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Overview:-

The Company is a manufacturer of steering & suspension linkage products and steering gear products. The Company is a significant supplier to major manufacturers of passenger cars, utility vehicles and farm tractors across the globe. The Company operates predominantly in a single reportable segment viz., components for transportation industry.

Steering and Linkage Products Division :

Inception of manufacturing facilities in the year 1960 Manufacturer of steering & suspension systems for every

segment of automobile industry, viz Passenger cars, Multi utility

vehicles, Light commercial vehicles, Heavy commercial vehicles

and Farm tractors

Branched in Hydraulic products in anticipation of shift in

customer requirements

Best in class manufacturing facilities

In the past RML had Strategic Technical partnerships with M/s

TRW Inc, USA for Steering Gear Products & TRW Ehrenreich

GmbH & Co., Germany for Steering Linkage Products

Holds major market share in India both in Manual steering gear

systems & suspension systems

Die casting Products Division :

Incepted in the year 2006 to capitalize market opportunities for

die casting solutions Steadily gained market share with cost effective, on time supplies

Services include design, development and machined aluminum

casting components & sub - assemblies

Clientele cover auto industry, Luminaries and engineering sector

Date: 10-Oct-14

CMP: 453

TARGET: 585

Upside: 29%

Target : 12-15 months

B U Y

SENSEX 26297

NIFTY 7860

Eq. Cap. (` Crs) 10.51

Face Value 10

M. Cap (` Crs) 478

BSE Code 532661

NSE Code RML

Financial Year Apri-Mar

52-w H/L 467/115

Avg. Weekly Vol. 9147

TTM EPS (`) 21.61

TTM P/E (x) 20.82

BVPS (`) 133.42

P/BVPS (x) 3.37

Shareholding (30th June, 2014)

Promoters 57.79%

FII's 0%

Public & Others 42.21%

Total 100%

RANE MADRAS LTD.

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PRODUCTS:

Steering & Suspension Systems

Die Casting Products

Clients: Cummins, Dailmer, Eicher motors, Ashok Leyland,Escorts, Fiat, Ford, Toyata, G.M.,Hero Motocorp, TATA, Mahindra, Hyundai, Maruti Suzuki, Hindutan Motors, Honda, Renault, TAFE, Swaraj Mazda, TVS

Domestic Market:- Political un-certainties and high interest rates added with lack of positive market sentiments slowed growth during the year 2013 – 14. The Company, in spite of the domestic vehicle market declining, from its existing business of steering and linkages, registered net sales of Rs.538.24 crores compared to Rs.526.96 crores in the previous year. The Company focused on aftermarket and increased its thrust and achieved a commendable growth in aftermarket. The Company took several conscious measures like identifying geographic areas to focus strengthening the company’s presence through appointment of sub-dealers, improving product range and market promotional activities to reach out to mechanics. All these efforts has helped the Company to improve its strong brand presence further. This will also help the company to grow its aftermarket at a good pace in the future. In addition, the newly acquired business of die casting products helped the company achieve overall sales of Rs.551.59 crores in the domestic market.

Exports :- The Company continued its focus on export markets vigorously. Enhancing the customer base has been the focus area in the current year. In addition, several other measures like show casing engineering capability to potential overseas customers, cost effective design and identification of new customers in new geographic areas were also undertaken. As a result of such focused efforts the company was able to win new programs, the sales of which will be realized in the next few years. The continued strengthening of US dollar has also helped the Company to achieve a growth of 5% in its existing export business for steering and linkage products. The Company is proud to cross a landmark sales of Rs.98.60 crores of exports from its existing businesses for the first time. A major portion of die casting business comes from overseas customers. Exports is one of the focused market for this business. The die casting, consequent to the steady sales volume in the new programs they had started in the last year, has achieved a sales of Rs.59.56 crores. As a result, your company achieved an overall sales of Rs.158.16 crores on exports, a commendable achievement considering export of products commenced modestly a decade ago.

