Fiem Industries  B U Y   Target (INR)                               812  Ride along the growth path continues  November 12, 2014

India Equity Research Automobiles November 12, 2014
Fiem Industries BUY Target (INR) 812 Ride along the growth path continues Fiem’s strong sales growth trajectory continues on the back of strong sales volumes for its key customers HMSI and TVS motors which have both gained market share in scooters and motorcycle segments so far in FY15. With customer preference continuing to benefit key customers, we estimate the strong growth in sales to continue. Additionally, signing of the JVs over the coming quarters could provide additional fillip to the stock as visibility on additional revenues improves. In‐line with reported numbers, we raise our EBITDA margin forecast and consequently PAT forecast for FY15f‐FY16f by 7%. We raise our TP to INR812/share and maintain BUY. Company Report Last Price (INR)
705
Bloomberg code
FIEM IN
Reuters code
FIIN.BO
Avg. Vol. (3m)
55,397
36.3
Avg. Val.(3m)(INRmn)
735 / 191
52‐wk H/L (INR)
27,910
Sensex
MCAP (INRbn/USDmn)
8.44 / 137
Shareholding (%)
06/14
09/14
70.0
70.0
MFs, FIs, Banks
4.2
4.7
FIIs
0.1
1.3
10.0
15.8
9.9
14.2
Promoters
Public
Others
Growth trajectory remains robust Fiem’s 2QFY15 sales growth at 17.5% y‐o‐y continues to remain strong on the back of strong sales volumes for its key customers HMSI and TVS motors which have both gained market share in scooters and motorcycle segments so far in FY15. In 1HFY15, Fiem has reported a sales growth of 17.6% while two‐wheeler industry grew at 16.4% as key customers continued to gain market share. With customer preference remaining towards scooters, we estimate HMSI and TVS motors to continue reporting strong sales growth and gain market share. As a result, we estimate Fiem to continue to remain on a good footing even if overall domestic two‐wheeler sales slows down a little as witnessed in Oct14. Stock Chart (Relative to Sensex)
900
700
500
Signing of JVs, growth in LED, IPIS next big triggers 300
While core business growth will likely continue to remain strong, further near term trigger could be the signing of the two JVs for which MoUs have already been signed as it could potentially lead to large additional future revenues as well as enable Fiem to diversify into four wheelers and potentially boost exports. Additionally, any growth in LED luminaire and Integrated Passenger Information Systems (IPIS) businesses could further improve earnings as these are high margin businesses currently in nascent stage with huge growth potential. 100
Nov13
Mar14
Jul14
Fiem Inds
Nov14
Sensex Rebased
Stock Perfm. (%)
1m 3m
1yr Absolute
10.3
13.1
251.0
4.2
3.7
214.8
Financials (INRmn)*
03/14
03/15f
03/16f
Sales
7,184
8,477
10,173
19
18
20
EBITDA (%)
12.3
12.2
12.4
A.PAT
375
431
611
12
12
12
31.3
36.1
51.0
Rel. to Sensex
YoY (%)
Sh o/s (diluted)
A.EPS (INR)
YoY (%)
36
15
42
D/E (x)
0.7
0.5
0.4
P/E (x)
22.5
19.6
13.8
EV/E (x)
11.2
9.3
7.6
14
21
15
20
18
24
RoCE (%)
RoE (%)
Quarterly Trends* 12/13
03/14
06/14
We cut our FY15f sales growth forecast to 18.0% from 20.0% previously and raise our FY15f EBITDA margin forecast from 11.8% to 12.2%, in‐line with the reported 1HFY15 numbers. We raise our FY15f‐FY16f EPS forecast by upto 7% and raise our TP to INR812/share as we roll over to Dec15. We maintain BUY on the stock. We continue to base our TP on the average of our one‐year forward fair values based on an EV/EBITDA multiple of 7.0x and P/E of 13.0x. A slowdown in sales of key customers HMSI and TVS motors and large change in raw material prices which get passed on with a delay are key risk factors. 09/14
Sales (INRmn)
1,881 1,992 1,789 2,105
PAT (INRmn)
103
120
Raise TP to INR812; maintain BUY 81 107
*Standalone
Please refer to the disclaimer towards the end of the document. Saurabh Bharat, +91 022 66842856 [email protected] Fiem Industries
Exhibit 1: 2QFY15 result snapshot (INRmn) Sep13
Jun14
q‐o‐q (%)
Sep14
y‐o‐y (%)
Total operating income 1791.2
1789.2
17.6
2,104.7
17.5
Total operating expenses 1579.8
1570.3
17.6
1,846.2
16.9
211.5
218.9
18.1
258.5
22.3
‐93.2
EBITDA Other Income 7.0
1.9
‐75.4
0.5
Depreciation 52.7
76.0
0.4
76.3
44.7
165.7
144.9
26.1
182.7
10.2
36.9
31.8
‐11.5
28.1
‐23.7
128.8
113.1
36.7
154.5
19.9
EBIT Interest Recurring PBT Net extra ordinary items 0.0 PBT (reported) Total taxes 0.0 128.8
113.1
38.1
