476 8.9 0.0 1,336 1,322 (1.0) 121.2 Hold
CGPL 25.0 53 1.0 0.0 84 85 1.3 35.2 Hold
Techno 14.5 42 0.8 1.5 371 425 14.5 18.2 Buy
KEC 19.5 76 1.4 2.0 293 300 2.4 32.9 Buy
Kalpataru 15.1 54 1.0 1.0 349 394 12.8 21.4 Buy
BEL 19.9 387 7.3 8.0 173 200 15.7 95.2 Buy
Astra 13.9 12 0.2 0.6 137 175 27.8 10.1 Buy
KKC 24.0 259 4.9 5.5 935 1,055 12.8 124.7 Buy
Bharat Forge 22.9 261 4.9 5.5 1,117 1,368 22.5 138.7 Buy
Triveni 27.0 50 0.9 1.2 151 145 (4.0) 15.3 Buy
Greaves Cotton 17.2 39 0.7 0.0 160 160 0.2 19.2 Hold
TDP 18.6 7 0.1 0.0 225 215 (4.4) 3.5 Hold
RKFL 14.0 15 0.3 0.0 524 525 0.2 7.2 Buy
Praj 15.1 15 0.3 0.0 82 93 13.6 8.9 Buy
VaTech 16.9 37 0.7 0.0 680 725 6.6 26.6 Buy
EIL 19.3 105 2.0 2.5 156 200 28.2 32.8 Buy
L&T 21.2 1,640 30.8 33.2 1,171 1,300 11.0 1,396.1 Buy
Consumer Durables Basket 1,035 19.4 24.0
Source: Bloomberg, Edelweiss research
Chart 51: Portfolio weights for companies
BHEL ABB India

8% 7%
Techno KEC
Consumer 2% 2%
Durables Basket
24% Kalpataru
BEL 1%
8% Astra
1%
KKC
6%
Bharat Forge
L&T EIL Triveni 6%
33% 3% 1%

Consumer Durables
Segments
Air Conditioners: Market to post 17% CAGR over 5 years
The domestic AC market is expected to clock a healthy 17% CAGR (FY17-22E) given
paltry <5% penetration and rising temperature levels. Despite the recent trend of shift
to energy-efficient inverter ACs, we expect domestic players to maintain market share
given focused brand and distribution network strategies.
Industry Overview
In 2015-16, estimated total market size of ACs in India was ~INR170bn. Of this, the market
for central ACs, including central plants, packaged/ducted systems, VRF systems and other
ancillary equipment was ~INR60bn, while that for room ACs was pegged at INR110bn. Room
ACs account for 65% of this market and have been growing at a fast pace, whereas central
ACs account for 35% of the market. India’s room AC market has grown from 2mn units in
FY09 to 4mn units in FY16, 10% CAGR. We estimate the industry to post 17% CAGR over the
next 5 years to INR285 bn by FY22. This surge will be driven primarily by rising penetration,
shift towards energy-efficient ACs, rising disposable incomes and warmer temperatures.
Voltas, LG maintain top 2 positions in the domestic AC market with 21% and 19% market
share respectively. Japanese players like Hitachi and Daikin are posting CAGR of 20% due to
preference for premium and energy efficient inverter ACs. Havells Lloyd is the most
dominant player in the low-cost segment (~5-10% cheaper than Voltas). Blue Star has
become aggressive with launch of new models, which has enhanced its market share to
11%.
Chart 52: Room AC market expected to grow 2x by FY22 Chart 53: Market share of key players
300 10.0
AC market share by company (%)
Others
240 8.1 8.0 Voltas
15%
21%
(Units mn)
180 6.0
(INR bn)
Blue Star
4.6 285
120 4.0 11%
2.9 CAGR
60 132 16.3% 2.0
1.5 CAGR Hitachi LG
CAGR 63 19%
27.5 14.4% 15.6% 11%
0 0.0
Havells
2007 2012 2017 2022
Lloyd Daikin
Total market size of ACs No. of Units (mn) 11% 12%

Consumer Durables
India’s market remains under penetrated at ~5% compared to global peers

Rising temperature levels coupled with one of the lowest penetration levels at a mere 5%
are key growth drivers for AC industry. The room AC market has grown significantly driven
by first time residential buyers. Rising disposable incomes of a burgeoning middle class has
perked up demand from Tier 3/4/5 markets. Festive season purchases and early onset of
summer in several parts of the country also contributed to growth. North India still accounts
for 40% of total sales, followed by South India which accounts for 30%; however,
underpenetrated areas are gaining ground.
Chart 54: India AC penetration, low at ~5% in FY17 compared to other countries, is set to rise to 13% in 2025E
16.0 100.0
13.0 12.4 80.0
60.0
10.0
(%)
(%)
40.0
7.0
5.0
20.0
3.8
4.0
2.5
0.0
Korea
Indonesia
Thailand
China
India
US
Taiwan
1.0
2005 2011 2016 2026E
Air Conditioners Penetration (%)
There has been a fast shift from window ACs to spilt ACs. The market for window ACs is
dominated by Voltas, followed by Lloyd. Most foreign manufacturers (except Hitachi) have
exited window ACs and are now solely manufacturing split ACs. The price gap between a
window and split AC has reduced significantly (~5-7%).
Distribution a key differentiator

A key differentiator in the domestic AC market is a manufacturer’s distribution reach. This
factor has assumed importance since ~50–55% of industry volumes are now outside
metros/tier-1 cities. Strong distribution reach for LG & Voltas in our view is instrumental in
maintaining leadership in market share apart from strong brand equity in the AC industry.

Consumer Durables
Chart 55: Strong dealer network – The trump card

40
35
32
( '000 No.)
24
Voltas/ Havells have one of the
highest dealer networks in the AC
16 12
segment driving dominant
10
20/11% market shares.
8 4 4
3.8
0
Voltas Blue Star Daikin Hitachi Lloyd Electric LG
Dealer Touch Points
Source: Companies, Industry, Edelweiss research
Inverter ACs gaining traction

With growing acceptance of inverter ACs (10-15% more expensive than 5-star fixed speed
ACs). Japanese (Daikin, Mitsubishi, Sharp and Hitachi) players currently dominate the Indian
inverter AC market. Hitachi is among the pioneers and technology innovators in inverter AC.
It enjoys first-mover advantage and boasts of established brand equity. Over the next 5
years, as inverter ACs gain traction, Hitachi will be among the biggest beneficiaries of same.
Of the 5 most energy-efficient ACs, 3 belong to Hitachi.
Chart 56: Percentage of sales of inverter ACs

45.0
40
Japanese players have taken a
clear lead in the emerging inverter 36.0
30
segment versus domestic peers;
we believe this as temporary. In 27.0
(%)
the long run, distribution

franchise & brand equity will 18.0 15
remain a key differentiator for
domestic players.
9.0 6
0.0
Daikin Voltas Blue Star Hitachi
% of sales from Inverter

Consumer Durables
Gradual rise in temperature levels

According to the Center for Science and Environment, the annual mean temperature in India
has increased by 1.2 degrees Celsius since beginning of the 20th century. Winter (Jan-Feb)
of 2017 was the hottest in recorded history with temperature of 2.95 degrees higher than
2016 was the warmest year on
the baseline. 13 of the 15 warmest years were in the past 15 years (2002-16). The previous
record since 1901, according to
decade (2001-10/ 2007-16) was also the warmest on record. India is witnessing higher
IMD
frequency and intensity of extreme weather disasters—draughts, floods, heat waves, etc.,
due to rapidly rising temperature levels. 2016 was the warmest on record since 1901. In
many parts of India, temperatures soared during the summer ranging from 40-45 degree
Celsius. Such rising mercury levels have led to surge in demand for ACs and air coolers. In
the past few years, AC volumes have catapulted significantly—15% CAGR.
Chart 57: Rising annual temperatures in India

25.7
While there has been sustained
rise in average temperature 25.2
levels, temperature intensity has
(degree Celcius)
clearly risen over the past decade, 24.7

which in our view is one of the
major demand drivers of AC 24.2
industry.
23.7
23.2
1907
1917
1927
1937
1947
1957
1967
1977
1987
1997
2007
2017
Average Annual Temperature Avg Baseline Temperature
Source: World Bank, Edelweiss research
LG Electronics: Impact analysis

Prices of premium, energy-efficient inverter ACs have crashed by up to 20% as LG has cut
prices substantially to drive sales, forcing other brands to make regular ACs cheaper. Prices
are lower despite the ~15% increase in costs of Chinese-imported components, such as
compressors and indoor units, with all brands compelled to absorb rising input costs. The
impact of LG's price leadership has meant that ACs this season are cheaper than 2 years
ago, with the usually costlier inverter ACs selling at prices lower than those of 5-star split AC
models of 2016. LG's current 1.5tonne inverter AC is priced at ~INR46,000 this year versus
INR51,000 last year. Similar capacity 5-star regular split AC is priced at ~INR39,000-42,000.
However, smaller brands and online-exclusive manufacturers have cut prices further, selling
units anywhere between INR 32,000 and INR36,000.
Voltas is the market leader in room ACs with market share of 21%. Inverter ACs account for
mere 6% of its top line. Even amidst intense price competition, where LG has cut prices by
15-20% across inverter AC models, we believe Voltas has remained relatively unscathed.
Even though the company entered the inverter AC segment late, we believe its extensive
dealer network and product pipeline in inverter ACs (all Star ACs) will help maintain its
market leadership in ACs.

Consumer Durables
Air Coolers: Organised market to catapult 3.5x over FY17-22

While coolers have been the highest growth segment at 20% (past 3 years) in the
organised category, the segment still has huge base of unorganised (~63% of total
INR35bn market and 70% by volume) players. We estimate a strong shift in market
share to drive 27% growth in organised players over FY17-22, hammering the share of
unorganised players to <50%. This, we believe, will keep interest levels high for new
players given significant scope for rise in penetration, which is still minuscule at 11%.
Air coolers represent a low-cost, energy-efficient and an environment-friendly alternative to

ACs. They are simple to use and cool the air through evaporation of water. Evaporative
cooling differs from typical air conditioning systems which use vapor compression or
absorption refrigeration cycles. In FY17, the air cooler industry was pegged at INR35bn, of
which unorganised segment accounted for 70% of sales by volume and 65% by value.
Of the total 247mn households in India, only ~27mn own an air cooler, a paltry ~11%
penetration. Of the 132mn Indian households that live in hot and dry climatic regions (54%
of total) and 11mn Indian households that live in temperate region, an aggregate of 143mn
households (58% of total) are potential customers for cooling solutions, which offers huge
potential for the air cooler industry to expand over the next 5-10 years.
Chart 58:Air cooler industry is likely to grow 2x over FY17-22E Chart 59: North & West India are key markets
85 18 20 27 30.0
70 15 16 24.0
(units mn, INR '000)
14
55 12
(INR bn)
12 18.0
(Nos mn)
(%)
CAGR 79
17.7 11
40 17.7% 9 8 12.0
8
CAGR
25 35 6 4 3 6.0
15.6% 2
5 6.2
10 17 3 2
0 1.1 0.0
2012 2017 2022
North East West South
Total market size of AC's (INR bn)
No. of Units (mn) HH's owning an aircooler (mn)
Avg realisation (INR '000) % Penetration of air coolers (RHS)
Source: Symphony Annual Report 2016, Industry, Edelweiss research
The organised air cooler industry is highly concentrated with the top 5 players accounting
for more than 90% of the branded market. Symphony is the leading player in the space,
followed by Kenstar (Videocon Industries). Other players include Bajaj Electricals, Khaitan,
Maharaja, Orient, Voltas, Blue Star, Havells and Usha. Symphony enjoys ~50% share of the
organised segment.

Consumer Durables
Chart 60: Despite many new entrants in past few years, Symphony maintaining lead
Others Voltas
7% 7%
While Symphony has a solid 50% Bajaj Electric
value market share in air coolers 15%
industry, Voltas, Havells & Kenstar
have gained significant ground
over the past few years given Orient Electric
huge scope for shift of market 5%
share from unorganised players.
Symphony
Kenstar 50%
16%
Growth drivers
Rising overall temperatures
Rising overall temperatures in the hot & dry regions, which account for ~55% of India’s
population, could act as potential market for air coolers. We believe air cooler industry
despite a strong 20% plus growth CAGR over past few years is still at a nascent stage as still a
large part of population in hot and dry zones are yet to get covered.
Fig. 4: Hot & dry regions
Hot and Dry and Composite regions

account for 132mn households (54%
of India’s population)—potential
market for air coolers
Source: Research Gate, Edelwiess research

Consumer Durables
Rising air cooler penetration

Air cooler penetration is set to rise from 12% in 2016 to 25% in 2025, primarily led by the
largest shift from unorganised to organised segment, rising temperatures and increasing
disposable income levels. There has been a sharp shift over FY12 to FY14 from 10 to 20% in
market share of organised players, which jumped further to 30% by FY16-17 leading to best
growth numbers in the entire consumer durables segment.
Chart 61: Air cooler penetration expected to double (12% in 2016 to 25% in 2025)
31.0
Driven by large players like 25.6

Symphony and Kenstar, the air 25.4
coolers industry has seen a
transformational shift in market 19.8
share over the past decade.
(%)
Unorganised players’ market 14.2

share is likely to plummet below 11.6
50% over the next 8-10 years
leading to strong uptick in
8.6 6.5
penetration levels. 3.9
3.0
2005 2011 2016 2025E
Air Coolers
Air coolers offer largest potential for shift from unorganised to organised segment
The domestic air cooler segment is largely fragmented with ~70% sales by volume
accounted for by unorganised players. We estimate the organised industry to clock 28%
CAGR to INR 44bn by 2025E. Thus, we estimate the percentage of organised air coolers to
shift from 37% of total value sales in FY17 to ~56% by FY22. Rising focus by large players like
Havells, Voltas, etc., will lead to faster shift in market share from unorganised players.
Chart 62: Organised air coolers set to jump 3.5x to INR45bn by 2022, 28% CAGR
50 60.0
56
Air coolers is amongst the fastest 40 53.0
growing segments in the
consumer durables space. Size of 30 46.0
(INR bn)
organised market is likely to grow

(%)
3.5 x to 45bn over 5 years. 44.2

20 39.0
37
10 31 32.0
13.0
5.3
0 25.0
2012 2017 2022
Organised market (INR bn) (LHS) Organised market (% of total market)

Consumer Durables
Why growth of air coolers will not be cannibalised by ACs?

Air coolers are more affordable, they consume less electricity than ACs, their paybacks are
quicker and they cool interiors adequately. Also, air coolers sit at interesting intermediate
points between fans and ACs. They are priced low enough to trigger an uptrade from fans
and attractive enough to provide AC-like features offering value addition. There is also a
movement towards cooler interiors—extending from small rooms to larger spaces.
Traditionally non-cooled areas are seeking cooling solutions, while there is also growing
need for commercial and industrial workplaces to be cooled to generate higher productivity.
Centralised air-cooling solutions: Long way to go

Central air cooling is an efficient alternative to ACs as it’s a cost effective and environment
friendly cooling solution designed for various commercial/industrial environments.
Centralised air-conditioning market in India is estimated at INR 40,000mn. Symphony is the
only branded player in this segment.

Consumer Durables
Refrigerators: Premiumisation/penetration spearheading spurt

With one of the highest penetration levels in the consumer durable segment/white
goods at ~27%, refrigerators are likely to sustain a reasonable 12-14% growth
spearheaded by premiumisation. While MNC players Samsung, LG, Whirlpool etc.,
dominate market with ~60% share, we expect Voltas to be one of the key beneficiaries
incrementally by leveraging its strong distribution reach and Arcelik’s robust product
portfolio.
The domestic refrigerator industry is estimated to have clocked 9% CAGR during 2006-16 to
~10.7mn units. Direct cool (DC) and frost free (FF) segments grew 5-7% during the period.
The refrigerator segment is estimated to post 10% CAGR in volume terms over the next 5
years. Rising household income levels, growth in nuclear families and relatively lower
penetration levels of ~27% (versus 51% for colour televisions) drove demand for
refrigerators in the past 10 years.
The DC segment is set to grow at a slightly better pace than the frost-free segment as DC
models occupy lesser space, are available at lower price points and preferred by consumers
in semi-urban & rural areas. Both direct cool and frost-free segments are expected to record
healthy growth with the industry expected to post 12% YoY growth in 2017.
Chart 63: Refrigerator industry to post 12% CAGR over FY17-22E Chart 64: Penetration to further deepen
375 20.0 58.0
18.4
47.5
305 16.0 48.4
235 11.4 12.0

(Units bn)
38.8
(INR bn)
(%)
8.5 344
165 8.0 29.2 27.3
114 195
95 4.0 19.6 15.5
13.7
25 0.0 10.0
2012 2017 2022 2005 2011 2016 2026E
Total market size of refrigerators(INR bn)
Industry size in units (Units mn) Refrigerators
Source:Crisil, Industry, Edelweiss research
The refrigerator industry has traditionally been dominated by 5 major players with
collective market share of around 95-97%. Over the past 3-4 years, most players have been
successful in maintaining their market shares. LG has continued to remain the market leader
during the past 5 years and accounted for 26% of the refrigerator segment in 2015-16.

Consumer Durables
Chart 65: Market share of major players in refrigerator industry

Others
9%
LG
More than 60% of domestic Whirlpool 26%
refrigerator market is dominated 13%
by MNCs. We expect stronger
new players like Voltas to gain
significant market share over the
next 3-5 years raising the
competitive ante of domestic
players. Godrej
15%
Samsung
19%
Videocon*
18%
Note: * Videocon brands include Videocon, Sansui, Akai & Kenstar.
Source: Crisil, Industry, Edelweiss research
Growth enablers
In refrigerators, consumer preference is moving to high-capacity models, which offer more
storage space. In the DC segment, the share of 184 litres or lower segments plunged as LG
and Samsung stopped production of these models and increased production of higher
capacity segment (185-225 litres) 2013-14 onwards. Share of the 185-225 litre segment is
estimated to have further widened and reached 65% by 2015-16 from 62% in 2012-13.
In the FF segment, change in product mix is not as sharp as in the DC segment. However, the
trend is still the same. Share of entry-level segment (225 litre or less) and the sub-270 litre
segment is declining in favour of high-capacity models. In the FF segment, consumer tilt is
towards large-capacity (350 litre and above, priced at INR35,000 and above) refrigerators.
The 226-270 litre segments was the dominant category in FF segment.
Chart 66: Product mix tilted towards higher capacity models (226L and above)
Direct Cool Product Mix Frost Free Product Mix
100.0 10 100.0
12 13 13 6 6 7 7
16 16 17 17
80.0 80.0
21 23 23 24
62 60.0
60.0 63 64 65
(%)
(%)
40.0 40.0
52 52 51 50
20.0 20.0
33 26 24 23
0.0 5 3 2 2
0.0
FY13 FY14 FY15 FY16 FY13 FY14 FY15 FY16
225L or less 226-270L 271-300L
184L or less 185-225L 226L and above 301-350L 351L and above
Source: Crisil, Edelweiss research

Consumer Durables
Chart 67: Segment mix shifting in favour of frost free with increasing realisations
100.0 30,000
28 28 27 28 27 29 30
80.0 24,000
60.0 18,000
(INR)
(%)
40.0 12,000
72 72 73 72 73 71 70
20.0 6,000
0.0 0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY12 FY13 FY14 FY15 FY16
Direct Cool Frost Free Direct - Cool Frost - Free Overall
Source: Crisil, Edelweiss research
Players focusing on tier-II & III cities to drive sales

While LG has 2 refrigerator-manufacturing units in India, Samsung has none and relies on
imports to maintain market share. Players are expanding their distribution channels, making
major inroads in the rural market and creating environment-friendly products to enhance
market shares as well as improve demand.
Players launched products with innovative designs and flexible features to bolster their
sales. Some of the features introduced include cooling retention provided by LG & Godrej,
in-the-door ice-maker launched by LG & Samsung to increase storage space, etc. Players are
improving their reach in tier-II & III cities as well as expanding product range by launching
several stock-keeping units (SKU) offering consumers a wide range of options at lower price-
points, while brands like LG, Samsung, Bosch, Sharp, Hitachi and Whirlpool are in the higher
price bracket. Though LG leads the refrigerator market, Samsung enjoys highest share in the
FF segment.
Refrigerator sales through online retailers are low at ~1% of total sales. Sales through large
organised retailers account for 40-45% of total sales, while mom-and-pop (typically family-
owned, not franchised and open for business from a single location) stores account for 55-
58% sales.

Consumer Durables
Fans: Focus on premium products to be a differentiator

Total organised fan industry size currently stands at ~INR77bn and has been clocking
CAGR of ~11% (past 5 years) primarily led by new demand. Of late, there has been an
uptick in premium fans, which now account for 7-8% of industry. With rising
premiumisation, the fans segment is likely to post 13% CAGR over FY17-22E with
premium fans contributing 15%.
The domestic fan industry is divided into categories which include table/pedestal, domestic
exhaust and industrial fans apart from the ceiling fans. Demand for ceiling and exhaust fans
jumped due to increase in housing construction activities, rural electrification and
replacement demand in urban areas, which is mainly driven by demand for premium
products by younger & richer India. Industrial demand for electrical fans is expected to
increase with government’s focus on manufacturing sector with schemes like Make in India.
Fig. 5: Market segmentation of electric fans in India
Fans Industry
Table, pedestal &

Ceiling Fans Domestic exhaust Industrial
wall (TPW Fans)
72-77% 15-20% 5-10%
Source: IBEF, Industry, Edelweiss research
Growth of fan industry

The domestic electrical fan industry clocked CAGR of 13% during FY08-17 to ~INR70bn. In
volume terms, around 54mn units were sold in FY17. While the industry posted 9% volume
CAGR, realisations increased only 3.0-3.5% annually due to rise in raw material prices.
However, going forward, realizations for the sector are due to increase substantially as
share of premium Fans rise from current 6-8% levels to more than 15-20% over 3-5 yrs.

Consumer Durables
Chart 68: Fan market to reach INR188bn by FY22E Chart 69: Shift in focus towards premium fans across key players
200 30.0 100.0
160 23.2 80.0
120 16.4 60.0

(INR bn)
(%)
(%)
80 9.6 40.0
40 2.8 20.0
0.0
0 (4.0)
Crompton Orient Havells Bajaj Usha
FY08
FY10
FY12
FY14
FY16
FY18
FY20
FY22
Electricals
Market Size (INR bn) Under Light Fans Kids Fans
Decorative Fans BEE 5 Star rated
YoY growth in units produced (%) Standard/Plain Fans
Chart 70: Market share across players

100.0
80.0 45 46 49 51 50 49 47 46
53
60.0
4 3 2 2
(%)
3 2 2 2 7 7
4 9 9 8 7 7 7
40.0 9 14 14
12 12 12 13 14 14
9
12 12 10 10 10 10
20.0 11 11 10
17 18 17 18 18 19 21 21
14
0.0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Crompton Orient Havells Bajaj Electricals Khaitan Other Unorganised
Market growth enablers

Rising rural penetration with increased electrification
Electric fan penetration in rural areas is estimated at 65%, which is lower than urban areas.
In order to improve electric supply and reach in urban and rural areas, in December 2014
the government introduced DDUGJY scheme for rural areas and IPDS scheme for urban
areas. Higher power availability is likely to drive new fan demand in rural households. As a
result, rural penetration of fans is expected to reach 76-78% in 2019-20.
Urban replacement cycle getting shorter due to premiumisation

Bulk of replacement demand is likely to come from the highly-penetrated urban and semi-
urban markets. Urban penetration for electric fans was 90-95% in 2014-15. Of overall
market size of ~55mn units in 2016-17, two-thirds was accounted by replacement demand.
Factors like warranty and aesthetic designs will play a key role in capturing replacement
demand and ensure repeat transactions by customers.

Consumer Durables
Fig. 6: Total demand break up
Replacement
Demand
>>Avg life of a
fan is around 10
yrs
>>Share in total
demand is 65%
Total Demand
• Overall industry
volume growth to be
12 % from FY17-22E
• Organised market to
grow at 16% from
FY17-22E , compared to
13% for the industry
First-time
demand
>>Rural
penetration on
the rise
>>Urbanisation
Source: Crisil, Industry, Edelweiss research

Consumer Durables
Lighting: LED to lead the way

While the lighting industry has posted strong 16% CAGR over past 5 years, in FY17 it
grew at 15% led by shift to LEDs. With sharpening government focus on energy
efficiency & cost benefits versus traditional lighting, LED is expected to sustain robust
growth of 20% over FY17-22E. This, coupled with shift from large base of unorganised
players (35%), will drive healthy 16% surge in the lighting segment. We expect Philips,
Crompton and Havells to post higher growth led by focus on fixtures & lighting
solutions.
The domestic electrical industry is a lead indicator of industrial capex as well as individual
household capex. It has direct links with frontline sectors of the economy such as banking,
power, roads, logistics, etc., which have enabled it to clock CAGR of 15% over FY12-17. The
growth has predominantly fuelled by rapid spurt in LEDs despite sluggish economic scenario.
The LED industry may touch INR240 bn by 2022 following the government's decision to
switch to LEDs for all street lamps and public space lighting and impetus due to EESL
programme. The LED industry is expected to grow at 20% over FY17-22E.
Chart 71: Lighting to post 15% CAGR over FY17-22E Chart 72: LED to constitute 48% of total market by FY22E
535 75.0 300 90.0
74
240 72.0
435 70.0
67 180 54.0
(INR bn)
335 65.0
(INR bn)
(%)
(%)
514 120 36.0

61
235 60.0
60 18.0
56 242
135 55.0
117 0 0.0
2018E
2019E
2020E
2021E
2022E
2010
2011
2012
2013
2014
2015
2016
2017
35 60 50.0
2007 2012 2017 2022
Total market size Share of organised sector LED Industry Size LED as % of lighitng industry
Source: ELCOMA Report 2015, Industry, Edelweiss research

Consumer Durables
Chart 73: Market share of organised players
Others Phillips India

33% 23%
While top 5-7 players account for
~67% market share, there is a
large tail of small & medium sized
players which drive more than
30% of industry size. Despite Havells
rising competition, large players 8%
have managed OPM levels with Crompton
better cost control initiatives. Consumer
7% Bajaj Electricals
8%
HPL Electric
Syska
5% Surya Roshni 10%
6%
Source: ELCOMA
The industry can be classified as sources (lamps), luminaries, components and LED (including
lamps). Lighting devices can be further categorised on the basis of technology used to
produce light. These are primarily incandescent lamps (general lighting services or GLS),
fluorescent tubular lights (FTL) like T12, T8 & T5, compact fluorescent lights (CFL), high-
intensity discharge (HID) lights and LED.
Fig. 7: CFL/GLS form 45% of market; LED accounts for more than 50%
Lighting Industry
General Light Florescent

CFL LED
Service Tubular Lamp
50-55%
45-50%
Source: IBEF, Industry, Edelweiss research
Growth drivers
LEDs are now replacing the CFL segment and the latter is declining at close to 45-50%.
The government has played a vital role Companies seem to be having a short term impact due to the transition, but the irony is that
in fast tracking adoption of margins have improved even though prices of LED have fallen. EESL has given orders to
technology. many manufacturers like Surya Roshni, Phillips, Bajaj Electricals, among others, to ramp up
supply and increase the pace of the UJALA programme.

Consumer Durables
Chart 74: Price of LED bulbs under EESL has plummeted >80% Chart 75: Despite this large players have managed profitabilty
372 32.0
304
26.8
235
(INR)
21.6
167
(%)
16.4
98
30 11.2
April, 2016
Feb, 2017
Mar, 2015
Jun, 2015
Aug, 2014
Nov, 2014
Nov, 2015
Jan, 2014
Jan, 2015
Jan, 2016 6.0

FY12 FY 13 FY 14 FY 15 FY 16 FY 17
LED bulb prices Havells EBIT margin Surya Roshni EBIT margin
Source: EESL, Companies, Edelweiss research
Another driver for this industry is government’s focus on rural electrification/power for all.
“Increase in average realisation will
Its goal of 100% rural electrification by 2019 will drive further growth. To strengthen
drive overall growth of lighting
electricity supply and availability in urban areas (non-metros and large cities), which are
industry with volume spurt likely to
currently deprived of 24x7 power supply, the government launched the Integrated Power
remain flat-to-marginally positive. This
Development Scheme (IPDS) in December 2014. Uninterrupted availability of power in
is because incandescent bulbs—
urban and rural areas will also drive demand for lighting products.
average life of 6-8 months—will be
substituted by LED bulbs with average
Chart 76: Increasing % of villages electrified
life of 8-9 years.” 120.0 20.0
96.0 16.0
99 100
93
88
72.0 12.0
(%)
(%)
48.0 90 94 8.0
75 83
67
24.0 56 55 4.0
44
0.0 0.0
2001 2011 2017 2019E
Rural Electrification Urban Electrfication
India Electrification Lighting Industry CAGR (RHS)
Source: Government Documents, Edelweiss research
Our take
Large players like Havells, Philips and Crompton, we believe, will balance between growth
and profitability and will optimise their presence in fixates/lighting solutions. In the past 6
months, despite sharp drop in LED prices, Havells and Crompton have largely sustained
profitability in the lighting business.

Consumer Durables
Cables & Wires: Improving power & housing availability to aid demand
The cables & wires industry has posted 14% CAGR over the past 5 years. With
government sharpening focus on Housing/ Power For All we expect demand to stay
healthy at 12%. For organised players, which account for ~60% of market, we estimate
higher growth of 15% over FY17-22 given potential shift from large unorganised base
(~40%).
Expanding domestic market, priority for infrastructure development, improved life-styles

and new opportunities have propelled the domestic cables & wires industry. The industry
has come a long way from being a small industry to a very large one, over the past decade.
The industry has clocked CAGR of 14% over FY11-16 to INR390bn primarily boosted by
momentum in power and infrastructure segments.
Chart 77: Cables & wires industry is expected post 11% CAGR over FY17-22E
900
720
Given that cables has seen >15%
input price correction over the
540
(INR bn)
past 3 years, it could see higher

value growth led by upcycle in
commodity prices. 360
180
2018E
2019E
2020E
2021E
2022E
2011
2012
2013
2014
2015
2016
2017
Cables & Wires

Source: IEEMA, Industry, Edelweiss research
The organised sector comprises ~60% of cables & wire industry and is expected to grow at
~12.5% comprising 66% of industry by 2022. The segment has higher share of unorganised
players, who in the new GST regime and increasing tax compliance etc., will find it difficult
to compete with large organised players, especially who are building a pan-India reach.

Consumer Durables
Chart 78: Strong shift in market share for organised players
2012 2017 2022

Unorg
anized
Unorg 28%
Unorg
anized
anized
39%
42%
Organi
Organi
zed
zed
58%
61% Organi
zed
72%
Main players in the organised industry are Polycab, Havells, Finolex, V-guard and KEI.
Polycab is the market leader with 17% market share (40% of organised), followed by Anchor
with 11%.
Chart 79: Share of players in cables & wires

V-guard KEI Industries
2% 6%
Havells
7%
Finolex
7%
Others
50%
Polycab
17%
Anchor
11%
V-guard, Havells and KEI have outperformed industry growth, whereas Finolex has
underperformed. Over 2011-17, V-guard clocked 17% CAGR (albeit at a low base), Havells
has grew 14%, KEI at 13% and Finolex at 5%. In the retail segment (primarily domestic
electrical wires), which primarily caters to electrical contractors and builders who execute
electrical projects across residential & commercial segments are major end users, building
strong brands and distribution reach is essential.

Consumer Durables
Chart 80: Edelweiss cables & wire coverage YoY % vs. cables industry’s YoY growth (%)
30.0
24.0
18.0
(%)
12.0
6.0
0.0
2011 2012 2013 2014 2015 2016 2017
Cables Industry YoY % Edel cable & wire coverage YoY%
Source: IEEMA, Company, Industry, Edelweiss research
Growth enablers
• Rural Electrification and Power For All: The government’s focus on rural electrification
under the Deendayal Upadhyayaa Gram Jyoti Yojana (DDUGJY) with total outlay of
INR756bn over FY14-19 and Power For All (a joint initiative by Government of India
(GoI) and state governments with the objective to make power available to all
improved the availability of electricity across India during 2001-17 with an increase in
the number of villages electrified (as highlighted in the chart below). This has been one
of the key drivers of strong growth in the cables & wires industry.
Chart 81: Growth in households has been key demand Chart 82: Improved power availability boon for cable demand
400 15.0 120.0 15.0
13.9
13.5 99 100
350 13.6 97.4 93 14 13.8
88
13
300 12.2 74.8 12.6

(Nos mn)
11.1
(%)
(%)
(%)
250 350 10.8 52.2 94 11.4
11 90
9.5 83
295 75
67
200 247 9.4 29.6 56 55 10.2
44
194 10
150 8.0 7.0 9.0
2001 2011 2016 2025 2001 2011 2017 2019E
No. of Households Cables and Wires CAGR Rural Urban India Cables & Wires CAGR
Source: Census, IEEMA, Industry, Edelweiss research
• T&D reforms and augmentation of power generation capacity: To provide access to

reliable power supply and reduce technical and commercial losses, the government
intends to increase investments at the distribution level through schemes such as
Deendayal Upadhyaya Gram Jyoti Yojana and Restructured Accelerated Power
Development and Reform Programme. In addition, over FY17-22E, the government

Consumer Durables
intends to add ~187GW to meet the ever-growing demand for power, bulk of which is
from renewables. This will require evacuation of power through additional investment
in the T&D infrastructure.
Chart 83: Government’s focus on renewable power augers well for the cables & wire industry
200 750
700
1100
170 630
(GW/'000ckms)
980
140
510
(INR bn)
(INR bn)
860
110
740 390 370
80 620
270
50 500
160
FY2012-17 FY2017-22 150
Power Addition (GW) FY11 FY17 FY22
Transmission Lines ('000 ckms) Cables Demand wise projection
Demand for T&D equipment (INR bn)
• Growth in residential segment: Real estate plays an important role in the Indian
economy. With various reforms such as allowing 100% FDI, tax benefits for foreign
investors, Smart Cities and Atal Mission for Rejuvenation and Urban Transformation,
the segment is likely to grow at ~11% over the next decade. The revised National
Electrical Code, which emphasizes use of certified copper electric wires, will ensure
strong demand for electrical wires & cables.
• Increased demand from renewable energy: Power generation from renewable sources
is rising, with the share of renewable energy in India’s total energy mix rising from 7.8%
in FY08 to 12.3% in FY15. Government incentives, favourable foreign investment policy
and vast untapped potential will drive renewable energy generation in India over the
next few years.
• JVs with global players for access to technology for EHV and optical fibres: Finolex has
entered into JVs with J-Power System and Corning to manufacture EHV and optic fibres
cables, respectively. KEI has also entered into a technical collaboration with Brugg
Kabel AG, the Swiss manufacturer of extra high voltage (EHV) cables above 220kV and
up to 400kV, at its manufacturing plant located at the Chopanki. This goes a long way to
expand target market reach in the huge cables & wires industry.

Consumer Durables
THIS PAGE IS INTENTIONALLY LEFT BLANK

COMPANY UPDATE
BAJAJ ELECTRICALS
Near-term hurdles persist
India Equity Research| Consumer Durables
Bajaj Electricals (BJE), a leading consumer appliances company, is in the EDELWEISS 4D RATINGS
midst of significant operational overhaul under its RREP (range reach Absolute Rating HOLD
expansion programme), which has had a bearing on its overall market Rating Relative to Sector Performer
positioning over the past few quarters. Our top concerns are: a) Risk Rating Relative to Sector Medium
sustaining its competitive positioning in core appliances & lighting Sector Relative to Market Overweight
businesses; and b) significant scale up by competition over the past few
quarters demands a more focused approach from BJE, which currently
MARKET DATA (R: BJEL.BO, B: BJE IN)
stands diluted between B2B and B2C businesses. Maintain ‘HOLD’ with
CMP : INR 339
revised TP of INR350 (INR250 earlier) given limited upside, valuing BJE at Target Price : INR 350
19x PE on FY19E (23x for consumer business, 20% discount to our 52-week range (INR) : 388 / 202
consumer durable sector multiple) given rising competitive challanges. Share in issue (mn) : 101.4
M cap (INR bn/USD mn) : 34 / 534
Sustaining competitive edge in key segments a key monitorable Avg. Daily Vol.BSE/NSE(‘000) : 294.5
BJE has lost substantial ground across key businesses—lighting & consumer
appliances— on account of reasonable scale up of competition. Also, relative to large SHARE HOLDING PATTERN (%)
peers, the company has clocked weaker growth and profitability in past few quarters. Current Q3FY17 Q2FY17
We believe, given the yawning gap versus large peers, it will be challenging for Promoters * 63.4 63.4 63.5
management to regain market positioning. MF's, FI's & BK’s 6.8 7.7 7.7
FII's 7.5 7.6 7.9
Widening gap with competition tempers FY18 rebound estimate Others 22.2 21.3 20.9
* Promoters pledged shares : 1.7
Management expects to conclude RREP by FY18 (currently 45-50% complete) and is (% of share in issue)
estimating 15% plus top line spurt along with margin improvement. Though growing on
a low base this could be achievable, we believe it is unlikely to yield meaningful surge PRICE PERFORMANCE (%)
in profitability and market share looks challenging as key players have moved a couple EW Capital
Stock Nifty
of notches higher w.r.t. to SKUs/branding etc., and BJE will have to revamp its overall Goods Index
positioning in key segments. 1 month (2.9) 2.8 0.2
3 months (2.4) 8.0 1.9
Outlook and valuations: Cautious; maintain ‘HOLD’ 12 months 40.7 15.4 14.0
BJE is valued at 19x FY19E PE (23x on consumer business, trades at 20% discount to
large peers). However, we believe, valuation re-rating is difficult given limited clarity on
how BJE will scale the market share ladder. Moreover, we perceive a clear trend of Amit Mahawar
+91 22 4040 7451
Crompton, HAVL, etc., grabbing substantial pie of BJE’s market share, making it difficult amit.mahawar@edelweissfin.com
for the latter to outperform industry’s top-line growth. We maintain ‘HOLD/SP’.
Swarnim Maheshwari
Financials +91 22 4040 7418
swarnim.maheshwari@edelweissfin.com
Year to March FY16 FY17 FY18E FY19E
Revenues (INR mn) 45,903 42,617 46,427 53,345 Darshika Khemka
Rev. growth (%) 7.8 (7.2) 8.9 14.9 +91 22 4063 5544
darshika.khemka @edelweissfin.com
EBITDA (INR mn) 2,642 2,428 2,852 3,622
Net profit (INR mn) 1,103 1,077 1,422 1,903 Krish Kohli
EPS (INR) 10.9 10.7 14.1 18.9 krish.kohli@edelweissfin.com
EPS growth (%) NM (2.4) 32.1 33.8

Diluted P/E (x) 31.0 31.8 24.1 18.0
ROE (%) 15.3 13.2 15.4 18.0 July 14, 2017
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Engineering and Capital Goods
Substantial market share loss across key businesses a concern

BJE’s new dealer overhaul scheme, targeting improvement in operational efficiencies, has
dented the company’s market share and profitability. Moreover, most peers have gone the
extra mile to improve branding/distribution reach amidst demonetization/GST roll out to
strengthen their businesses. This, we believe, has further widened the gap between them
and BJE. While the company has gained some ground in the past 2 quarters, we believe, on
a relative scale, its market share and profitability have worsened.
Table 1: Top line and margins of BJE, Crompton, Havells in lighting & appliances (FY16/17)—Comparison
Total revenue Revenue growth (%) EBITDA margins (%) Comments
FY16 FY17 FY16 FY17
Crompton Greaves 13.1 8.9 11.2 12.1
Bajaj Electricals* 5.5 -10.9 5.2 5.0 We believe Bajaj has lost market share in the
appliances business. Focus on premium categories
has augered well for both Havells and Crompton
which has been the missing point for Bajaj.
Havells** 8 13 23.3 25.3
Note:*Ex of EPC business, ** Ex of Cables & Switchgears Source: Company, Edelweiss research
Widening gap with competition tempers FY18 rebound estimate

Management expects to conclude RREP by FY18 (currently 45-50% complete) and is
estimating 15% plus top line spurt along with margin improvement. Though growing on a
low base this could be achievable, we believe it is unlikely to yield meaningful surge in
profitability and market share as key players have moved a couple of notches higher w.r.t.
to SKUs/branding etc., and BJE will have to revamp its overall positioning in key segments.
Chart 1: BJE’s market reach versus peers Chart 2: Earnings down grade trend versus peers
8,000 19 5.7
7500
17 5.6
7,000
15 5.4
(INR)
(INR)
6,000
(Nos)
14 5.3
5,000 5000
12 5.1
4000
4,000
11 5.0
Dec-16
Aug-16
Oct-16
Apr-17
Feb-17
Jun-16
Jun-17
3,000
Havells Crompton Bajaj Electricals
Direct Dealers BJE HAVL CROMPTON (RHS)
Source: Bloomberg, Company, Edelweiss research

Bajaj Electricals
Outlook and valuations: Cautious; maintain ‘HOLD’

The stock at 19x FY19E PE implying 23x on FY19E consumer earnings trades at 20% discount
to consumer durables sector average PE and 15x to projects business. However, we believe,
valuation re-rating is difficult given limited clarity on how BJE will scale the market share
ladder. Moreover, we perceive a clear trend of Crompton, Havells, among others, grabbing
substantial pie of BJE’s market share, making it difficult for the latter to outperform
industry’s top-line growth. We maintain ‘HOLD/SP’ as the stock at 23x seems fairly valued
given the steep gap with peers in profitability (RoE/RoCE) and growth.
Chart 3: 1-year forward PE band

30.0
24.0 Average PE at
18x (FY12-17)
18.0
(x)
12.0
6.0
0.0
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
1 yr fwd P/E Average P/E
Table 2: BJE’s market share positioning in key segments

Industry Market Market
Segment Rank Positioning SKUs
Size (INR bn) Share
Lighitng 241.89 6% 4 Only present in LED lights 23
and portable LED lights
Fans 99.73 7% 4 The range for fans varies 165
from value to premium
Appliances 78.00 NA NA Ranging from value to 178
premium consisting of Platini
& Morphy Richards

Fig.1 : BJE currently covers 29% of Edel consumer durable basket
Bajaj
INR 0.5tn
29%
Consumer
Durables
INR
Industry 1.5tn
Change in Estimates
FY18E FY19E
New Old %change New Old %change Comments
Net Revenue 46,426 53,473 (13.2) 53,345 - 0.0 Building in lower growth in
Lighting, Appliances and EPC
business
EBITDA 2,852 3,673 (22.4) 3,622 - 0.0
EBITDA Margin 6.1 6.9 6.8 0.0
Adjusted Profit 1,422 1,796 (20.8) 1,903 - 0.0
After Tax
Net Profit 3.1 3.4 3.6 0.0
Margin
Capex 300 500 (40.0) 300 - 0.0

Bajaj Electricals
Company Description
Incorporated as Radio Lamp Works in July 1938, the company changed its name to Bajaj
Electricals (BJE) in October 1960. The 71-year old Bajaj Group company operates via 5
strategic business units—home appliances, fans, lighting, luminaries, and engineering &
projects. The company has 2 manufacturing facilities—1 at Chakan for fans and another at
Ranjangaon for galvanised material. The company outsources manufacture of CFL bulbs to
its associate company wherein BJE has acquired equity interest. It outsources all other home
appliances products like steam irons and toasters through dedicated manufacturers located
across India.
Investment Theme
With its consumer facing business growing steadily, BJE is now focused more on growing its
E&P division. It is the largest small appliances company in India and the leader in the small
domestic appliances market. By virtue of tie ups with global majors like Morphy Richards
(UK) and Nardi (Italy), the company competes with premium players like Philips and Kenstar,
and has been able to create a niche in the premium segment. Its products like mixers, irons,
OTG, water heaters and room coolers are leading products in their respective products
ranges. BJE, a leading consumer appliances company, is in the midst of significant
operational overhaul under its RREP (range reach expansion programme), which has had a
bearing on its overall market positioning over the past few quarters. BJE has lost substantial
market share across key businesses—lighting & consumer appliances— on account of
reasonable scale up of competition. We believe, given the yawning gap versus large peers, it
will be challenging for management to regain market positioning.
Key Risks
The market in which BJE primarily operates consists of large unorganised players with a
number of small and medium sized players. Over dependence on vendors or vendor buy out
by competition is a key risk. Further, intense competition in the consumer durables segment
can squeeze margin.
Increase in prices of key raw materials such as steel and zinc can hamper margin of the E&P
division. Greater contribution of E&P business is likely to increase debt levels in the form of
higher working capital that this business demands. Excess competition can pressurise
margin. This could go against the company’s forecasts of margin improvement.

