share khan report max india

7/31/2019 Share Khan Report Max India

1/15

Visit us at www.sharekhan.com May 27, 2011

Index

Stock Update >> Max India

Stock Update >> Kewal Kiran Clothing

Stock Update >> Ratnamani Metals and Tubes

Viewpoint >> Tata Motors

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2/15

2Sharekhan Home NextMay 27, 2011

investors eye stock update

Company details

Price chart

Shareholding pattern

Price performance

(%) 1m 3m 6m 12m

Absolute 3.2 16.3 9.7 -5.3

Relative 11.5 13.7 15.8 -15.2

to Sensex

Max India Emerging Star

Stock Update

Consolidated business turns profitable in Q4 Buy; CMP: Rs167

Price target: Rs234

Market cap: Rs3,882 cr

52 week high/low: Rs182/133

NSE volume: 3.0 lakh(No of shares)

BSE code: 500271

NSE code: MAX

Sharekhan code: MAX

Free float: 14.8 cr(No of shares)

Result highlights

During Q4FY2011, Max India reported a stand-alone loss of Rs13.5 crore but

was profitable on a consolidated basis led by the life insurance business. The

life insurance business showed healthy results for FY2011 with a total premium

growth of 20%, conservation ratio of 81% and profit of Rs194 crore as against a

loss of Rs21 crore in FY2010. The embedded value of the insurance business

grew by 18% year on year (YoY) to Rs3,216 crore.

Turns profitable on consolidated basis: Max India reported a profit of Rs130

crore in Q4FY2011 on a consolidated basis, a growth of 38% YoY. The profit was

led by a strong growth in the revenues and the companys sharp focus on cost

management. The total consolidated revenues for Q4FY2011 came in at Rs1,890

crore, up 5% YoY, led by a 22% year-on-year (Y-o-Y) increase in the operating

revenues whereas the company has booked loss in its investment income.

Life insurancesteady growth continues: Max New York Life (MNYL)s

annualised premium equivalent (APE) during the quarter came in at Rs472 crore,

a growth of 13% YoY while the other players registered a decline of 31% YoY.

The strong APE growth was driven by a focus on the traditional products and a

distribution tie-up with Axis Bank. The company has posted a profit of Rs194

crore in FY2011 as compared to a loss of Rs24 crore in FY2011. The expenses/

premium ratio for the quarter dropped to 29% from 30% in the corresponding

period of the previous year.

Health care revenues up 21.8% YoY, EBITDA improves as well: Max Health

Care (MHC)s Q4FY2011 revenues were up 21.8% YoY to Rs179 crore. The EBITDA

margin increased to 11% against 1.8% in Q4FY2011. The company plans to add

1,000 beds in CY2012 in the states of Punjab, Uttaranchal etc.

Specialty filmsrevenues up 29.7% YoY: Max Specialty Products (MSP) reported

a 29.7% Y-o-Y increase in its revenues to Rs118 crore in Q4FY2011. The EBITDA

margin declined to 10% (from 14.2% in Q3FY2011). Profits from the segment

grew by 16.7% YoY to Rs7 crore.

Health insurance: Max Bupa, the health insurance business of Max India,

registered a gross written premium (GWP) of Rs26 crore in FY2011. The company

enrolled 46,000 lives in the first year of operations.

Maintain Buy with a target of Rs234: Max India is among the best managed

companies in the life insurance space which gets reflected by way of its balanced

Result table Rs (cr)

Particulars Q4FY11 Q4FY10 % YoY FY2011 FY2010 % YoY

Operating revenue 1,941 1,592 22 6,668 5,574 20

Investment & Other income -51 201 -125 1,223 2,087 -41

Total revenue 1,890 1,793 5 7,891 7,661 3

EBIDTA 177 158 12 348 114 205

Profit/(Loss) before tax 130 94 38 32 -86 -

Promoter

37%

MF & FI

1%Foreign

30%

Public & others

32%

130135

140

145

150

155

160

165

170

175

180

May-10

Aug-10

Nov-10

Feb-11

May-11


3/15

3Sharekhan May 27, 2011 Home Next


product mix, high persistency ratio, higher average

case per agent etc. We remain convinced about the

long-term growth prospects of the life insurance

industry in spite of the regulatory concerns plaguing

insurance sales in the near term. The company is

already done with capital infusion in the life insurance

business while the treasury corpus of Rs540 crore andinflows from life insurance business will take care of

the funding requirements of the health insurance and

healthcare segments. We maintain our Buy

recommendation on the stock with our sum-of-the-

parts (SOTP) based target price of Rs234.

Life insurance business

APE growth better than industrys

In Q4FY2011 MNYLs APE came in at Rs472 crore, a growth

of 13% YoY, while the other players registered a steep

decline of 31% YoY. The strong APE growth was driven by

a focus on the traditional products and the distribution

tie-up with Axis Bank. The key highlight was that the

traditional policies contributed to 86% of the incremental

sales during the quarter.

Cost rationalisation to continue

Though the companys top line got affected by the

regulatory changes in the insurance sector, the cost

rationalisation aided the growth in profits. The companys

expenses/premium ratio for the quarter dropped to 29%

from 30% in the corresponding period of the previous year.

MNYL is taking steps to introduce several costrationalisation measures like multichannel distribution

network, productive agency force and other measures to

bring the expense ratio to ~18% levels.

