Result Update Rating matrix Rating : Hold Target : 830 Target Period : 12 months Potential Upside : 5% What s Changed? Target Changed from 870 to 830 EPS FY18E Changed from 27.5 to 28.4 EPS FY19E Changed from 37.6 to 36 Rating Unchanged Quarterly Performance Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%) Revenue 1,427.5 1,333.1 7.1 1,497.5-4.7 EBITDA 238.1 229.7 3.6 192.8 23.5 EBITDA (%) 16.7 17.2-55 bps 12.9 380 bps PAT 127.2 136.3-6.7 99.8 27.4 Key Financials Crore FY16 FY17 FY18E FY19E Net Sales 4,618 5,317 5,950 6,878 EBITDA 823 850 904 1,101 Net Profit 492 478 485 615 EPS ( ) 28.8 28.0 28.4 36.0 Valuation summary FY16 FY17 FY18E FY19E P/E (x) 27.4 28.2 27.8 21.9 Target P/E (x) 28.8 29.6 29.2 23.0 EV / EBITDA(x) 16.4 15.7 14.8 12.1 P/BV (x) 6.4 5.2 4.5 3.9 RoNW (%) 23.2 18.5 16.3 17.6 RoCE (%) 32.5 25.8 23.5 25.3 Stock data Particular Amount Market Capitalization 13494 Crore Total Debt (FY17) 69.0 Cash and Investments (FY17) 170.9 EV (FY17) 13392.1 Crore 52 week H/L ( ) 1009 / 665 Equity capital ( crore) 17.1 Face value ( ) 1 Price performance (%) 1M 3M 6M 12M Amara Raja Batteries Ltd 8.9-6.0-16.4-25.3 Exide Industries Ltd -3.6 0.5-18.7 3.7 Research Analyst Nishit Zota nishit.zota@icicisecurities.com Vidrum Mehta vidrum.mehta@icicisecurities.com Top-line disappoints; margin surprises November 13, 2017 Amara Raja Batteries (AMARAJ) 790 Amara Raja Batteries (ARBL) revenue came in at 1,428 crore (up 7.1% YoY). According to the management, the automotive segment (2-W+ 4-W) showed impressive double digit growth. The Industrial segment was impacted after the telecom space which continues to witness significant growth challenges mainly due to disruption in the space. The demand for batteries in the Telecom sector declined Q2FY18, thereby impacting the overall growth EBITDA margin contracted 55bps YoY, however expanded 380bps QoQ to 16.7%. Despite increase in key raw material prices (average lead prices up 20% YoY & 8% QoQ to 151/kg) its gross margin expanded by 404bps QoQ. ARBL has been able to offset the input price pressure by a mix of cost reduction strategies & pricing actions Subsequently, reported PAT declined 6.7% YoY to 127 crore Going forward management expects double digit growth (13%-15%) revenue growth largely driven by the automotive segment while expects sustainable long term margin to be in the range of 14%-16% ARBL - Well placed in duopoly battery business The domestic industry is a duopoly in nature with, Exide (EIL) & ARBL controlling ~90% of the organised market. The implementation of GST has improved their cost competitiveness vis-à-vis unorganised players (~40% share) which will help them in gaining market share, going forward. We believe ARBL has been consistent in its performance and been able to gain on all fronts (from market share to financials). In the OEM segment, ARBL currently has 12% & 35% market share in 2-W & 4- W, respectively. In the replacement segment, it holds 32% & 30% in the 2- W & 4-W, respectively. ARBL not only has a strong foothold in the replacement market (through a pan-india network) but is also increasing its OEMs presence. In the industrial segment, ARBL has been among the preferred vendor in a wide spectrum of industries like telecom, power, railways & others. However, disruption in telecom space resulted in revenue & margin erosion for telecom operators putting pressure on tower companies to drive cost efficiencies thereby impacting