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Page 1
ICRA LIMITED MARCH 2015
Tyre Feature - March 2015
Table of Contents
Tyre demand to pickup during 2015-16; margins to correct to more sustainable log term levels ----------------------------------------------------------- 3
Indian Tyre industry performance: Industry profit margins operating at historic high levels ---------------------------------------------------------------- 4
Demand scenario: Domestic tyre demand to expand by 9-10% during 2015-16--------------------------------------------------------------------------------- 5
Supply scenario : Industry turns to consumer segment with bulk of capacities being added in 2W & PV segments ------------------------------------ 6
Tyre Imports: Imports surges in 2014-15 after a three year slowdown -------------------------------------------------------------------------------------------- 8
Tyre Exports : Heightened competition from Chinese players lead to flat tyre exports; ADD on Chinese tyres by USA provides good
opportunity for Indian tyre makers in US over medium term --------------------------------------------------------------------------------------------------------- 9
Raw material price trends: Domestic NR prices inch up with rise in global prices and government initiatives -----------------------------------------10
Raw material price trends: Fall in crude oil prices keep the prices of synthetic rubber and other chemicals lower -----------------------------------11
Outlook: Growing tyre demand and softer inputs to support margins during H1, 2015-16; future investments to increase ------------------------12
Tyre demand to pickup during 2015-16; margins to correct to more sustainable long term levels
ICRA continues to maintain a favourable outlook for the Indian tyre industry over the next 12 months . Expected growth in Industry Factsheet
domestic tyre volumes of 9-10% during 2015-16, with pickup in auto demand and an improving economy; continued Size: Rs. 525 Billion (FY14)
benefits of lower raw material costs, particularly during H1, 2015-16; and anticipated increase in exports are expected
Revenue CAGR (FY11 to FY14): 13.5%
to support demand for the industry.
Segment mix (in tonnage): FY14
With fall in global demand, prices of several key inputs are currently at all time lows. Over the next two-three quarters OEM 60%
we expect input prices to gradually increase, capping further margin expansion in 2015-16; ICRA expects margins Replacement 30%
during 2015-16 to correct by about 100-120 basis points. Exports 10%
Product mix (in tonnage): FY14
Capacity addition in the industry remains strong in anticipation of recovery in auto demand, supported by improved Commercial vehicles 54%
accruals generated on the back of a benign rubber prices. However, there appears to be a marked shift in the capex Passenger vehicles 17%
plans of tyre majors with the focus shifting from the commercial to the consumer segment. Two wheelers 14%
OTR 4%
Tyre imports have witnessed a sharp 22% YoY (annualized) growth in the first nine months of 2014-15 led by Tractors 9%
passenger vehicle and two wheeler segments. Subdued domestic market in China and anti dumping duties (ADD) on Others 2%
passenger and light vehicle on Chinese tyres imports into the US market has led to China diverting these surplus
capacities to countries like India. Market Share of OEMs – FY14
Following a 7.3% growth in FY-14, tyre exports from India witnessed flat volume growth for the first nine months (April 2014
to December 2014) of FY 15 due to the subdued global auto demand, and rising competition from Chinese tyre makers.
Indian Tyre industry performance: Industry profit margins operating at historic high levels
Following a moderate 5.1% YoY growth during Q2 FY15, tyre manufacturers recorded almost flat (y-o-y) revenues during
Q3 FY15 (marginal 1.3% YoY growth). While tyre demand during Q3 FY15 was largely stable with decline in tractors and
Light commercial vehicles (LCV) being compensated by the Medium and Heavy Commercial Vehicles (M&HCV) and two
wheeler segment, falling input costs and heightened competition led to most players taking price cuts ranging 1-3%.
During Q3 FY15, key players like MRF and JK Tyres reported a 4-6% YoY growth while Apollo and CEAT witnessed a 1-2%
de-growth. TVS Srichakra, which enjoys a leadership position in the Indian 2W industry, continued to grow at a healthy
rate-recording a strong 16.9% (Y-o-Y) growth aided by strong demand from OEMs like Honda Motorcycle & Scooter India
(HMSI) and TVS Motor Company Limited (TVS). However, weak performance of players like Falcon Tyres (85% Y-o-Y
decline), the tractor dependant Goodyear India (11% Y-o-y decline) and Govind Rubber (12% Y-o-Y decline) dragged down
industry sales growth.
Aided by declining natural rubber (NR) and crude oil prices, the industry posted historic high profit margins in Q3, FY15
with operating and net profit margins reaching 16.2% and 7.8% respectively. With improved operating profit margins,
interest coverage ratio for the industry continues to trend high, reaching 7.6x during Q3 FY15.
Price cuts across segments
While most players posted expansion of 100-200 bps (Y-o-Y) in their operating margins, improvement for MRF (550 bps)
impacts revenue growth during and TVS Srichakra (300bps) were significantly higher. MRF enjoys the highest margins (next to the export focused
Q3 FY15; EBITDA margins at Balkrishna) in the peer group aided by favourable product mix (higher exposure to replacement & the brand conscious
historic highs as prices of NR and non-truck segments). However, despite the decline in RM costs, there was a drop in operating margins for players like
other crude linked derivatives Goodyear (130 bps, Y-o-Y) and Govind (62 bps, Y-o-Y) due to their sales skew restricted to declining segments. With shut
remains low down of key factories and significant decline in sales in the last three quarters, Falcon continues to report operating losses
for the fourth quarter in succession.
Exhibit 1: Trend in Revenue & Profitability Indicators Exhibit 2: Trend in Interest Coverage
8.0
OI (Rs. Bn.) OPM (%) NPM (%) Interest coverage (times) 7.6
120 16.2% 18% 7.0
16% 6.0
100
14%
5.0
80 12%
10% 4.0
60
6.3% 8% 3.0
3.2
40 6%
2.0
4%
20 1.0
2%
0 0% -
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Exhibit 4: Volume trends in demand for tyres Exhibit 5: Industry volume growth estimates
12%
500 10%
9-10%
511
10%
471
6-8%
Volume in Lacs
448
446
400 8%
435
427
6%
360
357
344
300
327
319
4%
265
200
2%
0%
64
0%
58
54
100
50
46
59
55
54
56
56
45
43
-2%
152
195
155
213
159
150
154
169
168
213
179
274
-2%
-
FY-11 FY-12 FY13 FY14E FY15E FY16P -4%
FY-12 FY13 FY14E FY15E FY16P
T&B Passenger Car LCV Scooters/3W Motorcycle Tractors
Source: Company Data, ATMA, ICRA’s Estimates
Supply scenario : Industry turns to consumer segment with bulk of capacities being added in 2W & PV segments
Exhibit 6: Trends in Industry wide capex and capacity utilisation
200 Capacity (Mn.) Completed Capex (Rs Bn) Capacity utilisation (%) 100%
180 95%
178.7
173.4
160 90%
171.9
86.5%
167.0
140 85%
151.0
144.0
120 79.4% 78.9% 80%
100 75.1% 75%
104.6
69.0% 70.9% 73.0%
80 70%
41.4
40.0
60 65%
33.3
29.0
24.2
23.8
40 60%
8.5
20 55%
0 50%
FY 09
FY 10
FY 11
FY 12
FY 13
FY 14
FY 15(e)
Tyre manufacturers now focusing
efforts on consumer segment
with capacity addition in the PV
Source: Company Data, ICRA’s Estimates
and 2W segment gaining ground
Over the last few quarters, it has become evident that the tyre industry is investing in capacities with renewed vigour, in
anticipation of recovery in auto demand. The capex push has been supported by sizeable surplus generated on the back
of benign rubber price regime. However, there appears to be a marked shift in the capex plans of tyre majors with the
focus shifting from the commercial to the consumer segment.
Based on industry estimates and announced capex over the past several years, it is seen that as against 40+% of
investments (in volume terms) being dedicated to the TBR segment between 2010 to 2014, only 15% of the capacity
additions between 2015 and beyond will be in the TBR segment.
In contrast, the 2W and PV segments are seeing the highest capacity additions with these respectively forming 50+%
(32% between 2010-14) and 25+% (17% between 2010-14) of the total capacity additions beyond 2015.
Both 2W and PV are a direct play on the Indian consumption story and has strong potential for establishing a brand
driven market. Major investments in these segments are being made by MRF (across plants), CEAT (at Butibori) and by
TVS Srichakra (at Pantnagar and Madurai).
That said, bulk of the investments (in cost) continue to be skewed towards TBR segment given the higher per tonne
investment needed; almost 1.6x times the investment needed in similar bias capacity. The segment is also witnessing a
favourable trend where in radialisation at the OE level has crossed 70%, with overall industry radialisation levels being
pegged at over 35%.
The T&B segment has finally crossed the inflexion point with radialisation 80% Exhibit 7: Trends and estimates in T&B Radialisation levels
levels set to cross over 50% over the next 2-3 years, supported by 70% 59%
increasing awareness of cost benefits, improving road infrastructure and 60%
52%
stringent implementation of overloading norms. With revival in the
50% 45%
domestic economy fuelling CV growth, investments in radial capacities are
40% 35%
expected to reap rich dividends. With radial demand replacing bias tyres,
30% 26%
tyre majors are witnessing a drop in bias capacity utilisations where 22%
15% 17%
competitive forces are leading to price revisions as well. 20%
9% 10%
The next phase of investments will also be towards conversion of idle bias 10% 5%
capacities into other product categories, as bias exports are also losing 0%
FY15(e)
FY 08
FY 09
FY 10
FY 11
FY 12
FY 13
FY 14
FY16 (e)
FY17 (e)
FY18 (e)
momentum given the global phenomenon of radialisation in the CV
segment.