Further, consolidation in agency force

The agency force as in March 2011 stood at 43,692 agents

down 40% YoYas MNYL continues to trim the unproductive

agents. With the huge expansion in its branch network in

recent times, the company intends to optimally utilise it

and also leverage on the over 1,000 branches of Axis Bank

to penetrate into the market.

NPBAP margins decline while conservation ratio re-

mains at higher levels

The recent regulatory changes governing unit-linked

insurance policies (ULIPs) have contributed to a decline

in the margins. Max India had NBAP margin (new business

achieved profits) in the range of 13-14% and expects to

maintain it with focus on affluent segments and traditional

policies. Further, the conservation ratio, which is amongst

the best in the industry, increased sequentially to 82%

(78% in Q2FY2011) due to a change in the product mix.

The management has guided to improve the conservation

ratio in the coming quarters.

Life insurance (MNYL) Rs (cr)

Particulars Q4 Q4 % FY11 FY10 %FY11 FY10 YoY YoY

First year premium 480 438 10 1,775 1,648 8Renewal premium 1,103 903 22 3,751 3,011 25

Single premium 99 46 115 286 202 42

Total 1,682 1,387 21 5,812 4,861 20

Individual APE 472 419 13 1,724 1,584 9

Conservation ratio (%) 82 82 81 83

Average case size 21,681 21,608 21,239 20,665

Case rate per 0.7 0.6 0.6 0.7agent per month

Healthcare business

MHCs Q4FY2011 revenues grew by 21.8% YoY to Rs179

crore. The average revenue per occupied bed day for

Q4FY2011 came in at Rs22,868 crore, a growth of 4%

YoY.

The EBITDA margin, which had moderated recently on

being hit by the recent expansion carried out by the

company, improved to 11% in Q4FY2011 from 1.8% in

Q4FY2010.

The occupancy rates were flat at 67% in Q4FY2011 as

compared to 68% in Q4FY2010 and in Q3FY2011.

The company plans to add 1,000 beds in CY2011,

increasing the total capacity to 2,000 beds.

Healthcare (MHC) Rs (cr)


Revenues 179.0 147.0 21.8 685.0 534.0 28.3

EBITDA 19.6 2.6 653.8 51.9 23.5 120.9

EBITDA margins (%) 11.0 1.8 511.1 7.6 4.4 72.7

Average operational 926 818 13.2 926.0 751.0 23.3

bed

Average occupancy 67.0 68.0 -1.5 68.0 73.0 -6.8

Average rev per 22,868 22,056 3.7 21,558 20,431 5.5

bed/day

Speciality products business

Max Speciality Products reported a 29.7% Y-o-Y increase

in its revenues to Rs118 crore in Q4FY2011.

The EBITDA margin declined 10% in the quarter.

Max India has added another 22,000 tonne per annum

(tpa) of BOPP line which commenced operations from

March 2011. The total capacity has now increased to

52,000tpa.


4/15


Speciality films (MSF) Rs (cr)


Revenues 118 91 29.7 440 336 31.0

EBITDA 11 12 -8.3 53 43 23.3

EBITDA margins (%) 10 13 -23.1 12 13 -7.7

PBT 7 6 16.7 36 20 80.0

Other businesses

Clinical research: During the quarter, the revenues

from the clinical research business came in at Rs8

crore, flat on a sequential basis and up 45% YoY. The

order book stood at Rs32 crore, up Rs13 crore during

the quarter.

Health insurance: Max Bupa, the health insurance

business of Max India, registered a gross written

premium (GWP) of Rs26 crore in the first financial year

of operation. As many as 46,000 lives were enrolled in

the first year of operation.

Maintain Buy with a target of Rs234

Max India is among the best managed companies in the

life insurance space which gets reflected by way of its

balanced product mix, high persistency ratio, higher

average case per agent etc. We remain convinced about

the long-term growth prospects of the life insurance

industry in spite of the regulatory concerns plaguinginsurance sales in the near term. The company is already

done with a capital infusion in the life insurance business

while the treasury corpus of Rs540 crore and inflows from

life insurance business will take care of the funding

requirements in the health insurance and healthcare

segments. We maintain Buy recommendation on the stock

with our SOTP based price target of Rs234.

SOTP valuation table

Business Method Stake Value/Share(%) (Rs)

Life insurance Appraisal 70 195

(10% holding co discount)

Healthcare EV/EBITDA 76 29

Specialty products Price/Sales 100 10

SOTP based price target 234


The author doesnt hold any investment in any of the companies mentioned in the article.


5/15



Company details

Price chart


Price performance

(%) 1m 3m 6m 12m

Absolute -5.2 13.5 -7.0 112.1

Relative 2.4 11.0 -1.8 89.8

to Sensex

Kewal Kiran Clothing Ugly Duckling

Stock Update

Price target revised to Rs674 Buy; CMP: Rs543

Price target: Rs674

Market cap: Rs669 cr


NSE volume: 1,901(No of shares)

BSE code: 532732

NSE code: KKCL

Sharekhan code: KKCL

Free float: 32 lakh(No of shares)

Result highlights

Kewal Kiran Clothing Ltd (KKCL)s Q4FY2011 results were ahead of our

expectation on all counts - revenues, margin as well as earnings. The profit

after tax (PAT) came in at Rs11.1 crore as against our expectation of Rs7.5

crore (+32.1% on a year-on-year [Y-o-Y] basis), led by a strong operating leverage.

