3QFY19 Result Update February 05, 2019 Market Cap. (Rs bn) 116 Free Float (%) 61 Shares O/S (mn) 572 Strong Performance with Positive Outlook; Maintain (ATL) has reported strong volume performance in 3QFY19. Its consolidated revenue grew by 17% YoY and 11% QoQ to Rs47.2bn (vs. our estimate of Rs45.8bn) primarily led by 11% YoY volume growth and 5% YoY improvement in pricing. EBITDA rose by 6% YoY and 13% QoQ to Rs5.3bn led by better product-mix and healthy volume, despite >300bps negative impact of higher RM cost. EBITDA margin stood at 11.2% (-108bps YoY and +20bps QoQ) vs. our estimate of 12%. Net profit adjusted for exceptional loss of Rs0.6bn on investment in IL&FS deposits surged by 32% QoQ (flat on YoY basis) to Rs2.45bn vs. our estimate of Rs2.2bn. Notably, ATL s capacity expansion programme is also moving as per the schedule and the Management expects the growth momentum to continue, going forward as well with the healthy replacement demand, despite slowdown in OEM segment. Moreover, anti-dumping duty in Europe started benefitting the Company in Europe. Ramp-up at European operation and inter transfer of production is expected to aid further improvement in margin. Healthy Growth in Domestic Volume Aided Top-line Led by >11% YoY growth in volume, ATL s consolidated revenue grew by a strong 17% YoY and 11% QoQ, while standalone revenue rose by 17% YoY and 1% QoQ to Rs31.2bn. OEM volume remained muted due to subdued sales by the OEMs during festive season, while replacement segment grew by a healthy double-digit. TBR volume grew by >20% YoY, while overall truck replacement volume growth came in at ~12% YoY. European volume grew by high single-digit as against industry decline. The Company gained market share across segments in India and Europe and it is in the process of expanding capacity in both geographies. Its inventory is ~1 week higher than usual due to lower demand from the OEMs. It plans capex of Rs15bn and Rs30bn in FY19E and FY20E, respectively. Operating Margins to Improve ATL s EBITDA margins grew by 20bps QoQ (-108bps YoY) due to higher RM cost and pricing pressure. In Jan 19, ATL rolled back the price hike taken in Nov 18 due to competitive pressure. However, it expects margin improvement with lower commodity cost and improving mix in India. Moreover, it expects European operation to witness margin expansion with higher utilisation. Outlook & Valuation Looking ahead, we expect ATL s performance to improve owing to steady ramp-up in Hungarian operations and market share gain across both the geographies. In view of market share gain, we increase our revenue estimates by 2%/4% and reduce our EBIDTA estimates by 6%/4% assuming margin pressure for FY20E/FY21E. Factoring in higher depreciation for higher capex and interest expenses for increasing debt level, we cut our EPS estimates by 11%/7% for FY20E/ FY21E. Considering ATL s outperformance in tyre industry and improving market share, we maintain its P/E valuation multiple at 12x. Expecting ATL s earnings to clock 19% CAGR over FY19-FY21E and valuing it at 12xFY21E EPS, we maintain our recommendation on the stock with a revised Target Price of Rs250 (from Rs270 earlier). Share price (%) 1 mth 3 mth 12 mth Absolute performance (12.5) (5.3) (19.2) Relative to Nifty (14.2) (9.0) (21.5) Shareholding Pattern (%) Sep-18 Dec-18 Promoter 40.6 40.8 Public 59.4 59.2 Key Financials Y/E Mar (Rsmn) FY19E FY20E FY21E Net Sales 178,022 203,477 230,572 EBITDA 20,250 23,951 27,638 EBITDA margin (%) 11.4 11.8 12.0 Adj. Net Profit 8,846 10,028 11,918 EPS(Rs.) 15.5 17.5 20.8 PER (x) 13.1 11.6 9.7 EV/ EBITDA 7.5 6.7 5.5 RoE (%) 8.7 9.2 10.1 of Estimates (% change) FY20E FY21E Cons Revenue 2 4 EBITDA (6) (4) Net profit (11) (7) EPS (Rs) (11) (7) 1 Year Stock Price Performance 310 290 270 250 Quarterly Performance YE March (Rs. mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) Total Revenue 47,183 40,501 16.5 42,574 10.8 EBIDTA 5,273 4,964 6.2 4,672 12.8 Profit Before Tax 2,508 3,503 (28.4) 1,972 27.2 Less: Total Tax 529 1,050 (49.6) 512 3.4 PAT 1,979 2,453 (19.3) 1,461 35.5 Adj. PAT 2,453 2,453 0.0 1,861 31.8 Adj EPS (Rs) 4.3 4.3 0.0 3.3 31.8 EBIDTA Margin (%) 11.2 12.3 (108) bps 11.0 20 bps Adj NPM (%) 5.2 6.1 (86) bps 4.4 83 bps Source: Company, RSec Research 230 210 190 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Jan-19 Note: * CMP as on February 05, 2019 Research Analyst: Mitul Shah Contact: 022 3303 4628 Email: mitul.shah@relianceada.com 1
