mahindra cie automotive (mahaut) |...

February 22, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

European business drives performance!

Mahindra CIE’s Q4CY17 consolidated revenues were at | 1,618 crore

(up 22% YoY). The sales growth is organic & was across divisions in

the quarter. Revenues from India [standalone + Bill Forge (BFL) +

gears business] grew 17.9% YoY to | 666 crore. Growth without BFL in

India was up 16% YoY, mainly due to higher production volumes of its

top three clients (account >50% of revenue). Revenue from Europe

increased 24.3% YoY to | 959 crore as 1) MCI had a positive exchange

rate impact of 5%; 2) the execution of new orders - Metalcastello

(caterpillar order) & forging business (started supplying crankshafts)

The EBITDA margin came in at 14.3%, up 540 bps YoY & 110 bps QoQ

(vs. our estimate of 13%). The European margin increased 850 bps

YoY & 320 bps QoQ to 15.5% as cost rationalization has started to yield

results and after MCI revising raw material price agreement. The

standalone margin was at 12.4% (up 60 bps YoY & down 200 bps

QoQ), after the improvement in profitability of the casting division was

offset by higher VRS provision in forging (| 6.4 crore) & other one-offs.

MCI reported EBT of | 133 crore vs. our estimated PAT of | 101 crore

On the standalone front, revenues grew 25.5% YoY to | 562 crore.

Higher depreciation, tax rate & exceptional expense impacted the

standalone PAT, which was at | 15 crore for the quarter

Phase II growth strategy focuses on profitability

Mahindra CIE (MCI) embarked on its Phase 2 (2017-20) strategy that focuses

on growth & profitability. The strategy can be broadly divided into two with

a) focus on business development & growth (including organic growth, new

acquisitions (like Bill Forge – BFL), entry into new products & customer

development in India & optimising its utilisation & b) focus on profitability

(through transfer of technology, better efficiency & increase exports). MCI

has started to execute orders that were bagged in the past thereby driving

revenues. In Europe, MCI has started executing Caterpillar order and has

also started to supply crankshaft from Europe's forging division. Thus,

growth in Europe will be supported by new orders while higher production

of key clients and BFL will drive revenue of its Indian operations.

Multiple levers for margins expansion

MCI reported a strong operational performance in Q4CY17, with margins up

540 bps YoY & 110 bps QoQ. Several initiatives taken by MCI in the past,

which includes cost rationalization of Mahindra Forging Europe (where

margins improved from low single digit to double digit) & Metalcastello

business (shifting machinery & labour rationalisation) have yielded fruit. The

integration of BFL business (margins of >20%) is also helping MCI. Further,

in Q4CY17, the key margin accretive was 1) improvement in profitability of

its casting segment in India & 2) revision of the raw material price

agreement with retroactive effect from January 2017 is expected to lift

margins, going forward. The management focus on cost cutting exercise

and operating leverage may drive profitability, going forward.

Turnaround story intact; reiterate BUY!

MCI has a global footprint with global promoters and is a unique case of

valuation considering its massive turnaround possibilities. It is also planning

an inorganic expansion via partners/acquisitions and wishes to cater to

Japanese OEMs. Its consistent focus on cost rationalisation would improve

EBIT margins >10% & RoCE to ~14% in CY19E. Thus, we value MCI at 10x

CY19E EV/EBITDA multiple & maintain our target price of | 280 with BUY

rating. Key risk will be the pace of electric vehicle (EV) adoption; as 19% of

its revenue is derived from products related to ICE & are exposed to EV risk.

Rating matrix

Rating : Buy

Target : | 280

Target Period : 12 months

Potential Upside : 22%

What’s Changed?

