Post on 29-Oct-2019
February 6, 2019
ICICI Securities Ltd | Retail Equity Research
Result Update
Inexpensive valuations, steady prospects…
Apollo Tyres (ATL) posted a disappointing set of Q3FY19 numbers
Consolidated revenues came in at | 4,718 crore (up 16.5% YoY)
Consolidated EBITDA increased 6.2% YoY to | 527 crore. EBITDA
margins came in at 11.2% (up 20 bps QoQ). Margins came in lower
on account of significantly higher raw material cost, partly mitigated
by lower employee as well as other expenses
Consolidated PAT declined 19.3% YoY to | 197.9 crore
ATL has made a provision to the tune of | 60 crore during the quarter
with respect to default on unsecured inter corporate deposits of
IL&FS Financial Services. Total provisions made till date on this
account is to the tune of | 100 crore with exposure at | 200 crore
ATL has maintained its capex plans of ~| 5500 crore in FY18-21E,
with ~| 1500 crore capex spend in FY19E & ~| 2000 crore capex
spend in FY20E. The new capacity is largely in the TBR & PCR space
Replacement market rescues; double digit growth in domestic business
Domestically, ATL realises ~60% sales from the replacement market,
~30% from the OEM segment with the remaining from exports at ~10%.
Given the higher share of replacement market, the company witnessed
limited impact from the present slowdown in auto OEM sales
domestically. In Q3FY19, its volume growth in the domestic operations
was at ~11%. The company has maintained its double digit growth
guidance for Q4FY19 as well as FY20E. Sensing the weak OEM demand,
however, APT did roll back its price increase undertaken at the end of
November 2018 and currently hold slightly above average finished goods
inventory (five weeks vs. the usual trend of four weeks). Incorporating the
details, consequently on a standalone basis, we expect revenues to grow
at a CAGR of 15.2% in FY18-20E to | 13,670 crore in FY20E.
Savings in raw material costs (crude linked) to drive margin expansion
Rubber and crude derivatives form the bulk of raw material cost for any
tyre manufacturer. In case of rubber, the prevailing price is hovering at
| 125/kg, largely flat vs. the Q3FY19 average price of | 126/kg & | 131 /kg
in Q2FY19. Crude, on the other hand, was down sharply at US$62.7/barrel
vs. average of US$68/barrel in Q3FY19 and ~US$75/barrel in Q2FY19.
This should result in a drop in crude derivative prices thereby benefitting
tyre companies. A case in point is carbon black, the prices of which are
expected to be down to the levels of ~| 75/kg vs. | 90/kg+ in Q3FY19.
We believe this will drive margin expansion of tyre manufacturers starting
Q4FY19. Conservatively, on a consolidated basis, for ATL, we build in 210
bps expansion in EBITDA margins to 14% in FY20E.
Favourable risk-reward, margin recovery to aid PAT growth, retain BUY
The auto ancillary segment is largely bearing the brunt of a slowdown in
auto OEM sales with share prices of all major auto ancillaries moving
southwards. However, there is a distinction between auto ancillary totally
dependent of auto OEM for their product sales & auto ancillary
possessing healthy replacement demand, which can potentially outpace
OEM growth. Tyres companies form the latter part of the pie wherein
their product act as a consumable and have a steady replacement market
that is almost 2x+ the auto OEM market. Thus, steady replacement
demand prospects coupled with a drop in key raw material prices make
us relatively positive on the tyre space. Going forward, on a consolidated
basis, we expect sales and PAT to grow at a CAGR of 14% and 33%,
respectively, in FY18-20E. We value Apollo at | 225 i.e. 10x P/E on FY20E
EPS of | 22.5 with a BUY rating on the stock.
Rating matrix
Rating : Buy
Target : | 225
Target Period : 12 months
Potential Upside : 12%
What’s Changed?
