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November 3, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
India business drives performance!
Apollo Tyres’ (ATL) Q2FY18, consolidated revenues grew 12.7% YoY
to | 3,477 crore as India business reported strong growth of 18%
YoY (volume growth of ~10% YoY while the value & product mix
grew 8% YoY). Revenues (adjusting excise duty) from Asia Pacific
Middle East & Africa (APMEA) grew 17.8% YoY to | 2,519 crore while
revenue from Europe increased 1.4% YoY to | 1006 crore
EBITDA margins were at 10.5% (down 373 bps YoY, up 216 bps
QoQ) mainly due to lower raw material cost (gross margin up 230
bps QoQ). Consolidated PAT declined 46.1% YoY to | 140 crore
Standalone revenues increased 19.5% YoY to | 2,481 crore while its
EBITDA margins improved 315 bps QoQ to 11.5%
ATL has raised | 1,500 crore via allotment of 6.3 crore equity share
(resulting in ~12% dilution) at | 238/share on October 10, 2017
According to the management, a demand revival in replacement
market, good OEM sales and imposition of duty on Chinese tyres is
likely to drive its demand while margin is expected to gradually
improve considering stable raw material. The European business is
expected to recover in FY19E both on the demand and margin front
Well placed to benefit from demand revival
ATL is well placed to benefit from the radialisation story in India. It enjoys
25% market share in truck tyre segment (in both TBB & TBR). Increasing
radial capacity; will improve its radial volumes, (phase 1 of radial capacity
has been commissioned in Q4CY16 & with full capacity set to come on
stream in mid-2018), thus driving its growth. According to the
management, strong OEM demand (all categories posted strong growth
in Q2FY18), revival in replacement demand (up ~5% YoY in Q2FY18 vs.
subdued growth in the past) is likely to drives its revenue. Imposition of
anti-dumping duty (ADD) in September 2017 on Chinese tyre has resulted
in 1) lower Chinese import (from 150,000/month pre demonetisation to
~80,000/month and currently at ~70,000/month) and 2) has narrowed the
pricing gap between Chinese & Indian players thereby benefiting
domestic players (specifically market leader like ATL), which will increase
its volumes thereby resulting into higher market share, going forward.
Also, re-stocking of tyre inventory by the dealer is largely done in
Q2FY18. The situation has normalised thus benefiting ATL. Thus, the
management is positive on demand outlook in India, going ahead.
Margin to improve from here on...
According to management, the margins in the previous quarter were
impacted due to high cost raw material procured in the past. However,
with NR prices been stabilized at |130/kg since May 2017, gross margins
are expected to improve from here onwards. The Q2FY18 margin has
improved QoQ & is likely to continue its momentum. The start-up cost in
Hungary will impact margins in the near term. However, they are
expected to significantly recover in FY19E. Further, a better product mix
(higher share of radial tyre) will support margins, going forward.
Decent business case; valuation remains fair!
ATL expects good demand momentum to continue in H2FY18. Margins
are expected to gradually move northwards thereby driving profitability.
We revise our earnings estimates (largely in line with management
guidance) and factor in QIP proceed (resulting in equity dilution), which in
addition to the internal accrual will mostly fund capex in the next two
years. We maintain BUY rating and value the stock at 14x FY19E EPS to
arrive at a target price of | 275.
Rating matrix
Rating : Buy
Target : | 275
Target Period : 12 months
Potential Upside : 16%
What’s Changed?
