TRACTORS INDIA LTD (TIL) report by Kotak Sec PDF link

Reduce TRACTORS INDIA LTD (TIL) : TARGET PRICE: RS.310 :: Kotak Securities (PDF Link)

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TRACTORS  INDIA LTD (TIL)
RECOMMENDATION: REDUCE
TARGET  PRICE:  RS.310
FY13E P/E: 8.5X
q TIL has been observing sluggish demand across power system and construction divisions. Muted public spending in various infrastructure
projects viz. roads, power, mining has been affecting company's business.
q Construction and mining division has been severely affected and have resulted in substantial increase in finished goods inventory. Working capital has been soaring through 9MFY12 on account of increasing debtor
days.
q Managements expects operating margins to remain under pressure over
the next two quarters due to 1) volatility in raw material prices 2) inability of the company take price hike on Caterpillar products.
q Demand in Material handling division (MHS) has been resilient through

Buy TRACTORS INDIA : TARGET PRICE: RS.560:: Kotak Sec,

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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).

TRACTORS INDIA:: Management conference call Highlights:: Kotak Sec,

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TRACTORS INDIA LTD (TIL)
 RECOMMENDATION: BUY
TARGET PRICE: RS.850
FY12E P/E: 6.9X
q TIL has been observing sluggish demand for road equipment. However
demand is picking up in other segments like ports.
q Our interaction with the industry majors' viz. IRB, IVRCL has highlighted
positive outlook for the road construction activity in India. Recently NHAI
has also expedited its process of allotment of new road contracts.
q Company's capex has been slightly delayed. Company has spent partly
for the committed capex of Rs 1.5 bn for a Greenfield project at
Khadagpur to increase capacity in the MHS division.
q Management has been exploring various options to raise funds for the
funding of the Capex. It has also taken approval from the shareholders to
raise equity through the QIP route.
q Company is well positioned to benefit from increasing spending on infrastructure
in India. We maintain 'BUY' rating on the company's stock
with a one year price target of Rs 850 in view of significant upside from
current levels.

TIL Limited -Conference Call Transcript: Q3FY11 Results:: Edelweiss

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Questions and Answers
Rahul Gajare: Good afternoon to everybody who has logged into this call of
TIL’s third quarter earnings. From the management we have with us Mr. Aloke
Banerjee, CFO, and Ms. Shreya Mukerji, business analyst. We will have opening
remarks from Mr. Banerjee, after which we will move onto the question and
answer session. Thank you and over to sir.

Buy TIL -Q3FY11; Good show: Edelweiss

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􀂄 Robust revenue; PAT ahead of estimate
TIL reported strong Q3FY11 consolidated revenue growth, at 22% Y-o-Y to INR
3.8 bn, spearheaded by strong growth in material handling systems (MHS) and
construction & mining systems (CMS); these two businesses grew 40% and 55%,
to INR 0.7 bn and INR 1.8 bn, Y-o-Y, respectively. Power solution systems (PSS)
and international subsidiaries recorded flat growth during the quarter, at INR 0.6
bn and INR 0.9 bn, respectively. For 9mFY11, revenue grew 35% Y-o-Y, to INR
10.3 bn, with international subsidiaries up 59% and CMS up 45%. MHS and PSS
grew moderately at 31% and 21%, respectively. EBITDA margin, at 7.8%, was
below our estimate of 8.6%, but PAT ahead, at INR 155 mn.

TIL is planning to raise around Rs 250cr: Angel Broking

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TIL is planning to raise around `250cr
TIL is planning to raise around `250cr for on going capex for setting up a new plant in
Kharagpur, West Bengal. The company plans to expand capacity by setting up a new
manufacturing facility at a total planned capex of `300cr over three phases. The company
has not indicated whether the said amount would be raised through debt or equity. We
believe that given TIL’s comfortable debt:equity position of 0.4x at the end of FY2010, it
would be easy for the company to fund its capex with the help of internal accrual and debt.
At `624, the stock is trading at inexpensive valuations of 6.8x FY2012E earnings. We
maintain our Buy recommendation on the stock with a Target Price of `823.

Buy TRACTORS INDIA LTD (TIL): Target Rs 900; Kotak Securities

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TRACTORS INDIA LTD (TIL)
PRICE: RS.694
RECOMMENDATION: BUY
TARGET PRICE: RS.900
FY12E P/E: 8.8X
q TIL has been observing robust demand across all the business verticals.
MHS division is likely to record meaningful growth in the current year.
q Company's capex has been on track. Company has committed a capex of
Rs 1.5 bn for a Greenfield project at Khadagpur to increase capacity in
the MHS division.

