Pick of the Week 09 Jan 2017

RETAIL RESEARCH
Banco Products (India) Ltd
Industry CMP Recommendation Add on dips to Sequential Targets Time Horizon
Auto Parts & Equipment Rs. 202 Buy at CMP and add on declines Rs. 184-188 Rs. 225-245 1-2 quarters

HDFC Scrip Code BANPROEQNR Banco Products (India) Ltd (BPIL) incorporated in March 1961 is one of the leading manufacturers of radiators for
automobiles and gaskets with five manufacturing plants located at Vadodara (Gujarat), Jamshedpur (Jharkhand), Rudrapur
BSE Code 500039 (Uttarakhand), Waghodia, Vadodara (SEZ), Zaheerabad (Telangana).
NSE Code BANCOINDIA
Investment Rationale:
Bloomberg BACO IN Recovery in global economy & revival in domestic CV industry to aid growth.
CMP Jan 06 2017 Rs. 202 Leading manufacturer and Supplier to OE for CV, PV, Agri and Industrial products.
Vertically integrated company.
Equity Capital (Rs cr) 14.3
Excellent product development capability and track record enables increasing OEM customers count globally.
Face Value (Rs) 2.0 Increasing contribution from new categories like on-highway and off-way, power generation, farm equipment and
Equity Share O/S(crs) 7.2 construction equipment
Sound Financial Profile, debt free balance sheet, large cash on books and consistent dividend payout.
Market Cap (Rs crs) 1444.7
Book Value (Rs) 96.2 Concerns:
Dependent on Automobile and Industrial Equipment Industry.
Avg. 52 Wk Volumes 51045 Some NRF subsidiaries are still loss making or not operational.
52 Week High 241.5 Volatility in raw material prices and/or Volatility in foreign currency.
Outcome of IT raid at BPIL premises after its name in Panama Paper Leak.
52 Week Low 90.3
View and Valuation:
Shareholding Pattern % (Sept 30, 16) Industry leading performance, strong relationships with OEMs across the world, proven R&D capabilities leading to rising
Promoters 67.9 count of customers, strong financial profile are some factors that could drive BPILs topline and margins going forward. We
expect BPIL could report 13.5% and 11.8% revenue growth in FY17E and FY18E respectively. With low requirements of capex
Institutions 4.7
spend in the near future, BPIL is all set to take advantage of the industrial uptick which is visible in the CV/LCV/HCV/ Tractors
Non Institutions 27.4 segment and its cash flow will be available for distribution to its shareholders.
Total 100.0 Taking into the consideration of rich experience of management, negligible debt status, and available production capacity,
we feel investors could buy the stock at the CMP and add on dips to Rs. 184-188 band (~9.5x Sept FY18E EPS) for sequential
Fundamental Research Analyst targets of Rs 225 (11.5x Sept FY18E EPS) and Rs 245 (12.5x Sept FY18E EPS). At the CMP of Rs 202 the stock trades at 10.3x
Abdul Karim Sept FY18E EPS and ~1.6x Sept FY18 P/BV.
abdul.karim@hdfcsec.com

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Financial Summary- Consolidated

Particulars (Rs cr) Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%) FY15 FY16 FY17E FY18E FY19E
Net Sales 352.4 324.9 17.2% 380.9 -7.5% 1128.8 1204.3 1366.9 1528.2 1693.2
EBITDA 52.0 41.5 29.6% 53.8 -3.3% 102.1 146.3 178.9 201.7 214.2
APAT 32.0 24.9 63.1% 40.7 -21.3% 87.7 89.9 118.5 135.2 144.7
Diluted EPS (Rs) 4.5 3.5 63.1% 5.7 -21.3% 12.3 12.6 16.6 18.9 20.2
P/E (x) 16.5 16.1 12.2 10.7 10.0
ROCE (%) 19.0% 16.9% 20.3% 21.1% 20.6%
RoE (%) 14.1% 13.1% 15.5% 15.9% 15.3%
(Source: Company, HDFC sec)
Company Profile:
Banco Product (India) Ltd (BPIL) was incorporated on March 16, 1961, it is one of the leading manufacturers of radiators for automobiles and gaskets in India with five
manufacturing plants. BPIL plants are located at Vadodra (Gujarat), Jamshedpur (Jharkhand), Rudrapur (Uttarakhand), Waghodia, Vadodra (SEZ), Zaheerabad
(Telangana). In July 2012, BPIL started its production of radiators from its new manufacturing plant located at EOU at Synefra Special Economic Zone in Vadodra
(Gujarat). As on 31st March 2016, there were 545 people employed in the company.

