Autoline Industries Ltd. CMP 151.7 TARGET 193.0 Buy Sensex 19,091.2 Nifty 5,729.1 STOCK DETAILS Sector Auto Ancillary Market Cap. (Rs Cr) 185.1 Beta 0.7 52 Week High/Low 279.8/106.0 Face Value (Rs) 10 SHAREHOLDING PATTERN Booming auto industry to boost demand for the Company s products The Auto majors despite expectations of a slowdown in demand due to higher interest rates and product price increases witnessed volume growth on account of positive consumer sentiment and heavy discounts offered by OEMs and dealers to clear their year-end inventory. The outlook for the domestic auto sector remains positive taking into account the low penetration levels, healthy economic environment and favorable demographics coupled with increased aspiration levels and per-capita income levels. Autoline industries would a key beneficiary of the growth in the automobile sector. Relatively insulated from increase in raw material prices The Company derives majority of its revenues from Tata Motors which fixes steel prices with steel suppliers on behalf of its vendors. The prices are reviewed by the Company every quarter and are adjusted according to market prices. In case steel prices have increased the prices of finished products from AIL would be adjusted accordingly thus protecting the Company from fluctuating raw material prices, hence protecting margins. PRICE PERFORMANCE 3M 6M 12M Sensex (%) 11.3% 14.7% 20.1% Autoline (%) 26.1% 30.5% 38.9% Rs Cr FY09 FY10 FY11E FY12E FY13E Revenues 383.2 474.7 640.9 769.1 884.5 EBITDA 29.1 54.5 73.6 88.4 101.6 Net Profit 4.7 20.6 28.4 33.1 38.5 Net Profit Margin 1.9% 4.8% 4.8% 4.7% 4.7% EPS (Rs) 3.8 16.9 23.6 27.6 32.1 PE (x) 39.5 9.0 6.4 5.5 4.7 EV/EBITDA (x) 12.4 6.6 4.9 4.1 3.5 ROE (%) 2.6% 8.2% 10.1% 10.6% 11.0% Outlook: Autoline is expected to post robust 23% CAGR for the period 2010 to 2013E in topline to register revenues of `884.5 cr. At the CMP of `151.7 the stock is trading at a PE of 5.5x and 4.7x for FY 2012E and FY 2013E respectively. The Company is expected to benefit from the booming domestic auto industry and also increased outsourcing by global manufacturers. The margins of the Company are also expected to improve on account the Company s presence across the value chain after the acquisition of design engineering firm. We recommend investors to Buy the stock with a target price of 193, an upside of 27%.
BACKGROUND Autoline Industries operates in the auto ancillary space manufacturing sheet metal components, subassemblies and assemblies for large Original Equipment Manufacturers (OEM s) in the Automobile Industry. The Company s clients include Tata Motors ltd., Bajaj Auto, Mahindra & Mahindra ltd., Fiat India Pvt. ltd. etc. The Company has 11 manufacturing facilities located at different parts of the country in order to cater to the growing demand for auto components. The Company s stringent quality controls and timely deliveries have helped consolidate the Company s position in the market as one of the top 5 vendors of sheet metal components for Tata Motors. The Company has acquired a major stake in a design engineering firm giving the Company the unique capability of Offshore Designing & Manufacturing model (ODM). The Company aims to straddle the entire value chain i.e. from designing to manufacturing the required part and is also willing to take the inorganic route in order to do so. INVESTMENT ARGUMENTS Booming auto industry coupled with increased outsourcing of components by automobile manufacturers presents huge opportunities Global automobile manufacturers are increasingly outsourcing components from markets like India and China on account of their cost competitiveness. India has become an attractive destination for sourcing of components on account of low labor costs and quality of products manufactured. The increased sourcing by global manufacturers coupled with the revival in domestic automobile industry presents a huge opportunity for the company. Engineering capabilities to aid increase in margins The design and engineering services started by the Company would help the Company increase its margins. The Company s in house designing facility provides the Company with the ability to customize products as per the customer requirement. To enhance the design capabilities the Company has acquired a majority stake in a design engineering firm to enhance its design capabilities. The presence across the value chain would help the Company increase its margins.
Increasing client base to reduce dependence on Tata Motors Tata Motors contributes a major portion of the Company s revenues contributing as much as 75-80% of the Company s revenues. The Company however is making efforts to diversify its customer base. The Company is targeting to reduce Tata Motors contribution to revenues to 50% over the next 2-3 years. The Company is in talks with other major automobile manufactures such as Volkswagen, Mercedes, General Motors and M&M. The Company is expanding its capacities at Chakan which is a base for many automobile manufacturers. Volkswagen & Bentler have recently concluded their quality audits for vendor selection with the Company starting to receive orders from them. BUSINESS AREAS OF THE COMPANY Autoline Group Medium & Large Stamped Assembly Mechanical Assembly /Driver Control Systems Concept, Styling, Design Analysis Application Software Services
INVESTMENT CONCERNS Dependency on Tata Motors disconcerting Tata Motors contributes between 75-80% of the Company s revenues. The dependency on Tata Motors makes the Company susceptible to Tata Motors fortunes. Also in case the Company losses business from Tata Motors on account of entry other players in the industry the Company s revenues and profits would be adversely affected. Increasing interest rates and high inflation could pose a challenge for the Company The increasing interest rates could negatively impact the auto industry which in turn would impact the auto ancillary industry. The persistently high inflation is cause of worry for the RBI which is tightening its monetary stance in order to cool inflation. The RBI has hiked rates eight times in the year on account of persistent high inflation in the economy. The RBI is expected to continue to raise policy rates over the next year in order to curb inflation resulting in higher interest rates which could dampen demand for automobiles. Outlook and Valuation Autoline is expected to benefit from robust growth of the domestic auto industry coupled with increased outsourcing by global automobile manufacturers and is expected to post a robust 23% CAGR for the period FY 2010 to FY 2013E and post an EPS of `32.1 during FY 2013E. At the CMP of `151.7 the stock is trading at a PE of 5.5x and 4.7x for FY 2012E and FY 2013E respectively which are very attractive taking into growth and expected improvement in margins for the Company going forward. We recommend investors to Buy the stock with a target price of 193, an upside of 27%.