90
Truck and Bus 24.6 13.4 16.6 12.8 6.9
86
78
60% Growth 81% -46% 24% -23% -28%
71
60
15.7% 40% % of tyre demand 16% 9% 10% 8% 5%
21.9%
40
48
20%
-2.7% -4.3% Exhibit 11: PCR tyre imports rises sharply during 9m, FY15
20 0%
0 -20% In lac nos. FY11 FY12 FY13 FY14 9M FY15
-9.4%
Passenger vehicles 48.6 52.8 53.7 51.2 42.3
FY10
FY11
FY12
FY13
FY14
9mFY15
Growth 62% 9% 2% -5% 10%
Imports (lakh nos) Growth (%) % of tyre demand 16% 17% 15% 15% 16%
Source: DGFT, ICRA estimates Source: DGFT, ICRA Estimates
Following a 6% annual decline in tyre imports during the period FY11-14, partly due to the slowdown in domestic
tyre demand and a depreciating INR, imports have witnessed a sharp 22% YoY (annualized) growth in the first nine
months of 2014-15 led by passenger vehicles and two wheeler segments.
While import of passenger vehicle tyres (10% annualized growth) and two wheeler tyres (182% annualized growth)
grew in 9m FY15, T&B tyre imports continued to contract in 9m FY15 (28% annualised decline, following almost 23%
decline during 2013-14) with imports meeting only about 5% of the domestic demand, compared to 8-10% in the
previous years. Passenger vehicle and two wheeler tyres represents 72% of overall tyre imports into India during 9m
FY15 compared to 60-62% in the previous years.
Passenger and two wheeler
In January 2015, the US Commerce Department’s International Trade Administration levied preliminary anti dumping
tyre imports rise during 2014-
duties (ADD) on passenger and light vehicle Chinese tyres imported into the US market; currently duties vary
15 between 19.17% and 87.99% depending on the manufacturer. Final determination of the ADD is expected by mid
June 2015. This coupled with a relatively muted Chinese domestic market led to Chinese Tyre manufacturers
diverting their surplus capacities to countries like India.
Several other countries like Brazil also have ADDs/countervailing duties against Chinese tyre imports. India too, has
been requesting the GoI to correct the inverted duty structure in India under the peak import duty on NR stands at
20% while the duty for imported tyres is 8%.
While China is the largest exporter of tyres to India across all segments, other countries such as Thailand, Taiwan,
Spain, Vietnam and South Korea have a presence in specific segments. Despite their perceived inferior quality and
shorter life, Chinese tyres, by virtue of their price competitiveness, have dominated tyre imports to India.
Tyre Exports: Heightened competition from Chinese players lead to flat tyre exports; ADD on Chinese tyres by USA
provides good opportunity for Indian tyre makers in US over medium term
Exhibit 12: Export sales (in volume terms) Exhibit 13: Country wise Tyre exports (in value terms)
Segment wise FY14 9M, FY15 Country-wise sales FY14 10M, FY15
exports Volumes Growth Volumes Growth % of total YoY growth % of total YoY growth
(In lacs) (%) (In lacs) (%)* USA 9.8% 5.8% 10.8% 12.0%
Passenger cars 10.0 -6% 10.7 43% Germany 6.2% 20.0% 5.7% 4.0%
Motorcycle/Scooters 15.1 -10% 10.9 -4% UAE 5.0% -15.4% 4.4% -21.6%
Bicycles 202.2 -7% 153.4 1% Philippines 4.7% -14.8% 5.3% 7.5%
Truck and Bus 37.4 -74% 24.7 -12% Netherland 3.9% 23.0% 3.4% -7.9%
Tractors 14.1 208% 16.8 59% Bangladesh 3.7% 9.0% 3.6% -1.1%
Brazil 3.7% 67.6% 4.3% 29.7%
OTRs 6.1 202% 7.1 53%
Indonesia 3.3% -12.2% 3.2% -10.4%
Aircraft 0.1 -3% 0.1 85%
France 3.2% 20.3% 3.2% 12.2%
Others 20.3 -40% 5.1 -67%
United Kingdom 2.6% 24.7% 2.8% 18.1%
Total 305.3 -29% 228.7 -0.1%
Top 10 countries 46.0% 7.4% 46.8% 3.6%
* annualised Source: Department of Commerce, ICRA estimates
Source: Department of Commerce, ICRA Estimates
Following a 7.3% growth in FY-14, tyre exports from India witnessed flat volume growth for the first nine months (April
2014 to December 2014) of this fiscal. The modest growth is due to the subdued global auto demand, and rising
competition from Chinese tyre makers whose pricing are at significant discount to market rates. In value terms, for the
same period under comparison, total tyre exports stood at Rs.74.9 billion, representing a flat 1% YoY growth.
USA, Germany and UAE continue to absorb more than 20% of overall tyre exports (value) while the top ten countries
Tyre export volumes largely flat accounted for ~47% of overall tyre exports during 10m, FY15. During this period, exports to UAE and Indonesia (whose
during 2014-15. Heightened cumulative share of exports is 7.5%) declined by over 20% and 10% respectively due to higher competition from China.
global competition from Chinese However, exports to geographies like USA, Germany, Brazil, Philippines, France and United Kingdom (their cumulative share
tyres which have been hit by an of exports being 32%) has remained strong.
ADD from US, and the relatively Top six industry players account for ~77-79% of overall tyre exports led by Balkrishna Industries at 32% and MRF at 13%.
muted 7.1% growth in China’s Export focussed BKT enjoys strong demand from the farm segments in USA/Europe while other key players like MRF, JK
domestic automotive market Tyres, CEAT and Apollo have a more diversified product/geographic mix
coupled with the fall in demand
Going forward, while the competition from China will continue to remain a challenge, domestic tyre manufactures will
from Europe played spoil sport
benefit from the recovery in global auto demand over the next two to three years. Further if the recent levy of preliminary
anti-dumping duty (ADD) by the US on Chinese tyres is ultimately finalised in June 2015, this could translate into better
opportunities for Indian tyre exporters to the US.
Raw material price trends: Domestic NR prices inch up with rise in global prices and government initiatives
Exhibit 14: Monthly NR prices (domestic and global prices) Exhibit 15: Trends in NR supply gap and price movements
300 India NR (RSS-4) prices NR Supply gap (tons) Imports (tons)
275 Bangkok NR (RSS-3) prices Indian RSS-4 prices (Rs./kg) Bangkok RSS-3 prices (Rs./kg)
250 400,000 250.0
225 350,000 225.0
200 300,000
200.0
175 250,000
150 175.0
200,000
125 150.0
150,000
100
125.0
75 100,000
50,000 100.0
50
Rs. per kg
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
- 75.0
FY11 FY12 FY13 FY14 10M FY15
Raw material price trends: Fall in crude oil prices keep the prices of synthetic rubber and other chemicals lower
Exhibit 16: WTI Crude oil prices (USD per barrel) Exhibit 17: Price index-Crude oil, Synthetic rubber and Butadiene
115 Synthetic Rubber WTI Crude Oil Butadiene (Korea)
120.0
105 110.0
100.0
Crude oil prices plunge with rising 95 90.0
supplies of shale oil in USA, 85 80.0
70.0
OPEC’s reluctance to cut down 75 60.0
production, and demand 65
50.0
40.0
slowdown in Europe, Japan and 30.0
55
China 20.0
45 10.0
Jan-13
Mar-13
Jan-14
Mar-14
Jan-15
Nov-12
Nov-13
Nov-14
Sep-12
Sep-13
Sep-14
May-13
May-14
Jul-12
Jul-13
Jul-14
Oil prices
Aug-12
Aug-13
Aug-14
Dec-12
Dec-13
Dec-14
Apr-12
Oct-12
Feb-13
Apr-13
Oct-13
Feb-14
Apr-14
Oct-14
Feb-15
Jun-12
Jun-13
Jun-14
Source: Company Data, ICRA’s Estimates
Prices of carbon black, rubber chemicals and synthetic rubber have dropped significantly in the recent months. Despite
their independent demand-supply dynamics, being crude derivatives, their prices exhibit a noticeable correlation to the
movements in crude oil prices, apart from currency rates.
Global crude oil prices, which declined by ~58% from US$ 107/bbl (WTI) in June 2014 to US$ 44/bbl by end of January 2015
due to - (i) the rise in supplies from the US shale fields and Canadian oil sands (ii) demand slowdown in Europe, Japan and
China, and (iii) reluctance of OPEC to cut production. However, prices gradually moved up to US$53 in February-15 and
have since remained volatile. Overall, oil prices are expected to remain significantly lower vis-à-vis previous years’ levels.
Synthetic rubber (SR) prices have fallen by 17% in the last six months – dropping from Rs. 194 per kg in August 2014 to Rs.
160 per kg in February 2015. Global SR prices typically trend in line with the prices of Butadiene as over 60% of Butadiene
production goes into manufacture of SR. In line with crude oil prices, Butadiene prices have also plunged considerably by
52% in the last six months but the impact on SR prices is generally seen with a time lag. Hence, we expect the SR prices to
correct further in the next one quarter.
Prices of other raw materials namely caprolactum (down 31%), carbon black (down 21%) and other rubber chemicals have
also declined in the last six months.
Outlook: Growing tyre demand and softer inputs to support margins during H1, 2015-16; future investments to increase
ICRA continues to maintain a favourable outlook for the Indian tyre industry over the next 12 months. Expected growth in
domestic tyre volumes of 9-10% during 2015-16, continued benefits of lower raw material prices, particularly during H1,
2015-16, and anticipated increase in exports are expected to support fortunes for the industry.
With fall in global demand, prices of several key inputs are currently at all time lows. Over the next two-three quarters we
expect input prices to increase gradually, although they are unlikely to reach the past highs anytime over the medium
term. Impact of these increases is expected to cap margin expansion in 2015-16; ICRA expects margins during 2015-16 to
correct by about 100-120 basis points.
Prices cuts and selective discounts in non moving brands and particularly in bias tyres is expected to continue in H1, 2015-
16, as few players realise the full impact of falling prices.