Financial Review:- The Company achieved a turnover of Rs.636.84 crores from its steering and linkage products showing a marginal increase of 1.4% over previous year. The Company also achieved a turnover of Rs.72.91 crores from the die-casting business which was acquired during the current financial year. The Company achieved a total turnover of Rs. 709.75 crores, showing an overall growth of 13.6% over the previous year.Though the market conditions were very difficult, the Company put stringent cost controls and cost reduction measures in place focusing on sustaining the profitability. The unavoidable cost increases caused by inflationary conditions and the initial costs towards the merger of die-casting business have impacted the profitability.

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Outlook:-

The Company remains cautiously optimistic about the growth of the automotive industry. It is expected that

there will be a gradual pick up in momentum in market growth hoping good governance from the newly elected

government.

The future of the automotive segment appears more challenging in the year 2014-15. The growth of all

segments heavily depends on the political stability in the country. Considering this, the first quarter of 2014-15

will witness a low or a static demand in most vehicle segments. The Company’s focused efforts in the past

have helped it to establish as a strong player in Rack and Pinion Steering gear by winning new businesses

from global customers. The Company is also taking further initiatives to gain entry into new customers.

Towards this objective the Company is making investments and taking focused actions in establishing

advanced manufacturing processes and core research capabilities.The Company expects to grow reasonably

through new businesses won in passenger car segment and hydraulics. Full year volume of new die casting

business which commenced in the financial year 2013-14 will also help grow the sales and improve utilization.

The Company’s investment was focused on capacity addition towards manufacturing of hydrostatic steering

gears and cylinders with a new in-house production facility for hydraulic products at Mysore plant which is in

the final stages. As part of long term strategy to maintain efficiency and costs, the products, along with the

manufacturing facility are being progressively shifted from Velachery plant to the Varanavasi plant.

In the die-casting division, the Company proposes to enhance the capacity in casting and machining by

establishing a new facility to meet the orders awarded from some of the major customers.

The following additional initiatives are being undertaken as a way forward:-

Establishing stronger position in suspension ball joints.

Expanding export business through current customers as well as adding new customers in different

geographies.

Enhancing the Company’s market share significantly in hydraulic products.

Expanding scope and reach of the products in aftermarket segment.

Concerns: -

Unceasing cost reduction demand from OEMs imposing pressure on operating margins.

Volatility of commodity prices affecting the input costs structure.

Dumping from neighbouring countries.

Weak economic expansion in the developed countries

VALUATIONS

The company is quoting at attractive PE valuations as compared to Industry PE and is well poised as

compared to its peers.

In FY 2015 we expect the company to register Sales and Reported Net Profit of Rs 907crore and Rs 20.86 crore respectively. Reported EPS works out to Rs 19.86 The share price trades at Rs 453. Reported P/E works out to 22.81

Buy with a 12-15 months target price of Rs 585.

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PEER GROUP COMPARISON:

All figures in Crores Rane Madras Rico Auto Auto Axles

Market Price 453 33 662

Sector Auto

Ancillaries Auto Ancillaries Auto Ancillaries

Products Auto Casting Auto Casting Auto Casting

Presence Across Globe Across Globe Across Globe

Net Sales 'Mar 2014 726.6 1480.1 642.53

Debt 167.28 349.45 51.22

Equity 10.51 13.53 15.11

Reserves 129.71 335.28 265.37

Total Equity 140.22 348.81 280.48

Debt/Equity 1.19 1.00 0.18

Market Cap 471.90 462.73 1000.28

Book Value per share 133.42 25.78 185.6

Price / BV per share 3.37 1.33 3.57

Operating Cash Flows 'Mar 2014 45.99 242.07 53.86

OCF per share 43.76 17.89 35.65

Price / OCF per share 10.26 1.91 18.57

OCF/Net Sales 0.06 0.16 0.08

Operating profit margin % 5.53% 6.29% 3.79%

Adjusted Net profit margin % 2.87% 0.26% 1.78%

EPS 21.64 0.20 8.41

Adjusted Company P/E 20.93 165 78.72

Industry P/E 57.61 57.61 57.61

Face Value 10 1 10

Stock runup since last 3 months 27.74% 102.98% 12.63%

Stock runup since last 6 months 121.67% 167.92% 92.67%

Stock runup since last 12 months 331.11% 474.07% 216.75%

52 week low 115 5.61 206

52 week high 467.00 37.05 720.00

Interest Coverage ratio 2.94 1.07 3.18

ROCE 15.72% 9.33% 8.12%

RONW 16.41% 0.82% 4.60%

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COMPANY PERFORMANCE :-

QUARTERLY - LATEST RESULTS

Particulars

Quarter Ended

(Jun 14)

Quarter Ended

(Jun 13)

Quarter Ended

(% Var)

Year Ended

(Mar 14) (12)

Year Ended

(Mar 13) (12)

Year Ended

(%Var)

Sales 171.36 152.03 12.7 709.75 624.27 13.7

Other Income 0.33 0.19 73.7 0.91 1.49 -38.9

Other Operating Income

PBIDT 16.1 2.99 438.5 59.73 57.85 3.2

Interest 4 2.33 71.7 14.92 10.97 36

PBDT 12.11 0.66 1734.8 44.81 46.88 -4.4

Depreciation 7.09 4.01 76.8 25.13 16.81 49.5

PBT 5.02 -3.35 LP 19.68 30.06 -34.5

Tax 1.41 -0.58 LP 2.9 6.64 -56.3

Deferred Tax 0 0 - 0 0 -

PAT 3.61 -2.77 LP 16.78 23.42 -28.4

CASH FLOW

All figures in Crores

201403 201303 201203 201103 201003

Cash Flow Summary

Cash and Cash Equivalents at Beginning of the year 9.02 0.98 5.37 2.6 0.61

Net Cash from Operating Activities 45.99 70.37 28.07 34.18 40.3

Net Cash Used in Investing Activities -46.86 -30.88 -43.33 -57.64 -11.16

Net Cash Used in Financing Activities -6.27 -31.45 10.87 26.39 -27.15

Net Inc/(Dec) in Cash and Cash Equivalent -7.14 8.04 -4.39 2.93 1.99

Cash and Cash Equivalents at End of the year 1.88 9.02 0.98 5.53 2.6

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BALANCE SHEET

All figures in Crores

201403 201303 201203 201103 201003

SOURCES OF FUNDS :

Share Capital 18.74 10.16 10.16 10.16 10.16

Reserves Total 129.71 119.91 104.9 88.42 72.29

Equity Share Warrants 0 0 0 0 0

Equity Application Money 0 0 0 0 0

Total Shareholders Funds 148.45 130.07 115.06 98.58 82.45

Secured Loans 151.87 96.01 83.83 59.09 24.89

Unsecured Loans 15.41 6.96 30.84 18.67 13.81

Total Debt 167.28 102.97 114.67 77.76 38.7

Other Liabilities 5.14 4.57 4.86 4.83 0

Total Liabilities 320.87 237.61 234.59 181.17 121.15

APPLICATION OF FUNDS :

