Automotive Axles Ltd Result Update: Q1 FY 12 C.M.P: Rs. 496.00 Target Price: Rs. 560.00 Date: March. 02 nd 2012 BUY Stock Data: Sector: Auto Component Face Value Rs. 10.00 52 wk. High/Low (Rs.) 518.00/320.00 Volume (2 wk. Avg.) 1421.00 BSE Code 505010 Market Cap (Rs in mn) 7495.55 Share Holding Pattern SYNOPSIS Automotive Axles Ltd. (AAL) is one of the largest independent manufacturers of Rear Drive Axle Assemblies in the country and with around 27 years of axle-producing experience. During the quarter ended, the robust growth of Net Profit is increased by 102.09% to Rs. 197.34 million. AAL has a QMS that is certified to ISO/TS 16949:2009 standard & also EMS that is certified to ISO 14001: 2004 standard. 1 Year Comparative Graph AAL exports axle parts to USA, France, Italy, China, Brazil and Australia. The products manufactured at AAL are based on technology provided by Meritor Inc., USA, through Meritor HVS (India) Ltd, India. Automotive Axles BSE SENSEX Net Sales and PAT of the company are expected to grow at a CAGR of 32% and 30% over 2010 to 2013E respectively. Years Net sales EBITDA Net Profit EPS P/E FY 11 10124.94 1171.03 575.56 38.09 13.02 FY 12E 13061.17 1533.76 821.02 54.33 9.13 FY 13E 15412.18 1778.45 967.57 64.03 7.75 1
Peer Group Comparison Name of the company CMP(Rs.) Market Cap. (Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Automotive Axles 496.00 7495.55 38.09 13.02 3.07 100.00 Amara Raja Batteries 278.60 2379.42 23.17 12.02 3.68 230.00 Bosch Ltd. 7845.00 24632.44 335.03 23.42 6.01 400.00 Kirloskar Pneumatic Co 479.00 615.24 56.63 8.46 3.31 120.00 Investment Highlights Q1 FY12 Results Update Automotive Axles has reported net profit of Rs 197.34 million for the quarter ended on December 31, 2011 as against 97.65 million in the same quarter last year, an increase of 102.09%. It has reported net sales of Rs 2925.51 million for the quarter ended on December 31, 2011 as against Rs 1794.64 million in the same quarter last year, a rise of 63.01%. Total income grew by 63.03% to Rs 2927.18 million from Rs.1795.45 million in the same quarter last year. During the quarter, it reported earnings of Rs 13.06 a share. Quarterly Results - Standalone (Rs in mn) As At Dec-11 Dec-10 %change Net sales 2925.51 1794.64 63.01% PAT 197.34 97.65 102.09% Basic EPS 13.06 6.46 102.09% 2
Break up of Expenditure Recommends Final Dividend Automotive Axles Ltd has recommended a final dividend of Rs. 10/- per share of Rs. 10/- each for the year 2010-11. Company Profile Established in 1981, Automotive Axles Limited (AAL) is a joint venture of Kalyani Group & Meritor Inc., USA (formerly the automotive division of Rockwell International Corporation). With manufacturing facilities located at Mysore, the company is currently the largest independent manufacturer of Rear Drive Axle Assemblies in the country. AAL exports axle parts to USA, France, Italy, China, Brazil, and Australia. The infrastructure at AAL spans highly specialized manufacturing processes involving Friction Welding, CO2 Welding, CNC Machining, Flexible Machine Centers and a range of specially built machines for production of Axles and Brakes. The facilities also comprise Gleason Gear Manufacturing Equipment backed by a modern Heat Treatment Shop including Continuous Carburizing and Sealed Quench Furnaces. 3
Wide range of Rear Drive Axles catering to commercial vehicles ranging from 6 Tons to 35 Tons GCW, S-Cam Actuated Quick Change Air Brakes for commercial vehicles and Trailer Axles for 10 Tons to 13 Tons GVW. AAL has a Quality Management System that is certified to ISO/TS 16949:2009 standard and also Environmental Management System that is certified to ISO 14001:2004 standard. Products Products manufactured at AAL are based on technology provided by Meritor Inc., USA, through Meritor HVS (India) Ltd, India. With manufacturing facilities located at Mysore, the company is currently one of the largest independent manufacturers of Rear Drive Axle Assemblies in the country and with around 27 years of axle-producing experience and advanced gearing technology from Meritor HVS (India) Ltd, has been manufacturing reliable, long-life heavy duty drive axles. This capability allows the company to meet the steer, drive and trailer axle requirements of