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CMP 482.00
Target Price 540.00
ISIN: INE811A01012
DEC 27th
, 2012
KIRLOSKAR PNEUMATIC CO.LTD Result Update: Q2 FY13
HOLDHOLDHOLDHOLD
Stock Data
Sector Auto Component
BSE Code 505283
Face Value / Div. Per Share 10.00
52wk. High / Low (Rs.) 574.20/400.00
Volume (2wk. Avg ) 1195.00
Market Cap ( Rs in mn ) 5855.04
Annual Estimated Results (A*: Actual / E*: Estimated)
Years FY12A FY13E FY14E
Net Sales 6722.60 7394.86 8060.40
EBITDA 1017.20 1110.94 1215.66
Net Profit 619.10 668.97 736.95
EPS 48.22 52.10 57.39
P/E 9.46 8.75 7.94
Shareholding Pattern (%)
1 Year Comparative Graph
BSE SENSEX KIRLOSKAR PNEUMATIC CO. LTD
Source: Company Data, Firstcall Research
SYNOPSIS
Kirloskar Pneumatic Company Ltd. (KPCL),
part of the Kirloskar Group is a synonym for
providing high end integrated solutions
using Compression and Transmission
Technologies. KPCL was incorporated in
1958.
Revenue for the quarter of the company is
improved 7.81% to Rs.1337.00 million from
Rs.1240.20 million, when compared with
the prior year period.
The company recommended dividend ar Rs.
12/- per share declared on 1,28,44,338
Equity Shares of Rs. 10/- each fully paid for
FY 2012.
During the year 2011-12, the turnover of
Compression Systems Segment, was
Rs.5,781 Millions, (previous year Rs.4,352
Millions).
During the year 2011-12, the turnover of
Transmission Products Segment was Rs.885
Millions, (previous year Rs.565 Millions).
Net Sales and PAT of the company are
expected to grow at a CAGR of 18% and 19%
over 2011 to 2014E respectively.
Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend
Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)
Kirloskar Pneumatic Ltd 482.00 5855.04 48.22 9.46 2.55 120.00
Tecpro Systems Ltd 152.00 7672.00 25.85 5.88 1.00 30.00
ION Exchange Ltd 133.00 1806.70 13.76 9.67 1.11 20.00
Timken India Ltd 194.00 12364.60 7.04 27.56 3.95 200.00
Investment Highlights
Results updates- Q2 FY13,
Kirloskar Pneumatic Ltd is a flagship of Kirloskar
Group, manufacture of Air Compressors and
Pneumatic Tools in India, reported its financial
results for the quarter ended 30 Sep, 2012.
Months Sep-12 Sep-11 % Change
Net Sales 1337.00 1240.20 7.81%
PAT 108.60 117.00 -7.18%
EPS 8.46 9.11 -7.18%
EBITDA 187.80 177.60 5.74%
The company’s net profit slap down towards to Rs.108.60 million against Rs.117.00 million in the corresponding
quarter ending of previous year, an decrease of 7.18%. Revenue for the quarter improved 7.81% to Rs.1337.00
million from Rs.1240.20 million, when compared with the prior year period. Reported earnings per share of the
company stood at Rs.8.46 a share during the quarter, registering 7.18% decrease over previous year period.
Profit before interest, depreciation and tax is Rs.187.80 millions as against Rs.177.60 millions in the
corresponding period of the previous year.
Expenditure :
During the quarter variable cost raised by 1 per cent
mainly on account of increase in employee benefit
expenses along with consideration of Depreciation
in the rupee impact and witnessed. Total
expenditure in Q2 FY13 was at Rs. 1211.80 million
as against Rs.1200.70 million in Q2 FY12. Other
Expenditure was at Rs. 254.70 million and Cost of
Material Consumed is Rs. 727.30 mn in Q2 FY13 is
the primarily attributable to decline of expenditure.
Segment Revenue
Company Profile
Kirloskar Pneumatic Company Ltd is one of the core group companies. KPCL was incorporated in 1958 under the
chairmanship of Late Shri Shantanurao Kirloskar. KPCL has also established a number of joint ventures and
technology partnerships with leading global companies. It has earned the distinction of developing a host of
advanced products to suit Indian conditions and has been continuously updating them to maintain the highest
standards of quality and reliability. The company started its operations with the manufacture of Air Compressors
and Pneumatic Tools. New product lines were they added included Air Conditioning and Refrigeration systems,
Marine HVACR, Process Gas systems and Hydraulic Power Transmission machinery. The company has also
earned an enviable reputation for its Systems Engineering and Turnkey Project expertise. Kirloskar Pneumatic
Company Ltd has developed various sophisticated and high-tech products in the above categories to cater to the
demands of various industrial sectors.
