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TRACTORS INDIA LTD (TIL)
PRICE: RS.406 RECOMMENDATION: BUY
TARGET PRICE: RS.560 FY13E P/E: 6.6X
q TIL has reported Q2FY12 nos in line with our estimates on revenue front;
however significant increase in interest charges resulted in PAT below
estimates.
q Operating margins reduced YoY on account of 1) higher raw material
prices 2) inability of the company take price hike on Caterpillar products.
q We expect the company and peer group business to remain under pressure
over next two quarters. Rising interest rate and input price trend
would remain the key variable to monitor.
q We cut our earnings estimate for FY12 to factor in 1) delay in government
infrastructure projects 2) increasing input prices 3) rising interest
rate scenario; Maintain 'BUY' rating on the company's stock with a one
year DCF price target of Rs 560 (Rs 765 earlier).
Result Highlights
n In Q2FY12, consolidated revenues stood at Rs 3.5 bn driven by Construction and
mining division (CMS). Revenues for CMS division stood at Rs 2.2 bn for the
quarter.
n Power system solution (PSS) division revenues stood at Rs 654 mn bn vis-à-vis Rs
523 mn in Q2FY11. Sluggish public spending on power projects and increasing
interest rates has affected the performance of the division.
n Company is observing meaningful demand for Cranes, Fork lifts and Stackers in
the material handling group. Revenues for the division increased by 14% YoY
n On Consolidated basis, operating margins for the quarter stood at 5.8% vis-à-vis
8.2% in Q2FY11. EBITDA margins for the quarter dropped YoY due to 1) higher
raw material prices 2) inability of the company take price hike on Caterpillar
products
n Interest charges have gone up significantly in the quarter at Rs 67 mn vis-à-vis Rs
40 mn for the company. We believe that the increase in channel inventory has
led to increase in the working capital requirement.
n Company aims to ramp up its equipment rental business, making it an integral
part of operations given its nascent yet promising growth opportunity in the country.
n Company and the peer group have been observing pressure on account of
muted spending on various infrastructure projects. We believe that the equipment
manufacturers are likely to remain under pressure over next few quarters.
Financial Outlook
n In our projected financials, we build revenue growth at 19% CAGR between
FY11-13E driven by 1) expected pick in public spending for infrastructure projects
2) meaningful contribution from material handling solutions division (MHS) where
company has been committing capex to the tune of Rs 2.5 bn over next two
years.
n We believe that the company is likely to continue experience margin pressure
and cut our PAT estimates for FY12 due to 1) increase in input prices 2) rising
interest rates 3) increasing overheads for funding expansion in MHS.
n We forecast EBITDA margin of 8.2% (9.2% earlier) in FY12 and 7.9% in FY13.
Change in Estimates
n We believe that the company is likely to continue experience margin pressure
and cut our PAT estimates for FY12 due to 1) increase in input prices 2) rising
interest rates 3) increasing overheads for funding expansion in MHS.
n In our DCF, we build increase in working capital from 72 days earlier to 80 days
for FY12E.
Valuation and Recommendation
n At current price of Rs.406, company's stock is trading at 6.6x P/E and 4.1x EV/
EBITDA on FY13E earnings.
n We believe that company's stock along with the peer group is likely to
underperform the broader market in near term. However, we opine that the
company is well positioned to benefit from recovery in the infrastructure spending.
We therefore maintain 'BUY' rating on company's stock with a one year
DCF based price target of Rs 560 (Rs 765 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TRACTORS INDIA LTD (TIL)
PRICE: RS.406 RECOMMENDATION: BUY
TARGET PRICE: RS.560 FY13E P/E: 6.6X
q TIL has reported Q2FY12 nos in line with our estimates on revenue front;
however significant increase in interest charges resulted in PAT below
estimates.
q Operating margins reduced YoY on account of 1) higher raw material
prices 2) inability of the company take price hike on Caterpillar products.
q We expect the company and peer group business to remain under pressure
over next two quarters. Rising interest rate and input price trend
would remain the key variable to monitor.
q We cut our earnings estimate for FY12 to factor in 1) delay in government
infrastructure projects 2) increasing input prices 3) rising interest
rate scenario; Maintain 'BUY' rating on the company's stock with a one
year DCF price target of Rs 560 (Rs 765 earlier).
Result Highlights
n In Q2FY12, consolidated revenues stood at Rs 3.5 bn driven by Construction and
mining division (CMS). Revenues for CMS division stood at Rs 2.2 bn for the
quarter.
n Power system solution (PSS) division revenues stood at Rs 654 mn bn vis-à-vis Rs
523 mn in Q2FY11. Sluggish public spending on power projects and increasing
interest rates has affected the performance of the division.
n Company is observing meaningful demand for Cranes, Fork lifts and Stackers in
the material handling group. Revenues for the division increased by 14% YoY
n On Consolidated basis, operating margins for the quarter stood at 5.8% vis-à-vis
8.2% in Q2FY11. EBITDA margins for the quarter dropped YoY due to 1) higher
raw material prices 2) inability of the company take price hike on Caterpillar
products
n Interest charges have gone up significantly in the quarter at Rs 67 mn vis-à-vis Rs
40 mn for the company. We believe that the increase in channel inventory has
led to increase in the working capital requirement.
n Company aims to ramp up its equipment rental business, making it an integral
part of operations given its nascent yet promising growth opportunity in the country.
n Company and the peer group have been observing pressure on account of
muted spending on various infrastructure projects. We believe that the equipment
manufacturers are likely to remain under pressure over next few quarters.
Financial Outlook
n In our projected financials, we build revenue growth at 19% CAGR between
FY11-13E driven by 1) expected pick in public spending for infrastructure projects
2) meaningful contribution from material handling solutions division (MHS) where
company has been committing capex to the tune of Rs 2.5 bn over next two
years.
n We believe that the company is likely to continue experience margin pressure
and cut our PAT estimates for FY12 due to 1) increase in input prices 2) rising
interest rates 3) increasing overheads for funding expansion in MHS.
n We forecast EBITDA margin of 8.2% (9.2% earlier) in FY12 and 7.9% in FY13.
Change in Estimates
n We believe that the company is likely to continue experience margin pressure
and cut our PAT estimates for FY12 due to 1) increase in input prices 2) rising
interest rates 3) increasing overheads for funding expansion in MHS.
n In our DCF, we build increase in working capital from 72 days earlier to 80 days
for FY12E.
Valuation and Recommendation
n At current price of Rs.406, company's stock is trading at 6.6x P/E and 4.1x EV/
EBITDA on FY13E earnings.
n We believe that company's stock along with the peer group is likely to
underperform the broader market in near term. However, we opine that the
company is well positioned to benefit from recovery in the infrastructure spending.
We therefore maintain 'BUY' rating on company's stock with a one year
DCF based price target of Rs 560 (Rs 765 earlier).
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