India Motor Parts & Accessories Ltd. Rating: BUY. Trading. Indian Motor Parts & Accessories Ltd STOCK IDEA

Transcription

1 India Motor Parts & Accessories Ltd. Trading STOCK IDEA Rating: BUY Date September 30, 2014 CMP (Rs.) 643 Target (Rs.) 856 Potential Upside 33% BSE Sensex NSE Nifty 7965 Scrip Code Bloomberg IMPL IN Reuters IMPA.BO BSE Group B BSE Code NSE Symbol IMPAL Market Data Market Cap.(Rs. Cr) 535 Equity Sh. Cap. (Rs Cr) Wk High/Low 743.8/365 Avg. Quarterly Volume 5250 Face Value (Rs.) 10 Shareholding Pattern (As on 30 th Jun 2014) FII 5.7 DII 0.0 Promoters 30.7 Public & Others 63.6 Total Comparative Price Chart Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 IMPAL BSE SmallCap Atul Karwa Research Analyst atulkarwa@systematixshares.com Arun Gopalan VP Research & Investments arungopalan@systematixshares.com The only listed auto ancillaries distributor in the country, India Motor Parts & Accessories Limited (IMPAL) is a part of the US$ 6.5 bn TVS Group. Initially started as a distributor for General Motors in India, due to subsequent import restrictions IMPA commenced distribution of indigenously manufactured components. It distributes a wide range of products with a pan-india presence through its 50+ branch network representing over 50 manufacturers. It holds 2.5% stake in Sundaram Finance Ltd., a listed group company, at a cost of Rs 9 cr which is currently valued at over Rs 360 cr. With the automobile ancillary segment expected to grow at CAGR of 16-18% over the next couple of years we believe the company has good value a strong growth potential. Strong pedigree of promoters: IMPAL is promoted by The TVS Group which is India s leading supplier of automotive components and one of the country s most respected business groups. With a combined turnover of more than over $6.5 bln, the TVS Group employs a total workforce of close to over 39,000 employees. Charting a steady growth path of expansion and diversification, it currently comprises around over 50 companies. These operate in diverse fields that range from two-wheeler and automotive component manufacturing to automotive dealerships, finance and electronics. Uniting these multiple businesses is a common ethos of quality, customer service and social responsibility. Promoters own 30.7% in the company. Growth in automobile sector to boost OEM demand for auto parts: The fortunes of the auto ancillary sector are closely linked to those of the auto sector. Demand swings in any of the segments (cars, two-wheelers, commercial vehicles) have an impact on auto ancillary demand. Demand is derived from original equipment manufacturers (OEM) as well as the replacement market. Automobiles sales have shown some improvement in the last couple of months. Declining crude oil prices and hopes of pick-up in economy are expected to give a boost to the sector in coming months. Automobile ancillary sector is expected to grow at CAGR of 16-18% per annum over the next couple of years. Revival in replacement demand for auto parts: Auto ancillaries companies have put up a strong show in quarter ended June There have been uptick in volume growth and component makers have reported a sharp surge in net profit. Margins in the replacement market are higher than the OEM market. The OEM market is very competitive and component manufacturers have to compromise on margins to bag bulk orders. Moreover, delivery schedules and quality standards have to be adhered to very strictly. Increasing value of holding in Sundaram Finance: IMPAL holds 2.5% shares of group company Sundaram Finance at an average cost of Rs per share. The shares of Sundaram Finance currently trade at ~Rs 1305 per share on the exchange giving a market value of around Rs 365 cr to its holding in Sundaram Finance. Besides the company also has 10% holding in group company Royal Sundaram Alliance Insurance Company Ltd. at a cost of Rs 12.6 per share. Valuation & Outlook: Taking the value of holding in SFL and RSAI at a 40% discount, it works out to ~Rs 264 and Rs 62 respectively for SFL and RSAI, per share of IMPAL. Therefore, the value of the residual trading business comes to around Rs.316. Automobiles sales have shown some improvement in the last couple of months. Declining crude oil prices and gradual pick-up in economy are expected to give a boost to the sector in coming months. At CMP the stock trades at PE of 14.6x of our FY16E earnings and we recommend a BUY with a target of Rs 856 implying an upside of 33% over the next 12 months. Particulars Sales EBITDA EBITDAM (%) PAT PATM (%) EPS (`) BVPS (`) P/E P/BV EV/EBITDA FY FY FY15E FY16E

