National Aluminium Co Ltd. - India Infolinecontent.indiainfoline.com/wc/research/researchreports/NALCO_050215.… · slide in aluminium prices, cancellation of coal block and subdued

Sector: Metals & Mining

Sector view: Neutral

Sensex: 28,883

52 Week h/l (Rs): 69 / 32

Market cap (Rscr) : 12,487

6m Avg vol (‘000Nos): 2,057

Bloomberg code: NACL IN

BSE code: 532234

NSE code: NATIONALUM

FV (Rs): 5

Price as on February 04, 2014

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NATIONALUM Sensex

Share holding pattern (%) Jun‐14 Sep‐14 Dec‐14

Promoter 80.9 80.9 80.9

Insti 12.8 13.4 13.3

Others 6.3 5.7 5.8

Rating: BUYTarget: Rs62

CMP: Rs48.5

Upside: 27.8%

National Aluminium Co Ltd.

Company Report

February 05, 2014

This report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets.

Change in Estimates Rating Target

Research Analyst: Tarang Bhanushali

[email protected]

Alumina to drive earnings NALCO has corrected 30% from its peak hit in September ’14 on account of a slide in aluminium prices, cancellation of coal block and subdued demand for metals. We believe the correction in the stock is overdone as we expect the impact of lower realisations on earnings would be offset by a sharp correction in raw material prices and higher external alumina sales. We expect operating margin to improve from 13.8% in FY14 to 20.6% in FY15 and 23% in FY16. NALCO currently has ~Rs61.5bn of cash and cash equivalent, implying Rs23.9/share or 49% of the CMP. We expect earnings CAGR of 29.9% over FY14‐17E led by a combination of higher volumes and lower costs. At the CMP, the company is trading at 3.1x FY16 EV/EBIDTA, which is at huge discount to its historic average and is also lower than its international peers. We do not see much downside from the current levels and upgrade our recommendation from Accumulate to BUY with a revised price target of Rs62.

Metal realisations to stay marginally higher We believe that all‐in aluminium prices are expected to remain high over the next five years as demand for aluminium from the automobile industry would continue to rise as producers are shifting to fuel efficient vehicles. Premiums are expected to remain high in the near term as the spread, favorable rent charges and low borrowing costs would continue to support these transactions going ahead. The upside from current levels would be curtailed by idle capacities, subdued Chinese demand and low thermal coal prices. We expect average LME prices to improve from US$1,830/ton in FY14 to US$1,930/ton in FY15, US$1,970/ton in FY16 and US$2,000/ton in FY16.

Alumina sales volume to jump 9% in FY16 Alumina sales has been the growth driver for NALCO over the last 2 yrs as power costs were high and aluminium realisations remained subdued. NALCO has managed to raise its alumina capacity from 2.1mtpa to 2.275mtpa via a debottlenecking exercise. We believe the impact of the de‐bottlenecking exercise would be witnessed in FY16 and expect production to increase 7% in FY16 and 3% in FY17. On our estimate of 1% CAGR in aluminium production, external alumina sales volume growth would be quite strong over at 9% yoy in FY16 to 1.5mn tons and 3.8% yoy in FY17 to 1.56mn tons.

Financial summary Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Revenues 67,808 75,355 80,202 83,335

yoy growth (%) (2.0) 11.1 6.4 3.9

Operating profit 9,342 15,541 18,420 18,031

OPM (%) 13.8 20.6 23.0 21.6

Pre‐exceptional PAT 6,917 11,624 13,996 14,075

Reported PAT 6,423 11,624 13,996 14,075

yoy growth (%) 8.3 81.0 20.4 0.6

EPS (Rs) 2.7 4.5 5.4 5.5

P/E (x) 18.1 10.8 8.9 8.9

EV/EBITDA (x) 7.7 4.1 3.1 2.6

Cash Per Share (Rs) 20.5 23.7 26.1 30.1

RoE (%) 5.8 9.3 10.6 10.0

RoCE (%) 7.5 12.1 13.8 13.1 Source: Company, India Infoline Research


2

Aluminium prices have remained subdued since the crash of 2008

… prices rallied 18% in 11M 2014 and then corrected sharply post that to end the year with gains of 4%

