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201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Z.F.STEERING GEAR (INDIA) LTD - (ZFSTEER) 19th August, 2011
Name of the Shareholder
"Public" and holding more than 1% of the Total No. of Shares
No. of Shares Shares as % of Total No. of Shares
Urmil Gopani 136,877 1.51% Total 136,877 1.51%
Promoters, 73.26%DII, 0.09%
Others, 26.65%
Shareholding pattern as of June 2011
Stock Metrics BSE Group B BSE Code 505163 Market Capitalization Rs.274 cr. Face Value Rs. 10 52 Wk High (BSE) Rs. 519 ( 16 Sept 11 ) 52 Wk Low (BSE) Rs. 274.50 ( 21 Mar 11 ) CMP as on 19th August 2011 Rs.303 Accumulation Level Rs. 280- 300 Target Price & Potential Upside Rs. 395 ie 30%
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
About ZF Steering
ZF Steering Gear (India) Ltd (ZFINDIA) a Pioneer in Manufacturing and Supply of Ball and Nut
Integral Hydraulic Power & Worm and Roller Mechanical Steering System in India and having joint
venture with M/s. ZF Lenksysteme GmbH. The plant is located at village Vadu Budruk, Taluka- Shirur,
28 Km away from Pune on Pune - Ahmednagar Highway, in the western part of India. Pune is a major
automotive hub with OEM like Daimler India, Force Motors, General Motors, Mercedes Benz, Mahindra
Navistar, TATA Motors, Volks Wagen, etc.
In FY 2010-11, the Company has expanded its installed capacity of Power Steering Gears to 3 lakh units
per annum and Mechanical Steering Gears to 2 lakh units per annum at its existing factory at Vadu
Budruk.
As continuous initiative for clean environment, company has been investing in Green Energy projects.
Earlier, the company has invested in Wind-Power projects. The company had applied for 5 MW Solar
Project under the Gujarat Government's Solar Power Policy, as Solar radiation over Gujarat has maximum
intensity in India and the average rainfall is scanty in most parts of the state, hence best suited for solar
power generation.
• The automotive paradigm is shifting from Europe to Asia. Growing markets like India are
increasingly becoming important and becoming primary markets for most European countries.
SIAM (Society of Indian Automobile Manufacturers) have forecasted 18-21% growth for Light
Commercial Vehicles, 16-18% growth for Passenger Cars, 12-14% growth for Utility Vehicles
and 10-12% for Heavy Commercial Vehicles in 2011-12 over the previous year.
Outlook for the company
• This Project will enable the company to generate clean energy, which will be a small contribution
from the company to the Government's clean energy drive and it will also help the company in
reducing Income Tax outgo in the current year and the next year.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
• Ball and Nut Integral Hydraulic Power Steering Gears for Heavy Commercial vehicles.
ZF Steering Product Range
• Integral hydraulic Power Steering Gears for Medium and Light Commercial Vehicles.
• Power steering gears for SUV and off road vehicles.
• Vane pumps - used in power steering, automatic transmission pumps
• Oil reservoirs – oil tank
• Steering columns.
• Drop arms.
• Intermediate shafts.
• Universal joints.
• Bevel gear boxes.
• Worm and roller mechanical Steering systems for Tractor and Light Commercial Vehicle and all
accessories for the same.
• Power Rack and Pinion steering system for Passenger Car.
• Mechanical Rack and Pinion Steering System for One Toner Passenger and Goods Carrier.
• The growth of middle class with increasing purchasing power along with strong growth of
economy over a past few years have attracted the major auto manufactures in Indian
market. The market linked exchange rate and availability of trained manpower at competitive
cost have further added to the attraction of Indian domestic market.
Auto Ancillary Sector outlook
• The increasing competition in auto companies has not only resulted in multiple choices for the
Indian consumer at competitive costs, it has also ensured an improvement in productivity by
almost 20% a year in auto industry, which is one of the highest in Indian manufacturing sector.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
• Growth in the automobiles segment is likely to moderate in 2011-2012, due to rise in car
ownership costs and high interest rates due to recent increase in repo & reverse rates by RBI on
26th July 2011. Consequently, the growth in production of auto components will moderate to
15-17 percent in 2011-2012. Automobile OEM segment is expected to grow by 16-18 percent
and automobile exports are likely to grow by 19-21 percent during this period.
