DENSO INDIA LTD.(DENSO)

Transcription

1 DENSO INDIA LTD.(DENSO) Date : 2 th September, 212 Stock Performance Details Current Price : Rs. 46.** Face Value : Rs. 1 per share 52 wk High / Low : Rs / Rs Total Traded Volumes : 24 shares** Market Cap : Rs. 97 crore** Sector : Auto Ancillary Electrical Components EPS (212) : Rs. (25.8) per share P/E (TTM) : NA (x)^ P/BV (TTM) :.96 (x)^ Financial Year End : 1 st April 31 st March BSE Scrip Name : DENSO BSE Scrip Code : 5222 **as on2 th September, 212; ^ as on June 212 Shareholding Details June 212 Particulars Shareholding Nos. (%) Promoter & Promoter Group Holding 2,4,81, Total Institutional Holdings (FIIs & DIIs) 2,24, Public Holdings 53,73, Total 2,78,79, Background Denso India Ltd. (DENSO) is engaged in the manufacturing and supply of electrical automotive components and caters to the needs of Original Equipment Manufacturers (OEMs). The Company's operational capacities are located in Haridwar, India. Its customers are Maruti Suzuki India Limited (MSIL) and Hero Honda Motors Limited. The Company has sold Small Motor Business i.e Front/ Rear Wiper, Power Window Motors, Blower Motors, Electric Fan Motors and Engine Cooling Modules to DENSO Haryana Private Limited, a DENSO group company, by way of slump sale. The consideration for the sale on a slump sale basis is Rs. 1,477 million, out of which 9% amount i.e. Rs. 1,329 millions has been received on signing the agreement and balance 1% will be received on closing date which is scheduled to be in October 212 The Company's Electrical Parts Business for the four wheeler segment i.e Alternator and Starter and Electrical Parts Business for the two wheeler segment i.e GDI and Magneto constitute the core businesses of the Company. Strategy Focus The company has completed issue and allotment of 4,33,87,48 equity shares of face value Rs 5 each on conversion of outstanding loan of Rs 144,4,49,995 to the allotees on preferential basis at a price of Rs 33.2 including a premium of Rs The company recently completed its expansion project at the Mysore plant and commenced commercial production of niche tyres for four-wheelers, a segment which it was not catering to earlier. This is likely to diversify its product offerings, thus in turn diversifying the revenue model of the company. The Company is proposing to set up a factory at Bangalore to cater to the requirements of two wheelers manufacturers in southern India and mainly supply to Honda Motorcycle and Scooter India Pvt. Ltd. (HMSI) which is one of the main customers for the two wheelers products of the Company. The Company is in the process of taking up suitable premises on lease at Bangalore to set up the Factory. The key products in the Electrical parts business like Alternator & Starter and GDI & Magneto contribute to engine performance in a vehicle and are expected to be the key growth drivers for the company in the future. An Initiative of the BSE Investors Protection Fund 1

2 Financial Snapshot Particulars Standalone Financials (Rs. in Million) Income Statement Net Sales / Income from Operations 1,362. 9,274. 7,363.3 Expenses Cost of material consumed 8,345. 7,139. 5,377.8 Change in Inventories Employee Benefit Expenses 1, Administrative & Other Expenses 1,431. 1, EBIDTA Depreciation & Amortization Finance Costs / Interest Expense Other Income Profit After Tax (PAT) Key Ratios Income Statement EBIDTA Margin (%) PAT Margins (%) Balance Sheet Networth 1,371. 2,93. 2,72.9 Non Current Liabilities / Loan Funds Non Current Assets / Fixed Assets 1,58. 1, Inventories 1,66. 1,574. 1,77.5 Debtors 1, Key Ratios Balance Sheet Debt : Equity (x).6.2. Book Value (BV) (in Rs.) Return on Capital Employed (ROCE) (%) Return on Equity (ROE) (%) Debtors Turnover Ratio (x) Inventory Turnover Ratio (x) Valuation Ratios P/E (x) P/BV (x) EV / EBDITA (x) Source : Capitaline.com; as on 31 st March, 212 From the Research Desk of LKW s Gurukshetra.com Despite the challenging scenario witnessed in the Automotive and Auto Ancillary sector, the company reported an increase of 11% in Net Sales for 212 on a standalone basis that stood at Rs. 1,362 million as compared to Rs. 9,274 million for the corresponding period during the last fiscal. However, owing to the significant rise in cost of sales on account of the weakening rupee, inflationary situations and decline in demand from automobile manufacturers, Denso reported a loss at the EBIDTA level which stood at Rs. 31 million versus a profit of Rs. 256 million in 211. Notwithstanding the increase in topline during 212, the EBIDTA came under pressure thereby squeezing the EBIDTA margins. This was primarily because of rising input costs, sticky An Initiative of the BSE Investors Protection Fund 2