While the industry has already invested sizably in building capacities (over Rs. 110 billion) over the past three years, we
expect accruals build up over the past three years to be deployed in yielding capacities shortly. Focus has shifted from
capacity creation in the TBR segment to the consumer segments of 2W and Passenger vehicles.
ICRA anticipates some consolidation in the industry, as fringe players are absorbed by larger cash rich companies. In-
organic investments may also help cut down on the 18-24 month lead time required for any Greenfield/Brownfield
ICRA forecasts revenue CAGR of projects.
9-12% during 2014-17; Credit Despite these investments, net debt levels for the industry is expected to stay fairly stable over the next two years.
profile of the industry to improve
Exhibit 18: NR price movement and operating margins Exhibit 19: Projected Revenue trend
Revenue (Rs. bn) Growth (%)
OPM (%) NPM (%)
600 32% 35%
14% 14%
500 26% 30% 13%
14% 12%
25% 11% 11%
400 12%
20% 9%
300 10% 8%
9% 11% 10% 15%
200 8% 8% 6% 6%
6% 7% 10% 5%
6% 5% 5%
4% 4%
100 4%
256
338
370
391
418
451
499
547
5%
4%
0 0%
2%
FY11 FY12 FY13 FY14 FY15P FY16P FY17P FY18P
FY11 FY12 FY13 FY14 FY15P FY16P FY17P FY18P
Exhibit 20: Capital expenditure plans Exhibit 21: Estimated Leverage ratios
60 Capex (Rs. bn) Tangible Networth (Rs. bn) Net Debt (Rs. bn)
44
38
40 34 33
28
24
17
20
107
135
201
103
62
59
92
90
-
FY12 FY13 FY14 FY15P FY16P FY17P FY18P FY11 FY12 FY13 FY14 FY15P FY16P FY17P FY18P
Net Debt/Tangible Networth Net debt/OPBDITA OPBDITA/Interest Expense NCA/Net Debt (%)
3.2
10 100%
3.0 2.6 2.3
1.8 8 6.6 80%
1.7 1.8 1.7
2.0 1.5 5.7 5.3
1.2 1.1 6 4.8 60%
1.0 0.9
1.0 0.7 0.7 0.6 0.5 41%
4 40%
34% 39%
- 2 20%
FY11 FY12 FY13 FY14 FY15P FY16P FY17P FY18P FY11 FY12 FY13 FY14 FY15P FY16P FY17P FY18P
COMPANY SECTION
Stock price
Apollo is open to both organic as well inorganic growth options,
Volumes
OPBDIT/OI(%) 15.8% 13.9% 14.9% 12.9% 14.6% 0 0
as seen in the past where acquisitions drove growth.
Feb-14
Apr-14
Aug-14
Feb-15
Jun-14
Dec-14
Oct-14
PAT/OI (%) 5.9% 9.7% 7.8% 7.2% 6.9%
Source: Company, ICRA Estimates; Amounts in Rs. billion
Business Profile - Apollo has a diversified geographical mix of revenues. In 9m FY2015, 65% of the total revenues were derived from the Indian Bloomberg Code APTY
operations while the other geographies, namely Europe and South Africa added around 30% and 4% respectively. Segment-wise on consolidated Market Cap. (Rs. Billion) 88.7
basis, around ~79% of total sales was from the replacement market; this insulates revenues from the cyclical risk in the automobile industry,
especially in the OEM segment (Apollo’s revenue from OE business is ~20%).Product-wise, Truck & Bus (T&B, including LCVs and off-highway Valuations
vehicles) and passenger vehicles added ~65-70% (~46% from T&B alone) and 36% to the total revenues, respectively in 9m FY2015.
FY15e FY16e
Standalone Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Price/Earnings 8.7x 7.5x
Operating Income 20.4 20.4 21.6 21.1 22.3 22.1 23.1 22.5 21.2 Price/Sales 0.7x 0.6x
Growth (%) - YoY -2.7% -9.9% 0.6% -7.7% 9.4% 8.7% 6.6% 6.7% -4.8% Source: Bloomberg consensus estimates
OPBDIT/OI (%) 10.1% 10.9% 11.4% 12.7% 13.8% 12.0% 12.5% 14.5% 15.3%
PAT/OI (%) 3.6% 3.1% 4.0% 5.2% 9.9% 6.9% 6.0% 7.2% 7.6%
Source: Company, ICRA Estimates; Amounts in Rs. billion
10%
20%
30%
40%
50%
60%
70%
-10%
LCV segments contributed to de-growth. On a consolidated basis, closure of operations in South Africa, weaker
Figure 1 :Consolidated sales breakup and margins [Q3, 2014-15] winter tyre demand in EU (owing to late onset of winter) coupled with price reduction owing to competitive
pressures have led to revenue decline on a sequential and yoy basis. That said, domestic revenue growth is
T&B PV Others
100% expected to be supported by auto demand recovery. However, with the closure of manufacturing operations in
35% 17%
35% 17%
35% 17%
18%
18%
18%
34% 19%
32% 20%
32% 20%
South Africa and prevalent muted demand in EU, overseas revenues are likely to be muted over the near term.
80%
36%
36%
37%
60% Profitability - On a consolidated basis, operating margins expanded by 190bps (yoy) while on a standalone basis
40% the margins expanded by 150 bps supported by benign raw material prices, despite price cuts. Lower production
costs (owing to stock clearance) and lower marketing expenses (PY - large spend on advertisement) also
48%
48%
48%
48%
48%
47%
46%
46%
45%
20%
supported the margin expansion. For 9MFY15, the margin expansion has been at similar levels, expanding by
0% 170bps on a consolidated basis and 140 bps on a standalone basis. At the net level, the growth has been equally
Q3 FY13
Q4 FY13
Q1 FY14
Q2 FY14
Q3 FY14
Q4 FY14
Q1 FY15
Q2 FY15
Q3 FY15
strong supported by lower debt leading to lower interest costs in the India operations. At consol level, however,
the impact of scale de-growth and that of one-time provisioning for retrenchment in SA operations (~Rs. 790
mn) have led to lower net margins. Going forward, expected increase in depreciation and interest expense on
Figure 2:Quarterly trends in Category mix [Consolidated] the back of debt funded capex is expected to further temper consolidated net margins. Operating margins,
NR SR Carbon black NTCF
however, are likely to be sustained, owing to extended periods of benign NR prices given the current surplus
supply situation in the global rubber markets, notwithstanding competitive pressures on pricing.
235
230
230
255
260
295
295
295
290
Outlook and capex plans- Apollo is on track to augment TBR capacities at the Chennai plant (before Mid-2016)
by ~190TPD with a capex of Rs. 15bn, apart from a Rs. 5bn capex over three years to convert the Kerala
150 80
140 80
140 78
130 87
120 85
140 80
160 140 87
150 140 87
137 140 86
capacities into OTR from T&B cross ply. The focus in India will be on growing the radial business where per tyre
margins are higher and also to try and convert truck bias capacities into other products to optimize utilisation.
At global level, Apollo is now focusing on expanding operations in Europe, ASEAN and Africa. While in ASEAN
190
182
180
178
175
160
and Africa, Apollo will only have marketing offices for trading and expects to utilise Indian capacities to cater to
Q3 FY13
Q4 FY13
Q1 FY14
Q2 FY14
Q3 FY14
Q4 FY14
Q1 FY15
Q2 FY15
Q3 FY15
this region, in Europe, the management is investing EUR 500mn (~RS. 40bn, starting April 2015) over a period of
five years to setup a Greenfield capacity of 330MT/Day (16,000 car and 3,000 truck tyres per day). The
investment will be initially funded by accruals (30%) with back ended debt to be drawn in FY2016 and FY2017.
Figure 3:Quarterly trends in raw material costs (Rs / kg) The management is also investing heavily in improving its brand image in the market in line with its ambitious
global expansion plans. Given its currently healthy balance sheet (D/E 0.2x and cash of ~Rs. 6 bn), improving
Source: Company Data and ICRA research
brand and geographic presence, coupled with proposed investments to augment global capacities, Apollo is well
positioned to leverage the expected growth in demand over medium to longer term.
ICRA LIMITED Page 16
Tyre Feature - March 2015
Sales growth decelerates and margins drop during Q2, 2014-15; weak demand outlook in Europe and US to impact revenue growth Ratings
BKT- Fact Sheet (Accounting period - April to March) Company Profile: Incorporated in 1961, Balkrishna Industries NA
Year of Incorporation 1961 Limited (BIL) is the flagship entity of Siyaram Group. BIL produces
Chairman Mr. Dharaprasad Poddar Off-Highway Specialty Tyres (OHT), which finds application in Shareholding Pattern (%)
Product Portfolio Rubber tyres agricultural, industrial, material handling, construction, forestry,
Promoters 58%
Aurangabad (Maharashtra), Bhiwadi & earthmoving, lawn and garden vehicles and all terrain vehicles.
Manufacturing Facilities FIIs 13%
Chopanki (Rajasthan), Bhuj (Gujarat)
DIIs 16%
Segments Present OTR, Agricultural and Industrial tyres Business Profile: Segment wise, agriculture segment contributes Others 12%
Revenues FY14 (standalone) Rs. 31.9 billion 63% of total sales and OHT segment represents 33%. BIL derives
PAT FY14 (standalone) Rs. 4.9 billion major portion of revenues from exports (88% of sales in H1 FY15)
Net Worth FY14 (standalone) Rs. 18.8 billion Price Performance (%)
and largely caters to replacement market. BIL has been working
on improving its direct supplies to the global OEMs; accordingly 3M 12M
Standalone Q3FY14 Q3FY15 Q2FY15 9MFY14 9MFY15
replacement sales have dropped to 76% in 9M, FY15 (from 90% BIL -4.8% 52.8%
Operating Income 8,844.2 9,602.8 9,251.5 25,398.8 28,464.1
BSE Auto 4.0% 58.6%
Growth (%) - YoY 25.5% 8.6% 10.2% 12.1% two years back).