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US premiums have doubled over the last one year … All‐in prices in US rose 16.8% in 2014 against 4% in LME prices

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Aluminium prices pare gains over the last two months Aluminium prices rallied 18% in 11M 2014 on account of rising demand from US, production cuts taken by producers over the last two years and cheaply available finances. Adding to the strong gains witnessed in aluminium prices, spot premiums have been moving northwards across the globe. All‐in aluminium prices in the US were up 28% in 11M 2014 quite higher than the 18% increase witnessed in LME cash prices. US spot premiums have doubled during the year as demand for the metal has improved in the region. However, with rising concerns over demand for metals in China and Europe led to a sharp correction in metal prices in December. The sell off was also on account of the appreciating US Dollar against global currencies. Weaker currency has led to higher exports from China and CIS nations. For 2014, aluminium prices ended with gains of 4%, however, if we include the US premiums, all‐in aluminum prices have increased by 16.8%.

Aluminium prices rallied 18% in 11M 2014 and declined sharply in December to end the year with gains of just 4%


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Production Ex‐China has been quite lower compared to China

Exports from China were higher by 3.5% in 11M 2014

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Global aluminum consumption has picked up over the last one year on the back of higher demand for the metal as a replacement to steel and copper. In 9M 2014, global aluminium consumption grew by 6.2% yoy to 36.8mn tons led by a rebound in demand from North America and steady demand from China. Use of aluminum in cars has been increasing steadily after the newly expanded regulations in the US with a focus on increased fuel efficiency. Aluminum use in transportation is pushed for providing weight reduction to vehicles and hence better fuel economy as well as crash protection. In addition to the rising demand for aluminium from the transportation sector, demand is also expected to increase due to substituting of copper in other industrial uses. We believe a combination of the above points coupled would lead to a strong demand for the metal over the next three years. We believe aluminium consumption growth will continue to outpace growth of the other base metals over the next five years due to its relatively lower price and light weight. We expect aluminium consumption to increase by 6.2% yoy to 53mn tons in 2014 and 6.5% yoy in 2015 to 56.1mn tons.

Aluminium demand‐supply situation has improved in 2014, after remaining in surplus state for six long years since 2007. A series of production cuts and smelter closures since 2013 coupled with rising demand from the automobile industry has kept the aluminium market in a deficit this year. We believe that the market would remain in a balanced state over the next two years as producers would now like to wait for prices to stabilize at higher levels for some time. In 9m 2014, the aluminium market was in a deficit of 152,000tons as demand for aluminium grew by 6.2% yoy against a 3.2% growth in production. As per Alcoa, we might end 2014 with a deficit of 671,000 tons as demand from the developed nations remains strong and supply remains constrained in these regions. However, they believe that exports from China would rise and would reduce the deficit in the American and European markets. We believe that we would end 2014 with a deficit of 207,000tons and would remain in a balanced state in 2015. Idle capacities in the system would come back only if all in prices stay above US$2,500/ton in the Asian region due to the high start‐up costs involved in restarting the smelters.

In 9M 2014, global aluminium consumption grew by 6.2% yoy to 36.8mn tons led by a rebound in demand from North America and steady demand from China

In 9m 2014, the aluminium market was in a deficit of 152,000tons as demand for aluminium grew by 6.2% yoy against a 3.2% growth in production


4

Aluminium market to remain in balanced state in 2015

We expect aluminium prices to stay in the band of US$1,800‐2,100/ton over the next one year

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Aluminium premium (paid on top of the LME price for physical delivery) have soared during the year as the physical aluminium market witnessed tightness in some regions. Availability has tightened as low interest rates and a wide forward price structure kept a large portion of metal locked up in financing deals, while producers have cut output. Consumers were suddenly concerned about metal availability and sellers took some extent advantage of the sentiment to recover higher costs. Premiums in the Midwest region doubled since the start of 2014 as the region saw increased demand from the transportation sector and producers in the region had closed down facilities. In addition to the tight domestic market, high freight rates, which have been rising steadily over the past two years, were the primary driver of the elevated premium. We believe that the most immediate threat to financing deals is the high spot premiums in US and Europe. Players are somewhat reluctant to secure financing deals at current high premiums and this would lead to an increase in supply of metal from warehouses. We expect spot premiums to reduce from current levels as exports from China are on the rise and major players have started producing metal near the source of energy.

