Alstom India Equity Research

Date of Research – 12 January 2016

Price – Rs. 655.80

About the Company

The name of the Company has changed from ALSTOM India Limited to GE Power India Limited with effect from August 5, 2016.

Incorporated in 1992, Alstom India Limited (“Alstom India” or the “Company”) provide solutions to meet the country’s energy and transport requirements. The Company has full capabilities in engineering, manufacturing, project management and supply of products and solutions for power generation, transmission and transport sector requirements. The Company works with a number of strategic partners in India to offer a wide range of solutions for every sector – power, transport & grid.

Power sector: The Company offers a comprehensive range of power generation solutions – from integrated power plant to associated services including plant modernisation, maintenance and operational support.

Transport sector: The Company is the only constructor in the railway sector covering everything from rolling stock and maintenance to signalling and infrastructures.

Grid sector: The Company offers products, power electronics, automation and turnkey solutions, alongside a full range of services, to its customers across high, extra high and ultra-high voltages. Alstom also designs and manufactures equipment and engineered turnkey solutions to manage power grids and transmit electricity from the power plant to the large end-user.

Alstom operates through:

3 research and development centres in Bengaluru (power and transport), Vadodara (power) and Hosur (grid);

2 engineering centres for power in Noida, Kolkata and

Manufacturing units in : Power – Vadodara, Durgapur, Shahabad, Mundra ; Transport – Coimbatore, Sricity Grid – Padappai, Pallavaram, Hosur, Vadodara, Naini

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations2,785.842,605.322,124.291,727.27 2,041.23 
Expenses2,544.602,428.071,957.301,907.26  1,998.79  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)241.24177.25166.99(179.99) 42.44  
Depreciation55.0861.0873.0571.39  59.79  
Finance Costs2.493.961.0450.83
Other income98.2190.87124.70128.11   145.68  
Exceptional items(116.90)3.51  51.80  
PBT281.88319.98217.60(126.78) 25.70  
Tax98.2989.3078.31(47.76) 28.16  
Extraordinary items(37.59)– – 
PAT (before Minority Interest and share of Associates)183.59230.68176.88(79.02) (2.46) 
Consolidated Profit / (Loss) for the year183.59230.68176.88(79.02) (2.46) 

Profitability Analysis

Consolidated(%)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Operating Profit Margin Ratio8.666.807.86(10.42) 2.08
Net Profit Margin Ratio6.598.858.33(4.57) (0.12) 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital67.2367.2367.2367.2367.23
Reserves & Surplus626.67734.95863.22911.22864.33
Net worth (shareholders funds)693.90802.18930.45978.45931.56
Long term borrowings
Current liabilities2,011.431,863.852,120.922,033.922,171.51
Other long term liabilities and provisions42.1455.8665.5456.4058.43
Deferred Tax Liabilities
Total Liabilities2,747.472,721.893,116.913,068.773,161.50

 

Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets468.62482.07468.39446.36412.27
Noncurrent Investments2.67
Current assets2,192.392,153.092,568.862,533.572,575.80
Long term advances and other noncurrent assets73.8975.9145.7059.0093.13
Deferred Tax Assets12.5710.8233.9629.8477.63
Total assets2,747.472,721.893,116.913,068.773,161.50

Efficiency Analysis

 (%)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROCE37.6130.0719.0517.07(19.32)
ROE / RONW24.2122.8924.7918.08(8.48)

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)2,785.842,605.322,124.291,727.27 2,041.23 
Growth (%)12.57 %(6.48 %)(18.46 %)(18.69 %) 18.18 % 
PAT (Rs. Cr.)183.59230.68176.88(79.02) (2.46) 
Growth (%)9.31 %25.65 %(23.32 %)(144.67 %) – 
Earnings Per Share – Basic (Rs. )27.3134.3120.72(11.75) (0.04) 
Earning Per Share – Diluted (Rs. )27.3134.3120.72(11.75) (0.04) 
Price to Earnings11.6511.9036.58– – 

Dividend History

The Company has maintained an average dividend yield of 2.19 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Alstom India’s average current ratio over the last 5 financial years has been 1.15 times which indicates that that the Company is comfortably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Alstom India’s average long term debt to equity ratio over the last 5 financial years has been 0.00 times which indicates that the Company operates with zero level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Alstom India’s average interest coverage ratio over the last 5 financial years has been 140.74 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Alstom India reported a promoter holding of 68.58 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 17.02 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.