BSE Sensex 2.3% 39.0%
OPBDIT 2,289.0 2,640.9 2,082.9 6,099.7 7,110.1
Less: Depreciation (425.4) (657.8) (600.3) (1,170.9) (1,825.1) BIL exports tyres to customers in over 130 countries and has a
Less: Int. Charges (58.8) (110.5) (152.1) (171.0) (379.2) strong global network comprising of above 200 distributors. BIL’s Stock Movement
Other Income 52.3 32.8 10.5 266.7 53.8 key markets are Europe and America; and has expanded into 80 Volumes (in lacs) 1,000
Stock Price (Rs.)
Exceptional P/L - - - - - other markets like Asia, Africa, Middle East and Russia in recent 800
60
PBT 1,857.1 1,905.4 1,341.0 5,024.5 4,959.6 years. Europe, which accounted for 51% of sales volume in 9M, 600
PAT 1,238.5 1,299.0 900.0 4,418.1 3,277.3 40
FY15 has been BIL’s growth driver in the recent years; but near 400
term demand outlook is subdued. Sales to USA, which accounted 20 200
OPBDIT/OI (%) 25.9% 27.5% 22.5% 24.0% 25.0% for 20% of sales volume in 9M, FY15 is showing signs of demand
Stock price
0 0
PAT/OI (%) 14.0% 13.5% 9.7% 17.4% 11.5%
Volumes
Feb-14
Apr-14
Feb-15
Aug-14
Jun-14
Dec-14
Oct-14
revival especially in mining and construction sector. Domestic
Source: Company, ICRA Estimates; Amounts in Rs. Million market, adding 12% of sales in Q2 2014-15, add strong visibility
Note: Standalone financials are considered; consolidated data includes textile and paper to revenues as auto demand is gaining traction in the recent
operations too – these segments are in the process of demerger.
past.
In the global OHT segment, BIL is a small player commanding 4% market share; however it enjoys strong pricing advantage as compared to other Bloomberg Code BIL
Market Cap (Rs. bn) 59.3
key global majors due to its lower cost of manufacturing in India. Further with its new capacities at Bhuj facility getting on stream, BIL enjoys strong
headroom for sales growth from next fiscal.
Standalone Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Valuations
Operating Income 8,853.7 7,047.3 7,793.0 8,158.8 8,395.8 8,844.2 10,368.4 9609.8 9251.5 9602.8 FY15e FY16e
Growth (%) - YoY 31.7% -7.1% -1.2% -1.9% -5.2% 25.5% 33.0% 17.8% 10.2% 8.6% Price/Earnings 12.5x 10.3x
OPBDIT/OI (%) 21.0% 22.1% 20.0% 21.9% 24.1% 25.9% 25.8% 24.8% 22.5% 27.5% Price/Sales 1.5x 1.2x
PAT/OI (%) 14.0% 10.6% 10.9% 12.6% 12.9% 14.0% 14.9% 12.0% 9.7% 13.5% Source: Bloomberg consensus estimates
Source: Company, ICRA Estimates; Amounts in Rs. Million
2013-14 and expects commissioning of another 60,000 MT by 2014-15. As BIL currently operates at 78%
capacity utilisation, the expansion and ramp up of operations will provide headroom for improvement
in market share. BIL plans to manufacture radial, large and ultra large specialty tyres from its new
Figure 2: Growth trends in Operating Income
30.0%
facility. BIL also expects sizeable cost reduction due to the plant’s proximity to the port and better
Operating Margin (%) Net Margin (%)
savings on fuel costs apart from higher focus on non-agricultural tyres. For the project, Rs. 25.7 billion
25.0%
has been incurred; of this Rs. 19.5 billion has been capitalised till December 2014.
20.0%
15.0% Outlook: BIL’s strong presence in the niche segment and replacement markets, entry into new
10.0% geographies, expected increase in global market share (currently stands at ~5%-6%) and higher share of
5.0% relatively high margin radial OHT tyres (currently stands at 30%) should support the revenue growth in
0.0% the long term. On the margin front, the change in product mix, expected reduction in overall costs with
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
the phased ramp up of new plant and softer currency should support the margin expansion. However,
once Bhuj project is operational, the impact of interest costs and depreciation upon capitalisation of
project costs is likely to keep net margins under pressure for next 2-3 years.
Figure 3: Movement in margins
Source: Company Data and ICRA research
ICRA LIMITED Page 19
Tyre Feature - March 2015
Profit & Loss 2011-12 2012-13 2013-14 Key Financial Ratios 2011-12 2012-13 2013-14
Net sales 27,948.2 31,730.8 35,356.9 Growth indicators
Other related income 251.4 174.9 410.3 Sales Growth 45.8% 13.1% 12.1%
Total revenue 28,199.6 31,905.7 35,767.1 EBITDA Growth 87.6% 29.1% 31.8%
OI Growth 4.6 1.3 1.2 Profitability indicators
EBITDA 5,250.3 6,780.1 8,937.9 EBITDA Margin 18.6% 21.3% 25.0%
Depreciation 831.4 1,077.1 1,649.6 EBIT Margin 15.7% 17.9% 20.4%
EBIT 4,418.9 5,703.0 7,288.3 PAT Margin 9.5% 11.2% 13.7%
Interest expenses 277.5 258.2 249.7 RoE 28.1% 28.5% 29.6%
Other income/expense (159.2) (92.8) 138.4 RoCE 23.7% 24.6% 23.9%
PBT (before extraordinary income) 3,982.2 5,352.0 7,177.0 Liquidity ratios
Extraordinary Gain/Loss - - - Debtor (days) 62 57 63
PAT 2,685.2 3,558.3 4,883.7 Inventory (days) 85 71 87
Minority interest (MI) - - - Net working capital/Revenues 32.3% 26.8% 29.2%
PAT (concern share) Capitalization Ratios
Liabilities 2011-12 2012-13 2013-14 Total Debt/ Equity + MI 1.5 1.5 1.2
Net worth 10,800.9 14,189.7 18,848.0 Interest coverage 18.9 26.3 35.8
Minority interest - - - Total Debt/EBITDA 3.2 3.1 2.6
*Total Debt 16,731.8 20,744.3 23,500.1 Amounts in Rs. million
Non-Op. Non Current Liability - - -
Deferred Tax Liability 625.9 998.6 1,721.8
Trade Creditors 2,344.7 2,425.4 3,430.8
Other Current Liabilities and Prov. 1,912.4 1,529.3 1,239.5
Total Liabilities 32,415.7 39,887.2 48,740.2
Assets 2011-12 2012-13 2013-14
Net Fixed Assets 10,530.7 15,131.8 24,703.5
Capital Work in Progress 4,498.7 9,455.1 4,763.4
Total Net Fixed Assets 15,029.4 24,586.9 29,466.9
Total Long-Term Investments 87.4 - 3,650.0
Cash and Bank Balances 3,574.0 2,663.1 98.0
Receivables (incl. bills discounted) 4,801.0 5,044.9 6,184.7
Inventories 4,810.7 4,325.5 5,290.8
Loans & Advances 377.8 329.1 671.1
Other Current Assets 3,735.3 2,937.7 3,378.7
Total Current Assets 16,921.1 14,971.2 14,952.2
Total Assets 32,415.7 39,887.2 48,740.2
Amounts in Rs. million
Moderate revenue growth; margins recover in Q2, 2014-15 backed by lower raw material prices Ratings
CEAT - Fact Sheet (Accounting period-April to March) Company Profile - Part of the RPG group, CEAT is engaged in NA
Year of Incorporation 1958 manufacturing/trading of automotive tyres, tubes and flaps.
Chairman R.P. Goenka CEAT and MRF are the domestic tyre entities to have presence
Product Portfolio All segments of automotive tyres Shareholding Pattern (%)
Bhandup, Nashik – Maharshtra
across all automotive segments (T&B, LCV, Industrial, OTR,
Manufacturing Facilities Promoters 51%
Halol – Gujarat Farm equipments, Car & Jeep and 2W and 3W segments).
FIIs 25%
Segments Present T&B, P. Car, LCV, 2W/3W, Motorcycle, OTR tyres CEAT has three manufacturing facilities with a total installed
Revenues FY14 (Consol) Rs. 60.5 billion DIIs 6%
capacity of 600 MTPD located at Bhandup (Mumbai), Nasik
PAT FY14 (Consol) Rs. 2.7billion Others 18%
and Halol (Gujarat). Besides its own capacities, CEAT also
Rs. 10.2 billion
Net Worth FY14 (Consol) outsources a portion of its production, including which Ceat’s
(not adjusted for revaluation reserves) Price Performance (%)
total capacity is estimated to be ~750 TPD. Apart from its
Standalone Q3FY14 Q3FY15 Q2FY15 9MFY13 9MFY14 plants in India, CEAT had three manufacturing facilities in Sri 3M 12M
Operating Income 13,858.3 13,656.7 13,816.4 39,468.6 41,580.1 Lanka in a joint venture (JV) company-Kelani Tyres Limited. CEAT -17.5% 165.3%
Growth (%) - YoY 15.3% -1.5% 7.9% 5.3% The company has a pan Indian distribution network consisting BSE Auto 4.0% 58.6%
OPBDIT 1,483.3 1,706.3 1,622.2 4,598.9 4,608.7 of 3,500+ dealers and 300+ franchisees. BSE Sensex 2.3% 39.0%
Less: Depreciation (203.6) (232.0) (214.2) (619.9) (656.4)
Less: Interest Charges (410.5) (305.5) (346.1) (1,272.5) (1,041.5) Business Profile - CEAT is the fourth largest player in the
Stock Movement
Other Income 39.8 46.7 156.1 172.8 230.6 Indian tyre industry in terms of revenues after MRF, Apollo
Tyres and JK Tyre and had an overall market share of ~11% in Volumes (in…
Exceptional P/(L) - - - - - 400 1,000
PBT 909.0 1,215.5 1,218.0 2,879.3 3,141.4 2013-14. T&B segment is the major revenue driver accounting 300 800
PAT (Concern Share) 608.5 806.3 821.0 1,952.3 2,095.3 for 46% of revenues. However, CEAT has been consistently 600
200
focusing on increasing its presence in the relatively more 400
100
OPBDIT/OI (%) 10.7% 12.5% 11.7% 11.7% 11.1% profitable non-truck segment which includes the passenger 200
Stock price
PAT/OI (%) 4.4% 5.9% 5.9% 4.9% 5.0% car, 2W and farm equipment segments. As a result, the 0 0
Volumes
Feb-14
Aug-14
Feb-15
May-14
Nov-14
Source: Company Data, ICRA Estimates, Amounts in Rs. Million contribution of non-truck segment to revenues has increased
from 44% in FY11 to 58% in 9M FY15.
