TUBE INVESTMENT INDIA LIMITED: Scheme of Arrangement

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Dinah George
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1 TUBE INVESTMENT INDIA LIMITED: Scheme of Arrangement Tube Investment India Limited, Founded in 1900, the INR 300 Billion Murugappa Group is one of India's leading business conglomerates. The Group has 28 businesses including eight listed Companies traded in NSE & BSE. Headquartered in Chennai, the major Companies of the Group include Carborundum Universal Ltd., Cholamandalam Investment and Finance Company Ltd., Coromandel International Ltd., Coromandel Engineering Company Ltd., E.I.D. Parry (India) Ltd., Parry Agro Industries Ltd., Shanthi Gears Ltd., Tube Investments of India Ltd., and Wendt (India) Ltd. Market leaders in served segments including Abrasives, Auto Components, Transmission systems, Cycles, Sugar, Farm Inputs, Fertilisers, Plantations, Bio-products and Nutraceuticals, the Group has forged strong alliances with leading international companies such as Groupe Chimique Tunisien, Foskor, Mitsui Sumitomo, Morgan Advanced Materials, Sociedad Química y Minera de Chile (SQM),Yanmar & Co. and Compagnie Des Phosphat De Gafsa (CPG). The Group has a wide geographical presence all over India and spanning 6 continents. Tube Investment India Limited ( TIIL) is engaged in multiple businesses broadly classified into the following categories:- Manufacturing of tubes, strips, tubular components, bicycles and fitness products,chains for automobile sector and industrial applications, roll-formed sections, other metal formed products, industrial gears, designing and manufacturing of dies ( Manufacturing Business"). The Manufacturing Business is also carried out through subsidiaries (Shanthi Gears Limited, Record date Ex-date Last trading day to participate 28th August th August rd August 2017 Financiere C10 SAS, SEDIS SAS,SEDIS Co Limited, TI Tsubamex Private Limited, etc.). TI Financial Holdings Limited (TIFHL) is engaged in financial services business through subsidiaries, joint ventures, associates viz Non-Banking Financial Business (through Cholamandalam Investment and Finance Company Limited), Insurance Business (through Cholamandalam MS General Insurance Company Limited), Chola MS Risk Services Limited ("Financial Services Business"). TIFHL is a wholly owned subsidiary of TIIL. Scheme of Arrangement The Scheme of Arrangement ( the Scheme ) between the Company ( Demerged Company") and Tube Investments of India Limited, formerly known as TI Financial Holdings Limited ( Resulting Company") and their Shareholders under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 was approved by the Board of Directors of both the Companies on 3rd November, 2016 with an objective of segregating Manufacturing Business and Financial Services Business. The Scheme provided for the demerger of the Manufacturing Business Undertaking of the Company into the Resulting Company, on a going concern basis, with effect from the appointed date of 1st April The Manufacturing Business Undertaking comprises of all manufacturing activities of the Company including those undertaken through Investments in Subsidiaries / Joint Ventures. Pursuant to the Scheme, the Manufacturing Business Undertaking of the Company got vested in/transferred to the Resulting Company as per the Order of the National Company Law Tribunal, Chennai ( NCLT ) dated 17th July 2017 sanctioning the Scheme ( Order of NCLT ). The Scheme is effective from the Appointed Date i.e. 1st April Consequent to the Demerger of Manufacturing Business Undertaking, the company is a NBFC CIC carrying on the business of Financial Services and the name of the Company has been changed from "Tube Investments of India Limited" to "TI Financial Holdings Limited", as provided in the Scheme. The Company has prepared the Financial Results after giving effect to the Scheme. Revenue sources Tube Investment India Limited (TIIL) is a diversified group with businesses manufacturing of tubes, strips, tubular components, bicycle and fitness products, chains for automobile and industrial applications, roll formed sections and other metal products, industrial gears, designing and manufacturing of dies; financial services business through subsidiaries, joint ventures, associates viz NBFC, insurance business and risk consultancy business, which contributes approximately 50 : 50 in the total revenue of the business. Shareholding pattern: Event Demerger of Company Resulting company Ratio HIGHLIGHTS Demerger Tube Investment India Limited (TIIL) name changed on record date TI finance holdings Ltd Tube Investment India Limited (manufacturing business) One fully paid up equity share of Re.1 each of the resulting company will be issued and allotted for every one fully paid up equity share of Rs.2 each held in TIIL. Description as on 30/06/ /03/ /12/ /09/ /06/2016 Total Foreign Total Institutions Total Non Promoter Corporate Holding Total Promoters Total Public & Others

