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October 26, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Margin expansion continues!
Mahindra CIE’s Q3CY17 consolidated revenue was at | 1590 crore (up
34% YoY) vs. our estimate of | 1,424 crore. Revenue from Indian
operation (standalone + Bill Forge (BFL) + gears business) grew 64%
YoY to | 682 crore mainly due to integration of the Bill Forge business,
higher steel price & higher production from its key customers. Revenue
from European operation increased 16% YoY to | 915 crore mainly
due to 1) higher revenue from Metalcastello (as MCI started catering to
caterpillar order) and 2) Europe’s forging business (supplied
crankshafts from the new installed capacity to Volkswagen)
Consolidated EBITDA margin was at 13.2% (up 160 bps YoY).
Consolidated PBT was at | 133 crore (vs. PAT estimate of | 87 crore)
On a standalone basis, revenue was at | 484 crore (+9.2% YoY). EBITDA
margin was at 10% (+212 bps YoY, 48 bps QoQ) mainly on lower
employee, other expense. Reported PAT was | 20.4 crore (up 45.1% YoY)
According to MCI, ~18.8% of its total revenue is from crankshafts &
engine gears, which are exposed towards the risk of electric vehicle
(EVs). However, MCI believes no major impact of EVs would be seen in
the next five to 10 years. Its cost cutting exercises & operating leverage
will drive its profitability, going forward. It is also looking for inorganic
opportunity and is also working on new products/technology
Phase 2 growth strategy focuses on profitability
Mahindra CIE (MCI) embarked on its Phase 2 (2017-20) strategy that focuses
on growth & profitability. The strategy can be broadly divided into two with
a) focus on business development & growth (including organic growth, new
acquisitions (like Bill Forge – BFL), entry into new products & customer
development in India & optimising its utilisation & b) focus on profitability
(through transfer of technology, better efficiency & increase exports). The
first step of the second phase has already been taken with acquisition of
BFL & appointment of CEO. The clean-up done in the past (2014-16)
includes turnaround of Mahindra Forging Europe (MFE) where margins
improved from single low digit to double digit and Metalcastello business
that is helping MCI in terms of margin expansion, going forward.
BFL integration + operational efficiency = to drive margins
Integration of higher margin BFL business will further lift MCI’s overall
margins. The BFL operation has recovered from Q2CY17 onwards thereby
driving the overall performance. On a 9MCY17 basis, BFL’s business has
registered topline growth of 20% YoY with EBITDA margins of 20%. Further
we believe better operational efficiency in Europe will lift overall margins.
During Q3CY18, MCI started reporting incremental revenue from the
caterpillar order from its Metalcastello division and also started supplies of
crankshafts to Volkswagen from its new forging capacity in Lithuania. We
believe the increase in its utilisation level, going forward, will further result
into a strong operational performance.
Turnaround story intact; reiterate BUY!
MCI has a global footprint with global promoters and is a unique case of
valuation considering its massive turnaround possibilities. It is present
across CV, PV with complementary strengths of dual parents. It is also
planning an inorganic expansion via partners/acquisitions and wishes to
cater to Japanese OEMs. Its consistent focus on cost rationalisation would
improve EBIT margins >10% & RoCE to ~14% in CY19E. Thus, we continue
to value MCI at 11x CY19E EV/EBITDA multiple. We maintain our target
price of | 280 with BUY rating.
Rating matrix
Rating : Buy
Target : | 280
Target Period : 12 months
Potential Upside : 14%
What’s Changed?