We believe that all‐in aluminium prices are expected to remain high over the next five years as demand for aluminium from the automobile industry would continue to rise as producers are shifting to fuel efficient vehicles. Premiums are expected to remain high in the near term as the spread, favorable rent charges and low borrowing costs would continue to support these transactions going ahead. We also do not expect the new LME rules on delivery‐out rates to be implemented by February ’15 as a greater proportion of stocks are likely to get accumulate outside the system. The upside from current levels would be curtailed by idle capacities, subdued Chinese demand and low thermal coal prices. We expect average LME prices to improve from US$1,830/ton in FY14 to US$1,930/ton in FY15, US$1,970/ton in FY16 and US$2,000/ton in FY16.

Premiums in the Midwest region doubled since the start of 2014 as the region saw increased demand from the transportation sector and producers in the region had closed down facilities


5

Average alumina spot prices were flat on a yoy basis in 2014

… Alumina prices gained 8% during 2014 & the gain was largely witnessed in H2 2014

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Alumina prices to gain strength from H2 2015 Alumina prices underperformed the rally in all‐in aluminium prices in 9M 2014 as demand for alumina was subdued from China. Demand for alumina was lower in H1 2014 in China as the local players had stocked up bauxite inventories before the Indonesia, China’s largest source of bauxite, had levied an export ban on bauxite. Indonesia banned ore exports from mid‐January in a move to force miners to build processing plants and smelters in the Southeast Asian country. Abundant inventories of bauxite kept demand for alumina subdued during this period and as a result alumina prices underperformed in H1 2014.

However, in the second half alumina prices rallied as demand increased from Chinese smelters. Spot alumina prices have gained in Q4 2014 as demand firmed up. Spot alumina prices which averaged US$322/ton in 9M 2014 increased to US$355/ton during the period October‐December 2014. Even though aluminium prices have corrected sharply since the start of December, alumina prices have been firm and have stayed above US$350/ton level. Alumina prices have been strong in the wake of Indonesia’s export ban on Bauxite. Smelters in northwestern Chinese provinces were building up alumina stocks before winter, when rail and road transportation slows. Demand for alumina also increased as many idled smelters restarted after all in prices rose sharply. Though we expect alumina prices to marginally decline from current levels, we believe average prices would be higher on a yoy basis. We expect alumina prices to remain strong next year as stocks of bauxite are depleted after. Inventory levels at the ports are diminishing gradually and are expected to get exhausted by the end of 2016.

Demand for alumina was lower in H1 2014 in China as the local players had stocked up bauxite inventories before the Indonesia, China’s largest source of bauxite, had levied an export ban on bauxite

Spot alumina prices which averaged US$322/ton in 9M 2014 increased to US$355/ton during the period October‐December 2014


6

Aluminium sales volume increased due to favorable prices in 9M 2014

Volume growth to remain subdued going forward due to the sharp correction in aluminium prices

