mahindra cie automotive (mahaut) |...

July 20, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Strong overall performance!

Mahindra CIE’s consolidated revenues grew 29.4% YoY to | 1973 crore

vs. estimate of | 1773 crore. Its operating margin expanded 125 bps

YoY to 14.7% post margin expansion in India & European operations

Revenues from India [standalone + Bill Forge (BFL) + gears business]

grew 26% YoY to | 802 crore. The growth mix is at - 15% from its

existing customers, 6% from higher realisation (passed on higher steel

prices) and 5% from business of new clients. EBITDA margin expanded

189 bps YoY to 15.7% due to cost and operational efficiency

Revenue from Europe grew 32.1% YoY to | 1182 crore mainly due to

1) positive exchange rate impact of 15% and 2) constant currency

growth of 17%. EBITDA margin at 14% expanded 76 bps YoY after MCI

had a positive impact of 100 bps on steel price increase agreement

with customers applied retrospectively from January 2018

Standalone topline grew 45% YoY to | 650 crore. EBITDA margin was

up 300bps YoY to 12.5%. Reported PAT grew 148% YoY to | 44 crore

CIE Automotive acquired an additional 5% stake in Mahindra CIE for

~| 478 crore (average of | 252/share), increasing its stake to ~56%

Revenue growth will drive its performance

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 and 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). The

current revenue mix, India/Europe is at 40:60 and is expected to reverse,

mainly due to the strong ongoing domestic demand. MCI continues to

focus on adding more content per vehicle in addition to diversifying its

customer mix (via acquiring new customers). Its European operation will

register above industry growth with 1) execution of Caterpillar order and

supply of crankshaft from its forging division & 2) consolidation of relatively

small regional vendors. Thus, we expect company to register revenue

CAGR of 12% in CY17-19E.

EBITDA margin continues to expand

In the past, MCI had taken several initiatives of cost rationalisation, which

have started to yield positive results. Its targeted turnaround candidates

(viz. Mahindra Forging Europe reported PAT of | 20 crore in CY17 vs. loss

of | 88.6 crore in CY16 & Metalcastello reported PAT of | 31.5 crore vs.

| 25.2 crore in CY16) has started to contribute in overall profitability. The

integration of high margin (>20%) BFL business is also lifting its overall

profitability. For Q2CY18, MCI reported a strong operational performance,

with EBITDA margin up 125 bps YoY to 14.7% driven by Indian & European

operations. This was mainly due to higher operating leverage & positive

impact of higher input cost that was passed on, with retrospective effect.

The management expects cost cutting exercise & operating leverage to

expand margins by 300-400 bps in the next three to four years.

Turnaround story intact; reiterate BUY!

MCI is a multi-locational & multi-technology business with engineering

capabilities & manufacturing facilities of its own & its subsidiaries globally.

Its consistent focus on cost rationalisation would improve EBIT margins

>10% & RoCE to ~16% in CY19E. We value MCI at 9x CY19E EV/EBITDA

multiple and maintain our target price of | 280 with BUY rating. Key risk will

be pace of electric vehicle (EV) adoption (as 19% of its revenue is exposed

to EV risk) and ongoing trade war that may impact its performance.

Rating matrix

Rating : Buy

Target : | 280

Target Period : 12 months

Potential Upside : 11%

What’s Changed?

