Equity Research Report
Sneharshi Saha
Date: 02 March 2023
Equity Research Report
Contents
❑ Introduction:
• Company Overview
• Industry Overview
❑ Qualitative Analysis:
• Quality Assurance
• Product Portfolio
• OEM & MRO
• Manufacturing Facility
• Swot Analysis
• Management Leadership
❑ Quantitative Analysis:
• Financial and Business Analysis
• Financial Statements’ Summary
• Performance Analysis in Charts
• Peer Comparison
❑ Investment Thesis
❑ Future Outlook
❑ Statutory Disclosure
Equity Research Report
2
Introduction
Sector
CMP
Single Phase Buying Strategy
Price Target
Expected CAGR
Engineering – Aerospace & Defense
₹559
Buy between ₹550 & ₹630
₹830 (12M) / ₹1600 (5Y)
20%-25% over next 5 Years
Market Cap
52 Week L/H
PE
₹237 Cr
₹986 / ₹543
17.2
ROE
23.2%
ROCE
31.5%
Debt to Equity
PEG Ratio
0
0.34
Promoter’s Holding
71.72%
Pledged Percentage
0%
M cap/Sales
Dividend yield
2.48
0.70%
Sales Growth (5 years)
23.54%
Profit Growth (5 Years)
52.32%
Free Cash Flow
Equity Research Report
₹ 15.93 Cr
Company Overview
SIKA Interplant Systems Ltd. was established in 1969 and incorporated in 1985 as an engineering driven company
focused on the Aerospace, Defense & Space (A&D) and Automotive sectors in India. Listed on the Bombay Stock
exchange in 2008, SIKA’s main lines of business comprises of - engineered projects & systems; interconnect solutions &
electrical module integration, maintenance, repair & overhaul (MRO); and value-added distribution.
SIKA has requisite capacity and capabilities to provide integrated solutions across - engineering which includes design
and development, manufacturing, assembly and testing, projects and systems integration, and maintenance, repair and
overhaul. Its products include airborne and shipborne handling systems, clean energy systems, underwater systems,
feedback sensors, potentiometers, tracking systems, tachometers, resolvers, and data acquisition systems.
An AS 9100:2016 Revision D certified company, SIKA has a successful track-record of nearly twenty-five years in
executing advanced engineering projects for A&D customers in India. In addition, SIKA is also a qualified Indian Offset
Partner (IOP) with a license for defense production from the Government of India and has had continuous design
approval from the Indian Ministry of Defense's Centre for Military Airworthiness & Certification (CEMILAC) since 1999.
Additionally, the company also holds approval from the Directorate General of Aeronautical Quality Assurance
(DGAQA). In the past year, the Company has received recognition on multiple fronts. Sika was awarded for ‘Excellence
in Aerospace Indigenization’ at the Society of Indian Aerospace Technologies & Industries‘ biennial awards ceremony in
February 2022. The company was chosen to receive the award in recognition of its contribution to the indigenous design,
development, manufacture, integration, supply, and lifecycle support for a high-precision aerospace and defense (A&D)
system.
3
The company boasts a clientele consisting of Aero Sekur, Bharat Dynamics, Bharat Electronics, Didienne Aerospace,
HAL, L&T, NPOL and many more.
Shareholding (%) as of Dec, 2022
Public
27%
In recent years, the Company has been focused on building advanced facilities to expand its operational base to keep
pace with the fast-paced development of the AD&S sector in India, and Sika is well positioned to meet the requirements
of both potential international partners and domestic projects. Within the automotive sector, the Company continues to
undertake projects to supply critical capital equipment to a significant number of the major automobile manufacturers
across the country.
FIIs
1%
Promoters
72%
Promoters
FIIs
Over the years, the management has evaluated proposals for engaging in other businesses, not necessarily being an
extension of the Core Business. The company has explored business verticals like tourism, etc. in the past. To enable
focused growth of its Core Business, the Company has been evaluating segregation of its Non-Core Business.
Public
The company’s top management includes - Mr. Rajeev Sikka, Chairman and Managing Director, who holds an
undergraduate degree from the University of Strathclyde; and Mr. Kunal Sikka, Whole Time Director and CFO, who holds
an undergraduate degree from the University of Wisconsin.