Gross Block 371.85 291.23 259.28 203.04 164.45

Less : Accumulated Depreciation 153.27 132.18 119.05 104.93 98.04

Less:Impairment of Assets 0 0 0 0 0

Net Block 218.58 159.05 140.23 98.11 66.41

Lease Adjustment 0 0 0 0 0

Capital Work in Progress 5.13 5.79 12.24 9.9 6.49

Producing Properties 0 0 0 0 0

Investments 0 0 0 0 0.01

Current Assets, Loans & Advances

Inventories 79.88 65.38 53.94 52.47 45.03

Sundry Debtors 102.3 92.02 110.42 81.27 61.74

Cash and Bank 3.06 10.35 1.58 5.84 6.25

Loans and Advances 24.27 14.25 9.57 13.85 15.57

Total Current Assets 209.51 182 175.51 153.43 128.59

Less : Current Liabilities and Provisions

Current Liabilities 122.93 108.49 93.85 86.74 68.7

Provisions 10 8.32 7.19 6.65 7.19

Total Current Liabilities 132.93 116.81 101.04 93.39 75.89

Net Current Assets 76.58 65.19 74.47 60.04 52.7

Miscellaneous Expenses not written off 0 0 0 0 0

Deferred Tax Assets 15.31 6.69 5.17 5.18 3.52

Deferred Tax Liability 16.13 13.36 10.57 8.46 7.98

Net Deferred Tax -0.82 -6.67 -5.4 -3.28 -4.46

Other Assets 21.4 14.25 13.05 16.4 0

Total Assets 320.87 237.61 234.59 181.17 121.15

Contingent Liabilities 29.2 21.42 19.8 15.07 9.73

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PROFIT & LOSS STATEMENT

All figures in Crores

201403 (12)

201303 (12)

201203 (12)

201103 (12)

201003 (12)

INCOME :

Sales Turnover 793.45 703.15 730.21 631.82 448.73

Excise Duty 66.85 63.28 59.46 47.84 29.07

Net Sales 726.6 639.87 670.75 583.98 419.66

Other Income 0.91 1.49 2.36 1.48 1.02

Stock Adjustments 3.11 8.69 8.56 0.43 -2

Total Income 730.62 650.05 681.67 585.89 418.68

EXPENDITURE :

Raw Materials 403.52 384.79 418.48 354.48 247.88

Power & Fuel Cost 18.2 13.35 11.92 10.29 7.58

Employee Cost 89.85 69.42 63.33 59.01 41.9

Other Manufacturing Expenses 92.07 72.14 61.38 59.83 47.41

Selling and Administration Expenses 56.13 45.25 57.76 51.16 37.46

Miscellaneous Expenses 11.12 7.26 6.01 5.22 2.25

Less: Pre-operative Expenses Capitalised 0 0 0 0 0

Total Expenditure 670.89 592.21 618.88 539.99 384.48

Operating Profit 59.73 57.84 62.79 45.9 34.2

Interest 14.92 10.97 11.78 5.73 4.79

Gross Profit 44.81 46.87 51.01 40.17 29.41

Depreciation 25.13 16.81 13.84 9.34 9.37

Profit Before Tax 19.68 30.06 37.17 30.83 20.04

Tax 0 5.37 7.65 7.44 6.07

Fringe Benefit tax 0 0 0 0 0

Deferred Tax 2.9 1.27 2.12 -1.18 0.16

Reported Net Profit 16.78 23.42 27.4 24.57 13.81

Extraordinary Items -5.96 0.15 0 -3.22 0.01

Adjusted Net Profit 22.74 23.27 27.4 27.79 13.8

Adjst. below Net Profit 0 0 0 0 0

P & L Balance brought forward 53.7 40.93 27.49 13.65 7.55

Statutory Appropriations 0 0 0 0 0

Appropriations 9.09 10.65 13.96 10.73 7.71

P & L Balance carried down 61.39 53.7 40.93 27.49 13.65

Dividend 5.78 7.11 9.65 7.11 4.57

Preference Dividend 0.56 0 0 0 0

Equity Dividend % 55 70 95 70 45

Dividend Per Share(Rs) 5.5 7 9.5 7 4.5

Reported Earnings Per Share-Unit Curr 14.41 21.88 25.42 23.03 12.82

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THANK YOU

Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052. Tel. (022) 4082 4082, Fax (022) 2649 7997. research@lmspl.com www.latinmanharlal.com, LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa,Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar,Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur,Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh).

Disclaimer:This document has been prepared by M/s Latin Manharlal Securities Pvt. Ltd and is being distributed in India by Latin Manharlal

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