Company Detail Report

CMP: 278.45 OCT 30th, 2017 MUNJAL SHOWA LTD ISIN: Overweight Result Update (PARENT BASIS): Q2 FY18 INE577A01027 Index Details SYNOPSIS Stock Data Sector Auto Parts & Equipment Munjal Showa Limited in its joint venture with 520043 BSE Code Showa Corporation, designs and manufacturers Face Value 2.00 52wk. High / Low (Rs.) 288.10/158.00 shock absorbers and struts for leading two-wheelers Volume (2wk. Avg.) 12000 and four-wheelers. Market Cap (Rs. in mn.) 11137.03 Net sales of the Company stood at Rs. 4152.73 Annual Estimated Results(A*: Actual / E*: Estimated) million for Q2 FY18 as compared to Rs. 4239.04 Years(Rs in mn) FY17A FY18E FY19E million in the corresponding quarter of the previous Net Sales 14596.59 16056.25 17822.44 EBITDA 1107.19 1249.64 1396.22 year. Net Profit 565.52 655.10 743.07 During Q2 FY18, Net profit stood at Rs. 200.71 EPS 14.14 16.38 18.58 P/E 19.69 17.00 14.99 million from Rs. 188.41 million in the corresponding quarter ending of previous year, an Shareholding Pattern (%) increase of 6.53%. As on Sep 2017 As on Jun 2017 During the quarter, EBIDTA is Rs. 353.75 million Promoter 65.02 65.02 as against Rs. 344.54 million in the corresponding Public 34.98 34.98 period of the previous year, rose by 2.67%. Others -- -- During Q2 FY18, PBT increased by 3.98% to Rs. 1 Year Comparative Graph 280.83 million from Rs. 270.08 million in Q2 FY17

EPS of the company stood at Rs. 5.02 a share during the quarter as against Rs. 4.71 in Q2 FY17.

Net sales and PAT of the company are expected to grow at a CAGR of 6% and 7% over 2017 to 2019E, respectively.

MUNJAL SHOWA LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Munjal Showa Ltd 278.45 11137.03 15.43 18.05 2.19 200.00 Rico Auto Industries Ltd 102.35 13846.40 2.95 34.69 2.76 75.00 Setco Automotive Ltd 40.90 5464.10 0.28 146.07 2.56 32.50 Subros Ltd 262.50 15753.00 4.22 62.23 4.51 25.00

Results updates- Q2 FY18,

(Rs in million) Sep-17 Sep-16 % Change

Revenue 4152.73 4239.04 (2.04)

Net Profit 200.71 188.41 6.53

EPS 5.02 4.71 6.53

EBIDTA 353.75 344.54 2.67

The company turnover stood at Rs. 4152.73 million for the 2nd quarter of the financial year 2017-18 as against Rs. 4239.04 millions in the corresponding quarter of the previous year. Net profit of the company stood at Rs. 200.71 million as compared to Rs. 188.41 million in the corresponding quarter ending of previous year. Reported earnings per share of the company stood at Rs. 5.02 a share as compared to previous year period. Profit before interest, depreciation and tax is Rs. 353.75 million as against Rs. 344.54 million in the corresponding period of the previous year, an increase of 2.67%.

Break up of Expenditure

% Q2 FY18 Q2 FY17 (Rs in million) CHNG

Cost of Material 3059.10 2830.80 8% Consumed

Excise duty on sales 0.00 347.11 --

Employee Benefit 312.70 290.76 8% Expenses Depreciation & Amortization 72.83 74.43 -2% Expenses

Other Expenses 471.14 449.28 5%

Established in 1985, in technical and financial collaboration with Showa Corporation of Japan, the pioneering global leaders in the manufacture of shock absorbers, Munjal Showa Limited is a member of Hero Group.

Munjal Showa Limited in its joint venture with Showa Corporation, designs and manufacturers shock absorbers and struts for leading two-wheelers and four-wheelers. The Company’s manufacturing facilities located at Gurgaon, Haridwar and Manesar continue to maintain and uphold the prestigious ISO/TS 16949:2009, ISO 14001:2004 and OHSAS 18001: 2007 (Occupational Health & Safety Assessment Series) certifications from reputed leading Indian and International Certification Institutions.

Today Munjal Showa Limited is one of the largest suppliers of shock absorbers to major auto giants in India, Japan, Germany, the United States and the United Kingdom, amongst other developed markets.

Munjal Showa Limited has established a strong foothold in the auto ancillaries manufacturing market and enjoys a wide patronage. Munjal Showa products serve as original equipment to a wide range of Maruti Suzuki upper end cars and export models, Honda City car, complete range of Hero Honda Motorcycles, Kawasaki Bajaj Motorcycles, Kinetic Scooters and Hero range of mini-motorcycles and mopeds and Honda Motorcycles and Scooters India (Pvt) Limited. In over a decade the Company’s state-of-the-art Shock Absorbers, Front Fork, Struts and Window Balancers/Gas Springs have become symbols of reliability and quality for popular two and four wheeled vehicles.