Target Unchanged

EPS CY18E Changed from | 11.9 to | 12.3

EPS CY19E Chnaged from |13.9 to |15

Rating Unchanged

Standalone Quarterly Performance

(| Crore) Q4CY17 Q4CY16 YoY Q3CY17 QoQ

Revenues 561.5 447.3 25.5 484.2 16.0

EBITDA 58.3 31.6 84.3 48.4 20.6

EBITDA (%) 10.4 7.1 331 bps 10.0 40 bps

Reported PAT 14.6 11.0 33.6 20.4 -28.1

Key Financials

| Crore CY16 CY17E CY18E CY19E

Revenue 5,525 6,663 7,044 7,487

EBITDA 531.1 822.1 943.9 1,078.2

Net Profit 169.0 358.4 466.4 566.5

EPS (|) 4.5 9.5 12.3 15.0

All financial numbers incorporate merger assumption completed

Valuation summary

CY16 CY17E CY18E CY19E

P/E (x) 51.5 24.3 18.7 15.4

EV/EBITDA (x) 18.7 11.9 9.9 8.2

P/BV (x) 2.7 2.3 2.1 1.9

RoNW (%) 5.4 9.8 11.2 12.1

RoCE (%) 6.9 11.2 13.0 14.9


Stock data

Particular Amount

Market Capitalization (| Crore) | 8702.4

Total Debt (CY17) | 1196.87 Crore

Cash & Investments (CY17) | 126.7 Crore

EV | 9772.6 Crore

52 week H/L (|) 267/174

Equity capital (| crore) | 378.4 Crore

Face value (|) | 10


Price performance (%)

1M 3M 6M 12M

Mahindra CIE Automotive Ltd -4.8 -2.6 -2.1 9.4

Motherson Sumi Systems Ltd -17.8 -10.9 -2.0 34.4

Bharat Forge Ltd 3.0 6.7 33.4 40.2

Mahindra CIE Automotive (MAHAUT) | 230

Research Analyst

Nishit Zota

[email protected]

Vidrum Mehta

[email protected]


Variance analysis- Standalone

Q4CY17 Q4CY17E Q4CY16 YoY(%) Q3CY17 QoQ(%) Comments

Total Operating Income 561.5 510.0 447.3 25.5 484.2 16.0

Standalone revenue growth was largely driven by higher production

volumes of its top three customers, which account for >50% of its

revenue

Raw Material Expenses 281.9 270.3 207.7 35.7 258.9 8.9 Higher raw material resulted into gross margin contraction of 377 bps YoY

Employee Expenses 75.6 60.2 53.3 41.8 57.1 32.3

Other expenses 145.7 126.0 154.7 -5.8 119.8 21.6 Other expense declined 862 bps YoY, thereby lifting margins

Operating Profit (EBITDA) 58.3 53.5 31.6 84.3 48.4 20.6

EBITDA Margin (%) 10.4 10.5 7.1 331 bps 10.0 40 bps

Margins exapnded on YoY & QoQ basis

Other Income 3.8 1.0 1.0 276.6 1.0 276.6

Depreciation 22.8 17.8 17.8 28.3 17.8 28.6

Interest 3.3 1.2 3.0 9.1 1.2 165.8

PAT 14.6 25.1 11.0 33.6 20.4 -28.1

The exceptional expense of | 6.9 crore related to VRS impacted the

profitability for the quarter

EPS 0.3 0.7 0.3 17.0 0.5 -37.1

Key Metrics (| crore)*

MCIE India 666.1 564.9 17.9 682.1 -2.3

India business was driven by higher production volumes of the top three

clients. The growth without Bill Forge in India was at 16% YoY

EBITDA Margins % 12.4 11.8 60 bps 14.4 -200 bps

EBITDA margin declined QoQ after the improvement in profitability of the

casting division was largely offset higher VRS provision in forgings (| 6.4

crore) and other one-offs during the quarter

MCIE Europe 958.8 771.3 24.3 915.4 4.7

The quarter had a positive exchange rate impact of 5% in sales. Further,

higher revenue from Metalcastello (as MCI started catering the caterpillar

order) & Europe’s forging business (supplied crankshafts from the new

installed capacity) lifted the European topline

EBITDA Margins % 15.5 7.0 850 bps 12.3 320 bps

The clean off completed last year is yielding positive results in terms of

margin expansion on a YoY basis. Also, raw material price increase

agreement was closed in Q4CY17 with retroactive effect from January

2017 supporting margins

MCIE Consolidated 1,618.4 1,330.0 21.7 1,590.3 1.8

Strong growth in India and Europe lifted the overall consolidated

performance

EBITDA Margins % 14.3 8.9 540 bps 13.2 110 bps

Higher margins on YoY basis from both (India + Europe) led consolidated

margins to move upwards

Source: Company, ICICIdirect.com Research; *As reported in company presentation

Change in estimates

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

Revenue 6,597.2 7,044.3 6.8 7,390.5 7,487.3 1.3 With the commencement of new orders (caterpillar and crankshaft project in Lithuania), we

have revised our revenue estimate upwards for CY18E

EBITDA 934.3 943.9 1.0 1,034.7 1,078.2 4.2

EBITDA Margin (%) 14.2 13.4 -76 bps 14.0 14.4 40 bps We expect a gradual expansion in margin over the next two years

