BancoProducts(India)Ltd InitiatingCoverage

Unicon Wealth Management

www.uniconindia.in


www.uniconindia.in1

Banco Products (India) Ltd.Long Term Investment Call

Initiating Coverage

Banco Products (India) Ltd.

30-Nov-10

Rupin Shah | [email protected]

Banco Products (India) Ltd. (BPIL) manufactures a complete range of heat exchangers (radiators, intercoolers, oil-coolers) andall types of engine sealing products (gaskets). The company produces gaskets and radiators that have applications inautomobiles, oil engines, compressors and locomotives.

Investment Rationale:

Growth in the Auto industry would remain key driver for future revenues

BPIL sells its products to various vehicle manufacturers in the AutoIndustry. The domestic auto industry grew 12.2% annually between FY08-FY10 and we expect this growth to continue in 2HFY11 and FY12 on theback of easy availability of vehicle finance, increase in per capita income aswell as strong rural demand. We believe revenues would increase at a CAGRof 43.7% to INR 9,527.8mn between FY10 and FY12.

Capacity expansion plan to meet increasing demand from Automotivesegment

In Q4FY09, BPIL has set up its assembly unit in Jamshedpur to cater to theneeds of Tata Motors only. This helps the company in providing custom-ized products for various needs of Tata Motors. The company had installedits fifth aluminum braze furnace (capacity of 0.5mn radiators annually) inQ3FY10 and plans to increase its radiator manufacturing capacity gradu-ally by ~20% each year for next two years looking at growth in demandfrom its clients.

Established reputation would enable BPIL to pass on increased cost tocustomers

BPIL has created a strong reputation by serving the Automotive industryfor over four decades with quality products. We believe BPIL’s establishedreputation in the auto industry would help the company not only in gettingrepeat orders from Original Equipment Manufacturers (OEMs) goingforward but also help BPIL to pass on the increased raw material cost tothe customers.

Acquisition of NRF would enable BPIL to enter a niche marine coolermarket

Nederlandse Radiateuren Fabriek B.V. (NRF) is well known in Europe for itswide availability of products such as marine heat exchangers andautomotive air conditioning products. NRF caters to a very niche segmentby providing its marine cooler products to ship building industry. Webelieve BPIL’s decision of selling these products in the Indian and SouthEast Asian market would boost revenue growth.

Valuation & outlook:

With robust growth in Indian Auto industry and strong economic recoveryin European countries, BPIL was able to deliver phenomenal topline growthin the past. We believe this trend would continue for next two years. Wehave used Relative Valuation (P/E ratio) to value BPIL ‘s stock. BPIL iscurrently trading at FY12 P/E multiple of 4.9x which is at discount of 44% tothe peer group average of 8.7x as per our FY12 earnings estimate. We assigna PE multiple of 7.8x to value the stock as we believe 10% discount to BPIL’sstock on FY12 peer group average is justifiable considering its diversificationin to unrelated area such as cement manufacturing and ethanol business.We arrive at a target price of INR 149 per share.

(INR mn)

Source: Company, Unicon Research

Relative Price Performance

Sector : Auto Ancillaries

CMP : 93 Rating : Buy Target :149

0

50

100

150

BPIL NSE Nifty

No

v

Jan

Feb

Mar

Ap

r

May Ju

l

Au

g

Sep Oct

No

v

*Consolidated

Key Financials* FY09 FY10 FY11E FY12E

Net Sales 2,879 4,612 8,090 9,528

Growth -4% 60% 75% 18%

EBITDA 574 1,017 1,572 1,956

Growth 4% 77% 55% 24%

EBITDA margins 20% 22% 19% 21%

Adj Net Profit 415 786 1,082 1,373

Growth -4% 90% 38% 27%

Net Profit margins 14% 17% 13% 14%

Adj. EPS 5.8 11.0 15.1 19.2

Growth -4% 88% 38% 27%

Key Ratios FY09 FY10 FY11E FY12E

P/E (x) 16.0 8.5 6.2 4.9

DE (x) 0.1 0.3 0.3 0.2

ROCE (%) 34.8 32.2 44.5 42.6

P/BV (x) 3.9 2.2 1.7 1.3

EV/ Sales (x) 2.3 1.6 0.9 0.7

Share Holding Pattern

Promoters 67.1 67.1

FII 0.1 0.4

0.0 1.5

Others 32.8 31.0

Q1FY11 Q2FY11

FI / MF / Other Institutes

Key Data

1 -year Average Volume

BNCO IN

March

Reuters Code

Bloomberg code

Year End

5,863/19,521

BNCO.BO

2

71,518,650

6,673/145

138/72

102,442

CNX Nifty / Sensex

Face Value (INR)

