mahindra cie automotive (mahaut) |...

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


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


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

[email protected]

Vidrum Mehta

[email protected]


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.


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


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.


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.


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)


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


(%

)

(| c

rore)

EBITDA EBITDA Margin (%)




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


(%

)

(| c

rore)

PAT PAT Margin (%)




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




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


.

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


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



Balance sheet | Crore


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



Key ratios


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




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


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

[email protected]


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