mico initiating coverage

8/7/2019 mico initiating coverage

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FIRST GLOBALwww.first-global.us

India Research

Sector: Indian Auto Ancillary

Motor Industries Co. Ltd.(MICO.IN/ MICO.BO)

Initiating Coverage

Long-term Outperform (CMP: Rs. 2696.6, Mkt. Cap: Rs. 86.4 bn, $1.9, Feb 08, 06)Relevant Index: CNX Nifty: 3008.95 (Feb 8, 06)

The stock is currently trading at a P/E of 24.2 FY05E. We expect MICO to resumeposting strong numbers once its expansion program is completed. Over the nextthree years, we expect its revenues and EPS to grow at a CAGR of 21.5% and 15.4%respectively. Considering the long-term earnings visibility, a result of its leadershipposition in the diesel fuel injection equipment space, as well as its exports growth,we rate MICO as Long-term Outperform.

February 9, 2006

Research Contact: Associate Director, Research: Hitesh Kuvelkar Email: [email protected]

Sales Offices: US Sales: Tel. No: 1-212-2276611 Email: [email protected]

Asia & Europe Sales: Tel.: 44-207-959 5300 Email: [email protected]

Research Note issued by First Global Securities Ltd., India

FG Markets, Inc. is a member of NASD/SIPC and is regulated by the

Securities & Exchange Commission (SEC), US

First Global (UK) Ltd. is a member of London Stock Exchange and is regulated byFinancial Services Authority (FSA), UK

First Global Stockbroking is a member of Bombay Stock Exchange & National Stock Exchange, India

IMPORTANT DISCLOSURES CAN BE FOUND AT THE END OF THIS REPORT.


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FIRST GLOBAL www.first-global.usIndia Research

1

Price and Rating History Chart

Ratings Key

Positive Ratings B = Buy BD = Buy at decline OP = Outperform

Neutral Ratings H = Hold MP = Market perform

Negative Ratings S = Sell SS = Sell into strength UP = Underperform

A = Avoid

Motor Industries Company Ltd. (MICO)

8-Feb-06

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1900

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(Rs.)

Relative to NIFTY (LHS) FG Reco MICO Share Price (RHS)

1-Jan-2002 =100

Represents an Upgrade

Represents a Downgrade

Represents Reiteration of Existing Rating

Details of First Globals Rating System given at the end of the report


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2

Financial Snapshot - Standalone

(YE December 31st) (Rs. mn) 2001 2002 2003 2004 2005 2006ETotal Revenue 14,668 15,761 19,511 23,991 29,961 35,886

Revenue Growth (Y-o-Y) 7.4% 23.8% 23.0% 24.9% 19.8%

EBIDTA 2,266 2,817 4,639 5,907 6,537 8,258

EBIDTA Growth (Y-o-Y) 24.3% 64.7% 27.3% 10.7% 26.3%

Reported Net Profit 817 1,348 2,350 3,748 3,524 4,471

Proforma Net Profit 782 1,320 2,345 3,558 3,579 4,471

Net Profit Growth (Y-o-Y) 68.8% 77.7% 51.7% 0.6% 24.9%

Shareholders Equity 6,342 7,055 9,154 12,539 15,701 17,971

Number of Diluted shares(mn) 32 32 32 32 32 32

Key Operating Ratios

(YE December 31st) 2001 2002 2003 2004 2005 2006E

Reported EPS (Rs) 25.50 42.07 73.33 116.93 109.96 139.50

Proforma EPS (Rs) 24.39 41.18 73.15 111.00 111.66 139.50

EPS Growth (Y-o-Y) 68.8% 77.7% 51.7% 0.6% 24.9%

CEPS (Rs.) 66.0 74.6 104.8 141.9 167.9 211.8

OPM (%) 15.4% 17.9% 23.8% 24.6% 21.8% 23.0%

NPM (%) 5.3% 8.4% 12.0% 14.8% 11.9% 12.5%

RoE (%) 24.7% 19.7% 28.9% 32.8% 25.3% 26.6%

RoCE (%) 18.7% 26.5% 29.7% 20.2% 18.8%

RoCE (Operating Assets) (%) 26.7% 60.6% 75.2% 48.6% 46.3%

Book Value per share (Rs.) 197.9 220.1 285.6 391.2 489.9 560.7

Debt/Equity (x) 0.08 0.11 0.11 0.12 0.41 0.50

Valuation Ratios

(YE December 31st) 2001 2002 2003 2004 2005 2006E

P/E (x) 24.2 19.3

P/BV (x) 5.5 4.8

P/CEPS (x) 16.1 12.7

EV/EBIDTA (x) 12.7 10.1

Market Cap./ Sales (x) 2.9 2.4

DuPont Model

(YE December 31st) 2001 2002 2003 2004 2005 2006E

EBIDTA/Sales (%) 15.6% 18.2% 24.4% 25.4% 22.2% 23.3%

Sales/Operating Assets (x) 6.1 3.9 5.4 5.6 5.0 4.7

EBIDTA/Operating Assets (%) 95.1% 70.1% 132.5% 142.7% 111.5% 108.6%

Operating Assets/ Net Assets(x) 85.7% 67.2% 46.6% 39.5% 35.5% 32.8%

Net Earnings/ EBIDTA (%) 34.5% 46.9% 50.5% 60.2% 54.7% 54.1%

Net Assets/ Equity (x) 0.9 0.9 0.9 1.0 1.2 1.4

Return on Equity (%) 24.7% 19.7% 28.9% 32.8% 25.3% 26.6%


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3

Common Sized Profit & Loss Account

(YE December 31st) 2001 2002 2003 2004 2005 2006E

Total Revenues 100% 100% 100% 100% 100% 100%

Net Raw Materials Consumed 42.7% 40.8% 39.8% 42.9% 49.7% 49.0%

Manufacturing Expenses 8.9% 8.9% 8.6% 8.1% 6.7% 6.6%

SG&A Expenses 21.0% 19.7% 16.5% 14.1% 12.7% 12.5%

Personnel 13.6% 13.2% 11.7% 11.1% 9.1% 8.9%

EBITDA 15.4% 17.9% 23.8% 24.6% 21.8% 23.0%

Depreciation and Amortization 9.1% 6.8% 5.2% 4.1% 6.0% 6.5%

Interest -0.3% -0.9% -1.2% -1.4% -1.9% -1.6%

PBT 8.4% 12.5% 19.6% 22.3% 18.5% 19.0%

PAT 5.3% 8.4% 12.0% 14.8% 11.9% 12.5%

# No of shares has been adjusted for stock split

Key Statistics

Shareholdoing pattern (as on 31/12/2005)