Target Changed from | 260 to | 225
EPS FY19E Changed from | 16.2 to | 14.2
EPS FY20E Changed from | 21.6 to | 22.5
Rating Unchanged
Quarterly Performance
(| Crore) Q3FY19 Q3FY18 YoY Q2FY19 QoQ
Revenues 4,718.3 4,050.1 16.5 4,257.4 10.8
EBITDA 527.3 496.4 6.2 467.2 12.8
EBITDA (%) 11.2 12.3 -108 bps 11.0 20 bps
Reported PAT 197.9 245.3 -19.3 146.0 35.5
Key Financials
| Crore FY17 FY18 FY19E FY20E
Net Sales 13,063 14,674 17,744 19,009
EBITDA 1,846.4 1,651.3 2,136.2 2,687.1
Net Profit 1,098.6 723.9 811.8 1,284.4
EPS (|) 19.2 12.7 14.2 22.5
Valuation summary
FY17 FY18 FY19E FY20E
P/E (x) 10.4 15.8 11.9 8.9
Tgt P/E (x) 11.7 17.7 15.8 10.0
EV/EBITDA (x) 7.6 8.4 6.7 5.7
P/BV (x) 1.6 1.2 1.1 1.0
RoNW (%) 15.1 7.4 9.1 11.1
RoCE (%) 13.6 7.8 9.1 11.0
Stock data
Particular Amount
Market Capitalization (| Crore) | 11441 Crore
Total Debt (FY18) (| Crore) 4,445.7
Cash & Investments (FY18) (| Crore) 1,937.8
EV (| Crore) 13,948.7
52 week H/L (|) 307 / 192
Equity capital (| crore) | 57.2 Crore
Face value (|) | 1
Price performance (%)
1M 3M 6M 12M
Apollo Tyres -13.2 -5.9 -29.4 -19.6
JK Tyres -14.0 -18.1 -33.1 -49.1
CEAT Ltd -16.1 -6.2 -21.7 -32.2
MRF Ltd -9.9 -9.3 -23.5 -12.5
Balkrishna Industries -10.7 -25.5 -37.0 -25.6
Research Analyst
Shashank Kanodia, CFA
shashank.kanodia@icicisecurities.com
Jaimin Desai
jaimin.desai@icicisecurities.com
Apollo Tyres (APOTYR) | 200
ICICI Securities Ltd | Retail Equity Research Page 2
Variance analysis- Consolidated
(| crore) Q3FY19 Q3FY19E Q3FY18 YoY (%) Q2FY19 QoQ (%) Comments
Total Operating Income 4,718 5,004 4,050 16.5 4,257 10.8 Topline came in below our estimates primarily tracking lower-than-expected
volume growth numbers in both standalone as well as overseas business
Raw Material Expenses 2,785 2,625 2,260 23.2 2,423 14.9 RM costs were up 200 bps QoQ vs. our estimate of decline in costs
Employee Expenses 648 761 530 22.3 607 6.8
Other expenses 757 935 763 -0.8 760 -0.3 Other expenses came in lower primarily tracking operating leverage benefits
EBITDA 527 684 496 6.2 467 12.8
EBITDA Margin (%) 11.2 13.7 12.3 -108 bps 11.0 20 bps Margins came in lower than our estimates primarily tracking increase in raw
material costs that was partly compensated by lower other expenses as well as
lower employee costs
Depreciation 201 211 151 32.8 196 2.5
Interest 48.5 47.5 41.0 18.3 46 5.3 Interest costs was broadly in line with our estimates with company paying ~4%
average yield on its borrowed money
Other income 33.2 49.4 46.4 -28.5 12.3 169.6
Tax 52.9 124.0 105.0 -49.6 51 3.4
PAT 197.9 311.1 245.3 -19.3 146.0 35.5 PAT came in lower primarily tracking lower-than-expected sales as well as margin
amid provisioning of | 60 crore for loss on investment (I&LFS) vs. our estimate of |
40 crore
EPS (|) 3.5 5.4 4.3 -19.3 2.6 35.5
Key Metrics
Revenue (| crore)
India 3,159 2,702 16.9 3,151 0.2 17% YoY growth in the Indian operations is constituted by 11% of volume growth
and 6% of product as well as pricing mix
Europe 1,628 1,399 16.4 1,181 37.9 In the European division, the volume growth was in high single digits amid nearly
flat market leading to market share gains for the company
EBIT Margin (%)
India 8.3 11.7 (340) bps 8.8 (50) bps Margin depletion was largely led by increase in raw material costs
Europe 2.2 2.7 (50) bps -0.7 290 bps
Source: Company, ICICI Direct Research
Change in estimates
(| Crore) Old New % Change Old New % Change Comments
Revenue 17,867 17,969 0.6 19,994 19,253 -3.7 Marginally revise revenue estimates over FY19E, FY20E
EBITDA 2,131 2,136 0.2 2,602 2,687 3.3
EBITDA Margin (%) 11.9 11.9 -4 bps 13.0 14.0 94 bps
Sharp correction in crude derivative raw material prices like carbon black, makes us
upgrade our margin estimates for FY20E
PAT 927 812 -12.4 1,235 1,284 4.0
EPS (|) 16.2 14.2 -12.4 21.6 22.5 4.0
We incorporate the remaining | 100 crore provisioning for loss on investment (I&LFS)
in Q4FY19, which leads to downward revision in PAT estimates for FY19E. Broadly
maintain estimates for FY20E
FY19E FY20E
Source: Company, ICICI Direct Research;
ICICI Securities Ltd | Retail Equity Research Page 3
Conference call highlights
Management Outlook/Guidance and Demand
In the domestic market, the demand scenario was muted in
January 2019 but is expected to improve in February and March.
