Apollo Tyres (APOTYR) | 283content.icicidirect.com/mailimages/IDirect_ApolloTyres_Q... · 2018-05-14 · Apollo Tyres Ltd -2.4 3.4 18.6 21.5 JK Tyres -9.8 -17.5 -2.4 -14.5 ... Average

May 14, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Healthy volume driven growth!

Apollo Tyres’ (ATL) Q4FY18 consolidated revenues were at | 4,031

crore (up 21.2% YoY) above our estimate of | 3,890 crore. Revenues

(adjusting excise duty) from Asia Pacific Middle East and Africa

(APMEA) increased ~18.8% YoY to | 2,883 crore while revenue from

Europe increased 22.2% YoY to | 1208 crore

EBITDA margins came in at 12.8% (up 166 bps YoY, 52 bps QoQ)

below our estimate of 13%. Margins on a QoQ basis were higher

mainly due to lower raw material cost (average natural rubber price

were down 0.3% QoQ to | 125/kg, which expanded the gross margin

by 110 bps QoQ) & lower other expense (down 130 bps QoQ).

However, the same was partly offset by higher employee expense

(up 188 bps QoQ). Consolidated PAT increased 9.6% YoY to | 250

crore below our estimate of | 256 crore

On a standalone front, ATL’s revenue increased 19.2% YoY to

| 2,841 crore (our estimate of | 2774 crore). EBITDA margins came in

at 14.2% (up 257 bps YoY, 45 bps QoQ) above our estimate of

14.1%. Subsequently, standalone PAT came in at | 223.7 crore (up

26.9% YoY) above our estimate of | 213 crore

The FY19E outlook remains strong in terms of demand while it may

witness some pressure on the margin front in the near term

Strong demand momentum seen in FY18 to continue

In FY18, ATL reported healthy revenue growth of ~13% YoY, mainly led

by the strong volume growth in its Indian operations. Demand in the

Indian operations was strong on both OEM & replacement front as

overloading restriction & revival in infrastructure space resulted in higher

demand for heavier tonnage vehicle supported the former (OEM) growth

while imposition of anti-dumping duty on Chinese tyres (imports decline

by 40% YoY in FY18) & improvement in fleet operator’s activity post GST,

supported the latter (replacement) demand. We expect the strong

demand momentum to continue over the next couple of years and is

likely to benefit ATL as it is one of the largest player with the market share

(>25%) in the T&B space. Further, it is also well placed to benefit from the

radialisation story in India. For Q4FY18, the revenue from India grew 20%

YoY, with volume growth of ~17% YoY. The gradual ramp up of

production in Hungary is expected to revive its European operations.

Crude derivatives inflation to be passed on over medium term

Natural rubber accounts for ~40% of its overall raw material cost and is

expected to remain stable in the near to medium term. However, ~45%

of other inputs (synthetic rubber, fabric, carbon black, etc) are crude

derivatives, where ATL is witnessing some commodity inflation. Though

industry (including ATL) historically has passed on rise in input cost to

consumers, the management believes that some pressure may be seen in

the near term (Q1FY19E margins may get impacted). Further, its

European operations start-up cost are largely over in FY18 and the

business will contribute significantly from FY19E onwards. Thus, we

expect ATL’s margins to gradually move northward, going forward.

Decent business case; valuation remains fair!

ATL is investing in more diversified, rapid growth areas coupled with a

larger scale of business in coming years. The management expects

demand momentum to continue, going forward. Its margins are expected

to gradually move northwards thereby driving profitability. Thus, we

maintain BUY rating and value the stock at 13x FY20E EPS to arrive at a

target price of | 325.

Rating matrix

Rating : Buy

Target : | 325

Target Period : 12 months

Potential Upside : 15%

What’s Changed?