3 inflation, adverse foreign exchange scenario and weakening rupee, disturbances and labour unrest with major customers which impacted its operations. The labour unrest at Manesar plat of Maruti Suzuki India Limited impacted the company as Maruti is their biggest customer. Resultantly, the loss was to the extent of Rs. 31 million at the operational level as compared to a profit of Rs. 256 million in 211. In-line with the subdued operational performance and due to a sharp increase in interest costs, the PAT too came under pressure as the loss at the bottomline level widened to Rs. 772 million in 212 against Rs. 2 million profits in 211. The other challenges faced by the company were in terms of erratic demand from the automakers. Further, to ensure that the company retains market share, it imported more material and components and also carried higher inventory on the books to ensure adequacy of supply to its OEMs. As a result of the above, there was severe pressure on the working capital as the debtors as well as inventories increased. However, the quantum of increase in Debtors was to the extent of 5% on a y-o-y basis which in the end resulted in a slippage of the Debtor Turnover ratio from 15.5 times in 211 to 12.1 times in 212. For Q1 13, the net revenues from operations stood at Rs million which grew by 5% on a q-o-q basis. The EBIDTA has risen by 46% in Q1 13 to Rs million as compared to Rs million in Q4 12 primarily due to reduction in inventories and lower cost of raw materials on a sequential basis. This led to an improvement in the Profitability and Net Margins which stood at Rs million and 5.76% respectively from Rs million and 2.82% in Q4 12. While the company has been one of the preferred component suppliers for OEMs, its dependence on a handful of vehicle manufacturers like Maruti Suzuki and Hero Moto Corp poses a threat to its revenues. However, this is a notable trend with most auto ancillary companies which rely on one big customer for majority of their revenues. Nevertheless, its ability to contain the inflationary pressure and reduce stress on margins by being able to pass on hike in raw material costs, sustaining market share and easing pressure on working capital will need to be monitored. Further, with a negative growth witnessed by the Automobile industry the progress on the expansion plan in Bangalore too merits watching. Nevertheless, the company s thrust on vehicle engine performance based products like Alternators / Starters and CDI / Magneto for four wheelers and two wheelers respectively that result in fuel cost optimization augurs well from a longer term perspective. An Initiative of the BSE Investors Protection Fund 3

4 Peer Comparison The below tables gives a snapshot of the financial performance of the company for 212 vis-à-vis some of the well known players with large and diversified business operations in the Electrical Engine segment of the intensely competitive Indian Auto Components Sector. (Rs. In million) Standalone Financials Particulars Denso Kirloskar Oil (India) Engines Bosch Net Sales 1,362 23,26 79,972 EBIDTA -31 3,44 13,498 PAT , EBIDTA Margins (%) PAT Margins (%) P/E (x)^ P/BV (x)^ Debt : Equity (x) EV / EBITDA (x)^ Source : Capitaline Database, ^TTM as on June 212 Performance on the Bourses Stock Performance as on 2 th September % Denso India BSE SmallCap An Initiative of the BSE Investors Protection Fund 4

