BUY SUHANI ADILABADKAR RESEARCH REPORT Q3 FY17

WHEELS INDIA LTD

QUARTERLY OUTLOOK & RECOMMENDATION

Wheels India Ltd reported strong yearly growth in December quarter FY17. Revenue or Income From Operations rose 14% YOY from Rs. 4698 Mn to Rs. 5365 Mn in the current Q3 FY17. PAT jumped at a phenomenal growth rate of 121% YOY and stood at Rs. 132 Mn compared to Rs. 60 Mn in the current December quarter. EBDITA stood at Rs. 450 Mn compared to Rs. 380 Mn in the same period previous year growing by 18% YOY. Quarterly growth was somber with Revenue & EBDITA declining 2% whereas Net Profit managed to rise 1% in the current December quarter. Operating Expenditure jumped 14% YOY from Rs. 4473 Mn to Rs. 5076 Mn in the current December quarter. On quarterly basis there was decline of 1.5% to cope with low revenue growth. As a result EBDITA margin declined 2 basis points YOY and was reported at 8.39% in the current December quarter. Operating costs constitute 95% of total revenues. In addition to that, higher interest or Finance costs need to be curtailed and comprise 2% of Revenues or 88% of Net Profit. Net Profit Margin was reported at 2.46% jumping 119 basis points YOY compared to same period previous year. Sequentially there was a jump of 6 basis points. Other Income aided the bottom-line by rising 73% YOY and was reported at Rs. 8.30 Mn compared to Rs. 4.80 Mn corresponding quarter previous year. QOQ, other Income jumped 20% in the current Q3 FY17. Wheels India is a leading manufacturer of steel wheels for passenger cars, utility vehicles, trucks, buses, tractors & construction equipment. Apart from wheels other company divisions are air suspension, energy equipment & heavy engineering division. The wheels division contributes 50% of revenues for the company. Air suspension business has reported strong volume growth in the first nine months of the year. The company has a diversified base with over 30 customers spread globally such as Japan, Korea, US, Brazil, China to name a few. We recommend BUY for the stock for medium & long term investment with PE multiple of 25.80 x FY17E & 22.61 x FY18E with a target price of Rs. 1355.

INDUSTRY

CMP

1269.95

TARGET

1355.00

AUTO PARTS & EQUIPMENT

SCRIP CODE

590073

FACE VALUE

Rs. 10.00

MARKET CAP

Rs. 15277.50 Mn

52 WEEK Rs.1417.00 /Rs.870.00 HIGH/LOW SHAREHOLDING PATTERN (%) PROMOTER 75.00 PUBLIC 25.00 OTHERS TOTAL 100.00 In Mn Q3 FY17 Q3 FY16 CHN% REVENUE

5365.20

4698.40

14%

PAT

132.10

59.80

121%

EBDITA

450.10

379.90

18%

EPS

10.98

4.97

121%

FY16A

FY17E

FY18E

20162.70

21633.90

22715.60

PAT

399.90

592.25

675.79

EBDITA

1743.60

1909.02

2053.84

EPS

33.24

49.23

56.18

PE

38.20

25.80

22.61

In Mn REVENUE

WHEELS INDIA LTD V/S S&P BSE SENSEX

PERFORMANCE METRICS (December Quarter FY17) Profitability Analysis NET PROFIT GROWTH (Rs. In Mn)

180

EBDITA (Rs. In Mn)

170

Q3 FY17

450

Q2 FY17

459

146

160 140

131

132

120 100

Q1 FY17

492

80 60

60 Q4 FY16

505

40 20

Q3 FY16

380

0 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17

Wheels India Ltd reported strong YOY numbers in the December quarter FY17. Revenue rose by 14% YOY from Rs. 4698 Mn to Rs. 5365 Mn in the current December quarter. Net Profit or Profit After Tax in the current Q3 FY17 galloped at 121% from Rs.60 Mn to Rs. 132 Mn in the current December quarter. Earnings Before Depreciation, Interest, Tax & Amortization (EBDITA) also jumped in double digits at 18% and stood at Rs. 450 Mn against Rs. 380 Mn same period previous year. On quarterly front, the company seems to have faltered as Revenue declined 2% YOY and operating cost declined mildly by 1.50% QOQ. As a result EBDITA declined 2 basis points & Net Profit Margin was up 7 basis points QOQ whereas on yearly basis both improved by 30 BP & 119 BP respectively in the current December quarter compared to corresponding previous year. Other Income was reported at Rs. 8.30 Mn against Rs. 4.80 Mn corresponding quarter previous year, rising 73% YOY & 20% sequentially.

0

200

400

600

REVENUE GROWTH (Rs. In Mn)

5600

5457 5366

5400

5340

5365

5200 5000 4800

4698

4600 4400 4200 Q3 FY16

Q4 FY16

Q1 FY17

Q2 FY17

Q3 FY17

OTHER INCOME (Rs. In Mn)

NET PROFIT MARGIN

3.50% Q3 FY17

8.30

Q2 FY17

3.16% 3.00%

2.74% 2.46%

2.50%

6.90

2.40%

2.00% Q1 FY17

9.10 1.50%

-6.90

Q4 FY16

Q3 FY16

1.27%

1.00% 0.50%

4.80

0.00% -10.00

-5.00

0.00

5.00

10.00

Q3 FY16

Q4 FY16

Q1 FY17

Q2 FY17

Q3 FY17

Expenditure Analysis

Rs. In Mn

Cost Of Materials

Q3 FY17

3446.30

Q3 FY16

3032.10

CHG%

14%

COST OF MATERIAL (Rs. In Mn) 3687

4000 3500

3032

3515

3427

3446

3000

Employee Benefit Expenses

623.00

Depreciation & Amortization

152.60

Other expenses

746.30

546.80

14%

2500 2000 1500

150.20

1.60%

1000

500 712.30

5%

0

Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17

Operating cost for the quarter has been controlled by the company and has declined 1.50% QOQ. Cost of Material accounts for the largest chunk i.e 69% rising 14% YOY & 7% sequentially and stood at Rs. 3446 Mn in the current December quarter. Employee Benefit Expenses also grew 14% YOY at Rs. 623 Mn against Rs. 547 Mn same period previous year. Employee Benefit Expenses constituted 13% of total expenditure with quarterly rise of 3% in the current quarter. Other Expenses stood at Rs. 746 Mn compared to Rs. 712 Mn same period previous year. The quarterly fall was 4% whereas YOY rise was 5% in the current December quarter.

DEPRECIATION (Rs. In Mn)

INTEREST EXPENSE (Rs. In Mn) 140

161

162 160

135

160

130

158

155

156

125

154 152

135

153 120

150

150

127 122 117

116

115

148 110

146 144

Q3 FY16

Q4 FY16

Q1 FY17

Q2 FY17

Q3 FY17

TAXATION EXPENSE (Rs. In Mn) 70 63 60

54

50 40

52

49

35

30 20 10 0 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17

105 Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17

EBDITA margin for the current quarter stood at 8.39% compared to 8.09% same period previous year. QOQ, EBDITA margin declined mildly 2 basis points as margin was reported at 8.41% in Q2 FY17. EBDITA margin seems to be under pressure as Revenue declined 2% QOQ though operating cost was kept in check. Operating Expenditure declined 1.50%sequentially but rose 14% YOY. Depreciation constituting 3% of the total expenditure was almost stagnant YOY at Rs.153 Mn rising by just 1.60%. On quarterly terms, decline was 5% in the current December quarter. Interest Expense was reported at Rs. 116 Mn compared to Rs. 135 Mn in corresponding quarter previous year. Interest or finance costs have been declining over the previous four quarters but still accounts for about 88% of the total net profit which is humungous. For taxation, on yearly basis, there is a rise of 39% and

in absolute value about Rs. 14 Mn in the current Q3 FY17. On quarterly basis Taxation expenditure declined 5% or 3 Mn in absolute terms. Net Profit Margin improved by 6 basis points QOQ as Net Profit increased just 1% and Revenue declined 2% in the current quarter. Net Profit Margin stood at 2.46% in the current December quarter against 2.40% previous September quarter. The yearly jump was 119 basis points as Net Profit Margin stood at 1.27% in corresponding December quarter previous year. Total expenditure including interest cost and taxation constituted 98% of the total revenue in the current December quarter against 99% same period previous year.

Corporate Profile Wheels India Limited is promoted by the TVS Group, India’s largest auto component manufacturers. Starting with a bus service in 1911, the TVS Group has grown to become one of India’s largest business houses with businesses in two wheelers, vehicle dealerships & logistics and auto components. Wheels India (established in 1962) is one of the largest steel wheel manufacturers in the world. The company also manufactures air suspension kits for trucks and buses. With over 15% of its turnover coming from exports, particularly from the Construction & Earth Mover equipment segment, it is truly a global player in the auto components industry. Wheels India started production of wheels for commercial vehicles in 1962 at its plant in Padi, Chennai. The company started the production of car and tractor wheels in Padi in 1965. In 1972, the company made a foray into the construction equipment sector with Hindustan Motors (now CAT India). In 1982, the company opened its second facility in Rampur for tractor wheels. Wheels India entered the wire wheel business in 1988 and also entered the air suspension market under the brand “WILRIDE”. In 1998, the company opened a facility in Pune to cater to this growing automotive hub. This facility manufactures wheels for car, trucks and busses. Wheels India is a partner to various Global OEMs like Ford, Hyundai, Tata, Caterpillar, John Deere, Komatsu, Hyundai Heavy Industries, Case New Holland, Leyland, Tafe and Suzuki.