Target Unchanged

EPS CY18E Changed from | 12.8 to | 13.4

EPS CY19E Chnaged from |15.3 to |16.5

Rating Unchanged

Standalone Quarterly Performance

(| Crore) Q2CY18 Q2CY17 YoY Q1CY18 QoQ

Revenues 650.0 449.5 44.6 612.0 6.2

EBITDA 81.5 42.7 90.9 73.9 10.3

EBITDA (%) 12.5 9.5 304 bps 12.1 46 bps

Reported PAT 43.9 17.7 148.4 38.6 13.7

Key Financials

| Crore CY16 CY17 CY18E CY19E

Revenue 5,320 6,520 7,604 8,225

EBITDA 531.1 814.6 1,018.9 1,184.5

Net Profit 169.0 358.4 505.9 624.2

EPS (|) 4.5 9.5 13.4 16.5

All financial numbers incorporate merger assumption completed

Valuation summary

CY16 CY17E CY18E CY19E

P/E (x) 56.4 26.6 18.8 15.3

EV/EBITDA (x) 20.2 13.0 10.1 8.2

P/BV (x) 2.9 2.6 2.3 2.0

RoNW (%) 5.4 9.8 12.0 13.0

RoCE (%) 6.9 11.2 13.9 16.1


Stock data

Particular Amount

Market Capitalization (| Crore) | 9524.3

Total Debt (CY17) | 1196.87 Crore

Cash & Investments (CY17) | 126.7 Crore

EV | 10594.4 Crore

52 week H/L (|) 277/199

Equity capital (| crore) | 378.4 Crore

Face value (|) | 10


Price performance (%)

1M 3M 6M 12M

Mahindra CIE Automotive Ltd 0.0 19.1 8.9 7.6

Motherson Sumi Systems -6.1 -17.0 -25.1 -10.5

Bharat Forge Ltd -6.8 -19.2 -17.4 4.1

Mahindra CIE Automotive (MAHAUT) | 252

Research Analyst

Nishit Zota

[email protected]

Vidrum Mehta

[email protected]


Variance analysis- Standalone

Q2CY18 Q2CY18E Q2CY17 YoY(%) Q1CY18 QoQ(%) Comments

Total Operating Income 650.0 564.2 449.5 44.6 612.0 6.2

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 358.7 307.5 229.6 56.2 336.2 6.7

Employee Expenses 71.9 62.1 56.6 27.0 67.4 6.7

Other expenses 137.8 126.9 120.6 14.3 134.5 2.4

Operating Profit (EBITDA) 81.5 67.7 42.7 90.9 73.9 10.3

EBITDA Margin (%) 12.5 12.0 9.5 304 bps 12.1 46 bps

Margins expanded 304 bps YoY & 46 bps QoQ; aided by lower employee

and other expense

Other Income 5.2 1.0 1.0 419.0 1.0 419.0

Depreciation 18.4 18.8 18.2 1.0 18.8 -2.3

Interest 0.8 1.0 1.8 -57.1 1.5 -48.0

PAT 43.9 35.3 17.7 148.4 38.6 13.7

Strong revenue growth and margin expansion resulted in robust

profitability for the company

EPS 0.3 0.9 0.5 -27.3 1.0 -66.7

Key Metrics (| crore)*

MCIE India 802.4 635.6 26.2 775.6 3.5

MCI's India business grew 26.2% YoY of which 1) 15% YoY is from its

existing customers; 2) 6% from higher realisation (passed on higher steel

prices); 3) 5% from business from new customer

EBITDA Margins % 15.7 13.8 189 bps 15.1 50 bps

EBITDA margin expanded on a YoY & QoQ basis mainly due to internal

efficiency & due to higher operating leverage

MCIE Europe 1,181.6 894.3 32.1 1,141.6 3.5

MCI's European business grew 32.1% YoY; mainly driven by positive

exchange rate impact of 15% YoY & constant currency growth of 17% YoY


EBITDA margin expanded both YoY & QoQ; mainly due to positive

operating leverage and after the company saw a positive impact of 100

bps from steel price increase agreement with customers applied

retroactively from January 2018

MCIE Consolidated 1,973.1 1,524.8 29.4 1,910.7 3.3

Strong growth in India and Europe lifted the overall consolidated revenue

of the company


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

margins to move upwards

Source: Company, ICICI Direct Research; *As reported in company presentation

Change in estimates

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

Revenue 7,286.7 7,604.0 4.4 7,645.6 8,225.4 7.6 We revise our revenue estimates upwards post strong revenue growth in Q2CY18 &

commencement of new orders of caterpillar and crankshaft project in Lithuania

EBITDA 976.4 1,018.9 4.4 1,101.0 1,184.5 7.6

EBITDA Margin (%) 13.4 13.4 0 bps 14.4 14.4 0 bps We maintain our margin estimates

PAT 483.5 505.9 4.6 578.9 624.2 7.8 Upward revision in revenue is resulting into higher profitability

EPS (|) 12.8 13.4 4.6 15.3 16.5 7.8

CY18E CY19E

Source: Company, ICICI Direct 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 ~29% of overall revenue for CY17 while the remaining 71% 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, ICICI Direct 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. However, the same will be margin

accretive, going forward. A turnaround further lifted its Metalcastello

business while CIE’s European business continues its stable operations.