Financial Statements
Key Assumptions Income statement (INR mn)
Year to March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Macro Income from operations 45,903 42,617 46,427 53,345
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Materials costs 30,882 27,573 29,773 34,133
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee costs 2,851 3,289 3,509 3,817
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other mfg expenses 9,528 9,328 10,292 11,773
USD/INR (Avg) 65.0 67.5 67.0 67.0 Total operating expenses 43,261 40,190 43,574 49,723
Company EBITDA 2,642 2,428 2,852 3,622
Revenue Growth (%) Depreciation 274 299 328 346
Consumer Durable Segment 6 (11) 8 18 EBIT 2,369 2,129 2,524 3,276
Lighting 17.3 (35.0) 15.0 15.0 Add: Other income 480.8 355.9 344.00 352.00
Fans 5.6 (8.0) 16.5 18.4 Less: Interest Expense 1,081 804 713 745
Appliances 1.7 (15.0) 16.4 18.4 Profit Before Tax 1,769 1,680 2,155 2,883
E&P segment 52 (2) 10 11 Less: Provision for Tax 665 604 733 980
EBIT Margins - % Reported Profit 1,103 1,077 1,422 1,903
Consumer Durable Segment 3.4 4.6 6.2 6.2 Adjusted Profit 1,103 1,077 1,422 1,903
E&P segment 4.7 7.2 6.4 6.4 Shares o /s (mn) 101 101 101 101
Tax rate (%) 37.6 35.9 34.0 34.0 Diluted shares o/s (mn) 101 101 101 101
Net borrowings (INR mn) 4,340 (2,754) 500 500 Adjusted Diluted EPS 10.9 10.7 14.1 18.9
Capex (INR mn) 459 536 300 300 Adjusted Cash EPS 13.6 13.6 17.3 22.3
Dep. (% gross block) 6.2 6.2 6.0 6.0 Dividend per share (DPS) 2.8 3.5 3.5 3.5
Dividend Payout Ratio(%) 30.7 39.3 29.8 22.3
Common size metrics

Operating expenses 94.2 94.3 93.9 93.2
EBITDA margins 5.8 5.7 6.1 6.8
Net Profit margins 2.4 2.5 3.1 3.6
Growth ratios (%)

Revenues 7.8 (7.2) 8.9 14.9
EBITDA 196.9 (8.1) 17.5 27.0
Adjusted Profit (891.0) (2.4) 32.1 33.8
EPS (885.9) (2.4) 32.1 33.8

Bajaj Electricals
Balance sheet (INR mn) Cash flow metrics
As on 31st March FY16 FY17 FY18E FY19E Year to March FY16 FY17 FY18E FY19E
Share capital 202 203 203 203 Operating cash flow 3,568 4,366 1,074 857
Reserves & Surplus 7,362 8,512 9,581 11,131 Investing cash flow (720) (901) (300) (300)
Shareholders' funds 7,563 8,715 9,784 11,334 Financing cash flow (2,716) (3,679) (566) (598)
Short term borrowings 7,251 5,286 5,786 6,286 Net cash Flow 133 (215) 207 (41)
Long term borrowings 959 170 170 170 Capex (459) (536) (300) (300)
Total Borrowings 8,209 5,455 5,955 6,455 Dividend paid (521) (1) (353) (353)
Long Term Liabilities 1,074 1,121 1,121 1,121 Share issue/(buyback) 32 59 - -
Def. Tax Liability (net) (493) (560) (560) (560)
Sources of funds 16,354 14,736 16,302 18,352 Profitability and efficiency ratios
Gross Block 4,537 5,171 5,471 5,771 Year to March FY16 FY17 FY18E FY19E
Net Block 2,764 3,100 3,071 3,025 ROAE (%) 15.3 13.2 15.4 18.0
Capital work in progress 207 79 79 79 ROACE (%) 21.5 16.6 19.2 21.6
Intangible Assets - - - - Inventory Days 58 71 73 71
Total Fixed Assets 2,971 3,178 3,150 3,103 Debtors Days 133 142 136 132
Non current investments 797 804 804 804 Payable Days 112 110 118 113
Cash and Equivalents 555 653 860 819 Cash Conversion Cycle 79 104 91 90
Inventories 5,067 5,712 6,199 7,107 Current Ratio 2.0 1.7 1.8 1.8
Sundry Debtors 16,711 16,538 17,944 20,619 Gross Debt/EBITDA 3.1 2.2 2.1 1.8
Loans & Advances 33 30 30 30 Adjusted Debt/Equity 1.1 0.6 0.6 0.6
Other Current Assets 2,969 3,338 3,338 3,338 Interest Coverage Ratio 2.2 2.6 3.5 4.4
Current Assets (ex cash) 24,780 25,618 27,511 31,094
Trade payable 7,226 9,366 9,870 11,315 Operating ratios
Other Current Liab 5,524 6,149 6,149 6,149 Year to March FY16 FY17 FY18E FY19E
Total Current Liab 12,750 15,515 16,019 17,465 Total Asset Turnover 3.4 2.7 3.0 3.1
Net Curr Assets-ex cash 12,030 10,102 11,492 13,629 Fixed Asset Turnover 16.6 14.5 15.0 17.5
Uses of funds 16,354 14,736 16,302 18,352 Equity Turnover 6.4 5.2 5.0 5.1
BVPS (INR) 74.9 86.3 96.9 112.3
Valuation parameters
Free cash flow (INR mn) Year to March FY16 FY17 FY18E FY19E
Year to March FY16 FY17 FY18E FY19E Adj. Diluted EPS (INR) 10.9 10.7 14.1 18.9
Reported Profit 1,103 1,077 1,422 1,903 Y-o-Y growth (%) (885.9) (2.4) 32.1 33.8
Add: Depreciation 274 299 328 346 Adjusted Cash EPS (INR) 13.6 13.6 17.3 22.3
Interest (Net of Tax) 674 515 471 491 Diluted P/E (x) 31.0 31.8 24.1 18.0
Others 478 641 242 253 P/B (x) 4.5 3.9 3.5 3.0
Less: Changes in WC (1,038) (1,834) 1,390 2,137 EV / Sales (x) 0.9 0.9 0.8 0.7
Operating cash flow 3,568 4,366 1,074 857 EV / EBITDA (x) 15.9 16.1 13.8 11.0
Less: Capex 459 536 300 300 Dividend Yield (%) 0.8 1.0 1.0 1.0
Free Cash Flow 3,109 3,830 774 557

Additional Data
Directors Data
Shekhar Bajaj Chairman R P Singh Independent Non-Executive Director
V B Haribhakti Independent Non-Executive Director Harsh Vardhan Goenka Independent Non-Executive Director
Ajit Gulabchand Independent Non-Executive Director Indu Shahani Independent Non-Executive Director
Ashok Jalan Independent Non-Executive Director Anant Bajaj Joint Managing Director
Madhur Bajaj Madhur Bajaj Promoter & Non-Executive Director
Auditors - Dalal & Shah
Holding – Top10
Perc. Holding Perc. Holding
Jamnalal sons pvt lt 19.6 Bajaj holdings and i 16.47
Bajaj shekhar 7.12 Bajaj anant 4.47
Bajaj kiran 4.24 Bajaj niraj ramkrish 2.15
Bajaj madhur 2.1 Reliance capital tru 1.94
Caisse de dep et adv 1.48 Musafir agency ltd 1.24
*in last one year
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
16 Mar 2017 SIDDHARTHA KANODIA Sell 25000.00
15 Mar 2017 ANANT MARTAND PURANDARE Sell 20000.00
*in last one year

INITIATING COVERAGE
CROMPTON CONSUMER
Untapped potential
Fortunes of Crompton Consumer (Crompton), the largest player in fans & EDELWEISS 4D RATINGS
residential pumps, are set to change with the new management reversing Absolute Rating BUY
the trend of years of under-investment in brands. Our conviction in the Rating Relative to Sector Outperform
company is anchored by: a) new management’s focus on value creation in Risk Rating Relative to Sector Low
existing products; b) huge untapped market opportunities; and Sector Relative to Market Overweight
c) potential to generate 45%/48% RoCE/RoE, respectively, with ~INR5bn
free cash flow by FY19. Initiate coverage with ‘BUY’ and TP of INR265
MARKET DATA (R: NA, B: CROMPTON IN)
(17% premium to sector average) given strong earnings CAGR of 27% and
CMP : INR 217
superior free cash flow growth of 60% over FY17-19E & potential for Target Price : INR 265
shareholder value creation in unexplored white goods market. 52-week range (INR) : 246 / 135
Share in issue (mn) : 626.7
Sharpening focus on improved value addition in core products M cap (INR bn/USD mn) : 136 / 2,111
Avg. Daily Vol.BSE/NSE(‘000) : 1,171.8
Crompton’s sharpened focus on core products is amply reflected in robust spurt in the
share of premium fans from 10% of sales in FY16 to 16% in FY17. Also, despite sharp
SHARE HOLDING PATTERN (%)
drop in LED prices, the company’s lighting segment clocked 150bps margin
improvement led by cost saving initiatives, a testimony to management’s focus on Current Q3FY17 Q2FY17
driving top line as well as bottom line. Promoters * 34.4 34.4 34.4
MF's, FI's & BK’s 19.6 14.9 16.2
Potential for huge brand leverage FII's 29.1 26.5 23.3
Others 16.9 24.2 26.1
We believe, Crompton, with a focused management and clear growth strategy in place,
* Promoters pledged shares : 22.34%
is now well geared to leverage its premium brand image and massive distribution (% of share in issue)
network (4,000 dealers) to drive profitable long-term growth. With sharpening focus
on agri pumps and huge untapped potential in white goods—still virgin territory for the PRICE PERFORMANCE (%)
company—we believe, the company could significantly expand its target market over Stock over
Sensex Stock
the next 3-5 years, enhancing growth visibility substantially versus current level. Sensex
1 month 2.8 (0.6) (3.4)

Outlook & valuations: Industry-leading growth; initiate with ‘BUY’ 3 months 8.7 4.6 (4.1)
Crompton has one of the best profitability/cash flow generation capabilities in the 12 months 14.7 55.5 40.8
entire white goods/light electrical space with strong RoE/RoCE and 1.6x growth in free
cash over FY17-19E. While the company is successfully executing all the new
initiatives/strategies leading to industry-leading top line/bottom line, the bigger delta
or re-rating event here on, in our view, will be its entry in the larger white goods space,
which could add substantially to the current addressable market opportunity. Initiate
with ‘BUY/SO’. Amit Mahawar
+91 22 4040 7451
amit.mahawar@edelweissfin.com
Financials (INR mn)
Year to March FY16 FY17 FY18E FY19E Darshika Khemka
Revenues (INR mn) 18,117 39,759 46,724 55,150 +91 22 4063 5544
EBITDA (INR mn) 2,095 4,902 6,002 7,356
Net profit (INR mn) 1,190 2,932 3,712 4,729 Krish Kohli
EPS (INR) 3.8 4.7 5.9 7.5 krish.kohli@edelweissfin.com
P/E (x) 56.7 46.1 36.4 28.6

ROAE (%) 104.9 76.4 55.3 48.4
July 14, 2017
FY16 & 17 nos. are not comparable. As FY16 Nos. are two quarters
Consumer Durables
Investment Rationale
Higher share of premium offerings, new launches spurring profitability
Crompton is the leader in fans and residential pumps with 27% and 28% market shares,
respectively, wherein it is positioned as a premium products player anchored by a robust
distribution network. The company, post takeover by new management (private equity
investors), has clocked better-than-industry growth of 12% in fans led by robust 16% spurt
in premium fans (share jumped from 10% to 16% over FY16-17), outpacing industry’s 8%
growth. We believe, this was driven by strong product pull, well complemented by more
than 15 SKUs launched in the premium fans category within the past 12 months. This has
helped Crompton narrow the gap with Havells (has largest SKUs in premium fans).
Likewise, focus on higher range in residential pumps and better cost control in lighting
(mainly LEDs) have helped the company post better top line growth of 10% in FY17 with a
much better EBITDA growth of 17% YoY (Crompton’s FY16 numbers are annualised).
While FY17 profitability sprung a positive surprise for the Street (~20% earnings upgrade in
past 2 quarters), we expect the improvement to sustain given the humungous scope to
enhance the share of premium products (fans, lighting, appliances, etc). This, we believe,
the company will achieve by unwavering focus on product innovation/branding. We note
that a considerable ramp up in new launches over the past 2 quarters has been key reason
for reasonable 10% YoY spurt despite demonetisation.
Table 1: Revamped strategy—Balanced growth approach with profitability focus

Prodcut Change Visible: What is working/might
Focus area Winning formulae
Category work for the company
Fans Premium fans SKU focus and product focus CGCE has successfully launched more than
50 models in the premium fans category
post demerger
Pumps Expand target market in agri pumps Leverage its leadership in Constantly growth ahead of market to have
where it has low presence residential pumps by expanding an overall market share of ~14% and 28% in
dealer network residential pumps
Lighting LED focus with cost control Ride on sector tailwind with Segment saw margin expansion of ~150bps
cost focus from H2FY16 to H2FY17

Crompton Consumer
Chart 1: Crompton has re-rated over the past 3 quarters
255 6.0
Crompton witnessed
strong re-rating post 231 5.7
ownership shift led by
earnings upgrade. 207 5.4
(INR)
(INR)
183 5.1
159 4.8
135 4.5
Apr-17
Apr-17
Feb-17
Feb-17
Mar-17
Mar-17
Mar-17
Jun-17
Jun-17
Dec-16
Dec-16
Oct-16
Oct-16
Nov-16
Nov-16
May-17
May-17
Jan-17
Jan-17
Price Leading EPS 2018
Source: Bloomberg,Edelweiss research
Chart 2: Rising share of premium fans in revenue Chart 3: Introduced >50 new fan models
8,500 15.0 400
Post-demerger in FY16 CGCEL
Pre- Post- Pre- introduced 50 new models & 55
6,800 demerger demerger 12.0 330 demerger new models in FY17
275
5,100 9.0
(INR mn)
260
(%)
(No.s)
209
3,400 6.0
190
144
1,700 3.0
120 94
0 0.0
FY11 FY16 FY17 FY19E 50
FY11 FY16 FY17 FY19E
Premium Fans Revenue % of the total Revenue No. of models's
Premium fans now

account for 16% of fan
sales (value) versus 10%
in FY16. We estimate
premium fans to
constitute ~25% of fan
sales by FY19 given
sharpening focus on
product innovation/new
launches.

Consumer Durables
Chart 4: Crompton has highest number of fan models Chart 5: SKU comparison in premium range
250 45 42
209 38
200 36 32
150 26
27
(No.s)
(No.s)
110
94
100 82 18
74
50 9
0 0
Crompton Bajaj Orient Havells Usha Crompton Havells Orient Usha
Number of Fan Models No. of SKU's for super premium and premium fans
Source:Company Website,Company Annual Report, Edelweiss research
Potential for strong brand leverage

While the new management has kick started many initiatives to drive value in key segments
like fans and lighting, we believe, brand Crompton is yet to be fully leveraged. We perceive
significant scope to improve value market share in lighting and agri pumps wherein the
company has low market share of ~5%. In lighting, current focus is on cost control, where
Crompton has created significant value by improving operating margin by ~150bps (9.3% in
H2FY17 versus 7.8% in H2FY16). With robust growth outlook on LEDs—estimated to grow
25-30% over the next 3-5 years—we perceive significant scope for the company to gain
market share from the large unorganised sector (spurred by GST and demonetisation),
which still accounts for 35% of the lighting market, driven by robust product launches in the
LED segment (375 new products launched in FY17).
Also, in the pumps segment, leveraging its dominance in residential pumps, Crompton has
sharpened focus on agri pumps. This is amply reflected in product innovation/launches over
the past 6-8 months where it introduced 3 SKUs during FY17 (2 in FY16). Agri pumps, with a
large base of regional/unorganised players which cumulatively account for 50% (~INR20-
25bn), in our view is a great potential opportunity to add 2-3x revenue over FY17-19.
Table 2: Leading player in fans, lighting, residential pumps—Expanding presence in agri pumps, appliances
Segments Revenues Organised Market Organised Segments Revenues Market Market Market
FY17 (INR bn) Market Rank Market Size FY19E (INR Share Rank Size
Share (INR bn) bn) (INR bn)
Fans 18.0 ~25% #1 75 Fans 25.5 ~27% #1 95
Lighting 11.6 7% #3/4 160 Lighting 16.0 ~8% #3 210
Pumps - Residential ~5.5 >20% #1 30 Pumps - Residential ~7.5 >25% #1 40
Pumps - Agri ~3.0 ~5% #6/7 45 Pumps - Agri ~3.5 ~6.0% #4/5 60
Appliances 3.0 4% #5/6 60 Appliances ~4 5% #4/5 70
Source:Company,Industry,Edelweiss research

Crompton Consumer
Chart 6: INR110bn total pump market size Chart 7: Market share of Crompton in agri pumps
Industrial 30.0
Pumps >25.0
20%
24.0
>20.0
18.0
Agriculture
(%)
Pumps
12.0
45%
5.0 6.0
6.0
Domestic 0.0
Pumps Market share agri pumps Market share domestic
35% Pumps
FY17 FY19E

Consumer Durables
Outlook and Valuation
Crompton is one of the strongest brands in the Indian consumer durables/light electrical
space with dominance in fans, household pumps and a growing presence in lighting &
consumer appliances. Post transfer of ownership to a PE firm, the new management has
been able to move up the profitability curve, amply reflected in FY17 numbers. We like
Crompton’s growth story, which is focused on taking the next leap towards building a strong
consumer/product pull.
With sharpening focus on product innovation/brand building, we expect the company to

clock sustained rise in share of premium products’ revenue from current 16% in fans to 25%
by FY19E. Also, current target market for the entire product portfolio at INR385bn has
potential for a strong improvement given that the company is yet to enter larger White
goods space, which could double the target market for the company.
We initiate coverage with ‘BUY/SO’ and target price of INR265 (ascribing 1 year forward P/E
of 35x), which is at a 17% premium to our coverage universe’s average valuation of 30x.
This, we believe, is justified given Crompton’s robust cash flow generation of ~INR5bn (60%
growth over FY17-19E) and superior profitability—~45% RoCE.
Chart 8: Recent re-rating driven by earnings surprise as OPMs improved

45.0
41.0
37.0
(x)
33.0
29.0
25.0
Dec-16
Aug-16
Oct-16
Apr-17
Nov-16
May-17
Jan-17
Sep-16
Feb-17
Mar-17
Jun-16
Jun-17
Jul-16
1 yr fwrd PE
Source:Bloomberg, Edelweiss research

Crompton Consumer
Chart 9: Recent EV/Sales re-rating driven by positive OPM surprise

4.0
3.6
3.2
(x)
2.8
2.4
2.0
Dec-16
Aug-16
Oct-16
Apr-17
Nov-16
Nov-16
May-17
Sep-16
Sep-16
Jan-17
Jan-17
Feb-17
Jun-16
Mar-17
Mar-17
Jun-17
Jul-16
Jul-16
1 year forward EV/Sales
Chart 10: Crompton to generate strong free cash amongst peers

8.0
Crompton is set to clock
strong 1.5x jump in cash
flows over FY16-19E. 6.4
4.8
(INR bn)
3.2
1.6
0.0
Havells Voltas Whirlpool Bajaj Crompton
FY16 FY19E
Fig. 1: Crompton’s target product portfolio is relatively low at 39%
Crompton
INR 0.6tn
39%
Consumer
Durables
INR
Industry 1.5tn
Source: Industry, Company, Edelweiss research

Consumer Durables
Key Risks
Competition
Rising competitive intensity especially from local peers, we believe could be a risk to our
growth and profitability estimates.
Consumer discretionary slow down

Rise in disposable income levels are key driver for consumer discretionary and hence any
slowdown in disposable income could post down side risk to Crompton’s earnings.

Crompton Consumer
Company Description
Overview
Crompton was set up in 1878 as REB Crompton to manufacture electrical equipment. Later,
it was merged with F&A Parkinson to form Crompton Parkinson. The latter was bought in
1947 by the Thapar family and in 1966 restructured into Crompton Greaves. Compton was
in multiple sectors including electrical goods. In October 2015, the electrical and lighting
business was demerged into Crompton Greaves Consumer Electricals. The Thapars sold their
stake to 2 private equity firms, Advent International and Temasek Holdings, in 2016. The
company broadly has 4 business segments—fans, lightings, pumps and electrical
appliances. Crompton is a market leader in the fans and residential pumps segments, with
over 25% market share in each.
Product profile
Crompton is the consumer products business of Consumer Greaves, which has now been
demerged and is a separate entity. It is a well established manufacturer of household
electrical products and appliances. For over 20 years, the company has been the market
leader in fans and residential pumps. A significant portion of total revenue comes from
lighting products (31%). It also manufactures a range of appliances which have a relatively
lower market share. With market share growing in other segments and brand expansion
strategy working, Crompton intends to expand its reach in the home appliances segment as
well.
Fig. 2: Product profile
Product Profile
Lighting Products Electrical Consumer Durables
Fans Pumps Appliances
Source: Company
1) Lighting products: The LED category has been Crompton’s focus for product launches
especially in FY17 as visible in a healthy double digit growth. Prices of LED lamps fell
further on back of lower input costs while LED lighting value growth jumped 50% in
FY17 replacing CFL and HID. Research & Development efforts have helped the company
provide the “best in industry” solutions to customers for various projects of national
significance and win major orders from Energy Efficiency Services (with a total supply
worth INR770mn), airports, auto & power sectors and street lighting projects. LED
lamps’ revenue tripled with trade volumes growing over 350% in FY17 over FY16. LED
panels and have doubled in value and more than 4x in volume.

Consumer Durables
2) Electrical consumer durables: Electrical consumer durables segment comprises fans,
pumps and a wide range of small appliances.
a) Fans: Crompton remains the market leader in fans and the only player in India to
have sold over 1 crore fans annually for 5 consecutive years. Focus on value
addition is reflected in the innovations introduced in the market. These include
auto temperature controlled fans and fans with anti-dust coating to reduce
cleanliness hassles. The innovations were well received in market with sale of more
than 4.5 lakh anti-dust fans post introduction in H2FY16. Apart from this, the
company has been instrumental in developing many unique fans models like the
new super energy efficient ceiling fan which saves more than 50% energy, new
eSense range of ceiling fans with automatic temperature control and radio
frequency based remote functions.
Table 3: Crompton—Robust fans portfolio

Fan Model Description
Aura Prime - Anti Dust Attracts 50% less dust compared to regular fan.
Avancer e sense A radio frequency-enabled remote and temperature sensing smart ceiling
fan
Jupiter Detailed magnificent carvings for a royal décor, four decorative

lampshades to enhance beauty and convenience of pull cord for speed
and light control
Titanis Exquisitely designed shanks and blades for superior air flow
Triton Painted Aerodynamically designed blades for high speed and air delivery
Source: Company
b) Pumps: Crompton is the market leader in the residential pumps segment and
enjoys a strong overall market presence. The agricultural segment has been
identified as a focus area for growth; it posted double digit growth with strong
focus to expand market reach. Markets with a strong brand presence were
identified as priority for agricultural pumps. Within the energy efficient segment,

Crompton Consumer
the company has been able to bag a prestigious EESL order for 5-star borewell
submersible pumps.
c) Appliances: This business caters to a range of domestic appliances in 4 major

product categories—water heaters/geysers, small appliances, power solutions and
air coolers/heaters. Water heaters comprise a major part of the business and gaps
in product portfolio were filled and a comprehensive cost reduction programme
was undertaken to enable competitive pricing and improve margins. Air coolers
have shown strong growth and will remain focus for new product development
over the coming years.
Changing with changing trends

Crompton has not failed to adapt with changing trends and needs of customers. This has
kept its market share intact and growing despite rising competition. The company is now
moving into energy efficient and energy saving products in all its major segments. Its
intelligent lighting offers about 30% energy saving in addition to the 50% saving that LEDs
offer. Crompton has also introduced a new anti-dust fan that reduces the need to frequently
cleaning the fan.
After sales service

With an eye on offering ‘best-in-class’ after-sales service, Crompton has over 500 service
franchises with pan-India presence. Along with increasing service network coverage, the
focus has been on faster resolution of service requests with over 90% of service requests
being resolved within 48 hours. To boost consumer confidence, over 150 free service camps
were conducted during FY17.
Modern retail
In modern retail, the emphasis has been on establishing strong visibility in stores. In order to
increase secondary sales and deliver consistent brand experience, focus has been on
maximising shelf space, branding at stores and educating customers about benefits of
products. Crompton has expanded presence to ~1,100 stores across formats. With focus on
expanding distribution to new geographies and deepening retail reach in smaller towns,
presence in channels like e-commerce and modern retail was stepped up. Exclusive online
brand outlets were launched on Paytm, Snapdeal and Flipkart. Products like LEDs, geysers,
coolers and mixer grinders are the best sellers in organised retail/online.

Consumer Durables
Manufacturing facilities and dealer network

Crompton currently has 8 manufacturing units located in Goa, Vadodara, Ahmednagar and
Baddi. It has the following facilities:
1) 3 plants in Baddi, Himachal Pradesh:
a. 2 plants for manufacturing fans.
b. 1 plant for manufacturing lights.
2) 1 plant in Baroda, Gujarat:
a. 1 plant for manufacturing lights.
3) 2 plants in Ahmednagar, Maharashtra:
a. 2 plants for manufacturing pumps.
4) 2 plants in Goa, one in Kundaim and the other in Bethora:
a. 2 plants for manufacturing fans.
Fig. 3: Manufacturing facilities in India
Fans
Lighting
Pumps
Baddi (Himachal Pradesh)
Baroda (Gujarat)
Ahmednagar
(Maharashtra)
Bethora &
Kundaim
(Goa)
Source:Company
Crompton has pan-India presence, with its products selling in close to 1,50,000 stores across
the country. It also has 500 service centers and has organised over 144 free service camps.
The company maintains a strong dealer network and continues to expand it every year. It
also manages to keep its customers satisfied by completing almost 90% service requests
within 2 days of complaint.

Crompton Consumer
Key personnel
Mr. Shantanu Khosla, Managing Director
Mr. Shantanu Khosla joined the company in January 2016. Prior to that, he was the MD &
CEO of Procter & Gamble India from July 2002 to June 2015. He is a Bachelor of Technology
in Mechanical Engineering from the Indian Institute of Technology, Mumbai. Mr. Khosla has
also completed his Masters in Business Administration from the Indian Institute of
Management, Calcutta.
Mr. Mathew Job, CEO
Mr. Mathew Job has been the Chief Executive Officer of Crompton Greaves since January 1,
2016. Prior to that, he was with Philips Electronics India from June 1994 to October 2009,
where he held several key positions. Mr. Job has also served as Managing Director of Racold
Thermo. He is a Bachelor of Technology (Electrical & Electronics) and an alumnus of the
Indian Institute of Management, Calcutta.
Mr. Sandeep Batra, CFO
Mr. Sandeep Batra, B. Com, CA, CS, has been the Chief Financial Officer of Crompton
Greaves Consumer since January 1, 2016, and served as its Compliance Officer and Company
Secretary from February 12, 2016 to May 18, 2016. Prior to his stint with Crompton
Greaves, he served as the Chief Financial Officer, Executive Vice President and Company
Secretary of ICICI Prudential Life Insurance Company. Mr. Batra is a Chartered Accountant
from ICAI and CS from ICSI. He is an alumnus of the prestigious St. Xavier's College, Calcutta.
Mr. P. M. Murty, Independent Director
Mr. P M Murty has graduated from the Indian Institute of Management, Calcutta. He has
more than 42 years’ experience with Asian Paints, wherein he held various senior positions
including that of Managing Director from 2009-12.
Mr. D. Sundaram, Independent Director

Mr. D Sundaram is the Vice Chairman and Managing Director of TVS Capital Funds. He was
associated with HUL for more than 34 years where he served under various roles before
becoming the Vice Chairman in 2008. He is also on the Board of Governors of Institute of
Financial Management and Research, Chennai. Mr. Sundaram is a Post Graduate in
Management Studies (MMS), Chennai, Fellow of the Institute of Cost and Management
Accountants and has attended the Harvard Business School’s Advanced Management
Programme.

Consumer Durables
Mr. Hemant Madhusudan Nerurkar, Independent Director
Mr. Hemant Nerurkar has experience of over 35 years in Tata Steel in various positions. He
joined Tata Steel in 1972 and rose to Managing Director in-charge of India and South East
Asia Operations. He is Chairman of Board of Directors in TRL Krosaki Refractories. Mr.
Nerurkar is a Bachelor of Technology in metallurgical engineering from the College of
Engineering, Pune University.
Ms. Shweta Jalan, Independent Director
Ms. Shweta Jalan is the Managing Director of Advent India PE Advisors. She joined Advent in
2009. Prior to which she worked for almost a decade at ICICI Venture, which at the time was
the largest private equity firm in India. She has experience in sourcing and negotiating
transactions and advising on the management and successful exiting of investments through
both sale to strategic buyers and listing of companies. Ms. Jalan has experience of working
across a wide range of sectors including healthcare, FIG, consumer and IT/BPO. Before
joining ICICI Venture, she was working for a year at Ernst & Young in the corporate finance
division.
Mr. Promeet Ghosh, Independent Director
Mr. Promeet Ghosh joined Temasek in 2012 and is currently Managing Director, India, at
Temasek Holdings Advisors India. Prior to that, he spent 20 years as an investment banker.
He was involved as a partner in setting up an entrepreneurial venture to provide M&A and
advisory services to mid-sized corporates in India. Mr. Ghosh was also a Managing Director
at DSP Merrill Lynch, the investment banking arm of Bank of America in India. Since 2008,
he has also been responsible for senior relationships with large conglomerates. He holds an
MBA from the Indian Institute of Management, Calcutta, and a Bachelor of Engineering from
Regional Engineering College Trichy, India.
Mr. Ravi Narain, Independent Director
Mr. Ravi Narain currently serves as the Non-Executive Vice Chairman of National Stock
Exchange of India, apart from being on the boards of several Companies viz., HDFC Standard
Life Insurance Company, National Securities Depository, National Securities Clearing
Corporation and Indostar Capital Finance, among others. Mr. Narain holds an M.A.
(Economics) and a Masters in Business Administration.

Crompton Consumer
Financial Outlook
Premiumisation, appliances & agri pumps focus to fuel revenue spurt
Management’s focus on premium fans and appliances (majorly water heaters) along with
agri pumps, where it has low market share, is estimated to drive ~18% revenue CAGR over
FY17-19E. Premium fans, which are high-value appliances, in FY16 accounted for 4% of total
revenue and contributed 7% in FY17 (CAGR of ~30% over FY11-16); their contribution is
likely to jump to ~11% by FY19 (CAGR of 50% over FY17-19E). The lighting business is not
expected to grow as fast as other segments due to the LED pricing impact. Over FY10-17,
Crompton’s consumer durables segment clocked ~13% CAGR and is expected to post ~19%
CAGR over FY17-19 led by focus on expanding premium products and cost control measures
well complemented by rising brand building & product innovation.
Chart 11: 18% top line CAGR over FY17-19E Chart 12: Lighting/appliances segment to post 19/14% CAGR
60.0 40.0
48.0 32.0
36.0 24.0
(INR bn)
(INR bn)
24.0 16.0
12.0 8.0
0.0 0.0
FY10
FY11
FY12
FY13
FY14
FY18E
FY19E
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY15
FY16
FY17
Revenues Lighting Products Electrical Consumer durable

Source:Company, Edelweiss research
Chart 13: Fans and lighting to clock 19% CAGR over FY17-19E
70.0
56.0
42.0
(INR bn)
28.0
14.0
0.0
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY10
Fans Lighting Pumps Appliances

Source:Company, Edelweiss research

Consumer Durables
Focus on premiumisation, better cost control auger well for OPM

Crompton’s target of growing the bottom line atleast in line with the top line, we believe, is
conservative and the bottom line and margins are expected to grow faster than the top line
led by focus on high-margin premium products such as fans (expected to grow 2x over FY17-
19E). Also, post new management’s focus on cost cutting, EBITDA margin is estimated to
jump 170bps from ~11.6% in FY16 to 13.3% in FY19.
Chart 14: EBITDA to outpace revenue growth over FY17-19 Chart 15: Margin to expand ~170bps
30.0 15.0
21.0 14.0
12.0 13.0
(%)
(%)
3.0 12.0
(6.0) 11.0
(15.0) 10.0
FY11
FY12
FY13
FY14
FY11
FY12
FY13
FY14
FY18E
FY19E
FY15
FY16
FY17
FY18E
FY19E
FY15
FY16
FY17
Revenue growth EBITDA growth EBITDA margins
Free cash to catapult 60% to ~IN5bn over FY17-19E

Driven by premium brand building strategy and expansion of distribution network,
Crompton is estimated to generate free cash flow of INR4.8bn by FY19 versus INR2.9bn in
FY17. Also, there is no major capex requirement, except for the INR200-250mn capex over
the next 2-3 years to expand its LED lighting segment. Apart from that, the only major
expense will arise from brand building and expansion of distribution network. The
company’s operating cash flow will keep rising with cost control and working capital
efficiency with FCF to OCF ratio at ~95%.
Chart 17: Strong cash flow growth for Crompton ahead Chart 18: RoE to decline post demerger to 30% by FY19E
6,000 126.0
98.5
4,756
4,800 107.2
94.0
3,546
3,600 88.4
2,956 89.5
(mn)
(%)
(%)
2,400 85.0 69.6

1,744
1,200 80.5 50.8
0 76.0 32.0
FY16 FY17 FY18E FY19E FY16 FY17 FY18E FY19E
FCF FCF/OCF RoE

Crompton Consumer
Key assumptions Income statement (INR mn)
Macros Income from operations 18,117 39,759 46,724 55,150
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct costs 12,702 27,349 32,052 37,722
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other expenses 2,315 5,257 6,121 7,114
Key financial assumptions EBITDA 2,095 4,902 6,002 7,356
Industry Growth Rate (%) Depreciation &amortisation 63 110 112 114
A) Fans 9.8 9.8 13.0 13.3 EBIT 2,032 4,792 5,890 7,242
B) Lighting 15.0 15.5 16.0 16.3 Interest expenses 355 655 650 650
C) Pumps 7.0 7.0 13.0 13.5 Other income 39 195 300 466
D) Appliances 3.0 4.2 8.0 10.0 Profit before tax 1,715 4,331 5,540 7,058
Crompton's growth rate (%) Provision for tax 525 1,399 1,828 2,329
A) Fans 8.2 12.5 19.0 19.2 Core profit 1,190 2,932 3,712 4,729
B) Lighting 17.6 0.1 18.7 18.6 Extraordinary items (139) (25) - -
C) Pumps 10.1 15.0 15.8 15.7 PAT after extraordinaries 1,051 2,907 3,712 4,729
D) Appliances 11.9 32.4 13.6 15.0 Adjusted net profit 1,190 2,932 3,712 4,729
Depriciation as a % of FA 1.3 1.1 1.1 1.1 Basic shares outstanding (mn) 313 627 627 627
Tax rate (%) 33.3 32.5 33.0 33.0 EPS (INR) basic 3.8 4.7 5.9 7.5
Diluted equity shares (mn) 313 627 627 627
EPS (INR) fully diluted 3.8 4.7 5.9 7.5
CEPS (INR) 4.0 4.9 6.1 7.7
Common size metrics- as % of net revenues

Direct cost 70.1 68.8 68.6 68.4
Employee expenses 5.5 5.7 5.5 5.4
S G &A expenses 12.8 13.2 13.1 12.9
Depreciation & Amortization 0.3 0.3 0.2 0.2
Interest expenditure 2.0 1.6 1.4 1.2
EBITDA margins 11.6 12.3 12.8 13.3
EBIT margins 11.2 12.1 12.6 13.1
Net profit margins (adjusted) 6.6 7.4 7.9 8.6
Growth metrics (%)

Revenues (43.9) 119.5 17.5 18.0
EBITDA (34.9) 134.0 22.4 22.6
PBT (46.7) 152.5 27.9 27.4
Net profit (45.6) 146.3 26.6 27.4
EPS 9.0 23.0 26.6 27.4

Consumer Durables
Balance sheet (INR mn) Cash flow metrices (INR mn)
Equity capital 1,254 1,254 1,254 1,254 Operating cash flow 1757 3105 3771 4956
Reserves & surplus 1,034 4,138 6,769 10,255 Financing cash flow (882) (1,094) (1,731) (1,893)
Shareholders funds 2,287 5,392 8,023 11,508 Investing cash flow 24 (3,151) 75 266
Long term borrowings 5,073 6,500 6,500 6,500 Net cash flow 900 -1140 2115 3329
Short term borrowings 100 0 0 0 Capex (13) (148) (225) (200)
Total Borrowings 5,173 6,500 6,500 6,500
Sources of funds 7,460 11,892 14,523 18,008 Profitability & liquidity ratios
Gross block 9,818 9,964 10,189 10,389 Year to March FY16 FY17 FY18E FY19E
Depreciation 1,238 1,349 1,461 1,575 ROAE (%) (on adjusted profits) 104.9 76.4 55.3 48.4
Net block 8,580 8,615 8,728 8,814 ROACE (%) 54.6 49.5 44.6 44.5
Total fixed assets 8,580 8,615 8,728 8,814 Debtors days 42 44 47 48
Current investments 0 3,185 3,185 3,185 Inventory days 30 30 29 29
Inventories 2,100 2,348 2,752 3,239 Fixed assets t/o (x) 4.2 4.6 5.4 6.3
Sundry debtors 4,165 5,434 6,591 7,779 Debt/equity 2.3 1.2 0.8 0.6
Cash and equivalents 900 700 2,815 6,144 Interest coverage 5.7 7.3 9.1 11.1
Loans and advances 742 685 981 1,128 Payable days 125 114 104 104
Total current assets (ex cash) 7,007 8,468 10,323 12,146 Cash conversion cycle (52) (40) (28) (28)
Sundry creditors and others 8,645 8,448 9,900 11,652 Current ratio 0.8 0.9 1.0 1.0
Provisions 425 811 811 811 Debt/EBITDA 2.5 1.3 1.1 0.9
Total CL & provisions 9,070 9,258 10,711 12,463 Adjusted debt/Equity 2.3 1.2 0.8 0.6
Net current assets (Ex cash) (2,064) (791) (388) (317)
Net deferred tax 43 182 182 182 Operating ratios
Uses of funds 7,459 11,892 14,523 18,008 Year to March FY16 FY17 FY18E FY19E
Adjusted BV per share (INR) 7 9 13 18 Total asset turnover 4.9 4.1 3.5 3.4
Fixed asset turnover 4.2 4.6 5.4 6.3
Free cash flow Equity turnover 16.0 10.4 7.0 5.6
Net profit 1,190 2,932 3,712 4,729 Valuations parameters
Depreciation 63 110 112 114 Year to March FY16 FY17 FY18E FY19E
Interest (Net of Tax) 237 442 436 436 EPS (INR) fully diluted 3.8 4.7 5.9 7.5
Others (90) 136 -86 (252) Y-o-Y growth (%) 9.0 23.0 26.6 27.4
Gross cash flow 1,400 3,621 4,174 5,027 CEPS 4.0 4.9 6.1 7.7
Less:Changes in WC (357) 517 403 71 Diluted P/E (x) 56.7 46.1 36.4 28.6
Operating cash flow 1,757 3,105 3,771 4,956 Price/BV (x) 29.5 25.1 16.9 11.7
Less: Capex 13 148 225 200 EV/Sales (x) 4.0 3.5 3.0 2.5
Free cash flow 1,744 2,956 3,546 4,756 EV/EBITDA (X) 34.3 28.8 23.1 18.4
Dividend yield (%) 0.0 0.7 0.8 0.9

Crompton Consumer
Additional Data
Directors Data
Mr. Shantanu Khosla Managing Director Mr. Mathew Job Chief Executive Officer
Mr. Sandeep Batra CFO Mr. P. M. Murty Independent Director
Mr. D. Sundaram Independent Director Mr. Hemant Madhusudan Nerurkar Independent Director
Ms. Shweta Jalan Independent Director Mr. Promeet Ghosh Independent Director
Mr. Ravi Narain Independent Director
Auditors - Sharp & Tannan Chartered Accountants

*as per last annual report
Holding – Top10
Amalfiaco Limited 22.34 Macritchie Invs Pte Ltd. 12.03
Life Insurance Corporation of India 4.78 Capital Group Companies Inc. 4.73
Birla Sun Life Asset Management 3.78 HDFC Asset Management Co. Ltd. 2.48
Goldman Sachs Group Inc. 2.46 Tiaa Cref Eq. Fund 2.43
Franklin Resources 1.99 Vanguard Group 1.93
*in last one year
Bulk Deals
26 Sep 2016 HSBC Global Investment Funds Mauritius Ltd. Sell 6659688 157.00
26 Sep 2016 HSBC Global Investment Funds Indian Equity Buy 6659688 157.00
*in last one year
Insider Trades
24 Aug 2016 Avantha Holdings Buy 10725000
26 Jul 2016 Avantha Holdings Buy 129313000
*in last one year

Consumer Durables

INITIATING COVERAGE
FINOLEX CABLES
Sustaining niche in commoditised space
Finolex Cables (FCL) is one of the largest players in the ~INR200bn EDELWEISS 4D RATINGS
domestic electrical cables & wires industry with ~12% market share. Our Absolute Rating BUY
conviction on FCL is based on: a) its well diversified cables/wires business Rating Relative to Sector Outperform
with backward integration which will help sustain its niche, despite being Risk Rating Relative to Sector Low
in a commoditised industry; and b) potential infra/urban growth, new Sector Relative to Market Overweight
segments & geographical reach that will drive strong growth over the
next 3-5 years. A robust business model with strong tailwinds—GST,
MARKET DATA (R: FNXC, B: FNXC IN)
government's push on Housing/Power For All—we believe will help drive
CMP : INR 503
23%/25% earnings growth/RoCE over FY17-19E, which convinces us to Target Price : INR 616
initiate with ‘BUY’ and target price of INR616, ascribing 23x PE(25% 52-week range (INR) : 571 / 362
discount to 1 yr fwd sector PE) given lower profitability. Share in issue (mn) : 152.9
M cap (INR bn/USD mn) : 77 / 1,189
Government thrust on infra/new segments key earnings drivers Avg. Daily Vol.BSE/NSE(‘000) : 83.7
Government’s thrust on infra/Housing For All is a potent growth catalyst for FCL.
Tailwinds from key regulations like formalisation of economy, etc., will bolster growth
of organised sector, of which FCL will be key beneficiary. We expect cables business to Current Q3FY17 Q2FY17
Promoters * 37.3 37.3 37.3
clock 18% CAGR (FY17-19E), while new businesses like fans, switchgears/power cables
to post higher 46% CAGR, driving reasonable top-line/bottom-line CAGR of 17%/23% MF's, FI's & BK’s 19.0 17.4 16.7
over FY17-19, with reasonable RoE/RoCE of 18%/25%. FII's 6.2 7.9 7.9
Others 37.5 37.4 38.1
* Promoters pledged shares : NIL
Strong franchise in cables with robust/diversified business (% of share in issue)
Strong positioning in cables/wires segment has helped FCL build a well-diversified

business with exposure to multiple sectors—infra, power, auto, telecom, etc. Ramp up PRICE PERFORMANCE (%)
in market share (4-12% over FY06-16) led to reasonable 13% top-line CAGR over the Stock over
Sensex Stock
Sensex
period. We believe, focused strategy to have pan-India distribution will enable FCL
sustain its industry-leading growth over the ensuing 3-5 years. 1 month 2.8 0.3 (2.5)
3 months 8.7 (5.8) (14.5)
Outlook and valuation: Exciting growth course; initiate with ‘BUY’ 12 months 14.7 34.7 20.0
Equipped with a well-diversified business model, we believe, FCL is set on an exciting

growth course over the next 3-5 years led by robust outlook for infra/construction
sectors. We initiate coverage with ‘BUY/SO’.
Amit Mahawar
Financials (SA) +91 22 4040 7451
Revenues( INR mn) 25,747 26,707 31,236 36,829 Darshika Khemka
Growth (%) 5.1 3.7 17.0 17.9 +91 22 4063 5544
EBITDA (INR mn) 3,389 3,714 4,393 5,247
Adjusted profit (INR mn) 2,488 2,759 3,429 4,178 Krish Kohli
Diluted EPS ( INR) 16.3 18.1 22.5 27.4 krish.kohli@edelweissfin.com
Growth (%) 9.2 11.1 24.3 21.8

Diluted P/E (x) 30.9 27.8 22.4 18.4
July 14, 2017
ROAE ( %) 17.4 15.9 17.0 17.9
Consumer Durables
Its advantage cables: Government’s infra/rural push key catalyst
Improving power availability, housing for all to propel cables & wires growth
The government’s focus on rural electrification under the Deendayal Upadhyayaa Gram
Jyoti Yojana (GGUGJY) with total outlay of INR756bn over FY14-19 and Power For All (a joint
initiative by Government of India (GoI) and state governments) with the objective to make
power available to all improved the availability of electricity across India during 2001-17
with increase in the number of villages electrified (refer exhibit below). This has been one of
the key drivers for strong growth in the cables & wires industry.
We expect the cables & wires industry to grow ~15% over FY17-22 with total market size
touching INR813bn, of which, organised players’ share is likely to improve to 72% in FY22
from 61% in FY17 mainly led by shift in market share. We expect FCL to post 18% top-line
CAGR over FY17-19 given its leadership in the domestic cables & wires industry. The
company has one of the best product portfolios and a strong distribution network of 3,500
plus dealers, mainly focused in South/West India.
Chart 1: Cables & wires growth linkage to improving electrification

120.0 15.0
With increasing
number of villages 14
103.0 13.8
being electrified each 13
year and the
government’s target to 86.0 12.6
(%)
(%)
achieve Power for All
by FY19, we expect 69.0 11.4
11 99 100
demand for cables to 90 94
88 83
jump and estimate the 75
cables market to post 52.0 93 67 10.2
13% CAGR over FY17- 10 56 55
44
19. 35.0 9.0
2001 2011 2017 2019E
Rural Urban India Cables & Wires CAGR

Source: Census 2011, Industry, Edelweiss research

Finolex Cables
Chart 2: Housing For All to aid strong cables industry growth

400 15.0
13.9
13.5
350 13.6
300 12.2
(Nos mn)
11.1
(%)
250 349.8 10.8
9.5 294.9
200 246.7 9.4
193.6
150 8.0
2001 2011 2016 2025
No. of Households Cables & Wires CAGR
Source: Census 2011, Industry, Edelweiss research
Chart 3: Cables Industry to post 13% CAGR over FY17-22E in value terms
900
Cables industry is likely to
post strong 14% value
growth over FY17-22E led 720
by robust infra focus, and
540
(INR bn)
housing & electricity

boost. Shift in market
share could drive higher 360
17-18% growth for large
organised players. 180
0 2018E
2019E
2020E
2021E
2022E
2011
2012
2013
2014
2015
2016
2017
Cables & Wires


Consumer Durables
Product & geography expansion offer enough scope for growth

New geographies to diversify revenue
With the new Roorkee unit set up in FY14, we expect FCL to expand its presence in North
and East India. Earlier, the company derived ~70-75% revenue from South and West India
with its factories located in Pune and Goa. We expect FCL to benefit from increasing focus
on North region - accounts for significant share of overall cables & wires market where it
currently has lower footprint. A new manufacturing unit in the North, we believe, will help
the company re-position itself stronger in the region. We expect revenue share from North
to improve substantially from 10% currently to 18-20% by FY19E.
Chart 4: Strong position in South/West India Chart5: FCL plans to enhance North focus with Roorkee plant
45.0 Electrical cables
Communication Cables
Copper Rods
Electrical Switches
37.0 Lamps
Roorkee (Uttarakhand)
29.0
(%)
21.0
Urse(Pune)
Pimpri (Pune)
13.0
Goa
5.0
South North West East
Revenue
Source: Company Annual Report, Edelweiss research
Core product demand to remain strong

FCL’s core product (electrical wires) comprises ~65-67% of its revenues which can be further
categorised into light-duty electrical, power and control cables. The government’s emphasis
on ‘Housing For All’ by 2022, the recent passage of the Real Estate Regulatory Bill, as well as
the government’s plans to add 187GW of power (led by renewable focus) by FY22 are
expected to drive demand worth INR700bn for the cables & wires industry over FY17-22E.
Corning Finolex joint venture on strong growth trajectory

FCL manufactures telecommunications cables, optic fibre cables (OFC) to jelly filled telecom
cables (JFTC)), which comprises ~15% of turnover. This was largely a tender-based
institutional buyer segment. In FY12, the company entered into a 50:50 joint venture (JV)
with Corning Inc. and employed the latter’s technology to augment its capacity from 1.2mn
(optical) fibre km to 2mn fibre km with their existing plant at Chakan, which started
production in FY12/13. As per the JV agreement, all further requirements of OFC beyond
2mn km would be met through purchases from Corning.