Overall Q4FY19E is expected to be better than Q3FY19 although an
elevated YoY base would weigh on the quarter optically. FY20E is
expected to see double digit growth over FY19E
For FY20E, the European business is expected to grow in high
single digits against flattish industry growth
The 16% standalone business YoY revenue growth was due to
11% volume growth and 5% improvement in mix and pricing
European sales growth was entirely volume driven while ATL
gained market share across categories
The company’s aftermarket segment grew ~11-12% YoY,
augmenting market share. OEM space displayed flattish growth
against de-growth in industry
ATL’s radialisation levels on the CV side, i.e. truck-bus radials (TBR)
was at 55-60%
OEM slowdown post October led to increased inventory levels at
the company by a week to about five weeks
Revenue & margins
Softness in input material cost is expected to act as a tailwind in
Q4FY19E. The company expects input costs to remain benign even
in FY20E
The company hopes to improve margins back towards ~13-14%
levels, going forward
ATL rolled back a 2% price hike taken in November
Segmental mix of standalone 9MFY19 revenues were as follows –
aftermarket 60%, OEM 30% and exports 10%. Also, CV 62%, PV
18%, light trucks 8%, others 12%
For Q3FY19, landed costs of various raw materials were (|/kg) –
natural rubber 137, carbon black 95, steel cords – 150, synthetic
rubber 150
For Europe operations, input costs were up 2% QoQ and 6% YoY
in Q3FY19
Reifencom revenues were flat YoY with 7% margins
Others
Gross debt was at ~| 4,700 crore and is up marginally QoQ; net
debt is at | 4,000 crore. Debt is expected to peak out in FY20
As of Q3FY19, ATL has reached production levels of 8,000 units
per day (PV) and 250 units per day (TBR) at the Hungary plant.
FY19E targeted levels are 12,000 units per day for PV
Capex plans are on track, with ~| 1,000-1,500 crore expected for
FY19E and ~| 2,500-3,000 crore for FY20E (Andhra Pradesh
greenfield expansion)
The Andhra Pradesh plant is set to come online in Q4FY20E and
will eventually have capacity of 15,000 units per day (PV – radial)
and 3,000 units per day (TBR)
Chennai TBR plant utilisation levels are at ~85-89%
On a general basis, the life cycle of CV tyres is at one year while in
the PV space, it is at three to four years
ICICI Securities Ltd | Retail Equity Research Page 4
Company Analysis
Global player – with good business diversification across geographies!
A quick glance at Apollo’s consolidated performance shows an increase
in contribution of the European subsidiary from FY10 onwards. Revenue
from Europe have increased from ~24% in FY10 to ~30% in FY15. The
share had dropped to 27% in FY16 primarily due to internal factors
(namely implementation of SAP impacting sales volumes) and due to
external factor (unfavourable weather & currency movement). However,
the management remained optimistic on demand, which recovered in
FY17 along with large part of internal issues sorted out thereby increasing
its share back to 30%. In terms of segment mix, replacement: OEM share
was at 77: 23 respectively. In the category mix, T&B accounts for 42% of
its revenue, PV accounts for 40% of revenue while the remaining 10%,
6%, 2% is derived from off-highway, LCV & other segments, respectively.
Exhibit 1: Revenue break-up - Geography-wise
5,490
8,158
8,507
8,712
8,938
8,682
8,934
10,300
12,598
13,670
2,234
2,850 2,992
3,943 4,032 3,284
4,091
4,630
5,353
5,583
1,183
1,308 1,502
1,271 321
-
-
-
-
-
3,000
6,000
9,000
12,000
15,000
18,000
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
(| crore)
India Europe South Africa
Source: Company, ICICI Direct Research
Revenue growth strong on radial TB side!