PAT 486.5 466.4 -4.1 523.9 566.5 8.1 Lower margin estimate; resulted into lower PAT for CY18E

EPS (|) 12.9 12.3 -4.1 13.8 15.0 8.2

CY18E CY19E

Source: Company, ICICIdirect.com Research All financial numbers incorporate merger assumption completed.


Company Analysis

MCI’s standalone business consists of Mahindra Forging India, casting &

magnet business, composites & stamping division while at the consolidated

level, it includes Mahindra Forging Europe, CIE’s forging business and

Mahindra’s gears & Bill Forge business. The standalone business accounts

for ~32% of overall revenue for CY16 while the remaining 68% is from its

subsidiary. The newly acquired BFL is also its subsidiary and comes under

the consolidated performance of the company.

Exhibit 1: Mahindra CIE – Legal Structure

Source: Company, ICICIdirect.com Research.

MCI’s phase 1 (2014-17) strategy of consolidation made good progress in

areas of optimising operations, turnaround of various segments, controlling

capex and reducing debt, among others. It first targeted Mahindra Forging

Europe (MFE) as its potential turnaround candidate where its margins

significantly improved from low single digits to double digits. MCI also

discontinued its unprofitable production, impacting Q4CY16 revenue.

However, the same will be margin accretive, going forward. A turnaround

will further lift its Metalcastello business while CIE’s European business

continues its stable operations. Also, with the Phase 1 strategy largely

complete, the group has decided that Mr Pedro will again be moving back

to Spain (CIE representative earlier in India) taking up a new responsibility.

MCI has embarked on its Phase 2 (2017-20) strategy, which focuses on

growth & profitability. The strategy can be broadly divided into two with a)

focusing on business development & growth [that includes organic growth,

new acquisitions (like Bill Forge – BFL)], entry into new products &

customer’s development in India and optimise its utilisation and b) focusing

on profitability (through transfer of technology, improvement in efficiency

and increase exports. The first step of the second phase has already been

taken with the acquisition of BFL and appointment of Ander Arenara Alvarez

as CEO, which will optimise the synergy within the company.


Revenue growth to be modest (Europe + India faces growth challenges)

Mahindra CIE’s geography wise revenue mix is at 62:38 for outside/within

India. Segment wise, the forgings entity currently accounts for 66% of

revenue and would continue to dominate the overall pie of the consolidated

revenue. Other segments viz. stampings, gears, castings account for 13%,

9% and 7%, respectively, of revenue. Composite and magnetic products

account for a small portion of 2% and 3%, respectively, of revenue for the

company.

According to the management, the European market has decent demand

and growth is expected to recover gradually, going forward. However, we

believe Brexit may impact the company’s performance to some extent,

going forward. The execution of new orders will drive its demand from

European market. On a standalone business, apart from new launches by

its top two clients, its tie-up with other domestic OEMs (viz. Maruti Suzuki,

Ashok Leyland, Hyundai, Renault and Ford) would support growth. Thus,

we expect revenue CAGR of ~11% over CY16-19E (as BFL acquisition will

increase the overall revenue but a subdued demand environment and

discontinuance of unprofitable business will impact its performance).

Exhibit 2: Modest revenue growth

5,676

5,570

3,861

5,525

6,663

7,044

7,487

14.8

(1.9)

(30.7)

43.1

20.6

5.7

6.3

-40

-30

-20

-10

-

10

20

30

40

50

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

FY14 FY15 CY15 CY16 CY17E CY18E CY19E

(%

)

(| crore)

Revenue % increase

Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger assumption completed &

company has changed its accounting year from FY to CY; hence CY15 is a nine months period

Exhibit 3: Consolidated segment mix (%) – CY2016

Composites

1.8%

Magnetics

Products

2.7%

Castings

7.3%

Gears

9.4%

Stampings

12.7% Forgings

66.2%

Source: Company, ICICIdirect.com Research.


