INDAG RUBBER LTD Result Update: Q4 FY 12 C.M.P: Rs. 208.00 Target Price: Rs. 239.00 Date: May. 8 th 2012 BUY Stock Data: Sector: Auto Component Face Value Rs. 10.00 52 wk. High/Low (Rs.) 238.00/82.00 Volume (2 wk. Avg.) 2176.00 BSE Code 509162 Market Cap (Rs in mn) 1092.00 Share Holding Pattern SYNOPSIS The Khemka Group founded Indag Rubber during the early 80 s and pioneered the introduction of cold retreading technology in India. During the quarter ended, the robust growth of Net Profit is increased by 78.29% to Rs. 65.04 million. The company s processes have been certified as ISO 9001:2000 compliant. 1 Year Comparative Graph Indag Rubber Ltd has proposed final dividend of Rs. 4.50 per equity share of Rs. 10 each for the financial year 2011-12. BSE SENSEX INDAG RUBBER The Company s revenue and PAT are expected to grow at a CAGR of 26% and 42% over FY11 to FY14E respectively. Years Net sales EBITDA Net Profit EPS P/E FY 12 2162.87 305.96 208.71 39.75 5.23 FY 13E 2595.44 375.70 260.60 49.64 4.19 FY 14E 3010.72 438.79 306.45 58.37 3.56 1
Peer Group Comparison Name of the company CMP (Rs.) Market Cap. (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Indag Rubber 208.00 1092.00 39.75 5.23 1.77 40.00 MRF Ltd. 10333.95 43827.80 1627.89 6.35 1.91 500.00 Pix Trans 27.50 355.40 1.88 14.63 0.84 7.50 Apollo Tyres 82.10 41380.40 3.48 23.59 2.19 50.00 Investment Highlights Q4 FY12 Results Update INDAG Rubber Ltd. has reported net profit of Rs 65.04 million for the quarter ended on March 31, 2012 as against Rs 36.48 million in the same quarter last year, an increase of 78.29%. It has reported net sales of Rs 563.57 million for the quarter ended on March 31, 2012 as against Rs 408.67 million in the same quarter last year, a rise of 37.90%. Total income grew by 37.97% to Rs 563.91 million from Rs.408.71 million in the same quarter last year. During the quarter, it reported earnings of Rs 12.39 a share. Quarterly Results - Standalone (Rs in mn) As At Mar-12 Mar-11 %change Net sales 563.57 408.67 37.90% PAT 65.04 36.48 78.29% Basic EPS 12.39 6.95 78.29% 2
Break up of Expenditure Dividend proposed Indag Rubber Ltd has proposed final dividend of Rs. 4.50 per equity share of Rs. 10 each for the financial year 2011-12. Company Profile The Khemka Group founded Indag Rubber during the early 80 s and pioneered the introduction of cold retreading technology in India. The company has provided retreading material to its customers ranging from precured tread to curing envelopes. The tread rubber is made from superior raw materials and pressed at a very high pressure resulting in a product that gives high performance both in terms of mileage and tread life. Indag uses advanced technology in terms of machinery, equipment and raw materials. As a result, our products give mileage that result in LOWEST COST PER KILOMETER. Its processes have been certified as ISO 9001:2000 compliant. The company s factories are located in Nalagarh, Himachal Pradesh and Bhiwadi, Rajasthan to ensure speedy delivery of our product to our customers all over India and different parts of the World. 3
Products Precured tread rubber: Tread rubber is buffed and cemented. The tread rubber is made from superior raw materials and pressed at very high pressure resulting in very high performance in terms of mileage and tread life. Un-vulcanized rubber strip gum: Different bonding products are available for use in 99 C and 125 C curing process. These are specifically manufactured to provide longer shelf life. Universal spray cement: This solution is available in Ready to Use and Thick forms as desired by the customer. Package sizes available are 25 liters and 50 liters. Envelops 4
Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY11 FY12 FY13E FY14E Description 12m 12m 12m 12m Net Sales 1502.54 2162.87 2595.44 3010.72 Other Income 0.23 0.57 0.66 0.73 Total Income 1502.77 2163.44 2596.10 3011.45 Expenditure -1335.74-1857.48-2220.40-2572.66 Operating Profit 167.03 305.96 375.70 438.79 Interest -11.24-12.48-13.73-15.10 Gross profit 155.79 293.48 361.97 423.69 Depreciation -19.33-23.37-25.71-28.28 Profit Before Tax 136.46 270.11 336.26 395.41 Tax -28.93-61.40-75.66-88.97 Profit After Tax 107.53 208.71 260.60 306.45 Equity Capital 52.50 52.50 52.50 52.50 Reserves 391.26 563.36 823.96 1130.41 Face value 10.00 10.00 10.00 10.00 EPS 20.48 39.75 49.64 58.37 5
Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Sep-11 31-Dec-11 31-Mar-12 30-Jun-12E Description 3m 3m 3m 3m Net sales 541.81 576.03 563.57 648.11 Other income 0.12 0.05 0.34 0.37 Total Income 541.93 576.08 563.91 648.48 Expenditure -465.60-498.42-471.60-553.48 Operating profit 76.33 77.66 92.31 95.00 Interest -3.95-2.35-2.48-3.89 Gross profit 72.38 75.31 89.83 91.11 Depreciation -5.86-6.30-5.79-6.25 Profit Before Tax 66.52 69.01 84.04 84.86 Tax -14.18-15.91-19.00-19.01 Profit After Tax 52.34 53.10 65.04 65.85 Equity capital 52.50 52.50 52.50 52.50 Face value 10.00 10.00 10.00 10.00 EPS 9.97 10.11 12.39 12.54 6
Key Ratios Particulars FY11 FY12 FY13E FY14E No. of Shares(in mn) 5.25 5.25 5.25 5.25 EBITDA Margin (%) 11.12% 14.15% 14.48% 14.57% PBT Margin (%) 9.08% 12.49% 12.96% 13.13% PAT Margin (%) 7.16% 9.65% 10.04% 10.18% P/E Ratio (x) 10.16 5.23 4.19 3.56 ROE (%) 24.23% 33.89% 29.73% 25.91% ROCE (%) 36.06% 47.56% 41.95% 36.85% Debt Equity Ratio 0.16 0.12 0.09 0.07 EV/EBITDA (x) 6.54 3.57 2.91 2.49 Book Value (Rs.) 84.53 117.31 166.95 225.32 P/BV 2.46 1.77 1.25 0.92 Charts: Net Sales & PAT 7
P/E Ratio(x) Debt Equity Ratio 8
EV/EBITDA (x) P/BV 9
Outlook and Conclusion At the current market price of Rs.208.00, the stock is trading at 4.19 x FY13E and 3.56 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.49.64 and Rs. 58.37 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 26% and 42% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 2.91 x for FY13E and 2.49 x for FY14E. Price to Book Value of the stock is expected to be at 1.25 x and 0.92 x respectively for FY13E and FY14E. 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.239.00 for Medium to Long term investment. Industry Overview Indian auto component industry is robustly driven by the growth in demand for automobiles. The sector has become a lucrative business proposition for global players, majorly owing to two factors. First, needless to say, the demand for automobiles is increasing day by day in the country. India, a market with high potential for the automobiles sector, is expected to witness a three-fold increase in demand for automobiles by 2020. Secondly, all major global auto-makers are establishing their bases here due to highly positive business environment, favourable policies and government support. According to a study by UK-based global financial advisory firm-rothschild, India would become the third largest auto industry by volumes after China and the US by 2015. This would give immense support to the growth of ancillary sector as well. Major developments, investments and Government initiatives relating to the sector are discussed hereafter. 10
Indian Auto Components Industry Profile According to a recent study by the Automotive Component Manufacturers' Association of India (ACMA), original equipment manufacturers (OEMs) account for 41 per cent of the auto components consumed in the Indian aftermarket. The study estimated current size of Indian components business at Rs 24,800 crore (US$ 4.87 billion), 49.7 per cent of which is formed by two-wheeler segment. Passenger vehicles, commercial vehicles and three-wheelers follow with 24.7 per cent, 23.1 per cent and 2.5 per cent of the share respectively. According to Arvind Kapur, President, ACMA, a large market in Indian spares business is dominated by organised, semi-organised and a number of small, unorganised players. He thus acknowledged the need for a process of accreditation to ensure better customer service. The study further projected that OEM-authorized network of service stations would account for 20-30 per cent of the Indian auto components market by 2017 while that of multi-brand organized service chains would grow to 5-10 per cent from 1-2 per cent. Similarly semi-organized service canters and unorganized garages market share would be 20-30 per cent and 45-55 per cent, respectively, in 2017. India The Global Auto Hub Canada is looking for substantial investment opportunities in Indian auto components market through the comprehensive economic partnership agreement (CEPA) which is being discussed and negotiated by the two Governments. The agreement is likely to get finalized by 2013. If fructified, the agreement would facilitate an annual increase of economic output in two countries by almost US$ 6 billion and boost the two-way trade by 50 per cent. UK sees immense potential in the Indian auto ancillary sector, especially in the city of Rajkot as it is known for auto components manufacturing. Peter Beckingham, British 11