Total Promoters

61%

Total Non Promoter

Corporate Holding

2%

Total Institutions21%

Total Foreign

7%

Total Public & Others

9%

Total ForeignTotal InstitutionsTotal Non Promoter Corporate HoldingTotal PromotersTotal Public & Others

Industry: Auto-Components

52 Week Hi:Lo: Rs.2997/1730

CMP: Rs.2696.6

Avg Daily Vol (20 days): 0.08 mn

Avg Daily Val (20 days): Rs.24.319 mn

Performance over 52 weeks:

Mico : up 38.8%

Nifty: up 47.0%


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4

MICOs Business in Pictures (FY04)(All figures are in Rs. Mn except where stated otherwise. All percentages are percent of revenues,

unless otherwise stated)

Balance Sheet

2066.61 (100%)Assets

Fixed Assets: 2590(13%)

Investments: 5541 (28%)

L& A: 1973 (10%),

Debtors: 2142 (11%),

Inventory: 2841 (14%)

Cash: 4958 (25%),Others Current Assets: 21 (0.1%)

Long-Term

1479 (7%)

Short-Term

0 (0.0%)

Liabilities

Equity: 321 (2%)

Reserves: 12219 (61%)

Debt: 1479 (7%)

Sundry Liabilities: 4962 (25%)

Provisions: 2783 (14%)

Net Deferred Liability: -1696 (-8%)

Operations/ Value added

Total Revenues: Rs. 23,991 mn

Manpower:

3382 (15%)

Mfg Expenses:

1954 (8%)

Other Expenses:

2654 (11%)Raw Materials

Components, other

tools, Filters,

Hydraulics, spark

plugs and

Lubricating oilsEBIDTA

5907

(25%)

Profit Before Tax

5350 23%

Interest: -325 (-1%)

Depreciation: 989 (4%)

Other Income: 106 (0.5%)

Taxes

1888 (8%)

Proforma PAT

3558 (15%)

Finished Products:

Filters, Nozzle, Fuel

Injection pump, Spark

Plugs

Volumes (FY05)

Filters: 21490000, Nozzle:

9724000, Fuel Injection

pump: 2250000, Spark

Plugs: 18824000

Markets

Domestic &

Foreign

Avg. Revenue

per unit (FY04)

Filters Rs. 62,

Nozzle Rs. 577,

Fuel Injectionpump Rs. 4632,

Spark Plugs Rs.

28

Exports:

Rs.3,992 mn: 17% of totalrevenues

Below Operating

Line

Domestic Customers:

Tata Motors, Ashok Leyland,

M&M, Bajaj auto, Hero Honda,

Global Customers:

General Motors, Mercedes Benz

Market Share:

Fuel Injection

Pumps: 85%,

Spark Plugs:

65%

RM: 10300

(44%)


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5

The StoryMotor Industries Co. Ltd. (MICO) has seen its growth and stock price flying off their respective

charts during the last few years. The boom in the domestic 4-wheeler segment and exports has driven

the growth at MICO, which is a leader in

the diesel fuel injection equipment

industry with a market share of 85%. The

stock has taken off like a shot in response

and has outperformed the market by 566%

percentage points and appreciated by an

eye-popping 726% over the last three

years. The run up in the stock price has

been due to MICOs strong export growthprospects, coupled with the companys

strong position in the domestic market.

Given MICOs excellent performance and

the stocks dream run on the bourses, the

question now for investors is whether the

stock still represents a growth opportunity.

A changing product mix towards

distributor pumps, increased investments

towards the diesel segment to meet the

expected higher growth in that segment,

robust growth in the companys non-automotive segment and higher export growth driven by theincreased transfer of product lines by its parent company make the long-term prospects appear bright

for MICO. However, we do not expect the

company to post good growth numbers in the

near-term, due to temporary hiccups related to

the meeting of Euro norms, its expansion

programs and the expected slow down in the

commercial vehicles segment. MICO is also

facing stiff competition in the replacement

segment in the form of cheaper imports from

Thailand. In view of the companys long-term

earnings visibility, as a result of its leadershipposition in the diesel fuel injection equipment

industry, coupled with its exports growth, we

initiate our coverage on MICO with a rating of

Long-term Outperform.

MICOs topline grew at a CAGR of 11.3%

during the last 5 years, while the EBIDTA margin grew at a CAGR of 21.4%. The domestic

commercial vehicles and tractor industry together contribute over 74% of its total revenues. Since the

year 2001, exports have been driving the growth at MICO and have grown at a CAGR of 17.5%

during the last 5 years. Due to the companys low cost manufacturing capability, several product

lines have been transferred to India by its parent company Robert Bosch.

Motor Industries Co. Ltd. (MICO) has seen itsgrowth and stock price flying off their respectivecharts during the last few years. The boom in the

domestic 4-wheeler segment and exports hasdriven the growth at MICO, which is a leader in

the diesel fuel injection equipment industry with amarket share of 85%

a changing product mix towards distributorpumps, increased investments towards the diesel

segment to meet the expected higher growth in thatsegment, robust growth in the companys non-automotive segment and higher export growth

driven by the increased transfer of product lines byits parent company make the long-term prospects

appear bright for MICO

We do not expect the company to post goodgrowth numbers in the near-term, due to

temporary hiccups related to the meeting ofEuro norms, its expansion programs and the

expected slow down in the commercialvehicles segment

in view of the companys long-term

earnings visibility, as a result of its leadershipposition in the diesel fuel injection equipmentindustry, coupled with its exports growth, weinitiate our coverage on MICO with a rating

of Long-term Outperform


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6

In order to further strengthen its position, MICO has entered into a JV with Mann Hummel GmbH to

develop and produce fuel filter systems, as well as oil, fuel, air and cabin filters. The JV will also be

used an export base and will become operational in mid-2006. The company has undertaken

expansion plans with a total capex of Rs. 10 bn during 2005-07, out of which Rs. 5.5 bn will be

allocated towards diesel fuel injection equipment (CRS).

The non-automotive businesses contributed 8% of revenues in FY04. In H1 FY05, sales from thenon-automotive business rose by 56% to Rs. 715.5 mn and the profit margin rose from 8.9% to

13.1%. The robust growth in this segment is expected to continue in the future.

After recording an increasing trend in margins for the last 5 years, the margins have declined in H1

FY05. The operating profit margin (OPM) increased by 800 bps during the last 3 years to 17% in

FY04, although it declined by 340 basis points to 20.4% in HI FY05. The decline in the OPM was on

account of the rise in raw material prices, which could not be fully passed on to the customers. In H1

FY05, the PAT declined by 10% to Rs. 1897 mn. The dip in the margins has been factored in the

stock price, which has been stagnating during the last 3 months and has witnessed a nominal dip of

0.31%. Also, due to the changes in infrastructure for manufacturing Euro emission compliant

components, there were some hiccups in the companys production schedule, which impacted

margins. MICO expects these issues to be resolved by CY05.