While doing so, the company will always keeps in mind the best interest of all stakeholders and actions will be
guided by the company. It realize and equal concern towards the nature and Society to take all efforts towards
betterment of the same. Kirloskar Pneumatic Company Ltd (KPCL), is an ISO 9001:2008, ISO 14001:2004, OHSAS
18001:2007
Products
� Air Compreessor Division
To bring focused attention and create centers of competence specific to technology, these are sub divided in four
categories - Reciprocating compressors, screw compressors, centrifugal compressors & Ground support units
(GSU). The division has a complete range of air compressors covering reciprocating compressors to the high tech
centrifugal type as well as screw type compressors. These compressors cater to needs of diverse industrial
segments.
� Air conditioning, Refrigration & Proceess Gas Division
The ACR - PG division has the capability to manufacture Air Conditioning & Refrigeration compressors
(equipment group) and offer turnkey system solutions for refrigeration projects and process gas
applications. ACR - PG has four Business Groups that function as independent business verticals.
Equipment (Compressors for refrigeration system)
Refrigeration Systems (Industrial refrigeration packages, Customized turnkey projects, Screw
compressor package, Containarised Ice & water chilling plants & Marine HVACR)
Process Gas Systems (CNG compression packages & Gas compression packages)
Vapour Absorption Chillers (Gas / Oil, Steam, hot-water driven VAC’s).
� Transmission Division
Transmission Division specifically caters to the needs of the Rail, Defence and Non conventional energy
sectors. TRM has technological leadership in different types of gears and gear boxes with capacities ranging
from sub megawatt to higher megawatt range.
TRM products are sold directly through sales division in Pune. Spares are available with sales and authorized
dealers. The regional offices provide local support for sales and service. After-sales support is provided
through service personnel at HO and regional offices. Select dealers who are strategically located have
trained service personnel. Most of the products are delivered directly to the customer.
Financial Highlight
Balance sheet as at March31, 2012
(A*- Actual, E* -Estimations & Rs. In Millions)
Particulars March (Rs.in.mn) FY12A FY13E FY14E
1.Shareholder’s Funds
a) Capital 128.44 128.44 128.44
b) Reserves & Surplus 2169.00 2837.97 3574.91
Total Net worth 2297.44 2966.41 3703.35
2.Loan Fund
a) Secured loans 62.50 50.00 46.00
b) Unsecured loans
Total Liabilities (1+2) 2359.94 3016.41 3749.35
1.Fixed Assets
a) Gross block 1692.90 1929.91 2238.69
Less: Depreciation 787.00 810.61 826.82
Net Block
905.90 1119.30 1411.87
b) Capital Work in Progress
20.40 22.44 24.24
Total Fixed Assets
926.30 1141.74 1436.10
2. Investments 1030.70 1453.29 1802.08
3.Current Assets, Loans & Advances
a) Inventories 821.74 791.56 831.14
b) Sundry Debtor 1350.40 1485.44 1604.28
c) Cash & Bank Balance 251.30 271.40 290.40
d) Other Current Assets
0.00 0.00
e) Loans & Advances 479.80 508.59 544.19
Total Current Assets 2903.24 3056.99 3270.00
Less: Current Liabilities & Provisions
a) Liabilities 1985.70 2084.99 2175.18
b) Provisions 514.60 550.62 583.66
Net Current Assets 402.94 421.39 511.17
Total Assets( 1+2+3+4) 2359.94 3016.41 3749.35
Annual Profit & Loss Statement for the period of 2011 to 2014E
Value(Rs.in.mn) FY11 FY12 FY13E FY14E
Description 12m 12m 12m 12m
Net Sales 4917.30 6722.60 7394.86 8060.40
Other Income 96.10 79.10 83.06 87.21
Total Income 5013.40 6801.70 7477.92 8147.61
Expenditure -4230.50 -5784.50 -6366.97 -6931.94
Operating Profit 782.90 1017.20 1110.94 1215.66
Interest -18.70 -11.90 -13.33 -14.66
Gross profit 764.20 1005.30 1097.61 1201.00
Depreciation -113.30 -120.60 -135.07 -147.77
Profit Before Tax 650.90 884.70 962.54 1053.23
Tax -215.90 -265.60 -293.57 -316.29