Target Changed from | 315 to | 275
EPS FY18E Changed from | 17.3 to | 12.2
EPS FY19E Changed from | 24.2 to | 19.6
Rating Unchanged
Quarterly Performance
(| Crore) Q2FY18 Q2FY17 YoY Q1FY18 QoQ
Revenues 3,476.7 3,084.9 12.7 3,282.5 5.9
EBITDA 364.4 438.4 -16.9 273.3 33.4
EBITDA (%) 10.5 14.2 -373 bps 8.3 216 bps
Reported PAT 140.2 260.0 -46.1 88.3 58.8
Key Financials
| Crore FY16 FY17 FY18E FY19E
Net Sales 11,740 13,063 14,082 15,395
EBITDA 1,997.5 1,846.4 1,504.0 2,112.8
Net Profit 1,123.0 1,099.0 696.1 1,123.4
EPS (|) 19.6 19.2 12.2 19.6
Valuation summary
FY16 FY17 FY18E FY19E
P/E (x) 12.4 12.3 19.4 12.0
Tgt P/E (x) 14.0 14.3 22.6 14.0
EV/EBITDA (x) 6.9 8.7 10.4 7.6
P/BV (x) 2.0 1.9 1.5 1.3
RoNW (%) 16.5 15.1 7.5 11.0
RoCE (%) 18.8 13.6 8.4 11.8
Stock data
Particular Amount
Market Capitalization (| Crore) | 13500 Crore
Total Debt (FY17) (| Crore) 3,244.5
Cash & Investments (FY17) (| Crore) 731.4
EV (| Crore) 16,013.4
52 week H/L (|) 288 / 166
Equity capital (| crore) | 50.4 Crore
Face value (|) | 1
Price performance (%)
1M 3M 6M 12M
Apollo Tyres Ltd -3.5 -14.6 -5.2 19.1
JK Tyres -1.2 -14.3 -14.8 1.2
CEAT Ltd -1.5 -12.4 5.8 40.3
MRF Ltd 4.3 -7.2 -3.9 32.6
Balkrishna Industries Ltd 2.8 8.3 13.9 72.1
Research Analyst
Nishit Zota
Vidrum Mehta
Apollo Tyres (APOTYR) | 237
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis- Consolidated
(| crore) Q2FY18E Q2FY18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments
Total Operating Income 3,477 3,345 3,085 12.7 3,282 5.9 Revenues grew 12.7% YoY after 1) domestic (India) business grew 18% YoY,
which was further attributable to volume growth of 10% YoY and price &
product mix of 8% YoY. The replacement demand also fared well during the
quarter (up 5% YoY)
Raw Material Expenses 1,983 1,794 1,592 24.6 1,947 1.8 As expected, ATL benefited from lower raw material cost on a QoQ basis,
which expanded the gross margin by 230 bps QoQ
Employee Expenses 490 451 434 13.0 431 13.6
Other expenses 639 686 621 2.9 630 1.4 Lower other expense also supported the margin
EBITDA 364 413 438 -16.9 273 33.4
EBITDA Margin (%) 10.5 12.4 14.2 -373 bps 8.3 216 bps EBITDA margin on a QoQ basis was driven by lower raw material cost &
lower other expense
Depreciation 138 126 106 30.9 126 10.1
Interest 40.2 36.4 26.3 53.0 34 18.1
Other income 19.7 35.7 43.0 -54.1 8.8 125.3 Other income came in much lower than our estimate, further impacting PAT
Tax 65.2 73.1 89.1 -26.8 34 92.9
PAT 140.2 213.7 260.0 -46.1 88.3 58.8 Lower-than-expected margin impacted the PAT
EPS (|) 2.5 4.2 4.5 -46.1 1.5 58.8
Key Metrics
Revenue (| crore)
India 2,519 2,139 17.8 2,585 -2.5 Revenue grew 18% YoY; as volume grew 10% YoY while price & product mix
witnessed growth of 8% YoY in Q2FY18
Europe 1,006 992 1.4 1,016 -1.0 Its European operations volumes declined 5% YoY and underperformed the
industry
EBIT Margin (%)
India 8.4 14.4 -600 bps 4.4 393 bps Margins improved QoQ, in line with management guidance
Europe 1.8 4.7 -285 bps 2.4 -57 bps Higher start up cost and lower utilisation level further impacted margin of its
European operations
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) Old New % Change Old New % Change Comments
Revenue 14,254 14,253 0.0 15,871 15,592 -1.8 We have marginally revised our revenue estimates
EBITDA 1,647 1,504 -8.7 2,114 2,113 -0.1
EBITDA Margin (%) 11.6 10.6 -100 bps 13.3 13.6 23 bps
Lower-than-expected margins in H1FY18 has prompted us to revise FY18
estimates. However,margins are likely to improve in FY19E, which is largely
in line with the management expectations
PAT 866 696 -19.6 1,222 1,123 -8.1 Lower other income and higher depreciation is likely to impact PAT
EPS (|) 17.2 12.2 -29.2 24.2 19.6 -19.0
ATL raised funds via QIP route (issuing 6.3 crore share thereby diluting
equity by 12%) thus resulting into lower EPS vis-a-vis PAT
FY18E FY19E
Source: Company, ICICIdirect.com Research;
ICICI Securities Ltd | Retail Equity Research Page 3
Key conference call takeaways
The management is positive on the demand outlook, going forward.