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Aluminium volume CAGR at 1% over FY14-17E NALCO reduced its aluminium production in FY14 as the management felt that it was more economical for the company to sell alumina and restrict aluminium production. NALCO’s FY14 aluminium production was 30% lower than its peak production in FY11 and was operating at 68% utilisation level. This aided the company to maintain its profitability in FY14 as coal prices were higher and aluminium prices remained weak. The company continued to operate at the same strategy and restricted the production of aluminium on the availability of linkage coal. The company in H1 FY15 refrained from buying coal from e‐auction or imported coal as it was more profitable to sell alumina. Shutdown of one pot line enabled the company to make minor changes to reduce power consumption. The shutdown of pots has also increased the stability of power supply and has resulted into reducing power and fuel costs. With a surge in all‐in aluminium prices, the management was planning to restart some of the pots with the help of imported coal in Q3 FY15. The management planned to blend imported coal with domestic coal to increase its aluminium output. However, with the sharp decline in aluminium prices over the last two months we don’t expect the company to raise its aluminium production from current levels. We believe the company would avoid consuming imported coal and production of aluminium would be completely dependent on availability of linkage coal.

In H1 FY15, NALCO’s aluminium production was 161,000 tons against 160,000 tons in H1 FY14. We expect aluminium production to be higher in H2 FY15 on the back of higher linkage coal supply. We expect H2 FY15 production to be similar to that of H1 FY15, higher by 3% yoy. Over the next two years too we don’t expect aluminum production to increase drastically from current levels on our estimate of subdued aluminium prices. We expect aluminium production CAGR of 1% over the period FY14‐17E on our expectations that upside in aluminium prices would remain capped. However, there are upside risks to our volume estimate incase the company is able to obtain a coal mine in the current coal block allocation or aluminium prices rise higher than our estimate.

NALCO’s FY14 aluminium production was 30% lower than its peak production in FY11 and was operating at 68% utilisation level.

With a surge in all‐in aluminium prices, the management was planning to restart some of the pots with the help of imported coal in Q3 FY15.

We expect aluminium production CAGR of 2% over the period FY14‐17E on our expectations that upside in aluminium prices would remain capped


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Alumina production growth in H1 FY15 was impacted by maintenance shutdown

Alumina sales volume in Q2 FY15 was lower due to delay in one shipment

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Alumina production to increase due to debottlenecking exercise

Sales volume to rise 9% yoy in FY16E

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Alumina sales volume growth to remain strong Alumina sales has been the growth driver for NALCO over the last two years as power costs were high and aluminium realisations remained subdued. As mentioned above, the company had cut down on aluminium production to free up the alumina for external sales. As a result, alumina sales volume in FY14 jumped 36% yoy to 1.34mn tons. We expect alumina production to remain marginally higher by FY15 as volume growth has been impacted by lower ore grade. In H1 FY15, alumina production remained flat at 0.96mn tons and we expect H2 FY15 to be marginally higher on a yoy basis.

At the start of FY15, NALCO announced its debottlenecking plan for alumina refinery to raise its capacity from 2.1mtpa to 2.275mtpa. The debottlenecking exercise was executed with a capital expenditure of Rs4.1bn and is expected to be completed in Q3 FY15. We believe the impact of the de‐bottlenecking exercise would be witnessed in FY16. We expect alumina production to increase 7% in FY16 and 3% in FY17. On our estimate of 2% CAGR in aluminium production, external alumina sales volume growth would be quite strong over the next two years. We estimate alumina sales volume growth to be strong at 9% yoy in FY16 to 1.5mn tons and 3.8% yoy in FY17 to 1.56mn tons.

Alumina sales volume in FY14 jumped 36% yoy to 1.34mn tons


8

Alumina realisations to improve As mentioned above, alumina prices lagged the rally witnessed in aluminium prices in 9M 2014. However, prices have recovered as demand for alumina improved in the second half. NALCO, which sells ~60% of alumina on contract basis, in its Q2 FY15 concall had mentioned that they have finalized contracts for export of alumina at 18% of LME aluminium prices. We believe that the firmness in alumina prices over the last two months would help the company to negotiate higher rates for alumina sales. We have assumed alumina contract realisations at 18% of LME aluminium prices for FY16 and FY17. The company in Q2 FY15 reported realisation of US$350/ton on alumina export sales. We expect alumina realisation in FY15 at US$355/ton and then to increase to US$365/ton in FY16 and US$375/ton in FY17. NALCO’s alumina realisations to improve over the next two years

