4QFY2015 Result Update| Rubber-Retreading

April 13, 2015

Indag Rubber

BUY

Performance Highlights

CMP
Target Price

17.5

15.0

253

16.2

133

49.6

27.7

Source: Company, Angel Research

For 4QFY2015, Indag Rubber (IRL)s top-line and bottom-line performance has
come in better than our expectation. The company reported a top-line growth of
18% yoy, while its bottom-line grew by 49.6% yoy on back of overall improvement
in operating margin.
Strong top-line growth: For the quarter, the company reported a top-line growth
of 18.1% yoy to ~`66cr, vs our expectation of ~`59cr, on the back of
improvement in industrial activity in the country. Higher utilization in the
transportation segment led to higher sales growth in retreading products.
Strong operating performance, higher other income and lower tax rate boost
profitability: For the quarter, the companys bottom-line came in at ~`9cr, up
49.6% yoy, owing to improvement in operating margin, higher other income of
~`0.6cr as against ~`0.3cr in 4QFY2014, and a lower tax rate (down 301bp yoy).
Outlook and Valuation: Going ahead, we expect IRL to report a top-line CAGR of
16.5% over FY2015-17E to ~`329cr owing to recovery in commercial vehicle
(CV) volumes in the domestic market. The CV segment reported improved sales
growth of 5.4% yoy in 4QFY2015. A recovery in CV volumes will aid the company
considering that ~85% of IRLs revenue comes from the medium & heavy
commercial vehicle (MHCV) segment and ~5% of its revenue comes from the
light commercial vehicle (LCV) segment. Going ahead, the company would
improve its volume growth in the treading segment on back of growth in road
freight with growth in economic activity, increase in organized players market
share, strong distribution network, and a strong brand. We expect IRL to report a
net profit CAGR of 11.5% over FY2015-17E to ~`40cr. Hence, we recommend a
Buy rating on the stock with a target price of `1,234.

Key financials
Y/E March (` cr)
Net sales
% chg
Net profit
% chg
EBITDA margin (%)
EPS (`)
P/E (x)
P/BV (x)
RoE (%)
RoCE (%)
EV/Sales (x)
EV/EBITDA (x)

FY2014
232
(1.2)
28
10.3
16.0
52.5
20.3
5.4
26.7
33.7
2.2
13.9

FY2015
242
4.1
33
18.3
17.0
62.1
17.2
4.3
25.2
30.3
2.0
12.0

Source: Company, Angel Research, Note: CMP as of April 13, 2015

Please refer to important disclosures at the end of this report

FY2016E
283
17.0
34
4.3
17.0
64.8
16.5
3.6
21.8
28.8
1.7
9.9

FY2017E
329
16.0
40
19.1
17.2
77.1
13.8
3.0
21.6
28.3
1.4
8.2

Stock Info
Sector

Rubber-Retreading

Market Cap (` cr)

560

Net Debt (` cr)

(68)

Beta

0.9

52 Week High / Low

1,100 / 281

Avg. Daily Volume

5,540

Face Value (`)

10

BSE Sensex

29,044

Nifty

8,834

Reuters Code

IDGR.BO

Bloomberg Code

IDR@IN

Shareholding Pattern (%)

Promoters

74.8

MF / Banks / Indian Fls

0.0

FII / NRIs / OCBs

1.0

Indian Public / Others

24.3

Abs. (%)

3m

1yr

Sensex

6.2

28.4

69.9

22.0 216.2

403.4

IRL

3yr

3-year price chart

1,200
1,100
1,000
900
800
700
600
500
400
300
200

Mar-15

19.2

Jan-15

10.1

10

Feb-15

60

38.0

Dec-14

18.1

12 Months

Oct-14

56

12

Investment Period

Nov-14

% qoq

Sep-14

66

EBITDA
PAT (Reported)

3QFY15

Jul-14

Revenue
OPM (%)

% yoy

Aug-14

4QFY14

May-

4QFY15

Jun-14

(` cr)

Apr-14

Quarterly Results

`1,066
`1,234

Source: Company, Angel Research

Amarjeet S Maurya
022-39357800 Ext: 6831
amarjeet.maurya@angelbroking.com

Indag Rubbers | 4QFY2015 Result Update

Exhibit 1: Quarterly Performance

Y/E March (` cr)

4QFY15

4QFY14

% yoy

3QFY15

% qoq

FY2015

FY2014

% chg

Net Sales

66

56

18.1

60

10.1

242

232

4.2

Consumption of RM

42

37

11.3

39

6.3

157

154

1.5

63.2

67.1

64.7

66.4

17

15

7.1

6.8

7.2

6.6

(% of Sales)
Staff Costs
(% of Sales)
Operating Expense

65.5
23.7

4.8

7.4

12.2

11.2

Total Expenditure

54

47

14.6

50

Operating Profit

12

38.0

10

17.5

15.0

Interest

129.8

Depreciation

(12.3)