We factor in revenue growth at ~14% CAGR in FY18-20E, mainly led by
volume. We believe domestic demand will improve on the back of
radialisation trend in the truck bus segment. The radialisation trend has
promoted companies for higher capacity within the segment in India.
ATL’s truck bus radial (TBR) capacity is currently operating at ~90%
utilisation level. Therefore, it is expanding its TBR capacity in a phased
manner. Further, the imposition of anti-dumping duty on Chinese tyres
will favour domestic tyre players. ATL has also smartly used its nylon
capacity (that was underutilised given the radialisation trend) and is
producing off-highway tyres, which has resulted in strong growth in FY18.
Exhibit 2: We expect revenue growth at ~16% CAGR in FY18-20E
8,868
12,153
12,795
13,413
12,785
11,849
13,180
14,841
17,969
19,253
9.2
37.0
5.3 4.8
-4.7-7.3
11.212.6
21.1
7.1
-15
-10
-5
0
5
10
15
20
25
30
35
40
-
3,000
6,000
9,000
12,000
15,000
18,000
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(%
)
(| crore)
Sales % growth
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 5
Savings in raw material costs (crude linked) to drive margin expansion
Rubber and crude derivatives form the bulk of raw material cost for any
tyre manufacturer. In case of rubber, the prevailing price is hovering at
| 125/kg, largely flat vs. the Q3FY19 average price of | 126/kg & | 131 /kg
in Q2FY19. Crude, on the other hand, is down sharply at US$62.7 /barrel
vs. average of US$68/barrel in Q3FY19 and US$75/barrel in Q2FY19. This
should result in a drop in crude derivative prices thereby benefitting tyre
companies (starting Q4FY19). Conservatively, on a consolidated basis, for
ATL, we build in 210 bps expansion in EBITDA margins to 14% in FY20E
(11.9% in FY19E and 11.1% in FY18).
Exhibit 4: Margin movement with RM trend
56.0
52.4
56.9
50.8
53.4
49.5
49.9
49.2
51.9
52.7
57.2
59.8
58.0
56.3
55.4
56.7
57.8
59.8
14.9
15.8
16.6
17.7
16.1
17.2
16.0 16.3
14.2 14.4
11.1
8.3
10.5
12.312.8
12.3
11.0 11.2
36
40
44
48
52
56
60
64
4
6
8
10
12
14
16
18
20
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
(%
)
(%
)
Raw materials/Sales Contribution OPM (LHS)
Source: Company, ICICI Direct Research
Exhibit 5: Natural rubber prices have been volatile!
94
160
124.7
80
100
120
140
160
180
200
220
240
260
Mar-12
Jun-12
Sep-1
2
Dec-12
Mar-13
Jun-13
Sep-1
3
Dec-13
Mar-14
Jun-14
Sep-1
4
Dec-14
Mar-15
Jun-15
Sep-1
5
Dec-15
Mar-16
Jun-16
Sep-1
6
Dec-16
Mar-17
Jun-17
Sep-1
7
Dec-17
Mar-18
Jun-18
Sep-1
8
Dec-18
(|/Kg)
Production cut by top natural rubber
producing countries like Thailand,
Indonesia and Malaysia led to rise in NR
Floods in Thailand & demand
from China led NR prices to
Source: Company, ICICI Direct Research
Exhibit 3: EBITDA margins to recover, going forward
978
1,166
1,457
1,876
1,931
1,997
1,846
1,651
2,136
2,687
11.0
9.6
11.4
14.0
15.1
16.9
14.0
11.1
11.9 14.0
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
-
500
1,000
1,500
2,000
2,500
3,000
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(%
)
(| crore)
EBITDA EBITDA Margins (%)
Source: Company, ICICI Direct Research
A case in point is carbon black, the prices of which are
expected to be down to levels of ~| 75/kg vs. | 90/kg+ in
Q3FY19
ICICI Securities Ltd | Retail Equity Research Page 6
Strong capital structure in capital intensive, cyclical business!
Despite the capital intensiveness and cyclicality of the business, ATL has
managed to maintain a decent balance sheet strength. With FY18, D/E at
comfortable 0.5x levels. The company has a huge expansion plan of over
~| 13,500 crore in FY17-21E. To fund this huge capex, ATL has, in the
past, raised equity via the QIP route to the tune of | 1500 crore (6.3 crore
shares at | 238/share). According to the management, post this issue,
ATL will be in a comfortable position to meet its major requirements.
Exhibit 6: Comfortable debt position!
0.8 0.8
0.7
0.2
0.0 0.0
0.3
0.3 0.3
0.3
14.8 15.1
17.6
23.2 24.7
18.8
13.6
7.8 9.1
11.0
-
5
10
15
20
25
30
-
0.2
0.4
0.6
0.8
1.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(%
)
(x)
Nebt Debt/Equity RoCE
Source: Company, ICICI Direct Research
Exhibit 7: CFOs on up trend!
295
387
773
1,534
1,795
1,683
1,474
1,457
1,431
2,056
1,042
907
533
433
784
1,171
3,847
3,479
1,500 3,000
2,222
2,550
2,651
1,613
801
1,389 3
,245
4,446
4,596
4,696
-
400
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
4,400
4,800
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(| crore)
CFO Capex Debt
Source: Company, ICICI Direct Research
Profitability to remain elevated as demand returns & gross margins expand!
With the expected demand revival, we believe volumes will improve as
OEM demand is likely to increase, thereby driving its revenue, going
forward. Thus, profitability is likely to remain at decent levels, with PAT
margins likely to come in at >6% from FY20E onwards.
Exhibit 8: Profit margins to remain as operational improvement kicks in!
440
432
601 1
,044
1,015
1,091
1,099.1
723.9
961.9
1,284.4
5.0
3.6
4.7
7.8 7.9
9.2
8.3
4.9
5.4
6.7
2
3
4
5
6
7
8
9
10
-
200
400
600
800
1,000
1,200
1,400
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
(%
)
(| cro
re)
PAT PAT Margin (%)
Source: Company press release, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 7
Outlook and valuation
The auto ancillary segment is largely bearing the brunt of the slowdown
in auto OEM sales with share prices of all major auto ancillaries moving
southwards. However, there is a distinction between auto ancillary totally
dependent on auto OEM for their product sales & auto ancillary having
healthy replacement demand, which can potentially outpace OEM
growth. Tyres companies form the latter part of the pie wherein their
product act as a consumable and have a steady replacement market that
is almost 2x+ the auto OEM market. Thus, steady replacement demand
prospects coupled with drop in key raw material prices makes us
relatively positive on the tyre space. Going forward, on a consolidated
basis, we expect sales and PAT to grow at a CAGR of 14% and 33%,
respectively, in FY18-20E. We value Apollo at | 225 i.e. 10x P/E on FY20E
EPS of | 22.5 with a BUY rating on the stock.
Exhibit 9: Valuation
Sales Growth EPS Growth PE EV/EBITDA RoNW RoCE
(| cr) (%) (|) (%) (x) (x) (%) (%)
FY17 13,180 11.2 19.2 (2.2) 10.4 7.6 15.1 13.6
FY18 14,841 12.6 12.7 (34.1) 15.8 8.4 7.4 7.8
FY19E 17,969 21.1 14.2 12.2 14.1 6.7 9.1 9.1
FY20E 19,253 7.1 22.5 58.2 8.9 5.7 11.1 11.0
Source: Company, ICICI Direct Research
Exhibit 10: One year forward P/E (ATL currently trading at 8.9x)
0
50
100
150
200
250
300
350
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
(|)
Price 13.3x 11.2x 10.2x 9.2x 6.2x 4.2x 2.1x
Source: Reuters, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 8
Recommended history vs. consensus
0.0
20.0
40.0
60.0
80.0
100.0
0
50
100
150
200
250
300
350
400
Feb-19Nov-18Aug-18May-18Feb-18Nov-17Aug-17May-17Mar-17Dec-16Sep-16Jun-16Mar-16Dec-15
(%
)(|)
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICI Direct Research
Key events
Date Event
Oct-10 Rubber prices start moving up on production concerns in Thailand on excessive rains
Aug-11 Rubber prices begin to stabilise as production picks up
Jun-13 Apollo announces Cooper Tire deal acquisition
Oct-13 Cooper deal under pressure on China labour strike
Oct-13 Cooper Tire files suit against Apollo
Dec-13 Cooper Tire terminates deal with Apollo; court dismisses Cooper appeal
Feb-14 Cooper Tire files suit against Apollo
Jun-14 Apollo to invest ~|400 crore at its Kerala facility to expand its Off-highway tyre capacity
Sep-14 Company to invest greenfield facility at Hungary and is likely to invest Euro 475 million over next 4 to 5 years
Sep-14 Apollo Tyre Africa voluntarily decides to cease its business operations
Oct-14 RBI hikes FII limit for investment upto 45% of paid up capital in Apollo Tyre
May-15 Apollo plans to invest |1500 crore to expand its Truck bus radial (TBR) capacity at its Chennai plant from 6000 units/ day to 9000 units/day
Aug-15 Board approves ATL's plans to raise debt of | 2,000 crore by way of rupee term loan, foregin currency term loan, NCDs from time to time
Source: Company, ICICI Direct Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Neeraj Consultants Pvt. Ltd. 31-Dec-18 12.9 73.8 0.00
2 Franklin Templeton Asset Management (India) Pvt. Ltd. 31-Dec-18 8.2 46.9 -2.30
3 HDFC Asset Management Co., Ltd. 31-Dec-18 7.0 39.9 9.60
4 Apollo Finance, Ltd. 31-Dec-18 7.0 39.8 -0.98
5 Sunrays Properties & Investment Company Pvt. Ltd. 31-Dec-18 6.3 36.3 0.00
6 Sacred Heart Investment Company Pvt. Ltd. 31-Dec-18 4.3 24.4 0.00
7 Motlay Finance Pvt. Ltd. 31-Dec-18 3.0 16.9 0.00
8 Classic Auto Tubes, Ltd. 31-Dec-18 2.7 15.5 0.00
9 DSP Investment Managers Pvt. Ltd. 31-Dec-18 2.7 15.4 -2.35
10 ICICI Prudential Asset Management Co. Ltd. 31-Dec-18 2.5 14.3 -0.10
(in %) Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
Promoter 39.4 40.3 40.4 40.6 40.8
FII 26.4 24.3 23.0 21.0 20.0
DII 18.1 20.0 21.1 21.8 22.6
Others 16.0 15.4 15.6 16.6 16.6
Source: Reuters, ICICI Direct Research
Recent Activity
Investor name Value Shares Investor name Value Shares
HDFC Asset Management Co., Ltd. +32.56M +9.60M DSP Investment Managers Pvt. Ltd. -7.95M -2.35M
Reliance Nippon Life Asset Management Limited +8.37M +2.47M Franklin Templeton Asset Management (India) Pvt. Ltd. -7.81M -2.30M
Templeton Asset Management Ltd. +4.83M +1.65M Norges Bank Investment Management (NBIM) -3.90M -1.33M
J O Hambro Capital Management Limited +4.36M +1.29M Apollo Finance, Ltd. -3.34M -0.98M
IDFC Asset Management Company Private Limited +2.50M +0.85M City of London Investment Management Co. Ltd. -2.54M -0.87M
Buys Sells
Source: Reuters, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 9
.
Financial summary
Profit and loss statement | Crore
(Year-end March) FY17 FY18 FY19E FY20E
Total operating Income 13,180.0 14,840.5 17,969.4 19,253.3
Growth (%) 11.2 12.6 21.1 7.1
Raw Material Expenses 6,890.1 8,395.5 10,216.0 10,604.0
Employee Expenses 1,742.1 2,156.6 2,535.4 2,674.8
Other Expenses 2,701.5 2,637.1 3,081.8 3,287.4
Total Operating Expenditure 11,333.6 13,189.3 15,833.1 16,566.2
EBITDA 1,846.4 1,651.3 2,136.2 2,687.1
Growth (%) -7.6 -10.6 29.4 25.8
Depreciation 461.8 592.6 781.7 847.1
Interest 102.9 162.9 185.1 195.1
Other Income 154.1 116.5 112.2 79.2
PBT 1,435.5 1,012.3 1,081.6 1,724.0
Exceptional items 0.4 0.0 200.0 0.0
Total Tax 336.5 288.4 269.8 439.6
Reported PAT 1,098.6 723.9 811.8 1,284.4
Growth (%) -2.2 -34.1 12.2 58.2
EPS (|) 19.2 12.7 14.2 22.5
Source: Company, ICICI Direct Research
Cash flow statement | Crore
(Year-end March) FY17 FY18 FY19E FY20E
Profit after Tax 1,098.6 723.9 961.9 1,284.4
Add: Depreciation 461.8 592.6 781.7 847.1
(Inc)/dec in Current Assets -772.0 -682.6 -911.2 -419.6
Inc/(dec) in CL and Provisions 685.9 823.3 598.4 344.0
CF from operating activities 1,474.4 1,457.1 1,430.8 2,056.0
(Inc)/dec in Investments 107.3 -944.6 200.0 1,000.0
(Inc)/dec in Fixed Assets -3,847.0 -3,479.0 -1,500.0 -3,000.0
Others 297.6 450.2 -15.3 79.0
CF from investing activities -3,442.0 -3,973.4 -1,315.3 -1,921.0
Issue/(Buy back) of Equity 0.0 0.0 6.3 0.0
Inc/(dec) in loan funds 1,855.4 1,201.1 150.0 100.0
Dividend paid & dividend tax -164.5 -219.3 -201.0 -201.0
Others 19.6 1,796.7 -6.3 0.0
CF from financing activities 1,710.5 2,778.5 -51.0 -101.0
Net Cash flow -257.6 262.2 64.4 34.0
Opening Cash 594.2 336.6 598.8 663.2
Closing Cash 336.6 598.8 663.2 697.2
Source: Company, ICICI Direct Research
Balance sheet | Crore
(Year-end March) FY17 FY18 FY19E FY20E
Liabilities
Equity Capital 50.9 57.2 57.2 57.2
Reserve and Surplus 7,239.1 9,719.4 10,480.3 11,563.7
Total Shareholders funds 7,290.0 9,776.6 10,537.5 11,620.9
Total Debt 3,244.5 4,445.7 4,595.7 4,695.7
Deferred Tax Liability 766.1 838.9 1,015.7 1,088.3
Total Liabilities 11,907.2 15,936.6 17,013.1 18,320.3
Assets
Gross Block 11,557.8 15,640.9 17,409.1 21,409.1
Less: Acc Depreciation 5,519.6 6,112.2 6,893.8 7,741.0
Net Block 6,432.6 10,867.8 11,654.3 13,807.2
Capital WIP 2,872.3 2,268.2 2,000.0 1,000.0
Total Fixed Assets 9,305.0 13,136.0 13,654.3 14,807.2
Investments 396.2 1,342.5 1,142.5 142.5
Goodwill on consolidation 177.4 206.1 206.1 206.1
Inventory 2,645.5 2,945.4 3,446.2 3,692.4
Debtors 1,127.5 1,435.0 1,723.1 1,846.2
Loans and Advances 45.0 75.7 91.7 98.3
Other current assets 460.1 504.6 611.0 654.6
Cash 336.6 598.8 663.2 697.2
Total Current Assets 4,614.7 5,559.5 6,535.2 6,988.7
Creditors 1,731.8 2,447.1 2,707.7 2,901.2
Provisions 404.3 338.1 374.1 400.9
Total Current Liabilities 2,136.0 2,785.2 3,081.9 3,302.1
Net Current Assets 2,478.7 2,774.3 3,453.3 3,686.6
Application of Funds 11,907.2 15,936.6 17,013.1 18,320.3
Source: Company, ICICI Direct Research
Key ratios
(Year-end March) FY17 FY18 FY19E FY20E
Per share data (|)
EPS 19.2 12.7 14.2 22.5
Cash EPS 27.3 23.0 27.9 37.3
BV 127.4 170.9 184.2 203.1
DPS 0.3 0.5 0.4 0.3
Cash Per Share 5.9 10.5 11.6 12.2
Operating Ratios (%)
EBITDA Margin 14.0 11.1 11.9 14.0
PBT / Net sales 10.5 7.1 7.5 9.6
PAT Margin 9.5 8.3 4.9 6.7
Inventory days 73.3 72.4 70.0 70.0
Debtor days 31.2 35.3 35.0 35.0
Creditor days 48.0 60.2 55.0 55.0
Return Ratios (%)
RoE 15.1 7.4 9.1 11.1
RoCE 13.6 7.8 9.1 11.0
RoIC 15.9 8.5 9.7 10.6
Valuation Ratios (x)
P/E 10.4 15.8 11.9 8.9
EV / EBITDA 7.6 8.4 6.7 5.7
EV / Net Sales 1.1 0.9 0.8 0.8
Market Cap / Sales 0.9 0.8 0.6 0.6
Price to Book Value 1.6 1.2 1.1 1.0
Solvency Ratios
Debt/Equity 0.4 0.5 0.4 0.4
Current Ratio 2.0 1.8 1.9 1.9
Quick Ratio 0.8 0.7 0.8 0.8
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 10
ICICI Direct coverage universe (Auto & Auto Ancillary)
CMP M Cap
(|) TP(|) Rating (| Cr) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E
Amara Raja (AMARAJ) 771 835 Hold 13164 27.6 30.2 39.8 27.9 25.5 19.4 14.8 13.1 10.2 23.3 22.0 24.7 16.0 15.2 17.1
Apollo Tyre (APOTYR) 200 225 Buy 11226 12.7 14.2 22.5 15.5 13.8 8.7 6.7 6.7 5.7 7.8 9.1 11.0 7.4 9.1 11.1
Ashok Leyland (ASHLEY) 82 115 Hold 23165 5.3 7.1 8.9 15.4 11.5 9.2 10.2 8.3 6.2 28.1 32.1 34.6 21.9 25.1 26.2
Bajaj Auto (BAAUTO) 2767 2380 Hold 80059 140.6 149.7 167.2 17.8 16.7 14.9 11.9 11.3 9.3 22.9 21.1 21.7 21.5 20.3 20.2
Balkrishna Ind. (BALIND) 796 1025 Hold 15393 38.2 50.6 59.7 20.8 15.8 13.3 16.5 12.0 10.0 22.4 26.1 26.2 18.1 26.1 26.2
Bharat Forge (BHAFOR) 484 700 Buy 22527 16.2 23.3 28.0 29.9 20.8 17.3 17.6 14.5 12.2 18.2 22.9 25.7 17.3 23.3 23.9
Bosch (MICO) 19168 20500 Hold 60186 449.1 593.7 661.5 42.7 32.3 29.0 27.0 21.9 19.2 14.4 16.4 16.3 21.4 24.4 24.3
Eicher Motors (EICMOT) 20994 25500 Buy 57230 718.9 926.0 1162.1 29.2 22.7 18.1 20.0 17.0 13.2 39.1 35.9 35.0 29.9 27.9 26.9
Escorts (ESCORT) 683 700 Hold 8366 28.1 40.7 44.1 23.8 16.5 15.2 14.2 10.6 9.3 18.8 20.9 20.8 13.5 16.5 15.3
Exide Industries (EXIIND) 218 235 Hold 18551 8.2 8.4 9.8 26.5 26.1 22.3 15.2 14.1 12.0 19.1 17.6 19.1 13.0 12.2 13.1
Hero Moto (HERHON) 2874 3000 Buy 57397 185.1 174.5 199.9 15.5 16.5 14.4 8.7 9.0 7.7 42.4 38.0 39.0 31.4 26.9 27.4
JK Tyre & Ind (JKIND) 89 100 Hold 2020 2.9 12.9 21.9 30.6 6.9 4.1 9.8 6.0 4.6 7.7 12.6 15.4 3.6 15.0 18.6
Mahindra CIE (MAHAUT) 227 280 Buy 8584 9.5 14.5 17.7 24.0 15.7 12.9 13.7 9.9 8.2 9.8 12.9 13.7 11.2 15.0 17.1
Maruti Suzuki (MARUTI) 7134 6000 Hold 214604 255.6 250.3 284.4 25.5 26.0 22.9 13.5 13.8 11.8 21.1 17.8 18.8 18.5 16.3 16.6
Motherson (MOTSUM) 137 165 Hold 43201 5.1 6.2 9.0 27.1 22.0 15.2 10.8 9.0 6.7 16.3 19.6 26.1 17.4 19.4 23.5
Tata Motors (TELCO) 176 200 Hold 52658 26.8 2.3 17.0 6.9 79.0 10.9 2.7 3.2 2.6 9.1 6.1 8.2 10.3 4.3 8.5
Wabco India (WABTVS) 6353 6800 Hold 12071 143.8 172.2 212.3 44.2 36.9 29.9 28.0 24.1 19.1 17.9 17.8 18.2 25.1 25.7 26.0
Sector / Company
RoE (%)EPS (|) P/E (x) EV/EBITDA (x) RoCE (%)
Source: Company, ICICI Direct Research
ICICI Securities Ltd | Retail Equity Research Page 11
RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct 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
ICICI Direct 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 12
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