Steel Strips Wheels Ltd Result Update: Q1 FY 12

Transcription

1 Steel Strips Wheels Ltd Result Update: Q1 FY 12 C.M.P: Rs Target Price: Rs Date: Oct. 8 th 2011 BUY Stock Data: Sector: Auto Component Face Value Rs wk. High/Low (Rs.) / Volume (2 wk. Avg.) BSE Code Market Cap (Rs in mn) Share Holding Pattern SYNOPSIS Steel Strips Wheels Ltd. (SSWL) is engaged in the manufacturing of single piece steel wheel rims for scooters, passenger cars, utility vehicles and tractors. During the quarter ended, the robust growth of Net Profit is increased by 59.61% Rs million. SSWL has bagged to export wheels annually with an approximate value of 22 cr per year with one of Europe's leading Trailer manufacturer. 1 Year Comparative Graph SSWL has bagged USD 33 mn contract from BMW for supply of steel wheels annually to Germany. Steel Strips BSE SENSEX Net Sales and PAT of the company are expected to grow at a CAGR of 33% and 56% over 2010 to 2013E respectively. SSWL is certified in accordance with ISO 14001:2004, OHSAS 18001:2007 and soon SA8000. Years Net sales EBITDA Net Profit EPS P/E FY FY 12E FY 13E

2 Peer Group Comparison Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Steel Strips Wheels L.G. Balakrishnan Bosch Ltd Lumax Industries Ltd Investment Highlights Q1 FY12 Results Update Steel Strips Wheels Ltd. has reported net profit of Rs million for the quarter ended on June 30, 2011 as against Rs million in the same quarter last year, an increase of 59.61%. It has reported net sales of Rs million for the quarter ended on June 30, 2011 as against Rs million in the same quarter last year, a rise of 54.98%. Total income grew by 54.98% to Rs million from Rs million in the same quarter last year. During the quarter, it reported earnings of Rs 7.78 a share. Quarterly Results - Standalone (Rs in mn) As At Jun-11 Jun-10 %change Net sales % PAT % Basic EPS % 2

3 Break up of Expenditure Bags export order for truck wheel rims from Europe Steel Strips Wheels Ltd has bagged a long term contract with one of Europe's leading Trailer manufacturer. This contract has a potential to reach wheels per year with an approximate value of 22 Crores per year. Supplies will start from Oct 2011 from the Company's Jamshedpur plant. Bags 33 million USD contract from BMW BMW Germany has selected SSWL for supply of steel wheels for its new launches in 2013 and The annual volume for the three new models is steel wheels and supplies shall start from November 2013 to its Oxford, Leipzig and Regensberg plants in Germany and projected volume is USD million. Steel strips wheels limited is already supplying steel wheels to BMW Oxford plant for its prestigious mini model and the new order indicates BMW growing relationship with SSWL. 3

4 Company Profile Steel Strips Wheels Ltd., established in 1985 is a part of the Steel Strips Group, headquartered in Chandigarh. The company is engaged in the manufacturing of single piece steel wheel rims in the range of 10 to 30 inches for Passenger cars, Multi utility vehicles, Tractors, Trucks, OTR Vehicles as well as Two and Three Wheelers. Production facility The company has three production facilities: It produces mainly passenger car wheels in Dappar (near Chandigarh) and Oragadam (near Chennai) and truck wheels in Jamshedpur. The total capacity amounts to 9 million wheels in Dappar, 6 million wheels in Oragadam and 1 million truck wheels in Jamshedpur. Its total capacity is 16 million wheels. Product range The company is a strong and reliable partner to the Indian and international automotive industry and are increasingly being recognized as a reputed global player in the development and production of steel wheels for Original Equipment Manufacturers (OEMs). The company manufactures single piece steel wheel rims for: Passenger Cars, 2/3 wheelers In the Car, MUV and Two- and Three- Wheeler segments our major Indian customers are Maruti Suzuki, TATA Motors, Honda Siel Cars, Mahindra & Mahindra, Nissan, Volkswagen, General Motors, Hyundai Motors, Honda Scooters and Piaggio. Tractors Segment In the Tractor segment we supply to Mahindra & Mahindra Tractors, Punjab Tractors, International Tractors, Eicher Tractors, Escorts, New Holland, John 4

