Assignment # 2 Size and composition What is the size of the sector?

(Figures in Rs. Million) Net sales Mar-13 1,18,601 Dec-12 1,15,288 Sep-12 1,17,183 Jun-12 1,23,903 Mar-12 1,29,414

What are the various industries within the sector? The various industries within the sector are: Engine Parts Transmission & Steering Parts

Suspension & Braking Parts Equipments Electrical Parts Body & Chassis Others (Sheet Metal Parts, Die Castings, fan belts)

What are the largest companies in the sector? Sector

Tyres & Allied Automobile Tractors Auto ancillaries Automobile - 2&3 wheelers Automobile Passenger cars

Company
Apollo Tyres, MRF, CEAT, Balkrishna Industries M&M, Escorts, VST Tillers Tractors Motherson Sumi sys, Bosch, Tube investments, Amtek auto, Exide Inds, Amara Raja Batteries Hero Motocorp, Bajaj Auto, TVS, Atul Auto, LML, Scooters India, Piaggio Maruti Suzuki, Hindustan Motors, Tata Motors, M&M

How has your sector performed year-to-date/quarter-to-date?

S&P BSE Auto Index Period : Year 2003 to Year 2013 Year 2003 2004 2005 2006 Close 2,533.79 2,836.39 4,256.45 5,518.50 Turnover (Rs Cr) 19,920.67 45,788.63

2007 2008 2009 2010 2011 2012 2013

5,667.45 2,444.71 7,435.83 10,235.41 8,143.65 11,426.21 10,055.58

31,604.02 15,844.13 31,725.34 45,635.80 25,711.31 21,911.58 11,642.01

Financial analysis What are the sales and earnings growth rates of the sector, industry, major companies? How do these rates compare to history? Sector:

Key ratios

Y-o-Y Mar-13 Mar-12 1,29,414 14.2 10.1 15.6 7.8

Q-n-Q Mar-13 1,18,601 2.9 14.9 13.8 8.0 Dec-12 1,15,288 (1.6) (3.9) 12.3 5.1

Net sales Net sales growth EBITDA growth EBITDA margin Net profit margin

Rs.million Per cent Per cent Per cent Per cent

1,18,601 (8.4) (19.0) 13.8 8.0

Are margins expanding, contracting, or remaining the same? Recently the margins have been declining at both EBITDA and Net Profit level. The reason can be attributed to the slowdown in the industry along with increase in prices of raw materials which has led to competition on basis of price. Also the sector generates net cash flow.

Valuation analysis Consider P/E, P/S, P/B, P/CF: Does valuation vary widely across the sector from industry to industry and company to company? Company Industry P/E P/BV P/C EV/EBITDA EV/Sales P/E Auto Exide 18.7 20.6 3.18 16.92 12.09 1.73 Anciliaries Amar Raja 14.31 4.17 11.79 9.09 1.5 Battery Automobile Hero 18.8 9.23 12.05 10.72 1.66 17.09 - 2&3 Motocorp wheelers Bajaj Auto 16.6 6.6 15.8 11.98 2.66 Atul Auto 6.85 2.43 5.86 3.63 .42
Automobile Passenger cars Automobile Tractors Automobile Trucks/LCVs

Tyres and Allied

Maruti Suzuki M&M VSTTillers Escorts Eicher Motors Tata Motors Ashol Leyland Apollo MRF

15.57

15.2 14.4 6.79 7.71 38.53 121.61 15.08

2.11 3.41 1.44 .69 13.29 4.9 .76 1.37 1.95

8.86 11.68 6.38 5.76 35.72 37.1 5.62 5.68 5.05

7.97 7.84 4.59 6.87 11.46 5.86 6.47 3.63 6.37

.93 1.14

12.35

35.99

.41 1.23 .77 .61 .45 .69

7.94

9.46 6.99

It is clear from the above table that the Truck and LCV segment has higher valuations among the sector while the tyre companies tend to have lower valuations. Consider the P/E, P/S, P/B, P/CF, of the sector and industries versus the market

If the relative valuations (above) have expanded/contracted over the years then tell why Valuations have increased in recent years due to rapid growth in the sector.

Do you think that valuations will expand, contract or remain the same for this group? Versus the market? Why? In the short term with rupee falling down and subdued economic demand there is lot of pain in this sector but over the long term as the automobile penetration is still lower compared to developed economies the valuations will tend to increase.