Also, with the Phase 1 strategy over, 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 by 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 revive gradually

Mahindra CIE’s geography wise revenue mix is at 60:40 for outside/within

India. Segment wise, the forgings entity currently accounts for 69% 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 6%, respectively, of revenue. The European market has decent

demand and is expected to recover gradually. The regular execution of new

orders (specifically of Caterpillar) and pick-up in sales of crankshaft from its

forging division will drive its demand from European market. Further MCI’s

growth in Europe will be higher than the overall industry, after MCI

increases its content per vehicle and will also benefit from the consolidation

of vendors in Europe. MCI is well placed to cater to the global OEM against

relatively smaller regional players in Europe. However, Brexit may impact

MCI’s performance, to some extent, going forward. 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, Renault and Ford)

would support growth. Further, with growth in the domestic market

expected to remain buoyant, going forward, the revenue mix will gradually

shift as 60:40 for within/outside India. MCI will also start supplying products

to Hyundai & Kia Motors from 2019 onwards. Thus, we expect revenue

CAGR of ~12% over CY17-19E.

Exhibit 2: Modest revenue growth

5,676

5,570

3,861 5,320

6,520

7,604

8,225

14.8

(1.9)

(30.7)

37.8

22.6

16.6 8.2

-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

9,000

FY14 FY15 CY15 CY16 CY17E CY18E CY19E

(%

)

(| crore)

Revenue % increase

Source: Company, ICICI Direct 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 (%) – CY17

Forgings,

68.8%

Stampings,

12.6%

Gears, 8.7%

Castings,

6.5%

Magnetics

Products,

2.0%

Composites,

1.4%

Source: Company, ICICI Direct 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)

CY17

(12M)

Forging India Crankshafts, Stub Axles

PV, UV and

Tractors

M&M, MSIL

and TML

370 275 430 459

Stamping India

Sheet metal stamping,

Component &

Assemblies

PV & UV M&M and TML 665 482 705 844

Casting India

Turbocharger Housing,

Axles & Transmission

Parts

PV, UV,

Construction

Equipment,

Earthmoving,

Tractors &

export

M&M, Hyundai,

John Deere,

JCB, Cummins

Turbo

411 285 406 440

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 98 149 136

Composite India

Compound &

Component

Elctrical,

Switchgear,

Auto Component

L&T

switchgear,

M&M, Volvo

Eicher

75 64 98 96

1643 1204 1787 1974

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 1,720

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 1,708

Mahindra

Gears

India

Gears (Engine, Timing,

Transmission)

PV & UV,

Tractors &

Export

M&M, Turner,

Eaton, NHFI,

Truck Tractor

CNH

138 106 159 192

Metallcaste

llo

Europe

Gears (Engine, Timing,

Transmission), Crown

wheel Pinion

Tractors,

Construction

Equipment,

Earthmoving,

Exports

John Deere,

Eaton CNH

349 249 364 390

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 175 739

3927 2662 3768 4748

5570 3866 5555 6722Consolidated Revenue

Total Standalone Revenue

Total Subsidiary Revenue

Standalone business

Subsidiaries

Source: Company, ICICI Direct 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 is helping MCI to diversify its segment, customer and

reach, thus benefiting it. MCI 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. It

exports mainly 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

is not only helping MCI to 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 western India (Pune cluster). BFL 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

EBIT margin target of ~10% of the management is 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 8

15

1,019

1,184

8.0 7.9

9.8 10.0

12.5

13.4

14.4

-

2

4

6

8

10

12

14

16

-

200

400

600

800

1,000

1,200

1,400


(%

)