Balance Sheet as of March 31, 2016 -2019E FY16A FY17A FY18E FY19E SOURCES OF FUNDS Shareholder's Funds Share Capital 79.99 79.99 79.99 79.99 Reserves and Surplus 4449.21 5014.73 5669.83 6412.90 1. Sub Total - Net worth 4529.20 5094.72 5749.82 6492.89 Non Current Liabilities Deferred Tax Liabilities [Net] 65.96 5.58 12.55 14.81 Long Term Provisions 32.76 35.96 59.33 80.10 2. Sub Total - Non Current Liabilities 98.72 41.54 71.89 94.91 Current Liabilities Trade Payables 1329.72 1353.78 1884.49 2293.52 Other Current Liabilities 73.41 70.56 158.76 203.22 Short Term Provisions 64.29 148.81 130.95 141.43 3. Sub Total - Current Liabilities 1467.42 1573.15 2174.20 2638.17 Total Liabilities (1+2+3) 6095.34 6709.40 7995.90 9225.97 APPLICATION OF FUNDS Non-Current Assets Fixed Assets Tangible Assets 1955.18 1765.69 1801.00 1909.06 Intangible Assets 19.69 13.82 14.65 15.38 Capital work-in-progress 26.15 28.85 30.00 33.60 a) Sub Total - Fixed Assets 2001.02 1808.35 1845.65 1958.04 b) Non Current Investments 0.00 100.80 383.04 444.32 c) Long Term Loans and Advances 499.70 531.40 563.29 608.35 d) Other non-current assets 0.00 0.00 5.67 6.64 1. Sub Total - Non Current Assets 2500.72 2440.56 2797.64 3017.35 Current Assets Current Investments 818.92 1543.90 1634.28 1765.02 Inventories 631.34 618.83 594.08 623.78 Trade receivables 1991.07 1941.80 2815.61 3641.06 Cash and Bank Balances 24.26 62.12 60.26 75.32 Short-terms loans & advances 128.97 102.14 93.97 103.36 Other current assets 0.08 0.06 0.06 0.07 2. Sub Total - Current Assets 3594.62 4268.85 5198.26 6208.62 Total Assets (1+2) 6095.34 6709.41 7995.90 9225.97

Value(Rs.in.mn) FY16A FY17A FY18E FY19E Description 12m 12m 12m 12m Net Sales 15018.37 14596.59 16056.25 17822.44 Other Income 53.00 160.99 173.87 184.30 Total Income 15071.37 14757.58 16230.11 18006.73 Expenditure -13898.62 -13650.39 -14980.48 -16610.51 Operating Profit 1172.75 1107.19 1249.64 1396.22 Interest -1.22 -0.54 -0.54 -0.54 Gross profit 1171.53 1106.65 1249.10 1395.68 Depreciation -292.98 -290.62 -305.15 -326.51 Profit Before Tax 878.54 816.03 943.94 1069.17 Tax -267.02 -250.51 -288.85 -326.10 Net Profit 611.52 565.52 655.10 743.07 Equity capital 79.99 79.99 79.99 79.99 Reserves 4449.21 5014.73 5669.83 6412.90 Face value 2.00 2.00 2.00 2.00 EPS 15.29 14.14 16.38 18.58

Quarterly Profit & Loss Statement for the period of 31st Mar, 2017 to 31st Dec, 2017E

Value(Rs.in.mn) 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17E Description 3m 3m 3m 3m Net sales 3572.08 4291.07 4152.73 3903.57 Other income 34.99 55.35 41.65 45.40 Total Income 3607.07 4346.41 4194.38 3948.96 Expenditure -3390.92 -4024.43 -3840.63 -3630.32 Operating profit 216.15 321.98 353.75 318.64 Interest -0.30 -0.72 -0.10 -0.11 Gross profit 215.85 321.26 353.65 318.54 Depreciation -72.54 -71.42 -72.83 -75.74 Profit Before Tax 143.30 249.84 280.83 242.80 Tax -46.70 -73.43 -80.12 -73.33 Net Profit 96.60 176.42 200.71 169.47 Equity capital 79.99 79.99 79.99 79.99 Face value 2.00 2.00 2.00 2.00 EPS 2.42 4.41 5.02 4.24

Particulars FY16A FY17A FY18E FY19E

EPS (Rs.) 15.29 14.14 16.38 18.58 EBITDA Margin (%) 7.81% 7.59% 7.78% 7.83% PBT Margin (%) 5.85% 5.59% 5.88% 6.00% PAT Margin (%) 4.07% 3.87% 4.08% 4.17% P/E Ratio (x) 18.21 19.69 17.00 14.99 ROE (%) 13.50% 11.10% 11.39% 11.44% ROCE (%) 32.36% 27.44% 27.04% 26.53% Debt Equity Ratio 0.00 0.00 0.00 0.00 EV/EBITDA (x) 9.48 10.00 8.86 7.92 Book Value (Rs.) 113.24 127.38 143.76 162.34 P/BV 2.46 2.19 1.94 1.72

Charts

. At the current market price of Rs.278.45, the stock P/E ratio is at 17.00 x FY18E and 14.99 x FY19E respectively.

