Kirloskar Pneumatic Co. Ltd Result Update: Q3 FY 12 C.M.P: Rs. 484.15 Target Price: Rs. 547.00 Date: March. 02 nd 2012 BUY Stock Data: SYNOPSIS Sector: Auto Component Kirloskar Pneumatic Co. Ltd. (KPCL), Face Value Rs. 10.00 part of the Kirloskar Group is a 52 wk. High/Low (Rs.) 600.15/375.10 synonym for providing integrated Volume (2 wk. Avg.) 14000 solutions using Compression and BSE Code 505283 Transmission Technologies. Market Cap (Rs in mn) 6216.49 During the quarter ended, the robust Share Holding Pattern growth of Net Profit is increased by 44.79% to Rs. 115.40 million. KPCL has decided to increase the Authorised Share Capital of the Company from Rs. 15 Crores to Rs. 40 Crores subject to the requisite approval of the shareholders. 1 Year Comparative Graph KPCL is one of the core group companies certified with an ISO 9001:2000, ISO 14001:2004, OHSAS 18001:2007 Company. Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 21% over 2010 to 2013E BSE SENSEX Kirloskar Pneum. respectively. Years Net sales EBITDA Net Profit EPS P/E FY 11 4917.30 782.90 439.10 34.20 14.16 FY 12E 6633.90 1148.15 721.79 56.21 8.61 FY 13E 7761.66 1320.10 839.26 65.36 7.41 1 Peer Group Comparison Market Cap. Name of the company CMP(Rs.) (Rs. mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Kirloskar Pneumatic Co 484.15 6216.49 34.20 14.16 3.35 120.00 Amara Raja Batteries 288.55 2464.40 20.09 14.36 3.82 230.00 Bosch Ltd. 7640.55 23990.49 335.03 22.81 5.85 400.00 Lumax Industries Ltd. 403.00 376.71 11.42 35.29 2.57 60.00 Investment Highlights Q3 FY12 Results Update Kirloskar Pneumatic Co. Ltd. has reported net profit of Rs 115.40 million for the quarter ended on December 31, 2011 as against Rs. 79.70 million in the same quarter last year, an increase of 44.79%. It has reported net sales of Rs 1364.00 million for the quarter ended on December 31, 2011 as against Rs 977.10 million in the same quarter last year, a rise of 39.60%. Total income grew by 39.73% to Rs 1393.50 million from Rs.997.30 million in the same quarter last year. During the quarter, it reported earnings of Rs 8.99 a share. Quarterly Results - Standalone (Rs in mn) As At Dec-11 Dec-10 %change Net sales 1364.00 977.10 39.60% PAT 115.40 79.70 44.79% Basic EPS 8.99 6.21 44.79% 2 Break up of Expenditure Segment Revenue Q3 FY12 Particulars (Rs. in mn) Compression Systems 1166.50 Transmission Products 197.50 Total 1364.00 3 Company Profile Kirloskar Pneumatic Company Ltd. (KPCL), part of the Kirloskar Group is a synonym for providing high end integrated solutions using Compression & Transmission Technologies. KPCL was incorporated in 1958. Its diversified solutions portfolio caters to the needs of industries like Petrochemicals, Power, Steel, Cement, Food & Beverage, Defense, Construction & Mining and many more. Kirloskar Pneumatic Company Ltd (KPCL) is one of the core group companies, an ISO 9001:2000, ISO 14001:2004, OHSAS 18001:2007 Company,. The company started its operations with the manufacture of Air Compressors and Pneumatic Tools. New product lines were then added, included Air Conditioning and Refrigeration systems, Marine HVACR, Process Gas systems and Hydraulic Power Transmission machinery. The company has also earned an enviable reputation for its Systems Engineering and Turnkey Project expertise. Business Areas Air Compressor Division ACD offers a wide range of air compressors in 15 product categories. The division has a complete range of air compressors covering reciprocating compressors to the high tech centrifugal type as well as screw type compressors. These compressors cater to needs of diverse industrial segments. These are sub divided in four categories – Reciprocating compressors, Screw compressors, Centrifugal compressors & Ground Support Units (GSU) ACD products are primarily sold and serviced through four regional offices and three branch offices in India and supported by 29 authorized dealers. \ 4 Air Conditioning, Refrigeration & Process Gas Division (ACR & PG) The ACR-PG division has the capability to manufacture Air Conditioning & Refrigeration