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BIL is one of the leading OHT manufacturers in the world. The company is a major exporter of OHT from India. Exports
account for ~88% of FY11 sales of the company. BIL primarily exports to the European region and the US. It also exports
small quantities to other countries. BIL as mentioned above is a Large Variety Low Volume player. The company has a strong
and competent in house research and development centre, which is constantly involved in developing new designs and sizes
of either existing tyres or designing of new tyres. BIL’s core competency lies in developing these new designs in-house, which
enables it to remain competitive in the international markets. The fact that the company caters to the outsourcing requirements
of the global tyre giants like Michelin and Vredestine coupled with its consistent higher share of exports to the quality
conscious European markets further shows its capabilities and the higher quality of the product supplied by BIL. Currently the
company manufacturers 1900 different types of tyres (stock keeping units) and of this 1100-1200 are in continuous supply.
Furthermore the European markets though currently are in the midst of a spiralling debt crisis, there are continuous efforts by
the Euro zone leaders to pull out of the debt crisis, which could fructify in the near future. Also the company is in the process to
set up new green field facility at Bhuj to manufacture OHT with an installed capacity of 120,000 MTPA, which is likely to go onstream
by FY13. Once operational the new capacities could boost the top line of the company. In addition to this the company
has a wide spread distributor network of 200 distributors spread across the globe.
Natural Rubber is one of the key components required for manufacturing tyre. Natural rubber accounts for ~45% of the total
raw material cost and hence any sharp fluctuation in the natural rubber prices has an impact on the operating margins of the
company. As the company is a net exporter, the imports of raw material provide a natural hedge to the company against any
fluctuation in the currency movement. In addition to this the company has installed captive windmills at Rajasthan, which
generated 5,493,784 KWH of power as of FY11. The power generated through the windmills is used captively and this further
reduces the cost of operations for BIL. Therefore BIL enjoys benefits of a low cost manufacturing destination as against its
global peers. This enables it to price its products lower than its competitors.
In FY12, BIL has guided for a production of 1.3-1.35 lac tonnes (vs 1.115 lac tonnes in FY11). It will in future also focus on
growing infrastructure spend based opportunities in India in addition to exports. BIL could also show consistent growth in
volumes aided by debottlenecking / addition of capacities over the next few years.
At the CMP the stock trades at 7.8x its FY13E EPS. Based on the above we feel that the stock could be bought at the CMP of
Rs.244 and added on dips to Rs.231 (7.8-7.4x FY13E EPS) for a target of 282 (9x FY13E EPS) over the next 1-2 quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BIL is one of the leading OHT manufacturers in the world. The company is a major exporter of OHT from India. Exports
account for ~88% of FY11 sales of the company. BIL primarily exports to the European region and the US. It also exports
small quantities to other countries. BIL as mentioned above is a Large Variety Low Volume player. The company has a strong
and competent in house research and development centre, which is constantly involved in developing new designs and sizes
of either existing tyres or designing of new tyres. BIL’s core competency lies in developing these new designs in-house, which
enables it to remain competitive in the international markets. The fact that the company caters to the outsourcing requirements
of the global tyre giants like Michelin and Vredestine coupled with its consistent higher share of exports to the quality
conscious European markets further shows its capabilities and the higher quality of the product supplied by BIL. Currently the
company manufacturers 1900 different types of tyres (stock keeping units) and of this 1100-1200 are in continuous supply.
Furthermore the European markets though currently are in the midst of a spiralling debt crisis, there are continuous efforts by
the Euro zone leaders to pull out of the debt crisis, which could fructify in the near future. Also the company is in the process to
set up new green field facility at Bhuj to manufacture OHT with an installed capacity of 120,000 MTPA, which is likely to go onstream
by FY13. Once operational the new capacities could boost the top line of the company. In addition to this the company
has a wide spread distributor network of 200 distributors spread across the globe.
Natural Rubber is one of the key components required for manufacturing tyre. Natural rubber accounts for ~45% of the total
raw material cost and hence any sharp fluctuation in the natural rubber prices has an impact on the operating margins of the
company. As the company is a net exporter, the imports of raw material provide a natural hedge to the company against any
fluctuation in the currency movement. In addition to this the company has installed captive windmills at Rajasthan, which
generated 5,493,784 KWH of power as of FY11. The power generated through the windmills is used captively and this further
reduces the cost of operations for BIL. Therefore BIL enjoys benefits of a low cost manufacturing destination as against its
global peers. This enables it to price its products lower than its competitors.
In FY12, BIL has guided for a production of 1.3-1.35 lac tonnes (vs 1.115 lac tonnes in FY11). It will in future also focus on
growing infrastructure spend based opportunities in India in addition to exports. BIL could also show consistent growth in
volumes aided by debottlenecking / addition of capacities over the next few years.
At the CMP the stock trades at 7.8x its FY13E EPS. Based on the above we feel that the stock could be bought at the CMP of
Rs.244 and added on dips to Rs.231 (7.8-7.4x FY13E EPS) for a target of 282 (9x FY13E EPS) over the next 1-2 quarters.
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