ARBL. Capacity expansion on track = to cater to rising demand! ARBL is increasing its 2-W battery capacity, from 11 million units (FY17) to 25 mn unit p.a. by FY20. First phase would take its 2-W capacity to 15 mn pa by FY18E. In 4-W space, ARBL added capacity of 2.25 mn pa in FY16 taking total capacity to 10.5 mn pa. The capacity expansion is to cater to rising demand & is likely to drive its next phase of growth. Price hikes + cost reduction strategies = support EBITDA margin The management earlier had indicated that the increase in lead price had resulted in cost challenges. However, the same is addressed by pricing action (hiked prices 6-7 times over the past 12 months) & cost reduction strategies, which is evident in Q2FY18 where the company ehibited gross margin expansion of 404bps QoQ thereby driving overall margins. The management has maintained its long term margin guidance of 14%-16%. Valuations stretched; maintain HOLD ARBL s key differentiator is the fact that it has consistently been able to grow its presence in the battery business across markets. Even though, ARBL is working on the lithium-ion battery front, the uncertainty in the automotive battery space, considering newer players (including OEMs setting up the battery plant) could impact ARBL performance going forward. Hence we maintain our HOLD recommendation on the stock with target of 830, valuing at 23x FY19E EPS of 36/share. ICICI Securities Ltd Retail Equity Research
Variance analysis- Standalone Q2FY18 Q2Y18E Q2FY17 YoY (%) Q1FY18 QoQ (%) Comments Total Operating Income 1428 1532 1333 7.1 1497-4.7 The automotive segment (2-W+ 4-W) showed impressive growth in Q2FY18. The Industrial segment also reported good volume growth, except the telecom space which continues to witness disruptive changes. The demand for batteries in the Telecom sector declined in Q2FY18 Raw Material Expenses 942.0 1051.0 851.2 10.7 1048.7-10.2 Despite increase in its key raw material prices (average lead prices up increased 20% YoY & 8% QoQ to 151/kg) its gross margin expanded by 404bps QoQ. This is mainly after ARBL has been able to offset the input price pressure by a mix of cost management strategies and pricing actions Employee Expenses 74 81 69 7.0 81-8.2 Other Expenses 173.2 196.0 182.8-5.3 175.2-1.1 EBITDA 238 203 230 3.6 193 23.5 EBITDA Margin (%) 16.7 13.3 17.2-55 bps 12.9 380 bps Other Income 12 15 12 2.1 14-10.6 Depreciation 58.4 56.6 45.7 27.7 54.4 7.2 Interest 1 2 1-16.1 1-8.8 Tax 63.5 53.0 58.2 9.1 50.9 24.8 Reported PAT 127 108 136-6.7 100 27.4 Higher than expected margin further lifted the PAT EPS ( ) 7.4 6.3 8.0-6.7 5.8 27.4 Key Metrics Sales ( crore) 1,428 1,532 1,333 7.1 1,497-4.7 RM cost (% to net sales) 66.0 68.6 63.9 214 bps 70.0-404 bps Gross margin for the company expanded QoQ basis Other expenses (% to net sales) 12.1 12.8 13.7-158 bps 11.7 44 bps Employee Expense (% to net sales) 5.2 5.3 5.2 0 bps 5.4-20 bps Change in estimates FY18E FY19E ( Crore) Old New % Change Old New % Change Comments Revenue 6,017 5,950-1.1 7,005 6,878-1.8 We have revised our revenue estimate lower primarily due to subdued demand from the industrial battery segment (disruption in telecom sector) EBITDA 877 904 3.0 1,150 1,101-4.3 Stronger margin in Q2FY18; has resulted us to revise FY18E margin higher. While FY19E margin are largely in line with management guidance of 14%-16% EBITDA Margin (%) 14.6 15.2 61 bps 16.4 16.0-41 bps PAT 470 485 3.2 642 