Target Unchanged
EPS CY17E Changed from | 9.7 to | 9.6
EPS CY18E Changed from | 12.9 to | 11.9
EPS CY19E Introduced at | 13.9
Rating Unchanged
Standalone Quarterly Performance
(| Crore) Q3CY17 Q3CY16 YoY Q2CY17 QoQ
Revenues 484.2 443.5 9.2 449.5 7.7
EBITDA 48.4 34.9 38.6 42.7 13.2
EBITDA (%) 10.0 7.9 212 bps 9.5 48 bps
Reported PAT 20.4 14.0 45.1 17.7 15.4
Key Financials
| Crore CY16 CY17E CY18E CY19E
Revenue 5,525 6,272 6,866 7,391
EBITDA 531.1 814.5 920.1 1,034.7
Net Profit 169.0 363.3 448.1 523.9
EPS (|) 4.5 9.6 11.9 13.9
All financial numbers incorporate merger assumption completed
Valuation summary
CY16 CY17E CY18E CY19E
P/E (x) 55.0 25.6 20.8 17.8
EV/EBITDA (x) 19.8 12.6 11.1 9.8
P/BV (x) 2.8 2.6 2.3 2.1
RoNW (%) 5.4 10.1 11.1 11.6
RoCE (%) 6.9 11.5 12.9 13.8
All financial numbers incorporate merger assumption completed
Stock data
Particular Amount
Market Capitalization (| Crore) | 9300.3
Total Debt (CY16) | 1362.06 Crore
Cash & Investments (CY16) | 137 Crore
EV | 10525.3 Crore
52 week H/L (|) 267/174
Equity capital (| crore) | 378.1 Crore
Face value (|) | 5
All financial numbers incorporate merger assumption completed
Price performance (%)
1M 3M 6M 12M
Mahindra CIE Automotive Ltd 1.5 -2.6 11.2 25.6
Motherson Sumi Systems Ltd 6.3 10.0 39.8 61.3
Bharat Forge Ltd 3.8 12.8 12.5 43.7
Mahindra CIE Automotive (MAHAUT) | 246
Research Analyst
Nishit Zota
Vidrum Mehta
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis- Standalone
Q3CY17 Q3CY17E Q3CY16 YoY(%) Q2CY17 QoQ(%) Comments
Total Operating Income 484.2 479.4 443.5 9.2 449.5 7.7
Standalone revenue growth was supported by 1) strong demand from
across segments and 2) also due to decent growth from its top two client
(M&M, TML)
Raw Material Expenses 258.9 245.4 207.4 24.8 229.6 12.8
Employee Expenses 57.1 59.9 57.4 -0.6 56.6 0.9
Other expenses 119.8 127.0 143.7 -16.6 120.6 -0.6
Operating Profit (EBITDA) 48.4 47.0 34.9 38.6 42.7 13.2
EBITDA Margin (%) 10.0 9.8 7.9 212 bps 9.5 48 bps
Margins exapnded YoY ; primarily due to lower employee and other
expense
Other Income 3.1 1.0 1.0 210.0 1.0 210.0
Depreciation 17.8 18.2 17.7 0.2 18.2 -2.6
Interest 1.2 1.5 2.0 -37.0 1.8 -32.6
PAT 20.4 21.1 14.0 45.1 17.7 15.4
PAT came in marginally below our estimates
EPS 0.3 0.6 0.4 -8.8 0.5 -27.4
Key Metrics (| crore)*
MCIE India 682.1 414.8 64.4 635.6 7.3
Revenue was up 64.4% YoY mainly due to integration of Bill Forge
business, higher steel price & higher production from its key customers
EBITDA Margins % 14.4 12.6 180 bps 13.8 60 bps
Margin expansion was primarily due integration of high margin business
(BFL)
MCIE Europe 915.4 786.4 16.4 894.3 2.4
Higher revenue from Metalcastello (as MCI started catering the caterpillar
order) & 2) Europe’s forging business (supplied crankshafts from the new
installed capacity to Volkswagen lifted overall Europes revenues
EBITDA Margins % 12.3 10.9 140 bps 13.2 -90 bps
The clean off completed last year is yielding positive results in terms of
margin expansion on a YoY basis. The management expects margins to
sustain & further move upwards, going forward. On a QoQ basis, margins
looks lower largely due to stock adjustment
MCIE Consolidated 1,590.3 1,190.6 33.6 1,524.8 4.3
Strong growth in India and Europe lifted the overall consolidated
performance
EBITDA Margins % 13.2 11.6 160 bps 13.5 -30 bps
Higher margins from both (India + Europe) led consolidated margins to
move upwards
Source: Company, ICICIdirect.com Research; *As reported in company presentation
Change in estimates
Introduced
(| Crore) Old New % change Old New % change CY19E Comments
Revenue 6,096.5 6,272.1 2.9 6,597.2 6,866.4 4.1 7390.5 With the commencement of new orders; we have revised our revenue estimate
upwards
EBITDA 789.1 814.5 3.2 934.3 920.1 -1.5 1034.7
EBITDA Margin (%) 12.9 13.0 4 bps 14.2 13.4 -76 bps 14.0 We expect a graduall expansion in margin over the next two years
PAT 368.2 363.3 -1.3 486.5 448.1 -7.9 523.9 Revision in tax, interest & depreceation estimates; resulted into lower PAT
EPS (|) 9.7 9.6 -1.3 12.9 11.9 -7.9 13.9
CY17E CY18E
Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed.
