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SYNOPSIS

Gujarat Reclaim & Rubber Products

Ltd. (GRRP) established in 1974 and

is the largest manufacturer &

exporter of reclaimed rubber in India.

During the quarter, the robust

growth of Net Profit is increased by

114.92% to Rs. 85.30 million.

GRRP has decided to pay Interim

Dividend @ Rs. 7/- per equity share

of Rs. 10/- each fully paid up.

GRRP has been conferred a Star

Export House status by the Govt. of

India.

GRRP has achieved a strong export

growth in the last decade & spread

itself to over 35 countries across the

globe.

Net Sales & PAT of the company are

expected to grow at a CAGR of 28%

and 40% over 2010 to 2013E

respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 1850.39 331.91 176.22 132.20 13.55

FY 12E 2460.94 568.23 314.76 236.13 7.59

FY 13E 2953.13 676.43 379.88 284.98 6.28

Stock Data:

Sector: Auto Components

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 1800.00/865.00

Volume (2 wk. Avg.) 476.00

BSE Code 509152

Market Cap (Rs in mn) 2387.54

Share Holding Pattern

1 Year Comparative Graph

BSE SENSEX Gujarat Reclaim

C.M.P: Rs. 1791.10 Target Price: Rs. 2024.00 Date: April. 5th 2012

BUY

GUJARAT RECLAIM & RUBBER PRODUCTS LTD

Result Update: Q3 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Gujarat Reclaim &

Rubber Products 1791.10 2387.54 132.20 13.55 3.55 230.00

MRF Ltd. 10657.00 45197.9 1485.76 7.17 1.97 500.00

Apollo Tyres 83.45 4206.09 3.48 23.98 2.22 50.00

Pix Transmissions 30.15 38.97 1.88 16.04 0.92 7.50

Investment Highlights

Q3 FY12 Results Update

Gujarat Reclaim & Rubber Products Ltd. has reported net profit of Rs 85.30 million

for the quarter ended on December 31, 2011 as against Rs 39.69 million in the

same quarter last year, an increase of 114.92%. It has reported net sales of

Rs.643.91 million for the quarter ended on December 31, 2011 as against

Rs.483.07 million in the same quarter last year, a rise of 33.30%. Total income

grew by 33.29% to Rs 643.88 million from Rs.483.07 million in the same quarter

last year. During the quarter, it reported earnings of Rs 63.99 a share.

Quarterly Results - Standalone (Rs in mn)

As At Dec-11 Dec-10 %change

Net sales 643.91 483.07 33.30%

PAT 85.30 39.69 114.92%

Basic EPS 63.99 29.77 114.92%

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� Break up of Expenditure

� Segment Revenue

Particulars Q3 FY12 (Rs. in mn)

Reclaim Rubber 615.03

Wind Mill Power Generation

0.88

Other 10.92

Total 626.83

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� Declares Interim Dividend

Gujarat Reclaim & Rubber Products Ltd has decided to pay Interim Dividend @

Rs.7/- per equity share of Rs. 10/- each fully paid up.

Company Profile

Established in 1974, Gujarat Reclaim & Rubber Products (GRRP) began producing

with a modest capacity of only 2400 MT.

From then on, there was no looking back. GRRPL grew manifold and widened its

geographical presence in India and abroad. It was conferred the 'Export House' status

by the Government of India for its steady export growth and performance.

GRRPL produces reclaim rubber from scrap of whole tyres; tread peelings, natural

rubber tubes, butyl tubes, and moulded rubber products for different applications in

both, tyre and non tyre rubber products.

It is this humane and moral consciousness that has driven us to surge ahead and

contribute in a big way to the world's rubber industry.

Today, through steady growth and a strong vision, GRRP has emerged as the largest

manufacturer of reclaim rubber in the country and among the largest globally.

Products

Gujarat Reclaim produces reclaim rubber from scrap of whole tyres; tread peelings,

natural rubber tubes, butyl tubes and colored rubber products etc. for different

applications both for tyres and non tyres rubber products. Since rubber content of

tyres produced in India has almost 75% natural rubber, reclaim from India has its

own special characteristics. GRRP also produces synthetic rubber reclaims such as

Butyl reclaim, Nitrile reclaim, EPDM reclaim, Latex reclaim, Fluro-elastomer reclaim,

etc as per availability of suitable waste.