Strong OEM sales, revival in replacement demand and imposition of
anti-dumping duty on Chinese tyre will drive demand in Q3FY18
The management believes the raw material movement has largely
stabilised and expects margins to improve in Q3FY18. However, it
expects some challenge in Q4FY18. The start-up cost of its Hungary
plant will exert some pressure on margins in European operations in
FY18E. However, the same is expected to improve from FY19E
onwards
For Q2FY18, the standalone business (India) grew ~18%, as volume
grew ~10% YoY while the value & product mix grew 8% YoY.
According to the management, in Q2FY18, truck OEM volume grew
~40% YoY while truck replacement grew ~5% YoY. Revenue from
Europe (Dutch and Hungary) was at €107 million (mn) – down 5%
YoY (volume down 5% YoY) underperforming the overall European
industry. Revenue of its distribution business in Europe - Reifencom
was at €27 million (mn) & posted operational loss during the quarter
According to the management, Chinese import fell from
150,000/month pre demonetisation to ~80,000/month and is currently
at ~70,000/month. With the imposition of anti-dumping duty, the
management expects the share of domestic players to increase in the
TB tyre market (ATL well placed to grab the market share) as Chinese
imports are gradually expected to come down, going forward
Capex for FY18 is expected to be | 2,400 crore (of which Chennai
plant would be | 1,000 crore) while for FY19 it is expected to be
| 2100 crore. The capacity expansion is mainly for Hungary
expansion, ramp up of passenger car capacity & completion of
Chennai plant expansion
The share of truck bus radial (TBR) tyre is at >50% for ATL vs.
industry radial share in the range of 45-50%
Its 2-W volumes are up 50% YoY. The company continues to work on
the outsourcing model of 2-W tyres. According to the management,
once 2-W volume significantly picks up, they may think of setting up a
pilot capacity, going forward
Average landed cost for various raw material for Q2FY18 is at – NR at
| 160/kg, synthetic rubber | 130/kg, fabric | 260/kg and carbon black
at | 65/kg
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Global player – with good business diversification across geographies!
A quick glance at Apollo’s consolidated performance shows an increase
in contribution of the European subsidiary from FY10 onwards. Revenue
from Europe has increased from ~24% in FY10 to ~30% in FY15. The
share had dropped to 27% in FY16 primarily due to internal factors
(namely implementation of SAP impacting sales volumes, resulting in
increase in inventory and working capital) and due to external factor
(unfavourable winter season and currency movement). However, the
management remained optimistic on demand, which recovered in FY17
along with large part of internal issues sorted out thereby increasing its
share back to 30%. In terms of segment mix, replacement: OEM share
was at 77: 23 respectively. In the category mix, T&B accounts for 42% of
its revenue, PV accounts for 40% of revenue while the remaining 10%,
6%, 2% is derived from off-highway, LCV & other segments, respectively.
Exhibit 1: Revenue break-up - Geography-wise 5,037
5,490
8,158
8,507
8,712
8,938
8,682
8,934
9,902
10,655
1,990 2,234
2,850 2,992
3,943 4,032 3,284
4,091
4,403
4,740
1,097 1,183
1,308 1,502
1,271 321
-
-
-
-
-
3,000
6,000
9,000
12,000
15,000
18,000
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
(| c
rore)
India Europe South Africa
Source: Company, ICICIdirect.com Research
Exhibit 2: Profitability contribution - Geography-wise
661
413
499
736
930
1,106
1,346
1,179
845
976
224
298
386
432 5
57
479
256
307
97 117
-
400
800
1,200
1,600
2,000
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(| c
rore)
India Europe
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 5
Revenue growth strong on radial TB side!