101.6

30.2

11

44.1

10

20.2

(% of Sales)

OPM (%)

Other Income
PBT
Ext Income/(Expense)
PBT (incl. Ext Items)
(% of Sales)
Provision for Taxation
(% of PBT)

29.1

23.4

27

26

11.1

11.0

8.4

201

195

3.0

19.2

41

37

10.1

17.0

16.0

359.5

(22.2)

120.4

42

36

16.7

10.9

16.2

11

17.5

14.3

17.4

20.5

44.1

9.6

361.8

16.0
23.0

14.4

(5.9)

22.3

42

36

17.4

15.5

22.5

23.5

5.3

16.7
11.7

Minority Interest
Recurring PAT
PATM

14.4

11.4

0.5

0.5

18.1

12.1

49.6

27.7

12.4

33

28

13.5

11.9

33

28

0.5

0.5

62.1

52.5

18.3

Exceptional items
Reported PAT
Equity shares (cr)
FDEPS (Rs)

49.6

27.7

0.5
49.6

14.2

27.7

18.3
18.3

Source: Company, Angel Research

Improvement in industrial activities aids overall top-line growth

During the quarter, the company reported a top-line growth of 18.1% yoy to
~`66cr, vs our expectation of ~`59cr, on the back of improvement in industrial
activities in the country. Higher utilization in the transportation segment led to
higher sales growth in retreading products.

April 13, 2015

Indag Rubbers | 4QFY2015 Result Update

Exhibit 2: Net Sales growth trend

68

12

10.1

10

66

(` cr)

62

5.8

4.4

4.1

6
2.4

60

0.4

58

2
0

(2.1)

(2)

56

(4)

54
52
50

(%)

64

(7.7)
58

62

(6)

57

56

58

58

60

(8)

66

(10)

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15

Net Sales
QoQ growth(%)

Source: Company, Angel Research

Operating margins remain high due to lower raw material costs

The company reported an operating profit of ~`12cr for the quarter, up 38% yoy.
The operating margin expanded significantly by 253bp yoy. Raw material costs as
a percentage of sales declined by 389bp yoy on back of effective cost
management strategy including cost savings in raw materials through research &
development (R&D).

Exhibit 3: Operating profit margin trend

18
17.6

18
17

(%)

17

17.5

17.2
16.5

16.3

16
16

16.2

15.3

15

15.0

15
14
1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

Source: Company, Angel Research

Strong operating performance, higher other income, and lower

tax rate boost profitability
The net profit for the quarter came in at ~`9cr, up 49.6% yoy, due to strong
top-line growth and operating performance. Moreover, higher other income
(of ~`0.6cr as against ~`0.3cr in 4QFY2014) and a lower tax rate (down 301bp
yoy) aided the bottom-line.

April 13, 2015

Indag Rubbers | 4QFY2015 Result Update

Exhibit 4: Net Profit trend

26.8

10

27.7

(` cr)

20
10.8

9.0

5.4

10

0.8

4
3

(10)

(15.2)

(17.8)

2
1
0

(%)

30

(20)
7

(30)

1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15

Net Profit
QoQ growth(%)

Source: Company, Angel Research

April 13, 2015

Indag Rubbers | 4QFY2015 Result Update

Investment rationale
Growth to be driven by shift in trend from unorganized to
organized sector
The current tread manufacturing industrys size is of ~`3,200cr, almost equally
shared by unorganized and organized players. The tread manufacturing industry
grew at a CAGR of ~5% over FY2011-14. Going forward, we believe the industry
would outperform its historical growth, owing to improved economic activity and
increase in penetration levels considering that the current penetration levels are
lower than in developed countries. Further, we also believe that the organized
sector would gain market share from unorganized players due to shift in consumer
preference for quality retreading products. Also, implementation of the GST, going
forward, could reduce the pricing gap between organized and unorganized
players, thereby rendering the organized players pricing equally attractive.
Hence, we believe that IRL is best placed to gain market share on back of better
product quality, being a strong brand in the segment, and with it having a wide
distribution network. Currently the company has 20-22% market share in the
organized cold process market.

Lower penetration levels suggest huge potential for growth

Penetration level of retreading is lower in India as compared to other developed
regions like USA, Europe etc. In India, the penetration level of retreading is at
~40% compared to 100% in USA and ~80% in Europe as stated by the company.
We believe that going forward, penetration of retreading would increase on back
of growth in road freight with improvement in economic activity, improving road
infrastructure, and growing radialisation; demand for retreading will rise as new
radial tryes are expensive and retreading would prove to be a cheaper alternative
towards increasing the life of the tyres.