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Financial Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 1408.05 1850.39 2460.94 2953.13

Other Income 33.27 40.99 57.14 65.13

Total Income 1441.32 1891.38 2518.07 3018.26

Expenditure -1165.59 -1559.47 -1949.84 -2341.83

Operating Profit 275.73 331.91 568.23 676.43

Interest -18.48 -22.98 -40.19 -45.01

Gross profit 257.25 308.93 528.05 631.42

Depreciation -43.62 -51.28 -66.58 -75.23

Profit Before Tax 213.63 257.65 461.47 556.19

Tax -75.55 -81.47 -146.72 -176.31

Profit After Tax 138.08 176.18 314.76 379.88

Extraordinary Items 0.00 0.04 0.00 0.00

Net Profit 138.08 176.22 314.76 379.88

Equity capital 13.33 13.33 13.33 13.33

Reserves 519.30 659.75 974.51 1354.39

Face value 10.00 10.00 10.00 10.00

EPS 103.59 132.20 236.13 284.98

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net sales 538.39 628.29 643.91 650.35

Other income 14.57 18.55 -0.03 24.05

Total Income 552.96 646.84 643.88 674.39

Expenditure -433.68 -504.28 -491.60 -520.28

Operating profit 119.28 142.56 152.28 154.11

Interest -9.40 -9.47 -10.50 -10.82

Gross profit 109.88 133.09 141.78 143.30

Depreciation -15.52 -16.50 -16.94 -17.62

Profit Before Tax 94.36 116.59 124.84 125.68

Tax -28.37 -39.09 -39.54 -39.72

Profit After Tax 65.99 77.50 85.30 85.97

Extraordinary Items 0.00 0.00 0.00 0.00

Net Profit 65.99 77.50 85.30 85.97

Equity capital 13.33 13.33 13.33 13.33

Face value 10.00 10.00 10.00 10.00

EPS 49.50 58.14 63.99 64.49

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares(in mn) 1.33 1.33 1.33 1.33

EBITDA Margin (%) 19.58% 17.94% 23.09% 22.91%

PBT Margin (%) 15.17% 13.92% 18.75% 18.83%

PAT Margin (%) 9.81% 9.52% 12.79% 12.86%

P/E Ratio (x) 17.29 13.55 7.59 6.28

ROE (%) 25.92% 26.18% 31.86% 27.77%

ROCE (%) 41.15% 35.57% 44.95% 41.45%

Debt Equity Ratio 0.46 0.60 0.43 0.33

EV/EBITDA (x) 8.66 7.19 4.20 3.53

Book Value (Rs.) 399.57 504.94 741.06 1026.04

P/BV 4.48 3.55 2.42 1.75

Charts:

Net Sales & PAT

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P/E Ratio(x)

Debt Equity Ratio

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EV/EBITDA(x)

P/BV

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Outlook and Conclusion

At the current market price of Rs.1791.10, the stock is trading at 7.59 x FY12E

and 6.78 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.236.13 and Rs.284.98 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 28% and

40% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 4.20 x for FY12E and 3.53 x for

FY13E.

Price to Book Value of the stock is expected to be at 2.42 x and 1.75 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.2024.00 for Medium to Long term investment.

Industry Overview

Indian auto component industry is robustly driven by the growth in demand for

automobiles. The sector has become a lucrative business proposition for global

players, majorly owing to two factors. First, needless to say, the demand for

automobiles is increasing day by day in the country. India, a market with high

potential for the automobiles sector, is expected to witness a three-fold increase in

demand for automobiles by 2020. Secondly, all major global auto-makers are

establishing their bases here due to highly positive business environment, favourable

policies and government support.

According to a study by UK-based global financial advisory firm-Rothschild, India

would become the third largest auto industry by volumes after China and the US by

2015. This would give immense support to the growth of ancillary sector as well.

Major developments, investments and Government initiatives relating to the sector are

discussed hereafter.

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Indian Auto Components Industry Profile

According to a recent study by the Automotive Component Manufacturers' Association

of India (ACMA), original equipment manufacturers (OEMs) account for 41 per cent of

the auto components consumed in the Indian aftermarket.

The study estimated current size of Indian components business at Rs 24,800 crore

(US$ 4.87 billion), 49.7 per cent of which is formed by two-wheeler segment.

Passenger vehicles, commercial vehicles and three-wheelers follow with 24.7 per cent,

23.1 per cent and 2.5 per cent of the share respectively.

According to Arvind Kapur, President, ACMA, a large market in Indian spares business

is dominated by organised, semi-organised and a number of small, unorganised

players. He thus acknowledged the need for a process of accreditation to ensure better

customer service.