We factor in revenue growth at ~9% CAGR in FY17-19E, mainly led by
mix of both volume & value. We believe domestic demand will improve
on the back of radialisation trend in the truck bus segment. The
radialisation trend has promoted companies for higher capacity within the
segment in India. ATL’s truck bus radial (TBR) capacity is currently
operating at >90% utilisation level. Therefore, it is expanding its capacity
from 6,000 units to 12,000 units in a phased manner over the next 12-18
months. Further, the imposition of anti-dumping duty on Chinese tyres
will favour domestic tyre players (specifically ATL that is the market
leader in the T&B segment). ATL has also smartly used its nylon capacity
(that was underutilised given the radialisation trend) and is producing off-
highway tyres, which has resulted in strong growth in FY17.
Exhibit 3: We build in modest revenue growth at 9% CAGR in FY17-19E
8,868
12,153
12,795
13,413
12,785
11,849
13,180
14,253
15,592
9.2
37.0
5.3 4.8
-4.7
-7.3
11.2
8.19.4
-15
-10
-5
0
5
10
15
20
25
30
35
40
-
3,000
6,000
9,000
12,000
15,000
18,000
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(%
)
(| c
rore)
Sales % growth
Source: Company, ICICIdirect.com Research
Margins to improve from here on!
ATL’s margins have expanded from 9.6% to 15.1% from FY12 to FY15
and further increased to 16.7% in FY16 on the back of a reduction in raw
material prices. Prices of natural rubber (NR - account for ~40% of raw
material cost) declined from | 250/kg in 2011 to ~| 94/kg in February
2016. However, from its lows in February 2016, the price moved upwards
to | 159/kg in February 2017 and is currently at | 130/kg in October 2017.
According to the management, the Q1FY18 margins were impacted due
to high cost raw material procured in the past. However, with NR prices
stabilising more since May 2017 (hovering at ~| 130/kg), gross margins
are gradually expected to stabilise and improve from here onwards. In
Q2FY18, the margin looks contracted YoY. However, it has improved
QoQ and is likely to continue its momentum. The start-up cost in Hungary
is likely to impact margins in the near term. However, the same is
expected to significantly recover in FY19E. Further, a better product mix
(higher share of radial tyre) will further support margin. Thus, we expect
margins to recover in FY19E to 13.6%.
ICICI Securities Ltd | Retail Equity Research Page 6
Exhibit 5: Margin movement with RM trend
58.9
58.6
57.2
56.7
56.0
52.4
56.9
50.8
53.4
49.5
49.9
49.2
51.9
52.7
57.2
59.8
58.0
13.2
16.0
14.3
13.2
14.9
15.8
16.6
17.7
16.1
17.2
16.016.3
14.2 14.4
11.1
8.3
10.5
36
40
44
48
52
56
60
64
4
6
8
10
12
14
16
18
20
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
(%
)
(%
)
Raw materials/Sales Contribution OPM (LHS)
Source: Company, ICICIdirect.com Research
Exhibit 6: Natural rubber prices have been volatile!
212
94
160
80
100
120
140
160
180
200
220
240
260
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
(|/Kg)
Production cut by top natural rubber
producing countries like Thailand,
Indonesia and Malaysia led to rise in
NR prices
Floods in Thailand & demand
from China led NR prices to
move northwards
Source: Company, ICICIdirect.com Research
Exhibit 4: EBITDA margins to recover, going forward
978
1,166
1,457
1,876
1,931
1,997
1,846
1,504
2,113
11.0
9.6
11.4
14.0
15.1
16.9
14.0
10.6
13.6
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
-
500
1,000
1,500
2,000
2,500
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(%
)
(| c
rore)
EBITDA EBITDA Margins (%)
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 7
Strong capital structure in capital intensive, cyclical business!