Exhibit 4: Revenue mix (segment, geography and product wise break up) | crore

Segment Geography Product Focus Area Customers

FY15

(12M)

CY15

(9M)

CY16

(12M)

Forging India Crankshafts, Stub Axles

PV, UV and

Tractors

M&M, MSIL and

TML

370 275 430

Stamping India

Sheet metal stamping,

Component & Assemblies

PV & UV M&M and TML 665 482 705

Casting India

Turbocharger Housing,

Axles & Transmission

Parts

PV, UV,

Construction

Equipment,

Earthmoving,

Tractors & export

M&M, Hyundai,

John Deere, JCB,

Cummins Turbo

411 285 406

Magnetic

Product

India

Soft & Hard Magnets,

Induction lighting

Tier 1 of PV, UV &

2-W and export

Denso, Varroc,

Lucas TVS,

Nippon Electric,

Bajaj Auto

121 98 149

Composite India Compound & Component

Elctrical,

Switchgear, Auto

Component

L&T switchgear,

M&M, Volvo

Eicher

75 64 98

1643 1204 1787

Mahindra

Forging

Europe

Europe

Forged & Machined parts,

Front Axles beams & Steel

Piston

HCV

Diamler AG,

Scania, Man,

DAF, KS, Mahle,

ZF, KION, Linde,

AGCO

1,951 1,271 1,584

CIE Forging Europe

Forged steel parts for

Industrial, Crankshafts,

Common rail, Stubs, Tulips

PV

VW, BMW,

Mercedes, Audi,

Reanult, Fiat

1,489 1,037 1,486

Mahindra

Gears

India

Gears (Engine, Timing,

Transmission)

PV & UV, Tractors

& Export

M&M, Turner,

Eaton, NHFI,

Truck Tractor

CNH

138 106 159

Metallcastell

o

Europe

Gears (Engine, Timing,

Transmission), Crown

wheel Pinion

Tractors,

Construction

Equipment,

Earthmoving,

Exports

John Deere,

Eaton CNH

349 249 364

Bill Forge* India

2-W : Steering races &

engine valve retainers. For

PV - constant velocity

joints, tulips, steering

shafts & yokes & wheel

hubs

2-W & PV

Hero, Bajaj,

HMSI, TVS, Ford,

GKN, NTN,

Nexteer,

RaneNSK

NA NA 175

3927 2662 3768

5570 3866 5555Consolidated Revenue

Total Standalone Revenue

Total Subsidiary Revenue

Standalone business

Subsidiaries

Source: Company, ICICIdirect.com Research; All financial numbers incorporate merger assumption completed; *Bill

Forge revenue is only for the period Oct- Dec 2016 (3M)


Bill Forge acquisition = to diversify its segment + customers + reach

The BFL acquisition will help MCI diversify its segment, customer and reach

thus benefiting it. It acquired a 100% stake in BFL for | 1331 crore, through

a mix of equity (| 1,090 crore) & cash (| 241 crore). BFL has a presence

across segments with 4W (accounting ~50% of its revenue), 2W (~30% of

revenue) and exports & 3W account for ~20% of revenue. Export revenue

has grown >2.5x in the last two years and mainly supplies to Thailand,

China, Mexico, Europe and US. BFL has key customers viz. HMCL, BAL,

HMSI, TVS, MSIL, Hyundai, Honda, Ford, etc, with top 10 clients accounting

for 72% of its revenue. Thus, the acquisition not only helps MCI further

explore the 4W & 2W space but also diversifies its customer concentration.

Further, MCI will have a largely pan-India access vs. past exposure, which is

mainly to the western region of India (Pune cluster). BFPL has higher

machining content, thereby deriving higher value addition of its products.

EBITDA margins to rise as CIE philosophy takes over!