We expect revenues and the proforma EPS to be Rs. 5.19 bn and Rs. 111.7 respectively for FY05.

The stock is currently trading at a P/E of 24.2 FY05E. We expect MICO to resume posting strong

numbers once its expansion program is completed. Over the next three years, we expect the

companys revenues and proforma EPS to grow at a CAGR of 21.5% and 15.4% respectively.

Considering the long-term earnings visibility as a result of its leadership position in the diesel fuel

injection equipment space and the companys exports growth, we rate MICO as Long-term

Outperform.

Indian comparative Valuations

OPM ROE ROCE

Company P/E P/S P/BV EV/EBITDA EV/Sales % % %

AnnualEPS

Growth%

AnnualSales

Growth%

FY06E FY07E FY06E FY07E FY06E FY07E FY06E FY07E FY06E FY07E FY06E FY06E FY06E FY07E %FY07E %

Bharat Forge 44.51 33.2 5.59 4.3 9.24 7.8 24.81 18.0 6.17 4.73 24.8% 31.0% 16.6% 35.1% 30.0%

Omax Auto 15.26 13.5 0.51 0.4 2.65 2.3 7.19 6.1 0.67 0.57 9% 19% 10% 13% 17%

MICO 24.17 19.3 2.89 2.4 5.51 4.8 12.70 10.1 2.77 2.3 21.8% 25.3% 20.2% 24.9% 19.8%

Sundaram Fasteners 22.18 17.6 1.50 1.3 4.89 4.0 12.86 10.6 1.80 1.55 19.6% 21.3% 10.5% 25.8% 20.4%

Note: Standalone estimates, MICO Year Ending CY05Sources: FG Estimates, Bloomberg Estimates


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7

Current valuations at above their 10-year average

The companys margins have remained steady within a narrow range of 20-25% for the EBIDTA

and 5-8% for the PAT. The margins declined in FY00-01, resulting from the slump in the Indian

automotive industry, particularly commercial vehicles, which contributes a lions share of MICOs

sales. However, the margins bounced back after the company ventured into the non-automotive

segment and also due to the increased share of exports. Margins during the recent fiscal year (FY04)as well as our estimates for FY05 took a hit due to cost pressure and heavy depreciation expenses.

We expect the cost pressure to ease and the EBIDTA and PAT to rise in FY06 to 23.0% and 12.5%

respectively.

MICO is heavily dependent on the commercial vehicles segment for its sales. Its valuations havebeen following the same trend as that of the commercial vehicle companies. Be it the slump inFY00-01 or the rise in FY02-03, the trend has been similar. Our estimated valuations for FY05 arebelow the 15-year averages, although they are certainly above the 10-year averages, thus indicating

that the stock is available at a premium due to the diversifying factor (increasing share of exports,

coupled with the companys entry into the non-auto businesses).

Valuation Ratios

0

10

20

30

40

50

60

FY90

FY91

FY92

FY93

FY94

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05E

Years

Ratios

P/E P/BV P/CEPS EV/EBIDTA P/S

EBIDTA and PAT Margins

0%

5%

10%

15%

20%

25%

30%

FY90

FY91

FY92

FY93

FY94

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05E

Years

EBIDTA&PATMargin

EBIDTA Margin PAT Margin


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Investment Thesis

Changing product mix holds significant growth potential for the future

MICO manufactures spark plugs for petrol engines, and fuel injection equipment for diesel engines,

and a wide range of auto components, which includes delivery valve nozzles, nozzle holders, filters,

filter inserts, glow plugs, glow indicators, glow resistors, starter motors, etc.

MICO is the market leader in fuel injection equipment,

with a market share of 85%, and the only other player in

the segment is Delphi-TVS. The segments market share

is expected to grow to 60% from the present 51% in the

next 8-10 years. Thus, the segment holds promising

growth potential in the years to come.

With the phasing in of Euro II norms, the companys

product mix is shifting towards distributor pumps from

single cylinder pumps (satisfies Euro I norms, used for

low HP tractors, Three-wheelers, agricultural equipments

and industrial applications) and multi cylinder pumps

(satisfies Euro I norms, used for tractors, commercial vehicles, utility vehicles). This change in the

product mix has led to increased cost of inputs. For the nine months ended September 2005, the

topline and raw material costs grew by 25% and 45% respectively, this leading to pressure on

margins.

Investments in diesel segment to drive future growth

In line with the expected growth in the diesel segment, 60% of MICOs investments are targeted at

this segment. In 2005, MICO will invest approximately Rs. 5 bn, which will be almost 5 times the

companys total investment made in 2004. The total investment planned during the period 2005-07 is

Rs. 18 bn, out of which Rs. 5.5 bn will be towards the diesel fuel injection segment. The company

has also planned an investment of Rs. 850 mn to enhance the capacity at the Jaipur plant (the plant

manufactures E pumps for automobiles), which will supply pumps to help implement the Bharat

State II stage emission norms.

Europe has witnessed a rise in the number of diesel vehicles during the last decade and the sameincrease will be witnessed in India, thereby taking the share of

the diesel segment higher to 37% (from the present 29%)

during the next 8-10 years. In 2005, the company delivered

around 40,000 common-rail systems in India and this is likely

to go up to 600,000 in 2010. The targeting of investments

towards developing areas, like the diesel segment, and the

expansion of export oriented product lines will help drive the

future growth at MICO.

MICO is the market leader in fuelinjection equipment, with a marketshare of 85%, and the only other

layer in the segment is Delphi-TVS.The segments market share is

expected to grow to 60% from the

present 51% in the next 8-10 years.Thus, the segment holds promisingrowth potential in the years to come

The targeting of investmentstowards developing areas, like

the diesel segment, and theexpansion of export oriented

product lines will help drive thefuture growth at MICO


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9

0

0.5

1

1.5

2

2.5

Revenue(bn)

FY00 FY01 FY02 FY03 FY04

Years

Trend of non-automotive businesses

Hydraulic Equipment Power Tools Others

Higher growth in the non-automotive segment

MICOs non-automotive businesses include power tools, security systems, Blaupunkt car packaging

machinery, etc. The non-automotive business now forms a sizeable part of the revenues for MICOand has grown at a CAGR of 11.2% during the last 4 years. Sales stood at Rs. 2.05 bn in FY04,

contributing to 8% of the total revenues. In H1 FY05, revenues from the non-automotive business

rose by 56% to Rs. 715.5 mn, whereas revenues from the automotive segment rose by 22%. The

profit margin of the non-automotive business rose from 8.9% to 13.1%. The robust growth in this

segment is expected to continue in the future.