Finolex Cables
Chart 6: Revenue of Corning Finolex JV to post ~25% CAGR (FY17-19E)

2,500
Commenced
2,100 Operations
Corning Finolex Optical
Fibre clocked revenue
of INR1.6bn with 24% 1,700
(INR mn)
CAGR over FY14-16.
1,300
900
500
FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Corning Finolex Optical Fibre Private Limited revenue
Backward integration shoring up revenue

FCL also manufactures copper rods as part of its backward integration process, which it sells
in the market contributing to another ~15% of revenue. Backward integration has helped
the company in: a) maintaining the most competitive cost structure; and b) maintaining its
widest industry portfolio.
Product diversification
Plans are also afoot to diversify FCL’s product portfolio beyond cables to include fans and
switchgears (constituted ~2-3% of FY16 revenues), which are sold through its EWC products
distribution channel. The company had launched CFL lamps in FY08-09, but LED lamps have
fast replaced CFLs making it almost extinct. Currently, FCL is not focused on its lighting
business. We expect it to post increasing revenues from its switchgear segment as it can
easily leverage its existing dealer network.
Management plans to expand its product basket to improve its ‘channel sweating’. With
envisaged capex of INR700mn, FCL is all set to manufacture fans (capacity of 2.4mn fans p.a)
from FY18. The company proposes to simultaneously ramp up existing sales of outsourced
products like LED lighting products, switchgears and lighting fixtures in a phased manner.
Given that FCL’s new focus areas include fans, switch gears and geysers which can
essentially be sold through its existing dealer network, we believe the company will be able
to reasonably penetrate these segments over next 3-5 years and take the share of these
items to 6-7% of revenues by FY19E from 2% in FY16.

Consumer Durables
Fig. 1: With industry coverage in place market share remains key
Finolex
INR 0.8tn
52%
Consumer
Durables
INR
Industry 1.5tn

Finolex Cables
Valuation
FCL has come a long way from bearing a massive derivative loss in FY09 to recording
sustainable improvement in profitability and cash flows. Leveraging its strong brand and
dealer network, the company posted healthy 17/25% CAGR in EBITDA/PAT during FY10-17,
driven by an impressive 640bps improvement in margin. We expect the company to post
18/23% CAGR in revenue/PAT over FY17-19, following pick up in constructions & infra well
complemented by high growth in consumer segment, which will move from 2-6% of sales
over FY17-19E.
We initiate coverage on FCL with ‘BUY/SO’ recommendation/rating and target price of

INR616 (23% upside), ascribing PE of 23x, which is at 25% discount to consumer durables
multiples given that cables has lower profitability than the core consumer durables space.
We expect RoE/RoCE to remain stable at 18/24.5%.
Chart 7: Valuation re-rating may continue given potential earnings triggers

30.0
24.0
18.0
(x)
12.0 Average P/E at

15x (FY12-17)
6.0
0.0
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Chart 8: EV/Sales re-rating over FY12-17 led by OPM scale up Chart 9: RoCE to remain strong with surge in FCF
3.5 3.0 30.0
2.8 2.2 24.0
2.1 1.4 18.0

(IN R mn)
(INR mn)
(x)
1.4
0.6 12.0
0.7
(0.2) 6.0
0.0
(1.0) 0.0
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
1 year forward EV/Sales FCF ROCE

Source: Company, Bloomberg, Edelweiss research

Consumer Durables
Key Risks
Cyclical risk
FCL operates in cyclical businesses and thus its revenues are subject to volatility in interest
rate and capex cycles.
Competition risk
Cables & wires business is a commoditized business & hence is exposed to higher
competition given low entry barriers. FCL also faces competition from a large unorganised
sector, which manufactures cheap but inferior products in terms of quality.
Raw material price fluctuation risk

FCL is exposed to volatility in its crucial raw material like copper and aluminium, which can
adversely impact its profitability. To mitigate the risks of volatility in raw material prices the
company passes it to customers or does hedging.
Currency fluctuation risk

Imported raw materials which the company uses are exposed to exchange rate fluctuations
and can adversely affect the cost thereby impacting margins adversely. Exports contribute a
key share in the company’s total revenue, thus volatility in the foreign currency rates can
have significant impact on profitability of the company.

Finolex Cables
Company Description
Overview
Finolex Cables (FCL), the flagship company of the Finolex Group, incorporated in 1956, as a
small scale industrial unit to manufacture PVC insulated cables for the automobile industry,
is now one of the most diversified and largest manufacturers of electrical and
telecommunication cables in the country. FCL has the widest range cable products in the
electrical and communication cables segment and is recognised as the “Total Cable
Solutions” company that can provide cable solutions for every need being the only cable
company to hold super brand status. Apart from cables, FCL has expanded into product
segments that are complementary to the electrical cables market like CFL’s, LED lamps and
electrical switches and fans. The company is technically superior to its competitors and also
enjoys cost advantage through its venture into materials like CCC rods, PVC compounds,
optical fibre and fibre rods, thus enabling backward integration.
Table 1: FCL’s timeline

Year Milestone
1956 In 1956, started manufacturing PVC insulated cables for the automobile
sector
1972 Purchased Alpha Rubber that later became Finolex Cables
1980 Started manufacturing 1.1 KV PVC insulated power & control cables
1981 Expanded the business with the inception of Finolex Pipes in March 1981
in Pune. As backward intergration it setup a PVC resin facility at
Ratnagiri on the West Coast
1983 Came up with a Public Offer in July 1983
1984 Started manufacturing Jelly Filled Telphone Cables, becoming the first co.
in the private organized sector to supply JFT cables to DoT
1992 Established Finolex Plasson Industries which was the first JV between
Finolex Group - India and Plasson - Israel, which provides a wide range
of products and solutions in the field of precise irrigation and intensive
agriculture cultivation
1995 Backward Intergration to manufacture optic fibre cables and copper rods
(with technical collaboration from Essex Inc., USA)
1996 Diversified its product portfolio & started manufacturing PVC sheets, FR-
LSH PVC insulated industrial cables & fibre optic cables.
1998 Started manufacturing telephone & switchboard cables
2008 Entered into a VJ with Sumitomo Japan to manufacture extra high voltage
power cables upto 500Kv which is situated in Shirwal near Pune
2011 Started marketing JV - Corning Finolex Optical Fibre , Corning
International is the world's largest fibre manufacturing company
Source: Company

Consumer Durables
Table 2: Product profile
Group Products Application
Electrical Cables 1100 V PVC Insulated Cables Electrification of industrial establishments,
electrical panel wiring and consumer electrical
goods
Motor Winding PVC Insulated Cables and Submersible pumps and electrical motors
3 Core Flat Cables
Automotive/battery cables Wiring harness for automobile industry and
battery cables for various applications
UPS cables For providing power from the UPS to the computer/
appliances in the networking environment
Heavy duty, underground, low voltage, Connection to the user point from main supply of
power and control cables power
Heavy duty, underground, high voltage, Intra-city power distribution network
power cable
Elevator cables For use by elevator industry
Communication cables Jelly filled telephone cables (JFTCs) Telephone line connections to exchanges and
communication cables
Local area network (LAN) cables Indoor and outdoor networking, voice and data
transmission, broadband usage
PE insulated telephone cables Telephone instrument connections to EPABX
(Switchboard cables)
Coaxial cables Cable TV network solutions, microwave
JFT Cables communications, mobile towers
Speaker cables Meant for broadcasting applications in buildings
& electronic goods
Optic Fibre Principal raw material for optic fibre cables
Optic Fibre cables For use in networks requiring high speed transfer
of large bandwidth due to voice image and data
Telephone transmission
cables V-SAT cables For connecting V-SAT dish to base station
CCTV cables For better quality of CCTV images
Copper Rods CCC rods of 8 mm diameter Raw material for manufacture of copper based
cables
Electrical Switches Premium & classic switches, sockets, Domestic lighting, hotels, shops, offices, corridors
regulators, etc
Lamps Retrofit & non-retrofit CFL lamps as well Domestic lighting, hotels, shops, offices, corridors
as T5 tube lights, fittings and LED base and industrial lighting
lighting switches
Source: Company

Finolex Cables
Electrical segment is split into 3 sub segments:

Light Duty Electrical Cables: FCL manufactures FR PVC insulated cables, FR-LSH PVC
insulated cables single and HFFR Halogard used extensively for electrification of industrial
establishments, electrical panel wiring in industrial establishments and major equipment,
consumer durable goods, automobiles, agricultural pump-sets, small generator applications
besides general lighting.
Power and Control Cables: FCL manufactures high-voltage 1.1kV to 66 kV cables. These
cables are designed for carrying out various constructions depending on their application,
though they are meant for underground usage. The company manufactures only insulated
power cables and meets international standards. Power and control cables, up to 3.3kV
rating, are used for connecting user points to the main supply of power. Power cables above
3.3kV rating are meant for use in underground applications for intra-city electricity
distribution network.
Flexible cables: These single core cables have higher flexibility due to larger number of
strands in the conductors and are used for wiring of control panels, machines and various
electrical installations in small, medium and large industries where bending radius is low.
Chart 10: Use of electrical cables across industries

Power
10%
We expect electrical Agricultural

10%
cables, a focus area for
FCL, to clock ~18%
CAGR over FY17-19
with growing use in Consutruction
Industrial 50%
construction, power
15%
and industrials.
Auto
15%
Source: Company

Consumer Durables
Table 3: Cables used across industry
Industry Type of Cable used & application
>> 1.1 to 66 kV Power Cables - for
underground use
Consutruction >> up to 3.3 kV Power & Control
cables - connecting user point to the
main supply of power
Power cables above 3.3 kV -
Power underground application for intra-
city electricity distribution network.
Light Duty Electrical Cables -
Industrial Electrification of Industrial
esyablighments
Light Duty Electrical Cables -
Agricultural
Agricultural Pumps
Consumer Durables Light Duty Electrical Cables
Auto Light Duty Electrical Cables
Source: Company
Electrical cables contribute ~70% to turnover

FCL is one of India's leading independent cable players involved in the manufacture of a
wide range of cost-competitive and technologically superior cables. While electrical cables
comprises ~70% of total revenues, communication cables forms ~13%, copper rods ~16%
and FCL’s foray into new products of lamps and electrical switches accounts for 2% of
revenues.
Chart 11: Revenue mix by segment

Others
Copper Rods 2%
16%
Communication
Cables
14%
Electrical Cables
68%

Finolex Cables
Manufacturing units
• Pimpri, Pune
• Urse, Pune
• Goa
• Roorkee, Uttarakhand
Fig. 2: Finolex Cables business operations

Electrical Cables
Communication Cables
Copper Rods
Electrical Switches
Lamps
Roorkee (Uttarakhand)
Urse(Pune)
Pimpri (Pune)
Goa

Consumer Durables
Key personnel
Mr. D K Chhabria – Executive Chairman
Mr. Deepak K Chhabria, the MD and Chairman of FCL finished his Bachelor’s Degree of
Science in Engineering Management from University of Evansville, Indiana, USA. Mr.
Chhabria was actively involved in setting up 9 different manufacturing plants across 4
locations in India. Under his able guidance, the company now produces a variety of electrical
and communication cable products, copper rods, electrical switches, compact fluorescent
lamps and PVC Sheets.
Mr. Mahesh Viswanathan– Executive Director & CEO

Mr. Mahesh Viswanathan, B.Com and ACA, has over 13 years of experience working in
Information Technology and Implementing Solutions in the financial industry. He served as
Senior Director of Finance with Philips India and as Senior Systems Analyst at Sonata
Software, Bangalore (India) and Wipro.

Finolex Cables
Financial Outlook
Growth in top-line driven by electrical cables & wires expansion
FCL grew at 12% CAGR during FY06-17. Going ahead, we estimate the company to grow at
17% CAGR over FY17-19, primarily led by expanding operations that would capitalise on
stable demand for the company’s products. FCL is focused on its core electrical cables
business, which contributes ~70% of revenues. During FY06-17, this segment registered
production CAGR of 8% & is further expected to post a CAGR of ~10% over FY17-19E in
volume terms.
Chart 12: FCL to post revenue CAGR of 18% (FY17-19E) Chart 13: Electrical cables to clock ~9-10% CAGR (FY17-19E)
30 CAGR ~17% 95,000
CAGR ~13.7%
24 80,000
CAGR 9%
18 65,000
(INR bn)
(MT)
12 50,000
CAGR 8%
6 35,000
0 20,000
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Revenue (INR bn) Production (MT)
Electric cables segment to drive further profitability

Margins improved by 330bps to 13.9% in FY17 versus 10.6% in FY15 mainly due to the
decline in copper prices globally. We expect EBITDA to grow at 19% CAGR over FY17-19 and
margins to remain stable ~14.2% levels, mainly aided by contribution from high-margin
electric cables - clocked 19% EBIT margin in FY17 an all-time high for the company.
Pertinently, FCL was operationally profitable even through the financial meltdown in 2008
when it was saddled with huge forex losses (it used to import copper). During FY09-13, the
company wrote-off INR2.5bn owing to forex losses. Nevertheless, along with management
change, FCL initiated a major realignment exercise to avoid forex risks by deciding against
entering complex derivative contracts. The company decided to hedge its forex position
only through simple hedging contracts, thereby getting insulated from sharp volatilities in
future.

Consumer Durables
Chart 14: Sustained high margins amid rising material costs (rising copper prices)
4,000 15.0 80.0
15.0
3,600 11.8 77.0

11.8
3,200 8.6 74.0 8.6

(INR)
(%)
(%)
(%)
2,800 5.4 71.0 Marigns dipped to 5.4
FCL margin increased -0.7% due to forex
despite rise in 68.0 losses when material 2.2
2,400 copper prices 2.2
cost increased to 77%
2,000 (1.0) 65.0 (1.0)
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17 Material cost as % of revenue EBITDA margins RHS
MCX Copper Prices EBITDA margins RHS
Margin improved to 13.9% in FY17 following decline in raw

material cost to 73% in FY17 from 77% in FY09. We expect raw
material costs to further dip to ~71% by FY19 owing to tight
leash on costs, and thus post EBITDA margin of ~15% by FY19E.
Chart 15: Electric cables’ EBIT margin hit all-time high in FY17 Chart 16: RoE and RoCE to remain stable
20.0 29.0
18.0 21.8
16.0 14.6
(%)
(%)
14.0 7.4
12.0 0.2
10.0 (7.0)
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Electrical Cables for EBIT margin ROE ROCE

Source: Company, Bloomberg, Edelweiss research

Finolex Cables
Key assumptions Income statement (standalone) 17% 25% (INR mn)
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct cost 19,354 19,528 22,833 26,922
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee cost 1,072 1,192 1,386 1,603
Capacity Utilisations (%) Depreciation and amortisation 580 480 499 552
A) Electrical Cables 65.0 69.5 77.0 85.0 EBIT 2,809 3,234 3,894 4,696
B) Metal Communication Cables 20.0 18.0 20.0 23.0 Interest expense 90 43 45 48
C) Optical Fibre Communication Cables 65.0 80.0 85.0 93.0 Other income 644 602 817 1,036
D) Copper Rods 57.3 57.5 57.8 60.0 Add: Exceptional items - - - -
Realisations (INR) Profit before tax 3,364 3,793 4,665 5,684
A) Electrical Cables (INR mn/CKM) 1.4 1.3 1.4 1.5 Provision for tax 875 1,034 1,236 1,506
B) Metal Comm. Cables (INR '000/CKM) 140 133 140 147 Reported profit 2,488 2,759 3,429 4,178
C) Optical Fibre Comm. Cables (INR mn/KM) 6.5 6.5 6.7 7.1 Less: Exceptional Items (Net of Tax) - - - -
D) Copper Rods (INR '000/MT) 16 16 16 17 Adjusted Profit 2,488 2,759 3,429 4,178
Depreciation as a % of FA 5.2 4.2 4.2 4.5 Equity shares outstanding (mn) 153 153 153 153
Tax rate (%) 26.0 24.7 26.5 26.5 EPS (INR) basic 16.3 18.1 22.5 27.4
Capex (INR mn) 148 307 400 375 Diluted shares (mn) 153 153 153 153
Adjusted Diluted EPS 16.3 18.1 22.5 27.4
Adjusted Cash EPS 20.1 21.2 25.7 31.0
DPS 2.5 3.0 3.4 4.1
Dividend payout (%) 9.9 10.7 10.3 9.8
0.2 0.2
Direct cost 75.2 73.1 73.1 73.1
Employee cost 4.2 4.5 4.4 4.4
Other expenses 7.5 8.5 8.4 8.3
Depreciation and amortisation 2.3 1.8 1.6 1.5
EBITDA margins 13.2 13.9 14.1 14.2
6.43
Growth metrics (%) 3.30
Revenues 5.1 3.7 17.0 17.9
EBITDA 30.5 9.6 18.3 19.4
PBT 27.8 12.8 23.0 21.8
Adjusted Profit 41.3 10.9 24.3 21.8
EPS 9.2 11.1 24.3 21.8

Consumer Durables
Equity capital 306 306 306 306 Operating cash flow 2,976 1,813 2,504 2,884
Share warrants - - - - Financing cash flow (1,176) (592) (662) (799)
Reserves & surplus 15,650 18,469 21,281 24,707 Investing cash flow 256 2,699 417 661
Shareholders funds 15,956 18,775 21,587 25,013 NET CASH FLOW 2,056 3,920 2,259 2,746
Long term borrowings - - - - Capex (148) (307) (400) (375)
Short term borrowings - - - - Dividend paid (460) (549) (617) (751)
Total Borrowings - - - -
Long Term Liabilities & Provisions 311 66 66 66 Profitability & liquidity ratios
Deferred Tax (Net) 244 189 189 189 Year to March FY16 FY17 FY18E FY19E
Sources of funds 16,510 19,030 21,842 25,268 ROAE (%) 17.4 15.9 17.0 17.9
Gross block 11,182 11,489 11,889 12,264 ROACE (%) 23.7 22.1 23.3 24.6
Depreciation 6,860 7,340 7,840 8,392 Inventory (days) 61 74 80 80
Net block 4,322 4,149 4,049 3,873 Debtors (days) 17 17 16 16
Capital work in progress 31 82 82 82 Payable (days) 48 46 40 40
Total Fixed Assets 4,353 4,230 4,131 3,954 Cash conversion cycle 31 45 56 55
Non Current Investments 2,939 3,020 3,020 3,020 Current ratio 2.9 3.2 3.9 4.5
Current Investments 4,066 5,939 5,939 5,939 Gross Debt/EBITDA - - - -
Inventories 3,293 4,620 5,402 6,370 Adjusted Debt/Equity - - - -
Sundry debtors 1,259 1,244 1,455 1,715 Gross Debt/Equity - - - -
Cash and cash equivalents 2,187 2,009 4,268 7,014
Loans and advances 1,021 522 575 690 Operating ratios
Other current assets 65 71 71 71 Year to March FY16 FY17 FY18E FY19E
Total current assets (ex cash) 5,638 6,458 7,503 8,846 Fixed assets turnover (x) 5.7 6.3 7.6 9.3
Trade payable 2,646 2,321 2,714 3,200 Total asset turnover(x) 1.7 1.5 1.5 1.6
Other Current Liab. & ST Provisions 27 305 305 305 Equity turnover(x) 1.8 1.5 1.5 1.6
Total current liabilities & prov. 2,674 2,626 3,019 3,505
Net Current Assets (ex cash) 2,964 3,832 4,484 5,341 Valuation parameters
Diluted EPS (INR) 16.3 18.1 22.5 27.4
Free cash flow Y-o-Y growth (%) 9.2 11.1 24.3 21.8
Year to March FY16 FY17 FY18E FY19E CEPS (INR) 20.1 21.2 25.7 31.0
Reported Profit 2,488 2,759 3,429 4,178 Diluted P/E (x) 30.9 27.8 22.4 18.4
Add: Depreciation 580 480 499 552 Price/BV(x) 4.8 4.1 3.6 3.1
Interest (Net of Tax) (410) (421) (567) (726) EV/Sales (x) 2.9 2.8 2.3 1.9
Add: Others 486 (138) (204) (262) EV/EBITDA (x) 22.0 20.1 16.5 13.3
Less:Changes in working capital 168 868 652 857
Opertaing cash flow 2,976 1,813 2,504 2,884
Less: Capex 148 307 400 375
Free cash flow 2,829 1,505 2,104 2,509

Finolex Cables
Additional Data
Directors Data
Mr. D.K.Chhabria Executive Chairman Mr.Mahesh Viswanathan Executive Director & CFO
Dr. H.S.Vachha Director Mr. Atul C Choksey Director
Mr. Sanjay K. Asher Director Mr. P.G.Pawar Director
Mr.S.B.(Ravi) Pandit Director Mr. Pradeep R.Rathi Director
Mr.Adi J. Engineer Director Mrs. Namita V.Thapar Director
Auditors - B.K.Khare & Co.

Holding – Top10
Orbit Electricals Pvt. Ltd. 30.70 Finolex Industries 14.51
Templeton Asset Management 5.40 DSP Blackrock Investment Manager 5.02
Chhabria Anil R 3.11 Katara Aruna Mukesh 1.84
Tata Asset Management 1.81 Dimensional Fund Advisors 1.51
Birla Sun Life Asset Management 1.45 SBI Funds Management 1.36
*in last one year
Bulk Deals
16-Feb-17 SBI Mutual Fund Buy 935587 437
16-Feb-17 Armor Capital Partners LP Sell 935587 437
*in last one year
Insider Trades
No Data Available
*in last one year

Consumer Durables

COMPANY UPDATE
HAVELLS INDIA
Ready to ride new growth phase
Havells India (HAVL) is one of the strongest brands in the consumer EDELWEISS 4D RATINGS
electrical space with dominant market share across all key segments—
Absolute Rating BUY
cables/wires, switchgears, lighting, etc. HAVL is embarking on an exciting
Rating Relative to Sector Outperformer
journey with recent addition of the Lloyds brand to its kitty as: a) HAVL can Risk Rating Relative to Sector Low
leverage Lloyds’ strong 10,000 touch points to market its products; and b) Sector Relative to Market Overweight
humungous scope to scale up profitability of Lloyds’ business which is
currently much below industry average. Additionally, multiple growth
levers—GST, Housing For All etc.,—brighten prospects over the next 3-5 MARKET DATA (R: HVEL.BO, B: HAVL IN)
years, which, in our view, have been key value drivers over the past 12 CMP : INR 477
months. Our TP of INR575, implying 38x FY19E P/E, seems sustainable Target Price : INR 575
52-week range (INR) : 526 / 303
given: (a) structural drivers—profitability ramp up in AC business over 2-3
years & renewed business positioning post Lloyds acquisition; and (b)
improving growth potential with Housing/Power For All, market share shift Avg. Daily Vol.BSE/NSE(‘000) : 1,504.7
from unorganised to organised segment, etc. Maintain ‘BUY’.
Lloyds acquisition: A potent value driver
Current Q3FY17 Q2FY17
The Lloyds acquisition gives HAVL: a) access to a powerful consumer durable brand,
Promoters * 61.6 61.6 61.6
especially in the economy range; and b) immediate access to 10,000 plus touch points.
MF's, FI's & BK’s 2.7 2.7 2.9
However, in our view, medium-term value driver remains potential improvement in
FII's 26.5 26.2 26.7
Lloyds’ operating margin from industry bottom level currently given HAVL’s track
Others 9.2 9.5 8.8
record of successfully repositioning businesses/brands acquired earlier. * Promoters pledged shares : NIL
(% of share in issue)
Multiple tailwinds to propel existing business
The government’s focus on Housing/Power For All are significant tailwinds for PRICE PERFORMANCE (%)
switchgears, lighting and cables & wires, which account for ~75% of HAVL’s business. EW Capital
Stock Nifty
Goods Index
Moreover, rising demand for premium products and shift in market share from the
unorganised to organised segment, especially in switchgears, cables & wires, lighting 1 month (3.2) 2.8 0.2
etc., will propel the company to clock 26% earnings CAGR over FY17-19E. 3 months (1.9) 8.0 1.9
12 months 32.9 15.4 14.0
Outlook and valuations: Robust growth potential; maintain ‘BUY’
We believe, entry in white goods via Lloyds acquisition entails potential of HAVL
emerging one of the largest conglomerates with dominant market share in the white Amit Mahawar
goods/light electrical space over the next 3- 5 years underpinned by its robust dealer +91 22 4040 7451
network and increasing demand for premium products. We maintain ‘BUY/SP’. amit.mahawar@edelweissfin.com
Financials (INR mn) Swarnim Maheshwari

+91 22 4040 7418
Year to March FY16 FY17E FY18E FY19E swarnim.maheshwari@edelweissfin.com
Revenues 53,783 61,353 98,236 115,217
Rev. growth (%) 2.7 14.1 60.1 17.3 Darshika Khemka
+91 22 4063 5544
EBITDA 7,549 8,241 12,063 14,563 darshika.khemka @edelweissfin.com
Adjusted Profit 5,096 5,969 7,634 9,452
Adjusted diluted EPS (INR) 8.2 9.6 12.2 15.2 Krish Kohli
krish.kohli@edelweissfin.com
Diluted P/E (x) 58.4 49.8 39.0 31.5
EV/EBITDA (x) 37.6 34.0 23.1 18.9
ROAE (%) 19.1 19.2 21.8 23.9 July 14, 2017
Lloyds business entails humungous scope for improvement

HAVL had been toying with the idea of entering the AC business. This business is more about
brand and distribution network rather than manufacturing operations. The other major
hurdle would have been a separate distribution channel. We believe, Lloyds’ 10K touch
points provides strong level playing field vs MNC peers to begin to tap the wider white
goods space. In our view, key value driver for Havells could be if the company is able to
strengthen Lloyds brand further, increasing margin and yet maintaining market share.
There are no synergies between HAVL’s existing dealer network and Lloyds. The latter began
its journey from tier 2/3 and cities and is now getting into metros. Brand availability and
awareness is in place at the pan-India level, which will help Havells penetrate further.
Chart 1: Margin trend of top white good players
15.0
11.8
8.6
(%)
5.4
2.2
(1.0) FY12 FY13 FY14 FY15 FY16 FY17

Voltas Lloyd Hitachi Whirlpool Bluestar
Fig. 1: HAVL now has one of the best segment coverage
Havells
Consumer
Durables
INR INR 1.5tn
Industry 1.5tn 96%

Havells India
Potential areas that could drive operational improvement in Lloyds’ business portfolio:
• Lloyds has no presence in modern retail. Focus on expanding in new channels will
propel growth.
• Margin below industry average: Lloyds’ margin at around 5-6% leaves enough scope
for improvement versus India average of 8-10%. HAVL believes that in the initial phase,
margin will be lower due to higher ad spends and brand building.
• Improve Lloyds brand: While HAVL will be working on improving operating margin of
Lloyds’ current portfolio, there is greater merit in nurturing the brand to gradually
penetrate premium AC segments given the shift in market trend to premium products.
However it looks challenging considering positioning of global giants like Daikin, Hitachi
etc, would remain a key monitorable.
Table 1: A brief snapshot of INR110-120bn AC market in India

Particulars LG Voltas Blue star Daikin Hitachi Havells - Lloyd Samsung
Market share (%) 21.0 21.0 11.0 12.0 11.0 12.0 10.0
Total models 100 76 72 64 NA 30
Total touch points 35,000 12,000 3,800 4,000 4,000 10,000 NA
Service Centers 194 200 25 75 41 275 NA
Ad spend (FY16) (INR mn) 500 500 630 NA 1,140 500 300
FY16 AC sales (INR mn) 21,500 19,371 10,750 NA 12,500 8,305 NA
Multiple tailwinds to propel existing business over FY17-19

The government’s focus on Housing/Power For All are significant tailwinds for switchgears,
lighting and cables & wires, which account for 75% of HAVL’s business. Moreover, more
than 50% of industry segments in which HAVL operates in have high share of unorganised
players. Our channel checks post demonetisation indicate that organised players have
grown at a much faster clip versus unorganised players, especially in cables & wires,
switchgears, fans and lighting segments. We envisage this trend to strengthen as the
economy gets incrementally formalised. Ergo, rising preference for premium products and
shift in market share from the unorganised to organised segment will propel the company to
clock 26% earnings CAGR over FY17-19.
Table 2: HAVL’s segment revenues/revenue growth assumptions till FY19

Segment revenue FY2015 FY2016 FY2017 FY2018E FY2019E
Cables & Wires (INR mn) 21,904 22,081 26,594 31,883 37,705
% growth 0.8 20.4 19.9 18.3
Switchgears (INR mn) 12,790 12,861 14,208 17,567 19,417
% growth 0.6 10.5 23.6 10.5
Lighting & Fixtures (INR mn) 7,410 8,016 10,617 12,833 14,260
% growth 8.2 32.5 20.9 11.1
ECD* (INR mn) 10,283 11,411 14,938 19,342 24,631
% growth 11.0 30.9 29.5 27.3
Note: *Electrical Consumer Durables

Chart 2: High incidence of unorganised players in HAVL’s operating segments
Portion unorganised
Electrical
Consumer Cables &
40%
Durables Wires
23% 40%
25%
Lighting &
Fixtures
16% 35%
Switchgears
21% 20%
Acquisition impact on our earnings estimates

As per our understanding, while the Lloyds acquisition is 10% EBITDA accretive for FY18/19,
the accretion is only ~2% at the PAT level as HAVL raises INR5.5bn debt to fund the
acquisition. Further, we have assumed INR15.5bn as intangibles and amortisation rate of
~1.5% primarily on the distribution network. We expect Lloyds’ AC business to clock 15%
CAGR over FY17-19, while other businesses are estimated to grow in single digit.
Table 3: Our estimates of Lloyds financials post merger

Lloyd financials FY17E FY18E FY19E
Revenues 18,250 21,508 24,962
Revenue growth (%) 31.8 17.9 16.1
EBITDA 1,095 1,398 1,747
EBITDA margins (%) 6.0 6.5 7.0
Outlook and valuations: Strong growth potential; maintain ‘BUY’

We believe, entry in white goods via the Lloyds acquisition entails potential of HAVL
emerging one of the largest conglomerates with dominant market share in the white
goods/light electrical space over the next 3- 5 years underpinned by its robust dealer
network and emerging trend for premium products. Our target price of INR575 implies 38x
FY19E P/E due to: a) potential for operating margin ramp up in white goods segment; and b)
improving growth visibility in existing core businesses with better availability of power and
housing—switchgears, cables & wires and lighting fixtures.

Havells India
Chart 3: 1 year forward P/E band Chart 4: 1 year forward P/E band & RoCE trend till FY19E
45.0 50.0
76.0
61.0 36.0 44.0

Average P/E
46.0 at 23.1x 27.0 38.0
(x)
(FY12-17)
(%)
(x)
31.0 18.0 32.0
16.0 9.0 26.0
1.0
0.0 20.0
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
1 yr fwd PE band for HAVL Average P/E Avg 1 yr fwd PE for HAVL RoCE (RHS)
Chart 5: RoE/RoCE to remain strong

58.0
49.2
40.4
(%)
31.6
22.8
14.0
FY18E
FY19E
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoCE (RHS) ROE

Company Description
Incorporated in 1983, HAVL is one of the largest and fastest growing manufacturers of
electrical components and systems in India. It is the market leader in light-duty power
distribution products. Its offerings include electrical products like circuit protection
equipment (domestic and industrial switchgears), cables and wires, and consumer durables
like fans, CFLs, and lighting fixtures.
Investment Theme
We expect Havells to continue to grow its domestic business on the back of strong product
portfolio. The company is currently one of the fastest growing fan brands in the Indian
market with market share at ~15%. In the switchgear market, HAVL is the market leader in
the low voltage segment with ~28% share. In India, the company has a network of ~7,000
distributors spread across the four regions servicing ~100,000 retailers/ touch points. HAVL
has been highly successful in bolstering market share of existing products along with
launching new products, which have received good response, driven by high brand visibility.
Recent buyout of Lloyd brand imparts access to a high growth larger white good market
adding USD2-5bn new market. Recent buyout of Lloyd brand imparts access to a high
growth larger white good market adding USD2-5bn new market.
Key Risks
Slowdown in domestic business; increased competition could put pressure on margin
Slowdown in key consumer segments of construction and industrial capex could impact the
domestic business.
Slowdown in power T&D could impact the demand for its cables and wires business.
Slower than expected revenue growth and profitability turnaround in Lloyd's consumer
business poses risk to estimates and valuations.

Havells India
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Materials costs 31,735 36,485 60,785 71,355
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other mfg expenses 10,791 11,623 17,985 20,764
Company (Growth % YoY) EBITDA 7,549 8,241 12,063 14,563
Cables & Wires 0.8 20.4 19.9 18.3 Depreciation 1,049 1,196 1,473 1,613
Switchgears 0.6 10.5 23.6 10.5 EBIT 6,500 7,045 10,590 12,951
Lighting & Fixtures 8.2 32.5 20.9 11.1 Add: Other income 693.5 1,342.8 416.87 612.62
Consumer durables 11.0 30.9 29.5 27.3 Less: Interest Expense 127 122 254 252
Depreciation 7.1 6.5 7.5 7.5 Add: Exceptional items 2,024 (578) - -
Tax rate (%) 21.7 27.5 29.0 29.0 Profit Before Tax 9,090 7,688 10,753 13,312
Capex (INR mn) 1,766 1,340 2,000 2,000 Less: Provision for Tax 1,970 2,298 3,118 3,860
Reported Profit 7,120 5,390 7,634 9,452
Exceptional Items 2,024 (578) - -
Adjusted Profit 5,096 5,969 7,634 9,452
Shares o /s (mn) 624 624 624 624
Diluted shares o/s (mn) 624 624 624 624
Dividend per share (DPS) 6.0 3.5 4.3 6.1
Dividend Payout Ratio(%) 88.1 43.3 42.0 48.0
Common size metrics

EBITDA margins 14.0 13.4 12.3 12.6
Growth ratios (%)

Revenues 2.7 14.1 60.1 17.3
EBITDA 8.0 9.2 46.4 20.7

Share capital 625 625 625 625 Operating cash flow 5,254 7,778 6,509 9,833
Shareholders' funds 29,537 32,736 37,166 42,085 Investing cash flow (781) (2,275) (1,583) (1,387)
Long term borrowings - 1,981 1,981 1,981 Financing cash flow (4,976) (724) (3,458) (4,784)
Total Borrowings - 1,981 1,981 1,981 Net cash Flow (503) 4,780 1,468 3,662
Long Term Liabilities 87 137 137 137 Capex (1,766) (2,386) (2,000) (2,000)
Sources of funds 30,487 35,990 40,421 45,340 Dividend paid (4,488) (2,585) (3,204) (4,533)
Gross Block 16,268 17,608 19,608 21,608
Net Block 11,773 11,917 12,446 12,836 Profitability and efficiency ratios
Capital work in progress 205 119 119 119 Year to March FY16 FY17 FY18E FY19E
Intangible Assets 108 182 179 176 ROAE (%) 19.1 19.2 21.8 23.9
Total Fixed Assets 12,086 12,217 12,744 13,131 ROACE (%) 26.8 26.1 29.8 32.6
Non current investments 5,032 5,471 5,471 5,471 Inventory Days 85 86 68 74
Cash and Equivalents 13,652 19,375 20,843 24,505 Debtors Days 10 11 9 9
Inventories 7,844 9,284 13,262 15,825 Payable Days 104 110 80 78
Sundry Debtors 1,576 2,285 2,691 3,157 Cash Conversion Cycle (9) (13) (3) 5
Loans & Advances 60 60 70 83 Current Ratio 2.3 2.3 2.5 2.5
Other Current Assets 639 906 639 639 Gross Debt/EBITDA - 0.2 0.2 0.1
Current Assets (ex cash) 10,119 12,536 16,662 19,704 Gross Debt/Equity - 0.1 0.1 -
Sundry creditors 9,489 12,508 14,198 16,370 Adjusted Debt/Equity - 0.1 0.1 -
Provisions 914 1,102 1,102 1,102
Total Current Liab 10,403 13,610 15,300 17,472 Operating ratios
Net Curr Assets-ex cash (284) (1,074) 1,363 2,232 Year to March FY16 FY17 FY18E FY19E
Net Deferred tax 863 1,138 1,138 1,138 Total Asset Turnover 1.9 1.8 2.6 2.7
Uses of funds 30,487 35,990 40,421 45,340 Fixed Asset Turnover 5.0 5.2 8.1 9.1
BVPS (INR) 47.3 52.5 59.6 67.5 Equity Turnover 2.0 2.0 2.8 2.9
Free cash flow (INR mn) Valuation parameters

Reported Profit 7,120 5,390 7,634 9,452 Adj. Diluted EPS (INR) 8.2 9.6 12.2 15.2
Add: Depreciation 1,049 1,196 1,473 1,613 Y-o-Y growth (%) 9.6 17.1 27.9 23.8
Interest (Net of Tax) (443) (885) (116) (256) Adjusted Cash EPS (INR) 9.9 11.5 14.6 17.7
Others (1,511) 754 (47) (105) Diluted P/E (x) 58.4 49.8 39.0 31.5
Less: Changes in WC 960 (1,323) 2,435 870 P/B (x) 10.1 9.1 8.0 7.1
Operating cash flow 5,254 7,778 6,509 9,833 EV / Sales (x) 5.3 4.6 2.8 2.4
Less: Capex 1,766 2,386 2,000 2,000 EV / EBITDA (x) 37.6 34.0 23.1 18.9
Free Cash Flow 3,488 5,392 4,509 7,833

Havells India
Additional Data
Directors Data
Rajesh Gupta Whole-Time Director Finance and Group CFO Puneet Bhatia Non-Independent & Non-Executive Director
Surjit Gupta Non-Independent & Non-Executive Director S B Mathur Independent Non-Executive Director
S K Tuteja Independent Non-Executive Director V K Chopra Independent Non-Executive Director
AP Gandhi Independent Non-Executive Director Adarsh Kishore Independent Non-Executive Director
Anil Gupta Chairman & Managing Director Pratima Ram Independent Non-Executive Director
Ameet Kumar Gupta Whole Time Director T.V.Mohandas Pai Non-Independent & Non-Executive Director
Auditors - S.R.Batliboi & Co. LLP

Holding – Top10
Qrg enterprises ltd 30.37 Qrg investments 11
Gupta vinod 6.31 Nalanda india equity 5.29
Gupta surjit 5.22 Gupta anil rai 4.9
Max new york life in 3.21 Capital group compan 3.15
Norges bank 2.88 Government pension f 2.67
*in last one year
Bulk Deals
29 Mar 2017 Guptajee & Company Sell 18862400 450.00
29 Mar 2017 Arg Family Trust Buy 18862400 450.00
*in last one year
Insider Trades
29 Mar 2017 Anil Rai Gupta as Managing Trustee of ARG Family Trust Buy 18862400.00
29 Mar 2017 Vinod Gupta on behalf of Guptajee & Co. Sell 13320000.00
29 Mar 2017 Anil Rai Gupta on behalf of Guptajee & Co. Sell 5542400.00
*in last one year


INITIATING COVERAGE
KEI INDUSTRIES
Burnished prospects
KEI Industries (KEI) has leveraged its cables business to tap wider EDELWEISS 4D RATINGS
opportunities across consumer, B2B and EPC businesses. Our conviction Absolute Rating BUY
on the company is driven by: a) strong government focus on Housing/ Rating Relative to Sector Outperform
Power For All initiatives driving healthy demand for cables; and b) Risk Rating Relative to Sector Low
management’s initiative to forward integrate to EPC across voltage class Sector Relative to Market Overweight
& expand consumer business. These, we believe, will help optimise
operations, driving commendable 21% earnings CAGR (FY17-19E) with
MARKET DATA (R: KEIN; B: KEII IN)
healthy RoE and RoCE of 22% and 27%, respectively, by FY19E. Initiate
CMP : INR 238
coverage with ‘BUY’ and TP of INR322, assigning 17x P/E on FY19E EPS Target Price : INR 322
(40% discount to CDS PE given cyclical nature of business) given healthy 52-week range (INR) : 248 / 99
earnings /FCF growth driven by an expanding consumer segment and pick Share in issue (mn) : 77.8
up in infra. M cap (INR bn/USD mn) : 19 / 287
Avg. Daily Vol.BSE/NSE(‘000) : 353.2
Forward integration to drive strong operational performance
Post entry in the EPC business, leveraging its cables manufacturing capacity to expand SHARE HOLDING PATTERN (%)
market reach, KEI has been able to grow at a higher rate of (9x earning growth in 3 Current Q3FY17 Q2FY17
years) with improving margin given higher product pull through. With entry in the EHV Promoters * 46.6 46.6 46.6
category, we believe, the company is poised to clock robust operating performance MF's, FI's & BK’s 18.7 17.6 16.2
driving commendable 32% and 27% earnings and free cash CAGR, respectively, over FII's 4.3 5.3 23.3
FY16-19E. Others 30.4 30.5 13.9
Housing/Power For All: Potent driver of cables industry
More than 187GW power generation addition led by strong push to renewable coupled PRICE PERFORMANCE (%)
with expected addition of 50mn households over FY17-22E (26mn from government’s
Stock over
Housing For All initiative) could lead to ~15% annual growth in the cables & wires Sensex Stock
Sensex
industry over FY17-22E, implying total market size of INR800bn plus by FY22E.
1 month 2.8 12.4 9.6
3 months 8.7 21.9 13.2
Outlook and valuations: On high growth road; initiate with ‘BUY’ 12 months 14.7 94.2 79.5
Multiple growth levers—government’s infra push, KEI’s focus on B2B/B2C businesses—
in our view could lead to strong earnings momentum over 3-5 years. Strong track
record of execution reflected in superior earnings and cash flows instills confidence
w.r.t. potential upside to our modeled earnings case for KEI. We initiate coverage with
‘BUY/SO’.
Amit Mahawar
Financials (SA) +91 22 4040 7451
Year to March FY16 FY17 FY18E FY19E amit.mahawar@edelweissfin.com
Revenues (INR mn) 22,929 26,312 31,352 37,536 Darshika Khemka

Growth (%) 13.6 14.8 19.2 19.7 +91 22 4063 5544
EBITDA (INR mn) 2,423 2,743 3,337 4,062
Adjusted profit (INR mn) 622 986 1,107 1,444 Krish Kohli
Growth (%) 96.7 58.6 12.3 30.4

Diluted P/E (x) 29.5 18.6 16.5 12.7
July 14, 2017
ROAE ( %) 18.6 23.5 21.1 22.4
Consumer Durables
Government’s infra push: Potent demand catalyst
Housing For All & improving power availability, in our view, will be key drivers of the
domestic cables & wires industry. Over the next 3-5 years, more than 50mn households are
likely to be added, of which ~25mn will be a result of the government’s Housing For All
initiative. Also, strong renewable focus implies 187GW addition to total installed capacity
over FY17-22E (85GW from solar alone). This, we believe, will drive strong growth in the
domestic cables & wires industry.
Product capabilities catering to diversified B2B clients across sectors

KEI’s B2B business consists of a wide range of 400 products across segments like EHV, MV
and LV cables, which contribute ~70% to revenue. The company addresses myriad demands
from more than 800 customers across a cross-section of sectors, including power, oil
refineries, railways, automobiles, cement, steel, fertilisers, textile, real estate, among others.
Table 1: Housing/Power For All key demand drivers of cables & wires industry
Sector Demand
Power GOI plans to add ~187GW (85 GW from solar) of power by FY22 (vs 126
Sector GW over FY12-17) with total fund requirement of INR8.6tn over FY17-22,
thus creating demand for cables & wires worth ~INR 700 bn by FY22
Housing GOI as part of its Housing For All programme will entail completion of
Sector atleast 26mn houses by 2022, thus creating demand for cables & wires
worth ~INR310bn
EPC Consumption of cables in a turkey EPC power project accounts for nearly
70% of the total project cost
Industry Cables form an integral part of every industrial capex where cable
requirement accrues only after 50% of the industrial project is complete
and demand is picking up with gradual recovery in expansion plans
Source: Company Presentation, Industry, Edelweiss research
With the government sharpening focus on power generation, transmission and distribution,
demand for cables as part of T&D equipment is expected to expand significantly. KEI’s
expertise in EPC projects and excellent track record has rendered it the preferred candidate
for such projects.