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Crude oil-linked raw material costs to decline sharply in FY16 Furnace oil, CT Pitch and CP coke are major raw materials consumed for manufacturing aluminium metal. These thee combined accounted for 19% of NALCO’s total costs in FY14. Prices of these raw materials are largely dependent on crude oil prices. With a sharp correction in crude oil over the last three months, we believe prices of crude derivatives are bound to decline. We don’t expect a major correction in raw material prices in FY15 for NALCO as the negotiations are done at the start of the year. However, in FY16 costs are expected to decline sharply in line with the decline in crude oil prices. We expect the share of above mentioned material costs to decline from 19% in FY14 to 18% in FY15 and 15% in FY16.

NALCO, which sells ~60% of alumina on contract basis, in its Q2 FY15 concall had mentioned that they have finalized contracts for export of alumina at 18% of LME aluminium prices

We expect the share of above mentioned material costs to decline from 19% in FY14 to 18% in FY15 and 15% in FY16.


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Power and raw material costs to decline Operating profit to double over FY14‐16E

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Operating profit to double over FY14-16E We believe NALCO’s margins are set to improve to improve from current levels on the back of higher alumina realisations, lower raw material costs and the company staying away from the purchasing imported/e‐auction coal. Margins for NALCO improved significantly in H1 FY15 as the company consumed only linkage coal and metal prices were higher on a yoy basis. We believe going forward margins would further improve as metal realisations are expected to increase on a yoy basis. Margins would also be boosted by a decline in raw material prices mentioned above. The company has also managed to reduce the consumption of power per ton of steel by various cost improvement exercises. As mentioned above we expect the company to refrain from consuming imported coal, which would keep coal costs in check. We expect operating margin to improve from 13.8% in FY14 to 20.6% in FY15 and 23% in FY16. Operating profit is expected to double from Rs9.3bn in FY14 to Rs18.4bn in FY16 led by margin improvement and higher alumina sales volume.

NALCO’s margins are set to improve to improve from current levels on the back of higher alumina realisations, lower raw material costs and the company staying away from the purchasing imported/e‐auction coal


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Current cash and cash equivalents at 49% of current market cap NALCO currently has ~Rs61.5bn of cash and cash equivalent, implying Rs23.9/share or 49% of the CMP. We believe that the over the next two years cash levels is expected to rise further as most of the expansion is operational and there is no major capex announced by the company. Over the next two years, we estimate cash & cash equivalents to increase to Rs67bn in FY16 and Rs78bn in FY15. Our FY16 cash estimate of Rs69bn would account for 54% of the company’s current market cap and would lend support to the sharp decline in stock price. Cash and cash equivalents to rise to Rs80bn by FY16E

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Coal block allocation the next trigger for the company The Coal Ministry had granted the mining lease of Utkal‐E Coal Block in Angul in 2004 with an estimated reserve of 70mn tons of coal and covering an area of 212 hectares to NALCO. However, after the Supreme Court order on cancelling all coal blocks allotted since 1993, the company’s allocation has been cancelled. As per the management, the company has invested over Rs1bn on the Utkal‐E coal block and 60‐70% of land for developing the block has already been acquired. We were surprised by the cancellation of coal block since NALCO is a PSU and the company had not entered into a Joint Venture with any private player. We believe the company would try to acquire coal blocks in the auctions to be held by the Government. Strong balance sheet would also provide additional muscle to the company in acquiring the coal blocks in its vicinity. The Utkal‐E coal block has been earmarked for power plants and hence the company stands to lose its allotted coal block. We believe, if Nalco manages to acquire a coal block, it would be a positive trigger for the company.