Focus on expansion of distribution network

To push sales, the company is continuously focusing on increasing dealerships for
its products. Currently, the company has more than 100-150 dealers, 500-600
retreaders, 25 depots pan India and the number is growing rapidly. In the last
2-3 years, the company is increasing its distribution network at an average of 10%.
Going forward too, the company is expected to continue to grow its distribution
network at a similar rate.

Consistent operating margin improvement

IRL has consistently been reporting margin improvement over the last five years on
back of its effective cost management strategy including cost savings in raw
materials through R&D. The company has reported operating margin improvement
from 11.1% in FY2011 to 17.0% in FY2015. We believe that going forward, the
company would continue to deliver a healthy performance on the operating
margin front on the back of lower natural rubber and crude prices and owing to its
effective cost management strategy. However, we have been conservative in
factoring improvement in operating performance in our model.

April 13, 2015

Indag Rubbers | 4QFY2015 Result Update

Outlook and Valuation

Going ahead, we expect IRL to report a top-line CAGR of 16.5% over FY2015-17E
to ~`329cr owing to recovery in commercial vehicle (CV) volumes in the domestic
market. The CV segment reported improved sales growth of 5.4% yoy in
4QFY2015. A recovery in CV volumes will aid the company considering that
~85% of IRLs revenue comes from the medium & heavy commercial vehicle
(MHCV) segment and ~5% of its revenue comes from the light commercial vehicle
(LCV) segment. Going ahead, the company would improve its volume growth in
the treading segment on back of growth in road freight with growth in economic
activity, increase in organized players market share, strong distribution network,
and a strong brand. We expect IRL to report a net profit CAGR of ~11.5% over
FY2015-17E to ~`40cr. Hence, we recommend a Buy rating on the stock with a
target price of `1,234.
Downside risks to our estimates: - 1) increase in competition from unorganized
players could impact overall growth of the company 2) any increase in input costs
(ie increase in natural rubber and crude oil prices, etc.) could negatively impact
profitability, and 3) lower-than-expected CV volume growth could affect business
growth.

Company Background
Indag Rubber is an India-based company. The company manufactures pre-cured
tread rubber, unvulcanized rubber strip gum, universal spray cement, tire
envelopes, repair gum, and other accessories and equipment for the tyre
retreading industry. Close to 90% of the company's revenue is generated from the
sale of pre-cured tread. Indag Rubber distributes its range of products under the
companys three major brands, which include Indag, Zoma and Maxmile. The
company also has an exports business which contributes 2-3% to the total revenue.
The companys manufacturing plant is at Nalagarh, Himachal Pradesh with a
capacity of 13,800MT for tread rubber, 1,800MT for rubber strip gums, and
1,800KL for rubber cement.

April 13, 2015

Indag Rubbers | 4QFY2015 Result Update

Profit & Loss Statement

Y/E March (` cr)
Total operating income

216

235

232

% chg
Total Expenditure

44.0

8.8

186

201

Cost of Materials

156

Personnel
Others
EBITDA

FY2015 FY2016E FY2017E

242

283

329

(1.2)

4.1

17.0

16.0

195

201

235

272

164

154

157

184

213

11

13

15

17

22

26

20

23

26

27

29

33

30

35

37

41

48

57

% chg

81.3

14.4

7.9

10.1

17.3

17.5

(% of Net Sales)

14.0

14.7

16.0

17.0

17.0

17.2

Depreciation & Amortisation

28

32

35

39

45

53

% chg

89.1

15.0

8.4

12.4

15.0

18.1

(% of Net Sales)

12.9

13.6

15.0

16.1

15.9

16.2

EBIT

Interest & other Charges

Other Income
(% of PBT)
Share in profit of Associates
Recurring PBT
% chg
Prior Period & Extra. Exp./(Inc.)
PBT (reported)
Tax
(% of PBT)
PAT (reported)
ADJ. PAT
% chg
(% of Net Sales)

April 13, 2015

FY2012 FY2013 FY2014

0.2

3.1

4.0

7.6

7.9

8.6

27

33

36

42

49

58

98.0

21.8

9.5

16.7

15.5

19.1

27

33

36

42

49

58

15

17

22.7

24.1

23.5

22.5

30.0

30.0

21

25

28

33

34

40

21

25

28

33

34

40

94.1

19.6

10.3

18.3

4.3

19.1

9.6

10.6

11.9

13.5

12.0

12.3

Basic EPS (`)

39.8

47.6

52.5

62.1

64.8

77.1

Fully Diluted EPS (`)

39.8

47.6

52.5

62.1

64.8

77.1

% chg

94.1

19.6

10.3

18.3

4.3

19.1

Indag Rubbers | 4QFY2015 Result Update

Balance Sheet
Y/E March (` cr)