ICICI Securities Ltd | Retail Equity Research Page 3
Key conference call takeaways
According to the management, for Q3CY17, revenue from Indian
operations was supported by the acquisition of Bill Forge (BFL),
higher steel prices and higher production of across segments.
European operations were driven by new orders of caterpillar and
after commencement of supplies of crankshafts from its newly
installed forging capacity
On an overall basis, the management expects the European market
to grow in the range of 2-3% while its Europe operation is expected
to grow in the range of 4-6%, going forward. MCI also expects its
operating performance to improve gradually on a YoY basis. Its
performance (margin/return ratio) is expected to move in line with
the ‘CIE Automotive Strategic Plan 2016-2020
The management expects 1) the ongoing cost cutting exercise in
Europe to continue, which will drive its margins and 2) good
growth, which will result into operating leverage for its Indian
business, going forward
According to management, 10% of MCI India’s revenue and 26% of
MCI’s Europe revenue (mainly into products like Crankshafts; Axles,
Engine & Transmission Gears) is exposed to the risk of electric
vehicle (EVs). On a consolidated basis, ~18.8% of the revenue is
exposed to the risk of EV. However, MCI believes no major impact
of EVs would be seen in the next five to 10 years. Some of its clients
(OEMs) have asked them for higher supplies of some of the above
products. Also, European OEMs (viz. BMW) are focusing on hybrid
vehicle, which will actually result into higher content per vehicle for
MCI, going forward
The order size for supplying the crankshafts to Volkswagen is in the
range of €5-6 million/annually while the peak revenue from the
newly commenced crankshaft (Lithuania forging plant) is in the
range of €8-9 million/annually. Further, Metalcastello’s new
caterpillar order is at ~€16 million, which is gradually expected to
be executed over the years
As on Q3CY17, the capital expenditure incurred was at | 237 crore
for CY17. The management has retained its capex guidance at ~5%
of sales, going forward
Its net debt as of Q3CY17 was at | 950-1000 crore
The leading OEM - Daimler’s move to separate its existing business
will not have any negative impact on MCI
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
MCI’s standalone business consists of Mahindra Forging India, casting &
magnet business, composites & stamping division while at the consolidated
level, it includes Mahindra Forging Europe, CIE’s forging business and
Mahindra’s gears & Bill Forge business. The standalone business accounts
for ~32% of overall revenue for CY16 while the remaining 68% is from its
subsidiary. The newly acquired BFL is also its subsidiary and comes under
the consolidated performance of the company.
Exhibit 1: Mahindra CIE – Legal Structure
Source: Company, ICICIdirect.com Research.
MCI’s phase 1 (2014-17) strategy of consolidation made good progress in
areas of optimising operations, turnaround of various segments, controlling
capex, reducing debt, among others. It first targeted Mahindra Forging
Europe (MFE) as its potential turnaround candidate where its margins
significantly improved from low single digits to double digits. MCI also
discontinued its unprofitable production, impacting Q4CY16 revenue.
However, the same will be margin accretive, going forward. A turnaround
will further lift its Metalcastello business while CIE’s European business
continues its stable operations. Also, with the Phase 1 strategy largely
complete, the group has decided that Mr Pedro will again be moving back
to Spain (CIE representative earlier in India) taking up new responsibility.
MCI has embarked on its Phase 2 (2017-20) strategy, which focuses on
growth & profitability. The strategy can be broadly divided into two with a)
focusing on business development & growth [that includes organic growth,
new acquisitions (like Bill Forge – BFL)], entry into new products &
customer’s development in India and optimise its utilisation and b) focusing
on profitability (through transfer of technology, improvement in efficiency
and increase exports. The first step of the second phase has already been
taken with the acquisition of BFL and appointment of Ander Arenara Alvarez
as CEO, which will optimise the synergy within the company.
ICICI Securities Ltd | Retail Equity Research Page 5
Revenue growth to be modest (Europe + India faces growth challenges)
Mahindra CIE’s geography wise revenue mix is at 62:38 for outside/within
India. Segment wise, the forgings entity currently accounts for 66% of
revenue and would continue to dominate the overall pie of the consolidated
revenue. Other segments viz. stampings, gears, castings account for 13%,
9% and 7%, respectively, of revenue. Composite and magnetic products
account for a small portion of 2% and 3%, respectively, of revenue for the
company.
According to the management, the European market has decent demand
and growth is expected to recover gradually, going forward. However, we
believe Brexit may impact the company’s performance to some extent,
going forward. On a standalone business, apart from new launches by its
top two clients (M&M and Tata Motors), its tie-up with other domestic OEMs
(namely Maruti Suzuki, Hyundai, Renault and Ford) would support growth.
