Religare Investment Call

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1 Q3FY18 Result Update Auto Ancillary BUY CMP (Rs) Target Price (Rs) Potential Upside Sensex Nifty Key Stock data BSE Code NSE Code Bloomberg Shares o/s, Cr (FV 10) Market Cap (Rs Cr) 3M Avg Volume 52 week H/L Shareholding Pattern (%) Jun-17 Promoter 70.7 FII DII % 35,640 10, GNA GNA:IN , /188 Sep-17 Dec Higher volumes boost sales and profitability reported robust Q3FY18 result on account of strong sales in both domestic and export markets. Total income and Net profit increased by 40.9% and 55.9% respectively on yoy basis. In 9MFY18, the company derived ~45% of its revenue from export market, the outlook for which remains healthy considering significant pickup in truck demand in North American markets. Also, domestic outlook for tractors and MH&CVs continues to remain strong. Recommend Buy. Q3FY18 Result Update: Total income was up 40.9% at Rs. 167 cr compared to Rs cr in the same quarter last year. Domestic sales were up 32.8% yoy led by strong growth in tractor and MH&CV segments. Further, exports too remained robust, growing 34.6% yoy on account of strong demand for heavy trucks from North American markets. Going ahead, we expect overall volume growth to be around 12-15% supported by steady outlook for automobile industry globally and launch of axles for SUVs and LCVs in FY19-20E. On operational front, was up 38.4% at Rs. 2 cr against Rs cr yoy. Operational margins faded marginally by 30 bps due to higher material cost (up 4% yoy); however the same was aided by lower employee cost (up 16.5% yoy). We expect overall % to improve in the next 2-3 years led by cost reduction measures and launch of new products. Net profit surged by 55.9% on account of lower finance (down 70% yoy) and depreciation cost (up 2.8% yoy). With higher volumes and better working capital management, Net profit margin improved by 70 bps to % in Q3FY18 compared to % in Q3FY17. We expect the overall Net profit margins to remain healthy and improve marginally in the next 2-3 years led by higher capacity utilization and sales. 1 Year relative price performance Jan-17 Feb-17 Mar-17 Apr-17 May-17 Research Analyst Jun-17 Jul-17 Aug-17 Ajay Pasari, CFA ajay.pasari@religare.com Sep-17 Ni y Oct-17 Nov-17 Dec-17 Outlook & Valuation: is a niche player in the auto ancillary space with ~50% market share in the domestic rear axle shafts. The outlook for automobile industry (off-highway vehicles, MH&CVs, LCVs) is expected to remain robust on domestic front, given expected pick-up in GDP growth, higher infrastructure spending, focus on rural economy and normal monsoon. Also, with recovery in global economies, we expect demand for commercial automobile vehicles to remain strong in the next 2-3 years, mainly in the North American markets. GNA is also expanding its axle capacity to meet the rising demand and is likely to launch axles for LCVs and SUVs in FY19-20E, which would further add to its revenues. Thus, considering strong business outlook, capacity expansion, entry into new segments and improving margins, we recommend a Buy on the stock with a target of Rs Financial Summary - Consolidated Particulars, Rs cr Net revenue Adj PAT PATM (%) EPS, Rs RoE (%) P/E (x) FY17 FY18E FY19E FY20E January 22, 2018

2 Q3FY18 Result Update Auto Ancillary P&L Account Quarterly - Consolidated Particulars, Rs cr Q3FY18 Q3FY17 Y-o-Y % Q2FY18 Q-o-Q % Net Revenue Material cost Employee cost Other expenses Total expenditure Other income Depreciation PBIT Interest expenses PBT Exceptional items Tax Tax/PBT % PAT APATM (%) EPS bps bps bps bps bps bps 18.9

3 Q3FY18 Result Update Auto Ancillary P&L Account - Consolidated Particulars, Rs cr FY17 FY18E FY19E Net revenue Expenditure Raw material consumed Employee cost Other expenses Total expenditure Other income Depreciation PBIT Interest expenses PBT Exceptional items Tax Tax rate % PAT PATM (%) EPS FY20E Balance sheet - Consolidated Particulars, Rs cr FY17 FY18E FY19E Share Capital Reserves & Surplus Total Shareholder's Fund Non-Current Liabilities Long term borrowing Deferred tax liability Current Liabilities Short term borrowing Trade payables Short term provisions Other current liabilities Total liabilities Fixed Assets Non Current investment Long Term loans & advances Other non-current assets FY20E Current Assets Inventories Trade receivables Cash & Cash equivalents 7 6 Short term loans and advances Total assets

4 Q3FY18 Result Update Auto Ancillary Cash Flow statement - Consolidated Key Financial ratios - Consolidated Particulars, Rs cr FY17 FY18E FY19E FY20E Particulars, Rs cr FY17 FY18E FY19E FY20E Profit Before Tax Add: Depreciation Add: Interest cost Op profit before working capital changes Changes In working Capital Direct taxes Cash Flow From Operating Cash Flow from Investing Purchase of Fixed assets Sale of Fixed assets Cash Flow from Investing Cash from Financing Proceeds from issuance of shares Net proceeds from borrowings Dividend (incl dividend tax) Interest cost Cash Flow from Financing Net Cash Inflow / Outflow Opening Cash & Cash Equivalents Closing Cash & Cash Equivalent EPS Rs Book Value per share Rs Profitability Ratios / Total income (%) PBT/Total income (%) NPM / Total income (%) ROCE (%) ROE (%) Liquidity ratios Debt-Equity Ratio Current Ratio Interest Cover Ratio Turnover ratios Total Asset Ratio Fixed Assets Ratio Debtors Velocity Overall (Days) Inventory (Days) Creditors Velocity (Days) Cash Conversion cycle GROWTH YOY% Sales Growth % Operating Profit % Net Profit Growth % VALUATION P / E Ratio P / BV Ratio EV /

5 Q3FY18 Result Update Auto Ancillary Before you use this research report, please ensure to go through thedisclosure inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 and Research Disclaimer at the following link : Specific analyst(s) specific disclosure(s) inter-alia as required under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 is/are as under: Statements on ownership and material conflicts of interest, compensation Research Analyst (RA) [Please note that only in case of multiple RAs, if in the event answers differ inter-se between the RAs, then RA specific answer with respect to questions under F (a) to F(j) below, are given separately] S. No. Statement Answer Tick appropriate YES I/we or any of my/our relative has any financial interest in the subject company? [If answer is yes, nature of Interestis given below this table] I/we or any of my/our relatives, have actual/beneficial ownership of one per cent. or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance? I / we or any of my/our relative, has any other material conflict of interest at the time of publication of the research report or at the time of public appearance? I/we have received any compensation from the subject company in the past twelve months? I/we have managed or co-managed public offering of securities for the subject company in the past twelve months? I/we have received any compensation for brokerage services from the subject company in the past twelve months? I/we have received any compensation for products or services other than brokerage services from the subject company in the past twelve months? I/we have received any compensation or other benefits from the subject company or third party in connection with the research report? I/we have served as an officer, director or employee of the subject company? I/we have been engaged in market making activity for the subject company? Nature of Interest ( if answer to F (a) aboveis Yes :... Name(s)with Signature(s)of RA(s). [Please note that only in case of multiple RAs andif the answers differ inter-se between the RAs, then RA specific answer with respect to questions under F (a) to F(j) above, are given below] SS.No Name(s) of RA Signatures of RA Serial Question of question which the signing RA needs to make separate declaration / answer YES Copyright in this document vests exclusively with RSL. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose, without prior written permission from RSL. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Disclaimer: