apollo tyres (apotyr) | 238static-news.moneycontrol.com/static-mcnews/2017/05/i...apollo tyres ltd...

May 9, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Demand scenario seems promising!

Apollo Tyres’ (ATL) Q4FY17, consolidated revenues were at | 3,326

crore (up 10.3% YoY), below our estimate of | 3,418 crore. It is

mainly volume driven - domestic (9% YoY) while Europe (20% YoY)

Revenues from Asia Pacific Middle East & Africa (APMEA) increased

9.2% YoY to | 2,691 crore while revenue from Europe & America

(EA) increased 15.8% YoY to | 991 crore

Consolidated EBITDA margins came in at 11.1% (down 534 bps YoY

& 332 bps QoQ) vs. our estimate of 13.5%, mainly due to 1) higher

raw material cost [natural rubber (NR) prices up 52.3% YoY & 22.5%

QoQ to | 152/kg] and 2) seasonally weak quarter of Reifencom,

(European distributor), which posted negative EBITDA margins of 5%

PAT declined 16.1% YoY to | 228 crore vs. our estimate of | 250

crore. ATL recommended a final dividend of | 3/share for FY17

The management expects double digit volume growth in FY18E.

However, we expect pressure on margins to continue till H1FY18E

mainly due to higher input cost & start-up cost of its Hungary plant

Well placed for demand revival

ATL is well placed to benefit from the radialisation story in India. It enjoys

a 25% market share in truck tyre segment (in both TBB & TBR). ATL is

likely to improve radial volumes, and is increasing its radial capacity,

(phase 1 of radial capacity has been commissioned in Q4CY16) with full

capacity set to come on stream in mid-2018, thus driving its growth.

Further, import of Chinese tyre has declined to <50% of its peak import in

Q2FY16 (impacted by demonetisation) and is benefiting the domestic tyre

industry, especially ATL. Thus, the management is positive on demand

outlook & expects double digit volume growth in FY18E.

Strong brand + distribution = to supports its European performance!

ATL’s overall European operation reported volume growth of 12% YoY in

FY17 & was mainly supported by strong volumes of its Vredestein brand

in the PV space. It continues to expand its PCR capacity in Hungary (has

planned capex of €180 million, | 1,250 crore in FY18E), which is likely to

cater to rising demand, going forward. Apart from that, acquisition of

Reifencom - one of the leading tyre retail chain in Germany (with >37

stores), will enhance brand visibility. Q4FY17 is seasonally weak for

Reifencom, which posted negative EBITDA margins of 5%, thereby

impacting overall margins. However, the management expects Reifencom

margins (~2% per annum) to gradually improve, going forward.

Margin to be impacted in FY18E; though likely to improve, going forward

Average NR prices have been volatile - from lows of | 94/kg in February

2016 to | 159/kg in February 2017 to | 140/kg in May 2017. According to

the management, the impact of raw material price rise was 23% (13% in

Q3FY17 & 10% in Q4FY17) & requires 15% ASP hike (fully passing on) to

maintain its margins. Though, till date, they have increased prices by 6%

(3% each in Q4FY17 & in April 2017). Looking at the inventory and current

NR prices, the management expects its margins to remain under pressure

in H1FY18. It is likely to ease out afterwards. Also, start-up cost in

Hungary is likely to put pressure on European margins. Thus, we expect

lower margins in FY18E with an improvement in FY19E.

Decent business case as valuations remain fair!

ATL is investing in more diversified, rapid growth areas coupled with a

larger scale of business in coming years. Further, the management

expects demand to recover, going forward. Thus, we maintain BUY

rating, valuing ATL at 12x FY19E EPS to arrive at a target price of | 280.

Rating matrix

Rating : Buy

Target : | 280

Target Period : 12 months

Potential Upside : 18%

What’s Changed?

