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Tube Investments
Part of the Murugappa Group, TI is a diversified company with products in the
consumer, auto, and infrastructure segments. It is a market leader in most of its
businesses —TI and Hero Cycles dominate the bicycle market with a combined
share of 75%, it has a 50% share of the precision tube market, and a 64% share
of the car doorframe market.
Company remains confident about maintaining volumes growth and margins in
future for their engineering and metal formed products, ahead of growth in enduser
industries (Auto & Infrastructure). This is given their focus on increasing
share of Infrastructure in revenue mix (from 30% now to 50%) and strong
market position in niche products. This should allay some investors' concerns on
growth outlook and margins pressure given rising interest rates and its potential
macro impact.
TI is also exploring opportunities in new products like fine blanked chains,
stainless steel tubes, larger diameter precision steel tubes, escalators, railway
wagons and higher-end bicycles (using carbon fibre rather than steel) and
escooters. We believe that some of these initiatives could be an opportunity to
increase revenues significantly, beyond secular growth rates. We have not built
in any of these into our estimates.
Investors' concerns on sustainability of high ROCEs (70%+) for bicycles were
also addressed by the company. They highlighted their initiatives, over last few
years, on distributed manufacturing, distribution ramp up and focus on Specials
category as key to sustainably higher returns.
Some investors discussed their stake in Cholamandalam Finance and whether
they had plans to monetise the same. Management had no comments to make
except that this stake would not come in the way for their own capex plans.
Reiterate Buy rating and SOTP based price target of Rs197 which includes
Rs106 for TII’s investments in Cholamandalam and Mitsui JV for general
insurance at a 50% holding company discount We believe the current price, at
best, reflects only TI’s bicycle (FY10 ROCE of 70%), engineering product
(tubes/strips), and metal formed product (doorframes/wagon sections/chains)
businesses. We do not think it reflects the company’s investment holdings in
Cholamandalam Investment & Finance and in the general insurance business
(through a JV with Mitsui)—worth Rs46/share based on book value and
Rs106/share based on our fair valuation (TI current price is Rs144).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tube Investments
Part of the Murugappa Group, TI is a diversified company with products in the
consumer, auto, and infrastructure segments. It is a market leader in most of its
businesses —TI and Hero Cycles dominate the bicycle market with a combined
share of 75%, it has a 50% share of the precision tube market, and a 64% share
of the car doorframe market.
Company remains confident about maintaining volumes growth and margins in
future for their engineering and metal formed products, ahead of growth in enduser
industries (Auto & Infrastructure). This is given their focus on increasing
share of Infrastructure in revenue mix (from 30% now to 50%) and strong
market position in niche products. This should allay some investors' concerns on
growth outlook and margins pressure given rising interest rates and its potential
macro impact.
TI is also exploring opportunities in new products like fine blanked chains,
stainless steel tubes, larger diameter precision steel tubes, escalators, railway
wagons and higher-end bicycles (using carbon fibre rather than steel) and
escooters. We believe that some of these initiatives could be an opportunity to
increase revenues significantly, beyond secular growth rates. We have not built
in any of these into our estimates.
Investors' concerns on sustainability of high ROCEs (70%+) for bicycles were
also addressed by the company. They highlighted their initiatives, over last few
years, on distributed manufacturing, distribution ramp up and focus on Specials
category as key to sustainably higher returns.
Some investors discussed their stake in Cholamandalam Finance and whether
they had plans to monetise the same. Management had no comments to make
except that this stake would not come in the way for their own capex plans.
Reiterate Buy rating and SOTP based price target of Rs197 which includes
Rs106 for TII’s investments in Cholamandalam and Mitsui JV for general
insurance at a 50% holding company discount We believe the current price, at
best, reflects only TI’s bicycle (FY10 ROCE of 70%), engineering product
(tubes/strips), and metal formed product (doorframes/wagon sections/chains)
businesses. We do not think it reflects the company’s investment holdings in
Cholamandalam Investment & Finance and in the general insurance business
(through a JV with Mitsui)—worth Rs46/share based on book value and
Rs106/share based on our fair valuation (TI current price is Rs144).
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