615-4.2 Downward revision in revenue & margin estimates is resulting into lower profitability EPS ( ) 27.5 28.4 3.2 37.6 36.0-4.1 Assumptions Current Earlier Comments Units (mn) FY16 FY17 FY18E FY19E FY18E FY19E Automotive volumes 15.5 16.5 18.8 21.3 18.9 21.5 Automotive volumes is marginally revised lower Industrial volumes 4.4 5.4 5.5 6.3 5.7 6.5 Disruption in telecom sector is likely to impact ARBL's industrial segment going forward. Management is also concerned on the slowing demand from the industrial segment ICICI Securities Ltd Retail Equity Research Page 2
Key conference call takeaways Going forward management expects double digit growth (13%- 15%) revenue growth largely driven by the automotive segment while expects sustainable long term margin to be in the range of 14%-16% The automotive segment (2-W+ 4-W) showed impressive double digit growth. The Industrial segment reported decent volume growth, except the telecom space which continues to witness significant growth challenges mainly due to disruption in the space. The demand for batteries in the Telecom sector declined Q2FY18, thereby impacting the overall growth EBITDA margin expanded 380bps QoQ to 16.7% mainly due to 1) better product mix, 2) production efficiencies and 3) pricing action. ARBL is expanding its 2-W capacity by ~4mn units in Q4FY18 taking the overall 2-W capacity to 15mn units. It is planning to add the 2 nd phase of expansion for 4-W of 2.2mn units & the 3 rd phase of 2.25mn units is expected to come towards end of FY19E. Capex guidance for FY18E stands at 500 crore. According to management, the lead price is expected to remain in the range of $2,400 to $2,500/tonne. Further the average procurement cost of lead for ARBL stands at $2170/tonne in Q2FY18 as against $1750/tonne in Q2FY17. ARBL has taken price hikes (6-7 times) in the past 12 months, while the average price hike for Q3FY18 stands in the range of 3%-5%. According to the management, 2/3 rd (66%) of its business has price escalation/variation clause while the remaining of 1/3 rd (33%) is exposed to lead price volatility risk. ARBL s 4-W market share stands at 38% & 32% for OEM and replacement respectively while for 2-W its market share stands at 15% & 20% for OEM and replacement respectively. The company is working on lithium-ion battery and is considering the same as one of the priority area of work. According to the management, the company will make the right move at the right time on the lithium-ion battery solutions. The lithium ion-battery is 3-4 times costlier vis-à-vis lead acid battery; however has higher lifecycle and economics advantage compared to lead acid battery. ICICI Securities Ltd Retail Equity Research Page 3
( crore) Company Analysis New capacity to drive next phase of growth! ARBL s automotive and industrial revenue mix was at 60% & 40%, respectively. Within the automotive space, replacement segment accounts for ~46% of its revenue while OEM accounts for ~14% of its revenue. ARBL has embarked on a strong capacity addition programme in the next four years, which would aid new market growth. Capacity, on the automotive side, is expected to go up to ~36 million (mn) units by FY20 from ~22 mn units in FY17 on the automotive side. Its 2-W capacity is expected to increase from ~11 mn units in FY17 to 15 mn units in FY18E and further to 25 mn units in FY20. Its 4-W capacity increased from 8.25 mn units in FY16 to 10.5 mn units in FY17. On