Trend of non-automotive businesses

Transfer of product lines to augment exports

MICOs low cost manufacturing capabilities has led to product line transfers to India by its parent

company Robert Bosch. The product line transfers include single cylinder pumps from the Czech

Republic, multi-pumps from Austria, and KCA injectors from France to MICO's Bangalore plant.

Also, injectors and nozzles from Europe have been relocated to Nasik, regulators from the UK to the

Nagnathapura plant, and Cylinder VE distributor pumps from Germany to the Jaipur plant.

In order to further strengthen its position in fuel filter systems as well as oil, fuel, air and cabin

filters, MICO has entered into a JV with Mann Hummel GmbH for the Indian market and forfulfilling the export demand. The JV will commence production of filters by mid-2006 with some

350 associates. An investment of about Rs. 6 mn will be made towards this and MICO will now

become a worldwide supply base for these products.


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Export revenues and growth

Exports grew at a CAGR of 18% during the last 5 years. The share of exports improved to 23% in

H1 FY05 from 17% in FY04. Exports stood at Rs. 4 bn in FY05, up from Rs. 1.9 bn in FY01. The

management expects the export contribution to rise by 500 bps to 20% of revenues by FY08.

Continued transfers from its parent company will lead to increased exports, better margins and

increased profitability for MICO.

Robust domestic sales growth to continue

MICO is the undisputed leader in the diesel fuel injection equipment market, contributing to around

8-9 units out of every 10 units sold. The share of the diesel segment is expected to increase to 60%

from the present 51% in the next 8-10 years. We expect the growth in the automotive segment to

translate into a CAGR of 22% over FY04-06 for MICO.

The year-to-date sales growth and our estimates for FY06 in the automotive segment are as follows:

Segment

Year to Date (Apr

Dec) Domestic

Sales

Year to Date

(Apr Dec)

Domestic Sales

Growth

FG Estimated

CAGR Sales

Growth for

FY05-07

Commercial

Vehicles

266,227 9.5% 9-10%

Passenger Vehicles 809,294 5.9% 8-10%

Two Wheelers 5,200,247 12.7% 14-16%

Tractors* 161,155 15% 10-12%

* Tractor Sales from April to August

Sources: SIAM, TMA

Exports and Revenue Grow th

-20%

-10%

0%

10%

20%

30%

40%

50%

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

Years

Exportsgrowth

0

500

1000

1500

2000

2500

3000

3500

40004500

Exports

Exports Exports Growth


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11

Thailand FTA impacts replacement market sales

The opening up of the trade routes with Thailand has done more bad than good for MICO. The FTA

includes six categories of auto components that can be traded. This is good news for Thailand autocomponent makers who are reported to have excess

capacities to the extent of 20-25% and are ready to

service fresh demands from their existing capacities.

Thailands cost of production is much cheaper than

that of India, due to lower import duties on steel,

which, coupled with the current duty reductions under

the FTA, will make their components cheaper. These

cheaper imports are impacting MICOs sales in the

replacement market. These cheap Thailand imports

may also find their way to OEMs in the future.

Auto components falling under Early Harvest scheme of Indo-Thai FTA

Auto Components

Helical Springs

Parts Suitable for use solely/principally with spark-ignition internal

combustion piston engines other than parts for aircraft engines

Other pumps

Ball bearings

Other lighting/ visual signalling equipment

Gear boxes

Source: ACMA

Thailands cost of production is muchcheaper than that of India, due to lowerimport duties on steel, which, coupledwith the current duty reductions underthe FTA, will make their componentscheaper. These cheaper imports are

impacting MICOs sales in thereplacement market. These cheap

Thailand imports may also find their

way to OEMs in the future


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12

Financials

Performance Highlights of Q3 FY05

In Rs. Mn Q3FY05 Q3FY04 Q2FY05 Y-o-Y %

Seq. Q-o-Q

%

Net Sales 7,946 6,043 7,632 31.5% 4.1%

Less: Total Expenditure

Net Raw Material consumed 4,042 2,652 3,845 52.4% 5.1%

Other Expenses 1,278 1,113 1,092 14.8% 17.0%

Staff Cost 890 803 1,036 10.7% -14.1%

Total Expenditure 6,210 4,568 5,973 35.9% 4.0%

EBIDTA 1,736 1,475 1,659 17.7% 4.7%

Less: Depreciation 600 215 302 178.4% 98.4%

EBIT 1,137 1,259 1,357 -9.8% -16.2%Add: Other income 63 110 93 -42.2% -31.6%

Less: Interest -132 -97 -115 36.7% 15.5%

Profit Before Extraordinary items and Tax 1,332 1,466 1,564 -9.1% -14.8%

Less: Extraordinary Expense (net) 11 36 43 NM NM

Profit Before Tax 1,321 1,430 1,521 -7.6% -13.1%

Less: Total Tax 473 494 541 -4.2% -12.5%

Profit After Tax 848 936 980 -9.5% -13.5%

Proforma Net Profit 836 900 937 -7.1% -10.7%

Shares Outstanding (mn) 32 32 32

EPS (Non-Annualised) (Rs.) 26.4 29.2 30.6 -9.5% -13.5%RM/Net Sales 50.87% 43.88% 50.38%

Other Expenses/Net Sales 16.08% 18.42% 14.31%

Staff Cost/Net Sales 11.20% 13.30% 13.57%

EBIDTA Margin 21.85% 24.41% 21.74%

Proforma NPM 10.53% 14.90% 12.27%

Effective Tax Rate 35.53% 33.69% 34.58%

For Q3 FY05, MICO posted a 31% rise in sales to Rs. 763.2 mn. A change in the product-mix, with

revenues shifting more towards distributor pumps, was one of the reasons for the growth in raw

material expenditure.

The increase in raw material expenses appears huge in comparison to that in Q3 FY04 (up from

43.9% to 50.9% as a percentage of sales), although it grew sequentially to 50.9% as a percentage of

sales from 50.4%. This stabilisation in raw material costs, coupled with the decline in personnel

expenditure, led to the EBIDTA margin rising sequentially to 21.9%. Revenues from the automotive

segment accounted for 90% of total sales and were higher by 30% at Rs. 7061.6 mn. The non-

automotive segments revenues grew by 48% to Rs. 746.5 mn.

Ironically, this failed to translate into a bottomline growth, despite a decent topline growth. Cost

pressures and increased depreciation had the highest impact on profitability. The company follows a

written-down value approach, resulting in higher depreciation during periods of high capex. The

PAT margin declined to 10.5% from 14.90% in Q3 FY04. The PAT declined by 14% sequentiallyand by 9.5% Y-o-Y.