The operating margin expanded by 140 basis points on a Y-o-Y basis and came

in at 29.2% for the quarter.

The income from operations for the quarter came in at Rs55 crore (+18.6%

YoY), largely above our expectation of Rs51 crore. The value growth of 18% was

largely on account of the price hike undertaken by the company. The average

apparel realisation increased by 12% (per piece apparel realisation for Q4FY2011

was Rs703), while the volume growth remained muted at 2.2%. During the

quarter the accessories brand Addiction clocked a revenue of Rs2.5 crore

(selling 1.9 units at a average realisation of Rs128).

Despite pressure on the gross margin level due to escalating raw material prices,

the operating profit margin continued to surprise on the positive trajectory

(+140 basis points YoY and 210 basis points quarter on quarter [QoQ]), led by

leveraging benefits of selling and other administrative costs.

To incorporate strong Q4FY2011 results, and also the accessory brand Addiction

in the numbers, we have upgraded our earnings for FY2012 and FY2013 by 5.3%

and 9.1% respectively. Our revised earnings per share (EPS) estimate is of Rs44.7and Rs51.6 for FY2012 and FY2013 respectively. We believe that KKCL, with its

strong collection of brands is smartly positioned in one of the fastest growing

fashion apparel segments and we believe that the company will emerge as one

of the most successful apparel brand stories of India. In view of the pedigree of

its brands and its disciplined management which has a consistent track record

and financial acumen, we maintain our Buy rating on the stock with a revised

price target of Rs674 (~14x average FY2012 and FY2013 earnings).


Particulars Q4FY11 Q4FY10 % YoY FY2011

Total income from operations 55.0 46.4 18.6 236.6

Gross profit 33.7 29.8 13.1 146.8

Gross margin (%) 61.2 64.5 62.0

Personnel cost 6.2 5.3 17.5 25.4

Manufacturing & other operating expenses 3.9 3.1 25.8 19.6

Administrative selling & other expenses 7.5 8.7 -13.7 33.2

Operating profit 16.1 12.7 26.5 68.5

Operating profit margin (%) 29.2 27.5 29.0

PAT 11.1 8.4 32.1 46.2

PAT margin (%) 20.2 18.2 19.5

EPS (Rs) 9.0 6.8 32.1 37.5

250300

350

400

450

500

550

600

650

May-10

Aug-10

Nov-10

Feb-11

May-11

Institutions

4%

Promoters

73%

Foreign

13%

Public and

others

7%

Non-promoter

corporate

3%


6/15



Topline growth of 18.6% YoY above our estimates

The income from operations for the quarter came in

at Rs55 crore (+18.6% YoY), which is above our

expectation of Rs51 crore. The value growth of 18.6%

was on account of a robust 13% growth in the

realisation although the volume growth was muted at

2.2%. The per piece realisation for the quarter camein at Rs703.

Brand wise, Killer continued its dominance with 52%

revenue contribution, followed by Integriti (24%), and

Lawman (22%). In line with our estimates and

understanding, Integriti- the value brand in its kitty,

continued to witness stupendous growth during the

quarter growing 27% on a YoY basis. Currently Integriti

is approximately a Rs60 crore per annum brand and is

moving fast towards becoming another power brand

like Killer.

Product wise, jeans continued to be strong constituting

57% of the revenue portfolio. The sale of jackets and

sweaters also increased considerably. Region wise the

highest share for the quarter came in from the eastern

region and the western region at 29% each.

Brand wise contribution sales Rs (cr)

Particulars Q4FY11 Q4FY10 % YoY

Killer 28.3 24.6 15

Integriti 13.3 10.5 27

Page 3 Lawman 11.8 10.3 14Easies 1.3 1.1 18

Total 54.6 46.5 17%

MBO continues to dominate distribution set-up;

Factory outlet saw a stupendous growth

Of all the distribution channels employed; multi brand

outlet (MBO)s continue to dominate; for the quarter

around 58% of KKCLs sales came from them. Growth wise,

factory outlets saw a stupendous 64% YoY growth led by

the end of the season sale that was on during the quarter

between January 15 and February 20.

Format-wise sales break-up Rs (cr)


K-Lounge 15.3 13.3 15.1

MBO 31.8 25.5 24.7

large format stores 5.0 4.1 20.1

Factory outlets 2.7 1.7 64.5

Exports 0.9 1.7 -44.0

Robust expansion of retail stores

During the quarter, the retail store expansion was strong,

with KKCL adding 12 stores in the three month period, all

on the asset light franchisee model. We believe that

decent store addition coupled with a judicious mix of

other distribution formats augurs well for KKCL, which

again points out towards the strong financial acumen of

the management.

Operating levers pay off- leading to 140 bps margin

expansion

Despite an increase in the raw material cost that resulted

in gross margin contraction of 330 basis points, the

operating leverage and lower sales and administration

costs led to a margin expansion of 140 basis points YoY

and 210 basis points QoQ for the quarter. Sales and

administration expenses for the quarter stood at 13.7%

as against 17.8% for Q3FY2011 and 18.8% for the same

quarter last year. The margin for the quarter was robustat 29.2%, consequently the operating profit growth was

24.3%.

