Industrial Machinery September 21, 2012 CMP Rs. 6.67 BSE Code 522105 BSE ID BIRLAPREC High/Low 1Y (Rs.) 9.0 / 4.0 Average Volume (3M) 9 Market Cap (Rs. Cr.) 21 Shareholding % Jun-12 Mar-12 Promoters 54.25 54.25 DIIs # 0.18 0.18 FIIs # Public & Others 45.57 45.57 Stock Chart ( Relative to Sensex) 150.0 120.0 90.0 60.0 21-Sep-11 22-Mar-12 21-Sep-12 BIRLAPREC Sensex Stock Performance (%) 1M 6M 1Yr BIRLAPREC 0.5 1.4 8.6 Sensex 4.9 6.5 9.9 Financials FY10 FY11 FY12 Revenue 79.1 111.4 193.4 Y-o-Y 191.6% 40.7% 73.7% EBITDA 8.2 21.9 27.6 Y-o-Y 84.6% 167.0% 26.0% Net Profit 1.0 6.6 12.1 Y-o-Y 71.1% 586.6% 82.8% EPS (Dil.) 0.30 2.06 3.76 EBITDA Margin 10.4% 19.7% 14.3% Net Profit Margin 1.2% 5.9% 6.2% P/E(x) 22.2x 3.2x 1.8x Financial year ends at March 31. All figures in Rs. crore except for per share data # FIIs- Foreign Institutional Investors Birla Precision Technologies Company Overview Birla Precision Technologies Ltd. (BPT), initially named Birla Kennametal Ltd., was established in 1986 as a joint venture company between Yash Birla Group (YBG) and Kennametal Inc, USA in July 2007. YBG acquired the stake of Kennametal in the JV after which Birla Kennametal was renamed as Birla Precision Technologies (BPT). BPT remains a primary vendor of Kennametal worldwide the U.S., Germany and APAC supplying rotating tool holders in AT3 class. Besides, BPT also exports to other major customers in the U.S., Europe and also to the Far East, including China. The company is engaged in the business of manufacturing a range of precision cutting tools, advanced tactical targeting technology (AT3) class tool holders, hollow shank (HSK) tooling, expanding mandrels and sleeves besides advanced products like hydro grip and shrink fit computer numerical controlled (CNC) tooling. These products are used in automobile and engineering industries. It exports AT3 class tool holders, collets and precision components to the U.S., Europe and Asia Pacific countries. Company Fundamentals Substantial growth in Revenue during FY12 During FY12, the company has performed well by increasing its turnover from Rs. 111.4 crore to Rs. 193.4 crore. The net profit for FY12 rose from Rs. 6.6 crore to Rs. 12.1 crore. The company has witnessed a robust increase in sales by 73.7% and net profit by 82.8%. The company has identified three business segments: Tool Holders, Tools, and Machining and Casting. Profit before interest and tax in FY12 for the two segments tools and Machining and Casting were Rs. 27.1 crore and Rs 3.3 crore. There was a loss in Tool Holders segment of Rs. 2.9 crore. The management has decided not to declare any dividend for FY12, considering the fund requirement for future business expansion. Key Strengths - Achieved highest rating in the ranking of India's Top 500 Manufacturing Small and Mid-sized Company Rating - Industry 2.0. - Good product portfolio # DIIs- Domestic Institutional Investors Initiative of the BSE Investors Protection Fund -1-
Company Business Birla Precision Technologies Ltd., located in Aurangabad, was incorporated on October 13, 1986 with the name Birla Erickson (Tools) Ltd. Subsequently its name was changed to Birla Kennametal Ltd. in 1989 as a result of a joint venture between Birla International Pvt. Ltd, a Yash Birla Group and Kennametal Inc, U.S. It entered into an agreement with Kennametal Inc, USA for supply of their products to Kennametal Inc and their subsidiaries worldwide for a period of 5 years, starting July, 2007. In November 20, 2007, the name of the company was changed from 'Birla Kennametal Ltd' to 'Birla Precision Technologies Ltd'. The company is engaged in the business of manufacturing a range of precision cutting tools like masonry drills, Time Switched Transmit Diversity (TSTD), Taps, Tool bits, Cutters Reamers, Advanced Tactical Targeting Technology (AT3) class tool holders, hollow shank (HSK) tooling, expanding mandrels and sleeves besides advanced products like hydro grip and shrink fit Computer Numerical Controlled (CNC) tooling. Product Information These products are used by automobile and engineering sectors. CNC tooling systems are used in manufacturing sectors like automobiles, general and heavy engineering and consumer durables. The company operates in two business segments: Tool Holder, which includes machine tool accessories & precision components and tools, which include cutting tools. It exports AT3 Class tool holders, collets and precision components to the U.S., Europe and Asia Pacific Countries. BPT is an ISO: 9001-2008, ISO: 14001-2004 certified company. It has norms and systems for quality assurance covering all stages, including a methodology for complete documentation, auditing and continuous self-correction. The company has identified three business segments. These are: - Tool Holder - Cutting Tools - Casting and Machining The segment-wise revenue contribution is shown below: Revenue 36% 11% 53% Tool Holders Cutting Tools Machining and Casting The geographical segment-wise revenue contribution is shown below: Geographical Segment Revenue 86% 7% 7% India USA Rest of the World Initiative of the BSE Investors Protection Fund -2-