Looking at the history of CIE’s acquisitions, it is evident that CIE’s

management has a very strong focus on all kinds of costs ranging from

contribution of products to corporate overheads. CIE focuses on the

decentralised management of various plants, which are independently

given targets of RoCEs and EBIT margins. The overall group turnaround is

gradually progressing. The integration of the acquired higher margin BFL

business will drive the blended margins of Indian operations while the

clean-up made in the European operations [Mahindra Forging Europe (MFE)

and Metalcastello, Italy] will drive European margins, going forward. The

management’s EBIT margin target of ~10% are expected to be achieved

over the next couple of years. Thus, we estimate the progression of EBITDA

margins will be smooth on the way (13.4% in CY18E and 14.4% in CY19E).

Exhibit 5: EBITDA margin to grow strongly

453

440

378

531

822

944

1,078

8.0 7.9

9.8 9.6

12.3

13.4

14.4

-

2

4

6

8

10

12

14

16

-

200

400

600

800

1,000

1,200


(%

)

(| crore)

EBITDA EBITDA Margin (%)




Large room for non-linear profit growth!

The operating and financial revival of hotspots like MFE can have a

significant impact on the profitability of the overall business. We expect this

to happen, albeit at a pace slower than that targeted by CIE’s management.

We expect profits after MI (PE stake in Metalcastello) to gallop to ~| 567

crore in CY19E with PAT margins improving ~690 bps from FY14-CY19E to

7.6%. The path to this improvement has been followed since CY15. We

may see a significant improvement in CY18E & CY19E with PAT margins

likely to come in at 6.6% & 7.6% respectively.

Exhibit 6: Profit to start getting pumped up as operational improvement kicks in!!!

40

39.6

87

169

358

466

567

0.7

(1.4)

2.3

3.1

5.4

6.6

7.6

-2

-1

-

1

2

3

4

5

6

7

8

9

-200

-100

-

100

200

300

400

500

600


(%

)

(| crore)

PAT PAT Margin (%)




Outlook and valuation

We feel MCI provides a rare, unique Indian auto component play, which has

a global footprint with global promoters. The company is a unique case of

valuation considering the massive turnaround possibilities. Hence, we are

factoring in the same. We expect the turnaround to be significant, as,

according to our estimates, there will be non-linear profit growth from

~| 40 crore in FY14 to | 567 core in CY19E. MCI would find a way to

increase efficient and profitable utilisation with no major capex (only

maintenance capex of | 300-| 400 crore) over the next two or three years.

We expect strong business prospects to fructify into a turnaround, further

resulting into net debt ~| 193 crore till CY19E (CY19E-debt/EBITDA: 0.6x,

debt/equity: 0.1x vs. FY13- debt/EBITDA: ~3.7x, debt/equity: 0.7). We also

expect MCI to pay dividends, going forward. We value the stock on

EV/EBITDA multiple of 10x its CY19E, considering it is a turnaround

company. Hence, we maintain BUY rating with a target price of | 280/share.

Exhibit 7: Valuation

Pariculars

CY19E EBITDA (| crore) 1078

Implied target EV/EBITDA (x) 10.0

EV (| crore) 10782

CY19E Net Debt (| crore) 193

Mcap (| crore) 10588

No. of shares (crore) 37.8

Target Price (| per share) 280

Source: Company, ICICIdirect.com Research

Exhibit 8: Valuation

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

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

CY15 3,677.5 12.0 2.3 NA 99.7 25.5 7.5 7.4

CY16 5,286.7 43.8 4.5 93.7 51.5 18.7 5.4 6.9

CY17E 6,663.0 26.0 9.5 112.1 24.3 11.9 9.8 11.2

CY18E 7,044.3 5.7 12.3 30.1 18.7 9.9 11.2 13.0

CY19E 7,487.3 6.3 15.0 21.5 15.4 8.2 12.1 14.9




Recommended history vs. consensus estimates

0.0

20.0

40.0

60.0

80.0

100.0

0

100

200

300

400

Feb-18Nov-17Aug-17Jun-17Mar-17Dec-16Sep-16Jun-16Mar-16Dec-15Sep-15Jun-15Mar-15

(%

)(|)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Jun-08 Mahindra Forging's acquisitions in Europe, including Schöneweiss, start to integrate into the business

Apr-09 The company reports annual losses on the back of sudden downturn in the European business

Oct-09 Domestic business also suffers on the back of Lehmann crisis

Nov-09 Mahindra Forgings invests in doubling installed capacity in the forgings entity in India to 80,000 MT