Target Changed from | 300 to | 325

EPS FY19E Changed from | 21.2 to | 19.9

EPS FY20E Unchanged

Rating Unchanged

Quarterly Performance

(| Crore) Q4FY18 Q4FY17 YoY Q3FY18 QoQ

Revenues 4,031.3 3,325.6 21.2 4,050.1 -0.5

EBITDA 515.2 369.9 39.3 496.4 3.8

EBITDA (%) 12.8 11.1 166 bps 12.3 52 bps

Reported PAT 250.1 228.2 9.6 245.3 2.0

Key Financials

| Crore FY17 FY18E FY19E FY20E

Net Sales 13,063 14,674 16,979 18,892

EBITDA 1,846.4 1,651.3 2,351.0 2,774.0

Net Profit 1,099.0 723.9 1,136.4 1,427.6

EPS (|) 19.2 12.7 19.9 25.0

Valuation summary

FY17 FY18E FY19E FY20E

P/E (x) 14.7 22.3 14.2 11.3

Tgt P/E (x) 16.9 25.7 16.4 13.0

EV/EBITDA (x) 10.1 11.3 7.9 6.5

P/BV (x) 2.2 1.7 1.5 1.4

RoNW (%) 15.1 7.4 10.6 12.0

RoCE (%) 13.6 7.8 11.1 12.6

Stock data

Particular Amount

Market Capitalization (| Crore) | 16132 Crore

Total Debt (FY18) (| Crore) 4,445.7

Cash & Investments (FY18) (| Crore) 1,339.0

EV (| Crore) 18,639.2

52 week H/L (|) 307 / 218

Equity capital (| crore) | 57.2 Crore

Face value (|) | 1

Price performance (%)

1M 3M 6M 12M

Apollo Tyres Ltd -2.4 3.4 18.6 21.5

JK Tyres -9.8 -17.5 -2.4 -14.5

CEAT Ltd -10.0 -7.0 -16.9 -13.2

MRF Ltd -2.3 6.7 10.9 13.0

Balkrishna Industries Ltd -6.7 5.4 24.4 59.9

Research Analyst

Nishit Zota

[email protected]

Vidrum Mehta

[email protected]

Apollo Tyres (APOTYR) | 283

ICICI Securities Ltd | Retail Equity Research Page 2

Variance analysis- Consolidated

(| crore) Q4FY18E Q4FY18E Q4FY17 YoY (%) Q3FY18 QoQ (%) Comments

Total Operating Income 4,031 3,890 3,326 21.2 4,050 -0.5 Revenues grew 21.2% YoY after 1) domestic (India) business grew 20% YoY,

which was further attributable to strong volume growth of 17% YoY

Raw Material Expenses 2,205 2,139 1,869 18.0 2,260 -2.4 Margins on a QoQ basis were higher mainly due to lower raw material cost

(average natural rubber price were down 0.3% QoQ to |125/kg, which

expanded the gross margin by 110 bps QoQ)

Employee Expenses 604 510 412 46.5 530 13.8 Higher employee expense (after new employee were hired) to some extent

impacted EBITDA

Other expenses 707 737 675 4.8 763 -7.3

EBITDA 515 504 370 39.3 496 3.8

EBITDA Margin (%) 12.8 13.0 11.1 166 bps 12.3 52 bps EBITDA margin on a YoY and QoQ basis was positive

Depreciation 177 152 137 29.5 151 16.8 Capacity expansion resulted into higher than estimated depreciation

Interest 47.6 39.6 24.8 92.0 41 16.0

Other income 43.7 42.8 50.0 -12.5 46.4 -5.7

Tax 84.4 99.6 30.3 178.5 105 -19.7

PAT 250.1 256.1 228.2 9.6 245.3 2.0 PAT came in marginally below our estimates

EPS (|) 4.4 4.5 4.0 9.6 4.3 2.0

Key Metrics

Revenue (| crore)

India 2,883 2,427 18.8 2,702 6.7 Revenue grew 20% YoY; as volume grew 17% YoY in Q4FY18

Europe 1,208 988 22.2 1,399 -13.7 Its European operations (manufacturing) volumes grew 13% YoY

EBIT Margin (%)

India 11.9 9.5 246 bps 11.7 21 bps Margins improved QoQ

Europe 1.7 3.9 -225 bps 4.1 -243 bps Higher start up cost on YoY basis (employee and other expense) impacted

margin of its European operations

Source: Company, ICICI Direct Research

Change in estimates

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

Revenue 16,626 17,198 3.4 18,227 19,140 5.0 We revise our revenue estimates upwards; assuming strong demand from both