Despite the capital intensiveness and cyclicality of the business, ATL has
managed to maintain a decent balance sheet strength. With FY16, D/E at
comfortable 0.4x levels, we believe this is the company’s greatest
strength in the good RoCE business. We believe the company has a huge
expansion plan of over >| 6,000 crore in FY17-19E, with an investment of
~€475 million in Eastern Europe over FY17-19E. For FY18E, its capex is
likely to be at | 2,500 crore, (of which an investment of ~€180 million in
Europe to serve the rising demand). For FY19E, its capex is expected to
be | 2,100 crore. To fund this huge capex, ATL on October 10, 2017
issued 6.3 crore equity share at a price of | 238/share to qualified
institutional buyers thereby aggregating | 1,500 crore. According to the
management, post this issue ATL will be in a comfortable position to
meet its major requirements and will not raise debt, going forward.
Exhibit 7: Comfortable debt position in high RoCE business!
0.8 0.8
0.7
0.2
0.0 0.0
0.3
0.2 0.3
14.8 15.1
17.6
23.2
24.7
18.8
13.6
8.4
11.8
-
5
10
15
20
25
30
-
0.2
0.4
0.6
0.8
1.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(%
)
(x)
Nebt Debt/Equity RoCE
Source: Company, ICICIdirect.com Research
Exhibit 8: CFOs on up trend!
295
387
773
1,534
1,795
1,683
1,475
1,492
1,770
1,042
907
533
433
784
1,171
3,847
2,500
2,100
2,222
2,550
2,651
1,613
801 1,389
3,245
3,245
3,245
-
400
800
1,200
1,600
2,000
2,400
2,800
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(| c
rore)
CFO Capex Debt
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 8
Profitability to remain at elevated levels as demand returns!
With the expected demand revival, we believe volumes will improve as
OEM demand is likely to increase, thereby driving its revenue, going
forward. Further, according to the management, the margin pressure is
likely to ease out, going forward, as the benefit of low cost inventory has
started to accrue from Q2FY18 onwards thereby supporting the
bottomline. Thus, profitability is likely to remain at decent levels, with PAT
margins likely to come in at >7% for FY19E.
Exhibit 10: EBITDA growth vs. interest/depreciation trend
978
1,166
1,457
1,876
1,931
1,997
1,846
1,504 2
,113
185
287
313
284
183
93
103
139
130
272
326
397
411
411
427
462
534
577
-
500
1,000
1,500
2,000
2,500
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(| c
rore)
EBITDA Interest Depreciation
Source: Company, ICICIdirect.com Research
Exhibit 9: Profit margins to remain as operational improvement kicks in!
440
432
601
1,044
1,015
1,091
1,099.2
696.1 1
,123.4
5.0
3.6
4.7
7.8 7.9
9.2
8.3
4.9
7.2
2
3
4
5
6
7
8
9
10
-
200
400
600
800
1,000
1,200
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
(%
)
(|
crore)
PAT PAT Margin (%)
Source: Company press release, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 9
Outlook and valuation
ATL’s revenue growth remained subdued in FY15 & FY16. However, it has
seen a recovery in FY17, on the back of a demand revival in the OEM
space. The company is further investing in its TBR capacity (where its
current utilisation is >90% and there is a shift in trend from bias to radial
tyres in India). This is likely to drive its volume growth, going forward.
Similarly, in Europe, its new facility is slated to aid the current capacity
crunch faced by Vredestein coupled with strong domestic demand, which
is expected to improve in the coming years. With a decent D/E profile,
return ratios and strong operating cash flow, the company is much better
placed in this business cycle vis-à-vis previous up cycles due to its largely
diversified and global scale of business.
ATL is investing in more diversified, rapid growth areas coupled with a
larger scale of business in coming years. Going forward, the management
expects demand to recover mainly on the back of 1) good OEM demand;
2) revival in replacement demand; 3) and after domestic player are
expected to benefit from the imposition of anti-dumping duty (ADD) on
the Chinese tyre. Hence, we build in revenue CAGR of 9% in FY17-19E.
The margins are also expected to move northwards gradually thereby
driving profitability, going forward. Thus, we maintain BUY
recommendation and value the stock at 14x FY19E EPS to arrive at a
target price of | 275.
