NITCO TILES Ltd.

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Market Price : Rs. 56 Market Cap: 180crs. ($40mn)

August2010

Outlook & Valuation Return Potential : o NITCOs Equity value of its Core Business + Realty Subsidiary is significantly above its current MCap. Resumption of normalized operating performance & unlocking of real estate value can potentially lead to 2x-3x price appreciation in less than 3yrs.

Rationale: o NITCOs share price has been a drastic-laggard vs its peers & a turnaround in operations would lead to significant catch-up. The company trades at appealing valuations of PE ( 11 ~8x & 12 ~5x ) & EV / EBITDA ( 11 ~6.7x & 12 ~5.6x ) NITCOs sales had drastically and abruptly fallen last year due to a legal dispute with DRI. This stands resolved now and the sales should normalize back to 600crs+ from last years 400crs. NITCO having made a Capex of Rs.125-130 crs, has doubled its capacity to 1.8lac MT. On expanded capacity, it has the potential to do ~800crs.+ of sales. NITCO has taken several cost saving & efficiency measures, like installation of captive power to achieve competitive operating margins. Finally, the companys subsidiary NITCO Realty holds almost 37acres of land bank, valued in excess of 500crs. (Significant more than the current M Cap of 150crs. of the co.)

Company Overview NITCO Tiles Ltd. has emerged as a complete flooring solutions provider and is a premium Tiles manufacturer & brand in India, with an approx. ~12% market share. Their key product segments are Floor Tiles (Vitrified, Ceramic & Naturoc), Wall Tiles, Marble (Engineered & Natural) & Art ( Mosaico & Inly ). They are significant players in the organized space and are trend setters for several product designs and innovations. The companys sales are concentrated primarily in the West (50%) & South (30-35%). As a testament to their competence, they have won 13 Capexil awards for innovation & design and 2 Construction World awards. They companys key strategies rest on; Importing Vitrified Tiles from two of its contracted Chinese suppliers under the quality and design direction provided. (Contributes 50% of top-line) Import of Marble-blocks. Sale of Natural & In-house processed Marble. (20% of top-line) Sales to transition from 40 / 60 to- 20 / 80 ~ Institutional / Non-Institutional sales.

Industry Overview As per recent estimates of the Indian Council of Ceramic Tiles and Sanitary ware (ICCTAS), the size of the Indian tiles industry is approximately Rs 7,000 Cr.; growing at a healthy rate of 12% p.a. Organized sector accounts for highest market share of over 64% with an annual turnover of Rs 4,500 dr., followed by unorganized sector's share at 26% and 10% from imports. As of 2009, there were about 16 units in the organized sector, with an installed capacity of 21lac MT which accounts for 2.5% of the world ceramic tile production. Wall & Floor tiles make up almost ~90% of the Industry sale. There is tremendous growth potential in the industry given ; 1. Low capita consumption of the Indian subcontinent : According to Indian 1C CTAS, per capita consumption of ceramic tiles per annum is very low in India at 0.36 sq mt, compared to over 2 sq mt for countries like Brazil, Turkey and Malaysia; thereby presenting huge growth potential for the sector. 2. Vibrant Construction environment : Demand for tiles is directly related to construction activity. Demand from all realms of residential, commercial, hospitality & retail have been strong and is expected to remain on a similar trajectory ahead. The need for local storage capability, anti-dumping duty measures & design and processing capabilities - refrain institutional demand to import from Chinese vendors directly , leading to increased reliance on domestic majors. 3. Increasingly Organized market : Large Institutional & Premium residential segment demand, need for differentiated design & processing competence , ability to import material in bulk from low-cost sources , anti-dumping duty related compliance , large distribution and warehouse network ~ are all leading to increasing share of the organized market due to their capital intensity and need for institutionalization.

NITCOs ~ Sum of Potential

NITCO ~ Opportunity from Aberration

As evident from above, NITCO was a dominant player in the recent past however its performance declined dramatically, due to a legal dispute with DRI. However on resumption of normalization, NITCO appears to be getting back to resume its normal level of operations. NITCO REALTY ~ 100% Subsidiary

NITCO Ltd. = Core Business (180-200crs.) + Realty Subsidiary (550crs.) = Rs. 700-750crs. Return CAGR (MCap. 150crs. to 700crs) = 3yr (67%); 5yr (36%)

NITCO vs PEERS Price Performance ~ Before & After Legal Hiccup

Historical & Recent Operating Performance ~ In Perspective

Key Valuation Parameters

As distinctly visible, NITCO has done considerably well vs Peers in the past, except the recent year and is due for a significant turnaround. We believe the stock will get significantly re-rated as the market recognizes the turnaround in its operations and witnesses the value unlocking in NITCOs real estate assets.