• A recent ACMA report puts the turnover of the auto component industry at about US$ 26
billion in 2010-11, up 18 per cent from US$ 22 billion in 2009-10.
• India is among the most competitive manufacturers of auto components in the world. Auto
component industry in India has potential to grow at a CAGR of 13% to reach US$40
billion by 2015.
• As per CARE research report the domestic sales are expected to grow at Compounded
Annual Growth Rate (CAGR) of 20.6 per cent from Rs.106,000 crore in 2009-10 to
Rs.270,000 crore in 2014-15, exports are expected to witness CAGR of 22.2 per cent from
Rs. 22,000 crore to Rs. 60,000 crore during the same period. The volume growth is expected
around 12-13 per cent, while realizations would augment at a CAGR of 7-8 per cent during the
same period. The off-take for drive transmission and steering components is likely to grow at a
healthy CAGR of 18 – 20% from the current level of Rs.18,000 crore.
• Competition amongst the original equipment manufacturers (OEMs) is intensifying on one
hand and input costs are likely to inch upwards on the other. In the battle-field for
garnering market share, the OEMs would be forced to sacrifice some part of their
profitability. In this light, CARE Research foresees the EBITDA margin of the OEMs to
come down in the next 15-18 months. With strong bargaining power of the consolidated
automobile industry, pressure is expected to trickle down to the fragmented component
manufacturing industry. This is the primary factor that would drive down the margin for the
component manufacturers in addition to the rising input costs.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Source: SIAM
0
10000
20000
30000
40000
50000
60000
FY 07FY 08
FY 09FY 10
FY 11FY 12 E
31080 35430 40141 4649254835 59580
India's Per Capita Income in (Rs)
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
FY 07FY 08
FY 09FY 10
FY 11FY 12 E
11,087,997
10,853,93011,172,275
14,057,06417,916,035
22,335,012
India's automobile production trend (units)
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Valuable customers
Power Steering Gear:
Tata Motors, Ashok Leyland, Force Motors,Diamler,Eicher Motors, Swaraj Mazda, Volvo India, Man – Force Trucks,M&M
Mechanical Steering Gear:
Force Motors, TAFE (Eicher Motors), Escorts, International Tractors, M&M, New Holland Tractors, Punjab Tractors, SAME Tractors, ACE
Domestic Market Share of Auto Sector for 2010-11
Passenger Vehicles, 16.25
%
Commercial Vehicles, 4.36%
Three Wheelers, 3.39
%Two Wheelers, 76.00
%
Segment wise Market Share in 2010 - 2011
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Operational performance – Increasing Capacity Utilization
FY 09 FY 10 FY 11 Capacity Installed Hydraulic Power Steering 270,000 270,000 300,000 Mechanical Steering 140,000 140,000 200,000 Production Hydraulic Power Steering 105,545 138,330 201,038 Mechanical Steering 79,658 123,426 155,870 Capacity Utilization (%) Hydraulic Power Steering 39.10% 51.20% 67.01% Mechanical Steering 56.90% 77.10% 77.94%
Market Value of Investments (as of 16th August 2011)
Investment value per share
Rs. 86.18 crores
Computation of cash per share
Particulars Rs in crores Market Value of Investments 86.18 Cash lying in Balance Sheet 2.16 Less: Loan Liability 30.74 Liquid cash available 57.60 Cash value per share 63.49
With the cash value per share being as high as Rs 63.49 per share, this provides significant cushion to the shareholders thereby capping the downside to a large extent.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