OEM and replacement market in the Indian market, which is likely to benefit ATL

EBITDA 2,288 2,351 2.8 2,626 2,774 5.6

EBITDA Margin (%) 13.8 13.7 -9 bps 14.4 14.5 9 bps

Margin estimates revised marginally lower for FY19E; in line with management

expectation of some pressure might be seen in H1FY19E due to higher raw

material price (crude linked products)

PAT 1,211 1,136 -6.2 1,430 1,428 -0.2 PAT estimates for FY20E largely unchanged; as revision in depreciation expense is

offsetting the higher revenue estimates

EPS (|) 21.2 19.9 -6.2 25.0 25.0 -0.2

FY19E FY20E

Source: Company, ICICI Direct Research;


Key conference call takeaways

The outlook for FY19E remains strong for India and would be similar

to that of FY18. ATL witnessed a good demand environment in India.

It witnessed a strong revival in the CV segment, market share gains

across segments while dealer expansion continues for ATL

The company is de-bottlenecking its capacity, ramping up the

Chennai plant and has already started working on the Andhra Pradesh

plant (started ordering the required machinery) and expects the same

to commence in H2FY20E. The Andhra Pradesh plant will have an

initial capacity of 16,000 car tyres/day and over 1500 TBR tyres/day

Higher crude prices have resulted in an increase in some crude

derivatives that are key raw material for ATL. Thus, some pressure

will be seen in Q1FY19 margins. The management has guided that

industry traditionally has passed on the same, (price hike of ~2%

taken in May 2018). Thus, margins are expected to move gradually

higher, going forward

Employee cost is up ~47% YoY & ~14% QoQ, as ATL is ramping up

the Chennai and Hungary operations were the company requires

more manpower.

According to the management, capex for FY18 was at | 1700-1800

crore. For FY19E ATL is yet to finalise the spend as the management

has guided that the existing capacity expansion will result in spend in

excess of > | 1000 crore. However, Andhra Pradesh capex plans are

yet to be finalised for FY19E

For Q4FY18, the standalone business (India) grew ~20%, as volume

grew ~17% YoY. According to the management, ATL’s volume

growth in Q4FY18 in TBR was double digit, Cars segment grew 10%

YoY while 2-W volumes grew 60% YoY

For Q4FY18, European revenues grew >20% YoY to | 1208 crore, of

which manufacturing business (Dutch and Hungary) volumes (car

tyres) grew 13% YoY. The revenue from Reifencom (distribution

business) was at €34 million (mn). The blended margin of European

business is ~7.8%, with manufacturing business margin >10% while

Reifencom posted negative EBITDA

On the capacity expansion front – Its TBR capacity is expected to

increase from current 10,000 tyres/day to 12,000 tyres/day by

Q2FY19. TBR average production in FY18 was at 8,000 tyres/day. The

Hungary plant year end capacity is expected to increase from 6,500

tyres/day in FY18 to 13,000 tyres/day in FY19

Average landed cost for various raw material for Q4FY18 is at – NR at

| 130/kg, synthetic rubber | 120/kg, and carbon black at | 70/kg


Company Analysis

Global player – with good business diversification across geographies!

A quick glance at Apollo’s consolidated performance shows an increase

in contribution of the European subsidiary from FY10 onwards. Revenue

from Europe has increased from ~24% in FY10 to ~30% in FY15. The

share had dropped to 27% in FY16 primarily due to internal factors

(namely implementation of SAP impacting sales volumes, resulting in

increase in inventory and working capital) and due to external factor

(unfavourable winter season and currency movement). However, the

management remained optimistic on demand, which recovered in FY17

along with large part of internal issues sorted out thereby increasing its

share back to 30%. In terms of segment mix, replacement: OEM share

was at 77: 23 respectively. In the category mix, T&B accounts for 42% of

its revenue, PV accounts for 40% of revenue while the remaining 10%,

6%, 2% is derived from off-highway, LCV & other segments, respectively.