On an overall basis, we expect revenue CAGR of ~10% over CY16-19E (as
BFL acquisition will increase the overall revenue but a subdued demand
environment and discontinuance of unprofitable business will impact its
performance).
Exhibit 2: Modest revenue growth
5,676
5,570
3,861
5,525
6,272
6,866
7,391
14.8
(1.9)
(30.7)
43.1
13.5
9.5
7.6
-40
-30
-20
-10
-
10
20
30
40
50
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY14 FY15 CY15 CY16 CY17E CY18E CY19E
(%
)
(| c
rore)
Revenue % increase
Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger assumption completed &
company has changed its accounting year from FY to CY; hence CY15 is a nine months period
Exhibit 3: Consolidated segment mix (%) – CY2016
Composites
1.8%
Magnetics
Products
2.7%
Castings
7.3%
Gears
9.4%
Stampings
12.7% Forgings
66.2%
Source: Company, ICICIdirect.com Research.
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 4: Revenue mix (segment, geography and product wise break up) | crore
Segment Geography Product Focus Area Customers
FY15
(12M)
CY15
(9M)
CY16
(12M)
Forging India Crankshafts, Stub Axles
PV, UV and
Tractors
M&M, MSIL and
TML
370 275 430
Stamping India
Sheet metal stamping,
Component & Assemblies
PV & UV M&M and TML 665 482 705
Casting India
Turbocharger Housing,
Axles & Transmission
Parts
PV, UV,
Construction
Equipment,
Earthmoving,
Tractors & export
M&M, Hyundai,
John Deere, JCB,
Cummins Turbo
411 285 406
Magnetic
Product
India
Soft & Hard Magnets,
Induction lighting
Tier 1 of PV, UV &
2-W and export
Denso, Varroc,
Lucas TVS,
Nippon Electric,
Bajaj Auto
121 98 149
Composite India Compound & Component
Elctrical,
Switchgear, Auto
Component
L&T switchgear,
M&M, Volvo
Eicher
75 64 98
1643 1204 1787
Mahindra
Forging
Europe
Europe
Forged & Machined parts,
Front Axles beams & Steel
Piston
HCV
Diamler AG,
Scania, Man,
DAF, KS, Mahle,
ZF, KION, Linde,
AGCO
1,951 1,271 1,584
CIE Forging Europe
Forged steel parts for
Industrial, Crankshafts,
Common rail, Stubs, Tulips
PV
VW, BMW,
Mercedes, Audi,
Reanult, Fiat
1,489 1,037 1,486
Mahindra
Gears
India
Gears (Engine, Timing,
Transmission)
PV & UV, Tractors
& Export
M&M, Turner,
Eaton, NHFI,
Truck Tractor
CNH
138 106 159
Metallcastell
o
Europe
Gears (Engine, Timing,
Transmission), Crown
wheel Pinion
Tractors,
Construction
Equipment,
Earthmoving,
Exports
John Deere,
Eaton CNH
349 249 364
Bill Forge* India
2-W : Steering races &
engine valve retainers. For
PV - constant velocity
joints, tulips, steering
shafts & yokes & wheel
hubs
2-W & PV
Hero, Bajaj,
HMSI, TVS, Ford,
GKN, NTN,
Nexteer,
RaneNSK
NA NA 175
3927 2662 3768
5570 3866 5555Consolidated Revenue
Total Standalone Revenue
Total Subsidiary Revenue
Standalone business
Subsidiaries
Source: Company, ICICIdirect.com Research; All financial numbers incorporate merger assumption completed; *Bill
Forge revenue is only for the period Oct- Dec 2016 (3M)
ICICI Securities Ltd | Retail Equity Research Page 7
Bill Forge acquisition = to diversify its segment + customers + reach
The BFL acquisition will help MCI diversify its segment, customer and reach
thus benefiting it. It acquired a 100% stake in BFL for | 1331 crore, through
a mix of equity (| 1,090 crore) & cash (| 241 crore). BFL has a presence
across segments with 4W (accounting ~50% of its revenue), 2W (~30% of
revenue) and exports & 3W account for ~20% of revenue. Export revenue
has grown >2.5x in the last two years and mainly supplies to Thailand,
China, Mexico, Europe & US. BFL has key customers viz. HMCL, BAL, HMSI,
TVS, MSIL, Hyundai, Honda, Ford, etc, with top 10 clients accounting for
72% of its revenue. Thus, the acquisition not only helps MCI further explore
the 4W & 2W space but also diversifies its customer concentration. Further,
MCI will have a largely pan-India access vs. past exposure, which is mainly
to the western region of India (Pune cluster). BFPL has higher machining
content, thereby deriving higher value addition of its products.