. Earning per share (EPS) of the company for the earnings for FY18E and FY19E is seen at Rs. 16.38 and Rs. 18.58 respectively.

. Net sales and PAT of the company are expected to grow at a CAGR of 6% and 7% over 2017 to 2019E, respectively.

. On the basis of EV/EBITDA, the stock trades at 8.86 x for FY18E and 7.92 x for FY19E.

. Price to Book Value of the stock is expected to be at 1.94 x and 1.72 x for FY18E and FY19E respectively.

. Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 per cent of the country’s Gross Domestic Product (GDP). The Two Wheelers segment with 81 per cent market share is the leader of the Indian Automobile market owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector. The overall Passenger Vehicle (PV) segment has 13 per cent market share. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the Two Wheeler (2W) and Four Wheeler (4W) market in the world by 2020.

The auto industry produced a total 19.84 million vehicles in April-January 2016, including passenger vehicles, commercial vehicles, three wheelers and two wheelers, as against 19.64 million in April-January 2015. The domestic sales of Commercial Vehicles increased by 9.43 per cent in April-January 2016 over the same period last year. Sales of Medium & Heavy Commercial Vehicles (M&HCVs) increased at 30.19 percent.

The Indian auto-components industry can be broadly classified into the organized and unorganized sectors. The organized sector caters to the Original Equipment Manufacturers (OEMs) and consists of high-value precision instruments while the unorganized sector comprises low-valued products and caters mostly to the aftermarket category.

Over the last decade, the automotive components industry has scaled three times to US$ 39 billion in 2015-16 while exports have grown even faster to US$ 10.8 billion. This has been driven by strong growth in the domestic market and increasing globalisation (including exports) of several Indian suppliers.

According to the Automotive Component Manufacturers Association of India (ACMA), the Indian auto-components industry is expected to register a turnover of US$ 100 billion by 2020 backed by strong exports ranging between US$ 80- US$ 100 billion by 2026, from the current US$ 11.2 billion.

Document code: FOTL_301020177_2 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved The cumulative Foreign Direct Investment (FDI) inflows into the Indian automobile industry during the period April 2000 – March 2016 were recorded at US$ 15.07 billion, as per data by the Department of Industrial Policy and Promotion (DIPP).

Government Initiatives

The Government of India’s Automotive Mission Plan (AMP) 2006–2016 has come a long way in ensuring growth for the sector. It is expected that this sector's contribution to the GDP will reach US$ 145 billion in 2016 due to the government’s special focus on exports of small cars, multi-utility vehicles (MUVs), two and three-wheelers and auto components. Separately, the deregulation of FDI in this sector has also helped foreign companies to make large investments in India. The Government of India’s Automotive Mission Plan (AMP) 2016–2026 envisages creation of an additional 50 million jobs along with an ambitious target of increasing the value of the output of the sector to up to Rs 1,889,000 crore (US$ 282.65 billion).

Outlook

The Indian auto component industry is cautiously optimistic about clocking a high single digit growth this year as the automobile sector shows signs of recovery across segments. Auto Components Manufacturers Association of India (ACMA) expects the domestic market to continue to be the bulk contributor to the business even as it looks for an uptick in exports.

The rapidly globalising world is opening up newer avenues for the transportation industry, especially while it makes a shift towards electric, electronic and hybrid cars, which are deemed more efficient, safe and reliable modes of transportation. Over the next decade, this will lead to newer verticals and opportunities for auto component manufacturers, who would need to adapt to the change via systematic research and development.

The Indian auto-components industry is set to become the third largest in the world by 2025. Indian auto-component makers are well positioned to benefit from the globalisation of the sector as exports potential could be increased by up to four times to US$ 40 billion by 2020. However, stronger sales over the past few years have caused renewed optimism. India is also a substantial auto exporter, with solid export growth expectations for the near future. Looking at the facts, there are ample reasons to be optimistic about the automotive industry’s future in India.

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Exposure/Interest to Sectors company/sector Under Name of the Analyst Qualifications Covered Coverage in the Current Report Dr.C.V.S.L. Kameswari M.Sc, PGDCA, Pharma & No Interest/ Exposure M.B.A, Diversified Ph.D (Finance) U. Janaki Rao M.B.A Capital No Interest/ Exposure Goods B. Anil Kumar M.B.A Auto, IT & No Interest/ Exposure FMCG M. Vijay M.B.A Diversified No Interest/ Exposure CH. Shailaja M.B.A Diversified No Interest/ Exposure V. Harini Priya M.B.A Diversified No Interest/ Exposure MD. Naveed M.B.A Diversified No Interest/ Exposure A. Bhikshapathi M.B.A Diversified No Interest/ Exposure

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