5 Years Highlights
251.6 258.0
188.1
234.5
328.9
0
50
100
150
200
250
300
350
FY 07 FY 08 FY 09 FY 10 FY 11
Turnover (Rs. cr)
89.9
109.1116.0
135.6
165.9
0
20
40
60
80
100
120
140
160
180
FY 07 FY 08 FY 09 FY 10 FY 11
Networth (Rs. cr)
27.6 27.8
14.3
28.7
40.9
0
5
10
15
20
25
30
35
40
45
FY 07 FY 08 FY 09 FY 10 FY 11
Netprofit (Rs. cr)
CAGR 6.93% CAGR 10.33%
CAGR 16.55%
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
8.3 8.57.4
9.0
10.6
0
2
4
6
8
10
12
FY 07 FY 08 FY 09 FY 10 FY 11
Dividend payout (Rs.cr)
101.9110.8 112.6
139.4
156.3
0
20
40
60
80
100
120
140
160
180
FY 07 FY 08 FY 09 FY 10 FY 11
Fixed Assets Gross Block (Rs. cr)
CAGR 6.28%
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Q1FY12 Performance
Particulars
Q1 FY12 Q1 FY 11 Q4 FY11 YoY (%) QoQ (%)
Net Sales 81.7 64.69 86.04 26.29% -5.04% Other Operating Income 0.35 0.54 0.75 -35.19% -53.33% Total Income 82.05 65.24 86.79 25.77% -5.46% Expenditure a) (Inc)/dec in stock-in-trade 0.32 -1.38 0.43 -123.19% -25.58% b) RMC 52.91 42.83 54.65 23.53% -3.18% c) Purchase of traded goods 0.17 0.09 0.23 88.89% -26.09% d) Employees cost 6.65 5.5 5.38 20.91% 23.61% e) Other expenditure 3.4 3.28 7.83 3.66% -56.58% Total 63.44 50.33 68.52 26.05% -7.41% EBIDTA 18.61 14.91 18.27 24.82% 1.86% Depreciation 3.44 3.26 4.02 5.52% -14.43% EBIT 15.17 11.65 14.25 30.21% 6.46% Interest 0.04 0.06 0.14 -33.33% -71.43% Other Income 2.23 4.35 1.51 -48.74% 47.68% PBT 17.36 15.94 15.62 8.91% 11.14% Tax 5.3 4.13 4.69 28.33% 13.01% PAT 12.06 11.81 10.93 2.12% 10.34% Excess Income Tax/depreciation of earlier years written-back
0 0 0
Adjusted PAT 12.06 11.81 10.93 2.12% -10.37% Equity (FV-Rs.10) 9.07 9.07 9.07 EPS (Rs.) 13.3 13.01 12.05 2.23% -10.37%
11.47
29.76 26.31
47.78
28.55
0102030405060
FY 07 FY 08 FY 09 FY 10 FY 11
Operating Cash flow (Rs. cr)
CAGR 25.61%
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
• The net revenue increased by 26% YoY to Rs.81.70 crores
Q1FY 11 results highlights:
• The EBIDTA and PAT increased by 24.78% and 2.12% to Rs. 18.61 crores and Rs. 12.06 crores
respectively.
• The overall Commercial Vehicles segment, in the country, has registered a growth of 14 percent
during April-June 2011 over the same period last year. While Medium & Heavy Commercial
Vehicles (M&HCVs) registered marginal growth of 5 percent, Light Commercial Vehicles grew
at 22 percent. However, due to higher commodity prices, margins are under pressure.
• ZF Steering Sales figures Q1FY12
Particulars Q1FY12 Q1FY11 Q4FY11
Power Steering Gears – CV/MU / BUS 48,919 (+26 %) 38,898 51,981
Rack & Pinion Steering Gear Power 4,016 (-9 %) 4,405 5,800
Mechanical Steering Gear 44,267 (+29 %) 34,204 42,779 Initiative in Green Energy During FY12 the Company will complete its 5 MW Solar Power Project at Gujarat at total cost of Rs. 70 to 72 crore. Its first full year of commercial operation can add Rs. 11 to 13 crore to the Income plus carbon-credit benefits etc., which once commissioned, will not have much recurring costs. The Company already has 6.7 MW Wind Mills for its captive power consumption.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Income Statement
Financials
FY 10 FY 11 FY 12 E
Net Sales 216.12 298.22 342.95
Other Operating Income 1.24 2.38 1.5
Total Income 217.36 300.60 344.45
a) (Inc)/dec in stock-in-trade 1.65 -1.48 (3.00)
b) RMC 139.95 192.86 221.20
c) Purchase of traded goods 0.51 0.59 0.80
d) Employees cost 17.49 23.33 28.60