Target Chnaged from | 225 to | 280

EPS FY18E Changed from | 22.9 to | 19.7

EPS FY19E Chnaged from | 25 to | 23.3

Rating Unchanged

Quarterly Performance

(| Crore) Q4FY17 Q4FY16 YoY Q3FY17 QoQ

Revenues 3,325.6 3,014.9 10.3 3,457.9 -3.8

EBITDA 369.9 496.3 -25.5 499.3 -25.9

EBITDA (%) 11.1 16.5 -534 bps 14.4 -332 bps

Reported PAT 228.2 272.1 -16.1 295.7 -22.8

Key Financials

| Crore FY16 FY17E FY18E FY19E

Net Sales 11,793 13,180 15,014 16,420

EBITDA 1,968.3 1,846.4 1,807.8 2,099.8

Net Profit 1,093.0 1,099.3 992.2 1,176.9

EPS (|) 21.7 21.8 19.7 23.3

Valuation summary

FY16 FY17E FY18E FY19E

P/E (x) 11.3 10.9 12.1 10.2

Tgt P/E (x) 12.9 12.8 14.2 12.0

EV/EBITDA (x) 6.4 7.9 8.5 7.4

P/BV (x) 1.9 1.6 1.5 1.3

RoNW (%) 17.1 15.0 12.2 12.9

RoCE (%) 19.9 13.6 11.0 12.0

Stock data

Particular Amount

Market Capitalization (| Crore) | 11997 Crore

Total Debt (FY16) (| Crore) 3,244.5

Cash & Investments (FY16) (| Crore) 731.4

EV (| Crore) 14,510.4

52 week H/L (|) 254 / 139

Equity capital (| crore) | 50.4 Crore

Face value (|) | 1

Price performance (%)

1M 3M 6M 12M

Apollo Tyres Ltd 16.0 34.2 27.3 58.2

JK Tyres 33.6 45.7 29.0 119.2

CEAT Ltd 24.2 39.4 38.3 57.8

MRF Ltd 12.3 33.4 35.8 101.4

Balkrishna Industries Ltd 8.3 33.4 53.2 132.5

Apollo Tyres (APOTYR) | 238

Research Analyst

Nishit Zota

[email protected]

Vidrum Mehta

[email protected]


Variance analysis- Consolidated

(| crore) Q4FY17 Q4FY17E Q4FY16 YoY (%) Q3FY17 QoQ (%) Comments

Total Operating Income 3,326 3,418 3,015 10.3 3,458 -3.8 The topline growth was largely volume driven - India volume grew ~9% YoY

while Europe volume grew ~20% YoY

Raw Material Expenses 1,869 1,857 1,479 26.4 1,811 3.2 Higher input cost (natural rubber price up 52.3% YoY & 22.5% QoQ to |

152/kg) impacted the gross margin of the company, which contracted 715

bps YoY & 384bps QoQ

Employee Expenses 412 436 427 -3.6 451 -8.6

Other expenses 675 664 613 10.1 697 -3.2

EBITDA 370 461 496 -25.5 499 -25.9

EBITDA Margin (%) 11.1 13.5 16.5 -534 bps 14.4 -332 bps EBITDA margins came in at 11.1% (down 534 bps YoY & 332 bps QoQ)

mainly due to 1) higher raw material cost (both in India & European

operations) and 2) seasonally weak quarter of its Reifencom (European

distributor) operation, which posted negative EBITDA margins of 5%

Depreciation 137 113 121 13.0 113 20.4

Interest 24.8 28.3 24.1 3.1 28 -12.4

Other income 50.0 26.5 20.4 144.4 37.3 33.9 Other income came in higher mainly due to gain in investment and higher

interest income. However, the management expect the same to normalise,

going forward

Tax 30.3 97.1 98.3 -69.2 99 -69.4

PAT 228.2 249.5 272.1 -16.1 295.7 -22.8 Decline in margins impacts profitability

EPS (|) 4.5 5.0 5.3 -15.2 5.9 -22.8

Key Metrics

Revenue (| crore)

India 2,691 2,465 9.2 2,493 7.9 Revenue was mainly driven by volume growth of ~9% YoY. Volumes in PCR

& Farm tyres witnessed good growth while truck tyres remained flat during

the quarter

Europe 991 856 15.8 1,262 -21.4 The growth was mainly supported by volume growth of 20% YoY.

EBIT Margin (%)

India 8.5 14.4 -586 bps 11.2 -266 bps Margins were impacted due to higher raw material cost

Europe 3.8 3.0 84 bps 10.3 -651 bps European margins were impacted due to 1) seasonally weak quarter of

Reifencom (posted negative EBITDA margin of 5%); 2) due to higher raw

material cost

Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % Change Comments

Revenue 14,037 15,014 7.0 15,401 16,420 6.6 The management expects the demand scenario to imporve thereby

registering healthy volume growth, going forward

EBITDA 2,149 1,808 -15.9 2,299 2,100 -8.7

EBITDA Margin (%) 15.3 12.0 -327 bps 14.9 12.8 -214 bps Higher raw material prices (NR) & with ATL unable to pass on (100% of

the same) to the consmuers is likely to impact its margins

PAT 1,143 992 -13.2 1,260 1,177 -6.6 Lower margin estimates likely to impact profitabiity

EPS (|) 22.7 19.7 -13.3 25.0 23.3 -6.6

FY18E FY19E



Key conference call takeaways

The management expects double digit volume growth in FY18E.