KEI Industries
Chart 1: Government planning 187GW of power and 110,000ckms of transmission lines by FY22
200 750
700
1100
170 630
(GW/'000ckms)
980
140
510
(INR bn)
(INR bn)
860
110
740 390 370
80 620
270
50 500
160
FY2012-17 FY2017-22 150
Power Addition (GW) Size in FY11 Size in FY17 Size in FY22
Transmission Lines ('000 ckms) Cables demand wise projection
Demand for T&D equipment (INR bn)(RHS)
Source: IEEMA journal, CEA, Industry, Edelweiss research
GoI is eyeing addition of ~187GW of
power under the 13th Five Year Plan, Moreover, as a strong and established player in the domestic cables sector, KEI has
which requires 110,000 ckms of successfully secured a decent share of the export market, selling to more than 47 countries.
transmission lines. This is estimated to Management, during Q4FY17 earnings conference call, had stated that the company is
trigger INR1075bn demand for T&D planning to grow exports revenue going forward.
equipment by FY22, of which the
cables industry comprises ~25-28%,
thus expanding KEI’s target market.
Chart 2: Excellent project execution abroad will lead to sustained spurt in export revenue
Country Name Client Name 7.5 Excellent project execution track record abroad 20.0
Abu Dhabi Areva will lead to sustained export revenue growth of
6.0 ~10-15% over FY18 & 19E contributing ~13% of 17.0
Cyprus Cyprus Telecom revenues.
Dubai NPCC 4.5 14.0
(INR bn)
Jebel Ali Mc Dermott
(%)
Kenya ARM 3.0 11.0
Malaysia BHEL
1.5 8.0
Mauritius CEB
Nigeria Nigeria Cement
0.0 5.0
Sharjah Alstom
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
Sri Lanka Larsen & Toubro

Uganda TCIL-TORO Exports (RHS) Exports as a % of total sales (LHS)
Volatility in crude oil prices & disturbances in target markets

led to exports slipping from INR1.97bn in FY14 to INR1.47bn
in FY15. However, in FY17, exports doubled in absolute
terms and also as a proportion of sales (currently ~14.5% of
sales), thus posting CAGR of ~60% over FY15-17 due to
opening of new offices in Singapore, Nigeria and Kazakistan.

Consumer Durables
Table 2: Voltage and application of types of cables
Segments Voltage Application
House wiring up to 440V Indoor - Housing Wire
LT 1.1 to 3.3kV Indoor & Outdoor- Housing Wire and Industrial Use
HV 11 to 66kV Industrial & Grid Connectivity
EHV 66kV and above T&D
Sharpening focus on B2C segment driving retail business

The retail segment comprising household wires as well as LT and HT cables currently
accounts for 31% of total sales (industry leading CAGR of 34% over FY12-17 versus industry
growth of 9%) on account of KEI’s expanding distribution network in India and abroad
further complemented by the company’s focus on improving brand visibility with advertising
campaigns. The company’s dealers have also acted as major growth drivers of the retail
business.
Chart 3: Retail revenue to constitute ~36% of total revenue by FY19E

1,500 50.0
KEI has expanded from 1,200 40.0

25 dealers in FY07 to
1,100+ in FY17 &
further plans to 900 30.0
(No.s)
(%)
increase the same by
~15% yearly targeting 600 20.0
40-45% of sales to
come from retail
300 10.0
business by FY19
0 0.0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
No. of dealers Retail revenue as % of total sales

KEI Industries
Chart 4: Rising ad spend in FY18-20E to boost retail revenue by ~33%

250 ‘Power behind the Partner campaign in Oct 2013 was 85.0
power’ campaign in instrumental in KEI's strong growth in retail
KEI plans to increase ad
April 2010 propelled sales over FY13-15 ...
spends to ~1.5% as a % 200 68.0
FY11/ FY12 retail
of retail sales from revenues 27% /34%.
~1.2% in FY17 to 150 51.0
(INR mn)
(%)
enhance presence in the
retail space. 100 34.0
50 17.0
- -
FY18E
FY19E
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Ad spend % growth in retail sales
Its new advertising campaign in FY17 starring

Irrfan Khan titled ‘Jode Dilo Ke Taar’ is gaining
publicity, which we estimate to lead to FY18-20
revenue jumping ~30-35%.
Huge scope to leverage cables business with forward integration in EPC

KEI’s EPC offerings: In EPC, KEI has the advantage of manufacturing (in house) EHV, HV and LT cables, which
• Execution of power transmission account for product pull through of 30%, leading to superior margin. Also, technological
projects (of 66-400kV sub‐ collaboration with Switzerland-based Brugg Kabel AG has helped the company gain faster
stations) on turnkey basis. entry in the EHV cable market with designs and process back up—services sought by end
• EPC of EHV and HV cable users. EPC revenue has clocked CAGR of ~60% over FY12-16 with strong RoCE among all
systems. other segments of KEI—up from -4% to 13%.
• Electrical balance-of-plant for
power plants. Chart 5: Rising EPC revenue with superior RoCE and margin
• Electrical industrial projects. 7.0 15.0
5.7 11.0
4.4 7.0
(INR bn)
(%)
3.1 3.0
1.8 (1.0)
0.5 (5.0)
FY12 FY13 FY14 FY15 FY16 FY17
Revenue - Annual ROCE % EBIT Margin %

Consumer Durables
EHV cables expansion to reap benefits
KEI’s EHV cables 400Kv capacity expansion at the Chopanki unit has been operational from
January 2017. Post expansion, the unit is running at ~35% capacity, which is envisaged to
operate at 55-60% capacity utilisation from FY18 post completion of maintenance.
Management expects this segment to generate ~INR3bn revenue and other voltage grids
(medium voltage grids, low tension power grids, other power cables) to generate revenue of
~INR1bn spurred by various government schemes such as Rural Electrification, better power
availability etc. KEI is well equipped to handle the increased demand as it is among the only
3 companies in India to manufacture EHV cables.
Table3: Capacity expansion to drive revenue

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E
CABLES
Installed capacity (000' Kms) 25 32 40 50 60 66 66 73 73 73 73 83 96 96 96
Capacity utilisation (%) 0.0 67.9 80.6 74.9 69.9 68.4 69.8 69.8 69.9 70.0 72.0 75.0 77.0 82.0 85.5
Sales (INR mn) 1,913 2,643 5,690 7,446 8,758 7,734 9,900 14,316 12,948 12,718 14,080 20,764 18,542 21,720 25,479
YoY growth(%) 38.2 115.3 30.9 17.6 (11.7) 28.0 44.6 (9.6) (1.8) 10.7 47.5 (10.7) 17.1 17.3
STAINLESS STEEL WIRES

Installed capacity (000' Kms) 2,650 3,250 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 4,800 6,000 6,000 6,000
Sales (INR mn) 292 437 855 1,128 790 572 879 1,012 846 1,014 1,141 1,023 1,040 1,196 1,381
YoY growth(%) 49.4 95.8 31.8 (30.0) (27.6) 53.7 15.1 (16.3) 19.8 12.5 (10.3) 1.7 15.0 15.5
WF & HW
Installed capacity (000' Kms) 100 100 250 250 250 270 270 270 270 280 280 375 677 677 677
Sales (INR mn) 97 296 499 1,044 764 1,237 1,573 2,114 2,665 2,941 3,366 3,770 4,290 5,300 6,542
YoY growth(%) 205.8 68.4 109.3 (26.8) 61.8 27.2 34.4 26.1 10.4 14.5 12.0 13.8 23.5 23.4
Table 4: Key projects executed by KEI over past few years

EPC • EPC of HV cablings system for JVVNL, Jaipur
• MES for 100kV Transform and Electrical System of Air Force station, Gurgaon
• Projects for power transmission utilities including projects for MSETCL,
KSEB, TNEB, RVPNL
• Projects for Reliance Infrastructure (400kV switchyard for 2x600 mw
Thermal Power Project at Hissar)
• Industrial sector for AERENR, Ludhiana
• Private utilities like Reliance, Tata etc.
• RAPDRP/DDUGY Project at Mathura , Vrindavan
EHV • Executed order of KPTCL worth Rs750mn
• Executed order of INR1.38bn of Uttar Pradesh Rajkiya nirman Nigam Ltd.
• Executed 220 KV EHV Project of INR650mn of DMRC
• Executed 220 KV EHV Project of INR400mn of PGICL

KEI Industries
Chart 6: KEI has achieved reasonable revenue diversification Chart 7: Gradual ramp up in retail sales
45.0 100.0
36.0 80.0
27.0 69 69 69 68 66
76
(INR bn)
60.0
88 89 88 88 89 84
(%)
18.0
40.0
9.0
20.0
31 31 31 32 34
24
0.0 12 11 12 12 11 16
0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Pure Household Industrial Utility Retail Sales B2B Sales
Utilities segment (includes EPC & EHV revenues; started We estimate retail/pure household segment to clock ~30%
recently) is expected to grow riding KEI’s strategic technical CAGR over FY17-19 (~26% CAGR over FY08-17) led by
collaboration with Switzerland-based Brugg Kabel which puts KEI sharpening focus on the segment via advertising campaigns and
in an advantageous position. The industrials segment is multiplying dealer network.
estimated to post stable growth of ~15% over FY17-19 (CAGR of
~6-8% over FY08-16) by leveraging existing client base in the B2B
segment.

Consumer Durables
Valuation
KEI’s strong growth over the past 3 years with sales/PAT CAGR of 20%/104%, respectively,
was led by robust spurt in consumer & B2B businesses. The company further leveraged its
prowess in cables to expand into the EPC business with focus on profitability as well as cash
flow. This triggered massive re-rating with the stock returning 10x in the past 3 years
primarily led by sharp earnings jump—9x over FY14-17.
We believe, growth in the EPC business will sustain on account of governments strong infra
focus with initiatives like Housing/Power For All, focus on T&D, apart from KEI’s focus on
expanding exports.
We expect KEI’s focus on the consumer-facing business (~30% of revenue) to provide a

strong fillip to earnings over the next 3-5 years and account for ~40-45% of top line by
FY19E driven by market share jump and continued brand building focus. We initiate
coverage with ‘BUY/SO’ and TP of INR325, ascribing P/E of 17x FY19E EPS given healthy
earnings CAGR of 32% over FY17-19E, reasonable RoE of 22% and strong comeback in
operating cash (FY18-19 average) to INR1.7bn (75% growth vs FY16-17 average). Our TP at
40% discount to CDS PE factors cyclicality in KEI’s business.
Chart 8: PE band versus EPS growth versus RoE trend

30.0
9x jump in PAT over
FY14-17E has to re-
24.0
rating of KEI. With
strong earnings growth Average P/E at 7.2x
potential, we expect re- 18.0
(FY12-17)
(x)
rating to continue.
12.0
6.0
0.0
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
1 yr fwrd PE Average P/E

KEI Industries
Chart 9: Cash flow trend

2,500
1,600
700
(INR mn)
(200)
(1,100)
(2,000)
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FCF
Fig. 1: KEI has maintained focus on cables
KEI
INR 0.4tn
27%
Consumer
Durables
INR
Industry 1.5tn

Consumer Durables
Key Risks
Cyclical nature of business
KEI’s products are used primarily by power utilities, infrastructure, real estate and industrial
segments. Any slowdown in these sectors can significantly impact demand for KEI’s products.
High competition
A majority of KEI’s products are highly competitive in nature and face strong threat from
other players.
Raw material price fluctuation

Excessive volatility in prices of key raw materials—copper and aluminium—can severely
impact profitability. Although KEI tries to recover rise in raw material prices either through
hike in selling price of products or via hedging, there is no assurance that it can do so
successfully or at all in the future.
Currency fluctuation
With exports being a key contributor to the company’s revenue, excessive volatility in
currency rates can significantly impact profitability. KEI also imports raw material and
extreme currency fluctuations can adversely affect costs of the same, in turn denting
profitability.

KEI Industries
Company Description
Overview
KEI was established in 1968 as a partnership firm Krishna Electrical Industries with prime
business of manufacturing house wiring rubber cables. It was converted into a public limited
company with the corporate name KEI Industries in December 1992. In 1996, KEI acquired
Matchless, a company under same management, which manufactured stainless steel wires.
KEI has, over the years, invested in building flexible manufacturing facilities and expanded
capacities.
The company manufactures and supplies power and other industrial cables. Its product
portfolio includes low tension, high tension and extra high voltage, control &
instrumentation cables, specialty cables, elastomeric cables, rubber cables, submersible
cables, flexible & house wires, winding wires and stainless steel wires. The company
operates through 3 segments—cables, stainless steel wires and turnkey projects. It also
focuses on EPC business.
Table 5: KEI—The journey

Year Milestones
1968 Established as a partnership company
1968 Manufacturing of switchboard cables for DOT starts
1985 Manufacturing of control
1992 Launch of the first IPO
1993 Manufacturing of PVC/XLPE power cables up to 3.3 KV added to existing portfolio
1994 Diversified into stainless steel drawings with pilot plant
1996 Installation of major SSW plant at Bhiwadi
1997 Installation of another plant at Bhiwadi for LT PVC / XLPE cables
2001 Scaling up with manufacture of rubber cables up to 11 KV
2002 Established JFTC plant at Silvassa
2005 Upgraded JFTC plant in Silvassa to manufacture existing cable range – rebalancing act
Expansion of Bhiwadi unit to manufacture up to 33 kV HT XLPE cables with dry curing inert nitrogen gas and with triple
2006
extrusion (Single cross head) process
2006 Introduced ERP Baan S/W system in the organization to ensure transparency and efficacy
2007 Upgraded Bhiwadi unit to manufacture HT power cable up to 132 kV & LT cable
2007 Proud recipient of Corporate Governance Rating
2007 Set up of 100% EOU at Chopanki
2008 Successfully commissioned 100% EOU at Chopanki
2009 Enhanced HT cable capacity at Bhiwadi up to 132 KV
2010 Entered into a technical collaboration agreed with Brugg Kabel AG
2010 Proud recipient of Business Super Brand Award for Industry Validated
2011 Certification of ISO 9001
2011 Receipt of EHV cable order from KPTCL worth INR 750mn
2011 Successful redemption of FCCBs in November
2012 Receipt of EHV order of INR 1.38bn from Uttar Pradesh Rajkiya Nirman Nigam Ltd
2013-14 New office at Singapore
2014-15 Proud recipient of Superbrand status consumer validated

Consumer Durables
Product portfolio
KEI operates through 3 segments:
• Cables
• Stainless steel wires
• Turnkey projects
Cables: This segment consists of extra high voltage (EHV), low tension (LT) and high tension
(HT) power cables, control & instrumentation cables, winding wires and flexible & house
wires.
The company ventured into manufacture of EHV cables up to 220kV in FY10 in collaboration
with Brugg Kabel AG, a century-old Swiss company. Through EHV cables, the company is
geared to service mega power plants, transmission companies and metro cities.
Stainless steel wires: This segment offers rubber cables, elastomeric cables, single/ multi-
core flexible wires, submersible cables, braided cables and zero halogen cables for sectors
such as power, oil refineries, railways, automobiles, cement, steel, fertilizers, textile and real
estate.
Turnkey projects: In this segment, KEI provides integrated turnkey solutions. Services
include providing integrated design, engineering, material procurement, field services,
construction and project management services.
R&D strength
KEI’s R&D capabilities are focused on development of products customised to specific
requirements of clients. The company has in place a NABL accredited state-of-the-art in-
house R&D facility & laboratory. To ensure high quality standards, third party inspection of
products by an inspector appointed by the client is carried out before supply. KEI
continuously invests in upgrading R&D capabilities to deliver excellence in all its offerings.
Manufacturing prowess
KEI has a strong manufacturing base with plants located at Bhiwadi & Chopanki (Rajasthan)
and Silvassa (Dadra & Nagar Haveli). It has, over the years, invested in building flexible
manufacturing facilities, followed by expansion of capacities to address growing
opportunities in power, core infrastructure, industrial, building and construction segments
across India.
KEI’s manufacturing capacities:

• 900km of EHV cables.
• 75,00km of HT cables.
• 84,000km of LT cables, control cables and instrumentation cables
• 3600km on rubber cables.
• 6,77,000km of winding, flexible and house wires.
• 6,000MT of stainless steel wires.

KEI Industries
Fig. 2: KEI’s presence is stronger in North and West India
Source: Company
Table 6: Capacities of various plants

Capacity - Plant wise Bhiwadi Silvassa Chopanki Total
EHV (Kms) - - 900 900
HT Power Cable (Kms) 3,000 - 4,500 7,500
LT Power Cable (Kms) 9,000 6,000 27,000 42,000
Control Cable (Kms) 16,000 12,000 3,000 31,000
Instrumentation Cable (Kms) 10,000 1,000 - 11,000
Rubber Cable (Kms) 3,000 - 600 3,600
Total Cable (Kms) 41,000 19,000 36,000 96,000
House Wire/ Winding Wire (Kms) 40,000 240,000 397,000 677,000
Stainless Steel Wire (MT) 4,800 - 1,200 6,000
Product capabilities catering to diversified clients across sectors

KEI has an established presence in EHV, MV and LV cables with 400 products addressing
myriad demands from more than 800 customers across a cross-section of sectors, including
power, oil refineries, railways, automobiles, cement, steel, fertilisers, textile, real estate,
among others.

Consumer Durables
Fig. 3: KEI—Global presence
Source: Company

KEI Industries
Key personnel
Mr. Anil Gupta, Chairman & Managing Director
Mr. Anil Gupta has been the Chairman of the Board and Managing Director of KEI since
February 2005 and 1993, respectively, and also serves as its Chief Executive Officer. He has
been Director at KEI since December 31, 1992. He holds M.Com. degree from Delhi
University.
Mr. K.G. Somani, Non-Executive & Independent Director

Mr. K.G. Somani is a fellow member of the Institute of Chartered Accountants of India. He is
a practicing Chartered Accountant. He was also former president of The Institute of
Chartered Accountants of India. He is also on Board of Directors of many other private/
public companies
Mr. Pawan Bholusaria, Non-Executive & Independent Director

Mr. Pawan Bholusaria is a fellow Member of The Institute of Chartered Accountants of India.
He is a practicing Chartered Accountant.
Mr. Vijay Bhushan, Non-Executive & Independent Director

Mr. Vijay Bhushan is an MBA from Delhi University and is a member of the Delhi Stock
Exchange and its ex President. He is actively associated with the capital market since 1981.
He was also Chairman of Federation of Indian Stock Exchanges representing 20 stock
exchanges from 2002-04.
Mr. Vikram Bhartia, Non-Executive & Independent Director

Mr. Vikram Bhartia is B.Tech (Hons) from IIT Kharagpur and has 30 years’ experience in the
engineering industry. He has been a member of CII and DFOF. Currently, he is Managing
Director of Jupiter Engineering Works.
Mrs. Archana Gupta, Non-Executive Director

Mrs. Archana Gupta has been a Non-Executive Director of KEI since January 31, 2005. She
serves as a Director of KEI Cables, Soubhgaya Agency, Projection Financial & Management
Consultant, Dhan Versha Agency, Shubh Laxmi Motels & Inns, KEI International and KEI
Power. Mrs. Gupta is BA (Hons).
Mr. Rajeev Gupta, Executive Director (Finance) & CFO

Mr. Rajeev Gupta is B.Com (Hons) and Chartered Accountant. He has about 20 years’
experience in the Finance Department. He heads KEI’s Finance & Accounts Department and
is designated as Executive Director (Finance) and CFO.

Consumer Durables
Financial Outlook
Expansion to drive superior 20% earnings CAGR over FY17-19E

We estimate KEI’s revenue to jump to INR38bn by FY19 from INR26bn in FY17, clocking 20%
CAGR. This will primarily be led by 40% surge in turnkey revenues, followed by 19% spurt in
the cables segment and 15% growth in the housing wire segment.
KEI’s technical collaboration agreement with Brugg Kabel along with addition of a new
400kV line at the company’s EHV cables unit at Chopanki will boost capacity utilisation to
55-60% from FY18.
Chart 10: Spurt in cables and housing wires to boost revenue Chart 11: Turnkey revenues to contribute ~28% by FY19E
40 100.0
32 80.0
24 60.0
(mn)
16 (%) 40.0
8 20.0
0.0
0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Revenues Cables Stainless Steel Wires Turnkey Projects

PAT to surge 1.5 x by FY19E largely driven by healthy EBIDTA margin

We estimate PAT to post a healthy 32% CAGR over FY17-19E led by a healthy 19%/22% top-
line/EBIDTA CAGR. After an initial execution glitch, we expect the execution for B2B
business to pick up apart from strong growth in consumer cables business.

KEI Industries
Chart 12: PAT to clock 21% CAGR over FY17-19E

1,750 6.0
Better execution in
EPC, ramp up in 1,400 4.8
consumer business &
cash flow focus strong
1,050 3.6
(INR mn)
potential for reduction
(%)
in interest cost
700 2.4
350 1.2
0 0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
PAT PAT margins
Healthy RoE/RoCE profile

KEI has gained strong traction in RoEs over FY14-17 led by robust operating margin. The
company clocks higher RoE than peers like Finolex Cables (KEI: 22%, Finolex Cables: 16%)
despite higher proportion of EPC business. We estimate the company’s RoCE to jump from
24.5% to 27% over FY17-19 due to lower finance expenses as the company is gradually
paying off debt.
Chart 13: RoCE to increase as debt burden wanes

30.0
24.0
18.0
(%)
12.0
6.0
0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoE RoCE

Consumer Durables
Key assumptions Income statement (standalone) (INR mn)
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee cost 828 1,109 1,257 1,464
USD/INR (Avg) 65.0 67.5 67.0 67 Total operating expenses 20,506 23,569 28,015 33,475
Capacity utilisations (%) Depreciation and amortisation 253 280 325 341
A) Cables 75.0 77.0 82.0 85.5 EBIT 2,170 2,463 3,011 3,721
B) Stainless steel wires 90.0 84.0 87.0 89.7 Interest expense 1,270 1,229 1,428 1,641
C) Winding Housing & Flexible Wires 79.0 50.0 58.0 64.5 Other income 53 104 45 75
Realisation (INR) Add: Exceptional items
A) Cables (INR mn/km) 33.3 25.1 27.6 31.0 Profit before tax 953 1,338 1,628 2,154
B) Stainless steel wires (INR '000/kg) 23.7 20.6 22.9 25.7 Provision for tax 331 351 521 711
C) Winding Hsg & Flex. Wires (INR mn/km) 1.3 1.3 1.3 1.5 Reported profit 622 986 1,107 1,444
Order Intake for Turnkey Projects (INR bn) 6.5 17.0 15.0 14.0 Less: Excep. Items (Net of Tax) - - - -
Depriciation as a % of FA 5.4 5.1 5.1 5.1 Adjusted Profit 622 986 1,107 1,444
Tax rate (%) 34.8 26.3 32.0 33.0 Equity shares outstanding (mn) 77 77 77 77
EPS (INR) basic 8.1 12.8 14.3 18.7
Diluted shares (mn) 77 77 77 77
DPS 0.5 0.6 0.7 0.9
Dividend payout (%) 6.2 4.7 5.0 5.0

Direct cost 73.0 71.7 72.2 72.1
Other expenses 12.8 13.7 13.1 13.2
EBITDA margins 10.6 10.4 10.6 10.8
Growth metrics (%)

Revenues 13.6 14.8 19.2 19.7
EBITDA 34.7 13.2 21.6 21.7
PBT 89.7 40.3 21.7 32.3
EPS 96.7 58.6 12.3 30.4

KEI Industries

Equity capital 154 156 156 156 Operating cash flow 1,850 38 1,626 1,708
Reserves & surplus 3,512 4,579 5,620 6,977 Financing cash flow (866) 890 (1,294) (1,178)
Shareholders funds 3,666 4,735 5,775 7,132 Investing cash flow (975) (617) (255) (225)
Long term borrowings 1,881 1,641 1,691 1,741 NET CASH FLOW 9 311 76 305
Short term borrowings 2,490 4,898 5,048 5,548 Capex (977) (624) (300) (300)
Total Borrowings 4,371 6,540 6,740 7,290 Dividend paid - 56 66 88
Long Term Liab. & Provisions 40 51 51 51
Deferred Tax (Net) 362 427 427 427 Profitability & liquidity ratios
Sources of funds 8,440 11,752 12,993 14,900 Year to March FY16 FY17 FY18E FY19E
Gross block 4,995 6,082 6,382 6,682 ROAE (%) 18.6 23.5 21.1 22.4
Depreciation 1,716 1,996 2,322 2,663 ROACE (%) 28.1 24.5 24.4 26.7
Net block 3,279 4,086 4,060 4,019 Inventory (days) 94 89 89 90
Capital work in progress 293 0 0 0 Debtors (days) 83 91 94 94
Total Fixed Assets Payable (days) 137 122 112 113
Non Current Investments 31 31 31 31 Cash conversion cycle 40 58 71 72
Inventories 4,225 4,990 6,026 7,390 Current ratio 1.7 2.1 2.1 2.1
Sundry debtors 5,674 7,392 8,808 10,546 Gross Debt/EBITDA 1.8 2.4 2.0 1.8
Cash and cash equivalents 59 369 446 751 Adjusted Debt/Equity 1.2 1.4 1.2 1.0
Loans and advances 865 945 992 1,042 Gross Debt/Equity 1.2 1.4 1.2 1.0
Other current assets 744 297 297 297
Total current assets (ex cash) 11,508 13,624 16,123 19,274 Operating ratios
Trade payable 6,319 6,305 7,615 9,123 Year to March FY16 FY17 FY18E FY19E
Other Current Liab. & ST Prov. 411 53 53 53 Fixed assets turnover (x) 7.3 7.1 7.7 9.3
Total current liabilities & prov. 6,730 6,358 7,667 9,176 Total asset turnover(x) 3.0 2.6 2.5 2.7
Net Current Assets (ex cash) 4,777 7,266 8,456 10,098 Equity turnover(x) 6.3 5.6 5.4 5.3
Miscelleneous expenditure 0 0 0 0
Uses of funds 8,440 11,752 12,993 14,900 Valuation parameters
BV (INR) 47 61 75 92 Year to March FY16 FY17 FY18E FY19E
Diluted EPS (INR) 8.1 12.8 14.3 18.7
Free cash flow Y-o-Y growth (%) 97 59 12 30
Reported Profit 622 986 1,107 1,444 Diluted P/E (x) 29.5 18.6 16.5 12.7
Add: Depreciation 253 280 325 341 Price/BV(x) 5.0 3.9 3.2 2.6
Interest (Net of Tax) 828.4 906.4 970.7 1,099.7 EV/Sales (x) 1.0 0.9 0.8 0.7
Add: Others 655.59 453.31 412.23 466.56 EV/EBITDA (x) 9.3 8.9 7.4 6.1
Less:Changes in WC 509 2,588 1,190 1,642 Dividend Yield (%) 0.2 0.3 0.3 0.4
Opertaing cash flow 1,850 38 1,626 1,708
Less: Capex 977 624 300 300
Free cash flow 873 (585) 1,326 1,408

Consumer Durables
Additional Data
Directors Data
Mr. Anil Gupta Chairman & Managing Director Mrs. Archana Gupta Director
Mr. Akshit Diviaj Gupta Director Mr. Pawan Bholusaria Director
Mr. K.G. Somani Director Mr. Vijay Bhushan Director
Mr. Vikram Bhartia Director Mr. Rajeev Gupta Executive Director (Finance) & CFO
Auditors - M/s. Pawan Shubham & Co. Chartered Accountants

Holding – Top10
Projection Fin & Mgmt Con 10.15 Templeton Asset Management 6.62
Subhlaxmi Motels & Inns 4.47 Soubhagya Agency 4.02
HSBC Global Inv Mauritius 3.40 HSBC 3.31
Mirae Asset Global Investment 2.83 Mirae Asset Global Inv India 2.66
L&T Mutual Fund 2.50 L&T Investment Management Ltd. 2.09
*in last one year
Bulk Deals
17 Feb 2017 Anil Gupta Sell 900000 172.59
16 Dec 2016 HSBC Global Investment Funds Buy 3451330 120.35
16 Dec 2016 Maryada Commercial Enterprises & Investment Co. Ltd. Sell 3451330 120.35
*in last one year
Insider Trades
17 Feb 2017 Gupta Anil Rai Sell 2800000
20 Oct 2016 Rajeev Gupta Buy 192000
*in last one year

INITIATING COVERAGE
SYMPHONY
Thriving on sustainable competitive MOAT
Symphony has commendably captured 50% value market of the air cooler EDELWEISS 4D RATINGS
segment driven by its ‘one product, many markets strategy’ and a strong Absolute Rating BUY
innovation DNA. Our conviction in the company’s bright prospects is Rating Relative to Sector Outperform
anchored by: a) sustainable product innovation/R&D, which lend it an Risk Rating Relative to Sector Low
edge over competition; b) asset- light business model with 2.7x FCF Sector Relative to Market Overweight
growth potential (FY16-FY19E); and c) lower working capital requirement.
Moreover, we estimate the organised air cooler industry to post 26%
MARKET DATA (R: SYMP, B: SYML IN)
CAGR to INR21bn over FY17-19 led by rising penetration and shift from
CMP : INR 1,325
unorganised to organised segment, which is likely to benefit segment Target Price : INR 1,789
leader Symphony. Initiate with ‘BUY’ and TP of INR1,789 assigning 50% 52-week range (INR) : 1,571 / 1,075
premium to sector PE valuation of 30x given strong 30% earnings CAGR Share in issue (mn) : 70.0
(FY17-19E)/RoCE of 58% and sustainable competitive edge vs peers. M cap (INR bn/USD mn) : 93 / 1,438
Low penetration, shift to organised players to boost industry
We envisage humungous growth potential and estimate the organised air cooler SHARE HOLDING PATTERN (%)
market to clock 25% CAGR over the next few years riding: (a) paltry ~11% penetration Current Q3FY17 Q2FY17
in India; and (b) ongoing shift from unorganised (accounts for 70% volume share) to Promoters * 75.0 75.0 75.0
organised segment. We estimate organised volumes to jump ~1.5x over FY17-19 (20% MF's, FI's & BK’s 5.4 4.9 4.1
CAGR), driving 24/31% top line/PAT CAGR for Symphony with 58%/43% RoCE/RoE. FII's 7.5 6.25 2.8
Others 12.2 13.5 18.1
Sustainable innovation and R&D: Key business MOAT (% of share in issue)
Symphony’s USP has been its ability to execute product innovation and R&D much
ahead of competition, which has been the bedrock of its solid franchise, driving best RELATIVE PERFORMANCE (%)
OPMs across durables segments. Moreover, by focusing on the ‘one product, many Stock over
Sensex Stock
markets strategy’, the company has optimised its asset-light business model to Sensex
generate maximum shareholder value over the years, enhancing market share from 1 month 2.8 0.9 (1.9)
45% of organised market in FY10 to 50% currently despite intense competition. 3 months 8.7 (10.5) (19.2)
12 months 14.7 8.0 (6.7)
Outlook and valuations: On growth curve; initiate with ‘BUY’
The company has sustained premium stature in an industry perceived to be low end by
virtue of its ability to innovate, further complemented by a prudent asset-light model.
Despite entry of large players in the market, we believe Symphony’s market positioning
will sustain given single product focus & innovation/R&D track record. We initiate
coverage with ‘BUY/SO’ and INR1,788 TP.
Amit Mahawar
Financials (Consol) +91 22 4040 7451
Year to March FY16 FY17 FY18E FY19E amit.mahawar@edelweissfin.com
Revenues (INR mn) 5,940 7,680 9,370 11,772
Darshika Khemka
Growth (%) 13.0 29.3 22.0 25.6 +91 22 4063 5544
EBITDA (INR mn) 1,632 1,976 2,574 3,360 darshika.khemka @edelweissfin.com
Adjusted profit (INR mn) 1,351 1,656 2,178 2,779
Krish Kohli
Growth (%) 16.5 22.6 31.5 27.6
Diluted p/e (x) 68.7 56.0 42.6 33.4
ROAE ( %) 90.2 68.7 56.1 57.1 July 14, 2017
Consumer Durables
Under penetration, high unorganised share entail growth potential
The domestic air cooler market is largely fragmented with unorganised players accounting for
about 70% of volume and 63% value share. The branded air cooler industry is highly
concentrated with the top 5 players accounting for more than ~90% market share. Symphony
is a leading player in the space—50% share by value—followed by Kenstar (Videocon
Industries). Other players include Bajaj Electricals, Havells, Khaitan, Usha and Voltas.
Of the 246.4mn households in India, mere ~28.0mn own air coolers, implying paltry 11%
penetration. This entails humungous growth potential. We envisage penetration to increase
to 25% by 2026 due to warmer temperatures, increase in the middle class and formalisation
of the economy. Moreover, of all the consumer durable sectors, air coolers have one of the
highest growth potential due to higher proportion of the unorganised segment.
Chart 1: Air coolers penetration likely to jump to 25% by 2026

Despite strong 20-25% organised 30.0
segment CAGR (FY14-17), air 25.6
coolers industry remains under 24.0
penetrated.
18.0
(%)
11.6
12.0
6.5
6.0 3.9
0.0
2005 2011 2016 2026E
Air Coolers
Chart 2: Air coolers recorded highest growth over FY12-17 Chart 3: Air coolers’ penetration to sustain high growth
Air Conditioner 15.9 Air Coolers 17.7
Air Coolers 15.6 Air Conditioner 16.6
Lighting 15.6 Lighting 16.3
Cables & Wires 13.9 Pumps 13.8
Refrigerators 11.3 Fans 13.6
Pumps 10.3 Cables & Wires 13.5
Fans 9.8 Refrigerators 12.0
Water Heaters 9.7 Water Heaters 11.7
Washing Machines 9.1 Switchgears 10.7
Switchgears 8.2 Washing Machines 10.0
Stabilisers (4.5) Stabilisers 2.0
UPS(6.0) UPS 1.0
(7.0) (2.0) 3.0 8.0 13.0 18.0 0.0 4.0 8.0 12.0 16.0 20.0
% growth FY12-17 % growth FY17-22E

Symphony
Chart 4: Evolving air coolers market

Organise
d
Organised Organi 44%
20% sed
30%
Unorganis
Unorga ed
Unorganised 56%
nised
80% 70%
2014 - 6mn units 2017 - 8mn units 2022 - 15mn units

R&D and innovation: Lends winner’s edge

Symphony, since inception, has made R&D and innovation an integral part of its DNA. In
1993, it launched the Kaizen air cooler, which looked like an AC. Since then it has launched
models that offer superior alternatives to conventional air coolers through aerodynamic
design, power saving technology, uniform air inlet discharge, usage of high-grade non-
conducting material and optimised body & component framework.
The company has a global R&D centre recognised by the Government of India and has 108
trademarks, 49 registered designs, 7 copyrights and 8 patents—the largest in the
international air coolers industry. Due to its product pull and brand, Symphony is able to
garner dealer advances well ahead of the summer season—perhaps one of the few
companies to do so.

Consumer Durables
Fig.1: Symphony’s R&D and product innovation have been key differentiators
R&D and innovation reflected
in its diverse range of products over 1993to 2017
Kaizen Air Cooler (1993) was
the first plastic air cooler with
aesthetic design
Touch Air Cooler (2017)
Sumo Air Cooler
with Digital Touch (2000) had the same
screen, Voice Assist, features as Kaizen with
Mosquito repellant & wheels built in.
Air Purifier
1993 20
00
17
20
Winter Air Cooler
(2004) with four
200
side cooling pads
Cloud Air Cooler (2016)
201 6
world’s first wall mounted
4
air cooler with automatic
water refill
20 0
2
4
HiCool (2004) with
01
power saver
2
Storm Air Cooler technology, full
(2012) with LCD panel,
20 function remote &
09 empty water tank
On/off timer & Cool
flow dispenser for
2010 alarm
better cooling
Window Air Cooler (2010) with Tower Air Cooler

Duro-pump technology & Inbuilt (2009) the world’s first
floor valve for auto water refill tower air cooler
Source: Company
Asset-light model with good cash conversion cycle
Symphony’s outsourced asset-light business model has liberated the company from
investing in fixed assets (which, in turn, has resulted in a relatively light balance sheet). The
company also enjoys significant trade advantage—it accepts dealer advances before the
season begins with product delivery at a much later date. This arrangement leads to a lower
cash conversion cycle, thereby generating higher cash flow. Strong brand value and
negotiation power drive robust cash & carry model and higher supplier days, helping
Symphony maintain lower working capital throughout the season.
Chart 5: Symphony’s cash flows have been healthy

Strong brand equity & product 2,480 100
innovation track record equip the Operating C/F
company with significant 1,980 dried up as 53
competitive advantage driving inventories piled
up due to short
healthy cash flows. 1,480 6
summer season
(days)
(mn)
980 (40)
480 (87)
(20) (134)
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
CFO Cash conversion cycle

Symphony
Chart 6: Strong demand & asset-light business model augurs well

While Symphony has completely 25.0
outsourced manufacturing, it
does product designing & R&D 20.0
in house.
15.0
(x)
10.0
5.0
0.0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Fixed Asset Turnover
Differentiated offerings lend substantial competitive advantage

Earlier, the air coolers segment had very few branded players. However, in the past 12-18
months, at least 10 new brands have entered the fray comprising established players like
Havells, Voltas, Orient, Wox, Bluestar, Maharaja Whiteline, among others. The lure of a
large unorganised market and profitability therein enjoyed by Symphony have led to
established players making a beeline for the market.
However, we envisage Symphony to be undeterred by the new entrants as it has a credible

track record of outpacing competition—as early as 1990 when it launched air coolers, the
market was dominated by Crown, Salora, Usha and Videocon. However, it trumped these
established names by virtue of launching models that entailed differentiated features which
the competition failed to match.
Table 1: Competitive landscape of air cooler market

Despite rising competition from Market Share (%
Player SKUs Year of Entry Positioning
new entrants, Symphony has been of organized)
able to maintain market Symphony 50 40 1,988 Mid-Premium
share/positioning in past few Kenstar 17 28 2,002 Low-Premium
years. Voltas ~7 22 2015 Mid-Premium
Bluestar 12 2017
Havells 6 2015-16 Premium
Bajaj ~13 17 2004 Low-Mid
Usha 5-6 12
Orient 5-6 22 2014
Source: Company websites, Edelweiss research

Consumer Durables
Valuations
Symphony has been able to sustain premium stature in an industry perceived to be low end
by virtue of its ability to innovate, further complemented by the right business model (asset
light). While the number of players entering the air coolers market has grown substantially,
especially over the past 2-3 years, the company has been able to maintain lead share with
sustained profitability, driven by its single product focus and innovation.
The company enjoys 2 key advantages, which in our view are instrumental for its best-in-
class fundamentals and substantial market share edge: a) asset-light business model
implying lower working capital & b) In-house R&D/product innovation track-record. We
note a substantial expansion in gross margin over FY06-08—from 16% to 55%—was driven
by strong value engineering initiatives, change in business model from manufacturing to
outsourcing, which has sustained till date. Also, Symphony has much lower working capital
versus peers in the same (coolers) as well as any other segment, which we believe is on
account of strong brand and robust launch pipeline which has higher acceptance in the
market.
Organised air coolers market witnessed a strong shift over FY14-17 from 20% to >30%,
which helped the industry grow 20% plus to INR12bn. We estimate the organised air cooler
industry to clock 25% CAGR over FY17-19 led by: a) further rise in air cooler penetration
from 11% to 22% by FY26, implying organised market of ~INR21bn in FY19 (INR12 bn in
FY17); and b) shift of market share in favour of large organised players expedited by
formalisation of the economy.
We estimate Symphony to post robust 30% earnings CAGR over FY17-19 with RoE and RoCE
of 43% and 57%, respectively, led by strong growth in the industry, sustained operating
margin and low working capital.
Hence, we initiate with ‘BUY/SO’ and target price of INR1,789, ascribing 45x FY19E P/E.
Chart 7: Symphony’s PE band Chart 8: Stable earnings growth & profitability

75.0 150.0
60.0 120.0
45.0 Average P/E at 31.5x 90.0

(FY12-17)
(%)
(x)
30.0 60.0
15.0 30.0
0.0 0.0
Oct-16
Oct-10
Oct-12
Oct-14
Oct-06
Oct-08
Feb-14
Feb-16
Feb-10
Feb-12
Feb-06
Feb-08
Jun-17
Jun-13
Jun-15
Jun-07
Jun-09
Jun-11
FY18E
FY19E
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
1 yr fwrd PE Average P/E EPS YoY growth RoCE

Source: Bloomberg. Edelweiss research

Symphony
Chart 9: EV/Sales
Symphony witnessed strong re-rating 12.0
in past 3 years at a time when
organised market for air coolers 9.6
posted strong growth.
7.2
(x)
4.8
2.4
0.0
Apr-12
Feb-11
Sep-11
Dec-09
Jun-06
Mar-08
Jun-13
Mar-15
Dec-16
Jul-10
Aug-07
Oct-08
Aug-14
Oct-15
May-09
Nov-12
May-16
Jan-07
Jan-14
Chart 10: FCF/Sales

32.0
24.0
16.0
(%)
8.0
0.0
(8.0)
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FCF/Sales
Chart 11: FCF/PAT

165.0
125.0
85.0
(%)
45.0
5.0
(35.0)
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FCF/ PAT
Source: Edelweiss estimates

Consumer Durables
Key Risks
• While Symphony has maintained its lead market share with sustained profitability,
rising presence of large players like Voltas & Havells led by strong potential for
market expansion could impact profitability given that Symphony has the highest
absolute OPM levels across consumer durables industry.
• Uneven summer could impact the growth in the air coolers industry thereby
impacting our growth assumptions for Symphony.

