Arcotech Debt jumped on 43.4% and EBITDA increased on 4.7%

30-05-2016 • About Arcotech ($ARCOTECH) • By InTwits

Arcotech reported FY2016 financial results today. Here are the key drivers of the company's long term financial model:

Arcotech is a fast growth stock: FY2016 revenue growth was 11.0%, 5 year revenue CAGR was 29.2% at FY2016 ROIC 18.9%
Arcotech has low CAPEX intensity: 5 year average CAPEX/Revenue was 3.9%. At the same time it's in pair with industry average of 12.5%
CAPEX is quite volatile: ₹316m in FY2016, ₹89m in FY2015, ₹222m in FY2014, ₹228m in FY2013, ₹101m in FY2012
The company has highly profitable business model: ROIC is 18.9%
It operates with high leverage: Net Debt/EBITDA is 3.0x while industry average is 1.4x

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

The company's Revenue surged on 11.0%. Revenue growth was financed by EBITDA margin decline. EBITDA Margin decreased slightly on 0.75 pp from 13.0% to 12.3% in FY2016.

Net Income margin showed almost no change in FY2016. Net Income margin followed a declining trend at -0.51 pp per annum in the last 5 years.

Investments (CAPEX, working capital and M&A)

The company's CAPEX/Revenue was 4.3% in FY2016. The company's CAPEX/Revenue decreased slightly on 1.8 pp from 6.2% in FY2013 to 4.3% in FY2016. For the last three years the average CAPEX/Revenue was 3.1%.

Return on investment

The company operates at good ROIC (18.9%) and ROE (19.9%). ROIC decreased on 2.7 pp from 21.6% to 18.9% in FY2016. ROE decreased on 2.4 pp from 22.3% to 19.9% in FY2016.

Leverage (Debt)

Debt level is 3.0x Net Debt / EBITDA and 3.3x Debt / EBITDA. Net Debt / EBITDA jumped on 0.6x from 2.4x to 3.0x in FY2016. Debt jumped on 43.4% while cash surged on 9,420%.

Arcotech has short term refinancing risk: cash is only 10.6% of short term debt.

Valuation and dividends

Arcotech's trades at EV/EBITDA 11.7x and P/E 21.3x while industy averages are 17.8x and 21.9x. Arcotech's EV/(EBITDA-CAPEX) is 18.2x with the industry average at 22.8x.

Management team

Arcotech's CFO Amit Sharma has spent 5 years with the company.

Financial and operational results

Arcotech ($ARCOTECH) key annual financial indicators

mln. INR	2012	2013	2014	2015	2016	2016/2015
P&L
Revenue	2,528	3,691	6,249	6,558	7,282	11.0%
EBITDA	384	474	848	853	892	4.7%
Net Income	177	229	331	338	365	8.1%
Balance Sheet
Cash	1	0	1	2	218	9,419.7%
Short Term Debt	716	1,248	1,961	1,966	2,062	4.9%
Long Term Debt	56	161	181	67	854	1,169.5%
Cash flow
Capex	101	228	222	89	316	255.7%
Ratios
Revenue growth	25.0%	46.0%	69.3%	4.9%	11.0%
EBITDA growth	15.6%	23.5%	78.9%	0.5%	4.7%

EBITDA Margin	15.2%	12.9%	13.6%	13.0%	12.3%	-0.7%
Net Income Margin	7.0%	6.2%	5.3%	5.1%	5.0%	-0.1%
CAPEX, % of revenue	4.0%	6.2%	3.5%	1.4%	4.3%	3.0%

ROIC	25.8%	21.5%	25.7%	21.6%	18.9%	-2.7%
ROE	26.1%	25.2%	27.5%	22.3%	19.9%	-2.4%
Net Debt/EBITDA	2.0x	3.0x	2.5x	2.4x	3.0x	0.6x

Peers in Copper

Below you can find Arcotech benchmarking vs. other companies in Copper industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.

Top companies by Revenue growth, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Hindustan Copper ($HINDCOPPER)	-	-11.1%	12.5%	-32.5%	-3.9%
Median (1 company)	-	-11.1%	12.5%	-32.5%	-3.9%
Arcotech ($ARCOTECH)	-	46.0%	69.3%	4.9%	11.0%

Top companies by EBITDA margin, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Hindustan Copper ($HINDCOPPER)	36.8%	23.9%	34.5%	12.6%	12.3%
Median (1 company)	36.8%	23.9%	34.5%	12.6%	12.3%
Arcotech ($ARCOTECH)	15.2%	12.9%	13.6%	13.0%	12.3%

Top companies by CAPEX/Revenue, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Hindustan Copper ($HINDCOPPER)	1.4%	3.1%	6.0%	15.5%	29.7%
Median (1 company)	1.4%	3.1%	6.0%	15.5%	29.7%
Arcotech ($ARCOTECH)	4.0%	6.2%	3.5%	1.4%	4.3%

Top companies by ROIC, %


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Hindustan Copper ($HINDCOPPER)	31.2%	10.7%	19.0%	0.8%	-0.1%
Baroda Extrusion ($BAROEXT)	2.9%	-	-	-	-
Median (2 companies)	17.1%	10.7%	19.0%	0.8%	-0.1%
Arcotech ($ARCOTECH)	25.8%	21.5%	25.7%	21.6%	18.9%

Top companies by Net Debt / EBITDA


Top	FY2012	FY2013	FY2014	FY2015	FY2016
Hindustan Copper ($HINDCOPPER)	-0.1x	-0.0x	-0.0x	-2.5x	-0.3x
Median (1 company)	12.2x	-0.0x	-0.0x	-2.5x	-0.3x
Arcotech ($ARCOTECH)	2.0x	3.0x	2.5x	2.4x	3.0x

Arcotech stock price chart

Arcotech financials

mln.	FY2010	FY2011	FY2012

Revenue	7,868	2,022	2,528
EBITDA	169.0	332.1	384.0
Net income	76.750	141.7	177.4
CAPEX	213.0	106.7	101.4
Debt	452.2	668.0	772.0
Cash	3.336	1.162	1.103

About Arcotech

Arcotech Limited manufactures and sells non ferrous semis primarily in India. It offers copper and brass strips and foils, as well as semis, such as ingots, strips, sheets, plates, foils, copper bus bars, etc. The company also provides non ferrous alloy products, including phosphor bronze, nickel silver, nickel brass, cupro-nickel, aluminum bronze, tin bearing copper, silver bearing copper, etc. Its products are used in various applications, including automobile, electronic, electrical/power transmission, cable, air-conditioning, and housing industries. The company also offers its products for the manufacturers of torches and flash lights, zippers/buttons, lock and key, watch and clock, handicrafts and decorative items, mint for coins, and gas stoves; valves, riveting, and other general engineering users; and ordinance factories and defense sector. Arcotech Limited exports its products to various countries covering Far-East Asia, the Middle-East, and Latin America. The company was founded in 1981 and is based in New Delhi, India.