1
May 29, 2018
Talbros Automotive Components Ltd
India Research - Stock Broking
BUY
Recommendation (Rs.)
CMP (as on May 29, 2018) 309
Target Price 361
Previous Target Price 338
Upside (%) 17
Stock Information
Mkt Cap (Rs.mn/US$ mn) 3809 / 56
52-wk High/Low (Rs.) 354 / 172
3M Avg. daily value (Rs. mn)
8.7
Beta (x) 1.1
Sensex/Nifty 34949 / 10633
O/S Shares(mn) 12.3
Face Value (Rs.) 10.0
Shareholding Pattern (%)
Promoters 56.6
FIIs 0.1
DIIs 2.0
Others 41.3
Stock Performance (%)
1M 3M 6M 12M
Absolute (4) 7 8 70
Relative to Sensex (4) 5 4 51
Source: Bloomberg
Relative Performance*
Source: Bloomberg; *Index 100
Analyst Contact
Vivek Ranjan Misra
040 - 3321 6270
vivekr.misra@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures
refer to the end of this material. Karvy Stock Broking Research is available on Thomson Reuters &
Bloomberg (Code: KRVY<GO>)
Exhibit 1: Valuation Summary
YE Mar (Rs. Mn) FY16 FY17 **FY18 FY19E FY20E
Net Sales 3919 4281 3930 4676 5437
EBITDA 382 479 408 526 611
EBITDA Margin (%) 9.7 11.2 10.4 11.2 11.2
Net Prot 97 196 207 284 357
EPS (Rs.) 7.9 15.9 16.8 23.0 28.9
RoE (%) 7.5 14.3 12.9 14.8 16.2
PE (x) 39.2 19.5 18.4 13.4 10.7
Source: Company, Karvy Research; **FY18E adjusted as per IND AS accounting standards
Fairly Distributed Among Automotive Segments
Talbros reported revenue of Rs. 1102 Mn during Q4FY18, up by 32.7% YoY mainly
driven by the forgings segment which posted ~Rs. 372 Mn during Q4FY18, higher
by 96.0% YoY. The order book for forgings stand at Rs.1600 Mn led by higher
exports. The gasket division which constitutes 57% of the revenue is expected to
benet from the automobile growth considering that they supply 40% of the industry
requirement. We estimate revenue to grow at a CAGR of 17.6% during FY18-20E
accounting for these factors and earnings are expected to grow at CAGR of 31.2%
partly driven by raw material localization. Hence, we recommend a “BUY” for the
stock.
Outlook: Standalone business is expected to rise on account of improving share
of business with OEMs clearly indicated by the revenue contribution in the gasket
division which increased from 66.0% during FY16 to 71.0% during FY18. Forging
segment growth will be led by higher export orders. Moreover, we believe that Maruti
Suzuki’s (MSIL) performance will lead to Talbros’s JV growth as they constitute the
major client for control arms and hose business.
Joint Venture Performance:
Nippon Leakless (60:40 JV): Revenue for FY18 stood at Rs. 480 Mn as compared
to Rs. 430 Mn during FY17 (11.6% growth YoY) driven by volume growth in HMSI
(Honda Motors and Scooters India Ltd) and Hero Moto Corp.
Magnetti Marelli (50:50 JV): Revenue for FY18 posted Rs. 540 Mn vs.
Rs. 430 Mn during FY17, higher by 25.6% YoY, driven by increased share of
business in the control arms division with Maruti Suzuki India Ltd as Talbros is a
single source of supply for Baleno and Brezza. Going forward, we expect revenue
growth to come from front axle supplies to Bajaj quadricycle.
Talbros Marugo Rubber (50:50 JV): Reported revenue of Rs. 204 Mn during FY18
vs. Rs. 154 Mn during FY17 posting 32.5% growth YoY driven by better response
from anti-vibration products.
Valuation and Outlook
We value Talbros at P/E of 12.5x for FY20E EPS of Rs. 28.9 based on the 10-year
average forward P/E for a target price of Rs. 361, representing an upside potential
of 17% for a 9-12 month period.
Company Update
Consumer Discretionary - Automobiles & Components
Talbros Automotive Components Ltd
Bloomberg Code: TALB IN
80
120
160
200
May-17
Jun-17
Jul-17
Aug -17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Mar -18
Apr-18
May-18
Jun-18
Talbr os
Sensex
2
May 29, 2018
Talbros Automotive Components Ltd
Key takeaways from quarterly earnings
Gaskets
New orders from Cummins (USA & UK) and Zetor Tractors- Czech Republic.
Installation of post coating line to rationalize raw material costs.