BPIL has a total installed capacity of 2.1 Million Aluminum and Copper-Brass automotive heat exchangers and 4,000 large industrial heat exchangers per annum. At
present, Company produces over a 1000 varieties of Heat Exchangers (Radiators, Charge Air Coolers and Oil Coolers).
BPIL offers products in various categories, such as cooling systems, sealing gaskets, jointing gaskets and sheets, and rubber products. It designs, develops and
manufactures engine cooling modules and individual cooling products for a range of industries. Its products in cooling systems category include Radiators, Charge Air
Coolers, Oil Coolers and Engine Cooling Assemblies. Its products in sealing gaskets category include Graphite Composite Gaskets, Rubber Cork Gaskets, Rubber
Precoated Beaded Gaskets, Multi Layered Steel (MLS) Gaskets for Cylinder Head and Exhaust Manifold applications, and Copper Gaskets. Its products in jointing
gaskets and sheets category include BNA 3000, BNA 2900 and BNA 2500.
Mr. Mehul K. Patel in Non executive Chairman of BPIL and has been served as an Executive Chairman, Wholetime Director, Vice Chairman and Managing Director of
BPIL over the past. Mr. Patel serves at Banco Aluminium Limited, Nederlandse Radiaturen Fabriek B.V., K K Patel Foundation, Banco Foundation and Lake Minerals
(Mauritius) Limited. He served as Vice Chairman of Banco Products (India) from May 28, 2012 to November 1, 2014.

Its diverse Client Base:

- Includes clients from non-automotive companies in Infra, Railways and Farm Equipment.
- Major customers for Gaskets: Maruti, TATA Motors, Hero, Honda and TVS Group.
- Major customers for Heat Exchangers: TATA Motors, Ashok Leyland, M & M, Koel, TAFE, JCB and Indian Railways

BPILs brand Banco is among the most well known and recognized across India. This helps its sales in the aftermarket segment. Over the years BPIL has strengthened
its market position by adding more OEM customers in sectors like on- road and off- road segments, power generation, farm equipment and construction machinery. It
exports its products to Australia, Germany, Singapore and the UK. As on 31st March 2016, BPIL earns 30% revenue from export.

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Business Overview:

Product Overview:
Cooling System Sealing Gasket Jointing Gasket and Seats, Rubber Products

Multi Layered Steel (MLS) Gaskets for Cylinder

Radiators Head and Exhaust Manifold applications
Charge Air Coolers Graphite Composite Gaskets
Oil Coolers Steel Fibre Composite Gaskets
Engine Cooling Assemblies Compressed Fibre Joining Sheet Gaskets
Rubber Cork Gaskets
Rubber Precoated Beaded Gaskets
Aluminium Edge Moulded Gaskets
Copper Gaskets
Metal wiremesh reinforced Aramid fibres bonded with NBR/SBR
Aramid & synthetic organic fibres bonded with NBR
Aramid fibres bonded with Neoprene (CR)
Aramid fibres & lamerrar graphite bonded with NBR
Glass fibres bonded with NBR
Aramid fibres bonded with NBR, CSM, SBR,
Metal wiremesh reinforced Synthetic
Synthetic / organic fibres bonded with NBR

Revenue Mix Geography Mix

(Source: Company, HDFC sec)

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Subsidiaries:
BPIL Products has three direct subsidiaries:
S.N Company Country Type of company % of share held
1 Nederlandse Radiateuren Fabriek B.V. (NRF) Nederlands Subsidiary 100%
2 Banco Gasket (India) Ltd(BGIL) India Subsidiary 100%
3 Lake Minerals (Mauritius) Ltd (LMML) Mauritius Subsidiary 100%
(Source: Company, HDFC sec)
Nederlandse Radiateuren Fabriek BV (NRF)
Banco Products (India) acquired NRF in February 2010 for 17.7 million (approx Rs 111 cr). NRF and its subsidiaries are engaged in the business of manufacturing and
distribution of heat transfer products. Prior to acquiring NRF, Banco has been supplying its products to NRF over the last 15 years. NRFs products find their way into
many sectors all over the world. Leading car manufacturers, industrial companies, shipyards and of course the aftermarket are numbered among NRFs regular
customers. NRFs production sites and distribution centers are strategically distributed over the whole of Western world.
Lake Minerals (Mauritius) Limited
Lake Minerals (Mauritius) Ltd. has operating subsidiary, Kilimanjaro Biochem Ltd. (Tanzania) (KBL). Lake Minerals owns 95% of the KBL which is the first grass root level
Bio-Chemical manufacturing company in Tanzania. KBLs distillery converts molasses, a waste product from Tanzanian Sugar plants, into Extra Neutral Alcohol (96.4%)
and Technical Grade Alcohol (94%).

Banco Gaskets (India) Ltd.

Gaskets division of the BPIL was transferred to its wholly owned subsidiary company Banco Gaskets (India) Ltd. with effect from 31st March, 2012. Banco Gaskets is
engaged in the manufacturing and selling of gaskets used for automotive industries.
Financials of Wholly owned subsidiaries (NRF, LMML and BGIL):
% of Share Turnover, Rs PBT, Rs PAT, Rs
S.N Company
holding FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16
1 Nederlandse Radiateuren Fabriek B.V. (NRF) 100% 495.41 373.09 420.52 28.27 31.8 16.47 22.65 28.73 14.57
1.1 NRF Thermal Engineering B.V. 100% - 42.86 79.57 - -0.05 0.01 - -0.03 0.01
1.2 NRF France SAPL 100% 84.5 75.35 91.83 3.84 4.37 -0.62 2.79 3.09 -0.09
1.3 NRF(U.K) Ltd 100% 39.28 32.53 34.48 -2.64 -0.38 -5.24 -3.07 -0.43 -5.11
1.4 NRF Handels GmbH 100% 29.01 12.91 0.00 -0.02 1.77 -0.19 -0.03 1.34 -0.16
1.5 NRF Deutschland GmbH 100% 101.49 78.25 94.11 6.37 2.96 -22.2 4.41 2.04 -2.12
1.6 NRF Espana S.A 100% 86.87 75.36 94.09 1.32 6.4 -1.35 0.94 5.06 -0.99
1.7 NRF Poland SP z.o.o 100% 37.11 51.95 114.42 2.61 3.05 3.88 2.1 2.48 2.96
1.8 NRF Italia Srl 100% 42.65 39.13 51.15 0.97 1.21 -14.9 0.58 0.74 -15.3
1.9 NRF Switzerland AG 100% 7.18 4.99 8.43 0.38 0.26 -0.02 0.41 0.21 -0.05
1.10 NRF USA 100% - 0.47 17.61 - 0.07 -0.79 - 0.01 -0.79
2 Lake Mineral (Mauritius) Ltd 100% - 17.67 0.00 -0.65 17.26 -0.13 -0.65 17.26 -0.13
2.1 Kilimanjaro Biochem Ltd - Tanzania 95% 55.39 60.21 44.04 8.41 10.48 10.9 5.86 7.46 7.35
3 Banco Gaskets (India) Ltd 100% 100.78 111.13 122.26 5.5 7.16 13.03 3.75 4.77 9.69
(Source: Company, HDFC sec)

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Competition:
BPIL is one of the leading manufacturers and suppliers of Radiators and Gaskets for commercial vehicles, passenger vehicles and industrial products in India and is also
Indias largest exporter of aftermarket radiators to the Europe, with a growing presence in the North American/Middle-Eastern/African and South American markets. A
number of small players like Fsem Auto Radiators (Vadodra), Laxmi Automobiles (Mumbai), GEW Radiators India Pvt Ltd, Alpha Radiators Pvt. Ltd (Rajkot, Gujarat) and
India Power Corp (Delhi NCR) etc offer competition to BPIL and are trying to capture market share. One of the ranking agencies, Ranker suggests TYC, Koyo, Sunbelt
Radiators, ACDelco, and Mishimoto as a top-5 best radiator brands globally.

Industry Overview:
Indias commercial vehicle cycle seems to have bottomed out and is expected to mend from here on, while passenger vehicles are on the way of growth recovery
led by expansion of road and highways by the government. As per the data provided by SIAM, the overall Commercial Vehicles segment registered a sales growth of
11.5% (volume) in FY16 as compared to same period last year. This growth was led by production of Medium & Heavy Commercial Vehicles which registered 29.9%
growth. The overall passenger vehicles growth was 7.2% in FY16E against the 3.9% of FY15.
The tractor industry sales volumes are expected to grow by mid teen in FY17 compare to 9% de-growth in FY16. A volume CAGR of 8-9% for the tractor industry is
likely to be maintained over the next five years as long term industry derivers remain favorable.
Economic revival and higher infrastructure spending will further help to raise demand for Commercial Vehicles and Construction Equipments resulting in
corresponding demand for BPILs s cooling products which are used by both auto as well as industrial OEMs.

Automotive Radiator Market Trend:

How big will the global market be by year 2020 Opportunities in Key Material type Future growth Belongs to Asia

(Source: GIA, HDFC sec)

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Percentage Split of Volume Production of Automobiles: Road Map to Growth:

(Source: GIA, HDFC sec)