Financial Analysis QUARTERLY PROFIT & LOSS STATEMENT OF WHEELS INDIA LTD FROM 30th June 2016 TO 31st March 2017E

VALUE

30-June-16

30-Sep-16

31-Dec-16

31- March-17E

Rs. In Million

3 months

3 months

3 months

3 months

5339.60

5456.60

5365.20

5472.50

OTHER INCOME

9.10

6.90

8.30

8.55

TOTAL INCOME

5348.70

5463.50

5373.50

5481.05

EXPENDITURE

-4857.00

-5004.70

-4923.40

-4972.63

EBDITA

491.70

458.80

450.10

508.42

DEPRECIATION

-160.90

-159.80

-152.60

-157.18

PROFIT BEFORE INTEREST & TAX

330.80

299.00

297.50

351.24

INTEREST

-122.00

-116.50

-116.20

-113.88

PROFIT BEFORE TAX

208.80

182.50

181.30

237.37

TAX

-62.60

-51.80

-49.20

-54.12

PROFIT AFTER TAX

146.20

130.70

132.10

183.25

EQUITY CAPITAL

120.30

120.30

120.30

120.30

FACE VALUE

10.00

10.00

10.00

10.00

EPS

12.15

10.86

10.98

15.23

INCOME FROM OPERATIONS

ANNUAL PROFIT & LOSS STATEMENT OF WHEELS INDIA LTD FROM 2015 TO 2018E VALUE

31- Mar-15

31- Mar-16

31- Mar-17E

31-Mar-18E

Rs. In Million

12 months

12 months

12 months

12 months

19798.70

20162.70

21633.90

22715.60

OTHER INCOME

26.70

18.60

32.85

44.35

TOTAL INCOME

19825.40

20181.30

21666.75

22759.95

EXPENDITURE

-18297.90

-18437.70

-19757.73

-20706.11

EBDITA

1527.50

1743.60

1909.02

2053.84

DEPRECIATION

-541.40

-604.50

-630.48

-649.39

PROFIT BEFORE INTEREST & TAX

986.10

1139.10

1278.54

1404.45

INTEREST

-590.70

-575.80

-468.58

-482.63

PROFIT BEFORE TAX

395.40

563.30

809.97

921.81

TAX

-98.00

-163.40

-217.72

-246.02

PROFIT AFTER TAX

297.40

399.90

592.25

675.79

EQUITY CAPITAL

120.30

120.30

120.30

120.30

RESERVES

3690.30

3961.30

4553.55

5229.34

FACE VALUE

10.00

10.00

10.00

10.00

EPS

24.72

33.24

49.23

56.18

INCOME FROM OPERATIONS

Ratio Analysis Year

FY 15A

FY 16A

FY 17E

FY18E

EPS

24.72

33.24

49.23

56.18

NPM

1.50%

1.98%

2.74%

2.98%

EBDITA MAGIN

7.72%

8.65%

8.82%

9.04%

ROE

7.80%

9.80%

12.67%

12.63%

BOOK VALUE

316.76

339.29

388.52

444.69

P/BV

4.01

3.74

3.27

2.86

PE

51.37

38.20

25.80

22.61

Industry- Current Scenario The Indian auto-components industry has been exhibiting high growth over the years and accounts for almost 7.50% of our Gross Domestic Product. The industry employs about 20-22 Mn people. The Indian auto-component industry is mainly divided into un-organized & organized sector. The organized sector constitutes the Original Equipment Manufacturers (OEMs) where as the unorganized sector constitutes low-valued products. The automotive components industry has been growing both in exports and domestically driven by strong growth in the domestic market and increasing globalization around the world. The industry is expected to grow by 10 per cent in 2017-18 on account of high domestic demand by Original Equipment Manufacturers (OEM) and rising exports. The Indian automobile market is the fourth largest in the world and accounts for more than 4-5% of the global vehicle sales. India is also becoming a global hub for auto component sourcing due to low cost manufacturing base compared to other western counterparts. In addition to that India is strategically placed geographically as it is closer to key automotive markets i.e Middle East and Europe.

SUHANI ADILABADKAR [email protected] 9701063320

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