32.3
Net income (reported) 90.8
80.8
Shares outstanding (mn) 12.0
12.0
EPS (INR) 7.6
Operating ratios (%) 19.9
47.8
106.7
32.1
17.6
12.0
8.9
32.1
154.5
36.7
6.8
0.0 EBITDA margin 11.8 12.2 EBIT margin 9.3 Net profit margin 5.1 17.5
0.4
12.3 4.0
8.1 7.2
8.7 ‐6.2
4.5 12.3
5.1 0.1
Source: Company, IL&FS Institutional Equities Exhibit 2: Earnings revision summary ‐‐‐‐‐‐‐‐‐‐FY15f‐‐‐‐‐‐‐‐‐‐ (INRmn) Old New Var (%) Old New Var (%) Old New Var (%) 8,621 8,477 ‐1.7
10,345 10,173 ‐1.7
12,414 12,207 ‐1.7
‐2.9
Net sales EBITDA ‐‐‐‐‐‐‐‐‐‐FY16f‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐FY17f‐‐‐‐‐‐‐‐‐‐ 1,015 1,038 2.2
1,278 1,263 ‐1.2
1,601 1,555 PAT 402 431 7.2
573 611 6.5
797 800 0.3
EPS (INR) 34 36 7.2
48 51 6.5
67 67 0.3
Source: IL&FS Institutional Equities Exhibit 3: One year forward P/E (x) Exhibit 4: One year forward EV/EBITDA (x) 30
12
1‐yr fwd PE
Target PE
Avg PE
1‐yr Fwd EV/EBITDA
Target EV/EBITDA
Average EV/EBITDA
20
8
10
4
0
Mar07 Mar08 Mar09 Feb10 Feb11 Feb12 Jan13 Jan14 Dec14 Dec15
Source: Bloomberg, IL&FS Institutional Equities 0
Mar07 Mar08 Mar09 Feb10 Feb11 Feb12 Jan13 Jan14 Dec14 Dec15
Source: Bloomberg, IL&FS Institutional Equities Automobiles 2 Fiem Industries
Financials and valuations (standalone) Income statement (INRmn)
Balance sheet (INRmn)
Fiscal year ending
Total operating income
EBITDA
Other income
Depreciation
EBIT
Interest
Net extra ordinary items
PBT (reported)
Total taxes
PAT (reported)
(+) Share in assoc. earnings
Less: Minority interest
Prior period items
Net income (reported)
Adj. net income
Dil. shares (mn)
EPS (INR)
Fiscal year ending
Net worth
Minority interest
Total debt
Deferred tax liability
Total liabilities
Net block
CWIP
Goodwill
Investments
Cash
Inventories
Debtors
Loans and advances
less: Current liabilities
less: Provisions
Net working capital
Total assets
03/14
03/15f
03/16f
03/17f
7,184
8,477
10,173
12,207
885
1,038
1,263
1,555
7
8
10
12
218
306
308
337
674
740
964
1,230
144
124
92
87
0
0
0
0
530
616
872
1,143
155
185
261
343
375
431
611
800
‐
‐
‐
‐
‐
‐
‐
‐
(1) (1) (1) (1)
374
431
610
799
374
431
610
799
12.0
12.0
12.0
12.0
31.3
36.1
51.0
66.9
Cash flow statement (INRmn)
Key Ratios
Fiscal year ending
Net profit + Depreciation
Deferred tax
Working capital changes
Less: Other income
Cash flow from operations
Capital expenditure
Others
Cash flow from investing
Equity raised
Change in borrowings
Dividends paid (incl. tax)
Others
Cash flow from financing
Net change in cash
Fiscal year ending
P/E
P/BV
EV/Sales
EV/EBITDA
ROCE ROE
EBITDA margin
Net profit margin
Operating income y‐o‐y
EPS y‐o‐y
Gross asset turnover
Working capital cycle (days)
Net debt to equity
Net debt to EBITDA
03/14
03/15f
03/16f
03/17f
592
737
918
1,136
33 37 52 69
32
6
31
34
7
8
10
12
651
772
992
1,227
‐404
‐400
‐800
‐400
6
8
9
11
‐398
‐392
‐791
‐389
‐
‐
‐
‐
‐149
‐309
‐55
‐647
‐84
‐101
‐143
‐187
‐16
38
‐1
‐1
‐250
‐371
‐198
‐835
3
8
3
3
03/14
03/15f
03/16f
03/17f
1,971
2,300
2,766
3,378
‐
‐
‐
‐
1,197 888 834 187
275 322 374 443
3,443
3,510
3,974
4,007
3,130
2,821
2,913
3,376
27
400
800
400
0
0
0
0
1
1
1
1
19
27
30
33
423
445
467
490
764
840
924
1,016
184
199
216
234
995
1,095
1,204
1,324
109
128
173
220
286
288
260
229
3,443
3,510
3,974
4,007
03/14
22.5
4.3
1.4
11.2
14.2
20.5
12.3
5.2
19.3
36.2
1.7
14.2
0.7
1.4
03/15f
19.6
3.7
1.1
9.3
14.9
20.2
12.2
5.1
18.0
15.1
2.0
11.2
0.5
0.9
03/16f
13.8
3.1
0.9
7.6
18.0
24.1
12.4
6.0
20.0
41.5
2.2
8.7
0.4
0.7
03/17f
10.5
2.5
0.7
5.8
21.6
26.0
12.7
6.5
20.0
31.0
2.2
6.3
0.2
0.1 Automobiles 3 Fiem Industries
Analyst Certification The following analyst(s) is(are) primarily responsible for this report and, certifies(y) that the opinion(s) on the subject company(ies) and its security(ies) and any other views or forecasts expressed herein accurately reflect their personal view(s): Saurabh Bharat Disclosures Meaning of IL&FS Broking Services Private Limited’s equity research ratings The rating represents the expected change in the price of the stock over a horizon of 12 months. Buy: more than +15% Add: +5% to +15% Reduce: ‐5% to +5% Sell: less than ‐5% Analyst disclosures None of the analysts involved in the preparation of this research report or a member of his/her household is an officer, director or supervisory board member of any of the company(ies) that is/are the subject of this research report. None of the analysts involved in the preparation of this research report