Which Radiator is preferable; Aluminum or Copper?
There are pros and cons to each material. It has been scientifically proven.
Copper actually transfers heat better than aluminum. It is easier to repair in most cases than aluminum and until the last couple of years was much less expensive.
The drawbacks to a copper radiator are the weight difference (aluminum is much lighter) and the solder joints that hold it together.
Aluminum radiators are welded or aluminum brazed and the finished piece is 100% aluminum. This eliminates the dissimilar metals and solders bloom problems
that affect copper radiators.
Most aluminum radiators use 1 wide tubes and some manufacturers like Griffin offer 1.25 and 1.5 tubes as well. Traditional copper radiators usually use tubes
so a 4 row copper radiator has slightly less fin contact area than a 2 row aluminum core with 1 tubes when you take into account the loss of contact area at the
curved ends of the tubes.
Aluminum offers the advantage of about 30% to 40% less weight. To a racer this is a huge advantage over copper. Aluminum can also be polished out to a mirror like
finish for those concerned with show appearance. On average, an OEM aluminum radiator lasts eight to 12 years where as a copper-brass lasts six to 10.
Copper radiator core will turn green and deteriorate rapidly especially in a damp environment. That is why copper radiators have always been painted, usually black.
Aluminum will oxidize if not protected from the elements.
Both metals have pros and cons over the demand, cost, cooling efficiency and corrosions of Radiators. BPIL manufactures and sells both types of radiators in the
market. Aluminum Radiators contributes 79% and Copper Contributes 21% of sales (standalone).

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Investment Rationale:

Recovery in global economy & revival in domestic CV industry to aid growth:

BPIL is a leading exporter of aftermarket radiators to Europe, with a growing presence in the America, Middle East and African markets. BPIL offers complete cooling
modules including steel mounting frame, De-Aeration tank, Fan cowl, Radiator, Condenser, Transmission Cooler, Diesel cooler and Intercooler. BPIL has also started
focusing on non auto sectors like railways, power sector, earth moving and construction segment etc.
The global economy which witnessed couple of difficult years is now showing recovery signs (IMF forecasts global economic growth of 3.1% in 2016 and 3.4% in 2017).
Also, Global car sales have gained momentum this year, posted a solid advance in October, climbing 5% above a year earlier. Asia continued to lead the way, with gains
buoyed by a 23% surge in China. Strengthening labor markets and improving financial conditions suggest that the upswing will continue in 2017. Further, production in
the domestic CV industry (contributes ~80% to domestic revenue) is to grow at a CAGR of ~11% over FY2012-21E to 23.5 lakh units.
Currently low levels of tractor penetration in India, strong governmental focus on availability of finance for agriculture mechanization tools and on rural development
and high irrigation potential will drive the overall growth of the tractor industry. In addition, government initiatives such as the implementation of National Rural
Employment Guarantee Act (NREGA) and increased usage in non-agricultural domains such as haulage in construction and infrastructure projects will further increase
demand of tractors. We believe that once the Indian economy starts recovering BPIL is likely to see a big traction from its industrial customers apart from automotive
customers.
Indian Auto Industry growth over the last decade:
Vehicles FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
PV 7.7% 20.7% 12.3% 0.1% 25.7% 28.2% 4.7% 2.6% -6.8% 3.9% 7.2%
CV 10.2% 33.3% 4.9% -21.7% 38.7% 28.6% 18.2% -2.0% -20.2% -2.8% 11.5%
PV+CV 8.3% 23.7% 10.4% -5.1% 28.3% 28.3% 7.6% 1.5% -9.9% 2.5% 8.1%
Total(PV+CV+3W+2W) 12.8% 13.7% -4.6% 0.7% 26.5% 25.9% 12.2% 2.5% 3.4% 7.1% 3.8%
Tractors 30.0% 18.3% 18.3% 0.1% 26.9% 23.8% 11.5% -2.8% 18.0% -10.0% -8.9%
(Source: SIAM, TMA, HDFC sec)

Despite lower growth in the past two months, in ICRAs view, the M&HCV (Truck) segment is likely to register a growth of 13-15% in FY17 driven by continuing trend
towards replacement of ageing fleet, pre-buying before BS-IV is implemented across India and expectations of pick-up in demand from infrastructure and industrial
sectors led by governments initiatives.
In addition, demand is likely to pick-up for LCV (Goods) segment as well on back of expectation of replacement-led demand (i.e. three years of declining sales), some
pre-buying ahead of the implementation of BS-IV norms (by April 2017) and gradual improvement in viability on back of lower diesel prices (SCV freight rates remain
relatively sticky) and pick-up in consumption-driven sectors.
Overall domestic PV (Passenger Vehicles) segment is likely to register a growth of 10-12% during FY17 as compared to 8.5%-9.5% earlier in the backdrop of improved
customer sentiments post 7thpay commission implementation, normal monsoon after consecutive years of deficient rainfall and expected pickup in economic activity.
Apart from existing order, the domestic bus sales are also likely to benefit from,
(a) Governments recent proposal of opening up the passenger transport sector to private players,
(b) Higher allocation towards urban development projects and other initiatives such as Smart Cities etc.
We expect these factors to aid the companys revenue, which is expected to grow at a CAGR of 10.7% over FY15-19E to Rs 1693.2cr in FY19E.