Risk to the view Intensifying competition. in government regulation. Sharp up-tick in input prices. Significant slump in OEM sales in India/Europe. Exhibit 1: Result Summary (Consolidated) YE March (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) Total Revenue 47,183 40,501 16.5 42,574 10.8 Less: Net Raw Material consumed 27,853 22,603 23.2 24,232 14.9 Other Expenses 7,573 7,632 (0.8) 7,598 (0.3) Personnel 6,485 5,302 22.3 6,072 6.8 Total Expenditure 41,910 35,537 17.9 37,901 10.6 EBIDTA 5,273 4,964 6.2 4,672 12.8 Less: Depreciation 2,011 1,514 32.8 1,962 2.5 EBIT 3,262 3,450 (5.4) 2,710 20.4 Less: Interest 485 410 18.3 461 5.3 Add: Other income 332 464 (28.5) 123 169.2 Extraordinary Expense (net) (600) 0 NM (400) NM Profit Before Tax 2,508 3,503 (28.4) 1,972 27.2 Less: Total Tax 529 1,050 (49.6) 512 3.4 Profit After Tax 1,980 2,453 (19.3) 1,461 35.5 Adj. PAT 2,453 2,453 0.0 1,861 31.8 Reported EPS (Rs) 3.46 4.29 (19.3) 2.55 35.5 Adj. EPS (Rs) 4.29 4.29 0.0 3.25 31.8 Cost & Margin Analysis (%) EBIDTA Margin 11.2 12.3 (108) 11.0 20 Adj. NPM 5.2 6.1 (86) 4.4 83 Eective Tax Rate 21.1 30.0 (888) 26.0 (485) Cost Analysis RM/Net Sales 59.0 55.8 322 56.9 211 Other Expenses 16.0 18.8 (279) 17.8 (180) Personnel/Net Sales 13.7 13.1 65 14.3 (52) Source: Company, RSec Research, *NM: Not Meaningful 2
Exhibit 2: Result Summary (Standalone) YE March (Rs mn) 3QFY19 3QFY18 YoY (%) 2QFY19 QoQ (%) Net Sales 31,232 26,692 17.0 31,091 0.5 Less: Net Raw Material consumed 20,960 16,446 27.4 20,064 4.5 Other Expenses 5,048 4,881 3.4 5,405 (6.6) Personnel 1,801 1,698 6.1 1,899 (5.1) Total Expenditure 27,809 23,025 20.8 27,368 1.6 EBIDTA 3,423 3,667 (6.7) 3,724 (8.1) Less: Depreciation 1,068 891 20.0 1,070 (0.1) EBIT 2,354 2,777 (15.2) 2,654 (11.3) Less: Interest 372 344 8.1 334 11.4 Add: Other income 269 420 (36.0) 106 153.2 Extraordinary Expense (net) (600) 0 NM (400) NM Profit Before Tax 1,651 2,852 (42.1) 2,026 (18.5) Less: Total Tax 421 812 (48.2) 558 (24.6) Profit After Tax 1,230 2,040 (39.7) 1,468 (16.2) Adj. PAT 1,677 2,040 (17.8) 1,758 (4.6) Reported EPS (Rs.) 2.15 3.57 (39.7) 2.57 (16.2) Adj. EPS (Rs.) 2.93 3.57 (17.8) 3.07 (4.6) Cost and Margin Analysis (%) EBIDTA Margin 11.0 13.7 (278) 12.0 (102) Adj. NPM 5.4 7.6 (227) 5.7 (29) Eective Tax Rate 25.5 28.5 (300) 27.5 (204) Cost Analysis RM/Net Sales 67.1 61.6 550 64.5 258 Other Expenses./Net Sales 16.2 18.3 (212) 17.4 (122) Personnel/Net Sales 5.8 6.4 (59) 6.1 (34) Source: Company, RSec Research,*NM: Not Meaningful Exhibit 3: Revised vs. Old Estimates Old Revised % change Y/E Mar (Rs mn) FY19E FY20E FY21E FY19E FY20E FY21E New Old % change Cons revenue 177,335 200,186 221,463 178,022 203,477 230,572 0 2 4 EBITDA 20,935 25,544 28,647 20,250 23,951 27,638 (3) (6) (4) EBITDA margin (%) 11.8 12.8 12.8 11.4 11.8 12.0 Net profit 8,724 11,233 12,870 8,846 10,028 11,918 1 (11) (7) EPS (Rs) 15.2 19.6 22.5 15.5 17.5 20.8 1 (11) (7) Source: RSec Research 3