NALCO currently has ~Rs61.5bn of cash and cash equivalent, implying Rs23.9/share or 49% of the CMP


11

Recent correction overdone; Upgrade to BUY NALCO has corrected 30% from its peak hit in September ’14 on account of a slide in aluminium prices, cancellation of coal block and subdued demand for metals. We believe the correction in the stock is overdone as we expect the impact of lower realisations on earnings would be offset by a sharp correction in raw material prices and higher external alumina sales. We also expect aluminium prices to trade in the range of US$1,750‐2,100 over the next one year as further downside would be restricted by marginal cost of production and the upside would be capped the excess capacity and subdued demand environment. We have downgraded our metal estimates for FY16 and FY17 due to strengthening of the US Dollar against major currencies and weaker demand in China. This impact on realisations is offset by the change in our currency estimate of Rupee against the Dollar. Power costs which have been a concern for the company over the years is expected to remain low as the company would refrain from buying imported coal. The company is expected to benefit from the sharp correction in crude oil as raw material costs linked to crude oil prices accounted for 19% in FY14. We expect operating margin to improve from 13.8% in FY14 to 20.6% in FY15 and 23% in FY16. Operating profit is expected to double from Rs9.3bn in FY14 to Rs18.4bn in FY16 led by margin improvement and higher alumina sales volume. Increase in cash and cash equivalents would also lead to higher other income for the company. We expect earnings CAGR of 29.9% over FY14‐17E led by a combination of jump in operating profit and higher other income. At the CMP of the company is trading at 4.1x FY15 EV/EBIDTA and 3.1x FY16 EV/EBIDTA, which is at huge discount to its historic average and is also lower than its international peers. We do not see much downside from the current levels and upgrade our recommendation from Accumulate to BUY with a revised price target of Rs62. Trading quite lower than its average 1‐yr forward EV/EBIDTA

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We expect aluminium prices to trade in the range of US$1,750‐2,100 over the next one year as further downside would be restricted by marginal cost of production and the upside would be capped the excess capacity and subdued demand environment.

We expect operating margin to improve from 13.8% in FY14 to 20.6% in FY15 and 23% in FY16.

At the CMP of the company is trading at 4.1x FY15 EV/EBIDTA and 3.1x FY16 EV/EBIDTA, which is at huge discount to its historic average and is also lower than its international peers.


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Financials Income statement Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Revenue 512,196 546,549 581,726 649,738

Operating profit 91,655 106,810 121,208 132,005

Depreciation (31,826) (34,735) (36,173) (35,807)

Other income 5,577 6,135 6,748 7,423

Profit before tax 9,672 16,253 19,570 19,681

Taxes (2,755) (4,629) (5,574) (5,605)

Adj. profit 6,917 11,624 13,996 14,075

Exceptional items (494) 0 0 0

Net profit 6,423 11,624 13,996 14,075

Balance sheet Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Equity capital 12,886 12,886 12,886 12,886

Reserves 108,338 115,345 123,781 132,266

Net worth 121,224 128,231 136,667 145,152

Deferred tax liab (net) 9,101 9,101 9,101 9,101

Total liabilities 130,326 137,332 145,769 154,253

Fixed assets 75,606 75,400 74,802 74,028

Investments 12,450 12,450 12,450 12,450

Net working capital 1,785 972 3,818 2,544

Inventories 11,736 11,899 15,986 14,405

Sundry debtors 2,436 2,707 2,881 2,993

Other current assets 22,773 23,083 23,282 23,411

Sundry creditors (31,505) (32,100) (32,771) (32,675)

Other current liabilities (3,655) (4,617) (5,560) (5,591)

Cash 40,483 48,510 54,699 65,231

Total assets 130,326 137,332 145,769 154,253

Cash flow statement Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Profit before tax 9,672 16,253 19,570 19,681

Depreciation 5,247 5,423 5,598 5,773

Tax paid (2,755) (4,629) (5,574) (5,605)

Working capital ∆ 318 814 (2,847) 1,274

Operating cashflow 12,482 17,860 16,748 21,123

Capital expenditure (4,545) (5,216) (5,000) (5,000)

Free cash flow 7,937 12,644 11,748 16,123

Equity raised (271) ‐ ‐ ‐

Investments 2,450 ‐ ‐ ‐

Dividends paid (4,252) (4,617) (5,560) (5,591)