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Leading manufacturer and Supplier of OE for CV, PV, Agri and Industrial products:
BPIL brand is a respected brand in the market and the brand is in demand over the last 50+ years. BPIL is promoting its brand to every corner of the country as well as
abroad. Company has achieved healthy reputation of being a reliable partner and supplier to OEM customers in almost all sectors. BPIL supplies to most of the OEMs
within India and controls 85% in the OEM segment and has ongoing supplier relationships with both Indian OEMs as well as for Indian affiliates of Japanese/European
MNCs for many of their future projects.
In addition, it enjoys relationships with diverse clients, which includes non-automotive companies in infrastructure, railways and farm equipment segments. The major
customers include companies like Tata Motors, Ashok Leyland, Mahindra & Mahindra, Koel, BEML, TAFE, JCB and Indian Railways. On the back of expected growth in
domestic CV industry, we expect the revenue for the consolidated business to grow at 13.5% and 11.8% to Rs 1367 cr and 1528cr in FY17E and FY18E respectively. BPIL
has not seen pressure of price competition by other peers.
Sales Growth-%

(Source: Company, HDFC sec)

Strong Vertically integrated company:
BPIL employs the state of art manufacturing technologies in its factories conforming to customers quality standards and in accordance with ISO 9001 2008 Certified,
ISO/TS 16949 2009 Certified, ISO 14001 2004 Certified and OHSAS Initiated system requirements. BPIL has designed multiple production line layouts to be able to
process both large quantity orders as well as smaller production orders, simultaneously, to be able to supply the order quantity, within the shortest lead time. All the
manufacturing processes are eco-friendly. To ensure the system of total quality control, the company has invested in In-house R&D Center, Tool Room and Standards
Room. BPILs manufacturing plants are equipped with latest SPM production equipment and sophisticated brazing machines with online controls and error control as
well as monitoring systems. To ensure quality compliance, BPIL produces every critical component like tubing, tanks, and gaskets and fabricated parts In-house.
BPIL plants are located at Vadodara (Gujarat), Jamshedpur (Jharkhand), Rudrapur (Uttarakhand), Waghodia, Vadodra (SEZ), Zaheerabad (Telangana) for production,
design, development and quality assurance. BPIL has the main heat exchanger manufacturing plants in Gujarat and two satellite facilities in Jamshedpur and Rudrapur.
The total installed capacity is 2.1 million aluminum and copper-brass automotive heat exchangers and 4,000 large industrial heat exchangers per annum. BPIL has
installed solar power plant at Lucknow, Zaheerabad for utilizing alternate sources of energy.

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Increasing contribution from new categories like on-highway and off-way, power generation, farm equipment and construction equipment:
BPIL emphasizes on continuous Research & Development, innovation, adoption of new technology and quick product development to lead the market. Key initiatives
are as follow:
Continuous research and development: BPIL has been continuously investing in Research & Development to develop value engineering products. Company has
modernized its manufacturing facilities to enable it to produce complex cooling modules of higher quality standards.
Adoption of new technology and processes: Incremental investments have also been made by the company in equipments and software development for
manufacturing advanced engine cooling products. BPIL is successfully operating SAP (ERP) system with the use of advanced licensed software packages for product
simulation, development and general engineering activities.
Provide training facilities for better customer services: BPIL keeps its manufacturing facilities on constant upgrade and change mode along-with undertaking
continuous skills up-gradation and training for its employees which is recognized by all of its OEM customers during their stringent process audits.
Innovation and quick product development: BPIL keeps its manufacturing facilities on constant upgrade and change mode along-with undertaking continuous skills
up-gradation and training for its employees which is recognized by all of its OEM customers during their stringent process audits.
Collaboration with Japanese company for sales promotion: BPIL has entered into technical as well as financial collaboration with Japan Metal Gaskets Co Ltd, Japan
on January 1995. It helps in developing new cylinder head gaskets for the latest generation Euro 4 / Euro 5 Engines. Japan Metals Gasket currently holds 0.8% stake in
BPIL (down from 1.2%, as on 31st March 2015 and 4.78% in March 2008).

Excellent product development capability and track record enables increasing OEM customers count globally
BPIL has delivered robust performance to its customers, especially to various esteemed Original Equipment Manufacturers (OEM), by designing, developing and
supplying various Engine Cooling modules and Individual Radiators, Charged Air Coolers and Oil Coolers. Due to its excellent product development track record, the
BPIL has become a preferred supplier to most prestigious OEMs who have a global reach.
Bancos wide range of core configurations cover all applications, and enable OEM customers to successfully migrate to Euro IV standards. The company counts Auto
OEMs like Yamaha, Bajaj, Honda, Tata Motors, Maruti Suzuki, M&M, and Ashok Leyland among others as its customers. Industrial OEM customers include names like
Cummins, Indian Railways, Kirloskar Engines, Caterpillar, JCB, John Deere, Bombardier, etc.