5 Deere, HMT, ACE Tractors and NDO Farm Tractors. Truck wheel customers are Swaraj Mazda, Tata Motors and Ashok Leyland. Commercial Vehicles & Earth Mover Segment In the OTR vehicles segment we manufacture for JCB and L&T Case. International presence and its Customers At an international level the company supply to PSA Peugeot Citroen, France (5 different locations) and Renault Nissan Group (Romania and Brazil), BMW (UK), Piaggio (Italy), Siam Kubota (Thailand and Japan), Kromag (Austria), Just (Germany) and Pneumat Trading (Slovakia). They are fostering relationship with Renault and have recently been nominated for supplies of a high tech styled wheel to Russia and Brazil in addition to Romania. The company has also been selected as a single source supplier to Renault's Greenfield plant in Morocco. The company s international customer base is gradually increasing (several wheel sizes for existing and new programmes are under development for Renault, PSA and Audi, Germany) and will soon start supplies of trailer wheels from its new plant in Jamshedpur to several German trailer OEs. 5

6 Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Reserves Face value EPS

7 Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 31-Dec Mar Jun Sep-11E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Profit After Tax Equity capital Face value EPS

8 Key Ratios Particulars FY10 FY11 FY12E FY13E No. of Shares(in mn) EBITDA Margin (%) 14.74% 13.46% 12.90% 12.90% PBT Margin (%) 4.66% 5.41% 5.92% 6.39% PAT Margin (%) 3.45% 4.53% 5.15% 5.55% P/E Ratio (x) ROE (%) 10.99% 12.95% 15.84% 16.78% ROCE (%) 23.85% 22.87% 24.62% 25.49% Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts: Net Sales & PAT 8

9 P/E Ratio(x) Debt Equity Ratio 9

10 EV/EBITDA(x) P/BV 10

11 Outlook and Conclusion At the current market price of Rs , the stock is trading at 7.63 x FY12E and 5.99 x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 33% and 56% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 3.04 x for FY12E and 2.58 x for FY13E. Price to Book Value of the stock is expected to be at 1.21 x and 1.01 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview India has the most competitive auto parts manufacturing industry in the world, with Indian automotive components being widely preferred by major automobile manufacturing companies. The auto component companies in India are contributing to the growth of this sector by providing genuine, cheap and reasonably priced automotive parts. The Indian automotive components industry has actively and quickly transformed from a domestic market supplier, to one of the essential auto parts supplier in the world. The Indian auto component sector has been growing at 20 per cent a year since 2000 and is projected to maintain the high-growth phase of per cent till

12 Growth Drivers Rising demand for vehicles - Vehicle production grew to around 17.9 million in Global Original Equipment Manufacturers (OEMs) are entering India to establish their manufacturing base Low-cost and high quality standards Low labor costs in India have resulted in a significant cost reduction, with international quality standards being duly maintained. An average cost reduction of nearly per cent has attracted several global automobile manufacturers to set base since 1991 Availability of low cost skilled manpower India produces close to 0.4 million engineering graduates every year, and the cost of entry-level engineers is as low as US$ 8,000 a year. The country accounts for 26 per cent of the world s Engineering Service Outsourcing (ESO) Policy initiatives - De-regulation and policy initiatives such as lower excise duties, realisation of value added tax (VAT), etc., have been implemented. Foreign direct investment (FDI) up to 100 per cent is permitted through the automatic route for manufacturers of automobiles and components Industry Structure The Indian auto component industry is large and highly fragmented. There are around 400 major players in the auto component sector. The original equipment (OE) market is predominantly catered to by the organised sector. The 400 odd organised producers contribute around 80 per cent to this market Market Size The automotive component industry's output for the financial year was US$ 22 billion with a growth rate of 20 per cent, against financial year The Indian auto component industry has the opportunity to tap around US$ 110 billion by Major Indian auto parts makers are on track to report a strong first quarter, on the back of robust after-sales demand and growing exports. 12