Symphony
Company Description
Symphony was established in 1988 with a portfolio comprising 1 air cooler model. Within 2-
3 years, the company was able to match large multi-product competitors such as Crompton
Greaves, Usha and Polar in the air-cooler category. Then, it decided to diversify into ACs,
washing machines and other durables, but these products failed to attract consumers. By
2001, investors lost faith in the company, its net worth eroded and the stock became a
penny stock. The company was referred to the Board for Industrial and Financial
Reconstruction (BIFR) with debt of over INR500mn. However, post-2005, Symphony
restructured its philosophy into ’One Product–Many Markets’ and scaled up its international
presence in 2009 when it acquired IMPCO (North America). In 2011, it started offering
central air cooling solutions in India and established a foothold in all formats of modern
retail in 2013. In 2015, the company acquired Munters Keruilai (China). In 2016, it launched
the world’s first wall mounted air cooler.
Chart 12: Branded air cooler industry market share (FY16)

Others Voltas
7% 7%
Bajaj Electric
15%
Orient Electric
5%
Symphony
Kenstar 50%
16%
Source: Company Annual Report
Table 2: Symphony—The journey so far

Year Description
1988 Established in 1988 with a portfolio comprising one air cooler model
1994 Symphony went public
Pre 2000's Positionning - 'Many Products - One Market' , ventured into ACs, washing machines and other durables
2000-05 Suffered Financial distress and restructured
Post 2005 Positioning - 'One Product - Many Markets'
2008 Introduced power saver technology
2009 Scaled up international presence and acquired IMPCO (North America)
2011 Started central air cooling solutions in India
2012 Introduced intelligent air cooler range
2013 Established foothold in all formats of modern retail
2015 Unveiled the worlds first packaged air cooler and acquired Munters Keruilai (China)
2016 Launched the world's forst wall mounted air cooler and introduced i-Pure range coolers with multi-stage air

Consumer Durables
Product portfolio
Symphony’s product portfolio is divided into 4 segments—portable coolers, touch coolers,
window coolers and tower coolers. This has helped the company capture a larger market pie
by addressing unmet needs of customers. Its products offer intelligent features like dura
pump technology, full-function remote control, feather-touch digital control panel with LCD,
system restore function, on/off timer and other features like cool flow dispenser, all
weather plastic body in the window cooler segment, high efficiency cooling pads, among
others.
Fig. 2: Wall mounted air cooler
Fig. 3: Touch range of air coolers
>Digital touch screen

>Voice assist
>Mosquito repellant
>Fully closable louvers
Fig.4: Window air cooler range

>Duro-pump technology
>Powerful 18* non-corrosive fan
>Large 70 litre tank capacity
>Inbuilt floor valve for auto water
refill
Fig. 5: Mobile commercial air cooler range
Source: Company website

Symphony
Fig. 6: Packaged air cooler range
Source: Company website
Centralised air cooling

To explore the industrial cooling segment, Symphony acquired Mexico-based Impco SDERL
DE CV (Impco). Impco serves markets like the US, India, Iraq and a few Middle East countries
and specializes in large metallic air coolers and provides customised centralised air cooling
solutions.
Currently, Impco contributes ~13% to Symphony’s consolidated top line with a major chunk
of revenue (65% of overall sales) coming from centralised and heavy duty air coolers and
balance (~35% of sales) from room coolers. Symphony started leveraging enduring
relationships established by Impco with large format stores like Wal-Mart, Sears, Home
Depot, Lowes, Famsa and Costco, among others, to widen its presence in North, South and
Central America.
Symphony’s central cooling solutions cater to factories, offices, schools, malls, assembly
halls, warehouses and metro stations. The company, being India’s largest branded player in
this segment, stands to gain the most from the significantly large untapped opportunity in
the central air cooling solutions business.
Chart 13: Impco to sustain healthy growth over FY17-19E

1,750 25.0
We estimate Impco’s contribution

1,400 20.0
to remain stable, implying a
healthy 20% CAGR over FY17-19E.
(INR mn)
1,050 15.0
(%)
700 10.0
350 5.0
0 0.0
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16* FY 17 FY 18E FY 19E
IMPCO as a % of revenues *9M FY16
Source: Company, Edelweiss estimates
Note: *FY 16 annualized

Consumer Durables
Fig. 7: Marquee customers in India
Source: Symphony company website,
Fig.8: Symphony has been a single product focus company
Symphony
INR 0.04tn
2%
Consumer
Durables
INR
Industry 1.5tn

Symphony
Management Overview
Mr. Achal Bakeri, Chairman and Managing Director

Mr. Achal Bakeri leads management in critical organizational functions such as corporate
strategy, international growth opportunities and people development. He is responsible for
overall strategy, execution and policy formation at Symphony. He provides overall direction
to the Board and management team in achieving aggressive corporate objectives. Mr. Bakeri
has 30 years of experience in varied functions of the company. He is an architect and an
MBA from the University of Southern California.
Mr. Nrupesh Shah, Executive Director

Mr. Nrupesh Shah heads Symphony’s financial & commercial functions and is responsible for
corporate affairs, strategy, finance, M.I.S., treasury, etc. He also serves as a Member of
Symphony’s Share Transfer & Investor Grievance Committee and the Audit Committee. Mr.
Shah joined Symphony in 1993 as Finance Controller and became Executive Director in 2002.
Mr. Vijay R Joshi, Chief Operating Officer

Mr. Vijay R Joshi has over 29 years’ experience and holds overall responsibility for
operations including development of new products, materials management and production.
Mr. Bhadresh Mehta, Chief Financial Officer

Mr. Bhadresh Mehta is a finance and audit professional with 33 years’ experience. He is
responsible for finance, audit, accounts, costing, taxation and infotech functions of the
company.

Consumer Durables
Financial Outlook
Healthy growth in organised market to drive 24% top-line CAGR
We estimate Symphony’s revenue to jump to INR11.73bn by FY19 from INR7.6bn in FY17,
24% CAGR. This will be primarily driven by new product innovation, largest potential for
shift in air coolers from unorganised to organised segment and low penetration of air
coolers in India (~11%). The organised industry, which currently accounts for 30% of total air
cooler sales by volume, is estimated to post 24% CAGR and will account for 40% of the total
air cooler market by 2022.
Chart 14: Revenue to jump by ~1.5x over FY17-19E

Symphony has significantly
15,000
outperformed industry over past 5-7
years which we expect to sustain
12,000
given its single product focus &
product R&D track record.
(INR mn)
9,000
6,000
3,000
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Revenues
Strong product pull, industry shift to drive 30% EBITDA growth

Symphony, by virtue of its unique positioning as the market leader in air coolers (~50% by
value), enjoys significant advantages. Due to its innovation and R&D capabilities the
company’s products command significant premium in the market (~5-15% higher than
competitors), enabling it to clock high EBITDA margin. We estimate EBITDA to increase to
INR3.3bn by FY19 from INR1.9bn in FY17, CAGR of 32%, primarily led by better product pull
versus competition, which becomes a critical advantage in an industry witnessing market
share shift from the large unorganised segment.

Symphony
Chart 15: 30% EBITDA CAGR over FY17-19E led by robust market outlook, healthy OPMs
Symphony’s premium positioning 4,000 36.0
and robust business model augur
well for profitability in light of 3,200 30.0
strong market share shift
potential for large organised 2,400 24.0
(%)
segment.
(mn)
1,600 18.0
800 12.0
0 6.0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
EBITDA EBITDA margins
RoE and RoCE to remain stable

Symphony clocks high RoE on account of strong revenue and profitability spurt, asset-light
business model and cash-and-carry operations. It has the highest RoE and RoCE among
consumer durables players. We estimate RoE and RoCE to remain stable over FY17-19 at
43% and 57%, respectively.
Chart 16: RoE and RoCE to remain stable

175.0
140.0
105.0
(%)
70.0
35.0
0.0 FY18E
FY19E
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoE RoCE

Consumer Durables
Key assumptions Income statement 1.46048 (INR mn)
Inflation (Avg) 4.9 4.8 5.0 5.2 Employee cost 537 687 833 998
Residential Air cooler organised grwth( 20.3 16.2 25.8 26.2 Depreciation & amort. 54 71 76 83
Symphony's sh. in organised mkt (%) 49.7 50.0 50.1 50.2 EBIT 1,577 1,905 2,498 3,277
Other income 307 432 551 614
Depriciation as a % of FA 4.3 5.0 4.1 4.5 Profit before tax 1,883 2,338 3,049 3,891
Tax rate (%) 26.5 29.1 28.5 28.5 Provision for tax 532 681 869 1,109
Capex (INR mn) 24 106 200 201 Reported profit 1,351 1,656 2,180 2,782
Adjusted Profit 1,475 1,656 2,180 2,782
Equity shares outstand.(mn) 70 70 70 70
EPS (INR) basic 19.3 23.7 31.2 39.8
Diluted shares (mn) 70 70 70 70
DPS 17.5 4.2 12.5 15.9
Dividend payout (%) 90.6 17.8 40.0 40.0

Direct cost 44.9 47.4 46.2 46.1
Other expenses 18.6 17.9 17.4 16.9
Depreciation& amortisation 0.9 0.9 0.8 0.7
EBITDA margins 27.5 25.7 27.5 28.5
Net profit margins (adj.) 22.7 21.6 23.3 23.6
Growth metrics (%)

Revenues 13.0 29.3 22.0 25.6
EBITDA 23.2 21.1 30.3 30.5
PBT 16.7 24.2 30.5 27.6
EPS 16.5 22.6 31.6 27.6

Symphony

Equity capital 70 140 140 140 Operating cash flow 876 930 1,589 2,111
Reserves & surplus 3,116 4,450 5,582 7,028 Financing cash flow (1,461) (123) (1,045) (1,334)
Shareholders funds 3,186 4,590 5,722 7,168 Investing cash flow 715 1,006 347 364
Short term borrowings 0 193 193 193 NET CASH FLOW 129 1,813 891 1,141
Total Borrowings 0 193 193 193 Capex (24) (106) (200) (201)
Long Term Lia. & Provisions 67 27 27 27
Gross block 1,890 1,996 2,196 2,397 ROAE (%) 47.2 42.6 42.2 43.1
Net block 736 771 895 1,013 Inventory (days) 69 66 71 70
Total Fixed Assets 766 771 895 1,058 Payable (days) 97 94 96 94
Goodwill on Consolidation 39 39 39 39 Cash conversion cycle (4) (4) (2) (2)
Non Current Investments 1,617 967 967 967 Current ratio 1.4 1.7 1.7 1.6
Current Investments 6 1,862 1,862 1,862 Gross Debt/EBITDA 0.0 0.1 0.1 0.1
Inventories 551 773 919 1,150
Sundry debtors 469 523 638 802 Operating ratios
Cash and cash equivalents 464 466 1,358 2,499 Year to March FY16 FY17 FY18E FY19E
Loans and advances 246 526 579 637 Fixed assets turnover (x) 11.2 10.2 11.2 12.3
Other current assets 67 61 61 61 Total asset turnover(x) 1.8 1.9 1.7 1.8
Total curr.assets (ex cash) 1,332 1,883 2,197 2,650 Equity turnover(x) 1.9 2.0 1.8 1.8
Trade payable 838 1,041 1,238 1,549
Other CL & Short Term Provis. 108 91 91 91 Valuation parameters
Total CL & provisions 946 1,133 1,329 1,640 Year to March FY16 FY17 FY18E FY19E
Net Current Assets (ex cash) 386 751 868 1,009 Diluted EPS (INR) 19.3 23.7 31.1 39.7
Uses of funds 3,278 4,855 5,988 7,433 Y-o-Y growth (%) 17 22.6 31.5 27.6
Book value per share (INR) 46 66 82 102 CEPS (INR) 21.9 24.7 32.2 40.9
Diluted P/E (x) 68.7 56.0 42.6 33.4
Free cash flow Price/BV(x) 29.1 20.2 16.2 12.9
Year to March FY16 FY17 FY18E FY19E EV/Sales (x) 15.3 11.9 9.7 7.6
Reported Profit 1,351 1,656 2,178 2,779 EV/EBITDA (x) 55.6 46.3 35.2 26.6
Add: Depreciation 54 71 76 83 Dividend Yield (%) 0.9 0.3 0.9 1.2
Add: Others (613) (1,161) (781) (893)
Less:Changes in working cap. -82 -364 -117 -141
Operating cash flow 876 930 1,589 2,111
Less: Capex -24 -106 -200 -201
Free cash flow 900 1,036 1,789 2,312

Consumer Durables
Additional Data
Directors Data
Mr. Achal Bakeri Chairman and Managing Director Naishadh Parikh Independent Director
Nrupesh Shah Executive Director Darshan Patel Independent Director
Jonaki Bakeri Non Executive Director
Dipak Palkar Independent Director
Satyen Kothari Independent Director
Auditors - Deloitte Haskins & Sells

Holding – Top10
Achal Bakeri 10.14 Axis Asset Management 3.29
Oras Investments Pvt. Ltd 9.21 Rowenta Networks 2.85
Paratam Investments 8.63 Anil Pavan Bakeri 1.72
Mattews Intl Capital Management 3.4 UTI Asset Management 1.01
Mattews International Capital 3.4 Vanguard Group 0.63
*in last one year
Bulk Deals
18 Jan 2017 Axis Long Term Equity fund Sell 1926196 1183.00
18 Jan 2017 Axis Long Term Equity fund Buy 1926196 1183.00
*in last one year
Insider Trades
27 Feb 2017 Nabab Consultants Sell 100,000
1 Mar 2017 Nabab Consultants Sell 100,000
*in last one year

INITIATING COVERAGE
V GUARD
Building on impressive track record
V Guard (VGI) has made commendable transition from a stabiliser player EDELWEISS 4D RATINGS
with southern presence to a multi-product company with reasonable Absolute Rating HOLD
pan-India penetration. Our conviction on the company is anchored by: Rating Relative to Sector Performer
a) revenue diversification bolstered by a well rounded product basket; Risk Rating Relative to Sector Low
and b) focus on product branding & marketing and an asset-light model Sector Relative to Market Overweight
are key differentiators driving industry-leading profitability. In our view,
efficient working capital & profitability focus, a balanced approach to
MARKET DATA (R: VGUA, B: VGRD IN)
ramp up in non-South regions and a thoughtful product rollout strategy
CMP : INR 182
will drive reasonable 19% earnings CAGR (FY17-19E) supported by robust Target Price : INR 169
RoE and RoCE of 25% and 32%, respectively, by FY19E. However, the 52-week range (INR) : 220 / 98
stock at 36x FY19E seems fairly valued and is already factoring reasonable Share in issue (mn) : 424.7
growth. Hence, we initiate with ‘HOLD’ with TP of INR169 valuing it at 33x M cap (INR bn/USD mn) : 77 / 1,196
(10% premium to sector valuations). Avg. Daily Vol.BSE/NSE(‘000) : 969.3
Well rounded product basket bolsters market lead SHARE HOLDING PATTERN (%)
VGI, predominantly a stabiliser player earlier, is now a diversified play with share of Current Q3FY17 Q2FY17
cables rising to ~30% of revenue in FY17 and that of stabilisers declining to 20% from Promoters * 65.2 65.2 65.2
peak of 46% in FY06. Moreover, it is planning to further improve revenue mix by MF's, FI's & BK’s 10.1 10.1 10.1
enhancing share of electrical segment to ~70% by FY20E (~65% in FY17) by leveraging FII's 12.5 12.5 12.5
its existing 5,500 plus dealer network. A well rounded product basket has helped VGI Others 12.2 12.2 12.2
emerge market leader in South and propelled 26%/29% sales/ PAT CAGR (FY06-17).
Asset-light business model potent growth enabler RELATIVE PERFORMANCE (%)

The company has an asset-light model wherein it outsources >60% production, with a Stock over
Sensex Stock
well diversified list if vendors pan India. This model helps VGI: 1) lower capex Sensex
requirement; and 2) frees up resources for brand building, marketing and quality 1 month 2.8 2.1 (0.7)
control which has been a key growth driver for VGI. 3 months 8.7 3.1 (5.6)
12 months 14.7 84.0 69.3
Outlook and valuations: Long-term bet; initiate with ‘HOLD’
Growth prospects will be bolstered by new revenue streams with falling share of low-
growth conventional businesses. The company’s sharpened focus on brand
transformation and beefing up dealer network (especially in non-South areas) instills
confidence. However, we believe the stock at 36x FY19E seems fairly valued currently.
Amit Mahawar
Hence, initiate with ‘HOLD/SP’. +91 22 4040 7451
Financials amit.mahawar@edelweissfin.com
Darshika Khemka
Revenues (INR mn) 18,623 21,506 24,622 28,255 +91 22 4063 5544
Growth (%) 6.7 15.5 14.5 14.8 darshika.khemka @edelweissfin.com
EBITDA (INR mn) 1,780 2,150 2,569 3,007
Krish Kohli
Adjusted profit (INR mn) 1,117 1,518 1,820 2,160 krish.kohli@edelweissfin.com
Diluted EPS ( INR) 3.4 3.6 4.3 5.1
Growth (%) 64.6 4.3 19.9 18.7
ROAE (%) 26.3 27.4 25.8 25.2
P/E ( X) 52.8 50.6 42.2 35.6 July 07, 2017

Consumer Durables
Electronics segment
• Stabilisers Well rounded product basket bolsters market lead
• UPS (Standalone + Digital)
Over the years, VGI has augmented its product portfolio with pumps, water heaters, cables
and UPS from primarily manufacturing & selling stabilisers. Earlier, the company’s revenue
Electricals segment
• Pumps mix was majorly skewed towards stabilizers (contributed 46% to revenue in FY06, cables
• Cables & wires (PVC+LT) contributed 18%). However, now it is a diversified play with the share of cables rising to
• Water heaters ~30% of revenue in FY17, share of water heaters rising from 9% to 14% and fans
• Fans contribution rising from 4% to 10% over FY06-17. Despite reduced contribution, the
company has managed to sustain its market share in stabilisers at ~55-58%.
New products
• Induction cook tops VGI is planning to further improve its revenue mix by increasing the share of electrical
• Mixers segment to ~70% by FY19E (~65% in FY17) by leveraging its existing network of 676
• Switchgears distributors and 5,975 channel partners. Apart from regularly upgrading its products, the
company launches new products to capture higher wallet share of household electricals. A
well rounded product basket has helped VGI emerge as one of the market leaders in South
India and has translated into consistent revenue growth over the years.
Chart 1: Diversified revenue mix with electrical segment accounting for ~70%
100.0 32.0
80.0
24.0
60.0
(%)
(INR bn)
40.0 16.0
20.0
8.0
0.0
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
0.0
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Stabiliers UPS
Pumps Cables & Wires
Water Heaters Fans Electronics Segment Electricals Segment
Kitchen Appliances Switchgears New Products Segment
Aggressively expanding footprint in non-South markets

VGI, a leader in South India, has limited presence in other parts of India. Initially, the
company was focusing on creating the required infrastructure and launching the right
products in non-South markets. This was followed by second phase of investing in brands
and deepening its distribution network. The company is trying to widen its reach in non-
South markets, apart from undertaking aggressive advertising.

V Guard
Fig. 1: 3-pronged strategy to expand in non-South markets
VGI’s current focus in the next 5-8 years is to increase its

penetration in stores in non – South India as there are less
Getting into than 15-20% stores keeping VGI products. Instead of adding
distributors, its their strategy is to get into more stores as far
more stores as distribution is concerned
Expansion VGI plans to improve its products to suit the taste of the
strategy in Homogeneity
non-South market for the reason that not all the products
they operate in are homogenous. VGI is therefore working
of products on products that will help it get into stores
Non-South
India
The above 2 strategies will be followed by the last leg of VGI

Expansion to get into metro cities like Mumbai and Delhi where its
into Metro presence is still low
Cities
In non-South markets, the company does have a good presence (in larger towns and cities).
However, it is looking to widen penetration and ramp up current low market share in these
markets.
Chart 2: Robust expansion strategy for higher penetration in non-South areas

Non-South revenues have clocked 100.0 5 9 15
50% CAGR during FY09-17. Riding 22 21 25 30 33 33 35 36
its 3-pronged expansion strategy 80.0 38
and aggressive advertising, we
estimate VGI to ramp up non-South 60.0
(%)
contribution to ~40% of revenue to 95 91 85

~INR14bn by FY19 versus 35% 40.0 78 79 75 70 67 67 65 64
(~INR7.5bn) in FY17. 62
20.0
0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
South Non-South

Consumer Durables
VGI is more aggressive in non-South markets—number of dealers has jumped from 95 in
FY12 to 445 in FY17—than in its stronghold South market. The company has also been
working towards improving revenue/dealer in non-South markets over South India.
Chart 3: Widening dealers’ network in non-South areas… Chart 4: …but revenue/dealer remains low versus South
750 77 35.0
600 64 22.0
(INR mn)
450 51 9.0
(%)
(No.s)
38 (4.0)
300
25 (17.0)
150
12 (30.0)
0 FY11 FY12 FY13 FY14 FY15 FY16 FY17
FY11 FY12 FY13 FY14 FY15 FY16 FY17
South Non-South
South Non-South Total Growth in South Growth in Non-South
The company has also increased outlay for advertising and marketing to enhance brand
visibility and undertake pan-India expansion with focus on non-South markets. VGI’s
advertisement strategy entails spending ~75% on mass media ads—70% on television and
balance ~5% on print. Balance 25-30% is incurred on below-the-line activities like retailer
engagements, shop branding, hoardings and other incentives for retailers. We expect VGI to
maintain ad spend with special emphasis on non-South markets.
Chart 5: Ad-spend as % of sales Table 1: Peer comparison—Ad spend as % of sales
1,000 5.0 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
800 4.6 Bajaj 2.6 2.2 2.8 2.8 3.6 4.2 4.2 4.3
CGCEL 2.5 0.8 1.1 1.3 1.3 0.6 1.9 2.8

600 4.2
(INR mn)
Havells 3.5 2.5 3.1 3.1 2.4 3.0 3.3 3.1

(%)
400 3.8 V Guard 5.1 3.8 4.2 4.3 3.9 4.0 4.3 4.5
200 3.4
0 3.0
Ad-Spends % of Sales
VGI’s ad spends jumped to 4.4% of revenue in Source: Industry, Company, Edelweiss research
FY17 versus industry average of ~2-4%

V Guard
Asset-light model and focus on R&D: Potent growth enablers

Key aspects of VGI's asset-light model: VGI’s asset-light business model combats multiple challenges to revenue growth,
profitability and shareholder returns. The company outsources >60% of production and has
• Complete control on supply chain
• R&D support to vendors tied up with vendors (spread across India) to manufacture various products. The model
• Company’s QA officials posted at helps the company: 1) Optimise assets turn & lowers capex requirement; and 2) frees up
resources for brand building, marketing and quality control. Though VGI outsources
vendors’ location to ensure quality
• Owns all designs and moulds production, it maintains strict control on product quality.
Chart 6: 60% of products outsourced Chart 7: FA turnover ratio at ~14x (FY17E)

35 16.5
28 14.0
25
22
21 11.5
(INR bn)
(x)
14 14 9.0
11
9 10
8
7 6 6.5
4 12 12
3 7 7 7 8
2 2 2 3 4 5
0 1
0 1 1 1 2 4.0
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
In-House Outsourced FA Turnover ratio

Table 2: Most of VGI’s manufacturing operations are outsourced

Production No. of
Products Location Segment Products Production Model
Facility Units
PVC Wiring Cables 2 Coimbatore, Kashipur
Voltage Stabilizers 90% Outsourced
LT Cables 1 Coimbatore Electronics
Pumps & Motors 1 Coimbatore Segment UPS Systems (both
100% Outsourced
Kala Amb, Himachal digital & standalone)
Own
Fans 1
Manufacturing Pradesh PVC Cables 100% In-House
Facilities Kala Amb, Himachal
Water Heaters 1 Pumps 90% Outsourced
Pradesh Electricals
Solar Water Heaters 1 Perundhurai Segment Electric Water
55% Outsourced
Stabilizers 1 Sikkim Heaters
Stabilizers 63 Across India Fans 90% Outsourced
Outsourced Pumps 20 Across India
Production Fans 6 Across India Cooktop 100% In-House
Facilities UPS 12 Across India Other
Solar Water Heaters 100% In-House
Electric Water Heaters 7 Across India Products
Source: Company

Consumer Durables
Valuation
VGI has maintained leadership led by strong franchise in electrical products (stabilisers/UPS,
etc) with high market share of 34%. As a result, the company posted impressive top line/PAT
CAGR of 27/26% over past 10 years. Its 2-pronged strategy: a) increasing market share in
non-South regions for existing businesses; and b) penetrating new scalable businesses
(pumps, water heaters and cables & wires) has incrementally impelled growth for the
company. Following the high growth base of FY17 for stabilisers and UPS (up 19% YoY), we
expect incremental growth in future to be driven by water heaters, cables & wires and
pumps, which coupled with geographical expansion will aid 19% earnings CAGR over FY17-
19E.
We initiate coverage with ‘HOLD/SP’ and target price of INR169 (valuing the stock at 33x
which is at 15% premium to Edelweiss Consumer Durables’ average P/E. Given VGI’s
substantial re-rating over past 12-15 months, we believe the stock at 36x does not offer any
material upside & broadly captures potential earnings growth.
Chart 8: 1-year forward P/E band and earnings growth

50.0
VGI trades at a decent premium
to CDS 1 yr fwd PE leaving limited 40.0
headroom for re-rating.
30.0 Average P/E at 23.4x
(FY12-17)
(x)
20.0
10.0
0.0
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
1 yr fwrd PE band Average P/E

V Guard
Fig. 2: VGI’s market coverage is in sync with its distribution network
V-guard
INR 0.9tn
57%
Consumer
Durables
INR
Industry 1.5tn

Consumer Durables
Key Risks
• Seasonality in revenues since sales of a few product categories are dependent on
summer/ winter season.
• Volatility in commodity prices, especially copper.
• Rising competitive intensity with entry of new players.
• Slowdown in construction/realty sectors impacting sales of a few products.

V Guard
Company Description
VGI, incorporated in 1977, is a leading player in household electrical and electro mechanical
products (wires, cables, stabilisers, geysers) with dominance in tier 2, 3 and 4 cities in South
India. It has a hybrid model, where it manufactures one third products it sells, while balance
are outsourced. The company grew rapidly to become a name synonymous with voltage
stabilisers across South India. It soon extended its range of products to voltage stabilisers,
digital UPS, inverters & inverter batteries, electric water heaters, solar water heaters,
domestic pumps, agricultural pumps, industrial motors, domestic switch gears, distribution
boards, wiring cables, industrial cables, induction cooktops, mixer grinders and fans.
Table 3: VGI—Timeline
Year Milestones
Mr. K Chittilappilly set up the business of manufacturing and selling
1977
stabilisers under the brand V Guard
Added special quality stabilisers for Air Conditioners to its product
1980
portfolio
Diversified range of products and accommodated high-quality pumps into
1992
it
V Guard was incorporated as a Public Ltd company and launched electric
1996
water heaters
Added wire cables to the portfolio and soon won recognition as provider
1997
of a specialised range of house wires
1998 Launched UPS (Online & Offline)
A cable manufacturing unit was setup in Coimbatore to increase the
1999
manufacturing capacity. Launched digital stabilisers
Received ISO certification for manufacture of PVC insulated cables and
2000
designing and manufacturing of solar water heaters
V Guard was converted as a Private Ltd company and launched
2001
compressor pumps
2002 Launched solar water heaters
Added an exquisite array of electric fans. Issued bonus shares to its
2006
members in the ratio of 1:6
2007 Opened new branches and strengthened non-South market operations
2008 Came up with a Initial Pubic Offer with listing on BSE & NSE
An LT cable factory at Coimbatore, a wires & cables factory at Kashipur
2009 and water heaters and fans factory at Kala Amb were launched. DUPS,
Inverters were added to V-Guard's product portfolio.
2010 Launched a smart array of domestic switch gears
Total turnover hit INR10bn mark. A premium range of induction cook tops
2012
were added to the portfolio
2014 Total turnover hit INR15bn mark
Source: Company

Consumer Durables
Healthy product mix

VGI operates in 3 segments: 1) Electronics, which comprise voltage stabilisers and UPS
systems; 2) Electricals, which comprise house wiring cables, LT cables, pumps, electric water
heaters, fans, switchgears, induction cooktops and mixer grinders; and 3) New Products,
which comprise solar water heaters and inverters.
Table 4: Product profile

Market Size (Rs. Mn)
Segment Products Production Model Distribution Channel Strategy Competitors
Organised Unorganised Total
Bluebird, Capri,
Consumer Durable stores,
Voltage Stabilisers 90% Outsourced Logicstat, Premier, 7000 5500 12500
Electrical and Hardware Stores
Electronics Everest
Segment UPS Systems Consumer Durable stores, Numeric, APC,
(digital & Outsourced Electrical and Hardware stores, Emerson, Microtek, 46600 9900 56500
standalone) Battery Retail stores Luminous, Su-Kam
Polycab, Havells,
PVC Cables 100% In-House Electrical and hardware stores Finloex, RR Cables, 55000 40000 95000
Anchor
Crompton Greaves,
Electrical and hardware stores,
Pumps 90% Outsourced Kirloskar, CRI, 50000 50000 100000
Pump and Pipe fittings stores
Electricals Texmo
Segment A.O. Smith, Racold,
Electric Water Consumer Durable stores ,
55% Outsourced Bajaj, Venus, 13250 7000 20250
Heaters Electrical and hardware stores
Crompton Greaves
Crompton, Bajaj
Consumer Durable stores,
Fans 90% Outsourced Electricals, 50000 15000 65000
Electrical and hardware stores
Havells, Orient
Prestige, Bajaj,
Cooktop 100% In-House Electrical and hardware stores 4000 2500 6500
Preethi, Butterfly
Other Solar Water Racold, Emmvee

100% In-House Direct Marketing Channel 4200 1800 6000
Products Heaters Solar
Source: Company

V Guard
Manufacturing units
VGI has an asset-light model wherein ~60% products are sourced from SSI units/ small
manufactures across South India. The company inks contracts with third parties for the
manufacture of voltage stabilisers, pumps, UPS, electric water heaters and electric fans
which are manufactured according to its specifications.
Table 5: Manufacturing units

PVC Cable Factory
Production Facility Products No. of Units Location
PVC Wiring Cables 2 Coimbatore, Kashipur

LT Cables 1 Coimbatore
Own Pumps & Motors 1 Coimbatore
Manufacturing Fans 1 Kala Amb, Himachal Pradesh
Facilities Water Heaters 1 Kala Amb, Himachal Pradesh
Solar Water Heaters 1 Perundhurai
LT Cable Factory Stabilisers 1 Sikkim
Stabilisers 63 Across India
Outsourced Pumps 20 Across India
Production Fans 6 Across India
Facilities UPS 12 Across India
Electric Water Heater 7 Across India
Source: Company
Solar water heater factory
Capacity expansion
VGI has planned capacity expansion at its Sikkim plant, where 2 factories at total capex of
~INR400mn are being set up. These factories are spread over a built-up area of ~1.4 lakh
square feet over 2 different plants. One unit will manufacture stabilisers (investment of
INR125mn) and the other will manufacture water heaters (investment of INR250mn). At
peak capacity, ~INR5,000mn sales are estimated. Commercial production at both the plants
is expected to commence from March 2017.
Stabiliser manufacturing units

Consumer Durables
Key personnel
Mr. Kochouseph Chittilappilly, Chairman
Mr. Kochouseph Chittilappilly is a post graduate in Science, majoring in Physics from Calicut
University. He started his career as a supervisor in an electronics company, where he
worked for 3 years. He has been the Managing Director of the company since inception.
Mr. Cherian N Punnoose, Vice Chairman

Mr. Cherian N. Punnoose, a Fellow member of Institute of Chartered Accountants of India,
joined VGI as Vice Chairman of the Board of Directors. Formerly Director of Finance at Kochi
Refineries, he was also on the Board of Pertonet CCK. He also served Bharat Heavy
Electricals and International Airports Authority of India. Mr. Punnoose has 40 years of
experience in the Finance, Audit and Administration.
Mr. Mithun K Chittilappilly, Managing Director

Mr. Mithu K Chittilappilly is a post graduate in Management from University of Melbourne,
Australia. After completing his graduation in Commerce he worked with a couple of MNC
companies like Deloitte and Hewlett Packard. In January 2005, he took a break from work
for a year and a half to pursue post-graduation in Management from University of
Melbourne, Australia. After graduating in May 2006, he joined VGI as Executive Director and
in 2012 was appointed the Managing Director.
Mr. Ramachandran Ventaraman, Director & COO

Mr. Ramachandran Ventaraman, a leading Management Professional, brings with him over
25 years of cross functional experience across blue chip companies including Hindustan
Unilever and LG Electronics. His last assignment was as Director and Chief Strategy Officer,
LG Electronics, South West Asia Region.
Mr. C J George, Managing Director

Mr. George is a post graduate in commerce, Certified Financial Planner and a Research
Scholar with School of Management Studies of Cochin University of Science and
Technology. He is a member of Executive Committee of National Stock Exchange of India,
National Securities Depository, BNP Paribas Personal Investors, Paris and Cochin Chamber of
Commerce and also a Managing Committee member of ASSOCHAM and KMA. Currently, he
is the Managing Director of Geojit BNP Paribas Financial Services.
Mr. A K Nair, Managing Director

Mr. A.K. Nair holds Bachelor's degree in Mechanical Engineering with Masters in Business
Administration and has over 45 years of industry experience, especially in Engineering,
Finance and General Administration. He has served Kerala State Industrial Development
Corporation and Nitta Gelatin India as Managing Director and is currently on the Board of
Directors of many other companies.

V Guard
Mr. Ullas K Kamath, Managing Director

Mr. Ullas Kamath is a member of The Institute of Chartered Accountants of India and The
Institute of Company Secretaries of India, and also holds a degree in law. He has also
attended the Advanced Management Program at The Wharton Business School, US, and
Harvard Business School, US. He is currently the Joint Managing Director of Jyothy
Laboratories. He also holds the position of Director in Jyothy Fabricare Services.
Mrs. Joshna Johnson Thomas, Managing Director

Mrs. Joshna Johnson Thomas holds a Management Degree in Human Resources from
Symbiosis Institute of Business Management, Pune. As a Human Resources professional, she
has had the opportunity to work across multiple organizations in the Middle East. Currently,
she is the Executive Director in V-Star Creations.

Consumer Durables
Financial Outlook
Revenue CAGR of 15% driven by electrical segment
Revenue posted 25% CAGR during FY07-17 and is estimated to clock 15% CAGR over FY17-
19E. The decline will primarily be on account of higher proportion of stabilisers and UPS in
the revenue mix. Over the years, revenue visibility for these segments has shrunk
significantly due to better availability of uninterrupted power and shift to energy-efficient
ACs. As a result, stabilisers’ revenue as a % of sales has dipped from peak of 35% in FY06 to
17% in FY17 and is expected to fall further. UPS revenue, as a % of sales, has also declined
from a peak of 15% in FY13 to 11% in FY20. Pump, heater & cables are potential earnings
growth drivers for the company given huge scale up potential as VGI expands market share.
We expect these segments to post a reasonable 17% CAGR over FY17-19E accounting for
~68% of top line.
Chart 10: Revenue to post 15% CAGR over FY17-19E Chart 11: Stabiliser/UPS revenue to fall to 17%/9% of sales
30 50.0
24 40.0
18 30.0
(INR bn)
(%)
12 20.0
10.0
6
0.0
0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Stabilizer as % of revenue UPS as % of revenue

Revenues
Focus on controlling working capital driving operational efficiency

VGI’s asset-light model has helped it maintain a stable working capital (WC) cycle. The
company is now targeting reduction in cash conversion cycle. WC days reduced from peak of
77 in FY12 to 60 in FY17. This was achieved via improved demand & supply planning and
inventory management. It has constituted a special central strategic sourcing team to work
with all vendors of basic metals and components to reduce costs and improve credit. This
has helped it drive operational excellence with operational cash flows clocking ~40% CAGR
over last decade (FY07-17).

V Guard
Chart 12: Healthy reduction in working capital
WC days had jumped sharply in 1,900 120

FY11 when VGI ventured outside
South India and credit to 1,500 95
distributors had surged with
1,100
higher inventories in the system. 70
(days)
(INR mn)
700
45
300
(100) 20
(500) (5)
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
CFO WC days
Cables & wires, water heater segments to fuel EBITDA spurt

EBITDA is estimated to clock 18% CAGR over FY17-19 and EBITDA margin is estimated to
remain stable over FY17-19 at 10% despite 400bps increase in direct costs from 68.7% in
FY17 to 72.9% over FY18-20E. This growth will be predominantly fuelled by cables & wire
and water heater segments as VGI gains market share led by shift of business to organised
share.
Chart 13: EBITDA to clock 18% CAGR over FY17-19E
3.5 15
2.8 12
(INR bn)
2.1 9
(%)
1.4 6
0.7 3
0.0 0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
EBITDA EBITDA margins

RoE/RoCE set to decline over FY17-19

We estimate VGI’s RoE to dip 200bps from 27% to 25% over FY17-19 and RoCE to fall
250bps to ~32% due to expansion at the new Sikkim factory & subdued earnings growth.

Consumer Durables
Chart 14: RoCE, RoE to decline over FY17-19
60.0
48.0
36.0
(%)
24.0
12.0
0.0
FY18E
FY19E
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
RoE RoCE

V Guard
Industry Growth Rate (%) EBITDA 1,780 2,150 2,569 3,007
A) Stabilizers 1.4 2.0 2.0 2.0 Depreciation and amortisation 154 162 187 208
B) UPS (Digital + Standalone) (8.0) (6.5) 1.0 1.0 EBIT 1,626 1,988 2,382 2,800
C) Pumps 7.0 7.0 13.0 13.5 Interest expense 89 21 31 34
D) Cables & Wires 19.0 10.0 13.0 13.5 Other income 72 135 177 235
E) Water Heaters (Electric+Solar) 12.4 12.0 12.0 11.5 Add: Exceptional items
F) Fans 9.8 9.8 13.0 13.3 Profit before tax 1,610 2,102 2,528 3,000
G) Kitchen Appliances (Cooktops+Mixers) - 1.5 2.2 2.8 Provision for tax 493 584 708 840
H) Switchgears 20.7 10.0 10.3 10.5 Reported profit 1,117 1,518 1,820 2,160
Market Share of V guard (%) Less: Except. Items (Net of Tax) - - - -
A) Stabilizers 29.5 34.2 36.0 37.0 Adjusted Profit 1,117 1,518 1,820 2,160
B) UPS (Digital + Standalone) 3.9 3.3 4.0 4.2 Equity shares outstanding (mn) 326 425 425 425
C) Pumps 1.4 1.6 1.8 1.9 EPS (INR) basic 3.4 3.6 4.3 5.1
D) Cables & Wires 1.5 1.5 1.5 1.6 Diluted shares (mn) 326 425 425 425
E) Water Heaters (Electric+Solar) 9.7 9.7 10.0 10.7 Adjusted Diluted EPS 3.4 3.6 4.3 5.1
F) Fans 1.9 2.1 2.2 2.4 Adjusted Cash EPS 3.9 4.0 4.7 5.6
G) Kitchen Appliances (Cooktops+Mixers) 5.5 6.7 6.7 6.7 DPS 0.7 0.9 0.9 1.0
H) Switchgears 0.8 1.1 1.4 1.7 Dividend payout (%) 20.4 24.0 20.0 20.0
Depriciation as a % of FA 6.2 6.0 6.0 6.0
Tax rate (%) 30.6 27.8 28.0 28.0 Common size metrics- as % of net revenues
Capex (INR mn) 140 430 350 350 Year to March FY16 FY17 FY18E FY19E
Direct cost 70.5 68.7 68.6 68.5
Other expenses 14.0 14.9 14.7 14.7
EBITDA margins 9.6 10.0 10.4 10.6
Growth metrics (%)

Revenues 6.7 15.5 14.5 14.8
EBITDA 33.8 20.8 19.5 17.1
PBT 58.7 30.6 20.3 18.7
EPS 64.6 4.3 19.9 18.7

Consumer Durables
Equity capital 301 425 425 425 Operating cash flow 1,311 1,189 1,384 1,469
Reserves & surplus 4,370 5,946 7,330 8,973 Financing cash flow (941) (55) (452) (552)
Shareholders funds 4,708 6,371 7,755 9,397 Investing cash flow (316) (1,054) (173) (115)
Long term borrowings 56 153 153 153 NET CASH FLOW 53 81 758 802
Short term borrowings 15 1 15 15 Capex (140) (430) (350) (350)
Total Borrowings 71 154 169 169 Dividend paid 250 356 437 518
Long Term Liabilities & Prov. 176 88 88 88
Gross block 2,526 2,762 3,112 3,462 ROAE (%) 26.3 27.4 25.8 25.2
Depreciation 916 1,078 1,265 1,473 ROACE (%) 33.7 34.0 32.3 31.5
Total Fixed Assets 1,611 1,788 1,951 2,093 Payable (days) 56 53 58 58
Non Current Investments 0 3 3 3 Cash conversion cycle 60 57 55 55
Cash and cash equivalents 76 157 915 1,717 Adjusted Debt/Equity 0.0 0.0 0.0 0.0
Loans and advances 434 603 664 796 Gross Debt/Equity 0.0 0.0 0.0 0.0
Other current assets 11 39 41 41
Current Investments 194 889 889 889 Operating ratios
Total current assets (ex cash) 5,284 6,571 7,407 8,523 Year to March FY16 FY17 FY18E FY19E
Trade payable 1,793 2,509 2,867 3,285 Fixed assets turnover (x) 11.5 13.1 13.9 14.7
Other Current Liab. & ST Prov. 343 231 231 231 Total asset turnover(x) 3.9 3.7 3.3 3.2
Total current liabilities & prov. 2,136 2,740 3,098 3,516 Equity turnover(x) 4.0 3.4 3.2 3.0
Net Current Assets (ex cash) 3,149 3,831 4,308 5,007
Miscelleneous expenditure 0 0 0 0 Valuation parameters
Book value per share (BV) (INR) 14 15 18 22 Diluted EPS (INR) 3.4 3.6 4.3 5.1
Y-o-Y growth (%) 65 4 20 19
Free cash flow (INR mn) CEPS (INR) 3.9 4.0 4.7 5.6
Year to March FY16 FY17 FY18E FY19E Diluted P/E (x) 52.8 50.6 42.2 35.6
Reported Profit 1,117 1,518 1,820 2,160 Price/BV(x) 12.5 12.1 9.9 8.2
Add: Depreciation 154 162 187 208 EV/Sales (x) 3.2 3.6 3.1 2.7
Interest (Net of Tax) 61.9 15.2 22.0 24.3 EV/EBITDA (x) 33.1 35.7 29.6 25.0
Add: Others 94.5 (5.4) (168.2) (225.1) Dividend Yield (%) 0.4 0.5 0.5 0.6
Less:Changes in working capital 116 501 477 698
Opertaing cash flow 1,311 1,189 1,384 1,469
Less: Capex 140 430 350 350
Free cash flow 1,171 759 1,034 1,119

V Guard
Additional Data
Directors Data
Shri. Kochouseph Chittilappilly Chairman Shri. A K Nair Managing Director
Shri. Cherian N Punnoose Vice Chairman Shri. Ullas K. Kamath Managing Director
Shri. Mithun K Chittilappilly Managing Director Smt. Joshna Johnson Thomas Managing Director
Shri. Ramachandran V Director & Chief Operating Officer
Shri. C J George Managing Director
Auditors - S R Batliboi & Associates LLP

Holding – Top10
K Arun Chittilapilly 13.1 Axis Asset Management 1.67
Sheela Kochouseph 10.95 Sundaram Asset Management 1.61
K Chittilapilly trust 4.9 India Midcap MAU 1.33
DSP Blackrock Investment Manager 4.39 Birla Sun Life Asset Management 1.07
Nalanda India Equity fund 4.3 Norges Bank 0.75
*in last one year
Bulk Deals
No Bulk Deal record
*in last one year
Insider Trades
28 Nov 16 Venkata Rao Gandrapu Sell 25900
23 Mar 17 Nandagopal Nair Sell 46570
28 Mar 17 Abie Abraham Sell 31150
31 Mar 17 Kochouseph Chittilappily Sell 20,808,000
3 Apr 17 Kochouseph Chittilappily Sell 20,808,000
5 Apr 17 Kochouseph Chittilappily Sell 20,808,000
5 Jun 17 Deepak Augustine Sell 33,380
8 Jun 17 Robin Joy A Sell 26,000
11 Jul 17 Sumit Jha Sell 23,000
*in last one year

Consumer Durables

COMPANY UPDATE
VOLTAS
Raising a toast to new beginnings
Voltas (VOLT) has strengthened its key segments—projects & cooling EDELWEISS 4D RATINGS
products—reflected in robust FY17 performance easily navigating margin Absolute Rating BUY
/market share concerns in this business. That said, a landscape changing Rating Relative to Sector Outperformer
development could be the company’s decision to enter the white goods Risk Rating Relative to Sector Low
business in a 50:50 JV with Arcelik. It’s a big market (INR350bn, 3x VOLT’s Sector Relative to Market Overweight
current AC market), fast growing (10-15%), dominated by MNCs
(technology edge; so it needs the tie up) and one where its brand &
MARKET DATA (R: VOLT.BO, B: VOLT IN)
distribution can quickly enable VOLT establish itself. While it’s still early
CMP : INR 483
days to gauge business upside, our initial assessment suggests new
Target Price : INR 586
business to add 8-10% to VOLT’s earnings in FY20, apart from synergies. 52-week range (INR) : 515 / 287
That this business is profitable and well valued (average 30% RoCE, 30x Share in issue (mn) : 330.9
PE) should augur well for the stock. Enthused by this, we believe our TP M cap (INR bn/USD mn) : 160 / 2,484
of INR586, implying 36x FY19E P/E to consumer business, is well justified Avg. Daily Vol.BSE/NSE(‘000) : 1,739.9
given scope for earnings improvement as VOLT leverages its strong 12K
dealer/touch points to roll out the Voltas-Beko range. Maintain ‘BUY’. SHARE HOLDING PATTERN (%)
JV with Arcelik: Strong synergies to explore USD5bn new market Promoters * 30.3 30.3 30.3
While many investors have questioned the rationale behind VOLT’s JV with Arcelik, in MF's, FI's & BK’s 26.5 27.1 27.2
our view, the JV makes sense: a) as it gets access to Arcelik’s wide range of white FII's 20.7 22.4 22.4
goods; and b) armed with one of the best distribution networks (>12K dealers), VOLT is Others 22.5 20.2 20.1
best positioned to capture the ~USD5bn white goods market.
Opportunity to narrow gap with MNCs PRICE PERFORMANCE (%)

For the JV with Voltas, Arcelik has set a 10-year target of capturing 10% market share & EW Capital
Stock Nifty
revenue of USD1bn. This, in our view, is fairly achievable given VOLT’s strong Goods Index
reach/brand loyalty in the domestic market. Also, access to Arcelik’s strong/innovative 1 month (1.7) 2.8 0.2
product range will help VOLT bridge the gap in both products & distribution reach with 3 months 19.4 8.0 1.9
LG, Samsung and Whirlpool—key players in the domestic white goods space. 12 months 48.2 15.4 14.0
Outlook and valuations: Focus on the big picture; maintain ‘BUY’

While we remain confident of VOLT’s positioning in the expanding AC market, entry in
Amit Mahawar
the wider white goods range, we believe, is likely to unlock substantial share holder
+91 22 4040 7451
value over the medium to long term as the company expands market share in new amit.mahawar@edelweissfin.com
segments. We maintain ‘BUY/SP’.
Swarnim Maheshwari
Financials (INR mn) +91 22 4040 7418
swarnim.maheshwari@edelweissfin.com
Year to March FY16 FY17E FY18E FY19E
Revenues 57,198 60,328 68,449 77,360 Darshika Khemka
Rev. growth (%) 10.4 5.5 13.5 13.0 +91 22 4063 5544
EBITDA 4,330 5,791 7,132 8,259
Adjusted Profit 3,582 5,079 5,981 6,739 Krish Kohli
Adjusted diluted EPS (INR) 10.8 15.4 18.1 20.4 krish.kohli@edelweissfin.com
Diluted P/E (x) 44.6 31.4 26.7 23.7

ROAE (%) 14.7 16.5 16.9 16.7 July 14, 2017
Best positioned to tap USD5bn white goods market by FY22E

VOLT and Arcelik (part of the KOC Group, Turkey’s largest industrial and services group)
have announced a JV (50:50) in India to enter the consumer durables market with initial
investments of USD100mn. The proposed JV is expected to leverage VOLT’s strong brand
presence and wide sales & distribution network with over 12K touch points. Arcelik will
bring its strong R&D and manufacturing prowess, in addition to a wide product range and
global sourcing capabilities.
The JV, under the Voltas Beko brand, will launch refrigerators, washing machines,
microwaves and other white goods / domestic appliances in India. A manufacturing facility
will be set up in the country (for refrigerators) and the JV will also source other products
from Arcelik’s global manufacturing facilities and vendor base.
Chart 1: VOLT is best positioned to sell additional products in existing channels

40 25.0
Strong brand equity 35
32
of Voltas will come 32 21.0
handy to push new 20
19
products in existing
24 17.0
channels where it
(Nos)
(%)
sells ACs with strong
market share. 16 13.0
12 12 12
11 11 10 10
8 9.0
3.8 4 4
0 5.0
LG Voltas Blue Star Daikin Hitachi Havells Samsung
No. of Dealers Market share in AC's
Market for refrigerators/washing machines to exceed INR473bn (11% CAGR) by FY22E

The white goods market in India (mainly refrigerators, washing machines) is currently
pegged at ~INR350 bn. This is expected to clock 12-15% growth over the next 3-5 years (past
10 years: ~14%) as: a) rise in middle class population and their per capita income will
enhance market penetration; and b) rising demand for premium products coupled with
shortening replacement cycles will continue to be key value growth driver.