Other highlights of the quarter

Enhanced capacity to 4 million pieces

During the quarter the Vapi plants capacity enhancement

was completed with the company now having a total

capacity to manufacture 4 million pieces annually.

Lean working capital; Strong cash flows

Despite being an integrated fabric to retail play, the

outright sale policy of the company with no recourse to

the sold inventory continues to aid KKCL in maintaining a

lean working capital cycle. The working capital cycle for

FY2011 was 60 days. Further, the operating as well as

the free cash flow for the company continued to be strong.

For FY2011, the company generated an operating cash

flow of approximately Rs38 crore, with a free cash of

Rs32 crore (constituting 70% of the earnings for the year).

K-Lounge

27%

MBO

57%

Large format

stores

9%

Factory

outlets

5%

Exports

2%

Format-wise contribution to sales


7/15


Strong performance outlook; inflation could be a

dampener

The demand outlook for discretionary spent which

includes apparels to an extent remains strong in the wake

of an increase in consumer confidence and the booming

economy. However higher raw material prices and general

inflationary trends could prove to be a roadblock in thegrowth momentum witnessed in FY2011. The fact that

KKCL has brands in the premium as well as value segment

would work well for the company in such a scenario. This

would help the company in maintaining the blended

margin at the current levels. We expect KKCLs margin

to sustain between 26-27%.

We continue to like KKCL in the wake of its strong brand

portfolio (Killer, Integriti, Lawman and Easies), robust

balance sheet (debt free status; Rs103 cash per share

constituting ~20% to the current stock price; strong returns

ratio- return on capital employed [RoCE] at 23.3%, and

return on equity [RoE] at 24.4%).

Earnings and target price revised upwards, maintain

Buy, target of Rs674

To incorporate strong Q4FY2011 results and also the

accessory brand Addiction in the numbers we have

upgraded our earnings for FY2012 and FY2013 by 5.3%

and 9.1% respectively. Our revised EPS is Rs44.7 and Rs51.6

respectively. We believe that KKCL with its strong

collection of brands is smartly positioned in one of the

fastest growing fashion apparel segments and we believe

that the company will emerge as one of the most

successful apparel brand stories of India. In view of the

pedigree of its brands and its disciplined management

which has a consistent track record and financial acumen,

we maintain our Buy rating on the stock with a revisedprice target of Rs674 (~14x average FY2012 & FY2013

earnings).

Revised estimates

Net profit FY2012E FY2013E

Old earnings 52.3 58.3

New earnings 55.1 63.6

Upgrade (%) 5.3 9.1

Valuation table

Particulars FY09 FY10 FY11E FY12E FY13E

Net sales (Rs cr) 144.6 175.3 236.6 300.2 346.4

Net profit (Rs cr) 14.1 32.7 46.2 55.1 63.6

% YoY change -32.9 131.1 41.6 19.1 15.5

No of shares (cr) 1.2 1.2 1.2 1.2 1.2

EPS (Rs) 11.5 26.5 37.5 44.7 51.6

P/E (x) 48.4 21.0 14.8 12.4 10.8

EV/EBITDA (x) 30.6 12.9 8.3 6.7 5.4

RoE (%) 9.7 20.0 24.4 25.6 25.7

RoCE (%) 8.8 22.1 31.5 33.2 33.5




8/15



Company details

Price chart


Price performance

(%) 1m 3m 6m 12m

Absolute -10.5 -6.5 1.1 2.0

Relative -3.2 -8.5 6.8 -8.7

to Sensex

Ratnamani Metals and Tubes Ugly Duckling

Stock Update

Dull performance at operating level Buy; CMP: Rs116

Price target: Rs148

Market cap: Rs538 cr


NSE volume: 20,260(No of shares)

BSE code: 520111

NSE code: RATNAMANI

Sharekhan code: RATNAMANI

Free float: 1.9 cr(No of shares)

Result highlights

Mixed sales performance: In Q4FY2011, Ratnamani Metals & Tubes Ltd

(Ratnamani) reported a net sales decline of 20% year on year (YoY) to Rs257

crore. This was primarily on account of volume being lower by 31% YoY in

carbon steel tubes and pipes. However the stainless steel pipes and the steel

segment were able to post a growth of 18%. On a sequential basis, net sales

jumped by 60% due to a significantly low volume base of Q3FY2011. The volume

grew by 170% quarter on quarter (QoQ), which is a result of the jump in the

order book at the end of Q3FY2011.

OPM improved YoY but primarily on stock adjustment: Despite a decline in

sales, the EBITDA reported a flat growth at Rs54 crore, as the EBITDA margin

expanded by 393 basis points YoY to 20.7% in Q4FY2011. Though on the face of

it, the EBITDA margin seemed to improve, but the major benefit has been

derived from the change in stock in trade. Hence, we read it as a flat

performance at the operating level. Sequentially, the EBITDA margin remained

flat. Therefore driven by higher sales, the EBITDA grew by 53% sequentially.

Net income grew, but on lower tax only: Below the EBITDA level, the interest

cost surged substantially; so the profit before tax (PBT) reported a 13% decline

to Rs38.7 crore in Q4FY2011. However, a lower tax (to factor in higher

provisioning taken earlier) and an extraordinary item pushed up the profit after

tax (PAT) by 15% to Rs28 crore. Sequentially, a higher (60%) sales growth, coupledwith a lower depreciation cost percolated into a profit after tax (PAT) growth

of 70%.