Mar-10 Receives best supplier awards from Volvo Eicher, Kirloskar Oil Engines

Jul-10 Company starts to report better financials compared to previous years

Sep-11 Third crankshaft machining line installed, new makino installed for tool room in die production

Sep-13 CIE Automotive Spain and M&M agree to a merger between Mahindra Systech and CIE Forgings Europe. M&M acquires 13.5% stake in CIE SPA for €6 while

retaining 20% direct ownership in new company Mahindra CIE automotive. CIE post merger will have ~51% stake in the company

Jan-14 CIE's efforts in turning around Mahindra Forgings Europe start to reflect fruitfully as MFE starts to clock ~6-8% EBITDA

Jun-14 All parties ranging from shareholders to creditors give approval to the merger. Final court approval pending

Oct-14 Management indicates completion of the merger process likely by early December

Dec-14 Merger of Mahindra CIE companies formally completed on December 10, 2014

Jul-16 To optimise the synergy within companies, the board of directors have appointed Ander Arenara Alvarez as Chief Executive Officer of MCI

Sep-16 MCI acquires Bill Forge (which is into forging capabilities) which is into 4-W, 2-W and exports markets thereby diversifying its segment, customer & geography

mix going forward. It will acquire 100% stake for | 1331 crore, through a mix of equity (value | 1,090 crore) & cash (| 241 crore).

Oct-16 The Board of Directors appoints K Jayaprakash as Chief Financial Officer of the company

Source: Company, ICICIdirect.com Research

Top 10 Shareholders Shareholding Pattern

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

1 Participaciones Internacionales Autometal DOS, S. L. 31-Dec-17 0.51 194.3 0.00

2 Mahindra Group 31-Dec-17 0.17 65.3 0.00

3 Sundaram Asset Management Company Limited 31-Jan-18 0.02 8.2 0.00

4 Ainos Holdings Ltd. 31-Dec-17 0.02 8.0 -5.81

5 Haridass (Anjali Powar) 31-Dec-17 0.02 5.7 0.00

6 Haridass (Anil) 31-Dec-17 0.01 5.6 0.00

7 GIC Private Limited 31-Dec-17 0.01 5.2 -1.31

8 Prudential Management & Services Pvt. Ltd. 31-Dec-17 0.01 4.8 0.00

9 Haridass (Sunil) 31-Dec-17 0.01 4.6 0.00

10 UTI Asset Management Co. Ltd. 31-Jan-18 0.01 4.6 0.09

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

Promoter 69.9 69.9 69.9 69.9 69.9

FII 5.6 5.7 5.5 5.5 6.3

DII 11.5 11.3 11.5 6.4 10.4

Others 13.0 13.1 13.2 18.3 13.5

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor name Value Shares Investor name Value Shares

First State Investments (Singapore) 3.13 0.77 Ainos Holdings Ltd. -23.51 -5.81

Stewart Investors 2.58 0.64 GIC Private Limited -5.30 -1.31

UTI Asset Management Co. Ltd. 0.30 0.09 L&T Investment Management Limited -4.35 -1.19

IDFC Asset Management Company Private Limited 0.24 0.07 ICICI Prudential Asset Management Co. Ltd. -0.75 -0.22

First State Investments (HK) Ltd. 0.20 0.05 BlackRock Asset Management North Asia Limited -0.44 -0.11

Buys Sells

Source: Reuters, ICICIdirect.com Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) CY16 CY17E CY18E CY19E

Total operating Income 5,524.6 6,663.0 7,044.3 7,487.3

Growth (%) 43.1 20.6 5.7 6.3

Raw Material Expenses 2,144.4 2,854.9 3,205.2 3,391.7

Employee Expenses 1,102.5 1,176.0 1,239.8 1,257.9

Other Expenses 1,746.6 1,810.0 1,655.4 1,759.5

Total Operating Expenditure 4,993.5 5,840.9 6,100.4 6,409.1

EBITDA 531.1 822.1 943.9 1,078.2

Growth (%) 54.8 14.8 14.2

Other Income 31.4 26.9 35.2 37.4

Interest 59.4 54.5 42.5 25.5

Depreciation 232.5 280.8 288.8 303.2

PBT 261.5 506.7 647.8 786.8

Total Tax 92.6 148.3 181.4 220.3

PAT before Minority Interest 169.0 358.4 466.4 566.5

Minority Interest 0.0 0.0 0.0 0.0

PAT after Minority Interest 169.0 358.4 466.4 566.5

EPS (|) 4.5 9.5 12.3 15.0

Source: Company, ICICIdirect.com Research. All financial numbers incorporate merger