Share outstanding

Market cap (INR mn/US$ mn)

52 week High /low


www.uniconindia.in2


CONTENTS

Particulars Page

Company Background 3

Management Brief 4

Industry Outlook 5

Investment Rationale 7

Concerns 10

Financial Analysis 11

Peer Comparison 12

Valuation & Outlook 13

Financial Statements 14


www.uniconindia.in


www.uniconindia.in3


Company Background & Business Profile:

BPIL is a supplier of high quality engine cooling components and engine sealinggaskets mainly to the Automotive industry. The company offers a complete line ofradiators, intercoolers, oil-coolers and all types of engine gaskets. The companyproduces gaskets and radiators that have applications in automobiles, oil engines,compressors and locomotives. The company offers over 12,000 varieties of gasketsin multi-layered steel, graphite, fiber steel and copper designs for automotive,agricultural vehicles, and diesel commercial vehicles; radiators for cars and pickups,industrial radiators, air-to-air intercoolers, custom-designed intercoolers,intercoolers cores for various commercial vehicles and off-road industrialapplications; and compressed jointing sheets using non asbestos raw materials.Sealing products i.e. gaskets forms ~20% of its top line while rest ~80% comes fromheat exchangers (radiators). The company has three manufacturing facilities inGujarat and two assembly facilities in Jamshedpur (Jharkhand) and Rudrapur(Uttar Pradesh).

BPIL’s Revenue Break-up

BPIL’s Product Wise Major Customers

BPIL’s Customers

Gaskets

Maruti

Suzuki

Tata

Motors

Hero Honda

TVS Group

Radiators

Tata Motors

Ashok Leyland

M&M

KOEL

BEML

TAFE

JCB

Indian Railways

Eicher Motor

Gaskets: BPIL manufactures gaskets using environmental friendly non-asbestosfibres and asbestos fibres with technical expertise of Japan Metal Gaskets Companywhich also holds 4.5% equity stake in the company. The company provides acomplete sealing solution range for diesel engines, cylinder head gaskets includingasbestos steel composite cylinder head gaskets, copper cylinder head gaskets, edge-moulded cylinder head gaskets, gaskets head kit, graphite composite cylinder headgaskets and multi layered steel cylinder agriculture diesel engines, for allconceivable applications like automotive, industrial and agriculture. Currently,BPIL has an installed capacity of manufacturing 80mn gaskets and utilization ratewas ~89% in FY10. BPIL’s major clients for gaskets include Maruti Suzuki, TataMotors, Hero Honda and TVS Group.

BPIL

Domestic(67%)

OEM(58%)

After Market(9%)

Export(33%)

EuropeMarket (26%)

Rest of World(7%)


Source: Company


www.uniconindia.in4


Management Brief:

Vimal K Patel is the non executive-chairman and promoter of the company. He hasdone his M.Sc. (Economics) from London School of Economics, and has wideexperience in the field of automotive components.

Other Key People

Source: Company

Radiators: BPIL manufactures radiators ranging from high performance radiators,auto radiator, car radiator, industrial radiator, intercooler ranging from air to waterintercooler, air to water cooler, custom designed inter cooler, cabin heater andreplacement cores for various automotive, industrial and agricultural applications.The company focuses on radiator manufacturing for commercial vehicles, off-theroad (OTR) vehicles in the domestic market and passenger vehicles in the exportmarket. The company is one of the large players in this business in the organizedsector. Currently, the company has an installed capacity of manufacturing 1.3mnradiators and utilisation capacity of ~64% in FY10. Out of the total radiator sales,around 7% comes from the Indian Railways and the company targets to increase itupto 12%. BPIL’s major clients for radiators include Tata Motors, Ashok Leyland,Mahindra, KOEL, BEML, TAFE, JCB and Indian Railways. The company also addedEicher Motor in the list of clients.