e) Other expenditure 13.34 19.44 19.00
Total 172.94 234.74 266.60
EBIDTA 44.43 65.86 77.85
Depreciation 7.61 14.87 15.50
EBIT 36.81 50.99 62.35
Interest 0.13 0.25 0.45
Other Income 4.62 7.49 8
PBT 41.30 58.23 69.90
Tax 13.07 17.33 23.21
PAT 28.23 40.90 46.69
Excess Income Tax/depreciation of earlier years written-back 0.43 0.01 0.07
PAT 28.66 40.91 46.76
Equity Share Capital (FV-Rs.10) 9.07 9.07 9.07
EPS (Rs.) 31.59 45.09 51.54
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Balance sheet
Particulars FY 10 FY 11 FY 12 E
- Share Capital 9.07 9.07 9.07
- Reserves & Surplus 126.49 156.84 191.72
Total 135.57 165.91 200.80
Loan Funds 28.41 30.74 35.35
Deferred Tax Liabilities (net) -0.23 1.61 1.61
Total 163.75 198.25 237.75
Fixed Assets(Including Capital Advance/Capital WIP) 51.75 73.46 95.89
Investments 90.37 83.08 75.50
Inventories 21.05 30.99 41.50
Sundry Debtors 21.33 31.19 44.10
Cash and Bank Balances 3.84 2.16 6.36
Loans and Advances 6.00 9.26 13.90
Less: Current Liabilities & Provisions
- Current Liabilities 21.18 22.37 28.00
- Provisions 9.41 9.51 11.5
Total 163.75 198.25 237.75
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
Ratios FY 10 FY 11 FY 12 E
ROCE% 22.45% 25.93% 26.40%
ROE % 21.14% 24.66% 23.29%
Interest Coverage Ratio (x) 278.89 201.55 138.55
Debt/Equity (x) 0.21 0.19 0.18
Operating Margin % 20.44% 21.91% 22.60%
Net Profit Margin % 13.19% 13.61% 13.58%
Inventory Days 54.69 58.47 68.23
Debtor Days 36.02 38.17 46.94
Creditor Days 35.20 26.85 19.09
BVPS 149.42 182.86 221.31
DPR % 3.40% 3.09% 3.40%
Current Ratio 0.20 0.29 0.35
EV 258.25 322.13 322.54
EV/Sales 1.19 1.08 0.94
EV/ EBITDA 5.81 4.89 4.14
PE ratio (x) 8.15 7.18 5.87
Price/Book Value (x) 1.72 1.77 1.37
Price/Revenue per share (x) 1.08 0.98 0.80
Asset Turnover Ratio (x) 1.33 1.52 1.45
Raw material / sales 64.76% 64.67% 64.50%
Employee cost/ sales 8.09% 7.82% 8.34%
Other expenses / sales 6.17% 6.52% 5.54%
Operating cash flow/ sales 22.10% 9.57% 8.98%
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
• The net revenue increased by 38% YoY to Rs. 298.22 crores due to high sales volume in FY 11.
FY 11 results highlights:
• EBIDTA and PAT increased by 48.24% and 42.72% respectively in FY 011. Even though there
were margin pressures across the industry company is able to improve its operating margin
and PAT margin. The company has maintained the operating margin at 21%.
• The EPS increased from Rs.31.59 to Rs.45.09.
• Depreciation was higher at Rs. 149 million against Rs. 76 million (previous year) in view of the
full year's depreciation on the 5 MW Wind Turbine Machines commissioned in March 2010.
• The company has recently acquired a leasehold plot of land at MIDC Talegaon Industrial Area.
• The company is examining various opportunities in respect to the plot.
Comparative quantitative figures of sales are as under:
Type (numbers) 2010 – 2011 2009 – 2010 Growth Power Steerings 180,639 121,342 49%
Mechanical Steerings 155,937 124,151 26% Rack & Pinion 20,430 17,225 19%
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
•
Growth Triggers
ZF Steering is a supplier of power steering with little competition in the HCV segment and stands to gain
from this up cycle. A 34% sales volume growth in buses to 43,081 units and 23% growth in trucks to
201,977 units in FY10 resulted in a 34% growth in Heavy Commercial Vehicles (HCV) sales to 245,058
units If Power steering becomes mandatory in the LCV segment, there will be additional growth in
volumes for ZF Steering.