assumption completed

Cash flow statement | Crore


Profit after Tax 169.0 358.4 466.4 566.5

Add: Depreciation 232.5 280.8 288.8 303.2

(Inc)/dec in Current Assets -495.6 -445.2 -127.5 -127.6

Inc/(dec) in CL and Provisions 2.3 360.3 96.2 138.0

CF from operating activities -32.4 608.9 766.5 905.7

(Inc)/dec in Investments -90.1 -42.1 -16.2 -18.8

(Inc)/dec in Fixed Assets -250.0 -373.6 -300.0 -300.0

Others -914.3 -89.6 8.4 9.8

CF from investing activities -1,254.3 -505.3 -307.8 -309.0

Interest Paid -59.4 -54.5 -42.5 -25.5

Inc/(dec) in loan funds 306.4 -165.2 -200.0 -400.0

Dividend paid & dividend tax 0.0 0.0 -22.1 -33.2

Others 1,087.7 89.7 0.0 0.0

CF from financing activities 1,334.8 -130.0 -264.7 -458.7

Net Cash flow 48.0 -26.4 194.0 137.9

Opening Cash 50.1 98.1 71.7 265.7

Closing Cash 98.1 71.7 265.7 403.6



Balance sheet | Crore


Liabilities

Equity Capital 378.1 378.4 378.4 378.4

Reserve and Surplus 2,888.1 3,337.2 3,781.5 4,314.8

Total Shareholders funds 3,266.2 3,715.6 4,159.9 4,693.2

Total Debt 1,362.1 1,196.9 996.9 596.9

Minority Interest 0.0 0.0 0.0 0.0

Total Liabilities 5,056.3 5,422.7 5,686.7 5,843.0

Assets

Gross Block 5,628.6 6,179.7 6,509.9 6,809.9

Less: Acc Depreciation 3,985.0 4,265.8 4,554.6 4,857.8

Net Block 1,783.5 1,913.9 1,955.3 1,952.1

Capital WIP 96.6 60.2 30.0 30.0

Total Fixed Assets 1,880.1 1,974.1 1,985.3 1,982.1

Investments 38.9 55.0 58.2 61.8

Goodwill 2,690.1 2,836.4 2,836 2,836

Inventory 835.2 989.8 1,042.2 1,107.7

Debtors 521.9 598.4 636.9 656.4

Other current assets 183.9 401.6 424.6 451.3

Cash 98.1 71.7 265.7 403.6

Total Current Assets 1,639.0 2,061.5 2,369.4 2,619.1

Creditors 1,526.0 1,574.3 1,640.5 1,743.6

Provisions 19.3 19.6 20.7 22.0

Other Current Liabilities 241.6 505.2 534.1 567.7

Total Current Liabilities 1,786.9 2,099.1 2,195.3 2,333.3

Net Current Assets -147.9 -37.6 174.1 285.8

Application of Funds 5,056.3 5,422.7 5,686.7 5,843.0



Key ratios


Per share data (|)

EPS 4.5 9.5 12.3 15.0

Cash EPS 10.6 16.9 20.0 23.0

BV 86.3 98.2 109.9 124.0

DPS 0.0 0.0 0.5 0.8

Cash Per Share 2.6 1.9 7.0 10.7

Operating Ratios (%)

EBITDA Margin 9.6 12.3 13.4 14.4

PAT Margin 3.2 5.5 6.6 7.6

Inventory days 55.2 54.2 54.0 54.0

Debtor days 34.5 32.8 33.0 32.0

Creditor days 100.8 86.2 85.0 85.0

Return Ratios (%)

RoE 5.4 9.8 11.2 12.1

RoCE 6.9 11.2 13.0 14.9

RoIC 17.8 25.8 30.1 35.8

Valuation Ratios (x)