Productwise Installed Capacity (FY10)

Source: Company

Name Designation

Atul G.Shroff Non Executive Independent

Samir K.Patel Non Executive & Promoter

Mehul K.Patel Non Executive & Promoter

Ram Devidayal Non Executive Independent Director

Mukesh D, Patel Non Executive Independent

S.K.Duggal Non Executive Independent

M.G.Patel Non Executive Independent

K.P.Kapadia Executive Director

Shailesh Thakker Executive Director & CFO

Kiran Shetty Executive Director

Gaskets

80mn Units

Products

Radiators

1.3mn Units


www.uniconindia.in


www.uniconindia.in5


Industry Outlook:

Automotive Component Manufacturers Association of India (ACMA) is the nodalagency for the Indian Auto Component Industry. Auto ancillary companies caterto its customers by supplying its products in two main markets:

• OEMs

• Replacement Market (After market)

The Indian auto ancillary industry is one of India’s sunrise industries withtremendous growth prospects. The automotive industry is an important segmentof the economy in any country as it links many industries and services. The Indianauto industry has the potential to emerge as one of the largest in the world.

Radiators are heat exchangers used to transfer thermal energy from one mediumto another for the purpose of cooling and heating. The majority of radiators areconstructed to function in automobiles, buildings, and electronics.

The radiator manufacturing industry comprises of two sectors, organized sectorand the small scale sector. The organized sector mainly supplies radiators to theOEM market and some to replacement market. The small scale sector suppliesradiators to the replacement market. With the growing demand for sleeker andpowerful vehicles, there has been increasing demands on radiator manufacturersto modify designs to lesser weight, increase heat transfer efficiency while at thesame time reduce costs. This has spurred the development of new materials, newalloys and efficient production techniques.

India is now becoming a major hub for auto components to global automobilemakers. In the last year, the three largest European auto-component makers hadset up facilities in Pune belt. The Italy-based leader in brake discs for automotivevehicles, Brembo, and Germany-based manufacturer of clamps, plastic tubingsystems and connectors for auto and non-auto industry, Norma group, set uptheir facilities at Chakan and Talegaon respectively in 2009. Recently, anotherGerman firm, ZF group, inaugurated its 100% Indian subsidiary at Chakan.Domestic auto component makers are also likely to face competition from foreignsuppliers making a beeline for the country following increase in penetration byOEMs.

Source: ACMA

Growth Potential in Domestic Market

Investment in the Auto Component Industry

Suorce: ACMA

OEM After-market

0

20

40

60

2009 2015E 2020E

US

Db

n

Investment Growth rate(%)

2.32.6

3.1

3.7

4.4

5.4

7.2 7.3

9.0

0%

10%

20%

30%

0

3

6

9

USD

bn

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10


www.uniconindia.in6


Production in the Auto component Industry

Suorce: ACMA

India’s auto parts firms are expected to deliver strong revenues and earnings growthfor next two years on the back of robust demand in domestic and overseas market.Broadly, medium and small ancillary companies are expected to deliver higherearnings within the sector. In addition, the Eleventh Five Year Plan (2007-2012) hasoutlined a multitude of infrastructure expansion projects, including those in therail and road sectors. Total investment in infrastructure during the Eleventh FiveYear is projected at INR 2,056bn. Increase in spending by Government will benefitthe Auto companies in India.

Turnover Growth rate(%)

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY08 FY09 FY10 FY11E

3.2 3.0 3.23.8 3.9 4.4

5.46.7

8.7

12.0

15.0

18.0 18.4

22.0

26.0

-5%

10%

25%

40%

3

12

21

29

US

Db

n

FY07


www.uniconindia.in


www.uniconindia.in7


Investment Rationale:

Growth in the Auto industry would remain key driver for future revenues

BPIL sells sealing products (gaskets) and heat exchangers (radiators, intercoolers,oil coolers, etc) to its various clients like M&M, Maruti, Tata Motors, Indian Railways,Ashok Leyland, etc. The domestic auto industry has registered strong growth inthe recent past and grew at a CAGR of 12.2% from FY08-FY10. On the back of easyavailability of vehicle finance and strong rural demand, we expect this growth inthe Auto industry to continue in 2HFY11 and FY12. The Society of IndianAutomobile Manufacturers (SIAM) has estimated 18-20% yoy growth in domesticautomotive sales for FY11. We believe revenues of the company would increase ata CAGR of 43.7% to INR 9,527.8mn between FY10 and FY12 on the back of stronggrowth in the Auto industry.