Particulars Q4FY11 Q4FY10 % YoY Q3FY11 % QoQ

Net sales 256.6 321.6 -20.2 161.0 59.4

Total expenditure 203.4 267.6 -24.0 128.0 58.9

Operating profit 53.2 54.0 -1.5 32.9 61.5

Other income 1.0 0.3 239.5 2.5 -58.4

EBIDTA 54.2 54.3 -0.2 35.4 53.2

Interest 5.2 0.2 - 3.2 62.5

Depreciation 10.4 9.3 11.0 10.2 1.8

PBT 38.7 44.8 -13.6 22.0 75.6

Tax 11.5 20.3 -43.5 5.4 113.1

PAT 27.2 24.5 11.1 16.6 63.4

Extraordinary items 1.1 0.0 - 0.0

Reported PAT 28.3 24.5 15.4 16.6 69.8

EPS 5.9 5.4 8.3 3.6 62.5

Margins

EBITDAM (%) 20.7 16.8 20.5

PBTM (%) 15.1 13.9 13.7

PATM (%) 10.6 7.6 10.3

Promoters

58%

Institutions

2%

Others

29%

Foreign

11%

110115

120

125

130

135

140

145

150

May-10

Aug-10

Nov-10

Feb-11

May-11


9/15



Order book at Rs797 crore, a significant

improvement YoY: At the end of FY2012, the order

book stood at Rs797 crore, 127% higher YoY and flat

on a sequential basis. Of the Rs797 crore order book,

carbon steel pipe orders form Rs475 crore and stainless

steel pipe orders make for the remaining Rs322 crore.

This is almost 1x its FY2011 net sales. Hence, we readthis as a strong order book position as the average

execution period for most of it is around six-nine

months. We feel that the company could achieve Rs800

crore of sales in the coming nine months. For the whole

year FY2012, the top line could touch Rs1,100 crore.

FY2011 annual performance declined at operation

level: In FY2011, operationally Ratnamani witnessed

a marginal decline as sales and EBITDA declined by 4-

5% YoY. The PBT slipped further (13% YoY) to Rs112

crore on a higher interest cost. However, a lower tax

compared to last year, led to a flat PAT of Rs82 crore.

Introduced FY2013 estimates: We have retained our

FY2012 sales estimate at Rs1,080 crore and PAT

estimate at Rs99 crore. We estimate a sales growth of

14.5% YoY in FY2013 to Rs1,237 crore, driven by a

volume growth in stainless steel (20%) and carbon pipes

(30%). We sense that the input cost pressure may

remain for some time; hence assume an EBITDA margin

of approximately 18.4% for FY2012 against 19.2% in

FY2011. So, the EBITDA is expected at Rs223 crore. The

PAT for FY2013 is expected at Rs114 crore, percolating

to an earning per share (EPS) of Rs24.5. This in turnindicates a two year earning compounded annual growth

rate (CAGR) of 17-18% over FY2011-13E.

Maintain Buy on better order book and attractive

valuation: We expect an earnings growth (2 year CAGR)

of 17-18% and sales growth (2 year CAGR) of 23% over

FY2011-13. We see the company sustaining its return

on equity (RoE) at approximately 20%. Moreover, we

are positive on an improved order book position YoY

and a likely reversal in investment cycle in the oil and

gas segment could result in an upsurge in the order

book further. Hence, at the current market price, thestock is attractively trading at a price/earnings (PE)

multiple of 5.6x on FY2012 earnings and 5x FY2013

earnings. Also, at the current market price, it offers a

healthy dividend yield of 2%. On an EV/EBITDA, it is

trading at 3.5x on FY2012E EBITDA and 2.7x FY2013E

EBITDA. We roll over our target multiple to FY2013E

earnings but retain our target price at Rs148 (based

on 6x FY2013E earnings) and maintain our Buy rating

on the stock.

Cost analysis (% of sales)

Particulars Q4FY11 Q4FY10 Chg (bps)

Net raw material cost 64.6 76.2 -1158

Raw material consumed 78.0 68.6 947

Stock adjustment -13.4 7.7 -2105

Staff cost 5.4 4.4 95

Other expenses 8.8 2.6 626

Total cost (%) 79.3 83.2 -1595

Segmental performance

Stainless steel tubes and pipes

Stainless steel tubes and pipes contributed by 48% to the

total revenues. The revenue from this product category

grew by 19% YoY to Rs127 crore. The growth was primarily

driven by a 23% Y-o-Y growth in volume. Nevertheless,

the realisation remained 3.5% lower YoY.

Carbon steel pipesThe volume of this segment witnessed a decline of 32%

YoY. However, a 4.5% realisation improvement curtailed

the sales decline to 28% YoY at Rs143 crore.

Product-wise analysis


Stainless steel tubes & pipes

Sales (Rs crore) 127 107 18.7

Volume (MT tonnes) 4403 3578 23.1

Realisation (Rs/tonne) 288257 298773 -3.5

Carbon steel tubes & pipesSales (Rs crore) 143 200 -28.4

Volume (MT tonnes) 34992 51067 -31.5

Realisation (Rs/tonne) 40829 39088 4.5

Order book position

As the company has executed a significant portion of the

order backlog in Q3FY2011, now at the end of Q4FY2011,

the backlog stands at Rs650 crore (carbon steel tubes

make for Rs375 crore of it). After the Q3FY2011 order

backlog execution and revenue booking in Q4FY2011,

there seem no fresh orders having been received by the

company during Q4FY2011. The current order book

position indicates a 20% decline sequentially but an 86%

rise on an annual basis. As per our discussion with the

management, we sensed that some products of carbon

steel tubes and pipes are having a shortage in the market

and the segment is likely to witness a healthy order book

inflow in future.