the industrial side, large VRLA capacity expanded to ~1300 million AmpHr in FY17 (with utilisation level 95%) from 760 million AmpHr in FY13. Further ~50% of the industrial revenue is derived from the telecom segment which currently is facing major disruption impacting the demand. The gradual demand recovery in the industrial segment is likely to aid growth, going forward. We expect revenues to grow at ~14% CAGR in FY17-19E to 6,878 crore driven by increasing share of demand from the auto OEM side as well as a gradual pick-up in the replacement battery segment (due to ARBL s strong position in the organised market as well shortening life cycle). ARBL benefits from strong brand equity and distribution network and now has >30,000 touch points (retailers) on the automotive side and ~100 aqua channel partners on the industrial side. Exhibit 1: We build in revenue growth at ~13% CAGR in FY17-19E 8,000 7,000 6,000 5,000 4,000 3,000 2,364 2,961 3,437 4211 4,618 5,317 5,950 6,878 2,000 1,000 0 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Price hikes + cost strategies = to support EBITDA margins! The duopoly nature of the industry lends decent pricing power to ARBL vis-à-vis EIL. Over the past 12 months, lead price has been more volatile, impacting ARBL s gross margins, which fell 574 bps YoY & 286 bps QoQ in Q4FY17 & 380 bps YoY & 203 bps QoQ in Q1FY18 thereby impacting EBITDA margins. The management has indicated that the increase in lead price has resulted into cost challenges. However, the same is addressed by pricing action (ARBL has hiked prices 6-7 times over the past 12 months) & cost effective strategies & is evident in the Q2FY18 result which posted gross margin expansion of 404bps QoQ thereby driving the overall margins. The smelting contribution for ARBL is ~15%, and will also provide some cushion going forward. Hence, we expect EBITDA to increase to ~ 1101 crore, assuming margins of 16% in FY19E. ICICI Securities Ltd Retail Equity Research Page 4
340 452 560 709 823 850 904 ( crore) 1101 (%) Exhibit 2: EBITDA margins to rise steadily 1,400 20 1,200 1,000 800 600 14.4 15.2 16.3 16.8 17.8 18 16.0 15.2 16.0 16 14 400 200 12 0 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E 10 EBITDA - LHS Margin (%) - RHS Profitability to remain intact in FY19E ARBL remains a cash generating franchise, which has an annual CFO in excess of 753 crore (FY19E). PAT is expected to grow to 615 crore at ~13% CAGR (FY17-19E). Exhibit 3: Profit to continue with strong growth momentum! 800 700 600 500 400 300 200 100 9.7 287 10.7 367 9.8 411 10.6 492 9.0 478 485 8.2 615 8.9 12 10 8 6 4 2 0 FY13 FY14 FY15 FY16 FY17 FY18E FY19E 0 PAT ( crore) PAT margin (%) (RHS) Source: Company press release, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 5
(%) Return ratios to remain healthy! Return ratios are expected to remain healthy with rising profitability. Return ratios witnessed a decline in FY11 primarily due to the significant investment to boost the manufacturing capacity. However, post the same, ratios moved higher. With new capacity coming on stream, the initial lower utilisation level is likely to result in higher overhead cost or start-up cost. Thus, it is likely to moderate return ratios in FY18, though is expected to recover from FY19E onwards. We expect RoNW & RoCE of ~18% & ~25%, respectively, for FY19E. Exhibit 4: Strong return ratios 45.0 36.0 37.0 36.6 32.6 32.5 27.0 25.8 23.5 25.3 18.0 9.0 27.6 27.2 23.3 23.2 18.5 16.3 17.6 0.0 FY13 FY14 FY15 FY16 FY17 FY18E FY19E RoCE RoNW ICICI Securities Ltd Retail Equity Research Page 6