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13

Sensitivity Analysis: DCF Fair value range is3000 to 3100

Sensitivity Analysis

Given below are the DCF Fair Value Sensitivity Analysis tables for MICO. Our analysis gives amost likely Fair Value estimate of Rs. 3000-3100 per sharebut you can read off your value

depending on your terminal assumptions.

gA Growth rates in NOPLAT for FY11 to FY15

gB Growth rates in NOPLAT beyond FY15

WACC Weighted Average Cost of Capital

ROICb Return on Incremental capital beyond FY15

Explicit Period Sensitivity of gA against WACC for computing the Fair Value

g(a)

14.5% 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% 18.0% 18.5% 19.0% 19.5% 20.0%

9.9% 4255 4312 4370 4429 4488 4549 4610 4673 4736 4801 4866 4932

10.1% 4042 4094 4148 4202 4257 4313 4369 4427 4485 4545 4605 4666

10.3% 3849 3897 3947 3997 4048 4099 4152 4205 4259 4314 4369 4426

10.5% 3673 3718 3764 3810 3857 3905 3953 4003 4053 4103 4155 4207

10.7% 3513 3555 3597 3640 3684 3728 3773 3819 3865 3912 3960 4008

10.9% 3366 3405 3444 3484 3525 3566 3607 3650 3693 3737 3781 3826

11.1% 3231 3267 3304 3341 3378 3417 3456 3495 3535 3576 3617 3658

11.3% 3106 3140 3174 3209 3244 3279 3315 3352 3389 3427 3465 3504

11.5% 2991 3022 3054 3086 3119 3152 3186 3220 3255 3290 3326 336211.7% 2884 2913 2943 2973 3004 3035 3066 3098 3130 3163 3196 3230

11.9% 2785 2812 2840 2868 2896 2925 2955 2984 3015 3045 3076 3108

12.1% 2692 2717 2743 2770 2796 2823 2851 2879 2907 2935 2964 2994

12.3% 2605 2629 2653 2678 2703 2728 2754 2780 2806 2833 2860 2888

WACC

12.5% 2524 2547 2569 2592 2616 2639 2663 2688 2712 2737 2763 2788

Shaded area represents First Globals most likely estimates

Implicit Period Sensitivity of gB against ROICb for computing the Fair Value

g(b)

3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0%

14.7% 2830 2865 2905 2951 3004 3067 3142 3232 3344 3486 3673 3929

14.8% 2835 2871 2912 2959 3013 3077 3154 3247 3362 3508 3699 3962

14.9% 2839 2876 2918 2966 3022 3088 3166 3261 3379 3529 3726 3995

15.0% 2843 2881 2924 2973 3031 3098 3178 3276 3397 3550 3751 4027

15.1% 2847 2886 2930 2980 3039 3108 3190 3290 3414 3571 3777 4059

15.2% 2851 2891 2936 2987 3047 3118 3202 3304 3431 3591 3802 4091

15.3% 2855 2895 2941 2994 3056 3128 3214 3318 3447 3611 3827 4122

15.4% 2859 2900 2947 3001 3064 3137 3225 3332 3464 3631 3851 4152

15.5% 2863 2905 2953 3008 3072 3147 3237 3345 3480 3651 3875 4183

15.6% 2867 2910 2958 3015 3080 3156 3248 3359 3496 3670 3899 4212

ROIC(b)

15.7% 2870 2914 2964 3021 3088 3166 3259 3372 3512 3689 3922 4242

Shaded area represents First Globals most likely estimates


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14

Financials

Earnings Model of MICO.IN (MICO.BO) - Standalone(Year Ending Dec 31st) (Rs. Mn) Q1FY04 Q2FY04 Q3FY04 Q4FY04 FY04 Q1FY05 Q2FY05 Q3FY05 Q4FY06E FY06E FY07E

Net Revenue 5730 6031 6043 6365 23991 6593 7632 7946 7790 29961 35886

Less: Operating Expenditure 4245 4469 4568 5070 18084 5072 5973 6210 6170 23424 27628

EBIDTA 1485 1562 1475 1295 5907 1522 1659 1736 1620 6537 8258

Depreciation 216 183 215 374 989 302 302 600 600 1804 2316

EBIT 1269 1378 1259 921 4918 1219 1357 1137 1021 4733 5941

Add: Other income 244 78 110 51 106 32 93 63 63 251 312

Less: Interest -76 -84 -97 -69 -325 -184 -115 -132 -132 -563 -556

Profit Before Extraordinary items and

Tax 1589 1541 1466 1040 5350 1435 1564 1332 1216 5548 6810

Add: Extraordinaries (net) 0 19 36 -122 -286 0 43 11 0 0 0

Profit Before Tax 1589 1522 1430 1162 5635 1435 1521 1321 1216 5548 6810

Less: Total Tax 465 497 494 432 1888 518 541 473 437 1969 2338

Profit After Tax 1124 1024 936 730 3748 917 980 848 780 3579 4471

Proforma Net Profit 1124 1037 960 654 3558 917 1023 859 780 3579 4471

Shares Outstanding (mn) 32 32 32 32 32 32 32 32 32 32 32

Reported EPS (Rs.) 35 32 29 23 117 29 31 26 24 110 140

Proforma EPS (Rs.) 35 32 30 20 111 29 32 27 24 112 140

EBIDTA Margin 25.91% 25.89% 24.41% 20.35% 24.62% 23.08% 21.74% 21.85% 20.80% 21.82% 23.01%

EBIDT Margin 22.14% 22.86% 20.84% 14.47% 20.50% 18.49% 17.78% 14.30% 13.10% 15.80% 16.56%

Proforma NPM 19.61% 17.20% 15.88% 10.27% 14.83% 13.91% 13.41% 10.81% 10.01% 11.95% 12.46%

Effective Tax Rate 29.26% 32.69% 34.54% 37.15% 33.50% 36.08% 35.56% 35.83% 35.91% 35.49% 34.34%


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15

Profit & Loss A/c - Standalone Basis

(Year ended Dec.31) (In Rs. Mn) 2001 2002 2003 2004 2005E 2006E

Gross Sales 16063 17130 21013 25833 32735 39283

Less: Excise Duty 1550 1623 2035 2553 3236 3883

Net Sales 14513 15507 18979 23279 29500 35400

Add: Operating Income 155 254 533 711 461 486

Total Revenue 14668 15761 19511 23991 29961 35886

Less:

