Talbros Automotive Components Ltd., incorporated in the year 1956, is a Small Cap company (having a market cap of Rs 404.32 Crore) operating in Auto Ancillaries sector.
Talbros Automotive Components Ltd. key Products/Revenue Segments include Gaskets which contributed Rs 271.15 Crore to Sales Value (75.87 % of Total Sales), Forgings which contributed Rs 73.04 Crore to Sales Value (20.44 % of Total Sales), Others which contributed Rs 12.86 Crore to Sales Value (3.59 % of Total Sales), Project Management Fees which contributed Rs .30 Crore to Sales Value (0.08 % of Total Sales)for the year ending 31-Mar-2017.
For the quarter ended 30-09-2017, the company has reported a Consolidated sales of Rs 100.73 Crore, up 25.88 % from last quarter Sales of Rs 80.02 Crore and down -5.12 % from last year same quarter Sales of Rs 106.16 Crore Company has reported net profit after tax of Rs 4.72 Crore in latest quarter.
The company’s top management includes Mr.Amit Burman, Mr.Anil Kumar Mehra, Mr.Anuj Talwar, Mr.Naresh Talwar, Mr.Navin Juneja, Mr.Rajeev Ranjan Vederah, Mr.Rajive Sawhney, Mr.Umesh Talwar, Mr.V Mohan, Mr.Varun Talwar, Mr.Vidur Talwar, Ms.Pallavi Sadanand Poojari. Company has S N Dhawan & Co. as its auditoRs As on 30-09-2017, the company has a total of 12,345,630 shares outstanding.
Key Investment Rationale
- Passenger car segment to drive gasket business revenue. Company is a market leader in the gasket segment with market share of ~38%. While the company enjoys market leadership position in the two-wheeler and the commercial vehicle segment, its presence in the passenger vehicle segment is negligible. Given weak presence in this segment, the company perceives huge growth potential in this segment and thereby considers the passenger vehicle segment as key focus area for growth in the gasket business. Company believes that post coated gasket and heat shields can help them make inroad in the passenger vehicle segment. Company is aiming at 10-15% market share of Rs1.5bn passenger vehicle gasket market.
- Forging business seeing surge in orders. Forging business, that accounts for 19% of consolidated revenues (as per Indian GAAP), is witnessing high growth. In the domestic market, the company has entered with Volvo Eicher and recently received orders from tier one supplier of HMSI. In the international market, TBA received a large order of Rs1.75bn (spanning over 7 years) from BMW. TBA will be a tier II supplier for this order. Company also earned orders from GKM, Italy. Company is adding two more presses (700 ton and 1,000 ton) and the same is expected to be operational by January 2018. Multiple order win gives visibility to strong revenue growth in the forging business.
- Strong revenue traction in joint ventures. TBA has three joint ventures (accounting for ~24% of consolidated revenues under Indian GAAP) - Nippon Leakless Talbros Private Limited (LTL), Magneti Marelli Talbros Chassis Systems Pvt. Ltd., (MMT) and Talbros Marugo Rubber Pvt. Ltd. (TMR). Strong volume growth from Honda two-wheeler and Hero MotoCorp will support growth at LTL. In MMT and TMR, revenue is expected to grow on account of strong volume growth expectation from Maruti Suzuki and new order wins. We forecast 16% revenue CAGR over FY17-FY20E for joint ventures.
- Exports - key focus area for the company. Exports account for ~21%/15% of TBA's standalone/consolidated revenues (as per Indian GAAP). Majority exports happen in the standalone business of gasket and forgings. TBA's management has earmarked exports as key growth area for the company and is targeting strong growth in export revenues over FY18-FY20E. Company has won order from JLR, Kubota Japan, Caterpillar Thailand, Ducati and Mitsubishi, Fuso Japan. TBA is expecting orders from Cummins USA and GE Austria. Company is taking various initiatives to grow its exports across business segments. Various new orders secured by the company in different business segments will drive export revenue growth going ahead.
- EBITDA margin to witness gradual improvement. We expect TBA's EBITDA margin to improve gradually in the coming years. Operating leverage from expected robust growth in revenues, substitution of imported raw material, foray into high margin products and internal efficiencies is expected to help the company expand margins in the coming years. We forecast EBITDA margin to increase from 10.3% in FY17 to 12.1% in FY20E (as per Indian GAAP).
Innovation and Marketing Drive
Talbros Automotive is an industry leader in the manufacturing of Gaskets & Heat Shields, Forgings, Suspension Systems & Modules, Anti Vibration components and Hoses. With experience and expertise, it has established a presence across all auto category from two-wheelers to Farm Equipment. It works in collaboration with Coopers Payen of UK also 3 other strategic partners as a) Nippon Leakless Talbros Pvt Ltd (Japan), b) Magnetic Marelli Talbros Chassis Systems Pvt Ltd (Italy) and c) Talbros Marugo Rubber Pvt Ltd (Japan). The company stands direct beneficiary to Auto demand as well as Make In India for Automotive components.
Management Vision for Long-term
The company’s gasket segment accounts for 38% of total market share and is expected to grow at a CAGR of 10% in preceding few years. With the expectation of stricter environmental laws implementation by 2020, the outlook for its new product Heat Shields will be robust on all counts. The forging business that accounts for 19% of consolidated revenues is witnessing high growth as the company has received an order of Rs.175 crores for a supply of parts to a large German Luxury Car manufacturer. This order will provide operating leverage and will enhance the profitability of the company.
Talbros Automotive successfully completed the partial strategic disinvestment of its noncore materials business assets, which will assist the company in reducing the working capital requirements, exposure to foreign exchange fluctuations and savings on fixed costs.
Management has set is Vision for 2020, wherein its targeting revenues in the range of Rs. 675-725 crores, EBITDA margin of 13-14%, PAT of Rs. 35-40 crores and ROCE of 20% by 2020. Low leverage, higher promoter stake and lower than industry average valuations are factors imperative for investment in the company.
Valuation
Talbros Automotive Components’s stock is now hovering at around -21% below its true value of INR417.15, at the market price of INR336, based on the discounted cash flow model. This price and value mismatch indicates a potential opportunity to buy the stock at a low price. In addition to this, Talbros ’s PE ratio is trading at 20.4x against its auto components peer level of 30.5x, meaning that relative to its comparable set of companies, we may buy this stock at a cheaper price. The company is also in good financial health, with current assets covering liabilities in the near term and over the long run. It’s debt-to-equity ratio of 71% has been falling for the last couple of years indicating its capability to pay down its debt
Risk and Concerns
- Slowdown in domestic automobile demand
- Introduction of electric vehicle
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