Passenger Car Production

Suorce: ACMA

Capacity expansion plan to meet increasing demand from Automotive segment

The company had four aluminum furnaces with a total installed capacity of 0.9mnradiators per annum. In Q3FY10, the company had installed its fifth aluminumbraze furnace which has a capacity of manufacturing 0.5mn radiators per annum,taking its total annual capacity to 1.3mn units for manufacturing radiators. Thecompany sold ~0.9mn units of radiators in FY10 thus indicating enough room fordelivering growth without any capacity concern. BPIL has planned to increase itsradiator manufacturing capacity gradually by ~20% each year for next two yearslooking at growth in demand from its clients such as Tata Motors, Ashok Leyland,M&M, KOEL, BEML, TAFE, JCB and Indian Railways.

BPIL has set up its assembly unit in Jamshedpur to cater to the needs of TataMotors only. This helps the company in providing the customized products for thevarious needs of Tata Motors. The company has also started a new assembly facilityand has already started supplying to M&M from the same. All customers of BPIL inAutomotive segment have registered robust growth in sales in the recent past onthe back of increasing domestic and export demand. We believe the Auto industrywould show same growth momentum on overall improvement in the domesticand world economy.

Installed Capacity of Radiators


264

348408 401 390

574518

564609

843

10281113

1323

1522 1517

1926

150

850

1550

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10FY95 FY96

2175

Un

its

inth

ou

san

ds

300,000

800,000

1,300,000

1,800,000

Installed capacity

FY

06

FY

07

FY

08

FY

09

FY

10

FY

11E

FY

12E

Un

its


www.uniconindia.in8


NRF's Manufacturing Set-up

Main Facility

Netherland France

Other Facility

England Spain

NRF’s Manufacturing & DistributionFacilities

New acquisition would allow BPIL to spread its wings across geography

In Feb-2010, the company acquired NRF which is a major Europe wide distributorin its product range. Previously, NRF had been owned by a subsidiary of a majorUS manufacturer and distributor, Proliance, which is in Chapter 11 proceedings inUSA. BPIL has taken over this company clear of all liens, claims and encumbrances.BPIL has been a supplier to NRF B.V for more than 15 years and is familiar with itsmarket, products and management. BPIL would benefit from its familiarity withthe European Market as well as NRF’s supply relations with European OEMs. NRFsells copper-brass and aluminum radiators, marine heat exchangers, oil coolers,air coolers and automotive air conditioning products. It is well known for its wideavailability of products. We expect BPIL would be able to leverage its design,manufacturing skills with NRF’s market presence and its niche product range inmarine coolers into the Ship Building industry in India and South East Asia.

Excellent reputation and high quality products allows BPIL to pass on increasedcost to customers

The major raw materials of the company are aluminum, steel and copper. Theseconstitute ~70% of the total operating cost. Aluminum accounts for ~40% of totalraw material cost followed by ~20% of copper and ~10% of steel. In FY09 most of thecompanies faced higher raw material prices thus impacting the margins. However,BPIL was able to pass on most of the increase in the raw material prices to thecustomers thus mitigated the risk due to the volatility of the raw material pricesand thus maintain the margins. On the back of indigenous R&D know-how, BPILplays a very important role in product development, designing and testing as perthe technical specification of its clients. We believe BPIL’s established reputation inthe Auto industry and its product quality which matches international standardswould help the company to get repeat orders from OEMs going forward.