Sales (INR Crore)
FY16
98
80
63
30
42
34
46
22
74
FY18
15
FY19
FY20
9
FY21
FY22
6
2
3
3
2
FY15
FY16
20
FY17
TTM
Equity Research Report
Operating Profit (INR Crore)
FY15
FY17
15
FY18
FY19
FY20
FY21
FY22
TTM
4
Industry Overview
Capital Goods Turnover (USD Billion)
115.17
2019
92
2025F
Engineering Export Performance
2%
Iron and Steel
Automobiles
1%
Industrial
11%
34%
13%
4%
Non-Ferrous
Others
Electrical
17%
18%
Ships & Boats
Air & Space
Crafts
Equity Research Report
❑ India has made significant strides towards developing its engineering sector. The Government has appointed
Engineering Export Promotion Council (EEPC) as the apex body in charge of promotion of engineering goods,
products, and services from India. India exports transport equipment, capital goods, other machinery/equipment, and
light engineering products such as castings, forgings, and fasteners to various countries of the world.
❑ In FY22, India exported engineering goods worth US$ 111.63 billion, a 45.51% increase YoY, according to the
Engineering Export Promotion Council of India (EEPC). India exports engineering goods mostly to US and Europe,
which account for over 60% of the total exports. In FY22, the construction equipment industry sold 85,385 units.
❑ In FY21, India’s heavy electrical equipment production stood at Rs. 168,949 crore (US$ 21.15 billion). The electrical
equipment market is forecasted to grow at 12% CAGR to reach US$ 72 billion by 2025 from US$ 48-50 billion in 2021.
Export of electrical machinery and equipment stood at US$ 10.37 billion in FY22, which was a 27.6% YoY growth.
❑ Turnover of the capital goods industry was estimated at US$ 92 billion in 2019 and is forecast to reach US$ 115.17
billion by 2025. India’s engineering R&D market will increase from US$ 36 billion in FY19 to US$ 63 billion by FY25. The
export of engineering goods is expected to reach US$ 200 billion by 2030.
❑ 100% FDI is allowed through the automatic route, with major international players looking for growth opportunities to
enter the Indian engineering sector. The engineering sector in India attracts immense interest from foreign players as
it enjoys a comparative advantage in terms of manufacturing cost, technology, and innovation. With the aim to boost
the manufacturing sector, the government has relaxed the excise duties on factory gate tax, capital goods, consumer
durables and vehicles. The above, coupled with favorable regulatory policies and growth in the manufacturing sector,
has allowed several foreign players to invest in India.
❑ FDI inflow for miscellaneous mechanical and engineering industries stood at US$ 4.14 billion between April 2000-June
2022 according to the data released by Department for Promotion of Industry and Internal Trade (DPIIT).
❑ Following the Covid-19 pandemic induced downgrade in the growth of the global A&D industry in 2020-21, the sector
is steadily following a bottoming out in early 2021 and a moderate improvement in the second half of 2021-22.
5
India’s Engineering Exports (USD Billion)
111.6
76.2
FY18
81
FY19
76.6
75.9
FY20
FY21
FY22
India’s Defense Exports (INR Crore)
8430
1940
2014-15
2020-21
Equity Research Report
❑ Prime Minister Mr. Narendra Modi, on the country's 75th Independence Day, announced plans to invest Rs. 100 trillion
(US$ 1.35 trillion) in infrastructure to stimulate economic development and generate employment. The government
has also announced a PLI scheme for automobiles and auto components worth Rs. 25,938 crore (US$ 3.49 billion). This
scheme is expected to bring investments of Rs. 42,500 (US$ 5.74 billion) by 2026.
❑ In the Union Budget 2022-23, the government has given a massive push to the infrastructure sector by steeply
increasing the capital expenditure outlay by 37.4 % in BE 2023-24 to whooping Rs.10 lakh crore over Rs. 7.28 lakh crore
in RE 2022-23. The key infrastructure and strategic Ministries such as Road Transport and Highways, Railways,
Defense, etc. will lead in driving the capital expenditure in FY 2023-24.