Voltas
Chart 2: Market size for washing machines Chart 3: Market size for refrigerators
150 10.0 375 20.0
18.4
7.9
125 8.0 305 16.0
11.4
(Units mn)
100 5.4 6.0 235 12.0
(Units bn)
(INR bn)
(INR bn)
4.0 8.5 344

75 129.3 4.0 165 8.0
80.3 114 195

50 2.0 95 4.0
52.0
25 0.0 25 0.0
2012 2017 2022 2012 2017 2022
Total market size of washing machines (INR bn) Total market size of refrigerators (INR bn)
Industry size (Units mn) Industry size (Units mn)
JV’s targets for the next 10 years (as per Arcelik’s latest presentation)
• Sales of USD1bn.
• Plant capacity of 3mn units.
• Cumulative capex of USD155mn.
• Profitability at par with Arcelik’s current OPMs.
• Market share of 10%.
View on current JV: By VOLT management

• Management believes the JV with Arcelik is a logical extension of the brand in the
consumer durables space. Arcelik and KOC are recognised brands in Turkey, UK and
Poland in the consumer durables business.
• They together plan to bring Beko brand to India under the Voltas– Beko.
• The products will be imported initially. However, the company is planning to set up a
manufacturing unit soon, details of which will be decided by Arcelik and VOLT mutually.
• VOLT is planning to widen its scope in the consumer durables white goods industry and
Arcelik brings a lot of strength to the table—product range, technological excellence
and relevant customer connect.
• The JV will start with VOLT’s distribution channel, but it will be extended going forward.
• VOLT is planning to launch the Voltas–Beko brand during the FY18 diwali season. The
range of products includes refrigerators, washing machines, microwaves and
dishwashers. Initially, some products will be manufactured and some will be imported.
• The JV will have a phased investment of INR6.8bn with 50:50 share. The investment can
increase based on future demand.

Table 1: SOTP valuations
FY18E FY19E Taluation FY19 TP
(INR mn) Revenue PAT EPS Revenue PAT EPS Methodol Multiple Comment (INR)
EMP Segment 29,698 1,561 4.7 32,871 1,718 5.2 P/E 14 40% discount to S&P BSE Capital 73
Goods Index
Engineering 3,555 721 2.2 3,936 796 2.4 P/E 14 40% discount to S&P BSE Capital 34
Segment Goods Index
Unitary Cooling 35,059 3,840 11.6 40,399 4,402 13.3 P/E 36 Market leader in 15-20% CAGR 479
Segment industry.
Total 68,312 6,123 18.5 77,206 6,915 20.9 586

Recent management commentary & guidance in Q4FY17:

FY18 guidance: Management is targeting 6% margin in the EMPS segment.
Highlights
• FY17 tax rate fell to 28% due to refund from previous adjustments.
• In FY17, VOLT’s room AC volumes grew 33% versus industry’s 31%.
Consumer durables industry: The domestic consumer durables industry was pegged at
INR350bn in FY17 with volume of 20mn units. It is expected to grow at 10-15% in coming
years wherein VOLT has 10-12% market share.
EMPS segment
• There have been some green shoots and positive sentiment across India. Opportunity
in the domestic market may be as good/large as in the international market.
• VOLT will concentrate on profitability and will only bid for projects with better cash
realisations.
• Strategy is to pick up right projects and complete them with right execution.
• Margins have jumped to 5.7% and expected to sustain in FY18 at this level.
• Earlier, VOLT had a lot of legacy orders which were not being executed due to disputes
or lack of money. Bulk of such projects has been completed.
• The company is targeting ~6% margin in FY18.
• Order inflow for FY17:

o INR16.95bn – Domestic.
o INR11bn – International.
• No substantial write-backs in the EMPS segment.
UCP segment
• It’s been a hot summer so VOLT grew extremely well.
• Management perceives shift in market towards inverter ACs, which now constitute 14%
of the market compared to 10% in FY16.
• VOLT believes there is a tactical strategy in remaining in window ACs, even though
competitors have exited the segment.

Voltas
• Competition has become more intense in the room AC market in the past 6 months.
• The company has decided not to participate in the EESL tender due to the cost
structure, but has participated in other schemes for ACs of Tata Power and BSES.
However, going forward, it may participate in EESL tenders.
• Outlook for next 2-3 years:
o VOLT anticipates market share pressure.
o Aim is to maintain EBITDA margin at 14%, which is way higher than industry
average of 11%. The company will have to invest more in advertisements to
maintain this.
GST
• Tax rates on products post GST:
o AC -28%.
o Air coolers – 18%.
o All other services industry projects – 18%.
• For VOLT, the tax rate on AC was 25-26% including import duty before GST; post GST, it
will be 30-33% including import duty.
• Prices of products may be increased post the increase in taxes. Management is
currently not sure about the quantum of increase in prices.
• Transition to GST is an industry-wide issue and VOLT has started work on it a few
months ago. There may be some teething problems initially, but will manage issues in
the best possible manner to ensure a seamless and effective transition.
Air coolers
• VOLT’s target is to be among the top 3 players.
• Air cooling volumes stood at 170,000 units for FY17, implying a 6-7% market share.
• It has 22 SKUs and has expanded its distribution channel.

Outlook & valuations: Expanding product portfolio warrants re-rating

Conservatively assuming a market share of ~5% by FY20 in the white goods market, the
VOLT-Arcelik JV can easily garner revenue of ~INR25bn with PAT of ~INR1.5bn (EBITDA
margin at 9%). Benchmarking the current valuation framework of global MNCs like
Whirlpool of India and Johnson Controls Hitachi AC, we believe VOLT can easily add around
~USDINR400-500mn market cap (please refer table below).
VOLT currently has a target market of INR125bn in ACs, where it already has ~20% value
market share. As the company rolls out products in a strong INR350bn new market with its
strong distribution franchise, we perceive significant potential for earnings growth over the
next 3-5 years, which could drive strong P/E re-rating at par with current MNC peers. Our
current TP of INR586, implies 36x FY19E PE, at par with MNC peers as we expect it to gain
significant market share (>5%) over the next 3-5 years leveraging its strong reach and brand
franchise.
Table 2: Expansion of target market for VOLT offers huge growth potential
FY17 FY18 FY19 FY20
Industry size (INR bn) Existing target market - AC's 132 153 178 207
New Target Industry 350 394 443 498
Total Target Industry size 482 547 621 706
Market Share (%) Existing -AC 20.4 20.5 20.6 20.6
VOLT JV 0.8 3.0 5.0
Revenues (INR bn) Existing 26.9 31.4 36.7 42.7
VOLT JV 0.0 3.2 13.3 24.9
Total Revenues 26.9 34.5 50.0 67.6
Change in Estimates
FY18E FY19E
New Old % change New Old % change Comments
Net Revenue 68,449 68,449 0.0 77,360 77,360 0.0
EBITDA 7,132 7,132 0.0 8,259 8,105 1.9
EBITDA Margin 10.4 10.4 10.7 10.5
Adjusted Profit 5,981 5,518 8.4 6,738 6,078 10.9 Adjustment in other income and tax
After Tax rate
Net Profit Margin 8.8 8.1 8.8 7.9
Capex 827 827 0.0 526 526 0.0

Voltas
Table 3: Valuation benchmarking and VOLT’s potential

FY17 FY18 FY19 FY20
Industry Size (INR bn) 350 394 443 498
YoY growth % 12.5 12.5 12.5
Market Share (%) Whirlpool 12.5 11.9 12.4 12.7
Hitachi 5.6 5.6 5.8 5.9
VOLT JV 0.8 3.0 5.0
Revenues (INR bn) Whirlpool 43.6 47.0 55.0 63.3
Hitachi 19.7 22.0 25.5 29.3
VOLT JV 0.0 3.2 13.3 24.9
EBITDA Margins (%) Whirlpool 12.9 12.8 13.2 13.4
Hitachi 8.8 8.7 10.6 10.8
VOLT JV 6.0 7.5 9.0
PAT Margins (%) Whirlpool 7.1 8.5 8.6 8.3
Hitachi 4.1 4.8 5.9 5.8
VOLT JV 3.9 4.9 5.9
P/E Multiple (x) Whirlpool 46.8 36.3 30.5 27.6
Hitachi 60.5 46.7 34.3 30.2
VOLT JV 30.0 27.0
Mcap to sales (x) Whirlpool 3.3 3.1 2.6 2.3
Hitachi 2.6 2.3 2.0 1.8
VOLT JV - 2.3 2.0
Potential Mcap for Voltas On P/E 19.7
(At 50% JV share) (INR bn) On Mcap/ sales 24.9
Fig. 1: With Beko JV, VILT has recently added INR5bn to its target market
Voltas
INR 0.4tn
28%
Consumer
Durables
INR
Industry 1.5tn

Company Description
Voltas Limited, part of the TATA group which holds 30.3% stake, is a leading air conditioning
and engineering services provider. Founded in 1954, It offers engineering solutions through
its three business segments in areas such as heating, ventilation and air conditioning,
refrigeration, climate control, electromechanical projects, textile machinery, machine tools,
mining and construction, material handling, water management, building management
systems, pollution control and chemicals. Voltas has a higher market share of ~21% in the
residential AC market. Voltas has one of the highest distribution touch-points (over 11,000
touch-points/7000 dealers), which can compare well with lots of mid-size local FMCG
companies. Unitary Cooling Product and Engineering& Mechanical Project Segment
contributes to ~90% topline of the company, while the former contributes more than 60%
of the profits of the company.
Investment Theme
Low cost power availability driving up AC sales: A new phenomenon as India increases rural
penetration for electricity. What would buy other than cement/fans/ac companies?
Low Penetration of ACs gives us comfort on long term sales growth: AC penetration in India
stands at <5% vs ~25% in China and ~50% in Korea. Various industry participants indicate
that AC sales should see a strong 10-15% growth for the next 3-5 years, given the current
low penetration levels.
Company’s unique positioning through distribution/marketing ensuring that they capture a

lot of incremental first time sales in the country.
We estimate an EPS CAGR of 24% assuming 10% AC revenue growth in line with average of
last eight years. EPS for AC division is estimated at 20% CAGR. ROE for AC business > 50-60%
over the cycle. We see a bigger growth story now with Voltas’s entry into US$5-7bn white
goods market which is growing at 15% CAGR.
Key Risks
Any slowdown in capex spending in West Asia and in economic activity with respect to
infrastructure creation in India will dry up EMPS division’s incremental order intake.
Further, margins and lead time for delivery in the EMPS segment can come under pressure
with local players strengthening their operations and the entry of new global players.
De-rating following a slowdown in AC demand: As per the trading bands the stock is
currently trading at upper quartile of last twenty year trading band. if AC sales were to slow
down to less than 5%, the AC business starts getting a multiple closer to 20x, resulting in 12-
15% downside in the stock.
Any major slowdown in consumer discretionary spend might affect the white goods market.

Voltas
GDP(Y-o-Y %) 7.2 6.5 7.1 7.7 Direct costs 40,871 42,359 47,306 53,581
Repo rate (exit rate) 6.8 6.3 6.3 6.3 Other Expenses 5,646 5,994 7,173 7,952
Company EBITDA 4,330 5,791 7,132 8,259
EMP revenue growth (%) 28.1 (6.1) 8.4 11.0 Depreciation 264 245 338 368
Eng. rev growth (%) 2.8 (10.5) 7.2 10.7 EBIT 4,066 5,546 6,793 7,891
Unitary Cooling product 1.8 19.2 15.1 15.2 Add: Other income 1,367.1 1,998.2 2,310.5 2,402.67
Room AC ( Qnty) 934,338 1,093,176 1,202,493 1,370,842 Less: Interest Expense 158 160 165 188
NSR (INR) 20,732 21,686 22,120 22,562 Add: Exceptional items 289 11 - -
Order inflow (INR bn) 22.9 27.9 30.0 31.5 Profit Before Tax 5,565 7,395 8,939 10,106
Tax rate (%) 27.7 28.2 30.5 31.0 Less: Provision for Tax 1,696 2,089 2,726 3,133
Total no. of employees 9,740 8,990 9,476 9,987 Less: Minority Interest 60 24 31 35
Employee cost per head 687,303 687,303 721,668 757,752 Associate profit share 62 (193) (200) (200)
Capex (INR mn) 95 39 827 526 Reported Profit 3,871 5,090 5,981 6,739
Dep. (% gross block) 1.9 5.6 5.5 5.5 Exceptional Items 289 11 - -
Adjusted Profit 3,582 5,079 5,981 6,739
Shares o /s (mn) 331 331 331 331
Adjusted Basic EPS 10.8 15.4 18.1 20.4
Diluted shares o/s (mn) 331 331 331 331
Dividend per share (DPS) 2.6 3.3 3.9 4.4
Dividend Payout Ratio (%) 28.9 25.9 26.0 26.0
Common size metrics

EBITDA margins 7.6 9.6 10.4 10.7
Growth ratios (%)

Revenues 10.4 5.5 13.5 13.0
EBITDA 5.6 33.8 23.2 15.8

Share capital 331 331 331 331 Operating cash flow 4,435 5,888 6,383 7,471
Reserves & Surplus 27,780 32,735 37,362 42,548 Investing cash flow (3,673) (7,966) (827) (526)
Shareholders' funds 28,111 33,066 37,692 42,879 Financing cash flow 472 (2,319) (1,305) (1,502)
Minority Interest 267 285 316 351 Net cash Flow 1,233 (4,396) 4,251 5,443
Secured loans 2,707 1,709 1,959 2,209 Capex (176) (39) (827) (526)
Total Borrowings 2,707 1,709 1,959 2,209 Dividend paid (877) (1,321) (1,555) (1,752)
Long Term Liabilities 821 916 916 916
Def. Tax Liability (net) 206 277 277 277 Profitability and efficiency ratios
Gross Block 4,369 4,390 5,140 5,640 ROAE (%) 14.7 16.5 16.9 16.7
Net Block 1,952 1,728 2,196 2,385 ROACE (%) 20.3 22.8 24.3 24.1
Capital work in progress 13 5 56 56 Inventory Days 71 70 72 71
Intangible Assets 809 815 785 753 Debtors Days 86 85 82 81
Total Fixed Assets 2,773 2,548 3,036 3,194 Payable Days 212 220 215 212
Non current investments 13,389 21,316 21,316 21,316 Cash Conversion Cycle (54) (65) (60) (61)
Cash and Equivalents 8,531 5,310 9,561 15,003 Current Ratio 1.6 1.4 1.5 1.6
Inventories 7,247 9,070 9,720 11,010 Debt/EBITDA (x) 0.6 0.3 0.3 0.3
Sundry Debtors 13,672 14,541 16,283 17,979 Fixed asset turnover (x) 21.0 22.8 24.8 25.3
Loans & Advances 39 35 52 62 Gross Debt/Equity 0.1 0.1 0.1 0.1
Other Current Assets 12,732 11,671 12,255 12,867 Adjusted Debt/Equity 0.1 0.1 0.1 0.1
Current Assets (ex cash) 33,690 35,317 38,309 41,919 Interest Coverage Ratio 25.7 34.6 41.1 42.1
Trade payable 24,711 26,466 29,291 33,029
Other Current Liab 1,562 1,770 1,770 1,770 Operating ratios
Total Current Liab 26,273 28,236 31,061 34,800 Year to March FY16 FY17 FY18E FY19E
Net Curr Assets-ex cash 7,418 7,081 7,248 7,119 Total Asset Turnover 2.1 1.8 1.8 1.8
Uses of funds 32,112 36,254 41,161 46,633 Fixed Asset Turnover 21.0 22.8 24.8 25.3
BVPS (INR) 85.0 100.0 114.0 129.6 Equity Turnover 2.3 2.0 1.9 1.9
Free cash flow (INR mn) Valuation parameters

Reported Profit 3,871 5,090 5,981 6,739 Adj. Diluted EPS (INR) 10.8 15.4 18.1 20.4
Add: Depreciation 264 245 338 368 Y-o-Y growth (%) 5.9 41.8 17.8 12.7
Interest (Net of Tax) 110 115 115 129 Diluted P/E (x) 44.6 31.4 26.7 23.7
Others (721) 102 116 105 P/B (x) 5.7 4.8 4.2 3.7
Less: Changes in WC (911) (337) 167 (129) EV / Sales (x) 2.7 2.6 2.2 1.9
Operating cash flow 4,435 5,888 6,383 7,471 EV / EBITDA (x) 35.6 27.0 21.4 17.8
Less: Capex 176 39 827 526 Dividend Yield (%) 0.5 0.7 0.8 0.9
Free Cash Flow 4,258 5,849 5,556 6,945

Voltas
Additional Data
Directors Data
Ishaat Hussain Chairman Sanjay Johri Managing Director
N N Tata Non Independent & Non Executive Director Vinayak Deshpande Non Independent & Non Executive Director
J S Bilimoria Independent Non-Executive Director R N Mukhija Independent Non-Executive Director
S N Menon Independent Non-Executive Director Nani Javeri Independent Non-Executive Director
Nasser Munjee Independent Non-Executive Director
Auditors - Deloitte Haskins & Sells
Holding – Top10
Tata sons ltd 26.64 Franklin resources 13.06
Life insurance corp 6.9 Hdfc asset managemen 5.06
Templeton asset mgmt 3.35 Tata investment corp 3.01
Sbi funds management 1.86 Prazim trading and i 1.6
Idfc mutual fund 1.59 Standard life pacifi 1.42
*in last one year
Bulk Deals
No Data Available
*in last one year
Insider Trades
No Data Available
*in last one year


INITIATING COVERAGE
WHIRLPOOL OF INDIA
Upping the competitive ante
Whirlpool of India (WPIL) is one of the leading players in the INR250bn EDELWEISS 4D RATINGS
domestic refrigerator/washing machine segment. We like WPIL owing to: Absolute Rating BUY
a) parent’s comprehensive business strategy to augment product Rating Relative to Sector Outperform
portfolio to plug key gaps, especially in core products like refrigerators & Risk Rating Relative to Sector Low
washing machines; and b) expansion in touch points from current 18K to Sector Relative to Market Overweight
25K by FY20E. While the company’s strategy has already started yielding
fruits (visible in improving profitability), we expect profitable growth
MARKET DATA (R: WHIR BO, B: WHIRL IN)
momentum to sustain and full benefits to accrue over the next 2-3 years. CMP : INR 1,150
Initiate coverage with ‘BUY’ and TP of INR1,511 (33% upside), assigning Target Price : INR 1,511
PE of 40x given strong 24% earnings CAGR over FY17-19E and reasonable 52-week range (INR) : 1,289 / 826
RoCE of 30%, apart from a 1.6x FCF growth to INR4bn Share in issue (mn) : 145.8
Gaining ground on renewed expansion strategy Avg. Daily Vol.BSE/NSE(‘000) : 74.3
Parent’s target to achieve 2x revenue over FY16-20 implies 17% revenue CAGR for
WPIL, which we believe is achievable given the ramp up in past 2 years in top line led
by new product launches. Robust SKUs and potential increase (50%) in touch points by Current Q3FY17 Q2FY17
FY20, we believe, will help WPIL achieve industry-leading growth over next 2-3 years. Promoters * 75.0 75.0 75.0
MF's, FI's & BK’s 8.4 8.6 8.6
Sprucing up competitive profile; scope to improve profitability FII's 6.5 6.5 6.5
Others 10.1 9.9 9.9
As WPIL bridges the gap with top peers—LG and Samsung—in product offerings and :
* Promoters pledged shares NIL
dealers, we expect the company to clock profitable growth led by better cost (% of share in issue)
management and constant endeavour to command higher ASP for products. This
leaves scope for OPM improvement; margin to improve 100bps over FY17-19E. RELATIVE PERFORMANCE (%)
Stock over
Sensex Stock
Outlook and valuations: Re-rating ongoing; initiate with ‘BUY’ Sensex
We believe, WPIL is the best positioned MNC in the high-end white goods space, given 1 month 2.8 2.6 (0.2)
reasonable ramp up potential in core segments. The company has clearly improved its 3 months 8.7 (4.2) (12.9)
competitive profile versus large peers and is likely to sustain strong improvement in 12 months 14.7 34.7 20.0
top line and OPM, posing an upside risk to our growth estimates. At CMP, the stock
trades at 30x FY19E. We initiate coverage with ‘BUY/SO’ and target price of INR1,514,
valuing it at 40x FY19E.
Financials (SA) Amit Mahawar

Year to March FY16 FY17 FY18E FY19E +91 22 4040 7451
Revenues (INR mn) 34,399 39,408 45,323 53,184
Growth (%) 4.4 14.6 15.0 17.3 Darshika Khemka
+91 22 4063 5544
Adjusted profit (INR mn) 2,400 3,105 3,897 4,790
Diluted EPS ( INR) 19.0 24.5 30.7 37.8 Krish Kohli
Growth (%) 14.5 28.9 25.5 22.9
Diluted p/e (x) 60.6 47.0 37.4 30.4
ROAE ( %) 23.1 23.4 23.2 22.7 July 06, 2017
Consumer Durables
Shift in parent‘s strategy, a key growth driver
There is a clear shift in the parent’s focus to double Whirlpool India’s top-line in next 4 years,
implying 17% revenue CAGR over FY17-19E. Earlier, WPIL laid emphasis on margin
expansion and cash generation at the expense of market share, which eventually failed to
materialise. In past 2 years, the company shifted focus with a comprehensive plan to boost
its product portfolio—addressing key gaps—thereby expanding its offerings in refrigerators,
washing machines and ACs which helped it gain back its margins & cash flows. Consequently,
there has been a major ramp up in SKUs across segments in past 2 years, which has helped
it bridge the gaps with large peers like LG and Samsung.
Also, WPIL has embarked on an aggressive programme to expand its touch points from
current 18-19K to more than 27K over FY15-20, which will help it achieve third highest touch
points.
Fig.1: WPIL’s new value creation strategy
Early focus: Current focus:

Margin expansion Product & brand innovation
and cash generation and best cost structure
Product launch
frequency
2005 2010 2015 Current period

Less than
36 months 18 months 15 months 2017
SKUs before SKUs Launched Total

2016 in 2016 & 17 SKUs
Refrigerator 46 20 66
Washing
machine 20 9 29
ACs 19 15 34
Recent performance reposes higher confidence in new strategy

WPIL has seen strong ramp up in top line and profitability with the execution of new
business strategy. The company’s top line grew at a healthy 15% in FY17, driven by pick up in
core segments - refrigerators and washing machines. The company’s strategy of expanding
product segments in core business resulted in improved growth. Also, its better dealer focus

Whirlpool of India
is clearly visible in the sharp rise in trade discounts in past 2 years, which has increased from
13% to 18% levels. Despite the sharp rise in trade discounts and sustained focus on ad spend,
WPIL managed to increase its profitability, which we believe was led by better cost
management and focus on average realisations.
Chart 1: Revenue growth & EBITDA margin Chart 2: Trade discounts moved up substantially
45 17.0 24.0
36 14.2 20.4
27 11.4 16.8
(INR bn)
(%)
(%)
18 8.6 13.2
9 5.8 9.6
0 3.0 6.0
FY 09
FY 11
FY 12
FY 13
FY 14
FY 15
FY 16
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY 10
Ad expense as % of sales
Revenues EBITDA Margin Trade discounts as % of sales
Competitive profile getting better

WPIL’s comprehensive strategy of expanding product basket and distribution reach coupled
with better cost initiatives has clearly elevated its positioning in refrigerators/washing
machines market, which accounts for ~80% of overall revenues. With launch of its range of
top-load washing machines (accounts for 25% of washing machine industry), the company
has addressed the key gap. In refrigerators, it has launched a wide range of products in the
INR50-100K category to plug key gaps with peers. Lastly, launching invertor ACs now helps it
cater to 15% of the AC market which was the missing link for it. Given that the
refrigerator/washing machine segments are reasonably penetrated, key differentiators are
branding initiatives, SKUs and extensive distribution, both of which are due to improve
significantly for the company.

Consumer Durables
Table 1: Competitive GRID in refrigerators/washing machines
Industry Market Market
Segmentation Penetration Rank Positioning SKUs
Size (bn) Share
Washing Machines 177 Automatic : Semiautomatic 11%
= 38: 62
Whirlpool 13% 4 Mid to premium 29
LG 30% 1 Low to premium 103
Samsung 17% 2 Low to premium 83
Refrigerators 140 Direct Cool : Frost Free 27%
= 73 : 27
Whirlpool 17% 3 Value premium to super premium 66
Samsung 31% 1 Value premium to super premium 158
AC 110 Inverter : Non Inverter 5%
= 15 : 85
Whirlpool 4% ~8 Mid to premium 34
Voltas 21% 1 Low to premium 113
Samsung 7-9% 6 Value premium to super premium 36
Chart 3: WPIL has half touch points versus leaders currently

40
35
32
('000 No.s of distributors)
32
24
18
16 12
10
8 4 4
0
Havells
LG
WHIRL
Voltas
Samsung
Hitachi
Daikin
Retail touch points

Core products set for strong growth over FY17-19

We expect WPIL to post strong 17/10% CAGR in top-line of refrigerators/washing machines
over FY17-19, driven by expanding product portfolio and better reach. ACs, which account
for a low 9% of top line, are also set to post strong 20% CAGR over the period given low 4%
market share, reasonable scope for improvement as SKU ramp up and expanding
distribution reach.

Whirlpool of India
Chart 4: Revenue mix – Refrigerators, washing machines, others

80,000
64,000
48,000
(INR mn)
32,000
16,000
0
FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18E FY 19E
Refrigerators Washing Machines ACs Kitchen Appliances Services
Fig. 2: WPIL’s target market pie
Whirlpool
INR 0.5tn
31%
Consumer
Durables
INR
Industry 1.5tn

Consumer Durables
Outlook & Valuation: Renewed business strategy a key differentiator

WPIL’s market share and growth were tepid till FY14-15. Thereon, its US-based parent
changed tack and decided to alter its business stance in India from profitability/cash flow to
focusing on market share/cash flow. Since then, the company has been witnessing strong
uptick in top line/bottom line and cash flows which were impelled by its multi-layered
strategy to: a) plug gaps in key products; and b) strengthen dealer distribution network.
While WPIL ramped up market share in refrigerators/washing machines in past 2 years, we
believe there exists significant scope to further improve.
We initiate coverage on WPIL with ‘BUY/SO’ recommendation/rating and target price of

INR1,514 based on 30% premium to average PE for Edelweiss coverage universe. This is
based on reasonable 24% earnings CAGR and strong 1.6x jump in free cash over FY16-19E
following ramp up in market share/strengthening of product profile and a strong 50%
expansion in distribution reach. We expect the company to bridge gap in market share
versus top-2 players in refrigerators & washing machines over the next 2-3 years. Also,
range expansion in core products and cost control have helped WPIL improve OPMs
significantly over the past 2 years, which we believe is likely to continue.
Chart 5: 32% EBITDA CAGR over FY14-17 driven by gross margin

9,000 52.0
7,200 47.2
5,400 42.4
(mn)
(%)
3,600 37.6
1,800 32.8
0 28.0
FY 18E
FY 19E
FY08
FY09
FY10
FY11
FY12
FY 13
FY 14
FY 15
FY 16
FY 17
EBITDA Gross Margin


Whirlpool of India
Chart 6: EV/ sales re-rating led by improving product offerings versus large peers
3.5
2.8
2.1
(x)
1.4
0.7
0.0
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Chart 7: WPIL trades at a premium to 1-year fwd CSD PE of 30x

50.0
40.0
Average P/E at 26.6x

30.0 (FY12-17)
(x)
20.0
10.0
0.0
Oct-08
Oct-10
Oct-12
Oct-14
Oct-16
Feb-08
Feb-10
Feb-12
Feb-14
Feb-16
Jun-07
Jun-09
Jun-11
Jun-13
Jun-15
Jun-17
Chart 8: Free cash profile to improve substantially with stable RoE
5,000 50.0
4,000 40.0
3,000 30.0 (%)

(mn)
2,000 20.0
1,000 10.0
0 0.0
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FCF RoE

Consumer Durables
Key risk & concern
Competition
Rising competitive intensity especially from growing local peers, we believe could be a risk
to our growth and profitability estimates.
Consumer discretionary slow down

Rise in disposable income levels are key driver for consumer discretionary and hence any
slowdown in disposable income could post down side risk to Crompton’s earnings.

Whirlpool of India
Company Description
WPIL, right since inception in 1911 as the first commercial manufacturer of motorised
washers to its current market position of being the world's number one manufacturer and
marketer of major home appliances, has always set industry milestones and benchmarks.
The parent company is headquartered at Benton Harbor, Michigan, USA with global
presence in over 170 countries and manufacturing operations in 13 countries with 11 major
brand names, such as, Whirlpool, KitchenAid, Roper, Estate, Bauknecht, Laden and Ignis. The
company came to India in the late 1980s under a joint venture with TVS group and
established its first manufacturing facility in Pondicherry. Today, WPIL headquartered in
Gurugram, is the most recognised brand in home appliances in India and enjoys market
share of over 25% with a product portfolio that comprises washing machines, refrigerators,
microwave ovens and ACs.
Table 2: Milestones
Year Description
1987 Whirlpool tied–up with Sundaram Clayton of India to form TVS Whirlpool
1995 Whirlpool Corp. acquired majority of stake in the TVS Whirlpool The DC manufacturing facility of Kelvinator India was
also acquired
1996 Whirlpool Washing Machines and Kelvinator India merged to form Whirlpool of India (WIL)
1999 WIL crossed the milestone of 1 million sales of appliances
2001 WIL registered profit & sold 1.2 million appliances. It also achieved the No.1 position in DC & FA
2002 The Aircon range was successfully launched and WIL acquired 6% market share
2009 WIL was voted Product of the Year and received the award for the 'Best Innovative Product' in the popular refrigerators
category. This was based on 40,000 consumers across 36 towns in India voting Whirlpool Frost Free Refrigerators with
6th sense as the Best Innovation in the Popular Refrigerator Category
2010 WIL launches its Jet Chef and Family Chef Collection of Microwaves, launches the all new Whirlpool ACE washstation and
launches new brandshops in Amritsar and Jalandhar
2012 WIL launches a new range of domestic products
2014 WIL launched Protton 3–door refrigerators and 3D climate control dual fan air conditioner
2017 Launches of new range of Inverter Acs
Source: Company
Manufacturing facilities
WPIL owns 3 state-of-the-art manufacturing facilities at Faridabad, Pondicherry and Pune.
Each of these units have infrastructure that reflects the company’s commitment to
consumer interests and advanced technology. Each of these units is supported by a Global
Product Development Center located in India where engineers and technicians work round
the clock and develop product designs not only suitable for local requirements, but for the
entire Whirlpool world as well.
Refrigerators and washing machines are fully manufactured in-house whereas air
conditioners are outsourced to different ODM’s. Capacity utilisation across its 3 factories
stands at >70% currently.

Consumer Durables
Key Personnel
Mr. Arvind Uppal – Chairman and Executive Director
Mr. Arvind Uppal was appointed as Chairman of Whirlpool India effective from January 27,
2010. Mr. Uppal is a B.Tech from IIT Delhi and a Management post graduate from the
Faculty of Management Studies, Delhi. He has over 25 years of experience in Business
Development, International Marketing and General Management. Prior to joining WIL, he
was with Nestle, both India and overseas.
Mr. Sunil A. D’souza – Managing Director

Mr. Sunil A. D’Souza was appointed as Managing Director, Whirlpool of India Limited with
effect from June 22, 2015. Mr D’souza is a B.E Electronics and Communication from
Pondicherry Engineering College and an MBA from IIM, Kolkata. He has over 25 years of
experience working in various leadership positions. He joined WPIL from PepsiCo Inc. where
his last assignment was in Malaysia as General Manager for the VIMAPS Region –Vietnam,
Cambodia, Myanmar, Laos, Malaysia, Singapore, Indonesia, Brunei, Mongolia and Pacific
Islands - which is one of the fastest growing business units within PepsiCo globally. In his 15-
year stint with PepsiCo, Mr D’souza held various senior management positions in Malaysia,
Philippines and Vietnam.
Mr. Anil Berrera – Executive Director – Finance & Chief Financial Officer
Mr. Anil Berrera is whole-time director of the company and a key managerial person
designated as Executive Director – Finance & Chief Financial Officer. He is a Bachelor in
Commerce and Chartered Accountant with over 30 years of rich working experience in
finance, accounts, treasury, taxation and general management. He has extensive experience
in the development and implementation of strategic business plans. He joined WIL in March
2007 as Chief Financial Officer for India Operations and was promoted as Chief Financial
Officer & Vice President (Asia South). He has held several key positions in finance and
accounts in many organisations including Price Water House Coopers, Gillette and Becton
Dickinson
Mr. Vikas Singhal – Whole time director

Mr. Vikas Singhal was appointed as Whole Time Director of WIL from May 2012. Mr. Singhal
aged has over 23 years of diverse experience, working with top global organisations. He
began his carrier as a graduate trainee with Carrier Aircon, the global leader in refrigeration
& air conditioning. Subsequently, he was with Delphi Automotives, Owens Brockway and
Piramal Enterprises in various leadership positions. Prior to joining Whirlpool, he served as
V.P. Manufacturing and Technology, Piramal Enterprises, Glass Division. Ranging from
manufacturing operations to supply chain, project management, new business development,
Mr. Singhal has been involved with broad continuum of business facets. He holds a B.Tech
degree in Industrial Engineering from IIT Roorkee and PGDBM from XLRI Jamshedpur.

Whirlpool of India
Financial Outlook
Better reach/product expansion to drive 17% top-line CAGR (FY17-19E)
Parent’s new initiative for India set out in FY15 helped WPIL post strong 10% CAGR in core
segments (refrigerators and washing machines) during FY15-17. As touch points reach 25K
(+50% versus current levels) by FY19-20, we expect the company to see further 17% YoY
growth in top line led by 17% & 10% growth in washing machines and refrigerators segments.
Share of other segments (ACs, microwaves, services) is likely to move from 11% to ~20% by
FY19E, implying 55% CAGR on a low base.
Chart 9: Total revenue & revenue growth over FY17-19E

65
55
Shift of focus to market share &
reach has put WPIL back on growth
44
(INR bn)
path in key segments led by

expanding product segments &
34
reach.
23
13
FY18E
FY19E
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Revenues
Focus on margin Aggresive expansion plans and

expansion & cash plugging product gaps
Potential for improvement in EBITDA margin

WPIL posted strong 460bps improvement in EBITDA margin during FY13-17, led by strong
improvement in gross margins mainly due to the various cost cutting measures implemented
by the company. Focus during this period was more on preserving and improving EBITDA
margins at a time when Japanese/Korean players became aggressive targeting market share.
This resulted in WPIL losing its competitive edge for some time. The strategy to improve
average product realisation and plug key gaps in past 3 years has resulted in overall
improvement in profitability, which we believe is going to increase marginally going forward as
the focus of the parent has changed from increasing profitability to product ramp up and
market share gain. Whirlpool has launched several new SKUs leveraging on parent’s
technology & R&D prowess which we believe augurs well for profitability.

