Analysis of Autoline Industries Ltd.

CORPORATE FINANCE

ANALYSIS OF AUTOLINE

INDUSTRIES Ltd.

SECTION D

GROUP NO.6

VISHIT GUPTA

UMANG KATTA

ANKIT PAGARIA

GAURAV AGGARWAL

SOURABH CHANDYOK

GUIDED BY

Dr. ASHISH GARG

FLOW OF PRESENTATION

• Brief about company

• Competitors

• Return and risk analysis

• Portfolio analysis

• Cost of capital

• Dividend analysis

• Capital structure analysis

• Cash flow analysis

• Leverage

• Working capital analysis

• P/E ratio

• Conclusion

• References

INTRODUCTION

• BSE: 532797 NSE: AUTOND

Market Cap: [Rs.Cr.] 73 Face Value: [Rs.] 10

Industry: Auto Ancillaries

• Integrated Design-Engineering-Manufacturing ancillary

company of automobile components and assemblies to the

leading OEMs in the automobile industry

• 11 manufacturing plants producing more than 400 products.

• Design centers at Pune, Chennai, USA and Italy.

• Customers include Bajaj Auto Ltd, Tata Motors Ltd, Kinetic

Engineering Ltd, Mahindra & Mahindra Ltd, Walker Exhaust

(India) Pvt Ltd, Cummins USA, American Axle FIAT India

Pvt Ltd and Ashok Leyland

COMPETITORS

BOSCH Ltd(Largest market cap) –It is a auto component

manufacturing company headquartered in Bangalore with

manufacturing facilities located at Bangalore, Nashik,

Naganathapura, Jaipur and Goa.

MOTHERSON SUMI-The company is the largest supplier of

EDS to the Indian automotive industry. It has presence in about

20 countries.

RICO AUTO-It manufactures auto components for two-wheelers

rear and front wheel hubs, clutches, brake systems, engine

housings, crank housings, etc. It has also diversified into the

production of gears and oil pumps.

RETURN ANALYSIS

-0.02% 0.08% 0.05% -0.12%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

AUTOLINE BOSCH MOTHERSON SUMI RICO AUTO

Avg + SD 3.74% 1.94% 3.44% 3.54%

Average Daily

Return -0.02% 0.08% 0.05% -0.12%

Avg - SD -3.77% -1.78% -3.35% -3.77%

0100020003000400050006000700080009000

BOSCH

BOSCH

0

50

100

150

200

250

Motherson Sumi

Motherson Sumi

0

10

20

30

40

50

60

Rico Auto

Rico Auto

0

50

100

150

200

250

300

4/2/2007 4/2/2008 4/2/2009 4/2/2010 4/2/2011

Autoline

Autoline

0

5000

10000

15000

20000

25000

4/2/2007 4/2/2008 4/2/2009 4/2/2010 4/2/2011

Sensex

Sensex

COMPARATIVE ANALYSIS

AUTOLINE BOSCH

MOTHERSON

SUMI

RICO

AUTO SENSEX

Average Daily Return -0.02% 0.08% 0.05% -0.12% 0.03%

Average Daily Risk 3.75% 1.86% 3.40% 3.66% 1.89%

Annualized Return -3.80% 19.45% 11.99% -28.82% 6.69%

Covariance 0.03066% 0.00902% 0.00393% 0.02642%

BETA 0.85 0.25 0.11 0.74

Systematic Risk 0.0259% 0.0022% 0.0004% 0.0195%

Unsystematic Risk 0.1150% 0.0334% 0.1149% 0.1141%

Intercept -0.0003878 0.000721901 0.000457349 -0.0013732

jasen alpha -0.0014295 -0.00448664 -0.005723454 -0.0031788

Market Risk 18.6306% 6.5902% 0.3766% 14.6743%

Firm Specific Risk 81.3694% 93.4098% 99.6234% 85.3257%

18.6306% 6.5902%

0.3766%

14.6743%

81.3694% 93.4098%

99.6234%

85.3257%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AUTOLINE BOSCH MOTHERSONSUMI

RICO AUTO

Firm Specific Risk

Market Risk

INVESTMENT PORTFOLIO

TYPES OF PORTFOLIO

• EQUAL WEIGHTAGE PORTFOLIO

• MINIMUM VARIANCE PORTFOLIO

• MAXIMUM RETURN PORTFOLIO

CORRELATION TABLE

AUTOLINE TATA MOTORS ITC HDFC BANK

AUTOLINE 1 0.106777566 0.102486758 0.0925624

TATA MOTORS 0.10677757 1 0.043190075 0.118051114

ITC 0.10248676 0.043190075 1 0.009341425

HDFC BANK 0.0925624 0.118051114 0.009341425 1

• As we can see that the correlation between the

companies is less than 1,sothere is benefit of

diversification.

• Lower the correlation, lower the variance(risk).

EQUAL WEIGHTAGE PORTFOLIO

25.00%

25.00% 25.00%

25.00%

AUTOLINE

TATA MOTORS

ITC

HDFC BANK

VARIANCE 0.0608%

STANDARD DEVIATION 2.4651%

RETURN 36.14%

MINIMUM VARIANCE PORTFOLIO

23.7%

9.9%

53.3%

13.1%

AUTOLINE

TATA MOTORS

ITC

HDFC BANK

VARIANCE 0.0434%


RETURN 32.93%

MARKOWITZ(MAXIMUM

RETURN) PORTFOLIO

1.00%

26.66%

27.92%

44.42% AUTOLINE

TATA MOTORS

ITC

HDFC BANK

VARIANCE 0.09%


RETURN 50.06%

GORDON GROWTH MODEL

autoline bosch motherson rico auto

price of stock(30-3-12) 162.51 8151.22 179.92 179.92

dividend 4 60 2.25

r 0.14476 0.171945 0.24868679

b 0.854174 0.803408 0.72426471 *

G 0.12365 0.138142 0.18011506 *

D1 4.494602 68.28851 2.6552589 *

cost of equity 0.151308 0.146519 0.19487306 *

cost of debt 0.0822 0.01982 0.0535058 *

wacc 11.68% 14.24% 13.77% *

11.68%

14.24% 13.77%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

autoline bosch motherson

GORDON'S GROWTH MODEL

wacc

DIVIDEND POLICY

• FREE CASH FLOW TO EQUITY=

EAT-(CAPEX-DEPRICIATION)

-WORKING CAPITAL

+(NEW DEBT ISSUED-BORROWING)

• D/P RATIO=DIVIDEND PER SHARE/EARNING PER

SHARE

YEAR EAT

CAPE

X

DEPRECIAT

ION WC

NEW DEBT

ISSUED FCFE DIVIDENDS DPR

DIV/FCF

E

2009 4.57 (80.79) 8.39 9.15 57.26 (1.42) 1.4279

31.25

% -100.61%

2010 13.51 (34.89) 11.03 4.74 15.58 9.97 2.8558

21.14

% 28.65%

2011 20.06 (82.64) 23.54 6.53 42.35 9.85 4.2696

21.28

% 43.37%

2012 33.47 (32.46) 24.11 (59.72) 33.07 (1.53) 5.6739

16.95

% -371.96%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2009 2010 2011 2012

DPR

DPR

-400.00%

-350.00%

-300.00%

-250.00%

-200.00%

-150.00%

-100.00%

-50.00%

0.00%

50.00%

100.00%

2009 2010 2011 2012

DIV/FCFE

DIV/FCFE

38% 27%

18% 18% 15%

62% 73%

82% 82% 85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012

RETENTION RATIO

DP RATIO

AUTOLINE

13% 16% 15%

38% 20%

87% 84% 85%

62% 80%

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012

RETENTION RATIO

DP RATIO

BOSCH

37%

69%

37% 37% 28%

63%

31%

63% 63% 72%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012

RETENTION RATIO

DP RATIO

MOTHERSON SUMI

34% 39% 32% 10%

-52%

66% 61% 68% 90%

152%

-40%

-20%

0%

20%

40%

60%

80%

100%

2008 2009 2010 2011 2012

RETENTION RATIO

DP RATIO

RICO AUTO

DIVIDEND ANALYSIS

• The average dividend payout ratio has been around 20%

• The dividend payout ratio is in complete sync with the D/P

ratio of other comparable firms i,e around 29%

• With reference to FCFE, in year 2009 and 2012 the company

was not having enough funds, but they still gave dividends.

• To sum up average FCFE of four years was 4.22 Cr. and the

amount given in dividend was 3.55 Cr.(84%)

• Mega project(Chakan Project) approved by Maharastra

Government.

DIVIDEND-WALTER MODEL


EPS 27.43 305.2 8.16 *

DPS 4 60 2.25 0.15

EPS-DPS 23.43 245.2 5.91 #VALUE!

COST OF EQUITY 15.7626667 10.51867 9.295066667 14.8012667

RATE OF RETURN 10.7422556 10.23063 7.111566922 12.7260114

PRICE OF EQUITY SHARE 126.67617 2837.676 72.85245947 #VALUE!

CAPITAL STRUCTURE ANALYSIS

D/E RATIO

2008 2009 2010 2011 2012

Autoline 0.81 0.81 0.83 0.98 1

Bosch 0.09 0.08 0.07 0.06 0.03

Motherson Sumi 1.15 1.3 0.58 0.79 0.68

Rico auto 1.38 1.36 1.47 1.42 1.11

• Autoline has consistently maintained a D/E ratio close to 1.

• The WACC corresponding to the current D/E ratio of 1 is 13.50

• Except Bosch, competitor firms are having average D/E ratio close

to 1.15

OPTIMAL D/E RATIO

Assumptions

Growth Rate taken to be 5%(GDP of India)

To calculate interest rate on debt ,we have taken

spread over debt.

Formula Used

Interest Coverage Ratio=EBIT/Interest Expense

Increase in value of firm=(Change in cost)(1+g)/WACC-g

Share Price increase=Increase in firm Value/No. of shares issued

historical market return 19.27

historical risk free rate 10.53

Risk Premium 8.74

Debt ratio Debt

DEBT EQUITY

RATIO

Intrest

expense

Intrest

coverage ratio

Intrest rate

on debt

After tax cost

of debt

levered

beta

cost of

equity

Cost of

capital

0 0 0 0 infinity 8.68 5.8156

0.512761

501

12.815202

18

12.8152021

8

10 46.203 0.111111111 4.0104204 16.58429625 8.68 5.8156

0.550933

746

13.148827

61

12.4155048

5

20 92.406 0.25 8.1594498 8.151284906 8.83 5.9161

0.598649

052

13.565859

38

12.0359075

1

30 138.609 0.428571429 12.5163927 5.313831357 9.03 6.0501

0.659997

303

14.102043

1

11.6864601

7

40 184.812 0.666666667 17.2429596 3.857226459 9.33 6.2511

0.741794

971

14.816954

72

11.3906128

3

50 231.015 1 21.5536995 3.085781167 9.33 6.2511

0.856311

706

15.817830

98

11.0344654

9

60 277.218 1.5 27.2505294 2.440686528 9.83 6.5861

1.028086

809

17.319145

38

10.8793181

5

70 323.421 2.333333333 33.4093893 1.99075773 10.33 6.9211

1.314378

647

19.821336

04

10.7911708

1

80 369.624 4 38.1821592 1.741913014 10.33 6.9211

1.886962

323

24.825717

37

10.5020234

7

90 415.827 9 48.1527666 1.381229049 11.58 7.7586

3.604713

351

39.838861

36

10.9666261

4

optimal wacc 10.50202347

optimal debt ratio 80

optimal D/E ratio 4

Annual cost before 49.98426468

annual cost after 48.52249906

change 1.461765621

increase in firm value 27.89617145

no of outstanding share 1.22

increase in share price 22.86571431

GROWTH RATE=5%(GDP OF INDIA)

VALUATION USING NOI

APPROACH

COMPANY AUTOLINE BOSCH

MOTHERSON

SUMI RICO AUTO

NET OPERATING PROFIT 63.17 1349.5 571.4 110.69

CAPITALIZATION RATE 10.7422556 10.23063 7.111566922 12.72601136

TOTAL FIRM VALUE 588.051545 13190.78 8034.797482 869.7933456

DEBT 230.82 185 867.2 347.29

BOOK VALUE OF EQUITY 357.231545 13005.78 7167.597482 522.5033456

INTEREST 28.46 5.5 69.6 67.87

REQUIRED RETURN ON

EQUITY 9.72% 10.33% 7.00% 8.20%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

REQUIRED RETURN ON EQUITY

REQUIRED RETURN ONEQUITY

SENSITIVITY ANALYSIS

9.20%

9.40%

9.60%

9.80%

10.00%

10.20%

10.40%

10.60%

10.80%

CURRENT 10% 15.00% 20%

CASH FLOW ANALYSIS

(70.00)

(60.00)

(50.00)

(40.00)

(30.00)

(20.00)

(10.00)

0.00

1 2 3 4

AUTOLINE

Free Cash Flow

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

Mar '09 Mar '10 Mar '11 Mar '12

BOSCH

Free Cash Flow

(350.00)

(300.00)

(250.00)

(200.00)

(150.00)

(100.00)

(50.00)

0.00

50.00

100.00

150.00

200.00

Mar '09 Mar '10 Mar '11 Mar '12

MOTHERSON SUMI

Free Cash Flow

(20.00)

0.00

20.00

40.00

60.00

80.00

100.00

120.00

Mar '09 Mar '10 Mar '11 Mar '12

RICO AUTO

Free Cash Flow

CASH FLOW ANALYSIS

Autoline Due to increase in working capital (Inventory and Receivables), there is a negative impact on cash flow. A lot of capital investment made 2011. Bosch An already settled company so free cashflow over the years is positive. A steep fall in 2011 can be attributed to an increased investment in working capital They also have invested consistently in fixed assets. Rico Auto The company has increased there cash flow from investing activity by selling of there investments. Motherson Sumi The company is able to keep there cashflow positive in recent years because of the increase in net profit of the company.

LEVERAGE-DFL

0

0.5

1

1.5

2

2.5

2008 2009 2010 2011 2012

RICO AUTO

DFL

0.95

1

1.05

1.1

1.15

1.2

1.25

2008 2009 2010 2011 2012

MOTHERSON SUMI

DFL

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2008 2009 2010 2011 2012

AUTOLINE

DOF

0.996

0.998

1

1.002

1.004

1.006

1.008

1.01

2008 2009 2010 2011 2012

BOSCH

DFL

LEVERAGE-DOL

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

2008 2009 2010 2011 2012

BOSCH

DOL

0

0.5

1

1.5

2

2.5

2008 2009 2010 2011 2012

RICO AUTO

DOL

0

0.5

1

1.5

2

2.5

3

3.5

2008 2009 2010 2011 2012

AUTOLINE

DOL

0

0.5

1

1.5

2

2.5

2008 2009 2010 2011 2012

MOTHERSON SUMI

DOL

LEVERAGE-DCL

0

0.5

1

1.5

2

2.5

3

3.5

4

1 2 3 4 5

RICO AUTO

DCL

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

1.7

1 2 3 4 5

BOSCH

DCL

0

0.5

1

1.5

2

2.5

3

1 2 3 4 5

MOTHERSON SUMI

DCL

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1 2 3 4 5

AUTOLINE

DCL

WORKING CAPITAL

-20

-10

0

10

20

30

40

2008 2009 2010 2011 2012

AUTOLINE

NET WORKINGCAPITAL

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

2008 2009 2010 2011 2012

BOSCH

NET WORKINGCAPITAL

0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012

MOTHERSON SUMI

NET WORKINGCAPITAL

-20

0

20

40

60

80

100

120

2008 2009 2010 2011 2012

RICO AUTO

NET WORKINGCAPITAL

WORKING CAPITAL ANALYSIS

• Working Capital= Current Assets-Current Liabilities

• Current Assets=Cash & Securities+Inventory+Trade Receivable

• Current Liabilities=Trade Payable +Portion of Long Term debt

• Working Capital increased drastically because of the increase in Inventories and Trade Receivables.

• All the competitor firms have significantly increased their working capital.

• One reason for Autoline to increase working capital may be to reduce Liquidity Risk.

• Increase in Working Capital has lead to the decrease in Cash Flows.

INVENTORY OPERATING CYCLE

0

10

20

30

40

50

60

2008 2009 2010 2011 2012

AUTOLINE

Day's inventory

0

10

20

30

40

50

1 2 3 4 5

BOSCH

Day's inventory

0

10

20

30

40

50

60

1 2 3 4 5

MOTHERSON SUMI

Day's inventory

0

5

10

15

20

25

30

35

1 2 3 4 5

RICO AUTO

Day's inventory

P/E RATIO


NO. OF SHARES ISSUED 1.22 3.13 38.75 13.52

BOOK VALUE OF EQUITY 357.2315449 13005.77737 7167.597482 522.5033456

BOOK VALUE PER SHARE 292.8127417 4155.200436 184.9702576 38.64669716

Share price (as on 30

MARCH 2012) 162.51 8151.22 179.92 10.03

EPS 27.43 305.2 8.16 *

P/E ratio 5.92453518 26.70779817 22.04901961 *

UNDERVALUED OVERVALUED OVERVALUED *

REFERENCES

• moneycontrol.com

• in.yahoofinance.com

Analysis of Autoline Industries Ltd.

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