Other items (424) ‐ ‐ ‐

Net ∆ in cash 5,440 8,027 6,188 10,532

Key ratios Y/e 31 Mar FY14 FY15E FY16E FY17E

Growth matrix (%)

Revenue growth (2.0) 11.1 6.4 3.9

Op profit growth 3.0 66.4 18.5 (2.1)

EBIT growth 6.0 68.0 20.4 0.6

Net profit growth 16.7 68.0 20.4 0.6

Profitability ratios (%)

OPM 13.8 20.6 23.0 21.6

EBIT margin 14.3 21.6 24.4 23.6

Net profit margin 10.2 15.4 17.5 16.9

RoCE 7.5 12.1 13.8 13.1

RoNW 5.8 9.3 10.6 10.0

RoA 4.2 6.8 7.8 7.5

Per share ratios

EPS 2.7 4.5 5.4 5.5

DPS 1.5 1.6 2.0 2.0

Cash EPS 4.7 6.6 7.6 7.7

BVPS 47.0 49.8 53.0 56.3

Valuation ratios (x)

P/E 2.7 4.5 5.4 5.5

P/CEPS 10.3 7.3 6.4 6.3

P/B 1.0 1.0 0.9 0.9

EV/EBIDTA 7.7 4.1 3.1 2.6

Payout (%)

Dividend payout 61.5 39.7 39.7 39.7

Tax payout 28.5 28.5 28.5 28.5

Liquidity ratios

Debtor days 13 13 13 13

Inventory days 63 58 73 63

Creditor days 170 155 149 143

Du‐pont analysis Y/e 31 Mar (Rs m) FY14 FY15E FY16E FY17E

Tax burden (x) 0.72 0.72 0.72 0.72

Interest burden (x) 1.00 1.00 1.00 1.00

EBIT margin (x) 0.14 0.22 0.24 0.24

Asset turnover (x) 0.41 0.44 0.45 0.44

Financial leverage (x) 1.37 1.36 1.35 1.34

RoE (%) 5.8 9.3 10.6 10.0

‘Best Broker of the Year’ – by Zee Business for contribution to brokingNirmal Jain, Chairman, IIFL, received the award for The Best Broker of the Year (for contribution to broking in India) at India's Best Market Analyst Awards 2014 organised by the Zee Business in Mumbai. The award was presented by the guest of Honour Amit Shah, president of the Bharatiya Janata Party and Piyush Goel, Minister of state with independent charge for power, coal new and renewable energy.

'Best Equity Broker of the Year' – Bloomberg UTV, 2011IIFL was awarded the 'Best Equity Broker of the Year' at the recently held Bloomberg UTV Financial Leadership Award, 2011. The award presented by the Hon'ble Finance Minister of India, Shri Pranab Mukherjee. The Bloomberg UTV Financial Leadership Awards acknowledge the extraordinary contribution of India's financial leaders and visionaries from January 2010 to January 2011.

'Best Broker in India' – Finance Asia, 2011IIFL has been awarded the 'Best Broker in India' by Finance Asia. The award is the result of Finance Asia's annual quest for the best financial services firms across Asia, which culminated in the Country Awards 2011

Other awards

2012BEST BROKING HOUSE WITH

GLOBAL PRESENCE

2009, 2012 & 2013BEST MARKET

ANALYSTBEST BROKERAGE,

INDIAMOST IMPROVED,

INDIABEST BROKER,

INDIA

2009FASTEST GROWING

LARGE BROKING HOUSE

Recommendation parameters for fundamental reports:

Buy – Absolute return of over +15%

Accumulate – Absolute return between 0% to +15%

Reduce – Absolute return between 0% to ‐10%

Sell – Absolute return below ‐10%

Call Failure ‐ In case of a Buy report, if the stock falls 20% below the recommended price on a closing basis, unless otherwise specified by the analyst; or, in case of a Sell report, if the stock rises 20% above the recommended price on a closing basis, unless otherwise specified by the analyst

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