Raw material sourcing agreement with Interface Performance Materials, USA to
add savings in operational expenses. Imports to be reduced by Rs. 15 Cr by FY20E.
Forging
Commenced supplies for the order received from German luxury car manufacturer.
Procured orders from USA to supply heavier forged parts with an estimated revenue
of Rs. 35 Cr/ Annum.
Also won orders from JL Auto for Rs. 12 Cr/ Annum.
Current order book stands at Rs. 160 Cr.
Revenue guidance is >Rs. 140 Cr for FY19E.
Magneti Marelli Talbros Chassis System Pvt Ltd
Procured orders from Maruti Suzuki Ltd to supply control arm assemblies for front
suspension with estimated revenue of Rs. 24 Cr /Annum.
Supplies of front axle for Bajaj Quadricycle to be ramped up from 1500 sets in
Q4FY18 to 5000 sets in Q1FY19E.
Talbros Marugo Rubber Pvt Ltd
Increase in supply of Hoses to Maruti Suzuki India Ltd.
Orders to supply hoses to Marugo Rubber, Japan yet to be commenced.
Capex guidance is for
FY19-20. Dependency on
MSIL for the JVs may be a
downside risk.
Market share of Gaskets is
50% in India.
Exhibit 2: Capex & Capacity
Entity
Capacity
(Rs. Mn/Annum)
Utilization
(%)
Capex Guidance
(Rs. Mn)
Gaskets 3600 81 120
Forgings 1560 72 50
Nippon Leakless (60:40 JV) 1440 (Group Level) 83 30
Magneti Marelli (50:50 JV) 1560 (Group Level) 69 50
Marugo Rubber (50: 50JV) 700 (Group Level) 58 30
Source: Company, Karvy Research
Exhibit 3: Estimates and Consensus - Q4FY18
(Rs Mn) Actual Karvy Est Consensus
Variation (%)
Karvy Est Consensus
Net sales 1102 1112 1203 (0.9) (8.4)
EBITDA 128 122 113 5.1 13.5
EBITDA Margin (%) 11.6 11.0 9.4 67 bps 225 bps
EPS (Rs.) 6.1 5.0 4.6 22.8 32.6
Source: Company, Karvy Research
3
May 29, 2018
Talbros Automotive Components Ltd
Eective tax rate for
Q4FY18 was 16%.
Exhibit 4: Q4FY18
YE Mar (Rs. Mn) Q4FY18 Q3FY18 QoQ % Q4FY17 YoY %
Turnover 1102 1020 8.0 830 32.7
Expenditure 973 909 7.1 760 28.0
EBITDA 128 111 15.6 70 84.0
Depreciation 41 33 22.2 31 30.2
Interest 35 35 (0.1) 41 (14.7)
Other Income 21 20 4.4 27 (23.5)
Prot from JV 17 15 11.9 14 14.8
PBT 90 77 16.4 39 131.1
Ta x 14 20 (30.1) 11 31.3
PAT 76 57 33.1 28 169.9
EBITDA Margin (%) 11.6 10.9 76 bps 8.4 324 bps
EBIT Margin (%) 8.0 7.6 34 bps 4.6 331 bps
Net Prot Margin (%) 6.9 5.6 129 bps 3.4 348 bps
Source: Company, Karvy Research
Exhibit 5: Revenue Split
Source: Company, Karvy Research
Exhibit 7: Channel distribution for forging
Source: Company, Karvy Research
Exhibit 6: Channel distribution for gaskets
Source: Company, Karvy Research
Exhibit 8: Segmental Break-up
Source: Company, Karvy Research
70.0%
71.0%
15.5%
10%
11.5%
16%
3.0%
4%
0%
25%
50%
75%
100%
FY17
FY18
OEMs
Exports
After-market
Others
2&3
Wheelers
31.0%
PVs
24.0%
HCV and
LCV
34.0%
Agri &
Off-Loaders
7.0%
Others
4.0%
48.0%
49.0%
47.0%
47.0%
5.0%
4.0%
0%
20%
40%
60%
80%
100%
FY18
FY17
OEMs
Exports
Others
61.0%
57.0%
16.0%
20.0%
10.0%
9.0%
10.0%
10.0%
3.0%
4.0%
0%
25%
50%
75%
100%
FY17
FY18
Gaskets
Forgings
LTL
Magneti Marelli
Talbros Marugo rubber
4
May 29, 2018
Talbros Automotive Components Ltd
Average 5 Year Fwd P/E is
10x.