Volume benefits from CV up cycle with added upsides if LCVs convert
•
Key clients such as Tata Motors Ltd., Force Motors Ltd., Ashok Leyland Ltd. and Volvo India Pvt. Ltd.
control more than 95% of the commercial vehicles market in India. Our estimates for Tata Motors for
FY11 and FY12 stand at 30% and 14% growth, while Ashok Leyland has guided for volumes of 95,000
CVs in FY11 vs. 65000 in FY10. Almost 65% of the Tata Motor’s demand and 35% of Ashok Leyland's
demand is met by ZF. Given the strong growth for key customers, ZF Steering is likely to see strong
demand for its products over FY10-FY12.
Key clients to see strong growth over FY10-FY12E.
•
As of March 2011 the company had cash per share of Rs 64 per share and cash & investment stood at Rs.
85 crores. Some of this cash will be used to add capacity for new products that will expand the company's
offering to its customers. We expect company to pay 21% of EPS as dividend in FY 12.
Large Cash and Cash equivalent would lead to stronger ROE.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
• Automobile industry, however, is very interest-sensitive. Current inflation is threatening to plunge economy into crisis. Crude oil average crude prices over $100 a barrel and high metal prices could further accelerate inflation and interest-rates. RBI, through its recent policy-announcement, has manifested that the priority is to rein in headline inflation, even at the cost of lower growth going forward.
Risk & Concerns
• The concerns for the company would be fluctuating rupee, as it imports some of the raw materials and weaker rupee can increase its cost of imports and thereby affect its margins.
• Cheaper imports from China and the unorganized segment is another area of concern for the
company. However, this concern is more in the replacement market.
• Increasing and volatile prices of inputs like steel bars and tubes could adversely affect its margins.
• Economic conditions and continuous interest rate hike have hampered the demand of automobiles in India.
• Cyclical nature of the automobile industry in general and commercial vehicle industry, on which the company is primarily dependent on, in particular is also a concern for the company.
We recommend “Accumulate” between Rs 280 - 300 with the upward price potential of Rs.395/- at 7.66xFY12 E in next 12 – 18 months indicating 30% upside from current price levels.
Valuation:
Continuous growth in the Automobile industry in India would lead to increase in the growth of auto
ancillary industry. There is a huge demand of low cost auto ancillary product globally. So in India there is
a great opportunity for auto ancillary industry to expand. ZFINDIA is in the process of manufacturing and
designing of Hydraulic Power Steering and Mechanical Steering.
The stock continues to be attractively valued at 7.18xFY11 and 5.87xFY12 E earnings and close to 3.58%
dividend yield for FY12. Cash and investment balance stood at Rs.85 cr and cash per share is Rs.64.
Current valuations factor in a slowdown in the commercial vehicle industry, which is likely to be negated
by new product introduction.
201, Viraj Tower, Near Land mark Building, Western Express Highway, Andheri (E), Mumbai-69 2
For Any Queries please feel free to contact our Institutional Team
Names Designation E-Mail Id. Contact
Nagji Rita CMD - -
Sales
Ravinder Kasliwal Head Institutional Sales 40751565/66 [email protected]
Dealing
Shiv Damani Institutional Dealer 22723797 [email protected]
40751565/66
Vinit Rita Institutional Dealer [email protected] 40751565/66
Rashda Ainapore Institutional Dealer
Research
Mitesh.shah Research Analyst 40751515 *
562
Divya Kant Research Analyst 40751515 [email protected]
Akbar Shah Research Analyst 40751515 [email protected]
Sheetal Nirmal Research Analyst 40751515 [email protected]
Sanjeev Haria Research Analyst 40751515 [email protected]
Sibayan Banerjee Technical Analyst 22723797 [email protected]
Ashok Patel Technical Analyst 22723797 [email protected]
Madhu Patel Technical Analyst 22723797 [email protected]
Disclaimer
Inventure Growth & Securities Ltd has prepared this Document. The information, analysis and estimates contained herein are based on
Inventure’s assessment and have been obtained from sources believed to be reliable. Neither Inventure Growth & Securities Ltd nor any of its
employees or associates accepts any liability whatsoever direct or indirect that may arise from the use of information herein and shall not be
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