10/15


Order book break-up Rs (cr)

Particulars Q4 Q4 % Q3 %FY11 FY10 YoY FY11 QoQ

Carbon steel tubes & pipes 375 115 226.1 400 -6.3

Stainless steel tubes & pipes 275 235 17.0 410 -32.9

Total 650 350 85.7 810 -19.8

Balance sheet analysis; higher inventory a reflective

of higher order book

At the end of FY2011, we observed that the company has

paid back Rs64 crore of debt from its books. We believe a

large part of this is paid by diluting the long term

investment worth Rs43 crore. Nevertheless, the remaining

amount would be paid by its internal accruals. The

inventory has gone up sharply (almost doubled) YoY, as

the company had to buy raw materials to execute the

higher order book. Thus the higher inventory is justified

as the average execution period of its orders is around

six months only.

Valuation and view

We have retained our FY2012 sales and earnings estimates

and introduce FY2013 estimates. We estimate sales of

Rs1,237 crore and PAT of Rs114 crore for FY2013. This

indicates a two year earning CAGR of 17-18% over FY2011-

13E. Also, we see the company sustaining its RoE at

approximately 20%. Moreover, we are positive on an

improved order book position YoY and a likely reversal in

investment cycle in the oil and gas segment could result

in an upsurge in the order book further. Hence, at the

current market price, the stock is attractively trading at

a PE multiple of 5.6x FY2012 earnings and 5x FY2013

earnings. Also, at the current market price it offers a

healthy dividend yield of 2%. On EV/EBITDA, it is tradingat 3.5x FY2012E EBITDA and 2.7x FY2013E EBITDA. We

roll over our target (PE) multiple to FY2013 earnings but

retain our target price at Rs148 (based on 6x FY2013

earnings) and maintain our Buy rating on the stock.

Valuation table

Particulars FY09 FY10 FY11E FY12E FY13E

Net sales (Rs cr) 955.2 852.0 812.2 1,080.6 1,237.1

Net profit (Rs cr) 95.9 81.4 82.1 99.1 113.8

Shares in issue (Cr) 4.5 4.6 4.6 4.6 4.6

EPS (Rs) 21.3 17.7 17.7 21.4 24.5PER (x) 5.5 6.6 6.6 5.5 4.8

Book value (Rs) 63.2 79.4 94.2 114.2 137.4

P/BV (x) 1.9 1.5 1.2 1.0 0.9

EV/EBIDTA (x) 3.4 5.0 4.8 3.4 2.7

EV/Sales (x) 0.7 1.0 0.9 0.6 0.5

Div yeild (%) 1.2 0.9 2.1 2.1 2.1

RoCE (%) 37.9 22.5 16.7 20.8 21.1

RoNW (%) 28.1 25.1 20.8 20.5 19.5




11/15


investors eye viewpoint

Tata Motors

Viewpoint

Play on Tata Motors through DVRs CMP: Rs1,089

Tactical assessment of Tata Motors DVRs (differential

voting rights)

Tata Motors differential voting rights (DVRs) have

underperformed the main stock by 60% in the last two

years.

The current DVR discount against Tata Motors stock is

44% against the original 10% rights issue discount and

the 32% average two-year discount.

The promoter, Tata Sons, has sold 67% of their original

DVR holding to domestic and foreign institutions over

the last two years. The shares have been lapped up by

the domestic institutional investors (DIIs) and foreign

institutional investors (FIIs) who now hold 71% of Tata

Motors DVRs.

Institutions are expected to have bought DVRs between

Rs350 to Rs900 in the span of two years.

Will the discount widen from here?

Currently, the promoters stake on an expanded equity

has reduced to 19% from 84% in two years. The scopefor further reduction from hereon seems limited as

this would risk the promoters control of the company.

At the current price of Rs605 a share, DVRs also fall

on the dividend yield radar. A higher pay-out in future

can limit the absolute fall of the DVRs price.

A lot of funds who would have entered at higher levels

can look to accumulate given the compelling valuation

of the DVRs.

How do we expect Tata Motors DVRs to behave?

Tata Motors DVRs have traded at a 32% average

discount to Tata Motors stock since their inception.

We believe the current discount of 44% would settle

at average levels.

Do we expect DVRs to rise or Tata Motors stock to fall?

We expect Tata Motors DVRs to outperform Tata

Motors stock, thereby narrowing the current discount

to the long-term average. We expect both the stocks

to rise over the next one year as the current fall in the

stocks price has factored in most of the negatives.

Valuation

Tata Motors currently trades at 7.2x our quick FY2012

earnings per share (EPS) estimate of Rs152 while the DVRs

trade at compelling valuation of under 4x. Our price target

of Rs740 a share of Tata Motors DVR is based on the long-

term average discount of 32% against the key stock. Our

price target implies a 22% upside from the current levels.

Tata Motors DVRs: stock description

What is a DVR?