customers in the addressed markets. The Marketing and Field Service Support is provided by Meritor HVS (India) Ltd. Single Drive Axle AAL offers a broad selection of single rear drive axles ranging from 6000 kg to 14000 kg GAWR for Truck, Bus, Tractor & construction vocations. Tandem Drive Axle Vehicles used in the mining & Tractor applications are often required to carry extremely heavy loads, AAL offers the following variety of single-reduction tandem drive axles with GAWR capacities from 19000 kg to 28000 kg) for such vehicles. Non Drive Axle This axle does not have drive but used along with drive axles in order to increase the vehicle load bearing capacity. 4
Customers 5
Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales 6697.32 10124.94 13061.17 15412.18 Other Income 22.95 5.09 5.60 6.05 Total Income 6720.27 10130.03 13066.77 15418.23 Expenditure -5815.89-8959.00-11533.02-13639.78 Operating Profit 904.38 1171.03 1533.76 1778.45 Interest -35.55-65.76-69.05-72.50 Gross profit 868.83 1105.27 1464.71 1705.95 Depreciation -209.96-233.93-257.32-283.06 Profit Before Tax 658.87 871.34 1207.39 1422.89 Tax -218.13-295.78-386.36-455.33 Profit After Tax 440.74 575.56 821.02 967.57 Equity capital 151.12 151.12 151.12 151.12 Reserves 1887.62 2286.97 3107.99 4075.56 Face value 10.00 10.00 10.00 10.00 EPS 29.16 38.09 54.33 64.03 6
Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E Description 3m 3m 3m 3m Net sales 2739.13 2809.82 2925.51 3949.44 Other income 0.58 2.73 1.67 1.89 Total Income 2739.71 2812.55 2927.18 3951.33 Expenditure -2396.01-2557.57-2553.92-3455.76 Operating profit 343.70 254.98 373.26 495.57 Interest -18.92-21.33-23.27-22.11 Gross profit 324.78 233.65 349.99 473.46 Depreciation -62.72-61.17-62.65-67.66 Profit Before Tax 262.06 172.48 287.34 405.80 Tax -84.67-55.94-90.00-130.67 Profit After Tax 177.39 116.54 197.34 275.13 Equity capital 151.12 151.12 151.12 151.12 Face value 10.00 10.00 10.00 10.00 EPS 11.74 7.71 13.06 18.21 7
Key Ratios Particulars FY10 FY11 FY12E FY13E No. of Shares (in mn) 15.11 15.11 15.11 15.11 EBITDA Margin (%) 13.50% 11.57% 11.74% 11.54% PBT Margin (%) 9.84% 8.61% 9.24% 9.23% PAT Margin (%) 6.58% 5.68% 6.29% 6.28% P/E Ratio (x) 17.01 13.02 9.13 7.75 ROE (%) 21.62% 23.61% 25.19% 22.89% ROCE (%) 40.59% 45.98% 45.83% 42.00% Debt Equity Ratio 0.35 0.25 0.20 0.16 EV/EBITDA (x) 8.29 6.40 4.89 4.21 Book Value (Rs.) 134.91 161.33 215.66 279.69 P/BV 3.68 3.07 2.30 1.77 Charts: Net sales & PAT 8
P/E Ratio (x) Debt Equity Ratio 9
EV/EBITDA(x) P/BV 10
Outlook and Conclusion At the current market price of Rs.496.00, the stock is trading at 9.13 x FY12E and 7.75 x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.54.33 and Rs.64.03 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 32% and 30% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 4.89 x for FY12E and 4.21 x for FY13E. Price to Book Value of the stock is expected to be at 2.30 x and 1.77 x respectively for FY12E and FY13E. 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.560.00 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, favorable 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. 11
Major developments, investments and Government initiatives relating to the sector are discussed hereafter. 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-authorised network of service stations would account for 20-30 per cent of the Indian auto components market by 2017 while that of multi-brand organised service chains would grow to 5-10 per cent from 1-2 per cent. Similarly semi-organised service centres and unorganised 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 which is being discussed and negotiated by the two Governments. The agreement is likely to get finalised by 2013. If fructified, the agreement would facilitate an annual increase of economic output in two countries by almost US$ 6 billion & boost the two-way trade by 50 percent. 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 12
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. 13
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, organised 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 14
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. 15
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