EBITDA margins to rise as CIE philosophy takes over!
Looking at the history of CIE’s acquisitions, it is evident that CIE’s
management has a very strong focus on all kinds of costs ranging from
contribution of products to corporate overheads. CIE focuses on the
decentralised management of various plants, which are independently
given targets of RoCEs and EBIT margins. The overall group turnaround is
gradually progressing. The integration of the acquired higher margin BFL
business will drive the blended margins of Indian operations while the
clean-up made in the European operations [Mahindra Forging Europe (MFE)
and Metalcastello, Italy] will drive European margins, going forward. The
management’s EBIT margin target of ~10% would be achieved over the
next couple of years. Thus, we estimate the progression of EBITDA margins
will be smooth on the way (13.4% in CY17E and 14% in CY18E).
Exhibit 5: EBITDA margin to grow strongly
453
440
378
531
815
920
1,035
8.0 7.9
9.8 9.6
13.0 13.4
14.0
-
2
4
6
8
10
12
14
16
-
200
400
600
800
1,000
1,200
FY14 FY15 CY15 CY16 CY17E CY18E CY19E
(%
)
(| c
rore)
EBITDA EBITDA Margin (%)
Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger assumption completed &
company has changed its accounting year from FY to CY; hence CY15 is a nine months period
ICICI Securities Ltd | Retail Equity Research Page 8
Large room for non-linear profit growth!
The operating and financial revival of hotspots like MFE can have a
significant impact on the profitability of the overall business. We expect this
to happen, albeit at a pace slower than that targeted by CIE’s management.
We expect profits after MI (PE stake in Metalcastello) to gallop to ~| 524
crore in CY19E with PAT margins improving ~640 bps from FY14-CY19E to
7.4%. The path to this improvement has been started since CY15. We may
see a significant improvement in CY17E, CY18E & CY19E with PAT margins
likely to come in at 5.8%, 6.5% & 7.1% respectively.
Exhibit 6: Profit to start getting pumped up as operational improvement kicks in!!!
40
39.6
87
169
363
448
524
0.7
(1.4)
2.3
3.1
5.8
6.5
7.1
-2
-1
-
1
2
3
4
5
6
7
8
-200
-100
-
100
200
300
400
500
600
FY14 FY15 CY15 CY16 CY17E CY18E CY19E
(%
)
(| c
rore)
PAT PAT Margin (%)
Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger assumption completed &
company has changed its accounting year from FY to CY; hence CY15 is a nine months period
ICICI Securities Ltd | Retail Equity Research Page 9
Outlook and valuation
We feel MCI provides a rare, unique Indian auto component play, which has
a global footprint with global promoters. The company is a unique case of
valuation considering the massive turnaround possibilities. Hence, we are
factoring in the same. We expect the turnaround to be significant, as,
according to our estimates, there will be non-linear profit growth from
~| 40 crore in FY14 to | 524 core in CY19E. MCI would find a way to
increase efficient and profitable utilisation with no major capex (only
maintenance capex of | 300-| 400 crore) over the next two or three years.
We expect strong business prospects to fructify into a turnaround, further
resulting into net debt ~| 850 crore till CY19E (CY19E-debt/EBITDA: 0.9x,
debt/equity: 0.2x FY13- debt/EBITDA: ~3.7x, debt/equity: 0.7). We also
expect MCI to pay dividends, going forward. We continue to value the stock
on EV/EBITDA multiple of 11x its CY19E, considering it is a turnaround
company. Hence, we maintain BUY rating with a target price of | 280/share.