Exhibit 1: Revenue break-up - Geography-wise 5,490

8,158

8,507

8,712

8,938

8,682

8,934

10,300

11,808

13,393

2,234

2,850 2,992

3,943 4,032 3,284

4,091

4,630

5,171

5,498

1,183

1,308 1,502

1,271 321

-

-

-

-

-

3,000

6,000

9,000

12,000

15,000

18,000

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18E

FY19E

FY20E

(| crore)

India Europe South Africa


Exhibit 2: Profitability contribution - Geography-wise

413

499

736

930

1,106

1,346

1,179

1,005

1,220

1,596

298

386

432 5

57

479

256

307

99 1

02

106

-

400

800

1,200

1,600

2,000

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

(| crore)

India Europe



Revenue growth strong on radial TB side!

We factor in revenue growth at ~14% CAGR in FY18-20E, mainly led by

volume. We believe domestic demand will improve on the back of

radialisation trend in the truck bus segment. The radialisation trend has

promoted companies for higher capacity within the segment in India.

ATL’s truck bus radial (TBR) capacity is currently operating at >90%

utilisation level. Therefore, it is expanding its capacity from 6,000 units to

12,000 units in a phased manner. Further, the imposition of anti-dumping

duty on Chinese tyres will favour domestic tyre players (specifically ATL

that is the market leader in the T&B segment). ATL has also smartly used

its nylon capacity (that was underutilised given the radialisation trend)

and is producing off-highway tyres, which has resulted in strong growth

in FY18.

Exhibit 3: We expect revenue growth at ~14% CAGR in FY18-20E

8,868

12,153

12,795

13,413

12,785

11,849

13,180

14,841

17,198

19,140

9.2

37.0

5.3 4.8

-4.7

-7.3

11.212.6

15.9

11.3

-15

-10

-5

0

5

10

15

20

25

30

35

40

-

3,000

6,000

9,000

12,000

15,000

18,000


(%

)

(| crore)

Sales % growth


Margins to improve from here on!

ATL’s margins have expanded from 9.6% to 15.1% from FY12 to FY15

and further increased to 16.7% in FY16 on the back of a reduction in raw

material prices. Prices of natural rubber (NR - account for ~40% of raw

material cost) declined from | 250/kg in 2011 to ~| 94/kg in February

2016. However, from its lows in February 2016, the price moved upwards

to | 159/kg in February 2017 and is currently at | 122/kg in May 2018.

According to the management, margins have improved in H2CY17 mainly

after the high cost raw material procured in the past was largely

consumed in H1CY17. The management expects natural rubber prices to

remain stable. However, the recent surge in crude price may impact the

prices of its other raw material like synthetic rubber, fabric, carbon black

etc. Thus, margins may slightly get impacted in Q1FY19. However, with

industry enjoying pricing power, it is likely to pass on the same, going

forward. Further, the European operations start-up cost are largely over in

FY18 and the business will contribute significantly from FY19E onwards.

A better product mix (higher share of radial tyre) will support margins,

going forward.


Exhibit 5: Margin movement with RM trend

57.2

56.7

56.0

52.4

56.9

50.8

53.4

49.5

49.9

49.2

51.9

52.7

57.2

59.8

58.0

56.3

55.4

14.313.2

14.9

15.8

16.6

17.7

16.1

17.2

16.016.3

14.2 14.4

11.1

8.3

10.5

12.312.8

36

40

44

48

52

56

60

64

4

6

8

10

12

14

16

18

20

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

(%

)

(%

)

Raw materials/Sales Contribut ion OPM (LHS)


Exhibit 6: Natural rubber prices have been volatile!

191

94

160

80

100

120

140

160

180

200

220

240

260

Jan-12

Jun-12

Nov-12

Apr-13

Sep-1

3

Feb-14

Jul-14

Dec-14

May-15

Oct-15

Mar-16

Aug-16

Jan-17

Jun-17

Nov-17

Apr-18

(|/Kg)

Production cut by top natural rubber

producing countries like Thailand,

Indonesia and Malaysia led to rise in

NR prices

Floods in Thailand & demand

from China led NR prices to

move northwards


Exhibit 4: EBITDA margins to recover, going forward

978

1,166

1,457

1,876

1,931

1,997

1,846

1,651

2,351

2,774

11.0

9.6

11.4

14.0

15.1

16.9

14.0

11.1

13.7

14.5

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

-

500

1,000

1,500

2,000

2,500

3,000


(%

)

(| crore)

EBITDA EBITDA Margins (%)



Strong capital structure in capital intensive, cyclical business!