However, we expect pressure on margins to continue till H1FY18E

For Q4FY17, the standalone business (India) grew ~10%, as volumes

were up 9% YoY. According to the management, Q4FY17 saw good

volumes from the passenger car & farm segment while CV volumes

remained largely flat. Chinese imports have come down to <50%

from its peak in Q2FY16 (impacted by demonetisation) and is

benefiting the domestic tyre industry, especially ATL

The price difference between Chinese and Indian tyres has reduced to

~6% (against earlier 10-15%), mainly after Chinese player increased

prices by ~10% in the past

The 2-W tyres volumes were at 100,000 per month currently, which

the company plans to increase to 200,000 per month, going forward.

ATL continues to outsource the 2-W tyres and may produce the same

in Andhra Pradesh (AP), assuming volumes moves higher as per its

expectations, going forward

For Q4FY17, revenues from Reifencom were at €27 million (mn).

However, reported negative EBITDA margins were 5%. Revenues of

its existing European operations (Vredestein) came in at €118 mn vs.

€99 mn in Q4FY16 while margins came in at 10.6%. For FY17,

revenues from the Vredestein brand were at €456 mn vs. €423 mn.

According to the management, European business margins will

remain impacted mainly due to 1) higher raw material (as ATL in line

with industry peers has announced price hike of 8% but is yet to

implement the same) and 2) after start-up cost (will result into higher

overheads) in Hungary

According to the management, the impact of raw material price rise in

Indian market is at 23% (13% in Q3FY17 & 10% in Q4FY17) and

requires 15% ASP hike (fully passing on) to maintain its margins. ATL,

till date, have increased prices by 6% (3% each in Q4FY17 and in

April 2017). Thus, the management expects its margins to remain

under pressure till H1FY18

Overall capex for FY18E is expected to be | 2500 crore and is equally

split between India and European operations. For Europe, the

company is likely to spend €180 million, which would be towards

expansion at its Hungary plant and for maintenance purpose. Going

forward, the company will undertake a greenfield expansion in

Andhra Pradesh (AP). However, this will be done in FY19E and will

not have investment in FY18E

On a consolidated basis its gross and net debt stands at | 3400 crore

vs. | 2400 crore in Q3FY17, with leverage ratio (debt/equity) at 0.4x

In terms of revenue break-up, replacement: OEM mix continues to be

75:25, respectively. Segment wise, trucks account for 60% of

revenue, passenger car ~20%, LCV ~9%, farm segment 9% with

remaining 2% from the other segment

The average raw material cost for Q4FY17 for ATL was at – natural

rubber - | 155/kg; synthetic rubber - | 155/kg; carbon black - | 60/kg;

fabric - | 270/kg and steel chord - | 110/kg


Company Analysis

Global player – with good business diversification across geographies!

A quick glance at Apollo’s consolidated performance shows an increase

in contribution of the European subsidiary from FY10 onwards. Revenue

from Europe has increased from ~24% in FY10 to ~30% in FY15. The

share had dropped to 27% in FY16 primarily due to internal factors

(namely implementation of SAP impacting sales volumes, resulting in

increase in inventory and working capital) and due to external factor

(unfavourable winter season and currency movement). However, the

management remained optimistic on demand, which recovered in FY17

along with large part of internal issues sorted out thereby increasing its

share to >30%. The company is also expanding its capacity with an

investment of ~€500 million in Eastern Europe over FY17-19E. For FY18E,

the management has guided an investment of ~€180 million in Europe,

thereby helping the company to serve the increasing demand, going

forward. The company has completed the restructuring of its South

African operations and closed its operations in FY15. Henceforth, it would

only be a trading subsidiary and would not be contributing meaningfully

to its consolidated revenue.

Exhibit 1: Revenue break-up - Geography-wise

5,0

37

5,4

90

8,1

58

8,5

07

8,7

12

8,9

38

8,6

82

8,9

26

10,1

38

11,0

56

1,9902,234

2,8502,992

3,943 4,0323,284

4,091

4,884

5,364

1,0971,183

1,3081,502

1,271 321

-

-

-

-

-

3,000

6,000

9,000

12,000

15,000

18,000

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E

(|

crore)

India Europe South Africa


Exhibit 2: Profitability contribution - Geography-wise

661

413

499 736

930

1,1

06

1,3

46

1,1

78

1,0

72

1,2

38

224

298 386

432

557 479 256

243

349

420

-

400

800

1,200

1,600

2,000

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

(|

crore)

India Europe



Revenue growth strong on radial TB side!

We have factored in revenue growth at ~11% CAGR in FY17-19E, mainly

led by volume (9%) growth. We believe the domestic market will improve

but the radialisation trend in the truck bus segment would hurt companies

with higher nylon capacity. The radialisation trend has promoted the

companies for higher capacity within the segment in India. ATL’s truck

bus radial (TBR) capacity is currently operating at >90% utilisation level.

Therefore, it is expanding its capacity from 6,000 units to 12,000 units in a

phased manner over the next 12-18 months. The competition from

cheaper imported Chinese tyre in the M&HCV replacement space has

been impacting Indian tyre manufacturers. However, demonetisation of

currency has impacted Chinese import (which are largely cash based)

favouring domestic players. According to the management, Chinese

import has come down to <50% from its peak in Q2FY16 benefiting ATL.

Any favourable step from the government, which has initiated a probe

into dumping of radial tyres from China, will further be positive for ATL.

Exhibit 3: We build modest revenue growth at 12% CAGR in FY17-19E

8,8

68

12,1

53

12,7

95

13,4

13

12,7

85

11,7

93

13,1

80

15,0

14

16,4

20

9.2

37.0

5.3 4.8

-4.7

-7.8

11.813.9

9.4

-

3,000

6,000

9,000

12,000

15,000

18,000

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

(|

crore)

-15

-10

-5

0

5

10

15

20

25

30

35

40

(%

)

Sales % growth


EBITDA margins to remains stable!

ATL’s margins have expanded from 9.6% to 15.1% from FY12 to FY15

and further increased to 16.7% in FY16 on the back of a reduction in raw

material prices. Prices of natural rubber (NR - account for ~40% of raw

material cost) declined from | 250/kg in 2011 to ~| 94/kg in February

2016. From its lows in February 2016 the price moved northwards to

| 159/kg in February 2017 to | 140/kg in May 2017. According to the

management, the impact of raw material price rise was 23% (13% in

Q3FY17 & 10% in Q4FY17) & requires 15% ASP hike (fully passing on) to

maintain its margins. Though, till date, they have increased prices by 6%

(3% each in Q4FY17 & in April 2017). Looking at the inventory and current

NR prices, the management expects its margins to remain under pressure

in H1FY18. It is likely to ease out afterwards. Also, start-up cost in

Hungary is likely to pressurise European margins. Thus, we expect lower

margins in FY18E with an improvement in FY19E.


Exhibit 5: Margin movement with RM trend

57.2

56.0

52.4

51.9

52.7

57.2

58.6

56.7

56.9

50.8

53.4

49.5

49.9

49.3

14.3

13.2

14.9

15.8

16.6

17.7

16.1

17.2

16.016.3

14.214.4

11.1

16.0

8

10

12

14

16

18

20

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

(%

)

36

40

44

48

52

56

60

64

(%

)

Raw materials/Sales Contribution OPM (LHS)


Exhibit 6: Natural rubber prices have been volatile!

160

94

205

80

100

120

140

160

180

200

220

240

260

Jun-11

Nov-11

Apr-12

Sep-12

Feb-13

Jul-13

Dec-13

May-14

Oct-14

Mar-15

Aug-15

Jan-16

Jun-16

Nov-16

Apr-17

(|

/Kg)

Production cut by

top Natural Rubber

(NR) producing

countries like

Thailand, Indonesia

and Malaysia

resulted into rise in

Floods in Thailand &

demand from China

resulted NR prices to

move northwards.


Exhibit 4: EBITDA margins to sustain over FY15-19E

978

1,1

66

1,4

57

1,8

76

1,9

31

1,9

68

1,8

46

1,8

08

2,1

00

11.0

9.6

11.4

14.0

15.1

16.7

14.0

12.012.8

-

500

1,000

1,500

2,000

2,500


(|

crore)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

(%

)

EBITDA EBITDA Margins (%)



Strong capital structure in capital intensive, cyclical business!

Despite the capital intensiveness and cyclicality of the business, ATL has

managed to maintain decent balance sheet strength. With FY16, net D/E

at comfortable ~0.1x levels, we believe this is the company’s greatest

strength in the good RoCE business. We believe that as the company has

a huge expansion plan of over >| 6,000 crore over FY17-19E, with capex

for FY18E likely to be at ~| 2,500 crore, its debt levels are likely to

increase, going forward. Despite this, we believe it would be maintained

at a decent level of D/E of 0.4x. This is because CFO generation remains

strong and would contribute to the bulk of the expenditure.

Exhibit 7: Comfortable debt position in high RoCE business!

0.8 0.8

0.7

0.2

0.0

0.1

0.3

0.40.4

14.8 15.1

17.6

23.2

24.7

19.9

13.6

11.012.0

-

0.2

0.4

0.6

0.8

1.0


(x)

-

5

10

15

20

25

30

(%

)

Nebt Debt/Equity RoCE


Strong CFO generation with manageable debt levels, despite capex plans!

From ~| 295 crore in FY11, the CFO has increased to ~| 1764 crore in

FY17, mainly due to lower input cost (natural rubber) and more price

discipline maintained by domestic players in the past. With OEM demand

reviving, we expect volumes to improve, going forward. This would

further sustain CFOs, even as ATL embarks on capex in FY17-19E in

Eastern Europe and on enhancing capacity in the domestic business.

Exhibit 8: CFOs on up trend!

1,5

34

1,7

95

1,3

96

1,7

64

1,7

03

1,5

06

1,0

42

907

533

433

380

1,1

31

4,2

89

2,5

00

1,5

002

,222

2,5

50

2,6

51

1,6

13

801 1

,350

3,2

44

4,2

44

4,1

00

295

387

773

-

400

800

1,200

1,600

2,000

2,400

2,800


(|

crore)

CFO Capex Debt



Profitability to remain at elevated levels as demand returns!

With the expected demand revival, we believe volumes will improve as

OEM demand is likely to increase, thereby driving its revenue, going

forward. However, we have revised, moderated our PAT estimates mainly

due to lower EBITDA margins, higher debt for funding the capacity

expansion programme that will bring down profitability. Despite the

same, profitability is likely to remain at decent levels, with PAT margins

likely to come in at >7%, going forward.

Exhibit 10: EBITDA growth vs. interest/depreciation trend

978

1,8

76

1,9

31

1,9

68

1,8

46

1,8

08

2,1

00

313

284

183

92

103

142

142

397

411

411

424

462

526

575

1,1

66

1,4

57

185 287

272

326

-

500

1,000

1,500

2,000

2,500


(|

crore)

EBITDA Interest Depreciation


Exhibit 9: Profit margins to remain as operational improvement kicks in!

440

432 601

1,0

44

1,0

15

1,0

60

1,0

99.3

992.2

1,1

76.9

5.0

3.6

4.7

7.87.9

9.0

8.3

6.6

7.2

-

200

400

600

800

1,000

1,200

1,400


(|

crore)

2

3

4

5

6

7

8

9

10

(%

)

PAT PAT Margin (%)

Source: Company press release, ICICIdirect.com Research


Outlook and valuation

ATL’s revenue growth remained subdued in FY15 & FY16. However, it has

seen a recovery in FY17, on the back of a demand revival in the OEM

space. The company is further investing in its TBR capacity (where its

current utilisation is >90% and there is a shift in trend from bias to radial

tyres in India). This is likely to drive its volume growth, going forward.

Similarly, in Europe, its new facility is slated to aid the current capacity

crunch faced by Vredestein coupled with strong domestic demand, which

is expected to improve from FY17 onwards. With a decent D/E profile,

return ratios and strong operating cash flow, the company is much better

placed in this business cycle vis-à-vis previous up cycles due to its largely

diversified and global scale of business.

ATL is investing in more diversified, rapid growth areas coupled with a

larger scale of business in coming years. Going forward, the management

expects demand to recover. Hence, we build in revenue CAGR of 12% in

FY17-19E. The higher input cost is likely to impacts its margins in FY18E.

However, the same is expected to gradually recover in FY19E. Also,

positive development from the government in terms of restricting import

of Chinese tyres will benefit ATL. Thus, we maintain BUY

recommendation and value the stock at 12x FY19E EPS to arrive at a

target price of | 280.

Exhibit 11: Valuation

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

(| cr) (%) (|) (%) (x) (x) (%) (%)

FY16 11,793 (7.8) 21.7 14.4 11.0 6.4 17.1 19.9

FY17E 13,180 11.8 21.8 0.6 10.9 7.9 15.0 13.6

FY18E 15,014 13.9 19.7 (9.7) 12.1 8.5 12.2 11.0

FY19E 16,420 9.4 23.3 18.6 10.2 7.4 12.9 12.0



Recommended history vs. consensus

0

50

100

150

200

250

300

May-17Jan-17Sep-16May-16Jan-16Sep-15May-15

(|

)

0.0

20.0

40.0

60.0

80.0

100.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Oct-10 Rubber prices start moving up on production concerns in Thailand on excessive rains

Aug-11 Rubber prices begin to stabilise as production picks up

Jun-13 Apollo announces Cooper Tire deal acquisition

Oct-13 Cooper deal under pressure on China labour strike

Oct-13 Cooper Tire files suit against Apollo

Dec-13 Cooper Tire terminates deal with Apollo; court dismisses Cooper appeal

Feb-14 Cooper Tire files suit against Apollo

Jun-14 Apollo to invest ~|400 crore at its Kerala facility to expand its Off-highway tyre capacity

Sep-14 Company to invest greenfield facility at Hungary and is likely to invest Euro 475 million over next 4 to 5 years

Sep-14 Apollo Tyre Africa voluntarily decides to cease its business operations

Oct-14 RBI hikes FII limit for investment upto 45% of paid up capital in Apollo Tyre

May-15 Apollo plans to invest |1500 crore to expand its Truck bus radial (TBR) capacity at its Chennai plant from 6000 units/ day to 9000 units/day

Aug-15 Board approves ATL's plans to raise debt of | 2,000 crore by way of rupee term loan, foregin currency term loan, NCDs from time to time


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Neeraj Consultants Pvt. Ltd. 31-Mar-17 0.14 72.1 29.63

2 Apollo Finance, Ltd. 31-Mar-17 0.07 36.8 0.00

3 Sunrays Properties & Investment Company Pvt. Ltd. 31-Mar-17 0.07 35.7 0.00

4 Sacred Heart Investment Company Pvt. Ltd. 31-Mar-17 0.05 24.4 14.98

5 Templeton Asset Management Ltd. 31-Mar-17 0.04 18.7 -6.31

6 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Mar-17 0.04 18.7 -11.03

7 Motlay Finance Pvt. Ltd. 31-Mar-17 0.03 16.7 4.11

8 Classic Auto Tubes, Ltd. 31-Mar-17 0.03 14.5 0.00

9 Mehta (Ashwin Shantilal) 31-Mar-17 0.03 13.5 0.00

10 Skagen AS 31-Mar-17 0.02 11.9 0.00

(in %) Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

Promoter 44.2 44.2 44.2 44.2 44.2

FII 32.7 33.0 33.0 33.4 31.6

DII 10.6 10.3 10.9 10.3 11.8

Others 12.5 12.7 12.0 12.2 12.4

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Neeraj Consultants Pvt. Ltd. 95.36 29.63 Constructive Finance Pvt. Ltd. -95.36 -29.63

Sacred Heart Investment Company Pvt. Ltd. 48.22 14.98 Apollo International, Ltd. -53.24 -16.54

Motlay Finance Pvt. Ltd. 13.22 4.11 Franklin Templeton Asset Management (India) Pvt. Ltd. -35.51 -11.03

Sundaram Asset Management Company Limited 7.87 2.45 Dimensional Fund Advisors, L.P. -24.62 -7.65