The study further projected that OEM-authorised network of service stations would

account for 20-30 per cent of the Indian auto components market by 2017 while that

of multi-brand organised service chains would grow to 5-10 per cent from 1-2 per

cent. Similarly semi-organised service centers’ and unorganised garages’ market share

would be 20-30 per cent and 45-55 per cent, respectively, in 2017.

India – The Global Auto Hub

Canada is looking for substantial investment opportunities in Indian auto components

market through the comprehensive economic partnership agreement (CEPA) which is

being discussed and negotiated by the two Governments. The agreement is likely to get

finalized by 2013. If fructified, the agreement would facilitate an annual increase of

economic output in two countries by almost US$ 6 billion and boost the two-way trade

by 50 per cent.

UK sees immense potential in the Indian auto ancillary sector, especially in the city of

Rajkot as it is known for auto components manufacturing. Peter Buckingham, British

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Deputy High Commissioner for Western India, also indicated possible ventures

between UK and Rajkot companies in near future.

According to industry sources, Rajkot's auto component industry, with over 500

manufacturers aggregating a net turnover of around Rs 1,500 crore (US$ 294.5

million), grows at an annual rate of 15-20 per cent.

Furthermore, 60 French automobile component suppliers are contemplating on

business opportunities to set up a vendor park near Sanand in Ahmedabad district.

The proposed vendor park would accommodate tier-1 and tier-2 auto-component

suppliers who would supply spares to the recent auto entrants in the State and even

to others.

Sanand is already home to a number of global auto-makers, like Ford and Peugeot.

Indian Auto Components Industry: Key Developments and Investments

Global private equity (PE) firm Actis PE has bought 10-13 per cent stake in Indian

auto component manufacturer Endurance Technologies for about US$ 71 million.

Endurance Technologies is a part of the automotive component major Endurance

Group and caters to companies like Bajaj, Yamaha, Suzuki, Honda Motorcycles and

Scooters and Royal Enfield. Global car makers such as Daimler, Audi, Fiat and

Porsche are the company's customers in passenger car segment.

German auto component maker Schaeffer Group is on an expansion spree in India.

The company plans to invest over Rs 1,000 crore (US$ 196 million) during 2012-15 in

the country to set up a manufacturing facility and to expand its existing plants. To

support its growth, the company would also double the number of its engineers and

recruit 1, 200 employees in the country.

Federal-Mogul's new facility in Chennai will commence its operations by March 2012.

The plant, being set up for producing braking and friction materials, will initially focus

on aftermarket products like linings and brake pads. Federal Mogul is a global

automotive components manufacturer.

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Government Initiatives

The Government of India is in the process of forming a National Automotive Board

(NAB) which would become a formal set-up to look into the issue of recall of vehicles

and hence improve manufacturing standards. The prospective body, to oversee

technical and safety aspects of vehicles, will have representatives from all the nodal

ministries and automotive bodies such as the Automotive Research Association of

India (ARAI).

The Government of Gujarat has always been on a high to promote its industrial space

especially it's the automobile sector. In order to boost the State Government's efforts

in this regard, Gujarat Government's Industrial Extension Bureau, along with

Automotive Components Manufacturers Association, French Vehicles Equipment

Industries (FIEV) and French auto-major Peugeot, organised a seminar and business

meeting on January 9, 2011 wherein 60 French automobile component makers were

briefed on opportunities to set up vendor park near Sanand (Gujarat's auto hub) in

Ahmedabad district.

Similarly, the Government of Gujarat has also announced its plan to disburse 240

acres of land at Sanand to the All India Plastic Manufacturers Association (AIPMA) to

set up a plastic park that could attract an investment of about Rs 5000 crore (US$

981.65 million). The Government's move marks its eye for detail as the measure has

come in the light of the fact that a finished car would require about 150 kgs of plastic.

Road Ahead

Ratings agency Fitch has maintained a stable outlook towards the Indian auto

components industry for the year 2012. The industry is expected to perform well owing

to OEM’s robust demand for localized spares.

According to a report by ACMA, the Indian auto component industry would garner

US$ 113 billion of turnover by 2020-21, growing at a compounded annual growth rate

(CAGR) of 11 per cent through 2011-21. Not only domestic demand, India is poised to

scale new heights in terms of exports as well as the report estimates exports to be

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worth US$ 29 billion by 2020-21, growing at a CAGR of 18.8 per cent through the

forecast period.

______________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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