TIL Robust performance :: Q2FY11 :: Edelweiss,

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TIL
Robust performance



􀂄 Robust revenue growth; margins intact
TIL reported strong Q2FY11 numbers. Revenue posted strong growth of 75% Y-o-
Y to INR 3,545 mn. The revenue growth was spearheaded by power solution
systems (PSS) and construction & mining systems (CMS), which catapulted 103%
Y-o-Y and 79% Y-o-Y to INR 1,005 mn and INR 2,016 mn, respectively. The
material handling system (MHS) segment reported decent growth of 30% Y-o-Y.
EBITDA margins remained intact at 8.2% Y-o-Y as increase in raw material cost
(up 230bps Y-o-Y) was offset by decline in employee cost (down 200bps Y-o-Y)
and other expenses (down 160bps Y-o-Y).
􀂄 Lower tax rate; bottom lines zooms
The company reported robust PAT growth of 112% Y-o-Y to INR 143 mn primarily
due to lower tax rate (28.7% against 34.3% in Q2FY10) led by higher revenue
contribution from its Singapore and Myanmar subsidiaries, which have lower tax
rates. Also, lower interest cost aided the strong PAT growth.
􀂄 PSS leads the way; MHS a drag
Strong earnings were driven by the PSS segment, which posted flattish EBIT
margin against a decline in both CMS and MHS segments. While the PSS segment
reported 12% EBIT margin, CMS and MHS reported EBIT margin of 9.8% and
3.5%, respectively. TIL sold 52 cranes during the quarter against 37 last year,
leading to fall in margins in the MHS segment given that it has lower margin in
the cranes and stacker business compared to service business.
􀂄 Ex-principal order book at INR 1.8 bn; strong order inflow
TIL had an unexecuted order book of INR 1.82 bn against INR 1.23 bn in Q2FY10,
a 48% growth Y-o-Y. PSS accounts for 56% (INR 1.02 bn), MHS 20% (INR 0.36
bn) and CMS the balance 24% (INR 0.44 bn). The company reported an order
inflow of INR 2.8 bn during the quarter. Management expects good order inflow
traction in H2FY11.
􀂄 Outlook and valuations: Positive; maintain ‘BUY’
We remain positive on the space TIL operates in and believe future growth will be
aided by improvement in the capex cycle and infrastructure spending. Though
management has guided for stronger growth, we prefer to wait for commissioning
of phase I of its Kharagpur plant to revise our estimates. At our EPS of INR 61.8
and INR 63.9, the stock is trading at 11.4x and 11.0x its FY11E and FY12E
earnings, respectively. We maintain ‘BUY’ recommendation on the stock.

TIL,-‘Til’l long term:: BUY -- Angel Broking,

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TIL, one of the oldest construction equipment (CE) suppliers in India, caters to
requirements of the core sectors of the economy such as power, steel and infra.
With the economy on recovery path and likely strong capex on the infrastructure
and industrial fronts, we expect demand for CE to increase and volume to register
a CAGR of 18% over CY2009-13 v/s 13% during CY2005-09. We believe that
TIL is well placed to capitalise on the burgeoning infra and industrial capex.
Overall, we estimate the company to register a CAGR of 31% in revenues and of
24% in profit over FY2010-12. At `681, the stock is trading at inexpensive
valuations of 7.4x FY2012E earnings. We Initiate Coverage on the stock with a
Buy recommendation and Target price of `823.
Rising infra spend and private capex to boost demand for CE: The demand for
CE is driven by infrastructure spend and private capex. Total infrastructure and
industrial capex is expected to register a CAGR of 13% over FY2010-12
increasing from `532,000cr in FY2010 to `684,400cr in FY2012. CE volume is
expected to log a CAGR of 18% over CY2009-13, as against 13% registered over
CY2005-09. Consequently, total demand for CE is expected to increase from
35,000 units at the end of CY2009 to 68,000 units by CY2013.
In sweet spot: TIL has rich experience of over 66 years in supplying construction
equipment to the core sectors. TIL’s strong product alliance-based portfolio places
it sweet spot to capitalise on the vast upcoming opportunities. Overall, we expect
TIL to register a CAGR of 31% and 24% over FY2010-12 in revenues and profit,
respectively.
Attractive valuation: On the valuation front, at current levels, TIL trades at 7.4x
FY2012E earnings, which is at a discount to peers like Bharat Earth Movers
(BEML) and Action Construction Equipment (ACE) that are trading at 12.4x and
9.9x FY2012E earnings, respectively. Moreover, we believe that the discount in
valuation that the stock fetches due to the perceived risk of termination or
discontinuance of CAT dealership is unwarranted. Also on comparing valuations
of companies operating on franchisee business model, we believe TIL’s valuations
are undemanding.