Source: Company

Monthly Domestic Passenger Vehicle Sales

Source: SIAM

0.0%

20.0%

40.0%

60.0%

0

60,000

120,000

180,000

Domestic Passenger Vehicle sales yoy % growth

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep-

09

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb-

10

Mar

-10

Apr

-10

Uni

ts

Automotive50%

Marie Cooler25%

Condenser25%

NRF’s Product Portfolio

NRF's Distribution Network

Belgium

Germany

Austria

Switzerland

Italy

Poland

Source: Company


www.uniconindia.in


www.uniconindia.in9


Current Industry Breake-up Past Industry Breake-up

BPIL’s Customer’s Annual Production

Strong client base and their performance to drive future revenues

BPIL generates its significant revenues from major auto manufacturing companiessuch as Mahindra & Mahindra (M&M), Tata Motors, Ashok Leyland and MarutiSuzuki. While Maruti Suzuki contributes around 5-6% of its operational revenues,Tata Motors and M&M jointly accounts for around 12% of operational revenues. Inaddition, Caterpillar India, Indian Railways, Kirloskar Oil Engines, Tafe, JCB,Cummins India, BEML and John Deere are also major customers of the company.

BPIL has its presence in the heat exchangers and the sealing products. In heatexchangers, the product ranges from radiators, charge air coolers and oil coolers,though major business in the heat exchangers comes from radiators, while otherproducts are developed in order to tap the incremental opportunities from the heatexchanger segment. Even in radiators range the company did well to switch fromcopper radiators to aluminum radiators in last few years in line with changingtechnology and industry trend. BPIL has diversified its product portfolio withsealing products and heat exchangers. In addition, BPIL derives its 33% revenuesfrom export sales and remaining from domestic market.

Maruti Suzuki registered 13.7%, Ashok Leyland registered 3.5% and M&M registered16.2% yoy CAGR in vehicle production between FY05 and FY10. Maruti, AshokLeyland and Tata Motors (standalone basis) have planned to spend 30bn, 3bn and25bn respectively for their capex plans for FY12. Therefore, we believe this growthin production would continue going forward.

Diversification in to various user industries to reduce over dependence on theAuto industry

Currently, BPIL generates ~50% of its revenues from the Automotive industry. Thecompany is focusing to other industries like industrial engine segment andearthmoving & construction segment to reduce it’s over dependence on theAutomotive Industry. In the Industrial engine segment, BPIL is supplying radiatorsfor captive power plants upto 1 to 2 MVA capacities. In the earth moving &construction segment BEML, JCB, L&T, John Deere are some of the companies towhom the BPIL has been supplying radiators.

Source: Company

Source: Company

15,000

315,000

615,000

915,000

Ashok Leyland M&M Maruti

Un

its

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Automotive65%

IndustrialEngines

20%

Earth moving &construction

15%

Automotive50%

IndustrialEngines

30%

Earthmoving &

construction

20%


www.uniconindia.in10


Concerns

Diversification in to unrelated businesses may not be fruitful for the company

BPIL is considering investing USD 12.3mn in Lake Cements Ltd (LCL), a companyincorporated under the laws of Tanzania. LCL is planning to set up a greenfieldproject for manufacturing cement with an installed capacity of 0.5mn tonnesannually. Earlier, the company had announced an investment of USD 3.2mn inethanol business. The company does not have any prior experience ofmanufacturing cement or ethanol. Inexperience of handling these unrelatedbusinesses may put pressure on profitability of core business.

Diversification in to unrelated businesses may not be fruitful for the company

BPIL caters to aftermarket and OEMs. In aftermarket, there are many unorganizedplayers. Though BPIL has a strong reputation, lower pricing structure fromunorganized players may intensify the competition and can impact the margins ofBPIL.

Unexpected rise in metal prices will put pressure on margins

We believe raw material prices would stablize at the current lavel over next twoyears. However, any unexpected rise in metal prices will put pressure on company’smargins.

Source: Unicon Research

BPIL is also reducing it’s over dependence on European countries, mainly wherethe company has been exporting its products. Exports contributed ~33% of totalsales in FY10. BPIL is also trying to enter the US markets and specifically the marketsof North America. The company is also planning to introduce NRF’s marine coolerproducts in South East Asian countries. Going forward, we believe aggressive plansof entering in to US, North America and South East Asian countries would increaseexports contribution in total sales of BPIL. The company plans to increase itsexport contribution to 35-38%.