DVRs A ordinary shares are a different class of equityshares with differential rights from ordinary shares. The

difference is with respect to voting and dividend, ie higher

dividend with lower voting right.

Key rights of DVR shareholders:

Subject to the applicable laws, A ordinary shareholders

will have the following rights:

Right to receive dividend, if declared

Right to attend general body meetings and class

meetings of all ordinary shareholders and exercisevoting powers, unless prohibited by law

Right to receive offers for rights share and be allotted

bonus shares

Right to receive surplus on liquidation as available to

ordinary shares and in the proportion of ordinary shares

to A ordinary shares

Right to transferability of A ordinary shares

A ordinary shares will not be convertible into

ordinary shares at any time

Tata Motors DVRs

Tata Motors issued DVRsA ordinary shares in November

2008 at a price of Rs305, at about a 10% discount to the

prevailing ordinary shares.

Entitlement ratio: The A ordinary shares were

issued on a rights basis to the existing ordinary

shareholders of the company in the ratio of one A

ordinary share for every six ordinary shares held.


12/15



Dividend: The A ordinary shareholders will receive

dividend for any financial year at five percentage

points more than the aggregate rate of dividend

declared on the ordinary shares for that financial year,

ie the aggregate dividend paid on each A ordinary

share in any financial year will be Rs0.50 a share more

than the aggregate dividend paid on the ordinary share.

Tata Motors Q4FY2011 results: stand-alone perfor-

mance disappoints, consolidated reported results in line

Q4FY2011 stand-alone performance

The companys revenues at Rs14,600 crore grew by

19% year on year (YoY) on account of a volume growth

of 15% and a realisation increase of 3.8% YoY.

On the negative side, contribution margins declined

180 basis points QoQ to 28.2% on account of higher

raw material cost and unfavourable product mix.

Though the employee cost rationalised during the

quarter, higher other expenses restricted the operating

profit growth to 7.3% YoY. Consequently, the operating

profit margin (OPM) at 8.8% declined by 130 basis

points and 160 basis points YoY and quarter on quarter

(QoQ) respectively.

A much lower tax rate at 3% vs 22% in Q3FY2011 ledthe reported profit after tax (PAT) to grow by 40% QoQ

to Rs573 crore.

Result snapshot (stand-alone) Rs (cr)

Particulars Q4FY11 4QFY10 %YoY Q3FY11 %QoQ

Total income 14600.6 12230.3 19.4 11519.55 26.7

Total expenditure 13317.6 10997.0 21.1 10323.57 29.0

EBITDA 1283.0 1233.3 4.0 1195.98 7.3

Net Interest 247.9 278.6 -11.0 274.92 -9.8

Depreciation 421.2 372.0 13.2 364.78 15.5

PBT 644.9 2015.0 -68.0 561.69 14.8

Adjusted PAT 627.8 1792.4 -65.0 440.56 42.5

Reported PAT 573.4 597.7 -4.1 410.06 39.8

OPM (%) 8.8 10.1 10.4%

Stand-alone volume mix

Particulars Q1FY11 Q2FY11 Q3FY11 Q4FY11

CV/Total Vols (%) 54 54 60 54

PV/Total Vols (%) 40 38 32 39

Exports/Total Vols (%) 7 8 9 6

Q4FY2011 consolidated performance

Tata Motors total income grew by 23% YoY to Rs35,610

crore.

Its raw material cost as a percentage of sales increased

by 130 basis points QoQ to 65.3% whereas the other

expenses as a percentage of sales saw an increase of

90 basis points to 14.1%. Consequently, the OPM at

0

50

100

150

200

250

300

350

400

450

May-09

Jul-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

TATA DVR Tata Motors Underperformance %

0

200

400

600

800

1000

1200

1400

1600

May-09

Ju

l-09

Aug

-09

Sep

-09

Oct-09

Nov

-09

Dec

-09

Jan

-10

Mar-10

Apr-10

May-10

Jun

-10

Ju

l-10

Aug

-10

Oct-10

Nov

-10

Dec

-10

Jan

-11

Feb

-11

Mar-11

Apr-11

-50%

-45%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

TA TA DV R Rs (LHS) Tata Motors Rs (LHS) Discount % (RHS)

Tata Motors DVR absolute discount vs Tata Motors stock

DVR underperformance chart

Tata Motors DVR shareholding trend

-10

0

10

2030

40

50

60

70

80

90

Mar-11

Dec-10

Sep-10

Jun-10

Mar-10

Dec-09

Jun-09

Mar-09

Total Foreign Total Ins titutions Total Promoters


13/15



13.5% declined by 170 basis points QoQ. The operating

profit at Rs4,820 crore was flat on a sequential basis.

On account of a lower tax rate of 10% vs 11.7% in

Q3FY2011 and an exchange gain to the tune of Rs177

crore, the reported PAT of Rs2,637 crore was in line

with the consensus estimate. However, the adjusted

PAT post-minority at Rs2,460 crore was lower than the

Streets expectation.