Segment mix FY10 FY11 FY12 FY13 FY14 9MFY15
Product mix FY10 FY11 FY12 FY13 FY14 9MFY15
OEM 10% 13% 16% 20% 22% 21%
Replacement 73% 69% 61% 57% 58% 61% Trucks 60% 58% 53% 52% 46% 42% Bloomberg Code CEAT
Exports 17% 18% 23% 23% 20% 18% Non-trucks 40% 42% 47% 48% 54% 58% Market Cap (Rs. bn) 31.5
Source: Company Data, ICRA Estimates Source: Company Data, ICRA Estimates
Standalone Q2FY13 Q3 FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Valuations
Operating Income 11,731.5 12,051.0 13,106.4 12,800.2 12,810.2 13,858.3 14,079.6 14,107.0 13,816.4 13,657 FY15e FY16e
Growth (%) - YoY 4.9% 13.3% 7.2% 7.6% 9.2% 15.3% 7.4% 10.2% 7.9% -1.5% Price/Earnings 9.8x 8.4x
OPBDIT/OI (%) 6.7% 8.5% 10.6% 11.8% 12.9% 10.7% 11.1% 9.1% 11.7% 12.5% Price/Sales 0.5x 0.5x
PAT/OI (%) 0.2% 1.4% 4.6% 4.6% 5.9% 4.4% 4.2% 3.3% 5.9% 5.9% Source: Bloomberg consensus estimates
Source: Company Data, ICRA Estimates; Amounts in Rs. Million
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
CEAT is also forming a JV for setting up a 2W tyre manufacturing plant with a capacity of 60TPD. CEAT plans to
invest Rs. 4.2 billion in setting up a green field in 2/3W plant with an installed capacity of 120 TPD. The new plant
is likely to be commissioned by Q1 FY17 (and will take the company’s installed 2W tyre capacity to ~380 TPD.
Figure 3: Movement in margins
15.0% Operating Margin (%) Net Margin (%) Outlook – Over the recent quarters, CEAT’s revenue growth has been impacted by the persisting sluggishness in
13.0% domestic auto demand, weakening of demand in key export markets such as Brazil and Indonesia on account of
11.0%
currency depreciation in these nations and increasing competition from China. Over the medium to long term,
CEAT’s consolidated sales growth is expected to be driven by capacity increases at Halol plant, commissioning of
9.0%
Bangladesh plant and expected recovery in domestic automotive demand. CEAT’s effort in moving towards non-
7.0% truck segment and increasing proportion of radial tyres in the sales mix is expected to cushion the impact of
5.0% decline in demand in bias truck segment over the medium term. However increasing proportion of sales to OEMs
in the product mix is likely to pressurize margins to some extent going ahead. Moreover pricing pressures in the
3.0%
export markets on account of higher competition could also pressurize the margins. Despite these pressures, we
1.0% expect margins to remain at healthy levels supported by lower raw material prices. While gearing is expected to
increase in 2015-16 owing to the relatively high capex planned by the company, capital structure is expected to
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
F…
F…
F…
F…
F…
F…
F…
F…
F…
F…
-1.0%
Source: Company presentations and ICRA Research remain strong aided by adequate internal cash accruals and recent QIP raised to the tune of Rs. 4 billion.
Loss of production in Netherlands and continued weakness in Brazilian operations have adversely impacted growth and profitability; long ICRA Ratings
term outlook remains positive given ongoing restructuring efforts and large potential for retreading fuelled by T&B radialisation in India
Long term [ICRA]A
Company Profile - The Elgi rubber group is a Coimbatore
Elgi - Fact Sheet Consol(Accounting period –April to March) Short term [ICRA]A1
(Tamil Nadu) based group primarily offering tyre retreading
Year of Incorporation 1981 (Renamed in 2008 post group level restructuring) services and manufacturing allied retreading and repairing Outlook Stable
Chairman& MD Mr. Sudarsan Varadaraj products for the domestic and international tyre industry. The
Product Portfolio Re-treading, reclaimed rubber, retreading machinery group traces its roots to Elgi Tyre and Tread Company, Shareholding Pattern (%)
Coimbatore (2), Palakkad (2), Chengalpattu, Colombo- established in 1981 for the purpose of re-treading of tyres Promoters 63%
Manufacturing Sri Lanka , Nairobi - Kenya, Lorena, SP - Brazil, Luling, with technical licensing agreement with Oliver Rubber FIIs 0%
Facilities Texas - USA, Maastricht - The Netherlands , New South Company of United States (during 1984-1994) for acquiring DIIs 5%
Wales - Australia technologies for large scale production of retreading Others 32%
Segments Present Tyre retreading and related services materials and commenced commercial operations in 1984. In
Revenues FY14 Rs. 4,945.9 million 2007, the company was restructured and demerged into two
PAT FY14 Rs. 109.6 million Price Performance (%)
prominent companies – Elgi tread India Limited and Treads
Net Worth FY14 Rs. 2,959.5 million direct Limited and the former was renamed as Elgi Rubber 3M 12M
Company Limited (Elgi) in 2008. In late 2010, the two Elgi 5.9% 35.6%
Q3FY15 Q3FY14 Q2FY15 9mFY14 9mFY15 companies underwent another merger and restructuring BSE Auto 4.0% 58.6%
Consolidated
process, post which Elgi became the holding company and
Operating Income 976.5 1116.4 1108.7 3647.5 3265.3 BSE Sensex 2.3% 39.0%
Treads direct Limited and Titan Tyrecare Private Limited
Growth (%) –yoy -11.9% -8.1% -14.9% -0.8% -10.5%
became wholly owned subsidiaries of ERCL. ERCL also has
OPBDIT (62.3) 67.0 38.0 275.3 33.2 Stock Movement
Less: Depreciation (47.0) (39.0) (39.0) (97.7) (121.9) several foreign subsidiaries in locations like Brazil, Kenya, Sri
Less: Interest Charges (33.2) (27.1) (27.1) (70.0) (90.4) Lanka, USA, Netherlands and Australia. In FY2014, ERCL Volumes (in lacs)
Other Income 10.2 14.9 5.5 54.3 37.3 acquired the assets of Titan Tyrecare Private Limited as a part 12 Stock Price (Rs.) 35
Exceptional P / (Loss) 0.0 0.0 0.0 0.0 0.0 of another round of restructuring of its organization. 10 30
8 25
PBT (132.4) 34.5 (22.5) 161.9 (141.7)
Business Profile - Elgi is one of the leading players in the 20
Less: Tax 9.5 (21.4) (21.4) (94.2) (22.0) 6
15
PAT (Concern Share) (122.8) 4.5 (43.9) 67.7 (163.6) organised domestic tyre re-treading segment with a market 4 10
share of ~10-12%. On a standalone basis, Elgi is engaged in 2 5
OPBDIT/OI (%) -6.4% 6.0% 3.4% 7.5% 1.0% manufacturing of reclaimed rubber, which is mainly sold to 0 0
Stock price
Volumes
Aug-14
Oct-14
Dec-14
Feb-14
Apr-14
Feb-15
Jun-14
PAT/OI (%) -12.6% 0.4% -4.0% 1.9% -5.0% tyre majors in India and also manufactures retreading
Source: Company, ICRA Estimates; Amounts in Rs. million machines (operations earlier carried out by Titan Tyrecare).
Elgi, through its subsidiary Treads Direct, is also engaged in the manufacture of tread rubber and bonding gum, which is sold through the
Bloomberg Code ELGI
Company’s re-treading franchisee network (~ 200 in numbers). There are twelve foreign subsidiaries (including step down) under ERCL, which
Market Cap. (Rs. Crore) 1.4
are engaged in manufacture of reclaimed rubber, tread rubber, bonding gum and other tyre repair products.
Q3FY14
Q4FY14
Q2FY15
Q3 FY13
Q4 FY13
Q1 FY14
Q1 FY15
Q3 FY15
Revenue Growth – Elgi has recorded a sharp 12.5% de-growth on a consolidated basis during the
quarter and a 10.5% de-growth overall during the first nine months of the fiscal. This has been led
by weakness in the overseas operations, especially, Brazil wherein the Company is undertaking
Figure 1: Growth trend in operating income [consolidated]
restructuring of operations focusing on trading of products made in India instead of the current
20.0% high cost manufacturing setup. Temporary shutdown of operations owing to shifting of existing
Operating Margin (%) Net Margin (%)
facility in Netherlands to a new location and overall lower demand / realisations for reclaimed
rubber on account of competitive natural rubber prices also impacted overall revenues.
10.0% 11.4%
8.0% Profitability–Ongoing restructuring activity in Brazil, branding efforts aimed at improving long
4.9%
3.2% 3.2% term business prospects, higher administrative expenses on account of beefing up of senior
0.0% 5.9%
-6.4%
management across divisions / subsidiaries, coupled with revenue de-growth have cumulatively
impacted operating margins. On a consolidated basis, operating margins recorded a 650 bps de-
-10.0% growths during 9m FY2015, with Elgi recording losses at the net level. While the performance on a
standalone basis continues to remain stable, the consolidated profitability is likely to be under
-12.6% pressure over the next 2 years till such time as the ongoing restructuring efforts fructify.