RM

Co

sta

sa

%

et

sale

s

Capacity Utilisation of Radiators

65.5% 64.5% 63.5% 62.5% 61.5%

55.5% 143 142 141 140 139

55.0% 148 146 145 144 143

54.5% 152 151 149 148 147

54.0% 156 155 154 152 151

53.5% 160 159 158 157 155

Of

Sensitivity Analysis


www.uniconindia.in




Financial Analysis

FY10 performance

Standalone net revenues of BPIL increased 41.4% yoy to 4071.0mn in FY2010 onaccount of recovery in the automobile segment which has directly benefited auto-ancillary business. Standalone EBITDA margin during the year increased whopping610bps to 25.7% with decline in raw material prices. Standalone net marginincreased nearly 490bps to 19.3% mainly due to good operating performance onthe back of continuous cost reduction activities.

Q2FY11 performance

Standalone net revenues of BPIL increased 25.0% yoy to 1184.1mn Q2FY11 on theback of robust demand for both radiator and gasket from the Automotive and theindustrial segments. While standalone EBITDA margin during the period decreased920bps to 20.0%, net margin declined 910bps to 12.3% on the back of increase inmetal prices and adverse currency movement.

Consolidated margins are bound to decline considering lower margins of NRF

We expect BPIL’s margins would decline on the back of consolidation with newlyacquired NRF as the EBIDTA margins and net margin of NRF are substantiallylower (~3% net margin in FY10) compared to BPIL’s current margin (~17% netmargin in FY10).

Suorce: Company, Unicon Research

Suorce: Company

Suorce: Company

0.0%

10.0%

20.0%

30.0%

2,500

3,300

4,100

4,900

FY09 FY10

Net revenues EBITDA marginNet margin

INR

mn

0.0%

10.0%

20.0%

30.0%

0

3,000

6,000

9,000


INR

mn

FY06 FY07 FY08 FY09 FY10 FY11E FY12E


10.0%

15.0%

20.0%

25.0%

500

750

1,000

1,250

INR

mn

Q2FY10 Q2FY11




Peer Comparison

While Talbros Automotive Components Ltd (Talbros) is the direct competitor ofBPIL as it has presence in gaskets business, Kilburn Engineering Ltd (KEL) iscompeting with BPIL in heat exchanger segment. Other players such as, AmtekIndia and Automotive axles are manufacturing different auto components used inthe vehicles.

Talbros manufactures gaskets, steering and suspension components, stampings,rubber products and forgings. The company has an installed capacity ofmanufacturing 119mn gaskets per annum. The company’s gaskets are supplied toAshok Leyland, Eicher, Tata Motors and Swaraj Mazda and are also exported tocountries like US, UK, Germany and Australia.

KEL generates its major revenues by selling drying system used in the vehicle. Itdesigns, manufactures and distributes drying machineries, pneumatic handlingsystems, heat exchangers, etc The company is a market leader in industrial dryingsystems and its product range includes solid dryings systems, absorption systems,heat transfer systems, etc. The company has an installed capacity of manufacturing1,200 radiators per annum.

Amtek India is the largest manufacturer of gear shifter forks and forks with aspecial focus on a variety of iron castings. The company is the original equipmentsupplier to Maruti Udyog, JCB, New Holland Tractors, John Deere Tractors, HundaiMotors, ITL, Eicher Motor and also refrigeration industries like LG Electronics.

BPIL was able to maintain higher profitability margins compared to most of itspeers as the company was able to pass on most of the increase in the raw materialprices to the customers.

Source: Company, Unicon Research *June ending 2010 #Sept ending 2009

Margins / Ratios BPIL Kilb. EnggTalbros

Auto*

Amtek

India

Automotive

Axles #EBITDA margin

EBIT Margin

Tax (% of PBT)

Net profit margin

ROE

11.6% 3.2% 23.9% 12.2%9.5% 0.3% 18.7% 6.4%

35.0% 29.9% 31.4% 22.0%6.0% (1.7%) 7.3% 3.6%

22.1%

21.5%

20.6%

17.0%

25.4% 29.5% (9.9%) 7.1% 5.6%


www.uniconindia.in




Valuation & Outlook:

With robust growth in Indian Auto industry and strong recovery in Europeancountries, BPIL was able to deliver phenomenal growth in the recent past. Webelieve this trend would continue for next two years. On a consolidated basis, weexpect net operating revenues to increase at a CAGR of 43.7% from FY10 and FY12to reach a net sales of INR 9,527.8mn by FY12 mainly on the back of robust growthin the domestic the Automotive industry as well as strong demand of NRF’s productsin the European market. Being a strong and established player in the market, BPILwas able to maintain its margin. Going forward, we believe margins would expandfrom FY12 onwards on the back of the company’s ambitious plan about NRF’s andconsidering BPIL’s strong hold in domestic market.