Amit Dyechem Pvt. Ltd. 5.02 1.56 Templeton Asset Management Ltd. -20.30 -6.31

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY16 FY17E FY18E FY19E

Total operating Income 11,793.0 13,180.0 15,014.3 16,420.3

Growth (%) -7.8 11.8 13.9 9.4

Raw Material Expenses 5,962.4 6,890.1 8,200.7 8,995.4

Employee Expenses 1,586.9 1,742.1 1,973.7 2,172.4

Other Expenses 2,275.4 2,701.5 3,032.2 3,152.6

Total Operating Expenditure 9,824.7 11,333.6 13,206.6 14,320.5

EBITDA 1,968.3 1,846.4 1,807.8 2,099.8

Growth (%) 1.9 -6.2 -2.1 16.2

Depreciation 423.9 461.8 525.5 574.7

Interest 91.6 102.9 142.3 141.9

Other Income 70.0 154.1 173.5 175.6

PBT 1,570.6 1,435.9 1,313.5 1,558.9

Exceptional items 0.0 0.0 0.0 0.0

Total Tax 477.6 336.5 321.3 381.9

PAT 1,093.0 1,099.3 992.2 1,176.9

Growth (%) 14.4 0.6 -9.7 18.6

EPS (|) 21.7 21.8 19.7 23.3


Cash flow statement | Crore


Profit after Tax 1,093.0 1,099.3 992.2 1,176.9

Add: Depreciation 423.9 461.8 525.5 574.7

(Inc)/dec in Current Assets -778.6 -450.9 -122.8 -367.1

Inc/(dec) in CL and Provisions 657.8 653.3 307.9 121.6

CF from operating activities 1,396.1 1,763.5 1,702.8 1,506.2

(Inc)/dec in Investments -21.6 -272.8 0.0 0.0

(Inc)/dec in Fixed Assets -1,131.5 -4,289.1 -2,500.0 -1,500.0

Others -839.9 885.4 86.1 22.7

CF from investing activities -1,993.0 -3,676.4 -2,413.9 -1,477.3

Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0

Inc/(dec) in loan funds 549.1 1,894.8 1,000.0 -144.5

Dividend paid & dividend tax -130.2 -193.3 -202.9 -202.9

Others 177.6 -45.9 0.0 0.0

CF from financing activities 596.5 1,655.6 797.1 -347.4

Net Cash flow -0.4 -257.7 85.9 -318.5

Opening Cash 595.0 594.6 336.9 422.8

Closing Cash 594.6 336.9 422.8 104.3


Balance sheet | Crore


Liabilities

Equity Capital 50.9 50.9 50.9 50.9

Reserve and Surplus 6,131.3 7,290.3 8,079.6 9,053.6

Total Shareholders funds 6,182.3 7,341.2 8,130.5 9,104.5

Total Debt 1,349.7 3,244.5 4,244.5 4,100.0

Deferred Tax Liability 596.2 766.1 872.7 954.5

Total Liabilities 8,329.9 11,873.5 13,835.1 14,753.5

Assets

Gross Block 9,267.0 11,658.7 16,531.0 18,131.0

Less: Acc Depreciation 5,158.1 5,619.9 6,145.4 6,720.1

Net Block 4,230.6 6,433.2 10,780.1 11,805.4

Capital WIP 975.0 2,872.3 500.0 400.0

Total Fixed Assets 5,205.5 9,305.6 11,280.1 12,205.4

Investments 122.6 396.2 396.2 396.2

Goodwill on consolidation 471.1 177.4 177.4 177.4

Inventory 1,945.4 2,645.5 2,427.0 2,609.3

Debtors 1,084.3 1,127.5 1,398.6 1,529.6

Loans and Advances 688.6 45.0 51.2 56.0

Other current assets 108.8 460.1 524.2 573.3

Cash 594.6 336.9 422.8 104.3

Total Current Assets 4,421.8 4,615.1 4,823.8 4,872.4

Creditors 1,545.8 1,731.8 1,851.1 1,934.4

Provisions 669.3 438.6 468.9 490.0

Total Current Liabilities 2,215.1 2,170.4 2,319.9 2,424.4

Net Current Assets 2,206.7 2,444.7 2,503.9 2,448.0

Application of Funds 8,329.9 11,873.5 13,835.1 14,753.5


Key ratios


Per share data (|)

EPS 21.7 21.8 19.7 23.3

Cash EPS 30.1 31.0 30.1 34.7

BV 122.6 145.6 161.3 180.6

DPS 2.6 3.8 4.0 4.0

Cash Per Share 11.8 6.7 8.4 2.1

Operating Ratios (%)

EBITDA Margin 16.7 14.0 12.0 12.8

PBT / Net sales 13.1 10.5 8.5 9.3

PAT Margin 8.0 5.0 3.4 4.8

Inventory days 60.2 73.3 59.0 58.0

Debtor days 33.6 31.2 34.0 34.0

Creditor days 47.8 48.0 45.0 43.0

Return Ratios (%)