(| crore)

EBITDA EBITDA Margin (%)

Source: Company, ICICI Direct 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


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 | 624

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 3

58 506

624

0.7

(1.4)

2.3

3.2

5.5

6.7

7.6

-2

-1

-

1

2

3

4

5

6

7

8

9

-200

-100

-

100

200

300

400

500

600

700


(%

)

(| 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 | 624 core in CY19E. MCI would find a way to

increase efficient and profitable utilisation with no major capex (only

maintenance capex of | 350-| 400 crore) over the next couple of years.

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

resulting in net debt of ~| 230 crore till CY19E (CY19E-debt/EBITDA: 0.5x,

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 9x 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) 1184

Implied target EV/EBITDA (x) 9

EV (| crore) 10826

CY19E Net Debt (| crore) 230

Mcap (| crore) 10596

No. of shares (crore) 37.9

Target Price (| per share) 280

Source: Company, ICICI Direct 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 109.2 27.7 7.5 7.4

CY16 5,121.3 39.3 4.5 93.8 56.4 20.2 5.4 6.9

CY17 6,254.7 22.1 9.5 112.1 26.6 13.0 9.8 11.2

CY18E 7,604.0 21.6 13.4 41.1 18.8 10.1 12.0 13.9

CY19E 8,225.4 8.2 16.5 23.4 15.3 8.2 13.0 16.1




Recommended history vs. consensus estimates

0.0

20.0

40.0

60.0

80.0

100.0

0

100

200

300

400

Jul-18Apr-18Jan-18Nov-17Aug-17May-17Feb-17Nov-16Aug-16May-16Feb-16Nov-15Aug-15

(%

)(|)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct 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, ICICI Direct Research

Top 10 Shareholders Shareholding Pattern

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

1 Participaciones Internacionales Autometal DOS, S. L. 30-Jun-18 0.56 213.2 18.93

2 Mahindra Group 30-Jun-18 0.12 46.3 -18.93

3 Sundaram Asset Management Company Limited 31-May-18 0.03 9.7 0.00

4 Ainos Holdings Ltd. 30-Jun-18 0.02 8.0 0.00

5 Haridass (Anjali Powar) 30-Jun-18 0.02 5.7 0.00

6 Haridass (Anil) 30-Jun-18 0.01 5.6 0.00

7 Aditya Birla Sun Life AMC Limited 30-Jun-18 0.01 5.3 0.13

8 UTI Asset Management Co. Ltd. 30-Jun-18 0.01 5.1 0.00

9 Prudential Management & Services Pvt. Ltd. 30-Jun-18 0.01 4.8 0.00

10 Haridass (Sunil) 31-Mar-18 0.01 4.6 0.00

(in %) Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Promoter 69.9 69.9 69.9 69.8 69.8

FII 5.5 5.5 6.3 6.1 6.1

DII 11.5 6.4 10.4 10.9 10.9

Others 13.2 18.3 13.5 13.2 13.2

Source: Reuters, ICICI Direct Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Participaciones Internacionales Autometal DOS, S. L. 71.16 18.93 Mahindra Group -71.16 -18.93

Caisse de Depot et Placement du Quebec 4.13 1.02 ICICI Prudential Asset Management Co. Ltd. -7.56 -2.11

Franklin Templeton Asset Management (India) Pvt. Ltd. 1.82 0.51 BlackRock Asset Management North Asia Limited -0.44 -0.11

Aditya Birla Sun Life AMC Limited 0.49 0.13 DHFL Pramerica Asset Managers Private Limited -0.08 -0.02

Dimensional Fund Advisors, L.P. 0.43 0.12 BlackRock Institutional Trust Company, N.A. -0.06 -0.02