Sound Financial Profile and consistent Dividend Payout:

BPIL has registered 6.7% revenue growth in FY16 to Rs 1204 cr, while the profit after tax (PAT) during the same period has grown by 7.5% to Rs 90 crore. Total debtors
as of March 31, 2016 stood at Rs 221 crore (18% of sales) against Rs 176 crore (16% of sales) of March 31, 2015. Debtors Sales Outstanding (DSO) increased from 57
days to 67 days in FY16. Company reported 14.6% (YoY) revenue growth to Rs 733.3cr and 37.4% (YoY) PAT growth in H1FY17.
The debt to equity ratio of the company stands almost negligible at 0.04%. BPIL has no long term debt in his book and also company is reducing its short term debt
over the past few years. Reduction in debt had a cascading effect on the finance cost for the company which more than halved to Rs 3.24 cr in FY16 from Rs 8.38 cr in
FY15. As on 30th Sept 2016, company has cash and cash equivalent per share of Rs 18.4, which is 9% of CMP.
BPIL financial risk profile has historically benefited from a conservative capital structure and cost optimization strategies. Modest, albeit improving, cash accrual and
low capital spending led to build-up of cash and cash equivalent surplus (Rs. 132 cr as on Sept 30, 2016), enhancing liquidity. BPIL Net profit margin stands at 7-8%,
therefore its return ratio looks steady at 13-18% over the previous 5 years.

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BPIL has good track record to pay dividend to its share holders. We expect BPIL could pay dividend Rs 5 and Rs 5.5 per share in FY17E and FY18E respectively. It
recently did not approve a proposal to go for buy-back of shares indicating some other potential use of cash in the near future.
Dividend Payout-% PATM and Returns ratio-%

(Source: Company, HDFC sec)

Risk and Concerns:

Dependent on Automobile and Industrial Equipment Industry:

BPIL largely depends on Automobile and Industrial Equipment Industry in India and these industries have witnessed a slowdown phase over the 5 years. If growth
factors like rise in industry demand and industry growth will not be up to the mark, then again industry could see such a phase in near future. However, management
expects steady improvement in demand in the Industry in FY18. Despite such times in the industry, BPIL has been able to raise its topline by 5.9% CAGR over the FY11-
FY16.
NRF subsidiaries are still loss making or not operational:
As of 31st March 2016, some of the NRF subsidiaries are still loss making or yet to commence operations. Out of 10 subsidiaries only few are operational and reported
profit during the previous year. Company has taken many initiatives to improve the situation during the FY16.
Volatility in raw material prices:
Metals like Copper and Aluminum are the major raw materials used by the company to manufacture its final product, therefore substantial volatility in the prices of
copper and aluminum can impact the companys operating margin adversely. Metal prices are increasing and cost of energy and power are on constant increase.
Volatility in foreign currency:
Fluctuations in forex can also have a negative impact as it may dent the operating levers of the company.
IT raid at BPIL premises after the name in Panama Paper Leak:
Panama Paper leak regarding undisclosed income reveals the name of BPIL promoter; this news could adversely impact the investors sentiment for a while. However,
it is not the "company" which is at the centre of question but its few of the promoter group persons. It may not change the performance of the company. Still, reality
of this news is not verified. Further the IT officials conducted a search /survey operations in BPIL and its promoters in Aug 2016, outcome of which is unknown.

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Frequent changes in CEO in the recent past:

Mr Subhasis Dey Joined as a CEO on Nov 06, 2015 (post redesignation of Mehul Patel from CMD to Executive Chairman and wholetime Director), but resigned wef April
30, 2016. Later Praveen Rao has been appointed as a CEO on November 12, 2016.
.

Why the BPIL stock prices was steady from FY10 to FY13
In July 2010, the BPIL had acquired 51% stake in Lake Cement (a cement manufacturer), BPIL along with its subsidiaries Lake Minerals Ltd. and Nederlandse
Radiateuren Fabriek B.V. sold off their combined holding of 178,956 equity shares in Lake Cements, a project to manufacture cement in Tanzania for total
consideration of US$ 17.7 million (at an ~ premium of 52% over the original investment) in May 14.
BPILs diversification into unrelated business was against the companys strategy and investors confidence, which led to sharp correction in the stock price. Company
in total received Rs 107.25 cr as sales proceeds from sale of its holding in Lake Cements. Post exit from this cement business, BPIL is on the way of utilizing its proceeds
for acquisition in auto component related business in Europe which will further strengthen its foothold in global auto component market.