-20.0%
Figure 2: Quarterly trends in profit margins [consolidated] Capex – The group has a two pronged strategy. [1] In the domestic markets, the group intends to
consolidate its re-treading operations and expand its reclaim rubber business which is expected to
1,800.0 Capex (Rs million) witness traction owing to cost rationalising measures of tyre manufacturers in line global peers [2]
at the global level, the group intends to cut costs, restructure operations and integrate capabilities
1,500.0
to offer a bouquet of tyre repair and retreading services. Cumulatively the management intends to
1,200.0 incur ~Rs. 2 bn towards capacity augmentation, restructuring and business re-organisation
activities during the next 2 fiscals. This debt funded capex is expected to temporarily stretch the
900.0
consolidated capital structure over the near term. To support growth, the Company is open to
600.0 inorganic growth as seen by the Rs. 450 mn investment in January 2015 for two acquisitions.
324.7
610.1
579.3
Outlook –With strong fundamental drivers such as expected increase in radial tyre penetration in
1453
300.0
120
the CV segment which would lead to greater emphasis on retreading to extend tyre life,
0.0
FY12 FY13 FY14 FY15 E FY16 E
improvement in highway infrastructure and likely traction in reclaim rubber demand, Elgi’s long
term prospects appear favourable. Increase in retreading will also boost demand for retreading
Figure 3: Capex trends and outlook machinery, further presenting a favourable outlook. However, ability of the company to
Source: Company and ICRA research restructure and enhance profitability of its operations while tiding over the current trough will be
key towards reviving growth.
Q4 CY14 Q4 CY13 Q3 CY14 CY13 CY14 Business Profile - Goodyear is sixth largest tyre manufacturer in Stock Movement
Operating Income 3,600.0 4,055.0 4,016.0 15,716.0 15,817.0 India; product composition largely consists of agri-equipment Volumes (in lacs)
Stock Price (Rs.)
Growth (%) - YoY -11.2% 5.7% -1.2% 5.8% 0.6% grade tyres, with tractor tyres taking up over 95% of the overall
12 700
10 600
OPBDIT 301.7 391.3 398.4 1,338.2 1,542.8
volumes in terms of volumes. PCRs and T&B cross ply tyres 8 500
Less: Depreciation (76.7) (64.4) (73.9) (251.8) (285.1) 400
form the remaining portion. Goodyear is a market leader in the 6
300
Less: Interest Charges (6.9) (6.7) (7.9) (21.6) (34.2) 4
tractor tyre with ~17-18% market share in tractor industry and 200
Other Income 69.6 91.5 66.3 287.0 311.4 2 100
is also among the top four / five players (~10-12% share) in PCR 0 0
Exceptional Gain / (Loss) - - - - -
Stock price
segment. Benefiting from the association with its global parent,
Aug-14
Dec-14
Feb-14
Apr-14
Oct-14
Feb-15
Jun-14
Volumes
PBT 287.7 411.7 382.9 940.1 1,247.2
Less: Tax (97.7) (135.7) (130.7) (478.5) (522.7) Goodyear is considered to be a strong technology leader; the
PAT (Concern Share) 190.0 276.0 252.2 873.3 1,012.2 introduction of India’s first tubeless PV tyre being a point in
case. Goodyear’s products (esp. PCRs) are positioned as a Bloomberg Code GDYR
premium brand in the highly commoditized market and are Market Cap. (Rs. billion) 13.3
OPBDIT/OI (%) 8.4% 9.6% 9.9% 8.5% 9.8%
PAT/OI (%) 5.3% 6.8% 6.3% 5.6% 6.4% supplied to leading luxury car OEs such as Audi, BMW, Porsche,
Valuations
Source: Company, ICRA Estimates; Amounts in Rs Million Mitsubishi and Land Rover.
FY15e FY16e
Price/Earnings NA NA
Price/Sales NA NA
Q2 CY13 Q3 CY13 Q4 CY13 Q1 CY14 Q2 CY14 Q3 CY14 Q4 CY14 Source: Bloomberg consensus estimates
Operating Income 4,229.9 4,065.3 4,055.00 3,870.70 4,330.30 4,016.0 3,600.0
Growth (%) - YoY 5.5% 10.1% 5.7% 15.0% 2.4% -1.2% -11.2%
OPBDIT/OI (%) 9.6% 7.6% 9.6% 10.2% 10.3% 9.9% 8.4%
PAT/OI (%) 6.1% 4.9% 6.8% 7.3% 6.7% 6.3% 5.3%
Source: Company Data, ICRA Estimates; Amounts in Rs. million
Q2 CY12
Q3 CY12
Q4 CY12
Q1 CY13
Q2 CY13
Q3 CY13
Q4 CY13
Q1 CY14
Q2 CY14
Q3 CY14
Q4 CY14
Revenue Growth– On a quarterly basis, Goodyear has recorded a sharp revenue de-growth of ~11.2%
Figure 1: Growth trend in operating income [standalone] YoY impacted by weak tractor demand (main revenue driver) and corrective pricing actions taken given
that has a sizeable share of OE revenues where weak rubber prices have to be passed on. However, on a
12.0% full year basis (CY14) the Company has recorded a relatively flat ~1% revenue growth supported by
OPM NPM 9.6% 10.2%
10.0% healthy growth in volumes during Q1 of CY14 and relatively flat volumes in Q2 CY14. While volumes
8.7%
8.0% 6.8% could remain tempered by weak tractor demand (owing to unseasonal rainfalls impacting agri activity)
7.3% 8.4%
6.0% 6.2%
over the near term, the long term prospects for continue to remain favourable.
4.0% 5.1%
3.6% 5.3%
2.0%
Profitability–On a quarterly basis, the impact of scale de-growth has led to 120 bps reduction in
0.0%
operating margins on yoy basis negating the benefits of lower rubber prices. Net margins, too,
contracted by 150 bps on account of the same. However, on a full year basis (CY14) both operating and
Q1CY12
Q4 CY11
Q2 CY12
Q3 CY12
Q4 CY12
Q1 CY13
Q2 CY13
Q3 CY13
Q4 CY13
Q1 CY14
Q2 CY14
Q3 CY14
Q4 CY14
net margins expanded by 130bps and 90bps, respectively, as a stronger H1 and overall benefit of
sustained lower rubber prices supported profits. While near term volume and consequently profit
Figure 2: Quarterly trends in profit margins [standalone] expansion could remain flat, given the favourable long term outlook, the Company’s margins are
600.0
expected to improve to higher levels as seen in the past.
Capex (Rs. Million)
500.0 Capex – Goodyear has had a fairly conservative capex policy in the past, incurring Rs. 450- 500 million p.a
on an average in the last 4-5 years. With demand in PV (other key segments for the company) showing
400.0
only gradual signs recovery, there is no significant capex plans over medium term. However, focus would
300.0
be on improving the product offerings and working on supply chain efficiencies to cut redundancies.
200.0
Outlook – Expectation of benign NR prices globally and in India as well, should facilitate the sustenance
100.0
500
544
450
of the elevated levels of operating profitability despite potentially muted volumes in the near term. With
450
0.0 the demand from PV, tractor and OTR poised to improve gradually in next 12- 18 months, the entity’s
CY13 CY14 CY15 E CY16 E
established strong linkages with OEs in these segments, as evidenced by award wins from Hyundai,
Figure 3: Capex trends and outlook Caterpillar, Eicher, TAFE and John Deere would provide Goodyear the platform to derive a greater share
of revenues from these segments as the economy revives. The same will enable margin expansion,
Source: Company Data and ICRA research
besides aiding the Company in de-risking its high dependence on the tractor industry where demand
tends to be intertwined to the agro-climatic conditions.
ICRA LIMITED Page 28
Tyre Feature - March 2015
Stock price
revenues. Within the T&B segment, JKT’s focus has been on
Volumes
Feb-14
Apr-14
Feb-15
Jun-14
Aug-14
Dec-14
Oct-14
PAT/OI (%) 3.3% 4.9% 4.0% 3.2% 4.0%
Source: Company Data, ICRA Estimates, Amounts in Rs. Million the TBR segment where it is the market leader (>30%).
While the JKT’s market share in the T&B segment has remained stable at ~22-23% over the last couple of years, its market share in the TBR
segment -has increased from 31% in FY12 to ~37% in 2013-14. In the passenger vehicle segment, JKT supplies to most of the major OEMs like Bloomberg Code JKI
Maruti Suzuki, Tata Motors, Mahindra & Mahindra, General Motors, Volkswagen and Fiat. Exports contributed ~21% to the revenues during Market Cap. (Rs. billion) 26.3
FY14 as compared to 16% in the previous year. JKT exports both from its Indian plants as well as from its subsidiary, JK Tornel, in Mexico. JK
Tornel has a market share of 10-12% in the PCR segment and ~70% in the T&B segment in Mexico. Valuations
Standalone Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 FY15e FY16e
Price/Earnings NA NA
Operating Income 14,842.9 14,396.6 14,432.4 15,838.9 15,667.4 15,318.6 15,230.7
Price/Sales 0.3x 0.3x
Growth (%) - YoY 2.8% 8.9% 11.6% 14.5% 5.6% 6.4% 5.5%
Source: Bloomberg consensus estimates
OPBDIT/OI (%) 12.1% 11.0% 11.2% 9.8% 10.4% 12.2% 12.9%
PAT/OI (%) 2.4% 2.4% 2.4% 2.0% 2.5% 3.8% 4.6%
Source: Company Data, ICRA Estimates; Amounts in Rs. Million
ICRA LIMITED Page 30
Tyre Feature - March 2015
14,396.6
14,432.4
15,838.9
15,667.4
15,318.6
15,230.7
12,883.3
14,229.4
15,235.5
14,432.6
13,219.6
12,936.4
13,828.3
14,842.9
5,000 -5.0%
-10.0% Profitability - Favourable realisations in the exports segment on account of the weak rupee and higher
0 -15.0% capacity utilisations have also strengthened the company’s profit margins over the last couple of quarters,
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
with domestic operations recording a 170 bps yoy growth in operating margins. The net margin also saw a
220 bps improvement supported by lower debt charges as accruals aided in debt retirement. At consol level,
Figure 1: Growth trend in operating income [standalone]
while operating margins expanded by 300 bps supported by better pricing mix, the net margins grew only by
160bps on account of one-time write-off of Rs. 30 crore owing to the Mexico peso depreciation. Even during
9MFY15, overall margins for standalone and consol operations continued to improve supported by lower NR
JK Tyres - Product wise (volumes in tonnages)
prices and improving volumes with better CV demand in India and new customer additions in Mexico.