Exhibit 11: Valuation
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY16 11,849 (7.3) 19.6 17.6 12.1 6.9 16.5 18.8
FY17E 13,180 11.2 19.2 (2.1) 12.3 8.7 15.1 13.6
FY18E 14,253 8.1 12.2 (36.7) 19.5 10.5 7.5 8.4
FY19E 15,592 9.4 19.6 61.4 12.1 7.7 11.0 11.8
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 10
Recommended history vs. consensus
0.0
20.0
40.0
60.0
80.0
100.0
0
50
100
150
200
250
300
350
Nov-17Jul-17Mar-17Nov-16Jul-16Mar-16Nov-15
(%
)(|)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
Oct-10 Rubber prices start moving up on production concerns in Thailand on excessive rains
Aug-11 Rubber prices begin to stabilise as production picks up
Jun-13 Apollo announces Cooper Tire deal acquisition
Oct-13 Cooper deal under pressure on China labour strike
Oct-13 Cooper Tire files suit against Apollo
Dec-13 Cooper Tire terminates deal with Apollo; court dismisses Cooper appeal
Feb-14 Cooper Tire files suit against Apollo
Jun-14 Apollo to invest ~|400 crore at its Kerala facility to expand its Off-highway tyre capacity
Sep-14 Company to invest greenfield facility at Hungary and is likely to invest Euro 475 million over next 4 to 5 years
Sep-14 Apollo Tyre Africa voluntarily decides to cease its business operations
Oct-14 RBI hikes FII limit for investment upto 45% of paid up capital in Apollo Tyre
May-15 Apollo plans to invest |1500 crore to expand its Truck bus radial (TBR) capacity at its Chennai plant from 6000 units/ day to 9000 units/day
Aug-15 Board approves ATL's plans to raise debt of | 2,000 crore by way of rupee term loan, foregin currency term loan, NCDs from time to time
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Neeraj Consultants Pvt. Ltd. 30-Sep-17 0.13 72.1 0.00
2 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Sep-17 0.07 38.7 6.60
3 Apollo Finance, Ltd. 30-Sep-17 0.06 36.8 0.00
4 Sunrays Properties & Investment Company Pvt. Ltd. 30-Sep-17 0.06 36.3 0.00
5 Sacred Heart Investment Company Pvt. Ltd. 30-Sep-17 0.04 24.4 0.00
6 Templeton Asset Management Ltd. 30-Sep-17 0.03 17.9 0.76
7 Motlay Finance Pvt. Ltd. 30-Sep-17 0.03 16.9 0.00
8 Classic Auto Tubes, Ltd. 30-Sep-17 0.03 14.5 0.00
9 Mehta (Ashwin Shantilal) 30-Sep-17 0.02 13.5 0.00
10 Dimensional Fund Advisors, L.P. 30-Sep-17 0.02 11.7 0.00
(in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
Promoter 44.2 44.2 44.2 44.2 44.2
FII 33.0 33.4 31.6 27.3 24.6
DII 10.9 10.3 11.8 15.3 17.9
Others 12.0 12.2 12.4 13.3 13.3
Source: Reuters, ICICIdirect.com Research
Recent Activity
Investor name Value Shares Investor name Value Shares
Franklin Templeton Asset Management (India) Pvt. Ltd. 24.84 6.60 Sundaram Asset Management Company Limited -10.11 -2.55
Florida State Board of Administration 9.84 3.06 JP Morgan Asset Management -5.86 -1.48
Franklin Advisers, Inc. 9.85 2.49 Kotak Mahindra Asset Management Company Ltd. -3.05 -0.81
Amit Dyechem Pvt. Ltd. 5.02 1.56 Kanwar (Onkar Singh) -2.84 -0.80