Consumer Durables
Chart 10: EBITDA margin improvement driven by gross margin expansion
50.0
40.0
30.0
(%)
20.0
10.0
0.0
FY 18E
FY 19E
FY08
FY09
FY10
FY11
FY12
FY 13
FY 14
FY 15
FY 16
FY 17
Gross Margin EBITDA Margin
Chart 11: ASP for WPIL improving in past 3 years

18,500 10,750
17,600 10,400
16,700 10,050
(INR )
(INR)
15,800 9,700
14,900 9,350
14,000 9,000
FY12 FY13 FY14 FY15 FY16 FY17
ASP - Refrigerators ASP - Air-conditioners ASP - Washing Machines (RHS)


Whirlpool of India
Leveraging parent’s strong technology platform

WPIL’s new product innovation/launches in past 2 years have been clearly differentiated than
leading Korean peers (Samsung, LG). The company has bridged the gap with the addition of
many new products thereby increasing its addressable market reach. The exhibit below shows
several new products launched in past 2 years with new technology support from parent.
WPIL launched a front load fully In 2017, WPIL launched a bottom WPIL launched a top load washing
automatic washing machine in 2016 mounted refrigerator with active fresh machine with technologies like 6th sense
with 6th sense soft move technology technology which keeps vegetables and tumble care
which offers 50 different washing fruits fresh for longer
combinations

Consumer Durables
Refrigerators Depreciation and amortisation 769 875 930 1,038
Refrigerators market growth rat 5.4 10.2 12.0 12.0 EBIT 3,066 4,014 4,954 6,168
Refrigerators Market Share 15.0 16.0 16.5 17.5 Interest expense 52 59 55 52
Washing Machines Other income 553 730 962 1,088
Qty Sold by WHIRL ('000 units) 896 959 1,026 1,098 Add: Exceptional items
Avg realisaion/unit (INR) 10,122 10,476 10,790 11,114 Profit before tax 3,567 4,685 5,861 7,204
Air Conditioners Provision for tax 1,159 1,580 1,963 2,413
Qty Sold by WHIRL ('000 units) 238.5 279.5 327.3 381.9 Reported profit 2,408 3,105 3,897 4,790
Avg realisaion/unit (INR) 16,873 17,281 17,770 18,210 Less: Excep. Items (Net of Tax) (8) - - -
Depriciation as a % of FA 6.8 7.4 6.8 6.8 Adjusted Profit 2,400 3,105 3,897 4,790
Tax rate (%) 32.6 33.7 33.5 33.5 Equity shares outstanding (mn) 127 127 127 127
Capex (INR mn) 739 940 1,410 1,600 EPS (INR) basic 19.0 24.5 30.7 37.8
Diluted shares (mn) 126.8 126.8 126.8 126.8
DPS - - - -
Dividend payout (%) - - - -

Direct cost 59.2 58.6 58.5 58.5
Employee cost 11.1 10.4 10.1 9.6
Other expenses 18.5 18.5 18.4 18.4
EBITDA margins 11.1 12.4 13.0 13.5
Growth metrics (%)

Revenues 4.4 14.6 15.0 17.3
EBITDA 15.8 27.5 20.4 22.5
PBT 18.7 31.3 25.1 22.9
EPS 14.5 28.9 25.5 22.9

Whirlpool of India

Equity capital 1,269 1,269 1,269 1,269 Operating cash flow 3,425 3,426 4,717 5,537
Reserves & surplus 10,388 13,562 17,448 22,228 Financing cash flow (9) (59) (55) (52)
Shareholders funds 11,657 14,831 18,717 23,496 Investing cash flow (271) 1,015 (448) (512)
Long term borrowings 0 0 0 0 NET CASH FLOW 3,145 4,382 4,214 4,973
Short term borrowings 0 0 0 0 Capex (739) (940) (1,410) (1,600)
Total Borrowings 0 0 0 0 Dividend paid - - - -
Long Term Liabilities & Prov. 856 1,322 1,322 1,322
Deferred Tax (Net) 30 -159 -159 -159 Profitability & liquidity ratios
Gross block 11,321 12,513 13,923 15,523 ROAE (%) 23.1 23.4 23.2 22.7
Total Fixed Assets Payable (days) 159 174 182 180
Non Current Investments 0 1,297 1,297 1,297 Cash conversion cycle (20) (31) (38) (44)
Cash and cash equivalents 8,564 10,590 14,810 19,789 Adjusted Debt/Equity 0.0 0.0 0.0 0.0
Loans and advances 161 163 177 186 Gross Debt/Equity 0.0 0.0 0.0 0.0
Other current assets 999 1,343 1,411 1,481
Total current assets (ex cash) 9,921 12,442 13,390 15,091 Operating ratios
Trade payable 9,663 12,347 14,092 16,537 Year to March FY16 FY17 FY18E FY19E
Other Current Liab. & ST Prov. 307 262 262 262 Fixed assets turnover (x) 9.2 10.7 11.4 11.9
Total current liabilities & prov. 9,970 12,609 14,354 16,798 Total asset turnover(x) 3.1 2.8 2.6 2.4
Net Current Assets (ex cash) -49 -166 -964 -1,707 Equity turnover(x) 3.0 3.0 2.4 2.5
Miscelleneous expenditure 0 0 0 0
Uses of funds 12,543 15,994 19,880 24,659 Valuation parameters
Book value per share (BV) (INR) 92 117 148 185 Year to March FY16 FY17 FY18E FY19E
Diluted EPS (INR) 19.0 24.5 30.7 37.8
Free cash flow Y-o-Y growth (%) 14 29 26 23
Reported Profit 2,408 3,105 3,886 4,780 Diluted P/E (x) 60.6 47.0 37.4 30.4
Add: Depreciation 769 875 947 1,056 Price/BV(x) 12.5 9.8 7.8 6.2
Interest (Net of Tax) 34.9 39.0 36.6 34.6 EV/Sales (x) 4.0 3.4 2.9 2.3
Add: Others (469) (710) (944) (1,071) EV/EBITDA (x) 35.8 27.4 22.0 17.3
Less:Changes in working capital -681 -117 -797 -744 Dividend Yield (%) 0.0 0.0 0.0 0.0
Operating cash flow 3,425 3,426 4,723 5,543
Less: Capex 739 1,191 1,410 1,600
Free cash flow 2,686 2,234 3,313 3,943

Consumer Durables
Additional Data
Directors Data
Mr. Arvind Uppal Chairman & Executive Director Mr. Sanjiv Verma Non-Executive & Independent Director
Mr. Sunil D’Souza Managing Director Mr. Simon J.Scarff Non-Executive, Independent Director
Mr. Anil Berera Executive Director & CFO Mrs. Sonu Bhasin Non-Executive, Independent Director
Mr. Vikas Singhal Executive Director
Mr. Anand Bhatia Non –Executive & Independent Director
Auditors - S.R. Batliboi & Co. LLP

Holding – Top10
WHIRLPOOL FINANCIAL MAUR 75 Goldman Sachs Group 0.69
Templeton Asset Mgmt 2.84 Vanguard Group 0.67
Kotak Mahindra 0.87 Birla Sun Life Asset Management 0.65
Jupiter investment management ltd 0.76 Sundaram Asset Management 0.65
HDFC Asset Management 0.42 ICICI Prudential Asset Management Co. 0.59
*in last one year
Bulk Deals
*in last one year
Insider Trades
No Data Available
*in last one year

Crompton Consumer
NOT RATED COMPANIES

Consumer Durables

COMPANY PROFILE
IFB INDUSTRIES
Expanding market coverage
IFB Industries (IFB) is the market leader in front load washing machines EDELWEISS RATINGS
and is well set to leverage its market leadership position in front-load
Absolute Rating NOT RATED
washing machines by expanding into other segments like AC’s ,
refrigerators etc. The company recently commenced in-house
manufacture of top-load washing machines. This strategy has been
playing out well with top loader sales spurting 47% over FY16 to 175,000
units. IFB remains the third largest player in microwave ovens with 18%
market share. The company also enjoys 80% market share in clothes MARKET DATA (R: IFBI.BO, B: IFBI IN)
CMP : INR 729
dryers and 50% in domestic dishwashers. Recently, IFB expanded into ACs
Target Price : NA
and modular kitchens. The company is also trying to expand its
52-week range (INR) : 791 / 351
distribution channel, to address this gap, IFB has chalked out plans to
expand its distribution reach to tier I, II & III cities. ‘NOT RATED’. M cap (INR bn/USD mn) : 29 / 457
Leveraging leadership in front-loads to expand reach
IFB is market leader in front-load washing machines with 45% market share. The SHARE HOLDING PATTERN (%)
company is known for the durability of its products, strong product offerings and Current Q3FY15 Q2FY15
aggressive price points. Leveraging its success in front-load, IFB has starting Promoters % 75.0 75.0 75.0
manufacturing top-load machines and in a span of few years managed to capture 15% MF's, FI's & 9.0 9.0 9.0
BK’
market share in the segment. Recently, it also ventured into ACs and modular kitchens. FII's 1.7 1.7 1.7
others 14.4 14.4 14.4
* Promoters pledged shares : NIL1
Focused on expanding dealer network (% of share in issue)
IFB has a weak distribution reach. Hence, it is gearing to expand its distribution
network and service centres. IFB currently has a 5,000 dealers’ network across India RELATIVE PERFORMANCE (%)
versus Samsung’s and LG’s 30,000 plus network. IFB’s phase 1 plan (mid FY18) entails Stock over
Sensex Stock
having 7,000 dealers over next 2 quarters and 10,000 dealers by end of FY19. Sensex
1 month 2.8 10.9 8.1

Outlook and valuations: Washing machine sales key; ‘NOT RATED’ 3 months 8.7 17.2 8.5
IRB is poised for high growth riding near-term triggers like expanding washing machine 12 months 14.7 101.1 86.4
product portfolio and strong brand. Expansion of its dealer network (10,000 dealers)
will be an additional growth catalyst. The stock currently trades at 60x FY17E.
Financials(SA) (INR mn)

Year to March FY14 FY15 FY16 FY17
Revenues( INR mn) 12,181 15,262 15,009 17,407
Amit Mahawar
Growth (%) 12.6 25.3 (1.7) 16.0
+91 22 4040 7451
EBITDA (INR mn) 2,432 3,521 694 974 amit.mahawar@edelweissfin.com
Adjusted profit (INR mn) 2,189 3,145 314 510
Darshika Khemka
Diluted EPS ( INR) 53.0 76.2 7.6 12.3 +91 22 4063 5544
Growth (%) 583.2 43.7 (90.0) 62.5 darshika.khemka @edelweissfin.com
Diluted P/E (x) 14.0 9.7 97.7 60.1
Krish Kohli
ROAE ( %) 67.0 86.8 7.8 11.5 July 14, 2017

Consumer Durables
Leveraging on front load strengths to expand top load reach

IFB is market leader in the front-load washing machine category (5.5-8 kg) with 43% market
share. The company boasts of durability of its products, strong product offerings and
competitive price points. The front-load washing machines are entirely manufactured at the
company’s Goa facility. The company has achieved a sale of 338,557 units during 2016-17
which is up by 12.9% as compared to FY16.
Chart 1: Front load sales increased at 18% CAGR during FY11- 17

10,000
8,000
6,000
(INR mn)
4,000
2,000
0
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY17
Front Loader WM sales
Source: Company
In the beginning of 2015, IFB started in-house-manufacturing of top-load washing machines

and introduced new models. This includes a range of fully automatic top load washing
machines in the 6.5-9.5kg capacity range with high-end ‘Deep Clean’ technology and unique
wash features. The top-loaders have created a niche position in the market owing to
aesthetics, features and washing performance. These machines from IFB enjoy 15% market
share in this segment. The top loader will continue to be a revenue growth and margin
driver for the company.
Chart 2: Top loader sales grew at 30% CAGR during FY11-17

4,000
3,200
2,400
(INR mn)
1,600
800
0
FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY17
Top Loader Sales
Source: Company

IFB Industries
Expanding dealer network

Historically, IFB has had a weak distribution. However, the company has now mapped out a
plan to expand its distribution reach and service centers. Currently, the company has a
network of 5,000 dealers spread across India versus 30,000 plus for Samsung and LG. IFB’s
phase 1 plan entails reaching 7,000 dealers over next 2 quarters ((mid-FY18) and 10,000 by
end of FY19.
IFB points are exclusive company-owned/franchise-run retail stores which was started to
ramp up sales. Through these points, the company markets its products and caters to tier 1,
2 and 3 cities. IFB also has 380 exclusive IFB stores out of which 90 are company owned and
company operated and the remaining 290 are franchisee stores. These stores account for
25% of volume sales. Management is targeting 500 plus stores in first phase of its expansion
plan.
Chart 3: Revenue mix (%)

Distributors &
Dealers
13%
CSD/Defence
canteens
2%
IFB Point Multi brand

25% stores
60%
Source: Company

Consumer Durables
Company Description
IFB Industries, originally known as Indian Fine Blanks, was founded in Kolkatta, India in 1974
by Mr. Bijon Nag in collaboration with Hienrich Schmid AG of Switzerland. The product
range includes fine blanked components, aundry products (residential and commercial),
kitchen appliances and air conditioners. IFB is the premier fine blanker in India having fine
blanking presses, ranging in size from 90T to 800T. The company has a total of 9 fine
Blanking Presses.
IFB sells its appliances through multiple channels with almost 70% coming from multi-brand
stores. Some sales are made through IFB exclusive stores and its website as well. The
company had over 350 stores, as of Sept 2016, of which 85 are Company owned Company
operated (CoCo) stores. The company’s aim is to have 500 plus stores, including additional
CoCo stores. Their products are also sold in defence canteens and different institutions. Only
11% of its total sales come from its distributors. IFB is working on expanding its distribution
network and on growing its channel reach.
Table 1: Company timeline

Year Description
1974 The Company was incorporated on 12th September, in West Bengal with the
objective to manufacture fine blanking tools, press and fine blanked
components
1986 The company proposed to modernize its existing plant
1987 Set up a second blanking unit at Bangalore
1988 Set up a new division "Projects and Construction" division to take up

projects abroad and in India
1989 The company entered into a coolabration agreement with Bosch-Siemens for
production of fully automatic washing machines and domestic appliances
2000 Launched its new fully automatic washing machine
2015 Mass production of Top Loader Washing Machines
Source: Company Website
Manufacturing Locations
The company has 6 plants located in West Bengal, Goa, Bangalore and Bhopal. The
Engineering divisions are located at Kolkata & Bangalore. Apart from Fine Blanked
components, the Bangalore unit also manufactures motors for White goods as well as
Automotive applications.

IFB Industries
Product portfolio
IFB has a wide range of products in 2 segments - Engineering Products/Fine Blanked
Components and Home/Commercial Appliances.
Fine Blanked Components

Fine blanking is a process of precision mass production and a unique development in the
metal forming industry. It is innovated from traditional metal stamping techniques,
improving the geometrical accuracy and productivity in metal cutting and shaping
operations.
Fine blanking technologies has simplified metal shaping processes and has created
significant demand across various industries. It has an exclusive position in the automotive
industry for producing many high precision parts.
Fig. 1: Fine Blanked Automotive parts

Consumer Durables
Table 2: Home / Commercial Appliances
Product Description
Front Loaders IFB’s front loaders of 5.5-8 kg capacities operate with dominant
market share close to 50%. The company has launched a range of
new models which will strengthen market share. For exports, IFB
has commenced commercial supplies to a Japanese major under an
OEM arrangement.
Top Loaders IFB’s own manufactured range started commercial production in
the fourth quarter of 2014-15. This includes a range of fully
automatic top loaders in the 6.5-9.5 kg capacity range with high
‘Deep clean’ technology and unique wash features. IFB’s top loaders
have created a niche position in the market with their aesthetics,
features and wash performance. This category will be key towards
revenue growth of the division. IFB has a 15% market share in this
segment.
Microwave Ovens IFB is the third largest player with a market share of ~18%. A
complete new range of products were introduced from third quarter
of FY16.
Built in ovens, IFB is a manufacturer and seller of many household and
chimneys and commercial appliances. The company manufactures various
hobs appliance verticals, with products ranging from household
microwaves, washing machines and air conditioners to industrial
dishwasher and laundry solutions.
Chart 4: Revenue mix

Home Others
Appliances 5%
Microwave 1%
10%
Accessories &
Additives
6%
AC Washing
9% Machines
54%
Fine Blanked
Components
15%

IFB Industries
Key Personnel
Mr. Bijon Nag – Chairman
Mr. Bijon Nag is the promoter and Executive Chairman of the company. He is a mechanical
engineer and a prominent industrialist having over 3 decades of experience in machine tool
and engineering industries. He is also the Chairman of IFB Agro Industries and Director of IFB
Automotive Private Limited and Maruti Insurance Broking.
Mr. Bikram Nag – Joint Executive Chairman & Managing Director
Mr. Bikram Nag, a BBA from Richmond College, London, serves as the Managing Director
and Joint Executive Chairman of IFB. Mr. Nag has been Joint Executive Chairman at IFB Agro
Industries since May 21, 2009 and has been serving as Whole Time Director since October
14, 1997. Mr. Nag has more than 12 years of experience in Marketing and Business
Management. He has made several significant contributions to IFB Agro Industries’ growth
and implementation of investment plans and business strategies.

Consumer Durables
Income statement (standalone) (INR mn) Balance sheet (INR mn)
Year to March FY14 FY15 FY16 FY17 As on 31st March FY14 FY15 FY16 FY17
Income from operations 12,181 15,262 15,009 17,407 Equity capital 413 413 413 413
Direct cost 7,139 8,679 8,607 10,054 Reserves & surplus 2,960 3,457 3,771 4,263
Employee cost 979 1,224 1,556 1,659 Shareholders funds 3,372 3,870 4,183 4,676
Other expenses 1,630 1,838 4,152 4,720 Long term borrowings - - 82 276
Total operating expenses 9,749 11,741 14,315 16,433 Short term borrowings 478 345 154 35
EBITDA 2,432 3,521 694 974 Total Borrowings 478 345 236 311
Depreciation &amortisation 226 406 454 436 Long Term Lia.& Provisions 323 348 293 300
EBIT 2,206 3,115 241 538 Deferred Tax (Net) 233 259 258 288
Interest expense 22 25 22 32 Sources of funds 4,406 4,821 4,970 5,575
Other income 82 151 133 112 Gross block 4,328 5,141 5,541 6,288
Profit before tax 2,266 3,240 352 618 Depreciation 2,071 2,411 2,802 3,238
Provision for tax 77 95 38 108 Net block 2,258 2,730 2,739 3,050
Reported profit 2,189 3,145 314 510 Capital work in progress 146 57 238 139
Adjusted Profit 2,189 3,145 314 510 Non Current Investments - - - 120
Eq. shares outstanding (mn) 41 41 41 41 Inventories 1,555 2,231 2,144 2,349
EPS (INR) basic 53 76 8 12 Sundry debtors 723 907 1,155 1,382
Diluted shares (mn) 41 41 41 41 Cash and cash equivalents 682 445 482 464
Adjusted Diluted EPS 53 76 8 12 Loans and advances 668 820 981 1,102
Adjusted Cash EPS 58 86 19 23 Other current assets 381 519 8 6
DPS - - - - Total current assets (ex cash) 4,008 4,922 4,769 5,303
Dividend payout (%) - - - - Trade payable 1,954 2,834 2,886 3,468
Other CL& Short Term Provision 52 54 59 60
Common size metrics- as % of net revenues Total current lia. & provisions 2,006 2,889 2,944 3,528
Year to March FY14 FY15 FY16 FY17 Net Current Assets (ex cash) 2,003 2,033 1,825 1,775
Direct cost 58.6 56.9 57.3 57.8 Uses of funds 4,406 4,821 4,802 5,084
Employee cost 8.0 8.0 10.4 9.5 Book value per share (INR) 82 94 101 113
Other expenses 13.4 12.0 27.7 27.1
Depreciation & amortisation 1.9 2.7 3.0 2.5 Free cash flow
Interest expenditure 0.2 0.2 0.1 0.2 Year to March FY14 FY15 FY16 FY17
EBITDA margins 20.0 23.1 4.6 5.6 Reported Profit 2,189 3,145 314 510
Net profit margins (adjusted) 18.0 20.6 2.1 2.9 Add: Depreciation 226 406 454 436
Interest (Net of Tax) 21 25 20 26
Growth metrics (%) Add: Others (2,005) (2,818) (134) (75)
Year to March FY14 FY15 FY16 FY17 Less:Changes in wor. capital 220 (66) 165 (29)
Revenues 13 25 (2) 16 Opertaing cash flow 210 824 487 926
EBITDA 12 45 (80) 40 Less: Capex 578 815 658 626
PBT 8 43 (89) 76 Free cash flow (368) 8 (171) 300
Adjusted Profit 11 44 (90) 63
EPS 583 44 (90) 63

IFB Industries
Cash flow metrics Operating ratios

Year to March FY14 FY15 FY16 FY17 Year to March FY14 FY15 FY16 FY17
Operating cash flow 210 824 487 926 Fixed assets turnover (x) 5.9 6.1 5.5 6.0
Financing cash flow 368 (153) (208) 90 Total asset turnover(x) 3.0 3.3 3.1 3.5
Investing cash flow (360) (903) (210) (1,036) Equity turnover(x) 3.7 4.2 3.6 3.7
NET CASH FLOW 217 (233) 69 (19)
Capex (578) (815) (658) (626) Valuation parameters
Profitability & liquidity ratios Diluted EPS (INR) 53.0 76.2 7.6 12.3
Year to March FY14 FY15 FY16 FY17 Y-o-Y growth (%) 583.2 43.7 (90.0) 62.5
ROAE (%) 67.0 86.8 7.8 11.5 CEPS (INR) 58.5 86.0 18.6 22.9
ROACE (%) 53.8 67.5 5.0 11.0 Diluted P/E (x) 14.0 9.7 97.7 60.1
Inventory (days) 73 80 93 82 Price/BV(x) 9.1 7.9 7.3 6.6
Debtors (days) 18 19 25 27 EV/Sales (x) 2.5 2.0 2.0 1.7
Payable (days) 90 101 121 115 EV/EBITDA (x) 12.5 8.7 43.8 31.2
Cash conversion cycle 2 (2) (3) (7) Dividend Yield (%) 0.6 0.7 0.9 0.0
Current ratio 2.0 1.7 1.6 1.5
Gross Debt/EBITDA 0.2 0.1 0.3 0.3
Adjusted Debt/Equity 0.1 0.1 0.1 0.1
Gross Debt/Equity 0.1 0.1 0.1 0.1

Consumer Durables

COMPANY PROFILE
JOHNSON CONTROLS-HITACHI
On accelerated growth path
Johnson Controls Hitachi Air Conditioning India (JHI) is set to emerge a EDELWEISS RATINGS
lead player in India's fast-growing room AC market led by: (a) launch of Absolute Rating NOT RATED
innovative premium products in inverter and 5-star ACs; (b) strengths in
new-generation products, such as VRFs; and (c) global joint venture
between Johnson Controls and Hitachi, which will help JHI leverage on
synergies of Johnson Control’s (JCI) B2B product portfolio (York Chillers &
HVAC) and B2C proficiency of Hitachi Appliances. JHI currently enjoys a
MARKET DATA (R: JCHA.BO, B: JCHAC IN)
11% market share in room AC’s . JHI registered a considerable 20% YoY
CMP : INR 1,988
growth in room AC sales for FY17. ‘NOT RATED’
Target Price : NA
52-week range (INR) : 2,300 / 1,157
Johnson Controls JV to bring synergistic benefits Share in issue (mn) : 27.2
M cap (INR bn/USD mn) : 54 / 836
Sharpening focus on capturing the No. 2 spot in India and burgeoning demand and
penetration of ACs, we believe will help JHI achieve its target of doubling India revenue
by 2020. Moreover, its portfolio of energy-efficient and 5-star/inverter ACs (65% of
total models) positions the company ideally to cash in on the shift in demand for
premium and energy-efficient cooling products. Also, its JV with JCI builds on the Current Q3FY15 Q2FY15
latter’s strength in the HVAC market and Hitachi’s prowess in room ACs, VRF and chiller Promoters % 74.3 74.3 74.3
segments, which will yield synergistic benefits. MF's, FI's & 13.9 9.8 9.6
BK’
FII's 1.4 1.3 1.3
Expanding footprint through wider distribution network others 10.4 14.6 14.8
JHI has a strong nation-wide distribution network consisting of 5 regional offices, 20 (% of share in issue)
branch offices, 203 exclusive sales & service dealers and over 4,000 sales points. The
company plans to expand its dealer network to 11,000 by 2020 in order to widen its RELATIVE PERFORMANCE (%)
reach pan India, with special focus on South, which contributes lower revenue Stock over
Sensex Stock
currently. At present, JHI has 33 exclusive showrooms, and plans to augment it to 150 Sensex
in near future. 1 month 2.8 (1.4) (4.2)
3 months 8.7 11.7 3.0
Outlook and valuations: To reap synergistic gains; NOT RATED 12 months 14.7 46.5 31.8
With the AC industry at inflection point, JHI could emerge a big beneficiary from the
shift from fixed speed to inverter ACs on account of enjoying first mover advantage in
latter. In our view, JHI is well poised to tap the growth arising from the synergistic
benefits of the JV that will lead to exponential growth in both the B2B & B2C business.
The stock currently trades at PE of 67x FY17. ’NOT RATED’.
Financials(SA) (INR mn) Amit Mahawar
+91 22 4040 7451
Revenues( INR mn) 10,997 15,728 16,405 19,716
Growth (%) 18.3 43.0 4.3 20.2 Darshika Khemka
+91 22 4063 5544
EBITDA (INR mn) 473 1,379 1,227 1,671 darshika.khemka @edelweissfin.com
Adjusted profit (INR mn) 80 778 500 810
Diluted EPS ( INR) 3.0 28.6 18.4 29.8 Krish Kohli
Growth (%) (55.6) 866.2 (35.7) 62.2
Diluted P/E (x) 675.3 69.9 108.8 67.1
ROAE ( %) 3.8 28.1 14.9 20.3 July 14, 2017
Consumer Durables
JHI: Cashing in on synergistic benefits

In January, 2015, US-based Johnson Controls and Hitachi had entered into an agreement to
form a 60:40 JV for the global air conditioning business of Hitachi Appliances. The JV would
build on the strengths of Johnson Controls in the HVAC market and incorporate Hitachi’s
strengths in the room AC, VRF and chiller segments. The joint venture will have combined
the rich heritage and innovative technology of Hitachi with the industry leading expertise
and global network of Johnson Controls. The JV will build on JCI’s strength in the HVAC
market and cash in on Hitachi’s strength in room AC, VRF and chiller segments.
Room AC: Rising demand to fuel growth

JHI, by virtue of 11% market share in the room AC segment, is the No. 3 player by turnover
(INR 21bn) in India. The domestic room AC market is at an inflection point and is estimated
to double over the next 5 years (15% CAGR) riding burgeoning demand for premium
products, rising disposable incomes and hotter temperatures. This offers JHI potent
opportunity to enhance its market share by virtue of being one of the most preferred
brands for niche customers seeking energy-efficient, world-class solutions for their AC
needs.
Premiumisation, rising energy-efficient AC demand: Potent catalysts

JHI is among pioneers and technology innovators in inverter ACs which gives it a first- mover
advantage.
Moreover, the company has established brand equity by presciently identifying market
trend of shift to energy-efficient ACs and has hence focused on 5-star/inverter ACs (65% of
its models; earns ~40% revenue from inverter category). Currently, the company has India’s
most energy efficient AC range out of which 36% of its inverter ACs carry BEE 5 star rating—
highest in the industry. Over the next 5 years, as growth in inverter AC picks up, JHI will be
among the biggest beneficiaries of this trend.
Distribution expansion to widen reach

JHI has a strong nation-wide distribution network consisting of 5 regional offices, 20 branch
offices, 203 exclusive sales & service dealers and over 4,000 sales points. The company is
planning to expand its dealer network to 11,000 by 2020 in order to widen its reach all over
India, with special focus on South, which contributes lower revenue currently. JHI has 33
exclusive showrooms in India, which it is planning to push to 150 by 2020.

Johnson Controls Hitachi
Company Description
Hitachi Home and Life Solutions (India) Ltd., established in 1984 in India with a manufacturing
plant in Gujarat, is amongst the top AC players in the country. The company manufactures a
wide range of products—room ACs (split & window), commercial ACs including Chiller,
Ductable ACs, Telecom ACs and VRF system. In 2015 Hitachi appliances, Japan, entered into JV
with Johnson Controls (JCI) to provide global customers with full range of AC products, in
which JCI holds 60% and Hitachi the balance 40% to be called Johnson Controls - Hitachi Air
Conditioning India Ltd. JHI has a total installed capacity of 600,000 room ACs per annum (in a
single shift). In addition, JHI also has the capacity to manufacture 120,000tonne Ductable units,
9,000 VRFs ODU and 300 Chillers per annum. It has a robust pan-India distribution network
comprising 5 regional offices, 20 branch offices, 203 exclusive sales & service dealers, over
4,000 sales points and 33 exclusive showrooms.
Table 1: Company history

Year Milestones
1984-90 Incorporated as a pvt ltd co. with manufacturing facilities are situated at Kadi, Gujarat for manufacture of AC (window, split
and multi split) marketed under the brand name `Amtrex'.
1991 Listed on BSE & NSE
1993 Undertook technology upgradation and increase in installed capacity from 24000 units of AC to 50,000 units p.a. launched the
6,000 K. Cal (2.0 Ton) Cooling models manufactured in technical collaboration with Hitachi Ltd., Japan.
1995 Launched HAIKU, a 0.75 Ton window AC & QUADRA, a 4.0 Ton ceiling mounted split AC and entered into a Distributorship
Agreement with IMI corneilins of U.K. for marketing and servicing of Dispensers in India. Also enhanced the production
capacity of AC from 50,000 units to 1,00,000 units.
1999 Introduced 3 new models of Room AC, and the Company's manufacturing facilities, became the seventh base worldwide for
production of Hitachi brand AC.
2000 JV between Hitachi Ltd, Japan, and the Ahmedabad-based Lalbahi group, (which posted a 33 % growth in revenue) working on
plans to broad base its presence in India by introducing a range of Hitachi retail and home appliances products.
2005 Announces the launch of 5 new cooling solution products in Sept -Sense I split AC, 2 models of the floor standing Hitachi Tower
AC, the Microcool Cassette ceiling AC and high end Quadricool window AC.
2009 Launched India's first split AC (ACE Follow Me) with Movement Sensor to detect Human movement and diverting the Airflow
accordingly
2010 Launched i-TEC, India's First Inverter AC; Fully loaded Kaze range of AC for mass premium segment, Started manufacturing of
water cooled chiller of 40 HP - 120 HP capacities
2011 Launched i-Clean, India's First AC with Automatic filter cleaning technology and Summer, India's First 5 star rated Window AC
2012 Introduced India's First star rated Cassette AC, 5 star rated Summer TM window AC with twin
motor technology and Inverter technology in refrigerators.
2013 Re-constructed manufacturing facility at Karan Nagar, Kadi
2015 Hitachi Automotive establishes new auto parts plant in Tamil Nadu
2016 Announced a JV with electronics equipment manufacturer Johnsons Control to provide innovative and complete HVAC (heating,
ventilation, and air conditioning) solutions. Hitachi Home & Life Solutions (India) Ltd shall be changed to Johnson Controls -
Hitachi Air Conditioning India Ltd . JCH to introduce Hitachi room AC system Stainless Clean Shirokuma-kun X Series.
Source: Company

Consumer Durables
Product Portfolio
JHI operates in 4 segments:
i) Room ACs
The room AC segment contributes lion’s share to JHI’s business and is one of the company’s
major focus areas. It has a wide range of split ACs comprising around 80 models which
Hitachi I-clean Plus include 2, 3, 4 and 5 star-rated and tropical inverter technology products. Its window range
>5 star rating comprises 11 models with 2, 3 and 5 star rating.
>Auto filter cleaning technology
AC range
1) Kashikoi: This range lends it technical edge in split ACs.
2) i-See, i-Sense and i-Clean technologies designed to meet needs of Indian consumers.
3) Smart i-Connect range with Wi-Fi connectivity can be operated from any Android or iOS
Smart Phone.
4) Toushi range caters to the replacement market targeting customers interested in the
Hitachi Kampa Split AC
>5 star rating JHI brand at a value price.
>Silent cooling & selectable fan 5) Hot and cold range of products in split and window.
speeds
6) Logicool range: The company has significantly increased the number of key accounts
year-on-year. With spurt in institutional sales, this business is expected to grow strongly.
ii) Commercial ACs

The commercial range of ACs includes Cassette ACs, Ductable ACs, Set Free (Variable
Refrigerant Flow - VRF) and Chillers.
Table 2: Products under the commercial ACs segment

Products Description
Ductables 1) Used to cater to cooling requirements of small corporate offices, banquet halls,
small hospitals etc. 2) Segment projected to have low CAGR and is facing lot of
challenge, from other cooling solutions like VRF. 3) Company has a good market
share in this segment and is one segment where very few brands are operating. 4)
Ductables posted 15% growth in the last 5 years 5)Company is confident that it shall
grow with an innovative product range
VRF 1) Star segment for the industry and has continued to show robust growth during the
calendar year 2) Very strong product range of 8 HP – 54 HP and is growing
exponentially in this business 3) Hitachi succeeded to win many large projects in
Hospitality, Entertainment, Banking, Education, Residential, industrial, Hospitals
etc. which resulted in exponential growth of the VRF sales.
Chiller 1) Market has grown marginally over the last year due to slow growth in commercial
real estate, Hitachi thus faced difficulty and performed in line with the industry
trend, 2)Expected to grow at CAGR of around 7%, 3)Hitachi manufactures Water-
cooled Screw Chillers up to 180 HP and is looking to increase the localization
content to be more competitive & Chillers above 190 HP are imported.
Project 1) Closely allied with the Chiller business, 2)business has a good potential to grow
Business in coming years. 3) In order to increase its share of the Project and Chiller business,
the Company has invested in setting up the infrastructure in terms of manpower as
well as upgrading their skills to take up this business in the past few years

iii) Application-based ACs

This category has grown rapidly over the past few years driven by growth in the industries
of telecom and banking. Currently, due to rising debt woes, the telecom industry is
aggressively switching to the IME model to prune operating costs, which has resulted in low
growth in JHI’s telecom AC business. JHI, however, has a near monopoly in this segment and
will continue to serve the existing customer base and is also looking to develop new
products and technology that meet emerging requirements of the industry. This will help it
stay ahead of competition in India.
iv)Home appliances
JHI has created a niche in the home appliances category which has helped the brand
substantially and is strategically important as it allows continuous engagement with channel
partners during lean seasons. The company is operating in the over 253ltr frost-free
refrigerators market and has also launched a new range of air purifiers catering to rising
demand in Delhi and other Metros. Currently, the base of air purifiers is minuscule;
however, the company anticipates good growth in this segment.
Fig 1: Air purifiers Fig 2 Frost free refrigerators 253lts
Source: Company

Consumer Durables
Key Personnel
Mr. Franz Cerwinka, Chairman
Mr. Franz Cerwinka has served in a variety of operations, commercial and finance leadership
positions within Automotive Experience and Building Efficiency during his tenure with JCI.
During his 20-year tenure with the company, Mr. Cerwinka has spearheaded significant
changes across multiple regions and cultures.
Mr. Gurmeet Singh, Managing Director

Mr. Gurmeet Singh is an honours graduate in Physics from the University of Delhi with a
post graduate diploma in management. In his total experience of nearly 28 years, he has
worked in sales, marketing, business planning, service and strategy. Mr. Singh has been
associated with JHI for 15 years entailing 2 stints.
Mr. Anil Shah, CFO and Executive Director

Mr. Anil Shah serves as the CFO of JHI and has been its Director of Finance & Accounts since
June 1, 2007. He has extensive experience of around 27 years in various areas like finance,
accounts, budgeting, costing, legal, direct & indirect taxation, among others. Mr. Shah has
been associated with JHI since 1984. He served as an Executive Director from July 2007 to
September 3, 2016. He graduated with a B.Com degree from Gujarat University in 1978 and
is a Chartered Accountant.
Mr. Vinay Chauhan, Executive Director

Mr. Vinay Chauhan serves as a Process Owner of Supply Chain at Hitachi Home. He has
extensive experience of around 22 years and has served as the Senior Vice President of
Hitachi Home’s supply chain. He has been associated with the company since 1993 and has
been its Executive Director since May 15, 2006. Mr. Chauhan holds Bachelor of Engineering
degree and has a Post Graduate Diploma in Industrial Engineering.

Key Risks
High competitive intensity: With multiple players in the industry, there is intense
competition in the industry with all players trying to gain market share.
Slowdown in capex spending: Any slowdown in capex spending and economic activity in
India with respect to infrastructure creation could dent the commercial division’s
incremental order intake.
Better-than-expected monsoon: Currently, the room AC segment is growing at 15%.

However, a better-than-expected monsoon could slacken this pace.

Consumer Durables
Income statement (standalone) (INR mn) Balance sheet (INR mn) (INR mn)
Income Erom operations 10,997 15,728 16,405 19,716 Equity capital 272 272 272 272
Other expenses 2,307 3,012 3,940 4,746 Long term borrowings 276 276 0 0
Total operating expenses 10,524 14,350 15,178 18,045 Short term borrowings 697 1,119 1,328 600
EBITDA 473 1,379 1,227 1,671 Total Borrowings 973 1,395 1,328 600
Depreciation and amortisation 300 359 455 508 Long Term Liabilities & Provision 277 326 355 371
EBIT 172 1,019 772 1,163 Deferred Tax (Net) -6 15 -45 -88
Profit before tax 113 1,010 688 1,179 Depreciation 1,097 1,381 1,796 2,304
Reported profit 80 778 500 810 Capital work in progress 22 26 0 0
Adjusted Profit 80 778 500 810 Inventories 2,905 4,903 4,944 4,600
Equity shares outstanding (mn) 27 27 27 27 Sundry debtors 1,884 2,838 2,800 2,831
EPS (INR) basic 3.0 28.6 18.4 29.8 Cash and cash equivalents 220 57 42 236
Diluted shares (mn) 27 27 27 27 Loans and advances 599 489 562 546
Adjusted Diluted EPS 3.0 28.6 18.4 29.8 Other current assets 14 39 43 149
Adjusted Cash EPS 14.0 41.8 35.1 48.5 Total current assets (ex cash) 5,622 8,327 8,389 8,362
DPS 1.5 1.5 1.5 1.5 Trade payable 3,853 5,805 5,643 5,505
Dividend payout (%) 50.7 5.2 8.2 5.0 Other Current Liabilities & Short 100 113 190 155
Total current liabilities & provis 3,953 5,918 5,832 5,660
Common size metrics- as % of net revenues Net Current Assets (ex cash) 1,668 2,409 2,557 2,701
Year to March FY14 FY15 FY16 FY17 Uses of funds 3,645 4,865 5,218 5,273
Direct cost 67.3 64.9 61.7 61.2 Book value per share (BV) (INR) 88 115 132 161
Other expenses 21.0 19.1 24.0 24.1 Free cash flow
Depreciation and amortisation 2.7 2.3 2.8 2.6 Year to March FY14 FY15 FY16 FY17
Interest expenditure 1.1 0.5 0.6 0.2 Reported Profit 80 778 500 810
EBITDA margins 4.3 8.8 7.5 8.5 Add: Depreciation 300 359 455 508
Net profit margins (adjusted) 0.7 4.9 3.0 4.1 Interest (Net of Tax) 84.9 63.6 73.5 30.0
Add: Others (178.30) (888.78) 263.86 856.85
Growth metrics (%) Less:Changes in working capital -293 -235 677 370
Year to March FY14 FY15 FY16 FY17 Opertaing cash flow 580 547 616 1,835
Revenues 18.3 43.0 4.3 20.2 Less: Capex 1,141 556 762 695
EBITDA 1.8 191.6 (11.0) 36.1 Free cash flow -561 -9 -146 1,140
PBT (45.2) 792.0 (31.9) 71.2
Adjusted Profit (47.4) 866.2 (35.7) 62.2 Cash flow metrics
EPS (55.6) 866.2 (35.7) 62.2 Year to March FY14 FY15 FY16 FY17
Operating cash flow 580 547 616 1,835
Financing cash flow 1,143 (558) 3 62
Investing cash flow (1,132) (717) (512) (695)
NET CASH FLOW 591 (729) 107 1,203
Capex (1,141) (556) (762) (695)
Dividend paid 47 47 49 49

Profitability & liquidity ratios Operating ratios

ROAE (%) 3.8 28.1 14.9 20.3 Fixed assets turnover (x) 5.9 7.2 6.4 7.5
ROACE (%) 4.6 24.0 15.3 22.2 Total asset turnover(x) 2.9 3.7 3.3 3.8
Inventory (days) 147 140 177 144 Equity turnover(x) 5.2 5.7 4.6 4.5
Debtors (days) 59 55 63 52
Payable (days) 202 173 206 169 Valuation parameters
Cash conversion cycle 4 22 34 28 Year to March FY14 FY15 FY16 FY17
Current ratio 1.4 1.4 1.4 1.5 Diluted EPS (INR) 3.0 28.6 18.4 29.8
Gross Debt/EBITDA 2.1 1.0 1.1 0.4 Y-o-Y growth (%) (56) 866 (36) 62
Adjusted Debt/Equity 0.4 0.4 0.4 0.1 CEPS (INR) 14.0 41.8 35.1 48.5
Gross Debt/Equity 0.4 0.4 0.4 0.1 Diluted P/E (x) 675.3 69.9 108.8 67.1
Price/BV(x) 22.6 17.4 15.2 12.4
EV/Sales (x) 5.0 3.5 3.4 2.8
EV/EBITDA (x) 116.6 40.4 45.3 32.8

Consumer Durables

COMPANY PROFILE
ORIENT PAPER
Value unlocking potential
Orient Paper (OPL) was formed post demerger of Orient cement in FY13. EDELWEISS RATINGS
OPL operates through the 2 segments of electrical consumer durable Absolute Rating NOT RATED
(ECD) and paper. ECD segment comprises fans, lighting, home appliances
and switchgears - contributes >70% to top line. Paper division comprises
tissue, writing and printing papers, caustic soda and its derivatives -
contributes ~27% to top line. Orient Electric is the second largest player MARKET DATA (R: ORPP.BO, B: OPI IN)
in fan segment after Crompton Greaves with 20% organised market CMP : INR 84
share. It is the largest manufacturer and exporter of fans from India. OPL Target Price : NA
is the third largest manufacturer of LED’s in India. It is also present in 52-week range (INR) : 96 / 53
street lighting category. OPL recorded revenue CAGR of 9% during FY13- Share in issue (mn) : 212.2
17 and EBITDA margin improved from 2.1% in FY14 to 6.9% in FY17. ‘NOT M cap (INR bn/USD mn) : 18 / 278
RATED’ Avg. Daily Vol. BSE/NSE (‘000) : 615.9

Lighting key growth catalyst for consumer durables segment
Electrical Consumer segment recorded sales CAGR of 12% during FY13-17, driven by
Promoters * 38.7 38.7 38.2
fan and lighting segments. OPL’s LED sales multiplied more than 4x to INR1,190mn in
MF's, FI's & BKs 18.0 11.1 10.9
FY16 and it emerged as one of the leading manufacturers of LED lamps in India. The
FII's 3.5 4.0 1.9
company plans to expand capacity of LED tubes and luminaries and extend its reach in
Others 39.9 46.2 49.0
select geographies through retailers. OPL has remained profitable in ECD, with EBIT
margins of 4-6% during FY13-17. The lower margin was on account of higher (% of share in issue)
contribution of economy products and the government’s LED schemes.
PRICE PERFORMANCE (%)
Paper turnaround to continue on better mix Sensex Stock
Stock over
Sensex
OPL has 85,000MT (60,000 MT writing & printing + 25,000 MT tissue paper) of paper
capacity. Tissue papers accounted for 29% of total volume in FY16. The domestic tissue 1 month 2.8 2.6 (0.2)
paper segment continues to grow at 15% annually. As a result, OPL planned capacity 3 months 8.7 (6.5) (15.2)
expansion by 25,000 tonnes by investing INR700mn. The segment turned profitable 12 months 14.7 57.5 42.8
from FY15-16 on improved efficiency and rising contribution of higher margin product
(i.e. tissue paper).
Outlook and valuations: Improving traction; ‘NOT RATED’

We expect value unlocking due to demerger of the Electrical Consumer Durable
segment and further improvement in paper business profitability led by higher margin
Amit Mahawar
products. At CMP, the stock trades at 35x FY17. ‘NOT RATED’. +91 22 4040 7451
Financials(SA) (INR mn) amit.mahawar@edelweissfin.com
Darshika Khemka
Revenues( INR mn) 16,194 17,198 18,690 18,752 +91 22 4063 5544
Growth (%) 23.4 6.2 8.7 0.3 darshika.khemka @edelweissfin.com
EBITDA (INR mn) 339 638 1,367 1,303 Krish Kohli

Adjusted profit (INR mn) 42 222 697 506 krish.kohli@edelweissfin.com
Diluted EPS ( INR) 0.2 (1.4) 3.4 2.4
Growth (%) (113.4) (766.7) (342.9) (29.9)
Diluted P/E (x) 400.2 (60.0) 24.7 35.3 July 14, 2017
ROAE ( %) 1.0 5.3 17.1 11.0
Consumer Durables
Company Description
Orient Electric is a division of Orient Paper and Industries Limited (OPIL), which was
incorporated as Orient Paper Mills Ltd. in 1939. A global market leader in the electrical
industry, Orient Electric offers diverse selection of consumer electrical solutions including
Fans, Home appliances, Lighting and Switchgear. The company has 5 manufacturing facilities
located in Noida, Kolkatta and Faridabad.
Orient Electric operates in over 35 countries and is the largest manufacturer and exporter of
fans in India. The company has a strong pan India presence with more than 100,000 retail
outlets, 3500 retailers and distributors, and 153 service centres across the nation.
Table 1: Milestones
Year Description
1939 Orient Electric incorporated by C K Birla Group
1990 Developed & Patented Peak Speed Performance Output Technology.
Equipped its manufacturing plants at Faridabad and Kolkata
2008 Enters into Lighting Business. Forayed into a range of new electrical
products. Set up an advanced manufacturing unit at Faridabad dedicated to
manufacturing of CFLs and FTLs.
2011 Forayed into Home Appliances Business with a wide range of products
including Electric Kettle, Coolers, Induction Cooker, Geysers and Water
2014 Changed its brand name and identity from 'Orient Electricals' to 'Orient
Electric' and consolidated its business verticals of Fans, Lighting and Home
Appliances. The company aimed to revamp its identity as a one-stop home
solutions provider. Also entered the LED Lighting segment.
2015 Ventured into Switchgear Business. Manufacturing facility for the same is
located in Noida.
Chart 1: Revenue mix for FY16

Others
3%
Pulp, Paper &
Board
24%
Electric Fans
Appliances - 52%
Traded
4%
Lights &
Luminaries
17%

Orient Paper
Table 2: Product Portfolio

Product Description
Fans Range of 350 SKUs with a presence in over 1 lac retail units. Launched
premium fans and energy saving fans. Exports to over 35 countries,
having over 60% market share in export of fans.
Lighting Third largest manufacturer of LED lamps in India. Increased

manufacturing capacities of LED lamps and luminaire with rising
demand and growing industry. Bagged orders from EESL and in the
Street Lighting Category.
Home Appliances Worked on consolidating and rationalizing the product portfolio. Sold
over 1 lac air-coolers, indicating product acceptability and strong
distribution network. Launched a new range of four-way cooling air-
coolers
Switchgears Commenced operations in 2015. Products have been launched in

select markets with premium positioning. First Indian brand to
introduce SDB (Snap Disc Bi-Metal) technology which has the
advantage of precise tripping, better repeatability and longer life.
Source: Annual Report

Consumer Durables
Key Personnel
Mr. C.K. Birla – Chairman
Mr. CK Birla (60) is the chairman of the CK Birla Group, a conglomerate operating across home
and building products, automotive and technology, and healthcare and education. The Group
has strategic alliances with some of the world’s leading companies including Caterpillar, Ford
and Daimler. Other Group companies and organisations include Birlasoft, GMMCO, the Birla
Institute of Technology, the BM Birla Heart Research Centre, the Calcutta Medical Research
Institute, and Modern High School for Girls, and the Rukmani Birla Modern High School.
Mr. M.L. Pachisia – Managing Director

Shri M. L. Pachisia (69) was appointed as an Executive Director on September 23, 1997 and
subsequently designated as Managing Director of Orient Paper & Industries Ltd. Mr. Pachisia,
a Commerce Graduate, has over 50 years of experience in various industries. Shri M. L.
Pachisia (69) was appointed as an Executive Director on September 23, 1997 and
subsequently designated as Managing Director of Orient Paper & Industries Ltd. Mr. Pachisia,
a Commerce Graduate, has over 50 years of experience in various industries.
Rakesh Khanna, CEO – Orient Electric

Rakesh was appointed as the CEO of Orient Electric in March 2015.Rakesh brings over 30
years experience of working with companies of national and international repute in consumer
electronics, electrical, lighting and consumer durables.