Others
8%
P. Car Capex – Over the last two fiscals the company had setup a large (25 lakh PCR tyres and 4.0 lakh TBRs) facility
13% at Sriperumbudur (Chennai) at a cost of Rs. 15 billion. Utilisation levels for domestic operations currently
stand at ~80% for the PCR segment and ~100% for the TBR segment. In order to aid further growth, the
company is incurring a capex of Rs. 14.3 billion over the next 2 years expanding the capacity at the Chennai
plant to 12 lakh TBRs and 40 lakh PCRs. The capex is likely to be largely debt funded (2.6:1). While this could
T&B + LCV
79% lead to temporary rise in debt levels, given the increasing trends of radialisation in the T&B segment (35%
now compared to less than 15% five years back) and the better margins offered, coupled with JKT’s leading
Figure 2: Product mix [Standalone] market position in the same, JKT would benefit immensely. The same would aid in healthy cash generation
buffering the large debt being contracted to support the capex at present.
EBIT / Sales
12.3% Sales mix Outlook – While demand conditions had been subdued in the past, the last few quarters have seen strong
Mexico recovery in sales volumes for CV manufacturers, where radialisation levels have touched 70% (JKT has a
17.3%
market share of ~37% in the TBR segment). Further, other segments of the auto industry are also showing
gradual signs of recovery, where the medium term outlook for the industry appears to be healthy. In
9.8% Mexico, too recent customer additions coupled with healthy export prospects to USA support a favourable
India
82.7% demand outlook for JKT. Thus, we expect JKT to record healthy revenue growth over the short to medium
term. With NR prices remaining relatively low, we expect operating margins to remain healthy going ahead
Over the medium term, however, further margin expansion could come under pressure as competition
10%
20%
30%
40%
50%
60%
70%
80%
90%
0%
Figure 3: Geographic revenue mix [Consolidated] heats up in the radial segment with large recent capacity additions by peers. Despite the large debt funded
capex over the next two years, we expect an improvement in the capital structure from the current highly
Source: Company Data and ICRA research
leveraged levels on account of strong internal cash generation and stable debt levels.
Revenue growth during Q1SY15 affected by weak realizations due to price cuts; profit margins at life-time highs with low NR prices Ratings
MRF - Fact Sheet (Accounting period - Oct to Sep-SY) Company Profile: Incorporated in 1960, MRF Limited is the largest LT ratings: [ICRA]AA+(Stable)
Year of Incorporation 1990 tyre manufacturer in India producing the widest range of tyres
Chairman Mr. K M Mammen and commanding the highest market share (both in volume and
Shareholding Pattern (%)
Product Portfolio Automotive tyres and tubes value terms). With a diversified product portfolio comprising of
T&B, PV, 2W/3W, tractors, motorcycles and OTR segments, MRF Promoters 27%
Tiruvottiyur, Arakkonam, Trichy,
enjoys market leadership in most of the segments it operates in. FIIs 9%
Gummidipoondi (all Tamil Nadu), Ponda
Manufacturing Facilities DIIs 9%
(Goa), Medak (Andhra Pradesh), Kottayam MRF has a total installed capacity of 42.1 mn (as of March 2014)
Others 55%
(Kerala), Pondicherry tyres and tubes, with its manufacturing plants spread across eight
Segments Present T&B, P. Car, LCV, 2W/3W, OTR locations- Trichy, Tiruvottiyur, Arakkonam, Gummidipoondi (Tamil
Revenues (SY2014) Rs. 132.0 billion Nadu), Kottayam (Kerala), Ponda (Goa), Medak (Andhra Pradesh) Price Performance (%)
PAT (SY2014) Rs. 9.0 billion and Pondicherry. MRF also has strong R&D support and marketing 3M 12M
Net Worth (September 2014) Rs. 45.0 billion team buttressed by a wide distribution network. MRF 27.8% 106.0%
BSE Auto 4.0% 58.6%
Standalone Q1SY14 Q1SY15 Q4SY14 SY2013 SY2014 Business Profile: MRF is the leading tyre maker in India with an BSE Sensex 2.3% 39.0%
Operating Income 32,005.7 33,530.1 33,611.2 121,311.6 131,975.8 estimated 27% market share (in value). With established brand
Growth (%) - YoY 5.8% 4.8% 6.8% 2.2% 8.8% presence and strong distribution network, MRF maintained its Stock Movement
OPBDIT 4,188.6 6,263.2 6,075.1 18,125.9 19,772.5 leadership position over years amidst rising competition. Diverse
Less: Depreciation (993.4) (1,160.0) (1,110.3) (3,729.3) (4,230.9) Volumes (in lacs)
product offerings with presence in all segments and strong focus 8 Stock Price (Rs.) 50,000
Less: Interest Charges (585.7) (601.9) (564.5) (1,959.4) (2,315.8) on replacement markets have enabled MRF to command and 6 40,000
Other Income 99.4 256.2 248.8 (169.2) 163.1 sustain a strong market position over years, even during periods of 30,000
4
Exceptional gain/loss - - - - - 20,000
demand slowdown. MRF has diversified product portfolio with a 2
PBT 2,708.9 4,757.5 4,649.1 12,268.0 13,388.9 10,000
relatively equal exposure to commercial segment (largely T&B) and
0 0
Stock price
PAT (Concern Share) 1,798.9 3,235.0 3,169.1 8,022.1 8,978.9
non-commercial segment (PV, 2W/3W & OTR). MRF derives over
Feb-14
Apr-14
Feb-15
Aug-14
Jun-14
Dec-14
Oct-14
Volumes
50% of its sales from the T&B segment, ~15% from PV, ~20% from
OPBDIT/OI (%) 13.1% 18.7% 18.1% 14.9% 15.0%
2W segments and balance from segments like tractors, OTR etc.
PAT/OI (%) 5.6% 9.6% 9.4% 6.6% 6.8%
Steady demand from these segments has enabled MRF to post
Source: Company, ICRA Estimates; Amounts in Rs. Million;
healthy revenue 5-year CAGR of 18.6% (SY09 to SY14) against Bloomberg Code MRF
Note: MRF does not provide consolidated numbers on a quarterly basis
industry CAGR of 17.4% (FY09to FY14). More than 90% of revenues Market Cap (Rs. bn) 174.2
are derived from domestic operations, balance is from exports.
Standalone Q4SY12 Q1SY13 Q2SY13 Q3SY13 Q4SY13 Q1SY14 Q2SY14 Q3SY14 Q4SY14 Q1SY15 Valuations
Operating Income 29.9 30.3 29.1 30.5 31.5 32.0 33.0 33.4 33.6 33.5 SY15e SY16e
Growth (%) - YoY 14.3% 5.2% -2.9% 1.4% 5.1% 5.8% 13.5% 9.4% 6.8% 4.8% Price/Earnings 18.8x 13.7x
OPBDIT/OI (%) 11.7% 13.3% 15.3% 15.8% 13.8% 13.1% 12.5% 14.7% 18.1% 18.7% Price/Sales 1.2x 1.1x
PAT/OI (%) 5.5% 6.0% 7.2% 7.4% 5.8% 5.6% 5.2% 6.9% 9.4% 9.6% Source: Bloomberg consensus estimates
Source: Company Data, ICRA Estimates; Amounts in Rs. billion
Q1 SY13
Q2 SY13
Q3 SY13
Q4 SY13
Q1 SY14
Q2 SY14
Q3 SY14
Q4 SY14
Q1 SY15
strong brand name and wide distribution network, the company is one of the major beneficiaries
of the M&HCV revival. For the full year ending September 2014, MRF recorded a strong 9% YoY
sales growth fuelled by stable replacement volumes and export demand.
Figure 1: Growth trend in operating income [standalone]
Profitability: Lower NR prices supported profit margins for all tyre companies in last few quarters.
Operating Margin (%) Net Margin (%)
20.0% MRF too clocked strong margins, benefiting from the favourable raw material prices although the
18.0% company took price cuts. Following a strong 18.1% OPM achieved during Q2 SY14, MRF reported a
16.0% robust OPM of 18.7%; life time high levels for the company. MRF’s margins are the second best in
14.0% the industry (next to Balkrishna Industries due to its export focus) aided by better product mix,
12.0% strong pricing power and full capacity utilisation. For the full year ending September 2014, MRF’s
10.0% operating and net margins stood at 15.0% and 6.8% respectively (vis-a-vis 14.9% and 6.6% in 9M,
8.0% SY2014).
6.0%
4.0%
Capex: The Company operates at almost full capacities necessitating investments to meet the
future demand and maintain market share. MRF is investing Rs. 10-15 billion annually over the
2.0%
next three years; the current capex are underway at Trichy and Ankampally involving additions on
0.0%
both radial and bias capacities.