Profit & Loss Statement Y/E Mar (Rs mn) FY18 FY19E FY20E FY21E Net revenue 148,405 178,022 203,477 230,572 Expenditure 131,748 157,772 179,526 202,934 Raw Materials 83,955 102,495 115,982 131,426 Employee Expenses 21,567 25,082 28,343 32,311 Other expenditure 26,227 30,194 35,202 39,197 EBITDA 16,657 20,250 23,951 27,638 Depreciation and amortization expense 5,926 7,851 9,105 10,332 EBIT 10,732 12,399 14,846 17,306 Non-operating income 980 1,169 1,234 1,465 Interest including finance charges 1,774 1,944 2,886 3,091 Adjusted pre-tax profit 9,938 11,624 13,194 15,680 Extra Ordinary Exp (186) 1,000 - - Reported pre-tax profit 10,124 10,624 13,194 15,680 Less: taxes 2,885 2,539 3,167 3,763 Reported net profit 7,239 8,085 10,028 11,917 Less: minority/associate earnings - (0) (1) (1) Reported net profit for shareholders 7,239 8,085 10,028 11,918 Adjusted net profit for shareholders 7,106 8,846 10,028 11,918 EPS (Rs), based on fully diluted shares 12.4 15.5 17.5 20.8 Fully diluted shares outstanding (mn) 572 572 572 572 Balance Sheet Y/E Mar (Rs mn) FY18 FY19E FY20E FY21E Equity capital 572 572 572 572 Reserves and surplus 97,195 103,442 111,632 121,712 Total equity 97,767 104,014 112,204 122,284 Deferred tax liability (net) 16,188 16,188 16,188 16,188 Total borrowings 46,612 46,612 51,273 43,582 Current liabilities 40,011 46,053 51,210 56,632 Total liabilities 200,577 212,867 230,875 238,686 Cash and cash equivalents 5,992 11,323 5,736 7,945 Inventory 29,454 34,580 39,348 44,479 Trade receivables 14,350 16,911 19,511 22,110 Total current assets 49,796 62,814 64,595 74,533 Gross block 174,257 189,797 216,797 244,547 Less: depreciation and amortization 70,226 89,205 104,063 122,274 Add: capital work-in-process 23,041 22,500 25,500 12,750 Total fixed assets 127,072 123,093 138,235 135,024 Investments 13,425 15,425 15,425 15,425 Other assets 10,285 11,535 12,620 13,704 Total assets 200,577 212,867 230,875 238,686 4
Cash Flow Statement Y/E Mar (Rs mn) FY18 FY19E FY20E FY21E Operating cashflow Pre-tax income 10,123 10,624 13,194 15,680 Add: depreciation and amortization 5,926 7,851 9,105 10,332 Add: interest expense (net) 1,295 1,944 2,886 3,091 Less: other adjustments (836) 11,128 5,753 7,879 Less: taxes paid (2,465) (2,539) (3,167) (3,763) Add: working capital changes 3,154 (2,896) (3,296) (3,390) Total operating cashflow 17,197 26,112 24,475 29,829 Investing cashflow Capital expenditure (29,386) (15,000) (30,000) (15,000) Investments (9,250) (2,000) - - Others (273) - - - Total investing cashflow (38,908) (17,000) (30,000) (15,000) Financing cashflow Share issuances 14,762 - - - Loans 11,608-4,661 (7,691) Dividend (1,838) (1,838) (1,838) (1,838) Interest Payment (1,323) (1,944) (2,886) (3,091) Total financing cashflow 24,395 (3,782) (62) (12,620) Net change in cash 2,683 5,330 (5,588) 2,209 Opening cash 3,309 5,992 11,323 5,736 Closing cash 5,992 11,322 5,735 7,944 Key Ratio Y/E Mar FY18 FY19E FY20E FY21E Growth Ratios (%) Net revenue 12.6 20.0 14.3 13.3 EBITDA (10.6) 21.6 18.3 15.4 Adjusted net profit (33.7) 24.5 13.4 18.8 Ratios (%) Eective tax rate 28.5 23.9 24.0 24.0 EBITDA margin 11.2 11.4 11.8 12.0 Adjusted net income margin 4.8 5.0 4.9 5.2 ROaCE 5.9 6.3 7.0 7.8 ROaE 8.2 8.7 9.2 10.1 Total asset turnover ratio (x) 0.8 0.9 0.9 1.0 Inventory days 72 71 71 70 Debtor days 35 35 35 35 Creditor days 72 72 71 71 Per share numbers (Rs) Diluted earnings 12.4 15.5 17.5 20.8 Free cash (21.3) 19.4 (9.7) 25.9 Book value 170.9 181.8 196.1 213.7 P/E 16.3 13.1 11.6 9.7 EV/EBITDA 9.4 7.5 6.7 5.5 P/B 1.2 1.1 1.0 0.9 5
Rating History Date Reco CMP TP 08-Jan-18 229 270 02-Aug-18 286 325 11-May-18 280 325 7-Feb-18 261 335 3-Nov-17 237 305 13-Sep-17 263 350 PLEASE CLICK HERE FOR PREVIOUS REPORTS Rating Guides Rating Expected absolute returns (%) over 12 months >10% HOLD -5% to 10% REDUCE >-5% Reliance Securities Limited (RSL), the broking arm of Reliance Capital is one of the India s leading retail broking houses. Reliance Capital is amongst India s leading and most valuable financial services companies in the private sector. Reliance Capital has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, wealth management services, distribution of financial products, private equity, asset reconstruction, proprietary investments and other activities in financial services. The list of associates of RSL is available on the website www.reliancecapital.co.in. 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