Outlook and valuation ARBL s performance has continued to be impressive even as the industry leader struggles with consistency in profitability. ARBL has put up a consistent performance; strong return ratio (~18% RoE, ~25% RoCE), good earnings visibility and a strong balance sheet (net debt negative). Even though, ARBL is working on the lithium-ion battery front, the uncertainty in the automotive battery space, considering newer players (including OEMs setting up the battery plant) could impact ARBL performance going forward. Hence we maintain HOLD recommendation on the stock with target of 830, valuing at 23x FY19E EPS of 36/share Exhibit 5: Valuation Revenues Growth EPS Growth PE EV/EBITDA RoNW RoCE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY16 4,617.8 9.7 28.8 19.4 27.4 16.4 23.2 32.5 FY17E 5,317.2 15.1 28.0 (2.7) 28.2 15.7 18.5 25.8 FY18E 5,950.4 11.9 28.4 1.4 27.8 14.8 16.3 23.5 FY19E 6,877.8 15.6 36.0 26.8 21.9 12.1 17.6 25.3 ICICI Securities Ltd Retail Equity Research Page 7
(%) ( ) Recommendation history vs. consensus 1,200 1,100 1,000 900 800 700 600 500 400 300 200 Nov-15 Jan-16 Apr-16 Jun-16 Aug-16 Nov-16 Jan-17 Apr-17 Jun-17 Aug-17 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Nov-17 Price Idirect target Consensus Target Mean % Consensus with BUY Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Apr-09 May-09 Nov-10 Mar-11 Mar-12 Aug-12 Mar-12 Mar-13 Oct-13 May-14 Nov-14 Apr-15 May-15 Event ARBL reports strong EBITDA margin jump of 500 bps to ~20% for FY10 results The company undertakes new capacity expansion drive in the industrial battery side both of large VRLA and medium VRLA Receives best supply chain leader in the auto components business The company is able to gain on EIL's loss of market share in replacement market and increases replacement share by 6% QoQ The increase in costs of lead causes decline in gross margins for the complete battery industry The stock gets re-rated vis-à-vis EIL due to consistency of earnings as EIL's financial performance deteriorates ARBL reports strong EBITDA margins performance The company announces next growth capex of 700 crore across various segments ARBL commissions the new two wheeler capacity aiding volume growth Surprises on the negative side on the EBITDA margins front ARBL announces new capacity expansion plan of 500 crore for tubular battery with 1.4 million unit capacity Company commissions 4-W battery plant at Chittoor with installed capacity at 2.25 million p.a. taking total capacity to 8.25 million per annum Clocks highest ever revenue & PAT in FY15 Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Johnson Controls Mauritius Pvt. Ltd. 30-Sep-17 0.3 44.4 0.00 2 RNGalla Family Pvt. Ltd. 30-Sep-17 0.2 41.4 0.00 3 Nalanda Capital Pte Ltd 30-Sep-17 0.0 7.5 7.49 4 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-17 0.0 4.8 0.02 5 ICICI Prudential Asset Management Co. Ltd. 30-Sep-17 0.0 4.1-0.05 6 Amara Raja Group 30-Sep-17 0.0 3.1 0.00 7 Reliance Nippon Life Asset Management Limited 30-Sep-17 0.0 2.3 1.39 8 Wasatch Advisors, Inc. 30-Jun-17 0.0 2.2 0.17 9 J O Hambro Capital Management Limited 30-Jun-17 0.0 2.1 1.23 10 Baron Capital Management, Inc. 30-Sep-17 0.0 2.1 0.18 Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Promoter 52.1 52.1 52.1 52.1 52.1 FII 25.8 