Mirae Asset Global Investments (India) Pvt. Ltd. 5.25 1.40 Reliance Nippon Life Asset Management Limited -2.65 -0.71
Buys Sells
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research Page 11
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Financial summary
Profit and loss statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Total operating Income 11,848.6 13,180.0 14,253.2 15,592.1
Growth (%) -7.3 11.2 8.1 9.4
Raw Material Expenses 5,954.8 6,890.1 8,129.9 8,517.8
Employee Expenses 1,570.8 1,742.1 1,967.7 2,103.9
Other Expenses 2,325.5 2,701.5 2,651.6 2,857.6
Total Operating Expenditure 9,851.1 11,333.6 12,749.2 13,479.3
EBITDA 1,997.5 1,846.4 1,504.0 2,112.8
Growth (%) 3.5 -7.6 -18.5 40.5
Depreciation 426.8 461.8 534.5 576.9
Interest 92.6 102.9 139.2 129.8
Other Income 68.0 154.1 146.8 154.2
PBT 1,593.8 1,435.8 977.0 1,560.3
Exceptional items 0.0 0.0 0.0 0.0
Total Tax 467.7 336.5 280.9 436.9
PAT 1,123.0 1,099.0 696.1 1,123.4
Growth (%) 17.6 -2.1 -36.7 61.4
EPS (|) 19.6 19.2 12.2 19.6
Source: Company, ICICIdirect.com Research
Cash flow statement | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Profit after Tax 1,123.0 1,099.0 696.1 1,123.4
Add: Depreciation 426.8 461.8 534.5 576.9
(Inc)/dec in Current Assets -457.6 -772.0 -16.9 -275.3
Inc/(dec) in CL and Provisions 590.8 685.9 278.3 344.9
CF from operating activities 1,683.0 1,474.7 1,492.0 1,769.9
(Inc)/dec in Investments -401.8 107.3 0.0 0.0
(Inc)/dec in Fixed Assets -1,171.1 -3,847.0 -2,500.0 -2,100.0
Others -569.4 297.6 54.4 67.9
CF from investing activities -2,142.3 -3,442.0 -2,445.6 -2,032.1
Issue/(Buy back) of Equity 0.0 0.0 6.3 0.0
Inc/(dec) in loan funds 588.6 1,855.4 0.0 0.0
Dividend paid & dividend tax -130.2 -164.5 -182.8 -201.0
Others 0.0 19.6 1,474.1 0.0
CF from financing activities 458.4 1,710.5 1,297.6 -201.0
Net Cash flow -0.8 -257.2 344.1 -463.3
Opening Cash 595.0 594.2 337.0 681.0
Closing Cash 594.2 337.0 681.0 217.7
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(Year-end March) FY16 FY17 FY18E FY19E
Liabilities
Equity Capital 50.9 50.9 57.2 57.2
Reserve and Surplus 6,553.7 7,239.1 9,226.5 10,148.9
Total Shareholders funds 6,604.6 7,290.0 9,283.8 10,206.1
Total Debt 1,389.2 3,244.5 3,244.5 3,244.5
Deferred Tax Liability 701.2 766.1 828.5 906.3
Total Liabilities 8,946.4 11,907.2 14,005.8 15,059.0
Assets
Gross Block 9,986.2 11,557.8 15,430.1 18,030.1
Less: Acc Depreciation 5,430.2 5,519.6 6,054.1 6,631.0
Net Block 5,057.7 6,432.6 9,770.5 11,793.6
Capital WIP 969.4 2,872.3 1,500.0 1,000.0
Total Fixed Assets 6,027.1 9,305.0 11,270.5 12,793.6
Investments 505.9 396.2 396.2 396.2
Goodwill on consolidation 198.2 177.4 177.4 177.4
Inventory 1,939.1 2,645.5 2,538.2 2,648.5
Debtors 1,084.3 1,127.5 1,210.5 1,324.3
Loans and Advances 84.7 45.0 48.6 53.2
Other current assets 398.0 460.1 497.6 544.3
Cash 594.2 337.0 681.0 217.7
Total Current Assets 4,100.3 4,615.1 4,976.0 4,788.1
Creditors 1,543.2 1,731.8 1,874.4 2,050.5
Provisions 329.2 404.3 437.6 478.7