❑ MSMEs are the backbone of industrial sector in India. The Government has brought various schemes to promote
development and ease of doing business for these MSMEs. Some of them include - Rs. 5 lakh crore Collateral Free
Automatic Loans for business, including MSMEs; Rs. 50,000 crore equity infusion through MSME Self-Reliant India
Fund; New revised criteria for classification of MSMEs; "Udyam Registration" for MSMEs; Launching of an online Portal
"Champions” for MSMEs; Non-tax benefits extended for 3 years in case of an upward change in status of MSMEs.
❑ The last decade has seen India emerge as one of the most attractive A&D markets in the world given the Ministry of
Defense's (MoD) continued emphasis on modernization of the armed forces, which is expected to result in capital
expenditure of about USD 250 billion over the next 10 years.
❑ The Indian defense manufacturing industry is a significant sector for the economy. The industry is likely to accelerate
at a CAGR of over 4% with rising concerns of national security and ongoing territorial disputes. Over the last five years,
India has been ranked among the top importers of defense equipment. To modernize its armed forces and reduce
dependency over external sources for defense procurement, several initiatives have been taken by the government to
encourage ‘Make in India’ activities via policy support initiatives.
❑ The overall allocation for defense in FY 23-24 is INR 5.94 lakh crore, up from INR 5.25 lakh crore in FY 22–23, a hike of 13
percent. However, we feel the military has not been accorded its due priority. In FY 22–23, the government earmarked
25% of the defense R&D budget for the domestic private industry. A year later, the status of these initiatives remains
unclear. What is known is that the defense ministry’s Innovations for Defense Excellence (iDEX), and the Defense
Testing Infrastructure Scheme (DTIS) have been allocated INR 116 crore and INR 45 crore, respectively, in this budget.
6
Qualitative Analysis
Quality Assurance
❑ SIKA provides products and services of the highest quality, and this is at the foundation of all their actions. Every
aspect of the production and service process is carried out with meticulous attention to detail and in line with their
Quality Management System (QMS) in accordance with the specifications and standards as required by customers.
❑ At SIKA, their QMS is certified to AS9100 D, and they maintain their quality through rigorous internal processes. SIKA
has driven the quality process into the design, manufacturing and maintenance, repair & overhaul (MRO) processes,
not relying solely on final inspection to capture any defects. They maintain precise traceability for all production
processes compliant to the most demanding customer and regulatory specifications.
❑ Throughout the entire process quality inspections are added at strategic points to ensure they capture any possible
issues early in the process. Quality control follows each individual job, from the purchasing of material to each stage of
fabrication, leaving a paper trail of inspections and certifications throughout the job. Adherence to customer
specifications and documentation requirements are top priority during all the phases of the process.
❑ All their staff are tested, qualified and supported with an ongoing training program or continued professional
development program.
❑ SIKA has Dedicated dust-free rooms for harness assembly, printing/laser wire marking and testing, ESD protected
lab for soldering and re-work; Required electrical tests like continuity, insulation, isolation, etc. done in-house.
❑ SIKA can perform ESS to MIL, DO and JSS standards for their products as well as for third parties with the following
in-house facilities - Vibration Testing, Thermal Cycling Chamber, Oven for Power Burn-in.
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7
Product Portfolio
❑ SAR & MEDEVAC: Timely and efficient movement and en route care provided by medical personnel. Combat
encounters, accidents, natural disasters, acts of terror, etc. are just a few examples which need immediate MEDEVAC.
SIKA’s dedicated rescue hoist overhaul and repair workshop, featuring a hoist test Rig that has been audited and
approved by the OEM is able to undertake MRO of both electrical and hydraulic hoist variants. SIKA provides
customization of ‘Quick Conversion’ modular intensive care unit (MICU) kits for aircraft and helicopters in India,
including installation, integration of medical devices, certification, training and support.
❑ Landing Gear & Hydraulics: In partnership with Aerotek Aviation Engineering Ltd (AAE), SIKA has recently established
a joint venture company Aerotek Sika, which is a one-stop shop for aircraft landing gear, hydraulic LRUs/assemblies
and actuators and MRO. Build-to-print manufacturing, assembly and testing of landing gear assemblies; Design,
development and certification of landing gear LRUs including actuators for retraction and steering; Maintenance,
Repair & Overhaul. Audited by various divisions of Hindustan Aeronautics Limited (HAL) for both manufacture and
MRO of landing gear and hydraulic accessories.