Raw Material 6259 6425 7759 10300 14884 17592

Manufacturing Expenses 1306 1410 1681 1954 2010 2354

Personnel 3074 3112 3226 3382 3809 4496

Selling and Administration 1995 2084 2289 2654 2720 3186

Less: Exps Capitalised 231 87 83 207 0 0

Total Operating Expenditure 12403 12944 14872 18084 23424 27628

EBIDTA 2266 2817 4639 5907 6537 8258

Less: Depreciation 1334 1072 1016 989 1804 2316

EBIT 932 1744 3623 4918 4733 5941

Non-Operating Income 252 78 -22 106 251 312

Extraordinary Income 56 43 10 286 0 0

Extraordinary Expense 0 0 0 0 55 0

Interest -51 -147 -225 -325 -563 -556

Profit before tax 1290 2013 3836 5635 5493 6810

Total Tax 473 664 1486 1888 1969 2338

Profit after Tax 817 1348 2350 3748 3524 4471

Proforma Net Profit 782 1320 2345 3558 3579 4471

Source: Company Reports, FG Estimates

Balance Sheet - Standalone Basis


LIABILITIES

Equity Capital 341 321 321 321 321 321

Preference Share Capital 0 0 0 0 0 0

Reserves & Surplus 6002 6734 8833 12219 15381 17650

Net Worth 6342 7055 9154 12539 15701 17971

Net Deferred tax liability/(Asset) -1279 -1411 -1483 -1696 -1481 -1266

Total Loans 496 748 975 1479 6479 8979

Capital Employed 5559 6392 8646 12322 20699 25684

ASSETS

Gross Block 13699 14263 14392 14894 19037 22287

Less: Depreciation 11236 11973 12465 12947 16562 19390

Net Block 2463 2290 1927 1947 2475 2897Capital WIP 249 165 144 644 1500 750

Investments 1017 1667 2915 5541 9418 9418

Current Assets

Inventories 1660 1520 2213 2841 3744 4554

Sundry Debtors 2236 1795 2004 2142 2829 3394

Normal Cash and Bank Balance 1400 3351 4892 4958 7468 12137

Loans and Advances 750 1067 878 1994 2233 2629

Less:Current Liab. and Provisions

Sundry Creditors 1465 2083 1981 2768 3594 4239

Provisions 1856 2057 2353 2783 2831 2981

Others 895 1324 1993 2194 2542 2875

Total current liabilities & provisions 4216 5464 6327 7745 8967 10095Capital Employed 5559 6392 8646 12322 20699 25684



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16

Commonsized Profit & Loss A/c - Standalone Basis

(Year ended Dec.31) 2001 2002 2003 2004 2005E 2006E

Gross Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Less: Excise Duty 9.6% 9.5% 9.7% 9.9% 9.9% 9.9%

Net Sales 90.4% 90.5% 90.3% 90.1% 90.1% 90.1%

Add: Operating Income 1.0% 1.5% 2.5% 2.8% 1.4% 1.2%

Total Revenue 91.3% 92.0% 92.9% 92.9% 91.5% 91.4%

Less:

Raw Material 39.0% 37.5% 36.9% 39.9% 45.5% 44.8%

Manufacturing Expenses 8.1% 8.2% 8.0% 7.6% 6.1% 6.0%

Personnel 19.1% 18.2% 15.4% 13.1% 11.6% 11.4%

Selling and Administration 12.4% 12.2% 10.9% 10.3% 8.3% 8.1%

Less: Exps Capitalised 1.4% 0.5% 0.4% 0.8% 0.0% 0.0%

Total Operating Expenditure 77.2% 75.6% 70.8% 70.0% 71.6% 70.3%

EBIDTA 14.1% 16.4% 22.1% 22.9% 20.0% 21.0%

Less: Depreciation 8.3% 6.3% 4.8% 3.8% 5.5% 5.9%

EBIT 5.8% 10.2% 17.2% 19.0% 14.5% 15.1%

Non-Operating Income 1.6% 0.5% -0.1% 0.4% 0.8% 0.8%

Extraordinary Income 0.3% 0.3% 0.0% 1.1% 0.0% 0.0%

Extraordinary Expense 0.0% 0.0% 0.0% 0.0% 0.2% 0.0%

Interest -0.3% -0.9% -1.1% -1.3% -1.7% -1.4%

Profit before tax 8.0% 11.7% 18.3% 21.8% 16.8% 17.3%

Total Tax 2.9% 3.9% 7.1% 7.3% 6.0% 6.0%

Profit after Tax 5.1% 7.9% 11.2% 14.5% 10.8% 11.4%

Proforma Net Profit 4.9% 7.7% 11.2% 13.8% 10.9% 11.4%


Commonsized Balance Sheet - Standalone Basis

(Year ended Dec.31) 2001 2002 2003 2004 2005E 2006E

LIABILITIES

Equity Capital 6.1% 5.0% 3.7% 2.6% 1.5% 1.2%

Preference Share Capital 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Reserves & Surplus 108.0% 105.4% 102.2% 99.2% 74.3% 68.7%

Net Worth 114.1% 110.4% 105.9% 101.8% 75.9% 70.0%

Net Deferred tax liability/(Asset) -23.0% -22.1% -17.2% -13.8% -7.2% -4.9%

Total Loans 8.9% 11.7% 11.3% 12.0% 31.3% 35.0%

Capital Employed 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

ASSETS

Gross Block 246.4% 223.1% 166.5% 120.9% 92.0% 86.8%

Less: Depreciation 202.1% 187.3% 144.2% 105.1% 80.0% 75.5%

Net Block 44.3% 35.8% 22.3% 15.8% 12.0% 11.3%Capital WIP 4.5% 2.6% 1.7% 5.2% 7.2% 2.9%

Investments 18.3% 26.1% 33.7% 45.0% 45.5% 36.7%

Current Assets

Inventories 29.9% 23.8% 25.6% 23.1% 18.1% 17.7%

Sundry Debtors 40.2% 28.1% 23.2% 17.4% 13.7% 13.2%

Normal Cash and Bank Balance 25.2% 52.4% 56.6% 40.2% 36.1% 47.3%

Loans and Advances 13.5% 16.7% 10.2% 16.2% 10.8% 10.2%

Less: Current Liab. and Provisions

Sundry Creditors 26.3% 32.6% 22.9% 22.5% 17.4% 16.5%

Provisions 33.4% 32.2% 27.2% 22.6% 13.7% 11.6%

Others 16.1% 20.7% 23.0% 17.8% 12.3% 11.2%

Total current liabilities & provisions 75.8% 85.5% 73.2% 62.9% 43.3% 39.3%Capital Employed 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%



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18

Cash Flow Statement - Standalone Basis


From Operations

Profit Before Tax 1234.2 3826.4 5349.8 5547.6 6809.7 8211.5

Depreciation 1333.8 1016.0 988.8 1803.8 2316.3 2638.6

Less:

Dividend payout 99.4 208.3 320.5 320.5 320.5 320.5

Tax paid 472.9 1485.5 1887.7 1968.7 2338.4 2722.9

Dividend Tax 10.1 43.1 41.9 41.9 41.9 41.9

Operating cashflow 1985.7 3105.4 4088.5 5020.3 6425.2 7764.7

Changes in Capital Structure

Increase In Equity Share Capital 340.5 0.0 0.0 0.0 0.0 0.0

Increase in Share Premium 8.1 0.0 0.0 0.0 0.0 0.0

Increase in Other Reserves 5341.6 9.6 285.6 -54.5 -1839.2 -1408.9

Increase in Preferance share capital 0.0 0.0 0.0 0.0 0.0 0.0

Increase in Net Deferred tax liability -1279.0 -72.0 -213.0 215.0 215.0 215.0

Inc/(Dec) in Loans 496.4 226.8 504.2 5000.0 2500.0 2500.0

Inc/(Dec) in Equity/Loans 4907.6 164.3 576.8 5160.5 875.8 1306.1

Adjustments

Prior Period Adj.

Diff. in Depreciation 9902.4 -523.9 -507.0 1811.8 511.2 -463.6

Total Inflows 16795.7 2745.8 4158.2 11992.6 7812.3 8607.2

CASH OUTFLOWS

Working Capital Changes

Inc/(Dec) In Creditors 1464.6 -101.1 786.8 825.6 645.0 847.8

Inc/(Dec) In Provisions 1855.8 295.5 430.2 48.5 150.0 150.0

Inc/(Dec) In Other Current Liabilities 895.3 668.5 201.0 348.3 333.3 333.3Less:

Inc/(Dec) in Inventory 1660.1 693.0 627.9 902.7 809.9 910.7

Inc in Debtors 2236.2 208.8 138.3 686.9 565.7 678.9

Inc/(Dec) in Loans & adv 746.9 -185.7 1095.2 238.5 396.0 443.2

Inc/(Dec) In Other Current Assets 3.1 -3.3 20.7 0.0 0.0 0.0

Inc/(Dec) In Working Capital 430.5 -150.1 464.1 605.6 643.3 701.7

Capex/Investments

Inc/(Dec) in Invst 1017.0 1247.9 2626.2 3876.8 0.0 0.0

Addition to Gross Block 13699.4 129.2 501.3 4143.6 3250.0 2500.0

Inc/(Dec) in Capital WIP 248.8 -21.3 499.9 856.4 -750.0 0.0

Inc in Miscellaneous 0.0 0.0 0.0 0.0 0.0 0.0

Inc/(Dec) In Fixed Assets/Investments 14965.3 1355.9 3627.4 8876.8 2500.0 2500.0

Inc in Cash / Bank bal 1399.9 1540.1 66.7 2510.2 4669.0 5405.5

Total Outflows 16795.7 2745.8 4158.2 11992.6 7812.3 8607.2



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19

Common SizeCash Flow Statement - Standalone Basis

(Year ended Dec.31) 2001 2002 2003 2004 2005E 2006E

From Operations

Profit Before Tax 7.3% 139.4% 128.7% 46.3% 87.2% 95.4%

Depreciation 7.9% 37.0% 23.8% 15.0% 29.6% 30.7%Less:

Dividend payout 0.6% 7.6% 7.7% 2.7% 4.1% 3.7%

Tax paid 2.8% 54.1% 45.4% 16.4% 29.9% 31.6%

Dividend Tax 0.1% 1.6% 1.0% 0.3% 0.5% 0.5%

Operating cashflow 11.8% 113.1% 98.3% 41.9% 82.2% 90.2%

Changes in Capital Structure

Increase In Equity Share Capital 2.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Increase in Share Premium 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Increase in Other Reserves 31.8% 0.3% 6.9% -0.5% -23.5% -16.4%

Increase in Preference share capital 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Increase in Net Deferred tax liability -7.6% -2.6% -5.1% 1.8% 2.8% 2.5%

Inc/(Dec) in Loans 3.0% 8.3% 12.1% 41.7% 32.0% 29.0%

Inc/(Dec) in Equity/Loans 29.2% 6.0% 13.9% 43.0% 11.2% 15.2%

Adjustments 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Prior Period Adj. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Diff. in Depreciation 59.0% -19.1% -12.2% 15.1% 6.5% -5.4%

Total Inflows 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

CASH OUTFLOWS

Working Capital Changes

Inc/(Dec) In Creditors 8.7% -3.7% 18.9% 6.9% 8.3% 9.8%

Inc/(Dec) In Provisions 11.0% 10.8% 10.3% 0.4% 1.9% 1.7%Inc/(Dec) In Other Current Liabilities 5.3% 24.3% 4.8% 2.9% 4.3% 3.9%

Less:

Inc/(Dec) in Inventory 9.9% 25.2% 15.1% 7.5% 10.4% 10.6%

Inc in Debtors 13.3% 7.6% 3.3% 5.7% 7.2% 7.9%

Inc/(Dec) in Loans & advances 4.4% -6.8% 26.3% 2.0% 5.1% 5.1%

Inc/(Dec) In Other Current Assets 0.0% -0.1% 0.5% 0.0% 0.0% 0.0%

Inc/(Dec) In Working Capital 2.6% -5.5% 11.2% 5.1% 8.2% 8.2%

Capex/Investments

Inc/(Dec) in Invst 6.1% 45.4% 63.2% 32.3% 0.0% 0.0%

Addition to Gross Block 81.6% 4.7% 12.1% 34.6% 41.6% 29.0%

Inc/(Dec) in Capital WIP 1.5% -0.8% 12.0% 7.1% -9.6% 0.0%Inc in Miscellaneous 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Inc/(Dec) In Fixed Assets/Investments 89.1% 49.4% 87.2% 74.0% 32.0% 29.0%