26.0 23.3 23.3 22.0 DII 10.7 10.7 13.9 13.9 15.2 Others 11.5 11.3 10.8 10.8 10.8 Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Nalanda Capital Pte Ltd 81.27 7.49 Galla (Jayadev) -166.72-12.82 Reliance Nippon Life Asset Management Limited 15.13 1.39 Galla (Ramachandra N) -166.37-12.80 J O Hambro Capital Management Limited 15.97 1.23 Gourineni (Ramadevi) -104.75-8.06 Baron Capital Management, Inc. 1.96 0.18 Galla (Amara Kumari) -68.40-5.26 Kotak Mahindra Asset Management Company Ltd. 1.90 0.18 Franklin Advisers, Inc. -58.43-4.80 Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 8
Financial summary Profit and loss statement Crore (Year-end March) FY16 FY17 FY18E FY19E Total operating Income 4,618 5,317 5,950 6,878 Growth (%) 10.5 15.1 11.9 15.6 Raw Material Expenses 2,910.5 3,488.5 4,006.2 4,600.8 Employee Expenses 242.9 277.8 313.8 350.8 Other Expenses 641.4 701.0 726.6 825.3 Total Operating Expenditure 3,794.8 4,467.2 5,046.7 5,776.9 EBITDA 823 850 904 1,101 Growth (%) 16.1 3.3 6.3 21.8 Depreciation 140.7 191.2 229.1 255.9 Interest 5.5 5.8 5.4 4.0 Exceptional Items 0.0 0.0 0.0 0.0 PBT 722.6 702.2 728.4 918.4 Total Tax 231.0 223.7 243.2 303.1 PAT 492 478 485 615 Growth (%) 19.7-2.7 1.4 26.8 EPS ( ) 28.8 28.0 28.4 36.0 Cash flow statement Crore (Year-end March) FY16 FY17 FY18E FY19E Profit after Tax 488.2 478.5 485.2 615.3 Add: Depreciation 139.9 191.2 229.1 255.9 (Inc)/dec in Current Assets -186.6-202.0-89.9-241.5 Inc/(dec) in CL and Provisions 97.8 121.8 31.9 123.4 CF from operating activities 539.3 589.5 656.3 753.0 (Inc)/dec in Investments 0.0 0.0 0.0 0.0 (Inc)/dec in Fixed Assets -545.5-447.8-500.0-450.0 Others 23.3-37.0-12.2 10.8 CF from investing activities (522.2) (484.8) (512.2) (439.2) Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0 Inc/(dec) in loan funds -1.7 3.5 0.0 0.0 Dividend paid & dividend tax -87.4-87.4-92.5-102.8 CF from financing activities (89.0) (83.9) (92.5) (102.8) Net Cash flow -71.9 20.7 51.5 211.0 Opening Cash 222.2 150.3 170.9 222.4 Closing Cash 150.3 170.9 222.4 433.4 Balance sheet Crore (Year-end March) FY16 FY17 FY18E FY19E Liabilities Equity Capital 17.1 17.1 17.1 17.1 Reserve and Surplus 2,098.8 2,576.0 2,968.6 3,481.1 Total Shareholders funds 2,115.9 2,593.1 2,985.7 3,498.2 Total Debt 72.5 69.0 69.0 69.0 Deferred Tax Liability 53.8 81.5 69.3 80.1 Total Liabilities 2,313.0 2,825.0 3,205.3 3,728.6 Assets Gross Block 1,481.0 1,807.6 2,422.8 2,897.8 Less: Acc Depreciation 133.0 320.5 549.6 805.5 Net Block 1,348.0 1,487.0 1,873.2 2,092.3 Capital WIP 122.7 240.3 125.0 100.0 Total Fixed Assets 1,474.7 1,732.4 2,003.3 2,197.4 Investments 20.0 18.9 18.9 18.9 Inventory 601.6 817.0 733.6 847.9 Debtors 592.2 570.5 733.6 847.9 Loans and Advances 9.7 7.5 12.5 14.4 Other Current Assets 102.3 139.7 144.8 155.7 Cash 150.3 170.9 222.4 433.4 Total Current Assets 1,456.1 1,705.5 1,846.9 2,299.4 Creditors 349.3 418.4 423.9 489.9 Provisions 54.6 53.7 66.3 76.6 Other current liabilities 233.9 287.5 301.4 348.3 Total Current Liabilities 637.8 759.6 791.5 914.9 Net Current Assets 818.3 945.9 1,055.4 1,384.5 Other Non-Current Assets 47.9 74.7 74.7 74.7 Application of Funds 2,313.0 2,825.0 3,205.3 3,728.6 Key ratios (Year-end March) FY16 FY17 FY18E FY19E Per share data ( ) EPS 28.8 28.0 28.4 36.0 Cash EPS 37.0 39.2 41.8 51.0 BV 123.9 151.8 174.8 204.8 DPS 4.3 4.3 4.5 5.0 Cash Per Share 3.2 3.8 4.1 4.7 Operating Ratios (%) EBITDA Margin 17.8 16.0 15.2 16.0 PBT / Net sales 