Net Profit 435.00 619.10 668.97 736.95
Equity capital 128.40 128.40 128.40 128.40
Reserves 1729.00 2169.00 2837.97 3574.91
Face value 10.00 10.00 10.00 10.00
EPS 33.88 48.22 52.10 57.39
Quarterly Profit & Loss Statement for the period of 31Mar, 2012 to 31 Dec, 12E
Value(Rs.in.mn) 31-Mar-12 30-Jun-12 30-Sep-12 31-Dec-12E
Description 3m 3m 3m 3m
Net sales 1953.70 1492.40 1337.00 1470.70
Other income 14.40 19.20 17.90 24.17
Total Income 1968.10 1511.60 1354.90 1494.87
Expenditure -1751.50 -1268.90 -1167.10 -1291.27
Operating profit 216.60 242.70 187.80 203.59
Interest -1.20 -2.50 -3.90 -4.13
Gross profit 215.40 240.20 183.90 199.46
Depreciation -35.70 -30.50 -31.50 -32.45
Profit Before Tax 179.70 209.70 152.40 167.01
Tax -53.40 -65.30 -43.80 -52.61
Net Profit 126.30 144.40 108.60 114.40
Equity capital 128.40 128.40 128.40 128.40
Face value 10.00 10.00 10.00 10.00
EPS 9.84 11.25 8.46 8.91
Ratio Analysis
Particulars FY11 FY12 FY13E FY14E
EPS (Rs.) 33.88 48.22 52.10 57.39
EBITDA Margin (%) 15.92% 15.13% 15.02% 15.08%
PBT Margin (%) 13.24% 13.16% 13.02% 13.07%
PAT Margin (%) 8.85% 9.21% 9.05% 9.14%
P/E Ratio (x) 13.46 9.46 8.75 7.94
ROE (%) 23.42% 26.95% 22.55% 19.90%
ROCE (%) 43.88% 48.21% 41.10% 36.14%
EV/EBITDA (x) 7.48 5.76 5.27 4.82
Book Value (Rs.) 144.66 178.93 231.03 288.42
P/BV 3.15 2.55 1.97 1.58
Charts
Outlook and Conclusion
� At the current market price of Rs.482.00, the stock P/E ratio is at 8.75 x FY13E and 7.94 x FY14E
respectively.
� Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.52.10 and
Rs.57.39 respectively.
� Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 19% over 2011 to 2014E
respectively.
� On the basis of EV/EBITDA, the stock trades at 5.27 x for FY13E and 4.82 x for FY14E.
� Price to Book Value of the stock is expected to be at 1.97 x and 1.58 x respectively for FY13E and FY14E.
� We recommend ‘HOLD’ in this particular scrip with a target price of Rs.540.00 for Medium to Long term
investment.
Industry Overview
The Indian auto component industry, which is currently valued at US$ 30 billion, will touch US$ 100 billion by
2020, according to Rajkot-based Ikon Marketing Consultants. The industry is growing at a steady pace of 15 - 18
per cent annually. The retail market (generally called as after-sales or after-market) for auto components is
valued at Rs 600 crore (US$ 111.11 million) and is expected to witness a quantum jump on the back of robust
domestic demand.
An analysis of medium to heavy-duty Hybrid and Electric Commercial Vehicle Market in China and India
estimated that the component revenues from India will reach US$ 212 million by 2020, which would account for
11 per cent of the global component market, as per Frost and Sullivan.
Market Structure
The auto component industry has been growing at a compound annual growth rate (CAGR) of 14.6 per cent
during 2007-11 and is expected to be a US$ 113 billion by 2020, as per data provided by Automotive Component
Manufacturers Association of India (ACMA).
The small and medium enterprise (SME) dominated automotive sector is among the top three sectors attracting
heavy online traffic on the site, IndiaMART.com, in terms of the number of buyers who visited from other
countries, both developed and developing, as per a report by IndiaMART.com. Asian countries are also key
buyers for auto products from India. Among the Indian suppliers registered on IndiaMART.com, the auto
component sector features in the top five categories, contributing 11.8 per cent to the whole pie. Product
categories such as pumps and pumping equipments took the top slot with 8.1 per cent buy leads posted on them,
followed by products such as nuts and bolts in second place and lights and accessories in third position.
Polaris Industries, maker of All Terrain Vehicles (ATVs), snowmobiles and motorcycles, is set to give a fillip to the
nascent motorsports market with its entry this year.