(Source: Company, HDFC sec)

Key Raw materials Aluminum and Copper Prices over the last 10 years:

(Source: Index Mundi, HDFC sec)

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View and Valuation:

Industry leading performance, strong relationships with OEMs across the world, proven R&D capabilities leading to rising count of customers, strong financial profile
are some factors that could drive BPILs topline and margins going forward. We expect BPIL could report 13.5% and 11.8% revenue growth in FY17E and FY18E
respectively. With low requirements of capex spend in the near future, BPIL is all set to take advantage of the industrial uptick which is visible in the CV/LCV/HCV/
Tractors segment and its cashflow will be available for distribution to its shareholders.

Taking into the consideration of rich experience of management, negligible debt status, and available production capacity, we feel investors could buy the stock at the
CMP and add on dips to Rs. 184-188 band (~9.5x Sept FY18E EPS) for sequential targets of Rs 225 (11.5x Sept FY18E EPS) and Rs 245 (12.5x Sept FY18E EPS). At the CMP
of Rs 202 the stock trades at 10.3x Sept FY18E EPS and ~1.6x Sept FY18 P/BV.

Quarterly Financials Consolidated

Particulars (Rs cr) Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%) H1FY17 H1FY16 YoY (%)
Net Sales 352.4 324.9 17.2% 380.9 -7.5% 733.3 639.8 14.6%
Other Operating Income 6.1 4.2 14.3% 4.8 26.2% 10.9 8.3 31.9%
Total incme from Operations 358.5 329.1 17.2% 385.8 -7.1% 744.2 648.1 14.8%
Raw Material Consumed 188.4 186.0 9.0% 202.7 -7.0% 391.1 352.7 10.9%
Stock Adjustment -6.0 -15.5 142.4% 6.6 -191.8% 0.5 -14.5 103.7%
Employee Expenses 39.8 40.6 1.0% 41.0 -2.9% 80.8 78.4 3.1%
Other Expenses 84.2 76.5 6.9% 81.7 3.1% 165.9 145.3 14.2%
Total Expenses 306.4 287.6 15.4% 331.9 -7.7% 638.4 561.8 13.6%
EBITDA 52.0 41.5 29.6% 53.8 -3.3% 105.8 86.2 22.7%
Depreciation 8.4 8.4 1.3% 8.5 -0.6% 16.9 16.4 3.4%
EBIT 43.6 33.1 36.7% 45.3 -3.8% 88.9 69.9 27.3%
Other Income 3.8 3.6 202.8% 10.9 -65.0% 14.7 6.9 113.8%
Interest 0.5 1.3 -62.4% 0.5 14.9% 1.0 2.3 -55.7%
Profit before Tax 46.9 35.5 57.0% 55.7 -15.9% 102.6 74.5 37.8%
Tax 14.9 10.6 42.8% 15.1 -1.3% 30.0 21.6 38.8%
Reported Profit After Tax 32.0 24.9 63.1% 40.7 -21.3% 72.6 52.9 37.4%
EPS (Adj) 4.5 3.5 63.1% 5.7 -21.3% 10.2 7.4 37.4%
(Source: Company, HDFC sec)
Financials Consolidated

Income Statement Cash Flow

Particulars (Rs in Cr) FY15 FY16 FY17E FY18E FY19E Particulars (Rs in Cr) FY15 FY16 FY17E FY18E FY19E
Net Sales 1128.8 1204.3 1366.9 1528.2 1693.2 EBT 112.8 119.5 159.0 182.8 196.9
Cost of materials consumed 609.2 677.8 732.0 822.2 917.7 Depreciation and Amort- 33.8 34.7 35.2 36.0 36.7

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Changes in inventories 3.4 -49.4 -15.7 -19.1 -16.9 Interest /Dividend paid 8.4 3.2 2.5 2.1 1.7
Employee benefit exp 162.0 156.2 164.0 181.9 203.2 Other Adjustment -62.3 8.3 -25.3 -59.1 -62.3
Other expenses 252.0 273.5 307.7 341.5 375.0 (Inc)/Dec in working Capital 19.7 -63.3 -53.9 -33.2 -20.5
Total Expenses 1026.6 1058.0 1188.0 1326.4 1479.0 Tax Paid -27.6 -33.9 -40.5 -47.5 -52.2
EBITDA 102.1 146.3 178.9 201.7 214.2 CF from Operating Activities 84.8 68.5 76.9 81.0 100.3
Depr- and amort- exp 33.8 34.7 35.2 36.0 36.7 Capital expenditure -24.3 -22.9 -3.0 -5.0 -5.0
EBIT 68.3 111.7 143.7 165.8 177.5 Proceeds from sale of f.a 0.8 2.3 2.0 3.0 4.0
Other income 52.9 11.0 17.8 19.1 21.2 (Purchase)/Sale of Inv 107.2 0.0 0.3 0.0 0.0
Finance cost 8.4 3.2 2.5 2.1 1.7 Others 4.4 4.1 4.4 4.8 5.3
Profit before Tax 112.8 119.5 159.0 182.8 196.9 CF from Investing Activities 88.1 -16.5 3.7 2.8 4.2
Tax Paid 25.2 29.6 40.5 47.5 52.2 Inc/(Dec) in Debt -121.7 18.9 -5.0 -5.0 -5.0
Adjusted PAT 87.7 89.9 118.5 135.2 144.7 Dividend and Interest Paid -14.7 -25.2 -45.4 -49.3 -53.2
EPS 12.3 12.6 16.6 18.9 20.2 CF from Financing Activities -136.5 -6.2 -50.4 -54.3 -58.2
Net Cash Flow 36.4 45.7 30.1 29.5 46.4
Opening Balance 26.6 63.0 108.7 138.9 168.4
Closing Balance 63.0 108.7 138.9 168.4 214.7
(Source: Company, HDFC sec)