2 Company Background India Motor Parts and Accessories Limited, incorporated in 1954 for distribution of automobile spare parts, accessories and garage equipment manufactured by General Motors, USA. Due to subsequent restrictions on imports, the Company commenced distribution of indigenously manufactured components and is now one of the largest of its kind in India. The Company markets automobile components manufactured by the TVS Group, as well as those of other leading automobile ancillary manufactures throughout the country. The Company today has a total of 51 Branches within the country. Among these 13 Branches are in the South, 16 in the North, 12 in the East and 10 in the West. IMPAL is one of the few all India distributors of motor parts and deals in engine group components, brake systems, fasteners, radiators, suspensions, axles, auto electrical, wheels, steering linkages, instrument clusters etc. The company provides main product lines for: Automotive Industrial Seals P Limited Oil seals for various applications Banco Products (I) Limited, Baroda Gaskets for automotive, industrial & tractor applications. Brakes India Limited, Chennai Hydraulic Brake Parts and Brake Fluid Ceekay Daikin Limited, Mumbai Clutch Cover Assembly & Clutch Driven Plate Delhpi TVS Diesel Systems, Chennai Car fuel system components Devendra Exports P Ltd, Chennai Fuel injection parts Eicher Demm, Mumbai Crown Wheel Pinion, Differential Gears, Transmission Gears Finolex Cables Limited, Pune Auto cables Fenner India Limited, Madurai Fan belts and oil seals G S Radiators, Ludhiana Radiators Anand Automotive Systems Limited, Delhi Gabriel Shock Absorbers, Struts, Anand Engine Bearings, Purolator filters and PCVL rings General Motors Overseas Distribution Corporation, Gurgaon AC Delco range of products GMP Brake drums, Coimbatore Brake drums for various applications India Japan Lighting Limited, Chennai Head lamps & Tail lamps etc. KAP Axles Private Limited, Mumbai Axles shafts Key Management Personnel : Key Management personnel S Narayanan N Krishnan Ananth Ramanujam Shobhana Ramachandharan Designation Chairman Managing Director Director Director

3 FINANCIAL PERFORMANCE PROFIT & LOSS (Rs Cr) CASH FLOW (Rs Cr) Particulars FY13 FY14 FY15E FY16E Particulars FY13 FY14 FY15E FY16E Operating Income Cash from oper act Materials consumed Cash from inv act. (2.2) (8.7) (5.3) (5.3) Employee cost Cash from fin act. (4.5) (14.8) (9.3) (10.7) Other operating expenses Net Change in Cash 15.2 (1.8) EBITDA Depreciation EBIT Interest Other Income Profit Before Tax Tax PAT PAT after Min Int BALANCE SHEET (Rs Cr) RATIO ANALYSIS Particulars FY13 FY14 FY15E FY16E Particulars FY13 FY14 FY15E FY16E Share Capital EPS Reserves & Surplus BVPS Total Shareholder funds P/E Minority Interest P/BV Non Current Liabilities RoE 15.5% 15.0% 14.5% 15.0% Total borrowings RoCE 17.6% 17.3% 17.6% 18.6% Deferred tax liabilities EV/EBITDA Other long term liabilities Growth Operating Income -1.2% 3.2% 12.0% 15.0% SOURCES OF FUNDS EBITDA -13.3% 2.8% 12.0% 16.9% Fixed Assets PAT -15.7% 8.6% 7.6% 15.5% Investments Profitability Other Non-current Assets EBITDA Margin 7.3% 7.3% 7.3% 7.4% PBIT Margin 7.2% 7.2% 7.2% 7.3% Current Assets PAT Margin 5.5% 5.8% 5.6% 5.6% Current Liabilities Stability Net Current Assets Debt/Equity Current Ratio TOTAL ASSETS Interest Coverage

4 . Explanation to Ratings BUY: TP>20%; ACCUMULATE: 5%<TP<20%; HOLD: -5%<TP<5%; REDUCE: -20%<TP<-5%; SELL: TP<-20% DISCLAIMER This report has been prepared by Systematix Shares & Stocks (I) Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer to buy or sell any securities or other financial instruments. However before taking any investment decision, investors are requested to consult their investment and tax advisor/s. This report is not directed to or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Systematix Shares & Stocks (I) Ltd or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. This document may not be reproduced, distributed or published for any purposes without prior written approval of Systematix Shares & Stocks (I) Ltd. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. This document should not be considered to be taken as an offer to sell or a solicitation to buy any security. Systematix Shares & Stocks (I) Ltd may from time to time solicit from or perform broking or other services for any company mentioned in this mail and/or its attachments. Systematix Shares & Stocks (I), its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report including but not restricted to fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. Systematix Shares & Stocks (I) Ltd has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Institutional Equities Research Group of Systematix Shares & Stocks (I) Ltd. Systematix Shares & Stocks (I) Ltd and our affiliates, officers, directors, and employees worldwide may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or have other potential conflict of interest with respect to any recommendation and related information and opinions. The views expressed are those of analyst and the Company may or may not subscribe to the views expressed therein. Systematix Shares & Stocks (I) Ltd and other group companies, its directors, associates, employees and analysts including analyst/s prepared this report may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.

5