India: The Global Auto Hub
Supportive Government policies, positive business environment, availability of reasonably priced talented
workforce and stable outlook for the industry have made India a global hub for the international manufacturers
to set up their facilities in the country. The auto components manufacturers are also reaping the benefits.
• Automotive components maker Piolax India, a subsidiary of Piolax of Japan, has inaugurated its first
Indian facility at the Sri City multi-product Special Economic Zone (SEZ) in Andhra Pradesh (AP)
• Bosch Automotive Aftermarkets has launched 100 service centres in North India. These centres will
provide service to multi-brand vehicles across different segments of unit repair (fuel injection systems,
auto electrical units) and entire vehicular repair
• The joint venture (JV) between global gearing expert David Brown and Bharat Forge, manufacturer of
automotive and non-automotive components, David Brown-Bharat Forge, has opened its first industrial
gearbox service and assembly facility in Hosur, Tamil Nadu
• Panasonic Carbon India Co Ltd intends to enter the lead acid battery market for the industrial and
automotive sector. The Rs 13,000 crore (US$ 2.41 billion) lead acid battery market has been growing in
double digits, on back of the rapidly growing automobile sector. While, industrial batteries is a Rs 4,800
crore (US$ 888.89 million) market and automotive batteries constitute a Rs 8,200 crore (US$ 1.52 billion)
market annually
Key Developments and Investments
• Hero MotoCorp plans to set up Global Parts Centre (GPC) at Neemrana, Rajasthan. With an investment of
Rs 160 crore (US$ 29.63 million), the GPC will be spread across 35 acres
• TVS and Sons Ltd plans to take its multi-brand car service solutions business to the UK, the US and
Thailand. The company plans to add 65 to 70 owned outlets in India by 2013-14
• Sandhar Technologies Ltd has acquired 100 per cent stake in Bengaluru-based Mag Engineering Pvt Ltd,
one of the largest driver cabin manufacturer in India, for Rs 70 crore (US$ 12.96 million) - Rs 90 crore
(US$ 16.67 million)
• Skoda is increasing localisation levels and rationalising prices across the range of products it offers in the
country, in order to increase its volume in the Indian market
Government Initiatives
Gujarat has been one of the most proactive states in terms of investor-friendly policies and environment. Maruti
Suzuki India Ltd (MSIL) has signed a state support agreement (SSA) with the State Government. MSIL plans to
infuse about Rs 4,000 crore (US$ 740.74 million) in the initial phase of the project and equivalent amount would
be invested by the company's ancillary suppliers to set up a vendor park near the facility. The new unit is
expected to commence operations by 2015-16.
In a bid to improve safety features of vehicles, the Government has asked automobile manufacturers to develop a
gadget which would be similar to the 'black box' installed in planes. The owner would not be able to turn the
instrument off or on and the snapshot could be viewed by legal bodies, insurance companies and automakers. Mr
C P Joshi, Minister of Road Transport and Highways, has also asked manufacturers to contemplate on the option
of fixing such IT-enabled instrument to improve safety and security of the vehicles.
Meanwhile, the Government of Odisha has also prepared a draft of its proposed auto component policy to attract
investment in the state. Meticulously prepared, the draft policy envisages a concession of up to 50 per cent on
land to be made available to auto component manufacturers and electricity duty waiver for ten years. The policy
also delineates various fiscal incentives, increased reimbursements capital grants to attract manufacturers to set
up their factories in the state.
Road Ahead
The rapid improvement in infrastructure, huge domestic market, increasing purchasing power, established
financial market etc have made India a favourable destination for investment by global majors in the auto
industry, according to Automotive Mission Plan (AMP - 2006-16).
The vision of AMP 2006-2016 aims India "to emerge as the destination of choice in the world for design and
manufacture of automobiles and auto components with output reaching a level of US$ 145 billion accounting for
more than 10 per cent of the GDP and providing additional employment to 25 million people by 2016."
In addition, the hybrid and electronic vehicles are new developments on the automobile canvas and India is one
of the key markets for them. Global and Indian manufacturers are focussing their efforts to develop innovative
products, technologies and supply chains.
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale
of any financial instrument or as an official confirmation of any transaction. The information contained herein is
from publicly available data or other sources believed to be reliable but do not represent that it is accurate or
complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall
not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provide for assistance only and is not intended to be and must
not alone be taken as the basis for an investment decision.
Firstcall India Equity Research: Email – [email protected]
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