13 The revenue growth rate of auto ancillary companies is expected to be in line with auto OEMs. In first quarter of the current fiscal, production by all OEMs in the auto industry grew by about 20 per cent in comparison with the corresponding quarter of last year, resulting in corresponding growth in customer demand. Exports The industry has been exporting around 13 per cent of its output. In the year , the industry exported goods worth US$ 3.8 billion. Principal export items include replacement parts, tractor parts, motorcycle parts, piston rings, gaskets, engine valves, fuel pump nozzles, fuel injection parts, filter & filter elements, radiators, gears, leaf springs, brake assemblies & bearings, clutch facings, head lamps, auto bulbs & halogen bulbs, spark plugs and body parts. Exports, which touched US$ 5 billion in , are expected to grow by per cent in Recent Trends/Investments Besides low labour costs, India s process-engineering expertise, applied to re-designing of production processes, has resulted in the reduction in manufacturing costs of components. As a result, India, today, has become the outsourcing hub for several global automobile manufacturers. Several large Indian auto component manufacturers are in the process of substantially investing in capacity expansion, establishing partnerships in India and abroad, acquiring companies in foreign countries establishing Greenfield ventures, Research & Development (R&D) facilities and design capabilities. Japanese car major Toyota has announced an investment of nearly Rs 1,650 crore (US$ million) to increase the production capacity of its Indian operations by one lakh units and for increasing localisation of components by 2014 Force Motors has will enter the passenger vehicle segment with the launch of a multipurpose vehicle (MPV) by 2012, for which the company will set up a new facility in Madhya Pradesh with an initial capacity of 24,000 units per year. The company said it 13

14 has signed a licencing agreement with German auto major Daimler for procuring technology for the MPV Auto parts maker MothersonSumi Systems Ltd (MSSL) has announced its plans to acquire an 80 per cent stake in Germany's Peguform Group from Cross Industries. The deal is expected to be closed in 2-3 months and will be funded through debt from Indian lenders, said VC Sehgal, Vice-Chairman, Motherson Group. French tyre-maker Michelin's upcoming India plant in Chennai will produce its first tyre in November The company plans to produce three lakh radial truck tyres in the first year of operations, and cater to the domestic market, according to a top official. Michelin is setting up a manufacturing unit at ThervoyKhaidigia industrial area in Tiruvallur district, near Chennai, and would be investing Rs 4,000 crore (US$ million) over a seven-year period. Policy Initiatives The Ministry of Heavy Industries and Public Enterprises has envisaged the Automotive Mission Plan (AMP) to promote growth in the sector. The plan targets to: Increase turnover to US$ 122 billion US$ 159 billion by 2016 from US$ 34 billion in 2006 Increase export revenue to US$ 35 billion by 2016 Provide employment to additional 25 million people by 2016 Road Ahead Going forward, the automotive component industry in India displays strong potential in generating employment and promoting entrepreneurship in the country. The series of new investment plans announced by global and domestic automobile manufacturers re instates the emergence of India as a global hub for auto components. The boost in demand, with the growth of the automobile industry, will see the emergence of several new players in the industry. The huge market for auto components, and the diverse products and technology involved ensures a place and 14

15 role for many. Among the smaller players in the unorganized segment, the industry could witness a shift from being standalone companies, to entering into either contract manufacturing or being ancillary units. The newly defined rules of specialisation, development and delivery, hold the key to success in the auto component industry. 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. 15

16 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods D. Ashakirankumar Automobile A. Rajesh Babu FMCG H.Lavanya Oil & Gas Dheeraj Bhatia Diversified Manoj kotian Diversified Nimesh Gada Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com 16