Exhibit 9: 5 Yr PE Band
Source: Bloomberg, Karvy Research
Exhibit 10: S&P 500 Automotive components industry 5yr PE Band
Source: Bloomberg, Karvy Research
60
80
100
120
140
0
200
400
600
800
1000
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
48.4x
29.5x
10.6x
Price (Rs.) (RHS)
0
5
10
15
20
25
0
10
20
30
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May
-15
Aug-15
Nov
-15
Feb-16
May-16
Aug-16
Nov-16
Feb-17
May-17
Aug-17
Nov-17
Feb-18
May-18
Average P/E
1 SD
-1 SD
1 yr Forward P/E (RHS)
5
May 29, 2018
Talbros Automotive Components Ltd
Financials
Exhibit 11: Income Statement
YE Mar (Rs. Mn) FY16 FY17 **FY18 FY19E FY20E
Revenues 3919 4281 3930 4676 5437
Operating Expenses 3537 3803 3522 4151 4826
EBITDA 382 479 408 526 611
Depreciation & Amortization 104 153 142 154 164
EBIT 278 326 266 371 447
Other Income 60 86 63 74 76
Interest Expenses 177 167 139 153 149
Share of prot from JV - - 69 86 102
PBT 161 245 259 378 476
Tax 45 49 52 95 119
Adjusted PAT 116 196 207 284 357
Growth (%) (27.2) 68.2 5.9 36.8 25.8
Source: Company, Karvy Research; ** FY18E as per IND AS accounting standards
Exhibit 12: Balance Sheet
YE Mar (Rs. Mn) FY16 FY17 **FY18 FY19E FY20E
Cash & cash Equivalents 81 125 78 203 305
Trade receivables 798 903 1242 1320 1450
Inventory 1411 1114 1092 1175 1296
Loans & Advances 383 318 88 112 130
Other assets 29 19 207 249 287
Investments 72 81 632 606 606
Net Block 1182 1479 1310 1456 1542
Total Assets 3957 4039 4650 5121 5617
Current Liabilities & Provisions 1431 1507 1639 1635 1847
Debt 1134 1071 1173 1394 1359
Other Liabilities 74 42 45 44 44
Total Liabilities 2639 2620 2856 3073 3249
Shareholders Equity 123 123 123 123 123
Reserves & Surplus 1193 1296 1671 1925 2244
Total Networth 1316 1419 1794 2048 2368
Total Networth & Liabilities 3957 4039 4650 5121 5617
Source: Company, Karvy Research; ** FY18E as per IND AS accounting standards
Substantial growth to come
from forgings segment.
Asset turnover to be
maintained at 3.0x levels.
6
May 29, 2018
Talbros Automotive Components Ltd
Exhibit 13: Cash Flow Statement
YE Mar (Rs. Mn) FY16 FY17 **FY18E FY19E FY20E
PBT 161 207 259 378 476
Depreciation 104 153 142 154 164
Interest expense 177 167 139 153 149
Tax Paid (48) (41) (52) (95) (119)
Inc/dec in Net WC (39) 48 (40) (276) (96)
Other Income (38) (39) (63) (74) (76)
Others 16 11 22 0 0
Cash ow from operating activities 333 505 407 240 498
Inc/dec in capital expenditure (88) (219) (233) (300) (250)
Inc/dec in investments (15) (8) (192) 26 0
Others 33 37 63 74 76
Cash ow from investing activities (71) (190) (362) (199) (174)
Inc/dec in borrowings (47) (74) 102 221 (36)
Dividend paid (27) (27) (22) (30) (37)
Interest paid (183) (162) (139) (153) (149)
Cash ow from nancing activities (258) (263) (60) 38 (222)
Net change in cash 5 51 (15) 80 102
Source: Company, Karvy Research; **FY18E as per IND AS accounting standards and PBT includes exceptional items for FY17,
Exhibit 14: Key Ratios
YE Mar FY16 FY17 **FY18 FY19E FY20E
EBITDA Margin (%) 9.7 11.2 10.4 11.2 11.2
EBIT Margin (%) 7.1 7.6 6.8 7.9 8.2
Net Prot Margin (%) 3.0 4.6 5.8 6.1 6.6
Dividend Payout Ratio (%) 19.1 9.5 8.9 8.7 8.6
Debt/Equity (x) 0.9 0.8 0.7 0.7 0.6
RoE (%) 7.5 14.3 12.9 14.8 16.2
RoCE (%) 11.4 13.2 9.8 11.6 12.5
Source: Company, Karvy Research; **FY18E as per IND AS accounting standards
Exhibit 15: Valuation Parameters
YE Mar FY16 FY17 **FY18 FY19E FY20E
EPS (Rs.) 7.9 15.9 16.8 23.0 28.9
DPS (Rs.) 1.5 1.5 1.5 2.0 2.5
BVPS (Rs.) 106.6 115.0 145.3 165.9 191.8
PE (x) 39.2 19.5 18.4 13.4 10.7
P/BV (x) 2.9 2.7 2.1 1.9 1.6
EV/EBITDA (x) 12.9 10.3 12.0 9.3 8.0
EV/Sales (x) 1.3 1.1 1.2 1.0 0.9
Source: Company, Karvy Research; **FY18E as per IND AS accounting standards
Operating cash ow has
been indicated at
~Rs. 400 Mn for FY18 by
the management.