❑ Interconnection Systems (IE)2: For a variety of demanding applications, SIKA designs, manufactures and tests (IE)2
assemblies/sub-systems to precise electrical, environmental, and mechanical requirements. Sika designs,
manufactures and tests high quality cable assemblies, wire harnesses and looms. They also performs a wide variety of
electro-mechanical assembly for A&D applications including Panel assemblies for avionics/cockpit. Sika offers
assembly, integration and test of electronic modules/LRUs. Sika is also able to perform ESS to MIL, DO and JSS
standards for their own products as well as for third parties.
❑ Handling Systems: SIKA has an established track-record in the design, manufacture, supply and service of a range of
critical handling systems including - Dipping sonar winches (for Anti-Submarine Warfare for the Indian MoD), Cargo
winches (BE HS-5100), Cargo hooks (BE Model C-160, BE Model FE7590), Marine winches (for Towed-array sonars, sidescan sonars, underwater platforms, Hydrography, Ocean research, Deep sea mining), Handling and loading
equipment, etc. In addition, leveraging on their network of partner companies, they can also supply turnkey solutions
incorporating slip rings, electro- mechanical and fiberoptic cables / umbilical, etc.
Equity Research Report
8
OEM (Original Equipment Manufacturer) Partners
❑ Sika has been partnered with Fives Filling & Sealing since 1997 for marketing, sales, installation, commissioning and
local after-sales support of its fluid filling machines to the automotive sector in India. With a strong legacy based upon
renowned brands such as Rapid Charge for filling and Decker Sealing for sealing, Fives designs, supplies fluid filling,
fluid tests and sealing equipment product as well as associated services.
❑ SIKA offers analysis and simulation software for design of motors and controllers using Motor CAD. Using three
software packages, EMag, Therm and Lab, accurate electromagnetic and thermal calculations can be done in
minutes, in an easy-to-understand format allowing design decisions to be taken efficiently. MotorCAD can also be
coupled with many software packages for extensive calculations.
❑ SIKA is the Authorized Sole & Exclusive distributer of LMB Fans in India. Founded 90 years ago, LMB France are world
leaders in manufacturing and supplying fans and blowers for aerospace and defense applications etc. In India LMB
fans have been supplied on platforms/applications including – ALH, LCH, Do-228, Electronic Warfare, T-72 tanks.
❑ Sika has partnered with the world's leading motion control OEMs as their exclusive distributor for the supply and
system integration of ruggedized high precision servo components and systems to Aerospace, Defense and Space
customers in India. Sika has supplied motion control products for –Unmanned Vehicles, Missiles & Guided Munitions,
Tracking Systems, etc. Motion Control offerings include - Actuation Systems, Weapon Directors, DC Motors, etc.
MRO
SIKA is one of the only private companies in India providing comprehensive Maintenance, Repair and Overhaul (MRO)
for a range of components/systems to Indian military and governmental aerospace customers, with dedicated facilities
for such MRO set up within their campus. Apart from undertaking MRO for their own systems (e.g., for helicopter antisubmarine warfare winches), SIKA is also establishing itself as a component MRO service facility and spares support
center in partnership with international OEMs to provide effective and timely support to Indian customers. Engine Air
Intake Particle Separators (AIPS) are way to protect engines from foreign object damage (FOD). To allow for safer
operation, EAIPS are integrated on the ALH. SIKA is the OEM authorized repair station for particle separators.
Equity Research Report
9
Manufacturing Facility
SIKA has made substantial investments to establish a greenfield technology campus—‘Sika Technology Center’—in
Bangalore spread across 6.5 acres, with plenty of room available for expansion.
❑ 48,000 sq ft facility housing:
• Assembly including a clean area for hydraulics, etc., (IE)2 workspaces, Dedicated training room, Warehouse (Stocking
of spares for MRO), etc.
• Integration (NDT, i.e., Non-Destructive Testing (fluorescent and magnetic), CNC 3-D CMM) & testing (ESS Testing,
Universal test rigs for hydraulic systems/LRUs testing). Inspection including Non-Destructive Testing (NDT) and CNC 3D Coordinate Measuring Machine (CMM)
• Paint spray bay to aerospace standards, Shot peening, Wire harnessing, Paint-stripping, Abrasive blasting
❑ 21,000 sq ft new building:
• Within this campus, they’ve recently completed construction of a modern 21,000 sq ft grade A building that is ready to
be occupied for future expansion / new projects.
