Tube Investments of India Ltd. (TI) –CMP 162.35 target
price of Rs. 185
maintain Accumulate rating with a revised target price of Rs. 185
Tube Investments of India Ltd. (TI) Q4FY13
results were below expectations on the
standalone front due to (1) an inventory write-dow
n and disposal of stocks in the bicycles
division.
TI’s Q4FY13 consolidated net pr
ofit declined 22.1% YoY to
599.1mn on account of
weak performance of its standalone business.
However, its financial services
subsidiaries -- Cholamandalam Investment & Finance Company Ltd.
(CIFCL) and
Cholamandalam MS General Insurance Co. Ltd. – continued to post an
impressive set
of numbers. CIFCL’s net profit for
the quarter grew 59.0% YoY to
858.0mn. CIFCL’s
net loan book for the quarter grew 34.5% YoY to
164.7bn while its GNPA and NPA
continued to be low at 1.0 % and 0.2%, reflecting quality growth.
CIFCL’s RoE
increased from 17.2% in Q4FY12 to 18.8 % in Q4FY13
Cholamandalam MS General
Insurance Company Ltd. PAT grew 360% YoY to
230mn.
On a standalone basis, TI’s net sales for the quarter declined 9.7% YoY
to
8.0bn on
account of a (1) drop in sales volumes across its business divisions and
(2) pricing
pressure in its bicycles division. Volumes declined in the engineering
and metal formed
products divisions on account of a slowdown
in the automobile sector while in the
bicycles division volumes declined owing to lower consumer demand. The
YoY%
change in volumes were as follows: Engineering division (mainly
precision tubes)
declined 9%, car doorframes declined 9%, auto
chains grew 1% in the OEM segment,
industrial chains declined 15% and bicycles declined 18% in the trade
segment.
TI’s EBITDA declined 29.6% YoY and 26.5% QoQ to
606.9mn on account of (1) lower
sales volumes (2) higher power costs owing to severe power cuts in areas
where its
production facilities are located and (3) pricing pressure and inventory
write-down in the
bicycles business.
Standalone adjusted PAT for the quarter declined 56.5% YoY to
251.0mn
Outlook and valuations –
The automobile sector should do better in FY14E after flat sales
in FY13, and interest rate cuts and expected better economic growth in
FY13. This should
improve the performance of
TI’s engineering and metal formed products divisions, which
are heavily dependent on the automobile
sector. However, the bicycles division is facing
pressure from competition and lower consum
er demand. Incorporating lower-than-expected
performance in its cycles business in FY13 and higher dividend income
from its subsidiary
CIFCL, we reduce our FY14E EPS marginally
for the standalone business by 1.5% to
6.5.
For our SOTP valuation of TI, we note that
our valuation for TI’s general insurance
subsidiary has upside risks as the FDI limit of 26% in insurance is
hiked to 49% over time.
With the revision of TI’s standalone business
Earnings estimates downwards and
quarterly
Rollover of our 1 year forward SOTP value, our
1 year target price decreases by ~1.4% to
185 per share. Our target price of
185 implies a potential upside
of 13.7%. We maintain
our Accumulate rating on TI.