Company Financials Profit and Loss Statement (Consolidated) ( ` Cr.) Historical Forecasted FY09 FY10 FY11 FY12 FY13 Total Income 354.9 450.9 609.1 731.1 841.0 Total Expenditure 325.9 396.4 535.5 642.8 739.3 EBITDA 29.1 54.5 73.6 88.4 101.6 Depreciation 12.1 16.8 17.5 19.3 21.0 EBIT 16.9 37.7 56.1 69.1 80.7 Interest 8.0 11.0 20.1 27.2 32.2 Recurring pre-tax income 8.9 26.7 36.0 41.9 48.4 Tax 2.3 5.0 6.5 7.6 8.8 PAT 6.6 21.7 29.5 34.2 39.6 Balance Sheet Historical Forecasted FY09 FY10 FY11 FY12 FY13 SOURCES OF FUNDS : Total Shareholders Funds 251.4 265.6 292.2 323.5 360.3 Deferred Tax Liability 5.9 7.6 - - - Total Debt 147.2 181.2 201.4 236.7 268.5 Total Liabilities 404.5 454.4 493.5 560.2 628.8 APPLICATION OF FUNDS: Total Fixed Assets 284.5 313.0 332.1 349.3 362.0 Investments 22.5 24.4 24.4 24.4 24.4 Net Current Assets 92.6 114.3 138.0 186.3 241.1 Total Assets 404.5 454.4 493.5 560.2 628.8
Ratio Analysis Solvency Ratios FY09 FY10 FY11 FY12 FY13 Current ratio 2.1 2.1 2.1 2.2 2.4 Quick ratio 1.7 1.8 1.7 1.9 2.0 Receivables turnover 7.9 7.0 7.3 7.6 7.5 Inventory turnover 11.6 12.3 13.9 13.4 13.2 Payables turnover 5.4 5.1 5.7 5.6 5.5 Cash Collection Cycle 10.3 10.3 10.3 10.3 10.3 Operating Efficiency FY09 FY10 FY11 FY12 FY13 Total asset turnover 1.5 1.0 1.1 1.3 1.4 Fixed asset turnover 2.0 1.3 1.5 1.9 2.1 Equity turnover 2.4 1.6 1.7 2.2 2.4 Operating Profitability FY09 FY10 FY11 FY12 FY13 Operating Profit Margin (%) 4.8% 8.4% 9.2% 9.5% 9.6% Net Profit Margin (%) 1.9% 4.8% 4.8% 4.7% 4.7% Return on total capital (%) 1.6% 4.8% 6.0% 6.1% 6.3% Return on owner's equity (%) 2.6% 8.2% 10.1% 10.6% 11.0% ROE DuPont Analysis FY09 FY10 FY11 FY12 FY13 Profit Margin (%) 1.9% 4.8% 4.8% 4.7% 4.7% Asset Turnover 1.3 1.5 1.9 2.1 2.4 Financial Leverage 0.6 0.7 0.7 0.7 0.7 ROE (%) 2.6% 8.2% 10.1% 10.6% 11.0% Financial Risk Ratios FY09 FY10 FY11 FY12 FY13 Debt to equity ratio 0.6 0.7 0.7 0.7 0.7 Interest coverage ratio 2.1 3.4 2.8 2.5 2.5 Valuation Ratio FY09 FY10 FY11 FY12 FY13 EPS 3.8 16.9 23.6 27.6 32.1 Book Value 209.5 221.3 243.5 269.6 300.3 P/E (x) 39.5 9.0 6.4 5.5 4.7 Price / BV (x) 0.7 0.7 0.6 0.6 0.5 EV / EBITDA (x) 12.4 6.6 4.9 4.1 3.5
Valuation Summary DCF Valuation Summary (Values in crore) Terminal value @ perpetuity growth DCF calculation as of April-11 NPV of explicit period 35 NPV of terminal value 374 Free cash flow to firm 409 Net Debt 174 Equity value 235 Shares Outstanding 1.2 Share Price 193 Sensitivity Analysis Infinite growth rate WACC 9.0% 9.5% 10.0% 10.5% 11.0% 3.00% 199 171 146 125 107 3.50% 229 196 168 144 123 4.00% 265 225 193 165 141 4.50% 309 261 222 190 162 5.00% 364 305 257 219 187 Report Prepared by: - Value Addition Team. Concept Securities Private Limited. DISCLAIMER: This document has been prepared for CONCEPT SECURITIES PRIVATE LIMITED is meant for private distribution only. The information and the opinion contained in the document have been compiled from the sources believed to be reliable. However the Company/Analyst does not warrant any accuracy, completeness and correctness. We do not undertake any responsibility/liability for the contents mentioned here-in. This document may not be reproduced, distributed or published in whole or in parts by any recipient hereof for any purpose without prior permission from the company; CONCEPT SECURITIES PRIVATE LIMITED. For further information please contact at concept@concept-india.com