• Situated in Bangalore, all of this is strategically located from the perspective of the Indian aerospace industry.
Equity Research Report
10
SWOT Analysis
❑ Strengths: The company operates in the Aerospace & Defense Sector. The government’s plant to start aircraft manufacturing in India is going to be beneficial for the
company. The company has a diverse portfolio of products and modernized manufacturing plants in India. This allows them to keep cost of production low and
manufacturing efficient.
❑ Weakness: The company has a concentrated order book with the Govt. of India being a majority purchaser. Moreover, the company operates in a highly regulated and
highly capital-intensive industry. Government regulations or decreased government spending towards the defense sector might result in lost revenue for the company.
❑ Opportunities: The country‘s Defense expenditure has been punctuated by big-ticket deals and modernization programs, the latter in response to the urgent need to
enhance the deterrent and operation capabilities of the armed forces through upgradation/modernization of existing equipment, as well as additional acquisitions of state
of the art‘ equipment. The large scale of the market provides a significant opportunity for Indian industries and SMEs. The need for a self-reliant Defense sector and a sharp
focus on minimizing dependence on imports is seeing the continued opening of the sector for private participation. In 2001, the government opened this sector to private
and foreign investors and set a challenging target of achieving 70% indigenization. This focus on indigenization should continue to gather pace, with the current
government continually re-emphasizing the importance of this endeavor. Defense Acquisition Procedure (DAP) 2020 has overhauled several procedural aspects with a view
to improving the procurement cycle time while continuing to provide for significantly increasing the share of local purchases through prioritization. Implementation of
important policies such as restriction on global tenders for government procurement up to INR 200 Cr, separate budget for domestic capital procurement, liberalization of
foreign direct investment procedures, and rationalization of General Staff Qualitative Requirements and testing requirements will add further fillip to the participation of
the Indian industry including MSMEs.
❑ Threats: Most of the threats to the domestic A&D industry are rooted on the policy front. These include slippages on the fiscal front, lengthy procurement and evaluation
processes, controversies related to corruption and disputes over shortlisting in competitive bids. These will serve to delay acquisition plans of the armed forces and impact
timing of execution of already long-dated projects. Further, given the nature of the A&D business, the products and systems involved are typically of complex advanced
technologies, often resulting in the approval and certification cycle extending for materially longer than originally planned. This can result in delays in production orders
and consequent deliveries, affecting the timing of revenues.
Equity Research Report
11
Management Leadership
❑ Mr. Kunal Sikka
• Mr. Kunal Sikka serves as the Chief Executive Officer, Managing Director & Director at Sika Interplant Systems Limited
since April 1, 2021. He had been the Chief Financial Officer of Sika Interplant Systems Ltd. since October 23, 2011, until
March 31, 2021, and had been its Whole-Time Director since October 1, 2014, until March 31, 2021.
• Mr. Sikka has experience in Investment Banking, Merchant Banking & fixed income currency & commodities. Mr. Sikka
has experience with PWC Pvt Ltd., Deutsche Bank AG, Goldman and Sachs & co. Since July 2006, Mr. Sikka has worked
with Goldman Sachs in New York, Singapore & London in various capacities. Mr. Sikka has a degree in Business within
finance & management from the University of Wisconsin School of Business.
• He holds a BBA with a specialization in Real Estate Finance and Management from the University of WisconsinMadison, USA.
❑ Mr. Rajeev Sikka
• Mr. Rajeev Sikka serves as the Executive Chairman at Sika Interplant Systems Limited. He previously served as the
Chief Executive Officer & Managing Director at the company.
• He holds an undergraduate degree in Engineering and Management from the University of Strathclyde.
Equity Research Report
12
Quantitative Analysis
Financial & Business Analysis
P&L Statement
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
TTM
FY23E
FY24E
30
42
34
22
46
63
80
98
74
Expenses
28
39
32
20
39
54
65
78
29
98
120
147
183
2
3
3
2
6
9
15
20
15
30
45
65
96
8%
7%
8%
10%
13%
15%
18%
20%
21%
23%
28%
32%
38%
2
2
2
1
4
7
12
17
14
27
43
67
107
6.67%
4.76%
5.88%
4.54%
8.69%
11.11%
15%
17.34%
18.92%
21.42%
27.04%
33.50%
42.12%
3.80
4.10
4.74
3.49
10.07
16.65
28.04
39.15
32.57
61.77
95.92
144.74
223.84
OPM %
Net profit
NPM %
EPS
159
FY26E
Sales
Operating profit
126
FY25E
200
254
❑ The company is expected to grow its Revenue at a CAGR of more than 26% over the next 3 years.