Despite the capital intensiveness and cyclicality of the business, ATL has

managed to maintain a decent balance sheet strength. With FY18, D/E at

comfortable 0.5x levels, we believe this is the company’s greatest

strength in the good RoCE business. The company has a huge expansion

plan of over >| 10,000 crore in FY17-20E. For FY18, its capex is likely to

be at >| 1,700 crore, (of which an investment of ~€180 million in Europe

would serve the rising demand). To fund this huge capex, ATL on

October 10, 2017 issued 6.3 crore equity share at a price of | 238/share to

qualified institutional buyers thereby aggregating | 1,500 crore. According

to the management, post this issue ATL will be in a comfortable position

to meet its major requirements and will not raise debt, going forward.

Exhibit 7: Comfortable debt position in high RoCE business!

0.8 0.8

0.7

0.2

0.0 0.0

0.3

0.3 0.2

0.2

14.8 15.1

17.6

23.2

24.7

18.8

13.6

7.8

11.1

12.6

-

5

10

15

20

25

30

-

0.2

0.4

0.6

0.8

1.0


(%

)

(x)

Nebt Debt/Equity RoCE


Exhibit 8: CFOs on up trend!

295

387

773

1,534

1,795

1,683

1,475

1,457

1,910

2,108

1,042

907

533

433

784

1,171

3,847

3,479

1,800

1,500

2,222

2,550

2,651

1,613

801 1,389

3,245

4,446

4,446

4,146

-

400

800

1,200

1,600

2,000

2,400

2,800


(| crore)

CFO Capex Debt



Profitability to remain at elevated levels as demand returns!

With the expected demand revival, we believe volumes will improve as

OEM demand is likely to increase, thereby driving its revenue, going

forward. Further, according to the management, the margin pressure is

likely to ease out, going forward, as the benefit of low cost inventory has

started to accrue from Q2FY18 onwards thereby supporting the

bottomline. Thus, profitability is likely to remain at decent levels, with PAT

margins likely to come in at >7% from FY20E onwards.

Exhibit 10: EBITDA growth vs. interest/depreciation trend

978

1,166

1,457

1,876

1,931

1,997

1,846

1,651

2,351

2,774

185

287

313

284

183

93

103

163

196

172

272

326

397

411

411

427

462

593

697

756

-

500

1,000

1,500

2,000

2,500


(| crore)

EBITDA Interest Depreciation


Exhibit 9: Profit margins to remain as operational improvement kicks in!

440

432

601

1,044

1,015

1,091

1,099.2

723.9

1,136.4

1,427.6

5.0

3.6

4.7

7.8 7.9

9.2

8.3

6.6

7.5

2

3

4

5

6

7

8

9

10

-

200

400

600

800

1,000

1,200

1,400

1,600


(%

)

(|

crore)

PAT PAT Margin (%)

Source: Company press release, ICICI Direct Research


Outlook and valuation

In FY18, ATL reported healthy revenue growth of ~13% YoY, mainly led

by the strong volume growth in its Indian operations. The demand in the

Indian operations was strong on both OEM & replacement front. The

company is further investing in its TBR capacity (where its current

utilisation is >90% and there is a shift in trend from bias to radial tyres in

India). This is likely to drive its volume growth, going forward. Similarly, in

Europe, its new facility is slated to aid the current capacity crunch faced

by Vredestein coupled with strong domestic demand, which is expected

to improve in the coming years. With a decent D/E profile, return ratios

and strong operating cash flow, the company is much better placed in

this business cycle vis-à-vis previous up cycles due to its largely

diversified and global scale of business.

ATL is investing in more diversified, rapid growth areas coupled with a

larger scale of business in coming years. Going forward, the management

expects demand to recover mainly on the back of 1) good OEM demand;

2) revival in replacement demand 3) and after domestic player are

expected to benefit from the imposition of anti-dumping duty (ADD) on

the Chinese tyre. Hence, we build in revenue CAGR of 14% in FY18-20E.