Orient Paper
Employee cost 1,455 1,652 1,829 2,132 Shareholders funds 4,329 3,994 4,142 5,073
Other expenses 2,730 2,819 2,814 3,037 Long term borrowings 400 874 1,549 1,173
Total operating expenses 15,855 16,559 17,323 17,449 Short term borrowings 2,872 2,652 2,582 2,436
EBITDA 339 638 1,367 1,303 Total Borrowings 3,272 3,525 4,130 3,610
Depreciation and amortisation 468 437 443 438 Long Term Liabilities & Provision 524 533 430 445
EBIT (129) 201 924 865 Deferred Tax (Net) 74 0 3 173
Add: Exceptional items Depreciation 3,885 4,327 4,770 5,208
Profit before tax 15 88 700 675 Net block 5,185 5,146 5,115 5,626
Provision for tax (28) (135) 3 169 Capital work in progress 17 28 0 0
Reported profit 42 222 697 506 Total Fixed Assets
Less: Exceptional Items (Net of Ta - - - - Non Current Investments 89 87 193 190
Adjusted Profit 42 222 697 506 Inventories 1,629 2,287 2,296 2,563
Dividend payout (%) 47.6 9.1 7.4 41.9 Other Current Liabilities & Short 189 179 395 302
Total current liabilities & provisi 3,977 4,184 4,289 4,251
Year to March FY14 FY15 FY16 FY17 Miscelleneous expenditure 0 11 0 0
Employee cost 9.0 9.6 9.8 11.4 Book value per share (BV) (INR) 21 (25) 20 24
Other expenses 16.9 16.4 15.1 16.2 Contingent Liabilities (7.13) 0.02 66.74 0.13
Operating expenses
Depreciation and amortisation 2.9 2.5 2.4 2.3 Free cash flow
EBITDA margins 2.1 3.7 7.3 6.9 Reported Profit 42 222 697 506
Interest (Net of Tax) 1,077.4 1,111.5 509.5 332.0
Growth metrics (%) Add: Others 339.24 388.18 461.51 183.20
Year to March FY14 FY15 FY16 FY17 Less:Changes in working capital 365 86 328 447
Revenues 23.4 6.2 8.7 0.3 Opertaing cash flow 1,562 2,073 1,783 1,012
EBITDA (314.8) 88.3 114.1 (4.7) Less: Capex 289 361 513 450
PBT (103.2) 500.3 698.6 (3.5) Free cash flow 1,273 1,712 1,270 562
Adjusted Profit (113.1) 425.1 213.1 (27.4)
EPS (113.4) 425.1 208.3 (29.9)

Consumer Durables

Operating cash flow 1,562 2,073 1,783 1,012 Fixed assets turnover (x) 3.0 3.3 3.6 3.5
Financing cash flow (67) (41) 8 2,624 Total asset turnover(x) 2.0 2.1 2.2 2.1
Investing cash flow (237) (303) (455) (3,150) Equity turnover(x) 3.7 4.1 4.5 3.7
NET CASH FLOW 1,259 1,729 1,336 486
Dividend paid 24 24 61 254 Year to March FY14 FY15 FY16 FY17
Diluted EPS (INR) 0.2 (1.4) 3.4 2.4
Profitability & liquidity ratios Y-o-Y growth (%) (113) (767) (343) (30)
Year to March FY14 FY15 FY16 FY17 CEPS (INR) 2.5 (4.1) 5.6 4.4
ROAE (%) 1.0 5.3 17.1 11.0 Diluted P/E (x) 400.2 (60.0) 24.7 35.3
ROACE (%) (1.6) 2.5 11.2 9.8 Price/BV(x) 3.9 (3.3) 4.2 3.5
Inventory (days) 46 59 66 72 EV/Sales (x) 1.2 (0.6) 1.1 1.1
Debtors (days) 85 83 73 75 EV/EBITDA (x) 58.7 (16.0) 15.0 16.1
Payable (days) 104 118 114 117 Dividend Yield (%) 5.4 6.5 7.7 1.2
Cash conversion cycle 27 25 25 30

COMPANY PROFILE
SURYA ROSHNI
Glowing bright
Surya Roshni (SYR), a 4 decade year old conglomerate, primarily deals in EDELWEISS RATINGS
lighting and steel tube products. It is the second-largest lighting player in Absolute Rating NOT RATED
terms of revenue based out of India and the largest GI pipe manufacturer
in the country. SYR has been market leader in traditional light sources and
is currently the No.2 player in LEDs with estimated market share of ~11.5%.
It is the only 100% backward integrated lighting player in India which lends
it an edge over competition, as it offers best quality products at lower
rates. SYR ventured into fans and home appliances in FY14 and FY15, MARKET DATA (R: SURR.BO, B: SYR IN)
CMP : INR 280
respectively. In just 2 years of launch, the company’s fan segment achieved
Target Price : NA
sales of INR1.3bn. It has a pan-India distribution network of 200,000
52-week range (INR) : 306 / 160
dealers and retail outlets. SYR plans to scale up its fans & consumer Share in issue (mn) : 43.8
appliances businesses without incurring huge capex as it is adopting the M cap (INR bn/USD mn) : 12 / 193
contract manufacturing route. ‘NOT RATED’. Avg. Daily Vol.BSE/NSE(‘000) : 308.7
Higher LED revenue to offset decline in FTL, CFL and GLS SHARE HOLDING PATTERN (%)
SYR has been a large player in traditional products like FTL, CFL and GLS. The company has Current Q3FY17 Q2FY17
managed the structural shift in the lighting industry well. SYR is one of the only 100% Promoters % 63.3 63.3 63.3
backward integrated lighting player in India, which lends it competitive edge. This has also MF's, FI's & 1.5 1.5 1.2
helped it sustain higher volumes in lighting by offering good quality products at cheaper BK’
FII's 2.8 2.8 1.4
rates. The company manufactures LED products at its fully integrated plants in Kashipur and others 32.4 32.4 34.1
Malanpur. It has also been an active particiapnt in the government’s EESL programme and * Promoters pledged shares : 22.6
won orders worth INR1,550 mn for supply of LED bulbs and street lights. (% of share in issue)
RELATIVE PERFORMANCE (%)

New ventures to fuel growth; asset-light model to boost RoCE
Stock over
Since FY15, SYR has ventured into new businesses like fans (ceiling, table, pedestal) and Sensex Stock
Sensex
encouraged by the initial positive response, further divesrsified into home appliances,
1 month 2.8 1.3 3.0
such as, water heaters, dry & steam irons, mixer grinders and toasters. These new
3 months 1.3 36.5 70.8
segments will see diversification of revenues from traditional sources.
12 months (1.5) 27.8 56.1
Outlook and Valuation: Poised to grow; ‘NOT RATED’

SYR is poised for high growth due to its strong presence in the LED segment, expansion
into appliances and market leadership in GI steel tubes. At CMP, the stock trades at 19x
FY17E. ‘NOT RATED’.
Amit Mahawar
Financials (SA) +91 22 4040 7451
Year to March FY14 FY15 FY16 FY17 amit.mahawar@edelweissfin.com
Revenues( INR mn) 31,002 28,571 29,642 31,455 Darshika Khemka

Growth (%) 1.6 (7.8) 3.7 6.1 +91 22 4063 5544
Adjusted profit (INR mn) 1,226 541 638 662 Krish Kohli
Growth (%) (23.0) 1.4 18.0 3.7
Diluted P/E (x) 23.8 23.4 19.9 19.1
ROAE ( %) 16.3 6.8 8.5 9.2 July 14, 2017

Consumer Durables
Increase in LED revenues will offset the decline in FTL, CFL and GLS
SYR has traditionally been known for its light sources (bulbs, CFL, tube lights) portfolio. With
a market share of ~11.5% in the lighting industry, its presence in smaller counters is higher
than peers, which should enable it to post good LED sales.
100% backward integration: Strong USP

The company has been able to sustain higher volumes in lighting products due its price
competitiveness. SYR claims to be the only 100% backward integrated lighting player in
India, which lends it an edge over competition. As a result, the company is known for its
product quality despite being one of the cheapest in the market.
Rising revenue from EESL

In FY16, SYL was awared orders worth INR 1550 mn for supply of LED Bulbs, Street Lights
from EESL. Excluding EESL orders from LED revenue for FY16, Surya Roshni was able to
nearly double its LED revenue, from INR 1,215mn in FY15 to INR 2,400mn in FY16, without
relying on government orders. Out of its total production Surya Roshni is supplying about
30% to the UJALA scheme.
Chart 1: LED segment has grown at 165% CAGR from FY14 to FY17
17,500
14,000
10,500
(INR mn)
7,000
3,500
0
FY 13 FY 14 FY 15 FY 16 FY17
LED Revenues Lighting Revenues


Surya Roshni
New product categories to fuel growth

Since FY15, SYR has ventured into new businesses like fans (ceiling, table, pedestal) and
encouraged by the initial positive response, has further divesrsified in to home appliances
such as water heaters, dry & steam irons, mixer grinders and toasters. The product
diversification is an extension of its home lighting offerings and this can work to its
advantage. The fans & home appliances segment grew 55% in FY17.
Despite being a late entrant in the fans industry, SYR commendably clocked INR1,300mn
revenue in the second year of operations itself, implying market share of ~3%.
While at this juncture, contribution of new businesses is minuscule, their contribution is

expected to grow substantially as the company sharpens focus on them. Moreover, EESL
tenders for energy-efficient ceiling fans provide SYR an additional channel to market its
products.
Asset light model to boost RoCE

SYR is planning to scale up its fans & consumer appliances businesses sans incurring huge
capex as it is taking the contract manufacturing route. Akin to Bajaj Electricals, which
predominantly relies on outsourcing, we expect outsourcing to improve SYR’s lighting
segment RoCE as well. Ergo, the company’s overall asset turnover is likely to imrove despite
capex at the Andhra plant for the steel pipes business in the near
term.
Revenue mix
While steel pipes still contribute 60% to total revenue, we expect contribution of lighting
products & new verticals to increase going forward mainly driven by the shift to LED and the
fast growing home appliances industry.
Chart 2: Revenue mix
Lighting
Products
40%
Steel Products
60%

Consumer Durables
Company Description
Incorporated in 1973 as Prakash Tubes, the company commenced operations as a steel pipe
manufacturer in Haryana. A decade later, it diversified into lighting products. Currently, SYR
manufactures steel pipe products for agriculture, infrastructure, oil & gas and construction
sectors, of which its offerings for oil & gas sector are approved by API (American Petroleum
Institute). It is one of the largest conglomerates in the steel segment (largest GI
manufacturer) and second largest in lighting in India. Both the products are marketed under
the Surya brand. With 11.6%, SYR Is the No.2 player in the domestic lighting market. The
company has now expanded and diversified into kitchen appliances and fans as well. The
company has a large distribution network comprising over 2,000 distributors and 2 lakh
country-wide retailers. It exports to over 50 countries, across the Middle East, Europe, Africa
and Asia.
Table 1: Company Milestones

Year Description
1973 Began operations & Set up of Steel plant at Bahadurgarh
1980 Galvanizing Plant got started
1984 The first Lighting plant started at Kashipur
1989 Production of HPSVL and energy-efficient 26mm FTL began
1991 Production of CR Strips began
1992 Second lighting plant went commercial at Gwalior (M.P), production of
filament for GLS and FTL commenced
1994 A new modern glass plant started
1998 Asia’s largest ribbon glass plant started with annual capacity of 400 million
GLS and 25 million FTL shells
2006 Installed CFL unit at Gwalior (M.P)
2010 Set up of Steel Pipe Plant at Gwalior (M.P). A new world-class pipe unit
started production at Bhuj (SGSTL- an Associate Company). PVC plant became
operational
2012 Surya Technology and Innovation Centre (R&D centre) for energy-efficient LED
lights went operational at Noida
2014 Launch of Surya Fans
2015 Launch of Surya Home Appliances
2016 Commissioning of New Steel Pipe Plant at Hindupur (A.P.)
2017 Operations commence at Hindupur Plant

Surya Roshni
Table 2: Product Portfolio

Segment Description
Lighting 1) Lamps [General Lighting Service (GLS), Fluorescent Tube Lights

(FTL), Compact Fluorescent Lamp (CFL), and others
2) Luminaries
3) Accessories, Components and Control gears (ACCs)
4) Light Emitting Diode (LED)
Fans Sales of ` 130 crore in FY16. 15 variants of fans with LED.
Steel Division 1) Square and rectangular section (hollow) pipes which are used
for civil structures, furniture and transmission towers.
2) M.S.Black - Mild steel that can easily be welded
3) GI Pipes - Galvanised Pipes to avoid corrosion. These pipes are
generally for water lines
Kitchen Appliances Mixer Grinders, Juicer Mixer Grinders, Induction Cooktops,

Toasters, Dry Irons, Steam Irons, Water Heaters
Source: Annual Report, Company Website
Current manufacturing set up

SYR has 5 manufacturing plants located in India and its associate company, Surya Global
Steel Tubes (SGSTL), has 1 manufacturing plant.
All its LED products are manufactured in-house at fully integrated plants in Kashipur
(Uttarakhand) and Gwalior (MP), supported by Surya Technology & Innovation Centre (STIC)
at Noida—an advanced state-of-the-art lighting laboratory and research centre with specific
focus on energy-efficient lighting products such as LED and luminaires. YSR is the only
lighting company in India with 100% backward integration.
The company’s ERW steel pipe manufacturing plant and a large cold rolling strip mill are
located in Bahadurgarh (NCR), Bhuj (Gujarat) and Gwalior (MP). It has a production capacity
of about 700,000mt per annum of plain, GI and spiral pipes.
The Hindupur plant, which commenced operations recently, has an additional production
capacity of 100,000mt pa and has been set up to produce square and rectangular sections
and GI pipes. It will lead to logistic cost savings and help further leverage its presence in the
premium South India market, leading to a larger and stronger steel pipes business with
economies of scale. As this plant has been set up in a notified backward area, it enjoys
certain tax benefits.

Consumer Durables
Fig. 1: Pan India presence of Surya Roshni

Surya Roshni
Key Risks
• Predatory pricing by new entrants could lead to market share loss, which could dent
volume.
• Volatility in steel prices will affect margin.
• Increased EESL participation will impact realisation of the lighting business.

Consumer Durables
Key Personnel
Mr. J.P. Agarwal, Chairman

Mr. Jai Prakash Agarwal is the Executive Chairman of SYR and was also its Managing Director
from January 1, 2012 to October 29, 2012 and Joint Managing Director. Prior to that, he had
served as the company’s Vice Chairman, Whole-time Director, and Executive Non
Independent Director since April 1, 1986. Mr. Agarwal serves as Executive Director of Jindal
Industries. He holds B. Com degree.
Mr. B. Raju, Managing Director

Mr. B. Raju has been SYR’s Managing Director since October 2012. Prior to that, he was
Deputy Managing Director. He had joined Surya Foundation, an NGO, to further his aim to
develop the youth of the country. Mr. Raju is Director of Surya Global Steel Tubes and Surya
Global Infrastructure. He is an Arts Graduate from Manipur.

Surya Roshni
Employee cost 1,511 1,564 1,857 1,996 Shareholders funds 7,739 8,110 6,915 7,494
Other expenses 2,565 2,851 3,629 3,654 Long term borrowings 4,010 3,643 3,406 3,145
Total operating expenses 27,973 26,340 27,218 29,156 Short term borrowings 5,501 5,155 5,132 5,460
EBITDA 3,028 2,231 2,424 2,298 Total Borrowings 9,511 8,798 8,538 8,605
Depreciation and amortisation 556 560 610 559 Long Term Liab. & Provisions 229 262 234 317
EBIT 2,472 1,670 1,814 1,739 Deferred Tax (Net) 483 513 524 523
Interest expense 1,145 1,090 964 877 Sources of funds 17,963 17,684 16,210 16,939
Add: Exceptional items Depreciation 5,579 6,167 7,435 7,995
Profit before tax 1,363 618 868 869 Net block 9,119 9,365 7,534 7,869
Provision for tax 138 77 230 207 Capital work in progress 537 264 184 151
Reported profit 1,226 541 638 662 Total Fixed Assets
Less: Excep. Items (Net of Tax) - - - - Non Current Investments 500 500 500 500
Adjusted Profit 1,226 541 638 662 Inventories 4,331 3,895 4,699 5,409
EPS (INR) basic 12 12 15 15 Cash and cash equivalents 247 264 273 192
Diluted shares (mn) 101 44 44 44 Loans and advances 1,008 799 - -
Adjusted Diluted EPS 12.2 12.3 14.6 15.1 Other current assets - 355 1,323 1,458
Dividend payout (%) 8.2 8.1 6.9 9.9 Other Current Liabilities & Short T 209 72 97 197
Total current liabilities & provisio 2,744 3,000 3,560 4,062
Year to March FY14 FY15 FY16 FY17 Miscelleneous expenditure - - - -
Employee cost 4.9 5.5 6.3 6.3 Book value per share (BV) (INR) 77 185 158 171
Other expenses 8.3 10.0 12.2 11.6
Depreciation and amortisation 1.8 2.0 2.1 1.8 Free cash flow (INR mn)
EBITDA margins 9.8 7.8 8.2 7.3 Reported Profit 1,226 541 638 662
Interest (Net of Tax) 1,029 954 709 668
Growth metrics (%) Add: Others (606) 87 284 (153)
Year to March FY14 FY15 FY16 FY17 Less:Changes in working capital 1,302 (537) 184 447
Revenues 1.6 (7.8) 3.7 6.1 Opertaing cash flow 903 2,680 2,057 1,290
EBITDA (7.9) (26.3) 8.6 (5.2) Less: Capex 1,472 627 511 450
PBT (17.0) (54.7) 40.5 0.2 Free cash flow (569) 2,053 1,546 840
Adjusted Profit (24.1) (55.9) 18.0 3.7
EPS (23.0) 1.4 18.0 3.7

Consumer Durables
Operating cash flow 903 2,680 2,057 1,290 Fixed assets turnover (x) 3.5 3.1 3.5 4.1
Financing cash flow 616 (2,033) (1,536) 2,235 Total asset turnover(x) 1.8 1.6 1.7 1.9
Investing cash flow (1,458) (617) (499) (3,150) Equity turnover(x) 4.1 3.6 4.3 4.2
NET CASH FLOW 60 30 23 375
Capex (1,472) (627) (511) (450) Valuation parameters
Diluted EPS (INR) 12.2 12.3 14.6 15.1
Profitability & liquidity ratios Y-o-Y growth (%) (23.0) 1.4 18.0 3.7
Year to March FY14 FY15 FY16 FY17 CEPS (INR) 17.7 25.1 28.5 27.9
ROAE (%) 16.3 6.8 8.5 9.2 Diluted P/E (x) 23.8 23.4 19.9 19.1
ROACE (%) 15.2 9.6 11.0 10.8 Price/BV(x) 3.8 1.6 1.8 1.7
Inventory (days) 62 68 72 78 EV/Sales (x) 1.2 0.7 0.7 0.7
Debtors (days) 53 65 65 62 EV/EBITDA (x) 12.5 9.3 8.4 9.0
Cash conversion cycle 80 88 83 84 Basic EPS 12.2 12.3 14.6 15.1

COMPANY PROFILE
TTK PRESTIGE
Quality, innovation, strong growth levers
TTK Prestige (TTK) is India’s largest kitchen appliances player with 40% EDELWEISS RATINGS
market share in the organised cookers segment. This bears testimony to
Absolute Rating NOT RATED
its sound brand quality built over the years. The company is well
positioned in the INR120bn kitchen appliances market, riding on its
expanding product portfolio and innovation. TTK’s sharp focus on
marketing & distribution has resulted in significant market share and
brand recall in kitchen appliances. The company spends more than 6% of
sales on ads and sales promotion, which has led to strong brand MARKET DATA (R: TTKL.BO, B: TTKPT IN)
awareness in industry. Diversification is another major growth driver for CMP : INR 6,365
Target Price : NA
TTK. Contribution of kitchen appliances has increased from 20% in FY10
52-week range (INR) : 6,824 / 4,651
to 30% in FY17. We believe TTK is a strong & sustainable growth story,
given its premium positioning in the appliances segment. ‘NOT RATED’ M cap (INR bn/USD mn) : 74 / 1,150
Leveraging on brands to expand product reach in appliances
Clearly, TTK boasts of a sustainable products innovation track record in pressure SHARE HOLDING PATTERN (%)
cookers (40% market share), which has provided it a strong platform to roll out other Current Q3FY15 Q2FY15
innovative products like cook-tops, appliances and cleaning solutions thereby Promoters % 70.3 70.3 70.3
expanding its target market. The company has one of the highest SKUs in the MF's, FI's & 6.3 4.9 5.4
appliances segment. TTK spends more than 6% of sales on ads and sales promotion BK’
FII's 13.3 15.6 15.3
activities, which has helped in creating solid brand awareness. others 10.1 9.2 9.0
* Promoters pledged shares : 0.9
Focused on new segments (% of share in issue)
TTK recorded 18% revenue CAGR during FY10-17, mainly led by growth in gas stoves
RELATIVE PERFORMANCE (%)
and kitchen appliances, which grew by 23% and 28% respectively. Mgt is targeting 3x
Stock over
sales over FY17-22 to INR50bn, of which INR15bn will be from inorganic/exports. A Sensex Stock
Sensex
step in this direction was the acquisition of Horwood, a UK-based kitchen appliances
1 month 2.8 (5.4) (8.2)
company. It has also introduced innovative SKU’s in the cleaning solutions segment.
3 months 8.7 (0.5) (9.2)
12 months 14.7 34.1 19.4
Outlook and Valuation: Back on growth track; ‘NOT RATED’
Management’s new focus areas along with strong brands could see TTK emerge a big
beneficiary of the shift from unorganised to organised. We expect the company
leverage its sound brands to launch new products and move towards achieving its
revenue target of INR50bn by FY22. At CMP, the stock trades at PE of 53x FY17. ‘NOT
RATED’.
Financials(SA) (INR mn) Amit Mahawar
+91 22 4040 7451
Year to March FY14 FY15 FY16 FY17 amit.mahawar@edelweissfin.com
Revenues( INR mn) 12,938 13,883 14,879 16,036
Growth (%) (4.8) 7.3 7.2 7.8 Darshika Khemka
+91 22 4063 5544
Adjusted profit (INR mn) 1,118 923 1,156 1,430
Krish Kohli
Growth (%) (23.3) (14.3) 32.7 18.3
Diluted P/E (x) 70.6 82.3 62.0 52.4
ROAE ( %) 22.8 15.0 16.9 18.1 July 14, 2017
Consumer Durables
New segment to be key Mgt focus areas

Substantial revenue shift from pressure cookers to Kitchen Appliances
TTK Prestige in the past few years has been reducing its dependency on Pressure cookers
and non-stick cookware. This has been achieved by diversifying into Kitchen electric
appliances, Gas Stoves and now cleaning products. The revenue of pressure cookers as a %
of sales has come down from 47% in FY10 to 36% in FY16
Chart 1: Shift in revenues visible from pressure cookers to kitchen appliances

FY 10 revenue break up FY16 Revenue Breakup
Others Others
Non Stick 4% Non Stick 4%
Cookware Cookware
17% 18% Pressure
Cooker
36%
Pressure
Cooker
47%
Kitchen
Electric
Appliances Kitchen
20% Electric
Gas Stoves Appliances Gas Stoves
12% 29% 13%
Source: Company presentation and Annual Reports, Edelweiss research
Chart 2: Increasing share of Kitchen Appliances augurs well for the company
100%
17% 20% 20% 18% 17% 18% 18%

80%
20%
25% 33% 30% 27% 29%
60% 31%
40%
47%
41% 37% 37% 36%
37% 37%
20%
12% 10% 9% 9% 13% 12% 14%

0%
Gas Stoves Pressure Cooker
Source: Company presentation and Annual Reports, Edelweiss research

TTK Prestige
Chart 3: Diversification into newer areas, a future growth catalyst

17,500 Adverse economic
conditions and state
policy impacting growth
14,000 Large Capacity
expansion
Transformation into a
10,500 total kitchen services
(INR mn)
provider lead by product
innovation
7,000
3,500
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Gross Revenues
Solid product innovation track-record and brand lend TTK a sustainable

competitive edge
TTK has exhibited a strong track-record of new product launches that has been a key driver
of its industry leading growth of 19% CAGR over FY 06-17. TTK Prestige is the only organized
kitchen appliances company in India with a comprehensive product portfolio covering the
entire kitchenware segment. The company’s core strengths lie in its brand, innovation,
design, manufacturing, distribution, sourcing and service capabilities.
TTK has always focused on understanding the consumer need which has helped it in
identifying pain points and offering solutions in the form of designing new and innovative
products. As a result, it has a strong connect with the consumer because of which its brand
enjoys a good market share in India. It has also entered into new premium categories like
the home cleaning segment, which has huge growth opportunity. Its brand ‘Prestige’ has a
strong consumer recall. A wide distribution network and a strong brand have helped TTK
create a pan-India presence with south India comprising the biggest share.
Chart 4: History of constant launches of new products

150
125
120 110
100
87
90
(Units)
67 68
60
60
30
0
FY11 FY12 FY13 FY14 FY15 FY16 FY17E
New SKU's added

Consumer Durables
During the early 2000s, ~70% of TTK’s revenue came from South India; this has now reduced
to 65%. TTK spends more than 6% of sales on advertisement and sales promotion activities
which have helped create solid brand awareness over years. The company has built a strong
brand with greater ad-spend than its peers (~7% of net sales), supported by innovation,
differentiation and better customer service.
Strong Distribution Network

TTK was the first kitchen appliances company to start an exclusive retail network, launching
its exclusive “Prestige Smart Kitchen” (PSK) stores. This has expanded its retail network,
enhanced visibility and created brand awareness among end-users. The company does not
incur expenses on these franchised stores. In FY11, the PSK chain comprised 279 outlets in
153 towns in 19 states. This has now expanded to 539 stores, of which~60% are located in
the south, 15-18% in the west and the rest in north and east India. TTK plans to increase the
PSK outlets to >500 by FY19. At present, PSK outlets contribute ~15% of revenue. In addition
to its exclusive stores, the company has a strong retail presence, with products sold by
+30,000 retailers across India. There is currently much scope for expansion in organized
retail. The share of modern retail (large-format stores such as Big Bazaar and More) was just
10% of revenue in FY11, while the share of the traditional distribution network was ~63%.
Fig. 1: Strong distribution network
Chart 5: Channel contributions for FY16 Chart 6: Prestige Smart Kitchen

Institutions PSK network was
4% consolidated and rationalized
Own Retail 600
17%
480
360
(Nos)
240
Traditional
Modern Trade 120
Format 58%
21% 0
FY 07
FY 08
FY 09
FY 10
FY 11
FY 12
FY 13
FY 14
FY 15
FY 16
PSK Outlets Towns

Source: Company presentation, Edelweiss research

TTK Prestige
Company Description
TTK Prestige was founded in 1928 as a distribution agency for food and personal care
products, now manufactures a wide range of products, grossing over Rs 1500cr. Their
products range from cookers to kitchen appliances to providing kitchen solutions for homes.
Majority of their sales are domestic. Exports are less than 5% of Total Sales. Exports are
mainly to Japan, Europe and USA, and intend to significantly increase its exports after
acquiring Horwood Homeware, a UK based company. As of FY15, the capacity utilization was
not more than 50%-60%.
The company is now planning on introducing products outside the kitchen, mainly Cleaning
Solutions and Home products. In FY16, they launched their first product under this segment;
LED Lantern. It is a power saving, high efficiency light that is light-weight and can be taken to
any place of darkness once charged. Targeting power cut prone areas. By the end of FY17
they intend on launching at least 30 SKU’s in the new segment.
Table 1: The Journey so far

Years Description
1955 TTK Prestige was officially incorporated
1959 First Manufacturing Unit in Banglaore
1981 Second Manufacturing Unit in Hosur - TamilNadu
Till 1990 A single product company - just aluminium outer lid pressure cookers -
Dominant in Southern India
1990-94 Launch of SS Pressure Cookers and Non-Stick Cookware
1990's Export thrust - Launch of Manttra Brand
2000-03 >> Period of Turbulances - yet bold initiatives laying the foundation for
brand extension and explosive growth
>>This period saw the launch of stoves and appliances and the major
marketing initiative of exclusive retail network - Prestige Smart Kitchens
2006 Launch of well differentiated inner lid pressure cookers - New capacities in
Uttrakhand and Coimbatore
2006- Transaformation into a total kitchen solution provider lead by innovation
2010 like induction tops, apple cookers, microwave pressure cookers
2010-11 Adoption of a simple but powerful vision " A prestige in every kitchen "
2011 Largest capacity expansion in initiative to back the vision
2012 >>Company turnover crosses Rs 11 Billion
>>Alliances with global high end brands entered for highend
cookware/storeware/waterfilters/Gas Tops
2013 >>Launch of Microwave cookers met with great success in export market
>>Company turnover crosses Rs 13.8 bn
2013-15 Adverse economic conditions and state policy impacted growth
2015-16 Got back to double digit growth in most difficult circumstances and
increased market share accross categories
2016-17 Entered new horizons - UK acquisition and cleaning solutions
Source: Company Presentation

Consumer Durables
Product Portfolio
For 6 decades TTK has stood tall as the market leaders in kitchen appliances and has an
extensive range of products and adds around 100 new SKU’s every year under its various
product lines. They believe it is important to change with time and are recognizing the
growth and shift in demand from pressure cookers to electrical appliances.
Fig. 2: TTK’s product basket consists of the following products
Source: Company presentation
Prestige was the first manufacturer of pressure cookers in India. With time, the company
has introduced new products and continuously expanded the scale of their production
along with their productivity. The company that started off as a distributor now has a
massive national presence
Table 2: TTK’s product milestones

Year of
Product and Description
launch
1949 Pressure Cookers - Prestige pressure cooker was introduced into the Indian Kitchen by the TTK Group, which made
cooking safe for the users; the brand won the trust of the Indian people. Unique Indian cooking needs have inspired
Prestige to develop the Prestige Pressure Pan. TTK's constant endeavour to satisfy their customers and to help them
cook better has been the main thrust at Prestige. This has helped them to retain their core value of trust with all
their customers.
1994 Non - Stick Cookware - Another facet of kitchens that was gaining importance was good looking utensils.
Recognising the need of the Indian consumers to cook healthier food with lesser oil, and also to make the cooking
utensils look smarter, Prestige released the entire a range of non-stick cookware for the Indian Kitchen.
2001 Gas Stoves & Electrical Appliances - TTK's users pushed TTK to innovate and provide them with all their needs since
they now had established trust with the Prestige product family. Our customers desire propelled our R & D
Department to develop Gas Stoves and the entire range of Electrical Appliances like mixers, grinders, toasters,
ovens, grills and more.
2015 Pressure Cookware (Clip on) - Pressure cooking and Prestige are synonymous to Indian consumers and that's what
inspires TTK to push their boundaries. TTK realised how important a part pressure cooking was in the daily cooking
regime of the Indian homes and thus was born the idea of Clipon pressure cookware - with a completely new
universal lid interface which can make any cookware in its series into a pressure cooker. Now you can have a
common lid for a saucepan, kadai, and handi and use the same vessels for Frying, deep frying, sauteing, cooking
and pressure cooking. It is India’s first modular pressure cooking system.
2016 Clean Home Solutions - ‘Chasing new frontiers’ is the guiding principle at Prestige. Conquering the Indian Kitchen
prompted them to widen their horizons and thus, Prestige took its plunge into the Cleaning Solutions Business.
Prestige has launched cleaning solutions products under the brand “CleanHome”.

TTK Prestige
Evolution of Prestige pressure cookers

TTK is the market leader in the domestic pressure cooker market, which is estimated at
~INR15bn in FY16. The organized sector comprises ~70% of this market, of which TTK
commands ~40% market share. In FY16, TTK’s pressure cooker sales amounted to ~INR5.56
bn, up from 5.29 bn in FY15, chiefly due to product innovation and launches.
TTK has pioneered the pressure cooker in India through constant product innovations and
design. It initially manufactured outer-lid pressure cookers and gradually entered into
manufacturing inner-lid cookers. The outer-lid cookers are favoured in South India, which
accounts for ~65% of revenue. The foray into inner-lid cookers gave it a wider geographical
coverage which led to very high growth from FY10 to FY13 where its revenues from this
segment more than doubled from INR 2406 mn to 5106 mn. Keeping up the same
momentum of product innovations it has recently launched the clip-on pressure cooker
which can be used to Saute’, fry, boil, steam and pressure cook.
Fig. 3: Evolution of Pressure cookers
2016 - Launch of Clip-

On pressure cookers
2010 – Launch of
Apple Pressure
Cookers
2006 – Launch of Inner

Lid Pressure Cookers
1990’s – Launch of
Manttra Brand
TTK Prestige Pressure

Cooker in 1980 – Only
made of Aluminium
outer lid

Consumer Durables
Manufacturing Locations
It has 5 plants across India and plans on setting up 1 more in Gujarat. The company has a
huge presence in the South, with 3 plants in Tamil Nadu and 1 in Coimbatore. The
management believes that 60% of their total domestic revenue comes from the South and
the 40% from the rest of India (as of FY15). However, with increasing online sales, it is tough
to judge the exact percentage of sales that come from the South.
All the plants have become increasingly efficient and capacity of the plants has risen
significantly since a decade ago. Total Productive Maintenance (TPM) systems have been
implemented and continuous employee training and enhanced productivity. The
Coimbatore plant started in 2006 with a capacity of 3 lakh pressure cookers and today, it
can produce close to 30 lakh units.
Key Risks
Volatility in input prices: The steep fall in prices of raw materials (aluminum, copper, steel,
and zinc) could raise profitability.
Currency fluctuation: As some products are imported from China, an appreciating rupee
against the dollar could lead to expanded margins.

TTK Prestige
Key Personnel
Mr. T.T. Jagannathan – Chairman
Mr. TT Jagannathan is a Gold Medalist from IIT, Chennai and holds a Masters in Operations
Research from Cornell University, USA. He has been on the Board of TTK Prestige Limited for
the last 39 years
Mr. T.T. Raghunathan – Vice Chairman

Mr. TT Raghunathan is a Commerce graduate and has vast industrial experience and has
been actively involved in the management of various companies of the TTK Group. He
serves as Non-Executive Vice Chairman of TTK Prestige Ltd. and has been its Non-Executive
Director since 1995
Mr. Chandru Kalro – Managing Director & CEO

Mr. Chandru Kalro is an experienced and qualified engineer who has been with Prestige
since 1986 with a total work experience of over 29 years spanning sales, marketing,
corporate planning and strategy, alliances and sourcing
K Shankaran - Director & Secretary

Mr. Shankaran is a qualified Cost and Management Accountant and Company Secretary. He
has been the whole time Secretary of the Company since 1990. He has been on the Board of
TTK Prestige Limited since 1993
Mr. V. Sundaresan – CFO

Mr. V. Sundaresan, B.Com. FCA serves as the Chief Financial Officer and Senior Vice
President of Finance at TTK Prestige Ltd.

Consumer Durables
Other expenses 2,633 2,879 3,076 3,301 Long term borrowings 4 0 0 0
Total operating expenses 11,287 12,356 13,050 14,087 Short term borrowings 254 0 0 0
EBITDA 1,652 1,527 1,829 1,949 Total Borrowings 258 0 0 0
Depreciation and amortisatio 148 190 209 253 Long Term Liabilities & Provis 91 85 68 63
EBIT 1,504 1,337 1,620 1,696 Deferred Tax (Net) 205 260 292 380
Profit before tax 1,448 1,309 1,705 1,712 Depreciation 729 931 1,139 1,392
Reported profit 1,048 899 1,194 1,412 Capital work in progress 243 26 31 15
Less: Exceptional Items (Net o 70 24 (37) 18 Non Current Investments 0 238 682 1,956
Adjusted Profit 1,118 923 1,156 1,430 Inventories 2,668 2,747 3,247 3,247
Equity shares outstanding (m 12 12 12 12 Sundry debtors 1,491 1,593 1,753 1,990
Dividend payout (%) 22.2 28.5 26.4 22.3 Other Current Liabilities & Sh 313 335 31 146
Total current liabilities & pro 2,310 2,154 2,378 2,641
Year to March FY14 FY15 FY16 FY17 Uses of funds 6,408 6,805 7,590 9,014
Direct cost 59.9 60.8 59.6 59.7 Book value per share (BV) (INR 503 555 621 736
Other expenses 20.3 20.7 20.7 20.6 Free cash flow
Depreciation and amortisatio 1.1 1.4 1.4 1.6 Year to March FY14 FY15 FY16 FY17
Interest expenditure 1.0 0.6 0.1 0.3 Reported Profit 1,048 899 1,194 1,412
EBITDA margins 12.8 11.0 12.3 12.2 Add: Depreciation 148 190 209 253
Net profit margins (adjusted) 8.1 6.5 8.0 8.8 Interest (Net of Tax) 99.2 54.8 12.8 42.4
Add: Others 23.36 (2.00) (59.40) (16.10)
Growth metrics (%) Less:Changes in working capi 367 474 226 (232)
Year to March FY14 FY15 FY16 FY17 Opertaing cash flow 951 668 1,130 1,924
Revenues (4.8) 7.3 7.2 7.8 Less: Capex 705 193 172 659
EBITDA (21.2) (7.6) 19.8 6.6 Free cash flow 246 475 958 1,265
PBT (21.8) (9.6) 30.3 0.4
Adjusted Profit (21.2) (14.3) 32.8 18.3
EPS (23.3) (14.3) 32.7 18.3

TTK Prestige

Operating cash flow 951 668 1,130 1,924 Fixed assets turnover (x) 5.1 4.1 4.5 4.6
Financing cash flow (147) (586) (705) (366) Total asset turnover(x) 2.2 2.1 2.1 1.9
Investing cash flow (733) (125) (501) (592) Equity turnover(x) 2.6 2.3 2.1 2.0
NET CASH FLOW 71 (43) (76) 966
Diluted EPS (INR) 90.1 77.2 102.5 121.2
Profitability & liquidity ratios Y-o-Y growth (%) (23.3) (14.3) 32.7 18.3
Year to March FY14 FY15 FY16 FY17 CEPS (INR) 108.7 95.6 117.2 144.5
ROAE (%) 22.8 15.0 16.9 18.1 Diluted P/E (x) 70.6 82.3 62.0 52.4
ROACE (%) 25.6 20.6 24.0 24.3 Price/BV(x) 12.6 11.5 10.2 8.6
Inventory (days) 118 117 123 124 EV/Sales (x) 5.7 5.3 4.9 4.5
Debtors (days) 41 41 41 43 EV/EBITDA (x) 44.8 48.1 39.9 36.8
Cash conversion cycle 62 75 79 74

RATING
Consumer & INTERPRETATION
Durables
Company Absolute Relative Relative Company Absolute Relative Relative

reco reco risk reco reco Risk
Bajaj Electricals HOLD SP M Crompton Consumer Electricals BUY SO L
Finolex Cables BUY SO L Havells India BUY SO L
KEI Industries BUY SO L Symphony BUY SO L
V-Guard HOLD SP L Voltas BUY SO L
Whirlpool of India BUY SO L
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING

Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING

Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return

TTK Prestige
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
ADITYA
Digitally signed by ADITYA NARAIN
DN: c=IN, o=EDELWEISS SECURITIES
Aditya Narain LIMITED, ou=HEAD RESEARCH, cn=ADITYA
NARAIN,
serialNumber=e0576796072ad1a3266c2799
Head of Research 0f20bf0213f69235fc3f1bcd0fa1c30092792c
NARAIN
20, postalCode=400005,
2.5.4.20=3dc92af943d52d778c99d69c48a8e
aditya.narain@edelweissfin.com 0c89e548e5001b4f8141cf423fd58c07b02,
st=Maharashtra
Date: 2017.07.20 14:56:34 +05'30'
Coverage group(s) of stocks by primary analyst(s): Consumer Durables

Bajaj Electricals, Crompton Greaves Consumer Electricals, Finolex Cables, Havells India, KEI Industries, Symphony, V-Guard, Voltas, Whirlpool
Recent Research
Date Company Title Price (INR) Recos
26-May-17 Voltas Stellar quarter; big white 475 Buy

goods market play;
Result Update
12-May-17 Havells India On a transformational growth 513 Buy
path; Result Update
20-Feb-17 Havells India Lloyd acquisition: Expanding 413 Buy
portfolio; Event Update
Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11

Consumer Durables
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TTK Prestige
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Consumer Durables
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1992 2007 2017 2022

Edelweiss Consumer Durables coverage

Companies (Not Rated)

1 Edelweiss Securities Limited

Drivers: Consumer plus story

2 Edelweiss Securities Limited

Chart 1: Consumer durables industry size & growth

Industry size - 2022 (INR bn)

650 814 3.0

Business model: High return, asset light

Trends: Consolidation & market leadership

Valuations & returns: Rich

3 Edelweiss Securities Limited

Risks: Modest.. early days, disruptions

Stocks: Our preferred picks

Table 1: Edelweiss consumer durables coverage snapshot

4 Edelweiss Securities Limited

The Demand Factor

88 93 102 586 74%

380 Air Cooler

Lighting Industry CAGR (RHS) 80

Fans Industry CAGR (RHS) Washing Machine Refrigerator

Chart 6: Industry to double to INR3.0tn over FY17-22E

Source: Industry, Edelweiss research

5 Edelweiss Securities Limited

Interesting Business Models

11.0 17.4 5.0

9.0 16.8 4.0

7.0 16.2 3.0

5.0 15.6 2.0

3.0 15.0 1.0

AC - Whirlpool Refrigerator - Whirlpool

6 Edelweiss Securities Limited

Not Every Segment Will Grow At Similar Pace

7 Edelweiss Securities Limited

Edelweiss Coverage Universe: Consumer Durables

VOLT IN - MCap: INR160bn; BUY/SO; TP INR583 (upside 21%); FY19E PE at 26x

KEII IN - MCap: INR18bn; BUY/SO; TP INR322 (upside 36%); FY19E PE at 13x

HAVL IN - MCap: INR297bn; BUY/SO; TP INR575 (upside 21%); FY19E PE at 31x

WHIRL IN - MCap: INR145bn; BUY/SO; TP INR1,511 (upside 32%); FY19E PE 30x

8 Edelweiss Securities Limited

FNXC IN - MCap: INR77bn; BUY/SO; TP INR616 (upside 25%); FY19E PE 18x

CROMPTON - MCap: INR135bn; BUY/SO; TP INR265 (upside 23%); FY19E PE 29x

VGRD IN - MCap: INR77bn; HOLD/SP; TP INR169 (downside 6%); FY19E PE at 36x

BJE IN - MCap: INR34bn; HOLD/SP; TP INR350 (upside 3%); FY19E PE at 18x

9 Edelweiss Securities Limited

10 Edelweiss Securities Limited

Expanding middle class: Key growth catalyst

Rising disposable incomes

11 Edelweiss Securities Limited

Chart 19: Rising disposable incomes boosting consumer durables demand

Household leverage is expected to sustain high consumption levels.

12 Edelweiss Securities Limited

Chart 22: …credit to retail slackening, but healthy

• It is not so much household incomes, but the

• This leveraging of the household sector can last

Chart 23: India’s household leverage very low

13 Edelweiss Securities Limited

325 45.0 0.0

14 Edelweiss Securities Limited

B) Infra, Housing/Power For All thrust burnishing growth visibility

Chart 25: Investment in housing on the rise