❑ The company is expected to grow its Operating Profit by almost 5 times in the next 3 years.
Equity Research Report
13
Balance Sheet
FY15
Equity Share Capital
FY16
FY17
FY18
FY19
FY20
FY21
Financial Statements’ Summary
FY22
4
4
4
4
4
4
4
4
35
36
38
39
42
48
60
74
Borrowings
3
3
2
3
1
1
0
0
Other Liabilities
2
13
6
4
16
17
16
20
Total Equity & Liabilities
44
55
50
50
64
70
81
98
Fixed Assets
34
35
37
37
37
37
37
36
Capital Work in Progress
0
2
3
3
0
0
0
0
Investments
1
0
3
3
8
19
2
9
Other Assets
9
18
8
8
18
14
42
53
Total Assets
44
55
50
50
64
70
81
98
Reserves
P&L Statement
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
Sales
30
42
34
22
46
63
80
98
Expenses
28
39
32
20
39
54
65
78
2
3
3
2
6
9
15
20
8%
7%
8%
10%
13%
15%
18%
20%
2
2
2
1
4
7
12
17
6.67%
4.76%
5.88%
4.54%
8.69%
11.11%
15%
17.34%
3.80
4.10
4.74
3.49
10.07
16.65
28.04
39.15
Operating profit
OPM %
Net profit
NPM %
EPS
Equity Research Report
❑ The Company went from a debt of ₹ 3 Cr in FY18 to 0 debt in FY22.
❑ The Company has continuous increased its revenue from ₹ 30 Cr
in FY15 to ₹ 98 Cr in FY22.
❑ The Reserves has more than doubled to ₹ 74 Cr in FY22 from ₹
35 Cr in FY15
❑ The Revenue from Operations ₹ 22 Cr (FY18) has more than
quadrupled in 4 years to ₹ 98 Cr (FY22). We can see a
continuous upward trend in revenue growth with it growing by
22.5% YOY from FY21 to FY22.
❑ The Operating Profit for FY22 is ₹ 20 Cr, whereas Operating
Profit for FY21 is ₹ 15 Cr and for FY20 is ₹ 15 Cr. These are YOY
growth of 33.33% and 66.66% respectively. This shows the
efficiency of management to manage various resources
effectively.
❑ The Net Profit for FY22 is ₹ 17 Cr, for FY21 is ₹ 12 Cr whereas for
FY20 is just ₹ 7 Cr.
❑ The EPS for FY22 is ₹ 39.15 Cr and for FY 21 is ₹ 28.04 Cr. This
shows a constant upward growth trend as well.
14
Cash Flow Statement
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
❑ The Cash From Operating Activities has increased from ₹ 1 Cr
in FY15 to ₹ 16 Cr in FY22.
Cash from Operating Activity
1
3
5
1
7
11
8
16
Cash from Investing Activity
-1
-3
-5
0
-4
-10
-8
-14
Fixed assets purchased
-1.09
-3.28
-3.03
-0.73
-1.51
-0.72
-0.42
-0.07
Investments purchased
-0.53
-0.02
-2.95
0.00
-5.53
-9.98
0.00
-7.40
Investments sold
0.01
0.32
0.42
0.72
0.00
0.00
17.66
0.00
Interest received
0.33
0.34
0.00
0.16
0.09
0.18
0.90
1.76
-0.07
0.04
0.02
0.00
0.00
0.10
-26.01
-7.98
35
-1
-0
1
-2
-1
-1
-1
-2
30
Proceed from shares
0.00
0.74
0.00
0.00
0.00
0.00
0.00
0.00
Proceed from borrowings
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Repayment of borrowings
0.00
0.00
0.00
0.00
-0.39
-0.09
-0.43
-0.06
10
Interest paid fin
-0.17
-0.36
-0.29
-0.27
-0.29
-0.26
-0.49
-0.20
5
Dividends paid
-0.34
-0.34
-0.34
-0.34
-0.34
-0.34
-0.47
-1.70
-2
1
0
-1
2
0
-1
0
Other investing items
Cash from Financing Activity
Net Cash Flow
Equity Research Report
❑ The Company has been paying Dividends every year with a
total of ₹ 1.7 Cr paid in dividends in FY22.