Inc in Cash / Bank balance 8.3% 56.1% 1.6% 20.9% 59.8% 62.8%

Total Outflows 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%



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20

Free Cash Flow Statement - Standalone Basis

(Year ended Dec.31) 2001 2002 2003 2004 2005E 2006E

EBITA 932 1744 3623 4918 4733 5941

Less: Adjusted Taxes 341.5 575.5 1403.1 1647.4 1699.0 2040.2

NOPLAT 590.1 1168.7 2220.1 3270.7 3034.1 3901.1

Depreciation 1333.8 1072.4 1016.0 988.8 1803.8 2316.3

Gross Cashflow 1924.0 2241.1 3236.1 4259.5 4837.9 6217.5

Increase in Working Capital 3907.3 -832.3 987.5 1310.4 1313.5 1421.6

Operating Cashflow -1983.3 3073.4 2248.6 2949.1 3524.4 4795.8

Net Capex 4045.8 815.5 631.9 1508.2 3188.2 1988.8

Increase in Net Other Assets -1472.1 -498.0 -892.0 -418.2 -611.8 -698.3

FCF From Operation -4557.0 2755.9 2508.8 1859.1 948.1 3505.4

Less: Inc./(Dec.) in Investment 1691.3 2551.6 2614.4 2477.8 6076.0 4374.0

FCF after Investment -6248.3 204.3 -105.6 -618.7 -5127.9 -868.6

Plus: Gain/(loss) on Extraordinary Items 35.4 28.7 5.9 189.9 -35.2 0.0

Plus: Foreign currency Translation Effect 0.0 0.0 0.0 0.0 0.0 0.0

Total FCF -6212.9 233.0 -99.8 -428.8 -5163.1 -868.6

Financing Cash Flow

Interest Exp/(inc) After Tax, Net -191.7 -151.0 -124.5 -287.0 -525.5 -570.2

Inc/(dec) in Excess Cash and Marketable

Securities 0.0 0.0 0.0 0.0 0.0 0.0

Dec/(Inc) in Debt -496.4 -251.5 -226.8 -504.2 -5000.0 -2500.0

Dividends 109.5 128.2 251.5 362.4 362.4 362.4

Share Repurchase/(Issues) -5634.4 507.4 0.0 0.0 0.0 1839.2

Total financing flow -6212.9 233.0 -99.8 -428.8 -5163.1 -868.6



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21

IMPORTANT DISCLOSURES

Price Target

Price targets (if any) are derived from a subjective and/or quantitative analysis of financial and non-

financial data of the concerned company using a combination of P/E, P/Sales, earnings growth,

discounted cash flow (DCF) and its stock price history.

The risks that may impede achievement of the price target/investment thesis are -

! Any adverse movement in oil and gas prices due to political disturbances, abnormal weather

conditions, global economic problems, supply disruptions etc. will affect the performance ofthe company.

! Changes in the regulatory environment may adversely impact the performance of the

company.


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22

Rating system of First GlobalOur rating system consists of three categories of ratings: Positive, Neutral and Negative. Within each

of these categories, the rating may be absolute or relative. When assigning an absolute rating, the

price target, if any, and the time period for the achievement of this price target, are given in the

report. Similarly when assigning a relative rating, it will be with respect to certain market/sector

index and for a certain period of time, both of which are specified in the report.

Rating in this report is relative to: S&P CNX Nifty Index

Positive Ratings

(i) Buy (B) This rating means that we expect the stock price to move up and achieve our specifiedprice target, if any, over the specified time period.

(ii) Buy at Declines (BD) This rating means that we expect the stock to provide a better (lower)entry price and then move up and achieve our specified price target, if any, over the specified time

period.

(ii) Outperform (OP) This is a relative rating, which means that we expect the stock price tooutperform the specified market/sector index over the specified time period.

Neutral Ratings(i) Hold (H) This rating means that we expect no substantial move in the stock price over thespecified time period.

(ii) Marketperform (MP) This is a relative rating, which means that we expect the stock price toperform in line with the performance of the specified market/sector index over the specified time

period.

Negative Ratings(i) Sell (S) This rating means that we expect the stock price to go down and achieve our specifiedprice target, if any, over the specified time period.

(ii)Sell into Strength (SS) This rating means that we expect the stock to provide a better (higher)exit price in the short term, by going up. Thereafter, we expect it to move down and achieve our

specified price target, if any, over the specified time period.

(iii) Underperform (UP) This is a relative rating, which means that we expect the stock price tounderperform the specified market/sector index over the specified time period.

(iv) Avoid (A) This rating means that the valuation concerns and/or the risks and uncertaintiesrelated to the stock are such that we do not recommend considering the stock for investment


24/24


FG Markets, Inc.90 John Street, Suite 703,

New York, NY 10038

Dealing Desk (US):

Tel. No: 1-212-2276611

email: [email protected]

FIRST GLOBAL (UK) Ltd.Rivington House, 82, Great Eastern Street,

London EC2A 3JL, United Kingdom

Dealing Desk (UK & Europe):

Tel. No: 00-44-207-959 5300

email: [email protected]

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(including without limit ation loss of profit) which may ari se dir ectly or i ndirectly from use of or r eliance on such information.First Global (or one of its affiliates or subsidiaries) or their officers, directors, analysts, employees, agents, independent contr actors, or consultantsmay have positions in securities or commodities referred to herein and may, as principal or agent, buy and sell such securities or commodities. Anemployee, analyst, officer, agent, independent contractor, a director, or a consultant of First Global, its affiliates, or its subsidiaries may serve as adirector for companies mentioned in this report.

First Global and its affiliates may, to the extent permitted under applicable law, have acted upon or used the information prior to or immediatelyfollowing its publication, provided that we could not reasonably expect any such action to have a material effect on the price.This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum isnot an offer to buy or sell or a solicitation of an offer to buy or sell the securiti es mentioned.

The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisionsbased on their specific investment objectives and financial position and using such independent advisors as they believe necessary. Where aninvestment is denominated in a currency other than the investor's currency, changes in rates of exchange may have an adverse effect on the value,price of, or income derived from the investment. There may be instances when fundamental, technical, and quantitative opinions may not be inconcert.

Past performance is not necessarily a guide to future performance. Income from investments may fluctuate. The price or value of the investments towhich this report relates, either directly or indirectly, may fall or rise against the interest of investors. There are risks inherent in international

investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchangerate fluctuations, and limit ed availability of infor mation on international securi ties.

The value of investments and the income from them may vary and you may realize less than the sum invested. Part of the capital invested may beused to pay that income. In the case of higher volatility investments, these may be subject to sudden and large falls in value and you may realize alarge loss equal to the amount invested. Some investments are not readily realizable and investors may have difficulty in selling or realizing theinvestment or obtaining reliable information on the value or risks associated with the investment. Where a security is denominated in a currencyother than sterling (for UK investors) or dollar (for US investors), changes in exchange rates may have an adverse effect on the value of the securityand the income thereon. The tax treatment of some of the investments mentioned above may change with future legislation. The investment orinvestment service may not be suitable for all recipients of this publication and any doubts regarding this should be addressed to your broker.While Fir st Global has prepared this r eport, First Global (UK) Ltd. and FG Mark ets, Inc. is distr ibuti ng the repor t in t he UK & US and acceptresponsibility for its contents. Any person receiving this report and wishing to effect transactions in any security discussed herein should do so onlywith a r epresentative of Fir st Global (UK) Ltd. or FG Mark ets, Inc.

Fir st Global (UK) Limited is r egulated by FSA and is a Member fir m of t he London Stock Exchange.

FG Markets, Inc. is regulated by SEC and is a member of National Association of Security Dealers (NASD) and Securities Investor ProtectionCorporation (SIPC). FG Markets, Inc., its affiliates, and its subsidiaries make no representation that the companies which issue securities which arethe subject of their research reports are in compliance with certain informational reporting requirements imposed by the Securities Exchange Act of

1934. Sales of securities covered by this report may be made only in those jurisdictions where the security is qualified for sale.Additional information on recommended securities is available on request.

This r eport may not be resold or redistributed without the pr ior written consent of First Global.

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