RoE 17.1 15.0 12.2 12.9

RoCE 19.9 13.6 11.0 12.0

RoIC 26.0 16.0 9.9 10.7

Valuation Ratios (x)

P/E 11.3 10.9 12.1 10.2

EV / EBITDA 6.4 7.9 8.5 7.4

EV / Net Sales 1.1 1.1 1.0 0.9

Market Cap / Sales 1.0 0.9 0.8 0.7

Price to Book Value 1.9 1.6 1.5 1.3

Solvency Ratios

Debt/Equity 0.2 0.4 0.5 0.5

Current Ratio 1.7 2.0 1.9 2.0

Quick Ratio 0.8 0.8 0.9 0.9



ICICIdirect.com coverage universe (Auto & Auto Ancillary)

CMP M Cap

(|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Amara Raja (AMARAJ) 880 930 Hold 15037 28.5 29.4 37.3 30.8 29.9 23.6 18.1 17.1 13.7 31.2 26.2 27.9 23.2 20.1 21.2

Apollo Tyre (APOTYR) 240 280 Buy 12116 21.7 21.8 19.7 11.1 11.0 12.2 6.5 7.9 8.6 19.9 13.6 11.0 17.1 15.0 12.2

Ashok Leyland (ASHLEY) 83 100 Buy 23561 2.5 4.0 4.8 32.9 20.9 17.4 11.8 11.6 9.6 22.8 20.8 22.6 17.4 17.4 18.8

Bajaj Auto (BAAUTO) 2857 3000 Hold 82672 126.8 142.2 156.3 22.2 19.8 18.0 16.6 16.8 14.7 42.2 38.9 38.1 29.9 28.9 27.9

Balkrishna Ind. (BALIND) 1544 1400 Buy 14926 58.7 77.0 83.8 20.1 15.3 14.1 11.2 9.6 7.6 20.4 22.5 24.7 20.3 22.5 24.7

Bharat Forge (BHAFOR) 1100 1150 Buy 25618 28.0 30.5 44.6 39.3 36.1 24.6 17.6 17.9 13.4 16.5 14.8 19.5 18.3 17.4 21.5

Bosch (MICO) 23392 25250 Buy 73451 410.2 567.0 566.2 55.2 40.0 40.0 36.0 37.5 26.1 15.1 15.8 15.8 22.5 21.4 25.3

Eicher Motors (EICMOT) 26919 28970 Buy 72709 633.4 772.3 927.4 42.5 34.9 29.0 21.8 16.8 13.5 40.2 40.5 38.6 36.4 33.5 30.6

Exide Industries (EXIIND) 239 270 Buy 20315 7.3 8.2 9.4 32.6 29.3 25.3 19.0 17.7 14.4 19.4 18.7 20.4 14.0 14.1 14.8

Hero Mototcorp (HERHON) 3401 3330 Hold 67923 156.9 170.9 181.6 21.7 19.9 18.7 13.4 12.4 11.6 53.6 49.6 46.8 39.4 36.4 34.0

JK Tyre & Ind (JKIND) 177 145 Buy 4014 21.0 15.5 22.5 8.4 11.4 7.9 4.5 4.9 4.3 20.1 14.5 15.9 29.1 19.3 20.7

Mahindra CIE (MAHAUT) 246 280 Buy 7952 4.5 10.3 13.5 55.1 23.8 18.2 16.8 11.5 9.1 5.4 10.8 12.6 6.9 11.1 13.2

Maruti Suzuki (MARUTI) 6631 7200 Buy 200375 151.3 242.9 280.1 43.8 27.3 23.7 21.4 18.6 15.8 23.9 26.3 26.5 16.9 20.3 20.4

Motherson (MOTSUM) 408 370 Hold 57320 9.1 10.4 14.0 45.0 39.2 29.1 15.4 12.0 9.7 19.9 17.8 19.6 30.0 18.8 21.7

Tata Motors (TELCO) 423 535 Buy 128276 37.2 19.2 41.1 12.3 23.9 11.1 3.8 5.1 3.8 17.0 8.7 14.2 15.3 6.7 12.5

Wabco India (WABTVS) 5886 7000 Buy 11183 107.7 118.6 158.4 54.6 49.6 37.2 37.9 32.4 24.8 19.4 17.8 19.4 25.5 24.5 26.8

Sector / Company

RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)



RATING RATIONALE

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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

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