❑ The company has a tight free cash flow because of continuous
investments and high dividend payout.
OP E RAT IN G CAS HFL OW V S FRE E CAS H FL OW
(IN IN R CR)
25
20
15
0
-5
FY15
FY16
FY17
FY18
Operating CF
FY19
FY20
FY21
FY22
Free CF
15
Quarterly
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Sales
16.35
18.11
22.44
26.41
35.96
16.16
19.92
13.18
26.52
14.65
Expenses
13.18
15.18
17.97
21.46
28.70
13.74
14.64
10.80
21.64
11.96
3.17
2.93
4.47
4.95
7.26
2.42
5.28
2.38
4.88
2.69
19.39%
16.18%
19.92%
18.74%
20.19%
14.98%
26.51%
18.06%
Other Income
0.87
0.45
0.85
0.76
0.85
0.86
0.92
0.82
1.55
0.65
Interest
0.05
0.04
0.32
0.04
0.03
0.03
0.10
0.06
0.10
0.06
Depreciation
0.21
0.22
0.19
0.22
0.21
0.23
0.18
0.19
0.38
0.19
Profit Before Tax
3.78
3.12
4.81
5.45
7.87
3.02
5.92
2.95
5.95
3.09
23.28%
18.91%
27.03%
25.32%
11.18%
25.17%
27.03%
25.42%
14.79%
28.48%
2.89
2.52
3.50
4.08
6.99
2.25
4.32
2.20
5.06
2.20
17.67%
13.91%
15.60%
15.44%
19.44%
13.92%
21.68% 16.69%
19.07%
15.01%
Operating profit
OPM %
Tax %
Net Profit
Net Profit Margin %
18.40% 18.36%
❑ In Q3FY23, Company recorded sales of ₹ 14.65 Cr
with Operating profit of ₹ 2.69 Cr and PAT of ₹ 3.09
Cr, respectively.
❑ In Q3FY23, Company recorded Profit Before Tax of
₹ 3.09 Cr and Net profit of ₹ 2.20 Cr.
❑ In Q3FY23, Company recorded an NPM of 15.01%,
which is highest among the last three 3rd quarters.
QOQ NPM Comparison (in %)
25
20
15
10
5
0
June
September December
FY21
Equity Research Report
FY22
March
FY23
16
Performance Analysis in Charts
FY15
Sales (INR Crore)
FY15
Operating profit (INR Crore)
FY16
98
80
74
63
30
42
34
FY16
FY17
FY18
15
FY19
46
FY20
6
FY21
3
2
FY22
3
FY16
39.15
28.04
16.65
10.07
3.8 4.1 4.74 3.49
32.57
FY17
FY18
FY19
FY20
Equity Research Report
FY20
2
2
FY21
4
FY22
1
TTM
Operating Profit Margin (in %)
25
20
15
10
8
7
8
10
13
15
18
Net Profit Margin (in %)
20
21
20
10
FY21
5
FY22
0
0
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 TTM
15
15
5
TTM
FY19
TTM
FY15
EPS
2
FY22
TTM
FY18
7
FY21
2
FY17
14
12
FY19
9
FY20
22
FY18
15
FY16
17
FY17
20
FY15
Net profit (INR Crore)
6.67
8.69
4.76
5.88
18.91
17.34
11.11
4.54
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 TTM
17
Important Indicators
SIKA
Interplant
Market capitalization (₹)
Hindustan
Aeronautics
Bharat
Dynamics
High
Energy Batt
Taneja
Aerospace
243.40
89806.37
17686.66
280.70
339.75
Promoter holding (%)
71.72
75.15
74.93
41.02
51.23
PE Ratio (in times)
17.66
14.70
36.27
16.66
30.31
ROE (%)
23.18
29.37
18.31
36.75
8.09
ROCE (%)
31.50
30.49
26.09
36.36
12.18
ROA (%)
18.42
8.98
8.26
18.57
6.85
Sales growth 5 Years (%)
23.54
6.52
-10.43
11.01
-3.44
Profit growth 5 Years (%)
52.32
14.23
-0.03
86.99
64.76
0
0
0
0.47
0
56.97
139.93
152.40
8.81
21.79
3.48
1.97
2.33
1.80
3.11
29.85
0.57
0.83
0.84
23.54
Debt to Equity
Interest coverage ratio
Current ratio
Inventory T/O Ratio
Equity Research Report
Peer Comparison
❑ SIKA has one of the highest Promoter holding among its peers
and the industry in general.