compressors (equipment group) and offer turnkey system solutions for refrigeration projects and process gas applications. ACR - PG has four Business Groups that function as independent business verticals: Equipment (Compressors for refrigeration system) Refrigeration Systems (Industrial refrigeration packages, Customized turnkey projects, Screw compressor package, Containerized Ice & water chilling plants & Marine HVACR) Process Gas Systems (CNG compression packages & Gas compression packages) Vapour Absorption Chillers (Gas/Oil, Steam, hot-water driven VAC’s). The Projects sub division undertakes turnkey projects where the scope includes planning, designing, manufacturing, installing and commissioning of Refrigeration Systems and Process Gas Systems (PGS). ACR & PG products, including compressors and spares, are marketed and serviced through 27 authorized dealers from across the world. Their sales and service is monitored and supported by 3 Regional Offices, 4 Branch Offices and 4 overseas offices. Transmission Division (TRM) TRM specifically caters to the needs of the Rail, Defence and Non conventional energy sectors. TRM has technological leadership in different types of gears and gear boxes with capacities ranging from sub megawatt to higher megawatt range . 5 Financial Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales 4532.80 4917.30 6633.90 7761.66 Other Income 99.70 96.10 132.22 148.09 Total Income 4632.50 5013.40 6766.12 7909.75 Expenditure -3858.10 -4230.50 -5617.97 -6589.65 Operating Profit 774.40 782.90 1148.15 1320.10 Interest -18.60 -18.70 -14.04 -14.75 Gross profit 755.80 764.20 1134.11 1305.35 Depreciation -73.50 -113.30 -117.60 -124.66 Profit Before Tax 682.30 650.90 1016.50 1180.69 Tax -206.60 -215.90 -294.51 -341.22 Profit After Tax 475.70 435.00 721.99 839.47 Extraordinary Items 3.30 4.10 -0.20 -0.21 Net Profit 479.00 439.10 721.79 839.26 Equity capital 128.40 128.40 128.40 128.40 Reserves 1469.00 1729.00 2450.99 3290.46 Face value 10.00 10.00 10.00 10.00 EPS 37.31 34.20 56.21 65.36 6 Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E Description 3m 3m 3m 3m Net sales 2120.10 1240.20 1364.00 1909.60 Other income 26.40 42.10 29.50 34.22 Total Income 2146.50 1282.30 1393.50 1943.82 Expenditure -1734.40 -1104.70 -1193.90 -1584.97 Operating profit 412.10 177.60 199.60 358.85 Interest -3.30 -3.60 -3.80 -3.34 Gross profit 408.80 174.00 195.80 355.51 Depreciation -27.30 -28.40 -29.20 -32.70 Profit Before Tax 381.50 145.60 166.60 322.80 Tax -121.30 -28.40 -51.20 -93.61 Profit After Tax 260.20 117.20 115.40 229.19 Extraordinary Items 0.00 -0.20 0.00 0.00 Net Profit 260.20 117.00 115.40 229.19 Equity capital 128.40 128.40 128.40 128.40 Face value 10.00 10.00 10.00 10.00 EPS 20.26 9.11 8.99 17.85 7 Key Ratios Particulars FY10 FY11 FY12E FY13E No. of Shares (in mn) 12.84 12.84 12.84 12.84 EBITDA Margin (%) 17.08% 15.92% 17.31% 17.01% PBT Margin (%) 15.05% 13.24% 15.32% 15.21% PAT Margin (%) 10.49% 8.85% 10.88% 10.82% P/E Ratio (x) 12.98 14.16 8.61 7.41 ROE (%) 29.78% 23.42% 27.99% 24.55% ROCE (%) 44.68% 43.88% 45.64% 39.88% Debt Equity Ratio 0.19 0.10 0.08 0.06 EV/EBITDA (x) 8.03 7.94 5.41 4.71 Book Value (Rs.) 124.41 144.66 200.89 266.27 P/BV 3.89 3.35 2.41 1.82 Charts: Net sales & PAT: 8 P/E Ratio(x): Debt Equity Ratio: 9 EV/EBITDA(x): P/BV: 10 Outlook and Conclusion At the current market price of Rs.484.15, the stock is trading at 8.61 x FY12E and 7.41 x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.56.21 and Rs.65.36 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 21% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 5.41 x for FY12E and 4.71 x for FY13E. Price to Book Value of the stock is expected to be at 2.41 x and 1.82 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY ’ in this particular scrip with a target price of Rs. 547.00 for Medium term investment. Industry Overview Indian auto component industry is robustly driven by the growth in demand for automobiles. The sector has become a lucrative business proposition for global players, majorly owing to two factors.