Q4 SY12
Q1 SY13
Q2 SY13
Q3 SY13
Q4 SY13
Q1 SY14
Q2 SY14
Q3 SY14
Q4 SY14
Q1 SY15
Outlook: Over the medium term, MRF’s strong market share, healthy replacement demand and
favourable exports market is expected to support revenue growth MRF. On the margin front,
Figure 2: Quarterly trends in profit margins [standalone]
MRF’s better product mix, and strong brand should aid in faring better than the peers, although
Source: Company Data and ICRA research any steep rise in rubber prices can affect the margins for all players including MRF. Considering
the current high capacity utilisation at MRF and the ongoing capacity additions, the company is
well positioned to meet the overall recovery in domestic automotive industry.
Sales growth run-rate maintained in Q3FY15; margins continue to trend despite one-off charge towards sales tax demand Ratings
TVS Srichakra - Fact Sheet (Accounting period-April to March) Company Profile - Part of the TVS group, TVS Srichakra Limited NA
Year of Incorporation 1982 (Srichakra) is engaged in manufacturing of Two (2W) and Three-
Chairman S. Narayanan wheeler (3W) tyres apart from supplying industrial pneumatic Shareholding Pattern (%)
Product Portfolio Two wheeler, Three wheelers and industrial tyres tyres, farm and implement tyres, skid steer tyres, multi-purpose
Promoters 46%
Manufacturing facilities Madurai and Uttaranchal tyres, and vintage tyres for overseas markets. Srichakra’s has
FIIs 0%
Segments Present 2W/3W three manufacturing facilities (two in Madurai and one in
DIIs 0%
Revenues FY14 Rs. 18.1 billion (Consol) Uttarakhand) with an installed capacity of 20 million tyres p.a. (as
Others 54%
PAT FY14 Rs. 0.6 billion (Consol) of March 2014). Srichakra has an established distribution
Net Worth FY14 Rs. 2.0 billion (Consol) network; and acts as major supplier to TVS Motors, Bajaj Auto,
Price Performance (%)
India Yamaha Motor and Hero MotoCorp. Exports are made to
Standalone Q3FY14 Q3FY15 Q2FY15 9MFY14 9MFY15
customers in USA, Europe, Asia, Africa, South America etc. 3M 12M
Operating Income 4,176.0 4,893.7 4,906.4 12,142.0 14,310.1
Srichakra -1.4% 472.2%
Growth (%) - YoY 14.7% 17.2% 18.5% 17.9% Business Profile - Srichakra is among the largest 2W and 3W tyre BSE Auto 4.0% 58.6%
OPBDIT 307.4 507.1 506.7 830.2 1,414.1 manufacturers in India catering to both OEM and replacement BSE Sensex 2.3% 39.0%
Less: Depreciation (56.0) (74.1) (71.7) (178.4) (210.8) segments. In 2W OEM segment, Srichakra is the market leader
Less: Interest Charges (113.8) (73.2) (84.6) (354.2) (257.6) while in the higher margin replacement segment it is positioned Stock Movement
Other Income (13.9) 2.6 6.3 50.5 9.8 as the third largest player behind MRF and CEAT. Srichakra has
Exceptional P/(L) - - - - - 10 Volumes (in lacs) 2,000
also strengthened its presence in export markets, which accounts Stock Price (Rs.)
PBT 123.7 362.4 356.7 348.1 955.5 8
for 13% of sales in 9MFY15. Srichakra exports OTR tyres to 80 1,500
PAT (Concern Share 105.0 264.8 260.4 257.6 697.8
countries and also 2W tyres to South America and SE Asia. 6
1,000
4
OPBDIT/OI (%) 7.4% 10.4% 10.3% 6.8% 9.9% Owing to the inherently thin margins in 2W segment, Srichakra 500
2
PAT/OI (%) 2.5% 5.4% 5.3% 2.1% 4.9% has been de-risking its business model over the last few years
Stock price
0 0
Source: Company, ICRA Estimates; Amounts in Rs. Million
Volumes
which have provided strong operational flexibility at lower risks.
Feb-14
Apr-14
Feb-15
Aug-14
Jun-14
Dec-14
Oct-14
Segment-wise sales (2013-14) In % Top 3 customers % of sales Traditionally, Srichakra was supplying only to TVS Motors,
Scooter & 3 Wheelers 27-30% Hero Motocorp 16% however in recent years, it has started supplying tyres to other
Motor Cycle 62-65% TVS Motors 12% major 2W OEMs apart from increasing its focus on replacement
Industrial (and ADVs) 7-8% Bajaj Auto 10% and export markets. Bloomberg Code SRTY
Capex: Following an addition of 10% to its capacities in 2013-14, the company is increasing its capacity by another 12% in 2014-15 taking the Market Cap (Rs. bn) 11.7
overall capacity to 24.0 million tyres per annum. Further capex is proposed for FY17 although details are currently undisclosed.
Standalone Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4 FY14 Q1FY15 Q2FY15 Q3FY15 Valuations
Operating Income 3,724.6 3,640.4 3,775.0 3,824.3 4,141.7 4,176.0 4,567.9 4,510.0 4,906.4 4,893.7 FY15e FY16e
Growth (%) - YoY 4.7% 4.2% 6.9% 5.6% 11.2% 14.7% 21.0% 17.9% 18.5% 17.2% Price/Earnings 15.4x 11.8x
OPBDIT/OI (%) 6.6% 4.2% 6.5% 6.3% 6.8% 7.4% 8.6% 8.9% 10.3% 10.4% Price/Sales 0.5x 0.5x
PAT/OI (%) 0.9% -0.8% 8.9% 1.8% 2.0% 2.5% 4.7% 3.8% 5.3% 5.4% Source: Bloomberg consensus estimates
Source: Company Data, ICRA Estimates; Amounts in Rs. Million
ICRA LIMITED Page 36
Tyre Feature - March 2015
Revenue growth: Srichakra continued its strong sales growth run-rate for the fifth quarter in succession,
with a robust 17.2% Y-o-Y sales growth during Q3FY15. Despite concerns on monsoons, 2W OE sales have
Operating Income (Rs. Mn) YoY Growth (%) been strong in the current fiscal leading to healthy business for players like Srichakra. The growth was also
6,000 25.0% fuelled by stable replacement and export demand. Srichakra’s monthly production volumes had increased
5,000 20.0% to 1.9-2.0 mn tyres in current year from 1.6-1.7 mn tyres last year; it targets to achieve 2.3mn by FY16. For
4,000 the nine month period ending December 2014, Srichakra reported a healthy sales growth of 17.9% YoY
15.0%
3,000 primarily led by the double digit growth in 2W OE segment, with Scooters dominating the growth. While
10.0% 3W and moped segments continue to de-grow, motor cycles segment reported a moderate growth during
2,000
5.0% 2013-14. The growth was also fuelled by increasing share of replacement and export sales. The company
1,000
continues to invest in brand promotion activities and addition of dealer networks, this supported by
0 0.0%
strong customer profile and favourable demand outlook should translate to healthy sales performance
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
going forward.
Profitability: Srichakra’s operating margins are generally lower than peers owing to the (i) being a 100%
Figure 3: Growth trends in Operating Income 2w/3w focused entity where value additions are relatively less due to the tyre size, (ii) high competitive
12.0% intensity, (iii) longer replacement cycles and (iv) price sensitive end customers. The margins are further
Operating Margin (%) Net Margin (%)
compressed by Srichakra’s stable spend on brand promotion activities. However in the last three quarters,
10.0%
Srichakra’s operating margins have been steadily increasing led primarily by lower rubber prices and
8.0% improving demand scenario. For Q3FY15, Srichakra’s operating and net margins stood at 10.4% and 5.4%
6.0% respectively; an increase of 300bps and 290 bps respectively over the similar period of last fiscal. Also,
4.0% Q3FY15 results include a one-time charge of Rs. 12.0 crore demanded by Sales Tax department towards
short reversal of input tax credit on stock transfer relating to prior years. Adjusting the same, Srichakra’s
2.0%
operating and net margins stood at 12.8% (up 545bps YoY) and 7.9% (up 535bps YoY) respectively.
0.0%
Srichakra has preferred an appeal with Sales Tax Tribunal disputing the demand.
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Q1FY13
Q2FY13
Q3FY13
Q4FY13
Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY14
Q2FY15
Q3FY15
-2.0%
Outlook: Improvement in urban consumer sentiment and consequently automobile demand (2W industry
in particular) should support the company’s sales growth going forward. Profits should be supported by its
Figure 4: Movement in margins
Source: Company Data and ICRA research reputed brand name, strong OEM tie ups, increasing exports sales and recovery in domestic demand. That
said, movement in NR prices and pricing pressures owing to threat of low priced Chinese tyres will
ICRA LIMITED continue to remain a challenge for the company. Page 37
Tyre Feature - March 2015
ICRA Limited
CORPORATE OFFICE
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300; Fax: +91 124 4545350
Email: info@icraindia.com, Website: www.icra.in
REGISTERED OFFICE
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50; Fax: +91 11 23357014
Branches: Mumbai: Tel.: + (91 22) 24331046/53/62/74/86/87, Fax: + (91 22) 2433 1390 Chennai: Tel + (91 44) 45964300, Fax + (91 44) 2434 3663 Kolkata: Tel + (91 33) 2287
8839 /2287 6617/ 2283 1411/ 2280 0008, Fax + (91 33) 2287 0728 Bangalore: Tel + (91 80) 2559 7401/4049 Fax + (91 80) 559 4065 Ahmedabad: Tel + (91 79) 2658
4924/5049/2008, Fax + (91 79) 2658 4924 Hyderabad: Tel +(91 40) 2373 5061/7251, Fax + (91 40) 2373 5152 Pune: Tel + (91 20) 2552 0194/95/96, Fax + (91 20) 553 9231
All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is
true, such information is provided 'as is' without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or
completeness of any such information. Also, ICRA or any of its group companies, while publishing or otherwise disseminating other reports may have presented data, analyses and/or opinions that
may be inconsistent with the data, analyses and/or opinions presented in this publication. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be
liable for any losses incurred by users from any use of this publication or its contents.