5 About the Industry The Indian Auto Components Industry is currently valued at USD 3 billion and is estimated to grow at USD 1 billion by 22. It derives its growth impetus from the growing Automobile Industry. This translates into a CAGR growth of over per cent as per Automotive Components Manufacturers Association (ACMA). Further, Indian share in world auto components is estimated to grow over 3 per cent by against a meager.4 per cent in The Rs 1,6 billion (US$ 3.77 billion) Indian auto component industry clearly derives its growth impetus from the growth in automobile industry. Notably, the slow down witnessed by the Automobile Industry has certainly impacted the demand sentiment for the Auto Component Industry as well. However, an expected pick-up in growth for the Automobile industry over the longer term is expected to eventually drive growth for the auto parts sector. According to the Society of Indian Automobile Manufacturers, automobile sales in 13 are expected to grow 1% compared to a 2% growth in 12. This would revive demand for auto components in the coming quarters. Market Survey and current trends indicate strong possibilities of high growth rate in automotive market in coming years. However presently the automobile industry is faced with the challenging times with uncertainties on the demand side in coming months, which hopefully is only a short term phenomenon. The total automobile market is expected to grow by double digits annually for the next 5 years. India is emerging as a small car hub in the Asia Pacific region. This is evident from the fact that almost all the major international automobile manufacturers have registered their presence in India and have started manufacturing small cars in this country. It is forecast that by 22 India would be one of the top five automobile manufacturing countries in the world. These positive developments in the automobile sector would augur well for the auto component industry and the company. (source: Company Annual Report). Outlook The Company is a part of the Auto Components Industry within the overall Indian automotive industry, which is emerging as one of the most preferred destination for Automobile Manufacturers across the globe thus the growth, is likely to sustain. Though there are projections of good growth for the Indian car and two wheelers market in the medium to long term, based on growth in household income of burgeoning middleclass in India, the market will be subject to economic cycles and sensitive to fuel prices and interest rates in the near term. Further, progress on capex at Bengaluru needs to be monitored in the wake of declining demand situation for vehicles from the end user. The ability to localize components and systems is expected to open up vast opportunities for component suppliers and also the Company. Disclaimer All information contained in the document has been obtained by LKW s Gurukshetra.com from sources believed to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and LKW s Gurukshetra.com in particular makes no representation or warranty express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion, and LKW s Gurukshetra.com shall not be liable for any losses incurred by users from any use of this document or its contents in any manner. Opinions expressed in this document are not the opinions of our company and should not be construed as any indication of our recommendation to buy, sell or invest in the company under coverage. An Initiative of the BSE Investors Protection Fund 5

6 Financial Graphs Net Income from Operations 12, Rs. in Millions 1, 8, 6, 4, 2, Net Income from Operations ,363 9,274 1,362 EBITDA & EBITDA Margins Rs.in Millions EBIDTA EBIDTA Margins % PAT & PAT Margins Rs. in Millions % PAT PAT Margins An Initiative of the BSE Investors Protection Fund 6

7 Disclosure Each member of the team involved in the preparation of this report, hereby affirms that there exists no conflict of interest. The report has been sponsored and published as part of Initiative of BSE s Investors Protection Fund About Us LOTUS KNOWLWEALTH (LKW), commenced business in 199 and is currently engaged in providing WEALTH ADVISORY, CORPORATE ADVISORY and ECONOMIC & FINANCIAL RESEARCH & CONTENT services. LKW s ECONOMIC & FINANCIAL RESEARCH & CONTENT division currently generates Reports on Economic & Industry Trends, Global & Indian Equity Markets, Fundamental Analysis of IPOs, Companies & Industries, Management Meeting Reports, Balance Sheet & Financial Analysis Reports and an Economic Political and Sentiment Barometer. LKW also conducts Capital Market related Training Programs and has cutting edge expertise in Mutual Fund Analysis and specializes in Grading of Mutual Fund Schemes and IPOs. GURUKSHETRA.com is an online initiative of LKW that focuses on Personal Finance while theipoguru.com is India s Premier Primary Market (IPO) Portal. Contact Us LOTUS KNOWLWEALTH Pvt. Ltd. Regd.Office : B Wing, 55-56, Fairlink Centre, Off Andheri Link Road, Andheri (W), Mumbai consulting@lotusknowlwealth.com Tel : Website : An Initiative of the BSE Investors Protection Fund 7