Buys Sells

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) CY16 CY17 CY18E CY19E

Total operating Income 5,319.9 6,520.0 7,604.0 8,225.4

Growth (%) 37.8 22.6 16.6 8.2

Raw Material Expenses 2,144.3 2,854.9 3,459.8 3,726.1

Employee Expenses 1,102.5 1,176.0 1,338.3 1,381.9

Other Expenses 1,542.0 1,674.5 1,786.9 1,933.0

Total Operating Expenditure 4,788.8 5,705.4 6,585.1 7,040.9

EBITDA 531.1 814.6 1,018.9 1,184.5

Growth (%) 53.4 25.1 16.2

Other Income 31.4 26.9 38.0 41.1

Interest 59.4 54.5 42.5 25.5

Depreciation 232.5 273.4 311.8 333.1

PBT 261.6 506.7 702.7 866.9

Total Tax 92.6 148.3 196.7 242.7

PAT before Minority Interest 169.0 358.4 505.9 624.2

Minority Interest 0.0 0.0 0.0 0.0

PAT after Minority Interest 169.0 358.4 505.9 624.2

EPS (|) 4.5 9.5 13.4 16.5

Source: Company, ICICI Direct Research. All financial numbers incorporate merger

assumption completed

Cash flow statement | Crore


Profit after Tax 169.0 358.4 505.9 624.2

Add: Depreciation 232.5 273.4 311.8 333.1

(Inc)/dec in Current Assets -495.6 -445.2 -330.7 -186.6

Inc/(dec) in CL and Provisions 2.3 360.3 283.7 194.7

CF from operating activities -32.4 601.5 813.2 990.9

(Inc)/dec in Investments -90.1 -42.1 -46.9 -26.9

(Inc)/dec in Fixed Assets -250.0 -366.2 -400.0 -350.0

Others -914.3 -89.6 24.4 14.0

CF from investing activities -1,254.3 -497.9 -422.5 -362.9

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 -26.4 126.0 169.3

Opening Cash 50.1 98.1 71.7 197.7

Closing Cash 98.1 71.7 197.7 367.0



Balance sheet | Crore


Liabilities

Equity Capital 378.1 378.4 378.4 378.4

Reserve and Surplus 2,888.1 3,337.2 3,821.0 4,412.0

Total Shareholders funds 3,266.2 3,715.6 4,199.4 4,790.3

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 5,763.8 5,987.7

Assets

Gross Block 5,628.6 6,172.2 6,602.5 6,952.5

Less: Acc Depreciation 3,985.0 4,258.4 4,570.1 4,903.3

Net Block 1,783.5 1,913.9 2,032.3 2,049.2

Capital WIP 96.6 60.2 30.0 30.0

Total Fixed Assets 1,880.1 1,974.1 2,062.3 2,079.2

Investments 38.9 55.0 64.2 69.4

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

Inventory 835.2 989.8 1,125.0 1,216.9

Debtors 521.9 598.4 687.5 721.1

Other current assets 183.9 401.6 468.4 506.7

Cash 98.1 71.7 197.7 367.0

Total Current Assets 1,639.0 2,061.6 2,478.6 2,811.7

Creditors 1,526.0 1,574.3 1,770.8 1,915.5

Provisions 19.3 19.6 22.8 24.7

Other Current Liabilities 241.6 505.2 589.2 637.4

Total Current Liabilities 1,786.9 2,099.1 2,382.9 2,577.6

Net Current Assets -147.9 -37.6 95.7 234.1

Application of Funds 5,056.3 5,422.7 5,763.8 5,987.7



Key ratios


Per share data (|)

EPS 4.5 9.5 13.4 16.5

Cash EPS 10.6 16.7 21.6 25.3

BV 86.3 98.2 110.9 126.5

DPS 0.0 0.0 0.5 0.8

Cash Per Share 2.6 1.9 5.2 9.7

Operating Ratios (%)

EBITDA Margin 10.0 12.5 13.4 14.4

PAT Margin 3.3 5.6 6.7 7.6

Inventory days 57.3 55.4 54.0 54.0

Debtor days 35.8 33.5 33.0 32.0

Creditor days 104.7 88.1 85.0 85.0

Return Ratios (%)