Industry Overview As per 2011 World Machine Tool Output & Consumption Survey by Gardner Publications and Indian Machine Tool Manufacturers' Association (IMTMA), China dominates the world production (30%), followed by Japan (18%). In terms of consumption, too, China tops at 46% followed by Germany and Japan at 8% and 7% respectively. As per the latest survey by IMTMA, India stands 12th in terms of production and 7th in consumption of machine tools in the world. The country is set to become a key player in the global machine tools industry and is likely to see substantial high-end machine tool manufacturing. According to industry experts, surge in manufacturing industry for which the machine tools sector serves as the mother industry, has been one of the major causes of growth in this sector. The Indian Machine Tool industry has around 1,000 players in the production of machine tools, accessories/attachments, sub-systems and parts. Of these, around 20 in the large-scale sector account for 70% of the turnover and the rest are in the SME sector of the industry. Approximately, 75% of the Indian machine tool producers are ISO certified. While the large organized players cater to India s heavy and medium industries, the small-scale sector meets the demand of ancillary and other units. Many machine tool manufacturers have also obtained CE Marking certification, in keeping with the requirements of the European markets. The growth in the Indian manufacturing sector is pushing the growth of machine tool market in India as well. To keep pace with the increasing demand, production in this sector is expected to witness considerable growth. As per IMTMA, the performance of this sector in FY-12 shows a growth of 19% in Production, 33% in Exports, 14% in Imports, and 15% in terms of Consumption compared to FY11. 19% 33% 14% 15% 2010-11 2011-12 Production Exports Imports Consumption Drivers & Challenges: - Growth and development of the users like automobiles and engineering goods industries will increase demand for machine tools. - Supporting industries like foundry and castings industry are well established and hence are consistently supporting the machine tools industry. - Labour costs in India are comparatively low, which strongly supports the machine tool industry. - Abundance of key raw materials is required for growth of machine tools production. - Consistent supply of skilled manpower is necessary for the machine tool industry to develop latest products. Competitor Analysis We have compared Birla Precision with its close peers in the domestic industry. Company Revenue EBIT Margin EPS Year End CMP* M Cap (FY12) (FY12) (FY12) P/E Birla Precision Technologies Ltd. Mar-12 6.67 35.1 207.4 9.1% 0.89 7.5x GMM Pfaudler Ltd. Mar-12 99.75 146.1 201.8 5.6% 1.92 50.9x Cummins India Ltd. Mar-12 481.2 13338.9 4117.2 15.9% 6.51 6.2x Source: Capitaline, BSE. Market cap and Revenue in Rs. crore. CMP and M Cap as of 21 September 2012 Initiative of the BSE Investors Protection Fund -3-
Summary Financials Particulars (Rs crore) FY10 FY11 FY12 Net Sales 78.2 108.3 190.0 Other Op. Revenue 0.9 3.1 3.4 Total Revenue 79.1 111.4 193.4 Growth (%) 191.6% 40.7% 73.7% Cost of Goods Sold -42.9-52.8-110.7 Gross Profit 36.2 58.5 82.7 Employee Costs -18.7-21.3-30.3 Other Expenditure -9.3-15.3-24.8 EBITDA 8.2 21.9 27.6 Growth (%) 84.6% 167.0% 26.0% Depreciation -5.5-5.7-8.8 EBIT Profit 2.7 16.2 18.8 Finance cost -2.4-3.1-7.9 Other Income 1.2 2.2 8.7 Exceptional Items PBT 1.5 15.2 19.7 Growth (%) 59.9% 907.9% 29.2% Income Tax -0.6-8.6-7.6 Profit after Tax 1.0 6.6 12.1 Extra Ordinary Items 0.0 Net Profit 1.0 6.6 12.1 Growth (%) 71.1% 586.6% 82.8% Rep. Basic EPS 0.30 2.06 3.76 Rep. Diluted EPS 0.30 2.06 2.29 Equity Capital 6.4 6.4 6.4 Face value 2 2 2 Ratio Analysis FY10 FY11 FY12 Margins EBITDA Margin (%) 10.4% 19.7% 14.3% Net Profit Margin (%) 1.2% 5.9% 6.2% Valuation P/E (x) 22.2 3.2 1.8 P/BV (x) 0.3 0.3 0.2 Profitability ROCE (%) - 19.0% 14.7% RONW (%) - 8.6% 10.2% Solvency Ratio Debt/ Equity Ratio (x) 0.4 0.3 0.4 Interest Cover (x) 1.1 5.1 2.4 *Bifurcation between Long Term and Short Term Debt is not available for FY10 Initiative of the BSE Investors Protection Fund -4-
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