❑ The company has an ROE of 23.18% and ROCE of 31.50%, which
is on the higher end and indicates proper utilization of
resources by the management.
❑ The company has grown its sales by 23.54% in the last 5 years,
which is the highest among its peers.
❑ The company is debt-free, which would allow it to direct its
resources towards expansion.
❑ The company also has a very high Interest coverage ratio of
56.97, which means the company can easily pay off interests.
❑ The company also has a high Current ratio of 3.48, which is the
highest among its peers and indicates the possession of
adequate current assets.
❑ The Inventory Turnover Ratio of the Company is very high at
29.85. This indicates that the company is very efficient in
churning out its inventory and getting new stock.
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Investment Thesis
The investment thesis on SIKA Interplants Ltd. Is based on the following:
❑ Government’s renewed focus on infrastructure and a relatively higher budget allotment to capex to drive growth.
❑ Due to global instability & the China threat, the demand for defense equipment is on the rise.
❑ Due to India’s strive to become a global superpower, Defense companies will benefit directly.
❑ The government plans to manufacture aerospace and defense products in India itself, which will result in increased revenue for Indian A&D companies.
Equity Research Report
19
Future Outlook
❑ Exceptional Growth Visible: The Sales, Net Profit and EPS grew by more than 22%, 41% and 39%, respectively. The government’s increased focus on the Defense Sector
and Capex with an allocation of ₹ 5.94 Lakh Cr (a hike of 13% from last year) and ₹ 10 Lak Cr (up 37.4% from last year), respectively will directly benefit Engineering goods
manufacturer and Defense Sector companies like SIKA Interplant directly.
❑ SIKA Interplant Systems Ltd has entered a Memorandum of Understanding (“MoU”) with Hindustan Aeronautics Limited (“HAL”) to pursue strategic business
cooperation in the Airborne Search & Rescue (“SAR”), Casualty/Medical Evacuation (“CASEVAC/MEDEVAC”), and Humanitarian Assistance & Disaster Relief (“HADR”)
domains for aviation, aerospace and defense platforms. This cooperation will result in increased revenue and a larger customer base for the company.
❑ Technically, the stock currently is trading near a very strong support at 560. Any up move from this point might result in good gains.
❑ The stock is trading at good levels, with MACD line trading very close but below the Signal Line. Also, the stock is currently trading well below its 200 DEMA and this,
according to us, is a good time to start building positions in the stock.
❑ SIKA Interplant Ltd. is operated by experienced management with the state of art manufacturing facility, technology and highly skilled workforce. They have expanded their
capacity and due to huge tailwind in capital goods sector (backed by govt. & private capex) they are expanding their order book which will help them perform better in near
future. Company may achieve its milestone sales of ₹ 250 Cr in next 3-year period which is a growth of 150% in topline.
Equity Research Report
20
Statutory Disclosure
❑ At the time of writing this article, the analyst have no position in the stock covered by this report.
❑ The analyst has not traded in the recommended stock in the last 30 days.
❑ The research analyst does not have any material conflict of interest at the time of publication of the research report.
❑ The research analyst has not received any compensation from the subject company in the past twelve months.
❑ The research analyst or its associates has not managed or co-managed public offering of securities, has not received any compensation for investment banking or merchant
banking or brokerage services nor received any third-party compensation. The subject company was not a client during twelve months preceding the date of distribution of
the research report.
❑ The research analyst has not served as an officer, director or employee of the subject company.
❑ The research analyst or research entity has not been engaged in market making activity for the subject company.
❑ The research analyst or research entity or its associates or relatives does not have actual/beneficial ownership of one per cent or more in the securities of the subject
company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance.
❑ The analyst does not own more than 1% equity in the said company.
Equity Research Report
21