Balance Sheet Key Ratios

Particulars (Rs in Cr) FY15 FY16 FY17E FY18E FY19E Particulars FY15 FY16 FY17E FY18E FY19E
EQUITY AND LIABILITIES No of Equity Shares-cr 7.2 7.2 7.2 7.2 7.2
Share capital 14.3 14.3 14.3 14.3 14.3 Enterprise Value-cr 1399.0 1372.2 1337.1 1302.6 1250.7
Reserves and surplus 605.5 673.6 749.1 837.2 930.4
Shareholders funds 619.8 687.9 763.4 851.5 944.7 EPS 12.3 12.6 16.6 18.9 20.2
Long term borrowings 7.8 0.0 0.0 0.0 0.0 Cash EPS (PAT + Depr) 17.0 17.4 21.5 23.9 25.4
Deferred tax liabilities 23.0 21.0 22.0 20.9 19.9 Book Value/Share(Rs.) 86.7 96.2 106.7 119.1 132.1
Long term provisions 3.9 3.9 4.1 4.3 4.5
Non current liabilities 34.6 24.9 26.1 25.2 24.4 PE(x) 16.5 16.1 12.2 10.7 10.0
Short term borrowings 9.6 36.3 31.3 26.3 21.3 P/BV (x) 2.3 2.1 1.9 1.7 1.5
Trade payables 65.1 122.2 112.3 121.4 129.9 Mcap/Sales(x) 1.3 1.2 1.1 0.9 0.9
Other current liabilities 73.1 56.2 61.9 68.0 74.8 EV/EBITDA 13.7 9.4 7.5 6.5 5.8
Short term provisions 19.8 35.1 28.1 30.9 34.0
Current liabilities 167.6 249.8 249.8 249.8 249.8 EBITDAM (%) 9.0% 12.2% 13.1% 13.2% 12.7%
TOTAL 821.9 962.5 1039.3 1126.5 1218.9 EBITM (%) 6.1% 9.3% 10.5% 10.8% 10.5%
ASSETS PATM (%) 7.8% 7.5% 8.7% 8.9% 8.5%
Fixed assets 237.2 224.0 227.0 232.0 237.0
Non-current investments 0.3 0.3 0.3 0.3 0.3 ROCE (%) 19.0% 16.9% 20.3% 21.1% 20.6%
Deferred tax assets (Net) 2.9 6.2 6.8 7.5 8.2 RONW (%) 14.1% 13.1% 15.5% 15.9% 15.3%

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Long-term loans and adv 32.0 36.8 44.2 48.6 53.4

Non-current assets 272.4 267.2 278.2 288.3 299.0 Current Ratio 3.3 2.8 3.0 3.4 3.7
Current investments 0.4 0.3 0.0 0.0 0.0 Quick Ratio 1.8 1.5 1.7 1.9 2.1
Inventories 255.9 327.3 337.0 364.2 385.0
Trade receivables 175.6 220.9 243.4 259.6 269.1 Debt-Equity 0.0 0.1 0.0 0.0 0.0
Cash and bank balances 63.0 108.7 138.9 168.4 215.3
Short-term loans and adv 54.3 33.1 36.5 40.1 44.1
Other current assets 0.4 4.8 5.3 5.9 6.4
Current assets 549.5 695.3 761.1 838.1 919.9
TOTAL 821.9 962.5 1039.3 1126.5 1218.9
(Source: Company, HDFC sec)
One Year forward P/E One Year Price Chart

(Source: Company, HDFC sec)

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Fundamental Research Analyst: Abdul Karim (abdul.karim@hdfcsec.com)

HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumba i 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066
Website: www.hdfcsec.com Email: hdfcsecretailresearch@hdfcsec.com.
____________________________________________________________________________________________________________________________________________________________ _______________________________

"HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475."

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