For valuing BPIL’s stock, we have used Relative Valuation based on Price/Earnings(P/E) multiple methodology considering FY12 estimates. A comparative valuationusing P/E multiple methodology helps in comparing peer group performance withthe company with respect to earnings potential. We have considered an investmenthorizon of 12-18 months for this stock.

Source: Unicon Research

BPIL is currently trading at FY12 P/E multiple of 4.9x which is at discount of 44% tothe peer group average of 8.7x as per our FY12 earnings estimate. We are assigninga PE multiple of 7.8x to value the stock as we believe 10% discount on FY12 peergroup average is justifiable considering its diversification in to unrelated areasuch as cement manufacturing and ethanol business. However, we expect priceappreciation in the stock to outpace its earning growth over next 12-18 months.We arrive at a target price of INR 149 per share over a period of 12 to 18 months forBPIL.

Companies FY11 EPS FY12 EPS P/E (FY11) P/E (FY12)

BPIL

Kilburn Engg.

Talbros Automotive

Amtek India

Automotive Axles

15.1 19.2 6.2 4.9

6.9 8.6 12.0 9.6

7.2 8.7 9.7 8.1

5.3 7.0 11.6 8.8

41.0 55.4 11.1 8.2




Financial StatementsINR mn

Balance Sheet 2009 2010 2011E 2012E

SOURCES OF FUNDS

Share Capital 143 143 143 143

Reserves and Surplus 1,550 2,952 3,781 4,833

Netwoth 1,694 3,095 3,924 4,976

Total Loans 93 964 1,005 984

Deferred Tax Liabilities (Net) 86 142 142 142

Shareholder's Fund 1,873 4,201 5,071 6,102

APPLICATION OF FUNDS

Fixed Assets

Gross Block 1,273 3,777 4,127 4,527

Less: Depreciation 479 2,647 2,853 3,089

Net Block 795 1,129 1,273 1,438

Capital Work in Progress 3 122 39 43

Investments 55 24 24 24

Current Assets, Loans & Advances

Inventories 552 1,796 2,438 2,610

Sundry Debtors 646 1,535 2,106 2,349

Cash & Bank Balances 106 397 499 898

Loans & Advances 138 246 431 508

Total Current Assets 1,442 3,973 5,474 6,365

Less:

