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Tilaknagar Industries Equity Research

HomeCompanyTilaknagar Industries Equity Research

Date of Research – 21 January 2016

Price – Rs. 18.00

About the Company

Tilaknagar Industries Limited (“Tilaknagar Industries” or the “Company“) was established in 1933 as Maharashtra Sugar Mills Ltd, the Company transitioned to the liquor business in 1987. Today, Tilaknagar Industries is a leading player in the liquor industry and manufactures Indian Made Foreign Liquor (IMFL), sugar cubes, mineral water and chemicals.

Its primary manufacturing facility is in Srirampur, Maharashtra with an installed capacity of 200 KLPD, including 100 KLPD of grain based distillery and 100 KLPD of molasses based distillation. Additionally, the Company has its manufacturing facilities spread across India which it operates through 1 owned, 4 subsidiaries and 5 Allied subsidiaries, 10 lease arrangements and 10 tie-up arrangements. the Company has a portfolio of 40 brands all placed at varying price points to correspond to market demand.

Its subsidiaries include Prag Distillery (P) Ltd, Vahni Distilleries Private Limited, Kesarval Springs Distillers Pvt. Ltd., Punjab Expo Breveries Private Limited, with additional 5 subsidiaries for TI’s allied activities.

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 752.42 824.17 748.23 457.78  486.68
Expenses 581.82 654.32 653.29 578.67  580.67  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 170.60 169.85 94.93 (120.89)  (94.00) 
Depreciation 24.18 25.48 27.68 38.56  38.14  
Finance Costs 63.55 64.12 97.46 125.03  156.41
Other income 2.16 4.30 2.37 3.27  4.13  
PBT 85.04 84.54 (27.84) (281.20)  (284.43) 
Tax 24.44 26.29 12.33 (1.14)  (7.56)
PAT (before Minority Interest and share of Associates) 60.60 58.26 (40.16) (280.06)  (276.87) 
Profit/ (loss) attributable to Minority Interest 0.00 (0.00) (0.00) –  – 
Share of profit / (loss) of Associates 1.69  – 
Consolidated Profit / (Loss) for the year 60.60 58.26 58.26 (281.75)  (276.87) 

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 22.67 20.61 12.69 (26.41)  (19.31) 
Net Profit Margin Ratio 8.05 7.07 (5.37) (61.18)  (56.89) 

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)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
Share Capital 120.00 121.88 123.77 124.76 124.76 
Share application money pending allotment 0.17 0.40 – 
Reserves & Surplus 354.94 409.01 459.10 417.46 131.02 
Net worth (shareholders funds) 475.11 531.28 582.87 542.22 255.77 
Minority Interest 0.00 0.008 0.004 – 
Long term borrowings 114.56 211.18 225.62 211.18 225.98 
Current liabilities 502.68 597.78 748.42 831.60 929.46 
Other long term liabilities and provisions 33.01 46.04 69.27 85.14 70.56 
Deferred Tax Liabilities 28.08 33.05 38.42 46.22 46.22 
Total Liabilities 1,153.44 1,419.33 1,664.62 1,716.36 1,528.00 

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
Fixed Assets 514.91 561.48 669.20 706.10 680.49 
Noncurrent Investments 0.04 1.73 1.73 1.73 0.04 
Current assets 606.77 759.76 852.43 883.78 754.26 
Long term advances and other noncurrent assets 6.30 70.93 115.84 99.32 69.95 
Goodwill on consolidation (net) 25.43 25.43 25.43 25.43 23.26 
Total assets 1,153.44 1,419.33 1,664.62 1,716.36 1,528.00 

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 
ROCE 31.25 22.98 21.01 12.60 (25.09) 
ROE / RONW 9.93 11.41 10.00 10.74 (109.50) 

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
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 752.42 824.17 748.23 457.78  486.68 
Growth (%) 35.44 % 9.54 % (9.21 %) (38.82 %)  6.31 %
PAT (Rs. Cr.) 60.60 58.26 (40.16) (280.06)  (276.87) 
Growth (%) 28.47 % (3.87 %) (168.94 %) –  – 
Earnings Per Share – Basic (Rs. ) 5.02 4.75 (3.23) (22.58)  (22.19) 
Earning Per Share – Diluted (Rs. ) 4.86 4.66 (3.22) (22.58)  (22.19)  
Price to Earnings 12.25 11.87 –  – 

Dividend History

The Company has maintained an average dividend yield of 1.41 % 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. Tilaknagar Industries’s average current ratio over the last 5 financial years has been 1.18 times which indicates that the Company is well placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high long term 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.

Tilaknagar Industries’s average long term debt to equity ratio over the last 5 financial years has been 0.33 times which indicates that the Company is operating with a significant 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.

Tilaknagar Industries’s average interest coverage ratio over the last 5 financial years has been 2.39 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, Tilaknagar Industries reported a promoter holding of 54.96 %.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 0.32 % (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.

 

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