Exhibit 7: Valuation
Pariculars
CY19E EBITDA (| crore) 1035
Implied target EV/EBITDA (x) 11
EV (| crore) 11433
CY19E Net Debt (| crore) 850
Mcap (| crore) 10583
No. of shares (crore) 37.8
Target Price (| per share) 280
Source: Company, ICICIdirect.com Research
Exhibit 8: Valuation
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
CY15 3,677.5 12.0 2.3 NA 106.7 27.1 7.5 7.4
CY16 5,286.7 43.8 4.5 93.8 55.0 19.8 5.4 6.9
CY17E 6,042.4 14.3 9.6 115.0 25.6 12.6 10.1 11.5
CY18E 6,866.4 13.6 11.9 23.4 20.8 11.1 11.1 12.9
CY19E 7,390.5 7.6 13.9 16.9 17.8 9.8 11.6 13.8
Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger assumption completed &
company has changed its accounting year from FY to CY; hence CY15 is a nine months period
ICICI Securities Ltd | Retail Equity Research Page 10
Recommended history vs. consensus estimates
0.0
20.0
40.0
60.0
80.0
100.0
0
50
100
150
200
250
300
350
Oct-17Aug-17May-17Mar-17Jan-17Oct-16Aug-16May-16Mar-16Dec-15Oct-15
(%
)(|)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Jun-08 Mahindra Forging's acquisitions in Europe, including Schöneweiss, start to integrate into the business
Apr-09 The company reports annual losses on the back of sudden downturn in the European business
Oct-09 Domestic business also suffers on the back of Lehmann crisis
Nov-09 Mahindra Forgings invests in doubling installed capacity in the forgings entity in India to 80,000 MT
Mar-10 Receives best supplier awards from Volvo Eicher, Kirloskar Oil Engines
Jul-10 Company starts to report better financials compared to previous years
Sep-11 Third crankshaft machining line installed, new makino installed for tool room in die production
Sep-13 CIE Automotive Spain and M&M agree to a merger between Mahindra Systech and CIE Forgings Europe. M&M acquires 13.5% stake in CIE SPA for €6 while
retaining 20% direct ownership in new company Mahindra CIE automotive. CIE post merger will have ~51% stake in the company
Jan-14 CIE's efforts in turning around Mahindra Forgings Europe start to reflect fruitfully as MFE starts to clock ~6-8% EBITDA
Jun-14 All parties ranging from shareholders to creditors give approval to the merger. Final court approval pending
Oct-14 Management indicates completion of the merger process likely by early December
Dec-14 Merger of Mahindra CIE companies formally completed on December 10, 2014
Jul-16 To optimise the synergy within companies, the board of directors have appointed Ander Arenara Alvarez as Chief Executive Officer of MCI
Sep-16 MCI acquires Bill Forge (which is into forging capabilities) which is into 4-W, 2-W and exports markets thereby diversifying its segment, customer & geography
mix going forward. It will acquire 100% stake for | 1331 crore, through a mix of equity (value | 1,090 crore) & cash (| 241 crore).
Oct-16 The Board of Directors appoints K Jayaprakash as Chief Financial Officer of the company
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Participaciones Internacionales Autometal DOS, S. L. 30-Jun-17 0.51 194.3 0.00
2 Mahindra Group 30-Jun-17 0.17 65.3 0.00
3 Ainos Holdings Ltd. 30-Jun-17 0.04 13.8 0.00
4 GIC Private Limited 30-Jun-17 0.02 6.5 -0.08
5 Sundaram Asset Management Company Limited 30-Sep-17 0.02 6.2 0.00
6 Haridass (Anjali Powar) 30-Jun-17 0.02 5.7 0.00
7 Haridass (Anil) 30-Jun-17 0.01 5.6 0.00
8 Prudential Management & Services Pvt. Ltd. 30-Jun-17 0.01 4.8 4.78
9 Haridass (Sunil) 30-Jun-17 0.01 4.6 0.00
10 Life Insurance Corporation of India 30-Jun-17 0.01 4.4 0.00
(in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
Promoter 74.7 69.9 69.9 69.9 69.9
FII 6.1 5.6 5.7 5.5 5.5
DII 9.1 11.5 11.3 11.5 6.4
Others 10.1 13.0 13.1 13.2 18.3
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value Shares Investor name Value Shares
Prudential Management & Services Pvt. Ltd. 18.05 4.78 GIC Private Limited -0.29 -0.08
APG Asset Management 2.13 0.65 Nuveen LLC -0.10 -0.03
Stewart Investors 0.63 0.17 Baillie Gifford & Co. -0.04 -0.01
Aditya Birla Sun Life AMC Limited 0.52 0.14 Shankar (Krishnan) -0.02 0.00
Luthra (Hemant) 0.54 0.14 Mellon Capital Management Corporation -0.01 0.00
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
.