Result snapshot (consolidated) Rs (cr)

Particulars Q4FY11 Q4FY10 %YoY Q3FY11 %QoQ

Total income 35610.4 28901.8 23.2 31685.3 12.4

Total expenditure 30790.2 25541.7 20.5 26862.9 14.6

Operating profits 4820.2 3360.2 43.5 4822.4 0.0

Other income 15.6 1060.6 -98.5 9.9 57.8

Interest 453.2 551.4 -17.8 499.3 -9.2

Depreciation 1649.0 1121.5 47.0 1572.4 4.9

PBT 2733.6 2747.9 -0.5 2760.5 -1.0

Tax 288.4 343.7 -16.1 318.9 -9.6

Adj. PAT 2459.8 2425.3 1.4 2457.2 0.1

Extraordinary items 177.4 -206.5 -32.7

RPAT 2637.3 2218.8 18.9 2424.5 8.8

OPM (%) 13.5 11.6 15.2

JLR performance

The Jaguar and Land Rover (JLR) business reported

revenues of 2,736 million and PAT of 317 million for

Q4FY2011.

The business margin for Q4FY2011 stood at 15.8% as

against 17.4% in Q3FY2011.

The net JLR debt as on March 31, 2011 at 233 million

vs 603 million as on March 31, 2010.

China has started to contribute significantly with

Chinas share in total wholesale volumes increasing

from 9% in FY2010 to 11% in FY2011.

The management expects Chinas volumes to increase

from about 20,000 units in FY2011 to about 40,000

units in FY2012. The management is also upbeat on

strong response from the other key markets like Russia

and Brazil.

Evoque is slated to be launched in September 2011

with a very competitive pricing in its segment.

JLR results snapshot

Particulars Q1FY11 Q2FY11 Q3FY11 Q4FY11

JLR volumes 59,201 55,134 63,155 64,083

% YoY 65 24 11 12

% QoQ 3.9 -6.9 14.5 1.5

Avg realisation 38,209 40,759 42,119 42,695

% YoY 22 27 22 19 % QoQ 6.4 6.7 3.3 1.4

Revenues ( 2,262 2,247 2,660 2,736

% YoY 101 58 36 34

% QoQ 10.4 -0.7 18.4 2.9

EBITDA 350 373 463 432

% YoY -1100 809 141 85

% QoQ 49.6 6.5 24.2 -6.6

PAT 222 229 275 317

%YoY NA NA 239.5 180.7

%QoQ 96.5 3.1 20.2 15.3

OPM (%) 15.5 16.6 17.4 15.8

Subsidiary performance

Particulars FY08 FY09 FY10 FY11

Revenues

Tata Daewoo CV (TDCV) 2865.0 2497.6 2714.6 2881.1

% change YoY 27.4 -12.8 8.7 6.1

Tata Technologies Ltd (TTL) 1100.3 1241.2 1070.4 1249.3

% change YoY 13.5 12.8 -13.8 16.7

HV Transmissions Ltd (HVTL) 190.9 141.8 209.8 294.4

% change YoY 9.8 -25.7 47.9 40.3

HV Axles Ltd (HVAL) 199.6 154.6 237.6 312.1

% change YoY 4.6 -22.5 53.7 31.3

TML Financial Serv (TMLFSL) 719.2 787.9 1132.0 1366.6% change YoY 457.2 9.6 43.7 20.7

Total 5075.0 4823.1 5364.4 6103.5

Net profits


% change YoY 57.1 -17.1 -35.7 -10.5


% change YoY 84.0 119.6 38.2 52.7


% change YoY 5.5 -59.0 171.2 72.2

HV Axles Ltd (HVAL) 63.4 27.8 64.3 94.2

% change YoY 9.5 -56.1 131.1 46.5

TML Financial servieces (TMLFSL) 44.8 -120.7 44.2 127.1% change YoY 250.0 -369.6 -136.6 187.8

TOTAL 446.0 134.1 345.3 606.0

PATM (%)




HV Axles Ltd (HVAL) 31.8 18.0 27.1 30.2

TML Financial servieces (TMLFSL) 6.2 -15.3 3.9 9.3


14/15



Other highlights

Future products in pipeline for FY2012: Nano variants,

Vista refresh, Manza Limited Edition, new Safari, Aria

2WD.

In FY2011 capital expenditure (capex) stood at Rs8,521

crore (JLR 775 million + stand-alone Rs2,391 crore).For FY2012, the JLR business will incur a capex of

1.5 billion and the stand-alone entity will see a capex

of Rs3,000 crore.

The consolidated debt of the company stood at

Rs32,000 crore. The net automotive debt/equity stood

at 0.68 as on March 31, 2011.

The board of directors has recommended a dividend

of Rs20 per ordinary share and Rs20.50 per A ordinary

share each for FY2011.

Further, the board has also approved the stock split of

the company's ordinary and A ordinary shares in the

ratio 1:5, subject to the approval of the shareholders

at the annual general meeting.

Valuation

Tata Motors has reported adjusted FY2011 consolidated

EPS of Rs142. The consensus EPS for FY2012 is Rs152 a

share. The EPS growth would remain muted following a

moderate stand-alone volume growth for FY2012 and a

large capex programme. There are, however, possibilities

of upward revisions in H2FY2012 after the successfullaunch of Evoque, the low-priced compact sports utility

vehicle.

View

Overall, the stand-alone results were disappointing

whereas the consolidated adjusted results were marginally

lower than the Streets expectation. The stock may react

negatively to factor in the Q4 performance. The better

way to play Tata Motors would be through its DVRs as

these are currently trading at a 44% discount against an

average discount of 32% in last two years.



15/15

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