RoE 5.4 9.8 12.0 13.0

RoCE 6.9 11.2 13.9 16.1

RoIC 17.8 25.8 31.1 37.2

Valuation Ratios (x)

P/E 56.4 26.6 18.8 15.3

EV / EBITDA 20.2 13.0 10.1 8.2

EV / Net Sales 2.0 1.6 1.3 1.2

Market Cap / Sales 1.8 1.5 1.3 1.2

Price to Book Value 2.9 2.6 2.3 2.0

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




ICICI Direct 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) 764 875 Hold 13042 27.6 32.8 41.0 27.7 23.3 18.6 15.5 13.2 10.6 23.3 23.4 25.0 16.0 16.3 17.3

Apollo Tyre (APOTYR) 277 325 Buy 15823 12.7 19.9 25.0 21.9 13.9 11.1 7.9 7.9 6.5 7.8 11.1 12.6 7.4 10.6 12.0

Ashok Leyland (ASHLEY) 108 135 Buy 30552 5.3 6.6 8.2 20.3 16.4 13.3 10.2 8.8 6.8 28.5 31.2 33.0 21.9 23.4 24.2

Bajaj Auto (BAAUTO) 3134 2900 Hold 90694 140.6 169.1 194.5 19.4 16.1 14.0 15.1 12.0 10.3 29.6 31.3 31.5 21.5 22.5 22.5

Balkrishna Ind. (BALIND) 1162 1215 Hold 22463 38.2 52.3 63.9 30.1 22.0 18.0 20.2 14.5 11.9 22.4 26.5 27.4 18.1 26.5 27.4

Bharat Forge (BHAFOR) 586 800 Buy 27268 16.2 24.7 29.0 36.2 23.7 20.2 18.1 14.4 12.1 23.0 27.5 26.6 17.5 24.2 22.2

Bosch (MICO) 17628 19500 Hold 55353 449.1 573.8 645.4 40.1 31.4 27.9 24.9 20.2 17.7 14.4 15.9 16.1 21.4 23.7 24.0

Eicher Motors (EICMOT) 26900 35600 Buy 72656 725.5 1114.9 1325.3 37.1 24.1 20.3 28.2 21.3 16.9 39.1 36.9 34.6 29.9 31.3 28.1

Exide Industries (EXIIND) 262 300 Buy 22279 8.2 10.1 12.4 31.8 25.9 21.2 18.1 15.2 12.5 19.1 20.1 21.9 13.0 14.2 15.5

Hero Moto (HERHON) 3483 4300 Buy 69563 185.1 221.9 254.2 18.8 15.7 13.7 12.8 10.8 9.0 43.7 43.9 44.0 32.1 32.7 31.7

JK Tyre & Ind (JKIND) 122 150 Hold 2769 2.9 14.6 24.3 42 8.3 5.0 10.8 6.7 4.9 7.8 12.0 15.7 3.7 14.9 20.4

Mahindra CIE (MAHAUT) 254 280 Buy 9603 9.5 13.4 16.5 26.8 19.0 15.4 13.0 10.1 8.2 9.8 12.0 13.0 11.2 13.9 16.1

Maruti Suzuki (MARUTI) 9419 10500 Buy 247180 255.6 340.0 403.6 34.2 25.7 21.6 21.8 17.5 14.5 25.9 28.2 28.5 18.5 21.0 21.1

Motherson (MOTSUM) 287 335 Hold 60435 7.6 12.0 14.5 37.8 24.0 19.9 13.9 10.0 8.1 16.3 23.5 27.0 17.4 24.2 24.5

Tata Motors (TELCO) 253 430 Buy 76001 26.8 35.4 43.6 11.2 8.5 6.9 3.7 3.1 2.5 10.5 11.8 12.8 10.3 13.5 14.0

Wabco India (WABTVS) 6776 7700 Hold 12874 143.8 174.2 213.9 47.1 38.9 31.7 34.0 28.7 23.1 17.9 18.2 18.4 25.1 25.4 25.8

Sector / Company

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

Source: Company, ICICI Direct Research * All financial numbers incorporate merger assumption completed


RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct 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]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


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