Financial summary
Profit and loss statement | Crore
(Year-end March) CY16 CY17E CY18E CY19E
Total operating Income 5,524.6 6,272.1 6,866.4 7,390.5
Growth (%) 43.1 13.5 9.5 7.6
Raw Material Expenses 2,144.4 2,797.7 3,124.2 3,362.7
Employee Expenses 1,102.5 1,172.2 1,208.5 1,249.0
Other Expenses 1,746.6 1,487.7 1,613.6 1,744.2
Total Operating Expenditure 4,993.5 5,457.5 5,946.3 6,355.8
EBITDA 531.1 814.5 920.1 1,034.7
Growth (%) 53.4 13.0 12.5
Other Income 31.4 27.2 34.3 37.0
Interest 59.4 64.4 57.4 48.4
Depreciation 232.5 272.8 274.7 295.6
PBT 261.5 504.5 622.4 727.7
Total Tax 92.6 141.3 174.3 203.7
PAT before Minority Interest 169.0 363.3 448.1 523.9
Minority Interest 0.0 0.0 0.0 0.0
PAT after Minority Interest 169.0 363.3 448.1 523.9
EPS (|) 4.5 9.6 11.9 13.9
Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger
assumption completed
Cash flow statement | Crore
(Year-end March) CY16 CY17E CY18E CY19E
Profit after Tax 169.0 363.3 448.1 523.9
Add: Depreciation 232.5 272.8 274.7 295.6
(Inc)/dec in Current Assets -495.6 -281.5 -195.7 -172.6
Inc/(dec) in CL and Provisions 2.3 323.1 200.0 176.3
CF from operating activities -32.4 742.0 784.4 871.6
(Inc)/dec in Investments -90.1 -32.5 -25.8 -22.8
(Inc)/dec in Fixed Assets -250.0 -310.0 -350.0 -380.0
Others -914.3 -62.8 -244.0 -268.4
CF from investing activities -1,254.3 -405.3 -619.9 -671.2
Interest Paid -59.4 -64.4 -57.4 -48.4
Inc/(dec) in loan funds 306.4 -200.0 -100.0 -100.0
Dividend paid & dividend tax 0.0 -24.4 -41.1 -52.1
Others 1,087.7 0.0 0.0 0.0
CF from financing activities 1,334.8 -288.8 -198.4 -200.5
Net Cash flow 48.0 47.9 -33.9 0.0
Opening Cash 50.1 98.1 146.1 112.2
Closing Cash 98.1 146.1 112.2 112.1
Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger
assumption completed
Balance sheet | Crore
(Year-end March) CY16 CY17E CY18E CY19E
Liabilities
Equity Capital 378.1 378.1 378.1 378.1
Reserve and Surplus 2,888.1 3,230.5 3,645.5 4,125.2
Total Shareholders funds 3,266.2 3,608.6 4,023.6 4,503.3
Total Debt 1,362.1 1,162.1 1,062.1 962.1
Minority Interest 0.0 0.0 0.0 0.0
Total Liabilities 5,056.3 5,362.7 5,718.2 6,133.5
Assets
Gross Block 5,628.6 5,872.0 6,222.0 6,602.0
Less: Acc Depreciation 3,985.0 4,257.8 4,532.5 4,828.1
Net Block 1,783.5 2,093.5 2,443.5 2,823.5
Capital WIP 96.6 30.0 30.0 30.0
Total Fixed Assets 1,880.1 2,123.5 2,473.5 2,853.5
Investments 38.9 44.2 48.3 52.0
Goodwill 2,690.1 2,690.1 2,690 2,690
Inventory 835.2 962.3 1,053.5 1,133.9
Debtors 521.9 618.6 677.2 728.9
Other current assets 183.9 208.7 228.5 245.9
Cash 98.1 146.1 112.2 112.1
Total Current Assets 1,639.0 1,935.7 2,071.4 2,220.9
Creditors 1,526.0 1,804.3 1,975.3 2,126.0
Provisions 19.3 31.4 34.4 37.0
Other Current Liabilities 241.6 274.3 300.3 323.2
Total Current Liabilities 1,786.9 2,110.0 2,309.9 2,486.2
Net Current Assets -147.9 -174.3 -238.5 -265.3
Application of Funds 5,056.3 5,362.7 5,718.2 6,133.5
Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger
assumption completed
Key ratios
(Year-end March) CY16 CY17E CY18E CY19E
Per share data (|)
EPS 4.5 9.6 11.9 13.9
Cash EPS 10.6 16.8 19.1 21.7