Total Current Liabilities 1,872.3 2,136.0 2,312.0 2,529.1
Net Current Assets 2,228.0 2,479.1 2,664.1 2,258.9
Application of Funds 8,946.4 11,907.2 14,005.8 15,059.0
Source: Company, ICICIdirect.com Research
Key ratios
(Year-end March) FY16 FY17 FY18E FY19E
Per share data (|)
EPS 19.6 19.2 12.2 19.6
Cash EPS 27.1 27.3 21.5 29.7
BV 115.5 127.4 162.3 178.4
DPS 0.2 0.3 0.5 0.3
Cash Per Share 10.4 5.9 11.9 3.8
Operating Ratios (%)
EBITDA Margin 16.9 14.0 10.6 13.6
PBT / Net sales 13.3 10.5 6.8 9.9
PAT Margin 8.0 5.0 3.4 4.8
Inventory days 59.7 73.3 65.0 62.0
Debtor days 33.4 31.2 31.0 31.0
Creditor days 47.5 48.0 48.0 48.0
Return Ratios (%)
RoE 16.5 15.1 7.5 11.0
RoCE 18.8 13.6 8.4 11.8
RoIC 23.5 15.9 8.2 11.0
Valuation Ratios (x)
P/E 12.4 12.3 19.5 12.1
EV / EBITDA 6.9 8.7 10.5 7.7
EV / Net Sales 1.2 1.2 1.1 1.0
Market Cap / Sales 1.1 1.0 1.0 0.9
Price to Book Value 2.1 1.9 1.5 1.3
Solvency Ratios
Debt/Equity 0.2 0.4 0.3 0.3
Current Ratio 1.9 2.0 1.9 1.8
Quick Ratio 0.8 0.8 0.8 0.8
Source: Company, ICICIdirect.com Research
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) 693 870 Hold 11838 28.0 27.5 37.6 24.7 25.2 18.4 16.1 15.6 11.9 25.8 22.9 26.4 18.5 15.8 18.3
Apollo Tyre (APOTYR) 235 275 Buy 13423 19.2 12.2 19.6 12.2 19.3 11.9 10.5 10.5 7.7 13.6 8.4 11.8 15.1 7.5 11.0
Ashok Leyland (ASHLEY) 124 120 Buy 34903 4.3 4.4 6.3 28.7 28.1 19.5 13.3 12.3 9.4 23.9 25.1 29.7 25.0 18.8 22.7
Bajaj Auto (BAAUTO) 3235 3170 Hold 93598 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) 1753 1800 Buy 16941 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) 710 1350 Buy 16549 29.9 39.8 47.6 23.7 17.8 14.9 21.7 14.6 12.3 16.1 22.0 26.9 14.6 17.8 21.2
Bosch (MICO) 20963 23300 Hold 65823 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 83239 655.9 828.5 1026.0 47.0 37.2 30.0 27.2 21.3 17.1 39.2 38.8 36.8 36.0 33.5 31.1
Exide Industries (EXIIND) 205 250 Buy 17425 8.2 8.1 10.0 25.1 25.4 20.5 15.4 14.1 11.7 18.5 17.9 19.7 14.0 12.8 14.4
Hero Moto (HERHON) 3708 4475 Buy 74049 156.9 169.1 198.3 23.6 21.9 18.7 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 3309 16.6 0.7 22.1 8.8 205.2 6.6 7.5 11.2 5.4 11.2 5.4 13.9 16.6 0.8 21.1
Mahindra CIE (MAHAUT) 253 280 Buy 9554 9.6 11.9 13.9 26.3 21.3 18.2 12.9 11.3 10.0 10.1 11.1 11.6 11.5 12.9 13.8
Maruti Suzuki (MARUTI) 8207 9150 Buy 248016 242.9 289.1 365.4 33.8 28.4 22.5 24.0 19.3 15.8 26.3 28.5 30.3 20.3 20.9 22.3
Motherson (MOTSUM) 365 335 Hold 76864 7.4 10.7 13.6 49.5 34.1 26.8 17.1 12.6 9.8 16.0 22.3 27.7 19.6 24.7 25.2
Tata Motors (TELCO) 379 490 Buy 115403 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) 6675 6250 Buy 12682 112.5 130.2 168.6 59.3 51.2 39.6 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
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,
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Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
ICICI Securities Ltd | Retail Equity Research Page 14
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