14.8 12.4 11.3 12.3 PAT Margin 10.6 9.0 8.2 8.9 Inventory days 47.6 56.1 45.0 45.0 Debtor days 46.8 39.2 45.0 45.0 Creditor days 27.6 28.7 26.0 26.0 Return Ratios (%) RoE 23.2 18.5 16.3 17.6 RoCE 32.5 25.8 23.5 25.3 RoIC 34.6 30.0 25.6 28.4 Valuation Ratios (x) P/E 27.4 28.2 27.8 21.9 EV / EBITDA 16.4 15.7 14.8 12.1 EV / Net Sales 2.9 2.5 2.2 1.9 Market Cap / Sales 2.9 2.5 2.3 2.0 Price to Book Value 6.4 5.2 4.5 3.9 Solvency Ratios Debt/Equity 0.0 0.0 0.0 0.0 Current Ratio 2.0 1.9 2.0 2.0 Quick Ratio 1.0 0.8 1.0 1.0. ICICI Securities Ltd Retail Equity Research Page 9
ICICIdirect.com coverage universe (Auto & Auto Ancillary) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E Amara Raja (AMARAJ) 796 830 Hold 13603 28.0 28.4 36.0 28.4 28.0 22.1 15.7 14.8 12.1 25.8 23.5 25.3 18.5 16.3 17.6 Apollo Tyre (APOTYR) 238 275 Buy 13623 19.2 12.2 19.6 12.4 19.6 12.1 10.5 10.5 7.7 13.6 8.4 11.8 15.1 7.5 11.0 Ashok Leyland (ASHLEY) 112 120 Buy 31513 4.3 4.4 6.3 26.0 25.4 17.6 13.3 12.3 9.4 23.9 25.1 29.7 25.0 18.8 22.7 Bajaj Auto (BAAUTO) 3247 3170 Hold 93954 132.3 146.8 178.2 22.0 19.8 16.3 17.6 16.0 12.6 30.3 30.4 32.5 22.5 22.3 23.3 Balkrishna Ind. (BALIND) 2028 2050 Buy 19604 84.3 107.7 127.8 21.7 17.0 14.3 14.7 11.1 8.7 23.6 26.1 26.6 19.1 26.1 26.6 Bharat Forge (BHAFOR) 700 790 Buy 32590 15.0 17.8 24.7 46.7 39.3 28.3 26.1 18.7 14.3 16.7 21.7 27.5 15.4 17.8 21.7 Bosch (MICO) 19988 23300 Hold 62763 570.5 488.1 613.2 38.9 45.5 36.2 33.5 31.7 25.6 16.4 15.6 17.6 24.1 23.5 26.3 Eicher Motors (EICMOT) 29500 33460 Buy 82650 655.9 828.5 1026.0 46.7 36.9 29.8 27.2 21.3 17.1 39.2 38.8 36.8 36.0 33.5 31.1 Exide Industries (EXIIND) 202 250 Buy 17145 8.2 8.1 10.0 24.7 25.0 20.1 15.4 14.1 11.7 18.5 17.9 19.7 14.0 12.8 14.4 Hero Moto (HERHON) 3587 4475 Buy 71633 156.9 169.1 198.3 22.9 21.2 18.1 16.4 15.5 13.1 48.7 44.0 46.0 35.8 33.4 33.9 JK Tyre & Ind (JKIND) 151 155 Hold 3417 16.6 0.7 22.1 9.1 211.9 6.8 7.5 11.2 5.4 11.2 5.4 13.9 16.6 0.8 21.1 Mahindra CIE (MAHAUT) 242 280 Buy 9155 9.6 11.9 13.9 25.2 20.4 17.5 12.9 11.3 10.0 10.1 11.1 11.6 11.5 12.9 13.8 Maruti Suzuki (MARUTI) 8184 9150 Buy 247320 242.9 289.1 365.4 33.7 28.3 22.4 24.0 19.3 15.8 26.3 28.5 30.3 20.3 20.9 22.3 Motherson (MOTSUM) 358 335 Hold 75359 7.4 10.7 13.6 48.5 33.4 26.2 17.1 12.6 9.8 16.0 22.3 27.7 19.6 24.7 25.2 Tata Motors (TELCO) 379 490 Buy 115384 22.3 31.3 44.4 17.0 12.1 8.5 5.6 5.2 3.8 11.6 11.5 15.7 15.0 14.7 20.2 Wabco India (WABTVS) 6715 7200 Hold 12759 146.4 180.8 218.7 45.9 37.1 30.7 32.4 26.0 21.1 18.4 18.7 18.6 24.6 25.2 25.1 ICICI Securities Ltd Retail Equity Research Page 10
RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 11
ANALYST CERTIFICATION We /I, Nishit Zota, MBA & Vidrum Mehta, MBA Research Analyst, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities Limited is a Sebi registered Research Analyst having registration no. INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. ( associates ), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securitiesis is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Nishit Zota, MBA & Vidrum Mehta, MBA Research Analyst of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analyst is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Nishit Zota, MBA & Vidrum Mehta, MBA, Research Analyst do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analyst nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. 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