P/E 51.5 24.3 18.7 15.4

EV / EBITDA 18.7 11.9 9.9 8.2

EV / Net Sales 1.8 1.5 1.3 1.2

Market Cap / Sales 1.6 1.3 1.2 1.2

Price to Book Value 2.7 2.3 2.1 1.9

Solvency Ratios

Debt/Equity 0.4 0.3 0.2 0.1

Current Ratio 1.0 1.1 1.1 1.1

Quick Ratio 0.5 0.6 0.6 0.6




ICICIdirect.com coverage universe (Auto & Auto Ancillary)

CMP M Cap

(|) TP(|) Rating (| Cr) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E

Amara Raja (AMARAJ) 801 875 Hold 13676 29.0 35.5 41.6 27.6 22.5 19.2 15.6 13.1 11.3 23.8 24.9 25.0 16.5 17.3 17.3

Apollo Tyre (APOTYR) 262 300 Buy 15005 12.5 21.2 25.0 21.0 12.4 10.5 7.6 7.6 6.5 8.9 12.8 13.8 7.7 11.7 12.4

Ashok Leyland (ASHLEY) 132 150 Buy 37219 5.3 7.1 8.6 24.8 18.6 15.3 12.6 10.0 8.1 29.9 33.4 34.9 22.6 25.2 25.6

Bajaj Auto (BAAUTO) 2994 3400 Hold 86645 143.4 172.5 204.1 22.2 18.4 15.6 17.3 13.9 11.6 29.9 31.8 32.6 21.9 22.8 23.3

Balkrishna Ind. (BALIND) 1082 1150 Hold 20907 39.8 51.5 63.9 28.6 22.1 17.8 18.8 14.0 11.2 23.6 26.7 27.9 18.3 26.7 27.9

Bharat Forge (BHAFOR) 763 860 Buy 35523 15.0 19.3 27.3 50.9 39.5 27.9 28.5 19.1 14.3 16.7 23.2 29.5 15.4 19.0 23.1

Bosch (MICO) 18814 21500 Hold 59075 455.8 562.0 632.1 43.2 35.0 31.1 28.1 23.0 20.2 14.7 16.6 16.8 22.0 24.7 25.1

Eicher Motors (EICMOT) 27890 32300 Buy 73124 655.9 839.0 1102.4 41.3 32.3 24.6 25.7 19.6 15.2 39.2 39.8 38.4 36.0 33.8 32.6

Exide Industries (EXIIND) 209 250 Buy 17774 8.0 9.8 11.9 26.2 21.3 17.5 14.9 12.3 10.1 17.6 19.7 21.7 12.6 14.1 15.4

Hero Moto (HERHON) 3474 4200 Buy 69369 187.4 221.4 247.3 18.5 15.7 14.0 12.6 11.0 9.5 45.5 44.8 44.1 32.7 33.4 31.8

JK Tyre & Ind (JKIND) 153 175 Hold 3469 -1.2 15.4 24.4 -126 9.9 6.3 12.8 6.7 5.1 5.2 11.8 15.0 -1.1 16.0 20.9

Mahindra CIE (MAHAUT) 230 280 Buy 8695 9.5 12.3 15.0 24.3 18.7 15.4 11.9 9.9 8.2 9.8 11.2 12.1 11.2 13.0 14.9

Maruti Suzuki (MARUTI) 8686 10850 Buy 227942 275.5 349.4 415.6 34.8 27.5 23.1 23.1 18.4 15.4 27.4 29.9 30.5 20.1 21.8 22.2

Motherson (MOTSUM) 309 375 Hold 65023 7.6 12.4 15.0 40.6 24.9 20.5 14.7 10.7 8.7 17.8 24.7 28.2 19.2 24.9 25.0

Tata Motors (TELCO) 360 475 Buy 108288 22.3 29.8 44.3 17.3 12.9 8.7 5.6 5.4 3.8 11.6 11.1 15.9 15.0 13.8 20.2

Wabco India (WABTVS) 7070 7700 Hold 13433 145.9 180.4 219.7 48.5 39.2 32.2 34.8 28.9 23.4 18.3 18.7 18.7 24.9 25.2 25.2

Sector / Company

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

Source: Company, ICICIdirect.com Research * All financial numbers incorporate merger assumption completed


RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

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

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

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

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Mumbai – 400 093

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