or members of his/her household hold any financial interest in the securities of the company(ies) that is/are the subject of this research report. Disclaimer This document has been prepared by IL&FS Broking Services Private Limited (IBSPL) formerly known as Avendus Securities Private Limited. This document is meant for the use of the intended recipient only. Though dissemination to all intended recipients is simultaneous, not all intended recipients may receive this document at the same time. This document is neither an offer nor solicitation for an offer to buy and/or sell any securities mentioned herein and/or official confirmation of any transaction. This document is provided for assistance only and is not intended to be, and must not be taken as, the sole basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as he deems necessary to arrive at an independent evaluation, including the merits and risks involved, for investment in the securities referred to in this document and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. This document has been prepared on the basis of information obtained from publicly available, accessible resources. IBSPL has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to accuracy, completeness or fairness of the information and opinion contained in this document. The information given in this document is as of the date of this document and there can be no assurance that future results or events will be consistent with this information. Though IBSPL endeavors to update the information contained herein on reasonable basis, IBSPL, its associate companies, their directors, employees, agents or representatives (IBSPL and its affiliates) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent us from doing so. IBSPL and its affiliates expressly disclaim any and all liabilities that may arise from information, error or omission in this connection. IBSPL and its affiliates shall not be liable for any damages whether direct, indirect, special or consequential, including lost revenue or lost profits, which may arise from or in connection with the use of this document. This document is strictly confidential and is being furnished to you solely for your information. This document and/or any portion thereof may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of IBSPL. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of the United States or Canada or is located in any other locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law or regulation or which would subject IBSPL and its affiliates to any registration or licensing requirements within such jurisdiction. Persons in whose possession this document comes should inform themselves about and observe any such restrictions. IBSPL and its affiliates may be performing or seeking to perform investment banking and other services for any company referred to in this document. Affiliates of IBSPL may have issued other reports that are inconsistent with and reach a different conclusion from the information presented in this document. IBSPL and its affiliates may have interest/positions, financial or otherwise, in the companies mentioned in this document. In order to provide complete transparency to our clients, we have incorporated disclosures about interests of analysts and about potential conflicts of interest of IBSPL and its associate companies in this document. This should, however, not be treated as an endorsement of the view expressed in the document. IBSPL is committed to providing high‐quality, objective and unbiased research to our investors. To this end, we have policies in place to identify, consider and manage potential conflicts of interest and protect the integrity of our relationships with investing and corporate clients. Employee compliance with these policies is mandatory. Any comment or statement made herein are solely those of the analyst and do not necessarily reflect those of IBSPL. OFFICE ADDRESS IL&FS Broking Services Private Limited
The IL&FS Financial Centre, 3rd Floor, Plot C ‐ 22, G ‐ Block, Bandra Kurla Complex, Bandra (East), Mumbai ‐ 400051, Maharashtra, India.
T: +91 22 2653 3333 F: +91 22 2653 3548
IL&FS Broking Services Private Limited ‐ Corporate Identity Number: U67120MH2009PTC191131; SEBI Registration Numbers: BSE CM ‐ INZ010005833 | NSE CM ‐ INZ230005738 | NSE F&O ‐ INZ230005738
Automobiles 4