The margins are also expected to move northwards gradually thereby

driving profitability. Thus, we maintain BUY recommendation and value

the stock at 13x FY20E EPS to arrive at a target price of | 325.

Exhibit 11: Valuation

Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE

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

FY17 13,180 11.2 19.2 (2.1) 14.7 10.1 15.1 13.6

FY18E 14,841 12.6 12.7 (34.1) 22.3 11.3 7.4 7.8

FY19E 17,198 15.9 19.9 57.0 14.2 7.9 10.6 11.1

FY20E 19,140 11.3 25.0 25.6 11.3 6.5 12.0 12.6



Recommended history vs. consensus

0.0

20.0

40.0

60.0

80.0

100.0

0

50

100

150

200

250

300

350

400

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

(%

)(|)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICI Direct Research

Key events

Date Event

Oct-10 Rubber prices start moving up on production concerns in Thailand on excessive rains

Aug-11 Rubber prices begin to stabilise as production picks up

Jun-13 Apollo announces Cooper Tire deal acquisition

Oct-13 Cooper deal under pressure on China labour strike

Oct-13 Cooper Tire files suit against Apollo

Dec-13 Cooper Tire terminates deal with Apollo; court dismisses Cooper appeal

Feb-14 Cooper Tire files suit against Apollo

Jun-14 Apollo to invest ~|400 crore at its Kerala facility to expand its Off-highway tyre capacity

Sep-14 Company to invest greenfield facility at Hungary and is likely to invest Euro 475 million over next 4 to 5 years

Sep-14 Apollo Tyre Africa voluntarily decides to cease its business operations

Oct-14 RBI hikes FII limit for investment upto 45% of paid up capital in Apollo Tyre

May-15 Apollo plans to invest |1500 crore to expand its Truck bus radial (TBR) capacity at its Chennai plant from 6000 units/ day to 9000 units/day

Aug-15 Board approves ATL's plans to raise debt of | 2,000 crore by way of rupee term loan, foregin currency term loan, NCDs from time to time


Top 10 Shareholders Shareholding Pattern

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

1 Neeraj Consultants Pvt. Ltd. 23-Mar-18 0.13 73.8 0.02

2 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Dec-17 0.08 47.7 13.58

3 Apollo Finance, Ltd. 26-Mar-18 0.07 39.4 1.64

4 Sunrays Properties & Investment Company Pvt. Ltd. 31-Dec-17 0.06 36.3 0.00

5 Sacred Heart Investment Company Pvt. Ltd. 31-Dec-17 0.04 24.4 0.00

6 ICICI Prudential Asset Management Co. Ltd. 31-Dec-17 0.04 21.0 -1.47

7 Motlay Finance Pvt. Ltd. 31-Dec-17 0.03 16.9 0.00

8 Classic Auto Tubes, Ltd. 31-Dec-17 0.03 14.5 0.00

9 HDFC Asset Management Co., Ltd. 31-Dec-17 0.02 13.5 3.53

10 Dimensional Fund Advisors, L.P. 31-Mar-18 0.02 10.8 0.01

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

Promoter 44.2 44.2 44.2 39.4 39.4

FII 31.6 27.3 24.6 26.8 26.8

DII 11.8 15.3 17.9 22.0 22.0

Others 12.4 13.3 13.3 11.8 11.8

Source: Reuters, ICICI Direct Research

Recent Activity

Investor name Value Shares Investor name Value Shares

Franklin Templeton Asset Management (India) Pvt. Ltd. 57.06 13.58 ICICI Prudential Asset Management Co. Ltd. -6.18 -1.47

Kotak Mahindra Asset Management Company Ltd. 22.34 5.32 RAM Active Investments S.A. -5.94 -1.41

Norges Bank Investment Management (NBIM) 20.12 4.79 Schroder Investment Management (Hong Kong) Ltd. -5.61 -1.40

T. Rowe Price Hong Kong Limited 19.25 4.58 Franklin Advisers, Inc. -3.26 -0.77

HDFC Asset Management Co., Ltd. 14.84 3.53 Templeton Asset Management Ltd. -2.09 -0.50

Buys Sells

Source: Reuters, ICICI Direct Research


.