Deputy High Commissioner for Western India, also indicated possible ventures between UK and Rajkot companies in near future. According to industry sources, Rajkot's auto component industry, with over 500 manufacturers aggregating a net turnover of around Rs 1,500 crore (US$ 294.5 million), grows at an annual rate of 15-20 per cent. Furthermore, 60 French automobile component suppliers are contemplating on business opportunities to set up a vendor park near Sanand in Ahmedabad district. The proposed vendor park would accommodate tier-1 and tier-2 auto-component suppliers who would supply spares to the recent auto entrants in the State and even to others. Sanand is already home to a number of global auto-makers, like Ford and Peugeot. Indian Auto Components Industry: Key Developments and Investments Global private equity (PE) firm Actis PE has bought 10-13 per cent stake in Indian auto component manufacturer Endurance Technologies for about US$ 71 million. Endurance Technologies is a part of the automotive component major Endurance Group and caters to companies like Bajaj, Yamaha, Suzuki, Honda Motorcycles and Scooters and Royal Enfield. Global car makers such as Daimler, Audi, Fiat and Porsche are the company's customers in passenger car segment. German auto component maker Schaeffler Group is on an expansion spree in India. The company plans to invest over Rs 1,000 crore (US$ 196 million) during 2012-15 in the country to set up a manufacturing facility and to expand its existing plants. To support its growth, the company would also double the number of its engineers and recruit 1, 200 employees in the country. Federal-Mogul's new facility in Chennai will commence its operations by March 2012. The plant, being set up for producing braking and friction materials, will initially focus on after market products like linings and brake pads. Federal Mogul is a global automotive components manufacturer. 12
Government Initiatives The Government of India is in the process of forming a National Automotive Board (NAB) which would become a formal set-up to look into the issue of recall of vehicles and hence improve manufacturing standards. The prospective body, to oversee technical and safety aspects of vehicles, will have representatives from all the nodal ministries and automotive bodies such as the Automotive Research Association of India (ARAI). The Government of Gujarat has always been on a high to promote its industrial space especially it's the automobile sector. In order to boost the State Government's efforts in this regard, Gujarat Government's Industrial Extension Bureau, along with Automotive Components Manufacturers Association, French Vehicles Equipment Industries (FIEV) and French auto-major Peugeot, organized a seminar and business meeting on January 9, 2011 wherein 60 French automobile component makers were briefed on opportunities to set up vendor park near Sanand (Gujarat's auto hub) in Ahmedabad district. Similarly, the Government of Gujarat has also announced its plan to disburse 240 acres of land at Sanand to the All India Plastic Manufacturers Association (AIPMA) to set up a plastic park that could attract an investment of about Rs 5000 crore (US$ 981.65 million). The Government's move marks its eye for detail as the measure has come in the light of the fact that a finished car would require about 150 kgs of plastic. Road Ahead Ratings agency Fitch has maintained a stable outlook towards the Indian auto components industry for the year 2012. The industry is expected to perform well owing to OEM s robust demand for localized spares. According to a report by ACMA, the Indian auto component industry would garner US$ 113 billion of turnover by 2020-21, growing at a compounded annual growth rate (CAGR) of 11 per cent through 2011-21. Not only domestic demand, India is poised to scale new heights in terms of exports as well as the report estimates exports to be 13
worth US$ 29 billion by 2020-21, growing at a CAGR of 18.8 per cent through the forecast period. 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. 14
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