FY2012

FY2013

FY2014

FY2015

FY2016E

FY2017E

SOURCES OF FUNDS
Equity Share Capital

Reserves& Surplus

56

76

98

124

151

182

Shareholders Funds

62

82

103

129

156

188

Total Loans

Deferred Tax Liability

64

83

105

131

158

190

Gross Block

44

44

45

48

56

61

Less: Acc. Depreciation

20

21

22

24

27

31

Net Block

24

23

23

24

29

30

Total Liabilities
APPLICATION OF FUNDS

Capital Work-in-Progress
Investments

27

40

63

70

78

Current Assets

62

60

66

71

93

121

Inventories

34

32

32

31

36

44

Sundry Debtors

21

21

26

29

36

45

Cash

11

21

Loans & Advances

Other Assets

Current liabilities

24

28

29

32

39

45

Net Current Assets

39

33

37

39

54

76

Deferred Tax Asset

Mis. Exp. not written off

Total Assets

April 13, 2015

64

83

105

131

158

190

Indag Rubbers | 4QFY2015 Result Update

Cashflow Statement
Y/E March (` cr)

FY2012

FY2013

Profit before tax

27

33

Depreciation

36

42

FY2016E

FY2017E

49

58

(9)

(5)

(1)

(9)

(13)

(1)

(1)

Direct taxes paid

(5)

(7)

(8)

(9)

(15)

(17)

Others

(1)

(0)

(0)

Cash Flow from Operations

16

32

25

34

29

32

(Inc.)/ Dec. in Fixed Assets

(6)

(1)

(4)

(3)

(8)

(5)

(Inc.)/ Dec. in Investments

(1)

(26)

(13)

(23)

(7)

(8)

Cash Flow from Investing

(6)

(27)

(17)

(26)

(15)

(13)

Inc./(Dec.) in loans

(6)

(1)

Dividend Paid (Incl. Tax)

(2)

(4)

(5)

(7)

(7)

(9)

Interest / Dividend (Net)

(1)

(0)

(1)

(0)

(0)

(0)

Cash Flow from Financing

Change in Working Capital

Interest / Dividend (Net)

Issue of Equity

April 13, 2015

FY2014 FY2015E

(9)

(5)

(6)

(7)

(7)

(9)

Inc./(Dec.) in Cash

Opening Cash balances

11

Closing Cash balances

11

21

Indag Rubbers | 4QFY2015 Result Update

Key Ratios
Y/E March

FY2012 FY2013 FY2014 FY2015E

FY2016E

FY2017E

Valuation Ratio (x)

P/E (on FDEPS)

26.8

22.4

20.3

17.2

16.5

13.8

P/CEPS

24.1

20.4

18.6

16.2

15.0

12.7

P/BV

9.1

6.9

5.4

4.3

3.6

3.0

Dividend yield (%)

0.6

0.8

0.9

1.1

1.3

1.6

EV/Sales

2.6

2.3

2.2

2.0

1.7

1.4

18.5

15.4

13.9

12.0

9.9

8.2

6.4

4.8

3.9

3.0

2.4

2.0

EPS (Basic)

39.8

47.6

52.5

62.1

64.8

77.1

EPS (fully diluted)

39.8

47.6

52.5

62.1

64.8

77.1

Cash EPS

44.2

52.3

57.3

65.8

70.8

83.8

6.0

8.0

10.0

12.0

13.6

17.0

117.3

155.5

196.3

246.0

297.1

357.3

ROCE

44.3

39.3

33.7

30.3

28.8

28.3

Angel ROIC (Pre-tax)

45.8

60.3

58.2

63.6

60.0

59.6

ROE

33.9

30.6

26.7

25.2

21.8

21.6

Asset Turnover (Gross Block)

8.9

10.1

10.1

10.1

9.8

10.9

Inventory / Sales (days)

57

49

50

46

47

49

Receivables (days)

36

33

40

44

47

50

Payables (days)

26

22

21

24

26

26

WC cycle (ex-cash) (days)

67

60

69

66

68

73

EV/EBITDA
EV / Total Assets
Per Share Data (`)

DPS
Book Value
Returns (%)

Turnover ratios (x)

April 13, 2015

10

Indag Rubbers | 4QFY2015 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
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Analyst. Angel or its associates/analyst has not received any compensation / managed or co-managed public offering of securities of
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company covered by Analyst and has not been engaged in market making activity of the company covered by Analyst.
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Disclosure of Interest Statement

Indag Rubber

1. Analyst ownership of the stock

No

2. Angel and its Group companies ownership of the stock

No

3. Angel and its Group companies' Directors ownership of the stock

No

4. Broking relationship with company covered

No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Based on expected returns

over 12 months investment period):
April 13, 2015

Buy (> 15%)

Accumulate (5% to 15%)

Reduce (-5% to -15%)

Neutral (-5 to 5%)

Sell (< -15)
11