Financial summary

Profit and loss statement | Crore

(Year-end March) FY17 FY18E FY19E FY20E

Total operating Income 13,180.0 14,840.5 17,197.7 19,139.6

Growth (%) 11.2 12.6 15.9 11.3

Raw Material Expenses 6,890.1 8,395.5 9,351.0 10,263.2

Employee Expenses 1,742.1 2,156.6 2,423.1 2,604.6

Other Expenses 2,701.5 2,637.1 3,072.6 3,497.8

Total Operating Expenditure 11,333.6 13,189.3 14,846.7 16,365.7

EBITDA 1,846.4 1,651.3 2,351.0 2,774.0

Growth (%) -7.6 -10.6 42.4 18.0

Depreciation 461.8 592.6 696.5 756.0

Interest 102.9 162.9 195.6 171.8

Other Income 154.1 116.5 130.6 150.6

PBT 1,435.8 1,012.3 1,589.4 1,996.7

Exceptional items 0.0 0.0 0.0 0.0

Total Tax 336.5 288.4 453.0 569.1

PAT 1,099.0 723.9 1,136.4 1,427.6

Growth (%) -2.1 -34.1 57.0 25.6

EPS (|) 19.2 12.7 19.9 25.0


Cash flow statement | Crore


Profit after Tax 1,099.0 723.9 1,136.4 1,427.6

Add: Depreciation 461.8 592.6 696.5 756.0

(Inc)/dec in Current Assets -772.0 -682.6 -46.6 -565.4

Inc/(dec) in CL and Provisions 685.9 823.3 123.5 490.1

CF from operating activities 1,474.7 1,457.1 1,909.9 2,108.3

(Inc)/dec in Investments 107.3 -944.6 0.0 0.0

(Inc)/dec in Fixed Assets -3,847.0 -3,479.0 -1,800.0 -1,500.0

Others 297.6 450.2 178.0 146.7

CF from investing activities -3,442.0 -3,973.4 -1,622.0 -1,353.3

Issue/(Buy back) of Equity 0.0 0.0 6.3 0.0

Inc/(dec) in loan funds 1,855.4 1,201.1 0.0 -300.0

Dividend paid & dividend tax -164.5 -219.3 -201.0 -201.0

Others 19.6 1,796.7 -6.3 0.0

CF from financing activities 1,710.5 2,778.5 -201.0 -501.0

Net Cash flow -257.2 262.2 86.9 253.9

Opening Cash 594.2 337.0 599.1 686.0

Closing Cash 337.0 599.1 686.0 940.0


Balance sheet | Crore


Liabilities

Equity Capital 50.9 57.2 57.2 57.2

Reserve and Surplus 7,239.1 9,719.5 10,654.9 11,881.5

Total Shareholders funds 7,290.0 9,776.7 10,712.1 11,938.7

Total Debt 3,244.5 4,445.7 4,445.7 4,145.7

Deferred Tax Liability 766.1 838.9 972.1 1,081.9

Total Liabilities 11,907.2 15,936.7 17,121.3 18,253.2

Assets

Gross Block 11,557.8 15,640.9 18,709.1 20,209.1

Less: Acc Depreciation 5,519.6 6,112.2 6,808.7 7,564.7

Net Block 6,432.6 10,867.8 13,239.5 13,983.5

Capital WIP 2,872.3 2,268.2 1,000.0 1,000.0

Total Fixed Assets 9,305.0 13,136.0 14,239.5 14,983.5

Investments 396.2 1,342.5 1,342.5 1,342.5

Goodwill on consolidation 177.4 206.1 206.1 206.1

Inventory 2,645.5 2,945.4 2,921.3 3,251.1

Debtors 1,127.5 1,435.0 1,413.5 1,573.1

Loans and Advances 45.0 75.7 87.8 97.7

Other current assets 460.1 504.6 584.7 650.8

Cash 337.0 599.1 686.0 940.0

Total Current Assets 4,615.1 5,559.9 5,693.3 6,512.7

Creditors 1,731.8 2,447.1 2,355.9 2,621.9

Provisions 404.3 338.1 325.5 362.3

Total Current Liabilities 2,136.0 2,785.2 2,681.4 2,984.1

Net Current Assets 2,479.1 2,774.7 3,011.9 3,528.5

Application of Funds 11,907.2 15,936.7 17,121.3 18,253.2


Key ratios


Per share data (|)