2 Shareholding More than 1% Description as on 30/06/ /03/ /12/ /09/ /06/2016 Amrit Petroleums Pvt. Ltd ELM PARK FUND LTD Gagandeep Credit Capital Pvt. Ltd HDFC Large Cap Fund (Stock Account) HDFC Trustee Company Ltd 7.01 L&T Mutual Fund Trustees Ltd. L & T Equity Fund 1.04 LIC of India Natl. WestMin.Bank PLC as Depos.of 1st Sta.Indian 1.02 Sub-continent Fund a Sub Fund of 1stSta.Invsts.ICVC NATL.WESTMIN.BANK PLC AS DEPOS.OF 1ST STA.INDIA 1.02 SUB-CONTINENT FUND A SUB FUND OF 1ST STA. INVSTS.ICVC Reliance Capital Trustee Co. Ltd. A/c. Reliance Regular Savings Fund - Equity Option RELIANCE CAPITAL TRUSTEE CO. LTD. A/c. Reliance 1.65 Regular Savings Fund-Equity Option Shamyak Investment Private Ltd Toyota Tsusho Corporation UTI - Mutual Fund Scheme 1.9 UTI - Unit Scheme for Charitable and Religious Trust and Registered Societies UTI-UNIT SCHEMEFOR CHARITABLE AND RELIGIOUS 1.86 TRUST AND REGISTERED SOCIETIES Key Points:- The Company has decided to split its operations into two entities financial services business and manufacturing business. It has decided to move the manufacturing business to TI Financial Holdings Ltd. (TIFHL). The appointed date of scheme of arrangement is April 1, Post the arrangement, TIFHL would carry on the business of manufacturing and its equity shares will be listed on the BSE and NSE. On the other hand, TIIL would carry on financial services through its subsidiaries. The resulting company will be a wholly owned subsidiary of the demerged company. Currently, promoters hold per cent of shares in TIIL and rests are by public. In the manufacturing division, Tube Investment India Limited produces tubes, strips, tubular components, bicycles and fitness products, chains for automobile sector and industrial applications roll formed sections and other metal formed products, industrial gears, designing and manufacturing of dyes. The Scheme of demerger, one fully paid up equity share of Re.1 each of the resulting company will be issued and allotted for every one fully paid up equity share of Rs.2 each held in TIIL. The shareholding pattern of TIFHL would be a mirror image of the existing shareholding pattern of TIIL. Company has been growing at percent compounded annual growth rate (CAGR) in both financial and insurance services for the last three years. It is planning to expand its capacity for manufacturing of tubes under its engineering business, in order to meet its expectations to grow at 20-25% a year in this business. The company will be investing around Rs crore this year for which it would help it to meet the demands for a year, but will look at fresh investment in the segment later. Plans for a larger capex would be ready during Fy18 Every year the company spends around Rs crore of capex in this business and the company expects to spend another Rs crore, for debottlenecking. The company, in 2014, has launched a large diameter plant in Tamil Nadu, to address the infrastructure market, such as hydraulic cylinders, propeller shafts and other large-diameter-tube applications. The capacity utilisation of this facility is around 30-35%, and it is growing every month. However, the main business of products for automobile and others, the capacity utilisation could be close to %, he said. The 2

3 company is also expecting its exports to grow, which would also require additional capacity. The engineering business of TII include strips and precision tubes, electric resistance welded and cold drawn welded tubes, which are supplied to automotive companies in India and abroad. It also has market presence in power plants, boiler, textile machinery, general engineering among others. It has also added stainless steel tubes to its portfolio with manufacturing facility housed in Avadi, Chennai. The growth in the engineering division has also been driven by the good growth in the automotive sector, in all the three sectors to which the company cater to the two wheeler, the passenger cars and commercial vehicles. It has tied up with some Original Equipment Manufacturers (OEMs) to supply the engineering products in Southeast Asia and Europe, in automotive segment. The growth of the group was mainly triggered by Tube Investments, Cholamandalam Investment and Finance and Coromandel International. An appreciating rupee also contributed to the growth. Tube Investments has launched a new brand of bicycles that would exclusively sold online, as part of a novel initiative in the domestic market. As part of the e-commerce move, the Murugappa Group has launched Brooks Bicycles for children and adults. These can be purchased through an e-store,brooksbicycle.com. Brooks brand is part of Tube Investments portfolio and was earlier associated with bicycle accessories, particularly leather saddles. The management of the company hopes to be an early mover in the nascent online market for bicycles in India. It has already launched the e- store in Chennai, Bengaluru and Hyderabad. The company hopes to target the millennial segment, youngsters who are open to online purchases. The online store will offer nine models in prices ranging from 5,299 to 10,625, including bicycles for kids and MTBs and city bikes for road use apart from accessories such as helmets and lights. TI Cycles, a division of Tube Investments, sells about 4.5 million cycles annually in a market estimated at 16 million. Online sale is an untapped segment which the company hopes to grow with a dedicated team and product line. Brooks Cycles will be sourced from Sri Lanka and Malaysia. Apart from value for money, alloy frame cycles at entry level prices, seamless purchasing experience will be unique selling proposition for Brooks Cycles. Comment Combined valuation and investment rationale of the company The company has firmly positioned itself and its business growth has driven primarily by two product segments and it has a strong foothold in key sectors auto ancillary and financials. The management of the company expects to achieve an overall sales growth of 20-25% during and a market capitalization of $10 billion in a year or two. Reasonable monsoon, strong rupee, government policies are gaining investors confidence. Besides, the positive business and consumer sentiment improved the performance of the automobile sector (four-wheelers and two-wheelers) leading to robust growth for the gears and tubes. On the valuation front, expected pre-demerger price of the stock is Rs.985. Post demerger Manufacturing business, the company being dominant in each of its segments and having long standing relationship with all the major automobile players stand to benefit from the ever increase in demand for its products. Changing concept of bicycles and increasing acceptance of electric scooters augurs well for the company. Moreover, its metal formed business has growing in a pace of 20% since last 5 quarters including Q1 FY18. Growth in the share of the Railways in the transportation of goods would lead to increased demand for wagons and passenger coaches which would benefit the company in coming years. From Insurance and allied business, it has a presence in financial services through its two subsidiaries Cholamandalam Investments & Finance which is into financial services focused in the rural and semi-urban area and Cholamandalam MS General Insurance Co Ltd (CMSGICL) where its holding stands reduced to 60% after selling 16% stake to its joint venture partner Mitsui Sumito Insurance Co Ltd (Japan) for Rs crores in FY16. After considering management s comment for TI financial holdings limited, as per industry average P/E, we expect post demerger price to be at Rs.598 and demerger price of Tube Investment india Limited (A manufacturing arm and resulting company) to be Rs. 387 for on the basis of P/E at 27.30x and 41.56x, EPS of Rs and Rs