Dividend payout ratio to be
consistent.
7
May 29, 2018
Talbros Automotive Components Ltd
Stock Ratings Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
Connect & Discuss More at
1800 419 8283 (Toll Free) research@karvy.com Live Chat
f
in
You
Tube
Disclaimer
Analyst certication: The following analyst(s), Vivek Ranjan Misra, who is (are) primarily responsible for this report and whose name(s) is/are mentioned
therein, certify (ies) that the views expressed herein accurately reect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no
part of his (their) compensation was, is or will be directly or indirectly related to the specic recommendation(s) or views contained in this research report.
Disclaimer: Karvy Stock Broking Limited [KSBL] is registered as a research analyst with SEBI (Registration No INH200003265). KSBL is also a SEBI
registered Stock Broker, Depository Participant, Portfolio Manager and also distributes nancial products. The subsidiaries and group companies including
associates of KSBL provide services as Registrars and Share Transfer Agents, Commodity Broker, Currency and forex broker, merchant banker and
underwriter, Investment Advisory services, insurance repository services, nancial consultancy and advisory services, realty services, data management,
data analytics, market research, solar power, lm distribution and production, proling and related services. Therefore associates of KSBL are likely to have
business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are
prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources , the
respective corporate under coverage and sources believed to be reliable, but no independent verication has been made nor is its accuracy or completeness
guaranteed. The report and information contained herein is strictly condential 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 KSBL. While we would endeavor to update the information herein on a reasonable basis, KSBL is under no obligation to update or keep the information
current. Also, there may be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment may vary
because of changes in interest rates, foreign exchange rates or any other reason. This report and information herein is solely for informational purpose and
shall not be used or considered as an oer document or solicitation of oer to buy or sell or subscribe for securities or other nancial instruments. Though
disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KSBL 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 specic circumstances. This material is for personal information and we are not responsible for any loss incurred
based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment
decisions based on their specic investment objectives and nancial position and using such independent advice, as they believe necessary. While acting
upon any information or analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL accepts any
liability arising from the use of information and views mentioned in this report. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Past performance is not necessarily a guide to future performance. Forward-looking statements
are not predictions and may be subject to change without notice. Actual results may dier materially from those set forth in projections.
Associates of KSBL might have managed or co-managed public oering of securities for the subject company or might have been mandated by the subject
company for any other assignment in the past twelve months.
Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from
the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services
rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory
services, insurance repository services, consultancy and advisory services, realty services, data processing, proling and related services or in any other
capacity.
KSBL encourages independence in research report preparation and strives to minimize conict in preparation of research report.
Compensation of KSBL’s Research Analyst(s) is not based on any specic merchant banking, investment banking or brokerage service transactions.
KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a nancial interest in the securities or derivatives of
any companies that the analysts cover.
KSBL or its associates 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.
KSBL or its analysts did not receive any compensation or other benets from the companies mentioned in the report or third party in connection with
preparation of the research report and have no nancial interest in the subject company mentioned in this report.
Accordingly, neither KSBL nor Research Analysts have any material conict of interest at the time of publication of this report.
It is conrmed that KSBL and Research Analysts, primarily responsible for this report and whose name(s) is/ are mentioned therein of this report have not
received any compensation from the subject company mentioned in the report in the preceding twelve months.
It is conrmed that Vivek Ranjan Misra, Research Analyst did not serve as an ocer, director or employee of the companies mentioned in the report.
KSBL may have issued other reports that are inconsistent with and reach dierent conclusion from the information presented in this report.
Neither the Research Analysts nor KSBL 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 KSBL by any Regulatory Authority impacting Equity Research Analyst activities.
Karvy Stock Broking Limited
Plot No.31, 6th Floor, Karvy Millennium Towers, Financial District, Nanakramguda, Hyderabad, 500 032, India
Tel: 91-40-2331 2454; Fax: 91-40-2331 1968
For More updates & Stock Research, visit www.karvyonline.com