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Precision Pipes and Profiles
BUY REPORT
Company Description:
Established in the year 1978 as partnership firm with the name of Precision Pipes and Profiles Company and converted into a Public Limited Company in the year 1995 with the name of Precision Pipes and Profiles Co. Ltd., PPAPL is the principal manufacturer of specialized profiles and extruded products in India and supplies to original equipments manufacturers (OEM’s) working in association with companies around the world to create products that satisfy a host of customer requirements.
In January 2008, PPAPL raised Rs 75 crore through an initial public offering priced at `150 per share for expansion costing `106 crore.
The automotive product range includes weather-strips, bodyside moldings, roof trims and moldings, windshield moldings, quarter window trims, door opening trims and fuel hoses. PPAPL is also the largest OEM supplier of Rigid PVC extrusions to all refrigerators and visi-cooler (commercial refrigerators) manufacturers in India. In addition, PPAPL also caters to the furniture, electrical, building and construction industry. It derives more than 90 per cent of its revenues from the automobile segment while the white goods segment accounts for five per cent of its revenues.
Investment Rationale:
PPAPL has seven state of the art manufacturing facilities, which are located in New Delhi and Noida. PPAPL's core competence is in plastic extrusion and injection moulding. It set up a new plant at Badarpur dedicated to electrical outlet system products manufactured under the agreement with Power and Data Corporation, Australia.
Maruti Suzuki, Tata Motors, Honda SIEL, Toyota Kirloskar, TS Techson, Fiat India, Nissan Motors India and General Motors India are PPAPL’s auto clients. PPAPL supplies customised profiles to Godrej, Voltas, Videocon and Carrier Refrigerators.
The present size of the auto components industry in India was $19.2 billion in 2010, which is <1% of the global auto components industry. The Indian auto component industry has been growing at a CAGR 19.2% p.a. for past seven years. It is expected to have 3% share of the global market by 2015-16.
Investments in the auto component industry are estimated at $7.4 billion in 2009- 10, according to ACMA. Seeing the vast potential of the automobile industry, Indian auto component industry has recently increased its Capex by 33% to `9, 000 crore in 2010-11.
In tandem with the surge in vehicle production, the country's auto parts industry is aiming for a growth of around `5 trillion (to $110 billion from $26 billion) by 2020, according to the industry lobby Automotive Component Manufacturers Association of India (ACMA). Of this, domestic demand is expected to account for around `4 trillion, ACMA said in a report at its 50th annual convention.
According to the vision document, the auto components industry will require an investment of at least `1.6 trillion over the next decade to achieve the target. According to the report, jointly prepared with consultancy firm Ernst and Young, the auto parts industry is expected to contribute 3.6% to India's gross domestic product (GDP) in a decade, from 2.1% now.
Automobile industry in India registered a 26.4% growth in sales in 2009-10 making it the second fastest growing market in the world after China. As per industry estimates, India's passenger vehicle sector will grow to around 90 lakh units and the commercial vehicle segment will exceed 22 lakh units a year by 2020.
At present, around 20 lakh passenger vehicles and some 5.3 lakh commercial vehicles are manufactured in India. SIAM (Society of Indian Automobile Manufacturers) has forecast 10-14% growth for the industry for 2010-11. This augurs well for the future prospects of auto component industry.
The improving outlook for the auto component industry owing to the expansion of the auto sector, outsourcing opportunity coupled with increased offtake of vehicles due to easy finance schemes give strong visibility to revenue in the coming years.
At the CMP of `107, the share is trading at a P/E of 5.5x on FY11E and 4.5x on FY12E. We recommend BUY with a target of `140 in the medium term.
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