Shareholders of Tube Investment Of India Limited will hold 1 share in TI Financial Holding Limited against 1 shares held on record date Calculation of demerged price of resulted companies Tube

4 Shareholders of Tube Investment Of India Limited will hold 1 share in TI Financial Holding Limited against 1 shares held on record date Calculation of demerged price of resulted companies Tube Investment India Limited TI Financial Holding Limited Revenue PBT Tax % of Tax on PBT PAT Net Worth Equity Share Capital Reseves Outstanding Shares(Cr.) face value 1 2 EPS/Expected EPS according to reuters P/E (Industry Average p/e) target price according to p/ex multiple Combined Value 985 Price Movement Chart 4

5 Valuation Ratio Valutaion Ratio Price Earning (P/E) Price to Book Value ( P/BV) Price/Cash EPS (P/CEPS) EV/EBIDTA Market Cap/Sales Consolidated Quarterly Result of insurance and allied division of the company 1stQtr st Qtr VAR % Gross Sales Other Income Total Income Total Expenditure PBIDT Interest PBDT Depreciation PBT Tax Reported Profit After Tax Minority Interest After NP Profit/Loss of Associate Company Net Profit after Minority Interest & P/L Asso.Co

6 Balance Sheet SOURCES OF FUNDS : Share Capital Reserves Total Equity Application Money Total Shareholders Funds Minority Interest Secured Loans Unsecured Loans Total Debt Other Liabilities Total Liabilities APPLICATION OF FUNDS : Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Capital Work in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Loans and Advances Total Current Assets Less : Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Other Assets Total Assets Contingent Liabilities

7 Profit and Loss Account (12) (12) (12) (12) (!2) INCOME : Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income EXPENDITURE : Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses Total Expenditure Operating Profit Interest Gross Profit Depreciation Profit Before Tax Tax Deferred Tax Net Profit Minority Interest (after tax) Profit/Loss of Associate Company Net Profit after Minority Interest & P/L Asso.Co Extraordinary Items Adjusted Net Profit Cash Flow Statement Cash and Cash Equivalents at Beginning of the year Net Cash from Operating Activities Net Cash Used in Investing Activities Net Cash Used in Financing Activities Net Inc/(Dec) in Cash and Cash Equivalent Cash and Cash Equivalents at End of the year

8 Key Financial Ratios Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Turnover Ratios Fixed Assets Inventory Debtors Total Asset Turnover Ratio Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%) Payout (%) Corporate Office: 11/6B, Shanti Chamber, Pusa Road, New Delhi Tel: Mumbai Office: Lotus Corporate Park, A Wing 401 / 402, 4th Floor,Graham Firth Steel Compound, Off Western Express Highway, Jay Coach Signal, Goreagon (East) Mumbai Tel: , Fax: Kolkata Office: 18, Rabindra Sarani, Poddar Court,Gate No.- 4, 5th Floor, Kolkata Tel: , Fax: SMC Global Securities Ltd. (hereinafter referred to as SMC ) is regulated by the Securities and Exchange Board of India ( SEBI ) and is licensed to carry on the business of broking, depository services and related activities. 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November 16, 2017 LARSEN & TOUBRO LIMITED. In Cr. Consolidated Results STOCK DATA VALUE PARAMETERS SHARE HOLDING PATTERN (%)

November 16, 2017 LARSEN & TOUBRO LIMITED. In Cr. Consolidated Results STOCK DATA VALUE PARAMETERS SHARE HOLDING PATTERN (%) LARSEN & TOUBRO LIMITED November 16, 2017 Current Price: `1207.80 STOCK DATA BSE Code 500510 NSE Symbol LT Reuters LART.BO Bloomberg LT IN VALUE PARAMETERS Price (Rs) 1207.80 52 W H/L(Rs) 1274.00/868.00