BV 86.4 95.5 106.4 119.1
DPS 0.0 0.5 0.8 1.0
Cash Per Share 2.6 3.9 3.0 3.0
Operating Ratios (%)
EBITDA Margin 9.6 13.0 13.4 14.0
PAT Margin 3.2 5.8 6.5 7.1
Inventory days 55.2 56.0 56.0 56.0
Debtor days 34.5 36.0 36.0 36.0
Creditor days 100.8 105.0 105.0 105.0
Return Ratios (%)
RoE 5.4 10.1 11.1 11.6
RoCE 6.9 11.5 12.9 13.8
RoIC 17.8 33.6 38.2 41.7
Valuation Ratios (x)
P/E 55.0 25.6 20.8 17.8
EV / EBITDA 19.8 12.6 11.1 9.8
EV / Net Sales 1.9 1.6 1.5 1.4
Market Cap / Sales 1.7 1.5 1.4 1.3
Price to Book Value 2.8 2.6 2.3 2.1
Solvency Ratios
Debt/Equity 0.4 0.3 0.3 0.2
Current Ratio 1.0 1.0 1.0 1.0
Quick Ratio 0.5 0.5 0.5 0.5
Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger
assumption completed
ICICI Securities Ltd | Retail Equity Research Page 12
ICICIdirect.com coverage universe (Auto & Auto Ancillary)
CMP M Cap
(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Amara Raja (AMARAJ) 705 870 Hold 12038 28.0 27.5 37.6 25.2 25.6 18.7 16.1 15.6 11.9 25.8 22.9 26.4 18.5 15.8 18.3
Apollo Tyre (APOTYR) 241 315 Buy 12159 21.8 17.2 24.2 11.1 14.0 9.9 10.7 10.7 8.2 13.6 10.2 13.0 15.1 10.8 13.5
Ashok Leyland (ASHLEY) 129 120 Buy 36301 4.3 4.4 6.3 29.9 29.2 20.3 13.3 12.3 9.4 23.9 25.1 29.7 25.0 18.8 22.7
Bajaj Auto (BAAUTO) 3232 3170 Hold 93532 132.3 146.8 178.2 22.0 19.8 16.3 17.6 16.0 12.6 30.3 30.4 32.5 22.5 22.3 23.3
Balkrishna Ind. (BALIND) 1638 1800 Buy 15835 74.0 80.2 105.5 21.6 20.0 15.2 13.9 12.7 9.5 23.0 23.9 26.8 20.2 23.9 26.8
Bharat Forge (BHAFOR) 657 1350 Buy 15317 29.9 39.8 47.6 22.0 16.5 13.8 21.7 14.6 12.3 16.1 22.0 26.9 14.6 17.8 21.2
Bosch (MICO) 21259 23300 Hold 66754 570.5 488.1 613.2 38.9 45.5 36.2 33.5 31.7 25.6 16.4 15.6 17.6 24.1 23.5 26.3
Eicher Motors (EICMOT) 29500 33460 Buy 85666 655.9 828.5 1026.0 48.4 38.3 30.9 27.2 21.3 17.1 39.2 38.8 36.8 36.0 33.5 31.1
Exide Industries (EXIIND) 209 270 Buy 17765 8.2 8.8 10.5 25.6 23.8 20.0 16.2 13.8 11.6 18.5 19.0 20.3 14.0 13.7 14.8
Hero Moto (HERHON) 3770 4475 Buy 75280 156.9 169.1 198.3 24.0 22.3 19.0 16.4 15.5 13.1 48.7 44.0 46.0 35.8 33.4 33.9
JK Tyre & Ind (JKIND) 146 155 Hold 3303 16.6 0.7 22.1 8.8 204.8 6.6 7.5 11.2 5.4 11.2 5.4 13.9 16.6 0.8 21.1
Mahindra CIE (MAHAUT) 252 280 Buy 9521 9.6 11.9 13.9 26.2 21.2 18.2 12.9 11.3 10.0 10.1 11.1 11.6 11.5 12.9 13.8
Maruti Suzuki (MARUTI) 7870 8500 Buy 237837 242.9 284.5 354.1 32.4 27.7 22.2 22.1 18.5 14.9 26.3 27.5 28.8 20.3 20.7 21.8
Motherson (MOTSUM) 359 335 Hold 75517 7.4 10.7 13.6 48.6 33.5 26.3 17.1 12.6 9.8 16.0 22.3 27.7 19.6 24.7 25.2
Tata Motors (TELCO) 379 490 Buy 115046 22.3 31.3 44.4 17.0 12.1 8.5 5.6 5.2 3.8 11.6 11.5 15.7 15.0 14.7 20.2
Wabco India (WABTVS) 6316 6250 Buy 12000 112.5 130.2 168.6 56.1 48.5 37.5 29.2 26.0 20.1 16.9 16.7 18.0 23.6 23.1 24.9
Sector / Company
RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)
Source: Company, ICICIdirect.com Research * All financial numbers incorporate merger assumption completed
ICICI Securities Ltd | Retail Equity Research Page 13
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 14
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