Current Liabilities & Provisions 421 1,048 1,740 1,769

Net Current Assets 1,021 2,925 3,734 4,596

Application of Funds 1,873 4,201 5,071 6,102



www.uniconindia.in




INR mn

INR mn



Profit & Loss 2009 2010 2011E 2012E

INCOME

Net Operating Income 2,928 4,612 8,150 9,587

Other Income 19 102 112 123

Total Income 2,947 4,713 8,261 9,710

EXPENDITURE

Cost of Materials 1,608 2,406 4,490 5,193

Cost of Manufacturing 306 465 809 953

Other Direct Cost 174 357 647 762

Admin, Selling and General Exp 266 366 631 724

Total Expenditure 2,354 3,595 6,577 7,632

EBITDA 574 1,017 1,572 1,956

Depreciation 88 106 206 235

EBIT 505 1,013 1,478 1,843

Interest 26 24 114 112

PROFIT BEFORE TAX 479 989 1,364 1,731

Provision for Taxation 64 203 282 358

PROFIT AFTER TAX 415 786 1,082 1,373

Cash Flow 2009 2010 2011E 2012E

PBT 479 989 1364 1731

Depreciation 88 106 206 235

Interest 26 22 114 112

Taxes Paid -41 -174 -282 -358

Change in WC -38 -403 -707 -463

Others -34 -47 0 0

Cash Flow from Operations 480 493 695 1257

(Purchase)/Sale of Fixed Assets -232 -175 -350 -400

(Purchase)/Sale of Investments 29 -1229 0 0

Decrease/(Increase) in CWIP 0 0 83 -4

Others 4 153 0 0

Cash Flow from Investing Activities -199 -1251 -267 -404

Dividend Paid -87 -107 -216 -275

Interest 4 -22 -114 -112

Increase in Debt 123 -886 -41 21

Others -15 -18 -37 -47

Cash Flow from Financing Activities -221 740 -326 -454

Net Increase/Decrease in Cash 59 -19 102 399

Opening Cash Balance 46 416 397 499

Closing Cash Balance 106 397 499 898




Key Ratios 2009 2010 2011E 2012E

Valuation Ratios

P/E 16 8 6 5

BV/Share 24 43 55 70

EV/EBITDA 12 7 5 3

EPS (Basic) 6 11 15 19

Debt Ratios

Interest Coverage 19 43 13 16

D/E 0.1 0.3 0.3 0.2

Return Ratios

RoCE 34.8% 32.2% 44.5% 42.6%

RoE 24.5% 25.4% 27.6% 27.6%

Working Capital

Asset Turnover 2 1 2 2

Inventory/Sales (days) 70 142 110 100

Receivables(days) 82 121 95 90

Payables (days) 65 107 97 85

Cash Conversion Cycle

Profitability Ratios

EBIDTA margins (%) 19.6% 22.1% 19.3% 20.4%

PAT margins (%) 14.4% 17.0% 13.4% 14.4%


www.uniconindia.in




DisclaimerThis document has been issued by Unicon Financial Intermediaries Pvt Ltd. (“UNICON”) for the information of its customers only. UNICON is governedby the Securities and Exchange Board of India. This document is not for public distribution and has been furnished to you solely for your information andmust not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe theserestrictions. The information and opinions contained herein have been compiled or arrived at based upon information obtained in good faith from publicsources believed to be reliable. Such information has not been independently verified and no guarantee, representation or warranty, express or impliedis made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document has beenproduced independently of any company or companies mentioned herein, and forward looking statements; opinions and expectations contained hereinare subject to change without notice. This document is for information purposes only and is provided on an “as is” basis. Descriptions of any companyor companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer, orsolicitation of an offer, to buy or sell or subscribe to any securities or other financial instruments. We are not soliciting any action based on this document.UNICON, its associate and group companies its directors or employees do not take any responsibility, financial or otherwise, of the losses or the damagessustained due to the investments made or any action taken on basis of this document, including but not restricted to, fluctuation in the prices of the sharesand bonds, reduction in the dividend or income, etc. This document is not directed to or intended for display, downloading, printing, reproducing or fordistribution to or use by any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where suchdistribution, publication, reproduction, availability or use would be contrary to law or regulation or would subject UNICON or its associates or groupcompanies to any registration or licensing requirement within such jurisdiction. If this document is inadvertently sent or has reached any individual in suchcountry, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for anypurpose without prior written approval of UNICON. This document is for the general information and does not take into account the particular investmentobjectives, financial situation or needs of any individual customer, and it does not constitute a personalised recommendation of any particular security orinvestment strategy. Before acting on any advice or recommendation in this document, a customer should consider whether it is suitable given thecustomer's particular circumstances and, if necessary, seek professional advice. Certain transactions, including those involving futures, options, and highyield securities, give rise to substantial risk and are not suitable for all investors. UNICON, its associates or group companies do not represent or endorsethe accuracy or reliability of any of the information or content of the document and reliance upon it is at your own risk.

UNICON, its associates or group companies, expressly disclaims any and all warranties, express or implied, including without limitation warranties ofmerchantability and fitness for a particular purpose with respect to the document and any information in it. UNICON, its associates or group companies,shall not be liable for any direct, indirect, incidental, punitive or consequential damages of any kind with respect to the document. No part of thispublication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying,recording, or otherwise, without the prior written permission of Unicon Financial Intermediaries Pvt Ltd.

Address:Wealth ManagementUnicon Financial Intermediaries. Pvt. Ltd.Ground Floor, Jhawar House,285, Princess Street, Mumbai-400002Ph: 022-66181200 / 100Email: [email protected] us at www.uniconindia.in

Unicon Investment Ranking Methodology

Rating Buy Accumulate Hold Reduce Sell

Return Range >= 20% 10% to 20% -10% to 10% -10% to -20% <= -20%

Documents

BancoProducts(India)Ltd InitiatingCoverage