EPS 19.2 12.7 19.9 25.0

Cash EPS 27.3 23.0 32.0 38.2

BV 127.4 170.9 187.3 208.7

DPS 0.3 0.5 0.3 0.2

Cash Per Share 5.9 10.5 12.0 16.4

Operating Ratios (%)

EBITDA Margin 14.0 11.1 13.7 14.5

PBT / Net sales 10.5 7.1 9.6 10.5

PAT Margin 9.5 8.3 4.9 7.5

Inventory days 73.3 72.4 62.0 62.0

Debtor days 31.2 35.3 30.0 30.0

Creditor days 48.0 60.2 50.0 50.0

Return Ratios (%)

RoE 15.1 7.4 10.6 12.0

RoCE 13.6 7.8 11.1 12.6

RoIC 15.9 8.5 11.1 12.7

Valuation Ratios (x)

P/E 14.7 22.3 14.2 11.3

EV / EBITDA 10.1 11.3 7.9 6.5

EV / Net Sales 1.4 1.3 1.1 0.9

Market Cap / Sales 1.2 1.1 0.9 0.8

Price to Book Value 2.2 1.7 1.5 1.4

Solvency Ratios

Debt/Equity 0.4 0.5 0.4 0.3

Current Ratio 2.0 1.8 1.9 1.9

Quick Ratio 0.8 0.7 0.8 0.8



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) 870 875 Hold 14859 29.0 35.5 41.6 30.0 24.5 20.9 15.6 13.1 11.3 23.8 24.9 25.0 16.5 17.3 17.3

Apollo Tyre (APOTYR) 284 325 Buy 16240 12.7 19.9 25.0 22.4 14.3 11.4 7.9 7.9 6.5 7.8 11.1 12.6 7.4 10.6 12.0

Ashok Leyland (ASHLEY) 155 180 Buy 43788 5.4 7.4 9.3 28.6 21.0 16.6 16.2 12.4 9.6 30.4 34.4 36.6 23.0 25.9 26.8

Bajaj Auto (BAAUTO) 2832 3400 Hold 81950 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) 1196 1150 Hold 23126 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) 18465 21500 Hold 57979 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) 30518 35600 Buy 82430 725.5 1114.9 1325.3 42.1 27.4 23.0 28.2 21.3 16.9 39.1 36.9 34.6 29.9 31.3 28.1

Exide Industries (EXIIND) 259 300 Buy 22032 8.2 10.1 12.4 31.4 25.7 20.9 18.1 15.2 12.5 19.1 20.1 21.9 13.0 14.2 15.5

Hero Moto (HERHON) 3647 4300 Buy 72837 185.1 221.9 254.2 19.7 16.4 14.3 12.8 10.8 9.0 43.7 43.9 44.0 32.1 32.7 31.7

JK Tyre & Ind (JKIND) 147 175 Hold 3340 -1.2 15.4 24.4 -121 9.6 6.0 12.8 6.7 5.1 5.2 11.8 15.0 -1.1 16.0 20.9

Mahindra CIE (MAHAUT) 240 280 Buy 9062 9.5 12.8 15.3 25.3 18.8 15.7 12.3 10.0 8.4 9.8 11.6 12.3 11.2 13.4 15.1

Maruti Suzuki (MARUTI) 8727 10500 Buy 229015 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) 339 375 Hold 71360 8.1 12.4 15.0 41.8 27.3 22.5 14.7 10.7 8.7 17.8 24.7 28.2 19.2 24.9 25.0

Tata Motors (TELCO) 326 475 Buy 98385 22.3 29.8 44.3 16.8 12.5 8.4 5.5 5.3 3.8 11.6 11.1 15.9 15.0 13.8 20.2

Wabco India (WABTVS) 7969 7700 Hold 15141 145.9 180.4 219.7 54.6 44.2 36.3 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 (%)



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;

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ICICI Direct Research Desk,

ICICI Securities Limited,

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[email protected]


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Documents

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